Añano, Antonio

THE PEOPLE OF THE PHILIPPINE ISLANDS vs. VENANCIO CONCEPCION

Facts:

A letter of confirmation to the manager of the Aparri branch of the Philippine National
Bank, Venancio Concepcion, President of the Philippine National Bank, between April 10, 1919,
and May 7, 1919, authorization to extend of credit in favor of "Puno y Concepcion, S. en C." in
the amount of P300,000. A special authorization limiting the discretional power of the local
manager at Aparri, Cagayan, to grant loans and discount negotiable documents to P5,000,
which, in certain cases, could be increased to P10,000.
Venancio Concepcion, as President of the Philippine National Bank and as member of the board
of directors of this bank, was charged in the Court of First Instance of Cagayan with a violation
of section 35 of Act No. 2747.
Section 35 of Act No. 2747, "The National Bank shall not, directly or indirectly, grant loans to
any of the members of the board of directors of the bank nor to agents of the branch banks.

Issues:

Defense counsel assign ten errors committed by the trial court arguing adroitly and
exhaustively in their printed brief, and again in oral argument and presented their question as
follows:
I. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C."
by Venancio Concepcion, President of the Philippine National Bank, a "loan" within the meaning
of section 35 of Act No. 2747?
Counsel argue that the documents of record do not prove that authority to make a loan was
given, but only show the concession of a credit.
II. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C.,"
by Venancio Concepcion, President of the Philippine National Bank, a "loan" or a "discount"?
Counsel argue that while section 35 of Act No. 2747 prohibits the granting of a "loan," it does
not prohibit what is commonly known as a "discount."Discounts are favored by bankers because
of their liquid nature, growing, as they do, out of an actual, live, transaction.
III. Was the granting of a credit of P300,000 to the copartnership, "Puno y Concepcion, S. en
C." by Venancio Concepcion, President of the Philippine National Bank, an "indirect loan" within
the meaning of section 35 of Act No. 2747?
Counsel argue that a loan to the partnership "Puno y Concepcion, S. en C." was not an "indirect
loan.
The primary rule is to ascertain and give effect to the intention of the Legislature. In this
instance, the purpose of the Legislature is plainly to erect a wall of safety against temptation for
a director of the bank. The prohibition against indirect loans is a recognition of the familiar
maxim that no man may serve two masters.
IV. Could Venancio Concepcion, President of the Philippine National Bank, be convicted of a
violation of section 35 of Act No. 2747 in relation with section 49 of the same Act, when these
portions of Act No. 2747 were repealed by Act No. 2938, prior to the finding of the information
and the rendition of the judgment?
As noted along toward the beginning of this opinion, section 49 of Act No. 2747, in relation to
section 35 of the same Act, provides a punishment for any person who shall violate any of the
provisions of the Act. It is contended, however, by the appellant, that the repeal of these
sections of Act No. 2747 by Act No. 2938 has served to take away the basis for criminal
prosecution.
V. Was the granting of a credit of P300,000 to the copartnership "Puno y Concepcion, S. en C."
by Venancio Concepcion, President of the Philippine National Bank, in violation of section 35 of
Act No. 2747, penalized by this law?
Counsel argue that since the prohibition contained in section 35 of Act No. 2747 is on the bank,
and since section 49 of said Act provides a punishment not on the bank when it violates any
provisions of the law, but on a person violating any provisions of the same, and imposing
imprisonment as a part of the penalty, the prohibition contained in said section 35 is without
penal sanction.lawph!l.net
VI. Does the alleged good faith of Venancio Concepcion, President of the Philippine National
Bank, constitute a legal defense?
Counsel argue that if defendant committed the acts of which he was convicted, it was because
he was misled by rulings coming from the Insular Auditor. Neither argument, even if conceded
to be true, is conclusive. The doing of the inhibited act, inhibited on account of public policy and
public interest, constitutes the crime.

Held:

On a review of the evidence of record, with reference to the decision of the trial court,
and the errors assigned by the appellant, and with reference to previous decisions of this court
on the same subject, we are irresistibly led to the conclusion that no reversible error was
committed in the trial of this case, and that the defendant has been proved guilty beyond a
reasonable doubt of the crime charged in the information. The penalty imposed by the trial
judge falls within the limits of the punitive provisions of the law.
 Odivelas, Anne Sherly

Rose Packing Co. vs. Court of Appeals 167 SCRA 309

Facts:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. No. 431 98-12 promulgated on December 16, 1070.
On December 12, 1962 respondent bank Philippine Commercial and Industrial Bank (PCIB)
approved a letter request by petitioner for the reactivation of its overdraft line of P50,000.00,
discounting line of P100,000.00 and a letter of credit-trust receipt line of P550,000.00 as well as
an application for loan of P300,000.00 on fully secured real estate and chattel mortgage and on
the further condition that respondent PCIB appoint its executive vice-president Roberto S.
Benedicto as its representative in petitioner’s board of directors.
On November 3, 1965 the National Investment and Development (NIDC), approved a P2.6
million loan application of petitioner with certain conditions. The NIDC released to petitioner the
amount of P 100,000.00. Petitioner purchased five (5) parcels of land in Pasig, Rizal making
down payment thereon.

August 3, 1966 and October 5,, 1966, respondent PCIB approved additional
accommodations to petitioner consisting of P 710,000.00 loan for the payment of the balance of
the purchase price of those lots in Pasig. However, PCIB released only P 300,000.00 of the P
710,000.00 on approved loan for the payment of the Pasig lands and some P 300, 000.00 for
operating capital.
On June 29 1967, the Development Bank of the Philippines approved on application by
petitioner for a loan of P 1,840,000.00 and a guarantee for $ 652,682.00 for the purchase of
can making equipment. Petitioner advised respondent PCIB of the availability of P 800,000.00 to
partially pay off its account and requested the release of the titles to the Pasig lots for delivery
to the DBP.

On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene
Knecht, its president for the collection of petitioner’s indebtedness to respondent bank. The
PCIB gave petitioner notice that it would cause the real estate mortgage to be foreclosed at an
auction sale.

Petitioner filed a complaint in the Court of First Instance of Rizal to enjoin respondents
PCIB and the sheriff from the proceeding with the foreclosure sale, and to ask the lower court
to fix a new period for the payment of the obligations of petitioner to PCIB. The lower court
issued an order denying the petition. The petitioner filed with respondent Court of Appeals a
petition for certiorari with application for restraining order and preliminary injunction. Hence,
the petition is also denied.

Issue:

Whether or not private respondent have the right to the extra-judicial foreclosure sale of
petitioner’s mortgaged properties before trial on the merits.

Held:

(1) The decision of the Court of Appeals is REVERSED insofar as it sustained (a) the
lower court’s denial of petitioner’s application for preliminary injunction and (b) the validity of
the foreclosure sale; (2) the lower court is ordered to proceed with the trial on the merits of the
main case together with a determination of exactly how much are petitioner’s liabilities in favor
of respondent bank PCIB so that proper measures may be taken for their eventual liquidation;
(3) the preliminary
Injunction issued by this Court on April 28, 1971 remains in force until the merits of the main
case are resolved; and (4) the motion of respondent bank dated April 1, 1981, for leave to lease
the real properties in custodia legis is denied.

The loans of petitioner corporation from respondent bank were supposed to become due
only at the time that if receives from the NIDC and PDCP the proceeds of the approved scheme.
As it is, the conditions did not happen.
For an obligation to become due there must generally a demand. Default generally begins from
the moment the creditor demands the performance of the obligation. Without such demand,
judicial or extra-judicial, the effects of default will not arise.
 Abellar, Antonette

BPI Investment Corp. vs CA

Facts:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the
construction of a house on his lot in New Alabang Village, Muntinlupa. Said house and lot were
mortgaged to AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to private
respondents ALS and Antonio Litonjua for ₱850,000. They paid ₱350,000 in cash and assumed
the ₱500,000 balance of Roa’s indebtedness with AIDC. The latter, however, was not willing to
extend the old interest rate to private respondents and proposed to grant them a new loan of
₱500,000 to be applied to Roa’s debt and secured by the same property, at an interest rate of
20% per annum and service fee of 1% per annum on the outstanding principal balance payable
within ten years in equal monthly amortization of ₱9,996.58.

On March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on
May 1, 1981. On September 13, 1982, BPIIC released to private respondents ₱7,146.87,
purporting to be what was left of their loan after full payment of Roa’s loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on

the ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June
30, 1984.

ALS and Litunjua then filed a case against BPI Investment Corp. alleging that they
should not be made to pay the monthly amortization before the full and actual release of the
P500,000.00 loan.

Issues:

Whether or not a contract of loan is a consensual contract.

Ruling:

A loan contract is not a consensual contract but a real contract. It is perfected only upon
the delivery of the object of the contract. A contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other. It is a
basic principle in reciprocal obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. Only
when a party has performed his part of the contract can he demand that the other party also
fulfills his own obligation and if the latter fails, default sets in. Thus, BPI Investment Corp. could
only demand for the payment of the monthly amortization after September 13, 1982 for it was
only then when it complied with its obligation under the loan contract. October 13, 1982 should
be the starting date in computing the amount due. Wherefore, the decision is affirmed with
modifications as to the awards of damages.
 Ponferrada, April Rose

CENTRAL BANK OF THE PHILIPPINES vs. COURT OF APPEALS

Facts:

On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal
department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage
was annotated on the said title the next day. The approved loan application called for a lump
sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12%
annual interest.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made
by the Bank. Tolentino and his wife signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract at semi-annual
installments of P3,459.00.

An advance interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest
was refunded to Tolentino on July 23, 1965, after being informed by the Bank that there was
no fund yet available for the release of the P63,000.00 balance. The Bank promised repeatedly
the release of the P63,000.00 balance.

On August 13, 1965, the Monetary Board of the Central Bank found out that Island
Savings Bank was suffering liquidity problems, and thus issued a Resolution prohibiting the
bank from making new loans and investments excluding extensions or renewals of already
approved loans, provided that such extensions or renewals shall be subject to review by the
Superintendent of Banks, who may impose such limitations as may be necessary to insure
correction of the bank's deficiency as soon as possible.

On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00

covered by the promissory note, filed an application for the extra-judicial foreclosure of the real
estate mortgage covering the 100-hectare land of Tolentino.

On January 20, 1969, Tolentino filed a petition with the lower court for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with
interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage.

On February 15, 1972, the trial court, after trial on the merits rendered its decision,
finding unmeritorious the petition of Tolentino, ordering him to pay Island Savings Bank the
amount of P17 000.00 plus legal interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the foreclosure.

On February 11, 1977, the Court of Appeals, on appeal by Tolentino, modified the ruling
of the lower court by affirming the dismissal of Tolentino’s petition for specific performance, but
it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the
P17,000.00 loan.

Issue/s:
1. Whether or not the action of Tolentino for specific performance prosper.
2. Whether or not Tolentino is liable to pay the P17,000.00 debt covered by the
promissory note.
 3. Whether or not the real estate mortgage can be foreclosed had his liability to pay
the P17,000.00 subsists.

Ruling:

When Island Savings Bank and Tolentino entered into an P80,000.00 loan agreement on
they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of
each party is the consideration for that of the other, and when one party has performed or is
ready and willing to perform his part of the contract, the other party who has not performed or
is not ready and willing to perform incurs in delay.

The promise of Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the P80,000.00 loan. When he executed a real estate mortgage, he
signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the
entire loan started when the Monetary Board of the Central Bank issued a Resolution which
prohibited Island Savings Bank from doing further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan.

The Board Resolution that was issued cannot interrupt the default of Island Savings
Bank in complying with its obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and investments, and nowhere
did it prohibit island Savings Bank from releasing the balance of loan agreements previously
contracted.

Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their
loan agreement, Tolentino, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since Island Savings Bank is now
prohibited from doing further business by Monetary Board Resolution No. 967, the Supreme
Court cannot grant specific performance in favor of Tolentino. Rescission is the only alternative
remedy left.

The Supreme Court ruled that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of
P17,000.00, which Tolentino accepted and executed a promissory note to cover it, the bank
was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Tolentino's reciprocal obligation to pay the P17,000.00 loan when
it falls due. His failure to pay the overdue amortizations under the promissory note made him a
party in default, hence not entitled to rescission.

If there is a right to rescind the promissory note, it shall belong to the aggrieved party,
that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for
payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.

Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire
loan and Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years
as stipulated, they are both liable for damages.

Furthermore, the Supreme Court hold that the real estate mortgage of Tolentino cannot
be entirely foreclosed to satisfy his P 17,000.00 debt.

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00
loan, the real estate mortgage of Tolentino became unenforceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable
to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares
subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure
a P17,000.00 debt.

The Supreme Court modified the decision of the Court of Appeals dated February 11,
1977 and Tolentino is hereby ordered to pay in favor of herein petitioners the sum of
P17.000.00, plus P41,210.00 representing 12% interest per annum covering the period from
May 22, 1965 to August 22, 1985, and 12% interest on the total amount counted from August
22, 1985 until paid. In case Tolentino fails to pay, his real estate mortgage covering 21.25
hectares shall be foreclosed to satisfy his total indebtedness, and the real estate mortgage
covering 78.75 hectares is hereby declared unenforceable and is hereby ordered released in
favor of Tolentino.
 Denalo, Arvia Claudine

BONNEVIE VS. CA

Facts:

Spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property which
they mortgaged on December 6, 1966, to secure the payment of the loan in the principal
amount of P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of
Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale
with Mortgage, for and in consideration of the sum of P100,000.00, P25,000.00 of which
amount being payable to the Lozano spouses upon the execution of the document, and the
balance of P75,000.00 being payable to defendant- appellee; that on December 6, 1966, when
the mortgage was executed by the Lozano spouses in favor of defendant-appellee, the loan of
P75,000.00 was not yet received them, as it was on December 12, 1966 when they and their
co-maker Alfonso Lim signed the promissory note for that amount; that from April 28, 1967 to
July 12, 1968, plaintiff-appellant made payments to defendant-appellee on the mortgage in the
total amount of P18,944.22; that on May 4, 1968, plaintiff-appellant assigned all his rights
under the Deed of Sale with Assumption of Mortgage to his brother, intervenor Raoul Bonnevie;
that on June 10, 1968, defendant-appellee applied for the foreclosure of the mortgage, and
notice of sale was published in the Luzon Weekly Courier on June 30, July 7, and July 14, 1968;
that auction sale was conducted on August 19, 1968, and the property was sold to defendant-
appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase the property
failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title of the
property.

Issues:

1. Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
2. Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
3. Whether petitioners had a right to redeem the foreclosed property, granting that
petitioners had such a right, whether respondent was justified in refusing their offers to
repurchase the property.

Ruling:

I. Yes, the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed. The mortgage deed was
executed for and on condition of the loan granted to the Lozano spouses. The fact
that the latter did not collect from the respondent Bank the consideration of the
mortgage on the date it was executed is immaterial. A contract of loan being a
consensual contract, the herein contract of loan was perfected at the same time the
contract of mortgage was executed. The promissory note executed on December 12,
1966 is only an evidence of indebtedness and does not indicate lack of consideration
of the mortgage at the time of its execution.

II. Yes, the extrajudicial foreclosure of the said mortgage was validly and
legally effected. The lack of notice of the foreclosure sale on petitioners is a flimsy
ground. Respondent Bank not being a party to the Deed of Sale with Assumption of
Mortgage, it can validly claim that it was not aware of the same and hence, it
m2nnevie and respondent Bank not likewise informed of the same. For the same
reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does
not require personal notice on the mortgagor. The requirement on notice is that:
 “Section 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks
in a newspaper of general circulation in the municipality or city.”
In the case at bar, the notice of sale was published in the Luzon Courier on June 30,
July 7 and July 14, 1968 and notices of the sale were posted for not less than twenty
days in at least three (3) public places in the Municipality where the property is
located. Petitioners were thus placed on constructive notice.

III. The petitioners had no right to redeem the foreclosed property. The Court
of Appeals did not err in ruling that they had no right to redeem. No consent having
been secured from respondent Bank to the sale with assumption of mortgage by
petitioners, the latter were not validly substituted as debtors. In fact, their rights
were never recorded and hence, respondent Bank is charged with the obligation to
recognize the right of redemption only of the Lozano spouses. But even granting
that as purchaser or assignee of the property, as the case may be, the petitioners
had acquired a right to redeem the property, petitioners failed to exercise said right
within the period granted by law. Thru certificate of sale in favor of appellee was
registered on September 2, 1968 and the one year redemption period expired on
September 3, 1969. It was not until September 29, 1969 that petitioner Honesto
Bonnevie first wrote respondent and offered to redeem the property. Moreover, on
September 29, 1969, Honesto had at that time already transferred his rights to
intervenor Raoul Bonnevie.

Samson, Beñaflor

Pajuyo vs. CA
Facts:

Pajuyo, the petitioner entrusted a house to respondent Guevarra which was executed by
a Kasunduan, allowing the respondent to live in his house for free provided Guevarra would
maintain the cleanliness and orderliness of the house, and would voluntarily vacate the
premises and return the same upon Pajuyo’s demand.

Upon demand, Guevarra however, refused to vacate and return the same to Pajuyo. The
petitioner then filed an ejectment case against Guevarra with the Metropolitan Trial Court who
rule in favor of Pajuyo, which was the same affirmed by the decision of the Regional Trial Court
en toto.

On appeal, the Court of Appeal reversed the judgment of the lower court on the ground
that both Pajuyo and Guevarra are illegal settlers who illegally occupied the contested lot which
the government owned, thus, the Kasunduan between the parties did not have any legal effect
which would make them in pari delicto or in equal fault, that the Court will leave them where
they are, further ruling that the contractual relationship between Pajuyo and Guevarra was one
of a commodatum since the agreement is not for a price certain.

Guevarra then filed with the Supreme Court a Motion for Extension of Time to file
Appeal by Certiorari which was received by the Receiving Clerk of the Supreme Court on 13
December 1996 or one day before the right to appeal expired, and further filed his petition for
review with the same court on 3 Jan 1997, which referred the motion for extension by the
Supreme Court to the Court of Appeals having concurrent jurisdiction over the case, thus citing
that the case presented no special and important matter for the Supreme Court to take
cognizance of at the first instance.

Issue:
1. Is the contractual relationship between Pajuyo and Guevarra one that of a
commodatum?

2. Whether the Court of Appeals erred or abused its authority and discretion tantamount to
lack of jurisdiction:

a) in GRANTING, instead of denying, Private Respondent’s Motion for an Extension of

thirty days to file petition for review at the time when there was no more period to
extend as the decision of the Regional Trial Court had already become final and
executory.

b) in giving due course, instead of dismissing, private respondent’s Petition for Review
even though the certification against forum-shopping was signed only by counsel
instead of by petitioner himself.

Ruling:

1. No, the contractual relationship between Pajuyo and Guevarra is not one that of a
commodatum. In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a certain time and
return it. An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain period.
Thus, the bailor cannot demand the return of the thing loaned until after expiration of
the period stipulated, or after accomplishment of the use for which the commodatum is
constituted. If the bailor should have urgent need of the thing, he may demand its
return for temporary use. If the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will.
 The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was
not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it
obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum. The effects
of the Kasunduan are also different from that of a commodatum. Case law on ejectment
has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the
lease.The tenant’s withholding of the property would then be unlawful. This is settled
jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee would still have the duty to turn over possession of
the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received
attaches to contracts for safekeeping, or contracts of commission, administration and
commodatum. These contracts certainly involve the obligation to deliver or return the
thing received.

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is
also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving
the land they illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The Kasunduan is
the undeniable evidence of Guevarra’s recognition of Pajuyo’s better right of physical
possession. Guevarra is clearly a possessor in bad faith. The absence of a contract
would not yield a different result, as there would still be an implied promise to vacate.

Thus, as the agreement is not purely gratuitous and further imposes a condition which is
an obligation on the part of Guevarra to fulfill, the agreement between the parties is not
one of a commodatum.

2.a) No. The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarra’s motion for extension. The Court of Appeals has the power to grant an
extension of time to file a petition for review. A judgment becomes "final and executory"
by operation of law. Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected. The RTC’s decision could not have
gained finality because the Court of Appeals granted the 30-day extension to Guevarra.

The Court of Appeals gave due course to the motion for extension because it complied
with the condition set by the appellate court in its resolution dated 28 January
1997. The resolution stated that the Court of Appeals would only give due course to the
motion for extension if filed on time. The motion for extension met this condition.

Clearly, Guevarra filed the motion for extension exactly one day before the lapse of
the reglementary period to appeal.

b) The issue on the certificate against forum shopping was merely an afterthought. Pajuyo
did not call the Court of Appeal’s attention to this defect at the early stage of the
proceedings. Pajuyo raised this procedural issue too late in the proceedings.

Bongot, Beverly
PRODUCERS BANK OF THE PHILIPPINES VS. COURT OF APPEALS AND FRANKLIN
VIVES

Facts:

Private respondent, Franklin Vives was asked by his neighbor and friend Angeles
Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business,
the Sterela Marketing and Services. Sanchez asked private respondent to deposit P200,000.00
in the bank account of Sterela for purposes of its incorporation with a condition that he could
withdraw his money from said account within a month’s time.

Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and
Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of
Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the
bank to deposit the check. They had with them an authorization letter from Doronilla
authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an
account for Sterela Marketing Services in the amount of ₱200,000.00. In opening the account,
the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.

Subsequently, private respondent learned that Sterela was no longer holding office in
the address previously given to him. Alarmed, he and his wife went to the Bank to verify if their
money was still intact.

The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who
informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by
Doronilla, and that only ₱90,000.00 remained therein. He likewise told them that Mrs. Vives
could not withdraw said remaining amount because it had to answer for some postdated checks
issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account
No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the
Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in
Current Account No. 10-0320.

Private respondent tried to get in touch with Doronilla through Sanchez. Doronilla issued
a postdated check for ₱212,000.00 in favor of private respondent. However, upon presentment
thereof by private respondent to the drawee bank, the check was dishonored. Doronilla
requested private respondent to present the same check on September 15, 1979 but when the
latter presented the check, it was again dishonored.

Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner.
The RTC promulgated its Decision in Civil Case rendered defendants liable jointly and severally
the amount of P200,000.00, moral damages, exemplary damages, attorney’s fees and the cost
of the suit.

Meanwhile, the appellate court affirmed in toto the decision of the RTC. It likewise
denied with finality petitioner’s motion for reconsideration.

ISSUE:
Whether the transaction between the defendant Doronilla and respondent Vives was one
of Simple Loan (Mutuum) and not accommodation.

RULING:
 A circumspect examination of the records reveals that the transaction between them
was a commodatum and not a mutuum. Article 1933 of the Civil Code distinguishes between
the two kinds of loans in this wise:
“By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.”

The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing. Article 1936 of the
Civil Code provides:
“Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.”

Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods returned
at the end of the period agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such determination.

As correctly pointed out by both the Court of Appeals and the trial court, the evidence
shows that private respondent agreed to deposit his money in the savings account of Sterela
specifically for the purpose of making it appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days."
Private respondent merely "accommodated" Doronilla by lending his money without
consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the
transaction that the money would not be removed from Sterela’s savings account and would be
returned to private respondent after thirty (30) days.

Turija, Briel
Margarita Quintos And Angel A. Ansaldo vs. Beck.

Facts:

The plaintiff brought this action to compel the defendant to return her certain furniture
which she lent him for his use. She appealed from the judgment of the Court of First Instance
of Manila which ordered that the defendant return to her the three gas heaters and the four
electric lamps found in the possession of the Sheriff of said city. The defendant was a tenant of
the plaintiff. . The plaintiff sold the property to Maria Lopez and Rosario Lopez and on
September 14, 1936. On November 5, 1936, the defendant, through another person, wrote to
the plaintiff reiterating that she may call for the furniture in the ground floor of the house. On
the 7th of the same month, the defendant wrote another letter to the plaintiff informing her
that he could not give up the three gas heaters and the four electric lamps because he would
use them until the 15th of the same month when the lease in due to expire. The plaintiff
refused to get the furniture in view of the fact that the defendant had declined to make delivery
of all of them.

Issues:

1. Whether or not the defendant complied with his obligation to return the furniture upon
the plaintiff's demand
2. whether or not the latter is bound to bear the deposit fees thereof, and whether she is
entitled to the costs of litigation

Ruling:

The contract entered into between the parties is one of commadatum, because under it
the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture to
the plaintiff, upon the latters demand.

The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the latter's
residence or house. The defendant did not comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four
eletric lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are
not squarely applicable.

As to the value of the furniture, we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return some of the furniture
because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor
admitted the correctness of the said value. Should the defendant fail to deliver some of the
furniture, the value thereof should be latter determined by the trial Court through evidence
which the parties may desire to present.

The costs in both instances should be borne by the defendant because the plaintiff is the
prevailing party (section 487 of the Code of Civil Procedure).

The defendant was the one who breached the contract of commodatum, and without
any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In
these circumstances, it is just and equitable that he pay the legal expenses and other judicial
costs which the plaintiff would not have otherwise defrayed.

The appealed judgment is modified and the defendant is ordered to return and deliver
to the plaintiff.

Gravoso, Christianne
YONG CHAN KIM VS. PEOPLE OF THE PHILIPPINES

Facts:

Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department
of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at Tigbauan,
Province of Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn
surveys which required him to travel to various selected provinces in the country where there
are potentials for prawn culture.

On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels
to different places in Luzon from 16 June to 21 July 1982, a period of thirty-five (35) days.
Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring him to
travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July 1982, a
period of five (5) days. For this travel order, petitioner received a cash advance of P495.00.

On 14 January 1983, petitioner presented both travel orders for liquidation, submitting
Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were
audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July 1982)
in the two (2) travel orders for which petitioner collected per diems twice. In sum, the total
amount in the form of per diems and allowances charged and collected by petitioner under
Travel Order No. 2222, when he did not actually and physically travel as represented by his
liquidation papers, was P1,230.00.

Petitioner was required to comment on the internal auditor's report regarding the
alleged anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly,
claiming that he made make-up trips to compensate for the trips he failed to undertake under
T.O. 2222 because he was recalled to the head office and given another assignment.
In September 1983, two (2) complaints for Estafa were filed against the petitioner before the
Municipal Circuit Trial Court at Guimbal, Iloilo.

ISSUE:

Whether or not petitioner can be held criminally liable on the ground of failure to
liquidate her traveling expenses

RULING:

It is undisputed that petitioner received a cash advance from private respondent

SEAFDEC to defray his travel expenses under T.O. 2222. It is likewise admitted that within the
period covered by T.O. 2222, petitioner was recalled to the head station in Iloilo and given
another assignment which was covered by T.O. 2268. The dispute arose when petitioner
allegedly failed to return P1,230.00 out of the cash advance which he received under T.O. 2222.
For the alleged failure of petitioner to return the amount of P1,230.00, he was charged with the
crime of Estafa under Article 315, par. 1(b) of the Revised Penal Code.

In order that a person can be convicted under the above-quoted provision, it must be
proven that he had the obligation to deliver or return the same money, good or personal
property that he had received. The petitioner was not under obligation to return the same
money—cash advance which he had received.

Liquidation simply means the settling of indebtedness. An employee, such as herein

petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan of
money advanced to him by his employer, as per diems and allowances.
 Similarly, as stated in the assailed decision of the lower court, "if the amount of the cash
advance he received is less than the amount he spent for actual travel . . . he has the right to
demand reimbursement from his employer the amount he spent coming from his personal
funds.

In other words, the money advanced by either party is actually a loan to the other.
Hence, petitioner was under no legal obligation to return the same cash or money, i.e., the bills
or coins, which he received from the private respondent.
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
Art. 1953.— A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the
petitioner by private respondent was not transferred to the latter is erroneous.
Ownership of the money was transferred to the petitioner.

Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary
relationship was created. Absent this fiduciary relationship between petitioner and private
respondent, which is an essential element of the crime of estafa by misappropriation or
conversion, petitioner could not have committed estafa.
Additionally, it has been the policy of private respondent that all cash advances not liquidated
are to be deducted correspondingly from the salary of the employee concerned. The evidence
shows that the corresponding salary deduction was made in the case of petitioner vis-a-vis the
cash advance in question.

Carolino, Clarence Ray

CONSOLIDATED BANK AND TRUST CORPORATION vs. CA

Facts:

On July 13, 1982, respondents Continental Cement Corporation and Gregory T. Lim
obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150.00 On the same date, respondent Corporation paid a
marginal deposit of P320,445.00 to petitioner. The letter of credit was used to purchase around
five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter
delivered directly to respondent Corporation in its Bulacan plant. In relation to the same
transaction, a trust receipt for the amount of P1,001,520.93 was executed by respondent
Corporation, with respondent Lim as signatory.

Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary
attachment before the Regional Trial Court of Manila. In answer to the complaint, respondents
averred that the transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into account payments
already made by them. Respondent Lim also denied any personal liability in the subject
transactions. In a Supplemental Answer, respondents prayed for reimbursement of alleged
overpayment to petitioner of the amount of P490,228.90.

On September 17, 1990, the trial court rendered its Decision, dismissing the Complaint and
ordering petitioner to pay respondents the following amounts under their
counterclaim: P490,228.90 representing overpayment of respondent Corporation, with interest
thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and
costs.

Both parties appealed to the Court of Appeals, which partially modified the Decision by
deleting the award of attorneys fees in favor of respondents and, instead, ordering respondent
Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.

Issues:

A. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT

CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE
BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH
RESPONDENTS ARE LIABLE THEREFOR.

B. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT

HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT
TRANSACTION.

Rulings:

A.

NOT A TRUST RECEIPT

Petitioner has also failed to convince us that its transaction with respondent Corporation is
really a trust receipt transaction instead of merely a simple loan, as found by the lower court
and the Court of Appeals.
The recent case of Colinares v. Court of Appeal appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This situation
is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.

In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods
subject of the trust receipt occurred long before the trust receipt itself was executed. More
specifically, delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced
on July 7, 1982 and was completed by July 19, 1982. Further, the oil was used up by
respondent Corporation in its normal operations by August, 1982. On the other hand, the
subject trust receipt was only executed nearly two months after full delivery of the oil was
made to respondent Corporation, or on September 2, 1982.

Similarly, respondent Corporation cannot be said to have been dishonest in its dealings
with petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed,
it continually endeavored to meet the same, as shown by the various receipts issued by
petitioner acknowledging payment on the loan. Certainly, the payment of the sum of
P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of
dishonesty, abuse of confidence or mishandling of funds on the part of respondent Corporation,
which are the gravamen of a trust receipt violation. Furthermore, respondent Corporation is not
an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own
operations. More importantly, at no time did title over the oil pass to petitioner, but directly to
respondent Corporation to which the oil was directly delivered long before the trust receipt was
executed. The fact that ownership of the oil belonged to respondent Corporation, through its
President, Gregory Lim, was acknowledged by petitioners own account officer on the witness.

By all indications, then, it is apparent that there was really no trust receipt transaction that
took place. Evidently, respondent Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to the former.

B.
PRIVATE RESPONDENT SPOUSES NOT LIABLE
we are not convinced that respondent Gregory T. Lim and his spouse should be personally
liable under the subject trust receipt. Petitioners argument that respondent Corporation and
respondent Lim and his spouse are one and the same cannot be sustained. The transactions
sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice
President of respondent Corporation. We stress the hornbook law that corporate personality is a
shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim
and his spouse cannot be made personally liable since respondent Lim entered into and signed
the contract clearly in his official capacity as Executive Vice President. The personality of the
corporation is separate and distinct from the persons composing it.

Lauron, Dean Aaron

COLINARES vs COURT OF APPEALS

Facts:

Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the
latter’s convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter
of credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC)
in favor of CM Builders Centre. PBC approved the letter of credit for P22,389.80 to cover the
full invoice value of the goods. Petitioners signed a pro-forma trust receipt as security.

PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the
loan. After the initial payment, the spouses defaulted. PBC wrote to Petitioners demanding
that the amount be paid within seven days from notice. Instead of complying with PBC’s
demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and
requested for a grace period of until 15 June 1980 to settle the account. Colinares
proposed that the terms of payment of the loan be modified P2,000 on or before 3 December
1980, and P1,000 per month . Pending approval of the proposal, Petitioners paid P1,000 to PBC
on 4 December 1980, and thereafter P500 on 11 February 1981, 16 March 1981, and 20 April
1981. Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel, PBC
continued to demand payment of the balance. On 14 January 1983, Petitioners were charged
with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised
Penal Code.

During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares
signed the documents without reading the fine print, only learning of the trust receipt
implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured him
that the trust receipt was a mere formality. The Trust Receipts Law does not seek to enforce
payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of another regardless of whether the latter is the owner.
Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored
to meet their obligations, as shown by several receipts issued by PBC acknowledging payment
of the loan.

Issue:
Whether or not the transaction of Colinares falls within the ambit of the Law on Trust
Receipt

Held:

Colinares received the merchandise from CM Builders Centre on 30 October 1979. On

that day, ownership over the merchandise was already transferred to Petitioners who were to
use the materials for their construction project. It was only a day later, 31 October 1979, that
they went to the bank to apply for a loan to pay for the merchandise. This situation belies what
normally obtains in a pure trust receipt transaction where goods are owned by the bank and
only released to the importer in trust subsequent to the grant of the loan.
The bank acquires a “security interest” in the goods as holder of a security title for the
advances it had made to the entrustee. The ownership of the merchandise continues to be
vested in the person who had advanced payment until he has been paid in full, or if the
merchandise has already been sold, the proceeds of the sale should be turned over to him by
the importer or by his representative or successor in interest. To secure that the bank shall be
paid, it takes full title to the goods at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is called upon to pay for them;
hence, the importer has never owned the goods and is not able to deliver possession. In a
certain manner, trust receipts partake of the nature of a conditional sale where the importer
becomes absolute owner of the imported merchandise as soon as he has paid its price. There
are two possible situations in a trust receipt transaction. The first is covered by the provision
which refers to money received under the obligation involving the duty to deliver it (entregarla)
to the owner of the merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it (devolvera) to the owner. Failure of the
entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in accordance with the terms of
the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code,
without need of proving intent to defraud.

Mendros, Duchess
PEOPLE OF THE PHILIPPINES vs. TERESITA PUIG and ROMEO PORRAS

FACTS:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of
the RTC in Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig
(Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of
private complainant Rural Bank of Pototan, Inc. That the above-named respondents, conspiring,
confederating, and helping one another, with grave abuse of confidence, being the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or
consent of the management of the Bank and with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS
(P15,000.00), Philippine Currency, to the damage and prejudice of the said bank in the
aforesaid amount. However, the RTC dismissed the complaint for insufficiency of the
information ruling that the real parties in interest are the depositors-clients and not the bank
because the bank does not acquire ownership of the money deposited in it. It also denied the
Motion for Reconsideration.

ISSUE:

Whether or not the 112 information’s for qualified theft sufficiently allege the element of
taking without the consent of the owner, and the qualifying circumstance of grave abuse of
confidence.

RULING:

Yes, the petition is meritorious. Under Art 1980 of the CC, "fixed, savings, and current
deposits of money in banks shall be governed by the provisions concerning simple loans." And,
Art 1953 provides that "a person who receives a loan of money acquires the ownership thereof,
and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it
posits that the depositors who place their money with the bank are considered creditors of the
bank. In a long line of cases involving Qualified Theft, this Court has firmly established the
nature of possession by the Bank of the money deposits therein, and the duties being
performed by its employees who have custody of the money or have come into possession of it.
The Court has consistently considered the allegations in the Information that such employees
acted with grave abuse of confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as sufficient to make out a case of
Qualified Theft. In summary, the Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted with the possession of money of the
Bank due to the confidence reposed in them, occupy positions of confidence. The Informations,
therefore, sufficiently allege all the essential elements constituting the crime of Qualified Theft.

Campanero, Earl
BPI FAMILY BANK vs AMADO FRANCO and COURT OF APPEALS

Facts:

Respondent Franco opened three accounts at BPI-Family Bank worth PhP2,000,000.00.

The said amount was traceable to a check issued by Tevesteco which was a part of the
PhP80,000,000.00 debited by BPI-FB from First Metro Investment Corporation’s account with a
deposit of PhP100,000,000.00. Such deposit was then credited to Tevesteco’s account pursuant
to an Authority to Debit which was allegedly forged as claimed by FMIC.

By then, Tevesteco Had some several withdrawals amounting to PhP37,455,410.54.

Such withdrawals included an amount of PhP2,000,000.00 which was later on paid to Franco.
Upon the discovery of the irregularities, BPI-FB garnished the account of Franco by Virtue of an
Order of an Attachment for the recovery of the PhP37,455,410.54. So when Franco issued two
checks against his account, they were dishonoured upon presentment for payment.

BPI-FB claimed that the legal consequence of FMIC’s forgery of the Authority to Debit is
that the money transferred by BPI to Tevesteco is its own and maintained its position that it
was able to recover possession of the same when the money was later on paid to Franco. BPI-
FB asserted that they had the better right to the amount deposited to Franco’s account which
consisted part of the money withdrawn from it by Tevesteco by virtue of the Authority to Debit.
Arising from this is their right to set up its ownership of the amount and freeze the account of
Franco.

Issue:
WON BPI-FB has the better right to the amount deposited to Franco’s account.

Ruling:

No, BPI-FB cannot seek Article 559 of the Civil Code which only pertains to a specific or
determinate thing.
In the present case, it was money on Franco’s account which was the subject and it was held
that as a movable object, as generic and fungible. BPI-FB simply claims ownership of the
equivalent amount of money which was mistakenly deposited. Money bears no earmarks of
peculiar ownership, and this characteristic is all the more manifest in the instant case which
involves money in a banking transaction gone awry. Its primary function is to pass from hand to
hand as a medium of exchange, without other evidence of its title. Money, which had been
passed through various transactions in the general course of banking business, even if of
traceable origin, is no exception.

Humawid, Francis Louie

ELADlA DE LIMA vs. LAGUNA TAYABAS CO.

FACTS:

On June 3, 1958, an accident between a Laguna Tayabas Co. (LTB) bus and Seven-up
Bottlers Co. delivery truck resulted to the death of an LTB passenger named Petra dela Cruz.
Two other LTB passengers namely Eladia de Lima and Nemesio Flores also incurred physical
injuries. De Lima, Flores and the heir of dela Cruz filed suits to the bus company.

In December 29, 1971, the petitioners requested to expedite the decision of the case
with the hope that the legal interest is to be given immediately from the date of the decision.
By January 31, 1972, the decision was given. Again, the petitioners reiterated their request for
the modification of the decision in such a way that the effectivity is to be rolled back to
December 27, 1963. Furthermore, the heir of dela Cruz filed a reconsideration for the increase
of indemnity from P3,000 to P12,000. With this pending motion for reconsideration, LTB filed an
appeal for the case. The appellate court turned down the motion for reconsideration of the
plaintiffs indicating that an appeal should have been filed for the awarding of the legal interest.
The petition was reviewed in 1988, thirty years after the actual incident.

ISSUES:

a. Whether the effectivity of the decision is to be rolled back as requested by the plaintiffs.
b. Whether the lower court was erroneous in the delay of the decision for the increase in the
claim of the heir of Petra dela Cruz.

HELD:

The court granted the petition noting that the plaintiffs were unable to make an appeal
in the lower court due to the fact that the petitioners are seeking judicial remedy as
impoverished individuals. They were hopeful that the adjudged amount will be provided to them
by the transportation company. With the case pending for thirty years, the court aptly found
this as a sufficient justification to grant the legal interest as well as the increase in indemnity.

It was found that the rolling back of the effectivity date was necessary to compensate
for the monetary loss the plaintiffs incurred from the accident, death and court proceedings.
Moreover, the claim for Petra dela Cruz was increased from P3,000.00 to P30,000.00. The
decision was immediately executory in response to the identified urgent need of the plaintiffs.

Jo, George
Philippine Air Lines vs. Court of Appeals

FACTS:

On 23 October 1988, Leovigildo A. Pantejo, then City Fiscal of Surigao City, boarded a
PAL plane in Manila and disembarked in Cebu City where he was supposed to take his
connecting flight to Surigao City. However, due to typhoon Osang, the connecting flight to
Surigao City was cancelled. To accommodate the needs of its stranded passengers, PAL initially
gave out cash assistance of P 100.00 and, the next day, P200.00, for their expected stay of 2
days in Cebu. Pantejo requested instead that he be billeted in a hotel at the PAL’s expense
because he did not have cash with him at that time, but PAL refused. Thus, Pantejo was forced
to seek and accept the generosity of a co-passenger, an engineer named Andoni Dumlao, and
he shared a room with the latter at Sky View Hotel with the promise to pay his share of the
expenses upon reaching Surigao. On 25 October 1988 when the flight for Surigao was resumed,
Pantejo came to know that the hotel expenses of his co-passengers, one Superintendent
Ernesto Gonzales and a certain Mrs. Gloria Rocha, an Auditor of the Philippine National Bank,
were reimbursed by PAL. At this point, Pantejo informed Oscar Jereza, PAL’s Manager for
Departure Services at Mactan Airport and who was in charge of cancelled flights, that he was
going to sue the airline for discriminating against him. It was only then that Jereza offered to
pay Pantejo P300.00 which, due to the ordeal and anguish he had undergone, the latter
declined.

Pantejo filed a suit for damages against PAL with the RTC of Surigao City which, after
trial, rendered judgment, ordering PAL to pay Pantejo P300.00 for actual damages, P150,000.00
as moral damages, P100,000.00 as exemplary damages, P15,000.00 as attorney’s fees, and 6%
interest from the time of the filing of the complaint until said amounts shall have been fully
paid, plus costs of suit.

On appeal, the appellate court affirmed the decision of the court a quo, but with the
exclusion of the award of attorney’s fees and litigation expenses.
The Supreme Court affirmed the challenged judgment of Court of Appeals, subject to the
modification regarding the computation of the 6% legal rate of interest on the monetary awards
granted therein to Pantejo.

ISSUE:

Whether petitioner airlines acted in bad faith when it failed and refused to provide hotel
accommodations for respondent Pantejo or to reimburse him for hotel expenses incurred by
reason of the cancellation of its connecting flight to Surigao City due to force majeur.

HELD:

A contract to transport passengers is quite different in kind and degree from any other
contractual relation, and this is because of the relation which an air carrier sustains with the
public. Its business is mainly with the travelling public. It invites people to avail of the comforts
and advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty. Neglect or malfeasance of the carrier’s employees naturally could give
ground for an action for damages.

The discriminatory act of PAL against Pantejo ineludibly makes the former liable for
moral damages under Article 21 in relation to Article 2219 (10) of the Civil Code. As held in
Alitalia Airways vs. CA, et al., such inattention to and lack of care by the airline for the interest
of its passengers who are entitled to its utmost consideration, particularly as to their
convenience, amount to bad faith which entitles the passenger to the award of moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the
defendant. They are awarded only to allow the former to obtain means, diversion, or
amusements that will serve to alleviate the moral suffering he has undergone due to the
defendant’s culpable action and must, perforce, be proportional to the suffering inflicted.
However, substantial damages do not translate into excessive damages. Herein, except for
attorney’s fees and costs of suit, it will be noted that the Courts of Appeals affirmed point by
point the factual findings of the lower court upon which the award of damages had been based.
The interest of 6% imposed by the court should be computed from the date of rendition of
judgment and not from the filing of the complaint.

The rule has been laid down in Eastern Shipping Lines, Inc. vs. Court of Appeals, et. al.
that “when an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally
adjudged.” This is because at the time of the filling of the complaint, the amount of the
damages to which Pantejo may be entitled remains unliquidated and not known, until it is
definitely ascertained, assessed and determined by the court, and only after the presentation of
proof thereon.

Garcia, Ianne

SAMSON CHING vs. CLARITA NICDAO and COURT OF APPEALS

FACTS:

Petitioner Ching, a Chinese national, and a salesman of La Suerte Cigar and Cigarette
Mftg. instituted criminal complaints for eleven (11) counts of violation of BP 22 against
respondent Nicdao which were filed with the MCTC. However, as per investigation Ching only
lied being a salesman of the company and has not shown that he possessed the financial
capacity to lend a huge amount to respondent Nicdao.

Ching averred that the checks were issued to him by respondent Nicdao as security for
the loans that she obtained from him and admitted that he wrote the date on all these checks
upon refusal of Nicdao to pay him. Their transaction began in October 1995 when Nicdao,
proprietor/manager of Vignette Superstore, together with her husband, approached him to
borrow money in order for them to settle their financial obligations. They agreed that Nicdao
would leave the checks undated and that she would pay the loans within one year. However,
when petitioner Ching went to see her after one year to ask for payment and for several times,
respondent Nicdao allegedly said that she had no cash. Because of this, on October 6, 1997,
Ching deposited the checks that she issued to him. The checks were dishonored by the bank for
being "DAIF."

With respect to the ₱20,000,000.00 check (Check No. 002524), Ching explained that he
wrote the date and amount thereon. He likewise intimated that prior to 1995, they had another
transaction amounting to ₱1,200,000.00 and, as security therefor, Nicdao similarly issued in his
favor checks in varying amounts of ₱100,000.00 and ₱50,000.00. When the said amount was
fully paid, petitioner Ching returned the checks to respondent Nicdao.

Imelda Yandoc, an employee of HSLB testified that she identified the checks subject of
Criminal Cases Nos. 9433-9443 and affirmed that stamped at the back of each was the
annotation "DAIF".

The defense proffered the testimonies of respondent Nicdao, Melanie Tolentino and
Jocelyn Nicdao. Nicdao stated that she only dealt with Nuguid and denied that she borrowed
money from both petitioner Ching and Nuguid. However, she admitted to obtained a loan from
Nuguid but only for ₱2,100,000.00 and the same was already fully paid. As proof of such
payment, she presented a Planters Bank demand draft dated August 13, 1996 in the amount of
₱1,200,000.00. In addition, Nicdao also presented and identified several cigarette wrappers at
the back of which appeared computations. She explained that Nuguid went to the grocery store
everyday to collect interest payments. The principal loan was ₱2,100,000.00 with 12% interest
per day. Nuguid allegedly wrote the payments for the daily interests at the back of the cigarette
wrappers that she gave to respondent Nicdao.

With respect to the ₱20,000,000.00 check, respondent Nicdao admitted that the
signature thereon was hers but denied that she issued the same to petitioner Ching. Anent the
other ten (10) checks, she likewise admitted that the signatures thereon were hers while the
amounts and payee thereon were written by either Jocelyn Nicdao or Melanie Tolentino, who
were employees of Vignette Superstore and authorized by her to do so. Respondent Nicdao
clarified that, except for the ₱20,000,000.00 check, the other ten (10) checks were handed to
Nuguid on different occasions. Nuguid came to the grocery store everyday to collect the interest
payments.

What allegedly transpired was that when she already had the money to pay them
(presumably referring to petitioner Ching and Nuguid), she went to them to retrieve her checks.
However, petitioner Ching and Nuguid refused to return the checks claiming that she still owed
them. She demanded that they show her the checks in order that she would know the exact
amount of her debt, but they refused.

After the said incident, respondent Nicdao was surprised to be notified by HSLB that her
check in the amount of ₱20,000,000.00 was just presented to the bank for payment. She
claimed that it was only then that she remembered that sometime in 1995, she was informed
by her employee that one of her checks was missing. She explained that she kept her checks in
an ordinary cash box together with a stapler and the cigarette wrappers that contained Nuguid’s
computations. Her saleslady had access to this box. Respondent Nicdao averred that it was
Nuguid who offered to give her a loan as she would allegedly need money to manage Vignette
Superstore. It was Nuguid who regularly delivered the cash to Nicdao or to her saleslady.
Respondent Nicdao denied any knowledge that the money loaned to her by Nuguid belonged to
petitioner Ching. At the continuation of her direct-examination,19 respondent Nicdao said that
she never dealt with petitioner Ching because it was Nuguid who went to the grocery store
everyday to collect the interest payments. When shown the ₱20,000,000.00 check, respondent
Nicdao admitted that the signature thereon was hers but she denied issuing it as a blank check
to petitioner Ching. She stressed, however, that the ₱20,000,000.00 check was the one that
was reported to her as lost or missing by her saleslady sometime in 1995. She clarified that the
payments that Nuguid collected from her everyday were only for the interests due. She did not
ask Nuguid to make written acknowledgements of her payments.

Melanie Tolentino stated that she worked at the Vignette Superstore and she knew
Nuguid because her employer, respondent Nicdao, used to borrow money from her. She knew
petitioner Ching only by name and that he was the "husband" of Nuguid.
As an employee of the grocery store, Tolentino stated that she acted as its caretaker and was
entrusted with the custody of respondent Nicdao’s personal checks. Tolentino identified her own
handwriting on some of the checks especially with respect to the amounts and figures written
thereon. She said that Nuguid instructed her to leave the space for the payee blank as she
would use the checks to pay someone else. Tolentino added that she could not recall
respondent Nicdao issuing a check to petitioner Ching in the amount of ₱20,000,000.00. She
confirmed that they lost a check sometime in 1995.

Jocelyn Nicdao further testified that respondent Nicdao was indebted to Nuguid. Jocelyn
Nicdao used to fill up the checks of respondent Nicdao that had already been signed by her and
give them to Nuguid. The latter came to the grocery store everyday to pick up the interest
payments. Jocelyn Nicdao identified the checks on which she wrote the amounts and, in some
instances, the name of Nuguid as payee. However, most of the time, Nuguid allegedly
instructed her to leave as blank the space for the payee.

The MCTC rendered judgment in Criminal Cases Nos. 9433-9443 convicting respondent
Nicdao of eleven (11) counts of violation of BP 22. It explained that the crime of violation of BP
22 has the following elements: (a) the making, drawing and issuance of any check to apply to
account or for value; (b) the knowledge of the maker, drawer or issuer that at the time of issue
he does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and (c) subsequent dishonor of the check by the drawee
bank for insufficiency of funds or credit or dishonor for the same reason had not the drawer,
without any valid cause, ordered the bank to stop payment. All the foregoing elements are
present in the case of respondent Nicdao’s issuance of the checks subject of Criminal Cases
Nos. 9433-9443. On the first element, respondent Nicdao was found by the MCTC to have
made, drawn and issued the checks. The fact that she did not personally write the payee and
date on the checks was not material considering that under Section 14 of the Negotiable
Instruments Law, "where the instrument is wanting in any material particular, the person in
possession thereof has a prima facie authority to complete it by filling up the blanks therein.
And a signature on a blank paper delivered by the person making the signature in order that
the paper may be converted into a negotiable instrument operates as a prima facie authority to
fill it up as such for any amount x x x." Respondent Nicdao admitted that she authorized her
employees to provide the details on the checks after she had signed them.

The MCTC disbelieved respondent Nicdao’s claim that the ₱20,000,000.00 check was the
same one that she lost in 1995. It observed that ordinary prudence would dictate that a lost
check would at least be immediately reported to the bank to prevent its unauthorized
endorsement or negotiation.

The second element was also found by the MCTC to be present as it held that
respondent Nicdao, as maker, drawer or issuer, had knowledge that at the time of issue she did
not have sufficient funds in or credit with the drawee bank for the payment in full of the checks
upon their presentment.

As to the third element, the MCTC established that the checks were subsequently
dishonored by the drawee bank for being "DAIF" or drawn against insufficient funds. Stamped
at the back of each check was the annotation "DAIF." The bank representative likewise testified
to the fact of dishonor.

The MCTC stressed that the mere act of issuing a worthless check was malum
prohibitum; hence, even if the checks were issued in the form of deposit or guarantee, once
dishonored, the same gave rise to the prosecution for and conviction of BP 22.

On appeal, the Regional Trial Court (RTC) affirmed in toto the decisions of the MCTC
convicting respondent Nicdao of eleven (11) and fourteen (14) counts of violation of BP 22 in
Criminal Cases Nos. 9433-9443 and 9458-9471, respectively. Respondent Nicdao forthwith filed
with the CA separate petitions for review of the two decisions of the RTC. The CA REVERSED
and SET ASIDE the decision and another judgment rendered ACQUITTING her in all these
cases, with costs de oficio.

The CA declared that, based on the evidence, respondent Nicdao had already fully paid
the loans. In particular, the CA referred to the Planters Bank demand draft in the amount of
₱1,200,000.00 which, by his own admission, petitioner Ching had received. The appellate court
debunked petitioner Ching’s allegation that the said demand draft was payment for a previous
transaction. According to the CA, Ching failed to adduce evidence to prove the existence of a
previous transaction between him and respondent Nicdao. CA also stated that respondent
Nicdao made interest payments on a daily basis to Nuguid as evidenced by the computations
written at the back of the cigarette wrappers. Based on these computations, as of July 21,
1997, respondent Nicdao had made a total of ₱5,780,000.00 payments to Nuguid for the
interests alone. Adding up this amount and that of the Planters Bank demand draft, the CA
placed the payments made by respondent Nicdao to Nuguid as already amounting to
₱6,980,000.00 for the principal loan amount of only ₱2,100,000.00.

The CA gave credence to the testimony of respondent Nicdao that when she had fully
paid her loans to Nuguid, she tried to retrieve her checks. Nuguid, however, refused to return
the checks to respondent Nicdao. Instead, Nuguid and petitioner Ching filled up the said checks
to make it appear that: (a) petitioner Ching was the payee in five checks; (b) the six checks
were payable to cash; (c) Nuguid was the payee in fourteen (14) checks. Petitioner Ching and
Nuguid then put the date October 6, 1997 on all these checks and deposited them the following
day informing Nicdao that her checks were dishonored by HSLB and gave her three days to
settle her indebtedness or else face prosecution for violation of BP 22.

With the finding that respondent Nicdao had fully paid her loan obligations to Nuguid,
the CA declared that she could no longer be held liable for violation of BP 22. It was explained
that to be held liable under BP 22, it must be established, inter alia, that the check was made or
drawn and issued to apply on account or for value. According to the CA, the word "account"
refers to a pre-existing obligation, while "for value" means an obligation incurred simultaneously
with the issuance of the check. In the case of respondent Nicdao’s checks, the pre-existing
obligations secured by them were already extinguished after full payment had been made by
respondent Nicdao to Nuguid. Obligations are extinguished by, among others, payment.

The CA believed that when petitioner Ching and Nuguid refused to return respondent
Nicdao’s checks despite her total payment of ₱6,980,000.00 for the loans secured by the
checks, petitioner Ching and Nuguid were using BP 22 to coerce respondent Nicdao to pay a
debt which she no longer owed them.

Moreover, the CA characterized as incredible and contrary to human experience that

petitioner Ching would, as he claimed, deliver a total sum of ₱20,000,000.00 to respondent
Nicdao without any documentary proof thereof, e.g., written acknowledgment that she received
the same. Likewise applicable, according to the CA, was the presumption that the person in
possession of the stolen article was presumed to be guilty of taking the stolen article.

The CA emphasized that the ₱20,000,000.00 check was never delivered by respondent
Nicdao to petitioner Ching. As such, the said check without the details as to the date, amount
and payee, was an incomplete and undelivered instrument when it was stolen and ended up in
petitioner Ching’s hands. On this point, the CA applied Sections 15 and 16 of the Negotiable
Instruments Law: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon before delivery. Every contract on a
negotiable instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a remote party
other than a holder in due course, the delivery, in order to be effectual, must be made either by
or under the authority of the party making, drawing, accepting or indorsing, as the case may
be; and, in such case, the delivery may be shown to have been conditional, or for a special
purpose only, and not for the purpose of transferring the property. But where the instrument is
in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as
to make them liable to him is conclusively presumed. And where the instrument is no longer in
the possession of a party whose signature appears thereon, a valid and intentional delivery by
him is presumed until the contrary is proved.

The CA held that the ₱20,000,000.00 check was filled up by petitioner Ching without
respondent Nicdao’s authority. Further, it was incomplete and undelivered. Hence, petitioner
Ching did not acquire any right or interest therein and could not assert any cause of action
founded on the stolen checks. Under these circumstances, the CA concluded that respondent
could not be held liable for violation of BP 22.

ISSUES

1. Whether or not the Supreme Court has the jurisdiction and authority to resolve
and rule on the civil liability invoking Section 1, Rule 111 of the Revised Rules of
Court .

2. Whether or not the CA is at fault for not acting and ordering the consolidation of
CA-G.R. CR No. 23055 with CA-G.R. CR No. 23054.

RULING:

The petition is denied for lack of merit.

1. Notwithstanding respondent Nicdao’s acquittal, petitioner Ching is entitled to

appeal the civil aspect of the case within the reglementary period. However, the
Court holds that respondent Nicdao cannot be held civilly liable to petitioner
Ching. The acquittal of respondent Nicdao likewise effectively extinguished her
civil liability.

It is axiomatic that "every person criminally liable for a felony is also civilly liable. Under the
pertinent provision of the Revised Rules of Court, the civil action is generally impliedly instituted
with the criminal action. At the time of Ching’s filing of the Informations against Nicdao, Section
1,35 Rule 111 of the Revised Rules of Court, provided that when a criminal action is instituted,
the civil action for the recovery of civil liability is impliedly instituted with the criminal action,
unless the offended party waives the civil action, reserves his right to institute it separately, or
institutes the civil action prior to the criminal action. Such civil action includes the recovery of
indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of
the Civil Code of the Philippines arising from the same act or omission of the accused.
 As a corollary to the above rule, an acquittal does not necessarily carry with it the
extinguishment of the civil liability of the accused. Section 2(b)36 of the same Rule, also quoted
earlier, provided that extinction of the penal action does not carry with it extinction of the civil,
unless the extinction proceeds from a declaration in a final judgment that the fact from which
the civil might arise did not exist.

It is also relevant to mention that judgments of acquittal are required to state "whether the
evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed
to prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the
act or omission from which the civil liability might arise did not exist. In Sapiera v. Court of
Appeals,the Court enunciated that the civil liability is not extinguished by acquittal: (a) where
the acquittal is based on reasonable doubt; (b) where the court expressly declares that the
liability of the accused is not criminal but only civil in nature; and (c) where the civil liability is
not derived from or based on the criminal act of which the accused is acquitted. Thus, under
Article 29 of the Civil Code –
ART. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt
has not been proved beyond reasonable doubt, a civil action for damages for the same act or
omission may be instituted. Such action requires only a preponderance of evidence. Upon
motion of the defendant, the court may require the plaintiff to file a bond to answer for
damages in case the complaint should be found to be malicious.

If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court
shall so declare. In the absence of any declaration to that effect, it may be inferred from the
text of the decision whether or not the acquittal is due to that ground.
The Court likewise expounded in Salazar v. People the consequences of an acquittal on the civil
aspect in this wise: The acquittal of the accused does not prevent a judgment against him on
the civil aspect of the criminal case where: (a) the acquittal is based on reasonable doubt as
only preponderance of evidence is required; (b) the court declared that the liability of the
accused is only civil; (c) the civil liability of the accused does not arise from or is not based
upon the crime of which the accused is acquitted. Moreover, the civil action based on the delict
is extinguished if there is a finding in the final judgment in the criminal action that the act or
omission from which the civil liability may arise did not exist or where the accused did not
commit the act or omission imputed to him.

If the accused is acquitted on reasonable doubt but the court renders judgment on the
civil aspect of the criminal case, the prosecution cannot appeal from the judgment of acquittal
as it would place the accused in double jeopardy. However, the aggrieved party, the offended
party or the accused or both may appeal from the judgment on the civil aspect of the case
within the period therefor.

From the foregoing, petitioner Ching correctly argued that he, as the offended party,
may appeal the civil aspect of the case notwithstanding respondent Nicdao’s acquittal by the
CA. The civil action was impliedly instituted with the criminal action since he did not reserve his
right to institute it separately nor did he institute the civil action prior to the criminal action.

In order for the petition to prosper, however, it must establish that the judgment of the CA
acquitting respondent Nicdao falls under any of the three categories enumerated in Salazar and
Sapiera, to wit:
(a) where the acquittal is based on reasonable doubt as only preponderance of evidence is
required;
(b) where the court declared that the liability of the accused is only civil; and
(c) where the civil liability of the accused does not arise from or is not based upon the crime of
which the accused is acquitted.

A painstaking review of the case leads to the conclusion that respondent Nicdao’s
acquittal likewise carried with it the extinction of the action to enforce her civil liability. There is
simply no basis to hold respondent Nicdao civilly liable to petitioner Ching.
 First, the CA’s acquittal of respondent Nicdao is not merely based on reasonable doubt.
Rather, it is based on the finding that she did not commit the act penalized under BP 22. In
particular, the CA found that the ₱20,000,000.00 check was a stolen check which was never
issued nor delivered by respondent Nicdao to petitioner Ching. As such, according to the CA,
petitioner Ching "did not acquire any right or interest over Check No. 002524 and cannot assert
any cause of action founded on said check," and that respondent Nicdao "has no obligation to
make good the stolen check and cannot, therefore, be held liable for violation of B.P. Blg. 22."
With respect to the ten (10) other checks, the CA established that the loans secured by these
checks had already been extinguished after full payment had been made by respondent Nicdao.
In this connection, the second element for the crime under BP 22, i.e., "that the check is made
or drawn and issued to apply on account or for value," is not present.

Second, in acquitting respondent Nicdao, the CA did not adjudge her to be civilly liable
to petitioner Ching. In fact, the CA explicitly stated that she had already fully paid her
obligations. The CA computed the payments made by respondent Nicdao vis-à-vis her loan
obligations in this manner: Clearly, adding the payments recorded at the back of the cigarette
cartons by Emma Nuguid in her own handwriting totaling ₱5,780,000.00 and the ₱1,200,000.00
demand draft received by Emma Nuguid, it would appear that petitioner [respondent herein]
had already made payments in the total amount of ₱6,980,000.00 for her loan obligation of only
₱2,100,000.00 (₱950,000.00 in the case at bar and ₱1,150,000.00 in CA-G.R. CR No. 23054. On
the other hand, its finding relative to the ₱20,000,000.00 check that it was a stolen check
necessarily absolved respondent Nicdao of any civil liability thereon as well.

Third, while petitioner Ching attempts to show that respondent Nicdao’s liability did not
arise from or was not based upon the criminal act of which she was acquitted (ex delicto) but
from her loan obligations to him (ex contractu), however, petitioner Ching miserably failed to
prove by preponderant evidence the existence of these unpaid loan obligations. Significantly, it
can be inferred from the following findings of the CA in its decision acquitting respondent
Nicdao that the act or omission from which her civil liability may arise did not exist. On the
₱20,000,000.00 check, the CA found as follows:

True, indeed, the missing pre-signed and undated check no. 002524 surfaced in the possession
of complainant Ching who, in cahoots with his paramour Emma Nuguid, filled up the blank
check with his name as payee and in the fantastic amount of ₱20,000,000.00, dated it October
6, 1997, and presented it to the bank on October 7, 1997, along with the other checks, for
payment. Therefore, the inference that the check was stolen is anchored on competent
circumstantial evidence. The fact already established is that Emma Nuguid, previous owner of
the store, had access to said store.

Moreover, the possession of a thing that was stolen , absent a credible reason, as in this case,
gives rise to the presumption that the person in possession of the stolen article is presumed to
be guilty of taking the stolen article (People v. Zafra, 237 SCRA 664).

Anent the other ten (10) checks, the CA made the following findings: Evidence
sufficiently shows that the loans secured by the ten (10) checks involved in the cases subject of
this petition had already been paid. It is not controverted that petitioner gave Emma Nuguid a
demand draft valued at ₱1,200,000 to pay for the loans guaranteed by said checks and other
checks issued to her. Samson Ching admitted having received the demand draft which he
deposited in his bank account. However, complainant Samson Ching claimed that the said
demand draft represents payment for a previous obligation incurred by petitioner. However,
complainant Ching failed to adduce any evidence to prove the existence of the alleged
obligation of the petitioner prior to those secured by the subject checks.

Apart from the payment to Emma Nuguid through said demand draft, it is also not
disputed that petitioner made cash payments to her who collected the payments almost daily at
the Vignette Superstore. As of July 21, 1997, Nuguid collected cash payments amounting to
approximately ₱5,780,000.00. All of these cash payments were recorded at the back of
cigarette cartons in her own handwriting, the authenticity and accuracy of which were never
denied by either complainant Ching or Emma Nuguid.
 Generally checks may constitute evidence of indebtedness. However, in view of the CA’s
findings relating to the eleven (11) checks - that the ₱20,000,000.00 was a stolen check and
the obligations secured by the other ten (10) checks had already been fully paid by respondent
Nicdao – they can no longer be given credence to establish respondent Nicdao’s civil liability to
petitioner Ching. Such civil liability, therefore, must be established by preponderant evidence
other than the discredited checks.
After a careful examination of the records of the case, the Court holds that the existence of
respondent Nicdao’s civil liability to petitioner Ching in the amount of ₱20,950,000.00
representing her unpaid obligations to the latter has not been sufficiently established by
preponderant evidence. Petitioner Ching mainly relies on his testimony before the MCTC to
establish the existence of these unpaid obligations. As security for her obligations, she issued
eleven (11) checks which were invariably blank as to the date, amounts and payee. When
respondent Nicdao allegedly refused to pay her obligations despite his due demand, petitioner
filled up the checks in his possession with the corresponding amounts and date and deposited
them in his account. They were dishonored by the HSLB for being "DAIF" and petitioner Ching
accordingly filed the criminal complaints against respondent Nicdao for violation of BP 22.

It is a basic rule in evidence that the burden of proof lies on the party who makes the
allegations – Et incumbit probatio, qui dicit, non qui negat; cum per rerum naturam factum
negantis probatio nulla sit (The proof lies upon him who affirms, not upon him who denies;
since, by the nature of things, he who denies a fact cannot produce any proof).

In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be synonymous with the term
"greater weight of evidence" or "greater weight of the credible evidence." Preponderance of
evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence
which is more convincing to the court as worthy of belief than that which is offered in
opposition thereto. Section 1, Rule 133 of the Revised Rules of Court offers the guidelines in
determining preponderance of evidence:
SEC. 1. Preponderance of evidence, how determined. – In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where
the preponderance or superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses’ manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their testimony, their
interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses,
though the preponderance is not necessarily with the greater number.

Unfortunately, petitioner Ching’s testimony alone does not constitute preponderant

evidence to establish respondent Nicdao’s civil liability to him amounting to ₱20,950,000.00.
Apart from the discredited checks, he failed to adduce any other documentary evidence to
prove that respondent Nicdao still has unpaid obligations to him in the said amount. Bare
allegations, unsubstantiated by evidence, are not equivalent to proof under our Rules.

The Court agrees with the CA that the daily payments made by respondent Nicdao
amounting to ₱5,780,000.00 cannot be considered as interest payments only. However, as
correctly ruled by the CA, no interests could be properly collected in the loan transactions
between petitioner Ching and respondent Nicdao because there was no stipulation therefor in
writing. Under Article 1956 of the Civil Code, "no interest shall be due unless it has been
expressly stipulated in writing." Neither could respondent Nicdao be considered to be estopped
from denying the validity of these interests. Estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. Clearly, the collection of interests without
any stipulation therefor in writing is prohibited by law. The daily payments made by respondent
Nicdao amounting to ₱5,780,000.00 were properly considered by the CA as applying to the
principal amount of her loan obligations.
 With respect to the ₱20,000,000.00 check, the defense of respondent Nicdao that it was
stolen and that she never issued or delivered the same to petitioner Ching was corroborated by
the other defense witnesses, namely, Tolentino and Jocelyn Nicdao. As earlier intimated, she
cannot be held civilly liable to petitioner Ching for her acquittal; under the circumstances which
have just been discussed lengthily, such acquittal carried with it the extinction of her civil
liability as well.

2. The CA committed no reversible error in not consolidating CA-G.R. CR No. 23055

and CA-G.R. CR No. 23054

On the CA’s failure to consolidate CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054,
respondent Nicdao proffers the explanation that under the RIRCA, consolidation of the cases is
not mandatory. In fine, respondent Nicdao urges the Court to deny the petition as it failed to
discharge the burden of proving her civil liability with the required preponderance of evidence.
Moreover, the CA’s acquittal of respondent Nicdao is premised on the finding that, apart from
the stolen check, the ten (10) other checks were not made to apply to a valid, due and
demandable obligation. This, in effect, is a categorical ruling that the fact from which the civil
liability of respondent Nicdao may arise does not exist.

During the pendency of CA-G.R. CR No. 23055 and CA-G.R. CR No. 23054 in the CA, the
pertinent provision of the RIRCA on consolidation of cases provided: SEC. 7. Consolidation of
Cases. – Whenever two or more allied cases are assigned to different Justices, they may be
consolidated for study and report to a single Justice.
(a) At the instance of any party or Justice to whom the case is assigned for study and report,
and with the conformity of all the Justices concerned, the consolidation may be allowed when
the cases to be consolidated involve the same parties and/or related questions of fact and/or
law.

The use of the word "may" denotes the permissive, not mandatory, nature of the above
provision, Thus, no grave error could be imputed to the CA when it proceeded to render its
decision in CA-G.R. CR No. 23055, without consolidating it with CA-G.R. CR No. 23054.

Loayon, Jacqueline

PHILIPPINE PHOSPHATE FERTILIZER CORPORATION vs. KAMALIG

FACTS:

Kamalig purchased fertilizer products from Philphos for eventual sale to its
customers. The agreement governing the business transaction consisted of advance payment to
Philphos for Kamaligs purchases of fertilizer products, followed by Philphoss issuance of a Sales
Official Receipt and an Authority to Withdraw, indicating the kind of fertilizer product purchased
and the location of the warehouse where the merchandise would be picked up. Kamalig would
subsequently resell the fertilizer products and issue to its customers the corresponding Delivery
Orders signed only by its authorized officers. The customers would then present the Delivery
Orders to the proper Philphos warehouse for the release of the fertilizer products.

In the letter dated 21 July 1986, Philphos informed Kamalig of its overwithdrawal of
various fertilizer stocks in the supply depots in Manila and Iloilo. According to Philphos, the cost
of these overwithdrawals by Kamalig amounted to P1,016,994.21. But since Philphos also had
an obligation to Kamalig in the amount of P470,348.91 representing the Capital Recovery
Component, partial compensation took place by operation of law thereby reducing Kamaligs
obligation to P546,645.30. Thus, Philphos demanded that this sum be settled on or before 31
July 1986, otherwise Kamalig would be charged 34% interest per annum. Kamalig, however,
denied that it had exceeded its withdrawals of fertilizer and thus contended that it should not
be made liable for any amount.

Philphos filed the case for collection of a sum of money against Kamalig before the RTC
of Makati City. The RTC ordered defendant to pay plaintiff the amount of P546,645.30
representing the overwithdrawn stocks made by defendant to plaintiff plus 34% interest per
annum from 20 August 1987 until fully paid.

Kamalig appealed the decision to the Court of Appeals, which REVERSED and SET ASIDE the
decision of the RTC.

ISSUES

1. Whether or not Philphos is liable to Kamalig for the sum of P645,190.29, considering
that based on Philphoss evidence, it is Kamalig who is indebted to Philphos for the sum
of P538,486.74.
2. Whether or not Philphoss evidence is not sufficient to prove the existence of an
outstanding obligation.
3. Whether or not there can be no basis for the imposition of a 34% interest per annum on
the outstanding obligation of Kamalig to Philphos.

HELD

The Supreme Court found that the decision of the Court of Appeals needs to be modified
in certain aspects.

The pre-printed delivery orders are a vital security measure to prevent unauthorized
withdrawals of fertilizer, and benefits not only Kamalig but Philphos as well. As Kamalig explains
in its Comment, the pre-printed and pre-numbered forms were so designed in such a way that
the person dealing with it will be informed that the delivery order is duly issued by Kamalig and
can be relied upon; corollarily, if the customer presents a delivery order that is not in the
prescribed pre-printed form, the person dealing with it should be alerted that it was not issued
according to standard company practice and anyone acting upon it acts at his own risk. The
practice of using these pre-printed delivery orders is obviously the modality in the ordinary
course of business between Kamalig and Philphos. Philphoss failure to strictly observe and
implement this practice precludes it from complaining of the adverse effects of such failure.
 According to the Supreme Court, the claimed overwithdrawal has not been proven, the
same should not be included in the total withdrawals made by and charged to Kamalig. From
the total withdrawals of P4,986,247.92, the unauthorized withdrawals of P378,891.41 from
the Iloilo warehouse should be deducted since Kamalig should not be made liable for such
withdrawals but instead entered for the account of Philphos. The difference of P4,607,356.51
would then represent the actual withdrawals from which Kamaligs advance payment
of P4,548,152.44 should be deducted, leaving only P59,204.07. Considering that Philphos owes
Kamalig P470,348.91 as Capital Recovery Component, Kamaligs liability of P59,204.07 should
be deducted from this amount, leaving P411,144.84 which Philphos still owes Kamalig, and
not P645,190.25 as found by the Court of Appeals.

With respect to the 34% per annum interest claimed by Philphos, we agree with the
Court of Appeals that no evidence was presented that would show that the parties stipulated on
the payment of interest. Under Article 1956 of the Civil Code, no interest shall be due unless it
has been expressly stipulated in writing. Philphos presented only its demand letters insisting on
payment of the value of the overwithdrawals and imposition of 34% interest per annum if
payment is not made in due time. Said unilateral impositions of interest do not suffice as proof
of agreement on the alleged 34% per annum interest.

Therefore, the Supreme Court MODIFIED the Decision dated 26 May 2004 of the Court
of Appeals.

Tapil, Jacquelyn V.

ROLANDO DE LA PAZ VS. L&J DEVELOPMENT COMPANY

FACTS:

Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php 350,000
to L & J Development Corporation, a property developer represented by Atty. Esteban Salonga
as its president and general manager. The loan was executed without any security and no
maturity date. It was however agreed between the parties that the loan will have a 6% monthly
interest (amounting to Php 21,000). So far, L&J paid a total of Php 576,000 already – including
interest charges from December 2000 to August 2003.

L&J later failed to make payments due to financial difficulties in the business. Rolando
then filed a collection case with the MTC and alleged as of January 2005, L&J still owes him Php
772,000 inclusive of monthly interests.

L&J (represented by Atty. Salonga) did not deny that they did incurred a debt from
Rolando, and admitted that they failed to pay due to a fortuitous event. They also contended
that the 6% monthly interest is unconscionable and that their total payment of Php 576,000
should be applied to the principal loan which only amounts to Php 350,000. Rolando also
contends that Atty. Salonga tricked him to execute the said loan plus interest without reducing
the agreement in writing. He also said that the 6% interest rate was at the suggestion and
insistence of L&J.

The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as
valid since L&J complied to it as evidenced by the payment they made from December 2000 to
August 2003. L&J is now estopped to impugn said interest rate. The MTC also reduced the legal
interest rate to 12% per annum on the remaining loan for reasons of equity. They did not grant
the prayer of moral damages to Rolando since there was no bad faith on the part of L&J.

L&J appealed the decision to the RTC – contending once again that the 6% interest rate
is unconscionable, and that their previous payment which totaled Php 576,000 should be used
to set off the principal loan of Php 350,000. RTC however affirmed the decision of the MTC. L&J
appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a
written agreement and hence, it should not be considered due. CA ruled that the loan was
already paid, and that Rolando should return the excess Php 226,000 with interest of 12% per
annum. The case has now reached the Supreme Court.

ISSUE:

Whether or not the unwritten 6% interest agreement should be honored.

HELD:

No. The Supreme Court held that, as provided under the Civil Code, an agreement
regarding loan interests should be stipulated in writing. Even if the 6% monthly rate was done
in writing, it will still be void for being unconscionable and contrary to morals and public policy –
for at this time, an interest rate of 3% and higher is considered excessive and exorbitant.

Furthermore, the lack of maturity date puts the total interest to a whopping 72% per
annum which the Supreme Court considered to be “definitely outrageous and inordinate.” The
Supreme Court affirmed CA’s ruling, but as to Rolando’s obligation to pay the excess Php
226,000, the interest rate was reduced from 12% to 6% per annum.

Lee, Jay Jasper

DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.

FACTS:

On January 24, 1997, Dario Nacar got dismissed by his employer, Gallery Frames. He
filed a complaint; the Labor Arbiter ruled that petitioner was dismissed without just cause. A
computation for the separation pay and back wages were made it amounted to Php 158,919.92.
The respondent sought appeal to the NLRC, CA and Supreme Court, but they were all
dismissed, thus the judgment became final on April 17, 2002.

During the execution of the final judgment, the petitioner filed a motion for the re-
computation of the damages. The amount previously computed includes the separation pay and
back wages up to the time of his dismissal. The petitioner argued that the damages should
cover the period until the date of final judgment. A re-computation was made and the damages
was increased to 471,320.31. Respondent prayed for the quashal of such motion on the ground
that the judgment made by the SC is already final and the amount should not be further
altered.

Petitioner also filed another motion asking the court to order the respondent to pay the
appropriate legal interest of the damages from the date of final judgment until full payment.

ISSUES
1. Whether or not a subsequent correction of the damages awarded during the final
judgment of the Supreme Court violates the rule on immutability of judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
3. Whether or not appropriate interests may be claimed by the petitioner.

RULING

1. Whether or not a subsequent correction of the damages awarded during the final
judgment of the Supreme Court violates the rule on immutability of judgments.

The Supreme Court ruled that a correction in the computation of the damages does not
violate the rule on immutability of judgments. The final decision made by the Supreme Court to
award the petitioner with damages with regards to the dismissal without justifiable cause can
be divided into two important parts. One is the finding that an illegal dismissal was indeed
made. And the other is the computation of damages. According to a previous case of Session
Delights Ice Cream and Fast Foods v. Court of Appeals, the Supreme Court held that the second
part of the decision - being merely a computation of what the first part of the decision
established and declared - can, by its nature, be re-computed. The re-computation of the
consequences of illegal dismissal upon execution of the decision does not constitute an
alteration or amendment of the final decision being implemented. The illegal dismissal ruling
stands; only the computation of monetary consequences of this dismissal is affected, and this is
not a violation of the principle of immutability of final judgments.

2. Whether or not the re-computation made by the Labor Arbiter is correct.

The Supreme Court believes that the amount of 471,320.31 as damages is correct.
According to Article 279 of the Labor Code, reliefs in case of illegal dismissal continue to add
up until its full satisfaction. The original computation clearly includes damages only up to the
finality of the labor arbiter's decision. Therefore, the Supreme Court approves the decision
confirming that a re-computation is necessary. The labor arbiter re-computed the award to
include the separation pay and the back wages due up to the finality of the decision that fully
terminated the case on the merits.
3. Whether or not appropriate interests may be claimed by the petitioner.
 The Supreme Court ruled that the petitioner shall be entitled to interest. In the case of
Eastern Shipping Lines, Inc. v. Court of Appeals, among the guidelines laid down by the
Supreme Court regarding the manner of computing legal interest is - when the judgment of the
court awarding a sum of money becomes final and executory, the rate of legal interest shall be
12% per annum from such finality until its satisfaction. In addition to this, the Bangko Sentral
ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013 declared
that 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
six percent (6%) per annum. Consequently, the twelve percent (12%) per annum legal interest
shall apply until June 30, 2013. Afterwards, the new rate of six percent (6%) per annum shall
be the prevailing rate of interest when applicable.
The respondent was ordered to pay interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until their full satisfaction.

Yu, Jelica
David VS CA, 310 SCRA 710

FACTS:

This is a petition for review, under Rule 45 of the Rules of Court, seeking the reversal of
the Decision of the Court of Appeals dated May 30, 1994.

The parties do not dispute the facts in this case. The dispute concerns only the
execution of the Decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No.
94781, dated October 31, 1979, as amended by an Order dated June 20, 1980.

The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, issued a writ of
attachment over real properties covered by TCT Nos. 80718 and 10289 of private respondents.
In his Decision, Judge Diaz ordered private respondent Afa ble to pay petitioner P66, 500 .00
plus interest from July 24, 1974, until fully paid, plus P5,000.00 as attorney’s fees, and to pay
the costs of suit. On June 20, 1980, Judge Diaz issued an Order amending said Decision, that
the legal rate of interest should be computed from January 4, 1966, instead of from July 24,
1974.

Respondent Afable appealed to the Court of Appeals and then to the Supreme Court. In
both instances, the decision of the lower court was affirmed. Entries of judgment were made
and the record of the case was remanded to Branch 27 by respondent Judge Edgardo P. Cruz
for the final execution of the Decision. Upon petitioner’s motion, respondent Judge issued an
Alias Writ of Execution by virtue of which respondent Sheriff Melchor P. Peña conducted a
public auction. Sheriff Peña informed the petitioner that the total amount of the judgment is
P270, 940.52. The amount included a computation of simple interest. Petitioner, however,
claimed that the judgment award should be P3, 027,238.50, because the amount due ought to
be based on compounded interest. Although the auctioned properties were sold to the
petitioner, Sheriff Peña did not issue the Certificate of Sale because there was an excess in the
bid price in the amount of P2,941,524. 47, which the petitioner failed to pay despite notice. This
excess was computed by the Sheriff on the basis of petitioner’s bid price of P3,027,238.50
minus the amount of P270,940.52 computed in the judgment award.

On May 18, 1993, petitioner filed a Motion praying that respondent Judge Cruz issue an
order directing respondent Sheriff Peña to prepare and execute a certificate of sale in favor of
the petitioner, placing therein the amount of the judgment as P3,027,238.50, the amount he
bid during the auction which he won. His reason is that compound interest, which is allowed by
Article 2212 of the Civil Code, should apply in this case.

ISSUE:
1. Whether or not that the computation of the judgment award amount due be in a
compounded interest

RULINGS:

The instant petition is DENIED. Petitioner insists that in computing the interest due of
the P66,500.00 interest should be computed at 6% on the principal sum of P66,500.00
pursuant to Article 2209 and then "interest on the legal interest" should also be computed in
accordance with the language of Article 2212 of the Civil Code. 4 In his view, said article meant
"compound interest".

Article 2212 was interpreted by the Court and was defined the standards for its
application in Philippine American Accident Insurance v. Flores, 97 SCRA 811. As therein held,
Article 2212 contemplates the presence of stipulated or conventional interest which has accrued
when demand was judicially made. In cases where no interest had been stipulated by the
parties, as in the case of Philippine American Accident Insurance, no accrued conventional
interest could further earn interest upon judicial demand.
 Note that in the case now before us, the Court of Appeals made the factual finding that
no interest was stipulated by the parties. In the promissory note denominated as ‘Compromise
Agreement’ signed by the private respondent which was duly accepted by petitioner no interest
was mentioned. In his complaint, petitioner merely prayed that defendant be ordered to pay
plaintiff the sum of P66, 500.00 with interest thereon at the legal rate from the date of the filing
of the complaint until fully paid." Clearly here the Philippine American Accident Insurance ruling
applies.

Gordillo, Jenny Mae

LIGUTAN vs COURT OF APPEALS

FACTS:

Tolomeo Ligutan and Leonidas Dela Llana who are the petitioners, obtained a loan
amounting to P120,000.00 from Security Bank and Trust Company who is the respondent.
Petitioners provided promissory note binding themselves, jointly and severally, with an interest
of 15.189% per annum upon maturity and penalty of 5% every month on the outstanding
principal and interest in case of default, and also a 10% attorney’s fees if such are indorsed to a
lawyer for collection.

As the obligation matured, petitioners were unable to settle the obligation; the bank
gave and extension and still the same happened. Since the petitioners defaulted, Security Bank
filed for the recovery of the due amount.

ISSUE:
Whether or not the interest penalty charge imposed by Security Bank on Ligutan and
Dela Llana’s loan are manifestly extortionate, unfair, and unconscionable?

RULING:

The obligor will not be bound to pay the stipulated indemnity without the necessity of
proof on the existence and on the measure of damages caused by the breach. Although a court
may not at liberty ignore the freedom of the parties to agree on such terms and conditions as
they see fit that contravene neither law nor morals, good customs, public order or public policy,
a stipulated penalty nevertheless, may be equitably reduced by the courts if it is unfair or
unconscionable of if the principal obligation has been partly or irregularly complied with. The
question of whether or not a penalty is reasonable or unfair can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the
type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and
its consequences, the supervening realities, the standing and relationship of the parties, and the
like, the application of which, by and large, is addressed to the sound discretion of the court.

Court of Appeals exercised good judgment in reducing the stipulated penalty interest to
3% a month. It was also held that the interest per annum and the attorney’s fees are
reasonable. The interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank’s existence.

Tobio, Jinesse
P. Spouses Eduardo and Lydia Silos vs Philippine National Bank

FACTS:

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, the Silos
constituted in August 1987 a Real Estate Mortgage over a 370sqm lot in Kalibo, Aklan. In July
1988, the credit line was increased to P1.8 million and the mortgage was correspondingly
increased to P1.8 million. And in July 1989, a Supplement to the Existing Real Estate Mortgage
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 134sqm lot.

In addition, petitioners issued eight Promissory Notes and signed Credit Agreement
which contained a stipulation on interest providing that the interest rate shall at 19.5% per
annum and shall be payable in advance every 120 days at the rate prevailing at the time of the
renewal. The spouses have also agreed to the stipulations that: 1) the Bank eht yfidom yam
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; 2) where the Bank has imposed on the Loan interest at a
rate per annum, which is equal to the Bank’s 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.

The petitioners religiously paid for said interests which ranged from 19.5% to 32%. In
August 1991, the parties executed an Amendment to Credit Agreement on the interest
stipulating that the Borrowers agree to pay interest on each Availment at the rate per annum
which is determined by the Bank to be prime rate plus applicable spread. Under the
Amendment, the petitioners issued in favor of PNB 16 additional promissory notes with interest
rates ranging from 17.5% to 26%. The 9th to 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 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: For this purpose,
fo etar eht taht eerga eW/Iinterest 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 Bank’s 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 to prepay the loan
or credit facility without penalty within ten (10) calendar days from the Interest Setting Date.

The respondent regularly renewed the line from 1990 to 1997, and the petitioners have
again, religiously paid the interests without objection or fail. However, in 1997, the petitioners
faltered its payments mainly because of the Asian financial crisis causing the interest rates to
soar. Despite repeated demands from respondent, petitioners failed to pay their last
outstanding Promissory Note of P2.5 million. Incidentally, the last Promissory Note provided for
the penalty of 24% in case of default.

PNB prepared a Statement of Account as of October 12, 1998, detailing the amount due
and demandable from petitioners in the total amount of P3,620,541.60. Despite demand,
petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage, and on
January 14, 1999, the properties were sold to it at auction for the amount of P4,324,172.96.21
The sheriff’s certificate of sale was registered on March 11, 1999.

In 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 thelegal
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 the lots became unnecessary and wrongful.

The RTC dismissed the complaint, ruling that the promissory note, as the principal
contract evidencing petitioners’ loan, prevails over the Credit Agreement and the Real Estate
Mortgage. As such, the rate of interest, penalties and attorney’s fees stipulated in the
Promissory Note prevail over those mentioned in the Credit Agreement and the Real Estate
Mortgage agreements. The RTC also cited the case of SOLIDBANK v CA where the Court held
that such stipulation authorizing both the increase and decrease of interest rates as may be
applicable is valid.

The CA noted that, based on receipts presented by petitioners during trial, the latter
dutifully paid a total of P3,027,324.60 in interest for the period August 7, 1991 to August 6,
1997, over and above the P2.5 million principal obligation. And this is exclusive of payments for
insurance premiums, documentary stamp taxes and penalties. All the while, petitioners did not
complain nor object to the imposition of interest; paid the same religiously and withour fail for
seven years. Thus, the appellate court held that the petitioners are estopped from questioning
the same.

ISSUE/S:
WON the interest rates provided for in the Credit Agreement and the Amendment of
Credit Agreement is null and void due to the fact that the same are at the sole and unilateral
determination of the Bank

COURT’S RULING:

The interest rates provided for are null and void. PNB violated the mutuality of contracts
provided for in Article 1308 of the Civil Code when the bank unilaterally increased the interest
rate of the private respondents’ loan. Article 1308 provides that the contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them. It would
have invested the loan agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker party’s (the debtor) participation being
reduced to the alternative “to take it or leave it” . . . . Such a contract is a veritable trap for the
weaker party whom the courts of justice must protect against abuse and imposition. Moreover,
a contract containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void. Article 1956 also provides that “No
interest shall be due unless it has been expressly stipulated in writing.” sah tahW been
“stipulated in writing” from a perusal of interest rate provision of the credit agreement signed
between the parties is that petitioners were bound merely to pay 21% interest, subject to a
possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-
escalation; 2) within the limits allowed by law; and 3) upon agreement. era sesualc noitalacsE
ro gnorw yllacisab tonlegally objectionable so long as they are not solely potestative but based
on reasonable and valid ground.

Laroa, Apolinario
SOLIDBANK CORPORATION v. PERMANENT HOMES, INCORPORATED

FACTS:

PERMANENT HOMES is a real estate development company, and to finance its housing
project known as the "Buena Vida Townhomes" located within Merville Subdivision, Paranaque
City, it applied and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit
facility in the total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION
as [sic] time loan for a term of up to three hundred sixty (360) days, with interest thereon at
prevailing market rates, and subject to monthly repricing. The remaining ONE MILLION was
available for domestic bills purchase. To secure the aforesaid loan, PERMANENT HOMES initially
mortgaged three (3) townhouse units within the Buena Vida project in Paraסaque. At the
time, however, the instant complaint was filed against SOLIDBANK, a total of thirty six (36)
townhouse units were mortgaged with said bank.
Of the 60 million available to PERMANENT HOMES, it availed of a total of 41.5 million pesos,
covered by three (3) promissory notes.

There was a standing agreement by the parties that any increase or decrease in interest
rates shall be subject to the mutual agreement of the parties.

It is [Permanent's] stand that SOLIDBANK unilaterally and arbitrarily accelerated the

interest rates without any declared basis of such increases, of which PERMANENT HOMES had
not agreed to, or at the very least, been informed of. This is contrary to their earlier agreement
that any interest rate changes will be subject to mutual agreement of the parties. PERMANENT
HOMES further admits that it was not able to protest such arbitrary increases at the time they
were imposed by SOLIDBANK, for fear that SOLIDBANK might cut off the credit facility it
extended to PERMANENT HOMES.

[Permanent] thus filed a case before the trial court seeking (1) the annulment of the
increases in interest rates on the loans it obtained from SOLIDBANK, (2) the fixing of the
interest rates at the applicable interest rate, and (3) for the trial court to order SOLIDBANK to
make an accounting of the payments it made, so as to determine the amount of refund
PERMANENT is entitled to, as well as to order SOLIDBANK to release the remaining available
balance of the loan it extended to PERMANENT. SOLIDBANK, on the other hand, avers that
PERMANENT HOMES has no cause of action against it, in view of the pertinent provisions of the
Omnibus Credit Line and the promissory notes agreed to and signed by PERMANENT
HOMES. Thus, in accordance with said provisions, SOLIDBANK was authorized to, upon due
notice, periodically adjust the interest rates on PERMANENT HOMES' loan availments during the
monthly interest repricing dates, depending on the changes in prevailing interest rates in the
local and international capital markets. SOLIDBANK insists that PERMANENT HOMES should not
be allowed to renege on its contractual obligations, as it freely and voluntarily bound itself to
the provisions of the Omnibus Credit Line and the promissory notes.

The trial court promulgated its Decision in favor of Solidbank, and ruled that the instant
case was instituted by [Permanent] as an after-thought and as an obvious subterfuge intended
to completely lay on the defendant the blame for the debacle of its Buena Vida project.

However, in its appeal, the appellate court granted Permanent's appeal, and set aside
the trial court's ruling. The appellate court not only recognized the validity of escalation
clauses, but also underscored the necessity of a basis for the increase in interest rates
and of the principle of mutuality of contracts, and ruled that (1) unless the parties
subsequently enter into an express agreement regarding the applicable interest rates the legal
rate of twelve percent (12%) per annum is hereby FIXED, and (2) SOLIDBANK is ordered to
render an accounting of all the payments made by PERMANENT HOMES, and in case there is
excess payment by reason of the wrongful imposition of the repriced interest rates, to apply
such amount to the interest payment at the legal rate, and thereafter to the outstanding
principal amount

ISSUE:
WON the increase in the interest rates on [Permanent's] loans are void for having been
unilaterally imposed without basis.

HELD:

YES. The increase in the interest on loans unilaterally without basis is void. The Usury
Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the
Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took
effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to
agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is
within the range of judicial notice which courts are bound to take into account.[9] Although
interest rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The lender and the borrower
should agree on the imposed rate, and such imposed rate should be in writing. In
order that obligations arising from contracts may have the force of law between the parties,
there must be a mutuality between the parties based on their essential equality.[10] A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is void.

In the instant case, Solidbank admitted that it did not promptly send Permanent written
repriced rates, but rather verbally advised Permanent's officers over the phone at the start of
the period. Solidbank advised Permanent Homes Inc. on the repriced interest rate applicable
for the 30-day interest period only after the period had begun.
Thus the SC ruled that Solidbank's computation of the interest due from Permanent Home Inc.
should be adjusted to take effect only upon Permanent's receipt of the written
notice from Solidbank.

Añano, Antonio
RODELO G. POLOTAN, SR, vs. HON. COURT OF APPEALS

Facts:

A Petition for Review on Certiorari from the Court of Appeals in CA-G.R. CV No. 33270
affirming the decision of Branch 132 of the Regional Trial Court of Makati City on the case of
Security Diners International Corporation (Diners Club), a credit card company. Petitioner
Rodelo G. Polotan, Sr. applied for membership and credit accommodations with Diners Club in
October 1985 with a terms and conditions governing the use and availment of the Diners Club
card, among the conditions was to pay all the charges through the use of said card within the
period including 3% interest per annum plus prime rate of Security Bank & Trust Company. On
may 8, 1987, petitioner incurred credit charges plus appropriate interest and service charges in
the aggregate amount of P33,819.84 which had become due and demandable. Hence, private
respondent filed a Complaint for Collection of Sum of Money against petitioner before the lower
court.

The lower court ruled, rendered ordering defendants to pay jointly and severally plaintiff:
The Court of Appeals affirmed the ruling of the lower court. Hence, this petition. Petitioner
assigns the following errors:

Issue:

Petitioner argues that the provision on interest rate is obscure and ambiguous and not
susceptible of reasonable interpretation particularly the terms prime rate, prevailing market rate
and guiding rate. In effect, there was no meeting of minds and also claimed that Diners Club
admitted, through its statement of account, that petitioners wife, Mrs. Polotan, had no more
account with it. But then, he claimed that the lower court and the Court of Appeals allowed the
testimony of one Mr. Vicente explaining that the reason why Mrs. Polotan had no more account
with it was that being a supplementary cardholder, her account was consolidated with that of
petitioner in accordance with its new policy. In effect, petitioner insists that both courts favored
the uncorroborated testimonial evidence of Mr. Vicente over the documentary evidence
presented by petitioner and admitted by Diners Club.

Petitioner claimed that he should have been awarded damages because of Diners Clubs
bad faith and court finds petitioners contentions without merit. Court sees it fit and proper to
discuss the merits of this petition based on petitioners claim that since the contract he signed
with Diners Club was a contract of adhesion. Contract containing standard stipulations imposed
upon those who seek to avail of its credit services was prepared by Diners Club. There is no
way a prospective credit card holder can object to any onerous provision as it is offered on a
take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity in its provisions must be
construed against private respondent.

Held:

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. The
contractual provision in question states that if there occurs any change in the prevailing market
rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardhoder other than the required
posting on the monthly statement served to the Cardholder.

Certainly, Diners Club could not deny the existence of Exhibit 2 which is the Statement of
Account issued to Mrs. Polotan since, precisely, it was the one which issued said statement. But
to conclude that said Statement of Account was likewise an admission that Mrs. Polotan has no
more account with Diners Club would be equivocatory, or non-sequitur.
While private respondent admitted the existence of Exhibit 2, it could not have agreed to
the purpose for which the exhibit was presented. As satisfactorily found by the Court of Appeals
and to which this Court agrees:
Moreover, it is to be observed that while the Complaint was filed on 15 May 1987, the Diners
Club Monthly Statement in the name of Alicia B. Polotan is dated almost two (2) years later or
02/08/89 (Exh. 2). This bolsters the testimony of Alfredo Vicente regarding the entry of zero
balance in Mrs. Polotans name.

Although said exhibit would, by itself, show that Mrs. Polotan had no more account with
Diners Club, it would not have been conclusive to prove that said account was already paid. The
proper evidence would have been a receipt of payment.

Significantly, petitioner did not contest the purchases as indicated in the statements of
account but merely alleged that some of the purchases being claimed to have been made by
petitioner were not supported by invoices. The lower court found otherwise.[12]

In light of the above, this Court sees no reason to award damages to petitioner.
WHEREFORE, in view of the foregoing, the petition for certiorari is hereby DENIED and
the Decision of the Court of Appeals AFFIRMED with the MODIFICATION that the attorneys fees
are reduced to 15%.

Latonio, Kimberly Anne

Briones vs Cammayo 41 SCRA 404

Facts:

Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo,
Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit. The
defendants allege that a mortgage contract was executed for securing the payment of
P1,500.00 for a period of 1 year, without interest, but the plaintiff delivered to the defendant
Primitivo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as
advance interest for 1 year; that on the account of said loan of P1,200.00, defendant Primitivo
paid to the plaintiff the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to
acknowledge as part payment of the account but as an interest of the said loan for an extension
of another term of one year; and that said contract of loan entered into between plaintiff and
defendant Primitivo is a usurious contract. Briones denied the allegations of the defendants.
The Municipal Court rendered judgment sentencing the defendants to pay the plaintiff with
interests thereon plus attorney’s fees. The Court of First Instance of Manila also ordered the
defendants to pay the plaintiff. Defendants claim that the trial court erred in sentencing them to
pay the principal of the loan notwithstanding its finding that the same was tainted with usury
and erred likewise in not dismissing the case.

ISSUE:
Whether or not the creditor is entitled to collect from the debtor the amount
representing the principal obligation.

HELD:
Yes. Under Act 2655 a usurious contract is void; that the creditor had no right of action
to recover the interest in excess of the lawful rate; but that this did not mean that the debtor
may keep the principal received by him as loan- thus unjustly enriching himself to the damage
of the creditor. The Usury Law, by its letter and spirit did not deprive the lender of his right to
recover from the borrower the money actually loaned to and enjoyed by the latter. In simple
loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt,
which is the cause of the contract, is not illegal. The illegality lies only as to the prestation to
pay the stipulated interest; hence, being separable, the latter only should be deemed void,
since it is the only one that is illegal. The principal debt remaining without stipulation for
payment of interest can be recovered by judicial action. And in case of such demand, the debtor
incurs in delay, the debt earns interest from the date of the demand. Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision
of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest
by way of damages.

Palconite , Krystelle Joy

FIRST METRO INVESTMENT CORPORATION vs. ESTE DEL SOL MOUNTAIN RESERVE,
INC.

FACTS:
On January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of
P7,385,500.00 to finance the construction and development of the Este del Sol Mountain
Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.

Under the terms of the Loan Agreement, the interest was 16% per annum based on the
diminishing balance. The loan was payable in 36 equal and consecutive monthly amortizations.
In case of default, an acceleration clause was provided and the amount due was made subject
to 20% one-time penalty and such amount shall bear interest at the highest rate permitted by
law from the date of default until full payment thereof plus liquidated damages at the rate of
2% per month compounded quarterly on the unpaid balance and accrued interests together
with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid,
plus attorney's fees equivalent to 25% of the sum sought to be recovered, which in no case
shall be less than P20,000.00 if the services of a lawyer were hired.

In accordance with the terms of the Loan Agreement, respondent Este del Sol executed
several documents as security for payment such as, (a) a Real Estate Mortgage; (b) individual
Continuing Surety ship agreements by co-respondents; and, (c) an Underwriting Agreement
whereby petitioner FMIC shall underwrite the public offering of 120,000 common shares of
respondent Este del Sol's capital stock for a one-time underwriting fee of P200,000.00,
supervision fee of P200,000.00 and consultancy fee of P332,500.00 both per annum for a
period of four (4) consecutive years. Simultaneous with the execution of the terms of the
Underwriting Agreement, a Consultancy Agreement was also executed whereby respondent
Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general
consultancy services. And for failure to pay its obligation, FMIC caused the foreclosure of the
Real State Mortgage.

Respondent Este del Sol failed to meet the schedule of repayment in accordance with a
revised Schedule of Amortization. Petitioner instituted the instant collection suit against the
respondents to collect the alleged deficiency balance plus interest thereon at 21% percent per
annum until fully paid, and 25% percent thereof as and for attorney's fees and costs.

In their Answer, the respondents sought the dismissal of the case and set up defenses,
foremost of which is that the Underwriting and Consultancy Agreements executed
simultaneously as integral parts of the Loan Agreement and which provided for the payment of
Underwriting, Consultancy and Supervision fees were in reality subterfuges resorted to by
petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest
being charged by petitioner FMIC.

The trial court rendered its decision in favor of petitioner FMIC. Finding the decision of
the trial court unacceptable, respondents appealed before the Court of Appeals where the latter
reversed the decision of the trial court after its factual findings and conclusions, and ordered
petitioner FMIC to reimburse respondent Este del Sol the amount of P971,000.00 representing
the difference between what is due to the petitioner and what is due to respondent Este del
Sol.
Petitioner moved for reconsideration of the appellate court's adverse decision. However,
this was denied in a Resolution of the appellate court.

ISSUE:
Whether or not the Underwriting and Consultancy Agreements were mere subterfuges
to camouflage the usurious interest charged by the petitioner.

RULING:
 Yes, the Underwriting and Consultancy Agreements were mere subterfuges to
camouflage the usurious interest charged by the petitioner.
According to Article 1957 of the New Civil Code clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in
accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as
to the usurious interest is void, consequently, the debt is to be considered without stipulation as
to the interest. The reason for this rule was adequately explained in the case of Angel Jose
Warehousing Co., Inc. v. Chelda Enterprises where the Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.
In the instant case, several facts and circumstances taken altogether show that the
Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal
scheme employed by petitioner FMIC to conceal and collect excessively usurious interest, and
these are:
a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the
same date of the Loan Agreement. Furthermore, under the Underwriting Agreement payment of
the supervision and consultancy fees was set for a period of four (4) years to coincide ultimately
with the term of the Loan Agreement. This fact means that all the said agreements which were
executed simultaneously were set to mature or shall remain effective during the same period of
time.
b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an
underwriting agreement and specifically mentioned that such underwriting agreement is a
condition precedent for petitioner FMIC to extend the loan to respondent Este del Sol, indicating
and as admitted by petitioner FMIC's employees, that such Underwriting Agreement is "part and
parcel of the Loan Agreement."
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 an amount of
P1,330,000.00 as consultancy fee despite the clear provision in the Consultancy Agreement that
the said agreement is for 332,500.00 per annum for four (4) years and that only the first year
consultancy fee shall be due upon signing of the said consultancy agreement.
d) The Underwriting, Supervision and Consultancy fees in the amounts of 200,000.00, and
P1,330,000.00 billed by petitioner to respondent Este del Sol on February 22, 1978, that is, on
the same occasion of the first partial release of the loan in the amount of P2,382,500.00. It is
from this first partial release of the loan that the said corresponding bills for Underwriting,
Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of P1,730,000.00 as part of the amount loaned to respondent
Este del Sol.
e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any
share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus
failing to comply with its obligation under the Underwriting Agreement. Besides, there was
really no need for an Underwriting Agreement since respondent Este del Sol had its own
licensed marketing arm to sell its shares and all its shares have been sold through its marketing
arm.
f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement, aside
from the fact that there was no need for a Consultancy Agreement, since respondent Este del
Sol's officers appeared to be more competent to be consultants in the development of the
projected sports/resort complex.
Thus, the nullity of the stipulation on the usurious interest does not affect the lender's
right to receive back the principal amount of the loan. With respect to the debtor, the amount
paid as interest under a usurious agreement is recoverable by him, since the payment is
deemed to have been made under restraint, rather than voluntarily. Petition is denied.

Labenia, Me Julievin
ANTONIO TAN vs. COURT OF APPEALS and the CULTURAL CENTER OF THE
PHILIPPINES

DOCTRINE A stipulation about payment of an additional interest rate partakes of the nature of
a penalty clause. Penalty clauses can be in the form of penalty or compensatory interest.

FACTS:
Antonio Tan, herein petitioner, obtained 2 loans from the Cultural Center of the
Philiipines (CCP). After partial payments, the petitioner was not able to pay the balance of the
loan and requested from CCP for the restructuring of the loan which was granted by the latter.
Tan failed to pay any installment on the said restructured loan. Tan requested from CCP a
moratorium on his loan obligation. No favorable response was made, instead, CCP, wrote a
letter to Tan demanding full payment of the restructured loan. CCP filed a complaint for
collection of a sum of money, against Tan after the latter failed to settle his said restructured
loan obligation. Tan interposed the defense that he merely accommodated a friend, who
allegedly asked for his help to obtain a loan from CCP. Petitioner claimed that he has not been
able to locate his friend. While the case was pending in the trial court, Tan filed a Manifestation
wherein he proposed to settle his indebtedness to CCP. However, CCP did not agree to Tan’s
proposals and so the trial of the case ensued. Trial court ordered Tan to pay CCP his
outstanding account with the corresponding stipulated interest and charges (penalty and
interest on penalty) thereof, until fully paid. CA affirmed the decision.

ISSUES:
1. Whether there are contractual and legal bases for the imposition of the penalty and interest
on the penalty. 2. Whether interest may accrue on the penalty or compensatory interest
without violating the provisions of Article 1959 of the New Civil Code, which provides that:

HELD:

1. Yes. Article 1226 of NCC provides that: In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of non-compliance, if
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses
to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be
enforced only when it is demandable in accordance with the provisions of this Code. The PNs
expressly provides for the imposition of both interest and penalties in case of default on the
part of the petitioner in the payment of the subject restructured loan. Penalty on delinquent
loans may take different forms. In GSIS v. CA, this Court has ruled that the NCC permits an
agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of
agreement, the penalty does not include the monetary interest, and as such the two are
different and distinct from each other and may be demanded separately. Quoting Equitable
Banking Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about
payment of an additional interest rate partakes of the nature of a penalty clause which is
sanctioned by law, more particularly under Article 2209 of the NCC which provides that: If the
obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
per annum.
2. Yes. Penalty clauses can be in the form of penalty or compensatory interest. Thus, the
compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to
the above-quoted provision of Article 1959 of the New Civil Code considering that: First, there is
an express stipulation in the PN permitting the compounding of interest. Second, Article 2212
of the New Civil Code provides that "Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point." In the instant case,
interest likewise began to run on the penalty interest upon the filing of the complaint in court
by CCP.
Cajigas, Ma. Vanessa
LIAM LAW vs. OLYMPIC SAWMILL CO. and ELINO LEE CHI
DOCTRINE:

Usury has been legally non-existent. Interest can now be charged as lender and borrower may
agree upon.

FACTS:

Liam Law loaned P10,000, without interest, to Olympic Sawmill and Elino Lee Chi. The
later defaulted on the said loan. The debtors were asking for an extension, hence they parties
executed another loan document. The loan due date was extended by the loan amount was
increased to 16,000. Again, Olympic and Elino again failed to pay their obligation (under the
new terms). Liam Law instituted a collection case. Olympic and Elino admitted the P10,000
principal obligation, but claimed that the additional P6,000 constituted usurious interest. The
trial court ordered the Olympic and Elino to pay Liam Law the amount of P10,000.00 plus the
further sum of P6,000.00 by way of liquidated damages . . . with legal rate of interest on both
amounts.

ISSUE:
Whether the additional loan of P6,000 constituted usurious interest.

HELD:
No. Under Article 1354 of the Civil Code, in regards to the agreement of the parties
relative to the P6,000.00 obligation, it is presumed that it exists and is lawful, unless the debtor
proves the contrary. No evidentiary hearing having been held, it has to be concluded that
defendants had not proventhattheP6,000.00 obligation was illegal.
Moreover,forsometimenow,usuryhasbeen legally non-existent. Interest can now be charged as
lender and borrower may agree upon. The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive effect.

Roa, Mara Angelie

FRANCISCO HERRERA vs. PETROPHIL CORPORATION

FACTS:

On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (later
substituted by Petrophil Corporation) entered into a "Lease Agreement" whereby the former
leased to the latter a portion of his property for a period of twenty (20) years from said date,
subject inter alia to the condition that 8 years advance rentals should be paid by the lessee to
the lessor which amount is to be discounted at 12% per annum. On December 31, 1969,
defendant-appellee paid to the plaintiff-appellant advance rentals for the first eight years,
subtracting therefrom the amount of P101,010.73 constituting the interest or discount for the
advance 8 years.

On August 20, 1970, explaining that there had been a mistake in computation,
defendant paid to the plaintiff the additional sum of P2,182.70, thereby reducing the deducted
amount to only P98,828.03.

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of
P98,828.03, with interest, claiming that this had been illegally deducted from him in violation of
the Usury Law. However, the defendant-appellee argued that the amount deducted was not
usurious interest but a discount given for the advance payment. Judgement on the pleadings
was then rendered in favour of the defendant.

ISSUES:
1. Whether or not the contract entered into by the parties is one of loan or lease.
2. Whether or not the interest was excessive and violative of the Usury Law.

RULING:
1. The contract entered into by the parties is clearly one of lease. It is clearly denominated
as a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the
parties intended a loan rather than a lease. The provision for the payment of rentals in
advance cannot be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying the
eight years rentals and it was for this advance payment that it was getting a rebate or
discount.
2. There is no usury in this case because no money was given by the defendant-appellee
to the plaintiff-appellant, nor did it allow him to use its money already in his possession.
It has been held that the elements of usury are (1) a loan, express or implied; (2) an
understanding between the parties that the money lent shall or may be returned; that
for such loan, a greater rate or interest that is allowed by law shall be paid, or agreed to
be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate
for the use of money loaned. Unless these four things concur in every transaction, it is
safe to affirm that no case of usury can be declared. In this present case, there was
neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed
the defendant-appellee to deduct from the total payments because they were being
made in advance for eight years. The discount was in effect a reduction of the rentals
which the lessor had the right to determine, and any reduction thereof, by any amount,
would not contravene the Usury Law. Furthermore, the provision for a discount is not
unusual in lease contracts. As to its validity, it is settled that the parties may establish
such stipulations, clauses, terms and conditions as they may want to include; and as
long as such agreements are not contrary to law, morals, good customs, public policy or
public order, they shall have the force of law between them.

Pica, Matt Kin

Advocates for Truth in Lending, Inc. and Eduardo B. VS. Bangko Sentral Monetary
Board, et.al,

Facts:

Advocates for Truth in Lending, Inc. (AFTIL) is a non-profit, non-stock corporation

organized to engage in pro bono concerns and activities relating to money lending issues. It
was incorporated in July 9, 2010, and a month later, it filed this petition, joined by its founder
and president, Eduardo Olaguer, suing as a taxpayer and a citizen.
History of Central Bank’s power to fix max interest rates
1. R.A. No. 265, which is created the Central Bank on June 15, 19481. R.A. No. 265, which
is created the Central Bank on June 15, 1948, empowered the CB-MB to set the
maximum interest rates which banks may charge for all types of loans and other credit
operations.

2. The Usury Law was amended by P.D. 1684 giving the CB-MB authority to prescribe
different maximum rates of interest which may be imposed for a loan or renewal thereof
of the forbearance of any money, goods or credits, provided that the changes are
affected gradually and announced in advance. Section 1-a of Act No. 2655 now reads:

3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular No.
905, Series of 1982, effective on January 1, 1983. It removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits: Sec. 1. The rate of
interest, including commissions, premiums, fees and other fees charges, on loan or
forbearance of any money be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury
law, as amended.

4. R.A. No. 7653 establishing the BSP (Bangko Sentral ng Pilipinas) to replace CB:

Sec. 135. Repealing Clause – except as may be provided for in Sections 46 and 132 of
this Act, Republic Act No. 265, as amended, the provisions of any other law, special
charters, rule or regulation issued pursuant to said Republic Act No. 265, as amended,
or parts thereof, which may be inconsistent with the provisions of this Act are hereby
repealed. President Decree No. 1792 is likewise repealed.

Issue/s:
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in
the Usury Law;

2. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates;

3. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No.
905.

Ruling:
1. CB-MB has the statutory or constitutional authority to prescribe the max
rates of interest for all kinds of credit transactions and forbearance of money,
goods or credit beyond the limits prescribed in the Usury Law both under RA
265 and PD 1684

2. The CB-MB merely suspended the effectivity of the Usury Law when it issued
CB Circular No. 905.
 The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684
has long been recognized and upheld in many cases. As the Court explained in the
landmark case of Medel v. CA, citing several cases, CB Circular No. 905 “ did not repeal
nor in anyway amend the Usury Law but simply suspended the latter’s effectivity”.

Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely
upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited
Art. 1306 of the New Civil Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.

3. The BSP-MB has authority to enforce CB Circular No. 905.

Moreover, the rule is settled that repeals by implication are not favored, because laws
are presumed to be passed with deliberation and full knowledge of all laws existing
pertaining to the subject. An implied repeal is predicated upon the condition that a
substantial conflict or repugnancy is found between the new and prior laws unless
irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws.
We find no such conflict between the provisions of Act 2655 and RA NO. 7653.

The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.

With regard particularly to an award of interest in the concept of actual and

compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

The 12% per annum rate under CB Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of
the Civil Code applies “when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations
in general with the application of both rates reckoned from the time the complaint was
filed until the amount is fully paid. In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition that
the courts are vested with discretion, depending on the equities of each case, on the
award of interest.”

Dispositive portion:
Petition for certiorari is DISMISSED.

Molina, Melissa
Land Bank vs. Ong

Facts:

On March 18, 1986, Johnson and Evangeline Sy secured a loan from LBP Legazpi City in
the amount of 16 million pesos. The loan was secured by 3 residential lots, 5 cargo trucks, and
1 warehouse. The spouses were not able to pay their loan which resultrd to the sale of 3 of
their mortgaged parcels of land for P150,000 to Angelina Gloria Ong, Evangeline's mother,
under a Deed of Sale with Assumption of Mortgage. Alfredo Ong, Evangeline's father, went to
LBP to inform them about the sale and assumption of mortgage. The branch head told Alfredo
that there was no problem and provided him the requitements for the assumption of the
mortgage. Alfredo later found out that his application was not granted by LBP.

On Decemvee 12, 1997, Alfredo filed ana ction for recovery of sum od money with
damages against LBP. Alfredo stated that LBP's foreclosure without informing him of the denial
of his application for assumption of mortgage was done in bad faith as he was made to believe
that the P750,000 they paid would cause LBP to approve their application.

The RTC held that the contract approving the assumption of mortgage was not
perfected because of the credit incestigation conducted on Alfredo. It was ruled that it would be
incorrect to consider Alfredo a third person with no interest in the fulfillment of theobligation
under Art. 1236 of the Civil Codes. The appellate court found that Alfredo and
LBP’s preparations for Alfredo’s assumption of mortgage essentially novated the agreement.

Issues
1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does
not apply.
2) Whether or not the Court of Appeals misconstrued the evidence and the law when it affirmed
the trial court decision’s ordering Land Bank to pay Ong the amount of Php750,000.00 with
interest at 12% annum.

Ruling
The Supreme Court affirmed with modification to the appealed decision. LBP contends
that Art.1236 of the Civil Code backs their claim that Alfredo should have sought recourse
against the Spouses Sy instead of Land Bank. The court agreed with LBP as to the first part of
paragraph 1 of Art. 1236.

"Art. 1236. The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor."

It was noted however that Alfredo made a conditional payment so that the properties subject of
the Deed of Sale with Assumption of Mortgage which LBP required from him would be
approved.

The court also stressed that the case would not have been litigated had LBP been more
circumspect in delaing with Alfredo. The bank accepted payment from him even before the
credit investigation and failed to inform him of the said disapproval. The court found that there
was negligence on the part of LBP. A bank as a business entity should observe a higher
standard of diligence when dealing with the public which LBP failed fo oveserve in this case.

The petitioner’s appeal was denied by the Supreme Court and the decision of the Court of
Appeals was affirmed with modification that the amount of P750,000 will earn interest at 6%
per annum and the total aggregate monetary awards will in turn earn 12% per annum from the
finality of this Decision until fully paid.
Calzado, Michelle
SPOUSES DANILO SOLANGON and URSULA SOLANGON vs. JOSE AVELINO SALAZAR

Facts:

 Plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a

parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to
secure payment of a loan of P60,000.00, P136,512.00, and P230,000.00 payable within
a period of 4 months, 1 year, and 4 months respectively, with interest thereon at the
rate of 6% per month on first loan and at legal rates on the others.
 This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the
mortgaged property. They alleged that they obtained only one loan form the defendant-
appellee, and that was for the amount of P60,000.00, the payment of which was
secured by the first of the above-mentioned mortgages. The subsequent mortgages
were merely continuations of the first one, which is null and void because it provided for
unconscionable rate of interest.
 Moreover, the defendant-appellee assured them that he will not foreclose the mortgage
as long as they pay the stipulated interest upon maturity or within a reasonable time
thereafter.
 They have already paid the defendant-appellee P78,000.00 and tendered P47,000.00
more, but the latter has initiated foreclosure proceedings for their alleged failure to pay
the loan P230,000.00 plus interest.
 On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-
described mortgages were executed to secure three separate loans of P60,000.00
P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one
was not.
 He denied having represented that he will not foreclose the mortgage as long as the
plaintiffs-appellants pay interest.
 Lower courts ruled in favor of Salazar, thus, spouses Solangon filed petition for review
on certiorari under Rule 45 of the 1997 Rules of Civil Procedure.

Issue

 Whether or not stipulated interest rate of 72% per annum or 6% per month is
unconscionable.

Ruling

The Supreme Court (SC) ruled that the stipulated interest rate of 72% per annum or 6%
per month is unconscionable.

According to SC, the interest at 5.5 % per month, or 66% per annum, stipulated upon
by the parties in the promissory note iniquitous or unconscionable, and hence, contrary
to morals (‘contra bonos mores’), if not against the law. The stipulation is void. The
courts shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.

In Almeda v. Court of Appeals, 256 SCRA 292 (1996), while the Usury Law ceiling on
interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants
lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets.

Capatoy, Rhona
Republic of the Philippines vs. Intermediate Appellate Court

Facts:

On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal
Revenue, commenced an action Regional Trial Court of Manila, Branch XVI, to collect from the
spouses Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for the years 1955 to
1959 in the amount of P17,117.08 with a 5% surcharge and 1% monthly interest, and costs.

The Pastors filed a motion to dismiss the complaint, but the motion was denied. On
August 2, 1975, they filed an answer admitting there was an assessment against them of
P17,117.08 for income tax deficiency but denying liability therefor. They contended that they
had availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had paid the
corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income
under P.D. 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final
payment on October 26, 1973 under P.D. 370 evidenced by the Government's Official Receipt
No. 1052388. Consequently, the Government is in estoppel to demand and compel further
payment of income taxes by them.

The trial court rendered a decision on February 28, 1980, holding that the
defendants spouses had settled their income tax deficiency for the years 1955 to 1959, not
under P.D. 23 or P.D. 370, but under P.D. 213. The Government appealed to the Intermediate
Appellant Court, alleging that the private respondents were not qualified to avail of the tax
amnesty under P.D. 213 for the benefits of that decree are available only to persons who had
no pending assessment for unpaid taxes, as provided in Revenue Regulations Nos. 8-72 and 7-
73. Since the Pastors did in fact have a pending assessment against them, they were precluded
from availing of the amnesty granted in P.D.'s Nos. 23 and 213. The Government further
argued that "tax exemptions should be interpreted strictissimi juris against the taxpayer."

Issue:
Whether or not the tax amnesty payments made by the private respondents is a bar
on action for recovery of deficiency income taxes under P.D.'s Nos. 23, 213 and 370.

Ruling:
Yes, since the private respondents have already paid almost the equivalent amount to
the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an
exemption, but an amnesty, for their past tax failings, the Government is estopped from
collecting the difference between the deficiency tax assessment and the amount already paid by
them as amnesty tax.
A tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of
its right to collect what otherwise would be due it, and in this sense, prejudicial thereto,
particularly to give tax evaders, who wish to relent and are willing to reform a chance to
do so and thereby become a part of the new society with a clean slate.

The finding of the appellate court that the deficiency income taxes were paid by the
Pastors, and accepted by the Government, under P.D. 213, granting amnesty to persons who
are required by law to file income tax returns but who failed to do so, is entitled to the highest
respect and may not be disturbed except under exceptional circumstances which have already
become familiar (Rule 45, Sec. 4, Rules of Court; e.g., where: (1) the conclusion is a finding
grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly
mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension
of facts; (5) the Court of Appeals went beyond the issues of the case and its findings are
contrary to the admissions of both the appellant and the appellee; (6) the findings of fact of the
Court of Appeals are contrary to those of the trial court; (7) said findings of fact are conclusions
without citation of specific evidence in which they are based; (8) the facts set forth in the
petition as well as in the petitioner's main and reply briefs are not disputed by the respondents;
and (9) when the finding of fact of the Court of Appeals is premised on the absense of evidence
and is contradicted by the evidence on record, none of which is present in this case.

The rule is that in case of doubt, tax statutes are to be construed strictly against the
Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be
presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly
declares.

Baleña, Quiteria
BPI vs. Court of Appeals

Facts:

Private respondents Eastern Plywood Corporation (Eastern) and

Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank
account ("and/or" account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-
in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint
checking account ("and" account) with Lim in the amount of P120,000.00 was opened by
Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. Velasco died on
7 April 1977. At the time of his death, the outstanding balance of the account stood at
P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for
himself and as President and General Manager of Eastern, one-half of this amount was
provisionally released and transferred to one of the bank accounts of Eastern with CBTC.

Eastern obtained an unsecured loan of P73,000.00 from CBTC payable on demand with
interest at 14% per annum. However, Eastern and CBTC executed a Holdout Agreement
providing that the loan was secured by the “Holdout of the C/A No. 2310-001-42” referring to
the joint checking account of Velasco and Lim.

A judicial settlement of Velasco’s estate was held. On 9 September 1986, the intestate
court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint
account of Lim and Velasco and authorized the heirs to divide among themselves the amount
withdrawn.

Petitioner bank asserts that the Holdout Agreement provides for the security of the loan
obtained by Eastern and that it is the duty of CBTC to debit the account of respondents to set
off the amount of P73,000 covered by the promissory note, BPI filed the instant petition for
recovery. Private respondents Eastern and Lim, however, assert that the amount deposited in
the joint account of Velasco and Lim came from Eastern and therefore rightfully belong to
Eastern and/or Lim. Since the Holdout Agreement covers the loan of P73,000, then petitioner
can only hold that amount against the joint checking account and must return the rest.

Issues:
Whether or not BPI can demand the payment of the loan despite the existence of the
Holdout Agreement
Whether or not BPI is liable to pay to private respondents the amount withdrawn by the
heirs of Velasco

Ruling:
1.) Yes, BPI can demand the payment of the loan despite the existence of the Holdout
Agreement. What the agreement conferred on CBTC was a power, not a duty.
Generally, a bank is under no duty or obligation to make the application. To apply
the deposit to the payment of a loan is a privilege, a right of set-off which the bank
has the option to exercise.
When it demanded payment of the debt directly from Eastern and Lim, BPI had opted
not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the
payment of the promissory note for P73,000.00. The enforcement of the note was then in
order.
2.) Yes, BPI is still liable to pay to private respondents the amount withdrawn by the
heirs of Velasco.BPI was the debtor and Eastern was the creditor with respect to the
joint checking account. Therefore, BPI was obliged to return the amount of the said
account only to the creditor. When it allowed the withdrawal of the balance of the
account by the heirs of Velasco, it made the payment to the wrong party. The law
provides that payment made by the debtor to the wrong party does not extinguish
its obligation to the creditor who is without fault or negligence. Therefore, BPI was
still liable to the true creditor, Eastern.
Elegio, Steffi
SOUTHERN MOTORS, INC vs. ELISEO BARBOSA

FACTS:

Plaintiff, Southern Motors, Inc., brought this action against Eliseo Barbosa, to foreclose a
real estate mortgage, constituted by the latter in favor of the former, as security for the
payment of the sum of P2,889.53 due to said Plaintiff from one Alfredo Brillantes, who had
failed to settle his obligation in accordance with the terms and conditions of the corresponding
deed of mortgage.

Defendant filed an answer admitting the allegations of the complaint and alleging by
way of special and affirmative defense that he executed the deed of mortgage for the sole
purpose of guaranteeing the above mentioned debt of Alfredo Brillantes and that therefore
Plaintiff cannot foreclose the mortgage property without a prior exhaustion of the principal’s
properties.

After the case transferred from one judge to another, the trial court rendered judgment
on the pleadings in favor of plaintiff that prompted respondent to appeal before the Court of
Appeals who certified the case to the Supreme Court in view of the fact that the appeal raises
purely questions of law.

ISSUES:
Whether or not the mortgage in question could be foreclosed although Plaintiff had not
exhausted, and did not intend to exhaust, the properties of his principal debtor, Alfredo
Brillantes.

RULING:
Yes, the mortgage could be foreclosed even though the Plaintiff had not exhausted and
did not intend to exhaust the properties of the principal debtor.

The Supreme Court ruled that the right of guarantors, under Article 2058 of the Civil
Code of the Philippines, to demand exhaustion of the property of the principal debtor, exists
only when a pledge or a mortgage has not been given as special security for the payment of
the principal obligation. Guarantees, without any such pledge or mortgage, are governed by
Title XV of said Code, whereas pledges and mortgages fall under Title XVI of the same Code, in
which the following provisions, among others, are found:

ART. 2087. “It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists may be alienated
for the payment to the creditor.”
ART. 2126. “The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security
it was constituted.”

Under the given facts of the case, a mortgage was executed as security for Alfredo
Brillantes’ debt, hence, defendant’s reliance upon Article 2058 of the Civil Code cannot be
sustained, for what governs in this case are the provisions under Title XVI of the same code
concerning pledge and mortgages.

Bermudo, Valerie
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER
MANUFACTURING CORPORATION vs. BA FINANCE CORPORATION

Facts:

On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in
favor of plaintiff-appellant a Continuing Suretyship Agreement, in which he "jointly and severally
unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all
indebtedness" of Fortune Motors Corporation to BA Finance Corporation. On February 3, 1983,
Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan,
Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a
Continuing Suretyship Agreement in which, said corporation "jointly and severally
unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all
indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp.
19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and
Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said
corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt
payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA
Finance Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles
delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds
of any sale and immediately surrender the remaining unsold vehicles. ). The drafts and trust
receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO.
Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due
under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining
unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation
sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan
Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar
(Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding
account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of
money with prayer for preliminary attachment, with the Regional Trial Court of Manila.

Issue:

WON respondent BAFC has a valid cause of action for a sum of money following the drafts and
trust receipts transactions.

Held:

As an entruster, respondent BAFC must first demand the return of the unsold vehicles from
Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so,
petitioners had no cause of action whatsoever against Fortune Motors Corporation and the
action for collection of sum of money was, therefore, premature.
A trust receipt is a security transaction intended to aid in financing importers and retail dealers
who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as
collateral, of the merchandise imported or purchased.9 In the event of default by the entrustee
on his obligations under the trust receipt agreement, it is not absolutely necessary that the
entruster cancel the trust and take possession of the goods to be able to enforce his rights
thereunder.

Alvarado, Alika Eloisa

ASIATIC PETROLEUM COMPANY v. FRANCISCO HIZON

Facts:

The civil action was instituted in the Court of First Instance of the Province of Pampanga
by the Asiatic Petroleum Company to recover of Justino A. David, as principal, and of Francisco
Hizo, as surety, the sum of P51,560.12, an alleged balance due upon liquidation of accounts
between the plaintiff and David, and he is alleged to be obligated as joint and several surety
with the principal debtor. At the hearing judgment was rendered in favor of the plaintiff to
recover of David the sum of P40,786.98 a portion of the same debt not to exceed the sum of
P5,000. From the judgment, David did not appeal. As regards the liability declared by the trial
court against Hizon, an appeal was taken both by the plaintiff. The plaintiff contended that the
court should have held Hizon jointly and severally responsible for the entire sum adjudged
against the principal debtor, while Hizon claims that he should have been wholly absolved.

It appears in evidence that the plaintiff is a corporation lawfully engaged in the selling of
petroleum products in the Philippine Islands. In the year 1916 the plaintiff made a contract
David, whereby the latter became the selling agent of the plaintiff at San Fernando, Pampanga,
with authority extending not only over the municipality of San Fernando but over the
neighboring places of Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat, in the
same province. David from time to time over a period of about five years received for sale and
distribution at the places mentioned various consignments of kerosene, gasoline, and similar
petroleum products, which were sold and disposed by David as selling agent. The relation
established was continued without interruption until 1921, when all the transactions between
the two parties were gone over, and it was found that David was indebted to the plaintiff in the
amount of nearly P60,000, a sum which, by subsequent payments, was reduced to P40,786.98,
as found and adjudged by the trial court. The alleged liability of the appellant, Francisco Hizon
is planted upon a document. Hizon obligates himself to answer jointly and severally with David
for all the obligations contracted or to be contracted by the latter in accordance with the terms
of the contract of agency, and Hizon further agrees finally to answer for any balance that
should be due to the plaintiff from said agent upon liquidation of the account, or accounts,
between said two parties. As stated in the contract it declares that David shall serve the plaintiff
company as its only selling agent at San Fernando, Guagua, Angeles, San Simon, Capas,
Magalang, and Mabalakat, in the Province of Pampanga; and the indebtedness which is the
subject of this action was incurred by said David as selling agent of the plaintiff at all the places
named.

Issue:
Whether or not the trial judge erred in rendering its decision regarding the discharge of
liability of the appellant under the contract of suretyship.

Ruling:

The trial judge did not in error in holding that the appellant was in effect discharged
from liability under the contract of suretyship, but the judge gave judgment against the
defendant for the sum of P5,000. The judge believed in the idea that the defendant admitted
that he had intended to obligate himself to the extent of P5,000. The judge concluded that by
entering into the contract of suretyship the defendant had induced the plaintiff to make the
contract of agency, which appears to have been signed by the representative of the plaintiff
after it had been signed and acknowledged by David, for which reason his Honor considered it
just to hold the defendant to the extent at least in which he had intended to bind himself. The
only obligation which was created on the part of the defendant was the contract of suretyship,
the appellant was discharged in toto. In the course of the decision, the answer of the appellant
does not specially plead the alteration of the contract of agency. But this is sufficiently
explained by the circumstance that the document which conclusively proves the fact of
alteration had not been discovered in the division of archives at the time the answer was filed.
Upon this state of facts it would be permissible, if necessary, for this court to direct an
amendment of the answer, as was done in Harty vs. Macabuhay (39 Phil., 495). But as the
point is purely defensive and the right clear, we consider it unnecessary to require the appellant
to go through the form of this technicality.

The court necessarily reversed the appealed judgment in so far as it awards the sum of
P5,000 against the appellant Francisco Hizon, and he will be completely absolved from the
complaint.

Odivelas, Anne Sherly

Development Bank of the Philippines vs. NLRC

FACTS:

PSC obtained a loan in 1983 from the DBP to finance its iron smelting and steel
manufacturing business. To secure said loan, PSC mortgaged to DBP real properties with all the
buildings and improvements thereon and chattels. By virtue of the said loan agreement, DBP
became the majority stockholder of PSC, with stockholdings. Subsequently, it took over the
management of PSC. When PSC failed to pay its obligation with DBP, DBP foreclosed and
acquired the mortgaged real estate and chattels of PSC in the auction sales in 1987. Petitioners
filed a Petition for Involuntary Insolvency in the RTC against PSC and DBP, impleading as co-
respondents therein Olecram Mining Corporation and Jose Panganiban Ice Plant and Cold
Storage, with said petitioners representing themselves as unpaid employees of said private
respondents. Herein private respondents filed a complaint with the Department of Labor
against PSC, including later on DBP, for non-payment of salaries, 13th month pay, incentive
leave pay and separation pay. DBP submits that when it foreclosed the assets of PSC, it did so
as a foreclosing creditor.

ISSUE:

Whether DBP, as foreclosing creditor, could be held liable for the unpaid wages, 13th
month pay, incentive leave pay and separation pay of the employees of PSC

The terms 'declaration' of bankruptcy or 'judicial' liquidation in Article 110 of the Labor Code
have been eliminated by RA 6715, which took effect on March 21, 1989. Does this mean then
that liquidation proceedings have been done away with?

RULING:

We opine in the negative. Because of its impact on the entire system of credit, Article
110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil
Code scheme on classification and preference of credits.

In the event of insolvency, a principal objective should be to effect an equitable

distribution of the insolvent's property among his creditors. To accomplish this there must first
be some proceeding where notice to all of the insolvent's creditors may be given and where the
claims of preferred creditors may be bindingly adjudicated.

The right of first preference as regards unpaid wages recognized by Article 110 does not
constitute a lien on the property of the insolvent debtor in favor or workers. It is but a
preference of credit in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets. The DBP anchors its claim on a mortgage credit, which
directly and immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted (Art. 2176, CC).
It creates a real right which is enforceable against the whole world. It is a lien on an identified
immovable property, which a preference is not.

Even if Article 110 and its Implementing Rule, as amended, should be interpreted to
mean `absolute preference,' the same should be given only prospective effect in line with the
cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Art. 4,
CC). Thereby, any infringement on the constitutional guarantee on non-impairment of obligation
of contracts (Sec. 10, Art. III, 1987 Consti.) is also avoided. In point of fact, DBP's mortgage
credit antedated by several years the amendatory law, RA 6715. To give Article 110 retroactive
effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought
to protect itself against by requiring a collateral in the form of real property.
 In fine, the right to preference given to workers under Article 110 of the
Labor Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It will find application when, in proceedings such as insolvency,
such unpaid wages shall be paid in full before the `claims of the Government and other
creditors' may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be
convened, their claims ascertained and inventoried, and thereafter the preference determined in
the course of judicial proceedings which have for their object the subjection of the property of
the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly
determination of preference of creditors' claims is assured; the adjudication made will be
binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal
scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency
Law, and the Labor Code is preserved in harmony.

Abellar, Antonette

Banco Filipino vs NLRC

Facts:

Mr. Dizon filed with the liquidator a request for the payment to him of the cash
equivalent of his vacation and sick leave credits and unexpended/unused reimbursable
allowance. His claims were not paid by the liquidator upon counsel's advice that Dizon's claim
should be treated as a claim of a creditor and should therefore be processed pursuant to the
liquidation plan as approved by the Monetary Board. Dizon filed on March 31, 1986 a complaint
with the labor arbiter against the bank for recovery of unpaid salary, the cash equivalent of his
accumulated vacation and sick leaves, termination pay under Article 283 of the Labor Code and
moral damages and attorney's fees. The liquidator moved for the dismissal of the case on the
grounds that all disputed claims against banks under liquidation pertain to the exclusive
jurisdiction of the liquidation court . Thus, the labor arbiter had no jurisdiction over the money
claim since the RTC of Makati is acting as the liquidation court.

On November 14, 1986, the labor arbiter upheld her jurisdiction and promulgated a
decision in favor of Dizon but withheld his demand for payment of moral damages and
attorney's fees. Both parties appealed to the National Labor Relations Commission which
increased the award due Dizon and further ordered payment of actual and moral damages and
attorney's fees. The award of moral damages was later deleted in the resolution of February 24,
1988 of the Commission.

Issues:
Whether or not all disputed claims against banks under liquidation pertain to the
exclusive jurisdiction of the liquidation court.

Ruling:

It was held that there is nothing in Sec. 29 of the Central Bank Act (RA 265) which
suggests that the jurisdiction of the liquidation court to adjudicate claims against the insolvent
bank is exclusive. And that on the other hand, the labor Code explicitly provides that the labor
arbiters have exclusive and original jurisdiction over money claims of an employee against his
employer. Such jurisdiction cannot be lost for the reason that such employer has been the
subject of a liquidation.

The bank further claimed that since is closed due to serious business losses or financial
reverses its workers are not entitled to separation pay. However, in Article 284 (Art. 283) of the
Labor Code, in case of closure of establishment, the employee is always given termination pay.

Normally, decisions of the NLRC are immediately executory. But money due to
employees in cases of bankruptcy are merely considered as ordinary preferred credits. And not
being an absolutely preferred credit, Dizon’s claim cannot be paid ahead of other absolutely
preferred creditors outside of the liquidation proceedings.

Wherefore, the decision is affirmed and the money due is subject to the liquidators for
processing.

PONFERRADA, APRIL ROSE ALCOBER

REPUBLIC OF THE PHILIPPINES vs. HONORABLE E.L. PERALTA

Facts:

On May 1977, a voluntary insolvency proceedings was commenced by private

respondent Quality Tobacco Corporation – the insolvent. The following claims of creditors were
filed:
P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC
as separation pay for their members. This amount plus an additional sum of
P280,672.99 as attorney's fees had been awarded by the National Labor Relations
Commission in NLRC Case No. RB-IV-9775-77;
P53,805.05 by the Federacion de la Industria Tabaquera y Otros Trabajadores de
Filipinas ("FOITAF), as separation pay for their members, an amount similarly awarded
by the NLRC in the same NLRC Case;
P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection fees covering
the period 1 October 1967 to 28 February 1973;
P276,161.00 by the Bureau of Customs for customs duties and taxes payable on various
importations by the Insolvent. These obligations appear to be secured by surety bonds.
Some of these imported items are apparently still in customs custody so far as the
record before this Court goes.

On November 17, 1980, the trial court held that the above-enumerated claims of USTC
and FOITAF for separation pay of their respective members embodied in final awards of the
National Labor Relations Commission were to be preferred over the claims of the Bureau of
Customs and the Bureau of Internal Revenue. The trial court, in so ruling, relied primarily upon
Article 110 of the Labor Code which provides that:
Article 110. Worker preference in case of bankruptcy - in the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as regards
wages due them for services rendered during the period prior to the bankruptcy or
liquidation, any provision of law to the contrary notwithstanding. Union paid wages shall
be paid in full before other creditors may establish any claim to a share in the assets of
the employer.

The Solicitor General argued that Article 110 of the Labor Code is not applicable as it
speaks of "wages," a term which he asserts does not include the separation pay claimed by the
Unions. He further contended that separation pay is given to a laborer for a separation from
employment computed on the basis of the number of years the laborer was employed by the
employer. It is a form of penalty or damage against the employer in favor of the employee for
the latter's dismissal or separation from service.

ISSUE/S:
1. Whether or not Article 110 of the Labor Code will justify the preference of claims
by the abovementioned creditors.
2. Whether or not the provisions of the Civil Code will resolve the questions on
relative priority of the claims of the Bureau of Customs and the Bureau of
Internal Revenue, on the one hand, and of the claims of the Unions for
separation pay of their members, on the other hand.

RULING:

The Supreme Court agreed with the position advanced by the Solicitor General. The
Court deemed that, for the specific purposes of Article 110 and in the context of insolvency
termination or separation pay is reasonably regarded as forming part of the remuneration or
other money benefits accruing to employees or workers by reason of their having previously
rendered services to their employer. As such, they fall within the scope of remuneration or
earnings, for services rendered or to be rendered. Liability for separation pay might indeed have
the effect of a penalty, so far as the employer is concerned. So far as concerns the employees,
however, separation pay is additional remuneration to which they become entitled because,
having previously rendered services, they are separated from the employer's service. The
relationship between separation pay and services rendered is underscored by the fact that
separation pay is measured by the amount of the services rendered. This construction is
sustained both by the specific terms of Article 110 and by the major purposes and basic policy
embodied in the Labor Code. It is also the construction that is suggested by Article 4 of the
Labor Code which directs that doubts in the interpretation of the provisions of the Labor Code
and its implementing rules and regulations shall be resolved in favor of labor.

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits, which provisions find
particular application in insolvency proceedings where the claims of all creditors, preferred or
non-preferred, may be adjudicated in a binding manner. It is thus important to begin by
outlining the scheme constituted by the provisions of the Civil Code on this subject.

Those provisions may be seen to classify credits against a particular insolvent into three
general categories, namely:
a. special preferred credits listed in Articles 2241 and 2242,
b. ordinary preferred credits listed in Article 2244; and
c. common credits under Article 2245.

With regard to the claim of the Bureau of Customs for unpaid customs duties and taxes,
the Supreme Court held that under Section 1204 of the Tariff and Customs Code, the liability of
an importer for duties, taxes and fees and other charges attaching on importation constitute a
personal debt due from the importer to the government which can be discharged only by
payment in full of all duties, taxes, fees and other charges legally accruing It also constitutes a
lien upon the articles imported which may be enforced while such articles are in the custody or
subject to the control of the government.

The goods imported on one occasion are not subject to a lien for customs duties and
taxes assessed upon other importations though also effected by the Insolvent. Customs duties
and taxes which remain unsatisfied after levy upon the imported articles on which such duties
and taxes are due, would have to be paid out of the Insolvent's "free property" in accordance
with the order of preference embodied in Article 2244 of the Civil Code. Such unsatisfied
customs duties and taxes would fall within Article 2244, No. 9, of the Civil Code and hence
would be ninth in priority.

On claims of the Bureau of Internal Revenue for tobacco inspection fees, the Supreme
Court held that tobacco inspection fees are imposed both as a regulatory measure and as a
revenue-raising measure. Furthermore, the claim of the Bureau of Internal Revenue for unpaid
tobacco inspection fees constitutes a claim for unpaid internal revenue taxes which gives rise to
a tax lien upon all the properties and assets, movable and immovable, of the Insolvent as
taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this
tax claim must be given preference over any other claim of any other creditor, in respect of any
and all properties of the Insolvent.

The Supreme Court, with the claims of the Unions for separation pay of their members,
ruled that Article 110 of the Labor Code does not purport to create a lien in favor of workers or
employees for unpaid wages either upon all of the properties or upon any particular property
owned by their employer.

Applying Article 2241, the claims of the Unions for separation pay of their members
constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other
products produced or manufactured by the Insolvent, but not to other assets owned by the
Insolvent. And even in respect of such tobacco and tobacco products produced by the
Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal
Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products
so manufactured by the Insolvent.
 The Supreme Court believed and held that Article 110 of the Labor Code did not sweep
away the overriding preference accorded under the scheme of the Civil Code to tax claims of
the government or any subdivision thereof which constitute a lien upon properties of the
Insolvent.

DENALO, ARVIA CLAUDINE

JL BERNARDO CONSTRUCTION VS CA
FACTS:

Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the
construction of the San Antonio Public Market. The construction of the market was to be funded
by the Economic Support Fund Secretariat (ESFS), a government agency working with the
USAID. Under ESFS "grant-loan-equity" financing program, the funding for the market would be
composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San
Antonio, and (c) equity or counterpart funds from the Municipality.

It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and
J.L. Bernardo Construction, a single proprietorship owned by Juanito L. Bernardo, that they
entered into a business venture for the purpose of participating in the bidding for the public
market. It was agreed by petitioners that Santiago Sugay would take the lead role and be
responsible for the preparation and submission of the bid documents, financing the entire
project, providing and utilizing his own equipment, providing the necessary labor, supplies and
materials and making the necessary representations and doing the liaison work with the
concerned government agencies.

On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted
its bid together with other qualified bidders. After evaluating the bids, the municipal pre-
qualification bids and awards committee, headed by respondent Jose L. Salonga (then
incumbent municipal mayor of San Antonio) as Chairman, awarded the contract to petitioners.
On June 8, 1990, a Construction Agreement was entered into by the Municipality of San Antonio
thru respondent Salonga and petitioner J.L. Bernardo Construction.

It is claimed by petitioners that under this Construction Agreement, the Municipality

agreed to assume the expenses for the demolition, clearing and site filling of the construction
site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be
remitted directly to petitioners.

Petitioners allege that, although the whole amount of the cash equity became due, the
Municipality refused to pay the same, despite repeated demands and notwithstanding that the
public market was more than ninety-eight percent (98%) complete as of July 20, 1991.
Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the
demolition, clearing and site filling work by making representations that the Municipality had the
financial capability to reimburse them later on. However, petitioners claim that they have not
been reimbursed for their expenses.

On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and
Fernando Erana, with the latter three bringing the case in their own personal capacities and
also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract,
specific performance, and collection of a sum of money, with prayer for preliminary attachment
and enforcement of contractors lien against the Municipality of San Antonio, Nueva Ecija and
Salonga, in his personal and official capacity as municipal mayor. After defendants filed their
answer, the Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs.

ISSUE:
Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for
certiorari filed by respondents herein assailing the trial courts interlocutory orders granting the
writ of attachment and the contractors lien?

HELD:
 Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy
preference with respect to specific personal or real property of the debtor. Specifically, the
contractors lien claimed by petitioners is granted under the third paragraph of Article 2242
which provides that the claims of contractors engaged in the construction, reconstruction or
repair of buildings or other works shall be preferred with respect to the specific building or
other immovable property constructed.

However, Article 2242 only finds application when there is a concurrence of credits, i.e.
when the same specific property of the debtor is subjected to the claims of several creditors
and the value of such property of the debtor is insufficient to pay in full all the creditors. In
such a situation, the question of preference will arise, that is, there will be a need to determine
which of the creditors will be paid ahead of the others. Fundamental tenets of due process will
dictate that this statutory lien should then only be enforced in the context of some kind of a
proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such
as insolvency proceedings.

This is made explicit by Article 2243 which states that the claims and liens enumerated
in articles 2241 and 2242 shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions governing insolvency.

The action filed by petitioners in the trial court does not partake of the nature of an
insolvency proceeding. It is basically for specific performance and damages.Thus, even if it is
finally adjudicated that petitioners herein actually stand in the position of unpaid contractors
and are entitled to invoke the contractors lien granted under Article 2242, such lien cannot be
enforced in the present action for there is no way of determining whether or not there exist
other preferred creditors with claims over the San Antonio Public Market. The records do not
contain any allegation that petitioners are the only creditors with respect to such property. The
fact that no third party claims have been filed in the trial court will not bar other creditors from
subsequently bringing actions and claiming that they also have preferred liens against the
property involved.

Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,
wherein we also disallowed the contractor from enforcing his lien pursuant to Article 2242 of
the Civil Code in an action filed by him for the collection of unpaid construction costs.

It not having been alleged in their pleadings that they have any rights as a mortgagee
under the contracts, petitioners may only obtain possession and use of the public market by
means of a preliminary attachment upon such property, in the event that they obtain a
favorable judgment in the trial court. Under our rules of procedure, a writ of attachment over
registered real property is enforced by the sheriff by filing with the registry of deeds a copy of
the order of attachment, together with a description of the property attached, and a notice that
it is attached, and by leaving a copy of such order, description, and notice with the occupant of
the property, if any.[20] If judgment be recovered by the attaching party and execution issue
thereon, the sheriff may cause the judgment to be satisfied by selling so much of the property
as may be necessary to satisfy the judgment. Only in the event that petitioners are able to
purchase the property will they then acquire possession and use of the same.

Clearly, the trial courts order of September 5, 1991 granting possession and use of the
public market to petitioners does not adhere to the procedure for attachment laid out in the
Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the
appellate courts nullification of the same should be sustained.

Samson, Beñaflor
FRANCISCO C. MANABAT vs. LAGUNA FEDERATION OF FACOMAS, INC., ET AL

FACTS:

This a case of parcels of land sold at public auction effected by the provincial sheriff by
virtue of final judgment which upon discovery were subject to registered liens such as writs of
execution and attachment annotated at the back of the respective title certificates. Discovering
such registered liens on the subject parcel of land sold, the sheriff instituted an action for
interpleader for the different creditors or lienholders to litigate among themselves and
determine their rights to the P37,000 proceeds of the sale.

The Court of First Instance ruled, in its decision that the claimants are entitled to the
proceeds of the sale in the order of preference in accordance with the dates of the registration
of their credits.

From said judgment two creditors or lienholders appealed.

ISSUE:
Whether the rule to follow in the satisfaction of the credits involved is that of preference
in the order of dates of registration or distribution pro rata.

RULING:

As the Court of First Instance ruled that claimants are entitled to the proceeds of the
sale in the order of preference in accordance with the dates of the registration of their credits,
the same judgment appealed from ruling preference was affirmed.
The priority rule applies to credits annotated in the Registry of Property. As to credits
mentioned in No. 7 of Article 2242, there is preference among the attachments or executions
according to the order of the time they were levied upon the property.
ART. 2242. With reference to specific immovable property and real rights of the debtor,
the following claims, mortgages and liens shall be preferred, and shall constitute an
encumbrance on the immovable or real right:
(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by
attachments or executions, upon the property affected, and only as to later credits.

The pro rata rule in Article 2249 does not apply; otherwise, the result would be absurd.
The preference of a credit annotated by an attachment or execution could be defeated by
simply obtaining a writ of attachment or execution, no matter how much later. For not all
credits referring to the same specific real property come under the pro rata rule. Article 2249
itself, supra, expressly provides that taxes and assessments upon the real property are to be
paid first.

Bongot, Beverly
CHINA BANKING CORPORATION VS. FAUSTINO LICHAUCO ET AL.

FACTS:

Lichauco & Company, Inc., has a loan with Filipinas Compania de Seguros (China
Banking Corporation), herein plaintiff. Spouses Faustino and Luisa Lichauco executed a
mortgage in favor of the plaintiff upon the property described in the document to secure the
payment of a part of this loan in the amount of P50,000 with interest at 9%. It was agreed
that in case of nonfulfillment of the contract, this mortgage would stand as security also for the
payment of all the costs of the suit and expenses of any kind, including attorney’s fees, which
by way of liquidated damages are fixed at 5% of the principal. In addition, it states that if
Faustino and Luisa should fail to pay this amount of P50,000, the mortgage shall be in full force
and effect. Lichauco & Co., Inc., Faustino, and Luisa Lichauco executed another document, in
which, among other things, they ratified the former mortgage and stated that the payment of
the P50,000 shall continue to be secured in the same manner and with the same property, and
shall earn interest at 12% per year.

ISSUE:
Whether or not the obligation of Spouses Lichauco lacked consideration because what
they guaranteed with the mortgage was a debt of Lichauco & Co., Inc.

RULING:

No. As a mortgage is an accessory contract, its consideration is the very consideration

of the principal contract, from which it receives its life, and without which it cannot exist as an
independent contract, although, as in the instant case, it may secure an obligation incurred by
another (Art. 1857 of the Civil Code). That this amount of P50,000 is to earn interest, and that
5% must be paid in addition for judicial expenses and attorney’s fees, was expressly stipulated
in the contract.

Turija, Briel
Marcelo R. Soriano vs. Spouses Ricardo and Rosalina Galit

Facts:

Petitioner was issued a writ of possession in Civil Case No. 6643 1 for Sum of Money by
the Regional Trial Court of Balanga, Bataan, Branch 1. The writ of possession was, however,
nullified by the Court of Appeals in CA-G.R. SP No. 65891 2 because it included a parcel of land
which was not among those explicitly enumerated in the Certificate of Sale issued by the
Deputy Sheriff, but on which stand the immovables covered by the said Certificate.

Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the total
sum of P480,000.00. After he failed to pay his obligation, Soriano filed a complaint for sum of
money against him with the Regional Trial Court of Balanga City, Branch 1, which was docketed
as Civil Case No. 6643.

At the sale of the properties at public auction held on December 23, 1998, petitioner
was the highest and only bidder with a bid price of P483,000.00. Accordingly, on February 4,
1999, Deputy Sheriff Robles issued a Certificate of Sale of Execution of Real Property.

On June 4, 2001, the Regional Trial Court of Balanga City, Branch 1 granted the motion
for issuance of writ of possession. 16 Subsequently, on July 18, 2001, a writ of possession 17
was issued in petitioner’s favour.

Respondents filed a petition for certiorari with the Court of Appeals, which was docketed
as CA-G.R. SP No. 65891, and grated the petition.

Issues:

1. Whether or not the special civil action of certiorari under rule 65 is not the plain, speedy
and adequate remedy of the respondents in assailing the writ of possession issued by
the lower court

2. Whether or not the honorable court of appeals gravely erred in declaring the certificate
of sale on execution of real property as null and void

Ruling:

On the first issue, the court disagreed with the contention of the petitioner.

Concededly, those who seek to avail of the procedural remedies provided by the rules
must adhere to the requirements thereof, failing which the right to do so is lost. It is, however,
equally settled that the Rules of Court seek to eliminate undue reliance on technical rules and to
make litigation as inexpensive as practicable and as convenient as can be done.

Since rules of procedure are mere tools designed to facilitate the attainment of justice,
their strict and rigid application which would result in technicalities that tend to frustrate rather
than promote substantial justice must always be avoided. 30 Technicality should not be allowed
to stand in the way of equitably and completely resolving the rights and obligations of the
parties.

On the second issue, the contention of petitioner also failed to persuade the court.

Public documents by themselves may be adequate to establish the presumption of their

validity. However, their probative weight must be evaluated not in isolation but in conjunction
with other evidence adduced by the parties in the controversy, much more so in this case
where the contents of a copy thereof subsequently registered for documentation purposes is
being contested.
 The certificate of sale is an accurate record of what properties were actually sold to
satisfy the debt.

While it is true that a mortgage of land necessarily includes, in the absence of stipulation
of the improvements thereon, buildings, still a building by itself may be mortgaged apart from
the land on which it has been built. Such mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if dealt with separately and apart
from the land.

In this case, considering that what was sold by virtue of the writ of execution issued by
the trial court was merely the storehouse and bodega constructed on the parcel of land covered
by Transfer Certificate of Title No. T-40785, which by themselves are real properties of
respondents spouses, the same should be regarded as separate and distinct from the
conveyance of the lot on which they stand.

The petition was denied.

Gravoso, Christianne

DILAG VS. HEIRS OF RESURRECION

FACTS:

Laureano Marquez was indebted to Fortunato Resurreccion in the sum of P5,000 as the
balance of the purchase price of a parcel of land. Fortunato Resurreccion in turn was indebted
to the Luzon Surety Company in the same amount, which was secured by a mortgage on three
parcels of land, one of which was that bought by Laureano Marquez from him. The formal deed
of sale from Resurreccion to Marquez was to be executed after Marquez shall have fully paid
the purchase price and after Ressurreccion shall have secured the cancellation of the mortgage
by the Luzon Surety Company.

Laureano Marquez had agreed to pay Fortunato Resurreccion's indebtedness of P5,000

to the Luzon Surety Company by way of satisfaction of his own indebtedness to Fortunato
Resurreccion in the same amount.

He bound himself as follows: "In the event an action is presented by the Luzon Surety
Company against Fortunato Resurreccion for the recovery of the said indebtedness and the
interests thereon, I, Laureano Marquez, obligate myself to indemnify Fortunato Resurreccion for
all the damages he may suffer in case the parcels of land mortgaged to the Luzon Surety
Company are sold at public auction, including the fees of the attorneys of Fortunato
Resurreccion in the suit brought by the Luzon Surety Company as well as in the action that
Fortunato Resurreccion may bring against me in relation to this agreement." .

Laureano Marquez failed to pay the indebtedness of Fortunato Resurreccion to the

Luzon Surety Company, and the latter foreclosed judicially the mortgage executed in its favor
by Fortunato Resurreccion.

Pending the foreclosure sale of the lands mortgaged by Resurreccion to the Luzon
Surety Company, Laureano Marquez executed and delivered to Fortunato Resurreccion another
document. Since Laureano Marquez did not fulfill his promise contained in the first clause of the
instrument, with the result that the mortgaged properties were sold at public auction and were
totally lost by Fortunato Resurreccion, the latter commenced the present action against
Laureano Marquez upon the instrument (1) to recover the value of the lost properties
amounting to P16,500, with legal interest thereon from the date of the filing of the complaint,
plus P2,000 as indemnity for the rents of the lands sold and P1,000 as attorney's fees, and (2)
to foreclose the mortgage embodied in said instrument.

Issue:
Whether or not the mortgage was valid

Ruling:

No. The five parcels are said to have been acquired by Laureano Marquez subsequent to
the execution of Exhibit A. In the fifth clause of said document Laureano Marquez stipulated
that inasmuch as the five parcels of land described in the fourth clause were not sufficient to
cover all his obligations in favor of Fortunato Resurreccion, he also constituted a mortgage in
favor of the latter and his assignees on any other property he then might have and on those he
might acquire in the future. Such a stipulation did not constitute a valid mortgage on the five
other parcels of land which Laureano Marquez subsequently acquired. In the first
place, Laureano Marquez could not legally mortgage any property he did not yet own. In the
second place, in order that a mortgage may be validly constituted the instrument by which it is
created must be recorded in the registry of deeds, and in so far as the additional as parcels of
land are concerned, the registration of Exhibit A did not affect and could not have affected
them because they were not specifically described therein.
The contention of the respondents that after the institution of the present action notice of lis
pendens was filed in the registry of deeds affecting the said five additional parcels of land,
merely serves to emphasize the fact that there was no mortgage thereon; otherwise there
would have been no necessity for any notice of lis pendens.

Carolino, Clarence Ray

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA
vs. DAHICAN LUMBER COMPANY
FACTS :

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia
corporation licensed to do business in the Philippines referred to as ATLANTIC — sold and
assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company referred
to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00 was
paid. DALCO obtained various loans from the People's Bank & Trust Company referred to as the
BANK — amounting, as of July 13, 1950, to P200,000.00. DALCO obtained, through the BANK, a
loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five
promissory notes of $50,000.00 each, maturing on different dates, executed by both DALCO
and the Dahican America Lumber Corporation, a foreign corporation and a stockholder of
DALCO referred to as DAMCO, all payable to the BANK or its order.

As security for the payment on July 13, 1950 DALCO executed a deed of mortgage
covering five parcels of land situated in the province of Camarines Norte together with all the
buildings and other improvements existing thereon and all the personal properties of the
mortgagor located in its place of business in the municipalities of Mambulao and Capalonga,
Camarines Norte. On the same date, DALCO executed a second mortgage on the same
properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of
the lumber concession amounting to the sum of $450,000.00. DALCO and DAMCO pledged to
the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same
obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity,
the BANK paid the same to the Export-Import Bank of Washington D.C., and the latter assigned
to the former its credit and the first mortgage securing it. The BANK gave DALCO and DAMCO
up to April 1, 1953 to pay the overdue promissory note.

After July 13, 1950, DALCO purchased various machineries, equipment, spare parts and
supplies in addition to, or in replacement of some of those already owned and used by it on the
date aforesaid. The BANK requested DALCO to submit complete lists of said properties but the
latter failed to do so. There appeared in the books of DALCO as due to Connell Bros. Company
(Philippines) — a domestic corporation who was acting as the general purchasing agent of
DALCO called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.
On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the
purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts
and supplies by CONNELL and DAMCO to it.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that
said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on
February 12, 1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court
of First Instance of Camarines Norte against DALCO and DAMCO. They filed an ex-
parte application for the appointment of a Receiver and/or for the issuance of a writ of
preliminary injunction to restrain DALCO from removing its properties.

CONNELL, filed a motion for intervention alleging that it was the owner and possessor of
some of the equipments, spare parts and supplies which DALCO had acquired subsequent to
the execution of the mortgages sought to be foreclosed. In its order of March 18,1953 the
Court granted the motion.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the
machineries, equipment and supplies of DALCO, and the same were subsequently sold for a
total consideration of P175,000.00 which was deposited in court pending final determination of
the action. By a similar agreement one-half (P87,500.00) of this amount was considered as
representing the proceeds obtained from the sale of the "undebated properties" (those not
claimed by DAMCO and CONNELL), and the other half as representing those obtained from the
sale of the "after acquired properties".
ISSUES:
WHETHER OR NOT mortgages are valid and binding on the properties aforesaid inspite
of the fact that they were not registered in accordance with the provisions of the Chattel
Mortgage Law?

RULING:

Conceding that it is the law in this jurisdiction that, to affect third persons, a chattel
mortgage must be registered and must describe the mortgaged chattels or personal properties
sufficiently to enable the parties and any other person to identify them. We say that such law
does not apply to this case.

Article 415 does not define real property but enumerates what are considered as such,
among them being machinery, receptacles, instruments or replacements intended by owner of
the tenement for an industry or works which may be carried on in a building or on a piece of
land, and shall tend directly to meet the needs of the said industry or works.

On the strength of the above-quoted legal provisions, the lower court held that
inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they came
within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the
Civil Code (old) gives the character of real property to machinery, liquid containers, instruments
or replacements intended by the owner of any building or land for use in connection with any
industry or trade being carried on therein and which are expressly adapted to meet the
requirements of such trade or industry.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage
constituted on a sugar central includes not only the land on which it is built but also the
buildings, machinery and accessories installed at the time the mortgage was constituted as well
as the buildings, machinery and accessories belonging to the mortgagor, installed after the
constitution thereof.

It is not disputed in the case at bar that the "after acquired properties" were purchased
by DALCO in connection with, and for use in the development of its lumber concession and that
they were purchased in addition to, or in replacement of those already existing in the premises
on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the
result that the real estate mortgages involved herein — which were registered as such — did
not have to be registered a second time as chattel mortgages in order to bind the "after
acquired properties" and affect third parties.

Lauron, Dean Aaron

Cosio and de Rama vs Palileo

FACTS:

In Palileo v Cosio, 97 Phil 919, the Court held that Cosio de Rama was a mortgagee of
the property subject of this case. That in their contract it was denominated as conditional sale
to Cosio until Palileo has fully paid the loan amounting to 12,000. However, Palileo will continue
to occupy the property and will pay the rent. The house on the property was subsequently
burned, causing the respondent to leave the property momentarily. The petitioner then claimed
the insurance proceeds from the Associated Insurance and Surety Company and occupied the
property. That as a result of the decision in Palileo v Cosio, the contract was declared by the
court as mortgaged and the petitioner-mortgagee were declared as possessors in bad faith and
was ordered to pay the rental. The petitioners argue that they were given possession of the
property when the previous contract of Conditional Sale was executed. The petitioner has cited
Legaspi v Celestial saying that, inasmuch as it is not an essential requisite of the contract of
mortgage to remain in the possession of the mortgagor, the latter may deliver said property to
the mortgagee without altering the nature of the contract, it being not an essential element of a
contract of mortgage.

ISSUE:
Whether the petitioners were possessors in bad faith and is liable to pay for the rentals
during its possession of the property.

HELD:

Yes. In a contract of mortgage, the mortgagor, as a general rule, retains the possession
of the property mortgaged as security for the payment of the sum borrowed from the
mortgagee, and pays the latter a certain per cent thereof as interest on his principal by way of
compensation for his sacrifice in depriving himself of the use of said money and the enjoyment
of its fruits, in order to give them to the mortgagor. Inasmuch as it is not an essential requisite
of the contract of mortgage that the property mortgaged remain in the possession of the
mortgagor (Article 1857 of the Civil Code) the latter may deliver said property to the
mortgagee, without thereby altering the nature of the contract. It not being an essential
requisite of said contract of mortgage that the principal of the mortgage credit bear interest, or
that the interest, as compensation for the use of the principal and enjoyment of its fruits, be in
the form of a certain per cent thereof, such interest may be in the form of fruits of the
mortgaged property, without the contract's losing thereby its character of a mortgage contract.
(At 377-378)

We may mention, at this point, that this ruling was made in answer to the contention of
the appellant in that case that the contract was an antichresis and not a mortgage. Of course in
other cases the rule has been laid down that where by agreement the mortgaged property is
delivered to the mortgagee, such mortgagee in possession is subject to the obligation of an
antichretic creditor to apply the fruits to the payment, first, of the interest and, later, of the
principal. Now, was there an agreement in this case to permit Cosio de Rama to have
possession of thehouse in lieu of the payment of interest? Quite the contrary, the parties
stipulated that interest (in the form of rent) was to be paid at the rate of P250 a month, an
amount which we found to be excessive. For petitioners, therefore, to espouse the theory of a
mortgagee in possession would be for them to admit unwittingly that doubly excessive interest
was collected for a loan of P12,000 which Cosio de Rama had extended to Palileo. Hence, Cosio
was not the lawful possessor of the property in this case and is liable to pay for the rentals from
the time they took actual possession of the property.

Mendros, Duchess

RUPERTO SORIANO vs. BASILIO BAUTISTA, ET AL.

FACTS:

Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30,
1956, the said spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage)
in favor of spouses Soriano for the amount of P1,800. Simultaneously with the signing of the
deed, the spouses Bautista transferred the possession of the subject property to spouses
Soriano. The spouses Soriano have, since that date, been in possession of the property and are
still enjoying the produce thereof to the exclusion of all other persons. Sometime after May
1956, the spouses Bautista received from spouses Soriano the sum of P450 pursuant to the
conditions agreed upon in the document. However, no receipt was issued. The said amount was
returned by the spouses Bautista. In May 13, 1958, a certain Atty. Angel O. Ver informed the
spouses Bautista that the spouses Soriano have decided to purchase the subject property
pursuant to par. 5 of the document which states that “…the mortgagees may purchase the said
land absolutely within the 2-year term of the mortgage for P3,900.” Despite the receipt of the
letter, the spouses Bautista refused to comply with Soriano’s demand. As such, spouses Soriano
filed a case, praying that they be allowed to consign or deposit with the Clerk of Court the sum
of P1,650 as the balance of the purchase price of the land in question. The trial court held in
favor of Soriano and ordered Bautista to execute a deed of absolute sale over the said property
in favor of Soriano. Subsequently spouses Bautista filed a case against Soriano, asking the court
to order Soriano to accept the payment of the principal obligation and release the mortgage and
to make an accounting the harvest for the 2 harvest seasons (1956-1957). CFI held in Soriano’s
favor and ordered the execution of the deed of sale in their favor. Bautista argued that as
mortgagors, they cannot be deprived of the right to redeem the mortgaged property, as such
right is inherent in and inseparable from a mortgage.

ISSUE:
Whether or not spouses Bautista are entitled to redemption of subject property.

HELD:
No. While the transaction is undoubtedly a mortgage and contains the customary
stipulation concerning redemption, it carries the added special provision which renders the
mortgagor’s right to redeem defeasible at the election of the mortgagees. There is nothing
illegal or immoral in this as this is allowed under Art 1479 NCC which states: “A promise to buy
and sell a determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise supported by a consideration apart from the price.”

In this case the mortgagor's promise to sell is supported by the same consideration as
that of the mortgage itself, which is distinct from that which would support the sale, an
additional amount having been agreed upon to make up the entire price of P3,900.00, should
the option be exercised. The mortgagor’s promise was in the nature of a continuing offer, non-
withdrawable during a period of 2 years, which upon acceptance by the mortgagees gave rise
to a perfected contract of sale. The citation instead of sustaining appellant's position, confirms
that of appellees, who are not here enforcing any real right to the disputed land but are rather
seeking to obtain specific performance of a personal obligation, namely, the execution of a deed
of sale for the price agreed upon, the corresponding amount to cover which was duly deposited
in court upon the filing of the complaint.
Tender ineffective as preemptive right to purchase by other party has been exercised.
The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the
purpose intended. Such tender must have been made after the option to purchase had been
exercised by spouses Soriano. Bautista’s offer to redeem could be defeated by Soriano’s
preemptive right to purchase within the period of 2 years from May 30, 1956. Such right was
availed of and spouses Bautista were accordingly notified by Soriano. Offer and acceptance
converged and gave rise to a perfected and binding contract of purchase and sale.
Campanero, Earl

NICANORA G. BUCTON VS. RURAL BANK OF EL SALVADOR, INC.

Facts:

A certain parcel of land located in Cagayan De Oro City is owned by the petitioner.
Concepcion borrowed the title of the land on the pretext that she is going to show it to an
interested buyer. Concepcion eventually obtained a loan from respondent bank and as a
security, mortgaged the property of petitioner with an SPA which was allegedly executed in
favor of Concepcion. Concepcion failed to pay the loan resulting to the foreclosure of the house
and lot of petitioner. Petitioner, after having been informed, insisted that she did not obtain any
loan from the bank and that the SPA was forged by Concepcion and the loan was entered into
by the latter in her own name and personal capacity. The bank, however, relied on the
presumption of Regularity of the notarized SPA and was not negligent in inspecting the
properties which was mortgaged.

Issue:
WON the Real Estate Mortgage was entered into by Concepcion in her personal capacity.

Ruling:

As jurisprudence dictates, just in the case of Gozun vs Mercado, any agent that obtains
any cash advance but signes the receipt in her own name and personal capacity, without any
indication that she was acting for and on behalf of her principal, would make the loan void and
unenforceable.

In the present case, Concepcion failed to indicate in the Real Estate Mortgage that she
was acting for and on behalf of the owner of the parcel of land. The Civil Law poses that any
authorized agent who signed in his own name without indicating that he acted for and on
behalf of his principal binds only the agent and not the principal. Concepcion failed to do so and
on this matter, petitioner cannot be bound by the acts of Concepcion.

The issue of forgery of the SPA would not matter for even if it was valid, the Real Estate
Mortgaged would still not be valid for Concepcion acted only on her behalf and not as an
authorized agent of the petitioner.

On the side of the bank, it was found out that it acted negligently in preparing the Real
Estate Mortgage for it failed to indicate Concepcion was signing it for and on behalf of the
petitioner. Furthermore, it acted with undue haste in approving and releasing the loan in less
than three days.

Humawid, Francis Louie

PHILIPPINE SUGAR ESTATES VS. POIZAT

Facts:

Gabriela Andrea de Coster was married to Juan M. Poizat. The wife owned, as
paraphernal property, a parcel of land over which was built a house and six adjacent
warehouses. During the marriage , these structures were demolished and a new building
constructed thereon.The wife later executed a power of attorney in favor of the husband, which
allowed the latter to,among other things, “loan or borrow any amount in cash or fungible
conditions…and making there transactions with or without mortgage, pledge or personal
securities.” The husbandeventually obtained a loan from the Philippine Sugar Estates
Development Co., to secure payment of which he executed a mortgage on the land and the
new building. The mortgage was foreclosed and the property (valued at P342,685) was sold to
the company (for P100,000).The wife objected to the confirmation of the sale, claiming that the
transaction was executed without her consent.

Issues:
(1)Whether or not the mortgage was validly entered into as regards the wife. (NO)
(2)Whether or not the mortgage covered both the land and the new building. (NO)

Held:

(1)The mortgage was null and void as regards the wife.(2)The mortgage did not cover
the land (paraphernal property) but only the new building(conjugal property).
Ratio:
“Any authority which [the husband ] had to bind his wife should be confined and limited to his
power of attorney.Giving to it the very broadest construction, he would not have any authority
to mortgage her property, unless the mortgage was executed for her ‘and in her name, place
or stead,’ and as her act and deed. The mortgage in question was not so executed. it was
signed by Don Juan M.Poizat in his own name, his own proper person, and by him only, and it
was acknowledge by him in his personal capacity, and there is nothing in either the signature or
acknowledgment which shows or tends to show that it was executed for or on behalf of his wife
or ‘in her name, place or stead’

It should be noted that this is a mortgage upon real property, the title to which cannot
be divested except by sale on execution or the formalities of a will or deed. For such reasons,
the law requires that a power of attorney to mortgage or sell real property should be executed
with all of the formalities required in a deed. For the same reason that the personal signature
of Poizat,standing alone, would not convey the title of his wife in her own real property, such
a signature would not bind her as a mortgagor in real property, the title to which was in her
name It follows that the whole decree against her and her paraphernal property and the sale of
that property to satisfy the mortgage are null and void, and that any title she may have had in
or to her paraphernal property remains and is now vested in the wife as fully and as absolutely
as if the mortages had never been executed, the decree rendered or the property sold. As to
Don Juan M.Poizat, the decree is valid and binding, and remains in full force and effect.It is an
undisputed fact, which appears in the mortgage itself, that the land in question was the
paraphernal property of the wife, but after the marriage the old buildings on the property were
torn down and a new building constructed and, in the absence of evidence to the contrary, it
must be presumed that the new building is conjugal property of the husband and wife. As such,
it is subject of the debts of the conjugal partnership for the payment or security of which
the husband has the power to mortgage or otherwise encumber the property.”

Jo, George

TAN vs. VALDEHUEZA

Facts:

An action instituted by the plaintiff-appellee Lucia Tan against the defendants-appellants

Arador Valdehueza and Rediculo Valdehueza for (a) declaration of ownership and recovery of
possession of the parcel of land described in the first cause of action of the complaint, and (b)
consolidation of ownership of two portions of another parcel of (unregistered) land described in
the second cause of action of the complaint, purportedly sold to the plaintiff in two separate
deeds of pacto de retro. Parcel of land described in the first cause of action was the subject
matter of the public auction sale in Oroquieta, Misamis Occidental, wherein the TAN was the
highest bidder . Due to the failure of defendant Arador Valdehueza to redeem the said land
within the period of one year as being provided by law, MR. VICENTE D. ROA who was then the
Ex-Officio Provincial Sheriff executed an ABSOLUTE DEED OF SALE in favor of the plaintiff
LUCIA TAN. Civil case 2002 was a complaint for injunction filed by Tan on July 24, 1957 against
the Valdehuezas, to enjoin them "from entering the above-described parcel of land and
gathering the nuts therein " This complaint and the counterclaim were subsequently
dismissed. The Valdehuezas appealed to the lower court alleging that it erred in making a
finding on the second cause of action that the transactions between the parties were simple
loan, instead, it should be declared as equitable mortgage.

Held:

The trial court treated the registered deed of pacto de retro as an equitable mortgage
but considered the unregistered deed of pacto de retro "as a mere case of simple loan, secured
by the property thus sold under pacto de retro," on the ground that no suit lies to foreclose an
unregistered mortgage. It would appear that the trial judge had not updated himself on law
and jurisprudence; he cited, in support of his ruling, article 1875 of the old Civil Code and
decisions of this Court circa 1910 and 1912. Under article 1875 of the Civil Code of 1889,
registration was a necessary requisite for the validity of a mortgage even as between the
parties, but under article 2125 of the new Civil Code (in effect since August 30,1950), this is no
longer so. 4 If the instrument is not recorded, the mortgage is nonetheless binding between the
parties. (Article 2125, 2nd sentence).

The Valdehuezas having remained in possession of the land and the realty taxes having
been paid by them, the contracts which purported to be pacto de retro transactions are
presumed to be equitable mortgages, 5 whether registered or not, there being no third parties
involved.

Garcia, Ianne

SPOUSES BERNADETTE AND RODULFO VILBAR v. ANGELITO L. OPINION

FACTS:

Spouses Vilbar claimed that on July 10, 1979, they and Dulos Realty and Development
Corporation (Dulos Realty) entered into a Contract to Sell involving two (2) lots, LOT 20-b and
LOT 20-A. Sometime in August 1979, spouses Vilbar took possession of Lot 20-B in the concept
of owners and exercised acts of ownership thereon with the permission of Dulos Realty after
making some advance payment.

Upon full payment of the purchase price for Lot 20, or on June 1, 1981, Dulos Realty
executed a duly notarized Deed of Absolute Sale in favour of the spouses Vilbar and their co-
purchases Elena. Dulos Realty also surrendered and delivered the owners duplicate copy
covering Lot 20 to them.

However, spouses Vilbar and Elena were not able to register and transfer the title in
their names because Dulos Realty allegedly failed to have the lot formally subdivided despite its
commitment to do so, until Juan Dulos (Juan) died without the subdivision being accomplished.

Spouses Vilbar and Dulos Realty also executed a Contract to Sell covering Lot 21. To pay
for the balance of the purchase price, spouses Vilbar obtained a housing loan from the
Development Bank of the Philippines (DBP) secured by a real estate mortgage over the said lot.
Dulos Realty facilitated the approval of the loan, the proceeds of which were immediately paid
to it as full payment of the purchase price.

In 1991, the spouses Vilbar were able to pay the loan in full and DBP issued the
requisite Cancellation of Mortgage. The spouses Vilbar have been in actual, open and peaceful
possession of Lot 21 and occupy the same as absolute owners since 1981.

In contrast, Opinion claimed that he legally acquired Lots 20 and 21 through extra-
judicial foreclosure of mortgage constituted over the said properties by Gorospes. They
defaulted in payment, prompting Opinion to file a petition for Extra-Judicial Foreclosure of Real
Estate Mortgage. Subsequently, the subject properties were sold at a public auction where
Opinion emerged as the highest bidder. A Certificate of Sale was issued in his favour on
December 18,1995 and annotated on the TCTs of the properties. The Gorospes failed to
redeem the properties within the reglementary period resulting in the eventual cancellation of
their titles. Thus, the issuance of the titles to Opinion.

February 13, 1997, Opinion filed a Petition for Issuance of a Writ of Possession against
the Gorospes. Branch 253initially issued a Writ of Possession and spouses Vilbar and Elena were
served with a notice to vacate the premises. However, the writ was quashed when spouses
Vilbar filed an urgent motion for the quashal of the writ and presented their title to Lot 21,
while Elena presented the Deed of Absolute Sale executed by Dulos Realty covering Lot 20.
Consequently, Opinion filed a Complaint for Accion Reinvindicatoria with Damagesdocketed as
Civil Case No. 98-0302 and raffled to Branch 255 of the RTC of Las Pis City for him to be
declared as the lawful owner and possessor of the subject properties and for his titles to be
declared as authentic. He likewise prayed for the cancellation of the titles of spouses Vilbar and
Elena.

The RTC rendered its decision in favour of Opinion declaring that he lawfully acquired
the disputed properties and that his titles are valid, the sources of which having been duly
established.

The CA agreed with the trial courts ruling that Opinion validly acquired title over Lots 20
and 21 through a valid mortgage, extrajudicial foreclosure and eventual consolidation
proceedings instituted over the said properties.

ISSUE:
Whether or not the CA seriously erred in finding that the respondent Opinion has a
better title and/or has preference over the subject properties identified as Lots 20 and 21.
HELD: The CA was correct.

Civil law: Ownership and Possession

Court recognizes the settled rule that levy on attachment, duly registered, takes
preference over a prior unregistered sale. This result is a necessary consequence of the fact
that the properties involved were duly covered by the Torrens system which works under the
fundamental principle that registration is the operative act which gives validity to the transfer or
creates a lien upon the land.

For some unknown reasons, the spouses Vilbar did not cause the transfer of the
certificate title in their name, or at the very least, annotate or register such sale in the original
title in the name of Dulos Realty. This, sadly, proved fatal to their cause. Time and time again,
this Court has ruled that a certificate of title serves as evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose name appears therein. Having
no certificate of title issued in their names, spouses Vilbar have no indefeasible and
incontrovertible title over Lot 20 to support their claim. Further, it is an established rule that
registration isthe operative act which gives validity to the transfer or creates a lien upon the
land.

The spouses Vilbar do not even know if a Deed of Absolute Sale over Lot 21 was
executed in their favor. As the evidence extant on record stands, only a Contract to Sell which is
legally insufficient to serve as basis forthe transfer of title over the property is available. At
most, it affords spouses Vilbar an inchoate right over the property. Absent that important deed
of conveyance over Lot 21 executed between Dulos Realty and the spouses Vilbar, TCT No.
36777 issued in the name of Bernadette Vilbar cannot be deemed to have been issued in
accordance with the processes required by law.

Simply, the spouses Vilbar were not able to present material evidence to prove that TCT
of Lot 21 was issued in accordance with the land registration rules.

Petition for review on certiorari is DENIED

LOAYON, JACQUELINE

ROSANA EREÑA vs.

VIDA DANA QUERRER-KAUFFMAN
FACTS:

Vida Dana Querrer-Kauffman is the owner of a residential lot with a house constructed
thereon located at Block 3, Lot 13, Marcillo corner Planza Streets, BF Resort Village, Talon, Las
Piñas City. The property is covered by Transfer Certificate of Title (TCT) No. T-48521. The
owner’s duplicate copy of the title as well as the tax declaration covering the property, were
kept in a safety deposit box in the house.

Sometime in February 1997, as she was going to the United States, Kauffman entrusted
her minor daughter, Vida Rose, to her live-in partner, Eduardo Victor. She also entrusted the
key to her house to Victor. She went back to the Philippines to get her daughter on May 13,
1997, and again left for the U.S. on the same day. Later on, Victor also left for the U.S. and
entrusted the house and the key thereto to his sister, Mira Bernal.

Kauffman filed a complaint against Ereña, Bernal and Jennifer Ramirez for Nullification
of Deed of Real Estate Mortgage and Damages with prayer for a Temporary Restraining Order
and Preliminary Mandatory Injunction in the RTC of Las Piñas City.

The RTC rendered judgment in favor of the defendants and ordered the dismissal of the
complaint. The court ruled that, although the plaintiff adduced proof that she owned the
property and that her signatures on the Special Power of Attorney and in the Real Estate
Mortgage were forged, nevertheless, defendant Ereña adduced evidence that she was a
mortgagee in good faith. The court declared that the woman who pretended to be the plaintiff
and lawful owner of the property had in her possession the original copy of the owner’s
duplicate of title. The defendant thus relied in good faith on the title after ascertaining with the
Register of Deeds the identity of Vida Dana Querrer as the registered owner of the property,
who turned out to be an impostor. In fact, the defendant still had possession of the owner’s
duplicate of the title when she received the complaint and summons.

The Court of Appeal rendered judgment in favor of Kauffman. It held that in ruling as it
did, the RTC disregarded the clear provisions of the Civil Code, particularly Articles 2085 (2) and
1409 (2) The appellate court relied on the Court’s ruling in Insurance Services & Commercial
Traders, Inc. v. Court of Appeals which held that in a real estate mortgage contract, it is
essential that the mortgagor be the absolute owner of the property to be mortgaged;
otherwise, the mortgage is void. (Robles vs. Court of Appeals, G.R. No. 12309, Mar. 14, 2000).
This was simply in line with the basic requirement in our laws that the mortgagor be the
absolute owner of the property sought to be mortgaged (Lorbes vs. Court of Appeals, G.R No.
139884, Feb. 15, 2001). This is in anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan, and a foreclosure sale, though essentially a
"forced sale," is still a sale in accordance with Art. 1458 of the Civil Code. Being a sale, the rule
that the seller must be the owner of the thing sold also applies in a foreclosure sale (Cavite
Development Bank vs. Cyrus Lim, G.R. No. 131679, Feb. 1, 2000).

ISSUE
1. Whether or not Querrer-Kauffman is the owner of the property mortgaged to petitioner
and contract of real estate mortgage between Rosana Ereña and Vida Dana Querrer is a
forged deed of mortgage.
2. Whether or not the doctrine of a “mortgage in good faith” applies to Petitioner Ereña.

RULING

Indeed, the trial and appellate courts found that respondent, as plaintiff below, adduced
clear and convincing evidence that she is the owner of the property and that the signature on
the Special Power of Attorney and Real Estate Mortgage are not her genuine signatures. She
purchased the property from Edgardo C. Espiritu on June 21, 1997 via a Deed of Absolute
Sale, on the basis of which TCT No. 48521 under her name was issued by the Register of Deeds
on June 25, 1997. Indeed, when respondent and her sister, Evelyn Pares, confronted Mira
Bernal (Jennifer Ramirez’s aunt), Bernal pleaded for mercy, on bended knees, after admitting
that she and Jennifer Ramirez stole the owner’s duplicate copy of the title and the tax
declarations covering the property, the air-conditioning unit, television, and the pieces of
jewelry owned by respondent, and, thus, impliedly admitted that they forged the respondent’s
signature on the Real Estate Mortgage.

Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property given as security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is
not the rightful owner of, or does not have a valid title to, the mortgaged property, the
mortgagee in good faith is nonetheless entitled to protection. This doctrine presupposes,
however, that the mortgagor, who is not the rightful owner of the property, has already
succeeded in obtaining a Torrens title over the property in his name and that, after obtaining
the said title, he succeeds in mortgaging the property to another who relies on what appears on
the said title. The innocent purchaser (mortgagee in this case) for value protected by law is one
who purchases a titled land by virtue of a deed executed by the registered owner himself, not
by a forged deed, as the law expressly states. Such is not the situation of petitioner, who has
been the victim of impostors pretending to be the registered owners but who are not said
owners. The doctrine of mortgagee in good faith does not apply to a situation where the title is
still in the name of the rightful owner and the mortgagor is a different person pretending to be
the owner. In such a case, the mortgagee is not an innocent mortgagee for value and the
registered owner will generally not lose his title.

In a forged mortgage, as in this case, the doctrine of "mortgagee in good faith" cannot
be applied and will not benefit a mortgagee no matter how large is his or her reservoir of good
faith and diligence. Such mortgage is void and cannot prejudice the registered owner whose
signature to the deed is falsified. When the instrument presented is forged, even if
accompanied by the owner’s duplicate certificate of title, the registered owner does not lose his
title, and neither does the assignee in the forged deed acquire any right or title to the property.
An innocent purchaser for value is one who purchases a titled land by virtue of a deed executed
by the registered owner himself not a forged deed.

Therefore, the Supreme Court AFFIRMED the Decision of the Court of Appeals.

Tapil, Jacquelyn

BANK OF COMMERCE vs. SPS. PRUDENCIO SAN PABLO, JR. and NATIVIDAD O. SAN
PABLO
FACTS:

Santos obtained a loan from Direct Funders Management and Consultancy Inc. (Direct
Funders) in the amount of P1,064,000.40. As a security for the loan obligation, Natividad
executed a SPA in favor of Santos, authorizing the latter to mortgage to Direct Funders a
paraphernal real property registered under her name and covered by Transfer Certificate of
Title (TCT) No. (26469)-7561. In the Deed of Real Estate Mortgage executed in favor of Direct
Funders, Natividad and her husband,Prudencio, signed as the co-mortgagors of Santos. It was
however agreed that the loan obligation was for the sole benefit of Santos and the spouses San
Pablo merely signed the deed in order to accommodate the former.

The spouses of San Pablo received a letter from Direct Funders informing them that
Santos failed to pay his loan obligation. After being confronted, Santos promised to promptly
settle his obligation with Direct Funders, which he actually did. Upon learning that the debt had
been fully settled, the spouses San Pablo then demanded from Santos to turn over to them the
TCT of the property but the latter failed to do so despite of repeated demands. Such refusal
prompted the spouses San Pablo to inquire as to the status of the TCT with the Register
of Deeds and to their surprise, they discovered that the property was again used by Santos as
collateral for another loan obligation he secured from the Bank of Commerce. As shown in the
annotation stamped at the back of the title, the spouses San Pablo purportedly authorized
Santos to mortgage the subject property to the Bank of Commerce, as evidenced by the SPA
allegedly signed by Natividad. It was further shown from the annotation at the back of the title
that the spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property in
favor of Bank of Commerce, which they never did. The spouses San Pablo filed a Complaint
seeking for the Quieting of Title and Nullification of the SPA and the deed of real estate
mortgage with the prayer for damages against Santos and the Bank of Commerce before the
MTC of Mandaue.

The spouses San Pablo claimed that their signatures on the SPA and the Deed of Real
Estate Mortgage allegedly executed to secure a loan with the Bank of Commerce were forged.
They claimed that while the loan with the Direct Funders was obtained with their consent and
direct participation, they never authorized the subsequent loan obligation with the Bank of
Commerce. During the pendency of the case, the Bank of Commerce, for non-payment of
the loan, initiated the foreclosure proceedings on the strength of the contested Deed of Real
Estate Mortgage. During the auction sale, the Bank of Commerce emerged as the highest
bidder and thus a Certificate of Sale was issued under its name. Accordingly, the spouses San
Pablo amended their complaint to include the prayer for annulment of the foreclosure sale.

Santos countered that the loan with the Bank of Commerce was deliberately resorted to
with the consent, knowledge and direct participation of the spouses San Pablo in order to pay
off the obligation with Direct Funders. In fact, it was Prudencio who caused the preparation of
the SPA and together with Santos, they went to the Bank of Commerce, Cebu City Branch to
apply for the loan.

Bank of Commerce filed an Answer with Compulsory Counterclaim, alleging that the
spouses San Pablo, represented by their attorney-in-fact, Santos, together with Intergems,
obtained a loan and denied the allegation that the SPA and the Deed of Real Estate Mortgage
were spurious. Since the loan already became due and demandable, the Bank of Commerce
sought the foreclosure of the subject property.

During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce, Cebu
City Branch, testified that the spouses San Pablo personally signed the Deed of Real Estate
Mortgage in his presence. The testimony of a document examiner and a handwriting expert,
however, belied this claim. The expert witness, after carefully examining the loan documents
with the Bank of Commerce, attested that the signatures of the spouses San Pablo on the SPA
and the Deed of Real Estate Mortgage were forged.
 The MTC rendered a Decision, dismissing the complaint for lack of merit. The MTC
declared that while it was proven that the signatures of the spouses San Pablo on the loan
documents were forged, the Bank of Commerce were nevertheless in good faith.

The spouses San Pablo appealed the adverse decision to the RTC of Mandaue City,
which, in turn, affirmed the unfavorable ruling of the MTC. A Motion for Reconsideration filed
also by the spouses San Pablo which was denied by the RTC for lack of merit.

The spouses San Pablo elevated the matter before the Court of Appeals assailing the
adverse decisions of the MTC and RTC. The appellate court granted the petition filed by
the spouses San Pablo and reversed the decisions of the MTC and RTC. The appellate court
ruled that since it was duly proven that the signatures of the spouses San Pablo on the loan
documents were forged, then such spurious documents could never become a valid source of
title. The mortgage contract executed by Santos over the subject property in favor of Bank of
Commerce, without the authority of the Spouses San Pablo, was therefore unenforceable,
unless ratified.

ISSUES:

1. Whether or not the forged SPA and Special Power of Attorney could be a valid source
of a right to foreclosure a property
2. Whether or not the awards of Damages, Attorneys Fees and Litigation Expenses are
proper in the case at bar

HELD:

1. A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor
of the property given as security, and in the absence of any sign that might arouse
suspicion, the mortgagee has no obligation to undertake further investigation. This
doctrine pre-supposes, however, that the mortgagor who is not the rightful owner of the
property, has already succeeded in obtaining Torrents title over the property in his name
and that after obtaining the said title, he succeeds in mortgaging the property to
another who relies on what appears on the title. This, however, is not the situation in
the case at bar since Santos was not the registered owner for he merely represented
himself to be the attorney-in-fact of the spouses San Pablo. In cases where the
mortgagee does not directly deal with the registered owner of the real property, the law
requires that a higher degree of prudence be exercised by the mortgagee.
The respondent, however, is not an ordinary mortgagee. It is a mortgagee-bank and
unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage contract. The Bank of Commerce
clearly failed to observe the required degree of caution in ascertaining the genuineness
and extent of the authority of Santos mortgage the subject property. It should not have
simply relied on the face of the documents submitted. Therefore, the same is not a valid
source of the right for the foreclosure of the property.2.

2. The Court finds that the award for moral damages is proper. The carelessness of the
Bank of Commerce caused injury to the spouses which calls for the imposition of moral
damages. The award of exemplary damages is deemed to be proper by the Court for the
Bank of Commerce was remiss in this obligation to inquire into the veracity of Santos’
authority to mortgage the subject property, causing damage to the Spouses. The award
of attorney’s fees and litigation expenses are likewise valid since the spouses were
compelled to litigate and thus incur expenses in order to protect its rights over the
subject property.
Lee, Jay Jasper

HOMEOWNERS SAVINGS AND LOAN BANK vs. ASUNCION P. FELONIA

FACTS:

Felonia and de Guzman are owners of a parcel of land. In 1990, they mortgaged it to
Delgado. But instead of executing a real estate mortgage, the parties executed a deed of
absolute sale with a right to repurchase.

In 1991, Felonia and de Guzman filed an action for reformation of contract which was
subsequently granted. However, in 1995, while the reformation case was still pending, Delgado
filed a "Petition for Consolidation of Ownership of Property Sold with an Option to Repurchase
and Issuance of a New Certificate of Title". Delgado's petition was granted thus the trial court
issued a TCT in her name. This allowed Delgado to mortgage such property to HSLB.

A few days later, Felonia and de Guzman learned of Delgado's mortgage, thus they
made an annotation in the title of the aforementioned property of the notice of lis pendens.
In 1997, HSLB foreclosed the property and eventually purchased it.

In 2000, the CA reversed the decision of the RTC regarding the consolidation case of
Delgado and declared Felonia and de Guzman as absolute owners of the said property. HSLB
prayed that the mortgage lien in their favor be annotated as entry and be carried over to the
TCT-402 on the ground that they are a mortgagee in good faith.

ISSUE:
Whether or not HSLB is entitled to the annotation of their mortgage lien in TCT-402.

RULING:

The Supreme Court ruled that HSLB is no longer entitled to have its mortgage lien
annotated in TCT-402. In Bank of Commerce v. San Pablo, Jr., the doctrine of mortgagee in
good faith was explained - despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising there from are given effect by reason of public policy. In the case at bar, since at the
time the subject property was mortgaged, there was yet no annotated Notice of Lis Pendens, it
can be concluded that HSLB is a mortgagee in good faith.

However, the Supreme Court believes that the rights of the parties to the present case
are defined not by the determination of whether or not HSLB is a mortgagee in good faith, but
of whether or not HSLB is a purchaser in good faith. HSLB is not such a purchaser in good faith.
According to the law, a purchaser in good faith is defined as one who buys a property without
notice that some other person has a right to, or interest in, the property and pays full and fair
price at the time of purchase or before he has notice of the claim or interest of other persons in
the property. In the case at bar, HSLB utterly failed to take the necessary precautions. At the
time HSLB purchased the subject property, the Notice of Lis Pendens was already annotated on
the title. Therefore, there is no doubt that at the time appellant purchased the subject property,
it was aware of the pending litigation concerning the same property and thus, the title issued in
its favor was subject to the outcome of said litigation.

Yu, Jelica

Arguilles VS Malarayat Rural Bank, 719 SCRA 713 (2014)

FACTS:

On December 1, 1990, Fermina M. Guia sold the south portion of the land to the
spouses Petronio and Macaria Arguelles. Although the spouses Arguelles immediately acquired
possession of the land, the Deed of Sale was neither registered with the Register of Deeds nor
annotated on OCT No. P-12930. At the same time, Fermina M. Guia ordered her son Eddie Guia
and the latter's wife Teresita Guia to subdivide the land into three lots for the issuance of titles
each. However, the spouses Arguelles claimed that they never received the TCT corresponding
to Lot 3-C from the spouses Guia. On August 18, 1997, the spouses Guia obtained a loan in the
amount of ₱240,000 from the respondent Malarayat Rural Banlc and secured the loan with a
Deed of Real Estate Mortgage7 over Lot 3-C. The loan and Real Estate Mortgage were made
pursuant to the Special Power of Attorney purportedly executed by the registered owner of Lot
3-C, Fermina M. Guia, in favor of the mortgagors, spouses Guia. On July 22, 1999, the spouses
Arguelles filed a complaint10 for Annulment of Mortgage and Cancellation of Mortgage Lien with
Damages against the respondent Malarayat Rural Bank with the RTC, Branch 86, of Taal,
Batangas. In asserting the nullity of the mortgage lien, the spouses Arguelles alleged ownership
over the land that had been mortagaged.

The RTC annulled the real estate mortgage, the subsequent foreclosure sale, and the
corresponding issuance of the certificate of title. The respondent filed a notice of appeal with
the CA and the CA reversed and set aside the decision of the court a quo. Also, a petition for
review on certiorari was granted by the Supreme Court.

ISSUE:
Whether the respondent Malarayat Rural Bank is a mortgagee in good faith who is
entitled to protection on its mortgage lien.

RULING:

The Supreme Court find that the respondent Malarayat Rural Bank fell short of the
required degree of diligence, prudence, and care in approving the loan application of the
spouses Guia.

In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it cannot
rely merely on the certificate of title offered by the mortgagor in ascertaining the status of
mortgaged properties. Since its business is impressed with public interest, the mortgagee-bank
is duty-bound to be more cautious even in dealing with registered lands.26 Indeed, the rule
that person dealing with registered lands can rely solely on the certificate of title does not apply
to banks. Thus, before approving a loan application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property offered for mortgage and to verify
the genuineness of the title to determine the real owners thereof. The apparent purpose of an
ocular inspection is to protect the "true owner" of the property as well as innocent third parties
with a right, interest or claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.27

Since the subject land was not mortgaged by the owner thereof and since the
respondent Malarayat Rural Bank is not a mortgagee in good faith, said bank is not entitled to
protection under the law. The unregistered sale in favor of the spouses Arguelles must prevail
over the mortgage lien of respondent Malarayat Rural Bank. The RTC, Branch 86, of Taal,
Batangas, in Civil Case No. 66 is REINSTATED and UPHELD.

Gordillo, Jenny Mae

Land Bank of the Philippines vs Barbara Sampaga Poblete

FACTS:

This petition for Review for Certiorari seeks to reverse the Court of Appeals’ Decision
dated September 28, 2010 and its resolution dated April 19, 2011 in C A-G.R. CV No. 91666.
The Court of Appeals (CA) affirmed in toto the Decision of the Regional Trial Court (RTC) of San
Jose, Occidental Mindoro, Branch 46, in Civil Case No. R-1331.

Petitioner Land Bank of the Philippines is a banking institution organized and existing
under Philippine Laws. Respondent Barbara Sampaga Poblete is the registered owner of a
parcel of land, known as Lot No. 29, with an area of 455 square meters, located in Buenavista,
Sablayan, Occidental Mindoro, under Original Certificate of Title (OCT) No. P-12026. In October
1997, Poblete obtained a P300,000.00 loan from Kabalikat ng Pamayanan ng Nagnanais
Tumulong at Yumaman Multi-Purpose Cooperative (Kapantay). Poblete mortgaged Lot No. 29 to
Kapantay to guarantee payment of the loan. Kapantay, in turn, used OCT No. P-12026 as
collateral under its Loan Account No. 97-CC-013 with Land Bank-Sablayan Branch.

To pay her loan, Poblete decided on November 1998 to sell Lot No. 29 in which she
instructed her son-in-law Domingo Balen to look for a buyer. Balen referred Angelito Joseph
Maniego to Poblete. Maniego agreed to buy Lot No. 29 for P900,000.00, but Maniego suggested
that a Deed of Absolute Sale for P300,000.00 be executed instead to reduce taxes.

Poblete executed the Deed of Absolute Sale dated November 9, 1998 with P300,000.00
as consideration. In the Deed dated November 9, 1998 Poblete described herself as a “widow”.
Poblete asked Balen to deliver the Deed of Absolute Sale to Maniego. However, he did not
receive the agreed purchased price from Maniego in which Maniego told Balen that he would
pay the amount upon his return from the United States. Poblete stated in her affidavit last
November 19, 1998 that she agreed to have the payment deposited in her Land Bank Saving
Account.

Maniego paid Kapantay’s Loan Account No. 97-CC-013 for P448,202.08 based on a
Certification issued by the Land Bank of the Philippines-Sablayan Branch Department Manager
Marcelino Pulayan on August 20, 1999. On June 8, 2000, Maniego applied for a loan of
P1,000,000.00 with Land Bank using CTC No. P 12026 as collateral in which Land Bank alleged
that the title of the collateral should first be transferred to him.

On August 14, 2000 the Register of Deeds of Occidental Mindoro issued a Transfer
Certificate of Title (TCT) No. T-20151 in Maniego’s name. On August 15, 2000, Maniego and
Land Bank executed a Credit Line Agreement and a Real Estate Mortgage over TCT No. T-
20151 in which that same day, Land Bank released the P1,000,000.00 loan proceeds to
Maniego. Maniego subsequently failed to pay the loan with Land Bank. Land Bank filed an
Application for Extra-Judicial Foreclosure of Real Estate Mortgage on November 4, 2002 stating
that Maniego’s total indebtedness amount to P1,154,388.88.

Poblete filed a Complaint for Nullification of the Deed dated August 11, 2000 and TCT
No. T-20151, Reconveyance of Title and Damages with Prayer for Temporary Restraining Order
and/or Issuance of Writ of Preliminary Injunction against Maniego, Land Bank, the Register of
Deeds of Occidental Mindoro and Elsa Z. Aguirre in her capacity as Acting Clerk of Court of RTC
San Jose, Occidental Mindoro. Poblete alleged that despite her demands on Maniego for
payment of the Lot No. 29 amounting to P900,000.00 no payment was given to her. She also
claimed that Maniego used the Deed dated November 9, 1988 to acquire her OCT from
Kapantay and upon verification from the Register of Deeds, the Deed dated August 11, 2000
bearing hers and her deceased husband’s, Primo Poblete, supposed signature was used to
obtain TCT No. T-20151 in which such signatures were claimed as forged for her husband
Primo Poblete died on April 27, 1996 as per Death Certificate presented by her.

On January 7, 2003, Land Bank filed its answer with Compulsory Counterclaim and
Cross-claim. Land Bank claimed that they are mortgagee in good faith and observed due
diligence prior to approving the loan and it also interposed a cross-claim against Maniego for
the payment of the loan, with interest, penalties and other charges.

Maniego denied the allegations of Poblete and claimed that it was her who forged the
Deed which was dated August 11, 2000. He also alleged that he paid the consideration of the
sale to Poblete and even her loans from Kapantay and Land Bank.

ISSUE:
Whether or not the previous Ruling of the RTC of San Jose which was rendered in favor
of Poblete and the Ruling of the Court of Appeals’s Decision in Affirming in toto the decision of
the RTC should be reversed.

RULING:

The petition was denied. It is affirmed on September 28, 2010 decision and the April 19,
2011 Resolution of the Court of Appeals in CA-Ci.R. CV No. 91666. The injunction against the
foreclosure proceeding, issued by the Regional Trial Court of San Jose, Occidental Mindoro,
Branch 46, is made permanent. Cost against Land Bank.

TOBIO, JINESSE P.

Development Bank of the Philippines vs Hon. Court of Appeals

FACTS:

Petitioner Development Bank of the Philippines is the owner of a parcel of land in

Bulacan (now Lawang Bato, Valenzuela, Metro Manila)3 as evidenced by TCT No.
13351(202029). On August 8, 1983, it sold the land to respondent spouses Nilo and Esperanza
De La Peña under a Deed of Conditional Sale for ₱207,000.00.4 The Deed of Conditional Sale
stipulated:
That the down payment shall be ₱41,400.00 and the balance of P165,600.00 to be paid in six
(6) years on the semi-annual amortization plan at 18% interest per annum. The first
amortization of ₱23,126.14 shall be due and payable six (6) months from the date of execution
of the Deed of Conditional Sale and all subsequent amortizations shall be due and payable
every six (6) months thereafter;
Thereafter, respondents resided and added other improvements on said lot. Pursuant to their
contract, respondents made payments summing up to ₱289,600.00 within the years of 1983 to
1989. Consequentially, respondent Esperanza De La Peña asked petitioner DBP for the
execution of a Deed of Absolute Sale and for the issuance of the title to the property.
On January 5, 1989, however, respondent spouses De La Peña were informed by DBP through
a letter that there was still a balance of ₱221,86.85

In another letter, dated July 11, 1989, DBP demanded from respondent spouses the
payment of this amount, which had increased to ₱225,855.86 as of June 30, 1989, otherwise, it
would rescind the sale. In reply, respondent spouses, in a letter dated August 11, 1989,
proposed a settlement of the amount through semi-annual payments over a period of five
years.

As the parties failed to reach an agreement, respondent spouses filed a complaint

against petitioner on January 30, 1990 for specific performance and damages with injunction
before the Regional Trial Court, Valenzuela, Metro Manila.

On March 30, 1993, the trial court rendered a decision, dismissing the complaint, as
plaintiffs have still to pay the defendant the sum of ₱54,200.00 as interest to be able to sue for
specific performance.

In response, Petitioner filed an appeal with the Court of Appeals which rendered a
decision, dated August 8, 1997, affirming with modification the ruling of the trial court.
Subsequently, Petitioner filed a motion for reconsideration which the Court of Appeals likewise
denied.

ISSUE/S:
WON respondent spouses could be held liable for the interests and penalty charges
considering that they had already paid the full amount of the principal obligation and petitioner
DBP did not object to the late payments made by them

COURT’S RULING:

Article 1374 of the Civil Code provides that "the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of
them taken jointly." In the same vein, Rule 130, §11 of the Rules on Evidence states that "In
the construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all." Accordingly, the annual
interest of 18% must be construed together with paragraph 8 of the Deed of Conditional Sale
imposing additional interests and penalty in case of arrears in making payments. Hence, upon
failure of private respondents to pay their amortizations on the prescribed dates, they incurred
interests and penalty charges at the stipulated rates. Private respondents cannot be allowed to
renege on their obligation on the ground that what they had paid was in excess of the principal
obligation in the amount of P207,000.00. Nor can private respondents demand fulfillment of
petitioner’s obligation to execute a final deed of sale and deliver the title to the land in their
favor when they have not yet fully paid their principal obligation with the accrued interests
thereto. "[N]either the law nor the courts will extricate a party from an unwise or undesirable
contract he or she entered into with all the required formalities and with full awareness of its
consequences."29

In the instant case, private respondents made regular payments to petitioner DBP in
compliance with their principal obligation. They failed only to pay on the dates stipulated in the
contract. This indicates the absence of bad faith on the part of private respondents and their
willingness to comply with the terms of the contract. Moreover, of their principal obligation in
the amount of ₱207,000.00, private respondents have already paid ₱289,600.00 in favor of
petitioner. These circumstances convince us of the necessity to equitably reduce the interest
due to petitioner and we do so by reducing to 10% the additional interest of 18% per annum
computed on total amortizations past due. The penalty charge of 8% per annum is sufficient to
cover whatever else damages petitioner may have incurred due to private respondents’ delay in
paying the amortizations, such as attorney’s fees and litigation expenses.

Laroa, Apolinario
DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

FACTS:

On July 20, 1981, herein petitioner Development Bank of the Philippines (DBP) executed
a "Deed of Absolute Sale" in favor of respondent spouses Celebrada and Abner Mangubat over
a parcel of unregistered land identified as Lot 1, PSU-142380, situated in the Barrio of Toytoy,
Municipality of Garchitorena, Province of Camarines Sur, containing an area of 55.5057
hectares, more or less.

The land, covered only by a tax declaration, is known to have been originally owned by
one Presentacion Cordovez, who, donated it to Luciano Sarmiento, who in turn sold the land to
Pacifico Chica.

Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00. However, he
defaulted in the payment of the loan, hence DBP caused the extrajudicial foreclosure of the
mortgage. In the auction sale DBP acquired the property as the highest bidder and was issued
a certificate of sale by the sheriff. The certificate of sale was entered in the Book of
Unregistered Property. Pacifico Chica failed to redeem the property, and DBP consolidated its
ownership over the same.

On October 14, 1980, respondent spouses offered to buy the property for P18,599.99.
DBP made a counter-offer of P25,500.00 which was accepted by respondent spouses. On July
20, 1981, the deed of absolute sale, was executed by DBP in favor of respondent spouses. Said
document contained a waiver of the seller's warranty against eviction.

Respondent spouses applied for an industrial tree planting loan with DBP. The latter
required the former to submit a certification from the Bureau of Forest Development that the
land is alienable and disposable. However, said office issued a certificate attesting to the fact
that the said property was classified as timberland, hence not subject to disposition.

The loan application of respondent spouses was nevertheless eventually approved by

DBP in the sum of P140,000.00, despite the aforesaid certification of the bureau. To secure
payment of the loan, respondent spouses executed a real estate mortgage over the land on
March 17, 1982, which document was registered in the Registry of Deeds pursuant to Act No.
3344.

The loan was then released to respondent spouses on a staggered basis. After a
substantial sum of P118,540.00 had been received by private respondents, they asked for the
release of the remaining amount of the loan. It does not appear that their request was acted
upon by DBP, ostensibly because the release of the land from the then Ministry of Natural
Resources had not been obtained.

Respondent spouses, as plaintiffs, filed a complaint against DBP in the trial

court4 seeking the annulment of the subject deed of absolute sale on the ground that the object
thereof was verified to be timberland and, therefore, is in law an inalienable part of the public
domain. They also alleged that petitioner, as defendant therein, acted fraudulently and in bad
faith by misrepresenting itself as the absolute owner of the land and in incorporating the waiver
of warranty against eviction in the deed of sale.5

In its answer, DBP contended that it was actually the absolute owner of the land, having
purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage;
that there was neither malice nor fraud in the sale of the land under the terms mutually agreed
upon by the parties; that assuming arguendo that there was a flaw in its title, DBP can not be
held liable for anything inasmuch as respondent spouses had full knowledge of the extent and
nature of DBP's rights, title and interest over the land.
It further averred that the annulment of the sale and the return of the purchase price to
respondent spouses would redound to their benefit but would result in petitioner's prejudice,
since it had already released P118,540.00 to the former while it would be left without any
security for the P140,000.00 loan; and that in the remote possibility that the land is reverted to
the public domain, respondent spouses should be made to immediately pay, jointly and
severally, the total amount of P118,540.00 with interest at 15% per annum, plus charges and
other expenses.6

On May 25, 1990, the trial court rendered judgment annulling the subject deed of
absolute sale and ordering DBP to return the P25,500.00 purchase price, plus interest; to
reimburse to respondent spouses the taxes paid by them, the cost of the relocation survey,
incidental expenses and other damages in the amount of P50,000.00; and to further pay them
attorney's fees and litigation expenses in the amount of P10,000.00, and the costs of suit.7
Not satisfied with the result an appeal was made. Respondent Court of Appeals rendered
judgment modifying the disposition of the court by only deleting the award for damages,
attorney's fees, litigation expenses and the costs, but affirming the same in all its other aspects.
Not satisfied therewith, DBP interposed the instant petition for review on certiorari.

ISSUES
1. WON the the purchaser is entitled to recover the money paid by him where the contract
is set aside by reason of the mutual material mistake of the parties.

2. WON private respondents should be made to pay petitioner their loan obligation
amounting to P118,540.00 under the mortgage contract executed between them and
DBP.

3. WON petitioner should reimburse respondent spouses the amount of P11,980.00 for
taxes and expenses for the relocation Survey that were prepared extrajudicially.

RULLING

1. YES. If both parties have no fault or are not guilty, the restoration of what was given by
each of them to the other is consequently in order. This is because the declaration of
nullity of a contract which is void ab initio operates to restore things to the state and
condition in which they were found before the execution thereof. The Supreme Court
ruled that the purchaser is entitled to recover the money paid by him where the contract
is set aside by reason of the mutual material mistake of the parties as to the identity or
quantity of the land sold. And where a purchaser recovers the purchase money from a
vendor who fails or refuses to deliver the title, he is entitled as a general rule to interest
on the money paid from the time of payment. As a general rule, if one buys the land of
another, to which the latter is supposed to have a good title, and, in consequence of
facts unknown alike to both parties, he has no title at all, equity will cancel the
transaction and cause the purchase money to be restored to the buyer, putting both
parties in status quo.

2. YES. The contract of loan executed between the parties is entirely different and discrete
from the deed of sale they entered into. The annulment of the sale will not have an
effect on the existence and demandability of the loan. One who has received money as
a loan is bound to pay to the creditor an equal amount of the same kind and quality.
The fact that the annulment of the sale will also result in the invalidity of the mortgage
does not have an effect on the validity and efficacy of the principal obligation, for even
an obligation that is unsupported by any security of the debtor may also be enforced by
means of an ordinary action. Where a mortgage is not valid, as where it is executed by
one who is not the owner of the property, or the consideration of the contract is
simulated or false, the principal obligation which it guarantees is not thereby rendered
null and void. That obligation matures and becomes demandable in accordance with the
stipulations pertaining to it.

3. NO. The list of damages which was prepared extrajudicially without any supporting
receipts as bases thereof or to substantiate the same, that list, per se, is necessarily
 self-serving and, on that account, should have been declared inadmissible in evidence as
the factum probans. In order that damages may be recovered, the best evidence
obtainable by the injured party must be presented. Actual or compensatory damages
cannot be presumed, but must be duly proved, and so proved with a reasonable degree
of certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact
and amount of damages, but must depend upon competent proof that they have been
suffered and on evidence of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded.

Kimberly Anne H. Latonio

Rizal Banking Corporation vs CA

Facts:

GOYU applied for credit facilities and accommodations with RCBC at its Binondo Branch.
After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing
and Eli D. Lao, recommended GOYU's application for approval by RCBC's executive committee.
A credit facility in the amount of P30 million was initially granted. Upon GOYU's application and
Uy's and Lao's recommendation, RCBC's executive committee increased GOYU's credit facility to
P50 million, then to P90 million, and finally to P117 million.

As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds
at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed
itself to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.

GOYU obtained in its name a total of ten insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU.

On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity on account of the loss insured against.
MICO denied the claim on the ground that the insurance policies were either attached pursuant
to writs of attachments/garnishments issued by various courts or that the insurance proceeds
were also claimed by other creditors of GOYU alleging better rights to the proceeds than the
insured.

GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's
creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but
said claims were also denied for the same reasons that MICO denied GOYU's claims.
After trial, the RTC rendered judgment in favor of GOYU against MICO for the claim, RCBC for
damages and to pay RCBC its loan. The CA modified the judgment by increasing the damages
in favor of GOYU
.

Issue:
Whether or not RCBC has a right over the insurance proceeds.

Held:

Yes. It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure the same
property for his own sole benefit. There is no question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the present case, although it appears that GOYU
obtained the subject insurance policies naming itself as the sole payee, the intentions of the
parties as shown by their contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of

RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any
specific insurance policy in favor of any particular beneficiary or payee other than the insured
had not such named payee or beneficiary been specifically disclosed by the insured itself. It is
also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a
sister company of RCBC, and not just from any other insurance company. Alchester would not
have found out that the subject pieces of property were mortgaged to RCBC had not such
information been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester
would not have known of GOYU's intention of obtaining insurance coverage in compliance with
its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have
endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained

to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement
documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. We
find such reliance to be justified under the circumstances of the case. GOYU failed to
seasonably repudiate the authority of the person or persons who prepared such endorsements.
Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the credit
facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late
for GOYU to disown the endorsements for any imagined or contrived lack of authority of
Alchester to prepare and issue said endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is at the very
least estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it

continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that
there was due endorsement pursuant to their mortgage contracts, is to countenance grave
contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the
Court cannot sanction. Under the peculiar circumstances obtaining in this case, the Court is
bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual
endorsement of the policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name or for
whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of said provision, it having
been sufficiently established that it was the intention of the parties to designate RCBC as the
party for whose benefit the insurance policies were taken out. Consider thus the following:
1. It is undisputed that the insured pieces of property were the subject of mortgage
contracts entered into between RCBC and GOYU in consideration of and for securing
GOYU's credit facilities from RCBC. The mortgage contracts contained common
provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not
assail, until of late, the validity of said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the
insurance policies to be taken by GOYU to cover the mortgaged properties.

The Court cannot over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence written conformity thereto,
obviously considered said endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the benefits of its credit
facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the
parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in this particular
case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the person or entity for whose benefit the policies
were clearly intended.

Palconite, Kyrstel

PNB vs. Marañon

FACTS:

The antecedent events being the Spouses Marañon, owner of a 152 square meter lot in
downtown Bacolod with a building leased to various tenants. Said subject property was among
the properties mortgaged by Spouses Rodolfo and Emilie Montealegre to PNB as a security for a
loan. Spouses Montealegre, through a falsified Deed of Sale, acquired title to the property and
used the property’s title which was purportedly registered in the name of Emelie Montealegre.
However, due to failure to pay the loan, said property was foreclosed by PNB, and upon
auction, was thereafter acquired by the same bank and issued a Certificate of Sale on
December 17, 1991 and registered on February 4, 1992.

Spouses Marañon filed on July 29, 1992 before the RTC a complaint for Annulment of
Title, Reconveyance and Damages against the Montealegres, PNB, the Register of Deeds of
Bacolod City and the Ex-Officio Provincial Sheriff of Negros Occidental. The civil case alleged
that the Marañons are rightful owners of the lot by virtue of TCT No. T-129577 which was
illegally cancelled by TCT No. 156512 under the name of Emilie who used a falsified Deed of
Sale bearing the forged signatures of Spouse Marañon to effect the transfer of title to the
property in her name. In its Answer, PNB stated that it is a mortgagee in good faith and the
mortgage is binding and valid.

During the trial, Paterio Tolete, one of the tenants of the building erected on the subject
lot deposited with the Clerk of Court of Bacolod an amount of P144,000 and P30,000 with PNB
of rental payments.

RTC found in favor of the Marañon after it was determined by the Head of the Forensic
Technology Section of Bacolod City that their signatures were in deed forged and concluded the
sale to be null and void and as such it did not transfer any right or title in law. PNB was also
adjudged as a mortgagee in good faith whose lien on the subject lot must be respected. Neither
of the parties sought a reconsideration of the above decision.

What precipitated the controversy were the subsequent Urgent Motions filed by Spouses
Marañons for the Withdrawal of Deposited Rentals praying that the P144,000 and P30,000
deposited rental fees by Tolete be released in their favor for having been adjudged as the real
owner of the subject lot.

The RTC granted the motion and issued an order for the release of both rental
payments because the Spouses are the rightful owners and they are entitled to the civil fruits of
their property. However, the PNB differed with the RTC’s ruling and moved for reconsideration
averring that as declared by the RTC in its Decision, its mortgage lien should be carried over to
the new title reconveying the lot to Spouses Marañon. PNB further argued that with the
expiration of the redemption period on February 4, 1993, or one (1) year from the registration
of the certificate of sale, PNB is now the owner of the subject lot hence, entitled to its fruits.

The RTC again issued Orders: (1) denying PNB’s motion for reconsideration; and, (2)
reiterating the directive that is to release to Spouses Marañon the P30,000 rental payments
considering that they were adjudged to have retained ownership over the property.

Aggrieved, PNB sought recourse with the CA via a petition for certiorari and mandamus
but the latter denied the petition and affirmed the RTC’s judgment. Spouses Marañon cannot be
deprived of the fruits of the subject lot as the same will amount to deprivation of property
without due process of law. The RTC further held that PNB is not a mortgagee in good faith
because as a financial institution imbued with public interest, it should have looked beyond the
certificate of title presented by Spouses Montealegre and conducted an inspection on the
circumstances surrounding the transfer to Spouses Montealegre.

ISSUE:
Whether or not the PNB is entitled to the fruits of the disputed property.
RULING:

No, PNB is not entitled to the fruits of the disputed property.

Rent as an accessory follows the principal is the general rule. Normally when the
principal property is mortgaged and there is failure of the mortgagor to pay, the fruits pass on
to the mortgagee as accorded by the Article 2127 of the Civil Code, which reads: the mortgage
extends to the natural accessions, to the improvements, growing fruits, and the rents or income
not yet received when the obligation becomes due, and to the amount of the indemnity granted
or owing to the proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor, or it passes into the hands
of a third person.

In the instant case, it is beyond question that PNB’s mortgagors, Spouses Montealegre,
are not the true owners of the subject lot much less of the building which produced the
disputed rent which clearly shows that the provision is irrelevant and inapplicable. The
foreclosure proceeding caused by PNB does not include the building found on the subject lot
and the rent it yields. PNB’s lien as a mortgagee in good faith pertains to the subject lot alone
because the rule that improvements shall follow the principal in a mortgage under Article 2127
of the Civil Code does not apply under the premises. Accordingly, since the building was not
foreclosed, it remains a property of Spouses Marañon; it is not affected by non-redemption and
is excluded from any consolidation of title made by PNB over the subject lot. And it must be
remembered that there is technically no juridical tie created by a valid mortgage contract that
binds PNB to the subject lot because the mortgagors Montealegre were not the true owners.
The building and fruits are not subjected to the lien, only the lot. Thus the rents paid are not
subjected to be passed upon to PNB. Thus, PNB’s claim for the rent paid by Tolete has no basis.

The petition of PNB is DENIED.

Labenia, Me Julievin
REPUBLIC PLANTERS BANK vs.
VIVENCIO T. SARMIENTO

FACTS:

On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose,
and the latter’s spouse, Elizabeth, executed a promissory note, obligating themselves to pay
Maybank, then known as Republic Planters Bank, the amount of P80,000.00 due 360 days after
date plus interest at the rate of 12 percent per annum.

Earlier, on 9 March 1979, all four respondents executed a Real Estate Mortgage over
two parcels of land covered by OCT No. 5781 and TCT No. 145850 and registered under the
names of respondents Jesusa and Jose, respectively. The mortgage secured the payment of the
principal loan of P80,000.00 and all other obligations, overdrafts and other credit
accommodations obtained and those that may be obtained in the future from Maybank.
On 8 April 1980, Vivencio for himself and as attorney-in-fact of Jesusa and Jose, executed a
promissory note in which he undertook to pay the amount of P100,000.00 plus 14% interest
per annum on or before April 1981. In the same month, all four respondents executed an
amendment to the real estate mortgage changing the consideration of the mortgage
from P80,000.00 to P100,000.00 but adopting all the terms and conditions of the previous
mortgage as integral parts of the later one.

Vivencio was the owner of V. Sarmiento Rattan Furniture, a sole proprietorship engaged
in export business. On various occasions in 1981, he incurred loan obligations from Maybank by
way of export advances. As of 08 September 1982, the debts incurred under the export bills
transactions totaled P1,281,748.03.

On 3 September 1981, Vivencio, Jose and Elizabeth executed a Suretyship

Agreement, whereby they agreed to be solidarily liable with V. Sarmiento Rattan Furniture for
the payment of P100,000.00 plus all obligations which the latter incurred or would incur from
Maybank.
Respondents defaulted in the payment of the export advances, prompting Maybank to institute
an extrajudicial foreclosure of the real estate mortgage on 9 November 1982. At the foreclosure
sale, Maybank was awarded the property for its bid of P254,000.00 and issued a certificate of
sale. The certificate of sale was registered with the Register of Deeds on 04 March 1983.

Maricel Sarmiento, sister of respondent Jose, purchased a manager’s check from

Maybank in the amount of P300,000.00 on 21 July 1983. A week later, respondent Jesusa
deposited the amount of P12,000.00. Maybank treated the total amount of P312,000.00 as a
deposit and did not grant respondents’ request for certificate of redemption releasing the
foreclosed property. Sometime in November 1983, Maybank demanded the payment of all
outstanding loans under the export bills transactions. On 3 December 1983, respondents
tendered the amount of P302,333.33 in the name of V. Sarmiento Rattan Furniture.

On 4 July 1990, Maybank consolidated its ownership over the foreclosed property. On 12
November 1997, Maybank and Philmay executed a deed of absolute sale, transferring
ownership of the foreclosed property to the latter. On 15 July 1998, Philmay sold the same to
Fabra.

On 3 September 1998, respondents Vivencio and Jose instituted an action for specific
performance against Maybank, Philmay and Fabra. The Complaint, docketed as Civil Case No.
98-0323, prayed for judgment directing Maybank to execute a deed of redemption in favor of
respondents and revoking the subsequent sale of the property to Philmay and Fabra. During the
pendency of the trial, Fabra died and was substituted by Kim Caro as the legal representative of
the former’s heirs.
On 8 January 2002, the RTC rendered a Decision which dismisses the counterclaims of
the defendants.
 The RTC based its finding that respondents were able to tender to Maybank within the
redemption period the redemption price of P312,000.00 on the testimony of respondent Jose on
and the official bank receipts evidencing the separate payments totaling said amount made by
Maricel Sarmiento and respondent Jesusa. Upon this finding, the trial court held that Maybank
had no justifiable legal reason to refuse the execution of documents reconveying the titles of
the mortgaged property to respondents. Thus, the trial court concluded that the subsequent
transfers of the mortgaged property to Philmay and then to Fabra were void because Maybank
had not acquired any rights thereto in the first place. The trial court, however, declared Fabra
as a purchaser in good faith and, therefore, entitled to reimbursement of the purchase price.
The RTC rejected Maybank’s defense that the suretyship agreement signed by respondents
Vivencio, Jose and Elizabeth also constituted the mortgaged property as security for the export
advances incurred in the name of V. Sarmiento Rattan Furniture because the real estate
mortgage documents were signed by respondents in their personal capacity, whereas the
suretyship agreement was signed by Vivencio in his capacity as manager of V. Sarmiento Rattan
Furniture. The trial court noted that the suretyship agreement was not even annotated in the
titles of the mortgaged property.

On 12 December 2005, the Court of Appeals rendered the assailed Decision affirming
the trial court’s judgment, particularly the latter’s finding that respondents made a valid tender
of the redemption price and that the export advances in the name of V. Sarmiento Rattan
Furniture did not belong to the species of obligations secured by the real estate mortgage.
Furthermore, the appellate court construed as a contract of adhesion the proviso in the
mortgage contract that included "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." Describing the same as a "dragnet clause," the appellate court
held that it should be carefully scrutinized and strictly construed.

ISSUES: WHETHER OR NOT

1. THE TRIAL COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT
PETITIONERS HAVE PROPERLY REDEEMED THE FORECLOSED PROPERTIES.
2. THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT TREATING
RESPONDENTS’ EXPORT ADVANCES AS SECURED BY THE REAL ESTATE MORTGAGE
AND THUS SHOULD ALSO BE PAID.
3. THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT RULING THAT THE
RESPONDENTS’ CLAIM IS ALREADY BARRED BY LACHES.
4. THE TRIAL COURT AND COURT OF APPEALS ERRED IN NOT CONSIDERING AND
FINDING THAT PHILMAY AND DEFENDANT CLARA FABRA ARE BUYERS IN GOOD
FAITH.
5. THE LOWER COURT AND THE COURT OF APPEALS ERRED IN FINDING THAT
MAYBANK ACTED IN BAD FAITH.
6. RESPONDENTS ARE NOT ENTITLED TO MORAL AND EXEMPLARY DAMAGES AS
WELL AS ATTORNEY’S FEES.

RULING:

The instant petition for review on certiorari is GRANTED and the Decision of the Court of
Appeals in CA-G.R. CV No. 74451 is hereby REVERSED and SET ASIDE. The complaint in Civil
Case No. 98-0323 before the Regional Trial Court, Branch 258, Parañaque City is DISMISSED.
The crux of the controversy pertains not to the amount of redemption price tendered by
respondents but rather to the sufficiency of the amount tendered that would warrant the
redemption of the foreclosed property. The determination of whether the amount tendered by
respondents was enough to redeem the foreclosed property calls for the ascertainment of the
liabilities covered and secured by the mortgage based on the text of the mortgage deed. Both
the trial court and the appellate court concurred in concluding that the export advances
obtained by respondent Vivencio from Maybank did not belong to the species of obligations
secured by the mortgage and that, hence, respondents’ tender of an amount exceeding the
principal loan of P100,000.00 was sufficient. Whether or not this conclusion is correct is a
question of law that is within the purview of a Rule 45 petition.
The real estate mortgage provides:
xxx
That, for and in consideration of certain loans, overdrafts and other credit
accommodations obtained from the Mortgagee, and to secure the payment of the
same and those that may hereafter be obtained, the principal of all of which is
hereby fixed as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Currency, as
well as those that the Mortgagee may extend to the Mortgagor, 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, the Mortgagor does hereby transfer and
convey by way of mortgage unto the Mortgagee, its successor or assigns, the parcels of
land which are described in the list inserted on the back of this document, and/or
appended hereto; x x x (Emphasis supplied)

The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause,

also known as a dragnet clause in American jurisprudence, is one that is specifically phrased to
subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly
construed. 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. 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, etc.
It is well settled that mortgages given to secure future advancements or loans are valid and
legal contracts, and that the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument
the intent to secure future and other indebtedness can be gathered. A mortgage given to
secure advancements is a continuing security and is not discharged by repayment of the
amount named in the mortgage, until the full amount of the advancements is paid.
At the time of the foreclosure sale of the mortgaged property, the outstanding obligation arising
from the export bills transactions had already amounted to more than P1 million. In accordance
with Section 78 of the General Banking Act, as amended, then governing the foreclosure of the
mortgaged property, redemption may only be made by paying the amount due under the
mortgage deed within one year from the sale of the property. Since respondents failed to
satisfy the full amount of the indebtedness to Maybank, the latter was justified in refusing to
grant respondents’ demand for redemption of the foreclosed property.

Salva, Mae Angieline

BLANCA CONSUELO ROXAS vs. COURT OF APPEALS

Facts:

Petitioner Blanca Consuelo Roxas is the owner of a parcel of land (Lot No. 3108) located
at Tanza Norte, Panay, Capiz, containing an area of 14.7238 hectares and covered by Tax
Declaration No. 5129. On December 22, 1969, she executed a special power of attorney
appointing her brother, the late Manuel Roxas, as her attorney-in-fact for the purpose of
applying for an agricultural loan with private respondent Rural Bank of Dumalag, Inc. using said
land as collateral. Armed with said special power of attorney, Manuel Roxas applied for, was
granted and received an agricultural loan in the amount of P2,000.00 from private respondent
on December 26, 1969. As security for the loan, he executed the corresponding real estate
mortgage over the subject land.

On October 24, 1973, private respondent foreclosed the real estate mortgage for failure
to pay the loan on maturity. On January 7, 1974, the subject land was sold at public auction to
private respondent, being the highest bidder for P3,009.37. For failure to exercise the right of
redemption, private respondent consilidated its ownership over the subject land. On October 4,
1982, possession thereof was taken from Jennifer Roxas, daughter of Manuel Roxas, and
delivered by the sheriff to private respondent.

On September 2, 1981, petitioner filed a complaint for cancellation of foreclosure of

mortgage and annulment of auction sale against private respondent before the Regional Trial
Court of Roxas City, docketed as Civil Case No. V-4543.

In her complaint, petitioner claimed that Manuel Roxas never informed her about the
approval of the loan. The foreclosure did not comply with the requirement of giving written
notices to all possible redemptioners, neither did Manuel Roxas inform her about the
foreclosure.Petitioner was able to obtain her statement of account only on August 19, 1981.
She consigned with the trial court the amount of P4,194.50 as redemption price of the subject
land.

Refuting the claims of petitioner, private respondent contended in its answer that
petitioner never cared about the payment of her loan although she knew of the status of her
account; that she was duly notified of the foreclosure and public auction sale since notice to
Manuel Roxas, her agent, was notice to the principal; that the sheriff duly posted copies of the
notice of foreclosure sale in conspicuous public places before the actual auction sale; and that
she acted negligently in not taking steps to redeem the subject land.

On January 20, 1989, the trial court rendered judgment in favor of petitioner. On
elevating the matter to the Court of Appeals, said court reversed the decision of the trial court.4
According to the appellate court, Section 5 of R.A. NO. 720 does not require personal
notification to the martgagor in case of foreclosure and there was substantial compliance with
the requirements of said law.

Issue:
Whether or not respondent court acted correctly reversing the decision of the trial
court, despite failure to post notices in the barrio where the land lies; in not allowing
redemption or recovery of the land on equitable, if not legal ground; and in not passing upon
the issue of gross inadequacy of price.

Ruling:
 The decision of respondent court is set aside. It is settled doctrine that failure to publish
notice of auction sale as required by the statute constitutes a jurisdiction defects with
invalidates the sale. Even slight deviations therefrom are not allowed.
Section 5 of R.A. No. 720, as amended by R.A. No. 5939, provides that notices of foreclosure
should be posted in at least three (3) of the most conspicuous public places in the municipality
and barrio where the land mortgaged is situated.

In the case at bar, the Certificate of Posting which was executed by the sheriff states
that he posted three (3) copies of the notice of public auction sale in three (3) conspicuous
public places in the municipality of Panay, where the subject land was situated and in like
manner in Roxas City, where the public auction sale took place.8 It is beyond despute that
there was a failure to publish the notices of auction sale as required by law. Section 5 provides
further that proof of publication shall be accomplished by an affidavit of the sheriff or officer
conducting the foreclosure sale. In this case, the sheriff executed a certificate of posting, which
is not the affidavit required by law. The rationale behind this is simple: an affidavit is a sworn
statement in writing. Strict compliance with the aforementioned provisions is mandated

Roa, Mara Angelie

RURAL BANK OF TOBOSO, INC. vs. JEAN VENIEGAS AGTOTO

FACTS:

On August 18, 1981 Jean Veniegas Agtoto (Agtoto) executed a special power of attorney
(SPA) authorizing her husband, Rodney, to secure a loan on her behalf. On August 20, 1981
Rodney got a loan of ₱130,500.00 from the Rural Bank of Toboso, Inc. with the ₱61,068.00
portion secured by a real estate mortgage on his wife’s land. On the following day, he secured
the remaining ₱69,432.00 of the loan with a chattel mortgage over two service boats and one
Yanmar Marine engine.

After paying only ₱14,500.00, Agtoto failed to pay her loan with the Bank. On August 6,
1990 the Bank extrajudicially foreclosed the mortgage on her land, pegging her debt at
₱130,500.00 as of December 31, 1989 plus the stipulated interest of 14% per annum from the
date of default until full payment and liquidated damages. After notice and publication, the
sheriff foreclosed the mortgage on the land on September 12, 1990 and sold it at public auction
to the Bank, which made the highest bid of ₱305,000.00 "as of December 31, 1989" plus
stipulated interest of 14% per annum. The sheriff subsequently issued a certificate of sale in
the Bank’s favor. Later, Agtoto filed a complaint with the Regional Trial Court (RTC) of Bacolod
City against the Bank for the annulment of the sale of her land, wherein the RTC rendered its
decision ordering the Bank to pay Agtoto ₱305,000.00, which was its bid for her land, less the
₱61,068.00 due from her loan. Agtoto appealed to the Court of Appeals (CA) from the decision,
asserting that the RTC erred in not declaring the foreclosure sale null and void. On October 27,
2005 the CA affirmed the trial court’s decision with modification in that it awarded to Agtoto
₱189,497.10 plus 12% interest per annum from January 29, 1992 or the date of judicial
demand until full payment.

ISSUES:
1. Whether or not the Bank validly foreclosed Agtoto’s mortgaged land; and
2. Whether or not the Bank should pay ₱189,497.10 to Agtoto as excess bid proceeds with
12% interest per annum, computed from January 29, 1992, the date of judicial demand,
until the award is fully paid.

RULING:
1. Yes, the foreclosure was valid. Although Agtoto contends that she did not authorize her
husband Rodney to act as her attorney-in-fact for purposes of foreclosure proceedings,
the appellate court correctly ruled, however, that the powers she vested in Rodney as
her attorney-in-fact in connection with the mortgage of her land included the power to
constitute the mortgagee bank as Rodney’s attorney-in-fact for foreclosure purposes.
The constitution of the Bank as attorney-in-fact for purposes of extrajudicial foreclosure
was a condition that Rodney accepted and it bound Agtoto as principal, the same being
a legitimate exercise of his powers under the SPA.
As ruled by this court, the said foreclosure sale covering the land was valid;
notwithstanding the chattel mortgage that covered the ₱69,432.00 portion of the loan of
₱130,500.00 for the chattel mortgage was a contract distinct from the real estate
mortgage, which latter mortgage covered the separate amount of ₱61,068.00. Thus, the
Bank had no right to include in the foreclosure of the land the portion of the loan
separately secured by the chattel mortgage.
2. Yes, the Bank should pay ₱189,497.10 to Agtoto as excess bid proceeds with 12%
interest per annum. The Court finds no reason to deviate from the CA’s ruling that the
proceeds of the foreclosure sale should be applied to satisfy only the debt and related
charges that the foreclosed land secured. Since the Bank collected the entire amount of
the loan from the proceeds of the foreclosure sale, including the portion that was not
covered by the real estate mortgage, it must return such to Agtoto.

Pica, Matt Kin

Spouses Guillermo Agbada & Maxima Agbada VS. Inter-Urban Developers, Inc.

Facts:

On 21 February 1991 petitioner-spouses Guillermo Agbada and Maxima Agbada

borrowed P1,500,000.00 from respondent Inter-Urban Developers, Inc. through its president,
Simeon L. Ong Tiam. To secure the loan, the parties concurrently executed a Deed of Real
Estate Mortgage over a parcel of land and the improvements thereon situated in Tandang
Sora, Quezon City owned by the spouses. The loan was payable within six (6) months from 21
February 1991 at three percent (3%) interest per month, otherwise, failure to discharge the
loan within the stipulated period would entitle Inter- Urban Developers, Inc. to foreclose the
mortgage judicially or extra-judicially. The spouses failed to pay the loan within the six-month
period despite several out-of-court demands made by respondent Inter-Urban Developers, Inc.

On 10 December 1993 Inter-Urban Developers, Inc. filed with the Regional Trial Court
of Quezon City, Branch 105, a complaint for foreclosure of real estate mortgage. On 2 March
1994, without assistance of counsel, the spouses filed their unverified answer admitting that
they had borrowed the amount of P1,500,000.00 from respondent and had executed the real
estate mortgage to secure the loan but alleging that it was payable within five (5) years
and at twelve percent (12%) interest per annum. Pre-trial was set, but reset several times on
account of the spouses Agbada. Guillermo Agbada submitted a 1-page handwritten letter
admitting his liability to pay Inter-Urban Developers, Inc. A motion for summary judgment
was filed supported by an affidavit of the treasurer who witnessed the transaction. The
spouses Agbada, this time represented by a lawyer, attempted to submit an amended answer
that denied any obligation to the interest. The judge disallowed the amended answer and
promulgated a summary judgment against the spouses Agbada.

The spouses Agbada did not appeal the summary judgment nor did they pay the
judgment debt. A decree of foreclosure was issued and a foreclosure sale was held with Inter-
Urban Developers, Inc. winning the bidding. The court confirmed the sale over the opposition
of the spouses Agbada that the purchase price of the property was below the appraised value
as stated in an appraisal report. After the sale became final, Inter-Urban Developers, Inc.
prayed for a writ of possession. The spouses Agbada filed other dilatory motions which were
denied. They then filed a petition for annulment of the summary judgment on the ground
that violated their right to due process. The petition was dismissed.

Issue:
Whether a foreclosure sale can be reversed because the purchase price of the property is
below its appraised value.

Ruling:

No. There is no merit in the spouses claim that the purchase price of the mortgaged
real property was way below its appraised value. To begin with, they deliberately withheld the
presentation of their own evidence which might have proved this matter and thus unfortunately
deprived respondent Inter-Urban Developers, Inc. the opportunity to cross-examine whatever
such evidence would tend to establish. Equally significant, the low purchase price could have
worked in the petitioner-spouses' favor if they promptly exercised their equity of redemption.
As held in Tarnate v. Court of Appeals, "[a]nent the contention that the property has been
sold at an extremely low price, suffice it to say that, if correct, it would have, in fact, favored
an easy redemption of the property. That remedy could have well been availed of but
petitioners did not."

Molina, Mellissa
INGLES VS ESTRADA

FACTS:

On 14 April 1993, Jose and Josefina obtained a loan in the amount of ₱6,200,000.00
from respondent Charles J. Esteban. As collateral for such loan, Jose and Josefina mortgaged a
parcel of land in favor of Charles. A Promissory Note and a Deed of Real Estate Mortgage,
evidencing both such loan and mortgage, were accordingly executed between Jose, Josefina
and Charles on the same day.

The Deed of Real Estate Mortgage, the mortgaged land was mistakenly referred to as
being covered by TCT No. 125141 PR- 17485 instead of TCT No. 125341 PR-17485.10
Nevertheless, the deed identified the mortgaged land exactly in accordance with the technical
description of TCT No. 125341 PR-17485.

On 26 April 1993, Jose and Josefina requested the Register of Deeds of Quezon City for
the division of their land into ten lots. The request eventually led to the cancellation of TCT No.
125341 PR-17485 and the issuance of separate Torrens titles for each of the 10 lots.

Upon maturity of their loan on 29 May 1993, Jose and Josefina issued to Charles a check
for ₱6,200,000.00 as payment. Unfortunately, that check bounced.

On 30 October 1993, Jose died. He was survived by Josefina and herein petitioners Jose
F. Ingles, Jr., Hector Ingles, Josefina I. Estrada and Teresita Biron.

On 13 July 1994, Charles sent to Josefina a letter demanding for the payment of her and
her late husband’s loan. Charles, in the same letter, also threatened to foreclose the mortgage
in his favor should Josefina fail to heed the demand for payment within ten (10) days from her
receipt of the letter. To these, Josefina responded with her own letter asking Charles for an
extension of time, i.e., until 30 October 1994, within which to pay for all of her obligations.
Despite the extension, however, Josefina still failed to pay.

On 12 July 1997, Judge Estrada of RTC Quezon City ordered the foreclosure of the
mortgage in the favor of Charles.

At the public auction, Charles was declared the highest bidder for all of the ten (10) lots.
On 7 January 1998, Atty. Gatmaytan issued to Charles a corresponding Certificate of Sale.

On 17 December 1999, on the other hand, the Ingleses filed before the Court of Appeals
a petition for Annulment of Final Orders pursuant to Rule 47 of the Rules of Court. In it, the
Ingleses sought the nullification of the Orders dated 8 October 1997, 20 November 1997 and 27
July 1998 of Executive Judge Estrada, which allowed Charles to extrajudicially foreclose the
mortgage on the ten (10) lots as well as to register the resulting Certificate of Sale. The
Ingleses argue that Executive Judge Estrada was bereft of any jurisdiction to issue the assailed
Orders in light of the provisions in the Deed of Real Estate Mortgage: (a) referring to the
mortgaged property as being covered by TCT No. 125141 PR-17485 rather than TCT No.
125341 PR-17485, and (b) giving to Jose and Josefina, not to Charles, the right to choose
whether the mortgage may be extrajudicially foreclosed or not.41 In issuing the assailed
Orders, therefore, the Ingleses accuse Executive Judge Estrada of "amending," "altering," and
"revising" the terms of the Deed of Real Estate Mortgage that could not be done in a mere
extrajudicial proceeding.

In the later Resolution, the Court of Appeals dismissed the petition for Annulment of
Final Orders on the ground of lack of jurisdiction. According to the Court of Appeals, it cannot
take original cognizance of the Ingleses’ petition as the same does not qualify either as an
action under Rule 47 or, for that matter, as any other case that would fall within its original
jurisdiction under Rule 46 of the Rules of Court. The Court of Appeals pointed out that the
petition for Annulment of Final Orders assails orders issued by an executive judge in a
proceeding merely for the extrajudicial foreclosure of a mortgage whereas the Rules of Court
clearly prescribes that only judgments, final orders and resolutions issued by a "Regional Trial
Court" in "civil actions" may be the subject of annulment under Rule 47. The Court of Appeals
further added that, at any rate, the principle of hierarchy of courts dictates that the Ingleses
should have first challenged the validity of the Orders of Executive Judge Estrada in an
appropriate case before the RTC instead of resorting to a direct action before it.

Unconvinced, the Ingleses appealed both Resolutions of the Court of Appeals before
this Court in what would be the first of the three petitions consolidated herein.

ISSUES:
1. Whether or not the Court of Appeals erred in dismissing the Ingleses’ petition for Annulment
of Final Orders.
2. Whether or not the Court of Appeals erred in dismissing the Ingleses’ certiorari petition on
the ground of non-compliance with the requirements on verification and certification against
forum shopping.
3. Whether or not the RTC, thru Judge Magpale, committed grave abuse of discretion in
allowing Charles to present ex-parte evidence in support of his application for the issuance of a
writ of possession despite the consolidation of LRC Case No. Q-10766 (98) with Civil Case No.
Q-98-33277.

RULING:

G.R. No. 141809

The sole issue presented in G.R. No. 141809 was whether the Court of Appeals erred in
dismissing the Ingleses’ petition for Annulment of Final Orders.

The Court disagreed.

Section 9(2) of Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980, vests the
Court of Appeals with exclusive original jurisdiction over actions for "annulment of judgments of
Regional Trial Courts." The remedy by which such jurisdiction may be invoked is provided under
Rule 47 of the Rules of Court.

Conformably, Rule 47 sanctions the filing of a petition for the Annulment of Judgments, Final
Orders and Resolutions before the Court of Appeals. Section 1 of Rule 47, however, defines the
scope and nature of this petition:

RULE 47
ANNULMENT OF JUDGMENTS OR FINAL ORDERS AND RESOLUTIONS

SECTION 1. Coverage.—This Rule shall govern the annulment by the Court of Appeals of
judgments or final orders and resolutions in civil actions of Regional Trial Courts for which the
ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies are no
longer available through no fault of the petitioner. (Emphasis supplied)

The above-quoted section sets forth in no unclear terms that only judgments, final orders and
resolutions in "civil actions" of "Regional Trial Courts" may be the subject of a petition for
annulment before the Court of Appeals. Against this premise, it becomes apparent why the
Ingleses’ petition for Annulment of Final Orders must fail.

The Court finds that Executive Judge Estrada did not actually "exceed" her jurisdiction when
she issued the assailed Orders. All that Executive Judge Estrada did was to render an
interpretation of the Deed of Real Estate Mortgage on its face—which is something that she is
lawfully entitled, if not obliged, to do in an extrajudicial foreclosure proceeding. After all, an
executive judge has the administrative duty in such proceedings to ensure that all the
conditions of the law have been complied with before authorizing the public auction of any
mortgaged property and this duty, by necessity, includes facially examining the mortgage
agreement as to whether it adequately identified the land to be auctioned or whether it
contains sufficient authorization on the part of the mortgagee to push forth with an extrajudicial
sale. Of course, an executive judge may err in the exercise of such administrative function and,
as a result, may improvidently sanction an extrajudicial sale based on a faulty construction of a
mortgage agreement—but those are not errors of jurisdiction inasmuch as they relate only to
the exercise of jurisdiction.

G.R. No. 147186

The solitary issue of whether the Court of Appeals erred in dismissing the Ingleses’ certiorari
petition.

The Ingleses point out that the two (2) of them who were actually able to sign the verification
and certificate against forum shopping, i.e., Josefina and Hector F. Ingles, are mother and
brother, respectively, to the rest of them who were unable to sign.124 Hence, the Ingleses
argue, the signatures of only two (2) of them in the verification and certification of non-forum
shopping ought to be enough to be considered as substantial compliance with the requirements
thereon per Section 1 of Rule 65 and Section 3 of Rule 46.

The Court finds that the Court of Appeals did err in dismissing the Ingleses’ certiorari petition on
the ground of non-compliance with the requirements on verification and certification against
forum shopping. The Court of Appeals ought to have given due course to the certiorari petition
because there was, in this case, substantial compliance with the said requirements by the
Ingleses.

However, instead of remanding the Ingleses’ certiorari petition to the Court of Appeals, the
Court opted to exercise its sound discretion to herein resolve the merits of the same. This was
done for the sole purpose of finally putting an end to a pervading issue responsible for delaying
the proceedings in LRC Case No. Q-10766 (98) and Civil Case No. Q-98-33277, i.e., the effect of
the consolidation of the two cases to Charles’ entitlement to a writ of possession.

The Ingleses’ certiorari petition is without merit.

.
The pivotal issue in the Ingleses’ certiorari petition is whether the RTC, thru Judge Magpale,
committed grave abuse of discretion in allowing Charles to present ex-parte evidence in support
of his application for the issuance of a writ of possession despite the consolidation of LRC Case
No. Q-10766 (98) with Civil Case No. Q-98-33277.

As a rule, a petition for the issuance of a writ possession may not be consolidated with any
other ordinary action. It is well-settled that a petition for the issuance of a writ of possession is
ex-parte, summary and non-litigious by nature; which nature would be rendered nugatory if
such petition was to be consolidated with any other ordinary civil action.

It is uncontested that by the time he filed his Motion for Issuance of a Writ of Possession, which
was before the RTC allowed him to present ex-parte evidence in support of his application for
the issuance of a writ of possession, Charles had already consolidated his title over the ten (10)
lots. At that time, Charles was already the absolute owner of the ten (10) lots and, as such, his
right to possess the same becomes a matter of right on his part. Charles’ claim of possession is
no longer merely based on a "presumed right of ownership" as the Ingleses have evidently
failed to exercise their right of redemption within the period provided by law. By then, the
consolidation of Charles’ application for a writ of possession with the Ingleses’ action for the
annulment of mortgage had already lost its basis and, therefore, ceased to become proper.
Consequently, no grave abuse of discretion may be imputed on the part of the RTC in allowing
Charles to present ex-parte evidence in support of his application for the issuance of a writ of
possession.
Even though Charles filed his original Ex-Parte Petition for Issuance of a Writ Possession still
within the redemption period, Espinoza would nevertheless apply. Charles’ subsequent filing of
his Motion for Issuance of a Writ of Possession at a time that he was already absolute owner of
the auctioned lots supplemented his earlier Ex-Parte Petition for Issuance of a Writ Possession—
thus making his application for a writ of possession similar to that in the Espinoza case.

All in all, the Ingleses certiorari petition must therefore be dismissed.

Calzado, Michelle

PHILIPPINE NATIONAL BANK vs. SPOUSES FRANCISCO and MERCED RABAT

Facts:

 Spouses Rabats applied for a loan with PNB and executed a real estate mortgage over
12 parcels of land which stipulated that the loan will be subjected to an interest rate of
17% plus appropriate service charge and penalty charge of 3% per annum. Later on the
Rabats executed another document denominated as "Amendment to the Credit
Agreement" purposely to increase the interest rate from 17% to 21% per annum,
inclusive of service charge and a penalty charge of 3% per annum to be imposed on any
amount remaining unpaid or not renewed when due. They also executed another Real
Estate Mortgage over nine parcels of land as additional security for their medium-term
loan of P4M. Rabats failed to pay and so PNB filed a petition for the extrajudicial
foreclosure of the real estate mortgage executed by the Rabats.
 Rabats admitted their loan availments from PNB and their default in the payment
thereof. However, they assailed the validity of the auction sales for want of notice to
them before and after the foreclosure sales. They alleged that they never received any
notice nor heard about the foreclosure proceeding in spite of the claim of PNB that the
foreclosure proceeding had been duly published in the San Pedro Times, which is not a
newspaper of general circulation. They likewise averred that the bid price was grossly
inadequate and unconscionable. Lastly, the validity of the accumulated interest and
penalty charges because since their properties were sold in 1987, and yet PNB waited
until 1992 before filing the case. Consequently, the RABATs contended that they should
not be made to suffer for the interest and penalty charges from May 1987 up to the
present. Otherwise, PNB would be allowed to profit from its questionable scheme.
 The RTC rendered judgment in favor of the Rabats and only PNB appealed from the
judgment to the Court of Appeals. The Court of Appeals rendered a decision affirming
the trial court's ruling nullifying the auction sales, but on a different ground. The Court
of Appeals discovered that the Rabats did not actually receive personal notices
concerning the foreclosure proceedings. Hence, they could not have known of said
foreclosure sales.

Issue:
Whether or not the CA may review and pass upon the trial court’s finding and conclusion
on an issue which was never raised on appeal, and, therefore had attained finality.

Ruling:

The Court of Appeals erred in resolving PNB’s appeal on the basis of an issue which was
not raised on appeal and whose resolution thereon by the trial court has long become
firm and final against the party adversely affected by the resolution. Section 8, Rule 51
of the 1997 Rules of Civil Procedure expressly provides:
“SEC. 8. Questions that may be decided. -- No error which does not affect
the jurisdiction over the subject matter or the validity of the judgment
appealed from or the proceedings therein will be considered unless stated
in the assignment of errors, or closely related to or dependent on an
assigned error and properly argued in the brief, save as the court pass
upon plain errors and clerical errors.”

The basic procedural rule is that only errors claimed and assigned by a party will be
considered by the court, except errors affecting its jurisdiction over the subject matter.

Even granting arguendo that the issue of personal notice may be raised, still we cannot
agree with the Court of Appeals. In the first place, in extrajudicial foreclosure sales,
personal notice to the mortgagor is not necessary. Section 3 of Act No. 3135 reads:
“Section 3. Notice shall be given by posting of the sale for not less than
twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than
four hundred pesos, such notice shall be published once a week for at
 least three consecutive weeks in a newspaper of general circulation in the
municipality or city.”

Clearly personal notice to the mortgagor is not required. Second, the requirements of
posting and publication in a newspaper of general circulation were duly complied with by
the PNB as correctly found by the trial court, to which we accord great respect. A
question of non-compliance with the notice and publication requirements of an
extrajudicial foreclosure sale is a factual issue and the resolution thereof by the trial
court is binding and conclusive upon us absent any showing of grave abuse of
discretion.

Capatoy, Rhona
Lim vs. DBP

Facts:

On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed
Lim, obtained a loan of P40,000.00 (Lim Account) from respondent Development Bank of the
Philippines (DBP) to finance their cattle raising business. On the same day, they executed a
Promissory Note undertaking to pay the annual amortization with an interest rate of 9% per
annum and penalty charge of 11% per annum. On December 30, 1970, petitioners Carlos,
Consolacion, Carlito, and Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim
Fernandez, Juan S. Chua, and Trinidad D. Chua obtained another loan from DBP in the amount
of P960,000.00 (Diamond L Ranch Account). They also executed a Promissory Note, promising
to pay the loan annually from August 22, 1973 until August 22, 1982 with an interest rate of
12% per annum and a penalty charge of 1/3% per month on the overdue amortization.

To secure the loans, petitioners executed a Mortgage in favor of DBP over several
titled real properties. Due to violent confrontations between government troops and Muslim
rebels in Mindanao from 1972 to 1977, petitioners were forced to abandon their cattle ranch. As
a result, their business collapsed and they failed to pay the loan amortizations.

In 1978, petitioners made a partial payment in the amount of P902,800.00, leaving

an outstanding loan balance of P610,498.30, inclusive of charges and unpaid interest, as of
September 30, 1978. In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested
from DBP Statements of Account for the "Lim Account" and the "Diamond L Ranch Account."
Edmundo proposed the settlement of the accounts through dacion en pago, with the balance to
be paid in equal quarterly payments over five years but in a reply-letter DBP rejected the
proposal and informed Edmundo that unless the accounts are fully settled as soon as possible,
the bank will pursue foreclosure proceedings. Several requests and extensions for payment
were made by Edmundo but no compliance was ever made.

On December 19, 1993, Edmundo received the draft of the Restructuring Agreement
but subsequently, the bank cancelled the Restructuring Agreement due to his failure to comply
with the conditions within a reasonable time. On January 10, 1994, DBP sent Edmundo a Final
Demand Letter asking that he pay the outstanding amount of P6,404,412.92, as of November
16, 1993, exclusive of interest and penalty charges. On July 11, 1994, the Ex-Officio Sheriff
conducted a public auction sale of the mortgaged properties for the satisfaction of petitioner’s
total obligations in the amount of P5,902,476.34. DBP was the highest bidder in the amount of
P3,310,176.55.

On July 13, 1994, the Ex-Officio Sheriff issued the Sheriffs Certificate of Extra-
Judicial Sale in favor of DBP covering 11 parcels of land. In a letter dated September 16, 1994,
DBP informed Edmundo that their right of redemption over the foreclosed properties would
expire on July 28, 1995. On July 28, 1995, petitioners filed before the RTC of General Santos
City, a Complaint against DBP for Annulment of Foreclosure and Damages with Prayer for
Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order. Petitioners
alleged that DBP as acts and omissions prevented them from fulfilling their obligation; thus,
they prayed that they be discharged from their obligation and that the foreclosure of the
mortgaged properties be declared void. They likewise prayed for actual damages for loss of
business opportunities, moral and exemplary damages, attorneys fees, and expenses of
litigation. On the same date, the RTC issued a Temporary Restraining Order directing DBP to
cease and desist from consolidating the titles over petitioner’s foreclosed properties and from
disposing the same. In an Order dated August 18, 1995, the RTC granted the Writ of
Preliminary Injunction and directed petitioners to post a bond in the amount of P3,000,000.00.

Issues:
I. Whether or not the obligation of the petitioner is fully complied with and
extinguished.
II. Whether the foreclosure proceedings are null and void.
 III. Whether respondent is liable to pay actual compensatory damages and other
damages, attorney’s fees and expenses of litigation.

Ruling:

The obligation was not extinguished or discharged.

The Promissory Notes subject of the instant case became due and demandable as
early as 1972 and 1976. The only reason the mortgaged properties were not foreclosed
in 1977 was because of the restraining order from the court. DBP gave several
extensions for petitioners to settle their loans, but they never did, thus, prompting DBP
to cancel the Restructuring Agreement. It is significant to point out that when the
Regional Credit Committee reconsidered petitioner’s proposal to restructure the loan, it
imposed additional conditions. In fact, when DBP’s General Santos Branch forwarded the
Restructuring Agreement to the Legal Services Department of DBP in Makati, petitioners
were required to pay the amount of P1,300,672.75, plus a daily interest of P632.15
starting November 16, 1993 up to the date of actual payment of the said amount. This,
petitioners failed to do. DBP therefore had reason to cancel the Restructuring
Agreement. Moreover, since the Restructuring Agreement was cancelled, it could not
have novated or extinguished petitioner’s loan obligation. And in the absence of a
perfected Restructuring Agreement, there was no impediment for DBP to exercise its
right to foreclose the mortgaged properties.

The foreclosure sale is not valid.

While DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the bank’s failure to send a notice of foreclosure to petitioners.
We have consistently held that unless the parties stipulate, "personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3 of
Act 3135 only requires the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. However, no notice of
the extrajudicial foreclosure was sent by DBP to petitioners about the foreclosure sale
scheduled on July 11, 1994. The letters dated January 28, 1994 and March 11, 1994
advising petitioners to immediately pay their obligation to avoid the impending
foreclosure of their mortgaged properties are not the notices required in paragraph 11
of the Mortgage. The failure of DBP to comply with their contractual agreement with
petitioners, i.e., to send notice, is a breach sufficient to invalidate the foreclosure sale.
The Act only requires (1) the posting of notices of sale in three public places, and (2)
the publication of the same in a newspaper of general circulation. Personal notice to the
mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not
precluded from exacting additional requirements. As to the imposition of additional
interest and penalties not stipulated in the Promissory Notes, this should not be allowed.
Article 1956 of the Civil Code specifically states that "no interest shall be due unless it
has been expressly stipulated in writing." Thus, the payment of interest and penalties in
loans is allowed only if the parties agreed to it and reduced their agreement in writing.
In this case, petitioners never agreed to pay additional interest and penalties.
Hence, we agree with the RTC that these are illegal, and thus, void. Quoted below are
the findings of the RTC on the matter, to wit: Consequently, this case should be
remanded to the RTC for the proper determination of petitioner’s total loan obligation
based on the interest and penalties stipulated in the Promissory Notes.

Petitioner’s claim for damages is devoid of merit.

DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in
cancelling the Restructuring Agreement. DBP had reason to cancel the Restructuring
Agreement because petitioners failed to pay the amount required by it when it
reconsidered petitioner’s request to restructure the loan. Likewise, DBP’s failure to send
a notice of the foreclosure sale to petitioners and its imposition of additional interest and
penalties do not constitute bad faith. There is no showing that these contractual
breaches were done in bad faith or in a wanton, reckless, or oppressive manner.

Baleña, Quiteria
Delos Santos v Metropolitan Bank and Trust

Facts:

Petitioners took out several loans totaling P12,000,000.00 from Metrobank from
December 9, 1996 until March 20, 1998, Davao City Branch, the proceeds of which they would
use in constructing a hotel on their 305-square-meter parcel of land located in Davao City and
covered by Transfer Certificate of Title No. I-218079 of the Registry of Deeds of Davao City.
They executed various promissory notes covering the loans, and constituted a mortgage over
their parcel of land to secure the performance of their obligation. The stipulated interest rates
were 15.75% per annum for the long term loans (maturing on December 9, 2006) and
22.204% per annum for a short term loan of P4,400,000.00 (maturing on March 12,
1999).3 The interest rates were fixed for the first year, subject to escalation or de-escalation in
certain events without advance notice to them. The loan agreements further stipulated that the
entire amount of the loans would become due and demandable upon default in the payment of
any installment, interest or other charges.

On December 27, 1999, after the petitioners defaulted in their installment payments,
Metrobank sought the extrajudicial foreclosure of the real estate mortgage5 . The petitioners
were notified of the foreclosure and of the forced sale being scheduled on March 7, 2000. The
notice of the sale stated that the total amount of the obligation was P16,414,801.36 as of
October 26, 1999.

The petitioners filed in the RTC a complaint (later amended) for damages, fixing of
interest rate, and application of excess payments (with prayer for a writ of preliminary
injunction). They alleged therein that Metrobank had no right to foreclose the mortgage
because they were not in default of their obligations; that Metrobank had imposed interest rates
(i.e., 15.75% per annum for two long-term loans and 22.204% per annum for the short term
loan) on three of their loans that were different from the rate of 14.75% per annum agreed
upon; that Metrobank had increased the interest rates on some of their loans without any basis
by invoking the escalation clause written in the loan agreement; that they had paid
P2,561,557.87 instead of only P1,802,867.00 based on the stipulated interest rates, resulting in
their excess payment of P758,690.87 as interest, which should then be applied to their accrued
obligation; that they had requested the reduction of the escalated interest rates on several
occasions because of its damaging effect on their hotel business, but Metrobank had denied
their request; and that they were not yet in default because the long-term loans would become
due and demandable on December 9, 2006 yet and they had been paying interest on the short-
term loan in advance.

The complaint prayed that a writ of preliminary injunction to enjoin the scheduled
foreclosure sale be issued

Issues:
1.) Whether or not the petitioners had a cause of action for the grant of the extraordinary
writ of certiorari
2.) whether or not petitioners were entitled to the writ of preliminary injunction

Ruling:

1.) No, petitioners had no cause of action for the grant of the extraordinary writ of
certiorari. the writ of certiorari – being a remedy narrow in scope and inflexible in character,
whose purpose is to keep an inferior court within the bounds of its jurisdiction, or to prevent an
inferior court from committing such grave abuse of discretion amounting to excess of
jurisdiction, or to relieve parties from arbitrary acts of courts (i.e., acts that courts have no
power or authority in law to perform) – is not a general utility tool in the legal workshop,19and
cannot be issued to correct every error committed by a lower court.
 Considering that the requisites must concurrently be attendant, the herein petitioners’
stance that a writ of certiorari should have been issued even if the CA found no showing of
grave abuse of discretion is absurd. The commission of grave abuse of discretion was a
fundamental requisite for the writ of certiorari to issue against the RTC. Without their strong
showing either of the RTC’s lack or excess of jurisdiction, or of grave abuse of discretion by the
RTC amounting to lack or excess of jurisdiction, the writ of certiorari would not issue for being
bereft of legal and factual bases. We need to emphasize, too, that with certiorari being an
extraordinary remedy, they must strictly observe the rules laid down by law for granting the
relief sought.

The abuse of discretion must be grave, which means either that the judicial or quasi-
judicial power was exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, or that the respondent judge, tribunal or board evaded a positive duty, or
virtually refused to perform the duty enjoined or to act in contemplation of law, such as when
such judge, tribunal or board exercising judicial or quasi-judicial powers acted in a capricious or
whimsical manner as to be equivalent to lack of jurisdiction.

2.) No, petitioners were entitled to the writ of preliminary injunction. The Court must
find that the petitioners were not entitled to enjoin or prevent the extrajudicial foreclosure of
their mortgage by Metrobank. They were undeniably already in default of their obligations the
performance of which the mortgage had precisely secured. Hence, Metrobank had the
unassailable right to the foreclosure. In contrast, their right to prevent the foreclosure did not
exist. Hence, they could not be validly granted the injunction they sought.
 Elegio, Steffi

HI-CEMENT CORPORATION v. INSULAR BANK OF ASIA AND AMERICA

FACTS:

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of
E.T. Henry & Co., Inc. (E.T. Henry), a company engaged in the business of processing and
distributing bunker fuel. Among E.T. Henry's customers were petitioner Hi-Cement Corporation
(Hi-Cement), Riverside Mills Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc.
(Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now
Equitable PCI-Bank) granted E.T. Henry a credit facility known as “Purchase of Short Term
Receivables.” Through this arrangement, E.T. Henry was able to encash, with pre-deducted
interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were
into “re-discounting” of checks.
For every transaction, respondent required E.T. Henry to execute a promissory note and a deed
of assignment bearing the conformity of the client to the re-discounting.
From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of
assignment) with respondent. However, in February 1981, 20 checks of Hi-Cement (which were
crossed and which bore the restriction “deposit to payee’s account only”) were dishonored. So
were the checks of Riverside and Kanebo. The bank filed a complaint for sum of money in
CFI against E.T. Henry, the spouses Tan, Hi-Cement (including its general manager and its
treasurer as signatories of the postdated crossed checks), Riverside and Kanebo.

The Court of Appeals affirmed the RTC decision ordering E.T. Henry, spouses Tan, Hi-
Cement, Riverside and Kanebo, jointly and severally, to pay bank damages represented by the
face value of the postdated checks plus interests, services, charges and penalties until fully
paid.

ISSUES:
1. Whether or not Hi-cement’s general manager and treasurer has the authority to issue
the postdated crossed checks?
2. Whether or not respondent Bank is a holder in due course?
3. Whether or not Hi-Cement is solidary liable for the face value of Riverside's and
Kanebo's checks?

RULING:

1. YES, Hi-cement’s general manager and treasurer have the authority to issue the
postdated crossed checks. The Supreme Court agreed with both the trial court’s and the
CA’s conclusion that Hi-Cement authorized its general manager and treasurer to issue
the subject postdated crossed checks and held that Hi-Cement was already estopped
from denying such authority since it never objected to the signatories' issuance of all
previous checks to E.T. Henry which the latter, in turn, was able to re-discount with
respondent.

2. NO, respondent Bank is not a holder in due course. The Supreme Court in its decision
stated that:

The Negotiable Instruments Law (NIL), specifically Section 191,[22] provides:

“Holder” means the payee or indorsee of a bill or a note, or the person who is in
possession of it, or the bearer thereof.

On the other hand, Section 52[23] states:

A holder in due course is a holder who has taken the instrument under the following
 conditions: (a) it is complete and regular on its face; (b) he became the holder of it
before it was overdue, and without notice that it has previously been dishonored, if such
was the fact; (c) he took it in good faith and for value and (d) at the time it was
negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.

Absent any of the elements set forth in Section 52, the holder is not a holder in due
course. In the case at bar, the last two requirements were not met.

3. NO, the Supreme Court ruled that Hi-Cement could not also be made solidarily liable
with Riverside and Kanebo for the face value of their checks. Hi-Cement had nothing to
do with the checks of these two corporations.

Furthermore, solidary liability cannot be presumed but must be established by law or

contract. Neither is present here. Articles 1207 and 1208 of the Civil Code provide:

Art. 1207. The concurrence of two or more debtors in one and the same obligation does
not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the presentation. There is solidary
liability only when the obligation expressly so states, or when the obligation requires
solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to which the
preceding article refers to the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or debtors, the
credits or debts being considered distinct from one another, subject to the Rules
governing the multiplicity of suits.
 Valerie D. Bermudo

BPI FAMILY SAVINGS BANK vs. VDA. DE COSCOLLUELA

Facts:

- Respondent and her late husband Oscar obtained an agricultural sugar crop loan from
Far East Bank & Trust Co, (later merged with BPI) for crop years 1997 and 1998. In the
book of Far East, the loan account was treated as a single account, and evidenced by 67
promissory notes.
- Sps. Coscolluela executed a real estate mortgage in favor of FEBTC over their parcel of
land as security of loans on credit accommodation obtained and those that may be
obtained.
- Under the terms and conditions of the real estate mortgage, in the event of failure to
pay the mortgage obligation or any portion thereof, the entire principal, interest,
penalties, and other charges shall be immediately due; and Far East mat foreclose the
same extra judicically.
- For failure to settle outstanding obligation on the maturity dates, Far East sent a final
demand letter to respondent demanding payment. Since respondent failed to settle her
obligation, Far East filed petition for the extrajudicial foreclosure of the mortgaged
property, but only for 31 of the promissory notes.
- During pendency of said case, Far East filed a complaint for collection of money
representing the amounts for the 36 other promissory notes.
- In respondent’s answer, she alleged that the complaint was barred by litis pendentia for
the pending petition for the extrajudicial foreclosure of the REM.
- Petitioner presented a loan officer as sole witness, who testified that respondent were
granted a loan, which was a “single loan account”.
- Respondent filed a Demurrer to Evidence contending that the loan officer’s admission,
that there is only one loan account secured by the REM thus barred the personal action
for collection. She insisted that the filing of said complaint should be dismissed.
- Petitioner opposed the demurrer, stating that each promissory note constituted a
separate contract.
- The trial court denied the demurrer on the ground that each note covered a loan distinct
from the others.
- Respondent filed MR but denied, prompting her to file a certiorari petition under Rule 65
with the Court of Appeals.
- CA granted the petitioner, stating that the remedies sought are alternative and not
cumulative. Thus, in denying the demurrer, the RTC committed grave abuse of
discretion.
- Petitioner filed MR but it was denied. Hence, this petition.

Issue:
WON collection suit should be dismissed

Held:

YES. Section 3, Rule 2 of the 1997 Rules of Civil Procedure provides that a party may
not institute one suit for a single cause of action, and, if two or more suits are instituted on the
basis of the same cause of action, the filing of one on a judgment upon the merits in any one is
available as a ground for the dismissal of other. The law does not permit the owner of a singe
of entire cause of action or an entire or indivisible demand to divide and split the cause to make
it the subject of several actions.

The true rule which determined whether a party has only a single and entire cause of
action is whether the entire amount arises from one and the same act or contract or the several
parts arise from distinct and different acts. As gleaned from the plain terms of the REM, the real
estate of respondent served as a continuing security liable for obligations already obtained and
obligations obtained thereafter. In this case, the action of petitioner is anchored on one and the
same cause: the nonpayment of respondent. Though the debt may be covered by several
promissory notes and is covered by a real estate mortgage, the latter is subsidiary to the former
and both refer to one and the same obligation. A mortgage creditor may institute two
alternative remedies against the debtor, either to collect debt or to foreclose mortgage, by not
both.

The instant petition is dismissed for lack of merit.

 Alvarado, Alika Eloisa

Flores vs. Lindo Jr.

FACTS:

In October 1995, Edna Lindo obtained a loan amounting to P400k from Arturo Flores. To
secure the loan, Edna executed a deed of real estate mortgage on a property which is however
part of the conjugal property. Only Edna signed the deed. But in November 1995, Enrico
executed a special power of attorney authorizing Edna to mortgage the property. Edna was not
able to pay the loan despite repeated demands from Flores. Flores then filed an action to
foreclose the mortgage.

The trial court ruled that the action for foreclosure cannot prosper because it appears
that there was no valid mortgage between Edna and Flores. Edna mortgaged the property
without the consent of her husband and the special power of attorney executed by Enrico a
month after the execution of the deed did not cure the defect. The trial court however ruled
that Flores can instead file a personal action against Edna. Eventually, Flores filed a suit for
collection of sum of money against Edna and Enrico. The Lindo spouses filed a motion to
dismiss on the ground of res judicata. The trial court denied the motion. The spouses then filed
a petition for certiorari with the Court of Appeals.

The CA ruled in favor of the spouses. It ruled that when Flores filed an action for the
foreclosure of the mortgage, he had abandoned the remedy of filing a personal action to collect
the indebtedness. These remedies are mutually exclusive.

ISSUE:
Whether or not the Court of Appeals is correct.

HELD:

No. It is true that as a rule, a mortgagee-creditor has a single cause of action against a
mortgagor-debtor, that is, to recover the debt; and that he has the option of either filing a
personal action for collection of sum of money or instituting a real action to foreclose on the
mortgage security. These remedies are indeed mutually exclusive. However, in this case, the
Supreme Court made a pro hac vice decision which allows Flores to recover via a personal
action despite his prior filing of a real action to recover the indebtedness. This procedural rule
cannot be outweighed by the rule on unjust enrichment. Here, Edna admitted her liability of
indebtedness.

Further, the ruling of the Manila RTC Branch 33 is erroneous when it ruled that the
mortgage between Edna and Flores is invalid. It is true that a disposition of a conjugal property
by one spouse without the consent of the other spouse is VOID. However, under the second
paragraph of Article 124 of the Family Code:
“In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse. In the absence of such
authority or consent the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting spouse
and the third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn by either
or both offerors.”

Thus it is clear, the mortgage was void at the outset but it was ratified when a month
later, Enrico executed a special power of attorney authorizing Edna to mortgage the subject
property.
 Pica, Matt Kin

David Maglaque, Jose Maglaque, Mauro Maglaque and Pacita Maglaque VS. Planters
Development Bank

Facts:

A real estate mortgage was executed to secure a loan obtained by the spouses Sabina
and Egmidio Maglaque from Bulacan Development Bank now known as Planters Development
Bank. After the death of Sabina, partial payment was made by Egmidio which the Bank
accepted. However, the real estate mortgage was extrajudicially foreclosed for non-payment in
full of the loan. Title was consolidated in the name of the bank as the highest bidder. The
defendant-Bank contends that the formalities provided for by law were duly observed while the
plaintiff claims that there was no such compliance. After the lapse of the redemption period, the
bank consolidated its title to the property, and became its registered owner. Thereafter,
petitioners, heirs of the spouses, filed a complaint for annulment of sale, reconveyance of title,
with damages, and injunction. The bank sold the property to the spouses Angel S. Beltran and
Erlinda C. Beltran, for thirty thousand (P30,000.00) pesos. The plaintiff amended the complaint
twice to implead the other heirs of the spouses Maglaque, and defendant Beltran spouses, the
buyers of the property in question. Petitioners argued that the Court of Appeals erred in not
finding that the bank should have filed its claim in the settlement of estate of the deceased
mortgagor.

Issue:
Whether the Bank should have filed its claim in the settlement of estate of the deceased
mortgagors

Ruling:

No. The rule is that a secured creditor holding a real estate mortgage has three options
in case of death of the debtor. These are: (1) to waive the mortgage and claim the entire debt
from the estate of the mortgagor as an ordinary claim; (2) to foreclose the mortgage judicially
and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage exclusively,
foreclosing the same at anytime before it is barred by prescription, without right to file a claim
for any deficiency. Obviously, respondent bank availed itself of the third option.
 Kimberly Anne H. Latonio

Philippine Veterans Bank vs Monillas 550 SCRA 252 (2008)

Facts:

Respondent Benjamin Monillas and his brother, Ireneo, inherited from their father a
parcel of land covered by TCT No. T-53038. On May 21, 1973, respondent executed a deed of
sale of his share over the property to Ireneo under the latter’s representation that he would use
the deed to facilitate the procurement of a loan (with the Development Bank of the Philippines)
for a planned housing project on the land. Ireneo then caused the transfer of the title in his
name, the property’s subdivision into 308 lots, and the issuance of individual titles for the
subdivided lots.

In 1978, Ireneo mortgaged twenty-two (22) lots covered by TCT Nos. T-75517 to
75539, to petitioner Philippine Veterans Bank (PVB). Three years thereafter or in 1981,
respondent instituted Civil Case No. 24-0047 before the RTC of Echague, Isabela, for the
nullification of the 1973 deed of sale, the recovery of the property, and the payment of
damages.

While the case remained pending, PVB foreclosed the mortgage on June 2, 1984 In the
foreclosure sale, petitioner was the highest bidder.

Later, on March 21, 1985, respondent caused the annotation of notices of lis pendens
relating to the said civil case on the titles of the subdivided lots. On September 29, 1988, the
RTC of Echague rendered its decision in the said civil case declaring the 1973 deed as null and
void, cancelling the subsequent titles issued, and ordering the payment of damages. This ruling
was affirmed by the Court of Appeals on October 31, 1991 in CA-G.R. CV No. 23944. Per entry
of judgment, the case attained finality on November 29, 1991.

On January 27, 1999, the Sheriff’s Certificate of Sale and the Affidavit of Consolidation
of Ownership were annotated on TCT Nos. T-75517 to T-75539. The said titles were then
cancelled and new titles, TCT Nos. T-323794 to 323816, were issued in PVB’s name on June 24,
2002.

On April 10, 2003, respondent sued petitioner and the Register of Deeds of Isabela
before the RTC of Santiago City, Branch 35, for the cancellation of the mortgage, the
invalidation of the foreclosure, and the declaration of the nullity of the titles issued in
petitioner’s name.

After trial on the merits, the court ruled that petitioner was bound by the outcome of
Civil Case No. 24-0047 because notices of lis pendens were annotated in the properties’ titles.

Issue:
Whether or not the prior registered mortgage and the already concluded foreclosure
proceedings should prevail over the subsequent annotation of the notices of lis pendens on the
lot titles.

Ruling:

Yes. the Court rules that the prior registered mortgage of PVB and the foreclosure
proceedings already conducted prevail over respondent’s subsequent annotation of the notices
of lis pendens on the titles to the property. Settled in this jurisdiction is the doctrine that a prior
registration of a lien creates a preference; hence, the subsequent annotation of an adverse
claim cannot defeat the rights of the mortgagee, or the purchaser at the auction sale whose
rights were derived from a prior mortgage validly registered. A contrary rule will make a prior
registration of a mortgage or any lien nugatory or meaningless. It may not be amiss to point
out, at this juncture, that the doctrine applies with greater force in this case considering that
the annotation of the notice of lis pendens was made not only after the registration of the
mortgage, but also, and much later, after the conclusion of the foreclosure sale. Furthermore,
the mortgagee itself, PVB, is the purchaser of the subject properties in the foreclosure sale.
The Court also notes that PVB is an innocent mortgagee for value. When the lots were
mortgaged to it by Ireneo, the titles thereto were in the latter’s name, and they showed neither
vice nor infirmity In accepting the mortgage, petitioner was not required to make any further
investigation of the titles to the properties being given as security, and could rely entirely on
what is stated in the aforesaid titles. The public interest in upholding the indefeasibility of a
certificate of title, as evidence of the lawful ownership of the land or of any encumbrance
thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title.

Oft-repeated is the rule that the foreclosure sale retroacts to the date of the registration
of the mortgage. Thus, it no longer matters that the annotation of the sheriff’s certificate of sale
and the affidavit of consolidation of ownership was made subsequent to the annotation of the
notice of lis pendens.
 Molina, Melissa

ST. DOMINIC CORP VS IAC

FACTS:

Sometime in 1961, the PHHC awarded the property in question to one Cristobal
Santiago, Jr., in whose favor a final deed of sale was executed and Transfer Certificate of Title
(TCT) No. 83783 was issued. Subsequently, the Robes spouses mortgaged the realty to the
Manufacturer's Bank and Trust Company. The mortgage lien was duly annotated on TCT 84387
on February 9, 1965. Thereafter, on February 2, 1968, Civil Case No. Q- 1 1895 was filed.
Claiming legal interest in the property, the Bustamante spouses were allowed to intervene in
the case.

On March 25, 1968, a notice of lis pendens was annotated on TCT 84387 at the instance
of the Bustamante spouses. For failure of the Robes' spouses to pay the mortgage obligation,
the Manufacturer's Bank and Trust Company foreclosed the lot and caused the same to be sold
at public auction on December 14, 1974.

The property was purchased by Aurora Francisco in whose favor a certificate of sale was
issued. The levy on execution was annotated on TCT 84387 on March 16, 1974. No redemption
of said property was effected. Thus, on March 5, 1976, TCT 84387 in the name of the Robes
spouseswas cancelled and in heu thereof, TCT 217192 was issued to Aurora Francisco on the
same date. The notice of lis pendens on the title of the Robes spouses, however, was not
carried over to TCT 217192.

On April 20, 1976, before the sale of the land to St. Dominic, Aurora Francisco applied
for a writ of possession in LRC Case No. 851 (76) before Branch IX of the then Court of First
Instance of Rizal in Quezon City. On April 27, 1976, said court issued the writ of possession.

The Bustamante spouses filed with this Court a petition for certiorari. On September 15,
1976, Aurora Francisco sold the property to petitioner, St. Dominic Corporation. Consequently,
TCT 222337 was issued to petitioner corporation. No notice of any lien or encumbrance appears
on the title. The RTC declared the sale null and void. When the judgment became final, the
Bustamante spouses applied for a writ of execution.

On June 29, 1982, Presiding Judge Tensuan issued an order granting the application for
a writ of execution with the qualification, however, that "said writ may not be enforced and/or
implemented as against the St. Dominic Corporation."

The Bustamante spouses moved for a reconsideration, arguing that the order of the
court dated June 29, 1982 in effect amended a final and executory judgment in violation of law.
In an order dated November 26, 1982, Judge Tensuan denied the motion. Whereupon, the
Bustamante spouses filed a petition for certiorari and mandamus docketed as AC-G.R. SP No.
00513, before the Intermediate Appellate Court. Herein petitioner, St. Dominic Corporation and
Aurora Francisco who were not parties to Civil Case No. Q-11895, were made respondents in
the petition questioning the orders of Judge Tensuan exempting the petitioner corporation from
the enforcement of the trial court's judgment and denying reconsideration thereof.

On February 18, 1985, the petitioner filed its motion for reconsideration and on February
18, 1985, Aurora Francisco followed suit. In a minute resolution dated April 16, 1985, both
motions were denied by the respondent appellate court. Thus, the petition filed by St. Dominic
Corporation in G.R. No. 70623.

ISSUE:
Whether or not the trial court's order of execution should affect or be issued against the
petitioner.
RULING:

The appellate court's ruling is tainted with error.

The trial court's statement exempting from execution one not a party to the case nor
privy to the interests of the parties therein, from the effects of its pronouncements, cannot be
considered an amendment of its final and executory judgment in Civil Case No. Q- 1 1895.

Execution of a judgment can only be issued against one who is a party to the action,
and not against one who, not being a party in the case, has not yet had his day in court.

It is clear from the records that petitioner St. Dominic Corporation had never been
impleaded as a party to Civil Case No. Q-11895 filed by Ricardo Castulo and Juan V. Ebreo. The
complaint had for its purpose the nullification of the award to Cristobal Santiago, Jr., and the
subsequent sale between Santiago and the spouses Adalia Francisco and Carlos Robes. Such
proceedings neither involved nor affected St. Dominic Corporation. Judgment therein was
directed only against the titles of Cristobal Santiago, Jr., and the Robes spouses. The trial court
could not execute the same against the petitioner as to deprive it of its property without due
process of law. This is what the trial court made explicit in its order of execution. Its decision
could not reach the petitioner's rights. Yet, the respondent appellate court declined to pass
upon this principal issue in a rather ambiguous ruling.

The determination of whether or not the foreclosure proceedings, auction sale, and
subsequent transactions had on the subject property, during the pendency of the litigation are
subject to the outcome of said case bears heavily on the issues at hand. The answer is
determinative of whether or not the trial court's order of execution should affect or be issued
against the petitioner.

Anent the effect of the trial court's judgment on the mortgagee bank's rights and on the
foreclosure of the property in question, this Court has held that where a Torrens title was
issued as a result of regular land registration proceedings and was in the name of the
mortgagor when given as a security for a bank loan, the subsequent declaration of said title as
null and void is not a ground for nullifying the mortgage rights of the bank which had acted in
good faith (Philippine National Cooperative Bank v. Carandang-Villalon, 139 SCRA 570). As a
matter of fact, there are instances when even a fraudulent and forged document of sale may
become the root of a valid title if the certificate had already been transferred from the name of
the true owner to the name indicated by the forger (Duran v. Intermediate Appellate Court, 138
SCRA 489). Here, there is no forgery or fraud involved.

The title to the property given as security to the Manufacturer's Bank and Trust Co., by
the spouses Robes was valid, regular, and free from any lien or encumbrance. The mortgage
was executed prior to the institution of Civil Case No. Q-11895, thus establishing it as a lien
superior to whatever claims the plaintiffs therein may have as a result of the subsequent
litigation. An inquiry beyond the face of the mortgagor's title would certainly have yielded no
flaw at that time. This being so, the adverse claim in Civil Case No. Q-11895 could not affect
the rights of the mortgagee. The fact that the foreclosure of the mortgage and the subsequent
auction sale were effected after the annotation of the adverse claim is of no moment. The
foreclosure sale retroacts to the date of registration of the mortgage (Bank of the Philippine
Islands v. Noblejas, 105 Phil., 418).

Any subsequent lien or encumbrance annotated at the back of the certificate of title
cannot in any way prejudice the mortgage previously registered and the lots subject thereto
pass to the purchaser at public auction free from any lien or encumbrance (Gonzalo Puyat &
Sons, Inc., v. Philippine National Bank, 4 SCRA 1257). Otherwise, the value of the mortgage
could be easily destroyed by a subsequent record of an adverse claim, for no one would
purchase at a foreclosure sale if found by the posterior claim (Bank of the Philippine Island v.
Noblejas, supra). Aurora Francisco's title, as a purchaser at the auction sale of the property in
question, cannot be bound by the adverse claims of the plaintiffs in Civil Case No. Q-11895.
This is even more true with petitioner St. Dominic Corporation which had acquired title from
Aurora Francisco without any notice or flaw.

It should also be noted that the intervenors in Civil Case Q-11895 possess no
enforceable lien over the property in question. They are merely prospective awardees of the
realty. The right they assert is purely speculative. No vested rights exist in their favor. The
award of the disputed lot to Cristobal Santiago, Jr. may have been declared improper. As to
who should get the lot, according to law, still lies in the discretion of the PHHC. No assurance is
given that the lot would be awarded to the claimants-intervenors. The decision in Civil Case Q-
11895 may be deemed correct insofar as it called for a processing of the Bustamante claim but
erroneous when it assumed that after processing, the award would be in the spouses' favor.

However, the PHHC is now estopped by circumstances from making any further award.
As earlier stated, the lower court cannot order the execution of the decision as against the
petitioner and, thereby, cancel St. Dominic's title in favor of a future unknown person. It cannot
disregard the rights already vested in petitioner St. Dominic. To do so would impair confidence
in certificates of titles and orderly processes of law.

The right of the respondent to the possession of the property is clearly unassailable. It is
founded on the right of ownership. As the purchaser of the properties in the foreclosure sale,
and to which the respective titles thereto have already been issued, the petitioner's rights over
the property has become absolute, vesting upon it the right of possession of the property which
the court must aid in affecting its delivery. After such delivery, the purchaser becomes the
absolute owner of the property. As we said in Tan Soo Huat u. Ongwico (63 Phil., 746), the
deed of conveyance entitled the purchaser to have and to hold the purchased property. This
means, that the purchaser is entitled to go immediately upon the real property, and that it is
the sheriff's inescapable duty to place him in such possession. (Philippine National Bank v. Adil,
118 SCRA 110). With more reason that the said writ of possession should be granted Aurora
Francisco or, in her stead, St. Dominic Corporation in the light of our pronouncements in G.R.
No. 70623. Ownership has been consolidated in St. Dominic's favor. There being no clear title
or right enforceable by the Bustamante spouses, a writ of execution or a writ of possession,
may issue in favor of Aurora Francisco and/or St. Dominic Corporation.

Judgment rendered in favor of St. Dominic Corporation.

 DENALO, ARVIA CLAUDINE

MALAYAN BANK VS. LAGRAMA

FACTS:

Demetrio Llego, inherited from his father a portion of a parcel of land situated in
Barangay Silangang Mayao, Lucena City. This portion was part of a bigger parcel of land, the
other portions of which, in turn, were inherited by Llegos mother and siblings. The heirs
undertook the apportionment of the inherited parcel of land informally, without executing a
written extrajudicial partition thereof. As a result, title to the property remained in the name of
Llegos father.

On March 25, 1976, Llego sold to his uncle, herein private respondent Agustin Lagrama,
and his aunt Paz Abastillas his share in the inherited parcel of land. The lot was to be paid in
installments. Llego did not, however, execute a deed of sale of the lot as title to the lot was still
in his fathers name. Llego promised that as soon as the title was transferred in his name, he
would immediately execute a deed of absolute sale in favor of the buyers, to which they
agreed.

Notwithstanding the absence of a deed of sale, on March 26, 1976, private respondent
Lagrama and Abastillas entered into and took possession of the portion of land sold to them by
Llego. On December 23, 1977, private respondent Lagrama and Abastillas paid the balance of
the purchase price of the lot sold to them.

On March 6, 1979, Llego and his co-heirs extrajudicially partitioned the property[6]left
by their father. A new title was issued to Llego for his share, i.e., the portion of the land he had
previously sold to private respondent Lagrama. On November 12, 1982, Llego, through his
attorney-in-fact, Ceferino Tan, mortgaged the land to the Republic Planters Bank for
P45,000.00. As Llego failed to pay his indebtedness to petitioner bank, the mortgage was
foreclosed and the property was sold to the bank as the highest bidder. It appears that Llego
likewise failed to redeem the property.

In 1983, private respondents filed with the trial court a complaint for specific
performance to compel Llego to execute the necessary deed of absolute sale in their favor.
Impleaded as co-defendants were Ceferino Tan and petitioner bank. Llego did not answer the
complaint and was, for that reason, declared in default. Petitioner bank, in its answer, pleaded
that it was a mortgagee in good faith. On the other hand, Tan alleged that he acted as Llegos
attorney-in-fact only as an accommodation.

ISSUE:
Whether or not petitioner bank may be compelled to execute a deed of reconveyance
transferring the parcel of land mortgaged to petitioner in favor of private respondents

RULING:

Petitioner bank may be properly ordered to execute the necessary deed of reconveyance
in favor of private respondents. The remedy left to petitioner is to pursue its claim against Llego
and his attorney-in-fact Ceferino Tan by filing the appropriate action to recover the unpaid
indebtedness.

First, in the complaint for specific performance filed by private respondents, petitioner
bank was impleaded as co-defendant along with Demetrio Llego and Ceferino Tan. The trial
courts decision, dated May 17, 1993, has already attained finality as petitioners appeal to the
Court of Appeals was dismissed for being filed out of time. As correctly pointed out by private
respondents in their comment, the instant petition is improper considering that it attempts to
reverse the trial courts decision which is already final and executory. This being the case,
whatever judgment was rendered by the court in that case is necessarily binding on all
defendants therein, i.e., Llego, Tan and petitioner bank. As to which defendant would actually
execute the reconveyance is not important, for this merely involves the implementation of the
courts order.

The trial court ordered Llego to execute the necessary deed of reconveyance and,
together with Ceferino Tan, to redeem the property from petitioner bank believing that title to
the land was still in the name of Llego. As the writ of execution directed at Llego could not be
carried out, because in the meantime petitioner bank had obtained title to the land, the trial
court directed its order to petitioner bank. It cannot be argued that, in so doing, the court
modified its earlier judgment. It is noteworthy that petitioner bank tried to appeal from the
decision of the trial court which ordered the Register of Deeds of Quezon to cancel TCT No. T-
31753 and issue a new title to private respondents, but the banks appeal was dismissed for its
failure to file its brief. As a result, the trial courts decision became final, and petitioner bank
cannot now claim that it is not bound by the trial courts order to reconvey the land to private
respondents.

Second, both the trial court and the Court of Appeals correctly held that petitioner bank
was a transferee pendente lite whose title was subject to the incidents and results of the
pending litigation. Petitioner bank contends that it constituted the mortgage more than a year
before the private respondents action for specific performance was filed and the fact that the
foreclosure and public auction sale took place after the institution of the case is immaterial since
the foreclosure sale retroacts to the date of the constitution of the mortgage. Petitioner bank
argues that it was a purchaser for value long before the filing of the case and, therefore, it
cannot be considered a transferee pendente lite.

This argument is specious. Petitioner acquired the property only after the filing of
private respondents case for specific performance. When the mortgage was constituted,
petitioner was not yet, properly speaking, a transferee, being a mere mortgagee of the
property. Only when petitioner acquired the property in the foreclosure sale and subsequently
consolidated its title did it become the transferee of the property.

Thus, petitioner bank is a transferee pendente lite of the property in litigation within the
contemplation of Rule 39, 47(b). As such, it is bound by the decision against Demetrio Llego. As
this Court held in one case:
. . . A transferee pendente lite stands exactly in the shoes of the transferor and is bound by any
judgment or decree which may be rendered for or against the transferor; his title is subject to
the incidents and results of the pending litigation, and his transfer certificate of title will, in that
respect, afford him no special protection.

Third, petitioner insists that it is not a transferee pendente lite because it was a
purchaser for value long before the case for specific performance was filed. The contention is
without merit. Even if it is not a transferee pendente lite, petitioner nevertheless cannot claim a
right superior to that of private respondents because petitioner acted in bad faith when it
foreclosed and acquired the property. As the Court of Appeals pointed out, petitioner was aware
of the charge of fraud against Demetrio Llego in mortgaging the property to it despite the
previous sale thereof to private respondent Agustin Lagrama. The trial court found the
existence of fraud in the transaction and declared private respondents to be the absolute
owners of the property. As already stated, this decision of the trial court is now final and is
binding on petitioner bank. In the meantime, the bank consolidated its title over the property.
Since the bank acquired the land in question with knowledge of the fraud committed by Llego,
it cannot claim to be a purchaser in good faith and, therefore, to have a better right than its
predecessor-in-interest.
 Elegio, Steffi

JOSE P. DIZON, Petitioner, vs. ALFREDO G. GABORRO

FACTS:

Petitioner Jose P. Dizon was the owner of the three (3) parcels of land, subject matter of
this litigation, situated in Mabalacat, Pampanga with an aggregate area of 130.58 hectares, as
evidenced by Transfer Certificate of Title No. 15679. He constituted a first mortgage lien in
favor of the Development Bank of the Philippines in order to secure a loan in the sum of
P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his
indebtedness to said bank in the amount of P93,831.91. Petitioner Dizon having defaulted in the
payment of his debt, the Development Bank of the Philippines foreclosed the mortgage extra
judicially.

Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro
became interested in the lands of Dizon. Dizon originally intended to lease to Gaborro the
property which had been lying idle for some time. But as the mortgage was already foreclosed
by the DPB trial the bank in fact purchased the lands at the foreclosure sale on May 26, 1959,
they abandoned the projected lease.

On October 6, 1959, Dizon and Gaborro entered into two contracts: Deed Of Sale With
Assumption Of Mortgage and Option To Purchase Real Estate, which constitutes merely
an equitable mortgage or conveyance thereof by way of security for reimbursement or
repayment by petitioner Jose P. Dizon of any and all sums which may have been paid to the
Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro.

After the execution of the conditional sale to him, Gaborro made several payments to
the DBP and PNB. He introduced improvements, cultivated the kinds raised sugarcane and other
crops and appropriated the produce to himself. He paid the land taxes thereon.

On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter
to Gaborro informing him that he is formally offering reimburse Gaborro of what he paid to the
banks. Gaborro did not accede to the demands of the petitioner.

Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage and
the Option to Purchase Real Estate did not express the true intention and agreement between
the parties. Petitioner Dizon, contended that the two deeds constitute in fact a single
transaction that their real agreement was not an absolute sale of the land but merely an
equitable mortgage or conveyance by way of security for the reimbursement or refund by Dizon
to Gaborro of any and all sums which the latter may have paid on account of the mortgage
debts in favor of the DBP and the PNB.

ISSUE:
Whether the contract was of a Deed of Sale with Assumption of Mortgage and Option to
Purchase Real Estate or was merely an equitable mortgage or conveyance thereof by way of
security for reimbursement, refund or repayment by petitioner Dizon to respondent Gaborro?

RULING:

The Supreme Court ruled that they agree with the findings of the trial and appellate
courts that the true intention of the parties is that respondent Gaborro would assume and pay
the indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefor, respondent
Gaborro was given the possession, the enjoyment and use of the lands until petitioner can
reimburse fully the respondent the amounts paid by the latter to DBP and PNB, to accomplish
the following ends: (a) payment of the bank obligations; (b) make the lands productive for the
benefit of the possessor, respondent Gaborro, (c) assure the return of the land to the original
owner, petitioner Dizon, thus rendering equity and fairness to all parties concerned.

The SC find that the agreement between petitioner Dizon and respondent Gaborro is
one of those inanimate contracts under Art. 1307 of the New Civil Code whereby petitioner and
respondent agreed "to give and to do" certain rights and obligations respecting the lands and
the mortgage debts of petitioner which would be acceptable to the bank. but partaking of the
nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent
Gaborro, are concerned.
 Turija, Briel

EVA ARANETA SERRA VS. HONORABLE JESUS S. RODRIGUEZ

Facts:

On September 13, 1965, private respondents-spouses Manuel Loring Jr. and Milagros L.
Loring filed a complaint for the recovery of P101,000.00 against spouses Enrique Ordoñez and
Maria G, Ordoñez based on a promissory note, docketed as Civil Case No. 6846 of the
respondent Court of First Instance of Iloilo.

On September 30, 1965, debtor Maria G. Ordoñez, alone by herself without the prior
consent of or authority from her husband, debtor Enrique Ordoñez, executed a deed of chattel
mortgage over the aforementioned personal properties in favor of herein petitioner Eva Araneta
Serra allegedly as security for a loan of P20,000.00 which was duly registered on October 1,
1965.

In a motion dated November 23, 1965, private respondents Manuel Loring and Milagros
L. Loring prayed for the disapproval of the third-party claim of Serra as improper and invalid on
the ground that Serra has neither title to the personal assets of the debtors nor right of
possession thereof within the purview of Section 13 of Rule 57 of the Revised Rules of Court.

Issue:
1. Whether or not a chattel mortgage may be rescinded.

Ruling:

Under Section 14 of Rule 57 of the Revised Rules of Court, a third-party claimant to a

property levied upon by a writ of attachment must show that he has title thereto or right to the
possession thereof. This excludes a chattel mortgagee because a chattel mortgage is merely a
security for a loan and does not transfer title of the property mortgaged to the chattel
mortgagee.

The chattel mortgage executed alone by the wife, Maria G. Ordoñez, is of doubtful
validity since only the husband, as administrator of the conjugal assets (Art. 165, New Civil
Code), has the power to dispose of the same for the benefit of the family, especially for the
purposes specified in Articles 161 and 162 of the New Civil Code (Art. 171, New Civil Code). And
the wife cannot bind the conjugal partnership without the husband's consent, except in cases
provided by law (Art. 172, New Civil Code). There is no showing that the consent of the
husband was obtained for the wife to execute the chattel mortgage or that the wife was
granted special authority by the husband embodied in a public instrument to administer the
conjugal assets (Art. 168, New Civil Code).

As heretofore intimated, said chattel mortgage may likewise be rescinded as a

fraudulent scheme to defeat the right of herein private respondents creditors under paragraph 3
of Article 1381 of the New Civil Code if it is shown that the creditor has no other remedy to
completely recover his claim.

Petition is denied.
 Mendros, Duchess

FILIPINAS MABLE CORPORATION vs. INTERMEDIATE APPELLATE COURT

FACTS:

In its desire to develop the full potentials of its mining claims and deposits, Filipinas
Marbles Corporation (FMC) applied and was granted a loan in the amount of $5,000,000 by
respondent Development Bank of the Philippines (DBP), however under sixty onerous
conditions, among which are: (a) petitioner shall have to enter into a management contract
with respondent Bancom Systems Control, Inc. [Bancom]; (b) DBP shall be represented by no
less than six (6) regular directors, three (3) to be nominated by Bancom and three (3) by DBP,
in Filipinos Marble's board, one of whom shall continue to be the chairman of the board; (c) the
key officers/executives [the President and the officers for finance, marketing and purchasing] to
be chosen by Bancom for the corporation shall be appointed only with DBP's prior approval and
all these officers are to be made directly responsible to DBP, and the loan shall be secured by a
final mortgage on the assets of petitioner with a total approved vale of PhP 48,630,756.
However, when the petitioner entered into a management contract with Bancom whereby the
latter agreed to manage the plaintiff company for a period of three years, under the
management agreement, the affairs of the petitioner were placed under the complete control of
DBP and Bancom including the disposition and disbursement of the $5,000,000 or P37,600,000
loan, that the respondents and their directors/officers mismanaged and misspent the loan, after
which Bancom resigned with the approval of DBP even before the expiration date of the
management contract, leaving petitioner desolate and devastated.

The petitioner in its complaint seeks the annulment of the deeds of mortgage and deed
of assignment which it executed in favor of DBP in order to secure the $5,000,000.00 loan
because it is petitioner's contention that there was no loan at all to secure since what DBP
"lent" to petitioner with its right hand, it also got back with its left hand; and that, there was
failure of consideration with regard to the execution of said deeds as the loan was never
delivered to the petitioner.

The chattel mortgage was not registered pursuant to Article 2125 of the Civil Code.

ISSUE:
Whether or not the non-registration of the mortgage will nullify the contract between
the parties, considering that a mortgage contract is an accessory contract?

HELD:

The petition is meritorious. The Supreme Court agreed with the petitioner that a
mortgage is a mere accessory contract, and, thus its validity would depend on the validity of
the loan secured by it. We, however, reject the petitioner's argument that since the chattel
mortgage involved was not registered, the same is null and void. Article 2125 of the Civil Code
clearly provides that the non-registration of the mortgage does not affect the immediate
parties. It states:

Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order
that a mortgage may be validly constituted that the document in which it appears be recorded
in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless
binding between the parties.

The petitioner cannot invoke the mentioned provision to nullify the mortgage (chattel).
 Baleña, Quiteria

SERVICEWIDE SPECIALISTS, INC. VS INTERMEDIATE APPELLATE COURT

Facts:

Galicano Siton bought from Car Traders Philippines, Inc. a Mitsubishi Celeste vehicle
and paid P 25,000.00 as downpayment of the price. The remaining balance of P 68,400.00,
includes not only the remaining principal obligation but also advance interests and premiums for
motor vehicle insurance policies.

On August 14, 1979, Siton executed a promissory note in favor of Car Traders
Philippines, Inc. expressly stipulating that the face value of the note which is P 68,400. 00, shall
"be payable, without need of notice of demand, in installments of the amounts following and at
the dates hereinafter set forth, to wit: P 1,900.00 monthly for 36 months due and payable on
the 14th day of each month starting September 14, 1979, thru and inclusive of August 14,
1982." Additional stipulation n the Promissory Note, among others, that if default is made in the
payment of any of the installments or interest thereon, the total principal sum then remaining
unpaid, together with accrued interest thereon shall at once become due and demandable.

As further security, Siton executed a Chattel Mortgage over the subject motor vehicle in
favor of Car Traders Philippines, Inc.

Siton alleged the fact that he has bought the motor vehicle from Galicano Siton; that de
Dumo and Siton testified that, before the projected sale, they went to a certain. Atty. Villa of
Filinvest Credit Corporation advising the latter of the intended sale and transfer. Siton and de
Dumo were accordingly advised that the verbal information given to the corporation would
suffice, and that it would be tedious and impractical to effect a change of transfer of ownership
as that would require a new credit investigation as to the capacity and worthiness of Atty. De
Dumo, being the new debtor. The further suggestion given by Atty. Villa is that the account
should be maintained in the name of Galicano Siton.; that as such successor, he stepped into
the rights and obligations of the seller; that he has religiously paid the installments as stipulated
upon in the promissory note. He also manifested that the Answer he has filed in his behalf
should likewise serve as a responsive pleading for his co-defendant Galicano Siton.

Issue:
Whether or not the mortgagee is bound by the deed of sale by the mortgagor in favor of a third
person without the written or verbal consent of the mortgagee nor its predecessors

Held:

Yes, the mortgagee is bound by the deed of sale by the mortgagor in favor of a third
person without the written or verbal consent of the mortgagee nor its predecessors. The
absence of the written consent of the mortgagee to the sale of the mortgaged property in favor
of a third person, therefore, affects not the validity of the sale but only the penal liability of the
mortgagor under the Revised Penal Code and the binding effect of such sale on the mortgagee
under the Deed of Chattel Mortgage. The rule is settled that the chattel mortgagor continues to
be the owner of the property, and therefore, has the power to alienate the same; however, he
is obliged under pain of penal liability, to secure the written consent of the mortgagee. Thus,
the instruments of mortgage are binding, while they subsist, not only upon the parties
executing them but also upon those who later, by purchase or otherwise, acquire the properties
referred to therein.

There is no dispute that the Deed of Chattel Mortgage executed between Siton and the
petitioner requires the written consent of the latter as mortgagee in the sale or transfer of the
mortgaged vehicle. We cannot ignore the findings, however, that before the sale, prompt
inquiries were made by private respondents with Filinvest Credit Corporation regarding any
possible future sale of the mortgaged property; and that it was upon the advice of the
company’s credit lawyer that such a verbal notice is sufficient and that it would be convenient if
the account would remain in the name of the mortgagor Siton.

Even the personal checks of de Dumo were accepted by petitioner as payment of some
of the installments under the promissory note. If it is true that petitioner has not acquiesced in
the sale, then, it should have inquired as to why de Dumo’s checks were being used to pay
Siton’s obligations.
 Cajigas, Ma. Vanessa

PERFECTO DY JR. vs. COURT OF APPEALS

FACTS:

Wilfredo Dy purchased a truck and a farm tractor through LIBRA which was also
mortgaged with the latter, as a security to the loan.

Petitioner, expresses his desire to purchased his brother’s tractor in a letter to LIBRA
which also includes his intention to shoulder its mortgaged. LIBRA approved the request. At the
time that Wilfredo Dy executed a deed of absolute sale in favor of petitioner, the tractor and
truck were in the possession of LIBRA for his failure to pay the amortization.

When petitioner finally fulfilled its obligation to pay the tractor, LIBRA would only release
the same only if he would also pay for the truck. In order to fulfill LIBRA’s condition, petitioner
convinced his sister to pay for the remaining truck, to which she released a check amounting to
P22,000. LIBRA however, insisted that the check must be first cleared before it delivers the
truck and tractor.

Meanwhile, another case penned “Gelac Trading Inc vs. Wilfredo Dy” was pending in
Cebu as a case to recover for a sum of money (P12,269.80). By a writ of execution the court in
Cebu ordered to seize and levy the tractor which was in the premise of LIBRA, it was sold in a
public auction to which it was purchased by GELAC. The latter then sold the tractor to Antonio
Gonzales.

RTC rendered in favor of petitioner.

CA dismissed the case, alleging that it still belongs to Wilfredo Dy.

ISSUE:
Whether or not there was a consummated sale between Petitioner and LIBRA?

HELD: NO.

The payment of the check was actually intended to extinguish the mortgage obligation
so that the tractor could be released to the petitioner. It was never intended nor could it be
considered as payment of the purchase price because the relationship between Libra and the
petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which
produced the effect of payment determined the full payment of the money obligation and the
release of the chattel mortgage. It was not determinative of the consummation of the sale. The
transaction between the brothers is distinct and apart from the transaction between Libra and
the petitioner. The contention, therefore, that the consummation of the sale depended upon the
encashment of the check is untenable.
 Bongot, Beverly

PHILIPPINE NATIONAL BANK VS. MANILA INVESTMENT AND CONSTRUCTION, INC.

AND CIPRIANO S. ALLAS

FACTS:

Court of First Instance of Manila rendered a decision in favor of the plaintiff. In case of
non-payment of the amounts adjudged, the decision also provided for the sale at public auction
of the personal properties covered by the chattel mortgage executed by the defendants in favor
of the plaintiff PNB.

After the decision had become executory, instead of having the mortgaged personal
properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at
a private sale. The net proceeds obtained therefrom amounting to P256,941.70 were applied to
the partial satisfaction of the above judgment

More than five years but less than ten years from the date when the decision aforesaid
became executory, PNB filed in the same Court of First Instance an action to revive the
judgement for the payment of the remaining sum of P382,388.47 left unsatisfied.

On this action for revival of judgment, the Court ordered the defendants to pay the
plaintiff, jointly and severally, the aforementioned amount.

ISSUES:
1) Whether or not the action was the proper remedy.
2) Whether or not the private sale was null and void.
3) Whether or not PNB is not entitled to deficiency judgment.

RULING:

1) Yes, the action was the proper remedy since it was filed more than five years after the
judgment became executory.

Appellants contend that, instead of the action to revive the judgment rendered in its
favor, the appellee Bank should have filed a motion in the Court of First Instance of Manila for
the rendition of a deficiency judgment.

The action for revival was instituted after the lapse of five but of less than ten years
from the time the decision sought to be revived became executory. Having thus become stale
or dormant, it was not subject to execution by mere motion. Consequently, before the
judgment creditor could move for the rendition of a deficiency judgment and for the issuance of
the corresponding writ of execution, it had to seek the revival of the decision in accordance with
law. A judgment foreclosing a mortgage which has lost executory force by the lapse of five
years may be revived by filing a COMPLAINT (not a Motion) based thereon.

2) No, the private sale of the mortgage property was proper since it was done by
agreement between parties.

The mortgaged personal properties were sold at a private sale by agreement between
the parties. We see nothing illegal, immoral or against public order in such agreement entered
into freely and voluntarily. In line with the Art. 1306 of NCC giving the contracting parties full
freedom to contract provided their agreement is not contrary to law, morals, good customs,
public order or public policy contracting parties may stipulate that the creditor may sell, at
private sale and without previous advertisement or notice, the whole or part of the good
mortgaged for the purpose of applying the proceeds thereof on the payment of the debt.
 Since the private sale was by agreement between parties, appellants are now in
estoppel to question it except on the ground of fraud or duress — pleas that they do not
invoke.

3) Yes, PNB is entitled to deficiency judgment.

Here we find that the provisions of the Chattel Mortgage with regard to the effects of
the foreclosure a chattel mortgage are precisely contrary to the provisions of Article 2115 which
were applied by the trial Court.

Art. 2115. The sale of the thing pledged shall extinguish the principal obligation,
whether or not the proceeds of the sale are equal to the amount of the principal
obligation, interest and expenses in a proper case. If the price of the sale is more than
said amount, the debtor shall not be entitled to the excess, unless it is otherwise
agreed. If the price of the sale is less, neither shall the creditor be entitled to recover
the deficiency, notwithstanding any stipulation to the contrary.

Art. 2141. The provisions of this Code on Pledge, insofar as they are not in conflict with
the Chattel Mortgage Law, shall be applicable to chattel mortgages.

In case of a sale under a foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain an action for the deficiency, if any should occur. And the
fact that Act No. 1508 permits a private sale, such sale is not in fact, a satisfaction of the debt,
to any greater extent than the value of the property at the time of the sale. The amount
received at the time of the sale, of course, always requiring good faith and honesty in the sale,
is only a payment, pro tanto and an action may be maintained for a deficiency in the debt
(Manila Trading and Supply Co., vs. Tamaraw Plantation Co., 47 Phil.).

Hence, Art. 2115 does not apply. Therefore, the proceeds of the sale of the mortgaged
personal properties of the herein appellants constitute only a pro tanto satisfaction of the
monetary award made by the court and the appellee Bank PNB is entitled to collect the balance.
 Roa, Mara Angelie

JOSE GARRIDO vs. PILAR G. TUASON

FACTS:

On October 17, 1959, Jose Garrido commenced Civil Case No. 71763 of the Municipal
Court of Manila, for the foreclosure of a chattel mortgage, executed in his favor by defendant,
Pilar G. Tuason, to guarantee the payment of a debt in the sum of P1,000, as well as for the
recovery of attorney's fees and the costs. After appropriate proceedings, decision was rendered
on November 14, 1959, ordering the defendant to pay to plaintiff "the sum of P1,000 with
interest thereon at the rate of 1% per month from June 30, 1959 until the whole amount is fully
paid, plus the sum of P100 for attorney's fees, and the costs."

On December 9, 1959, after this decision had become final, a car of the defendant was
sold by the Provincial Sheriff of Rizal, at public auction, to the plaintiff, as the highest bidder, for
the sum of P550. On January 28, 1960, plaintiff filed two motions praying that the sum of P165,
allegedly spent by him to carry out the writ of execution, be added to the unsatisfied portion of
the aforementioned decision, and another, for an alias writ of execution for the sum of
P1,290.58, as the aggregate outstanding balance allegedly due under said decision.
Both motions as well as the motion for reconsideration filed for this order were denied.
On April 1, 1960, plaintiff commenced Civil Case No. 76462 against the same defendant for the
recovery of said alleged balance of P1,290.58. On motion of said defendants, plaintiff's
complaint in said case No. 76462 was dismissed by the Municipal Court.
Plaintiff appealed to the Court of First Instance of Manila, which rendered its decision
dismissing the case pursuant to Article 2115 of the Civil Code of the Philippines, hence, this
appeal by the plaintiff.

ISSUE:
Whether or not the plaintiff can maintain an action for the deficiency allegedly due.

RULING:

Yes, the plaintiff can file an action for the recovery of the deficiency.
Article 2115 of the Civil Code provides that, “the sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of the sale are equal to the amount of the
principal obligation, interest and expenses in a proper case. If the price of the sale is more than
said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the
price of the sale is less, neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary.” The Court of First Instance must have applied
this precept in view of Article 2141 of the same Code, pursuant to which the provisions thereof
on pledge shall be applicable to chattel mortgages "insofar as they are not in conflict with the
Chattel Mortgage Law." However, as already ruled by the Court, Article 2115 is inconsistent
with the provisions of the Chattel Mortgage Law, and that the chattel mortgage creditor may
maintain an action for the deficiency.

Furthermore, the nature of the decision rendered was not one of a foreclosure but one
of an ordinary money judgment to which Article 2155 and Article 2141 were absolutely
irrelevant for it merely ordered the defendant to pay the sum of P1,000, with interest thereon,
in addition to attorney's fees and the costs. It did not order the sale of the property mortgaged
to the plaintiff or of any other particular property, for the satisfaction of his credit against the
defendant and it did not purport to enforce plaintiff's lien over the mortgaged property.
Hence, the municipal court erred in denying the plaintiff’s motion for the issuance of an alias
writ of execution in Case No. 71763. The plaintiff could have and should have appealed from
the order of denial of said motion; but, he did not do so, and, instead, he brought the case at
bar, thereby allowing said order to become final. Thus, the present action is now barred by res
judicata which makes the dismissal proper.
 Abellar, Antonette

TOLENTINO VS BALTAZAR

Facts:

Angel Baltazar filed a homestead application over a land located in laur, Nueva Ecija
which was approved by the Director of Lands on August 14, 1940. On April 1, 1941, he
mortgaged the present and future improvements on said land to Pastor Tolentino, for the sum
of P1,500, with the understanding that if the same were not paid, with interest thereon at the
rate of 12% a year, within six (6) years, Tolentino could elect, either to foreclose the mortgage
or to compel the debtor to execute a deed of absolute sale of said improvements. After the
death of Angel Baltazar in 1945, his widow and children conveyed to his son Basilio Baltazar
their rights and interest in and to said land.

On August 28, 1946, Basilio Baltazar filed a petition praying that the homestead
application in his father's name be cancelled, and that, his own application be admitted with the
Bureau of Lands. The petition was granted and Basilio was also able to secure an Original
Certificate of Title in his name.

On October 20, 1952, Tolentino filed an action for the cancellation of the Original
Certificate of Title on the grounds that it was secured by fraud against Basilio Baltazar and the
heirs of Angel Baltazar. The Director of lands likewise filed a cross-claim against the Baltazar’s.

The Court of First Instance of Nueva Ecija rendered a decision holding that Basilio
Baltazar had not been guilty of fraud in securing the homestead patent and certificate of title in
his name; that the Director of Lands was stopped from imputing fraud to Basilio Baltazar, it
being the duty of said office to know that the land in question had been originally applied for,
not Basilio Baltazar, but by Angel Baltazar. Moreover, the land was no longer part of the public
domain and was therefore beyond the jurisdiction of the Director of Lands. It was further ruled
by the lower court that Tolentino merely has a money claim against the estate of Angel Basilio.

Tolentino appealed the decision of the lower Court, but the decision was still affirmed by
the CA.

Issues:
Whether or not the Original Certificate Title should be cancelled.

Ruling:
Even if Basilio Baltazar had not been guilty of fraud in securing the homestead patent
and the certificate of title in his favor, it has been established that when plaintiff saw the
children of Angel Baltazar shortly after his death, they promised to pay his debt in favor of
Pastor Tolentino. In other words, Basilio Baltazar knew, before he got said patent and the
certificate of title, that the present and future improvements on the land were subject to a valid
and subsisting mortgage in favor of Pastor Tolentino and acknowledged the same. Hence, he
must be deemed to have secured such patent and title subject to a subsisting trust, insofar as
plaintiff's mortgage is concerned, and, under plaintiff's prayer for such relief as may be deemed
just and equitable, this action may be considered as one to compel the defendant to execute
the instrument necessary for the registration of said mortgage and its annotation on plaintiff's
certificate of title.

Wherefore, the decision is reversed. Basilio Baltazar shall execute a Deed of Mortgage in
favor of Tolentino.
 Alvarado, Alika Eloisa

TSAI V. COURT OF APPEALS

Facts:

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a
P3,000,000.00 loan from Philippine Bank of Communications (PBCom). As security for the loan,
EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot where
its factory stands and the chattels located therein as enumerated in a schedule attached to the
mortgage contract. PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was
secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto
which were similar to those listed in Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage, EVERTEX
purchased various machines and equipments. Then, due to business reverses, EVERTEX filed
insolvency proceedings. The CFI issued an order declaring the corporation insolvent. All its
assets were taken into the custody of the Insolvency Court. In the meantime, upon EVERTEX’s
failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure
proceedings against EVERTEX. On December 15, 1982, the first public auction was held where
petitioner PBCom emerged as the highest. On December 23, 1982, another public auction was
held and again, PBCom was the highest bidder. PBCom then leased the entire factory premises
to petitioner Ruby L. Tsai for P50,000.00 a month and subsequently sold the factory, lock, stock
and barrel to Tsai for P9,000,000.00, including the contested machineries. On March 16, 1989,
EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the
Regional Trial Court against PBCom, alleging that the extrajudicial foreclosure of subject
mortgage was in violation of the Insolvency Law. Further, EVERTEX averred that PBCom,
without any legal or factual basis, appropriated the contested properties, which were not
included in the Real and Chattel Mortgage nor in the Chattel Mortgage and neither were those
properties included in the Notice of Sheriff’s. The disputed properties, which were valued at
P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The trial court rendered in favor of EVERTEX. PBCom and Tsai appealed to the Court of
Appeals which affirmed RTC’s decision. Their Motion for reconsideration was also denied. Thus,
PBCom and Tsai filed their separate petitions for review with this Court.

Issue:
Whether or not the inclusion of the questioned properties in the foreclosed properties is
proper and whether or not the sale of these properties to petitioner Ruby Tsai is valid.

Held:
No. Assuming arguendo that the properties in question are immovable by nature,
nothing detracts the parties from treating it as chattels to secure an obligation under the
principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may
be considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. In
the instant case, the parties herein: (1) executed a contract styled as “Real Estate Mortgage
and Chattel Mortgage,” instead of just “Real Estate Mortgage” if indeed their intention is to
treat all properties included therein as immovable, and (2) attached to the said contract a
separate “LIST OF MACHINERIES & EQUIPMENT”. These facts, taken together, evince the
conclusion that the parties’ intention is to treat these units of machinery as chattels. A fortiori,
the contested after-acquired properties, which are of the same description as the units
enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,” must also be treated as
chattels. And, since the disputed machineries were acquired in 1981 and could not have been
involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the
Sheriff to include subject machineries with the properties enumerated in said chattel mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor.
Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo
dat quod non habet, one cannot give what one does not have.
 Campanero, Earl

ACME SHOE, RUBBER & PLASTIC CORPORATION vs.

HON. COURT OF APPEALS

Facts:

To secure a corporate loan of PhP3,000,000.00, Petitioner Chua Pac, the president and general
manager of Acme Shoe executed for and in behalf of the company, a chattel mortgage in favor
respondent Bank. In due time, the loan was paid by petitioner corporation.
A provision in the chattel mortgage agreement was to this effect —
(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the
full obligation or obligations above-stated according to the terms thereof, then this mortgage
shall be null and void. . . . In case the MORTGAGOR executes subsequent promissory note or
notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is
given any other kind of accommodations such as overdrafts, letters of credit, acceptances and
bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also
stand as security for the payment of the said promissory note or notes and/or accommodations
without the necessity of executing a new contract and this mortgage shall have the same force
and effect as if the said promissory note or notes and/or accommodations were existing on the
date thereof. This 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.
.
Subsequently, it obtained from respondent additional financial accommodations with a total
amount of P2,700,000.00. These loans were also fully paid on due date. Then the bank yet
again extended to petitioner corporation a loan of P1,000,000.00 covered by four promissory
notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.
Bank applied for extrajudicial foreclosure of chattel mortgage. Acme filed action for injunction
however RTCultimately dismissed complaint and ordered foreclosure saying Acme was bound by
stipulations.

Issue:
WON it is valid and effective to have a clause in a chattel mortgage that extends its coverage to obligations yet to
be contracted.

Ruling:

R.A. 1508 or the Chattel Mortgage Law provides that chattel mortgage can cover only
obligations existing at the time the mortgage is constituted.
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the mortgage is constituted
Valerie D. Bermudo

NORTHERN MOTORS, INC. v. THE HONORABLE JORGE R. COQUIA

Facts:
- Manila Yellow Taxicab executed a chattel mortgage over several taxicabs in favor of
Northern Motors. TROPICAL, a judgment creditor of Yellow Taxicab, assigned the
judgment to Ong.
- On Deceber 12, 1974, Sheriff then levied upon 20 taxicabs, 8 of which are security for
the chattel mortgage.
- Northern Motors filed an intervention on December 18, 1974; however, the levied
taxicabs were sold thhe same day at 2pm although agreement shows that it should have
happened at 4pm.
- Indemnity bond was posted by Tropical but the bond was cancelled after the sale
without notice to Northern Motors. The petitioner now seek reconsideration also the
reinstatement of the bond.
- A second levy was made upon 35 taxicabs, 7 of which are mortgaged to Northern
Motors.
- A motion for reconsideration was filed in the SC decision pronouncing that the
mortgagee has a better right than the judgment debtor over the taxicabs.

Issues:
- WON the expenses for the execution sale should be deducted from the proceeds thereof
- WON the purchaser has a better right than the creditor
- WON the bond should be reinstated

Held:
1. NO. It was already established that the levy on the property was illegal. It is therefore
improper to deduct the expenses of an illegal auction from the proceeds thereof. The
mortgagee can only able to collect the proceeds from the auction sale because the
purchasers are unknown addresses. The full proceeds of the sale are due to the
mortgagee without any unreasonable and illegal deductions.
2. NO. the purchaser of the auction sale merely steps in the shoes of the judgment creditor
as they have been aware of the claim of the mortgagee. The mortgagee has a better
right to the possession of the taxicabs, however, since the addresses of the purchasers
are unknown, the proceeds of the sale must be delivered to the mortgagee.
3. NO. The reinstatement of bond shall be denied because Northern Motors had given the
impression that it had not filed any action for damages against the sheriff within the
one hundred twenty- day period contemplated in Section 17, Rule 39 of the Rules of
Court.
 Labenia, Me Julievin

ALLIED BANKING CORPORATION vs.

HON. EMILIO V. SALAS

FACTS:

General Bank and Trust Company granted Gencor Marketing, Inc., a time loan evidenced
by a Promissory Note executed by the latter through its President, Dr. Clarencio S. Yujuico. As
security for the time loan and pursuant to a resolution of the Board of Directors of Gencor
Marketing, a Deed of Chattel Mortgagewas executed by Gencor Marketing in favor of General
Bank and Trust Company (MBTC) involving the personal properties. The Deed of Chattel
Mortgage was duly recorded in the Chattel Mortgage Registry of Quezon City. On maturity date
of the Loan and allegedly after several subsequent extensions of time for Gencor to settle its
account, Gencor failed to pay its obligations either to General Bank and Trust Company or to
Allied Banking which took over the affairs and/or acquired all the assets and assumed the
liabilities of General Bank and Trust Company. Allied Banking extrajudicially foreclosed the
aforesaid Chattel Mortgage and requested the City Sheriff of Quezon City to effect the said
foreclosure. The City Sheriff of Quezon City, through Deputy Sheriff A. Tabbada levied upon the
afore-described mortgaged personal properties in question and issued the corresponding Notice
of Sheriff s Sale.

It appears, however, that prior to the extrajudicial foreclosure effected by Allied Banking
involving the personal properties in question, Metropolitan Bank and Trust Company filed an
action for a sum of money in the amount of with preliminary attachment against Clarencio
Yujuico and Jesus Yujuico, a writ of preliminary attachment was issued in said case and the
Sheriff of the Court of First Instance of Rizal levied upon the personal properties in
question. Thus, upon teaming of the Notice sent by City Sheriff Tabbada for the sale of the
foreclosed personal properties in question, MBTC filed an Urgent Motion to Enjoin the Sheriff of
Quezon City from foreclosing and selling at public auction the said properties, alleging that the
printing machineries and equipment previously levied and attached by the Sheriff of Rizal
belonged exclusively to defendant Clarencio S. Yujuico, doing business under the firm name of
Gencor Printing and as such, may not legally be foreclosed and sold at auction by the Sheriff of
Quezon City.

Meanwhile, Metropolitan Bank and Trust Company filed a Third Party Claim with the
Quezon City Sheriff ‘s Office over the personal properties in question levied upon and sought to
be sold at public auction by City Sheriff A.Tabbada, alleging that these same personal properties
had been previously levied upon by the Deputy sheriff of Branch I of the Court of First Instance
of Rizal, pursuant to a Writ of Attachment issued by herein respondent Judge Emilio V. Salas.
Allegedly to protect Allied Banking’s rights over the personal properties in question, Allied
banking’s counsel entered a special appearance during the scheduled hearing for the exclusive
purpose of opposing MBTC’s motion on jurisdictional grounds and gross irregularity of
procedure amounting to lack of jurisdiction.

ISSUES:
1. Whether or not the respondent judge acted without and/or in excess of jurisdiction
and/or with grave abuse of discretion amounting to lack of jurisdiction in acting upon
the motion of respondent Metropolitan Bank and Trust Company dated July 24, 1978
2. Whether or not the respondent judge consequently erred as well in issuing the disputed
Order of July 27, 1978 enjoining the sale at public auction on July 28, 1978 of the
printing machineries and equipment previously mortgaged to herein petitioner.
RULING:

Finding the chattel mortgage to be valid, the Court takes special note of the fact that
said chattel mortgage was registered and duly recorded in the Chattel Mortgage Registry of
Quezon City on February 7, 1974, prior to April 22, 1977, the date the writ of attachment of the
properties in question was issued. This is a significant factor in determining who of two
contending claimants should be given preference over the same properties in question.
In this regard, it must be stressed that the right of those who so acquire said properties should
not and cannot be superior to that of the creditor who has in his favor an instrument of
mortgage executed with the formalities of law, in good faith, and without the least indication of
fraud.

Respondent judge is ordered to desist and refrain from further interfering with
petitioner's property rights in the aforesaid Deed of Chattel Mortgage and to allow the Sheriff of
Quezon City and his deputies to proceed with the auction sale of the foreclosed personal
properties. Costs against private respondent.
 PONFERRADA, APRIL ROSE ALCOBER

URBANO JACA and BONIFACIO JACA vs. DAVAO LUMBER COMPANY

FACTS:

Plaintiff Urbano Jaca is a licensee of a logging concession located in the Davao City, and
together with his co-plaintiff, Bonifacio Jaca, engaged in the logging business of producing
timber and logs for export and/or domestic purposes.

The defendant Davao Lumber Company is a business corporation with which plaintiffs
had business dealings covering the sale and/or exportation of their logs.

Sometime in 1954, the herein parties-litigants entered into an agreement whereby

plaintiffs may secure, by way of advances, either cash or materials, foodstuffs, and/or
equipment's from the defendant corporation; that the payment of such account was to be made
either in cash and/or by plaintiff's turning over all the logs that they produce in the aforesaid
concession to the defendant, and in the latter case, the current prices, either export or
domestic, of the logs at the time of their delivery was to be considered; that while the aforesaid
business relationship between the parties was subsisting, defendant made plaintiff Urbano Jaca
execute in its favor a chattel mortgage, a copy of which instrument. However, plaintiffs were
never furnished but that as far as they can recollect the primary conditions of such chattel
mortgage were that plaintiffs would turn over to defendant corporation all the logs they may
produce from the aforesaid concession the same to be priced either as export or domestic and
their value to be applied by defendant to, and be credited for, the account of plaintiff's
indebtedness, and further that in case of need, plaintiffs may secure, by way of advances,
either cash, foodstuffs, materials or equipment's, under an "open credit account"; that under
the aforementioned open credit account relationship between the plaintiffs and defendant,
orders were secured by plaintiffs, by way of advances, from the defendant, this to be paid by
them with plaintiffs' production from their concession, liquidating those old accounts and
keeping all accounts current.

The plaintiffs and the defendant had this business relationship from 1954 up to
sometime in August 1963. During this whole period of time, the plaintiffs had been faithfully
delivering all their log production to the defendant for export or domestic purposes. Before the
filing of this complaint, the plaintiff made repeated demands on the defendant for a formal
accounting of their business relationship from 1954 up to August, 1963, but that the defendant
failed and refused, and still fails and refuses, to effect such formal accounting, asserting that it
had no time as yet to examine into all the details of the accounting. On October 30, 1963, much
to their surprise, plaintiffs received letters of demand from the defendant in which they were
requested to pay their accounts in favor of defendant, which according to the latter had long
been overdue.

The defendant has up to the present denied the plaintiffs the benefits of a formal
accounting and inasmuch as the invoices, receipts, vouchers, requisition slips and other
pertinent papers and document of their business transactions are in the possession of
defendant, it is difficult for plaintiffs to ascertain with accuracy the ledger balance between the
parties, unless a detailed examination of the matter is had. Plaintiffs have thereby been
constrained to file this case in Court in order to compel defendant to have a formal accounting
between them, and that it is the desire of plaintiffs that pending the formal hearing of this case,
three commissioners, constituting accountants be judicially appointed for the purpose of
examining all the books, pertinent papers and documents and all other data in relation with
their business transaction.

As mentioned, plaintiffs filed a complaint for accounting, return of price differentials, and
damages against herein defendant. The lower court rendered judgment in favor of the
company. Plaintiffs appealed. Pending such appeal, the defendant company filed a motion for
execution pending appeal which lower court granted. One of the grounds stated in the order of
execution pending appeal for allowing such execution was plaintiffs’ refusal to deliver the
mortgaged chattels.

ISSUE/S:
Whether or not there are good reasons justifying the issuance of an order granting
premature execution.

RULING:

Section 2, Rule 39 of the Rules of Court provides that on motion of the prevailing party
with notice to the adverse party the court may, in its discretion, order execution to issue even
before the expiration of the time to appeal, upon good reasons to be stated in a special order.
If a record on appeal is filed thereafter, the motion and the special order shall be included
therein. The discretionary power of the Court of First Instance to grant or deny a motion for
execution before the expiration of the time to appeal will not be interfered with by the appellate
court, unless it be shown that there has been an abuse thereof or a subsequent change of
conditions.

The Supreme Court held that the records show that respondent Davao Lumber Company
was able to prove its claim against petitioners because respondent judge refused to order the
commissioner to hold a hearing as required by the rules. Thus, objections which petitioners may
have against the claims of respondent were never considered. In the same manner, the claim of
petitioner that respondent Davao Lumber Company is indebted to them was not also
considered.

There is doubt that petitioners are really indebted to respondent Davao Lumber
Company in such a big amount as found by the trial court. The appeal of the petitioner appears
to be meritorious. The fear of respondent that the judgment of the trial court might not be
satisfied if not executed at once is not well founded. If the judgment is executed now, and on
appeal the same is reversed, although there are provisions for restitution, damages incurred by
petitioners can not be fully compensated.

Furthermore, the reasons stated in the order of execution pending appeal are not well
founded.

The first reason stated in the order was the consistent refusal of petitioner to deliver the
mortgaged chattels to the receiver. The records disclose that respondent Davao Lumber
Company is not even entitled to the appointment of a receiver. It is an established rule that the
applicant for receivership must have an actual and existing interest in the property for which a
receiver is sought to be appointed. The Davao Lumber Company's proof of interest in the
property is the deed of chattel mortgage executed by Urbano Jaca in favor of the Davao
Lumber Company on January 24, 1961. This deed of chattel mortgage is void because it
provides that the security stated therein is for the payment of any and all obligations herein
before contracted and which may hereafter be contracted by the Mortgagor in favor of the
Mortgagee.

Thus, the Supreme Court nullified the decision made by the lower court.
 Lee, Jay Jasper

ALBERTA B. CABRAL and RENATO CABRAL vs. TEODORA EVANGELISTA, and JUAN N.
EVANGELISTA

FACTS:

George Tunaya and the Cabral spouses contracted a loan with chattel mortgage on Mr.
Tunaya's piano and electric stove. The chattel mortgage was duly registered.
Mr. Tunaya also had a loan with the Evangelista spouses on which he defaulted. Final money
judgment was made and the Evangelista spouses levied on the personal properties of Mr.
Tunaya including those under the chattel mortgage. These properties were sold in a public
auction.

Mr. Tunaya also wasn't able to pay the Cabral spouses. The Cabrals filed a complaint
and prayed for judgment that Tunaya and the Evangelista spouses be held solidarily liable on
the amount of the promissory note, or to deliver the properties subject of the chattel mortgage.

ISSUES:
1. WON the Cabral spouses are guilty of prescription or laches?
2. WON the purchase of the mortgaged chattels with a certificate of sale gave the
appellant a superior right over the mortgagee.

RULING:

1. WON the Cabral spouses are guilty of prescription or laches?

The Supreme Court ruled that the obligation have not yet prescribed. According to Article 1140
of the Civil Code, the prescriptive period for recovery of movables for foreclosure purposes such
as in the present case is eight years. In the case at bar, the mortgagee filed an action after
eight months from the mortgagor's default. Therefore, there is no prescription. Also, the
mortgagee cannot be held liable for laches because they filed their action promptly after they
had been advised by their debtor, defendant Tunaya, of the public auction sale.

2. WON the purchase of the mortgaged chattels with a certificate of sale gave the
appellant a superior right over the mortgagee.

The Supreme Court ruled that the right of those who so acquire said properties should not and
cannot be superior to that of the creditor who has in his favor an instrument of mortgage
executed with the formalities of the law, in good faith, and without the least indication of fraud.
In the case of Ong Liong Tiak vs. Luneta Motor Co., the plaintiff purchased an automobile with
knowledge of a mortgage lien attached to such property. The Supreme Court ruled that the
purchaser holds no better right than which the vendor then had thus the purchaser is exposed
to the risk of the outcome of mortgage lien. In the case at bar, the chattel mortgage was duly
registered in Chattel Mortgage Register of Rizal province thus it is presumed that the purchaser
has knowledge of the mortgage lien. Therefore, the right of the Evangelista spouses cannot be
superior than that of the Cabral spouses.
Moreover, Rule 39, section 16 of the Revised Rules of Court states that levy on execution shall
create a lien in favor of the judgment creditor over the right, title and interest of the judgment
debtor in such property at the time of the levy, subject to liens or incumbrances then existing."
 Capatoy, Rhona

Friend vs. Union Bank of the Philippines

Facts:

This is a petition for review on certiorari that seeks to nullify the decision of the Court of
Appeals and Regional Trial Court of Pasay City, denying the motion for reconsideration.

Spouses William G. Friend and Maria Renee Friend (hereafter appellants) incurred a loan
from Union Bank of the Philippines (hereafter appellee) in the original amount of Eight Hundred
Eighteen Thousand One Hundred Thirty Six Pesos (P818,136.00) to purchase a Hyundai Starex
Van in January 1999 and executed a promissory note which includes a chattel mortgage.

Spouses Friend defaulted in the payment of their obligation and was demanded to turn
over the said vehicle but the former did not comply. Union Bank instituted an action for
collection of sum of money with prayer for the issuance of a writ of replevin. Unfortunately, the
sheriff was not able to implement said writ because the vehicle could not be found at the
residence of appellants. Appellant William G. Friend admitted to the sheriff that he returned the
vehicle to the dealer, Drive Motors, Inc.

Appellants failed to file their answer within the reglementary period. On May 18, 2001,
Union Bank filed a motion to declare the appellants in default. In its Order dated July 11, 2001,
the RTC granted appellees motion and declared appellants in default. Appellee presented its
evidence ex parte.

Issues:
I. Whether or not the Honorable Court of Appeals gravely erred in ruling that
petitioners were not denied due process for being declared as in default and for
being denied the opportunity to present evidence. Corollarily, whether or not
petitioners are bound by the negligence of their counsel.
II. Whether or not the Honorable Court of Appeals gravely erred in ruling that
petitioners Sps. Friend are liable under the loan-agreement.

Ruling:

No, the CA did not erred in ruling that petitioners were not denied due process. The
essence of due process is to be found in the reasonable opportunity to be heard and to submit
any evidence one may have in support of ones defense. Where the opportunity to be heard,
either through verbal arguments or pleadings, is accorded, and the party can present its side or
defend its interest in due course, there is no denial of procedural due process. In the case at
bar, while petitioners former counsel failed to file an answer to the complaint filed by Union
Bank, however, he seasonably filed a notice of appeal from the decision of the trial court. Under
the Rules of Court, in ordinary appealed cases to the Court of Appeals, the appellant may
include in his assignment of errors any question of law and fact that has been raised in the
court below and which is within the issues framed by the parties. Petitioners were thus afforded
the chance to raise their defenses as the case is opened for comprehensive review by the
appellate court.

The doctrinal rule is that the negligence of counsel binds the client. Otherwise, there
would be no end to a suit so long as a new counsel could be employed who would allege and
show that the prior counsel had not been sufficiently diligent, experienced, or learned.
However, this rule admits certain exceptions, such as: (1) where reckless or gross negligence of
counsel deprives the client of due process of law; (2) when its application will result in outright
deprivation of the clients liberty or property; or (3) where the interests of justice so require.
Indeed, there have been instances when this court had accorded relief to the client who
suffered by reason of their lawyers gross or palpable mistake or negligence. The instant case
does not fall under any of the exceptions.
 As to the second issue, no, the Court of Appeals did not gravely erred in ruling that
petitioners Sps. Friend are liable under the loan-agreement. Petitioner’s argument that it was
Drive Motors Incorporated (Drive Motors), through its owner and general manager, Aimee
Dumaran, which facilitated their monthly payments to Union Bank and that Union Bank was
informed about the transfer of the vehicle, deserves no consideration. The obligation to pay the
bank rests primarily on petitioners and not on Drive Motors or Dumaran who merely acted as an
intermediary. Their unqualified reliance on Dumaran could not exculpate them from their
predicament.
 Odivelas, Anne Sherly

CERNA V. COURT OF APPEALS

FACTS:

-Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which
was evidenced by a promissory note. worded as follows:

-On the same date, Delgado executed a chattel mortgage over a Willy's jeep owned by him.
And acting as the attorney-in-fact, Manolo P. Cerna, he also mortgage a "Taunus' car owned by
the latter.

-The period lapsed without Delgado paying the loan. This prompted Leviste to a file a collection
suit against Delgado and Cerna as solidary debtors.

-Cerna filed a Motion to Dismiss on the ground of lack of cause of action against Cerna and the
death of Delgado. Anent the latter, Cerna claimed that the claim should be filed in the
proceedings for the settlement of Delgado's estate as the action did not survive Delgado's
death. Moreover, he also stated that since Leviste already opted to collect on the note, he could
no longer foreclose the mortgage.

CA and TC:

-Denied the Motion to Dismiss.

ISSUES:
1. Is Cerna solidarily bound with the principal debtor?
2. What is the extent of the mortgagor's liability?
3. Is Cerna a co-mortgagor?
4. If Cerna as co-mortgagor, would he be liable in an action for recovery of money?

HELD:
1. NO. There is no legal provision nor jurisprudence in our jurisdiction which makes a third
person who secures the fulfillment of another's obligation by mortgaging his own property to be
solidarily bound with the principal obligor. A chattel mortgagor may be an "accessory contract"
to a contract of loan, but that fact alone does not make a third party mortgagor solidarily bound
with the principal debtor in fulfilling the principal obligation of paying the loan. Moreover, it is a
basic precept that there is solidarily liability only when the obligation expressly so states or
when the law or nature of the obligation requires solidarity.

2. A third party mortgagor becomes liable only to the extent of the property mortgaged. It is
only upon default of the principal debtor that the creditor may have recourse on the mortgagor
by foreclosing the mortgage properties in lieu of an action for the recovery of the amount of the
loan. And the liability of the third party mortgagor extends only to the property
mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor.

3. NO. The special power of attorney authorizing Delgagdo to mortgage Cerna's property as
security for Delgado's obligation does not itself make Cerna a co-mortgagor, especially so since
only Delgagdo signed the chattel mortgage as mortgagor. The special power of attorney did
not make Cerna as mortgagor, all it did was to authorize Delgado to mortgage certain
properties belonging to Cerna. And this is in compliance with the requirement in Article 2085 of
the New Civil Code, It is essential in mortgage xxx (3) That the person constituting the pledge
or mortgage have the free disposal of their property, and IN ABSENCE THEREOF, THAT THEY
BE LEGALLY AUTHORIZED FOR THE PURPOSE. Thus, it is clear that only Delgado was the sole
mortgagor regardless of the fact that he used properties belonging to a third person to secure
the debt.
4. And even if Cerna was a co-mortgagor, Cerna could not be held liable because the complaint
was for recovery of a sum of money and not for the foreclosure, thereby abandoning the chattel
mortgage as basis for relief, he clearly manifests his lack of desire and interest to go after the
mortgaged property as security for the promissory note.
 Gordillo, Jenny Mae

IFC SERVICE LEARNING CENTER AND ACCEPTANCE CORPORATION VS VENANCIO

NERA

FACTS:

This is an appeal from an order of the Court of First Instance of Rizal, denying
appellant’s motion to set aside the writ of possession issued by the Court and the auction sale
held before that by the sheriff.

IFC Service Learning Center and Acceptance Corporation serves as the mortgagee of the
property of the Spouses Venancio Nera and Rosa F. Nera, situated at No. 9 Aleman Street,
Quezon City, appellee filed with the sheriff’s office in verified petition for the extrajudicial
foreclosure of the mortage; that on October 27, 196, after notice and publication, the property
(consisting of a house and lot) was sold to appellee as the highest bidder for P28,451.77; that
the period of redemption expired on October 27, 1962 without the property being redeemed,
for which reason the property was consolidated in the name of appellee of whom a new title,
Transfer Certificate of Title No. 65575 was issued. The writ of possession was issued by the
lower court on February 26, 1963, on the ex parte application of the appellee.

On March 6, 1963, appellant asked for the reconsideration of the order granting the writ
of possession on the ground that his failure to redeem was due to appellee’s misrepresentation.
The appellant was notified on October 31, 1962 by appellee that the period of redemption had
expired, but later found out that the sale was registered only on November 3, 1961 from which
date the period of redemption must be reckoned. The court denied the motion for failure of
appellant to serve a copy on the appellee.

Appellant filed another motion on March 26, 1963, an ex parte application to set aside
the writ of possession and auction sale, in which the court had no jurisdiction to issue the writ
and that the price at which the mortgaged property was sold was grossly inadequate being its
basis. Appellant contends that the jurisdiction of the lower court to issue a writ of possession is
limited only to the duration of the period of redemption and that after the expiration of that
period, the mortgagee’s remedy is an ordinary action for recovery of possession.

ISSUE:
Whether or not in cases of extrajudicial foreclosure of real estate mortgages, a regular
action must be instituted in order to secure possession on the property sold.

RULING:

The contention is without merit. The applicable provision of Act No. 3135 is Section 6
which provides that, in cases which an extrajudicial sale is made. “Redemption shall be
governed by the provisions of section 464 to 466 inclusive of the Code of Civil Procedure in so
far as these are not inconsistent with the provisions of this Act”. Sections 464-466 of the Code
of Civil Procedure were superseded by Section 25-27 and Section 31 of Rule 39 of the Rules of
Court in which in turn were replaced by Section 29-31 and Section 35 of Rule 39 of the Revised
Rules of Court. Section 35 of Rule 39 of the Revised Rules of Court expressly states that “If no
redemption be made within twelve (12) months after the sale, the purchases or his assignee is
entitled to a conveyance and possession of the property…. The possession shall be given to the
purchaser of last redemptioner by the officer unless a third party is actually holding the
property adversely to the judgment debtor.”

Moreover, if under Section 7 of Act No. 3135 the court has the power, on the ex parte
application of the purchaser, to issue a writ of possession during the period of redemption,
there is no reason why it should not also have the same power after the expiration of that
period, especially where, as in this case, a new title has already been issued in the name of the
purchaser.