Professional Documents
Culture Documents
1
I
I
.t
I I.
i
C, Loan in Gcneral i
.ril
C,l Chsrlctcristic! of ahe Conlroct i I . .:
l., i.i
'
---,^ r.l ; ;
Real Contract because the delivery of the thing loancd is rEccas[ri ior.thc perfcction of
'i ,
thc conltrct (Aniblc 1934; sec ilso Aniclc t316 of the-Civil Code). i . '
, i:
i-
. .A loan contrad iinot a conis€nsual contract but 8 rral contrscl is'
Frerfected only upon the delivery of the objecr of the contrait Thc ,Eal contract
of lobn reguircs the delivery of the objeci of thc contracttfor it, perfcation and
gives risc rrr obligotions only on thc pait ofthe borrower.
2... .tjnilateral Coniract becouse once the subject motter has bcen delivered, it creates
obligatiorrs on tlrc pnrt ol'only one olthe pani,es, i.e.l thd borrower.
'l
MCO Samole Ploblem
An exunrple of6 tailnent contract which is alrvays gr0tuitous is:
a. deposit
b. ant ichresis
c. B,uirntnty
.:. d. commo&tum
lr
othcrwise, il bccomes a contract of:
.a. sale
b. usuttuct
::. c- lease
d. rnortg,age
l,euul !]g$s: Artislcs 1933 und 1935 of ths Ciyil Codc
C.3 Dlsalrction$ bctwc€n Commodatuur 8rd Mutuum i I I ,
l
c,4 Distinctions betweer Commodatum (Elram) and r -gro (Upr) ,
l
" : '
J
C-r
:i. brilcu rrrrly ucquires usc ol' the 5. usufrudtuary abquiies lhe righr lo
thing l0aned but nol its frrrits the usa and lfruits of proPeny
subjecr of usufiuir
(i. consurnable . goods may be the 6. may . be- :con3titutcd. over
subjecr only \yhcn the purpose of consumables like moneY
the contract is merely for
exhibition
U.. COMIVIODA'IUM
Chlr[ctclistics i
i,
l. r)us. othcrwise it is a lease (Aflible
Grltuirr'rus, 1935).
1935). iI t
i
,
CourLofApneals ii i
Paiuvo vr. I
SCRA.492) I r
I
(43O i
..
The Kasunduan reveals thet tbt eccommodation accordcd L. ,i
Guevarra was not essentia[y gratuitous. While thd Kasundusn di{ not ".i*o
require
Guevarra to pay rent, it obliptcd him to mainrain thc propc.hy in good
condition. 'l'he imposilion of.this obtigation makcs thc Kasurduan . contrdGt
di fferent from a commo&tuin. Thi efGcts, of thc Kasunduan arc 4so diffrrcnt
from that ot' a commo&tum. Case law o4 ejectment has E€at?d rclationship
based on tolerance as one thot is akin to s tandlord-tenant retationship wherc the
withdrawsl of pennission would result in the termination of thc lcase. The
-withholding of the propertyrwould then be unlawful. This is setdcd
tenant's
. Even assuning that the relationship bctwecn Pajuyo and Gudnerra is onc
of- commodatum, Gucvarra as bailc€ r,raould still havc thc duty to turn'ovcr
possession ofl the to Pajuyo, the bailor,
commissir>n. odnrinistration and
W.,i .:i.
Privatc rgsrDndents werc able to provc that their prcdcccssors' house
was borrowed by petitioncr Vicar aftcr thc church ; aod thc @Dvcnt were
destroyed.
pctitioner. canre only in 195.1 rvhen it declored the lots.for taxation purposes.
'l'lrc action of
lxtitioner Vicar by such adverse claim could not ripen into title by
rvayofordinaryacquisitive.prescriptionbecauseofthe'absenceofjusttitl;.. ...
3. Bailcc's righr ro use is limired to the thing loaned and not to iqrfru;ts (ert;cte t93j)
(Anicle l94O).
urrless thc-re is a stipulation ro the cootrary
.,1 , ;
r;
..1.
sut)jccr nxlttcr is gcnerally non-consunrable things but may covi:r; cor.sumabl€s ir the
puryDse ol'llre contract is for exhibition.
t.
and not a rlutuum.
ii
c.r
the arnount shall be retumed within thirty (10) i days.- Vives merely
"accommodated" Doronilla by lending his moncy witlout considcretiorl as a
thvor to bis good fricnd Sanchez. It wag horrcvcr clcar to th. perties to the
transaction that the money would not be rcsoovcd frtim Stcrcla's savings
account snd would bc rctumed to Vives aftcr thify day.i. i
allegedly representing intcrest on the mutuum, did ngt coDvcrt tbo tranCaction' ,
frorn a commodaturn into a mutuum becriusc tho.additisDal PI2,O0O.0O
corrcsponrls to the fruirs of thc lending of the B2O0,O0O.O0. . Articlq t 935 of the
Civil Code expressli states that thc bailec in commodatum acarldrds the use of
the thinq loaned but not its fruits. Hencc, it was only prope.r for Dorodlla to
renrir ro Vives the interest accruing to the latter's m6ney deposited with,
Producr:rs Bank. .
5. Bailor need noi be the owrrer; it is suflicient thst he has posscssory interesi over subject
matter (Article 1938). . i :
6. Conrmodaturn is purely personal in character hence dcath ofcithd tha bailor or the bailec
extinguishes the contract (Article 1939).
,1
- a. consensual contract
b. .,I,l
. bilateral contract j ",,,.'
':1,
+ c. purely personal contract 'lil ,.1
d. ieal contract
.i
Legal Basis: Anicle lg3g of the Civil cod" i'i
tl .!
. i' .
7. ., General Rule: Bailec can neither lend nor legsc .thc to a third ',| ; ,li
' ' Exceprion: 'l
,l
,i I
'1,'
B. Obligations of the B.itec ' :,
i,
l. Bailee is liable for ordinary e>.penses for the use and prcsc ation ofthe thing loaned.
) General Rule: Bailee is not liab'ie for loss o, d"|r,ig. due to a fortuiious evcnt
(because t ,rc bailor retains owncrship,over lhe ttring loaned).
Exceptions: a)
b)
c)
d).
e)
t993 Bar Exam Ouestion
A, upon requcsr, loaned his passcngcr jccpnoy to B to cnablo B ro bring hie sick wifo .
from Paniqui, Tarlsc to thc. Philippine Gocral Hospital ia ldaaila.for trcatqnqtt" On the way
back to Paniqui, aftcr lcoving his wifo 8t the hospitsl, pooplo 3toppcd tho passcnger Jcopncy, B . ,
stoppcd for rhcm and allowpd thcm to ri& on boand, acccpting paymcnt froE them just.as in tlrc
cese of ordinary posscnger jccpncys plying tbcir.rouio. .As B was orossing Birmbaq thcre $,as
onrush of lahar from Mt. Pinatubo. Tlrc jecp that was toaned to him was wH
. ,
.
l. What do you call thc contract that was eirt€red into by A and B witlr .respect to the
Psssen8erjeepney thsl was loaned by A to B to transport the lattcr's sick wife to Manila?
2. ls li ohlilrcrl t() l)uy A for thc use ofthe prssehger jcepney?
.f. Is l] liable ro A lbr rhc loss of thc jeepney?
Answer:
I. Commodatum (Art. 1993, Civil Code)
2. B is not obliged to p8y,l foll!: u:: oflhe. passenger jegfney because comrnodaturn is
cssL'ntr:rll\ Brirtuit()us. (n rt. I933, Civil Code)
-). lt is liablc lrcc$usc.lru dovotcd thc thing to o purposc dill'crcnl lrom that for which.it hus
beerr hxrncd (/\rr. 1942, par. 2, Civil Codc)
Allernalivc Anslvcr:
B is not liBble because an obiigation which consists in the delivery ofa determinate thing
shall be extinguished if it should be lost or destroyed without the fsutr;i the debtor, and befo[
he has incurred in delay. (Art. 1252, Civil Codc) i L
Answer:
ii )
A is liable for ihe loss of B's truck. The bailec in commodatum is liable for the loss of
the thing looned even if the loss. is due to a fortuitous cvcnt wherc, being fble to gave it or-his
own thing, he chos€ to save the lutcr. I:,
f. Bailies orc solidarily lioblc whcn thc thing is loancd to two or'morc bailccg in the samo !
I
contract
:-
Note:
l. Bailee is not liable for ord.inagr wear and.tear due to use of Ote thing loaned-
Exceptions: :a. if he is guilty offsult or ncgigencc i :
b. if he devotcs thing ti any purpgsc diffcrent from that for which it'
has becn loancd
2 Bailee cannot rcrain dr! thiog loancd as sccurity for claims be may havg Egpinst th€
bailcr, even though by reason of extrsordinary expcnscs.
l. To nllorv ihc builee.the usc of the thing loaned for the duration of per;oa stipulatcd or
untiltheaccon:plishrnentoll'hcpurposeforwh[hcommodatunrwasconstitu.tcd.
,,'
{i
!
\'
,:
1r
. r;l
g.
,
Exception: urgcnt nccd during whictr timC the commodatum is suspcndcd
b. prccarium
- if dtEation of thc conrect has not bccn stiPulated Ti
b.l !ij
b.2 if use or purpose ofthc tlung hds not bccn stiPulated
b.3 if usc of thing is merely toleratcd bylhe bailor :, r'
' l:
:,1
MCO Samnle.Problem
Prccarium arises:
a. ifthe use ofthe thing pledged hBs not been stipulsted by'the patti€s
b. ifthe druation ofthe contract of mutuun has not been stlpirlated by the partica
a. ifthe purpose of the thing subject ofdgposit hss not bccn slipulated by the pafiies '',
{. d. ifthe use ofthe thing subject ofcornmodatum is merely tolerated by lhe bailor. - -
Le,zal Basis: Article 1974 of the Civil Code
?. To refund extraordinary expcnsis for thc preservation ofthe thing loqned provided bailor
is notified beforc the expens.s were incuned. ,
notice is necessaDif
3. To rcfrurd 5ooZ of the extraordinary .*perrs"e" arising from actual use of'thc thing toaned
(i.e. caused by fortuitous cvent). .
4. 'I'o pay damagcs to bailee for known hidden flaws jn the thing,k oned
l. Bailor has the right to dcmand return of, th€ thing if bailec commits ,:any oct of ingrati:tude:
:
III.
A. Definition
Ml-tuum is a contract whcreby bne of thc parties delivers tb another Frrty, nroney or oaher
consumable things wirh thc underctanding rhar rhe same amouirt of.lhe same hind and quality
shall be paid.
B. Cbarscteristica
l. Borrower acquires owncrship tif the thing and can. thcrcfore dispose of the thing
borrowed. There is no iriminal liability for failurc to pay one's debt.
Delivery is the act by wtiich thc /er or substance thereof is placed within
\ ii
actual or donstruitive possessiorr or control of another.
.
.
i i ,
.i gcampo III vs. People
:: (543SCRA487)
i
.rl
-loan .of_An. 1953 of thc Civil Cod€ provid€s thot "[a] pc*on who receives a
moncl)r br any gthor fungiblc thing acquircs the qwnonihip thercof, and is.
bound to pay to thc creditor an equol amcjunt of thc4ame lcind and quatity.,'
Hcncc, pctitioncr Ocampo corr€ctly argucd that thc NALGTU funds shcd thcir..
public characEr whcn thcy were t€nt to LTFI as it acquired ownership of thi ..
funds with an obligation to repay the Province of Tarlac the arnount borrowed. .
The relationship between the Province of Tarlac and the LTFI is that of a
creditor and debtor. Failure to pay the indebtedness would give rise to a
collection suit-
!
,,I i
W (422 SC?A 459)
I I Tho DBP aontcnds that thc Spccial Loan. progrgm (SLp) is ..mercly' a
noimgl loan trimsactioa, akin to thc lo6n granted by thc GSIS, SSS snd tha DBp
Pr<ividcnt Fund. Thc rccords show othcrwise. In a loan traBbction oi rnutuum,
thc Eorrower br debtor acquircs ownership of the arnount borrowed.. As the
o,ine!, the dcbtor is then free o aispose -oror,.,tiiiJ'irr";*--h; i";";;;
subjcct to the condition that he shoutd latcr rbturn thc amirunt with thc sripulatcd .
interdst to lhc crcditor. In contrast, tge'amount borrowed by a qualified
employee under tlre SLP was n"t .""" iLi""".J t" fri-. It merelij allowed the
deblor-employee to "borrof' a portion of his graruity sotely for t-tie purpose 6f
investing it in certsin instruments specifie4 by DBp. ihe de6tor-ernployel could
npt dispose ofor utilize thc loan in any othci way and never had any iontrol or
-
custody of the Emount he supposedly b-orrowed.
'; 'i I i
2. lf the'thing loanod is money, payment must be mode in tbo currency,which is lbgbl tender
in the Philippines and in casc of cxtraordinary deflition or inflstion,.the.6irsis of paynrgnt itratt.
bethevalueofthecurrencyatthotimcofthecrcationoftheobli!atioli.
I
3. If,fungible rhing wds loancd, thc borrower i! obliged lo pay lhe lendor anorhor rhing of
the same kind, quality irnd qu.ntity. . ,. , '
i
(383 SCRA 47r)
i
Totel amt. DSOO,oOo,OO, 6vo. pcrr,cnt (5Vi Wt
with corrcspondingi intercat at
month duc and peyable every I 56 day of thc month for a pcriod of six months.".
:l
The 'statement of the interdst payments negates thc allcgation that it is
mercly an acknowledgment rcceip and not a irromissory note.. jtl,
,il
i,.
.|,]
ii{
In mutuum, thc objccl is money or ony consumablc (fungible) thing, whereos in leasc, the
ob.iect may be any thing, whether movable or immovable, fungiblc. or nonfrrngible.
2. In mirtuum, thc thing loaned becomes the property of the debtor, whercas in leasc, the
l
Prudential Bank and Trusi Comoanv (noif, Bank
of the Philiooine Islonds) vs: Abaiolo
I (611 SCRA36A
t'!
it: ,
Facts: . The heirs of Leonor Rosalca authorizcd. Liwavwav AbasolL to selt thJ
propcrties of the deceased in Sta- Cruz, Laguna.'Coirron Mirasigan, an
interEsted buyer, prgposcd to Liwa) ray to mortgagc tlrc subject pi
aubject pioperties to
pelitioner
peuuoner
pelitiorrer Prudcntial
Prudcntiat Bank and Trust Trist Company (enfC;
Trust company (pBTc) tb tir which
wnic[ 'rcspondent ^
agreed on the conditiori.that the procceds wqutd bc paid dirccrly io hci. in rhe
proccss, PBTC employee Noiberto Mcndiola adviscd Liwayway to trorrstbr tirst
the prgperties to Corazon for the immcdiEte proccssing 6f tic toan wirh the
assurancc that the proceeds would be dirEctly paid to her. Withour requesting
"tl
for a bank guuranlcc, rcspondent acceded to tlre profDsst. tJpon Crirrrz.on's
cxr:culi<rn of l| rcul (:slolc tnorlgargc on suhjcct prol^-rtics lo sr:cut.lj lltc lotn. I
Pl3'l C upproved the loun and rstcused the procccds to her. Lcanrirrg ol' the tt
!
release df the proceeds to Corazon, Liwayway demanded payment t'rom the
latter. Corazon fsiled to fully pay the purchase price ofthe properties prompting
Liwayway to file a complai[t for coltectiotr of sum of money ond annulnrcrrt of
sale with damogcs ugainst Corszon and PBTC with the Regional 'l'riul Court of
,I "l
I
Sta. Cruz, Laguna. The trial coun decided in Liwayway,s favor and tbund
PBTC subsidiarily liable. On oppeal. the Court of Appesls atlinned rhc trial
court's decision, hcncc the prescni petition. .
..1 i
Ilsup: i Is pc'titioncr PBTC subsidiarily tiablc with Corazon for thc poymcnt i
of ':lt {
thc balancc ofthc purchasc pricc to Liway\vay? '1i
::11
i{uiinc: Nb, PBTC is not subsidiarily liable. i
'tt
menlion the amount involved. Under this fold lblls the issuance by i bank ola
gusrantee which is essentially a promise to iepay the liabilities ot'dcbtor, in this
case Corazon. lr would be contrary to established bankiitg practibe if Meadiola
issued a bank guarantee, evbn if no request to that ell'ccr was made. Since it has
not been established. that petitioner had an obligation to Liw;yway. thcre is nr.) . .
breach to spcak ol'. Liwayway's clailn shoukl only be dirccted aguinst Cbruzon. . '
Petirionercannolthusbeheldsubsidiarilyliable.
Citibank-Manila, was ahe crcditor and respondent rVas the debtorr Since legal :
compensation was not possible, petitioner Citibank aould only use rcspondcnt's
dollar accounts with Ciiibank-Ceneva to liquidare hir loans ilshc tiad expressly
authorized it to do so by contract. :
The timc dcposit subject matter of hcrcin pctirion is o sirnplc loan. 'Ihc
provisions of thc New Civil Cgdc on simple loan govcrn the contracl betwecn a
bank and its dcpositor. Spccifically, Art. 1980 ihercof catsgonoarly providss
lhal "... savings . . . deposits of money in banks and similar institutions 5hall bc
governed by thc provisions concerning simple lorn." Thus, the relationship
betrveen a bank and.its depositor is that. ofa debtor-crcditor, thc depositor being
the creditor as it lends thc bank money, and the bank'is the debtor which agrees
to pay the dcpositor on demand.
Explain.
s Answer; There is no pleclge. because only movahlc propeny may. he plcdged (Ari. 209-1,
NCC). If at all; therc was a pledgc ol'thc papcr or docunrcir! cortstiruliilg thc:'l'orrcns rirlu, as a
movable by itself, but not of the land which rhe tirlc rcprescnts. There is nd mong:rgc hccausc no
dced ot conlract was executcd in the mannBr requirbd by low lbr D mortg0gc.(Aniclcs 2085 to .
2092, 7121. to 2 l l l ). 'l'hcrc is tr() c()ntract ol' onaichrcsis bccuusc no righa to tlrc litrits ot' tlrc
prop€nywasgiventothecrcdilor(Art.2l32)_l'hcrclirrc,tlrcanslvcrisnoneol'.hcub()i,c.
er nrutt.tr,n - under such crcdit line. thc bunk is nr'erely gbliged,.lbr thu
ponsiderations specilied therefor, to lend ro the oafief party amounts not
-l
D. Rutes on lntcrc$t
l. -',-'
In order that intercst may be charged, it. rnust bc cxprcssly stipulatcd in rvriting lAniclc
t 956).
o) (iarcia vs. 'l'hio, 5l ll S('ltA 4-13 (2(x)8,
. b) Ching vs. Nicdao, 522 Si('l{A I t6 (l(X)l{)
c) I'hilrpprnc l,lrosplratu licrlilizcr ( ()tlx)r:rtr(,,r Is K;ltrirlig l{csorrtccs. ltre.5.1{)
sctt^ 139 (2008)
d) Ilcpublic ur. Uni,r'r"* lvlrcro-l.llcclrorrics (irrrl)l l, S.llt SL'ltA l9 (20O'Z)
U\c('ptiot]s: l. l)ctrtol in dclay is liablc to lxly lcgal intcrurit us indcrrrnity lirr thrrragcs
f{i cvcrr in thc abscncc ol'sripulation lbr thc payrhcnr ()l'intcrcsi (n rliclc
2?O9).
:,
a) Eusebio-Calderon vs. People,44l SCRA 137 (2OO5l
i. b). Diio vs. Jardines, 481 SCRA 226 (2006)
c) ' Ongson vs. Peopte,466 SCRA 656 (2006)
d) Citibank N.A. vs. Cabamongan, 488 SCttA 5l? (2OO7) .
e) JL lnvestnrent and' Developmcnl,. lnc. vs. 'l'cntlon
Philippincs, Inc., 5 l2 SCRA 84 (2OO7)
d Development Barrk of thc Philippincs vs. Coun of
(2o2 SC.RA
I
r19) ;
xxx The legal rate of intercst is six (67o) pcrcent per aru:um, and not
tlvelve ( l2oz) percent,. where a judgment award is based <.rn an action for
damages for personal injury, not use or forharance of money, goods or credit.
I
(sr2
ll
The .l2o/o rate of interest is
loans or forbearanoe of money, in the
the obligotion is othenvise, as in this.
ii computed from the time of
this ruling, thc entire amount due shall
i:i satisfaction.
i,t,
l ril
":ll
,*_"fiI
Almedr rl!. Ceriio
l.
.,
inrposcd at thc court's discrctionlst thc r8tc of67o pcr annum. . l
!il
I
ll
i
I
i
l',
€,
As for rhe court a quo's award of interest on the amount claimerd, the
samc calls for nrodificntion following the rul.ing in Eastern Shipping. L.incs,...
lnc. vs. Court of Apprrls that when the demsnd cannot bc reasonably
cstablishcd a! the time the demand is mgde, the interiit shall'bcgin to ryn not r
tiom the timc thc claim is made judicially or extraj,.rdicially br,t fror4 the.dalc '.
the judgmenr of the court is made (at which timc thc quaniification oi damage
may be dcemed to have becn reasonably ascertained). ']
I
,t 'l
,i
Legat interest of 60/o p.a. on rhe inroutit of damages. in litior ot:r liiigant ,l
should commcncc frorn rendition ofjudgr)lcrrt ol'thc trial court:instead of the l,
dare of filing of rhe complainr.
I
ill- lio{r(l 'J'crminsl. lnc. vs. (:(}u.rl ir0At)t)clrls
ki[ (262 SCRA 339) i
rnd
tr
li eirs of lenscie Apuilar-Reves vs. Miieres
(4ro scRA 97)
I
:t:
When 8n obligetion not. constitutinL t(run. .;, tbrbcarancc oI nroncy is
"
breached, then an. intercst on the amounl of durnagcs awordcd may tic inr;x>scd
at the discretion of the coun at the rate of 6910 yxr arrnum in accor&nCe rvith Art.
2209 of the Civil Code. lndeed. the monbtory judgmenr in favor of private.
l rcspondent does not involve i loon or forbeorsnce ilf, money, hencc thc proper
imposable rate of intercst is six (60lo) perc€nt. Howcver, as declorcd in the case
rofEastem Shipping Lines, Inc. vs. CA (234 SCRA 78), the interim pedod from
.he finality of the judgment awarding a monetaqi blaim'and until paymcnt
thereof, is deemed to be equivalent to a lbrbearancc of credit. 'Ihus, from thc
time the judgmenl becomes final until ils full satisfaction, the applicablc rate of
Iegal inlerest shall be twclve percent ( l2olo).
r3
:
We agree, however, with the dntention rhat the intcresl oi6Z imposed
bv respondcni court should be computg{ from the date ofrendition ofjudgin;nt
and not tionr {hc tiling of the complaint. The rule has bech laid dbwn in Easterri
Shipping Lines, lne. vs. Court ofAppeals, et al. (234 SCRA 78) that: :
from the timc the claim is made judicia[y or extrajudicially .(Art. I169, Civil i
Code) but when such certainty cannot be so reasonably estabtished at Oie time I
the demand is made, the interest shall begin to run only frorn the date the
judgment of the court is made (at which time the quantification of damages may.
be deemed to havc b€en reasonably irlccrtained).. The octrid basb for thl
computation of legal intcr€st shall, i{ any case, be on tha ahount fin&tly
'l'his ir bas.ousc Bt tlrc tirno of tho filing ol'rlis complnint, tho omoun't of
damagcs to which plaintiffmay be cngirled remains unliquidated and not known, .'
until it is delinitcly osccrtaincd, ossegsed and dbtermined by thc cour! an<I <inly
ollcr ihe prcsentotion ofproofthereof,, I
i ,
.l:
.
'l;
vr. Court of A rrncflli
(437 SCRA r)
.l.i..l
- In Eastem Shipping Lincs, Iirc. -v. Court of Appcets, this Coun..'
formulatcd the rut€s on thc imposition of ihc propcr intcrci'i on arnounts. duc,
and at no instancc wali intcrcst to run until dcmand hac bcco m.& .ah€ni ari5l
agreement betw€cn the parties. | - t I
,
.In the absencc of agreement, ArJ tegat rate of inter€st Ehall prcvait. Th€.
.legal- intcrcst for toan as forbcarancc of moncy is l2ji pct ennum toibc
computed from dcftul! Lc.; ftom judicial or cxir.aiudiolat drmaDd lrndor ind
subjecr ro thc provision of Articte I 169 bf tbe Civil eo&. ,
I
l4
I
r.,:
*
i...
ti;ij
ji
Mxtqrrco. lnc. vs. Firrt l,Bndlink Asi:t
Development Cortroration
(539 SCRA 226)
The trial coun is vested rvith discretion ro award the legal inreresr
despite the fact th&t it was not prayed ltrr in thc C()tnploint.
Sumnrurion:
Ihu Sttprcllrc ('orrrl rulc(l thlt thc lirllt,rrrrtg inlcrust rittqs arc uxccssive. ,,,,a,,,,t.,,,,,,4,,.
ond inor.dinatc and thc courts rvill tcnrrri inlcrcst ratcs rvl]c|r nccessary .
i\) 4o/o lr€r month or 4.8olo fxrr annunl ( []ulos, Jr. vs. Yasun'ra, .527 SCftA 727
[?008])
bt i Oo/o p.r monih and cvcn rhs reduccd rare of 6910 pcr nronth (Macalalag vs.
Pcople, 5l I SCRA 40o [2oo8])
c) lOo/o intcrest per monrh (Svends€n vs. l)coplc, 546 SCRA 659 J2O08l)
d) 36yo per annum (l'oltan vs. 8Pl Family Savings Elank, lnc.. 517'SCliA 430
[2o0E])
c) I p€r annum (lrade and lnvcslment Dcvelopmenf Cofp(rnrtion ' vs.
Eo/o
Roblett Induslrial Construction Corporarion,490 SCRA I [20071,
l) 9Yo per month or 108% per annum or loYo pcr imonth or 1207o pcr annum
(Diflo vs. Jardines, 481 SCRA 226 [2006])
g) A combined intcrcst and penahy ralc at lOVo per month or 1207o ;rcr annunr
(Dio vs. Japor,463 SCRA t70 [2006J)
' h) 160/o per month and a penalty chrrgc ol'57o pl:r month in a.-klition to regular
interest and attorney's fecs (lmpcrial vs. Jaucian, a27 SCRA;5 l 7 120051)
i) loo/o and 87o interest rates per month on a one-million-peso i<ian (Cuaton v's.
Salud,421 SCRA 278 [200s])
j) lO%o compounded mdnthly interesr and l0oZ surcharge p-er month and 36Yo
interest per annum (Ruiz vs. Coun of Appcals, 40.1 SCRA 4 I O [2004]) .
k) 37o and 3.81% per month interesr ('l'oring vs. Canzon-Olan, 568 SCRA 376
[20oe])
l,
Thp Supreme Court struck down as invhlid the l0oZ compoun&<t
!!i monthly intcrest and rhc l0olo surcharg,c fEr month stipulatid in the proJnissory
1., nQteq and equitably reduced the 37o pcr monlh oi 36Yo per snnum intercst
,l,r
'i: presenl in all four (4) promissory notes to l?,o per mbnth or l2olc per annum
,nteresi. The Highest Tribunal. has previously invali&ted.a stipulatcd S.5yo.qcr'
t
tnonth or 657o per annuln interest on a P500,000.0O. Ioan in Medel vs. Court of,
l
I Appeals (299 SCRA 481) and o,6%o pI month or TZoh Wt annum intcrest on a
it P60,O00.00 loan in Spouses Solangon vs. Salazar (360 SCRA 379).tbr b€in!
i: excessive, iniquitous, trnconscionable and exorbitant. ln boih cases, the ..
Supreme Coun reduced,the interest rate to l2o/o per'onnum. The, l% penalty
surchargeonrheprincipilloantbreverymonthofdgfaultisvalid.-' 'l,i
,i
i ,,ii
.ii
I
,
t5
t-
c,u:'
Cuaton yE-Salud
(42r SCRA 278)
lntcrcsi r.rles &l loo/o and 87o per month on a one-niillion.peso loan is
excessive, iniquitous, snconscionable andexorbitant a4d their redugtion b l2cy'o .
p€r'annum is fair and rcasonablc. Stipulatlons lulhorizing iniquitirirs' or'
unconscionable interests are contrary td morals, ifnot against thc law.
tffii
:I
Usury Law
(s.r4scRA608) i
Tle-Usury
. - 3 Dcccmbcr Law had bectr rendered tggalty ineffectiie by Rcsolution No.
^-
224 dated 1982 of the Monetary tioard of tte Clntnil fiant- ana
later by Central Bank Circular No. 905 whichtook iftect on I JanJary tggi and
removed the ceiling on interest rates for sbcured an unsecured loens regardlesi.
-
ol maturity. The effect of these circulars is to allow'the parrics to agree*on any
interesr rhrit may b,e chargcd on a loah. The virtuat repeil oi the Usury f,a," i'"
within the range ofjudicial notioe whioh.courts are bound.to takc into-account.
Atlerall, the fundamental ten€t.is that the lcw is deeined pan of th€ oontract
.r'
Thc sripulared ratE of interest at S.Syo;lor month,on the pS0O,rrOO.OO
.loan is excessive, iniquitous, unconscionable lurd exg.rbirdnt, Howcvcl ihc rate
cannot be considcred 'uswious" becauie the Suprime qiurl has consistcntly
hefd that Circular No. 9O5 of the Central Bank, aA'opiea on Dec ernber 22, lgBZ,
i
hrs csprcssly rern('vcd thc intr.:r'cst ecilirrg prcscritrcd by thc t,sury l.arv und thut
rlre trsury [,arv is norv "lcg:rlly inr:xistcnt".
latitude to agree on any interest ratb, we have helditnat stipulated. interest rates
. are illegal ifthey orc unconscionable. Consequentii. in our view,ithc,Coun of
App€als erred in suslaining the trial coun's deciiion uphplding thc stiptulotcd
interest of 3%o and, 3.81o/o (per mgnth). Thus, we-.are unhnimoui now in our
ruling to reducc the abovc slipulsted interest nitrls to l7o pei month, in
conformity.with our ruling in Ruiz v. Court of Aplrali,401 SCRA'4lO (2003).
I\iothing in CB Ciriular No. 9O5, Series of 1.982'grants lenders cartc blonchc
, authority to raise interest rates to lcvels which will eitlEr cn'slave their '
money, goods or crcdits. ln ii,re, they can agree to a6just. upwbrd or downrvard,
. thc interest prcviously stipulated-
2. All thc promissory noa€s wcr€ signcd in 1983. artd . rh€rerbrc, .:!l,erc
elrcady covcrcd by CB Circular No. 9o5. Conuary to thc cl6im of rcspond€ot
court, this circular did not rcpcal n6r in any woy arr|.nd tfrc Uiury Law but
simply suspcndcd thc lancr's cffectivity.
3. The rate ofintercst was agreed upon'by the p6rties frcely. Significantly,
respondent did not question that rale. It is not for respondcnl court a quo to
'
change the stipulation in th6 controct where it is not illegal. . Frrthirmore,
Article 1306 of thc Ncw Civil Code provides that contracting. parties may i
establish such stipulations, ilauses, terms 'and condirions as ihey may deem
convenient, providcd they ari not contrary to lew, morals, gdod customs, public
order, or public,policy. Wc find no valid reason for the respondent cburt.a.guo i
!,1 :
PNB vs. CA ,l
(238 SCRA 20) ,t
Presidcntial Decree No. I684 and CB Circular No. 905 did not authorize
eitlrer party to unilaterally raise the intcrest rate without the other's consent.
Escalation ClsuEG
irt,.,
- l,l
l8
I
Banco Flllpino vs. NrYario
(ls2 scRA 346)
rnd
PNB vs. Intcrmedlrtc ADncllrte Coura
(183 SCRA r33)
I
Almedr. w.,Court of .Arrpcels
(256SCRA 292) .
Morcovcr. rcsFrndcn! bonk's rcliance on C:R Circuler No. 9O5. Seticr
ol' 1982 ditl not outhorize the bank, or any lending institution for thal mettcr, to
progressively increase interest rates on borrowings. to. an cxtcnt rirhich would
have rnrdc it virtunlly impossible for debtors. t6 oomply with rhcir own .
Issues: l. Can a dcbror bc made liable for both the stipulated nlonthly interesr
and thc sripulalcd penalty charge?
?o
c_J
lleld; l. The promissory note exprcssly provides for the imposition of both
intcrest end lrnaltics in case of default on thc port of thc pctitioncr.in thc
paymeni of the subjcct restructured loan. Penalty on delinqucnt loins may lake
different forms. In GSIS vs. CA. this Court has ruled that thc Ncw Civil Codc
permits an agrecment upon a penalty ap6n from the monclary intcrBt also callcd
p€flalty or compcnsatory intcrcst. Such a stipulition about paymcnt.of an
additional inter€st rate panakes of thc nature of a pcoalty clausc which: is
sanctioned by law, more particularly under Article 2209 of the Ncw Civil Code.
damages. A real action is an action affccfing titlc to ttd prypcrty (,r for thc
recovery of posscssion, or for portition or condemniirtlon ofi o; foraclosune of
mortgage on, real propcrty.
The rule on reat sctions only mcntions an.nction for forcclorure of.a rcal
estotc mortgoge: it docs not include an oction fo, the'canccltation ot'rnnulment
ol'a rcal cstata moitgagc. The place where thc partie; rcsidc is thc pro'per venue
for an action to nulli$ a toan and real estate mortgage co'ntract.
p.,ffit#Hii,,n
(s26 St:RA 379) .. .
The Supreme Coun hos alrcady noted previously fhat thcrc docs Dol
app€ar to bc anything in lrhilippinc slalures or juiisprudcncc whictr. pr.ohitrits a
crcdilor, without thc crinscna.ol'rhe dcbbr, liom moking sn sssignhrcnl o,'his
credit and rhc righs sccessory therelo. Even if the consent of qhe dcbtor is
unnecessaq/ for the validity and entbrceability of the assignrnent ol'crcdii,
nonelheless, he must have knotvledge, acquired eithcr by forrnal no(icc or.sonrc
orlrer- megns, olthe assignmenr so that he rnay pay the rjebt to the proF r parly;
rvhich shall nory be the assignee. i
Arricles 1236 and 1237 of the Civil Code are clear that, even in cases'
where ihe dcblor has no knowledge ol paymenr by a third pers rL and even in
case where the third ;.rcrson paid against thc will of the dobror- such paynrcnt
rryould produce a debt in l'avor ol'the payints third pcrson. ln J'act. rhs only
')',
i.l
consequence for failure to inform or get the consent of the' debtor 'are the.
folldwing: ( I ) lhe third p.*". onty insofar as rhi payqrcnt has'been '
beneficia-l to the debtori and "un-i6"'"r
(2) the third person ii not subtogarcd to rhc rights
ofthe creditor, such as those arising from a mortgage, guarantcb or penalty'
.l
8.8 Credir Cards
E.9
It is clear
tt clcer tiom ppu{gplv BtoPPel
doglrinc.of'ppuligp.ry
t'rom the foregoing that the doctfinc.ot 9"toPP"l
presupposes thc existence.ofa promise on the pgitjdf onc agdins.*ihorn cstoppet
is clairrred. Thc promise must be plain and pnamQiguous apd- iufliciently
tlre promise according to its terms. '1I PNB
is cstoppcd to deny the five-yeor rt pfan, he.mtist li5st' pr.ovc .that
r."pond"r,t .PNB lisd promiJed to approvc -tt e piao in cxcbangc for thc
submission of the proposal. As discr"rciscd barlicr;'no strch prombc was iroven,
therefore, the docirinc
therefore- doctrinc do€s not aDDtv 8t bar-
apply to thc casc at bar. .A. for
sction .&r
cbusc.of action
.A cougc,of
promissory g'stoppel do€s not lie where an allegcd oral promise s,as conditionsl,
so tlut rc'liunce upon it wos not reqgonablc. tt does not opcroto to crcatc liabilily
rvhere it does not otben^,ise exist.
The diffcrcnce betwe€n thc intcrest and other servicc fbcs chargcd by a
bank to its borrowers and clients and the intercst it pays to its depositors.and
other suppliers'of t'unds is the "gross or interm€diation sprcad." . :
I
., 23
lt
in all three Promissory Notes still remaining unpaid or unrenewed when they fell
due, thcre is no stiputation thcrein that would justiry ariy increasc in -that
chaiges. The effcct, ihercfore, when thc borrower is nol ctearly informcd of the .
DisJlosurc Ststomcnts -- prior to thc consummatl6n of thc availment or .
drawdown --- is that tltr lcn&r wilt havo no riglrt to collect uPon such ehsige-or
incrcascs thercof, €vcn if stipulatcd in thc Noies- The timc is now ripc to giw ":
..itf, t" if," ti igrrc.rcd forty-one-ycar old "Truth in Lending Acf' and thus '
transform it ftom isnivelling paper tiger to a Srowling financisl rvatchtlog of '
"n
hapless bolTowcrs,
I
B. Definition of Terma . . .
As uscd in thc Truth in Lending Att,'thc following tcrms arc defined as follorvs:
Thc inlcrest ralu provisions in.thc cas.^ at brr arc illcgal'mrt r.rnly hccarrsc
ol' lhc prr>visirrns ol' lhe. Civil Crxtc on rrrulttitlily or'conlracls. rbul lrlslr hccurrsc
lhcy violate thc 'l rutlr irr l.cirdirrg Acl. N.)l tlisclosing thc lrrrc linilnc(: chirrgcs in
crrnnscti(rn ',vith tlrc cNlcusi()ns ol'crcdit is. l'trrthcrrrnrre , rr lirrrrt ol <lccr:liliorr
rvhtch wc cilDnol coUt)lcnilncc.
Section 4 of the l'ruth in l,ending Act clearly providcs that the discl()surc
statcment must bc furnislrcd prior to thi consuinpation of thc tSaniacrion. 'l hc
rationale of this provision is io prolect users of credit. from a lock of awarcncss
!
of the true cost thereof, proceeding from thc experience thst boqks arc able to
conceal such true cost by hidden charges, uncertainty of interest rdtcs, dcducrion
i of interests from the loancd arnount, arid the like. Thc law thercby,s6g15 1.
r)rolect debrors by peimining thcm to lully oppreciaic the true cost of their loan,
to enable them to g,ve full conscnt ao thc contract, rind to propr:rly dvoluatc their
options in arriving at business decisions. t.lpholdinA UCPB's. claim ol'
' substantial compliancc would dcfeat thcse purposes of rhe Truth in Lending Acr.
'l'he beleted disccivery of'rhe true eost of credil rvill too
ollen not bb ablc to
revcrsc the ill effects ofan alrcady consutnmltcd busincss decisir>n.
'l'hc allcg|iir.rn tl'rot lhc pr(,lrriss()ry n()lcs gr.lt]t tr('lrll the powcr t(,
lix the intcrcst rates certuinly alsa) means that thc pr{)tnissory n()tus
unilaterally
do not conlain a "clcai sutement in writing" ot"'(6) thc finunce chargc
expressed in terms of pcsos and cen_tavos; ahd (7) the percentag,e that the
finanie charge be-a.rs to the arnourir to be financed. expressed ss a simple annual
rare on the ouBranding unpaid balance of the obligation." tsurthcrmore. lhe
spouses Beluso's prayer "for suih othcr relicfs just lnd cquitablc in.the
premises'' should he decmcd to includc the civil F:nslty lrrcvidcd for in Scction
6(a) ot'the 'fruth in Lending Act.
l5
liablc to such person in tlre amount of Onc Hundred Pesos (F100.0O) or ip an arnount eqtr3l to
t\ icc thc finrncc chargc requircd by such oreditor, whichcvcr is highcr but shsll not exceed Two
l-housand Pesos (F2,OOO.Oo), plus anorney's fces and cburt cosls, pruvided thc action to recover
such p€nslty is brought within onc (l) year from thc dato of occuircnce of thp stid violatioir, but
thc validity or enforccabitity ofthc contract is Dot alfcctcd [Scotions 6(a) and 6@) ofRA 3765]
2.
2. be flncd not lcss thsn One Thousand
Willful violutors of the Truth in Lending Act shall b€.flttcd :
Pesos (Pl,O0O.0O) nor more than Five Thousand Pcsos (P5,000.00) or imprisonmcnt of not less
charge- The effecl thercfore, when the borrowcr is not clearly infoirmed of the
Disclosure Statcments -- prior to the consummation of lhe avdilment or
drarvdo,,m lender will have no right ro
drarvdo',m --- is thet the lenier to collect upon suci, charge or
such ch'arge
increascs thereot even if stipulated in the Notcs. The tirne is now rirr.
ri;re to give
tceth lo the b{len ignored forty-one-yesr old "Truth in Lending Acti'aod r}rus t}rus
hlrnsform it from a sniveling papcr tiier to a growling finaniial watchdog of
,ti
A degrosit iE constitutcd frorh thc rromcnt s porson rcccivcs c thirig tiloitging io anothcq
with thi obliAation of safely keeping it and of rrtuminS thb sam€.
ii
Durlirn.Aprrtnrcntt Corooratlon vr. Plonecr
,|:
i
'I
rl
tr
The contrEct of dcposit was pcrfcclcd wh€n thc hot
to the hotet's parking attcndant the tccys to his vchicla, whicli rh€
with the obligation of safely keeping and returning it.
;:'
, j:;
:ili
i,
t
B. t.
i .i $
,in
l. il
.; .; ll
2_ ll
-l!
:i
,li
'ril,
. i!
26
,
:
4.
t. . JudiciaI
2. ExrraJudiciat
a. Voluntary
b. Neccssary
3. Distinctions berwecn Exrrajudicial ohd Judici.rl .Dctx)sits
L An extrajudicial dcposit is constituted by lhe will of the iontracring panies while a
judicial dcposit is constitutcd by virtucofa coun ordcr.
2. In the fir5r, the object musr bc movable prop€rty, whcreas in the second, thc object
may be cither movablc or immovable prot*-rty.
Tlre purpose of arr extrajudicial deposit is thc salbkccping ol'thc thing derx)sitcd
whereas the main purposc of a judicial defDsit is to sccurc or protcct thc owncr's
right.
4. The first is, as a generol rule, grotuitous, whereas lhe second is always onerous.
5. ln an extrejudicial dcposir, ihc dcp:sitary is obligcd lo rcturn the thing deposite<.| ugrn
dEmond mrdo by lho dopoxltor rvhoroqc ln o Judlolol doporlt, tho lhlng rholl tto
delivered only upon ordcr of rlrc court.
I
F. \/olu nte ry Deposit
i
I. Defined as one wherein the delivery is macle by the lvill ofihe depositor.
i
,i!
it....i:
.t.,. 1.':.
.:
2. Although generally the owner, the depositor need not be the owner ofthe thing:dcposi!!*!
l , , ,'.;', " 'I . : .l ri i:rl
3. May be oral or in witing. I
2.... . Depositary is liable if the loss occurs through his fault or Degligenpe. Loss of the thing
while in the depositary's possession raises i presumption jof fault. Required degrei of care ii
greater if the defosit is for comperrsation tha:i when it is gratuitous. i -
A controct for the use ofa safety deposit box is a sSrciul tlind rif dcgrsir
and the relationship bctrveen the panies thcrclo, tvith rgspect lo thc contcnls (),'
thc box, is that ol'a bailor ancl bailcc, thu l)ailrncnt bcing lirr hirc and mutual
bcnelit.
ln the instant casc, Sccurity Llank urrd 'l'rust CoDipany (SB'I'C) rvas
guilty of negligence. SBTC's negligence sggravated the injury or damnge rq rhc
lxtitioner which resultcd from the loss or dcstnrction of thc stanrpi collcction.
SB-I'C was aware of the floods of 1985 and l9p6; ir olso kneiv that rhL.
floodwaters inundatcd the room where Sal'e Dcposir ilox No. 5.1 rvas locatcd.. ln
vicw thereof, it shoukl havc lost no tims in notifyihg rhc l^;riti{)ncr iri onli:r that
thc box could hqvc [reqn oprcncd to rctricvs tlrc stantps, thus stving thc sanrc
.from funher deterioration and loss.
Answer:
.\lto Bank is not liable for thc loss ol'the conlents.of Ana's deposir box because under
Anicle I99O of lhe Civil Code, if the depository by force majcure toses ttie rhing ond receives
money- or another thing in is place, treitatl a-etiver rh! suri or other thing to-thc depositor..
There-being. no showing thar there lriything received in place .of the thirigi deposirei, Alto
-rvas saiety
Bank is nor liable for the contents ofthe b6x. : _
Allernative Ansrver:
Alro Bank is nor lirible bccause ihe contracr bclwccn Ana and Alto Llank is not a dcpo-sit
but a rental of the safety deposit boi. I'lence, Alto tlank is not liablc lirr thc loss of rhc conrcnts
ofthe box in the absence of fault, clelay or ncgligencc on ats part.
3. Deposirary is not allowed to deposit the rhing rvith i thirct;rcrsc;t.
4. Depositaqr is liable for rhe loss ofthe thing deposired i t':
. 4.1 he transfcrs the deposit \A.ith a third person. without authority alihough rheic is no
ncgligence on his parl and rhe rhird person;
!.
' 4.2
he deposits the thing rvith a third person wlro is mani(bsily careless or unlir'
. although {uthorizerl, even.in the absence ofnegligence: or
I
i
I
le
{.1 thc thing is lost through thc ncgligcncc ol'his crnployccs rvhcthcr rhc laircr arc
tlrarri fesrly corcless or nol
Noac: l)cpositary is not rcsponsiblc lor loss ol'thc thing \yirhour ncgligcncc of tlic tlrir<J 1^-iion
lvith rvhom he rras ollos'cd to deposit thc thing il such rhird pcrson is nol nts,iil'csrly
carcless or unfit.
5..-. Depositsry is obliged ro first notity rhc dgposir()r ancj rvait liir rhc lsrrcr's <tccision il'hc
will change the way or manner ofthe deposil :
7. t)eposiury has the obligation not to commingle things deposired il'so sripulatc<t, evcn il'
thcy arc of the same kind and qualily (Anicls 1976). .
:
8. Depositary is under obligaiion not 10 muke usc ol'thr: thing dcgrsiiil lbccausc dctx)sit is
for safekceping of the subject mancr and nor for its use): otherwisc tic shall bc liabtc tbr
damages.
Exceptions: a) exprcss t^-nnission ol'the dcpositor
b) prcscrvation of the thing dcFositcd re<1uiru.s'irs
usc (Arliclc 1977 )
l. -Irlhe rhing depositcd is non-consunrable- and thc depositary has perrnissibn to qse.rhc
lhing, the coniract bccomcs onc ol'commodarum.
',:
e If
lhe thing dcPosited is moncy or othcr consurnablc. thing, thc c;ntract is. convcned inlo a
simple loan or mutuun.
Exception: Wherc srl'ckccping is still thc principal purposc oli tlrr: contract, lh9 .iarnc
shall hg considered an irrcgular dcposit.
3- Depositary is liable for loss through a fonuitous event even without his ihulr:
leave for the united states for a medical check-up with insiruciions rhat y may use rhe co, in
case of urgent nced. A wcek oner during one srormy night, y snd his brorhcr Z had to uring rheir
ailing father (A) ro st. Luke;s llospitally drove ttic.o"r *irt Z rn<t A on board. on rhc rvoy. y
suddenly expcricno:d an aluck of vcniBo which constraincd him ro rc(tuclr z. tir rcplucu hini ar
ttc srecring rvheel. Bccause of slrong rvinds, a hig trcc lbll r>n top ol'tlic l'ronr prrtirin ()l'lhc c a
totally rvrecking ils enginc beyond rcpair. li Y liabls t(, X lbr tlomagcs aris,ng liorn tlrc car's
dristrircrion,
a Ycs, b6catrse an obligation which consist in thc dclivCry oia dctcrnrinlle thing shall
be extinguished if it shall be lost or dcstroyed rvithOur the fault of thc debroi and
bclbrc. hc hus incurrr:d in dcluy.
'r b. Ycs, trccause Y allorvcd anotlrcr pcrs()n to use it cvcn though lhe dcpositary nray
have bccn authorized to usc thc sam!..
c. No, because bailee (Y) lent lhe car to Z rvho is a memhr of the former's houschold.
d. No, because thc loss ofthc object ofdeposit wris baused by fortuitous event.
l.csal Basis: Depositary is liable lbr losS through fonuitous event even withoul his t'ault.
il'thc dcfnsilary allows othcrs to usc the thin! <.lcgrsitr:d cvcn th()ugh hc
hirnscll'rnay havc bccn autlrorizcd ti) usc thc sanrc (Articlu 1979, Civil
C()dc).
(c) keep thc secrct ()f lhc deposit rvhcn tlrc scal .(ir lock is brokcn; rviih or rvithr>ut his
'fault
Note: Depositary is authorized to open rhe rhing.dcpositcd rvhich is closcd and scaled $,hdn
rhere is:
(a) presumcd authority (keys having been dclivercd to depositary), or
rb) in the case ol'nccussity.
I
5. Dcpositsry has lhc obligation to return not orrly thc thing brit also its product, acccssions
and accessories rvhich are a consccluence of ownership.
l. 2. lf thc dcpositor rvos incapacitatcd ut thc time olrnaking thc dclxrsit. thc propcny rnust bs
rclumed io his guardian or odministralor or lhe pcrs(rn ryho rnadc tho dcp(rsil or to thc dcprisitor
himsclf should he acquire capaciry larricte teZO1.
3. Even if the depositor had capaciry at thc rirne of'nraking the dci'rosit but he subscquently
loses his capaciry during the dcposit, the thing must be. returned lo his legal rcprcsentativc
(Article I 986).
'a
(ieneral Rulc: t lpon dcmand or irt rvill, whcthcr ()r not t pcri()d hus bccrr stipulatsd.
2. If in bad faith, heir is liablc for damagcs and rnay lrc sucd for csral'a.
.il
Reesons: l.
-T Tltere is no pactuln gotrr tn issoriutrt in this case. l)cPosits of Inotlcy in banks and
similar insritutions are governe<t [:y the p.rvisioirs on. simple loans (An. 198o. Civil
Code). The relutionship bctween thc dcl)ositor. rnd o,bank is rhtt of crc'ditor and'
<tebtor. 'Ihis is esscntially a rhatlcr ol' conrpcnsotiotr as .all tlrc clstrrctrts ol'
compcnsution arc prcscnt in this case (ul'l vs. cn.232 scRA 3d2).
'2. Where the security lbr the dcbt is also money deposiled in a bank' it ii:not illegal
for the creditor to encash the time deposit cehificaies to pay the deblor's txerdue
obligation. (Chrr vs. Cn, ct. al., G.ll. 7tl5 19. !,icptcmber 26' 1989).
' Scrrlno vs. (lcitrnl lllirk
(9(r S(:lU\ 9(r)
,,
tt has bcen held thar suspension of a 6innk rvhich ha<l t'allcn into a
"rjistressed finari!:ial siruation" by ordcr ot'the 'Central Bonk cahnot excusc it
from its obligations to depositors rvho had nolh.ing whstsoever lo do'with thc
Central Bank aclualion or the evgnts leuding to thc bank's distrcssed statc.
snd
Fidelitv Savinqs vs. (lcnzon
(r84 SCRA t4l) .
The obligation ofi bank to pay interest on a deposit ceases the moment
the operations ol the bank is compietely suspended by the Central Bank- The
deposit is not e itled to interest during the period the bank is not allowed to
operate.
N. Obligetion! of Dcpositor
l. He is obliged to pay expensei for rhe preservatloh of lhe thing deposited, il'dcposit is
gratuitous.
2. lle is obliged to pay fbr losses incurred due to the clraracter ol'the thing deposited' .
Exceptions:
' a) trrrlcss dcPositor was nol aware thcrcof
b) deposiror was nol expccted to know thc dan8,crous charactcr ttl ihc
rhing
c) unloss hc notilied thc dcfrosit&ry ttf lhe satic, or
d) dcpositary wos arvarc of it without dcPositor's advicc ( Articlg l 9t)-3 1 '
Notc: Dspositary has thc rilht to rcrain the rhing dcpoSircd in plcdgc until full paymi;-rit- ol'shat
may be due him by reason (rfthc deposit (Article 1994). : .
o. Necessury Deposil
l Nccessary dcposit in conrpliancc rvirlr a lcgal obligation
I I 'Ihc judicial dsp(rsit ol'a thing, thc posscssion of ivhich is
litig,ation by two or morc pcrsons (nrticlti 538): :
1.2 'fhe dcposil with a bank or public institution ol' public lxrnds or itlstrurncnls ot'
io order or bearer givin in usuliuct whcn'dhc usuliudru:rry docs nol givc
poyaUt;
"riair sccurity for ibeir conservalion (Arliclc ,86): .
proper i
1.3 The deposit ol'o thing plctlgcd rvhen llK' crudit()r ttscs Ihc sittns with()ut lhc
auihority of thB owner or misuscs it in any othcr way (Artiqlc 2 tCt4 ):
1.4 Those required in suits as provided in lhc ltulcs ofCour.; and
!
1.5 Those constitulctt lo guaranrcc contracts wilh lhe g,ovcrnttrcnl. In this l sl ( sc,
rhe deposit arises fiom an obllgation ofpublic or administrative character.
I
2. Ngcessary deposit made on the occasion ofa calamity.
3. Dcposit by travelers in.hotels and inns
3.I They have becn prcviously informed abourtlre elli:cts lrrought by lhe guaYitsi aDd
-3.3 The lotter hnvc tnkcr) thc prgcauli(rns ptcscril)cd rcgt:rdirtg lht:ir strti:kccping
Notc:
l. tlotelkeepcr is liqblc ir:gardlcss of thc orn(ruDt ol'carc uxcrciscd in thc tirllorving sulies: . . .
b) The loss is caused by the act of a thicf or robber done wilhout the use of arms and.
irresistible force (Ahicle 200'l ) for in rhis case, the lotelkeepcr is apparently negligent.
a) Thc loss or injury is caused by force majeurc tikc flirod,. fire (Anicle 2000), then
or robbbry by a stranger (not hy horelkecper's servant or employee) with the usc of arms
or irresislible forcc (Articlb 20Ol ), etc., unless he is guilty of fault or negligcncc in failing
to providc against thc loss or injury liorn said cousc (sce.Aniclca I l7O, I174)',
b) 't'hc loss is duc ro thc Bcts of tho gut:sls, his. lirrrrilyr scrvilrls ()r visitors (Articlc
2002 ).
c) 'l'hcj loss aris,J5 lirrttl ll)c cllarircte r trl llrc tltittgs lrrouEllt trtto llru h()lcl (Articl!:
?O{ )l 1
lr' "ti!
a.
.:. b.
c.
d.
Judiclat
Cause by will of couit
Purpose to secure the rigtrt ofa
party to recovbr in
case, of a favorable
j udgment
v.
A. Delinition
Guaranty is a conr:ract whereby a p€rson binds himself to the cieditor to tuIfill the
obligation of the principal tlebtor in case the latter should fail to.do so.
B, Cha rncteristics
l. accessory
35
':5
tlre lbrmer is relianl on the latter for its existence as an socessory co[trrct. . . .'
Arlicle 2o,t7 of the Civil Code provides that sureryship arises upon the
solidary binding ola person deemed the surety with the principal-deboifor the.
purpose of fultill ing an obligation. . In Castellvi de Higgins and Higgtns v,
s^a-linen 4t Phil. 142 (1920), we held that while a surety and a guarantor arc
alike in that each promises to answei for the debt or dafault of another, thel
surety assumes. liAbility as a regular party to the underbking and hend its i
obligation is primaly. '
I
36
C!t
,i
surety promises td pay the princiPal's debt if tbe principal will not psy, while a
gr-o.tior agrees thaithe cieaitoi, afle: prooecding- against thc p.i incipel, r.nay
froceed against thc guarantor if thi principal is unablc to Ptyi- .4 swcty binds
irimself tJpcrform if thc principal d&s not without teSara to hls ability to do
so. A guaramor, on the othcr bind, docs not cootraqt th.tl, plio
but simFly thal he is ablc to do so. In othcr words'
of lhem simultaneously. T?re rulc, thercfore, is that if tho oblig!.tion is joiBt and
severol, the crcditor hai the right to procecd even against thc surety alone.
Since, genemlly, it is not necessa4/ for a Creditor to proce€d against a principal
irr ortlcr t(, hold tlre surcty liable, where, by thc tcrmg of thc dontracl, thc
olrlrgar.ir.rn ol'the surety is the samb as that of th9 principal, then as soon as the
Perforce, in accordance wirh the rule that, in the absenc€ of statute er agreement
otherlvise, u suiety is primarily liable, and with the rrile that his proper remedy
is to pay ihe debt and pursue the principal for reimburscment, lLc aurew cannot
at larv, unless pcrmitted by statute and in the absencc of any agroemcnt limiting
the application of the security, bcforc procecding
olloirrst lhc surcly.
37 1::'\
iN l)cryelorment Corporrtion vs- Plrilipoilc.
Eroort enrl Forciqn Lo{rn Guerartcc Corborition
(468SCRAsss) .
'
Pbitirrrinc Netionrt Benk vs. Court of inbceb ]ii
I
(r9ESCBA767).
,:i
i
effiid
i I
ii,i
. i.
'llrc retati,rn
tili
;ii
lrctween atr aoco[u[dation porty atld rhe aciommodate<t
pany is one of principol and surety - rhc accommodation Frry bciDg th€ sfiety.
As such, he is dccrned an original promissor and dcbtor &om tlro bcginnilg bc
is corisirJcrcd in taw ss rie. samc p.rq/ as rt€ deblor in rcladon to rvbarcvcr is
a judged touching thc obligition of the tatter sire thcir liabilities ,arc
inlerurovcn as to be inscparablc"
ljndcr tlle law, uJxrn tlrc malurity of thc note, a surcty may pay the debt,
dcmand. tlrc collatcntl sccurity, if rhcre bc any, lnd disposc of it ro his benefiL
or, if applicoble, subrogate himself in the place of thc craditor with tbe rigbt to
enforce the guaranry agains tlre orlrer signcrs of l$c nole for tre reimbursernent
ol' wlurl hr: is coritlcd. l.r rccovcr from thcm. Rcgrcitably. nonc of these wcre'
prtx.lentty done by p€titio.rcr. Whcn hc u/as first ndtificd by rhc bonk somctimc
in 1982 rcgErding his accouotabilitics . rmder thc pr.oruissory ootcs' hc
lucli,$dri*icully rulicd on Antonio Ang Eng l.iong. who ]EFE snrcd O|8l ho
would take csrc of rlE niducr, iostcad of directly coomuqic-ting wilh ltlc bsnk !
for its scttlcmcnt. 'Ihus, pctiti;ner caruxlt ttow it"i- rut t" rms pcjuaicca by i
38
L1,
+ .r. Il
is entitled to lhe benefit ofexcussion,
b B di(l not pcrsonally benefit fronr A's loan.
c. A is rrot insolvcnt.
rl. 13 is not a.judicial bondsmun.
Secoirr! l)istinction - A gusraDtor binrlslhimself io psy onty when the principat crnnot
. psy. On the contrary, a surety rseumei lif,bility as a regular party
' to the undertaki[g sqd undertakes lo pay if the pritrcipal does Dot
P8y. ' ,
A$c@,
I nsu rtnce Comoanv. Incorooratcd ;
@t,,
As provided in Article 2047, the sucty undcnakqslto bc bdund soti&rily
with the principal obligor. That undertaking makes a: sirrcly agrceFreDt an
ancillary contracl ai' it prcsuppos6 thc cxistcncc .of a pdncipel colrtract.
Although the contract of surety is in essence secorflaqr oaty o a valid principal
obligation, the surety becomes liable ficr the debt or duty,of a0 other although it
' poss(:sscs no dircct or pcrsonal interest ovsr the obligrtio nor docs it rcc,cive
arry bcnctit thurclir.rqr. Notwithstanding .thc faot thst. thc aurcty contract is
sccondi.rry to (hc prirrcipfll < bligatiorr, the surcty assumcs liability as a regular
pany to the undr:nalcing.
39
e
' o'
rhe principal debror Baliwag Mahogany Corporation CBMC) for the payment of
rrs clcl)rs to rcspondent bank amounting to F5,O0O,OOO.OO. Undcr aniclJ l216 of
th: C-lvil Code, respondenr,bank as crcditor may procce.d agajnst p.titiofrerS_
spouses as sureues despite the execution of the Memorandum of Agreement
(MOA) which provided for rhe suspension of pa).mcnt and filing
.of colleciion
suits againsl BMC. Resoondent bank's rieht to-c; eit oavmeni fo; ir,.-Ji.*J
tfi'corp"ratio" s.eti"!
fI?:l:I':1I^g- q" .qp of its issuancc-unittiii-a.iii*sat of the petition or
,r"drr",; jil;"ffi
-Ir,
l::i::li:" ,hq.Th*jTpli-"" proceeaings. ;i
"_f
40
The surety obtigates himsclf to pay tbe debt if thc priirciqal dc-tior.vill
not PaY,
;it;;i;@qinsl
sopc"t imd is aSlc to paytr no
th: sur{Y, {!T:t 1l-c
priqr demard. is ma{i on thc'
ffi.rril?it"bt*t
principal debtor.
Although a surety contract is sccondary to thc ptinciPal- oUtiSallol tltl
liabiliry of the-surety is iirect, primary and absolute; -or equivalcnt to that of a
i"g"l"i p""v to the ;dertaking. a trltity is considered in law !o b€ on the sarne
the
d;ii"g;" ihe principal debtoi in relati6n to whatdver is adjudged against
la t rL'r.
. gi
undertBkes directty for,t" poy-.rrt ind is so. r+,ponsibic
A srrety
once il'tlrc principal debtor makcs dcfault If thc obligation ls joint imcl scveral,
the crcditor has the riSht ro procecd even againsl the surcty atonc. ' . -
4l
ti
rf,.,
.0
Secu rltv?acilic Assurance Cornoratlon vs. TrIi-Infente
(468 SCRA 526)
suret), bound itself solidarily with p€titioners (the principal debtors).to fulfiil ar,
otrligation, The obligation was to pay the mongiqD/ eward in'ihe labor casc
should thc decision.become final and executory agoinst petitioners. ,
tn
:gl.uligl
Irabrltties
ro whatever i:
adjudged as tou*iing@
are intcrwovcn rs to b€ inscparable.
't'lu lttopR(ilnLv!.-M$trobank )
(498 SCRA 246)
'f!l liability of a surety is determined.
.
and conditions sel out in tho surety agrcement.
stricily on the basis of rhe terms
42
:
i
Besides,
1
:i
l1
,:
43
Thereforc, a surct,,r companv's liabilitv under thb pcrfomrJnce bond it
lssues is solitlury. 'I'he dcath of thc nrincioal obliqor does irot. as ii rulq.
extinguish rhc oblicalion snd the sotiCerv nsture of qhat liability
Ilggg: Wherher lhcrc cxisrs a contract of guarsnly to hold pctitioncr 'liablc for
the loan ofrhc princiPal dcbtor. -.
i i
Cecilia's conduct in the course of the negotiations aEd contact signing
sho$s that she consented to b€ a guBrantor ofthe loan as witnessed by everyone
prescnt. l'ler acl of "nodding her head," and at th€ same time even smiling,
'
expressed her voluntary assent to the insertion ofthe word "guarqntbr" after her .
sigoarurc. Il is the same as saying the,t she agreed !o thc inge4ion Also,
Ceciliq's octs ol'nraking the partial payrnent oiDl5,00O and writing the letter to
the Register of Deeds sBstain thc nrling tMt Cecilia afffrmed her obligalion irs'
de [,eon's guarantor to the loan. Thus,,Cecilia is now. estopped fronr denying
thst sllc is o guarantor.
The use of the term "guarantee" does not ipso facto meah that the
contracl js one of lguaranty. Authorities recognize that thc word ..guaranlee', is
lic(lucnlly umplol,url in husincss trsnsoctions to dcscribc not fhc seiurity of the
debt but an intenrron to be.bound by a primary or indepcndcnt obligati6n. As
aptly observed by the trial court, the interpretation ofa iontract is n6t limited to
the title dlone but J,o ths e6nlgnts and inteation ofthe parties.
44
This principle is used irr construing conractual stipulations ln ory{ to arriyc at
th.it t.u" mbaning; certain stiputations cannot be segrcgatcd and theri made to
control.
Exception: conttarystiPulation
wilL stuUise. The guarantor or surety, therefore, beconies liable the debt or
duly of irnother olthough he possesses no diregt oB pcrconal over the
ohligations nor does he redeive any benetit therefrom.
n
W I
!hgs!.:.
45
several debtors, Articte l2l T makes Plain that thc solidsry debtor wh<i effected
the payment to the creditor "may claim *oq |tli oodebtors only the share .
whiJh iorresponds to each, with the interest foi thc payment already made,"
lrhil", ir, even as the surety is solidarily bounld with the pqincipal
debtoi to "ont*"t,
the creditor, the surety who does not pay the Greditor I as lhe right to
-and
rccovcr the full smount paid, not just Eny ProPortiolal gharc; from rhe
principal dcbtor or dcbtors. The rights o in&rpification-.and. sulgCutj :. T.
Lstablished and grantcd to thc guarantor by Artiolcs 2066 and 2067 of Civil
Code extend os !;lt to surctics as defined undcr Arti clc 2M7.
tn lhe rec€nt cgse of Escairo vs, Orligas (G.R No. '151953,'June 29'
zooT,526 SCRA 26), we elucidated on the distirrcrion bctwcen a srireqr as a co'
debtor under a suretyship.agreement ard a joint and solidary codcbtor, thus:
I
. the latier is vostsd with thc dghl to procecd against tho fqrircr to collect thc i
crc.dit in liau of p,rrccoding ngainsr tho principsl d.btor b, drc sarlo obligotlon. i
Ar rhc samc timc' ihcrc is also a legal tic crcatod?bstrvsrn dio rui"oty iurd thc
prircipa! dcbtor to wbich thc crcditor is not privy br psty to, Tho'tnoqreot tho . .
surcty fully answcrs to the crcditor for the obligation a:!6stod by tho principa!
_ dsbtor, sucb obligation is oxtinguishcd, At tho easro tinir, tho suicty tnay !.ck I
. rcirnbursGment Eom thc prinoipal dobtot for drc rimouat patd' for lhc alroty
' does in f&t *bc€omc Bubrogatcd to illtho rights ald tcrncdict oftbo crEditor."
lf a surety uoon demand lails to pav- he.can be held liable for interest-
even if in.thus paying, its Iiability becqmes more than thc principal obligation.
'fhe increased liability is not because of the contract but becarEe of the default
and the necessiw ofiudicial collection I
4. Guaranty cannot be presumed. If there is any doubt ori thc terms and conditions of the
guaranly or surety agreemenls, the doubt should bc rcaolvqd in favor of thc guapirtor or surcty
(Philippine Nalional Bank vs. Court of: Appeels, 198 SCRA 767). Hor.v"Vor tho rulo of
striclissirni juris commonly refers'to an accomrnodation sur€ty and is not apirlied in casc of
cotnJrcnsnlcd srrrctics.
46
:
!i
more than what is stipulated. Since the obliaation of the surbw cannot be
extended b'i inrolication. it follows that the surctir calnot bc hcld liabte to the
intervenor when the relationship and obliqation of the suretv is limited to the
defendants specified in the contrast ofsurety.
5.3 lle has sulficient property to answer for the obligation which he guarantees.
6. \Mhere the creditor has required dnd stiputated,.tbat a spccified person should be:a
grrarantor; the substitution of guarantor rnay not Le dcmq;ded (Aiticle 2057) bacause io such a
9ase lhe selection of the guarantor is a tcrm of the agte€ment and. as a party, thc crcditor b,
thcic(bre, bound thercby (see Anicles I t59, f3O6).
,i
47
,l ,,'i.,;
. :1" t:
#!q,n1
I
+.,:e
time the guarantv is cxecuted' This. is the basis for contracis dcnominsted gl a
@ip. xxx In other words, e continuing grrffanfy is
onc 1h:.r c-oiers al I'transactions, including those orising in the hrture, which irre
lvithin the de.scription or contemptation of the contract of guaranty' until the
expiration or tenninalion thereof. . ,
lllr' lhct that lhc cont ract ol'suretvshin was sisned bv thc D€titioner Drior
r().-11-rq-c-\ss.c!i-greIlbe-promissory note does not nesate the former's liabilitY.
Asirbsnk CorDorstion
. (374SCRA698)
Comprehcnsive or conainuing surety agrecmcntg arE in fact quite
commonplaoe in prcsent day financial andicotnmercill practicc. . A bank oi
financing com;mny which anticipot€s cntcring inlo s scrics of crcdit tansactions
wilh a partic(rlar c6mpany, commonly rcquircs .thc projcctcd prjncipal debtor to
executc o continuing surcty agreement Blong with its guraties. By executing such
nn tlgrecmenl, thc principal places itself in a position to enter into the projected
series of transaotions with its oreditor; with 5uch suetyship .agreeinent, lhgls?
would E, no need to execute s. seoarate suretll contract or bond for cach
48
A continuirtg guaranty is one wlrich is nbt limited to s.single transaction'
but *iich toii.t"t a future course of dealing; -covcriig a scries -of
truno.tion.,"ontg"n"t"lly for an indefinite time or unti! revok9d' It is prospcctive
in its operaii6n and is gcnerally intended to provid€ sccutity with respect to
tirture ;mnsactions witliin certain limits and conitcmplatcs a succession of
liabilities. foi which, as thcy accrue, th€ gunrantor becomca lisblc'
A gu:rr&nt!' shall be construed as continuing wherr by the tcnhs thercof it
is cviilcnrihat thi object is to give a standing credlt to the nrinc-iryl debtor t6 be
uscd tlonl time to time eittrer indefinitely oi until .i certain period; especidlly if
it e right to recall the guaranty is expre-ssly reserved. W!leq'' the pontracj of
The law expre'ssly allows a suretyship for -'ftrturc dcbts-. Artictc 2053 '
of thc Civil Code provides: "A guaranty may ilso. bc givcn as scquritv {or
lirtu&jgb!!. the amount of which is not.yet known; thcrc can bc ho clBim
oguinst llru guuranlor until thc dcbt is Iiquidutcd. A conditionol obligation may
also be secured-': (Emphasis supplied) Furthermore, this Court has ruled in
Diio v. Court of Appeals that: Under the Civil Code, a Suaranty may be given
to secure even futuie debts, the amount of which may not be known st the time
the guararrty is executqd.. This is'the basis. for contracts dendminated as
49
I
Exccptions:
Rcslxrnderrt bank's suit againsl pstitioner Jose Tupaz stands despite thb
Court's lirrding th{tt lrc is liable as guarantor only, First, excu;sion is not a pte-
requisile to sccure judgment against a guaianfor. The guaranto.r .con..still
dcmand dclermenl of the execution of the judgment againsi him until after thu
Issr:ls ofthe principal debtor shall h6ve been exhaustcd. Second, the b€n;fit of
cxcussion may be waived. Under th€ trust reccipt ilatc<t ltt September I9o I,
pctili(nrcr Josc l'uFoz waived excussion whcn he agreod that his '.liabilify in thc
Lirarirnty shall be direct and immediate; without any tecd whatsocvcr on xxx
thc part of rcspondent bank to takc any stcp! or exhaust any legal remedies
xxx.." Petitioner clearlv rvdived the benefit ofexcussion ulder his guarantee.
b) ir'guarantor hls bound himself soligarily u/ith the debtor (surerystrip)
e) rrr case of debtor's insolvency
d) \.!lrcn guarantor has absconded or cannot be sued within tl:e philippincs unless he left a
: In.uoger or representtlive
-;;;;;e
a) it j9 fray b; ;at an eiicution on the debtbr's property virill not satisfy the
obligarion
iI o 'ifgrtrantordoes.notsetupthe.benefitofexcuslionandfaiisto.lrcintouttotheiredior,
i
tvailablo pronerry ofrhc dabror \ /irhin the phi/ippines
I
i
&ffirffi"
Rlt,ansa vs, pr.rsmid Co
Article 2060.c. the CiviliCode clearly requires that in order for the
guarantor to make usc irf the benefit ot'exouision, he must set it up against thc
creditor upon the latte 's demand for. payment and point out to th; crEditor
available prop€rty of the debtor wirhin-,rhe philipp\is sufiicicnt to cover th€
amount of the -debf It must be sucsse,C that despitc traviag bcen servcd a
demand lottc-r his officc, petitioner stil f&ifcd o ioint
-at -its out 6 tho raspondcnt
qroryrti91 _of Macrogen, Realty sufficient to cover debt as requirci under
Anicle 2o60 of the Civfl Code. Such failu:e on pelitioncr's pa.n forccloses his
right to set up the defense ofex;ussion. ' !i
.1,i r'
I I li
.',,,|:
50 t,,
\ r',-,
.i,r
s) ifhe is a judicill bondsman and sub-surcty i ' ; :
h) where rt pledgc or mortBage }tas been given by the guarantor as a sp€cial securily
0 if guarantor fails to interpose it as a defense before judglncnt is ren&rcd against hirrr
(Saavcdra vs. Price, 68 Phil. 669)
i,l,'
jolitly'ard
"FF" an<t "GG" cxccutcd s promissory uote binding tbcmselvcs, s€vcr8lly, to
pay "x" Bank 81o,00o.00 within 90 &ys from January lO: 1979. 'fF? si8nd thc note as
principal and "GC"as guarantor. Upon failure to poy the notc on dric data.,"X" Bant iBlcd.'IFFD
and "GG" for payrrrctrt. "GG" interposed the defensc that he was jusr a gu+rartor'and the Ehnk '
mustfir.rtcxhaustalttheremediesagainstth.principal..FF''il..
:
I
,l
"Ci(l's'" ds{'cnse is not tenable. Had he not bound himself solidarily Iilift 'FF" to pay the
obligation, rrntiorrlrtcdly i$ guaranlor, hc could have availed himself of the defensc ofhenefit of
excussiorr. i:r cithur rvords, he cannot be compelled to pay the crcditor the lottcr has
clilraust!:ci irll tlrc Dn)f,e rty of the (lstrlor orrd has resorted lo Bll the leg[l ics ogainst lhc suid
.lul)lor. llur llr!:r iD rll(: prurrrissory rtote, lic bound hitnse I fjointly.and y with "F'l:" to pr:ry .
tlre obligltion t() tlre creditor. The defense o(excussion belirg invokcd by is not available
ro r surcr\ (n [rrclcs 2{)6t{ &Dd.20-59, Civil Code).
2. A compromise between the creditor and the principal debtor- the guarantor but
does not prejrrdicr: hitn. A cornpromisc wlrich is entered into bctweerr tlie guarantor and the
creditor benelits l)ut does not prejudice the principal debtor (Article 2063).
.3. Cuirrarrtor is likcrvise entitlcd to the benefit ofdivision where there ajrc several guarantors
of only one ci,-'t):t)r and for the same debt. 6uaranror's liability is onty joi{t therefore-, they arc
not liable bey()nd the shares which they are respfctively bound to pay (AniclS 2065). .
1
Exccpri<.rns: a) solidarity . I :
b) if any of the iiroumstances in Articlc 2057 should itake pfacc ;
i ' iI i
Natg: Article 2o8O provides: The guaranto*, cven though they be sofidary, arc ictcgsed from.
their obligation whenever by some act of the crediior they csnnot b€ subrogatod to thc
rights, montsRges, and prefeiences ofthc latter. -
]
I{, El'fects of (;unnrrrty betwc.en the Debtor and the Guarantor l
l. Cuaranty is a contract of indemnity. The guarantor who pays for a dcbtor must bc
indcmnified bv rhc lancr. The indcmniry comprises:
'l.l l'hc toral amgunt of thc debt; i
L2 'l'he legal inlcrest thereon from the time the paymcnt was matlc known to th€
dcbtor, even tlrough it did not eam interest for the creditor;
1.3 'l'hc expenses incdrred by the guarantor after having notified the debtor thar
paymcnt had been demandcd of himi .
1.4 l)anrages, ifthey are due (Anicle 2066).
Exceptions:
a) Where the guaranty k constituted without thc knowicdge or against the
rvill of the principol dcbtor, the guarantor csn rccovcr onty inSofar irs the
pa.yment had ben beneficial ro rhc debtor (Arricla ,O5O).
l)) I,oymont b_y a rhlrd person who docs not lnt nd to bc icimburscd by tle
debtor is deemed to bc a donatioir, whicl\ howsvcr, rcquires the debrtor's
5t
':.-
ab.
consbnt. Bul the payment is in any cas€ vatid as to thc creditor who has
accePred it (Article 1238):
c) The right toaemand rcimbursement'iq subjcbt ro waiver.
i.
2. Guarantor has the rigbr of subrogation agEinst itrc &btor to cnable him to enforce th(i
inctcrnrrity granted in Article 2066 and he csnnot demand morc tlEn what he actually paid
(Adicle 2067).
3. '
Cuarantor has lhe riSht to pro:eed ogainst thc &b!or cvcn .bcforc paymclrt in $ic
following inslanccs:
3.I When he is sued ltrr the pryrnent
3.2 ln case ofinsolvency olthc principal debtor
3.3 When the debtor has bound himself to relieve him liom thc guarslty within a
specific lrriod, an<! this pcriotl has'expired
3.4 Whcn the deht has bccoire dernand.rble by reason.of the expiration of thi lxriod
lbr payment
3.5 Arlcr the lapse oltcn years, yvhen the principgl obligation has no fixed preriod for
its maturity, unless it be bf such nature tha! it cEnnot bc extinguishcd excipt
within a prriod longcr than ten ycars
3.6 lflhere arc reasonable grounds to fear that tlrc principsl dcli'toi intends to abscond
3.7 lf lhe princifrol debtor is in immincnt dangcr of bccor.ning ir8olveDt (Article
' 2O7t).
.
Guarantor may eithcr obtein release from ihe guananty or-demand a'security tbat shall
protcct hinr fronr any prooeedings by the creditor and from ths dengcr of debtor:s insolvency
lArtir:1,: ?O7l )
Facts: On July 24, 1987, Danilo Alro applied for. a Rcgular Qard witb SDIC.
He got as his surety his owrr sister-in-lavi Jeanette Molino Attri. Thus, thc two
siljned the Surety Undertaking. SDIC issued to Danilo 6 Regular Card with the
s,
(5.
.; ..o
latter used. On February 8, 1988, Danilo vvrote. SDIC a letter requesting it to
rupgrrdc his Rcgulnr Card to l Diamond Edition with Jeancttc's approval'
Oui.it.r't ruqucsf rvus grunted. Orir Octobcr t, t988' Dunilo dbfaulted in tho
paymcnl of his obligation
lssue: was the upgrading a novation of the original agrcem;nt goveming thc
usc of Donilo Alto's first crcdit card, as to cxtinguish that obliEEtion and the
. Surety Undertaking rvhich was simply accessory to il?
Held: Upgrading was a novation of the oriAinal agrccmcnt covcrillg thc first
credit card issued to Dnnilo.Alto, basically since it was committed with the
intcnt ()f cancelling and rcpkicing itre sai<t Jard: I-Iowever, the novation did not
sen/e te relcase pilitionei fro,r.l,er surety obligations because in the Surety'
Un.lcrtrliing, slrc expressly rvaived discharge in case of chinge or novation in
tlre i!!Ie!:mcnl governing use ofthe first credit_card
Lodovica and Ongkeko. Ongkeko tiled his Answer alleging that hc can only be
hcld liablc fbr the original credit limit of P3,00O.00, and that -the
- renelrral of the
credit cur<l rvitlrout his c()nscnt extinguished his undertaking.
-
.l&Ld: In Molino vs. Security Dinefp Internationol Corporation (363 SCRA
358), the Supreme Coun ruled that suretyship under thcse circumstances is a
continuing one and thc sureqt is bound by the liabilities of thb principal until i!
Iras beeu futly paid.
I
Ongkeko solidarily obligcd himself to pdy rcapondcnt iU tlle liabilitiei
incurred under the credit card account, whether undei thc principal,.rcnewal, or
exlcnsion card issued, regardless of the changeb or novation id thc tcrqls and
conditions in the issuance and use of thc credit Card $gkcko's liability shall
.be extinguished onlj when the obligations are fully paid ind satisficd.
Note: Guaranty may also be extinguished if the creditor had released the
guarantor although the principal obligation remains (Anicle 2O78\ or. in casg of
material alteratiorl rvhich imposes a new obligation or added burdea on the party
prornising or rvhich takes away some obligation alrcady imposcd, chnnging the
legal e1't'ect of the original contract and not. merely thc form tbcrcdf. (NASSCO
vs. Torrento, 20 SCRA 427 n9671).
2 Reiease of one guarantgr by'the crEd.itor without tho colscot of thc othcr guarantors
benefits all to rhe extent ofthe sh'arc ofth€ guarantor.rcleiascd (Aniclc 2O7t 1.
53
I,
3. An extension of the term grantea Uy the creditor to the dcbtor without' guarontor's
l""""nir*un!"itr,t" ttrc guaronty (A-rticle 202-9). i
Toh vs&!!{E!.E-e,s.r!sEl!s
@
[495: Rcspondcnt Solid Bank Corporation agrccd to cxtend n crcdit facility
worth PlO million in favor of r€spondent First Busincss. Papcr Corporation
(titlPC) ls evidenccd by u lctter sdvise datcd t6 May 1993. Pctitioneis Luis Toh
and Vicky Tan Toh rvho are the Chairman of thc Board and Vice-President, .more
respectively, of FBPC, executed a continuing guaranty io favor of FBPC
tlran thirty (30) days from the original acceptance period.as required in:the
" lettc r-artv isc". The continuing guaranty stipulates that Solidbank "may at ant
tirrrc, or liom tirne to tirne, in (its) discretion xxx eitend or change the lime
payrnent". FBI>C defuultetl.
!$sug ls rlrc Rarrk's nurhority to extend the due <tate at its discrction pursu:tnt to
tlrc lli)rcq(r()lc(l provisiort of continuing guuronty absolut€?
.ii
tlel<t: I. The oforequoted provision cven if unders{ood as a sraiver is'conirned
[ri -*c to thc grant of an cxtcnsion and does not gurrcndcr thcr prcrequisites
iheretbr as mandated in the "letter-aavise". In other words, the suthority of the
Bank to deler collection contemplates only iuthorizcd ixtcrisions, that is, those
that meet the terms of the "letter.advise", While fhe Bank may extend the due
date &t its discretioD pursuant to thc Qontinuing Guaranty, it phould nonetheless
comply wilh the requiremenb that domestic lettcrs of credii be supported by
fifteen percent ( I 57o) maryinal deposit extendible three (3) times for a pcriod of
thi(y
'extension,
(3o) days for each extension, subject to 25o/o putial pa).ment per
74
cl'cdils ol othcr obligations guar&ntced by the surcty.
ii
lfe toans aia not rele i
,1.'l
conditions
ol' I lru cr,>rnprehensive srrrety agreernent, we. rule that ,thc cxt .[qlon: of, timc
grirrrrerl to t-ilipinas .texrlte lvtilli ro pay is obligAtion aia iot refd{e de iurety
Villirnucvl lrorrr his liahility. The oegtect ofthc crcditoi tb sue tliq'princii:al at
the rirnc the dcbt t'alls drre does not discharge the burety, cvcn'if such delay
continrres until the principal becomes insolvent. The raison d'etrd f6r the ri-rle ii
thrt thcrs is noihing lo prevent the crcditor from proceediitg lagainst the
principal at any rime. At any rute, if ,the surety is dissatisficd with-ti.rJdeg,iee of
activity displnyccl by rhc crediror in the pursuit of his ppngip{, [c inay pay the
hinrselJ'.and become subrogated io all rhe rig,iris oria: reingaies Lies of
q? *re
the
crcditor. l,eniency shown to s debtcir in default, by delay ted blr the
crediror rvithout change in the tim6 w;hen the debt might ba d
ionstilute an exrcnsion of the time of payment, which woqld
l bois not
'
tbc sirety.'
ln order to constitute an exlension discharging thc surcty
the exlension was for a definite period, pusuaht to.an,t
between the principal and the creditor, ana *rat it was maOc
oF the surety or with a reservation of righis with rcspcii ti
Inust bc one rvhich precludes the crcditor from,- oi
enforcing the principal contract within the period during !!fg*r!hctriin ;in,
lt lgast which '
othenvise have enforced it, and prcilurtes the surety from paying the debt. i
ioulj
.t' ,
Issus: May the conjugal partnership be held liable for an indemnitlr rLornln,
entercd inro by the husband to accorhmodate a third party? I li!l
where the husband contmcts an obtigation oo b"hdf LJ ,nl Jrr,,
P::i1::":",1":",1'_," !:gd p."y.npri"i suctr obligation.roaoirndi ti tli
bencfit of the conjugol po(nership, but 11a1
if the money oi scrviccs 1re givin to
a_nolher person or cntity.and tlc husband actcd gnly as I 3ufcty or giafaitor, ihc
transaction cannot by ittclf bc dccmcd on obfldafiori for itro binont of ths
' I i
conjugal
:-"-'-'-?'
partncrship.
, ,l ii
i
,I
. J . ,, '.. I i
\l:l
i
lrl
. To hold the conjugal partnership liable for an obligation pertaining to the
husband alone delbats the objective of the Civil Code to protect the solidarity
and rvell.being oflhe family as a unit. The underlying concem of the law is the
conservation of the conjugal ponnership. Hcncc, it limits the liability of the
conjugal pannerchip only to debts and obligations contractcd by the husband, fior
the bcnefii ofthe conjugal panncrship.
,:llt
I
partncrship.
flncrsnrp, tJn. the orlrer
On. rne otlrer nano,
hand, when the husband conlracts obligations. on
contracts obllgattons, on i
. hall' of tha
behall'of
behall' the farnily
farnilv business,
business- rhe the la.w
law, presumes thet sucb
Dresurnes that ohlionrinn urr|rld
such obligation wduld
lound to ttrc benefft ofthe conjugal partnership.
redound partnership. | . I j.ijl
i,iiiiri,', ;iil .li :
:.
L. Legat and
aud Judicial
Jtrdicial llonds
Bonds |; ,. i;'r, .I ,I iIl, ,
I
i
A judicial brndsman and the sub-surcty-are not cntitlcd to rhilthil **tit
**tit lf r#
lr.r*b.r*ro'
because they are not mere guarBntons,
guamntors, but surettes
sureties whose liabiuty ir primary and
tiabilltjr is alrd solidary.
|
Inc. ] i
:
Florc.. S* St"orr-hoti Irrsrrrncc Co..
".. (50r scRA 563) . I i
An applicarion for damages against thc bonds must bc filcd in the samc
case rvhcrc the bond was issucd. cither (a) beforc Eial or @) bcforc rtrc appcit
pert'ccled or (c) before Judgment becomcs executory. Theb;ncipal parry'and his
is ,
5ti
(]j
VI. PI,E,DGE
A. Definition
Pledge is a contract by vinu€ of whioh thc debtor dclivcE to thc crbditor or to a third
person a movable (Article 2094) or documcnt evidcncing incorporcd rights (Article 2095) fot
the purpose of securing the tidfillmcnt of a principal obligation with the rmdersrandiiili that.whep
the obligation is fullilled, the thing delivered shall be retumed with all its liuits and aJcessions.
I{cQ.Sarulle-Prq-[le-nr
sp,rrrscs X irnd Y trorrorved a surn of money frorn z and in ordcr to guarantec the
l)uvrrurrl o! tltc l<,ittt, tltc spouscs cnarusted to Z the aransfer cenificate of tirle of their oaicel ot'
&griculturitl lorrd. lt was agreed that the Torrcns title shall only be ietumed by Z to'tle bbrrowers
upon lirll l)ir\ rrtcrrl (rl' tlrc l()itrr. No writteri docunrctlt was iJrawn up bctureen thc parties. Whai
contract wns co[stitured by the parties?
: .
rr. ll,cal csl.rtc nr(lr(g gc ofthe purccl oFtund subject ofthe Toiiens ti0c
h. C'hatrcl mofltsage of the Tornins title as a movable by itself
+- c. l,lodgrc crt'rhe Torrens title as a movable bJ itsetf
(1. I)(.f(!sil ol'thc Torrens title as a movatrle 6y itself
B. (lha rnc ac risric.s
l. A ro l c()ntrucl hccitusc tl is pertbcted by the delivery of the rhing plcdged.by rhe debtor
who is callcd rhc plcdgor ro thc creditor \,vho. is the ptedgce, or to a third person. by common
sgreemenl; i
Alternativc Answcrs:
a) No. Bilatcral contracts cannot bc changcd unilatcrally- -l^n-l9a-g1 !s o$V -a sp.9i.ai15f
r:ontract and Stcvc is stilt indcbtcd to DBnny for the amount ofP4O0,OOO.OO. &sPits tlrc fall ln rhc
value ofl the stocks pledgcd.
b) No. Danny's.right as ptedgcc is to sell the ptedged sharcs at a public salo an{-kccp thc
pioceeds as co aGrai f6r the l,oan ln case Steye dcfaults. There is no showing that th€.fall in thc
vuluc ol'thc plcdgr:J prolrrty wos.rrtributtrblc to thc PlcdSor's foult oi fraud' On thq bontiory.
rhc economici crisis ."os the cause ibr its decline in value. There ii likewise no showing thai-the
plcclgcc hatJ lrcel r.locoivcd as t(, rlrc sut)stonco or <;uality ol'thc Plcdgcd shtrrcs ofsltlck irr rvhicli
h. r,r,91116 6ave had the right to claim tnother thing in their' place or to the .immcdiate
"u.",
payment of tlrc obligation
The contracting Barties to a pledge agreoment mdi stiPulate tliat thc sai4
pledgc will also stand as security for any future advancemcnts .(or renewals
ihereot) thai the pledgor may procure from the pladge.
3. .The persons constituling the pledge or mortgade have thc freo disposet oftheir ProPerty;
and in the {rbsence thereof, that they be legally aurhorized for the pur.pose
4. The thing pledged nlust be delivered to the creditor or to a third person by comriron
agreement. !
facts: Pablo Abclla purchascd a tractor end lcff it in tlrc'safckecpjng ofhis son
Mike. Mike kept the traotor in the grirago of thc housc he is rcotiog from Calibo.
MiLc lcfl rcntrl orruarug,c!. on Culibo's hdusc ond offot€d tho trsctor as scouriSr.
Pablo Abclla rrigd to rske posscssioo of tho tractor from Calibo and ftlcd so
action for r-€plcvin. The trial court and tlie CA ruled in fevor of PaFIo Abclla.
Calibo claims that the tractpr was pledged to him by Mike Abella or in the
alternative, the tractor was left with him in the concepl of deposit. He further
allcged'that even if Mike were not the owner of the tractor, Pablo Abella failed
to (epudiete the alleged agency since he allowed his son to act as though he had
full porvers.
Eg.!d: In a contract of pledge, the creditor is given the right to retain his
debtor's movable property in his;rossession, or in that ofa third person to whom
it hai b€en delivered, until the debt is Faid. For the cont act to be valid; it is
necessary thau (l).the plcdge is constituled to socuro tfc ftlfillmcnt of a
principal obligation; (2) the pledgor be the absolute owncr ofthe thing plcdged;
and (3) tlre pei'son constituting thc plcdlle h8s thc frce disposal of his propcrty,
and in the lbsencc thcreof, that he be leEolly outhorized for thc purpose.
58
c'')
I
t
constilure suoh a guarant-v as may validly bind thc propeny in favor of.lris
crr:clitor, and thc pledgee or mortgagee in such a case acquires. no.right
rvha(s0cvt:r ill th(' pr()pcrty plcdged irr nrortgaged, :
( t /2)
ol-the entire propcny. (Philippine National Bank vs. Courr'of Apn*5, eg SCnl 2OZ.tl98OI
3. Whilc it is truo tlrst undcr nrticle 2085 it is cssential thot thc mong[aor be the absolute
owne_r of thc propcrty r.rortgaged, a'mortgagee has the right to rcly up<in wnat .appears in the
certificate oI'titlc and does not have to inquire further. Statcd differcntly, an innoclnt purchaser
fbr value (like a rnortgogei) relying. on -a Torrens title i$urd iJ pmtectcd. (Duran vs.
lntermediare Appellare Coun, 138 SCRA 491 tl985l) : j .
1. -_ | stipulation whereby rhe thing spledgcd or mortgagcd or. undcr antichrosis (Articlc
2137)shauautbmaticallybecomethcpropertyofrhecicditorinthccrrcntofnonpaymcniofthc.
debt within the term tixed is known as pactun comrnissorium or flaclo comniiisorio which is
fcrbidden b1, law and declared null and void q61"1" 2088; see Vda. de Reyes.vs. De Leon,20
S.CRA 389 [967]; Hechanova vs. A<til, I44 SCRA 450 [1986]) . ;
securily from its pledgor, and bbforg any sricb forcclosurc] the lleieoainofthe
plcdgec, is the owncr ofttre goods- i i , i '.
59
.l I
cJl
1
i
l
Fort Bonifacio Dcveloomcnt Coroorotion vs,
Yllas Lendins CorDorotion i
I l
60.
Ii,
Cl,
o
of th'i pl:rsonal properties. Since S€ction 22 is not a contract of pleig", tha.. is
nD ?dctnt,, c<tntniisoriunt. Section 22 is a forfeiturc clatise rind iuthorizcd
FBDC to takc whatever propertics that Tirreno Ieft to pay thi lattci'i obligations
afler terminating the lease conract urithout judicial intewcnti.on' i i ,,l; i
MCO Sample Prohlem
ll.:',:
' i . i
X Corporarion leased a building to A Corporalion which rhc t"tt"r Jritt irsc as a car shapr
The Lease Contract cxprcssly contains a stipulation authorizing X Qorporation to rctain
possession of or to scll the movable machincries found in thc shop ;n. the evcnr'.-the lessee
dcfaults in its rental obligations and to apply the sale proceeds of said movables ab paymi4t for
the aforcnrsnr iorrcd obligations. After A Corporation failed to rernit several rental paymentSr X
Corporation t()ok possession ofand appropriated the machinerics withoutjudicial iirtervention. Is
X Cblporation lcgalt5, lrllowed to do so pursuant to the aforementioned.contractual stipulation?
rr No. hecrusc thc sitid contr8ctuul stipulittion constitutes I prrctum comtnissoriunr
u,hioh is a void stipulation in a contract ofpledde.
b. Ycs, hecuuse said contractual stipulation constitut$'a daciotlpn Fgo.
':. e. 'r'os, l)cc.rusi.i ssid contractual stipulotion opcratcil as a foifgiturc clausc in thc lease
co'rporotion a
""'"ry "*r"i';ln'
*""":"
::lill;';iil
y"r,'trl"u,,"*
ilI;',lr:itT,I '
d. e;uiZ rtifutrtion constitutcs the law ir.t\rcl; hre paaiis and should
tt
trc respecled, not being contrary to law, morals, good customs, public order and
public policy.
Rcaggl: Wlrcrc thc contract is not one of pledge but mcrely a -".h. to coliect payment
from thr lessec in c.rsc of lermination of thel leaie contmct and ther6 are dhpaid rentals, tlrere is
no pacturrr corr unissoriurn.
I. .
movable property l. immovablc pioperty ,.
,i
:
t. Thc pledgor retains his ownership of the thing pledged. Fie maj,, therbfore, ieil the same
provided the ple<lgee consents to tlre s4le. As soon as the pledgei gives his con.sents, the
ownersltip ol tlre thing pledged is transferred to the vendee subject to ihe rights of the pledgce,
namely, tlirt the rhing sold may be alicnated to satisfy the obligation (Article 2112) and that the
pledgee nrust continte in possession during the existence of the pledge (A.gticles 2093 and 2096).
2, 'I'he possession of thc pledgee constitutes his security. rlcnci, tho dobtor cannot demand
its return until the dcbt secured by it is paid. (see Articlc 2lo5 and Scrrano vs. court of Appeals,'
196 SCRA lo7 [99])). Buf the righr of retentlon ls llmltod only to'rho tulfltlmcnr 6f lht
principul obligutron Iirr which lhc plcdgc was crcuted (Arlicte 2O98). ! i
6l
l:!
?. Pledgee hos-the obtigaiion to take csrc ofthe thing pledgcd with rhc diligcnde ofa good
i'ather or thefamilvl.He is entitled to reimburscment orrlE ixpc-nses incurrea ror-its pres.*irion
und he is liablc for ldss or detcrioration by reqson of fraud. nig.igcnce, dclay or vioiation of the
tcrms of rhe contracr (Aniclcs I I 74, I l7O).
li .
5. The pledgec has no right to use rhe thing pledged or to appropriate rhe fruirs thareof
\ /irhoul the aulhoriry of the owner (Article 2l 04; ;ee ariicte 1977).' - B& the pledgee can apply
the fruits, inconre, dividends or interests earned or produced by thathing pledged ti trre
laymenr
of interest, if owing, and theresfler ro the principar of his credii lsec nrtiiL zrizl.
Exccpti<tn: c()ntnlrystip lation
62
Can A compel B to accept ihe payment and to retun the car? Why?
AJrswer:
No. A can[ot compel B to accept thc payment atrd to rctdm thc car. Undcr the agreement
with A, B is authorized to usc the car. The crcditor may usc thc thing plcdged with.th€ consctrt
of the owncr (Aniclc 2lo4). A pcriod for the poymcnt of thc obligation was also stipulatcd.
Und€r Article f 196, it is presumed that wh€ncvcr a reriod is dcsignatcd, it is prcsirmcd to havo
been established for thc benefit of both the crcditor aird the dcbtor.- Hencc, A iannot.prcpay the
loan and demand thc retum of the pledged properfy until the term had arrived.
'6. The pledgor may ask that the thing pledged be deposited j udiiially 6r extrajJdicially:
,
9 Whsn the rhing plcrtgcd is lorcr founA in th': hands of lhc ptedgor or the owner, onty ihe
accessory obligatidn of pledge is presumed remitled, not the prihcip8l obligation itself (Aniclc
1274).
lO. The salc of the thing pledgej extinguishes thelprincipal oblig!1ion rvhether the pricc of
thc slllc is rrroLc t>r lcss lhulr tlis arnount due,
a) lf lh(J pricc oi'the sale is more than thc amount due the creditar,.rlre debtor is not
entitled to rhe exceis urrless the contrary is providcd
b) tn thc sarne w6y, if the price of thc satc is lcss, ncithcr is the crcditor entitled to,
rccov€r the dcficiency. A contrary stipulation is void (Articlc 2l l5).
' (a) May Matunod demanh the deficiency from Maganaka? Explain,
(b) Assurpe that thc procccds, aftcr deducting cxpcnsc3, had pomc up to PIsO,OOO.OO;
Would Mrrunod hovc been cntitlcd to tha cxocss? Explain,
:.1
(c) Suppose the rings, instead.of being plcdged, had bcen mortgaged to Matunod, would
Matunod have becn entitled to the deficicncy if thc salc's proceeds wcre lqss'lhan thc
indebtedness or to the excess, if the proceedi were more? Explain.
6?
?:
Answer:
Article 2ll5 of the Civil Codo exprcslly provides thct thc forcclosure of thc plcdge
cxtinguishes the principaf obligetion, whethcr the procceds of thc salc Ite molg or lcs's lhiin the
obligation. Thereforc:
(a) Matumxl cairrot rccovcr thc dcficiency. -., ..
(b) Matunod is entitled to kecp the exccss, unless there is s stiPulatibn to thg'contipry.
(c) lf it is a clrattel mortgage,
Matunod can still recover the dcficiency as there is no
prohibition in the Chattel Mortgage Law similar to pledgc snd thc bxcess, if any,
should be retumed to the morlgagor Maganaka. l
Eagls: Petilioner Gloria Sondayon pledged her Patek Philippe sblid gold watch
rvorrh F25O,0O0.OO to respondcnt pawnshop P.J. Lhuillcr, Inc. to.segure a loan
she obiainert from the latter. The.said watch was one of the jewelry items stolen
in rr robhery perpetrared by the respondenl-pswnshop's hired security guard.
'l'!rt: srolcrr.icrvclrv ilcrlr plcdgcd to tlre said pawnihop includirrg said walch
\vcI,s llol insrrrcd by rcspondcnt-pawnshop against fire aad burglary as rcguired
by rlrc Pawnshop Regulation Act. P€titioner filed a complaint for recovgry of
;xrsscssion ol' personsl property with prayer for preliminory atlachment Agoinst
hcrcin respondcnts which was diiimisscd by th€ Rcgionat : Trial CoqrJ .of
Paraflaque on the ground that the loss of the thing plcdged rvas Cuc to fortuitous
event. On ippeal, the Cou6 of Ap.peals allirmed thi rriat cpun's dcciiioir .
llcnoe, the in;t&nt. pctition. -
. , , i
64
l.
i -ond-
Section 195 of the NIRC jmposcs, among othcrs, a DST o,o pledge o-f
personal property made as a security for th€ payment of a $ro of motrc'y' A-
pledge may be defined os an eccessory, resl, and unilatcral.co.ntsact by virtuc' of
wtrictr ttri debtor or a third ocrson deli'ver to th. creditor o.r third pcrson
movuble propcny gs security - tor' the
pcrformancc of thc pt a"ipal obligation'
upon luliiltmeni of which the thinli pledged with all its accessions and
acc*:ssories shall be returrred to the debioi or t-hird person. Seciioir 3 of P.p. No.
I l{ rlclincs a gxrvnslrop os rr p€rson or cntily enlaged in the business oflending
i
].'
money dn personal property delivered as security tbr loans. Thus, in essence, a
i, parvnshop enters into a contract ofpledge with the pa:wnel or thc borrower.
in
!rED9!e49!3.EAra4!l!9Le!
lr. Forcclosu re df Pleelge
66
No provisron irr thc Rules of iourt or in any law requires that Plcdged
propcrties sold at auction be sold separately.
ffi
,
,t n()rice ornn aucrion sale made on ths viry schedulid auction day itscif
deltats rhe purpose ofthe notice, which is to inform a powner beforchand that a
.sal<r is rr)
()ccuI s() (hat he may have that last chance to rcdecm his pa'wned items.
l
.-'t
. Real mortgag,e is a contract whc.eb)4 thc debtor seourcs to the cl€d.itor the firlfillment.of a
principal obligation, specially subjecting toisuch sccwity immovablc property or red rights ovcr
immovabre propeftv ** *";:::':""rn':":::"i:::,::ricd
*'o'| a*he stipurated
'r l'lme
(4s7,scRA2z4), , i
' i ,
Under Article 2085. of the; Civil Codb, the csscntiat ircqirisites. of a
.
which was what Oakl&nd arid petitioners hacl. I tn Statc lnv*tment Housc,
ownership had passid completety to thc buycrs and thcrcfot€, tho fprmcr owncr
no long<lr had any tcgal right io ,nortgBgc thc propcrty, notwithstanding thc fact
. thet thc ncw owtrcr-buy€F htd nol r€gist€rcd the sslc, In tlr€ casc boforc us,
Oaf<land retaincd dbsolute owncrshlp ovcr tho propcrty undor tlro controot to s€ll
' and thcrcforc had every right to mortglgc it. Gcnato's regisfcrcd mortgngo was
superior to petitioners; co-ntract to Jll]subject to aay liibilitics Oakhq? may
have incurred in favor ol petitioners by irresponsibly mortgaging the property to
Ocrruto dcspirc its commilme[ts to petitiotrers under their contragt to sell,
67
Mercgdo vs. Altied Bsnkine Corooration
(s28 SCRA 444)
Where the mortgagee does not directly dcal with rhe registered owner of
real property, thc law requires that I hi8fier degree. of pnrderrcc be exercibed by
the mortgag€e. Tho. principlc is applied morc strcnuously when the mortga.gee iS'
a borrk or o bunking institution.
.
and
more than a merc lien, cncumbrancc, or sccurity for s dcbt, and lasses n<i titlc or I
estale lo the mortgagee and gives him no right or claim to the posscssion'of the
property. ln this kind of contract, the prop.rty mortgagcd is mercly delivcred to
the rn()ngagcc io.secure the fulfillment of the principal oblig8tion. Such
delivery does not empowcr tlle m,ilngagee to convey any ponion therebf in favor
of anothEr p€rson as thc righ( to disposc is an attributo of oq,ncBbip. Thc right
to dispose includes the righf io donat€, to sell, to pledgc or mortgage. Thus thc
morlgagcc, not being thc owner of the propeny, csnnot disposc of thc wholc or
para thcreof nor aausc thc impaimcnt of thc sccuri$y in any ,Dann€r without
violating the foregoing rulc- The mongagee only owns'thi mortgagA credit, not
the property itself
6E
I
I
I
explicitl; iequiris an imperative for tie validity -of a .morlga8e that the
mongagor be the absolute owner of what is '
mortglgcd
.:
Vds. de Jsvmc va Court of AoocrlE
(39oSCnA38o) ;
'fhe Deed of Reat Estate Mortgage entercd into'by the .Iaime sPouses
partake ofa Third Party Mortgage under Art 2085 (3) of the Civil Codel . The
'
iaw rc<.rgrriz.cs insltrtrccs rvhcn persons not direclly parties to a lodn agrebment .
ma1 givc
mfl) security tllclr
us sccurlty
!!rvc os propenies for
orvn proPcrucs
tlreir own r(,r url''Prrrlsrlr.r trapaction. [n
the principal .r..lr5ar.u(,rr. ur this
rrtrD
.oti,
case, th"
thu spouses should not be allowed to disclaim the validiti
validiqi of trirnsbction
trunsaction
they' voluri-tarily and knowingly entered into for the simple rgaspn thtisuch
transaction lurned out prejudicial to them later on. I i,
'
i i i ;
l99l ll,tr lix,.rn Oueslir)n
::!--.::]l!L!l-wE!!:z!! . Ii i
Bruce is the register€d owner of-a parcel of land.with a bi;ifOng tirdcoj ariU 1s ip n1c1ruI
possession thereof. He pays thc ieal caiatc taxes and.collecls tbo rri:qfals;ithqr€ft6n., Il,tcr, .
tlre only brother ofBruce,
cotalino, the
Catatino, orBruce, tllcd whcl! hc, mlsrcPres9D$ng to pe tnc atrorney- '
filcd a petition whcrc
in-fact of Brrrce and falsely alleging that the cenificatc oftitlc was lgst, prrycecdep in obtaining'a
second orvner's duplicate copy of the title and then had the same transfdrred in his name tfuough
a simuiatcd deed of sale in his favor. Catalino then mongagcd tle PrpPerty to'Desiderio who
had ths nro gagc annotated on the title- Upon learning of thc fraudulent trarrsaction, Bruce filed
a complaint againsr Caralino and Desiderio ro'have the-tiite of Catalino and tlte mortgage in favor
ol'l)cJitlcrio Jc<:larccl rrrrll untJ yoirJ. I i i
j ,i i,,il lilil
Answer: ' ,l
'
The complaint for the annulment bf Calalino's titlc is mcrit ; thc sccond
owner'ss copy of firi title secured by him.from
ot'-thri him irom thp Registrition
thg Land Registration Cduit islvoid CLidljg the
owne-r's copy thereof not having bicn lost i Funhermore, said ilccond s qopy of the title
was fraudulently procurcd ahd improvideitly issued by thc Courl' mb.fr;,nsfir Cortilicate of
Title procurcd by Catalino is equolly null'and void it baving bccn ijssircd onl thc basiS of a
simulated or forged Deed of Sule. A forgcd dccd is an absolub nullity and conv?s no titlc.
The mortgagc in favor of Desiderio is Iikewise nulf ana voia UJuic th" olortg.gor is oot
the orvner of the mortgaged property. Although it may-ofbc contended thad a buydr or mortgagcc
has t}e rigfrt to rely on what ippeari oA the Certificate Title, and in the absen{ of anyhing to '
excile suspicion, is under no obligation to look beyond the certificate and.investigate the
mortgagor's title, this rule does rlot find application in the instant casi bbcause'Catalino's title
suftbrs frorn two fatal inliimities, namely: ''
The mortgagc to pcsidirio should trc canccllcd without prcjudioe to his right to suc
Catalinoand,/orthegovemmentforcompensationfromtlicAssuranceEund.
:,
:
69
lsets: RIir- Enlcryxiltcs, fnc. (-RttL:, for brcvity) Cp."; ; prawir
hatchcry rrd lcascd ltom Nclly Bodrejo ('lcssof).a prccl of l8nd wtcra thc
operalions nrrG conducted- RBL subscqucotty obtsined a lo.o ofS2,00O,OO9.OO
'from Philippinc National Blrrk (-.PllB", for brcrrity) rvtich *zs.sccrred by a
real estate morrgEgp iu favor of PNB owr two (2) parEls. of laad uadcr tbc
name of RBL, Iocatcd ar Bago City, Ncgros Occidcotsl and anotbcr rcal anS
chatrel mongage ovcr thc hatchcry facilitics locared in thc lcascd foperf-y df lhc ,
lcs.s{)r. PNI! Ftniolly n:lcascd to RBt- lhc sum of Pl,Ofi),O0O.OO lcss' the r
proprty. The lcssor was rrcvei a pgr$/ to. the loan or tlrc mcrigBge cbntract '
Furthcrmorc, the registrotion of the mortgage contract creotid a rB{t right to rhe
profr:rtics *hich, in subsequcnt trrlsfers by fttc mongagor, the irarrsfcrccs arc
legally bound lo respect-
70
in thct authorized to make the mortgage, if he has not aaed in the name of the
principal.
B. Chaiacteristlcs
l.
'71
Na!uiat vs. Court of Arrperls
(4 12 SCRA s91)
'Thc considcration of the mortgag€ contract is tirc sa,nrc as that of the
principal contract from which it reccivcs lifc, and witlrod *'hich it catrnot axist
as an'indcpcnd.nt contrfct. A moilgsgo contrabt bciog a mcrc acccssory
conlrBct, its validity would depcnd on thc validity ofrhe lonn socurid by it.
'l lre Court of Aplxals sus(ained the validity of 8 loan obligation but
anrrullcd thc mortgogc sucuring it on the ground of failtrre <if cbnsideration.
-l-his is erroneous. A lno(gage is merely an aacessory
contract and its vslidity
rvould depr:nd on the validity ofthe loan secured by it. Henoe, the consideration
ofthe mongage contact is the same as that of the principel bontraot from which
it receives lifc, tnd without ivhich it cannot exist as an indcpcndent contract.
The dsbtor cannot escape the consequerrces of thc mohgagc ibntract once the
validity ofthe loan is upheld.
?. 1l is also unilateral because it creates only an obligation on the par of the creditor who
must free the propeny from the encumbrance once the obli gaticin is t-ulfilled.
3- The mongagor, as a generol rule, retains possession of thc prop€rty mortgaged as security
for the paymeot of the sum borrowed from the mortgagce, and piya tho latter a certain percent
thereof as interost on his principal by way of compensation for his saariftcc in ddpriving himself
of the use of said money and the enjoyment of its fruits, in ordor to givc thcm to thc mortgegor.
AdllwFn tlrlgltrg
(233 SCRA 64s)
72
F
I
)
extinguish tli'e
o*n.i to dispose of the property. Tto law cven considcrs Yoid a stipularion
io.i'iaaingthl o*r,., "i,t'. pi"pJrry from alicnating thc mortgagcd inrmovable. :
4. 'I'he olrjcct pf a real mortgrrge are immovables (Article 415). and alienable real rights
imposccl upon Irnrnovables.
.- .t . ' ,',
'l'irc contractor's right to mortggge. and encumber- iti 14t3 |Td intercsts
in the Finuncial and -fechnical Assistancc' Aifeemeng (fTer{)' ang thc
-
inl-ftrsrnrcturc untl inrprover.nents introduced'' as well as thc miricral -
Products
.*,*",.,t, is not objultionouri pei se. otainarily, bdnks lcad noionly of
on the
goods
.""riiry'-.o" ,no.tgu-g"t on fixed ossets, but otio on e-ncumbranccs
pr.rcluo-e,l that can-eisily be sold and converted into cash thai can be applied to
ih* ,.p"y,,r"'n, of lhe lrrans. Banks. even lend qn the s€curity of-sccounts
,ec.iuibic that arc colleclible within bp days. It is not uncorngron to [ind that a
tiebtor corporati()n has executed deeds' of assignment "by way 9f security'' over
the proclrrction for the nBxt twelve months and/or the proc€eds of the sale.
thcrdol'- or the corrcsponding account$ receivable; if sold on tenns - in fav-or -of
.irs crc<Jitor barlks. Such dce<li may inalude authoriiing the creditors to sell the
products themselves and t6 collect tJre sales procee& and/or 'the accountg.
ieceivablc.
Nole: whilc a mortgdge of lnnd necessarily includes, in thc abscncc of stipylation' lt.thg '
ifri-rove,ne,rrs rhereori u-lcuilcling by irself maf bc mortgaged ainrt frorh thc land on-which it
lrrrilt. lsoriorio vs. crrlir, 4l I si'raA 631) P<isscssory iight* ovc-r soid lpmp€rry. bcforc titlc ir
vesGd on the 8,rantee rnay be validly rransfcrred or conwycd as in 1 -dj:eg -9f mortgsge'
qr*a."tiaf Banf vs. panis, I53 SCRA i9O [1987]; Nartslca vs- cStS, 156 SCRA 2O5 pq87l)
5. tn order that a mortgage may bc validly constitutc4 it must rpPear in a Public gocument
duly recorded in the Regist! 6f Property (sec Gaotian vs. Gaffu4 24 SCRA 706 [1969])'
ncw rcul cslnlc morlg.$ge or ro amcnd the otd mdrtSogc conforniably with th.c
form prescribed by th-e' iaw. Failing to do so, the rcalt canDbt bc bound by such
additironal loans, which may be rebovered by the respotlrlents in an ordinary .l
action for collect ion of surnj of money.
:
I
.t
II$ge: Whether or not lhe rnongagc and its foreclosutc was valid inasmuch as '
subject propcrties had olready been prcviously sold to pctitioncrs Dcla Mcrccd,
Hcld: Thc rcgistercd right of thc mortga8€c of the proPcrty is inferior to the
unregistercd riglrt of the buyer to whom thc property was carficr convcycd. - ..
1'he consrrr,rctivb knowledge.of the mortgagee of the detbct in the title of '
the subject property, or lsck of such hrowtedge dueio its negtigenie; takes th.e
place ol registration of the rights of a party to whom the property had been
earlier sold.
Where tbe issue involves the validity of a mortgage, the action is one
incerpable of pecuoiary estimatio
6. A ,rrortgagc creates a rcal right (sce Tuazon vs. Orosco, 5 Phil. 596 [9O5]), a licn.
inseparable from the propcrty .Erortgaged. which is cnforceablc sgeinst the wholc world. Untll
discharged, it follows the property wherevcr it goes and subsists notwithstanding changes of
ownership.
74
(364 SCIrA 8r2)
Although a mortgage affects the .land itsctf and not mcrely the -TCT
covcrirrg it. thl cancellatlon of thc TCT ind the mortgage annotirtibn exPoscd
petition-cr to reel prejudice, because its rights over thq mortgEgicd prop-erty
rv,.rulci no lQngel bo knorvn and respected by third parties. Necessarily, thcrefore'
rlrc nrrllilicatiorr of 'l'C'I' No. v-4l3lg adversely a{Tectcd its proPerty rigbts,
consiJurirrg that l rcal fi(rrtgagc is a real right and a rea! property by itself'
.
Settled in this jurisdiction is the doctrine that a prior registration ofa lien
crcates.a preference; hence, the subsequent anndtation of ai adverse claim
cannot dcl'cat the rights of the mortgaBee, or thi purchaser at the auction sale
75
Irhose rights u/ere derived from s prior mortgage validly rcgistcred. A conuary
rule will make s prior registration of a mortgage or any licn nugatory. or
meaningless. The doctrine applies with greater forcQ in this case considering
that lhe 8motation of thc nodce of lis pendens was madc not ot y aftcr the
rcgis[ation of the mortgagc, but irlso, and much latcr, a0cr thc conolusion of thc .
loibclosune solc, Furthermore, the mortg3gco itsclf, PrrB, is lhc purptraser ofthc
subject prolirtiee in thc forcclosurc salc,
'
PVB cannot be considered to havc slcpt on its rights when it only
registered thc Sherit?s certificate of sale aticr the laPsc of almost 15 yeers,
because, as already discussed, it registctpd lls Prior mo(gag€ and had already
lorecloseil oD the aame. Pelitioner, thereforc, had cvdry. rcason to expcct tlat its
rights were amply protectcd. The mortgagor was even ben€frt€d by this late
registration of thc Sheriffs Sale, becsuse then, he would still have a chqnce to
redee- the propcrty. Laches, being a doctrinc in cquity, camot bb invoked to.
resist tlre eoforcemertt of a lcgal right. Furthcrmorc, ofl-rcPeatcd is the rule that
the foreclosure salo retroacts to the datc of the redistration of the mortgage.
Thus, it no longer mattcrs that tlle onnotstion of ihc shcriff3 certificate o(sale
and tlrc rrlfidavit of oonsolidation of ownershi| was made subsequcnt to the
annotilti()n (rf the notice of li.s pencler,:.
Nole:
a) lf the mortgrgor sctls the mortgaged propgrty. thc propcrty remains subject to thi
fulfillment of thc olrligotion sccur€d by iL (s€G Bourcvio vs. Qourt of Appcals, 125 SCRA f22
[983]). All subsequcnt purchasers of thc propcrty inust rcspcct thc mqrtgage, 'lvhcther thc
transfer to them is.with or without the consent. of tha mortgBgee. But thc mortgagc must.bc
registcred (Article 2125) or, if not registered, thc buycr must know of its existence.) (see Phil. .t
National Barrk & Trust Corp. vs. Court of Appeals, !93.SCRA 158 U99I]. The mortgagor may
not be the principal dcbtor (Article 2O85, 2E paregraph).
o,iffi
State Invcstment IIouse. lnc,
76
.:
i
!
to mortgage it again Registration of the mortgage is of no momcDt sirrce it is '
:
Bank of Comrnirtc vr- Sen Ptbto. Jr.
,il
I
77
The prcvailing jurisprudence is that a mortgagee hos & right to -rely in '
good t'aith on the certilicate of title of the mortgagor to fhc property given as
iecurity and in the absence of ariy sigrr that might arousc suspicion, hP no
.
For pe6ons, morc particularty those who arj cngagad in itat cstatc or
financirng business, to bc considered 8s mortgagees in good fgith' ju{sprudcncq
requireslhat thcy should take the necessB4r precaudion expcctod of a prudcnt
man to ascertain the status and condition of the properties offered as collateral
and to verifo the identity of the persons they transact business with' particularly,
those rvho claim to be the registered pioperty owners.
' Pl2.75M lo pctitioncrs. Thercafter, petitioners had Siochi's titles ove; thc.lots I
cancelled and secured new titles. In July 1988, pctitiorrrs i entered into 9 :,
contract of lcase with option to buy with Roberto Salapontan, who was unable to
obtain possession of thc lots sincp ttie premises wcre occupied. tiy the Dc
Guzman spousqs. Salapantan fited a complaint for ejectment in August 1988
against the Dc Gu:rnans, It was only at this timc lh81 the De Guzrnans
discovcred tha sale by Siqchi. The Dc Guzrnans filcd a complaint agBinst
Siochi, Salapsnt8n, and petitioncr Uy, secking the rcfoniration of thc April lo,
l987DeedofAbsolu1rSaleandreconv9yanccofownershipErrdtitles'
!5gg9: Whether or .rot petitioners are innbcent purchasers in good faith and for
value.
Hetcl: While it is tru,e ,no, u O"J*n dealing with registcred lands need not go
beyond tlre certific€te oftitle, it is likewise a well.scttlcd rule that a purahaser or
mortgagee cannot ct.:"sc his eyes to ,facis which should put a reaaonablc man on
his guard, and then claim that he acted in good faith under ih€ belief that there
was no defect in th€ title of the vendor or niortgbgor. His n,crc r€fusal to'faf, to
the fact that sucb def(-Et cxists, or his witlfut closing ofhis eyas to the possibility
of the existcno€ of r, dafegt in the vend6r's or rnortgBgor's tirle, till Dot mat"
him on innocent purchaser for valu€, if it afterwards dcvelops th3t the litlc was
in fact defective,'a r'd it appears that he h8d such noticc of thc.defect as would
78
have lcd ro its discovcry had he acted with the measure of precaution which may
be required ofa prudent man in u like situation.
w'hile thc cases cited by pctitioner held tha( thc mort'gagcc is not under
otrligatiorr to look beyorrd the certificate of title, whbn on its fabe,'it \r/as free
llom licn or encrunbrances, the mortBagees therein werc considered in good
t:ritir ar; thcy were totally innoceht and free from negligonce or wrongdoing in
the transrction. ln this case, petitioner knew that th€ loan it was ex'ending to
Carc ia/'l'rlnsAmerican was for rhe ptirposc of the developmci\t of the eight-unit
to\ynhoqses. Petitioncr's insistence that prior to the approval of the loari, it
'uhdcrtook a. thororgh check on the pi,operty dnd fuund thc titles ft,ee from'liens
and encumbrances would not suflice. It was incumbe4t upon petitioner to
inquire into the status of the lots which includes vcrification on whethcr Garcia.
had secured the authority from the HLURB ;t9: oortgage lhe subjcct lots.
Petitiorrer fiiled to do so. We likewise find pctitioner ncgti$ent in frilinb to
.qvcn. lsccrtrriu fiorrr (iurciu if thcrc urc buycrr of thc lots.who;iumcd out lo b€
priyate respondents. Petitioner's want of knowlcdge due to its pcgligcnce iakcs
the pluce ol registrotion, thus it is presumed to know the righti of respondenls
ovcr thc lot. 'l'hc..c0nvcrsion of thc stutus of pctitjorrcr Trqm mortgagc€ to
buyer-owner will not lessen the impdrtance of such krtowlcdge. Ncither will the
convcrsion set asidc the conscqucn-e of its negligencc ss e mortgigee.
the title or titles offered as security were clean of any encur:rbrances or lien, th&t
it w.rs thcrcby relieved of tAking any o(lrer siep to verify the over-reaching
implications shoutd rhe subdivision be auctioned on loreclosure.
79
(,'
-
Tlre issuc of good faith or bad faith ofa buyer is relcvant only where tbc
sub.iact of the sale is a registered land but not where-the property is an
urrregistcrcd land-.-onc rvho purchascs an unrigistercd lond does so at his peril.
RBSI bought the property during the auction sale at its orrn pcril and must
sufftr the consequenoes of its failurc lo invcstigate thc truc owncrs of subject
propcrty.
80
tlglsl Petirioner's act of entrusting and dclivering his TCT and Residonce
C"ttiti.nt" to Salvador was only ioi the purpose of hetping him find a -money
lender. Not having exccuted a Cpeoiat power of attomcy in hcr favor *dT 4'1t
1878 (7) and (12)-of thc Civil eode, hc clcarly did not authorizc hcr o bc his
og"nt irtp.o"uii"g the mortgage. He- only asked hcr to look for. possiblc molp.y
lJnders. As between petitionir and respondent, we hold that the failure of the
lattcr to veri$, esscntial facts was thi immediate cause of his.predicament' Ifhe
rverc rrn ordinary inrtiviclual without any expertise or expericnce,in mortgages
arrd rcrrl estate ilenlings, we would probably understand his failure to veriry
essenrial l'aurs. I Iowevcr, hc has been in the rnbrtgage business fOr seven years.
1'hus, assuming inirt bottr parties rvere negligbnt' the Court oPines- that :
respcin<.lent shoild bear the 1ois. His superior knowledge of thc matter-should
haie nrade lrint more cautious before releasing thb toan And acceptin€ lhe
l}rtlr larv lntl equity favor petitioner Adriano. iiot, rt c riievatd legal
provisiorr, Articlq 2otl5 of the Civit Code, requires that the "mort3agor be the
alrsolrrtc orvner <,[ the thing x x x morlgaged." Hcre, the mortgrgor u'as an
inrp():il(,r \\'h(, uNeculed tlrc cotllract withoul the knowledge -and cons€nt of the
r.rrr'rrcr |iccorrd, crluity (lictutss lh&t ir l()ss brought obout by thc concurrent
ncglig,crrcc ol rrvo'pcisons sllall bc'borne try one wtro was in lhe rmmediute,
priin.,v ,rn.l .rverriding Jrosition to prgvent it: Herein resi:ondcnt -ii, engagcd in
' itre br.,iiness ol'lending ,roney secured by real estate mortgageg - hc could have
easity avoided the losi.by simply cxercising due ncgligence iri ascerrainiug the
' identity of thc impostor who claimed to bc the owner of the proPerty being
' mortgaged. Finally, the equity merely:supPlements, not supplants, the law. The
C. Effcct 0f lUortgage ! ;
l. T'he mortgage subsists penrJing and until aftef thc sat:sfaction of tbc dcbt, to be dischbrged
only upon paynrJni of ihe obligation. (Tormes vs. Ltanes, 384 SCRA 561). The only riSht of a
nrortgrigee in crse of non-payment of a debt secured by real mortgagE would tie to foreclose the
mortgage and have the entumtrered prgirerty sotd ro saiis$ thc outstanding indebtedness.
w
(Guanzon vs. Argel,33 SCRA 474 [970])
8t :\
Chiens vs. Santos
(s3l scRA 730)
Facts: To serve as sccurity for the loan thcy obtained, nispondcnts executed in
Favor ofthc pctitioner I rnortgagB ovcr thcir propcfy and issucd sevcral checks .
'
to petitioncr. Sonre ofthe chccks wcrc dishonorcd which compellcd pctilioner to
suc rcspondcnl Eulogio l'or violarion oi'BP 22, which casca. wcrc subgcqucntly
settled through o compromise agrecrnent. Respondcnt Eulogio .violatcd said
compromise agrecnent prompting pxititioner to forcclogc thc mortgage. The trisl
corrrr orrlcrc<l rcslx)ndcnls to poy petilioncr. On appcul, the Court of Appcals
rcvcrsccl tlre said dccision und ruled lhat since petitioner alreudy iued
rssporrdent Eulogio for violation of BP 22 which is equivalbnt to a collection
suii, hc is alrenrty borred from instituting an action for forcclosuie of mongage.
I lcncc this uppc l.
82
specifically allege thet what is being sought is thc reCovery of the deficiency, gr
tlrat. in the pre-trial, such claim bc raiscd as an issue. I
@
So as not to create any misundcrstanding; howcvcr, the point should be '
underscored thht the creditor's obvious purposc when il forecloses on
mortgaged property is to obtaio plymetrt for a loa! whioh ttrc dcbtor is unablE o,
trniuslifiably rcl'uscs to pay. Tlie rationale is the sami ifthe creditor opts to sue
thc debtor Ibr collcction. Thus, it is but logical thet a crcditor who obtains a
personal .iudg,mcnl against the debtor on a loan wgives his right to foreclose on-
llls nrortLlagc securing tlre loan. Otherwise, the.creditor bec6mes guilty of
splittirrl3 u sirrglc oluso ol'action for the debtor's inabilily (or unjustified refusal)
to t)uy I)is debt, Ncao clvbet bit vexqre Pro unu et ea.lem ca&14. No man shall'
be lrvi!:c vexed li)r orle alld the same cause.
. lftlre debtor rails (dr unjustly refuscs) to pay his dcbt when it falls due
and t is secrrred by a rirortgagc ond by a chctk, thc creditor has tbrec
lrr.: di.:ht
opaions aglinst Lhe debtor ond tlrc cxcrcise of ooc will bar thc q<ercise of the
oihos. I lc rnfly prrrsue either of thc threc but not all or a combinition of them.
1.,/l\'/. (lrc cricdil.rr nriry lilc a collection suil ugoinst ltrc debtor. This will open up
all thc propcrtics ()l'the dcbtor to uttachmcnt and cxecution,'even the rhort8,agcd
property itselfl S?ctrzl,l, the cteditor may opt to foreclose on the mortgaged
l)ropcr'(v. ln casc the debt is not flrlly satisfied, he may. sue the. debtor for
<Jclir. icrrcy jtr<Jgnrcnt (rx)t a colteolion cusc f<rr the wholc indebtedne,ss), in which
case, oll tlre properties of the debtor, other than the mortgaged propcrty, are
again opened up for the satisfaction pf the dcficieniy. Lastly, the creditor may
opt to sue the debtor for violation of BP 22 ifthc checks securing the obligation
bounce. Circular 57-97 and.Section I (b), Rule 111 of thc Rul6 of Court both
provide thet the criminal'action for violotion. of BP 22 shall be &cmed to
neoussgrily includs the corrcsponding civil actioh., i.a, a collcction iuit.
'i
.._....:........-
!)c |rrs Srrntos vr, Court of Anpcnls
(278 SCRA 629)
t
83
tl
is considered indivisibie, that is, it cannot bc divided among the clitlerent
birildings or units of th€ Proje.ct. Necessarily, partial extinguishments of the
mortgage cannot be a.llowed.
the ialter bought a lot with improvement from the Sering spouses which was
subsequently rcgistered in the name of Florencia married to Nelson Pascual
a.k.a. Nicholson Pascual with the Registry , of Deeds of Mak8ti City as
evidenced by Transfcr Certificarc of Title (TCT) No. 156283.' On July 31, 199-5
Florencia Nevalga obtaincd a decree of nullity of her marriage lvith Nicholson
under Article 36 of the Family Code. Without first liquidating their prop€rtigs,
Florcncia together with Spouses Norbeno and'Elvira Niveros obtained a F58
Million loan from petitioner Met obank and consequenaly executcd several real
cstate mortgagcs (REM) on their, prope(ies including the .abovementioned re:rl
proprty subject of TCT No. 15'6233 to secure said loansj Florenoia arrd thc
trtir,.r.ir sp6uses failed to pay their loon obligation an<l as a result ihtrcof.
Merobank foreclosed the mortg3gcd properties. Metrobonk was the highest
bidder at the fo.cctosure sale on ianuary 2l,2OOO. Nicholson, on June 28,i2000
filed a complaint to.declare the nullity of the mortgage with the RTC of Makati
City and alleged thst the property, whioh is still conjuga.l propbrty wus
mortgaged without his consenl. Thc RTC ruled in favor of Nicholson. and
declared the REM on the propcrty covered by TCT No. 156283 and rhe
loreclosure proceedlngs null and void. On appeal, the Coun of Appeals.
affirmed thc RTC dccision with modification dcleting thc award of danrages and
attorneys fees. Hence the pres€nr appeal to lhe Suprcmc Court.
lssue: ts subject propcny conjugat property df Nicholson ond Florencia or is it
paraphernal property of Florencia?
The effect of the slienstion or the mortgagc' with respect to the co-
owners; ghall bo lldited to the portion which may be rllotted to hlm ln the
divisioo upon thc tcrmlDatlon of the co-ownersbip. In th€ casc at bar,
Florencia constifiJtcd tho mortgagc on thc disputed lot on.April 30, 1997, or a
littlc lcss than two ycars aftrr thc dissolution of the conjugal partn€rship on July
31, 1995, but bc&ra thc liquidation of thc ponrrcrship. Bc thla 6s it may. what
govemcd thc Proporty rolstlon. of thg formor rpoutor whcir tho monrtlgo tvnr
given is thc aforcquotcd ArL 493. Undcr it, Florcncia.has the ri8ht to mortgage
or cvcn sell hcr onc-half (%) undivided intcrest in the disputcd property even
without the consent of Nicholson. Howevcr, the righB of Metiobank, as
mortgagee, are limited only to the % undivided portion that Florencia owned.
84
.ill
Acc<.rrdingly, the mortS,age contract insofar as it covenid the remaining- %
oftnJ tit is null and void, Nicholson not haYing consented to '
""Ji"io"a-iJ,rti"n
the mongage of his undivided half.
!of: F
Forcclosurc is but s nccessut ' coru;equcncc of non-bgyrncnt
nr()rtgagc irrdebtednessr--the mortgage can be forecloscd only when .9-t d:bl
rema-ins- unpaid at the rinre it is due. where respondents have nat y€t defiiulled
in tltc paytnctrt ot'thcir loons and their loan was nol yet due and demandable' the
rrpPlir:ation l-or lirrcclosttre ot' rnortgage is premature.
. ,t ,
:?r,
ocamno vs. Ocanrbo
scR/. s4s)
't'he ct'ttct of a rnortBage by a co-orvner shall be limited to th9 portion
that nray be allotted to rhat plrion dpon the termination ofthe qo'ownership.
't.,
' Fer Etst Bsnkqrid Trust Co. vs. Plozsr ' .I :
,i
:
@: .i: :'.
An action to conrpel the mortgagee to,accept Paympntisnd for the
conscqucnt canocltation of a real cstatc mortgage is a persodal ,action if the
mortg,s8,cc lros nol forcclosed the mortgsgc ond the mortgagor ls in possesiion
of thl premises sirlce ncilher the mortgagor's title to rior. pqSsqssion of the
propert) is in question. ' . , i
2. The mortgsgor's default does not olprate to. vcat in'thc mongagpo thc owncrship.of the
cncumbered propcrty. His failurc to rcdccrir thc prgpcrty doos not futotditicglly vcst ownctship
of th; property to ihc mortgngce which would 6rant tbo lrttcr thc rlght to sirpropriatc thc
:
prop€rti or .ti*p.r". of it for i,rit, .ff.q is againstlublic policy. as cnunciatcd by Articte 2088.
(Reyes vs. Sicrra,93 SCRA 472; Ramirez vs. Cdurt of Appcals' 4O9 SCRA 133)
.35
Olea vs. Court of ADrresls
(247 SCRA 274)
b) whcrc thc contract contains a stipulation that ufon Payment ui' irr"
vcrrdor of the purchosc price within a c€rtain pcriod thc documenl shall become'
null and void and have no legal force and et?bct, the, pqportad salc should be
consiclered a mongage uontraCt. I I
A stipulation that should the vendor foil to comPly with the tgrms and
ctrrrrlitions ol tlrc puqnrtr:d contract of salc, thcn thc property shall by virtue
tl)clc()l' lrcconrc tllc pt()tNrty ol'the tenclce is contrary to the nature of a true
. pocto dc rctro solc - it is considered a pactunr commissorium, enJbling tlre
. m()rtgtgee lo scquire owncrship ofthe mortgaged proP€rties without thc need of
tbrsclosure proccedings, which is a huUity being contrary to the Provisions of
Aniclc 2088 of the Civil Code. The inclusion of such stipulation in the decd
shows the intehtion to mongagi rat}er than to sell. j
i
MCO Samole Problem f i
',.
X borrowed money from Y with his perccl of land as security for the payment of said
loan. The pacto de retro sale exccuted by the parties cxpr€ssly stipulatc that in the event X fails
to exercise his right to rqlurchasc thc lanil wi6in nincty (90) itays from ciecution of thc galc,
said property shall ioso facto becomc tlre prcpcrty of Y without nced lo pcrforEr any.firttbcr
abtion or documcnt. X dcfaulM. Can X still recovcr subjcct propcrqr?
i
a. No, bccause X's.p€riod to rcpurahasc thc proparty undcr thc c,ontract has alicady
lepsed.
':. b. Ycs, because the said stipulation is void, bcing
gommissorium.
in the nature of Pactum
c. Yes, because the contract,is actually s'n equitable nrortgage and subiest proPe4y
. has not been foreclosed.
d. No, becouse ownership of the property has already been transferred to Y who is
now (lrc rightful owncr pursuont to the contract which constilutes the lsw betwccn
lhe partics.
!.cccl-Bsjs: Anicle 2088 of th€ Civil Codc; cf. also Olea vs. Court of Appeals (247
scRA 27.1)
llcason: A siipulation iD u pacto dc retro solo thot should thc vendor foil to conrply with thd
lcnnx th('r'col'. tlrc proJrrty slroll becoms thc prop€(y of thc vendee without necd of forcclosuro
ProcccrliDtaE rs rrrrll Atrr,l v$i..1, bcrrrg lt lrtrclunl u9lttr$lrrorltlltr.
86
2.2 , Equitable Mortgagc
and
87
' I-acorte vs. Court of Aoneals
(286 SCRA 24)
"S" e.recuted a Deed of Absolute Sale of a parcel of land in favor of "T" reservjng for
hin)sell'rlrc right to rcpurchase thc same within five years from the date 6f the contract. The
contract pr()\ridod that during tlre repurchase p€riod, "Sf' will retain possessron of the'land as
lessec and pxy thc l$nd tores thcrcorr. The consideiation for thc ssle was PlO,0OO:O0 but the laad
rvts rvorh .hrrrlrk' tlrr. pricc. "S" flited to repurchose the l'Bnd withln the'ogreed period and "T"'
appliucl tu rlrs L'(rrnl lix tli!: corsolidirti<xr ol'his titlc. "S" opprscd lh.: opplicotign nrtd claimed
that he had lhc righl to r€purchasc the land. ,
The contract in the instsqt c&se is an equitable mortgage. The land is mcrely the iollateral or
-that of a ioan oi P[O,OO0.OO. This is clcsr from the dced of sal€ itsclf.
securiry for rhe payment
Firstly, it provides -S" will retain posscssion of thc land as l€s.*rc; morEover, it stipulatcs
ttrat'S:.', the vendor, shall pay the taxes thercoq furtbcrmore, fhe purchasc pric€ is unlrsually
inadequste. Under thc Civil Code, the prcsence of any of.thcse will be suflicicnt to raise thc
presumption that the contract is an equitabte rJrort8Bge.. (Art. 1602, Civil Coda; Gardner vs. CA,
80 SCRA 399;.Gloria.Diaz vs. CA,84 SCRA 483; Labasan vs. Lacu€sta,86 SCRA 16).
D. Extent of Mortgoge
Gcneral Rule: A mortgagc constituted on immoveblc pr"*ny is .not limircd to .ttlc
property itself but also extends 1o all its accessions, improvcments, gpi"ir,g fruits and renls or
income (see Anicle 2t02) as wetl as to the proceeds of insurencd should thi property be
destroyed or the expropristion value of the p-party should it be cxpropriated.
Exception: contrarystipulotioD
E, BlaBketMortgagc/DragnetClausc
88
;':
snd
. and
. Ouintrnilla vs. Court of Aopcrtg
(279 SCR.A 397)
. .
89'
glausc" and operates as a convAn;ence and accommodation to the borrowers as it
'. nrakcs available addilional funds without their having to exicute additional
security documents,. thercby saving time,.trev€I, loan closing,costs, costs'of ^
c\lra legol services, rccording fees, etc. While a real estate mortgage may
excepionslly securc l'uture loons or advanccmcnts, these future d€bts must bc
suffiiichtly described in the mongage contract. An obligation is not secured by'
.r nr(rrtgugc unlcss il comcs firidy within thc lerms ofrhc rirortgage controct, '
'
Itulc 68, Sccrion 2 of the ttulcs (|l' Court pDvidcs that thc mortgrgc
'profrerty mny be charged not only for the mortgage debt but also for thc intdfcst,
otl,i.. chu, gc.* urr.l coJs opprovei by the cor.rrt. I -
'
li. ..\lienition or Assignnrent of IUortgage
l. Sirr.l irssrllrrnrcul is v:rlitl anrl tlrc assigncc rrrrry ' lirroclosq thc rnortg;lgc in cass of
n()npirvt'l'rclr (ll lhc m()rlBoge indsbtcdncss. (Sanli.lgo vs. l)ioncer Savirrgs and l-oiu Bilnk, 157
s('lln I0(, {r')881)
B(rrromeo vs. Court of A rreg!!-lg
lrr l,c'o1>lc'.s l-]arrk & .l'rust Co. vs. Odonr (64 phil. I26), this Court harl
thc ocsrrsiorr ro rule that an assignirrent (of leaschold rights) to guarantee an
oblig$tion is in cffbct s mortgage.
'I'he elements of pactum commissoriurn are as follows: (1.) tbere ihould
bc ll Prolrrty tnortgaged by way ol security for the payment of fhc principal
()t)ligllti(Il, ond (2) there shorrld bu o stipulalion for sutomalic appropriatiOn by
thc crcditor ol tlre thing.mortguged in. cosc of non-paymsnt of the principal
otrliglrrion wirlrin the stipulBted perlod..
Condition No. l2 did.not provide that the own€rship over the leasehold
riglls would automstically pass to DBP upbn the mortglgor's failure to pay the
. lQ:rn on lirne. lt m€rcly provided for the oppointsncnf oi DBP as anomcy-in-
l'trct with suthorityr amorig other thingr, ro sell or otherwise dispose of thc said
rerl righls, in case ofdefault by thc mortgagor, and to Ep,ply the proeecds to the
payment of the loan. This provision is a standard condition in mortgage
contr cts nnd is in conformity with Article 2087 of tlre Civil Code which
arr(lroriz.cs the Inodgagee to foreclose the mor.lgage and alienate the mortgaged
prop{:rty for the payment ofthe principal obligation.
2. 'l'hc l'uct llrat the morlgagor hm transferred the mortgsged property to a thirct person d(rcs
not relieve him from his obligation to pay the debt to the mortgage creditor in the absence of
novntion (McCrrllough & Co. vs. Scma,4l Phil. 1 [192I]).
3. M()ntsBgc cre<tit being.a rpot right wllich follows tho pmporb,. thc oraditor moy dcmcnd
l'rortt ilrrv lirssussor tlrc fxtyment of thc crcdii secured by soid propcrty. Il is necesssryr howcver,
tlrill Prior !l(:[!rlrrJ ]irr l)uyrncnt lnust hovc bccn rrruclc ()rt tlrc dcblor ond tlrc latter lirilcd to pay,
(llrrn\ ol'llh' l'lril lslrrrrils vs. ConccJrcion & I liios. lrrc.. 5ll l,hil. 906 [19291; Nuftcz vs. OSIS
I rttrrlr ltrrrrL. .l /) li('l{A .l(}5 l.:{XXrl).
90 I
i
Develooment Bank of the
Philipnines vs. Licurnin ' !
cll'cctsd is essenlirt. tf rlcrnand wus mde ana arty received by ihc respondents
and the lattcr still did not pay, thcn they wcre alrcady in default and. forcclosurc
was proper. I{owevcr, if-dimand wai not made, ihcn tho loans had not yct
becomc due lnd demandable. This meant that resporidents had not defaulted in
their payments and the foreclosure by petitioner wds prcmaturc. FOreclosure.is
valid onlv r.r,hen the debtor is in default in the payment ofhis obligation. '
{. /\, .ssig,ce canrol ocquire greater rights than thbse perraining ito."n u""ignoa (Koa vq.
qffi#
It is trasic ond fundsmentat thot the first rhortgagcc has supcrior rights
over.irrnior nrortgagees or lttaching creditors
9l
c. Saipulaaion Forbtdding AlienatioD of Morrgaged Property
Suuh u stipulution is void. llowcver, if the mdrtgagor rtienates ihe propeny, the
transl'eree is hound to.rBpact thc catcumbrancc because bcing ! rc6l right. the. propirty rcmains
subject to the futlillmint 6fthc obligation for whose guarantl' it tf€s oonstituted (Anicle 2126)'
l'etitioners insist that the tenancy conlract was illegal as the mortgagor'
sp.rrrs.s cannot. validly enter into in agricultural leasc ogr-ectnent ai-ttr
rcsporr,Jent <iuring lhe ei'l'ectivity of the mongag,e conlr:tct. We disagree. The .
..
Coirrr of Apprals-correctly applied Article 2130 olthe Civil Code wtiich rend.e.rs
!!'rd---0!D-,{ii!ultljet!--ttlbjddjn& the orvner from alienating tle imrnbvable
.,.r,,;f g,-rrl,,-rl- iLl-.'r. lt' is scttled lhat a real estate
tiu4,raric -tloi's nor cxtiruuish thc litle of ahe debtor. rle docs nor lose his righl
ro usc rir ilispose of tlre rnortgagecl property 0us disponcndi) which is one ofthe
1)rirrcipirl allribules t'rl'ownership. 'lhus, in lhc css€ et bar, thgJll)4gagqL
spouses rvere rvcll rvitlrin their rishts whe4-thev constituled resoondenla.s. iln
tigdguiil,nll t.sia. and the legqlitv of the lensehold contract cannol be validlv
15;l-ijgg!_1p th i s urr,rur rd.
Arrir:lc 2129 ol'thc Civil Code gives thc tnortgiig€e (ijSS) the option of
c(rllccling l'r()nr (he (hird person in possession of the moitgeged ProPerry in. the
r'oll\'clll rrl orvrrcr Mrircovcr, thc rrr()rl!'.i8(]r-.lwll('r's s|llc (lI tlrc prolrcrty docs
rrot llust tltu rigltt r.,l tlrc tcgistcrr:d rt)oragutlec lu lirtucloss ott tlts slltrts qvcn il'
ils rrrvrtcrship had been translerred to anothcr person.'l-he lollicr is hound by the
rcf:rsh'rcrl llr.lr tp.rl:c (,lr lhc tillc lre rlctltlircrl.
u. Foreclocure of Mortgage
Rlztl ComIEgfggLESIlElllrLCorDorttig !
i63rscR 55T
' 1"()rcclosire is valid only whcn thc debtor is in defitrrlr in the payment oi'
his tibligrrrir,rr, lt is r necessary consequencc of non-paynrcnt of mortgagc
indchtedness. As a rule, the mortgage can be foreclosed 'rnly when the debt
J
92
rctrruins unpaid at thc time it is clue. In t real estatc mortgEgc, when the
orincioal oblieation is not paid whbn duc, the mortgagcc has the rigbt to
6.;;i;;" on trr-. -o.tg"g., to'have the property scizcd and sold and to apply rhc
proceeds. to the obliSation.
!
and
Iu Sgruscs Estarcs vs. CA 459 SCRA 604 (2005), wc did not find any
justit'lcation to.grant a preliminary injunctibn, cvcn when the mortSogors were
disputing.the amount being sought from them, Wc hcld in lhat case,that "uPon
thc nonpoyment ofihe loan, which was sccuted by thc mortglgc, the mongaged
propcriy is propcrly subject to a forcclosrire satc."
:
93
Prorlrrcers GJ.nk of the Pllilint)itrB v!" Court ol ApDcals
"--*- (365 .sclrA 326)
Whcro rcslDn(lunls hrvrJ nol yct dslbultcd ()n thu pryment ol'their loans
arril tlrcir tilan wos n()l ycl duc untl dcmondablc, lhe lpplication fol lorcclosure
ol' nrrirlgagc is prcmalure.
,\,r :r. ii.rr t.r r-'nlilrct'rr righl trising from a m()rlgagc should be enforccd
\', . jr,r t\'d \,t .rr'.r lilllll llru tiriru lt)e riltht (,t'rrr,:liotr '.rucrues. ( )tlterwisc, it will tc
i':rr-.i lri l,r.:,('rrIrrr,ll rrrrrl thu rrrt'r'lg^gc crcrlitor will krsc ilis rigllis utrd(,r (hc
4r .: l,-'I .:C
eg_n&l's._gbzo
(sr I SCtr.\ 7{ I )
r'!1rr.lgag!' aciiorr prr:suribes irr rdn ( l0) ycars liorn the tirne ihe right ot'
:.r'lr(rri:rc!ilr('s. llrrlt is li()nr th'i) tirnc thc nlortg:tgor dcfatrlts irr tlre paynrent O,'
lr,r rri'lr$ttio'r l{.) thu nt(trtgitliuc, no( l'rorlt thc drtlc (rl'ihe morlgage conlract.
,4
I
i
iVICO SamDle Problem
i
An action to annul a real estate mortgage is:
.4. a. - a personal action which shall bc frled whcre the parties reside
r6. url u"ti"" ouasi in rem unO ut o,ct thc p'rsort of the petitioner':j
;;t ,a"ir";;iiT"i"E;fficient "*tt,l*isdi.tiot
that tlri triai corrrt is vested with jurisdiction over'the
srrb.jeci rnatter.
c. a r<ja} action u'hich shoulcl trc tiled where the nrortgagcd roIrl Pr(!pc-n)' is locatcd-
d. an aotion in rem if the mortgagee has not foreclosed thc mortgage and thc
': mortgagor is in possession of the mortgagCd Property
Leeal Bssis: Chua vs. Total Oftice Producls and Services (ToprQr')' ln.c'.(47t-:9Y
:. 500, 509)l Hemandez vs. Rural Bank of Lucerra, Inc' (81 S(IRA75)and
Biaco vs. i'rritippine Countryside Rurat Bsnk (515 SCR A I 06) .
:'
't
r-'
W
proper remedy to seek reversai of judgnrent in an action for'
fhe
foreclosure of r;al estate mortgage is not b petition for annulment ofjudgment
but an appeal from the judgmeniitself or from the order con{inning rhe sale of
thc lorecioscd reql estate. Sincc rretitionerispouscs t'ailed to avail r>l'nppcal
without surlicient justification, thcy clnnot convenicntly rcs()rt lo tlrt' itcliorr lirr
u"iul-""i for otirerwise they wiuld bencfit from iheir otu" inu ion rnd
negligence.
Unlikc ltule 6ti, which grwerns judiciql lirrcclosttre salcs' rrcilhcr Act
.No. 3135 as ameided, norA.M. No.99-lO-05-0 grants tb.itttrior t"(trnthlltnccts
tlre right to reccive thc balance of the puictmse price 'Ihc only nghl giYcn to
sccon-d mortgagees in said issuances .is thc right t() rcdcr'nr thq lirrccloscd
property pursuant to Section 5 of ActNo.3l35 as amended bv Act N'.! 'll ls'
' Even iq for thc sake of 'argument' Rule 68 is to tx'ap1:lic'l ttt
extrajudicial foieclosure of mortgages, such right cau only be givcn to second
mortlagees who are made partiei to the (iuiricial) lorcclosrrrc- Wlrilr rr scc.,d
,irongagee is a propcr and in a scnse evcn a neccssary Patty to a l"r(r(cc(lirrg t()
foreclote a first mortgage on real property, he is not an indispensotrlc p'rrty'
because a valid decreE may be made, as between the mortgagor a d rhe tirst-
mortgagor, without r€gBrd tA the seaond mortgagei bul the cuts':'ltcnte of
fcituielo make the sec6ml mortgagee a Party lo tlrc Procee.lirqa is tlt' lha lie-n
o1t rhe second mortgagee on tie iquiry of redemptktn is nol aflccted h-r' rhe
decrce o/foreqlosure.
ffi€8fiffi'
. As :r llcrreral rulc, there is no right ol- redcmplion in l.iirilicial foreclosure
ol rrtr,rtliritgc:. 'l-ltc ot)il' cxcntption is.rvhc'n thc nrorlLli!111.".: i:r thc l)hilippinc'
' Nirrirr|lrrl []rUrL undcr. ,,\ot Nos. 2'?4:t a,rd 2()31{ or' u lrnt)kirrLl in,.ititution undcr
t{cprtblic Acl No. i37. 'I'lrese laws .conlbr on the rnongatl)!" lris successor! in
inlr:rcst or anv jrdgrncnt creditor ol the lnortg&gor, t1," ';ght to rcdecm thc
l)r()Dcrl\ soltl on tirrcclosurc - aller conlirrnlli.)n l)y tlrc c()r,r'l ol'tlle foleclosure
salr' rYlriclr rr11ht tttal bc cxcrcised within rr gx;rirx.l of r:tr'; ( i ) \'r:ar' courrted
l'rrlrrr llrc (txlc r 'i' rcgislration ol'the cenificnte r.tl'salc in tllc Ilcgi:ilt'v of l)r()Perty.
Sittcc thc llrortgrrgec itr this case is lr()l (rrlc rrl'tlro!'c lllc:lli(rned' no right
ol' r cdcrrrption c\ists irt I'avor 0f petitionct s. l'h.:v tncr(-!r' lrlrvc an cquity ol'
tc(l(:rnl)liort rrlrielt is lltc riglll rtf thc dc,l'cttrlarrt trr.rrtg:rL:()r Io c,rtinguislr thc
nr()rtgi.igc irnr.l rutain orvnership of the propctly by payirri; tltc secirrcd. debt
rvitlri-n'[hc nincty-day perio<I ailer the judgnlent beconres t'ilnl, in accordance
rvith Rule 5tl, or even atler the tbreclosure sale but prior to ils contlrmation.
2. Extiaju<Iicial foreclosure is govenied by Act No. 3135, ;rg ainended, if arrd whcn the
mortgagee is given a speci fic power or express aulhority to do so
,.\ sal(: at public attction held rvithin thc interverring 'periocl provided by
ia*' (..i.c.. at an1,.. time lrorn 9:0O a.m. until 4:0o p.m.) is valid' "vithout regard to
llrc durtti(Ir or lengr,th r>l'tinrc it took the iluctiotlcer t() condrlrt lire proceedings
tl
Et*tt'trn*#*
1
97
ln l)evcloPn.ent uunk c/'rhe Pltilippines vs. ()out't .,!'APPeals <4O3
SCRA 460). the rcpublication of the Notice of Sherilfs Sale of a postponpd
exuajudicirl sale it ncc€ssary'lor the lattet's validity. laespondcnt shcrir[ failad
to publish in .a ncwspoper of general circulatioo thc notice of the rescheduled
auction solc oi ttrc m6agaged rcal propcrry.
a) Puhlic auction ruust be conducted in lhe provincc wltere thc profrcrty is siruaied
;
f)evclorrsrent Brnk of the Philirruines vs. Corrrt of Anneals
(403 SCRA 460)
Under thb Chattcl Mortgage Law, the (rnly requirernent is posting of the
noticc of auction salc. Therc was no postponcmirrrt of tlrc $uction sale of the
personal propcrties snd thc foreclosure took place as schedulcd. fhus, thc
cxtrsjudiciol forccl<isure of ttu chattel mo(gagc suffers liom no proccdural
in firmity.
98
n
.i i.
' ,: 'i.'
.
:- :,
; Ir'
i.r.-"r'i. -
-t'
l ..;
rl
i. .: ).i..: i'
ii
(-otrrl of ;\ trrrr'rrls
( )rrrrrrrr vs.
(3e8 SGRA 52s)
Tho parties havc absolutely no right to woive lhe posting and Publication
requircmcnts of Aot No. 3135.
Istlg! Can ttre partics to the mortgagc vaiidly waivc lhe posting and publication
requiremchts nrandated by Act No. 31357
to0
considerations and any waiver thcreon would be inconsistent with the intent arld
letter of Act No. 3135. Moreovcr, statutory provisions govcming publication of
notice of mort8,age foreclosure seles lnust be strictly complied witli and slight
deviations therefiom will invalidrte the notice and render thc sale at the very
least voidable.
and
aid
Bsluvut vs. Poblete
(514.SCR/t.37O)
The Court takes judicial notice oi the fac( that nervspuler publications
have more far-reaching effects than posting on bulletin boards in prrblic places .=
hence, the publication of the noticc of salc in the nerrspaper of gcneral
lol
circulation alone is more than sutTicient compliance with tlrc notice-posting
requitement of the law.
The lusl poragraph of the prescribed notice of sale irllows the holding -of
a rescheduled auction sale without r€posting or republication of the noticc.
I lorvcvcr, thc rcsclrcdulud suction sole will only bc valid if lhe reschcduled date
of auction is cleririy specitied in the piior notice of salc. The absence of this
information in the prior notice of sala will rcnder the rescheduled auction sale
void lor lack of repostihg or republicatiort lfthe noticc ofauction sale contains
this particular information. whethcr or not thc parties .grgcd to such rcschcdulcd
date, there is no more nced for thc rcposting or republication ot'the noticc of the
rescheduled suction salc.
Lack of republication rendirs thc dale held rwo rnonllrs after the
published darc ofthe sale, void..
d) Personal notice 6 mortgagor is not required (Bonnevie ./s. Coirrt of Appeals, 125 SCRA
122 11983]; GSIS vs. Court of Appeals, l7O SCRA 533 [1989]; Villavicencio v. M6jares;
398 SCRA 314 [2004]) hence.npt I ground to set asidc the forcclosure salc (Ardicntc vs,
Provinolol Shcriff, 436 Sq,RA 6jS),
t02
':t' '-
;*.-,...
IYletroDolllon l,anl('c r rusl, r-o1ll l,LuY
(5yu PY--ri+ rdo, ..-:
. !
;,: 'l,
;fi.:.
15: i .
'' Metrobolitan Bsnk
MetiAirotjtan
" ,irt
,ii-l
Brrll(=qBg
:.,i{-:, ::;(1f?sgs6oP} i:
i'1.ef_?,fff,H'oai , .,t'i.i
H:y"s9l*pm,9flpyysj
,:l
''
:
,:
-:";t
;,'.'.- . .undrir:scction
pioceedingi.
of.fct
.undcr:scction 3 of.Act
: ..
No.'.3135 'ii,os.'fsFt t9 tlre vdidity oflthg f6rcclo
No.'.3135
ii ' ' ', 'i:
| .., .', .'
., Proceedrngs. .. i';
,il;':.
r,. ,,
."...
.. ;;
'.i'i
....t. ... ",..',
.'
r\.. liir:1 .!i
i:i:t.j..', ,, : ,i,l''i.,.:,'
,i,
,,
r'ril:i-+.ti-_,,
ii:i-!+.li _'
' r''B(: B'rik vi
-
M{,fg.uez
1..;
;, '
l. '
.
."'-: :
. Y
' i :'i'":@E9
, .. i.,,.,r .
'..
' l' .i
"1: '. compliin abour not?travingl.peen personally notificd or givcn a copy,'(f tha
i:' thc iusi, ol'rtre nltice, of-thl sheliffs sale' Exiant rules. do not r€qir-ir€^ tt
-r m<irtgagee. atieit such notification is a requirEment
nbiifiea, alfieit
m<irtgagee be so no1ified, un{er. ceF
requirement unq€r. ce:
foreclglure ssa
i:: i -, . t't, circumstandes
tances *itli'iesircct qbrtgdgor in an extrajudicial
witliiesircct to the qbrtgdS;or
wi$'iesircct mbrtgdgor foreclosure
Ia'I, ':" r' l'" ,i''I'i "' 'i-i prot
]
teqqii"-tnt"
llg#;,,f; "':*':i6$gi*:;ffi
tJ";;, e).:.':: Burden of Droof
"[fi,iil;-riiu""iwith
the
iiif,i,.
of
or foreclosur!
rorecrosure
I -;rl l
if;'g;i lr--':--:.'---,;f;{.ki"r-:-.r.lJ;
lffi,iffi
Fi*-ii$;,' ii.
ri'
:io':"':""*
-fiisltt, i'i.'. '
i.Sr{i isl,ttr i'i:
i:l
:
i,
'
,i
,,i
''.
.'.
j #
-i.ttnfn-I^ii;;'ri)
ii:'"tr.'::r'ls
R6';ti nf rh. Phllirrnirca
.,i.i:,.u-..:i-"}(6oJtSCRA168)
:
*,
,, ri
... \i
,, ** ,*,,,oj;ii',i,
.!
..t
*+;6.4*' i:i'
l&fii$jlri ,"*i;o***ffi[,,;ffi[ffi$]"o,'
;p.,iria*;
ii:..,.ii::'.
..r-]g''' rbspondents
respondents to
to1' thcir' 'dciia[i:6f
' pi6vc.r petitioncrs'
i claims; a' ,. fo,EqIbJ
l*.dli-f <r
,f.: I I,i: pioceeaing!.wcri!fui4v
proceedings.wcie wip'Aot 3135. we aiiafii
.'
:'i ::'' 1 ""nsi.u"t"ajebdiiitent
tticumbir lrdtatiddui'dtit'ibn qni''itdqt (he who asserts, not tre who dqn
l, i ':. must prove). . Thd bqrden of proof that foleilosure proceedings on tle yh
.i
l : :, j ;
,:l
-:i
] :
t,!
t-.
'
517): Tb(, iling of a bars tbe
Uvnilcblnd vs, Oulsmco
(slo scRA 1?2)
Since the Spousbs Landrito, tilp debtors in this case, were not Siveil ei
oppoffunity ro settle thcir debt, at the correct amounl and without the iniquitouS
interest imposed,'no foreclosure procaedings. may be instituted. A judperii
ordering a forcclo5r.tre sale ii conditioned 'upon a'finding on the correct amount
of the unlxid obligation arrd the failure oi.the debtor to pay the said omount ln
this cn'se, it.hls not yet becn shown that thc Spouses l,andrito had alrcady failed
to puy lhc corrcct qmount ofthc debt end, rhereford, rr lbrcclosure sale'cohnot bg
conducted _ in ordci' to answbi for, the unpa.id debt Tbc forcclosuc sale
conducrid'upon their failurc to pay S87,4,125.OO i; l99O should bi nutlified
sincc the irnouni Aixnanifea ttri oBtstanding loan was o\r€rstaiad-; :
.
.
.Philinnine
Nrtional Bank vs. t&camors
(600 scRA 39s)
105
!.t.*
unbridled right to adjust interest rates unilaterally. As we said in the same Banco
Filipino case, aoy increase in the rate of inierist made pursuant
to an Csqrlalioe clause muca bc ihe rcsult of an ogrcerBcDt bciween the
pirtlca; Thc minds of all thc panics must mcct on thc proposed modification as
this modilication affects an important asircct of thc agrcemcnt. There can bc'no
contracl in thc true scnse iri thc absence oflhe elcmenl ofan egreemint, /.e.. thc
panics' mutual consent. Thus, any chrnge must bc mutually agreeil upou,
oaherwhc? thc change corrles no bindlng effect. '.
The groundb for the proper. annulment.of thc foreclosure salc arc lhe
following: (l) thst thciE rras fraud collusibn, aocid€rt, mulual mislako, breaoh
_ of trust or miscoDduct by thc gurobaser; (2) tlDt lhc EEb h.d not bcca Aidy aDd
rcgularly conducled; or (3) that thc price was inado{uatc 8nd ttlc inadequacy
was so gr€at ?s to ghock the conscicncc of the court.
, In the. absence ofproofof gross inadequacy offhe price, the fact that rhe
sale was made with what might appear as an inadequate consideration. does not
make tlre contract one of mortgage,
l06
(-enturv Savinqs Bank vs. Srmonte
(63{ SCRA 26r )
Ii' r
1:
1.
Nore: This righr to recovdr deficiency had been catcgorically resolvcd in Statc Investment vs.
Cqurt of apfrals (217 SCRA 32 tl-9931). Ergo, thc mortgagpe is- cntitled .to recovcr the
deficiency in case-the sale proceeis arl not lufficient to cover tbe debt in extrajudicial
foreclosures. (Cufiada vs. Drilon,.432 SCRA 618)
107
, ,r; 4.,
.1 l
:.l
il, e. non-
Rcmcdlcs of an
of
.i:
Suico Ratt&n & Buri Interiorc. Inc. vs. Court of ADDealg
(49O SCRA 560)
The fact that the mongagcd Propcrty is sold at an amJunt lcss than its
sctuol v&luc should not militati oguinst thc right to such rccovery--a rnortgagoi
shnds to guin with o rcduce<I price becouse hc lxrsscsscs the right of
redemption.
A Icrnedy is deelrlcd chOsen uPon thc tiling of the suit lbr collcction or
upon the liling of the complaint in an action for. foriclosure of mortgage'
pursulult tri the provisions of Rulc 68 of the Rulcs of Court.
whcre the rnortgage creditor chooses thc rcmedy of foreclosure and the
procecds of the foreclosure sale are insuflicient to cover the debt, the nlortgagee
is entitlcd to cleim the deficiency from the debtor. This rule is based on the
principle that the.mortgage ii only a seourity and not a satisfaction of the '
l"aots: Spouscs Antonio und Asuncioo Chua wcre the owners of a parcel of
land. Upon Antonio's death, the probate coun appointcd his son Allan as
special administrator of Antonio's intestate estate. The'court also authorized.
Allan to obtein a loan accommo&tion of P550,OO0.OO from Philippine National
Bank lo be scc'ured by a reat oitate mortgsge ovcr thc irforcmentioncd parcel of
land. ln 1989, Alldn obtained a loan ofPI50,O0O.O0 from PNB and exccuted'a
deecl of reat estate mortgage on the aforesai<l parcel ofland. tn 199O, f,or failure
to pay the loan in full, PNB extrajudicially foreclosed the real estate mortgage.
During the auction, PNB was thc highest bidder with a bid price of
8306,360.00. Since PNB'S total claim as ol thb date of the auction sale was
1579,185.63, the loan had o payable balance of P372,825.63. To claim this
deficiency, PNB instituted an action against Asuncion and Allan. Both the trial
court and the Court of Appeals dismiss€d th€ complaint.
lssue: Whethcr pctitioner PNB may still pursue by civil action thl rccovery of
thc balance of indabicdncss aftcr hnving forccloscd tlro mongrgod propcrty of
the deccased.
Fleld: Section 7 ol'Rule 86 of the Rules bf Court grants to the mortgogee three
distinct, indedendent and mutually exclusive remedies that can be CigIEAIf4ly
pursued by the mortgage creditor for the satisfaction of his credit irr case the
109
mortgagor {ies, among them: (l) to waive the mortgage and claim the entire
debt from the estatc of-the mortgagor as an ordinary claim; (2) to foreclose thi
mortgag€ judicially and prove any deficiency as an ordinary claim and (3)-to
rely on the mortgagc exclusively, forecl6sing the same at any tinre beforc it is
barrid by prcscription without right to filc a claim for any deficiency.
Thc plain rcsult of odopting thc tast mortc of foreclosurc is that the
crcditor wrivcs his right to recover sny daficicrlcy from tlre csbre. Following
the ruling in Perez vs. PNB (17 SCRA 833) that rhe third mode includ€s
extrajudicial t-oreclosure soles, the risult of extrajudicial foreclosrrre is lhat the
creditor rvaives any further deficiency claim.
M. Kinds of Redemptlon
l. Equity of redentption or the right of the mortBagor to redeem the mortgaged property
afte; his delault in the performance ofthe conditions of the mortgage bur beforelhe saie of the
rnortgsgcd propcrty or conlimraliorr t)f the sale (scc Top-llalc Intirrnationul Services, Inc. vs.
lntermediate Appellote court, 142 scRA 467 [t986]). The rnongagor's equity of redemprion is
simply the right of the.mortgagbr to extinguish thc mongage and;tain ownership of the prop€rty
by paying the sccured debt within the 90-day period after the judgment becomes final, in
accordance with Scction 2, Rule 68 of lhe Rulcs of Court or even aftci the foreclosurc salc but
prior to its confirmation, (Limpin vs. Inrennediate Appellare Courr, t66 SCRA S7 tt986l),
2.
. Right of redemption or the right of the mortgagor to redeem thc mortgoged property
within it was sbld. for lhe satisfactioir ofrhe mortgaged debt.
a certain pcriod after
ll0
N. Right of Redemption
l. In all cases of extrojudicial salc, the mortS,a8or may redeem -the properq at.any time
within the term of one year from and after rhe date of registration of the sale (sce Scction 6, Act
No. 3135; Reyes vs. Tolentino, 42 SCRA 363 ll97ll', Landrito' Jr' vs. Court of Appcals' 466
scRA l 07[2006] ).
De l,e Pbfir vs. Alon".O
(s9r scRA 646)
. ln cxtr.rjudiciai foreolosure, \ rl'Et is cxlanl is thc right of redemption-or
the right of rhe rrrortgagor io redeem the property rvithin one year from and after
thc' datc <>l' salc.
t*.
lt
_: ;-.
-i_r_
lll
Answer:
Yes, the action shoutd be given due course. The one (l) iqr period of
counted from thc registt{tion of the sherilfs ce(ificate of sals bcnac.fhc.actiq
prescribed.
Rightot'redemptionisthepreiogotivetoreacquirdamortiagedpropci-tilt.''1,
atler regiitration. of tire focclosure sale. lt cxists onty in tf,t -cu"i, oi = ' 'rr; ii'
extraj udicial for&losurc of ihe mortgoge. No such rigiit is reaogniTgd i4 a . .. , ',:
tt2
Villeqss ys. l.insan
(s26SC, RA 69) , I
I
. '.t:: :'l
3
foreclosure sale is precluded from doing so by conduct sullicient to bring
operation the doctrines of waiver and cstoPpel.
In a real estai€ mongage when the principal otligation is not paid when
due, the mongagee has the right to foreclose tho mortgagc and'to [avc thc
property seized and sold u/ith the view ofapplying the protreds to the payment ..
olthc ohligation .. r.
1'he period within which to redeem the proPerty.:sold st a sheriffs sale is
no{ suspendcd by the instirution ofan action tp an4ul the foreblosure. silel l
. I'hc onc-ycar redenrption period should be counted not from the ilate 9l
l'orecl()sure salc, lrut from t'hc time the certificate of iaie is registered with t]re'
llcgislry (,l'I)ccrls.
The general rule in redemption is that it is not sufticient ttiar u p.rsot
otTering to redeem manifcsts hivtrtr dcsirc to do so, Thc. stsicheollof intention
nrust l'rc irccomprnicd by an actual end simultancous tcndcr of paymeni. This
constitules the exercisc of the right to repurahase. Bona lide redemption
neoessarily implies a reasonable and valid tender. of the cntire purchase price; :
()therwise the rule on the redempt"ion period fixed by law. can easily.be
circurrrvenled. There is no cogent repson for requiring'the vEndee to accePl.
payment by installmerits from the redemptioner, as it nrould ultimately result, in
on indefinitc extension ofthe redemption period. , i ..i
i:.1'rl
The trial court, ciring State hvCstment Housb, Inc. v. Coun of Rppeals,
2l,s SCRA 734 (1992), Belisario v. intermediate AppeltaSd Court, 165 SCRA
I O I ( I 988), and Hi-Yield Realty, Inc. v. Couit 1of .Ai;peals, 388 SCR4 655
(20o2), declu.rcd that thc filing of the CivillCompldint has the effect of freczing
the redemption Jreriod and preserves the rights ofi the. aon*tor',to rbdecm. thc
l)r()pcrty l'rrrccloscd, ond thot thc filing of,thc colrl action to cnfoice the cqrect
redemption price.is equivoleht to s-fornal offer. to rcdecm. Sudh rule has no
application in the instanr case. Such rub applies only when the complaint'to'
cnforce a repurchasc is filed withio'thc perlod of redcoptlou i4 which'case,, .
the same will b€. equivelent. to an offcr to reC€€m.6nd bava thc effeat of.
preservingtherightofredemption.Intheeecgbeforeur'thecompIaiot.for,
redempllon (Spedilic Petformance) wrc lilb{ beyond the o:tFygsr
redemptlon gcilod or on 12 SepteEber.l997, oore thsn twelve yixB lroqg l
.
20 June 1985 whlcb ls the l.st day of said porfod. Wo do not consider the'
complairit filed by respondents on. ll December 1984,. docketed as Civil Case '
No. 85-33933; for Annulment and Cancetlation of Extnjudicial Foreclosirre
Sale to bc an action for judicial redemption becausc its purpose was not for
rcdcmPtionbutfornullificationofextrajudicialf6teclosuresale.
114
?
, ,' :::
.i,
' -' l 'L':f i
the priod prescribcd b5r law. Their belsred att€mpLs to qucstion tbc legality ald l. ;- ,
valirtity of ihe foreclosire proceedings and public lrctiori must ac<iordingt, fail. ; ,,' . ,
! .',, :':.ii..,.
2. ln judicial forcclosure of rEat estala mortgagp, thcre b !q ri8Fl.of- rcdeegr, e,.,tfieS-i
cquiry of idemption which b"-;-;;;b"; f"i; ani" scrt;ooiriudgnatt;f foryct*I9
-i Ft vr..r ho do€s 8o bcforc lhc.forrclos-ure'
ftrhin rnc
and l^.ltnln
an(l iinetyday-c6.ut
ttrc nllEry<Illy period
P(:ffxl arts
and lrvlial lrlsllrr.rul;t por.idod
even thcrcallcr
sate is confirmcd fi rfre (Anderson vs. Rqrcs, 54 PhiL 944). c;oofiirr atio-P of.thc satc.if : , .
mortgoged rcal propcrty ;ghe or i-"tcL*s of oc m6rre!€pr td of rtc.-Portgsliec
""r"
,"O ftiorrs trotding uriacr hi- u"a"rr*JiG"o,ittt ri"nr O* irf ro&mpriJn-in rbc pop11il-and,vests..1'
th"- in th" p,r*hi... Confirmation rctroacts to"q"ity tifc Aac of Qp safc. tt is a.final, 'brdir.; not t.l
inrerlrrcutory. (Ocampo vs. Domalanta. 20 SCRA 1136 11967);. BinPIbaE4I Estate Inc- . vs,
Garuslao, z6 pi,ir. rzi It946]; villar vs. Javier,97 Phil.604 1l955li f-oozqma YslAIxigr?s, 134
scRA 386 lressl). t
, ' 'l , .t,
Exccption: Flowever, if the properqr has Ueen mor,tgaged in favor of the f,trevelpirrnent
Bank of the Philippioes (CA a59) Philippine National Bank (RA 1300),
banks, banking and crcdit institutio4s (RA 337, o1 the Gineral. Banking
Act) or rural banks (RA'26?O), rc<icrnption is lallo\rrcd wilhin one year
from thc registration of tlre salg. (Gonzalcs vs. Ptfl. Nmiorrat Banlq 48
Phil. 824 t 19261). The redemption mus be made within one yehr dner the
s lc if thc mortgagec is a bank, banking br crcdit institutioo (Section 78,
R.A. No. 337; PiaLno vs- Cayanong, sup-a). Uodcr.tlrc Rcvised Charter of
the PNB, tlre period is one yr:ar from re regisraricin'tif the foreclosure
s:rle.
l- . 'flre redemption
the sale.
payment-
I l5
'folentino vs. Couft of Apncols
(s17 SCRA 732)
snd
Tolentino vs. ShentoB Rcalty Coroorqtlon
(s90 scRA 24)
snd
., ii*-,i",
r't,:ri rrs iri i it'; Jlili;;i;;;'J; ;". fi i'i;i*-;il ;i ii"ntd;
must bc occomponied by on aciual and simultnneous. tandcr of pay{ent. Tbis
constitutes the exercis€ pf the right to repurchasc. Otherwisc, the offcr to
rddeenr is incffectual,
I t6
De Roble! Ys. Court of ADDeale
@
As of May 31, 19q4, petitioacrs wcrc rcdcmptioDcrs. As thcir mortgagc
indebredness was extingrrishcd with the foreclosuro arid salc of tbc mortglgpd
subject property, what thcy had r*ts thc riSht of rrdemption drsntcd to therr by'
law. But thty losr thc right whcn thry failcd to excrciso it wilhin ihc prascribcd
pcriod. Petitioners offcred to r€docm thc subject proparty only on Dcccmbcr
199O, morc than six (6) years aftcr th€ forcclosurc salc of May 15, 1984: .
Evideirtty, that was a belated Btteript at exercising a righr which had lodg
crpirecl. 'l'o rllorv redenrption at such a late time would simply be urireasonable
and rvoukl rvork an irrjustice on respondent spouses.
Under the Rules, it the nrortgaged property is not rededmed within ohe
year from the tbreclosure sale, the pirrchaser at public aucti<fn is entitled to'
possession ofthe property. To obtoin possession, lhc vendee oi purchascr'may .
paid
lhc tuxcs lhcrcorr, il'urry, by thc purchascr witlr the s6tno rote of intercst computcd from the
lale of
date .tf renistririrrn or'rhe sale.
registration.ot'the sela i . t.f
ll
Allic(l lldnkini! Corrrorrlion vs. Mrlco
(58a SCRA 538)
The generat rule in redernption i3 thaf it is. Dot sufEcicnt that a persotr .
ofGring to redcem manifcsts hig dcsirc to do so. i'Thc atatemcnt of intcntion '
tnust bc uccompa.nied by an octual and simultsnco'us tcnder of psyment This
constitutes the. exercise of thc right.to repurbhasc. In scvcral cascs decidcd by
the Court where the right to repurchase was hcld to have bcen propcrly
exercised, there was an unequivocal tender ofpayment for the full amount ofthe
repurchase price. Othenvise, the offer to redeem is ineffectual, Bona fidc
redemption necessarily implies a reasonable and valid tender of the entire
tepurchase price, otherwisJthe rul;6n the redemption period fixcd by law can .
easily be circumvented.
tt7
indefinite extension of the redemPtion pciiod' Consegucntly' the payment
tendered bv Dctitioners on 4 Juni 199i, while madc \rithin tho period of
redcmption 13tS &ys), was ineffcctive since the amormt offcrcd did aot inoludc
thc intcrcst.but was limitcd o the purohase price.
:
,' "
The interest rare on thi auction price should bc computcd not ftom thc
dare of thc sale, but from thc rcgistration thireof Since the Pcriod-Of
redcmption begins only from thc daic of the registration ofthe ce*ificate of.sale
in the'Regisrry-of Oeeds, the computation of the intirest on the purchase. plic€
should also be made to commence from that date'
( icrrc.rul llnrrlilg A!'t. ll wtr$ rrrurrilbcl errur lirr thc C(iurt of Ap1:culs to opply in
thc casc st bar the provisions (lI Scctiotr 3O of ltule 39 of tho Rulcr of Cou4 in
fixing thc redemptiin priie ofitrc subja:t foreclosed propcrty.
ll8
Development Bank of the Phillppineg
vs. Environmcntsl Aouatlcr. fnc.
(634 SCRA zrs)
the oni), effect is that rhe property may be iediemed ivithout. paying- such
assessnrent or taxes.
i,1, i .
I Petitioner-heirs hsve not lost their right to redeem, for in the absence of
a rvrittcn rl(rtiljc&tion ol'thc salc by the vcnd-ors, the 3o-d;y perioct has not
cvcn
lTrj:^::*f:*:of.sah.whlcrr'wairegistcrcaw'tthth".-!;ri;;iE;;;;;
28 December t994. when the orectosuft iai.
was already deceased. His son paul Mendoza scrved ",rsLli-cifiiiitriil"ffi.,;;
Notice of
Redemption on 5 June t 995. On l4 June 1995, complainani
"n'rc"ponacot.
fiIeA an opp"siti""
contending that Paut Mendoza was just one oi several hcirs of tfrc ni6rtlaloi
and therefore he iould not exerciselhe right of redemption for more i.hfii;;
J
119
share as an heir. Respondent issued a certificatc of redemption to paul Mendoza
and enjoined complainant to occept thi rederdption money. :
Isluc: Did respondent sheriff usurp judiciat fimction ii resolving the tegality
of thc Noticc of Rcdemption?
HelC: - The mortg.g€ is valid because Articlc ljg of tir Family Code,is not
apphcable to respondcnt's family homc as ihc vslu€ of thc tstt r;t the timc of
irs olleged constitution cxcecded P3OO,OOO.OO. .
Ttre institution ofan action questigning the vaiidity ofa mortgage does .
not l()ll the running ol the one yesr perio<t of redemption. Responder,is'-fuilure
to excrcise theirright of redemprion divcstid them ;fsaid right ergo petitioner.
can proc@d.to have the title consolidated in its name and a irrit of possession
issued in its favor. To rule otherwise, and allow rhe institution ;;;;
"f; one ygar'
quc-stioning lhc validity oI o tnortgage to suspend thc runnitlt! of the
period, of redemption would constitute a dangeious,pi€ccdent -A likcly offsiroot
o, such e ruling is rhc institution of frivolous suilj for anDulment of mortgagc
intended merely to give the mortgagor more timc to redccm ttre mortgigld
property. .-
Fn .luun vs. Cou* olAnot:ets
(363 SCRA 387)
I$sue: Can courts validly order the Register of Decds to annotste a frnal
Certificate of Sale in the Original Certificite of Title and to register such sale,
I
I
t2l .\
,'
(6i@ .:.
nrongage, pending pdemption under Section 7 ofAct. No. 3135, aslamended by "' ,, i.
Act Not 4l l8l and (4) execulion salcs, pursirant to thc.l8sr Pamgraiih of Section r ',',,'
33 ol'llulc 39 ol'the l.Lulcs ol'Court.
.
ind
i. ,
.l
Yillnnueva vs. Cherdan Lendine
Investors dorporirtion
(633 SCRA r73) j ,
1
A writ ol lxrsscssioti is un order whcreby tho gharilT ir 'pommr.indcd'to
place a person in possession of a r€al or pirsordl propcrty. Aft+ the oneJcar
redemption period, th€ mortgagdr loscs all interest over thc forcclosed proPcny
- the pEchdaGr, who.bas a rigtrt to po+*:ssion that.extcDde atcr tb; cxpiratiotr of '
the red€mption pariod, bcoomcs the absolutC o\r{ncr'of thc Foptry whcn n9 :,
l.,j"l
redemption is rnade.
i.
Thc procceding in a petition for'a -writ of pqss€ssion is'ex parte and,
srrrnnrary in nature - ii is a procecding wtierein relief ia grantcd without givirig
thc person againsl whom the relielis sought an opportunity to b€ heaid.
It
W and
Mnllnri vr. Government
Servic.p Insurancb Svstbm
(5r1 SCBA 32)
':,
,
,
122
The Regional Trial Court undcr rihich tbe application for, thc islrrance of
a writ of posseision is pending cannot dcfcr the.issr:rnnoc of the said wrii due to
': '.
. j.:.1
538 SCRA 390 (20b7) however, we clarified that the cxccption qude in' Sz,ir
docs apply when th. ;"-tiil'i;-;e;;;'h* "l;;i cxpirid or when
'ot
orrercrslrip o"ei rtre propcrti has already bccn consolidated in favor of the '
words, cvln if the mongagce-ptuql.ragir .fails to
'."turi
'"".,*J#-ir;Jt;;.*l^-;iil"r
i-h" surptus, a writ of possession must'still'b; issued In th€ instanl case; _: -'_.: .
the pcriod to iedeenr has already lapsed. Thus following the ruling in Sagua4
the issubnce ofa writ ofpossession in favor ofthe petitioner is in order' :. 'i,i
t24
!- : .
..ii.
foreclosure sale, ii,r whose nomc title over the pr"p..fy *"" issued, the
"*4, Vesting in it
right of private respondent over the property had become'absolutc,
the corollary right of posscssion.
and
--i-s56cE3s2)-
snd
1'he foregoing iules, however, are not without cxccption Undcr Section
ll5. llule 39 of tlie Rules of Court, whiph is made.supptctory to the extraiudicial
lirrcclosrrrc of tral caautc mong,lgor by Ssciion 6 sfAct 3f 35; th€ podrclrion of
the tllrrrtgugcd propcrry: may be awarded to a purchaser in tho exrraJudicial
foreclosure unlcss a third party is.argtually holding thc propcrty advcr3cly lo the'
jutlgrrrcrrr dcbt.,r. lrr PNB v. CA, 374 SCRA 22 (2OO2), the Court held that rhe
obligation of a cburt to issue an ex parte writ of possbssion in favor gf ihe
purchaser in an dxtrajudicial foreclosure sale deases io be ministbrial once ir
,.I
J .,t
r25
app€.rts that thcre is a third party in posscssion of the ProPcr-q/ *f,o ir" a.,-,g'g
debtor/mortgagor. :i '
right advcrse to that of the
.
. ,
I ti.
The fact that a person is not named in the writ. of posscssion d.ge.s 1ot:' : .
render thc writ rurenforceable ag8inst him whcre hc was a P6rty to thc ' ""
.
Held: The obligation of a court to isiue ao ex-parte writ ,of frssession in favor
of the ptirchascr in an extrajudicial foreclosure sale ccases to bi mi4isteriat or.lce
sppears that is a third
'claiming a right there to that ofnarty
.it in possaCsion of te property who is_
adversc theidebtor/mortgagbt. Under Article 433 of
lhc civi CoIc, one rvho clqims to bc thc own'er-of E ProPcny possessed b)1
another must bring the appropriate judicial actioh.for its Physical recovery. .
otherwise,
l, !
126 I
!
Davot vs. Sbelt Chemical (Phils.) Inf. ,
rnd
Policarolo vs. Actlve Biok
(s66 SCRA 27)
'fhe obligation ol'a court to jssue a wii! oq pos.session in favor of the '
purchaser in an extrajudicial foreclosirre sale ofa niortg4ged,property geqsgq to t,
6c rninisteriol once it is shown thst there is s thiid Parly in posscssioli:of the
property who is claiming a right adverse to that of thc .mortgagor. and that .such
third party is a stranger to the foreclosure procecdings ih which thc d.J Palre writ
of possussion was applied for.' i1
t2?
.')
possession issues as a matter of course uion filing of thc proper motion and
approval of thc corresponding bond. No discrction is left. to thc cciirrt.. Ahy
question rcgsrding the regularity and validity of the salc (Brd thc cooscquent
cancellation of thc wriQ is lcft to bc dctcrmined in a susbscqucnt procccdipg as
outlined in Scction 8. Such qucstion is not to bc. relgcd as c justification ftir
opposing thc issuancc of lhc \i/rit of possc*sion, since,.undcr ttc Act,'th9
procecding is cx pgrte.
l
Scction 6, Rule 39 of the Rules of Court finds apptication only to civil
actions and not to special procecdings.
Aftcr thc consotidalion of tittc in thc buyer's na;ac for failurc of thc
mortgagor r€deem, the writ ofposscpsion bec,omcs a maner of riglrt and the
issuancc of-lo
such writ of.possession to a'FrrchaseJ in an oxtrajudiclal -forcolosurc
is tncrcly u rninistcriol frinction, Tho basis of this right to posscssion, is thc
purchaser's or,rrircrship of the propcrty, ' '- '
:
128
Respondent's recourse to thc Court of appealr: v.la nurc OS ,rrs
inappropriate even though thc Sheriff had demanded. that thcy vacatp the
property. Section 8 of Act No. 3.t35 mandatcs. that even if an appcal .is
interposed from an order granting a petition for e writ of possession, such order
slrnll corrrinue to be in ellbct during the pendency ofan appcal. 1 .
I i
li
I r .i
l,r.t l
and
!
lijt
. Any question regarding
ling thclvqli&ty
thclvdidity of thc mr
mortgai
i
cannot be a legal ground for refusing tlie issuancigfa :
.lli i,
I
129
of the mortgagor to redeem the proPerty, entitlement to the lwit of possession
becomes ri matter of right.
i
Pahanc vs. Vcstil
(434'SCRA r39) ' t''
l;. :r
!
i
necessary.
.
Any question rclarding the rcgularity and. vatidity of the sale, as well as
thc conseque.nt cancellBtion of tne writ, is !o bd dctcrmined in a subsdqurcnt
procccrJing as oullined in Section 8 of Act N6.'3135, as amended by Act N9.
4118. Such question is not to be raised as a jusdfication for opposing the
'130
issuance of the writ of possession. The pendency of a case for annulmett of the
foreclosure proceedingi is not a bar to thL issuan-ce ofa writ of pos6ession.
'l hc pcrilionors litull the trial court lbr not dclving into tlr. ,Jtiaity of the
tnortgagc and thd foreclosure proceeding before granting tlie petition for a writ .
': ::,,
Podcrcs vs. CouIt of ArrDGal!
'(463SCRAs04).
a. Remcdy of Terccrin
131
were securca by Resl Estate Mongages on their forty-five (45) parcets of land.
For failurc of TransAmerican. lo pay its loans, petitionci . foreclosed
extrsjudicialty the three real estate mirtgegcs and tho morlgagcid propertici
were sold at public auption for P38,o04305.o1 to p€titiotrar, trcing the tighqsg
bidder. Thc trisl court grantcd the ex-partc vcrified pctition for. issuancc of urit
of possession filed by fotirioner and iikewise approvcd thc paitioner's surciy
bond. Respon&nE Mr. and ldrs. Ordipario filcd a motibn for rcconsidciation
iraying ttrsi the parocl of land wr'th its improvement covercd by TCT No. 76-17
be excluded from thc obovc ordcr.
.lj!!rc. Con the superior right of the respondents as legitimate buyers prevail
ovcr llrc l**lili()nsr's trxrdL{ogc lorcclosure?
j
l-teld: Under Section 33, Rule 39 of the 1997 Rules of Civil .Procedurg, 4s'
amundcd, thc p()sscssion of the forectosed prope.rlyr rnay be awarded to the ' '
purchaser or highest bidder "unless a rhird p&rty is actually.holding the prgperty'
adverscly to lhejudgnent debto(." Assuming arguendo.tbat rcspoddepi spoirses
rr!. advcrse lhird frorties, as thcy so averred, Section 16 of,Rule 39- rcserves to
lhcrrr tlrc rcrrrcdics ol'( I ) tcrecrio to dctcnrrine whclhcr thiJ shcrilT has iighlly or
rwongly lskcn hold of the property not belonging to the judgment debtor oi
olrligor rrrrcl (2) an independcnt "seporate oction" to vindicaG thair blaim of
owncrship ond/or posscssion ovcr the forecloscd pany.
"separalc agtion."
vrlr. ANTICHRESIS i
A. D(:finition (1989 Bar Exdm Quesaion) -.
Anrichresis is a contract whereby the oreditor acquires thc right to receive t}e fruits ofan
rmmovable of hib debtor, with rhc obligati6n to apply them to thc paymcnt of the.interest, if
-
i . lt is an acicssory contract bccaus€ it secures thc perfomiancc ofa priacipal ;bligation.
t32
r-
.,
interest, ilowing, and thereallcr to the principal (Anicfe 2132) in accoi&ncc with 0id.provrsrons ;:
of Article 2133 or 2138. Hence, the duty of the creditor to r-€ndcr ao occotmt of Said,fruits to thc '
dcbtor and thc correspr.rn<Jing right oi rhe latter rhat the jgid fiuits Se apptied to ttre iiebt:
(Barretto vs. Barrerto, 37 Phil.234 [t917!; Diaz and Rubillos vs. De. Mendiioha, 48 phil. 666
[928]; Macapilac vs. Gutierrez Recipe 43 Phil. 770 11922))
t.
2.
3. Does the law require any specific form for thc validity
4. May Olivia re-acquire the plantation before her entiro
paid? Explain.
D. Sglicnt Points
l. Delivery of the propery to_the crcd.itor is rcquircd o,ly in ordcr that the d'reditor mry
receive the lruits and not for the validity ofthe contradt.
t',\
2. It is not c$enriat that ths toan should cam lntorlrt fui ordc; *!t ft oln do suarutood wttli
a contract of sntichresis. Antictiresis is susceptible of guarantccing all kl;ds ofoliig.tio"", pur"
or conditionar. (J&vicr vs. Valliser, tcAI N. 24"8-R, ,c.iril ic; lga-ot at& RG;. N"u"; jso.c.
2741) | ../
133
Antichrcsis
L refers to real property l.
2_ pcrtbcted by mere consent 2.
J. consensual oonlract 3.
44!eEesle "-._---7.--.j;€tl
l. property is delivered to the creditor i t.' -lusually
debtor "rususfry iI Lei* the,
possession of the ProPer$t
1 .crcditor acrluires only the right to 2: cr€ditor docs not.havd.,egY,rigbq t9.
receivc thc liuits of thc propcrty, rcccivc thc fruits,. but ,nqrtgEge
hence it does not produce. a real .criate's d, reat right . oi,er l'lthE
right. property which is ehforccablc
iqainst-the whole world
I
i.
3. crcditor, unless therc is o stipulstion 3. crcditor ha{. no sugh obliSltio.n .
to thc contrery, is obliged to pay the
laxes and'charges upon thc cstetc-
(A.ticlc 2 135)
t34
IX. C}TATTEL MORTGAGE
De{inition
A chattel mortga8c is:
l. an accessory oontract bccausc it is for thc ptrrposc of sccuriir!-thc pcrformance of-e'
principal obliBation;
:
As regards the chattel mortgage, it is settled that a mortgagc is.a merc
accessory centract and its validity would depend on thc validity oT tle loan
secured by it. The chattel mortgage constitutcd irvbr the subject-vehicle is dn
accessory contract to the loan obligation as embodied in the proEissory notc, It
cannol exist as an independent contragt since its considcration is the sanlc as
that of the principal contract. A piincipal obligation
-contractis ap indispenigble
condition for the existence of au accessory Sinoc it hes b^een
iu{ficiently establishcd that therc rrirs no cauisb or coasidcration ifor'tbe
promissory note, it follows that the ctattel mo.4gEge has no. lcg 'to $aad on,
.
. Hence, it must be extinguished and qannot havc a4y legat blfebt ii'n petitioners.
2. a formal contract becausc for its nolidity, rigistrati6n in tho
indispensable; however, dcspite irs non-rcgistratioti, it will.r;maii
parties.
135
\
j\l CIO Stnrlrls lDroblenr
3. a unilateral contrBct because it produceS only. obligatibns on the part of the creditor to
licc rhc thing ltont thc ctrcumbruncc upon fulfillment of the obliggtion. ,
A, about to lesve the .country on a foreign assignin€irit, cgtrusied to p his brand-ne,.w oar . , :
and its certificate of rcgistration. Falsifying A's signattuc, B sola A's car to c for pzoo,obo.oo: .
Cthcnregisteredthecarinhisname.Tocompletetheneededamounr,cb,d;6wedPlo.0'30o.oo
liorrr (lrc savings and loott sssociation in his office, constituting a chattol morlgage on thc car.
For failure of c to pay the amounr owed, the savings and loai association nl'Jit ln tri.Rrc a
complairtt for collection wirh application for issuancl ofa writ of replevin to obtain posiession
of thc vshicle so that the chattel mortgage could bc foreslosed. The RTC issued thc writ.of . .
..
rcplevin. Thc car was then seized from C and'sold by the sheriffat pulilic auction at which the
savings and loan association was the lone biddcr. Ascordingly, tho car was sold to ii. A few .
(lays later, A urrived l'rom his loreign assigrrment. upon lea;ing what happened to his car, A
sought ro recover possession and ownership ther!:of from tlie savlngs and loan.associaiibn.
Can A recbvcr his car from rhe savings and loan association? Explain your answer.
i
A^swer: .ti , '
Ycs. A aun rcuovcr his cur liirrn thc suvings un,l lqitn u*cot iulion. i a charr,.-t mortgtgo, ..'
1n
lhe rnortgagor mus! bc the absolute bwner oi tUc tfring {nortgaged. Fuitherruore, thc person
constituting the mortgage must have the free dispoial of thi profo-rty, ana iir the'absencc ihcrcof.' t.
must be legally outhorized for ihc pugrcsc. Irr thc case &r bar; thc ir-orrg"gor c did not havc.tlrc
tice disPosal of th€ P,ropcrty and was -not legdly authoi'izcd f6r ttc purfri'thcreforc rhc chattcl
mongage was not vslid' A can rhcrefore recovcr the &r from the iarrings and loan association
provided he pays thc pricc 8t which'the savings and loan association b6ught thc car at pubtic .
auclion pursuant to Prcvailing Supreme Court rulings" Inasmuch as A rvas*unlawfirlly deprived
of his car, A can recovcr it from any person in posstssion thereof But since'it was'6ougirt at a
public auction in good faith by the spvings and loan association, hc must reimburse the lavings .
and lorn association thc piice it which thJ car was bought.
B.DistinctionsbetweenCltattelMortga!eandPtedge
.,
Chattel Mortqase pledqe
l. delivery of parsonat propcrty io l. delivcry is ncccssary ., , '
the mortgagec is nOl ncocssary
136
' '" . .:11
procedure for sale of thc 3. proccdure for sale of. plgdCqtf
__._. r.a_ _e
rnortgaged property is found in property is found in Article 21
Scction t 4 of Artiile | 5O8, as ' of thc Civil Code
anrended
to the debtor
Exccptions:
a) contrary stipulstion
(Article 2125)
Note: The mortgagor is not rclieved of criminal liabiliiy even if thc nibrtgngc indcbtcdness is
thcreafler paid in full (U.S. vs. Kilayko, 32 phil..6l [1915] or the mortgigor-scllcr informcd thp
purclruscr thrt thc ihing, sold hod bcen mortglgcd, (Paoplc.vs. Alvarcs, 45 Phil. 472 U923D,
But the sale is valid although no'writtcn conse;t wrs. obtahcd from tho mortgBgce b. ut thc .
mortgogor lsys himsell open to crimini prosccution. (Servicewidc Spcciatist, Ihc, vg.
Intcrmcdi.rtc Appcllute CDurt, 174 SCRA 80 F989]; Dy, Jf. vs. Couh of Appeals, 198 SCRA
826 [ r ee r.l)
j N'l()a()r vuhiclcs, rhc nror.t8,og,c of whiclr lrrtd bcctr rogitte.ed bqtlr . with the Land
J'ranslrortation Commissicin and thc Chattel MortgBgc Rcgistry . in ordor .to. affect third
Persons '
I I
,
ii. I lorrsc rvlrich is irrtcn<lcd tr> bc dcmolishcd I
Growing crops and large cattle (Section 7, paragpphs 2 and 3, Act No. l5O8)
I
137 .;
7of
Answer:
- ADrreals
Tsai vs. Court of : r
(366SCRA3ra)' i
' r I i .:
Petitioners contend that the nature of the disputed machineries, i.e'; ihat
.they were heavy, bolted or cerpcn{ed on the real proPerty rirortgagetl:by
EVERTEX to PBCom, make them ippo fbcto imrnovablc rurder Articlo 4f 5 (3)
and (5) of the New Civil Cbde. This assertion, however, does not settle the
issuc. Mere nuts snd bolts do not foreclose the contrpversy. We have tb lobk at
tlrc panics' intent. Whilc il is true that th'c contrpverted ProPerlias aPPear to bc
inrnrov0ble, o perusal ofthc contract. of Rial and Chattel MortdPg€ cxccuted by
thc portics hercin i5ivcs us o conli.rry incliculion: Thc truc intcnti6n of PBCom
lrrd thc owner EVERTEX,'is to trcst thc machinery ond cquipmenl as chatlals.
Evcn if the propcrlies arc immovablc by natur€, nothing detragts thc parties-
from treating thlm'as ch{ft€ls to ibcure on obligation undcr thc principlc of.
estoppcl.
b) It depends-. If the building is built of light . marerials, tha chott€l mortgBge tBay bG'
coirsidered valid a between thc parties and it may bc considercd in respcot to tbcB as mov8bla
property, since it can be transfprred frrim onc Placc to another; But if thc building is of'st ong
mBterial and is nor oapabie of beinB removed or transferred without being destroye4 the chattel
mortgage is void and cannot be foreclosed.
138
.I l! it \\'l:i tlrc lirnd rrvcr rvhit:lr Vini constitutcd a chuttcl tnortgagc, suclr tnottgsge would
i)c \.oi.l, ()r'lt lo st lrncnl'(rrceablt, sincc hc doss not owtr said land.
I l' ir rvas thc brrilding r'.,hich rvas mlrde sulrject of thc chotl€t mon8agc, said chstfel
,.ri:rri!i:r*e is Yrtitl as betrveen the piirties only, on grounds of estoppcl which would preclude t} e
,rror'!gi,.gor ltonr assniling llre contract on thc ground that ils subject mattcr is an immovable.
vilti s <lsl'crrsc is urrtcnable and l:'elicia can foreclose the mortgage ovcr ahc building but is duty-
houncl rrr corrrplv rvith the procsdure prescribed for thc exccuticn of sale of a judgment debJor's
iiirin<ir rhlc ,rnr.lcr {lulc 39, Ilules ol'Court, specifically, that the dotiae of auction sale should be
l,i,:::.' , .1 ,ir .i ,t(:\\'sl)al)or ul'gurr.:ial circulation.
,1, \'irrr tturrrrrl rulitlly errctrrrl'ror lancl by \vay of chsttel rnortgage. Land can only lre the
.r:i)t,,:( i rlllrllrI ol il Iurrl sst.rlc r(,rtgilgc and only un absolute ownef ol' real proP€ny lnay
nrrJrts!i1.r. a ptrrr:cl rrt'iand. IArticle 2085(2) Civil Code]. It is submilted that there can be no
ri, ic r I, ': rr;,.:.
ll{rrr';r'ur. (}rr thc asslrrrrption that what was rnortgaged by wuy of chattel was the builtling
,,;: iLrlr,.'.i lillirl. rlrerr {hc t)srtics e(rrsidcrcd the building as clrattel. A building that is not rncrcly
' rr ir,-'rirr rr, rxrd on thc Bround but is constructed thcr€orr in such a manner that it cannot be
:.i!r',ov((l rritlrout tlcrslroving the sanre is an immovable propcrty. Ergo, a chattel mortgage on
-,ri.l irrrrl<ling is legtilly void but the parties cannot be allowed to disavow their contract on
i|r'(-.Liir1 r,l .jst()l)pel lrv dcccl. I lorvcvcr, if third p{rtics arc involved, such chatlel ,nortgage is.
r.,r,t iirrrl i,irs rto et'l'ccl.
:. lt hus [,can rulud houcvcr rhat if the chattel mortgage is not recorded, it is nevertheless
binrh:rg between the parties. (Filipinas Marble Corporation vi. lntermediate Appcllate Court,
l-12 S('RA l6O [966]; Arliclc 2 t25.)
i-h:' ussigncc is subrogatcd to the rights and obligations of thc assignor-rirongagee with
shatlcl morlgagc s)nstituted in lavor of the latlcr. Conscqucntly, the assignee is
r'.-:sl.r.ri t() t,hi:.
i:,,r!!rrl l)\ tlrc renns ilrrd conditio,rs o[the chaucl mortgage execuled betwrcrr thc mortgagor aod
:lie nr()ri!l!g(:c. (llA l;in:rrrce Corporalion vs. Court of Appeals,201 SCRA 157 U99.ll)
139
!,
N,Iay I") lbreclose hoth mortgages to satist'y A's unpaid obligation to hirn?
l\git.'i()nI.
.\ nstv,:t:
l.
B can foreclose the real estate mortgage berause it covers future loaos. Ho*e,er' B '
ca'notforec[oseonthechattelmortgagebeiaGeoftheaffidavitofgoodfaithv!hichrequires
that it he a jirst and vatid debt. A chattel mortgEge oannot cover futurg loans ard can orlly cover
obligations existing ar rhe time the chattel niortgage is constitutcd. (Acmc Shoe Rubber and :,
Plostic Corporation v. CA,260 SCRA 714).
'fhe spc.ciol aEidovit of good faith is not necessary for thc validity of thC .l ; '
i. A dccd ofchaltcl nrortgagc is void whcre it providcs that thc security surcd thercin'is for l
(hc plvrl1r.;nr ot'orry ond ott ibiigstions hcreinbeibrc contrasted ond which mAy hcrcaftcr bc :
r (rlrrirclc(l hv rlrc nrorlurrgor irr l'0vor ol'tlre morlgogsc." n mortgagc lhal contains a stipululion
irr lcgirril ro rirrurc l.lrirr,Ics in thq crcdil will t8k-c;ffcbt only from tltc daib lhe same- are made
lrrd riot liolrr lllc date ol'thc ,".rttg,"g;. ijr"o vs. Davao LurnbJr Co., I l3 SCIf n l07 [t982]) :
tqcal Bgstis: Acme Sh'oe, Rubtjer and Plastic Corporation vs. Court of Appeals (260
scRA 714)
140
I. Foreclosure of Chattct Mortgsge
|. Public Sule - i f rhc morlgaBor tlctaults in rhp paymcnt of the strirred ctcbr or otherwise
lhils ro cornply with the conditions Li the mongage, thc treditOr has.no rilhi to apprdpriate io
hinrsclf the lrrsonal profJerty (Articlcs 2141, 2088) because hc is permittcd only to recov€r his
crerlit from the proceeds of the sale of the property at public auction lhlough a lublic officcr in
thg manner prescribed in Seciion t4 ofAcr No. 1508. (Mahoney vs. Tuason,39 Phi!.951 [t919];
Esguerra vs. Coun of Appeals, 173 SCRA I [1989])
N()tc
I. lhe nrortgagee may, after thiny (30) days frorn rt.. ti-" of thc :ondilio., broken, cause
the rnongaged property to bc sold at public.aucrion by a public oflicer (Seition 14, Act No.
l5(){i)
f. The 3o-day ps1l6d to foreclose a chottcl mortgage is the minimum period afler violation
rt lcusa lcn (lO) doys noticc to thc
tt{'tlrc tn()rtgirBc condiiiorr for lhc rrrortgrge crcdil(rr witlr
nrong.rgor rmd posting of public notice of time, placc and purpose ofsuch sale, ancl is a period of
grac.r lbr the nrortgagor, to discharge thc mortgage obli,ation. After the salc of the chattcl at
public auction, the right of redemption is no longer available to the mortgagor. (Cabral v.
Evnngelisra, 28 SCRA l0O0 [1969])
Section 13 of the Chattel Mortgage Law (Act 1508) allows thc would-be
redemptioner thereunder to redeem the mortgaged propiny only before its sale.
Unmist,rkably, the redemplion cited in Section 13 panakes of an equitSr of
l4l
,,.. ^i :
\
.t.herighlorcguityofredcmptionisanincorporcolsndintangibleright)
rlre value of which can ncither bc qu.ntified nor cquatcd wirh tha Ectual value of , . -'
142
l. 'l'l)c slrattcl mortgagec is entitled to. deficiency judgnreni in an action, for specifiC
jtr)ur.ti)nntncc
(Article l48ii 1-11; wnere the morigaled ProPerty is subsequently atta.ched and sold.
h" e*.,c,rtion sale in such cise is not a foreclosure sale. (Industrial Finance Corporation vs;.
:ij,,:rrcz, 77 SCRA 152 ll9?71)
t43 .
tc(civc thc' ll'trits ol'nn itnrnovable prop,lrty with the obligation to appiy such
l'ruirs lo ths puyrnqnt ol'intcrcsl, if orving, and tlicrclfter to tha principal of his ' -
cr'{!lit uprn thc csscnlitl condilion thnt if thc principal obligation becomes du€ .
and the debtor dct'aults, then the propcrty cncumbered can bc alicnateri for the
payment ofthe obligation, but that shoulh thc obligation bc <tuly paid' $en tho '
contract is {utomatic0lly €xtinguishcd prooccding frorn thc acc€ssory cheraclcr
of'the agreement. As t6e low so Puts it, oncc th. obligation is compliOd wittx
thcn theiontracl ()f security bccomcs, ipso facto, nult and void.
,.
2. While a pledge, real estate mortgage, or sntichrelis may excePtionaliy
sccurc after-incurred obligations so long as these future debts are accunitely
:lcscritrccl (Mojica vs. Courl of APpeals,2l0 SCRA 517; Lim Julian vs. LuteJo, '
.19 Phil- ?03),; chattel mortgage, howevir, can only iover obligations existing
ar rhe time tlre lnortgage iJ constituted. Although a promise expreised iq u
chaltcl mongage to iriclude debts that are yet to be contraated can be a binding ...
conrrnitment tliat can be compelled upon, the secuiity itself, however' doep not
come into existencc or arise until allcr o chattel mortglge agrqemcnt. covcrinil
:mcnt cd
.
is net doubled that if sush on oftidavit is not appended to the agreement, the
chattel mortgage woulcl still be valid between, the parties (nbt ;geinst rhird
persdns acting in good faith), the fact, however;.that thc statutc h;s providcd
that thc parties to the contract must cxecute an O&th that - . . :. , :
x.
A. Liability for Obligat.ions
..
'l'hc debtor is liable rvith oll his prop€r.ty, present and futurc, for the fu!fillment of hjs
obligations, su6ject to the exemptions provided by law.
144
i::\ccpti()ns: a) For non-payment oftaxes
b) For debts incurred prior to the constitution of the family homc;
L:) For debts secured by mortgages on the prcmisca bcforc or.ancr iuch'
constitution; and
d) for debts duc to hborers, nrschanics, architccB, buil&rs, materialmcn and
othcrs whe havc rcndcred service or fui'nishid materiali for the
constnrction of the building.
l. Righl to receive suppon as well as any money or propcrty obtained .aS .such support
{,\rticlc ?05, Fanrily Code); :
,l 'l'rvo horscs, or two cows, or two carabaos or other bbasts of btirdcn, such.as the debtor
nray sclcct, not cxceeding one thousrand pesos in value and. nccessarily" used bj him in his
(,r(!inar\' occuFtrti(,l1;
j l.lis r)ccessary clothing ond that ofall his fanrily;
', I l()rrs!'h(lltl l'unriirrre and utcnsils nccissary tbr housekeeping a;rd uset for that purpose by
rir,i iii:hlor. suclr as the debtor mav select, ofa value not exceeding one thousaDd pcsosl
'r. One fishing bonr and net, not exceeding the totat valuc of orr. thousarrd pcsos, the
l)ropertv ol'any fishcrmen, by the larvful use ofwhich he earns a tiveliho<j<!
o| tlrc curning.s of rhc dcbror ror his pcrsonal scrvi;ca jrrrin '*r"
.
145.
(sr 1 scRA r23)
Duties, taxes, and feos due the govcrnment enjoi plollv:11{ Yltei
rlrcv are with refcrence to a specifio movable Propeny, undcr Article 2241
(I) of
in"" Ci"if C.*", ot immovoblc Property, under Articlc 22a2 (l) of the samc
L:,i.lr. iror"""*, with ret'crence to'the other real and pcrsonal property of the
Jchtor, somctimes relerred lo a-s "free property"'the taics assessments due
1nd
ihe Naiionol Govemnrent, othci tfran rt oss ln articte 2241 <1) and Atli'cle'2242
( I ) ()f thc Civil Code, will come only in ninth place in t$c grder of preference'
The law, specifically Anicle 1387 of thi Civil Code' prcsumes that therp
is alienated by the dcbtoi after judgment has
is lraud of creditors when ptop.ny-Alienations
[:een rendcred against him, thL: by'-onerous titlo a,rc albo prcsumed
liaudulcnt rvhen made by pcrsons agajnst whom somc judgment k 9=tl
rcnclcred in any instance'<ri some writ of attachmcnt has been issued. The
decision or atlachmcnl need not retbr to thc proPerty alienoted' and need not
lrave been obtained by the patty seeking rescissiog. -4s stlted earlier, Asiavest
is a irrdsmenr credlior of pNic in G.R. No. 110263 aDd & court has already
i..r"t *.it of executiori in its favor. Thus, when iNCC entered into thP
"-
Compromise Agreement conveying several prime lots in favor of Radstock' by
vzy'of ducionln pa.qo, there is i lega! presumption thlt such conveyance is
-Article
fiaudulent undcr 1387 of the Civil Code. This Presumption is
strengthened by lhe t'acl that thc conveyance ltos virtually left PNCC'S. other
crediiors, including rhe biggest creditor-l.he National Covemment - with no
other asset to gamish or levy.
Arnong the circurnstances indicating fraud is a transfer of all or nearly
alt of the debtor's assets, especially when the'ofdebtbr is greatly imbarrassed
fintncially. Accordingly, neiiher a dectaration insolvency nor the institution
qua,loz for a'transfcr of all or nea y all of a
<rf insolvency is a co,rldition siqe
debtor's ussits to be i:garded in fraud of crcditors. It is sufficicnt that a debtor
is greotly embarrassed linancially.
146
lirtisthction of PNCC'S liabitity arising from taxes and dutics, pursuant't9 S" .
provisiorrs ofthc Civil Codc oir concuirence and preference of eredits. Articles "
?.241,2242 ard 2243 of the Civit Code exp;essly mandetc thaf pxes an!-fe91
(lue tlrc Nationol Covernment "shall be preferred" and'lshall first bc satiified" .'
o\,('r cl:tirrrs like thosc arising lrom the Murubeni loans which "shall enjoy po
pret'crence" under Article 2244.
r
il. Clairns fbr tlre unpaid price of movable sold, on said movables; so long as they are in the
p()sscs:ii()rr ()t:thc dcbtor, up to lhe value of the same; and if thc movablc has been resold 5y the
dcbt()r and tlrc price is still'unpaid, the Iien rnay be enforced on thc pricc, this right is no! lost by
rhe irrrnrotri liz;rtion of the thing by destination, provided.it has not los.t its forin, substarice ond
i, icntii),: rrcrthcr is tho right lost by the sale of the thing toS,ether with othcr property for a lump
-.,,,r'r, .*lr.,r tlrc 1'r'icc Ilrcriol'corr tr.'Jctcrrtincd proJnrtionally;
4. Crcdils Buerlntced with o ple<lge so long as the things Pl+Scd afe in the hands of the
ursditor, or tlrosc gulranteed by a chattel nrortgagc, upon thc things morrlgagcd, up to the valuc
rhcreoll
6. Cleims fbr laborer's wages, on the goodii manufactured or the work done;
7'. . lior cNpcrlsc:i t>l'sulvnge, upon thc goocls salvnged;
It. Crcdits bqtwecn the landlord &nd the tcnant, arising from the contract of ter.nncy on
shlrcs, orr tlrc slrure ofeach in the tiuits or hsrvestl
i). (-r'c(lits t'rrr iransgirtation. upon the goods carried, for the pricc of the contract and
irrcidcrrtal c\l)cnscs, until thcir dclivcry ond for thirty dsys thcrcatlcrl
10. Clredits for lodging.antl supplies usuallt fumishcd to travolcrs by hotclkccpcrs, on thc
rrrovlblcs lrclonging to tlrc gucsts.as long as such movtblcs ar€ in thc hotel, but not for monay
loaned to the guests;
I l. Crc.Jiti lirr sccrls arr<t cxpenscs for cultivation and harvcst advancei to the debtor, upon'
thc fruits harvcslcd:
12. Credits For rent for one year, upon the personal propgrty of the lessee existing on the
imrrrovnble leased on the fruits ol'the same, but not on money or instruments of creditl
I 3. Clairns in favor of the dcpositor if the depositary has wrongfutly sold the thing deposited,
irp<>n thc price of thc sale.
in the foregoing c&ses, if the movablcs to which thc licn or prefcrgnce attaches have bccn
rvrongfullv trken, the creditor rnay demand them from any possessor, within thirly days from thc
r.rn irrrr iirl scizurc.
147
':
l) lulrorcr's wa8,cs
i
8) stllvlrgc
h) tcn$ncy
i) corrier's lien
j) hotel's lien
k) crop loan
l) rcntals - one Yenr
m) tleposit '
-. .
,r*rrtc,: f lrc tbrcg(rir',g cnumcration is not an ordcrof pretcrcnce (Articles 22414 -2249) .'.
lr. t'r'cl'tllrrrrl C[cdils with tlest)ect to Spocific ttnmovnble Property under
.\r tir'1,.: 22{2
! l:r\cs duc rrpon thc land or btril<ting;
I For the unymid Price ot'rcal propcrty sold, uPon the immov;ble soldi
-1. Lllairns tbr laborers, masons, mechanics and other viorkmen, as well'as atchilacts,
crrgineers and contractors, cngaged in the conStructi6n, rec6nstructiqn o.rl feparr Of buildings;
.,,ii,,lr ,r, (,rl('r'r\'(nks. rrgrn sliil huiklings. connls or other works:
,l clairrrs of' l'umishers of materials used in the construction, reconslruction or reParr of
bLrilriinl:s. canals anrl otlrer works, upon said buildings' canils or other works:
l./iorrgage credits recorded in the Registry of Propcrty, upon lhc real istate mortSage;
ln (lris oltsc, t'tonlcfs lJrttrk, u-s sccurcd crcditor, cnjoys prcfcrcncc over a
\l)('cilic lrrorlBRgod prorlerty and has a riBht to lbrcclose thc mortgage under
-.1?.M
Sr'. trrrn ol' lhc C'ivil C<xle. 'l'hc credilor-nrortgugec hns the right to
li,rr.:e losc tlrs rtrorlglgc ovcr u spccitic rcul Pr(rpcrty whcllrsr or nol tirc dcbto,'
rnortg{gor is undeiinsolvency or liquidation proceedings. The right to foreolosc
suc h mong,rg,c is rnerely srtspcnded trPon the rppointment of a managemcnt
uorrurrilluc .rr rclrtlri|i krlion rccciver ttgxut (hc issuuncc of u sluy orrJer try lhe
r!'iirl c()(:rt. I lorvcver, th!' orcdit()r-m(trtgag,cc nrsy excrcisc lris right to forcclosc
tlrc IronBage uFx)n the tennination of the rehabilitation proceedings or upon the
I illi ng olthc stay order.
i.
148
'\ti
f:'
r'i. Fxpenses for rhe prcservation or improvemenl of real propcfly whea the law .aulhorizes
idiqrbu r:ielrent, upon the imnrovable preserved or improvcd;
1r. a:redits annotated in thc Registry of Property, by virtuc of ajudicial order, by attachments. .
.. i r\,:. r:tions, upon thc propeny affected, and only as to latcr crcdiB;
s (:laims of co-heirs for rvarranty in the partition of an immovable amgng them, upon the
rr'l l f,r(,pcrtY thus dividcd;
r) a.'liiims ofdonors ofresl prope/ty for pecuniary chargca or other conditions imposed upon'
th() (lorrcc, uyxrn the immovablc donated:
10. C:redits of insurers, upon rhe property insured, for tbi insurance premium ior two years.
S.u-qr'111tr1.: a) taxes
b) vendor's lien
c) contractor's lien
d) lien of materialmen
e) mongage
D expenses of prescrvation
s) recorded ane.chmcnls
h) warranty in panition
i) condilional donations
i) prenriunrs lbr 2 year - insurers
i
lJ()[e: ] hc tbregoing enumeration is not Bn order of preference. (Carried Lumber Co. vs-
. ACCTA.63 SCrr.A 4lt It9751).
X Corporation exccuted a 'real cstatc mortgagc ovcr itr r€al prcpc4y in Makati City to
sr:cure a loan il obtained from Y Corporation. X failcd to pay flte soid loFn whcn it maturcd. X
Corrrralion tiled before the Securities and Exchangc Commission (SEC) I pctition lo be
<leclared irl a stat€ of suspension of payments, tbr r€hsbilitation tnd for thc appointmcnt of a
managenrcnt committee which rhe SEC granted in.its Orddr of 5 January 2004, On 8 Msrch
?O0:r ut)on recommendation of the management committee appointed by it, the SEC ordered the
dissolution and liquidation of X Corporation. Thercafter, Y Corporation commenced the
cxtrltiudicial ibreulosure of the Maktrti propcny. Is Y Corporation's foreclosure valid and
lu.,vful?
a. No, bccause there is no showing that thc forcclosurc is wiih thc knowledge and
previous consent of the liquidator and other lien holders.,
b. No, trccutrsc the right to foreclos€ thc mortgagc is suspcnded upon the
sppointment of b management corDmittac or rchabilitatlon recGivcr or upon tlrc
issuance ofa stay order by the trial courL'
c. Yes, because X Corporation fliled to pay thc ioan ot ligation thereforc Y
Corporation has the right to foreclose the mortgagc.
149
.d. Ycs, bccausc Y Corporation is a securcd creditor and enjoys preference over ..
unscc'.urcd creditors apropos spccific mortgaged ProPerty under tbe rule on
corlcunence and pret'erence of crcdits specially when rehabiliration is no.longcr
leasible.
-
t-r13r!.[lir51g: Constrelo Metal Corporation vs. Planters Development Bsnk (555 SCRA
465)
Orrjer of Pr"efercnce with Respcct to Otber Propertl.s.of thc Debtor utrdar Artlcic
x24.1
.?. l'rcdits Iilr scrviccs rendcred the insolvent by employees. laboreri, or household lielicrs
t'rrr onc Ycur preceding the commenccment of tho proceedingg in insclvency;
3. Experrses during the last illness of tha dcbtor or of his or her spouse und chiirtrcn undei
his (rr her parenul authority, if th.ey have no propcrty of their owrtl
-1. CornSrensation duc to the laborers or their dependents und€r laws providing for indcmnity
ii)i dr.mages in cmes of labor asuidenr nr illncss rcsulting from the fieture of the employmentl
' DBPw.NLRC
t Dr vB. rt trt<a--
(229 SCRA 35o)
2. The Civil Cocte and Labor Code provisions require judicial proceedings
in rem in odjudication of creditor's claims against ihe debtor's assets to
become operativ
6. Support during thc insolvency proc€edings and for threc months thereafter;
150
;1. t-cga! expenses, arrd expenses incurred in the administration of the insolveot?s cstate for
tlrc conrrno:) intcrcst of tlre creditors, when properly authorized and approvcd by tho ctiurt;
,. laxcs 3nd assessments tluc thc national govenuncni, other tlan thosc mc.ntioned in
Ariiclc 2241, No. I and 2242,No. l:
!ir "l irxcs ancl assL'ssmqnls <Jue any province, other than those mcntioneil in eniclcs 2241,
l'.r. I ilr.l ,12.12. Nu. ll
I l. 'l-r:<(lr anii llsscssnlents ilue any city or municipality other than those mentioned in
,{rliclcs -124 i Nr.r. I and 2242, No. I;
12. il:!:irag.!:,s tirr iJcatl.r r'rr pen;ontl injuties causecl by a quasi-delict
i3. tiiiis duc' to public and pri',ate institutions ofcharity or beneficence; .
!.1 ','r".iiit:r .,vhich !\itho'ut spccial privilege., app€ar in (a) a public instrumentl or (b) in the
tlnal judgrrrenr, if they have been the subjecr of litigarion. These credits shhll hsve prcferencc
.rr:r.:rrg rh,;rrr:;clies in the order ol'priority of tlre dates of the instruments and of the judgrnents,
",'j:,1ecti',r.:ly ( A rticle 2244).
i. ln cootrast B'ith Artioies 2241 snd 2242, Atticle 2244creates no.licns on detcrminstc
nrop+rrv v"hicb follow such property. what Artiele 2244 crcsI.q are sinrply rights in fbvor of
certain crgditors to have thc cash and other asscts of thc insolvcnt appti€d-ii s.;rtrin scqucncc
or ordcl ol'priority (Republic vs. I,eralra, f50 SCRA 37 tl987I).
'.. .A.rricle :1244 rclates to the property ofthe insotvent Orat is not burdened with the liens or
":r:i:urrri.ri lircrr' crcatc(l or rccognizctl by Anicles 2?41 and 2242.
a Istircd air ftrrcc captail, decidcd to go into the air transport business. He
Lri\1,rL:nce.
1'r.rrclrrscr.l urrair,;ritll ili cush cxccpr lbr an outstanding balancc of p5oo,ooo.od, Hi: incurred an
i'rciel)tcdii..:ss oi'P30o,000.00 lbr repairs rvith an aircrift repair compnny. He atso borrowed pl
I.irilitr'r iir*n :r bank lbr additional capital r,rrcl constiauted a chanel- morlgage on thc aircraft to
t.LU,rr u llr,: I. r.'r n
tVirilc or: a tcsl tlighr, thc aircrafl crashed causing physical injuries to s third party who
r
"es awarCc'd darnages ofP2OO,000.00.
t5l
L.awrence's insurance claim for damage to the aircraft was denied lhus leaving him :
notlring else but the aircrafl which was then valued only at Pl Million. Lawrence wai declared
inso!r,ent.
Assuming ihat the aircrafi wa-s sold for Pl Million, givc the ordcr of prefctencc of tlie
ol'l.awrencc &nd distribute the amount of Pl Million.
,.-r"eilitors
An:iwcr: :
Assunring that subjcct aircrafl rvas sbld for Pl Million, there is no order of prefeience. - -' "
Thr: entirc Fl lt/illion will go lo the bank as a chattel mortgagee becauser a chatfl mortgage
uncler .Articlc 2241(4) NCC delbats damages tbr physical injuries coirsed by tort under z\rticle
??44(12\ and credits subject of a final judgmerlt under A.r:icle ?244(14). Article Z24l(3)
covering vendor's lien aud Anicle 2241(5) covcring mechanic's liea are nol applicable because
rhc arrcriil is no lorrger in thc posscssion ofrhe creditor.
3. l'hose credits which enjoy preference in relation to spccific real property or r€al righB, i,
exclu,le all others to the cxtcnt of the value of the immovablc or real right to which the I
.; ll'!her,.: are two or more credits with respec: to the same specific real profr€rty or reat
iigirts, thcv shall be sstisfied pro rata, aller the payment of the taxes and assessments upon the
iinrrovable property or real.right (Article 2249). , .|;
rs2
5. . _ 'I'hc
excess, i f any, after the payment of the credits ,which enjoy preierence with respect to
s.1;t'cific pr<ipeny, real or personal, shall tre added to the fR:e properry wh;ch the debtor may have,
Ii)r the pn),mcr1t ol-rhe other credits (Articlc 22SO).
6.
'thosr'
'l'hose credits which do not enjoy any prcferenco
with respect ro specific propeily, and
rvhich enjov prefbrenc", ur to ih* amo;nt nol paid, sfralt 'be saristied abcording io ttr. ' '
Iirii,.rw,ing rules:
ll- C-'ommott credits referretl to in Article 2245 phall en;oy no preference aird shall be
paid pro rata regardlcss rrldates (Arlicle 22S l).
.
XI. TIIE INSOI.VENCY I-A,W (ACT NO. T956)
,, *r"*"* r*a,,*a
'lhc inability oI. the lack ofmeans ro pay ong's debt, or the condirion
of a person who is
uDable to pay his debts as they fall due. (Munion vi. vic corporation, 55 og 96i7 as cited in
!l!.liooine Law Dictionary by Federico B. Moreno, Third Edition, l9Sg, p. 479)
ii
!1. Purlroses of the Insolvcnc y Law (1949 arrd 1958 BarExams)
:t. 'fo ciltrsc 8n cqtritablc distribution of the insolvent debtor's assets and/or properties
!i
a rn
'
)11ll llis urcditors; and
t' 'lo
ctischarge the insolvent dct)tor from his debts and financial liabilities ro afford hirn an
opportunity to have a fresh beginning lvith the property set apart for him us exempt-
)-
t. Situatidns Addrcssed by the Insolvency Lalv :'
a. Suspension of Payments
l:l Voluntary lnsolvcncy
c I n volu ntttry Insolvency
.,\rtsr'.rr:
'et ) Pctition to befrled by u ncttural person whc: (l) possesses sufTicient property to
cover all his debts, (2) foresees the impossibility of meeting them whan they
respectivcly fall due,.and (3) 'presents a proposal to pay his oQligstions on datei
. later than due dates and petitions that he be dcclarcd in the sta,ic of suspension of
payments (Petition need not be verified)
b) I)ocumenrs tllat should ctccompany the perition: (I) verified schedule: (2) verified
inventory; (3) lhe proposed agreement ae requestcd ofhis creditors.
c). Vcnue: Regional Triol Court of the provincc or city in which thc debtor has
rcsi<lcd for six (6) rnonths next preceding tha 6ling ofsuch pctition. (Section Z, Act
l9s6)
d) llrie/Sumtrutryoltthe procedure:
153
I
t54
d) l')ric.1l Surnmary of lhe l,roccdrrrc:
)
d. I Filing ofp€tition for involuntary insotvincy; .
d.2) Court shall issue an order requiring the d;fendant tb show causc whi he
should not be adjudged an insolventl
d.3) Trial and order of the courr adjudging debtor as an insolvenr, if supported
by thc facts;
d.4) Publication bf the ordcr and scrvicc ofsaid order on all crEdilbrs:
d.5) Crcditors shall elecr an assignec and conveyancc of debtor's asseiq !g said
asslgneei
d.6) Assets of the debtor shall be liquidaied and proceeds shall
paid to defendant's creditors;
rl.7) Cornposition;
cl.li) Dischargc ofthc insolvcnt debtor.
comnritred by thg insolvent dcbtor. must have b€en committed by the It:
ins()lvent debtor. li
!::
l1)i,ri,rg {)r' lr bond by insolvent 5. Bond must be posted with the ' l!
,1,
<k'lrtor is tlot required. petition with at least two sureties
in such penal sum as thc court may I
direct.'
:: I
155
'li i
,\. I)cfiniaion :,
l. Pursuant to Scction 5.2 of Republic Act No. 8799 otherwise. known as "The Securities'
licgulation Code", the Seourities and Exchange Commission's (SEC) jurisdiction over ill cases
enumerated under Scction 5 ofPresidential Decree No. 902-4 (Reorganization of the SEC with
Additional Powers and Placing the said Agency Under the Administrative Supcrvision of the
()l}ice ol'the Presideni) w&s transferred to the Courts of general jurisdiction or the appropriale
I(cgiorral 'l rial Court which includes cases involving:
$) Devices or schemes employed by or any acts, of the board of directors, business
rissociates. its ofticcrs or partnership, arnounting to frnud ond m isrepresentotion
which moy bc clstrirrrcnrll ((, thc intsrcst rll'thc publir: on(Uor ol'lhr: stockholdcr,
plrlncrs, members of associttions or organizations registired wifh the
Commission;
l',) C.)ntroversics arising out of intra-corporale or parhcrghip relations, between and
among stockholders, nrenrbers or associates; bclwccn any or all of them and the
corF,oration, pannership or association of which lhey.are stockholders, members or
a-ssociates, respcctively; and botween such corporation, partnerchip or association
and lhe state insol-ar as it concems their individual franphise or right to exist as
such entity;
c) Controversies in the election or appointnenls of directors, ttustees, ofTicers or
managers of such corporations, partnerships or associations.
d) Petitions of corporations, partnerships or associations to ba declured in the state of
suspension of paymenls in cases where the corporation, partncrship or association
possesses sulTicicnt property to cover all its debts but foresces tha imf,ossibility of
rrleeting them. whcn they respcctively fall due or in cases.wherg the corporation,
pannership or associatior. has no su{ficient assets to covcr its liabitities, 'but is
under the management of a Rehabilitation .Receiver or Managcmcnt Commitlee
crcirtccl purouanl to this.l)ccrcc. (As addcd by l)rc*idcnrial l)ccrcc No. 1758)
3 llrrdcr Adnrinistrstivc Molter N(t. O{)-8-|O-SC cntirlcd lntcrint Rutc.s .t{ l)rrrccctrrrc on
(..)l-Jxr.rlc ll ulrrrhi litation, vc,ruc ,i,r pcliti(rns fbr rchabilitation shull be tilert in thelRcgional Trial
Cutrrt having jurisdiction over thc territory rvhere the debtor's principal ollce is located. This
inciudes tn*tilions filed by corporotions, pannerships or ossociations for dccloration in n state of
susp<:rrsion of paymcnts us hereinabove provided under Section 5.2(d) of R.A. No. 8799.
jurisdiction therefore enjoyed by the regular courls ovcr proceedings for '
su:;pcnsion of payments and voluntary and involuntary insolvency. We do not.
sharc such interpretation. .\xx xxx xxx xxl xxx
Section 5, par. (d) should be ionstrued as vesting upon the.SEC origiial
and exclusive jurisdiction only over pctitions to be declared in a state of
rstrspension of payments, which may either be: (a) simple petition for suspensign
of pa1'ments based on the provisions of the Insolvency. Law, 'or (b) a.similar
l^-liiiorr .rccornpanicd by a pr.rycr lirr lhc crcation/oplrintrncnt ol'u rnunuginrept
cr>mrnittec andzbr rcliobi I i t:rii()n rcceiver based on ihe provisions of P.D- No.
<)02-,.\. Saicl provision cannot bs stretched to include petitions lbr insolvcncy.
'['hc reason is that under said Sccrion 5, par. (d) above-quoted, thejurisdibtion of
rhe SEC over c:ises where the corporation, partnership Or association has no
r;uflicier)t assEts to cover its liabilities, (dnd thcrcfore insolvent) is qualified by
the ( onjunctive phrase "but is under the management of a Rehabilihtion
I(eceivcr or Management Comrnittee created pursuant to this Decree." This
qualification et.I'ectively circumscribes thejurisdiction of the SEC ovcr insolveni
c()rp(,rations, partnersllips ond associations, and conseqrrently, uvcr proi;eedings.
li)r the dcclarfltion of insolvency. lt demonstrates beiond doub.t.rhst jurisdistion
over insolvency proceedings pertains ncither,in the first instance nor exclusivcly
to the SEC, but only in continuation of or as an incident to tJre exercise of its
jurisdiction over petitions to be declared. in a state of suspensibn of payinents
rvhcrein tlre petitioning corporution, partncrship or associotion had previously
been placed urrder a re habilitation receiver or malragement committee by the
:itrC itself, xxx xxx xxx xxx irx
r'\s declared by the lar,r,itseif, these aie mercly ancillary powers to enable
tile -SEC to effecrively exercise irs .iurisdiction. These additional ancillary
powtrs can be exercised only in connection wi.th an action.perrding bcf.ore the
SFI(.' arrcl therefore had to be viewcd in rclation. to Section 5 rvhich rtefines the
SLi(."s original and exclusive jurisdiction. Scction 6 do€s not enlarge oi add to
tlrc.exclusive and original jurisdiction of the SEC as panicularly enumerated
undcr Section 5 of said Presidcntirl I)ecr@, as arnendert.
t
EYCO'S petition for suspension of payment was, for all intpnts and
p(lrposesi still p€nding with rhe SEC as of June 30, 20OO. According,ly, the
SEC's jurisdiction thcrcon, by the exprcss teirns of R:A. No. 8999, still subsists
,ttlE .\utpension ol puyment case and its inci&tnt.\ urel /i4ully tlislt<.t-se,/ "
''unt il
enti'v both filed togethcr g petition for suspension of payments, rccourse must j
then be had to th€ Rules of Coun which is cxpressly msde suppletory to the
SflC rules. In this rcgard, we find Scction I l, Rule 3 of thc 1997 Rules of Civil
Procedure applicablJwbicl: providcs: :
'i
l,i
"Scc. I l. Misjoinder and non-joindcr.of pqrties. - Ncithcr misjoinder
nor non-joindcr of panics is ground for dismisssl of an aotion, Parties may b€
dropped or added by order of the court on motion of any party or on its own
initiative at any stage of the action and on such terms as are just. Any claim
','
,.,'.":
158
against a misjoined p,arty rnay be severed ana fioceeded with siparately."
IIta lics supplied]
tJnder Section 2 of z\ct No. 1956 also known aS the "lnsolvency Laf',
on irrdividual person, sooicd.rd or a corporution may file a petition in the regular
cour-ts that he be declared in the state of susp€nsion of paymcnts. T'tiis provision,
huv,'cver, is deemed to have been impliedly r€pealed or modified by p.D. No.
9O2-A, as amended, which now vests iurisdiction over.susrpnsior of osyments
Itjcll bv corporations. Errtnershios and associarions with thc SEC.:I{cnce,
indivicluals seeking to be declared irl a srate of suspension payrncnti.are the
'()nlt ones rcquired now to filc thcir pctitions with thc rcgulurofcourts.
('. (lon.rcqucnccs of the F'iting of Petition for Suspension ofpryments
a) Petitioner cannot disposc, in any manncr, ofany olhis propertylies except rhose
rlccessary fbr the ordinary oper::.tions of the commerce or industry in tvhich he is
crrgagcd.
b) Petitioner cannot make any paymcnts except in the ordinary course of his business ..-r.
or industry, and
() aSubjectto prior approval of the coun, Fending executions against the petitioner
shall be staycd rvith tlrc cxception of exccution against propcrty/ies Cspecially.
rnortgaged.
i
iiotc \\rirh resp!-ct to distressed corporations, all clsims filed againsi it .rre suspended
incli:dirrg claims olsecured creditors; even lbrcclosures are slayed-
. ('l)he doclrine in the l)ClB vs. Courr of Ap;>eals ( 172 SCRA 436) casc
has srn<;,: bccn abrogated. ln.llt:nar',t Sibal & Sons v- 1,.'lbiniu.,: (lt6 SCRA 94),
li/; / ittitc.y, lnc. v. (lourl o/ tllpeuls ( I 90 SCR A 262), .Ar<nera v- Court ol'
Appat s (2 I I SCRA 390), ancl t?( tB( v. (t<turt tf 1prytis (l I I SCR.A 83oJ. rvc
rrlrsirJy rulcd that whslrevcr a distrcsscrt corporatiur asks sEC tirr relrlbilitutiorr
rrrC. suspcnsion of payments, prelerred creditors may no lonlger assert suph
nrel-erencc, but shall stand on equal footing with other crcditors. Foreclosure
shall be disallowed so as not to prejudice otber creditors or causc discrimination
among them. If foreclosure is undertaken dcspite the fact that a patition f;r
rchat)ilitotion hos becn filcd, rhe certiticotes or sole shall nor be delivcrcd.
Ircrrrjing rchohilitnti.n. lf this lr^s ulrcndy bccn d.nc, no ironifcr ccrrificorc of
r irtc srra|l tikewisc bo ctlbcrBd wirhh rho
b,erlod of rBh8bllltBrlon. l.ho ra orrale
behinri PD 902-4, as amended, is to effect a feasiblc and viablc rEhabilitarion.
'fhis cannol be achievcd ifone creditor preferred
is over *re others.
fi
t59 I
Rubberworld (Phils.). Inc. vs. NLRC
(305 SCRA 72r )
"section 18. Upon receiving and filing said petition, schedule' and
inventory, the court x x x shall make an order declaring the petitioner insolvent' I
ancj directing the sheriff of the province or city in which the petition is filed to
160
H
take possession of, and safely keep, r,rntil the appoimment of a receiver or
assignee, all the deeds, vouchers, books of account, paP€rs, notes, bonds, bills' li
anC scculities of the debtor and all his real and personal propcrty, estatg. and .,
effects x x x. Said order shall l'urther forbid the payment to ihe creditor of any
dqlrts due to him ond thc delivery to thc dcbtor, or to any person,for him, ofany
prop€ray belonging to him, and the transfer of any ProPcrty by him, and shall
I.
tbnher appoini a iime and place for a.meeting of the oftdirors tb choose an
assignee bithe estate. Said order shatl tbc publi;hedl x x x. Upon the grrnting
of said order, all civil procecdingr pend[pg agsinst the srld lmolvctrt 3h!ll
be stayed. Whcn a receiver is sppointe4 cir an assignce chosen, as providcd in
this Act, the sherilT shall thereupon deliver to such receiver or assignec, as the
case nr.ry be all the property, asscts, and belongings of the insolvent which have.
conre into his posscssiorr x x x." (Emphasis supplied.)
1
Complementing Sec. l8 which appropriately cotnes into play "upon the
granting of [the] order" of insolvency is the succeeding Sec. 60 which properly rti
apl)lics to thc l)criod "afler thc commencement of proceedings in insolvency.i''
'I he I wc) prt>visions may be hrrmonizcd as follows: Upon the tilinS of the
petition lor insolvency, lrnding civil actions aBainst. thc .propcity of thc
petitioncr arc nol ipsolrcb stayed, but the insolvent mry apply with thc court in
rvhich the actions are pending for a stay of the actions against the insolvent's
irr rpcrty. lf the court grants such application, pending civil actions againS thc
petitioner's property shall be stayed: otherwise, thcy shall continue. Oirce. an
order of insolvency nevcrtheless issues, all civil proceodings aSsinst thc
petitioner's nroperq, are, by statutory command, automatically staycd, Sp. 60 is' ,I
rcproduccd below:
t6l
i"'
-Ihe
Coun ofcourse takes stock ol'thg proviso in SeclO0 ofAct No. 1955 which
in a way provided the CA With a justifling tool to conlinue and procced to
judgrncnr in CA-G.R. CV No. 80?34, bur only for thc purpose ol 0scerroining
the airount duo from Gateway. At any event, on.thc pogtul$e thot tha
iurisdiction ovcr thc proJrrties of the irrsolvcnt - dcctanjd Gaiervay lics with the
rn.;olvcrrcy gourt, exccution ol'thc CA insolvency judgmcnt ogoinst Gotc*&y
oan only bc pursucd bcfore the insolvency courl. xxx;'
\/lt. \/oluntrtrylnsolvency
A. Del'initiou ,l
Voluntary insolvency is. the_sir.uation of a debtor, who having debls exceeding p1,000.00,
cannot discharge all ofthem with.all of his existing aisets, and rvho -as a consequencJ voluntarily
goes t() court to havo himself declared as an insolvenr so thnt his assets may be cquirably
clistritruted rn'tong his creditors. ( 1953 tlar as ciled irlBar Review. Materiuls in Comrnsrci;l L&;,
'l'hirtcsrrth tjdirion, 2005 by Jorge V. Miravite, p,
936)
C. Annexes to the Petition for Voluntary Insotvency (Section 14 of Adt No. 1956, as ,;ilij
smended) ''ii-ii' .
.11il
t. Verit'icd Schcdule :,li i ,
1 r,/e ri
fied Inyenlory
(-'. | (lontents of thc Schedule (Section l5 of Act No. I956, os
nmenrted) .., i
.tl
i. Full and true slatemenr of au his debts and liabitities, togerher wirh a risr of a
lhose to whom, lo lhe hcst ol'lris knorvlcdgc Ilnd l^-ti;f, *ii, .lelrts or liobilitics nrc i!: :
dr.rc:
{i
,"!
Place of residcnce of his creditors and thc sum dire each oreditor;
]"he naturc of thc indebtedness or liability and rvhether fbunded on rvrirten security,
obl igation, contract or otherwisc; L
True cause and consideration of the indebtedness or liability; 'll l
5. Time and place wlren and wherc such irrdcbtedness or liabiiiiy accruedt
6. A doclaration of any existing pledge, Iien, mongage, judgnient, or other secudty ',!:'
for the payment ofthe debt or liability; and - . -. rlI;
iilli
7. nn .outline of the facts giving rise or which might give risc to a cause of action llil
162
{. All property exempt by law from execution lGth a statement of its valuation,
localion and encumbrances thereof; and
5. An outline of the thcts giving rise, or which might give rlse to a right of action in
favor ofthe insolvent debtor
-l
i'"crtc: hr' r;rerc iiling of a petition for voluntary insolvency .shall be an acl of insolvency ir
i iori I 4, Aqt No. I 956, as arncnded)
ii-,r:i I
l;. !(:tiort of (-'ourt utro[ llcct'ipt of the. P.]titio[ (Section 18, Act No. 1956, as amended)
i. issue r.ir order declaring thc petitioner insolvent which order is mandatory;
.' L)ir('cr thc shcritTtrf tlre provincc or ciry in which the petition is fil;d to take possession
of', anci rat-ely keep all the deeds. vouclrers, books ofaccount, p6pers: notes. bonds, bills,
an,.i scluritigs ol thc dcbtor and all his real and personal property, estate, and eflbcls
cxccl)t such as rnay bc cxempt by law from execution, until.the appoinrmenl ofa receiver
or assignee;
:i Issue an order forbidding the payment to the debtor of drydebts due him and the delivery
to the debtor or to any penron for him, of any property by him:
4. Appoint o timc and place for a meetirig of the cr€Cilors lo.choosc on asslgnee of the
cst a tc:
5 l)esignate a rrewspapcr of general circulation published in the province or city in which
rhe petition is t'iled, if there be one, and if there be none, in a ne$.spaper which, in the
opinion ol'thejudge, will ,livc lrcst notice to the crqditors oflhc said insolvr:rrl, nnd in tlre
nclvspallcr s(, designatcd said oxlor shnll,bc published as otlcn as tnuy bc prescribeC by
lhc l.:()u,t ()r lhcjudgc ll)crc()ri
i.'.. tiffects (;f :r .rrrdgment in Irr$oll,ency (t991 B r lixrmi Ser:tions t8 rnd 24, Act No.
! 956. !!s rr rnr:n rlod)
:
'i'he deciaration of insolvency bv the court, atler hearing or defhult,.shall have the 'i
rirllou,irrg ef)ects:
i. iirihitl the p.ry rcnt to thc ds[)re. ol'any dcbt due hirn un<-l tlrc dclivery to lrirn ol'any : i!
prol)c{y belonging to him; r. i
1.1
L lrorbiJ the transfer ofany property by him; and
i Stay of'all civil proceedings ag&inst the insolvent.
' ,..i:'i l
vtll. 'j,
tnyoluntary lnsolvency .i.
I
i
,, :Il
,\. Perions or Entities Who may Petition for Adjudicstlon of Involuntary Insolvercy.- ,I
it
i. Of a Nntural Person - tlrree or more creditors who are residenls of ihe Philippines,.whose
crr:<Jits or demands accrued in the Philippines ond the amount of rvhich are in the
af{:regatc sum 01'not less than one thousiu:d pcsos (P1,000.00)- iSectiorr 20, Act No.
l()51i, its arncndecll
'I ( )! ii i'itrtnorship * ) the pa.tnct's (rr &ny ofthenr, br
. b) three or more crdditors rvho are residents of the Philippines,
whose credits or demands accrued in the Philippines and d.e
amount of which are in the iggregate sum of nol less than one
lhous&nd pesoB (P1,000.00). [Section 51, Act No. 1956, as
amendedl
l. Ofa Corporation -- a) an officer ola corporation authorized by its board of directors or
trustces or by the writtcn assent of a mojority of its board of
directors or trusteca, or
b) three or more creditors who .re residenis of the PhilipPines'
whose credits or demands accrued in the Philippines and the
amount of rvhioh are in the aggregate sum cf not less than one
I
I
.i
:)
163
.ia .lJ
i
.c,tc t-)nu (ir liror-e ol lhe aforc-enumeratert acts of insolvency. shoutd bc sEted in the petition.
(. .,\ction uf rhe Court on the Petition for Involuntary lnsolvcncy (Sectioo 21, Act 1i56,
:t:.i amendcd)
'l'hc c()urt sht!ll issuc trrr orclcr rcqtriring rhc dcfcndant dcbt('r. to shb.*, crusc, ot a
limc and place to bc fixed by the court, why he should not be adjudged an insolvent
debtor. Ar thc same time, or thereafter, upon good cause shorvn therefor, lhe court may
nrake arr order forbidding the payment of any debts, and the delivery of any p;operty
belonging to such debtor to him or to any other person for his use or benefit or the
rrrtnsll.r ol'an), propeny by hirn.
.:
IJ
r65
. Eri
Hi
,
a
lri casq ofa nonresidcnt or absconding or cdncculed dcbtor, to clctrrttntl rtrr<.1 rcccive OI'
every sherifl'who shall have any of th;properly.of such debtor, or who sh.ll have iir his
p..rsscssion any moneys orising f()m thc sale ofsuch ProPcrty:
it'o sell oa p.,6lic a,ition o ltJr udvenisemcnt and pursuant to Rulc 39 ol'the llules ol-
C-.orrrr For lxccution bf Jur1gmcrtt, any of the osscis of the insolvcnt dcbto.r under thc
assignec's po$ression:
'fo redeem atl void lnongages and conditional contracts' all valid pledges of persgnal
pr()perq1 and to satisfy any .iudgments which may be an engumbranoe on any Propeny '
sold by him: or to sell such property, subicct io such rnortgage, contracts, pledgcs.
J u(ltsnrcnts or' li.;trsi
6. ib lenle all matters and Bccounts between the insolvent debtor and his dcbtors;
-fo compound with any pcrson indebted to thg insolvent debtor and thereupon dischargc
7.
all demands aga.inst suoh person: and
'fo recovcr itom any pcrson receiving a conveyancei gift, transfer' paypent'. or
assignmcnt, madc OontrBry to any brovision of Act No. 1956 the proPerty translerred or .
4. 3iSllii *n,.n s€cured where the cieditors opted to enforcc the securitvr and
5. Attachments "* ar€ levieo, judgmenls cntered and exocptions issued more than one
that
-
i
156 I
l{. Preference of Paymcnt in lnsolvency Proceedings (section 50; Act No. 1956 as
smendcd by Article 2244, Civil Code)
l
l. Courl-approved funcral cxpenses ofthe d€btor or his wii'e or childrcn untler liis parenta!
autilority who have no propeny of their own;
2. Dcbts fbr sewices rendered the insolvent by ernployec!, .laborers, or houschold hclpers
fbr onc ycar preccding lhe commcrrccrnent of thc ipsolverrcy procceding^s;
F-xpcnses <Iuring the last illnes:i of the dabtor or of his or her spouse and children under
l.ris or her parental authority, ifthey havc ho propergr ofthtir own;
4. Conrpensati,:n due the laborers or their clependents under taws providing for indemnity
fbr darnages in'cases of labor accidents, or illness resu,lting liom thc nature of the
employrrrent;
5. Credits and advancements made to the debtor for suppon of himsclf anri family duri4g
tlre last year preceding the insolvency;
6. Suppo( during the insolvency proceedings, and for three mG.nths thercafter;
7. I:incs and civil indemnifications arising from a criminil offense;
I-egal expenses and exirenses incurrcd in ttre administratiotr of thc insolvent's estate for
the common intercst of the crcditors;
.). 'l axes ancl asscssmcnts duc tlrc national goverrrn)cnt:
to. 'faxes and assqssmcnts duc tlrc provincial govcrnmentl
-l
I t. axes and asscs:'-mcnts duc tlro city or municiprl governnrcr,t;
't?-. Damages for death or personal injuries caused by a huasi-delict;
I .i. Gifts to public or private institutions of charity or beneficierrce;
14. Credits which, without special privilege, appear in (a) a public instrumcnt; or (b) in a
firral j udgment;
167
I
XII. OIJASI-CONTRACTS
.\. Defiuition
()uasi-oontracts ate juridical relations ariging from lawfrJl, v(,luntary nnd unilateral acts of
iriilivicjuals blsed on the premise thal no one should bc unjustly enriched or benelited at thc
(: Y nc,)se r)t arrl(rlllcf.
!11.:tte.: Who shorrld pay for the cost of the hollorv blocks, the building owner
or the conlractor?
i!rg: By virtue of the conlract betwcen Guison and 'I'eodoro, the lotter
l,!!!l
cxpressly assumcd lhe cost of the materials by undertaking that "Alt of said
labor and materials shall be supplied by me," and this logically hecause rhe I
contracl rvas for the construction ofa building for which Guison agried to pay a
ttrtal lump sum.
168
It is true that the installation of the hollow blocks in the house of Guison
rcdounded to her bcnefit. It does not thereby follow" however, that she was
enrichcd nt thc expense of the ptaintiff. The contract betwccn her and the
e(,ntractor was for a lump sum of F14,000.00, ivith the lattcr assumin8 the
obligatiorr to fumish all labor and matcrials. In the abscnc€ of proof that he
l'ailed to comply rvith her covenanl to pay Fl4,oOO.Od ro thL' contrador; lhe
latter is legally obliged to make good its orvn undertaking to fumish a//
malerials and labor.
Ndither can we hold the l'ublic Esbtes Authorily (PEA) liable based on.
$elutio indebiii, the legal maxim that no one shoul,l enrich itself at the expense
of another. As we explained in l)owtorr Conglomerale, lnc. v. Ag:colicol (40O'
SCIT/\ 523 [2003]), the princigrlc of unjust enrichtnent cudnot bc vulidly invoked
by the resl)ondcnt who, tlrrouglr his own oct irr ornission, took thc risk of being,
dcniccl paynrcnt flor additional costs by not giving the petitioners prior nolice of
such costs and/or by not securing their lwitlen consent thctEto, as rcquired by
ia \,!' arrd their contract. Uy cannot, therefore, claim frilm PEA thc costs of the
additional hauling distance of topsoil,.and of the mobilization of watcl trucks.
It.is well-settled that a person who had not given value for the monev
r)aid to him has no riqht to retain the monev he received. This Court, therefore,
.quotes with appr<ival tlre ruling of the Coun of AppeBls in its decision:
"lt ,llrlrcrrirg, howcver, tiofi thc cvidcncc irn rcc(rrd lhol since
(. lring LJy Scng urll/or Uy Chung Guarr Seng rcceivcd the procer:ds of the
ch..:cks as they wc.e dcposiled in tlreir personal joint account with
..\ssi.)ciolcd llirDk, thcy shorrld, thercfbre. bc obligcd to rohrrhrrsc
,'rssocibtecl l3rurk ti>r il)e r [() rt it has to poy to Bank 6f Americo, in li[c
\vith the rulc that no llet son should bc allorved to unju$ly enrigh himsclf oi
the expensc of anothcr."
169
a
Thcrefore, even on the supposition that llonilacio only sold his portion
conjugal partnership, the sale is stitl theorctical'ty void, ior. as previously
<.,1'the
slrted, the right of the husband or the wifc to .rnc-half of thc conjugal assets
docs not vcst until rhe liquidarion olthe conjugal por4ncrship.
Ncvcrthcless, this Court is mindful oi' th€ fact that th€ Tarrosas paid a
valuable consideration in thc amour ofPl9,000.(10 for thc property in question.
Thus, as a matter of faimess and equity, the shsre of Bonit'Bcio afier thc
liquidation of the partnership should bC liabfe to reimburse th.c amount paid by
the Tarrosas. 1,. is well-setlled principle that no person shoutd unjusly enrich
himself at lhe expense ofanother.
Itinds:
l. Negotiorum Cestio
) Solutio Indebiti
<:. Requisit$
l. 'l-hcre is no.meeting of the minils between the gestor :rnd lhe orvner of tlre business or
propeny.
-l
2. lre gestor voluntarily assumed the agency or management ofthe business or property of
another.
f. T!:c business or propeny must have been neglccted or abatrdoned try the owrrer.
4. 'fhe owner did nol aulhorize, either expressly or impliedly, thc agcncy or nranagemenl of
his business 'or propcfiy.
5. The gestor assumed the agency or nlanagenlsnt ofthe business or properry in good faith.
170
+[
i
1 'l'hc brrsincss ()r
pr<)f,crty st!bicct ) It is not rrcccssary for thc business
(,1' volurrtary rnanagcment should or Propcrly to t)c llc'Sluctcd or
eitlrcr have been ncglected or abandoned:
ubandoned.
l. 1;() long as the owner of the ). From ihe very moment the owner
[rusiness or property does nol krruw ot' thc busincss or ProP-e-rty
that arclher pcrson is acting on lris becomes aware that another
behalf without authority, thc Derson is acting on his behalf
rclat ion of negotiorum
juridical ivithout his airthority and he still
gestio Rxists- does not repudiate the aots of that
person. negotorium gestio ceases
io cxist and the juridical
rclrtionslrip lrcsotrtcs ()tlr': 9l:
implied agency.
ir. tnslances whcrc tbe officious mEnrger as linbtc evcn in crses of fortuitous €vcnts
onder,lrticle 214? (,f the Civil Code:
L lf the officious manager undertakes risky operations rvbich the owner was not
ilecrist([ncd to cmbark tlP(rn:
:i. lf tlre ol'ficious manager has prel'erred his own interest to that of rhe ownerl
i lf thc r:flicious managcr l-ails tr return the propsrty or business a1cr dcmand by the
tlwnc r; antl
4. il tlrc olficious rlanager assulrred the management of the business or property in bad
taith
IixcsPt w'lrcrr tllc lnfllrrlgclnclrl wirs . ttssumcd l() suvo thc prolt)ny or trttsincss lrom
irnnrirrent danger, the gestor sha-ll be liable tbr ibrtuitous evcnts if a) he is monit-cstly unlit to
carry on rhe m-anagemint or b) by his intervention, he prevented a more competent person fiom .
ta k ing; up the nlanagcmcnt.
lt- It(.rtlrisilcs
t. '['llere rnust be payment or delivery made by onc person to another and the l'rttcr received
lllc pirymcnt or <Jelivcry.
?, 'l'hc plrson to whom tlie payntent or delivcry w.rs ctlbcted hud no right tr'r dcnran-d it'
-l
he payment or delivery was e t-fccted by reason of a mistake eithcr of fact or of law'
'l he
Parties
W
firsl entered into a contract lbr a piece oi work when they
exccuted the supplemental agreement. Petitioner as contrdctor bound itself to
e};.ccute the proje;t for t spo-nd.t t, the owner/devetopcr, in consideration of a
price certain (pt:O,OOO.OIi). The supplemental agreement was reciprocal .in
nature because the obligation of res-Ptndent to'pay the entire contract price
l7l
<Jc1>urrctod ()n thc ol)ligilti(xr ol' Pctitiotrer to colDplctc thc pro.ical (atrd vrcc
vur:tt).
"nrticlo 2163. lt is jrrcsumed ihot ahcrc was rt nrilttrkc itr th.' Piymcnf
il somerhtng whlch hed ncvcr bc€n duc or had Eln:ady bcc paid wlr
delivercdi but, hc liom.whorn the return is clairned lrlay pruvc that lho delivcry
rvas rrrado out ofliberality or tbr ary otlrer-iusl cause." (c.tnphssis sltpplicd)
ln this instance, rcspondent paid pan of the oontract prioe undcr the
iissur.rption thal pctitioncr rvould conrplete the pr({ccl rvilhin tltc stipulalr'(l
perioC. I-lowever, atler the supplemental agre€ment was extillguished, petitioner
ceased vjorking on the project. Therefore, the compensation petitioner received
in cxcess of lhe cost of its actual accomplishnrent as of October 12, 1995 was
nevcr due. The condominiunr units and parking slots corresponding lo the said
sxccss were mistakenly delivered by respondent and were thi:reforc not due to
petitioner.
Peiitioner insists thot its paymcnt of respondent;s salary rras by misiake ',
since respondent who chose not to rcport foi work was not entitted tg it. rinder
the principlc of "no work, no pa.y," thus he has the obligation to return the same.: :r.
Petiiionei based such contenti6n on tire prinoipte if soluiio inbgb t uiQsl .''l
Article 2154 of the Civil Code. ,,.
. . .
There is solutio indebiti where: (1) payment is made whbn there exists
no binding relation between the payor, who has no dut! to pay, and the person
who received the payment; and (2) the payment is made through mistake, and
not through .liberality or some other causb. x x x Tho quasi-conlraat of sblulio .
in<lebili is based on lhe ancient principle that no one shall enrich himself
unjustly at the expense of anotlrer.
Both elcmcnts are lacking in the present base. Mr. Cascarro, thelffeaa of
the Branches Division :nvestigation Unit, had categorically staied that
respondent was only terminated fiom service on Aulust 26, 1988. Respondent
was not stispended from oflice- Consequdntly, during the.period in qr.leition, ..
said period. Thus, therc can be no mistaken paymcn! in this case.' Mcireover, it
hds treen shown that the poyment of rcsporident's salari, was with thi knowledge'
and approval of rcspondent's immediate superior otlicers. Hence, the principle;
of solutio indebiti finds no application in this case;
i'.
Uniwide, as the owner who did pay the coniiactor for suchiadditional
works even if they hhd not been authoriied in rvriting hss to esiabliih its.own ^ ,l
right to reirnbuisemenl not under Art. 1724, btrt under a different prdvisioD of
l.rw. (rniwide's burden of eslahlishing its legol right to reimbrirsenrent,becomes
cvull llr(r'c errrcirrl itl tlx.: ligltl rll tlrc gcrtcrrrl Prcstr rllir,rr corrllirrcrl irt Sce:liorr
3( I), I{ule l3 I ot the Rules of Coun that "nlodey paid by one to snother was due
to the latter."
' Uniwide undertakcs suoh a task belbrc this Court, citing thc provisions
ot7 solurio indebiti ,.jnder Ans. 2154 and 2156 of the Civil Code. Howevir, it is
not enough to prove that the payments made by Uniwide to Titan wcre "not t.
,, ,'i ;
due" because there was no prior authorization or agreement with respect to .."|t: i
additional wcirks. There .is a further rcquirement that the payrnent by lhe debtor
was made either through mistake oi.under s cloud of doubt..In shoi, for tire
prorisiois bn sotutto indebiti to appty, therc has to be cvidgnca establfuhing the
frame of mind of the payor at the time thc payment as madt.
\
Note: When the peyment wss not by mistakc but was madc by virtuc of th€ coorciye groccss of
thc uzrit of execution, solurto indebiri does not apply. [fu{anlla Surety and Fldelity Co,, Inc. v..
Lim, GR I--9343, December 29, t9.59 as cited in the Prc-Week. Hondbook in Civil Lorv by
Edgardo L. Paras (Fifth Edition, 2007)l i '
173
: l.:;
' . .:i.. v,
l\'l ( lO Sullrrrlc I'ro]rlcnr '*tlr.
. .',.. ::,, .
a. Yes, because wlrat A and B t'ailed to stipulate on is the rate of interest to bc paid on],,. '
the loan but not the non-paytnent of interest rvhich can be implied from A's excess. '. ,
final paymenl to B.
b. Ycs, because thc ovcrpayrrrcnt is due to A's neglig'ence and the.latrer'is nowl
csloppcd to clairrr its rcturn. ..
c. No, bocousu payment of intcrcst cainot be implied and must be-exprcssly'agreed r '
upon by thc parlics. i .
.:. d. ].io, bciausc'U is obliged to rcturn lhe undue interest errdneously paid by A to hin!. :
under the principlc ofs()lutio indebiti. i: .
}!-Utg!:: Siga-air vs. Villarrueva (576 SCRA 696) :
LJnder the principle of,st utkt in<!qbiii, the govemmena ha! tp restofe to
petitioncr the sums representing, erroneius payments 9i' tal9i. lt is of: no
mor'ncnt whethcr the National Power' Corporation (NPC) 'had already
rcimbursed pctitioner or not bccause in this case,. there should. hdve, been.no 1:
Value Added Tax (VAT) paid at all.
, i : ']
"I'hc Sumrndry of Paymcnts ancl Otficial Receipts issued by d.supplier is rl.
n(rt a reliable hasis.lbr determining thc VAT payments of said supplier. The
(.'()rrrt ol' 'l'a\ nppcals (CTA) grossly nr isapprecirited -thc cvidenee" and
crrr.rncously conclrrclcd in this casc that Nt C.paid the V T. The CTA shoqld
Irarc rclicd on tlrc VA I' llctrrrrrs lilctl t,y thc tuxpaycr lo detcmlinc lhe ocluol
irrrounl rcrnillr:rl l0 tlrc llrrrc rr (|l' lntcrnal Rcvcnuc f(rr thc purpose ol
asccrtaining thc rel'und duc. l'hc p(cscnlatiorr of thc VAT Retums is'corisidered
strl'l'icicnt to rscerloin thp aniount ol'thc rcl'und. '[hus, upon tinding that the
strltplv ol'slcoJrr t(! Nl,C is cxcrnpt l'ronr VAT, thc C'fA should htve ordered
tcslrrlttfcnl l() rci,ribursc pctiti()r)cr thc lull amounl ol' P39,328,775.41 as.
crroncouslv paid VA'f.
Irr ortlcr t(t sh(rw thlt it \\1)uld h vc bcen inrpossiblc lbr lxtirionei ro
ulrlr./.c lhc csccss crcdit in taxahlc ycar 1999, it atruchcd iis tCaC and 2OOO
irrrnrral rnconlc tox rclurns in its trrolion lbr rcconsidcr4tion lilcd with the Coun
(rl' li.r\ n nt^*'al$. 'l hcsc shorv thlrt pctitioncr incurrecl. lbsses in 1999 in the
ilrrdunr ()l'P-l-'i,C1(l.O3lt.rr. Clcarly, petitioncr has no tax liability in 1999 to
r,vlrieh thc l()97 cxccsi tax crctlits could bc upplicd or utilized. This Courl.has
Itcl!l llltlt il ir l!\pitvgr sLrl'l'crcd a ncl l()ss itr a subsequcnt ycar, incurring no tax
lrrrlrilitr to rrlriclr a prcviotrs ycur's lirx crcdit coulci he applieci, there is.no
r74
reason for the Bureau of Intcrnal Revcnuc (BlR) to withhold thb.tax'.refunA
which rightfully belongs to the taxpayer.
li Substantial jusrice, aquity and llair play are on the side.of petitioher. :
'fechnicalities and legalisms, however exaltcd, shouid not
be misuscd by rhe
government to keep money not belonging ro it, thereby, cniiching itielfat rht
expcnse of irs law-abiding citizens. Under the principlc of $;lirio in<lcbiti
provided in Arl. 2 154, Civil Code, the BtIl. received someihing l..when the_r'i
[rvas] no right to demand it," and rhus, it has the obligarion to rerurn ir. Heavilyl
nrilitating against respondent Commissioner is the ancient principle that no one, . r .
not even the state, shall cnrich oncselfat thr: cxpensc.of agother. lndicd, simplc
justice requires the specdy rel'trnd of the tvrongly.held taxei ..