PHILIPPINE NATIONAL BANK vs.

HEIRS OF BENEDICTO AND AZUCENA

ALONDAY
G.R. No. 171865, October 12, 2016, J. Bersamin

In order for the all-embracing or dragnet clauses to secure future and

other loans, the loans thereby secured must be sufficiently described in the
mortgage contract.

Facts:

In 1974, the Sps. Alonday obtained an agricultural loan by mortgaging

their property in Davao covered by OCT No. P-3599. Later, the Sps. Alonday
obtained a commercial loan by mortgaging their residential lot covered by
TCT No. T-66139. Notably, the mortgage contracts both contained a dragnet
clause, which state that the mortgage shall also stand as security for said
obligations and any and all other obligations of the Mortgagor to the
Mortgagee of whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of this mortgage.

The second loan was fully paid. The first loan, however, was not.
Hence, petitioner foreclosed the property mortgaged as a security for the first
loan. But since the proceeds of the sale were not sufficient to cover the
balance of the first loan, petitioner also foreclosed the property mortgaged to
secure the second loan.

The Sps. Alonday filed a complaint against petitioner recover damages

and attorneys fees, averring that the foreclosure was illegal. The RTC and CA
ruled in favor of the Sps Alonday.

Issues:

1) Whether the dragnet clause in the first mortgage contract for the
security of the first loan could authorize the foreclosure of the property
under the mortgage to secure a second loan despite the full payment
of the second loan.
2) Whether the award of damages and attorneys fees is proper.

Ruling:

1) The dragnet clause contained in the first mortgage contract executed

between the parties for the security of the first loan could not authorize the
foreclosure of the property under the mortgage to secure the second loan.

In order for the all-embracing or dragnet clauses to secure future and

other loans, the loans thereby secured must be sufficiently described in the
mortgage contract. Considering that the agricultural loan had been pre-
existing when the mortgage was constituted on the property covered by TCT
No. T-66139, it would have been easy for the petitioner to have expressly
incorporated the reference to such agricultural loan in the mortgage contract
covering the commercial loan. But the petitioner did not. Being the party that
had prepared the contract of mortgage, its failure to do so should be
construed that it did not at all contemplate the earlier loan when it entered
into the subsequent mortgage.
Moreover, the mortgage contracts executed by the Spouses Alonday
were contracts of adhesion exclusively prepared by the petitioner. A contract
of adhesion, albeit valid, becomes objectionable only when it takes undue
advantage of one of the parties the weaker party- by having such party just
adhere to the terms of the contract. Hence, the mortgage contracts in this
case should be construed strictly against the petitioner as the party who had
drafted the same.

2) The award of damages is not proper. The amount of actual damages

awarded must be reduced because the amount upon which the initial award
was based is merely an assertion that is not supported by evidence.

Petitioner should also be made liable for compensatory interest, which

is imposed by law or by courts as penalty or indemnity for damages.
Petitioner is liable for interest on the actual damage, representing the value
of the property that was lost to the Sps. Alonday through the unwarranted
foreclosure, the same to be reckoned from the date of judicial demand (i.e.,
the filing of the action by the Spouses Alonday). At the time thereof, the rate
was 12% per annum, and such rate shall run until June 30, 2013. Thereafter,
or starting on July 1, 2013, the rate of interest shall be 6% per annum until
full payment of the obligation.

In addition, Article 2212 of the Civil Code requires that interest due
shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point. Accordingly, the interest due shall
itself earn legal interest of 6% per annum from the date of finality of the
judgment until its full satisfaction, the interim period being deemed to be an
equivalent to a forbearance of credit.

EVELYN V. RUIZ vs. BERNARDO F. DIMAILIG

G.R. No. 204280, November 9, 2016, J. Del-Castillo

The doctrine of mortgagee in good faith assumes that the title to the
subject property had already been transferred or registered in the name of
the impostor who thereafter transacts with a mortgagee who acted in good
faith.

Facts:

Respondent Bernardo F. Dimailig (Bernardo) was the registered owner

of a parcel of land in Cavite. He entrusted the owners copy of the TCT to his
brother, who, in turn, gave it to Editha Sanggalang, a broker for the
propertys intended sale. However, the property was mortgaged by Editha to
Evelyn V. Ruiz (Evelyn) as evidenced by a Deed of REM without Bernardo's
knowledge and consent. Hence, Bernardo instituted this suit for annulment of
the Deed of REM.
 In her Answer, Evelyn claimed that he is a mortgagee in good faith and
for value. Hence, the REM cannot be annulled and she had the right to keep
the owner's copy of the TCT until the loan was fully paid to her.

The RTC dismissed the Complaint and held that Evelyn is a mortgagee
in good faith. The CA, however, reversed the ruling of the RTC.

Issue:

Whether petitioner is a mortgagee in good faith.

Ruling:

Petitioner is not a mortgagee in good faith.

No valid mortgage will arise unless the mortgagor has a valid title or
ownership over the mortgaged property. By way of exception, a mortgagee
can invoke that he or she derived title even if the mortgagor's title on the
property is defective, if he or she acted in good faith. In such instance, the
mortgagee must prove that no circumstance that should have aroused her
suspicion on the veracity of the mortgagor's title on the property was
disregarded.

The doctrine of mortgagee in good faith assumes that the title to the
subject property had already been transferred or registered in the name of
the impostor who thereafter transacts with a mortgagee who acted in good
faith. In this case, the title remained to be registered in the name of
Bernardo, the rightful and real owner, and not in the name of the impostor.

The burden of proof that one is a mortgagee in good faith and for value
lies with the person who claims such status. Good faith entails an honest
intention to refrain from taking unconscientious advantage of another.

In this case, Evelyn insists that she is a mortgagee in good faith and for
value. Thus, she has the burden to prove such claim and must provide
necessary evidence to support the same. Unfortunately, Evelyn failed to
discharge her burden. First, the Deed of REM was established to be a forged
instrument. Second, the subject property remained registered in the name of
Bernardo. Third, even assuming that the impostor has caused the property to
be titled in his name, Evelyn would still not be deemed a mortgagee in good
faith because she did not take the necessary steps to determine any defect in
the title of the alleged owner of the mortgaged property.

GILAT SATELLITE NETWORKS, LTD. vs. UNITED COCONUT PLANTERS

BANK GENERAL INSURANCE CO., INC.
G.R. No. 189563, December 7, 2016, C.J. Sereno
 Although the contract of a surety is in essence secondary only to a
valid principal obligation, the surety's liability to the creditor or the "promise''
of the principal is direct, primary and absolute.

Facts:

One Virtual, a domestic corporation, and Gilat Satellite Networks, Ltd.

(Gilat), an Israeli Company, entered into a Purchase Agreement. The
Purchase Agreement contains an Arbitration Clause wherein in case of
disputes, the parties obliged themselves to submit the dispute to arbitration
in accordance with the laws of the United States.

Pursuant to the Purchase Agreement, One Virtual placed with Gilat a

purchase order for various telecommunications equipment, accessories,
services and software. Gilat shipped and delivered to One Virtual the said
products and equipments as evidenced by airway bills and bill of lading.
In order to secure payment of its orders, One Virtual caused UCPB GEN
to issue a surety bond in favor of Gilat.

One Virtual failed to pay for One Virtuals orders prompting Gilat to
demand payment from UCPB GEN. Due to the failure of both One Virtual and
UCPB GEN to pay, Gilat filed a collection complaint against UCPB GEN.

A Decision was rendered by the trial court ordering UCPB GEN to pay
Gilat the the principal debt under the surety bond, with legal interest of 12%
per annum from the time the judgment becomes final and executory until the
obligation is fully settled. The trial courts ruling was reversed by the Court of
Appeals but was reinstated by the Supreme Court.
Respondent filed a Motion for Reconsideration, claiming that while the
liability of a surety is principal and direct, such liability presupposes the
existence of a valid principal obligation. Respondent claims that since the
obligations in the Purchase Agreement were not complied with, petitioner
cannot validly demand payment.
Petitioner likewise filed a Motion for Partial Reconsideration and/or for
Clarification with respect to the legal interest due. Petitioner points out that
whatever interest is due shall itself earn legal interest from the time it is
judicially demanded

Issues:

1) Whether respondent may be held liable for the payment of One

Virtuals purchases from Gilat?
2) Whether the trial court has jurisdiction over the subject matter for
failure of Gilat and One Virtual to submit the dispute arising from the
Purchase Agreement to arbitration.
3) Whether interest on legal interest is due and demandable.

Ruling:
1) Respondent, as surety, may be held liable for the payment of One Virtuals
purchases from Gilat.

Although the contract of a surety is in essence secondary only to a

valid principal obligation, the surety's liability to the creditor or the "promise''
of the principal is direct, primary and absolute. The surety becomes liable for
the debt and duty of the principal obligor, even without possessing a direct or
personal interest in the obligations constituted by the latter.

2) The trial court has jurisdiction over the subject matter. Respondent cannot
invoke the arbitration clause, because it is not a party to the principal
contract: the Purchase Agreement. An arbitration agreement, being
contractual in nature, is binding only on the parties thereto, as well as their
assigns and heirs.

The acceptance does not give the surety the right to intervene in the
principal contract. The surety's role arises only upon the debtor's default, at
which time, it can be directly held liable by the creditor for payment as a
solidary obligor.

3) Interest on legal interest is due and demandable, pursuant to Article 2212 of

the Civil Code and the case of Eastern Shipping Lines, Inc. v. Court of
Appeals, which state that:

TOTAL AMOUNT DUE = [principal - partial payments made] +

[interest + interest on interest], where

Interest = remaining balance x 12% per annum x no. of years

from due date (8 December 1998 when demand was made) until
date of sale to a third party

Interest on interest = interest computed as of the filing of the

complaint on 7 May 1999 x 12% x no. of years until date of sale
to a third party.

While Bangko Sentral-Monetary Board Circular No. 799 (Series of 2013)

modified the legal interest rate from 12% to 6% per annum, the interest must
be applied prospectively.

MARCELINO REPUELA AND CIPRIANO REPUELA, SUBSTITUTED BY

CARMELA REPUELA, ET AL. vs. ESTATE OF SPOUSES OTILLO LARAWAN
AND JULIANA BACUS, REPRESENTED BY NANCY LARAWAN, ET AL.
G.R. No. 219638, December 7, 2016, J. Mendoza

For a presumption of an equitable mortgage to arise, two requisites

must first be satisfied, namely: that the parties entered into a contract
denominated as a contract of sale and that their intention was to secure an
existing debt by way of mortgage.
 Facts:

Cipriano and Marcelino (Repuela brothers) borrow P200.00 from Otillo

Larawan (Otillo). To secure the loan, the spouses Otillo and Juliana Larawan
(Spouses Larawan) required them to turn over the certificate of title for Lot
No. 3357 and sign an Extajudicial Declaration of Heirs and Sale, which was
purportedly a mortgage contract. However, they were not given a copy of the
said document. Cipriano affixed his signature while Marcelino, being illiterate,
just placed his thumb mark thereon. The Repuela brothers remained in
possession of the land despite the mortgage and had been planting bamboos,
corn, bananas, and papayas thereon and sharing the produce between them.
They also paid the taxes due on the property.

Later, the Repuela brothers learned that the Spouses Larawan have
already caused the transfer of title over the property to their name by virtue
of the Extajudicial Declaration of Heirs and Sale. Hence, they filed a
complaint before the RTC for the annulment of the Extrajudicial Declaration of
Heirs and Sale and the cancellation of title under the name of the Spouses
Larawan.

The RTC decided in favor of the Repuela brothers, holding that the
transaction between the parties was not a sale but an equitable mortgage.
However, the CA reversed and set aside the Decision of the RTC.

Issues:

1) Whether the Extrajudicial Declaration of Heirsand Sale amounted to an

equitable mortgage.
2) Whether there is prescription or laches.
3) What rate of interest should apply.

Ruling:

1) The Extrajudicial Declaration of Heirsand Sale amounted to an

equitable mortgage. An equitable mortgage is one which, although lacking in
some formality, or form, or words, or other requisites demanded by a statute,
reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law. For a presumption
of an equitable mortgage to arise, two requisites must first be satisfied,
namely: that the parties entered into a contract denominated as a contract of
sale and that their intention was to secure an existing debt by way of
mortgage.

Article 1602, in relation to Article 1604 of the Civil Code enumerates

several instances when a contract, purporting to be, and in fact styled as, an
absolute sale, is presumed to be an equitable mortgage.

In this case, 2 instances enumerated in Article 1602 apply: a) possession

of the subject property; and b) inference that the transaction was in fact a
mortgage attended the assailed transaction. First, the Repuela brothers
remained in possession of the subject property after the transaction. Second,
it can be inferred from the attending circumstances that the real intention of
the Repuela brothers was to secure their indebtedness from Spouses
Larawan. It was never their intention to sell the subject property.

The decisive factor in evaluating such agreement is the intention of the

parties, as shown not necessarily by the terminology used in the contract but
by all the surrounding circumstances.

Granting that the Repuela brothers, signed and thumbmarked,

respectively, the Extrajudicial Declaration of Heirs and Sale, they did so
without understanding the real nature, effects and consequences of what
they did as they were never explained to them. Cipriano, who only finished
Grade One, and Marcelino, an illiterate, were in dire need of money.

The burden to show that the other party fully understood the contents of
the document rests upon the party who seeks to enforce the contract. If he
fails to discharge this burden, the presumption of mistake, if not, fraud,
stands unrebutted and controlling. Respondent failed to overcome this
burden. Furthermore, the law accords the equitable mortgage presumption in
situations when doubt exists as to the true intent of the parties to the
contract, as in this case.

2) There was no prescription or laches. Where there is no consent given

by one party in a purported contract, such contract was not perfected;
therefore, there is no contract to speak of. The deed of sale relied upon by
petitioner is deemed a void contract. This being so, the action based on said
deed of sale shall not prescribe in accordance with Article 1410 of the Civil
Code.

3) BSP Circular No. 799, series of 2013 provides that effective July 1,
2013, the rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be 6% per annum. Applying the
foregoing, the rate of interest of 12% per annum on the obligation of the
Repuela brothers shall apply from the date of the filing of the complaint on
January 17, 2003 until June 30, 2013 only. From July 1, 2013 until fully paid,
the legal rate of 6% per annum shall be applied to their unpaid obligation.