FINAL EXAMS CASES

INSOLVENCY
DE BARRETO, ET. AL. v. VILLANUEVA, ET. AL., (1961)
Special Preferred Credits
(Important: See full text of the Resolution)
Facts: Rosario Cruzado sold all her right, title, and interest and that of her children
in the house and lot herein involved to Villanueva for P19K. The purchaser paid
P1,500 in advance, and executed a promissory note for the balance. However, the
buyer could only pay P5,500 On account of the note, for which reason the vendor
obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva
was able to secure a clean certificate of title and mortgaged the property to
appellant Barretto to secure a loan of P30K, said mortgage having been duly
recorded.
Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed
the mortgage in her favor, obtained judgment, and upon its becoming final asked
for execution. Cruzado filed a motion for recognition for her "vendor's lien"
invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the
court below ordered the "lien" annotated on the back of the title, with the proviso
that in case of sale under the foreclosure decree the vendor's lien and the mortgage
credit of appellant Barretto should be paid pro rata from the proceeds.
Appellants insist that:
The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the
Philippines, can only become effective in the event of insolvency of the vendee,
which has not been proved to exist in the instant case; and .
2.
That the Cruzado is not a true vendor of the foreclosed property.
1.

Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that
constitute an encumbrance on specific immovable property, and among them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with
respect to the same specific real property or real rights, they shall be satisfied prorata after the payment of the taxes and assessment upon the immovable property
or real rights.
Held: Application of the above-quoted provisions to the case at bar would mean
that the herein appellee Rosario Cruzado as an unpaid vendor of the property in
question has the right to share pro-rata with the appellants the proceeds of the
foreclosure sale.
Issue: Appellants argument: inasmuch as the unpaid vendor's lien in this case was
not registered, it should not prejudice the said appellants' registered rights over the
property.

Held: There is nothing to this argument. Note must be taken of the fact that article
2242 of the new Civil Code enumerating the preferred claims, mortgages and liens
on immovables, specifically requires that. Unlike the unpaid price of real property
sold. mortgage credits, in order to be given preference, should be recorded in the
Registry of Property. If the legislative intent was to impose the same requirement in
the case of the vendor's lien, or the unpaid price of real property sold, the
lawmakers could have easily inserted the same qualification which now modifies the
mortgage credits. The law, however, does not make any distinction between
registered and unregistered vendor's lien, which only goes to show that any lien of
that kind enjoys the preferred credit status.
As to the point made that the articles of the Civil Code on concurrence and
preference of credits are applicable only to the insolvent debtor, suffice it to say
that nothing in the law shows any such limitation. If we are to interpret this portion
of the Code as intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left without any rules
to govern them, and it would render purposeless the special laws on insolvency.
Resolution on Motion to Consider (1962)
Appellants, spouses Barretto, have filed a motion vigorously urging that our decision
be reconsidered and set aside, and a new one entered declaring that their right as
mortgagees remain superior to the unrecorded claim of herein appellee for the
balance of the purchase price of her rights, title, and interests in the mortgaged
property.
We have reached the conclusion that our original decision must be reconsidered and
set aside:
Under the system of the Civil Code of the Philippines, only taxes enjoy a similar
absolute preference. All the remaining thirteen classes of preferred creditors under
Article 2242 enjoy no priority among themselves, but must be paid pro-rata i.e., in
proportion to the amount of the respective credits. Thus, Article 2249 provides:
If there are two or more credits with respect to the same specific real property or
real rights, they, shall be satisfied pro-rata after the payment of the taxes and
assessments upon the immovable property or real rights."
The full application of Articles 2249 and 2242 demands that there must be first
some proceedings where the claims of all the preferred creditors may be bindingly
adjudicated, such as:
1.
insolvency,
2.
the settlement of decedents estate under Rule 87 of the Rules of Court, or
3.
other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
The claims or credits enumerated in the two preceding articles" shall be considered
as mortgages or pledges of real or personal property, or liens within the purview of
legal provisions governing insolvency.
And the rule is further clarified in the Report of the Code Commission, as follows:

The question as to whether the Civil Code and the insolvency Law can be
harmonized is settled by Article 2243. The preferences named in Articles 2261 and
2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law."
Rule
Thus, it becomes evident that one preferred creditor's third-party claim to the
proceeds of a foreclosure sale (as in the case now before us) is not the proceeding
contemplated by law for the enforcement of preferences under Article 2242, unless
the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of
the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro-rata dividend corresponding to each, because the rights of the
other creditors likewise" enjoying preference under Article 2242 can not be
ascertained.
Held: There being no insolvency or liquidation, the claim of the appellee, as unpaid
vendor, did not require the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate to the latter.
SPS. FELINO S. SAMATRA and CHARLITA ISIDRO, petitioners, vs. RITA S.
VDA. DE PARIAS, respondent.
DECISION
PUNO, J.:
The case at bar originated from an agrarian case involving two (2) agricultural
lots with an aggregate area of 28,375 square meters and a homelot ii with an area of
472 square meters, all situated in Sto. Domingo, Nueva Ecija. These lots were
originally owned by spouses Donato Samatra and Macaria Sana. Petitioner FELINO
SAMATRA and respondent RITA S. VDA. DE PARIAS are their legitimate children.
i

On March 20, 1972, the spouses mortgaged one of the agricultural lots and the
homelot to the Rural Bank of Sto. Domingo (N.E.) Inc. to secure their P2,500.00 loan
that would mature on August 25, 1975. A year later, or on September 21, 1973, the
spouses constituted another real estate mortgage over the other lot in favor of the
same bank to secure their second loan of P1,300.00. This loan was to mature on
April 3, 1975.
On January 3, 1975, while the mortgages were still subsisting, mortgagor
Donato Samatra executed a Kasunduang Buwisan sa Sakahaniii constituting his
daughter, respondent Rita S. Vda. de Parias, as agricultural lessee over the
mortgaged lots, without the consent of the mortgagee bank.
When the mortgagors-spouses failed to pay their loans upon maturity, the
mortgagee bank extrajudicially foreclosed the mortgages over the subject lots. At a
public auction, the lots were sold to the mortgagee bank as the sole and highest
bidder. The corresponding certificates of sale were issued in its favor and
registered with the Register of Deeds of Nueva Ecija on May 27, 1976. As the
mortgagors-spouses failed to redeem the lots within a year from its
registration, the mortgagee bank consolidated its ownership over the
subject lots. Nonetheless, respondent continued in possession of the lands.

Thereafter, negotiations were conducted between the manager of the

mortgagee bank Ricardo E. Gonzales and the heirs of the mortgagor-spouses, with
the bank offering the heirs priority to repurchase the lots. Respondent Rita S. Vda.
de Parias and her son Perfecto showed interest in the offer. Thus, it was agreed that
respondent would buy back the lots by gradually depositing small amounts for the
repurchase of the properties until the full purchase price is paid and, thereafter, the
mortgagee bank would execute the corresponding deed of sale in favor of
respondent.
Initially, the agreement was carried out by the respondent. Later, however,
respondent and her son discontinued depositing money in their account for the
repurchase of the lots. Instead, they began to withdraw small amounts from their
account until it was depleted and their account closed in November 1982. From then
on, nothing was heard from respondent and her son about their intention to
repurchase the lots. Thus, the mortgagee bank construed their silence and inaction
as a lack of further interest to continue with the agreed plan of sale.
In December 1983, petitioner Felino Samatra, one of the heirs of the mortgagorspouses and a brother of respondent, expressed his intention to repurchase the lots
from the bank. Consequently, on July 17, 1984, the bank sold the lots to
petitioners FELINO SAMATRA and CHARLITA ISIDRO.iv The sale was duly
registered and title was issued in the name of petitioners. v
When respondent learned about the sale, she immediately went to the bank and
declared that she was ready to buy them back. The mortgagee bank informed her
that they were already validly sold to petitioners. Respondent adamantly held on to
the lots and continued her possession claiming right over them as agricultural
lessee. She filed a complaint with the barangays Lupong Tagapayapa for
reconveyance of the lots as she has right of pre-emption as agricultural lessee. As
the issue could not be settled at the barangay level, the Lupon issued a certification
to enable the parties to file the necessary action in court.
On December 26, 1984, respondent filed an agrarian case vi with the Regional
Trial Court against the mortgagee bank and the petitioners: (1) to annul the sale by
the mortgagee bank of said lots to petitioners, claiming right of pre-emption or legal
redemption as agricultural tenant and homelot possessor of the subject lots; (2) to
order the mortgagee bank to reconvey the lands to her after exercising her right of
legal redemption; and (3) for payment of damages.
In their Answer, petitioners argued that respondent was not an agricultural
lessee over the subject lots as it was their parents, mortgagor-spouses Donato
Samatra and Macaria Sana, who personally cultivated the lots as previous owners.
After the issues were joined, trial ensued. On October 13, 1994, the trial court
rendered a decisionvii in favor of the petitioners. It found that respondent
was not a bonafide lessee of the lands as she did not present proof that
she personally cultivated them. Not being a bonafide agricultural lessee, the
trial court ruled that respondent has no right of pre-emption and legal redemption
over said lots. sThe trial court disposed, thus:
WHEREFORE, judgment is hereby rendered:
1. ordering the dismissal of the complaint;

2. declaring the document entitled KASUNDUANG BUWISAN SA

SAKAHAN as fraudulent, illegal and null and void;
3. declaring the sale of the properties in question by the defendant Rural
Bank of Sto. Domingo (NE), Inc. in favor of the defendants-spouses Felino
Samatra and Charlita Isidro as legal and valid;
4. ordering the plaintiff to vacate the subject landholdings and deliver
the possession thereof to the spouses Felino Samatra and Charlita Isidro;
5. ordering the plaintiff to pay the defendants-spouses Felino Samatra
and Charlita Isidro the amount of P50,000.00 as unrealized income from the
disputed land from 1984 up to the present; viii
6. ordering the plaintiff to pay to the defendants-spouses Felino Samatra
and Charlita Isidro the amount of P3,000.00 as attorneys fees and the
amount of P2,000.00 as expenses of litigation and the defendant Rural Bank
of Sto. Domingo (N.E.), Inc. the amount of P3,000.00 as attorneys fees and
the amount of P2,000.00 as litigation expenses; and
7. ordering the plaintiff to pay the costs of suit.
SO ORDERED.
On appeal, the court of Appeals held that although the appellant did not
personally cultivate the subject lands, could still be considered an agricultural
lessee as the law allows the lessee to be assisted by farm laborers in working the
land. The Court of Appeals also relied on two (2) documents attesting that the
respondent is the registered legitimate agricultural lessee of the disputed lands,
thus: (1) the Certification, dated May 8, 1985, issued by the Ministry of Agrarian
Reform (MAR) District Officer Eugenio B. Bernardo, in compliance with the Order of
the trial court, dated April 23, 1985; (2) an Affidavit of one Ponciano Alejo, ix
President of the Malaya Samahang Nayon, dated October 4, 1984. Although the
Court of Appeals ruled that respondent is a bonafide lessee, it denied her the right
of pre-emption as she was already given by the bank sufficient opportunity to
exercise it but she failed to avail of it. It also held that respondent did not possess
the right of redemption as the sale by the mortgagee bank of the disputed lands to
petitioners was not unknown to her. Hence, the Court of Appeals disposed:
WHEREFORE, with the modification declaring the legality and validity
of the contract of lease or KASUNDUAN BUWISAN SA SAKAHAN, finding
appellant Rita S. Vda. de Parias a bonafide agricultural
lessee/tenant of the landholdings in dispute, viz., Lots Nos. 2891, 2908
and Lot 2434 and deleting the award for damages and attorneys fees
and payment of litigation expenses and cost of suit, the Decision
appealed from is AFFIRMED in all other respects.
No Costs.
SO ORDERED.x (emphasis supplied)
Petitioners motion for reconsideration was denied.
Hence this petition, where the following issues were raised:
4.1. WHETHER OR NOT THE TENANCY CONTRACT ENTERED INTO BETWEEN

THE MORTGAGORS-SPOUSES DONATO SAMATRA AND MACARIA SANA WITH

RESPONDENT RITA S. PARIAS DURING THE EFFECTIVITY OF THE MORTGAGE
WAS LEGAL AND VALID.
4.2. WHETHER OR NOT RESPONDENT RITA S. PARIAS IS A BONAFIDE
AGRICULTURAL LESSEE/TENANT OF THE LANDHOLDINGS IN DISPUTE.
4.2.1. Whether or not the Court of Appeals correctly reviewed the
findings of the trial court on the issue of whether or not respondent Rita S.
Parias is deemed to have personally cultivated the landholding, considering
the rule that the only duty of the Court of Appeals in agrarian cases is to
determine whether the findings of the trial court are supported by
substantial evidence.
4.2.2. Whether or not the Court of Appeals correctly appreciated
documentary evidence in support of its ruling that respondent Rita S. Parias
is the one personally cultivating the landholding.
4.2.3. Whether or not the resolution of (sic) this second main issue and
its following two corollary issues are tantamount to (sic) questions of law
that ought to be reviewed by this Honorable Supreme Court.
4.3. WHETHER OR NOT PETITIONERS ARE ENTITLED TO UNREALIZED
INCOME FROM THE TIME THEY PURCHASED THE PROPERTIES IN DISPUTE
FROM THE RURAL BANK OF STO. DOMINGO (N.E.) AND TO ATTORNEYS FEES
AND LITIGATION EXPENSES."
We shall discuss the issues in seriatim.
Petitioners insist that the tenancy contract was illegal as the mortgagor-spouses
cannot validly enter into an agricultural lease agreement with respondent during
the effectivity of the mortgage contract.
We disagree. The Court of Appeals correctly applied Article 2130 of the Civil
Code which renders void any stipulation forbidding the owner from alienating the
immovable mortgaged (pacto de non aliendo) property. It is settled that a real
estate mortgage does not extinguish the title of the debtor. He does not lose his
right to use or dispose of the mortgaged property (jus disponendi) which is one of
the principal attributes of ownership. Thus, in the case at bar, the mortgagorspouses were well within their rights when they constituted respondent as an
agricultural lessee and the legality of the leasehold contract cannot be validly
assailed on this ground.
The second issue deals with whether or not respondent may be considered a
bonafide agricultural lessee of the subject lands as to give her the right to
repurchase the foreclosed lands. The findings of the trial court and the Court of
Appeals on this matter are directly opposed to each other. Thus, a scrutiny of the
evidence on record is in order to determine if there is merit in the petition at bar.
The essential elements of agricultural leasehold relationships are: (1) the parties
are the landowner and the agricultural lessee; (2) the subject matter of the
relationship is agricultural land; (3) there is consent between the parties to the
relationship; (4) the purpose of the relationship is to bring about agricultural
production; (5) there is personal cultivation on the part of the agricultural
lessee; and (6) the harvest is shared between the landowner and the agricultural

lessee.xi
In the case at bar, the resolution of the second issue involves proof of the fifth
element, i.e., personal cultivation of the lands by respondent as to constitute her a
bonafide agricultural lessee thereof. While the trial court found that respondent was
not a bonafide tenant, the Court of Appeals declared that she is but she failed to
exercise her right to redeem the lands within the required period. As a result, both
the trial court and the Court of Appeals decreed that the sale of the lands to
petitioners is valid although they disagreed on the fact of personal cultivation by
respondent as to constitute her a bonafide lessee. Thus, the petitioners now seek a
declaration from this Court that the respondent has no right to further possess the
disputed lands as she is not a bonafide agricultural lessee thereof.
On this aspect, we find for the petitioners.
In support of her claim of legitimate tenancy, respondent presented the
following documents: (1) the Kasunduang Buwisan sa Sakahan, dated January 3,
1975; (2) the certificate of the Ministry of Agrarian Reform (MAR) District Officer
Eugenio B. Bernardo; and (3) the October 4, 1984 affidavit of Ponciano Alejo,
President of the Malayang Samahang Nayon. We find, however, that these
documents are insufficient to support respondents claim of tenancy.
First, the Kasunduang Buwisan sa Sakahan entered into by the original owners
and the respondent does not per se prove that respondent is a bonafide lessee. The
five (5) elements of agricultural leasehold relationship are still required to be
established. In the case at bar, the element of personal cultivation by the
respondent was not adequately proved. This is fatal to respondents cause as
without the element of personal cultivation, a person cannot be
considered a tenant even if he is so designated in the written agreement
of the parties.xii
Second, the Certification issued by MAR District Officer Bernardo is likewise
insufficient to prove that respondent is a bonafide lessee as it did not make a
finding that respondent personally cultivated the land either by herself or through
farm laborers. The Certification simply made a general conclusion that
respondent is a registered agricultural lessee of the lands per records of
their office, as the Kasunduang Buwisan sa Sakahan was registered there.
Third, the 1984 Affidavit of Alejo,xiii the President of the Malayang Samahang
Nayon likewise deserves scant consideration. Its contents leave much to be desired
insofar as proof that respondent is a bonafide lessee of the subject lots. Its
ambiguous and sweeping statements cannot support respondents claim of
legitimate tenancy. Consider these statements:
2. That on July 2, 1984, I issued a certification that one MR.
DONATO SAMATRA, of Barangay Malaya, Sto. Domingo, Nueva Ecija
is the owner, and at the same time the actual tiller of two (2)
parcels of agricultural land situated thereat, with a combined area
of 26,746 square meters, more or less including a residential
portion, without carefully verifying the facts.
3. That it now appears that I was misled into believing, and thus
certifying, that said landholding was not tenanted but is actually
being tilled by the registered owner DONATO SAMATRA;

4. That in truth and in fact, said landholding is tenanted by virtue

of a Kasunduang Buwisan sa Sakahan, dated January 3, 1975, by
and between its registered owner DONATO SAMATRA and RITA S.
VDA. DE PARIAS, with Rufino Q. Roque and Ernesto C. Castelo as
instrumental witnesses, and which document is known as Dok. Blg. 145;
Pahina Blg. 50; Aklat Blg. VII, duly notarized by Hon. Judge Manuel Dela
Cruz, Notary Public Ex-Oficio and registered with the Office of the Municipal
Treasurer of Sto. Domingo, Nueva Ecija, on the same date;
5. That I am executing this affidavit in order to set the record straight and to
correct an error that may prejudice, or may have prejudiced, the lawful
tenant, possessor and cultivator, MRS. RITA S. VDA. DE PARIAS. (emphasis
supplied)
Thus, it appears that Alejo based the foregoing affidavit certifying that
respondent is the actual cultivator and lawful lessee of the land solely on the
existence of the registered contract of agricultural lease. His certification on the fact
of personal cultivation by the respondent as to constitute her a bonafide or
legitimate lessee was not based on personal knowledge or factual information.
There is no mention in his Affidavit that he investigated respondents status and saw
for himself or knew for a fact that respondent personally cultivated the lots. His
Affidavit is wanting in particulars and its ambiguous contents were never
explained in court. We likewise find it curious that Alejo had earlier issued a
conflicting Affidavit,xiv dated July 2, 1984, certifying that the subject lands
were untenanted and the actual tiller was the mortgagor Donato Samatra.
Three months later, he issued the aforequoted Affidavit stating in paragraph 3 that
it was respondent who personally cultivated the lands. Curiously, Alejo did not
elaborate in the same Affidavit or during the trial of the case the circumstances and
reasons that allegedly misled him to issue the first certificate.
In the light of these two (2) conflicting affidavits issued by Alejo, the issue on
personal cultivation by the respondent as to constitute her a bonafide lessee was
not adequately proved. We reiterate our ruling in Bernas vs. Court of Appealsxv
that the legal question of agricultural leasehold relationship cannot be
made to depend on mere certifications issued by the president or officers
of associations and organizations. This ruling applies with greater force in the
case at bar as the documents and certifications issued by the same person
contradict each other.
Aside from respondents conflicting documentary evidence, the trial court rightly
observed that respondent was of advance age which immediately puts in doubt
her ability to personally cultivate the disputed lands. It would have been
appropriate for respondent to have testified on her behalf or presented
witnesses to attest that she performed any of the various acts of caring
for the plants, as to fall under the definition of personal cultivation. xvi While
the evidence shows that respondent was in possession of the lands, it is not enough
to prove that she cultivated them. As correctly pointed out by petitioners,
cultivation, although not limited to plowing and harrowing of the soil, requires some
general industry on the part of the tenant in caring for the plants. In the case at bar,
we find absolutely no evidence on record to show that respondent performed any
act that may be considered as falling under the phrase personal cultivation. Neither
can we affirm the Court of Appeals conclusion that, although respondent may not

have personally cultivated the lands, she could have been helped by farm laborers
in the care of the plants as this is allowed by law. To be sure, there is a dearth of
evidence on record to show that respondent personally cultivated the lands, much
less that she was assisted by hired personnel in her farm work.
Prescinding from these premises, we affirm the conclusion of the trial court that
respondent is not a bonafide agricultural lessee of the subject lands for failure
to prove the important element of personal cultivation.
Finally, we affirm the award of actual damages to petitioners in the
form of unrealized income from the lands in view of respondents refusal to
surrender the disputed lands to them. The actual amount thereof should be
recomputed by the trial court based on the total expected harvest from the date the
lots were sold to petitioners in 1984 until finality of the decision. However, we
affirm the deletion of the award of attorneys fees and litigation expenses
as the trial court failed to discuss in its Decision the reasons for their grant. The
settled rule is that the matter of attorneys fees cannot be mentioned only in
the dispositive portion of the decision.xvii The same goes for the award of
litigation expenses. They must be clearly explained and justified by the trial court in
the body of its decision for the general rule is that attorneys fees and expenses of
litigation cannot be recovered in the absence of stipulation. xviii
IN VIEW WHEREOF, the impugned Decision of the Court of Appeals in CA-G.R.
CV No. 51831, dated March 12, 1999, is SET ASIDE. The Decision of the Regional
Trial Court, Branch 37, Sto. Domingo, Nueva Ecija, dated October 17, 1994, in
Agrarian Case No. 113/Civil Case No. SD-1194, is REINSTATED, with the
modifications that the awards of attorneys fees and litigation expenses to
petitioners are deleted. The records of the case are remanded to the court a quo for
recomputation of the proper amount of actual damages to be paid by respondent
Rita S. Vda. de Parias to petitioners Felino Samatra and Charlita Isidro.
SO ORDERED.
Davide, Jr., C.J., (Chairman), and Austria-Martinez, JJ., concur.
Kapunan, and Ynares-Santiago, on official leave.

ii

iii

iv

vi

vii

viiiSPCL Chattel Mortgage2. Filipinas Marble Corporation v. Intermediate Appellate

Court, 142 SCRA 180 (1986)
FACTS:
-Filipinas Marble Corporation applied for a loan with Development Bank of the Philippines (DBP) in
its desire to develop the fun potentials of its mining claims and deposits and to finance acquisition
of machinery. DBP granted the loan subject, however, to sixty onerous conditions, among which
are: Filipinas Marble shall have to enter into a management contract with respondent Bancom

Systems Control, Inc. [Bancom] and that the loan be secured by a mortgage.
-The mortgage was not registered.
-Bancom and its directors/ officers mismanaged and misspent the loan.
-Bancom resigned with the approval of DBP even before the expiration of the management
contract, leaving Filipinas Marble desolate and devastated.
-Machineries arrived in the Philippines but alleged not delivered to Filipinas Marble.
-Also, instead of helping Filipinas Marble get back on its feet, DBP completely abandoned Filipinas
Marbles project and proceeded to foreclose the properties mortgage without previous demand or
notice.
-In essence, the Filipinas Marble seeks the annulment of the deeds of mortgage and deed of
assignment because there was no loan at all to secure since what DBP "lent" to Filipinas Marble
with its right hand, it also got back with its left hand; and that, there was failure of consideration
with regard to the execution of said deeds as the loan was never delivered to the Filipinas Marble.
-The Filipinas Marble further prayed that pending the trial on the merits of the case, the trial court
immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs
to enjoin the latter from proceeding with the foreclosure and sale of the Filipinas Marbles
properties in Metro Manila and in Romblon.
DBPs DEFENSE:
-opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No.
385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to
P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same decree,
no court can issue any restraining order or injunction against it to stop the foreclosure since
Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations;
that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only
in a technical sense because the money was received by the officers of the petitioner acting in
such
capacity and, therefore, irrespective of whoever is responsible for placing them in their positions.
TC AND CA:
-While evidence of Filipinas Marble Corporation appears persuasive, still it cannot enjoin DBP from
complying with the mandatory provisions of PD 385.
ISSUES:
Page 4 of 33/Comia, A.T.
SPCL Chattel Mortgage

If there was no valid contract of loan for failure of consideration, whether or not the mortgage can
exist or stand by itself being a mere accessory contract.
Whether or not the non-registration of the Chattel Mortgage affects its validity.
HELD:
- Presidential Decree No. 385 was issued primarily to see to it that government financial
institutions are not denied substantial cash inflows, which are necessary to finance development
projects all over the country, by large borrowers who, when they become delinquent, resort to
court actions in order to prevent or delay the government's collection of their debts and loans.
-The government, however, is bound by basic principles of fairness and decency under the due
process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government
lending institutions who take over the management of a borrower corporation, lead that
corporation to bankruptcy through mismanagement or misappropriation of its funds, and who,
after ruining it, use the mandatory provisions of the decree to avoid the consequences of their
misdeeds.
-The designated officers of the government financing institution cannot simply walk away and then
state that since the loans were obtained in the corporation's name, then P.D. 385 must be
peremptorily applied and that there is no way the borrower corporation can prevent the automatic
foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of
the total obligation no matter who was responsible.
-In the case at bar, the respondents try to impress upon this Court that the $5,000,000.00 loan
was actually granted and released to the petitioner corporation and whatever the composition of
the management which received the loan is of no moment because this management was acting
in behalf of the corporation. The respondents also argue that since the loan was extended to the
corporation, the releases had to be made to the then officers of that borrower corporation.
-Precisely, what the petitioner is trying to point out is that the DBP and Bancom people who
managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the positions
that they were occupying in the corporation which resulted in the latter's devastation instead of its
rehabilitation. The petitioner does not question the authority under which the loan was delivered
but stresses that it is precisely this authority which enabled the DBP and Bancom people to
misspend and misappropriate the proceeds of the loan thereby defeating its very purpose, that is,
to develop the projects of the corporation. Therefore, it is as if the loan was never delivered to it
and thus, there was failure on the part of the respondent DBP to deliver the consideration for
which the mortgage and the assignment of deed were executed.
- Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not
affect the immediate parties. It states:
Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a
mortgage may be validly constituted that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding

between the parties.

Filipinas marble, however, cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP

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xBonnevie v. CA

GR No. L-49101 October 24, 1983

Facts: Spouses Lozano mortgaged their property to secure the payment of a loan
amounting to 75K with private respondent Philippine Bank of Communication
(PBCom). The deed of mortgage was executed on 12-6-66, but the loan proceeeds
were received only on 12-12-66. Two days after the execution of the deed of
mortgage, the spouses sold the property to the petitioner Bonnevie for and in
consideration of 100k25K of which payable to the spouses and 75K as payment
to PBCom. Afterwhich, Bonnevie defaulted payments to PBCom prompting the
latter to auction the property after Bonnivie failed to settle despite subsequent
demands, in order to recover the amount loaned. The latter now assails the
validity of the mortgage between Lozano and Pbcom arguing that on the day the
deed was executed there was yet no principal obligation to secure as the loan of
P75,000.00 was not received by the Lozano spouses, so that in the absence of a
principal obligation, there is want of consideration in the accessory contract,
which consequently impairs its validity and fatally affects its very existence.
Issue: Was there a perfected contract of loan?
Held: Yes. From the recitals of the mortgage deed itself, it is clearly seen that the
mortgage deed was executed for and on condition of the loan granted to the
Lozano spouses. The fact that the latter did not collect from the respondent Bank
the consideration of the mortgage on the date it was executed is immaterial. A
contract of loan being a consensual contract, the herein contract of loan was
perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of
indebtedness and does not indicate lack of consideration of the mortgage at the
time of its execution.Eastern Shipping Lines v. CA
GR No. 97412 July 12, 1994
Facts: Petitioner-defendant was consigned to deliver a cargo. Upon embarkment,
the cargo was found to be damaged while on transit. Private respondent-plaintiff,
Mercantile Insurance, paid the consignee the amount of damage based on a
marine insurance policy. Mercantile consquently sued the petitioner for recovery
of damages it paid to the consignee. The court a quo decided in favor of the
plaintiff and further stressing the amount paid by the insurance company to the

consignee be paid and with the present legal interest of 12% per annum
commencing on the date of filing of the complaint, until fully paid. The petitioner
now constests the ruling particularly on the issue of interest.
Issue: When should the reckoning period be for the computation of the payment
of legal interest on an award for loss or damage? What is the applicable rate of
interest?
Held: The Court laid down the following rules of thumb for guidance in cases like
that of the above:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its

satisfaction, this interim period being deemed to be by then an equivalent to a

forbearance of credit.

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