CREDIT TRANSACTION CASES

DEPOSIT-GUARANTY-SURETYSHIP
defendant is the administrator of the estate of Father De la
Pea.

Facts:
Rizaldy T. Zshornack and his wife maintained in COMTRUST
a dollar savings account and a peso current account. An
application for a dollar drat was accomplished by Virgillo
Garcia branch manager of COMTRUST payable to a certain
Leovigilda Dizon. In the PPLICtion, Garcia indicated that the
amount was to be charged to the dolar savings account of the
Zshornacks. There wasa no indication of the name of the
purchaser of the dollar draft. Comtrust issued a check payable
to the order of Dizon. When Zshornack noticed the withdrawal
from his account, he demanded an explainaiton from the bank.
In its answer, Comtrust claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, brother of
Rizaldy. When he encashed with COMTRUST a cashiers
check for P8450 issued by the manila banking corporation
payable to Ernesto.
Issue: Whether the contract between petitioner and respondent
bank is a deposit?
Held: The document which embodies the contract states that
the US$3,000.00 was received by the bank for safekeeping.
The subsequent acts of the parties also show that the intent of
the parties was really for the bank to safely keep the dollars
and to return it to Zshornack at a later time. Thus, Zshornack
demanded the return of the money on May 10, 1976, or over
five months later.
The above arrangement is that contract defined under Article
1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of
safely keeping it and of returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiffappellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of
Father Agustin de la Pea, defendant-appellant.

MORELAND, J.:
This is an appeal by the defendant from a judgment of the
Court of First Instance of Iloilo, awarding to the plaintiff the
sum of P6,641, with interest at the legal rate from the
beginning of the action.
It is established in this case that the plaintiff is the trustee of a
charitable bequest made for the construction of a leper hospital
and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The

In the year 1898 the books Father De la Pea, as trustee,

showed that he had on hand as such trustee the sum of P6,641,
collected by him for the charitable purposes aforesaid. In the
same year he deposited in his personal account P19,000 in the
Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and
during the war of the revolution, Father De la Pea was
arrested by the military authorities as a political prisoner, and
while thus detained made an order on said bank in favor of the
United States Army officer under whose charge he then was
for the sum thus deposited in said bank. The arrest of Father
De la Pea and the confiscation of the funds in the bank were
the result of the claim of the military authorities that he was an
insurgent and that the funds thus deposited had been collected
by him for revolutionary purposes. The money was taken from
the bank by the military authorities by virtue of such order,
was confiscated and turned over to the Government.
While there is considerable dispute in the case over the
question whether the P6,641 of trust funds was included in the
P19,000 deposited as aforesaid, nevertheless, a careful
examination of the case leads us to the conclusion that said
trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the
United States.
That branch of the law known in England and America as the
law of trusts had no exact counterpart in the Roman law and
has none under the Spanish law. In this jurisdiction, therefore,
Father De la Pea's liability is determined by those portions of
the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence
pertaining to a good father of a family" (art. 1094), it also
provides, following the principle of the Roman law, major
casus est, cui humana infirmitas resistere non potest, that "no
one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or those
in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his
personal funds De la Pea did not thereby assume an
obligation different from that under which he would have lain
if such deposit had not been made, nor did he thereby make
himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the
military forces of one of the combatants during a state of war,
it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add
to his responsibility. Such deposit did not make him a debtor
who must respond at all hazards.
We do not enter into a discussion for the purpose of
determining whether he acted more or less negligently by

depositing the money in the bank than he would if he had left

it in his home; or whether he was more or less negligent by
depositing the money in his personal account than he would
have been if he had deposited it in a separate account as
trustee. We regard such discussion as substantially fruitless,
inasmuch as the precise question is not one of negligence.
There was no law prohibiting him from depositing it as he did
and there was no law which changed his responsibility be
reason of the deposit. While it may be true that one who is
under obligation to do or give a thing is in duty bound, when
he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and
measures to escape or, if unavoidable, to temper the effects of
those events, we do not feel constrained to hold that, in
choosing between two means equally legal, he is culpably
negligent in selecting one whereas he would not have been if
he had selected the other.
The court, therefore, finds and declares that the money which
is the subject matter of this action was deposited by Father De
la Pea in the Hongkong and Shanghai Banking Corporation
of Iloilo; that said money was forcibly taken from the bank by
the armed forces of the United States during the war of the
insurrection; and that said Father De la Pea was not
responsible for its loss.
The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint.
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. v.
THE HONORABLE COURT OF APPEALS and
SECURITY BANK AND TRUST COMPANY
G.R. No. 90027, March 3, 1993, THIRD DIVISION
(DAVIDE, JR., J.)

FACTS:

CA Agro-Industrial Development Corp. (CA Agro)

purchased two (2) parcels of land from the spouses Ramon
and Paula Pugao (Pugaos). CA Agro paid a downpayment and
issued three (3) post-dated checks covering the balance of the
price. It was contracted that the titles to the lots shall be
transferred to CA Agro upon full payment of the purchase
price and that the owner's copies of the certificates of titles
thereto shall be deposited in a safety deposit box of any bank.
The same could be withdrawn only upon the joint signatures
of a representative of CA Agro and the Pugaos upon full
payment of the purchase price.
Forthwith, CA Agro and the Pugaos rented Safety
Deposit Box of Security Bank and Trust Company (Bank). For
this purpose, they both signed a contract of lease containing
the following conditions:

13. The bank is not a depositary of the

contents of the safe and it has neither the
possession nor control of the same.
14. The bank has no interest whatsoever in
said contents, except herein expressly
provided, and it assumes absolutely no
liability in connection therewith.
After the execution of the contract, two (2) renter's
keys were given to the renters one to CA Agro and the
other to the Pugaos. A guard key remained in the possession of
the Bank. The safety deposit box has two (2) keyholes, one for
the guard key and the other for the renter's key, and can be
opened only with the use of both keys.
Thereafter, a certain Mrs. Margarita Ramos (Ramos)
offered to buy from CA Agro the two (2) lots at a price that
will yield a profit for the latter. Accordingly, Ramos demanded
the execution of a deed of sale which necessarily entailed the
production of the certificates of title. In view thereof, CA
Agro, accompanied by the Pugaos, then proceeded to the bank
to open the safety deposit box and get the certificates of title.
However, when opened in the presence of the Bank's
representative, the box yielded no such certificates. As a
result, Ramos withdrew her offer to buy the lots.
As a consequence, CA Agro failed to realize the
expected profit, thus, it filed a complaint for damages against
the Bank. The Bank in its answer with a counterclaim invoked
paragraphs 13 and 14 of the contract of lease for its defense.
In due course, the trial court rendered a decision
against CA Agro on the ground that the provisions of the
contract of lease are binding on the parties, and that under said
paragraphs, the Bank has no liability for the loss of the
certificates of title.
On Appeal, the Court of Appeals affirmed the
appealed decision principally on the theory that the contract
executed by CA Agro and the Bank is in the nature of a
contract of lease by virtue of which CA Agro and its co-renter
were given control over the safety deposit box and its contents
while the Bank retained no right to open the said box because
it had neither the possession nor control over it and its
contents, thus, the contract is governed by Article 1643 in
relation to Article 1975 of the Civil Code.
Hence, CA Agro elevated the case to the Supreme
Court under Rule 45 of the Rules of Court maintaining that
regardless of nomenclature, the contract for the rent of the
safety deposit box is actually a contract of deposit governed
by Title XII, Book IV of the Civil Code.
ISSUE:

Whether the contractual relation between a

commercial bank and another party in a contract of rent of a

safety deposit box with respect to its contents placed by the

latter one of bailor and bailee or one of lessor and lessee

The banks shall perform the

services permitted under subsections (a), (b)
and (c) of this section as depositories or as
agents. . . .

HELD:

Petition PARTIALLY GRANTED

The contractual relation between a commercial bank

and another party in a contract of rent of a safety deposit box
with respect to its contents placed by the latter is one of a
bailor and bailee, the bailment being for hire and mutual
benefit, and it is not an ordinary deposit but special kind of
deposit.

The contract for the rent of the safety deposit box is

not an ordinary contract of lease as defined in Article 1643 of
the Civil Code. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and
absolute possession and control of the safety deposit box was
not given to the joint renters. However, the Court does not
fully subscribe to the view that the same is a contract of
deposit that is to be strictly governed by the provisions in the
Civil Code on deposit; the contract in this case is a special
kind of deposit.
Neither could Article 1975 be invoked as an
argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary of
certificates, bonds, securities or instruments which earn
interest if such documents are kept in a rented safety deposit
box.
The prevailing rule in American Jurisprudence is that
the relation between a bank renting out safe-deposit boxes and
its customer with respect to the contents of the box is that of a
bailor and bailee, the bailment being for hire and mutual
benefit. While, in the context of our laws, particularly Section
72(a) of the General Banking Act (now Section 52) which
authorizes banking institutions to rent out safety deposit
boxes, it is clear that the prevailing rule in the United States
has been adopted.
Sec. 72. In addition to the operations
specifically authorized elsewhere in this Act,
banking institutions other than building and
loan associations may perform the following
services:
(a) Receive in custody funds, documents,
and valuable objects, and rent safety deposit
boxes for the safeguarding of such effects.
xxx xxx xxx

Nevertheless, the primary function is still found

within the parameters of a contract of deposit, and, in relation
to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to
law, morals, good customs, public order or public policy.
Thus, the depositary's responsibility for the safekeeping of the
objects deposited in this case is governed by Title I, Book IV
of the Civil Code. Accordingly, the depositary would be liable
if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the
agreement, and in the absence of any stipulation prescribing
the degree of diligence required, that of a good father of a
family is to be observed. Corollary, any stipulation exempting
the depositary from any liability arising from the loss of the
thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy.
Furthermore, it is not correct to assert that the Bank
has neither the possession nor control of the contents of the
box since in fact; the safety deposit box itself is located in its
premises and is under its absolute control. Moreover, the Bank
keeps the guard key to the said box and renters cannot open
their respective boxes unless the Bank cooperates by
presenting and using this guard key. Clearly then, to the extent
above stated, conditions 13 and 14 in the contract in question
are void and ineffective.
However, the Court reached the same conclusion
which the Court of Appeals arrived at but on grounds quite
different from those relied upon by the latter. The Bank's
exoneration cannot be based on or proceed from a
characterization of the impugned contract as a contract of
lease, but rather on the fact that no competent proof was
presented to show that Bank was aware of the agreement
between CA Agro and the Pugaos to the effect that the
certificates of title were withdrawable from the safety deposit
box only upon both parties' joint signatures, and that no
evidence was submitted to reveal that the loss of the
certificates of title was due to the fraud or negligence of the
Bank. Since both CA Agro and the Pugaos agreed that each
should have one (1) renter's key, it was obvious that either of
them could ask the Bank for access to the safety deposit box
and, with the use of such key and the Bank's own guard key,
could open the said box, without the other renter being
present.
Since, however, CA Agro cannot be blamed for the
filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the CA Agro to
pay the Bank attorney's fees. To this extent, the Decision of
Court of Appeals was modified.

TRIPLE-V vs. FILIPINO MERCHANTS

therein", a provision which, to petitioner's mind, is an explicit

waiver of any right to claim indemnity for the loss of the car;
and that De Asis knowingly assumed the risk of loss when she
allowed petitioner to park her vehicle, adding that its valet
parking service did not include extending a contract of
insurance or warranty for the loss of the vehicle.

Gentlemen:

During trial, petitioner challenged FMICI's subrogation to

Crispa's right to file a claim for the loss of the car, arguing that
theft is not a risk insured against under FMICI's Insurance
Policy No. PC-5975 for the subject vehicle.

Quoted hereunder, for your information, is a resolution of this

Court dated FEB 21 2005.

In a decision dated June 22, 2001, the trial court rendered

judgment for respondent FMICI, thus:

G.R. No. 160544 (Triple-V Food Services, Inc. vs. Filipino

Merchants Insurance Company, Inc.)

WHEREFORE, premises considered, judgment is hereby

rendered in favor of the plaintiff (FMICI) and against the
defendant Triple V (herein petitioner) and the latter is hereby
ordered to pay plaintiff the following:

THIRD DIVISION

Assailed in this petition for review on certiorari is the

decision[1]cralaw dated October 21, 2003 of the Court of
Appeals in CA-G.R. CV No. 71223, affirming an earlier
decision of the Regional Trial Court at Makati City, Branch
148, in its Civil Case No. 98-838, an action for damages
thereat filed by respondent Filipino Merchants Insurance,
Company, Inc., against the herein petitioner, Triple-V Food
Services, Inc.
On March 2, 1997, at around 2:15 o'clock in the afternoon, a
certain Mary Jo-Anne De Asis (De Asis) dined at
petitioner's Kamayan Restaurant at 15 West Avenue, Quezon
City. De Asis was using a Mitsubishi Galant Super Saloon
Model 1995 with plate number UBU 955, assigned to her by
her employer Crispa Textile Inc. (Crispa). On said date, De
Asis availed of the valet parking service of petitioner and
entrusted her car key to petitioner's valet counter. A
corresponding parking ticket was issued as receipt for the car.
The car was then parked by petitioner's valet attendant, a
certain Madridano, at the designated parking area. Few
minutes later, Madridano noticed that the car was not in its
parking slot and its key no longer in the box where valet
attendants usually keep the keys of cars entrusted to them. The
car was never recovered. Thereafter, Crispa filed a claim
against its insurer, herein respondent Filipino Merchants
Insurance Company, Inc. (FMICI). Having indemnified Crispa
in the amount of P669.500 for the loss of the subject vehicle,
FMICI, as subrogee to Crispa's rights, filed with the RTC at
Makati City an action for damages against petitioner Triple-V
Food Services, Inc., thereat docketed as Civil Case No. 98-838
which was raffled to Branch 148.
In its answer, petitioner argued that the complaint failed to
aver facts to support the allegations of recklessness and
negligence committed in the safekeeping and custody of the
subject vehicle, claiming that it and its employees wasted no
time in ascertaining the loss of the car and in informing De
Asis of the discovery of the loss. Petitioner further argued that
in accepting the complimentary valet parking service, De Asis
received a parking ticket whereunder it is so provided that
"[Management and staff will not be responsible for any loss of
or damage incurred on the vehicle nor of valuables contained

1. The amount of P669,500.00, representing actual damages

plus compounded (sic);
2. The amount of P30,000.00 as acceptance fee plus the
amount equal to 25% of the total amount due as attorney's
fees;
3. The amount of P50,000.00 as exemplary damages;
4. Plus, cost of suit.
Defendant Triple V is not therefore precluded from taking
appropriate action against defendant Armando Madridano.
SO ORDERED.
Obviously displeased, petitioner appealed to the Court of
Appeals reiterating its argument that it was not a depositary of
the subject car and that it exercised due diligence and
prudence in the safe keeping of the vehicle, in handling the
car-napping incident and in the supervision of its employees. It
further argued that there was no valid subrogation of rights
between Crispa and respondent FMICI.
In a decision dated October 21, 2003, [2]cralaw the Court of
Appeals dismissed petitioner's appeal and affirmed the
appealed decision of the trial court, thus:
WHEREFORE, based on the foregoing premises, the instant
appeal is hereby DISMISSED. Accordingly, the assailed June
22, 2001 Decision of the RTC of Makati City - Branch 148 in
Civil Case No. 98-838 is AFFIRMED.
SO ORDERED.
In so dismissing the appeal and affirming the appealed
decision, the appellate court agreed with the findings and
conclusions of the trial court that: (a) petitioner was a

depositary of the subject vehicle; (b) petitioner was negligent

in its duties as a depositary thereof and as an employer of the
valet attendant; and (c) there was a valid subrogation of rights
between Crispa and respondent FMICI.

Petitioner's argument that there was no valid subrogation of

rights between Crispa and FMICI because theft was not a risk
insured against under FMICI's Insurance Policy No. PC-5975
holds no water.

Hence, petitioner's present recourse.

Insurance Policy No. PC-5975 which respondent FMICI

issued to Crispa contains, among others things, the following
item: "Insured's Estimate of Value of Scheduled
Vehicle- P800.000".[5]cralaw On the basis of such item, the
trial court concluded that the coverage includes a full
comprehensive insurance of the vehicle in case of damage or
loss. Besides, Crispa paid a premium of P10,304 to cover
theft. This is clearly shown in the breakdown of premiums in
the same policy.[6]cralaw Thus, having indemnified CRISPA
for the stolen car, FMICI, as correctly ruled by the trial court
and the Court of Appeals, was properly subrogated to Crispa's
rights against petitioner, pursuant to Article 2207 of the New
Civil Code[7].

We agree with the two (2) courts below.

When De Asis entrusted the car in question to petitioners valet
attendant while eating at petitioner'sKamayan Restaurant, the
former expected the car's safe return at the end of her meal.
Thus, petitioner was constituted as a depositary of the same
car. Petitioner cannot evade liability by arguing that neither a
contract of deposit nor that of insurance, guaranty or surety for
the loss of the car was constituted when De Asis availed of its
free valet parking service.
In a contract of deposit, a person receives an object belonging
to another with the obligation of safely keeping it and
returning the same.[3]cralaw A deposit may be constituted even
without any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep
the item entrusted for safekeeping and to return it later to the
depositor.
Specious is petitioner's insistence that the valet parking claim
stub it issued to De Asis contains a clear exclusion of its
liability and operates as an explicit waiver by the customer of
any right to claim indemnity for any loss of or damage to the
vehicle.
The parking claim stub embodying the terms and conditions of
the parking, including that of relieving petitioner from any
loss or damage to the car, is essentially a contract of adhesion,
drafted and prepared as it is by the petitioner alone with no
participation whatsoever on the part of the customers, like De
Asis, who merely adheres to the printed stipulations therein
appearing. While contracts of adhesion are not void in
themselves, yet this Court will not hesitate to rule out blind
adherence thereto if they prove to be one-sided under the
attendant facts and circumstances. [4]cralaw
Hence, and as aptly pointed out by the Court of Appeals,
petitioner must not be allowed to use its parking claim stub's
exclusionary stipulation as a shield from any responsibility for
any loss or damage to vehicles or to the valuables contained
therein. Here, it is evident that De Asis deposited the car in
question with the petitioner as part of the latter's enticement
for customers by providing them a safe parking space within
the vicinity of its restaurant. In a very real sense, a safe
parking space is an added attraction to petitioner's restaurant
business because customers are thereby somehow assured that
their vehicle are safely kept, rather than parking them
elsewhere at their own risk. Having entrusted the subject car to
petitioner's valet attendant, customer De Asis, like all of
petitioner's customers, fully expects the security of her car
while at petitioner's premises/designated parking areas and its
safe return at the end of her visit at petitioner's restaurant.

Anent the trial court's findings of negligence on the part of the

petitioner, which findings were affirmed by the appellate
court, we have consistently ruled that findings of facts of trial
courts, more so when affirmed, as here, by the Court of
Appeals, are conclusive on this Court unless the trial court
itself ignored, overlooked or misconstrued facts and
circumstances which, if considered, warrant a reversal of the
outcome of the case.[8]cralaw This is not so in the case at bar.
For, we have ourselves reviewed the records and find no
justification to deviate from the trial court's findings.
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.

YHT Realty Corporation et al vs. CA

G.R. No. 126780 February 17, 20052
FACTS: Respondent McLoughlin would always stay at
Tropicana Hotel every time he is here in the Philippines and
would rent a safety deposit box. The safety deposit box could
only be opened through the use of 2 keys, one of which is given to the
registered guest, and the other remaining in the possession of the
management of the hotel. McLoughlin allegedly placed the following in his
safety deposit box 2 envelopes containing US Dollars, one envelope
containing Australian Dollars, Letters, credit cards, bankbooks
and a checkbook.On 12 December 1987, before leaving for a brief trip,
McLoughlin took some items from the safety box which includes the ff:
envelope containing Five Thousand US Dollars (US$5,000.00), the other
envelope containing Ten Thousand Australian Dollars (AUS$10,000.00),
his passports and his credit cards. The other items were left in the
deposit box. Upon arrival, he found out that a few dollars were
missing and the jewelry he bought was likewise missing. Eventually, he
confronted Lainez and Paiyam who admitted that Tan opened
the safety deposit box with the key assigned to him. McLoughlin went up
to his room where Tan was staying and confronted her. Tan admitted
that she had stolen McLouglins key and was able to open the
safety deposit box with the assistance of Lopez, Paiyam and
Lainez. Lopez also told McLoughlinthat Tan stole the key assigned
to McLouglin while the latter was asleep .McLoughlin insisted that it must
be the hotel who must assume responsibility for the loss he suffered.

Lopez refused to accept responsibility relying on the

conditions for renting the safety deposit box entitled Undertaking
For the Use of Safety Deposit Box
ISSUE: WON the "Undertaking for the Use of Safety Deposit
Box" admittedly executed by private respondent is null and void.
HELD: YES Article 2003 was incorporated in the New
Civil Code as an expression of public policy precisely
to apply to situations such as that presented in this case. The
hotel business like the common carriers business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide
not only lodging for hotel guests and security to their persons
and belongings. The twin duty constitutes the essence of the business.
The law in turn does not allow such duty to the public to be negated or
diluted by any contrary stipulation in so-called undertakings
that ordinarily appear in prepared forms imposed by hotel keepers on
guests for their signature. I n a n e a r l y c a s e ( D e L o s
S a n t o s v . Ta n K h e y ) , C A r u l e d t h a t t o h o l d
h o t e l k e e p e r s o r inn keeper liable for the effects of their guests, it is
not necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn. With
greater reason should the liability of the hotelkeeper be
enforced when the missing items are taken without the guests
knowledge and consent from a safety deposit box provided by the hotel
itself, as in this case. Paragraphs (2) and (4) of the undertaking manifestly
contravene Article 2003, CC for the yallow Tropicana to be released from
liability arising from any loss in the contents and/or use of the safety deposit
box for any cause whatsoever. Evidently, the undertaking was intended to
bar any claim against Tropicana for any loss of the
contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The
New Civil Code is explicit that the responsibility of the hotel-keeper
shall extend to loss of, or injury to, the personal property of the guests
even if caused by servants or employees of the
keepers of hotels or inns as well as by strangers, except as
it may proceed from any force majeure it is the loss through force majeure
that may spare the hotel-keeper from liability. In the case at bar, there is no
showing that the act of the thief or robber was done with the use of arms or
through an irresistible force to qualify the same as force majeure.
PNB VS SE
A prior judgment holding that a party is a warehouseman
obligated to deliver sugar stocks covered by the warehouse
receipts does not necessarily carry with it a denial of its lien
over the same sugar stocks. Thus where the judgment creditor
(in this case PNB) makes an unconditional presentment of
warehouse receipts for delivery of sugar stocks against the
warehouseman (Noahs Ark), it thereby admits the existence
and validity of the terms, conditions and stipulations written
on the face of the warehouse receipts, including the
unqualified recognition of the payment of warehousemans
lien for storage fees and preservation expenses. Thus, PNB
maynot retrieve the sugar stocks without paying the
warehousemans lien. The warehouseman need not file a
separate action to enforce payment of storage fees. He may
enforce his lienbefore delivering the sugar stocks covered by
the warehouse receipts. PHILIPPINE NATIONAL BANK,
petitioner, vs. HON. PRES. JUDGE BENITO C. SE, JR.,
RTC, BR. 45,

MANILA; NOAHS ARK SUGAR REFINERY; ALBERTO

T. LOOYUKO, JIMMY T. GO and WILSON T.
GO, respondents. G.R. No. 119231. April 18, 1996FACTS:
In accordance with Act No. 2137, the Warehouse Receipts
Law, Noahs Ark Sugar Refinery issued on severaldates, 5
Warehouse Receipts (Quedans).
They were endorsed and negotiated to Ramos and Zoleta.
They failed to pay their loans upon maturity. So, PNB wrote to
Noahs Ark Sugar Refinery demanding delivery of the sugar
stocks covered by the quedans endorsed to it by Zoleta and
Ramos.
Noahs Ark Sugar Refinery refused. So, PNB filed a
complaint for Specific Performance with Damages and
Application for Writ of Attachment.

Respondent Judge Benito C. Se, Jr., in whose sala the case

was raffled, denied the Application for Preliminary
Attachment.
HELD: Under the subject Warehouse Receipts provision,
storage fees are chargeable. PNB is legally bound to stand by
the express terms and conditions on the face of the Warehouse
Receipts as to the payment of storage fees. Even in the
absence of such a provision, law and equity dictate the
payment of the warehousemans lien pursuant to Sections 27
and 31 of the Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the
warehousemans lien.
Subject to the provisions of section thirty, a warehouseman
shall have lien on goods deposited or on the proceeds thereof
in his hands, for all lawful charges for storage and
preservation of the goods; also for all lawful claims for money
advanced, interest, insurance, transportation, labor, weighing
coopering and other charges and expenses in relation to such
goods; also for all reasonable charges and expenses for notice,
and advertisement of sale, and for sale of the goods where
default has been made in satisfying the warehousemans lien.
SECTION 31. Warehouseman need not deliver until lien is
satisfied.
A warehouseman having a lien valid against the person
demanding the goods may refuse to deliver the goods to him
until the lien is satisfied. After being declared as the
warehouseman, PRs cannot legally be deprived of their right
to enforce their claim for warehousemans lien, for reasonable
storage fees and preservation expenses. Pursuant to Section 31
which we quote earlier, the goods under storage may not be
delivered until said lien is satisfied.
Considering that PNB does not deny the existence, validity
and genuineness of the Warehouse Receipts on which it

anchors its claim for payment against PRs, it cannot disclaim

liability for the payment of the storage fees stipulated therein.
PNB is in estoppel in disclaiming liability for the payment of
storage fees due the PRs as warehouseman while claiming to
be entitled to the sugar stocks covered by the subject
Warehouse Receipts on the basis of which It anchors its claim
for payment or delivery of the sugar stocks. The unconditional
presentment of the receipts by PNB for payment against PRs
on the strength of the provisions of the Warehouse Receipts
Law (R.A. 2137)carried with it the admission of the existence
and validity of the terms, conditions and stipulations written
on the face of the Warehouse Receipts, including the
unqualified recognition of the payment of warehousemans
lien for storage fees and preservation expenses. PNB may not
now retrieve the sugar stocks without paying the lien due PRs
as warehouseman.

second letter of credit to remit proceeds/return

goods by 8 December 1981.
~ Tanchauco Incorporated and Maresco Corp. complied with
their obligation and delivered the raw materials to El Oro. BPI
then paid the 2 corporations P564, 871.05 and P294,000
accordingly.

RULE: While the PNB is entitled to the stocks of sugar as the

endorsee of the quedans, delivery to it shall be effected only
upon payment of the storage fees. Imperative is the right of the
warehouseman to demand payment of his lien at this juncture,
because, in accordance with Section 29 of the Warehouse
Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may
be lost where the warehouseman surrenders the possession of
the goods without requiring payment of his lien, because a
warehousemans lien is possessory in nature. WHEREFORE,
the petition should be, as it is, hereby dismissed for lack of
merit.

RTC: petitioners acquitted based on reasonable doubt.

However, they are solidarily liable with El Oro for the
balance of the principal debt under the trust receipts.

~ However, petitioners did not comply with their

undertakings under the trust receipts. >>> BPI made
several demands for payment but El Oro made partial
payments only. Final demand letters were then sent but El Oro
replied that it could not fully pay its debt because the AFP had
delayed in their payment for the bolos.
~ BPI charged petitioners with estafa under Sec. 13 of the
Trust Receipts Law.

CA: affirmed RTC. The trust receipts clearly showed the terms
that the petitioners signed the same as surety for the
corporation and that they bound themselves directly and
immediately liable in case of default without need of demand.
issue
What is the nature of liability of petitioners?
ratio

IV
Tupaz v. CA

To the Bank of the Philippine Islands

~ To finance the purchases of the raw materials for the bolos,

the petitioners (on behalf of El Oro) applied with BPI for 2
commercial letters of credit. The letters of credit were in favor
of El Oros suppliers, Tanchaoco Incorporated and Maresco
Corporation. >>> BPI granted the application and issued the
letters of credit for P564,871.05 and P294,000.00 to
Tanchaoco
Incorporated
and
Maresco
Corporation
respectively.

In
consideration
of
your
releasing
to
under the terms of this Trust
Receipt the goods described herein, I/We, jointly and
severally, agree and promise to pay to you, on demand,
whatever sum or sums of money which you may call upon
me/us to pay to you, arising out of, pertaining to, and/or in any
way connected with, this Trust Receipt, in the event of default
and/or non-fulfillment in any respect of this undertaking on
the part of the said . I/we
further agree that my/our liability in this guarantee shall be
DIRECT AND IMMEDIATE, without any need whatsoever
on your part to take any steps or exhaust any legal remedies
that
you
may
have
against
the
said
. Before making
demand upon me/us. (Underlining supplied; capitalization in
the original)

~ Simultaneous with the issuance of the letters of credit, the

petitioners signed trust receipts in favor of BPI:

Jose is personally liable. However, not solidary as lower

courts said but only as guarantor.

facts of the case

~ Jose and Petronila Tupaz were Vice-President for Operations
and Vice-President/Treasurer, respectively, of El Oro
Corporation. El Oro Corporation had a contract with the PH
Army to supply the latter with survival bolos

a)

Jose signed in his personal capacity a trust

receipt corresponding for the first letter of credit,
binding himself to sell the goods and to remit the
proceeds to BPI, if sold, or to return the goods, if
not sold, on or before 29 December 1981.
b) Both petitioners signed in their capacities as
officers of El Oro a trust receipt covering the

However, respondent banks suit against petitioner Jose Tupaz

stands despite the Courts finding that he is liable as guarantor
only. First, excussion is not a pre-requisite to secure judgment
against a guarantor. The guarantor can still demand deferment
of the execution of the judgment against him until after the
assets of the principal debtor shall have been exhausted.
Second, the benefit of excussion may be waived.

Under the trust receipt dated 30 September 1981, petitioner

Jose Tupaz waived excussion when he agreed that his
liability in [the] guaranty shall be DIRECT AND
IMMEDIATE, without any need whatsoever on xxx [the] part
[of respondent bank] to take any steps or exhaust any legal
remedies xxx. The clear import of this stipulation is that
petitioner Jose Tupaz waived the benefit of excussion under
his guarantee.
The solidary guaranty clause makes guarantors signing the
trust receipt solidarily liable with each other; it does not
operate to make them solidarily liable with the company.
As guarantor, petitioner Jose Tupaz is liable for El Oro
Corporations principal debt and other accessory liabilities (as
stipulated in the trust receipt and as provided by law) under
the trust receipt dated 30 September 1981. That trust receipt
(and the trust receipt dated 9 October 1981) provided for
payment of attorneys fees equivalent to 10% of the total
amount due and an interest at the rate of 7% per annum, or at
such other rate as the bank may fix, from the date due until
paid xxx.
SECURITY BANK V CUENCA
SECURITY BANK AND TRUST COMPANY, Inc. vs
RODOLFO M. CUENCA
Panganiban, J. October 3, 2003 Extinguishment of
Guaranty
I. Facts
* Creditor: Sccurity Bank and Trust Co.
Debtor: Sta. Ines Melale Corp.
Surety: Rodolfo Cuenca
A.
Sta. Ines is a corporation engaged in logging
operations. In 1980, it was granted by Security Bank a credit
line in the amount of Php 8M. To secure payment, it executed
a chattel mortgage over some of its machineries and
equipments. And as an additional security, its President and
Chairman of the Board of Directors Rodolfo Cuenca, executed
an Indemnity agreement in favor of Security Bank whereby he
bound himself jointly and severally with Sta. Ines. After
Cuenca resigned, Sta. Ines obtained a Php 6M loan. Because
of its difficulty in making the amortization payments, in 1989
it requested Security Bank a complete restructure of its
indebtedness, which was approved without prior notice to, or
prior consent of Cuenca. Still it was unable to pay.
B. Contention of the Petitioner
Security Bank insists that the 1989 Loan Agreement
was a mere renewal or extension of the Php 8M original
accommodation, that Cuenca waived his right to be notified of
and to give consent to any substitution, renewal, extension,
increase, amendment, conversion or revival of the same, and
that it was a continuing surety.

C. Contention of the Respondent

Cuenca argues that the 1989 agreement extinguished
the obligation under the 1980 credit accommodation by
novation.
II. Issues
WON the 1989 Loan Agreement novated the original
credit accommodation and Cuencas liability under the
Indemnity Agreement.
III. Ruling
The 1989 Loan Agreement extinguished by novation
the obligation under the 1980 P8 million credit
accommodation. It is essential in the law of suretyship that any
agreement between the creditor and the principal debtor that
essentially varies the terms of the principal contract without
the consent of the surety, will release the surety from liability.
The 1989 Loan Agreement expressly stipulated that its
purpose was to liquidate, not to renew or extend, the
outstanding indebtedness. Moreover, respondent did not sign
or consent to the 1989 Loan Agreement, which had allegedly
extended the original P8 million credit facility.
Indeed, the stipulation in the 1989 Loan Agreement
providing for the surety of respondent, without even informing
him, smacks of negligence on the part of the bank and bad
faith on that of the principal debtor. Since that Loan
Agreement constituted a new indebtedness, the old loan
having been already liquidated, the spirit of fair play should
have impelled Sta. Ines to ask somebody else to act as a surety
for the new loan.
Palmares vs. CA
(288 SCRA 422)
Facts: Private respondent M.B. Lending Corporation extended
a loan to the spouses Osmea andMerlyn Azarraga, together
with petitioner Estrella Palmares, in the amount of P30,000.00
payable on or before May 12, 1990, with compounded interest
at the rate of 6% per annum to be computed every 30days
from the date thereof. 1 On four occasions after the execution
of the promissory note and even after the loan matured,
petitioner and the Azarraga spouses were able to pay a total of
P16,300.00, thereby leaving a balance of P13,700.00. No
payments were made after the last payment on September 26,
1991. 2Consequently, on the basis of petitioner's solidary
liability under the promissory note, respondent corporation
filed a complaint 3 against petitioner Palmares as the lone
party-defendant, to the exclusion of the principal debtors,
allegedly by reason of the insolvency of the latter.
Issue: WON Palmares is liable
Held: If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter3, Title I of this
Book shall be observed. In such case the contract is called a
suretyship. It is a cardinal rule in the interpretation of contracts
that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. 13 In the case at bar,

petitioner expressly bound herself to be jointly and severally

or solidarily liable with the principal maker of the note. The
terms of the contract are clear, explicit and unequivocal that
petitioner's liability is that of a surety.
Escao v. Ortigas, Jr.
526 SCRA 26 (June 29, 2007)
Facts:
On April 28, 1980, Private Development Corporation of the
Philippines (PDCP) entered into a loan agreement with Falcon
Minerals, Inc. (Falcon) amounting to $320,000.00 subject to
terms and conditions. [Nagpautang ang PDCP sa Falcon ng
$320K]
On the same day, 3 stockholders-officers of Falcon: Ortigas
Jr., George A. Scholey, and George T. Scholey executed an
Assumption of Solidary Liability to assume in [their]
individual capacity, solidary liability with [Falcon] for due and
punctual payment of the loan contracted by Falcon with
PDCP.
Two (2) separate guaranties were executed to guarantee
payment of the same loan by other stockholders and officers
of Falcon, acting in their personal and individual capacities.
One guaranty was executed by Escao, Silos, Silverio,
Inductivo and Rodriguez.
Two years later, an agreement developed to cede control of
Falcon to Escao, Silos and Matti. Contracts were executed
whereby Ortigas, George A. Scholey, Inductivo and the heirs
of then already deceased George T. Scholey assigned their
shares of stock in Falcon to Escao, Silos and Matti. An
Undertaking dated June 11, 1982 was executed by the
concerned parties, namely: with Escao, Silos and Matti as
SURETIES and Ortigas, Inductivo and Scholeys as
OBLIGORS
Falcon eventually availed of the sum of $178,655.59 from the
credit line extended by PDCP. It would also execute a Deed of
Chattel Mortgage over its personal properties to further secure
the loan. However, Falcon subsequently defaulted in its
payments. After PDCP foreclosed on the chattel mortgage,
there remained a subsisting deficiency of Php 5,031,004.07
which falcon did not satisfy despite demand.
Issue: Whether the obligation to repay is solidary, as
contended by respondent and the lower courts, or merely joint
as argued by petitioners.
Held/Ruling:
In case, there is a concurrence of two or more
creditors or of two or more debtors in one and the same
obligation, Article 1207 of the Civil Code states that among
them, [t]here is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity. Article 1210 supplies further

caution against the broad interpretation of solidarity by

providing: The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity of itself
imply indivisibility. These Civil Code provisions establish
that in case of concurrence of two or more creditors or of two
or more debtors in one and the same obligation, and in the
absence of express and indubitable terms characterizing the
obligation as solidary, the presumption is that the obligation is
only joint. It thus becomes incumbent upon the party alleging
that the obligation is indeed solidary in character to prove such
fact with a preponderance of evidence.
Note that Article 2047 itself specifically calls for the
application of the provisions on joint and solidary obligations
to suretyship contracts. Article 1217 of the Civil Code thus
comes into play, recognizing the right of reimbursement from
a co-debtor (the principal debtor, in case of suretyship) in
favor of the one who paid (i.e., the surety).[However, a
significant distinction still lies between a joint and several
debtor, on one hand, and a surety on the other. Solidarity
signifies that the creditor can compel any one of the joint and
several debtors or the surety alone to answer for the entirety of
the principal debt. The difference lies in the respective
faculties of the joint and several debtor and the surety to seek
reimbursement for the sums they paid out to the creditor. In
the case of joint and several debtors, Article 1217 makes plain
that the solidary debtor who effected the payment to the
creditor may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment
already made. Such solidary debtor will not be able to
recover from the co-debtors the full amount already paid to the
creditor, because the right to recovery extends only to the
proportional share of the other co-debtors, and not as to the
particular proportional share of the solidary debtor who
already paid. In contrast, even as the surety is solidarily bound
with the principal debtor to the creditor, the surety who does
pay the creditor has the right to recover the full amount paid,
and not just any proportional share, from the principal debtor
or debtors. Such right to full reimbursement falls within the
other rights, actions and benefits which pertain to the surety by
reason of the subsidiary obligation assumed by the surety.
*Petitioners and Matti are jointly liable to Ortigas, Jr. in
the amt. of P1.3M; Legal interest of 12% per annum on P
1.3M computed from March 14, 1994. Assailed rulings are
affirmed. Costs against petitioners
E Zobel, Inc. vs. CA
Facts: Respondentr spouses applied for a loan with respondent
SOLIDBANK. The loan was granted subject to the condition
that spouses execute a chattel mortgage over the 3 vessels to
be acquired by them and that a continuing guarantee be
executed by petitioner EZ, Inc. in favor of Solid Bank.
The spouses defaulted in payment of the entire
obligation upon maturity. SolidBank filed a complaint for the
sum of money against EZ Zobel. Petitioner moved to dismiss

the complaint on the ground that its liability as guarantor of

the loan was extinguished pursuant to Article 2080.

is evident from the tenor of the deed itself, referring to

Issue:
1.
2.

become indebted to Traders Royal Bank. The law expressly

3.

Held:
1.
2.
3.

WON Art. 2080 is applicable to petitioner;

WON petitioners obligation to SOLIDBANK under
the continuing guaranty is that of a surety;
WON the failure of SOLIDBANK to register the
chattel mortgage extinguish petitioners liability to
SOLIDBANK
Art. 2080 is not applicable where liability is a surety
Petitioner obligated itself as a surety the contract
executed is a contact of surety
Petitioner bound itself irrespective of existence of
collateral failure to register the chattel mortgage did
not release petitioner from obligation.

Art 2080
The guarantors, even though they be solidarily, are released
from their obligation whenever by some act of the creditor
they cannot be subrogated to the rights, mortgages, and
preferences of the latter.
PHIL. BLOOMING MILLS INC. vs. CA., GR. No.
142381, Oct. 15, 2003
FACTS: Petitioner Philippine Blooming Mills, Inc. (PBM)
obtained a loan from Traders Royal Bank (TRB). Ching, the
Senior Vice-President of PBM, signed Deed of Suretyship in
his personal capacity and not as mere guarantors but as
primary

obligors.

PBM

and

Ching

filed

petition

for suspension of payments with the SEC, and eventually

placed under rehabilitation receivership. Consequently, TRB
dismissed complaint as to PBM. Ching then alleged that the
Deed of Suretyship executed in 1977 could not answer for
obligations not yet in existence at the time of its execution. It
could not answer for debts contracted by petitioner PBM in
1980 and 1981. No accessory contract of suretyship could
arise without an existing principal contract of loan.
Issue: Whether or not Ching is liable for credit obligations
contracted by Philippine Blooming Mills Inc. against Traders
Royal Bank before and after the execution of the Deed of
Suretyship.
Held: Ching is liable for credit obligations contracted by
Philippine Blooming Mills Inc. against Traders Royal Bank
before and after the execution of the Deed of Suretyship. This

amounts to PBM may now be indebted or may hereafter

allows a suretyship for future debts. Article 2053 provides that
a guaranty may also be given as security for future debts, the
amount of which is not yet known, there can be no claim
against the guarantor until the debt is liquidated.

INTERNATIONAL FINANCE CORPORATION VS.

IMPERIAL TEXTILE MILLS, INC
2005, PANGANIBAN, J., CERTIORARI
Facts:
1.
Dec 17, 1974, International Finance
Corp. (IFC) extended to Phil. Polyamide Industrial Corp.
(PPIC) a loan of US$7,000,000.00, payable in 16 semiannual installments of US$437,500.00.
2.
Also on Dec 17, 1974 a Guarantee Agreement was
executed, with Imperial Textile Mills (ITM)and Grandex
agreeing to guarantee PPIC's obligation.
3.
PPIC made 3 payments but defaulted on the rest. Hence,
on April 1, 1985 IFC served a written notice of default and
demanding the outstanding principal loan and accrued
interests but still PPIC failed to pay.
4.
IFC extrajudicially forclosed the mortgages on the real
estate, buildings, machinery, equipment plant and all
improvements owned by PPIC, located at Calamba, Laguna.
The auction sale amounted to US$ 8,083,967. There remained
a balance of US$ 2,833,967 which PPIC failed to pay.
5.
IFC demanded payment from ITM and Grandex by
virtue of their guarantee agreement, yet the balance remained
unpaid. Hence, IFC filed a suit against PPIC and ITM for the
payment of the outstanding balance, interests, and atty.
Fees. (di sinama ang Grandex)
RTC held PPIC liable but relieved ITM of its obligation as
guarantor. IFC's complaint against ITM was dismissed.
6.
On appeal , CA held that ITM is not absolved, but its
liability would arise only if and when PPIC could not pay.
Since PPIC's inability to pay was not sufficiently established,
ITM could not immediately be made to assume liability.
IFC claims that, under the Guarantee Agreement, ITM bound
itself as a surety to PPIC's obligations proceeding from the
Loan Agreement. For its part, ITM asserts that, by the terms of
the Guarantee Agreement, it was merely a guarantor and not a
surety.
ISSUE: WON ITM is a surety, and thus solidarily liable with
PPIC for the payment of the loan.
SC HELD: Yes
Ratio:
1.
Language of the contract:
"Section 2.01. The Guarantors jointly and severally,
irrevocably, absolutely and unconditionally guarantee,
as primary obligors and not as sureties merely,

possession of the said fishpond, DBP disposed the property in

jointly and severally- The terms of the contract govern the

rights and obligations of the contracting parties. When the
obligor undertakes to be "jointly and severally liable" it means
that the obligation is solidary. If solidary liability was intended
to "guarantee" a principal obligation, the law deems the
contract to be of SURETYSHIP.

favor of Agripina Caperal through a deed of conditional sale.

Then a new fishpond lease agreement was awarded by the
Government to Caperal.
Lydia Cuba filed an action with the Regional Trial Court of

Article 2047 provides, a suretyship is created when a

guarantor binds itself solidarily with the principal obligor.

Pangasinan for the declaration of nullity of DBPs appropriation

primary obligors and not as sureties merely- SC reasoned that

these words meant only one thing, at the bottom and to all
legal intents and purposes, it was a surety. Here ITM is being
placed on the same level as PPIC.

the Deed of Conditional Sale executed in her favor by DBP, the

2.
Although a surety contract is secondary to the
principal obligation, the liability of the surety is direct,
primary, and absolute, or regular to that of a regular
party to the undertaking.
WHEREFORE, the Petition is hereby GRANTED, Imperial
Textile Mills, Inc. is declared a surety to Philippine Polyamide
Industrial Corporation. ITM is ORDERED to pay
International Finance Corporation the same amounts adjudged
against PPIC in the assailed Decision. No costs.

of her leaseholds over the subject fishpond, for the annulment of

annulment of DBPs sale of the fishpond to Caperal, and the
restoration of her rights over the said fishpond and for damages.
The RTC ruled in favor of Cuba, declaring that DBPs taking
possession and ownership of the subject property without
foreclosure was violative of Art. 2088 of the Civil Code, and that
condition No. 12 of the Assignment of the Leasehold Rights was
void for being a clear case of pactum commissorium.
Both Cuba and DBP elevated the case to the CA, with Cuba
seeking an increase in the amount of damages, while DBP
questioned the findings of fact and law of the RTC. The CA
reversed the ruling of the RTC with regards to the validity of the
acts of DBP.

Development Bank of the Philippines vs. Court of Appeals

(284 SCRA 14)
Facts:

Issues:
1.

Private respondent Lydia Cuba is a grantee of a fishpond lease

by Cuba in favor of DBP would operate as a mortgage

agreement from the Government. She later obtained a loan from

DBP in the amounts of P109, 000, P109, 000, and P98, 700 under

2.

the terms stated in the three promissory notes. As a security for

3.

commissorium
Whether the act of DBP in appropriating to itself Cubas
leasehold rights over the fishpond in question without

due in accordance with the terms of the promissory notes. DBP in

foreclosure proceeding was contrary to Article 2088 of

turn appropriated the leasehold rights of Cuba over the fishpond,

the Civil Code, and therefore, invalid.

without foreclosure proceedings, whether judicial or extrajudicial.

After appropriating the said leasehold rights DBP executed a

or some other contract.

Whether or not condition No. 12 of the Assignment of
the Leasehold Rights would operate as case of pactum

the said loan Cuba executed a two Deed of Assignment of her

Leasehold Rights. Then she failed to pay her loan when it became

Whether or not the two Deed of Assignment executed

Held:

Deed of Conditional Sale of the Leasehold Rights in favor of

respondent Cuba over the same fishpond, to which Cuba agreed.

1.

Lydia executed the 2 Deeds of Assignment as a security

Respondent Cuba failed to pay the amortizations stipulated in the

for the loans that she obtained from DBP, according the

Deed of Conditional Sale, however she was able enter with DBP a

case of Peoples Bank and Trust Co. vs. Odom an

temporary arrangement with DBP for the Deferment Notarial

assignment to guaranty an obligation is in effect a

Rescission of Deed of Conditional Sale. However, a Notice of

mortgage. And it was also indicated in the provisions of

Rescission thru Notarial Act was sent the DBP to Cuba, then it

the promissory note executed by Cuba, that the her

took possession of the fishpond in question. After it took

assigned leasehold rights were referred to as mortgaged

properties and the instrument itself a mortgage contract.
2&3. The act of DBP under condition No. 12 of the
Assignment of Leasehold Rights did not constitute as a case
of pactum commissorium, when appropriated for itself
Cubas leasehold rights over the subject fishpond, because
condition No. 12 only gave DBP the authority to sell the said
property and use the proceeds of the sale to satisfy Cubas
obligation, it did not operate as an automatic transfer of
ownership of the said property to DBP.
However, DBP exceeded its authority granted under
condition No. 12, when it appropriated for itself such rights
without judicial or extrajudicial foreclosure, thereby making
his acts violative of Article 2088 of the Civil Code, which
forbids a creditor from appropriating, or disposing of, the
thing given as security for the payment of a debt.