1. Marilag v. Martinez, G.R. No.

201892, July 22, 2015 | Interest Rate | Real Estate

Mortgage Exercise of Right to Forclosure or Collection of Payment of Debt

Facts:
Rafael Martinez (Rafael), respondent's father, obtained- from petitioner a loan in the
amount of P160,000.00, with a stipulated monthly interest of five percent ( 5% ),
payable within a period of (6) months. The loan was secured by a real estate
mortgage over a parcel of land. Rafael failed'. to settle his obligation upon maturity and
despite repeated demands, prompting petitioner to file a Complaint for Judicial Foreclosure
of Real Estate Mortgage before the RTC of Imus, Cavite, Branch 90. Rafael failed to file his
answer was declared in default. After an ex parte presentation of petitioner's evidence, the
RTC-lmus issued a Decision, declaring the stipulated 5% monthly interest to be usurious and
reducing the same to 12% per annum (p.a.) and it ordered Rafael to pay petitioner the
amount of P229,200.00, consisting of the principal of P160,000.00 and accrued interest
of P59,200.00 from July 30, 1992 to September 30, 1995. 10 Records do not show that this
Decision had already attained finality.

Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to pay Rafael's
obligation to petitioner which was pegged at P689,000.00. After making a total payment
of P400,000.00,11 he executed a promissory note 12 dated February 20, 1998 (subject PN),
binding himself to pay on or before March 31, 1998 the amount of P289,000.00,
"representing the balance of the agreed financial obligation of [his] father to
[petitioner]." 13 After learning of the January 30, 1998 Decision, respondent refused to pay
the amount covered by the subject PN despite demands. Hence, petitioner to file a
complaint 14 for sum of money and damages before the court.

RTC denied recovery on the subject PN. It found that the consideration for its execution was
Rafael's indebtedness to petitioner, the extinguishment of which necessarily results in the\
[onsequent extinguishment of the cause therefore. Considering that the RTC-Imus had
adjudged Rafael liable to petitioner only for the amount of P229,200.00, for which a total
of P400,000.00 had already been paid, the court a quo found no valid or compelling reason
to allow petitioner to recover further on the subject PN. There being an excess payment
of Pl 71,000.00, it declared that a quasi-contract (in the concept of solution
indebiti) exists between the parties and, accordingly, directed petitioner to return
the said amount to respondent, plus 6% interest p.a.18 reckoned from the date of
judicial demand 19 on August 6, 1998 until fully paid, and to pay attorney's fees and the
costs of suit. 20

In an Order, the court a quo granted petitioner's motion for reconsideration, and recalled
and set aside its August 28, 2003 Decision. It declared that the causes of action in the
collection and foreclosure cases are distinct, and respondent's failure to comply
with his obligation under the subject PN justifies petitioner to seek judicial relief.
It further opined that the stipulated 5% monthly interest is no longer usurious and is
binding on respondent considering the suspension of the Usury Law pursuant to
Central Bank Circular 905, series of 1982. Accordingly, it directed respondent to pay
the amount of P289,000.00 due under the subject PN, plus interest at the legal rate
reckoned from the last extra judicial demand on May 15, 1998, until fully paid, as well as
attorney's fees and the costs of suit. Respondent filed a motion for reconsideration 23 which
was denied in an Order 24
dated January 14, 2004, prompting him to elevate the matter to
the CA. 25

CA held that the doctrine of res judicata finds application in the instant case, 27 considering
that both the judicial foreclosure and collection cases were filed as a consequence of the
non-payment of Rafael's loan, which was the principal obligation secured by the real estate
mortgage and the primary consideration for the execution of the subject PN. Since res
judicata only requires substantial, not actual, identity of causes of action and/or identity of
issue, 28 it ruled that the judgment in the judicial foreclosure case relating to Rafael's
obligation to petitioner is final and conclusive on the collection case. Petitioner's motion for
reconsideration was denied in a Resolution 29 dated May 14, 2012; hence, this petition.

Issues:
Whether or not the collection case instituted by the petitioner may prosper?
Whether or not the interest imposed is

Held:
No. Under the Principle of litis pendentia, as a ground for the dismissal of a civil
action, refers to that situation where in another action is pending; between the
same parties for the same cause of action, such that the second action becomes
unnecessary and vexatious. To be sure, splitting a cause of action is a mode of
forum shopping by filing multiple cases based on the same cause of action, but
with different prayers, where the ~round of dismissal is litis pendentia (or res
judicata, as the case may be). 34
In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee
has a single cause of action against the debtor-mortgagor, i.e., to recover the debt, through
the filing of a personal action for collection of sum of money or the institution of a real action
to foreclose on the mortgage security. The two remedies are alternative, 36 not cumulative or
successive, 37 and each remedy is complete by itself. Thus, if the creditor-mortgagee opts to
foreclose the real estate mortgage, he waives the action for the collection of the unpaid
debt,38except only for the recovery of whatever deficiency may remain in the outstanding
obligation of the debtor-mortgagor after deducting the bid price in the public auction sale of
the mortgaged properties. 39 Accordingly, a deficiency judgment shall only issue after it is
established that the mortgaged property was sold at public auction for an amount less than
the outstanding obligation.

In the present case, petitioner, as creditor-mortgagee, instituted an action for judicial

foreclosure pursuant to the provisions of Rule 68 of the Rules of Court in order to recover on
Rafael's debt. In light of the foregoing discussion, the availment of such remedy thus bars
recourse to the subsequent filing of a personal action for collection of the same debt, in this
case, under the principle of litis pendentia, considering that the foreclosure case only
remains pending as it was not shown to have attained finality.

While the ensuing collection case was anchored on the promissory note executed by
respondent who was not the original debtor, the same does not constitute a separate and
distinct contract of loan which would have given rise to a separate cause of action upon
breach. The Deed of Real Estate Mortgage 46 and the subject PN both refer to one
and the same obligation, i.e., Rafael's loan obligation. As such, there exists only
one cause of action for a single breach of that obligation. Petitioner cannot split
her cause of action on Rafael's unpaid loan obligation by filing a petition for the
judicial foreclosure of the real estate mortgage covering the said loan, and,
thereafter, a personal action for the collection of the unpaid balance of said
obligation not comprising a deficiency arising from foreclosure, without violating
the proscription against splitting a single cause of action, where the ground for
dismissal is either res judicata or litis pendentia, as in this case.As petitioner had already
instituted judicial foreclosure proceedings over the mortgaged property, she is
now barred from availing herself of an ordinary action for collection, regardless of
whether or not the decision in the foreclosure case had attained finality. In fine, the dismissal
of the collection case is in order. Considering, however, that respondent's claim for return of
excess payment partakes of the nature of a compulsory counterclaim and, thus, survives the
dismissal of petitioner's collection suit, the same should be resolved based on its own merits
and evidentiary support. 5

Yes. The Court finds the stipulated 5% monthly interest to be excessive and unconscionable.
In a plethora of cases, the Court has affirmed that stipulated interest rates of three percent
(3/o) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant, 51 hence, illegal 52 and void for being contrary to morals.

Settled is the principle which this Court has affirmed in a number of cases that stipulated
interest rates of three percent (3%) per month and higher are excessive, iniquitous,
unconscionable, and exorbitant. While Central Bank Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could possibly be read
as granting carte blanche authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of their assets. Since the
stipulation on the interest rate is void for being contrary to morals, if not against the law, it
is as if there was no express contract on said interest rate; thus, the interest rate may be
reduced as reason and equity demand.

As such, the stipulated 5% monthly interest should be equitably reduced to l % per month or
12% p.a. reckoned from the execution of the real estate mortgage on July 30, 1992.

2. Silos v. PNB, G.R. No. 181045, July 2, 2015

Facts:

Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two decades of operating
a department store and buying and selling of ready-to-wear apparel. Respondent Philippine National
Bank (PNB) is a banking corporation organized and existing under Philippine laws.

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, petitioners constituted in
August 1987 a Real Estate Mortgage5 over a 370-square meter lot in Kalibo, Aklan covered by Transfer
Certificate of Title No. (TCT) T-14250. In July 1988,the credit line was increased to P1.8 million and the
mortgage was correspondingly increased to P1.8 million.6

And in July 1989, a Supplement to the Existing Real Estate Mortgage 7 was executed to cover the same
credit line, which was increased to P2.5 million, and additional security was given in the form of a 134-
square meter lot covered by TCT T-16208. In addition, petitioners issued eight Promissory Notes 8 and
signed a Credit Agreement.9This July 1989 Credit Agreement contained a stipulation on interest which
provides as follows:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be
payable in advance every one hundred twenty days at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever
policy the Bank may adopt in the future, including without limitation, the shifting from the floating interest
rate system to the fixed interest rate system, or vice versa. Where the Bank has imposed on the Loan
interest at a rate per annum, which is equal to the Banks spread over the current floating interest rate, the
Borrower hereby agrees that the Bank may, without need of notice to the Borrower, increase or decrease
its spread over the floating interest rate at any time depending on whatever policy it may adopt in the
future.10 (Emphases supplied)

The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to increase
or reduce interest rates "within the limits allowed by law or by the Monetary Board." 11

The Real Estate Mortgage agreement provided the same right to increase or reduce interest rates "at any
time depending on whatever policy PNB may adopt in the future." 12

Petitioners religiously paid interest on the notes

In August 1991, an Amendment to Credit Agreement14 was executed by the parties, with the following
stipulation regarding interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment from date of
each Availment up to but not including the date of full payment thereof at the rate per annum which is
determined by the Bank to be prime rate plus applicable spread in effect as of the date of each
Availment.15 (Emphases supplied) The 9th up to the 17th promissory notes provide for the payment of
interest at the "rate the Bank may at any time without notice, raise within the limits allowed by law x x x." 17

On the other hand, the 18th up to the 26th promissory notes including PN 9707237, which is the 26th
promissory note carried the following provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or
decreased for the subsequent Interest Periods, with prior notice to the Borrower in the event of changes
in interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines, or in the
Banks overall cost of funds. I/We hereby agree that in the event I/we are not agreeable to the interest
rate fixed for any Interest Period, I/we shall have the option top repay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting Date. 18 (Emphasis supplied)

Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good on the
promissory notes, religiously paying the interests without objection or fail. But in 1997, petitioners faltered
when the interest rates soared due to the Asian financial crisis. Petitioners sole outstanding promissory
note for P2.5 million PN 9707237 executed in July 1997 and due 120 days later or on October 28, 1997
became past due, and despite repeated demands, petitioners failed to make good on the note.

Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of default, as
follows:

Without need for notice or demand, failure to pay this note or any installment thereon, when due, shall
constitute default and in such cases or in case of garnishment, receivership or bankruptcy or suit of any
kind filed against me/us by the Bank, the outstanding principal of this note, at the option of the Bank and
without prior notice of demand, shall immediately become due and payable and shall be subject to a
penalty charge of twenty four percent (24%) per annum based on the defaulted principal amount. x x
x19 (Emphasis supplied)

PNB prepared a Statement of Account20 as of October 12, 1998, detailing the amount due and Despite
demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on
January 14, 1999, TCTs T-14250 and T-16208 were sold to it at auction for the amount
of P4,324,172.96.21 The sheriffs certificate of sale was registered on March 11, 1999.

More than a year later, or on March 24, 2000, petitioners filed Civil Case No. 5975, seeking annulment of
the foreclosure sale and an accounting of the PNB credit. Petitioners theorized that after the first
promissory note where they agreed to pay 19.5% interest, the succeeding stipulations for the payment of
interest in their loan agreements with PNB which allegedly left to the latter the sole will to determine the
interest rate became null and void. Petitioners added that because the interest rates were fixed by
respondent without their prior consent or agreement, these rates are void, and as a result, petitioners
should only be made liable for interest at the legal rate of 12%. They claimed further that they overpaid
interests on the credit, and concluded that due to this overpayment of steep interest charges, their debt
should now be deemed paid, and the foreclosure and sale of TCTs T-14250 and T-16208 became
unnecessary and wrongful. As for the imposed penalty of P581,666.66, petitioners alleged that since the
Real Estate Mortgage and the Supplement thereto did not include penalties as part of the secured
amount, the same should be excluded from the foreclosure amount or bid price, even if such penalties are
provided for in the final Promissory Note, or PN 9707237. 22

In addition, petitioners sought to be reimbursed an alleged overpayment of P848,285.00 made during the
period August 21, 1991 to March 5, 1998,resulting from respondents imposition of the alleged illegal and
steep interest rates. They also prayed to be awarded P200,000.00 by way of attorneys fees

Issue: WON the interest rate imposed is unconscionable

Held:
Yes. The unilateral action of the PNB in increasing the interest rate on the private respondents loan
violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 1308. The contract must
bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force of law between the parties, there must
be mutuality between the parties based on their essential equality. A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is
void . . . . These stipulations must be once more invalidated, as was done in previous cases. Escalation
clauses are not basically wrong or legally objectionable so long as they are not solely potestative but
based on reasonable and valid grounds. Here, as clearly demonstrated above, not only [are] the
increases of the interest rates on the basis of the escalation clause patently unreasonable and
unconscionable, but also there are no valid and reasonable standards upon which the increases are
anchored.

For this case, this lack of consent by the petitioners has been made obvious by the fact that they signed
the promissory notes in blank for the respondent to fill. Interest rates were fixed solely by its Treasury
Department in Manila, which were then simply communicated to all PNB branches for implementation. A
borrowers current financial state, his feedback or opinions, the nature and purpose of his borrowings, the
effect of foreign currency values or fluctuations on his business or borrowing, etc. these are not factors
which influence the fixing of interest rates to be imposed on him. Clearly, respondents method of fixing
interest rates based on one-sided, indeterminate, and subjective criteria such as profitability, cost of
money, bank costs, etc. is arbitrary for there is no fixed standard or margin above or below these
considerations.

3. YHT Realty Corp. v. CA, G.R. No. 126780, February 17, 2005
Facts:
Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at
Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. Tan
convinced McLoughlin to transfer from Sheraton Hotel to Tropicana where Lainez, Payam and
Danilo Lopez were employed. Lopez served as manager of the hotel while Lainez and Payam
had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlins booking at the Tropicana where he started staying during his trips to the
Philippines from December 1984 to September 1987.[3]

On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He
rented a safety deposit box as it was his practice to rent a safety deposit box
every time he registered at Tropicana in previous trips. As a tourist, McLoughlin was
aware of the procedure observed by Tropicana relative to its safety deposit boxes. The
safety deposit box could only be opened through the use of two keys, one of
which is given to the registered guest, and the other remaining in the possession
of the management of the hotel. When a registered guest wished to open his safety
deposit box, he alone could personally request the management who then would assign one
of its employees to accompany the guest and assist him in opening the safety deposit box
with the two keys.[4]

McLoughlin allegedly placed various things in the safety deposit box like money, passport,
jewelries among others. When he went to Hong Kong he left behind some money in the
deposit box and upon return to the Philippines, he asked LAinez as to the alleged loss but
said that the hotel found none of the things deposited and that none where turned over to
the management. When he went back to Australia, discovered the loss he had suffered.
When McLoughlin discovered the loss, he immediately confronted Lainez and
Payam who admitted that Tan opened the safety deposit box with the key
assigned to him.[11] McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLoughlins key and was able to open the safety
deposit box with the assistance of Lopez, Payam and Lainez. [12] Lopez also told McLoughlin
that Tan stole the key assigned to McLoughlin while the latter was asleep. [13]

McLoughlin requested the management for an investigation of the incident. Lopez got in
touch with Tan and arranged for a meeting with the police and McLoughlin. When the police
did not arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat,
Lopez wrote on a piece of paper a promissory note dated 21 April 1988. The promissory note
reads as follows: I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and
US$2,000.00 or its equivalent in Philippine currency on or before May 5, 1988. [14]

Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed
as a witness. Despite the execution of promissory note by Tan, McLoughlin insisted
that it must be the hotel who must assume responsibility for the loss he suffered.
However, Lopez refused to accept the responsibility relying on the conditions for
renting the safetydeposit box entitled Undertaking For the Use Of Safety Deposit
Box,[15] specifically paragraphs (2) and (4) thereof, to wit:

2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from
any liability arising from any loss in the contents and/or use of the said deposit
box for any cause whatsoever, including but not limited to the presentation or use
thereof by any other person should the key be lost;

...

4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT
HOTEL upon giving up the use of the box.[16]

On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the
validity of the abovementioned stipulations. They opined that the stipulations are void for
being violative of universal hotel practices and customs. His lawyers prepared a letter dated
30 May 1988 which was signed by McLoughlin and sent to President Corazon Aquino. [17] The
Office of the President referred the letter to the Department of Justice (DOJ) which forwarded
the same to the Western Police District (WPD).[18]

After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines
and registered again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow
up on his letter but he was instructed to go to the DOJ. The DOJ directed him to proceed to
the WPD for documentation. But McLoughlin went back to Australia as he had an urgent
business matter to attend to.

McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989
to pursue his claims against petitioners, the WPD conducted an investigation which resulted
in the preparation of an affidavit which was forwarded to the Manila City Fiscals Office. Said
affidavit became the basis of preliminary investigation. However, McLoughlin left again for
Australia without receiving the notice of the hearing on 24 November 1989. Thus, the case
at the Fiscals Office was dismissed for failure to prosecute. Mcloughlin requested the
reinstatement of the criminal charge for theft. In the meantime, McLoughlin and his lawyers
wrote letters of demand to those having responsibility to pay the damage. Then he left again
for Australia.

Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila.
Meetings were held between McLoughlin and his lawyer which resulted to the filing of a
complaint for damages on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez,
Payam and Tan (defendants) for the loss of McLoughlins money which was discovered on 16
April 1988. After filing the complaint, McLoughlin left again for Australia to attend to an
urgent business matter. Tan and Lopez, however, were not served with summons, and trial
proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.

During the trial of the case, McLoughlin had been in and out of the country to attend to
urgent business in Australia, and while staying in the Philippines to attend the hearing, he
incurred expenses for hotel bills, airfare and other transportation expenses, long distance
calls to Australia, Meralco power expenses, and expenses for food and maintenance, among
others.[22]

After trial, the RTC of Manila rendered judgment in favor of McLoughlin and found that
McLoughlins allegations as to the fact of loss and as to the amount of money he lost were
sufficiently shown by his direct and straightforward manner of testifying in court and found
him to be credible and worthy of belief as it was established that McLoughlins money, kept
in Tropicanas safety deposit box, was taken by Tan without McLoughlins consent. The taking
was effected through the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key without authority from
McLoughlin. The trial court added that if McLoughlin had not lost his dollars, he would not
have gone through the trouble and personal inconvenience of seeking aid and assistance
from the Office of the President, DOJ, police authorities and the City Fiscals Office in his
desire to recover his losses from the hotel management and Tan.[24]

The trial court also found that defendants acted with gross negligence in the performance
and exercise of their duties and obligations as innkeepers and were therefore liable to
answer for the losses incurred by McLoughlin.[26]

Moreover, the trial court ruled that paragraphs (2) and (4) of the Undertaking For The Use Of
Safety Deposit Box are not valid for being contrary to the express mandate of Article 2003 of
the New Civil Code and against public policy.[27] Thus, there being fraud or wanton conduct
on the part of defendants, they should be responsible for all damages which may be
attributed to the non-performance of their contractual obligations. [28]

The Court of Appeals affirmed the RTC decision. Hence, this case at bar.

Issue: whether a hotel may evade liability for the loss of items left with it for safekeeping by
its guests, by having these guests execute written waivers holding the establishment or its
employees free from blame for such loss

Held:
No. Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to
the effect that he is not liable for the articles brought by the guest. Any stipulation between
the hotel-keeper and the guest whereby the responsibility of the former as set forth in
Articles 1998 to 2001[37] is suppressed or diminished shall be void.

Article 2003 was incorporated in the New Civil Code as an expression of public policy
precisely to apply to situations such as that presented in this case. The hotel business like
the common carriers business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for hotel guests and security to their
persons and belongings. The twin duty constitutes the essence of the business. The law in
turn does not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.

In an early case,[38] the Court of Appeals through its then Presiding Justice (later Associate
Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for
the effects of their guests, it is not necessary that they be actually delivered to the
innkeepers or their employees. It is enough that such effects are within the hotel or inn.
[39]
With greater reason should the liability of the hotelkeeper be enforced when the missing
items are taken without the guests knowledge and consent from a safety deposit box
provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003 of the New
Civil Code for they allow Tropicana to be released from liability arising from any loss in the
contents and/or use of the safety deposit box for any cause whatsoever.[40] Evidently, the
undertaking was intended to bar any claim against Tropicana for any loss of the contents of
the safety deposit box whether or not negligence was incurred by Tropicana or its
employees. The New Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests even if caused by servants
or employees of the keepers of hotels or inns as well as by strangers, except as it may
proceed from any force majeure.[41] It is the loss through force majeure that may spare the
hotel-keeper from liability. In the case at bar, there is no showing that the act of the thief or
robber was done with the use of arms or through an irresistible force to qualify the same
as force majeure.

In the case at bar, the responsibility of securing the safety deposit box was shared not only
by the guest himself but also by the management since two keys are necessary to open the
safety deposit box. Without the assistance of hotel employees, the loss would not have
occurred. Thus, Tropicana was guilty of concurrent negligence in allowing Tan, who was not
the registered guest, to open the safety deposit box of McLoughlin, even assuming that the
latter was also guilty of negligence in allowing another person to use his key. To rule
otherwise would result in undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the pretense of being a
family member or a visitor of the guest, to have access to the safety deposit box without
fear of any liability that will attach thereafter in case such person turns out to be a complete
stranger. This will allow the hotel to evade responsibility for any liability incurred by its
employees in conspiracy with the guests relatives and visitors.

4. Durban Apartments Corp. v. Pioneer Ins. & Surety Corp., G.R. No. 179419,
January 12, 2011
Facts:

Pioneer Insurance and Surety Corporation x x x, by right of subrogation, filed [with the RTC
of Makati City] a Complaint for Recovery of Damages against [petitioner] Durban Apartments
Corporation, doing business under the name and style of City Garden Hotel, and [defendant
before the RTC] Vicente Justimbaste x x x. [Respondent averred] that: it is the insurer for loss
and damage of Jeffrey S. Sees [the insureds] 2001 Suzuki Grand Vitara x x x with Plate No.
XBH-510 under Policy No. MC-CV-HO-01-0003846-00-D in the amount of P1,175,000.00;

On April 30, 2002, See arrived and checked in at the City Garden Hotel in Makati corner
Kalayaan Avenues, Makati City before midnight, and its parking attendant, defendant x x x
Justimbaste got the key to said Vitara from See to park it[. O]n May 1, 2002, at about 1:00
oclock in the morning, See was awakened in his room by [a] telephone call from the Hotel
Chief Security Officer who informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank along Makati Avenue between the
hours of 12:00 [a.m.] and 1:00 [a.m]; the Vitara was lost due to the negligence of
[petitioner] Durban Apartments and [defendant] Justimbaste because it was discovered
during the investigation that this was the second time that a similar incident of carnapping
happened in the valet parking service of [petitioner] Durban Apartments and no necessary
precautions were taken to prevent its repetition; [petitioner] Durban Apartments was
wanting in due diligence in the selection and supervision of its employees particularly
defendant x x x Justimbaste; and defendant x x x Justimbaste and [petitioner] Durban
Apartments failed and refused to pay its valid, just, and lawful claim despite written
demands.

Upon service of Summons, [petitioner] Durban Apartments and [defendant] Justimbaste filed
their Answer with Compulsory Counterclaim alleging that: See did not check in at its hotel,
on the contrary, he was a guest of a certain Ching Montero x x x; defendant x x x
Justimbaste did not get the ignition key of Sees Vitara, on the contrary, it was See who
requested a parking attendant to park the Vitara at any available parking space, and it was
parked at the Equitable Bank parking area, which was within Sees view, while he and
Montero were waiting in front of the hotel; they made a written denial of the demand of
[respondent] Pioneer Insurance for want of legal basis; valet parking services are provided
by the hotel for the convenience of its customers looking for a parking space near the hotel
premises; it is a special privilege that it gave to Montero and See; it does not include
responsibility for any losses or damages to motor vehicles and its accessories in
the parking area; and the same holds true even if it was See himself who parked
his Vitara within the premises of the hotel as evidenced by the valet parking
customers claim stub issued to him; the carnapper was able to open the Vitara without
using the key given earlier to the parking attendant and subsequently turned over to See
after the Vitara was stolen; defendant x x x Justimbaste saw the Vitara speeding away from
the place where it was parked; he tried to run after it, and blocked its possible path but to no
avail; and See was duly and immediately informed of the carnapping of his Vitara; the
matter was reported to the nearest police precinct; and defendant x x x Justimbaste, and
Horlador submitted themselves to police investigation.

RTC granted the motion of [respondent] Pioneer Insurance, despite the opposition of
[petitioner] Durban Apartments and Justimbaste, and allowed [respondent] Pioneer
Insurance to present its evidence ex parte before the Branch Clerk of Court.

Thereafter, on January 27, 2006, the RTC rendered a decision, ordering [petitioner Durban
Apartments Corporation] to pay [respondent Pioneer Insurance and Surety Corporation] the
sum of P1,163,250.00 with legal interest thereon from July 22, 2003 until the obligation is
fully paid and attorneys fees and litigation expenses amounting to P120,000.00. On appeal,
the appellate court affirmed the decision of the trial court. Hence, this recourse by petitioner.

Issue: whether petitioner is liable to respondent for the loss of Sees vehicle.
Held:
Yes. Art. 1962. A deposit is constituted from the moment a person receives a thing belonging
to another, with the obligation of safely keeping it and returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as
necessary. The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects brought by the
guests and that, on the part of the latter, they take the precautions which said hotel-keepers
or their substitutes advised relative to the care and vigilance of their effects.

From the facts found by the lower courts, the insured See deposited his vehicle for
safekeeping with petitioner, through the latters employee, Justimbaste. In turn, Justimbaste
issued a claim stub to See. Thus, the contract of deposit was perfected from Sees delivery,
when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with
the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of
Sees vehicle.

5. JN Devt. Corp. v. Phil. Export & Foreign Loan Guarantee Corp., G.R. No. 151060,
August 31, 2005

Facts:
JN Development Corporation (JN) and Traders Royal Bank (TRB) entered into an agreement
whereby TRB would extend to JN an Export Packing Credit Line for Two Million Pesos
(P2,000,000.00). The loan was covered by several securities, including a real estate
mortgage[2] and a letterBOI of guarantee from respondent Philippine Export and Foreign
Loan Guarantee Corporation (PhilGuarantee), now Trade and Investment Development
Corporation of the Philippines, covering seventy percent (70%) of the credit line. [3] With
PhilGuarantee issuing a guarantee in favor of TRB, [4] JN, petitioner spouses Rodrigo and
Leonor Sta. Ana[5] and petitioner Narciso Cruz[6] executed a Deed of
[7]
Undertaking (Undertaking) to assure repayment to PhilGuarantee.

JN failed to pay the loan to TRB upon its maturity; thus, on 8 October 1980 TRB requested
PhilGuarantee to make good its guarantee.[8] PhilGuarantee informed JN about the call made
by TRB, and inquired about the action of JN to settle the loan. [9] Having received no response
from JN, on 10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty Four Thousand Eight
Hundred Twenty Four Pesos and Thirty Four Centavos (P934,824.34).[10] Subsequently,
PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May 1983, JN,
through Rodrigo Sta. Ana, proposed to settle the obligation by way of development and sale
of the mortgaged property.[11] PhilGuarantee, however, rejected the proposal.

PhilGuarantee thus filed a Complaint[12] for collection of money and damages against herein
petitioners.

RTC dismissed PhilGuarantees Complaint as well as the counterclaim of petitioners. It ruled

that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB. TRB was
able to foreclose the real estate mortgage executed by JN, thus extinguishing petitioners
obligation.[13] Moreover, there was no showing that after the said foreclosure, TRB had
demanded from JN any deficiency or the payment of the difference between the proceeds of
the foreclosure sale and the actual loan. [14] In addition, the RTC held that since
PhilGuarantees guarantee was good for only one year from 17 December 1979, or until 17
December 1980, and since it was not renewed after the expiry of said period, PhilGuarantee
had no more legal duty to pay TRB on 10 March 1981. [15] The RTC likewise ruled that Cruz
cannot be held liable under the Undertaking since he was not the one who signed the
document, in line with its finding that his signature found in the records is totally different
from the signature on the Undertaking.[16]

According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes
PhilGuarantee from seeking recoupment from the spouses Sta. Ana and Cruz what it paid to
TRB. Thus, PhilGuarantees payment to TRB amounts to a waiver of its right under Art. 2058
of the Civil Code.[17]
PhilGuarantee appealed to the CA. The appellate court reversed the RTC and ordered
petitioners to pay PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty
Four Pesos and Thirty Four Centavos (P934,624.34), plus service charge and interest. CA
held that the RTCs finding that the loan was extinguished by virtue of the foreclosure sale of
the mortgaged property had no factual support, [19] and that such finding is negated by
Rodrigo Sta. Anas testimony that JN did not receive any notice of foreclosure from
PhilGuarantee or from TRB. [20] Moreover, Sta. Ana even offered the same mortgaged
property to PhilGuarantee to settle its obligations with the latter. [21]

JNs obligation had become due and demandable within the one-year period of effectivity of
the guarantee; thus, PhilGuarantees payment to TRB conformed with its guarantee, although
the payment itself was effected one year after the maturity date of the loan. CA ruled that
the contract of guarantee was not extinguished by the alleged lack of evidence on
PhilGuarantees consent to the extensions granted by TRB to JN. [23] Interpreting Art.
2058 of the Civil Code,[24] the appellate court explained that while the provision states
that the guarantor cannot be compelled to pay unless the properties of the debtor
are exhausted, the guarantor is not precluded from waiving the benefit of
excussion and paying the obligation altogether. Finally, the CA found that Narciso Cruz
was unable to prove the alleged forgery of his signature in the Undertaking, the evidence
presented not being sufficient to overcome the presumption of regularity of the Undertaking
which is a notarized document. [26]

Petitioners sought reconsideration of the Decision and prayed for the admission of
documents evidencing the foreclosure of the real estate mortgage, but was denied for lack
of merit. The CA ruled that the documentary evidence presented by petitioners cannot be
considered as newly discovered evidence, it being already in existence while the case was
pending before the trial court, the very forum before which it should have been presented.
Besides, a foreclosure sale per se is not proof of petitioners payment of the loan to
PhilGuarantee, the CA added.[27]

Issue: Whether or not PhilGuarantee shall be indemnified despite waiver of the

benefit of excussion

Held:
Yes. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. [34] The guarantor who
pays for a debtor, in turn, must be indemnified by the latter. [35] However, the guarantor
cannot be compelled to pay the creditor unless the latter has exhausted all the property of
the debtor and resorted to all the legal remedies against the debtor. [36] This is what is
otherwise known as the benefit of excussion.
It is clear that excussion may only be invoked after legal remedies against the principal
debtor have been expanded. Thus, in order that the guarantor may make use of the benefit
of excussion, he must set it up against the creditor upon the latters demand for payment
and point out to the creditor available property of the debtor within the Philippines sufficient
to cover the amount of the debt. While a guarantor enjoys the benefit of excussion,
nothing prevents him from paying the obligation once demand is made on him.
Excussion, after all, is a right granted to him by law and as such he may opt to make use of
it or waive it. PhilGuarantees waiver of the right of excussion cannot prevent it from
demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify
the guarantor what the latter has paid.

In this case, the guarantee was only up to 17 December 1980. JNs obligation with TRB fell
due on 30 June 1980, and demand on PhilGuarantee was made by TRB on 08 October 1980.
That payment was actually made only on 10 March 1981 does not take it out of the terms of
the guarantee. What is controlling is that default and demand on PhilGuarantee had taken
place while the guarantee was still in force.

There is no basis for petitioners claim that PhilGuarantee was a mere volunteer payor and
had no legal obligation to pay TRB. The law does not prohibit the payment by a guarantor on
his own volition, heedless of the benefit of excussion. In fact, it recognizes the right of a
guarantor to recover what it has paid, even if payment was made before the debt becomes
due,[43] or if made without notice to the debtor,[44] subject of course to some conditions.

6. Yan Chiu v. CA, G.R. No. 78519, September 26, 1989

Facts:
Since 1980, the petitioner, Victoria Yau Chu, had been purchasing cement on credit from
CAMS Trading Enterprises, Inc. (hereafter "CAMS Trading" for brevity). To guaranty payment
for her cement withdrawals, she executed in favor of Cams Trading deeds of assignment of
her time deposits in the total sum of P320,000 in the Family Savings Bank (hereafter the
Bank). Except for the serial numbers and the dates of the time deposit certificates, the
deeds of assignment, which were prepared by her own lawyer, uniformly provided

... That the assignment serves as a collateral or guarantee for the payment of
my obligation with the said CAMS TRADING ENTERPRISES, INC. on account of
my cement withdrawal from said company, per separate contract executed
between us.

On July 24,1980, Cams Trading notified the Bank that Mrs. Chu had an unpaid account with it
in the sum of P314,639.75. It asked that it be allowed to encash the time deposit certificates
which had been assigned to it by Mrs. Chu. It submitted to the Bank a letter dated July 18,
1980 of Mrs. Chu admitting that her outstanding account with Cams Trading was P404,500.
After verbally advising Mrs. Chu of the assignee's request to encash her time deposit
certificates and obtaining her verbal conformity thereto, the Bank agreed to encash the
certificates.It delivered to Cams Trading the sum of P283,737.75 only, as one time deposit
certificate (No. 0048120954) lacked the proper signatures. Upon being informed of the
encashment, Mrs. Chu demanded from the Bank and Cams Trading that her time deposit be
restored. When neither complied, she filed a complaint to recover the sum of P283,737.75
from them. The case was docketed in the Regional Trial Court of Makati, Metro Manila (then
CFI of Rizal, Pasig Branch XIX), as Civil Case No. 38861.

In a decision dated December 12, 1983, the trial court dismissed the complaint for lack of
merit.

Chu appealed to the Court of Appeals (CA-G.R. CV No. 03269) which affirmed the dismissal
of her complaint.
In this petition for review, she alleges that the Court of Appeals erred:

1. In not annulling the encashment of her time deposit certificates as

a pactum commissorium; and

2. In not finding that the obligations secured by her time deposits had already
been paid.

Issue: Whether or not the encashment of her time deposits constitutes Pactum
Commissorium

Held:
No. The encashment of the deposit certificates was not a pacto commissorio which is
prohibited under Art. 2088 of the Civil Code. A pacto commissorio is a provision for
the automatic appropriation of the pledged or mortgaged property by the creditor in
payment of the loan upon its maturity. The prohibition against a pacto commissorio is
intended to protect the obligor, pledgor, or mortgagor against being overreached by his
creditor who holds a pledge or mortgage over property whose value is much more than the
debt. Where, as in this case, the security for the debt is also money deposited in a bank, the
amount of which is even less than the debt, it was not illegal for the creditor to encash the
time deposit certificates to pay the debtors' overdue obligation, with the latter's consent.

Whether the debt had already been paid as now alleged by the debtor, is a factual question
which the Court of Appeals found not to have been proven for the evidence which the debtor
sought to present on appeal, were receipts for payments made prior to July 18, 1980. Since
the petitioner signed on July 18, 1980 a letter admitting her indebtedness to be in the sum
of P404,500, and there is no proof of payment made by her thereafter to reduce or
extinguish her debt, the application of her time deposits, which she had assigned to the
creditor to secure the payment of her debt, was proper. The Court of Appeals did not commit
a reversible error in holding that it was so.

7. Sps. Yap v. Sps. Dy, G.R. No. 171868; Dumaguete Rural Bank v. Sps. Dy, G.R.
No. 171991, July 27, 2011
Facts:
The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are the registered owners
of several parcels of land located in Ayungon, Negros Oriental. On December 3, 1976, the
Tirambulos executed a Real Estate Mortgage 3 over Lots 1, 4, 5, 6 and 8 in favor of the Rural
Bank of Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI), to secure
a P105,000 loan extended by the latter to them. Later, the Tirambulos obtained a second
loan for P28,000 and also executed a Real Estate Mortgage 4 over Lots 3 and 846 in favor of
the same bank on August 3, 1978.

Subsequently, on October 27, 1979, the Tirambulos sold all seven mortgaged lots to the
spouses Zosimo Dy, Sr. and Natividad Chiu (the Dys) and the spouses Marcelino C. Maxino
and Remedios Lasola (the Maxinos) without the consent and knowledge of DRBI. This sale,
which was embodied in a Deed of Absolute Sale,5 was followed by a default on the part of
the Tirambulos to pay their loans to DRBI. Thus, DRBI extrajudicially foreclosed the
December 3, 1976 mortgage and had Lots 1, 4, 5, 6 and 8 sold at public auction on March
31, 1982.
At the auction sale, DRBI was proclaimed the highest bidder and bought said lots
for P216,040.93. The Sheriffs Certificate of Sale6 stated that the "sale is subject to the rights
of redemption of the mortgagor (s) or any other persons authorized by law so to do, within a
period of one (1) year from registration hereof."7 The certificate of sale, however, was not
registered until almost a year later, or on June 24, 1983.

On July 6, 1983, or twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6
to the spouses Francisco D. Yap and Whelma D. Yap (the Yaps) under a Deed of Sale waith
Agreement to Mortgage.8 It is important to note, however, that Lot 3 was not among the five
properties foreclosed and bought by DRBI at public auction.

On August 8, 1983, or well within the redemption period, the Yaps filed a Motion for Writ of
Possession9 alleging that they have acquired all the rights and interests of DRBI over the
foreclosed properties and are entitled to immediate possession of the same because the
one-year redemption period has lapsed without any redemption being made. On May 22,
1984, roughly a month before the one-year redemption period was set to expire, the Dys
and the Maxinos attempted to redeem Lots 1, 3 and 6. They tendered the amount
of P40,000.00 to DRBI and the Yaps,14but both refused, contending that the redemption
should be for the full amount of the winning bid of P216,040.93 plus interest for all the
foreclosed properties. In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused
to take delivery of the redemption price arguing that one of the characteristics of a
mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed
because all the parcels were sold for a single price at the auction sale. 18

Dys and the Maxinos filed Civil Case No. 8426 with the Regional Trial Court of Negros
Oriental for accounting, injunction, declaration of nullity (with regard to Lot 3) of the Deed of
Sale with Agreement to Mortgage, and damages against the Yaps and DRBI. Thereafter, on
June 19, 1984, the Dys and the Maxinos consigned to the trial court an additional sum
of P83,850.50 plus sheriffs commission fee of P419.25 representing the remaining balance
of the purchase price that the Yaps still owed DRBI by virtue of the sale to them by the DRBI
of Lots 1, 3 and 6.22 Meanwhile, by letter23 dated June 27, 1984, the Yaps told DRBI that no
redemption has been made by the Tirambulos or their successors-in-interest and requested
DRBI to consolidate its title over the foreclosed properties by requesting the Provincial
Sheriff to execute the final deed of sale in favor of the bank so that the latter can transfer
the titles of the two foreclosed properties to them.

On the same date, the Yaps also wrote the Maxinos informing the latter that during the last
harvest of the lots bought from DRBI, they excluded from the harvest Lot 3 to show their
good faith. Also, they told the Maxinos that they were formally turning over the possession
of Lot 3 to the Maxinos, without prejudice to the final determination of the legal implications
concerning Lot 3. As to Lots 1 and 6, however, the Yaps stated that they intended to
consolidate ownership over them since there has been no redemption as contemplated by
law. Included in the letter was a liquidation of the copra proceeds harvested from September
7, 1983 to April 30, 1984 for Lots 1, 3 and 6.24 Later, on July 5, 1984, the Yaps filed Civil Case
No. 8439 for consolidation of ownership, annulment of certificate of redemption, and
damages against the Dys, the Maxinos, the Provincial Sheriff of Negros Oriental and DRBI.

RTC decision in favor of the Yaps and held that the Dys and the Maxinos failed to exercise
their rights of redemption properly and timely. They merely deposited the amount
of P50,625.29 with the Sheriff, whereas the amount due on the mortgage deed
is P216,040.93.

Dys and the Maxinos elevated the case to the CA. CA rendered a decision reversing the
March 7, 1997 amended decision of the trial court 1. Declaring the sale made by Dumaguete
Rural Bank Inc. to Sps. Francisco and Whelma Yap with respect to Lot No. 3 under TCT No. T-
20301 as null and void; 2. Declaring the redemption made by Spouses Dy and Spouses
Maxino with regards to Lot No. 6 under TCT No. T-14781 and Lot No. 1 under TCT No.
[T-]14777 as valid;

Upon motion for reconsideration of the Yaps, however, the CA amended its decision on
March 15, 2006 as follows: 1.Declaring the sale made by Dumaguete Rural Bank Inc. to Sps.
Francisco and Whelma Yap with respect to Lot No. 3 under TCT No. T-20301 null and void;
2.Declaring the redemption made by Spouses Dy and Spouses Maxino with regards to Lot
No. 6 under TCT No. T-14781 and Lot No. 1 under TCT No. [T-]14777 as valid; 3. Condemning
the defendant bank to pay damages to Spouses Dy and Spouses Maxino the amount
of P20,000.00 as moral damages and P200,000.00 as exemplary damages and attorneys
fees in the amount of P50,000.00.

Hence, the consolidated petitions assailing the appellate courts decision.

Issue: Whether or not the Dys and Maxinos may validly redeem Lots 1 and 6
Held:
Yes. The requisites of a valid redemption are present. The requisites for a valid
redemption are: (1) the redemption must be made within twelve (12) months from the time
of the registration of the sale in the Office of the Register of Deeds; (2) payment of the
purchase price of the property involved, plus 1% interest per month thereon in
addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after the
purchase, also with 1% interest on such last named amount; and (3) written notice of
the redemption must be served on the officer who made the sale and a duplicate filed with
the Register of Deeds of the province.43

There is no issue as to the first and third requisites. It is undisputed that the Dys and the
Maxinos made the redemption within the 12-month period from the registration of the sale.
Likewise, the Provincial Sheriff who made the sale was properly notified of the redemption
since the Dys and Maxinos deposited with him the redemption money after both DRBI and
the Yaps refused to accept it.

The second requisite, the proper redemption price, is the main subject of
contention of the opposing parties. As held in the case of Philippine National Bank v. De
los Reyes,44 the doctrine of indivisibility of mortgage does not apply once the mortgage
is extinguished by a complete foreclosure thereof as in the instant case. The Court held: The
parties were accordingly embroiled in a hermeneutic disparity on their aforesaid contending
positions. Yet, the rule on the indivisibility of mortgage finds no application to the case at
bar. The particular provision of the Civil Code referred to provides: Art. 2089. A pledge or
mortgage is indivisible, even though the debt may be divided among the successors in
interest of the debtor or of the creditor.

Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

Neither can the creditors heir who received his share of the debt return the pledge or cancel
the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things
given in mortgage or pledge, each one of these guarantees only a determinate
portion of the credit.The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the portion of the debt for which
each thing is specially answerable is satisfied.

That the situation obtaining in the case at bar is not within the purview of the aforesaid rule
on indivisibility is obvious since the aggregate number of the lots which comprise the
collaterals for the mortgage had already been foreclosed and sold at public auction. There
is no partial payment nor partial extinguishment of the obligation to speak of. The
aforesaid doctrine, which is actually intended f or the protection of the
mortgagee, specifically refers to the release of the mortgage which secures the
satisfaction of the indebtedness and naturally presupposes that the mortgage is
existing. Once the mortgage is extinguished by a complete foreclosure thereof,
said doctrine of indivisibility ceases to apply since, with the full payment of the
debt, there is nothing more to secure.

Nothing in the law prohibits the piecemeal redemption of properties sold at one foreclosure
proceeding. In fact, in several early cases decided by this Court, the right of the mortgagor
or redemptioner to redeem one or some of the foreclosed properties was recognized.
Clearly, the Dys and Maxinos can effect the redemption of even only two of the five
properties foreclosed. And since they can effect a partial redemption, they are not required
to pay the P216,040.93 considering that it is the purchase price for all the five properties
foreclosed.

8. Pameca Wood Treatment Plant Inc. v. CA, G.R. No. 106435, July 22, 1996
Facts:

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a
loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue
of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed
a promissory note for the said amount, promising to pay the loan by installment. As security
for the said loan, a chattel mortgage was also executed over PAMECAs properties in
Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole
value of the loan. Upon petitioner PAMECAs failure to pay, respondent bank extrajudicially
foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the
foreclosed properties for a sum of P322,350.00. On June 29, 1984, respondent bank filed a
complaint for the collection of the balance of P4,366,332.46 [3] with Branch 132 of the
Regional Trial Court of Makati City against petitioner PAMECA and private petitioners herein,
as solidary debtors with PAMECA under the promissory note.

RTC of Makati rendered a decision ordering the defendants to pay jointly and severally
plaintiff the (1) sum of P4,366,332.46 representing the deficiency claim of the latter as of
March 31, 1984, plus 21% interest per annum and other charges from April 1, 1984 until the
whole amount is fully paid and (2) the costs of the suit.
The Court of Appeals affirmed the RTC decision. Hence, this Petition contending that 1)
respondent appellate court gravely erred in not reversing the decision of the trial court, and
in not holding that the public auction sale of petitioner PAMECAs chattels were tainted with
fraud, as the chattels of the said petitioner were bought by private respondent as sole bidder
in only 1/6 of the market value of the property, hence unconscionable and inequitable, and
therefore null and void.

Issue: WON the deficiency may be collected in the foreclosure of the Chattel
Mortgage***

Held:

Yes. This Court reversed the ruling of the lower court and held that the provisions of the
Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being
contrary to the provisions of Article 2115, Article 2115 in relation to Article 2141, may not be
applied to the case.

Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:

xxx

The officer making the sale shall, within thirty days thereafter, make in writing a return of his
doings and file the same in the office of the Registry of Deeds where the mortgage is
recorded, and the Register of Deeds shall record the same. The fees of the officer for selling
the property shall be the same as the case of sale on execution as provided in Act Numbered
One Hundred and Ninety, and the amendments thereto, and the fees of the Register of
Deeds for registering the officers return shall be taxed as a part of the costs of sale, which
the officer shall pay to the Register of Deeds. The return shall particularly describe the
articles sold, and state the amount received for each article, and shall operate as a
discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be
applied to the payment, first, of the costs and expenses of keeping and sale, and then to the
payment of the demand or obligation secured by such mortgage, and the residue shall be
paid to persons holding subsequent mortgages in their order, and the balance, after paying
the mortgage, shall be paid to the mortgagor or persons holding under him on
demand. (Emphasis supplied)

It is clear from the above provision that the effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge,
the sale of the thing pledged extinguishes the entire principal obligation, such that the
pledgor may no longer recover proceeds of the sale in excess of the amount of the principal
obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the
balance of the proceeds, upon satisfaction of the principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess
of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to
pay the deficiency in case of a reduction in the price at public auction.
To accommodate petitioners prayer even on the basis of equity would be to expand the
application of the provisions of Article 1484 to situations beyond its specific purview, and
ignore the language and intent of the Chattel Mortgage Law. Equity, which has been aptly
described as justice outside legality, is applied only in the absence of, and never against,
statutory law or judicial rules of procedure.[19]

9. Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005

Facts:
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a
parcel of land in San Juan, Metro Manila, covered by Transfer Certificate of Title (TCT) No.
438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a deed of real
estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00.[2] This mortgage was annotated at the back of TCT No. 438157. On 4
August 1975, respondents executed the corresponding promissory note, PN BD#75/C-252,
covering the said loan, which provides that the loan matured on 4 August 1976 at an
interest rate of 12% per annum with a 2% service charge, and that the note is secured by a
real estate mortgage as aforementioned.[3] Significantly, the real estate mortgage contained
a clause that may extend to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary as appears in the accounts, books and records of the Mortgagee,
xxxx

On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345

for P2,640,000.00, secured by D/A SFDX #129, signifying that the loan was secured by a
hold-out on the mortgagors foreign currency savings account with the bank under Account
No. 129, and that the mortgagors passbook is to be surrendered to the bank until the
amount secured by the hold-out is settled. [5] On 27 December 1976, respondent spouses
executed for Donalco Trading, Inc., of which the husband and wife were President and
Chairman of the Board and Vice President,[6] respectively, PN BD#76/C-430
covering P545,000.000. As provided in the note, the loan is secured by Clean-Phase out TOD
CA 3923, which means that the temporary overdraft incurred by Donalco Trading, Inc. with
petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular
directing the discontinuance of overdrafts. [7]

On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the

obligations of G.B. Alviar Realty and Development, Inc. and for the release of the real estate
mortgage for the P450,000.00 loan covering the two (2) lots located at Vam Buren and
Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged
by petitioner who accordingly released the mortgage over the two properties. On 15
January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage
on the property, plus assessed past due interests and penalty charges. The public
auction sale of the mortgaged property was set on 15 January 1980.[10]

The trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-
judicial foreclosure.[13]Respondents sought reconsideration of the decision. [14] On 24 August
1994, the trial court issued an Order setting aside its earlier decision and awarded attorneys
fees to respondents.[15] It found that only the P250,000.00 loan is secured by the
mortgage on the land covered by TCT No. 438157. On the other hand, the P382,680.83
loan is secured by the foreign currency deposit account of Don A. Alviar, while
the P545,000.00 obligation was an unsecured loan, being a mere conversion of the
temporary overdraft of Donalco Trading, Inc. in compliance with a Central Bank circular.
According to the trial court, the blanket mortgage clause relied upon by petitioner
applies only to future loans obtained by the mortgagors, and not by parties other
 than the said mortgagors, such as Donalco Trading, Inc., for which respondents merely
signed as officers thereof.

The Court of Appeals affirmed the Order of the trial court but deleted the award of attorneys
fees.[17] It ruled that while a continuing loan or credit accommodation based on only one
security or mortgage is a common practice in financial and commercial institutions, such
agreement must be clear and unequivocal. In the instant case, the parties executed different
promissory notes agreeing to a particular security for each loan. Thus, the appellate court
ruled that the extrajudicial foreclosure sale of the property for the three loans is improper.
Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered
by PN BD#75/C-252 since the payment of P2,000,000.00 adverted to by respondents was
issued for the obligations of G.B. Alviar Realty and Development, Inc.Aggrieved, petitioner
filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals
as grounds herein.

Issue:
1) whether the blanket mortgage clause applies even to subsequent advancements for
which other securities were intended
2) Whether or not the foreclosure of the property is proper
Held:

1) NO. A blanket mortgage clause, also known as a dragnet clause in American jurisprudence,
is one which is specifically phrased to subsume all debts of past or future origins. Such
clauses are carefully scrutinized and strictly construed. [38] Mortgages of this character enable
the parties to provide continuous dealings, the nature or extent of which may not be known
or anticipated at the time, and they avoid the expense and inconvenience of executing a
new security on each new transaction. [39] A dragnet clause operates as a convenience and
accommodation to the borrowers as it makes available additional funds without their having
to execute additional security documents, thereby saving time, travel, loan closing costs,
costs of extra legal services, recording fees, et cetera.[40]

The sufficiency of the first security is a corollary component of the dragnet clause. But of
course, there is no prohibition, as in the mortgage contract in issue, against contractually
requiring other securities for the subsequent loans. Thus, when the mortgagor takes another
loan for which another security was given it could not be inferred that such loan was made
in reliance solely on the original security with the dragnet clause, but rather, on the new
security given. This is the reliance on the security test.

It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged
property because of non-payment of all the three promissory notes. While the existence and
validity of the dragnet clause cannot be denied, there is a need to respect the existence of
the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property
should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount
not covered by the security for the second promissory note. As held in one case, where
deeds absolute in form were executed to secure any and all kinds of indebtedness that
might subsequently become due, a balance due on a note, after exhausting the special
security given for the payment of such note, was in the absence of a special agreement to
the contrary, within the protection of the mortgage, notwithstanding the giving of the special
security.[50] This is recognition that while the dragnet clause subsists, the security specifically
executed for subsequent loans must first be exhausted before the mortgaged property can
be resorted to.

2. Yes. the mortgaged property could still be properly subjected to foreclosure proceedings
for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after
D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to
defenses which are available to respondents.

10. China Banking Corp. v. CA, 333 Phil. 158 [1996]

Facts:

China Banking Corporation (China Bank) extended several loans to Native West
International Trading Corporation (Native West) and to So Ching, Native Wests president.
Native West in turn executed promissory notes [1] in favor of China Bank. So Ching, with the
marital consent of his wife, Cristina So, additionally executed two mortgages over their
properties. The promissory notes matured and despite due demands by China Bank neither
private respondents Native West nor So Ching paid. Pursuant to a provision embodied in the
two mortgage contracts, China Bank filed petitions for the extra-judicial foreclosure of the
mortgaged properties before Notary Public, copies of which were given to the spouses So
Ching and Cristina So. After due notice and publication, the notaries public scheduled the
foreclosure sale of the spouses real estate properties on April 13, 1993. Eight days before
the foreclosure sale, however, private respondents filed a complaint [6]with the Regional Trial
Court[7]for accounting with damages and with temporary restraining order against petitioners
alleging the following causes of action:

C. MORTGAGORS liability limited to P6,500,000.00 and P3,500,000.00 respectively in the

Mortgages Annexes A

On April 7, 1993, the trial court issued a temporary restraining order to enjoin the
foreclosure sale. Thereafter counsels for the respective parties agreed to file their pleadings
and to submit the case, without further hearing, for resolution. On April 28, 1993, the trial
court, without passing upon the material averments of the complaint, issued an Order
granting the private respondents prayer for the issuance of preliminary injunction with the
following proffered justification:

From the foregoing, it is quite apparent that a question of accounting poses a thorny issue as
between the litigants. Variance in the amounts involved relating to the loan agreements
must be judiciously passed upon by the Court and this is only possible if a trial on the merits
could be had as the matters appurtenant thereto are evidentiary in nature.

Under the premises, the accounting issue being evidentiary in character calls for an issuance
of a writ of preliminary injunction pending the adjudication of the case. The issuance thereof
at this particular stage of the case is merely a preventive remedy designed to protect from
irreparable injury to property or other rights plaintiff may suffer, which a court of equity may
take cognizance of by commanding acts to be done or prohibiting their commission, as in
the instant suit, to restrain notaries public Cabusora and Taguiam as well as defendant China
Banking Corporation from continuing with the auction sale of the subject properties, until
further orders from this Court.

Wherefore, premises considered, finding that the circumstances warrant the issuance of a
preliminary injunction, plaintiffs prayer is hereby GRANTED. Consequent thereto, plaintiffs
are hereby ordered to post a bond amounting to P1 (ONE) Million to answer for whatever
damages defendant may suffer as a consequence of the writ. [9]
 Petitioners moved for reconsideration, but it was denied. Petitioners elevated the case
through certiorari and prohibition[10] before public respondent Court of Appeals. [11] In a
decision dated January 17, 1995, respondent Court of Appeals accordingly dismissed the
petition, as well as petitioners subsequent motion for reconsideration.

Issues:
(1) whether or not petitioners can extrajudicially foreclose the properties subject of the
mortgages

Held:

1) Yes, petitioners are entitled to foreclose the mortgages. The essence of a contract of
mortgage indebtedness is that a property has been identified or set apart from the mass of
the property of the debtor-mortgagor as security for the payment of money or the fulfillment
of an obligation to answer the amount of indebtedness, in case of default of payment. [24] It is
a settled rule that in a real estate mortgage when the obligation is not paid when due, the
mortgagee has the right to foreclose the mortgage and to have the property seized and sold
in view of applying the proceeds to the payment of the obligation. [25] In fact, aside from the
mortgage contracts, the promissory notes executed to evidence the loans also authorize the
mortgagee to foreclose on the mortgages. Thus:

x x x CHINA BANKING CORPORATION is hereby authorized to sell at public or private sales

such securities or things of value for the purpose of applying their proceeds to such
payments.[26]

And while private respondents aver that they have already paid ten million pesos, an
allegation which has still to be settled before the trial court, the same cannot be utilized as a
shield to enjoin the foreclosure sale. A mortgage given to secure advancements, we repeat,
is a continuing security and is not discharged by repayment of the amount named in the
mortgage, until the full amount of the advancements are paid.

11. Pilipinas Shell Petroleum Corp. v. Royal Ferry Services, Inc., G.R. No. 188146,
February 1, 2017
Facts:
Issue:
Held:

12. PNB v. Benedicto, et al., G.R. No. 171865, October 12, 2016
Facts:
Spouses Benedicto and Azucena Alonday (Spouses Alonday) obtained an
agricultural loan of P28,000.00 from the petitioner at its Digos, Davao del Sur
Branch, and secured the obligation by constituting a real estate mortgage on their
parcel of land situated in Sta. Cruz, Davao del Sur. On June 11, 1980, the Spouses
Alonday obtained a commercial loan for Pl6,700.00 from the petitioner's Davao City
Branch, and constituted a real estate. The mortgage contract contains a provision
xxxxThis 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.xxx The Spouses Alonday made partial payments on
the commercial loan, which they renewed on December 23, 1983 for the balance of
Pl 5,950.00. The renewed commercial loan, although due on December 25, 1984,
was fully paid on July 5, 1984.

On August 6, 1984, respondents Mercy and Alberto Alonday, the children of the
Spouses Alonday, demanded the release of the mortgage over the property. The
petitioner informed them, however, that the mortgage could not be released
because the agricultural loan had not yet been fully paid, and that as the
consequence of the failure to pay, it had foreclosed the mortgage over the property
and it appeared that notwithstanding such foreclosure, a deficiency balance of P9 l ,
525.22 remained.4 Hence, the petitioner applied for the extrajudicial foreclosure of
the mortgage on the property. Since the Alondays were unable to redeem the
property, the petitioner consolidated its ownership. Later on, the property was sold
for P48,000.00 to one Felix Malmis on November 10, 1989.

RTC rendered a decision in favor of the defendant the petitioner had intended to
have the second mortgage secure the pre-existing agricultural loan, it should have
made an express reservation to that effect; that based on the all-embracing clause,
the mortgage was a contract of adhesion, and the ambiguities therein should be
construed strictly against the petitioner; that the last sentence of the all-embracing
clause provided that the mortgage would be null and void upon the payment of the
obligations secured by the mortgage; and that the petitioner was guilty of bad faith
in refusing to nullify the mortgage despite full payment of the commercial loan prior
to its maturity. CA affirmed the RTC and denied the MR filed by petitioner. Hence,
this petition for review contending that in Mojica v. Court of Appeals validates the
use of an all-embracing clause in a mortgage agreement to secure not only the
amount indicated on the mortgage instrument, but also the mortgagor's future and
past obligations; that by denying the applicability to the case of Mojica v. Court of
Appeals and other similar rulings, the CA disregarded the principle of stare decisis;
and that the CA in effect thereby regarded all embracing clauses invalid as to prior
obligations.

Issue:
Whether the all-embracing or dragnet clause contained in the first mortgage
contract executed between the parties 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

Held:
NO. There is no question, indeed, that all-embracing or dragnet clauses have been
recognized as valid means to secure debts of both future and past origins. 13 Even
so, we have likewise emphasized that such clauses were an exceptional mode of
securing obligations, and have held that obligations could only be deemed secured
by the mortgage if they came fairly within the terms of the mortgage contract. 14
For the all-embracing or dragnet clauses to secure future loans, therefore, such
loans must be sufficiently described in the mortgage contract. 15 If the requirement
could be imposed on a future loan that was uncertain to materialize, there is a
greater reason that it should be applicable to a past loan, which is already
subsisting and known to the parties. Nonetheless, it was undeniable that the
petitioner had the opportunity to include some form of acknowledgement of the
previously subsisting agricultural loan in the terms of the second mortgage
contract. The mere fact that the mortgage constituted on the property covered by
TCT No. T- 66139 made no mention of the pre-existing loan could only strongly
indicate that each of the loans of the Spouses Alonday had been treated separately
by the parties themselves, and this sufficiently explained why the loans had been
secured by different mortgages. Another indication that the second mortgage did
not extend to the agricultural loan was the fact that the second mortgage was
entered into in connection only with the commercial loan.

As held in Prudential vs Alviar, the sufficiency of the first security is a corollary

component of the "dragnet clause." But of course, there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other securities for the
subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance
solely on the original security with the "dragnet clause," but rather, on the new
security given. This is the "reliance on the security test."

To reiterate, in order for the ail-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.