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SIMPLE LOAN OR MUTUUM On January 17, 1961 the appellee filed a

complaint in the Justice of the Peace Court of

Hinigaran, Negros Occidental, to collect from the
appellant the unpaid account in question. The
G.R. No. L-20240 December 31, 1965 Justice of the Peace Of Hinigaran, after hearing,
dismissed the case on the ground that the action
had prescribed. The appellee appealed to the
Court of First Instance of Negros Occidental and
on March 26, 1962 the court a quo rendered a
decision ordering the appellant to pay the
vs. appellee the sum of P2,377.23 as of December
JOSE GRIJALDO, defendant-appellant. 31, 1959, plus interest at the rate of 6% per
annum compounded quarterly from the date of
FACTS: the filing of the complaint until full payment was
made. The appellant was also ordered to pay the
In the year 1943 appellant Jose Grijaldo obtained sum equivalent to 10% of the amount due as
five loans from the branch office of the Bank of attorney's fees and costs.
Taiwan, Ltd. in Bacolod City, in the total sum of
P1,281.97 with interest at the rate of 6% per The appellant appealed directly to this Court.
annum, compounded quarterly. These loans are During the pendency of this appeal the appellant
evidenced by five promissory notes executed by Jose Grijaldo died. Upon motion by the Solicitor
the appellant in favor of the Bank of Taiwan, Ltd., General this Court, in a resolution of May 13,
as follows: On June 1, 1943, P600.00; on June 3, 1963, required Manuel Lagtapon, Jacinto
1943, P159.11; on June 18, 1943, P22.86; on Lagtapon, Ruben Lagtapon and Anita L. Aguilar,
August 9, 1943,P300.00; on August 13, 1943, who are the legal heirs of Jose Grijaldo to appear
P200.00, all notes without due dates, but because and be substituted as appellants in accordance
the loans were due one year after they were with Section 17 of Rule 3 of the Rules of Court.
incurred. To secure the payment of the loans the
appellant executed a chattel mortgage on the ISSUE:
standing crops on his land, Lot No. 1494 known
as Hacienda Campugas in Hinigiran, Negros
Whether or not the obligation to pay is
By virtue of Vesting Order No. P-4, dated January
The appellant likewise maintains, in support of his
21, 1946, and under the authority provided for in
contention that the appellee has no cause of
the Trading with the Enemy Act, as amended, the
action, that because the loans were secured by a
assets in the Philippines of the Bank of Taiwan,
chattel mortgage on the standing crops on a land
Ltd. were vested in the Government of the United
owned by him and these crops were lost or
States. Pursuant to the Philippine Property Act of
destroyed through enemy action his obligation to
1946 of the United States, these assets, including
pay the loans was thereby extinguished.
the loans in question, were subsequently
transferred to the Republic of the Philippines by
the Government of the United States under HELD:
Transfer Agreement dated July 20, 1954. These
assets were among the properties that were This argument is untenable. The terms of the
placed under the administration of the Board of promissory notes and the chattel mortgage that
Liquidators created under Executive Order No. the appellant executed in favor of the Bank of
372, dated November 24, 1950, and in Taiwan, Ltd. do not support the claim of appellant.
accordance with Republic Acts Nos. 8 and 477 The obligation of the appellant under the five
and other pertinent laws. promissory notes was not to deliver a
determinate thing namely, the crops to be
On September 29, 1954 the appellee, Republic of harvested from his land, or the value of the crops
the Philippines, represented by the Chairman of that would be harvested from his land. Rather, his
the Board of Liquidators, made a written obligation was to pay a generic thing the
extrajudicial demand upon the appellant for the amount of money representing the total sum of
payment of the account in question. The record the five loans, with interest. The transaction
shows that the appellant had actually received between the appellant and the Bank of Taiwan,
the written demand for payment, but he failed to Ltd. was a series of five contracts of simple loan
pay. of sums of money. "By a contract of (simple) loan,
one of the parties delivers to another ... money or
other consumable thing upon the condition that
the same amount of the same kind and quality no interest shall be charged on the P3
shall be paid." (Article 1933, Civil Code) The million.
obligation of the appellant under the five
promissory notes evidencing the loans in 6. However, in the event that on the 6th
questions is to pay the value thereof; that is, to month the Respondent does not
deliver a sum of money a clear case of an purchase the land, the Petitioner has a
obligation to deliver, a generic thing. Article 1263 period of another 6 months (2nd) within
of the Civil Code provides: which to pay the sum of P3 million with
interest for the last six months only.
In an obligation to deliver a generic thing, The downpayment shall be treated as
the loss or destruction of anything of the loan granted by the Respondent.
same kind does not extinguish the
obligation. Petitioner received from Respondent P2
million in cash and P1 million in a post-dated
The chattel mortgage on the crops growing on check which was subsequently considered as
appellant's land simply stood as a security for the stale. Therefore, only P2 million was received
fulfillment of appellant's obligation covered by as downpayment.
the five promissory notes, and the loss of the
crops did not extinguish his obligation to pay, Before the check became stale, Petitioner
because the account could still be paid from
gave Respondent the TCT and the Deed of
other sources aside from the mortgaged crops.
Absolute Sale of the land.

Subsequently, Respondent decided not to

Frias vs San Diego-Sison
purchase the property and notified Petitioner
G.R. No. 155223 April 4, 2007
of this reminding the latter that the amount of
P2 million should be considered as a loan
payable within six months as stipulated in the
MOA with interest computed from such
Petitioner is the owner of a house and lot in notification.
Ayala Alabang.
Petitioner subsequently failed to return the P2
Petitioner and Dra. Flora San Diego-Sison million pesos.
(Respondent) entered into a Memorandum of
Agreement (MOA) over the cited property with
CA ruled that the P2 million downpayment
the following terms:
shall include interest computed at the time
the disputed amount was considered a loan.
1. The land is to be sold for P 6.4 million. Thus, this petition.

2. Petitioner will receive P3 million from Issue:

respondent as downpayment.
Whether or not the interest should be limited to
3. In light of the downpayment, the 1st six months as contained in the MOA?
respondent had 6 months (1st) to notify
the Petitioner of her intention to
purchase the land. However, the
balance is to be paid within another 6
months. No. SC ruled in favour of Respondent.

4. Prior to the first six months, the The SC opined that if the terms of an
Petitioner may still offer the cited land agreement are clear and leave no doubt as to
to other persons provided that the P3 the intention of the contracting parties, the
million downpayment shall be returned literal meaning of its stipulations shall prevail.
to the Respondent including interest
based on prevailing compounded bank It is further required that the various
interest. stipulations of a contract shall be interpreted
5. Nevertheless, in case there are no
other buyers within the first 6 months,


In this case, the phrase "for the last six FACTS: Petitioner and respondent, as owner and
months only" should be taken in the context contractor, respectively entered into an
of the entire agreement. Agreement for the construction of petitioners
condominium. Despite the completion of the
The MOA speaks of 2 periods of six months project, petitioner was not able to pay respondent
the full amount and left a balance. Repeated
demands were left unheeded prompting
respondent to file a civil case against petitioner,
o The 1st six-months was given to with a prayer among others that the full amount
Respondent to make up her mind be paid with interest of 2% per month, from Nov.
whether or not to purchase Petitioner's 1990 up to the time of payment. RTC ruled in
property. favor of respondent. Petitioner appealed to the
CA, particularly opposing the imposition of the
o The 2nd six-months was given to 2% interest. The CA ruled in favor of the 2%
Petitioner to pay the P2 million loan interest.
(downpayment) in the event that
Respondent decided not to buy the Petitioners contention- The imposition of the
property in which case interest will be interest is without basis because (1) although it
charged "for the last six months only", was written in the Agreement, it was not
referring to the 2nd six-month period. mentioned by the RTC in the dispositive portion
and (2) the interest does not apply to the
o This means that no interest will be respondents claim but to the monthly progress
charged for the 1st six-months while billing.
Respondent contemplating on whether
to buy the property, but only for the ISSUE: WON the RTC and Ca is correct in imposing
2nd six-months after Respondent had a 2% per month interest on the monetary award
decided not to buy the property. This is or the balance of the contract price.
the meaning of the phrase "for the last
six months only". HELD: Yes. The Agreement between the parties is
the formal expression of the parties rights, duties
o Certainly, there is nothing in their and obligations. It is the best evidence of the
agreement that suggests that interest intention of the parties. Consequently, upon the
will be charged for 6 months only even fulfillment by respondent of its obligation to
if it takes defendant-appellant an complete the construction project, petitioner had
eternity to pay the loan the correlative duty to pay for respondents
services. However, petitioner refused to pay the
balance of the contract price. From the moment
This does NOT mean that interest will no respondent completed the construction of the
longer be charged after the 2nd six-month condominium project and petitioner refused to
period since such stipulation was made on the pay in full, there was delay on the part of
logical and reasonable expectation that such petitioner.
amount would be paid within the date
stipulated. Therefore, the monetary interest Delay in the performance of an obligation is
for the last 6 months continued to accrue until looked upon with disfavor because, when a party
actual payment of the loaned amount. to a contract incurs delay, the other party who
performs his part of the contract suffers damages
It has been held that for a debtor to continue thereby. Obviously, respondent suffered damages
in possession of the principal of the loan and brought about by the failure of petitioner to
to continue to use the same after maturity of comply with its obligation on time. And, sans
the loan without payment of the monetary elaboration of the matter at hand, damages take
interest, would constitute unjust enrichment the form of interest. Accordingly, the appropriate
on the part of the debtor at the expense of measure of damages in this case is the payment
the creditor. of interest at the rate agreed upon, which is 2%
interest for every month of delay.
Art. 1956. No interest shall be due when not
expressly stipulated in writing. It must be noted that the Agreement provided the
contractor, respondent in this case, two options in
ARWOOD INDUSTRIES, INC. vs. D.M. case of delay in monthly payments, to wit: a)
Consunji, Inc. suspend work on the project until payment is
remitted by the owner or b) continue the work
but the owner shall be required to pay interest at
a rate of two percent (2%) per month or a fraction SONCUYA V. AZARRAGA
thereof. Evidently, respondent chose the latter
option, as the condominium project was in fact ROYAL SHIRT FACTORY, INC. v CO
already completed. The payment of the 2%
monthly interest, therefore, cannot be jettisoned FACTS:
- The parties entered into a contract
Since the Agreement stands as the law between wherein it is stipulated that 350 pairs of
the parties, this Court cannot ignore the ballet shoes will be sold by Co and that Co
existence of such provision providing for a had 9 days from delivery of the shoes to
penalty for every months delay. Facta legem make his choice of 2 alternatives: a)
facunt inter partes. Neither can petitioner impugn consider the sale for the shoes closed at a
the Agreement to which it willingly gave its flat rate, or b) return the remaining unsold
consent. From the moment petitioner gave its ones to Royal.
consent, it was bound not only to fulfill what was - Co failed to return the unsold pairs after 9
expressly stipulated in the Agreement but also all days and actually began making partial
the consequences which, according to their payments on account of the purchase
nature, may be in keeping with good faith, usage price agreed upon.
and law. Petitioners attempt to mitigate its - Co then contended that there was merely
liability to respondent should thus fail. a consignment of the goods and he
wanted to return the unsold shoes. Royal
As a last-ditch effort to evade liability, petitioner refused contending that it was an outright
argues that the amount of P962,434.78 claimed sale.
by respondent and later awarded by the lower
courts does not refer to monthly progress ISSUE: WoN the sale was an outright sale / WoN
billings, the delayed payment of which would Co is bound by the interest stipulated in the
earn interest at 2% per month. invoice.

Petitioner appears confused by a semantics SC: YES! / NO!

problem. Monthly progress billings certainly
form part of the contract price. If the amount - OUTRIGHT SALE
claimed by respondent is not the monthly o Co accepted the invoice of the
progress billings provided in the contract, what ballet shoes and he even noted
then does such amount represent? Petitioner has down in his own handwriting the
not in point of fact convincingly supplied an partial payments that he made.
answer to this query. Neither has petitioner o If the sale has been on
shown any effort to clarify the meaning of consignment, a stipulation as to
monthly progress billings to support its the period of time for the return of
position. This leaves us no choice but to agree the unsold shoes should have been
with respondent that the phrase monthly made, however, this was not done
progress billings refers to a portion of the - NOT BOUND BY THE INTEREST
contract price payable by the owner (petitioner) o He did not sign the invoice slip the
of the project to the contractor (respondent) stipulated interest was 20%, hence,
based on the percentage of completion of the not binding
project or on work accomplished at a particular o However, he is bound by the legal
stage. It refers to that portion of the contract interest of 6%
price still to be paid as work progresses, after the - Hence, Co was ordered to pay the balance
downpayment is made. of the purchase price for the ballet shoes
+ legal interest
This definition is, indeed, not without basis.
Articles 6.02 and 6.03 of the Agreement, which
respectively provides that the (b)alance shall be
paid in monthly progress payments based on EMERITO M. RAMOS, et al., petitioners,
actual value of the work accomplished and that vs.
the progress payments shall be reduced by a CENTRAL BANK OF THE PHILIPPINES,
portion of the downpayment made by the OWNER respondents; COMMERCIAL BANK OF
corresponding to the value of the work MANILA, intervenor.
completed give sense to respondents
interpretation of monthly progress billings. Facts: This involves question as to applicability of
Tapia ruling wherein the Court held that "the


obligation to pay interest on the deposit ceases Pursuant to the Agreement, Respondent paid
the moment the operation of the bank is Petitioner P500,000 on two occasions and the
completely suspended by the duly constituted latter issued 5,000 preferred stocks with a par
authority, the Central Bank," to loans and value of P100 as evidenced by Stock
advances by the Central Bank Certificate Nos. 128 and 139.
After sending Respondent sent demand
Held: Respondents have failed to adduce any letters, Petitioner and Basilio still made no
cogent argument to persuade the Court to redemption nor made dividend payments.
reconsider its Resolution at bar that the Tapia Respondent filed an action for specific
ruling is fully applicable to the non-payment of performance and damages against Petitioner:
interest, during the period of the bank's forcible Petitioner contends that there is no obligation
closure, on loans and advances made by on their part to redeem the stock certificates
respondent Central Bank. since Respondent is still a preferred stock
holder of the company and such redemption
Respondent Central Bank itself when it was then is dependent upon the financial ability of the
managing the Overseas Bank of Manila (now company.
Commercial Bank of Manila) under a holding trust On the part of Basilio, he contends that his
agreement, held the same position in Idelfonso D. liability only arises only if the company is
Yap vs. OBM wherein it argued that "(I)n a suit liable and does not perform its obligations
against the receiver of a national bank for money under the Agreement.
loaned to the Bank while it was a going concern,
it was error to permit plaintiff to recover interest
on the loan after the bank's suspension" Issue:

A significant development of the case, the 1) Whether or not the Purchase Agreement
Government Service Insurance System (GSIS) has entered into by the Parties is a debt
acquired ownership of 99.93% of the outstanding instrument?
capital stock of COMBANK. The Court's Resolution 2) If so, Is Basilio liable as surety?
manifestly redounds to the benefit of another 3) Whether or not Lirag is liable for the
government institution, the GSIS, and to the interest as liquidated damages?
preservation of the banking system.


153 SCRA 338 1) YES, the Purchase Agreement is a debt

instrument. The terms and conditions of the
Facts: Agreement show that parties intended the
repurchase of preferred shares on the
SSS (respondent) and Lirag Textile Mills respective scheduled dates to be an absolute
(Petitioner) entered into a Purchased obligation, which does not depend on the
Agreement which Respondent agreed to financial ability of the corporation.
purchase preferred stocks of Petitioner worth o This absolute obligation on the part of the
P1 million subject to conditions: Petitioner corporation is made manifest by
o For Petitioner to repurchase the the fact that a surety was required to see
shares of stocks at a regular to it that the obligation is fulfilled in the
interval of one year and to pay event the principal debtors inability to do
dividends. so.
o Failure to redeem and pay the o It cannot be said that SSS is a preferred
dividend, the entire obligation shall stockholder. The rights given by the
become due and demandable and Purchase Agreement to SSS are not rights
it shall be liable for an amount enjoyed by ordinary stockholders. Since
equivalent to 12% of the amount there was a condition that failure to
then outstanding as liquidated repurchase the stocks on the scheduled
damages. dates renders the entire obligation due
Basilio Lirag (Basilio) as President of Lirag and demandable with interest. These
Textile Mills signed the Agreement as a surety features clearly show that intent of the
to guarantee the redemption of the stocks, parties to be bound therein as debtor and
the payment of dividends and other creditor and not as a corporation and
obligations. stockholder.


2) YES, Basilio is liable as surety. Thus it follows over interest. Mabalacat insisted that the
that he cannot deny liability for Lirags agreement for the extension of the time of
default. As surety, he is bound immediately to payment had the effect of abrogating the
pay SSS the amount then outstanding. stipulation of the original contract with respect to
the acceleration of the maturity of the debt by
non-compliance with the terms of the mortgage.
3) The award of liquidated damages represented The issue related on this case is the interest over
by 12% of the amount then outstanding is interest.
correct, considering that the petitioners in the
stipulation of facts admitted having failed to Issue: WoN Cu-Unjieng is entitled to interest over
fulfill their obligations under the Agreement. interest.
The grant of liquidated damages is expressly
provided for the Purchase Agreement in case Ruling: It is well settled that, under article 1109 of
of contractual breach. the Civil Code, as well as under section 5 of the
Usury Law (Act No. 2655), the parties may
stipulate that interest shall be compounded; and
Since Lirag did not deny its failure to redeem rests for the computation of compound interest
the preferred shares and the non-payment of can certainly be made monthly, as well as
dividends which are overdue, they are bound quarterly, semiannually, or annually. But in the
to earn legal interest from the time of absence of express stipulation for the
demand, in this case, judicial i.e. the time of accumulation of compound interest, no interest
filing the action. can be collected upon interest until the debt is
judicially claimed, and then the rate at which
interest upon accrued interest must be computed
is fixed at 6 per cent per annum. In this case,
ANGEL WAREHOUSING vs CHELDA there was no compound interest in the
Facts: Angel Warehousing sued Chelda for
the recovery of unpaid loans amounting to
P20,880 because the post dated checks issued by DAVID vs. CA
Chelda were dishonored. Chelda said that Angel G.R.No. 115821, October 13, 1999
Warehousing charged usurious interests, thus
they have no cause of action against them & Facts:
cant recover the remaining balance. A writ of attachment over the real
properties owned by Valentin Afable, Jr.. RTC
Issue: W/N illegal terms as to payment of ordered Afable, Jr. To pay David P66,500 plus
interest likewise renders a nullity the legal terms interest from July 24, 1974, until fully paid. RTC
as to the payment of the principal debt? amended its decison and ruled that legal rate of
interest should be computed from January 4,
Ruling: No. The contract of loan with 1966, instead of from July 24, 1974.
usurious interest consists of principal and Afable appealed to the Court of Appeals
accessory stipulations and the two stipulations and then to the Supreme Court. In both
are divisible in the sense that the principal debt instances, the decision of the lower court was
can stand without the usurious interest affirmed. Entries of judgment were made and the
(accessory). These are divisible contracts. In record of the case was remanded to Branch 27 for
divisible contracts, if the illegal terms can be the final execution.
separated from legal ones, the latter may be
enforced. Illegality lies only as to the prestation to An Alias Writ of Execution was issued by
pay interest, being separable, thus should be virtue of which respondent Sheriff Melchor P. Pea
rendered void. If the principal will be forfeited this conducted a public auction. Sheriff Pea
would unjustly enrich the borrower at the informed the petitioner that the total amount of
expense of the lender. the judgment is P270,940.52. The amount
included a computation of simple interest.
CU-UNJIENG V. MABALACAT Afable, however, claimed that the judgment
award should be P3,027,238.50, because the
Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, amount due ought to be based on compounded
for security, Mabalacat mortgaged its property. interest.
Mabalacat failed to pay, but Cu Unjieng extended
the payment. Cu Unjieng filed a case against Although the auctioned properties were
Mabalacat for foreclosure of property and sold to the petitioner, Sheriff Pea did not issue
payment of attorney's fees. It also claims interest the Certificate of Sale because there was an
excess in the bid price in the amount of Trial court found that the payments made
P2,941,524.47, which the petitioner failed to pay by defendants were not made by way of
despite notice. David filed a Motion praying interest but as payments for the principal.
that respondent Judge Cruz issue an order Defendant overpaid therefore Plaintiff
directing respondent Sheriff Pea to prepare and should return excess.
execute a certificate of sale in his favor. His
reason is that compound interest, which is ISSUE: Whether payments were intended to be
allowed by Article 2212 of the Civil Code, should applied to the principal OR were considered as
apply in this case. rents, interests?

David claim that in computing the interest HELD:

due of the P66,500.00, interest should be Payments were NOT rents, interests
computed at 6% on the principal sum of Neri took possession of land and collected
P66,500.00 pursuant to Article 2209 and then fruits. The creditor having enjoyed the
interest on the legal interest should also be beneficial use of the lands delivered as
computed in accordance with the language of security for the loan, it appears to have
Article 2212 of the Civil Code. been the intention of the parties that the
creditor should be compensated thereby.
Issue: Whether or not the amount due should be Though receipts, payments are called
subject to a simple interest or compounded rents, they were prepared by Neri (Ps
interest. husband) and Plaintiff, and defendants in
their ignorance did not look into the
Ruling: wording, being merely satisfied that they
were proofs of payment.
In cases where no interest stipulated, no The liability of plaintiff to return the excess
compounded interest could be further earned
payments is in keeping with Article 1895
(Old Civil Code) which provides that,
The Court ruled that Article 2212 when something is received which there
contemplates the presence of stipulated or is no right to collect, and which by mistake
conventional interest which has accrued when has been unduly delivered, the obligation
demand was judicially made. In cases where no to restore it arises.
interest had been stipulated by the parties, as in The 2 requisites are present: 1) There is no
the case of Philippine American Accident right to collect these excess sums; and 2)
Insurance, no accrued conventional interest could the amounts have been paid through
further earn interest upon judicial demand. mistake by defendants. Such mistake is
shown by the fact that their contracts
In this case, no interest was stipulated by never intended that either rents or interest
the parties. In the promissory note denominated should be paid, and by the further fact
Compromise Agreement signed by the Afable, that when these payments were made,
Jr. which was duly accepted by the David no they were intended by defendants to be
interest was mentioned. That being the case, the applied to the principal, but they overpaid
interest should only be subject to a simple the amounts loaned to them.

Topic: Simple Loan or Mutuum; Article 1960 G.R. No. 128990 September 21, 2000
Velez v. Balzarra


CORPORATION, petitioner,
Plaintiff Velez filed a complaint for the
return of parcels of land sold by Defendant
to Plaintiffs husband. She further alleged vs.
that defendants had remained in AUTOWORLD SALES CORPORATION, and PIO
possession of said land under Contract of BARRETTO REALTY DEVELOPMENT
Lease but for over 2 years defendants had
not paid the agreed rentals. CORPORATION,respondents.
Defendant alleged that the real agreement
was a loan secured by a mortgage of FACTS:
those lands.


Petitioner Investors Finance Corporation, then approved the proposed "IPP" transaction. The
known also as FNCB Finance (now doing business lawyers of FNCB then drafted the contracts
under the name of Citytrust Finance Corporation), needed and furnished Anthony Que with copies
is a financing company doing business with thereof.
private respondent Autoworld Sales Corporation
(AUTOWORLD) since 1975. Anthony Que, On 9 February 1981 the parties signed three (3)
president of AUTOWORLD, also held the same contracts to implement the "IPP" transaction:
position at its affiliate corporation, private
respondent Pio Barretto Realty Corporation (1) Contract to Sell whereby BARRETTO
(BARRETTO). sold a parcel of land to AUTOWORLD,
situated in San Miguel, Manila, together
Sometime in August 1980 Anthony Que, in behalf with the improvements thereon, covered
of AUTOWORLD, applied for a direct loan with by TCT No. 129763 for the price of
FNCB. However, since the Usury Law imposed an P12,999,999.60 payable in sixty (60)
interest rate ceiling at that time, FNCB informed consecutive and equal monthly
Anthony Que that it was not engaged in direct installments of P216,666.66.
lending; consequently, AUTOWORLD's request for
loan was denied. (2) Deed of Assignment whereby
BARRETTO assigned and sold in favor of
But sometime thereafter, FNCB's Assistant Vice FNCB all its rights, title and interest to all
President, Mr. Leoncio Araullo, informed Anthony the money and other receivables due from
Que that although it could not grant direct loans AUTOWORLD under the Contract to Sell,
it could extend funds to AUTOWORLD by subject to the condition that the assignee
purchasing any of its outstanding receivables at a (FNCB) has the right of recourse against
discount. After a series of negotiations the parties the assignor (BARRETTO) in the event that
agreed to execute an Installment Paper Purchase the payor (AUTOWORLD) defaulted in the
("IPP") transaction to enable AUTOWORLD to payment of its obligations.
acquire the additional capital it needed. The
mechanics of the proposed "IPP" transaction was (3) Real Estate Mortgage whereby
BARRETTO, as assignor, mortgaged the
property subject of the Contract to Sell to
(1) First, Pio Barretto (BARRETTO) would FNCB as security for payment of its
execute a Contract to Sell a parcel of land obligation under the Deed of Assignment.
in favor of AUTOWORLD for
P12,999,999.60 payable in sixty (60) equal After the three (3) contracts were concluded
monthly installments of P216,666.66. AUTOWORLD started paying the monthly
Consequently, BARRETTO would acquire installments to FNCB.
P12,999,999.60 worth of receivables from
On 18 June 1982 AUTOWORLD transacted with
FNCB for the second time obtaining a loan of
(2) FNCB would then purchase the P3,000,000.00 with an effective interest rate of
receivables worth P12,999,999.60 from 28% per annum. AUTOWORLD and BARRETTO, as
BARRETTO at a discounted value of co-makers, then signed a promissory note in
P6,980,000.00 subject to the condition favor of FNCB worth P5,604,480.00 payable in
that such amount would be "flowed back" sixty (60) consecutive monthly installments of
to AUTOWORLD; P93,408.00. To secure the promissory note,
AUTOWORLD mortgaged a parcel of land located
(3) BARRETTO, would in turn, execute a in Sampaloc, Manila, to FNCB. Thereafter,
Deed of Assignment (in favor of FNCB) AUTOWORLD began paying the installments.
obliging AUTOWORLD to pay the
installments of the P12,999,999.60 In December 1982, after paying nineteen (19)
purchase price directly to FNCB; and monthly installments of P216,666.66 on the first
transaction ("IPP" worth P6,980,000.00) and three
(4) Lastly, to secure the payment of the (3) monthly installments of P93,408.00 on the
receivables under the Deed of second transaction (loan worth P3,000,000.00),
Assignment, BARRETTO would mortgage AUTOWORLD advised FNCB that it intended to
the property subject of the sale to FNCB. preterminate the two (2) transactions by paying
their outstanding balances in full. It then
On 17 November 1980 FNCB informed requested FNCB to provide a computation of the
AUTOWORLD that its Executive Committee remaining balances. FNCB sent AUTOWORLD its
computation requiring it to pay a total amount of reimbursement since it was unable to prove the
P10,026,736.78, where P6,784,551.24 was the existence of a usurious loan.
amount to settle the first transaction while
P3,242,165.54 was the amount to settle the The Court of Appeals modified the decision of the
second transaction. trial court and concluded that the "IPP"
transaction, comprising of the three (3) contracts
On 20 December 1982 AUTOWORLD wrote FNCB perfected on 9 February 1981, was merely a
that it disagreed with the latter's computation of scheme employed by the parties to disguise a
its outstanding balances. On 27 December 1982 usurious loan. It ordered the annulment of the
FNCB replied that it would only be willing to contracts and required FNCB to reimburse
reconcile its accounting records with AUTOWORLD P2,586,035.44 as excess interest
AUTOWORLD upon payment of the amounts payments over the 12% ceiling rate. However,
demanded. Thus, despite its objections, with regard to the second transaction, the
AUTOWORLD reluctantly paid FNCB appellate court ruled that at the time it was
P10,026,736.78 through its UCPB account. executed the ceiling rates imposed by the Usury
Law had already been lifted thus allowing the
On 5 January 1983 AUTOWORLD asked FNCB for a parties to stipulate any rate of interest.
refund of its overpayments in the total amount of
P3,082,021.84. According to AUTOWORLD, it ISSUE:
overpaid P2,586,035.44 to settle the first
transaction and P418,262.00 to settle the second We stress at the outset that this petition concerns
transaction. itself only with the first transaction involving the
alleged' "IPP" worth P6,980,000.00, which was
The parties attempted to reconcile their implemented through the three (3) contracts of 9
accounting figures but the subsequent February 1981. As to the second transaction,
negotiations broke down prompting AUTOWORLD which involves the P3,000,000.00 loan, we agree
to file an action before the Regional Trial Court of with the appellate court that it was executed
Makati to annul the Contract to Sell, the Deed of when the ceiling rates of interest had already
Assignment and the Real Estate Mortgage all been removed, hence the parties were free to fix
dated 9 February 1981. It likewise prayed for the any interest rate.
nullification of thePromissory Note dated 18 June
1982 and the Real Estate Mortgage dated 24 June The pivotal issue therefore is whether the three
1982. (3) contracts all dated 9 February 1981 were
executed to implement a legitimate Installment
In its complaint, AUTOWORLD alleged that the Paper Purchase ("IPP") transaction or merely to
aforementioned contracts were only perfected to conceal a usurious loan.
facilitate a usurious loan and therefore should be
annulled HELD:

FNCB argued that the contracts dated 9 February The three (3) contracts were executed to conceal
1981 were not executed to hide a usurious loan. a usurious loan.
Instead, the parties entered into a legitimate
Installment Paper Purchase ("IPP") transaction, or Generally, the courts only need to rely on the
purchase of receivables at a discount, which face of written contracts to determine the
FNCB could legally engage in as a financing intention of the parties. "However, the law will
company. With regard to the second transaction, not permit a usurious loan to hide itself behind a
the existence of a usurious interest rate had no legal form. Parol evidence is admissible to show
bearing on the P3,000,000.00 loan since at the that a written document though legal in form was
time it was perfected on 18 January 1982 Central in fact a device to cover usury. If from a
Bank Circular No. 871 dated 21 July 1981 had construction of the whole transaction it becomes
effectively lifted the ceiling rates for loans having apparent that there exists a corrupt intention to
a period of more than three hundred sixty-five violate the Usury Law, the courts should and will
(365) days. permit no scheme, however ingenious, to becloud
the crime of usury." The following circumstances
On 11 July 1988 the Regional Trial Court of Makati show that such scheme was indeed employed:
ruled in favor of FNCB declaring that the parties
voluntarily and knowingly executed a legitimate First, petitioner claims that it was never a party
"IPP" transaction or the discounting of to the Contract to Sell between AUTOWORLD and
receivables. AUTOWORLD was not entitled to any BARRETTO. As far as it was concerned, it merely
purchased receivables at a discount from
BARRETTO as evidenced by the Deed of not have been obliged to follow the "Application
Assignment dated 9 February 1981. Whether of Proceeds" stated in petitioner's letter.
the Contract to Sell was fictitious or not would
have no effect on its right to claim the Third, in its 17 November 1980 letter to
receivables of BARRETTO from AUTOWORLD since BARRETTO, petitioner itself designated the
the two contracts were entirely separate and proceeds of the "IPP" transaction as a "loan." In
distinct from each other. that letter, petitioner stated that the "loan
proceeds" amounting to P6,980,000.00 would be
Curiously however, petitioner admitted that its released to BARRETTO only upon submission of
lawyers were the ones who drafted all the three the documents it required. And as previously
(3) contracts involved which were executed on mentioned, one of the required documents was a
the same day. Also, petitioner was the one who letter agreement between BARRETTO and
procured the services of the Asian Appraisal AUTOWORLD stipulating that the P6,980,000.00
Company to determine the fair market value of should be "flowed back" to AUTOWORLD. If it
the land to be sold way back in September of were a genuine "IPP" transaction then petitioner
1980 or six (6) months prior to the sale. If it were would not have designated the money to be
true that petitioner was never privy to released as "loan proceeds" and BARRETTO would
the Contract to Sell, then why was it interested in have been the end recipient of such proceeds
appraising the lot six (6) months prior to the sale? with no obligation to turn them over to
And why did petitioner's own lawyers prepare the AUTOWORLD.
Contract to Sell? Obviously, petitioner actively
participated in the sale to ensure that the Fourth, after the interest rate ceilings were lifted
appraised lot would serve as adequate collateral on 21 July 1981 petitioner extended on 18 June
for the usurious loan it gave to AUTOWORLD. 1982 a direct loan of P3,000,000.00 to
AUTOWORLD. This time however, with no more
Second, petitioner insists that the 9 February ceiling rates to hinder it, petitioner imposed a
1981 transaction was a legitimate "IPP" 28% effective interest rate on the loan. And no
transaction where it only bought the receivables longer having a need to cloak the exorbitant
of BARRETTO from AUTOWORLD amounting to interest rate, the promissory note evidencing the
P12,999,999.60 at a discounted price of second transaction glaringly bore the 28%
P6,980,000.00. However, per instruction of interest rate on its face. We are therefore of the
petitioner in its letter to BARRETTO dated 17 impression that had there been no interest rate
November 1980 the whole purchase price of the ceilings in 1981, petitioner would not have
receivables was to be "flowed back" to resorted to the fictitious "IPP" transaction;
AUTOWORLD. And in its subsequent letter of 24 instead, it would have directly loaned the money
February 1981 petitioner also gave instructions to AUTOWORLD with an interest rate higher than
on how BARRETTO should apply the proceeds 12%.
worth P6,980,000.00.
Thus, although the three (3) contracts seemingly
It can be seen that out of the nine (9) items of show at face value that petitioner only entered
appropriation stated (in the letter), Item Nos. 2-8 into a legitimate discounting of receivables, the
had to be returned to petitioner. Thus, in circumstances cited prove that the P6,980,000.00
compliance with the aforesaid letter, BARRETTO was really a usurious loan extended to
had to yield P4,058,468.47 of the P6,980,000.00 AUTOWORLD.
to petitioner to settle some of AUTOWORLD's
previous debts to it. Any remaining amount after Petitioner anchors its defense on Sec. 7 of the
the application of the proceeds would then be Usury Law which states
surrendered to AUTOWORLD in compliance with
the letter of 17 November 1980; none went to Provided, finally, That nothing herein
BARRETTO. contained shall be construed to prevent
the purchase by an innocent purchaser of
The foregoing circumstances confirm that the a negotiable mercantile paper, usurious or
P6,980,000.00 was really an indirect loan otherwise, for valuable consideration
extended to AUTOWORLD so that it could settle before maturity, when there has been no
its previous debts to petitioner. Had petitioner intention on the part of said purchaser to
entered into a legitimate purchase of receivables, evade the provisions of the Act and said
then BARRETTO, as seller, would have received purchase was not a part of the original
the whole purchase price, and free to dispose of usurious transaction. In any case however,
such proceeds in any manner it wanted. It would the maker of said note shall have the right
to recover from said original holder the


whole interest paid by him thereon and, in year, if the borrower pays P200.00, the whole
any case of litigation, also the costs and P200.00 would be considered usurious interest,
such attorney's fees as may be allowed by not just the portion thereof in excess of the
the court. interest allowed by law.

Indeed, the Usury Law recognizes the legitimate In the instant case, AUTOWORLD obtained a loan
purchase of negotiable mercantile paper by of P6,980,000.00. Thereafter, it paid nineteen
innocent purchasers. But even the law has (19) consecutive installments of P216,666.66
anticipated the potential abuse of such amounting to a total of P4,116,666.54, and
transactions to conceal usurious loans. Thus, the further paid a balance of P6,784,551.24 to settle
law itself made a qualification. It would recognize it. All in all, it paid the aggregate amount of
legitimate purchase of negotiable mercantile P10,901,217.78 for a debt of P6,980,000.00. For
paper, whether usurious or otherwise, only if the the 23-month period of the existence of the loan
purchaser had no intention of evading the covering the period February 1981 to January
provisions of the Usury Law and that the 1982, AUTOWORLD paid a total of P3,921,217.78
purchase was not a part of the original usurious in interests. Applying the 12% interest ceiling rate
transaction. Otherwise, the law would not mandated by the Usury Law, AUTOWORLD should
hesitate to annul such contracts. Thus, Art. 1957 have only paid a total of P1,605,400.00 in
of the Civil Code provides interests. Hence, AUTOWORLD is entitled to
recover the whole usurious interest amounting to
Contracts and stipulations, under any P3,921,217.78.
cloak or device whatever, intended to
circumvent the laws on usury shall be
void. The borrower may recover in
accordance with the laws on usury. Solangon vs Salazar

In the case at bar, the attending factors G.R. No. 125944 June 29, 2001
surrounding the execution of the three (3)
contracts on 9 February 1981 clearly establish Facts:
that the parties intended to transact a usurious
loan. These contracts should therefore be
declared void. Having declared the transaction Petitioner-spouses executed 3 real estate
between the parties as void, we are now tasked mortgages on a parcel of land situated in
to determine how much reimbursement Bulacan, in favor of the same Respondent
AUTOWORLD is entitled to. The Court of Appeals, Salazar to secure payment of loans of P60 K,
adopting the computation of AUTOWORLD in its P136 K and P230 K payable within 4 months,
plaintiff-appellant's brief, ruled 1 year, and 4 months in that order, with 6%
monthly interest on the first loan, and legal
interests on the others.
According to plaintiff-appellant, defendant-
appellee was able to collect
P3,921,217.78 in interests from appellant. This action was initiated by the Petitioner-
This is not denied by the appellee. spouses to prevent the foreclosure of the
Computed at 12% the effective interest mortgaged property.
should have been P1,545,400.00. Hence,
appellant may recover They alleged that they obtained only one loan
P2,586,035.44, representing overpayment from the Respondent which was the P60 K
arising from usurious interest rate charged secured by the first mortgage. Also, Petitioner-
by appellee. spouses opined that the 6% monthly interest
was unconscionable.
While we do not dispute the appellate court's
finding that the first transaction was a usurious The subsequent mortgages were merely
loan, we do not agree with the amount of continuations of the first one, which is null
reimbursement awarded to AUTOWORLD. Indeed, and void.
it erred in awarding only the interest paid in
excess of the 12% ceiling. In usurious loans, the
Moreover, the Respondent assured them that
creditor can always recover the principal
debt. However, the stipulation on the interest is he will not foreclose the mortgage as long as
considered void thus allowing the debtor to claim they pay the stipulated interest upon maturity
the whole interest paid. In a loan of P1,000.00 or within a reasonable time thereafter.
with interest at 20% per annum or P200.00 per Petitioner-spouses substantially paid the loans
with interest but were unable to pay it in full.
On the other hand, the Respondent claimed aver that what was really executed between them
that the mortgages were executed to secure 3 and the respondent is a real estate mortgage and
separate loans of and that the first two loans that there was no agreement limiting the period
were paid, but the last one was not. within which to exercise the right to repurchase
and that they have even overpaid respondent.
He denied having represented that he will not
foreclose the mortgage as long as the Respondent offered in evidence a document
Petitioner-spouses pay interest. denominated as Sinumpaang Salaysay which had
a provision of an interest of 7% per month on the
principal loan of Php 150,000. RTC ruled that the
Lower courts ruled in favour of Respondent. transaction was actually a loan and the payment
Thus, this petition. was secured by a mortgage of the property, and
that the petitioners had made payments which
Issue: resulted in overpayment as the interest was at
7% per annum. Respondent filed an MR alleging
Whether or not the 6% monthly interest is that the interest stipulated in the Sinumpaang
unconscionable? Salaysay was 7% per month. The RTC ruled in
favor of the respondent acknowledging that the
Ruling: correct interest rate stipulated was 7% per
month. However, the RTC declared that the 7%
per month interest is too burdensome and
Yes. The SC ruled that this is unconscionable.
onerous and so the court unilaterally reduced the
interest rate from 7% per month to 5% per
While the Usury Law ceiling on interest rates month. Petitioners filed an MR alleging that either
was lifted by C.B. Circular No. 905, nothing in 5% or 7% per month is exorbitant,
the said circular grants lenders carte blanche unconscionable, unreasonable, usurious and
authority to raise interest rates to levels inequitable.
which will either enslave their borrowers or
lead to a hemorrhaging of their assets. ISSUE: WON the interest of 5% month is
exorbitant, unconscionable, unreasonable,
In Medel v. Court of Appeals, the Court usurious and inequitable.
decreed that the 5.5% interest or 66% per
annum was not usurious but held that the HELD: NO. It is a basic principle in civil law that
same must be equitably reduced for being parties are bound by the stipulations in the
iniquitous, unconscionable and exorbitant , contracts voluntarily entered into by them.
and hence, contrary to morals (contra bonos Parties are free to stipulate terms and conditions
mores), if not against the law. which they deem convenient provided they are
not contrary to law, morals, good customs, public
In the case at bench, Petitioner-spouses stand order, or public policy.
on a worse situation. They are required to pay
the stipulated interest rate of 6% per month The interest rate of 7% per month was voluntarily
or 72% per annum which is definitely agreed upon by RAMOS and the PASCUALs. There
outrageous and inordinate. is nothing from the records and, in fact, there is
no allegation showing that petitioners were
victims of fraud when they entered into the
Hence, the interest rate must be reduced agreement with RAMOS. Neither is there a
equitably. An interest of 12% per annum is showing that in their contractual relations with
deemed fair and reasonable. RAMOS, the PASCUALs were at a disadvantage on
account of their moral dependence, ignorance,
mental weakness, tender age or other handicap,
which would entitle them to the vigilant
protection of the courts as mandated by Article
SPOUSES PASCUAL VS. RAMOS 24 of the Civil Code.

FACTS: Petitioners executed a Deed of Absolute With the suspension of the Usury Law and the
Sale with Right to Repurchase with respondent, in removal of interest ceiling, the parties are free to
consideration of Php 150,000. The petitioners did stipulate the interest to be imposed on loans.
not exercise their right to repurchase the property Absent any evidence of fraud, undue influence, or
within the stipulated one-year period; hence, any vice of consent exercised by RAMOS on the
respondent prayed that the title over the parcels PASCUALs, the interest agreed upon is binding
of land be consolidated in his favor. Petitioners upon them. This Court is not in a position to
impose upon parties contractual stipulations o Interest on amount of damages =
different from what they have agreed upon imposed by discretion of court at
REFORMINA V. TOMOL o No interest shall be ordered on
unliquidated claims/damages until
EASTERN SHIPPING v CA demand can be established with
reasonable certainty
FACTS: o When demand is established with
reasonable certainty, interest shall
- 2 Fiber drums of Riboflavin were shipped begin to run from the time the
from Japan for delivery vessel owned by claim is made
Eastern Shipping (P) and that the (judicially/extrajudicially)
shipment was insured by Mercantile o But if it cannot be reasonably
Insurance (R) established at the time demand
- Upon arrival in Manila, it was discharged was made = interest to run from
unto the custody of Metro Port, which it date of judgment of the court
stated in its survey that 1 drum was in bad - If judgment becomes Final and Executory
order. o Rate of legal interest = 12%
- It was then received by Allied Brokerage o From finality to satisfaction
wherein it stated in its survey that one o Why? It is already considered as
drum was opened and without seal forbearance
- Allied then delivered it to the consignees
W/H, which it excepted that 1 drum
contained spillages while the rest was EASTERN ASSURANCE AND SURETY
adulterated/fake CORPORATION (EASCO), vs. Court of
- R then filed claims against P for the losses Appeals
sustained by the consignee (which R
- LC ruled in favor of R and ordered P to pay Facts:
damages, however, it failed to state when
the interest rate should commence from 1) On April 9, 1981, private respondent
date of filing of complaint at 12% or from Vicente Tan insured his building in
date of judgment of TC at 6% Dumaguete City against fire with
petitioner Eastern Assurance and Surety
ISSUE: When should the interest rate commence
Corporation (EASCO) for P250,000.00.
and at what rate

SC: 6% from the date of decision and 12% from 2) On June 26, 1981, the building was
date of finality of judgment until payment destroyed by fire. As his claim for
indemnity was refused, private respondent
- This case laid down the rules on the filed a complaint for breach of contract
interest rates: with damages against petitioner. The RTC
- A) when an obligation regardless of its Court, decided in favour of Vicente Tan. In
source, is breached, the contravenor can its ruling, the RTC court imposed the rate
be held liable for damages of interest at 12% per annum, and
- B) with regard particularly to an award of decided that EASCO to pay immediately to
interest in the concept of actual and Vicente Tan the unpaid balance of interest
compensatory damages, the rate of of the principal amount of P250,000.00
interest, as well as the accrual thereof, equivalent to 6% per annum from June 26,
shall be as follows: 1981 to September 30,1994.
- If it consists of payment of money
(loan/forbearance) 3) Petitioner EASCO appealed to the Court of
o Interest due imposed = as Appeals, which, on July 30, 1993, affirmed
stipulated in writing and the the decision of the trial court. The CA, on
o Interest due = earn legal interest the authority of prior case, Eastern
from the time it is judicially Shipping Lines, Inc. v. Court of Appeals,
demanded that the interest rate on the amount due
o No stipulation = 12% per annum should be 6% per annum from June 26,
from date of default (judicial/extra 1981 to August 24, 1993, and 12% per
judicial) annum beginning August 25, 1993 until
- If it is not loan/forbearance the money judgment is paid.
4) Thereafter, petitioner EASCO tendered Par. 3: When the judgment of the court awarding
payment of the money judgment in the a sum of money becomes final and executory,
amount of P250,000.00 plus interest of 6% the rate of legal interest, whether the case falls
per annum from June 26, 1981 to July 30, under paragraph 1 or paragraph 2, above, shall
1993. be 12% per annum from such finality until its
satisfaction, this interim period being deemed to
5) However, private respondent refused to be by then an equivalent to a forbearance of
accept payment on the ground that the credit.
applicable legal rate of interest was 12%
per annum. Subsequently, private Unquestionably, this case falls under the rule
respondent brought the matter to the stated in paragraph 3. The question is whether
Insurance Commission. this rule can be applied to this case.

6) Then in, 1995, the parties agreed before The prior Eastern Shipping Lines, case. did not lay
the hearing officer of the commission that down any new rules because it was just a a
the interest should be computed from June comprehensive summary of existing rules on the
26, 1981 to September 30, 1994. computation of legal interest.
Petitioner would file with the trial court a
motion to fix the legal rate of interest As to the "cut-off date" for the payment of legal
attaching thereto a check in the amount of interest:
P250,000.00 with 6% interest per annum.
The trial court's finding on this point is binding.
7) In its appeal EASCO to the SC, it Hence, the payment of 12% legal interest per
contended that the CA wrongfully applied annum should commence from August 25, 1993,
the aforecited paragraph 3 of the the date the decision of the trial court became
suggested rules of thumb for future final, up to September 30, 1994, the agreed "cut-
guidance [as formulated in Eastern off-date" for the payment of legal interest. The
Shipping Lines, Inc. v. Court of Appeals, decision of the CA is affirmed.
and unlawfully ignored or disregarded the
agreed cut-off date for the payment of the
legal rate.
PILIPINAS BANK, petitioner,
Issue: When the judgment of the court vs.
awarding a sum of money becomes final THE HONORABLE COURT OF APPEALS, and
and executory what is the rate to be LILIA R. ECHAUS, respondents.
Facts: private respondent filed a complaint
Held: Petitioner's contentions are without against petitioner and its president, Constantino
merit. Bautista, for collection of a sum of money. The
complaint alleged: (1) that petitioner and
The prior Eastern Shipping Lines, Inc. v. Court of Greatland executed a "Dacion en Pago," wherein
Appeals, was held: Greatland conveyed to petitioner several parcels
of land in consideration of the sum of
I. When an obligation, regardless of its P7,776,335.69; (2) that Greatland assigned
source, i.e., law, contracts, quasi- P2,300,000.00 out of the total consideration in
contracts, delicts or quasi-delicts, is favor of private respondent; and (3) that
breached, the contravener can be held notwithstanding her demand for payment,
liable for damages. The provisions under petitioner refused and failed to pay the said
"Damages" of the Civil Code govern in amount assigned to her.
determining the measure of recoverable
damages. Petitioner claimed: (1) that its former president
had no authority (2) that it never ratified the
II. With regard particularly to an award of same; and (3) that assuming arguendo that the
interest in the concept of actual and agreement was binding, the conditions stipulated
compensatory damages, the rate of therein were never fulfilled.
interest, as well as the accrual thereof, is
imposed, as follows: The trial court ruled in favor of private


Court of Appeals modified the Order dated April - The checks were delivered to Rs agents
3, 1985, by limiting the execution pending appeal who turned them over to R, except 23
against petitioner to P5,517.707.00 checks amounting to P98k.
- Due to failure to receive full amount, R
Trial court granted the new motion for execution filed case against P
pending appeal. Petitioner complied with the writ - LC, CA and SC ordered PNB to pay
of execution pending appeal by issuing two however, all 3 courts failed to specify the
manager's checks in the total amount of legal rate of interest 6% or 12%
ISSUE: WoN the rate to be used is 6%
The Court of Appeals rendered a decision in CA-
G.R. No. CV-06017, which modified the judgment
of the trial court
- This case does not involve a loan,
forbearance of money or judgment
Petitioner filed a motion in the trial court praying involving a loan or forbearance of money
that private respondent to refund to her the as it arose from a contract of sale whereby
excess payment of P1,898,623.67 with interests R did not receive full payment for her
at 6%. It must be recalled that while private merchandise.
respondent was able to collect P5,517,707.00 - When an obligation arises from a contract
from petitioner pursuant to the writ of advance of purchase and sale and not from a
execution, the final judgment in the main case contract of loan or mutuum, the
awarded to private respondent damages in the applicable rate is 6% per annum as
total amount of P3,619,083.33 provided in Art. 2209 of the NCC
- 6% from filing of complaint until full
ISSUE: What interest rate applicable? payment before finality of judgment
- 12% from finality of judgment
HELD: Note that Circular No. 416, fixing the rate
of interest at 12% per annum, deals with (1)
loans; (2) forbearance of any money, goods or PLANTILLA vs. BALIWAG
credit; and 358 SCRA 396
(3) judgments.
(1) the amount of P2,300,000.00 adjudged to be
paid by petitioner to private respondent shall
earn interest of 6% per annum - The said
obligation arose from a contract of purchase and In a civil case, lower court rendered a decision
sale and not from a contract of loan or mutuum. ordering:
Hence, what is applicable is the rate of 6% per o Spouses Orga and Plantilla to reinstate
annum as provided in Article 2209 of the Civil Suiza as share tenant
Code of the Philippines and not the rate of 12% o That they pay Suiza unrealized shares
per annum as provided in Circular No. 416. from the harvests of coconut fruits
from August until reinstated the
(2) the amount of P1,898,623.67 to be refunded amount of P1,000 with legal interest
by private respondent to petitioner shall earn until fully paid.
interest of 12% per annum. - where money is The decision, however, did not state the
transferred from one person to another and the interest to be charged.
obligation to return the same or a portion thereof A writ of execution was issued addressed to
is subsequently adjudged. Sheriff Baliwag.
Baliwag demanded payment from the spouses
representing the share of Suiza the amount of
480k, representing the coconut harvest from
PNB v CA Aug 1979 to Jan 1998 at P1,000 with 8
harvests per year with an interest rate of 12%
FACTS: per annum or a total of 222% plus attorneys
- Province of Isabela issued several checks Col. Plantilla, administrator of the spouses,
drawn against its account with PNB (P) in filed an administrative complaint against
favor of Ibarrola (R), as payments for the Baliwag charging him of serious irregularities
purchase of medicines. in implementation of the writ of execution
alleging that dispositive portion of the
decision did not contain 8 harvest per year digest because I assume that my industrious &
and Baliwag took it upon himself to specify responsible classmates took down notes... = p
the number of harvests.


Issue: Whether or not Sheriff is guilty of
Facts: On January 15, 1979, defendant Rodzssen
Held: Supply, Inc. opened with plaintiff Far East Bank
and Trust Co. a 30-day domestic letter of credit, in
Yes, Baliwag is guilty of malfeasance, not the amount of P190,000.00 in favor of Ekman and
irregularities. The determination of the amount Company, Inc. (Ekman) for the purchase from the
due under the writ properly pertained to the latter of five units of hydraulic loaders, to expire
Judge. Yet, respondent assumed the task. For on February 15, 1979. The three loaders were
doing so instead of pointing out to the court the delivered to defendant for which plaintiff paid
deficiency of the writ, he should be sanctioned. Ekman and which defendant paid plaintiff before
He should not have arrogated unto himself expiry date of LC. The remaining two loaders
judicial functions that were to be performed only were delivered to defendant but the latter
by the judge. refused to pay. Ekman pressed payment to
plaintiff. Plaintiff paid Ekman for the two loaders
and later demanded from defendant such amount
as it paid Ekman. Defendant refused payment
The computation of the amount due under the contending that there was a breach of contract by
writ is not the duty of the sheriff. Such amount plaintiff who in bad faith paid Ekman, knowing
should have already been specifically stated in that the two units of hydraulic loaders had been
the writ if execution issued by the court under delivered to defendant after the expiry date of
Section 3 Rule 39 of the 1997 Rules of Court. All subject LC.
that the sheriff should do upon receipt of that writ
is the ministerial duty of enforcing it. Issue: WON petitioner is liable to respondent.

Ruling: The SC agrees with the CA that petitioner

should pay respondent bank the amount the
RCBC vs ALFA latter expended for the equipment belatedly
delivered by Ekman and voluntarily received and
Facts: Alfa on separate instances was kept by petitioner. Equitable considerations
granted by RCBC 4 letters of credit to facilitate behoove us to allow recovery by respondent.
the purchase of raw materials for their garments True, it erred in paying Ekman, but petitioner
business. Alfa executed 4 trust receipts and made itself was not without fault in the transaction. It
comprehensive surety agreements wherein the must be noted that the latter had voluntarily
signatory officers of Alfa agreed in joint/several received and kept the loaders since October
capacity to pay RCBC in case the company 1979. When both parties to a transaction are
defaulted. RCBC filed a case versus Alfa for a sum mutually negligent in the performance of their
of money. The CA awarded only P3M (minimum obligations, the fault of one cancels the
amount) to RCBC instead of P18M as stipulated in negligence of the other and, as in this case, their
their contract. rights and obligations may be determined
equitably under the law proscribing unjust
Issue: W/N the CA can deviate from the enrichment.
provisions of the contract between the parties?

Ruling: No. Contracting parties may MENDOZA vs CA

establish agreements terms, deemed advisable G.R.No. 116710, June 25,2001
provided they are not contrary to law/public
policy. A contract is a law between the parties. In Facts:
this case its valid because it was not excessive
under the Usury Law. PNB extended P500,000 credit line and P1
million letter of credit infavor of Mendoza. As
*Atty. Aguinaldo assigned this case because he security for the credit accomodations, he
just wanted to show us how to compute for the mortgaged real and personal properties to PNB.
interest in long term deals. He even made a The real estate mortgage provided for an
diagram on the board. Di ko na ilalagay un sa escalation clause.


He also executed 3 promissory notes was not informed beforehand by PNB of the
covering the P500,000 credit line in 1979. The change in the stipulated interest rates.
said notes also provided for an interest at the
rate of 12% per annum until paid , and that PNB It held that unilateral determination and
may raise the interest without further notice. imposition of increased interest rates by PNB is
violative of the principle of mutuality of contract.
He also executed 11 Application and Contract changes must be made with the consent
Agreement for the commercial letter of credit of the contractiong parties. The minds of all
providing for 9% interest per annum from the parties must meet as to the proposed
date of drafts until the arrival of payment in New modification, especially wwhen it affects an
York and that the bank may increase the interest important aspect of the agreement. No one
without further notice. The bank sent a letter to receiving a proposal to change a contract to
Mendoza, informing him that the interest rates which the party is obliged to answer the proposal,
increased to 14% per annum. and his silence per se cannot be construed as
Mendoza made some proposals for the
restructuring of his past due accounts into 5 year
term loan and for an additional P2 million letter of DEPOSIT
credit. However, PNB did not approve his proposal
and reduced the letter of credit to P 1 million only.
Topic: Deposit; Article 1962
Mendoza claimed that he was forced to Calibo v. CA
sign 2 blank promissory notes and claimed that FACTS:
his proposal for 5 year restructuring of his past Respondent Abellas son Mike rented for
due accounts was approved . He also alleged taht residential purposes the house of
PNB violated their agreement because PNB Petitioner Calibo.
inserted 21% instead of 18% in the first Respondent left a tractor in his sons
promissory note and 18% instead of 12% in the garage for safekeeping
second promissory note. The 2 promissory notes
Petitioner Mike had not paid rentals,
also provided escalation clauses.
electric and water bills
The 2 newly executed promissory notes Mike reassured Calibo that the tractor
novated the three 1979 promissory notes and 11 would stand as guarantee for its payment
Application and Agreement for Commercial Letter Respondent wanted to take possession of
of Credit executed by Mendoza earlier. his tractor but Petitioner said that the Mike
had left the tractor with him as security for
After sometime, pursuant to the escalation the payment of Mikes obligation to him.
clause, the interests in the two promissory notes Respondent issued postdated checks but
were again increased. Due to Mendozas failure to Petitioner will only accept check if
pay the 2 promissory notes, PNB foreclosed the Respondent executes Promissory Note to
real and personal mortgages. Mendoza filed for cover payment for unpaid electric and
specific performance, nullification of foreclosure water bills.
and damages. Petitioner instituted an action for replevin
claiming ownership of the tractor and
seeking to recover possession thereof
from petitioner. Likewise, he asserts that
Issue: Whether or not the interest rates imposed the tractor was left with him, in the
on the 2 newly executed promissory notes were concept of an innkeeper, on deposit and
valid. that he may validly hold on thereto until
Mike Abella pays his obligations.
Ruling: TC and CA Mike could not have validly
pledged the tractor because he was not
The Court upheld the validity of the 2 the owner. NO DEPOSIT
newly executed promissory notes on the ground
that private transactions are presumed to be fair ISSUE: WON there was a valid deposit?
and regular.
However, it ruled that interest rates In a contract of deposit, a person receives
imposed on the 2 newly executed promissory an object belonging to another with the
notes are not valid on the ground that Mendoza obligation of safely keeping it and of
returning the same. Petitioner himself
stated that he received the tractor not to Mrs. Ramos demanded the execution of a
safely keep it but as a form of security for deed of sale which necessarily entailed the
the payment of Mike Abellas obligations. production of the certificates of title. Thus,
There is no deposit where the principal Petitioner with the spouses went to
purpose for receiving the object is not Respondent Bank to retrieve the titles.
Consequently, petitioner had no right to However, when opened in the presence of the
refuse delivery of the tractor to its lawful Bank's representative, the SDB yielded no
owner. On the other hand, private such certificates.
respondent, as owner, had every right to
seek to repossess the tractor including the
institution of the instant action for Because of the delay in the reconstitution of
replevin. the title, Mrs. Ramos withdrew her earlier
offer to purchase the lots; as a consequence,
the Petitioner allegedly failed to realize the
expected profit of P285K.

Hence, Petitioner filed a complaint for

damages against Respondent Bank.

Lower courts ruled in favour of Respondent

Bank. Thus, this petition.
CA Agro-Industrial vs CA
G.R. No. 90027 March 3, 1993
1. Whether or not the disputed contract is an
ordinary contract of lease?

2. Whether or not the provisions of the cited
contract are valid?
Petitioner (through its President) purchased 2
parcels of land from spouses Pugao for P350 K 3. Whether or not Respondent Bank is liable for
with a downpayment of P75 K. damages?

Per agreement, the land titles will be Ruling:

transferred upon full payment and will be
placed in a safety deposit box (SBDB) of any
1. No. SC ruled that it is a special kind of deposit
bank. Moreover, the same could be withdrawn
only upon the joint signatures of a
representative of the Petitioner and the
Pugaos upon full payment of the purchase the full and absolute possession and
price. control of the SDB was not given to the
joint renters the Petitioner and the
Thereafter, Petitioner and spouses placed the
titles in SDB of Respondent Security Bank and
signed a lease contract which substantially The guard key of the box remained with the
states that the Bank will not assume liability Respondent Bank; without this key, neither
for the contents of the SDB. of the renters could open the box and vice
Subsequently, 2 renter's keys were given to
the renters one to the Petitioner and the In this case, the said key had a duplicate
other to the Pugaos. A guard key remained in which was made so that both renters could
the possession of the Respondent Bank. The have access to the box.
SDB can only be opened using these 2 keys
simultaneously. Moreover, the renting out of the SDBs is
not independent from, but related to or in
Afterwards, a certain Mrs. Ramos offered to conjunction with, the principal function of a
buy from the Petitioner the 2 lots that would contract of deposit the receiving in
yield a profit of P285K.
custody of funds, documents and other acceded. The defendants were not able to pay
valuable objects for safekeeping. the full amount of their indebtedness
notwithstanding the request made by plaintiff-
2. NO. SC opined that it is void. appellee. The lower court ruled in favor of
plaintiff-appellee for the recovery of the amount
Generally, the Civil Code provides that the
depositary (Respondent Bank) would be
ISSUE: Whether the agreement entered into by
liable if, in performing its obligation, it is
the parties is one of loan or of deposit?
found guilty of fraud, negligence, delay or
contravention of the tenor of the
HELD: The document executed was a contract of
loan. Where money, consisting of coins of legal
tender, is deposited with a person and the latter
In the absence of any stipulation, the is authorized by the depositor to use and dispose
diligence of a good father of a family is to of the same, the agreement is not a contract of
be observed. deposit, but a loan. A subsequent agreement
between the parties as to interest on the amount
Hence, any stipulation exempting the said to have been deposited, because the same
depositary from any liability arising from could not be returned at the time fixed therefor,
the loss of the thing deposited on account does not constitute a renewal of an agreement of
of fraud, negligence or delay would be deposit, but it is the best evidence that the
void for being contrary to law and public original contract entered into between therein
policy (which is present in the disputed was for a loan under the guise of a deposit.

Said provisions are inconsistent with the G.R. Nos. L-26948 and L-26949
Respondent Bank's responsibility as a October 8, 1927
depositary under Section 72(a) of the
General Banking Act. SILVESTRA BARON, plaintiff-appellant,
3. NO. SC ruled that: PABLO DAVID, defendant-appellant.

no competent proof was presented to And

show that Respondent Bank was aware of GUILLERMO BARON, plaintiff-appellant,
the private agreement between the
Petitioner and the Pugaos that the Land vs.
titles were withdrawable from the SDB PABLO DAVID, defendant-appellant.
only upon both parties' joint signatures,
and that no evidence was submitted to
reveal that the loss of the certificates of - The defendant owns a rice mill, which was
title was due to the fraud or negligence of well patronized by the rice growers of the
the Respondent Bank. vicinity.

- On January 17, 1921, a fire occurred that

destroyed the mill and its contents, and it
ART. 1977. OBLIGATION NOT TO MAKE USE was some time before the mill could be
OF THING DEPOSITED UNLESS AUTHORIZED. rebuilt and put in operation again.

JAVELLANA VS. LIM - Silvestra Baron (P1) and Guillermo Baron

(P2) each filed an action for the recovery
FACTS: Defendants executed a document in favor of the value of palay from the defendant
of plaintiff-appellee wherein it states that they (D), alleged that:
have received, as a deposit, without interest,
money from plaintiff-appellee and agreed upon a o The palay have been sold by both
date when they will return the money. Upon the plaintiffs to the D in the year 1920
stipulated due date, defendants asked for an
extension to pay and binding themselves to pay
15% interest per annum on the amount of their o Palay was delivered to D at his
indebtedness, to which the plaintiff-appellee special request, with a promise of
compensation at the highest price Veraguth. Without the consent of Montilla and
per cavan Veraguth however, Igpuara used the said amount
for his own ends. Thus, igpuara was charged and
- D claims that the palay was deposited convicted with estafa, for having swindled Juana
subject to future withdrawal by the Montilla and Eugenio Veraguth out of P2,498
depositors or to some future sale, which which he had taken as deposit from the former to
was never effected. D also contended that be at the his disposal. Igpuara was sentenced to
in order for the plaintiffs to recover, it is pay Juana Montilla P2,498 . The instrument for
necessary that they should be able to the deposit reads:
establish that the plaintiffs' palay was
delivered in the character of a sale, and We hold at the disposal of Eugenio Veraguth the
that if, on the contrary, the defendant sum of two thousand four hundred and ninety-
should prove that the delivery was made eight pesos (P2,498), the balance from Juana
in the character of deposit, the defendant Montilla's sugar. Iloilo, June 26, 1911, Jose
should be absolved. Igpuara, for Ramirez and Co

ISSUE: WoN there was deposit Igpuara contended that the amount was not
deposit for there was no certificate of deposit,
there was no transfer or delivery of the P2,498
and what transpired was a loan. If assuming that
- Art. 1978. When the depositary has it was deposit, this is negotiable.
permission to use the thing deposited, the
contract loses the concept of a deposit Issues: Whether or not it is necessary that there
and becomes a loan or commodatum, be transfer or delivery in order to constitute a
except where safekeeping is still the deposit.
principal purpose of the contract. The
permission shall not be presumed, and its Held: No.
existence must be proved.
A deposit is constituted from the time a
- The case does not depend precisely upon person receives a thing belonging to
this explicit alternative; for even another with the obligation of keeping and
supposing that the palay may have been returning it. (Art. 1758, Civil Code.)
delivered in the character of deposit,
subject to future sale or withdrawal at His contention is without merit because firstly,
plaintiffs' election, nevertheless if it was the defendant drew up a document declaring that
understood that the defendant might mill they remained in his possession. With the
the palay and he has in fact appropriated understanding that he would, for it has no other
it to his own use, he is of course bound to purpose.
account for its value.
The certificate of deposit in question is not
- In this connection we wholly reject the negotiable because only instruments payable to
defendant's pretense that the palay order are negotiable. Hence, this instrument not
delivered by the plaintiffs or any part of it being to order but to bearer, it is not negotiable.
was actually consumed in the fire of
January, 1921. Nor is the liability of the
defendant in any wise affected by the As for the argument that the depositary may use
circumstance that, by a custom prevailing or dispose oft he things deposited, the depositor's
among rice millers in this country, persons consent is required thus, the rights and
placing palay with them without special obligations of the depositary and of the depositor
agreement as to price are at liberty to shall cease and the rules and provisions
withdraw it later, proper allowance being applicable to commercial loans, commission, or
made for storage and shrinkage, a thing contract which took the place of the deposit shall
that is sometimes done, though rarely. be observed. Igpuara however has shown no
authorization whatsoever or the consent of the
depositary for using or disposing of the P2,498.

That there was not demand on the same or the

UNITED STATES, vs. IGPUARA next day after the certificate was signed, does
not operate against the depositor, or signify
Facts: The defendant Jose igpuara was entrusted anything except the intention not to press it.
with the amount of P2,498 by Montilla and
Failure to claim at once or delay for sometime in Bacos. Gullas and Lopez signed as indorsers
demanding restitution of the things deposited, of this warrant. Thereupon it was cashed by
which was immediately due, does not imply such PNB.
permission to use the thing deposited as would The warrant was subsequently dishonored by
convert the deposit into a loan. the Insular treasurer.
At that time, Gullas had a balance of P500 in
Judgment appealed from is affirmed PNB. From this balance, he also issued some
checks which eventually could not be paid
when it was sequestered by the Bank.
When it learned of the dishonor, PNB sent
ANICETA PALACIO, plaintiff-appellee, notice to Gullas stating that it applied the
vs. outstanding balances from his current account
DIONISIO SUDARIO, defendant-appellant. as payment of the dishonored warrant. Such
notice could not be delivered to him since he
FACTS: The plaintiff made an arrangement for the was out of town.
pasturing of eighty-one head of cattle, in return Without any action from Gullas, PNB applied
for which she has to give one-half of the calves the dishonored warrant against his account.
that might be born and was to pay the defendant Because of this, Gullas was unable to pay for
one-half peso for each calf branded. On demand the checks he issued before the application.
for the whole, forty-eight head of cattle were Gullas filed a complaint against PNB.
afterwards returned to her and this action is
brought to recover the remaining thirty-three.
Defendant in reply to the demand for the cattle,
in which he seeks to excuse himself for the loss of Whether or not PNB has a right to apply a deposit
the missing animals. to the debt of a depositor to the bank?

As a second defense it is claimed that the thirty- Held:

three cows either died of disease or were
drowned in a flood. The defendant's witnesses Yes, PNB has a right to apply the payment against
swore that of the cows that perished, six died the account of the depositor.
from overfeeding, and they failed to make clear
the happening of any flood sufficient to destroy The relation between a depositor and a bank is
the others. that if creditor and debtor. The general rule is
that a bank has a right to set off of the deposit in
HELD: If we consider the contract as one of its hands for the payment of any indebtedness to
deposit, then under article 1183 of the Civil Code, it on the part of the depositor.
the burden of explanation of the loss rested upon
the depositary and under article 1769 the fault is However, prior to the mailing of the notice of
presumed to be his. The defendant has not dishonor and without waiting for any action by
succeeded in showing that the loss occurred Gullas, the bank made use of the money standing
either without fault on his part or by reason of in his account to make good for the treasury
caso fortuito. warrant. At this point recall that Gullas was
merely an indorser. Notice should have been
given to him in order that he might protect his
If, however, the contract be not one strictly of
interest. He should be awarded with nominal
deposit but one according to a local custom for
damages because of the premature action of the
the pasturing of cattle, the obligations of the
parties remain the same.


62 PHIL 519 Facts: Serrano had P350K worth of time
deposits in Overseas Bank of Manila. He made a
Facts: series of encashment but was not successful. He
filed a case against Overseas Bank & he also
Atty. Gullas has a current account with PNB. included the Central Bank so that the latter may
The treasury of the US issued a warrant in the also be jointly and severally liable. Serrano
amount of $361 payable to the order of argued that the CB failed to supervise the acts of


Overseas Bank and protect the interests of its the person in charge in the hotel. When he
depositors by virtue of constructive trust. returned to the hotel, he took his revolver and his
bag from the person in charge in the hotel and
Issue: W/N the Central Bank is liable? proceeded to his room. He locked the door before
Ruling: No. There is no breach of trust from
a banks failure to return the subject matter of When he woke up, he discovered that the
the deposit. Bank deposits are in the nature of door in his room was opened and his bag and
irregular deposits. All kinds of bank deposits are pants, wherein he placed his revolver , was
to be treated as loans and are to be covered by missing. He reported the matter to the Assistant
the law on loans Art.1980. In reality the depositor Manager of the hotel, who in turn informed Tan
is the creditor while the bank is the debtor. Failure Khey.
of the respondent bank to honor the time deposit
is failure to pay its obligation as a debtor. A secret service agent was sent to
investigate and it was found that the wall of the
room occupied by De los Santos was only seven
feet high with an open space above through
which one could enter from outside. De los
Santos told the detective that he lost his revolver.

SESBRENO V. CA Tan Khey disclaimed liability because De

los Santos did not deposit his properties with the
manager despite a notice to that effect was
Facts: Sesbreno entered into a money market, posted in the hotel.
giving 300k to Philfinance. As an exchange,
Philfinance gave checks and confirmation of sale Tan Khey contended that to be liable
of Delta Motor Corp certificates. Checks bounced. under Article 1998 of the Civil Code, the following
Sesbreno is running after Philipinas Bank (payee) conditions must concur:
(Holder of security of primissory note) and Delta
(maker). Delta contends that it is not liable 1. Deposit of effects by travellers in hotel
because there was "reconstruction" of debt of or inn
Delta to Philfinance, the promissory note is not 2. Notice given to hotel keepers or
valid anymore. It also contends that the employees of the effects brought by
document cannot be assigned because its non guests
negotiable. RTC ruled that Philfinance is liable 3. Guest or travellers take the
because Philfinance already knows that the precautions which said hotel keepers
liability was already waived and it still issued the or their substitutes advised relative to
certificate. However, since Philfinance was not the care and vigilance of their effects.
impleaded, judgment cannot be made against
Philfinance. The issue related in this case is
regarding trasferrability and assignability. Issue: Whether the hotel owner should be held
liable for the loss of the effects of the guest?
Issue: WoN the non-negotiable instrument is non
transferrable/assignable Rulng:

Ruling: Assignable is different from tranferrability. The Court ruled that the hotel owner
Negotiable instruments can be indorsed. Non should be liable for the loss of the revolver, pants
negotiable instrumets can be assigned. and bag of the guest.
Therefore, non negotiable instrument can be
assigned. Deposit

While the law speaks of deposit of

DE LOS SANTOS vs TAN KHEY effects by travellers in hotels or inns, personal
O.G.No.26695-R, July 30, 1962 receipt by the innkeeper for safe keeping of
effects is not necessaily meant thereby. The
Facts: reason therefor is the fact that it is the nature of
business of an innkeeper to provide not only
Tan Khey was the owner of International lodging for travellers but also to security to their
Hotel located in Iloilo city. Romeo de los Santos persons and effects. The secuity mentioned is not
lodged in Tna Kheys hotel. After arrival, he left confined to the effects actually delivered to the
the hotel, depositing his revolver and his bag with innkeeper but also to all effects placed within the
premises of the hotel. This is because innkeepers
by the neture of their business, have supervision Topic: Deposit; Article 2003
and controlof their inns and the premises threof. YHT Realty v. CA

It is not necessary that the effect was FACTS:

actually delivered but it is enough that they are Respondent McLoughlin would stay at
within the inn. If a guest and goods are within the Tropicana Hotel every time he is here in
inn, that is sufficient to charge him. the Philippines and would rent a safety
deposit box.
The owner of a hotel may exonerate The safety deposit box could only be
himself from liability by showing that the guest opened through the use of 2 keys, one of
has taken exclusive control of his own goods, but which is given to the registered guest, and
this must be exclusive custody and control of a the other remaining in the possession of
guest, and must not be held under the the management of the hotel.
supervision and care of the innkeeper,ey are kept McLoughlin allegedly placed the following
in a room assigned to a guest or the other proper in his safety deposit box 2 envelopes
depository in the house. containing US Dollars, one envelope
containing Australian Dollars, Letters,
In this case, the guest deposited his credit cards, bankbooks and a checkbook.
effects in the hotel because they are in his room When he went abroad, a few dollars were
and within the premises of the hotel, and missing and the jewelry he bought was
therefore, within the supervision and control of likewise missing.
the hotel owner.
Eventually, he confronted Lainez and
Paiyam who admitted that Tan opened the
safety deposit box with the key assigned
to him. McLoughlin went up to his room
where Tan was staying and confronted her.
Tan admitted that she had stolen
The Court ruled that there was no doubt McLouglins key and was able to open the
that the person in charge had knowledge of his safety deposit box with the assistance of
revolver, the bag, and pants of the guest, De los Lopez, Paiyam and Lainez. Lopez alsto told
Santos. McLoughlin that Tan stole the key assigned
to McLouglin while the latter was asleep.
The requirement of notice being evidently
McLoughlin insisted that it must be the
for the purpose of closing the door to fraudulent
hotel who must assume responsibility for
claims for non-existent articles, the lack thereof
the loss he suffered.
was fatal to De los Santos claim for reparation
for the loss of his eyeglass, ring, and cash. Lopez refused to accept responsibility
relying on the conditions for renting the
Precautions safety deposit box entitled Undertaking
For the Use of Safety Deposit Box
While an innkeeper cannot free himself
ISSUE: Whether the hotels Undertaking is valid?
from responsibility by posting notices, there can
be no doubt of the innkeepers right to make such
regulations in the management of his inn as will
more effectually secure the property of his guest Article 2003 was incorporated in the New
and operate as protection to himself, and that it Civil Code as an expression of public policy
is incumbent upon the guest, if he means to hold precisely to apply to situations such as
the inkeeper ho his responsibility, to comply with that presented in this case. The hotel
any regulation that is just and reasonable, when business like the common carriers
he is requested to do so. business is imbued with public interest.
Catering to the public, hotelkeepers are
However, in this case, the notice requiring bound to provide not only lodging for hotel
actual deposit of the effects with the manager guests and security to their persons and
was an unreasonable regulation. It was belongings. The twin duty constitutes the
unreasonable to require the guest to deposit his essence of the business. The law in turn
bag ,pants and revolver to the manager. De los does not allow such duty to the public to
Santos had exercised the necessary diligence be negated or diluted by any contrary
with respect to the care and vigilance of his stipulation in so-called undertakings that
effects. ordinarily appear in prepared forms


imposed by hotel keepers on guests for month. Henceforth, if the sugar is not yet
their signature. withdrawn, a penalty of P0.25 per picul or fraction
In an early case (De Los Santos v. Tan thereof a month is imposed. (Exhibits "B-1", "C-
Khey), CA ruled that to hold hotelkeepers 1", "D-1", "B-2", "C-2", p. 10, t.s.n.)
or innkeeper liable for the effects of their
guests, it is not necessary that they be The storage of sugar is carried in the books of the
actually delivered to the innkeepers or company under Account No. 5000, denominated
their employees. It is enough that such "Manufacturing Cost Ledger Control"; the storage
effects are within the hotel or inn. With fees under Account No. 521620; the expense
greater reason should the liability of the accounts of the factory under Account No. 5200;
hotelkeeper be enforced when the missing and the so-called "Sugar Bodega Operations"
items are taken without the guests under Account No. 5216, under which is a Sub-
knowledge and consent from a safety Account No. 20, captioned, "Credits". (Pp. 16-17,
deposit box provided by the hotel itself, as t.s.n., Exhibit "F".) The collections from storage
in this case. after the lapse of the first 90 days period are
Paragraphs (2) and (4) of the entered in the company's books as debit to CASH,
undertaking manifestly contravene and credit to Expense Account No. 2516-20 (p.
Article 2003, CC for they allow Tropicana 18, t.s.n.).
to be released from liability arising from
any loss in the contents and/or use of the The credit for storage charges decreased the
safety deposit box for any cause deductible expense resulting in the corresponding
whatsoever. Evidently, the undertaking increase of the taxable income of the petitioner.
was intended to bar any claim against This is reflected by the entries enclosed in
Tropicana for any loss of the contents of parenthesis in Exhibit "G", under the heading
the safety deposit box whether or not "Storage Charges". (P. 18, t.s.n.) The alleged
negligence was incurred by Tropicana or reason for this accounting operation is that,
its employees. inasmuch as the "Sugar Bodega Operations" is
considered as an expense account, entries under
it are "debits". Similarly, since "Storage Charges"
THE WAREHOUSE RECEIPTS LAW constitute "credit", the corresponding figures (see
Exhibit "C") are enclosed in parenthesis as they
decrease the expenses of maintaining the sugar
G.R. No. L-16315 May 30, 1964
Upon investigation conducted by the Bureau, it
COMMISSIONER OF INTERNAL was found that during the years 1949 to 1957,
REVENUE, petitioner, the petitioner realized from collected storage fees
vs. a total gross receipts of P212,853.00, on the basis
HAWAIIAN-PHILIPPINE of which the respondent determined the
COMPANY, respondent. petitioner's liability for fixed and percentage
taxes, 25% surcharge, and administrative penalty
FACTS: in the aggregate amount of P8,411.99 (Exhibit
"5", p. 11, BIR rec.)
The petitioner, a corporation duly organized in
accordance with law, is operating a sugar central After due hearing the Court of Tax Appeals
in the City of Silay, Occidental Negros. It produces ordered the CIR to refund to respondent
centrifugal sugar from sugarcane supplied by Hawaiian-Philippine Company the amount of
planters. The processed sugar is divided between P8,411.99 representing fixed and percentage
the planters and the petitioner in the proportion taxes assessed against it and which the latter had
stipulated in the milling contracts, and thereafter deposited with the City Treasurer of Silay,
is deposited in the warehouses of the latter. (Pp. Occidental Negros
4-5, t.s.n.) For the sugar deposited by the
planters, the petitioner issues the corresponding ISSUE:
warehouse receipts of "quedans". It does not
collect storage charges on the sugar deposited in Whether or notpetitioner is a warehouseman
its warehouse during the first 90 days period liable for the payment of the fixed and
counted from the time it is extracted from the percentage taxes prescribed in Sections 182 and
sugarcane. Upon the lapse of the first ninety days 191 of the National Internal Revenue Code
and up to the beginning of the next milling
season, it collects a fee of P0.30 per picul a HELD:
YES. Afterwards, respondent Tiong insured the
warehouse and the palay deposited therein
Respondent disclaims liability under the with the Alliance Surety and Insurance
provisions quoted above, alleging that it is not Company.
engaged the business of storing its planters'
sugar for profit; that the maintenance of its But prior to the issuance of the license to
warehouses is merely incidental to its business of Respondent, he had on several occasions
manufacturing sugar and in compliance with its received palay for deposit from Plaintiff
obligation to its planters. We find this to be Gonzales, totaling 368 sacks, for which he
without merit. issued receipts.

It is clear from the facts of the case that, after After he was licensed as a bonded
manufacturing the sugar of its planters, warehouseman, Go Tiong again received
respondent stores it in its warehouses and issues various deliveries of palay from Plaintiff,
the corresponding "quedans" to the planters who totaling 492 sacks, for which he issued the
own the sugar; that while the sugar is stored free corresponding receipts, all the grand total of
during the first ninety days from the date the it 860 sacks, valued at P8,600 at the rate of P10
"quedans" are issued, the undisputed fact is that, per sack.
upon the expiration of said period, respondent
charger, and collects storage fees; that for the
period beginning 1949 to 1957, respondent's Noteworthy is that the receipts issued by Go
total gross receipts from this particular enterprise Tiong to the Plaintiff were ordinary receipts,
amounted to P212,853.00. not the "warehouse receipts" defined by the
Warehouse Receipts Act (Act No. 2137).
A warehouseman has been defined as one who
receives and stores goods of another for On or about March 15, 1953, Plaintiff
compensation (44 Words and Phrases, p. 635). demanded from Go Tiong the value of his
For one to be considered engaged in the deposits in the amount of P8,600, but he was
warehousing business, therefore, it is sufficient told to return after two days, which he did, but
that he receives goods owned by another for Go Tiong again told him to come back.
storage, and collects fees in connection with the
same. In fact, Section 2 of the General Bonded A few days later, the warehouse burned to the
Warehouse Act, as amended, defines a ground.
warehouseman as "a person engaged in the
business of receiving commodity for storage." Before the fire, Go Tiong had been accepting
deliveries of palay from other depositors and
That respondent stores its planters' sugar free of at the time of the fire, there were 5,847 sacks
charge for the first ninety days does not exempt of palay in the warehouse, in excess of the
it from liability under the legal provisions under 5,000 sacks authorized under his license.
consideration. Were such fact sufficient for that
purpose, the law imposing the tax would be
After the burning of the warehouse, the
rendered ineffectual.
depositors of palay, including Plaintiff, filed
their claims with the Bureau of Commerce.
Gonzalez vs Go Tiong
However, according to the decision of the trial
Facts: court, nothing came from Plaintiff's efforts to
have his claim paid.
Go Tiong (respondent) owned a rice mill and
warehouse, located in Pangasinan. Thereafter, Thereafter, Gonzales filed the present action
he obtained a license to engage in the against Go Tiong and the Luzon Surety for the
business of a bonded warehouseman. sum of P8,600, the value of his palay, with
legal interest, damages in the sum of P5,000
and P1,500 as attorney's fees.
Subsequently, respondent Tiong executed a
Guaranty Bond with the Luzon Surety Co to
secure the performance of his obligations as While the case was pending in court, Gonzales
such bonded warehouseman, in the sum of and Go Tiong entered into a contract of
P18,334, in case he was unable to return the amicable settlement to the effect that upon
same. the settlement of all accounts due to him by


Go Tiong, he, Gonzales, would have all actions warehouseman to issue the prescribed
pending against Go Tiong dismissed. receipt.

Inasmuch as Go Tiong failed to settle the

accounts, Gonzales prosecuted his court WAREHOUSE RECEIPT: Failure to mark non-
action negotiable.


FACTS: U. de Poli, for value received, issued a

Whether or not Plaintiffs claim is governed by the
quedan convering the 576 bultos of tobacco to
Bonded Warehouse Act due to Go Tiongs act of
the Asia Banking Corporation (claimant &
issuing to the former ordinary receipts, not
appellant). It was executed as a security for a
warehouse receipts?
loan. The aforesaid 576 butlos are part and parcel
of the 2, 766 bultos purchased by U. de Poli from
RULING: Felisa Roman (claimant & appellee).

YES. SC ruled in favor Plaintiff. The quedan was marked as Exhibit D which is a
warehouse receipt issued by the warehouse of U.
Act No. 3893 provides that any deposit made de Poli for 576 bultos of tobacco. In the left
with Respondent Tiong as a bonded margin of the face of the receipt, U. de Poli
warehouseman must necessarily be governed certifies that he is the sole owner of the
by the provisions of Act No. 3893. merchandise therein described. The receipt is
endorsed in blank; it is not markednon-
negotiable or not negotiable.
The kind or nature of the receipts issued by
him for the deposits is not very material much
Since a sale was consummated between Roman
less decisive since said provisions are not
and U. de Poli, Romans claim is a vendors lien.
mandatory and indispensable
The lower court ruled in favor of Roman on the
theory that since the transfer to Asia Banking
Under Section 1 of the Warehouse Receipts Corp. (ASIA) was neither a pledge nor a
Act, the issuance of a warehouse receipt in mortgage, but a security for a loan, the vendors
the form provided by it is merely permissive lien of Roman should be accorded preference
and directory and not obligatory. . "Receipt", over it.
under this section, can be construed as any
receipt issued by a warehouseman for However, if the warehouse receipt issued was
commodity delivered to him non-negotiable, the vendors lien of Roman
cannot prevail against the rights of ASIA as
As the trial court well observed, as far as Go indorsee of the receipt.
Tiong was concerned, the fact that the
receipts issued by him were not "quedans" is ISSUE: WON the quedan issued by U. de Poli in
no valid ground for defense because he was favor of ASIA. is negotiable, despite failure to
the principal obligor. mark it as not negotiable?

Furthermore, as found by the trial court, Go HELD: YES. The warehouse receipt in question is
Tiong had repeatedly promised Plaintiff to negotiable. It recited that certain merchandise
issue to him "quedans" and had assured him deposited in the ware house por orden of the
that he should not worry; and that Go Tiong depositor instead of a la orden, there was no
was in the habit of issuing ordinary receipts other direct statement showing whether the
(not "quedans") to his depositors. goods received are to be delivered to the bearer,
to a specified person, or to a specified order or
his order. However, the use of por orden was
Furthermore, Section 7 of said law provides merely a clerical or grammatical error and that
that as long as the depositor is injured by a the receipt was negotiable.
breach of any obligation of the
warehouseman, which obligation is secured As provided by the Warehouse Receipts Act, in
by a bond, said depositor may sue on said case the warehouse man fails to mark it as non-
bond. negotiable, a holder of the receipt who purchase
if for value supposing it to be negotiable may, at
In other words, the surety cannot avoid his option, treat such receipt as imposing upon
liability from the mere failure of the the warehouseman the same liabilities he would
have incurred had the receipt been negotiable. De Poli was declared insolvent by the Court of
This appears to have given any warehouse First Instance of Manila with liabilities to the
receipt not marked non-negotiable practically amount of several million pesos over and above
the same effect as a receipt which, by its terms, his assets. An assignee was elected by the
is negotiable provided the holder of such creditors and the election was confirmed by the
unmarked receipt acquired it for value supposing court
it to be negotiable, circumstances which
admittedly exist in the present case. Hence, the Among the property taken over the assignee was
rights of the indorsee, ASIA, are superior to the the merchandise stored in the various
vendors lien. warehouses of the insolvent. This merchandise
consisted principally of hemp, maguey and

The various banks holding warehouse receipts

issued by De Poli claim ownership of this
merchandise under their respective receipts,
whereas the other creditors of the insolvent
maintain that the warehouse receipts are not
Bank of P.I. v. Herridge negotiable, that their endorsement to the present
holders conveyed no title to the property, that
FACTS: they cannot be regarded as pledges of the
merchandise inasmuch as they are not public
The insolvent Umberto de Poli was for several documents and the possession of the
years engaged on an extensive scale in the merchandise was not delivered to the claimants
exportation of Manila hemp, maguey and other and that the claims of the holders of the receipts
products of the country. have no preference over those of the ordinary
unsecured creditors.law lib
He was also a licensed public warehouseman,
though most of the goods stored in his
warehouses appear to have been merchandise
purchased by him for exportation and deposited ISSSUE:
there by he himself.chanr
Whether or not the warehouse receipts issued are
In order to finance his commercial operations De negotiable?
Poli established credits with some of the leading
banking institutions doing business in Manila at HELD:
that time, among them the Hongkong & Shanghai
Banking Corporation, the Bank of the Philippine Yes, a warehouseman who deposited
Islands, the Asia Banking Corporation, the merchandise in his own warehouse, issued a
Chartered Bank of India, Australia and China, and warehouse receipts therefore and thereafter
the American Foreign Banking Corporation. negotiated the receipts by endorsement. The
receipt recites that the goods were deposited
De Poli opened a current account credit with the por orden of the depositor, the warehouseman,
bank against which he drew his checks in but contained no statement that the goods were
payment of the products bought by him for to be delivered to the bearer of the receipts or to
exportation. a specified person. It is in the form of a
warehouse receipts and was not mark
Upon the purchase, the products were stored in nonnegotiable.
one of his warehouses and warehouse receipts
issued therefor which were endorsed by him to Therefore the receipts was negotiable warehouse
the bank as security for the payment of his credit receipts and the words por orden must be
in the account current. construed to mean to the order.

When the goods stored by the warehouse

receipts were sold and shipped, the warehouse
receipt was exchanged for shipping papers, a PNB v PRODUCERS WAREHOUSE
draft was drawn in favor of the bank and against ASSOCIATION
the foreign purchaser, with bill of landing
attached, and the entire proceeds of the export FACTS:
sale were received by the bank and credited to
the current account of De Poli.chanroble
- PNB (P) is a bank in PH, Producers CRUZ vs. VALERO
Warehouse Association (D) is a domestic
corporation doing general warehouse Facts:
business and Phil. Fiber and Produce
Company (Fiber) is another domestic Valero is president of the Luzon Sugar Co. while
corporation. appellant Cruz had a share amounting to
- D and Fiber entered into a written 1,544.38 piculs export centrifugal sugar, which
contract, wherein Fiber would act as the was exchanged for an equal amount of domestic
general manager of the business of D and centrifugal sugar. Cruz deposited in the Luzon
that Fiber would exercise a general and Sugar Company's warehouse within its
complete supervision over the compound, with the obligation on its part to
management of the business of D. deliver it to the appellant on demand, that the
- Nov and Dec 1918 D issued negotiable appellant was entitled to 238.20 piculs of
quedans to Fiber for 15k++ piculs of domestic centrifugal sugar as his share in the
Copra, which the terms states that 1940-1941 crop. On different dates, the appellant
o D agreed to deliver that amount of had withdrawn several piculs of sugar, reducing
copra to Fiber or its order reducing the number of gallons of molasses.
o D will deliver the packages noted
therein upon the surrender of the
Cruz claims that on December 1941, the Luzon
warrant to D
Sugar Company (LSC) did not have in its
o No transfer of interest/ownership
warehouse the sugar he had stored in its
will be recognized unless registered warehouse for safekeeping and the number of
in the books of D gallons of molasses he had left in its possession
o The words negotiable warrant contained in cylindrical tanks, because the Valero
were printed in red ink in the had disposed of the same without the knowledge
quedan and consent of appellant and that when the
- Fiber then arranged for overdraft with P for appellant wanted to withdraw his sugar from the
P1M and to secure it, the subject quedans warehouse of LSC, the amount of sugar stored in
were endorsed in blank and delivered by the warehouse was not manufactured by the
Fiber to P, which became the owner and Luzon Sugar Company but by a different
holder thereof. company.
- P later on requested D the delivery of
copra described in the quedans, however,
This was denied by LSC, contending that it had
D refused to comply despite repeated
sufficient amount of sugar manufactured by it
requests of P, stating that it could not be
and was in a position to deliver sugar. Its
delivered since the goods mentioned are
warehouse was however bombed by Japanese
not in the warehouse.
and the warehouse damaged by shrapnel and
- D stated that the quedans were invalid
some piculs of centrifugal sugar were looted,
and wrongfully issued and that the copra
some taken by the Japanese after the occupation
was not in its warehouse
and the remaining brought by the Japanese Army
- LC ruled in favor of D
to Northern Luzon. Thus it became impossible the
ISSUE: WoN the quedans were validly negotiated deliver the centrifugal sugar and molasses
to P belonging of Cruz.

SC: YES! Issue: Whether or not the LSC still has the
obligation to deliver the same amount and kind of
- The quedans have legal force and effect sugar stored in its warehouse.
o They were duly executed by Wicks,
as treasurer and Torres as HELD: Since there was enough sugar to cover
warehouseman, for and in behalf of and deliver 1,081.79 piculs of domestic, reserve
D. and additional sugar belonging to the Cruz who,
o The said quedans were endorsed in according to the milling contract, was in duty
blank and physical possession was bound to take delivery thereof at the warehouse,
delivered to P as collateral security since it was established that the LSC compound
for the overdraft of Fiber Company was bombed on December 1941 by the Japanese
and who also occupied it from 1 January to 20
o That the quedans were in February 1942, the loss was due to the war or to
negotiable form. a fortuitous event and therefore, the obligation of
- D cannot now deny the existence of the the depositary to deliver what has been
quedans deposited in him has been extinguished by the
happening of a fortuitous event, which in this Consolidated becomes liable under Section 10 of
case, is the pacific war. The judgment appealed the WRL for misdelivery. On the contention that
from is affirmed. DMG was negligent for allowing such permits to
fall into the hands of unauthorized persons,
This is an appeal from a decision of the Court of contributory negligence is not one of the
First Instance of Nueva Ecija which orders the defenses specified in its answer. In order to for it
defendant to pay to the plaintiff the sum of to be a defense, it must previously show to have
P3,000, with interest thereon at the rate of 6% been committed. The burden of proof is in himself
per annum from June 26, 1940, and the costs of who alleges it as a defense. It cannot be inferred
action. from the fact that persons other than the
consignee or owner were able to take possession
ESTRADA V. CAR of the shipping documents or the permit papers
which were supposed to be in the latters custody.
63 OG 10
Facts: Consolidated Terminals Inc (CTI)
operated a customs warehouse in Manila. It
DMG ordered replacement parts for diesel
received 193 bales of high density compressed
conversion engine from Germany.
raw cotton worth P99k. It was understood that CTI
Upon arrival in Manila, the shipment was
would keep the cotton on behalf of Luzon
placed in the warehouse of Consolidated Brokerage until the consignee Paramount Textile
Terminals. had opened the corresponding letter of credit in
When DMG demanded for the delivery of the favor of Adolph Hanslik Cotton. By virtue of
goods, Consolidated stated that it was already forged permits, Artex was able to obtain the bales
released and delivered to DMG through a of cotton and paid P15k.
delivery permit which was presented by a
certain Sandoval authorized by Alteza. Issue: W/N CTI as warehouseman was
DMG contends that it has no such employees. entitled to the possession of the bales of cotton?
It demanded for the payment of such goods.
Ruling: No. CTI had no cause of action. It was not
the owner of the cotton. It was not a real party of
Issue: interest in the case. CTI was not sued for
damages by the real party in interest.
Whether or not Consolidated is liable to DMG?


Yes, Consolidated is liable to DMG.

Consolidated did not faithfully comply with its Facts: Manila Railroad received into its custody a
duties and obligations. Section 9 of the shipment of cases of milk, of which 3.171 wwere
Warehouse Receipts Law does not deem it marked for Cebu and 1,829 for Lua Kia but
sufficient as prerequisite for delivery the mere according to the bills of lading in Manila Railroad's
presentment of the receipt. It further requires possession, Lua Kia was entitled to 2000 cases
that the person to whom the goods should be and Cebu was entitled to 3000 cases. Manila
delivered is one who is either himself entitled to Railroad delivered 1,913 cases to Lua Kia, which
the propertyor who has written authority from is 87 cases short in the bill of lading.
the person so entitled. Presentment of the
receipt must be couple with ascertainment that Issue: WoN manila RailRoad is liable to Lua Kia for
the person so presenting it is rightfully entitled to the underlivered cases of milk
take delivery of the goods covered by the receipt.
Ruling. Yes. The legal relationship between an
Consolidated did not ascertain the identity of arrastre operator and the consignee is akin to
Sandoval and Alteza. They have not called up that of a depositor and warehouseman. As
DMG first and ascertained the genuineness of the custodian of the goods discharged from the
authority in writing before delivering the articles vessel, it was A's duty like that of nay other
considering that they did not know either depositary to take good care of the goods and
Sandoval or Alteza. turn them over to the party entitled to their
possession. Under this particular set of The intention of the parties to the
circumstances, A should have held delivery transaction must prevail against such a technical
because of the discrepancy between the bill of objection to the sufficiency of the description of
lading and the markings and conducted its own the tobacco. It might be different if there had
investigation not unlike that under Sectopm 18 of been Cagayan tobacco in the warehouse at the
the Warehouse Receipts law, or called upon the time of the issuance of the quedan, or if there
parties to interplead such ias in case under were any doubt as to the identity of the tobacco
Section 17 of the same law, in order to determint intended to be covered by the quedan.
the rightful owner of the goods.
The quedan was a negotiable warehouse
receipt which was duly issued and delivered by
the debtor U. de Poli to American Foreign Banking
AMERICAN FOREIGN BANKING Corporation and it divested him of his title to said
CORPORATION vs HERRIDGE tobacco and transferred the position and the title
G.R.No.21005, December 20, 1924 thereof the American Foreign Banking

U. de Poli was a debtor of American

Foreign Banking Corporation. He issued a Topic: Warehouse Receipts Law; sec. 38
warehouse receipt, commonly known as quedan. PNB v. Atendido
The warehouse receipt of the mercahndise FACTS:
covered thereby was described as Cagayan Laureano Atendido obtained from PNB a
tabacco en rama. It was indorsed in blank by U. loan of P3k and pledged 2000 cavans of
De Poli to American Foreign Banking Corporation palay to guarantee payment which were
then deposited in the warehouse of Cheng
As security for an overdraft. U. De Poli became Siong Lam & Co and to that effect the
insolvent and the bank presented its claim for the borrower endorsed in favour of the bank
delivery of the tobacco covered in the warehouse the corresponding warehouse receipt.
receipt. Before the maturity of the loan, the 2000
cavans of palay disappeared for unknown
However, it was found that the tobacco reasons in the warehouse. When the loan
had come from Isabela and not from Cagayan, matured, the borrower failed to pay
and the banks claim was disputed by other obligation
creditors of the insolvent on the ground that, Defendant claimed that the warehouse
among others, that the tobacco claimed, being receipt covering the palay which was
Isabela tobacco, was not correctly described in given as security having been endorsed in
the warehouse receipt and that, therefore, the blank in favour of the bank and the palay
receipt was ineffective as against the general having been lost or disappeared, he
creditors. thereby became relieved of liability.

Issue: Whether the use of the word Cagayan ISSUE: Whether the surrender of the warehouse
instead of Isabela in describing the tobacco in receipt covering 2000 cavans of palay given as
the quedan renders the quedan null and void as security, endorsed in blank, to PNB, has the effect
negotiable warehouse receipt for the tobacco of transferring their title or ownership OR it
intended to be covered by it. should be considered merely as a guarantee to
secure the payment of the obligation of
Ruling: Defendant?

The identity of the tobacco was sufficiently HELD:

established by the evidence. In the warehouse, Nature of contract is Pledge supported by
there was no other tobacco stored nut only the the stipulations embodied in the contract
Isabela tobacco. The debtor also said that Isabela signed by Defendant when he secured the
tobacco was the tobacco which he transsfered to loan from PNB.
American Foreign Banking Corporation. Aside The 2000 cavans of palay covered by the
from that, when the subaccountant of the bank
warehouse receipt were given to PNB only
went to the warehouse to check which tobacco
as a guarantee to secure the fulfilment by
was covered by the warehouse receipt, the
Defendant in his obligation. This clearly
assignee and one of his accountants pointed to
appears in the contract wherein it is
him the Isabela tobacco.


expressly stated that said 2000 cavanes of Plaintiff is a corporation engaged in business
palay were given as collateral security. generally, and that the Defendant HSBC is a
It follows that by the very nature of the foreign bank authorized to engage in the
transaction its ownership remains with the banking business in the Philippines.
pledgor subject only to foreclosure in case
of non-fulfillment of the obligation. On June 25, 1926, Otto Ranft called the office
By this we mean that if the obligation is of the Plaintiff to purchase hemp (abaca), and
not paid upon maturity the most that the he was offered the bales of hemp as
pledge can do is to sell the property and described in the contested negotiable
apply the proceeds to the payment of the quedans.
obligation and to return the balance, if
any, to the pledgor. This is the essence of
The parties agreed to the aforesaid price, and
the contract, for, according to law, a
on the same date the quedans, together with
pledge cannot become the owner of, nor
the covering invoice, were sent to Ranft by
appropriate to himself the thing given in
the Plaintiff, without having been paid for the
hemp, but the Plaintiff's understanding was
If by the contract of pledge, the pledgor
continues to be the owner of the thing
pledged during the pendency of the o that the payment would be made
obligation, it stands to reason that in case against the same quedans,
of loss of the property, the loss should be
borne by the pledgor. o and it appear that in previous
The fact that the warehouse receipt transaction of the same kind between
covering the palay was delivered, the bank and the Plaintiff, quedans
endorsed in blank, to the bank does not were paid one or two days after their
alter the situation, the purpose of such delivery to them.
endorsement being merely to transfer the
juridical possession of the property to the Immediately these Quedans were pledged by
pledge and to forestall any possible Otto Ranft to the Defendant HSBC to secure
disposition thereof on the part of the the payment of his preexisting debts to the
pledgor. latter.
Where a warehouse receipt or quedan is
transferred or endorsed to a creditor only The baled hemp covered by these warehouse
to secure the payment of a loan or debt, receipts was worth P31,635; 6 receipts were
the transferee or endorsee does not endorsed in blank by the Plaintiff and Otto
automatically become the owner of the Ranft, and 2 were endorsed in blank, by Otto
goods covered by the warehouse receipt Ranft alone
or quedan but he merely retains the right
to keep and with the consent of the owner
to sell them so as to satisfy the obligation On the evening of the said delivery date, Otto
from the proceeds of the sale. This is for Ranft died suddenly at his house in the City of
the simple reason that the transaction Manila.
involved is not a sale but only a mortgage
or pledge, and that if the property covered When the Plaintiff found out, it immediately
by the quedans or warehouse receipts is demanded the return of the quedans, or the
lost without fault or negligence of the payment of the value, but was told that the
mortgagee or pledge or the transferee or quedans had been sent to the herein
endorsee of the warehouse receipt or Defendant as soon as they were received by
quedan, then said goods are to be Ranft.
regarded as lost on account of the real
owner, mortgagor or pledgor. Shortly thereafter the Plaintiff filed a claim for
the aforesaid sum of P31,645 in the intestate
proceedings of the estate of the deceased
MARTINEZ V. PNB Otto Ranft, which on an appeal from the
decision of the committee on claims, was
Siy Cong Bien vs HSBC allowed by the CFI Manila.

FACTS In the meantime, demand had been made by

the Plaintiff on the Defendant bank for the
return of the quedans, or their value, which
demand was refused by the bank on the person to whom a negotiable receipt
ground that it was a holder of the quedans in has been duly negotiated acquires
due course. thereby:

(a) Such title to the goods as the

person negotiating the receipt to
ISSUE him had or had ability to convey to
a purchaser in good faith for value,
and also such title to the goods as
the depositor of person to whose
order the goods were to be
Whether or not the Quedans endorsed in blank delivered by the terms of the
gave the HSBC rightful and valid title to the receipt had or had ability to convey
goods? to a purchaser in good faith for
value, and. . . .

Therefore, the bank is not responsible for the

HELD loss; the negotiable quedans were duly
negotiated to the bank and as far as the
record shows, there has been no fraud on the
part of the Defendant.
YES. SC ruled in favour of Defendant HSBC.
Moreover, Plaintiff is estopped to deny that
the bank had a valid title to the quedans for
the reason that the Plaintiff had voluntarily
It may be noted, clothed Ranft with all the attributes of
ownership and upon which the Defendant
bank relied. Subsequently, Plaintiff in this
o first, that the quedans in question
case has suffered the loss of the quedans, but
were negotiable in form;
as far as the court sees it, there is now no
remedy available to the Plaintiff equitable
o second, that they were pledged by estoppel place the loss upon him whose
Otto Ranft to the Defendant bank to misplaced confidence has made the wrong
secure the payment of his preexisting possible as ruled in National Safe Deposit vs.
debts to said bank; Hibbs (a US case)

o third, that such of the quedans as were WAREHOUSE RECEIPT: Who may negotiate a
issued in the name of the Plaintiff were receipt?
duly endorsed in blank by the Plaintiff

o and fourth, that the two remaining FACTS: Defendant issued on several dates
quedans which were duly endorsed in warehouse receipts, which were substantial in
blank by him. form and contained the terms prescribed by law,
to Rosa Sy and Teresita Ng. Subsequently, some
The bank had a perfect right to act as it did, of the warehouse receipts were negotiated and
and its action is in accordance with sections indorsed to Luis Ramos and Cresencia Zoleta.
47, 38, and 40 of the Warehouse Receipts Act Ramos and Zoleta then used the quedans as
security for loans obtained by them from PNB.
Upon maturity, both failed to pay, prompting PNB
However, the pertinent provision regarding to demand the delivery of the sugar covered by
the rights the Defendant bank acquired over the quedans indorsed to it by Ramos and Zoleta.
the aforesaid quedans after indorsement and Noahs refused to comply with the demand, PNB
delivery to it by Ranft, is found in section 41 filed a case for Specific Performance.
of the Warehouse Receipts Act (Act No. 2137):
The main contention of Noahs was that it was
still the owner of the subject quedans and the
quantity of sugar represented thereon because
o SEC. 41. Rights of person to whom a the corresponding payment of Sy and Ng through
receipt has been negotiated. A checks were dishonoured and so they did not
acquire ownership. The it follows that the of RNS Merchandising and St. Therese
subsequent indorsers and plaintiff itself did not Merchandising, in breach of trust, fraud or
acquire a better right of ownership than the conversion against Noah's Ark.
original vendees or first indorsers.
In the answer of Sy and Ng, they alleged that the
transaction between them and Noahs, FACTS
concerning the quedans, was bogus and
simulated. It was part of a complex banking - Noahs Ark Sugar Refinery (Noahs) issued
scheme and financial maneuvers to avoid VAT several warehouse receipts (quedans),
payment and other BIR assessments. which were negotiated to Rosa, RNS and
St. Therese (vendees), which were again
ISSUES: negotiated to Luis and Cresencia, which
1. WON the non-payment of the purchase price they (Luis and Cresencia) endorsed to PNB
for the sugar stock evidenced by the quedans, as security for 2 loan agreements.
rendered invalid the negotiation of said quedans o Transfer of quedans Noahs
by Sy and Ng to indorsers Ramos and Zoleta and Rosa, RNS and St. Therese Luis
the subsequent negotiation of Ramos and Zoleat and Cresencia PNB
to PNB? - Luis and Cresencia failed to pay their loans
2. WON PNB as indorsee of quedans was entitled hence PNB demanded delivery of sugar
to delivery of sugar stocks from the stocks, however, Noahs Ark refused,
warehouseman, Noahs Ark? alleging ownership thereof.
- Noahs Ark contended that the agreement
HELD: The validity of the negotiation by RNS made by them with the vendees was
Merchandising and St. Therese Merchandising to stopped since the bank dishonored the
Ramos and Zoleta, and by the latter to PNB to payments made by the vendees to Noahs
secure a loan cannot be impaired by the fact that Ark. As such, the vendees and the
the negotiation between Noah's Ark and RNS endorsers of the quedans never acquired
Merchandising and St. Therese Merchandising ownership thereof.
was in breach of faith on the part of the - Noahs Ark claimed for warehousemans
merchandising firms or by the fact that the owner lien for the storage of the goods.
(Noah's Ark) was deprived of the possession of - LC granted lien
the same by fraud, mistake or conversion of the - PNB appealed
person to whom the warehouse receipt/quedan
was subsequently negotiated if (PNB) paid value ISSUE: WoN PNB is entitled to the stocks of sugar
therefor in good faith without notice of such as the endorsee of the quedans, without paying
breach of duty, fraud, mistake or conversion. (See the lien
Article 1518, New Civil Code). And the creditor
(PNB) whose debtor was the owner of the SC: YES
negotiable document of title (warehouse receipt)
shall be entitled to such aid from the court of - While PNB is entitled to the stocks of
appropriate jurisdiction attaching such document sugar as the endorsee of the quedans,
or in satisfying the claim by means as is allowed delivery to it shall be effected only upon
by law or in equity in regard to property which payment of the storage fees.
cannot be readily attached or levied upon by - The warehouseman is entitled to the
ordinary process. (See Art. 1520, New Civil Code). warehousemans lien that attaches to the
If the quedans were negotiable in form and duly goods invokable against anyone who
indorsed to PNB (the creditor), the delivery of the claims a right of possession thereon.
quedans to PNB makes the PNB the owner of the - However, in this case, the lien was lost
property covered by said quedans and on deposit when R refused to deliver the goods,
with Noah's Ark, the warehouseman. (See Sy which were not anchored to a valid excuse
Cong Bieng & Co. vs. Hongkong & Shanghai Bank (i.e. non satisfaction of W/Hman Lien) but
Corp., 56 Phil. 598). on an adverse claim of ownership.
- The loss of W/H Mans lien does not
In the case at bar, PNB's right to enforce the necessarily mean the extinguishment of
obligation of Noah's Ark as a warehouseman, to the obligation to pay the W/H fees and
deliver the sugar stock to PNB as holder of the charges which continues to be a personal
quedans, does not depend on the outcome of the liability of the owners, PNB in this case.
third-party complaint because the validity of the However, such fees and charges have
negotiation transferring title to the goods to PNB ceased to accrue from the date of the
as holder of the quedans is not affected by an act
rejection by Noahs Ark to heed the lawful For value received we hereby guarantee
demand for the release of the goods. compliance with the terms and conditions
as outlined in the above contract.

2) Thereafter Machetti constructed the building

and, as the work progressed, payments were
made to him from time to time, until the entire
contract price, except the sum of P4,978.08, was

3) Later on it was found that the work had not

been carried out in accordance with the
specifications which formed part of the contract
and that the workmanship was not of the
standard required, and thus the Hospicio
presented a counterclaim for damages for the
partial noncompliance with the terms of the
agreement abovementioned, in the total sum of

4) During the duration of the trial however,

Machetti, declared insolvent and an order was
entered suspending the proceeding in the present
case. Thus, the Hospicio filed a motion asking
that the Fidelity and Surety Company be made
cross-defendant to the exclusion of Machetti and
that the proceedings be continued as to said
company, which motion was granted and
subsequently, the Hospicio filed a complaint
against the Fidelity and Surety Company for a
judgement against the company upon its
guaranty. The CFI rendered judgment against

ISSUE: Whether or not Fidelity is answerable to

the Hospicio as guaranty of Machetti.


A) Guarantor implies an undertaking of guaranty,

as distinguished from suretyship and in this case,
it appears that the contract is the guarantor's
separate undertaking in which the principal does
not join, that its rests on a separate consideration
GUARANTY AND SURETYSHIP moving from the principal and that although it is
written in continuation of the contract for the
construction of the building, it is a collateral
undertaking separate and distinct from the latter.
MACHETTI v HOSPICIO DE SAN JOSE All of these circumstances are distinguishing
FACTS: features of contracts of guaranty.

1) In 1916, Romulo Machetti, agreed to construct B) On the other hand, a surety undertakes to pay
a building in Manila for the Hospicio de San Jose, if the principal does not pay, the guarantor only
for P64,000. One of the conditions of the binds himself to pay if the principal cannot pay.
agreement was that the contractor should obtain The one is the insurer of the debt, the other an
the "guarantee" of the Fidelity and Surety insurer of the solvency of the debtor. This latter
Company of the Philippine Islands to the amount liability is what the Fidelity Company assumed in
of P128,800. Said contract read: this case. Thus, Fidelity having bound itself to pay
only the event its principal, cannot pay it follows
that it cannot be compelled to pay until it is
shown that Machetti is unable to pay. The We, MRC et. al, as principal and the Standard
judgment appealed from is therefore reversed. Insurance Co. Inc xxx as surety does not suffice
to make contract binding on the MRC unless it is
shown that the same was authorized by it.
PHIL EXPORT v VP EUSEBIO Neither the signature nor the acknowledgment
indicates that the act of that of the MRC or that
FACTS: Respondent entered into contract with the latter had empowered MPS to execute the
SOB for construction of Therapy Bldg. SOB bond in its behalf. The result would be that the
demanded bonds to secure performance. Project appeal bond is void and unenforceable for lack of
was delayed principal debtor or obligation.

DOCTRINE: By guaranty a person, called the While the surety bound itself to pay jointly and
guarantor, binds himself to the creditor to fulfill severally, such an undertaking presupposes that
the obligation of the principal debtor in case the the obligation is to be enforceable against
latter should fail to do so; if the person binds someone else besides the surety and the latter
himself solidarily with the principal debtor, the could always claim that it was never its intention
contract is called suretyship. to be the sole person obliged thereby.

That the guarantee issued by the

petitioner is unconditional and irrevocable does IFC v IMPERIAL TEXTILE
not make the petitioner a surety. As a guaranty, it
is still characterized by its subsidiary and Facts: IFC extended to PPIC a loan of
conditional quality because it does not take effect US$7,000,000.00, payable in sixteen (16)
until the fulfillment of the condition. semi-annual installments of
Unconditional guarantee is still subject to the US$437,500.00 each, beginning June 1,
condition that the principal debtor should default 1977 to December 1, 1984. On December
in his obligation first before resort to the 17, 1974, a Guarantee Agreement was
guarantor could be had. executed with Imperial Textile Mills, Inc.
(ITM). ITM agreed to guarantee PPIC's
obligations under the loan agreement.
MANILA RAILROAD v ALVENDIA PPIC paid the installments due on June 1,
Facts: 1977, December 1, 1977 and June 1,
1978. Despite the rescheduling of the
CFI sentenced Manila Railroad Co. (MRC) and installment payments, however, PPIC
Manila Port Service (MPS) to pay Bataan defaulted. IFC demanded ITM and
Refining Corp. Grandtex, as guarantors of PPIC, to pay
the outstanding balance. However, the
MPS filed a notice of appeal accompanied by
outstanding balance remained unpaid.
an appeal bond.
Noticing that the appeal bond was only Issue: The issue is whether ITM is a surety, and
executed by MPS signed by the manager and thus solidarily liable with PPIC for the payment of
Standard Insurance (as surety) signed by the the loan.
vice-president, the trial court rejected the
record on appeal. Ruling: Yes. The Agreement uses guarantee and
It is contended by MRC that the MPS, being a guarantors, prompting ITM to base its argument
mere subsidiary or department of MRC, on those words. This Court is not convinced that
without legal personality of its own, the bond the use of the two words limits the Contract to a
filed by the former should be a bond for the mere guaranty. The specific stipulations in the
MRC and that the appeal of the latter should Contract show otherwise.
have been given due course.
While referring to ITM as a guarantor, the
Issue: Whether or not the notice of appeal should Agreement specifically stated that the
be accepted? corporation was 'jointly and severally liable. To
put emphasis on the nature of that liability, the
Held: Contract further stated that ITM was a primary
obligor, not a mere surety. Those stipulations
No, the notice of appeal should be rejected. meant only one thing: that at bottom, and to all
legal intents and purposes, it was a surety.
Where there is no principal debtor in the
appeal bond, it is void and unenforceable. Indubitably therefore, ITM bound itself to be
The mere recital in the body of the instrument, solidarily.
16, 1979 a Deed of Real Estate Mortgage over its
properties situated in Pasig, Metro Manila.
On March 26, 1979 Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco, in
F: upon the death of x, who left considerable their personal capacities executed a Surety
property, a litigation ensued between c, xs Agreement in favor of PBCom whereby the
widow, and other heirs of x. a compromise was petitioners jointly and severally, guaranteed the
effected by which d, a son of x, took over the prompt payment on due dates of overdrafts,
property pertaining to the estate of x at the same promissory notes, discounts, drafts, letters of
time agreeing to pay P100k to c, payable, first in credit, bills of exchange, trust receipts, and other
P40k cash upon the execution of the document of obligations of every kind and nature, for which
compromise and the balance, in three equal MICO may be held accountable by PBCom. It was
installments. G. affixed his name as guarantor provided, however, that the liability of the
sureties shall not at any one time exceed the
Upon ds failure to pay the balance, c instituted principal amount of Three Million Pesos plus
an action against d and g, the latter contending interest, costs, losses, charges and expenses
that he received nothing for affixing his signature including attorneys .
as guarantor to the contract and that in effect the
contract was lacking in consideration as to him. On July 14, 1980, petitioner Charles Lee, in his
capacity as president of MICO, wrote PBCom and
Issue: is there a consideration for the guaranty? applied for an additional loan in the sum of Four
Million Pesos). The loan was intended for the
Ruling: a guarantor or surety is bound by the expansion and modernization of the companys
same consideration that makes the contract machineries. Upon approval of the said
effective between the principal parties thereto. application for loan, MICO availed of the
The compromise and dismissal of lawsuit is additional loan of Four Million Pesos (as
recognized in law as a valuable consideration; evidenced by Promissory Note TA No. 094.
and the dismissal of the action which c instituted
against d was an adequate consideration to
As per agreement, the proceeds of all the loan
support the promise on the part of d to pay the
availments were credited to MICOs current
sums stipulated in the contract subject of the
checking account with PBCom. To induce the
PBCom to increase the credit line of MICO,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso
It is neither necessary that the guarantor or
Yap, Richard Velasco and Alfonso Co (hereinafter
surety should receive any part of the benefit, if
referred to as petitioners-sureties), executed
such there be accruing to his principal. The true
another surety agreement in favor of PBCom on
consideration of this contract was the detriment
July 28, 1980, whereby they jointly and severally
suffered by c in the former action in dismissing
guaranteed the prompt payment on due of
the proceeding and it is immaterial that no
overdrafts, promissory notes, discounts, drafts,
benefit may have accrued either to the principal
letters of credit, bills of exchange, trust receipts
or his guarantor
and all other obligations of any kind and nature
for which MICO may be held accountable by
PBCom. It was provided, however, that their
LEE v CA liability shall not at any one time exceed the sum
FACTS: PBCOM was furnished by a board of Seven Million Five Hundred Thousand Pesos
resolution stating that they authorize President, including interest, costs, charges, expenses and
Mr. Charles Lee, and the Vice-President and attorneys fees incurred by MICO in connection
General Manager, Mr. Mariano A. Sio to apply for, therewith.
negotiate and secure the approval of commercial
loans and other banking facilities and
accommodations, from the Philippine Bank of Upon maturity of all credit availments obtained
Communications, in such sums as they shall by MICO from PBCom, the latter made a demand
deem advantageous, the principal of all of which for payment. For failure of petitioner MICO to pay
shall not exceed the total amount of TEN MILLION the obligations incurred despite repeated
PESOS (P10,000,000.00), Philippine Currency, demands, private respondent PBCom
plus any interests. extrajudicially foreclosed MICOs real estate
mortgage and sold the said mortgaged properties
in a public auction sale held on November 23,
Mico availed of the loans and as security for the 1982 and PBCom won and applied the proceeds
loans, MICO through its Vice-President and of the purchase price at public auction of Three
General Manager, Mariano Sio, executed on May
Million Pesos to the expenses of the foreclosure, consideration for the sureties is the very
interest and charges and part of the principal of consideration for the principal obligor, MICO, in
the loans, leaving an unpaid balance of Five the contracts of loan.
Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos In the case of Willex Plastic Industries
exclusive of penalty and interest charges. Corporation vs. Court of Appeals, we ruled that
the consideration necessary to support a
Aside from the unpaid balance, MICO likewise had surety obligation need not pass directly to
another standing obligation and PBCom then the surety, a consideration moving to the
demanded the settlement of the aforesaid principal alone being sufficient. For a
obligations from herein petitioners-sureties who, guarantor or surety is bound by the same
however, refused to acknowledge their consideration that makes the contract
obligations to PBCom under the surety effective between the parties thereto.
It is not necessary that a guarantor or
Hence, PBCom filed a complaint with prayer for surety should receive any part or benefit, if
writ of preliminary attachment, alleging that such there be, accruing to his principal.
MICO was no longer in operation and had no DE GUZMAN v SANTOS
properties to answer for its obligations. PBCom FACTS:
further alleged that petitioner Charles Lee has Jerry O. Toole, Antonio Abad and Anastacio
disposed or concealed his properties with intent Santos formed a general mercantile
to defraud his creditors. Except for MICO and partnership Philippine American
Charles Lee, the sheriff of the RTC failed to serve Construction Company with a capital of
the summons on herein petitioners-sureties since P14k.
they were all reportedly abroad at the time. An P10k of which were taken by way of loan
alias summons was later issued but the sheriff from Paulino Candelaria. The partnership
was not able to serve the same to petitioners and the co-partners undertook and bound
Alfonso Co and Chua Siok Suy who was already themselves to pay jointly and severally
sickly at the time and reportedly in Taiwan where the indebtedness.
he later died. Upon default, Paulino filed civil case
against Phil-Am Construction Company
Petitioners contend that there was no proof that and co-partners for the recovery of loan
the proceeds of the loans or the goods under the TC ordered all Defendants to pay jointly
trust receipts were ever delivered to and received and severally; CA affirmed
by MICO. But the record shows otherwise. Upon filing of complaint, Paulino obtained
Petitioners-sureties further contend that a writ of attachment against Defendants.
assuming that there was delivery by PBCom of The Sheriff attached properties of 3
the proceeds of the loans and the goods, the partners. Partnership offered to post a
contracts were executed by an unauthorized bond of P10k.
person, more specifically Chua Siok Suy who Phil-Am Construction Company as
acted fraudulently and in collusion with PBCom to principal then represented by the partner
defraud MICO. Antonio Abad, Santiago Lucero and
Meliton Carlos as guarantors executed a
ISSUE: Whether or not the individual petitioners, bond of P10k in favour of Paulino for the
as sureties, may be held liable under the two (2) lifting of the attachment.
Surety Agreements executed on March 26, 1979 After issuance of writ of execution, Sheriff
and July 28, 1980. found no property of the judgment
debtors. Paulino moved for the issuance of
RULING: Yes. writ of execution against the guarantors of
The court ruled that it is proven that MICO Guarantor-Plaintiff and co-guarantor
received the proceeds of the loan and that Meliton Carlos later paid the creditor and
PBCom has the right to to believe that Chua Siok were able to recover from Antonio Abad a
Suy based on the Certificate issued by the sum of P3800, which they divided equally.
Sectretary of MICO. It appeared that the payment made by the
plaintiff to Paulino was reduced to the sum
The court ruled that as regards petitioners- of P3665. Plaintiff now demands from
sureties contention that they obtained no Anastacio Santos the return of the
consideration whatsoever on the surety aforesaid sum but Anastacio refused.
agreements, the court pointed that the
ISSUE: Whether or not Defendant is bound to pay series of 1925, of the council of said plaintiff,
Plaintiff what he had advanced to Paulino? Miguel Marasigan filed the bond, Exhibit B,
subscribed on December 15, 1930, by the
HELD: YES defendants-appellants Angel R. Sevilla and
Article 1838 provides that any guarantor Gonzalo L. Luna, who bound themselves in said
who pays for the debtor shall be document to pay to the plaintiff the sum of
indemnified by the latter even should the P8,400, if Miguel Marasigan failed to deposit one-
guaranty have been undertaken without fourth of P4,200 quarterly in advance in the
the knowledge of the debtor. municipal treasury of Gasan.
IN THIS CASE: The guarantor was the
deceased Santiago Lucero, now Graciano Napa forwarded a protest (Exhibit 4) to
represented by the plaintiff in her capacity the provincial board, which protest was later
as judicial administratrix, and the debtor is indorsed by said provincial board to the Chief of
the defendant-appellant. Applying the the Executive Bureau, alleging that the plaintiff
provision cited, it is obvious that the municipality violated the provisions of section
Defendant is legally bound to pay what 2323 of the Administrative Code in rejecting his
the Plaintiff had advanced to the creditor bid.
upon the judgment, notwithstanding the
fact that the bond had been given without The provincial board, passing upon Graciano
his knowledge. Napa's protest and acting under the authority
Any person who makes a payment for which, in its opinion, was granted to it by section
the account of another may recover 2233 of the Administrative Code, held that
from the debtor the amount of the resolution No. 161, series of 1930, by virtue of
payment, unless it was made against which the municipal council of Gasan rejected
the express will of the latter. In the Graciano Napa's bid and accepted that of Miguel
latter case, he can only recover from Marasigan, notwithstanding the fact that the
the debtor in so far as the payment latter offered to pay less, was invalid, and
has been beneficial to the latter. suggested that the privilege should be, awarded
It is evident that Defendant is bound to to Graciano Napa who, in its opinion, appeared to
pay to the plaintiff what the latter had be the highest bidder in accordance with the
advanced to the creditor upon the provisions of sections 2323 and 2319 of the
judgment, and this is more so because it Administrative Code (Exhibit 9). The Executive
appears that although Lucero executed Bureau, concurring with the provincial board's
the bond without his knowledge, points of view, declared, in turn, that the
nevertheless he did not object thereto or concession made to Marasigan was illegal in view
repudiate the same at any time. of the fact that Graciano Napa was the highest
bidder (Exhibit 13).

MUNICIPALITY OF GASAN v MARASIGAN The plaintiff municipality decided to award the

FACTS: privilege of gathering whitefish spawn within its
waters to Graciano Napa, giving him a period of
The plaintiff-appellee municipality, on December seven days, from January 8, 1931 (Exhibit 19-A),
9, 1930, put up at auction the privilege of to deposit the sum of P500.
gathering whitefish spawn in its jurisdictional
waters for the period of one year from January 1, Graciano Napa not only failed to make the
1931. Two bidders, Graciano Napa and Miguel deposit required by the plaintiff but he formally
Marasigan, appeared at the auction. Graciano declared, through his duly authorized
Napa proposed to accept the privilege by paying representative, that he yielded the privilege
P5,000 therefor, Miguel Marasigan proposed to do granted him to Miguel Marasigan or to any other
likewise, but by paying only P4,200. person selected by the municipal authorities.

The council of the plaintiff-appellee municipality, One day later plaintiff-appellee municipality sent
in its resolution No. 161 (Exhibit 1) of December the letter Exhibit 21 to Miguel Marasigan
11, 1930 rejected Graciano Napa's bid and informing him that the contract between them
accepted that of the appellant Miguel Marasigan. becomes effective on January 14, 1931.

To secure his compliance with the terms of the Prior to this, plaintiff informed Marasigan that the
contract which was immediately formalized by contract granting Marasigan the privilege is
him and the plaintiff, and pursuant to the suspended & considered ineffective while the
provisions of section 8 of resolution No. 128, protest is pending.


Plaintiff filed an action to recover from Marasigan, On July 1919, Smith, Bell & Co. informed both
Sevilla and Luana the sum of P 3,780 as part of Harden and PNB that the expellers had
license fees which they failed to pay. arrived.

ISSUE: w/n respondents are liable Shortly thereafter Harden, having examined
the machinery in the Plaintiff's bodega,
HELD: advised the Bank that the expellers were not
as ordered.
No. The contract was not only considered not
consummated but cancelled.
Consequently, the Bank naturally refused to
It ceased to be valid when it was cancelled accept and pay for the machinery, and the
Plaintiff disposed of them to the best
Neither the appellant nor his sureties were bound advantage in the Manila market at a price
to comply with the terms of their respective which was below the price at which Harden
contracts of fishing privilege and suretyship. had agreed to take them.

This is so particularly with respect to the sureties, The ground upon which the defense is chiefly
because suretyship cannot exist without a valid rested is that the expellers tendered by the
obligation. Plaintiff were "side-drive" instead of "end-
drive" expellers, and in support of this
Guaranty is not presumed. contention Harden was produced by the
Defendant as a witness, and he denied that
The elimination of the obligation for which said the order for expellers had been changed
sureties desired to answer with their bond also upon his instructions.
rendered the bond also eliminated.
FACTS Whether or not PNB is subsidiary liable?

On April 1918, Fred M. Harden applied to Rulings:

Smith, to buy 8 Anderson expellers end drive,
latest model, for the price of P80,000, to be NO. The SC ruled that PNBs liability is primary
paid on delivery. This would be used for the in nature.
extraction of coconut oil.
The contract by which the Bank obligated
It was understood that these expellers would
itself is both in form and effect an
be manufactured in the US and delivery would independent undertaking on the part of the
be in the month of February or March of the Bank directly to the Plaintiff; and inasmuch as
ensuing year. the Plaintiff had compiled, or offered to
comply, with the terms of said contract, the
In order to assure the prompt payment of the Bank is bound by its promise to pay the
price upon delivery, an arrangement was purchase price.
made between Harden and the Philippine
National Bank (PNB) whereby the latter bound Its obligation to the Plaintiff is direct and
itself to Smith, Bell & Co. for the payment of independent. The debt must be considered a
the contract price, but provided that the liquidated debt, in the sense intended in
expellers would delivered to them and must article 1825 of the Civil Code; and the action
be new and in first class working order. is now maintainable by the Plaintiff directly
against the Bank without regard to the
Shortly after the contract was made, Harden position of Harden.
appeared in the office of Smith, Bell & Co. and
requested them to change the order for the The Bank is to be considered strictly in the
expellers from "end-drive" to "side-drive;" and light of an independent promisor, a
in obedience to this instruction, the house consequence would be that Harden had no
cabled to its agent in New York to change the authority to change the order from end-drive
order accordingly, which was done. to side-drive expellers; in other words, that
the Bank should be held to be obligated
according to the terms of the order as it stood


when the Bank entered into the undertaking agreements to guaranty among others,
which is the subject of the suit. any existing indebtedness of Davao
Agricultural Industries Corporation
provided that the liability shall not exceed
at any one time the aggregate principal
WISE & CO. v KELLY sum of P100,000.00.
FACTS: Kelly bought goods and merchandise on
credit from Wise and Co., with the agreement that A promissory note in the amount of
Kelly will apply the proceeds of its sale to the P100,000.00 was issued in favor of
discharge of his indebtedness. Lim, as surety for petitioner. Said note was signed by
Kelly, guaranteed unto Wise & Co. the payment of Enrique Go, Sr. in his personal capacity
a sum of money which Kelly owes to Wise for and in behalf of Daicor. The promissory
goods and merchandise received and purchased note was not fully paid despite repeated
by Kelly, to be sold in his establishment, upon the demands; hence petitioner filed a
condition that Kelly will pay over to Wise at the complaint for a sum of money against
end of each month all sums which he may receive Daicor, Enrique Go, Sr. and Residoro Chua
from the sale of said goods and merchandise, and Petitioner alleged that by virtue of the
that in the contrary event, the surety undertakes execution of the comprehensive surety
to pay Wise such sums as Kelly may fail to turn in. agreement, private respondent is liable
because said agreement covers not
As alleged by Wise, Kelly has not paid any money merely the promissory note subject of the
and thus filed a collection case against Kelly and complaint, but is continuing; and it
Lim. Lim interposed the defense that the encompasses every other indebtedness
obligation was conditional as to him, and that the the Borrower may, from time to time incur
fact constituting the condition had not occurred. with petitioner bank.
Lower court dismissed the case against Lim on
the ground that wise has not proven that Kelly The sole issue resolved by respondent
had failed to turn over any money and court was the interpretation of the
established the conclusion that Lim had incurred comprehensive surety agreement,
no liability. particularly in reference to the
indebtedness evidenced by the promissory
ISSUE: WON Lim should be held liable. note involved in the instant case, said
comprehensive surety agreement having
HELD: NO. Lim is not liable for the difference been signed by Enrique Go, Sr. and private
between the amount realized from the sale of the respondent, binding themselves as
merchandise and the purchase price of the same. solidary debtors of said corporation not
Lim as surety did not undertake to pay the only to existing obligations but to future
principal amount due. His agreement was limited ones.
to respond for the performance by Kelly of one of
the accessory pacts, namely, the undertaking to
deliver to Wise the total proceeds of the sales of Respondent court said that corollary to
the merchandise for the invoice value of which that agreement must be another
the promissory note was given. Wise has not instrument evidencing the obligation in a
proved that it has NOT in fact received all the form of a promissory note or any other
money derived from the sale of the merchandise evidence of indebtedness without which
mentioned in the note, it follows that there is no the said agreement serves no purpose;
evidence of the existence of the condition to that since the promissory notes, which is
which the obligation assumed by Lim was primarily the basis of the cause of action
subordinated. In obligations subject to a of petitioner, is not signed by private
suspensive condition the acquisitions of the right respondent, the latter can not be liable
on the part of the creditor depends upon the thereon.
occurrence of the event constituting the
ISSUE: whether private respondent is liable to pay
the obligation evidence by the promissory note?
YES, The comprehensive surety
Residoro Chua and Enrique Go, Sr. agreement was jointly executed by
executed a comprehensive surety
Residoro Chua and Enrique Go, Sr., - The intention of the parties is to secure
President and General Manager, the payment of the obligation.
respectively of Daicor, 1976 to cover o CA held-to secure the guarantee
existing as well as future obligations which undertaken by Interbank of the
Daicor may incur with the petitioner bank, credit accommodation granted to
subject only to the proviso that their Inter Resin by Manila Bank,
liability shall not exceed at any one time Interbank required P to sign a
the aggregate principal sum of Continuing Guaranty
The agreement was executed obviously to DOCTRINE: Although a contract of suretyship is
induce petitioner to grant any application ordinarily not be construed retrospective, in the
for a loan Daicor may desire to obtain end the intention of the parties as revealed by
from petitioner bank. The guaranty is a the evidence is controlling
continuing one which shall remain in full
force and effect until the bank is notified TRADERS INSURANCE v DY
of its termination. FACTS:
The surety agreement which was earlier
signed by Enrique Go, Sr. and private 1) For several years Destilleria Lim Tuaco & Co.,
respondent, is an accessory obligation, it Inc. had one Dy Eng Giok as its provincial sales
being dependent upon a principal one agent who has the duty of turning over the
which, in this case is the loan obtained by proceeds of his sales to the distillery company. In
Daicor as evidenced by a promissory note. 1951, Dys outstanding running account was in
What obviously induced petitioner bank to the sum of P12,898.61. Thereafter, a surety bond
grant the loan was the surety agreement was executed by Dy as principal and Traders
whereby Go and Chua bound themselves Insurance as solidary guarantor, whereby they
solidarily to guaranty the punctual bound themselves, jointly and severally,
payment of the loan at maturity. By terms
that are unequivocal, it can be clearly WHEREAS, the contract requires the
seen that the surety agreement was above bounden principal to give a good
executed to guarantee future debts which and sufficient bond in the above stated
Daicor may incur with petitioner, as is sum to secure the full and faithful
legally allowable under the Civil Code fulfillment on its part of said contract;
namely, to guarantee the full payment of
the Principal's obligation not to exceed the
WILLEX PLASTICS v CA above stated sum.

2) On the same date, by Eng Giok, as principal,
- Inter Resin opened a Letter of Credit with
with Pedro Lopez Dee and Pedro Dy-Liacco, as
Manila Banking Corp. with security of
counterboundsmen, subscribed an indemnity
Continuing Surety Agreement signed by
agreement in favor of appellant Surety Company,
Inter Resin and Investment and
where, in consideration of its surety bond, the
Underwriting Corp (IUCP) wherein they
three agreed to be obligated to the surety
bound themselves solidarily for the.
company. Thereafter, Dy contracted obligations in
- Later Inter Resin together with Willex (P)
favor of the Destilleria in the amount of
executed a continuing guaranty in favor of
P41,449.93; and Dy made remittances of the
IUCP, stating that Inter Resin and P are
same amount
solidarily liable. Due to this, IUCP paid
Manila Bank P4M (Letter of Credit)
- IUCP then demanded payment of the 3) The distillary, however, applied said
amount, however, Inter Resin and P failed remittances first to Dy Eng Giok's outstanding
to do so. Hence, this case balance prior to August 4, 1951, before the
- P contends that it should not be liable suretyship agreement was executed, in the sum
since P is merely a guarantor of P12,898.61; and the balance of P28,965.88 to
Dy's obligations between August 4, 1951 and
ISSUE: WoN P ma be held jointly and severally August 3, 1952.
liable with Inter Resin for the amount paid by
Interbank to Manila Bank 4) Then demanded payment of the remainder
from Dy, and later, from the appellant Surety
SC: YES Company. The latter paid P10,000.00 (the
- The amount had been paid by InterBank to maximum of its bond) on July 17, 1953,
Manila bank apparently, without questioning the demand; and
then sought reimbursement from Dy Eng Giok C) Thus, payment voluntarily made by appellant
and his counter guarantors, who however failed was improper since it was not liable under its
to pay. Because of this the company brought an bond; consequently, it can not demand
action to enforce collection. reimbursement from the counterbondsmen but
only from Dy.
5) The CFI absolved the counter-guarantors on
the theory that in so far as they are concerned, D) Ultimately, the application by a creditor
the payments made by Dy from August 4, 1951 depends upon the debtor acquiescence thereto.
to August 3, 1952, should have been applied to In the present case, as already noted, there is no
his obligations during that period, which were the evidence that the receipts for payment expressed
ones covered by the surety bond and the counter- any imputation, or that the debtor agreed to the
guaranty; and since these obligations only same. Judgment is affirmed.
amounted to P41,449.93, the payments
exceeding the obligations, the CFI concluded that
the Surety Company incurred no liability and the SOCONY v CHO SIONG
counterbondsmen in turn had nothing to answer
for. FACTS: Cho Siong entered into contract of agency
for distribution of petroleum products, assumed
HELD: liability of former agent Tong Kuan. His agency
bond was secured by Ong Guan Can. Defaulted in
A) The CFI is correct. There are two reasons why the amount of P64.00
the remittances by Dy Eng Giok in the sum of
P41,864.49 should be applied to the obligation of DOCTRINE: Under the terms of the bond signed
P41,449.93 contracted by him during the period by the surety, he did not answer for the principal
covered by the suretyship agreement: obligor save for the Latters acts by virtue of the
contract of agency. He cannot be held liable for
a.. In the absence of express stipulation, a the debt of a former agent, which the principal
guaranty or suretyship operates obligor assumed by virtue of another contract, of
prospectively and not retroactively; that is which said surety was not even aware. A contract
to say, it secures only the debts of suretyship is to be strictly interpreted and is
contracted after the guaranty takes effect not to be extended beyond its terms.
because a guaranty is not presumed, but
must be express, and can not extend to
more than what is stipulated.
b.. Since the obligations of Dy between
August 4, 1951 to August 4, 1952, were
Project Movers Realty and Devt Corp (PMRDC)
guaranteed, while his indebtedness prior
to that period was not secured, then in the obtained a loan from Garon. The loan was
absence of express application by the covered by a Promissory note to mature on
debtor, any partial payments made by him December 19. The stipulated interest rate was
should be imputed or applied to the debts 36% per annum.
that were guaranteed, since they are To secure the payment of the loan, PMRDC
regarded as the more onerous debts from undertook to assign to Garon its leasehold
the standpoint of the debtor. rights over a space at the Monumento Plaza
Commercial Complex.
B) In essence therefore debts covered by a The parties stipulated that failure to pay the
guaranty are deemed more onerous to the debtor note or any portion thereof, or any interest
than the simple obligations because, in their thereon, shall constitute as default and the
case, the debtor may be subjected to action not entire obligation shall become due and
only by the creditor, but also by the guarantor, demandable without need of demand.
and this even before the guaranteed debt is paid PMRDC obtained another loan from Garon at
by the guarantor; hence, the payment of the 17% per annum to mature on December 31. It
guaranteed debt liberates the debtor from is covered by another promissory note and
liability to the creditor as well as to the guarantor, secure a leasehold rights over another space
while payment of the unsecured obligation only in Monumento Plaza.
discharges him from possible action by only one To secure its obligations to assign the
party, the unsecured creditor. leasehold rights to Garon, PMRDC procured a
surety bond from Stronghold Insurance, which


the liability of the surety will not exceed the right to collect the principal debt rather than
sum of P12M and will expire on Nov 7. enforce the security.
When PMRDC defaulted in the payment of its
obligations, Garon sent a demand letter dated
Nov 3 requiring PMRDC to execute and deliver REPUBLIC v PAL-FOX LUMBER
a unilateral Deed of Assignment of its
leasehold rights over the commercial spaces. Facts: Pal-Fox Lumber Co., Inc. was indebted to
Garon also sent a demand letter to the surety the Bureau of Internal Revenue for forest charges
on Nov 6. and surcharges amounting to P11,851.56, and
For failure to comply with the demand, Garon that the Far Eastern Surety & Insurance Co., Inc.
filed a complaint for collection of the principal was jointly and severally liable with the lumber
obligation against PMRDC and the surety. company for the payment of said forest charges
The surety contends that the complaint stated up to P5,000.00. Republic moved for
reconsideration, pointing out that the surety
no cause of action and was prematurely filed.
company's correct liability under the appealed
At the time Garon sent the demand letter, the
decision was P5,000.00 plus legal interest from
obligation guaranteed by the bond had not
the filing of the complaint. In other words, the
yet matured.
Republic would want the surety company to pay
On the part of PMRDC, it denied that it
the legal interest adjudged by the trial court
executed the promissory noted and alleged before the case may finally be considered
instead that they were mere roll-overs. It also dismissed. Far Eastern's denial of liability for such
alleged that it already complied with its interest is based on the stipulation in the bond
undertaking under the promissory notes when that it was bound to the plaintiff "in the sum of
it put up a surety bond. And that when Garon P5,000.00."
chose to demand from the surety, she
effectively waived the right to claim for it. Issue: W/N Far Eastern should also pay interest?
Issue: Whether or not the surety is liable to
Garon under its surety bond.
Ruling: Yes. Article 2055, paragraph 2, of the Civil
Held: Code of the Philippines is clearly applicable.

Yes, the surety is liable in general. The principal If it (the guaranty) be simple or indefinite, it shall
obligation guaranteed by the surety bond is the comprise not only the principal obligation but
assignment of leasehold rights of PMRDC to also all its accessories, including judicial costs.
Garon over the subject spaces. Garon made a
formal demand but PMRDC defaulted. As such,
PMRDCs liability arose. Consequently, the COMMONWEALTH v CA
suretys liability likewise arose.
This case is about SIGS and ELBA borrowing
Suretyship arises upon the solidary binding of a money from RCBC worth P4m. Commonwealth
person with the principal debtor, for the purpose being the surety. SIGS and ELBA defaulted so
of fulfilling an obligation. A surety is considered in RCBC went after Commonwealth. Commonwealth
law as being the same party as the debtor in insists on not paying. Lower Court ruled in favor
relation to whatever is adjudged as touching the of RCBC and ordered Commonwealth to pay the
obligation of the latter and their liabilities are principal debt plus interest. Commonwealth
interwoven as to be inseparable. Although a refused. Commonwealth appealed to CA and
surety contract is secondary to the principal questions the ruling of the lower court awarding
obligation, the liability of the surety is interest. (focus on interest)
direct, primary and absolute or equivalent Issue: WoN Commonwealth whould pay principal
to that of a regular party to the and interest
Ruling: Obviously, Commonwealth is obliged to
Note: pay the principal being the surety. Regarding the
interest, generally no. However because
Surety in this case was not held liable since its Commonwealth refused to pay the principal when
undertaking under the surety bond was merely to the lower court ordered it to do so, it is now
guarantee the assignment of PMRDCs leasehold bound to pay the interest.
rights and not the payment of the entire
obligation and Garon is seeking to enforce her NAMARCO v MARQUEZ


FACTS: Properties, rights, obligations, and P9,990.91 represent the moratory interest due on
contracts of the Philippine Relief and Trade account of the failure to pay the principal
Rehabilitation Administration (PRATRA) had been obligation from and after the same had fallen
transferred to the Price Stabilization Corporation due, and default had taken place. Appellant
(PRISCO) and subsequently all rights and surety was fully aware that the obligation earned
contracts of the PRISCO involving real estate, interest, since the note was annexed to its
fixed assets and stock in trade had been assumed contract, Exhibit "C".
by herein plaintiff, the NAMARCO.
The contract of guaranty executed by the
Marquez secured from the PRATRA one tractor appellant Company nowhere excludes this
and one rice thresher, with a total value of interest, and Article 2055, paragraph 2, of
P20,000.00 for which the said defendant paid the Civil Code of the Philippines is clearly
thereon the sum of P8,000.00 as down payment, applicable.
thereby leaving a balance of P12,000.00.
Marquez executed a promissory note in the If it (the guaranty) be simple
amount of P12,000.00 payable in installments or indefinite, it shall comprise not
commencing from June 24, 1951 to June 25, only the principal obligation but also
1952, with interest thereon at the rate of 7% per all its accessories, including judicial
annum from June 24, 1950 until finally paid. costs, provided with respect to the
latter, that the guarantor shall only
To guarantee full compliance with the be liable for those costs incurred
aforementioned obligation, defendant Marquez, after he has been judicially required
as principal, and defendant Plaridel Surety & to pay.
Insurance Company, as surety, executed
Guaranty Bond P. S. & I. No. 4220 in favor of the Compensated sureties are not entitled to have
PRATRA, wherein they bound themselves, jointly their contracts interrupted strictissimi juris in
and severally, to pay the said amount of their favor
P12,000.00 (Exhibit C).

In this guaranty bond, the surety expressly VIZCONDE v IAC

waives its right to demand payment and notice of FACTS:
non-payment and agrees that the liabilities of this Perlas called Vizconde and asked her to
guaranty shall be direct and immediate and not sell an 8 carat diamond ring on a
contingent upon the exhaustion by the PRATRA of commission for P85k
whatever remedies it may have against the Vizconde later returned the ring.
principal, and that the same shall be valid and Afterwards, Vizconde called on Perlas and
continuous until the obligation so guaranteed is claimed that there was a sure buyer for
paid in full. the ring, Pilar Pagulayan
Pagulayan gave a post-dated check; Perlas
After making partial payment, Marquez defaulted and Vizconde signed a receipt (Exh. A)
in the payment of the other installments. Plaintiff The check was dishonoured. After 9 days,
demanded from defendants Marquez and Plaridel Pagulayan paid Perlas P5k against the
Surety & Insurance Company, payment of their value of the ring and gave 3 Certificates of
outstanding obligation. The claim, therefore, of Title to guarantee delivery of the balance
defendant Plaridel Surety & Insurance Company of such value (Exh D)
that they never received a demand for payment Perlas filed a complaint against Pagulayan
from plaintiff must necessarily fail, considering and Vizconde for estafa.
that it is clearly shown in registry return receipts TC and CA Vizconde and Pagulayan had
that the same had been received by the assumed a joint agency in favour of Perlas
addressee. for the sale of the latters ring, which
rendered them criminally liable, upon
failure to return the ring or deliver its
ISSUES: Whether the surety's liability can exceed agreed value, under Art 315, par 1(b) of
the sum of P12,000.00. the Revised Penal Code
SOL GEN disagreed; Vizconde cant be
convicted of estafa based on the Exhibits
While the guarantee was for the original amount
of the debt of Gabino Marquez, the amount of the
judgment by the trial court in no way violates the
ISSUE: Whether Vizconde was considered as
rights of the surety. The judgment on the principal
agent of Perlas or mere guarantor of obligation of
was only for P10,000.00, while the remaining
The Luzon Surety Co. had filed a claim against the
HELD: Mere guarantor Estate based on twenty different indemnity
Nothing in the language of the receipt, agreements, or counter bonds, each subscribed
Exh A, or in the proven circumstances by a distinct principal and by the deceased K. H.
attending its execution can logically be Hemady, a surety solidary guarantor) in all of
considered as evidencing the creation of them, in consideration of the Luzon Surety Co.s
an agency between Perlas, as principal, of having guaranteed, the various principals in
and Vizconde as agent, for the sale of the favor of different creditors.
formers ring. The Luzon Surety Co., prayed for allowance, as a
If any agency was established, it was one contingent claim, of the value of the twenty
between Perlas and Pagulayan only, this bonds it had executed in consideration of the
being the logical conclusion from the use counterbonds, and further asked for judgment for
of the singular I in said clause, in the unpaid premiums and documentary stamps
conjunction with the fact that the part of affixed to the bonds, with 12 per cent interest
the receipt in which the clause appears thereon.
bears only the signature of Pagulayan.
To warrant anything more than a mere The lower court, by order of September 23, 1953,
conjecture that the receipt also dismissed the claims of Luzon Surety Co., on the
constituted Vizconde the agent of Perlas ground that whatever losses may occur after
for the same purpose of selling the ring, Hemadys death, are not chargeable to his estate,
the cited clause should at least have used because upon his death he ceased to be
the plural we, or the text of the receipt guarantor.
containing that clause should also have The reasoning of the court below ran as follows:
carried Vizcondes signature.
The joint and several undertaking The administratrix further contends that upon
assumed by Vizconde in a separate writing the death of Hemady, his liability as a guarantor
below the main body of the receipt, terminated, and therefore, in the absence of a
Exhibit A, merely guaranteed the civil showing that a loss or damage was suffered, the
obligation Pagulayan to pay Perlas the claim cannot be considered contingent. This
value of the ring in the event of her Court believes that there is merit in this
(Pagulayans) failure to return said article. contention and finds support in Article 2046 of
the new Civil Code. It should be noted that a new
What is clear from Exh A is that the ring
requirement has been added for a person to
was entrusted to Pagulayan to be sold on
qualify as a guarantor, that is: integrity. As
commission; there is no mention therein
correctly pointed out by the Administratrix,
that it was simultaneously delivered to
integrity is something purely personal and is not
and received by Vizconde for the same
transmissible. Upon the death of Hemady, his
purpose or, therefore, that Vizconde was
integrity was not transmitted to his estate or
constituted, or agreed to act as, agent
successors. Whatever loss therefore, may occur
jointly with Pagulayan for the sale of the
after Hemadys death, are not chargeable to his
estate because upon his death he ceased to be a
What Vizconde solely undertook was to guarantor.
guarantee the obligation of Pagulayan to
return the ring or deliver its value; and Another clear and strong indication that the
that guarantee created only a civil surety company has exclusively relied on the
obligation, without more, upon default of personality, character, honesty and integrity of
the principal. the now deceased K. H. Hemady, was the fact
Upon the evidence, Vizconde was a mere that in the printed form of the indemnity
guarantor, a solidary one to be sure, of the agreement there is a paragraph entitled Security
obligation assumed by Pagulayan to by way of first mortgage, which was expressly
complainant Perlas for the return of the waived and renounced by the security company.
latters ring or the delivery of its value. The security company has not demanded from K.
Whatever liability was incurred by H. Hemady to comply with this requirement of
Pagulayan for defaulting on such giving security by way of first mortgage. In the
obligation and this is not inquired into supporting papers of the claim presented by
that of Vizconde consequent upon such Luzon Surety Company, no real property was
default was merely civil, not criminal. mentioned in the list of properties mortgaged
which appears at the back of the indemnity
ESTATE OF HEMADY v LUZON SURETY agreement. (Rec. App., pp. 407-408).

FACTS: ISSUE: W/N the liability of the guarantor was

terminated upon his death
HELD: NO. 327), usufruct (Article 603), contracts for a piece
of work (Article 1726), partnership (Article 1830
Under the present Civil Code (Article 1311), as
and agency (Article 1919). By contract, the
well as under the Civil Code of 1889 (Article
articles of the Civil Code that regulate guaranty
1257), the rule is that
or suretyship (Articles 2047 to 2084) contain no
Contracts take effect only as between the provision that the guaranty is extinguished upon
parties, their assigns and heirs, except in the the death of the guarantor or the surety.
case where the rights and obligations arising from
the contract are not transmissible by their WISE & CO. v TANGLAO
nature, or by stipulation or by provision of FACTS
Under our law, therefore, the general rule is that In the CFI of Manila, Wise & Co filed a civil
a partys contractual rights and obligations are case against Cornelio C. David for the
transmissible to the successors. recovery of a certain sum of money.

Of the three exceptions fixed by Article 1311, the

David was an agent of Wise & Co. and the
nature of the obligation of the surety or guarantor
does not warrant the conclusion that his peculiar amount claimed from him was the result of a
individual qualities are contemplated as a liquidation of accounts showing that he was
principal inducement for the contract. What did indebted in said amount.
the creditor Luzon Surety Co. expect of K. H.
Hemady when it accepted the latter as surety in In said case Wise & Co. asked and obtained a
the counterbonds? Nothing but the preliminary attachment of David's property.
reimbursement of the moneys that the Luzon
Surety Co. might have to disburse on account of To avoid the execution of said attachment,
the obligations of the principal debtors. This David succeeded in having the defendant
reimbursement is a payment of a sum of money, Attorney Tanglao sign a power of attorney in
resulting from an obligation to give; and to the his favor, with a clause (considered a special
Luzon Surety Co., it was indifferent that the POA to David) To sign as guarantor for
reimbursement should be made by Hemady himself in his indebtedness to Wise &
himself or by some one else in his behalf, so long Company of Manila, and to mortgage the
as the money was paid to it. Attorneys lot
The second exception of Article 1311, p. 1, is
intransmissibility by stipulation of the parties. Subsequently, David made a compromise with
Being exceptional and contrary to the general the petitioner by paying P340 leaving an
rule, this intransmissibility should not be easily unpaid balance of P296 and pledged the lot
implied, but must be expressly established, or at owned by the Atty as a guaranty for the
the very least, clearly inferable from the balance.
provisions of the contract itself, and the text of
the agreements sued upon nowhere indicate that Wise & Co. now institutes this case against
they are non-transferable. Tanglao for the recovery of said unpaid
Because under the law (Article 1311), a person amount.
who enters into a contract is deemed to have
contracted for himself and his heirs and assigns, There is no doubt that under POA, Tanglao
it is unnecessary for him to expressly stipulate to empowered David, in his name, to enter into a
that effect; hence, his failure to do so is no sign contract of suretyship and a contract of
that he intended his bargain to terminate upon mortgage of the property described in the
his death. Similarly, that the Luzon Surety Co., did document, with Wise & Co.
not require bondsman Hemady to execute a
mortgage indicates nothing more than the However, David used said power of attorney
companys faith and confidence in the financial
only to mortgage the property and did not
stability of the surety, but not that his obligation
enter into contract of suretyship.
was strictly personal.
The third exception to the transmissibility of ISSUE
obligations under Article 1311 exists when they
are not transmissible by operation of law. The Whether or not Atty. Tanglao is liable?
provision makes reference to those cases where
the law expresses that the rights or obligations
are extinguished by death, as is the case in legal RULING
support (Article 300), parental authority (Article
The SC ruled that there is nothing stated in HAD NOT EXHAUSTED, AND DID NOT INTEND TO
the Compromise Agreement to the effect that
Tanglao became David's surety for the
payment of the sum in question. Neither is
this inferable from any of the clauses thereof, HELD: NO. The right of guarantors, under Art.
and even if this inference might be made, it 2058 of the Civil Code, to demand exhaustion of
would be insufficient to create an obligation of the property of the principal debtor, exists only
suretyship which, under the law, must be when a pledge or a mortgage has not been given
express and cannot be presumed. as special security for the payment of the
principal obligation.
The only obligation which the Compromise Although an ordinary personal guarantor not a
Agreement, in connection with POA, has mortgagor or pledgor may demand exhaustion
created on the part of Tanglao, is that of the properties of the principal debtor, the
resulting from the mortgage of a property creditor may, prior thereto, secure
belonging to him to secure the payment of judgment against said guarantor, who shall
said P640. However, a foreclosure suit is not be entitled, however, to a deferment of the
instituted in this case against Tanglao, but a execution of said judgment against him
purely personal action for the recovery of the until after the properties of the principal
amount still owed by David. debtor shall have been exhausted to satisfy
the obligation involved in the case.
At any rate, even granting that Defendant
Tanglao may be considered as a surety under
the cited Compromise the action does not yet
lie against him on the ground that all the legal SAAVEDRA v PRICE
remedies against the debtor have not FACTS:
previously been exhausted (art. 1830 of the
Civil Code, and decision of the Supreme Court This is a proceeding instituted by the
of Spain of March 2, 1891). petitioner to annul the order of May 8,
1939, entered by the Court of First
The Plaintiff has in its favor a judgment Instance of Leyte, which provided for the
against debtor David for the payment of debt. sale at public auction of the real property
It does not appear that the execution of this described in Transfer Certificate of Title
judgment has been asked for and the No. 395 issued in favor of the petitioner,
Compromise, on the other hand, shows that so that the proceeds thereof may be
David has two pieces of property the value of applied to the payment of the credit of the
which is in excess of the balance of the debt respondent W.S. Price in the sum of
the payment of which is sought of Tanglao in P15,000
his alleged capacity as surety.

In civil case No. 3707 of the Court of First

SOUTHERN MOTORS v BARBOSA Instance of Leyte, W.S. Price, plaintiff vs.
Ceferino Ibaez et al., defendants, said
FACTS: Defendant Barbosa executed a real estate court rendered judgment ordering the
mortgage for the only purpose of guaranteeing defendants to pay the plaintiff within
as surety and/or guarantor the payment of the ninety days the sum of P15,000, with the
debt of one Alfredo Brillantes in favor of Southern legal interest thereon from January 16,
Motors, Inc. due to the failure of Brillantes to 1934, and in case of default on their part,
settle his obligation; plaintiff filed an action that the real property subject matter of
against defendant to foreclose the real estate the mortgage be sold at public auction so
mortgage. Defendant filed an answer alleging that the proceeds thereof may be applied
that the plaintiff has no right of action against to the payment of the sum in question and
him because the plaintiff did not intent to exhaust the interest thereon.
all recourses to collect from the true debtor
(Brillantes), notwithstanding the fact that the
latter is solvent and has many properties within After the period of ninety days has elapsed
the Province of Iloilo. and Rafael Martinez and Ceferino Ibaez
failed to pay the sum in question with the
interest thereon, the respondent Price filed
a motion praying that the real property - Arroyo (P) is an appointed guardian of an
mortgaged be sold at public auction for imbecile, while Jungsay et al (D) are the
the payment of his mortgage credit and its previous guardian and bondsmen who
interest. absconded.
This was denied. - D, the former guardian of the ward,
The petitioner now claims that the absconded with the funds of his ward.
respondent Judge acted with abuse of his - LC ordered D to pay P, which the
discretion in not transferring the hearing bondsmen appealed. D also pointed out
of the motion for the sale of the properties of the previous guardian which
mortgaged realty and that he exceeded are now being adversely claimed by 3rd
his jurisdiction in ordering the sale of said parties
ISSUE: WoN the bondsmen are liable
ISSUE: Whether or not the order of sale of such
property was proper? SC: YES
- For the surety to be not liable, he must be
HELD: able to point out property of the principal
debtor which are realizable and is situated
It is contended that since the petitioner is within the Philippines to insure the
not the debtor and as she, on the other fulfillment of the obligation and furnish the
hand is the owner of the mortgaged realty, creditor with the means of obtaining its
she merely acted as surety to Rafael fulfillment without delay
Martinez, the principal debtor, and as such - The property pointed out by the sureties is
she entitled to the benefit of the not sufficient to pay the indebtedness; it is
exhaustion of the property of the principal not salable; it is encumbered to 3rd parties
debtor, in accordance with the provision of
article 1830 of the Civil Code. BITANGA v PYRAMID

We are of the opinion that this last 1) On March 26 1997, Pyramid entered into an
contention is likewise unfounded and agreement with Macrogen Realty, of which
untenable. Bitanga is the President, to construct for the
o In the first place, this alleged defense latter a building, located in Sucat, Paraaque.
should have been interposed before Pyramid then commenced civil, structural, and
the judgment was rendered in this architectural works on the construction project.
case and it is too late to raise it for the However, Macrogen Realty failed to settle
first time as a ground for opposing the respondents progress billings. Bitanga, assured
motion to sell the real property in Pyramid that the outstanding account of
question. Macrogen Realty would be paid.Thus, Pyramid
o In the second place, the contention continued the construction project.
that the mortgaged real property
belonging to the petitioner cannot be 2) In August 1998, Pyramid suspended work on
sold to pay the debt for the reason that the construction project since the conditions that
she is a mere surety of Rafael it imposed for the continuation thereof, including
Martinez, finds no support in the law. payment of unsettled accounts, had not been
complied with by Macrogen Realty and
eventually, on 1 September 1999, respondent
It is true that the petitioner is a surety instituted with the Construction Industry
with regard to Rafael Martinez and as such Arbitration Commission (CIAC) a case for
surety she is entitled to resort to the arbitration against Macrogen Realty seeking
actions and remedies against him which payment by the latter of its unpaid billings and
the law affords her, but we should not lose project costs. Macrogen, chose to amicably settle
sight of the fact that she was sued not as the arbitration case and both parties entered into
a surety but as a mortgage debtor for a Compromise Agreement, with Bitanga acting as
being the owner of the mortgaged signatory for and in behalf of Macrogen Realty.
3) Under the Agreement, Macrogen Realty agreed
ARROYO v JUNGSAY to pay Pyramid the total amount in six equal
monthly installments, that if it would default in
FACTS: the payment of two successive monthly
installments, immediate execution could issue
against it for the unpaid balance, without need of (2) whether defendant wife Marilyn Bitanga is
judgment from any court or tribunal. Bitanga liable in this action;
guaranteed the obligations of Macrogen Realty
under the Compromise Agreement by executing a HELD:
Contract of Guaranty in favor of respondent, by
virtue of which he irrevocably and unconditionally A) Under a contract of guarantee, the guarantor
guaranteed the full and complete payment of the binds himself to the creditor to fulfill the
principal amount of liability of Macrogen Realty. obligation of the principal debtor in case the
latter should fail to do so. The guarantor who
4) However, despite this, Macrogen Realty failed pays for a debtor, in turn, must be indemnified by
and refused to pay all the monthly installments the latter. However, the guarantor cannot be
agreed upon in the Compromise Agreement. compelled to pay the creditor unless the latter
Thus, on 7 September 2000, respondent moved has exhausted all the property of the debtor and
for the issuance of a writ of execution against resorted to all the legal remedies against the
Macrogen Realty, which was granted. debtor. This is what is otherwise known as the
benefit of excussion.
5) The sheriff however filed a return stating that
he was unable to locate any property of Article 2060 of the Civil Code reads:
Macrogen Realty, except its bank deposit of
P20,242.33, with the Planters Bank, Buendia In order that the guarantor may make use
Branch. Respondent then made, on January 3, of the benefit of excussion, he must set it
2001, a written demand on petitioner, as up against the creditor upon the latters
guarantor of Macrogen Realty, to pay the demand for payment from him, and point
P6,000,000.00, or to have properties of the out to the creditor available property of
Macrogen Realty sufficient to cover the obligation the debtor within Philippine territory,
guaranteed. Said demands met no reply. sufficient to cover the amount of the debt.

6) As to Marilyns (bitangas wife) liability, B) Said provision imposes a condition for the
Pyramid contended that Macrogen Realty was invocation of the defense of excussion. Article
owned and controlled by bitanga and Marilyn 2060 of the Civil Code clearly requires that in
and/or by corporations owned and controlled by order for the guarantor to make use of the benefit
them. On the theory that since the completion of of excussion, he must set it up against the
the construction project would have redounded to creditor upon the latters demand for payment
the benefit of both petitioner and Marilyn and/or and point out to the creditor available property of
their corporations; and considering, Marilyns the debtor within the Philippines sufficient to
interest in a corporation which controls Macrogen cover the amount of the debt.
Realty, Marilyn cannot be unaware of the
obligations incurred by Macrogen Realty and/or
petitioner in the course of the business C) In this case, despite having been served a
operations of the said corporation. demand letter at his office, petitioner still failed
to point out to the respondent properties of
Macrogen Realty sufficient to cover its debt. Such
7) Pyramid filed suit that a judgment be rendered failure on petitioners part forecloses his right to
ordering petitioner and Marilyn to comply with set up the defense of excussion.
their obligation under the Contract of Guaranty
by paying respondent the amount of
P6,000,000.000. D) Article 2059(5) of the Civil Code thus finds
application and precludes petitioner from
interposing the defense of excussion. We quote:
8) Marilyn contended that, since she did not co-
sign the Contract of Guaranty with her husband;
nor was she a party to the Compromise (5) If it may be presumed that an
Agreement between respondent and Macrogen execution on the property of the principal
Realty. She had no part at all in the execution of debtor would not result in the satisfaction
the said contracts. This was denied of the obligation.

ISSUES: E) Petition is DENIED.

(1) whether the defendants were liable under the ONG v PCIB
contract of guarantee dated April 17, 2000
entered into between Benjamin Bitanga and the FACTS: Cho Siong entered into contract of agency
plaintiff; for distribution of petroleum products, assumed


liability of former agent Tong Kuan. His agency same debt coextensively up to 2,000 that of PI
bond was secured by Ong Guan Can. Defaulted in alone extending beyond that sum up to 3,000 it
the amount of P64.00 was pleaded and conclusively proven that in
reality said bonds, or the two sureties, do not
DOCTRINE: Under the terms of the bond signed guarantee the same debt because PI guarantees
by the surety, he did not answer for the principal only the first 3,000 while MCS only the excess up
obligor save for the Latters acts by virtue of the to 5,000.
contract of agency. He cannot be held liable for
the debt of a former agent, which the principal CACHO v VALLES
obligor assumed by virtue of another contract, of
which said surety was not even aware. A contract Facts: On October 29, 1920, the National Sporting
of suretyship is to be strictly interpreted and is Club, of Manila, obligated itself by a promissory
not to be extended beyond its terms. note payable at four months to pay to Jose Ma.
Cacho. Below the signature of said National
Sporting Club, as signed by the proper officers of
the Club, the following personal guaranty was
MIRA HERMANOS v MANILA TOBACCONISTS written: "We guarantee this obligation." (Sgd.) J.
Facts: A. Valles, J. L. Mateu, G. J. Heffting, Ed. Chesley,
Baldomero Roxas. This note was not paid at
By virtue of a written contract, Mira Hermanos maturity. An action was instituted thereon against
(MH) agreed to deliver to Manila Tobacconists the National Sporting Club and the guarantors.
(MT) merchandise for sale on consignment Baldomero Roxas interposed a defence claiming
under certain specified terms and MT agreed the right of division as among the co-sureties,
to pay MH on or before the 20 th day of each and asking that in case he should be found liable
month the invoice value of all the that he should be held responsible only for his
merchandise sold during the preceding aliquot part of the debt.
MH required MT a bond of 3,000 which was Issue: W/N in case of the insolvency of one or
executed by Provident Insurance (PI). more of several simple sureties, those who
The volume of the business of MT increased remain solvent can be made to pay the entire
so that the merchandise received by way of debt?
consignment from MH exceeded 3,000 in
value. Ruling: None of the sureties, so far as this record
shows, has been declared bankrupt. The benefit
MH required MT to post an additional bond of
of division therefore has not been lost, and the
2,000 which MT complied, executing a bond
rule declaring each surety liable only for his
with same conditions with the Manila
aliquot part of the guaranteed debt, must hold.
Compania de Seguros (MCS) for the excess of
The obligation of the surety cannot be extended
3,000 up to 5,000.
beyond its specified limits. A co-surety is entitled
After liquidation of the transaction, a balance to the benefit of division from the very moment
was due from MT to MH for the amount of that he contracts the obligation, except where
2,200 which MT is unable to pay. there is stipulation to the contrary.
PI, as surety, only paid 1,300, alleging that
the remaining 40% should be paid by the
other surety, MCS. TUASON v MACHUCA

Issue: Whether or not MCS should be held liable F: Universal Trading Company was going to
for the remaining 40% of the balance due? withdraw goods from the Bureau of Customs to
be delivered to BPI. To withdraw, they gave a
Held: bond executed by Manila Compania de Seguros.
That bond was secured solidarily by Tuason Co.
No, the bond of 3,000 filed by PI responded for and Machuca of Universal Trading. It was to be
the obligation of MT up to the some of 3,000, paid whether or not Manila Compania already
inasmuch as the bond of 2,000 filed by MCS paid CIR. Manila Compania demanded payment
responded for the obligation of MT only insofar as from Tuason. Manila Compania filed a case
it might exceed 3,000 and up to 5,000. against tuason. Tuason later payed but incurred
litigation expenses. Tuason now demands
The provision in the NCC with regard to several payment from Machuca. Tuason filed a case for
sureties of only one debtor for the same debt collection of money from Machuca. The lower
does not apply in this case. Although the two court ruled that Machuca should pay the debt and
bonds on their face appear to guarantee the


the expenses incurred by Tuason in the case for an explicit pronouncement by the same bureau
collection of money. that ISAC is already liable on the said bonds.
Issue: Won Machuca should pay the expenses
incurred by Tuason in its case vs. Manila ISSUES: Whether actual forfeiture of the subject
Compania bonds is necessary for the petitioners to be liable
to ISAC under the Indemnity Agreements?
Ruling: NO! it was not Machucas fault why tuason
incurred expenses in the litigation of Manila RULING: The liability of the guarantor
Compania and Tuason. If tuason paid Manila already triggers the liability of the debtor.
compania, no litigation expenses will be paid.
Autocrops liability
Actual forfeiture of the subject bonds is not
AUTOCORP v INTRA STRATA necessary for petitioners to be liable thereon to
ISAC as surety under the Indemnity Agreements.
FACTS: Autocorp Group, represented by its
President, petitioner Peter Y. Rodriguez, secured Petitioners' obligation to indemnify ISAC became
two ordinary re-export bond from private due and demandable the moment the bonds
respondent Intra Strata Assurance Corporation issued by ISAC became answerable for
(ISAC) in favor of public respondent Bureau of petitioners' non-compliance with its undertaking
Customs (BOC) to guarantee the re-export of one with the BOC. Stated differently, petitioners
unit of Hyundai Excel 4-door 1.5 LS and Hyundai became liable to indemnify ISAC at the same time
Sonata 2.4 GLS, and/or to pay the taxes and the bonds issued by ISAC were placed at the risk
duties thereon. of forfeiture by the BOC for non-compliance by
petitioners with its undertaking.
Petitioners executed and signed two Indemnity
Agreements with identical stipulations in favor of It is worthy to note that petitioners did not
ISAC, agreeing to act as surety of the subject impugn the validity of the stipulation in the
bonds. Petitioner Rodriguez signed the Indemnity Indemnity Agreements allowing ISAC to proceed
Agreements both as President of the Autocorp against petitioners the moment the subject bonds
Group and in his personal capacity. become due and demandable, even prior to
actual forfeiture or payment thereof. Even if they
In sum, ISAC issued the subject bonds to did so, the Court would be constrained to uphold
guarantee compliance by petitioners with their the validity of such a stipulation for it is but a
undertaking with the BOC to re-export the slightly expanded contractual expression of
imported vehicles within the given period and pay Article 2071 of the Civil Code which provides,
the taxes and/or duties due thereon. In turn, inter alia, that the guarantor may proceed
petitioners agreed, as surety, to indemnify ISAC against the principal debtor the moment
for the liability the latter may incur on the said the debt becomes due and demandable.
Art. 2071. The guarantor, even before having
Petitioner Autocorp Group failed to re-export the paid, may proceed against the principal
items guaranteed by the bonds and/or liquidate debtor:
the entries or cancel the bonds, and pay the
taxes and duties pertaining to the said items (1) When he is sued for the payment;
despite repeated demands made by the BOC, as
well as by ISAC. By reason thereof, the BOC (2) In case of insolvency of the principal debtor;
considered the two bonds, with a total face value
of P1,034,649.00, forfeited. (3) When the debtor has bound himself to relieve
him from the guaranty within a specified period,
Failing to secure from petitioners the payment of and this period has expired;
the face value of the two bonds, despite several
demands sent to each of them as surety under (4) When the debt has become demandable,
the Indemnity Agreements, ISAC filed with the by reason of the expiration of the period for
RTC on 24 October 1995 an action against payment;
(5) After the lapse of ten years, when the
Petitioners contend that their obligation to ISAC is principal obligation has no fixed period for its
not yet due and demandable. They cannot be maturity, unless it be of such nature that it
made liable by ISAC in the absence of an actual cannot be extinguished except within a period
forfeiture of the subject bonds by the BOC and/or longer than ten years;


(6) If there are reasonable grounds to fear that On the same date, Engracio and 5 others
the principal debtor intends to abscond; executed a bond in favour of Saenz; Yap
Chuan P20k and the other 4 P5k each
(7) If the principal debtor is in imminent danger of TC ordered Saenz, as surety in solidum of
becoming insolvent. the ex-administrator Engracio to pay the
estate the sum of P41k
In all these cases, the action of the guarantor is Saenz paid to the administrator of the
to obtain release from the guaranty, or to estate P8k; He filed sut against 5 sureties
demand a security that shall protect him from who executed the bond
any proceedings by the creditor and from the TC acquitted Defendant from the P20k
danger of insolvency of the debtor.
claim and ordered the other 4 to pay P2k
Rodriguezs liability
Both parties appealed. Defendants were
Petitioner Rodriguez posits that he is merely a
guarantor, and that his liability arises only when claiming that they are only liable for P1k
the person with whom he guarantees the credit, each only according to the terms of the
Autocorp Group in this case, fails to pay the contract. Plaintiff was claiming that he is
obligation. Petitioner Rodriguez invokes Article entitled to maximum sum of P5k for which
2079 of the Civil Code on Extinguishment of each one had bound himself in the
Guaranty, which states: contract.
Art. 2079. An extension granted to the debtor by
the creditor without the consent of the guarantor ISSUE: Whether or not Vizmanos is entitled to
extinguishes the guaranty. The mere failure on P20k, a reimbursement of P5k each from the
the part of the creditor to demand payment after Defendants?
the debt has become due does not of itself
constitute any extension of time referred to HELD: NO
herein. The bond of a debtor to protect his surety
is not a sub bond nor a second bond with
The use of the term guarantee in a contract does respect to the original creditor. It is
not ipso facto mean that the contract is one of nothing but a substitution of the obligation
guaranty. It thus ruled that both petitioners of the debtor with respect to his surety,
assumed liability as a regular party and obligated and is necessarily governed by the legal
themselves as original promissors, i.e., sureties. provisions which regulate the right of
action of the surety against the party for
The provisions of the Civil Code on Guarantee, whom he gave the bond, that is, an action
other than the benefit of excussion, are of subrogation which lies with the surety
applicable and available to the surety.[22] The to compel the debtor to comply with the
Court finds no reason why the provisions of obligation to reimburse.
Article 2079 would not apply to a surety. This action arising out of subrogation is
the remedy for securing reimbursement of
This, however, would not cause a reversal of the the amount that another has paid, and
Decision of the Court of Appeals. The Court of cannot exceed, except there is an express
Appeals was correct that even granting arguendo agreement to the contrary, the amount
that there was a modification as to the effectivity actually paid by the surety in place of the
of the bonds, petitioners would still not be debtor.
absolved from liability since they had authorized IN THIS CASE: The following terms of an
ISAC to consent to the granting of any extension, obligation cannot be considered as an
modification, alteration and/or renewal of the express agreement to the contrary: x x
subject bonds x bind themselves as such conjointly to
reimburse or pay whatever amounts the
latter (the surety) may have to pay or
SAENZ v YAP CHUAN shall have paid by reason of the judicial
FACTS: bond, inasmuch as this manner of
Engracio Palanca a judicial administrator expressing the intention of the obligated
gave bond to guarantee his administration parties does not constitute a true
of the estate of Margarita Jose disjunctive proposition, but is merely
The bond was executed by Engracio, explanatory of the obligation as if
Plaintiff Saenz and two others in favour of contracted by the debtor himself, the only
the government for the sum of P60k natural and logical interpretation.


To ask an indemnity of P20k, when the loss guarantor binds himself to pay if the principal is
to be indemnified is only P8k is contrary to unable to pay; a surety undertakes to pay if the
law. principal does not pay. 1 The reason which could
Vizmanos only entitled to an action be invoked for the non-availability to a surety of
against 4 Defendants for recovery of the provisions of the last paragraph of article
maximum P5k. He cannot collect more 2071 of the new Civil Code would be the fact that
than the sum which he himself was guaranty like commodatum2 is gratuitous. But
actually compelled to pay. guaranty could also be for a price or
consideration as provided for in article 2048. So,
even if there should be a consideration or price
MANILA SURETY v BATU CONSTRUCTION paid to a guarantor for him to insure the
performance of an obligation by the principal
debtor, the provisions of article 2071 would still
be available to the guarantor. In suretyship the
surety becomes liable to the creditor without the
On July 8, 1950, the defendant Batu Construction benefit of the principal debtor's exclusion of his
& Company, as principal, and the plaintiff Manila properties, for he (the surety) maybe sued
Surety & Fidelity Co. Inc., as surety, executed a independently. So, he is an insurer of the debt
surety bond for the sum of P8,812.00 to insure and as such he has assumed or undertaken a
faithful performance of the former's obligation as responsibility or obligation greater or more
contractor for the construction of the Bacarra onerous than that of guarantor. Such being the
Bridge, Project PR-72 (No. 3) Ilocos Norte case, the provisions of article 2071, under
Province. On the same date, July 8,1950, the Batu guaranty, are applicable and available to a surety.
Construction & Company and the defendants The reference in article 2047 to, the provisions of
Carlos N. Baquiran and Gonzales P. Amboy Section 4, Chapter 3, Title 1, Book IV of the new
executed an indemnity agreement to protect the Civil Code, on solidary or several obligations,
Manila Surety & Fidelity Co. Inc.., against does not mean that suretyship which is a solidary
damage, loss or expenses which it may sustain as obligation is withdrawn from the applicable
a consequence of the surety bond executed by it provisions governing guaranty.
jointly with Batu Construction & Company.
The plaintiff's cause of action does not fall under
On or about May 30, 1951, the plaintiff received a paragraph 2 of article 2071 of the new Civil Code,
notice from the Director of Public Works (Exhibit because there is no proof of the defendants'
B) annulling its contract with the Government for insolvency. The fact that the contract was
the construction of the Bacarra Bridge because of annulled because of lack of progress in the
its failure to make satisfactory progress in the construction of the bridge is no proof of such
execution of the works, with the warning that insolvency. It does not fall under paragraph 3,
,any amount spent by the Government in the because the defendants have not bound
continuation of the work, in excess of the contract themselves to relieve the plaintiff from the
price, will be charged against the surety bond guaranty within a specified period which already
furnished by the plaintiff. It also appears that a has expired, because the surety bond does not fix
complaint by the laborers in said project of the any period of time and the indemnity agreement
Batu Construction & Company was filed against it stipulates one year extendible or renewable until
and the Manila Surety and Fidelity Co., Inc., for the bond be completely cancelled by the person
unpaid wages amounting to P5,960.10. or entity in whose behalf the bond was executed
or by a Court of competent jurisdiction. It does
Trial Court dismissed the case holding that not come under paragraph 4, because the debt
provisions of article 2071 of the new Civil Code has not become demandable by reason of the
may be availed of by a guarantor only and not by expiration of the period for payment. It does not
a surety the complaint, with costs against the come under paragraph 5 because of the lapse of
plaintiff. 10 years, when the principal obligation has no
period for its maturity, etc., for 10 years have not
ISSUE: The main question to determine is yet elapsed. It does not fall under paragraph 6,
whether the last paragraph of article 2071 of the because there is no proof that "there are
new Civil Code taken from article 1843 of the old reasonable grounds to fear that the principal
Civil Code may be availed of by a surety. debtor intends to abscond." It does not come
under paragraph 7, because the defendants, as
HELD: principal debtors, are not in imminent danger of
becoming insolvent, there being no proof to that
A guarantor is the insurer of the solvency of the
debtor; a surety is an insurer of the debt. A
But the plaintiff's cause of action comes under Thereafter, Appellant averred that the loan in
paragraph 1 of article 2071 of the new Civil Code, question was secured by him only in
because the action brought by Ricardo Fernandez accommodation of one Hao Lam, and that
and 105 persons in the Justice of the Peace Court Plaintiff agreed not to take any steps against
of Laoag, province of Ilocos Norte, for the Appellant and the mortgage executed by him
collection of unpaid wages amounting to in Plaintiff's favor until the latter had failed to
P5,960.10, is in connection with the construction obtain payment from said Hao Lam.
of the Bacarra Bridge, Project PR-72 (3),
undertaken by the Batu Construction & Company, Eight months later, Plaintiff filed a motion for
and one of the defendants therein is the herein
summary judgment saying that Appellang
plaintiff, the Manila Surety and Fidelity Co., Inc.,
presented no real and meritorious defense
and paragraph 1 of article 2071 of the new Civil
and that it was entitled to a summary
Code provides that the guarantor, even before
judgment in its favor, based on the affidavit of
having paid, may proceed against the principal
its comptroller Pedro R. Mendiola essentially
debtor "to obtain release from the guaranty, or to
saying that:
demand a security that shall protect him from
any proceedings by the creditor or from the
danger of insolvency of the debtor, when he (the o That he has personal knowledge of the
guarantor) is sued for payment. It does not indebtedness of the Defendant.
provide that the guarantor be sued by the
creditor for the payment of the debt. It simply o Notwithstanding said several demands by
provides that the guarantor of surety be sued for Plaintiff, Defendant has failed and refused
the payment of an amount for which the surety and still fails and refuses to pay the same.
bond was put up to secure the fulfillment of the
obligation undertaken by the principal debtor. So, The lower courts ruled in favour of Plaintiff.
the suit filed by Ricardo Fernandez and 105 Thus this petition.
persons in the Justice of the Peace Court of
Laoag, province of Ilocos Norte, for the collection
of unpaid wages earned in connection with the
work done by them in the construction of the
Bacarra Bridge, Project PR-72(3), is a suit for the Whether or not Defendant Alvarez is liable?
payment of an amount for which the surety bond
was put up or posted to secure the faithful Ruling:
performance of the obligation undertaken by the
principal debtors (the defendants) in favor of the NO. The SC ruled that there exists a
creditor, the Government of the Philippines. controversy in the complaint and answer as to
whether or not Appellee had actually paid
The order appealed from dismissing the Appellant's obligation to the Philippine
complaint is reversed and set aside. National Bank, a matter which should be
decided in the affirmative before Appellant, as
GEN. INDEMNITY v ALVAREZ surety, can claim reimbursement from
FACTS: Appellant, the principal debtor.

On February 1954, Appellee General However, Appellee is correct in saying that

Indemnity Co., Inc., filed a complaint in the said defense is immaterial to its right to
CFI Manila against Appellant Estanislao recovery, since the mortgage deed executed
Alvarez for the recovery of the sum of P2,000 by Appellant in its favor (the genuineness and
representing the amount of a loan allegedly due execution of which Appellant admitted in
taken by the Appellant from the PNB, which his answer) shows Appellant to be the actual
the Appellee guaranteed with an indemnity and only debtor, and Appellant is precluded
bond, and for which Appellant, as counter- from varying this representation by parol
guaranty, executed in Plaintiff's favor a evidence.
mortgage on his share of land in a parcel of
land . In ruling for the Appellant, the SC opined that
the last paragraph of Art. 2071 of the New
The complaint further alleged that the Civil Code, provides that the only action the
Appellant failed to pay said loan, together guarantor can file against the debtor "to
with interest, to PNB as a result of which the obtain release from the guaranty, or to
bank deducted the amount thereof Plaintiff's demand a security that shall protect him from


any proceeding by the creditor and from the Considered in relation with the underlying laws
danger of insolvency of the debtor." that are deemed read into these bonds, it is at
once clear that the bonds shall subsist that is,
An action by the guarantor against the shall remain in full force and effect unless the
principal debtor for payment, before the imported articles are regularly and lawfully
former has paid the creditor, is premature. withdrawn. . .on payment of the legal customs
duties, internal revenue taxes, and other charges
to which they shall be subject. Fully fleshed
out, the obligation to pay the duties, taxes, and
FACTS: Grand Textile imported materials from
other charges primarily rested on the principal
other countries which, upon arrival, were
Grand Textile; it was allowed to warehouse the
transferred to Customs Bonded Warehouse.
imported articles without need for prior payment
Grand Textile was obliged to pay customs
of the amounts due, conditioned on the filing of a
charges. To secure payment of these obligations,
bond that shall remain in full force and effect
petitioners issued general warehousing bonds in
until the payment of the duties, taxes, and
favor of the Bureau of Customs (BOC). Without
charges due. Under these terms, the fact that a
payment of any of the obligations due, Grand
withdrawal has been made and its circumstances
Textile withdrew the imported goods from
are not material to the sureties liability, except
storage. BOC demanded payment from Grand
to signal both the principals default and the
Textile as importer and from the petitioners as
elevation to a due and demandable status of the
sureties. All three failed to pay. The government
sureties solidary obligation to pay. Under the
filed a collection suit against the parties.
bonds plain terms, this solidary obligation
Lower Court ruled against petitioners, CA
subsists for as long as the amounts due on the
affirmed. Petitioners allege that: (1) they were
importations have not been paid. Thus, it is
released from their obligations under their bonds
completely erroneous for the petitioners to say
when Grand Textile withdrew the imported goods
that they were released from their obligations
without payment of taxes, duties, and other
under their bond when Grand Textile withdrew the
charges; and (2) that their non-involvement in the
imported goods without payment of taxes, duties,
active handling of the warehoused items from the
and charges. From a commonsensical
time they were stored up to their withdrawals
perspective, it may well be asked: why else would
substantially increased the risks they assumed
the law require a surety when such surety would
under the bonds they issued, thereby releasing
be bound only if the withdrawal would be regular
them from liabilities under these bonds.
due to the payment of the required duties, taxes,
and other charges?
ISSUE: Whether the withdrawal of the stored
goods, wares, and merchandise without notice
to them as sureties released them from any We note in this regard the rule that a surety is
liability for the duties, taxes, and charges they released from its obligation when there is a
committed to pay under the bonds they issued? material alteration of the contract in connection
with which the bond is given, such as a change
HELD: NO. By its very nature under the terms of which imposes a new obligation on the promising
the laws regulating suretyship, the liability of the party, or which takes away some obligation
surety is joint and several but limited to the already imposed, or one which changes the legal
amount of the bond, and its terms are effect of the original contract and not merely its
determined strictly by the terms of the contract form. A surety, however, is not released by a
of suretyship in relation to the principal contract change in the contract which does not have the
between the obligor and the obligee. The effect of making its obligation more onerous.
definition and characteristics of a suretyship bring
into focus the fact that a surety agreement is an We find under the facts of this case no significant
accessory contract that introduces a third party or material alteration in the principal contract
element in the fulfillment of the principal between the government and the importer, nor in
obligation that an obligor owes an obligee. In the obligation that the petitioners assumed as
short, there are effectively two (2) contracts sureties. Specifically, the petitioners never
involved when a surety agreement comes into assumed, nor were any additional obligation
play a principal contract and an accessory imposed, due to any modification of the terms of
contract of suretyship. Under the accessory importation and the obligations thereunder. The
contract, the surety becomes directly, primarily, obligation, and one that never varied, is on the
and equally bound with the principal as the part of the importer, to pay the customs duties,
original promissor although he possesses no taxes, and charges due on the importation, and
direct or personal interest over the latters on the part of the sureties, to be solidarily bound
obligations and does not receive any benefit to the payment of the amounts due on the
therefrom. imported goods upon their withdrawal or upon
expiration of the given terms. The petitioners this mortgage shall immediately become
lack of consent to the withdrawal of the goods, if due and payable and this mortgage on the
this is their complaint, is a matter between them property herein mentioned as well as the
and the principal Grand Textile; it is a matter Luzon Surety Bond may be foreclosed by
outside the concern of government whose the vendor-mortgagee
interest as creditor-obligee in the importation
transaction is the payment by the importer- Roa failed to pay the monthly installment
obligor of the duties, taxes, and charges due and the whole amount fell due.
before the importation process is concluded.
With respect to the sureties who are there as
The defendant asked for an extension
third parties to ensure that the amounts due are
which was granted.
paid, the creditor-obligee's active concern is to
enforce the sureties solidary obligation that has
become due and demandable. After the extension given, the surety now
argued that they already release from
With regard to the issue on the notice, the surety their obligation.
does not, by reason of the surety agreement,
earn the right to intervene in the principal ISSUE:
creditor-debtor relationship; its role becomes
alive only upon the debtors default, at which Whether or not the extension granted in
time it can be directly held liable by the creditor the above copied letter by the plaintiff,
for payment as a solidary obligor. A surety without the consent of the guarantors, the
contract is made principally for the benefit of the herein appellants, extinguishes the latter's
creditor-obligee and this is ensured by the liability not only as to the installments due
solidary nature of the sureties undertaking. at that time, as held by the trial court, but
Under these terms, the surety is not entitled as a also as to the whole amount of their
rule to a separate notice of default, nor to the obligation?
benefit of excussion, and may be sued separately
or together with the principal debtor. HELD:
Significantly, nowhere in the petitioners bonds
does it state that prior notice is required to fix the
NO, The rule that an extension of time
sureties liabilities. Without such express
granted to the debtor by the creditor,
requirement, the creditors right to enforce
without the consent of the sureties,
payment cannot be denied as the petitioners
extinguishes the latter's liability is
became bound as soon as Grand Textile, the
common both to Spanish jurisprudence
principal debtor, defaulted. Thus, the filing of the
and the common law; and it is well settled
collection suit was sufficient notice to the sureties
in English and American jurisprudence
of their principals default.
that where a surety is liable for different
payments, such as installments of rent, or
upon a series of promissory notes, an
extension of time as to one or more will
not affect the liability of the surety for the
The defendant Jesus R. Roa became
indebted to the Philippine Theatrical
Enterprises, Inc., in the sum of P28,400
payable in seventy-one equal monthly VILLA v GARCIA BOSQUE
installments at the rate of P400 a month FACTS:
commencing thirty days after December
11, 1931, with five days grace monthly A sale of property was made by the attorney in
until complete payment of said sum. On fact for a stated consideration, part of which was
that same date the Philippine Theatrical paid in cash and the balance made payable in
Enterprises, Inc., assigned all its right and deferred instalments. The attorney in fact then
interest in that contract to the Radio executed a substituted power of attorney in favor
Corporation of the Philippines. of a third person to enable the latter to collect the
deferred instalments.
In the said contract there was an
accelerating clause that in case the - Extension of time by Creditor to Principal
vendee-mortgagor fails to make any of the Debtor; Effect on liability of sureties
payments as hereinbefore provided, the
whole amount remaining unpaid under
- Where the purchase price of property is To pay for the asphalt, ATACo constituted PNB
payable in various installments, an its assignee and atty-in-fact to receive and
extension of time granted by the creditor collect from the Bureau of Public Works (BPW)
to the debtor with respect to one the amount aforesaid out of funds payable to
instalment will discharge the sureties, the assignor under a purchase order.
whether simple or solidary, from ALL ATACO delivered to BPW and the latter
liability as to such instalment bit it DOES accepted the asphalt to the total value of
NOT AFFECT their liability for other 400K.
instalments unconnected with the After this, PNB regularly collected for 8
extension of time. months. Thereafter, it ceased to collect until
after 4 years, its investigators found that
HOSPICIO DE SAN JOSE v FIDELITY more money were payable to ATACO from
BPW, because the latter allowed other
SECURITY BANK v CUENCA creditors to collect funds due to ATACO under
DOCTRINE: An extension granted to the debtor the same purchase order.
by the creditor without the consent of the PNB demanded from ATACO and MSFC for
guarantor extinguishes the guaranty. The 1989
payment but both refused.
Loan Agreement expressly stipulated that its
PNB filed a complaint against ATACO and
purpose was to liquidate, not to renew or
extend, the outstanding indebtedness. Moreover, MSFC to recover the balance with interests
respondent did not sign or consent to the 1989 and costs.
Loan Agreeement, which had alledgedly extended PNB contends that the power of attorney
the original P8 million credit facility. Hence, his obtained from ATACO was merely an
obligation as a surety should be deemed additional security in its favor and that it was
extinguished, pursuant to Article 2079 of the Civil the duty of the surety not that of the creditor
Code, which specifically states that [a]n to see to it that the obligor fulfills his
extension granted to the debtor by the creditor obligations and that the creditor owed the
without the consent of the guarantor extinguishes surety no duty of active diligence to collect
the guaranty. any sum from the principal debtor.

An essential alteration in the terms of a

Loan Agreement without the consent of the Issue: Whether or not MFSC should be held liable
surety extinguishes the latters obligation. The for the unpaid balance?
submission that only the borrower, not the surety,
is entitled to be notified of any modification in the Held: No, MFSC is not liable.
original loan accommodation is untenable-such
theory is contrary to the to the principle that a PNB is not negligent in failing to collect from the
surety cannot assume an obligation more onerous principal debtor but is negligent for its failure in
than that of the principal. That the Indemnity collecting the sums due to the debtor from the
Agreement is a continuing surety does not Bureau of Public Works, contrary to its duty as
authorize the lender to extend the scope of the holder of an exclusive and irrevocable power of
principal obligation inordinately; A continuing attorney to make such collections, since an agent
guaranty is one which covers all transaction, is required to act with care of a good father of the
including those arising in the future, which are family and becomes liable for damages which the
within the description or contemplation of the principal may suffer through non-performance.
contract of guaranty, until the expiration or
termination thereof. Even if the assignment with power of attorney
from the principal debtor were considered as
mere additional security, still by allowing the
assigned funds to be exhausted without notifying
PNB v MANILA SURETY the surety, PNB deprived the former of any
Facts: possibility of recoursing against that security.
Article 2080 of the Civil Code provides that
PNB had opened a letter of credit and guarantors even though they are solidary,
advanced thereon $120K to Edgingtom Oil are released from their obligation whenever
Refinery for 8,000 tons of hot asphalt. Of this some act of the creditor they cannot be
amount, 2,000 tons were released and subrogated to the rights, mortgages and
delivered to Adams & Taguba Corp (ATACO) preferences of the latter.
under a trust receipt guaranteed by Manila
Surety & Fidelity Co. (MSFC) up to the amount
of 75K.
MORTGAGE Issue: WoN there was delivery

ARENAS v RAYMUNDO Ruling: Non! Chattel mortgage do not prove

Facts: Estanislaua Arenas and Julian La O, brought
suit against Fausto O. Raymundo (pawnshop
owner). The plaintiffs alleged that the said DBP v PRUDENTIAL
jewelry, during the last part of April or the
beginning of May, 1908, was delivered to Elena CAVITE DEVELOPMENT v SPOUSES LIM
de Vega to sell on commission, and that the FACTS:
latter, in turn, delivered it to Conception Perello, Rodolfo Guansing obtained a loan in the
likewise to sell on commission, but that Perello, amount of P90k from Cavite Devt Bank
instead of fulfilling her trust, pledged the jewelry (CDB) and mortgaged a parcel of land
in the defendant's pawnshop. The said jewelry covered by TCT in his name to secure the
was then under the control and in the possession loan.
of the defendant, as a result of the pledge by When Guansing defaulted in the payment
Perello, and that the former refused to deliver it of his loan, CDB foreclosed the mortgage
to the plaintiffs. and consolidated the title to the property
in its name
Issue: W/N the pawnshop should return the R Lim offered to purchase the property
jewelry to the plaintiffs? from CDB and paid P30k as option money.
She later on discovered that the subject
Ruling: Yes. In the present suit, it was not proven property was originally registered in the
that Estanislaua Arenas authorized Perello to name of Perfecto Guansing, father of
pawn the jewelry given to her by Arenas to sell on Rodolfo Guansing.
commission. Conception Perello was not the R filed an action for specific performance
legitimate owner of the jewelry which she and damages against CDB for serious
pledged to the defendant Raymundo, for a misrepresentation
certain sum that she received from the latter as a CDB denied that a contract of sale was
loan, the contract of pledge entered the jewelry ever perfected between them and R. Rs
so pawned cannot serve as security for the letter offer clearly states that the sum of
payment of the sum loaned, nor can the latter be P30k was given as option money NOT
collected out of the value of the said jewelry. The earnest money; therefore only an option
Civil Code prescribes as one of the essential contract
requisites of the contracts of pledge and of
mortgage, that the thing pledged or mortgaged ISSUE: WON there was a valid foreclosure of the
must belong to the person who pledges or mortgage and subsequently a contract of sale?
mortgages it. This essential requisite for the
contract of pledge between Perello and the HELD: NO
defendant being absent as the former was not
the owner of the jewelry given in pledge.
The sale by CDB to Lim of the property
mortgaged by Rodolfo Guansing is
deemed a nullity for CDB did not have a
valid title to the said property.
This case is about the spouses respondents who
CDB never acquired a valid title to the
bought a jeepney worth 30k. to finance the
property because the foreclosure sale, by
purchase, the spouses entered into a chattel
virtue of which, the property had been
mortgage with Union Motors wherein the security
awarded to CDB as highest bidder, is
will be the jeepney. Union motors then transferred
likewise void since the mortgagor was not
the mortgage to a financing company. Receipts
the owner of the property foreclosed.
and other documents of ownership were issued
however, the jeep is still not in the possession of
the spouses. The spouses tried to have
possession of the jeep but failed. Frustrated, they
did not continue the payment. LC ruled in favor of FACTS:
the spouses saying that they are not liable
because there is still no delivery. Finance Co. This case was brought below by respondent
claimed there was constructive delivery because Eduardo Calalo for the annulment of the
how can the spouses mortgage the property if mortgage executed by his brother, Augorio
they do not own the it. Calalo, in favor of petitioner Roberto de Leon
covering a piece of land and the improvements information on the records in the barangay, and
thereon, consisting of a residential house and a found that the land was registered in the name of
commercial building located at 45/4th Street, Augorio Calalo. Upon due inspection of the
East Tapinac, Olongapo City. Respondent Eduardo property, he also found it to be occupied by
alleged that he was the owner of the property Augorio Calalo. Petitioner had no reason to
mortgaged, having bought it for P306,000.00 believe that the land did not belong to Augorio.
from the spouses Federico and Marietta Malit on Persons dealing with property covered by a
September 13, 1984. He claimed that, as he was torrens certificate of title, as buyers or
then a member of the merchant marines and mortgagees, are not required to go beyond what
stayed abroad, the Deed of Absolute Sale appears on the face of the title. The public
covering the land was made in favor of his interest in upholding the indefeasibility of torrens
brother, Augorio Calalo; that on April 8, 1985, titles, as evidence of the lawful ownership of the
Augorio executed a Deed of Donation in favor of land or of any encumbrance thereon, protects
the minor Julsunthie Calalo, herein respondents buyers or mortgagees who, in good faith, rely
son, who, from the time the property was upon what appears on the face of the certificate
purchased until the filing of the complaint, had of title.4 Petitioner De Leon is a mortgagee in
been receiving the fruits of the property; that on good faith.
September 14, 1988, Augorio mortgaged the said
property to petitioner Roberto de Leon without his Whether the money used in acquiring the
[respondents] knowledge and consent; that the property from the original owners came from
mortgage was amended on September 30, 1988; respondent Eduardo Calalo and the title to the
that Augorio did not have any right to mortgage property was placed in the name of his brother
the property because he was not the owner Augurio Calalo only because respondent thought
thereof; and that he (respondent Eduardo) he was not qualified to acquire lands in the
learned only in June 1992 that the property was Philippines because he had become an American
the subject of an extrajudicial foreclosure. Named citizen, and that the land was subsequently
defendants in the action were petitioner Roberto donated to respondent Eduardos son, Julsunthie,
de Leon, Augorio Calalo and Benjamin Gonzales, are matters not known to petitioner. Hence,
the sheriff conducting the foreclosure proceeding. whether Augorio Calalo committed a breach of
trust and whether the property was validly
In due time, petitioner De Leon filed an answer in donated to petitioners son Julsunthie are
which he claimed to be a mortgagee in good questions which must be resolved in a separate
faith, having previously ascertained the proceeding.
ownership of Augorio who occupied and
possessed the land in question and in whose CEBU INTERNATIONAL v CA
name the land was registered in the Register of
Deeds and in various other documents. He ERENA v QUERRA-KAUFFMAN
pointed out that even the deed of sale attached FACTS: Respondent is the owner of a lot with
to respondents complaint showed that the land house, with the TCT kept in a safety deposit box.
was in Augorios name, clearly proving that the She left the key of the box to her husband as she
latter owned the property. Petitioner De Leon was leaving for the US. Later on, the daughter of
averred that the mortgage in his favor was respondent as well as her husband left for the US,
registered with the Register of Deeds and that it and the key was entrusted to the sister of her
had been amended four times. husband, Mira Bernal. After a few months,
respondent asked her sister to get the TCT in the
ISSUE: W/N the mortgage executed by Augorio safety deposit box to be able to sell the property.
Calalo in favor of petitioner De Leon is valid. When the safe was broken, the items inside were
missing, including the title to the lot and tax
HELD: declarations, as well as jewelry.

There is no dispute that the land subject of the

mortgage is titled in the name of Augorio Calalo.
Nor is there any question that petitioner De Leon Respondent discovered from Bernal that she and
did not know of the claim of ownership of Jennifer Ramirez, Victors daughter took the title
respondent Eduardo Calalo until after the present and mortgaged it to petitioner. There was a
action was instituted. As the trial court found, woman who pretended to be the owner of the lot,
petitioner De Leon examined the relevant showing the TCT in her name as Vida Dana
documents pertaining to the land, consisting of Querrer and identification card. Petitioner verified
the transfer certificate of title, the tax with the Office of the Register of Deeds that the
declarations in the City Assessors Office and property was in the name of Vida Dana Querrer
and that it was free of any lien or encumbrance.
Subsequently, petitioner was convinced to enter property, his title being fraudulent, the mortgage
into a Real Estate Mortgage Contract which was contract or any foreclosure sale arising therefrom
later on notarized and filed with the Office of the are given effect by reason of public policy. The
Register of Deeds and annotated on the TCT. doctrine of mortgagee in good faith presupposes
that the mortgagor, who is not the rightful owner
of the property, has already succeeded in
obtaining a Torrens title over the property in his
Respondent filed a complaint against petitioner, name and that, after obtaining the said title, he
Bernal and Ramirez for Nullification of Deed of succeeds in mortgaging the property to another
Real Estate Mortgage. who relies on what appears on the said title- it
does not apply to a situation where the title is still
in the name of the rightful owner and the
mortgagor is a different person pretending to be
The RTC ruled in favor of petitioner and declared the owner.
the Deed of Real Estate Mortgage valid. The CA
rendered judgment in favor of defendant on the PNB v AGUDELO
ground that in a Real Estate Mortgage contract, it
is essential that the mortgagor be the absolute Vda. DE JAYME v CA
owner of the property to be mortgaged; FACTS:
otherwise the mortgage is void. - Spouses Jayme (P) are the registered
owners of a parcel of land. They entered
into a contract of lease with Asian Cars (R)
covering half of the lot for 20 years
ISSUE: WON THE REAL ESTATE MORTGAGE - The contract allows R to mortgage the
CONTRACT IS VALID? property as long as the proceeds will be
for the construction of a building on the
- R mortgaged the property for P6M to
HELD: NO. One of the essential requisites of a MetroBank, covering the whole lot, and in
mortgage contract is that the mortgagor must be which P signed the documents. R also
the absolute owner of the thing mortgaged. A executed an undertaking wherein the
mortgage is, thus, invalid if the mortgagor is not officers of R are liable personally to the
the property owner. In this case, the trial court mortgage
and the CA are one in finding that based on the - R defaulted and MetroBank foreclosed the
evidence on record the owner of the property is property.
respondent who was not the one who mortgaged - P filed for annulment of mortgage as it
the same to the petitioner. was acquired through fraud
- RTC and CA declared the mortgage and
undertaking valid

Petitioner cannot be considered an innocent ISSUE: WON Mortgage allowing R to mortgage the
purchaser for value, relying on the Torrents title. property was valid
While a Torrens title serves as evidence of an
indefeasible title to the property in favor of the SC: YES
person whose name appears therein, when the - It has long been settled that it is valid so
instrument presented for registration is forged, long as valid consent was given. In
even if accompanied by the owners duplicate consenting thereto even granting that
certificate of title, the registered owner does not petitioner may not be assuming personal
thereby lose his title, and neither does the liability for the debt, her property shall
assignee of the mortgagee, for that matter, nevertheless secure and respond for the
acquire any right or title to the property. In such a performance of the principal obligation
case, the transferee or the mortgagee, based on - The law recognizes instances when
a forged instrument, is not even a purchaser or a persons not directly parties to a loan
mortgagee for value protected by law. agreement may give as security their own
properties for the principal transaction.
- In this case, the spouses should not be
allowed to disclaim the validity of a
Petitioner cannot also invoke the doctrine of a transaction they voluntarily and knowingly
mortgagee on good faith. Said doctrine speaks of entered into for the simple reason that
a situation where, despite the fact that the such transaction turned out prejudicial to
mortgagor is not the owner of the mortgaged them later on.
- Records show that P voluntarily agreed to PNB in the extrajudicial foreclosure. The RTC ruled
use their property as collateral for Rs in favour of the spouses belo.
loan, hence, no fraud
- The undertaking made by R and its 6) On appeal, the CA ruled that the petitioners
officers are valid, hence they are liable to spouses Belo should pay the entire amount due
reimburse P for the damages they suffered to PNB under the mortgage deed at the time of
by reason of the mortgage the foreclosure sale plus interest, costs and
ISSUE: whether or not the SPA the real estate
FACTS: mortgage contract, the foreclosure proceedings
and the subsequent auction sale involving
1) Eduarda Belo owned an agricultural land with Eduarda Belo's property are valid. And assuming
an area of 661,288 square meters in Panitan, they are valid, whether or not the petitioners are
Capiz, which she leased a portion to respondents required to pay, as redemption price, the entire
spouses Eslabon, for a period of 7 years at the claim of respondent PNB in the amount of
rate of P7,000.00 per year. P2,779,978.72 as of the date of the public auction
sale on June 10, 1991.
2) Respondents spouses Eslabon obtained a loan
from PNB secured by a real estate mortgage on HELD:
their own 4 residential houses located in Roxas
City, as well as on the agricultural land owned by A) The validity of the SPA and the mortgage
Eduarda Belo. The assent of Eduarda Belo to the contract cannot anymore be assailed due to
mortgage was acquired through a special power petitioners Belo failure to appeal the same after
of attorney which was executed in favor of the trial court rendered its decision affirming their
respondent Marcos Eslabon on June 15, 1982. validity.

3) The spouses Eslabon failed to pay their loan B) Also, the SPA executed by Eduarda Belo in
obligation, and so extrajudicial foreclosure favor of the respondents spouses Eslabon and the
proceedings against the mortgaged properties Real Estate Mortgage executed by the
were instituted by PNB and was the highest respondents spouses in favor of respondent PNB
bidder of the foreclosed properties at are valid. It is stipulated in paragraph three (3) of
P447,632.00. the SPA that Eduarda Belo appointed the Eslabon
spouses "to make, sign, execute and deliver any
4) Meanwhile, Eduarda Belo sold her right of contract of mortgage or any other documents of
redemption to petitioners spouses Enrique and whatever nature or kind . . . which may be
Florencia Belo under a deed of absolute sale of necessary or proper in connection with the loan
proprietary and redemption rights. Before the herein mentioned, or with any loan which my
expiration of the redemption period, petitioners attorney-in-fact may contract personally in his
spouses Belo tendered payment for the own name
redemption of the agricultural land which
includes the bid price of respondent PNB, plus C) ThisSPA was not meant to make her a co-
interest and expenses. obligor to the principal contract of loan between
respondent PNB, as lender, and the spouses
5) However, PNB rejected the tender of payment Eslabon, as borrowers. Eduarda Belo consented to
of petitioners spouses Belo contending that the be an accommodation mortgagor in the sense
redemption price should be the total claim of the that she signed the SPA to authorize respondents
bank on the date of the auction sale and custody spouses Eslabons to execute a mortgage on her
of property plus charges accrued and interests land.
amounting to P2,779,978.72 to which the
spouses disagreed and refused to pay the said D) An accommodation mortgage isnt void simply
total claim of respondent PNB. Thereafter the\ because the accommodation mortgagor did not
spouses Belo filed in the RTC an action for benefit from the same. The validity of an
declaration of nullity of mortgage, with an accommodation mortgage is allowed under
alternative cause of action, in the event that the Article 2085 of the New Civil Code which provides
accommodation mortgage be held to be valid, to that "(t)hird persons who are not parties to the
compel respondent PNB to accept the redemption principal obligation may secure the latter by
price tendered by petitioners spouses Belo which pledging or mortgaging their own property."
is based on the winning bid price of respondent


E) An accommodation mortgagor, ordinarily, is Alinea and Belarmino loaned P480 from
not himself a recipient of the loan. Alcantara.
According to the loan agreement, if the period
F) There is no doubt that Eduarda Belo, assignor has expired without payment of the loan, the
of the petitioners, is an accommodation house and lot of Alinea and Belarmino will be
mortgagor. Section 25 of P.D. No. 694 provides considered sold to Alcantara.
that "the mortgagor shall have the right to Alinea and Belarmino failed to pay.
redeem the property by paying all claims of the They refused to deliver the property to
Bank against him". From said provision can be Alcantara.
deduced that the mortgagor referred to by that Alcantara filed an action against them.
law is one from whom the bank has a claim in the
The defendants contend that the amount
form of outstanding or unpaid loan; he is also
claimed by Alcantara included the interest
called a borrower or debtor-mortgagor.
and that the principal borrowed was only 200
and that the interest was 280.
G) PNB has no claim against accommodation They also alleged as their special defense that
mortgagor Eduarda Belo inasmuch as she only
they offered to pay Alcantara the sum of 480
mortgaged her property to accommodate the
but the latter had refused to accept the same.
Eslabon spouses who are the loan borrowers of
the PNB. The principal contract is the contract of
loan between the Eslabon spouses, as
borrowers/debtors, and the PNB as lender. The
1) WON there was a valid mortgage?
accommodation real estate mortgage which
2) WON the defendants should deliver the
secures the loan is only an accessory contract.
property to Alcantara?
Thus, the term "mortgagor" in Section 25 of P.D.
No. 694 pertains only to a debtor-mortgagor and
not to an accommodation mortgagor.
H) Moreover, the mortgage contract provides that 1) No. The property, the sale of which was
". . . the mortgagee may immediately foreclose agreed to by the debtors does not appear
this mortgage judicially in accordance with the mortgaged in favor of the creditor because in
Rules of Court or extrajudicially in accordance order to constitute a valid mortgage it is
with Act No. 3135, as amended and Presidential indispensable that the instrument be
Decree No. 385 Thus, since the mortgage registered in the Register of Property and the
contract in this case is in the nature of a contract document contract does not constitute a
of adhesion as it was prepared solely by mortgage nor it could possibly be a mortgage,
respondent, it has to be interpreted in favor of for the reason that the said document is not
petitioners. vested with the character and conditions of a
public instrument.
J) While the petitioners, as assignees of Eduarda
Belo, are not required to pay the entire claim of The contract is not a pledge since the said
respondent PNB against the principal debtors, property is not personal property and the
they can only exercise their right of redemption debtor continued in possession thereof and
with respect to the parcel of land belonging to was never been occupied by the creditor.
Eduarda Belo, the accommodation mortgagor.
Thus, they have to pay the bid price less the It is also not an antichresis by reason that as
corresponding loan value of the foreclosed 4 the creditor has never been in possession of
residential lots of the spouses Eslabon. Thus, the property nor has enjoyed the said
petitioners are allowed to redeem only the property nor for one moment received its
property registered in the name of Eduarda Belo, rents.
by paying only the bid price less the
corresponding loan value of the foreclosed (4) 2) Yes. The will of the parties are controlling, In
residential lots of the respondents spouses this case, a contract of loan and a promise of
Eslabon. sale of a house and lot, the price of which
should be the amount loaned, if within a fixed
period of time such amount should not be
BUSTAMANTE v ROSEL paid by the debtor-vendor of the property to
the creditor-vendee of same. The fact that the
ALCANTARA v ALINEA parties have agreed at the same time, in such
Facts: a manner that the fulfillment of the promise of
sale would depend upon the nonpayment or


return of the amount loaned, has not upon the execution of the sale, subject only to
produced any change in the nature and legal the vendors rights of redemption. The said
conditions of either contract, or any essential stipulation is a pactum commissorium which
defect which would tend to nullify the same. enables the mortgagee to acquire ownership of
the mortgaged property without need of
forclosure. It is void. Its insertion in the contract is
MAHONEY v TUASON an avowal of the intention to mortgage rather
than to sell the property.
Facts: P. Blanc, the owner of the jewels, entered
into a contract of pledge, delivering to the DAYRIT v CA
creditor Mariano Tuason several jewels and other
merchandise for the purpose of securing the FACTS: Dayrit, Sumbillo and Angeles
fulfillment of the obligation which he (Blanc) had entered into a contract with Mobil Oil Phil, entitled
contracted in favor of the latter who had LOAN & MORTGAGE AGREEMENT. Defendants
guaranteed the payment of a considerable violated the LOAN & MORTGAGE AGREEMENT
amount of money which Blanc owed to the because they only paid one installment. They also
Chartered Bank. Creditor Tuason paid to the failed to buy the quantities required in the Sales
Chartered Bank the sum of sixteen thousand Agreement.
pesos (P16,000) which the debtor Blanc owed and
failed to pay, and that the latter did not The plaintiff made a demand, Dayrit answered
reimburse Tuason the amount paid to the bank acknowledging his liability. Trial Court ruled in
together with interests thereon. favor of plaintiff and also ruled that each of the
three defendants shall pay 1/3 of the cost. No
Issue: W/N Tuason can appropriate the things appeal had been taken so the decision became
given by way of pledge? final and executor.

Ruling: No. Tuason is entitled to retain and Mobil filed for the execution of the judgment.
appropriate to himself the merchandise received Dayrit opposed alleging that they had an
in pledge is null and indefensible, because he can agreement with Mobil, that he would not appeal
only recover his credit, according to law, from the anymore but Mobil would release the mortgage
proceeds of the sale of the same. Art. 2088. upon payment of his 1/3 share.

Mobil claimed that the agreement was that it

LANUZA v DE LEON would only release the mortgage if the whole
principal mortgaged debt plus the whole accrued
Spouses lanuza executed a deed of sale with a interest were fully paid.
right to repurchase to Reyes. Upon expiration of
term to repurchase, the time was extended ISSUE: Whether or not the CFI erred in ordering
without the wife of lanuza signing the document. the sale at public auction of the mortgaged
A stipulation to the effect that the ownership will properties to answer for the entire principal
only be passed to the vendee if the vendor fails obligation of Dayrit, Sumbillo and Angeles.
to repurchase the property was included. The
spouses then mortgage the property to RULING:
respondent to secure a debt. The debt was
unpaid and respondent filed a case to foreclose While it is true that the obligation is merely joint
the mortgage which was granted. Reyes filed a and each of the defendant is obliged to pay his
case for consolidation, claiming she has the right 1/3 share of the joint obligation, the undisputed
to the property. Reyes claims the ownership in the fact remains that the intent and purpose of the
property automatically passes immediately to LOAN & MORTGAGE AGREEMENT was to secure
him after the sale and not after the end of the the entire loan.
period to repurchase.
The court ruled that a mortgage directly
Issue: won reyes contention valid and immediately subjects the property upon
which it is imposed, the same being
Ruling: yes. a stipulation in a purported pacto de indivisible even though the debt may be
retro sale that the ownership over the property divided, and such indivisibility likewise
sold would automatically pass to the vendee in unaffected by the fact that the debtors are
case no redemption was effected within the not solidarily liable.
stipulated period is contrary to the nature of a
true pacto de retro sale, under which the vendee YU v PCIB
acquires ownership of the thing sold immediately FACTS:
P mortgaged their title, interest, and essence, indivisibility means that the
participation over several parcels of land mortgage obligation cannot be divided
located in Dagupan City and Quezon City among the different lots, that is, each and
in favour of PCIB (R) as security for the every parcel under mortgage answers for
payment of a loan in the amount of P9mill the totality of the debt
P failed to pay the loan; R filed a Petition A.M. No. 99-10-05-0,the Procedure on
for Extrajudicial Foreclosure of Real Estate Extra-Judicial Foreclosure of Mortgage,
Mortgage on the Dagupan City properties. lays down the guidelines for extra-judicial
A Certificate of Sale was issued in favour foreclosure proceedings on mortgaged
of R. Subsequently, R filed an Ex-Parte properties located in different provinces. It
Petition for Writ of Possession before RTC provides that the venue of the extra-
Dagupan judicial foreclosure proceedings is the
P filed a Motion to Dismiss. They argued place where each of the mortgaged
that the Certificate of Sale is void because property is located. Relevant portion
the real estate mortgage is indivisible, the provides:
mortgaged properties in Dagupan City and
Quezon City cannot be separately Where the application concerns the
foreclosed. extrajudicial foreclosure of mortgages
R the filing of two separate foreclosure of real estates and/or chattels in
proceedings did not violate Article 2089 of different locations covering one
the Civil Code on the indivisibility of a real indebtedness, only one filing fee
estate mortgage since Section 2 of Act No. corresponding to such indebtedness
3135 expressly provides that extra-judicial shall be collected. The collecting Clerk
foreclosure may only be made in the of Court shall, apart from the official
province or municipality where the receipt of the fees, issue a certificate
property is situated. R further submits that of payment indicating the amount of
the filing of separate applications for indebtedness, the filing fees collected,
extra-judicial foreclosure of mortgage the mortgages sought to be
involving several properties in different foreclosed, the real estates and/or
locations is allowed by A.M. No. 99-10-05- chattels mortgaged and their
0, the Procedure on Extra-Judicial respective locations, which
Foreclosure of Mortgage, as further certificate shall serve the purpose
amended on August 7, 2001. of having the application docketed
TC denied Motion with the Clerks of Court of the
places where the other properties
ISSUE: WON a real estate mortgage over several are located and of allowing the
properties located in different localities can be extrajudicial foreclosures to
separately foreclosed in different places? proceed thereat. (Emphasis
What the law proscribes is the foreclosure The indivisibility of the real estate
of only a portion of the property or a mortgage is not violated by conducting
number of the several properties two separate foreclosure proceedings on
mortgaged corresponding to the unpaid mortgaged properties located in different
portion of the debt where, before provinces as long as each parcel of land is
foreclosure proceedings, partial payment answerable for the entire debt
was made by the debtor on his total
outstanding loan or obligation.
This also means that the debtor cannot METROBANK v SLGT
ask for the release of any portion of the
mortgaged property or of one or some of FACTS:
the several lots mortgaged unless and
until the loan thus secured has been fully On October 25, 1995, Dylanco and SLGT each
paid, notwithstanding the fact that there entered into a contract to sell with ASB for the
has been partial fulfillment of the purchase of a unit (Unit 1106 for Dylanco and
obligation. Hence, it is provided that the Unit 1211 for SLGT) at BSA Towers then being
debtor who has paid a part of the debt developed by the latter. As stipulated, ASB will
cannot ask for the proportionate deliver the units thus sold upon completion of the
extinguishment of the mortgage as long construction or before December 1999. Relying
as the debt is not completely satisfied. In on this and other undertakings, Dylanco and
SLGT each paid in full the contract price of their In resolving the complaint in favor of
respective units. The promised completion date Dylanco and SLGT, the Housing Arbiter
came and went, but ASB failed to deliver, as the ruled that the mortgage constituted over
Project remained unfinished at that time. To make the lots is invalid for lack of mortgage
matters worse, they learned that the lots on clearance from the HLURB.
which the BSA Towers were to be erected had
been mortgaged6 to Metrobank, as the lead bank, ISSUE: W/N The declaration of nullity of the entire
and UCPB7 without the prior written approval of mortgage constituted on the project land site and
the Housing and Land Use Regulatory Board the improvements was valid. and
Alarmed by this foregoing turn of events,
Dylanco, on August 10, 2004, filed with the Both petitioners do not dispute executing the
HLURB a complaint for delivery of property and mortgage in question without the HLURBs prior
title and for the declaration of nullity of written approval and notice to both individual
mortgage. A similar complaint filed by SLGT respondents. Section 18 of Presidential Decree
followed three (3) days later. At this time, it No. (PD) 957 The Subdivision and Condominium
appears that the ASB Group of Companies, which Buyers Protective Decree provides:
included ASB, had already filed with the
Securities and Exchange Commission a petition
for rehabilitation and a rehabilitation receiver had SEC. 18. Mortgages. - No mortgage of
in fact been appointed. any unit or lot shall be made by the
owner or developer without prior
written approval of the [HLURB]. Such
What happened next are laid out in the OP approval shall not be granted unless it is
decision adverted to above, thus: shown that the proceeds of the mortgage
loan shall be used for the development of
In response to the above complaints, ASB the condominium or subdivision project .
alleged that it encountered liquidity The loan value of each lot or unit covered
problems sometime in 2000 after its by the mortgage shall be determined
creditors [UCPB and Metrobank] and the buyer thereof, if any, shall be
simultaneously demanded payments of notified before the release of the
their loans; that on May 4, 2000, the loan. The buyer may, at his option, pay
Commission (SEC) granted its petition for his installment for the lot or unit directly to
rehabilitation; that it negotiated with UCPB the mortgagee who shall apply the
and Metrobank but nothing came out payments to the corresponding mortgage
positive from their negotiation . indebtedness secured by the particular lot
or unit being paid for . (Emphasis and
On the other hand, Metrobank claims that word in bracket added)
complainants [Dylanco and SLGT] have no
personality to ask for the nullification of There can thus be no quibbling that the project
the mortgage because they are not parties lot/s and the improvements introduced or be
to the mortgage transaction ; that the introduced thereon were mortgaged in clear
complaints must be dismissed because of violation of the aforequoted provision of PD 957.
the ongoing rehabilitation of ASB; xxx that And to be sure, Dylanco and SLGT, as Project unit
its claim against ASB, including the buyers, were not notified of the mortgage before
mortgage to the [Project] have already the release of the loan proceeds by petitioner
been transferred to Asia Recovery banks.
Corporation; xxx.
As it were, PD 957 aims to protect innocent
UCPB, for its part, denies its liability to subdivision lot and condominium unit buyers
SLGT [for lack of privity of contract] against fraudulent real estate practices. Its
[and] questioned the personality of SLGT preambulatory clauses say so and the Court need
to challenge the validity of the mortgage not belabor the matter presently. Section
reasoning that the latter is not party to the 18, supra, of the decree directly addresses the
mortgage contract [and] maintains that problem of fraud and other manipulative
the mortgage transaction was done in practices perpetrated against buyers when the lot
good faith. Finally, it prays for the or unit they have contracted to acquire, and
suspension of the proceedings because of which they religiously paid for, is mortgaged
the on-going rehabilitation of ASB. without their knowledge, let alone their consent.
The avowed purpose of PD 957 compels, as the
OP correctly stated, the reading of Section 18 as It will not avail the petitioners any to feign
prohibitory and acts committed contrary to it are ignorance of PD 957 requiring prior written
void. Any less stringent construal would only approval of the HLURB, they being charged with
accord unscrupulous developers and their knowledge of such requirement since granting
financiers unbridled discretion to follow or not to loans secured by a real estate mortgage is an
follow PD 957 and thus defeat the very lofty ordinary part of their business.
purpose of that decree. It thus stands to reason
that a mortgage contract executed in breach of CENTRAL BANK v CA
Section 18 of the decree is null and void.
The next question to be addressed turns on
whether or not the nullity extends to the entire YULIONGSIU v PNB
mortgage contract. FACTS: Yulongsiu owned 2 vessels and equity in
FS-203, which were purchased by him from the
The poser should be resolved, as the CA and OP Philippine Shipping Commission, by installment.
did resolve it, in the affirmative. This disposition Plaintiff obtained a loan from defendant and to
stems from the basic postulate that a mortgage guarantee payment, plaintiff pledged the 2
contract is, by nature, indivisible. Consequent to vessels and the equity on FS-203, as evidenced
this feature, a debtor cannot ask for the release by a pledge contract. Plaintiff made a partial
of any portion of the mortgaged property or of payment and the remaining balance was renewed
one or some of the several properties mortgaged by the execution of 2 promissory notes in the
unless and until the loan thus secured has been banks favor. These two notes were never paid at
fully paid, notwithstanding the fact that there has all by plaintiff on their respective due dates.
been partial fulfillment of the obligation. Hence, it
is provided that the debtor who has paid a part of
the debt cannot ask for the proportionate
extinguishments of the mortgage as long as the Defendant bank filed a criminal case against
debt is not completely satisfied. plaintiff charging the latter with estafa through
falsification of commercial documents, and the
The situation obtaining in the case at bench is trial court convicted the plaintiff and was
within the purview of the aforesaid rule on the sentenced to indemnify the defendant. The
indivisibility of mortgage. It may be that Section corresponding writ of execution issued to
18 of PD 957 allows partial redemption of the implement the order for indemnification was
mortgage in the sense that the buyer is entitled returned unsatisfied as plaintiff was totally
to pay his installment for the lot or unit directly to insolvent.
the mortgagee so as to enable him - the said
buyer - to obtain title over the lot or unit after full
payment thereof. Such accommodation statutorily
given to a unit/lot buyer does not, however, Meanwhile, together with the institution of the
render the mortgage contract also divisible. criminal action, defendant took physical
Generally, the divisibility of the principal possession of the 2 vessels and transferred the
obligation is not affected by the indivisibility of equity on FS-203 to the defendant. Later on, the
the mortgage. The real estate mortgage 2 vessels were sold by defendant to third parties.
voluntarily constituted by the debtor (ASB) on the
lots or units is one and indivisible. In this case,
the mortgage contract executed between ASB
and the petitioner banks is considered indivisible, Plaintiff commenced an action for recovery on the
that is, it cannot be divided among the different pledged items, and alleges, among others, that
buildings or units of the Project. Necessarily, the contract executed was a chattel mortgage so
partial extinguishment of the mortgage cannot be the creditor defendant could not take possession
allowed. In the same token, the annulment of the of the chattel object thereof until after there has
mortgage is an all or nothing proposition. It been default.
cannot be divided into valid or invalid parts. The
mortgage is either valid in its entirety or not valid
at all. In the present case, there is doubtless only
one mortgage to speak of. Ergo, a declaration of ISSUE: Whether the contract entered into
nullity for violation of Section 18 of PD 957 should between plaintiff and defendant is a chattel
result to the mortgage being nullified wholly. mortgage or a valid contract of pledge?


HELD: Its a contract of pledge. The contract itself alleged failure to settle its outstanding
provides that it is a contract of pledge and the obligations
judicial admission that it is a pledge contract
cannot be offset without showing of palpable FBDC entered and occupied the leased
mistake. premises. FBDC also appropriated the
equipment and properties left by Tirreno
pursuant to Section 22 of their Contract of
Lease as partial payment for Tirreno's
The pledgee defendant was therefore entitled to outstanding obligations.
the actual possession of the vessels. The
plaintiffs continued operation of the vessels after Yllas Lending Corporation and Jose S.
the pledge contract was entered into places his
Lauraya, in his official capacity as
possession subject to the order of the pledge. The
President, (respondents) caused the sheriff
pledge can temporarily entrust the physical
of Branch 59 of the trial court to serve an
possession of the chattels pledged to the pledgor
alias writ of seizure against FBDC. On the
without invalidating the pledge. In this case, the
same day, FBDC served on the sheriff an
pledgor is regarded as holding the pledge merely
affidavit of title and third party claim
as a trustee for the pledge.
Despite FBDC's service upon him of an
affidavit of title and third party claim, the
As to the validity of the pledge contract with sheriff proceeded with the seizure of
regard to delivery, plaintiff alleges that certain items from FBDC's premises
constructive delivery is insufficient to make
pledge effective. The Court ruled that type of The sheriff delivered the seized properties
delivery will depend on the nature and peculiar to respondents. FBDC questioned the
circumstances of each case. Since the defendant propriety of the seizure and delivery of the
bank was, pursuant to the pledge contract, in full properties to respondents without an
control of the vessels through plaintiff, the former indemnity bond before the trial court.
could take actual possession at any time during FBDC argued that when respondents and
the life of the pledge to make more effective its Tirreno entered into the chattel mortgage
security. agreement on 9 November 2000, Tirreno
no longer owned the mortgaged properties
as FBDC already enforced its lien on 29
FBDC v YLLAS LENDING September 2000.
ISSUE: Whether or not the dismissal of FBDC's
FBDC executed a lease contract in favor of third party claim upon the trial court's erroneous
Tirreno, Inc. (Tirreno) over a unit at the interpretation that FBDC has no right of
Entertainment Center - Phase 1 of the ownership over the subject properties because
Bonifacio Global City in Taguig, Metro Section 22 of the contract of lease is void for
Manila being a pledge and a pactum commissorium?

Two provisions in the lease contract are HELD:

pertinent to the present case: Section 20,
which is about the consequences in case No, This stipulation is in the nature of a
of default of the lessee, and Section 22, resolutory condition, for upon the exercise
which is about the lien on the properties of by the [lessor] of his right to take
the lease. possession of the leased property, the
contract is deemed terminated. This kind
Tirreno began to default in its lease of contractual stipulation is not illegal,
payments in 1999. By July 2000, Tirreno there being nothing in the law proscribing
was already in arrears by P5,027,337.91. such kind of agreement.
FBDC and Tirreno entered into a
settlement agreement on 8 August 2000. Judicial permission to cancel the
Despite the execution of the settlement agreement was not, therefore necessary
agreement, FBDC found need to send because of the express stipulation in the
Tirreno a written notice of termination contract of [lease] that the [lessor], in
dated 19 September 2000 due to Tirreno's case of failure of the [lessee] to comply
with the terms and conditions thereof, can


take-over the possession of the leased the bank, as security for the said note, 5,000
premises, thereby cancelling the contract piculs of sugar, which were said stored in a
of sub-lease. Resort to judicial action is warehouse in Binondo, Manila.
necessary only in the absence of a special
provision granting the power of 2) The bank made no effort to exercise any active
cancellation. ownership over said merchandise until the April
16, when it discovered that the amount of sugar
We allow FBDC's forfeiture of Tirreno's stored in the said warehouse was much less than
properties in the leased premises. By what was mentioned in the contract. The
agreement between FBDC and Tirreno, the agreement between the bank and Chua Teng
properties are answerable for any unpaid Chong with respect to the alleged pledge of the
rent or charges at any termination of the sugar was never recorded in a public instrument.
lease. Such agreement is not contrary to
law, morals, good customs, or public 3) On March 24, 1914, the plaintiff partnership
policy. Forfeiture of the properties is the Ocejo, Perez and Co., entered into contract with
only security that FBDC may apply in case Chua for the sale to him of sugar where the
of Tirreno's default in its obligations delivery should be made in April. The delivery
was completed April 16, 1914, and the sugar was
PNB v ATENDIDO stored in the buyer's warehouse situated at
(Re Incorporeal Rights) Muelle de la Industria. On this same date, the
FACTS: bank sent an employee to inspect the sugar
Laureano Atendido (LA) obtained from PNB (P) a described in the pledge agreement, which should
loan payable in 120 days with interest. To have been stored in the Calle Toneleros
guarantee its payment LA pledge to the bank warehouse. It was discovered that the amount of
2,000 cavans of palay which were deposited in a sugar in that warehouse did not exceed 1,800
warehouse and to that effect endorsed in favor of piculs, it was supposed to have 5,000 piculs of
the bank the corresponding WH receipt. Before sugar. Eventually, the employee was informed
the maturity of the loan, the cavans of rice that the rest of the sugar covered by the pledge
dissappeared from the WH. LA failed to pay the agreement was stored in the warehouse at No.
loan upon matrity and so the present action was 119, Muelle de la Industria. The bank's
instituted. LA set up the defense that the quedan representative immediately went to this
covering the palay which was given as security warehouse, found 3,200 piculs of sugar, of which
having been endorsed in blank in favor of the he took immediate possession, closing the
bank and the palay having been lost or warehouse with the bank's padlocks.
disappeared, he thereby became relieved of
liability. 4) On April 17, 1914, partnership Ocejo
presented, for collection, its account for the
ISSUE: WoN LA is relieved from liability purchase price of the sugar, but chua refused to
make payment, and up to the present time the
SC: NO! sellers have been unable to collect the purchase
The surrender of the warehouse receipt fiven as price of the merchandise in question.
security, endorsed in blank was NOT that of a
final transfer or that WH receipt but merely as a 5) The partnership Ocejo made a demand on the
guaranty to the fulfillment of the obligation of bank for the delivery of the sugar, to which
P3k. This being so, the ownership remains with demand the bank refused to accede. A suit was
the pledgor subject only to foreclosure in case of filed by Ocejo alleging that said defendant was
nonfulfillment of obligation. The pledgor, unlawfully holding the seized sugar, the property
continuing to be the owner of the goods pledged of the plaintiff firm Ocejo, which the bank had
during the pendency of the obligation in case of received from Chua Teng Chong, and prayed for
the loss of the property, the loss is borne by him. the judgment for the possession of said sugar.
6) Subsequently, by agreement of the parties, the
sugar was sold and the proceeds of the deposited
in the bank. Afterwards, a complaint in
1) On March 7, 1914, Chua Teng Chong, executed intervention was filed by Chua Seco, the assignee
to the International Banking Corporation a of the insolvency of Chua Teng Chong, asserting a
promissory note, payable one month after date, preferential right to the sugar, or to the proceeds
for the sum of P20,000 which note was also of its sale contending that the sugar is the
attached to another private document, signed by property of the insolvent estate represented by
Chua, which stated that he had deposited with


him. The lower court rendered judgment in favor D) It is not shown that an effort was made to
of the Oceja pledge the sugar, the subject matter of this case.
Though it happened that the day the sugar was
ISSUES: delivered, the Chua gave the bank's
representative the keys of the warehouse on the
(a) Did title to the sugar pass to the buyer upon Muelle de la Industria in which the sugar was
its delivery to him (chua seco)? stored, it was not because of an agreement
concerning the pledge of the sugar. From the
facts, no attempt was made to enter into any
(b) Assuming to pay that the title passed to the agreement for the pledge of the sugar here in
buyer, did his failure to pay the purchase price question. The bank took possession of that sugar
authorize the seller to rescind the sale? under the erroneous belief, based upon the false
statement of Chua Teng Chong, that it was a part
(c) Can the pledge of the sugar to the bank be of the lot mentioned in the private document.
sustained upon the evidence as to the Even assuming that an attempt was made to
circumstances under which it obtained physical pledge the sugar and that delivery was made in
possession thereof? accordance with the agreement, the pledge so
established would be void as against third
HELD: persons since it is provided Article 1865 of the
Civil Code that a pledge is without effect as
A) The SC agreed with Chuas contention that he against third persons "if the certainty of the date
was entitled to demand payment of the sugar at does not appear by public instrument."
any time after the delivery. No term having been
stipulated within which the payment should be E) As to assignee Chua Seco: He filed a complaint
made, payment was demandable at the time and in intervention in this suit, in which he contends
place of the delivery of the thing sold. The seller that by reason of its sale and delivery by plaintiff
did not avail himself of his right to demand to the insolvent, title to the sugar passed to the
payment as soon as the right to such payment latter and that the pledge set up by the bank is
arose, but as no term for payment was stipulated, void as to third persons. The title to the sugar
he was entitled, to require payment to be made having been commenced against him before the
at any time after delivery, and it was the duty of declaration of insolvency, the assignee, Chua
the buyer to pay the price immediately upon Seco, has a better right to its possession or to the
demand. In essence, the delivery had the effect product of its sale during the pendency of this
of transmitting the title of the sugar to the buyer. action. The decision of the court below is
therefore reversed, and it is decided that the
B) Failure on the part of the buyer to pay the assignee of the bankruptcy of Chua Teng Chong is
price on demand: Article 1506 of the Civil Code entitled to the product of the sale of the sugar
provides that the contract of sale may be here in question, to wit, P10,826.76, together
rescinded for the same causes as all other with the interest accruing thereon, reserving
obligations, in addition to the special causes proceedings. So ordered.
enumerated in the preceding articles. It is also
observed that the article does not distinguish the CRUZ v LEE
consummated sale from the merely perfected
sale. In the contract of the sale the obligation to SARMIENTO v JAVELLANA
pay the price is correlative to the obligation to Facts:
deliver the thing sold. Nonperformance by one of
the parties authorizes the other to exercise the Spouses Villasenor obtained a loan from
right, conferred upon him by the law, to elect to Javellana to be paid within one year with an
demand the performance of the obligation or its interest of 25% p.a. evidenced by to
rescission. documents.
They pledged 4,000 worth of jewels.
C) The sugar here in question could not be Upon maturity, the Spouses requested for an
possibly have been the subject matter of the extension.
contract of pledge which the parties undertook to After 7 years, Villasenor offered to pay the
create by the private document, inasmuch as it loan and redeem the jewels.
was not at the time the property of the bank, and Javellana refused on the ground that
this constitutes an indispensable requisite for the redemption period has already expired and he
creation of a pledge. has already bought the jewels from the wife of


Villasenor brought an action against Javellana However, before the scheduled date of auction,
to compel the return of the jewels pledged. all of respondents caused the consignation with
the RTC Clerk of Court of various amounts. It was
Issues: claimed that respondents had attempted to
tender these payments to the Parays, but had
1) WON Villasenor can still redeem the jewels? been rebuffed. Notwithstanding the
2) WON the right to redeem has already expired? consignations, the public auction took place as
scheduled, with petitioner Vidal Espeleta
successfully bidding. Respondents instead filed
Held: on 13 November 1991 a complaint seeking the
declaration of nullity of the concluded public
1) Yes. As the jewels in question were in the auction. Petitioners now argue that the essential
possession of the defendant to secure the procedural requisites for the auction sale had
payment of a loan of 1,500 with interest been satisfied.
thereon and for having subsequently
extended the term of the loan indefinitely, Issue: W/N the the essential procedural requisites
and so long as the value of the jewels pledged for the auction sale had been satisfied?
was sufficient to secure the payment of the
capital and the accrued interest, the Ruling: Yes. Under the Civil Code, the foreclosure
defendant is bound to return the jewels or of a pledge occurs extrajudicially, without
their value to the plaintiffs, and the plaintiffs intervention by the courts. All the creditor needs
have the right to demand the same upon the to do, if the credit has not been satisfied in due
payment by them of the sum of 1,500 plus time, is to proceed before a Notary Public to the
interest. sale of the thing pledged.

2) An action for recovery of the goods which MANILA SURETY v VELAYO

were pledged to secure the payment of a loan
evidenced by a document is an action on a F: Manila Surety & Fidelity Co., upon request of
written contract which has a prescriptive Rodolfo Velayo, executed a bond for P2,800.00 for
period of 10 years from the date on which the the dissolution of a writ of attachment obtained
debtor may have paid the debt and by one Jovita Granados in a suit against Rodolfo
demanded the return of the goods pledged. Velayo in the Court of First Instance of Manila.
Velayo undertook to pay the surety company an
In this case, the expiration of the contract was annual premium of P112.00 and provided
in 1912 and the action to recover was filed in collateral jewelry with the authority to sell in
1920, therefore, the action has not yet case Manila Surety will be obliged to pay.
prescribed. Judgment having been rendered in favor of Jovita
Granados and against Rodolfo Velayo, and
execution having been returned unsatisfied, the
PARAY v RODRIGUEZ surety company was forced to pay P2,800.00 that
it later sought to recoup from Velayo; and upon
Facts: Respondents were the owners, in their the latter's failure to do so, the surety caused the
respective personal capacities, of shares of stock pledged jewelry to be sold, realizing therefrom a
in a corporation known as the Quirino-Leonor- net product of P235.00 only The surety files a
Rodriguez Realty Inc.1 Sometime during the years claim against Velayo because the security Is
1979 to 1980, respondents secured by way of insufficient. Velayo claims the sale of the jewelry
pledge of some of their shares of stock to even if insufficient extinguishes the principal
petitioners Bonifacio and Faustina Paray obligation.
("Parays") the payment of certain loan
obligations. When the Parays attempted to Issue: Won Velayos contention is correct
foreclose the pledges on account of respondents
failure to pay their loans, respondents filed Ruling: Yes! The sale of the thing pledged shall
complaints with the Regional Trial Court (RTC) of extinguish the principal obligation, whther or not
Cebu City and , sought the declaration of nullity the proceeds of the sale are equal to the amount
of the pledge agreements. However the RTC, in of the principal obligation, interest and expenses
its decision3 dated 14 October 1988, dismissed in a proper case.
the complaint and gave "due course to the
foreclosure and sale at public auction of the REAL MORTGAGE
various pledges. Respondents then received
Notices of Sale which indicated that the pledged VIOLA v EPCIB
shares were to be sold at public auction.
FACTS: Via a contract denominated as CREDIT outstanding amount as stipulated in the Credit
FOR PROPERTY LINE (Credit Line Agreement)
executed on March 31, 1997, Leo-Mers RULING: A mortgage must sufficiently
Commercial, Inc., as the Client, and its officers describe the debt sought to be secured,
spouses Leopoldo and Mercedita Viola which description must not be such as to
(petitioners) obtained a loan through a credit line mislead or deceive, and an obligation is not
facility in the maximum amount of P4,700,000.00 secured by a mortgage unless it comes
from the Philippine Commercial International fairly within the terms of the mortgage.
Bank (PCI Bank), which was later merged with
Equitable Bank and became known as Equitable In the case at bar, the parties executed two
PCI Bank, Inc. separate documents on March 31, 1997 the
Credit Line Agreement granting the Client a loan
To secure the payment of the loan, petitioners through a credit facility in the maximum amount
executed also on March 31, 1997 a Real Estate of P4,700,000.00, and the Real Estate Mortgage
Mortgage in favor of PCIBank over their two contract securing the payment thereof.
parcels of land. Undisputedly, both contracts were prepared by
respondent and written in fine print, single space.
Petitioners availed of the full amount of the loan.
Subsequently, they made partial payments and The provision of the mortgage contract does not
made no further payments and despite demand, specifically mention that, aside from the principal
they failed to pay their outstanding obligation. loan obligation, it also secures the payment of a
penalty fee of three percent (3%) per month of
Respondent thus extrajudicially foreclosed the the outstanding amount to be computed from the
mortgage before the Office of the Clerk of Court & day deficiency is incurred up to the date of full
Ex-Officio Provincial Sheriff of the Regional Trial payment thereon, which penalty was expressly
Court (RTC) of Marikina City. The mortgaged stipulates in the Credit Line Agreement.
properties were sold on April 10, 2003 for
P4,284,000.00 at public auction to respondent, Since an action to foreclose must be limited to
after which a Certificate of Sale dated April 21, the amount mentioned in the mortgage and the
2003 was issued. penalty fee of 3% per month of the outstanding
obligation is not mentioned in the mortgage, it
More than five months later or on October 8, must be excluded from the computation of the
2003, petitioners filed a complaint for annulment amount secured by the mortgage.
of foreclosure sale. They claim that:
a) they had made substantial payments Penalty fee is entirely different from bank
b) the foreclosure proceedings and auction charges. The phrase bank charges is normally
sale were not only irregularly and understood to refer to compensation for services.
prematurely held but were null and void A penalty fee is likened to a compensation for
because the mortgage debt is only damages in case of breach of the obligation.
P2,224,073.31 on the principal obligation Being penal in nature, such fee must be specific
and P1,455,137.36 on the interest, or a and fixed by the contracting parties, unlike in the
total of only P3,679,210.67 as of April 15, present case which slaps a 3% penalty fee per
2003, but the mortgaged properties were month of the outstanding amount of the
sold to satisfy an inflated and erroneous obligation.
principal obligation of P4,783,254.69, plus
3% penalty fee per month or 33% per
year and 15% interest per year, which DILAG v HEIRS OF RESSURECCION
amounted to P14,024,623.22 as of FACTS:
September 30, 2002; BEFORE 1936: Laureano Marquez (LM) was
c) that the parties never agreed and indebted to Fortunato Resurreccion (FR) in
stipulated in the real estate mortgage the sum of P5k as the balance of purchase
contract that the 15% interest per annum price of a parcel of land which LM bought
on the principal loan and the 3% penalty and received from FR.
fee per month on the outstanding amount FR was in turn indebted to Luzon Surety
would be covered or secured by the Company in the same amt, secured by a
mortgage; mortgage on 3 parcels of land one of
which was bought by LM from him
AS EARLY AS 193: LM had agreed to pay
ISSUE: whether the mortgage contract also
FRs indebtedness to Luzon Surety
secured the penalty fee per month on the


Company by way of satisfaction of his own as amended, and at the foreclosure sale on
indebtedness to FR in the same amt January 9, 1956, the bank acquired the properties
LM failed to pay indebtedness of FR to the mortgaged as the highest bidder for the sum of
Luzon Surety Company, and the latter P68,365.60.
foreclosed judicially the mortgage
executed in its favour by FR Claiming a balance of P62, 749.72 still due, the
Since LM did not fulfil his promise, FR petitioner bank, instead of foreclosing
commenced an action against LM to respondents' chattel mortgage, filed against
recover the value of lost properties them on may 22, 1956, Civil Case No. 29752 for
LM sale at public auction of 5 parcels of the collection of said balance. The lower court, on
land mentioned in FRs complaint is invalid June 30, 1956, rendered judgment ordering
because they are not specifically defendants to pay the plaintiff bank, jointly and
described in the mortgage deed. LM severally, the sum of P62, 749.72, with interest
acquired those parcels of land subsequent thereon at the rate of 7% per annum from May
to the execution of mortgage deed. 22, 1956 until the said amount is fully paid.
In the fifth clause of said document
Laureano Marquez stipulated that On September 18,1956, the court issued an order
inasmuch as the five parcels of land to execute said judgment; it does not appear,
described in the fourth clause were not though, that plaintiff sought the enforcement of
sufficient to cover all his obligations in the writ of execution.
favor of Fortunato Resurreccion, he also
constituted a mortgage in favor of the On April 24, 1957, the court issued another order
latter and his assignees on any other for the execution of the judgement, pursuant to
property he then might have and on those which the sheriff of Manila published a "Notice of
he might acquire in the future. Sale," setting for sale at public auction on May
13, 1957 the rights, interest or participation of
ISSUE: WON such a stipulation constitute a valid respondents on the certificate of public
mortgage on the 5 other parcels of land which LM convenience registered in the name of the Flash
subsequently acquired? Taxi Co. in cases Nos. 32578 of the Public Service
LM could not legally mortgage any On May 13, 1957, the sheriff sold the rights,
property he did not yet own. In order that interests, or participation of respondents in the
a mortgage may be validly constituted the certificate of public convenience in question to
instrument by which it is created must be the plaintiff bank as the highest bidder for the
recorded in the Registry of Deeds and so amount of P60,371.25, and two days later, on
far as the additional parcels of land are May 15, the sheriff issued to plaintiff the
concerned, the registration of Deed of corresponding certificate of sale.
Mortgage did not affect and could not
have affected them because they were not Respondents Pedro B. Bautista, et al., filed in the
specifically described therein. court below a "Petition To Set Aside Order dated
June 8, 1957, Confirming Sheriffs Sale of may 15,
PBCOM v MACADAEG 1957 and to Declare its Nullity," claiming, as
FACTS: grounds for the petitions, that they had other
properties which they had pointed out to the
On September 30, 1950, respondents Pedro B. plaintiff bank with which the judgement could be
Bautista, Dativa Corrales Bautista, Inocencio C. satisfied that the law grants to the judgement
Campos, and the Flash Taxi Company jointly and debtor the right to direct which of his properties
severally applied for and obtained a credit should be sold in execution of a judgement; that
accommodation from the petitioner bank in the the sale of the certificate of public convenience in
sum of P100,000.00, and as a security therefor question would mean irreparable damage to
executed in favor of the bank, in one single them and would prove of work about forth drivers
document, a real estate mortgage over four employed in their taxicab business; and that
parcels of land, and a chattel mortgage on some defendants had no objection to bearing the
movie equipment and thirty taxicabs. expenses of the sale sought to be revoked and of
Respondents having failed to pay the total any subsequent execution sales in satisfaction of
amount of P128,902.42 due on the credit the judgement.
accommodation referred to, the petitioner bank
procured the extrajudicial foreclosure of the real Plaintiff bank opposed the petition, contending
estate mortgage in accordance with Act No. 3135, that there was no showing that the sheriff's sale
in question was irregular or not in accordance Engr. Garcia obtained a loan from
with law; that the subject of the execution sale petitioner and as security executed a
being personal property, and a certificate of sale mortgage over the property subject to the
having already been delivered to it by the sheriff, Contract to Sell with the private
the court could no longer set aside said sale respondents. Petitioner registered its
mortgage on these titles without any other
ISSUE: W/N the sheriffs sale was irregular and encumbrance or lien annotated therein.
therefore null and void.
When the loan was due, Engr. Garcia failed
HELD: to pay hence petitioner instituted an
extrajudicial foreclosure on the subject
The alleged nullity is claimed to arise from the lots.
fact that the real estate and chattel mortgage
executed by respondents to secure their credit Private respondents prayed for the
accommodation with the petitioner bank was annulment of the mortgage in favor of
indivisible, and that consequently, the bank had petitioner.
no legal right to extra judicially foreclose only the
real estate mortgage and leave out the chattel Petitioner filed its Answer contending that
mortgage, and then sue respondents for a private respondents have no cause of
supposed deficiency judgement; and for this action against it; that at the time of the
reason, respondents assert that the judgement in loan application and execution of the
the bank's favor for such deficiency in Civil Case promissory note and real estate mortgage
No. 29752 is a nullity. by Garcia, there were no known individual
buyers of the subject land nor annotation
The argument is fallacious because the mere of any contracts, liens or encumbrances of
embodiment of the real estate mortgage and the third persons on the titles of the subject
chattel mortgage in one document does not fuse lots; that the loan was granted and
both securities into an indivisible whole. Both released without notifying HLURB as it was
remain distinct agreements, differing not only in not necessary.
the subject-matter of the contract but in the but
in the governing legal provisions. Petitioner bank, CA ruled in favor of private respondents
therefore, had every right to foreclose the real saying that despite the contracts to sell,
estate mortgage and waive the chattel mortgage, Garcia/TransAmerican did not apprise
and maintain instead a personal action for the petitioner of the existence of these
recovery of the unpaid balance of its credit (De la contracts nor did petitioner exhaust any
Rama vs. Sajo, 45 Phil., 703; effort to inquire into their existence since
Salomon vs. Dantees, 63 Phil., 522; Brancharch petitioner merely relied on the purported
Motor Co. vs. Rangal, et al., 68 Phil., 287, 290). clean reconstituted titles in the name of
This petitioner did by filing civil Case No. 29752 Garcia; that the mortgage of the subject
for the collection of the unpaid balance of lots without the consent of the buyers and
respondents' indebtedness; and the validity and the authorization of the HLURB is a clear
correctness of the action was admitted by violation of P.D. No. 957; that the
respondents themselves when they confessed mortgage contract is void and
judgement thereto. The court in fact decision unenforceable against private
pursuant to such confession of judgement, and respondents.
the decision has long since been final and
executory. ISSUES:

PRUDENTIAL BANK v PANIS 1. WON HLURB has jurisdiction over the

Facts: 2. WON the mortgage is valid?

Private respondents entered into a 3. WON petitioner is a mortgagee in good

Contract to Sell Agreement with faith and since the titles on their face were
TransAmerican through Engr. Garcia over free from any claims, liens and
portions of land with one unit three-storey encumbrances at the time of the
townhouse to be built on each portion. mortgage, it is not obliged under the law
to go beyond the certificates of title
registered under the Torrens system and


had every reason to rely on the month. To secure this, diocares executed a Real
correctness and validity of those titles.? Mortgage. Diocares failed to pay the balance of
their indebtedness and Mobil filed an action for
HELD: the collection of the balance of the purchase
amount or that the Real Property mortgaged by
1. HLURB has jurisdiction. The Court ruled in Diocares be sold to a public auction and the
a prior case that the jurisdiction of the proceeds be applied to the payment of the
HLURB to regulate the real estate trade is obligation. LC did not grant foreclosure on the
broad enough to include jurisdiction over ground that the mortgage was not validly
complaints for specific performance of the executed (not registered).
sale, or annulment of the mortgage, of
a condominium unit, with damages. ISSUE: WON failure to register the Real Mortgage
would render it invalid
2. THE MORTGAGE IS VOID. Under Section 18
of P.D. No. 957, it is provided that no SC: NO!
mortgage on any unit or lot shall be made - If the instrument is not recorded, the
by the owner or developer without prior mortgage is nevertheless binding between
written approval of the HLURB Such the parties. Its conclusion, however, is that
approval shall not be granted unless it is what was thus created was merely a
shown that the proceeds of the mortgage personal obligation but did not establish
loan shall be used for the development of a real estate mortgage.
the condominium or subdivision project - The mere fact that there is as yet no
and effective measures have been compliance with the requirement that it be
provided to ensure such utilization. recorded cannot be a bar to foreclosure
Without the prior written approval of the
HLURB, the latter has the jurisdiction to MCCULLOUGH v VELOSO
annul the mortgage for being void. FACTS:

3. Petitioner is NOT A MORTGAGEE IN GOOD 1) On March 23, 1920, the plaintiff McCullough &
FAITH. Petitioner knew that the loan it was Co., sold to Mariano Veloso the "McCullough
extending to Garcia/TransAmerican was for Building," and the land thereon, for the price of
the purpose of the development of the P700,000. Veloso paid P50,000 cash on account
eight-unit townhouses. Petitioners at the execution of the contract, leaving a
insistence that prior to the approval of the balance of P650,000 to be paid.
loan, it undertook a thorough check on the
property and found the titles free from 2) Veloso assumed also the obligation to insure
liens and encumbrances would not the property for not less than P500,000, as well
suffice. It was incumbent upon petitioner as to pay all legal taxes that might be imposed
to inquire into the status of the lots which upon the property, and in the event of his failure
includes verification on whether Garcia to do so, the plaintiff should pay said taxes at the
had secured the authority from the HLURB expense of Veloso, with the right to recover of
to mortgage the subject lots. Petitioner him the amounts thus paid, with interest at 7 per
failed to do so. We likewise find petitioner cent per year. To secure the payment of these
negligent in failing to even ascertain from amounts, Veloso mortgaged the property
Garcia if there are buyers of the lots who purchased
turned out to be private respondents.
Petitioners want of knowledge due to its
3) It was, also, stipulated that in case of failure on
negligence takes the place of registration -
the part of Veloso to comply with any of the
thus it is presumed to know the rights of
stipulations contained in the mortgage deed, all
respondents over the lot - and the
the installments with the interest thereon shall
conversion of its status as mortgagee to
become due, and the creditor shall then have the
buyer-owner will not lessen the
right to bring the proper action for the collection
importance of such knowledge.
of the unpaid part of the debt.
4) On August 21, 1920, Mariano Veloso, in turn,
MOBIL PHILIPPINES v DIOCARES sold the property, with the improvements thereon
FACTS: for P100,00 to Joaquin Serna, who agreed to
The parties Mobil and Diocares entered an respect the mortgage of the property in favor of
agreement wherein on cash basis, Mobil will the plaintiff and to assume Mariano Veloso's
deliver minimum of 50k liters of petroleum a obligation to pay the plaintiff the balance due of


the price of the estate on the respective dates
when payments should be made according to the
contract between Mariano Veloso and the SANTIAGO v DIONISIO
DOCTRINE: All persons having or claiming an
5) Veloso paid P50,000 on account of the interest in the mortgaged premises subordinate
P650,000, and Serna made several payments up in right to that of the holder of the mortgage
to the total sum of P250,000. Subsequently, should be made defendants in the action for the
however, neither Veloso, nor Serna, made any foreclosure of the mortgage. Intervening as a
payment upon the last installments, by virtue of subordinate lienholder in a foreclosure case
which delay, the whole obligation became due, merely to oppose the confirmation of the sale
and Veloso lost the right to the installments upon learning that such a sale had been made, is
stipulated in his contract with the plaintiff. no the same as being a party to the suit to the
extent of being bound by the judgement in the
6) Upon a liquidation of the debt of Mariano foreclosure suit.
Veloso in favor of the plaintiff, including the
interest due, with the result that Veloso owed The effect of the failure to implead a
exactly P510,047.34. Thus, the plaintiff brings subordinate lienholder or subsequent purchaser
this action to recover of the defendant the sum or both is to render the foreclosure ineffective as
due of P510,047.34. The defendant contends against them, with the result that there remains
however that having sold the property to Serna, in their favor the unforeclosed equity of
and the latter having assumed the obligation to redemption.
pay the plaintiff the unpaid balance of the price
secured by the mortgage upon the property, he
no more obligation and it is upon Serna to pay
the plaintiff. PADERES v CA
Manila International Construction Corporation
(MICC) mortgaged 21 properties in favor of
A) The mortgage is merely an encumbrance upon Banco Filipino (BF) for a loan of P1.8M. The
the property and does not extinguish the title of mortgaged was registered with the Registry of
the debtor, who does not, therefore, lose his Deeds.
principal attribute as owner, that is, the right to
2 of the lots were later sold to Spouses
dispose. the fact that the plaintiff recognized the
Paderes and Spouses Bergardo.
efficaciousness of that sale cannot prejudice him,
which sale the defendant had the right to make MICC failed to pay the loan.
and the plaintiff cannot oppose and which, at all Without any redemption having been made
events, could not affect the mortgage, since it within the reglementary period, Banco Filipino
follows the property whoever the possessor may foreclosed the properties extra judicially.
be. BF won as the highest bidder in the auction
B) The Mortgage Law in force at the promulgation Paderes and Bergardo filed a petition stating
of the Civil Code and referred to in the latter, that their right is superior than BF since they
provided, among other things, that the debtor are buyers in good faith and are still entitled
should not pay the debt upon its maturity after a to redeem.
judicial or notarial demand for payment has been
made by the creditor upon him. Accordingly, the Issue: WON Paderes and Bergardo has still rights
obligation of the new possessor to pay the debt over the properties?
originated only from the right of the creditor to
demand payment of him, it being necessary that Held:
a demand for payment should have previously
been made upon the debtor and the latter should No. Sale or transfer cannot affect or release the
have failed to pay. mortgage. A purchaser is necessarily bound to
acknowledge and respect the encumbrance to
C) The Civil Code imposes the obligation of the which is subjected the purchased thing and which
debtor to pay the debt stand although the is at the disposal of the creditor in order that he,
property mortgaged to secure the payment of under the terms of the contract, may recover the
said debt may have been transferred to a third amount of his credit therefrom.


For a recorded real estate mortgage is a right in that Mrs. Rhody Laigo paid him in several checks
rem, a lien on the property whoever its owner totalling P124,855.00 but which checks were all
may be because the personality of the owner is
disregarded. The mortgage subsists
dishonoured. On December 29, 1969, Laigo entered
notwithstanding changes of ownership. The last into a contract with petitioner Pepito Velasco to
transferee is just as much of a debtor as the first construct houses for the home buyers who agreed
one. A mortgage lien is inseparable from the with Velasco on the prices and the downpayment.
property mortgaged. All subsequent purchasers Petitioner Velasco constructed houses for various
thereof must respect the mortgage, whether the
home buyers, who individually agreed with Velasco,
transfer to them be with or without the consent of
the mortgagee. For the mortgage until as to the prices and the downpayment to be paid by
discharged, follows the property. the individual home buyers.When neither Laigo nor
the individual home buyers paid for the home
With regard to the redemption period, it is settled constructed, Velasco wrote the GSIS to intercede for
that the buyer in a foreclosure sale becomes the the unpaid accounts of the home buyers.
absolute owner of the property purchased if it is
not redeemed during the period of one year after
the registration of the sale. As such, he is entitled Issue: W/N GSIS is liable to the petitioners for the
to the possession of the said property and can cost of the materials and labor furnished by them in
demand it any time following the consolidation of construction of the 63 houses now owned by the
ownership in his name and the issuance to him of GSIS?
a new TCT. If the buyer demands the possession
of the property before the expiration period, he
has to post a bond. No bond is required after the Ruling: Yes. GSIS should pay the petitioners. GSIS
redemption period if the property is not assumed ownership of the houses built by
redeemed. petitioners and was benefited by the same. Art.
2127, the mortgage extends to the natural
accessions, to the improvements, growing fruits,
Facts: November 10, 1965, Alta Farms secured
from the GSIS a Three Million Two Hundred Fifty AFABLE v BELANDO
Five Thousand Pesos (P3,255,000.00) loan and an
additional loan of Five Million Sixty-Two Thousand Afable brought a suit against Belando for an
unpaid promissory note. Judgment was rendered
Pesos (P5,062,000.00) on October 5, 1967, to in favor of him and because Belando has no
finance a piggery project. Alta Farms defaulted in money, the rents in her property was given to
the payment because of this that Alta Farms Afable. It turns out, before Afable filed a case for
executed a Deed of Sale With Assumption of the collection of money, another creditor of
Mortgage with Asian Engineering Corporation on Belando, La Urbana, already had a lien on the
property because Belando borrowed money from
July 10, 1969 but without the previous consent or
La Urbana and as a security, Belando mortgaged
approval of the GSIS and in direct violation of the the property being rented to La Urbana. La
provisions of the mortgage contracts. Even without Urbana filed a petition to intervene in the case of
the approval of the Deed of Sale With Assumption Afable v Belando and claims that since the
of Mortgage by the GSIS, Asian Engineering property was mortgaged to them, they also own
Corporation executed an Exclusive Sales Agency, the rents and the rents cannot be given to Afable.
Issue: Won the contention of La Urbana is valid
Management and Administration Contract in favor
of Laigo Realty Corporation, with the intention of Ruling: Yes. The mortgage extends to the rents
converting the piggery farm into a subdivision. not yet received when the obligation becomes
After developing the area, on December 4, 1969, due. In this case, because the property was
Laigo entered into a contract with Amable mortgaged to La Urbana, they also own the rents
of the mortgaged property.
Lumanlan, one of the petitioners, to construct for
the home buyers, 20 houses on the subdivision. Bank of America v American Realty
Petitioner Lumanlan allegedly constructed 20
houses for the home buyers and for which he claims F: Petitioner Bank of America NT & SA (BANTSA)
a balance of P309,187.76 from the home buyers and is an international banking and financing
Laigo. Out of his claim, petitioner Lumanlan admits institution Bank of America International Limited


(BAIL), on the other hand, is a limited liability improvements existing thereon and all the
company organized and existing under the laws personal properties of the mortgagor located in
of England. its place of business.

BANTSA and BAIL on several occasions granted On the same date, DALCO executed a second
three major multi-million United States (US) mortgage on the same properties in favor of
Dollar loans to the following corporate borrowers ATLANTIC to secure payment of the unpaid
and which are foreign affiliates of private balance of the sale price of the lumber
respondent. 3 concession.

Due to the default in the payment of the loan Both deeds contained the following provision
amortizations, BANTSA and the corporate extending the mortgage lien to properties to be
borrowers signed and entered into restructuring subsequently acquired referred to hereafter as
agreements. As additional security for the "after acquired properties" by the mortgagor:
restructured loans, private respondent ARC
(American Realty) as third party mortgagor All property of every nature and
executed two real estate mortgages, over its description taken in exchange or
parcels of land including improvements thereon, replacement, and all buildings, machinery,
located at Bulacan. fixtures, tools equipment and other
property which the Mortgagor may
Eventually, the corporate borrowers defaulted in hereafter acquire, construct, install,
the payment of the restructured loans prompting attach, or use in, to, upon, or in
petitioner BANTSA to file civil actions before connection with the premises, shall
foreign courts for the collection. This includes the immediately be and become subject to the
property of American Realty. Petitioners already lien of this mortgage in the same manner
filed collection cases in foreign courts. It also filed and to the same extent as if now included
an extrajudicial foreclosure on the property in therein, and the Mortgagor shall from time
Bulacan in which American Realty question to time during the existence of this
because the petitioners cannot file a case for mortgage furnish the Mortgagee with an
collection and a case for extrajudicial foreclosure accurate inventory of such substituted and
at the same time. subsequently acquired property.

Issue: Won the contention of respondents are Both mortgages were registered in the Office of
valid the Register of Deeds. In addition thereto DALCO
and DAMCO pledged to the BANK 7,296 shares of
stock of DALCO and 9,286 shares of DAMCO to
Ruling: yes! The mortgagee cannot have both
secure the same obligations.
remedies. He has only one cause of action, i.e.,
non-payment of the mortgage debt; hence, he
Upon DALCO's and DAMCO's failure to pay the
cannot split up his cause of action by filing a
fifth promissory note upon its maturity, the BANK
compliant for payment of the and another
paid the same to the Export-Import Bank of
complaint for foreclosure.
Washington D.C., and the latter assigned to the
former its credit and the first mortgage securing
it. Subsequently, the BANK gave DALCO and
DAMCO up to April 1, 1953 to pay the overdue
FACTS: On September 8, 1948, Atlantic Gulf &
promissory note.
Pacific Company of Manila, a West Virginia
corporation licensed to do business in the
After July 13, 1950 the date of execution of the
Philippines hereinafter referred to as ATLANTIC
mortgages mentioned above DALCO purchased
sold and assigned all its rights in the Dahican
various machineries, equipment, spare parts and
Lumber concession to Dahican Lumber Company
supplies in addition to, or in replacement of some
hereinafter referred to as DALCO. Thereafter, to
of those already owned and used by it on the
develop the concession, DALCO obtained various
date aforesaid. Pursuant to the provision of the
loans from the People's Bank & Trust Company.
mortgage deeds quoted theretofore regarding
"after acquired properties," the BANK requested
As security for the payment of the
DALCO to submit complete lists of said properties
abovementioned loans, DALCO executed in favor
but the latter failed to do so.
of the BANK the latter acting for itself and as
trustee for the Export-Import Bank of Washington
The alleged sales of equipment, spare parts and
D.C. a deed of mortgage covering five parcels
supplies by CONNELL and DAMCO to It, was
of land together with all the buildings and other
subsequently rescinded by the parties.
The BANK, in its own behalf and that of ATLANTIC, to it that a similar provision is included in
demanded that said agreements be cancelled but the contract.
CONNELL and DAMCO refused to do so. As a 2. the chattels were placed in the real
result, ATLANTIC and the BANK commenced properties mortgaged to plaintiffs, they
foreclosure proceedings. came within the operation of Art. 415,
paragraph 5 and Art. 2127 of the New Civil
Main contentions of plaintiffs as appellants are
Code. It is not disputed in the case at bar
the following: that the "after acquired properties"
were subject to the deeds of mortgage mentioned that the "after acquired properties" were
heretofore; that said properties were acquired purchased by DALCO in connection with,
from suppliers other than DAMCO and CONNELL; and for use in the development of its
that even granting that DAMCO and CONNELL lumber concession and that they were
were the real suppliers, the rescission of the sales purchased in addition to, or in
to DALCO could not prejudice the mortgage lien replacement of those already existing in
in favor of plaintiffs.
the premises on July 13, 1950. In Law,
The defendants-appellants contend that the therefore, they must be deemed to have
mortgages aforesaid were null and void as been immobilized, with the result that the
regards the "after acquired properties" of DALCO real estate mortgages involved herein
because they were not registered in accordance which were registered as such did not
with the Chattel Mortgage Law. have to be registered a second time as
chattel mortgages in order to bind the
"after acquired properties" .
1. are the so-called "after acquired
properties" covered by and subject to the
deeds of mortgage subject of foreclosure? PHIL SUGAR ESTATE v CAMPS
2. assuming that they are subject thereto, FACTS:
are the mortgages valid and binding on Defendant executed and delivered to
the properties aforesaid inspite of the fact Plaintiff a mortgage on certain real estate,
that they were not registered in which is particularly described therein,
accordance with the provisions of the including the building erected thereon,
Chattel Mortgage Law? in order to guarantee the payment of
certain sum of money; Another mortgage
RULING: upon the same property to secure the
payment of an additional sum of money
1. it is crystal clear that all property of every Plaintiff commenced an action to recover
said sums and to foreclose said mortgages
nature and description taken in exchange
when neither of said sums of money
or replacement, as well as all buildings, secured by said mortgages was fully paid
machineries, fixtures, tools, equipments, and satisfied
and other property that the mortgagor Def denied; alleged that the sum of P3k
may acquire, construct, install, attach; or included in said mortgages for the
use in, to upon, or in connection with the payment of expenses was excessive
premises that is, its lumber concession TC Judge Ostrand ordered foreclosure of
"shall immediately be and become said mortgages
subject to the lien" of both mortgages in While Sheriff tried to sell the property
the same manner and to the same extent included in said mortgages, Def
interposed an objection that a certain
as if already included therein at the time
cinematograph which had been
of their execution. constructed upon the property mortgaged
Such stipulation is neither unlawful nor was not included therein and that it should
immoral, its obvious purpose being to not, therefore, be sold under said
maintain, to the extent allowed by execution.
circumstances, the original value of the Despite objection, Sheriff sold the property
properties given as security. Indeed, if mortgaged together with the buildings
such properties were of the nature already erected thereon
referred to, it would be poor judgment on
Def objected to the confirmation of said
the part of the creditor who does not see
sale; said cinematograph in question was
created by simply reforming a building
located on the land at the time said July 7, 1900. But the hacienda was not able to
mortgage was executed and delivered; increase the sugar it yielded and defendant On
that it was not a new structure on said August 5, 1904, Grindrod who feared of not
land; that it was the result of changing getting paid obtained a preliminary attachment
and altering a building already upon the over all the property of Evaristo including the lien
land, for the purpose of making it into a that was assigned to appellant. The same was
cinematograph registered on August 12, 1904. A dispute arised
TC Judge Harvey confirmed said sale over the rightful owner of the lien, defendants
main contention is that since the assignment
ISSUE: WON the sale under execution by the made to Lopez was not registered it is not binding
sheriff of certain real property including the and has no effect.
buildings thereon should be confirmed?
Questions presented by Camps have been VALID AND EFFECTIVE?
discussed by this court and decided
against his contention in the case of HELD: NO. Although the Civil Code provides that
Bischoff v. Pomar and Compania General A mortgage credit may be alienated or assigned
de Tabacos. to a third person, wholly or partially, with the
In that case, this court discussed the very formalities required by law, the fact that
articles of the Mortgage Law upon which such assignment was not registered in the
Camps now seeks relief. In that case the property register is no obstacle to the transfer of
Court said: the dominion or ownership of said credit in the
sum therein stated in favor of Lopez. In as much
as the assignment or alienation of a credit, made
So that even though no mention
by the owner thereof in favor of another, is prior
had been made of said machinery
to the act of its registration, and entirely
and tramway in the mortgage
independent of such formality to such an extent
instrument, the mortgage of the
that, if any question should arise over the
property whereon they are located
contract between the assignor and the assignee,
in understood by law to extend to
it would have to be decided according to common
them and they must be considered
law without need of previous registration of the
as included therein, as well as all
title, which shows that a credit secured by a
other improvements, unless there
mortgage may be assigned or alienated, and is a
was an express stipulation between
perfectly valid contract even if it were not
the parties that they should be
Also, the registration of the assignment or
alienation of a credit secured by mortgage,
required, among others, of the Mortgage Law, is
IN THIS CASE: the buildings erected only necessary in order that it may be effectual
thereon" were expressly included in the as against third parties.
mortgage. Nothing in the form of buildings
was exclude. The buildings, therefore,
were manifestly included in the mortgage. BPI v CONCEPCION



- Spouses Litonjua (P) obtained a loan from
LOPEZ v ALVAREZ L & R Corporation (R) Aug 6, 1974
FACTS: Appellee Evaristo holds a lien over the (P200k) and Mar 27, 1978 (P200k) which
estate of one Vicente Lopez as the latter are secured by a mortgage on 2 parcels of
executed a mortgage deed in favor of Evaristo. land owned by P
On April 5, 1904, Evaristo assigned his lien on the - However, P sold to Phil White House Auto
estate to appellant Manuel Lopez through a public Supply (PWHAS) the subject parcels of
instrument but the same was not registered in land, without prior written consent of R,
the Registry of Deeds. Appellee Grindrod is a pursuant to the Mortgage agreement that
creditor of Evaristo, to whom the latter promised they have.
to pay his obligation through the sugar yielded by - Upon default of P, R initiated an
the hacienda, said agreement was entered into extrajudicial sale and won the bidding.
- P later on filed for redemption of the FACTS:
property but R refused to do accept the
payment contending that P violated the 1) A real estate mortgage was executed on
contract December 1991 by spouses Dario (hereafter
- R informed the Sheriff and Register of mortgagors) in favor of UNIONBANK to secure a
Deeds, stating: (1) that the sale of the P3 million loan which covered a Quezon City
mortgaged properties to PWHAS was property in Leopoldo Dario's name and was
without its consent, in contravention of annotated on the title. For non-payment of the
their Deed of Real Estate Mortgage; and principal obligation, UNIONBANK extrajudicially
(2) that it was not the spouses Litonjua, foreclosed the property mortgaged on August
but PWHAS, who was seeking to redeem 1993 and sold the same at public auction, with
the foreclosed properties, itself posting the highest bid.
- Register of Deeds issued TCT in favor of R
- A complaint for Quieting of Title, 2) One week before the one-year redemption
Annulment of Title and Damages with period expired, private respondents filed a
preliminary injunction was filed by the complaint with the RTC against the mortgagors,
spouses Litonjua and PWHAS against R UNIONBANK and the Register of Deeds annulment
- LC ruled in favor of R and affirmed by CA of sale and real estate mortgage reconveyance
and prayer for restraining notice of lis pendens
ISSUE: WON paragraphs 8 and 9 of the Real was annotated on the title.
Estate Mortgage are valid and enforceable;
3) On October 1994, the RTC issued a TRO
enjoining the redemption of property within the
- Art. 2130 stipulation forbidding
statutory period and its consolidation under
alienation of mortgaged property is VOID
- A real mortgage is merely an
encumbrance; it does not extinguish the
title of the debtor, whose right to dispose 4) Without notifying private respondents,
a principal attribute of ownership is UNIONBANK consolidated its title over the
not thereby lost. Thus, a mortgagor had foreclosed property on October 1994,
every right to sell his mortgaged property, UNIONBANK's name was issued in the new TCT.
which right the mortgagee cannot oppose.
- Although the provision does not absolutely 5) Private respondents filed an amended
prohibit the mortgagor from selling his complaint, alleging that they, not the mortgagors,
mortgaged property; but what it does not are the true owners of the property mortgaged
outrightly prohibit, it nevertheless and insisting on the invalidity of both the
achieves. mortgage and its subsequent extrajudicial
- For all intents and purposes, the foreclosure. They claimed that the original title,
stipulation practically gives the mortgagee was entrusted to a certain Atty. Reynaldo Singson
the sole prerogative to prevent any sale of preparatory to its administrative reconstitution
the mortgaged property to a third party. after a fire gutted the Quezon City Hall building.
- The mortgagee can simply withhold its Mortgagor Leopoldo, private respondent
consent and thereby, prevent the Fermina's son, obtained the property from Atty.
mortgagor from selling the property. This Singson, had the title reconstituted under his
creates an unconscionable advantage for name without private respondents' knowledge,
the mortgagee and amounts to a virtual executed an ante-dated deed of sale in his favor
prohibition on the owner to sell his and mortgaged the property to UNIONBANK.
mortgaged property. In other words,
stipulations like those covered by 6) On December 1994, the RTC admitted the
paragraph 8 (requiring P to acquire prior aforementioned amended complaint. UNIONBANK
consent of R before alienating the filed its answer ad cautelam asserting its status
property) of the subject Deed of Real as an innocent mortgagee for value whose right
Estate Mortgage circumvent the law, or lien upon the property mortgaged must be
specifically, Article 2130 of the New Civil respected even if, the mortgagor obtained his
Code. title through fraud. It also averred that the action
- Being contrary to law, paragraph 8 of the had become "moot and academic by the
subject Deed of Real Estate Mortgage is consolidation of the foreclosed property on 24
not binding upon the parties. October 1994" in its name.

7) On appeal, the CA nullified the consolidation of

UNION BANK v CA ownership, which was the prior judgment in the
RTC, ordered the Register of Deeds to cancel the DOCTRINE: All persons having or claiming an
certificate of title in UNIONBANK's name and to interest in the mortgaged premises subordinate
reinstate TCT of respondents. in right to that of the holder of the mortgage
should be made defendants in the action for the
ISSUE: Whether UNIONBANK is a mortgagee in foreclosure of the mortgage. Intervening as a
good faith and for value with a right to subordinate lienholder in a foreclosure case
consolidate ownership over the foreclosed merely to oppose the confirmation of the sale
property with the redemption period having upon learning that such a sale had been made, is
expired and there having been no redemptioners. no the same as being a party to the suit to the
extent of being bound by the judgement in the
HELD: foreclosure suit.

The effect of the failure to implead a

A) The SC disagrees with the CAs judgment that subordinate lienholder or subsequent purchaser
consolidation deprived private respondents of or both is to render the foreclosure ineffective as
their property without due process. Because the against them, with the result that there remains
buyer in a foreclosure sale becomes the absolute in their favor the unforeclosed equity of
owner of the property purchased if it is not redemption.
redeemed during the period of one year after the
registration of the sale. In effect, consolidation
took place as a matter of right since there was no
redemption of the foreclosed property and the
TRO expired upon dismissal of the complaint.
In 1982, Go obtained a loan from DBP
C) UNIONBANK need not have informed private evidenced by two promissory notes, one for
respondent that it was consolidaint its title over 194K payable quarterly for 5 years and the
the property, upon the expiration of the other 300K payable quarterly for 7 years.
redemption period, without the judgment debtor
He mortgaged his real and personal property.
having made use of his right of redemption, the
ownership of the property sold becomes A contract provision states that DBP can
consolidated in the purchaser. Upon failure to unilaterally increase the interest rate and
redeem foreclosed realty, consolidation of title requires Go to insure the mortgaged
becomes a matter of right on the part of the properties.
auction buyer, and the issuance of a certificate of DBP increased its interest rate to 35% then
title in favor of the purchaser becomes ministerial lowered it to 29%.
upon the Register of Deeds. Go failed to pay the loan.
In 1986, DBP extrajudicially foreclosed the
C) At any rate, the consolidation of ownership property and was declared the winner as the
over the mortgaged property in favor of highest bidder in the auction sale.
UNIONBANK and the issuance of a new title in its Go filed an action to annul the auction sale.
name during the pendency of an action for Both RTC and CA declared that the
annulment and reconveyance will not cause extrajudicial foreclosure was void because
injury to private respondents because as loan has not yet mature at the time of the
purchaser at a public auction, UNIONBANK is only foreclosure sale (the foreclosure was done
substituted to and acquires the right, title, less than 5 years from the execution of the
interest and claim of the judgment debtors or contract).
mortgagors to the property at the time of levy.
With the main action for reconveyance pending
before the RTC, the notice of lis pendens, Issue: WON the extrajudicial foreclosure should
sufficiently protects private respondents interest be declared null and void?
over the property. Thus the Decision of the Court
of Appeals is REVERSED and SET ASIDE. The Held:
order of the trial court dated 7 August 1999,
declaring UNIONBANK's prayer for writ of Yes. The mortgage contract states that petitioner
preliminary injunction moot and academic, is may resort to either judicial or extrajudicial
hereby REINSTATED. Let this case be remanded foreclosure in case of default. Petitioner opted for
to the Regional Trial Court for trial on the merits. extrajudicial foreclosure. However, both the trial
court and the CA declared that the extrajudicial
DBP v LICUANAN foreclosure void for being premature. For all
intents and purposes, there has been no
foreclosure. Therefore, this Court or any court
cannot issue a writ of execution to judicially P filed a Petition for Extradudicial
foreclose the property. foreclosure of the condominium unit of R
and alleged that P is a duly organized
FIESTAN v CA association of the tenants and
homeowners of Marbella I Condominium;
Facts: Dionisio Fiestan and Juanita Arconada that R is a member thereof but has unpaid
association dues amounting to P3.2mill;
owners of a parcel of land (Lot No. 2B) situated in
that R refused to to pay his dues despite
Ilocos Sur covered by TCT T-13218 which they demand
mortgaged to the Development Bank of the P - that it is expressly provided under
Philippines (DBP) as security for their P22,400.00 Section 20 of Republic Act (R.A.) No. 4726
loan. Lot No. 2-B was acquired by the DBP as the that it has the right to cause the
highest bidder at a public auction sale on August 6, extrajudicial foreclosure of its annotated
lien on the condominium unit. Its petition
1979 after it was extrajudicially foreclosed by the
then is cognizable by the RTC under
DBP in accordance with Act No. 3135, as amended Administrative Matter No. 99-10-05
by Act No. 4118, for failure of petitioners to pay R objected to P's right to file the petition
their mortgage indebtedness. On April 13,1982, the for extra-judicial foreclosure, pointing out
DBP sold the lot to Francisco Peria in a Deed of that the latter does not hold a real estate
Absolute Sale. Francisco Peria mortgaged said lot to mortgage on the condominium unit or a
the PNB Vigan Branch as security for his loan of special power of attorney to cause the
extra-judicial foreclosure sale of said unit.
P115,000.00 as required by the bank to increase his - there is even a pending litigation regarding the
original loan from P49,000.00 to P66,000.00 until it validity of petitioner's constitution as a
finally reached the approved amount of homeowners association and its authority to
P115,000.00. Since petitioners were still in assess association dues, annotate unpaid
possession of Lot No. 2-B, the Provincial Sheriff assessments on condominium titles and enforce
the same through extrajudicial foreclosure sale
ordered them to vacate the premises.
Clerk of Court, as Ex-Officio Sheriff,
recommended to RTC Exec. Judge :
Issue: W/N there was a valid extrajudicial
foreclosure sale? Under the facts given, no mortgage exists
Ruling: Yes. The formalities of a levy, as an between the petitioner and respondent.
essential requisite of a valid execution sale under Evidently, it is not one of those
Section 15 of Rule 39 and a valid attachment lien contemplated under Act 3135 as amended
by Act 4118. The allegation simply does
under Rule 57 of the Rules of Court, are not basic not show a mortgagor-mortgagee
requirements before an extrajudicially foreclosed relationship since respondent liability
property can be sold at public auction. The case at arises from his failure to pay dues,
bar, as the facts disclose, involves an extrajudicial assessments and charges due to the
foreclosure sale. Act No. 3135, as amended by Act petitioner.
No. 4118 otherwise known as "An Act to Regulate
the Sale of Property under Special Powers Inserted As clearly stated, the authority of the
Executive Judge under Administrative
in or Annexed to Real Estate Mortgages" applies in Matter No. 99-10-05-0, as amended dated
cases of extrajudicial foreclosure sale. March 1, 2001, covers extra-judicial
foreclosure of real estate mortgages under
R.A. No. 3135 and chattel mortgages
under P.D. No. 1508. There is nothing in
the above mentioned Circular which
BANK OF AMERICA v AMERICAN REALTY authorizes the Executive Judge and/or the
Ex-Officio Sheriff to extra judicially
CHIENG v SPOUSE SANTOS foreclose properties covered by
obligations other than the said mortgages.
FIRST MARBELLA v GATMAYTAN Hence, the subject petition is not proper
FACTS: for extra-judicial foreclosure under the
R is the registered owner of Fontavilla No. supervision of the Executive Judge.
501 (condo unit), Marbella I Condominium, Dismissal of the subject petition is
Roxas Blvd under CCT No. 1972 recommended


TC denied request for extrajudicial 99-10-05-0, as implemented under
foreclosure of the subject condo unit and Circular No. 7-2002, requires that
dismissed the petition; It not within the petitioner furnish evidence of its special
authority of Exec. Judge to supervise and authority to cause the extrajudicial
approve the extrajudicial foreclosures of foreclosure of the condominium unit.
ISSUE: WON P has a right to file a petition for
extrajudicial foreclosure? BOHANAN v CA


In order to avail itself of a writ FACTS: Mindanao Grains, Inc. applied for a credit
of mandamus, petitioner must establish accommodation with petitioner. As security for
that it has a clear right to the extrajudicial such credit accommodation, respondent Wong
foreclosure sale of the condominium unit executed a real estate mortgage in favor of
of respondent. Under Circular No. 7- petitioner. Due to MGIs failure to pay the
2002, implementing Supreme Court obligation, petitioner filed an application for
Administrative Matter No. 99-10-05-0, it is extrajudicial foreclosure which was published in
mandatory that a petition for extrajudicial Pagadian Times once, for three consecutive
foreclosure be supported by evidence that weeks setting the date for the auction sale. No
petitioner holds a special power or notice was posted in the municipality or city
authority to foreclose where the mortgaged property was situated. The
Without proof of petitioner's special auction sale proceeded and petitioner was
authority to foreclose, the Clerk of Court adjudged as the sole and highest bidder. After the
as Ex-Oficio Sheriff is precluded from expiration of the one year redemption period,
acting on the application for extrajudicial ownership was consolidated and TCT
foreclosure correspondingly issued in the name of petitioner.
IN THIS CASE: the only basis of petitioner
for causing the extrajudicial foreclosure of
the condominium unit of respondent is a
notice of assessment annotated on CCT Respondent unaware of the foregoing
No. 1972 in accordance with Section 20 of developments, applied for a credit
R.A. No. 4726. However, neither accommodation with another bank, only to find
annotation nor law vests it with sufficient out that his property was already foreclosed by
authority to foreclose on the property petitioner. Respondent filed a case assailing the
The notice of assessment contains no validity of the extrajudicial foreclosure on the
provision for the extrajudicial foreclosure ground that petitioner did not comply with the
of the condominium unit. All that it states procedural requirements of law.
is that the assessment of petitioner
against respondent for unpaid association
dues constitutes a "first lien against [the]
condominium unit Petitioner on the other hand justifies his claim by
Section 20 of RA 4726 does not grant P citing Olizon v. CA, (1) that its failure to comply
special authority to foreclose. It merely with the posting requirement did not necessarily
prescribes the procedure by which result in the nullification of the foreclosure sale
petitioner's claim may be treated as a since it complied with the publication
superior lien - i.e., through the annotation requirement; and (2) that personal notice of the
thereof on the title of the condominium foreclosure proceedings to respondent is not a
unit. condition sine qua non for its validity.

While the law also grants petitioner the

option to enforce said lien through either ISSUE: 1. WON PERSONAL NOTICE TO
the judicial or extrajudicial foreclosure sale RESPONDENT IS A CONDITION SINE QUA NON TO
of the condominium unit, Section 20 does THE VALIDITY OF THE FORECLOSURE
not by itself, ipso facto, authorize judicial PROCEEDINGS?
as extra-judicial foreclosure of the
condominium unit. Petitioner may avail 2. WON PETITIONERS NON-COMPLIANCE
itself of either option only in the manner WITH THE POSTING REQUIREMENT IS FATAL TO
provided for by the governing law and THE VALIDITY OF THE FORECLOSURE
rules. As already pointed out, A.M. No. No. PROCEEDINGS?
o Publication of the same in a
newspaper of general circulation.
HELD: o FAILURE TO PUBLISH the notice of
sale constitutes a jurisdictional
1. Section 3 of Act no. 3135 only requires: (1) defect, which INVALIDATES the
the posting of notices of sale in three sale.
public places, and (2) the publication of - RE: WAIVER OF PUBLICATION
the same in a newspaper of general REQUIREMENTS
circulation. Personal notice to the o PNB and R have absolutely NO
mortgagor is not necessary. Nevertheless, RIGHT to waive the posting and
the parties are not precluded from publication requirements of the
exacting additional requirements. In the law.
case at bar, it was stipulated that notice o The principal object of a notice of
should be served to the mortgagor. When sale in a foreclosure of mortgage is
petitioner failed to send the notice of not so much to notify the
foreclosure sale to respondent, he mortgagor as to inform the public
committed a contractual breach sufficient generally of the nature and
to render the foreclosure sale null and condition of the property to be
void. sold, and of the time, place and
2. The general rule is that non-compliance terms of the sale
with the posting requirement is fatal to the - Notice is given to secure bidders and
validity of the foreclosure proceedings. prevent a sacrifice of the property
The Olizon case was an exception due to - Statutory requirement of Publication is
the unusual nature of the attendant facts mandatory not for the mortgagors
and peculiarity of the confluent benefit, but for the public or 3rd persons.
circumstances which are not present in
the instant case. While the law recognizes PNB v SPOUSES CABATINGAN
the right of the bank to foreclose a FACTS:
mortgage upon the mortgagors failure to
pay his obligation, it is important that such 1) Respondent spouses Cabatingan obtained two
right be exercised according to its clear loans, secured by a real estate mortgage, in the
mandate. Each and every requirement of total amount of P421,200 from petitioner PNB.
the law must be complied with They were unable to fully pay their obligation
despite having been granted more than enough
PNB v CA time to do so.

PNB v NEPOMUCENO PRODUCTIONS, INC. 2) Thus, PNB extrajudicially foreclosed on the

FACTS: mortgage. Thereafter, a notice of extrajudicial
PNB granted respondents (R) a credit line to sale was issued. Pursuant to this, the properties
finance the filming of the movie Pacific were sold at public auction on November 5, 1991.
Connection. The loan was secured by mortgages PNB was the highest bidder.
on Rs real and personal properties (Malugay
property, Forbes Park Property and motion picture 3) On March 16, 1993, respondent
equipments). However, R defaulted in their spouses filed in the RTC a complaint for
obligation. PNB sought foreclosure of the annulment of extrajudicial foreclosure of
mortgaged properties where pNB was the highest real estate mortgage and the November
bidder. R filed for annulment of foreclosure sale 5, 1991 auction sale.
since it is null and void for lack of publication of
the notice of sale. LC annulled foreclosure. 4) Petitioners claimed that the provisions of ACT
no. 3135 must be observed strictly. Thus,
ISSUE: WoN the foreclosure sale was valid despite because the public auction of the foreclosed
lack of publication properties was held for only 20 minutes (instead
of seven hours as required by law), the
SC: NO! consequent sale was void. Thus, the RTC issued
- Act 3135, governing EJF of mortgages on an order annulling the sale at public auction.
real property is specific with regard to the
posting and publication requirements of ISSUE: Whether a sale at public auction, to be
the notice of sale, which requires: valid, must be conducted the whole day from
o Posting of notices of sale in 3 public 9:00 a.m. until 4:00 p.m. of the scheduled auction
places day.


HELD: Saguan obtained a loan of 3M from PBC and
mortgaged his 5 lands.
A) Section 4 of Act 3135 provides that the Saguan defaulted.
sale must take place between the hours PBC extrajudicially foreclosed the property
of nine in the morning and four in the and won as the highest bidder in the auction
afternoon. sale.
Because Saguan failed to redeem, the
B) A creditor may foreclose on a real estate properties were consolidated in the name of
mortgage only if the debtor fails to pay the PBC which later on filed a writ of possession.
principal obligation when it falls due. But the
Saguan filed an opposition since PBC failed to
foreclosure of a mortgage does not extinguish a
return the excess amount of the extrajudicial
debtors obligation to his creditor. The proceeds
foreclosure sale.
of a sale at public auction may not be sufficient to
extinguish the liability of the former to the latter. PBC points to Saguans remaining unsecured
For this reason, Section 4 of Act 3135 should be obligations with the former to which the
construed in such a way that affords the creditor excess or surplus proceeds were applied.
greater opportunity to satisfy his claim without
unduly rewarding the debtor for not paying his Issue:
just debt.
1) WON the writ of possession should be issued?
C) The word between ordinarily means in the 2) WON PBC may unilaterally apply the excess
time interval that separates. Thus, between the proceeds to petitioners remaining unsecured
hours of nine in the morning and four in the obligations?
afternoon merely provides a time frame within
which an auction sale may be conducted.
Therefore, a sale at public auction held within the Held:
intervening period provided by law is valid,
without regard to the duration or length of time it 1) Yes. A writ of possession is an order enforcing
took the auctioneer to conduct the proceedings. a judgment to allow a persons recovery of
Since it was conducted within the time frame possession of real or personal property. This
provided by law, the sale was valid. writ may be issued either 1) within the one-
year redemption period, upon filing of the
bond, 2) after the lapse of the redemption
MONZON v RELOVA period, without the need of a bond.

DOCTRINE: Any person having a lien on the

property subsequent to the mortgage or deed of In this case, the issuance of RTC of a writ of
trust under which the property is sold, may possession in favor of PBC is proper since the
redeem the same at any time within the term of redemption period has already expired. The
one year from and after the date of sale. duty of the trial court to grant a writ of
possession in such instances is ministerial,
Even if, for the sake of argument, Rule 68 and the court may not exercise discretion or
is to be applied to extrajudicial foreclosure of judgment. Even if the excess proceeds were
mortgages, such right can only be given to not returned to the petitioner, the writ is still
second mortgagees who are made parties to the valid.
(judicial) foreclosure. While a second mortgagee
is a proper and in a sense even a necessary party
to a proceeding to foreclose a first mortgage on
real property, he is not an indispensable party, A party may file a petition to set aside the
because a valid decree may be made, as between foreclosure sale to cancel the writ of
the mortgagor and the first mortgagee, without possession in the same proceeding where the
regard to the second mortgagee; but the writ was requested. However, in this case,
consequence of a failure to make the second petitioners do not challenge the validity of the
mortgagee a party to the proceeding is that the foreclosure only the contention that the
lien of the second mortgagee on the equity of excess proceeds were not returned to them.
redemption is not affected by the decree of

SAGUAN v PBCOM 2) No. The foreclosure of petitioners properties

Facts: was meant to answer only the obligation
secured by the mortgage. Even if the


petitioners have remaining obligations with The law specifically requires a written
the respondent, these obligations were not extrajudicial demand by the creditor which is
collateralized by the foreclosed mortgage. absent in the case at bar. The contention that the
notices of foreclosure are tantamount to a written
extrajudicial demand cannot be appreciated, the
The petitioners remedy lies in a separate civil contents of said notices not having been brought
action for collection of a sum of money and to light.
not an action to set aside the foreclosure sale. But even assuming that the notices interrupted
the running of the prescriptive period, the
SUICO v CA argument would still not lie for the following
QUIRINO GONZALES v CA The Bank seeks the recovery of the deficient
amount of the obligation after the foreclosure of
Facts: Petitioners applied for credit the mortgage. Such suit is in the nature of a
accommodations with respondent bank, which mortgage action because its purpose is to enforce
the bank approved granting a credit line of the mortgage contract. A mortgage action
Php900,000.00. Petitioners obligations were prescribes after ten years from the time the right
secured by a real estate mortgage on four parcels of action accrued.
of land. Also, petitioners had made certain The law gives the mortgagee the right to claim
advances in separate transactions from the bank for the deficiency resulting from the price
in connection with QGLCs exportation of logs and obtained in the sale of the property at public
executed a promissory note in 1964. auction and the outstanding obligation
Due to petitioners long default in the payment of proceedings. In the present case, the Bank, as
their obligations under the credit line, the bank mortgagee, had the right to claim payment of the
foreclosed the mortgage and sold the properties deficiency after it had foreclosed the mortgage in
covered to the highest bidder in the auction. 1965. as it filed the complaint only on January 27,
Respondent bank, alleging non-payment of the 1977, more than ten years had already elapsed,
balance of QGLCs obligation after the hence, the action had then prescribed.
proceedings of the foreclosure sale were applied
and non-payment of promissory notes despite
repeated demands, filed a complaint for sum of PIANO v CAYANONG
money against petitioners.
Petitioners, on the other hand, asserted that the FACTS: On March 17, 1952, the plaintiffs
complaint states no cause of action and assuming commenced an action to foreclose a mortgage
that it does, the same is barred by prescription or executed by the defendant in favor of the
void for want of consideration. plaintiffs upon a parcel of land. The parties-
litigant submitted a compromise agreement.
Issue: Whether or not the cause of action is The defendant failed to pay the obligation within
barred by prescription. the period set by the Court; so the property in
question was sold at public auction on Jan. 30,
Held: An action upon a written contract, an 1952(should be 1953) per order of the court, by
obligation created by law, and a judgment must the deputy sheriff of Maasin, Leyte, to the
be brought within 10 years from the time the plaintiffs, they being the only bidders for P2,475.
right of action accrues. The certificate of sheriff's sale contained the
The finding of the trial court that more than ten provision that the said property is subject "to
years had elapsed since the right to bring an redemption within one year from the date hereof
action on the Banks first to sixth causes had in the manner provided by the law applicable to
arisen is not disputed. The Bank contends, the case." On March 11, 1953, the plaintiffs filed
however, that the notices of foreclosure sale in a motion for the confirmation of the sale
the foreclosure proceedings of 1965 are executed by the sheriff, which was unopposed by
tantamount to formal demands upon petitioners the defendant. The sale was confirmed by the
for the payment of their past due loan obligations Court on March 21, 1953.
with the Bank; hence, said notices of foreclosure Thereafter, the plaintiffs filed a petition for writ of
sale interrupted the running of the prescriptive possession; by virtue of such petition the court
period. adjudicated possession to the plaintiffs on Aug.
The Banks contention has no merit. Prescription 15, 1953. On Aug. 20, 1953, the deputy clerk
of actions is interrupted when they are filed issued the writ of possesion prayed for by the
before the court, when there is a written plaintiffs.
extrajudicial demand by the creditors, and when On Jan. 26, 1954, the defendant deposited with
there is any written acknowledgment of the debt the court the sum of P2,783.93, P2,772 of which
by the debtor. was in the concept of redemption deposit to be
delivered to Generosa Cayanong and her property was sold in a public auction with
husband. R as highest bidder. R registered sheriffs
The oppositor Francisco Pilapil, on Feb. 11, 1954, certificate of sale.
filed an opposition to the defendants' motion of P filed a complaint for annulment of the
Jan. 26, 1954, claiming that the property, subject extrajudicial foreclosure and auction sale
of foreclosure, having been sold at a judicial and alleged that said foreclosure and
foreclosure sale, was not subject to redemption auction sale were null and void for failure
after the judicial sale was confirmed, title thereto to comply with requirements of notice and
having been fully vested and consolidated in publication; the mortgaged property was
favor of Cayanong and Bellones, their assignees illegally foreclosed; application for
and successors-in-interest. consolidation of title was premature
because the Rs Husband granted them an
extension of the period of redemption
ISSUE: Whether the property subject of TC granted Rs Motion to Dismiss; action
foreclosure, having been sold at a judicial already barred by laches. CA affirmed
foreclosure sale is subject to redemption after the
judicial sale was confirmed. ISSUE: WON the extrajudicial foreclosure and
public auction sale of the subject parcel of land
RULING: are valid and lawful?
In a foreclosure of mortgage under Rule 70 of the
Rules of Court, there is no right of redemption HELD: YES
after the sale is confirmed, although there is an Records indubitably show that at the time
equity of redemption in favor of the mortgagor or of the foreclosure sale on 11 August 1993,
junior encumbrancer, consisting in the right to petitioners were already in default in their
redeem the mortgaged property within the 90- loan obligation to respondent Carmencita
day period, or even thereafter, but before the San Diego.
confirmation of the sale. A final notice of demand for payment had
been sent to them, despite which they still
It is only in cases of foreclosures of mortgages in
failed to pay. Hence, respondent
favor of banking and credit institutions (Sec. 76,
Carmencita San Diegos resort to
General Banking Act [Rep. Act 337]), to the
extrajudicial foreclosure, provided no less
Philippine National Bank (Acts Nos. 2747, and
in the parties Amendment of Real Estate
2938), and in extrajudicial foreclosures (Act 3135
as amended by Act 4118), where, by express
The rule has been, and still is, that in real
provision, the law allows redemption. In all other
estate mortgage, when the principal
foreclosure cases, there is no legal redemption.
obligation is not paid when due, the
mortgagee has the right to foreclose on
The sheriff, therefore, has no authority to grant or
the mortgage and to have the mortgaged
insert a period of redemption in the certificate of
property seized and sold with the view of
sale, when the same is conducted pursuant to
applying the proceeds thereof to the
Rule 70 and, wanting in said authority, any
payment of the obligation
insertion therein has no validity and effect. Once
the judicial sale is confirmed by the court, the IN THIS CASE: The validity of the
rights are vested in the purchaser (Sec. 3, Rule extrajudicial foreclosure on 11 August
70). 1993 was virtually confirmed by the trial
court when it dismissed petitioners
complaint, and rightly so, what with the
fact that petitioners failed to exercise their
LANDRITO v CA right of redemption within the 1-year
FACTS: period therefor counted from the
registration of the sheriffs certificate of
P obtained a loan of P350k from R and
secured payment by executing a deed of
real estate mortgage of their parcel of It appears from the evidence on record
land at Muntinlupa; obtained again that despite due notice and publication of
another loan P 1mill and was granted by R the same in a newspaper of general, P did
with an amendment of real estate not bother to attend the foreclosure sale
mortgage nor raise any question regarding the
propriety of the sale.
P defaulted and refused to comply with
their obligation despite repeated demands It was only on November 9, 1994, or more
than one year from the registration of the
R filed a petition for the extrajudicial
Sheriffs Certificate of Sale, that P filed the
foreclosure of the mortgage. Mortgaged
instant complaint. Clearly, P had slept on On February 1980, Ronnie executed a Waiver
their rights and are therefore guilty of and Renunciation of Rights with respect to his
laches, which is defined as the failure or right of redemption with respect to the first
neglect for an unreasonable or explained mortgage in favor of his father. The latter
length of time to do that which, by assigned his right to petitioner Nimfa Ramirez,
exercising due diligence, could or who in turn paid the total redemption price to
should have been done earlier, failure of PNB which accepted it. Meanwhile, Ronnie having
which gives rise to the presumption that not exercised his right of redemption over the
the person possessed of the right or second mortgage, Marmeto filed in court for the
privilege has abandoned or has declined Consolidation of Ownership over the mortgaged
to assert the same. property to which petitioner Ramirez filed an
In Lazo v. Republic Surety & Insurance adverse claim.
Co., Inc., this Court has made it clear that
it is only where, by voluntary agreement ISSUE:
of the parties, consisting of extensions of
the redemption period, followed by 1. Whether Ramirez had acquired any right
commitment by the debtor to pay the by virtue of her having redeemed the
redemption price at a fixed date, will property in question beyond the one-year
the concept of legal redemption be redemption period?
converted into one of conventional
redemption. 2. What will be the effect of the redemption
IN THIS CASE: There is no showing by Ramirez on private respondent
whatsoever that petitioners agreed to pay Marmeto?
the redemption price on or before 11
November 1994, as allegedly set by Mrs. HELD:
San Diegos husband. On the contrary,
their act of filing their complaint on 09 1. Yes, by accepting the redemption price
November 1994 to declare the nullity of after the statutory period for redemption
the foreclosure sale is indicative of their had expired, PNB is considered to have
refusal to pay the redemption price on the waived the one (1) year period within
alleged deadline set by the husband. At which Ramirez could redeem the property.
the very least, if they so believed that There is nothing in the law which prevents
their loan obligation was only such a waiver. Allowing a redemption after
for P1,000,000.00, petitioners should have the lapse of the statutory period, when the
made an offer to redeem within one (1) buyer at the foreclosure does not object
year from the registration of the sheriffs but even consents to the redemption, will
certificate of sale, together with a tender uphold the policy of the law. Thus, there is
of the same amount. This, they never did. no doubt that the redemption made by
petitioner Ramirez is valid.
2. The rule is well settled that a second
IBAAN RURAL BANK v CA mortgagee merely takes what is called an
equity of redemption and thus a second
RAMIREZ v CA mortgagee has to wait until after the
FACTS: One Ronnie Garcia executed a first debtor's obligation to the first mortgagee
mortgage over a parcel of land in favor of PNB as has been fully settled. The rights of a
a security for a loan granted by PNB. The deed second mortgagee are strictly subordinate
was registered with the Register of Deeds and to the superior lien of the first mortgagee.
annotated in the title of the mortgaged property. In the case at bar, the proper foreclosure
During the subsistence of the first mortgage, of the first mortgage gave, not only the
Ronnie executed a second mortgage over the first mortgagor, but also subsequent lien
same property in favor of private respondent holders like Marmeto, the right to redeem
Marmeto which was also recorded on the title. For the property within the statutory period.
failure to pay his loan, PNB extra-judicially Marmeto failed to make the redemption
foreclosed the mortgage and a Certificate of Sale but instead it was the petitioner who made
was issued in its favor on Nov. 8, 1977. The such redemption.
second mortgage was also extra-judicially
foreclosed and a Certificate of Sale was issued in
favor of Marmeto on June 27, 1978. TOLENTINO v CA


FACTS: Certificate of Sale was then registered in the
The mortgagors (P) obtained 2 loans for the Registry of Deeds of Quezon City.
construction of the Cabuyao Commercial Complex
for P58M as evidenced by promissory notes from 2) Thereafter Chinabank filed with the RTC a
Metrobank (R). To secure the loans, Spouses petition for issuance of a writ of possession,
Oliveros and Nevalga executed a Deed of Real which was granted, thus placing Chinabank in
Estate Mortgage in favor of Metrobank over the 3 possession of the 45 parcels of land. Then,
parcels of land together with all the buildings and spouses Ordinario, filed a motion for
improvements existing thereon. Due to the failure reconsideration praying that the parcel of land be
of mortgagors to pay their loan, Metrobank excluded from the above order alleging, that they
instituted an EJF over the Real Estate Mortgage. purchased the land covered on which was
Metrobank won the bid. Mortgagors failed to constructed their townhouse and that the
redeem the property hence, Metrobank mortgage foreclosure cannot prevail over their
consolidated its title to the subject property. superior right as legitimate buyers of the area.
Metrobank demanded P to turn over the actual
possession of the property but the mortgagors 3) To this, Chinabank filed its opposition to
failed and refused to do so. Metrobank filed a writ respondents motion for reconsideration. The trial
of possession which the Petitioner Spouses court denied Sps Ordinarios motion for
opposed claiming thata pending case was in reconsideration. On appeal, this was overturned
another court for nullification of foreclosure by the CA.

ISSUE: WoN a writ of possession is proper when HELD:

there is a pending case to nullify the foreclosure
sale A) Under Section 7 of Act No. 3135, the purchaser
in a foreclosure sale is entitled to possession of
SC: YES! the property. Thus the writ prayed for by
- Metrobank purchased the properties at a petitioner granting it possession has to be issued
public auction following the EJF of the as a matter of course, being a ministerial
subject properties. Certificate of sale over duty of the trial court to grant such writ of
the properties were issued in favor of possession. No discretion is left for the trial
Metrobank and registered with RD. P as court.
mortgagors failed to redeem the
properties within the 1 year period of B) Under the Rules of Court a third-party claimant
redemption hence Metrobank consolidated or a stranger to the foreclosure suit, like
its ownership over the subject properties. respondents herein, can opt to file a remedy
- Metrobank having consolidated its title to known as terceria against the sheriff or officer
the mortgaged properties is even more effecting the writ by serving on him an affidavit of
entitled now to possession thereof and his title and a copy thereof upon the judgment
makes more unmistakable its right to file creditor. By the terceria, the officer shall not be
an ex parte motion for the issuance of a bound to keep the property and could be
writ of possession. answerable for damages. A third-party claimant
- The issuance of the writ of possession may also resort to an independent "separate
becomes a mere ministerial duty on the action," the object of which is the recovery of
part of the judge, regardless of WoN there ownership or possession of the property seized by
is a pending action for nullification of the the sheriff, as well as damages arising from
sale at public auction or foreclosure itself wrongful seizure and detention of the property
despite the third-party claim. If a "separate
CHINA BANK v ORDINARIO action" is the recourse, the third-party claimant
FACTS: must institute in a forum of competent
jurisdiction an action, distinct and separate from
1) Petitioner ChinaBank granted 3 loans to the action in which the judgment is being
TransAmerican owned by spouses Garcia, secured enforced, even before or without need of filing a
by real estate mortgages constituted by Jesus claim in the court that issued the writ. Both
Garcia 45 parcels of land The contracts of remedies are cumulative and may be availed of
mortgage were all registered in the same independently of or separately from the other.
Registry. Subsequently for failure of Availment of the terceria is not a condition sine
TransAmerican to pay its loans, Chinabank qua non to the institution of a "separate action."
foreclosed extrajudicially the three real estate
mortgages which were then sold at public auction C) In essence, the Court of Appeals committed
for P38,004,205.01 to the same bank. The palpable error when it granted Spouses
Ordinarios motion for reconsideration and set claimant the price of the eight part sold to
aside the orders dated April 10, 1991 and him. The third part of the ownership of the
September 21, 1992 of the RTC. Thus, the hacienda was transferred to the plaintiff by
appealed Decision and Resolution of the Court of the donor Guadalupe Barretto.
Appeals are REVERSED and SET ASIDE. The Antonio and Ricardo, as grantors, sold and
orders of the RTC, Branch 90, Quezon City, conveyed all their rights and actions included
directing the issuance of a writ of possession in and derived from the said hypothecary credit
favor of petitioner bank are AFFIRMED. for the price of P14,000 which would be paid
by the grantee and vendee by installments
ANTICHRESIS and in the manner prescribed in the said
deed, assigning to him, besides, all the rights
which the said brothers had over the two-third
DELA VEGA v BALLILOS parts of the said hacienda.

Issue: WON there was a transfer of ownership to
Facts: Alberto?

After the death of Juan Antonio Barretto, Sr., Held:

his son Juan Antonio Grandpre, in his own
behalf and as the executor of his father, No. the plaintiff did not obtain by assignment,
mortgaged, the cultivated half of said sale, or transfer, as expressed in said deeds, the
hacienda in favor of Antonio Vicente Barretto ownership of the said hacienda of Balintagac, but
as security for the amount of P11,000 which only the hypothecary credit which the heirs of the
the latter loaned to him. deceased creditor Antonio Vicente Barretto had
inherited from the latter, after the plaintiff had
By verbal agreement, Antonio will collect his
obtained from his other brothers the conveyance
credit from the products of the property.
of their respective rights to the donation.
His three children and heirs Antonio Ma
Barretto, Ricardo Esteban Barretto, and
Guadalupe Barretto came to succeed after the
death of Antonio.
The rights acquired by the creditor were
Guadalupe made a donation inter vivos in transmitted by hereditary title through operation
favor of the plaintiff Alberto Barretto of the of law to the heirs of the same Antonio M.a,
undivided one-third part of the hypothecary Ricardo Esteban, and Guadalupe, Barretto y
credit and of the rights belonging to her Rocha and these in turn assigned, sold and
deceased father Antonio Vicente Barretto, transferred the credit with all their rights as
assigning to the donee all the rights and hypothecary creditors, as well as the right to the
actions which she might have in the usufruct of all the hacienda of Balintagac to the
foreclosure proceedings exhibited at the trial plaintiff Alberto Barretto.
of the present action, on the condition that as
soon as the donee Alberto Barretto could
collect the said one-third part of the credit or
should obtain the assignment of the property When in the record of an action it is fully
of the debtor, he would divide what was established that the parties indebted in a certain
donated, into nine equal parts among the amount, which is secured with a mortgage over
donee himself and six living brothers and the of their hacienda, having delivered to the
heirs of their two brothers now dead, each creditor not only the mortgaged half but the
receiving one-ninth part. whole hacienda, not in the nature of an
Alberto Barretto, complying with the condition assignment of property in payment of a debt, still
imposed in said document of the donation unpaid, but with the object that the creditor may
paid to each of his brothers and nephews, and collect by means of usufruct his credit and the
in exchange for the sums received as such interest agreed upon, the verbal contract which is
price his co-donees assigned and conveyed to inferred from such facts and presumed to have
him one-eight part of the third of the said been entered into between the parties, although
hacienda and whatever rights and interests not set in any document, deserves in law the
the grantors might have by virtue of the said name of antichresis as defined in Article 1881 of
donation in favor of the plaintiff Barretto. the Civil Code.
It is to be noted that the plaintiff bought one-
eight undivided part of the third of the whole
hacienda of Balintagac and paid to every
By the antichresis a creditor acquires a the creditor, who is the plaintiff herein, did not
right to receive the fruits of real property foreclose the mortgage.
of his debtor, with the obligation to apply
them to the payment of the interest, if The defendant was leaving the City of Manila in
due, and afterwards to the principal of order to attend to his business in the Province of
his credit. Cagayan, and at the special instance and request
of the herein plaintiff, said defendant gave to the
plaintiff the full control, and complete and
absolute administration of the building and the
The creditor in antichresis cannot by mere parcel of land on which said building was erected,
possession of the real property which he received situated in Santa Mesa, District of Santa Mesa,
by virtue of an antichresis acquire ownership over mortgaged to the plaintiffIt and it was agreed
the same for failure of the debtor to pay the debt between them that the plaintiff would collect the
within the stipulated time, any agreement to the rents of said house, in order to apply them to the
contrary being void; and the debtor on his part payment of interest on the amount of the
cannot recover the enjoyment and use of the real indebtedness.
property given in antichresis to the creditor,
without having previously paid the latter all his For default in the payment of taxes for the years
debt and interests thereon, the creditor being 1925 and 1926, the house was on November 23,
entitled to ask the courts that the said real 1926 sold at public auction, and, for failure to
property be sold to satisfy his credit. exercise the right of legal redemption, the City of
Manila, the attachment creditor and vendor of the
property, executed a final deed of sale in favor of
the purchaser, the other defendant Massy
With regard to prescription, the creditor in Teague.
antichresis can never by prescription acquire the
ownership of the real property received in
Furthermore, for default in the payment of the
antichresis, as he entered into the possession of
rents due on the lot of said house for the years
the same not as an owner but as a creditor with
1925 to 1928, the Santa Mesa estate, the lessor
right only to collect his credit from the fruits of
of said land, cancelled the lease on July 13, 1928,
said real property.
pursuant to the terms of the contract.

The appellant Gimenez contends that the plaintiff

The extinguishment of the right as creditor and was responsible for the delinquency in the
the termination of his use and possession of the payment of both the tax on the house and the
real property given in antichresis depend upon rent of the lot, which caused him the loss of the
the full payment of the debt and its interests, said house and the leasehold right on the lot,
after the liquidation of the amounts entered on because the plaintiff was at that time in charge of
the account of the debtors and received by the the administration of the premises with the
creditor. obligation to attend to the payment of the tax
and the rents.

LEGAZPI & SALCEDO v CELESTIAL The plaintiff denied that he had such obligation,
alleging that his duties were confined to the
ANGELES v SEC. OF JUSTICE collection of the rents of the house in order to
apply them to the payment of the interest on the
PANDO v GIMENEZ mortgage.

FACTS: This action was instituted for the purpose Such was in fact the original agreement; but the
of foreclosing a mortgage executed by defendant appellant asserts that it was modified by the
Antonio Gimenez. Massy Teague was also letter.
impleaded for having purchased at public auction
one of the mortgaged properties.
In order to secure the payment of P8,000 which ISSUE: Whether or not the the administration of
the defendant Gimenez owed the plaintiff, he the property in question assumed by the plaintiff
mortgaged the house at No. 655 Santa Mesa, toward the end of October, 1925 is antichretic in
Manila, and the leasehold right on the lot upon character.
which it stands (Exhibit A). This was payable on
October 27, 1925, but, in spite of nonpayment, RULING:


Taking into account the language of the letter
Exhibit 1 and the appellant's unimpeached ALEMAN v CATERA
testimony, we are constrained to hold that it has
been proved by a preponderance of evidence, ALLIED BANK v SALAS
that even though at first the plaintiff had only FACTS: Petitioner-bank (through petitioners
undertaken to collect the rents of the house, later predecessor) granted Gencor Marketing, Inc. a
on, towards the end of October, 1925, he time loan and was secured by a Deed of Chattel
assumed the obligation to pay both the tax on Mortgage over certain printing machineries and
the house, and the rent of the lot. equipments; said deed was recorded in the
Chattel Mortgage Registry in Feb. 7, 1974. Gencor
As to the consideration contained in the judgment failed to pay prompting petitioner to extra
appealed from to the effect that, in view of the judicially foreclose the mortgage and requested
reduction of the rent of the house in May, 1926, the Sheriff of Quezon City to effect the said
the plaintiff would not have accepted the foreclosure. Upon issuance of the Notice of
administration under the conditions alleged by Sheriffs sale, private respondent filed a motion in
the defendant-appellant, it must be remembered court to enjoin the public auction alleging that the
that the plaintiff took over such complete properties have been previously levied and
administration months before such reduction of attached by the Sheriff of Rizal.
rents, and it does not appear that the reduction
was foreseen. Metrobank is a creditor of Gencors president and
claims the properties as the exclusive property of
From all these circumstances it follows that the the president doing business under the firm name
administration of the property in question of Gencor Printing and as such may not be
assumed by the plaintiff toward the end of foreclosed and sold at auction. During the trial it
October, 1925 is antichretic in character, and was admitted by petitioner that the properties
therefore justice and equity demand that belonged to the president and not to Gencor.
application be here made of the Civil Code
provisions touching the obligations of the ISSUE: WHO between the two claimants has a
antichretic creditor, to wit: better right over the property.

HELD: Petitioner has the better right. Even

The creditor is obliged to pay the taxes
though petitioner admitted that it was the
and charges which burden the estate, in
president and not gencor who owned the
the absence of an agreement to the
properties, the Court nevertheless finds that the
chattel mortgage over the printing machineries
and equipment was ratified and approved by
He shall also be obliged to pay any Clarencio Yujuico. As earlier stated and as pointed
expenses necessary for its preservation out by petitioner, it was Clarencio Yujuico as
and repair. president of Gencor Marketing, Inc., who signed
the promissory note evidencing the time loan
Any sums he may expend for such granted by petitioner's predecessor General Bank
purposes shall be chargeable against the and Trust Company in favor of Gencor Marketing,
fruits. (Art. 1882, Civil Code.) Inc.

These obligations arise from the very nature of Finding the chattel mortgage to be valid, the
the covenant, and are correlated with the Court takes special note of the fact that said
plaintiff's acquired right to take charge of the chattel mortgage was registered and duly
property and collect the fruits for himself. recorded in the Chattel Mortgage Registry of
Quezon City on February 7, 1974, prior to April
22, 1977, the date the writ of attachment of the
properties in question was issued. This is a
PERALTA v QUIMPO significant factor in determining who of two
51 OG No. 3 p. 1383, Sept 1954 contending claimants should be given preference
NO COPY AVAILABLE over the same properties in question.

The registration of the chattel mortgage more

VILLANUEVA v IPONDO than three years prior to the writ of attachment
issued by respondent judge is an effective and
CHATTEL MORTGAGE binding notice to other creditors of its existence
and creates a real right or a lien, which being
recorded, follows the chattel wherever it goes. 7
The chattel mortgage lien attaches to the - Based on the pieces of evidence, the true
property wherever it may be. Thus, private intention of P and R is to treat machinery
respondent as attaching creditor acquired the and equipment as chattels.
properties in question subject to petitioner's - The controverted machineries are not
mortgage lien as it existed thereon at the time of covered by or included in either of the 2
the attachment. mortgages
- The machineries were not included in the
In this regard, it must be stressed that the right of Notice of Sale
those who so acquire said properties should not - An immovable may be considered a
and cannot be superior to that of the creditor who personal property if there is a stipulation
has in his favor an instrument of mortgage as when it is used as security in the
executed with the formalities of law, in good faith, payment of an obligation where a chattel
and without the least indication of fraud. 8 mortgage is executed over it, as in the
case at bar.
Applying the foregoing principle to the case at
bar, the Court finds the lien of petitioner's chattel DOCTRINE: a chattel mortgage shall be deemed
mortgage over the mortgaged properties in to cover only the property described therein and
question superior to the levy on attachment not like or substituted property thereafter
made on the same by private respondent as acquired by the mortgagor and placed in the
creditor of chattel mortgagor Clarencio Yujuico. same depository as the property originally
What may be attached by private respondent as mortgaged.
creditor of said chattel mortgagor is only the
equity or right of redemption of the mortgagor. ACME SHOE v CA
1) Petitioner Chua Pac, the president and general
TSAI v CA manager of co-petitioner Acme Shoe, executed
FACTS: on June 1978, for and in behalf of the company, a
- Ever Textile (R) obtained a P3M loan from chattel mortgage in favor of private respondent
PBCOM (P), with Real Property and Chattel Producers Bank of the Philippines as security for
Mortgage over the lot, where its factory petitioner's corporate loan of P3,000,000.00. It
stands and the chattels located therein as was stated that:
enumerated in its attached schedule
- A 2nd loan was obtained secured by a In case the MORTGAGOR executes subsequent
Chattel Mortgage over personal properties promissory note or notes either as a renewal of
listed in its attached list, which is similar the former note, as an extension thereof, or as a
to the attached list to the 1st mortgage. new loan, or is given any other kind of
- On the same date of the 2nd loan, R accommodations such as overdrafts, letters of
purchased various machines and credit, acceptances and bills of exchange,
equipments releases of import shipments on Trust Receipts,
- Later, R filed insolvency proceedings etc., this mortgage shall also stand as security for
- P commenced an extrajudicial foreclosure the payment of the said promissory note or notes
(EJF), wherein P won the bid and the and/or accommodations without the necessity of
properties were leased and later sold to executing a new contract and this mortgage shall
Tsai. P sold the factory, properties and the have the same force and effect as if the said
contested machineries of R. promissory note or notes and/or accommodations
- R filed for annulment of sale contending were existing on the date thereof. This mortgage
that the machineries bought by R which shall also stand as security for said obligations
are not included in the list should be and any and all other obligations of the
excluded from the sale to TSAI MORTGAGOR to the MORTGAGEE of whatever
- P contended that the machineries, which kind and nature, whether such obligations have
are connected to the land, are part of the been contracted before, during or after the
real estate stated in the Mortgage. constitution of this mortgage
- RTC and CA ruled in favor of R.
2) On 10 and 11 January 1984, the bank yet again
ISSUE: WoN the contested machineries (property extended to petitioner corporation a loan of
bought by R on the same day that the 2 nd loan P1,000,000.00 covered by four promissory notes
was executed) should be inlcluded in the auction for P250,000.00 each. Due to financial
sale and sale to TSAI constraints, the loan was not settled at maturity.
The bank then applied for an extra judicial
SC: NO! foreclosure of the chattel mortgage, with the
Sheriff of prompting Acme to file an injunction, to cover the after-incurred obligation can
which was dismissed. The court also ordered the constitute an act of default on the part of the
foreclosure of the chattel mortgage. It held borrower of the financing agreement whereon the
petitioner corporation bound by the stipulations. promise is written but 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.
ISSUE: Whether it is valid and effective to have a
clause in a chattel mortgage that purports to E) A chattel mortgage, as hereinbefore so
likewise extend its coverage to obligations yet to intimated, must comply substantially with the
be contracted or incurred. form prescribed by the Chattel Mortgage Law
itself. One of the requisites, under Section 5
HELD: thereof, is an affidavit of good faith. The fact,
.that the statute has provided that the parties to
the contract must execute an oath that the
A) Contracts of security are either personal or mortgage is made for the purpose of securing the
real. In contracts of personal security, such as a obligation specified in the conditions thereof, and
guaranty or a suretyship, the faithful performance for no other purpose, and that the same is a just
of the obligation by the principal debt or is and valid obligation, and one not entered into for
secured by the personal commitment of another. the purpose of fraud means that the debt
referred to in the law is a current, not an
B) In contracts of real security, such as a pledge, obligation that is yet merely contemplated.
a mortgage or an antichresis, that fulfillment is
secured by an encumbrance of property in F) In the chattel mortgage here involved, the only
pledge, the placing of movable property in the obligation specified in the chattel mortgage
possession of the creditor; in chattel mortgage, contract was the P3,000,000.00 loan which
by the execution of the corresponding deed petitioner corporation later fully paid. By virtue of
substantially in the form prescribed by law; in Section 3 of the Chattel Mortgage Law, the
real estate mortgage, by the execution of a public payment of the obligation automatically rendered
instrument encumbering the real property the chattel mortgage void or terminated. In other
covered thereby; and in antichresis, by a written words, A mortgage that contains a stipulation in
instrument granting to the creditor the right to regard to future advances in the credit will take
receive the fruits of an immovable property with effect only from the date the same are made and
the obligation to apply such fruits to the payment not from the date of the mortgage.
of interest, if owing, and thereafter to the
principal of his credit upon the essential
condition that if the obligation becomes due and
the debtor defaults, then the property CERNA v CA
encumbered can be alienated for the payment of
the obligation, but that should the obligation be MAGNA FINANCIAL v COLARINA
duly paid, then the contract is automatically
extinguished proceeding from the accessory Facts:
character 8 of the agreement.
Elias Colarina bought on installment from
Magna Financial Services (MFS) one Suzuki
C) While a pledge, real estate mortgage, or
antichresis may secure after-incurred obligations
so long as these future debts are accurately After making a down payment, Colarina
described, a chattel mortgage, can only cover executed a promissory note for the balance of
obligations existing at the time the mortgage is P229,284.00 payable in 36 equal monthly
constituted. installments. To secure payment, Colarina
executed an integrated promissory note and
deed of chattel mortgage over the motor
D) Although a promise expressed in a chattel
mortgage to include debts that are yet to be
Colarina failed to pay the monthly
contracted can be a binding commitment that
can be compelled upon, the security itself, amortization accumulating an unpaid balance
however, does not come into existence or arise of P131,607.00.
until after a chattel mortgage agreement Despite repeated demands, he failed to make
covering the newly contracted debt is executed the necessary payment.
either by concluding a fresh chattel mortgage or MFS filed a Complaint for Foreclosure of
by amending the old contract. Refusal on the part Chattel Mortgage with Replevin.
of the borrower to execute the agreement so as
Upon the filing of a Replevin Bond, a Writ of foreclosure has not been pursued,
Replevin was issued. Summons, together with commenced or concluded by it. Where the
a copy of the Writ of Replevin, was served on mortgagee elects a remedy of foreclosure, the
Colarina who voluntarily surrendered physical law requires the actual foreclosure of the
possession of the vehicle to the Sheriff. mortgaged chattel. It is the actual sale of the
The motor vehicle was turned over by the mortgaged chattel that would bar the creditor
sheriff to Magna Financial Services Group, Inc. (who chooses to foreclose) from recovering
The trial court rendered judgment in favor of any unpaid balance. And it is deemed that
MFS and asked Coralina to pay the unpaid there has been foreclosure of the mortgage
balance and foreclose the chattel mortgage. when all the proceedings of the foreclosure,
including the sale of the property at public
Colarina appealed to the Regional Trial Court
auction, have been accomplished.
which affirmed in toto the decision of the
CA reversed the decision of MTCC and RTC
Be that as it may, although no actual
stating that MTC and the RTC erred in ordering foreclosure as contemplated under the law
the defendant to pay the unpaid balance of has taken place in this case, since the vehicle
the purchase price of the subject vehicle is already in the possession of Magna
irrespective of the fact that the instant Financial Services Group, Inc. and it has
complaint was for the foreclosure of its chattel persistently and consistently avowed that it
mortgage. elects the remedy of foreclosure, the Court of
Appeals, thus, ruled correctly in directing the
Issue: foreclosure of the said vehicle without more.
1) WON MFS can avail of the two remedies,
payment of unpaid balance and foreclosure of BA FINANCE v CA
chattel mortgage?
2) WON there was actual foreclosure? BICOL SAVINGS v GUINHAWA
F: Victorio Depositario together with private
respondent Jaime Guinhawa, acting as solidary
Held: co-maker, took a loan from petitioner Bicol
Savings and Loan Association (BISLA) payable
1) No. Article 1484, paragraph 3, provides that if every 19th day of each month. To secure the
the vendor has availed himself of the right to payment of the foregoing loan obligation, the
foreclose the chattel mortgage, he shall have principal borrower Victorio Depositario put up as
no further action against the purchaser to security a chattel mortgage which was a Yamaha
recover any unpaid balance of the purchase Motorcycle. Said motorcycle was eventually
price. Any agreement to the contrary shall be foreclosed by reason of the failure of Depositario
void. In other words, in all proceedings for the and private respondent Guinhawa to pay the
foreclosure of chattel mortgages executed on loan. There was a deficiency in the amount of
chattels which have been sold on the P5,158.06 where BISLA made a demand to pay
installment plan, the mortgagee is limited to the same. Petitioner BISLA (plaintiff therein) filed
the property included in the mortgage. a complaint for the recovery of a sum of money
constituting the deficiency after foreclosure of the
Petitioner resolutely declared that it has opted chattel mortgage put up by the principal borrower
for the remedy provided under Article 1484(3) Depositario against the latter and his solidary co-
of the Civil Code, that is, to foreclose the maker Guinhawa (herein private respondent) as
chattel mortgage. The petitioners prayer defendants. Eventually, a stipulation of facts was
contains two remedies, payment of unpaid entered into between BISLA and Guinhawa. They
balance and foreclosure of chattel mortgage. agreed to drop Depositario, as "his whereabouts
Such a scheme is not only irregular but is a being unknown now and he could not be served
flagrant circumvention of the prohibition of with summons". The creditor claims that he can
the law. By praying for the foreclosure of the maintain an action for deficiency and claim P5k
chattel, Magna Financial Services Group, Inc. balance.
renounced whatever claim it may have under
the promissory note.
Issue: WoN creditor can claim remaining balance
2) No. In the case at bar, there is no dispute that
the subject vehicle is already in the Ruling: Yes! The creditor may maintain an action
possession of the petitioner, Magna Financial for deficiency although the chattel mortgage law
Services Group, Inc. However, actual Is silent on this point. The reason is tat a chattel
mortgage is only given as a security and not as
payment for the debt in case of failure of deficiency in case of a reduction in the price at
payment public auction.

PAMECA WOOD v CA As correctly pointed out by the trial court, the

FACTS: On April 17, 1980, petitioner PAMECA said article applies clearly and solely to the sale
Wood Treatment Plant, Inc. (PAMECA) obtained a of personal property the price of which is payable
loan of US$267,881.67, or the equivalent of in installments. Although Article 1484, paragraph
P2,000,000.00 from respondent Bank. By virtue of (3) expressly bars any further action against the
this loan, petitioner PAMECA, through its purchaser to recover an unpaid balance of the
President, petitioner Herminio C. Teves, executed price, where the vendor opts to foreclose the
a promissory note for the said amount, promising chattel mortgage on the thing sold, should the
to pay the loan by installment. vendee's failure to pay cover two or more
installments, this provision is specifically
As security for the said loan, a chattel mortgage applicable to a sale on installments.
was also executed over PAMECA's properties in
Dumaguete City, consisting of inventories, SUPERLINES v ICC
furniture and equipment, to cover the whole FACTS:
value of the loan. Superlines decided to acquire five (5) new
buses from the Diamond Motors
On January 18, 1984, and upon petitioner Corporation for the price of P10k.
PAMECA's failure to pay, respondent bank However, Superlines lacked financial
extrajudicially foreclosed the chattel mortgage, resources for the purpose so by virtue of a
and, as sole bidder in the public auction, board resolution, it authorized its
purchased the foreclosed properties for a sum of President and Gen Mgr Lavides to look for
P322, 350.00. a loan for the purchase of said buses.
Lavides negotiated with ICC Leasing. ICC
On June 29, 1984, respondent bank filed a
agreed to finance the purchase of the new
complaint for the collection of the balance.
buses via a loan and proposed a 3-yr term
for the payment. The new buses to be
Petitioners submit that Articles 1484 and 2115 of
purchased were to be used by Superlines
the Civil Code be applied in analogy to the instant
as security for the loan.
case to preclude the recovery of a deficiency
claim. Diamond Motors sold to Superlines 5 new
buses and was registered under the name
of Superlines.
ISSUES: Whether the foreclosure of the chattel
mortgage valid Superlines executed 2 docus Deed of
Chattel Mortgage over said buses a
RULING: security for the purchase price of buses in
The court did not find anything irregular or P13mill loaned by ICC to Superlines; a
fraudulent in the circumstance that respondent Continuing Guaranty to pay jointly and
bank was the sole bidder in the sale, as all the severally in favour of ICC the amount of
legal procedures for the conduct of a foreclosure P13mill
sale have been complied with, thus giving rise to After paying only 7 monthly amortizations,
the presumption of regularity in the performance Superlines defaulted in the payment of its
of public duties. obligation to ICC.
The effects of foreclosure under the Chattel ICC filed a complaint for collection of sum
Mortgage Law run inconsistent with those of of money with a prayer for a writ of
pledge under Article 2115. Whereas, in pledge, replevin
the sale of the thing pledged extinguishes the TC dismissed; ICC and Superlines forged a
entire principal obligation, such that the pledgor consumer loan agreement and not an
may no longer recover proceeds of the sale in amortized commercial loan.
excess of the amount of the principal obligation, CA reversed;
Section 14 of the Chattel Mortgage Law expressly - ICC and Superlines entered into an
entitles the mortgagor to the balance of the amortized commercial loan agreement
proceeds, upon satisfaction of the principal with ICC as creditor-mortgagee and
obligation and costs. Superlines as debtor-mortgagor, and
ordered Superlines and Lavides to pay
Since the Chattel Mortgage Law bars the creditor- jointly and severally the sum of P5mill
mortgagee from retaining the excess of the sale as deficiency
proceeds there is a corollary obligation on the - It was Diamond Motors Corporation
part of the debtor-mortgagee to pay the and not ICC which sold the subject
buses to Superlines. It held that no buses. Hence, petitioners cannot find
evidence had been presented by refuge in Article 1484(3) of the New Civil
Superlines to show that ICC bought the Code.
said buses from Diamond Motors What should apply was the Chattel
Corporation under a special Mortgage executed by petitioner
arrangement and that ICC sold the Superlines and R in relation to the Chattel
buses to Superlines. The appellate Mortgage Law.
court also ruled that Article 1484(3) is This Court had consistently ruled that if in
applicable only where there is vendor- an extra-judicial foreclosure of a chattel
vendee relationship between the mortgage a deficiency exists, an
parties and since ICC did not sell the independent civil action may be instituted
buses to Superlines, the latter cannot for the recovery of said deficiency. To deny
invoke said law. the mortgagee the right to maintain an
action to recover the deficiency after
ISSUE: WON there was an amortized commercial foreclosure of the chattel mortgage would
loan agreement? be to overlook the fact that the chattel
mortgage is only given as security and not
HELD: YES as payment for the debt in case of failure
DIAMOND is the seller of the five units of of payment. Both the Chattel Mortgage
buses and not the plaintiff Law and Act 3135 governing extra-judicial
No convincing evidence, except the self- foreclosure of real estate mortgage, do not
serving testimony of defendant Manolet contain any provision, expressly or
Lavides, was presented to prove that there impliedly, precluding the mortgagee from
was an internal arrangement between the recovering deficiency of the principal
plaintiff, as financing agent, and Diamond, obligation.
as seller of the buses. In fact, defendant
Lavides admitted under oath that
DIAMOND and plaintiff did not enter into ESGUERRA v CA
transaction over the sale of the buses
The evidence shows that the transaction BPI CREDIT v CA
between the parties was an "amortized
commercial loan" to be paid in SERVICEWIDE v CA
installments FACTS:
P failed to adduce a preponderance of Respondents executed a promissory note
evidence to prove that R and Diamond and a chattel mortgage over a vehicle
Motors Corporation entered into a special they bought from the mortgagee itself, C.
arrangement relative to the issuance of R. Tecson Enterprises, for the payment in
certificates of registration over the buses installments of the vehicle. C. R. Tecson
under the name of petitioner Superlines. Enterprises, on the same date, assigned in
P were also unable to prove that favor of Filinvest Credit Corporation. The
respondent purchased from Diamond respondents were aware that the new
Motors Corporation the new buses. In mortagee is Filinvest.
contrast, the vehicle invoices of Diamond
Motors Corporation irrefragably show that Respondent spouses by way of Deed of
it sold the said buses to petitioner Sale with Assumption of Mortgage
Superlines. The net proceeds of the loan transferred and delivered the vehicle to
were remitted by respondent to petitioner Conrado Tecson.
Superlines and the latter remitted the
same to Diamond Motors Corporation in Subsequently, Filinvest assigned all its
payment of the purchase price of the rights as mortgagee to petitioner.
buses. In fine, respondent and Diamond
Motors Corporation had no direct business
transactions relative to the purchase of Respondents failed to pay the installments
the buses and the payment of the and despite demands from petitioner-
purchase price thereof. mortgagee to pay or to return the vehicle.
The evidence on record shows that under
the Promissory Note, Chattel Mortgage Petitioner filed a complaint for Replevin
and Continuing Guaranty, respondent was but the respondents alleged in their
the creditor-mortgagee of petitioner Answer that they can no longer be held
Superlines and not the vendor of the new liable as they had already conveyed the
car to Conrado Tecson.
ISSUE: in the case alleging that it cannot be
levied upon since it is already the owner of
1. WON the assignment of credit by the the subject jalousies.
creditor-mortgagee quires the notice and
consent of the debtor- mortgagor? ISSUE: WoN R may levy the jalousies

2. WON the assignment of credit by the SC: NO!

debtor- mortgagor requires the notice and - When the glass and wooden jalousies were
consent of the creditor-mortgagee? delivered and installed in the leased
premises, P became the owner thereof,
due to the contract between P and Capitol
HELD: in which it stated that all permanent
improvements made by lessee shall
1. Only notice to the debtor-mortgagor of belong to the lessor and that said
the assignment of credit is required. His improvements hav been considered as
consent is not required. part of the monthly rentals.
- The fact that Capitol failed to pay R the
2. In contrast, consent of the creditor- purchase price of the items levied upon
mortgagee to the alienation of the did not prevent the transfer of ownership
mortgaged property is necessary in order to Capitol and then to P.
to bind said creditor. Since the assignee of
the credit steps into the shoes of the
creditor-mortgagee to whom the chattel UY v ZAMORA
was mortgaged, it follows that the FACTS:
assignee's consent is necessary in order to
bind him of the alienation of the 1) At the instance of plaintiff Uy, the MTC ordered
mortgaged thing by the debtor-mortgagor. the attachment of a vehicle belonging to Zamora.
This is tantamount to a novation. As the The writ was levied on the vehicle on August 11,
new assignee, petitioner's consent is 1960. Subsequently, the Municipal Court
necessary before respondent spouses' rendered judgment for the plaintiff Uy and
alienation of the vehicle can be considered ordered defendant Zamora to pay the sum of
as binding against third persons. Petitioner P1,740. Zamora appealed to the CFI.
is considered a third person with respect
to the sale with mortgage between 2) While the case was pending appeal, the Allied
respondent spouses and third party Finance, Inc. intervene. According to it, the
defendant Conrado Tecson. vehicle, which was attached by the Sheriff, had
previously been mortgaged to it by Zamora to
secure the payment of a loan and that at the time
CONCURRENCE AND PREFERENCE OF of the filing of the complaint in intervention, a
CREDITS balance of P2,451.93 remained in its favor. Allied,
prayed that Zamora be ordered to pay P2,451.93
as principal.
3) On January 12, 1961, Uy and Zamora,
SAMPAGUITA PICTURES v JALWINDOR submitted to the court a compromise agreement
FACTS: wherein Zamora admitted being indebted to Uy.
- Sampaguita (P) is the owner of a building Since the motor vehicle had already been sold on
which its roofdeck was leased to Capitol order of the Court for P2,500 to prevent
300 (Capitol), wherein it was agreed that depreciation, defendant Zamora agreed to have
whatever improvements introduced plaintiff Uy's credit paid out of the proceeds of
therein by Capitol will later be owned by P. the sale.
- Capitol purchased on credit from Jalwindor
(R) glass and wooden jalousies which were 4) The court found defendant Zamora to be liable
DELIVERED and INSTALLED in the leased to plaintiff Uy in the amount of P2,500, and to the
premises by R, replacing the existing intervenor in the amount of P2,451.93, plus
windows of P. interest. Uy claims preference on the basis of a
- Capitol failed to pay and R filed an action lien arising from the attachment of the vehicle on
for collection of sum of money against August 11, 1960. On the other hand, allied bases
Capitol. its claim to preference on a Deed of Chattel
- R made a levy on the glass and wooden Mortgage covering the same motor vehicle.
jalousies in question, which P intervened
ISSUE: Which of the two credits is preferred? Elizes and Padilla spouses and over the
opposition of the Central Bank, directed the
HELD: latter as liquidator, to pay their time deposits
as preferred judgments, evidenced by final
A) Considering the fact that Allied Finance, Inc. judgments, within the meaning of article
registered its mortgage only on August 24, 1960, 2244(14)(b) of the Civil Code.
or subsequent to the date of the writ of Central Bank contends that the final
attachment obtained by plaintiff Uy on August 11, judgments secured by the Elizes and Padilla
1960, the credit of the intervenor cannot prevail spouses do not enjoy any preference because
over that of the plaintiff. (a) they were rendered after the Fidelity
Savings Bank was declared insolvent and (b)
under the charter of the Central Bank and the
B) The SC disagreed with the lower courts
General Banking Law, no final judgment can
decision upheld Allieds credit on the ground that,
be validly obtained against an insolvent bank.
being embodied in a public instrument of an
earlier date (June 20, 1960), it should take
precedence over plaintiff's lien by attachment
Issue: Whether a final judgment for the payment
(August 11, 1960), pursuant to Article 2244 of the
of a time deposit in a savings bank which
Civil Code, for the reason that, as already stated,
judgment was obtained after the bank was
the credit of the Allied cannot be considered as
declared insolvent, is a preferred claim against
preferred until the same has been recorded in the
the bank?
Motor Vehicles Office.
C) A mortgage of motor vehicles, in order to
affect third persons, should not only be registered No. It should be noted that fixed, savings, and
in the Chattel Mortgage Registry, but the same current deposits of money in banks and similar
should also be recorded in the Motor Vehicles institutions are not true deposits. They are
Office The decision of the lower court is reversed, considered simple loans and, as such, are not
without pronouncement as to costs. preferred credits.

The aforequoted section 29 of the Central Bank's

charter explicitly provides that when a bank is
CORDOVA v REYES found to be insolvent, the Monetary Board shall
forbid it to do business and shall take charge of
CENTRAL BANK v MORFE its assets. Evidently, one purpose in prohibiting
the insolvent bank from doing business is to
Facts: prevent some depositors from having an undue or
fraudulent preference over other creditors and
The Monetary Board found the Fidelity depositors.
Savings Bank to be insolvent. The Board
directed the Superintendent of Banks to take We are of the opinion that such judgments cannot
charge of its assets, forbade it to do business be considered preferred and that article 2244(14)
and instructed the Central Bank Legal Counsel (b) does not apply to judgments for the payment
to take legal actions. of the deposits in an insolvent savings bank
Prior to the institution of the liquidation which were obtained after the declaration of
proceeding but after the declaration of insolvency.
insolvency, the spouses Elizes filed a
complaint in the CFI against the Fidelity In the Rohr case, the general principle of equity
Savings Bank for the recovery of the balance that the assets of an insolvent are to be
of their time deposits. distributed ratably among general creditors
In the judgment rendered in that case, the applies with full force to the distribution of the
Fidelity Savings Bank was ordered to pay the assets of a bank. A general depositor of a bank is
Elizes spouses the sum plus accumulated merely a general creditor, and, as such, is not
interest. entitled to any preference or priority over other
In another case, the spouses Padilla secured a general creditors.
judgment against the Fidelity Savings Bank for
the sums as the balance of their time The assets of a bank in process of liquidation are
deposits, plus interests, moral and exemplary held in trust for the equal benefit of all creditors,
damages and attorney's fees. and one cannot be permitted to obtain an
The lower court (having cognizance of the advantage or preference over another by an
liquidation proceeding), upon motions of the attachment, execution or otherwise.
Considering that the deposits in question, in their rendered in his favor, c demanded from psb a pro
inception, were not preferred credits, it does not rata share in the value of the duplex apartment in
seem logical and just that they should be raised accordance with article 2242.
to the category of preferred credits simply
because the depositors, taking advantage of the Issue: is c entitled to claim pro rata share in the
long interval between the declaration of value of the property in question.
insolvency and the filing of the petition for judicial
assistance and supervision, were able to secure Ruling: no. the action filed by c to collect the
judgments for the payment of their time deposits. unpaid cost of the construction of the duplex
apartment is far from being a general liquidation
MANABAT v LAGUNA FED of the estate of x and y.

PHIL SAVINGS BANK v LANTIN Although the lower court found that there were
no known creditors other than c and psb, this
F: c built a duplex apartment house on a cannot be conclusive. It will not bar other
registered lot of spouses x and y, using his own creditors in the event they show up and present
money, P25k to finish the construction. their claims against psb, claiming they have also
Meanwhile, x and y obtained from psb a loan preferred claims against the property.
secured by a mortgage to complete construction. Consequently, the transfer certificate of title
At the time of the registration of the mortgage, issued to psb which is supposed to be
the transfer certificate of title over the property indefeasible would remain constantly unstable
was free from all liens and encumbrances. PSB and questionable. Such could not have been the
foreclosed the mortgage, and being the highest intention of article 2243 of the civil code although
bidder a new certificate of title was subsequently it considers claims and credits under article 2242
issued in its favor as statutory liens. Neither does the de barreto
caes sanction such instability.
C filed an action against the spouses to collect
the unpaid cost of construction. As x and y did
not have any properties to satisfy the judgment