credtrans case digests

CREDIT TRANSACTIONS CASE DIGESTS

ATTY. HELEN DE LEON-MANZANO

2A 2018 | BANTA, BELLO, BUGAY, CUALOPING, DE LUIS, GO, LIM, ONG, REYES, TRIAS

1. RUIZ v. CANEBA 191 SCRA 865 | December 3, 1990 | Paras, J. Petitioner: EULALIO M. RUIZ and ILUMINADA RUIZ Respondent: HON. DOROTEO CANEBA, City Sheriff of Manila

and/or his deputies, and private respondents Zenaida Sangalang and Adolfo Cruz

DOCTRINE/S: ON ADDING INTEREST

Where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment.

ON RAISING NEW ISSUES ON APPEAL It is a basic rule that an issue which was not raised in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.

ON EXECUTION OF A FINAL JUDGMENT Decision which had long become final and executory can no longer be amended or modified by the trial court. After finality of judgment, what remains in the judge’s authority is purely the ministerial enforcement or execution of judgment.

FACTS: • Petition for certiorari and prohibition with preliminary

injunction and/or restraining order of respondent judge’s Order in a civil case1 involving the petitioners

o The now assailed Order amended the May 16, 1986 decision of Judge Antonio Martinez (trial court judge at the time)

• Private respondents ZENAIDA SANGALANG and ADOLFO CRUZ are common-law spouses and co-owners of a two-

1 Civil Case No. 84-24032, dated 27 July 1988, entitled “Eulalio M. Ruiz and Iluminada

M. Ruiz vs. Zenaida S. Sangalang and Adolfo Cruz”

storey house and lot registered only in the name of Zenaida Sanagalang

• Petitioners spouses RUIZ were the lessees of Door No. 1 of the two-storey house for a monthly rental of P650

• Sometime on November 19, 1982: Eulalio Ruiz and Zenaida Sanagalang executed an agreement that provides that Ruiz will buy the house and lot for P175,000 under certain conditions2

o The spouses Ruiz paid the P65,000 downpayment, as well as P21,119.62 to the Bank on the assumed mortgage

• However, because there was disagreement3 on the amount paid by petitioners as regards the P78,500 remaining balance, the Ruiz spouses filed a complaint for specific performance with damages against private respondents

• TRIAL COURT: ruled in favor of respondents: o Petitioners failed to pay the balance in full before

the deadline and therefore, they are not entitled to their prayer for specific performance with damages

o It however ordered Sangalang to return/refund the payments made by the spouses

o Spouses shall continue to pay the monthly rentals until the property is surrendered to Sangalang

• Appeal in the COURT OF APPEALS was dismissed for failure to pay the docket fee

o Thereafter, the respondent JUDGE issued an order for the issuance of a writ of execution to effect judgment

2 a) P65,000 as downpayment; b) will assume the balance of P31,500 with BPI, Marulas

Branch; c) That after payment of said balance mortgage, the remaining balance of P78,500 will be payable on or before December 31, 1983; d) Upon failure to comply with the foregoing conditions, the property will be open for sale and all partial payments will be refunded by Sangalang; e) Spouses Ruiz will also continue to pay the P650 monthly rental until the amount of P175,000 is fully satisfied.

3 The Ruiz Spouses claim that they already paid P53,073, while Sangalang claims that only P33,793 has been paid.




o The Clerk of Court, in his capacity as ex-officio city sheriff, then caused execution of the spouses’ payment of moral damages and costs of suit to respondent Sangalang but not the latter’s obligation to refund the installments to the spouses

• September 2, 1987: the Ruiz spouses filed an Ex-parte Motion for Execution of Decision Now Partly Executed, praying that a writ of execution be issued for Sangalang to return/refund the payments she already received

o However, the parties could not agree on the amount to be returned, since they already disagree on how much has been paid in the first place

• Sangalang and Cruz then moved to AMEND the trial court decision which they alleged to have clear disparities4 between the body of the decision and the dispositive portion

o To settle the dispute once and for all, the trial court — even if the decision was already final and executory — then amended the dispositive portion of the decision

o Before the hearing on the motion of Sangalang to execute the new dispositive portion, the Ruiz spouses filed an Urgent Motion to Cancel Hearing of Motion

• September 15, 1988: the Ruiz spouses filed this petition to assail the most recent Order issued to execute the amended dispositive portion

o Upon filing before this Court, the Ruiz spouses claim that they are entitled to a refund of P124,192.62 PLUS 24% INTEREST compounded annually, or a total amount of P169,414.95

o On the other hand, Sangalang claims that she only received the amount of P120,092.62 from the spouses, and that she is entitled to a P1,500 worth of rentals for Door No. 2 which the spouses also

4 I no longer inserted the concerned dispositive portion and the newly issued one,

because in truth, there are no disparities, maarte lang sila

occupied after execution of their prior (sale) agreement

ISSUES:

1. WON there is an ambiguity in the dispositive portion of the trial court decision sufficient to warrant the questioned order of the respondent court amending subject final and executory judgment

2. WON the spouses are entitled to their claimed interest 3. WON Sangalang is entitled to P1,500 additional rentals for

Door No. 2 despite its not being previously raised before the trial court

4. WON an amendment was proper HELD/RATIO: The instant petition is GRANTED. The most recent Order of respondent Judge is hereby declared NULL AND VOID AB INITIO.

1. NO. Aside from the fact that there are no exact numbers specified, there appears to be no ambiguity in the decision to such an extent as to warrant an amendment of the dispositive portion. It is evident from the records that the amount that Sangalang is ordered to return is as follows: Downpayment P65,000.00 Payment to BPI P21,119.62 Payment to Sangalang of P53,073, less P15,000 sum of two dishonored checks

P38,073.00

TOTAL PAYMENTS MADE P124,

192.62

2. NO. They are not entitled to the 24% interest they now claim before this Court.

• It has been held n the case of SANTULAN V. FULE that where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment




• Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is no reason for this Court to grant such claim

• As ruled by this Court, such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final

3. NO. It is a basic rule that an issue which was not raised in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.

• The issue of additional rentals was brought up by Sangalang only when the motion for execution of [refund] was filed by the Ruiz spouses

4. NO. Since the [trial court] decision has long become final

and executory and in fact has been partly executed, the respondent judge had lost its jurisdiction thereon.

• The judge has exceeded his authority, considering that the trial court has no authority to modify or vary the terms and conditions of a final and executory judgment

• What remains in his authority is purely the ministerial enforcement or execution of judgment

2. EASTERN SHIPPING LINES, INC. v. CA and MERCANTILE INSURANCE COMPANY, INC. G.R. No. 97412 | July 12, 1994 | Vitug, J. Petitioner: EASTERN SHIPPING LINES, INC. Respondent: HON. COURT OF APPEALS and MERCANTILE

INSURANCE COMPANY, INC. DOCTRINE: Since it is the duty of the arrastre to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon

the carrier. Both the arrastre and the carrier are therefore charged with the obligation to deliver the goods in good condition to the consignee. Thus, the carrier and the arrastre operator are solidarily liable. FACTS:

• Two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel ‘SS EASTERN COMET’ owned by defendant Eastern Shipping Lines, Inc under Bill of Lading No. YMA-8.

• The shipment was insured under plaintiff’s Marine Insurance Policy for P36,382,466.38.

• Upon arrival of the shipment in Manila, it was discharged unto the custody of defendant Metro Port Service, Inc. (MPSI) It excepted to one drum to be in bad order, which damage was unknown to plaintiff.

• Allied Brokerage Corporation (ABC) received the shipment from MPSI one drum opened and without seal.

• ABC made deliveries of the shipment to the consignees warehouse. It excepted to one drum which contained spillages, while the rest of the contents was adultered or fake

• Plaintiff contented that due to the losses/damages sustained by said drum, the consignee suffered losses totaling P19,032.95 due to the fault and negligence of defendants

• As a consequence of which, plaintiff was compelled to pay the consignee under the aforementioned marine insurance policy, so that it became subrogated to all the rights of action of said consignee against the defendants.

ISSUE: Whether or not the defendants should be held liable for the

losses/damages HELD/RATIO: Yes. The defendants should be held liable. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this case.




• The legal relationship between the consignee and the

arrastre operator is akin to that of the depositor and a warehouseman. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator. Since it is the duty of the arrastre to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the carrier. Both the arrastre and the carrier are therefore charged with the obligation to deliver the goods in good condition to the consignee

• There is no doubt that the shipment sustained losses/damages as evidenced by the Marine Cargo Survey Report.

• Under Art. 1737 of the NCC, the common carrier’s duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods.

• The common carrier’s duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of and received by, the carrier for transportation until delivered to or until the lapse of a reasonable time for their acceptance by the person entitled to receive them.

• When the good shipped are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable.

3. CENTRAL BANK v. MORFE G.R No. L-38427 | March 12, 1975 | Concepcion, C.J. Petitioner: CENTRAL BANK OF THE PHILIPPINES Respondent: HON. JUDGE JESUS MORFE and FIRST MUTUAL

SAVING AND LOAN ORGANIZATION, INC. DOCTRINE: It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits. FACTS:

• The Monetary Board found the Fidelity Savings Bank to be insolvent.

• The Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions (Resolution No. 350).

• Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the spouses Elizes filed a complaint in the CFI against the Fidelity Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits. The court rendered decision in favor of the spouses.

• Upon motions of the Elizes and Padilla (same situation as elizes spouses there was also a final judgment pero different court in favor of them for the recovery of sum of money) spouses for the recovery of the sum of money and over the opposition of the Central Bank, directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments, within the meaning of article 2244(14)(b) of the Civil Code, if there are enough funds in the liquidator's custody in excess of the credits more preferred under section 30 of the Central Bank Law in relation to articles 2244 and 2251 of the Civil Code.

• The Central Bank appealed to this Court by certiorari. It contends that the final judgments secured by the Elizes




and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank.

ISSUE: WON such judgments secured by 2 spouses must enjoy

preference over other creditors? HELD/RATIO: NO!

• It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits

• The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. The Board in its Resolution No. 350 dated February 18,1969 banned the Fidelity Savings Bank from doing business. It took charge of the bank's assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors.

• That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the Civil Code.

• We are of the opinion that such judgments cannot be considered preferred and that article 2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency.

• A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize such judgments as entitled to priority would mean that

depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has closed its doors or has been enjoined by the Monetary Board from doing business, would rush to the courts to secure judgments for the payment of their deposits.

4. BANSON v. CA G.R. No. 110580 | July 13, 1995| Quiason, J. Petitioner: MANUEL BANSON Respondent: COURT OF APPEALS, 9th Division and SPOUSES

ARTHUR DIOCAMPO and MERLENE DIOCAMPO DOCTRINE: For a guarantor to proceed against a principal debtor, it must first pay outstanding amounts. If there was no payment, then the guarantor has no right to execute against an indemnitor. FACTS:

• Maximo R. Sta. Maria, obtained several crop loans from PNB. For these loans, Associated acted as surety for Sta. Maria by filing surety bonds in favor of PNB to guarantee and answer for the prompt and faithful repayment of said loans. Banson and Naval acted as indemnitors for Associated.

• Sta Maria failed to pay his crop loan obligations and accordingly, PNB demanded payment from Associated as surety.

• Instead of paying the bank, Associated filed a complaint Sta. Maria and indemnitors.

• A judgment was rendered by the Court sentencing indemnitors to pay jointly and severally to Associated.

• The decision became final and executory, and the corresponding writ of execution was issued. Two properties of Banson were levied and later on sold in execution, with Associated, the judgment creditor, as the highest bidder




• Associated then demanded the owner’s certificate of title from Banson but the latter refused so Associated filed a case in court and later received favorable judgment.

• June 27, 1957, the corresponding certificate of sale was issued and the same was duly registered on June 30, 1959. The redemption period having expired, the judgment creditor, the Associated, obtained in due time the final certificate of sale which was likewise duly registered. Demands were made upon Banson to deliver to Associated the owner’s duplicates of TCT Nos. 39685 and 53759 but the latter failed to do so.

• Consequently, Associated filed against Banson: a petition for an order directing Banson to produce and surrender his owner’s duplicates of TCTs to the Register of Deeds of Rizal, for cancellation, and for the latter to subsequently issue new titles in the name of Associated.

• Simplified: Sta Maira defaulted on loan so PNB wants Associated (as guarantor) to pay for it. Instead of paying Associated files a case against Banson to get the amount for payment since Banson is primarily liable as an indemnitor.

ISSUE: Whether or not Banzon has the right to reconveyance of his

two properties? HELD/RATIO: YES

• Associated in proceeding against the indemnitor, before proceeding against the principal debtor acted prematurely and it is now holding in trust by force of Article 1456 of the Civil Code, the two lots of Banson it has wrongfully levied upon in execution and which it is legally bound to return to Banson, their true and rightful owner.

• As a general rule, the guarantor must first pay the outstanding amounts due before it can exact payment from the principal debtor. Hence, since Associated had not paid nor compelled private respondent to pay the bank, it had no right in law or equity to so execute the judgment against Banson as indemnitor.

• To have a right against Banson, Associated must first pay the obligation to PNB.

5. ATOK FINANCE CORP. v. CA G.R. 80078 | May 18, 1993 | Feliciano. J Petitioner: ATOK FINANCE CORP. Respondent: COURT OF APPEALS, SANYU CHEMICAL CORP.,

DANILO ARRIETA, NENITA ARRIETA, PABLITO BERMUDO, and LEOPOLDO HALILI

DOCTRINE: While a contract of suretyship or guarantee is an accessory contract, it may be readily entered into to warranty debts to be incurred or created in the future Art. 2052. A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. FACTS:

• Sanyu Chemical Corp. as principal and Sanyu Trading Corp. along with individual private stockholders of Sanyu Chemical, namely, private respondents spouses Danilo E. Arrieta and Nenita B. Arrieta, Leopoldo G. Halili and Pablito Bermundo as sureties, executed a Continuing Suretyship Agreement in favor of Atok Finance as creditor.

• Under this Agreement, Sanyu Trading and the individual private respondents, who were officers and stockholders of Sanyu Chemical, jointly and severally unconditionally guarantee to Atok Finance Corp. the payment and discharge of any and all indebtedness of Sanyu Chemical.




The word indebtedness, as used in the agreement, includes any and all advances, debts, obligations and liabilities of Sanyu Chemical or any one or more of them, heretofore, now or hereafter made.

• This is a continuing suretyship relating to any indebtedness, including that arising under successive transactions, which shall either continue the indebtedness from time to time or renew it after it has been satisfied.

• Subsequently, Sanyu Chemical assigned its trade receivables with a total face value of P125, 871 to Atok Finance in consideration of receipt from Atok Finance of the amount of P105,000.

• Under the Deed of Assignment Sanyu Chemical warranted that:

o The debtor/s (Sanyu Chemical) under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty;

o Any violation thereof shall render the ASSIGNOR (Sanyu Chemical) immediately and unconditionally liable to pay the ASSIGNEE (Atok Finance) jointly and severally with the debtors under the assigned contracts, the amounts due thereon.

• Later, additional trade receivable were assigned by Sanyu Chemical to Atok Finance with a total face value of P100,378.45.

• On Jan. 13, 1984, Atok Finance filed a collection suit against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect the sum of P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each month starting from 1 September 1983.

• Atok Finance alleged that Sanyu Chemical failed to collect and remit the amounts due under the trade receivables.

• The individual private respondents, contended that the Continuing Suretyship Agreement, being an accessory

contract, was null and voide since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.

• At trial, Sanyu Chemical and the individual private respondents failed to present any evidence on their own behalf, hence the trial court rendered a decision in favor of Atok Finance.

• On appeal, the Court of Appeals ruled in favor of Sanyu Chemical and the private respondents.

• CA RULING: o A continuing suretyship agreement cannot be

effected to secure future debts. o The continuing suretyship agreement was null and

void for lack of consideration.

ISSUE/S: 1. Whether the Continuing Surety Agreement must be held

null and void as having been executed without consideration and without a pre-existing principal obligation to sustain it.

2. Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Deed of Assignment and of the Continuing Suretyship Agreement.

HELD/RATIO: 1. NO

• It is clear from Article 2052 of the Civil Code that although a guaranty cannot exist without a valid obligation, nevertheless, a guarantee may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. Moreover, Article 2053 of the Civil Code states that a guarantee may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.




• Of course, a surety is not bound under any particular

principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent.

• Comprehensive or continuing surety agreements are

common in present day financial and commercial practice. A bank or a financing company, which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. (Basically, what the SC says is that a continuing surety agreement is a kind of guaranty/surety for future debts.)

2. YES

• Under the Deed of Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the terms of

the Deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement.

• The obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment.

6. INTEGRATED REALTY CORP. v. CA GR No. L-60705 | June 28, 1989 | Regalado, J.

Petitioner: INTEGRATED REALTY CORPORATION and RAUL L. SANTOS

Respondent: PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS

DOCTRINE: The obligation to pay interest on deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

FACTS:

Raul Santos made a time deposit with the Overseas Bank of Manila (OBM) in the amount of P500K and he was issued a Certificate of Time Deposit (CTD). On another date, Santos again made a time deposit with OBM in the amount of P200K, and he was again issued a CTD.

Integrated Realty Corp., through its president Raul Santos, applied for a loan and/or credit line in the amount of P700K with PNB. To secure such, Santos executed a Deed of Assignment of the 2 time deposits in favor of PNB. OBM gave its conformity to the




assignment, through a letter dated Aug. 11, 1967. The IRC, through Santos, also executed a Deed of Conformity to the loan conditions.

After the due dates of the time deposit certificates, OBM did not pay PNB. PNB then demanded payment from IRC and Santos, but they refused to pay.

PNB then filed with the RTC to collect from IRC and Santos with interest. IRC and Santos replied that the loan was deemed paid with the irrevocable assignment of the time deposit certificates. They also contend that they are not answerable for the insolvency of OBM.

OBM on the other hand answered that they did indeed fail to pay on due date due to its distressed financial situation. As affirmative defenses, it alleged that by reason of its state of insolvency, its operations have been suspended by the Central Bank since Aug. 1, 1968; that the time deposits ceased to earn interest from that date; that it may not give preference to any depositor or creditor; and that payment of PNB’s claim is prohibited.

The trial court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of P700K plus interest of 9% per annum, 2% additional interest, and 1% per annum penalty interest. On appeal, the CA modified the decision of the RTC by deleting the portion of the judgment ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB plus interests.

IRC and Santos now claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred.

ISSUES:

1. WON the liability of IRC and Santos with PNB was extinguished by virtue of the deed of assignment (NO)

2. WON OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business (NO, but OBM is liable for damages)

HELD/RATIO:

1. NO. The SC held that it is clear from the Deed of Assignment that it was only by way of security. The facts and circumstances leading to the execution of the deed of assignment yield the conclusion that it is in fact a pledge.

The deed of assignment has satisfied the requirements of a contract of pledge:

(1) That it be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor is the absolute owner of the thing pledged;

(3) That the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB.

Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon.

2. NO. As the SC has held in Overseas Bank of Manila v. CA:

It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest.

Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive




income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest.

Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

The same formula must be applied with OBM in this case, and thus OBM must be exempted from the payment of interest during the whole period of factual stoppage of its operations by orders of the Central Bank.

HOWEVER, it must be noted in this case that the two time deposits matured on Jan. 11, 1968 and Feb. 6, 1968, respectively. OBM was suspended to operate only on July 31, 1968 and resolved on Aug. 2, 1968. Thus, there was yet no obstacle to the faithful compliance by OBM of its liabilities. For having incurred in delay in the performance of its obligation, OBM should be held liable for damages.

While it is true that under Art. 1956 of the NCC, no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. OBM is being required to pay such interest, not as interest income stipulated in the CTD, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts.

The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay sum of money, is recoverable from the date judicially or extra-judicially demand is made.

7. DEVELOPMENT BANK OF THE PHILIPPINES V. CA G.R. No. 110053 | October 16, 1995| Regalado. J Petitioner: DEVELOPMENT BANK OF THE PHILIPPINES Respondent: COURT OF APPEALS, CELEBRADA MANGUBAT and

ABNER MANGUBAT

DOCTRINE: A loan could still be enforced or collected despite the annulment of the sale. The loan contract 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. Whoever received money as a loan is bound to pay the creditor an equal amount of the same kind and quality. The mortgage contract and the testimony of the respondent wife proved that they are indebted to the petitioner; thus, they must pay the debt due. FACTS:

• Petitioner, Development Bank of the Philippines (DBP) executed a “Deed of Absolute Sale” in favor of respondent, Spouses Mangubat, over a parcel of unregistered land in Camarines Sur.

• The land, covered only by a tax declaration, is known to have been originally owned by Presentacio Cordovez who donated it to Luciano Sarmiento. Sarmiento then 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.

• The respondent spouses offered to buy the property for P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by the spouses. The parties further agreed that payment was to be made within six months and that it will be considered as cash payment.

• The deed of absolute sale, which is now being assailed, was executed by DBP in favor of spouses. The said document contained a waiver of the seller’s warranty against eviction.

• Thereafter, the spouses applied for an industrial tree




planting loan with DBP. Where DBP required the respondents to submit a certification from the Bureau of Forest Development that the land is alienable and disposable. However, the Bureau 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 approved by DBP in the sum of P140,000.00, on the understanding of the parties that DBP would work for the release of the land. To secure payment of the loan, the spouses executed a real estate mortgage over the land, which was registered in the Registry of Deeds.

• The loan was then released to the spouses on a staggered basis. After receiving a substantial sum, the spouses asked for the release of the remaining amount of the loan. Their request was not acted upon by DBP because the release of the land had not been obtained.

• The spouses filed a complaint against DBP in the trial court seeking the annulment of the subject deed of absolute sale on the ground that the object was verified to be timberland. Thus, in law it is an inalienable part of the public domain. They also alleged that DBP 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.

ISSUE: Whether or not the respondent spouses should be made to pay petitioner their loan obligation? YES, the respondent spouses should pay the petitioner their loan obligation.

HELD/RATIO:

• The contract of loan executed between the parties is different and discreet 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. Whoever received money as a loan is bound to pay 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.

• The mortgage contract, which embodies the terms and conditions of the loan obligation and the respondent wife’s admission in open court that they are indebted to the petitioner are adequate evidence to show prove their indebtedness.

8. ROBLES v. CA G.R. No. 123509. | March 14, 2000 | Panganiban. J Petitioner: LUCIO ROBLES, EMETERIA ROBLES, ALUDIA ROBLES

and EMILIO ROBLES Respondent: COURT OF APPEALS, Spouses VIRGILIO SANTOS and

BABY RUTH CRUZ, RURAL BANK OF CARDONA, Inc., HILARIO ROBLES, ALBERTO PALAD JR. in his capacity as Director of Lands, and JOSE MAULEON in his capacity as District Land Officer of the Bureau Of Lands

DOCTRINE: In a real estate mortgage, it is essential that the mortgagor be the absolute owner of the property to be mortgaged, otherwise, the mortgage is void. Considering that Hilario can be deemed to have mortgaged the disputed property not as absolute owner but only as a coowner, he can be adjudged to have disposed to the Rural Bank of Cardona, Inc., only his undivided share therein.




FACTS: • Leon Robles primitively owned the land in Rizal with an

area of 9,985 sqm which he occupied openly and adversely and declared the same for taxation as early as 1916.

• Robles died and his son Silvino inherited the land. Upon his son’s death, his widow and children inherited the property (petitioners here).

• The task of cultivating the land was assigned to plaintiff Lucio Robles while Hilario Robles was entrusted with the payment of the land.

• In 1962, for some reason the tax declarations in the name of Silvino was cancelled and transferred to Ballena (father of the wife of Hilario). There was no deed.

• Ballena secured a loan from Antipolo Rural Bank using the tax declaration as security. The tax declaration was transferred to Antipolo Rural Bank then to Hilario and his wife Andrea (allegedly, he sold it to them).

• Andrea secured a loan from the Cardona Rural Bank using the tax declarations as security.

o Failed to pay o Foreclosure proceedings were had and defendant

Rural Bank emerged as the highest bidder. o Failed to redeem o Tax dec transferred in the name of rural bank.

• Rural Bank sold the land to Spouses Santos. • In 1987, plaintiff (heirs of Silvino) discovered the mortgage

and attempted to redeem the property but was unsuccessful.

• Spouses Santos took possession and was able to secure Free Patent in their names.

• Plaintiffs filed an action for quieting of title with the RTC. • RTC ruled in favor of plaintiffs and declared the free patent

void. • CA reversed the trial court holding the petitioners no longer

had any title to the property at the time they instituted the complaint.

o the subsequent declaration of the subject realty for taxation purposes not only in the name of Ballena but also in the name of the Rural Bank of Antipolo.

o Assuming co-owners: Hilario repudiated co-ownership- declared tax in his own name.

o RTC erred in invalidating the real estate mortgage on the basis of Andrea Robles’ testimony that her husband’s signature thereon was forged.

o Rural bank even granted request of mortgagor to extend redemption period.

ISSUE: Whether or not the real estate mortgage is valid HELD/RATIO:

• Hilario mortgaged the property to the Rural Bank in his capacity as mere co-owner. There was no clear repudiation. Petitioners continued possession of the property.

• In a real estate mortgage, it is essential that the mortgagor be the absolute owner of the property to be mortgaged, otherwise, the mortgage is void.

• In the present case, it is apparent that Hilario was not the absolute owner of the entire property and the Rural Bank of Cardona failed to observe due diligence and thus, was a mortgagee in bad faith.

o Bank was remiss in its duty to establish who the true owners and possessors were. Had it been more circumspect, it would have discovered that the property was in fact occupied by petitioners.

o The bank should not have relied solely on the Deed of Sale purportedly showing that the ownership of the disputed property had been transferred from Ballena to Robles spouses because it was dealing with unregistered land and transactions were suspicious.

o Court finds it unusual that notwithstanding the bank’s insistence that it had become the owner, petitioners continued to occupy and harvest fruits.




• Considering that Hilario can be deemed to have mortgaged the disputed property not as absolute owner but only as a coowner, he can be adjudged to have disposed to the Rural Bank of Cardona, Inc., only his undivided share therein.

• The said bank, being the immediate predecessor of the Santos spouses, was a mortgagee in bad faith. Thus, justice and equity mandate the entitlement of the Santos spouses, who merely stepped into the shoes of the bank, only to what legally pertains to the latter—Hilario’s share in the disputed property.

FREE PATENT (not important):

• Since it was private land, the free patent issued by the director of lands was void.

9. BA FINANCE v. CA G.R. No. 102998 | JULY 5, 1996 | Vitug. J. Petitioner: BA FINANCE CORPORATION Respondent: HON. COURT OF APPEALS and ROBERTO M. REYES DOCTRINE: A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. FACTS:

• Spouses Manahan executed, on 15 May 1980, a promissory note binding themselves to pay Carmasters, Inc., the amount of P83,080.00 in 36 monthly installments commencing

• To secure payment, the Manahan spouses executed a deed of chattel mortgage over a motor vehicle, a Ford Cortina 1.6 GL. Carmasters later assigned the promissory

note and the chattel mortgage to petitioner BA Finance Corporation with the conformity of the Manahans.

• The spouses failed to pay the due installments, BA Finance sent demand letters. The demands not having been heeded, petitioner filed a complaint for replevin with damages against the spouses, as well as against a John Doe, praying for the recovery of the vehicle with an alternative prayer for the payment of a sum of money should the vehicle not be returned.

• The lower court issued a writ of replevin. The court, however, cautioned petitioner that should summons be not served on the defendants within thirty (30) days from the writ's issuance, the case would be dismissed for failure to prosecute. The warning was based on what the court perceived to be the deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they would so "conveniently utilize as a leverage for the collection of unpaid installments on mortgaged chattels.

• The service of summons upon the spouses Manahan was cause to be served.

• Petitioner through its Legal Assistant, Danilo E. Solano, issued a certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of the RTC that the Ford Cortina seized from private respondent Roberto M. Reyes, the John Doe referred to in the complaint.

• A few months later the court issued an order retracting the order of seizure of the property because there is no showing that the principal defendants were served with summons in spite the lapse of 4 months.

• BA finance filed a notice of dismissal, which the court noted. Private respondents filed a motion parying BA finance be directed to comply with the court order requiring the return of the vehicle to him.

• BA finance filed a MR, which the court granted. • Some months later, the trial court rendered a decision

dismissing the complaint against the Manahans for failure




of petitioner to prosecute the case against them5. It also dismissed the case against private respondent for failure of petitioner to show any legal basis for said respondent's liability.

• In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the principal obligors as long as the court does not render any personal judgment against them. This argument did not persuade the appellate court,

ISSUE: WON a mortgagee can maintain an action for replevin

against any possessor of the object of a chattel mortgage even if the possessor were not a party to the mortgage?

HELD/RATIO: NO!

• Replevin is so usually described as a mixed action, being partly in rem and partly in personam -in rem insofar as the recovery of specific property is concerned, and in personam as regards to damages involved.

• As an "action in rem," the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the owner or of his having a special interest therein.

• Consequently, the person in possession of the property sought to be replevied is ordinarily the proper and only necessary party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the property but not in possession thereof.

• Rule 60 of the Rules of Court allows an application for the immediate possession of the property but the plaintiff must

5 "x x x. Roberto M. Reyes is merely ancillary debtor in this case. The defendant spouses Manahan being the principal debtor(s) and as there is no showing that the latter has been brought before the jurisdiction of this court, it must necessarily follow that the plaintiff has no cause of action against said Roberto M. Reyes herein before referred to as defendant John Doe. Under the circumstances, it is incumbent upon the plaintiff to return the seized vehicle unto the said Roberto M. Reyes."

show that he has a good legal basis, i.e., a clear title thereto, for seeking such interim possession.

• Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the action need only be maintained against him who so possesses the property. In rem actio est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet.

• In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the plaintiff's right to possess the thing is not or cannot be disputed.

• A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon.

• Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case.

• When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property. The burden to establish a valid justification for that action lies with the plaintiff.

• It is an undisputed fact that the subject motor vehicle was taken from the possession of said Roberto M. Reyes, a third person with respect to the contract of chattel mortgage between the appellant and the defendants spouses Manahan.




• Hence, an adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

10. DBP v. CA *SCRA number indicated it’s DBP v. CA* 284 SCRA 14 |January 5, 1998 | Davide, J. G.R. 118342 Petitioner: DEVELOPMENT BANK OF THE PHILIPPINES Respondent/s: COURT OF APPEALS and LYDIA CUBA G.R. 118367 Petitioner: LYDIA P. CUBA Respondent/s: DEVELOPMENT BANK OF THE PHILIPPINES and

AGRIPINA P. CAPERAL FACTS:

• Lydia Cuba (Cuba) is a grantee of a Fishpond Lease Agreement.

• She obtained three loans from the Development Bank of the Philippines (DBP) in the total amount of Php316,700.00.

o As a security for said loans, Cuba executed two Deeds of Assignment of her Leasehold Rights (fishpond)

• Cuba failed to pay her loan. • WITHOUT FORECLOSURE PROCEEDINGS, judicial or

extrajudicial, DBP appropriated Cuba’s Leasehold Rights over the fishpond.

• Thereafter, DBP executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba.

• Cuba accepted the offer to repurchase said Leasehold Rights.

o After the Deed of Conditional Sale was executed, a new Fishpond Lease Agreement was issued by the

Ministry of Agriculture in favor of Cuba, excluding her husband.

• Cuba then failed to pay the amortizations stipulated in the Conditional Deed of Sale. She then entered into a Temporary Arrangement with DBP to pay off the amortizations.

• DBP sent a Notice of Rescission to Cuba, which was received by the latter.

• Thereafter, DBP took possession of the Leasehold Rights of the fishpond.

• DBP then published in the Sunday Punch a public bidding to dispose of the property.

o DBP executed a Deed of Conditional Sale in favor of Agripina Caperal (Caperal). She was awarded a new Fishpond Lease Agreement.

• Cuba then filed a complaint against DBP and Caperal. • Trial court ruled in favor of Cuba. CA reversed the trial

court’s decision. ISSUE: WON DBP validly appropriated for itself Cuba’s Leasehold

Rights without foreclosure proceedings contrary to Article 2088.

HELD/RATIO: NO. DBP made the appropriation in violation of Article 2088. DBP should have undergone foreclosure proceedings first before appropriating the Leasehold Rights.

• Art. 2088: The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.

• The Court ruled that the assignment of the leasehold rights was a mortgage contract.

o It is undisputed that Cuba obtained from DBP three separate loans, each of which was covered by a promissory note. In all of the notes, there was a provision that: “In the event of foreclosure of the MORTGAGE securing these notes, I/We bind




myself/ourselves, jointly and severally, to pay the deficiency, if any.”

• Cuba’s Assignment of Leasehold Rights in favor of DBP constantly referred to Cuba as the borrower; the assigned rights as MORTGAGED PROPERTIES; and the instrument itself, as a MORTGAGE CONTRACT.

• Moreover, under condition No. 22 of the deed, it was provided that “failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and ALL MORTGAGES SHALL BE FORECLOSED.”

• HOWEVER, the Court does not agree with Cuba that condition No. 12 of the deed of assignment constituted a pactum commissorium.

o DBP, however, exceeded the authority vested in condition No. 12 of the deed of assignment. It did not go through foreclosure proceedings before appropriating the Leasehold Rights. Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of Cuba.

• The fact that Cuba offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP’s act of appropriation. The Court ruled that estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 and to public polcy, cannot be deemed validated by estoppel.

11. PHILIPPINE VETERANS BANK v. BENJAMIN MONILLAS G.R. No. 167098|March 28, 2008|Nachura, J. Petitioner: PHILIPPINE VETERANS BANK Respondent/s: BENJAMIN MONILLAS

DOCTRINES: 1. 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.

2. Furthermore, oft-repeated is the rule that the foreclosure sale retroacts to the date of the registration of the mortgage.

3. Not so cred trans but relvenat: Laches, being a doctrine in equity, cannot be invoked to resist the enforcement of a legal right.

FACTS: • Respondent Benjamin Monillas and his brother, Ireneo,

inherited from their father a parcel of land • On May 21, 1973, respondent Benjamin 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 DBP 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.

• Ireneo mortgaged 22 of the 308 lots petitioner Philippine Veterans Bank (PVB).

• Three years later, respondent Benjamin filed a case for the nullification of the 1973 deed of sale, the recovery of the property, and the payment of damages (1st case)

• While the case between the 2 brothers was pending, PVB foreclosed the mortgage and PVB was the highest bidder.

• Respondent Benjamin caused the annotation of notices of lis pendens relating to the said civil case on the titles of the subdivided lots.

• RTC: in favor of Benjamin by declaring the 1973 deed as null and void, cancelling the subsequent titles issued, and ordering the payment of damages




• CA: affirmed the ruling of the RTC • The Sheriff’s Certificate of Sale and the Affidavit of

Consolidation of Ownership were annotated and new titles were issued in the name of PVB

• Respondent Benjamin sued petitioner PVB and the Register of Deeds of Isabela 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 (2nd case)

• RTC: in favor of Benjamin declaring the mortgage null and void, the foreclosure sale null and void and ordered the cancellation of the title under PVB and transfer such titles to Benjamin Monillas.

• The RTC rationalized that while the annotation of the notices succeeded the registration of the mortgage, still the effect of the notices was that PVB acquired knowledge of an impediment against its interest, and as a matter of fact, petitioner ignored the notices and slept on its rights, as it did not intervene in the said civil case

• PVB filed a Rule 45 with the SC (naks)

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

HELD/ RATIO: Petition is meritorious (SC in favor of PVB)

• 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 the prior registration of a mortgage or lien useless. The purpose of the registration of the mortgage is to protect the property it is attached to.

• 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. (so late na din daw na annotate ang notice of lis pendens)

• The Court also notes that PVB is an innocent mortgagee for value.

o When the lots were mortgaged to it by Ireneo: ! the titles thereto were in the Ireneo’s name;

and ! they showed neither vice nor infirmity

o 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.

• PVB cannot even be considered to have slept on its rights when it only registered the Sheriff’s certificate of sale after the lapse of almost 15 years, because, as already discussed, it registered its prior mortgage and had already foreclosed on the same.

• Petitioner, therefore, had every reason to expect that its rights were amply protected. And the mortgagor was even benefited by this late registration of the Sheriff’s Sale, because then, he would still have a chance to redeem the property.

• Furthermore, oft-repeated is the rule that the foreclosure sale retroacts to the date of the registration of the mortgage.

• 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.




o So basically order or things: ! Registration of Mortgage over property

(PVB) ! Foreclosure Sale (PVB) ! Notice of Lis Pendens (Benjamin) ! Sherrif’s Certificate of Sale (PVB)

12. GUANCO v. ANTOLO G.R. No. 150852|July 31, 2006| Callejo, Sr., J. Petitioner: LUISA GUANCO Respondent/s: ISIDRO ANTOLO DOCTRINE: Posting of a notice of the foreclosure of the real estate mortgage in at least three of the most conspicuous public places not only in the municipality but also in the barrio where the land mortgaged is situated during the 60dayperiod immediately preceding the public land auction is mandatory. Unless it was made to appear that a sale at public auction was conducted and that the requisite redemption period had lapsed, no Torrens title over the property can be issued by the Register of Deeds. FACTS:

• Antolo applied for a loan with Rural bank of Sibalom (RBS) and executed a real estate mortgage to secure its payment. This was annotated on the title on the same date.

• Antolo later transferred due to work but did not leave a forwarding address with RBS.

• The bank demanded payment when the loan was due but Antolo failed to pay.

• Antolo later inquired on his account status, he found that his account had previously been paid for, that the owner’s title had been released, and that the property had been sold to Guanco via a public auction.

• Antolo filed a complaint for annulment of the sale and recovery of ownership with damages.

ISSUE: Whether or not Antolo can recover ownership? HELD/RATIO: YES

• Under Section 5 of Republic Act No. 720, as amended by Rep. Act No. 7939, the provincial sheriff is mandated to post a notice of the foreclosure of the real estate mortgage in at least three of the most conspicuous public places not only in the municipality but also in the barrio where the land mortgaged is situated during the 60day period immediately preceding the public auction

o “The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication in newspapers now required by law where the total amount of the loan, including interests due and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are posted in at least three of the most conspicuous public places in the municipality and barrio where the land mortgaged is situated during the period of sixty days immediately preceding the public auction…”

• In this case, the provincial sheriff failed to comply with the law. It appears on the face of the Final Deed of Sale executed by Deputy Sheriff that the petition for extrajudicial foreclosure of the real estate mortgage purportedly filed with the said office was dated July 21, 1977. The deputy sheriff set the public auction sale on August 19, 1977, or less than a month after the filing of the said petition, short of the 60 day period under Section 5 of Rep. Act No. 720, as amended.

• Guanco and the deputy sheriff made it appear that a public auction sale took place on August 19, 1977, that Guanco purchased the property for P775.00 on said date, that Antolo failed to redeem the property within the requisite period, and, consequently, a final deed of sale




was executed on August 28, 1977. The only conclusion is that Deputy Sheriff Alvior made it appear in the certificate of sale that a sale at public auction was conducted on August 19, 1977, and that respondent failed to redeem the property within one year from registration of the sale. This was clearly done to enable petitioner Luisa Guanco to secure a Torrens title over the property in her name. Unless it was made to appear that a sale at public auction was conducted and that the requisite redemption period had lapsed, no Torrens title over the property can be issued by the Register of Deeds to and under the name of petitioner.

13. PASCUAL V. UNIVERSAL MOTORS CORP. L-27862| November 20, 1974 | Makalintal. C.J Petitioner: LORENZO PASCUAL and LEONILA TORRES Respondent: UNIVERSAL MOTORS CORPORATION DOCTRINE: Foreclosure of chattel mortgage precludes any further action against the debtor and his guarantor. FACTS:

• Pascual and Torres executed a real estate mortgage to secure the payment of the indebtedness of PDP Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks totaling P152, 506.50 from Universal Motors Corp. However, Pascual and Torres’ guarantee is not to exceed P50,000 which is the value of the mortgage.

• The principal obligation of P152,506.50 was to bear interest at 1% a month from Dec. 14, 1960.

• As of April 5, 1961, PDP Transit, Inc. paid Universal Motors Corp. the sum of P92,964.91, thus leaving a balance of P68,641.69 including interest due as of Feb. 8, 1965.

• The principal obligation of PDP Transit, Inc. to Universal Motors Corp. is further secured by separate deeds of chattel mortgages on the Mercedez Benz units in favor of Universal Motors Corp.

• Universal Motors Corp. filed a complaint against PDP Transit, Inc. before the CFI of Manila, with a petition for a writ of replevin, to collect the balance due under the Chattel Mortgages and to repossess all the units sold to plaintiff’s principal PDP Transit, Inc. including the 5 units guaranteed under the real estate mortgage.

• Universal Motors admitted that it was able to repossess all the units sold to PDP Transit, Inc., including the 5 units guaranteed by the real estate mortgage, and to foreclose all the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

• Pascual and Torres, the real estate mortgagors, filed an action in the CFI of Quezon City for the cancellation of the mortgage they constituted on two parcels of land in favor of Universal Motors Corp. to guarantee the obligation of PDP Transit, Inc. to the extent of P50,0000.

• The CFI ordered the cancellation of the mortgage. In rendering judgment, the CFI ruled that Art. 1484 of the Civil Code may be applied in relation to a chattel mortgage constituted upon personal property on the installment basis, precluding the mortgagee to maintain any further action against the debtor for the purpose of recovering whatever balance of the debt secured.

• Unsatisfied, Universal Motors Corp. appealed the decision. • Universal Motors Corp. disputes the applicability of Art. 1484

of the Civil Code to the case at bar on the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5) trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in question, was payable in installments and that the purchaser had failed to pay two or more installments. It also contends that in any event what article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the chattel mortgage on the thing sold, but not a recourse against the security put up by a third party.




ISSUE/S: Whether Article 1489 withholds from the vendor the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party.

HELD/RATIO: NO • To sustain appellant’s argument is to overlook the fact

that if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned.

14. INTERNATIONAL HARVESTER MACLEOD v. MEDINA JR. G.R. NO. L-53623 | March 22, 1990 | Griño-Aquino, J. Petitioner: INTERNATIONAL HARVESTER MACLEOD, INC. Respondent: MARIANO MEDINA, JR. and HON. TOMAS P.

MADDELA, JR., in his capacity as Presiding Judge of Branch XXXIV of the Court of First Instance of Manila

DOCTRINE: The financing transaction that is regulated by R.A. 5980 involves the buying, discounting, or factoring of promissory notes and sales on credit or installment. FACTS:

• The International Harvester Macleod, Inc. (hereafter IHMI) primary business is the sale of automotive products and machineries;

• Medina purchased on installment from IHMI twenty-four (24) truck engines; IHMI imposed and collected the total sum of P325,596.79 (Exh. A) as finance charges on the

installment sales, evidenced by Retail Notes Analysis and covering transmittal letters.

• In connection with these transactions, IHMI sent letters to Medina. The 4th letter indicated, “unless this arrangement is complied with, it may be necessary for our company to discontinue financing your accounts.

• A fifth letter was submitted and states in part: I have often repeated to you the gross injustice and unfairness on a situation where the motor trucks we are financing are operating and we are not receiving payment from the proceeds of such operations.

• [sobrang weird kasi after nun RTC decision na agad; So based sa first paragraph ng case I think Medina filed a case against IHMI for collecting illegally imposed and collected finance charges, plus 12% interest because Medina’s contending that IHMI is not a financing company so dapat hindi siya naimpose ng ganun sa kanya]

• RTC noted "there simply cannot be any room for doubt but that the defendant (IHMI) imposed and collected the amount of P325,596.79 purely as financing charges and this is conclusive of the fact that it did engage in the business of a financing company without authority from the Securities and Exchange Commission in gross violation of R.A. 5980

ISSUE: WON the imposition and collection of finance charges in

connection with the installment sale of its truck violated R.A 5980 by engaging in the business of a financing company without the authority of the SEC?

HELD/RATIO: NO!

• The financing transaction that is regulated by R.A. 5980 involves the buying, discounting, or factoring of promissory notes and sales on credit or installment.

• IHMI did not purchase from itself the Retail Notes Analysis executed by Medina. IHMI only extended credit to Medina by allowing him to pay for the 24 truck engines in installment. While the increased price of the sale included




a "financing charge," that charge was simply another name for the interest to be paid by the installment buyer (Medina) on the deferred payment of the purchase price of the vehicles sold and delivered to him by IHMI.

• IHMI used the word "finance charge" instead of "interest" in the Retail Notes Analysis which it delivered to Medina, because that is the term used in the Truth in Lending Act (R.A 3765).

• The transaction between IHMI and Medina did not involve any discounting, factoring or assignment of IHMI's credit against Medina to a finance company.

• The transaction was bilateral (Medina and IHMI), not trilateral (Installment buyer, seller and the financing company). No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMI's credit against Medina. Medina himself, not a financing company, paid IHMI for the truck engines. Medina made his installment payments or amortizations to IHMI, not to a financing company.

• Since IHMI's business of selling trucks in installment is not the business of a financing company under R.A. 5980, IHMI did not need SEC authorization to engage in it.

15. STATE INVESTMENT HOUSE, INC. v. CITIBANK N.A. G.R. Nos. 79926-27 | October 17, 1991| Naravasa, J. Petitioner: STATE INVESTMENT HOUSE, INC. and STATE

FINANCING CENTER, INC. Respondent: CITIBANK, N.A., BANK OF AMERICA, NT & SA,

HONGKONG & SHANGHAI BANKING CORPORATION, and the COURT OF APPEALS

DOCTRINE: The NIRC, Offshore banking law, and the General banking act all support the theory that foreign corporations that are licitly doing business in the Philippines are considered “resident” corporations.

Consequently, in applying the insolvency law, these corporations have legal standing to institute involuntary insolvency proceedings against its debtors. FACTS:

• Section 20 of insolvency law o “An adjudication of insolvency may be made on

the petition of three or more creditors, residents of the Philippine Islands, whose credits or demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less than one thousand pesos: Provided, that none of said creditors has become a creditor by assignment, however made, within thirty days prior to the filing of said petition. Such petition must be filed in the Court of First Instance of the province or city in which the debtor resides or has his principal place of business, and must be verified by at least three (3) of the petitioners. xx.”

• Bank of American, HSBC and Citbank filed in court a petition for involuntary insolvency of Consolidated Mines, Inc. (CMI) because they failed to meet their obligation to pay loans.

• They claim that CMI had committed specific acts of insolvency provided for in the insolvency law.

o ‘5. that he (CMI) has suffered his (CMI’s) property to remain under attachment or legal process for three days for the purpose of hindering or delaying or defrauding his (CMI’s) creditors; xxx xxx xxx

o ‘11. that being a merchant or tradesman he (CMI) has generally defaulted in the payment of his (CMI’s) current obligations for a period of thirty days;

• SIHI opposed the petition by the banks, claiming that: o Petitioner banks had come to court with unclean

hands in that they filed the petition for insolvency—alleging the CMI was defrauding its creditors, and




they wished all creditors to share in its assets—although a few days earlier, they had “received for the account of CMI substantial payments aggregating P10,800,000.00;”

o the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of attachment against CMI had remained in force because there were “just, valid and lawful grounds for the(ir) issuance,” and CMI was not a “merchant or tradesman” nor had it “generally defaulted in the payment of (its) obligations for a period of thirty days xx;”

o the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are not resident creditors of CMI in contemplation of the Insolvency Law; and

o the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI and SFCI.

ISSUE: Whether or not foreign banks doing business in the

Philippines are considered “residents of the Philippine Islands” with regard to the insolvency law?

HELD/RATIO: YES

• The facts show that the banks are indeed “foreign corporations” which are “formed, organized or existing under laws other than those of the Philippines” but there is also no question that the three banks that said banks have been licensed to do business in this country and have in fact been doing business here for many years.

• National Internal Revenue Code declares that the term “ ‘resident foreign corporation’ applies to a foreign corporation engaged in trade or business within the Philippines,”

• Offshore Banking Law, Presidential Decree No. 1034, states “that branches, subsidiaries, affiliation, extension offices or any other units of corporation or juridical person organized

under the laws of any foreign country operating in the Philippines shall be considered residents of the Philippines.

• General Banking Act, Republic Act No. 337, places “branches and agencies in the Philippines of foreign banks xx (which are) called Philippine branches,” in the same category as “commercial banks, savings associations, mortgage banks, development banks, rural banks, stock savings and loan associations” (which have been formed and organized under Philippine laws), making no distinction between the former and the latter in so far as the terms “banking institutions” and “bank” are used in the Act, declaring on the contrary that in “all matters not specifically covered by special provisions applicable only to foreign banks, or their branches and agencies in the Philippines, said foreign banks or their branches and agencies lawfully doing business in the Philippines “shall be bound by all laws, rules, and regulations applicable to domestic banking corporations of the same class, except such laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or as fix the relation, liabilities, responsibilities, or duties of members, stockholders or officers of corporation.”

• This Court itself has already had occasion to hold that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a nonresident within the scope of the legal provision authorizing attachment against a defendant not residing in the Philippine Islands;” in other words, a preliminary attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippines—and is consequently and necessarily, “a party who resides out of the Philippines.”

• Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who resides out of the country, then, logically, it must be considered a party




who does reside in the Philippines, who is a resident of the country.

• Obviously, the assimilation of foreign corporations authorized to do business in the Philippines “to the status of domestic corporations,” subsumes their being found and operating as corporations, hence, residing, in the country.

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