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LOAN middleman or dealer. (Cebu International Finance Corp. vs.

of Appeals, 316 SCRA 488 [1999]; Allied Banking Corp. vs. Lim Sio
Herrera vs Petrophil LOAN
Wan, 549 SCRA 504 [2008].)
Discounting is slightly more expensive for the borrower because
interest is calculated on the amount loaned (P1,000.00) and not on
the amount actually received. In general, discount and interest Tan v. Valdehueza Requisites for recovery of interest. In order
rates for similar loans are identical.3
that interest may be chargeable, the following are the requisites:
A provision for the payment of rentals in advance with the lessee (1) The payment of interest must be expressly stipulated (Tan vs.
getting a rebate or discount cannot be construed as a repayment
of a loan because there is no grant or forbearance of money. The Valdehueza, 66 SCRA 61 [1975]; Jardenil vs. Salas, 73 Phil. 636
difference between a discount and a loan or forbearance is that [1942].)
the former does not have to be repaid, while the latter is subject
(2) The agreement must be in writing (Art. 1956.); and
to repayment. (Herrera vs. Petrophil Corporation, 146 SCRA 385
[1986].) (3) The interest must be lawful. (see, however, note to Arts. 1957
and 1961.)

Jayme and Ramos vs Salvador

Intention of the Parties
Toring v. Ganzon-Olan Existence of stipulation to pay interest
If the exact rate of the interest is not mentioned, the legal rate of
12% shall be payable. (Security Bank & Trust Co. vs. RTC Makati,
Allied Banking vs Lim Sio Wan SIMPLE LOAN
263 SCRA 483 [1996]; Toung vs. Ganzon Olan, 568 SCRA 376
A money market transaction is in the nature of a simple loan or
mutuum. (Citibank vs. Sabeniano, 504 SCRA 378 [2006].) A money [2008]; see Sec. 1, Usury Law, infra.)
market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers
Relucio v. Brillante-Garfin Existence of stipulation to pay interest.
do not deal directly with each other but through a middleman or
dealer in open market. In a money market transaction, the investor Vendor and vendee are legally free to stipulate for the payment
is a lender who loans his money to a borrower through a of either the cash price of a subdivision lot or its installment price.
Should the vendee opt to purchase a subdivision lot via the Eastern Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78
installment payment system, he is, in effect, paying interest on [1994]; New Sampaguita Builders Construction, Inc. vs. Phils., 435
the cash price, whether the fact and rate of such interest SCRA 565 [2004], citing De Leon, Comments and Cases on Credit
payment are disclosed in the contract or not. The contract for Transactions [1995], p. 50.)
the purchase and sale of a piece of land on the installment plan
is not only lawful; it also refl ects a very widespread usage or
custom in our present day commercial life. (Relucio vs. Bullante- International Container Terminal Services v. FGU Insurance
Garfi n, 187 SCRA 405 [1990].) Liability for interest even in the absence of stipulation
When the judgment of the court awarding a sum of money
State Investment v. CA Liability for interest even in the absence of becomes fi nal and executory, the rate of legal interest,
stipulation regardless of whether the obligation involves a loan or
Under Article 2209,6 the appropriate measure for damages in forbearance of money shall be 12% per annum from such fi nality
case of delay in discharging an obligation consisting of the until its satisfaction. This interim period being deemed to be by
payment of a sum or money,7 is the payment of the penalty then an equivalent to a forbearance of credit. Prudential
interest at the rate agreed upon; and in the absence of a Guarantee and Assurance, Inc. vs. Court of Appeals, 491 SCRA
stipulation of a particular rate of penalty interest, then the 411 [2006]; International Container Terminal Services, Inc. vs. FGU
payment of additional interest at a rate equal to the regular Insurance Corp., 556 SCRA 174 [2008].)
monetary interest, and if no regular interest had been agreed
upon, then payment of legal interest which is 6% annually or, in
Banco Filipino Savings v. CA Escalation clause in a loan
the case of loans or forbearances of money, 12% per annum as
provided for in Central Bank Circular No. 416, infra. (State
Increase or reduction of interest effected by law or the Monetary
Investment House, Inc. vs. Court of Appeals, 198 SCRA 390 [1991];
Board. — A contract which embodies an escalation clause
authorizing automatic increase in interest rates in the event a law and 4303P.1 of the Manual of Regulations for Non-Bank Financial
increasing the rates of interest that may be charged is passed, Institutions, before its amendment by BSP-MB Circular No. 799 —
does not include a Central Bank Circular which, although having but will now be six percent (6%) per annum effective July 1, 2013.
the force and effect of law, is not strictly a statute or law. The It should be noted, nonetheless, that the new rate could only be
distinction is recognized in Section 7-a above which speaks of applied prospectively and not retroactively. Consequently, the
interest increased or reduced by law or by the Monetary Board. twelve percent (12%) per annum legal interest shall apply only
Administrative rules and regulations adopted pursuant to law until June 30, 2013. Come July 1, 2013 the new rate of six percent
have the force and effect of law but they do not fall within the (6%) per annum shall be the prevailing rate of interest when
term “law.” (Banco Filipino Savings and Mortgage Bank vs. applicable.
Navarro, supra; see Almeda vs. Court of Appeals, supra; Banco
Filipino Savings and Mortgage Bank vs. Court of Appeals, 332
First Metro Investment v. Este del sol ART. 1957
SCRA 241 [2000].)
Right of debtor. — With respect to the debtor, the amount paid
as interest under a usurious agreement is recoverable by him,
Nacar v. Gallery Frames
since the payment is deemed to have been made under
In the absence of an express stipulation as to the rate of interest restraint, rather than voluntarily. (First Metro Investment Corp. vs.
that would govern the parties, the rate of legal interest for loans or Este Del Sol Mountain Reserve, Inc., 369 SCRA 99 [2001].)
forbearance of any money, goods or credits and the rate allowed
Payment by borrower for lender’s services as additional
in judgments shall no longer be twelve percent (12%) per annum
compensation for loan. — An apparently lawful loan is usurious
— as reflected in the case of Eastern Shipping Lines, Inc. v. Court
when it is intended that additional compensation for loan be
of Appeals, 234 SCRA 78 (1994) and Subsection X305.1 of the
disguised by an ostensibly unrelated contract providing for
Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3
payment by the borrower for the lender’s services which are of
little value or which are not, in fact, to be rendered. (First Metro qualifi cation of damages may be deemed to be reasonably
Investment Corp. vs. Este Del Sol Mountain Reserve, Inc., 369 ascertained. (Lim vs. Court of Appeals, 373 SCRA 394 [2002].)
SCRA 99 [2000].)

According to the Supreme Court, the Circular which took effect

United Coconut v. Beluso interest
on January 1, 1983 “did not repeal nor in any way amend the
We must likewise uphold the contract stipulation providing the
Usury Law but simply suspended the latter’s effectivity.’’
compounding of interest. The provisions in the Credit Agreement
Central Bank Circular No. 905 (supra.) which took effect on
and in the promissory notes providing for the compounding of
January 1, 1983 simply suspended the effectivity of the Usury Law.
interest were neither nullified by the RTC or the Court of Appeals,
It did not repeal or in any way amend the Usury Law. Only a law
nor assailed by the spouses Beluso in their petition with the RTC.
can repeal another law. (First Metro Investment Corp. vs. Este Del
The compounding of interests has furthermore been declared by
Sol Mountain Reserve, Inc., 369 SCRA 99 [2001].)
this Court to be legal. We have held in Tan v. Court of Appeals,
that: Without prejudice to the provisions of Article 2212, interest
due and unpaid shall not earn interest. However, the contracting
Lim v. CA Liability for Interest even in the absence of stipulation
parties may by stipulation capitalize the interest due and unpaid,
Under the provisions of Article 2213, interest “cannot be
which as added principal, shall earn new interest.
recovered upon unliquidated claims or damages except when
the demand can be established with reasonable certainty.’’ It is
axiomatic that if the suit were for damages, unliquidated and not
known until defi nitely assessed and determined by the courts,
after proof, interest at rate of 6% per annum should be from the DEPOSIT

date the judgment of the court is made, i.e., at which time the BPI v IAC Safekeeping, principal purpose of the contract
Dollars deposited with bank sold by bank which credited peso political prisoner and the entire deposit was confi scated by the
proceeds to depositor’s current account. — Where the government.
document which embodies the contract states that U.S. dollars in
Issue: Should A be made responsible for the loss of the money?
cash were received by the bank for safekeeping, and the
Held: No. By placing the money in the bank and mixing it with his
subsequent acts of the parties also show that the intent was
personal funds, A did not thereby assume an obligation different
really for the bank to safely keep the dollars and return it to the from that under which he would have lain if such deposit had not
plaintiff who demanded the return of the money about fi ve been made nor did he thereby make himself liable to repay the
money at all hazards. If the money had been forcibly taken from
months later, the above arrangement is the contract of deposit his pocket or from his house by the military forces of one of the
defi ned under Article 1962. The bank violates its obligation if it combatants during a state of war, he would have been exempt
from responsibility. The fact that he placed the trust funds in the
sells the dollars and it cannot defeat the plaintiff’s claim by
bank in his personal account did not add to his responsibility.
asserting that the peso proceeds of the sale were properly
Dissenting opinions (Trent, J.) “When A mixed the trust fund with
credited to the latter’s current account. (Bank of the Phil. Islands his own and deposited the whole in the bank to his personal
vs. Intermediate Appellate Court, 164 SCRA 630 [1988]. account, he stamped on the said fund his own private marks and
unclothed it of all the protection it had. If this money had been
deposited in the name of A as trustee or agent of B, the military
Roman Catholic Bishop of Jaro vs dela Pena authorities would not have confi scated it for the reason that they
were looking for insurgent funds only.” (Roman Catholic Bishop of
Trust fund which trustee mixed with his own and deposited in a Jaro vs. De La Peña, 26 Phil. 144 [1913].)

bank to his personal account was lost through force majeure.

Facts: A had in his possession, as trustee or agent, the sum of CA-Agro Industrial vs CA (Copy your digest in PRELIMS) Contract
P6,000.00 belonging to B as head of the church. A mixed this trust for Rent of Safety Deposit Boxes
fund with his own and deposited the whole in a bank to his A contract for the rent of safety deposit boxes (second
personal account or credit. Shortly thereafter and during the war paragraph) is not an ordinary contract of lease of things4 but a
of the revolution, A was arrested by the military authorities as a special kind of deposit; hence, it is not to be strictly governed by
the provisions on deposit. (CA Agro-Industrial Dev. Corp. vs. Court vs. Metropolitan Bank & Trust Co., 532 SCRA 43 [2007]; Equitable
of Appeals, 219 SCRA 426 [1993]; PCI Bank vs. Ng Sheung Ngor, 541 SCRA 223 [2007].

Javellana v. Lim, 11 Phil. 141 Whether a deposit or loan

Gullas vs. PNB, 62 Phil. 519
Where money, consisting of coins of legal tender, is deposited
The general rule is that a bank can compensate or set off the
with a person and the latter is authorized by the depositor to use
deposit in its hands for the payment of any indebtedness to it on
and dispose of the same, the agreement thus entered into
the part of the depositor.10 (Art. 1278-1279)
between the depositor and the depositary is not a contract of
deposit, but a loan.

Phil. Deposit Insurance Corp. v. CA, Abad GR No. 126911

Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA 223];
Petitioner additionally submits that the issue of determining the
Escalation Clause in a Loan Agreement (must not be solely
amount of deposit insurance due respondents was never tried on
the merits since the trial dwelt only on the “determination of the
To give the lender unbridled right to unilaterally upwardly adjust
viability or validity of the deposits” and no evidence on record
the interest on a loan, would completely take away from the
sustains the holding that the amount of deposit due respondents
borrower the right to assent to an important modifi cation in their
had been finally determined. This issue was not raised in the court
agreement and would negate the element of mutuality in
a quo, however, hence, it cannot be raised for the first time in
contracts’’ ordained in Article 1308 of the Civil Code. (Phil.
the petition at bar.
National Bank vs. Court of Appeals, 238 SCRA 20 [1994];
Concepcion vs. Court of Appeals, 274 SCRA 614 [1997];
Serrano v. Central Bank, L-30511, Feb. 14, 1980 Relationship
Mendoza vs. Court of Appeals, 359 SCRA 438 [2001]; Florendo, Jr.
between creditor and debtor
A bank’s failure to honor a deposit is failure to pay its obligation latter’s employee, Justimbaste. In turn, Justimbaste issued a claim
as debtor and not a breach of trust arising from a depositary’s stub to See. Thus, the contract of deposit was perfected from
failure to return the subject matter of the deposit. See’s delivery, when he handed over to Justimbaste the keys to
his vehicle, which Justimbaste received with the obligation of
safely keeping and returning it. Ultimately, petitioner is liable for
Durban Apartments Corp. v. Pioneer Insurance Corporation and
the loss of See’s vehicle.
Surety Corp., 639 SCRA 441 Hotels and Inns
Article 1962, in relation to Article 1998, of the Civil Code defines a
YHT Realty Corp. v. CA, 451 SCRA 638
contract of deposit and a necessary deposit made by persons in
The issue of whether the “Undertaking For The Use of Safety
hotels or inns: Art. 1962. A deposit is constituted from the moment
Deposit Box” executed by McLoughlin is tainted with nullity
a person receives a thing belonging to another, with the
presents a legal question appropriate for resolution in this
obligation of safely keeping it and returning the same. If the
petition. Notably, both the trial court and the appellate court
safekeeping of the thing delivered is not the principal purpose of
found the same to be null and void. We find no reason to reverse
the contract, there is no deposit but some other contract. Art.
their common conclusion. Article 2003 is controlling, thus: Art.
1998. The deposit of effects made by travelers in hotels or inns
2003. The hotel-keeper cannot free himself from responsibility by
shall also be regarded as necessary. The keepers of hotels or inns
posting notices to the effect that he is not liable for the articles
shall be responsible for them as depositaries, provided that
brought by the guest. Any stipulation between the hotel-keeper
notice was given to them, or to their employees, of the effects
and the guest whereby the responsibility of the former as set forth
brought by the guests and that, on the part of the latter, they
in Articles 1998 to 2001 is suppressed or diminished shall be void.
take the precautions which said hotelkeepers or their substitutes
Article 2003 was incorporated in the New Civil Code as an
advised relative to the care and vigilance of their effects. Plainly,
expression of public policy precisely to apply to situations such as
from the facts found by the lower courts, the insured See
that presented in this case. The hotel business like the common
deposited his vehicle for safekeeping with petitioner, through the
carrier’s business is imbued with public interest. Catering to the American Home Insurance Company of New York v. F.F. Cruz
public, hotelkeepers are bound to provide not only lodging for and Co., GR No. 174926, August 10, 2011
hotel guests and security to their persons and belongings. The The surety is considered in law as possessed of the identity of the
twin duty constitutes the essence of the business. The law in turn debtor in relation to whatever is adjudged touching upon the
does not allow such duty to the public to be negated or diluted obligation of the latter. Their liabilities are so interwoven as to be
by any contrary stipulation in so-called “undertakings” that inseparable. Although the contract of suretyship is, in essence,
ordinarily appear in prepared forms imposed by hotel keepers secondary only to a valid principal obligation, the surety’s
on guests for their signature. liability to the creditor is direct, primary, and absolute; he
becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor
does he receive any benefit therefrom.
Tupaz v. CA, 475 SCRA 398 Right of the creditor to secure
judgment against guarantor prior to exhaustion Bitanga v. Pyramid Construction Engineering Corp. 563 SCRA 544
It has been held, however, that the creditor may, prior thereto, Duty of guarantor to set up benefit of excussion
secure a judgment against the guarantor, who shall be entitled, The failure of the guarantor to point out to the creditor the
however, to a deferment of the execution of said judgment debtor’s property suffi cient to cover his debt forecloses his right
against him, until after the properties of the principal debtor shall to set up the defense of excussion. (Bitanga vs. Pyramid
have been exhausted, to satisfy the latter’s obligation. (Southern Construction Engineering Corp., 563 SCRA 544 [2008].)
Motors, Inc. vs. Barbosa, 99 Phil. 263 [1956]; Tupaz vs. Court of
Appeals, 475 SCRA 398 [2005].) JN Development Corp. vs. Phil. Export and Foreign Loan
Guarantee Corp. 468 SCRA 555
Effect of Payment by Guarantor before/after maturity
Where demand on the guarantor was made during the term of
the guarantee, the fact that payment was actually made after
Toh vs. Solid Bank Corporation, 408 SCRA 544
said term is not material. What is controlling is that default and
Release by Extension of Term Granted by creditor to debtor
demand on guarantor had taken place while the guarantee
was still in force. (JN Dev. Corp. vs. Phil. Export and Foreign Loan In approving the third payment after the promissory note
Guarantee Corp., 468 SCRA 555 [2005].) became due, the creditor, in effect, extended the term of the
payment of the note without the consent of the debtor, an act
Gateway Electronics Corp. Asian Bank Corp. GR No. 172041, clearly detrimental to the latter. (Prudencio vs. Court of Appeals,
December 18, 2008 143 SCRA 7 [1986]; see Toh vs. Solid Bank Corporation, 408 SCRA
Nature of Surety’s Undertaking; Liability arises only if principal 544 [2003].
debtor is held liable.
Duty of creditor to account for his lien on principals’ property. — If
The creditor may sue, separately or together, the principal
the creditor has acquired a lien upon the property of a principal,
debtor and the surety. (Nassco vs. Torrento, 20 SCRA 427 [1967].)
the creditor at once becomes charged with the duty of retaining
Where there are several sureties, the obligee may proceed
such security, or maintaining such lien in the interest of the surety,
against any one of them. (Art. 1216.) A creditor’s right to
and any release or impairment of this security as a primary
proceed against the surely exists independently of his right to
resource for the payment of a debt, will discharge the surety to
proceed against the principal. Thus, a surety of a distressed
the extent of the value of the property or lien released for there
corporation can be sued separately to enforce his liability as
immediately arises a trust relation between the parties, and the
such, notwithstanding an order by the Securities and Exchange
creditor as trustee is bound to account to the surety for the value
Commission declaring the corporation under a state of
of the security in his hands. (Toh vs. Solid Bank Corporation, 408
suspension of payment. (Gateway Electronics Corp. vs.
SCRA 544 [2003].)
Asianbank Corp., 574 SCRA 698 [2008].)
Security Bank and Trust Company v. Cuenca, 341 S 781 direct or personal interest in the obligations nor does he receive
any benefit therefrom.
Effect of Material Alteration of Principal Contract

It is fundamental in the law of suretyship that any agreement

Stronghold Insurance Co., Inc, vs. Republic Asahi Glass Corp. 492
between the creditor and the principal debtor which essentially
S 179
varies the terms of the principal contract without the consent of
Other causes of extinguishment of obligations are annulment,
the surety, will release the surety from liability. (21 R.C.L., 1004;
rescission, fulfi llment of a resolutory condition, and prescription.
National Bank vs. Veraguth, 50 Phil. 253 [1927]; Security Bank and
(Art. 1231.) Death of the principal is not a defense a surety can
Trust Co., Inc. vs. Cuenca, 341 SCRA 781 [2000].) It is based on the
use to wipe out its monetary obligation under a performance
rule that such material alteration would constitute a novation or
bond. The obligation is merely passed on to the decedent’s
change of the principal contract which is consequently
estate. A surety’s liability to the creditor or promisee of the
extinguished. Upon such extinguishment, the accessory contract
principal is direct and primary like the principal. (Stronghold
to guaranty is also terminated and the guarantor cannot be held
Insurance Company, Inc. vs. Republic Asahi Glass Corporation,
liable on the new contract to which he has not given his consent.
492 SCRA 179 [2006].)

Palmares vs. CA and M.B. Lending Corp. 282 S 422

Ang vs. Associated Bank, GR 146511, Sept. 5, 2007
The rule of strictissimi juris commonly refers to an
Although a contract of suretyship is in essence accessory or
accommodation surety.
collateral to a valid principal obligation, the surety’s liability to
The rationale of this doctrine is reasonable. An accommodation
the creditor is immediate, primary and absolute; he is directly
surety acts without motive of pecuniary gain and hence, should
and equally bound with the principal. As an equivalent of a
be protected against unjust pecuniary impoverishment by
regular party to the undertaking, a surety becomes liable to the
imposing on the principal, duties akin to those of a fiduciary.
debt and duty of the principal obligor even without possessing a
(Pacifi c Tobacco Corp. vs. Lorenzana, 102 Phil. 234 [1957]; take appropriate action and decree the discharge of the surety
Pastoral vs. Mutual Security Insurance Corp., 14 SCRA 1011 (Sec. 16, Rule 110, Rules of Court).
Upon the surety putting up the bond for the provisional release of
The rule will apply only after it has been defi nitely ascertained
the accused, the former becomes the jailer of the latter and he is
that the contract is one of suretyship or guaranty. It cannot be
charged with the duty of keeping him under his surveillance. This
used as an aid in determining whether a party’s undertaking is
duty continues until the bond is cancelled or the surety is
that of a surety or guarantor. (see Palmares vs. Court of Appeals,
288 SCRA 292 [1998].)

Dilag vs. Heirs of Resurreccion, 76 Phil. 650
34. People vs. Otiak Omal and Luzon Surety Co. Inc., L-14457,
June 30, 1961 Future property cannot be pledged or mortgaged.

The subsequent arrest of the principal on another charge, or in Future property cannot be object of a contract of mortgage.
other proceedings, while he is out on bail, does not operate ipso (Art. 2085[2].) Thus, a stipulation in a contract of mortgage
facto as a discharge of the original bond. whereby the mortgagor also constituted a mortgage in favor of
the mortgagee and his assignees “on any other property he then
While it is true that a surety may be discharged when the
might have and those he might acquire in the future” did not
performance of the bond is rendered impossible by the act of
constitute a valid mortgage on the properties acquired
God, the act of the obligee, or the act of the law, yet under
subsequent to the constitution of the mortgage because the
these circumstances, there still remains the duty of the surety to
mortgagor could not legally mortgage any property he did not
inform the court of the happening of the event so that it may
yet own. (Dilag vs. Heirs of Resurreccion, 70 Phil. 650 [1940].)
Liability for deficiency. — The pledgor or mortgagor who pledged
or mortgaged his property to guarantee an indebtedness of
Belo vs. PNB, 353 SCRA 359
another person, without expressly assuming personal liability for
Pledgor or mortgagor may be a third person
such debt, is not liable for the payment of any deficiency, should
It is not necessarily void simply because the accommodation the property not be sufficient to cover the debt. (See Parson
pledgor or mortgagor did not benefit from the same. Ordinarily, Hardware Co., Inc. vs. Acosta, [CA] Nos. 1943-44-R, May 5, 1949;
he is not himself a recipient of the loan, otherwise that would be Phil. Trust Co. vs. Echaves, 52 Phil. 852 [1929]; Bank of America vs.
contrary to his designation as such. It is not always necessary that American Realty Corporation, 321 SCRA 659 [1999]; see Wise &
he should be appraised beforehand of the entire amount of the Co. vs. Tanglao, 63 Phil. 372 [1936], under Art. 2058.)

Thus, it has been held that an accommodation mortgagor as

El Hogar Filipino vs. Paredes, 45 Phil. 178
such is not in any way liable for the payment of the loan or
A stipulation in a mortgage of real property authorizing the
principal obligation of the debtor/borrower. His liability extends
mortgagee, upon default of the mortgagor in the payment of the
only up to the loan value of his mortgaged property and not to
mortgage debt and after publication for three successive weeks
the entire loan itself. Hence, he may redeem his mortgaged
in a paper of general circulation, to expose the property to
property by paying only the winning bid price thereof (plus
public sale and allowing the mortgagee to become a bidder at
interest and expenses thereon) at the public auction sale
such sale, is valid.

Bank of America vs. American Realty Corp. 321 SCRA 659

Vasquez vs. Jocson & Araneta, 62 Phil. 537
Pledgor or mortgagor may be a third person
The mortgagee did not give his written consent to the constitution Right of creditor where debtor fails to comply with his obligation;
by the mortgagor of a second mortgage on the mortgaged prohibition against appropriation of property
property, nor to the lease of several portions thereof, and having
—In the case at bar, the stipulations in the promissory notes
taken action on the violation of the prohibitory condition to
providing that, upon failure of respondent spouses to pay interest,
mortgage and lease, within a reasonable time and before the
ownership of the property would be automatically transferred to
action had prescribed, the mortgage debt became due on
petitioner A. Francisco Realty and the deed of sale in its favor
account of said violation and the action for foreclosure of the
would be registered, are in substance a pactum commissorium.
mortgage brought by him lies (Bank of the Philippine Islands vs. Ty
They embody the two elements of pactum commissorium as laid
Camco Sobrino, 57 Phil., 801
down in Uy Tong v. Court of Appeals, to wit: The prohibition on
pactum commissorium stipulations is provided for by Article 2088
of the Civil Code: Art. 2088. The creditor cannot appropriate the
Pasno vs. Ravina, 54 Phil. 378
things given by way of pledge or mortgage, or dispose of the
The power of sale given in a real estate mortgage is a power
same. Any stipulation to the contrary is null and void. The
coupled with an interest which survives the death of the grantor.
aforequoted provision furnishes the two elements for pactum
The mortgagee with a power of sale should, on the death of the
commissorium to exist: (1) that there should be a pledge or
mortgagor, foreclose the mortgage in accordance with the
mortgage wherein a property is pledged or mortgaged by way
procedure pointed out in section 708 of the Code of Civil
of security for the payment of the principal obligation; and (2)
that there should be a stipulation for an automatic appropriation
by the creditor of the thing pledged or mortgaged in the event of
non-payment of the principal obligation within the stipulated
Francisco Realty & Development Corp. vs. CA, 298 SCRA 349
Ong vs. Roban Lending Corp. , 557 SCRA 516 Bank vs. Manila Investment & Construction, Inc., 38 SCRA 462
It is immaterial that the questioned stipulation was voluntarily and
freely entered into, pactum commissorium being void for being
prohibited by law. (Ong vs. Roban Lending Corporation, 557
Union Bank of the Philippines v. Alain Juniat, G.R. No. 171569,
SCRA 516 [2008].)
August 1, 2011

Under Article 2096 of the Civil Code, “[a] pledge shall not take
Tan Chun Tic vs. West Coast Life, Inc. 54 Phil. 361 effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public
Permissible Stipulations
instrument.” Hence, just like the chattel mortgage executed in
If the vendee contributed to the breach of the contract by the
favor of petitioner, the pledge executed by Juniat in favor of
mortgagor, the former, together with the latter, may also be held
Nonwoven cannot bind petitioner.
liable for damages; or if the vendee was guilty of fraud which
It bears stressing that there can be no transfer of ownership if the
would be a ground for rescission of the sale in his favor, the
delivery of the property to the creditor is by way of security. In
mortgagor and not the mortgagee would be the party entitled to
fact, in case of doubt as to whether a transaction is one of
bring the action for annulment.
pledge or dacion en pago, the presumption is that it is a pledge
as this involves a lesser transmission of rights and interests.
PNB vs. Manila Investment & Construction Inc., 38 SCRA 462

Under the Chattel Mortgage Law, the mortgagor is entitled to

Roberto Sicam v. Lulu V. George, G.R. No. 159617, August 8, 2007
recover the excess of the proceeds of the sale in foreclosure
Robbery per se, just like carnapping, is not a fortuitous event. It
proceedings. (Sec. 14, Act No. 1508; see Art. 2141; Phil. National
does not foreclose the possibility of negligence on the part of
herein petitioners. In Co v. Court of Appeals, 291 SCRA 111 (1998), the pre-trial that the car was carnapped. Carnapping does not
the Court held: It is not a defense for a repair shop of motor foreclose the possibility of fault or negligence on the part of
vehicles to escape liability simply because the damage or loss of private respondent. Just like in Co, petitioners merely presented
a thing lawfully placed in its possession was due to carnapping. the police report of the Parañaque Police Station on the robbery
Carnapping per se cannot be considered as a fortuitous event. committed based on the report of petitioners’ employees which is
The fact that a thing was unlawfully and forcefully taken from not sufficient to establish robbery. Such report also does not
another’s rightful possession, as in cases of carnapping, does not prove that petitioners were not at fault.
automatically give rise to a fortuitous event. To be considered as
such, carnapping entails more than the mere forceful taking of
another’s property. It must be proved and established that the REAL MORTGAGE

event was an act of God or was done solely by third parties and Soriano vs. Galit, 411 SCRA 631
that neither the claimant nor the person alleged to be negligent
The inclusion of “buildings” under Article 415 of the Civil Code,
has any participation. In accordance with the Rules of Evidence,
separate and distinct from the land means that a building is by
the burden of proving that the loss was due to a fortuitous event
itself an immovable property. While a mortgage of land
rests on him who invokes it—which in this case is the private
necessarily includes, in the absence of stipulation, the
respondent. However, other than the police report of the alleged
improvements thereon, a building by itself may be mortgaged
carnapping incident, no other evidence was presented by
apart from the land on which it is built. Possessory rights over said
private respondent to the effect that the incident was not due to
property before title is vested on the grantee may be validly
its fault. A police report of an alleged crime, to which only private
transferred or conveyed as in a deed of mortgage.
respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of
private respondent notwithstanding the parties’ agreement at Mojica vs. CA, GR 94247, September 11, 1991
lt has long been settled by a long line of decisions that mortgages
given to secure future advancements are valid and legal
Hechanova vs. Adil, 144 SCRA 450
contracts; that the amounts named as consideration in said
It is clear from the records of this case that the plaintiff has no
contract do not limit the amount for which the mortgage may
cause of action. Plaintiff has no standing to question the validity
stand as security if from the four corners of the ment the intent to
of the deed of sale executed by the deceased defendant Jose
secure future and other indebtedness can be gathered A
Servando in favor of his co-defendants Hechanova and Masa.
mortgage given to secure advancements is a continuing security
No valid mortgage has been constituted in-plaintiff’s favor, the
and is not discharged by repayment of the amount named in the
alleged deed of mortgage being a mere private document and
mortgage, until the full amount of the advancements are paid.
not registered, moreover, it contains a stipulation (pacto
comisorio) which is null and void under Article 2088 of the Civil
People’s Bank and Trust Co. vs. Dahican Lumber Co., 20 SCRA 84 Code. Even assuming that the property was validly mortgaged
to the plaintiff, his recourse was to foreclose the mortgage, not to
The stipulation in a mortgage contract that properties, which the
seek annulment of the sale.
mortgagor may acquire, construct, install, attach or use in its
lumber concession, shall be subject to the mortgage lien is a
common and logical provision in cases where the original
Bank of Commerce vs. San Pablo, Jr., 522 SCRA 713
properties mortgaged are perishable or subject to inevitable
The Bank of Commerce clearly failed to observe the required
wear and tear or were intended to be sold or used but with the
degree of caution in ascertaining the genuineness and extent of
understanding that they would be replaced with others to be
the authority of Santos to mortgage the subject property. It
thereafter acquired by the mortgagor. Such a stipulation is lawful
should not have simply relied on the face of the documents
and not immoral and is intended to maintain, insofar as possible,
submitted by Santos, as its undertaking to lend a considerable
the original value of the properties given as security.
amount of money required of it a greater degree of diligence.
That the person applying for the loan is other than the registered and public possession of a person other than the mortgagor,
owner of the real property being mortgaged should have constitutes gross negligence amounting to bad faith. Premiere
already raised a red flag and which should have induced the Bank is thus not entitled to have its lien annotated on the genuine
Bank of Commerce to make inquiries into and confirm Santos’ title.
authority to mortgage the Spouses San Pablo’s property. A
person who deliberately ignores a significant fact that could
Asuncion vs. Evangelista, 316 SCRA 848
create suspicion in an otherwise reasonable person is not an
innocent purchaser for value. We hold that private respondent’s insistence that petitioner
execute a formal assumption of mortgage independent and
separate from his own execution of a deed of sale is legally
Premiere Development Bank vs. CA, 453 SCRA 630
untenable, considering that a recorded real estate mortgage is a
It cannot be overemphasized that Premiere Bank, being in the lien inseparable from the property mortgaged and until
business of extending loans secured by real estate mortgage, is discharged, it follows the property. In his testimony, private
familiar with rules on land registration. As such, it was, as here, respondent stated that he would be committing economic
expected to exercise more care and prudence than private suicide if he executed a deed of sale because he would then be
individuals in their dealing with registered lands. Accordingly, transferring his lands to petitioner without the latter first assuming
given inter alia the suspicion-provoking presence of occupants his loan obligations. This posturing is puerile. Even without a formal
other than the owner on the land to be mortgaged, it behooved assumption of mortgage, the mortgage follows the property
Premiere Bank to conduct a more exhaustive investigation on the whoever the possessor may be. It is an elementary principle in
history of the mortgagor’s title. That Premiere Bank accepted in civil law that a real mortgage subsists notwithstanding changes of
mortgage the property in question notwithstanding the existence ownership and all subsequent purchases of the property must
of structures on the property and which were in actual, visible
respect the mortgage, whether the transfer to them be with or the performance of the principal obligation. One of its
without the consent of the mortgagee. characteristics is that it is inseparable from the property. It
adheres to the property regardless of who its owner may
subsequently be. Respondent must have known that even if Lot
Quintanilla vs. CA, 279 SCRA 397
932 is ultimately expropriated by the Republic, still, his right as a
This Court in the “Ajax” case, in upholding the validity of the mortgagee is protected. In this regard, Article 2127 of the Civil
extra-judicial foreclosure of mortgage which included the loans Code provides: “Art. 2127. The mortgage extends to the natural
obtained in excess of the amount fixed in the mortgage contract accessions, to the improvements, growing fruits, and the rents or
as expressed in said proviso, ruled that: “An action to foreclose a income not yet received when the obligation becomes due,
mortgage is usually limited to the amount mentioned in the and to the amount of the indemnity granted or owing to the
mortgage, but where on the four corners of the mortgage proprietor from the insurers of the property mortgaged, or in
contracts, as in this case, the intent of the contracting parties is virtue of expropriation for public use, with the declarations,
manifest that the mortgage property shall also answer for future amplifications, and limitations established by law, whether the
loans or advancements, then the same is not improper as it is estate remains in the possession of the mortgagor or it passes in
valid and binding between the parties.” (Italics supplied). the hands of a third person.”

Republic vs. Lim, 462 SCRA 265 Litonjua vs. L & R Corp. 320 SCRA 405

For respondent’s part, it is reasonable to conclude that he The law considers void any stipulation forbidding the owner from
entered into the contract of mortgage with Valdehueza and alienating the mortgaged property. “Such a prohibition would be
Panerio fully aware of the extent of his right as a mortgagee. A contrary to the public good inasmuch as the transmission of
mortgage is merely an accessory contract intended to secure property should not be unduly impeded.” (Report of the Code
Commission, p. 158.) The mortgagee can simply withhold his foreclosed real estate. Since petitioner-spouses failed to avail of
consent and thereby prevent the mortgagor from selling the appeal without sufficient justification, they cannot conveniently
property. This creates an unconscionable advantage for the resort to the action for annulment for otherwise they would
mortgagee and amounts to a virtual prohibition on the owner to benefit from their own inaction and negligence.
sell his mortgaged property. (Litonjua vs. L & R Corporation, 320
SCRA 405 [1999].)
Sayson vs. Luna, 433 SCRA 502

a sheriff’s duty in the execution of a writ is purely ministerial—he is

Borromeo vs. CA, 553 SCRA, 269
to execute the order of the court strictly to the letter, and he has
In this case, petitioners’ rights to their property is restricted by the no discretion whether to execute the judgment or not. As found
REM they executed over it. Upon their default on the mortgage by Executive Judge Ponferrada, such notice was served on July
debt, the right to foreclose the property would be vested upon 8, 1999, or more than five (5) days before the scheduled auction
the creditor-mortgagee. Nevertheless, the right of foreclosure sale. A sheriff’s report, in this case, the Minutes of the Auction
cannot be exercised against the petitioners by any person other Sale, as a document, is clothed with the presumption of
than the creditormortgagee or its assigns. regularity, and since it was not objected to by complainant, it
must be upheld.

Agbada vs. Inter- Urban Developers, Inc., 389 SCRA 430

Paguyo vs. Gatbunton, 523 SCRA 156
It bears stressing that the proper remedy to seek reversal of
judgment in an action for foreclosure of real estate mortgage is We note that in this case, the application for extrajudicial
not a petition for annulment of judgment but an appeal from the foreclosure was filed on February 11, 2003, obviously after the
judgment itself or from the order confirming the sale of the amendment of Administrative Order No. 3. Hence, the duty to
examine said application to determine whether the deed of mortgagee with respect to the surplus money resulting from a
mortgage contains or incorporates a special power authorizing foreclosure sale of the mortgaged property:
the spouses Garcia to extrajudicially foreclose the mortgage in
A mortgagee who exercises the power of sale contained in a
the event of nonpayment of the loan by the Paguyos devolved
mortgage is considered a custodian of the fund, and, being
upon the Clerk of Court, not on the respondent sheriff. Hence,
bound to apply it properly, is liable to the persons entitled thereto
respondent cannot be held administratively liable for proceeding
if he fails to do so; The mortgagee as custodian of the proceeds
with the foreclosure sale.
from the foreclosure sale has no legal right to retain the excess of
the bid price, and is under clear obligation to return the same to
the mortgagor.—
Tamayo, Jr. vs. Heirs of G. Dominguez, 498 SCRA 342

“(The) question of noncompliance with notice and publication

requirements of an extrajudicial foreclosure sale is a factual
issue.” Settled is the rule that this Court is not a trier of facts. In the
DBP vs. Licuanan, 516 SCRA 644
exercise of its power of review, the findings of fact of the Court of
Petitioner assigns as error the failure of the CA to rule on its
Appeals are conclusive and binding and consequently, it is not
deficiency claim. It alleged that the price the mortgaged
our function to analyze or weigh evidence all over again.
property was sold for (P104,000) was less than the amount of
respondents’ indebtedness (P131,642.33), thus it is entitled to
LCK Industries Inc. vs. Planters Development Bank, 538 SCRA 634 claim the difference (P27,642.33) with interest. Respondents
cannot be held liable for the deficiency claim. While it is true that
The renowned jurist Florenz Regalado, in Sulit v. Court of Appeals,
in extrajudicial foreclosure of mortgage, the mortgagee has the
268 SCRA 441 (1997), underscored the obligation of the
right to recover the deficiency from the debtor, this presupposes
that the foreclosure must first be valid.
As to the first assigned error, the rule is that a secured creditor
holding a real estate mortgage has three (3) options in case of
GSIS vs. CA, 266 SCRA 187
death of the debtor. These are:
Under Section 8, of Act No. 3135 (Appendix 2.) the debtor may, in
“(1) to waive the mortgage and claim the entire debt from the
the proceedings in which possession was requested, petition that
estate of the mortgagor as an ordinary claim;
the sale be set aside and the writ of possession cancelled,
because the mortgage was not violated or the sale was not “(2) to foreclose the mortgage judicially and prove any
made in accordance with the provisions thereof. (GSIS vs. Court deficiency as an ordinary claim; and
of Appeals, 266 SCRA 187 [1997].) He may ask for the annulment
“(3) to rely on the mortgage exclusively, foreclosing the same at
of the foreclosure sale on the ground that:
anytime before it is barred by prescription, without right to file a
(a) There was fraud, collusion, accident, mutual mistake, breach claim for any deficiency.”
of trust or misconduct by the purchaser;

(b) The sale had not been fairly and regularly conducted; or
Raymundo vs. Sunico, 25 Phil. 365
(c) The price was inadequate, and the inadequacy was so great
Equity of redemption; exercised before confirmation of sale
as to shock the conscience of the court. (United Coconut
In judicial foreclosure, the mortgagor may exercise his equity of
Planters Bank vs. Spouses Beluso, 530 SCRA 567 [2007].)
redemption before but not after the sale is confi rmed by the
court. It is simply the right of the defendant mortgagor to
Maglague vs. Planters Development Bank, 307 SCRA 156 extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90-day period after the
Issue: The Honorable Court of Appeals erred in not finding that
judgment becomes fi nal in accordance with Rule 68, or even
the Bank should have filed its claim in the settlement of estate of
after the foreclosure sale but prior to its confi rmation. (see Secs.
the deceased mortgagors.
2, 3, Rule 68, Rules of Court; Raymundo vs. Sunico, 25 Phil. 365 General Banking Act (R.A. 337). These laws confer on the
[1913]; Rosales vs. Suba, 408 SCRA 664 [2003].) mortgagor, his successors in interest or any judgment creditor of
the mortgagor, the right to redeem the property sold on
foreclosure—after confirmation by the court of the foreclosure
Phil. Veteran’s Bank vs. Monillas, 550 SCRA 251
sale—which right may be exercised within a period of one (1)
Since foreclosure sale retroacts to the date of the registration of year, counted from the date of registration of the certificate of
the mortgage, it no longer matters that the annotation of the sale in the Registry of Property.
sheriff’s certificate of sale and the affidavit of consolidation of
ownership was made subsequent to the annotation of the notice
Aclon vs. CA, 387 SCRA 415
of lis pendens.
Effect of Exercise of Right

The exercise of the right of redemption is an implied admission of

Limpin vs. IAC, 166 SCRA 1987
the regularity of the foreclosure sale and estops the mortgagor
Where the foreclosure is judicially effected, however, no
from later impugning its validity on that ground. Redemption is
equivalent right of redemption exists. The law declares that a
inconsistent with the claim of the invalidity of the sale.
judicial foreclosure sale, “when confirmed by an order of the
court, x x shall operate to divest the rights of all the parties to the
action and to vest their rights in the purchaser, subject to such Metropoliltan Bank and Trust Co. vs. Tan, 555 SCRA 502
rights of redemption as may be allowed by law.” Such rights
The applicable law thus states that it is the court’s ministerial duty
exceptionally “allowed by law” (i.e., even after confirmation by
to issue a writ of possession in favor of the purchaser of the
an order of the court) are those granted by the charter of the
mortgaged realty during the period of redemption. The trial court
Philippine National Bank (Acts No. 2747 and 2938), and the
committed no grave abuse of discretion as no exercise of
discretion is required. It is ministerial upon the court to issue a writ proper motion and the approval of the corresponding bond. No
of possession in favor of a purchaser, provided that a proper discretion is left to the court. Any and all questions regarding the
motion is filed, a bond is approved, and no third person is regularity and validity of the sale is left to be determined in a
involved. The pendency of an action to annul the mortgage is subsequent proceeding and such questions may not be raised as
not a ground for non-enforcement of the writ of possession. The a justification for opposing the issuance of a writ of possession.
ministerial duty of the trial court does not become discretionary
upon the filing of a complaint questioning the mortgage.

Trillanes v. Manansala, 96 Phil 865

Mendoza vs. Salinas, 514 SCRA 414
The sole purpose and object of the chattel mortgage registry is
Based on these tenets, the issuance of a writ of possession,
to provide for the registry of "chattel mortgages," and transfers
therefore, is clearly a ministerial duty of the land registration court.
thereof, that is to say, mortgages of personal property executed
Such ministerial duty, however, ceases to be so with particular
in the manner and form prescribed in the statute. Neither the
regard to petitioners who are actual possessors of the property
original registry in a chattel mortgage registry of an instrument
under a claim of ownership. Actual possession under claim of
purporting to be a chattel mortgage of a building and the
ownership raises a disputable presumption of ownership.
machinery installed therein, nor the an notation in that registry of
the sale of the mortgaged property, had any effect whatever so

Maluwat vs. Metropolitan Bank and Trust Co. 532 SCRA 124 far as the building is concerned.

In De Gracia v. San Jose, 94 Phil. 623 (1954), we held that under

Section 7 of Act No. 3135, as amended, the order for a writ of
possession issues as a matter of course upon the filing of the
Leung Yee vs. Strong Machinery Co., 37 Phil. 644 registered. Held: That the machinery must be classified as
personal property.
The sole purpose and object of the chattel mortgage registry is to
provide for the registry of "chattel mortgages," and transfers
thereof, that is to say, mortgages of personal property executed
Uy vs. Zamora, 13 SCRA 508
in the manner and form prescribed in the statute. Neither the
Where an intervenor registered its chattel mortgage subsequent
original registry in a chattel mortgage registry of an instrument
to the date of a writ of attachment obtained by the plaintiff, it is
purporting to be a chattel mortgage of a building and the
held that the credit of the intervenor cannot prevail over that of
machinery installed therein, nor the an notation in that registry of
the plaintiff, despite the fact that the intervenor’s credit may
the sale of the mortgaged property, had any effect whatever so
have been embodied in a public instrument of an earlier date.
far as the building is concerned.

Piansay vs. David, 12 SCRA 227

Davao Sawmill Co., Inc. vs. Castillo, 61 Phil. 709
A contract constituting a chattel mortgage on a house cannot
A lessee placed machinery in a building erected on land
bind third persons not parties to said contract or their privies.
belonging to another, with the understanding that the machinery
was not included in the improvements which would pass to the As a consequence, the sale of the house in question in the
lessor on the expiration or abandonment of the land leased. The proceedings for the extrajudicial foreclosure of said chattel
lessee also treated the machinery as personal property by mortgage, is null and void insofar as defendant Mangubat is
executing chattel mortgages in f favor of third persons. The concerned, and did not confer upon Mrs. Uy Kim, as buyer in said
machinery was levied upon by the sheriff as personalty pursuant sale, any dominical right in and to said house (De la Riva vs. Ah
to a writ of execution obtained without any protest being Yee, 60 Phil. 800), so that she could not have transmitted to her
assignee, plaintiff Piansay, any such right as against defendant
Mangubat. In short, plaintiffs have no cause of action against the Mortgage lien deemed abandoned by obtaining a personal
defendants herein. judgment

WHEREFORE, the orders appealed from are hereby affirmed, with We agree with petitioner that the filing of collection suit barred
costs against plaintiffs Salvador Piansay and Claudia B. Vda. de the foreclosure of the mortgage. x x x The reason for this rule is
Uy Kim. It is so ordered. that: "x x x when, however, the mortgagee elects to file a suit for
collection, not foreclosure, thereby abandoning the chattel
mortgage as basis for relief, he clearly manifests his lack of desire
Tumalad vs. Vicencio, 41 SCRA 143 Owner is estopped
and interest to go after the mortgaged property as security for
The view that parties to a deed of chattel mortgage may agree the promissory note x x x."
to consider a house as personal property for the purposes of said
contract, is good only insofar as the contracting parties are
Lee vs. Trocino, 561 SCRA 178
concerned. It is based, partly, upon the principle of estoppel.
Hence, if a house belonging to a person stands on a rented land Upon the sale of personal property on execution, all ownership
belonging to another person, it may be mortgaged as a personal and proprietary rights leave the judgment debtor and become
property as so stipulated in the document of mortgage. It should vested in the purchaser, and the judgment debtor may no longer
be noted, however, that the principle is predicated on recover the same by redemption, to which he has no right. As the
statements by the owner declaring his house to be a chattel, a new owners of the shares of stock in EQLPI, Manila Polo Club,
conduct that may conceivably estop him from subsequently Manila Golf and Country Club, Sta. Elena Golf and Country Club,
claiming otherwise. and Tagaytay Highlands International Golf Club, Peña, his
assignees, as well as the other purchasers at the execution sale
where these shares were sold, are entitled—without delay—to
Cerna vs. CA, 220 SCRA 517
transfer said shares in their name and exercise ownership over the personal property by reason of his being the owner or of his
same. having a special interest therein. (B.A. Finance Corp. vs. Court of
Appeals, 258 SCRA 102 [1996].)

Cabral vs. Evangelista, 28 SCRA 1000

he 30-day period to foreclose a chattel mortgage is the minimum CLASSIFICATION OF CREDIT

period after violation of the mortgage condition for the DBP vs. NLRC,
mortgage creditor to cause the sale at public auction of the
The use of the phrase “fi rst preference” in Article 110 of the
mortgaged chattel with at least ten (10)-days notice to the
Labor Code indicates that what it intends to modify is the order
mortgagor and posting of public notice of time, place, and
of preference found in Article 2244, which relates to property of
purpose of such sale, and is a period of grace for the mortgagor,
the insolvent that is not burdened with the liens or encumbrances
to discharge the mortgage obligation. After the sale of the
created or recognized by Articles 2241 and 2242.7
chattel at public auction, the right of redemption is no longer
available to the mortgagor. n the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards their
unpaid wages and other monetary claims, any provision of law
B.A. Finance Corp. vs. CA, 258 SCRA 102 to the contrary notwithstanding. Such unpaid wages, and

Replevin is so usually described as a mixed action, being partly in monetary claims shall be paid in full before the claims of the

rem and partly in personam — in rem insofar as the recovery of Government and other creditors may be paid." (Italics ours.)

specifi c property is concerned, and in personam as regards to

damages involved. As an action in rem, the gist of the replevin
Central Bank vs. Dela Cruz, 191 SCRA 346
action is the right of the plaintiff to obtain possession of specifi c
Insolvency Proceedings involving banks; Remedy against actions Held: That under the provisions of article 1527 of 'the Civil Code,
of Monetary Board a debtor, who, before having been informed of the assignment,
pays the creditor, shall be free from the obligation; that the
It is noteworthy that the actions of the Monetary Board in
registration of an assignment of a chattel mortgage does not
proceedings on insolvency are explicitly declared by law to be
ipso facto operate as notice to the mortgagor; that the filing and
“final and executory.” They may not be set aside, or restrained, or
recording of an instrument in the office of the registrar, when the
enjoined by the courts, except upon “convincing proof that the
law does not require such filing and recording, does not
action is plainly arbitrary and made in bad faith.”
constitute notice to the party; that the assignment of a chattel
mortgage does not affect the mortgagor until he has notice of
Central Bank vs. Morfe, 96 Phil 96 such assignment; that if the law does not require a particular
instrument to be recorded or registered, the recording of that
The effect of the fi nal judgment is only to fi x the amount of the
instrument will not be constructive notice; that until notice of the
debt, and not give priority over other depositors and creditors.
assignment is given to the debtor, it will not bind him so as to
After the Monetary Board has declared that a bank is insolvent
deprive him of equities arising between the date of the
and has ordered it to cease operations, the Board becomes the
assignment and the date when he received notice thereof.
trustee of its assets for the equal benefi t of all the creditors,
including depositors. After its insolvency, one cannot obtain an
advantage or a preference over another by an attachment,
execution or otherwise.
South City Homes, Inc., Fortune Motors, vs BA Finance

Issue: whether there was a novation of the obligation so as to

ASSIGNMENT OF CREDIT extinguish the liability of the sureties
Sison v. Yap Tico, 37 Phil. 534 NONE
An assignment of credit is an agreement by virtue of which the
owner of a credit, known as the assignor, by a legal cause, such
as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to
another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could enforce it
against the debtor. As a consequence, the third party steps into
the shoes of the original creditor as subrogee of the latter.
Petitioners’ obligations were not extinguished.