Cases Cred Trans Table

8/3/2019 Cases Cred Trans Table

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CASE TABLE CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) Page 1 of19

karichi santos 0410862 | UPlaw2012

CREDIT TRANSACTIONS

CASE TITLE FACTS/ISSUE DOCTRINES

LOAN

Commission on

Internal Revenue v

Burroughs Limited

(1986; Paras, J.)

Handled by Sycip

Burroughs wants to remit to its parent company abroad,

for which it paid 15% branch profit remittance tax,

pursuant to Sec 24(b)(2)(ii) of NIRC. Burroughs however

asked for tax reimbursement claiming that the basis for

the profit remittance tax should be amount actually

remitted and NOT the amount before remittance tax

Issue: Is Burroughs entitled to reimbursement? Yes.

Burroughs was entitled to reimbursement. The tax base upon

which the 15% branch profit remittance tax shall be imposed

the profit actually remittedand not on the total branch profi

out of which the remittance is to be made.

Rocky says: The law was amended because of this case, it no

reads profit applied for. Solve the problem by the language

the law, dont indiscriminately cite cases. CC is more importa

than cases kahit cross-eyed sila.

Pp v Concepcion

(1922; Malcolm, J.)

Venancio Concepcion, then President of PNB, granted

special authority to the manager of Aparri branch

[because the latter had limited discretion in granting

loans exceeding P5,000] to extend credit in favor of the

partnership of Puno y Concepcion [in which Venancios

wife owns half of the capital share]. The only security

given therefor were six demand notes. Concepcion was

adjudged guilty of violating Sec 35 of Act No 2747 which

prohibited direct or indirect loans to members of the

board of directors of banks nor to agents of branch banks.

Rocky says:

- What is S en C?- What is a double name paper?

- What part of the law should you not touch?

- Loans were actually granted.Why do youhave to raise

something about concession of credit?

- All arguments here were obviously palusot. Silence isbetter. As Balane used to say, keep your mouth shut

rather than confirm his suspicions of the students

idiocy.

Issue No. 1: Is the grant ofcredit to the copartnership a loan

within the meaning ofSec. 35? [Concepcions argument: It w

only a concession of a credit]

- Credit means ability to borrow money by virtue of the

confidence or trust reposed by a lender that he will pay what

may promise

- Loan means delivery by one party and the receipt by the

other party of a given sum of money, upon an agreement,

express or implied, to repay the sum loaned with or without

interest.

- Concession of credit necessarily involves the granting of

loans up to limit of the amount fixed in the credit

Issue No. 2: Was the granting ofcredit tocopartnership a lo

or a discount? [Concepcions argument: The prohibition app

only to loans, not on discounts]

- Discounts are favored by bankers because of their liquid na

as they grow out of an actual, live transaction. However,

discount is only a mode ofloaning money. But it has several

distinctions:

DISCOUNT LOAN

Interest is deducted inadvance Interest is taken at theexpiration of the credit

Always on double-

name paper

Generally on single-

name paper

- The demand notes were mere evidences of indebtedness

because: 1) interest was not deducted from the face of the n

but was paid when the notes fell due, 2) they were single-na

not double name.

Issue No. 3: Was the granting ofcredit an indirect loan?

- The purpose of the law is to erect a wall of safety against

temptation for a director of the bank.Where personal intere

clashes with fidelity to duty the latter almost always suffers.

loan to a partnership of which the wife of a director is a mem

falls within the prohibition.

Republic v Bagtas

(1962; Padilla, J.)

Bagtas borrowed 3 bulls from Bureau of Animal Industry.

Upon expiration of the contract, he did not return but

asked for extension, which was granted but only as to one

bull. Bagtas expressed his willingness to pay the bulls

book value but subject to reduction for yearly

depreciation. The Bureau refused this request and asked

him to either return or pay the entire book value.

Bagtas was unable to return the bulls because of bad

peace and order situation and the pending appeal of the

case.

Bagtas died during pendency of case. His adminitratrix

return two bulls because the third one had been

Bagtas contends that the contract was a commodatum and s

the fact that Republic retained ownership or title to the bull

should suffer its loss due to force majeure.

A contract of commodatum is essentially gratuitous. If the

breeding fee be considered a compensation, then the cont

would be a lease. Under 1671, Bagtas would be subject to th

responsibilities of a possessor in BF because he had continue

possession after the expiryofthe contract. And if the contra

be commodatum, he is still liable because of 1942 which

provides that bailee is liable even in case of fortuitous event

2. he keeps it longer than the period stipulated


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accidentally shot during a raid by the Huks. Bagtas then

claims that he is not liable for the loss of the bull as it was

caused by a force majeure.

Issue: Is Bagtas liable to pay for the dead bull? Yes!

3. thing loaned has been delivered with appraisal of its value

unless there is a stipulation exempting the bailee from

responsibility in case of fortuitous event.

Chi asks: It appears that the GR in case ofunstipulated liabili

for fortuitous event, the bailee is liable. Must the exemption

express?

Quintos v Beck

(1939; Imperial)

Beck is a tenant of Quintos. Quintos granted Beck the use

of the furniture found in the leased house, among these

were 3 gas heaters and 4 electric lamps. Quintos sold thepieces of furniture to Lopez and thereafter notified Beck

of the conveyance. Beck informed Quintos that the latter

can get the furniture at the ground floor of the house.

However, at a later date, Beck told Quintos that he will

not return the furniture until after the expiration of lease

contract.When the lease contract expired, Beck

deposited the furniture to Sheriffs warehouse.

- Chi says: Theres express prohibition in CC on the

deposit with third persons of thinggiven by way of

commmodatum. The closest would be 1942 as to liability

for loss of thing due if the bailee lends to third person not

member ofhis household.

Issue No. 1: Did Beckcomply with his obligation to return th

furniture upon Quintos demand? No.

- The K entered into between the parties is one of commodatbecause under it the plaintiffgratuitously granted the use of

furniture to the defendant, reserving for herself the ownersh

thereof, by this K, the defendant bound himself to return the

furniture to the plaintiff, upon the latters demand.

- The obligation voluntarily assumed by Beck to return the

furniture upon the plaintiffs demand means that he should

return ALL ofthem to plaintiffAT THE BAILORSS RESIDENC

HOUSE. Beck did not comply with this obligation when he me

placed them at the disposal of the plaintiff, retaining for his

benefit the 3 gas heaters and 4 electric lamps.

Issue No. 2: Where Quintos is bound to bear the deposit fee

due to Sheriff? No.

- The court could not legally compel her to bear the expensesoccasioned by the deposit of the furniture aT the defendant

behest. The bailee was not entitled to place the furniture on

deposit; nor was the bailor under a duty to accept the offer t

return because it was incomplete.

Saura Import &

Export Co v DBP

(1972; Makalintal, J.)

Saura applied for P500,000 loan with DBP (then RFC) for

the construction of factory building and payment of

balance price of the jute mill machinery and equipment.

Saura intended to produce bags using locally grown raw

materials (the first serious attempt in history, as they

would call it). There was reexamination of the loan grant

due to the atras-abante attitude of China Engineers who

were to sign as co-makers, which even led to the

reduction of loan price to P300,000. But at the end of the

day, RFC granted the loan subject to twoconditions: 1)raw materials needed by the Saura to carry out its

operation are available in the immediate vicinity 2) there

is prospect of increased production of raw materials to

provide adequately for the requirements of the factory.

However, in view of Sauras statement that they will have

to import jute to produce the bags (read: inconsistent

with the conditions), DBP refused to approve the loan.

Saura then asked for cancellation of the mortgage.

9 years later, Saura filed this suit for damages against DBP

claiming that for the latters failure to release the

proceeds of loan applied for and approved, it was

prevented from completing or paying its contractualcommitments in connection with the jute mill project.

Issue: Is there a perfected contract ofloan? Ifyes, did DBP

breach it? Yes, theres a perfected contract of loan. There wa

breach though, but mutual desistance by the parties.

- There was indeed a perfected consensual contract as

recognized in 1934. There was undoubtedly offer and

acceptance, Saura applied for a loan which DBP approved by

resolution.

- Realizing that it will not meet the two conditions, Saura ask

for cancellation of mortgage. The action thus taken was in th

nature of mutual desistance (mutuo disenso, if you feel likeinvoking Manresa). Mutual disagreement by the parties can

cause the contracts extinguishment.

Rocky says:What is a jute sack?

GSIS v CA

(1986; Paras, J.)

The Medinas were granted a loan of P350,000 by GSIS for

which they constituted a Real Estate Mortgage.

Thereafter, they again obtained an additional loan of

P230,000. Medinas defaulted and naturally GSIS

foreclosed.

Medinas demands refund for overpayment alleging that

the Amendment of the Real Estate Mortgage superseded

the original contract and failed to stipulate the

compounded interest discharged them from the

payment of the same.

Issue No. 1: Was there an overpayment? No!

- The Amendment of the Real Estate Mortgage never intende

completely supersede the original mortgage contract.

- This is shown by

1. prior, contemporaneous and subsequent acts of the partie

2. the contract itself, which:

- recognized the existence of the previous mortgage K

- clearly stated in the last provision that all other terms a

condition of previous real estate mortgage continue to be

full force and effect.

- it just being amended as to amount and amortization


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- As a matter of policy, GSIS imposes uniform terms and

conditions for all its real estate loans, particularly with respec

compounding of interest.

- It would be contrary to human experience and to ordinary

practice for mortgagee to impose less onerous conditions on

increased loan by the deletion of compounded interest exact

on a lesser loan.

Issue No. 2: WON the interest rates on the loan accounts w

usurious? No!- Interest by way of damages is governed by 2209. If obligat

consists in payment of sum of money, and debtor incurs in d

the indemnityfor damages there being no stipulation to

contrary, shall be the payment of the interest agreed upon.

- CC permits agreement upon a penalty apart from the inter

- Stipulation about payment of such additional rate partakes

the nature of a penaltyclause, which is sanctioned by law.

Ligutan v CA

(2002; Vitug, J.)

Spouses Ligutan obtained a loan of P120,000 from

Security Bank and Trust Company. It contained the

following stipulations as to interest:

- 15.189% per annum upon maturity

- Penalty clause (in case of default): 5% every month

on the outstanding principal and interest

- Attorneys fees: 10% of total amount due IF:- Matters endorsed to a lawyer for collection

- Suit instituted to enforce payment

Upon default, bank filed a collection suit. For spouses

failure to answer, judgment was rendered on default.

Upon MR and new evidence, it was revealed that 3 years

after the loan, spouses executed a real estate mortgage

which they claim to be a novation ofthe contract. It was

even foreclosed without notification of spouses and that

the bank did not even credit them with proceeds of the

sale. (MR was denied bec its already their second! And

the evidence was not really new because it was known

since the commencement of the case)

Ligutan also appeals as to the amounts ofinterestsimposable.

Chi recited this but only appreciated its value during the

finals review when she actuallyread it. SAYANG!

Issue No. 1: WON penalty interest unconscionable? Yes.

- CA correctly reduced the penalty interest from 5% to 3%

- Penaltyclause, expressly recognized by CC1226, is an

accessory undertaking to assume greater liability on the par

an obligor in case of breach of an obligation.

- It functions [1] to strengthen the coercive force of the

obligation AND [2] to provide for what could be the liquidatedamages resulting from such a breach.

- The obligor would then be bound to pay the stipulated

indemnity without the necessity of proof on the existence an

on the measure of damages caused by the breach.

- Altho court may not at liberty ignore freedom of parties to

agree on such terms and conditions as they see fit, a stipulat

penalty may be equitably reduced bycourt if:

- it is iniquitous or unconscionable OR

- the principal obligation has been partly or irregularly

complied with.

- If may even be deleted if/when:

- there has been substantial performance in good faith

- penalty clause itself suffers from fatal infirmity

- exceptional circumstances so exist as to warrant it-Whether penalty is reasonable or iniquitous can be partly

subjective and partly objective. Its resolution depend on such

factors as, but not necessarily confined to, the:

1. type, extent and purpose of the penalty

2. nature of the obligation

3. mode of breach and its consequences

4. supervening realities

5. standing and relationship of the parties

Issue No. 2: WON stipulated interest unconscionable? No.

- The essence/rationale for the payment of interest, quite oft

referred to as cost ofmoney, is not exactly the same as tha

a surcharge/penalty.

- A penalty stipulation is not necessarily preclusive of interesthere is an agreement to that effect, the two beingdistinct

concepts which may be separately demanded. Judicial groun

for disallowing imposition of full surcharges/penalties, despit

express stipulation therefor in a valid agreement, may not

equally apply in non-payment or reduction of interest.

- Indeed, interest prescribed in loan financing agreement is a

fundamental part of the banking business and the core of a

banks existence.

Issue No. 2: Did the subsequent execution ofthe real estate

mortgage for the existing loan resulted in the extinguishme

oforiginal contract because ofnovation? No.


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- Mortgage is but an accessory contract to secure the loan.

- Elements ofextinctive novation

1. previous valid obligation

2. agreement of all the parties

3. extinguishment of the obligation: must be:

[a] declared in unequivocal terms (i.e. express) or

[b] old and new obligation be on every point incompatible w

each other (i.e. incompatibility) should take place in any of

essential elements of obligation (i.e. juridical relation/tie, obj

subject)4. validity of the new one

Eastern Shipping

Lines v CA

(1994; Vitug, J.)

The case of the broken drums of riboflavin. See Appendix A i.e. my amazing concept map of the Eastern

Shipping Line doctrine on Rules on Interest.

TWO CONCEPTS ON PAYMENT OF INTEREST (from Sir Labitags handout)

1 Interest for the use or loan or forbearance of money, goods orcredit

If no stipulation on payment of interest

No interest for use or forbearance

* No interest shall be due unless it has been expressly

stipulated in writing (CC1956)

If there is express stipulation (which must be

in writing to be valid CC1956) for payment of

interests, but no rate mentioned

Interest shall be 12% per annum (Sec. 2, Monetary Board

Circular 905, 10 Dec 1982)

If there is stipulation in writing and rate of

interest is agreed upon (including

commissions, premiums, fees and other

charges)

Such interest stipulated shall not be subject toceiling

prescribed under the Usury Law (Sec. 1, Monetary Board

Circular 905, 10 Dec 1982)

2 Interest as damages for breach or default in payment of loan or forbearance of money, goods, credit

No stipulation as to interest for use of

money

In case ofDEFAULT, loan or forbearance shall earn legal

interest, at rate of12% per annumfrom date of judicial or

extrajudicial demand, subject to Art 1169 (delay/mora)

If rate of interest stipulated, e.g. 24% per

annum

Loan + stipulated interest, shall earn 12% per annumfrom

date of judicial demand

* Interest due shall earn legal interest from the time it isjudicially demanded, although the obligation may be silent

upon this point (Art 2212)

3 If obligation NOT consisting of a loan or forbearance of money, goods or credit is breached, e.g. obligation to give,

do, not to do

o Interest may be imposed at the discretion ofcourt at the rate of6% per annum.

o No interest adjudged on unliquidated claims or damages, until demand can be established withreasonable

certainty.

o After thus established with reasonable certainty, interest of6% per annum shall begin to run from the date

judicial orextrajudicial demand.

But if obligation cannot be established with reasonable certainty at time of demand, 6% per annum interes

shall begin to run only from date ofjudgment on amount finally adjudged by court.

4 Whenjudgment of court awarding money becomes final and executory, money judgment is A, B and C (above) shall 12% per annum from finalityofjudgment until full payment money judgment shall be considered as forbearance

credit

Macalinao v BPI

(2009; Velasco, Jr., J.)

Macalinao defaulted on the payment ofher credit card

dues. There was stipulation that the charges/balance shall

earn 3%/month and additional penalty fee of another

3%/month. RTC reduced the 3% monthly interest to 2%.

CA reversed the reduction saying that Macalinao freely

availed herself of the CC facility offered by BPI to general

public ergo, contracts of adhesion are not invalid per se.

Credit card interests and penaltycharges are

unconscionable and iniquitous at 36%!

- SC said that the interest rate and penalty charge of 3%/mo

36%pa should be reduced to 2%/mo or 24%pa. this is not the

first time that SC considered the 36%pa to be excessive and

unconscionable.

- Citing 1229: In exercising this power to determine what is

iniquitous and unconscionable, courts must consider the

circumstances of each case since what may be iniquitous and

unconscionable in one may be totally just and equitable in

another.

- In the instant case, Macalinao made partial payments to BP


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0Producers Bank of

the Phil v CA

(2003; Callejo, Sr., J.)

Vives was asked by his friend Sanchez to deposit

P200,000 in the name of Sterela Marketing and Services

(owned by Doronilla who is friend of Sanchez) for

purposes of its incorporation and on the promise that it

will be returned after 30 days.

Vives agreed and had his wife open an account in name of

Sterela and deposit the amount there. The authorized

signatories in the passbook were Sanchez and/or Vives.

However, Vives learned that Sterela was no longer

holding office in the address given to him. Doronilla

promised to return his money and issued checks therefor.

The checks bounced. Vives later on found out that Atieza

(the bank manager) allowed Doronilla to withdraw the

money on the basis that he was the sole proprietor of

Sterela.

Main issue: Is the bank liable to return to Vives the

amount withdrawn by Doronilla? Yes!

Banks Defenses: The contract between them was a simple lo

or mutuum because [1] the subject was money, there was an

interest amounting to 12,000 and I was not privy thereto!

As regards the subject

- 1933 may seem to imply that if subject of contract is a

consumable thing, e.g. money, the contract would be a mutu

However, there are exceptions to this rule where the loan is

commodatum and not mutuum.

- if consumable goods are loaned onlyfor purposes of

exhibition OR- when the intention of parties is to lend consumable goo

and to have the very same goods returned at the end of the

period agreed upon

- Intention of parties shall be accorded primordial considerat

in determining the actual character of a contract. In case of

doubt, the contemporaneous and subsequent acts of the par

shall be considered.

As regards the interest

- Attempt to return P200,000 with additional P12,000 does n

convert the transaction from commodatum to muttum absen

any showing of such intention.

- In fact, the 12k corresponds to the fruits of the thing.

- 1935: bailee acquires only the USE but NOT the FRUITS.

- It was only proper for Doronilla to remit to Vives the interesaccruing to the money deposited in the bank.

As regards the privity

-Whether the transaction was mutuum or commodatum has

bearing on your liability. Your liability is founded upon your

employees fault under 2180 (vicarious).

- Atienza was in conspiracy with Doronillas scheme. The

passbook in custody of Vives says that one cannot withdraw

without that passbook. How come Doronilla was able to get t

money?

- Atienza also knew very well that Vives was the owner of the

money as he was expressly told by the wife.

1Garcia v Thio

(2007; Corona, J.)

Carolyn Garcia gave to Rica Thio two crossed checks

payable to the order of Marilou Santiago [the scenario

here is Carolyn Rica Marilou]. Thio paid faithfully atfirst but eventually failed to pay the loans when they fell

due. No PN because Carol and Rica used to be friends

then.

Rica denied the loans and shifted the blame to Malou.

She said that the initial payment were only to

accommodate Carols request to use her own checks

instead of Malous.

Rocky says:

-What is a cross check?

-What do you call yung pinautang mo yung inutang mo?

Chi almost answered (because she was on deck at that

time) 5-6-7, the correct answer is relending

Issue: Who borrowed moneyfrom Carol: Rica or Malou? Ric

- A loan is a real contract, not consensual as such, is perfecte

only upon the delivery of the object of the contract.- Delivery is the act by which the res or substance thereof is

placed within the actual or constructive possession or contro

another. Although Rica did not actually receive the proceeds

these checks, these instruments were placed in her control a

possession, under an arrangement whereby she actually re-le

the amounts to Malou.

- Factors to support this conclusion:

1. Carol did not personally know Malou, why would she issue

checks to strangers without any security whatsoever?

2. Leticia (witness for both parties) said that Ricas real plan w

to lend amounts to Malou at a higher amount.

3.Why would Rica issue checks to cover for loans and interes

which she did not contract. Incredible to common experience

4. In Malous petition for insolvency, Rica and not Carol waslisted as creditor.

5. Rica did not present Malou as witness.

- The interest was deleted though because there as not writt

proof therefor.

2Pajuyo v CA

(2004; Carpio, J.)

Pajuyo allowed Guevarra to occupy his house made of

light materials (squatter) on the condition that Guev will

ensure its maintenance and orderliness and vacate the

premises upon demand. However, Guev refused to vacate

when Pajuyo asked him to saying that the latter had no

valid title to the house or lot as a squatter. CA said that

their Kasunduan was not a lease but a commodatum.

- The Kasunduan is not a commodatum. In a commodatum, t

parties delivers to another something not consumable so tha

the latter may use the same for a certain time and then retur

- Features of a commodatum:

- gratuitous

- for a certain period

- Thus, bailor cannot demand: [1] until after expiration of


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stipulated period or [2] after accomplishment ofuse for whic

the commodatum is constituted.

- If bailor should have urgent need of the thing, he may dem

its return for temporary use.

- PRECARIUM: Ifuse of thing is merely tolerated by the bailo

can demand the return of the thing at will

- the imposition of obligation to maintain property in good

condition makes the Kasunduan a contract different from

commodatum.

- Case law on ejectment has treated relationship based ontolerance as one that is akin to a landlord tenant relationshi

where the withdrawal of permission would result in the

termination of the lease.

- There must be honor even between squatters. The agreeme

is not void for purposes of determining who between Pajuyo

Guevarra has a right to physical possession of the contested

property.

3BPI Family Bank v

Franco

(2007; Nachura, J.)

[1] Tevetesco opened a savings and current account with

BPI-FB P80M debited from FMIC

[2] FMIC also opened a time deposit with same branch

with P100M authority to debit P80M to Tevetesco

[3] Franco opened savings (500k), current (500k) and time

deposit (1M) withBPI-FB all amounts traceable to check

issued by Tevetesco

The authority to debit was later on found to be a

forgery. However, Tevetesco had already withdrawn

several amounts from its current account amounting to

3M + 2M ofFranco

BPI-FB debit from Francos savings and current accounts

all amounts remaining therein. Francos checks were also

dishonored in view of the freezing/grarnishement .

FMIC claims recovery of 80M from BPI-FB.

- BPI cannot unilaterally freeze Francos accounts and preclud

him from withdrawinghis deposits.

- Art 559 on recovery ofunlawfully deprived property is not

applicable because the same pertains to specific/determina

thing Francos account consists of money which is movable,

generic and fungible. The quality of being fungible depends u

the possibility of property, because of its NATURE or theWILTHE PARTIES, to be substituted by others of the same kind, n

having a distinct individuality.

- BPI owns the deposited monies in the accounts ofFranco, b

not as a legal consequence of its unauthorized transfer ofFM

deposits to Tevestecos account. It should not forget that

deposits of money in banks is governed by CC provisions on

mutuum.

- As there is a debtor-creditor relationship between bank and

depositor, BPI-FBultimately acquired ownership ofFrancos

deposits, but such ownership is couple with a corresponding

obligation to pay him an equal amount on demand.

4Pp vPuig

(2008; Chico-Nazario, J.)

Puig and Porras were bookkeeper and cashier of a bank.

112 informations for qualified theft were filed against

them for their willful taking of cash deposited to thebank. RTC dismissed all the cases for insufficiency of

allegations. Republic appeals.

What is the nature ofpossession by the bank?

Cashiers, bookkeepers and other employees of a bank who c

into possession of the monies deposited therein enjoy theconfidence reposed in them by their employer. Banks, on the

other hand, where the monies are deposited, are considered

owners thereof. 1953 (person who receives loan of money

acquires ownership thereof) and 1980 (fixed, current and sav

deposit of money in banks and similar institutions shall be

governed by provisions on loan) attests to this. The informat

sufficiently allege all the essential elements constituting the

crime of Qualified Theft i.e.

1.Taking of personal property2.Property belongs to another (bank)

3.Taking done with intent to gain

4.Taking done without owners consent

5.Accomplished without use of violence or intimidation

against persons, nor of force upon things6.Done withgrave abuse of confidence (nature of job)

DEPOSIT

5BPI v IAC

(1988; Cortes, J.)

Zaldy deposited US dollars in cash for safekeeping, but

the bank sold the dollars. Banks defense: it credited the

proceeds to the peso account of Zaldy.

- The contract is one of deposit as the greenbacks were given

only for safekeeping. Zshornack demanded the return of the

money five months later.

- The bank violated its obligation as depositary. The contract

void though. They are in pari delicto therefore, they shall hav

no cause of action against each other. The only remedy is on

behalf of the State to prosecute the parties for violating the l

Rocky says:


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-Who is Rizaldy Zschornack? An actor contemporary ofFPJ a

Erap.

- Back then there was a prohibition on use of dollar to promo

the use of peso currency. BUT we need dollars to purchase o

plastic. Read the Constitutional case about Bataan

Petrochemical. Sige nga, makakakuha ka ban g peso equivale

ng $200,000 in cash? There was even a time that Phil announ

to the world in a 10m telex that we do not have dollars anym

We need dollars because we do not have sufficient amount o

peso in circulation. At that point nakipagbarter pa tayo ngbanana with Czech for military hardware.

6Bishop of Jaro v Dela

Pena

(1913; Moreland, J.)

Bishop of Jaro sued Father dela Pena for the latters

inability to return the amount intended for the

construction of leper hospital. The amount was deposited

by Father in his own account. But when he was arrested

by the US Army, the funds were confiscated because it

was purportedly for the support of the insurgent and for

revolutionary purposes.

- Bishop of Jaro lost this case, he was unable to recover.

- By placing the money in the bank and mixing it withhis

personal funds, Father did not assume obligation different fr

hat under whichhe would have lain if such deposit had not b

made, nor did he thereby make himself liable to repay the

money at all hazards.

- If the money had been forcibly taken from his pocket or fro

his house by military forces, he would have been exempt fro

responsibility. The fact he placed the trust fund in the bank in

personal account did not make him a debtor who must respo

for all hazards.

- There was no law prohibitinghim from depositing it as he d

and there was no law which changed his responsibility by reaof the deposit.

7

CA Agro-Industrial

Development Corp v

CA

(1993; Davide, J.)

As a condition for sale, the two partied agreed to deposit

the TCT in an SDB. However, when the vendee was to

resell the property, the title was no longer there. As a

result of delay of TCT reconstruction, the customer

withdrew its offer. Vendee charges bank for unrealized

profits.

Is the contractual relation between a commercial bank

and another party in a contract of rent of safety deposit

box with respect to its contents placed by the later one of

bailor/bailee or one of lessor/lessee?

Contract is not an ordinarycontract oflease but a special ki

ofdeposit.

- Not lease because full and absolute possession and control

SDB was not given to the joint renters. Guard key remained w

Bank without which renters could not open the box.

- 1975 not applicable.

Relation created is that ofbailor and bailee.

- The prevailing rule is that the relation between a bank renti

out SDB and its customers with respect to the contents of th

box is that of a bailor and bailee, the bailment being for hire

mutual benefit.

- CA Agros petition is dismissed though because theres no

evidence that the bank is aware of the agreement between ttwo renters that they cannot withdraw the contents without

consent of the other.

8Triple V Food v

Filipino Merchants

(2005)

De Asis loss her employer-given Mitsubishi Galant when it

was given to the valet service of Kamayan.

Restos defense: The ticket contains waiver of claims.

Valet parking service did not include extending a contract

of insurance or warranty for the loss of the vehicle.

- Customer expected safe return of car at the end ofher mea

thus Triple V constituted as a depositary. It cannot evade liab

by arguing that neither a contract of deposit nor that of

insurance, guaranty or surety for the loss of the car was

constituted when De Asis availed of its free valet parking serv

- Parking claim stub embodying the terms and conditions of t

parking, including that of relieving petitioner from any loss o

damage to the car is essentially a contract of adhesion, draft

and prepared as it is by the petitioner alone with no participa

whatsoever on the part of the customers.

- De Asis deposited her car as part of Triple Vs enticement fo

customers by providing them a safe parking space within thevicinity of their restaurant. In a very real sense, a parking spa

an added attraction to petitioners restaurant business becau

customers are thereby somehow assured that their vehicle a

safely kept, rather than parking them somewhere else at the

own risk.

9YHT Realty

Corporation v CA

(2005; Tinga, J.)

McLoughlin, a philanthropist, loss his dollars duringhis

stay at Copacabana. This was discovered to be the act of

his Filipina friend through the hotel employees who

thought that she was his wife.

Whether a hotel may evade liability for the loss of items

left with it for safekeeping by its guest, by having these

guests execute written waivers holding the establishment

- 2003 was incorporated in the CC as expression of public po

precisely to apply to situations such as here. The hotel busine

like common carriers is imbued with public interest.

- Catering to the public, hotel keepers are bound to provide n

only lodging for hotel guests but also security to their person

and belongings.

- It is not necessary that they be actually delivered to the


8/19



or its employees, free from blame for such loss in light of

2003 which voids such waivers?

innkeepers or their employees. It is enough that such effects

within the hotel or inn.

- CC is explicite that the responsibility of the hk shall extend t

the LOSS of or INJURY to the personal property of the guests

even if caused by servants, employees and strangers. It is los

due to force majeure that may spare the hk from liability.

- 2002 (acts ofguest, servants, family or his visitors) is not

applicable.What if the negligence of the employer or its

employees facilitated the consummation of a crime committ

by the registered guests visitors or relatives? 2002 presuppothat hk is not guilty of concurrent negligence or has not

contributed to any degree to the occurrence of the loss.

- A depositary is not responsible for the loss ofgoods by thef

unless his actionable negligence contributes to the loss.

SECURITY DEVICES

0E. Zobel Inc v CA

(1998; Martinez, J.)

Claveria obtained a loan with Consolidated Bank for

P2.875M to purchase 2 maritime barges and 1 tugboat.

As security, they constituted chattel mortgage over the

boats and executed a Continuing Guaranty by E. Zobel.

They defaulted so SolidBank filed a case against Claveria

and E. Zobel. (Note: It did not foreclose.)

E. Zobels defense: Relieved as guarantor pursuant to

2080 when it lost its right to be subrogated to chattel

mortgage for SolidBanks failure to register the chattel

mortgage with appropriate govt agency.

SolidBank: 2080 not applicable bec youre a surety, not a

guarantor.

- Continuingguaranty is a surety! Petitioner assumed liability

SOLIDBANK, as a regular party to the undertaking and obligat

itself as an original promissor. It bound itself jointly and seve

to the obligation with the respondent spouses. In fact,

SOLIDBANK need not resort to all other legal remedies or

exhaust respondent spouses' properties before it can hold

petitioner liable for the obligation.

- 2080 does not apply where the liability is as a surety, not as

guarantor. Even assuming that 2080 is applicable, SOLIDBAN

failure to register the chattel mortgage did not release petitio

from the obligation. In the Continuing Guaranty executed in

favor of SOLIDBANK, petitioner bound itself to the contract

irrespective of the existence of any collateral.

SURETY GUARANTY

Accessory promise by which a person

binds himself for another already

bound, and agrees with the creditor

to satisfy the obligation if the debtor

does not

Collateral undertaking to p

the debt of another in case

latter does not pay the deb

bound withhis principal by the same

instrument, executed at the sametime, and on the same consideration

guarantor's own separate

undertaking, in which theprincipal does not join

original promissor and debtor from

the beginning, and is held, ordinarily,

to know every default ofhis principal

- usually entered into befor

after that of the principal, a

is often supported on a

separate consideration from

that supporting the contrac

the principal

- original contract ofhis

principal is not his contract

he is not bound to take not

of its non-performance

not discharged, either by the mere

indulgence of the creditor to the

principal, or by want of notice of the

default of the principal, no matter

how muchhe may be injured thereby

often discharged by the me

indulgence of the creditor t

the principal, and is usually

liableunless notified of the

default of the principal

insurer of the debt, and he obligates

himself to pay if the principal does

not pay

insurer of the solvency of t

debtor and thus binds hims

to pay if the principal is una

to pay

1Philippine Blooming

Mills v CA

(2003; Carpio, J.)

PBM loaned from TRB. Ching signed Deed of Suretyship in

his personal capacity, not as mere guarantors but as

primary obligors.

PBM and Ching filed petition for suspension of payments

with SEC, and eventually placed under rehabilitation

receivership. Because of this, TRB dismissed complaint as

to PBM.

Chings defense: Deed of Suretyship executed in 1977

Ching is liable for credit obligations contracted by PBM ag

TRB before and after the execution of the 21 July 1977 Dee

Suretyship. This is evident from the tenor of the deed i

referring to amounts PBM may now be indebted or

hereafter become indebted to TRB.

- The law expressly allows a suretyship for "future debts". 2

provides: A guaranty may also be given as security for fu


9/19



could not answer for obligations not yet in existence at

the time of its execution. It could not answer for debts

contracted by PBM in 1980 and 1981. No accessory

contract of suretyship could arise without an existing

principal contract of loan.

Rocky says:

- Does 2053 apply even if there is no pre-existing loan? Or

kailangan ba may pre-existing loan bago to mag-operate?

Chi recited this. Dismal.

debts, the amount of which is not yet known; there can b

claim against the guarantor until the debt is liquidated.xxx

- Dio v. Court ofAppeals: A guaranty may be given to se

even future debts, the amount of which may not be know

the time the guaranty is executed. This is the basis for cont

denominated as continuing guarantyor suretyship. A contin

guaranty is one which is not limited to a single transaction

whichcontemplates a future course ofdealing, covering a s

oftransactions, generally for an indefinite time or until revoIt is prospective in its operation and is generally intende

provide security with respect to future transactions w

certain limits, and contemplates a succession of liabilities

which, as they accrue, the guarantor becomes liable.

- Continuing guaranty covers all transactions, including t

arising in the future, which are within the descriptio

contemplation of the contract ofguaranty, until the expiratio

termination thereof. A guaranty shall be construed as contin

when by the terms thereof it is evident that the object is to

a standing credit to the principal debtor to be used from

to time either indefinitelyor until a certain period; especia

the right to recall the guaranty is expressly reserved. He

where the contract states that the guaranty is to seadvances to be made "from time to time," it will be construe

be a continuing one.

- In other jurisdictions, it has been held that the use of parti

words and expressions such as payment of "any debt,"

indebtedness," or "any sum," or the guaranty of

transaction," or money to be furnished the principal debto

any time," or "on such time" that the principal debtor

require, have been construed to indicate a continuingguaran

2IFC v Imperial Textile

Mills

(2005; Panganiban)

After extrajudicially foreclosing the mortgage, there still

remained deficiency so IFC asked surety to pay the

outstanding balance. Issue:WON ITM a surety under the

contract.

Rocky says:

-What on earth does not as sureties merely mean?! Do

they mean sureties as well Its redundant in Civil law

pero under common law it has different meaning. Pero

shempre, walang Pilipinong nagcomment sa redundancy.

- IFC is the lending arm of theWorld Bank. HQ is in

Washington, so Amerikano mga lawyers nito. Hence, the

confusion. Yung foreign form is bangga with CC.

- The Agreement uses guarantee and guarantors, promp

ITM to base its argument on those words. SC is not convi

that the use of the two words limits the Contract to a m

guaranty. The specific stipulations in the Contract s

otherwise.- While referring to ITM as a guarantor, the Agreem

specifically stated that the corporation was 'jointly and seve

liable. To put emphasis on the nature of that liability,

Contract further stated that ITM was a primary obligor, n

mere surety. Those stipulations meant only one thing: tha

bottom, and to all legal intents and purposes, it was a surety

- IFC was justified in taking action directly against responden

- The use of the word guarantee does not ipso facto make

contract one of guaranty. The word is frequently employe

business transactions to describe the intention to be bound

primary or an independent obligation. The very terms

contract govern the obligations of the parties or the exte

the obligor's liability. Thus, this Court has ruled in favo

suretyship, even though contracts were denominated 'Guarantor's Undertaking or a 'Continuing Guaranty.

23DBPv CA & Cuba

(1998; Davide, Jr., J.)

Lydia Cuba has Fishpond Lease Agreement. She assigned

the same to DBP as security for her loans (security by way

of assignment). Upon default, DBP appropriated the

Leasehold rights without foreclosure proceedings. Issue:

Is the act of DBP a violation of 2088?

Rocky says:

-Why was it an issue? Because it was an assignment

and not pledge or mortgage

- There was intention to sell. At best its equitable

The assignment of leasehold rights was a mortgage contract.

- Simultaneous with the execution of the notes was the

execution of "Assignments of Leasehold Rights"where Cuba

assigned her leasehold rights and interest on a 44-hectare

fishpond, together with the improvements thereon. As point

out by Cuba, the deeds of assignment constantly referred to

Cuba as "borrower"; the assigned rights, as mortgaged

properties; and the instrument itself, as mortgage contract. 0

- Under condition no. 22 of the deed, it was provided that

"failure to comply with the terms and condition of any of the


10/19



mortgage. Round peg on a square hole. loans shall cause all other loans to become due and demanda

and all mortgages shall be foreclosed." And, condition no. 33

provided that if"foreclosure is actually accomplished, the usu

10% attorney's fees and 10% liquidated damages of the total

obligation shall be imposed."

- There is no shred of doubt that a mortgage was intended.

- In their stipulation of facts the parties admitted that the

assignment was by way of security for the payment of the loa

- People's Bank & TrustCo. vs. Odom: An assignment to

guarantee an obligation is in effect a mortgage.BUT IT WAS NOT PACTUM COMMISSORIUM. Condition no.

did not provide that the ownership over the leasehold rights

would automatically pass to DBP upon CUBA's failure to pay

loan on time. It merely provided for the appointment of DBP

attorney-in-fact with authority, among other things, to sell o

otherwise dispose of the said real rights, in case of default by

Cuba, and to apply the proceeds to the payment of the loan.

provision is a standard condition in mortgage contracts and

conformity with 2087, which authorizes the mortgagee to

foreclose the mortgage and alienate the mortgaged property

the payment of the principal obligation.

4Bustamante v Rosel

(1999; Pardo, J.)

- Bustamante spouses borrowed P100,000 from Rosel and

used as a guaranty 70 sqm of the 423 sqm land she owns.

In case of failure to pay, Rosel is given the right to buysaid land at P200,000 inclusive of the P100,000 borrowed

amount and the interest.

- Upon maturity of loan, Rosel proposed to buy the land.

However, Bustamante refused to sell, but instead asked

for extension of time to pay and offered Rosel another

land they could buy.

- Bustamante then offered to pay the loan but Rosel

refused to accept payment and insisted that Bustamante

sign the prepared deed of sale of the collateral land.

- Both parties filed case against each other:

- Bustamante filed complaint for specific performance

and consignation against Bustamante (for the payment of

the loan)

- Rosel filed petition for consignation and depositedP153K with City Treasurer (for the purchase of the

collateral).When Bustamante refused to sell, Rosel

consigned the amount of P47,500.00 with the trial court.

In arriving at the amount deposited, Rosel considered the

principal loan of P100,000.00 and 18% interest per

annum thereon, which amounted to P52,500.00. The

principal loan and the interest taken together amounted

to P152,500.00, leaving a balance of P 47,500.00.

- RTC: In favor ofBustamante and payment of the loan

(conversely, against Rosel and sale of collateral)

- CA: Reversed in favor of Rosel

- SC initially affirmed CA decision (saying that the contract

is the law between the parties) but reversed on MR when

Bustamante alleged that real intention of the parties tothe loan was to put up the collateral as guarantee similar

to an equitable mortgage according to 1602.

Issue No. 1Whether Bustamante failed to pay the loan at its

maturity date - NO

- The loan was due for payment on March 1, 1989. On said dBustamante tendered payment to settle the loan which R

refused to accept, insisting that BUSTAMANTE sell to them

collateral of the loan. When ROSELs refused to accept paym

BUSTAMANTE consigned the amount with the trial court.

Issue No. 2Whether the stipulation (sale of collateral) in the

loan contract was valid and enforceable - NO

- Rosel was eager to purchase the land given as guaranty

Bustamantes correlative obligation to sell is subject

suspensive condition (i.e. failure to pay debt upon matu

Contract has the force of law between parties but this is su

to provisions of A1306 CC that stipulations should no

contrary to law, morals, good customs, public policy and p

order.

- A scrutiny of the stipulation of the parties reveals a suintention of the creditor to acquire the property given as sec

for the loan. This is embraced in the concept of pac

commissorium, which is proscribed by law.

- ELEMENTS OFPACTUMCOMMISSORIUM

(1) there should be a property mortgaged by wa

securityfor the payment ofthe principal obligatio

(2) there should be a stipulation for autom

appropriation by the creditor of the thing mortg

in case of non-payment of the principal obliga

within the stipulated period.

- The intent to appropriate the property given as collater

favor of the creditor appears to be evident, for the debt

obliged to dispose of the collateral at the pre-ag

consideration amounting to practically the same amount asloan. In effect, the creditor acquires the collateral in the eve

non-payment of the loan

- All persons in need of money are liable to enter into contra

relationships whatever the condition if only to alleviate t

financial burden albeit temporarily. Hence, courts are

bound to exercise caution in the interpretation and resolutio

contracts lest the lenders devour the borrowers like vulture

with their prey.

5Ong v Roban

Lending Corp

(2008; Carpio-Morales)

Spouses obtained several loans totaling to P4M, secured

by real estate mortgage. Parties executed Dacion in

Payment Agreement and Memo of Agreement where the

agreed amount of indebtedness ballooned to P5.9M.

Issue: Is the DPA a pactum? Yes!

- The MoA and DPA contain no provisions for foreclo

proceedings nor redemption. Under the MoA, the failure by

petitioners to pay their debt within the one-year period g


11/19



respondent the right to enforce the DPA transferring t

ownership of the properties. Roban, in effect, automat

acquires ownership of the properties upon petitioners failu

pay their debt within the stipulated period.

- In a true dacion en pago, the assignment of the prop

extinguishes the monetary debt.[33]

In the case at bar,

alienation of the properties was by way of security, and no

way of satisfying the debt.[34]

The Dacion in Payment did

extinguish petitioners obligation to respondent. On the cont

under the Memorandum of Agreement executed on the sday as the Dacion in Payment, petitioners had to execu

promissory note for P5,916,117.50 which they were to

within one year.

6Paray v Espeleta-

Rodriquez

(2006; Tinga, J.)

Rodriguezes used their shares of stocks as pledge security

to the loans they obtained from Paray. Paray filed a

petition with the Court to sell the said stocks. Court

upheld Parays right to sell it at a public sale (though SC

notes that it was not mandatory since pledge foreclosure

is generally done extrajudicially e.g. without the need for

any court intervention). Rodriquezes consignated with

the court their redemption money.

The CAs upholding of the right of redemption muddlesthe case because such right only pertains to payments

made by debtor after foreclosure and not before the

foreclosure sale. It should have concentrated on the

validity of the consignation which could have had the

effect of extinguishing the principal obligation as well as

the accessory contract of pledge.

They would have had a better right had they matched the

terms of the highest bidder.Under the circumstances,

with the high interest payments that accrued after

several years, respondents were even placed in a

favorable position by the pledge agreements, since the

creditor would be unable to recover any deficiency from

the debtors should the sale price be insufficient to coverthe principal amounts with interests. Certainly, had

respondents participated in the auction, there would

have been a chance for them to recover the shares at a

price lower than the amount that was actually due from

them to the Parays. That respondents failed to avail of

this beneficial resort wholly accorded them by law is their

loss. Now, all respondents can recover is the amounts

they had consigned.

1. No right ofredemption over pledged properties.

2. Foreclosure ofpledge is always extrajudicial.

Does the right ofredemption exist over personal property?

law or jurisprudence establishes or affirms such right. Indeed

such right exists.

- The right to redeem property sold as security for the

satisfaction of an unpaid obligation does not exist

preternaturally. Neither is it predicated on proprietary right,

which, after the sale of property on execution, leaves thejudgment debtor and vests in the purchaser. Instead, it is a ba

statutory privilege to be exercised only by the persons named

the statute.

- The right ofredemption over mortgaged real property sold

extrajudicially is established by Act No. 3135, as amended. T

said law does not extend the same benefit to personal prope

- Sibal v Valdez: Personal property are not subject to redemp

Can pledged properties be sold together?

- There is nothing in the CC governing the extrajudicial sale of

pledged properties that prohibits the pledgee of several diffe

pledge contracts from auctioning all of the pledged propertie

a single occasion, or from the buyer at the auction sale in

purchasing all the pledged properties with a single purchaseprice. The relative insignificance of ascertaining the definite

apportionments of the sale price to the individual shares lies

the fact that once a pledged item is sold at auction, neither t

pledgee nor the pledgor can recover whatever deficiency or

excess there may be between the purchase price and the am

of the principal obligation.

Termination ofpledge byconsignation ofthe obligation pric

If the principal obligation is satisfied, the pledges should be

terminated as well. 2098 provides that the right of the credit

retain possession of the pledged item exists only until the de

paid. 2105 further clarifies that the debtor cannot ask for the

return of the thing pledged against the will of the creditor, un

and until he has paid the debt and its interest. At the same tithe right of the pledgee to foreclose the pledge is also

established under the Civil Code.When the credit has not be

satisfied in due time, the creditor may proceed with the sale

public auction under the procedure provided under 2112.


12/19



7Medida v CA

(1992; Regalado, J.)

Core issue:WON a mortgagor, whose property has been

extrajudicially foreclosed and sold at the corresponding

foreclosure sale, may validly execute a mortgage contract

over the same property in favor of a third party during

the period of redemption? Yes!

-What is divested from the mortgagor is only his "full

right as owner thereof to dispose (of) and sell the lands,"

in effect, merely clarifying that the mortgagor does not

have the unconditional power to absolutely sell the land

since the same is encumbered by a lien of a third personwhich, ifunsatisfied, could result in a consolidation of

ownership in the lienholder but only after the lapse of the

period of redemption.What is delimited is not the

mortgagor's jus dispodendi, as an attribute of ownership,

but merely the rights conferred by such act of disposal

which may correspondingly be restricted.

- A subsequent mortgage could nevertheless be legally

constituted after extrajudicial foreclosure with the subseque

mortgagee becoming and acquiring the rights of a redemptio

aside from his right against the mortgagor.

- Since the mortgagor remains as the absolute owner of the

property during the redemption period and has the free disp

ofhis property, there would be compliance with the requisite

2085 for the constitution of another mortgage on the proper

To hold otherwise would create the inequitable situation

wherein the mortgagor would be deprived of the opportunitywhich may be his last recourse, to raise funds wherewith to

timely redeem his property through another mortgage there

- It is only upon the expiration of the redemption period, with

the judgment debtor having made use ofhis right of redempt

that the ownership of the land sold becomes consolidated in

purchaser.

-What actually is effected where redemption is seasonably

exercised by the judgment or mortgage debtor is not the

recovery of ownership ofhis land, which ownership he never

lost, but the elimination from his title theretoofthe lien

created by the levyon attachment or judgment or the

registration of a mortgage thereon.

8Suico vPNB

(2007; Chico-Nazario, J.)

- PNB extrajudicially foreclosed on the mortgage. It was

the only bidder. However, it claimed again for thedeficiency of the proceeds of the sale. Outstanding loan

was only ~P2M but the highest bid was ~P8.5M.

- Suico demanded recovery of the surplus. It questioned

the non-delivery of PNB to Sheriff of the price as well as

the validity of Sheriffs Notice which said that the amount

of obligation was only ~P2M.

- PNB denied the claim for surplus as the Suico had other

loans already due which amounted to more than the

purchase price.

Effect of PNBs non-delivery of surplus to Suico. The

application of the proceeds from the sale of the

mortgaged property to the mortgagors obligation is anact of payment, not payment by dacion; hence, it is the

mortgagees duty to return any surplus in the selling price

to the mortgagor. Perforce, a mortgagee who exercises

the power of sale contained in a mortgage is considered a

custodian of the fund and, being bound to apply it

properly, is liable to the persons entitled thereto if he

fails to do so. And even though the mortgagee is not

strictly considered a trustee in a purely equitable sense,

but as far as concerns the unconsumed balance, the

mortgagee is deemed a trustee for the mortgagor or

owner of the equity of redemption.

If the mortgagee is retaining more of the proceeds of the

sale than he is entitled to, this alone will not affect the

validity of the sale but simply give the mortgagor a cause

of action to recover such surplus.

Notice of sale is valid. Notices are given for the purpos

securing bidders and to prevent a sacrifice of the propertthese objects are attained, immaterial errors and mistakes

not affect the sufficiency of the notice; but if mistake

omissions occur in the notices of sale, which are calculate

deter or mislead bidders, to depreciate the value of

property, or to prevent it from bringing a fair price,

mistakes or omissions will be fatal to the validity of the no

and also to the sale made pursuant thereto.

Effect of PNBs non-payment ofcash to Sheriff. Under Sec

21 of Rule 39 is that if the amount of the loan is equal to

amount of the bid, there is no need to pay the amount in c

Same provision mandates that in the absence of a third-p

claim, the purchaser in an execution sale need not pay his bid

does not exceed the amount of the judgment; otherwiseshall pay only the excess.

- The raison de etre is that it would obviously be senseless fo

Sheriff or the Notary Public conducting the foreclosure sale t

through the idle ceremony of receiving the money and payi

back to the creditor, under the truism that the lawmaking

did not contemplate such a pointless application of the la

requiring that the creditor must bid under the same condi

as any other bidder. It bears stressing that the rule holds

only where the amount of the bid represents the total amou

the mortgage debt.

9Huerta Alba v CA

(2000; Purisima, J.)

Main issue: WON the petitioner has the one-year right ofredemption of subject properties under Section 78 of Republic

Act No. 337 otherwise known as the General Banking Act.

What petitioner has been adjudged to have was only the equityof

redemption over subject properties.

The right of redemption in relation to a mortgage understood in th

sense of a prerogative to re-acquire mortgaged property after

registration of the foreclosure sale exists only in the case ofthe

extrajudicial foreclosure of the mortgage. No such right is recognized

judicial foreclosure except only where the mortgagee is the PNB or

bankor banking institution.

-Where a mortgage isforeclosed extrajudicially, Act 3135 grants to t

mortgagor the right ofredemption within 1 year from the registratio


13/19



the sheriff's certificate of foreclosure sale.

-Where theforeclosure is judicially effected, however, no equivalent

right of redemption exists. The law declares that ajudicial foreclosur

sale 'when confirmed be an order of the court. . . . shall operate to div

the rights of all the parties to the action and to vest their rights in the

purchaser, subject to such rights of redemption as may be allowed by

law.' Such rights exceptionally 'allowed by law'(i.e., even after

confirmation by an order of the court) are those granted by the char

of the PNB (Acts No. 2747 and 2938), and the General Banking Act (R

337).These laws confer on the mortgagor

,h

is su

ccessors in interest

any judgment creditor of the mortgagor, the right to redeem the

property sold on foreclosure after confirmation by the court of the

foreclosure sale which right may be exercised within a period of 1

year, counted from the date of registration of the certificate of sale i

the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial

foreclosure of a mortgage if the mortgagee is not the PNB or a bank

banking institution. In such a case, the foreclosure sale, 'when confir

by an order of the court. . . shall operate to divest the rights of all th

parties to the action and to vest their rights in the purchaser.' There

exists only what is known as the equityofredemption. This is simply

right of the defendant mortgagor to extinguish the mortgage and ret

ownership of the property by paying the secured debt within the 90-d

period after the judgment becomes final, in accordance with Rule 68

even after the foreclosure sale but prior to its confirmation.

0Peoples Bank Trust

v Dahican Lumber

(1967; Dizon, J.)

DALCO executed real estate mortgage in favor of the

bank, which contained a stipulation as to the extension of

the security to after acquired properties referring to

properties to be subsequently acquired. DALCO

purchased new properties, Bank compelled DALCO to

register the mortgage over the properties but before

DALCO was able to do so, the purchase contract had

already been rescinded.

DALCOs arguments:

1. The inclusion of after acquired properties is void

because they were not registered in accordance with the

Chattel Mortgage Law

2. The provision did not automatically make subject tosuch mortgages the properties and it only meant the

willingness of DALCO to constitute a lien over the same

Even if contract was entered into under the old CC, the perti

provisions were reproduced into NCC in 2127. The "after

acquired properties" were purchased by DALCO in connectio

with, and for use in the development of its lumber concessio

and that they were purchased in addition to, or in replaceme

of those already existing in the premises on July 13, 1950. In

therefore, they must be deemed to have been immobilized, w

the result that the real estate mortgages involved herein

which were registered as such did not have to be registere

second time as chattel mortgages in order to bind the "after

acquired properties" and affect third parties.

1Makati Leasing v

Wearever

(1983; De Castro, J.)

Chattel mortgage was executed over certain raw

materials inventory and Artos Aero Dryer Stentering

Range. Sheriff could only take out the motor because it

was too large and they had to drill it or destroy the

concrete floor if only to take it out.

Is the machinery in suit a real or personal property? In

which case, what law should govern?

- If a house of strong materials, like what was involved in

above Tumalad case, may be considered as personal propert

purposes of executing a chattel mortgage thereon as long a

parties to the contract so agree and no innocent third party

be prejudiced thereby, there is absolutely no reason w

machinery, which is movable in its nature and beco

immobilized only by destination or purpose, may not be like

treated as such. This is really because one who has so agre

estopped from denying the existence of the chattel mortgage

- It must be pointed out that the characterization of the su

machinery as chattel by the private respondent is indicativ

intention and impresses upon the property the charadetermined by the parties. As stated in Standard OilCo. of

York v. Jaramillo, it is undeniable that the parties to a con

may by agreement treat as personal property that whic

nature would be real property, as long as no interest of

parties would be prejudiced thereby.

2Dy v CA

(1991; Gutierrez, J.)

Wilfred bought a tractor through a loan from Libra, to

whichhe also executed a chattel mortgage.Wilfreds

brother Perfecto bought the tractor from him and

assumed the mortgage with Libras consent. However

Libra did not release the tractor immediately because of

uncleared check. The dealy resulted to the tractors

purchase by Gerlac.

- The mortgagor who gave the property as security und

chattel mortgage did not part with the ownership over the sa

He had the right to sell it althoughhe was under the obliga

to secure the written consent of the mortgagee or he

himself open to criminal prosecution under the provisio

Article 319 par. 2 of the RPC. Even if no consent was obta

from the Libra, the validity of the sale would still not be affec


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- Where a 3P purchases the mortgaged property,

automatically steps into the shoes of the original mortgagor

right of ownership shall be subject to the mortgage of the t

sold to him. In the case at bar, Perfecto was fully aware o

existing mortgage of the subject tractor to Libra. In fact, whe

was obtaining Libra's consent to the sale, he volunteere

assume the remaining balance of the mortgage debt ofWilf

Dy which Libra undeniably agreed to.

3Pameca Wood v CA

(1999; Gonzaga-Reyes)

DBP foreclosed on the chattel mortgage and then claimed

for the deficiency. PAMECA says that the book value oftheir chattel was P2M but DBP, being the sole bidder

purchased it only for P322,350.

Rocky says:

- Salbahe tong DBP no? Nawalan na nga ng property,

siningil pa. Ang baba na nga ng bid tapos nagdeficiency

pa.

- Kinalimutan ng lawyers dito ang 2141. 2115 lang naman

ang bangga dun eh.

- Pledge is intended to regulate pawnshops. Its a

different concept from mortgage. At tayo lang angganun

sa buong Asia.

-Whats the intention of 2088? Get the best price for

borrower. Its okay to bid low. Sa bidding kasi maychance, nagkataon lang na walang nagbid nang mataas.

Sa pactum kasi, yung creditor lang ang may chance

bumili.

Issue: Can DBP recover the deficiency? Yes.

-Whereas, in pledge, the sale of the thing pledged extinguishthe entire principal obligation, such that the pledgor may no

longer recover proceeds of the sale in excess of the amount o

the principal obligation, S14 of Chattel Mortgage Law expres

entitles the mortgagor to the balance of the proceeds, upon

satisfaction of the principal obligation and costs.

- Since the Chattel Mortgage Law bars the creditor-mortgage

from retaining the excess of the sale proceeds there is a

corollaryobligation on the part of the debtor-mortgagee to

the deficiency in case ofa reduction in the price at public

auction.

- 1484 does not apply here because it is specifically applicabl

sale on installments.

4 Acme Shoe v CA(1996; Vitug, J.)

Main issue:Would it be valid and effective to have a

clause in a chattel mortgage that purports to likewise

extend its coverage to obligations yet to be contracted or

incurred?

Rocky says:

-What is the purpose of affidavit ofgood faith? Bakit sa

real estate mortgage wala?

No.Chattel mortgage must comply substantially with the

prescribed form. The execution of the oath means that the

debt/obligation secured must be current and not that is yet

merely contemplated.

-While a pledge, real estate mortgage, or antichresis may

exceptionally secure after-incurred obligations so long as the

future debts are accurately described, a chattel mortgage,

however, can only cover obligations existing at the time the

mortgage is constituted. Although a promise expressed in a

chattel mortgage to include debts that are yet to be contract

can be a binding commitment that can be compelled upon, tsecurity itself, however, does not come into existence or aris

until after a chattel mortgage agreement covering the newly

contracted debt is executed either by concluding a fresh cha

mortgage OR by amending the old contract conformably wit

the form prescribed by the Chattel Mortgage Law. Refusal on

part of the borrower to execute the agreement so as to cove

the after-incurred obligation can constitute an act ofdefault

the part of the borrower of the financing agreement whereo

the promise is written but, of course, the remedy of foreclos

can only cover the debts extant at the time of constitution an

during the life of the chattel mortgage sought to be foreclose

5Servicewide

Specialist v CA

(1999; Ynares-Santiago)

Ponce bought from CR Tecson a Holden Torana and also

executed Chattel Mortgage in its favor. CR Tecson

assigned the credit to Filinvest with conformity of Ponce.Ponce sold the car to Tecson. Filinvest assigned its rights

to Servicewide without notice to Ponce. Servicewide sues

Ponce. Ponce files 3P complaint against Tecson.

ISSUES:

-Whether the assignment of a credit requires notice to

the Ponce in order to bind him?

- More specifically, is Ponce, who sold the property to

Tecson, entitled to notice of the assignment of credit

made by the Filinvest to Servicewide such that if the

Ponce was not notified of the assignment, he can no

longer be held liable since he already alienated the

Only notice to the debtor (Ponce) of the assignment of credit

required. His consent is not required. In contrast, consent of

creditor-mortgagee (Servicewide) to the alienation of themortgaged property is necessary in order to bind said credito

Article 2141, on the other hand, states that the provisions

concerning a contract ofpledge shall be applicable to a chat

mortgage, such as the one at bar, insofar as there is no confl

with Act No. 1508, the Chattel Mortgage Law. As provided in

2097 in relation to 2141, a thing pledged may be alienated by

pledgor or owner with the consent of the pledgee. This provi

is in accordance with Act No. 1508 which provides that a

mortgagor of personal property shall not sell or pledge such

property, or any part thereof, mortgaged by him without the

consent ofthe mortgagee in writing on the back of the mort


15/19



property?

- Conversely, is the consent of Servicewide necessary

when Ponce alienated the property to Tecson?

Chi recited this. Fairly okay.

and on the margin of the record thereof in the office where s

mortgage is recorded. Although this provision in the chattel

mortgage has been expressly repealed by Article 367 of the

Revised Penal Code, yet under Article 319 (2) of the same Co

the sale of the thing mortgaged may be made provided that

mortgagee gives his consent and that the same is recorded. I

any case, applying by analogy 2128 to a chattel mortgage, it

appears that a mortgage credit may be alienated or assigne

a third person. Since the assignee of the credit steps into the

shoes of the creditor-mortgagee to whom the chattel wasmortgaged, it follows that the assignees consent is necessary

order to bind him of the alienation of the mortgaged thing by

debtor-mortgagor. This is tantamount to a novation. As the

assignee, petitioners consent is necessary before responden

spouses alienation of the vehicle can be considered as bindin

against third persons. Servicewide is considered a third pers

with respect to the sale with mortgage between respondent

spouses and third party defendant Conrado Tecson.

CONCURRENCE AND PREFERENCE OF CREDITS

6De Barreto v

Villanueva

(1961; Gutierrez David)

Does unregistered unpaid vendors lien prejudice the

registered rights? No.

Where there is no insolvency or liquidation proceeding,

the unpaid vendors lien does not acquire the character

and rank of a statutory lien coequal to the recorded

mortgage lien. Unpaid vendor must remain subordinate

to recorded mortgage.

- Only some taxes enjoy a similar absolute preference. All the

remaining 13 classes enjoy no priority among themselves but

must be paid pro rata.

- There must first be some proceeding [insolvency, settlemen

decedents estate, other liquidation proceedings] where noti

to all of the insolvents creditors may be given and where the

claims of preferred creditors may be bindingly adjudicated.

[Convene them creditors first.]

- The question as to whether the CC and Insolvency Law can

harmonized is settled by 2243. The preferences named in 22

and 2241 are to enforced in accordance with the Insolvency

7J. L. Bernardo v CA

(2000; Gonzaga-Reyes)

Contractors lien

Rocky says: Mortgage has its own life. Its a lien in itself,

no need for a proceeding.

- 2242 only finds application when there is a concurrence of

credits i.e. same specific property of the debtor is subjected

the claims of several creditors and the value of such property

the debtor is insufficient to pay in full all the creditors. In suc

situation, the question of preference will arise, that is, there

a need to determine which of the creditors will be paid ahea

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 prefer

creditors may be bindingly adjudicated, such as insolvency

proceedings.

- The action of JL Bernardo is not for insolvency but for specif

performance and damages.

8DBPv CA

(2001; Kapunan, J.)

Mortgage by mining company of real estate,

improvements thereon and chattel mortgage. DBP

foreclosed but Remington claims for its lien on unpaid

purchases by the company.Who has preference? DBP. In

the absence of liquidation proceedings, the claim of

Remington cannot be enforced against DBP.

Rocky says:

-Walang tunay na sale sa Pilipinas. Go to HK for cheap

electronics.

- AIM means Ayaw Ipasa ang Mic Mag-apply sha sa

Guinness para sa mga associate nilang walang natamaan

kahit isang nota. Aba mahirap yun ah!We have natural

built-in protection.We fool ourselves into thinking that

we sound better than it actually is. That we are more

beautiful than we really are. BAsahin niyo yung The

Raven, Merchant of Venice and Picture of Dorian Gray for

your soul.

Reiteration ofthe Barretto ruling.

Although what was involved there was specific immovable

property, the ruling therein should equally apply in this case

where specific movable property is involved. As the extra-jud

foreclosure instituted by the PNB and DBP is not the liquidat

proceeding contemplated by the CC, Remington cannot claim

pro rata share from DBP.


16/19



9

Ruby Industrial Corp

v CA

(1998; Puno, J.)

Handled by Sycip

Ruby filed Petition for Suspension of Payments with SEC.

Benhar purchase the credits of Rubys creditors and

mortgage Rubys property to get credit facilities for Ruby.

Subrogated din si Benhar.

Rocky says: Redundant ang existence ni Benhar. Bakit pa

kailangan ng middleman? Nakinabang si Benhar eh wala

naman siya ginawa.

- Ang mga lawyers hindi pwedeng maraming pera, hindi

tayo marunong magbilang eh.- Rehab receiver is a good job.

Rehabilitation contemplates the continuance of corporate lif

and activities in an effort to restore and reinstate the

corporation to its former position of successful operation and

solvency.When a distressed company is placed under

rehabilitation, the appointment of management committee

follows to avoid collusion between the previous managemen

and creditors it might favor, to the prejudice of the other

creditors.

All assets of the corporation under rehabilitation receivership

held in trust for the equal benefit of all creditors to preclude from obtaining an advantage or preference over another by t

expediency of attachment, execution or otherwise.

As between the creditors, the key phrase is equality in equity

Once the corporation threatened by bankruptcy is taken ove

a receiver, all the creditors ought to stand on equal footing. N

any one of them should be paid ahead of the others.

0Rubberworld v NLRC

(1999; Panganiban, J.)

Should NLRC suspend the proceedings before it when

company is under declaration of suspension of payments

i.e. all actions for claims are suspended?

Rocky says: Distinction between suspension of payments

and corporate rehab

SUSPENSION OF PAYMENTS CORPORATEREHABLITATION

Foresees impossibility of meeting debts when they

due

Applicable to both natural

and juridical entity

Only corporations

Initiated by the debtor only Initiated by debtor or

creditor

- Convince the court na kaya pang i-rehab.

- Eat at Esukiji, men fall in love with what they see, what

is.Women with what they

- Upon creation of a management committee or the

appointment of the rehabilitation receiver, all claims for actio

shall be suspended accordingly. No exception in favor of la

claims is mentioned in the law. Allowing them to proceed ma

clearly defeats the purpose of the automatic stay and severe

encumbers the management committees time and resource

- Preferential right of workers and employees under A110 of may be invoked only upon the institution of insolvency or jud

liquidation proceedings.

1

Leca Realty Corp v

Manuela Corp

(2007; Sandoval-

Gutierrez, J.)

Rocky says: Non-impairment of contracts

- Iba talaga ang adrenalin level namin dati kapagnakikipagdate kasi hindi pa uso ang credit card.Wala

pang price yung menu na para sa ladies. Kaya dapat

- Pinakamasarap na part ng tuna yung batok. Oily yun.

Pero hindi naman generally oily ang tuna dahil it lives in

warm water.

- In view of the Valentines Day tomorrow, tinamad na

magdiscuss ng Credit Trans si Rocky. Nagbigay na lang ng

dating tips. Put your money where your motives are.

Parang poker lang yan. All in.

- Story about about a boy who was looking for a wife and

his mother fed three ladies with cheese.

- Bumili kayo ng ceramic knife. Parang papel o gulaman

lang lahat nghinihiwa niyo.

- Dont go Chinese pag date, ang dami nun.W

ala kayongmagagawa. Pangfamily lang ang Chinese.

- The amount of rental is an essential condition of any lease

contract. Needless to state, the change of its rate in the

Rehabilitation Plan is not justified as it impairs the stipulationbetween the parties. Rehab Plan is declared void insofar as it

amends the rental rates agreed upon by the parties.

- PD 502-A never authorized the change or modification of

contracts entered into by the distressed corporation and its

creditors.

2Chas Realty Devt

Corp v Talavera

(2003; Vitug, J.)

Validity of approval is in issue. Board of directors was

even still being contested.

Rocky says:

-Why 2/3 vote? In a big corporation, its dangerous to go

to the stockholders. Example is PLDT where mere

subscription to their services makes you a stockholder.

- No similar provision in present Rules.

- Is it not important enough to file petition for rehab?

Certification from the board of directors that filing of petition

has been duly authorized and that it has been confirmed

Subject: repayment or restructuring scheme

Extraordinary corporate action 2/3 of stockholders outstan

capital stock

No extraordinary corporate action majority in a quorum

3 RCBC v IAC Rules ofthumb laid down by the SC


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(1999; Melo, J.) 1. All claims against corporations, partnerships or associations that are pending before any court, tribunal or board, witho

distinction as toWON a creditor is secured or unsecured, shall be suspended effective upon the appointment of a

management committee, rehabilitation receiver, board, or body in accordance with the provisions of PD 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally

suspended upon the appointment of a management committee, rehabilitation receiver, board or body. In the event that t

assets of the corporation, partnership or association are finally liquidated, however, secured and preferred credits under

applicable provisions of CC will definitely have preference over unsecured ones. All actions for claims against a distres

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