Credits Digest Compilation

Name: Gomez, Jan-Derrick Royce A.
Topic: Contract of Loan

Provision Cited:
Title: Naguiat v. CA
Source, Date: 412 SCRA 591, 29 October 2003
Facts:
Queano applied for a P200,000.00 loan from Naguiat. Naguiat issued two checks in
the amount of P95,000.00 each. To secure the loan, Queano executed a Deed of Real Estate
Mortgage. Thereafter, Queano issued a post-dated check worth P200,000.00 in favor of
Naguiat. When Naguiat brought the check for encashment in Security Bank, the check was
dishonored by reason of insufficiency of funds.
Queano received a letter demanding settlement of loan. Along with Ruby
Ruebenfeldt, Queano explained to Naguiat that she did not receive the proceeds of the loan,
as Ruebenfeldt, being Naguiat’s agent, retained said checks. Naguiat applied for extrajudicial
foreclosure of the mortgaged land. This was granted by the RTC. Queano filed a case of
annulment of the mortgage deed.
Issue: Whether or not the fact that Queano did not receive the loan warranted maturity of the
foreclosure of the mortgage.
Held: No. Petition denied.
Ruling:
A loan contract is a real contract, not consensual, and as such, is perfected only upon
the delivery of the object of the contract. In this case, the objects of the contract are the loan
proceeds which Queano would enjoy only upon the encashment of the checks signed or
indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have
certainly presented the corresponding documentary evidence, such as the returned checks the
pertinent bank records. Since Naguiat presented no such proof, it follows that the checks
were not encashed or credited to Queano’s account. Therefore, no perfected contract between
Queano and Naguiat.
Name: Ho, Nelson Conrad C.
Law Cited: Article 1953, in relation to Article 1933, Articles 1169 and
561 of The Civil Code.
Title: DBP vs Guariña Agricultural & Realty Dev. Corp.
Source, Date: G.R. No. 160758, 15 January 2014
Nature: Petition for review on certiorari
Ponente: Bersamin, J.
Facts:
In July 1976, Guariña Agricultural and Realty Development Corporation (Guariña)

applied for a loan from DBP to finance the development of its resort complex situated in
Trapiche, Oton, Iloilo. The loan in the amount of P3,387,000 was approved on 05 August
1976. Guariña executed a promissory note that would be due on 03 November 1988.
Thereafter, Guariña executed a real estate mortgage and chattel mortgage over its several real
properties and personal properties existing at the resort complex to secure the performance of
the obligation. Guariñ was required to put up a cash equity of P1,470,951 for the construction
of the buildings and improvements on the resort complex. The loan was released in several
instalments amounting to P3,003,617 from which DBP withheld P148,103 as interest.
Guariña demanded the release of the balance of the loan but DBP refused, and instead
directly paid some suppliers of Guariña over the latter’s objection. DBP found upon
inspection of the resort project that it was not yet completed thus DBP demanded that
Guariña expedite completion of the project and warned that it would initiate foreclosure
proceedings.
DBP initiated extrajudicial foreclosure proceedings. In 1979, Guariña sued
DBP to demand specific performance under the loan agreement and stop the foreclosure of
the mortgages. In the meantime, DBP applied for the issuance of writ of possession which
was granted by the RTC. Aggrieved, Guariña assailed the granting before the CA on
certiorari but was dismissed. In 1982, the RTC issued the writ of possession in favour of
DBP.
In 1998, in the case filed by Guariña during 1979, the RTC rendered its
judgement that the foreclosure proceedings were null and void, and that DBP should return
the actual possession of the properties foreclosed. On appeal, the CA sustained the judgement
of the RTC deleting the award for attorney’s fees.
Issue: 1. Whether the agreement between DBP and Guariña was a loan.
2. Whether Guariña was in default of its principal obligation, and that foreclosure
proceedings were proper.
Held: 1. Yes. The agreement between DBP and Guariña was a loan.
2. No. Petition denied.
Ruling: Guariña was not yet in default rendering the foreclosure proceedings
premature and improper. The Supreme Court (SC) ruled that the failure to release the
proceeds of the loan in its entirety, DBP had no right yet to exact on Guariña the latter’s
compliance with its own obligation under the loan. In a reciprocal contract like a loan, the
other party cannot be obliged to perform what is expected of it while the other’s obligation
remains unfulfilled. The latter does not incur delay. Guariña would not incur in delay before
DBP fully performed its reciprocal obligation.
DBP’s actuations were legally unfounded. While it is true that loans are often secured by a
mortgage, by its nature however, a mortgage remains an accessory contract dependent on the
principal obligation. Considering that it had yet to release the entire proceeds of the loan,
DBP, could not make an effective demand for payment upon Guariña to perform its
obligation under the loan. Guariña would not be in default without the demand. Under the
circumstances, DBP’s foreclosure of the mortgage and the sale of the mortgaged properties at
its instance were premature, and therefore, void and ineffectual. DBP as a banking institution,
owed it to Guariña to exercise the highest degree of diligence and to observe the high
standards of integrity and performance in all its transactions because its business was imbued
with public interest.
The SC affirms the order for the restoration of possession to Guariña and the payment of
reasonable rentals for the use of the resort in accordance with Article 561 of the Civil Code.
Name: Limboc, Alyssa Anne Bernadette J. Limboc
Provision Cited: Art. 1932 of the New Civil Code
Title: Saura Import & Export Co., Inc. Vs Development Bank of the
Philippines
Source, Date: GR L-24968, April 27, 1972
Facts:
Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion into
DBP, for an industrial loan of Php500,000.00 for the construction of a factory building,
payment for machine and equipment and additional working capital.
RFC passed resolution approving the said loan application to be secured by a first mortgage
on the factory buildings to be constructed. Saura asked RFC for modification of the terms
laid down by RFC. RFC and Saura undergone negotiations. Despite formal execution of loan
agreement and the re-examination contemplated in the resolution proceeded. In a meeting of
RFC, it was decided to reduce the loan to Php300,000.00 which thereafter restored upon
negotiation.
When the negotiation came to a standstill, Saura did not pursue the loan and requested RFC
for cancellation of the mortgage. RFC executed the corresponding deed of cancellation and
delivered it so Saura. It appears that the cancellation was requested to make way for the
registration of a mortgage contract over the same property in favor of Prudential Bank.
Almost 9 years after the mortgage in favor of RFC was cancelled, Saura institued suit for
damages on the ground that RFC(as predecessor of DBP) failed to comply with its obligation
to release the proceeds of the loan applied thereby preventing Saura from paying contractual
commitments it had entered into
Issue: Whether there is a perfected contract between Saura and RFC.
Held: Yes.
Ruling:
Trial Court rendered its judgment by ruling that there was a perfected contract as recognized
in Article 1934 of the Civil Code which provides that “An accepted promise to deliver
something by way of commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the delivery of the object of the
contract.”
However, the action taken by both parties by cancelling the mortgage was in nature of mutual
desistance or “mutuo disenso”. Mutual desistance is a mode of extinguishing obligations. It is
a concept that derives from the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment. Also, Suara did not protest
against any alleged breach of contract by RFC instead requested for cancellation with no
reservation of whatever rights against FRC for non compliance.
Supreme Court (SC) found it unnecessary to consider the damages alleged by Saura. Thus,
the appealed judgment was reversed and the complaint was dismissed with cost against
Suara.
Name: Manalo, Maria Anna S.
Provision Cited: Article 1934
Title: BPI Investment Corporation vs. Court of Appeals and ALS
Management & Development Corporation
Source, Date: GR No. 133632, 15 February 2002
NATURE: Petition for Review on Certiorari
PONENTE: J. Quisumbing
FACTS:
Frank Roa obtained a loan at an interest rate of 16¼% per annum from Ayala
Investment & Development Corporation (AIDC), for construction of his house.
The said house and lot were mortgaged to AIDC to secure the loan.
Roa sold the properties to respondents ALS and Litonjua, the latter paid in cash
and assumed the balance of Roa’s indebtedness to AIDC, who was not willing to
extend the old interest and instead proposed a grant of new loan of P500,000.00
with a higher interest. Respondents executed a mortgage deed containing the
stipulation.
BPIIC, AIDC’s predecessor, released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roa’s loan.
BPIIC filed for foreclosure proceedings on the ground that private respondents
failed to pay the mortgage indebtedness.
Respondents maintained that they should not be made to pay amortization before
the actual release of the P500,000.00 loan.
RTC declared that private respondents were not in default, and foreclosure by
BPIIC was premature.
CA affirmed the decision.
ISSUE: Whether a contract of loan is a consensual contract.

HELD: No.
RULING: The Court held that a loan contract is not a consensual contract but a real
contract. It is perfected only upon the delivery of the object of the contract.
A contract, as declared by the Court in Bonnevie vs. CA, as a perfected
consensual contract falls under the first clause of Art. 1934. It is an accepted
promise to deliver something by way of simple loan.
A loan contract between BPI and ALS and Litonjua was perfected when the full
loan was delivered. Following the intentions of the parties on commencement of
monthly amortization, respondents’ obligation to pay commenced only after the
perfection of the loan contract.
It is basic principle in reciprocal obligations that neither party incurs in delay if
other arty does not comply or is not ready to comply with what is incumbent
upon him.
Name: Vanya Klarika E. Nuque
Law or Provision Cited: Credit Line Facility
Title: SPOUSES PIO DATO, et al. vs. BPI
Source, Date: G.R. No. 181873; 27 November 2013 
Facts:
Petitioners applied for a P240K loan which was granted with a term of six months and
secured by a real estate mortgage over a parcel of land owned by Spouses Sia. Subsequently,
Spouses Sia availed of a P4M Revolving Promissory Note Line with a term of one year,
secured by the same real estate mortgage. Spouses Sia alleged that their loan will be indorsed
to [Industrial Guarantee and Loan Fund] (IGLF) to be able to avail of a much lower interest
rate and longer payment terms.
Before the P240K and P4M loans matured, Spouses Sia approached BPI for additional loans.
After discussion, Spouses Sia agreed to obtain a Credit Facility of P5.7M using the same
collaterals offered in their previous loans and four additional parcels of land. Spouses Sia
then obtained P800K from their Credit Facility which was credited to their account after
executing a Promissory Note for the same amount. They paid some of the interest on their
loans but this was still insufficient to cover the principal amount. BPI sent numerous
reminders to Spouses Sia to settle their balance but they only paid the P800K borrowed from
the Credit Facility. Since the original loans remain unpaid, BPI cancelled the Credit Facility
and asked them to sell the lots mortgaged to pay the loans; they did not sell and still didn’t
pay the loans. Since Sps. Sia still failed to pay, the lots mortgaged were foreclosed; the sole
bidder in the auction was BPI. Sps. Sia in their amended complaint (original was that BPI
failed to indorse the loan to IGLF) claimed that the bank inserted and annotated a
falsified/illegal Real Estate Mortgage of P5.7M. They also claimed that they did not execute
a Promissory Note. They also alleged that since BPI credited the payment of P5.7M to their
account, which is more than the amount of their principal loan, their obligation is now
extinguished and that the foreclosure is illegal. RTC ruled in favor of BPI. CA affirmed the
decision.
Issue: Whether the cancellation of the Credit Facility raises a legal issue
Held: NO. Petition is Denied.
Ruling:
[C]ontrary to the belief and understanding of Spouses Sia, BPI does not have to require the
execution of promissory note of the entire P5.7 Million since a credit line as stated above, is
merely a fixed limit of credit. Furthermore, still applying the above quoted definition, a credit
line usually presupposes a series of transactions until the credit line is nearly exhausted. BPI
is not obliged to release the amount of
P5.7 Million to Spouses Sia all at once, in a single transaction. BPI allowed the release only
of P800K since Spouses Sia have not yet satisfied their obligation to pay their loans of P4M
and P240K.
Name: Richard Paolo Alarilla
Topic: Commodatum
Provision Cited: Act. 627 Court of Land Registration
Title: Republic of the Philippines vs. Court of Appeals and Heirs
of Domingo P. Baloy
Source, Date: G.R. No. L-46145, 26 November 1986
Facts:
The case involves a disputed title land belonging to the Heirs of Domingo P. Baloy.
The applicants’ (Heirs of Domingo P. Baloy) claim is anchored on their possessory
information title and tax declaration title on said land.
The Director of Lands opposed the registration and stated that the said land became a
public land by virtue of Act 627 of the Philippine Commission. Pursuant to the Act, the said
area was declared within the U.S. Naval Reservation and a period of 6 months was granted to
persons affected who could file their application otherwise the said lands will be adjudged to
be public lands and claims to such lands by private individuals will be forever barred.
Petitioners (Bureau of Lands) argue that since the respondent applicants fail to file the
claim for such land, it became irrevocable public and not subject to registration of ownership.
According to the Clerk of Court of Land Registration, there was no formal order or
decision of the said Court of Land Registration declaring the land public. Thus it can be said
that there was no judicial declaration to that effect. Being said that, the title of the applicants
was only in a state of suspended animation and did not die. Since the U.S. Navy abandoned
the area, applicants came in and asserted title once again.
Issue:
Whether or not there is a need for a judicial declaration for the land to be deemed as public
land
Whether or not the possessory information title was lost by prescription
Held:
Yes, a judicial declaration is needed for the land to be deemed as a public land
No, the possessory information title was not lost by prescription
Ruling:
Private land could be deemed to have become public land only by virtue of a judicial
declaration after due notice and hearing. It runs contrary to the contention of the petitioners
that failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto public
without any need of judicial pronouncement. Act. 627 by its terms is not self-executory and
required the implementation by the Court of Land Registration. Since there was no order
rendered by the Land Registration Court, it necessarily follows that it never became public
land through the operation of Act 627.
When the U.S. Navy possessed the area, the possessory rights of the Heirs of Baloy were
merely suspended and not lost by prescription. The disputed property is private land and this
possession was interrupted only by the occupation of the land by the U.S. Navy. The Heirs of
Baloy are now in actual possession since the abandonment by the U.S. Navy. The occupany
of the U.S. Navy was not in the concept of owner but it partakes of the character of a
commodatum. It cannot therefore have an effect against the title of the Heirs of Baloy. One’s
ownership of a thing may be lost by prescription by reason of another’s possession if such
possession be under claim of ownership and not merely actual possession.
Name: Jillian Ira L. Bagaoisan
Topic: Commodatum
Provision Cited: Articles 1933, 1935, 1936 Civil Code
Title: Producers Bank of the Philippines v. Court of Appeals, et al.
Facts:
Private respondent Vives was approached by his friend, Angeles Sanchez to help one Col.
Arturo Doronilla in incorporating his business, Sterela Marketing and Services (Sterela) by
depositing money in its bank account. Vives issued a check in the amount of P200,000.00 in
favor of Sterela with the assurance that the same will be returned in a month.
Subsequently, upon learning that Sterela was no longer holding office in the address
previously given to him, Vives and his wife went to the bank and found out that only P90,000
remained in the account. They were also informed that they could not withdraw said amount
because it had to answer for some post-dated checks issued by Doronilla. When Vives
demanded Doronilla to return his money, the latter issued three different checks, one after the
other, for P212, 000.00, all of which were dishonored for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the RTC of
Pasig. The RTC ruled in his favor and on appeal, the CA affirmed the decision of the RTC.
Petitioner elevated the case to the SC, contending that the transaction between Doronilla and
Vives was one of a simple loan and not accommodation as manifested by the additional P12,
000 in payment for interest.
Issue: Whether the transaction between Doronilla and Vives was one of a simple loan
Ruling:
The transaction was a commodatum and not a mutuum. Article 1933 of the Civil
Code seems to imply that if the subject of the contract is a consumable thing, such as money,
the contract would be a mutuum. However, there are some instances where a commodatum
may have for its object a consumable thing.
Under Article 1936 of the Civil Code, if consumable goods are loaned only for the
purposes of exhibition, or when the intention of the parties is to lend the consumable goods
and to have the very same goods returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum. Here, Vives agreed to deposit his money in Sterela’s
savings account for the purpose of making it appear that said firm had sufficient
capitalization for incorporation with the promise that the same will be returned in 30 days.
As to the additional P12,000, the same represents the fruits of the lending of
P200,000. Article 1935 of the Civil Code expressly states that the bailee in commodatum
acquires the use of the thing loaned but not its fruits.
Name: Glenn Anne Marie G. Berdin
Topic: Commodatum
Provision Cited: Article 1933, 1946, 1947 of the Civil Code
Title: Colito Pajuyo v Court of Appeals and Edie Guevara
Source, Date: G.R. No. 146364, 3 June 2004
Facts:
Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights a 250 square meter
lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials
on the lot. Pajuyo and private respondent Eddie Guevarra executed a Kasunduan or
agreement. Pajuyo allowed Guevarra to live in the house for free provided Guevarra would
maintain the cleanliness and orderliness of the house. Guevarra promised he would
voluntarily vacate the premises on Pajuyo’s demand. Pajuyo informed Guevarra of his need
of the house and demanded that Guevarra vacate the house. Guevarra refused. Pajuyo filed an
ejectment case with the MTC to which Guevarra claimed that Pajuyo had no valid title or
right of possession over the lot where the house stands because the lot is within the 150
hectares set aside by Proclamation No. 137 for socialized housing. MTC ruled in favor of
Pajuyo since the subject of the agreement between the two is the house and not the lot.
Pajuyo is the owner of the house and he allowed Guevarra to use the house only by tolerance.
Guevarra appealed to RTC where it affirmed the MTC decision. The RTC ruled that the
Kasunduan bound Guevarra to return possession of the house on demand. The RTC declared
that in an ejectment case, the only issue for resolution is material or physical possession, not
ownership. The CA reversed the RTC decision stating that both Pajuyo and Guevarra
illegally occupied the contested lot which the government owned. Perez, the person from
Pajuyo acquired his rights, was also a squatter and had no right over the lot because it is
public land. The Kasunduan between Pajuyo and Guevarra did not have any legal effect. The
CA ruled that the Kasunduan is not a lease contract but a commodatum because the
agreement is not for a price certain. The CA held that Guevarra has a better right over the
property under Proclamation No. 137 stating that the actual occupant or caretaker of the lot
shall have first priority as beneficiary of the project. Pajuyo filed for a motion for
reconsideration. Hence, this appeal.
Issue:
Whether or not the contractual relationship between Pajuyo and Guevarra was that of a
commodatum.
Held:
No.
Ruling:
In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is the use of
the thing belonging to another is for a certain period. The bailor cannot demand the return of
the thing loaned until after the expiration of the period stipulated or after accomplishment of
the use for which the commodatum is constituted. If the bailor should have urgent eed of the
thing, he may demand its return for temporary use. If the use of the thing is merely tolerated
by the bailor, he can demand the return of the thing, in which case the contractural relation is
called precarium, a kind of commodatum. The effects of the Kasunduan are also different
from that of a commodatum. Case law onejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease. The tenant’s withholding of the
property would then be unlawful.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as baileewould still have the duty to turn over possession of the
property to Pajuyo, the bailor. The obligation to deliveror to return the thing received attaches
to contracts for safekeeping, or contracts of commission, administration and commodatum.
These contracts certainly involve the obligation to deliver or return thething received.
Guevarra turned his back on the Kasunduan on the sole ground that, like him, Pajuyo is also a
squatter. Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had
benefited from it. The Kasunduan binds Guevarra.
Name: Cabrera, Ramon N.
Topic: Commodatum
Provision Cited: Article 1134 and 1129 of the Civil Code
Title: Catholic Vicar Apostolic of Mountain Province v. Court of
Appeals & Heirs of Valdez and Heirs of Octaviano
Source, Date: Nos. L-80294-95 21 September 1988
Facts:
The Catholic Vicar Apostolic of Mountain Province (Vicar) filed with the Court of First
Instance in Benguet an application for registration of titles over Lots 1,2,3, and 4 in La
Trinidad Benguet. Catholic buildings, convents, school structures were built over the said
properties. The Heirs of Juan Valdez and Heirs of Egmedio Octaviano filed their opposition
on Lots 2 and 3 respectively asserting ownership over the same. The CFI ruled in favor of the
Vicar, confirming the registerable title of the Vicar over the four lots. Upon appeal, the Court
of Appeals reversed the decision of the land registration court and dismissed the Vicar’s
registration to Lots 2 and 3. Subsequently, the Heirs of Ocatviano filed a motion for
reconsideration with the CA praying that Lot 3 be registered under their name. The Heirs of
Valdez also sought the same action from the CA for Lot 2 and 3. After unsuccessful appeals
with the CA, the Heirs of Valdez filed a petition for review of certiorari with the SC, which
was subsequently denied for lack of merit. Upon finality of the SC decision, the Heirs of
Octaviano filed with the CFI in Baguio a motion for execution of judgement praying that Lot
3 be placed under their possession of Lot 3. The CFI dismissed the petition on the ground of
the previous CA decision denying the petition for affirmative relief. The Heirs of Valdez and
Heirs of Octaviano filed the instant petition.
Issue: Whether the petitioners can raise the issue of ownership because the CA decision
merely dismissed their application for registration?
Ruling:
The CA decision did not positively declare the private respondents as owners of the
land, neither did it declare that they were not the owners of the property. Findings of the trial
court established the fact that the Vicar was a bailee in a commodatum, with the private
respondents as bailors. Private respondent’s properties were borrowed by petitioner. The
bailee’s failure to return the subject matter of the commodatum did not mean adverse
possession on the part of the borrower. The adverse claim came when the bailee when it
declared the lots for the purpose of taxation. The action of petitioner Vicar by such adverse
claim could not ripen into title by way of ordinary acquisitive prescription because the
absence of a just title.
Name: Golden de Lunas
Topic: Commodatum
Provision Cited: Civil Code
Title: Margarita Quintos, et al. v. Beck
Source, Date: GR No. 46240, 9 November 1939
Facts:
Beck was a tenant of Quintos. The plaintiff granted the defendant use of furniture subject to
the condition that the latter would return them to the former upon his demand.
Subsequently, Quintos sold the property to one Maria and Rosario Lopez. Beck was notified
and asked to vacate the premises within sixty days. He was also required to return all the
furniture transferred to him for use. The defendant however wrote to the plaintiff that he
could not give up 3 gas heaters and 4 electric lamps because he will use them until the lease
is due to expire. Quintos refused to get the furniture in view of the fact that Beck declined to
deliver all of them. Before vacating the house, defendant deposited with the Sheriff all of
Quintos’ furniture.
Issue: Whether the defendant complied with his obligation to return the furniture upon
demand
Held: No. Appealed judgment is modified.
Ruling:
The contract entered into between the parties is one of commodatum because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture
upon demand.
The obligation voluntarily assumed by the defendant to return the furniture upon
demand, means that he should return all of them to the plaintiff at the latter’s residence. Beck
breached the contract of commodatum and it is just and equitable that he pays the legal
expenses and other judicial costs which the plaintiff would not have otherwise defrayed.
Name: Gabriel Angel V. de Vera
Topic: Simple Loan or Mutuum
Provision Cited: Articles 1933 and 1953 or the New Civil Code
Title: Chee Kiong Yam et al. vs. Hon. Nabdar Malik et al.
Nature: Original Petition for certiorari, prohibition and mandamus with
preliminary injunction.
Source, Date: No. L-50550-52, October 31, 1979.
Facts:
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges petitioners Yam
Chee Kiong and Yam Yap Kieng with estafa through misappropriation of the amount of
P50,000.00. But the complaint states on its face that said petitioners received the amount
from respondent Rosalinda M. Amin as a loan. The same facts are present for the
independent civil case filed.
Respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C. Yam, Ampang
Mah, and Anita Yam, alias Yong Tay, with estafa through misappropriation of the amount of
P30,000.00. Likewise, the complaint states on its face that the P30,000.00 was a simple loan.
Again, the same facts for the independent civil case.
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners Jose Y.C.
Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam, with estafa
through misappropriation of the amount of P20,000.00. Unlike the complaints in the other
two cases, the complaint in Criminal Case No. M-208 does not state that the amount was
received as loan. However, in a sworn statement dated September 29, 1976, submitted to
respondent judge to support the complaint, respondent Augusto Sajor states that the amount
was a loan.
Petitioners allege that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu, acted
without jurisdiction, in excess of jurisdiction and with grave abuse of discretion when:
(a) he held in the preliminary investigation of the charges of estafa filed by respondents
Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners that there was a prima
facie case against the latter;  
(b) he issued warrants of arrest against petitioners after making the above determination; and
 
(c) he undertook to conduct trial on the merits of the charges which were docketed in his
court as Criminal Cases No. M-111, M-183 and M-208.  
Issue: Whether Petitioners are liable for estafa.
Held:
No. Petition Granted.
Ruling:
The facts alleged do not constitute estafa, but are instead a simple loan or mutuum. The
nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Art. 1933. - By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and return it,
in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. 
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.
Art. 1953. - A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as
contrasted to commodatum, the borrower acquires ownership of the money, goods or
personal property borrowed. Being the owner, the borrower can dispose of the thing
borrowed (Article 248, Civil Code) and his act will not be considered misappropriation
thereof.
Name: Dulay, Nicole Bernadette M.
Provision Cited: Art. 1445 & 1456, CC; Corporation Code; Trust Receipts Law
Title: Republic v Sandiganbayan
Source, Date: GR No 166859, 12 April 2011
Facts:
On July 31, 1987, the Republic commenced Civil Case No. 0033 in the Sandiganbayan by
complaint, impleading as defendants respondent Eduardo M. Cojuangco, Jr. (Cojuangco) and
59 individual defendants. In addition to Cojuangco, President Marcos, and First Lady Imelda
R. Marcos nine other individuals, namely: Edgardo J. Angara, Jose C. Concepcion, Avelino
V. Cruz, Eduardo U. Escueta, Paraja G. Hayudini, Juan Ponce Enrile, Teodoro D. Regala,
and Rogelio Vinluan, collectively, the ACCRA lawyers, and Danilo Ursua, and 71
corporations. Allegedly, Cojuangco purchased a block of 33,000,000 shares of SMC stock
through the 14 holding companies owned by the CIIF Oil Mills. For this reason, the block of
33,133,266 shares of SMC stock shall be referred to as the CIIF block of shares. That
Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration. During
the period of his incumbency as a public officer, he acquired assets, funds, and other property
grossly and manifestly disproportionate to his salaries, lawful income and income from
legitimately acquired property.
Having fully established himself as the undisputed “coconut king” with unlimited powers
to deal with the coconut levy funds, the stage was now set for Defendant Eduardo M.
Cojuangco, Jr. to launch his predatory forays into almost all aspects of Philippine economic
activity namely: softdrinks, agribusiness, oil mills, shipping, cement manufacturing, textile
taking undue advantage of his association, influence and connection, acting in unlawful
concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual
defendants, embarked upon devices, schemes and stratagems, including the use of defendant
corporations as fronts, to unjustly enrich themselves at the expense of Plaintiff and the
Filipino people, such as when he – misused coconut levy funds to buy out majority of the
outstanding shares of stock of San Miguel Corporation in order to control the largest agri-
business, foods and beverage company in the Philippines
He entered SMC in early 1983 when he bought most of the 20 million shares
Enrique Zobel owned in the Company. The shares, worth $49 million, represented 20% of
SMC. Later that year, Cojuangco also acquired the Soriano stocks through a series of
complicated and secret agreements, a key feature of which was a “voting trust agreement”
that stipulated that Andres, Jr. or his heir would proxy over the vote of the shares owned by
Soriano and Cojuangco. This agreement, which accounted for 30% of the outstanding shares
of SMC and which lasted for five (5) years, enabled the Sorianos to retain management
control of SMC for the same period.
Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the SMC
Board, to which he appointed key members of the ACCRA Law Firm (herein Defendants)
instead of coconut farmers whose money really funded the sale. They plotted, devised,
schemed, conspired and confederated with each other in setting up, through the use of
coconut levy funds, the financial and corporate framework and structures that led to the
establishment of UCPB, UNICOM, COCOLIFE, COCOMARK. CIC, and more than twenty
other coconut levy-funded corporations, including the acquisition of San Miguel Corporation
shares and its institutionalization through presidential directives of the coconut monopoly.
For over two decades, the issue of whether the sequestered sizable block of shares
representing 20% of the outstanding capital stock of San Miguel Corporation (SMC) at the
time of acquisition belonged to their registered owners or to the coconut farmers has
remained unresolved.
REPUBLIC is assailing the decision of SANDIGANBAYAN nullifying of the writs of
sequestration issued against properties of Cojuangco.
Issue: Did Cojuangco violate any fiduciary duties?

Held: No, he did not violate any fiduciary duties.
Issue: Did his acquisition and holding of the contested SMC shares come under a
constructive trust in favor of the Republic?
Held: No, his acquisition and holding of the contested SMC shares did not come under
constructive trust in favor of the Republic.
Ruling:
The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the
trustee using trust funds to purchase, or a person acquiring property through mistake or
fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and
knowingly voting for or assenting to patently unlawful acts of the corporation, among others)
require factual foundations to be first laid out in appropriate judicial proceedings. Hence,
concluding that Cojuangco breached fiduciary duties as an officer and member of the Board
of Directors of the UCPB without competent evidence thereon would be unwarranted and
unreasonable.
For one, the Amended Complaint contained no clear factual allegation on which to
predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the
Corporation Code. Although the trust relationship supposedly arose from Cojuangco’s being
an officer and member of the Board of Directors of the UCPB, the link between this alleged
fact and the borrowings or advances was not established. Nor was there evidence on the
loans or borrowings, their amounts, the approving authority, etc. As trial court, the
Sandiganbayan could not presume his breach of fiduciary duties without evidence showing
so, for fraud or breach of trust is never presumed, but must be alleged and proved.
To say that a relationship is fiduciary when existing laws do not provide for such requires
evidence that confidence is reposed by one party in another who exercises dominion and
influence. Absent any special facts and circumstances proving a higher degree of
responsibility, any dealings between a lender and borrower are not fiduciary in nature. This
explains why, for example, a trust receipt transaction is not classified as a simple loan and is
characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner.
A debtor can appropriate the thing loaned without any responsibility or duty to his
creditor to return the very thing that was loaned or to report how the proceeds were used. Nor
can he be compelled to return the proceeds and fruits of the loan, for there is nothing under
our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose
of the thing borrowed and his act will not be considered misappropriation of the thing. The
only liability on his part is to pay the loan together with the interest that is either stipulated or
provided under existing laws.
Name: Jason Edric T. Dy
Law Cited: Art 1157 and 1953
Title: Metrobank vs. Ana Rosales and Yo Yuk To
Source, Date: GR No. 183204, 13 January 2014
Facts:
In 2000, respondents opened a joint peso account with Metrobank amounting to
P2,515,693.52. In 2002, Rosales accompanied her client Liu to open a savings account in
Metrobank. In 2003, respondents opened a joint dollar account amounting to $14,000.
In July of the same year Metrobank issued a hold out order against respondent’s
account. Metrobank filed a case against Rosales for Estafa accusing her of fraudulently
withdrawing $75,000 from Liu’s account and depositing $11,800 of the same dollar
notes to her account.
It appeared that a certain Richard So who had an SPA acquired a withdrawal
clearance. The case against Rosales was later dismissed for lack of probable cause but
Metrobank moved for reconsideration. Respondents later filed a complaint against
Metrobank for breach of obligation and contract alleging that the hold out order
prevented them from withdrawing their deposits. The dismissal of the complaint for
estafa was reversed.
RTC found Metrobank liable for breach of contract stating that its recourse is
against its negligent employees. CA affirmed the decision.
Issue:
Whether Metrobank breached its contract by preventing respondents from
withdrawing their deposits.
Held:
Yes. Petition denied.
Ruling:
The hold out clause included in the application for deposit account only applies
to obligations arising from either law, contract, quasi-contract, delict, or quasi-delict.
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon
demand by the depositor. The issuance of the hold out was even before the filing of the
criminal case and pending judgment Metrobank may not prevent respondents from
withdrawing their deposit.
Provision Cited: Arts. 1933 and 1955 of the NCC
Title: Guingona, Jr. v. City Fiscal of Manila
Source, Date: 128 SCRA 577, 4 April 1984
Facts:
David Clement invested with the National Savings and Loan Association (NSLA) the
sum of P1,145,546.20 on time deposits, P13,351.94 on savings account deposits, $10,000.00
on time deposit, $15,000.00 under a receipt and guarantee of payment and $50,000.00 under
a receipt dated 8 June 1980. David was induced into making these investments by Robert
Marshall, an Australian national who was a close associate of petitioner Guingona, Jr., then
NSLA President, petitioner Martin, then NSLA Executive VP of NSLA, and petitioner
Santos, then NSLA General Manager.
Subsequently, the NSLA was placed under receivership by the Central Bank, which
made David file claims for his investments. David received a report from the Central Bank
that only P305,821.92 of those investments made were entered in the records of NSLA.
Despite demands, Guingona, Jr. paid only P200,000.00
David then charged the petitioners with estafa, as well as violations of the Central
Bank Circular No. 364 and regulations on foreign exchange transactions.
Martin and Santos countered that the NSLA’s liability to David is civil in nature.
David’s investments were treated as special accounts as NSLA was urgently in need of funds.
As such, his investments had interests above the legal rate and were recorded in separate
confidential documents, of which a portion was only to be reported because David did not
want the Australian government to tax his total earnings. Also, some of the investments were
personal loans, and were personally transacted through Guingona, Jr.’s dollar account
because the NSLA did not have one. Further, upon receivership of NSLA, the Philippine
Deposit Insurance Corporation had already reimbursed David and Martin executed a
promissory note in David’s favor and caused him to transfer a diamond ring.
On the other hand, Guingona, Jr. countered that he had no hand in the transactions
between David and NSLA since he had resigned as President of the NSLA and that he also
assumed a portion of the liabilites of NSLA to David because the latter insisted that he do so.
In doing so, Guingona secured payment to David with mortgages over two parcels of land, in
which it was provided that the mortgage over one parcel shall be cancelled upon payment of
the half of Guingona’s obligation to David. When Guingona, Jr. tendered payment, David
refused. Thus, he filed a case before the CFI to effect the release of the mortgage.
The petitioners moved to dismiss the charges against them for lack of jurisdiction
because David’s claims allegedly comprised a purely civil obligation. However, Fiscal Lota
denied the motion to dismiss. After the presentation of David’s principal witness, petitioners
filed this instant petition because the production of the Promissory Notes, Banker’s
Acceptance, Certificates of Time Deposts and Savings Account allegedly showed that the
transactions between David and NSLA were simple loans.
Issue: Whether the transactions between David and NSLA were purely civil in nature.
Held: Yes. Petition was granted.
Ruling:
As to the relationship between David and NSLA, it is that of creditor and debtor.
Consequently, the ownership of the amount deposited was transmitted to the Bank upon
perfection of the contract and it can make use of the amount deposited for its baking
operations, such as to pay interests on deposits and to pay withdrawals. While the bank has
the obligation to return the amount deposited, it has, however, no obligation to return or
deliver the same money that was deposited. And, failure of the Bank to return the amount
deposited will not constitute estafa through misappropriation punishable under Article 315
par. 1(b) of the RPC, but it will only give rise to the civil liability over which the public
respondents have no jurisdiction.
In order that a person can be convicted under Art. 315 of the RPC, it must be proven
that he has obligation to deliver or to return the same money, goods, or personal property that
he received.
As to the nature of the transactions, all kinds of bank deposits, whether fixed savings,
or current, are to be treated as loans and are to be recovered by law on loans. Current and
saving deposits are loans to a bank because it can use the same.
In a simple loan, as contrasted to commodatum, the borrower acquires ownership of
the money, goods, or personal property borrowed. Being the owner, the borrower can dispose
of the thing borrowed and his act will not be considered misappropriation thereof.
Thus, the petitioners had no such obligation to return the same money. This is so
because as clearly stated in criminal complaints, the related civil complaints and the
supporting sworn statements, the sums of money that petitioners received were loans.
Law Cited: Articles 1980, 1278, 1279 of the Civil Code.
Title: Bank of Philippine Island vs Court of Appeals, et al.
Source, Date: G.R. No. 136202, 25 January 2007
Nature: Petition for review on certiorari under Rule 45 of Rules of Court
Ponente: Azcuña, J.
Facts: A.A. Salazar Construction and Engineering Services (Salazar Construction),

later on was substituted by Annabelle A. Salazar (Salazar), filed an action for
a sum of money with damages against the petitioner Bank of Philippine Island
(BPI) on 05 December 1991. Respondent Salazar prayed for the recovery of
the amount of P267,707 debited by BPI from her account. She likewise prayed
for damages and attorney’s fees. BPI alleged that on 31 August 1991, Julio R.
Templonuevo (Templonuevo), demanded from BPI the amount of P267,293
representing the aggregate value of three checks, which were allegedly
payable to him, but which were deposited with Salazar’s account without his
knowledge and corresponding endorsement. Accepting that Templonuevo’s
claim was valid, BPI froze the account of Salazar Construction instead of
Salazar, as it was already closed account. As it appeared the Salazar was not
entitled to the funds represented by the checks, BPI debited the amount of
P267,707 from her account Salazar Construction, and the sum of P267,293
was paid to Templonuevo by means of cashier’s check. The difference was
considered bank charges. After trial, RTC ordered BPI to pay Salazar the
amount of P267,707 with 12% interest from 16 September 1991 until fully
paid. Also, P30,000 for actual damages, P50,000 for moral damages, P50,000
for exemplary damages, P30,000 for attorney’s fees, and cost of suit. In 1998,
CA affirmed the RTC’s decision and held that Salazar was entitled to the
proceeds of the three checks notwithstanding the lack of endorsement thereon
by the payee.
Issue: Whether BPI has the authority to withdraw unilaterally from Salazar’s account
the amount it had previously paid upon certain unendorsed order instruments.
Held: No. Petition partially granted.
Ruling: The Supreme Court (SC) held that BPI, as the collecting bank, had the right to
debit Salazar’s account for the value of the checks it previously credited in her
favour. A bank has generally a right of set-off over deposits therein. Article
1980 of the Civil Code provides that “[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions
concerning simple loan.” Hence, the relationship between banks and
depositors has been held to be that of creditor and debtor. Thus, legal
compensation under Article 1278 of the Civil Code may take place when all
the requisites mentioned therein are present. While, however, it is conceded
that BPI had the right of set-off over the amount it paid to Templonuevo
against the deposit of Salazar, the issue of whether it acted judiciously is an
entirely different matter. Despite the obvious lack of endorsement thereon,
BPI permitted the encashment of the said three checks, three times on three
separate occasions. The taking and collection of a check without the proper
endorsement amount to a conversion of the check by the bank. Under the
circumstances, Salazar was clearly not given the opportunity to protect her
interest when BPI unilaterally withdrew the above amount from her account
without informing her that it had already done so. SC sustained the award of
actual, moral, and exemplary damages, and attorney’s fees granted by the CA
against BPI. This whole incident would have been avoided had BPI adhered to
the standard of diligence expected of one engaged in the banking business.
Name: Alyssa Anne Bernadette J. Limboc
Provision Cited: Article 1169 of the Civil Code.
Title: Dario Nacar vs Gallery Frams and/or Felipe Bordey, Jr.
Source, Date: GR no. 189871, August 13, 2013
Facts:
Nacar filed a complaint for constructive dismissal against Gallery Frame (GF). Nacar won
the illegal termination case with Labor Arbiter and NLRC. It was stated in its decision that
the computation shall be only up to the promulgation of the decision.
GF appealed to NLRC but such was dismissed for lack of merit. GF filed a petition for
review on Certiorari before CA. CA dismissed such petition.
An Enrty of Jugment was then issued certifying that the resolution became final and
executory on 27 May 2002. The case was referred back to Labor Arbiter. Nacar filed a
motion for correct computation of his back wages. NLRC arrived with an updated amount in
the sum of Php471,320.31. On 2 December 2002, Writ of execution was issued ordering the
sheriff to collect from GF. GF filed Motion to Quash the Writ of execution alleging that re-
computation is not required. GF claimed that after the decision becomes final and executory,
the same cannot be altered or amended anymore.
Issue: Whether a recomputation in the course of execution of the labor arbiter’s original
computation of the awards made is legal
Held: Yes
Ruling:
Supreme Court found no error in CA’s decision of confirmining that a recomputation is
necessary as it essentially considered the labor arbiter’s originial decision.
By the nature of an illegal dismissal case, the reliefs continue to add up until full satisfaction,
as expressed under Article 279 of the Labor Code. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The Court laid down the guidelines
regarding the manner of computing legal interest, to wit:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money:
a. Interest due should be that which may have been stipulated in writing.
b. The interest due shall itself earn legal interest from the time it is judicially demanded.
c. In the absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached:
a. Interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum.
b. No interest, however, shall be adjudged on unliquidated claims or damages,except
when or until the demand can be established with reasonable certainty.
i. Where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially. (Art
1169 CC)
ii. When such certainty cannot be so reasonably established at the time the
demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained).
c. The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its satisfaction, this interim period being deemed to
be equivalent to a forbearance of credit.
Labor Arbiter was being ordered to make another recomputation of the total monetary
benefits awarded and due to petitioner in accordance with SC’s ruling.
Name: Manalo, Maria Anna S.
Provision Cited: Republic Act No. 3765 and Central Bank Circular No. 905, as
amended by P.D. 1684
Title: SPOUSES EDUARDO and LYDIA SILOS vs. PHILIPPINE

NATIONAL BANK
Source, Date: G.R. No. 181045, 2 JULY 2014
NATURE: Petition for Review on Certiorari
PONENTE: J. Del Castillo
FACTS: Petitioner spouses Silos secured a revolving credit line with respondent
Philippine National Bank (PNB) through a real estate mortgage as a security.
Their credit line was increased in the succeeding 2 years. In addition to the
mortgage petitioners signed a Credit Agreement and 8 Promissory Notes (PN).
The Credit Agreement contained the stipulation that the said loan shall have the
annual interest rate of 19.5% and that the respondents may modify the interest
rates without need of notice to the petitioners. While the 8 PNs contained a
stipulation granting the respondent the right to increase or reduce interest rates.
Petitioners religiously paid the interest, which ranged from 19.5% to 32%.
An Amendment to Credit Agreement was executed by the parties, which
stipulated that petitioners agree to pay interest determined by the respondent on
each availment. Petitioners also issued additional 18 PNs under the amendment,
which they settled except the note covering the principal. They regularly
renewed the line and made good on their PNs, and paid the interests without
objection or fail.
However, petitioners faltered when the interest rates soared during the Asian
Financial Crisis. The 26th PN became past due, and despite repeated demands,
petitioners failed to make good on the note.
Respondent foreclosed and auctioned the mortgaged properties. After a year
petitioners filed an action to annul the foreclosure and sale on the ground that the
succeeding interest rates were left to the sole will of respondent.
RTC ruled that such stipulation authorizing both the increase and decrease of
interest rates as may be applicable is valid.
CA affirmed the RTC decision
ISSUE: Whether a party, in a loan contract, can unilaterally increase the rate of interest.
HELD: No.
RULING: The Court held that in loan agreements, the rate of interest is a principal
condition and any modification thereof must be mutually agreed upon; otherwise
it has no binding effect. It found that the respondent, through its acts, violated
RA 3765 or Truth in Lending Act, which gives a detailed enumeration of the
specific information required to be disclosed to citizens. To reiterate further, the
Court upheld their previous decisions stating that any medication in the contract
must be made with the consent of the contracting parties, especially when it
affects an important aspect of the agreement.
Name: Vanya Klarika Nuque
Law or Provision Cited: Circular No. 799, series of 2013
Title: SPOUSES BAYANI and GRACIA ANDAL vs. PNB, ET
AL.
Source, Date: G.R. No. 194201; 27 November 2013 
Facts:
Sps. Andal obtained a loan from PNB worth P21,805,000. They executed 12 promissory
notes to pay PNB the principal loan with varying interest rates of 17.5% to 27% per interest
period. To secure the payment of the said loan, Sps. Andal executed in favor of PNB a real
estate mortgage using as collateral 5 parcels of land. Subsequently, PNB advised Sps. Andal
to pay their loan, otherwise the former will declare the latter’s loan due and demandable.
However, despite payment, PNB proceeded to foreclose 3 real estate mortgage. Sps. Andal
filed a complaint regarding the sale alleging that they tried to religiously pay their loan
obligation to PNB, but the exorbitant rate of interest unilaterally determined and imposed by
the latter prevented the former from paying their obligation. Sps. Andal also alleged that they
signed the promissory notes in blank, relying on the representation of PNB that they were
merely proforma bank requirements. Further, Sps. Andal alleged that the unilateral increase
of interest rates and exorbitant penalty charges are akin to unjust enrichment at their expense,
giving PNB no right to foreclose their mortgaged properties. RTC ruled in favor of Sps.
Andal and gave the interest rate of 6% per annum on their loan. CA affirmed the RTC ruling
but modified the interest rate to 12% per annum. Sps. Andal is now reiterating that no interest
should be imposed on their loan, following the respective pronouncements of the CA in the
Caraig and Mercado cases.
Issue:
1) Whether interest should be imposed on the said loan.
2) Whether Sps. Andal should pay 6% or 12% on their loans.
Held: Petition is Denied.
Ruling:
1) 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.
2) 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., 703 SCRA 439 (2013), 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-
spousesÊ 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-spousesÊ unpaid obligation.
Name: Pajara, Jarryd Anthony B.
Topic: Credit Card
Provision Cited: Art. 1170
Title: Pantaleon v. AMEX
Source, Date: G.R. No. 174269 ; May 8, 2009
Facts:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda and their children joined an
escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in October of
1991. Mrs. Pantaleon also selected for purchase a pendant and a chain, all of which totaled
U.S. $13,826.00. Mrs. Pantaleon presented his American Express credit card together with
his passport to the Coster sales clerk. The store clerk informed Pantaleon that his AmexCard
had not yet been approved. Mr. Pantaleon’s son returned to Coster and informed the other
members of the family that the entire tour group was waiting for them. The petitioner sought
to cancel the sale but Coster decided to release the items even without respondent’s approval
of the purchase. It later emerged that Pantaleon’s purchase was first transmitted for approval
to respondent’s Amsterdam office at 9:20 a.m., Amsterdam time, then referred to
respondent’s Manila office at 9:33 a.m., then finally approved at 10:19 a.m., Amsterdam
time.6 The Approval
Code was transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after
petitioner had already left Coster, and 78 minutes from the time the purchases were
electronically transmitted by the jewelry store to respondent’s Amsterdam office. Two more
incidents regarding the credit card happened during the family’s stay in the United States.
Pantaleon sent a letter to the respondent demanding an apology for the inconvenience,
humiliation and embarrassment he and his family thereby suffered for refusal to provide
credit authorization for the aforementioned purchases.
Issue: Whether or not the respondent is liable for damages due to delay.
Held: Yes. Petition is granted.
Ruling:
The Court held that the respondent is liable for delay. The Court stated that even if
there is no strict, legally determinative point of demarcation on how long it must take for a
credit card company to approve or disapprove a customer’s purchase; this particular case
appears to be an awfully long to approve or disapprove a credit card purchase. The culpable
failure of respondent is to timely act on the same, whether favorably or unfavorably.
Name: PARTIBLE, JANINE DEZZA L.
Provision Cited: ARTICLE 2022 of the Civil Code
Topic: Credit Card
Title: FAR EAST BANK AND TRUST COMPANY vs. CA
Source, Date: VOL. 241, February 23, 1995.
Facts:
Private respondent Luis A. Luna applied for and was accorded a FAREASTCARD
issued by petitioner FEBTC and a supplemental card to respondent Clarita S. Luna. In
August 1988, Clarita lost her credit card. Under the bank’s internal security procedures and
policy FEBTC recorded the lost card along with the principal card as “Hot Card” or
“Cancelled Card” in its master file.
On October 6, 1988, Luis presented his FAREASTCARD to pay the despida lunch he
tendered for his close friend in Bahia Rooftop Restaurant. The card was not honoured and he
paid in cash the bill amounting to P588.13. Naturally, he felt embarrassed by the incident.
In a letter, Luis demanded from FEBTC payment for damages. FEBTC vice-president
expressed the bank’s apologies to Luis in a letter explaining that through investigation
FAREASTCARD failed to inform him (Luis) about its security policy. And that their Credit
Card Department employee did not consider the possibility that it may have been him who
was presenting the card at the time. FEBTC also sent a letter to the restaurant manager to
assure that respondents were “Very valued clients”.
Private respondents filed a complaint for damages with the RTC. The RTC ordered
FEBTC to pay private respondents moral damages, exemplary damages and attorney’s fees.
The CA affirmed the decision of the RTC.
Issue:
Whether or not the respondents are entitled to recovery moral damages for breach of
contract by FEBTC. – NO.
Ruling:
There is merit in this appeal.
In culpa contractual, moral damages may be recovered where the defendant is shown
to have acted in bad faith or with malice in the breach of the contract. The Civil Code
provides:
“Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if
the court should find that, under the circumstances, such damages are justly due.” The same
rule applies to breaches of contract where the defendant acted fraudulently or in bad faith.
Bad faith, in this context, includes gross, but not simple, negligence. Exceptionally, in a
contract of carriage, moral damages are also allowed in case of death of a passenger
attributable to the fault (which is presumed) of the common carrier.
Nothing in the findings of the trial court and the appellate court, however, can
sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private
respondents. Neither could FEBTC’s negligence in failing to give personal notice to Luis be
considered so gross as to amount to malice or bad faith.
Here, private respondents' damage claim is predicated solely on their contractual
relationship; without such agreement, the act or omission complained of cannot by itself be
held to stand as a separate cause of action or as an independent actionable tort.
The Court finds, therefore, the award of the moral damages made by the RTC,
affirmed by the CA, to be inordinate and substantially devoid of legal basis. Nevertheless, the
bank’s failure to honor its credit card issued to Luis should entitle him to recover a measure
of damages sanctioned under Article 2221 of the Civil Code.
“Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him.”
The appealed decision is MODIFIED by deleting the award of moral and exemplary
damages to private respondents; in its stead, petitioner is ordered to pay private respondent
Luis A. Luna an amount of P5,000.00 by way of nominal damages. In all other respects, the
appealed decision is AFFIRMED.
Name: Prado-Lopez, Laura R.
Title: Equitable Banking Corporation v Jose T. Calderon
Source, Date: G.R. No. 156168, December 14, 2004
Topic: Credit Card
Nature: Petition for review on certiorari of a decision of the Court of
Appeals
Ponente: GARCIA, J.
Facts:
In September 1984, Jose Calderon, a businessman, applied with the Equitable Bank
Corporation (EBC), and was granted, an Equitable Visa Card that can be used for both peso
and dollar transactions within and outside the Philippines whose credit limit was P20,000 for
peso transactions, and $3,000.00 as a maintaining balance and which shall serve as the credit
limit for dollar transactions.
In April 1986, Calderon together with other reputable business friends and associates
went to Hong Kong for business and pleasure trips. On April 30, 1986, Calderon went to the
Gucci Department Store and purchased several Gucci items amounting to HK$4,030.00 or
equivalent to US$523.00 and paid using his Visa card to effect payment thereof on credit.
Shortly after presentation and verification, and in front of his friend and other shoppers,
Calderon was informed that his Visa card was blacklisted and was later threatened to cut the
card into pieces. Thereafter, Calderon paid the Gucci goods in cash.
Upon his return to the Philippines, claiming that he had suffered torment and
embarrassment, Calderon filed a complaint for damages against EBC with the RTC in
Makati. In its answer, EBC denied liability to Calderon alleging that his credit card
privileges for dollar transactions were earlier placed under suspension due to Calderon’s prior
use in excess of his credit limit, in addition to Calderon failing to settle said prior credit
purchase on due date thereby causing his obligation to become past due leading to the
suspension or ‘blacklisting’ of his credit card. The RTC granted the petition declaring that the
bank was negligent in suspending or ‘blacklisting’ Calderon’s credit card without basis and
was awarded the following in damages:
1. the sum of US$150.00 as actual damages;

2. the sum of P200,000.00 as and by way of moral damages;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P100,000.00 as attorney’s fees plus P500.00 per court hearing and
5. costs of suit.
EBC appealed the decision to the CA who affirmed the decision of the RTC insofar as the
awards of the moral damages which was reduced to P100,000.00 and the costs of suit, all
other awards were deleted. Hence, this appeal.
Issue: Whether or not the automatic cancellation or suspension or ‘blacklisting’ done by EBC
was valid.
Held: Yes, the automatic suspension on the credit card done by EBC was valid. Hence,
petition is granted and the decision of the CA was reversed and set aside.
Ruling:
Under the paragraph 3 of EBC’s Credit Card Agreement with Calderon states that:
x x x the CARDHOLDER agrees not to exceed his/her approved credit limit,
otherwise, all charges incurred including charges incurred through the use of
the extension CARD/S, if any in excess of credit limit shall become due and
demandable and the credit privileges shall be automatically suspended without
notice to the CARDHOLDER in accordance with Section 11 hereof.
That despite the payments and deposits done by Calderon on his overdue credit card
limit prior to his departure to Hong Kong, EBC has the option to decide whether to reinstate
or altogether terminate a credit card previously suspended on consideration that petitioner
deemed proper.
Further, while a credit card agreement is generally a contract of adhesion in which

one of the contracting parties imposes a ready-made form of contract which the other party
may accept or reject, but cannot modify, and is as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely.
Furthermore, the provision on automatic suspension without notice embodied in the

same Credit Card Agreement is clear and unambiguous hence, EBC’s automatic suspension
was valid and therefore the petition is granted and the decision of the CA was reversed and
set aside.
Name: Realin, Reuel Angelo
Topic: Burden of Proof; Augmentation of Credit Limit; Damage without injury
Title: Emmanuel Aznar v. Citibank N.A.
Source, date: GR No. 164273, 28 March 2007
Facts:
Petitioner was a holder of a credit card with a credit limit of Php 150k issued by Citibank. In
preparation of a trip abroad, he deposited Php 485k with Citibank with the intention of
increasing the credit limit of his card to Php 635k. After doing so, he used the card to
purchase plane tickets worth Php 237k.
During their trip, the petitioner used his credit card. However, in some establishments, his
card was dishonored. Notably, his card was dishonored by a travel agency when he purchased
plane tickets to Bali since his card was “blacklisted by Citibank”. The agency issued a
computer print-out entitled, “Online Authorizations Foreign Account Activity Report” which
shows that the card was declined for being declared over limit.
Upon his return to the country, the petitioner filed a case for damages against respondent,
citing the black-listing of his card despite the augmentation of his account, resulting in mental
anguish and humiliation, as his cause of action.
RTC: Dismissed the case for lack of merit. The RTC rules that the evidence presented by
Aznar, a computer print-out, as compared to that presented by Citibank, a Warning
Cancellation bulletin, the latter had more weight and its authenticity established by the bank.
Furthermore, dishonoring of the card by a merchant establishment does not show that
Citibank had acted with malice or bad faith.
RTC-MR: Granted. Awarded damages.
CA: Granted appeal of Citibank. Reversed decision of RTC and reinstated decision prior the
MR.
Issue: Whether an unauthenticated computer-print out whose due execution could not be
established satisfy the preponderance of evidence required by law in civil cases
Held: No, it does not.
Ratio:
In civil cases, the burden of proof rests upon the plaintiff to establish his case based on a
preponderance of evidence. He also has the burden of proving his allegation of a fact. Under
Sec. 20 of Rule 132 of the Rules of Court, it is provided that whenever a private offered as
authentic is received in evidence, its due execution and authenticity must be proved either by
(a) anyone who saw the document executed or written; or (b) by evidence of the genuineness
of the signature or handwriting of the maker.
The petitioner’s cause of action is hinged on the allegation that his card was black-listed by
respondent company. He presents in evidence a copy of a computer print-out given by the
travel agency which informed him that his card was declined. However, he fails to establish
that he personally witnessed the execution of the document, the same only given to him by
the agency, nor was he able to show that it was indeed signed by a person authorized by the
agency.
On the other hand, Citibank submitted a document entitled, “Warning Cancellation Bulletin”
which show the list of cards blacklisted by the company. The petitioner’s card was not placed
on the said list. The execution of the said document was established by the bank officers
competent to testify on the matter.
Issue: Whether an advance deposit may augment a credit line beyond the credit limit granted
by the issuing bank.
Held: Yes it may.
Ratio:
At the outset, Citibank never denied that it received additional deposit from the petitioner.
Furthermore, despite the credit limit of the petitioner being at Php 150k, he was able to
purchase tickets amounting to Php 237k after he had made such advance deposit. Hence, this
would show that the petitioner did have more than sufficient funds at the time of the trip and
that the respondents did not blacklist the card prior to the trip.
Issue: Whether a credit card company has a legal duty to ensure the approval of a credit card
transaction.
Held: No it does not have such duty.
Ratio:
Contracts between cardholders and the issuing banks of credit cards are considered as
contracts of adhesion. Hence, any vagueness or ambiguity in its provisions must be construed
against the party who prepared the contract. Nevertheless, damages may only be awarded in
cases where one of the parties committed a breach in the contract which resulted in an injury
suffered by the other. Injury as basis for such damages is the illegal invasion of a legal right
(which implies that the other party has the legal duty to observe that right) while damage
pertains to the loss, hurt, or harm resulting from the injury. There can be damage without
injury to those instances in which the loss or harm was not the result of a violation of a legal
duty and the law affords no remedy for such damages. (Damnum absque injuria)
In this case, while the provisions of the contract between the petitioner and respondents may
be deemed invalid for being unconscionable, the petitioner failed to show that there was gross
negligence amounting to bad faith on the part of Citibank when the card was dishonored by
the establishments. Based on the evidence submitted, there was no proof that Citibank had
the legal duty to ensure that every transaction would be honored by all merchants that the
petitioner transacted with. Hence, Citibank cannot be held liable for damages allegedly
suffered by the petitioner.
Petition denied.
Name: Franco Antonio F. Regalado
Topic: Credit Card
Provision Cited: Civil Code Art. 2220
Title: Bankard, Inc. v. Dr. Antonio Novak Feliciano
Source, Date: G.R. No. 141761, 28 July 2006
Facts:
While he was attempting to pay for several expenses in Canada, Dr. Antonio Novak
Feliciano's PCIBank Mastercard was dishonored several times, leading to his embarrassment
in front of several guests. Feliciano inquired with the credit card company Bankard, Inc., and
was told that he failed to pay his last billing statement, which he denied. Feliciano filed a
complaint against Bankard for damages due to breach of contract, alleging he has been a
holder in good standing for over ten years. Bankard claimed due diligence, having blocked
the card due to suspicions of counterfeit transactions. Bankard claimed to have attempted to
contact Feliciano several times, but received only once a vague reply from a woman who
answered the phone, and no reply in the other attempts.
Issue:
Whether or not Bankard was in breach for being negligent in its blocking of Feliciano's credit
card.
Held:
Yes.
Ruling:
Bankard's efforts at personally contacting Feliciano fall short of the degree of diligence
required by the circumstances. Apart from calling Feliciano's clinic and home, no further
attempts were made to contact him, Bankard's fraud analyst having been content with leaving
a message to an unidentified woman who answered one of the calls. Credit card issuers
should not only guard against fraudulent uses of credit cards, but should also be protective of
genuine uses thereof by their true cardholders.
Name: MUARIP, Jermone Muctar
Topic: Credit Cards
Provision Cited: Article 1306 of the Civil Code
Title: Acol v. Philippine Commercial Credit Card, Incorporated
Source, Date: SCRA 469, 25 July 2006
Facts:
Manuel Acol applied for credit card on 20 August 1982 with respondent. He regularly used
the said credit card to make purchases and paid the corresponding charges. However, the
petitioner discovered he lost his card on 18 April 1987 and immediately reported such
incident the next day. But such report was not sufficient and the bank representative required
him to put into writing the notice of loss. Such notice was received on 22 April 1987.
Unfortunately, there were purchases made using the credit card on dates April 19 and 20,
1987 worth P 76,067.28. Upon receiving the bill for April, the petitioner informed the bank
that he would not pay for the said amount because purchases were made after he notified the
bank. At first the responded agreed to reverse the disputed billings. However, it reversed its
earlier position to delete the disputed billing and cited provision no. 1 of the Terms and
Conditions Governing The Issuance and Use of the Bankard.
Respondent brought the case before the Regional Trial Court (RTC) and lost. The Court of
Appeals reversed the RTC decision and denied petitioner’s motion for reconsideration.
Issue:
Whether or not the stipulation in question was valid and binding given that the contract was
one of adhesion
Held:
Yes. Petition granted, assailed decision of RTC reinstated.
Ruling:
Prompt notice by the cardholder to the credit card company of the loss or theft of his card
should be enough to relieve the former of any liability occasioned by the unauthorized use of
his lost or stolen card.
In this case, the stipulation in question is just as repugnant to public policy as that in
Ermitaño. As petitioner points out, the effectivity of the cancellation of the lost card rests on
an act entirely beyond the control of the cardholder. Worse, the phrase „after a reasonable
time‰ gives the issuer the opportunity to actually profit from unauthorized charges despite
receipt of immediate written notice from the cardholder. Under such a stipulation, petitioner
could have theoretically done everything in his power to give respondent the required written
notice. But if respondent took a reasonable time (which could be indefinite) to include the
card in its cancellation bulletin, it could still hold the cardholder liable for whatever
unauthorized charges were incurred within that span of time. This would have been truly
iniquitous, considering the amount respondent wanted to hold petitioner liable for.
Article 1306 of the Civil Code prohibits contracting parties from establishing stipulations
contrary to public policy. The assailed provision was just such a stipulation. It is without any
hesitation therefore that we strike it down.
Name: Rentoza, Michael Leandro F.
Topic: Contract of Deposit
Provision Cited: Article 1292 and 1962 of the New Civil Code
Title: RCJ Bus Lines, Inc. vs. Master Tours and Travel Corp.
Source, Date: GR No. 177232; 11 October 2012
Facts:
On 9 February 1993, respondent Master Tours and Travel Corporation (Master Tours)
entered into a five-year lease agreement with petitioner RCJ Bus Lines, Incorporated (RCJ)
covering four buses, described as “presently junked and not operational” for the lease
amount of P600,000.00, with P400,000.00 payable upon the signing of the agreement and
P200,000.00 “payable upon completion of rehabilitation of the four buses by the lessee.”
More than 4 years in to the lease agreement, Master Tours wrote RCJ a letter,
demanding the return of the buses to it and the payment of the lease fee of that had remained
unpaid since 1993. However, RCJ alleged that it had no use for the buses, they being non-
operational, and that the lease agreement had been modified into a contract of deposit of the
buses for which Master Tours agreed to pay RCJ storage fees of P4,000.00 a month. To prove
the new agreement, RCJ cited Master Tours’ letter of June 16, 1997 which acknowledged
that the buses were brought to RCJ’s garage for “safekeeping.”
This prompted Master Tours to file a collection suit against RCJ before the Regional
Trial Court (RTC) of Manila, Branch 49. Subsequently, the RTC rendered judgment in favor
of Master Tours and rejected RCJ’s defense of novation from a contract of lease to a contract
of deposit, given the absence of proof that Master Tours gave its consent to such a novation.
On appeal, the CA affirmed in toto the judgment of the lower court. Thus, this petition.
Issue:
Whether or not the Contract of Lease has been validly novated and converted into a
Contract of Deposit.
Held:
No, there was no novation between the agreement of the parties.
Ruling:
The Supreme Court held that Article 1292 of the Civil Code provides that in novation,
“it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.” And the obligations are
incompatible if they cannot stand together. In such a case, the subsequent obligation
supersedes or novates the first.
In this case, RCJ failed to present any clear proof that it agreed with Master Tours to
abandon the lease of the buses and in its place constitute RCJ as depositary of the same,
providing storage service to Master Tours for a fee. The only evidence RCJ relied on is
Master Tours’ letter of June 16, 1997 in which it demanded the return of the four buses which
were placed in RCJ’s garage for “safekeeping.” Accordingly, The Supreme Court pointed out
that the idea of RCJ safekeeping the buses for Master Tours is consistent with their lease
agreement. The lessee of a movable property has an obligation to “return the thing leased,
upon the termination of the lease, just as he received it.” This means that RCJ must, as an
incident of the lease, keep the buses safe from injury or harm while these were in its
possession.
Lastly, it must be noted that, the cause in a contract of lease is the enjoyment of the
thing; in a contract of deposit, it is the safekeeping of the thing. They thus create essentially
distinct obligations that would result in a novation only if the parties entered into one after
the other concerning the same subject matter.
Name: Rem Joshua T. Serrano
Topic: Deposit
Provision: Art. 1962, NCC
Title: Triple-V Food Services, Inc. v. Filipino Merchants Insurance
Facts:
Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant. On said date, De
Asis availed of the valet parking service of petitioner and entrusted her car key to petitioner's
valet counter. A corresponding parking ticket was issued as receipt for the car. Petitioner’s
valet attendant, a certain Madridano, at the designated parking area, then parked the car. Few
minutes later, Madridano noticed that the car was not in its parking slot and its key no longer
in the box where valet attendants usually keep the keys of cars entrusted to them. The car was
never recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent
Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa for the
loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the RTC at
Makati City an action for damages against petitioner.
In its answer, petitioner claimed that it and its employees wasted no time in ascertaining the
loss of the car and in informing De Asis of the discovery of the loss. Petitioner further argued
that in accepting the complimentary valet parking service, De Asis received a parking ticket
where under it is so provided that "[Management and staff will not be responsible for any loss
of or damage incurred on the vehicle nor of valuables contained therein", a provision which,
to petitioner's mind, is an explicit waiver of any right to claim indemnity for the loss of the
car; and that De Asis knowingly assumed the risk of loss when she allowed petitioner to park
her vehicle, adding that its valet parking service did not include extending a contract of
insurance or warranty for the loss of the vehicle.
Issue:
1. Whether petitioner was the depositary of the subject vehicle.
2. Whether petitioner is liable for the loss of the subject vehicle.
Held:
1. YES
2. YES
Ruling:
In a contract of deposit, a person receives an object belonging to another with the obligation
of safely keeping it and returning the same. A deposit may be constituted even without any
consideration. It is not necessary that the depositary receives a fee before it becomes
obligated to keep the item entrusted for safekeeping and to return it later to the depositor.
When De Asis entrusted the car in question to petitioners valet attendant while eating at
petitioner's Kamayan Restaurant, the former expected the car's safe return at the end of her
meal. Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot
evade liability by arguing that neither a contract of deposit nor that of insurance, guaranty or
surety for the loss of the car was constituted when De Asis availed of its free valet parking
service.
Name: Charelle Mei Sy
Topic: Deposit / Liability of Depositary
Provisions Cited: Art. 1768 of the Civil Code
Title: SILVESTRA BARON vs. PABLO DAVID
Source, Date: Nos. 26948 and 26949. October 8, 1927
Facts:
This action consists of two cases heard together in the trial court and determined in a
single opinion. Defendant Pablo David had been engaged in running a rice mill in the
municipality of Magalang, in the Province of Pampanga. On January 17,1921, a fire
destroyed the contents and it was some time before it was rebuilt and put in the operation
again. In the months of March, April, and May 1920, plaintiff of the first case Silvestra Baron
placed a quantity of palay in the defendant's mill; and this, in connection with some that she
took over from the plaintiff of the second case Guillermo Baron, amounted to 1,012 cavans
and 24 kilos. In the same period, Guillermo Baron placed other 1,865 cavans and 43 kilos of
palay in the mill. Neither plaintiff received compensation. David claims that the palay was
deposited subject to future withdrawal by the depositors or subject to future withdrawal by
the depositors or subject to some future sale which was never effected. He therefore supposes
himself to be relieved from all responsibility by virtue of the fire of January 17, 1921. The
plaintiffs also say that David promised to pay for the palay at the highest price per cavan at
which palay would sell during the year 1920. The trial court gave judgment for Silvestra to
recover from the defendant P5,238.51 and Guillermo to recover P5,734.60. Hence, this
appeal.
Issue:
Whether or not David must account for the palay to the owner at the price prevailing
at the time demand is made.
Held:
Yes. Judgment in the first case modified. Silvestra Baron will recover from Pablo
David P6,227.24 with interest
Ruling:
The palay was placed by the plaintiffs in the defendant’s mill with the understanding
that David was at liberty to convert it into rice and dispose of it at his pleasure. All of the
plaintiffs' palay, which was put in before June 1, 1920, had been milled and disposed of long
prior to the fire. Since this is the case, it results that he is bound to account for its value, and
his liability was not extinguished by the occurrence of the fire. Supposing that the palay may
have been delivered in the character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that the defendant might mill the palay
and he has in fact appropriated it to his own use, he is of course bound to account for its
value.
Under article 1768 of the Civil Code, when the depositary has permission to make use
of the thing deposited, the contract loses the character of mere deposit and becomes a loan or
a commodatum; and of course by appropriating the thing, the bailee becomes responsible for
its value. In this connection we wholly reject the defendant's pretense that the palay delivered
by the plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is
the liability of the defendant in any wise affected by the circumstance that, by a custom
prevailing among rice millers in this country, persons placing palay with them without
special agreement as to price are at liberty to withdraw it later, proper allowance being made
for storage and shrinkage, a thing that is sometimes done, though rarely.
With regard to the price accounted for, the price of P6.15 per cavan, fixed by the trial
court, is about the price at which the defendant should be required to settle as of that date. It
was the date of the demand of the plaintiffs for settlement that determined the price,
regardless if the palay was delivered in character of sale with price undetermined or in the
character of deposit subject to use by the defendant. The plaintiffs are respectively entitled to
recover the value of the palay which they had placed with the defendant during the period
referred to, with interest from the date of the filing of their several complaints.
Name: Cris Angeli V. Tacuboy
Topic: Deposit
Provision: Article 1962 and Article 1998
Title: Durban Apartments Corporation vs Pioneer Insurance and
Surety Corporation
Source, Date: GR No. 179419, 12 January 2011
Facts:
Respondent, by right of subrogation, filed a Complaint for Recovery of Damages
against petitioner, doing business under name and style of City Garden Hotel, and Vicente
Justimbaste. Respondent averred that it is the insurer for loss and damage of Jeffrey See’s
Suzuki Grand Vitara.
See arrived and checked in at the City Garden Hotel, and its parking attendant got the
key to the Vitara from See to park it. See was then informed that his Vitara was carnapped
and lost due to the negligence of petitioner.
A claims evaluator of respondent evaluated the case upon receipt of the subrogation
documents and the adjuster’s report, and eventually recommended for its settlement for the
sum of P1,163,250, which was accepted by See.
RTC rendered judgment ordering petitioner to pay the sum with legal interest from
July 22, 2003 until obligation is fully paid and attorney’s fees and litigation expenses. The
appellate court affirmed.
Issue:
Whether petitioner is liable to respondent for the loss of See’s vehicle.
Held:
Yes
Ruling:
Article 1962, in relation to Art 1998 of the Civil Code defines a contract of deposit
and a necessary deposit made by persons in hotels or inns.
Art 1998 provides that deposit of effects made by travelers in hotels or inns shall also
be regarded as necessary. The keepers of hotels or inns shall be responsible for them as
depositaries, provided that a notice was given to them, or to their employees, of the effects
brought by the guests and that, on the part of the latter, they take the precautions which said
hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.
See deposited his vehicle for safekeeping with petitioner, who issued a claim stub.
Thus the contract of deposited was perfected from See’s delivery, when he handed over the
keys to his vehicle, which the employee received with obligation of safely keeping and
returning it. The petitioner is liable for the loss of See’s vehicle
Name: Neil Villalon
Topic: Deposit
Provision Cited: Article 2002-2003 of the Civil Code
Title: YHT Realty Corporation vs. Court of Appeals
Source, Date: G.R. No. 126780, 17 February 2005
Facts:
McLoughlin, an Australian businessman-philanthropist and private respondent, was
befriended by Brunhilda Mata-Tan (Tan) through touring him around, introducing him to
important people, and supporting impoverished street children as well as charitable
institutions for the poor. By gaining McLoughlin’s trust, Tan persuaded him to transfer from
his current hotel (Sheraton) to Tropicana Hotel where Lainez, Payam, and Danilo Lopez were
employed. After transferring to Tropicana, McLoughlin rented a safety deposit box for the
deposit of his money and other valuables. McLoughlin was aware of the Tropicana’s
procedure with regard to its safety deposit boxes, wherein one of two of its keys would be
with him while the other was with the hotel management.
For the first incident, he placed the following amounts, currencies, and valuables in
his safety deposit box: Fifteen Thousand US Dollars (US$15,000) which he placed in two
envelopes, one envelope containing Ten Thousand US Dollars (US$10,000) and the other
envelope Five Thousand US Dollars (US$5,000); Ten Thousand Australian Dollars
(AUS$10,000) which he also placed in another envelope; two (2) other envelopes containing
letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the
safety deposit box. When he went to Hong Kong, he took the envelope that contained
US$5,000 and upon arrival in Hong Kong, McLoughlin only found US$3000 but he
dismissed it as bad accounting.
When he returned to Manila and checked out from Tropicana to leave for Australia,
he noticed that the envelope that contained US$10,000 was only US$5000 as well as missing
jewelry that he bought from Hong Kong. McLoughlin returned to the Philippines after a year
and asked the Tropicana employee Lainez, who was in charge of the key of his safety deposit
box, if there was money returned or found to which the answer was in the negative.
For the second incident, McLoughlin again rented a safety deposit box in Tropicana
this time placing the following in it: one envelope containing Fifteen Thousand US Dollars
(US$15,000), another envelope containing Ten Thousand Australian Dollars (AUS$10,000)
and other envelopes containing his traveling papers/documents. Around twelve days later, he
asked the employees Lainez and Payam to open the safety deposit box and immediately
noticed that in the envelope that was supposed to contain US$15,000 was missing US$2,000
while the envelope that contained AUS$10,000 was AUS$4,500 short of the original amount.
McLoughlin confronted the two employees who squealed that it was Tan who opened
his safety deposit box with the key assigned to him which brought McLoughlin to confront
Tan in her room. When confronted, Tan confessed that stole his key and opened the safety
deposit box with the aid of the Tropicana employees (Lopez, Payam, and Lainez). Lopez also
added that Tan stole the key assigned to McLoughlin while the latter was sleeping.
McLoughlin immediately demanded that the Tropicana management investigate the

incident. Lopez then arranged a meeting with the police, McLoughlin, and Tan. But the
police did not arrive, so instead, Lopez and Tan went to McLoughlin’s room in Tropicana
wherein Lopez wrote a promissory note (to pay AUS$4000 and US$2000) which Tan signed.
However, McLoughlin also asked Lopez to sign it since he believed that the hotel should also
be held responsible. Nevertheless, Lopez refused to sign the promissory note on the hotel’s
behalf and reasoned that McLoughlin signed an “Undertaking for the Use of Safety Deposit
Box” (par. 2 and 4) which frees the hotel from any liability of the lost things in the box.
McLoughlin then returned to Australia to consult his lawyers. The Australian lawyers
told him that the hotel’s stipulations are void since they violate the universal hotel practices
and customs. His lawyers then prepared a letter addressed to President Aquino which was
then forwarded to the DOJ and then to the Western Police District. Since McLoughlin was
often in Australia, his case was often forgotten and neglected. It was only in 3 December
1990 that he was able to personally file and follow up the case against YHT Realty
Corporation, Lopez, Lainez, Payam, and Tan. The Regional Trial Court rendered a judgement
that was in favor of McLoughlin but the trial only proceeded against YHT Realty
Corporation, Lainez, and Payam while Lopez and Tan were not served with summons.
Issue:
Whether a hotel may evade liability for the loss of items left with it for safekeeping
by its guests by having the guests execute written waivers that hold the establishment or its
employees free from blame for such loss in light of Article 2003 of the Civil Code which
voids such waivers.
Ruling:
The Court held that the petition is devoid of merit since the Court adhered to the
findings of the trial court which was affirmed by the appellate court that the facts presented
by McLoughlin are factual and beyond the range of the petition.
With regard to the “Undertaking For the Use of Safety Deposit Box”, the Court held
that they found no reason to reverse the findings of the trial court and appellate court since
hotels are imbued with public interest and are bound to provide not only lodging for guests
but also security to their persons and belongings. The Court further stated that “the law in
turn does not allow such a duty to the public to be negated or diluted by any contrary
stipulation in so-called ‘undertakings’ that ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature” and “the New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to the loss of, or injury to, the personal
property of the guests even if caused by servants or employees of the keepers of hotels or
inns as wells as by strangers, except as it may proceed from any force majeure.”
Name: Richard Paolo Alarilla
Topic: Personal Security
Title: Madrigal v. Department of Justice, et al
Source, Date: G.R. No. 168903, 18 June 2014
Facts:
Respondent alleged that MTI applied for a loan from FEBTC in the amount of 11
million USD. Respondent maintains that FEBTC considered the immediate release of the
proceeds of the loan provided that the petitioner together with Lorenzo Jr. would execute
personal undertakings as sureties for the loan of the MTI. To secure the immediate release of
the proceeds of the loan, petitioner and Lorenzo Jr. agreed to this condition and consequently
executed a Comprehensive Surety Agreement as security for the release of the loan to MTI.
Respondent alleged that the institution of the criminal complaint was merely a ploy resorted
to by petitioner to question the due execution of the Comprehensive Surety Agreement to
evade her personal liability for MTI’s loan.
Meanwhile, according to the Petitioner, as president of MTI, she applied for a loan
from FEBTC in the amount of 10.5 million USD to finance the acquisition of a feeder vessel.
FEBTC sent her various loan documents. Petitioner was advised by respondent Palma that
FEBTC could only grant MTI a loan in the amount of 10 million USD because of a lower
valuation of the vessel. Thus, Petitioner reapplied for a loan in the amount of 10 million USD
for this reduced amount and signed a second set of loan documents. Petitioner noticed that
respondent Palma was imposing additional obligations not originally contemplated.
Respondent Palma insisted that petitioner was personally liable under the first
Comprehensive surety agreement covering the 10.5 million USD despite the fact that all the
documents were torn and abandoned. She was then compelled to disburse an amount of 5.9
million pesos to protect her reputation.
Issue:
Whether or not there exist two sets of loan documents that show respondents’ ruse to
deceive petitioner by ignoring unmistakable evidence which ended petitioner’s property
rights.
Held:
No.
Ruling:
Considering that the loan of 10 million USD was approved and released to petitioner
prior to the execution of the second set of documents, it is more sensible to believe that the
bank approved the loan upon her personal guarantee and execution of the first
Comprehensive Surety Agreement. Any intent to deceive through concealment was also
negated when FEBTC is willing to present the documents pertaining to the loan upon the
request of petitioner.
The existence of two (2) documents is irrelevant in this case as the original intention
of the parties is evident that petitioner and Lorenzo Jr. in their personal capacities are co-
sureties of MTI’s loan. It would be absurd to conclude that petitioner signed the
Comprehensive Surety Agreement in her capacity as president of MTI considered that the
principle behind suretyship will be negated. According to the Supreme Court, the borrower
cannot at the same time be a guarantor/ surety to assure the fulfillment of its own loan
application. The Comprehensive Surety Agreement is a continuing guarantee that petitioner
bound herself to the contract “until the full and due payment and performance of all the
obligations of the borrower”. In conclusion, there was only one load transaction, and FEBTC
does not intend to collect from both loan documents.
The type of this contract is called an unsecured transaction or contracts of personal
security wherein the fulfillment of which by the principal debtor is secured or supported only
by a promise to pay or the personal commitment of another such as a guarantor or surety.
Law or Provision Cited:
Title: Philippine Export and Foreign Loan Guarantee
Corporation v. VP Eusebio Construction, Inc., et al.
Source, Date: GR No. 140047, 13 July 2004
Facts:
The State Organization of Buildings (SOB), Ministry of Housing and Construction,
Baghdad, Iraq, awarded the construction of a rehabilitation center (project) to Ajyal Trading
and Contracting Company (Ajyal). Respondents 3-Plex and VPECI entered into an
agreement that the project would be under their joint managements. SOB required respondent
contractors to submit a performance bond and an advanced payment bond to be released upon
signing of the contract. To comply with said requirements, respondents 3-plex and VPECI
applied for the issuance of a guarantee with petitioner Philguarantee. SOB required three
layers of guarantees to be arranged – a letter guarantee from Philguarantee to Rafidain Bank
(government bank of Iraq), performance bond issued by Rafidain bank in favor of SOB, and a
counter-guarantee from Al Ahli Bank of Kuwait. These letters of guarantee were secured by
1) a deed of undertaking executed by respondents and 2) a surety bond.
SOB and the joint venture VPECI and Ayjal executed the service contract wherein the
contractor undertook to complete the project within 18 months. Due to setbacks and delays,
the deadline was not met. A month before the deadline, the contractor worked for an
extension of the Performance Bond and Advance Payment Guarantees, the former was
extended twelve times while the latter was extended three times. The surety bond was
likewise extended.
On October 1986, Al Ahli Bank of Kuwait sent a telex call to petitioner demanding
full payment of its performance and bond counter-guarantee. Respondent VPECI advised
petitioner Philguarantee not to pay yet because efforts were being exerted for the amicable
settlement of the Project. On April 1987, petitioner received another telex message from Al
Ahli stating that it had already paid Rafidain Bank and demanded reimbursement plus interest
and other related expenses. On August 1987, petitioner informed VPECI that it would remit
the payment to Al Ahli Bank and reiterated the joint and solidary obligation of the
respondents to reimburse the petitioner for the advances made on its counter-guarantee.
Petitioner also paid the interest and penalty charges.
On June 1991, petitioner demanded full payment from respondents. When
respondents failed to pay, petitioner filed with the RTC a civil case for collection of sum of
money. The RTC ruled against petitioner and held that Philguarantee had no valid cause of
action against respondents. On appeal, the CA affirmed the decision of the RTC. Petitioner
asserts that since the guarantee it issued was absolute, unconditional and irrevocable, the
nature and extent of its liability are analogous to those of suretyship.
Issue: Whether Philguarantee is entitled to reimbursement of what it paid based on the deed
of undertaking and surety bond from the respondents
Held: No. Petition denied for lack of merit.
Ruling:
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. If a person binds
himself solidarily with the principal debtor, the contract is called suretyship. Here, the
petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is
unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still
characterized by its subsidiary and conditional quality because it does not take effect until the
fulfillments of the condition – that the principal debtor should default in his obligation. (Here,
VPECI was not considered in default)
As a rule, a guarantor who pays for a debtor should be indemnified by the latter and
would be legally subrogated to the rights, which the creditor has against the debtor. However,
a person who makes payment without the knowledge or against the will of the debtor has the
right to recover only insofar as the payment has been beneficial to the debtor. In this case, it
is clear that the payment made by petitioner did not in any way benefit the principal debtor.
Topic: Personal Security: Guaranty and Suretyship
Title: Diamond Builders Conglomeration v Country Bankers
Insurance Corp.
Source, Date: G.R. No. 171820. 13 December 2007
Facts:
Marceliano Borja filed against Rogelio Acidre for the latter’s breach of his obligation
to construct a residential and commercial building. Rogelio is the sole proprietor of petitioner
DBC. To end the litigation, the parties entered into a Compromise Agreement to which the
RTC of Caloocan approved and rendered a decision in accordance with the terms and
conditions contained therein. The agreement provides that Rogelio admits full payment of
plaintiff to him the amount of 1.5M leaving the balance of 570,000 of the contractual price of
2.1M for the construction of the building. In the event that Rogelio shall fail to fully complete
the construction of the within 75 days he shall not be entitled to any further payments and the
performance of a surety bond shall be fully implemented by way of penalizing Rogelio or as
award for damages in favor of plaintiff.
DBC obtained a surety bond from Country Bankers in favor of the spouses Borja.
Rogelio together with DBC employees signed an indemnity agreement consenting their joint
and several liability to Country Bankers should the surety bond be executed upon. Country
Bankers received a Motion for Execution of the surety bond filed by Borja with the RTC
Caloocan for Rogelio’s alleged violation of the Compromise Agreement. Rogelio filed an
Omnibus Motion to suspend the Writ of Execution but was not immediately acted upon and
so DBP was constrained to pay the amount of the surety bond.
After the Country Bankers was compelled to pay the amount of the surety bond, it
demanded reimbursement from the petitioners under the indemnity agreement but petitioners
refused to reimburse Country Bankers. Petitioners wrote Country Bankers and informed the
latter that the voluntary payment of the bond effectively prevented them from contesting the
validity of the issuance of the Writ of Execution. Therefore, Country Bankers filed a
complaint for sum of money against the petitioners which the RTC dismissed.
CA reversed and stated that Country Bankers did not effect voluntary payment of the
bond. What Country Bankers paid was an obligation due and demandable. It declared that
Country Bankers acted upon compulsion of a writ of execution which is validly issued.
Hence, this appeal.
Issue:
Whether or not the petitioners should indemnify Country Bankers for the payment of the
surety bond.
Held:
Yes.
Ruling:
The Compromise Agreement between Borja and Rogelio explicitly provided that the
latters failure to complete construction of the building within the stipulated period shall cause
the full implementation of the surety bond as a penalty for the default, and as an award of
damages to Borja. Furthermore, the Compromise Agreement contained a default executory
clause in case of a violation or avoidance of the terms and conditions thereof. Therefore, the
payment made by Country Bankers to Borja was proper, as failure to pay would have
amounted to contumacious disobedience of a valid court order.
Article 2047 of the Civil Code specifically calls for the application of the provisions on
solidary obligations to suretyship contracts. In particular, Article 1217 of the Civil Code
recognizes the right of reimbursement from a co-debtor (the principal co-debtor, in case of
suretyship) in favor of the one who paid (i.e., the surety).
In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is unavailing,
such that only those payments made after the obligation has prescribed or became illegal
shall not entitle a solidary debtor to reimbursement. Nowhere in the invoked CA Decision
does it declare that a surety who pays, by virtue of a writ of execution, is not entitled to
reimbursement from the principal co-debtor.
Name: Cabrera, Ramon N.
Topic: Personal Security: Chattel Mortgage
Title: Servicewide Specialists Inc. v. Court of Appeals
Source, Date: G.R. No. 110048 19 November 1999
Facts:
Leticia Laus purchased on credit a Colt Gallant from Fortune Motors Corporation.
She executed a promissory note for the amount of Php 56,028, inclusive of 12% interest per
annum, payable within a period of 48 months starting August, 1976 at a monthly installment
of Php 1,167.25. The promissory note indicated that in case of default in the payment of the
monthly installment, the total principal sum and interest shall be due and demandable.
As security to the promissory note, a chattel mortgage was constituted over the said
motor vehicle. Mortgage rights were assigned the credit in favor of Statewide Specialists Inc.
transferring unto the latter all its rights under the promissory note and chattel mortgage. Laus
failed to pay monthly installments for 18 months. Despite demand from Statewide to pay the
full amount of Php 86,613, Laus failed to pay. Statewide instituted a complaint for replevin
against Hilda Tee and John Dee in whose custody the vehicle was believed to be at the time
of the filling. Alberto Villarica filed a third party claim contending he is the absolute owner
of the vehicle. Upon motion of the plaintiff, Villarica substituted as defendant. The RTC
dismissed the complaint for insufficiency of evidence. Upon appeal, the CA dismissed the
complaint.
Issue: Whether a case for replevin may be pursued against defendant Villarica without
impleading the absconding debtor mortgagor Laus?
Held: Yes. Petition denied.
Ruling:
“In a suit for replevin, a clear right of possession must be established…The replevin
in this case may be resulted to in order to pave way for the foreclosure of what is covered by
the chattel mortgage. The conditions essential for such foreclosure would be to show, firstly,
the existence of the chattel mortgage, and secondly the default of the mortgagor. “
“Since the mortagagee’s right of possession is conditioned upon the actual fact of
default which itself may be controverted, the inclusion of other parties, like the debtor or
mortgagor himself, may be required in order to allow full and conclusive determination of the
case…An adverse possessor, who is not a mortgagor, cannot be deprived of his possession,
let alone be bound by the terms of the chattel mortgage contract, simply because the
mortgagee brings up an action for replevin.”
“An indispensable party is one whose interest will be affected by the court’s action in
litigation, and without whom no final determination of the case can be had. The party’s
interest in the subject matter of the suit and in the relief sought are so inextricably intertwined
with other parties that his legal presence as party to the proceeding in an absolute necessity”
Provision Cited: Articles 2058, 2062 Civil Code
Title: Pacionaria C. Baylon v. Court of Appeals, et al.
Source, Date: GR No. 109941, 17 August 1999
Facts:
Petitioner Baylon introduced private respondent Tomacruz to one Rosita Luanzon.
She informed private respondent that Luanzon has been engaged in business as a contractor
for 20 years and she invited respondent to lend Luanzon money at a monthly interest rate of
5%, to be used as capital for the latter’s business.
Private respondent, upon the assurance that said business was stable, lent Luanzon
P150,000. Luanzon signed a promissory note and petitioner signed the same, affixing her
signature under the word “guarantor”. Thereafter, Luanzon issued a postdated check.
Private respondent made a written demand upon petitioner for payment, which
petitioner did not heed, prompting her to file a case with the RTC for collection of a sum of
money. The lower court ruled in favor of private respondent and on appeal the trial court’s
decision was affirmed by the Court of Appeals.
Petitioner denied having guaranteed the payment of the promissory note issued by
Luanzon and granting arguendo that she guaranteed the same, private respondent has not
exhausted the property of the principal debtor as required by law.
Issue: Whether petitioner is liable as a guarantor
Held: No. Petition granted.
Ruling:
The liability of the guarantor is only subsidiary. All the properties of the principal
debtor must first be exhausted before his own is levied upon. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against the principal debtor and the
latter is unable to pay, “for obviously the exhaustion of the principal’s property – the benefit
of which the guarantor claims – cannot even begin to take place before judgment has been
obtained” – This rule is embodied in Article 2062 of the Civil Code which provides that the
action brought by the creditor must be filed against the principal debtor alone, except in some
instances when the action may be brought against both the guarantor and the principal debtor.
Topic: Real Security, Pactum Commissorium
Title: Sps. Ong vs. Roban Lending Corporation
Nature: Petition for Review on Certiorari
Source, Date: G.R. No. 172592, July 9, 2008
Facts:
On different dates from July 14, 1999 to March 20, 2000,

petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several loans from
Roban Lending Corporation (respondent) in the total amount of P4,000,000.00. These loans
were secured by a real estate mortgage on petitioners’ parcels of land located in Binauganan,
Tarlac City.
On February 12, 2001, petitioners and respondent executed an Amendment to

Amended Real Estate Mortgage consolidating their loans inclusive of charges thereon which
totaled P5,916,117.50. On even date, the parties executed a Dacion in Payment Agreement
wherein petitioners assigned the properties covered by TCT No. 297840 to respondent in
settlement of their total obligation, and a Memorandum of Agreement.
In April 2002 petitioners filed a complaint before the Regional Trial Court
(RTC) of Tarlac City, for declaration of mortgage contract as abandoned, annulment of
deeds, illegal exaction, unjust enrichment, accounting, and damages, alleging that the
Memorandum of Agreement and the Dacion in Payment executed are void for being pactum
commissorium.
Petitioners alleged that the loans extended to them from July 14, 1999 to
March 20, 2000 were founded on several uniform promissory notes, which provided for 3.5%
monthly interest rates, 5% penalty per month on the total amount due and demandable, and a
further sum of 25% attorney’s fees thereon, and in addition, respondent exacted certain sums
denominated as EVAT/AR. Petitioners decried these additional charges as illegal, iniquitous,
unconscionable, and revolting to the conscience as they hardly allow any borrower any
chance of survival in case of default.
The petitioners prayed for a declaration of the “Memorandum of Agreement”

and “Dacion in Payment” as null and void for being pactum commissorium, among other
things.
The RTC dismissed the complaint on the basis of the pleadings that there was
no pactum commissorium. The Court of Appeals upheld the decision of the RTC.
Issue: Whether the Memorandum of Agreement and Dacion in Payment was pactum
commissorium
Held: Yes. Petition Granted. Court of Appeals decision is reversed and set aside, with
modifications.
Ruling: This Court finds that the Memorandum of Agreement and Dation in Payment
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code
which provides:
“The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose
of them. Any stipulation to the contrary is null and void.”
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of
the mortgaged property without the need of any foreclosure proceedings are:
(1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and
(2) there should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of nonpayment of the principal obligation within the stipulated
period.
In the case at bar, the Memorandum of Agreement and the Dation in Payment contain no
provisions for foreclosure proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dation in Payment transferring to it ownership of the
properties covered by TCT No. 297840. Respondent, in effect, automatically acquires
ownership of the properties upon petitionersÊ failure to pay their debt within the stipulated
period.
Dulay, Nicole Bernadette M.
Topic: Real Security
Law cited: Sec. 3, Chattel Mortgage Act
Title: Bachrach Motor Co., Inc. v Esteva
Source, Date: No 40233, 14 February 1934
Facts:
Esteva bought trucks from Teal Motor Co., Inc through promissory notes, secured by
a chattel mortgage. Teal Motor Co., Inc endorsed the notes to Bachrach Motor Co., Inc.
Esteva failed to make payments of certain notes. Teal Motor Co., Inc initiated foreclosure
proceedings. Subsequently, Bachrach Motor Co., Inc began to secure payments from Esteva
and Teal.
Issue:
Was the foreclosure of the mortgage by Teal Motor Co., Inc illegal?
Held:
Yes, the foreclosure of the mortgage was illegal.
Ruling:
In the law of chattel mortgages, the debt is the principal thing, while the mortgage is
but an incident to the debt. Thus, when it is separated from the principal, as in this case where
the notes were endorsed without the mortgage, it has no determinate value. Therefore, the
separation of the notes from the mortgage and both the foreclosure of the mortgage and a suit
of the notes can’t be countenanced.
Name: Jason Edric T.Dy
Law Cited: Art. 1306 and 2088
Title: Natalia Bustamante vs. Sps. Rodito and Norma Rosel
Source, Date: GR No. 126800, 29 November 1999
Facts:
In 1987, Rosel entered into a loan agreement with Bustamante for P100,000 and
placed a 70sqm lot as collateral. In the agreement the lender has the option to buy the
collateral for P200,000 if the borrowers failed to pay. When the loan was about to
mature respondents proposed to buy the lot but petitioner refused and requested for
extension and offered to another lot. Respondents refused to extend and to accept the
lot. When petitioner tendered payment respondents refused to accept insisting on
petitioners signing a deed of absolute sale of the collateral.
Respondents filed with the RTC a complaint for specific performance with
consignation against petitioner and also sent a demand letter asking petitioners to sell.
Petitions on the other hand filed in the RTC a petition for consignation and deposited
with the City Treasurer P153,000. When petitioner refused to sell respondents
consigned P47,500 with the trial court.
The RTC denied the prayer for execution of the Deed of Sale and ordered
petitioners to pay the loan. The CA reversed the RTC decision and ordered petitioners to
accept the P47,500 and to execute the Deed of Sale.
Issue:
1) Whether petitioners failed to pay the loan.

2) Whether the stipulation giving respondents right to purchase the collateral
was valid and enforceable.
Held:
1) No.
2) No.
Ruling:
1) Petitioners tendered payment on the due date which respondents refused.

Petitioner then consigned the amount with the trial court.
2) The stipulation is within the concept of pactum commissorium which is
prohibited by law. The intent to appropriate the collateral is evident, for the
debtor is obliged to dispose of it at the pre-agreed consideration amounting to
practically the same amount as the loan. The creditor acquires the collateral in
the event of non-payment of the loan.
Provision Cited: Art. 2126 of the NCC
Title: PNB v. Mallorca
Source, Date: 21 SCRA 694, 31 October 1967
Facts:
In 1950, Ruperta Lavilles mortgaged her own 48,965 sq. m. parcel of land situated in
Passi, Iloilo to the Philippine National Bank as security for a loan of P1,800.00. This
mortgage was duly recorded.
In 1958, while this lot was still mortgaged, Lavilles sold to Mallorca 20,000 sq. m. of
the land, without knowledge and consent from PNB. Mallorca moved the court to have the
sale duly annotated on the title, as well as to require PNB to surrender the owner’s copy of
the title to the Register of Deeds. The court directed PNB to do so, and warned that the
mortgage in favor of PNB is duly registered in the Register of Deeds and that to whom the
land is sold, the buyer will assume responsibility of the mortgage. The Register cancelled the
surrendered title, issued a new one, making two co-owner copies – one each for Lavilles and
for Mallorca. Here, PNB’s mortgage lien was annotated.
Lavilles failed to pay her debt. PNB then, foreclosed the mortgage extrajudicially.
PNB became the rightful owner through auction. The certificate of sale was registered with
the Register of Deeds.
Mallorca sued PNB to enforce her right of redemption, which the court granted that
she may exercise such right within the limits specified by law. However, she failed to
exercise this right.
Final deed of sale named to PNB, was presented to the Register of Deeds for
registation. However, the latter refused to register without Mallorca’s co-owner’s copy. By
letter, she was required by the Register to surrender said copy. She did not comply.
Case was filed for her to be required to surrender the same, and was granted by the
court. She was ordered to surrender the co-owner’s copy. But she positioned that her
undivided interest in the 20,000 sq. m. of the mortgaged lot remained unaffected by the
foreclosure and subsequent sale to PNB as she was not a party to the real estate mortgage,
and that she neither secured or contracted a loan with the said bank.
Issue: Whether or not Mallorca’s stand is valid.
Held: No. Order affirmed.
Ruling: Her stand clahes with the well-entrenched precepts of law – “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. Sale or transfer
cannot affect or release the mortgage. A purchases is bound to acknowledge and respect the
encumbrance to which is subjected the purchased thing and which is at the disposal of the
creditor to recover the amount of his credits.
A recorded real estate is a right in rem. The personality of the owner is disregarded
and the mortgage subsists notwithstanding the changes of ownership. So it is, that a mortgage
lien is inseparable from the property mortgaged. Mortgage, until discharge, follows the
property. Also, a real estate mortgage is indivisible. Each and every parcel of land under
mortgage answers for the totality of the debt.
Law Cited: Presidential Decree No. 27, Section 80 of RA No. 3844, and PD No. 251.
Title: Philippine National Bank vs Hon. Augusto M. Amores, et al.
Source, Date: G.R. No. L-54551, 09 November 1987
Nature: Petition to review decision of CFI Manila
Ponente: Sarmiento, J.
Facts: Maximo Kalaw Investment Corporation (Kalaw) is the registered owner of lot
located in Oriental Mindoro with the area of 3,132,122 square meters more or
less. Kalaw obtained a loan from PNB in the amount of P150,000 where the
aforesaid lot was mortgaged. 45.186 hectares of the said lot were subjected to
Operations Land Transfer in favour of tenants-beneficiaries in accordance
with PD No. 27 and Agrarian Reform Code or RA 3844, as amended by PD
No. 251. In 1977, LBP paid PNB for the account of Kalaw P14,588.50 in cash
and LBP Bonds with a total face value of P130,000. However, PNB applied
the LBP Bonds on a one-to-one basis or only a total of P90,400, on a
discounted basis. Kalaw contested PNB on its manner of application of LBP
Bonds to the payment of his obligation but was denied thereby seeking
judicial relief. The Court of First Instance of Manila granted the declaratory
relief prayed for by Kalaw where it ordered PNB to accept the LBP Bonds on
its face value, the entire amount of P130,000 without any discount.
Issue: Whether the PNB may affirm that lands not subject to PD 27 are also not
subject to Section 80 of RA 3844, as amended by PD 251.
Ruling: The Supreme Court (SC) held that PNB’s interpretation not only unduly
stretches the scope of PD 251 but is also antithetical to the objectives of the
land reform program. Explicit is the law that a mortgage obligation is one and
indivisible. Every portion of the property mortgaged is answerable for the
whole obligation as soon as the latter falls due. The mortgagor cannot opt
much less compel the mortgagee, to apply any payment made by him on a
specific portion of the mortgaged property to effect release. Neither may the
mortgagee apply payments to it on, and consequently release a portion of the
mortgaged property and effect foreclosure on the rest. It is clear that PNB
cannot be allowed to de precisely what it had done in the case at bar. PNB’s
method evidently contravenes the principle of indivisibility of mortgage for it
applied the LBP Bonds as payment on a one-to-one basis pro tanto of the
mortgage debt secured by the land acquired by LBP. There is nothing in the
said law which can be construed to mean that when the area actually land
reformed is just a portion of the property encumbrance, only that portion of
the loan value corresponding to the area actually taken will be paid with LBP
Bonds at their face value. PNB is obliged to accept LBP Bonds at their par or
face value as payment by Kalaw, and may not discount said payment but must
apply the full face value of the bonds on the outstanding balance.
Name: Alyssa Anne Bernadette J. Limboc
Topic: Pledge
Provision Cited: Art. 559 of Civil Code.
Title: Dominador Dizon (Pawnshop of Dominador Dizon) vs Lourdes
Suntay
Source, Date: GR no. L-30817, September 29, 1972.
Facts:
A diamond ring was turned over to a certain Clarita R. Sison, close friend of Suntay’s cousin,
for sale on commission, along with other pieces of jewelry of respondent Suntay. It was then
pledged, under pawnshop receipt serial -B no. 65606 dated 15 June 1962, to Dizon who owns
and operates a pawnshop. Since what was done was violative of the terms of the agency,
there was an attempt on Suntay’s part to recover possession thereof from Dizon, who refused.
Due to Dizon’s refusal, Suntay filed an action for recovery. Suntay asked for the provisional
remedy of replevin by the delivery of the ring. Lower court rendered decision sustaining the
right to possession of Suntay by issuing a writ of replevin. CA affirmed lower court’s
judgment. Dizon elevated the matter to Supreme Court.
Issue: Whether Suntay has right to recover possession of the ring from pawnshop where third
person had pledge it without authority.
Held: Yes.
Ruling:
Supreme Court (SC) held that the owner of a diamond ring may recover the possession of the
same from a pawnshop where another person had pledged it without authority to do so.
Article 559 of the Civil Code of the Philippines applies, to wit:

“The possession of movable property acquired in good faith is equivalent to
a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same.
If the possessor of a movable lost or which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid therefor. “
Also,the defense that the pawnshop acquired possession of the ring without notice of any
defect in the title of the pledgor is unavailing.
Where the owner delivered the diamond ring to another solely for sale on commission but the
latter instead pawned the same without authority to do so, the owner is not estopped from
pursuing an action against the pawnshop for the recovery of the possession of the said ring.
NAME: Manalo, Maria Anna S.
TOPIC: Pledge
LAW/PROVISION: Article 2093
TITLE: INVOLUNTARY INSOLVENCY OF THE GULF
PLANTATION CO. PACIFIC COMMERCIAL
COMPANY, PHILIPPINE-AMERICAN DRUG
COMPANY and STANDARD OIL
COMPANY vs. PHILIPPINE NATIONAL BANK
SOURCE, DATE: G.R. No. L-24893 23 AUGUST 1926
FACTS: 24 August 1918 – Gulf Plantation Co. executed to respondent PNB an instrument
(Exhibit A), where the former was designated as the “pledgor” and the latter as
the “pledgee.” The instrument stated the pledging of several items and
authorizing respondent/pledgee to dispose them in accordance with the Chattel
Mortgage Law.
25 March 1922 – Pledgor filed a petition to be declared insolvent and was
declared as such on 16 September 1922. The court ordered the sheriff to take
possession of all the assets of the insolvent estate.
23 October 1922 – An assignee was appointed with the consent and approval of
all creditors, including PNB. The assignee filed an inventory of all the properties
of the pledgor and also the petition for authority to sell at public auction the
same.
3 November 1922 – Respondent/pledgee filed a petition for the execution of the
instrument (Exhibit A) and a breach of its conditions.
RTC rendered a judgment in favor of respondent/pledgee.
ISSUE: Whether there is a perfected contract of pledge

HELD: Yes.
RULING: The Court held that it was apparent from the language used in the instrument
(Exhibit A) that it was prepared on the customary blank form of a pledge for the
taking of properties under a pledge. The said instrument was never received or
filed for any purpose until 24 February 1921, i.e. there is no evidence that
supports that it was received, filed or recorded anywhere or by anyone, either as
a chattel mortgage or a pledge of personal property.
Article 1863 of the Civil Code (Article 2093 NCC) provides that “in order to
constitute the contract of pledge, the pledge must be placed in the possession of
the creditor or of a third person appointed by common consent.”
Name: Vanya Klarika E. Nuque
Topic: Pledge
Law or Provision Cited: Articles 2085 and 2093 of the Civil Code
Title: Fort Bonifacio Dev. Co. vs. Yllas Lending Co., et al.
Source, Date: G.R. No. 158997; 6 October 2008.
Facts:
FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno). Two provisions in the
lease contract are pertinent: Section 20, which is about the consequences in case of default of
the lessee, and Section 22, which is about the lien on the properties of the lease. Tirreno
began to be in default. FBDC and Tirreno entered into a settlement agreement on 8 Aug.
2000. Tirreno still failed to settle his obligations. FBDC then entered and occupied the leased
premises. FBDC also appropriated the equipment and properties left by Tirreno pursuant to
Sec. 22 of their Contract of Lease as partial payment.
On 4 March 2002, Yllas Lending Corporation and its President asked for the seizure of items
of Tirreno. In their complaint, respondents alleged that they lent a total of P1.5M to Tirreno
and two others (they executed a Deed of Chattel Mortgage in favor of respondents as security
for the loan). On the same day, FBDC gave an affidavit of title and third party claim. The
sheriff proceeded with the seizure of certain items from FBDC’s premises. The trial court
stated that the case raises the questions of who has a better right over the properties of
Tirreno and whether FBDC has a right to intervene in respondent’s complaint for foreclosure
of chattel mortgage. RTC declared that Sec. 22 of the lease contract between FBDC and
Tirreno void. Respondents, as well as the trial court, contend that Section 22 constitutes a
pactum commissorium, a void stipulation in a pledge contract. FBDC, on the other hand,
states that Section 22 is merely a dacion en pago.
Issue: Whether pledge exist in this case.
Held: NO. Petition is Granted
Ruling:
Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of
pledge: (1) the pledge is constituted to secure the fulfillment of a principal obligation; (2) the
pledgor is the absolute owner of the thing pledged; (3) the persons constituting the pledge
have the free disposal of their property or have legal authorization for the purpose; and (4)
the thing pledged is placed in the possession of the creditor, or of a third person by common
agreement. Article 2088 of the Civil Code prohibits the creditor from appropriating or
disposing the things pledged, and any contrary stipulation is void. On the other hand, Article
1245 of the Civil Code defines dacion en pago, or dation in payment, as the alienation of
property to the creditor in satisfaction of a debt in money. Dacion en pago is governed by the
law on sales. Philippine National Bank v. Pineda, 197 SCRA 1 (1991), held that dation in
payment requires delivery and transmission of ownership of a thing owned by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. There is no dation
in payment when there is no transfer of ownership in the creditor’s favor, as when the
possession of the thing is merely given to the creditor by way of security.
Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of
termination of the lease contract or the expiration of the lease period and there are unpaid
rentals, charges, or damages. The existence of a contract of pledge, however, does not arise
just because FBDC has means of collecting past due rent from Tirreno other than direct
payment. The trial court concluded that Section 22 constitutes a pledge because of the
presence of the first three requisites of a pledge: Tirreno’s properties in the leased premises
secure Tirreno’s lease payments; Tirreno is the absolute owner of the said properties; and the
persons representing Tirreno have legal authority to constitute the pledge. However, the
fourth requisite, that the thing pledged is placed in the possession of the creditor, is
absent. There is non-compliance with the fourth requisite even if Tirreno’s personal
properties are found in FBDC’s real property. Tirreno’s personal properties are in FBDC’s
real property because of the Contract of Lease, which gives Tirreno possession of the
personal properties. Since Section 22 is not a contract of pledge, there is no pactum
commissorium.
Name: Pajara, Jarryd Anthony B.
Topic: Pledge
Provision Cited: Art. 1371
Title: INTEGRATED REALTY CORPORATION v. PNB
Source, Date: G.R. No. 60907; June 28, 1989
Facts:
Raul L. Santos made two time deposits with defendant OBM in the amount of P500,
000 and P200, 000 at separate dates. IRC, thru its president Raul L. Santos, applied for a loan
and/or credit line in the amount of P700,000.00 with plaintiff bank. To secure the said loan,
defendant Raul L. Santos executed on August 11, 1967 a Deed of Assignment of the two time
deposits in favor of plaintiff. The defendant OBM did not pay plaintiff PNB. Plaintiff
demanded payment from defendants IRC and Raul L. Santos and from defendant OBM.
Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC was
deemed paid with the irrevocable assignment of the time deposit certificates. PNB filed a
complaint to collect from IRC and Santos the loan of P700, 000.00 with interest.
Issue: Whether the liability of IRC and Santos with PNB should be deemed to have been
paid by virtue of the deed of assignment.
Held: No. Petition is denied.
Ruling:
The Court held that for all intents and purposes, the deed of assignment in this case is
actually a pledge since the intention of the petitioners was only to secure the payment of
money. The deed of assignment has satisfied the requirements of a contract of pledge (1) that
it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the
absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free
disposal of their property, and in the absence thereof, that they be legally authorized for the
purpose. The further requirement that the thing pledged be placed in the possession of the
creditor, or of a third person by common agreement the deed of assignment in favor of PNB.
It must also be emphasized that Santos, as assignor, made an express undertaking that he
would remain liable for any outstanding balance of his obligation should PNB be unable to
actually receive or collect the assigned sums was complied with by the execution of resulting
from any agreements, orders or decisions of them court or for any other cause whatsoever.
The term “for any cause whatsoever” is broad enough to include the situation involved in the
present case.
Name: PARTIBLE, JANINE DEZZA L.
Topic: PLEDGE
Title: UNION BANK OF THE PHILIPPINES, vs. JUNIAT, et. al.
Source, Date: G.R. No. 171569, August 1, 2011.
Facts:
Petitioner Union Bank is a universal banking corporation organized and existing
under Philippine Laws. Respondents Winwood and Wingyan are domestic corporations
engaged in the business of apparel manufacturing, which are owned and operated by
respondent Juniat.
On September 3, 1992, petitioner filed with RTC a complaint for the issuance of ex-
parte writs of preliminary attachment and replevin against respondents, and Nonwoven, the
person in possession of the mortgaged motorized sewing machines and equipment. Petitioner
alleged that Juniat, acting for and in behalf of Winwood and Wingyan, executed a promissory
note date April 11, 1992 and a chattle mortgage date March 27, 2992 over several motorized
sewing machines and other allied equipment and other equipment to secure their obligation
arising from expert bills transactions to petitioner in the amount of P1,131,134.35; that as
additional security for the obligation, Juniat executed a Continuing Surety Agreement dated
April 11, 1992 in favor of the petitioner; that the loan remains unpaid; and that the mortgaged
motorized sewing machines are insufficient to answer for the obligation.
Nonwoven contends that the unnotarized chattel mortgage executed in favor of the
petitioner has no binding effect on Nonwoven and that it has a better title over the motorized
sewing machines and equipment because there were assigned to it by Juniat pursuant to their
Agreement date May 9, 1992.
On May 18, 1993, petitioner sold the attached properties, before the RTC could act on
it, for the amount of P1,350,000.00.
RTC rendered decision in favor of petitioner and the Agreement dated May 9, 1992 in
favor of Nonwoven have no obligatory effect on third person because those documents were
not notarized. However, since the chattel mortgage in favor of the petitioner was executed
earlier, petitioner has a better right over the motorized sewing machines and equipment.
CA reversed the RTC ruling and ruled that the contract of pledge entered into
between Juniat and Nonwoven is valid and binding, and that the motorized sewing machines
and equipment were ceded to Nonwoven by Juniat by virtue of dacion en pago. Declaring
Nonwoven entitled to the proceeds of the sale of the attached properties.
Issue:
Whether or not the Agreement dated May 9, 1992 binds the petitioner. – NO.
Ruling:
A perusal of the said Agreement clearly shows that the sewing machines, snap
machines and boilers were pledged to Nonwoven by Juniat to guarantee his obligation.
However, under Article 2096 of the Civil Code. “[a] pledge shall not take effect against third
persons if a description of the thing pledged and the date of the pledge does not appear in
public instrument.” Hence, the pledge executed by Juniat in favor of Nonwoven cannot bind
petitioner.
No evidence was presented by Nonwoven to show that the attached properties were
subsequently sold to it by way of dacion en pago. Also, there is nothing in the Agreement to
indicate that the sewing machines, snap machines and boilers were ceded to Nonwoven as
payment for the Wingyan’s and Winwood’s obligation.
There can be no transfer of ownership if the delivery of the property to the creditor is
by way of security. In case of doubt, whether a transaction is a pledge or dacion en pago, the
presumption is that it is a pledge as this involves a lesser transmission of rights and interests.
The CA ruling is reversed. Nonwoven is not entitled to the proceeds of the sale of the
attached properties because it failed to show that it has a better title over the same.
Name: Prado-Lopez, Laura R.
Title: Estate of George Litton v Ciriaco B. Mendoza
Source, Date: No. L-49120, June 30, 1988
Topic: Pledge
Facts:
The Bernal spouses are engaged in the manufacture of embroidery, garments and
cotton materials. Sometime in September 1963, C.B.M. Products, with Mendoza as
president, offered to sell to the Bernals textile cotton materials, for this purpose, Mendoza
introduced the Bernals to Alfonso Tan. The Bernals purchased on credit from Tan some
cotton materials worth P80,796.62 whose payment was guaranteed by Mendoza. Tan
delivered the cotton materials to the Bernals and in view of the arrangement, Mendoza, on
November 1963, received from the Bernals a check worth P80,796.62 dated 20 February
1964 with the understanding that he said check will remain with Mendoza until after the
cotton materials are manufactured into garments and will be sold by Mendoza for the
Bernals. The check later on matured without having been encashed and Mendoza demanded
that another undated check of the same amount be issued. On the other hand, Mendoza issued
2 checks in favor of Tan covering the whole amount and informed the Bernals of the same
and told them they were indebted to him and asked them to sign an instrument whereby
Mendoza assigned the said amount to Insular Products Inc. Tan had the 2 checks discounted
in a bank however such were returned stamped "stop payment" which appears to have been
ordered by Mendoza due to the failure of the Bernals to deposit sufficient funds.
Tan brought an action against Mendoza for the collection of sum of money by way of
guaranty (pledge) with a commission while the Bernals brought an action for not knowing
whom to pay. While both actions were pending resolution, Tan assigned in favor of George
Litton, Sr. his litigatous credit in the civil case against Mendoza, duly submitted to the court,
with notice to the parties.
Issue: Whether or not a subsequent pledge is valid.
Held: No, a subsequent pledge is not valid. Hence, petition is denied.
Ruling:
The deed of assignment done by Tan on his litigatous credit shows that it fulfills the
requisites of a pledge hence is valid however the alienation of a litigatous credit under Article
1634 should be read in consonance with Article 2097 of the NCC where "with the consent of
the pledgee, the thing pledged may be alienated by the pledgor or owner, subject to the
pledge. The ownership of the thing pledged is transmitted to the vendee or transferee as soon
as the pledgee consents to the alienation, but the latter shall continue in possession."
Although the pledgee or the assignee, Litton, Sr. did not ipso facto become the creditor of
private respondent Mendoza, the pledge being valid, the right assigned by Tan in favor of
Litton,Sr. can only be alienated by Tan with due notice to and consent of Litton,Sr. or his
duly authorized representative. To allow the assignor to dispose of or alienate the security
without notice and consent of the assignee will render nugatory the very purpose of a pledge
or an assignment of credit.
Name: Realin, Reuel Angelo
Topic: Pledge; Foreclosure and Sale
Title: Lim Tay v. Court of Appeals, Go Fay and Co. Inc., Sy Guiok and
the estate of Alfonso Lim
Source, Date: GR No. 126891, 05 August 1998
Facts:
Respondent Sy Guiok secured a loan from petitioner, Lim Tay, in the amount of Php 40k. As
security, Guiok executed a Contract of Pledge wherein he pledged his 300 shares of stock in
respondent company, Go Fay & Co. Inc.
The contract provides that in case the respondent fails to pay the amount, the petitioner is
authorized to foreclose the pledge upon the shares of stock to be sold at a private or public
sale with or without notice to the respondent.
Respondents failed to pay their respective loans causing the petitioner to file a petition for
mandamus before the SEC in order to compel the corporate secretary of Go Fay & Co., Inc to
register the stock transfers and issue new certificates in favor of the petitioner.
SEC: Dismissed the action. Mandamus can only be issued upon a clear showing of
ownership over the assailed shares of stock which is within the jurisdiction of regular courts
and not with SEC.
CA: Denied
Issue: Whether conducting a foreclosure or sale of shares through a private or public auction
is indispensable in order to pass ownership from the pledgor to the pledgee in accordance
with Article 2103 and Article 2112 of the Civil Code.
Held: Yes, it is indispensable.
Article 2103 provides that unless the things is expropriated, the debtor continues to be the
owner thereof. In addition, Article 2112 provides that if a credit has not been satisfied in due
time, the creditor may proceed to the sale of the thing pledged. If at the first auction the thing
is not sold, a second one shall be held, and if there is no sale at the second auction, it is only
then that the creditor may appropriate the thing pledged.
In this case, the petitioner failed to show that he has attempted to foreclose or sell the shares
through a public or private auction as required in their stipulation and under the said
provisions of the code. In such case, the respondent as the pledgor, remains the owner of the
shares during the pendency of the pledge and prior its foreclosure and sale.
Name: Franco Antonio F. Regalado
Topic: Pledge
Provision Cited: Insurance Law, Civil Code Art. 2087
Title: Gidwani v. Domestic Insurance Co. of the Phils.
Source, Date: G.R. No. L-31142, 24 June 1983
Facts:
Manufacturers Bank and Trust Company granted Plastic Era Manufacturing Co. a
discounting line of P20,000. Plastic Era issued a surety bond issued by the Domestic
Insurance Company of the Philippines to secure payment of any loans. Plastic Era,
Bhagwandas Gidwani and Kishu Gidwani executed an indemnity agreement, binding
themselves solidarily to pay Domestic Insurance for all damages and losses because of the
surety bond. Plastic Era executed a promissory note in favor of Manufacturers. Domestic
Insurance required additional security, so Sati Gidwani, wife of Bhagwandas, pledged her
shares in Marinduque Iron Mines and several other corporations, to secure Plastic Era's
fulfillment to indemnify Domestic Insurance.
Plastic Era failed to pay the promissory note. Manufacturers Bank filed a claim against
Domestic Insurance, which paid by virtue of the surety bond. Domestic Insurance filed a case
against Plastic Era, Kishu and Bhagwandas for recovery. CFI rendered judgment based on a
compromise agreement where defendants would pay, but anything in excess of P20,000
would be due one year later.
Domestic Insurance requested the sale at public auction of the Marinduque shares pledged by
Sati. Shares were sold to Domestic Insurance, the highest bidder. New certificates of stock
were issued in Domestic Insurance's name. Sps. Gidwani later wrote to Marinduque, stating
that they have assigned their shares to Samuel Sharuff. Marinduque refused, saying that the
shares were pledged to Domestic Insurance, the pledge was foreclosed, and the same
acquired them at the auction sale. Sps. Gidwani and Samuel Sharuff sued Domestic Insurance
for extinguishment of Sati Gidwani's shares, nullification of auction sale to Domestic
Insurance, and issuance of stock certificates over said shares to Sharuff.
Issue:
Whether or not Domestic Insurance’s action, based on counter-guaranty, released its lien on
the pledged shares.
Held:
No.
Ruling:
Had Domestic Insurance sued only Plastic Era under its subrogation to the rights of
Manufacturers Bank to collect, it would be barred from enforcing its claim against the shares
pledged as security. However, as Domestic Insurance filed a claim against the counter-
guarantors Plastic Era, Kishu, and Bhagwandas, it could enforce such against both securities.
Foreclosure of pledged shares needed no action, while the counter-guaranty suit needed such.
The pledge, being additional security for indemnification for damages and losses Domestic
Insurance suffered under its surety bond for Plastic Era, did not release the obligation of the
indemnitors.
Name: MUARIP, Jermone Muctar
Topic: Real Estate Mortgage
Title: PCSO v. NDMG
Source, Date: GR No. 173171, 11 July 2012
Facts:
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land located at
Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. On March 8, 1989, a
real estate mortgage was constituted over such property in favor of PCSO to secure the
payment of the sweepstakes tickets purchased by one of its provincial distributors, Patricia P.
Galang (Galang). The salient provisions of the Deed of Undertaking with First Real Estate
Mortgage,where Galang, PCSO and Peralta were respectively designated as principal,
mortgagee and mortgagor.
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to New
Dagupan, the conveyance to be absolute upon the latter’s full payment of the price of
P800,000.00 to New Dagupan but failed to give the title.
On May 20, 1992, during the pendency of New Dagupan’s complaint against Peralta, PCSO
caused the registration of the mortgage. On February 10, 1993, PCSO filed an application for
the extrajudicial foreclosure sale of the subject property in view of Galang’s failure to fully
pay the sweepstakes she purchased in 1992. A public auction took place on June 15, 1993
where PCSO was the highest bidder. A certificate of sale was correspondingly issued to
PCSO.
Issue:
Whether or not the provision in the Deed of Undertaking with First Real Estate Mortgage
prohibiting the sale of the subject property is void under Article 2130 of the Civil Code
Held:
Yes. Petition dismissed.
Ruling:
A mortgage that provides for a dragnet clause is in the nature of a continuing guaranty and
constitutes an exception to the rule than an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage contract. Its validity is anchored on Article 2053 of
the Civil Code and is not limited to a single transaction, but contemplates a future course of
dealing, covering a series of transactions, generally for an indefinite time or until revoked. It
is prospective in its operation and is generally intended to provide security with respect to
future transactions within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. In other words, a continuing guaranty is
one that covers all transactions, including those arising in the future, which are within the
description or contemplation of the contract of guaranty, until the expiration or termination
thereof.  In this case, PCSO claims the subject mortgage is a continuing guaranty.
According to PCSO, the intent was to secure Galang’s ticket purchases other than those
outstanding at the time of the execution of the Deed of Undertaking with First Real Estate
Mortgage on March 8, 1989 such that it can foreclose the subject mortgage for Galang’s
nonpayment of her ticket purchases in 1992. PCSO does not deny and even admits that
Galang had already settled the amount of P450,000.00. However, PCSO refuses to concede
that the subject mortgage had already been discharged, claiming that Galang had unpaid
ticket purchases in 1992 and these are likewise secured as evidenced by the following clause
in the Deed of Undertaking with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days after each
draw with interest at the rate of 14% per annum:
This Court has to disagree with PCSO in view of the principles quoted above. A reading of
the other pertinent clauses of the subject mortgage, not only of the provision invoked by
PCSO, does not show that the security provided in the subject mortgage is continuing in
nature. That the subject mortgage shall only secure Galang’s liability in the amount of
P450,000.00 is evident from the following:
In this case, the subject mortgage had already been cancelled or terminated upon GalangÊs
full payment before PCSO availed of registration in 1992. As the subject mortgage was not
annotated on TCT No. 52135 at the time it was terminated, there was no need for Peralta to
secure a deed of cancellation in order for such discharge to be fully effective and duly
reflected on the face of her title.
Therefore, since the subject mortgage is not in the nature of a continuing guaranty and given
the automatic termination thereof, PCSO cannot claim that Galang’s ticket purchases in 1992
are also secured. From the time the amount of P450,000.00 was fully settled, the subject
mortgage had already been cancelled such that Galang’s subsequent ticket purchases are
unsecured. Simply put, PCSO had nothing to register, much less, foreclose.
Name: Rentoza, Michael Leandro F.
Provision Cited: Article 2124 of the New Civil Code
Title: LandBank of the Philippines vs. Barbara Poblete
Source, Date: G.R. No. 196577. February 25, 2013
Facts:
Respondent Poblete obtained a loan from Kabalikat ng Pamayanan ng Nagnanais
Tumulong at Yumaman Multi- Purpose Cooperative (Kapantay). She then mortgaged her Lot
No. 29 located in Occidental Mindoro, under OCT No. P-12026. Kapantay, in turn, used
OCT No. P-12026 as collateral under its Loan Account No. 97-OC-013 with Land Bank-
Sablayan Branch.
A year after, Poblete decided to sell the said lot to Angelito Maniego (Maniego) to
pay her loan. Maniego agreed to buy the said lot and Poblete executed the Deed of Absolute
Sale where she described herself as a widow and with P300,000.00 as consideration. Poblete,
then, asked Domingo Balen to deliver the Deed to Maniego and to receive the payment in her
behalf. However, Balen stated that he did not receive payment from Maniego, instead he told
him that he would pay the amount upon his return from the United States. In an Affidavit,
Poblete stated that she agreed to have the payment deposited in her Land Bank Savings
Account, but Maniego failed to do so.
Afterwards, Maniego paid Kapantay’s Loan Account for P448,202.08 and on

subsequent year he applied for a loan worth P1 Million from Land Bank using OCT No. P-
12026 as a collateral with a condition that the title must be first transferred on his name. On
August 14, 2000, the Registry of Deeds issued TCT No. T-20151 in Maniego’s name
pursuant to a Deed of Absolute Sale with the signatures of Mrs. Poblete and her husband
dated August 11, 2000 and Maniego successfully availed the Credit Line Agreement for P1M
and a Real Estate Mortgage over TCT No. T-20151 on August 15, 2000. On November 2002,
Land Bank filed an Application for an Extra-Judicial Foreclosure against the said Mortgage
stating that Maniego failed to pay his loan.
Poblete filed a complaint for nullification of the Deed of Sale dated August 11, 2000
and TCT No. T-20151, Reconveyance of the Title and Damages with a Prayer for Temporary
Restraining Order and/or Issuance of Writ of Preliminary Injunction against Maniego,
Landbank and the Register of Deeds. The judgment of RTC, affirmed by the CA upon
appeal, favors the plaintiff Poblete. Hence, this petition.
Issue:
Whether or not the Real Estate Mortgage over TCT No. T-20151 is valid.
Held:
No, the real estate mortgage is not valid.
Ruling:
The Supreme Court reiterated that it is a well-entrenched rule, as aptly applied by the
CA, that a forged or fraudulent deed is a nullity and conveys no title. Moreover, where the
deed of sale states that the purchase price has been paid but in fact has never been paid, the
deed of sale is void ab initio for lack of consideration. Since the Deed is void, the
corresponding TCT No. T-20151 issued pursuant to the same deed is likewise void.
Also, in this case, it was found that the signature of Poblete’s husband was forged
since her husband has been long deceased and acquiring his signature is impossible. Thus, in
Ereña v. Querrer-Kauffman, the Court held that when the instrument presented for
registration is forged, even if accompanied by the owner’s duplicate certificate of title, the
registered owner does not thereby lose his title, and neither does the mortgagee acquire any
right or title to the property. In such a case, the mortgagee under the forged instrument is not
a mortgagee protected by law. Since TCT No. T-20151 has been declared void by final
judgment, the Real Estate Mortgage constituted over it is also void. In a real estate mortgage
contract, it is essential that the mortgagor be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is void.
Notably, there is indeed 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 “the mortgagee in good faith” based on the rule that buyers or mortgagees
dealing with property covered by a Torrens Certificate of Title are not required to go beyond
what appears on the face of the title. However, it has been consistently held that this rule does
not apply to banks, which are required to observe a higher standard of diligence. A bank
whose business is impressed with public interest is expected to exercise more care and
prudence in its dealings than a private individual, even in cases involving registered lands. A
bank cannot assume that, simply because the title offered as security is on its face free of any
encumbrances or lien, it is relieved of the responsibility of taking further steps to verify the
title and inspect the properties to be mortgaged.
Applying the same principles, the Court held that Land Bank is not a mortgagee in
good faith. Based on the evidence, Land Bank processed Maniego’s loan application upon his
presentation of OCT No. P-12026, which was still under the name of Poblete. Land Bank
even ignored the fact that Kapantay previously used Poblete’s title as collateral in its loan
account with Land Bank. The records do not even show that Land Bank investigated and
inspected the property to ascertain its actual occupants. Where the mortgagee acted with
haste in granting the mortgage loan and did not ascertain the ownership of the land being
mortgaged, as well as the authority of the supposed agent executing the mortgage, it cannot
be considered an innocent mortgagee.
Name: Rem Joshua T. Serrano
Provision Cited: Section 2, Rule 68, Rules of Court
Title: Rolando Robles. v. Fernando Yapcinco et al.
Source, Date: GR No. 169568, 22 October 2014
Facts:
The property in litis was originally registered in the name of Fernando F. Yapcinco. In May
4, 1944, Yapcinco constituted a mortgage on the property in favor of Jose C. Marcelo to
secure the performance of his obligation. In turn, Marcelo transferred his rights as the
mortgagee to Apolinario Cruz. When Yapcinco did not pay the obligation, Apolinario Cruz
brought an action for judicial foreclosure of the mortgage in the Court of First Instance (CFI)
of Tarlac, and the property was sold at a public auction. Apolinario Cruz was adjudged the
highest bidder in the public auction. In his favor was then issued the certificate of absolute
sale, and he took possession of the property in due course. However, he did not register the
certificate of sale; nor was a judicial confirmation of sale issued.
In 1972, Apolinario Cruz donated the property to his grandchildren, which includes
Apolinario Bernabe. In 2000, the respondents, all heirs of the Spouses Yapcinco, instituted an
action against one of the grandchildren, Apolinario Bernabe and his co-vendees in the
Regional Trial Court (RTC) in Tarlac City for the annulment of TCT No. 243719, document
restoration, reconveyance and damages. They claimed that although the property had been
mortgaged, the mortgage had not been foreclosed, judicially or extra judicially; that the
property was released from the mortgage per Entry No. 32-2182 in the Memorandum of
Incumbrances; and that the deed of absolute sale between Fernando Yapcinco and Bernabe,
et al. was void and ineffectual because the Spouses Yapcinco had already been dead as of the
date of the sale.
Issue:
Whether the respondents (Heirs of Yapcinco) have a valid right over the subject property.
Held:
NO
Ruling:
The registration of the sale is required only in extrajudicial foreclosure sale because the date
of the registration is the reckoning point for the exercise of the right of redemption. In
contrast, the registration of the sale is superfluous in judicial foreclosure because only the
equity of redemption is granted to the mortgagor, except in mortgages with banking
institutions. The equity of redemption is the right of the defendant mortgagor to extinguish
the mortgage and retain ownership of the property by paying the secured debt within the 90-
day period after the judgment becomes final, or even after the foreclosure sale but prior to the
confirmation of the sale.
Consequently, the late Fernando F. Yapcinco and the respondents as his successors-in-
interest were divested of their right in the property, for they did not duly exercise the equity
of redemption decreed in the decision of the trial court. With Yapcinco having thereby
effectively ceased to be the owner of the property sold, the property was taken out of the
mass of the assets of Yapcinco upon the expiration of the equity of redemption.
Name: Charelle Mei Sy
Provisions Cited: Art. 2085 of the Civil Code of the Philippines
Title: LEONARDO CASTILLO vs. SECURITY BANK
CORPORATION, et.al
Source, Date: G.R. No. 196118. 30 July 2014
Facts:
In 1994, the Spouses Castillo obtained a loan from respondent SBC in the amount of
P45,000,000.00. To secure said loan, they executed a real estate mortgage on August 5, 1994
over eleven (11) parcels of land belonging to different members of the Castillo family and
which are all located in San Pablo City. They also procured a second loan amounting to
P2,500,000.00, which was covered by a mortgage on a land in Pasay City. The Spouses
Castillo failed to settle the loan, prompting SBC to proceed with the foreclosure of the
properties. SBC was then adjudged as the winning bidder in the foreclosure sale. On January
30, 2002, Leonardo Castillo filed a complaint for the partial annulment of the real estate
mortgage alleging that he owns one of the properties and that the Spouses Castillo used it as
one of the collaterals for a loan without his consent. He said the date of issuance of his
Community Tax Certificate (CTC) is January 11, 1993, when he only secured the same on
May 17, 1993. He also assailed the foreclosure of the lots which were still registered in the
name of their deceased father. Spouses Castillo meanwhile insisted on the validity of
Leonardo’s Special Power of Attorney (SPA). They alleged that they incurred the loan not
only for themselves, but also for the other members of the Castillo family who needed money
at that time. However, when the loan became due, their relatives failed to pay their respective
shares such that Leon was forced to use his own money until SBC had to finally foreclose the
mortgage over the lots. The trial court ruled in Leonardo’s favor, and the Court of Appeals
affirmed the decision. Hence, this petition.
Issue:
Whether or not the real estate mortgage constituted over the property is valid and
binding
Held:
Yes. Petition denied.
Ruling:
Art. 2085 of the Civil Code states that the following are the legal requisites for a
mortgage to be valid: (1) It must be constituted to secure the fulfillment of a principal
obligation; (2) The mortgagor must be the absolute owner of the thing mortgaged; (3) The
persons constituting the mortgage must have the free disposal of their property, and in the
absence thereof, they should be legally authorized for the purpose.
Leonardo asserts that his signature in the SPA authorizing his brother Leon to
mortgage his property was falsified, claiming that he was in America when this happened.
But there was no corroborative evidence that supports this. There is reasonable ground to
believe that, as the CA correctly observed, the CTC could have been issued with the space for
the date left blank and Leonardo merely filled it up to accommodate his assertions. Also,
upon careful examination, the handwriting appearing on the space for the date of issuance is
different from that on the computation of fees, which in turn was consistent with the rest of
the writings on the document. Even if assuming Leonardo was right in that he secured his
CTC only on May 17, 1993, the SPA is not automatically invalid. Defective notarization will
simply strip the document of its public character and reduce it to a private instrument, but
nonetheless, binding, provided its validity is established by preponderance of evidence (Art.
1358 of the CC)
Leonardo was aware of the mortgage and he indeed executed the SPA to entrust Leon
with the mortgage of his property. Leon had in his possession all the titles covering the
eleven (11) properties mortgaged, including that of Leonardo. Leonardo and the rest of their
relatives could not have just blindly ceded their respective TCTs to Leon, and it is likewise
ridiculous that Leonardo would have been oblivious to the status of his property for eight (8)
years and would only find out about the foreclosure from his nephew who also consented to
the mortgage. Leonardo himself admitted on cross-examination that he granted Leon
authority to mortgage, only that, according to him, he thought it was going to be with China
Bank, and not SBC but no specific bank was mentioned in the SPA.
Name: Cris Angeli V. Tacuboy
Topic: Antichresis
Provision: Article 2132
Title: Cecilio Diego vs Segundo Fernando
Source, Date: GR No. L-15128, 25 August 1960
Facts:
Fernando executed a deed of mortgage in favor of Diego over two parcels of land
registered in his name, to secure a loan of P2000, without interest, payable within four years
from the date of the mortgage. After the execution of the deed, possession of mortgaged
properties were turned over to the mortgagee.
Fernando failed to pay the loan after four years, despite several demands by Diego.
Diego filed an action for foreclosure of mortgage. Fernando’s defense was that the true
transaction between him and Fernando was one of antichresis and not of mortgage.
Issue:
Whether or not the contract between the parties is one of mortgage.
Held:
Yes.
Ruling:
To be antichresis, it must be expressly agreed between creditor and debtor that the
former, having been given possession of the properties given as security, is to apply their
fruits to the payment of the interest, if owing, and thereafter to the principal of his credit.
The true position of Diego under his contract with Fernando is a mortgage in
possession. Such refers to one who has lawfully acquired actual or constructive possession of
the premises mortgaged to him, standing upon his rights as mortgagee and not claiming under
another title, for the purpose of enforcing his security upon such property or making its
income help to pay his debt.
The parties having agreed that the loan was to be without interest, and that Fernando
not having expressly waived his right to the fruits of the properties mortgaged during the time
they were in Diego’s possession, the latter like an antichretic creditor, must account for the
value of the fruits received by him, and deduct it from the loan obtained by Fernando.
Name: Neil Villalon
Topic: Antichresis
Provision Cited: Articles 2132-2134 of the Civil Code
Title: Valencia vs. Acala
Source, Date: G.R. No. 16256, 28 September 1921
Facts:
Dionisia Valencia and Daniel Ade-pueng (deceased) conveyed to Severino Agbagala
and Francisca Cadapan the land they wanted to redeem. Around nine years later, Francisca
Cadapan, Agbagala’s wife, conveyed the same property to Juan Cagayat and Josefa Galendis.
The same land was then passed to the possession of Pedro Acala and sold the land without
conditions to the defendant Bagayanan for P70. Dionisia Valencia wanted to redeem the said
land for P6.75 since she loaned it for the same price from Severino Agbagala and Francisca
Cadapan who mortgaged it to spouses Juan Cagayat and Josefa Galendis after nine years.
The judge held that the contract was one of sale with the right of repurchase and then
decided that: (1) the defendants must be absolved from the complaint; (2) that the contract
(Exhibit A) and those that were successively executed involving the lot are contracts of sale
and not of mortgage or of loan with security; (3) that the action for the redemption and
annulment of the sale of the lot in question has prescribed; (4) that the defendant Apolinario
Bagayanan is at present the lawful owner of the said lot; and (5) that that the costs of the suit
should be paid by the plaintiffs (Valencia).
Issue:
Whether Valencia can redeem the certain land from Bagayanan that was initially
given to Severino Agbagala and Francisca Cadapan to hold for Valencia’s payment of loan.
Ruling:
The Court held that the contract that was thought to be a contract of sale with right of
repurchase was actually a contract of antichresis and affirmed the judge’s decision since the
creditor has possession of the property.
The Court then cited the case of De la Vega vs. Ballilos (34 Phil., 683) which said:
“When money is loaned and the debtor places the creditor in possession of a piece of real
property as security for the sum loaned in order that he may hold it in usufruct, in
consideration for the said loan, the contract is not one of mortgage, notwithstanding the terms
thereof, inasmuch as it is not of the nature of a public instrument, and even though it were, it
does not appear to have been recorded in the property registry. Neither can such a contract be
classified as one of sale under pacto de retro, notwithstanding that it is set forth therein that
the debtor cedes and conveys to the creditor the ownership and possession of the said real
property. Therefore, such a contract should be classified as one of antichresis, by means of
which the creditor acquires the right to collect the fruits of the real property turned over to
him by his debtor, but with the obligation to apply them to the payment of whatever interest
is due and the contracting parties may stipulate that the interest of the debt be paid by the
fruits of the property given in antichresis.”
Name: Richard Paolo M. Alarilla
Topic: Antichresis
Provisions: Articles 2132-2139 of the civil code, Section 377 of the
Administrative Code
Title: Marcelo Enriquez v. Philippine National Bank, et al
Source: G.R. No. 33584, 15 December 1930
Facts:
Marcelo Enriquez was indebted to the Philippine National Bank of Cebu in the
amount of P4,512.21, one of the sureties being the defendant, Laureano Abella. Through a
complaint filed by the said bank against Marcelo Enriquez, Laureno Abella and Andress
Abellana was obliged to pay said amount with interest at nine per cent per annum. On March
26, 1927, a writ of execution would be issued first against the defendant Marcelo Enriquez
and in case of his insolvency, against the defendants Andres Abellana and Laureano Abella.
Afterwards, the two parcels of land attached by Marcelo Enriquez were sold to the
Respondent bank through public auction as the highest bidder. Later on Marcelo Enriquez’s
right of redemption was likewise sold. For nonpayment of the land tax, the two lots were
forfeited by the Government. The bank thereafter redeemed said lands from the Government
by paying the land taxes. Court of First Instance declared the public auction sale null and
void.
Issue:
Whether the plaintiff is entitled to damages for the possession by the Philippine
National Bank of the lands in question from the time they were redeemed from the
government.
Held:
Yes.
Ruling:
The Supreme Court declared the judicial sale null and void. When the PNB redeemed
the said lots from the Government, the former was acting as judgment creditor. Under section
377 of the Administrative Code, the bank acquired a lien on them by virtue of said
redemption and the Government was divested of the ownership thereof which was reverted in
the original owner, Marcelo Enriquez. PNB cannot be said to have held the property by virtue
of the redemption in behalf of the Government but as a creditor with a lien thereon.
Since the PNB took possession of the 2 parcels of land with the consent of the debtor,
Marcelo Enriquez, it held the land as an antichretic creditor with the right to collect the credit
with interest from the fruits, returning to the antichretic debtor the balance after deducting the
expenses. The fact that Marcelo Enriquez consented and asked the bank to take charge of
managing said property does not entitle the latter to appropriate to itself the fruits thereof
unless the former has expressly waived his right thereto.
Antichresis, under civil law and Roman law, is a contract whereby a debtor pledges
real property to a creditor, allowing the use and occupation of the pledged property, in lieu of
interest on the loan
Topic: Chattel Mortgage
Provision Cited: Section 17, Rule 39, Revised Rules of Court
Title: Northern Motors, Inc., v. Hon. Judge Jorge Coquia, et al.
Source, Date: GR No. L-40018, 21 March 1975
Facts:
Petitioner Northern Motors, Inc. sold 200 units of Holden Torana cars to Manila
Yellow Taxicab Co., Inc. on installment basis with corresponding chattel mortgages thereon.
Of the 200 units, the mortgage on 172 units was assigned to Filinvest Credit Corporation
(Filinvest). In December 1974, 20 of the aforesaid 200 units were levied to satisfy a
judgment in a civil case entitled “Tropical Commercial Co., Inc. v. Manila Yellow Taxicab
Co., Inc, et al.” Of the 20, 8 were mortgaged to petitioner and 12 to Filinvest prompting both
to file their corresponding third-party claims. The sale was, however, consummated.
Thereafter, respondent judge issued a resolution cancelling indemnity bonds for the
auction sale on two grounds. First, the absence of opposition and second, that the court ruled
in a similar case that “the third party claimant is, if at all, merely a mortgage and not a
claimant of ownership.
Meanwhile, 35 more Taxicab units mortgaged to petitioner and to Filinvest were
levied. Both filed third-party claims. Petitioner also filed an Urgent Motion to Stop the
Execution sale of 7 out of the 35 units but respondent judge denied the same.
Issue: Whether respondent judge acted with grave abuse of discretion in denying the third-
party claims
Ruling:
Under Sec 17, Rule 39 of the Revised Rules of Court, a third-party claimant has two
remedies, such as, an action for damages against the sheriff to be brought within 120 days
from the filing of the bond, and a separate and independent action to vindicate his claim to
the property. Here, petitioner and intervenor’s remedy against the bond proved to be
unavailing because of the disputed order of respondent judge cancelling the indemnity bond.
At any rate, even if petitioner and intervenor failed in their respective third party
claims, their right to these motor vehicles subject to execution sale is not completely lost for
the rule reserves to them the right to vindicate their claim in a proper action.
The chattel mortgage lien attaches to the property wherever it may be. The buyer
acquires the property subject to such liens and encumbrances as existed thereon at the time of
the execution.
Provision Cited: Article 2085, 2087, 2093, 2125, 2126, 2132, and 2140 of
the Civil Code
Title: Acme Shoe, Rubber and Plastic Corp v Court of Appeals

and Producers Bank of the Philippines
Source, Date: G.R. No. 103576. 22 August 1996
Facts:
Petitioner Chua Pac, the president and general manager of Acme executed a chattel
mortgage in favor of private respondent Producers Bank of the Philippines. The mortgage
stood by way of security for petitioner’s corporate loan of 3M. in due time, the loan of 3M
was paid by petitioner corporation. Subsequently, it obtained from respondent bank
additional financial accommodations of 2.7 M. These borrowings were on due date also fully
paid. Another loan of 1M was extended covered by four promissory notes for 250,000 each
but went unsettled prompting the bank to apply for an extrajudicial foreclosure with the
sheriff.
Issue:
Whether or not it is valid and effective to have a clause in a chattel mortgage that purports to
likewise extend its coverage to obligations yet to be contracted or incurred?
Held:
No
Ruling:
In contracts of real security, such as a pledge, a mortgage or an antichresis, that
fulfillment is secured by an encumbrance of property ·in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real estate mortgage, by
the execution of a public instrument encumbering the real property covered thereby; and in
antichresis, by a written instrument granting to the creditor the right to receive the fruits of an
immovable property with the obligation to apply such fruits to the payment of interest, if
owing, and hereafter to the principal of his credit·upon the essential condition that if the
principal obligation becomes due and the debtor defaults, then the property encumbered can
be alienated for the payment of the obligation, but that should the obligation be duly paid,
then the contract is automatically extinguished proceeding from the accessory character of
the agreement. As the law so puts it, once the obligation is complied with, then the contract
of security becomes, ipso facto, null and void.
Although a promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by concluding a fresh chattel mortgage
or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover
the after-incurred obligation can constitute an act of default on the part of the borrower of the
financing agreement whereon the promise is written but, of course, the remedy of foreclosure
can only cover the debts extant at the time of constitution and during the life of the chattel
mortgage sought to be foreclosed.
Provision Cited: Sections 13 and 14 of the Chattel Mortgage Law
Title: Rizal Commercial Banking Corporation v. Royal Cargo
Corporation
Source, Date: GR No. 179756, 2 October 2009
Facts:
Terrymanila, Inc. filed a petition for voluntary insolvency with the RTC and one of its
creditors was petitioner RCBC with which it had an obligation of P3Million, secured by a
chattel mortgage.
Respondent Royal Cargo Corporation (Royal Cargo), another creditor of Terrymanila,
filed an action before the RTC of Manila for collection of sum of money and attached “some”
of Terrymanila’s personal properties to secure satisfaction of a judgment award. The RTC
rendered judgment in favor of respondent.
Thereafter, petitioner sought permission from the RTC to foreclose the chattel
mortgage and the same was granted. Respondent moved to have the order reconsidered but it
was denied.
The Sheriff of Bataan scheduled the public auction sale of the mortgaged properties in
which the petitioner was the sole bidder and subsequently sold them. Respondent sought for
annulment of the sale citing Sec. 14 of the Chattel Mortgage law. Petitioner filed a motion to
dismiss stating no cause of action however it was denied by the RTC. The CA partly granted
respondent’s appeal and ruled that respondent had a right to be timely informed of the
foreclosure sale.
Issue: Whether respondent should have been given a 10-day prior notice of the foreclosure
sale
Held: No. Petition granted.
Ruling:
The redemption cited in Sec 13 of the Chattel Mortgage Law 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 the conditions of the mortgage but before the sale of the
property to clear it from the encumbrance of the mortgage. It is not the same as right of
redemption which the right of the mortgagor to redeem the mortgaged property after
registration of the foreclosure sale, and even after confirmation of the sale. What respondent
attached was Terrymanila’s equity of redemption. Having thus attached Terrymanila’s equity
of redemption, respondent had to be informed of the date of the sale of the mortgaged assets
for it to exercise such equity of redemption over some of those foreclosed properties.
Here, even prior to receiving, through counsel, a mailed notice of the auction sale,
respondent was already put on notice of the impending foreclosure sale of the mortgaged
chattels. It could thus have expediently exercised its equity of redemption, at the earliest
when it received the insolvency court’s order but it did not.
Provision Cited: Section 14 of the Chattel Mortgage Law and Articles 1484 and
2115 of the Civil Code
Title: Pameca Wood Treatment Plant et al. vs. Hon. Court of Appeals
and DBP
Source, Date: G.R. No. 106435, July 14, 1999
Facts:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc.

(PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from
respondent Bank. By virtue of this loan, petitioner PAMECA, through its President,
petitioner Herminio C. Teves, executed a promissory note for the said amount, promising to
pay the loan by installment. As security for the said loan, a chattel mortgage was also
executed over PAMECA’s properties in Dumaguete City, consisting of inventories, furniture
and equipment, to cover the whole value of the loan.
On January 18, 1984, and upon petitioner PAMECA’s failure to pay,

respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the
public auction, purchased the foreclosed properties for a sum of P322,350.00.
On June 29, 1984, respondent bank filed a complaint for the collection of the
balance of P4,366,332.46 with Branch 132 of the Regional Trial Court of Makati City against
petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under
the promissory note. The RTC ruled in favor of DBP, and the Court of Appeals upheld the
decision of the RTC.
Petitioner argues inter alia that respondent appellate court gravely erred in not
applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the spirit of
the law, and taking into consideration the fact that the contract of loan was a contract of
adhesion.
Issue: Whether Articles 1484 and 2115 of the Civil Code can be applied by analogy in the
instant case.
Held: No. Petition Denied, Court of Appeals decision affirmed.
Ruling: In the leading case of Ablaza vs. Ignacio, the lower court dismissed the complaint for
collection of deficiency judgment in view of Article 2141 of the Civil Code, which provides
that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar
as they are not in conflict with the Chattel Mortgage Law. It was the lower court’s opinion
that, by virtue of Article 2141, the provisions of Article 2115 which deny the creditor-
pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less
than the amount of the principal obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions of the Chattel
Mortgage Law regarding the effects of foreclosure of chattel mortgage, being contrary to the
provisions of Article 2115, Article 2115 in relation to Article 2141, may not be applied to the
case.
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
“x x x The officer making the sale shall, within thirty days thereafter,
make in writing a return of his doings and file the same in the office of the Registry of Deeds
where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of
the officer for selling the property shall be the same as the case of sale on execution as
provided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the
fees of the Register of Deeds for registering the officer’s return shall be taxed as a part of the
costs of sale, which the officer shall pay to the Register of Deeds. The return shall
particularly describe the articles sold, and state the amount received for each article, and shall
operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale
shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then
to the payment of the demand or obligation secured by such mortgage, and the residue shall
be paid to persons holding subsequent mortgages in their order, and the balance, after
paying the mortgage, shall be paid to the mortgagor or persons holding under him on
demand.”
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the
sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the
deficiency in case of a reduction in the price at public auction
Name: Dulay, Nicole Bernadette M.
Topic: Financial Lease
Law cited: Article 1599, CC
Title: Beltran v PAIC Finance Corporation
Source, Date: GR No 83113, 19 May 1992
Facts:
The Beltran spouses purchased equipment from SESCO, the purchase price of which
was placed under a financing agreement entered into with PAIC. Upon delivery, an older unit
was returned to SESCO, along with payments made thereon plus two other checks as down
payment on the new unit.
The Beltrans issued another check in favor of SESCO who assigned the sales invoice
to PAIC with documentation stating that the new unit was delivered to the same. PAIC
executed a contract of lease over the unit to be paid until the principal is fully satisfied; then,
ownership transfers to the Beltrans..
After the unit malfunctioned, and the repairs made by SESCO were found to be
unsatisfactory, the Beltrans discontinued monthly rental payments. After 4 months, PAIC
sent them a letter demanding payments and later on filed a complaint for a sum of money.
The RTC dismissed the complaint and held that since the transaction was one of lease, PAIC
is obliged to ensure that the object is in a condition fit for the use intended. Since the unit
malfunctioned, the lease must be deemed extinguished. The CA affirmed the RTC decision
but held that the contract was one of sale and the contract of lease was only used to simulate
the real financing agreement where PAIC shoulders the purchasing price and the Beltrans
will pay the unpaid balance.
Issue:
Is the agreement a financial lease?
Held:
Yes, the contract in consideration is a financial lease.
Ruling:
Although financial leases are complex arrangements, they are not “simulated
contracts.” They are recognized under RA 5980, the Financing Company Act. Financial
leases enable the prospective buyers, who are unable to pay in one lump sum in cash, to lease
the equipment at a fixed price enough to amortize at least 70% of the acquisition cost, with
the expectation that at the end of the lease period, the financial lease shoulders any remaining
balance of the purchase price.
In a financial lease, the legal title to the equipment is with the financial lessor, while
the financial lessee is entitled to possession. Therefore, the Beltrans are therefore bound to
pay PAIC all the rental payments which accrued and are due and payable.
Name: Jason Edric T. Dy
Topic: Financial Lease
Law Cited: RA 8556
Title: PCI Leasing and Finance, Inc. vs. Trojan Metal, Sps. Walfrido
and Elizabeth Dizon, and John Doe
Source, Date: GR No. 176381, 15 December 2010
Facts:
In 1997 Trojan came to PCI to seek a loan. Instead, PCI offered to buy Trojan’s
equipment which Trojan agreed. A deed of sale for P2,865,070 was executed. They then
entered into a lease agreement wherein Trojan would lease the equipment it previously
owned and give as security P1,030,350 which would be forfeited should Trojan return
the equipment before the expiration of the agreement. Sps. Dizon as Trojan’s President
and Vice-President also agreed to immediately pay in case Trojan failed. Trojan
however obtained another loan and used the equipment as collateral. This was deemed
a violation by PCI and sent a demand letter to Trojan for payment.
PCI filed with the RTC a complaint for recovery of sum of money and personal
property and issuance of a writ of replevin. The RTC issued the writ of replevin so PCI
was able to take hold and sell the equipment which amounted to P1,025,000.
Respondents claimed that it was only a simulated financial lease wherein the equipment
would be sold to PCI but at the end of the lease it would revert back to Trojan.
The RTC ruled that the lease agreement is valid. CA set aside the RTC decision
and ordered PCI to refund Trojan P1,166,826.52 as it has the security deposit and the
proceeds of the sale of the equipment.
Issue:
1) Whether the sale with lease agreement was a financial lease.
Held:
No. Petition denied.
Ruling:
In a financial lease under RA 5980 or 8556, a finance company purchases on
behalf of a cash-strapped lessee the equipment and then leases the equipment to the
lessee in exchange for periodic payment of a fixed amount of rental. However, in this
case the equipment is already owned by Trojan and is therefore not in the nature of a
financial lease.
Where the client already owned the equipment but needed additional capital and
the finance company purchases the equipment with the intention of leasing it back to
him, the lease agreement was simulated to disguise the true transaction that was a loan
with security or mortgage. The intention of the parties was not to enable the client to
acquire and use the equipment but to extend a loan.
Being a simple loan secured by a chattel mortgage PCI was entitled to seize the
equipment as creditor-mortgagee and the sale of the equipment is deemed in the
exercise of its right to foreclose the chattel mortgage.
Trojan’s right to refund accrued from the time PCI received the proceeds of the
sale of the mortgaged equipment. However, since Trojan never demanded for refund
due on the resulting overpayment after offsetting the proceeds of the sale against the
remaining balance on the principal loan plus applicable interest, no interest applies on
the refund due. But in accord with prevailing jurisprudence the excess amount PCI must
refund to Trojan is subject to 12% interest from finality of this decision.

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Name: Gomez, Jan-Derrick Royce A.

Topic: Contract of Loan

In July 1976, Guariña Agricultural and Realty Development Corporation (Guariña)

Issue: Whether there is a perfected contract between Saura and RFC.

ISSUE: Whether a contract of loan is a consensual contract.

Held: NO. Petition is Denied.

Held: No. Petition denied.

Held: No. Petition denied.

Held: No. Appealed judgment is modified.

Issue: Did Cojuangco violate any fiduciary duties?

Facts: A.A. Salazar Construction and Engineering Services (Salazar Construction),

Held: No. Petition partially granted.

Title: SPOUSES EDUARDO and LYDIA SILOS vs. PHILIPPINE

Held: Petition is Denied.

Held: Yes. Petition is granted.

1. the sum of US$150.00 as actual damages;

Further, while a credit card agreement is generally a contract of adhesion in which

Furthermore, the provision on automatic suspension without notice embodied in the

McLoughlin immediately demanded that the Tropicana management investigate the

Held: No. Petition denied.

Held: No. Petition denied for lack of merit.

Held: Yes. Petition denied.

Issue: Whether petitioner is liable as a guarantor

Held: No. Petition granted.

On different dates from July 14, 1999 to March 20, 2000,

On February 12, 2001, petitioners and respondent executed an Amendment to

The petitioners prayed for a declaration of the “Memorandum of Agreement”

Yes, the foreclosure of the mortgage was illegal.

1) Whether petitioners failed to pay the loan.

1) Petitioners tendered payment on the due date which respondents refused.

Held: No. Petition denied.

Article 559 of the Civil Code of the Philippines applies, to wit:

ISSUE: Whether there is a perfected contract of pledge

Issue: Whether pledge exist in this case.

Held: NO. Petition is Granted

Provision Cited: Art. 1371

Title: INTEGRATED REALTY CORPORATION v. PNB

Source, Date: G.R. No. 60907; June 28, 1989

Held: No. Petition is denied.

Issue: Whether or not a subsequent pledge is valid.

Held: No, a subsequent pledge is not valid. Hence, petition is denied.

Afterwards, Maniego paid Kapantay’s Loan Account for P448,202.08 and on

Held: No. Petition denied.

Held: No. Petition denied.

Title: Acme Shoe, Rubber and Plastic Corp v Court of Appeals

Held: No. Petition granted.

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc.

On January 18, 1984, and upon petitioner PAMECA’s failure to pay,

Held: No. Petition Denied, Court of Appeals decision affirmed.

Is the agreement a financial lease?

Yes, the contract in consideration is a financial lease.

1) Whether the sale with lease agreement was a financial lease.

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