DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden Hotel v.

PIONEER INSURANCE AND SURETY CORP. G.R. No. 179419, January 12, 2011 Topic: Deposit

FACTS On July 22, 2003, respondent Pioneer Insurance and Surety Corporation, the insurer for loss and damage of Jeffrey Sees 2001 Suzuki Grand Vitara with Plate No. XBH-510 in the amount of P1,175,000.00, by right of subrogation, filed with the RTC of Makati City a Complaint for Recovery of Damages against petitioner Durban Apartments Corporation and defendant Vicente Justimbaste. On April 30, 2002, at about 11:30 in the evening, See drove his Vitara and stopped in front of City Garden Hotel in Makati Avenue, Makati City. A parking attendant, Justimbaste, approached and asked for his ignition key, told him that the latter would park the Vitara for him in front of the hotel, and issued him a valet parking customers claim stub. See and Montero, thereafter, checked in at the said hotel. On May 1, 2002, at around 1:00 in the morning, the Hotel Security Officer, Horlador, called his attention to the fact that his Vitara was carnapped while it was parked at the parking lot of Equitable PCI Bank which is in front of the hotel. He, Horlador, and defendant Justimbaste went to Precinct 19 of the Makati City Police to report the carnapping incident. A police officer accompanied them to the AntiCarnapping Unit for investigation, took their sworn statements and flashed of a voice alarm. He likewise reported the said incident in PNP TMG in Camp Crame where another alarm was issued. He filed his claim with respondent. Respondent required him to sign a Release of Claim and Subrogation Receipt, and finally paid him the sum of P1,163,250.00 for his claim. ISSUE Whether petitioner is liable to respondent RULING Yes. A contract of necessary deposit existed between the insured See and petitioner. Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing

delivered is not the principal purpose of the contract, there is no deposit but some other contract. Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotelkeepers or their substitutes advised relative to the care and vigilance of their effects. The records reveal that upon arrival at the City Garden Hotel, See gave notice to the doorman and parking attendant of the said hotel, Justimbaste, about his Vitara when he entrusted its ignition key to the latter. Justimbaste issued a valet parking customer claim stub to See, parked the Vitara at the Equitable PCI Bank parking area, and placed the ignition key inside a safety key box while See proceeded to the hotel lobby to check in. The Equitable PCI Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking hours. The contract of deposit was perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of Sees vehicle.

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, v. THE COURT OF APPEALS and MAURICE McLOUGHLIN G.R. No. 126780, February 17, 2005 Topic: Deposit

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

Thereafter, McLoughlin found out that some of the money and jewelry he deposited were missing. Upon discovery of the loss, he immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to him. McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLoughlins key and was able to open the safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. Tan executed a promissory note promising to pay McLoughlin but in addition to this, the latter wanted to hold the Petitioner, YHT Realty Corp. liable. Petitioner interposed, among others, the defense that it is not liable under the provisions of the Undertaking For the Use Of Safety Deposit Box, particularly paragraphs 2 and 4 which McLoughlin signed, which binds him to release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but not limited to the presentation or use thereof by any other person should the key be lost; and to return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving up the use of the box. ISSUE Whether a hotel may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests execute written waivers holding the establishment or its employees free from blame for such loss in light of Article 2003 of the Civil Code which voids such waivers RULING No. Article 2003 of the New Civil Code provides that the hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. The hotel business like the common carriers business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force majeure. It is the loss through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is no showing that the act

of the thief or robber was done with the use of arms or through an irresistible force to qualify the same as force majeure. Tropicana had prior knowledge that a person aside from the registered guest had access to the safety deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the damage suffered by McLoughlin by reason of the negligence of its employees. It is undeniable that without the acquiescence of the employees of Tropicana to the opening of the safety deposit box, the loss of McLoughlins money could and should have been avoided. FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE CORPORATION) v. CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.) G.R. No. 177839, January 18, 2012 Topic: Suretyship

FACTS Respondent Chevron Philippines, Inc. sued petitioner First Lepanto-Taisho Insurance Corporation for the payment of unpaid oil and petroleum purchases made by its distributor Fumitechniks Corporation. Fumitechniks had applied for and was issued Surety Bond FLTICG No. 01012 by petitioner for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the respondent to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the agreement. Fumitechniks defaulted on its obligation. The check was dishonored for reason of Account Closed. Respondent notified petitioner of Fumitechniks unpaid purchases in the total amount of P15,084,030.30. Petitioner requested that it be furnished copies of the documents such as delivery receipts which the respondent did. Simultaneously, a letter was sent to Fumitechniks demanding that the latter submit to petitioner the following: (1) its comment on respondents February 6, 2002 letter; (2) copy of the agreement secured by the Bond, together with copies of documents such as delivery receipts; and (3) information on the particulars, including the terms and conditions, of any arrangement that might have made or any ongoing negotiation with Caltex in connection with the settlement of the obligations subject of the Caltex letter.

In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioners counsel informing that it cannot submit the requested agreement since no such agreement was executed between Fumitechniks and respondent. On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety bond. However, petitioner reiterated its position that without the basic contract subject of the bond, it cannot act on respondents claim; petitioner also contested the amount of Fumitechniks supposed obligation. ISSUE Whether a surety is liable to the creditor in the absence of a written contract with the principal RULING No. Section 176 of the insurance Code provides that the liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the contract. A reading of Surety Bond FLTICG No. 01012 shows that it secures the payment of purchases on credit by Fumitechniks in accordance with the terms and conditions of the agreement it entered into with respondent. The word agreement has reference to the distributorship agreement, the principal contract and by implication included the credit agreement mentioned in the rider. However, it turned out that respondent has executed written agreements only with its direct customers but not distributors like Fumitechniks and it also never relayed the terms and conditions of its distributorship agreement to the petitioner after the delivery of the bond. Since the surety bond is a mere accessory contract, the bond cannot stand in the absence of the written agreement secured thereby. A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. Necessarily, the stipulations in such principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the payment of respondents fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically makes reference to a written agreement. Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. Having

accepted the bond, respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such noncompliance by the creditor (respondent) impacts not on the validity or legality of the surety contract but on the creditors right to demand performance. STAR TWO (SPV-AMC), INC. v. HOWARD KO, MIN MIN SEE KO, JIMMY ONG, and GRACE NG ONG G.R. No. 185454, March 23, 2011 Topic: Suretyship FACTS Jianshe Motorcycle Industries Philippines Corporation obtained various credit facilities or loan accommodations from Rizal Commercial Banking Corporation from 2003-2004 to finance its importation of motorcycles, motorcycle parts, motorcycle accessories, and other related goods. To secure the goods imported by Jianshe, RCBC required it to execute trust receipts over these goods. Moreover, to secure payment of all existing and future obligations of Jianshe to RCBC, respondents Howard Ko, Jimmy Ong, Min Min See Ko, and Grace Ng Ong executed a Comprehensive Surety Agreement dated September 3, 2002, with a limited liability of P50 M. Despite demand, Jianshe failed to pay its obligations. RCBC thus filed a Complaint for Specific Perfomance with Prayer for a Writ of Preliminary Attachment against Jianshe as principal and respondents as sureties, before the Regional Trial Court of Makati City on December 27, 2005. The RTC dismissed the case against respondents, leaving Jianshe as the only defendant. In dismissing the case, the trial court stated that there was sufficient evidence to prove that Howard Ko paid an amount more than the limit provided under the Comprehensive Surety Agreement. RCBC filed a Manifestation/Substitution of Parties, considering that it had sold, transferred, and assigned all its rights and interests in the present case to petitioner Star Two (SPV-AMC), Inc. ISSUE Whether the payments made by the private respondents with receipts in the name of the principal debtor operate to extinguish the sureties obligation RULING Yes.

Pursuant to Article 2054 of the Civil Code that "a guarantor or surety may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions," respondents limited their liability to P50 M, which is less than Jianshes liability to RCBC. Howard Ko complied with his obligations and made payments to RCBC through certificates of time deposits admitted by RCBC as applied for the payment of Jianshes obligation. These modes of payment were adequately explained by respondents and supported by documentary evidence. Respondents acted as sureties under the Comprehensive Surety Agreement to secure the obligations of Jianshe to RCBC. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. The surety agreement is an accessory contract; and the surety becomes directly, primarily, and equally bound with the principal as the original promissor although the former possesses no direct or personal interest over the latters obligations and does not receive any benefit therefrom. The debited amounts from Howard Kos accounts were made to satisfy his obligation as surety. Petitioner cannot now claim that the payments were made by Jianshe as principal and not by respondents as sureties simply because the receipts were issued in the name of Jianshe. the issuance of the receipts in the name of Jianshe was done only to indicate that it was the principal obligor. The issuance of the receipts does not erase the fact that various amounts were debited from the accounts of Howard Ko, and certificates of time deposit in the name of Howard Ko were applied as payment for Jianshes obligations. The dismissal of the case against respondents is proper as the claim or demand set forth in the complaint has been paid or otherwise extinguished.

EUSEBIO GONZALES v. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA OCAMPO, and ROBERTO NOCEDA G.R. No. 180257, February 23, 2011 Topic: Suretyship

FACTS In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement(COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.

On October 30, 1995, Gonzales and his wife obtained a loan for P500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of P1,000,000.00 and P300,000.00 respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory notes. To secure the loans, a real estate mortgage over a parcel of land was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio who received the loan proceeds of P 1,800,000.00. The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left unpaid. In the meantime, Gonzales issued a check dated September 30, 1998 in Rene Unson for P 250,000.00 drawn against the COHLA which was dishonored due to the termination by PCIB of the credit line under COHLA on October 7, the unpaid periodic interest dues from the loans of Gonzales and the Panlilio. PCIB likewise froze the FCD account of Gonzales. favor of by PCIB 1998 for spouses

On two occasions, Gonzales wrote PCIB insisting that the check he issued had been fully funded, and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. PCIB stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans. ISSUE Whether Gonzales is liable for the three promissory notes covering the PhP 1,800,000 loan he made with the spouses Panlilio where a REM over a parcel of land covered by TCT No. 38012 was constituted as security RULING Yes. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses. Gonzales himself admitted that he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then handling his accounts, in order to facilitate the fast release of the loan. In Ang v. Associated Bank, quoting the definition of an accommodation party under Section 29 of the Negotiable Instruments Law, the Court cited that an accommodation party is a person who has signed the instrument as maker, drawer,

acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. The knowledge, acquiescence, or even demand by Ocampo for an accommodation by Gonzales in order to extend the credit or loan of PhP 1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability on the three promissory notes. Further, the solidary liability of Gonzales is clearly stipulated in the promissory notes. Solidary liability cannot be presumed but must be established by law or contract. Article 1207 of the Civil Code pertinently states that there is solidary liability only when the obligation expressly so states, or when the obligation requires solidarity. This is true in the instant case where Gonzales, as accommodation party, is immediately, equally, and absolutely bound with the spouses Panlilio on the promissory notes which indubitably stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as the contract between the parties. Contracts have the force of law between the parties and must be complied with in good faith. But while solidarily liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the three promissory notes, Gonzales is only an accommodation party and as such only lent his name and credit to the spouses Panlilio. While not exonerating his solidary liability, Gonzales has a right to be properly apprised of the default or delinquency of the loan precisely because he is a co-signatory of the promissory notes and of his solidary liability. Thus, the dishonor of the check was improper. ASSET BUILDERS CORPORATION v. STRONGHOLD INSURANCE CO. INC. G.R. No. 187116, October 18, 2010 Topic: Suretyship

DECISION FACTS Asset Builders Corporation entered into an agreement with Lucky Star Drilling & Construction Corporation as part of the completion of its project to construct the ACG Commercial Complex in Antipolo City. Lucky Star was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. The total contract price for the said project was P1,150,000.00. To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner. The first covers the sum of P575,000.00 or the required downpayment for the drilling work while the second covers the sum of P345,000.00.

On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star managed to accomplish only 10 % of the drilling work. On the same date, petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work with a threat to cancel the agreement and forfeit the bonds should it still fail to complete said project within the agreed period. On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages to Lucky Star. On August 16, 2006, ABC sent a Notice of Claim for payment to Stronghold to make good its obligation under its bonds. Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for Rescission with Damages against both before the RTC on November 21, 2006. ISSUES 1, Whether or not respondent insurance company, as surety, can be held liable under its bonds 2. Whether the rescission of the principal contact automatically released the respondent insurance company from liability RULING 1. Yes. Respondent, along with its principal, Lucky Star, bound itself to the petitioner when it executed in its favor surety and performance bonds. Under Article 2047 of the New Civil Code: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. This undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. In Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, reiterating the ruling in Garcia v. Court of Appeals, it expounds on the nature of the suretys liability:

xxx Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. When Lucky Star failed to finish the drilling work within the agreed time frame despite petitioners demand for completion, it was already in delay. Due to this default, Lucky Stars liability attached and, as a necessary consequence, respondents liability under the surety agreement arose. When it further failed to return the P575,000.00 down payment that was already advanced to it, respondent, as surety, became solidarily bound with Lucky Star for the repayment of the said amount to petitioner. The clause, this bond is callable on demand, strongly speaks of respondents primary and direct responsibility to the petitioner. 2. No. Precisely, the liability of the surety arising from the surety contracts comes to life upon the solidary obligors default. It should be emphasized that petitioner had to choose rescission in order to prevent further loss that may arise from the delay of the progress of the project. Without a doubt, Lucky Stars unsatisfactory progress in the drilling work and its failure to complete it in due time amount to non-performance of its obligation. In fine, respondent should be answerable to petitioner on account of Lucky Stars non-performance of its obligation as guaranteed by the performance bond. ANICETO G. SALUDO, JR. v. SECURITY BANK CORPORATION G.R. No. 184041, October 13, 2010 Topic: Suretyship

FACTS Booklight was extended an omnibus line credit facility by SBC in the amount of P10,000,000.00. Said loan was covered by a Credit Agreement and a Continuing Suretyship with petitioner as surety, both documents dated 1 August 1996, to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On October 30, 1997, SBC approved the renewal of credit facility of Booklight in the amount of P10,000,000.00 under the prevailing security lending rate. From August 3 to 14, 1998, Booklight executed 9 promissory notes in favor of SBC in the aggregate amount of P9,652,725.00. For failure to settle the loans upon maturity, demands were made on Booklight and petitioner for the payment of the obligation but the duo failed to pay. As

of 15 May 2000, the obligation of Booklight stood at P10,487,875.41, inclusive of interest past due and penalty.[9] On 16 June 2000, SBC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC. Booklight initially filed a motion to dismiss, which was later on denied for lack of merit. ISSUE Whether or not petitioner should be held solidarily liable for the second credit facility extended to Booklight RULING Yes. While Booklight was able to comply with its obligation under the first credit line, it defaulted in the payment of the loan obligation amounting to P9,652,725.00 under the second credit line. Under the Continuing Suretyship, petitioner undertook to guarantee the following obligations: a) Guaranteed Obligations the obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof.. xxx Also, paragraph 10 of the Continuing Suretyship provides: 10. Continuity of Suretyship. This Suretyship shall remain in full force and effect until full and due payment and performance of the Guaranteed Obligations. This Suretyship shall not be terminated by the partial payment to the Bank of Guaranteed Obligations by any other surety or sureties of the Guaranteed Obligations, even if the particular surety or sureties are relieved of further liabilities. The liability of petitioner did not expire upon the termination of the first credit facility. The second credit facility was renewed for another one-year term by SBC. This is explicitly covered by the guaranteed obligations of the Continuing Suretyship. The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking Corporation in this wise: 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. In Gateway Electronics Corporation v. Asianbank Corporation, the Court emphasized that by its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are x x x within the description or contemplation of the contract of guaranty. The approval of the second credit facility does not necessitate Petitioners consent by his express waiver of his consent to such renewal, contained in paragraph 12 of the Continuing Suretyship. From the foregoing, petitioner is secondarily liable thus, the petition is denied. PACIFIC REHOUSE CORPORATION v. EIB SECURITIES, INC. G.R. No. 184036, October 13, 2010 Topic: Pledge FACTS On various dates during the period June 2003 to March 2004, plaintiffs bought 60,790,000 Kuok Properties, Inc. (KPP) shares of stock through the Philippine Stock Exchange through their broker, defendant EIB. Also on various dates in July and August 2003, plaintiffs bought/acquired 32,180,000 DMCI shares of stock through the PSE. On 01 April 2004, plaintiffs and defendant EIB agreed to sell the 60,790,000 KPP shares of plaintiffs to any party for the price of P0.14 per share with an option on the part of the plaintiffs to buy back or reacquire the said KPP shares within a period of 30 days from the transaction date, at the buy-back price of P0.18 per share. Eventually, plaintiffs decided not to exercise their option to buy back the KPP shares and did not give any buy-back instruction/s to their broker, defendant EIB. On various dates in June 2004, without plaintiffs prior knowledge and consent, defendant EIB sold plaintiffs 32,180,000 DMCI shares of stock for an average price of P0.24 per share. Defendant EIB sold the DMCI shares of plaintiffs for an average price of only P0.24 per share despite full knowledge by defendant EIB that the sale would result in a substantial loss to the plaintiffs of around P4.5 Million since plaintiffs acquired the DMCI shares at P0.38 per share. The proceeds of this sale were used by defendant EIB to buy back 61,100,000 KPP shares earlier sold by plaintiffs on 01 April 2004 because defendant EIB made an unauthorized promise and commitment to the buyer/s of plantiffs KPP shares in April 2004 that plaintiffs would buy back the KPP shares. The notices of sale issued by EIB covering the sale of the KKP shares of petitioners clearly show that the very same KKP shares sold to third parties albeit under a buy-back arrangement and the Property of petitioners were made the collaterals to secure the payment of the reacquisition.

ISSUE Whether or not the pledge on KKP Shares/Property is valid RULING No. Art. 2085 of the Civil Code provides: The following requisites are essential to the contracts of pledge and mortgage: 1. That they be constituted to secure the fulfillment of a principal obligation; 2. That the pledgor or mortgator be the absolute owner of the thing pledged or mortgaged; 3. That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares. Article 2096 provides that a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument. The thing pledged must be amply and clearly described and specifically identified. Evidently, the word Property is vague, broad, and confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on property is void and without legal effect. Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it. The DMCI shares which EIB construed to be included within the ambit of the word property cannot be considered the thing pledged to secure the buy back of the KKP

shares in view of the vagueness of the word Property and the non-applicability of the SDAA to the sale of the KKP shares.

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. v. LULU V. JORGE and CESAR JORGE G.R. No. 159617, August 8, 2007 Topic: Pledge

FACTS It appears that on different dates from September to October 1987, Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry. On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. ISSUE Whether Petitioner are liable for the loss of the pawned articles in their possession RULING Yes. Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.

Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable. The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. The very measures which petitioners had allegedly adopted like employing a security guard and opening a vault for safekeeping show that to them, the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. In this connection, Article 1173 of the Civil Code further provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply. Petitioner Sicam testified that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees. Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. The robbery being ruled not as a fortuitous event and the fact that petitioners failed to exercise the required diligence make the petitioners liable for the pawned articles in their possession. PHILIPPINE BANKING CORPORATION v. ARTURO DY. ET AL. G.R. No. 183774, November 14, 2012 Topic: Mortgage FACTS Cipriana was the registered owner of a 58,129-square meter lot, denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu. She and her husband, respondent Jose Delgado entered into an agreement with a certain Cecilia Tan for the sale of the said property for a consideration of P10.00/sq.m. It was agreed that the buyer shall make partial payments from time to time and pay the balance when Cipriana and Jose are ready to execute the deed of sale and transfer the title to her. After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer demanded the execution of the deed, which was refused. Eventually, the buyer learned of the sale of the property to the Dys and its subsequent mortgage to petitioner Philippine Banking Corporation prompting the filing of the Complaint for annulment of certificate of title, specific performance and/or reconveyance with damages against Sps. Delgado, the Dys and Philbank. The RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. The RTC also observed that Sps. Delgado notified Philbank of the purported simulation of the sale to the Dys only after the execution of the loan and mortgage documents and the release of the loan proceeds to the latter, negating their claim of bad faith. On appeal, the CA set aside the RTC's decision and ordered the cancellation of the Dys' certificates of title and the reinstatement of Cipriana's title. It ruled that there were no perfected contracts of sale between Sps. Delgado and the Dys in view of the latter's admission that the deeds of sale were purposely executed to facilitate the latter's loan application with Philbank and that the prices indicated therein were not the true consideration. Being merely simulated, the contracts of sale were, thus, null

and void, rendering the subsequent mortgage of the lots likewise void. It also declared Philbank not to be a mortgagee in good faith for its failure to ascertain how the Dys acquired the properties and to exercise greater care when it conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots. ISSUE Whether Philbank is a mortgagee in good faith RULING Yes. The doctrine of mortgagee in good faith is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon. In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is required for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof. This is to protect the true owner of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto. In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on the property. Also, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado). Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were privies. A finding of negligence must always be contextualized in line with the attendant circumstances of a particular case. As aptly held in Philippine National Bank v. Heirs of Estanislao Militar, the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed. The Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct.

As such, Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to Philbank's detriment. In the interest of public policy, fair dealing, good faith and justice, the Court accords Philbank the rights of a mortgagee in good faith whose lien to the securities posted must be respected and protected. Philbank is entitled to have its mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties. Sps. HUMBERTO P. DELOS SANTOS AND CARMENCITA M. DELOS SANTOS v. METROPOLITAN BANK AND TRUST COMPANY G.R. No. 153852, October 24, 2012 Topic: Mortgage

FACTS From December 9, 1996 until March 20, 1998, the petitioners took out several loans totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would use in constructing a hotel on their 305-square-meter parcel of land located in Davao City and covered by Transfer Certificate of Title No. I-218079 of the Registry of Deeds of Davao City. They executed various promissory notes covering the loans, and constituted a mortgage over their parcel of land to secure the performance of their obligation. The interest rates were fixed for the first year, subject to escalation or de-escalation in certain events without advance notice to them. The loan agreements further stipulated that the entire amount of the loans would become due and demandable upon default in the payment of any installment, interest or other charges. On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the real estate mortgage after the petitioners defaulted in their installment payments. The petitioners were notified of the foreclosure and of the forced sale being scheduled on March 7, 2000. The notice of the sale stated that the total amount of the obligation was P16,414,801.36 as of October 26, 1999. On April 4, 2000, prior to the scheduled foreclosure sale (i.e., the original date of March 7, 2000 having been meanwhile reset to April 6, 2000), the petitioners filed in the RTC a complaint (later amended) for damages, fixing of interest rate, and application of excess payments (with prayer for a writ of preliminary injunction). ISSUE Whether foreclosure of the mortgage may be enjoined RULING No.

Petitioners were undeniably already in default of their obligations the performance of which the mortgage had precisely secured. Hence, Metrobank had the unassailable right to the foreclosure. In contrast, their right to prevent the foreclosure did not exist. Hence, they could not be validly granted the injunction they sought. The foreclosure of a mortgage is but a necessary consequence of the nonpayment of an obligation secured by the mortgage. Where the parties have stipulated in their agreement, mortgage contract and promissory note that the mortgagee is authorized to foreclose the mortgage upon the mortgagors default, the mortgagee has a clear right to the foreclosure in case of the mortgagors default. Thereby, the issuance of a writ of preliminary injunction upon the application of the mortgagor will be improper. Injunction will not protect contingent, abstract or future rights whose existence is doubtful or disputed. Indeed, there must exist an actual right, because injunction will not be issued to protect a right not in esse and which may never arise, or to restrain an act which does not give rise to a cause of action. At any rate, an application for injunctive relief is strictly construed against the pleader. Lastly, no writ of preliminary injunction to enjoin an impending extrajudicial foreclosure sale should issue except upon a clear showing of a violation of the mortgagors' unmistakable right to the injunction. PHILIPPINE NATIONAL BANK v. SPOUSES ALEJANDRO and MYRNA REBLANDO G.R. No. 194014, September 12, 2012 Topic: Mortgage

FACTS On January 28, 1992, respondents, spouses Alejandro and Myrna Reblando obtained a P150,000.00 loan from PNB. To secure the payment of the loan, the Reblandos executed a real estate mortgage over 2 parcels of land located in General Santos City, the first covered by TCT No. T-40839 and the second by Tax Declaration No. 59006 and designated as Cadastral Lot No. 10 (Lot No. 10). The pro forma REM contract consisted of two (2) pages plus a duly-signed supplemental page providing a description of Lot No. 10. A few years later, the parties agreed to up the loan value from P150,000.00 to P260,000.00. They then executed an "Amendment to Real Estate Mortgage" on January 4, 1995 reflecting the increase in the loan accommodation. Stated and made to appear as collaterals in the amended REM are the two properties. Barely two weeks after, or on January 26, 1995, the parties again agreed to

another increase, this time to P312,000.00 and executed for the purpose a second "Amendment to Real Estate Mortgage. Meanwhile, on July 24, 1995, Alejandro and the Bliss Development Corporation (BDC), a subsidiary of the Home Insurance and Guaranty Corporation, which in turn was under the then Ministry of Human Settlements, entered into a Contract to Sell over a dwelling unit (Unit No. 10) in the Rural Bliss 1 Project located at Calumpang, Gen. Santos City with an area of 36 square meters. Later developments saw the Reblandos defaulting in the payment of their loan obligation, prompting the PNB to commence extra-judicial foreclosure of the mortgage. On May 12, 1997, the Reblandos received a Notice of Extra-Judicial Foreclosure of Lot No. 10 and the lot covered by TCT No. T-40839. At the foreclosure sale, the PNB, as lone bidder, was awarded the lots and was issued on July 11, 1997 a Certificate of Extra-Judicial Sale covering both collaterals. This certificate was duly registered with the Registry of Deeds of General Santos City on September 2, 1997. Following the lapse of the redemption period without the Reblandos redeeming the properties, PNB consolidated its ownership over the subject parcels of land. Thereafter, PNB secured a new title over the property covered by TCT No. T-40839. A new tax declaration under its name was issued also for Lot No. 10 and the improvements. Subsequently, the RTC, acting on PNBs ex parte petition, issued an Order granting a writ of possession. ISSUE Whether the mortgage constituted over Lot No. 10 is valid RULING Yes. Article 2085 of the Civil Code provides that a mortgage contract, to be valid, must have the following requisites: (a) that it be constituted to secure the fulfilment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have free disposal of their property, and in the absence of free disposal, that they be legally authorized for the purpose. The presence of the second requisiteabsolute ownershipis the contentious determinative issue. The evidence on record reveals that, at the time the subject mortgage was created, respondent Alejandro was the declared owner of Lot No. 10. His ownership is reflected in TD No. 59006 issued on September 12, 1990 or a little less than two years prior to the constitution of the mortgage on Lot No. 10 in January 1992. The fact of being in actual possession of the property is another indication of such ownership.

The sale of Unit No. 10 to the Reblandos, is not, without more, proof that respondents did not own Lot No. 10 at the time of the constitution of the mortgage. The Contract to Sell of Unit No. 10 presented by respondents has nothing to do with this case, as it is not in any way related to the mortgage contract. And as between the Contract to Sell and TD No. 59006, categorically stating that respondent Alejandro is the owner of Lot No. 10 since the time of its issuance on September 12, 1990, the latter ought to be the superior evidence as to who owns Lot No. 10. Not only was the tax declaration in Alejandros name, but also, respondents admittedly possessed the property mortgaged, their residence being constructed on it. There is, therefore, a prima facie proof of ownership in this case which respondents failed to rebut. Consequently, the power of Alejandro to subject Lot No. 10 as collateral to the loan stands. The pieces of evidence, consisting of the tax declarations and the annotations, as well as the amendments to the REM executed and signed by respondents show that Lot No. 10 was already owned by Alejandro at the time of the mortgage. The latter being the owner of the lot, he then could validly encumber said property by way of mortgage. Therefore, the REM constituted is valid, contrary to respondents insistence that the contract is void for lack of authority on the part of the mortgagor to encumber the property used as collateral for the loan.