Sps. Andal Vs. PNB G.R. No.

194201

Facts:

Sept. 7, 1995, petitioners obtained a loan from respondent bank (P21.8M) for which 12 promissory notes were executed,
with varying interest rates (17.5-27%). It was agreed that the rate of interest may be increased or decreased with prior
notice to the petitioners in the event of changes in interest rates prescribed by law or the Monetary Board. Petitioners also
executed a real estate mortgage infavor of the respondent bank over 5 parcels of lands, including all improvements
thereon, covered by Transfer of Certificate Titles of the Registry of Deeds. Respondent bank advised petitioners to pay
their loan, otherwise they would declare it due and demandable. Petitioners paid P14.8M to avoid foreclosure. Respondent
bank executed a release of real estate mortgage over two of the parcels of land. Despite payment, respondent foreclosed
the remaining real estate mortgage over the remaining three parcels of
land. A public auction sale resulted in respondent bank as the winning bidder. A Certificate of sale of theproperties was
issued.

Petitioners filed a complaint for annulment of mortgage, sheriff’s certificate of sale, declaration of nullity of the increased
interest rates and penalty charges plus damages

Issue:

Whether or not the spouses is liable to the interest should be imposed on the loan.

Ruling:

Yes, It is clear from the contract of loan between petitioners-spouses and respondent bank that petitioners-spouses, as
borrowers, agreed to the payment of interest on their loan obligation. That the rate of interest was subsequently declared
illegal and unconscionable does not entitle petitioners-spouses to stop payment of interest. It should be emphasized that
only the rate of interest was declared void. The stipulation requiring petitioners-spouses to pay interest on their loan
remains valid and binding. They are, therefore, liable to pay interest from the time they defaulted in payment until their
loan is fully paid.

In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the Governor of the Bangko Sentral ng
Pilipinas on 21 June 2013, and in accordance with the ruling of the Supreme Court in the recent case of Dario Nacar v.
Gallery Frames and/or Felipe Bordey, Jr.,[20] effective 1 July 2013, the rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
shall be six percent (6%) per annum. Accordingly, the rate of interest of 12% per annum on petitioners-spouses' obligation
shall apply from 20 May 2011 the date of default until 30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of
6% per annum shall be applied to petitioners-spouses' unpaid obligation.
SC. Mega World Construction Vs. Parada G.R. No. 183804

Facts:

S.C. Megaworld Construction and Development Corporation (Megaworld) bought electrical lighting materials from Gentile
Industries, a sole proprietorship owned by Engineer Luis U. Parada. Megaworld was unable to pay for the above purchase
on due date, but blamed it on its failure to collect under its sub-contract with the Enviro KleenTechnologies, Inc. (Enviro
Kleen). It was however able to persuade Enviro Kleen to agree to settle its above purchase, but after paying the
respondent P250,000.00 once, Enviro Kleen stopped making further payments, leaving an outstanding balance
of P816,627.00. It also ignored the various demands of the Parada, who then filed a suit in the RTC, to collect from the
petitioner the said balance, plus damages, costs and expenses.

Megaworld denied liability by saying that it was released from its indebtedness to the Parada due to the novation of their
contract, which. There was allegedly novation when the Parada accepted the partial payment of Enviro Kleen in its behalf,
and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in Megaworld’s place.

The Regional Trial Court ruled in favor of Parada and award payment of sum of [P]816,627.00 representing the principal
obligation due and the sum equivalent to twenty percent (20%) per month of the principal obligation due from date of
judicial demand until fully paid as and for interest.

CA affirmed the ruling of the trial court

Issue:

Whether or not the award of the Interest is valid

Held:

No. It appears from the recital of facts in the trial court’s decision that the respondent demanded interest of two percent
(2%) per month upon the balance of the purchase price of P816,627.00, from judicial demand until full payment. There is
then an obvious clerical error committed in the fallo of the trial court’s decision, for it incorrectly ordered the defendant
therein to pay “the sum equivalent to twenty percent (20%) per month of the principal obligation due from date of
judicial demand until fully paid as and for interest. Furthermore, Pursuant, then, to Central Bank Circular No. 416, issued
on July 29, 1974, in the absence of a written stipulation, the interest rate to be imposed in judgments involving a
forbearance of credit shall be 12% per annum, up from 6% under Article 2209 of the Civil Code. This was reiterated in
Central Bank Circular No. 905, which suspended the effectivity of the Usury Law from January 1, 1983. But if the judgment
refers to payment of interest as damages arising from a breach or delay in general, the applicable interest rate is 6% per
annum, following Article 2209 of the Civil Code. Both interest rates apply from judicial or extrajudicial demand until
finality of the judgment. But from the finality of the judgment awarding a sum of money until it is satisfied, the award shall
be considered a forbearance of credit, regardless of whether the award in fact pertained to one, and therefore during this
period, the interest rate of 12% per annum for forbearance of money shall apply.

But notice must be taken that in Resolution No. 796 dated May 16, 2013, the Monetary Board of the Bangko Sentral ng
Pilipinas approved the revision of the interest rate to be imposed for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest. Thus, under BSP
Circular No. 799, issued on June 21, 2013 and effective on July 1, 2013, the said rate of interest is now back at six percent
(6%)
Nacar vs. Gallery Frames Gr no. 189871

Facts:

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was dismissed
without cause by Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames
guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and
separation pay.

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the Labor
Arbiter and the decision became final on May 27, 2002.

After the finality of the SC decision, Nacar filed a motion before the LA for recomputation as he alleged that his backwages
should be computed from the time of his illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27,
2002) with interest. The LA denied the motion as he ruled that the reckoning point of the computation should only be from
the time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned
that the said date should be the reckoning point because Nacar did not appeal hence as to him, that decision became final
and executory.

Issue:

Whether or not the Labor Arbiter correct

Held:

NO, by the issuance of Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16,
2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No.
799,35 Series of 2013, effective July 1, 2013. Thus, in the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping
Lines40and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but will
now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be
applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.
Advocates for Truth in Lending vs. BSP GR 192986

Facts:

Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non- profit, non-stock corporation organized to engage in pro
bono concerns and activities relating to money lending issues.

R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948, empowered the CB-MB to, among
others, set the maximum interest rates which banks may charge for all types of loans and other credit operations, within
limits prescribed by the Usury Law.

On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CB-MB authority to
prescribe different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of
any money, goods or credits,... provided that the changes are effected gradually and announced in advance.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas
(BSP) to replace the CB.

Issue:

Whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest ceilings and
thus suspended Act No. 2655 as regards usurious interest rates.

Ruling:

No.

The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld
in many cases. As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;" that "a CB Circular cannot repeal
a law, [for] only a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective;" and "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."

By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to agree freely on the rate
of interest. It cited Article 1306 of the New Civil Code, under which the contracting parties 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.
 Herrera v. Petrophil

G.R. No. L-48349 December 29, 1986

Facts:

Plaintiff alleges that the interest collected by defendant out of the rentals for the first eight years was excessive and beyond
that allowable by law, because the total interest on the said amount is only P33,755.90 at P4,219.4880 per yearly rental;
and considering that the interest should be computed excluding the first year rental because at the time the amount of
P281, 199.20 was paid it was already due under the lease contract hence no interest should be collected from the rental for
the first year, the amount of P29,536.42 only as the total interest should have been deducted by defendant from the sum of
P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and
above that allowed by law.

Issue: Is there usury in this case?

Ruling:

There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it
allow him to use its money already in his possession. 9 There was neither loan nor forbearance but a mere discount which
the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in
advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine,
and any reduction thereof, by any amount, would not contravene the Usury Law.

Producers Bank v. CA

[G.R. No. 115324. February 19, 2003]

Facts:

Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro
Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed
criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985
while the case was pending before the trial court.

Issue: What contract is involved in bank deposits?

Ruling:

The evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for
the purpose of making it appear that said firm had sufficient capitalization for incorporation, with the promise that the
amount shall be returned within thirty (30) days.[29]Private respondent merely accommodated Doronilla by lending his
money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction
that the money would not be removed from Sterelas savings account and would be returned to private respondent after
thirty (30) days.

Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas
account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the
transaction from a commodatum into a mutuum because such was not the intent of the parties and because the
additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly
states that [t]he bailee in commodatum acquires the use of the thing loaned but not its fruits. Hence, it was only proper for
Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner.

Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents
money because it was not privy to the transaction between Doronilla and private respondent. The nature of said
transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability for
the return of private respondents money because the factual circumstances of the case clearly show that petitioner,
through its employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its
restitution.

Catholic Vicar Apostolic of Mountain Province v. CA

G.R. No. 80294-95 September 21, 1988

Facts:

The whole controversy started when the herein petitioner filed an application for registration of lands 1, 2, 3 and 4 in La
Trinidad, Benguet on September 5, 1962. The heirs of Juan Valdez and the heirs of Egmidio Octaviano filed an opposition
on lots 2 and 3, respectively. On November 17, 1965, the land registration court confirmed the registrable title of the
petitioner. On May 9, 1977, the Court of Appeals reversed the decision and dismissed the Vicar’s application. The heirs
filed a motion for reconsideration, praying that the lots be ordered registered under their names. The Court of Appeals
denied the motion for lack of sufficient merit. Both parties then came before the Supreme Court. The Supreme Court, in a
minute resolution, denied both petitions. The heirs filed the instant cases for the recovery and possession of the lots.

Respondents argue that the petitioner is barred from setting up the defense of ownership or long and continuous
possession by the prior judgment of the Court of Appeals under the principle of res judicata. Petitioner contends that the
principle is not applicable because the dispositive portion of the judgment merely dismissed the application for
registration.

Issue: Whether ownership over subject property can be had via acquisitive prescription?
Ruling: (Motion for Reconsideration)

Yes. Retention or adverse claim of bailee can ripen into title by ordinary acquisitive prescription.

The right of bailor was defeated when the trust was repudiated by declaring the property for tax purposes under the
bailee’s name. From such time, the bailee was in possession for 11 years and under Article 555 of the Civil Code, it is clear
that the real right of possession of bailor over the property was lost or no longer existing after the lapse of 10 years that
the bailee had been in adverse possession thereof.

Casa Filipina v. Deputy Executive Secretary

GR 96494, May 28 1992

Facts

On June 30, 1986, private respondent Jose Valenzuela, Jr. filed a complaint against petitioner Casa Filipina Development
Corporation before the Office of Appeals, Adjudication and Legal Affairs (OAALA) of the then Human Settlements
Regulatory Commission (now Housing and Land Use Regulatory Board) for its failure to execute and deliver the deed of
sale and transfer certificate of title.

For petitioner's defense, it contended that private respondent's action is premature because of his failure to comply with
the other conditional requirements of their contract such as payment of transfer expenses, and that had the latter paid said
fees, it would have been very much willing to effect the transfer of the title

Issue: What interest rate governs?

Ruling;

On the matter of interest, we agree with the trial court and the Court of Appeals that the proper rate of interest is twelve
(12%) per centum per annum, which is the rate of interest expressly agreed upon in writing by the parties, as appearing in
the invoices (Exhibits "C" and "D"), and sanctioned by Art. 2209 of the Civil Code, . . .(Emphasis supplied)

It is, thus, evident that if a particular rate of interest has been expressly stipulated by the parties, that interest, not the legal
rate of interest, shall be applied.
 SECURITY BANK AND TRUST COMPANY v MAGTANGGOL EUSEBIO and LEILA VENTURA

G.R. No. 113926, October 23, 1996

HERMOSISIMA, JR. J

FACTS:

Magtanggol Eusebio executed three promissory notes in favor of Security Bank and Trust Co. with the amounts of
100,000.00, 100,000.00 and 65,000.00 respectively. For all the promissory notes Leila Ventura had signed as co-maker.

Upon maturity, the principal balance remaining on the notes stood at 16,665.00, 83,333.00 and 65,000.0. Upon the failure
and refusal of Magtanggol Eusebio to pay the aforestated balance payable, a collection case wasfiled in court by SBTC. And
the trial court ruled in favor of SBTC with 12% per annum.

SBTC moved for reconsideration claiming that there agreed interest per annum was 23%.

ISSUE:

May the Court validly disregard the stipulation of the parties as to the interest rate of the promissory note?

RULING:

No, because the rate of interest was agreed upon by the parties freely. Significantly, Magtanggol Eusebio did not question
that rate. It isnot for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore,
Article1306 of the New Civil Code provides that contracting parties may establish such stipulations, clauses, terms
andconditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order,or
public policy. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on theprincipal
balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance ofmoney, the
interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% perannum. Hence, only
in the absence of a stipulation can the court impose the 12% rate of interest.

The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding betweenthem.
Magtanggol Eusebio, likewise, did not question any of the stipulations therein. In fact, in the Comment filed byMagtanggol
Eusebio to this court, he chose not to question the decision and instead expressed his desire tonegotiate with the
petitioner bank for terms within which to settle his obligation. Hence, 23% per annum as agreed shall govern.
 SPOUSES JOVENAL TORING and CECILIA ESCALONA-TORING v SPOUSES ROSALIE GANZON-OLAN and GILBERT
OLAN et al

G.R. No. 168782, October 10, 2008

QUISUMBING, J.

FACTS:

Jovenal Toring obtained from Rosalie Ganzon a loan amounting to P6,000,000 at 3%interest per month. The loan was
secured by a mortgage on a parcel of land covered by Transfer Certificate of Title.

Days after, the parties executed a Deed of Absolute Sale conveying the mortgaged property in favorof Rosalie Ganzon.
Subsequently, Rosalie Ganzongave Jovenal Toring an exclusive option to repurchase the land forP10,000,000. And
additional 3% every month in case the option to buy was not exercised.

Jovenal Toring filed a Complaint for reformation of instruments,abuse of rights and damages against Rosalie Ganzon.
Rosalie Ganzon, on the other hand,prayed that the Deed of Absolute Sale and Option to Buy be treated as an equitable
mortgage instead ofa sale.

The trial court ruled in favor of Rosalie Ganzon. It ruled that Jovenal Toring shall pay the principal loan plus 3.81% interest
per month as specified by the document of mortgage.Jovenal Toring contended that the 3.81% interest rate is
unconscionable.

ISSUE:

Is the interest of 3.81% per month unconscionable?

RULING:

Yes, the interest stipulated is unconscionable.

While the parties are free to stipulate on the interest to be imposed on monetary obligations, the Court will temperinterest
rates if they are unconscionable. Even if the Usury Law has been suspended by Central Bank Circular No.905-82, and
parties to a loan agreement have been given wide latitude to agree on any interest rate, we have heldthat stipulated
interest rates are illegal if they are unconscionable. Consequently, the Court of Appealserred in sustaining the trial court's
decision upholding the stipulated interest of 3% and 3.81%. Thus, the stipulated interest isreducedto 1% per month.For as
well stressed, nothing in CB Circular No. 905, s. 1982 grants lenders carte blanche authority to raiseinterest rates to levels
which will either enslave their borrowers or lead to a hemorrhaging of their assets.
 LIAM LAW v OLYMPIC SAWMILL CO. and ELINO LEE CHI

G.R. No. L-30771, May 28, 1984

MELENCIO-HERRERA, J.

FACTS:

On or about September 7, 1957, Liam Law loaned P10,000.00, without interest, to Olympic Sawmill. The loanbecame
ultimately due on January 31, 1960 but was not paid. Olympic Sawmill asked for a 3-month extension, or up toApril 30,
1960. On March 17, 1960, the parties executed another loan document for the payment of P10, 000.00extended up to April
30, 1960 but the obligation was increased by P6,000.00 to answer for the attorney’s fees, legalinterest, and other cost
incident thereto. Olympic Sawmill again failed to pay their obligation by April 30, 1960. OnSeptember 23, 1957, Liam Law
instituted a collection case. Olympic Sawmill admitted the P10, 000.00 principalobligation but claimed that the additional
P6, 000.00 constituted usurious interest.

ISSUE:

Was the additional P6, 000.00 constitutes a usurious interest?

RULING:

No, usury has been legally non-existent. Interest can now be charged as lender and borrower may agreeupon.The Rules of
Court in regards to allegations of usury, procedural in nature, should beconsidered repealed with retroactive effect.In the
present case, Olympic Sawmill had not proven that the P6, 000.00 additional obligations was illegal.

SPOUSES PONCIANO ALMEDA and EUFEMIA P. ALMEDA v CA and PNB

G.R. No. 113412, April 17, 1996

KAPUNAN, J.

FACTS:

In 1981, the Philippine National Bank granted to spouses Ponciano L. Almeda and Eufemia P. Almeda several
loan/creditaccommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21% per
annum. To secure the loan, the spouses Almedaexecuted a Real Estate Mortgage Contract covering a 3,500 square meter
parcel of land, together with the building erected thereon. A credit agreement embodying the terms and conditions of the
loan was executed between the parties.

Spouses Almeda made several partial payments on the loan totalingP7.7M asubstantial portion of which was applied to
accrued interest. PNB, over petitioners'protestations, raised the interest rate to 28%, allegedly pursuant to its credit
agreement. Saidinterest rate thereupon increased from an initial 21% to a high of 68%.

ISSUE:

May PNB unilaterally raise the interest from 21% to 68%?

RULING:

No, the increases in interest rate imposed by PNB on Spouses Almeda’sloan, over the Spouses Almeda‘s protests, were
arbitrary.

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that
anyobligation arising from contract has the force of law between the parties; and (2) that there must be mutualitybetween
the parties based on their essential equality. Any contract which appears to be heavily weighted in favor ofone of the
parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity orcompliance of the contract
which is left solely to the will of one of the parties, is likewise, invalid.

It is plainly obvious; therefore, from the undisputed facts of the case that PNB unilaterally altered theterms of its contract
with petitioners by increasing the interest rates on the loan without the prior assent of the latter.

In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that"No
interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing"from a
perusal of interest rate provision of the credit agreement signed between the parties is that petitioners werebound merely
to pay 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstanceswarrant such escalation or
de-escalation; 2) within the limits allowed by law; and 3) upon agreement.

Case No. 13

Medel v CA
299 SCRA 481

Facts:
Four loans were involved in the case. The first was secured by spouses Medel from Gonzales in the amount of Php
50,000 wherein Php 3,000 was withheld by the latter as advanced interest. This was secured by a promissory note.
The second loan obtained was for Php 90,000 but the spouses only received Php 84,000. The third loan was for Php
300,000 and this was secured by a Real Estate Mortgage. The spouses failed to pay for the three loans. This was
consolidated into one loan in the amount of Php 500,000 which was covered with a promissory note containing an
acceleration clause. Again, the spouses failed to pay. The appellate court modified the interest to be paid at the rate of
5.5% per month.

Issue:
Whether or not the rate imposed by the CA is usurious

Ruling:
The interest rate of 5.5% per month cannot be considered usurious because CB Circular No. 905 has expressly
removed the interest ceilings prescribed by the Usury Law and that the same is legally inexistent.
However, the Courts shall reduce equitably if the rate is iniquitous or unconscionable.
In this case, 5.5% per month or 66% per annum is iniquitous or unconscionable, thus, contrary to morals, if not against
the law.
Case No.14
Imperial v Jaucian
G.R. No. 149004

Facts:
Jaucian filed a case for collection of money against Imperial. It was alleged that the Imperial obtained from Jaucian six
separate loans wherein the former executed six separate promissory notes and issued checks to guarantee payment.
When the loans became overdue and unpaid, Jaucian made oral and written demands, especially when the checks
were dishonored. The loans were covered by six notes and the face value of each is bigger than the amount released
to Imperial because it included the interest from date of note to date of maturity.

Said promissory note indicate the interest of 16% per month. The arrangement between the parties regarding the
checks was that each time a check matures, the defendant Imperial would exchange it with cash. Although defendant
paid several payments, the same were not enough and she always defaulted.

The trial court rendered the decision reducing the rate of interest and was affirmed by the CA.

Issue:
Whether or not the interest is iniquitous, unconscionable and hemorrhagic

Ruling:
The trial court, as affirmed by the CA, reduced the interest rate from 16% per month to 1.167% per month or 14% per
annum and the stipulated penalty charge to 14% per annum.

The petitioner alleges that since there was no written stipulation, the rate should only be 12% per annum but the
records show that there was a written agreement between the parties for the payment of interest at the rate of 16%
per month which was decreed by the trial court as iniquitous, unconscionable and exorbitant.

In this case, the rate amounts to 192% per annum which was declares contrary to morals, if not against the law. Such
stipulation is void. The Courts may reduce the interest rate as reason and equity demand.

Case No. 15
PNB v CA
G.R. No. 109563

Facts:
On June 4, 1979, spouses Amor and Bascos obtained a loan from PNB in the amount of Php 15,000 as evidenced by
a promissory note and a real estate mortgage. On the reverse side of the note was the condition giving the bank the
right to charge the interest rates under its policies to all short term loans granted starting January 1, 1978.

An extrajudicial foreclosure of the mortgage was scheduled because the spouses defaulted. The indebtedness
increased from Php 15,000 to Php 35,125.84 plus 28% annual interest.

A case was filed by the spouses contending that the increased rate violates the Usury Law and was contrary to
morals,due process and social justice. PNB answered that spouses had no cause of action.

The RTC invalidated the stipulation in the note and the Real Estate Mortgage authorizing the PNB to increase rate
which the CA affirmed.

Issue:
Whether or not the escalation clause is valid
Ruling:
The SC reiterated that the bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on what policy it may adopt provided that the rate on the accommodation shall be correspondingly
decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board.

The increases may not be used to enslave the borrowers or lead to a hemorrhaging of their assets. Thus, the
increases made by PNB is invalid.

Case No. 16
Equitable PCI Bank v Ng Sheung Ngor, et al
G.R. No. 171545

Facts:
On October 7, 2001, respondents Ngor and Go filed and action for amendment and reformation of documents and
contracts against Equitable. They claimed that they were induced by the bank to avail of its peso and dollar credit
facilities by offering low interests so they accepted and signed the proposal. They allege that they were unaware that
the documents contained escalation clauses granting Equitable the authority to increase interest without their consent.

Issue:
Was the escalation clause valid?

Ruling:
No. Although escalation clauses are not void per se, one which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement is void. Clauses of that nature violate the principle of mutuality of contracts.

In this case, Equitable dictated the interest rates if the term of the loan was extended. Respondents had no choice but
to accept them. The escalation clause did not contain the necessary provisions for validity, thus it is void.

Because the escalation clause was annulled, the principal amount of the loan was subject to the legal interest at the
rate of 12% per annum upon maturity and also subject to the original or stipulated rate.
BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS

232 SCRA302
G.R. NO. 104612
MAY 10, 1994

FACTS: Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the corporation, had an
“AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank of the
Philippine Islands. Lim withdraw funds from such account and used it to open a joint checking account (an “AND” account)
with Mariano Velasco. When Velasco died in 1977, said joint checking account had P662,522.87. By virtue of an Indemnity
Undertaking executed by Lim and as President and General Manager of Eastern withdrew one half of this amount and
deposited it to one of the accounts of Eastern with CBTC.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and CBTC executed a Holdout
Agreement providing that the loan was secured by the “Holdout of the C/A No. 2310-001-42” referring to the joint
checking account of Velasco and Lim.

Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the balance of the account of Velasco
and Lim.

Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that it is the duty of
CBTC to debit the account of respondents to set off the amount of P73,000 covered by the promissory note, BPI filed the
instant petition for recovery. Private respondents Eastern and Lim, however, assert that the amount deposited in the joint
account of Velasco and Lim came from Eastern and therefore rightfully belong to Eastern and/or Lim. Since the Holdout
Agreement covers the loan of P73,000, then petitioner can only hold that amount against the joint checking account and
must return the rest.

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout Agreement and whether BPI
is still liable to the private respondents on the account subject of the withdrawal by the heirs of Velasco.

RULING: Yes, for both issues. Regarding the first, the Holdout Agreement conferred on CBTC the power, not the duty, to set
off the loan from the account subject of the Agreement. When BPI demanded payment of the loan from Eastern, it
exercised its right to collect payment based on the promissory note, and disregarded its option under the Holdout
Agreement. Therefore, its demand was in the correct order.

Regarding the second issue, BPI was the debtor and Eastern was the creditor with respect to the joint checking account.
Therefore, BPI was obliged to return the amount of the said account only to the creditor. When it allowed the withdrawal
of the balance of the account by the heirs of Velasco, it made the payment to the wrong party. The law provides that
payment made by the debtor to the wrong party does not extinguish its obligation to the creditor who is without fault or
negligence. Therefore, BPI was still liable to the true creditor, Eastern.
CA Agro-Industrial Development Corporation vs CA GR No. 90027. March 3, 1993

Facts:

CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement whereby the former
purchased two parcels of land for P350, 525 with a P75, 725 down payment while the balance was covered by three (3)
postdated checks. Among the terms embodied in a Memorandum of True and Actual Agreement of Sale of Land were that
titles to the lots shall be transferred to the petitioner 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 the petitioner upon full payment of the purchase price. They then rented
Safety Deposit box of private respondent Security Bank and Trust Company (SBTC). For this purpose, both signed a
contract of lease which contains 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 key were given to Aguirre, and Pugaos. A key guard remained with the
bank. The safety deposit box has two key holes and can be opened with the use of both keys. Petitioner claims that the CTC
were placed inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225 per sqm. Mrs.
Ramose demanded the execution of a deed of sale which necessarily entailed the production of the CTC. Aguirre and
Pugaos then proceeded to the bank to open the safety deposit box. However, when opened in the presence of bank’s
representative, the box yielded no certificates. Because of the delay in reconstitution of title, Mrs. Ramos withdrew her
earlier offer and as a consequence petitioner failed to realize the expected profit of P280 , 500. Hence, the latter filed a
complaint for damages.

RTC: Dismissed the complaint

CA: Affirmed

Issue:

Whether or not the contractual relation between a commercial bank and another party in the contract of rent of a
safety deposit box is one of bailor and bailee.

Ruling:

Yes.

The contract in the case at bar is a special kind of deposit. 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 – the petitioner and Pugaos.

American Jurisprudence:

The prevailing rule 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 bail or bailee, the bailment being for hire and mutual benefit.
 Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act, and this primary
function is still found within the parameters of a contract of deposit like the receiving in custody of funds, documents and
other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to
or in conjunction with, this principal function. Thus, depositary’s liability is governed by our civil code rules on obligation
and contracts, and thus the SBTC would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay
or contravention of the tenor of the agreement.

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners VS.THE COURT OF APPEALS and
MAURICE McLOUGHLIN, respondents.G.R. No. 126780

FACTS

Respondent McLoughlin would always stay at Tropicana Hotel every time he is here in thePhilippines and would rent a
safety deposit box. The safety deposit box could only be openedthrough the use of 2 keys, one of which is given to the
registered guest, and the other remaining inthe possession of the management of the hotel.McLoughlin allegedly placed
the following in his safety deposit box – 2 envelopes containingUS Dollars, one envelope containing Australian Dollars,
Letters, credit cards, bankbooks and acheckbook.On 12 December 1987, before leaving for a brief trip, McLoughlin took
some items from thesafety box which includes the ff: envelope containing Five Thousand US Dollars (US$5,000.00),
theother envelope containing Ten Thousand Australian Dollars (AUS$10,000.00), his passports and hiscredit cards. The
other items were left in the deposit box. Upon arrival, he found out that a fewdollars were missing and the jewelry he
bought was likewise missing.Eventually, he confronted Lainez and Paiyam who admitted that Tan opened the
safetydeposit box with the key assigned to him. McLoughlin went up to his room where Tan was stayingand confronted
her. Tan admitted that she had stolen McLouglin’s key and was able to open thesafety 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 hesuffered. Lopez refused
to accept responsibility relying on the conditions for renting the safetydeposit box entitled “Undertaking For the Use of
Safety Deposit Box”

ISSUE

WON the “Undertaking for the Use of Safety Deposit Box” admittedly executed by privaterespondent is null and void.

HELD

YES Article 2003 was incorporated in the New Civil Code as an expression of public policyprecisely to apply to situations
such as that presented in this case. The hotel business like thecommon carrier’s business is imbued with public interest.
Catering to the public, hotelkeepers arebound 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 tothe
public to be negated or diluted by any contrary stipulation in so-called “undertakings” thatordinarily appear in prepared
forms imposed by hotel keepers on guests for their signature.In an early case (De Los Santos v. Tan Khey), CA ruled that to
hold hotelkeepers orinnkeeper liable for the effects of their guests, it is not necessary that they be actually delivered tothe
innkeepers or their employees. It is enough that such effects are within the hotel or inn. Withgreater reason should the
liability of the hotelkeeper be enforced when the missing items aretaken without the guest’s knowledge and consent from
a safety deposit box provided by the hotelitself, as in this case.Paragraphs (2) and (4) of the “undertaking” manifestly
contravene Article 2003, CC for theyallow Tropicana to be released from liability arising from any loss in the contents
and/or use of thesafety deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar anyclaim
against Tropicana for any loss of the contents of the safety deposit box whether or notnegligence was incurred by
Tropicana or its employees. The New Civil Code is explicit that theresponsibility of the hotel-keeper shall extend to loss of,
or injury to, the personal property of theguests even if caused by servants or employees of the keepers of hotels or inns as
well as bystrangers, except as it may proceed from any force majeure.
12 De los Santos v Tan Khey (1962)

Facts

De los Santos (Plaintiff) lodged in the International Hotel in Iloilo City, which was owned by Tan Khey (Defendant).

When Plaintiff arrived in the hotel, he left shortly thereafter, depositing his revolver and bag with a certain Abutanatin.
The latter was in charge of the hotel.

The bag contained a birthstone ring, an eyeglass, and a pocketbook.

He returned that evening and took his things from Abutanatin.

When he got into his room, he locked the door and went to sleep.

The next morning, he woke up and found that the door to his room was open and that his pants and bag containing the
revolver was missing.

When he reported the incident to the authorities, a secret service agent investigated the matter and found that a wall of the
room of the Plaintiff was only 7 feet high and had an opening from which one could enter from the outside.

Tan Khey disclaims liability for the loss, saying that the things were not deposited with the manager at the time they were
lost despite notice to that effect posted in the hotel.

He likewise claims that to be liable under Art. 1998 of the Civil Code, the following must concur

Deposit of effects made by travelers in hotels or inns

Notice was given to the hotel keeper or employee of the effects brought by guests

That the guests/travelers take the precautions advised by the hotel keepers/employees relative to the vigilance of their
effects

Issue

W/N Tan Khey, as owner of the hotel, is liable for the loss despite their being lost not while in actual custody of an
employee of the hotel, having no notice of the effects lost, and for failure of De los Santos to take the necessary precautions
advised by the hotel.

Held

YES.

Under Art. 1998, when the law speaks of “depositing of effects by travelers in hotels or inns,” it

does not mean that there is a personal receipt by the innkeeper of such effects.

This is so because nature of the business of an innkeeper is not only to provide lodgings, but also to provide security to
their persons and effects.

Such security is not only confined to those effects actually delivered to the innkeeper for safekeeping, but also to all effects
brought in the hotel.

Also, a hotel has supervision and control of the premises thereof.

The guests being strangers to the place, they must rely on the vigilance and protection of the innkeepers over the effects
placed in the premises of the hotel.
Case #21

LIM v. SECURITY BANK

G.R NO. 188539
MARCH 12, 2014

FACTS:

Mariano Lim executed a Continuing Suretyship in favor of Security Bank Corporation to secure “any and all types of credit
accommodation that may be granted by the bank hereinto and hereinafter” in favor of Raul Arroyo for the amount of P2,000,000.00 which is
covered by a credit agreement/ promissory note.

In turn, the Continuing Suretyship4 executed by petitioner stipulated that:The liability of the Surety is solidary and
if any of the Guaranteed Obligations is not paid or performed on due date the Surety shall, without need for any notice,
demand or any other act or deed, immediately become liable therefor and the Surety shall pay and perform the same.

Arroyo defaulted on his loan, thereafter, Lim received a Notice of Final Demand informing that he was liable to
pay the loan of the Arroyos, including interests and penalty fees totalling to P7,703,185.54, and demanding payment
thereof.

A complaint was instituted against the principal & surety for Lim’s failure to comply with said demand

ISSUE: Whether or not petitioner may validly be held liable for the principal debtor’s loan obtained 6 months after the
execution of the Continuing Suretyship?

RULING: The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are veryclear. It states that
petitioner, as surety, shall, without need for any notice, demand orany other act or deed, immediately become liable and
shall pay "all creditaccommodations extended by the Bank to the Debtor, including increases, renewals,roll-overs,
extensions, restructurings, amendments or novation thereof”. Such stipulations are valid andlegal and constitute the law
between the parties, as Article 2053 of the Civil Codeprovides that "[a] guaranty may also be given as security for future
debts, the amount ofwhich is not yet known; . . . ." Thus, petitioner is unequivocally bound by the terms of theContinuing
Suretyship.
CASE # 22

JN DEVELOPMENT CORPORATION v. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION

G.R. No. 151311
August 31, 2005

FACTS:

Petitioner JN Development Corporation and Traders Royal Bank entered into an agreement that the latter
wouldextend to JN an Export Packing Credit Line for Two Million Pesos. The loan was covered by several securities,
including areal estate mortgage and a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee
Corporation, covering seventy percent (70%) of the credit line. With PhilGuarantee issuing a guarantee in favor of TRB.
For failure of petitioner JN to pay upon maturity, PhilGuarantee was made to pay. When JN failed to reimburse the latter,
respondent PhilGuarantee filed a Complaint for collection of money and damages against herein petitioners.

The RTC dismissed PhilGuarantee’s Complaint as well as the counterclaim of petitioners. It ruled that petitioners
are not liable to reimburse PhilGuarantee what it had paid to TRB since the latter was able to foreclose the real estate
mortgage executed by JN, thus extinguishing petitioners’ obligation. According to the RTC, the failure of TRB to sue JNfor
the recovery of the loan precludes PhilGuarantee from seeking recoupment from what it paid to TRB. Thus,
PhilGuarantee’s payment to TRB amounts to a waiver of its right under Art. 2058 of the Civil Code.

ISSUE:

Whether or not petitioner is still liable to indemnify the guarantor despite the latter seemingly waiving its right to
excussion?

HELD:

Yes. The Court held that PhilGuarantee’s waiver of the right of excussion cannot prevent it from demanding
reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid.
Under a contract of guarantee, the guarantor binds himself to the creditor to fulfil the obligation of the principal debtor in
case the latter should fail to do so.

The guarantor who pays for a debtor, in turn, must be indemnified by thelatter. However, the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all theproperty of the debtor and resorted to all the legal
remedies against the debtor. This is what is otherwise known as the benefit of excussion.
CASE #23

VISAYAN SURETY AND INSURANCE CORPORATION vs. CA

364 SCRA 631

FACTS:
On February 2, 1993, the spouses Danilo and Mila Ibajan filed with the Regional Trial Court, Laguna, Biñan a
complaintagainst spouses Jun and Susan Bartolome, for replevin to recover from them the possession of an Isuzu jeepney,
withdamages.

On February 8, 1993, plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance
Corporation. Thecontract of surety provided that Danilo and Mila are jointly and severally binding themselves in the sum
of Three HundredThousand Pesos (P300,000.00) for the return of the property to the defendant, if the return thereof be
adjudged, and for thepayment to the defendant of such sum as he/she may recover from the plaintiff in the action.

On September 1, 1993, the trial court issued a writ of replevin in favor of intervenor DominadorIbajan but it was
returnedunsatisfied and on March 7, 1994, intervenor DominadorIbajan filed with the trial court a motion/application for
judgmentagainst plaintiffs’ bond.

Respective motions for reconsideration were made by both parties and petitioner Visayan Surety contends that it
is notliable to the intervenor, DominadorIbajan, because the intervention of the intervenor makes him a party to the suit,
but nota beneficiary to the plaintiffs’ bond. The intervenor was not a party to the contract of surety, hence, he was not
bound bythe contract. Hence, this petition

ISSUE:
Whether the surety is liable to an intervenor on a replevin bond posted by petitioner in favor of respondents?

HELD:
The petition is meritorious. It is a basic principle in law that contracts can bind only the parties who had entered
into it; it cannot favor or prejudice a third person.

Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The obligation of a
surety cannot be extended by implication beyond its specified limits.

“When a surety executes a bond, it does not guarantee that the plaintiff’s cause of action is meritorious, and that it will be
responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a surety’s
liability is determined only by the clause of the contract of Suretyship.”

A contract of surety is not presumed; it cannot extend to more than what is stipulated. Since the obligation of the
surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the
relationship and obligation of the surety is limited to the defendants specified in the contract of surety.
CASE # 24

SOUTH CITY HOMES v. BA FINANCE CORPORATION

G.R. No. 135462
December 7, 2001

Facts:
On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-
appellant a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full,
faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance
Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by
CARCO under which it agreed to remit to the Entrusted (CARCO) the proceeds of any sale and immediately surrender the
remaining unsold vehicles. The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment
executed by CARCO.

The defendant-appellant Fortune Motors Corporation failed to pay the amounts due under the drafts and to remit
the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt
agreements.

Issue:
Whether or not respondent has a valid cause of action for sum of money following the drafts and trust receipt
transactions

Held:
As an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors
Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action
whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature.

A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or purchased.9 In the event of default by the
entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the
trust and take possession of the goods to be able to enforce his rights thereunder.
 SURETY V. GUARANTY

G.R. No. 126490 March 31, 1998

ESTRELLA PALMARES, petitioner,

vs.
COURT OF APPEALS and M.B. LENDING CORPORATION, respondents

FACTS:

private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with
petitioner Estrella Palmares, in the amount of P30,000.00. 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.

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a
complaint3 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:

Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal
debtor in case the latter defaults in the payment of the loan, is such undertaking of the former deemed to be that of a
surety as an insurer of the debt, or of a guarantor who warrants the solvency of the debtor?

HELD:

SURETY.

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is
an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay.18 Stated
differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that
the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to
pay.19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. 20 In
other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of
the principal debtor.21

Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it
from the ambit of a contract of suretyship. The second and third paragraphs of the aforequoted portion of the
promissory note do not contain any other condition for the enforcement of respondent corporation's right against
petitioner. It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to
proceed against herein petitioner only if and when the defaulting principal has become insolvent. A contract of
suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to
render himself directly and primarily responsible with him, and without reference to the solvency of the
principal.

a surety is bound equally and absolutely with the principal,26 and as such is deemed an original promisor and
debtor from the beginning.27 This is because in suretyship there is but one contract, and the surety is bound by the
same agreement which binds the principal.28 In essence, the contract of a surety starts with the
agreement,29 which is precisely the situation obtaining in this case before the Court.

It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and
conditions stipulated between respondent corporation, as creditor, and the principal obligors. A surety is usually
bound with his principal by the same instrument, executed at the same time and upon the same consideration; he
is an original debtor, and his liability is immediate and direct.30 Thus, it has been held that where a written
agreement on the same sheet of paper with and immediately following the principal contract between the buyer
and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms
of the principal contract, the signers were "sureties" jointly liable with the buyer.31 A surety usually enters into
the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument,
and the same consideration usually supports the obligation for both the principal and the surety.32

SURETYSHIP

[G.R. No. 103066. April 25, 1996]

WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and INTERNATIONAL
CORPORATE BANK, respondents.

FACTS:

Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To
secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of
the Philippines (IUCP) executed two documents, both entitled Continuing Surety Agreement, whereby they bound
themselves solidarily to pay Manilabank obligations of every kind, on which the [Inter-Resin Industrial] may now be
indebted orbecome indebted to the [Manilabank]. The two agreements (Exhs. J and K) are the same in all respects, except
as to the limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while the second one is
limited to US$334,087.00.

On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a Continuing Guaranty in
favor of IUCP whereby For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin
Industrial Corporation from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed the prompt
and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum
of FIVE MILLION PESOS (P5,000,000.00)

following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrials
outstanding obligation. (Exh. M-1) On February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had
succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to
Manilabank. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-Resin Industrial and
Willex Plastic.

ISSUE:

under the Continuing Guaranty, should petitioner Willex Plasticbe held jointly and severally liable with Inter-Resin
Industrial for the amount paid by Interbank to Manilabank?

HELD:

YES

The court ordered petitioner Willex Plastic Industries Corporation and the Inter-Resin Industrial Corporation, jointly
and severally, to pay private respondent International Corporate Bank certain sums of money,

the trial court found that it was to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel
mortgage in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries
Corporation.[6]Similarly, the Court of Appeals found it to be an undisputed fact that to secure the guarantee undertaken by
plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-
appellee required defendant-appellants to sign a Continuing Guaranty.

It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its
operation and is generally intended to provide security with respect to future transactions. By no means, however,
was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in
application. Indeed, as we also held in Bank of the Philippine Islands v. Foerster, (49 Phil. 843 [1926]) although a
contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as
revealed by the evidence is controlling. What was said there applies mutatis mutandis to the case at bar: In our
opinion, the appealed judgment is erroneous. It is very true that bonds or other contracts of suretyship are ordinarily
not to be construed as retrospective, but that rule must yield to the intention of the contracting parties as revealed by
the evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which apply in
regard to other contracts. In the present case the circumstances so clearly indicate that the bond given by Echevarria
was intended to cover all of the indebtedness of the Arrocera upon its current account with the plaintiff Bank that we
cannot possibly adopt the view of the court below in regard to the effect of the bond.

G.R. No. 33174 July 4, 1991

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE HONORABLE COURT OF APPEALS (Special Fourth Division), LUZON SURETY CO., INC., and ESTANISLAO E.
DEPUSOY, trading under the style of E.E. DEPUSOY CONSTRUCTION, respondents.

FACTS:

Estanislao Depusoy, doing business under the name of E.E. Depusoy Construction, and the Republic of the Philippines,
represented by the Director of Public Works, entered into a building contract for the construction of the GSIS building.
Depusoy to furnish all materials, labor, plans, and supplies needed in the construction. Depusoy applied for credit
accommodation with the plaintiff. This was approved by the Board of Directors in various resolutions subject to the
conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank,
furnish a surety bond, and the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy
was P100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed
P100,000.00

Luzon thereafter executed two surety bonds, one for the sum of P40,000.00, and the other for P60,000.00. Under the credit
accommodation granted by the plaintiff bank, Depusoy obtained several amounts from the bank.

Under this arrangement all payments made by the GSIS were payable to the Philippine National Bank. The treasury
warrants or checks, however, were not sent directly to the plaintiff. They were received by Depusoy, who in turn delivered
them to the plaintiff bank. The plaintiff then applied the money thus received, first, to the payment of the amount due on
the promissory notes at the time of the receipt of the treasury warrants or checks, and the balance was credited to the
current account of Depusoy with the plaintiff bank. A total of P1,309,461.89 werepaid by the GSIS to the plaintiff bank for
the account of Estanislao Depusoy. Of this amount, P246,408.91 were paid for the importation of construction materials.

Depusoy defaulted in his building contract with the Bureau of Public Works. No further amounts were thereafter paid by
the GSIS to the plaintiff bank. The amount of the loan of Depusoy which remains unpaid, including interest, is over
P100,000.00.
Issue:

what obligation had been guaranteed by Luzon under the terms of the surety bonds?

Held:

Under the surety bonds, Depusoy and Luzon bound themselves to the plaintiff in the sum of P100,000.00. It recited that
the principal, Depusoy, and Luzon bound themselves jointly and severally to the PNB under the certain conditions.
When the terms of the agreement are clear, there can be no room for construction. If the intention of the parties, and
particularly of Luzon, was to guarantee the payment of the debt of Depusoy to the plaintiff, the bonds would have recited
in its preamble that the principal was indebted to the PNB and that the PNB required the principal to give a good and
sufficient bond to secure the faithful performance on his part of the terms of the promissory notes.1âwphi1 Instead of
doing so, it recited that in consideration of a certain loan, the principal had executed a Deed of Assignment. The recital of
the loan in the amount of P40,000.00,and P60,000.00, is merely a statement of the cause or consideration of the Deed of
Assignment and not a statement of the obligation. The Deed of Assignment necessarily was executed for a consideration,
otherwise, it would be null and void. The obligation recited in the surety bondsis not the loan, but the Deed of Assignment;
and that precisely was what was guaranteed by Luzon in the bonds.

G.R. No. 84084 August 20, 1990

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
ABDULGANI SALIK, BALABAGAN AMPILAN ALI KUBA GANDHI PUA, DAVID MALANAO, THE ADMINISTRATOR,
PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF LABOR AND
EMPLOYMENT, respondents.

FACTS:

Abdulgani Salik et al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting Services, Inc.
(hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by a certain Mrs. Normita
Egil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of
employment abroad given by Celia Arandia and Mrs. Egil, they were not employed.

private respondents reiterated the allegations in their complaint that they first paid P20,000.00 thru Hadji Usop Kabagani
for which a receipt was issued signed by Engineer Arandia and countersigned by Mrs. Egil and a certain Imelda who are
allegedly employed by Pan Pacific; that they paid another P10,000.00 to Engr. Arandia who did not issue any receipt
therefor; that the total payment of P30,000.00 allegedly represents payments for herein private respondents in the
amount of P5,000.00 each, and Abdulnasser Ali

The CA ruled in favor of respondents directing finman to pay jointly and severally with pan pacific the claims of private
respondents on the basis of the suretyship agreement between finman and pan pacific and the philippine overseas
employment administration.

ISSUE: Is Finman and Pan Pacific jointly and severally liable to the respondents?

HELD:

YES.

It is uncontroverted that herein petitioner and Pan Pacific entered into a suretyship agreement, with the former agreeing
that the bond is conditioned upon the true and faithful performance and observance of the bonded principal (Pan Pacific)
of its duties and obligations. It was also understood that under the suretyship agreement, herein petitioner undertook
itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific.
Accordingly, the nature of Finman's obligation under the suretyship agreement makes it privy to the proceedings against
its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its principal even
though it was not a party to the proceedings

where the surety bound itself solidarily with the principal obligor the former is so dependent on the principal debtor "that
the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein
Finman was not impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims
arising from recruitment violation of Pan Pacific.

G.R. No. L-45848 November 9,1977

TOWERS ASSURANCE CORPORATION, petitioner,

vs.
ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE, Presiding Judge,
Court of First Instance of Misamis Oriental, Branch I, respondents.

FACTS:

the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in the
Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400. See Hong asked for a writ of
preliminary attachment. On March 5, 1976, the lower court issued an order of attachment. The deputy sheriff attached the
properties of the Ong spouses. To lift the attachment, the Ong spouses fileda counterbond in 'the amount of P 58,400 with
Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound
themselves to pay solidarity to See Hong the sum of P 58,400.For non-appearance at the pre- trial, the Ong spouses were
declared in default. the lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers
Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400.

ISSUE:

What is the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment?

HELD:

Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1)
that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in
part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be
given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond.

The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a
solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the
principal debtor (Art. 2959, Civil Code
 The Manila Banking Corporation v. Teodoro
G.R. No. L-53955 January 13, 1989

Bidin, J.;

Facts:

AnastacioTeodoro Sr., along with AnastacioJr and Grace Teodoro executed a Promissory Note in favor of the Manila
Banking Corporation. They failed to pay the said amount inspite of repeated demands and the obligation as of September
30, 1969 stood at P 15,137.11 including accrued interest and service charge. They also failed to fully pay two other
promissory notes in favor of the MBC.

Anastacio Jr. executed in favor of MBC a Deed of Assignment of Receivables from the Emergency Employment
Administration in the sum of P44,635.00.The Deed of Assignment provided that it was for and in consideration of certain
credits, loans, overdrafts and other credit accommodations extended to defendants as security for the payment of said sum
and the interest thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and interest in and
to the accounts receivables.

MBC extended loans to defendants on the basis and by reason of certain contracts entered into by the defunct Emergency
Employment Administration (EEA) with defendants for the fabrication of fishing boats, and that the Philippine Fisheries
Commission succeeded the EEA after its abolition; that non-payment of the notes was due to the failure of the Commission
to pay defendants after the latter had complied with their contractual obligations; and that the President of plaintiff Bank
took steps to collect from the Commission, but no collection was effected.

For failure of defendants to pay the sums due on the Promissory Note, this action was instituted.

Issue:Whether or not the assignment of receivables has the effect of payment of all the loans contracted by appellants
from appellee bank.

Ruling:

No. A transfer of property by the debtor to a creditor, even if sufficient on its form 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 exporting 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 ambiguous language or other circumstances excluding an intent to pledge.

Obviously, the deed of assignment was intended as collateral security for the bank loans of appellants, as a continuing
guaranty for whatever sums would be owing by defendants to plaintiff, as stated in stipulation No. 9 of the deed.

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.

Arguelles v. Malarayat Rural Bank, Inc.

G.R. No. 200468 March 19, 2014

Villarama, JR., J.:

Facts:

Guia was the registered owner of land. She sold a portion thereof to Spouses Arguelles in 1990. Although the spouses
Arguelles immediately acquired possession of the land, the Deed of Sale was neither registered with the Register of Deeds
nor annotated on OCT No. P-12930. The whole land was divided and the TCT covering the sold portion was given to the
Arguelles. The Arguelles maintained that they did not receive any TCT.

In 1997, Guia obtained a loan from Malarayat Rural Bank secured by a Real Estate Mortgage over the lot sold to the
Arguelles.

In 1999, the Arguelles filed a complaint for Annulment of Mortgage and Cancellation of Mortgage Lien with Damages
against the respondent MalarayatRural Bank.

Issue:Whether the respondent Malarayat Rural Bank is a mortgagee in good faith who is entitled to protection on
its mortgage lien.

Ruling:

No. In Cavite Development Bank v. Spouses Lim, the Court explained the doctrine of mortgagee in good faith, thus:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his
title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public
policy. This is the doctrine of "mortgagee in good faith" based on the rule that all persons dealing with the property
covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face
of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of
the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on
the face of the certificate of title.

Where the mortgagee is a bank, it cannot rely merely on the certificate of title offered by the mortgagor in ascertaining the
status of mortgaged properties. Since its business is impressed with public interest, the mortgagee-bank is duty-bound to
be more cautious even in dealing with registered lands.

In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of diligence, prudence, and
care in approving the loan application of the spouses Guia.

Respondent should have diligently conducted an investigation of the land offered as collateral.

Development Bank of the Philippines v. Guarina Agricultural and Realty Corp.

G.R. No. 160758 January 15, 2014

Bersamin, J.;

Facts:
DBP granted Guarina’s loan application where Guariña Corporation executed a chattel mortgage over the personal
properties existing at the resort complex and those yet to be acquired out of the proceeds of the loan, also to secure the
performance of the obligation.Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of
₱1,470,951.00 for the construction of the buildings and other improvements on the resort complex.

The loan was released in several instalments. In all, the amount released totalled ₱3,003,617.49, from which DBP withheld
₱148,102.98 as interest.Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead,
DBP directly paid some suppliers of Guariña Corporation over the latter's objection. DBP found upon inspection of the
resort project, its developments and improvements that Guariña Corporation had not completed the construction works.

Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial foreclosure proceedings.

Issue: Is the foreclosure valid?

Ruling:

No. It is true that loans are often secured by a mortgage constituted on real or personal property to protect the creditor's
interest in case of the default of the debtor. By its nature, however, a mortgage remains an accessory contract dependent
on the principal obligation,such that enforcement of the mortgage contract will depend on whether or not there has been a
violation of the principal obligation.

Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an effective demand for
payment upon Guariña Corporation to perform its obligation under the loan. It would only be when a demand to pay had
been made and was subsequently refused that a borrower could be considered in default, and the lender could obtain the
right to collect the debt or to foreclose the mortgage.Hence, Guariña Corporation would not be in default without the
demand.

Philippine Bank of Communications v. Yeung

G.R. No. 179691 December 4, 2013

Brion, J.:

Facts:
Yeung, for a loan, executed a real estate mortgage in favor of Philippine Bank Communications. The parties agreed to
increase the amount of the loan to ₱1,950,000.00. After the respondent defaulted in her obligation, the petitioner initiated
a petition for extrajudicial foreclosure of the mortgage.

The mortgaged property was consequently foreclosed and sold at public auction for the sum of ₱2,594,750.00 to the
petitioner which emerged as the highest bidder.When the respondent failed to redeem the mortgage within the one year
redemption period, the petitioner consolidated its ownership over the property, resulting to the cancellation of TCT No. T-
187433 and to the issuance of TCT No. T-362374 in its name. A writ of possession was granted to the PBC but Yeung
challenged the writ since PBC failed to remit the surplus from the proceeds of the sale.

Issue: Is Yeung entitled to the surplus?

Ruling:

Yes. In the absence of any evidence showing that the mortgage also covers the other obligations of the mortgagor, the
proceeds from the sale should not be applied to them. In the present case, while the petitioner claims that it was not
obliged to pay any surplus because the balance from the proceeds was applied to the respondent’s other obligations and to
those of her attorney-in-fact, it failed, however, to show any supporting evidence showing that the mortgage extended to
those obligations. The petitioner, as mortgagee/purchaser cannot just simply apply the proceeds of the sale in its favor and
deduct from the balance the respondent’s outstanding obligations not secured by the mortgage. Understood from this
perspective, no reason exists to depart from the CA’s ruling that the balance or excess, after deducting the mortgage debt
of ₱1,950,000.00 plus the stipulated interest and the expenses of the foreclosure sale, must be returned to the respondent.

c.2 Comparative Analysis of Sulit and the Present Case

As correctly noted by the petitioner, the one year redemption period in Sulit has not yet expired when the purchaser petitioned
the trial court for the issuance of a writ of possession. In the present case, the redemption period has already expired and the
title over the property had already been consolidated in the petitioner’s name. In Sulit, the inequity the court perceived to
justify the deferment of the issuance of a writ of possession was present because the mortgagor, who at that time still had the
right to exercise his right of redemption, was prevented from doing so. No such inequity appears in this case inasmuch as the
mortgagor no longer has a right of redemption. In Sulit, the policy of the law to aid the redemptioner can still be upheld. The
policy is no longer relevant in the present case since the mortgagee herself, allowed the redemption period to lapse without
exercising her right. We emphasize that for the Sulit exception to apply, the evil sought to be prevented must be present and
the reason behind the exception should clearly exist. It should not be carelessly applied in cases where the reasons that
justified it do not appear, more so where the factual milieu is different. As discussed above, the Sulit reasons and circumstances
are not present here. The resulting injustice that we tried to avoid in Sulit does not exist. In the absence of any justification for
the exception, the general rule should apply.

G.R. No. 171206 September 23, 2013

HEIRS OF THE LATE SPOUSES FLA VIANO MAGLASANG and SALUD ADAZA-MAGLASANG, namely, OSCAR A.
MAGLASANG, EDGAR A. MAGLASANG, CONCEPCION CHONA A. MAGLASANG, GLENDA A. MAGLASANG-ARNAIZ,
LERMA A. MAGLASANG, FELMA A. · MAGLASANG, FE DORIS A. MAGLASANG, LEOLINO A. MAGLASANG, MARGIE
LEILA A. MAGLASANG,MA. MILALIE A. MAGLASANG, SALUD A. MAGLASANG, and MA. FLASALIE A. MAGLASANG,
REPRESENTING THE ESTATES OF THEIR AFORE-NAMEDDECEASED PARENTS, Petitioners,
vs.
MANILA BANKING CORPORATION, now substituted by FIRST SOVEREIGN ASSET MANAGEMENT SPV-AMC, INC.
FSAMI, Respondent.

FACTS: Spouses Flaviano and SaludMaglasang (Sps.Maglasang) obtained a credit line from respondent in the amount of
₱350,000.00 which was secured by a real estate mortgage executed over seven of their properties, which shall be due and
demandable within a period of one year.

After FlavianoMaglasang (Flaviano) died intestate on February 14,1977, his widow SaludMaglasang (Salud) and their
surviving childrenfiled a verified petition for letters of administration of the intestate estate of Flaviano. Respondent then
notified the probate court of its claim in the amount of ₱382,753.19 as of October 11, 1978, exclusive of interests and
charges which the probate court expressly recognized the rights of the respondent.

Respondent proceeded to extra-judicially foreclose the mortgage covering the Sps. Maglasang’s properties and emerged as
the highest bidder at the public auction for the amount of ₱350,000.00. There, however, remained a deficiency on Sps.
Maglasang’s obligation to respondent. Thus, on June 24, 1981, respondent filed a suit to recover the deficiency amount of
₱250,601.05 as of May 31, 1981 against the estate of Flaviano, his widow Salud and petitioners.

ISSUE: W/N the respondent can recover the deficiency.

RULING: NO.

Jurisprudence breaks down the rule under Section 7, Rule 86 and explains that the secured creditor has three
remedies/options that he may alternatively adopt for the satisfaction of his indebtedness. In particular, he may choose to:

(a) waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;

(b) foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and

(c) rely on the mortgage exclusively, or other security and foreclose the same before it is barred by prescription, without
the right to file a claim for any deficiency.

It must, however, be emphasized that these remedies are distinct, independent and mutually exclusive from each other;
thus, the election of one effectively bars the exercise of the others.

Anent the third remedy, it must be mentioned that the same includes the option of extra-judicially foreclosing the
mortgage under Act No. 3135,as availed of by respondent in this case. However, the plain result of adopting the last mode
of foreclosure is that the creditor waives his right to recover any deficiency from the estate.The plain result of adopting the
last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate.

In this case, respondent sought to extra-judicially foreclose the mortgage of the properties previously belonging to Sps.
Maglasang (and now, their estates) and, therefore, availed of the third option.Thus, having unequivocally opted to exercise
the third option of extra-judicial foreclosure under Section 7, Rule 86, respondent is now precluded from filing a suit to
recover any deficiency amount.

G.R. No. 198800 December 11, 2013

JOSE T. RAMIREZ, Petitioner,

vs.
THE MANILA BANKING CORPORATION, Respondent.
FACTS: Petitioner Jose T. Ramirez mortgaged two parcels of landin favor of respondent The Manila Banking Corporation to
secure his ₱265,000 loan.The real estate mortgage provides that all correspondence relative to the mortgage including
notifications of extrajudicial actions shall be sent to petitioner Ramirez at his given address.

Respondent filed a request for extrajudicial foreclosure of real estate mortgage before Atty. HipolitoSañez on the ground
that Ramirez failed to pay his loan despite demands.Thereafter, a certificate of sale was issued in its favor as the highest
bidder.

Ramirez sued respondent for annulment of sale and prayed that the certificate of sale be annulled on the ground, among
others, that paragraph N of the real estate mortgage was violated for he was not notified of the foreclosure and auction
sale., respondent counters that under Section 3 of Act No. 3135, no personal notice to the mortgagor is required in case of a
foreclosure sale. The bank claims that paragraph N of the real estate mortgage does not impose an additional obligation to
it to provide personal notice to the mortgagor Ramirez.

ISSUE: W/N personal notice to the mortgagor is required.

RULING: YES. The Certificate of Sale over the mortgaged properties, are hereby DECLARED NULL and VOID.

The Act 3135 only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a
newspaper of general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties to the
mortgage contract are not precluded from exacting additional requirements.

Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner might take on
the subject property, thus according him the opportunity to safeguard his rights. When petitioner failed to send the notice
of foreclosure sale to respondent, he committed a contractual breach sufficient to render the foreclosure sale on November
23, 1981 null and void.

G.R. No. 189316 June 1, 2013

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES BERNARD and CRESENCIA MARANON, Respondents.

FACTS: A 152-square meter parcel of land, erected with a building leased by various tenants,was among the properties
mortgaged by Spouses Rodolfo and Emilie Montealegre (Spouses Montealegre) to PNB as a security for a loan.When
Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings on the mortgaged properties, including
the subject lot.PNB emerged as the highest bidder.

Before the expiration of the redemption period or on July 29, 1992, Spouses Marañon filed before the RTC a complaint for
Annulment of Title, Reconveyance and Damages. The complaintalleged that Spouses Marañon are the true registered
owners of the subject lot by virtue of TCT No. T-129577 which was illegally cancelled by TCT No. T-156512 under the
name of Emilie who used a falsified Deed of Sale bearing the forged signatures of Spouse Marañonto effect the transfer of
title to the property in her name. The RTC rendered its Decision in favor of the respondents and PNB was adjudged to be a
mortgagee in good faith whose lien on the subject lot must be respected.

What precipitated the controversy at hand were the subsequent motions filed by Spouses Marañon for release of the rental
payments deposited with the Clerk of Court and paid to PNB by Tolete.The RTC granted the motion reasoning that
pursuant to its Decision declaring Spouses Marañon to be the true registered owners of the subject lot, they are entitled to
its fruits.

PNB asseverates that its mortgage lien was carried over to the new title issued to Spouses Marañon and thus it retained
the right to foreclose the subject lot upon non-payment of the secured debt. PNB asserts that it is entitled to the rent
because it became the subject lot’s new owner when the redemption period expired without the property being redeemed.

ISSUE: W/N Art. 2127 can apply in this case.

RULING: NO.

Any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged property precludes the
application of Article 2127. Otherwise stated, the provision is irrelevant and inapplicable to mortgages and their resultant
foreclosures if the mortgagor is later on found or declared to be not the true owner of the property, as in the instant case.

It is beyond question that PNB’s mortgagors, Spouses Montealegre, are not the true owners of the subject lot much less of
the building which produced the disputed rent. The foreclosure proceedings caused by PNB could not have, thus, included
the building found on the subject lot and the rent it yields. PNB’s lien as a mortgagee in good faith pertains to the subject
lot alone because the rule that improvements shall follow the principal in a mortgage under Article 2127 of the Civil Code
does not apply under the premises.

Accordingly, since the building was not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-
redemption and is excluded from any consolidation of title made by PNB over the subject lot. Thus, PNB’s claim for the rent
paid by Tolete has no basis.

G.R. No. 173183 November 18, 2013

SYCAMORE VENTURES CORPORATION and SPOUSES SIMON D. PAZ AND LENG LENG PAZ, Petitioners,
vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.

FACTS: Sycamore and the spouses Paz obtained from respondent Metropolitan Bank and Trust Company (Metrobank) a
credit line of ₱180,000,000.00, secured by 10 real estate mortgages over Sycamore’s 11 parcels of land, together with their
improvements.Because the petitioners failed to pay their loan obligations, Metrobank instituted extrajudicial foreclosure
proceedings over the six real estate mortgages.

The petitioners disputed Metrobank’s alleged unilateral and arbitrary reduction of the mortgaged properties’ appraisal
value from ₱1,200.00 to ₱300.00-₱400.00 per square meter. They likewise sought the maintenance of the status quo, to
enjoin Metrobank, and to prevent it from proceeding with the extrajudicial foreclosure.

The petitioner argued that the determination of the mortgaged properties’ true valuation is a critical question of fact
which, they insist, is an issue that needs to be resolved prior to the determination of the foreclosure’s validity.

ISSUE: W/N the appraisal value of the mortgaged properties material in the mortgage foreclosure’s validity.

RULING: NO.

Act No. 3135 does not require determination of appraised value. Determination of mortgaged properties’ appraisal value is
not material to the foreclosure’s validity.

We have held in a long line of cases that mere inadequacy of price per se will not invalidate a judicial sale of real property.
It is only when the inadequacy of the price is grossly shocking to the conscience or revolting to the mind, such that a
reasonable man would neither directly nor indirectly be likely to consent to it, that the sale shall be declared null and void.
This rule, however, does not strictly apply in the case of extrajudicial foreclosure sales where the right of redemption is
available.

37. SPS. RUBIN AND PORTIA HOJAS v. PHILIPPINE AMANAH BANK AND RAMON KUE
G.R. No. 193453 June 5, 2013

FACTS: The petitioners, Spouses Rubin and Portia Hojas (petitioners), alleged that on April11, 1980, they secured a loan
from respondent Philippine Amanah Bank (PAb) in the amount of P450,000.00; that this loan was secured by a mortgage,
They made various payments amounting to P468,162 however, PAB did not properly credit their payments, only 13
payments were credited, that or failure to pay the loan, PAB applied for the extrajudicial foreclosure of the mortgaged real
properties of petitioners.
ISSUE: Whether the respondent bank is correct when it sold the property at public auction

HELD: Respondents repeated requests for information as regards the amount of loan availed from the credit line and the
amount of redemption, and petitioner's failure to accede to said requests do not invalidate the foreclosure. Respondents
can find other ways to know the redemption price, for one they can examine the certificate of Sale registered with the
Register of deeds to verify the purchase price,or upon the filing of their complaint, they could have moved for a
computation of the redemption price and consigned the same to the court. At any rate, 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.

38. Rural Bank of Sta. Barbara v. Centeno

G.R. No. 200667 March 11, 2013

FACTS: Spouses Gregorio and Rosario Centeno (Sps. Centeno) were the previous owners of the subject lots. During that
time, they mortgaged the foregoing properties in favor of petitioner Rural Bank of Sta. Barbara (Iloilo), Inc. as security for a
P1,753.65 loan. Sps. Centeno, however, defaulted on the loan, prompting petitioner to cause the extrajudicial foreclosure of
the said mortgage Sps. Centeno failed to redeem the subject lots within the one year redemption period On March 14,
1988, Gerry Centeno, son of Sps. Centeno, purchased the said lots from his parents. On March 19, 1998, petitioner filed a
petition for the issuance of a writ of possession before the RTC, claiming entitlement to the said writ by virtue of the Final
Deed of Sale covering the subject lots.

ISSUE: Whether or not petitioner is entitled to a writ of possession over the subject lots.

HELD: The petition is meritorious. It is well-established that after consolidation of title in the purchaser's name for failure
of the mortgagor to redeem the property, the purchaser's right to possession ripens into the absolute right of a confirmed
owner. At that point, the issuance of a writ of possession, upon proper application and proof of title, to a purchaser in an
extrajudicial foreclosure sale becomes merely a ministerial function, unless it appears that the property is in possession of
a third party claiming a right adverse to that of the mortgagor.

In this case, respondent acquired the subject lots from his parents, Sps. Centeno, on March 14, 1988 after they were
purchased by petitioner and its Certificate of Sale at Public Auction was registered with the Register of Deeds of Iloilo City
in 1971. It cannot therefore be disputed that respondent is a mere successor-in-interest of Sps. Centeno, anent the issue of
laches, it must be maintained that the instant case only revolves around the issuance of a writ of possession which is
merely ministerial on the RTC's part as above-explained. The petition is GRANTED.

39. BANK OF THE PHILIPPINE ISLANDS (FORMERLY PRUDENTIAL BANK) v. SPOUSES DAVID M. CASTRO AND
CONSUELO B. CASTRO
G.R. No. 195272, January 14, 2015

FACTS: The Complaint has its origins from the two loans contracted by respondent Spouses David M. Castro (David) and
Consuelo B. Castro (Consuelo) from Prudential Bank in the amounts of P100,000.00 and P55,000.00 in July and August
1987. The P100,000.00 loan was secured by a Real Estate Mortgage (REM) over petitioners' property, while the
P55,000.00 loan was secured by another REM over two parcels of land located in Alaminos, Laguna registered in the name
of David’s mother, Guellerma Malabanan. On 26 August 1996, the Quezon City property was sold at a public auction in
favor of Prudential Bank whose winning bid was P396,000.00.Spouses Castro proffered that the property foreclosed is not
one of the properties covered by the REM executed by Guellerma Malabanan which was the basis of the Notice of Sheriff’s
Sale which was posted and published. Prudential Bank cited a clerical and harmless inadvertence in the preparation of the
petition for extrajudicial foreclosure but nonetheless, it claimed that Spouses Castro, having been notified of the scheduled
foreclosure of the mortgage of the Quezon City property, should have noticed the inadvertence and alerted the sheriff.
ISSUE: Whether the errors in the Notice of Sheriff’s Sale invalidate the notice and render the sale and the certificate of such
sale void.

HELD: The petition is meritorious. it bears emphasis that foreclosure proceedings have in their favor the presumption of
regularity and the party who seeks to challenge the proceedings has the burden of evidence to rebut the same. In this case,
respondent failed to prove that Prudential Bank has not complied with the notice requirement of the law. With
jurisprudence as the measure, the errors pointed out by respondents appear to be harmless. The evils that can result from
an erroneous notice did not arise. There was no intention to mislead, as the errors in fact did not mislead the bidders as
shown by the fact that the winning registered bid of P396,000.00 is over and above the real amount of indebtedness of
P209,205.05. The notice rule was complied with when the Notice of Sheriff’s Sale was published in Philippine Recorder, a
national newspaper of general circulation once a week for three consecutive weeks or on 29 July, 5 and 12 August 1996.
For failure to overcome the burden of showing that the foreclosure proceedings is tainted with irregularity, the Certificate
of Sale should be upheld.

RURAL BANK OF TOBOSO, INC. (now UCPB Savings Bank) vs. JEAN VENIEGAS AGTOTO

G.R. No. 175697 March 23, 2011

FACTS:

On August 18, 1981 Jean Veniegas Agtoto (Agtoto) executed a special power of attorney (SPA) authorizing her husband,
Rodney, to secure a loan on her behalf and mortgage a registered land that she owned. 1 Using the SPA, on August 20, 1981
Rodney got a loan of ₱130,500.00 from the Rural Bank of Toboso, Inc. (the Bank), with the ₱61,068.00 portion secured by a
real estate mortgage on his wife’s land. On the following day, he secured the remaining ₱69,432.00 of the loan with a
chattel mortgage over two service boats and one Yanmar Marine engine.

After paying only ₱14,500.00, Agtoto failed to pay her loan with the Bank. After several unheeded demands to pay, on
August 6, 1990 the Bank extrajudicially foreclosed the mortgage on her land, pegging her debt at ₱130,500.00 as of
December 31, 1989 plus the stipulated interest of 14% per annum from the date of default until full payment and
liquidated damages. After notice and publication, the sheriff foreclosed the mortgage on the land on September 12, 1990
and sold it at public auction to the Bank, which made the highest bid of ₱305,000.00 "as of December 31, 1989" plus
stipulated interest of 14% per annum. The sheriff subsequently issued a certificate of sale in the Bank’s favor.

ISSUE:

Whether or not the Bank validly foreclosed on Agtoto’s mortgaged land;

RULING:

The foreclosure sale covering the land was valid, notwithstanding the chattel mortgage that covered the ₱69,432.00
portion of the loan of ₱130,500.00. The chattel mortgage was a contract distinct from the real estate mortgage, which latter
mortgage covered the separate amount of ₱61,068.00. Thus, the Bank had no right to include in the foreclosure of the land
the portion of the loan separately secured by the chattel mortgage.

The Court finds no reason to deviate from the CA’s ruling that the proceeds of the foreclosure sale should be applied to
satisfy only the debt and related charges that the foreclosed land secured. Since the Bank collected the entire amount of
the loan from the proceeds of the foreclosure sale, including the portion that was not covered by the real estate mortgage,
it must return such to Agtoto, which amounted to ₱189,497.10 (₱305,000.00 less the ₱115,502.90 portion covered by the
real estate mortgage.)

PHILIPPINE TRUST COMPANY (also known as Philtrust Bank)vs.HON. COURT OF APPEALS and FORFOM
DEVELOPMENT CORPORATION G.R. No. 150318 November 22, 2010
FACTS:

Plaintiff Forfom Development Corporation is engaged in agricultural business and real estate development and
owns several parcels of land in Pampanga. It is the registered owner of two (2) parcels of land subject of the present
controversy. Upon verification with the DAR and the Register of Deeds made by plaintiff’s Vice-President at that time, Mr.
Jose Marie L. Ramos, plaintiff discovered that the subject properties had already been transferred in the names of said Ma.
Teresa Limcauco and Ellenora Limcauco who were never known to plaintiff or its employees.

On December 26, 1989, plaintiff instituted the present action against the defendants Ma. Teresa Limcauco, Ellenora
D. Limcauco, spouses Raul P. Claveria and Elea R. Claveria, Philippine Trust Company and the Register of Deeds of Angeles
City. The Complaint alleged conspiratorial acts committed by said defendants who succeeded in causing the fraudulent
transfer of registration of plaintiff’s properties in the names of Ma. Teresa Limcauco and Ellenora D. Limcauco and the
subdivision of the land covered by TCT No. 10896 over which separate titles have been issued.

ISSUE:

Whether Philtrust is a mortgagee in good or bad faith.

RULING:

Philtrust is a mortgagee in bad faith.

A forged deed may be the root of a valid title when an innocent purchaser for value intervenes. A purchaser in good
faith and for value is one who buys the property of another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the
claims or interest of some other person in the property. It has been held that where a mortgagee bank accepted the
mortgage in good faith, the land involved being registered land, it is not bound to go [beyond] the certificate of title to look
for flaws in the mortgagor’s title, the doctrine of innocent purchaser for value being applicable to an innocent mortgagee
for value. A mortgagee in good faith and for value is entitled to protection. A bank is not required, before accepting a
mortgage, to make an investigation of the title of the property being given as security. This is a consequence of the rule that
a person dealing with registered land has a right to rely upon the face of the Torrens certificate of title and to dispense
with the need of inquiring further, except when the party concerned has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such inquiry.

It is settled that banks, their business being impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving registered lands.18 The rule that persons
dealing with registered lands can rely solely on the certificate of title does not apply to banks.19 Consequently, Philtrust
should prove that it exercised extraordinary diligence required of it in approving the mortgage contract in favor of the
spouses Claveria.

Philtrust can argue that the promissory note and Deed of Mortgage executed by the spouses Claveria, and the TCT
of the subject property, can prove its allegations that (a) the mortgage was granted after it was satisfied of the spouses’
credit worthiness; (b) the latter was able to maintain a satisfactory record of payment early on; or (c) it followed the
standard operating procedures in accepting property as security, including having investigators visit the subject property
and appraise its value. The mere fact that Philtrust accepted the subject property as security most certainly does not prove
that it followed the standard operating procedure in doing so. As regards Philtrust’s claim that the Answer to
Interrogatories, being a notarized document, is conclusive as to the truthfulness of its contents.

Philtrust was in bad faith in the execution of the mortgage contract with the spouses Claveria.

SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, petitioners, vs. THE HONORABLE COURT OF APPEALS; SPS.
BENJAMIN SAN DIEGO and CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF and CLERK OF COURT of the
Regional Trial Court, Makati City; and the REGISTER OF DEEDS, Makati City, respondents.
 FACTS:In July 1990, petitioners obtained a loan of P350,000.00 from respondent Carmencita San Diego. To secure
payment thereof, petitioners executed on 02 August 1990 in favor of the same respondent a deed of real estate mortgage
over their parcel of land located at Bayanan, Muntinlupa, Rizal and registered in their names under Transfer Certificate of
Title No. (432281) S-21000.
After making substantial payments, petitioners again obtained and were granted by Carmencita San Diego an
additional loan of (P1,000,000.00). To secure this additional loan, the parties an Amendment of Real Estate Mortgage,
whereunder they stipulated that the loan shall be paid within six (6) months from 16 September 1991, and if not paid
within said period, the mortgagee shall have the right to declare the mortgage due and may immediately foreclose the
same judicially or extrajudicially, in accordance with law.
The petitioners defaulted in paying their loan and continuously refused to comply with their obligation despite
repeated demands therefor, prompting respondent Carmencita San Diego to send them a final notice of demand requiring
them to settle their financial obligation which, by then, already amounted to P1,950,000.00.
After her efforts to collect proved futile, respondent Carmencita San Diego filed a petition for the extrajudicial foreclosure
of the mortgage. Notice was sent therein announcing that petitioners mortgaged property will be sold in a public auction.
Carmencita San Diego as the highest bidder The petitioners having failed to redeem their property within the 1-year
redemption period from the date of inscription of the sheriffs certificate of sale, as provided for in Act No. 3135, as
amended, the San Diegos caused the consolidation of title over the foreclosed property in their names.
Then, on 09 November 1994, before the Regional Trial Court at Makati City, petitioners filed their complaint for
annulment of the extrajudicial foreclosure and auction sale, with damages.
ISSUE:WON the foreclosure was valid
RULING: The rule has been, and still is, that in real estate mortgage, when the principal obligation is not paid when due,
the mortgagee has the right to foreclose on the mortgage and to have the mortgaged property seized and sold with the
view of applying the proceeds thereof to the payment of the obligation. Here, the validity of the extrajudicial foreclosure
was virtually confirmed by the trial court when it dismissed petitioners complaint, and rightly so, what with the fact that
petitioners failed to exercise their right of redemption within the 1-year period therefor counted from the registration of
the sheriffs certificate of sale.
It appears from the evidence on record that despite due notice and publication of the same in a newspaper of general
circulation did not bother to attend the foreclosure sale nor raise any question regarding the propriety of the sale. It was
only more than one year from the registration of the Sheriffs Certificate of Sale, that [petitioners] filed the instant
complaint. Clearly, [petitioners] had slept on their rights and are therefore guilty of laches, which is defined as the failure
or neglect for an unreasonable or explained length of time to do that which, by exercising due diligence, could or should
have been done earlier, failure of which gives rise to the presumption that the person possessed of the right or privilege
has abandoned or has declined to assert the same.petitioners have not offered any valid excuse why, despite notice to
them of the petition for extrajudicial foreclosure filed by the respondents, they failed to attend the proceedings and there
voiced out what they are now claiming. Truly, laches has worked against them.
The law on redemption of mortgaged property is clear. Republic Act No. 3135 provides in Section 6may redeem the same
at any time within the term of one year from and after the date of the sale. From the foregoing, it is clear as day that
even the complaint filed by the petitioners with the trial court on 09 November 1994 was instituted beyond the 1-year
redemption period. In fact, petitioners no less acknowledged that their complaint for annulment of extrajudicial
foreclosure and auction sale was filed about eleven (11) days after the redemption period had already expired.
It must be remembered that the period of redemption is not a prescriptive period but a condition precedent provided
by law to restrict the right of the person exercising redemption. Correspondingly, if a person exercising the right of
redemption has offered to redeem the property within the period fixed, he is considered to have complied with the
condition precedent prescribed by law and may thereafter bring an action to enforce redemption. If, on the other hand, the
period is allowed to lapse before the right of redemption is exercised, then the action to enforce redemption will not
prosper, even if the action is brought within the ordinary prescriptive period. Moreover, the period within which to
redeem the property sold at a sheriffs sale is not suspended by the institution of an action to annul the foreclosure sale.[9] It
is clear, then, that petitioners have lost any right or interest over the subject property primarily because of their failure to
redeem the same in the manner and within the period prescribed by law. Their belated attempts to question the legality
and validity of the foreclosure proceedings and public auction must accordingly fail.
SPS. NESTOR AND MA. NONA BORROMEO v. HONORABLE COURT OF APPEALS and EQUITABLE SAVINGS BANK
 FACTS:Petitioners applied for a loan of P4,000,000.00 and were informed of the approval of their loan application
sometime in October 1999. It was in the early part of 2000 that petitioners signed blank loan documents consisting of
the Loan Agreement, Promissory Notes, a Real Estate Mortgage (REM) and Disclosure Statements.To secure the payment
of the loan, petitioners executed an REM over their land, registered under Transfer Certificate of Title (TCT) No. N-
203923, located at Loyola Grand Villas, Quezon City, consisting of 303 square meters; and the proposed house that was to
be built thereon. Petitioners asserted that even if the loan documents were signed in blank, it was understood that they
executed the REM in favor of EPCIB.

From April 2001 to September 2002, respondent released a total amount of P3,600,000.00 in four installments,
while the balance of P400,000.00 was not drawn by petitioners. On the other hand, petitioners started to pay their
monthly amortizations on 21 April 2001.Petitioners made repeated verbal requests to EPCIB to furnish them their copies
of the loan documents.On 6 August 2003, they sent the president of EPCIB a letter which reiterated their request for copies
of the loan documents. When the petitioners failed to pay for the loan in full by 30 September 2003, respondent sought to
extra-judicially foreclose the REM.
Petitioners sought to prevent the Extrajudicial Sale from taking place. Petitioners maintained that EPCIB acted in
bad faith when it foreclosed the subject property simply because petitioners complained that the interest rates unilaterally
imposed by EPCIB were excessive. It further averred that their deposit accounts with EPCIB were more than sufficient to
pay for the amortizations due on the housing loan.The scheduled date for the Extrajudicial Foreclosure, namely, 26
November 2003, fell on the holiday Eid-el-Fitr, and as a result, it did not push through. In an Order dated 5 December 2003,
the RTC determined that there was no longer any need to issue a temporary restraining order (TRO) and/or preliminary
injunction.
ISSUE:whether or not a writ of preliminary injunction should be issued to enjoin the foreclosure and public auction of
petitioners property during the proceedings and pending determination of the main cause of action for annulment of the
REM on said property.
RULING:a writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected
during the pendency of the principal action. The twin requirements of a valid injunction are the existence of a right and its
actual or threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected and the violation against
that right must be shown.
In this case, petitioners rights to their property is restricted by the REM they executed over it. Upon their default
on the mortgage debt, the right to foreclose the property would be vested upon the creditor-mortgagee.Nevertheless, the
right of foreclosure cannot be exercised against the petitioners by any person other than the creditor-mortgagee or its
assigns. It is clear that under Article 1311 of the Civil Code, contracts take effect only between the parties who execute
them. Where there is no privity of contract, there is likewise no obligation or liability to speak about. The civil law principle
of relativity of contracts provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof. Since a contract may
be violated only by the parties thereto as against each other, a party who has not taken part in it cannot sue for
performance, unless he shows that he has a real interest affected thereby.
This Court emphasizes that the determination of who is the creditor-mortgagee is only for purposes of determining
the propriety of issuing a writ of preliminary injunction, based on the evidence presented before the hearing for the
issuance of a preliminary injunction. It will not bar the RTC from making its own determination as to who is the true
creditor-mortgagee after trial and presentation of evidence on the main case. To establish the essential requisites for a
preliminary injunction, the evidence submitted by the plaintiff need not be conclusive and complete. The plaintiffs are only
required to show that they have an ostensible right to the final relief prayed for in their complaint.

The extrajudicial foreclosure of the petitioners property pending the final determination by the RTC of their
complaint for annulment of the REM and claim for damages would result in an injustice to the petitioners. therefore, the
foreclosure of the property is invalid, petitioners would be placed in an oppressively unjust situation where they will be
tied up in litigation for the recovery of their property while their debt to the real creditor-mortgagee, EPCIB, would remain
unpaid and continue to accrue interest and other charges.
From a perusal of the records, petitioners did not enter into a Loan Agreement and REM with
respondent. Respondent, therefore, has no right to foreclose the subject property even after default, since this right can
only be claimed by the creditor-mortgagor, EPCIB; and, consequently, the extrajudicial foreclosure of the REM by
respondent would be in violation of petitioners property rights.

ROSANA EREA v. VIDA DANA QUERRER-KAUFFMAN,

 FACTS: On October 25, 1997, Kauffman asked her sister, Evelyn Pares, to get the house from Bernal so that the
property could be sold. Pares did as she was told. Kauffman then sent the key to the safety deposit box to Pares, but Pares
did not receive it. Kauffman then asked Pares to hire a professional locksmith who could open the safe. When the safe was
broken open, however, Pares discovered that the owners duplicate title and the tax declarations, including pieces of
jewelry were missing.Kauffman learned about this on October 29, 1997 and returned to the Philippines on November 9,
1997. She and Pares went to the Register of Deeds of Las Pias City and found out that the lot had been mortgaged to
RosanaErea on August 1, 1997.It appeared that a Vida Dana F. Querrer had signed the Real Estate Mortgage as owner-
mortgagor, together with Jennifer V. Ramirez, Victors daughter, as attorney-in-fact.
Kauffman and Pares were able to locate Bernal who, when asked, confirmed that Ramirez had taken the contents
of the safety deposit box. When Kauffman told Bernal that she would file a case against them, Bernal cried and asked for
forgiveness. Bernal admitted that Jennifer Ramirez had been in a tight financial fix and pleaded for time to return the title
and the jewelry.On March 12, 1998, Kauffman filed a complaint against Erea, Bernal and Jennifer Ramirez for Nullification
of Deed of Real Estate Mortgage and Damages with prayer for a Temporary Restraining Order and Preliminary Mandatory
Injunction.
Erea interposed the defense of being a mortgagee in good faith.

ISSUE:WON Petitioners defense of good faith is a valid defense thus validly acquired the Real estate mortgage

RULING:Petitioner avers that respondent failed to prove that she is the owner of the property, and points out that the
documentary evidence shows that the negotiator over the property is Vida Dana Querrer and not Vida Dana Querrer-
Kaufffman.as the plaintiff failed to adduce clear and convincing evidence that the signature on the Real Estate Mortgage is
a forgery, the signature over the printed name in the said document must be the genuine signature of Vida Dana Querrer,
the registered owner of the property. Even assuming that respondent was the lawful owner of the property and the
signature in the Real Estate Mortgage is a forgery, petitioner insists that she is a mortgagee in good faith as shown by the
facts and circumstances.
The ruling of the CA, that the Real Estate Mortgage executed in petitioners favor is null and void, is correct. The
registration thereof with the Register of Deeds and its annotation at the dorsal portion of TCT No. 48521 is also null and
void, as provided in the last paragraph of Section 53, P.D. 1529One of the essential requisites of a mortgage contract is that
the mortgagor must be the absolute owner of the thing mortgaged. A mortgage is, thus, invalid if the mortgagor is not the
property owner. In this case, the trial court and the CA are one in finding that based on the evidence on record the owner
of the property is respondent who was not the one who mortgaged the same to the petitioner.

The evidence shows that Mira Bernal and Jennifer Ramirez were able to open respondents vault and steal the owners
duplicate of TCT No. T-48521 and the tax declarations covering the property; with the connivance of a woman who
pretended to be the respondent, they were able consummate the execution of the Real Estate Mortgage by forging the
respondents signature on said deed.The evidence on record further shows that Jennifer Ramirez and her husband,
Richmond Ramirez, used a woman who introduced herself as Vida Dana Querrer to the petitioner and claim as owner of
the property. That woman, an impostor, signed the Real Estate Mortgage as mortgagor and the Special Power of Attorney,
as principal, and showed to petitioner the owners duplicate copy of the title that was taken from the respondents vault,
and succeeded in having the Real Estate Mortgage annotated at the dorsal portion of the title.

Indeed, case law is that a Torrens title is generally conclusive evidence of ownership of the land referred to therein. While
it serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein (and TCT
No. T-48521 shows, on its face, that the owner is the respondent), when the instrument presented for registration is
forged, even if accompanied by the owners duplicate certificate of title, the registered owner does not thereby lose his
title, and neither does the assignee or the mortgagee, for that matter, acquire any right or title to the property.In such a
case, the transferee or the mortgagee, based on a forged instrument, is not even a purchaser or a mortgagee for value
protected by law.
Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of 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 in good faith is nonetheless entitled to protection.This doctrine presupposes, however, that the mortgagor, who
is not the rightful owner of the property, has already succeeded in obtaining a Torrens title over the property in his name
and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on
the said title. The innocent purchaser (mortgagee in this case) for value protected by law is one who purchases a titled
land by virtue of a deed executed by the registered owner himself, not by a forged deed, as the law expressly states. Such is
not the situation of petitioner, who has been the victim of impostors pretending to be the registered owners but
who are not said owners.The doctrine of mortgagee in good faith does not apply to a situation where the title is
still in the name of the rightful owner and the mortgagor is a different person pretending to be the owner. In such
a case, the mortgagee is not an innocent mortgagee for value and the registered owner will generally not lose his
title.

Eneria v. Querrer-Kuffman

Gr No. 165853 ; June 22, 2006

FACTS: Vda Dana Querrer-Kauffman is the owner of a residential land with a house construed thereon located at Bloc 3,
lot13, MarcilloCorperPlanza St., BF Resort Village Talon, Las Pinas City. Sometime in February 1997, as she was going to
the US, Kauffman entrusted her minor daughter Vida Rose, to her live-in-partner. She also entrusted her key to Victor. She
went back to the Philippines to get her daughter the same year and again left for the US on the same day. Later in, Victor
also left the US and entrusted her house to his sister, Mina Bernal.

On October 25, 1997, Kauffman asked her sister Pares to sell the house. Kauffman then sent the key to Evelyn.
Pares discovered that the owners duplicate title, tax declaration and some jewelries are missing. Kauffman went back to
the Philippines later that year. She and her sister went to the Register of Deeds and found out that the lot had been
mortgaged to RosaraEneria on August 1, 1997. It appeared that a Vida Dana Querrer- Kauffman had signed the real estate
mortgage as mortgagor together with Jennifer Ramirez, Victor’s daughter as Attorney-in-fact, Kauffman and Pares were
able to locate Bernal who confirmed that she had taken the contents of the safety box.

Kauffman filed a complaint against Eneria, Bernal and Ramirez fornullification of Deed with prayer for a TRO and
Preliminary Injucntion in the RTC of Las Pinas City

ISSUE: Whether or not respondent is the owner of property mortgaged to petitioner and contract of real estate mortgage
between Eneria and respondent is a forged deed

RULING: Yes. The trial and appellate courts found that respondent as plaintiff below, adduced clear and convincing
evidence that she is the owner of the property and that the signature on the Special Power of Attorney and Real Estate
Mortgage are not her genuine signature. She purchase the property from a certain Edgardo Espiritu on June 21, 1997 via
Deed of Absolute Sale, when respondent and her sister confronted Bernal, She pleaded mercy on bended knees, after
admitting that she and Ramirez stole the owners duplicate copy of the title and the tax declarations covering the property,
the AC unit, television, and the pieces of jewelry and she impliedly admitted that they forged the respondent’s signature on
the Real Estate Mortgage.

Prudential Bank v. Alviar

Gr No. 150197 ; July 28, 2005

FACTS: Petitioner and respondents intended the real estate mortgage to secure not only the Php 250,000 loan from the
petitioner, but also future credit facilities and advancements that may be obtained by the respondents. The terms of the
above provision being clear and unambiguous, there is neither nedd nor excuse to construe it otherwise. The subsequent
loans obtained by respondents were secured by other securities.

ISSUE: Whether or not the blanket mortgage ir dragnet clause applies even to subsequent advancements for which other
securities were intended.

RULING: No. The sufficiency of the first security is a component of the dragnet clause. But there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other securities for the subsequent loans for which another
security was given, it could not be inferred that such loans was made reliance solely on the original security with the “drag
net clause”, but rather, or on the new security given.

Premier Development Bank v. CA

Gr No. 128122, 128229; March 18, 2005

FACTS: On April 17,1979, Gragaygay of Cebu, executed a deed of sale concerning subject lot in favor of hes nephew Joselito.
The sale notwithstanding the owner’s duplicate certificate remained for some time on the sellers possession. In another
transaction, Gragaygay sold to Yamboa and Rodriquez the same property. Buyers of Yamboa and Rodriquez would later
sell a portion of their undivided interest on the land to Morales.

ISSUE: Whether or not Premiere Development Bank are buyers in good faith.

RULING: as the Court sees it, the Deed of Sale was a simulated transaction because both Joselito admitted that it was a joint
venture to sell the property in question. Premiere Bank’s petition first asserts the rights of purchaser and other that or a
mortgagee, in good faith and value of Lot 23, a status respectively denied them by the appellate court.

SPOUSES SANTIAGO and RUFINA TANCHAN, petitioners vs. ALLIED BANKING CORPORATION, respondent
G.R. No. 164510
November 25, 2005

FACTS:

For value received, Cebu Foremost Construction, Inc. (Foremost), through its Chairman and President Henry Tanchan
(Henry) and his spouse, Vice-President and Treasurer Ma. Julie Ann Tanchan (Ma. Julie Ann) executed and delivered to
Allied Banking Corporation 7 US$ promissory notes, US$379,000.00, at 9.50% interest rate per annum. Foremost also
issued to respondent several Philippine peso promissory notes covering various loans in the aggregate amount of
Php28,900,000.00, at an interest rate of 14.5% per annum. All the foregoing promissory notes are secured by two
Continuing Guaranty/ Comprehensive Surety Agreements (CG/CSA) executed in the personal capacities of spouses Henry
and Ma. Julie Ann (Spouses Tanchan) and Henry's brother, herein petitioner Santiago Tanchan (Santiago),for himself and
as attorney-in-fact of his wife and co-petitioner Rufina Tanchan (Rufina) under a Special Power of Attorney. On August 3,
1998, respondent instituted the extra-judicial foreclosure of the real estate mortgage to satisfy its claim against Foremost
in the aggregate "amount of Php55,578,826.77, inclusive of interest, other charges and attorney's fees, equivalent to 10%
of the total amount due as of May 3, 1998, plus the costs and expenses of foreclosure." At the public auction sale,
respondent's bid of only Php37,745,283.67 for all the mortgaged properties, including the buildings and improvements
thereon, was adjudged the sole and highest bid.

ISSUE:
Whether or not the respondent may claim for deficiency of the loans secured by a real estate mortgage after the foreclosure ?

HELD:

Yes.

Petitioners argue that respondent is barred from claiming any amount under the Promissory Notes, because it had already elected to
foreclose on the mortgage security, and it failed to allege in its pleadings that a deficiency remained after the public auction sale of the
securities and that what it is seeking is the payment of such deficiency.

There is no question that a mortgage creditor has a single cause of action against a mortgagor debtor, which is to recover the debt; but it
has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the mortgage
security. An election of the first bars recourse to the second; otherwise, there would be multiplicity of suits in which the debtor would be
tossed from one venue to another, depending on the location of the mortgaged properties and the residence of the parties. On the other
hand, a creditor who elects to foreclose on the mortgage may yet file an independent civil action for recovery of whatever deficiency may
remain in the outstanding obligation of the debtor, after deducting the price obtained in the sale of the mortgaged properties at public
auction. The complaint, though, must specifically allege that what is being sought is the recovery of the deficiency, or that in the pre-trial,
such claim be raised as an issue.

Contrary to petitioners' argument, it is clear from the allegations in the Complaint that what respondent sought was the payment of the
deficiency amount under the subject promissory notes. While the exact phrase deficiency account is not employed in the Complaint, the
intention of respondent to recover the same is borne out by its allegations.
COMMODITY FINANCING CO., INC., EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA
RAMOS DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS
TANJUATCO, and TEOFILO T. TANJUATCO, III, Petitioners, v. JOSE B. JIMENEZ in his capacity as Presiding Judge of
Branch VI, Court of First Instance of Manila, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CENTRAL BANK OF
THE PHILIPPINES, and THE SHERIFF OF MANILA, Respondents.
G.R. No. L-31384
June 29, 1979

Mr. Alfredo R. de la Merced, as President and in behalf of COFICO, obtained from BANCO FILIPINO on June 21, 1967, a loan
in the amount of ONE MILLION TWO HUNDRED THOUSAND PESOS (P1,200,000.00), payable on or before June 21, 1969.
The loan is secured by a real estate mortgage over a parcel of land registered in accordance with the land Registration Act
in the name of COFICO. As COFICO failed to pay the loan upon its maturity, BANCO FILIPINO foreclosed the mortgage
extrajudicially and the Sheriff of Manila scheduled the public auction sale of the land covered by the real estate mortgage.

The Ramos Family, as majority stockholders of COFICO, prayed for a writ of preliminary injunction of the auction sale
alleging that the properties foreclosed are also conveyed to the CENTRAL BANK as consideration for a voting trust
agreement (G.R. No. L-29352 40 and G.R. No. L-30088). After the hearing on the issuance of a writ of preliminary
injunction, the trial court issued on November 17, 1969 an order granting the issuance of the writ and required the
plaintiffs to file a bond of P1,200,000.00

Due to failure of COFICO to file the said bond, the defendant BANCO FILIPINO moved for the lifting of the writ of
preliminary injunction. The trial court issued an order giving the plaintiffs twenty (20) days from said date within which to
file the bond, and should they fail to do so the order will be set aside. Hence this case. Petitioners contend that the
foreclosure of the mortgage by the respondent BANCO FILIPINO is in violation of the restraining orders issued by this
Court in G.R. No. L-29352 and G.R. No. L-30088.

ISSUE:
Is the foreclosure of the mortgage by the respondent BANCO FILIPINO a violation of the restraining orders issued by this
Court in G.R. No. L-29352 and G.R. No. L-30088?

RULING:
No. The contention of the petitioners is devoid of merit.

The only parties to the Loan Agreement and the Real Estate Mortgage in the case at bar are petitioner COFICO and
respondent BANCO FILIPINO. The RAMOS FAMILY is not a party to the aforesaid agreements. The property mortgaged to
respondent BANCO FILIPINO is owned by the mortgagor, petitioner COFICO, which has a personality separate and distinct
from its stockholders. It cannot, therefore, be said that the foreclosure of the real estate mortgage in the present case is in
violation of the restraining orders issued by this Court in aforesaid cases G.R. No. L-29352 and G.R. No. L-30088. In this
connection, it may not be amiss to state that in a real estate mortgage when the principal obligation is not paid when due,
the mortgagee has the right to foreclose the mortgage and to have the property seized and sold with a view to applying the
proceeds to the payment of the principal obligation.

Moreover, petitioner COFICO and respondent BANCO FILIPINO are not parties to the said cases (G.R. No. L-29352 and G.R.
No. L-30088). Besides, the restraining order issued by this Court in case G.R. No. L-29352 is directed against the CENTRAL
BANK, enjoining the latter from implementing the resolution adopted by its Monetary Board directing the liquidation of
the Overseas Bank of Manila, while the restraining order issued in case G.R. No. L-30088 is directed against the CENTRAL
BANK, the PNB, the Provincial Sheriff of Malolos, Bulacan and the Sheriff of Quezon City, enjoining them from proceeding
with the extra-judicial foreclosures and auction sales scheduled on January 28 and February 19, 1969 of the properties
mortgaged by the petitioners to the PNB, respondent therein.
DSM CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner, v. COURT OF APPEALS and MEGAWORLD GLOBUS
ASIA, INC., respondents.
G.R. 166993; Dec. 16, 2005

PUNO, J.:

FACTS: Petitioner and respondent entered into agreements for the construction of a condominium project owned by
respondent called “The Salcedo Park”, with petitioner as contractor. In the course of the project’s construction, differences
with respect to billings arose between the parties. Petitioner thus filed a complaint for compulsory arbitration before the
CIAC claiming payment for approximately P97 Million as the outstanding balance due from respondent pursuant to the
agreements. The CIAC rendered a decision partially granting both petitioner’s and respondent’s claims in favor of
petitioner. This award was affirmed by the Court of Appeals. Thereafter, the Supreme Court promulgated its Decision
affirming the judgment of the Court of Appeals and lifting the TRO that was then still in effect.It became final and
executory. Petitioner centers on attempts, regrettably entertained by respondent Court of Appeals, to thwart the execution
of a final and executory decision of the Supreme Court.

ISSUE: Whether or not the Court of Appeals gravely abused its discretion when it issued a Resolution enjoining the
enforcement of Alias Writ of Execution.

HELD: YES. Petition was granted. The CIAC is ordered to proceed with the execution of its Decision.

Rule 1, Section 6 of the Rules of Court provides that the Rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and proceeding. We have at times relaxed
procedural rules in the interest of substantial justice.

But from the outset, it bears stressing that the subject of petitioner and respondent’s petitions is the execution of a final
judgment was affirmed by no less than this Court. This being so, the appellate court should have been doubly careful about
entertaining an obviously dilatory petition intended merely to delay the satisfaction of the judgment. Any lower court or
tribunal that trifles with the execution of a final and executory judgment of the Supreme Court flirts with insulting the
highest court of the land. While we do not diminish the availability of judicial remedies to the execution of final judgments
of this Court, as may be sanctioned under the Rules of Court, such actions could only prosper if they have basis in fact and
in law. Any court or tribunal that entertains such baseless actions designed to thwart the execution of final judgments acts
with grave abuse of discretion tantamount to lack of jurisdiction. It is the positive duty of every court of the land to give full
recognition and effect to final and executory decisions, much less those rendered by the Supreme Court.

The abuse of discretion amounting to lack or excess of jurisdiction in this case was made manifest by the fact that the
appellate court not only took cognizance of the case and issued the assailed restraining order. It eventually decided the
case in petitioner’s (respondent herein) favor as well notwithstanding the dearth of any basis for doing so.

STATE INVESTMENT HOUSE INC vs. COURT OF APPEALS

G.R. No. 115548 March 5, 1996

FACTS:On October 15, 1969, Contract to Sell No. 36 was executed by the Spouses Canuto and Ma. AranzazuOreta, and the
Solid Homes, Inc. (SOLID), involving a parcel of land identified as Block No. 8, Lot No. 1, Phase of the Capitol Park Homes
Subdivision, Quezon City, containing
511 square meters for a consideration of P39,347.00. Upon signing of the contract, the spouses Oreta made payment
amounting to P7,869.40, with the agreement that the balance shall be payable in monthly installments of P451.70, at 12%
interest per annum.

On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of State Investment Homes, (sic) Inc.
(STATE) over its subdivided parcels of land, one of which is the subject lot.

For Failure of SOLID to comply with its mortgage obligations contract, STATE extrajudicially foreclosed the mortgaged
properties including the subject lot on April 6, 1983, with the corresponding certificate of sale issued therefor to STATE
annotated at the back of the titles covering the said properties on October 13, 1983.
On June 23, 1984; SOLID thru a Memorandum of Agreement negotiated for the deferment of consolidation of ownership
over the foreclosed properties by committing to redeem the properties from STATE.

On August 15, 1988, the spouses filed a complaint before the Housing and Land Use Regulatory Board, HLRB, against the
developer SOLID and STATE for failure on the part of SOLID "to execute the necessary absolute deed of sale as well as to
deliver title to said property . . . in violation of the contract to sell . . .," despite full payment of the purchase price as of
January 7, 1981. In its Answer, SOLID, by way of alternative defense, alleged that the obligations under the Contract to Sell
has become so difficult . . . the herein respondents be partially released from said obligation by substituting subject lot with
another suitable residential lot from another subdivision which respondents own/operates". Upon the other hand, STATE,
to which the subject lot was mortgaged, averred that unless SOLID pays the redemption price of P125,1955.00, (sic) it has
"a right to hold on and not release the foreclosed
properties.

ISSUES:

1.) WON Sps. Oreta’s unregistered rights over the subject property are superior to the registered mortgage rights of
petitioner State Investment House, Inc. (STATE)
2.) WON the CA erred in not applying the settled rule that persons dealing with property covered by torrens certificate of
title are not required to go beyond what appears on the face of the title.

HELD:

1.) YES! STATE's registered mortgage right over the property is inferior to that of respondents spouses' unregistered right.
The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the original owner
(SOLID, in this case) had parted with his ownership of the thing sold then he no longer had ownership and free disposal of
that thing so as to be able to mortgage it again. Registration of the mortgage is of no moment since it is understood to be
without prejudice to the better right of third parties.

2.) NO! As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title
upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This
rule, however, admits of an exception as where the purchaser or mortgagee, has knowledge of a defect or lack of title in his
vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of
the property in litigation. 7 In this case, petitioner was well aware that it was dealing with SOLID, a business entity
engaged in the business of selling subdivision lots. In fact, the OAALA found that at the time the lotwas mortgaged,
respondent State Investment House Inc., [now petitioner] had been aware of the lot's location and that the said lot formed
part of Capital Park/Homes Subdivision."

The above-enunciated rule should apply in this case as petitioner admits of being a financing institution. We take judicial
notice of the uniform practice of financing institutions to investigate, examine and assess the real property offered as
security for any loan application especially where, as in this case, the subject property is a subdivision lot located at
Quezon City, M.M. It is a settled rule that a purchaser or mortgagee cannot close its eyes to facts which should put a
reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the
title of the vendor or mortgagor. Petitioner's constructive knowledge of the defect in the title of the subject property, or
lack of such knowledge due to its negligence, takes the place of registration of the rights of respondents-spouses.
Respondent Court thus correctly ruled that petitioner was not a purchaser or mortgagee in good faith; hence petitioner can
not solely rely on what merely appears on the face of the Torrens Title.
Case # 53

Castro v. CA
G.R. No. 97401
Decemeber 6, 1995

Facts:

On 15 August 1974, Cabanatuan City Colleges obtained a loan from the Bancom Development Corporation. The college
mortgaged to Bancom two parcels of land covered by TCT No. T-45816 and No. T-45817 located in Cabanatuan City as
security for the loan.

The school defaulted in the due payment of the loan. In time, Bancom extrajudicially foreclosed on the mortgage, and the
mortgaged property was sold at public auction with Bancom coming out to be the only bidder. A certificate of sale was
accordingly executed by the provincial sheriff in favor of Bancom. Subsequently, the latter assigned its credit to herein
private respondent Union Bank of the Philippines.
Petitioner failed to redeem the property, so private respondent consolidated title to the property.

Petitioners averred that, being the owners of the residential house which they themselves had built on the foreclosed
property with the prior knowledge of the mortgagee, they could not be ousted simply on the basis of a petition for a writ of
possession under Act No. 3135.

Issue:

Whether or not the residential house is included in the mortgage.

Held:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income
not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or passes
into the hands of a third person.
Case # 54

Recebido v. People
G.R. No. 141931
December 4, 2000

Facts:

August, 1979, in the Municipality of Sorsogon, Province ofSorsogon, Philippines, the accused, being a private
individual, falsify and/or imitate the signature of oneCaridadDorol and/or cause it to appear that said CaridadDorol has
signed her name on a Deed ofAbsolute Sale of Real Property in favor of the herein accused.

Petitioner contends that the land in question was mortgaged to him by Juan Dorol, the father of Caridad, on
February 25, 1977 and was subsequently sold to him on August 13, 1983 although it was made to appear that the deed of
sale was executed on August 13, 1979. It was also on the said date that Recebido gave Caridad the amount of P1,000.00 in
addition to the P2,600.00 mortgage price given to Juan Dorol which culminated into the execution of the Deed of Sale
signed by Caridad.

Issue:

Whether or not petitioner is entitled to possession over the property

Held:
Petitioner argues that he is entitled to possession as mortgagee since the private complainant has not properly
redeemed the property in question.
The petitioner based his claim of possession alternatively by virtue of two alternative titles: one, based on the forged
deed of sale and, two, as mortgagee of the land. As already discussed, the deed of sale was forged and, hence, could not be a
valid basis of possession. Neither could his status as mortgagee be the basis of possession since it is the mortgagor in a
contract of mortgage who is entitled to the possession of the property. We have taken note of the practice in the provinces
that in giving a realty for a collateral, possession usually goes with it.[18] Besides, even assuming that petitioner had a right
to possess the subject land, his possession became unlawful when the private complainant offered to redeem the property
and petitioner unjustly refused. Petitioner cannot profit from the effects of his crime. The trial court, therefore, did not
commit any error in ordering petitioner to vacate the subject property.
Case # 55

Prudential Bank v Panis

G.R. No L-50008
August 31, 1987

Facts:

On November 19, 1971, plaintiffs-spouses Fernando A. Magcale and TeodulaBaluyutMagcale secured a loan in the
sum of P70,000.00 from the defendant Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage.A 2-STOREY, SEMI-CONCRETE, residential building.This
building is the only improvement of the lot.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and upon application of said
defendant, the deeds of Real Estate Mortgage were extrajudicially foreclosed.

Issue:

Whether or not a valid real estate mortgage can be constituted on the building erected on the land belonging to another.

Held:

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this Court ruled that, "it is
obvious that the inclusion of "building" separate and distinct from the land, in said provision of law can only mean that a
building is by itself an immovable property."

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by itself may be mortgaged apart from the land on which it has been built.
Such a mortgage would be still a real estate mortgage for the building would still be considered immovable property even
if dealt with separately and apart from the land
Case # 56

Hechanova v. Adil
G.R. No. L-49940
Sept 25, 1986

Facts:

The case under review is for the annulment of a deed of sale dated March 11, 1978, executed by defendant Jose Y.
Servando in favor of his co-defendants, the petitioners herein, covering three parcels of land situated in Iloilo City.
Claiming that the said parcels of land were mortgaged to him in 1970 by the vendor, who is his cousin, to secure a loan of
P20,000.00, the plaintiff PioServando 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.

On August 25, 1978, 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 the mortgage was vaild.

Held:

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 (pactocomisorio) 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.

Rural Bank of San Mateo, Incorporated vs. Hon. Intermediate Appellate Court

G.R. No. L-66936 December 12, 1986

PARAS, J.:

FACTS:

The Rural Bank of San Mateo, Inc., filed a petition for the Extra-Judicial Foreclosure and Sale of a parcel of land
embraced in TCT No. T-19927, homestead patent, which title was issued in the name of Mariano Manuel. The plaintiff-
appellee, through its representative submitted its bid in the amount of P41,594.56 for the lot and machinery, and which
amount was the total obligation of the mortgagor Mariano Manuel, principal including interests as of December 9, 1975,
with the plaintiff-appellee. Likewise, the defendant-appellant Santos L. Pilotin submitted his bid in the amount of
P10,000,00.

The defendant-appellant Benjamin V. Sanidad awarded the bid to the defendant-appellant Santos L. Pilotin. The
defendant-appellant Benjamin V. Sanidad, with undue haste, prepared the proceedings of the auction sale, conducted by
him and furnished the plaintiff-appellee a copy of the proceedings. After receiving a copy of the proceedings of the auction
sale, the plaintiff-appellee sent a letterto the defendant-appellant Benjamin V. Sanidad, protesting the results of the auction
sale or bidding and requesting consideration of the award of the bid for P10,000.00 to the defendant-appellant Santos L.
Pilotin.

ISSUE:

Whether or not the Hon. Intermediate Appellate Court erred in concluding that petitioner is under obligation to
foreclose not only the real estate mortgage but also the chattel mortgage.
RULING:

There is nothing to clarify as the contents of the bid offer of petitioner clearly show that the bid of petitioner for the
amount of P41,594.56 is for the "lot and machinery." The records show that the auction sale was a result of the petition
filed by the Rural Bank of San Mateo, Inc. for the Extra-Judicial Foreclosure and Sale of a parcel of land covered by TCT No.
T-19927 issued in the name of Mariano Manuel. The authority of the Sheriff was only to sell the land, not any machinery
and the notice of sale as published explicitly said so.

Plaintiff sought to foreclose only the Real Estate Mortgage. It did not foreclose the Chattel Mortgage. Despite this
fact its bid of P41,594.56 was for the sum total of the two obligations, the one secured with the Real Estate Mortgage and
the other secured with the Chattel Mortgage. For the Sheriff to accept the bid of P41,594.56 which was explicitly for the
"lot and machinery" win open him to the charge of foreclosing the chattel mortgage and a demand for the delivery of the
machinery, which the Sheriff of course will not be able to fulfill as only the Real Estate Mortgage was being foreclosed.

PCI Leasing and Finance Inc. vs. Trojan Metal Industries Incorporated

G.R. No. 176381: December 15, 2010

CARPIO, J.:

FACTS:

Trojan Metal Industries, Inc. (TMI) came to PCI Leasing and Finance, Inc. (PCILF) to seek a loan. Instead of
extending a loan, PCILF offered to buy various equipment TMI owned. Hard-pressed for money, TMI agreed. PCILF and
TMI immediately executed deeds of sale evidencing TMIs sale to PCILF of the various equipment.

PCILF and TMI then entered into a lease agreement , whereby the latter leased from the former the various
equipment it previously owned. Pursuant to the lease agreement, TMI issued postdated checks representing 24 monthly
installments. The lease agreement required TMI to give PCILF a guaranty deposit which would serve as security for the
timely performance of TMIs obligations under the lease agreement, to be automatically forfeited should TMI return the
leased equipment before the expiration of the lease agreement. To obtain additional loan from another financing
company, TMI used the leased equipment as temporary collateral. PCILF considered the second mortgage a violation of the
lease agreement. PCILF sent TMI a demand letter for the payment of the latters outstanding obligation. PCILFs demand
remained unheeded.

ISSUE:

Whether the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel
mortgage.

RULING:

In the present case, since the transaction between PCILF and TMI involved equipment already owned by TMI, it
cannot be considered as one of financial leasing, as defined by law, but simply a loan secured by the various equipment
owned by TMI. Hence, had the true transaction between the parties been expressed in a proper instrument, it would have
been a simple loan secured by a chattel mortgage, instead of a simulated financial leasing. Thus, upon TMIs default, PCILF
was entitled to seize the mortgaged equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the
chattel mortgage. PCILFs sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be
deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.

Section 14 of the Chattel Mortgage Law expressly entitles the debtor-mortgagor to the balance of the proceeds,
upon satisfaction of the principal loan and costs. Prevailing jurisprudence also holds that the Chattel Mortgage Law bars
the creditor-mortgagee from retaining the excess of the sale proceeds.
 Rizal Commercial Banking Corporation v. Royal Cargo Corporation

GR. No. 179756, October, 2, 2009

J. Gutierrez

FACTS:

Terrymanila Inc. filed a petition for voluntary insolvency with RTC of Bataan. One of its creditors was RCBC (P3M
secured by chattel mortgage)Royal Cargo Corporation, another creditor of Terrymanila, filed an action before the RTC
of Manila for collection of sum of money and preliminarily attached "some" of Terrymanila's personal properties to secure
the satisfaction of judgment award of P296,662.16, exclusive of interests and atty's fees. Bataan RTC declared Terry
insolvent Manila RTC judgment in favor of Royal Cargo. In the meantime, RCBC sought in the insolvency proceedings at
Bataan RTC permission to extrajudicially foreclose the chattel mortgage – granted Provincial Sheriff scheduled the public
auction sale of mortgaged personal properties in Bataan. At the auction sale, RCBC was the sole bidder, and purchased
them for P1.5M.Royal Cargo filed a petition for annulment of auction sale before Manila RTC, against the Provincial Sheriff
of Bataan RTC and RCBC. Questioned the failure to duly notify Royal Cargo of the sale at least 10 days prior to the sale,
their basis is Act No. 1508, Sec. 14.

ISSUE:

Whether or not Royal Cargo should have been notified of the foreclosure sale

RULING:

Sec. 13 of the Chattel Mortgage Law allows the would-be redemptioner to redeem the mortgaged property only
before its sale. The redemption cited in Sec. 13 partakes of an equity of redemption, which is the right of the mortgagor to
redeem the mortgaged property after his default in the performance of conditions of the mortgage, but before the sale of
property, to clear it from encumbrance of the mortgage.

Royal Cargo was aware of the auction sale. It was informed about the Order of the insolvency court that granted
leave to RCBC to foreclose the chattel mortgage. Its negligence or omission to exercise its equity of redemption within a
reasonable time, or even on the day of auction sale, warrants a presumption that it had either abandoned it or opted not to
assert it. Royal Cargo was not prejudiced by the auction sale. Terry had sufficient, unencumbered assets to cover
obligations owing to its other creditors. RCBC had a superior lien over the mortgaged assets. The right of those who
acquire properties should not and cannot be superior to that of a creditor, who has in his favor an instrument of mortgage,
executed with the formalities of law, in good faith, and without the least indication of fraud- Right of Royal Cargo was
subordinate to the lien of the mortgagee, who has in his favor a valid chattel mortgage.

CEBU INTERNATIONAL FINANCE CORPORATION vs. COURT OF APPEALS

G.R. No. 107554 February 13, 1997

Kapunan, J:

FACTS:

Jacinto Dy executed a Special Power of Attorney in favor of private respondent Ang Tay, authorizing the latter to
sell the cargo vessel owned by Dy and christened LCT “Asiatic.” Through a Deed of Absolute Sale, Ang Tay sold the subject
vessel to Robert Ong. 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.”

Thereafter, Ong 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 capital. Using the acquired vessel, Ong acquired a loan from Cebu International Finance
Corporation. As security for the loan, Ong executed a chattel mortgage over the subject vessel, which mortgage was
registered with the Philippine Coast Guard Ong defaulted in the payment of the monthly installments.
 A subsequent investigation and inquiry with the Office of the Coast Guard revealed that the subject vessel was
already in the name of Ong. Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with damages against Ong
and his wife which was granted. Cebu International Finance Corp. filed a separate case for replevin and damages against
Ong and Ang Tay in the same court.

ISSUE:

Whether or not the chattel mortgage contract between Cebu International Finance Corp and Ong is valid and
subsisting.

RULING:

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, mortgagee has no
obligation to undertake further investigation.

The key lies in the certificate of ownership issued in Ong's name. It was plainly stated therein that the ship LCT
"Orient Hope" ex "Asiatic," by means of a Deed of Absolute, was "sold and transferred by Jacinto Dy to Robert Ong." 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 of any transaction between Jacinto Dy or Ang Tay and petitioner, it follows 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 which accurately expresses the true nature of the transaction between petitioner and Ong – that it is a simple loan
with chattel mortgage.

BA Finance Corp vs. CA

GR 61464, May 28 1988

FACTS:

Augusto Yulo secured a loan from the petitioner in the amount of P591,003.59 as evidenced by a promissory note he
signed in his own behalf and as a representative of A&L Industries. Augusto presented an alleged special power of
attorney executed by his wife, Lily Yulo, who managed the business and under whose name the said business was
registered, purportedly authorized the husband to procure the loan and sign the promissory note. 2months prior the
procurement of the loan, Augusto left Lily and their children which in turn abandoned their conjugal home. When the
obligation became due and demandable, Augusto failed to pay the same.

The petitioner prayed for the issuance of a writ of attachment alleging that said spouses were guilty of fraud consisting of
the execution of Deed of Assignment assigning the rights, titles and interests over a construction contract executed by and
between the spouses and A. Soriano Corporation. The writ hereby prayed for was issued by the trial court and not
contented with the order, petitioner filed a motion for the examination of attachment debtor alleging that the properties
attached by the sheriff were not sufficient to secure the satisfaction of any judgment which was likewise granted by the
court.

ISSUE:

WON A&L Industries can be held liable for the obligations contracted by the husband.

HELD:

A&L Industries is a single proprietorship, whose registered owner is Lily Yulo. The said proprietorship was established
during the marriage and assets were also acquired during the same. Hence, it is presumed that the property forms part of
the conjugal partnership of the spouses and be held liable for the obligations contracted by the husband. However, for the
property to be liable, the obligation contracted by the husband must have redounded to the benefit of the conjugal
partnership. The obligation was contracted by Augusto for his own benefit because at the time he incurred such
obligation, he had already abandoned his family and left their conjugal home. He likewise made it appear that he was duly
authorized by his wife in behalf of the company to procure such loan from the petitioner. Clearly, there must be the
requisite showing that some advantage accrued to the welfare of the spouses.

Thus, the Court ruled that petitioner cannot enforce the obligation contracted by Augusto against his conjugal properties
with Lily. Furthermore, the writ of attachment cannot be issued against the said properties and that the petitioner is
ordered to pay Lily actual damages amouting to P660,000.00

Bicol Savings Loan Association v. Guinhawa G.R. No. L-62415 August 20, 1990

Facts:

Victor Depositario together with private respondent Jaime Guinhawa, acting as solidary co-maker, took a loan from
petitioner Bicol Savings and Loan Association (BISLA for brevity) in the sum of P10,622.00, payable at P535.45 every 19th
day of each month. To secure the payment of the foregoing loan obligation, VictorioDepositario put up as security a chattel
mortgage which was a Yamaha Motorcycle. Said motorcycle was eventually foreclosed by reason of the failure of
Depositario and Guinhawa to pay the loan. As a result of the foreclosure, there was a deficiency , where BISLA made a
demand to pay the same. BISLA filed a complaint for the recovery of a sum of money constituting the deficiency after
foreclosure of the chattel mortgage put up by the Depositario against the latter and his solidary co-maker Guinhawa.
Depositorio was dropped as his where abouts were unknown and he could not be served with summons.

Issue:

Whether or not a co-maker in a loan, who jointly and severally bound himself to pay loan on the promissory note but is not
a party to the chattel mortgage executed to secure the same loan by the principal debtor can be held liable for the
deficiency in case of foreclosure.

Held:

Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully collected. And therefore, where the private respondent
binds himself solidarily with the principal debtor to pay the latter’s debt, he may be proceeded against by the principal
debtor. Private respondent as solidary co- maker is also a surety (Art. 2047) and that under the law, the bringing of an
action against the principal debtor to enforce the payment of the obligation is not inconsistent with, and does not preclude,
the bringing of another action to compel the surety to fulfill his obligation under the agreement.

Where the obligation is one of a loan by a chattel mortgage and not a sale where the price is payable on instalments, an
independent civil action may be instituted for the recovery of said deficiency if after extra judicial foreclosure of such
chattel mortgage a deficiency exist. If the mortgagee has foreclosed the mortgage judicially, he may ask for the execution of
the judgment against any other property of the mortgagor for the payment of the balance. To deny to the mortgagee the
right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the fact
that the chattel mortgage is only given as a security and not as payment for the debt in case of failure of payment.
Makati Leasing and Finance Corp. vsWearever Textile Mills Inc.,
G.R. No. 58469
May 16, 1983

Facts:
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of Makati Leasing and Finance Corporation
covering certain raw materials and machinery. Upon default, Makati Leasing filed a petition for judicial foreclosure of the
properties mortgaged. Acting on Makati Leasing’s application for replevin, the lower court issued a writ of seizure.
Pursuant thereto, the sheriff enforcing the seizure order and removed the main motor of the subject machinery. In a
petition for certiorari and prohibition, the Court of Appeals ordered the return of the machinery on the ground that the
same cannot be the subject of replevin 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 Wearever textile’s plant would be to
drill out or destroy the concrete floor. When the motion for reconsideration of Makati Leasing was denied by the Court of
Appeals, Makati Leasing elevated the matter to the Supreme Court.

Issue:
Whether or not the machinery in suit is real or personal property from the point of view of the parties.

Held:
The said machinery is a personal property. Like what was involved in the Tumalad case, if a house of strong materials, 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 the denying the existence of the chattel mortgage. The
decision of the Court of Appeals was set aside and the order of the lower court was reinstated.

URBANO JACA and BONIFACIO JACA, petitioners, vs. DAVAOLUMBER COMPANY and HONORABLE MANASES REYES,
as Judge ofthe Court of First Instance of Davao, respondents.

Facts:

UrbanoJaca is a licensee of a logging concession located in Davao City, together with him is BonifacioJaca 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, UrbanoJaca and BonifacioJaca (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 UrbanoJaca 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 UrbanoJaca 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 “
 PREMIERE DEVELOPMENT BANK vs. CENTRAL SURETY & INSURANCE COMPANY, INC

G.R. No. 176246 February 13, 2009

FACTS:

On August 20, 1999 Central Surety obtained an industrial loan of P6M from Premiere Bank with a maturity date of August
14, 2000. 17% interest per annum payable monthly in arrears and the principal payable on due date , penalty charge of
24% per annum based on unpaid amortization/installment or unpaid balance of the loan. In all, failure to pay by Central
Surety means they are liable for a)Unpaid interest up to maturity date, b) Unpaid penalties up to maturity date,c) Unpaid
balance of principal

To secure payment, Central Surety executed Deed of Assignment with Pledge in favor of Premiere Bank, covering Central
Surety's membership in Wack-Wack Golf nad Country Club. The president and vice-president of Central Surety solidarily
bound themselves to the obligatio. Central had another loan with Premiere Bank for P40.89M maturing on October 10,
2001. Premiere Bank demanded payment from Central Surety on August 22, 2000, but Central said they would be able to
pay by the end of September. And they issued a check in the amount of P6M by September 20, 2000.

On September 28, 2000, The check was returned to Central for undisclosed reasons, and sent another demand letter,
asking for payment of both the P6M and the P40.89M and threatened foreclosure of the respective securities. On
September 29, 2000, Central resent the check. Same date, personal loan of one of the solidary debtors from Central was
also paid, in the amount of P2.6M. Premiere Bank then applied the payments to different loans of Central Surety. Central
Surety filed complaint for damages asking the court to declare the P6M loan as fully paid.

RTC ruled in favor of Premiere Bank. CA reversed RTC and said the P6M loan was fully paid. CA said Premiere Bank waived
its right to apply payments when it specifically demanded payment of the P6M loan.

ISSUE:

Wheter or not Premiere Bank waived its right of application of payments on Central Surety's loans

RULING:

NO. Debtor's right to apply payment is not mandatory, because of the word "may" in Art. 1252. It is directory, not
mandatory. Art 1252 gives the right to the debtor to choose to which of several obligations to apply a particular payment
that he tenders to the creditor. But if the debtor fails to direct its application, creditor may do so. Premiere Bank and
Central Surety entered into several contracts of loan, securities by way of pledges, and suretyship agreements. In at least 2
promissory notes, Central Surety EXPRESSLY AGREED TO GRANT PREMIERE BANK the AUTHORITY TO APPLY CENTRAL
SURETY's PAYMENTS. Pursuant to this, Premiere Bank applied payments made by Central Surety as it deemed fit. As
regards the waiver of right, there is an express provision in the Promissory Note: No failure on the part of [Premiere Bank]
to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof. Existence of a waiver must be
positively demonstrated, not implied. So there is no waiver when Premiere Bank demanded payment of the P6M loan.
65 Northern Motors. Inc., petitioner, vs. Hon. Jorge R. Coquia, etc., et. al., respondents, Filinvest

Credit Corporation, intervenor. G.R. No. L-40018, December 15, 1975

FACTS:

Respondent Honesto Ong and City Sheriff of Manila filed a motion for reconsideration of this Court’s resolution holding
that a lien of Northern Luzon Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made on the
said cabs by Honesto Ong, the assignee of the unsecured judgment creditor of the chattel mortgagor, Manila Yellow
Taxicab Co., Inc. On the other hand, on the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of
the same August 29 resolution, prayed for the reversal of the lower court's orders cancelling the

bond filed by Filwriters Guaranty Assurance Corporation. Northern Motors, Inc. further prayed

that the sheriff should be required to deliver to it the proceeds of the execution sale of the mortgaged taxicabs without
deducting the expenses of execution.

ISSUES:

1. Whether the judgment creditor’s claim is superior to mortgagor’s lien over the property.

2. Whether Northern Motors Inc., is entitled to the proceeds of the sale without deductions

Ruling:

1: No.
Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. He contends
that his only recourse was to levy upon the taxicabs which were in the possession of the judgment debtor, Manila Yellow
Taxicab Co. Inc., whereas, Northern Motors,

Inc., as unpaid seller and mortgagee, "has still an independent legal remedy" against the mortgagor

for the recovery of the unpaid balance of the price. That contention is not a justification for setting aside the holding that
Ong had no right to levy upon the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of
redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and
not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent
action" for the enforcement of his credit. To require him to do so would be a nullification of his lien and would defeat the
purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his
credit.

2: Yes. The Court already held that the execution was not justified and that Northern Motors, Inc., as mortgagee, was
entitled to the possession of the eight taxicabs. Those cabs should not have been levied upon and sold at public auction to
satisfy the judgment credit which was inferior to the chattel mortgage.

Since the cabs could no longer be recovered because apparently they had been transferred to

persons whose addresses are unknown, the proceeds of

the execution sale may be regarded as a partial substitute for the unrecoverable cabs. Northern

Motors, Inc. is entitled to the entire proceeds without deduction of the expenses of execution.
66 Ramirez v. CA

Gr no. L-38185 September 24, 1986

Facts

In the year 1959, petioner spouses ramirez and Valentino Bonifacio filed an application for registration of a parcel of
riceland in Las Pinas Rizal. After notice and publication, nobody appeared to oppose such, hence an order of genereal
default was issued and the court allowed the petitioners to present their evidence that they purcjasedtheor land from
Gregorio Pascual during the early part of American regime but the corresponding contract of sale was lost. The court
ordered the issuance of decree of registration and OCT no 2273 in the names of petitioner. The respondent filed a petion
for reviewfor the decree of registration on the ground of fraud alleging that he received a loan of 400Php from petitioner in
which they secured a mortgage on the land by way of antichresis and that there were several attepmts to reddem the land
but were refused by the petitioner.

Issue:

can an antichretic creditor acquire the land of debtor by prescription?

Ruling:

No. An antichretic creditor cannot acquire the land of creditor because he is not in the concept of owner but a mere holder
placed in posssession of the land by its owners. Thus, possession of an antichrericcresitor cannot serve as a title for
acqiring dominion.

Furthermore, an antichretic creditor cannot ordinarily acquire by prescription the land surrendered to him by debtor.

67 Rosales v. Tanseco Gr no. L-4135 November 29,1951

FACTS:

Congzon, thru fraud and without consideration, was made by Tansenco to execute a mortgagein favor of Tan Sun on a
piece of land owned by him (Congzon). Tan Sun then transferred all hisrights to Tan Tay Sun, who, in turn, assigned such
to Tansenco. Congzon never enjoyed thepossession and fruits of the land. !e also paid for the taxes, the amount of which is
much morethan that of the credit of Tan Sun secured by the mortgage.

A complaint was filed in May 1947, alleging thatPlaintiffs are the widow and daughter, respectively, of EustaquioCongzon
who owned with his wife a piece of land with improvements in Catbalogan, Samar. OnAugust 15, 1927, defendant Loecadio
S. Tanseco prepared fictitious mortgage of the land infavor of Tan Tay San, which he made EustaquioCongson sign without
consideration. That document was subsequently cancelled to be substituted in May 30, 1930 by another “mortgage”for
2,600 in favor of defendant. Tan San, which EustaquioCongzo again signed thru fraud andwithout consideration. On March
30, 1932 Tan San, transferred all his rights to defend an TanTay San, who in turn assigned his interest to defendant
LeocadioTanseco in April, 1936. For second cause of action the complaint incorporates the pertinent allegations of thefirst,
and asserts that the buildings on the lot were totally burned in June 1942; that said buildings have always been occupied
by the mortgages, and never by EustaquioCongzon but that the plaintiffs, who never enjoyed the possession and fruits of
their land, did satisfy taxes thereon amounting to 39,480.75.

ISSUE:

Was there a contract of antichresis?

Ruling:
Yes there is a contract of antichresis between the parties in this case

In a contract of antichresis the creditor is obliged to pay the taxes on the property, unless the contract says otherwise,
provided under Article 1882 of the Civil Code. The contract between Congzon and Tan Sunsaid nothing about taxes. Hence
it was the obligation of the creditor to pay the taxes on the property at issue herein. Bearing in mind that the credit was
only 26,000 Pho it is plain to see that Congzon affirmed in effect that they had already discharged their debt by advancing
the taxes which the creditor should have paid, and are entitled to the return of their property free from all encumbrances.

68 Macapinlac v. Repide

Gr no. 18574 September 29, 1922

Facts:

The case was instituted for the purpose of declaring plaintiff as owner of a real estate property and to

nullify the Torrens title, which was in respondent’s name. Plaintiff also wanted to recover possession overthe property
with damages. Plaintiff owned the real estate property located in Pampanga. Later, plaintiff acquired a loan toBachrach
Garage & Taxicab for a price of an automobile. To secure payment, plaintiff executed fourteenpromissory notes: 11 in the
hands of Bachrach and 3 in the hands of the payee of the company. As security and guaranty of payment, plaintiff executed
a deed of sale with a right to repurchase. More than a year later, respondent acquired the rights of Bachrach over the
properties by paying P5000. Be it noted that during the conveyance of rights, Repide knew of the purpose of the transfer of
title to secure the debt owing to Bachrach by the plaintiff. He also knew that the debt had been paid andthat only a half of
the debt existed. Afterwards, Repide caused for the transfer of title into his name by making it appear that thepurported
sale was true. During those times, respondent Repide was in actual possession of the propertyand was enjoying its
fruits.Plaintiff filed a case to recover possession in which the Court of First Instance decided in favourof respondent. Due to
this, plaintiff filed for a review of the case.

Issue:

What contract should govern the parties?

Ruling:

In this case, the court cited the case of Barretto vs. Barreto, where the heirs of a mortgagee of an estate were found in
possession of mortgaged property more than thirty years after the mortgage had been executed; and it was shown that the
mortgage had never been foreclosed. In effect, the rights held by theparties, both the mortgagor and mortgagee, were
essentially the same as the ones in a contract of antichresis.

In antichresis, the non-payment of the debt does not vest the ownership to the creditor; however, the debtor cannot
recover the property for its enjoyment without paying the full amountof his indebtedness. At this time, the creditor is
under obligation to apply the fruits derived from the estate in satisfaction, first, of the interest on the debt, if any, and,
secondly, to the payment of the principal. By doing so, the fruits will be applied in satisfaction for the mortgage debt.
DEVELOPMENT BANK OF THE PHILIPPINES vs. HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL
SALES CORPORATION

G.R. No. 126200. August 16, 2001

Facts:

Marinduque Mining Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of nickel and
cobalt obtained from the Philippine National Bank (PNB) loan accommodations. Marinduque Mining executed a Deed of
Real Estate Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of MarinduqueMinings real
properties, located at Surigao del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements
thereon. The loans extended by PNB amounted to P4 Billion, exclusive of interest and charges. Thereafter, Marinduque
Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and charges.Marinduque Mining
mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently acquired by
Marinduque Mining.For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted extrajudicial
foreclosure proceedings over the mortgaged properties.

In the 3 public auctions conducted, PNB and DBP emerged and were declared the highest bidders.In order to ensure the
continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and
transferred to Nonoc Mining and Industrial Corporation all their rights over the foreclosed properties of MMIC located at
Nonoc Island, Surigao del Norte and also transferred in favor of Maricalum Mining Corp. all its rights over the foreclosed
properties of MMIC at Sipalay, Negros Occidental.

It again assigned to the National Government thru the Asset Privatization Trust (APT) all its existing rights over the assets
of MMIC earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island Cement
Corporation.

Marinduque Mining purchased construction materials from Remington Industrial Sales Corporation (Remington) worth
P921,755.95. The purchases remained unpaid when Remington filed a complaint for a sum of money and damages against
Marinduque Mining for the value of the unpaid construction materials.

Remingtons amended the complaint to include PNB and DBP as co-defendants. Second amendment to include as additional
defendant Nonoc Mining and Industrial Corporation (Nonoc Mining). And the third amended complaint including the
Maricalum Mining Corporation (Maricalum Mining) and Island Cement Corporation (Island Cement) as co-defendants.

The RTC rendered a decision in favor of Remington ordering the defendants to pay jointly and severally Remington.

The CA affirmed the decision of the RTC. Motion for Reconsideration denied. Hence, this petition.

Issue:

W/n in the absence of liquidation proceedings, the claim of Remington cannot be enforced against DBP.

Ruling:

In Barretto vs. Villanueva,the Court had occasion to construe Article 2242, governing claims or liens over specific
immovable property.

Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific
immovable property, and among them are:

"(2) For the unpaid price of real property sold, upon the immovable sold"; and

"(5) Mortgage credits recorded in the Registry of Property."

Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real
property or real rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the
immovable property or real rights."

As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the
insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the
Code as intended only for insolvency cases, then other creditor-debtor relationships where there are concurrence of
credits would be left without any rules to govern them, and it would render purposeless the special laws on insolvency.

Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the
remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be
paid pro rata.

Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where
specific movable property is involved. As the extra-judicial foreclosure instituted by PNB and DBP is not the liquidation
proceeding contemplated by the Civil Code, Remington cannot claim its pro rata share from DBP.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs. NLRC

G.R. No. 86932 June 27, 1990

Facts:

Philippine Smelters Corporation (PSC), a corporation registered under Philippine law, obtained a loan in from the
Development Bank of the Philippines, a government-owned financial institution created and operated in accordance with
Executive Order No. 81, to finance its iron smelting and steel manufacturing business. PSC mortgaged to DBP real
properties with all the buildings and improvements thereon and chattels, with its President, Jose T. Marcelo, Jr., as co-
obligor.

DBP became the majority stockholder of PSC with stockholdings. Subsequently, it took over the management of PSC.

When PSC failed to pay its obligation with DBP, DBP foreclosed and acquired the mortgaged real estate and chattels of PSC
in the auction sales.

Forty (40) petitioners filed a Petition for Involuntary Insolvency in the RTC representing themselves as unpaid employees
of said private respondents, except PISO Bank.

NLRC sustained the ruling of the labor arbiter, holding DBP liable for unpaid wages of private respondents "not as a
majority stockholder of respondent PSC, but as the foreclosing creditor who possesses the assets of said PSC by virtue of
the auction sale it held in 1987." In addition, the NLRC held that the labor arbiter is correct in assuming jurisdiction
because "the worker's preference to the amount secured by DBP by virtue of said foreclosure sales of PSC properties arose
out of or are connected or interwoven with the labor dispute brought forth by appellees against PSC and DBP. Hence, the
present petition by DBP.

DBP contends that the labor arbiter and the NLRC committed a grave abuse of discretion (1) in assuming jurisdiction over
DBP; (2) in applying the provisions of Article 110 of the Labor Code, as amended; and (3) in not enforcing and applying
Section 14 of Executive Order No. 81.

Issue:

Whether or not DBP as foreclosing creditor could be held liable for the claims of the employees of PSC?
Ruling:

A declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may be enforced.

Republic Act No. 6715, which took effect on March 21, 1989, amended Article 110 of the Labor Code. Notably, the terms
"declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this means then that liquidation
proceedings have been done away with?

We opine m the negative, upon the following considerations:

1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must
be read in relation to the Civil Code scheme on classification and preference of credits.

2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into
harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property
among his creditors.

4. A distinction should be made between a preference of credit and a lien.

5. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to
the fulfillment of the obligation for whose security it was constituted. It creates a real right which is enforceable against the
whole world. It is a lien on an Identified immovable property, which a preference is not.

6. Article 110 and its Implementing Rule, as amended should be given only prospective effect in line with the cardinal rule
that laws shall have no retroactive effect, unless the contrary is provided.

For an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried,
and thereafter the preference determined in the course of judicial proceedings which have for their object the subjection of
the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of
preference of creditors' claims is assured. The adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the
Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony.

On the foregoing considerations and it appearing that an involuntary insolvency proceeding has been instituted against
PSC, private respondents should properly assert their respective claims in said proceeding. .

Wherefore, the petition is granted. the decision of public respondent is hereby annulled and set aside.
PHILIPPINE SAVINGS BANK v. LANTIN.

G.R.No.L-33929. September 2, 1983.

Facts:
Involved in this case is a duplex-apartment house on a lot owned by the spouses Filomeno and Socorro Tabligan. It was
built for the spouses by private respondent Candido Ramos, a duly licensed architect and building contractor, at a total
cost of P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. The latter used his own money,
P25,788.50 in all, to finish the construction of the duplex-apartment.
The spouses Tabligan obtained from petitioner Philippine Savings Bank three (3) loans in the total amount of P35,000.00,
the purpose of which was to complete the construction of the duplex-apartment. To secure payment of the l2 loans, the
spouses executed in favor of the petitioner three (3) promissory notes and three (3) deeds of real estate mortgages over
the property subject matter of this litigation.

Petitioner registered the deed of real estate mortgage with the Register of Deeds of Manila. Mortgages were registered
with the Register of Deeds of Manila and encumbrances.

The spouses failed to pay their monthly amortizations. Thus, the petitioner bank foreclosed the mortgages. The petitioner
bank was the highest bidder and registered the certificate of sale issued in its favor.

Private respondent filed an action against the spouses to collect the unpaid cost of the construction of the duplex-
apartment before the Court. A decision was rendered in favor of the private respondent. Respondent demands for his pro-
rata share of the proceeds.

Petitioner argues that for Article 2242 of the Civil Code to apply, there must have been an insolvency proceeding or other
liquidation proceedings of similar import. There could have been no insolvency proceeding as there were only two known
creditors. Respondent’s unpaid contractor’s claim did not acquire the character of a statutory lien equal to the petitioner’s
registered mortgage.

Respondent Ramos maintains that the proceedings had before the court below can qualify as a general liquidation of the
estate of the spouses Tabligan because the only existing property of said spouses is the property subject matter of this
litigation.

Issue:

Whether or not the private respondent is entitled to claim a pro-rata share in the value of the property in question

Ruling:

The full application of Articles 2242 and 2249 demands that there must be first some proceeding where the claims of all
the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent’s estate under Rule
87 of the Rules of Court, or other liquidation proceedings of similar import.

A careful considering of this petition leads us to agree with the petitioner. The proceedings in the court below do not
partake of the nature of the insolvency proceedings or settlement of a decedent’s estate. The action filed by Ramos was
only to collect the unpaid cost of the construction of the duplex apartment.

"Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims
to be recorded in the books of the Register of Deeds should they desire to protect their rights even outside of insolvency or
liquidation proceedings.

In fact, an annotation, as suggested above, would inure to the benefit of the public, particularly those who may
subsequently wish to buy the property in question or who have a business transaction in connection therewith. It would
facilitate the enforcement of a legal statutory right which cannot be barred by laches.
Since the action filed by the private respondent is not one which can be considered as "equivalent general liquidation"
having the same import as an insolvency or settlement of the decedent’s estate proceeding, the well established principle
must be applied that a purchaser in good faith and for value takes registered land free from liens and encumbrances other
than statutory liens and those recorded in the Certificate of Title. It is an admitted fact that at the time the deeds of real
estate mortgage in favor of the petitioner bank were constituted, the transfer certificate of title of the spouses Tabligan
was free from any recorded lien and encumbrances, so that the only registered liens in the title were deeds in favor of the
petitioner.
Prescinding from the foregoing, the private respondent’s claim must remain subordinate to the petitioner bank’s title over
the property evidenced by TCT No. 101864.