Credit Transaction 1 PDF

CASE TABLE CREDIT TRANSACTIONS (Prof.
Rocky Reyes | AY 2009-2010) Page 1 of 19

karichi santos 0410862 | UPlaw2012
CREDIT TRANSACTIONS

CASE TITLE FACTS/ISSUE DOCTRINES
LOAN
1
Commission on
Internal Revenue v
Burroughs Limited
(1986; Paras, J.)
Handled by Sycip
Burroughs wants to remit to its parent company abroad,
for which it paid 15% branch profit remittance tax,
pursuant to Sec 24(b)(2)(ii) of NIRC. Burroughs however
asked for tax reimbursement claiming that the basis for
the profit remittance tax should be amount actually
remitted and NOT the amount before remittance tax

Issue: Is Burroughs entitled to reimbursement? Yes.
Burroughs was entitled to reimbursement. The tax base upon
which the 15% branch profit remittance tax shall be imposed is
the profit actually remitted and not on the total branch profits
out of which the remittance is to be made.

Rocky says: The law was amended because of this case, it now
reads profit applied for. Solve the problem by the language of
the law, dont indiscriminately cite cases. CC is more important
than cases kahit cross-eyed sila.
2
Pp v Concepcion
(1922; Malcolm, J.)
Venancio Concepcion, then President of PNB, granted
special authority to the manager of Aparri branch
[because the latter had limited discretion in granting
loans exceeding P5,000] to extend credit in favor of the
partnership of Puno y Concepcion [in which Venancios
wife owns half of the capital share]. The only security
given therefor were six demand notes. Concepcion was
adjudged guilty of violating Sec 35 of Act No 2747 which
prohibited direct or indirect loans to members of the
board of directors of banks nor to agents of branch banks.

Rocky says:
- What is S en C?
- What is a double name paper?
- What part of the law should you not touch?
- Loans were actually granted. Why do you have to raise
something about concession of credit?
- All arguments here were obviously palusot. Silence is
better. As Balane used to say, keep your mouth shut
rather than confirm his suspicions of the students
idiocy.
Issue No. 1: Is the grant of credit to the copartnership a loan
within the meaning of Sec. 35? [Concepcions argument: It was
only a concession of a credit]
- Credit means ability to borrow money by virtue of the
confidence or trust reposed by a lender that he will pay what he
may promise
- Loan means delivery by one party and the receipt by the
other party of a given sum of money, upon an agreement,
express or implied, to repay the sum loaned with or without an
interest.
- Concession of credit necessarily involves the granting of
loans up to limit of the amount fixed in the credit

Issue No. 2: Was the granting of credit to copartnership a loan
or a discount? [Concepcions argument: The prohibition applies
only to loans, not on discounts]
- Discounts are favored by bankers because of their liquid nature,
as they grow out of an actual, live transaction. However,
discount is only a mode of loaning money. But it has several
distinctions:
DISCOUNT LOAN
Interest is deducted in
advance
Interest is taken at the
expiration of the credit
Always on double-
name paper
Generally on single-
name paper
- The demand notes were mere evidences of indebtedness
because: 1) interest was not deducted from the face of the notes
but was paid when the notes fell due, 2) they were single-name,
not double name.

Issue No. 3: Was the granting of credit an indirect loan?
- The purpose of the law is to erect a wall of safety against
temptation for a director of the bank. Where personal interest
clashes with fidelity to duty the latter almost always suffers. A
loan to a partnership of which the wife of a director is a member
falls within the prohibition.
3
Republic v Bagtas
(1962; Padilla, J.)
Bagtas borrowed 3 bulls from Bureau of Animal Industry.
Upon expiration of the contract, he did not return but
asked for extension, which was granted but only as to one
bull. Bagtas expressed his willingness to pay the bulls
book value but subject to reduction for yearly
depreciation. The Bureau refused this request and asked
him to either return or pay the entire book value.
Bagtas was unable to return the bulls because of bad
peace and order situation and the pending appeal of the
case.
Bagtas died during pendency of case. His adminitratrix
return two bulls because the third one had been
Bagtas contends that the contract was a commodatum and so
the fact that Republic retained ownership or title to the bull it
should suffer its loss due to force majeure.

A contract of commodatum is essentially gratuitous. If the
breeding fee be considered a compensation, then the contract
would be a lease. Under 1671, Bagtas would be subject to the
responsibilities of a possessor in BF because he had continued
possession after the expiry of the contract. And if the contract
be commodatum, he is still liable because of 1942 which
provides that bailee is liable even in case of fortuitous event if:
2. he keeps it longer than the period stipulated
CASE TABLE CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) Page 2 of 19

accidentally shot during a raid by the Huks. Bagtas then
claims that he is not liable for the loss of the bull as it was
caused by a force majeure.

Issue: Is Bagtas liable to pay for the dead bull? Yes!
3. thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from
responsibility in case of fortuitous event.

Chi asks: It appears that the GR in case of unstipulated liability
for fortuitous event, the bailee is liable. Must the exemption be
express?
4
Quintos v Beck
(1939; Imperial)
Beck is a tenant of Quintos. Quintos granted Beck the use
of the furniture found in the leased house, among these
were 3 gas heaters and 4 electric lamps. Quintos sold the
pieces of furniture to Lopez and thereafter notified Beck
of the conveyance. Beck informed Quintos that the latter
can get the furniture at the ground floor of the house.
However, at a later date, Beck told Quintos that he will
not return the furniture until after the expiration of lease
contract. When the lease contract expired, Beck
deposited the furniture to Sheriffs warehouse.

- Chi says: Theres express prohibition in CC on the
deposit with third persons of thing given by way of
commmodatum. The closest would be 1942 as to liability
for loss of thing due if the bailee lends to third person not
member of his household.
Issue No. 1: Did Beck comply with his obligation to return the
furniture upon Quintos demand? No.
- The K entered into between the parties is one of commodatum,
because under it the plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself the ownership
thereof, by this K, the defendant bound himself to return the
furniture to the plaintiff, upon the latters demand.
- The obligation voluntarily assumed by Beck to return the
furniture upon the plaintiffs demand means that he should
return ALL of them to plaintiff AT THE BAILORSS RESIDENCE OR
HOUSE. Beck did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his
benefit the 3 gas heaters and 4 electric lamps.

Issue No. 2: Where Quintos is bound to bear the deposit fees
due to Sheriff? No.
- The court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture aT the defendants
behest. The bailee was not entitled to place the furniture on
deposit; nor was the bailor under a duty to accept the offer to
return because it was incomplete.
5
Saura Import &
Export Co v DBP
(1972; Makalintal, J.)
Saura applied for P500,000 loan with DBP (then RFC) for
the construction of factory building and payment of
balance price of the jute mill machinery and equipment.
Saura intended to produce bags using locally grown raw
materials (the first serious attempt in history, as they
would call it). There was reexamination of the loan grant
due to the atras-abante attitude of China Engineers who
were to sign as co-makers, which even led to the
reduction of loan price to P300,000. But at the end of the
day, RFC granted the loan subject to two conditions: 1)
raw materials needed by the Saura to carry out its
operation are available in the immediate vicinity 2) there
is prospect of increased production of raw materials to
provide adequately for the requirements of the factory.

However, in view of Sauras statement that they will have
to import jute to produce the bags (read: inconsistent
with the conditions), DBP refused to approve the loan.
Saura then asked for cancellation of the mortgage.

9 years later, Saura filed this suit for damages against DBP
claiming that for the latters failure to release the
proceeds of loan applied for and approved, it was
prevented from completing or paying its contractual
commitments in connection with the jute mill project.
Issue: Is there a perfected contract of loan? If yes, did DBP
breach it? Yes, theres a perfected contract of loan. There was no
breach though, but mutual desistance by the parties.
- There was indeed a perfected consensual contract as
recognized in 1934. There was undoubtedly offer and
acceptance, Saura applied for a loan which DBP approved by
resolution.
- Realizing that it will not meet the two conditions, Saura asked
for cancellation of mortgage. The action thus taken was in the
nature of mutual desistance (mutuo disenso, if you feel like
invoking Manresa). Mutual disagreement by the parties can
cause the contracts extinguishment.

Rocky says: What is a jute sack?
6
GSIS v CA
(1986; Paras, J.)
The Medinas were granted a loan of P350,000 by GSIS for
which they constituted a Real Estate Mortgage.
Thereafter, they again obtained an additional loan of
P230,000. Medinas defaulted and naturally GSIS
foreclosed.

Medinas demands refund for overpayment alleging that
the Amendment of the Real Estate Mortgage superseded
the original contract and failed to stipulate the
compounded interest discharged them from the
payment of the same.
Issue No. 1: Was there an overpayment? No!
- The Amendment of the Real Estate Mortgage never intended to
completely supersede the original mortgage contract.
- This is shown by
1. prior, contemporaneous and subsequent acts of the parties
2. the contract itself, which:
- recognized the existence of the previous mortgage K
- clearly stated in the last provision that all other terms and
condition of previous real estate mortgage continue to be in
full force and effect.
- it just being amended as to amount and amortization

- As a matter of policy, GSIS imposes uniform terms and
conditions for all its real estate loans, particularly with respect to
compounding of interest.
- It would be contrary to human experience and to ordinary
practice for mortgagee to impose less onerous conditions on an
increased loan by the deletion of compounded interest exacted
on a lesser loan.

Issue No. 2: WON the interest rates on the loan accounts were
usurious? No!
- Interest by way of damages is governed by 2209. If obligation
consists in payment of sum of money, and debtor incurs in delay,
the indemnity for damages there being no stipulation to
contrary, shall be the payment of the interest agreed upon.
- CC permits agreement upon a penalty apart from the interest.
- Stipulation about payment of such additional rate partakes of
the nature of a penalty clause, which is sanctioned by law.
Ligutan v CA
(2002; Vitug, J.)
Spouses Ligutan obtained a loan of P120,000 from
Security Bank and Trust Company. It contained the
following stipulations as to interest:
- 15.189% per annum upon maturity
- Penalty clause (in case of default): 5% every month
on the outstanding principal and interest
- Attorneys fees: 10% of total amount due IF:
- Matters endorsed to a lawyer for collection
- Suit instituted to enforce payment
Upon default, bank filed a collection suit. For spouses
failure to answer, judgment was rendered on default.
Upon MR and new evidence, it was revealed that 3 years
after the loan, spouses executed a real estate mortgage
which they claim to be a novation of the contract. It was
even foreclosed without notification of spouses and that
the bank did not even credit them with proceeds of the
sale. (MR was denied bec its already their second! And
the evidence was not really new because it was known
since the commencement of the case)

Ligutan also appeals as to the amounts of interests
imposable.

Chi recited this but only appreciated its value during the
finals review when she actually read it. SAYANG!
Issue No. 1: WON penalty interest unconscionable? Yes.
- CA correctly reduced the penalty interest from 5% to 3%
- Penalty clause, expressly recognized by CC1226, is an
accessory undertaking to assume greater liability on the part of
an obligor in case of breach of an obligation.
- It functions [1] to strengthen the coercive force of the
obligation AND [2] to provide for what could be the liquidated
damages resulting from such a breach.
- The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof on the existence and
on the measure of damages caused by the breach.
- Altho court may not at liberty ignore freedom of parties to
agree on such terms and conditions as they see fit, a stipulated
penalty may be equitably reduced by court if:
- it is iniquitous or unconscionable OR
- the principal obligation has been partly or irregularly
complied with.
- If may even be deleted if/when:
- there has been substantial performance in good faith
- penalty clause itself suffers from fatal infirmity
- exceptional circumstances so exist as to warrant it
- Whether penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution depend on such
factors as, but not necessarily confined to, the:
1. type, extent and purpose of the penalty
2. nature of the obligation
3. mode of breach and its consequences
4. supervening realities
5. standing and relationship of the parties

Issue No. 2: WON stipulated interest unconscionable? No.
- The essence/rationale for the payment of interest, quite often
referred to as cost of money, is not exactly the same as that of
a surcharge/penalty.
- A penalty stipulation is not necessarily preclusive of interest, if
there is an agreement to that effect, the two being distinct
concepts which may be separately demanded. Judicial grounds
for disallowing imposition of full surcharges/penalties, despite
express stipulation therefor in a valid agreement, may not
equally apply in non-payment or reduction of interest.
- Indeed, interest prescribed in loan financing agreement is a
fundamental part of the banking business and the core of a
banks existence.

Issue No. 2: Did the subsequent execution of the real estate
mortgage for the existing loan resulted in the extinguishment
of original contract because of novation? No.

- Mortgage is but an accessory contract to secure the loan.
- Elements of extinctive novation
1. previous valid obligation
2. agreement of all the parties
3. extinguishment of the obligation: must be:
[a] declared in unequivocal terms (i.e. express) or
[b] old and new obligation be on every point incompatible with
each other (i.e. incompatibility) should take place in any of the
essential elements of obligation (i.e. juridical relation/tie, object,
subject)
4. validity of the new one
8
Eastern Shipping
Lines v CA
(1994; Vitug, J.)
The case of the broken drums of riboflavin. See Appendix A i.e. my amazing concept map of the Eastern
Shipping Line doctrine on Rules on Interest.

TWO CONCEPTS ON PAYMENT OF INTEREST (from Sir Labitags handout)

1 Interest for the use or loan or forbearance of money, goods or credit
If no stipulation on payment of interest
No interest for use or forbearance
* No interest shall be due unless it has been expressly
stipulated in writing (CC1956)
If there is express stipulation (which must be
in writing to be valid CC1956) for payment of
interests, but no rate mentioned
Interest shall be 12% per annum (Sec. 2, Monetary Board
Circular 905, 10 Dec 1982)
If there is stipulation in writing and rate of
interest is agreed upon (including
commissions, premiums, fees and other
charges)
Such interest stipulated shall not be subject to ceiling
prescribed under the Usury Law (Sec. 1, Monetary Board
Circular 905, 10 Dec 1982)

2 Interest as damages for breach or default in payment of loan or forbearance of money, goods, credit
No stipulation as to interest for use of
money
In case of DEFAULT, loan or forbearance shall earn legal
interest, at rate of 12% per annum from date of judicial or
extrajudicial demand, subject to Art 1169 (delay/mora)
If rate of interest stipulated, e.g. 24% per
annum
Loan + stipulated interest, shall earn 12% per annum from
date of judicial demand
* Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent
upon this point (Art 2212)

3 If obligation NOT consisting of a loan or forbearance of money, goods or credit is breached, e.g. obligation to give, to
do, not to do
o Interest may be imposed at the discretion of court at the rate of 6% per annum.
o No interest adjudged on unliquidated claims or damages, until demand can be established with reasonable
certainty.
o After thus established with reasonable certainty, interest of 6% per annum shall begin to run from the date of
judicial or extrajudicial demand.
But if obligation cannot be established with reasonable certainty at time of demand, 6% per annum interest
shall begin to run only from date of judgment on amount finally adjudged by court.

4 When judgment of court awarding money becomes final and executory, money judgment is A, B and C (above) shall earn
12% per annum from finality of judgment until full payment money judgment shall be considered as forbearance of
credit
9
Macalinao v BPI
(2009; Velasco, Jr., J.)
Macalinao defaulted on the payment of her credit card
dues. There was stipulation that the charges/balance shall
earn 3%/month and additional penalty fee of another
3%/month. RTC reduced the 3% monthly interest to 2%.
CA reversed the reduction saying that Macalinao freely
availed herself of the CC facility offered by BPI to general
public ergo, contracts of adhesion are not invalid per se.
Credit card interests and penalty charges are
unconscionable and iniquitous at 36%!
- SC said that the interest rate and penalty charge of 3%/mo or
36%pa should be reduced to 2%/mo or 24%pa. this is not the
first time that SC considered the 36%pa to be excessive and
unconscionable.
- Citing 1229: In exercising this power to determine what is
iniquitous and unconscionable, courts must consider the
circumstances of each case since what may be iniquitous and
unconscionable in one may be totally just and equitable in
another.
- In the instant case, Macalinao made partial payments to BPI.

10
Producers Bank of
the Phil v CA
(2003; Callejo, Sr., J.)
Vives was asked by his friend Sanchez to deposit
P200,000 in the name of Sterela Marketing and Services
(owned by Doronilla who is friend of Sanchez) for
purposes of its incorporation and on the promise that it
will be returned after 30 days.

Vives agreed and had his wife open an account in name of
Sterela and deposit the amount there. The authorized
signatories in the passbook were Sanchez and/or Vives.

However, Vives learned that Sterela was no longer
holding office in the address given to him. Doronilla
promised to return his money and issued checks therefor.
The checks bounced. Vives later on found out that Atieza
(the bank manager) allowed Doronilla to withdraw the
money on the basis that he was the sole proprietor of
Sterela.

Main issue: Is the bank liable to return to Vives the
amount withdrawn by Doronilla? Yes!
Banks Defenses: The contract between them was a simple loan
or mutuum because [1] the subject was money, there was an
interest amounting to 12,000 and I was not privy thereto!
As regards the subject
- 1933 may seem to imply that if subject of contract is a
consumable thing, e.g. money, the contract would be a mutuum.
However, there are exceptions to this rule where the loan is
commodatum and not mutuum.
- if consumable goods are loaned only for purposes of
exhibition OR
- when the intention of parties is to lend consumable goods
and to have the very same goods returned at the end of the
period agreed upon
- Intention of parties shall be accorded primordial consideration
in determining the actual character of a contract. In case of
doubt, the contemporaneous and subsequent acts of the parties
shall be considered.
As regards the interest
- Attempt to return P200,000 with additional P12,000 does not
convert the transaction from commodatum to muttum absent
any showing of such intention.
- In fact, the 12k corresponds to the fruits of the thing.
- 1935: bailee acquires only the USE but NOT the FRUITS.
- It was only proper for Doronilla to remit to Vives the interest
accruing to the money deposited in the bank.
As regards the privity
- Whether the transaction was mutuum or commodatum has no
bearing on your liability. Your liability is founded upon your
employees fault under 2180 (vicarious).
- Atienza was in conspiracy with Doronillas scheme. The
passbook in custody of Vives says that one cannot withdraw
without that passbook. How come Doronilla was able to get the
money?
- Atienza also knew very well that Vives was the owner of the
money as he was expressly told by the wife.
11
Garcia v Thio
(2007; Corona, J.)
Carolyn Garcia gave to Rica Thio two crossed checks
payable to the order of Marilou Santiago [the scenario
here is Carolyn Rica Marilou]. Thio paid faithfully at
first but eventually failed to pay the loans when they fell
due. No PN because Carol and Rica used to be friends
then.

Rica denied the loans and shifted the blame to Malou.
She said that the initial payment were only to
accommodate Carols request to use her own checks
instead of Malous.

Rocky says:
- What is a cross check?
- What do you call yung pinautang mo yung inutang mo?
Chi almost answered (because she was on deck at that
time) 5-6-7, the correct answer is relending
Issue: Who borrowed money from Carol: Rica or Malou? Rica!
- A loan is a real contract, not consensual as such, is perfected
only upon the delivery of the object of the contract.
- Delivery is the act by which the res or substance thereof is
placed within the actual or constructive possession or control of
another. Although Rica did not actually receive the proceeds of
these checks, these instruments were placed in her control and
possession, under an arrangement whereby she actually re-lent
the amounts to Malou.
- Factors to support this conclusion:
1. Carol did not personally know Malou, why would she issue
checks to strangers without any security whatsoever?
2. Leticia (witness for both parties) said that Ricas real plan was
to lend amounts to Malou at a higher amount.
3. Why would Rica issue checks to cover for loans and interest
which she did not contract. Incredible to common experience.
4. In Malous petition for insolvency, Rica and not Carol was
listed as creditor.
5. Rica did not present Malou as witness.

- The interest was deleted though because there as not written
proof therefor.
12
Pajuyo v CA
(2004; Carpio, J.)
Pajuyo allowed Guevarra to occupy his house made of
light materials (squatter) on the condition that Guev will
ensure its maintenance and orderliness and vacate the
premises upon demand. However, Guev refused to vacate
when Pajuyo asked him to saying that the latter had no
valid title to the house or lot as a squatter. CA said that
their Kasunduan was not a lease but a commodatum.
- The Kasunduan is not a commodatum. In a commodatum, the
parties delivers to another something not consumable so that
the latter may use the same for a certain time and then return it.
- Features of a commodatum:
- gratuitous
- for a certain period
- Thus, bailor cannot demand: [1] until after expiration of

stipulated period or [2] after accomplishment of use for which
the commodatum is constituted.
- If bailor should have urgent need of the thing, he may demand
its return for temporary use.
- PRECARIUM: If use of thing is merely tolerated by the bailor, he
can demand the return of the thing at will
- the imposition of obligation to maintain property in good
condition makes the Kasunduan a contract different from
commodatum.
- Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord tenant relationship
where the withdrawal of permission would result in the
termination of the lease.
- There must be honor even between squatters. The agreement
is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested
property.
13
BPI Family Bank v
Franco
(2007; Nachura, J.)
[1] Tevetesco opened a savings and current account with
BPI-FB P80M debited from FMIC
[2] FMIC also opened a time deposit with same branch
with P100M authority to debit P80M to Tevetesco
[3] Franco opened savings (500k), current (500k) and time
deposit (1M) with BPI-FB all amounts traceable to check
issued by Tevetesco

The authority to debit was later on found to be a
forgery. However, Tevetesco had already withdrawn
several amounts from its current account amounting to
3M + 2M of Franco
BPI-FB debit from Francos savings and current accounts
all amounts remaining therein. Francos checks were also
dishonored in view of the freezing/grarnishement .
FMIC claims recovery of 80M from BPI-FB.
- BPI cannot unilaterally freeze Francos accounts and preclude
him from withdrawing his deposits.
- Art 559 on recovery of unlawfully deprived property is not
applicable because the same pertains to specific/determinate
thing Francos account consists of money which is movable,
generic and fungible. The quality of being fungible depends upon
the possibility of property, because of its NATURE or the WILL OF
THE PARTIES, to be substituted by others of the same kind, not
having a distinct individuality.
- BPI owns the deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized transfer of FMICs
deposits to Tevestecos account. It should not forget that
deposits of money in banks is governed by CC provisions on
mutuum.
- As there is a debtor-creditor relationship between bank and
depositor, BPI-FB ultimately acquired ownership of Francos
deposits, but such ownership is couple with a corresponding
obligation to pay him an equal amount on demand.
14
Pp v Puig
(2008; Chico-Nazario, J.)
Puig and Porras were bookkeeper and cashier of a bank.
112 informations for qualified theft were filed against
them for their willful taking of cash deposited to the
bank. RTC dismissed all the cases for insufficiency of
allegations. Republic appeals.
What is the nature of possession by the bank?
Cashiers, bookkeepers and other employees of a bank who come
into possession of the monies deposited therein enjoy the
confidence reposed in them by their employer. Banks, on the
other hand, where the monies are deposited, are considered the
owners thereof. 1953 (person who receives loan of money
acquires ownership thereof) and 1980 (fixed, current and savings
deposit of money in banks and similar institutions shall be
governed by provisions on loan) attests to this. The information
sufficiently allege all the essential elements constituting the
crime of Qualified Theft i.e.
1. Taking of personal property
2. Property belongs to another (bank)
3. Taking done with intent to gain
4. Taking done without owners consent
5. Accomplished without use of violence or intimidation
against persons, nor of force upon things
6. Done with grave abuse of confidence (nature of job)
DEPOSIT
15
BPI v IAC
(1988; Cortes, J.)
Zaldy deposited US dollars in cash for safekeeping, but
the bank sold the dollars. Banks defense: it credited the
proceeds to the peso account of Zaldy.
- The contract is one of deposit as the greenbacks were given
only for safekeeping. Zshornack demanded the return of the
money five months later.
- The bank violated its obligation as depositary. The contract is
void though. They are in pari delicto therefore, they shall have
no cause of action against each other. The only remedy is one on
behalf of the State to prosecute the parties for violating the law.

Rocky says:

- Who is Rizaldy Zschornack? An actor contemporary of FPJ and
Erap.
- Back then there was a prohibition on use of dollar to promote
the use of peso currency. BUT we need dollars to purchase oil an
plastic. Read the Constitutional case about Bataan
Petrochemical. Sige nga, makakakuha ka ban g peso equivalent
ng $200,000 in cash? There was even a time that Phil announced
to the world in a 10m telex that we do not have dollars anymore.
We need dollars because we do not have sufficient amount of
peso in circulation. At that point nakipagbarter pa tayo ng
banana with Czech for military hardware.
16
Bishop of Jaro v Dela
Pena
(1913; Moreland, J.)
Bishop of Jaro sued Father dela Pena for the latters
inability to return the amount intended for the
construction of leper hospital. The amount was deposited
by Father in his own account. But when he was arrested
by the US Army, the funds were confiscated because it
was purportedly for the support of the insurgent and for
revolutionary purposes.
- Bishop of Jaro lost this case, he was unable to recover.
- By placing the money in the bank and mixing it with his
personal funds, Father did not assume obligation different fromt
hat under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the
money at all hazards.
- If the money had been forcibly taken from his pocket or from
his house by military forces, he would have been exempt from
responsibility. The fact he placed the trust fund in the bank in his
personal account did not make him a debtor who must respond
for all hazards.
- There was no law prohibiting him from depositing it as he did
and there was no law which changed his responsibility by reason
of the deposit.
17
CA Agro-Industrial
Development Corp v
CA
(1993; Davide, J.)
As a condition for sale, the two partied agreed to deposit
the TCT in an SDB. However, when the vendee was to
resell the property, the title was no longer there. As a
result of delay of TCT reconstruction, the customer
withdrew its offer. Vendee charges bank for unrealized
profits.
Is the contractual relation between a commercial bank
and another party in a contract of rent of safety deposit
box with respect to its contents placed by the later one of
bailor/bailee or one of lessor/lessee?
Contract is not an ordinary contract of lease but a special kind
of deposit.
- Not lease because full and absolute possession and control of
SDB was not given to the joint renters. Guard key remained with
Bank without which renters could not open the box.
- 1975 not applicable.
Relation created is that of bailor and bailee.
- The prevailing rule is that the relation between a bank rention
out SDB and its customers with respect to the contents of the
box is that of a bailor and bailee, the bailment being for hire and
mutual benefit.
- CA Agros petition is dismissed though because theres no
evidence that the bank is aware of the agreement between the
two renters that they cannot withdraw the contents without the
consent of the other.
18
Triple V Food v
Filipino Merchants
(2005)
De Asis loss her employer-given Mitsubishi Galant when it
was given to the valet service of Kamayan.
Restos defense: The ticket contains waiver of claims.
Valet parking service did not include extending a contract
of insurance or warranty for the loss of the vehicle.
- Customer expected safe return of car at the end of her meal,
thus Triple V constituted as a depositary. It cannot evade liability
by arguing that neither a contract of deposit nor that of
insurance, guaranty or surety for the loss of the car was
constituted when De Asis availed of its free valet parking service.
- Parking claim stub embodying the terms and conditions of the
parking, including that of relieving petitioner from any loss or
damage to the car is essentially a contract of adhesion, drafted
and prepared as it is by the petitioner alone with no participation
whatsoever on the part of the customers.
- De Asis deposited her car as part of Triple Vs enticement for
customers by providing them a safe parking space within the
vicinity of their restaurant. In a very real sense, a parking space is
an added attraction to petitioners restaurant business because
customers are thereby somehow assured that their vehicle are
safely kept, rather than parking them somewhere else at their
own risk.
19
YHT Realty
Corporation v CA
(2005; Tinga, J.)
McLoughlin, a philanthropist, loss his dollars during his
stay at Copacabana. This was discovered to be the act of
his Filipina friend through the hotel employees who
thought that she was his wife.
Whether a hotel may evade liability for the loss of items
left with it for safekeeping by its guest, by having these
guests execute written waivers holding the establishment
- 2003 was incorporated in the CC as expression of public policy
precisely to apply to situations such as here. The hotel business
like common carriers is imbued with public interest.
- Catering to the public, hotel keepers are bound to provide not
only lodging for hotel guests but also security to their persons
and belongings.
- It is not necessary that they be actually delivered to the

or its employees, free from blame for such loss in light of
2003 which voids such waivers?
innkeepers or their employees. It is enough that such effects are
within the hotel or inn.
- CC is explicite that the responsibility of the hk shall extend to
the LOSS of or INJURY to the personal property of the guests
even if caused by servants, employees and strangers. It is loss
due to force majeure that may spare the hk from liability.
- 2002 (acts of guest, servants, family or his visitors) is not
applicable. What if the negligence of the employer or its
employees facilitated the consummation of a crime committed
by the registered guests visitors or relatives? 2002 presupposes
that hk is not guilty of concurrent negligence or has not
contributed to any degree to the occurrence of the loss.
- A depositary is not responsible for the loss of goods by theft,
unless his actionable negligence contributes to the loss.
SECURITY DEVICES
20
E. Zobel Inc v CA
(1998; Martinez, J.)
Claveria obtained a loan with Consolidated Bank for
P2.875M to purchase 2 maritime barges and 1 tugboat.
As security, they constituted chattel mortgage over the
boats and executed a Continuing Guaranty by E. Zobel.
They defaulted so SolidBank filed a case against Claveria
and E. Zobel. (Note: It did not foreclose.)

E. Zobels defense: Relieved as guarantor pursuant to
2080 when it lost its right to be subrogated to chattel
mortgage for SolidBanks failure to register the chattel
mortgage with appropriate govt agency.

SolidBank: 2080 not applicable bec youre a surety, not a
guarantor.
- Continuing guaranty is a surety! Petitioner assumed liability to
SOLIDBANK, as a regular party to the undertaking and obligated
itself as an original promissor. It bound itself jointly and severally
to the obligation with the respondent spouses. In fact,
SOLIDBANK need not resort to all other legal remedies or
exhaust respondent spouses' properties before it can hold
petitioner liable for the obligation.

- 2080 does not apply where the liability is as a surety, not as a
guarantor. Even assuming that 2080 is applicable, SOLIDBANK's
failure to register the chattel mortgage did not release petitioner
from the obligation. In the Continuing Guaranty executed in
favor of SOLIDBANK, petitioner bound itself to the contract
irrespective of the existence of any collateral.

SURETY GUARANTY
Accessory promise by which a person
binds himself for another already
bound, and agrees with the creditor
to satisfy the obligation if the debtor
does not
Collateral undertaking to pay
the debt of another in case the
latter does not pay the debt
bound with his principal by the same
instrument, executed at the same
time, and on the same consideration
guarantor's own separate
undertaking, in which the
principal does not join
original promissor and debtor from
the beginning, and is held, ordinarily,
to know every default of his principal
- usually entered into before or
after that of the principal, and
is often supported on a
separate consideration from
that supporting the contract of
the principal
- original contract of his
principal is not his contract, and
he is not bound to take notice
of its non-performance
not discharged, either by the mere
indulgence of the creditor to the
principal, or by want of notice of the
default of the principal, no matter
how much he may be injured thereby
often discharged by the mere
indulgence of the creditor to
the principal, and is usually not
liable unless notified of the
default of the principal
insurer of the debt, and he obligates
himself to pay if the principal does
not pay
insurer of the solvency of the
debtor and thus binds himself
to pay if the principal is unable
to pay
21
Philippine Blooming
Mills v CA
(2003; Carpio, J.)
PBM loaned from TRB. Ching signed Deed of Suretyship in
his personal capacity, not as mere guarantors but as
primary obligors.
PBM and Ching filed petition for suspension of payments
with SEC, and eventually placed under rehabilitation
receivership. Because of this, TRB dismissed complaint as
to PBM.
Chings defense: Deed of Suretyship executed in 1977
Ching is liable for credit obligations contracted by PBM against
TRB before and after the execution of the 21 July 1977 Deed of
Suretyship. This is evident from the tenor of the deed itself,
referring to amounts PBM may now be indebted or may
hereafter become indebted to TRB.

- The law expressly allows a suretyship for "future debts". 2053
provides: A guaranty may also be given as security for future

could not answer for obligations not yet in existence at
the time of its execution. It could not answer for debts
contracted by PBM in 1980 and 1981. No accessory
contract of suretyship could arise without an existing
principal contract of loan.

Rocky says:
- Does 2053 apply even if there is no pre-existing loan? Or
kailangan ba may pre-existing loan bago to mag-operate?

Chi recited this. Dismal.
debts, the amount of which is not yet known; there can be no
claim against the guarantor until the debt is liquidated.xxx

- Dio v. Court of Appeals: A guaranty may be given to secure
even future debts, the amount of which may not be known at
the time the guaranty is executed. This is the basis for contracts
denominated as continuing guaranty or suretyship. A continuing
guaranty is one which is not limited to a single transaction, but
which contemplates a future course of dealing, covering a series
of transactions, generally for an indefinite time or until revoked.
It is prospective in its operation and is generally intended to
provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable.

- Continuing guaranty covers all transactions, including those
arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof. A guaranty shall be construed as continuing
when by the terms thereof it is evident that the object is to give
a standing credit to the principal debtor to be used from time
to time either indefinitely or until a certain period; especially if
the right to recall the guaranty is expressly reserved. Hence,
where the contract states that the guaranty is to secure
advances to be made "from time to time," it will be construed to
be a continuing one.

- In other jurisdictions, it has been held that the use of particular
words and expressions such as payment of "any debt," "any
indebtedness," or "any sum," or the guaranty of "any
transaction," or money to be furnished the principal debtor "at
any time," or "on such time" that the principal debtor may
require, have been construed to indicate a continuing guaranty.
22
IFC v Imperial Textile
Mills
(2005; Panganiban)
After extrajudicially foreclosing the mortgage, there still
remained deficiency so IFC asked surety to pay the
outstanding balance. Issue: WON ITM a surety under the
contract.

Rocky says:
- What on earth does not as sureties merely mean?! Do
they mean sureties as well Its redundant in Civil law
pero under common law it has different meaning. Pero
shempre, walang Pilipinong nagcomment sa redundancy.
- IFC is the lending arm of the World Bank. HQ is in
Washington, so Amerikano mga lawyers nito. Hence, the
confusion. Yung foreign form is bangga with CC.
- The Agreement uses guarantee and guarantors, prompting
ITM to base its argument on those words. SC is not convinced
that the use of the two words limits the Contract to a mere
guaranty. The specific stipulations in the Contract show
otherwise.
- While referring to ITM as a guarantor, the Agreement
specifically stated that the corporation was 'jointly and severally
liable. To put emphasis on the nature of that liability, the
Contract further stated that ITM was a primary obligor, not a
mere surety. Those stipulations meant only one thing: that at
bottom, and to all legal intents and purposes, it was a surety.
- IFC was justified in taking action directly against respondent.
- The use of the word guarantee does not ipso facto make the
contract one of guaranty. The word is frequently employed in
business transactions to describe the intention to be bound by a
primary or an independent obligation. The very terms of a
contract govern the obligations of the parties or the extent of
the obligor's liability. Thus, this Court has ruled in favor of
suretyship, even though contracts were denominated as a
'Guarantor's Undertaking or a 'Continuing Guaranty.

23
DBP v CA & Cuba
(1998; Davide, Jr., J.)
Lydia Cuba has Fishpond Lease Agreement. She assigned
the same to DBP as security for her loans (security by way
of assignment). Upon default, DBP appropriated the
Leasehold rights without foreclosure proceedings. Issue:
Is the act of DBP a violation of 2088?

Rocky says:
- Why was it an issue? Because it was an assignment
and not pledge or mortgage
- There was intention to sell. At best its equitable
The assignment of leasehold rights was a mortgage contract.
- Simultaneous with the execution of the notes was the
execution of "Assignments of Leasehold Rights"

where Cuba
assigned her leasehold rights and interest on a 44-hectare
fishpond, together with the improvements thereon. As pointed
out by Cuba, the deeds of assignment constantly referred to the
Cuba as "borrower"; the assigned rights, as mortgaged
properties; and the instrument itself, as mortgage contract. 0
- Under condition no. 22 of the deed, it was provided that
"failure to comply with the terms and condition of any of the

mortgage. Round peg on a square hole. loans shall cause all other loans to become due and demandable
and all mortgages shall be foreclosed." And, condition no. 33
provided that if "foreclosure is actually accomplished, the usual
10% attorney's fees and 10% liquidated damages of the total
obligation shall be imposed."
- There is no shred of doubt that a mortgage was intended.
- In their stipulation of facts the parties admitted that the
assignment was by way of security for the payment of the loans
- People's Bank & Trust Co. vs. Odom: An assignment to
guarantee an obligation is in effect a mortgage.
BUT IT WAS NOT PACTUM COMMISSORIUM. Condition no. 12
did not provide that the ownership over the leasehold rights
would automatically pass to DBP upon CUBA's failure to pay the
loan on time. It merely provided for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or
otherwise dispose of the said real rights, in case of default by
Cuba, and to apply the proceeds to the payment of the loan. This
provision is a standard condition in mortgage contracts and is in
conformity with 2087, which authorizes the mortgagee to
foreclose the mortgage and alienate the mortgaged property for
the payment of the principal obligation.
24
Bustamante v Rosel
(1999; Pardo, J.)
- Bustamante spouses borrowed P100,000 from Rosel and
used as a guaranty 70 sqm of the 423 sqm land she owns.
In case of failure to pay, Rosel is given the right to buy
said land at P200,000 inclusive of the P100,000 borrowed
amount and the interest.
- Upon maturity of loan, Rosel proposed to buy the land.
However, Bustamante refused to sell, but instead asked
for extension of time to pay and offered Rosel another
land they could buy.
- Bustamante then offered to pay the loan but Rosel
refused to accept payment and insisted that Bustamante
sign the prepared deed of sale of the collateral land.
- Both parties filed case against each other:
- Bustamante filed complaint for specific performance
and consignation against Bustamante (for the payment of
the loan)
- Rosel filed petition for consignation and deposited
P153K with City Treasurer (for the purchase of the
collateral). When Bustamante refused to sell, Rosel
consigned the amount of P47,500.00 with the trial court.
In arriving at the amount deposited, Rosel considered the
principal loan of P100,000.00 and 18% interest per
annum thereon, which amounted to P52,500.00. The
principal loan and the interest taken together amounted
to P152,500.00, leaving a balance of P 47,500.00.
- RTC: In favor of Bustamante and payment of the loan
(conversely, against Rosel and sale of collateral)
- CA: Reversed in favor of Rosel
- SC initially affirmed CA decision (saying that the contract
is the law between the parties) but reversed on MR when
Bustamante alleged that real intention of the parties to
the loan was to put up the collateral as guarantee similar
to an equitable mortgage according to 1602.
Issue No. 1 Whether Bustamante failed to pay the loan at its
maturity date - NO
- The loan was due for payment on March 1, 1989. On said date,
Bustamante tendered payment to settle the loan which ROSEL
refused to accept, insisting that BUSTAMANTE sell to them the
collateral of the loan. When ROSELs refused to accept payment,
BUSTAMANTE consigned the amount with the trial court.
Issue No. 2 Whether the stipulation (sale of collateral) in the
loan contract was valid and enforceable - NO
- Rosel was eager to purchase the land given as guaranty, but
Bustamantes correlative obligation to sell is subject to
suspensive condition (i.e. failure to pay debt upon maturity).
Contract has the force of law between parties but this is subject
to provisions of A1306 CC that stipulations should not be
contrary to law, morals, good customs, public policy and public
order.
- A scrutiny of the stipulation of the parties reveals a subtle
intention of the creditor to acquire the property given as security
for the loan. This is embraced in the concept of pactum
commissorium, which is proscribed by law.
- ELEMENTS OF PACTUM COMMISSORIUM
(1) there should be a property mortgaged by way of
security for the payment of the principal obligation,
(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.
- The intent to appropriate the property given as collateral in
favor of the creditor appears to be evident, for the debtor is
obliged to dispose of the collateral at the pre-agreed
consideration amounting to practically the same amount as the
loan. In effect, the creditor acquires the collateral in the event of
non-payment of the loan
- All persons in need of money are liable to enter into contractual
relationships whatever the condition if only to alleviate their
financial burden albeit temporarily. Hence, courts are duty
bound to exercise caution in the interpretation and resolution of
contracts lest the lenders devour the borrowers like vultures do
with their prey.
25
Ong v Roban
Lending Corp
(2008; Carpio-Morales)
Spouses obtained several loans totaling to P4M, secured
by real estate mortgage. Parties executed Dacion in
Payment Agreement and Memo of Agreement where the
agreed amount of indebtedness ballooned to P5.9M.
Issue: Is the DPA a pactum? Yes!
- The MoA and DPA contain no provisions for foreclosure
proceedings nor redemption. Under the MoA, the failure by the
petitioners to pay their debt within the one-year period gives

respondent the right to enforce the DPA transferring to it
ownership of the properties. Roban, in effect, automatically
acquires ownership of the properties upon petitioners failure to
pay their debt within the stipulated period.
- In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.
[33]
In the case at bar, the
alienation of the properties was by way of security, and not by
way of satisfying the debt.
[34]
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.
26
Paray v Espeleta-
Rodriquez
(2006; Tinga, J.)
Rodriguezes used their shares of stocks as pledge security
to the loans they obtained from Paray. Paray filed a
petition with the Court to sell the said stocks. Court
upheld Parays right to sell it at a public sale (though SC
notes that it was not mandatory since pledge foreclosure
is generally done extrajudicially e.g. without the need for
any court intervention). Rodriquezes consignated with
the court their redemption money.

The CAs upholding of the right of redemption muddles
the case because such right only pertains to payments
made by debtor after foreclosure and not before the
foreclosure sale. It should have concentrated on the
validity of the consignation which could have had the
effect of extinguishing the principal obligation as well as
the accessory contract of pledge.

They would have had a better right had they matched the
terms of the highest bidder.

Under the circumstances,
with the high interest payments that accrued after
several years, respondents were even placed in a
favorable position by the pledge agreements, since the
creditor would be unable to recover any deficiency from
the debtors should the sale price be insufficient to cover
the principal amounts with interests. Certainly, had
respondents participated in the auction, there would
have been a chance for them to recover the shares at a
price lower than the amount that was actually due from
them to the Parays. That respondents failed to avail of
this beneficial resort wholly accorded them by law is their
loss. Now, all respondents can recover is the amounts
they had consigned.
1. No right of redemption over pledged properties.
2. Foreclosure of pledge is always extrajudicial.

Does the right of redemption exist over personal property? No
law or jurisprudence establishes or affirms such right. Indeed, no
such right exists.

- The right to redeem property sold as security for the
satisfaction of an unpaid obligation does not exist
preternaturally. Neither is it predicated on proprietary right,
which, after the sale of property on execution, leaves the
judgment debtor and vests in the purchaser. Instead, it is a bare
statutory privilege to be exercised only by the persons named in
the statute.
- The right of redemption over mortgaged real property sold
extrajudicially is established by Act No. 3135, as amended. The
said law does not extend the same benefit to personal property.
- Sibal v Valdez: Personal property are not subject to redemption.

Can pledged properties be sold together?
- There is nothing in the CC governing the extrajudicial sale of
pledged properties that prohibits the pledgee of several different
pledge contracts from auctioning all of the pledged properties on
a single occasion, or from the buyer at the auction sale in
purchasing all the pledged properties with a single purchase
price. The relative insignificance of ascertaining the definite
apportionments of the sale price to the individual shares lies in
the fact that once a pledged item is sold at auction, neither the
pledgee nor the pledgor can recover whatever deficiency or
excess there may be between the purchase price and the amount
of the principal obligation.

Termination of pledge by consignation of the obligation price?
If the principal obligation is satisfied, the pledges should be
terminated as well. 2098 provides that the right of the creditor to
retain possession of the pledged item exists only until the debt is
paid. 2105 further clarifies that the debtor cannot ask for the
return of the thing pledged against the will of the creditor, unless
and until he has paid the debt and its interest. At the same time,
the right of the pledgee to foreclose the pledge is also
established under the Civil Code. When the credit has not been
satisfied in due time, the creditor may proceed with the sale by
public auction under the procedure provided under 2112.

27
Medida v CA
(1992; Regalado, J.)
Core issue: WON a mortgagor, whose property has been
extrajudicially foreclosed and sold at the corresponding
foreclosure sale, may validly execute a mortgage contract
over the same property in favor of a third party during
the period of redemption? Yes!
- What is divested from the mortgagor is only his "full
right as owner thereof to dispose (of) and sell the lands,"
in effect, merely clarifying that the mortgagor does not
have the unconditional power to absolutely sell the land
since the same is encumbered by a lien of a third person
which, if unsatisfied, could result in a consolidation of
ownership in the lienholder but only after the lapse of the
period of redemption. What is delimited is not the
mortgagor's jus dispodendi, as an attribute of ownership,
but merely the rights conferred by such act of disposal
which may correspondingly be restricted.

- A subsequent mortgage could nevertheless be legally
constituted after extrajudicial foreclosure with the subsequent
mortgagee becoming and acquiring the rights of a redemptioner,
aside from his right against the mortgagor.
- Since the mortgagor remains as the absolute owner of the
property during the redemption period and has the free disposal
of his property, there would be compliance with the requisites of
2085 for the constitution of another mortgage on the property.
To hold otherwise would create the inequitable situation
wherein the mortgagor would be deprived of the opportunity,
which may be his last recourse, to raise funds wherewith to
timely redeem his property through another mortgage thereon.
- It is only upon the expiration of the redemption period, without
the judgment debtor having made use of his right of redemption,
that the ownership of the land sold becomes consolidated in the
purchaser.
- What actually is effected where redemption is seasonably
exercised by the judgment or mortgage debtor is not the
recovery of ownership of his land, which ownership he never
lost, but the elimination from his title thereto of the lien
created by the levy on attachment or judgment or the
registration of a mortgage thereon.
28
Suico v PNB
- PNB extrajudicially foreclosed on the mortgage. It was
the only bidder. However, it claimed again for the
deficiency of the proceeds of the sale. Outstanding loan
was only ~P2M but the highest bid was ~P8.5M.
- Suico demanded recovery of the surplus. It questioned
the non-delivery of PNB to Sheriff of the price as well as
the validity of Sheriffs Notice which said that the amount
of obligation was only ~P2M.
- PNB denied the claim for surplus as the Suico had other
loans already due which amounted to more than the
purchase price.

Effect of PNBs non-delivery of surplus to Suico. The
application of the proceeds from the sale of the
mortgaged property to the mortgagors obligation is an
act of payment, not payment by dacion; hence, it is the
mortgagees duty to return any surplus in the selling price
to the mortgagor. Perforce, a mortgagee who exercises
the power of sale contained in a mortgage is considered a
custodian of the fund and, being bound to apply it
properly, is liable to the persons entitled thereto if he
fails to do so. And even though the mortgagee is not
strictly considered a trustee in a purely equitable sense,
but as far as concerns the unconsumed balance, the
mortgagee is deemed a trustee for the mortgagor or
owner of the equity of redemption.

If the mortgagee is retaining more of the proceeds of the
sale than he is entitled to, this alone will not affect the
validity of the sale but simply give the mortgagor a cause
of action to recover such surplus.
Notice of sale is valid. Notices are given for the purpose of
securing bidders and to prevent a sacrifice of the property. If
these objects are attained, immaterial errors and mistakes will
not affect the sufficiency of the notice; but if mistakes or
omissions occur in the notices of sale, which are calculated to
deter or mislead bidders, to depreciate the value of the
property, or to prevent it from bringing a fair price, such
mistakes or omissions will be fatal to the validity of the notice,
and also to the sale made pursuant thereto.

Effect of PNBs non-payment of cash to Sheriff. Under Section
21 of Rule 39 is that if the amount of the loan is equal to the
amount of the bid, there is no need to pay the amount in cash.
Same provision mandates that in the absence of a third-party
claim, the purchaser in an execution sale need not pay his bid if it
does not exceed the amount of the judgment; otherwise, he
shall pay only the excess.
- The raison de etre is that it would obviously be senseless for the
Sheriff or the Notary Public conducting the foreclosure sale to go
through the idle ceremony of receiving the money and paying it
back to the creditor, under the truism that the lawmaking body
did not contemplate such a pointless application of the law in
requiring that the creditor must bid under the same conditions
as any other bidder. It bears stressing that the rule holds true
only where the amount of the bid represents the total amount of
the mortgage debt.
29
Huerta Alba v CA
(2000; Purisima, J.)
Main issue: WON the petitioner has the one-year right of
redemption of subject properties under Section 78 of Republic
Act No. 337 otherwise known as the General Banking Act.

What petitioner has been adjudged to have was only the equity of
redemption over subject properties.
The right of redemption in relation to a mortgage understood in the
sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale exists only in the case of the
extrajudicial foreclosure of the mortgage. No such right is recognized in a
judicial foreclosure except only where the mortgagee is the PNB or a
bank or banking institution.

- Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the
mortgagor the right of redemption within 1 year from the registration of

the sheriff's certificate of foreclosure sale.

- Where the foreclosure is judicially effected, however, no equivalent
right of redemption exists. The law declares that a judicial foreclosure
sale 'when confirmed be an order of the court. . . . shall operate to divest
the rights of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption as may be allowed by
law.' Such rights exceptionally 'allowed by law' (i.e., even after
confirmation by an order of the court) are those granted by the charter
of the PNB (Acts No. 2747 and 2938), and the General Banking Act (R.A.
337). These laws confer on the mortgagor, his successors in interest or
any judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosure after confirmation by the court of the
foreclosure sale which right may be exercised within a period of 1
year, counted from the date of registration of the certificate of sale in
the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial
foreclosure of a mortgage if the mortgagee is not the PNB or a bank or
banking institution. In such a case, the foreclosure sale, 'when confirmed
by an order of the court. . . shall operate to divest the rights of all the
parties to the action and to vest their rights in the purchaser.' There then
exists only what is known as the equity of redemption. This is simply the
right of the defendant mortgagor to extinguish the mortgage and retain
ownership of the property by paying the secured debt within the 90-day
period after the judgment becomes final, in accordance with Rule 68, or
even after the foreclosure sale but prior to its confirmation.
30
Peoples Bank Trust
v Dahican Lumber
(1967; Dizon, J.)
DALCO executed real estate mortgage in favor of the
bank, which contained a stipulation as to the extension of
the security to after acquired properties referring to
properties to be subsequently acquired. DALCO
purchased new properties, Bank compelled DALCO to
register the mortgage over the properties but before
DALCO was able to do so, the purchase contract had
already been rescinded.

DALCOs arguments:
1. The inclusion of after acquired properties is void
because they were not registered in accordance with the
Chattel Mortgage Law
2. The provision did not automatically make subject to
such mortgages the properties and it only meant the
willingness of DALCO to constitute a lien over the same
Even if contract was entered into under the old CC, the pertinent
provisions were reproduced into NCC in 2127. The "after
acquired properties" were purchased by DALCO in connection
with, and for use in the development of its lumber concession
and that they were purchased in addition to, or in replacement
of those already existing in the premises on July 13, 1950. In law,
therefore, they must be deemed to have been immobilized, with
the result that the real estate mortgages involved herein
which were registered as such did not have to be registered a
second time as chattel mortgages in order to bind the "after
acquired properties" and affect third parties.

31
Makati Leasing v
Wearever
(1983; De Castro, J.)
Chattel mortgage was executed over certain raw
materials inventory and Artos Aero Dryer Stentering
Range. Sheriff could only take out the motor because it
was too large and they had to drill it or destroy the
concrete floor if only to take it out.

Is the machinery in suit a real or personal property? In
which case, what law should govern?
- If a house of strong materials, like what was involved in the
above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will
be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is
estopped from denying the existence of the chattel mortgage.
- It must be pointed out that the characterization of the subject
machinery as chattel by the private respondent is indicative of
intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New
York v. Jaramillo, it is undeniable that the parties to a contract
may by agreement treat as personal property that which by
nature would be real property, as long as no interest of third
parties would be prejudiced thereby.
32
Dy v CA
(1991; Gutierrez, J.)
Wilfred bought a tractor through a loan from Libra, to
which he also executed a chattel mortgage. Wilfreds
brother Perfecto bought the tractor from him and
assumed the mortgage with Libras consent. However
Libra did not release the tractor immediately because of
uncleared check. The dealy resulted to the tractors
purchase by Gerlac.
- The mortgagor who gave the property as security under a
chattel mortgage did not part with the ownership over the same.
He had the right to sell it although he was under the obligation
to secure the written consent of the mortgagee or he lays
himself open to criminal prosecution under the provision of
Article 319 par. 2 of the RPC. Even if no consent was obtained
from the Libra, the validity of the sale would still not be affected.

- Where a 3P purchases the mortgaged property, he
automatically steps into the shoes of the original mortgagor. His
right of ownership shall be subject to the mortgage of the thing
sold to him. In the case at bar, Perfecto was fully aware of the
existing mortgage of the subject tractor to Libra. In fact, when he
was obtaining Libra's consent to the sale, he volunteered to
assume the remaining balance of the mortgage debt of Wilfredo
Dy which Libra undeniably agreed to.
33
Pameca Wood v CA
(1999; Gonzaga-Reyes)
DBP foreclosed on the chattel mortgage and then claimed
for the deficiency. PAMECA says that the book value of
their chattel was P2M but DBP, being the sole bidder
purchased it only for P322,350.

Rocky says:
- Salbahe tong DBP no? Nawalan na nga ng property,
siningil pa. Ang baba na nga ng bid tapos nagdeficiency
pa.
- Kinalimutan ng lawyers dito ang 2141. 2115 lang naman
ang bangga dun eh.
- Pledge is intended to regulate pawnshops. Its a
different concept from mortgage. At tayo lang ang ganun
sa buong Asia.
- Whats the intention of 2088? Get the best price for
borrower. Its okay to bid low. Sa bidding kasi may
chance, nagkataon lang na walang nagbid nang mataas.
Sa pactum kasi, yung creditor lang ang may chance
bumili.
Issue: Can DBP recover the deficiency? Yes.
- Whereas, in pledge, the sale of the thing pledged extinguishes
the entire principal obligation, such that the pledgor may no
longer recover proceeds of the sale in excess of the amount of
the principal obligation, S14 of Chattel Mortgage Law expressly
entitles the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs.
- Since the Chattel Mortgage Law bars the creditor-mortgagee
from retaining the excess of the sale proceeds there is a
corollary obligation on the part of the debtor-mortgagee to pay
the deficiency in case of a reduction in the price at public
auction.
- 1484 does not apply here because it is specifically applicable to
sale on installments.
34
Acme Shoe v CA
(1996; Vitug, J.)

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

Rocky says:
- What is the purpose of affidavit of good faith? Bakit sa
real estate mortgage wala?

No. Chattel mortgage must comply substantially with the
prescribed form. The execution of the oath means that the
debt/obligation secured must be current and not that is yet
merely contemplated.
- While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
future debts are accurately described,

a chattel mortgage,
however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel
mortgage OR by amending the old contract conformably with
the form prescribed by the Chattel Mortgage Law. Refusal on the
part of the borrower to execute the agreement so as to cover
the after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement whereon
the promise is written but, of course, the remedy of foreclosure
can only cover the debts extant at the time of constitution and
during the life of the chattel mortgage sought to be foreclosed.

35
Servicewide
Specialist v CA
(1999; Ynares-Santiago)
Ponce bought from CR Tecson a Holden Torana and also
executed Chattel Mortgage in its favor. CR Tecson
assigned the credit to Filinvest with conformity of Ponce.
Ponce sold the car to Tecson. Filinvest assigned its rights
to Servicewide without notice to Ponce. Servicewide sues
Ponce. Ponce files 3P complaint against Tecson.

ISSUES:
- Whether the assignment of a credit requires notice to
the Ponce in order to bind him?
- More specifically, is Ponce, who sold the property to
Tecson, entitled to notice of the assignment of credit
made by the Filinvest to Servicewide such that if the
Ponce was not notified of the assignment, he can no
longer be held liable since he already alienated the
Only notice to the debtor (Ponce) of the assignment of credit is
required. His consent is not required. In contrast, consent of the
creditor-mortgagee (Servicewide) to the alienation of the
mortgaged property is necessary in order to bind said creditor.

Article 2141, on the other hand, states that the provisions
concerning a contract of pledge shall be applicable to a chattel
mortgage, such as the one at bar, insofar as there is no conflict
with Act No. 1508, the Chattel Mortgage Law. As provided in
2097 in relation to 2141, a thing pledged may be alienated by the
pledgor or owner with the consent of the pledgee. This provision
is in accordance with Act No. 1508 which provides that a
mortgagor of personal property shall not sell or pledge such
property, or any part thereof, mortgaged by him without the
consent of the mortgagee in writing on the back of the mortgage

property?
- Conversely, is the consent of Servicewide necessary
when Ponce alienated the property to Tecson?

Chi recited this. Fairly okay.
and on the margin of the record thereof in the office where such
mortgage is recorded. Although this provision in the chattel
mortgage has been expressly repealed by Article 367 of the
Revised Penal Code, yet under Article 319 (2) of the same Code,
the sale of the thing mortgaged may be made provided that the
mortgagee gives his consent and that the same is recorded. In
any case, applying by analogy 2128 to a chattel mortgage, it
appears that a mortgage credit may be alienated or assigned to
a third person. Since the assignee of the credit steps into the
shoes of the creditor-mortgagee to whom the chattel was
mortgaged, it follows that the assignees consent is necessary in
order to bind him of the alienation of the mortgaged thing by the
debtor-mortgagor. This is tantamount to a novation. As the new
assignee, petitioners consent is necessary before respondent
spouses alienation of the vehicle can be considered as binding
against third persons. Servicewide is considered a third person
with respect to the sale with mortgage between respondent
spouses and third party defendant Conrado Tecson.
CONCURRENCE AND PREFERENCE OF CREDITS
36
De Barreto v
Villanueva
(1961; Gutierrez David)
Does unregistered unpaid vendors lien prejudice the
registered rights? No.

Where there is no insolvency or liquidation proceeding,
the unpaid vendors lien does not acquire the character
and rank of a statutory lien coequal to the recorded
mortgage lien. Unpaid vendor must remain subordinate
to recorded mortgage.
- Only some taxes enjoy a similar absolute preference. All the
remaining 13 classes enjoy no priority among themselves but
must be paid pro rata.
- There must first be some proceeding [insolvency, settlement of
decedents estate, other liquidation proceedings] where notice
to all of the insolvents creditors may be given and where the
claims of preferred creditors may be bindingly adjudicated.
[Convene them creditors first.]
- The question as to whether the CC and Insolvency Law can be
harmonized is settled by 2243. The preferences named in 2241
and 2241 are to enforced in accordance with the Insolvency Law.
37
J. L. Bernardo v CA
(2000; Gonzaga-Reyes)
Contractors lien

Rocky says: Mortgage has its own life. Its a lien in itself,
no need for a proceeding.
- 2242 only finds application when there is a concurrence of
credits i.e. same specific property of the debtor is subjected to
the claims of several creditors and the value of such property of
the debtor is insufficient to pay in full all the creditors. In such a
situation, the question of preference will arise, that is, there will
a need to determine which of the creditors will be paid ahead of
the others.
- Fundamental tenets of due process will dictate that this
statutory lien should then only be enforced in the context of
some kind of a proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency
proceedings.
- The action of JL Bernardo is not for insolvency but for specific
performance and damages.
38
DBP v CA
(2001; Kapunan, J.)
Mortgage by mining company of real estate,
improvements thereon and chattel mortgage. DBP
foreclosed but Remington claims for its lien on unpaid
purchases by the company. Who has preference? DBP. In
the absence of liquidation proceedings, the claim of
Remington cannot be enforced against DBP.

Rocky says:
- Walang tunay na sale sa Pilipinas. Go to HK for cheap
electronics.
- AIM means Ayaw Ipasa ang Mic Mag-apply sha sa
Guinness para sa mga associate nilang walang natamaan
kahit isang nota. Aba mahirap yun ah! We have natural
built-in protection. We fool ourselves into thinking that
we sound better than it actually is. That we are more
beautiful than we really are. BAsahin niyo yung The
Raven, Merchant of Venice and Picture of Dorian Gray for
your soul.

Reiteration of the Barretto ruling.
Although what was involved there was specific immovable
property, the ruling therein should equally apply in this case
where specific movable property is involved. As the extra-judicial
foreclosure instituted by the PNB and DBP is not the liquidation
proceeding contemplated by the CC, Remington cannot claim its
pro rata share from DBP.

39
Ruby Industrial Corp
v CA
(1998; Puno, J.)
Handled by Sycip
Ruby filed Petition for Suspension of Payments with SEC.
Benhar purchase the credits of Rubys creditors and
mortgage Rubys property to get credit facilities for Ruby.
Subrogated din si Benhar.

Rocky says: Redundant ang existence ni Benhar. Bakit pa
kailangan ng middleman? Nakinabang si Benhar eh wala
naman siya ginawa.
- Ang mga lawyers hindi pwedeng maraming pera, hindi
tayo marunong magbilang eh.
- Rehab receiver is a good job.
Rehabilitation contemplates the continuance of corporate life
and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and
solvency. When a distressed company is placed under
rehabilitation, the appointment of management committee
follows to avoid collusion between the previous management
and creditors it might favor, to the prejudice of the other
creditors.
All assets of the corporation under rehabilitation receivership are
held in trust for the equal benefit of all creditors to preclude one
from obtaining an advantage or preference over another by the
expediency of attachment, execution or otherwise.
As between the creditors, the key phrase is equality in equity.
Once the corporation threatened by bankruptcy is taken over by
a receiver, all the creditors ought to stand on equal footing. Not
any one of them should be paid ahead of the others.

40
Rubberworld v NLRC
(1999; Panganiban, J.)
Should NLRC suspend the proceedings before it when
company is under declaration of suspension of payments
i.e. all actions for claims are suspended?

Rocky says: Distinction between suspension of payments
and corporate rehab
SUSPENSION OF PAYMENTS CORPORATE
REHABLITATION
Foresees impossibility of meeting debts when they
due
Applicable to both natural
and juridical entity
Only corporations
Initiated by the debtor only Initiated by debtor or
creditor
- Convince the court na kaya pang i-rehab.
- Eat at Esukiji, men fall in love with what they see, what
is. Women with what they

- Upon creation of a management committee or the
appointment of the rehabilitation receiver, all claims for actions
shall be suspended accordingly. No exception in favor of labor
claims is mentioned in the law. Allowing them to proceed may
clearly defeats the purpose of the automatic stay and severely
encumbers the management committees time and resources.
- Preferential right of workers and employees under A110 of LC
may be invoked only upon the institution of insolvency or judicial
liquidation proceedings.

41
Leca Realty Corp v
Manuela Corp
(2007; Sandoval-
Gutierrez, J.)

Rocky says: Non-impairment of contracts
- Iba talaga ang adrenalin level namin dati kapag
nakikipagdate kasi hindi pa uso ang credit card. Wala
pang price yung menu na para sa ladies. Kaya dapat
- Pinakamasarap na part ng tuna yung batok. Oily yun.
Pero hindi naman generally oily ang tuna dahil it lives in
warm water.
- In view of the Valentines Day tomorrow, tinamad na
magdiscuss ng Credit Trans si Rocky. Nagbigay na lang ng
dating tips. Put your money where your motives are.
Parang poker lang yan. All in.
- Story about about a boy who was looking for a wife and
his mother fed three ladies with cheese.
- Bumili kayo ng ceramic knife. Parang papel o gulaman
lang lahat ng hinihiwa niyo.
- Dont go Chinese pag date, ang dami nun. Wala kayong
magagawa. Pangfamily lang ang Chinese.

- The amount of rental is an essential condition of any lease
contract. Needless to state, the change of its rate in the
Rehabilitation Plan is not justified as it impairs the stipulation
between the parties. Rehab Plan is declared void insofar as it
amends the rental rates agreed upon by the parties.
- PD 502-A never authorized the change or modification of
contracts entered into by the distressed corporation and its
creditors.
42
Chas Realty Devt
Corp v Talavera
(2003; Vitug, J.)
Validity of approval is in issue. Board of directors was
even still being contested.

Rocky says:
- Why 2/3 vote? In a big corporation, its dangerous to go
to the stockholders. Example is PLDT where mere
subscription to their services makes you a stockholder.
- No similar provision in present Rules.
- Is it not important enough to file petition for rehab?
Certification from the board of directors that filing of petition
has been duly authorized and that it has been confirmed

Subject: repayment or restructuring scheme
Extraordinary corporate action 2/3 of stockholders outstanding
capital stock
No extraordinary corporate action majority in a quorum
43 RCBC v IAC
Rules of thumb laid down by the SC

(1999; Melo, J.) 1. All claims against corporations, partnerships or associations that are pending before any court, tribunal or board, without
distinction as to WON a creditor is secured or unsecured, shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board, or body in accordance with the provisions of PD 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally
suspended upon the appointment of a management committee, rehabilitation receiver, board or body. In the event that the
assets of the corporation, partnership or association are finally liquidated, however, secured and preferred credits under
applicable provisions of CC will definitely have preference over unsecured ones. All actions for claims against a distressed
corporation pending before any court, tribunal or body shall be suspended accordingly to give receiver the chance to
rehabilitate the corporation if there should still be possibility for doing so.

3. In the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to
be settled, the secured creditors shall enjoy preference over the unsecured creditors, subject only to the provisions of CC on
Concurrence and Preference of Credit.

The issue of WON preferred creditors of distressed corporations stand on equal footing with all other creditors gains
relevance and materiality only upon the appointment of management committee, rehabilitation receiver, board or body.

44
Sobrejuanite v ASB
(2005; Ynares-Santiago)
Company failed to deliver the condo unit upon the
spouses demand. Spouses now want rescission of
contract and refunt of payment + payment of moral
damages, attys fees, litigation expenses, appearance fees
and costs of suit

Issue: WON complaint for rescission with damages
(specific performance) a claim covered by stay order?
Yes, it is a claim which must be suspended.

Rocky asks:
- What is the definition of claim under present rules?
Same as Interim: all claims or demands of whatever
nature or character against a debtor or its property,
whether for money or otherwise.
- Why do we have surnames? Its for geographical
security to track movement. Parang pinaglaruan yung
mga apelyido natin, Santos Reyes Cruz. Hinda naman
apelyido yan sa Espanya eh. Mga Ordonez, Villalobos,
Zobel sila dun.
- First row ng bumaril kay Rizal eh Pinoy, nasa 2
nd
row eh
mga Espanyol na nakatutok sa Pinoy na di babaril. We kill
each other.
- The purpose of suspension of the proceedings is to prevent a
creditor from obtaining an advantage or preference over another
and to protect and preserve the rights of party litigants as well as
the interest of the investing public or creditors. It is intended to
give enough breathing space for the management committee or
rehabilitation receiver to make business viable again, without
having to divert attention and resources to litigations in various
fora. It would enable the management committee/rehab
receiver to effectively exercise powers free from any
judicial/extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company.

Definitions of claim:
- Finasia v CA: debts/demands pecuniary in nature
- Arranza v BF Homes: actions involving monetary considerations
- Interim rules: All claims or demands, of whatever nature or
character against a debtor or its property , whether for money or
otherwise. No distinctions or exemptions.
45
Metrobank v SLGT
(2007; Garcia, J.)
Condominium project mortgaged without notice to
owners of condominium units and without permission
from HLURB. Banks defense: Divisibility/separability.
Court said that the mortgage is void in entirety because it
is indivisible by nature. Dylanco demanded the delivery of
their units free from all liens and encumbrances.
Issue: Is it a claim covered by the stay order?
There is an undue reliance on Sobrejuanite. The claim there
involved pecuniary consideration (refund + damages) while here,
it was only for the enforcement of contractual obligations
(specific performance).
- The Rules on rehabilitation and suspension of action apply only
to those who stand in the category of debtors and creditors,
which the parties in the case at bar are not.
46
PAL v CA
(2005; Ponente, J.)
Two minor children left by the plane. Parents seek
indemnity for damages from PAL. Execution stage na lang
ito.

Upon the appointment by SEC of a management committee or
rehab receiver, all actions for claims against a corp pending
before any court, tribunal, board shall ipso jure be suspended in
whatever stage such actions may be found.

It must be stressed that what are automatically stayed or
suspended are the proceedings of a suit and not just the
payment of claims during the execution stage after the case had
become final and executory.
47
Clarion Printing
House v NLRC
(2005; Carpio-Morales)
Handled by UP OLA
Complaint for illegal dismissal of probationary employee.
She was retrenched but during her retrenchment, the
petition for declaration of suspension of payments by the
company was denied.
Court took judicial notice of its own acts. It even allowed Miclat
to recover despite the appointment of management committee
for the company (this time their petition for corp rehab was
granted).

48
Ong v PCIB
(2005; Puno, J.)
Spouses are surety of the corporation of which they are
the presidents and treasurers.

Rocky says:
- Delikado maging surety, thats the point

Despite the execution of the MoA which provided for the
suspension of payment and filing of collection suits against BMC,
the bank has the right to collect payment from the surety as it
exists independently of its right to proceed directly against the
principal debtor.
49
Sy Chim v Sy Siy Ho
(2006; Callejo Sr., J.)
Chinese family owns a company, a dispute took place
between the stockholders. One party moved for the
appointment of a management committee. Court
granted.

Rocky says:
- If someone takes over, it would be hard to recover.
There may be something wrong going on internally, but
as long as it does not affect the finances, dont appoint
management committee hastily.
- Are the two requisites still required under the present
rules?
Is the appointment of management committee proper under
the Interim Rules? No.
- Upon appointment of management committee/receiver, the
elected/appointed officers of the corporation are divested of the
management of such corporation in favor of the management
committee/receiver.
- The creation and appointment of a management committee
and receiver is an extraordinary and drastic remedy to be
exercised with care and caution; and only when the
requirements under the Interim Rules are shown. It is a drastic
course for the benefit of the minority stockholders, the parties-
litigant or the general public are allowed only under pressing
circumstances, and when there is inadequacy, ineffectual or
exhaustion of legal or otre remedies.
- In the absence of a strong showing of imminent danger of
dissipation, loss, wastage or destruction of assets or other
properties of a corporation and paralysis of its business
operations, the mere apprehension of future misconduct based
upon prior management will not authorize the appointment of a
management committee/receiver.
50
Metrobank v ASB
(2007; Sandoval-
Gutierrez , J.)
ASB drafted a dacion en pago in its Rehabilitation Plan.
Metrobank refuse to accept because it does not agree
with the valuation of the properties included therein.

Rocky says:
- Confused yung lawyer dito. Malinaw naming subject to
approval yung rehab plan, kinwestiyon pa. Sayang ang
oras ng korte. Dapat bineberate yung mga ganitong
abogado eh.
- The dacion en pago program and the intent of ASB to ask
creditors to waive the interests, penalties and related charges
are not compulsory in nature. They are merely proposals for the
creditors to accept. There was even an initial discussion on these
proposals and the majority of the secured creditors showed their
desire to complete dacion en pago transactions, but they must
be based on mutually agreed upon terms.
- The purpose of rehabilitation proceedings is to enable the
company to gain a new lease on life and thereby allows creditors
to be paid their claims from its earnings.
51
MWSS v Daway
(2004; Azcuna, J.)
Maynilad applied for Rehabilitation with Suspension of
Actions and Proceedings. It had an Irrevocable Standby
Letter of Credit issued by Citicorp. MWSS asked for its
encashment for payment of concession fees. Is the claim
covered by the stay order?
Rocky says:
- Maynilad owned by the Lopezes. Manila Water sa QC.
Wala bang taga-Manila dito? Homogenous talaga kayo.
- Alam niyo ba kung bakit Brand X lang ang ginagamit sa
mga local ads when in the US they bluntly say that Pepsi
is better than Coke? No of course, its not delecadeza. Its
by agreement of ad companies, they have self-regulating
rules.
LoC is not covered by the stay order (hence, MWSS can enforce
its claim) because it is solidary and primary undertaking. As such,
claims against them can be pursued separately from and
independently of the rehabilitation case (PBM v CA).
52
Colinares v CA
(2000; Davide, J.)
Colinares renovated the convent of Carmelite Sisters. To
purchase materials for the construction, Colinares signed
a pro-forma trust receipt with PBC. After default, PBC
charged Colinares with violation of PD 115 in relation to
A315 RPC (estafa).

Defense: They believed it was only a clean loan, the trust
receipt implication was in fine print.

HELD:
- The parties intended a simple loan and not a trust
receipt agreement. Colinares already owned the goods
when they applied for a loan for the payment of goods.
- Usually, goods are owned by the bank. Upon release to
entrustee, bank acquires security interest
What is a trust receipt?
S4 of PD 115: any transaction by and between a person referred
to as the entruster and another person referred to as the
entrustee, whereby the former who owns or holds absolute
title or security interest over certain specified goods, documents
or instruments, releases the same to the possession of the
entrustee upon the latters execution and delivery to the
entruster of a signed document called a trust receipt wherein
the entrustee binds himself to hold the designated goods,
documents, or instruments with the obligation to turn over to
the entruster 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.

- Moreover, Colinares are not importers acquiring the
goods for re-sale, contrary to the express provision
embodied in the trust receipt.

Rocky says:
- This may also be called title retention security
agreement its the best type of security kasi nasa iyo na
kagad in case of bankruptcy.
- Eh bakit hindi lahat naka-trust receipt? Its not because
of the risk of loss, because you can transfer it naman.
Magastos kasi to. Ibinebenta-benta pa, maraming tax na
binabayaran tuloy. Theres also a limit on what the bank
can purchase.
- Whats another example of title retention Contract to
sell. Its better than mortgage kasi wala kang kalaban.

Two possible situations in trust receipt transaction
1. Money received (entregaria)
2. Merchandise received (devolvera)

Failure of entrustee to turn over proceeds is punishable as
estafa, without need of proving intent to defraud.

Policy questions:
- Intended to aid in financing the importers and retail traders
who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization as collateral, of
the merchandise importer or purchased.
- It does not seek the payment of the loan, but punishment of
dishonesty and abuse of confidence in handling of money/goods
to prejudice of another.
53
UCPB v Beluso
Beluso obtained a credit line from UCPB. Interest was not
numerically quantified but only categorically fixed [rate
indicative of DBD retail rate]. Beluso says that its an
infringement of the mutuality of contracts.

Rocky says:
- Buddha died because of ulcer and bleeding.
- The interest rate provisions are illegal not only because of the
CC provision on mutuality of contracts but also because its
violative of the Truth in Lending Act. Not disclosing the true
finance charges in connection with the extensions of credit is a
form of deception which We cannot countenance.
As to failure of Beluso to explicitly allege violation of Truth in
Lending Act and prescription of 1 year
- Allegations in complaint are much more controlling than its
title. It can be inferred from the allegation of unilateral
imposition of increased interest rates
- Truth in Lending gives rise to both crim and civil liabilities.
- Rationale for requiring the disclosure statement to be given
prior to consummation: Protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount and the like. Fully appreciate
the true cost of loan, give full consent to the contract, and
properly evaluate their options in arriving at business decisions.
54
Manila Banking v
Teodoro
(1989; Bidin, J.)
Assignment of rights executed to guarantee an obligation.
- An assignment of rights, receivables, titles or interest under a contract to guarantee an obligation is in effect, a pledge or
mortgage contract to guarantee an obligation is, in effect, a pledge or mortgage and NOT an absolute conveyance of title
which confers ownership on the assignee. In case of doubt as to whether a transaction is a pledge (or mortgage), or a dation
in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests.

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CASE TABLE CREDIT TRANSACTIONS (Prof.

Rocky Reyes | AY 2009-2010) Page 1 of 19

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