CREDIT TRANSACTIONS CASE DIGESTS (Syllabus of ATTY.
JAZZIE SARONA)
2 - SANCHEZ ROMAN | 2ND SEMESTER | SY 2013 – 2014
1. PRUDENTIAL BANK, PRUDENTIAL BANK, vs. IAC, PHILIPPINE
RAYON MILLS INC. and ANACLETO R. CHI– BrunxAlabastro
Warning: Taas, complicated, and libognina case. Daghan issues,
sub-issues and impt notes to remember ESPECIALLY for recits.
Gi-outline nanakotanandiri related sa lesson for your
convenience, sorry langdaan if taas! Required na 4 issues ang
case, related sa topic. Kung gubutanmo, I suggest pag-full text.
HAHA!
On August 8, 1962 Philippine Rayon Mills, Inc. entered into a
contract with Nissho Co., Ltd. of Japan for the importation of
textile machineries under a five-year deferred payment plan. To
effect payment for said machineries, the Philippine Rayon Mills,
Inc. applied for a commercial letter of credit with the Prudential
Bank and Trust Company in favor of Nissho. By virtue of said
application, the Prudential Bank opened a Letter of Credit in
favor of defendant-appellant. Against this letter of credit,
drafts, were drawn and issued by Nissho which were all paid by
the Prudential Bank through its correspondent in Japan, the
Bank of Tokyo, Ltd. As indicated on their faces, two of these
drafts were accepted by the Philippine Rayon Mills, Inc. through
its president, Anacleto R. Chi, while the others were not.
Upon the arrival of the machineries, the Prudential Bank
indorsed the shipping documents to the Philippine Rayon Mills,
Inc. which accepted delivery of the same. To enable the
Philippine Rayon Mills, Inc. to take delivery of the machineries,
it executed, by prior arrangement with the Prudential Bank, a
trust receipt which was signed by Anacleto R. Chi in his capacity
as President (sic) of Philippine Rayon Mills, Inc. company. At the
back of the trust receipt is a printed form to be accomplished by
two sureties who, by the very terms and conditions thereof,
were to be jointly and severally liable to the Prudential Bank
should the Philippine Rayon Mills, Inc. fail to pay the total
amount or any portion of the drafts issued by Nissho and paid
for by Prudential Bank. The Philippine Rayon Mills, Inc. was able
to take delivery of the textile machineries and installed the
same at its factory site
Sometime in 1967, the Philippine Rayon Mills, Inc. ceased
business operation. So its factory was leased by Yupangco
Cotton Mills for an annual rental of P300,000.00, which was
subsequently renewed. On January 5, 1974, all the textile
machineries in the defendant-appellant's factory were sold to
AIC Development Corporation for P300,000.00. Meanwhile, the
obligation of the Philippine Rayon Mills, Inc. arising from the
letter of credit and the trust receipt remained unpaid and
unliquidated. Repeated formal demands for the payment of the
said trust receipt yielded no result. Hence, the present action
for the collection of the principal amount of P956,384.95 was
filed on October 3, 1974 against the Philippine Rayon Mills, Inc.
and Anacleto R. Chi.
RTC: sentenced Philippine Rayon Mills, Inc. to pay plaintiff the
sum of P153,645.22, the amounts due on the drafts from the
LOC with interest at 6% per annum beginning September 15,
1974 until fully paid.
At IAC, PRUDENTIAL BANK argued that the RTC erred, among
others, in:
· disregarding its right to reimbursement from the private
respondents for the entire unpaid balance of the imported
machines, the total amount of which was paid to the Nissho
Company Ltd.
· finding that the solidary guaranty clause signed by
Anacleto R. Chi is not a guaranty at all
· controverting the judicial admissions of Anacleto R. Chi
that he is at least a simple guarantor of the said trust receipt
obligation
· contravening, based on the assumption that Chi is a
simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code
and the related evidence and jurisprudence which provide that
such liability had already attached
IAC upheld the RTC, and disagreed with the PRUDENTIAL
BANK's contention (maramingsiyangsinabiperoang related sa
lesson is…). Chi cannot be held liable with regard to the
stipulations made in the trust receipt because the records fail to
show that PRUDENTIAL BANK had either exhausted the
properties of Philippine Rayon or had resorted to all legal
remedies as required in Article 2058 of the Civil Code. As
provided for under Articles 2052 and 2054 of the Civil Code, the
obligation of a guarantor is merely accessory and subsidiary,
respectively. Chi's liability would therefore arise only when the
principal debtor fails to comply with his obligation.
A) WON Chi may be held severally liable with Phil. Rayon
Mills Inc. by virtue of his signature on the trust receipt. No, Chi
is only a guarantor
CONTENTION: PRUDENTIAL BANK insists that by virtue of the
clear wording of the statement, specifically the clause ". . . we
jointly and severally agree and undertake . . .," and the
concluding sentence on exhaustion, Chi's liability therein is
solidary.
Held: Our own reading of the questioned solidary guaranty
clause yields no other conclusion than that the obligation of Chi
is only that of a guarantor. This is further bolstered by the last
sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space
therein for the party whose property may not be exhausted was
not filled up. Under Article 2058 of the Civil Code, the defense
of exhaustion (excussion) may be raised by a guarantor before
he may be held liable for the obligation. The clause "we jointly
and severally agree and undertake" refers to the undertaking
of the two (2) parties who are to sign it or to the liability
existing between themselves. It does not refer to the
undertaking between either one or both of them on the one
hand and the PRUDENTIAL BANK on the other with respect to
the liability described under the trust receipt. Elsewise stated,
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their liability is not divisible as between them, i.e., it can be
enforced to its full extent against any one of them.
NOTE: If mangutana si maam “What kind of contract was
entered here, from your lesson in OBLI, how should it be
construed?” Answer: Contract of Adhesion.
Held: Any doubt as to the import or true intent of the solidary
guaranty clause should be resolved against the PRUDENTIAL
BANK. The trust receipt, together with the questioned solidary
guaranty clause, is on a form drafted and prepared solely by the
PRUDENTIAL BANK; Chi's participation therein is limited to the
affixing of his signature thereon. It is, therefore, a contract of
adhesion; as such, it must be strictly construed against the
party responsible for its preparation.
CONTENTION According to the IAC: The last sentence of the
guaranty clause is incomplete. Furthermore, the plaintiff-
appellant also failed to have the purported guarantee clause
acknowledged before a notary public. All these show that the
alleged guaranty provision was disregarded and, therefore, not
consummated. Even assuming that it was fully executed and
acknowledged still defendant-appellee Chi cannot be held liable
thereunder because the records show that the plaintiff-
appellant had neither exhausted the property of the Philippine
Rayon Mills, Inc. nor had it resorted to all legal remedies against
the said Philippine Rayon Mills, Inc. as provided in Article 2058
of the Civil Code. The obligation of a guarantor is merely
accessory under Article 2052 of the Civil Code and subsidiary
under Article 2054 of the Civil Code. Therefore, the liability of
the defendant-appellee arises only when the principal debtor
fails to comply with his obligation."
NOTE: Mag-ana nasad simaam, “under your OBLI/SALES, is the
IAC correct”? Answer. NO.
Held: While indeed, the clause ought to have been signed by
two (2) guarantors, the fact that it was only Chi who signed the
same did not make his act an idle ceremony or render the
clause totally meaningless. By his signing, Chi became the sole
guarantor. The attestation by witnesses and the
acknowledgment before a notary public are not required by law
to make a party liable on the instrument. The rule is that
contracts shall be obligatory in whatever form they may have
been entered into, provided all the essential requisites for their
validity are present; however, when the law requires that a
contract be in some form in order that it may be valid or
enforceable, or that it be proved in a certain way, that
requirement is absolute and indispensable. 30 With respect to a
guaranty, 31 which is a promise to answer for the debt or
default of another, the law merely requires that it, or some
note or memorandum thereof, be in writing. Otherwise, it
would be unenforceable unless ratified. 32 While the
acknowledgment of a surety before a notary public is required
to make the same a public document, under Article 1358 of the
Civil Code, a contract of guaranty does not have to appear in a
public document.
B) WON Chi cannot, pursuant to Article 2058 of the Civil
Code, be compelled to pay until after PRUDENTIAL BANK has
exhausted and resorted to all legal remedies against the
principal debtor, Philippine Rayon since the records show that
there was no exhaustion made. No, he can be compelled.
Held: Excussion (defense of exhaustion under 2058) is not a
condition sine qua non for the institution of an action against a
guarantor. In Southern Motors, Inc. vs. Barbosa, 34 this Court
stated: " 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."
C) WON it was improper to implead Chi as a co-defendant in
the case before the Trial Court. No, it was not improper.
Held: Section 6, Rule 3 of the Rules of Court on permissive
joinder of parties explicitly allows it. It reads: "SEC. 6.
Permissive joinder of parties. — All persons in whom or against
whom any right to relief in respect to or arising out of the same
transaction or series of transactions is alleged to exist, whether
jointly, severally, or in the alternative, may, except as otherwise
provided in these rules, join as plaintiffs or be joined as
defendants in one complaint, where any gotten of law or fact
common to all such plaintiffs or to all such defendants may
arise in the action; but the court may make such orders as may
be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any
proceedings in which he may have no interest." This is the
equity rule relating to multifariousness. It is based on trial
convenience and is designed to permit the joinder of plaintiffs
or defendants whenever there is a common question of law or
fact. It will save the parties unnecessary work, trouble and
expense.
D) What is Chi’s liability?
Held: Chi's liability is limited to the principal obligation in the
trust receipt plus all the accessories thereof including judicial
costs; with respect to the latter, he shall only be liable for those
costs incurred after being judicially required to pay. Interest and
damages, being accessories of the principal obligation, should
also be paid; these, however, shall run only from the date of the
filing of the complaint. Attorney's fees may even be allowed in
appropriate cases. In the instant case, the attorney's fees to be
paid by Chi cannot be the same as that to be paid by Philippine
Rayon since it is only the trust receipt that is covered by the
guaranty and not the full extent of the latter's liability. All things
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considered, he can be held liable for the sum of P10,000.00 as
attorney's fees in favor of the PRUDENTIAL BANK.
2. G.R. No. 173526 August 28, 2008
BENJAMIN BITANGA, petitioner, vs. PYRAMID CONSTRUCTION
ENGINEERING CORPORATION, respondent.
Facts:
Respondent alleged it entered into an agreement with
Macrogen Realty, of which petitioner is the President, to
construct for the latter the Shoppers Gold Building.
Respondent commenced civil, structural, and architectural
works on the construction project. However, Macrogen Realty
failed to settle respondent’s progress billings.
Relying on the assurances made by petitioner, who was no less
than the President of Macrogen Realty, respondent continued
the construction project.
But, respondent suspended work on the construction project
since the conditions that it imposed for the continuation had
not been complied with by Macrogen Realty and it instituted
with the Construction Industry Arbitration Commission (CIAC) a
case for arbitration against Macrogen Realty seeking payment
by the latter of its unpaid billings and project costs.
The respondent and Macrogen Realty entered into a
Compromise Agreement, with petitioner acting as signatory for
and in behalf of Macrogen Realty. Under the Compromise
Agreement, Macrogen Realty agreed to pay respondent the
total amount of P6,000,000.00 in six equal monthly
installments, with each installment to be delivered on the
15th day of the month, beginning 15 June 2000.
Petitioner guaranteed the obligations of Macrogen Realty under
the Compromise Agreement by executing a Contract of
Guaranty in favor of respondent, by virtue of which he
irrevocably and unconditionally guaranteed the full and
complete payment of the principal amount of liability of
Macrogen Realty in the sum of P6,000,000.00.
However, contrary to petitioner’s assurances, Macrogen Realty
failed and refused to pay all the monthly installments agreed
upon in the Compromise Agreement.Hence, respondent moved
for the issuance of a writ of execution against Macrogen Realty,
which CIAC granted. The sheriff filed a return stating that he
was unable to locate any property of Macrogen Realty, except
its bank deposit of P20,242.33, with the Planters Bank.
According to respondent, petitioner’s obligation as guarantor
was already due and demandable. As to Marilyn’s (wife of
petitioner) liability and contended that Macrogen Realty was
owned and controlled by petitioner and Marilyn and/or by
corporations owned and controlled by them and would have
redounded to the benefit of both and/or their corporations;
Marilyn cannot be unaware of the obligations incurred by
Macrogen Realty and/or petitioner in the course of the business
operations of the said corporation.
Petitioner averred that he never made representations to
respondent that Macrogen Realty would faithfully comply with
its obligations under the Compromise Agreement. He did not
offer to guarantee the obligations of Macrogen Realty to entice
respondent to enter into the Compromise Agreement but that,
on the contrary, it was respondent that required Macrogen
Realty to offer some form of security for its obligations before
agreeing to the compromise; further alleged that his wife
Marilyn was not aware of the obligations that he assumed
under both the Compromise Agreement and the Contract of
Guaranty as he did not inform her about said contracts, nor did
he secure her consent thereto at the time of their execution.
Petitioner argued that the benefit of excussion was still
available to him according to him, respondent failed to exhaust
all legal remedies to collect from Macrogen Realty the amount
due under the Compromise Agreement, considering that
Macrogen Realty still had uncollected credits which were more
than enough to pay for the same. Given these premise,
petitioner could not be held liable as guarantor.
The RTC rendered a summary judgment ordering the Spouses to
pay the respondent. Ca affirmed but held the wife not liable.
Issues:
Whether or not petitioner is liable. [Yes]
Whether petitioner can avail the benefit of excussion. [No]
Ruling: Yes.
Under a contract of guarantee, the guarantor binds himself to
the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so. The guarantor who pays for
a debtor, in turn, must be indemnified by the latter. However,
the guarantor cannot be compelled to pay the creditor unless
the latter has exhausted all the property of the debtor and
resorted to all the legal remedies against the debtor. This is
what is otherwise known as the benefit of excussion.
Article 2060 of the Civil Code reads:
Art. 2060. In order that the guarantor may make use of the
benefit of excussion, he must set it up against the creditor upon
the latter’s demand for payment from him, and point out to the
creditor available property of the debtor within Philippine
territory, sufficient to cover the amount of the debt.
The afore-quoted provision imposes a condition for the
invocation of the defense of excussion. Article 2060 of the Civil
Code clearly requires that in order for the guarantor to make
use of the benefit of excussion, he must set it up against the
creditor upon the latter’s demand for payment and point out to
the creditor available property of the debtor within the
Philippines sufficient to cover the amount of the debt.
It must be stressed that despite having been served a demand
letter at his office, petitioner still failed to point out to the
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respondent properties of Macrogen Realty sufficient to cover its
debt as required under Article 2060 of the Civil Code. Such
failure on petitioner’s part forecloses his right to set up the
defense of excussion.
Worthy of note as well is the Sheriff’s return stating that the
only property of Macrogen Realty which he found was its
deposit of P20,242.23 with the Planters Bank.
Article 2059(5) of the Civil Code thus finds application and
precludes petitioner from interposing the defense of excussion.
We quote:
Art. 2059. This excussion shall not take place:
xxxx
(5) If it may be presumed that an execution on the property of
the principal debtor would not result in the satisfaction of the
obligation.
As the Court of Appeals correctly ruled:
We find untenable the claim that the petitioner cannot be
compelled to pay Pyramid because the Macrogen Realty has
allegedly sufficient assets. Reason: The said petitioner had not
genuinely controverted the return made by Sheriff Joseph F.
Bisnar, who affirmed that, after exerting diligent efforts, he was
not able to locate any property belonging to the Macrogen
Realty, except for a bank deposit with the Planter’s Bank at
Buendia, in the amount of P20,242.23. It is axiomatic that the
liability of the guarantor arises when the insolvency or inability
of the debtor to pay the amount of debt is proven by the return
of the writ of execution that had not been unsatisfied. Petition
denied.
3. JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and
LEONOR STA. ANA vs. PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION - Brunx
JN Development Corporation (“JN”) and Traders Royal Bank
(TRB) entered into an agreement whereby TRB would extend to
JN an Export Packing Credit Line for Two Million Pesos
(P2,000,000.00). The loan was covered by several securities,
including a real estate mortgage[2] and a letter of guarantee
from respondent Philippine Export and Foreign Loan Guarantee
Corporation (“PhilGuarantee”), now Trade and Investment
Development Corporation of the Philippines, covering seventy
percent (70%) of the credit line.[3] With PhilGuarantee
issuing a guarantee in favor of TRB,[4] JN, petitioner spouses
Rodrigo and Leonor Sta. Ana[5] and petitioner Narciso Cruz[6]
executed a Deed of Undertaking[7] (Undertaking) to assure
repayment to PhilGuarantee.
It appears that JN failed to pay the loan to TRB upon its
maturity; thus, on 8 October 1980 TRB requested PhilGuarantee
to make good its guarantee.[8] PhilGuarantee informed JN
about the call made by TRB, and inquired about the action of JN
to settle the loan.[9] Having received no response from JN, on
10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty
Four Thousand Eight Hundred Twenty Four Pesos and Thirty
Four Centavos (P934,824.34).[10] Subsequently, PhilGuarantee
made several demands on JN, but the latter failed to pay. On
30 May 1983, JN, through Rodrigo Sta. Ana, proposed to settle
the obligation “by way of development and sale” of the
mortgaged property.[11] PhilGuarantee, however, rejected the
proposal.
PhilGuarantee thus filed a Complaint for collection of
money and damages against herein petitioners.
WON PhilGuarantee may hold petitioners liable? Yes.
Held:
Under a contract of guarantee, the guarantor binds himself to
the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.[34] The guarantor who pays
for a debtor, in turn, must be indemnified by the latter.[35]
However, the guarantor cannot be compelled to pay the
creditor unless the latter has exhausted all the property of the
debtor and resorted to all the legal remedies against the
debtor.[36] This is what is otherwise known as the benefit of
excussion.
It is clear that excussion may only be invoked after legal
remedies against the principal debtor have been expanded.
Thus, it was held that the creditor must first obtain a judgment
against the principal debtor before assuming to run after the
alleged guarantor, “for obviously the ‘exhaustion of the
principal’s property’ cannot even begin to take place before
judgment has been obtained.”[37]
The law imposes conditions precedent for the invocation of the
defense. Thus, in order that the guarantor may make use of the
benefit of excussion, he must set it up against the creditor
upon the latter’s demand for payment and point out to the
creditor available property of the debtor within the Philippines
sufficient to cover the amount of the debt.
While a guarantor enjoys the benefit of excussion, nothing
prevents him from paying the obligation once demand is made
on him. Excussion, after all, is a right granted to him by law and
as such he may opt to make use of it or waive it.
PhilGuarantee’s waiver of the right of excussion cannot prevent
it from demanding reimbursement from petitioners. The law
clearly requires the debtor to indemnify the guarantor what the
latter has paid.
Petitioners’ claim that PhilGuarantee had no more obligation to
pay TRB because of the alleged expiration of the contract of
guarantee is untenable. The guarantee, dated17 December
1979, states:
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In the event of default by JNDC and as a consequence thereof,
PHILGUARANTEE is made to pay its obligation arising under the
aforesaid guarantee PHILGUARANTEE shall pay the BANK the
amount of P1.4 million or 70% of the total obligation unpaid…
....
This guarantee shall be valid for a period of one (1) year from
date hereof but may be renewed upon payment by JNDC of the
guarantee fee at the same rate of 1.5% per annum.[40]
The guarantee was only up to 17 December 1980. JN’s
obligation with TRB fell due on 30 June 1980, and demand on
PhilGuarantee was made by TRB on 08 October 1980. That
payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is
that default and demand on PhilGuarantee had taken place
while the guarantee was still in force.
petitioners’ claim that PhilGuarantee’s failure to give its express
consent to the alleged extensions granted by TRB to JN had
extinguished the guarantee.
The requirement that the guarantor should consent to any
extension granted by the creditor to the debtor under Art. 2079
is for the benefit of the guarantor. As such, it is likewise
waivable by the guarantor. Thus, even assuming that
extensions were indeed granted by TRB to JN, PhilGuarantee
could have opted to waive the need for consent to such
extensions. Indeed, a guarantor is not precluded from waiving
his right to be notified of or to give his consent to extensions
obtained by the debtor. Such waiver is not contrary to public
policy as it is purely personal and does not affect public
interest.[41]
In the instant case, PhilGuarantee’s waiver can be inferred from
its actual payment to TRB after the latter’s demand, despite
JN’s failure to pay the renewal/guarantee fee as indicated in
the guarantee.[42]
For the above reasons, there is no basis for petitioner’s claim
that PhilGuarantee was a mere volunteer payor and had no
legal obligation to pay TRB. The law does not prohibit the
payment by a guarantor on his own volition, heedless of the
benefit of excussion. In fact, it recognizes the right of a
guarantor to recover what it has paid, even if payment was
made before the debt becomes due,[43] or if made without
notice to the debtor,[44] subject of course to some conditions.
Is Willex case applicable? No.
In the said case, the guarantor claimed that it could not be
proceeded against without first exhausting all of the properties
of the debtor. The Court, finding that there was an express
renunciation of the benefit of excussion in the contract of
guarantee, ruled against the guarantor.
In the case at bar, PhilGuarantee is not invoking the benefit of
excussion. It cannot be overemphasized that excussion is a
right granted to the guarantor and, therefore, only he may
invoke it at his discretion. The benefit of excussion, as well as
the requirement of consent to extensions of payment, is a
protective device pertaining to and conferred on the guarantor.
These may be invoked by the guarantor against the creditor as
defenses to bar the unwarranted enforcement of the
guarantee.
However, PhilGuarantee did not avail of these defenses when it
paid its obligation according to the tenor of the guarantee once
demand was made on it. What is peculiar in the instant case is
that petitioners, the principal debtors themselves, are
muddling the issues and raising the same defenses against the
guarantor, which only the guarantor may invoke against the
creditor, to avoid payment of their own obligation to the
guarantor. The Court cannot countenance their self-seeking
desire to be exonerated from the duty to reimburse
PhilGuarantee after it had paid TRB on their behalf and to
unjustly enrich themselves at the expense of PhilGuarantee.
Did the alleged foreclosure of the real estate mortgage over the
land executed as security for the loan agreement extinguish
PhilGuarantee’s obligation? No.
The foreclosure was made on 27 August 1993, “after the case
was submitted for decision in 1992 and before the issuance of
the decision of the court a quo in 1998”.[48] Thus, foreclosure
was resorted to by TRB against JN when they both had become
aware that PhilGuarantee had already paid TRB and that there
was a pending case filed by PhilGuarantee against petitioners.
complaint a quo was filed by PhilGuarantee as guarantor for JN,
and its cause of action was premised on its payment of JN’s
obligation after the latter’s default. PhilGuarantee was well
within its rights to demand reimbursement for such payment
made, regardless of whether the creditor, TRB, was
subsequently able to obtain payment from JN. If double
payment was indeed made, then it is JN which should go after
TRB, and not PhilGuarantee. Petitioners have no one to blame
but themselves, having allowed the foreclosure of the property
for the full value of the loan despite knowledge of
PhilGuarantee’s payment to TRB. Having been aware of such
payment, they should have opposed the foreclosure, or at the
very least, filed a supplemental pleading with the trial court
informing the same of the foreclosure sale.
can the clause “. . . In the event of default by JNDC and as a
consequence thereof, PHILGUARANTEE is made to pay its
obligation arising under the aforesaid guarantee,
PHILGUARANTEE shall pay the BANK the amount of P1.4 million
or 70% of the total obligation unpaid, but in no case shall such
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payment exceed the amount of its guarantee of P1.4 million.
However, any amount/s that PHILGUARANTEE or the BANK may
subsequently recover from JNDC or from any other source
pertaining to this transaction shall be shared pari-passu in the
proportion of 70% for PHILGUARANTEE and 30% for the BANK.”
be invoked? No. Petitioners not being parties to the said
agreement. The clause is clearly for the benefit of the
guarantor and no other
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by
way of settlement of JN’s obligations to PhilGuarantee, the very
same parcel of land mortgaged as security for the loan
agreement. This further weakens the position of petitioners,
since it becomes obvious that they acknowledged the payment
made by PhilGuarantee on their behalf and that they were in
fact willing to negotiate with PhilGuarantee for the settlement
of the said obligation before the filing of the complaint a quo.
4. MIRA HERMANOS, INC., vs. MANILA TOBACCONISTS, INC.,
ET AL., defendants.
FACTS:
By virtue of a written contract entered into between Mira
Hermanos, Inc., and Manila Tobacconists, Inc., the former
agreed to deliver to the latter merchandise for sale on
consignment under certain specified terms and the latter
agreed to pay to the former on or before the 20th day of each
month the invoice value of all the merchandise sold during the
preceding month. Mira Hermanos, Inc., required of the Manila
Tobacconists, Inc., a bond of P3,000, which was executed by the
Provident Insurance Co., on September 2, 1939, to secure the
fulfillment of the obligation of the Tobacconists under the
contract up to the sum of P3,000.
In the month of October, 1940, the volume of the business of
the Tobacconists having increased so that the merchandise
received by it on consignment from Mira Hermanos exceeded
P3,000 in value, Mira Hermanos required of the Tobacconist an
additional bond of P2,000, and in compliance with that
requirement the defendant Manila Compañia de Seguros, on
October 16, 1940, executed a bond of P2,000with the same
terms and conditions (except as to the amount) as the bond of
the Provident Insurance Co.
On June 1, 1941, a final and complete liquidation was made of
the transactions between Mira Hermanos and the Tobacconists,
as a result of which there was found a balance due from the
latter to the former of P2,272.79, which indebtedness the
Tobacconists recognized but was unable to pay. Thereupon
Mira Hermanos made a demand upon the two surety
companies for the payment of said sum.
The Provident Insurance Co., paid only the sum of P1,363.67,
which is 60% of the amount owned by the Tobacconists to Mira
Hermanos, alleging that the remaining 40% should be paid by
the other surety, Manila Compañia de Seguros, in accordance
with article 8137 of the Civil Code. The Manila Compañia de
Seguros refused to pay the balance, contending that so long as
the liability of the Tobacconists did not exceed P3,000, it was
not bound to pay anything because its bond referred only to the
obligation of the Tobacconists in excess of P3,000 and up to
P5,000. Hence Mira Hermanos, Inc., brought this action against
the Manila Tobacconists, Inc., Provident Insurance Co., and
Manila Compañia de Seguros to recover from them jointly and
severally the sum of P909.12 with legal interest thereon from
the date of the complaint.
ISSUE:
Whether or not Manila Compania de Seguros is liable only in so
far as the liability of Manila Tobacconists has exceeded P3000.
HELD:
YES, Manilla Compania de Seguros is only liable when the the
liability of Manila Tobacconist has exceeded P3000.
RATIO:
We find that the statement of the trial court to the effect that
the bond of P3,000 responded for the obligation of the
Tobacconists up to the sum of P3,000 and the bond of P2,000
responded for the obligation of the Tobacconists only insofar as
it might exceed P3,000 and up to P5,000, is not a mere theory
but a finding of fact based upon the undisputed testimony of
the witnesses called by the defendant Manila Compañia de
Seguros in support of its special defense hereinbefore quoted.
While on its face the bond given by the Manila Compañia de
Seguros contains the same terms and conditions (except as to
the amount) as those of the bond given by the Provident
Insurance Co., nevertheless it was pleaded by the Manila
Compañia de Seguros and found proven by the trial court "que
la intencion realmente que se habia perseguido, por lo menos
en lo que respecta a la Manila Tobacconists, Inc., y la Manila
Compañia de Seguros, era la de que esta fianza de P2,000
habria de responder solamente por todo aquello que
excediera de los P3,000." (Interpretation: Manila Compania de
seguros will only be liable for the bond of P2000 when the
liability of Manila Tobacconists will exceed P3000.)
The evidence upon which that finding is based is not only
undisputed but perfectly reasonable and convincing. For, as the
trial court observed, there would have been no need for the
additional bond of P2,000 if its purpose were to cover the first
P2,000 already covered by the P3,000 bond of the Provident
Insurance Co. Indeed, we might add, if the purpose of the
additional bond of P2,000 were to cover not the excess over
and above P3,000 but the first P2,000 of the obligation of the
principal debtor like the bond of P3,000 which covered only the
first P3,000 of said obligation, then it would result that had the
obligation of the Tobacconists exceeded P3,000, neither of the
two bonds would have responded for the excess, and that was
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precisely the event against which Mira Hermanos wanted to
protect itself by demanding the additional bond of P2,000.
5.Tuason, Tuason, Inc. vs. Machuca GR-L 22177 Dec. 2 1924 –
Pearl Canada
Facts: Manila Compania de Seguros signed a note for P9,633 in
favor of Tuason, Tuason Inc. to guarantee a liability of Universal
Trading Co, In turn, Universal Trading Co. and its president,
Antonio Machuca, in his personal capacity, executed a
document wherein they bound themselves solidarily to
reimburse Manila Compania de Seguros all of such sum it may
pay or become bound to pay, upon its obligation to Tuason,
Tuason Inc. whether or not it shall have actually paid such sums
or any part thereof. Universal Trading Co. was declared
insolvent.
Tuason, Tuason, Inc. brought action against Manila Compania
De Seguros to recover the value of the note and obtained final
judgment. Later, Manila Compania De Seguros filed a complaint
against Machuca to recover the amount which Manila
Compania De Seguros was sentenced to pay Tuason, Tuason,
Inc, plus attorney’s fees, judicial costs and sheriff’s fees, and
interest, although Manila Compania De Seguros had not, in fact,
paid the amount of the judgment.
Issue:
a) WON Tuason, Tuason Inc. Is entitled to the relief sought in
view of the above facts?
b) WON Tuason, Tuason Inc. has the right to recover from
Machuca more than the value of the note executed by Tuason,
Tuason, Inc. in favor of Manila Compania de Seguros?
Held:
a. Yes. It is indispensable that Universal Trading Co. became
bound by virtue of final judgment to pay the value of the note
executed by it in favor of Manila Compania de Seguros, and
according to the document executed solidarily by Universal
Trading Co. and Machuca, Machuca bound himself to pay
Tuason, Tuason, Inc. as soon as the latter may have become
bound and liable, whether or not it shall have actually paid.
b. Machuca must not be responsible for the expenses
incurred by Manila Compania De Seguros in the litigation
between it and Tuason, Tuason, Inc. and it cannot charge
Machuca with expenses it was compelled to make by reason of
its fault. It is entitled only to expenses incurred by it in the
action against Machuca.
6. Kuenzle vs. Sunco
Facts:
Tan Sunco was a surety for Chung Chu Sing for the payment by
the latter of the purchase price of certain merchandise
purchased by said Chung Chu Sing of Ed. A. Keller & Co. The
debt remained unpaid (total debt was composed of four
invoices of varying amounts — P395.50, P450, P565, and
P320.20)
An action had been commenced against the said debtor, Chung
Chu Sing, by Kuenzle & Streiff for the recovery of the
indebtedness due. Before judgment was secured in that action,
Tan Sunco brought an action against Chung Chu Sing for the
payment of another robligation for which Tan Sunco acted as
guarantor. Immediately after obtaining judgment, Tan Sunco
caused to be levied thereunder executions upon all of the
property of Chung Chu Sing, which property was not more than
sufficient to pay the judgments under which the levies were
made.
The plaintiff in this action contends that said four judgments
ought to be set wholly aside on account of their having been
obtained, as he claims, by collusion and fraud, because the
debtor did not owe anything to Sunco at the time the four
judgments were secured, basing that contention on the fact,
which is admitted, that Sunco had not yet paid the sums for
which he had become surety and in connection with he
obtained the judgments.
Issue: WON a guarantor who sues his principal debtor before
paying the debt himself entitled to recover judgment for the
debt?
Held: No, while the surety has the right to obtain judgment
against his principal debtor, he will not be permitted to realize
on said judgment to the point of actual collection until he has
satisfied, or caused to be satisfied, the obligation the payment
of the obligation of which he assures. A guarantor who obtains
judgment against his principal cannot execute said judgment
against the latter’s property until he has paid the debt for which
he stands as guarantor
We think that article 1843 of the Civil Code is applicable to this
case. In their purpose articles 1838 and are quite distinct,
although in perfect harmony, the latter making more clearly
effective the purpose of the former. Article 1838 provides for
the enforcement of the rights of the surety against the debtor
after he has paid the debt. Article 1843 provides for his
protection before he has paid but after he has become liable to
do so. The one gives a right of action after payment, the other a
protective remedy before payment. (Supreme court of Spain,
March 22, 1901.) The one is a substantive right, the other of the
nature of a preliminary remedy. The one gives a right of action
which, without the provisions of the other, might be worthless.
The remedy given in article 1843 purpose to obtain for the
surety "relief from the burden of his suretyship or guaranty to
defend him against any proceedings of the creditor and from
the danger of insolvency of the debtor." (Last paragraph of art.
1843.) Article 1838, speaking strictly, has no such purpose.
When the surety’s rights under this article become available, he
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is past the point where a preliminary protective remedy is of
any value to him.
It being evident that the purpose of article 1843 is to give to the
surety a remedy in anticipation of the payment of the debt,
which debt, being due, he could be called upon to pay at any
time, it remains only to say, in this connection, that the only
procedure known under our present practice to enforce that
the right is by action. (Manresa, Civil Code, vol. 12, p. 320.) The
defendant Sunco availed himself of that right against debtor.
The methods employed by him to realize his end were unusual
but not of themselves fraudulent.
But while the surety has the right to obtain as he did the
judgments against the principal debtor, he ought not to be
allowed to realized on said judgments to the point of actual
collection of the same until he has satisfied or caused to be
satisfied the obligation the payment of which he assures.
Otherwise, a great opportunity for collusion and improper
practice between the surety and his principal would be offered
which might result to the injury and prejudice of the creditor
who holds the claim against them.
The judgment of the court below is, therefore, affirmed, with
costs against the Appellant. But the said Sunco shall not execute
said judgments against the property of the judgment debtor
until he has paid the debt for which he stands surety. So
ordered.
7. PNB vs. Manila Surety - RanizzaDatukon
Facts: Philippine National Bank (PNB) had opened a letter of
credit and advanced thereon $120,000.00 to Edgington Oil
Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000
tons worth P279,000.00 were released and delivered to Adams
&Taguba Corporation (known as ATACO) under a trust receipt
guaranteed by Manila Surety & Fidelity Co. up to the amount of
P75,000.00. To pay for the asphalt, ATACO constituted the Bank
its assignee and attorney-in-fact to receive and collect from the
Bureau of Public Works the amount aforesaid out of funds
payable to the assignor under Purchase Order No. 71947.
The conditions of this assignment are as follows:
1. The same shall remain irrevocable until the said
credit accomodation is fully liquidated.
2. The PNB is hereby appointed as our Attorney-in-Fact
for us and in our name, place and stead, to collect and
to receive the payments to be made by virtue of the
aforesaid Purchase Order, with full power and
authority to execute and deliver on our behalf, receipt
for all payments made to it; to endorse for deposit or
encashment checks, money order and treasury
warrants which said Bank may receive, and to apply
said payments to the settlement of said credit
accommodation.
This power of attorney shall also remain irrevocable
until our total indebtedness to the said Bank have
been fully liquidated.
ATACO delivered to the Bureau of Public Works, and the latter
accepted, asphalt to the total value of P431,466.52. Of this
amount the PNB regularly collected, from April 21, 1948 to
November 18, 1948, P106,382.01. Thereafter, for unexplained
reasons, the PNB ceased to collect, until in 1952 its
investigators found that more moneys were payable to ATACO
from the Public Works office, because the latter had allowed
mother creditor to collect funds due to ATACO under the same
purchase order to a total of P311,230.41.
Its demands on the principal debtor and the Surety having been
refused, the PNB sued both to recover the balance of
P158,563.18 as of February 15, 1950, plus interests and costs.
On October 4, 1958, the trial court rendered a decision in favor
of PNB.
PNB recoursed to the CA, which rendered an adverse decision
and modified the judgment of the trial court.
The CA found PNB to have been negligent in having stopped
collecting from the Bureau of Public Works the moneys falling
due in favor of the principal debtor, ATACO, from and after
November 18, 1948, before the debt was fully collected,
thereby allowing such funds to be taken and exhausted by
other creditors to the prejudice of the surety, and held that the
Bank's negligence resulted in exoneration of respondent Manila
Surety & Fidelity Company.
Issue: Is Manila Surety exonerated from liability? YES.
Ruling: Even if the assignment with power of attorney from
the principal debtor were considered as mere additional
security still, by allowing the assigned funds to be exhausted
without notifying the surety, the Bank deprived the former of
any possibility of recoursing against that security.The Bank
thereby exonerated the surety, pursuant to Article 2080 of the
Civil Code:
ART. 2080. — The guarantors, even though they be
solidary, are released from their obligation whenever
by come act of the creditor they cannot be subrogated
to the rights, mortgages and preferences of the latter.
PNB’s contention: the power of attorney obtained from ATACO
was merely in additional security in its favor, and that it was the
duty of the surety, and not that of the creditor, owed see to it
that the obligor fulfills his obligation, and that the creditor
owed the surety no duty of active diligence to collect any, sum
from the principal debtor, citing Judge Advocate General vs.
Court of Appeals, G.R. No. L-10671, October 23, 1958.
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· On November 24, 1989, dissatisfied with the

Issue: Is the contention tenable? NO. progress of the work undertaken by x x x JDS,
[respondent] Republic-Asahi extrajudicially rescinded
Ruling: The SC held that the argument of PNB misses the the contract pursuant to Article XIII of said contract,
point. The CA did not hold the Bank answerable for negligence and wrote a letter to x x x JDS informing the latter of
in failing to collect from the principal debtor but for its neglect such rescission.
in collecting the sums due to the debtor from the Bureau of
Public Works, contrary to its duty as holder of an exclusive and · Such rescission, according to Article XV of the
irrevocable power of attorney to make such collections, since contract shall not be construed as a waiver of
an agent is required to act with the care of a good father of a [respondent’s] right to recover damages from x x x JDS
family (Civ. Code, Art. 1887) and becomes liable for the and the latter’s sureties.
damages which the principal may suffer through his non-
performance (Civ. Code, Art. 1884). Certainly, the Bank could · "[Respondent] alleged that, as a result of x x x
not expect that the Bank would diligently perform its duty JDS’s failure to comply with the provisions of the
under its power of attorney, but because they could not have contract, which resulted in the said contract’s
collected from the Bureau even if they had attempted to do so. rescission, it had to hire another contractor to finish
It must not be forgotten that the Bank's power to collect was the project, for which it incurred an additional expense
expressly made irrevocable, so that the Bureau of Public Works of three million two hundred fifty six thousand, eight
could very well refuse to make payments to the principal debtor hundred seventy four pesos (P3,256,874.00).
itself, and a fortiori reject any demands by the surety.
· "[Respondent] then filed [a] complaint against x x
8. STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs.
x JDS and SICI
REPUBLIC-ASAHI GLASS CORPORATION, Respondent
o It sought from x x x JDS payment
Facts:
ofP3,256,874.00 representing the additional
expenses, jointly and severally.
· [Respondent] Republic-Asahi Glass Corporation
(Republic-Asahi) entered into a contract with x x x Jose
o payment of P750,000.00 as damages in
D. Santos, Jr., the proprietor of JDS Construction (JDS),
accordance with the performance bond
for the construction of roadways and a drainage
system in Republic-Asahi’s compound.
o exemplary damages in the amount
of P100,000.00
· Republic-Asahi Glass Corporation was to pay x x x
JDS five million three hundred thousand pesos
o attorney’s fees in the amount of at
(P5,300,000.00) inclusive of value added tax for said
least P100,000.00.
construction, which was supposed to be completed
within a period of two hundred forty (240) days.
· On July 10, 1991, [petitioner] SICI filed its answer,
alleging that the [respondent’s] money claims against
· In order to guarantee the faithful and satisfactory
[petitioner and JDS] have been extinguished by the
performance of its undertakings’ x x x JDS, shall post a
death of Jose D. Santos, Jr.
performance bond of seven hundred ninety five
thousand pesos (P795,000.00).
Issue: Whether or not [petitioner’s] ] Stronghold Insurance Co.,
Inc’s (SICI) liability under the performance bond was
· Thus, JDS executed, jointly and severally with
AUTOMATICALLY extinguished by the death of Santos, the
[petitioner] Stronghold Insurance Co., Inc. (SICI)
principal?
Performance Bond No. SICI-25849/g(13)9769.

Held: No. The death did not extinguish SICI’s liability because it
· Several times prior to November of 1989,
is solidarily liable with Santos.
[respondent’s] engineers called the attention of x x x
JDS to the alleged alarmingly slow pace of the
construction, which resulted in the fear that the Ratio:
construction will not be finished within the stipulated
240-day period. · As a general rule, the death of either the creditor
or the debtor does not extinguish the obligation

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· The liability of petitioner is contractual in nature,
because it executed a performance bond worded as
follows:
“ xxx That we, JDS CONSTRUCTION of 208-A
San Buena Building, contractor, of Shaw Blvd.,
Pasig, MM Philippines, as principal and the
STRONGHOLD INSURANCE COMPANY, INC. a
corporation duly organized and existing under
and by virtue of the laws of the Philippines
with head office at Makati, as Surety, are held
and firmly bound unto the REPUBLIC ASAHI
GLASS CORPORATION and to any individual,
firm, partnership, corporation or association
supplying the principal with labor or materials
in the penal sum of SEVEN HUNDRED NINETY
FIVE THOUSAND (P795,000.00), Philippine
Currency, for the payment of which sum, well
and truly to be made, we bind ourselves, our
heirs, executors, administrators, successors
and assigns, jointly and severally, firmly by
these presents xxx.
· As a surety, petitioner is solidarily liable with
Santos in accordance with the Civil Code, which
provides as follows:
o "Art. 2047. By guaranty a person, called
the guarantor, binds himself to the creditor
to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
"If a person binds himself solidarily with the
principal debtor, the provisions of Section
4,17 Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a
suretyship."
xxxxxxx
xx
o "Art. 1216. The creditor may proceed
against any one of the solidary debtors or
some or all of them simultaneously. The
demand made against one of them shall not
be an obstacle to those which may
subsequently be directed against the others,
so long as the debt has not been fully
collected.
· Elucidating on these provisions, the Court
in Garcia v. Court of Appeals18 : “although the contract
of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or
promisee of the principal is said to be direct, primary
and absolute; in other words, he is directly and
equally bound with the principal.”
· The death of the principal debtor will not work
to convert, decrease or nullify the substantive right of
the solidary creditor.
· Despite the death of the principal debtor, respondent
may still sue petitioner alone, in accordance with the solidary
nature of the latter’s liability under the performance bond.
9. SPOUSES VICKY TAN TOH and LUIS TOH vs.
SOLID BANK CORPORATION, FIRST BUSINESS PAPER
CORPORATION, KENNETH NG LI and MA. VICTORIA NG LI –
Kirstin Dela Cruz G.R. No. 154183 August 7, 2003
Facts:
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND
an "omnibus line" credit facility worth P10 million in favor of
respondent First Business Paper Corporation (FBPC). Terms and
conditions were embodied in a “letter-advise”. The "letter-
advise"was effective upon "compliance with the documentary
requirements."
The documents essential for the credit facility and submitted
for this purpose were thexxx (c) Continuing Guaranty for any
and all amounts signed by petitioner-spouses Luis Toh and Vicky
Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng
Li.
The spouses Luis Toh and Vicky Tan Toh were then Chairman of
the Board and Vice-President, respectively, of FBPC, while
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li were
President and General Manager, respectively, of the same
corporation.
More than thirty (30) days from date of the "letter-advise,"
petitioner-spouses Luis Toh and Vicky Tan Toh and respondent-
spouses Kenneth Ng Li and Ma. Victoria Ng Li signed the
required Continuing Guaranty, which was embodied in a public
document prepared solely by respondent Bank.
The ContinuingGuaranty set forth no maximum limit on the
indebtedness that respondent FBPC may incur and for which
the sureties may be liable, stating that the credit facility "covers
any and all existing indebtedness of, and such other loans and
credit facilities which may hereafter be granted to FIRST
BUSINESS PAPER CORPORATION."
The surety also contained a de facto acceleration clause if
"default be made in the payment of any of the instruments,
indebtedness, or other obligation" guaranteed by petitioners
and respondents. So as to strengthen this security, the
Continuing Guaranty waived rights of the sureties against delay
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or absence of notice or demand on the part of respondent
Bank, and gave future consent to the Bank's action to "extend
or change the time payment, and/or the manner, place or
terms of payment," including renewal, of the credit facility or
any part thereof in such manner and upon such terms as the
Bank may deem proper without notice to or further assent from
the sureties.
Respondent FBPC availed of the credit facility and procured
letters of credit. It obtained loans totaling P15,227,510.00.
Since the letters of credit were secured, FBPC through its
officers Kenneth Ng Li, Ma. Victoria Ng Li and Redentor Padilla
as signatories executed a series of trust receipts over the goods
allegedly purchased from the proceeds of the loans.
On 13 January 1994 respondent Bank received information that
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had
fraudulently departed from their conjugal home. The Bank
invoked the Continuing Guaranty executed by petitioner-
spouses Luis Toh and Vicky Tan Toh who were the only parties
known to be within national jurisdiction to answer as sureties
for the credit facility of FBPC and served a demand letter to
them.
Respondent Bank filed a complaint for sum of money with ex
parte application for a writ of preliminary attachment against
FBPC, spouses Kenneth Ng Li and Ma. Victoria Ng Li, and
spouses Luis Toh and Vicky Tan Toh.
Petitioner-spouses acknowledged that Luis Toh was designated
as one of the authorized corporate signatories for transactions
in relation to FBPC's checking account with respondent Bank.
Petitioner-spouses however could not be certain whether to
deny or admit the due execution and authenticity of the
Continuing Guaranty. They could only allege that they were
made to sign papers in blank and the Continuing Guaranty could
have been one of them.
Petitioners averred that they already withdrew from FBPC and
therefore should no longer be liable. They also averred that
sometime in June 1993 they obtained from respondent Kenneth
Ng Li their exclusion from the several surety agreements they
had entered into with different banks.
Issue: W/N Spouses Toh can be held liable under the Continuing
Guaranty between the FBPC and the Bank.
Ruling: No.
This Court holds that the Continuing Guaranty is a valid and
binding contract of petitioner-spouses as it is a public document
that enjoys the presumption of authenticity and due execution.
Similarly, there is no basis for petitioners to limit their
responsibility thereon so long as they were corporate officers
and stockholders of FBPC. Nothing in the Continuing Guaranty
restricts their contractual undertaking to such condition or
eventuality. Verily, if petitioners intended not to be charged as
sureties after their withdrawal from FBPC, they could have
simply terminated the agreement by serving the required
notice of revocation upon the Bank as expressly allowed
therein.
Although the Court held that the spouses are validly bound by
the Continuing Guaranty, they are discharged of their liability
because of the following omissions made by the bank:
1) The bank made illicit extensions;
Certainly, while the Bank may extend the due date at its
discretion pursuant to the Continuing Guaranty, it should
nonetheless comply with the requirements that domestic
letters of credit be supported by fifteen percent (15%) marginal
deposit extendible three (3) times for a period of thirty (30)
days for each extension, subject to twenty-five percent (25%)
partial payment per extension. This reading of the Continuing
Guaranty is consistent with Philippine National Bank v. Court of
Appeals that any doubt on the terms and conditions of the
surety agreement should be resolved in favor of the surety.
As a result of these illicit extensions, petitioner-spouses Luis
Toh and Vicky Tan Toh are relieved of their obligations as
sureties of respondent FBPC under Art. 2079 of the Civil Code.
2) The guaranty was executed more than thirty (30)
days from the original acceptance period as required in
the "letter-advise"; and
3) Failure of the bank to ascertain the purpose of
the procurement of the trust receipts.
The consequence of the omissions of the respondent bank is to
discharge the surety, petitioners herein, under Art. 2080 of the
Civil Code, or at the very least, mitigate the liability of the surety
up to the value of the property or lien released –
If the creditor x xx has acquired a lien upon the property of a
principal, the creditor at once becomes charged with the duty
of retaining such security, or maintaining such lien in the
interest of the surety, and any release or impairment of this
security as a primary resource for the payment of a debt, will
discharge the surety to the extent of the value of the property
or lien released x xxx [for] there immediately arises a trust
relation between the parties, and the creditor as trustee is
bound to account to the surety for the value of the security in
his hands.
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PLEDGE
10. ATTY. DIONISIO CALIBO, JR., VS .COURT OF APPEALS and
DR. PABLO U. ABELLA – January 29, 2001 - CAR GONZALES
Facts: PR Pablo is the owner of a tractor. Sometime in 1985,
PR’s son, Mike, rented the house of Calibo. In 1986, Pablo left
the tractor in the safekeeping of Mike, which the later kept in
the garage of the rented house. However, Mike was not able to
pay the rental arrears and bills in the leased premises. Mike also
assured Calibo that he would be staying in the leased property
until the end of December 1986 and that he would be settling
his account with Calibo, offering the tractor as security. The said
tractor was moved to the garage of Calibo’s father. In 1987, on
three occasions, Calibo tried to collect payment from Mike.
When again confronted with his outstanding obligation, Mike
reassured Calibo that the tractor would stand as a guarantee for
its payment. That was the last time Calibo saw or heard from
Mike.
On November 22, 1988, Mike's father, Pablo Abella, came to
Tagbilaran City to claim and take possession of the tractor.
Calibo, however, informed Pablo that Mike left the tractor with
him as security for the payment of Mike's obligation to him.
Pablo offered to write Mike a check for P2,000.00 in payment of
Mike's unpaid lease rentals, in addition to issuing postdated
checks to cover the unpaid electric and water bills the
correctness of which Pablo said he still had to verify with Mike.
Calibo told Pablo that he would accept the P2,000.00-check
only if the latter would execute a promissory note in his favor to
cover the amount of the unpaid electric and water bills. Pablo
was not amenable to this proposal. The two of them having
failed to come to an agreement, Pablo left and went back to
Cebu City, unsuccessful in his attempt to take possession of the
tractor."
On November 25, 1988, private respondent instituted an action
for replevin, claiming ownership of the tractor and seeking to
recover possession thereof from petitioner. RTC and CA ruled in
favour of Pablo.
The Court of Appeals sustained the ruling of the trial court that
Mike Abella could not have validly pledged the subject tractor
to petitioner since he was not the owner thereof, nor was he
authorized by its owner to pledge the tractor. Respondent court
also rejected petitioner's contention that, if not a pledge, then a
deposit was created. The Court of Appeals said that under the
Civil Code, the primary purpose of a deposit is only safekeeping
and not, as in this case, securing payment of a debt.
Issue: W/N the tractor in question was validly pledged to him
by private respondent's son Mike Abella to answer for the
latter's monetary obligations to petitioner. Or in alternative,
that the tractor was left with him, in the concept of an
innkeeper, on deposit and that he may validly hold on thereto
until Mike Abella pays his obligations.
Held: In a contract of pledge, the creditor is given the right to
retain his debtor's movable property in his possession, or in
that of a third person to whom it has been delivered, until the
debt is paid. For the contract to be valid, it is necessary that: (1)
the pledge is constituted to secure the fulfillment of a principal
obligation; (2) the pledgor be the absolute owner of the thing
pledged; and (3) the person constituting the pledge has the free
disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
As found by the trial court and affirmed by respondent court,
the pledgor in this case, Mike Abella, was not the absolute
owner of the tractor that was allegedly pledged to petitioner.
The tractor was owned by his father, private respondent, who
left the equipment with him for safekeeping. Clearly, the
second requisite for a valid pledge, that the pledgor be the
absolute owner of the property, is absent in this case. Hence,
there is no valid pledge.
"He who is not the owner or proprietor of the property pledged
or mortgaged to guarantee the fulfillment of a principal
obligation, cannot legally constitute such a guaranty as may
validly bind the property in favor of his creditor, and the
pledgee or mortgagee in such a case acquires no right
whatsoever in the property pledged or mortgaged."
There also does not appear to be any agency in this case. We
agree with the Court of Appeals that:
"As indicated in Article 1869, for an agency relationship to be
deemed as implied, the principal must know that another
person is acting on his behalf without authority. Here, appellee
categorically stated that the only purpose for his leaving the
subject tractor in the care and custody of Mike Abella was for
safekeeping, and definitely not for him to pledge or alienate the
same. If it were true that Mike pledged appeellee's tractor to
appellant, then Mike was acting not only without appellee's
authority but without the latter's knowledge as well.
Article 1911, on the other hand, mandates that the principal is
solidarily liable with the agent if the former allowed the latter
to act as though he had full powers. Again, in view of appellee's
lack of knowledge of Mike's pledging the tractor without any
authority from him, it stands to reason that the former could
not have allowed the latter to pledge the tractor as if he had full
powers to do so."
There is likewise no valid deposit in this case. In a contract of
deposit, a person receives an object belonging to another with
the obligation of safely keeping it and of returning the same.
Petitioner himself states that he received the tractor not to
safely keep it but as a form of security for the payment of Mike
Abella's obligations. There is no deposit where the principal
purpose for receiving the object is not safekeeping.
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11.CAVITE DEVELOPMENT BANK and FAR EAST BANK AND
TRUST COMPANY vs. SPS. CYRUS LIM and LOLITA CHAN LIM,
CA - G.R. No. 131679 February 1, 2000 Kristine Javier
 A certain Rodolfo Guansing obtained loan from CDB in the
amount of 90K and mortgaged a parcel of land to secure
such
 CDB was the highest bidder in the foreclosure sale.
Guansing failed to redeem it hence Guansing’s TCT was
cancelled a NEW TCT was issued
 Lolita Chan Lim offered to purchase such property from
CDB. The written Offer to Purchase states in part:
We hereby offer to purchase your property at La Loma,
Quezon City for P300,000.00 under the following terms and
conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal
occupants or tenants.
Pursuant to the foregoing terms and conditions of the
offer, Lim paid CDB P30,000.00 as Option Money, for which
she was issued Official Receipt.
 However, after some time following up the sale, Lim
discovered that the subject property was originally
registered in the name of the father of the mortgagor
Guansing, Perfecto Guansing. Rodolfo succeeded in having
his own title, the same one whuch he mortgaged to CDB. It
appears however, that the father, Perfecto, instituted a
civil case for the cancellation of his son’s title in which
Perfecto’s title was restored and in effect cancelling
Rodolfo’s. Such decision has become final and executory.
 Aggrieved by what she considered a serious
misrepresentation by CDB and its mother-company, FEBTC,
on their ability to sell the subject property, Lim, joined by
her husband, filed an action for specific performance and
damages.
 RTC = Favored Sps. Lim.
 CA = Affirmed in toto. Motion for Recon. was denied as
well. Hence this petition.
RULING:
1. What is the legal relation between the bank and Lolita
Chan Lim; Is the bank mortgagee-in-good-faith?
CDB and FEBTC deny that a contract of sale was ever perfected
between them and Lolita Chan Lim. They contend that Lim's
letter-offer clearly states that the sum of P30,000,00 was given
as option money, not as earnest money. They thus conclude
that the contract between CDB and Lim was merely an option
contract, not a contract of sale.
Such contention has NO MERIT. In determining the nature of a
contract, the courts are not bound by the name or title given to
it by the contracting parties. In the case at bar, the sum of
P30,000.00, although denominated in the offer to purchase as
"option money," is actually in the nature of earnest money or
down payment when considered with the other terms of the
offer.
In this case, after the payment of the 10% option money, the
Offer to Purchase provides for the payment only of the balance
of the purchase price, implying that the "option money" forms
part of the purchase price. This is precisely the result of paying
earnest money under Art. 1482 of the Civil Code. Moreover,
RTC found that CDB accepted Lim's offer to purchase based on
the testimony of an established witness.
Given CDB's acceptance of Lim's offer to purchase, it appears
that a contract of sale was perfected and, indeed, partially
executed because of the partial payment of the purchase
price. There is, however, a serious legal obstacle to such sale,
rendering it impossible for CDB to perform its obligation as
seller to deliver and transfer ownership of the property.
Nemodat quod non habet, as an ancient Latin maxim says. One
cannot give what one does not have. In applying this precept to
a contract of sale, a distinction must be kept in mind between
the "perfection" and "consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and
upon the price. It is, therefore, not required that, at the
perfection stage, the seller be the owner of the thing sold or
even that such subject matter of the sale exists at that point in
time. Thus, under Art. 1434 of the Civil Code, when a person
sells or alienates a thing which, at that time, was not his, but
later acquires title thereto, such title passes by operation of law
to the buyer or grantee. This is the same principle behind the
sale of "future goods" under Art. 1462 of the Civil
Code.However, under Art. 1459, at the time of delivery or
consummation stage of the sale, it is required that the seller be
the owner of the thing sold. Otherwise, he will not be able to
comply with his obligation to transfer ownership to the buyer. It
is at the consummation stage where the principle of nemodat
quod non habetapplies.
In this case, the sale by CDB to Lim of the property mortgaged
in 1983 by Rodolfo Guansing must, therefore, be deemed a
nullity for CDB did not have a valid title to the said property. To
be sure, CDB never acquired a valid title to the property
because the foreclosure sale, by virtue of which, the property
had been awarded to CDB as highest bidder, is likewise void
since the mortgagor was not the owner of the property
foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a
sale in accordance with Art. 1458 of the Civil Code, under
which the mortgagor in default, the forced seller, becomes
obliged to transfer the ownership of the thing sold to the
highest bidder who, in turn, is obliged to pay therefor the bid
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price in money or its equivalent.Being a sale, the rule that the 2. Who, if any, among the parties was at fault for the nullity of
seller must be the owner of the thing sold also applies in a the contract?
foreclosure sale. This is the reason Art. 2085 of the Civil Code,
Both the RTC and CA found petitioner Banks guilty of fraud
in providing for the essential requisites of the contract of
when Lim was asked by CDB to pay the 10% option money, CDB
mortgage and pledge, requires, among other things, that the
already knew that it was no longer the owner of the said
mortgagor or pledgor be the absolute owner of the thing
property, its title having been cancelled. Petitioners contend
pledged or mortgaged, in anticipation of a possible foreclosure
that: (1) such finding of the appellate court is founded entirely
sale should the mortgagor default in the payment of the loan.
on speculation and conjecture; (2) neither CDB nor FEBTC was a
There is, however, a situation where, despite the fact that the party in the case where the mortgagor's title was cancelled; (3)
mortgagor is not the owner of the mortgaged property, his title CDB is not privy to any problem among the Guansings; and (4)
being fraudulent, the mortgage contract and any foreclosure the final decision cancelling the mortgagor's title was not
sale arising therefrom are given effect by reason of public annotated in the latter's title.
policy. This is the doctrine of "the mortgagee in good faith"
In relation to these factual issues, we are bound by the findings
based on the rule that all persons dealing with property
of fact of both RTC and CA. In any case, we are convinced of
covered by a Torrens Certificate of Title, as buyers or
petitioners' negligence in approving the mortgage application
mortgagees, are not required to go beyond what appears on
of Rodolfo Guansing.
the face of the title. The public interest in upholding the
indefeasibility of a certificate of title, as evidence of the lawful 3. Civil effects of a void contract.
ownership of the land or of any encumbrance thereon, protects
Article 1412(2) of the Civil Code provides:
a buyer or mortgagee who, in good faith, relied upon what
appears on the face of the certificate of title. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the
This principle is cited by petitioners in claiming that, as a
following rules shall be observed:
mortgagee bank, it is not required to make a detailed
investigation of the history of the title of the property given as x xx x xx x xx
security before accepting a mortgage.
(2) When only one of the contracting parties is at fault,
We are NOT CONVINCED, however, that under the he cannot recover what he has given by reason of the
circumstances of this case, CDB can be considered a mortgagee contract, or ask for the fulfillment of what has been
in good faith. While petitioners are not expected to conduct an promised him. The other, who is not at fault, may
exhaustive investigation on the history of the mortgagor's demand the return of what he has given without any
title, they cannot be excused from the duty of exercising the obligation to comply with his promise.
due diligence required of banking institutions. In Tomas v.
Tomas,we noted that it is standard practice for banks, before
approving a loan, to send representatives to the premises of 12. DEVELOPMENT BANK OF THE PHILIPPINES,
the land offered as collateral and to investigate who are real vs.
PRUDENTIAL BANK G.R. No. 143772 November 22, 2005 -
owners thereof, noting that banks are expected to exercise Madel Malone-Cervantes
more care and prudence than private individuals in their
dealings, even those involving registered lands, for their Facts: In 1973, Lirag Textile Mills, Inc. (Litex) opened an
business is affected with public interest. We held thus: irrevocable commercial letter of credit with Prudential Bank for
US$498,000. This was in connection with its importation of
In this case, there is no evidence that CDB observed its duty of
5,000 spindles for spinning machinery with drawing frame,
diligence in ascertaining the validity of Rodolfo Guansing's
simplex fly frame, ring spinning frame and various accessories,
title. It appears that Rodolfo Guansing obtained his fraudulent
spare parts and tool gauge. These were released to Litex under
title by executing an Extra-Judicial Settlement of the Estate
covering "trust receipts" it executed in favor of Prudential Bank.
With Waiver where he made it appear that he and Perfecto
Litex installed and used the items in its textile mill.
Guansing were the only surviving heirs entitled to the property,
On October 10, 1980, DBP granted a foreign currency loan in
and that Perfecto had waived all his rights thereto. This self-
the amount of US$4,807,551 to Litex. To secure the loan, Litex
executed deed should have placed CDB on guard against any
executed real estate and chattel mortgages on its plant site,
possible defect in or question as to the mortgagor's title.
including machineries and equipments covered by the "trust
Moreover, the alleged ocular inspection report by CDB's
receipts."
representative was never formally offered in evidence. Indeed,
petitioners admit that they are aware that the subject land was
Prudential Bank learned about DBP’s plan for the overall
being occupied by persons other than Rodolfo Guansing and
rehabilitation of Litex and it notified DBP of its claim over the
that said persons, who are the heirs of Perfecto Guansing,
various items covered by the "trust receipts" which had been
contest the title of Rodolfo.21
installed and used by Litex in the textile mill. Prudential Bank
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informed DBP that it was the absolute and juridical owner of
the said items and they were thus not part of the mortgaged
assets that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially
foreclosed on the real estate and chattel mortgages, including
the articles claimed by Prudential Bank. DBP acquired the
foreclosed properties as the highest bidder.
Subsequently, DBP published an invitation to bid for the auction
sale of the textile mill formerly owned by Litex, the land which it
was built, as well as the machineries and equipments therein.
Learning of the intended public auction, Prudential Bank wrote
DBP reasserting its claim over the items covered by "trust
receipts" in its name and advising DBP not to include them in
the auction. It also demanded the turnover of the articles or
alternatively, the payment of their value.
Since its demands remained unheeded, Prudential Bank filed a
complaint for a sum of money with damages against DBP. RTC
decidedin favor of Prudential Bank, on appeal with CA, it
affirmed the decision of the trial court in toto.
Issue/s:
1.) WON the the agreement between Litex and
Prudential Bank over the machineries and equipments
denominated as “trust receipts” were valid under PD
115 of the Trust Receipts Law. Yes
2.) WON Litex had authority to dispose the
machineries and equipment, which was the subject of
the trust receipt agreement, to conditional sale,
pledge or any other means. No.
Held: 1.) DBP contended that the contested articles were
excluded from goods that could be covered by a trust receipt,
that the chattels in controversy were procured by DBP’s
mortgagor LITEX for the exclusive use of its textile mills. They
were not procured (a) to sell or otherwise procure their sale; (b)
to manufacture or process the goods with the purpose of
ultimate sale.(emphasis supplied)
Hence, the transactions between Litex and Prudential Bank
were allegedly not trust receipt transactions within the meaning
of PD 115. It follows that, the transactions were not governed
by the Trust Receipts Law. We disagree.
The various agreements between Prudential Bank and Litex
commonly denominated as "trust receipts" were valid. As the
Court of Appeals correctly ruled, their provisions did not
contravene the law, morals, good customs, public order or
public policy.
The agreements uniformly provided:
Received, upon the Trust hereinafter mentioned from the
PRUDENTIAL BANK (hereinafter referred to as BANK) the
following goods and merchandise, the property of said BANK
specified in the bill of lading as follows: …and in consideration
thereof, I/We hereby agree to hold said goods in trust for the
BANK and as its property with liberty to sell the same for its
account but without authority to make any other disposition
whatsoever of the said goods or any part thereof (or the
proceeds thereof) either by way of conditional sale, pledge, or
otherwise. (Emphasis supplied)
Trust receipt transactions are governed by the provisions of Sec.
4, PD 115, the Trust Receipts Law. In a trust receipt transaction,
the goods are released by the entruster (who owns or holds
absolute title or security interests over the said goods) to the
entrustee on the latter’s execution and delivery to the entruster
of a trust receipt. The trust receipt evidences the absolute title
or security interest of the entruster over the goods. As a
consequence of the release of the goods and the execution of
the trust receipt, a two-fold obligation is imposed on the
entrustee, namely:
(1) to hold the designated goods, documents or instruments in
trust for the purpose of selling or otherwise disposing of them
and (2) to turn over to the entruster either the proceeds
thereof to the extent of the amount owing to the entruster or
as appears in the trust receipt, or the goods, documents or
instruments themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and conditions
specified in the trust receipt.
In the case of goods, they may also be released for other
purposes substantially equivalent to (a) their sale or the
procurement of their sale; or (b) their manufacture or
processing with the purpose of ultimate sale, in which case the
entruster retains his title over the said goods whether in their
original or processed form until the entrustee has complied
fully with his obligation under the trust receipt; or (c) the
loading, unloading, shipment or transshipment or otherwise
dealing with them in a manner preliminary or necessary to their
sale. Thus, in a trust receipt transaction, the release of the
goods to the entrustee, on his execution of a trust receipt, is
essentially for the purpose of their sale or is necessarily
connected with their ultimate or subsequent sale.
2.) The articles were owned by Prudential Bank and they were
only held by Litex in trust. While it was allowed to sell the items,
Litex had no authority to dispose of them or any part thereof or
their proceeds through conditional sale, pledge or any other
means.
Article 2085 (2) of the Civil Code requires that, in a contract of
pledge or mortgage, it is essential that the pledgor or
mortgagor should be the absolute owner of the thing pledged
or mortgaged. Article 2085 (3) further mandates that the
person constituting the pledge or mortgage must have the free
disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the
authority to freely dispose of the articles. Litex could not have
subjected them to a chattel mortgage. Their inclusion in the
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mortgage was voidand had no legal effect. There being no valid
mortgage, there could also be no valid foreclosure or valid
auction sale.
No one can transfer a right to another greater than what he
himself has.Nemodat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items.
Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher than
its source. DBP merely stepped into the shoes of Litex as trustee
of the imported articles with an obligation to pay their value or
to return them on Prudential Bank’s demand. By its failure to
pay or return them despite Prudential Bank’s repeated
demands and by selling them to Lyon without Prudential Bank’s
knowledge and conformity, DBP became a trustee ex maleficio.
13. Vda de. Jayme vs. CA- Bena Sofia Logramonte
Facts:Sps. Graciano and Mamerta Jayme are the registered
owners of the subject lot in Mandaue City, Cebu. On Jan. 8,
1973, Sps. Jayme entered into a Contract of Lease with George
Neri, president of Airland Motors Corp. (now Cebu Asiancars,
Inc.). The terms and conditions of the lease contract provides
that Asiancars may use the leased premises as a collateral to
secure payment of loan which Asiancars may obtain from any
bank.
In Oct. 1977, Asiancars obtained a loan of P6M from
the Metropolitan Bank and Trust Company (MBTC). The subject
lot was one of the collaterals for the loan. As mortgagors, Sps.
Jayme signed a Deed of Real Estate Mortgage (REM) in favor of
MBTC.
Asiancars failed to pay the loan and eventually, MBTC
extrajudicially foreclosed the mortgage. As a result of the
foreclosure, herein petitioners, heirs of Graciano Jayme, filed a
civil complaint. Petitioners claim that the Sps. Jayme are
illiterate and were deceived into signing the Deed of REM. Their
intention, as well as consent was only to be bound as
guarantors. MBTC denied the said allegations.
Issue: WON the Deed of REM should be annulled on the ground
of vitiated consent.
Ruling: NO
Reasoning:The Deed of REM entered into by Sps. Jayme partake
of a Third Party Mortgage under Art. 2085 (3) of the Civil Code
which reads: The following requisites are essential to the
contracts of pledge and mortgage: (3) that the persons
constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof that they be legally
authorized for the purpose.
In the case at bar, it has been shown that the Sps.
Jayme affixed their signature on the Deed of REM, in the
presence of 2 instrumental witnesses, and duly notarized by
Atty. Cabrera. As a notarized document, it has in its favor the
resumption of regularity, and to overcome this presumption,
there must be evidence that is clear, convincing and more than
merely preponderant that there was irregularity in its
execution; otherwise, the document should be upheld.
Sps. Jayme, therefore, should not be allowed to
disclaim the validity of a transaction they voluntarily and
knowingly entered into for the simple reason that such
transaction turned out prejudicial to them later on.
14. Hechanova and Masavs.Hon. MidpantaoAdil, and
PioServando-Madriaga
Facts:The case under review is for the annulment of a deed of
sale dated March 11, 1978, executed by Jose Y. Servando in
favor of Hechanova and Masa, covering three parcels of land
situated in Iloilo City. Claiming that the said parcels of land
were mortgaged to him (PioServando)in 1970 by the vendor,
who is his cousin(Jose Y. Servando), to secure a loan of
P20,000.00, the plaintiff PioServando impugned the validity of
the sale as being fraudulent, and prayed that it be declared null
and void and the transfer certificates of title issued to the
vendees be cancelled, or alternatively, if the sale is not
annulled, to order the defendant Jose Servando to pay the
amount of P20,000.00, plus interests, and to order defendants
to pay damages. Attached to the complaint was a copy of the
private document evidencing the alleged mortgage (Annex
A),which is quoted hereunder:
August 20, 1970
This is to certify that I, Jose YusayServando, the sole owner of
three parcel of land under Tax Declaration No. 28905, 44123
and 31591 at Lot No. 1, 1863-Portion of 1863 & 1860 situated at
Sto. Nino St., Arevalo, Compania St. &Compania St., Interior
Molo, respectively, have this date mortgaged the said property
to my cousin PioServando, in the amount of TWENTY
THOUSAND PESOS (P20,000.00), redeemable for a period not
exceeding ten (10) years, the mortgage amount bearing an
interest of 10% per annum.
I further certify that in case I fail to redeem the said properties
within the period stated above, my cousin PioServando, shall
become the sole owner thereof.
The defendants (Petitioners herein Hechanova and
Masa)moved to dismiss the complaint on the grounds that it
did not state a cause of action, the alleged mortgage being
invalid and unenforceable since it was a mere private document
and was not recorded in the Registry of Deeds; and that the
plaintiff was not the real party in interest and, as a mere
mortgagee, had no standing to question the validity of the sale.
The motion was denied by the respondent Judge, in its order
dated June 20, 1978, "on the ground that this action is actually
one for collection."
Issue: Whether PioServando has a cause of action to annul the
deed of sale executed by the Jose Servando in favor of
Hechanova and Masa.
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Held:No,It is clear from the records of this case that
PioServando has no cause of action. PioServando has no
standing to question the validity of the deed of sale executed by
the deceased defendant Jose Servando in favor of his co-
defendants Hechanova and Masa. No valid mortgage has been
constituted PioServando's favor, the alleged deed of mortgage
being a mere private document and not registered; moreover,
it contains a stipulation (pactocomisorio) which is null and void
under Article 2088 of the Civil Code. Even assuming that the
property was validly mortgaged to the PioServando, his
recourse was to foreclose the mortgage, not to seek annulment
of the sale.
15.Uy Tong vs CA - Mizzy Maree Martinez
FACTS: Petitioners Uy Tong (also known as Henry Uy) and Kho
Po Giok (SPOUSES) used to be the owners of Apartment No. 307
of the Ligaya Building, together with the leasehold right for
ninety- nine (99) years over the land on which the building
stands. The land is registered in the name of Ligaya
Investments, Inc.
It appears that Ligaya Investments, Inc. owned the building
which houses the apartment units but sold Apartment No. 307
and leased a portion of the land in which the building stands to
the SPOUSES.
In February, 1969, the SPOUSES purchased from private
respondent Bayanihan Automotive, Inc. (BAYANIHAN) seven (7)
units of motor vehicles for a total amount of P47,700.00
payable in three (3) installments. The transaction was
evidenced by a written "Agreement" wherein the terms of
payment had been specified as follows:
That immediately upon signing of this Agreement, the VENDEE
shall pay unto the VENDOR the amount of Seven Thousand
Seven Hundred (P7,000.00) Pesos, Philippine Currency, and the
amount of Fifteen Thousand (P15,000.00) Pesos shah be paid
on or before March 30, 1969 and the balance of Twenty Five
Thousand (P25,000.00) Pesos shall be paid on or before April
30, 1969, the said amount again to be secured by another
postdated check with maturity on April 30, 1969 to be drawn by
the VENDEE;
That if for any reason the VENDEE should fail to pay her
aforementioned obligation to the VENDOR,the latter shall
become automatically the owner of the former's apartment
which is located at No. 307, Ligaya Building, Alvarado St.,
Binondo, Manila, with the only obligation on its part to pay unto
the VENDEE the amount of Three Thousand Five Hundred Thirty
Five (P3,535.00) Pesos, Philippine Currency; and in such event
the VENDEE shall execute the corresponding Deed of absolute
Sale in favor of the VENDOR and or the Assignment of Leasehold
Rights.
After making a downpayment of P7,700.00, the SPOUSES failed
to pay the balance of P40,000.00. Due to these unpaid
balances, BAYANIHAN filed an action for specific performance
against the SPOUSES docketed as Civil Case No. 80420.
Judgment was rendered in favor of BAYANIHAN. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered, ordering the
defendants, jointly and severally, to pay the plaintiffs, the sum
of P40,000.00, with interest at the legal rate from July 1, 1970
until full payment.In the event of their failure to do so within
thirty (30) days from notice of this judgment, they are hereby
ordered to execute the corresponding deed of absolute sale in
favor of the plaintiff and/or the assignment of leasehold rights
over the defendant's apartment located at 307 Ligaya Building,
Alvarado Street, Binondo, Manila, upon the payment by the
plaintiff to the defendants of the sum of P3,535.00.
Pursuant to said judgment, an order for execution pending
appeal was issued by the trial court and a deed of assignment
dated May 27, 1972, was executed by the SPOUSES 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 until November 30,1972.
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 against
them in the City Court of Manila docketed as Civil Case No.
240019. 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 as Civil
Case No. 121532 against the SPOUSES and impleading Ligaya
Investments, Inc. as party defendant.
The decision in said case was rendered in favor of BAYANIHAN
ordering the SPOUSES to vacate, surrender and deliver
possession of Apartment 307, Ligaya Building; Ordering
defendant Ligaya Investment, Inc. to recognize the right of
ownership and possession of BAYANIHAN over Apartment No.
307, Ligaya Building; and ordering Ligaya Investment, Inc. to
acknowledge plaintiff as assignee-lessee in liue of defendants
spouses Uy Tong and Kho Po Giok over the lot on which the
building was constructed.
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The SPOUSES appealed to the Court of Appeals. On October
2,1984, the respondent Court of Appeals affirmed in toto the
decision appealed from.
The SPOUSES contend that the deed of assignment is null and
void because it is in the nature of
a pactumcommissoriumand/or was borne out of the same.
ISSUE: WON the deed of assignment is in the nature of a
pactumcommissorium? (taking into account the two elements
of pactumcommissorium as related to our topic on pledge and
mortgage)
RULING:In support of the first argument, petitioners bring to
the fore the contract entered into by the parties whereby
petitioner Kho Po Giok agreed that the apartment in question
will automatically become the property of private respondent
BAYANIHAN upon her mere failure to pay her obligation. This
agreement, according to the petitioners is in the nature of
a pactumcommissorium which is null and void, hence, the deed
of assignment which was borne out of the same agreement
suffers the same fate.
The prohibition on pactumcommissorium stipulations
provided for by Article 2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of the same. Any
stipulation to the contrary is null and void.
The aforequoted provision furnishes 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 pactumcommissorium 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 pactocommissorio" [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 pactumcommissorium, the deed of
assignment does not suffer the same fate as this was executed
pursuant to a valid judgment in Civil Case No. 80420. This being
the case, there is no reason to impugn the validity of the said
deed of assignment.
16. SPS ONG v ROBAN LENDING CORPORATION - Sigrid Mier
Facts: On different dates from July 14, 1999 to March 20, 2000,
petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong
obtained several loans from RobanLending Corporation
(respondent) in the total amount of P4,000,000.00. These loans
were secured by a real estate mortgage on petitioners' parcels
of land located in Binauganan, Tarlac City and covered by TCT
No. 297840.
is
On February 12, 2001, petitioners and respondent
executed an Amendment to Amended Real Estate Mortgage2
consolidating their loans inclusive of charges thereon which
totaled P5,916,117.50. On even date, the parties executed a
Dacion in Payment Agreement3 wherein petitioners assigned
the properties covered by TCT No. 297840 to respondent in
settlement of their total obligation, and a Memorandum of
Agreement.
Petitioners filed a complaint before the RTC for
declaration of mortgage contract as abandoned, annulment of
deeds, illegal exaction, unjust enrichment, accounting, and
damages, alleging that the Memorandum of Agreement and the
Dacion in Payment executed are void for being
pactumcommissorium. Further, Sps Ong alleged that the loans
extended to them from July 14, 1999 to March 20, 2000 were
founded on several uniform promissory notes, which provided
for 3.5% monthly interest rates, 5% penalty per month on the
total amount due and demandable, and a further sum of 25%
attorney's fees thereon,8 and in addition, respondent exacted
certain sums denominated as "EVAT/AR." Petitioners decried
these additional charges as "illegal, iniquitous, unconscionable,
and revolting to the conscience as they hardly allow any
borrower any chance of survival in case of default."
By Decision of April 21, 2004, Branch 64 of the Tarlac
City RTC, finding on the basis of the pleadings that there was no
pactumcommissorium which was likewise upheld by the Court
of Appeals.
Issue: Whether both contracts constitute pactumcommissorium
or dacion en pago.
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Held: This Court finds that the Memorandum of Agreement and
Dacion in Payment constitute pactumcommissorium, which is
prohibited under Article 2088 of the Civil Code which provides:
“The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the
contrary is null and void."
The elements of pactumcommissorium, which enables
the mortgagee to acquire ownership of the mortgaged property
without the need of any foreclosure proceedings are:
1. there should be a property mortgaged by way of
security for the payment of the principal obligation,
and
2. there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within
the stipulated period.
In the case at bar, the Memorandum of Agreement and the
Dacion in Payment contain no provisions for foreclosure
proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt
within the one-year period gives respondent the right to
enforce the Dacion in Payment transferring to it ownership of
the properties covered by TCT No. 297840. Respondent, in
effect, automatically acquires ownership of the properties
upon petitioners' failure to pay their debt within the
stipulated period.
Respondent argues that the law recognizes dacion en pago
as a special form of payment whereby the debtor alienates
property to the creditor in satisfaction of a monetary obligation.
This does not persuade. In a true dacion en pago, the
assignment of the property extinguishes the monetary debt. In
the case at bar, the alienation of the properties was by way of
security, and not by way of satisfying the debt. The Dacion in
Payment did not extinguish petitioners' obligation to
respondent. On the contrary, under the Memorandum of
Agreement executed on the same day as the Dacion in
Payment, petitioners had to execute a promissory note for
P5,916,117.50 which they were to pay within one year.
As to the rates: This Court finds the attorney's fees of 25%
of the principal, interests and interests thereon, and the penalty
fees unconscionable, and thus reduces the attorney's fees to
25% of the principal amount only.
17. MANILA BANKING VS TEODORO ( JAN 13 1989)
FACTS:On April 25, 1966, defendants, together with
AnastacioTeodoro, Sr., jointly and severally, executed in favor
of plaintiff a Promissory Note (No. 11487) for the sum of
P10,420.00 payable in 120 days, or on August 25, 1966, at 12%
interest per annum. Defendants failed to pay the said amount
inspire of repeated demands and the obligation as of
September 30, 1969 stood at P 15,137.11 including accrued
interest and service charge.
On May 3, 1966 and June 20, 1966, defendants
AnastacioTeodoro, Sr. (Father) and AnastacioTeodoro, Jr. (Son)
executed in favor of plaintiff two Promissory Notes (Nos. 11515
and 11699) for P8,000.00 and P1,000.00 respectively, payable in
120 days at 12% interest per annum. Father and Son made a
partial payment on the May 3, 1966 promissory Note but none
on the June 20, 1966 Promissory Note, leaving still an unpaid
balance of P8,934.74 as of September 30, 1969 including
accrued interest and service charge.
The three Promissory Notes stipulated that any interest due if
not paid at the end of every month shall be added to the total
amount then due, the whole amount to bear interest at the
rate of 12% per annum until fully paid; and in case of collection
through an attorney-at-law, the makers shall, jointly and
severally, pay 10% of the amount over-due as attorney's fees,
which in no case shall be leas than P200.00.
It appears that on January 24, 1964, the Son executed in favor
of plaintiff a Deed of Assignment of Receivables from the
Emergency Employment Administration in the sum of
P44,635.00. The Deed of Assignment provided that it was for
and in consideration of certain credits, loans, overdrafts and
other credit accommodations extended to defendants as
security for the payment of said sum and the interest thereon,
and that defendants do hereby remise, release and quitclaim all
its rights, title, and interest in and to the accounts receivables.
In their stipulations of Fact, it is admitted by the parties that
plaintiff extended loans to defendants on the basis and by
reason of certain contracts entered into by the defunct
Emergency Employment Administration (EEA) with defendants
for the fabrication of fishing boats, and that the Philippine
Fisheries Commission succeeded the EEA after its abolition; that
non-payment of the notes was due to the failure of the
Commission to pay defendants after the latter had complied
with their contractual obligations; and that the President of
plaintiff Bank took steps to collect from the Commission, but no
collection was effected.
For failure of defendants to pay the sums due on the
Promissory Note, this action was instituted on November 13,
1969, originally against the Father, Son, and the latter's wife.
Because the Father died, however, during the pendency of the
suit, the case as against him was dismiss under the provisions of
Section 21, Rule 3 of the Rules of Court. The action, then is
against defendants Son and his wife for the collection of the
sum of P 15,037.11 on Promissory Note No. 14487; and against
defendant Son for the recovery of P 8,394.7.4 on Promissory
Notes Nos. 11515 and 11699, plus interest on both amounts at
12% per annum from September 30, 1969 until fully paid, and
10% of the amounts due as attorney's fees.
the trial court rendered its judgment adverse to defendants
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ISSUES:
(1) whether or not the assignment of receivables has the effect
of payment of all the loans contracted by appellants from
appellee bank; and
(2) whether or not appellee bank must first exhaust all legal
remedies against the Philippine Fisheries Commission before it
can proceed against appellants for collections of loan under the
promissory notes which are plaintiffs bases in the action for
collection.
RULING: Appealed decision of the trial court is affirmed.
I conveyance, should be treated as a pledge if the debt continues
It is evident that the assignment of receivables executed by
appellants on January 24, 1964 did not transfer the ownership
of the receivables to appellee bank and release appellants from
their loans with the bank incurred under promissory notes Nos.
11487,11515 and 11699.
The Deed of Assignment provided that it was for and in
consideration of certain credits, loans, overdrafts, and their
credit accommodations in the sum of P10,000.00 extended to
appellants by appellee bank, and as security for the payment of
said sum and the interest thereon; that appellants as assignors,
remise, release, and quitclaim to assignee bank all their rights,
title and interest in and to the accounts receivable assigned (lst
paragraph). It was further stipulated that the assignment will
also stand as a continuing guaranty for future loans of
appellants to appellee bank and correspondingly the
assignment shall also extend to all the accounts receivable;
appellants shall also obtain in the future, until the consideration
on the loans secured by appellants from appellee bank shall
have been fully paid by them (No. 9).
The position of appellants, however, is that the deed of
assignment is a quitclaim in consideration of their indebtedness
to appellee bank, not mere guaranty, in view of the following
provisions of the deed of assignment:
... the Assignor do hereby remise, release and quit-claim unto
said assignee all its rights, title and interest in the accounts
receivable described hereunder. (Emphasis supplied by
appellants, first par., Deed of Assignment).
... that the title and right of possession to said account
receivable is to remain in said assignee and it shall have the
right to collect directly from the debtor, and whatever the
Assignor does in connection with the collection of said
accounts, it agrees to do so as agent and representative of the
Assignee and it trust for said Assignee ...(Ibid. par. 2 of Deed of
Assignment).' (Record on Appeal, p. 27)
The character of the transactions between the parties is not,
however, determined by the language used in the document
but by their intention. Thus, the Court, quoting from the
American Jurisprudence (68 2d, Secured Transaction, Section
50) said:
The characters of the transaction between the parties is to be
determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a
pledge. However, even though a transfer, if regarded by itself,
appellate to have been absolute, its object and character might
still be qualified and explained by a contemporaneous writing
declaring it to have been a deposit of the property as collateral
security. It has been Id that a transfer of property by the debtor
to a creditor, even if sufficient on its farm to make an absolute
in existence and is not discharged by the transfer, and that
accordingly, the use of the terms ordinarily exporting
conveyance, of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and
ambiguous language or other circumstances excluding an intent
to pledge. (Lopez v. Court of Appeals, 114 SCRA 671 [1982]).
Definitely, the assignment of the receivables did not result from
a sale transaction. It cannot be said to have been constituted by
virtue of a dation in payment for appellants' loans with the bank
evidenced by promissory note Nos. 11487, 11515 and 11699
which are the subject of the suit for collection in Civil Case No.
78178. At the time the deed of assignment was executed, said
loans were non-existent yet. The deed of assignment was
executed on January 24, 1964 (Exh. "G"), while promissory note
No. 11487 is dated April 25, 1966 (Exh. 'A), promissory note
11515, dated May 3, 1966 (Exh.'B'), promissory note 11699, on
June 20, 1966 (Exh. "C"). At most, it was a dation in payment for
P10,000.00, the amount of credit from appellee bank indicated
in the deed of assignment. At the time the assignment was
executed, there was no obligation to be extinguished except the
amount of P10,000.00. Moreover, 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 (Article 1292, New Civil Code).
Obviously, the deed of assignment was intended as collateral
security for the bank loans of appellants, as a continuing
guaranty for whatever sums would be owing by defendants to
plaintiff, as stated in stipulation No. 9 of the deed.
In case of doubt as to whether a transaction is a pledge or a
dation in payment, the presumption is in favor of pledge, the
latter being the lesser transmission of rights and interests
(Lopez v. Court of Appeals, supra).
In one case, the assignments of rights, title and interest of the
defendant in the contracts of lease of two buildings as well as
her rights, title and interest in the land on which the buildings
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were constructed to secure an overdraft from a bank
amounting to P110,000.00 which was increased to P150,000.00,
then to P165,000.00 was considered by the Court to be
documents of mortgage contracts inasmuch as they were
executed to guarantee the principal obligations of the
defendant consisting of the overdrafts or the indebtedness
resulting therefrom. The Court ruled that an assignment to
guarantee an obligation is in effect a mortgage and not an
absolute conveyance of title which confers ownership on the
assignee (People's Bank & Trust Co. v. Odom, 64 Phil. 126
[1937]).
II
As to whether or not appellee bank must have to exhaust all
legal remedies against the Philippine Fisheries Commission
before it can proceed against appellants for collection of loans
under their promissory notes, must also be answered in the
negative.
The obligation of appellants under the promissory notes not
having been released by the assignment of receivables,
appellants remain as the principal debtors of appellee bank
rather than mere guarantors. The deed of assignment merely
guarantees said obligations. That the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted
all the property of the debtor, and has resorted to all the legal
remedies against the debtor, under Article 2058 of the New
Civil Code does not therefore apply to them. It is of course of
the essence of a contract of pledge or mortgage 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 (Article 2087, New Civil Code). In the instant
case, appellants are both the principal debtors and the pledgors
or mortgagors. Resort to one is, therefore, resort to the other.
Appellee bank did try to collect on the pledged receivables. As
the Emergency Employment Agency (EEA) which issued the
receivables had been abolished, the collection had to be
coursed through the Office of the President which disapproved
the same (Record on Appeal, p. 16). The receivable became
virtually worthless leaving appellants' loans from appellee bank
unsecured. It is but proper that after their repeated demands
made on appellants for the settlement of their obligations,
appellee bank should proceed against appellants. It would be an
exercise in futility to proceed against a defunct office for the
collection of the receivables pledged.
18. PEDRO ALCANTARA vs AMBROSIO ALINEA -Justin Ryan
Morilla
FACTS:In 1905, defendants borrowed from the plaintiff P480,
payable in January of same year under the agreement that if, at
the expiration of the said period, said amount should not be
paid it would be understood that the house and lot they owned
be considered as absolutely sold to the plaintiff for the said
sum.
Notwithstanding that the time for the payment of said sum has
expired and no payment has been made, the defendants refuse
to deliver to plaintiff the said property.
The plaintiff filed a complaint in CFI Laguna, praying that
judgment be rendered in his behalf ordering the defendants to
deliver to him the house and lot claimed, and to pay him in
addition thereto as rent (P8 per month) from February of that
year, and to pay the costs of the action.
Defense of Alinea: The defendants argued that the principal
borrowed was only 200 pesos and that the interest was 280
pesos, although the amount of indebtedness was made to
appear in the sum of 480 pesos; and that as their special
defense defendants alleged that they offered to pay the
plaintiff the sum of 480 pesos, but the plaintiff had refused to
accept the same.
TC Ruling: The trial court rendered a judgment ordering the
defendants to deliver to the plaintiff the house and lot and to
pay the costs of the action.
ISSUES:
(1) WAS THE CONTRACT BETWEEN THE PARTIES THAT OF
MORTGAGE, OR PLEDGE, OR ANTICHRESIS; LOAN AND A
PROMISE OF SALE
We have in this case a contract of loan and a promise of sale
of a house and lot, the price of which should be the amount
loaned, if within a fixed period of time such amount should not
be paid by the debtor-vendor of the property to the creditor-
vendee of same.
The contract was not a mortgage because in order to
constitute a valid mortgage it is indispensable that the
instrument be registered in the Register of Property,
in accordance with article 1875 of the Civil Code, and because
said document was not vested with the character and
conditions of a public instrument.
The contract was not a pledge because the property was not a
personal property and because the debtor continued in
possession thereof and the said property has never been
occupied by the creditor.
The contract was not an antichresis too because the creditor
has never been in possession of the property, has not enjoyed
the said property, and has not received its rents.
(2) WHETHER OR NOT THE TWO CONTRACTS ENTERED INTO
BETWEEN THE PARTIES ARE VOID; NO
Either one of the contracts is perfectly legal. Both are
authorized by the Civil Code (Articles 1451, 1740, and 1753).
The fact that the parties have agreed at the same time, in such
a manner that the fulfillment of the promise of sale would
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depend upon the nonpayment or return of the amount loaned,
has not produced any essential defect which would tend to
nullify the same.
If the promise of sale is not vitiated because, according to the
agreement between the parties thereto, the price of the same
is to be the amount loaned and not repaid, neither would the
loan be null or illegal, for the reason that the added agreement
provides that in the event of failure of payment the sale of
property as agreed will take effect, the consideration being the
amount loaned and not paid.
It is a principle in law, that the will of the contracting parties is
the law of contracts. As the amount loaned has not been paid
and continues in possession of the debtor, it is only just that the
promise of sale be carried into effect, and the necessary
instrument be executed by the vendees.
19. G.R. No. L-5219 February 15, 1910
JOSE McMICKING, sheriff of Manila, plaintiff-appellee,
vs. PEDRO MARTINEZ and GO JUNA, defendants.
GO JUNA, appellant.
(Mali ataangnaasa syllabus, since 2010 nakabutangdidto, pero
1910 na case xa when I searched using the GR. No)
Facts:
- The defendant, Pedro Martinez, some time during the
year 1908 obtained judgment in the Court of First Instance of
the city of Manila against one Maria Aniversario; that thereafter
execution was issued upon said judgment and the sheriff levied
upon a pailebot, Tomasa, alleged to be the property of said
Maria Aniversario; that thereupon the said defendant Go Juna
intervened and claimed a lien upon said boat by virtue of a
pledge of the same to him by the said Maria Aniversario made
on the 27th day of February, 1907, which said pledge was
evidenced by a public instrument bearing that date.
- This action was brought by the sheriff against Go Juna and
Pedro Martinez to determine the rights of the parties to the
funds in his hands. Maria Aniversario was not made a party.
- The said Pedro Martinez alleged as a defense that the
pledge which said document was intended to constitute had
not been made effective by delivery of the property pledged, as
required by article 1863 of the Civil Code, and that, therefore,
there existed no preference in favor of said Go Juna.
ISSUE: 1.W/N it was proper for the lower court to exclude
Maria Aniversario? No
2.W/N a pledge may also be used as proof of
indebtedness? Yes
HELD:
- The conclusion of the court below that the
property was not delivered in accordance with the
provisions of article 1863 of the Civil Code is sustained
by the proofs. His conclusion that the pledge was
ineffective against Martinez is correct. It appears,
however, that the document of pledge is a public
document which contains an admission of
indebtedness.
- In other words, while it is intended to be a
pledge, it is also a credit which appears in a public
document. Article 1924, paragraph 3, letter a, is
therefore applicable; and, said public document
antedating the judgment of defendant Martinez, takes
preference thereover. The validity of that document in
so far as it shows an indebtedness against Maria
Aniversario and its effectiveness against her have not,
however, been determined. She is not a party to this
action. No judgment can be rendered affecting her
rights or liabilities under said instrument. If said
instrument is invalid or for any other cause
unenforceable against her, it would be wholly unjust,
by declaring its preference over a debt acknowledged
by and conclusive against her, to require that said
funds be paid over to the holder of said document.
That would be to require her to pay a debt which has
not only not been shown to be enforceable against her
but which, as a witness for the defendant Martinez on
the trial of this cause, she expressly and vehemently
repudiated as a valid claim against her.
- The judgement is, therefore, reversed; and it is
ordered that the cause be returned to the court below;
that the plaintiff bring in Maria Aniversario as a party
to this action, and that she be given an opportunity to
make her defense, if she have any, to the document in
question under proper procedure. No finding as to
costs. So ordered.
20. Caltex vs CA G.R. No. 97753 August 10, 1992
Facts: On various dates, defendant, a commercial banking
institution, through its Sucat Branch issued 280 certificates of
time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of
P1,120,000.00
Angel dela Cruz delivered the said certificates of time (CTDs) to
herein plaintiff in connection with his purchased of fuel
products from the latter.
Sometime in March 1982, Angel dela Cruz informed
Mr.TimoteoTiangco, the Sucat Branch Manger, that he lost all
the certificates of time deposit in dispute. Mr.Tiangco advised
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said depositor to execute and submit a notarized Affidavit of
Loss, as required by defendant bank's procedure, if he desired
replacement of said lost CTDs
On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss
In March 25, 1982, Angel dela Cruz negotiated and obtained a
loan from defendant bank in the amount of P875,000.00. On
the same date, said depositor executed a notarized Deed of
Assignment of Time Deposit which stated, among others, that
he (de la Cruz) surrenders to defendant bank "full control of the
indicated time deposits from and after date" of the assignment
and further authorizes said bank to pre-terminate, set-off and
"apply the said time deposits to the payment of whatever
amount or amounts may be due" on the loan upon its maturity
On December 8, 1982, plaintiff was requested furnish "a copy of
the document evidencing the guarantee agreement with Mr.
Angel dela Cruz" as well as "the details of Mr. Angel dela Cruz"
obligation against which plaintiff proposed to apply the time
deposits (Defendant's Exhibit 564).
In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter
set-off and applied the time deposits in question to the
payment of the matured loan
In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's
fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint.
Issues:
(1) WON the subject certificates of deposit are non-negotiable
instruments;
(2) WON the petitioner can recover the CTDs
Held:
1) NO. CTDs in question are negotiable instruments.
Section 1 Act No. 2031, otherwise known as the Negotiable
Instruments Law, enumerates the requisites for an instrument
to become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of
the law for negotiability. The parties' bone of contention is with
regard to requisite (d) set forth above. It is noted that
Mr.Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered
to in the CTDs is no other than Mr. Angel de la Cruz.
If it was really the intention of respondent bank to pay the
amount to Angel de la Cruz only, it could have with facility so
expressed that fact in clear and categorical terms in the
documents, instead of having the word "BEARER" stamped on
the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts
deposited are repayable to whoever may be the bearer thereof.
Thus, petitioner's aforesaid witness merely declared that Angel
de la Cruz is the depositor "insofar as the bank is concerned,"
but obviously other parties not privy to the transaction
between them would not be in a position to know that the
depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel
the agreement of the parties thereto through facts aliunde. This
need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the
application of the elementary rule that the interpretation of
obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.
2.) NO. As between petitioner and respondent bank, the latter
has definitely the better right over the CTDs in question.
The records reveal that Angel de la Cruz, whom petitioner chose
not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately
for petitioner, although the CTDs are bearer instruments, a valid
negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires
both delivery and indorsement. For, although petitioner seeks
to deflect this fact, the CTDs were in reality delivered to it as a
security for De la Cruz' purchases of its fuel products. Any doubt
as to whether the CTDs were delivered as payment for the fuel
products or as a security has been dissipated and resolved in
favor of the latter by petitioner's own authorized and
responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent
Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". .
. These certificates of deposit were negotiated to us by Mr.
Angel dela Cruz to guarantee his purchases of fuel products"
(Emphasis ours.) This admission is conclusive upon petitioner,
its protestations notwithstanding. Under the doctrine of
estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved
as against the person relying thereon. 14 A party may not go
back on his own acts and representations to the prejudice of
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the other party who relied upon them. 15 In the law of
evidence, whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in
any litigation arising out of such declaration, act, or omission,
be permitted to falsify it.
Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
The character of the transaction between the parties is to be
determined by their intention, regardless of what language was
used or what the form of the transfer was. If it was intended to
secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge.
However, even though a transfer, if regarded by itself, appears
to have been absolute, its object and character might still be
qualified and explained by contemporaneous writing declaring it
to have been a deposit of the property as collateral security. It
has been said that a transfer of property by the debtor to a
creditor, even if sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the debt continues
in inexistence and is not discharged by the transfer, and that
accordingly the use of the terms ordinarily importing
conveyance of absolute ownership will not be given that effect
in such a transaction if they are also commonly used in pledges
and mortgages and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence of clear and
unambiguous language or other circumstances excluding an
intent to pledge.
The pertinent law on this point is that where the holder has a
lien on the instrument arising from contract, he is deemed a
holder for value to the extent of his lien. 23 As such holder of
collateral security, he would be a pledgee but the requirements
therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code
provisions on pledge of incorporeal rights, 24 which inceptively
provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if
negotiable, must be indorsed.
Art. 2096. 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.
Aside from the fact that the CTDs were only delivered but not
indorsed, the factual findings of respondent court quoted at the
start of this opinion show that petitioner failed to produce any
document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz. On the other hand,
the assignment of the CTDs made by Angel de la Cruz in favor of
respondent bank was embodied in a public instrument.
Respondent bank duly complied with this statutory
requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount
of its credit or the extent of its lien nor the execution of any
public instrument which could affect or bind private
respondent. Necessarily, therefore, as between petitioner and
respondent bank, the latter has definitely the better right over
the CTDs in question.
21. ESTATE OF GEORGE LITTONvs.CIRIACO B. MENDOZA and
CA
Facts: Bernal spouses 2 are engaged in the manufacture of
embroidery, garments and cotton materials. Sometime in
September 1963, C.B.M. Products, 3 with Mendoza as
president, offered to sell to the Bernals textile cotton materials
and, for this purpose, Mendoza introduced the Bernals to
Alfonso Tan. Thus, the Bernals purchased on credit from Tan
some cotton materials worth P 80,796.62, payment of which
was guaranteed by Mendoza. Thereupon, Tan delivered the said
cotton materials to the Bernals. In view of the said
arrangement, on November 1963, C.B.M. Products, through
Mendoza, asked and received from the Bernals PBTC Check No.
626405 for P 80,796.62 dated February 20, 1964 with the
understanding that the said check will remain in the possession
of Mendoza until the cotton materials are finally manufactured
into garments after which time Mendoza will sell the finished
products for the Bernals. Meanwhile, the said check matured
without having been cashed and Mendoza demanded the
issuance of another check 4 in the same amount without a date.
On the other hand, on February 28, 1964, defendant Mendoza
issued two (2) PNB checks 5 in favor of Tan in the total amount
of P 80,796.62. He informed the Bernals of the same and told
them that they are indebted to him and asked the latter to sign
an instrument whereby Mendoza assigned the said amount to
Insular Products Inc. Tan had the two checks issued by Mendoza
discounted in a bank. However, the said checks were later
returned to Tan with the words stamped "stop payment" which
appears to have been ordered by Mendoza for failure of the
Bernals to deposit sufficient funds for the check that the
Bernals issued in favor of Mendoza.
Hence, as adverted to above, Tan brought an action against
Mendoza docketed as Civil Case No. Q-8303 6 while the Bernals
brought an action for interpleader docketed as Civil Case No.
56850 7 for not knowing whom to pay. While both actions were
pending resolution by the trial court, on March 20, 1966, Tan
assigned in favor of George Litton, Sr. his litigatious credit * in
Civil Case No. 56850 against Mendoza, duly submitted to the
court, with notice to the parties.
After due trial, the lower court ruled that the said PNB checks
were issued by Mendoza in favor of Tan for a commission in the
sum of P 4,847.79 and held Mendoza liable as a drawer whose
liability is primary and not merely as an indorser and thus
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directed Mendoza to pay Tan the sum of P 76,000.00, the sum
still due, plus damages and attorney's fees.
Meanwhile, on February 2, 1971, pending the resolution of the
said appeal, Mendoza entered into a compromise agreement
with Tan wherein the latter acknowledged that all his claims
against Mendoza had been settled and that by reason of said
settlement both parties mutually waive, release and quit
whatever claim, right or cause of action one may have against
the other, with a provision that the said compromise
agreement shall not in any way affect the right of Tan to
enforce by appropriate action his claims against the Bernal
spouses.
While the case was still pending reconsideration by the
respondent court, Tan, the assignor, died leaving no properties
whatever to satisfy the claim of the estate of the late George
Litton, Sr.
In its Resolution dated August 30, 1977, 13 the respondent
court set aside its decision and approved the compromise
agreement.
Issue: WON to set aside the said compromise on the ground
that previous thereto, Tan executed a deed of assignment in
favor of George Litton, Sr. involving the same litigated credit.
Held: Yes.
We rule for the petitioner. The fact that the deed of assignment
was done by way of securing or guaranteeing Tan's obligation in
favor of George Litton, Sr., as observed by the appellate court,
will not in any way alter the resolution on the matter. The
validity of the guaranty or pledge in favor of Litton has not been
questioned. Our examination of the deed of assignment shows
that it fulfills the requisites of a valid pledge or mortgage. 22
Although it is true that Tan may validly alienate the litigatious
credit as ruled by the appellate court, citing Article 1634 of the
Civil Code, said provision should not be taken to mean as a
grant of an absolute right on the part of the assignor Tan to
indiscriminately dispose of the thing or the right given as
security. The Court rules that the said provision should be read
in consonance with Article 2097 of the same code. 23 Although
the pledgee or the assignee, Litton, Sr. did not ipso facto
become the creditor of private respondent Mendoza, the
pledge being valid, the incorporeal right assigned by Tan in
favor of the former can only be alienated by the latter with due
notice to and consent of Litton, Sr. or his duly authorized
representative. To allow the assignor to dispose of or alienate
the security without notice and consent of the assignee will
render nugatory the very purpose of a pledge or an assignment
of credit.
Moreover, under Article 1634, 24 the debtor has a
corresponding obligation to reimburse the assignee, Litton, Sr.
for the price he paid or for the value given as consideration for
the deed of assignment. Failing in this, the alienation of the
litigated credit made by Tan in favor of private respondent by
way of a compromise agreement does not bind the assignee,
petitioner herein.
Indeed, a painstaking review of the record of the case reveals
that private respondent has, from the very beginning, been fully
aware of the deed of assignment executed by Tan in favor of
Litton, Sr. as said deed was duly submitted to Branch XI of the
then Court of First Instance of Manila in Civil Case No. 56850 (in
relation to Civil Case No. Q-8303) where C.B.M. Products is one
of the defendants and the parties were notified through their
counsel. 25 As earlier mentioned, private respondent herein is
the president of C.B.M. Products, hence, his contention that he
is not aware of the said deed of assignment deserves scant
consideration from the Court. Petitioner pointed out at the
same time that private respondent together with his counsel
were served with a copy of the deed of assignment which
allegation remains uncontroverted. Having such knowledge
thereof, private respondent is estopped from entering into a
compromise agreement involving the same litigated credit
without notice to and consent of the assignee, petitioner
herein. More so, in the light of the fact that no reimbursement
has ever been made in favor of the assignee as required under
Article 1634. Private respondent acted in bad faith and in
connivance with assignor Tan so as to defraud the petitioner in
entering into the compromise agreement.
WHEREFORE, the petition is GRANTED. The assailed resolution
of the respondent court dated August 30,1977 is hereby SET
ASIDE, the said compromise agreement being null and void, and
a new one is hereby rendered reinstating its decision dated
January 27, 1977, affirming in toto the decision of the lower
court.
22. Lim Tay vs CA/CBR-KING
Facts: On 8 January 1980, Sy Guiok secured a loan from Lim Tay
in the amount of P40,000 payable within 6 months. To secure
the payment of the aforesaid loan and interest thereon, Guiok
executed a Contract of Pledge in favor of Lim Tay whereby he
pledged his 300 shares of stock in the Go Fay & Company Inc.
Guiok obliged himself to pay interest on said loan at the rate of
10% per annum from the date of said contract of pledge. On the
same date, Alfonso Sy Lim secured a loan, from Lim Tay in the
amount of P40,000 payable in 6 months. To secure the payment
of his loan, Sy Lim executed a "Contract of Pledge" covering his
300 shares of stock in Go Fay & Co. Under said contract, Sy Lim
obliged himself to pay interest on his loan at the rate of 10%
per annum from the date of the execution of said contract. The
contractual stipulation in the pledge showed that Lim Tay was
merely authorized to foreclose the pledge upon maturity of the
loans, not to own them. Such foreclosure is not automatic, for it
must be done in a public or private sale. Guiok and Sy Lim
endorsed their respective shares of stock in blank and delivered
the same to Lim Tay. However, Guiok and Sy Lim failed to pay
their respective loans and the accrued interests thereon to Lim
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Tay. In October 1990, Lim Tay filed a "Petition for Mandamus"
against Go Fay & Co., with the SEC (SEC Case 03894), praying
that an order be issued directing the corporate secretary of Go
Fay & Co. to register the stock transfers and issue new
certificates in favor of Lim Tay; and ordering Go Fay & Co. to
pay all dividends due and unclaimed on the said certificates to
Lim Tay. In the interim, Sy Lim died. Guiok and the Intestate
Estate of Alfonso Sy Lim, represented by Conchita Lim, filed
their Answer-In-Intervention with the SEC.
After due proceedings, the SEC hearing officer promulgated a
Decision dismissing Lim Tay's Complaint on the ground that
although the SEC had jurisdiction over the action, pursuant to
the Decision of the Supreme Court in the case of "Rural Bank of
Salinas et. al. versus Court of Appeals, et al., 210 SCRA 510," he
failed to prove the legal basis for the secretary of the
Corporation to be compelled to register stock transfers in favor
of Lim Tay and to issue new certificates of stock under his
name. Lim Tay appealed the Decision of the hearing officer to
the SEC, but, on 7 March 1996, the SEC promulgated a Decision,
dismissing Lim Tay's appeal. On appeal to the Court of Appeals,
the appellate court debunked Lim Tay's claim that he had
acquired ownership over the shares by virtue of novation,
holding that Guiok's and Sy Lim's indorsement and delivery of
the shares were pursuant to Articles 2093 and 2095 of the Civil
Code and that Lim Tay's receipt of dividends was in compliance
with Article 2102 of the same Code. Lim Tay's claim that he had
acquired ownership of the shares by virtue of prescription was
likewise dismissed by the appellate court. Lim Tay brought
before the Supreme Court a Petition for Review on Certiorari in
accordance with Rule 45 of the Rules of Court.
Issue: Whether Lim Tay is the owner of the shares previously
subjected to pledge, for him to cause the registration of said
shares in his own name.
Held: Lim Tay's ownership over the shares was not yet
perfected when the Complaint was filed. The contract of pledge
certainly does not make him the owner of the shares pledged.
Further, whether prescription effectively transferred ownership
of the shares, whether there was a novation of the contracts of
pledge, and whether laches had set in were difficult legal issues,
which were unpleaded and unresolved when Lim Tay asked the
corporate secretary of Go Fay to effect the transfer, in his favor,
of the shares pledged to him. Lim Tay has failed to establish a
clear legal right. Lim Tay's contention that he is the owner of
the said shares is completely without merit. Lim Tay does not
have any ownership rights at all. At the time Lim Tay instituted
his suit at the SEC, his ownership claim had no prima facie leg to
stand on. At best, his contention was disputable and uncertain.
Lim Tay cannot claim to have acquired ownership over the
certificates of stock through extraordinary prescription, as
provided for in Article 1132 of the Civil Code. What is required
by Article 1132 is possession in the concept of an owner.
Herein, Lim Tay's possession of the stock certificates came
about because they were delivered to him pursuant to the
contracts of pledge. His possession as a pledgee cannot ripen
into ownership by prescription. Lim Tay expressly repudiated
the pledge, only when he filed his Complaint and claimed that
he was not a mere pledgee, but that he was already the owner
of the shares. Based on the foregoing, Lim Tay has not acquired
the certificates of stock through extraordinary prescription.
Neither did Lim Tay acquire the shares by virtue of a novation of
the contract of pledge. Novation cannot be presumed by
Guiok's and Sy Lim's indorsement and delivery of the
certificates of stock covering the 600 shares, nor Lim Tay's
receipt of dividends from 1980 to 1983, nor the fact that Guiok
and Sy Lim have not instituted any action to recover the shares
since 1980. Novation is never presumed inferred.
23. Insular Life vs. Young - KemuelSalmite
Facts: In December, 1987, respondent Robert Young, together
with his associates and co-respondents, acquired by purchase
Home Bankers Savings and Trust Co., now petitioner Insular
Savings Bank ("the Bank," for brevity), from the Licaros family
for P65,000,000.00. Young and his group obtained 55% equity
in the Bank, while Jorge Go and his group owned the remaining
45%.
Subsequently, the Bank granted respondents and others
individual loans in the total amount of P153,000,000.00,
secured by promissory notes.3
On December, 1990, Benito Araneta, a stockholder of the Bank,
signified his intention to purchase 99.82% of its outstanding
capital stock for P340,000,000.00, subject to the condition that
the ownership of all the shares will be consolidated in Young's
name. On February 5, 1991, Araneta paid Young P14,000,000.00
as part of the downpayment.
In order to carry out the intended sale to Araneta, Young
bought from Jorge Go and his group their 45% equity in the
Bank for P153,000,000.00. In order to pay this amount, Young
obtained a short-term loan of P170,000,000.00 from
International Corporate Bank ("Interbank") to finance the
purchase.
However, Araneta backed out from the intended sale and
demanded the return of his downpayment.
Meanwhile, Young's loan from Interbank became due, causing
his serious financial problem. Consequently, he engaged the
services of Asian Oceanic Investment House, Inc. ("Asian
Oceanic"), a domestic company owned and controlled by
another petitioner, Insular Life Assurance Co., Ltd. ("Insular
Life"), to look for possible sources of capital.
On August 27, 1991, through the intervention of Asian Oceanic,
Young and Insular Life entered into a Credit Agreement.5 Under
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its provisions, Insular Life extended a loan to Young in the
amount of P200,000,000.00. To secure the loan, Young, acting
in his behalf and as attorney-in-fact of the other stockholders,
executed on the same day a Deed of Pledge6 over 1,324,864
shares which represented 99.82% of the outstanding capital
stock of the Bank. The next day, he also executed a promissory
note7 in favor of Insular Life in the same amount with an
interest rate of 26% per annum to mature 120 days from
execution. The Credit Agreement further provides that Insular
Life shall have the prior right to purchase the Schedule I Shares
(owned by Young) and the Schedule II Shares (owned by the
other stockholders of the Bank), as well as the 250,000 shares
which will be issued after the additional capital
of P25,000,000.00 (payable from the proceeds of the loan) shall
have been infused.
On October 1, 1991, Insular Life and Insular Life Pension Fund
formally informed Young of their intention to acquire 30% and
12%, respectively, of the Bank's outstanding shares, subject to
due diligence audit and proper documentation. 8 On October 9,
1991, Insular Life and Young, authorized to represent the other
stockholders, entered into a Memorandum of Agreement
(MOA),9 wherein Insular Life and its Pension Fund agreed to
purchase 830,860 common shares and 311,572 common
shares, respectively, for a total consideration
of P198,000,000.00. Under its terms, the MOA is subject to
Young's representations and warranties10 that, as of September
30, 1991, the Bank has (a) a total outstanding paid-in capital
of P157,714,900.00, (b) a total net worth of P114,801,539.00,
and (c) total loans with doubtful recovery of P60,000,000.00.
The MOA is also subject to these "condition precedents": 11 (1)
Young shall infuse additional capital of P50,000,000.00 into the
Bank, and (2) Insular Life and its Pension Fund shall undertake a
due diligence audit on the Bank to determine whether the
provision forP60,000,000.00 doubtful account made by Young is
sufficient.
On October 11, 1991, Insular Life, through a team of auditors
led by Mr.WilfridoPatawaran, conducted a due diligence audit
on the Bank pursuant to the MOA. The audit revealed several
check-kiting operations which amounted to P340,000,000.00.
As a result, the Bank's Board of Directors was convened to
discuss this matter.
On October 17, 1991, a special meeting of the Bank's directors
was held. Chief Executive Officer Antonino L. Alindogan, Jr.
reported to the Board the initial findings of the audit team
about the irregularities in the Bank's "kiting operations." When
asked to explain these anomalies, Young, who was then the
Bank's President, assumed responsibility since it happened
during his incumbency. Thereupon, he offered, among others,
to the Bank the 45% of his holdings as security. He admitted
that he has compromised the interest of the Bank and thus
tendered his resignation. The Board deferred its acceptance .
On October 21, 1991, Young signed a letter13 prepared by Atty.
Jacinto Jimenez, counsel of Insular Life, addressed to Mr.
Vicente R. Ayllon, Chairman of the Bank's Board of Directors,
stating that due to business reverses, he shall not be able to pay
his obligations under the Credit Agreement between him and
Insular Life. Consequently, Young "unconditionally and
irrevocably waive(s) the benefit of the period" of the loan (up to
December 26, 1991) and Insular "may consider (his) obligations
thereunder as defaulted." He likewise interposes no objection
to Insular Life's exercise of its rights under the said agreement.
Forthwith, Insular Life instructed its counsel to foreclose the
pledge constituted upon the shares. The latter then sent Young
a notice informing him of the sale of the shares in a public
auction scheduled on October 28, 1991, and in the event that
the shares are not sold, a second auction sale shall be held the
next day, October 29.
On October 28, 1991, only Insular Life submitted a bid, hence,
the shares were not sold on that day. The next day, a second
auction was held. Again, Insular Life was the sole bidder. Since
the shares were not sold at the two public auctions, Insular Life
appropriated to itself, not only the original 1,324,864 shares,
but also the 250,000 shares subsequently issued by the Bank
and delivered to Insular Life by way of pledge. Thus, Insular Life
gave Young an acquittance of his entire claim.14
Thereafter, title to the said shares was consolidated in the
name of Insular Life. On November 12, 1991, the
BangkoSentralngPilipinas' Supervision and Examination Sector
approved Insular Life's request to maintain its present
ownership of 99.82% of the Bank.
From October 31, 1991 to December 27, 1991, Insular Life
invested a total of P325,000,000.00 in the Bank. Meanwhile, on
November 27, 1991, its Board of Directors, during its meeting,
accepted the resignation of Young as President.16
On January 7, 1992, Young and his associates filed with the
Regional Trial Court (RTC), Branch 142, Makati City, a
complaint17 against the Bank, Insular Life and its counsel, Atty.
Jacinto Jimenez, petitioners, for annulment of notarial sale,
specific performance and damages, docketed as Civil Case No.
92-049. The complaint alleges, inter alia, that the notarial sale
conducted by petitioner Atty. Jacinto Jimenez is void as it does
not comply with the requirement of notice of the second
auction sale; that Young was forced by the officers of Insular
Life to sign letters to enable them to have control of the Bank;
that under the MOA, Insular Life should apply the purchase
price of P198,000,000.00 (corresponding to the 55% of the
outstanding capital stock of the Bank) to Young's loan
of P200,000,000.00 and pay the latter P162,000,000.00,
representing the remaining 45% of its outstanding capital stock,
which must be set-off against the loans of the other
respondents.
Issue: WON the foreclosure of the pledge held on October 29,
1992 is void. NO
Held:Notably, the Deed of Pledge which secured the Credit
Agreement between the parties, covered not only 1,324,864
shares which then constituted 99.82% of the total outstanding
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shares of petitioner Bank, but also the 250,000 shares
subsequently issued. Consequently, when Young waived in his
letter the period granted him under the said agreement and
manifested his inability to pay his obligation (which waiver has
been declared by the RTC and the CA to be valid), the loan
extended by petitioner Insular Life became due and
demandable.33 Definitely, petitioners merely exercised the right
granted to them under the law, which is to foreclose the pledge
constituted on the shares, in satisfaction of respondent Young's
loan.
The Court of Appeals also erred in declaring that the auction
sale is void since petitioners failed to send a separate notice for
the second auction.
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 thing
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. When petitioner Insular Life sent a
notice to Young informing him of the public auction scheduled
on October 28, 1991, and a second auction on the next day,
October 29, in the event that the shares are not sold on the first
auction, the purpose of the law was achieved. We thus reject
respondents' argument that the term "second one" refers to a
separate notice which requires the same formalities as the first
notice.
24. YULIOGSIU vs. CA- BemSarno
FACTS: Yuliongsiu was the owner of TWO vessels, namely: The
M/S Surigao and the M/S Don Dino, and operated the FS-203,
which was purchased by him from the Philippine Shipping
Commission, by installment or on account. As of January or
February, 1943, plaintiff had paid to the Philippine Shipping
Commission only the sum of P76,500 and the balance of the
purchase price was payable at P50,000 a year, due on or before
the end of the current year.
In June 1947, plaintiff obtained a loan of P50,000 from the
Philippine National Bank, Cebu Branch. To guarantee its
payment, plaintiff pledged the M/S Surigao, M/S Don Dino and
its equity in the FS-203 to the defendant bank, executed on the
same day and duly registered.
Subsequently, plaintiff effected partial payment of the loan in
the sum of P20,000. The remaining balance was renewed by the
execution of two (2) promissory notes in the bank's favor.
1. December 18, 1947, P20,000,due on April 16, 1948
2. February 26, 1948, for P10,000,due on June 25, 1948. These
two notes were never paid at all by plaintiff on their respective
due dates.
On April 1948, the bank filed criminal charges against plaintiff
and two other accused for estafa thru falsification of
commercial documents, the accused had no funds in the
drawee bank. The accused were then convicted.
Meanwhile, together with the institution of the criminal action,
defendant bank took physical possession of three pledged
vessels while they were at the Port of Cebu, and on April 29,
1948, after the first note fell due and was not paid, the Cebu
Branch Manager of defendant bank, acting as attorney-in-fact
of plaintiff pursuant to the terms of the pledge contract,
executed a document of sale, Exhibit "4", transferring the two
pledged vessels and plaintiff's equity in FS-203, to defendant
bank.
The FS-203 was subsequently surrendered by the defendant
bank to the Philippine Shipping Commission which rescinded
the sale to plaintiff for failure to pay the remaining installments
on the purchase price thereof. The other two boats, the M/S
Surigao and the M/S Don Dino were sold by defendant bank to
third parties.
Plaintiff commenced action to recover the three vessels or their
value and damages from defendant bank. The latter filed its
answer, with a counterclaim for P202,000 plus P5,000
damages.
The lower court rendered its decision on (a) that the bank's
taking of physical possession of the vessels on April 6, 1948 was
justified by the pledge contract, Exhibit "A" & "1-Bank" and the
law; (b) that the private sale of the pledged vessels by
defendant bank to itself without notice to the plaintiff-pledgor
as stipulated in the pledge contract was likewise valid.
ISSUES: 1. WON the contract entered into is a pledge contract
(not a chattel mortgage as alleged)
2. WON the constructive delivery is sufficient to make pledge
effective
HELD:
1.YES. The parties stipulated as a fact that Exhibit "A" & "1-
Bank" is a pledge contract —
3. That a credit line of P50,000.00 was extended to the
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plaintiff by the defendant Bank, and the plaintiff obtained and
received from the said Bank the sum of P50,000.00, and in
order to guarantee the payment of this loan, the pledge
contract, Exhibit "A" & Exhibit "1-Bank", was executed and duly
registered with the Office of the Collector of Customs for the
Port of Cebu on the date appearing therein.
Necessarily, this judicial admission binds the plaintiff. Without
any showing that this was made thru palpable mistake, no
amount of rationalization can offset it.
The defendant bank as pledgee was therefore entitled to the
actual possession of the vessels. While it is true that plaintiff
continued operating the vessels after the pledge contract was
entered into, his possession was expressly made "subject to the
order of the pledgee." The provision of Art. 2110 of the present
Civil Code being new — cannot apply to the pledge contract
here which was entered into on June 30, 1947. On the other
hand, there is an authority supporting the proposition that the
pledgee can temporarily entrust the physical possession of the
chattels pledged to the pledgor without invalidating the pledge.
In such a case, the pledgor is regarded as holding the pledged
property merely as trustee for the pledgee.
2. YES. There is BancoEspañol-Filipino v. Peterson ruling that
symbolic delivery would suffice. In Betita v. Ganzon, the objects
pledged — carabaos — were easily capable of actual, manual
delivery unto the pledgee. In BancoEspañol-Filipino v. Peterson,
the objects pledged — goods contained in a warehouse — were
hardly capable of actual, manual delivery in the sense that it
was impractical as a whole for the particular transaction and
would have been an unreasonable requirement. Thus, for
purposes of showing the transfer of control to the pledgee,
delivery to him of the keys to the warehouse sufficed. In other
words, the type of delivery will depend upon the nature and the
peculiar circumstances of each case. The parties here agreed
that the vessels be delivered by the "pledgor to the pledgor
who shall hold said property subject to the order of the
pledgee." Considering the circumstances of this case and the
nature of the objects pledged, i.e., vessels used in maritime
business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge
contract, in full control of the vessels thru the plaintiff, the
former could take actual possession at any time during the life
of the pledge to make more effective its security. Its taking of
the vessels therefore on April 6, 1948, was not unlawful. Nor
was it unjustified considering that plaintiff had just defrauded
the defendant bank in the huge sum of P184,000.
On validity of private sale of pledged vessels:
Contentions of Yuliongsiu:
1. statutory requirements as to public sales with prior notice in
connection with foreclosure proceedings are waivable, are no
longer authoritative in view of the passage of Act 3135, as
amended.
NO MERIT. This law refers only, and is limited, to foreclosure of
real estate mortgages. 15 So, whatever formalities there are in
Act 3135 do not apply to pledge.
2. Charter of PNB does not allow it to buy the property object of
foreclosure in case of private sales.
NO MERIT. Sec. 33 of Act 2612, as amended by Acts 2747 and
2938 only states that if the sale is public, the bank could
purchase the whole or part of the property sold " free from any
right of redemption on the part of the mortgagor or pledgor."
3. PRICE obtained at the sale is unconscionable.
NO MERIT. Plaintiff's remedy was to have set aside the sale. He
did not avail of this. Moreover, as pointed out by the lower
court, plaintiff had at the time an obligation to return the
P184,000 fraudulently taken by him from defendant bank.
25. G.R. No. L-21069 October 26, 1967
MANILA SURETY and FIDELITY COMPANY, INC. vs. RODOLFO R.
VELAYO - Sederiosa
Facts:
In 1953, Manila Surety & Fidelity Co., upon request of Rodolfo
Velayo, executed a bond for P2,800.00 for the dissolution of a
writ of attachment obtained by one Jovita Granados in a suit
against him in the CFI. Velayo undertook to pay the surety
company an annual premium of P112.00. As "collateral security
and by way of
of pledge" Velayo also delivered four pieces of jewelry to the
Surety Company "for the latter's further protection", with
power to sell the same in case the surety paid or become
obligated to pay any amount of money in connection with said
bond.
Judgment was rendered in favor of Granados and execution
having been returned unsatisfied, the surety company was
forced to pay P2,800.00 that it later sought to recoup from
Velayo. Upon the latter's failure to do so, the surety caused the
pledged jewelry to be sold, realizing therefrom a net product of
P235.00 only. Velayo failed to pay the balance and the surety
company brought suit in the Municipal Court. Velayo countered
that the sale of the pledged jewelry extinguished any further
liability on his part under Article 2115 of the 1950 Civil Code,
which recites: 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.
LEGAL ISSUE/S:
a.) WON Velayo is liable for the deficiency? NO.
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RULING:
Article 2115, in its last portion, clearly establishes that the
extinction of the principal obligation supervenes by operation
of imperative law that the parties cannot override:
If the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency notwithstanding any
stipulation to the contrary.
The provision is clear and unmistakable, and its effect cannot be
evaded. By electing to sell the articles pledged, instead of suing
on the principal obligation, the creditor has waived any other
remedy, and must abide by the results of the sale. No deficiency
is recoverable.
26. PACIFIC REHOUSE-DATU MORRO L. SOLANO
FACTS:
Plaintiffs Pacific Rehouse, et.al bought 60,790,000 Kuok
Properties, Inc. (“KPP”) shares of stock through the Philippine
Stock Exchange (“PSE”). The KPP shares were acquired by them
through their broker, defendant EIB.
Plaintiffs also bought/acquired 32,180,000 DMCI shares of
stock through the PSE. Of these shares, 16,180,000 were
likewise acquired by the plaintiffs through their broker,
defendant EIB.
On 01 April 2004, plaintiffs and defendant EIB agreed to sell
the 60,790,000 KPP shares of plaintiffs to any party for the price
of P0.14 per share.
As agreed by plaintiffs and defendant, the sale of the KPP
shares of plaintiffs was made with an option on the part of the
plaintiffs to buy back or reacquire the said KPP shares within a
period of thirty (30) days from the transaction date, at the buy-
back price of P0.18 per share.
The notices of sale issued by EIB covering the sale of the KKP
shares of petitioners clearly show that the very same KKP
shares sold to third parties albeit under a buy-back
arrangement and the “Property” of petitioners were made the
collaterals to secure the payment of the reacquisition
. Plaintiffs did not exercise their option to buy back the KPP
shares and did not give any buy-back instruction/s to their
broker, defendant EIB.
On various dates in June 2004, without plaintiffs’ prior
knowledge and consent, defendant EIB sold plaintiffs
32,180,000 DMCI shares of stock for an average price of P0.24
per share. Defendant EIB sold the DMCI shares of plaintiffs.
The proceeds of said DMCI shares sold by defendant EIB
without plaintiffs’ knowledge and consent were used by
defendant EIB to buy back 61,100,000 KPP shares earlier sold by
plaintiffs.
Defendant EIB sold without authority plaintiffs’ 32,180,000
DMCI shares and used the proceeds thereof to buy back
61,000,000 KPP shares because defendant EIB made an
unauthorized promise and commitment to the buyer/s of
plantiffs’ KPP shares in April 2004 that plaintiffs would buy back
the KPP shares.
ISSUE: whether or not the pledge on “KKP Shares/Property” is
valid?
RULING:
The answer is no. It is indispensable that the pledgor is the
absolute owner of the thing pledged (second element). In the
case at bar, the KKP shares were sold to third parties by EIB at
PhP 0.14 and, as a result, petitioners lost their right of
ownership over the KKP shares. Hence, from the time of the
sale, petitioners were no longer the absolute owners of said
shares, making the pledge constituted over said KKP shares null
and void.
Also, it is necessary under Art. 2085 that the person constituting
the pledge has the free disposal of his or her property, and in
the absence of that free disposal, that he or she be legally
authorized for the purpose (third element). This element is
absent in the case at bar. Petitioners no longer have the free
disposal of the KKP shares when EIB sold said shares at the
stock exchange as they are no longer the owners of the shares.
Thus, there was no valid pledge constituted on the KKP shares.
The notice of sale, assuming it incorporates the accessory
contract of pledge, merely stated “Property” as collateral in
addition to KKP shares. This is a blatant violation of Art. 2096,
which provides that “a pledge shall not take effect against third
persons if description of the thing pledged and the date of the
pledge do not appear in a public instrument.” The thing pledged
must be amply and clearly described and specifically identified.
Evidently, the word “Property” is vague, broad, and confusing
as to the ownership. Hence, it does not satisfy the prescription
under Art. 2096 of the Code. Worse, the notice of sale is not in
a public instrument as required by said legal provision;
therefore, the pledge on “property” is void and without legal
effect.
Moreover, the notices of sale must be construed against EIB.
Any ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who
drafted it.
The DMCI shares which EIB construed to be included within the
ambit of the word “property” cannot be considered the thing
pledged to secure the buy back of the KKP shares in view of the
vagueness of the word “Property” and the non-applicability of
the SDAA to the sale of the KKP shares. Pacific Rehouse
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Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036,

October 13, 2010. REAL MORTGAGE

27. DBP v CA – Sigrid Mier

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.COURT
OF APPEALS, CELEBRADA MANGUBAT and ABNER MANGUBAT,
respondents. [G.R. No. 110053 October 16, 1995] – Luis Sy

FACTS: The subject of this controversy is a parcel of

unregistered land identified as Lot 1, PSU-142380, situated in
the Barrio of Toytoy, Municipality of Garchitorena, Province of
Camarines Sur, containing an area of 55.5057 hectares, more or
less.
The land was originally owned by one PresentacionCordovez,
who donated (February 4, 1937) it to Luciano Sarmiento and
Luciano (June 8, 1964) sold the land to PacificoChica.
PacificoChica (April 27, 1965) 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. PacificoChica failed to redeem the property,
and DBP consolidated its ownership over the same.
On October 14, 1980, respondent spouses offered to buy the
property for P18,599.99. DBP made a counter-offer of
P25,500.00 which was accepted by respondent spouses. The
parties further agreed that payment was to be made within six
months thereafter for it to be considered as cash payment. On
July 20, 1981, the deed of absolute sale, which is now being
assailed herein, 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. The latter required the former to
submit a certification from the Bureau of Forest Development
that the land is alienable and disposable. However, on October
29, 1981, said office issued a certificate attesting to the fact
that the said property was classified as timberland, hence not
subject to disposition. The loan application of respondent
spouses was nevertheless eventually approved by DBP in the
sum of P140,000.00, despite the aforesaid certification of the
bureau, on the understanding of the parties that DBP would
work for the release of the land by the former Ministry of
Natural Resources. 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 pursuant to Act No. 3344. The loan was
released on staggered basis, but their request the remaining
amount be released was not acted upon by DBP since the
release of the land by the Ministry of Natural Resources had not
been obtained.
On July 7, 1983, respondent spouses, as plaintiffs, filed a
complaint against DBP in the trial court seeking the annulment
of the subject deed of absolute sale on the ground that the
object thereof was verified to be timberland and, therefore, is
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in law an inalienable part of the public domain. TC annulled the
subject deed of absolute sale and ordering DBP to return the
P25,500.00 purchase price, plus interest; to reimburse to
respondent spouses the taxes paid by them, the cost of the
relocation survey, incidental expenses and other damages in
the amount of P50,000.00; and to further pay them attorney's
fees and litigation expenses in the amount of P10,000.00, and
the costs of suit. On appeal, the CA modified as to the award of
damages but affirmed the rest of the trial court's decision.
ISSUE: WON private respondent spouses Celebrada and
AbnerMangubat should be ordered to pay petitioner DBP their
loan obligation due under the mortgage contract executed
between them and DBP. YES
HELD: 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.
A reading of the mortgage contract executed by respondent
spouses in favor of petitioner, dated March 17, 1982, will
readily show that it embodies not only the mortgage but the
complete terms and conditions of the loan agreement as well.
The provisions of said contract, specifically paragraphs 16 and
28 thereof, are so precise and clear as to thereby render
unnecessary the introduction of the promissory note which
would merely serve the same purpose. Furthermore,
respondent CelebradaMangubat expressly acknowledged in her
testimony that she and her husband are indebted to petitioner
in the amount of P118,000.00, more or less. Admissions made
by the parties in the pleadings or in the course of the trial or
other proceedings do not require proof and can not be
contradicted unless previously shown to have been made
through palpable mistake. Thus, the mortgage contract which
embodies the terms and conditions of the loan obligation of
respondent spouses, as well as respondent
CelebradaMangubat'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 therefor in the very same action
now before us.
28. G.R. No. 156295. September 23, 2003/ Soriano vs.
Galit/ Yap
Petitioner was issued a writ of possession in Civil Case No.
6643 for Sum of Money by the Regional Trial Court
of Balanga, Bataan, Branch 1. The writ of possession was,
however, nullified by the Court of Appeals in CA-G.R. SP No.
6589 because it included a parcel of land which was not among
those explicitly enumerated in the Certificate of Sale issued by
the Deputy Sheriff, but on which stand the immovables covered
by the said Certificate. Petitioner contends that the sale of
these immovables necessarily encompasses the land on which
they stand.
Dissatisfied, petitioner filed the instant petition for review
on certiorari.
Facts:Respondent Ricardo Galit contracted a loan from
petitioner Marcelo Soriano, in the total sum of P480,000.00,
evidenced by four promissory notes in the amount of
P120,000.00 each dated August 2, 1996; August 15,
1996; September 4, 1996 and September 14, 1996. 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.
Respondents, the 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.
On July 7, 1997, the Regional Trial Court of Balanga City
rendered judgment in favor of petitioner Soriano.
The judgment became final and executory. Accordingly,
the trial court issued a writ of execution in due course, by virtue
of 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(Homestead Patent No. 14692)
situated in the Bo. of Tapulac, Orani, Bataan.
2. STORE/HOUSE – CONSTRUCTED on Lot No. 1103
made of strong materials G.I. roofing situated at
Centro I, Orani, Bataan
3. BODEGA – constructed on Lot 1103, made of
strong materials, G.I. roofing, situated in Centro
I, Orani, Bataan.
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At the sale of the above-enumerated properties at public
auction held on December 23, 1998, petitioner was the highest
and only bidder with a bid price of P483,000.00. Accordingly,
on February 4, 1999, Deputy Sheriff Robles issued a Certificate
of Sale of Execution of Real Property.
On April 23, 1999, petitioner caused the registration of the
“Certificate of Sale on Execution of Real Property” with the
Registry of Deeds.
The said Certificate of Sale registered with the Register of
Deeds includes at the dorsal portion thereof the following
entry, not found in the Certificate of Sale on file with Deputy
Sheriff RenatoE. Robles:
A parcel of land (Lot No. 1103 of the Cadastral Survey of Orani)
, with the improvements thereon, situated in the Municipality
of Orani.
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 redemption had elapsed
without the respondents having redeemed the properties sold
at public auction; thus, the sale of said properties had already
become final. He also argued that after the lapse of the
redemption period, the titles to the properties should be
considered, for all legal intents and purposes, in his name and
favor.
The RTC subsequently granted the motion for issuance of writ
of possession.
Respondents filed a petition for certiorari with the Court of
Appeals assailing the inclusion of the parcel of land covered by
Transfer Certificate of Title No. T-40785 among the list of real
properties in the writ of possession. Respondents argued that
said property was not among those sold on execution by
Deputy SheriffRenato E. Robles as reflected in the Certificate of
Sale on Execution of Real Property.
The CA declared the writ of possession null and void.
Issues:
1.) Whether or not the questioned writ of possession is in fact
a nullity considering that it includes real property not expressly
mentioned in the Certificate of Sale of Real Property. Yes!
2.) (Main issue) WON a building by itself maybe mortgaged
apart from the land on which it is built. Yes!
Ruling:
There are actually two (2) copies of the Certificate of Sale on
Execution of Real Properties issued on February 4,
1999 involved, namely: (a) copy which is on file with the deputy
sheriff; and (b) copy registered with the Registry of Deeds. The
object 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 land covered 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, their
probative 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 subsequently intercalated in
the copy of the certificate of sale subsequently registered with
the Registry of Deeds. Absent any satisfactory 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 of Sale. Thus, it has been held that while a public
document like a notarized deed of sale is vested with the
presumption of regularity, 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 foreclosure where
statutory requirements are strictly adhered to; where even the
slightest deviations therefrom will invalidate the
proceeding and the sale. Among these requirements is an
explicit enumeration and correct description of what properties
are to be sold stated in the notice. The stringence in the
observance of these requirements is such that an incorrect title
number together with a correct technical description of the
property to be sold and vice versa is deemed a substantial and
fatal error which results in the invalidation of the sale.
The certificate of sale is an accurate record of what
properties were actually sold to satisfy the debt. The strictness
in the observance of accuracy and correctness in the
description of the properties renders the enumeration in the
certificate exclusive. Thus, subsequently including properties
which have not been explicitly mentioned therein for
registration purposes under suspicious circumstances smacks of
fraud. The explanation that the land on which the properties
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 words
appearing on the first page of the copy of the Certificate of Sale
registered with the Registry of Deeds and those appearing at
the dorsal portion thereof. Underscoring the irregularity of the
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intercalation is the clearly devious attempt to let such an
insertion pass unnoticed by typing the same at the back of the
first page instead of on the second page which was merely half-
filled and could accommodate the entry with room to spare.
Main issue: WON a building by itself maybe mortgaged apart
from the land on which it is built. Yes!
Ruling: The argument that the land on which the buildings
levied upon in execution is necessarily included is, likewise,
tenuous. The SC cited Article 415 of the Civil Code and said
that:
The foregoing provision of the Civil Code enumerates land
and buildings separately. This can only mean that a building
is, 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 improvements thereon,
buildings, still a building by itself may be mortgaged apart
from the land on which it has been built. Such mortgage would
be still a real estate mortgage for the building would still be
considered immovable property even if dealt with separately
and apart from the land.
In this case, considering that what was sold by virtue of
the writ of execution issued by the trial court was merely the
storehouse and bodega constructed on the parcel of land
covered by Transfer Certificate of Title No. T-40785, which by
themselves are real properties of respondents spouses, the
same should be regarded as separate and distinct from the
conveyance of the lot on which they stand.
29. Mendoza vs CA – Michelle AndoyGR No. 116710, 25 June
2001
FACTS: Petitioner Danilo D. Mendoza is engaged in the
domestic and international trading of raw materials and
chemicals. He operates under the business name Atlantic
Exchange Philippines (Atlantic), a single proprietorship
registered with the Department of Trade and Industry (DTI).
Sometime in 1978 he was granted by respondent Philippine
National Bank (PNB) a Five Hundred Thousand Pesos
(P500,000.00) credit line and a One Million Pesos
(P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which
may thereinafter be granted, petitioner mortgaged to
respondent PNB the following: 1) three (3) parcels of land[3]
with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his
house and lot in Quezon City; and 3) several pieces of
machinery and equipment in his Pasig coco-chemical plant.
The Real Estate Mortagage (REM) provided for an escalation
clause that rate of interest charged on the obligation secured
shall be subject to such increase, during the life of the contract,
within the rates allowed by law. Two promissory notes were
executed for the credit line and stipulated therein: with interest
thereon at the rate of 12% pa, until paid, with interest rate the
Bank may, at any tie, without notice, raise within the limits
allowed by law xxx.” Thereafter, PNB advised Mendoza that the
bank raised its interest rates to 14% pa, in line with CBMB
Resolution No 2126. Petitioner failed to pay and requested for
restructuring of loans. Two promissory notes were signed by
Mendoza and his wife. Petitioner testified that respondent
allegedly inserted in first promissory note No. 127/82 an
interest rate of 21% instead of 18% covering the principal
amount, and on the second promissory note 128/82 the
interest of 18% instead of 12% representing accrued interest.
The petitioner filed in the RTC in Pasig, Rizal a complaint for
specific performance, nullification of the extra-judicial
foreclosure and damages against respondents PNB, Fernando
Maramag Jr., Ricardo C. Decepida, Vice-President for
Metropolitan Branches, and Bayani A. Bautista. He alleged that
the Extrajudicial Foreclosure Sale of the mortgaged properties
was null and void since his loans were restructured to a five-
year term loan; hence, it was not yet due and demandable; that
the escalation clauses in the subject two (2) Promissory Notes
Nos. 127/82 and 128/82 were null and void, that the total
amount presented by PNB as basis of the foreclosure sale did
not reflect the actual loan obligations of the plaintiff to PNB;
that Bautista purposely delayed payments on his exports and
caused delays in the shipment of materials; that PNB withheld
certain personal properties not covered by the chattel
mortgage; and that the foreclosure of his mortgages was
premature so that he was unable to service his foreign clients,
resulting in actual damages amounting to Two Million Four
Thousand Four Hundred Sixty One Pesos (P2,004,461.00).
Respondent PNB appealed this decision of the trial court to the
Court of Appeals. And the Court of Appeals reversed the
decision of the trial court and dismissed the complaint. Hence,
this petition.
ISSUE: Whether or not the extrajudicial foreclosure of
petitioner’s real estate and chattel mortgages is valid. YES.
HELD: It is clear, however, from the above-quoted provision of
the said promissory notes that respondent bank is authorized,
in case of default, to sell “things of value” belonging to the
mortgagor “which may be on its hands for deposit or otherwise
belonging to me/us and for this purpose.” Besides the
petitioner executed not only a chattel mortgage but also a real
estate mortgage to secure his loan obligations to respondent
bank.
A stipulation in the mortgage, extending its scope and effect
to after-acquired property is valid and binding where the
after-acquired property is in renewal of, or in substitution for,
goods on hand when the mortgage was executed, or is
purchased with the proceeds of the sale of such goods. As
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earlier pointed out, the petitioner did not present any proof as
to when the subject movables were acquired.
More importantly, respondent bank makes a valid argument for
the retention of the subject movables. Respondent PNB asserts
that those movables were in fact "immovables by destination"
under Art. 415 (5) of the Civil Code.[31] It is an established rule
that a mortgage constituted on an immovable includes not only
the land but also the buildings, machinery and accessories
installed at the time the mortgage was constituted as well as
the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof.
Petitioner also contends that respondent PNB’s bid prices for
this foreclosed properties in the total amount of Three Million
Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen
Pesos and Fifty Centavos (P3,798,719.50), were allegedly
“unconscionable and shocking to the conscience of men”. He
claims that the fair market appraisal of his foreclosed plant site
together with the improvements thereon located in Pasig,
Metro Manila amounted to Five Million Four Hundred Forty
One Thousand Six Hundred Fifty Pesos (P5,441,650.00) while
that of his house and lot in Quezon City amounted to Seven
Hundred Twenty Two Thousand Pesos (P722,000.00) per the
appraisal report dated September 20, 1990 of Cuervo
Appraisers, Inc. That contention is not well taken considering
that:
1. The total of the principal amounts alone of petitioner’s
subject Promissory Notes Nos. 127/82 and 128/82 which are
both overdue amounted to Four Million One Hundred Eighty
Seven Thousand Nine Hundred Seventeen Pesos and Fifty Nine
Centavos (P4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was
undertaken in September 1990, the extrajudicial foreclosure of
petitioner’s real estate and chattel mortgages have been
effected way back on October 15, 1984, October 23, 1984 and
December 21, 1984.[34] Common experience shows that real
estate values especially in Metro Manila tend to go upward due
to developments in the locality.
3. In the public auction/foreclosure sales, respondent PNB, as
mortgagee, was not obliged to bid more than its claims or more
than the amount of petitioner’s loan obligations which are all
overdue. The foreclosed real estate and chattel mortgages
which petitioner earlier executed are accessory contracts
covering the collaterals or security of his loans with respondent
PNB. The principal contracts are the Promissory Notes Nos.
127/82 and 128/82 which superseded and novated the 1979
promissory notes and the 1979 eleven (11) Applications and
Agreements for Commercial Letter of Credit.
Finally, the record shows that petitioner did not even attempt
to tender any redemption price to respondent PNB, as highest
bidder of the said foreclosed real estate properties, during the
one-year redemption period. The extrajudicial foreclosure of
petitioner’s real estate and chattel mortgages was not
premature and that it was in fact legal and valid. The petition is
hereby DENIED.
PS: The case is quite long, please read the full text for other
specific details. thanks.
30. LUCIA TAN vs. ARADOR VALDEHUEZA and REDICULO
VALDEHUEZA – ZarGido
Facts:
As submitted by the parties, the stipulated facts are as fallows;
For the first cause of action, A parcel of land was a subject
matter of the public auction sale held on May 6, 1955 at
Misamis Occidental, wherein the plaintiff was the highest
bidder and as such a Certificate of Sale was executed by Mr.
Vicente D. Roa who was then the Ex-Officio Provincial Sheriff in
favor of Lucia Tan the herein plaintiff. Due to the failure of
defendant AradorValdehueza to redeem the said land within
the period of one year as being provided by law, the Ex-Officio
Provincial Sheriff executed an ABSOLUTE DEED OF SALE in favor
of the plaintiff Lucia Tan.
As to the second cause of action, as stipulated by the parties it
was said that defendants AradorValdehueza and
RediculoValdehueza have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA
TAN of two portions of a parcel of land with the total amount of
(P1,500.00).
The first parcel of land referred to in the second cause of action
was not registered in the Registry of Deeds, while the Deed of
Pacto de Retro for the second land was registered. from the
execution of the Deed of Sale with right to repurchase
mentioned in the second cause of action, defendants
AradorValdehueza and RediculoValdehueza remained in the
possession of the land; that land taxes to the said land were
paid by the same said defendants.
Herein plaintiff files a case for the (a) declaration of ownership
and recovery of possession of the parcel of land described in
the first cause of action of the complaint, and (b) consolidation
of ownership of two portions of another parcel of
(unregistered) land described in the second cause of action of
the complaint, purportedly sold to the plaintiff in two separate
deeds of pacto de retro.
The trial court rendered judgement in favor of Tan but
nonetheless treated the registered deed of pacto de retro as an
equitable mortgage but considered the unregistered deed
of pacto de retro "as a mere case of simple loan, secured by the
property thus sold under pacto de retro," on the ground that no
suit lies to foreclose an unregistered mortgage.
Issue:
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WON the trial judge made reversible error in declaring the
unregistered deed of pacto de retro " be a mere case of simple
loan.
Ruling:
Yes. Although unregistered the subject deed is still that of a
mortgage.
The trial judge had not updated himself on law and
jurisprudence; he cited, in support of his ruling, article 1875 of
the old Civil Code and decisions of this Court circa 1910 and
1912.
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 effect since August 30,1950), this is no longer so.
If the instrument is not recorded, the mortgage is nonetheless
binding between the parties. (Article 2125, 2nd sentence).
TheValdehuezas 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.
Other issue/s:
The Valdehuezas claim that the plaintiff affirmed that they
remained in possession of the land and gave the proceeds of
the harvest to the plaintiff; it is thus argued that they would
suffer double prejudice if they are to pay legal interest on the
amounts stated in the pacto de retro contracts, as the lower
court has directed,
The record does not support this claim. Nowhere in the original
and the amended complaints is an allegation of delivery to the
plaintiff of the harvest from the land involved in the second
cause of action. Hence, the defendants' answer had none to
affirm. In submitting their stipulation of facts, the parties
prayed "for its approval and maybe made the basis of the
decision of this Honorable Court. " This, the court did. It cannot
therefore be faulted for not receiving evidence on who profited
from the harvest. T
he imposition of legal interest on the amounts subject of the
equitable mortgages, P1,200 and P300, respectively, is without
legal basis, for, "No interest shall be due unless it has been
expressly stipulated in writing." (Article 1956, new Civil Code)
Furthermore, the plaintiff did not pray for such interest; her
thesis was a consolidation of ownership, which was properly
rejected, the contracts being equitable mortgages.
31. State Investment vs. CA G.R. No. 115548 March 5, 1996 –
Janie Lumanag
FACTS
On October 15, 1969, Spouses Canuto and Ma.AranzazuOreta
and SOLID Homes, Inc. executed a contract to sell involving a
parcel of land. Upon signing the contract, the spouses oreta
made payment amounting to P7,869.40 with the agreement
that the balance shall be payable in monthly installments of
P451.70 at 12% per annum.
On November 4, 1976, SOLID executed several real estate
mortgage contracts in favor of State Investment Homes, Inc.
(STATE) over its subdivided parcels of land, one of which is the
subject lot.
For Failure of SOLID to comply with its mortgage obligations
contract, STATE extrajudicially foreclosed the mortgaged
properties including the subject lot on April 6, 1983, with the
corresponding certificate of sale issued therefor to STATE
annotated at the back of the titles covering the said properties
on October 13, 1983
On June 23, 1984, SOLID thru a Memorandum of Agreement
negotiated for the deferment of consolidation of ownership
over the foreclosed properties by committing to redeem the
properties from STATE.
On August 15, 1988, the spouses filed a complaint before the
Housing and Land Use Regulatory Board, HLRB, against the
developer SOLID and STATE for failure on the part of SOLID "to
execute the necessary absolute deed of sale as well as to deliver
title to said property . . . in violation of the contract to sell . . .,"
despite full payment of the purchase price as of January 7,
1981. In its Answer, SOLID, by way of alternative defense,
alleged that the obligations under the Contract to Sell has
become so difficult . . . the herein respondents be partially
released from said obligation by substituting subject lot with
another suitable residential lot from another subdivision which
respondents own/operates". Upon the other hand, STATE, to
which the subject lot was mortgaged, averred that unless SOLID
pays the redemption price of P125,1955.00, it has "a right to
hold on and not release the foreclosed properties.
However, HLURB ordered State to execute a deed of
conveyance in favor of complainants and deliver the title to the
land. Solid was then ordered to pay State the portion of the
loan which corresponds to the value of the lot. this judgment
was sutained by the Board of Commissioners, Office of the
President, and Court of Appeals.
ISSUE
W/N spouses Oreta's unregistered rights are superior over
State's registered mortgage over the property
HELD
Yes.
In fact, petitioner admits the superior rights of respondents-
spouses Oreta over the subject property as it did not pray for
the nullification of the contract between respondents-spouses
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and SOLID, but instead asked for the payment of the release
value of the property in question, plus interest, attorney's fees
and costs of suit against SOLID or, in case of the latter's inability
to pay, against respondents-spouses before it can be required
to release the title of the subject property in favor of the
respondent spouses.
State's registered mortgage right over the property is inferior to
that of respondents' unregistered right. The unrecorded sale is
preferred for the reason that if the original owner (Solid) had
parted with the ownership of the thing sold, he would no longer
have the free disposal of it and would not be able to mortgage
it. Registration of the mortgage is not important since it is
understood to be without prejudice to the rights of third
persons.
Pero if mag-ask si mam, about the issue regarding the Torrens
system:
ISSUE
W/N State has the right to rely on the face of the Torrens title
HELD
As a general rule, where there is nothing in the title to indicate
any cloud or vice in the ownership thereof, the purchaser is not
required to explore further. An exception to this is when the
mortgagee or purchaser has knowledge of a defect or lack of
title on the part of the vendor or that he was aware of sufficient
facts to induce a reasonably prudent man to inquire furher. In
this case, petitioner knows full well that Solid is engaged in
selling subdivision lots. Therefore, as founded on jurisprudence,
it should have taken necessary precautions to ascertain any
flaw. Moreover, the uniform practice of financing institutions is
to investigate, examine, and assess real property offered as
security. State is therefore not a mortgagee in good faith.
32. AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF
HINIGARAN v ESTANISLAO YULO YUSAY, ET AL. – Ruby L.
Monday
Facts:
The records disclose that on July 20, 1952, Rafaela Yulo
executed in favor of the movant, AGRICULTURAL CREDIT
COOPERATIVE ASSOCIATION OF HINIGARAN, a mortgage for
P33,626.29, due from her, her mother, sisters, brothers, and
others, which amount she assumed to pay to the movant. A
motion was presented to the court by the movant demanding
the surrender of the owner's duplicate certificate of title that he
may annotate said mortgage at the back of the certificate.
EstanislaoYusay, a part owner of the lot, opposed the petition
on the ground that he is owner of a part of the property in
question; that the granting of the motion would operate to his
prejudice, as he has not participated in the mortgage cited in
the motion; that Rafaela Yulo is dead; that the motion is not
verified and movant's rights have lapsed by prescription. Finally
it is argued that his opposition raises a controversial matter
which the court has no jurisdiction to pass upon.
The court held that even if the ownership of the deceased
Rafaela Yulo over the portion of the lot in question and the
validity of the mortgage are disputed, such invalidity of the
mortgage is no proof of the non-existence of the mortgage nor
a ground for objecting to its registration, citing the case of
Register of Deeds of Manila vs. Maxima TinocoVda. de Cruz, et,
al., 95 Phil., 818; 53 Off. Gaz., 2804.
Issue: WON, in registering the mortgage, the court passed
upon the validity of the mortgage.
Held:No. In the first place, as the judge below correctly ruled,
the proceeding to register the mortgage does not purport to
determine the supposed invalidity of the mortgage or its effect.
Registration is a mere ministerial act by which a deed, contract
or instrument is sought to be inscribed in the records of the
Office of the Register of Deeds and annotated at the back of the
certificate of title covering the land subject of the deed,
contract or instrument.
The registration of a lease or mortgage, or the entry of a
memorial of a lease or mortgage on the register, is not a
declaration by the state that such an instrument is a valid and
subsisting interest in land; it is merely a declaration that the
record of the title appears to be burdened with the lease or
mortgage described, according to the priority set forth in the
certificate.
The mere fact that a lease or mortgage was registered does not
stop any party to it from setting up that it now has no force or
effect. (Niblack, pp. 134-135, quoted in Francisco Land
Registration Act, l950 ed., p. 348.)
The court below, in ordering the registration and annotation of
the mortgage, did not pass on its invalidity or effect. As the
mortgage is admittedly an act of the registered owner, all that
the judge below did and could do, as a registration court, is to
order its registration and annotation on the certificate of title
covering the land mortgaged. By said order the court did not
pass upon the effect or validity of the mortgage — these can
only be determined in an ordinary case before the courts, not
before a court acting merely as a registration court, which did
not have the jurisdiction to pass upon the alleged effect or
validity.
33. PRODUCERS BANK OF THE PHILIPPINES vs. EXCELSA
INDUSTRIES, INC - Alexis Ben O. Barrera. G.R. No. 152071 May
8, 2009
Facts: Sometime in January 1987, respondent applied, which
was approved, for a packing credit line or a credit export
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advance with petitioner Producers Bank of the Philippines. The
application was supported by Letter of Credit.
KwangJu Bank, Ltd. of Seoul, Korea issued the letter of
credit through its correspondent bank, the Bank of the
Philippine Islands, for the account of Shin Sung
Commercial Co., Ltd., also located in Seoul, Korea. T.L.
World Development Corporation was the original
beneficiary of the letter of credit. On 05 December 1986,
for value received, T.L. World transferred to respondent
all its rights and obligations under the said letter of
credit.
Prior to the application respondent had obtained a loan from
petitioner. The loan was secured by a real estate mortgage.
Significantly, the real estate mortgage contained the following
clause:
For and in consideration of those certain loans, overdraft
and/or other credit accommodations on this date
obtained from the MORTGAGEE, and to secure the
payment of the same, the principal of all of which is
hereby fixed at FIVE HUNDRED THOUSAND PESOS ONLY
(P500,000.00) Pesos, Philippine Currency, as well as
those that the MORTGAGEE may hereafter extend to the
MORTGAGOR, x xx .
On 17 March 1987, respondent presented for negotiation to
petitioner drafts drawn under the letter of credit and the
corresponding export documents. Petitioner purchased the
drafts and export documents. The purchase was subject to the
conditions laid down in two separate undertakings by
respondent dated 17 March 1987 and 10 April 1987.
On 24 April 1987, KwangJu Bank, Ltd. notified petitioner
through cable that the Korean buyer refused to pay
respondent’s export documents on account of typographical
discrepancies. KwangJu Bank, Ltd. returned to petitioner the
export documents.
Petitioner demanded from respondent. Due to respondent’s
failure to heed the demand, petitioner moved for the
extrajudicial foreclosure on the real estate mortgage over
respondent’s properties. At the public auction held on 05
January 1988, the Sheriff of Antipolo, Rizal issued a Certificate
of Sale in favor of petitioner as the highest bidder.
On 17 November 1989, respondent instituted an action for the
annulment of the extrajudicial foreclosure with prayer for
preliminary injunction and damages against petitioner and the
Register of Deeds of Marikina.
On 18 December 1997, the RTC rendered a decision upholding
the validity of the extrajudicial foreclosure and ordering the
issuance of a writ of possession in favor of petitioner. The RTC
denied respondent’s motion for reconsideration. Thus,
respondent elevated the matter to the Court of Appeals,
reiterating its claim that petitioner was not only a collection
agent but was considered a purchaser of the export. On 30 May
2001, the Court of Appeals rendered the assailed decision,
reversing the RTC’s decision. Hence, the instant petition.
Issue: W/N the extrajudicial foreclosure of mortgage was valid.
Held: Yes. The validity of the extrajudicial foreclosure of the
mortgage is dependent on the following issues posed by
petitioner: (1) the coverage of the "blanket mortgage clause;"
(2) petitioner’s failure to furnish personal notice of the
foreclosure to respondent; and (3) petitioner’s obligation as
negotiating bank under the letter of credit.
Much of the discussion has revolved around who should be
liable for the dishonor of the draft and export documents. In
the two undertakings executed by respondent as a condition for
the negotiation of the drafts, respondent held itself liable if the
drafts were not accepted. The two undertakings signed by
respondent are similarly-worded and contained respondent’s
express warranties, to wit:
In consideration of your negotiating the above described
draft(s), we hereby warrant that the said draft(s) and
accompanying documents thereon are valid, genuine and
accurately represent the facts stated therein, and that such
draft(s) will be accepted and paid in accordance with its/their
tenor. We further undertake and agree, jointly and severally, to
defend and hold you free and harmless from any and all
actions, claims and demands whatsoever, and to pay on
demand all damages actual or compensatory including
attorney’s fees, costs and other awards or be adjudged to pay,
in case of suit, which you may suffer arising from, by reason, or
on account of your negotiating the above draft(s) because of
the following discrepancies or reasons or any other discrepancy
or reason whatever.
We hereby undertake to pay on demand the full amount of
the above draft(s) or any unpaid balance thereof, the
Philippine perso equivalent converted at the prevailing selling
rate (or selling rate prevailing at the date you negotiate our
draft, whichever is higher) allowed by the Central Bank with
interest at the rate prevailing today from the date of
negotiation, plus all charges and expenses whatsoever incurred
in connection therewith. You shall neither be obliged to contest
or dispute any refusal to accept or to pay the whole or any part
of the above draft(s), nor proceed in any way against the
drawee, the issuing bank or any endorser thereof, before
making a demand on us for the payment of the whole or any
unpaid balance of the draft(s).(Emphasis supplied)31
In Velasquez v. Solidbank Corporation,32 where the drawer
therein also executed a separate letter of undertaking in
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consideration for the bank’s negotiation of its sight drafts, the
Court held that the drawer can still be made liable under the
letter of undertaking even if he is discharged due to the bank’s
failure to protest the non-acceptance of the drafts. The Court
explained, thus:
Petitioner, however, can still be made liable under the letter of
undertaking. It bears stressing that it is a separate contract
from the sight draft. The liability of petitioner under the letter
of undertaking is direct and primary. It is independent from his
liability under the sight draft. Liability subsists on it even if the
sight draft was dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner
its value upon the undertaking that he will reimburse the
amount in case the sight draft is dishonored. The bank would
certainly not have agreed to grant petitioner an advance export
payment were it not for the letter of undertaking. The
consideration for the letter of undertaking was petitioner’s
promise to pay respondent the value of the sight draft if it was
dishonored for any reason by the Bank of Seoul.33
Thus, notwithstanding petitioner’s alleged failure to comply
with the requirements of notice of dishonor and protest under
Sections 8934 and 152,35 respectively, of the Negotiable
Instruments Law, respondent may not escape its liability under
the separate undertakings, where respondent promised to pay
on demand the full amount of the drafts.
Next issue: whether the real estate mortgage also served as
security for respondent’s drafts that were not accepted and
paid by the KwangJu Bank, Ltd.
Held: Yes. Respondent executed a real estate mortgage
containing a "blanket mortgage clause," also known as a
"dragnet clause." It has been settled in a long line of decisions
that mortgages given to secure future advancements are valid
and legal contracts, and 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 instrument
the intent to secure future and other indebtedness can be
gathered.
In Union Bank of the Philippines v. Court of Appeals,37 the
nature of a dragnet clause was explained, thus:
Is one which is specifically phrased to subsume all debts of past
and future origins. Such clauses are "carefully scrutinized and
strictly construed." Mortgages of this character enable the
parties to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and they
avoid the expense and inconvenience of executing a new
security on each new transaction. A "dragnet clause" operates
as a convenience and accommodation to the borrowers as it
makes available additional funds without their having to
execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording
fees, et cetera.
x xx
Petitioner, therefore, was not precluded from seeking the
foreclosure of the real estate mortgage based on the unpaid
drafts drawn by respondent. In any case, respondent had
admitted that aside from the unpaid drafts, respondent also
had due and demandable loans secured from another account
as evidenced by Promissory Notes (PN Nos.) BDS-001-87, BDS-
030/86 A, BDS-PC-002-/87 and BDS-005/87.
However, the Court of Appeals invalidated the extrajudicial
foreclosure of the mortgage on the ground that petitioner had
failed to furnish respondent personal notice of the sale contrary
to the stipulation in the real estate mortgage.
Petitioner, on the other hand, claims that under paragraph
1239 of the real estate mortgage, personal notice of the
foreclosure sale is not a requirement to the validity of the
foreclosure sale.
A perusal of the records of the case shows that a notice of
sheriff’s sale40 was sent by registered mail to respondent and
received in due course.41 Yet, respondent claims that it did not
receive the notice but only learned about it from petitioner. In
any event, paragraph 12 of the real estate mortgage requires
petitioner merely to furnish respondent with the notice and
does not oblige petitioner to ensure that respondent actually
receives the notice. On this score, the Court holds that
petitioner has performed its obligation under paragraph 12 of
the real estate mortgage.
Last issue: whether respondent may still question the
foreclosure sale.
Held: No. Plaintiff is estopped from questioning the foreclosure.
The plaintiff is guilty of laches and cannot at this point in time
question the foreclosure of the subject properties. Defendant
bank made demands against the plaintiff for the payment of
plaintiff’s outstanding loans and advances with the defendant
as early as July 1997. Plaintiff acknowledged such outstanding
loans and advances to the defendant bank and committed to
liquidate the same. For failure of the plaintiff to pay its
obligations on maturity, defendant bank foreclosed the
mortgage on subject properties on January 5, 1988 the
certificate of sale was annotated on March 24, 1988 and there
being no redemption made by the plaintiff, title to said
properties were consolidated in the name of defendant in July
1989. Undeniably, subject foreclosure was done in accordance
with the prescribed rules as may be borne out by the exhibits
submitted to this Court which are Exhibit "33," a notice of
extrajudicial sale executed by the Sheriff of Antipolo, Exhibit
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"34" certificate posting of extrajudicial sale, Exhibit "35" return
card evidencing receipt by plaintiff of the notice of extrajudicial
sale and Exhibit "21" affidavit of publication.
34. G.R. No. 133079. August 9, 2005]
SPS. MAXIMO LANDRITO, JR. and PACITA
EDGALANI, Petitioners,
vs.
THE HONORABLE COURT OF APPEALS; SPS. BENJAMIN SAN
DIEGO and CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF
and CLERK OF COURT of the Regional Trial Court, Makati City;
and the REGISTER OF DEEDS, Makati City, Respondent.
Facts: Petitioners obtained a P350,000 loan from respondent
Carmencita San Diego secured by a real estate mortgage. They
again obtained an additional loan of P1,000,000. Then the
parties executed on September 13, 1991 an "Amendment of
Real Estate Mortgage". They stipulated that the loan shall be
paid within six (6) months from 16 September 1991, and if not
paid within said period, the mortgagee shall have the right to
declare the mortgage due and may immediately foreclose the
same judicially or extrajudicially, in accordance with law.
Petitioners defaulted in paying their loan in the amount of
1,950,000. A petition for extrajudicial foreclosure of mortgage
was filed. The mortgaged property was sold to respondent as
the highest bidder. The Sheriff’s certificate of sale was
registered with the Office of the Register of Deeds, Makati City.
The title over the mortgaged property was consolidated to
respondent after one year.
On November 9, 1994, petitioners filed a complaint for
annulment of the extrajudicial foreclosure and auction sale,
with damages.
(1) They alleged that said foreclosure and auction sale were null
and void for failure to comply with the requirements of notice
and publication.
Ruling: The law on redemption of mortgaged property is clear.
Republic Act No. 3135 (An Act to Regulate the Sale of Property
Under Special Powers Inserted In Or Annexed to Real Estate
Mortgages), as amended by Republic Act No. 4118, provides in
Section 6 thereof, thus:
"Sec. 6. In all cases in which an extrajudicial sale is made under
the special power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time
within the term of one year from and after the date of the
sale; xxx" (Emphasis supplied)
In a long line of cases, this Court has consistently ruled that the
one-year redemption period should be counted not from the
date of foreclosure sale, but from the time the certificate of sale
is registered with the Register of Deeds. Here, it is not disputed
that the sheriff’s certificate of sale was registered on 29
October 1993.
And under Article 13 of the New Civil Code, a year is understood
to have three hundred sixty-five (365) days each. Thus,
excluding the first day and counting from 30 October 1993
(under paragraph 3 of Article 13 of the New Civil Code), and
bearing in mind that 1994 was a leap year, petitioners had only
until 29 October 1994, the 365th day after registration of the
sheriff’s certificate of sale on 29 October 1993, within which to
redeem the foreclosed property in accordance with law. And
since 29 October 1994 fell on a Saturday, petitioners had until
the following working day, 31 October 1994, within which to
exercise their right of redemption.
From the foregoing, it is clear as day that even the complaint
filed by the petitioners with the trial court on 09 November
1994 was instituted beyond the 1-year redemption period. In
fact, petitioners no less acknowledged that their complaint for
annulment of extrajudicial foreclosure and auction sale was
filed about eleven (11) days after the redemption period had
already expired on 29 October 1994. They merely harp on the
alleged increase in the redemption price of the mortgaged
property as the reason for their failure to redeem the same.
However, and as already pointed out herein, they chose not,
despite notice, to appear during the foreclosure proceedings.
The validity of the extrajudicial foreclosure on 11 August 1993
was virtually confirmed by the trial court when it dismissed
petitioners’ complaint, and rightly so, what with the fact that
petitioners failed to exercise their right of redemption within
the 1-year period therefor counted from the registration of the
sheriff’s certificate of sale.
(2) It is petitioners’ main submission, however, that the very
reason why they did not avail of their redemption right is
because Mrs. San Diego bloated their original loan
of P1,000,000.00 to P1,950,000.00, an issue supposedly not
considered and/or addressed by the appellate court in the
decision under review. In this regard, petitioners argue that the
Court of Appeals, in sustaining the extrajudicial foreclosure
proceedings, thereby go against the established jurisprudence
that an action for foreclosure must be limited to the amount
mentioned in the mortgage document, P1,000,000.00 in this
case.
Ruling: We do not take issue with petitioners’ submission that
a mortgage may be foreclosed only for the amount appearing in
the mortgage document, more so where, as here, the mortgage
contract entered into by the parties is evidently silent on the
payment of interest.
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It appears from the evidence on record that despite due notice
and publication of the same in a newspaper of general
circulation petitioners did not bother to attend the foreclosure
sale nor raise any question regarding the propriety of the sale.
It was only on November 9, 1994, or more than one year from
the registration of the Sheriff’s Certificate of Sale, that they filed
the instant complaint. Clearly, petitioners had slept on their
rights and are therefore guilty of laches, which is defined as the
failure or neglect for an unreasonable or explained length of
time to do that which, by exercising due diligence, could or
should have been done earlier, failure of which gives rise to the
presumption that the person possessed of the right or privilege
has abandoned or has declined to assert the same. For sure, in
the very petition they filed in this case, petitioners have not
offered any valid excuse why, despite notice to them of the
petition for extrajudicial foreclosure filed by the respondents,
they failed to attend the proceedings and there voiced out what
they are now claiming. Truly, laches has worked against them.
(3) Petitioners presently insist that they requested for and were
granted an extension of time within which to redeem their
property, relying on a handwritten note allegedly written by
Mrs. San Diego’s husband on petitioners’ statement of account,
indicating therein the date 11 November 1994 as the last day to
pay their outstanding account in full.
Ruling: Even assuming, in gratia argumenti, that they were
indeed granted such an extension, the hard reality, however, is
that at no time at all did petitioners make a valid offer to
redeem coupled with a tender of the redemption price.
For, in Lazo v. Republic Surety & Insurance Co., Inc, this Court
has made it clear that it is only where, by voluntary agreement
of the parties, consisting of extensions of the redemption
period, followed by commitment by the debtor to pay the
redemption price at a fixed date, will the concept of legal
redemption be converted into one of conventional redemption.
Here, there is no showing whatsoever that petitioners agreed to
pay the redemption price on or before 11 November 1994, as
allegedly set by Mrs. San Diego’s husband. On the contrary,
their act of filing their complaint on 09 November 1994 to
declare the nullity of the foreclosure sale is indicative of their
refusal to pay the redemption price on the alleged deadline set
by the husband. At the very least, if they so believed that their
loan obligation was only for P1,000,000.00, petitioners should
have made an offer to redeem within one (1) year from the
registration of the sheriff’s certificate of sale, together with a
tender of the same amount. This, they never did.
It must be remembered that the period of redemption is not a
prescriptive period but a condition precedent provided by law
to restrict the right of the person exercising redemption.
Correspondingly, if a person exercising the right of redemption
has offered to redeem the property within the period fixed, he
is considered to have complied with the condition precedent
prescribed by law and may thereafter bring an action to enforce
redemption. If, on the other hand, the period is allowed to
lapse before the right of redemption is exercised, then the
action to enforce redemption will not prosper, even if the
action is brought within the ordinary prescriptive period.
Moreover, the period within which to redeem the property sold
at a sheriff’s sale is not suspended by the institution of an
action to annul the foreclosure sale.9 It is clear, then, that
petitioners have lost any right or interest over the subject
property primarily because of their failure to redeem the same
in the manner and within the period prescribed by law. Their
belated attempts to question the legality and validity of the
foreclosure proceedings and public auction must accordingly
fail.
35. UNIONBANK OF THE PHILIPPINES vs. THE COURT OF
APPEALS and FERMINA S. DARIO and REYNALDO S.
DARIO/Jase Tan
Facts:
 A mortgage was executed by spouses Leopoldo and Jessica
Dario in favor of UnionBank on Dec. 17, 1991 to secure the
payment of a P 3 Million loan, including interests and
charges. The mortgage covered a property under
Leopoldo’s name.
 The principal obligation was not paid so
UnionBankextrajudicially foreclosed the mortgage with
itself posting as the highest bidder.
 One week before the expiration of the redemption period
expired, respondents filed a complaint for annulment of
sale and real estate mortgage reconveyance.
 Title to the property was consolidated to UnionBank.
 The respondents (Fermina and Reynaldo) allege that they
are the true owners of the subject mortgaged property and
not spouses Leopoldo and Jessica Dario.
 They claimed that the original title, TCT No. 61571, was
entrusted to a certain Atty. Reynaldo Singson preparatory
to its administrative reconstitution after a fire gutted the
Quezon City Hall building. Mortgagor Leopoldo, private
respondent Fermina's son, obtained the property from
Atty. Singson, had the title reconstituted under his name
without private respondents' knowledge, executed an
ante-dated deed of sale in his favor and mortgaged the
property to UnionBank.
 UnionBank filed its answer ad cautelamasserting its status
as an innocent mortgagee for value whose right or lien
upon the property mortgaged must be respected even if,
the mortgagor obtained his title through fraud.
 CA ruled that UnionBank acted in bad faith since it had
knowledge of the true ownership of the subject property.
The foreclosure sale was annulled and cancel the title in
favor of UnionBank.
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Ø UnionBank claims to be a mortgagee in good faith and for
value with a right to consolidate ownership over the foreclosed
property with the redemption period having expired and there
having been no redemptioners.
Ø The alleged fraudulent mortgage was facilitated through
private respondents' negligence so they must bear the loss. It
also contends that since private respondents had filed several
pleadings, due process, being an opportunity to be heard either
through pleadings or oral arguments, was observed.
Ø Private respondents maintain that UNIONBANK's
consolidation of the title in its name was in bad faith, vitiated a
standing court order, is against the law, thus void ab initio. The
application for preliminary injunction was not rendered moot
and academic by consolidation, which took place during the
lifetime of the TRO, and did not follow the proper legal
procedure due to the surreptitious manner it was
accomplished. By treating the application for preliminary
injunction as moot and academic and denying the motion for
indirect contempt without hearing, the RTC order ran afoul with
the requirements of due process.
Issues:
Was the consolidation of title in UNIONBANK's name proper?
And was the dismissal of the application for preliminary
prohibitory injunction valid?
Ruling:
Yes to both questions.
UNIONBANK's consolidation of title over the property on 24
October 1994 was proper, though precipitate. Contrary to
private respondents' allegation UNIONBANK violated no
standing court order. The only bar to consolidation was the
temporary restraining order issued by Justice Lipana-Reyes on
10 October 1994 which effectively halted the tolling of the
redemption period 7 days short of its expiration. When private
respondents' original complaint was dismissed on 17 October
1994 for failure to append a certification of non-forum
shopping, the TRO, as an ancillary order that cannot stand
independent of the main proceeding, becamefunctus officio.
Thus the tolling of the 12-month redemption period,
interrupted by the filing of the complaint and the TRO,
recommenced and eventually expired 7 days thereafter or on
24 October 1994, the date of the disputed consolidation.
It is settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale. 12
Consolidation took place as a matter of right since there was no
redemption of the foreclosed property and the TRO expired
upon dismissal of the complaint. UNIONBANK need not have
informed private respondent that it was consolidaint its title
over the property, upon the expiration of the redemption
period, without the judgment debtor having made use of his
right of redemption, the ownership of the property sold
becomes consolidated in the purchaser. Notice to the
mortgagors and with more reason, to private respondents who
are not even parties to the mortgage contract nor to the extra
judicial sale is not necessary.
In real estate mortgage, when the principal obligation is not
paid when due, the mortgage has the right to foreclose the
mortgage and to have the property seized and sold with a view
to applying the proceeds to the payment of the principal
obligation.14 Foreclosure may be effected either judicially or
extrajudicially.
In a public bidding during extra-judicial foreclosure, the creditor
—mortgagee, trustee, or other person authorized to act for the
creditor may participate and purchase the mortgaged property
as any other bidder. Thereafter the mortgagor has one year
within which to redeem the property from and after
registration of sale with the Register of Deeds. In case of non-
redemption, the purchaser at foreclosure sale shall file with the
Register of Deeds, either a final deed of sale executed by the
person authorized by virtue of the power of attorney embodied
in the deed or mortgage, or his sworn statement attesting to
the fact of non-redemption; whereupon, the Register of Deeds
Shall issue a new certificate of title in favor of the purchaser
after the owner's duplicate of the certificate has been
previously delivered and canceled.Thus, upon failure to redeem
foreclosed realty, consolidation of title becomes a matter of
right on the part of the auction buyer,and the issuance of a
certificate of title in favor of the purchaser becomes ministerial
upon the Register of Deeds.
There is, moreover, nothing erroneous with the denial of
private respondents' application for preliminary prohibitory
injunction. The acts complained of have already been
consummated. It is impossible to restrain the performance of
consummated acts through the issuance of prohibitory
injunction. When the act sought to be prevented had long been
consummated, the remedy of injunction could no longer be
entertained, hearing the application for preliminary injunction
would just be an exercise in futility.
In addition, to be entitled to the injunctive writ, movant must
show that there exists a right to be protected which is directly
threatened by an act sought to be enjoined. Furthermore, there
must be a showing that the invasion of the right is material and
substantial and that there is an urgent and paramount necessity
for the writ to prevent a serious damage.The injunctive remedy
prevents a threatened or continuous irremediable injury to
some of the parties before their claim can be thoroughly
investigated and advisedly adjudicated; it is resorted to only
when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard
compensation.
In the case at bar, the consolidation of ownership over the
mortgaged property in favor of UNIONBANK and the issuance of
a new title in its name during the pendency of an action for
annulment and reconveyance will not cause irreparable injury
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to private respondents who are plaintiffs in the said preliminary

injunction. This is because .as purchaser at a public auction,
UNIONBANK is only substituted to and acquires the right, title,
interest and claim of the judgment debtors or mortgagors to
the property at the time of levy.Perforce, the judgment in the
main action for reconveyance will not be rendered ineffectual
by the consolidation of ownership and the issuance of title in
the name of UNIONBANK.

More importantly, with the main action for reconveyance

pending before the RTC, the notice of lispendens, which despite
consolidation remains annotated on UNIONBANK's transfer
certificate of title subject to the outcome of the litigation,
sufficiently protects private respondents interest over the
property. A transfereependentelitestands exactly in the shoes of
the transferor and is bound by any judgment or decree which
may be rendered for or against the transferor. Once a notice of
lispendenshas been duly registered, any cancellation or issuance
of the title of the land involved as well as any subsequent
transaction affecting the same, would have to be subject to the
outcome of the litigation. In other words, upon the termination
of the litigation there can be no risk of losing the property or
any part thereof as a result of any conveyance of the land or
any encumbrance that may be made thereon posterior to the
filing of the notice of lispendens.

Finally, as to the issue of who between private respondents and

UNIONBANK is negligent and hence must bear the loss, the
same is not the proper subject of the present petition and can
only be resolved by the trial court after the trial on the merit of
the main case.

WHEREFORE, the assailed Decision of the Court of Appeals of 26

June 1997 nullifying the consolidation of ownership and
ordering the Register of Deeds of Quezon City to cancel TCT No.
120929 and reinstate TCT No. 41828 is hereby REVERSED and
SET ASIDE. The order of the trial court dated 7 August 1999,
declaring UNIONBANK's prayer for writ of preliminary
injunction moot and academic, is hereby REINSTATED. Let this
case be remanded to the Regional Trial Court for trial on the
merits.

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