Mary Faith R.

Daroy

Credit Transaction Case Digest

BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS AND RUBY INDUSTRIAL CORPORATION G.R. No. 97178 January 10, 1994 FACTS On 16 February 1984, petitioner Bank of Philippine Islands (BPI, for brevity), filed with the Regional Trial Court of Pasig a complaint against respondent Ruby Industrial Corporation (RUBY, for short), for foreclosure of real estate mortgage. After filing its answer with counterclaim on 8 November 1984, respondent RUBY submitted to the trial court a motion for suspension of the proceedings on the ground that on 10 August 1984 the Securities and Exchange Commission (SEC) issued an Order placing RUBY under a rehabilitation plan.

On 31 July 1990, petitioner BPI filed a motion for reopening of the proceedings, invoking our ruling in Philippine Commercial International Bank v. Court of Appeals 2 which states that "SEC's order of suspension of payments of Philfinance as well as for all actions or claims against Philfinance could only be applied to claims of unsecured creditors. Such order can not extend to creditors holding a mortgage, pledge or any lien on the property unless they give up the property, security or lien in favor of all the creditors of Philfinance."

However, on 22 August 1990, the trial court denied the motion of BPI on the basis of our decision in Alemar's Sibal & Sons, Inc. v. Elbinias 3 holding that the suspension of payment applies to all creditors, whether secured or unsecured, in order to place them on equal footing.

ISSUES Whether the secured creditor BPI may still judicially enforce its claim against respondent Ruby Industrial Corporation which already been placed under rehabilitation as held in Philippine Commercial International Bank v. Court of Appeals .

HELD

Petitioner alleges that it holds a real estate mortgage over three (3) parcels of land of private respondent which it did not give up in favor of other creditors of private respondent, and that the PCIB v. CA ruling explicitly states that the order of SEC for suspension of payments of the distressed firm, as well as for all actions or claims against it, could only be applied to unsecured

claims of creditors and could not extend to creditors holding a mortgage, pledge or any lien on the property unless they give up their interests therein in favor of all the creditors. The doctrine in the PCIB case has since been abrogated. In Alemar's Sibal & Sons v. Elbinias, 7 BF Homes, Inc. v. Court of Appeals, 8 Araneta v. Court of Appeals, 9 and RCBC v. Court of Appeals, 10 it is already a settled ruled that whenever a distressed corporation asks SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but shall stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors or cause discrimination among them. If foreclosure is undertaken despite the fact that a petition for rehabilitation has been filed, the certificate of sale shall not be delivered pending rehabilitation. If this has already been done, no transfer certificate of title shall likewise be effected within the period of rehabilitation. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the others. This rule will enable the management committee or rehabilitation receiver to effectively exercise his/its power free from any judicial or extrajudicial interference that might unduly hinder the rescue of the distressed company.

MERCANTILE INSURANCE CO., INC., vs. FELIPE YSMAEL, JR., & CO., INC., G.R. No. L43862 January 13, 1989

FACTS Felipe Ysmael, Jr. & Co., Inc., filed an application for an overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. A bond has to be secured for the credit accommodation to be approved in the amount of P140,000.00 to guarantee it payment . Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed surety bond No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A). On December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc. executed another surety bond MERICO Bond No. G (16) 0030 in the sum of P40,000.00. As security and in consideration of the execution of the surety bonds, exhibits A and B, Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity agreement wherein the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves jointly and severally to indemnify the plaintiff, hold save it harmless from and against any and all payments, damages, costs, losses, penalties, charges and expenses which said company as surety shall incur or become liable to pay plus an additional amount as attorney's fees equal to 20% of the amount due to the company. In view of the failure of the defendants to pay the overdraft and credit line with the Philippine National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under surety bonds otherwise drastic measures for collection to protect the interest of the bank would be taken. Plaintiff-appellee company wrote a letter of demand to the defendants demanding from the defendants the settlement of said account.

The Trial Court rendered its decision that plaintiff and the defendants are ordered to pay jointly and severally . Plaintiff-appellee raised errors of judgment in the Court of Appeals.

ISSUES

Whether or not the surety can be allowed indemnification from the defendants-appellants, upon the latter's default even before the former has paid to the creditor. Defendants-appellants maintain that the indemnity agreement is void for being contrary to law, public policy and good

morals. They argued that to allow plaintiff surety (appellee herein) to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute unjust enrichment at the expense of another.

HELD The question as to whether or not under the Indemnity Agreement of the parties, the Surety can demand indemnification from the principal, upon the latter's default, even before the former has paid to the creditor, has long been settled by this Court in the affirmative. The only bone of contention is whether or not the indemnity agreement is null and void. A careful analysis of the contract in question will show that the provisions therein do not contravene any law or public policy much less do they militate against the public good. In fact, as shown above, they are fully sanctioned by well-established jurisprudence. Having voluntarily entered into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force and effect of law.

The principal debtors, defendants-appellants herein, are simultaneously the same persons who executed the Indemnity Agreement. Thus, the position occupied by them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is, therefore, no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not apply. Otherwise stated, there is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed against defendants-appellants.

TOMAS ANG, vs. ASSOCIATED BANK AND ANTONIO ANG ENG LIONG G.R. No. 146511 September 5, 2007

FACTS A petition for certiorari was filed by Tomas Ang, seeking review of incoherent decision of the Regional Trial Court and the Court of Appeals.

On August 28, 1990, respondent Associated Bank filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker, respectively in the total amount of 80,000.00 Petitioner Tomas Ang filed an Answer with Counterclaim and Cross-claim.8 He interposed the affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation part.

The Trial Court ordered the respondents to pay the petitioner with reduced cost as to penalty charges and attorneys cost. Ang move to dismiss the order on the ground of lack of jurisdiction. The court denied the motion as well as the motion for reconsideration thereon. 21 Tomas Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however, resolved to refer the same to the Court of Appeals.22 In accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the ex-parte presentation of the bank's evidence against Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued on April 5, 1991

Trial then ensued between the bank and Tomas. On January 5, 1996, the trial court rendered judgment against the bank, dismissing the complaint for lack of cause of action. Respondent Bank then elevated the case to the Court of Appeals. On October 9, 2000, the Court of Appeals reversed and set aside the trial court's ruling.

ISSUES The issues raised before the Petition for Certiorari under Rule 45 are as follows

1. Is Article 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or surety because of the failure of private respondent bank to serve its notice of appeal upon the principal debtor, respondent Eng Liong?

2. Did the trial court have jurisdiction over the case at all?

3. Did the Court of Appeals commit error in assigning its own error and raising its own issue?

4. Are petitioner's other real and personal defenses such as successive extensions coupled with fraudulent collusion to hide Eng Liong's default, the payee's grant of additional burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but delivered instrument, meritorious?

HELD Contrary to petitioner's adamant stand, however, Article 2080 of the Civil Code does not apply in a contract of suretyship. Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank.

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for

the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

The foregoing notwithstanding, this Court cannot, at present, readily subscribe to petitioner's insistence that the case must be dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening event the "buy-back" of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re-acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could rightfully qualify as a "holder" thereof under the NIL.

Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor.

A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION vs. COURT OF APPEALS and SPOUSES ROMULO S.A. JAVILLONAR and ERLINDA P. JAVILLONAR G.R. No. 125055 October 30, 1998 FACTS Petitioner A. Francisco Realty and Development Corporation granted a loan of P7.5 Million to private respondents, the spouses Romulo and Erlinda Javillonar, in consideration of which the latter executed the following documents: (a) a promissory note, dated November 27, 1991, stating an interest charge of 4% per month for six months; (b) a deed of mortgage over realty covered by TCT No. 58748, together with the improvements thereon; and (c) an undated deed of sale of the mortgaged property in favor of the mortgagee, petitioner A. Francisco Realty.

As the respondent spouses failed to pay the obligation, petitioner registered the sale of the land in its favor and a new transfer certificate of title was issued in its name as willfully stated in the promissory note that without any need for prior demand or notification, I promise to vacate voluntarily and willfully and/or allow A.FRANCISCO REALTY AND DEVELOPMENT CORPORATION to appropriate and occupy for their exclusive use the real property.

Petitioner demanded possession of the mortgaged realty and the payment of 4% monthly interest from May 1992, plus surcharges. As respondent spouses refused to vacate, petitioner filed the present action for possession before the Regional Trial Court in Pasig City.

Regional Trial Court rendered a decision in favor of the petitioner but upon appeal was reversed. Thus a petition for certiorari was before the Supreme Court

ISSUES Whether or not the Court of Appeals erred in ruling that the RTC had no jurisdiction over the complaint

Whether or not the court of appeals erred in ruling that the contractual documents subject of the instant case are constitutive of pactum commissorium?

HELD It is clear from the foregoing that petitioner A. Francisco Realty raised issues which involved more than a simple claim for the immediate possession of the subject property. Such issues range across the full scope of rights of the respective parties under their contractual

arrangements. Clearly, the case was converted into the determination of the nature of the proceedings from a mere detainer suit to one that is "incapable of pecuniary estimation" and thus beyond the legitimate authority of the Justice of the Peace Court to rule on.

The stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be registered, are in substance a pactum commissorium, which is prohibited under Article 2088. The subject transaction being void, the registration of the deed of sale by virtue of which petitioner was able to obtain TCT covering the subject lot must also be declared void

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, insofar as it dismissed petitioner's complaint against respondent spouses on the ground that the stipulations in the promissory notes are void for being a pactum commissorium, but REVERSED insofar as it ruled that the trial court had no jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED to CANCEL TCT No. PT-85569 issued to petitioner and ISSUE a new one in the name of respondent spouses.