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CREDIT TRANSACTIONS

(Pledge, Antichresis, and Mortgage)


1.
Calibo vs CA
Facts:
Pablo Abella owns a tractor, which he left with his son Mike for safekeeping
Mike then kept in the garage of the house he was leasing from Dionisio Calibo
Dionisio learned that Mike had stopped paying rentals and had never paid the electric and water bills which he was bound to
shoulder
Upon confrontation, Mike informed Dionisio that he would only be staying til the end of December and that he would be
settling his account, offering the tractor as security
Mike even asked Calibo to find a buyer for the tractor
Lease ended and Mike vacated the premises; new tenant
Dionisio visited Mike few times in Cebu to try to settle with Mike re: outstanding accounts, but to no avail – out of town most
of the time and that the prospective buyer of the tractor did not come back anymore
When confronted again, Mike reassured Calibo that tractor would stand as guarantee for its payment
When Pablo Abella came to claim and take possession of the tractor, Dionisio refused to give it up alleging that Mike left it with
him as security for the payment of Mike’s obligation
Pablo offered to write a 2,000 check but Dionisio would only accept if Pablo will write a promissory note to cover the amount
of the electric and water bills
Failed to agree so Pablo went back to Cebu
Pablo later instituted an action for replevin, claiming ownership of the tractor and seeking to recover possession thereof
RTC: granted, CA: affirmed
Ratio: Mike could not have validly pledged the subject tractor to Dionisio since he was NOT THE OWNER thereof, NOR WAS HE
AUTHORIZED by its owner to PLEDGE the tractor. Or that IF NOT A PLEDGE, THEN A DEPOSIT was created (the primary purpose
of which is safekeeping only and NOT TO SECURE PAYMENT OF DEBT)
Appeal to SC
Dionisio: valid pledge; tractor left to him in concept of innkeeper, on deposit, and he may hold onto it til Mike pay; principal-
agent relationship, failure to repudiate = estoppel

ISSUE: WON tractor valid security

HELD: DENIED, LACK OF MERIT


Pledge: creditor is given the right to retain his debtor’s property til debt is paid
Pledge is constituted to secure the fulfilment of a principal obligation
Pledger absolute owner of thing pledged
Person constituting the pledge has the free disposal of property or that he is legally authorized for the purpose
Hence, cannot validly bind the property in favour of creditor, and the pledgee or mortgagee in such case acquires no right
whatsoever in the property pledged or mortgaged
Mike Abella not absolute owner: no valid pledge
As to agency relationship: for an agency relationship to be deemed implied, the principal must know (1869) that another
person is acting on his behalf without authority- Mike was acting without Pablo’s knowledge, not just without authority; and
principal will only be solidarily liable if he allowed his agent to act with full powers- again, lack of knowledge
No valid deposit: person receives an object belonging to another with the obligation of safely keeping it and of returning the
same- THERE IS NO DEPOSIT WHERE THE PRINCIPAL PURPOSE FOR RECEIVING THE OBJECT IS NOT SAFEKEEPING
Hence, Dionisio had no right to refuse delivery of the tractor to its lawful owner because he had every right to seek to
repossess property

2.
BETITA V. GANZON EL AL.a G. R. NO. L-24137, 49 PHIL. 87,

FACTS:
This action is brought to recover the possession of four carabaos with damages in the sum of P200.
On May 15, 1924, the defendant Alejo de la Flor recovered a judgment against Tiburcia Buhayan for the sum of P140 with
costs. Under this judgment the defendant Ganzon, as sheriff levied execution on the carabaos in question which were found in
the possession of one Simon Jacinto but registered in the name of Tiburcia Buhayan. The plaintiff, Eulogio Betita, alleged that
the carabaos had been mortgaged to him and as evidence thereof presented a document dated May 6, 1924, but the sheriff
proceeded with the sale of the animals at public auction where they were purchased by the defendant Clemente Perdena for
the sum of P200, and this action was thereupon brought.
RTC: inasmuch as that document was prior in date to the judgment under which the execution was levied, it was a preferred
credit and judgment was rendered in favor of the plaintiff for the possession of the carabaos, without damages and without
costs.
ISSUE: WON there was a valid chattel mortgage or pledge
HELD: NO

Case Digests By: @mcvinicious


It is not a sufficient chattel mortgage; it does not meet the requirements of section 5 of the Chattel Mortgage Law (Act No.
1508), has not been recorded and, considered as a chattel mortgage, is consequently of no effect as against third
parties.Neither did the document constitute a sufficient pledge of the property valid against third parties.
Article 1865 of the Civil Code provides that “no pledge shall be effective as against third parties unless evidence of its date
appears in a public instrument.”
The document in question is not public, but it is suggested that its filing with the sheriff in connection with the terceria gave in
the effect of a public instrument and served to fix the date of the pledge, and that it therefore fulfills the requirements of
article 1865. Assuming, without conceding, that the filing of the document with the sheriff had that effect, it seems
nevertheless obvious that the pledge only became effective as against the plaintiff in execution from the date of the filing and
did not rise superior to the execution attachment previously levied (see Civil Code, article 1227).

MANRESA:
ART. 1865. A pledge will not be valid against a third party if the certainty of the date is not expressed in a public instrument.
Considering the effects of a contract of pledge, it is easily understood that, without this warranty demanded by law, the case
may happen wherein a debtor in bad faith from the moment that he sees his movable property in danger of execution may
attempt to withdraw the same from the action of justice and the reach of his creditors by simulating, through criminal
confabulations, anterior and fraudulent alterations in his possession by means of feigned contracts of this nature;
for the effectiveness of the pledge, it be demanded as a precise condition that in every case the contract be executed in a
public writing, for, otherwise, the determination of its date will be rendered difficult and its proof more so, even in cases in
which it is executed before witnesses, due to the difficulty to be encountered in seeking those before whom it was executed.
Our code does not demand in express terms that in all cases the pledge be constituted or formalized in a public writing, nor
even in private document, but only that the certainty of the date be expressed in the first of the said class of instruments in
order that it may be valid against a third party; and, in default of any express provision of law, in the cases where no
agreement requiring the execution in a public writing exists, it should be subjected to the general rule, and especially to that
established in the last paragraph of article 1280, according to which all contracts not included in the foregoing cases of the said
article should be made in writing even though it be private, whenever the amount of the presentation of one or of the two
contracting parties exceeds 1,500 pesetas.
If the mere filing of a private document with the sheriff after the levy of execution can create a lien of pledge superior to the
attachment, the purpose of the provisions of article 1865 as explained by Manresa clearly be defeated. Such could not have
been the intention of the authors of the Code.
The alleged pledge is also ineffective for another reason: the plaintiff pledgee never had actual possession of the property
within the meaning of article 1863 of the Civil Code.
But it is argued that at the time of the levy the animals in question were in the possession of one Simon Jacinto; that Jacinto
was the plaintiff’s tenant; and that the tenant’s possession was the possession of his landlord.
It appears, however, from the evidence that though not legally married, Simon Jacinto and Tiburcia Buhayan were living
together as husband and wife and had been so living for many years.

Article 1863 of the Civil Code reads as follows:


In addition to the requisites mentioned in article 1857, it shall be necessary, in order to constitute the contract of pledge, that
the pledge be placed in the possession of the creditor or of a third person appointed by common consent.

Manresa:
Therefore, in order that the contract of pledge may be complete, it is indispensable that the aforesaid delivery take place .
the delivery of possession referred to in article 1863 implies a change in the actual possession of the property pledged and that
a mere symbolic delivery is not sufficient. The present case the animals in question were in the possession of Tiburcia Buhayan
and Simon Jacinto before the alleged pledge was entered into and apparently remained with them until the execution was
levied, and there was no actual delivery of possession to the plaintiff himself. There was therefore in reality no change in
possession.
SC REVERSED

3.
Lopez v CA | CM
June 29, 1982
BENITO H. LOPEZ, petitioner,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents.
GUERRERO, J.:
Summary: Lopez obtained a loan from prudential bank. He executed a promissory note, a surety bond with Philamgen as
surety and an indemnity agreement in favour of Philamgen as well as a deed of assignment of stocks over Philamgen. Lopez
delivered the stock certificate to Philamgen. It was understood that Abello of Philamgen and Pedrosa of Prudential would buy
the shares and pay to Prudential if Lopez failed to pay on the loan. Lopez failed to pay. The stocks were transferred to
Philamgen. Philamgen paid the bank. Philamgen is now claiming vs Lopez. Philamgen claims the stocks were merely pledged.
Lopez claims that there was a dation in payment. SC held that it was merely pledged and Philamgen must return the stocks to
Lopez upon satisfaction under the Indemnity Agreement.

Case Digests By: @mcvinicious


Doctrine: The character of the transaction between the parties is to be determined by their intention, regardless of what
language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be
construed as a pledge
FACTS:
 On June 2, 1959, petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the Prudential Bank and
Trust Company.
 He executed a promissory note for the same amount, in favor of the said Bank, binding himself to repay the said sum
one (1) year after the said date, with interest at the rate of 10% per annum.
 He executed Surety Bond No. 14164 in which he, as principal, and Philippine American General Insurance Co., Inc.
(PHILAMGEN) as surety, bound themselves jointly and severally in favor of Prudential Bank for the payment of the sum
of P20,000.00.
 Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed "to indemnify the Company
and keep it indemnified and hold the same harmless from and against any and all damages, losses, costs, stamps,
taxes, penalties, charges and expenses of whatever kind and nature which the Company shall or may at any time
sustain or incur in consequence of having become surety upon the bond."
 Lopez executed a deed of assignment of 4,000 shares of the Baguio Military Institution entitled "Stock Assignment
Separate from Certificate" 1
 With the execution of this deed of assignment, Lopez endorsed the stock certificate and delivered it to Philamgen.
 The loan of P20,000.00 was approved conditioned upon the posting of a surety bond. Thus, Lopez persuaded Emilio
Abello, Assistant Executive Vice-President of Philamgen and member of the Bond Under writing Committee to request
Atty. Timoteo J. Sumawang, Assistant Vice- President and Manager of the Bonding Department, to accommodate him
in putting up the bond against the security of his shares of stock with the Baguio Military Institute, Inc. It was their
understanding that if he could not pay the loan, Vice-President Abello and Pio Pedrosa of the Prudential Bank would
buy the shares of stocks and out of the proceeds thereof, the loan would be paid to the Prudential Bank.
 On June 2, 1960, Lopez' obligation matured without it being settled. Prudential Bank sometime in August, 1961 filed a
case against Lopez and Philamgen to enforce payment on the promissory note plus interest.
 Vice-President Abello then instructed Atty. Sumawang to transfer the shares of stock to Philamgen and made a
commitment that thereafter he (Abello) and Pio Pedrosa will buy the shares of stock from it so that the proceeds could
be paid to the bank, and in the meantime Philamgen will not pay the bank because it did not want payment under the
terms of the bank.
 The complaint was thereafter dismissed. But when no payment was still made by the principal debtor or by the surety,
the Prudential Bank filed on November 8, 1963 another complaint for the recovery of the P20,000.00.
 Lopez’s letter:
Dear Mr. Sumawang: This is with reference to yours of the 13th instant advising me of a complaint filed against us
by Prudential Bank & Trust Co. regarding my loan of P20,000.00. In this connection, I would like to know what
happened to my shares of stocks of Baguio Military Academy which were pledged to your goodselves to secure
said obligation. These shares of stock I think are more than enough to answer for said obligation.
 Philamgen was forced to pay the Prudential Bank the sum of P27,785.89
 Philamgen brought an action vs. Benito H. Lopez for reimbursement of the said amount.
 CFI dismissed the complaint holding:
The contention of the plaintiff that the stock of the defendant were merely pledged to it by the defendant is
not borne out by the evidence. On the contrary, the shares of stock of the defendant were actually transferred
to the plaintiff Philamgen
Now that these shares of stock had already been transferred in the name of the Philamgen, it would seem that
the remedy of the Philamgen is to go after Messrs. Abello and Pedrosa on their promise to pay for the said
stocks.
 CA promulgated a decision in favor of the Philamgen, and declared that the stock assignment was a mere pledge that
the transfer of the stocks in the name of Philamgen was not intended to make it the owner thereof; that assuming that
Philamgen had appropriated the stocks, this appropriation is null and void as a stipulation authorizing it is apactum
commissorium; and that pending payment, Philamgen is merely holding the stock as a security for the payment of
Lopez' obligation
ISSUE 1/ HELD: what is the juridical nature of the transaction-a dation in payment or a pledge? PLEDGE
RATIO:
ON ITS FACE, IT LOOKS LIKE SALE
 Considering the explicit terms of the deed denominated "Stock Assignment Separate from Certificate", hereinbefore
copied verbatim, Lopez sold, assigned and transferred unto Philamgen the stocks involved "for and in consideration of
the obligations undertaken" by Philamgen "under the terms and conditions of the surety bond executed by it in favor
of the Prudential Bank" and "for value received".
 On its face, it is neither pledge nor dation in payment. The document speaks of an outright sale as there is a complete
and unconditional divestiture of the incorporeal property consisting of stocks from Lopez to Philamgen.

11
That for and in consideration of the obligations undertaken by the ASSIGNEE-SURETY COMPANY under the terms and conditions of SURETY BOND NO. 14164, issued on behalf of said BENITO H. LOPEZ and
in favor of the PRUDENTIAL BANK & TRUST COMPANY, Manila, Philippines, in the amount of TWENTY THOUSAND PESOS ONLY (P20,000.00), Philippine Currency, and for value received, the ASSIGNOR
hereby sells, assigns, and transfers unto THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Four Thousand (4,000) shares of the Baguio military Institute, Inc. standing in the name of said
Assignor on the books of said Baguio Military Institute, Inc. represented by Certificate No. 44 herewith and do hereby irrevocably constitutes and appoints THE PHILIPPINE AMERICAN GENERAL INSURANCE
CO., INC. as attorney to transfer the said stock on the books of the within named military institute with full power of substitution in the premises.

Case Digests By: @mcvinicious


BUT IT IS A PLEDGE
 Notwithstanding the express terms of the "Stock Assignment Separate from Certificate", however, We hold and rule
that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the
time of the execution thereof.
 Lopez executed a promissory note for P20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of
said Bank. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the
promissory note with Philamgen as his surety. In return for the undertaking of Philamgen under the surety bond, Lopez
executed on the same day not only an indemnity agreement but also a stock assignment.
 The indemnity agreement and the stock assignment must be considered together as related transactions because in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered. (Article 1371, New Civil Code).
 Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while
the stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement
whereby Lopez had to pay a premium of P1,000.00 for a period of one year and agreed at all times to indemnify
Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent
with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen.
 There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really
intended as an absolute conveyance. Hence, there are strong and cogent reasons to conclude that the parties intended
said stock assignment to complement the indemnity agreement and thereby sufficiently guarantee the indemnification
of Philamgen should it be required to pay Lopez' loan to Prudential Bank.
o The character of the transaction between the parties is to be determined by their intention, regardless of what
language was used or what the form of the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though
a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified
and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral
security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to
make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not
discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of
absolute ownership will not be given that effect in such a transaction if they are also commonly used in
pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other circumstances excluding an intent to pledge.
 We agree with the holding of the respondent Court of Appeals that the stock assignment, Exhibit C, is in truth and in
fact, a pledge. Indeed, the facts and circumstances leading to the execution of the stock assignment, Exhibit C, and the
admission of Lopez prove that it is in fact a pledge.
 The appellate court is correct in ruling that the following requirements of a contract of pledge have been satisfied:
(1) that it be constituted to secure the fulfillment of a principal obligation;
(2) that the pledgor be the absolute owner of the thing pledged; and
(3) that the person constituting the pledge has the free disposal of the property, and in the absence thereof, that he be
legally authorized for the purpose. (Article 2085, New Civil Code).
 Article 2087 of the New Civil Code providing that it is also the essence of these contracts (pledge, mortgage, and
antichresis) that when the principal obligation becomes due, the things in which the pledge or mortgage consists may
be alienated for the payment to the creditor, further supports the appellate court's ruling
o In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of
pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common
agreement. (Art. 2093, N.C.C.) Incorporeal rights, including shares of stock may also be pledged (Art. 2095,
N.C.C.)
o All these requisites are found in the transaction between the parties leading to the execution of the Stock
Assignment, Exhibit C. And that it is a pledge was admitted by the defendant in his letter of November 18,
1963, Exhibit G, already quoted above, where he asked what had happened to his shares of stock "which were
pledged to your goodselves to secure the said obligation".
 It is not a dation in payment. According to Article 1245 of the New Civil Code, dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.
o Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. The property given may consist, not only of a thing,
but also of a real right (such as a usufruct) or of a credit against a third person. Thus, it has been held that the
assignment to the creditor of the interest of the debtor in an inheritance in payment of his debt, is valid and
extinguishes the debt.
o The modern concept of dation in payment considers it as a novation by change of the object, and this is to our
mind the more juridically correct view.
o Our Civil Code, however, provides in this article that, where the debt is in money, the law on sales shall govern;
in this case, the act is deemed to be a sale, with the amount of the obligation to the extent that it is
extinguished being considered as the price.
o Does this mean that there can be no dation in payment if the debt is not in money? We do not think so. It is
precisely in obligations which are not money debts, in which the true juridical nature of dation in payment
becomes manifest. There is a real novation with immediate performance of the new obligation. The fact that
Case Digests By: @mcvinicious
there must be a prior agreement of the parties on the delivery of the thing in lieu of the original prestation
shows that there is a novation which, extinguishes the original obligation, and the delivery is a mere
performance of the new obligation.
o The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished.
 We find that the debt or obligation at bar has not matured on June 2, 1959 when Lopez "alienated" his 4,000 shares of
stock to Philamgen. Such fact being adverse to the nature and concept of dation in payment, the same could not have
been constituted when the stock assignment was executed.
 In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge,
the latter being the lesser transmission of rights and interests.
 Petitioner's argument that even assuming, arguendo that the transaction was at its inception a pledge, it gave way to a
dation in payment when the obligation secured came into existence and private respondent had the stocks transferred
to it in the corporate books and took a stock certificate in its name, is without merit. The transfer of title to incorporeal
property is generally an essential part of the delivery of the same in pledge. It merely constitutes evidence of the
pledgee's right of property in the thing pledged.
 By the contract of pledge, the pledgor does not part with his general right of property in the collateral. The general
property therein remains in him, and only a special property vests in the pledgee. The pledgee does not acquire an
interest in the property, except as a security for his debt. Thus, the pledgee holds possession of the security subject to
the rights of the pledgor; he cannot acquire any interest therein that is adverse to the pledgor's title. Moreover, even
where the legal title to incorporeal property which may be pledged is transferred to a pledgee as collateral security, he
takes only a special property therein Such transfer merely performs the office that the delivery of possession does in
case of a pledge of corporeal property.
 The pledgee has been considered as having a lien on the pledged property. The extent of such lien is measured by the
amount of the debt or the obligation that is secured by the collateral, and the lien continues to exist as long as the
pledgee retains actual or symbolic possession of the property, and the debt or obligation remains unpaid. Payment of
the debt extinguishes the lien.
 Though a pledgee of corporation stock does not become personally liable as a stockholder of the company, he may
have the shares transferred to him on the books of the corporation if he has been authorized to do so.
ISSUE2/ HELD: WON there was novation (NO)
NO NOVATION
 In his second assignment of error, petitioner contends that there was a novation of the obligation by substitution of
debtor.
 SC: We do not agree.
 Under Article 1291 of the New Civil Code, obligations may be modified by: (1) changing their object or principal
condition; (2) substituting the person of the debtor; (3) subrogating a third person in the rights of the creditor. And in
order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
(Article 1292, N.C.C.)
 Commenting on the second concept of novation, that is, substituting the person of the debtor, Manresa opines, thus:
 In this kind of novation it is not enough to extend the juridical relation to a third person; it is necessary
that the old debtor be released from the obligation, and the third person or new debtor take his place
in the relation. Without such release, there is no novation
 In the case at bar, the undertaking of Messrs. Emilio Abello and Pio Pedrosa that they would buy the shares of stock so
that Philamgen could be reimbursed from the proceeds that it paid to Prudential Bank does not necessarily imply the
extinguishment of the liability of petitioner Lopez. Since it was not established nor shown that Lopez would be
released from responsibility, the same does not constitute novation
 In fine, We hold and rule that the transaction entered into by and between petitioner and respondent under the Stock
Assignment Separate From Certificate in relation to the Surety Bond No. 14164 and the Indemnity Agreement, all
executed and dated June 2, 1959, constitutes a pledge of the 40,000 shares of stock by the petitioner-pledgor in favor
of the private respondent-pledgee, and not a dacion en pago. It is also Our ruling that upon the facts established, there
was no novation of the obligation by substitution of debtor.
 The promise of Abello and Pedrosa to buy the shares not having materialized and no action was taken against the two
by Philamgen who chose instead to sue Lopez on the Indemnity Agreement, it is quite clear that this respondent
Philam has abandoned its right and interest over the pledged properties and must, therefore, release or return the
same to the petitioner-pledgor Lopez upon the latter's satisfaction of his obligation under the Indemnity Agreement.
 It must also be made clear that there is no double payment nor unjust enrichment in this case because We have ruled
that the shares of stock were merely pledged.
DISPOSITION. AFFIRMED.

4.
Sarmiento v. Javellana
Facts:

Case Digests By: @mcvinicious


On August 28, 1991, the defendant loaned the plaintiffs the sum of P1,500 with interest at the rate of 25 per cent per annum
for the term of one year. To guarantee this loan, the plaintiffs pledged a large medal with a diamond in the center and
surrounded with ten diamonds, a pair of diamond earrings, a small comb with twenty-two diamonds, and two diamond rings,
which the contracting parties appraised at P4,000. This loan is evidenced by two documents (Exhibits A and 1) wherein the
amount appears to be P1,875, which includes the 25 per cent interest on the sum of P1,500 for the term of one year.
The plaintiffs allege that at the maturity of this loan, August 31, 1912, the plaintiff Eusebio M. Villaseñor, being unable to pay
the loan, obtained from the defendant an extension, with the condition that the loan was to continue, drawing interest at the
rate of 25 per cent per annum, so long as the security given was sufficient to cover the capital and the accrued interest.
The plaintiff Eusebio M. Villaseñor, in company with Carlos M. Dreyfus, went to the house of the defendant and offered to pay
the loan and redeem the jewels; but the defendant then informed them that the time for the redemption had already elapsed.
The plaintiffs renewed their offer to redeem the jewelry by paying the loan, but met with the same reply.

The plaintiffs now bring this action to compel the defendant to return the jewels pledged, or their value, upon the payment by
them of the sum they owe the defendant, with the interest thereon.

Issue: W/N the jewelries were sold to Javellana?

Held: No, the jewelries were mortgaged to Javellana.

Next day the plaintiff, Filomena Sarmiento, went back to the house of the defendant who then paid her the sum of P1,125,
which was the balance remaining of the P3,000 after deducting the plaintiff’s loan.

It appearing that the defendant possessed these jewels originally, as a pledge to secure the payment of a loan stated in writing,
the mere testimony of the defendant to the effect that later they were sold to him by the plaintiff, Filomena Sarmiento, against
the positive testimony of the latter that she did not make any such sale, requires a strong corroboration to be accepted.

If the defendant really bought these jewels, its seems natural that Filomena would have demanded the surrender of the
documents evidencing the loan and the pledge, and the defendant would have returned them to plaintiff.

Our conclusion is that the jewels pledged to defendant were not sold to him afterwards.
The defendant is bound to return the jewels or their value (P12,000) to plaintiffs, and the plaintiffs have the right to demand
the same upon the payment by them of the sum of P1,5000, plus the interest thereon at the rate of 25 per cent per annum
from August 28, 1911.

5.
SOUTHERN MOTORS VS ELISEO BARBOSA, GR # L-9306
FACTS: Plaintiff Southern Motors brought an action against defendant Barbosa to foreclose a real estate mortgage constituted
by the latter in favor of the former, as security for the payment of a sum extended by plaintiff to one Alfredo Brillantes,
because the latter failed to settle his obligation in accordance with the terms and conditions corresponding with the deed of
mortgage.
Defendant filed an answer admitting the allegations of the complaint and alleging by way of special and affirmative
defense that he executed the deed of mortgage for the sole purpose of guaranteeing the above mentioned debt of Brillantes
and that therefore plaintiff cannot foreclose the mortgage property without a prior exhaustion of the principal’s properties.
After the case transferred from one judge to another, the trial court rendered judgment on the pleadings in favor of
plaintiff that prompted respondent to appeal before the CA who certified the case to the SC in view of the fact that the appeal
raises purely questions of law.
ISSUE: WON plaintiff is required to exhaust debtor-principal’s property before he can proceed to foreclose the mortgage.
HELD: No. Defendant’s invocation of article 2058 of the Civil Code is misplaced because the right of the guarantors to demand
exhaustion of the property of the principal debtor under said provision exists only when a pledge or mortgage has not been
given as special security for the payment of the principal obligation.
Under the given facts of the case, a mortgage was executed as security for brillantes’ debt, hence, defendant’s reliance
upon the aforementioned provision cannot be sustained, for what governs in this case are the provisions under title XVI of the
Civil Code concerning pledge and mortgages.

6.
Cuyco vs Cuyco
Date: April 19, 2006
Petitioners: Spouses Adelina and Feliciano Cuyco
Respondents: Spouses Renato and Filipina Cuyco

Ponente: Ynares Santiago

Facts: Petitioners obtained a loan in the amount of P1,500,000 from respondents,secured by a Real Estate Mortgage over a
parcel of land with improvements in Cubao. Subsequently, petitioners obtained additional loans from the respondents in the
aggregate amount of P1,250,000.

Case Digests By: @mcvinicious


Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan obligations. Thus,
respondents filed a complaint for foreclosure of mortgage with the RTC of AC. They alleged that petitioners’ loans were
secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of
the 18% mo c; and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate mortgage.
Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the
real estate mortgage at 18% pa and that there was no agreement that the same will be compounded monthly.
The RTC ruled in favor of respondents. The CA modified and ruled that by express intention of the parties, the real
estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000 and P500,000. As regards the
loans obtained in the amounts of P150,000.00, P200,000.00 and P250,000.00, the CA held that the parties never intended the
same to be secured by the real estate mortgage. The CA also found that the trial court properly imposed 12% legal interest on
the stipulated interest from the date of filing of the complaint.

Issue: As to the interest rates

Ratio: Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest of 18% per
annum computed from the filing of the complaint until fully paid was not provided in the real estate mortgage contract, thus,
the same has no legal basis.
We are not persuaded. While a contract is the law between the parties, it is also settled that an existing law enters into
and forms part of a valid contract without the need for the parties expressly making reference to it. Thus, the lower courts
correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest
due.
The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of
legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. CA:
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 CC.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which as
held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof,
respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly,
the case falls under the rule stated in paragraph 1.
Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage
must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per
annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Court’s Decision.
Such interest is not due to stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil Code. From
such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.

Issue: WON all five additional loans were intended to be secured by the real estate mortgage

Held: No

Ratio: The RTC held that all the additional loans were secured by the real estate mortgage. The CA modified the RTC decision
holding that only two were secured by the REM.
In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express
intention of the mortgagors (defendants-appellants) the real estate mortgage contract, as supplemented, secures the
P1,500,000.00 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 1992; and the P500,000.00 loan
obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per annum provided in the real
estate mortgage contract.
With respect to the other subsequent loans of the defendants-appellants in the amount of P150,000.00, obtained on
31 May 1992; in the amount of P200,000.00, obtained on 29 October 1992; and, in the amount of P250,000.00, obtained on 13
January 1993, nothing in the records remotely suggests that the mortgagor (defendants-appellants), likewise, intended the
said loans to be secured by the real estate mortgage contract. Consequently, we rule that the trial court did err in declaring
said loans to be secured by the real estate mortgage contract.

Case Digests By: @mcvinicious


As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the
amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as
security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. This
stipulation is valid and binding between the parties and is known in American Jurisprudence as the “blanket mortgage clause,”
also known as a “dragnet clause.” A “dragnet clause” operates as a convenience and accommodation to the borrowers as it
makes available additional funds without their having to execute additional security documents, thereby saving time, travel,
loan closing costs, costs of extra legal services, recording fees, et cetera.
While a real estate mortgage may exceptionally secure future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract.
The pertinent provisions of the November 26, 1991 real estate mortgage reads: PROVIDED HOWEVER, that should the
MORTGAGOR duly pay or cause to be paid unto the MORTGAGEE or his heirs and assigns, the said indebtedness of ONE
MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the agreed interest thereon,
within the agreed term of one year on a monthly basis then this MORTGAGE shall be discharged, and rendered of no force and
effect, otherwise it shall subsist and be subject to foreclosure in the manner and form provided by law.
It is clear from a perusal of the real estate mortgage that there is no stipulation that the mortgaged realty shall also
secure future loans and advancements. Thus, what applies is the general rule above stated.
Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on
July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be secured by the same real estate mortgage, as shown in the
acknowledgement receipts, it is not sufficient in law to bind the realty for it was not made substantially in the form prescribed
by law.
In order to constitute a legal mortgage, it must be executed in a public document, besides being recorded. A provision
in a private document, although denominating the agreement as one of mortgage, cannot be considered as it is not susceptible
of inscription in the property registry. A mortgage in legal form is not constituted by a private document, even if such
mortgage be accompanied with delivery of possession of the mortgage property. Besides, by express provisions of Section 127
of Act No. 496, a mortgage affecting land, whether registered under said Act or not registered at all, is not deemed to be
sufficient in law nor may it be effective to encumber or bind the land unless made substantially in the form therein prescribed.
It is required, among other things, that the document be signed by the mortgagor executing the same, in the presence of two
witnesses, and acknowledged as his free act and deed before a notary public. A mortgage constituted by means of a private
document obviously does not comply with such legal requirements.
What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate
mortgage or to amend the old mortgage conformably with the form prescribed by the law. Failing to do so, the realty cannot
be bound by such additional loans, which may be recovered by the respondents in an ordinary action for collection of sums of
money.

Issue: WON payment only of the principal and the stipulated interest of 18% pa is sufficient as the mortgage document does
not contain a stipulation that the legal interest on the stipulated interest due, attorney’s fees, and costs of suit must be paid
first before the same may be discharged

Held: No

Ratio: Section 2, Rule 68 of the Rules of Court provides: SEC. 2. Judgment on foreclosure for payment or sale. — If upon the
trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, and
shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee
within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment,
and that in default of such payment the property shall be sold at public auction to satisfy the judgment.
Indeed, the above provision of the Rules of Court provides that the mortgaged property may be charged not only for
the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus, to discharge
the real estate mortgage, petitioners must pay the respondents (1) the total amount due, as computed in accordance with the
formula indicated above, that is, the principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the
stipulated interest due of 12% computed from the filing of the complaint until finality of the decision less partial payments
made, (2) the 12% legal interest on the total amount due from finality until fully satisfied, (3) the reasonable attorney’s fees of
P25,000.00 and (4) the costs of suit, within the period specified by the Rules. Should the petitioners default in the payment
thereof, the property shall be sold at public auction to satisfy the judgment.

7.
Mobil Oil Philippines, Inc. v. Diocares (Fernando, 1969)

[See doctrine underlined below]

In February 1965, Mobil Oil Philippines, Inc. (Mobil Oil) extended a PhP 45 000 loan to Ruth Diocares and Lope Diocares
(Diocares) in a condition that Diocares would buy on cash basis from Mobil Oil a minimum of 50 000 liters of petroleum per
month.
Payment of the loan would be in monthly installments of PhP 950 per month for a period of five years.

Case Digests By: @mcvinicious


As security, Diocares executed a mortgage on two parcels of land.
In case of non-payment of any installment or/and non-performance of the condition (to buy petroleum), Mobil Oil had the
right to foreclose.
Diocares defaulted when the third installment was due.
Only PhP 1900 was paid, leaving a balance of PhP 43 000.
Diocares also failed to buy the minimum amount of petroleum per month.
Mobil Oil filed a complaint and prayed that they be paid PhP 43 000 with interest or, in default of payment, they be allowed to
sell the mortgaged properties.
Defense: There was no refusal of payment. They only sought for an extension of time.
LC: The loan agreement created a personal obligation but it did not establish a real estate mortgage because the mortgage was
not registered. Hence, foreclosure cannot be ordered by the LC.

Issue/Held: W/N the mortgage contract, although unregistered, is binding between the same parties who created it. Yes.

Ratio:

Article 21252 is clear and explicit. Even if the instrument were not recorded, “the mortgage is nevertheless binding between
the parties.” As between them, the mere fact that there is as yet no compliance with the requirement that it be recorded
cannot be a bar to foreclosure.
To hold otherwise would defeat the clear codal provision that the mortgage subsists despite lack of registration insofar as the
parties thereto are concerned, and that the mortgagor is still liable thereon. Furthermore, while the law says that registration
is “indispensable” in order that the mortgage be validly constituted, yet, what is indispensable may be dispensed with.
Dispositive: GRANTED.

8.
G.R. No. L-49940 September 25, 1986
GEMMA R. HECHANOVA, accompanied by her husband, NICANOR HECHANOVA, JR., and PRESCILLA R. MASA, accompanied by
her husband, FRANCISCO MASA, petitioners,
vs.
HON. MIDPANTAO L. ADIL, Presiding Judge, Branch II, Court of First Instance of Iloilo, THE PROVINCIAL SHERIFF OF ILOILO, and
PIO SERVANDO, respondents.

The case under review is for the annulment of a deed of sale dated March 11, 1978, executed by Jose Y. Servando in favor of
Hechanova and Masa covering three parcels of land situated in Iloilo City.
Pio Servando Claimed that the said parcels of land were mortgaged to him by Jose Servando in 1970 to secure a loan of
P20,000.00 with stipulation that the same be solely owned by him (PIO) in case of failure to redeem the property on the
agreed date. He impugned the validity of the sale as being fraudulent, and prayed that it be declared null and void and the
transfer certificates of title issued to the vendees be cancelled, or alternatively, if the sale is not annulled, to order the
defendant Jose Servando to pay the amount of P20,000.00, plus interests, and to order defendants to pay damages.
The defendants HECHANOVA AND MASA moved to dismiss the complaint on the grounds that it did not state a cause of action,
the alleged mortgage being invalid and unenforceable since it was a mere private document and was not recorded in the
Registry of Deeds; and that PIO SERVANNDO was not the real party in interest BEING A mere mortgagee WITH no standing to
question the validity of the sale.
The motion was denied by the respondent Judge, “on the ground that this action is actually one for collection.”
Jose Y. Servando died. HECHANOVA AND MASA filed a Manifestation and Motion, informing the trial court accordingly, and
moving for the dismissal of the complaint pointing out that the action was for recovery of money based on an actionable
document to which only the deceased defendant was a party. SAME WAS DENIED ON THE GROUND that the instant action is
not purely a money claim, it being only incidental, the main action being one for annulment and damages.
On August 1, 1978, PIO SERVNAVDO plaintiff filed a motion to declare defendants in default, and on the very next day, August
2, the respondent Judge granted the motion and set the hearing for presentation of plaintiff’s evidence ex-parte on August 24,
1978.
On August 2, 1978, or the same day that the default order was issued, defendants Hechanova and Masa filed their Answers,
denying the allegations of the complaint .
A judgment by default was rendered against the defendants, annulling the deed of sale in question and ordering the Register
of Deeds of Iloilo to cancel the titles issued to Priscilla Masa and Gemma Hechanova, and to revive the title issued in the name
of Jose Y. Servando and to deliver the same to the plaintiff.

ISSUE: WHETHER OR NOT AN UNREGISTERED DEED OF MORTGAGE IN A PRIVATE DOCUMENT WITH A pacto comisorio IS
VALID.

2
Article 2125: In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in
which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.

Case Digests By: @mcvinicious


HELD:
NO. It is clear from the records of this case that the plaintiff has no cause of action. Plaintiff has no standing to question the
validity of the deed of sale executed by the deceased defendant Jose Servando in favor of his co-defendants Hechanova and
Masa. No valid mortgage has been constituted plaintiff’s favor, the alleged deed of mortgage being a mere private document
and not registered; moreover, it contains a stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil
Code. Even assuming that the property was validly mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not
to seek annulment of the sale.
WHEREFORE, the decision of the respondent court dated August 25, 1973 and its Order of February 2, 1979 are set aside, and
the complaint filed by plaintiff dated February 4, 1978 is hereby dismissed.

9.
Bonnevie vs. CA

Facts:
December 6, 1966: Spouses Jose M. Lozano and Josefa P. Lozano secured their loan of P75K from Philippine Bank of Commerce
(PBC) by mortgaging their property
December 8, 1966: Executed Deed of Sale with Mortgage to Honesto Bonnevie where P75K is payable to PBC and P25K is
payable to Spouses Lanzano.
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a total of P18,944.22 to PBC
May 4, 1968: Honesto Bonnevie assigned all his rights under the Deed of Sale with Assumption of Mortgage to his brother,
intervenor Raoul Bonnevie
June 10, 1968: PBC applied for the foreclosure of the mortgage, and notice of sale was published
January 26, 1971: Honesto Bonnevie filed in the CFI of Rizal against Philippine Bank of Commerce for the annulment of the
Deed of Mortgage dated December 6, 1966 as well as the extrajudicial foreclosure made on September 4, 1968.
CFI: Dismissed the complaint with costs against the Bonnevies
CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly executed.

HELD: YES. CA affirmed


A contract of loan being a consensual contract is perfected at the same time the contract of mortgage was executed. The
promissory note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate lack of
consideration of the mortgage at the time of its execution.
Respondent Bank had every right to rely on the certificate of title. It was not bound to go behind the same to look for flaws in
the mortgagor's title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee for value.
Thru certificate of sale in favor of appellee was registered on September 2, 1968 and the one year redemption period expired
on September 3, 1969. It was not until September 29, 1969 that Honesto Bonnevie first wrote respondent and offered to
redeem the property.
loan matured on December 26, 1967 so when respondent Bank applied for foreclosure, the loan was already six months
overdue. Payment of interest on July 12, 1968 does not make the earlier act of PBC inequitous nor does it ipso facto result in
the renewal of the loan. In order that a renewal of a loan may be effected, not only the payment of the accrued interest is
necessary but also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be
renewed does not solely depend on the debtor but more so on the discretion of the bank.

10.
Paderes vs CA
Date: July 15, 2005
Petitioners: Spouses Rodrigo and Sonie Paderes
Respondents: CA, Hon. Carlota Valenzuela

Ponente: Carpio Morales

Facts: Manila International Construction Corporation executed a REM over 21 parcels of land including the improvements
thereon in favor of Banco Filipino Savings and Mortgage Bank in order to secure a loan of P1,885,000. The mortgage was
registered. The 21 mortgaged properties included two lots in Paranaque. MICC sold a house a lotto the Paderes spouses. Later,
MICC sold another house and lot the Bergado spouses. Neither sale was registered, however.
For failure of MICC to settle its obligations, Banco Filipino filed a petition for the extrajudicial foreclosure of MICC’s mortgage.
At the auction sale Banco Filipino was declared the highest bidder and a certificate of sale was issued in its favor. Since there
was no redemption within the reglementary period. Carlota Valenzuela, the liquidator of Banco Filipino filed a petition for the
issuance of a writ of possession of the foreclosed properties with the RTC. The petition was granted. A notice to vacate was
served on the spouses. However, instead of vacating, petitioners filed before the CA. The CA dismissed the petitions for lack of
merit and upheld the validity of the writ of possession.

Issue: WON the spouses (buyers in good faith) have a superior right over Banco Filipino

Case Digests By: @mcvinicious


Held: No

Ratio: In extra-judicial foreclosures of real estate mortgages, the issuance of a writ of possession, which is an order
commanding the sheriff to place a person in possession of the foreclosed property, is governed by Section 7 of Act No. 3135.
That petitioners purchased their properties from MICC in good faith is of no moment. The purchases took place after MICC’s
mortgage to Banco Filipino had been registered in accordance with Article 2125 CC and the provisions of P.D. 1529. As such,
under Articles 1312 and 2126 CC, a real right or lien in favor of Banco Filipino had already been established, subsisting over the
properties until the discharge of the principal obligation, whoever the possessor(s) of the land might be.
As transferees of mortgagor MICC, petitioners merely stepped into its shoes and are necessarily bound to acknowledge and
respect the mortgage it had earlier executed in favor of Banco Filipino.

Issue: WON the spouses have the right to redeem the property

Held: No

Ratio: The debtor in extra-judicial foreclosures under Act No. 3135, or his successor-in-interest, has, one year from the date of
registration of the Certificate of Sale with the Registry of Deeds, a right to redeem the foreclosed mortgage, hence,
petitioners, as MICC’s successors-in-interest, had one year from the registration of the Certificate of Sale on July 29, 1985 or
until July 29, 1986 for the purpose.
Petitioners, however, failed to do so. Ownership of the subject properties was thus consolidated in favor of Banco Filipino, and
TCT Nos. 112352 and 112353 were issued in its name.
F. David Enterprises v. IBAA: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the sale. As such, he is entitled to the
possession of the said property and can demand it at any time following the consolidation of ownership in his name and the
issuance to him of a new transfer certificate of title. The buyer can in fact demand possession of the land even during the
redemption period except that he has to post a bond in accordance with Section 7 of Act No. 3135 as amended. No such bond
is required after the redemption period if the property is not redeemed. Possession of the land then becomes an absolute
right of the purchaser as confirmed owner. Upon proper application and proof of title, the issuance of the writ of possession
becomes a ministerial duty of the court.

Issue: WON a binding agreement for the repurchase of the subject properties was reached with Banco Filipino

Held: No

Ratio: Under Article 1318 CC, there are three essential requisites which must concur in order to give rise to a binding contract:
(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the
obligation which is established. “
A reading of the correspondence reveals the absence of both a definite offer and an absolute acceptance of any definite offer
by any of the parties.
The letters dated October 17, 1996 and November 4, 1996, signed by petitioners’ counsel, while ostensibly proposing to
redeem the foreclosed properties and requesting Banco Filipino to suggest a price for their repurchase, made it clear that any
proposal by the bank would be subject to further action on the part of petitioners. The letter dated October 25, 1996 signed by
Luz Dacasin, Assistant Vice-President of Banco Filipino, merely invited petitioners to engage in further negotiations and does
not contain a recognition of petitioners’ claimed right of redemption or a definite offer to sell the subject properties back to
them.
Petitioners emphasize that in item no. 3 of their letter dated November 8, 1996 they committed to “subject the properties
(house and lot) to a real-estate mortgage with the bank so that the amount to be loaned will be used as payment of the
properties to be redeemed.” It is clear from item no. 1 of the same letter, however, that petitioners did not accept Banco
Filipino’s valuation of the properties at P7,500.00 per square meter and intended to “have the amount [renegotiated].”
Moreover, while purporting to be a memorandum of the matters taken up in the conference between petitioners and Banco
Filipino Vice-President Dacasin, petitioners’ letter of November 8, 1996 does not contain the concurrence of Ms. Dacasin or
any other authorized agent of Banco Filipino. Where the alleged contract document was signed by only one party and the
record shows that the other party did not execute or sign the same, there is no perfected contract.

Issue: WON the houses should have been excluded from the auction sale

Held: No

Ratio: The provision of Article 448 CC which pertain to those who, in good faith, mistakenly build, plant or sow on the land of
another, has no application to the case at bar.
Here, the record clearly shows that petitioners purchased their respective houses from MICC, as evidenced by the Addendum
to Deed of Sale dated October 1, 1983 and the Deed of Absolute Sale dated January 9, 1984. Being improvements on the
subject properties constructed by mortgagor MICC, there is no question that they were also covered by MICC’s real estate

Case Digests By: @mcvinicious


mortgage following the terms of its contract with Banco Filipino and Article 2127 of the Civil Code (mortgage extends to the
improvements).

Issue: WON the writ of possession can still be enforced after more than 8 years from promulgation

Held: Yes

Ratio: In Rodil vs. Benedicto, this Court categorically held that the right of the applicant or a subsequent purchaser to request
for the issuance of a writ of possession of the land never prescribes: The better rule, however, is that enunciated in the case of
Manlapas and Tolentino vs. Lorente, which has not yet been abandoned, that the right of the applicant or a subsequent
purchaser to ask for the issuance of a writ of possession of the land never prescribes. . .
In a later case [Sta. Ana v. Menla], the Court also ruled that the provision in the Rules of Court to the effect that
judgment may be enforced within five years by motion, and after five years but within ten years by an action (Section 6, Rule
39) refers to civil actions and is not applicable to special proceedings, such as land registration cases.
The established doctrine that the issuance of a writ of possession is a ministerial function whereby the issuing court exercises
neither discretion nor judgment bears reiterating. The writ issues as a matter of course upon the filing of the proper motion
and, if filed before the lapse of the redemption period, the approval of the corresponding bond.
Petitioners, however, are not without remedy. As reflected in the challenged CA decision, under Section 8 of Act No. 3135,
petitioners, as successors-in-interest of MICC, have 30 days from the time Banco Filipino is given possession of the subject
properties to question the validity of the auction sale under any of the two grounds therein stated by filing a petition to set
aside the same and cancel the writ of possession.

11.
TOMASA VDA. DE JACOB, as Special Administratrix of the Estate of the Deceased ALFREDO E. JACOB vs. HONORABLE COURT OF
APPEALS, BICOL SAVINGS & LOAN ASSOCIATION, JORGE CENTENERA, AND LORENZO C. ROSALES, G.R. No. 88602, April 6, 1990

Facts:

Dr. Jacob was the registered owner of a parcel of land. Sometime in 1972 Jorge Centenera was appointed as administrator of
Hacienda Jacob until January 1, 1978 when the Special Power of Attorney executed in his favor by Dr. Jacob was revoked by
the latter. Because of the problem of paying realty taxes, internal revenue taxes and unpaid wages of farm laborers of the
hacienda, Dr. Jacob asked Centenera to negotiate for a loan. For this purpose, a special power of attorney was executed and
acknowledged by Dr. Jacob before notary public.

Consequently, Centenera secured a loan from the Bicol Savings & Loan Association. Centenera signed and executed the real
estate mortgage and promissory note as attorney-in-fact of Dr. Jacob. When the loan fell due in 1975 Centenera failed to pay
the same but was able to arrange a restructuring of the loan using the same special power of attorney and property as
security. Another set of loan documents, namely: an amended real estate mortgage and promissory note 1975 was executed
by Centenera as attorney-in-fact of Dr. Jacob. Again, Centenera failed to pay the loan when it fell due and so he arranged for
another restructuring of the loan with the bank. The corresponding promissory note was again executed by Centenera on
behalf of Jacob under the special power of attorney.

The mortgage was annotated on the title and when the loan was twice re-structured, the proceeds of the same were not
actually given by the bank to Centenera since the transaction was actually nothing but a renewal of the first or original loan
and the supposed proceeds were applied as payment for the loan. The accrued interest for sixty (60) days was, however, paid
by Centenera.

Centenera again failed to pay the loan upon the maturity date forcing the bank to send a demand letter. A copy of the demand
letter was sent to Dr. Jacob but no reply or denial was received by the bank. Thus, the bank foreclosed the real estate
mortgage and the corresponding provisional sale of the mortgaged property to the respondent bank was effected. On
November 5, 1982 a definite deed of sale of the property was executed in favor of the respondent bank as the sole and highest
bidder.

Vda. de Jacob who was subsequently named administratrix of the estate of Dr. Jacob and who claimed to be an heir of the
latter, conducted her own investigation and therefore she filed a complaint in the RTC alleging that the special power of
attorney and the documents therein indicated are forged and therefore the loan and/or real estate mortgages and promissory
notes are null and void.

However, while the action for annulment of mortgage, etc. aforestated was pending in the trial court, on November 5, 1982, a
definite deed of sale was issued by the sheriff in favor of respondent bank. Without redemption having been exercised within
the prescribed period, the title in the name of Dr. Jacob was cancelled and in its place, TCT was issued in favor of respondent
bank. Respondent bank then filed a petition for the issuance of a writ of possession which was opposed by petitioner. In due
course a writ of possession was issued in favor of the respondent bank

Issues:

Case Digests By: @mcvinicious


1. WON an extrajudicial foreclosure of a mortgage may proceed even after the death of the mortgagor.

2. WON a petition for the issuance of a writ of possession may be barred by estoppel.

Ruling:

1. YES.

Section 7, Rule 86 of the Rules of Court provides as follows:

Sec. 7. Mortgage debt due from estate. — A creditor holding a claim against the deceased secured by mortgage or other
collateral security, may abandon the security and prosecute claim in the manner provided in this rule, and share in the general
distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making
the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged
premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his
deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or other security alone,
and foreclose the same at any time within the period of the statute of limitations, and in that event he shall not be admitted as
a creditor, and shall receive no share in the distribution of the other assets of the estate; but nothing herein contained shall
prohibit the executor or administrator from redeeming the property mortgaged or pledged, by paying the debt for which it is
held as security, under the direction of the court, if the court shall adjudge it to be for the best interest of the estate that such
redemption shall be made.

From the foregoing provision of the Rules it is clearly recognized that a mortgagee has three remedies that may be alternately
availed of in case the mortgagor dies, to wit:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and;
(3) to rely on the mortgage exclusively, or other security and foreclose the same at anytime, before it is barred by prescription,
without the right to file a claim for any deficiency.

From the foregoing it is clear that the mortgagee does not lose its light to extrajudicially foreclose the mortgage even after the
death of the mortgagor as a third alternative under Section 7, Rule 86 of the Rules of Court.

The power to foreclose a mortgage is not an ordinary agency that contemplated exclusively the representation of the principal
by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives
the death of the mortgagor.

The right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor, acting through his
attorney-in-fact, did not depend on the authority in the deed of mortgage executed by the latter. That right existed
independently of said stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court aforecited.

2. NO.

While it is true that the question of the validity of said mortgage and consequently the extrajudicial foreclosure thereof was
raised in a separate proceeding before the trial court the pendency of such separate civil suit can be no obstacle to the
issuance of the writ of possession which is a ministerial act of the trial court after a title on the property has been consolidated
in the mortgagee.

12.
Bischoff vs. Pomar 12 Phil 690; February 2, 1909

Facts: In July 1900, Lazaro Mota loaned to Romana Ganzon P11, 209 payable in 2 years and secured by a mortgage consisting
of hacienda San Jose. Additional loans were granted with further stipulations that in case of debtor’s failure to pay the creditor,
the mortgaged hacienda would be disposed of at public auction to satisfy the said indebtedness. This last instrument was
entered in the registry of property. In September 1902, Ganzon sold to plaintiff Bischoff the machineries and tramway in the
hacienda under a pacto de retro. In September 1904, Mota transferred said credit to defendant Cia. General de Tabaco.
Ganzon executed a mortgage in favor of Cia. General de Tabaco on the hacienda as security for the loan of P53, 042. In 1905,
the receiver of Ganzon took possesion od said properties. The plaintiff filed a complaint praying for the delivery of the
machineries and tramway sold to him.
The trial court decided for the defendant but with plaintiff having a reserved right against Ganzon for the sum paid for said
properties.

Issue: Whether or not the machineries and tramway are included in the mortagage.

Case Digests By: @mcvinicious


SC Ruling: In the instruments of mortgage, executed prior to the sale to the plaintiff with pacto de retro, the improvements
already mounted appear as expressly mortgaged at the time of executing the first mortgage in 1902 and later on to the
transfer of credit to Cia general de tabaco in 1904. From none of said instruments does it appear that the contracting parties
had expressly agreed to exclude the said machineries and tramway from the repeated mortgages of said hacienda. It is a rule
that in a mortgage of real estate, the improvements on the same are included; therefore, all objects permanently attached to a
mortgaged building or land, although they may have been placed there after the mortgaged was constituted, are also included.

Assuming that the owner of a mortgaged property is entitled to dispose of the same, such disposal however, does not release
it from the mortgage with which it is encumbered, inasmuch as the right of the creditor curtails that of the said owner of the
mortgaged property, and the purchaser is necessarily bound to acknowledge and respect the encumbrances which is at the
disposition of the creditor in order that under the terms of the contract, he may recover his credit from the value thereof.
Bischoff can not acquire any right to indemnity for loss or damages, for the reason that he purchased goods that were already
liable to the 0mortgage. The sale was effected long after the property was mortgaged. He therefore did not obtain possession
of the same.

13.
Servicewide Specialist vs. CA
FACTS:
1. Leticia Laus purchased on credit a Colt Galant xxx from Fortune Motors (Phils.) Corporation and executed a promissory note
for the amount of P56,028.00, inclusive of 12% annual interest, payable within a period of 48 months. In case of default in the
payment of any installment, the total principal sum, together with the interest, shall become immediately due and payable.
2. As a security for the promissory note, a chattel mortgage was constituted over the said motor vehicle, with a deed of
assignment incorporated therein such that the credit and mortgage rights were assigned by Fortune Motors Corp. in favor of
Filinvest Credit Corporation with the consent of the mortgagor-debtor Laus.
3. Filinvest in turn assigned the credit in favor of Servicewide Specialists, Inc.
4. Laus failed to pay the monthly installment for April 1977 and the succeeding 17 months. Servicewide demanded payment of
the entire outstanding balance with interests but Laus failed to pay despite formal demands.
5. As a result of Laus’ failure to settle her obligation, or at least to surrender possession of the motor vehicle for foreclosure,
Servicewide instituted a complaint for replevin, impleading Hilda Tee and John Dee in whose custody the vehicle was believed
to be at the time of the filing of the suit. Plaintiff alleged, among others, that it had superior lien over the mortgaged vehicle.
The court approved the replevin bond.
6. Alberto Villafranca filed a third party claim contending that he is the absolute owner of the subject motor vehicle after
purchasing it from a certain Remedios Yang free from all lien and emcumbrances; and that on July 1984, the said automobile
was taken from his residence by Deputy Sheriff Bernardo Bernabe pursuant to the seizure order issued by the court a quo.
7. Upon motion of the plaintiff below, Villafranca was substituted as defendant and summons was served upon him. Villafranca
moved for the dismissal of the complaint on the ground that there is another action pending between the same parties before
the Makati RTC. The court granted the the motion but subsequently set aside the order of dismissal. For failure to file his
Answer as required by the court a quo, Villafranca was declared in default and plaintiff’s evidence was received ex parte.
8. The lower court later on dismissed the complaint for insufficiency of evidence. Its motion for reconsideration having been
denied, petitioner appealed to CA on the ground that a suit for replevin aimed at the foreclosure of a chattel is an action quasi
in rem, and does not require the inclusion of the principal obligor in the Complaint.
9. CA affirmed the RTC decision. It also denied petitioner’s MR, hence, the present petition for review on certiorari under Rule
45.

ISSUE:
W/N a case for replevin may be pursued against the defendant, Alberto Villafranca, without impleading the absconding debtor-
mortgagor

HELD:
No. Rule 60 of the Revised Rules of Court requires that an applicant for replevin must show that he “is the owner of the
property claimed, particularly describing it, or is entitled to the possession thereof.” Where the right of the plaintiff to the
possession of the specified property is so conceded or evident, the action need only be maintained against him who so
possesses the property. In rem action est per quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est
qui rem possidet.
However, in case the right of possession on the part of the plaintiff, or his authority to claim such possession or that of his
principal, is put to great doubt (a contending party may contest the legal bases for plaintiff’s cause of action or an adverse and
independent claim of ownership or right of possession may be raised by that party), it could become essential to have other
persons involved and impleaded for a complete determination and resolution of the controversy.
In a suit for replevin, a clear right of possession must be established. The conditions essential for foreclosure of chattel
mortgage would be to show, firstly, the existence of the chattel mortgage and, secondly, the default of the mortgagor. Since
the mortgagee’s right of possession is conditioned upon the actual fact of default which itself may be controverted, the
inclusion of other parties, like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive
determination of the case. Laus, being an indispensable party, should have been impleaded in the complaint for replevin and
damages. An indispensable party is one whose interest will be affected by the court’s action in the litigation, and without
whom no final determination of the case can be had. Petition DENIED.

Case Digests By: @mcvinicious


14.
MANUEL GO CINCO and ARACELI S. GO CINCO vs. COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING
CORPORATION

[G.R. No. 151903; October 9, 2009] Obligations and Contracts| Payment or Performance|
FACTS:
Manuel Cinco obtained a commercial loan from respondent MTLC. The loan was evidenced by a promissory note and secured
by a real estate mortgage. In 1989, Manuel’s outstanding obligation amounted to 1.07M. To pay the loan, the spouse applied
another loan to PNB and offered as collateral the same properties they previously mortgaged to MTLC. The PNB approved the
P1.3M loan with a condition that it would be released on the cancellation of the mortgage in favor of MTLC. Ester, the MTLC’S
president, upon knowing that the same properties mortgaged to MTLC was used as collateral for the PNB loan refused to sign
the deed of release/cancellation and did not collect the P1.3 M loan proceeds. As the MTLC loan was already due, Ester
instituted foreclosure proceedings against the spouses.

RTC ruled in favor of the spouses Go Cinco. It held that creditors cannot unreasonably prevent payment or performance of
obligation to the damage and prejudice of debtors who may stand liable for payment of higher interest rates. CA reversed the
RTCs decision, hence this petition.

ISSUE:
Whether the loan due the MTLC had been extinguished.

HELD:
Obligations are extinguished by payment or performance. Under Article 1232 of the Civil Code, payment means not only the
delivery of money but also the performance, in any other manner, of an obligation.

In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These provisions must be read in
relation with the other rules on payment under the Civil Code, which rules impliedly require acceptance by the creditor of the
payment in order to extinguish an obligation.

Since payment was available and was unjustifiably refused, justice and equity demand that the spouses Go Cinco be freed from
the obligation to pay interest on the outstanding amount from the time the unjust refusal took place, they would not have
been liable for any interest from the time tender of payment was made if the payment had only been accepted.

15.
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner vs.ALEJANDRO and ADELAIDA LICUANAN, Respondents.
G.R. No. 150097, February 26, 2007.
CORONA, J.:

In 1974, Respondent spouses Alejandro and Adelaida Licuanan ("Respondents") were granted a P4,700 loan by petitioner
Development Bank of the Philippines ("DBP") to mature in 1979, and secured by a real estate mortgage over a 980-square
meter property.

In 1975, DBP granted respondents a second loan of P12,000 payable on or before the year 1980, which was secured by a real
estate mortgage over four parcels of land.

In 1975, DBP granted Respondents a third loan of P22,000 maturing in 1985, and was secured by a real estate mortgage over
three parcels of land.

In 1979, petitioner and respondents restructured the second loan, extending the maturity date to 1982.

In 1981, DBP sent a letter to Respondents informing them that they would institute extrajudicial foreclosure proceedings for
breach of the conditions of the mortgage (of the first loan).

After an application for extrajudicial foreclosure, the properties were sold in a public auction, in which DBP was the highest
bidder for bidding a total of P16,340.

In 1984, DBP informed Respondents that the properties could be reacquired by negotiated sale. Three days later, however, the
properties were sold to one Emelita Peralta for P104,000.

After being informed of the sale, Respondents offered to repurchase the properties, but it was rejected by DBP.

Respondents then filed a complaint for recovery of real properties and damages in RTC of Lingayen against DBP and Peralta.
Case Digests By: @mcvinicious
In its counterclaim, DBP asserts its right to claim for deficiency since the proceeds of the sale (P104,000) did not cover the debt
of Petitioners of P131,642.33. Thus, it is entitled to claim the difference (P27,642.33) with interest.

DBP also argues that demand is not necessary as the maturity dates are already known to Respondents, and that Respondents
are estopped from questioning the foreclosure sale since they offered to repurchase the property.

The RTC ruled in favor of respondents. It held that there was no demand for payment prior to the extrajudicial foreclosure and
ordered Peralta to reconvey the properties to respondents, subject to Peralta’s right to be paid. It also held that petitioner did
not deal fairly with respondents making it liable for nominal and moral damages, as well as attorney’s fees and litigation
expenses.

CA affirmed RTC's findings.

1st Issue: W/N a demand for payment of the loans was made before the mortgage was foreclosed.

Ruling: No.
Whether or not demand was made is a question of fact. Both the CA and RTC found that demand was never made, and no
compelling reason has been shown by DBP to rule otherwise.

2nd Issue: W/N demand is necessary to make respondents guilty of default.

Ruling: Yes.
It is only when demand to pay is made and subsequently refused that respondents can be considered in default and DBP
obtains the right to file an action to collect the debt or foreclose the mortgage.

The maturity dates only indicate when payment can be demanded. It is the refusal to pay after demand that gives the creditor
a cause of action against the debtor.

Since demand was never made by DBP, the foreclosure was premature and therefore null and void.

Further, DBP's argument that respondents are estopped from questioning the validity of the foreclosure sale since they offered
to repurchase the foreclosed properties is incorrect.

An offer to repurchase should not be construed as a waiver of the right to question the sale. Instead, it must be taken as an
intention to avoid further litigation and thus is in the nature of an offer to compromise. By offering to redeem the properties,
respondents can attain their ultimate objective: to pay off their debt and regain ownership of their lands.

3rd Issue: W/N respondents are liable for the deficiency claim of petitioner.

Ruling: No.
While it is true that in extrajudicial foreclosure of mortgage, the mortgagee has the right to recover the deficiency from the
debtor, this presupposes that the foreclosure must first be valid.

4th Issue: W/N petitioner is liable for damages.

Ruling: Yes
DBP is liable for moral damages. Apart from the rushed foreclosure proceedings, certain acts of DBP were most certainly
ruthless and in bad faith, which caused serious anxiety and wounded feelings to Respondents, to wit -

1st: DBP granted the three loans for a total of P45,740.61 because the market value of the collaterals exceeds P100,000.00. But
6 years later, when the value must have appreciated, DBP bidded for a measly P16,000.00 and claimed a deficiency. That it was
measly and shocking to the conscience was conclusively proven by the fact that Peralta bought the properties for P104,000.00
barely three 3 years later.

2nd: It is odd that DBP restructured the second loan, but not the first. This lulled Respondents into a false sense of security and
a feeling of relief that the entire loan accommodation will mature in 1985. Thus, they were blindsided by the foreclosure
proceedings, causing them to suffer sleepless nights.

3rd: Respondents also made pleas to repurchase the properties, which fell on deaf ears. It also had the temerity to
unconscionably making deficiency claims plus interest.

Further, Respondents’ property rights were invaded or violated, hence the grant of nominal damages was also proper.

Case Digests By: @mcvinicious


Respondents are likewise entitled to the award of attorney’s fees and expenses of litigation since the premature foreclosure by
petitioner compelled them to incur expenses to protect their interest.

16.
Philippine National Bank vs Spouses Agustin and Pilar Rocamora

 Case about violation of mutuality of contracts in ESCALATION CLAUSES (of 12% to 42% interest) without the consent of the
other party. -VOID  Case about PNB‘s deficiency judgment case on remaining balance of loan plus interest and charges after
foreclosure.
Oblicon Concept:
 Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one
of them.

Facts:

 On September 25, 1981, the spouses Rocamora obtained a loan from PNB in the aggregate amount of P100,000 under the
Cottage Industry Guarantee and Loan Fund (CIGLF). The loan was payable in five years, under the following terms: o P35,000
payable semi-annually and P65,000 payable annually. Amber Gagajena Oblicon Digests – Block 1F o In addition to the principal
amount, the spouses Rocamora agreed to pay interest at the rate of 12% per annum, plus a penalty fee of 5% per annum in
case of delayed payments. o The spouses Rocamora signed two promissory notes evidencing the loan.

 To secure their loan obligations, the spouses Rocamora executed two mortgages: a real estate mortgage over a property
covered by TCT in the amount of P10,000, and a chattel mortgage over various machineries in the amount of P25,000.
Payment of the remaining P65,000 was under the CIGLF guarantee, with the spouses Rocamora paying the required guarantee
fee.

 Both the promissory note and the real estate mortgage deed contained an escalation clause that allowed PNB to increase
the 12% interest rate at anytime without notice, within the limits allowed by law. It also contains de-escalation clause.

 The PNB claimed that the outstanding principal balance as of foreclosure date (September 19, 1990) was P79,484.65, plus
interest and penalties, for a total due and demandable obligation of P250,812. Allegedly, after deducting the P75,500 proceeds
of the foreclosure sale, the spouses Rocamora still owed the bank P206,297.

 The spouses Rocamora refused to pay the amount claimed as deficiency. They alleged that the PNB ―practically created‖ the
deficiency by (a) increasing the interest rates from 12% to 42% per annum, and (b) failing to immediately foreclose the
mortgage pursuant to Presidential Decree No. 385 (PD 385 or the Mandatory Foreclosure Law) to prevent the interest and
penalty charges from accruing.

 RTC, CA and SC decided against PNB.

Issues:
1 W/N PNB can escalate the interest rate anytime without the consent of Spouses Ricamora?
2 W/N PNB failed to sufficiently and satisfactorily prove the amount of P250,812?
3 W/N PNB failed to comply with the immediate and mandatory foreclosure required under PD 385?

Held:
1 No. Any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement between
the parties. The minds of all the parties must meet on the proposed modification as this modification affects an important
aspect of the agreement. There can be no contract in the true sense in the absence of the element of an agreement, i.e., the
parties‘ mutual consent. Thus, any change must be mutually agreed upon, otherwise, the change carries no binding effect. o
Even with a de-escalation clause, no matter how elaborately worded, an unconsented increase in interest rates is ineffective if
it transgresses the principle of mutuality of contracts.

2  Yes. Both the RTC and the CA found that PNB failed to prove the claimed deficiency; its own testimonial and documentary
evidence in fact contradicted one another. The PNB alleged that the spouses Rocamora‘s obligation at the time of foreclosure
(September 19, 1990) amounted to P250,812.10, yet its own documentary evidence showed that, as of that date, the total
obligation was only P206,664; the PNB‘s own witness, Mr. Reynaldo Caso, testified that the amount due from the spouses
Rocamora was only P206,664.

3  Yes. Under PD 385, government financial institutions – which was PNB‘s status prior to its full privatization in 1996 – are
mandated to immediately foreclose the securities given for any loan when the arrearages amount to at least 20% of the total
outstanding obligation. PNB foreclosed only after 3 years of default by the spouses

17.
Huerta Alba Resort Inc, v. CA and Syndicated Management Grp, Inc.
Case Digests By: @mcvinicious
Petitioner: Huerta Alba Resort Inc

Respondent: SMGI.

Date: Sep. 1, 2000

Ponente: Purisima

This is a fairly long case with two main discussion points. The first main point is the difference between equity of redemption
and right of redemption, which we took up in Credit Transactions. Second, and more related to our topic, would be the nature
of a counterclaim.

At bar is a petition assailing the Court of Appeals decision, setting aside the RTC Makati decision that held that Huerta had the
right to redeem property within a one year period prescribed by Sec. 78 of RA 337, the General Banking Act.

This section provides -- “in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution, whether
judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property.”

Facts

 SMGI (“Respondents”) filed a complaint for judicial foreclosure of mortgage on Oct 19, 1989
o They sought to foreclose 4 parcels of land mortgaged by Huerta (“petitioner”) to Intercon Fund Resource Inc
(Intercon)
o Respondent instituted this as mortgagee-assignee (Intercon assigned their rights at some point.)
o The loan was P8.5M, secured by the subject parcels of land.
 In its answer, petitioner questioned
o Assignment of Intercon of the mortgage right (they said it was ultra vires)
o The correctness of charges.
 Petitioner lost and was ordered to pay the loan, plus interest and charges, within 150 days from receipt of the order,
else the properties would be sold to satisfy the debt.
 Petitioner appealed to the CA, which dismissed the case (late payment of docket fees).
 Petitioner then went to the SC, which also dismissed their complaint.
 After these rulings, respondent filed with the original RTC a motion of execution, which was granted.
o Thus, a notice of levy and execution was issued by the Sheriff
o He issued a notice of Sheriff’s sale for the auction of subject properties.
 Petitioner then filed a motion to quash and set aside the writ of execution, saying that the trial court acted with GAD.
 It argued that the record of the case was still with the CA, and thus the writ was premature
o The 150 days period had not yet lapsed
o There was no default because respondent had not yet demanded for payment.
 RTC denied this, saying that the judgment had become final and executor
o Execution thereof was a matter of right
o Writ of execution thus was its ministerial duty
 Guess what? Petitioner appealed to the CA.
 While the appeal was pending, the auction sale proceeded and Respondent won the bidding.
o The certificate of sale was issued to it, and registered with the RoD.
 After this, petitioner presented a “motion for clarification,” asking the trial court if the 12 month period for
redemption would apply
o RTC ruled that the period of redemption would have to follow the rule on judicially foreclosed property (see
Rule 68)
o [The sale] shall operate to divest the rights in the property of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption as may be allowed by law.
 Thus, petitioner filed a motion to set aside this order, saying that it altered the earlier decision
o First decision declared that satisfaction of judgment would be governed by the sale of real estate under
execution (not Rule 68).
 Remember the CA? All this happened while the case was pending there, diba? They held that the 150 day period of
redemption should be computed from the date of notification of entry of judgment – thus, it had expired on Sept. 11,
1994.
Case Digests By: @mcvinicious
o The appeal was dismissed because the subject was already moot and academic.
 They also dismissed the MR
o Even if it is true that Sec 78 of RA 337 (mentioned above) prescribes a period of one year from the auction sale
to redeem the property, petitioner never averred in its pleadings that it was entitled to this provision
 Issue of whether SMGI was a credit institution was never brought squarely before the court.
 SMGI then filed a petition for writ of possession – it was here that Huerta first claimed the right to redeem under the
General Banking Act
o Original mortgagee, they said, was a credit institution, and the assignment to SMGI did not remove the
transaction from the coverage of Sec 78 of RA 337.
o Thus, they should have one year to redeem from registration of the auction sale.
o Thus, they said, the issuance of titles to SMGI was premature.
 RTC denied the petition for writ of possession – they agreed (for the first time EVER) with Huerta, saying that they had
until Oct 21, 1995 to redeem said parcels of land.
o SMGI challenged the order, and the CA overturned it
 Hence, this petition.

Issue

 w/n Huerta has the one year right of redemption under Sec 78 of RA 337 – No.
Held

 Various decisions show that Huerta has been adjudged to have only the Equity of Redemption, not the Right of
Redemption (Court cited Limpin v. IAC)
o Right of Redemption – exists only in extrajudicial mortgage.
 No right recognized in judicial foreclosure unless mortgagee is PNB or a banking institution
 Mortgagor has one year from registration of sheriff’s certificate of sale to redeem the property.
o This does not exist in judicial foreclosure of the mortgagee is not a banking institution
 The case here is mentioned above (Rule 68).
 What exists only now is the Equity of Redemption – right of the mortgagor to extinguish the mortgage
and retain ownership by paying the debt within the 90 day period after judgment becomes final.
 Rule 68, Sec 2 – [court] shall render judgment for the sum so found due and order the same to
be paid into court within a period of not less than ninety (90) days from the date of the service
of such order, and that in default of such payment the property be sold to realize the
mortgage debt and costs.'
 This is the equity of redemption – it may even be exercised beyond the 90 day period from date of
service of the order, as long as its before the order of confirmation of the sale. (After such order of
confirmation, there is no more redemption possible)
 Petitioner did not seasonably invoke its purported right under Sec 78 of RA 337
o Earliest opportunity – when it submitted its answer to the complaint for foreclosure (essentially, they should
have filed a counterclaim).
 What is a Counterclaim? (in case he asks)
o A cause of action existing in favor of the defendant against the plaintiff.
o It will, if established, defeat/qualify the judgment or relief to which the plaintiff is entitled.
o Distinct/independent cause of action
o Defendant, in respect to the counterclaim, becomes an actor
 There exist 2 simultaneous actions, each party is at the same time a plaintiff and a defendant
 Represents the right of the defendant to have the claims of the parties counterbalanced
 Counterclaim is essentially an independent action, and should be treated as such. (tested by the same
rules, etc.)
 The point? – Huerta should have asserted their right under Sec 78 of RA 337 as a counterclaim in its answer.
o Counterclaims allow the whole controversy between parties to be disposed of in one action
o The applicability of Sec 78 hinged on a factual question
 Was Intercon a credit institution? – this was never squarely brought before the court.
 The claim of benefits under Sec 78 is in the nature of a compulsory counterclaim that should have
been in the answer to the complaint.
 Failure of Huerta to assert this alleged right precludes it from doing so at the late stage of litigation
o Estoppel may successfully be invoked.
o A party who failed to invoke his claim in the main case, while having opportunity to do so, will be precluded
from invoking this claim subsequently.
o Huerta should have alleged at the very start that Intercon was a credit institution, in order for Sec 78 to apply.

18.

Banco Filipino Savings and Mortgage Bank vs CA


Case Digests By: @mcvinicious
Date: July 8, 2005
Petitioner: Banco Filipino Savings and Mortgage Bank
Respondents: CA and Santiago (Isabela) Memorial Park Inc

Ponente: Austria Martinez

Facts: Santiago (Isabela) Memorial Park, Inc. filed a complaint for redemption and specific performance with the RTC of
Santiago, Isabela, against Banco Filipino Savings & Mortgage Bank. In 1981, Santiago mortgaged to the bank a parcel of lot to
secure a loan of P500,000. Because of Santiago’s default, the bank foreclosed the mortgage and a certificate of sale was issued
in favor of the bank. In a letter, Santiago manifested its interest to exercise its right of redemption and offered P700,000.
The Deputy Liquidator gave Santiago until the end of March 1992 to negotiate on the payment. To manifest its
willingness to redeem the property, Santiago remitted P50,000 to the bank. Later, Santiago amended its offer and made an
offer of P1M. Later, the Senior VP of the bank demanded P5,830,000 as purchase price of the property.
MTD was filed on the ground that there was no redemption effected within one year from the date of registration. The
bank claimed that it categorically denied Santiago’s offer of redemption. The trial court dismissed the complaint ruling that
there was no definite redemption as the offer was not coupled with tender of the price. Also, the complaint did not state that
Dantiago tendered the correct redemption price within the redemption period as required under Section 30 of Rule 39 of the
Rules of Court. The CA reversed and ruled that there was sufficient basis to make out a case against Banco Filipino. The
complaint alleged that as early as August 6, 1991 or about six (6) months before the statutory period for redemption would
expire, the appellant had exerted earnest efforts to effect the redemption of the property in question and that after an
agreement had been reached by the parties, with the corresponding deposit on the redemption price had been given by the
appellant, the appellee bank led the appellant to believe that the appellee was negotiating with the former in good faith. Even
assuming however that the appellant is now barred from exercising its right of redemption, yet it can still repurchase the
property in question based on a new contract entered into between the parties extending the period within which to purchase
the property.
In compliance with the CA decision, private respondent on April 27, 2000, made a tender of payment and consignation
with the CA in the amount of P1,300,987.96.

Issue: WON Santiago’s complaint for redemption and specific performance states a cause of action against petitioner.

Held: No

Ratio: Based on the allegations in the complaint, we find that private respondent has no cause of action for redemption against
petitioner.
The sheriff’s certificate of sale was registered on January 21, 1991. Section 6 of Act 3135 provides for the requisites for
a valid redemption. Considering that petitioner is a banking institution, the determination of the redemption price is governed
by Section 78 of the General Banking Act.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year from the date of
registration of the certificate of sale. The redemptioner should make an actual tender in good faith of the full amount of the
purchase price as provided above, i.e., the amount fixed by the court in the order of execution or the amount due under the
mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial
and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the
custody of said property less the income received from the property.
In case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through
judicial action which in every case must be filed within the one-year period of redemption. The filing of the court action to
enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights
and “freezing” the expiration of the one-year period. In this case, the period of redemption expired on January 21, 1992. The
complaint was filed on December 20, 1992.
Moreover, while the complaint alleges that private respondent made an offer to redeem the subject property on
August 6, 1991, which was within the period of redemption, it is not alleged in the complaint that there was an actual tender of
payment of the redemption price as required by the rules. It was alleged that private respondent merely made an offer of
P700,000.00 as redemption price, which however, as stated under paragraph 13 of the same complaint, the redemption
money was the total bank claim of P925,448.17 plus lawful interest and other allowable expenses incident to the foreclosure
proceedings. Thus, the offer was even very much lower than the price paid by petitioner as the highest bidder in the auction
sale.
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption within the
period allowed by law is not a matter of intent but a question of payment or valid tender of the full redemption price within
said period.
Although the letter dated January 23, 1992 gave private respondent up to the end of March 1992, to negotiate and
make special arrangement for a satisfactory plan of payment for the redemption, there was no categorical allegation in the
complaint that the original period of redemption had been extended. Assuming arguendo that the period for redemption had
been extended, i.e., up to end of March 1992, still private respondent failed to exercise its right within said period. This is
shown by private respondent’s allegation under paragraph 8 of its complaint that in a letter dated January 20, 1993, private
respondent’s President amended his first offer and made an offer of P1 million as redemption price. Notably, such offer was

Case Digests By: @mcvinicious


made beyond the end of the March 1992 alleged extended period. Thus, private respondent has no more right to seek
redemption by force of law which petitioner was bound to accept.
We find that the CA also erred in stating that assuming appellant is now barred from exercising its right of redemption,
it can still repurchase the property in question based on a new contract entered into between the parties extending the period
within which to purchase the property.
The allegations in the complaint do not show that a new contract was entered into between the parties. The March
12, 1992 letter referred to by the CA as well as in the complaint only directed private respondent to remit at least P50,000.00
to petitioner as a manifestation of the former’s interest and willingness to redeem the property. Thus, the P50,000.00
remitted by private respondent was only the first step to show its interest in redeeming the property. In no way did it
establish that a contract of sale, as found by the CA, had been perfected and that the P50,000.00 remitted by private
respondent is considered as earnest money.
There was no showing in the complaint that private respondent and petitioner had already agreed on the purchase
price of the foreclosed property. In fact, the allegations in paragraphs 8 to 10 of the complaint show otherwise, thus: The
complaint does not allege that there was already a meeting of the minds of the parties.
Based on the foregoing, there is no basis for the order of the CA to allow private respondent to repurchase the
foreclosed property in the amount of P925,448.17 plus the expenses incurred in the sale of the property, including the
necessary and useful expenses made on the thing sold.

19.

CHINA BANKING CORPORATION vs. HON. COURT OF APPEALS, PAULINO ROXAS CHUA and KI- ANG MING CHU CHUA

G.R. No. 129644. March 7, 2000.

Facts:

 Alfonso Roxas Chua and wife Kiang were the owners of a residential land.
 A notice of levy affecting the property was issued because of, “Metropolitan Bank and Trust Company vs Pacific Multi
Commercial Corporation (PMAIC) and Alfonso Roxas Chua.” Subsequently, Kiang filed a complaint questioning the levy
since it should not be enforced because it was a conjugal property. The parties then entered into a compromise
agreement that the levy was valid and enforceable only to the conjugal share (½ of the land) of Alfonso.
 Meanwhile, petitioner China Bank filed with the RTC an action for collection of sum of money against PMAIC and
Alfonso. The complaint was because of 3 promissory notes. RTC ruled in favor of China Bank.
 An alias notice of levy on execution on Alfonso’s share of the land was issued regarding the first case. The notice was
inscribed and annotated and a certificate of sale was executed in favor of Metropolitan Bank and Trust Company.
 Alfonso executed an “Assignment of Rights to Redeem,” to his son Paulino. Paulino then redeemed said one-half share
on the very same day. 

 Another notice of levy on execution was issued by the Deputy Sheriff against
the right and interest of Alfonso’s share of the land. Thereafter, a certificate of sale on execution was issued by the
Sheriff in favor of China Bank and was also inscribed on the title.
 Paulino and Kiang instituted before the RTC against China Bank, averring that Paulino has a prior and better right over
the rights, title, interest and participation of China Bank; that Alfonso sold his right to redeem ½ of the aforesaid
conjugal property in his favor before China Bank acquired its right from the notice of levy.
 RTC decided in favor of Private Respondent. CA affirmed the decision of the RTC.

Issue: Whether the assignment of the right of redemption made by Alfonso in favor of Paulino was done to defraud his
creditors and may be rescinded under Article 1387 of the Civil Code.

Ratio:

YES. Under Article 1381(3) of the Civil Code, contracts which are undertaken in fraud of creditors when the latter cannot in any
manner collect the claims due them, are rescissible. The existence of fraud or intent to defraud creditors may either be
presumed in accordance with Article 1387 of the Civil Code or duly proved in accordance with the ordinary rules of evidence.

Hence, the law presumes that there is fraud of creditors when:

Case Digests By: @mcvinicious


a) There is alienation of property by gratuitous title by the debtor who has not reserved sufficient property to pay his debts
contracted before such alienation; or

b) There is alienation of property by onerous title made by a debtor against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated and
need not have been obtained by the party seeking rescission.

It should be noted that the presumption of fraud or intention to defraud creditors is not just limited to the two instances set
forth in the first and second paragraphs of Article 1387 of the Civil Code.

Under the third paragraph of the same article, the design to defraud creditors may be proved in any other manner recognized
by the law of evidence. In the early case of Oria vs. Mcmicking, the Supreme Court considered the following instances as
badges of fraud:

1. The fact that the consideration of the conveyance is fictitious or is inadequate. 



2. A transfer made by a debtor after suit has begun and while it is pending against him. 

3. A sale upon credit by an insolvent debtor. 

4. Evidence of large indebtedness or complete insolvency. 

5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed
financially. 

6. The fact that the transfer is made between father and son, when there are present other of the above circumstances. 

7. The failure of the vendee to take exclusive possession of all the property. (Italics provided) 


20.

G.R. No. L-15128 August 25, 1960

CECILIO DIEGO, plaintiff-appellee,


vs.
SEGUNDO FERNANDO, defendant-appellant.

Facts:

Segundo Fernando, defendant, executed a Deed of Mortgage in favor of the plaintiff, Cecilio Diego over two parcels of
lands to secure a loan of P2,000.00 without interest, payable within four years from the date of the execution of the
instrument. After the execution, the possession of the mortgaged properties was turned over to Diego.

For failure to pay the loan after four years, Diego filed an action for foreclosure of mortgage. Fernando contended that the
true transaction between him and Diego was one of antichresis and not of mortgage and that the plaintiff had already received
a total of 120 cavans of palay from the the properties given as security, which, are at the rate of P10 per cavan, represented
the value of P5,200, his debt had already been paid with the plaintiff owing him a refund of P2,720.

The lower court ruled in favor of the plaintiff stating that there was nothing in the deed of mortgage to show that it was
not a true contract of mortgage and that the fact that the possession of the properties were turned over to the mortgagee did
not alter the transaction; that the parties intended that the mortgagee would collect the fruits of the properties as interest on
the loan, which agreement is common.

Issue: Whether the contract between the parties is one of mortgage or antichresis

Held: The contract between the parties is one of mortgage.

Fernando alleged that the fact that the loan was without interest and that the possession of the properties were
transferred to Diego reveals the true transaction between them as one of antichresis. However, the Court ruled that it is not an
essential contract of mortgage that the possession of the properties will be retained by the mortgagor. And that to be
antichresis, it must be expressly agreed between creditor and debtor that the former, having been given possession of the
properties given as security, is to apply their fruits to the payment of the interest, if owing, and thereafter to the principal of
his credit (Art. 2132, Civil Code) so that if a contract of loan with security does not stipulate the payment of interest but
provides for the delivery to the creditor by the debtor of the property given as security, in order that the latter may gather its
fruits, without stating that said fruits are to be applied to the payment of interest, if any, and afterwards that of the principal,
the contract is a mortgage and not antichresis.
Case Digests By: @mcvinicious
However, the Court further ruled that the above conclusion does not mean that Diego, having received the fruits of the
properties will be allowed to appropriate them for himself and not be required to account for them to Fernando because the
contract of mortgage clearly provided that the loan was without interest within four years from the date of the instrument and
that there was no evidence that the parties intended to supersede such stipulation.

The true position off the appellee herein under his contract with appellant is a "mortgage in possession" that is "one who
has lawfully acquired actual or constructive possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing his security upon such property or making its
income help to pay his debt". As such mortgagee in possession, his rights and obligations are, similar to those of an antichretic
creditor: In the present case, the parties having agreed that the loan was to be without interest, and the appellant not having
expressly waived his right to the fruits of the properties mortgaged during the time they were in appellee's possession, the
latter, like an antichretic creditor, must account for the value of the fruits received by him, and deduct it from the loan
obtained by appellant. According to the findings of the trial court, appellee had received a net share of 55 cavans of palay out
of the mortgaged properties up to the time he filed the present action; at the rate of P9.00 per cavan (a rate admitted by the
parties), the total value of the fruits received by appellee is P495.00. Deducting this amount from the loan of P2,000.00
received by appellant from appellee, the former has only P1,505.00 left to pay the latter.

21.

Manarang vs. Ofilada Case Digest G.R. No. L-8133 May 18, 1956

Facts:

Lucia Manarang obtained a loan of 200 pesos from Ernesto Esteban. She executed a chattel mortgage over a house of mixed
materials to secure its payment. When she failed to pay the loan, Esteban brought an action for the recovery of the money he
loaned to her. Judgment was rendered in favor of the former. Execution was issued against the mortgaged property.

Before the property could be sold in a judicial sale, Manarang offered to pay the amount of 227 pesos representing the
amount of judgment, interest, costs, and sheriff fees. The sheriff refused the tender unless the amount of 260 pesos
representing the payment of the publication of the notice of sale is paid also.

Manarang filed a petition to compel the sheriff to accept the amount of 227 pesos and to annul the notice of sale. The
contention of Manarang is that the house in question should be considered as personal property and publication of notice of
sale is not necessary. The Court of First Instance held that although sometimes real property may be considered as personal
property, the sheriff is duty bound to cause the publication of notice of sale to make the sale valid and to prevent it from being
declared void or voidable; and that the sheriff did not err in causing the publication of the notice. Consequently, the petition
was dismissed.

Issue:

Whether the house made of mixed materials and subject of a chattel mortgage is one of personal or real property.

Held:

The house is a real property.

The general principle of law is that a building permanently fixed to the freehold becomes part of it; that is, a house is a real
estate belonging to the owner of the land on which it stands, even though it was erected against his will or without his
consent. (Accessory follows the principal.)

However, where improvement is made with the consent of the landowner, it shall remain as personal property.

In determining whether property remains personal or real, the following must be considered: its annexation to the soil, either
actual or constructive and the intention of the parties.

The house was made subject of a contract but it does not give the character of one of personal property to it although it is the
intention of the parties when they executed the chattel mortgage.

This is because the rules on execution does not allow special consideration that the parties to a contract may have desired to
impart to real estate when they are not ordinarily so. When the rules speak of personal property, it means a property which is
ordinarily considered as such and when it speaks of real property, it means property which is generally known as real
property.The rules were never intended to suit the consideration that parties may have given to the property levied upon.

Case Digests By: @mcvinicious


The mere fact that a house was the subject of a chattel mortgage and was considered as personal property by the parties,
it does not make the house a personal property for purposes of the notice to be given for its sale at public auction. This is to
prevent confusion and misunderstanding.

22.
TUMALAD V. VICENCIO

Although a building is an immovable; the parties to a contract may by agreement treat as personal property that which by
nature is a real property however they are estopped from subsequently claiming otherwise.

FACTS:

Alberta Vicencio and Emiliano Simeon received a loan of P4, 800 from Gavino and Generosa Tumalad. To guaranty said loan,
Vicencio executed a chattel mortgage in favor of Tumalad over their house of strong materials which stood on a land which
was rented from the Madrigal & Company, Inc. When Vicencio defaulted in paying, the house was extrajudicially foreclosed,
pursuant to their contract. It was sold to Tumalad and they instituted a Civil case in the Municipal Court of Manila to have
Vicencio vacate the house and pay rent.

The MTC decided in favor of Tumalad ordering Vicencio to vacate the house and pay rent until they have completely vacated
the house. Vicencio is questioning the legality of the chattel mortgage on the ground that 1) the signature on it was obtained
thru fraud and 2) the mortgage is a house of strong materials which is an immovable therefore can only be the subject of a
REM. On appeal, the CFI found in favor of Tumalad, and since the Vicencio failed to deposit the rent ordered, it issued a writ of
execution, however the house was already demolished pursuant to an order of the court in an ejectment suit against Vicencio
for non-payment of rentals. Thus the case at bar.

ISSUE:

Whether or not the chattel mortgage is void since its subject is an immovable

HELD:

NO.
Although a building is by itself an immovable property, parties to a contract may treat as personal property that which by
nature would be real property and it would be valid and good only insofar as the contracting parties are concerned. By
principle of estoppel, the owner declaring his house to be a chattel may no longer subsequently claim otherwise.

When Vicencio executed the Chattel Mortgage, it specifically provides that the mortgagor cedes, sells and transfers by way of
Chattel mortgage. They intended to treat it as chattel therefore are now estopped from claiming otherwise. Also the house
stood on rented land which was held in previous jurisprudence to be personalty since it was placed on the land by one who
had only temporary right over the property thus it does not become immobilized by attachment.

[Vicencio though was not made to pay rent since the action was instituted during the period of redemption therefore Vicencio
still had a right to remain in possession of the property]

23.
MAKATI LEASING v. WEAREVER TEXTILE MILLS, GR No. 58469, 1983-05-16
Facts:

Case Digests By: @mcvinicious


It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation,
the private respondent Wearever Textile Mills, Inc, discounted and assigned several receivables with the former under a
Receivable Purchase Agreement. To... secure the collection of the receivables assigned, private respondent executed a Chattel
Mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it.
However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and
was not able to effect... the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial
foreclosure with the Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower
court.
the lower Court issued a writ of seizure, the enforcement of which was however subsequently restrained upon private
respondent's filing of a motion for reconsideration.
After several incidents, the lower court finally issued on
February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open
the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing
of a further motion for... reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main
drive motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the
Orders of the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling
that the machinery in... suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property
pursuant to Article 415 of the new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill... out or destroy the concrete floor, the reason why all that the sheriff
could do to enforce the writ was to take the main drive motor of said machinery.
Issues:
whether the machinery in suit is real or personal property from the point of view of the parties, with petitioner arguing that it
is a personalty, while the respondent claiming the contrary, and was... sustained by the appellate court, which accordingly held
that the chattel mortgage constituted thereon is null and void, as contended by said respondent.
Ruling:
A similar, if not identical issue was raised in Tumalad vs. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L.
Reyes, ruled:
"Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to... treat the same as such, so that they should not now be allowed to make an inconsistent
stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendants-appellants merely had a
temporary right as lessee, and although this can not in itself alone... determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties, particularly the mortgagors, intended to treat the
house as personalty. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the chattel
mortgage, it is the defendants appellants themselves, as debtors-mortgagors, who are attacking the validity of the chattel
mortgage in... this case. The doctrine of estoppel therefore applies to the herein defendants-appellants, having treated the
subject house as personalty."
Examining the records of the instant case, We find no logical justification to exclude and rule out, as the appellate court did,
the present case from the application of the above-quoted pronouncement. If a house of strong materials, like what was
involved in the above
Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in... its nature and becomes immobilized only by destination or purpose, may not be likewise
treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage.
Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the
machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a
printed form of chattel mortgage... which was in a blank form at the time of signing. This contention lacks persuasiveness. As
aptly pointed out by petitioner and not denied by the respondent, the status of the subject machinery as movable or
immovable was never placed in issue before the lower court and the Court... of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such fact
alone does not render a contract void ab initio, but can only be a ground for rendering said contract... voidable or annullable
pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to show that the

Case Digests By: @mcvinicious


mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed
out by... petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to
impugn the efficacy of the chattel mortgage... after it has benefited therefrom.
24.
FIRST DIVISION
[G.R. No. L-25771. March 29, 1982.]

URBANO JACA and BONIFACIO JACA, petitioners, vs. DAVAO


LUMBER COMPANY and HONORABLE MANASES REYES, as Judge of
the Court of First Instance of Davao, respondents.

Facts:

Urbano Jaca is a licensee of a logging concession located in Davao City, together with him is Bonifacio Jaca engaged in
the logging business of producing timber and logs for export and/or domestic purposes. Davao Lumber Company is a business
corporation with which plaintiffs had business dealings covering the sale and/or exportation of their logs.

Sometime in 1954, herein parties-litigants, Urbano Jaca and Bonifacio Jaca (plaintiff) and Davao Lumber Company
(defendant) entered into an agreement whereby plaintiffs may secure, by way of advances, either cash or materials,
foodstuffs, and/or equipment from the defendant corporation; that the payment of such account was to be made either in
cash and/or by plaintiff's turning over all the logs that they produce in the aforesaid concession to the defendant, and in the
latter case, the current prices, either export or domestic, of the logs at the time of their delivery was to be considered; that
while the aforesaid business relationship between the parties was subsisting, defendant made plaintiff Urbano Jaca execute in
its favor a chattel mortgage, a copy of which instrument. however, plaintiffs were never furnished but that as far as they can
recollect the primary conditions of such chattel mortgage were that plaintiffs would turn over to defendant corporation all the
logs they may produce from the aforesaid concession the same to be priced either as export or domestic and their value to be
applied by defendant to, and be credited for, the account of plaintiff's indebtedness, and further that in case of need, plaintiffs
may secure, by way of advances, either cash, foodstuffs, materials or equipment's, under an "open credit account"; that under
the aforementioned "open credit account" relationship between the plaintiffs and defendant, orders were secured by
plaintiffs, by way of advances, from the defendant, this to be paid by them with plaintiffs' production from their concession,
liquidating those old accounts and keeping all accounts current.

Plaintiffs made repeated demands on defendant for a formal accounting of their business relationship from 1954 to
August 1963 but Defendant Company failed and refused. Much to their surprise, plaintiffs received letters of demand from
defendant to pay their accounts which was according to defendant long overdue.

Plaintiff filed a complaint for Accounting, Return of Price Differentials and Damages against Davao Lumber. The lower
court rendered judgment in favor of the company. Plaintiffs appealed. Pending such appeal, Davao Lumber filed a motion for
execution pending appeal which the lower court granted. One of the grounds stated in the order of execution pending appeal
for allowing such execution was plaintiff’s refusal to deliver the mortgaged chattels.

Issue: WON the chattel mortgage is valid.

Held: No. Davao Lumber’s proof of interest in the property is the deed of chattel mortgage executed by Urbano Jaca in favor
of the company. This deed of chattel mortgage is void because it provides that the security stated therein is for the payment
of any and all obligations herein before contracted and which may hereafter be contracted by the Mortgagor in favor of the
Mortgagee. A stipulation that the security is for the payment of obligations contracted before and which may hereafter be
contracted by mortgagor is void.

In the case of Belgian Catholic Missionaries vs. Magallanes Press this Court held:

"A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same
are made and not from the date of the mortgage “

25.
GIBERSON VS. JUREIDINI BROS.

Facts:
H.K. Motoomul & Co. was, at the time mentioned in the complaint, a partnership doing business in the cities of Cebu
and Iloilo. Sometime prior to May 24, 1921, the company became financially embarrassed. A.N. Jureidini Bros. Inc., a large
creditor of Motoomul $ Co., became aware of the precarious condition of the latter, because of the diminishing payments on
account of debt. Ultimately, Motoomul & Co., delivered to Jureidini Brothers on May 24, 1921, one of the debtor’s Iloilo stores
Case Digests By: @mcvinicious
known as Bazar Aguila de Oro. On the same day also, credits receivables belonging to Motoomul & Co., passed to Jureidini
Bros. The documents evidencing these transfers appear in the record.
Within thirty days after these assignments were made, or to be exact, on June 22, 1921, a number of creditors of the
H.K. Motoomul &Co. initiated successfully involuntary insolvency proceedings against it. Later, action was brought by the
receiver Giberson appointed by the court.

Issue: W-O-N the chattel mortgage was valid.

SC Ruling:
The trial court held, and properly, that Exhibit 1 was invalid because the oath required by law did not appear therein,
and because the subject-matter was not described therein with sufficient particularity. The Chattel Mortgage Law, in its section
5, in describing what shall be deemed sufficient to constitute a good chattel mortgage, includes the requirement of an affidavit
of good faith appended to the mortgage and recorded therewith. It has been held by reputable courts that the absence of the
affidavit vitiates a mortgage as against creditors and subsequent encumbrancers.

26.
JACA VS. DAVAO LUMBER COMPANY
Facts: Plaintiff Urbano Jaca, a licensee of a logging concession located in Davao City is engaged in a logging business. Defendant
Davao Lumber Company (DLC) is a corporation with which plaintiffs had business dealings covering the sales of his logs.

Sometimes in 1954, the herein parties entered into an agreement whereby plaintiff may secure, by way of advances, either
cash or materials, foodstuffs and/or equipment from the defendants.
The payment was to be made either in cash and/or plaintiff’s turning over his logs to the defendant, and in the latter case, the
current price, either export or domestic, of the logs at the time of their delivery was to be considered.

While the relationship was subsisting, defendant made plaintiff execute in its favor a chattel mortgage, a copy of which
instrument, however, plaintiff was never furnished.

In November 1963, plaintiff filed with the Davao CFI a complaint for Accounting Return of Price Differentials and Damages
against the defendants.

Issue: W-O-N the chattel mortgage was valid.

SC Ruling: The defendant’s proof of interest in the property is the deed of chattel mortgage executed by the plaintiff in its favor
on January 24, 1964. This deed of chattel mortgage is void because it provides that the security stated therein is for the
payment of any and all obligations herein before contracted and which may hereafter be contracted by the mortgagor in favor
of the mortgagee.
In the case of Belgian Catholic Missionaries vs. Magallanes Press (49 PHIL 647) this court held:
“A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same
are made and not from the date of the mortgage. x x x Where the statute provides that a parties to a chattel mortgage must
take oath that the debt is a just debt, honestly due and owing from the mortgagor to the mortgagee, it is obvious that a valid
mortgage cannot be made to secure a debt to be thereafter contracted”. Thus, petition granted

27.
Cebu City (Cebu International Finance Corporation) vs. CA
G.R. No. 107554 February 13, 1997
Memory Aid: Cargo Vessel LCT Asiatic; Chattel Mortgage

FACTS:

On 4 March 1987, Jacinto Dy executed a Special Power of Attorney 1 in favor of private respondent Ang Tay, authorizing the
latter to sell the cargo vessel Owned by Dy and christened LCT "Asiatic."

On 28 April 1987, through a Deed of Absolute Sale,2 Ang Tay sold the subject vessel to private respondent Robert Ong (Ong) for
P900,000.00. Ong paid the purchase price by issuing three (3) checks in the following amounts: P150,000.000, P600,000.00 and
P150,000.00. However, since the payment was not made in cash, it was specifically stipulated in the deed of sale that the "LCT
Asiatic shall not be registered or transferred to Robert Ong until complete payment." 3 Thereafter, Ong obtained possession of
the subject vessel so he could begin deriving economic benefits therefrom. He, likewise, obtained copies of the unnotarized
deed of sale allegedly to be shown to the banks to enable him to acquire a loan to replenish his (Ong's) capital. The
aforequoted condition, however, which was handwritten on the original deed of sale does not appear on Ong's copies.

Case Digests By: @mcvinicious


Contrary to the aforementioned agreements and without the knowledge of Ang Tay, Ong had his copies of the deed of sale (on
which the aforementioned prohibition does not appear) notarized on 18 May 1987.4 Ong presented the notarized deed to the
Philippine Coast Guard which subsequently issued him a Certificate of Ownership 5 and a Certificate of Philippine Register6 over
the subject vessel on 27 May 1987. Ong also succeeded in having the name of the vessel changed to LCT "Orient Hope."

On 29 October 1987, Ong acquired a loan from petitioner (Cebu International Finance Corporation) in the amount of
P496,008.00 to be paid in instalments as evidenced by a promissory note of even date. 7

As security for the loan, Ong executed a chattel mortgage over the subject vessel,8 which mortgage was registered with the
Philippine Coast Guard and annotated on the Certificate of Ownership.9 In paragraph 3 of the Deed of Chattel Mortgage, it was
stated that:

3. The said sum of FOUR HUNDRED NINETY SIX THOUSAND EIGHT ONLY (496,008.00) represents the balance due
on of MORTGAGOR(S) from the MORTGAGEE and is payable in the office of the MORTGAGEE at Cebu City or in the
office of the latter's assignee, in case the rights and interests of the MORTGAGEE in the foregoing mortgage are
assigned to a third person, under the terms of said promissory note, as follows: (a) TWENTY THOUSAND SIX
HUNDRED SIXTY SEVEN ONLY** Pesos (P20,667.00) on or before . . . . . . and (b) the balance in Twenty Four (24)
equal successive monthly installments on the . . . . . . day of each and every succeeding month thereafter until the
amount is fully paid. The interest on the foregoing installments shall be paid on the same date that the
installments become payable and additional interest at the rate of fourteen (14%) per cent per annum will be
charged on all amounts, principal and interest, not paid on due date. 10 (Emphasis ours.)

Ong defaulted in the payment of the monthly installments. Consequently, on 11 May 1988, petitioner sent him a
letter 11 demanding delivery of the mortgaged vessel for foreclosure or in the alternative to pay the balance of P437,802.00
pursuant to paragraph 11 of the deed of chattel mortgage. 12

Meanwhile, the two checks (worth P600,000.00 and P150,000.00) paid by Ong to Ang Tay for the purchase of the subject
vessel bounced. Ang Tay's search for the elusive Ong and all attempts to confer with him proved to be futile. A subsequent
investigation and inquiry with the Office of the Coast Guard revealed that the subject vessel was already in the name of Ong, in
violation of the express undertaking contained in the original deed of sale.

As a result thereof, on 13 January 1988, Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with damages
against Ong and his wife (docketed as Civil Case No. CEB-6565) with the Regional Trial Court of Cebu . City, Branch 10. The trial
court issued a writ of replevin and the subject vessel was seized and subsequently delivered to Ang Tay.

On 9 March 1988, petitioner filed a motion for intervention but withdrew the same on 29 April 1988. Instead, on 26 May 1988,
petitioner filed a separate case for replevin and damages against Ong and "John Doe" (Ang Tay) with the same trial court,
docketed as Civil Case No. CEB-6919.

The trial court granted petitioner's prayer for replevin. The vessel was seized and placed in the custody of the trial court.
However, Ang Tay posted a counterbond and the vessel was returned to his possession.

On 3 October 1990 in CEB-6565, the trial court rendered a decision in favor of Ang Tay and Jacinto Dy. The sale of the subject
vessel was rescinded, the registration of the vessel with the Office of the Coast Guard and other government agencies in Ong's
name nullified and the vessel's registration in Dy's name revived. Ong was, likewise, ordered to pay Jacinto Dy and Ang Tay
actual damages for lost income, moral damages, attorney's fees and litigation
13
expenses.

The Court of Appeals affirmed the trial court's decision and Ong's petition for review before this Court was dismissed for lack of
merit in a resolution dated 15 March 1993,

On the other hand, in CEB-6919, the subject of the present appeal, the trial court in a decision dated 14 February 1990,
declared the chattel mortgage on the subject vessel null and void and ordered petitioner and Ong to pay Ang Tay damages.
The dispositive portion states, thus:

WHEREFORE, in view of all the foregoing, the chattel mortgage on the vessel LCT ORIENT HOPE is declared null and
void, rendering its annotation and registration at the back of the Certificate of Ownership and Certificate of Philippine
Registry respectively, to be of no force and effect.

Plaintiff CIFC and defendant Robert Ong are hereby ordered to pay jointly and severally to defendant Ang Tay the
following amounts: P50,000.00 as unrealized income during the five-day period when the vessel was take from Ang
Tay's possession; P100,000.00, representing the premiums Ang Tay paid for the redelivery of the vessel to him and
other expenses; P10,000.00 as actual expenses for the recovery of the vessel; P100,000.00 as moral damages;
P50,000.00 as exemplary damages; P40,000.00 as actual expenses in attending trials and litigation expenses; and
P30,000.00 as attorney's fees.
Case Digests By: @mcvinicious
SO ORDERED. 14

On 2 July 1992, the Court of Appeals affirmed in toto the above mentioned decision. 15 Hence, the present petition for review
on certiorari.

ISSUE:

1. Whether or not CIFC owns the vessel as reflected in the deed of chattel mortgage.
2. Is CIFC a mortgagee in good faith?
3. Whether or not the chattel mortgage executed by Ong in favour to CIFC is valid.
4. Whether or not the absence ‘special affidavit of good faith’ required in Sec. 4 of P.D. No. 1521 (The Ship Mortgage
Decree of 1978) can nullify an executed deed of chattel mortgage.

RULING:

1. NO, CIFC does not own the vessel as reflected in the deed of chattel mortgage.

The Supreme Court explained its ruling in this manner:

The Court of Appeals nullified the chattel mortgage contract between petitioner and Ong because paragraph 3 of the
said contract (where it appeared that petitioner sold the subject vessel to Ong on installment basis and that the amount
supposedly loaned to Ong represented the balance due on the purchase price) seemed to indicate that the owner of the vessel
mortgaged was petitioner although it had been duly established that another party (Jacinto Dy) was the true owner thereof. 18

WE DISAGREE with the aforequoted ruling of the Court of Appeals.

The chattel mortgage contract should not be viewed in such a myopic context. The key lies in the certificate of
ownership issued in Ong's name (which, along with the deed of sale, he submitted to petitioner as proof that he is the owner
of the ship he gave as security for his loan).

It was plainly stated therein that the ship LCT "Orient Hope" ex "Asiatic," by means of a Deed of Absolute Sale dated 28
April 1987, was "sold and transferred by Jacinto Dy to Robert Ong." 19 There can be no dispute then that it was Dy who was the
seller and Ong the buyer of the subject vessel. Coupled with the fact that there is no evidence euphony (the tendency to make
phonetic change for ease of pronunciation) transaction between Jacinto Dy or Ang Tay and petitioner, it follows, therefore, that
petitioner's role in the picture is properly and logically that of a creditor-mortgagee and not owner-seller.

It is paragraph 2 of the mortgage contract 20 which accurately expresses the true nature of the transaction between
petitioner and Ong--that it is a simple loan with chattel mortgage. The amount petitioner loaned to Ong does not represent the
balance of any purchase price since, as we have previously discussed, the aforementioned documents state that Ong is already
the absolute owner of the subject vessel. Obviously, therefore, paragraph 3 of the said contract was filled up by mistake.
Considering that petitioner used a form contract, it is not improbable that such an oversight may have been committed--
negligently but unintentionally and without malice.

THEREFORE, CIFC does not own the vessel as reflected in the deed of chattel mortgage.

2. YES, CIFC was a mortgagee in good faith.

The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor
to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of or does not have a valid title to the mortgaged
property, the mortgagee or transferee in good faith is nonetheless entitled to protection. 23 (Sunshine Finance & Investment
Corp v. IAC, 203 SCRA 210 (1991)

Although this rule generally pertains to real property, particularly registered land, it may also be applied by analogy to
personal property, in this case specifically, since shipowners are, likewise, required by law to register their vessels with the
Philippine Coast Guard.

IN THIS CASE, Petitioner had every right to rely on the Certificate of Ownership and Certificate of Philippine Register duly
issued by the Philippine Coast Guard in Ong's name. Petitioner had no reason to doubt Ong's ownership over the subject
vessel. The documents presented by Ong, upon petitioner's insistence before accepting the said vessel as loan security, were
all in order and properly issued by the duly constituted authorities. There was no circumstance that might have aroused
petitioner's suspicion or alerted it to any infirmity committed by Ong. It had no participation in and was not privy to the sale
transaction between Jacinto Dy (through Ang Tay) and Ong. Petitioner, thus, had no obligation to undertake further

Case Digests By: @mcvinicious


investigation since it had the necessary documents to prove Ong's ownership. In addition petitioner even took pains to inspect
the subject vessel which was in Ong's possession.

THEREFORE, CIFC was a mortgagee in good faith.

3. YES, the chattel mortgage executed by by Ong in favour to CIFC is valid.

Tomas v. Tomas, 98 SCRA 280 (1980), the Supreme Court held that:

“. . . as between two innocent persons, the mortgagee and the owner of the mortgaged property, one of whom must
suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss.”

IN THIS CASE, although Ang Tay may also be an innocent person, a similar victim of Ong's fraudulent machinations, it
was Ang Tay’s act of confidence which led to the present fiasco. Ang Tay readily agreed to execute a deed of absolute sale in
Ong's favor even though Ong had yet to make a complete payment of the purchase price.

It is true that in the copy of the said deed submitted by Ang Tay there was an undertaking that ownership will not vest
in Ong until full payment.33 However, Ong was able to obtain several copies of the deed 34 with Ang Tay's signature and had
these notarized without the aforementioned undertaking as evidenced by the copy of the deed of sale presented by
petitioner. 35

The Deed of Absolute Sale consisted of two (2) pages. The signatures of Ang Tay and Ong appeared only on the first
page of the deed. The Second page contained the continuation of the acknowledgment and the undertaking. Ong could have
easily reproduced the second page without the undertaking since this page was not signed by the contracting parties. To
complete the deception, Ang Tay unwittingly allowed Ong to have possession of the ship.

It is Ang Tay and his principal Jacinto Dy who must, unfortunately, suffer the consequences thereof. They are
considered bound by the chattel mortgage on the subject vessel.

THEREFORE, the chattel mortgage executed by by Ong in favour to CIFC is valid.

4. NO, the absence of ‘special affidavit of good faith’ required in Sec. 4 of P.D. No. 1521 (The Ship Mortgage Decree of
1978) can nullify an executed deed of chattel mortgage.

The special affidavit of good faith, on the other hand, is required only for the purpose of transforming an already valid
mortgage into a "preferred mortgage." 30 Thus, the abovementioned affidavit is not necessary for the validity of the chattel
mortgage itself but only to give it a preferred status.

THEREFORE, the absence of ‘special affidavit of good faith’ required in Sec. 4 of P.D. No. 1521 (The Ship Mortgage
Decree of 1978)can nullify an executed deed of chattel mortgage.

28.
SALDAñA VS. PHIL.GUARANTY CO.
Facts: Eleazar executed in favor of Saldaña, a chattel mortgage, the lat paragraph of which states: “and all other furnitures,
fixtures, or equipment found in the said premises”. Subsequent to the execution of said mortgage, defendant Hospital de San
Juan de Dios obtained a judgment against Eleazar. Personal properties of Eleazar were levied upon. Saldaña filed a third-party
claim asserting that the properties levied are subject to his chattel mortgage.

Issue: W-O-N there was sufficient description on the properties mortgaged.

SC Ruling:
There is merit in appellant’s contention. Section 7 of the Chattel Mortgage Law does not demand a minute and specific
description of every chattel mortgaged in the deed of mortgage but only requires that the description of the properties be
such “as to enable the parties in the mortgage or any other person, after reasonable inquiry and investigation to identify the
same”. Gauged by this standard, general descriptions have been held valid by this court. The specification in the last paragraph
of the deed in the instant case is in substantial compliance with the “reasonable description rule” fixed by the Chattel
Mortgage Law.
The limitation found in Section 7, last paragraph, of the Chattel Mortgage Law on “like or substituted properties”
makes reference to those “thereafter acquired by the mortgagor and placed in the same depositary as the property originally
mortgaged” not to those already existing and originally included at the date of the constitution of the chattel mortgage. A
contrary view would unduly impose a more rigid condition that the law prescribes which is, that the description be only such as
to enable identification after reasonable inquiry and investigation. Orders set aside.

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29.
PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals | 310 SCRA 281 [1999]

FACTS: PAMECA loaned P2M from DBP and executed a promissory note, secured by its inventory of furniture and equipment.
PAMECA defaulted thus DBP extrajudicially foreclosed on the chattels. DBP was the only bidder so it was able to buy said
property for P322K. Subsequently for the deficiency, it filed a complaint against PAMECA and its solidary debtors, according to
the promissory note it signed.

ISSUE: Whether an action can be instituted for deficiency of a debt after a foreclosure of the chattel mortgage.

RULING: Yes. Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the
principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the
sale proceeds, there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in
the price at public auction.

30.
PARAY v. RODRIGUEZ, ET AL., G.R. No. 132287 (JANUARY 24, 2006)

FACTS:

Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to 1980, respondents
secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray (“Parays”) the payment
of certain loan obligations.

When the Parays attempted to foreclose the pledges on account of respondents’ failure to pay their loans, respondents
filed complaints with RTC of Cebu City. The actions sought the declaration of nullity of the pledge agreements, among others.
However the RTC dismissed the complaint and gave due course to the foreclosure and sale at public auction of the various
pledges. This decision attained finality after it was affirmed by the Court of Appeals and the Supreme Court.

Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction.
However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of
various amounts. It was claimed that respondents had attempted to tender payments to the Parays, but had been rejected.

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully
bidding for all of the pledged shares. None of respondents participated or appeared at the auction.

Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public auction.

Respondents’ argument:

Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations
and discharged the pledge contracts.

Petitioners’ argument:

Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the
tender of payment and consignations were made long after their obligations had fallen due.

They pointed out that the amounts consigned could not extinguish the principal loan obligations of respondents since
they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural requisites
for the auction sale had been satisfied.

Ruling of RTC:

The RTC dismissed the complaint, expressing agreement with the position of the Parays. It held that respondents had
failed to tender or consign payments within a reasonable period after default and that the proper remedy of respondents was
to have participated in the auction sale.

Ruling of CA:

The Court of Appeals however reversed the RTC on appeal, ruling that the consignations extinguished the loan
obligations and the subject pledge contracts; and the auction sale as null and void. It (CA) chose to uphold the sufficiency of
the consignations owing to an imputed policy of the law that favored redemption and mandated a liberal construction to

Case Digests By: @mcvinicious


redemption laws. The attempts at payment by respondents were characterized as made in the exercise of the right of
redemption.
CA likewise found fault with the auction sale, holding that there was a need to individually sell the various shares of
stock as they had belonged to different pledgors.

ISSUES:

1. WON right of redemption exists over personal properties (such as the subject pledged shares).
2. WON the consignations made by respondents prior to the auction sale are sufficient to extinguish the loan obligations and
the subject pledged contracts.
3. WON the act of respondents in consigning the payments should be deemed done in the exercise of their right of
redemption owing to an imputed policy of the law that favored redemption and mandated a liberal construction to
redemption laws.
4. WON a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the one-year
redemptive period
5. WON there is a need to individually sell the various shares of stock as they had belonged to different pledgors.

HELD:

1. No.

No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.

The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended.
The said law does not extend the same benefit to personal property. In fact, there is no law in our statute books which vests
the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as
the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the
extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point.

The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more precisely
execution sales of real property.

It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time,
is to proceed before a Notary Public to the sale of the thing pledged.

In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction.
However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and
executory judgment in those cases affirmed the pledge contracts and disposed them. Said judgment did not direct the sale by
public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale at their own volition.

2. No.

There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article 2098 of
the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid.
Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of
the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the
pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the creditor may proceed
with the sale by public auction under the procedure provided under Article 2112 of the Code.
In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover
not just the principal loans, but also the monthly interests thereon.

In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan
obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per month
or 60% per annum.

3. No.

The pledged shares in this case are not subject to redemption. Thus, the consigned payments should not be treated
with liberality, or somehow construed as having been made in the exercise of the right of redemption.

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4. Yes.

Obviously, since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at
the foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.

5. No.

This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place.
Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately,
such as in the case of lot sales for real property under Section 19. However, these instances again pertain to execution sales
and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at auction be
sold separately.

On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which
of the items should be sold if two or more things are pledged. No similar option is given to pledgors under the Civil Code.
Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the
pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the
buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative insignificance of
ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is
sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the
purchase price and the amount of the principal obligation.

RULING:

Decision of the Court of Appeals is SET ASIDE and the decision of the RTC Cebu City is REINSTATED.

Case Digests By: @mcvinicious

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