Professional Documents
Culture Documents
To have a binding effect on third parties, a contract of pledge must appear in a public
instrument.
FACTS: Petitioner Union Bank is a universal banking corporation organized and existing under
Philippine laws. Respondents Winwood Apparel, Inc. (Winwood) and Wingyan Apparel, Inc.
(Wingyan) are domestic corporations engaged in the business of apparel manufacturing. Both
respondent corporations are owned and operated by respondent Alain Juniat (Juniat), a French
national based in Hongkong. Respondent Nonwoven Fabric Philippines, Inc. (Nonwoven) is a
Philippine corporation engaged in the manufacture and sale of various types of nonwoven
fabrics.
Union Bank filed with the RTC, a Complaint with prayer for the issuance of ex-parte writs of
preliminary attachment and replevin against Juniat, Winwood, Wingyan, and the person in
possession of the mortgaged motorized sewing machines and equipment. Union Bank alleged
that Juniat, acting for and in behalf of Winwood and Wingyan, executed a promissory note and a
Chattel Mortgage over several motorized sewing machines and other allied equipment to secure
their obligation arising from export bills transactions to Union Bank in the amount of
P1,131,134.35; that as additional security for the obligation, Juniat executed a Continuing Surety
Agreement in favor of Union Bank; that the loan remains unpaid; and that the mortgaged
motorized sewing machines are insufficient to answer for the obligation.
RTC issued writs of preliminary attachment and replevin in favor of Union Bank. The writs were
served upon Nonwoven as it was in possession of the motorized sewing machines and
equipment. Although Nonwoven was not impleaded in the complaint filed by petitioner, the RTC
likewise served summons upon Nonwoven since it was in possession of the motorized sewing
machines and equipment.
Nonwoven filed an Answer, contending that the unnotarized Chattel Mortgage executed in favor
of petitioner has no binding effect on Nonwoven and that it has a better title over the motorized
sewing machines and equipment because these were assigned to it by Juniat pursuant to their
Agreement. Juniat, Winwood, and Wingyan, on the other hand, were declared in default for
failure to file an answer within the reglementary period.
Union Bank filed a Motion to Sell Chattels Seized by Replevin, praying that the motorized sewing
machines and equipment be sold to avoid depreciation and deterioration. Before the RTC could
act on the motion, Union Bank sold the attached properties for the amount ofP1,350,000.00.
Nonwowen moved to cite the officers of petitioner in contempt for selling the attached
properties, but the RTC denied the same on the ground that Union Bank acted in good faith.
The RTC of Makati, rendered a Decision in favor of Union Bank. It ruled that both the Chattel
Mortgage in favor of Union Bank and the Agreement in favor of Nonwoven have no obligatory
effect on third persons because these documents were not notarized. However, since the
Chattel Mortgage in favor of Union Bank was executed earlier, it has a better right over the
motorized sewing machines and equipment under the doctrine of "first in time, stronger in right"
(prius tempore, potior jure). Nonwoven moved for reconsideration but the RTC denied the same.
On appeal, the CA reversed the ruling of the RTC. The CA ruled that the contract of pledge
entered into between Juniat and Nonwoven is valid and binding, and that the motorized sewing
machines and equipment were ceded to Nonwoven by Juniat by virtue of a dacion en pago.
Thus, the CA declared Nonwoven entitled to the proceeds of the sale of the attached properties.
Union Bank sought reconsideration which was denied by the CA.
ISSUE: WON Union Bank had a better right over the machineries seized/levied upon in the
proceedings before the trial court and/or the proceeds of the sale thereof;
Petitioners Arguments Echoing the reasoning of the RTC, Union Bank insists that it has a better
title to the proceeds of the sale. Although the Chattel Mortgage executed in its favor was not
notarized, Union Bank insists that it is nevertheless valid, and thus, has preference over a
subsequent unnotarized agreement. Petitioner further claims that except for the said
agreement, no other evidence was presented by Nonwoven to show that the motorized sewing
machines and equipment were indeed transferred to them by Juniat/Winwood/Wingyan.
Respondent Nonwovens Arguments Nonwoven, on the other hand, claims ownership over the
proceeds of the sale under Article 1544 of the Civil Code on double sale, which it claims can be
applied by analogy in the instant case. Nonwoven contends that since its prior possession over
the motorized sewing machines and equipment was in good faith, it has a better title over the
proceeds of the sale. Nonwoven likewise maintains that Union Bank has no right over the
proceeds of the sale because the Chattel Mortgage executed in its favor was unnotarized,
unregistered, and without an affidavit of good faith.
HELD: 1. Union Bank has a better right. Nonwoven is not entitled to the proceeds of the sale of
the attached properties because it failed to show that it has a better title over the same.
Nonwoven lays claim to the attached motorized sewing machines and equipment pursuant to
the Agreement it entered into with Juniat, to wit:
Hong Kong, 9th May, 1992
With reference to talks held this morning at the Holiday Inn Golden Mile Coffee Shop, among the
following parties:
a. Redflower Garments Inc. Mrs. Maglipon
b. Nonwoven Fabrics Phils. Inc. Mr. J. Tan
c. Winwood Apparel Inc./Wing Yan Apparel, Inc. Mr. A. Juniat, Mrs. S. Juniat
IT WAS AGREED THAT: a. Settlement of the accounts between Nonwoven and Winwood Apparel,
should be effected as agreed through partial payment by L/C with the balance to be settled at a
later date for which Winwood Apparel agrees to consign 94 sewing machines, 3 snap machines
and 2 boilers, presently in the care of Redflower Garments to the care of Nonwoven Fabrics
Phils. as guarantee. Meanwhile, Nonwoven will resume delivery to Winwood/Win Yang as usual.
x x x x (Emphasis supplied.)
It insists that since the attached properties were assigned or ceded to it by Juniat, it has a better
right over the proceeds of the sale of the attached properties than petitioner, whose claim is
based on an unnotarized Chattel Mortgage.
We do not agree.
Indeed, the unnotarized Chattel Mortgage executed by Juniat, for and in behalf of Wingyan and
Winwood, in favor of Union Bank does not bind Nonwoven. However, it must be pointed out that
Union Banks primary cause of action is for a sum of money with prayer for the issuance of exparte writs of attachment and replevin against Juniat, Winwood, Wingyan, and the person in
possession of the motorized sewing machines and equipment. Thus, the fact that the Chattel
Mortgage executed in favor of Union Bank was not notarized does not affect Union Banks cause
of action. Union Bank only needed to show that the loan of Juniat, Wingyan and Winwood
remains unpaid and that it is entitled to the issuance of the writs prayed for. Considering that
writs of attachment and replevin were issued by the RTC, Nonwoven had to prove that it has a
better right of possession or ownership over the attached properties. This it failed to do.
A perusal of the Agreement clearly shows that the sewing machines, snap machines and boilers
were pledged to Nonwoven by Juniat to guarantee his obligation. However, under Article 2096 of
the Civil Code, "[a] pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument." Hence, just like the
chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in favor of
Nonwoven cannot bind petitioner.
Neither can we sustain the finding of the CA that: "The machineries were ceded to THIRD PARTY
NONWOVEN by way of dacion en pago, a contract later entered into by WINWOOD/WINGYAN and
THIRD PARTY NONWOVEN." As aptly pointed out by Union Bank, no evidence was presented by
Nonwoven to show that the attached properties were subsequently sold to it by way of a dacion
en pago. Also, there is nothing in the Agreement to indicate that the motorized sewing
machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyans
and Winwoods obligation. It bears stressing that there can be no transfer of ownership if the
delivery of the property to the creditor is by way of security. In fact, in case of doubt as to
whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge
as this involves a lesser transmission of rights and interests.
In view of the foregoing, we are constrained to reverse the ruling of the CA. Nonwoven is not
entitled to the proceeds of the sale of the attached properties because it failed to show that it
has a better title over the same.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision and the Resolution of the
CA are hereby REVERSED and SET ASIDE. The Decision of the RTC is hereby REINSTATED and
AFFIRMED. SO ORDERED.
40. Edilberto Cruz and Simplicio Cruz vs. BANCOM Finance Corp. (Union Bank now) Art. 2085
Facts:
Brothers Fr. Edilberto and Simplicio were the registered owners of a 33.9 hectare agricultural land
located in Bulacan. In 1978, defendant Sulit offered to purchase the land. The asking price was
P700k, but Sulit only had P25k which was accepted by Edilberto as earnest money with the
agreement that the title would be transferred to Sulit upon full payment of the price (675k).
Sulit failed to pay the balance and proposed to Edilberto to transfer the property to her but the
latter refused. But Sulit succeeded in having the plaintiffs execute a document of sale of the land
in favor of Sanchez who would then obtain a bank loan in her name using the land as collateral
by capitalizing on the close relationship of Sanchez with the plaintiffs. On the same day, Sanchez
executed another deed of absolute sale over the land in favor of Sulit. In both documents, it
appeared that the consideration for the sale was only P150k. Sulit was able to transfer the title of
the property under her name.
Sanchez undertook to pay the plaintiffs the balance of the actual price of the land. In a Special
Agreement, Sulit assumed Sanchezs obligation, stipulating to pay the plaintiffs the said amount.
Sulit managed to obtain a loan from Union Bank (P569k) secured by a mortgage over the land
now under her name. Plaintiffs filed this complaint for reconveyance of the land because of
Sulits failure to pay and her disappearance from her usual address.
Union Bank filed a motion to intervene, claiming priority as mortgagee in g.f. and that its contract
of mortgage had been executed before the annotation of plaintiffs interest in the title.
Subsequently, Sulit defaulted in her payment to Union Bank and her mortgage was foreclosed.
Union Bank was the highest bidder and was issued a certificate of sale over the land.
RTC: In favor of plaintiffs. The contract between the plaintiffs and Sanchez was absolutely
simulated thus, the 2nd contract of sale between Sanchez and Sulit produced no legal effect.
Union Bank was not a mortgagee in gf thus it cannot claim priority over the property.
CA: Reversed the decision of RTC. The deeds of sale were valid and binding. Thus, the contract of
mortgage is valid. Plaintiffs intended to be bound by the contracts of sale because they executed
a special agreement to enforce the payment of the balance of the purchase price. Union bank is
in gf.
Issue: WON the Deeds of Sale and Mortgage is valid. No
Ruling:
A contact is absolutely simulated when the parties do not intend to be bound at all by it. An
absolutely simulated contract is void. Although the Deed of Sale between the plaintiffs and
Sanchez stipulated a consideration of P150k there was actually no payment as evidence by the
testimony of Edilberto and as was corroborated by Sanchez. Union Bank never offered any
evidence to refute their testimonies.
The alleged buyers (Sanchez and Sulit) never made any attempt to assert their right of
ownership over the land. The records clearly show the Deeds of Sale were executed over the
same property on the same date. 6 days thereafter, it was mortgaged by Sulit to Federal
Insurance Company but the mortgage was cancelled when she again mortgage the land to Union
Bank. It is undisputed that plaintiffs did not receive any proceed from the loan.
Clearly, the deeds of sale were executed merely to use the property as collateral to secure a
loan. The execution of the two documents on the same day sustains the position of petitioners
that the Contracts of Sale were absolutely simulated, and that they received no consideration
therefor. The failure of Sulit to take possession of the property purportedly sold to her was a clear
badge of simulation that rendered the whole transaction void and without force and effect. The
fact that she was able to secure a Certificate of Title to the subject property in her name did not
vest her with ownership over it. A simulated deed of sale has no legal effect; consequently any
TCT issued in consequence thereof should be cancelled. A simulated contract is not a recognized
mode of acquiring ownership.
Union Bank claims that, being an innocent mortgagee, it should not be required to conduct an
exhaustive investigation on the mortgagors title before extending a loan. The rule that persons
dealing with registered lands can rely solely on the certificate of title does not apply to banks. A
banking institution is expected to exercise due diligence before entering into a mortgage
contract.
As correctly observed by the RTC, Union Bank should have taken into consideration the following:
price of the sale (P150k for a 33.9 hectare agri land was too cheap even in 1978); why did
Sanchez sell the property for the same price to Sulit on the same date when she supposedly
acquired it from the plaintiffs; in an area as big as that, why did they not verify if there were
squatters; being agricultural land, there might be tenants to be compensated. Union Bank did
not conduct an ocular inspection, in which they could have discovered that possession of the
land was neither with Sanchez nor Sulit. In addition, Union Bank was already aware that there
was an adverse claim and notice of lis pendens annotated on the certificate of tile when it
registered the mortgage. The adverse claim and the notice of lis pendens were annotated on the
title Oct 30, 1979 and Dec 10, 1979, respectively; the REM was registered only on March 14,
1980. Union Banks failure to register the REM before the annotations resulted in the mortgage
being binding only between it and Sulit.
On the question of who has a preferential right over the property, the long-standing rule, as
provided by Article 2085 of the Civil Code, is that only the absolute owner of the property can
constitute a valid mortgage on it. In case of foreclosure, a sale would result in the transmission
only of whatever rights the seller had over of the thing sold.
In the instant case, the two Deeds of Sale were absolutely simulated; hence, null and void. Thus,
they did not convey any rights that could ripen into valid titles. Necessarily, the subsequent real
estate mortgage constituted by Sulit in favor of respondent was also null and void, because the
former was not the owner thereof. There being no valid real estate mortgage, there could also be
no valid foreclosure or valid auction sale, either. At bottom, respondent cannot be considered
either as a mortgagee or as a purchaser in good faith. This being so, petitioners would be in the
same position as they were before they executed the simulated Deed of Sale in favor of Sanchez.
They are still the owners of the property.
42. Sps. Nestor and Ma. Nona Borromeo, petitioner, vs. CA and Equitable Savings
Bank (ESB), respondents.
Facts: The spouses were client depositors of Equitable PCI Bank (ECPIB) for more than 12 years.
Sometime in 1999, they were offered an own a home loan program by the latter and
subsequently, they applied for a loan in the amount of 4 million.
In view of this, they executed a REM over their land located at Loyola Grand Villas, Q.C.
consisting of 303 sq. m. including the proposed house that was subsequently built thereon. They
signed blank loan documents such as the loan agreement, promissory notes and even the REM
with the understanding that they executed the same in favor of EPCIB.
From 2001 to 2002, EPCIB was able to release 3.6 million in 4 installments to the spouses while
the balance of 400 thousand was not drawn by the latter. The spouses contended that despite
repeated verbal requests to EPCIB, the latter still failed to furnish them their (spouses) copies of
the loan documents, this in addition to the fact that the interest rate of 14% to 17% that was
charged against them was more than the 11% or 11.5% rate they had agreed upon.
For these reasons, the spouses protested against ECPIB by purposely not drawing the remaining
balance of the loan and stopping the payment of the loan amortizations still due. Until the time
they stopped, the spouses made total payments approximately amounting to 500 thousand.
ECPIB argued that the withholding of the loan documents until the full release of the amount
loaned was an established practice and that the interest rates at the time of the first four
installments ranged from 9.5% to 16%. Thus they warned the spouses that failure to pay their
obligation would result in the foreclosure of the REM.
Subsequently, the spouses received the copies of the loan documents they had been asking the
bank for and upon seeing the same, they found out that the Loan Agreement designated ESB as
lender and mortgagor, instead of EPCIB. When they were unable to pay for the loan in full, ESB
sought the extra-judicial foreclosure of the property. To protect their interests, the spouses filed a
complaint for Injunction, Annulment of Mortgage with Damages and with Prayer for Temporary
Restraining Order and Preliminary and Mandatory Injunction against EPCIB and respondent ESB
with the RTC.
The RTC initially dismissed the case, but on MR, it granted the issuance of the preliminary
injunction. It found that petitioners were bound to suffer grave injustice if they were deprived of
their property before the RTC could rule on the validity of the REM constituted on the same. On
appeal by ESB, the CA reversed the trial court on the ground that pending said courts
determination of the validity of the REM, its validity should be presumed. Moreover, it held that
the foreclosure would not result in any grave or irreparable damage to the spouses. Their MR
having been denied, the spouses sought recourse to the SC.
ISSUEs: WoN the REM was valid; WoN the writ of preliminary injunction should be issued to
enjoin the foreclosure of the REM
Ruling: No. The right of foreclosure cannot be exercised against the spouses by any person
other than the creditor-mortgagee or its assigns. Under the New Civil Code, Contracts take
effect only between the parties, their assigns and heirs xxx. An extrajudicial foreclosure
instituted by a third party to the Loan Agreement and the REM would, therefore, be a violation of
spouses rights over their property.
The civil law principle of relativity of contracts provides that contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof. Since a contract may be violated only by the
parties thereto as against each other, a party who has not taken part in it cannot sue for
performance, unless he shows that he has a real interest affected thereby.
ESB although a wholly-owned subsidiary of EPCIB, has an independent and separate juridical
personality from its parent company. The fact that a corporation owns all of the stocks of another
corporation, taken alone, is not sufficient to justify their being treated as one entity. A corporation
has a separate personality distinct from its stockholders and other corporations to which it may
be conducted.
In this case, ESB did not have the right to foreclose the REM even after default since this right
can only be claimed by the creditor-mortgagor, EPCIB; and, consequently, the extrajudicial
foreclosure of the REM by respondent would be in violation of spouses property rights.
Following the above premise, the answer to the second issue would be in the AFFIRMATIVE. The
sole object of a preliminary injunction is to maintain the status quo until the merits can be heard.
A preliminary injunction is an order granted at any stage of an action prior to judgment of final
order, requiring a party, court, agency, or person to refrain from a particular act or acts. It is a
preservative remedy to ensure the protection of a partys substantive rights or interests pending
the final judgment on the principal action. A plea for an injunctive writ lies upon the existence of
a claimed emergency or extraordinary situation which should be avoided for, otherwise, the
outcome of a litigation would be useless as far as the party applying for the writ is concerned.
In this case, the extrajudicial foreclosure of the property pending the final determination by the
RTC of the complaint for annulment of the REM and claim for damages would result in an
injustice to the spouses since they will be tied up in litigation for the recovery of their property
while their debt to the real creditor-mortgagee, EPCIB, would remain unpaid and continue to
accrue interest and other charges should the RTC eventually rule that the foreclosure is invalid.
Hence, a writ of Preliminary Injunction should be issued.
43 Rafael Martelino et al vs National Home Mortgage Finance Corp. (NHMFC) and
Home development mutual fund (HDMF)
Facts:
Petitioners obtained housing loans from respondents. However, respondents directly released
the loans to the subdivision developer, Shelter Phils. Inc. (Shelter)
Then, Shelter failed to complete the subdivision project. Petitioners were compelled to spend
their own resources to improve the subdivision roads and alleys.
Instead of suspending the payment of amortizations by petitioners for Shelters failure to
complete the subdivision, respondents charged petitioners with interests and penalties when
they did not pay their amortizations, and initiated foreclosure of the mortgaged property of
Rafael Martelino and threatened to foreclose the mortgages of the other petitioners.
As a result, petitioners filed a petition for declaratory relief and prohibition against respondents
before the RTC of Caloocan praying for the suspension of payment to Shelter.
Summonses were served only to NHMFC and Sheriff Castillo.
NHMFC filed a motion to dismiss on ground that RTC has no jurisdiction because the petition
should have been filed with HLURB.
RTC dismissed the petition on ground that HDMF was not notified of the preliminary injunction
hearing and the foreclosure of the mortgage by respondents constituted a breach of RA 8501
(Housing loan condonation act), thus, rendered the petition for declaratory relief improper. The
proper remedy, RTC ruled, was an ordinary civil action.
CA affirmed RTC decision holding that preliminary injunction was not valid against HDMF
because it was not notified of the hearing for lack of summons. Also, it did not entertain the issue
of whether the petition for declaratory relief can be converted to an ordinary action for it was not
raised before the RTC.
Issue: WON the petition for declaratory relief and prohibition was properly dismissed.
Held:
The act of initiating foreclosure proceedings was a breach of RA 8501 and rendered the action
for declaratory relief improper.
Under Rule 63, sec 1, a person must file a petition for declaratory relief before breach or
violation of a deed, will, contract, statute ordinance or any other govt regulation.
The petition may be entertained only before the breach or violation of the statute, deed,
contract, etc. to which it refers. Where the law or contract has already been contravened prior to
the filing of an action for declaratory relief, the court can no longer assume jurisdiction over the
action.
o In this case, petitioners had stated in their petition that respondents assessed them interest
and penalties on their outstanding loans, initiated foreclosure proceedings against Rafael
Martelino and threatened to foreclose the mortgages of the other petitioners, all in disregard of
their right to suspend payment to Shelter for its failure to complete the subdivision.
o Meaning, petitioners had already suspended paying their amortizations. The actual suspension
of payments defeated the purpose of the action to secure an authoritative declaration of their
right to suspend payment. Thus, RTC can no longer assume jurisdiction over the action for
declaratory relief because its subject was breached before the action was filed.
Petition for prohibition is also improper. Prohibition is a remedy against proceedings that are
without or in excess of jurisdiction, or with grave abuse of discretion, there being no appeal or
other plain, speedy adequate remedy in the ordinary course of law.
o In this case, the petition did not impute lack of jurisdiction or grave abuse of discretion
committed by respondents regarding the foreclosure proceedings.
What petitioners should have done?
They should have applied for condonation of penalties under RA 8501 and restructuring of their
loans instead of filing an erroneous petition before the RTC. Also, they could raise vefore the
HDMF, the negligence of respondents who released the loans to Shelter despite its failure to
complete the subdivision.
The HDMF could then determine if the ground is a justifiable cause for non-payment of
amortization.
44 Spouses Lehner and Ludy Martires vs Manelia Chua
Facts:
Subject matter of the present controversy involves 24 memorial lots located in Holy Cross
Memorial Park, Novaliches, Quezon City. This property is owned by respondent Manelia Chua and
her mother, Florencia R Calagos as co-owners.
Respondent, on Dec. 18, 1995 borrowed P150,000 from the petitioners which was secured by a
real estate mortgage over the abovementioned property. Additionally, she bound herself to pay a
monthly interest of 8% and an additional 10% in case of default.
When respondent failed to settle her obligation, the petitioners, without foreclosure of
mortgage, transferred ownership of said lots to their name via a Deed of Transfer.
On June 23, 1997, respondent filed a complaint with the RTC of QC a complaint against the
petitioners, management of Holy Cross and the Registry of Deeds of QC for annulment of the
contract of mortgage between her and petitioner on the ground that the interest rates imposed
were unjust and exorbitant. Respondent as well sought the accounting of her liability under the
law and that the RD and Hoy Cross be ordered to re-convey the disputed property to her.
On Nov 20, 1998, respondent moved to amend her complaint to include allegation that she
later discovered that ownership of the subject lots was transferred in the name of petitioners by
virtue of a forged Deed of Transfer and Affidavit of Warranty. She prayed that this be annulled.
This was not opposed by petitioners.
The RTC ruled against the respondent and ordered her to pay the spouses and Holy Cross for
damages as well as attorneys fees.
This was affirmed by the CA with modification as to the awards given by the RTC.
On Motion for Reconsideration filed by the respondent which was opposed by the petitioners,
the CA reversed its own ruling and ruled:
1. Deed of Transfer and Affidavit of Warranty were void ab initio.
2. The loan is subjected to an interest of 12% per annum.
3. Holy Cross and RD were directed to revert the registration of ownership in the name of the
respondent.
4. Respondent is ordered to pay her loan subjected to an interest rate of 12% per annum after
deducting the payments already made.
The CA held that the mortgage is in fact an equitable mortgage where intent of the respondent
was merely as security for her loan and that the consideration is inadequate.
A motion for reconsideration and a second motion for reconsideration filed by petitioner were
both denied by the CA.
Issue:
1. Whether or not the Deed of Transfer executed constituted an equitable mortgage.
Ruling:
An equitable mortgage has been defined as one which, although lacking in some formality, or
form or words, or other requisites demanded by a statute, nevertheless reveals the intention of
the parties to charge real property as security for a debt, there being no impossibility nor
anything contrary to law in this intent.
One of the circumstances provided for under Article 1602 of the Civil Code, where a contract
shall be presumed to be an equitable mortgage, is "where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation." In the instant case, it has been established that the intent
of both petitioners and respondent is that the subject property shall serve as security for the
latter's obligation to the former. As correctly pointed out by the CA, the circumstances
surrounding the execution of the disputed Deed of Transfer (irregularity found pertaining to
notarizing the document as claimed by the petitioners) would show that the said document was
executed to circumvent the terms of the original agreement and deprive respondent of her
mortgaged property without the requisite foreclosure.
Since the original transaction between the parties was a mortgage, the subsequent assignment
of ownership of the subject lots to petitioners without the benefit of foreclosure proceedings,
partakes of the nature of a pactum commissorium, as provided for under Article 2088 of the Civil
Code.
Pactum commissorium is a stipulation empowering the creditor to appropriate the thing given
as guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his
undertakings, without further formality, such as foreclosure proceedings, and a public sale.
In the instant case, evidence points to the fact that the sale of the subject property, as proven
by the disputed Deed of Transfer, was simulated to cover up the automatic transfer of ownership
in petitioners' favor. While there was no stipulation in the mortgage contract which provides for
petitioners' automatic appropriation of the subject mortgaged property in the event that
respondent fails to pay her obligation, the subsequent acts of the parties and the circumstances
surrounding such acts point to no other conclusion than that petitioners were empowered to
acquire ownership of the disputed property without need of any foreclosure.
The Court cannot fathom why respondent would agree to transfer ownership of the subject
property, whose value is much higher than her outstanding obligation to petitioners. Considering
that the disputed property was mortgaged to secure the payment of her obligation, the most
logical and practical thing that she could have done, if she is unable to pay her debt, is to wait
for it to be foreclosed. She stands to lose less of the value of the subject property if the same is
foreclosed, rather than if the title thereto is directly transferred to petitioners. This is so because
in foreclosure, unlike in the present case where ownership of the property was assigned to
petitioners, respondent can still claim the balance from the proceeds of the foreclosure sale, if
there be any. In such a case, she could still recover a portion of the value of the subject property
rather than losing it completely by assigning its ownership to petitioners.
Petition is DENIED.
P40,000.00. Due to these unpaid balances, BAYANIHAN filed an action for specific performance
against the SPOUSES docketed as Civil Case No. 80420 with the Court of First Instance of Manila.
Judgement was rendered in favor of Bayanihan
Pursuant to said judgment, an order for execution pending appeal was issued by the trial court
and a deed of assignment over Apartment No. 307 of the Ligaya Building together with the
leasehold right over the land on which the building stands. The SPOUSES acknowledged receipt
of the sum of P3,000.00 more or less, paid by BAYANIHAN pursuant to the said judgment.
Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession
of the premises. Subsequently, they were allowed to remain in the premises as lessees for a
stipulated monthly rental
Despite the expiration of the said period, the SPOUSES failed to surrender possession of the
premises in favor of BAYANIHAN. This prompted BAYANIHAN to file an ejectment case. This action
was however dismissed on the ground that BAYANIHAN was not the real party in interest, not
being the owner of the building.
After demands to vacate the subject apartment made by BAYANIHAN's counsel was again ignored
by the SPOUSES, an action for recovery of possession with damages was filed with the Court of
First Instance of Manila, decision in said case was rendered in favor of BAYANIHAN. The SPOUSES
appealed to the Court of Appeals. The respondent Court of Appeals affirmed in toto the decision
ISSUE: WON The deed of assignment is null and void because it is in the nature of a pactum
commissorium and/or was borne out of the same.
HELD:
No. The two elements for pactum commissorium to exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or mortgaged by way of security for the payment of the
principal obligation; and (2) that there should be a stipulation for an automatic appropriation by
the creditor of the thing pledged or mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
A perusal of the terms of the questioned agreement evinces no basis for the application of the
pactum commissorium provision. First, there is no indication of 'any contract of mortgage
entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of the property by BAYANIHAN. When the
SPOUSES defaulted in their payments of the second and third installments of the trucks they
purchased, BAYANIHAN filed an action in court for specific performance. The trial court rendered
favorable judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their
obligation and in case of failure to do so, to execute a deed of assignment over the property
involved in this case. The SPOUSES elected to execute the deed of assignment pursuant to said
judgment.
Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of
the trial court to exact fulfillment of the obligation, which, by its very nature is ". . anathema to
the concept of pacto commissorio" [Northern Motors, Inc. v. Herrera, G.R. No. L-32674, February
22, 1973, 49 SCRA 392]. And even granting that the original agreement between the parties had
the badges of pactum commissorium, the deed of assignment does not suffer the same fate as
this was executed pursuant to a valid judgment
The SPOUSES are deemed to have admitted the deed's genuineness and due execution. Besides,
they themselves admit that ". . . the contract was duly executed and that the same is genuine"
auction sale.
Only Young answered the counterclaim of Insular
Life, hence his associates were declared in default.
The RTC rendered a decision, dismissing the
counterclaim against Young.
CA reversed. It ruled that the MOA prepared by
Insular Life is binding between the parties, as it was
not validly rescinded. It also concluded that Youngs
loan with Insular Life is deemed fully paid based on
the representation and warranty in the MOA that
the entire proceeds of the sale shall be used to
pay off the outstanding debt of Robert T. Young to
Insular Life.
Issue:
Was the MOA between Young and Insular Life, a
deed of sale?
Was the auction sale void due to the sending of
separate notice for the second auction by Insular
Life?
Ruling:
1st Issue
NO. The MOA is merely a contract to sell, since the
parties therein specifically undertook to enter into a
contract of sale if the stipulated conditions are met
and the representation and warranties given by
Young prove to be true.
It must be emphasized that the MOA did not convey
title to the shares of Insular Life. If ever there was
delivery of the said shares to Insular Life, it was
because they were pledged by Young to Insular Life
under the Credit Agreement.
It would be unfair on the part of Young to demand
compliance by Insular Life of its obligations when
he himself was remiss in his own. Neither can he
feign ignorance of the stipulation in the MOA since
it is presumed that he read the same and was
satisfied with its provisions before he affixed his
signature therein.
The fact that no deed of sale was subsequently
executed by the parties confirms the conclusion
that no sale transpired between them.
2nd Issue:
NO. Article 2112 of the Civil Code provides: The
creditor to whom the credit has not been satisfied
in due time, may proceed before a Notary Public for
the sale of the thing pledged. The sale shall be
made at a public auction and with notification to
the debtor and the owner of the things pledged in a
proper case, stating the amount for which the
public sale is to be held. If at the first auction the
thing is not sold, a second one with the same
formalities shall be held; and if at the second
auction there is no sale either, the creditor may
appropriate the thing pledged. In this case he shall
be obliged to give an acquittance for his entire
claim.
Clearly there is no prohibition contained in the law
against the sending of one notice for the first and
second public auction as was done here by
petitioner Insular Life.
The purpose of the law in requiring notice is to
sufficiently apprise the debtor and the pledgor that
the thing pledged to secure payment of the loan
will be sold in a public auction and the proceeds
thereof shall be applied to satisfy the debt.
Facts:
Monzon executed a promissory note in favor of
Sps. Perez for an amount of P600K which was
secured by a 300 sq. m. lot in Tagaytay. Then, a
deed of absolute sale over the lot was executed by
Monzon in favor of Sps. Perez.
Monzon executed another promissory note
amounting to P200K in favor of Sps. Relova which
was secured by a 200 sq. m. lot which was another
portion of the lot sold to Sps. Perez. Then, Mozon
executed a deed of conditional sale in favor of Sps.
Relova.
Coastal lending corporation extra-judicially
foreclosed the entire property including the
mortgaged portions and subsequently sold to the
spouses because of Monzons indebtedness to
Coastal.
Addio Porperties inc was the winning bidder. It
paid the amount of the property and the residue
was left in the custody of the court.
Both spouses filed a petition for injunction
praying that Monzon be held liable to the spouses
of P1.6M and that the residue of the amount paid
be delivered to them.
Monzon claims that the spouses could no longer
ask for the enforcement of the promissory notes
because she had already performed her obligation
by dacion en pago as evidenced by the absolute
deed of sale and conditional deed of sale.
RTC rendered decision in favor of respondents
holding Monzon liable to the spouses for the
amount being claimed and ordered the clerk of
court to deliver the residual amount to them.
Monzon filed an appeal with RTC and granted the
same because after the spouses presented
evidence ex parte, Monzon was not given the
opportunity to present her evidence and the
CA dismissed the appeal made to RTC holding
that Monzon cannot complain that she was denied
due process because she was given ample
opportunity to defend her interest.
Issue: WON spouses are entitled to the residual
amount which was in custody of the court and WON
Monzon is liable to the spouses for the amount of
the notes.
Held:
1st issue: Spouses not entitled to the residue of the
purchase price
Rule 68, sec. 4. Disposition of proceeds of sale.
The amount realized from the foreclosure sale of
the mortgaged property shall, after deducting the
costs of the sale, be paid to the person foreclosing
the mortgage, and when there shall be any balance
or residue, after paying off the mortgage debt due,
the same shall be paid to junior encumbrancers in
the order of their priority, to be ascertained by the
court, or if there be no such encumbrancers or
there be a balance or residue after payment to
them, then to the mortgagor or his duly authorized
agent, or to the person entitled to it.
amounts awarded.
It was only Corinthian who filed a motion for reconsideration which was however denied.
Corinthian filed a petition for review with the SC and required the parties to submit a
memoranda.
The Tanjuangcos moved for a partial entry of judgment of the CA decision which was granted
by the latter. Then they moved for the execution of said judgment.
Issues:
1. Whether Corinthian was negligent under the circumstances and, if so, whether such
negligence contributed to the injury suffered by the Tanjangcos.
Ruling:
Undeniably, the perimeter fence of the Cuasos encroached on Lot 69 owned by the Tanjangcos
by 87 square meters as duly found by both the RTC and the CA in accordance with the evidence
on record. As a result, the Tanjangcos suffered damage in having been deprived of the use of that
portion of their lot encroached upon.
A negligent act is an inadvertent act; it may be merely carelessly done from a lack of ordinary
prudence and may be one which creates a situation involving an unreasonable risk to another
because of the expectable action of the other, a third person, an animal, or a force of nature. A
negligent act is one from which an ordinary prudent person in the actor's position, in the same or
similar circumstances, would foresee such an appreciable risk of harm to others as to cause him
not to do the act or to do it in a more careful manner.
We agree with the CA when it aptly held:
Corinthian cannot and should not be allowed to justify or excuse its negligence by claiming that
its approval of the Cuasos building plans was only limited to a so-called "table inspection;" and
not actual site measurement. To accept some such postulate is to put a premium on negligence.
Corinthian was not organized solely for the defendants Cuasos. It is also the subdivision of the
plaintiffs-spouses Tanjangcos - and of all others who have their dwelling units or abodes therein.
Pertinently, its Manual of Rules and Regulations stipulates in Section 3 thereof (under the
heading Construction), thus:
A. Rules and Regulations
No new construction can be started unless the building plans are approved by the Associationand
the appropriate Builders cash bond and pre-construction fees are paid. The Association will not
allow the entry of construction materials and process identification cards for workers if the above
conditions are not complied with. Likewise, all renovations, repairs, additions and improvements
to a finished house except electrical wiring, will have to be approved by the Association. Water
service connection of a homeowner who undertakes construction work without prior approval of
the Association will be cut-off in addition to the sanctions previously mentioned.
By its Manual of Rules and Regulations, it is reasonable to assume that Corinthian, through its
representative, in the approval of building plans, and in the conduct of periodic inspections of ongoing construction projects within the subdivision, is responsible in insuring compliance with the
approved plans, inclusive of the construction of perimeter walls, which in this case is the subject
of dispute between the Tanjangcos and the Cuasos. It is not just or equitable to relieve Corinthian
of any liability when, by its very own rules, it imposes its authority over all its members to the
end that "no new construction can be started unless the plans are approved by the Association
and the appropriate cash bond and pre-construction fees are paid." Moreover, Corinthian can
impose sanctions for violating these rules. Thus, the proposition that the inspection is merely a
"table inspection" and, therefore, should exempt Corinthian from liability, is unacceptable. After
all, if the supposed inspection is merely a "table inspection" and the approval granted to every
member is a mere formality, then the purpose of the rules would be defeated. Compliance
therewith would not be mandatory, and sanctions imposed for violations could be disregarded.
Corinthian's imprimatur on the construction of the Cuasos' perimeter wall over the property of
the Tanjangcos assured the Cuasos that everything was in order.
The petition is DENIED
Facts:
The spouses Jose Pulido and Iluminada M. Pulido
mortgaged to Pasay City Savings and Loan
Association, Inc. their land covered by TCT No.
471634, subject of this case, to secure a loan of
P10,000.00. The said mortgage was registered with
the Registry of Deeds on the same date and was
duly annotated in the title of the property.
The said mortgaged land was levied upon by the
City Sheriff of Quezon City pursuant to a writ of
execution issued by the then Court of First Instance
of Quezon City in Civil Case No. Q-2029 entitled,
"Milagros C. Punzalan vs. Iluminada Manuel-Pulido";
and eventually, the same was sold to herein
petitioner Josefina B. Cenas who was the highest
bidder in the execution sale.
63 VEGA V. SSS
Magdalena V. Reyes (Reyes) owned a piece of titled land in Pilar Village, Las Pias City. She got a
housing loan from respondent Social Security System (SSS) for which she mortgaged her land.
However, she asked the petitioner spouses Antonio and Leticia Vega (the Vegas) to assume the
loan and buy her house and lot since she wanted to emigrate.
Upon inquiry with the SSS, an employee there told the Vegas that the SSS did not approve of
members transferring their mortgaged homes. The Vegas could, however, simply make a private
arrangement with Reyes provided they paid the monthly amortizations on time. This practice,
said the SSS employee, was commonplace. Armed with this information, the Vegas agreed for
Reyes to execute in their favor a deed of assignment of real property with assumption of
mortgage and paid Reyes P20,000.00 after she undertook to update the amortizations before
leaving the country. The Vegas then took possession of the house
Reyes did not readily execute the deed of assignment. She left the country and gave her sister,
Julieta Reyes Ofilada (Ofilada), a special power of attorney to convey ownership of the property.
Ofilada finally executed the deed promised by her sister to the Vegas. Ofilada kept the original
and gave the Vegas two copies. The latter gave one copy to the Home Development Mortgage
Fund and kept the other. Unfortunately, a storm in 1984 resulted in a flood that destroyed the
copy left with them.
The Vegas learned that Reyes did not update the amortizations for they received a notice to
Reyes from the SSS concerning it. They told the SSS that they already gave the payment to
Reyes but, since it appeared indifferent, Vegas updated the amortization themselves and paid
P115,738.48 to the SSS, through Antonio Vegas personal check. They negotiated seven
additional remittances and the SSS accepted P8,681.00 more from the Vegas.
Respondent Pilar Development Corporation (PDC) filed an action for sum of money against Reyes
before the Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that Reyes
borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500.00 to buy the lot and
construct a house on it. The RTC rendered judgment, ordering Reyes to pay the PDC the loan of
P46,398.00 plus interest and penalties. Failed to do so, RTC issued a writ of execution against
Reyes and its Sheriff levied on the property in Pilar Village.
RTC sheriff published a notice for the auction sale of the property. He also served on the Vegas
notice of that sale. Vegas filed an affidavit of third party claimant and a motion for leave to admit
a motion in intervention to quash the levy on the property. Vegas got a telegram hat the SSS
intended to foreclose on the property to satisfy the unpaid housing debt of P38,789.58. the
Vegas requested the SSS in writing for the exact computation of the indebtedness and for
assurance that they would be entitled to the discharge of the mortgage and delivery of the
proper subrogation documents upon payment. They also sent a P37,521.95 managers check
that the SSS refused to accept
Vegas filed an action for consignation, damages, and injunction with application for preliminary
injunction and temporary restraining order against the SSS, the PDC, and the sheriff of RTC
Branch 19. the SSS released the mortgage to the PDC. A writ of possession subsequently evicted
the Vegas from the property.
RTC decided in favor of the Vegas. It ruled that the SSS was barred from rejecting the Vegas final
payment of P37,521.95 and denying their assumption of Reyes debt, given the SSS previous
acceptance of payments directly from them. The RTC ordered the PDC to deliver to the Vegas the
certificate of title covering the property. SSS appealed to the Court of Appeals reversed the RTC
decision[24] for the reasons that the Vegas were unable to produce the deed of assignment of
the property in their favor and that such assignment was not valid as to PDC.
ISSUE
whether or not Reyes validly sold her SSS-mortgaged property to the Vegas.
HELD
No. When a mortgagor sells the mortgaged property to a third person, the creditor may demand
from such third person the payment of the principal obligation. The reason for this is that the
mortgage credit is a real right, which follows the property wherever it goes, even if its ownership
changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS, the option of
collecting from the third person in possession of the mortgaged property in the concept of
owner.More, the mortgagor-owners sale of the property does not affect the right of the
registered mortgagee to foreclose on the same even if its ownership had been transferred to
another person. The latter is bound by the registered mortgage on the title he acquired.
Under Article 1237 of the Civil Code, the Vegas who paid the SSS amortizations except the last
on behalf of Reyes, without the latters knowledge or against her consent, cannot compel the SSS
to subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas claim
of subrogation was invalid because it was done without the knowledge and consent of the SSS as
required under the mortgage agreement
After the mortgage debt to SSS had been paid, however, the latter had no further justification for
withholding the release of the collateral and the registered title to the party to whom Reyes had
transferred her right as owner. Under the circumstance, the Vegas had the right to sue for the
conveyance to them of that title, having been validly subrogated to Reyes rights