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- On the same day, Macapanga Producers, and Plaridel Surety and
GUARANTY AND SURETY
1. Velasquez v. Solidbank Corp.,
550 SCRA 119;
FACTS:
- Petitioner is engaged in the export business operating under the
name Wilderness Trading. Respondent is a domestic banking
corporation organized under Philippine laws.
- Wilderness Trading, as seller, entered into a business transaction
for the sale of dried sea cucumber for export to Goldwell Trading
of Pusan, South Korea, as buyer.
- To facilitate payment, Goldwell Trading opened a letter of credit
in favor of Wilderness Trading with the Bank of Seoul, Busan,
South Korea.
- Petitioner then applied for credit accommodation with
respondent Solidbank for pre-shipment financing which was
granted as well as its second export transaction drawn on the letter
of credit. The third, however, had a different result. - Petitioner
then submitted to respondent necessary for his third shipment to
have the value of the shipment paid in advance and negotiated for
a documentary sight draft to be drawn on the letter of credit,
chargeable to the account of Bank of Seoul. Petitioner promised
that the draft will be paid by the Bank of Seoul and held himself
liable if the sight draft was not accepted in a letter of undertaking
executed by petitioner is a condition for the issuance of the sight
draft. - Respondent bank obliged and sent all documents pertinent
to the export transaction. Respondent was not able to collect
because the sight draft was dishonored by non-acceptance by the
Bank of Seoul due to late shipment and because most of the bags
of dried sea cucumber exported contained soil.
- Respondent thereafter filed a complaint for recovery of sum of
money with RTC of Cebu which rendered a decision in favor of
respondent which was affirmed by the appellate court, thus, this
present petition.
ISSUE: Whether or not petitioner’s liability under the letter of
undertaking is that of a mere guarantor.
HELD: No.
- Petitioner cannot be both the primary debtor and the guarantor
of his own debt. This is inconsistent with the very purpose of a
guarantee which is for the creditor to proceed against a third
person if the debtor defaults in his obligation. - Petitioner bound
himself liable to respondent under the letter of undertaking if the
sight draft is not accepted. He also warranted that the sight draft
is genuine; will be paid by the issuing bank in accordance with its
tenor; and that he will be held liable for the full amount of the draft
upon demand, without necessity of proceeding against the drawee
bank.
2. PNB v. Macapanga Producers, Inc.,
99 Phil. 180;
FACTS
- On December 26, 1952, Luzon Sugar Company leased a sugar
mill at Calumpit, Bulacan to defendant Macpanga Producers from
1952-1953 for annual royalty fee of P50,000 which serves as a
lien on the sugar produced by the lessee which shall be paid before
sale or removal of sugar from warehouse.
ib2i 17-18
Insurance, executed to PNB a bond amounting to P50,000 for
fulfillment of all terms and conditions.
- On December 1953, Luzon Sugar Co, assigned to PNB the
payment due. PNB notified Macapanga of the assignment and
demanded payment but the latter refused.
- PNB also made demand from Plaridel Surety but the latter also
refused.
- Hence, PNB filed a complaint against the principal and the
surety.
- Plaridel asserts that it is a guarantor and shall be responsible only
if Macapanga has no assets to pay its obligations.
- On the other hand. PNB alleged that Plaridel bound itself
solidarily with Macapanga, therefore, a surety according to Art.
2047.
HELD
- The action joining Plaridel Surety is justified by Art. 2047.
- As the principal debtor’s obligation is valid and has not been
satisfied by his estate, and Plaridel Surety bound itself solidarily,
then the creditor may sue any of the solidary debtors or all of them
simultaneously.
- An action instituted against one shall not be a bar to those which
may be subsequently brought against the others, as long as the
debt is not yet satisfied.
3. Southern Motors, Inc. v. Barbosa;
GR No. L-9306
FACTS
- Plaintiff Southern Motors brought an action against Barbosa to
foreclose a real estate mortgage constituted by the latter in favor
of the former, as security for the payment of a sum extended by
the plaintiff to one Alfredo Brillantes, because the latter failed to
settle his obligation in accordance with the terms and conditions
corresponding with the deed of mortgage.
- Defendant filed an answer admitting the allegations of the
complaint and alleging by way of affirmative defense that he
executed the deed of mortgage for the sole purpose of
guaranteeing the above mentioned debt of Brillantes and that
therefore plaintiff cannot foreclose the mortgage without a prior
exhaustion of the principal’s properties.
- Court ruled in favor of the plaintiff, and prompted the appeal
before the CA who certified the case to the SC in view of the fact
that the appeal raises purely questions of law.
ISSUE: Whether the plaintiff is required to exhaust debtor-
principal’s property before he can proceed to foreclose the
mortgage.
HELD:
- Defendant’s invocation of Art. 2058 is misplaced; the right of
the guarantors to demand exhaustion of the property of the
principal of the debtor exists only when a pledge or mortgage has
not been given as special security for the payment of the principal
obligation.
- Under the given facts, a mortgage was executed as security for
Brillante’s debt, hence, defendant’s reliance upon the
aforementioned provision cannot be sustained, for what governs
in this case are the provisions concerning pledge and mortgages.
Credit Finals digest | asg galandines
4. Luzon Steel Corp. v. Sia;
GR No. L-26449
FACTS
- Luzon sued Sia for breach of contract and damages, and obtained
a writ of preliminary attachment of the properties of Sia Metal
Manufacturing, but was lifted upon P25,000 counterbond by Sia,
as principal, and Times Surety, as guarantor. The bond reads that
they are “jointly and severally” bound for payment.
- Thereafter, they entered into compromise agreement on terms of
payment without the intervention of Times Surety.
- Sia however failed to comply, hence Luzon moved and obtained
a writ of execution against Sia and the counterbond, Times Surety,
on the other hand, moved for quashal on the ground that it was not
a party to the compromise.
ISSUE: Whether or not the judgement on the compromise
discharged the surety from its obligation under the attachment
counterbond; and whether the writ of execution could be issued
against the surety.
HELD
- Counterbonds are posted to lift the writ of attachment due to
these bonds being security of any judgement that the attaching
party may obtain; they are mere replacements of the property
formerly attached. It was therefore an error on the part of the court
to have ordered the surety cancelled on the theory that the
compromise discharged the obligation of the surety.
- Anent the second issue, the bond surety binds itself “jointly and
severally” (in solidum) with Sia; and the right of excussion as
provided in Art. 2059 shall not take place where the guarantor has
bound itself “jointly and severally” with the principal debtor.
- Counterbonds are only conditioned upon the rendition of
judgement. Payment under the bond is not made to depend upon
the delivery or availability of the property attached; and the
liability of the surety attaches upon the rendition of the judgement.
5. Palmares v. CA,
GR No. 126490;
FACTS
- Pursuant to a promissory note, MB Lending Corporation
exended a loan to spouses Azarraga, together with Palmares, in
the amount of P30,000.
- In four occasions, petitioner and Azarraga spouses was able to
pay a total of P16,300. However, the balance was not paid.
- Consequently, on the basis of petitioner’s solidary liability under
the promissory note, MB Lending filed a complaint against
Palmares as a lone-party defendant, to the exclusion of the
principal debtors, allegedly by reason of the insolvency of the
latter.
ISSUE: Whether or not a party who signed a promissory note as
a co-maker and bound herself to be jointly and severally liable
with the principal debtor in case the latter defaults in the payment
of loan, is deemed to be that of a surety as an insurer of the debt,
or guarantor
HELD:
ib2i 17-18
A suretyship is an undertaking that the debt shall be paid; a
guaranty is an undertaking that the debtor shall pay. Stated
otherwise, a surety promises to pay the principal’s debt if the
principal will not pay, while a guarantor agrees that the creditor
may proceed against the guarantor if the principal is unable to pay.
A surety binds himself to perform if the principal does not,
without regard to his ability to do so. On the other hand, a
guarantor does not contract that the principal will pay, but simply
that he is unable to do so.
- In the case at bar, Palmares expressly bound herself to be jointly
and severally or solidarily liable with the principal maker of the
note. The terms are clear that she intends herself to be a surety.
She is estopped to assert that she did so under a misapprehension
or in ignorance of their legal effect, or as to the legal effect of the
undertaking.
6. Export and Foreign Loan Guarantee Corp. v. VP Eusebio,
434 SCRA 202;
FACTS
- A service contract was entered into by respondent, a Filipino
construction firm with the Iraqi Government for the construction
of the Institute of Physical Therapy Medical Center in Baghdad.
- The Iraqi government required contractors to submit:
a) performance bond; and
b) advance payment bond.
To comply thereto, the respondents applied for issuance of a
guarantee with Philguarantee (petitioner), a government financial
entity. However, the Iraqi Government refused the same as it
require guaranty from an Iraqi Bank. Rafidain Bank issued the
performance Bond on the condition that another bank would issue
a counter-guarantee. Thus, Al Ahli Bank of Kuwait provided the
counter-guarantee, but it required a similar counter guarantee
from Philguarantee, which the latter issued.
- Al Ahli Bank sent respondents letters demanding full payment of
the amount it paid to the Iraqi Government and interest and other
damages pursuant to the joint and solidary obligations under the
deed of undertaking. Petitioner paid Al Ahli, and demanded
reimbursement from respondent. When failed to pay, a civil case
was filed before the Makati RTC for collection of sum of money.
- The trial court held that Philguarantee had no valid cause of
action against the respondents, and the guarantee which was
executed for a specific period, had already lapsed.
ISSUE: Whether VP Eusebio defaulted in payment
HELD:
- To first determine what law shall govern so that it may properly
determine the rights, the laws of Iraq bear substantial connection
to the transaction, since one of the parties is the Iraqi Government
and the place of performance is in Iraq. Hence, the issue of
whether respondent VPECI defaulted in its obligations may be
determined by the laws of Iraq. However, since that foreign law
was not properly pleaded or proved, the presumption of identity
or similarity, otherwise known as the processual presumption,
comes into play. Where foreign law is not pleaded or, even if
pleaded, is not proved, the presumption is that foreign law is the
same as ours. Philippine law should be used.
- In reciprocal obligations, neither party incurs in delay if the other
party does not comply or is not ready to comply in a proper
manner with what is incumbent upon him." It is undisputed that
Credit Finals digest | asg galandines
only 51.7% of the total work had been accomplished. However,
as found by both the Court of Appeals and the trial court, the delay
or the non-completion of the Project was caused by factors not
imputable to the respondent contractor. It was shown that the Iraqi
government continues to violate the terms of agreement and was
hence VPECI was not able to perform its payment.
- The payment made by the petitioner guarantor did not in any way
benefit the principal debtor, given the project
status and the conditions obtaining at the Project site at that time.
Moreover, the respondent contractor was found
to have valid defenses against the Iraqi Government. The
petitioner guarantor should have waited for the natural course of
guaranty: the debtor VPECI should have, in the first place,
defaulted in its obligation and that the creditor SOB should have
first made a demand from the principal debtor. It is only when the
debtor does not or cannot pay, in whole or in part, that the
guarantor should pay.
7. Tupaz IV v CA,
GR No. 145578
FACTS
- Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President
for Operations and Vice-President/Treasurer, respectively, of El
Oro Engraver Corporation (“El Oro Corporation”). El Oro
Corporation had a contract with the Philippine Army to supply the
latter with “survival bolos.”
- To finance the purchase of the raw materials for the survival
bolos, petitioners, on behalf of El Oro Corporation, applied with
respondent Bank of the Philippine Islands (“respondent bank”) for
two commercial letters of credit.
- The letters of credit were in favor of El Oro Corporation’s
suppliers, Tanchaoco Manufacturing Incorporated Simultaneous
with the issuance of the letters of credit, petitioners signed trust
receipts in favor of respondent bank. Which states that he is jointly
and severally liable to pay; and that the liability shall be DIRECT
without need to take any steps or exhaust its legal remedies,
personally signed by Tupaz.
- Petitioners did not comply with their undertaking under the trust
receipts. Respondent bank made several demands for payments
but El Oro Corporation made partial payments only. On 27 June
1983 and 28 June 1983, respondent bank’s counsel and its
representative respectively sent final demand letters to El Oro
Corporation. El Oro Corporation replied that it could not fully pay
its debt because the Armed Forces of the Philippines had delayed
paying for the survival bolos.
HELD
A corporate representative signing as a solidary guarantee as
corporate representative did not undertake to guarantee personally
the payment of the corporation’s debts. In the trust receipt dated 9
October 1981, petitioners signed below this clause as officers of
El Oro Corporation.
- As an exception, directors or officers are personally liable for the
corporation’s debts only if they so contractually agree or stipulate.
And the trust receipt shows that he intends to do so, stipulating
that the liability of this guarantee is DIRECT AND IMMEDIATE.
- And since the trust receipt imputes to himself liable for the
guarantee, he is PERSONALLY LIABLE, but only as a
GUARANTEE.
ib2i 17-18
- Excussion is not a prerequisite to secure judgment against a
guarantor; The benefit of excussion may be waived. In including
“liability x x x DIRECT without need to take any steps or exhaust
its legal remedies” It is a clear indication that he intends himself
to be liable without the benefit of excussion.
8. Eastern Shipping Lines v. CA,
GR No. 97412;
- When an obligation, regardless of its source, is breached, the
contravenor may be held liable for damages.
- CB Circular 416: the rate of interest for loan or forbearance of
money, goods, or credit, in the absence of express contract as to
the rate of interest, the rate shall be 12% per annum;
- When there is an express stipulation on the interest rate, then the
stipulation shall be binding between the parties;
- An obligation not constituting a loan or forbearance of money is
breached, an interest in the amount of damages may be imposed
at the discretion of the court at the rate of 6% per annum.
- No interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be established
with reasonable certainty:
a) Where the demand is established with reasonable
certainty, the interest shall begin to run from the time the
claim was made judicially or extrajudicially;
b) when such certainty cannot be reasonably established
at the time the demand is made, the interest shall begin
to run only from the date the judgement of the court is
made.
- When the judgement of the court awarding a sum of money
becomes final and executory, the rate of legal interest, on both
cases, shall be 12% per annum, the interim period being deemed
a forbearance of credit.
9. Escano v. Ortigas,
GR No. 151953;
FACTS:
- Private Development Corporation of the Philippines (PDCP)
entered into a loan agreement with Falcon Minerals, Inc. whereby
PDCP agreed to make available and lend to Falcon a sum certain.
- Respondent Rafael Ortigas, Jr., et al., stockholder officers of
Falcon, executed an Assumption of Solidary for the obligations of
Falcon
- Two separate guaranties were executed to guarantee the payment
of the same loan by other stockholders and officers of Falcon,
acting in their personal and individual capacities. One Guaranty
was executed by petitioner Salvador Escaño.
- Two years later, an agreement developed to cede control of
Falcon to Escaño, and two others.
- Thus, contracts were executed whereby Ortigas, and two others
and the heirs of then already deceased George T. Scholey assigned
their shares of stock in Falcon to Escaño, Silos and Matti. Part of
the consideration that induced the sale of stock was a desire by
Ortigas, et al., to relieve themselves of all liability arising from
their previous joint and several undertakings with Falcon,
including those related to the loan with PDCP.
- Thus, an Undertaking was executed by the concerned parties
with Escaño, Silos and Matti identified in the document as
“sureties,” on one hand, and Ortigas, Inductivo and the Scholeys
as “obligors,” on the other.
Credit Finals digest | asg galandines
- However, Falcon subsequently defaulted in its payments. After
PDCP foreclosed on the chattel mortgage, there remained a
subsisting deficiency of P5,000,000, which Falcon did not satisfy
despite demand. In order to recover the indebtedness, PDCP filed
a complaint for sum of money against Falcon, Ortigas, Escaño,
Silos, Silverio and Inductivo.
- Ortigas filed together with his answer a cross-claim against his
co-defendants Falcon, Escaño and Silos, and also manifested his
intent to file a third- party complaint against the Scholeys and
Matti.
- The cross-claim lodged against Escaño and Silos was predicated
on the 1982 Undertaking, wherein they agreed to assume the
liabilities of Ortigas with respect to the PDCP loan. Escaño,
Ortigas and Silos each sought to seek a settlement with PDCP.
(Kasi nga Ortigas et. al., by virue of the 1982 Agreement, they are
supposed to be not liable enymore because ESCANO, SILOS
AND MATTI are the only “sureties”, not Ortigas anymore)
- In the meantime, after having settled with PDCP, Ortigas
pursued his claims against Escaño, Silos and Matti, on the basis
of the 1982 Undertaking. He initiated a third-party complaint
against Matti and Silos, whilehe maintained his cross-claim
against Escaño. RTC issued the Summary Judgment, ordering
Escaño, Silos and Matti to pay Ortigas, jointly and severally, the
amount of P1.3M, as well as P20K in attorney’s fees. The trial
court ratiocinated that none of the third-party defendants disputed
the 1982 Undertaking.
ISSUE: Whether or not petitioners are solidarily liable to
respondent Ortigas.
HELD:
- Petitioners are not solidarily liable to respondent Ortigas. In case
there is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207 of the Civil
Code states that among them, there is a solidary liability only
when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.”
- Article 1210 supplies further that the indivisibility of an
obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. Thus, the presumption is
that the obligation is only joint. It thus becomes incumbent upon
the party alleging that the obligation is indeed solidary in character
to prove such fact with a preponderance of evidence.
- The Undertaking does not contain any express stipulation that
the petitioners agreed “to bind themselves jointly and severally”
in their obligations to the Ortigas group, or any such terms to that
effect. Hence, such obligation established in the Undertaking is
presumed only to be joint.
- Ortigas, as the party alleging that the obligation is in fact
solidary, bears the burden to overcome the presumption of
jointness of obligations. He has failed to discharge such burden.
- The term “surety” has a specific meaning under our Civil Code.
As provided in Article 2047 in a surety agreement the surety
undertakes to be bound solidarily with the principal debtor. Thus,
a surety agreement is an ancillary contract as it presupposes the
existence of a principal contract.
- It appears that Ortigas’ argument rests solely on the solidary
nature of the obligation of the surety under Article 2047. In
tandem with the nomenclature “sureties” accorded to petitioners
and Matti in the Undertaking, however, this argument can only be
viable if the obligations established in the Undertaking do partake
ib2i 17-18
of the nature of a suretyship as defined under Article 2047 in the
first place.
- Notwithstanding the nomenclature “sureties” in the Undertaking,
there could be no solidary liability therein.
10. Philippine Blooming Mills, Inc. v. CA,
GR No. 142381
FACTS:
- Alfredo Ching executed a Deed of Suretyship wherein petitioner
Ching unconditionally agreed to
assume PBM's liability to respondent bank in the event PBM
defaulted in the payment of
the said obligation in addition to whatever penalties, expenses and
bank charges that may
occur by reason of default, specifically any and all obligations the
debtor (PBM) “may now be indebted or may hereafter become
indebted”
- Furthermore, the Trust Receipt also include that: “MY/OUR
liability on this Deed of Suretyship shall be solidary, direct and
immediate and not contingent upon the pursuit by the CREDITOR,
x x x” and by the strength of these receipts, PBM was granted
credit loan and trust loan.
- PBM defaulted in its payment of Trust Receipt No. 106 for
P959,611.96, and of Trust Receipt No. for P1,191,137.13. PBM
also defaulted on its P3,500,000 trust loan.
- PBM was thereafter placed to rehabilitation; and a suit of
collection was made by TRB against PBM and Ching. PBM and
Ching moved to dismiss the complaint on the ground that the trial
court had no jurisdiction over the subject matter of the case; rather
by SEC over all PBM’s assets and liabilities.
- The trial court however dismissed the case only as regards PBM
and not to Ching, as TRB was holding Ching liable under the Deed
of Suretyship; and that since his obligation was solidary, the trial
court said that the complaint may proceed against Ching as surety
upon default of PBM.
- CA affirmed with modification; the liability of Ching as a surety
attaches independently from his capacity as a stockholder of the
Philippine Blooming Mills. Under the Deed of Suretyship,
petitioner Ching unconditionally agreed to assume PBM's liability
to respondent bank in the event PBM defaulted in the payment of
the said obligation in addition to whatever penalties, expenses and
bank charges that may occur by reason of default
- Petitioner Ching asserted before the Court that the Deed of
Suretyship dated 21 July 1977 could not answer for obligations
not yet in existence at the time of its execution. Specifically, Ching
maintained that the Deed of Suretyship could not answer for debts
contracted by PBM in 1980 and 1981.
ISSUE: 1) Whether Ching is liable for obligations PBM
contracted after execution of the Deed of Suretyship; and
2) Whether Ching is liable for the trust receipts
HELD:
- Ching is liable for credit obligations contracted by PBM against
TRB before and after the execution of the 21 July 1977 Deed of
Suretyship. This is evident from the tenor of the deed itself,
referring to amounts PBM "may now be indebted or may hereafter
become indebted" to TRB.
Credit Finals digest | asg galandines ib2i 17-18
- The law expressly allows a suretyship for "future debts". Article
2053 of the Civil
Code provides:
A guaranty may also be given as security for future debts,
the amount of which is not yet known; there can be no
claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secure.
- As ruled in Dino v. CA:
A continuing guaranty is one which is not limited to a
single transaction, but which 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.

b) Absent proof of payment or settlement of PBM and Ching's

credit obligations with
TRB, Ching's liability is what the Deed of Suretyship stipulates,
plus the applicable interest
and penalties.
Credit Finals digest | asg galandines
PLEDGE AND MORTGAGE
1. DBP v. CA and CUBA
G.R. No. 118342,
January 5, 1998
FACTS
- Lydia Cuba is a grantee of Fishpond Lease Agreement (FLA)
No. 2083.
- She obtained loans from DBP for P109,000, P109,000 and
P98,700 under terms stated in promissory Notes in three separate
dates, and executed Deed of Assignment of Leasehold Rights as
security to such payments.
- However, Cuba paid to pay her loan.
- Without foreclosure proceedings, DBP appropriated the
leasehold rights of plaintiff over the fishpond in question; and in
turn executed in favor of Cuba a Deed of Conditional Sale over
the leasehold rights over the same fishpond.
- Cuba sent a letter offering to repurchase the leasehold rights,
agreed by the DBP, but failed to pay amortizations later on.
- However she still failed to pay amortizations and hence DBP
rescinded the sale; advertised the public bidding, then sold it to
Caperal.
ISSUE: Whether the act of DBP in appropriating to itself CUBA's
leasehold rights over the fishpond in question without foreclosure
proceedings was contrary to Article 2088 of the Civil Code and,
therefore, invalid.
HELD:
- To note, it is agreed that the assignment of leasehold rights was
a mortgage contract: each of the promissory notes securing the
leasehold rights as payment provides: "In the event of foreclosure
of the mortgage securing this notes, I/We further bind
myself/ourselves, jointly and severally, to pay the deficiency, if
any."
- Simultaneously executed after contracting the loan, it was
admitted by both of the parties that the assignment was by way of
security for the payment of the loans.
- In People’s Bank and Trust Co. v. Odom, the Court held that an
assignment to guarantee an obligation is in effect, a mortgage.
Nature of assignment:
- There is no merit in DBP's contention that the assignment
novated the promissory notes in that the obligation to pay a sum
of money the loans (under the promissory notes) was substituted
by the assignment of the rights over the fishpond (under the deed
of assignment). As correctly pointed out by CUBA, the said
assignment merely complemented or supplemented the notes;
both could stand together. The former was only an accessory to
the latter.
- Neither it is a dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money, shall be governed
by the law on sales." It bears stressing that the assignment, being
in its essence a mortgage, was but a security and not a satisfaction
of indebtedness.
- Condition No. 12 of the deed provides:
“the Assignor hereby appoints the Assignee his Attorney-
in-fact with full power and authority to take actual
possession of the property above-described, together
with all improvements thereon, subject to the approval of
ib2i 17-18
the Secretary of Agriculture and Natural Resources, to
lease the same or any portion thereof and collect rentals,
to make repairs or improvements thereon and pay the
same, to sell or otherwise dispose of whatever rights the
Assignor has or might have over said property and/or its
improvements and perform any other act which the
Assignee may deem convenient to protect its interest. x x
x Any amount received from rents, administration, sale
or disposal of said property may be supplied by the
Assignee to the payment of repairs, improvements, taxes,
assessments and other incidental expenses and
obligations and the balance, if any, to the payment of
interest and then on the capital of the indebtedness
secured hereby. x x x”
- Cuba argued that condition no. 12 is pactum commisorium
- Pactum comissorium, requisites:
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 non-payment of the principal obligation within
the stipulated period.
- Condition no. 12 did not provide that the ownership over the
leasehold rights would automatically pass to DBP upon CUBA's
failure to pay the loan on time.
- It merely provided for the appointment of DBP as attorney-in-
fact with authority, among other things, to sell or otherwise
dispose of the said real rights, in case of default by CUBA, and to
apply the proceeds to the payment of the loan.
- This provision is a standard condition in mortgage contracts and
is in conformity with Article 2087 of the Civil Code, which
authorizes the mortgagee to foreclose the mortgage and alienate
the mortgaged property for the payment of the principal obligation
- HOWEVER, it is obvious that DBP exceeded its authority, and
that DBP had appropriated and taken ownership of Cuba’s
leasehold rights merely on the strength of the deed of assignment.
- DBP cannot take refuge in condition no. 12 of the deed of
assignment to justify its act of appropriating the leasehold rights.
- At any rate, DBP's act of appropriating CUBA's leasehold rights
was violative of Article 2088 of the Civil Code, which forbids a
creditor from appropriating, or disposing of, the thing given as
security for the payment of a debt.
- The fact that CUBA offered and agreed to repurchase her
leasehold rights from DBP did not estop her from questioning
DBP's act of appropriation. Estoppel does not lie against act
prohibited by law or public policy.
2. BUSTAMANTE v. ROSEL
G.R. NO. 126800
November 29, 1999
FACTS
- Norma Rosel, respondent herein, entered into a loan agreement
with petitioner Bustamante, petitioner using as collateral a portion
of land she owned with an area of 70 sq. m., inclusive of the
apartment thereon.
- The agreement contains that in the event the borrowers fail to
pay, the lender has the option to buy or purchase the collateral for
a total consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowed amount and
interest therein;
Credit Finals digest | asg galandines
- When the loan was about to mature, respondents proposed to buy
the land at the pre-set price of P200,000.00. Petitioner refused to
sell and requested for extension of time to pay the loan and offered
to sell another land instead, but refused all proposals of the
petitioner.
- On maturing date of the loan, petitioner tendered payment to the
respondents, which the latter refused to accept and insisted that
petitioner signed a prepared deed of absolute sale of the collateral.
Respondents refused.
- They thereafter filed with the Regional Trial Court a complaint
for specific performance with consignation against petitioner,
which held that the execution of deed of sale must not be done
- CA reversed and ordered the execution of the Deed of Sale.
ISSUES: a) whether petitioner failed to pay the loan at its maturity
Date; and b) whether the stipulation in the loan contract was valid
and enforceable.
HELD:
- NO. The sale of the collateral is an obligation with a suspensive
condition. It is dependent upon the happening of an event, without
which the obligation to sell does not arise.
- Contingent event: failure to pay loans; on the maturing date the
petitioners already consigned their payment with the court.
- Since the event did not occur, respondents do not have the right
to demand fulfillment of petitioner's obligation, especially where
the same would not only be disadvantageous to petitioner but
would also unjustly enrich respondents.
- A scrutiny of the stipulation of the parties reveals a subtle
intention of the creditor to acquire the property given as security
for the loan. This is embraced in the concept of pactum
commissorium, which is proscribed by law.
- Pactum Commissorium elements:
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 automatic appropriation
by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated
period.
- In this case, the intent to appropriate the property given as
collateral in favor of the creditor appears to be evident, for the
debtor is obliged to dispose of the collateral at the preagreed
consideration amounting to practically the same amount as the
loan. In effect, the creditor acquires the collateral in the event of
non-payment of the loan.
3. SPOUSES ONG v. ROBAN LENDING CORPORATION
GR NO. 172952, July 9, 2008
FACTS
- Spouses Wilfredo and Edna Paguio-Ong obtained several loans
from Roban Lending Corporation for P4 million from July 1999
to Mach 2000, secured by a real estate mortgage on their parcels
of land in Binaugangan, Tarlac City.
- Thereafter, they executed an Amendment to the mortgage
consolidating their loans inclusive of charges totalling
P5,916,117.50, and an Agreement on Dacion in Payment
assigning the aforesaid properties in settlement of their total
obligation.
- The agreement also stipulated that the spouses shall execute a
ib2i 17-18
promissory note on the latter amount payable in one year,
otherwise, the dacion in payment shall be enforced.
- In April 2002, petitioners filed a complaint before the Tarlac City
RTC, alleging that the contracted agreements are void for being
pactum commissorium.
RTC: No pactum commissorium, dismissed complaint.
CA: Upheld RTC; no pactum commissorium
ISSUE: Whether the contracts constitute pactum commissorium
or dacion en pago
HELD
- There is pactum commissorium.
- Requisites for pactum commissorium:
a) property mortgaged by way of security for the payment of the
principal obligation;
b) stipulation for automatic appropriation by the creditor in case
of non-payment of the principal obligation
- The agreement contains no provision for foreclosure proceedings
nor redemption; but the perusal of the agreements show that the
ownership is automatically acquired upon petitioner’s failure to
pay their debt within the stipulated period.
- As regards the argument that a dacion en pago is a special form
of payment, it must be noted that the true dacion en pago
extinguishes the monetary debt upon assignment of property.
- In the case at bar, the alienation of the properties was by way of
security, not of satisfying the debt per se; the obligation is not
extinguished.
- That the questioned contracts were freely and voluntarily
executed by petitioners and respondent is of no moment, pactum
commissorium being void for being prohibited by law.
4. LITTON V. MENDOZA AND CA
GR NO. L-49120, June 30, 1988
FACTS
- Spouses Bernal purchased on credit from Alfonso Tan some
cotton materials worth P80,796.62, with respondent Mendoza
guaranteeing the payment; the latter introduced Bernals to Tan for
Mendoza to sell to the Bernals textile cotton materials for their
garment and cotton materials manufacturing business.
- Bernals issued check in favor of Mendoza which shall remain in
the possession of the latter until the materials are finally
manufactured and Mendoza to sell the products for the Bernals.
- Mendoza issued 2 checks in favor of Tan for the amount, and has
informed of the Bernals. However, the checks, when ought to be
encashed by Tan, had been stamped “stop payment” for failure of
the Bernals to deposit sufficient funts for the check Bernals issued
in favor of Mendoza.
- Tan brought an action against Mendoza, while the Bernals
brought an action for interpleader for not knowing whom to pay.
The action of Tan was assigned by them in favor of George Litton,
Sr., with notice to the parties.
- Lower court, on this action, ruled in favor of Tan, which
Mendoza appealed to the CA. While pending before the CA,
Mendoza entered into a compromise agreement with Tan wherein
Tan acknowledged that all his claims against M had been settled.
- When Mendoza entered a motion for reconsideration on the
ground that there has been a compromise agreement entered into,
Tan opposed this motion claiming that the compromise agreement
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is null and void because the of the assignment made in favor of
Litton, and that he has no more right to alienate the credit.
ISSUE: Is the compromise agreement valid?
HELD
- The deed of assignment executed by Tan in favor of Litton
fulfills the requisites of a valid pledge or mortgage; and therefore
the rules on pledge or mortgage shall be followed.
- The fact that the deed of assignment was done by way of securing
or guaranteeing Tan's obligation in favor of George Litton, Sr., as
observed by the appellate court, will not in any way alter the
resolution on the matter.
- Where it is ruled as a valid pledge or mortgage, Tan remains the
owner of the credit, but it does not grant of an absolute right on
the part of the assignor Tan to indiscriminately dispose of the thing
or the right given as security.
- Although the pledgee or the assignee, Litton, Sr. did not ipso
facto become the creditor of private respondent Mendoza, the
pledge being valid, the incorporeal right assigned by Tan in favor
of the former can only be alienated by the latter with due notice to
and consent of Litton, Sr. or his duly authorized representative.
- Moreover, in Art. 1634, the debtor has a corresponding
obligation to reimburse the assignee, Litton, Sr. for the price he
paid or for the value given as consideration for the deed of
assignment. Failing in this, the alienation of the litigated credit
made by Tan in favor of private respondent by way of a
compromise agreement does not bind the assignee, petitioner
herein.
5. MANILA BANKING CORP. V. TEODORO
GR NO, 53955, January 13, 1989
FACTS
- On April 25, 1966, the defendants executed in favor of plaintiff
a PN for P10,420 payable in 120 days, at 12% interest per annum,
but failed to pay. As of Sep. 1969, the obligation stood at
P15,137.11, including interest and service charge.
- Other than this, Anastacio Sr. and Jr. executed two promissory
notes for P8,000 and P1,000, respectively; payable in 120 days at
12% interest per annum.
- Thereafter, they executed in favor of plaintiff a Deed of
Assignment of Receivables from Emergency Employment
Administration amounting P44,635, for and in consideration of
certain credits, loans, and other credit accommodations extended
to the defendants as security for the payment of said sum and
interest thereon.
- Thereafter, the Teodoros failed to pay plaintiff, that non-
payment of the notes was due to the failure of the Commission to
pay defendants after the latter had complied with their contractual
obligations; and that the President of plaintiff Bank took steps to
collect from the Commission (Philippine Fisheries Commission,
which succeeded the now defunct EEA), but no collection was
effected.
- The trial court ruled adverse to the defendants; and the CA, it
involving questions of law, forwarded the case to the Supreme
Court.
ib2i 17-18
ISSUES: 1) whether or not plaintiff's claim is already considered
paid by the Deed of Assignment of Receivables by the Son; and
2) whether or not it is plaintiff who should directly sue the
Philippine Fisheries Commission for collection.
HELD:
- It is evident that the assignment of receivables executed by
appellants on January 24, 1964 did not transfer the ownership of
the receivables to appellee bank and release appellants from their
loans with the bank incurred under promissory notes Nos. 11487,
11515 and 11699.
- The assignment provides that it shall be security for the payment
of said sum and the interest thereon; that appellants as assignors,
remise, release, and quitclaim to assignee bank all their rights, title
and interest in and to the accounts receivable assigned.
- It was further stipulated that the assignment will also stand as a
continuing guaranty for future loans of appellants to appellee bank
and correspondingly the assignment shall also extend to all the
accounts receivable.
- Definitely, the assignment of the receivables did not result from
a sale transaction. It cannot be said to have been constituted by
virtue of a dation in payment for appellants' loans with the bank
evidenced by promissory note Nos. 11487, 11515 and 11699
which are the subject of the suit for collection in Civil Case No.
78178. At the time the deed of assignment was executed, said
loans were non-existent yet.
- Obviously, the deed of assignment was intended as collateral
security for the bank loans of appellants, as a continuing guaranty
for whatever sums would be owing by defendants to plaintiff. In
case of doubt as to whether a transaction is a pledge or a dation in
payment, the presumption is in favor of pledge, the latter being the
lesser transmission of rights and interests.
- Since the assignment of receivables the obligation is not
extinguished, the appellants remain as principal debtors of the
appellee bank.
- According to Art. 2087 of the Civil Code, when the principal
obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment to the
creditor. The appellee bank did try to collect on the pledged
receivables. However, when the receivable became virtualy
worthless due to disapproval of the Office of the President, it is
but proper that after repeated demands made on appellants, the
bank should proceed against the appellants.
xXx
6. YAU CHU V. CA
GR NO. 78519, September 26, 1989
FACTS
- Victoria Yau Chu, had been purchasing cement on credit from
CAMS Trading Enterprises, Inc. (hereafter "Cams Trading" for
brevity).
- To guaranty payment for her cement withdrawals, she executed
in favor of Cams Trading deeds of assignment of her time deposits
in the total sum of P320,000 in the Family Savings Bank (hereafter
the Bank).
- All of the deeds of assignment have the provision that the
assignment serves as a collateral or guarantee for the payment of
her obligation with Cams Trading.
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- Cams Trading, thereafter notified the Bank that Mrs. Chu has an
unpaid account in the sum of P314,639.75, and asking to be
allowed to encash the time deposit certificates assigned by Chu.
The Bank then allowed encashment of the certificates, but only to
the amount of P283,737.75 as one time deposit lack proper
signatures.
- Chu then demanded from the Bank that her time deposits be
restored, but to no avail; leading her to file a complaint to recover
the amount from them.
- RTC dismissed the complaint for lack of merit; which CA
affirmed the dismissal.
ISSUE: Whether the CA erred:
1. In not annulling the encashment of her time deposit certificates
as a pactum commissorium; and
2. In not finding that the obligations secured by her time deposits
had already been paid.
HELD:
- The Court of Appeals found that the deeds of assignment were
contracts of pledge, but, as the collateral was also money or an
exchange of "peso for peso," the provision in Article 2112 of the
Civil Code for the sale of the thing pledged at public auction to
convert it into money to satisfy the pledgor's obligation, did not
have to be followed. All that had to be done to convert the
pledgor's time deposit certificates into cash was to present
them to the bank for encashment after due notice to the debtor.
- A pacto commissorio is a provision for the automatic
appropriation of the pledged or mortgaged property by the creditor
in payment of the loan upon its maturity.
- Where, as in this case, the security for the debt is also money
deposited in a bank, the amount of which is even less than the
debt, it was not illegal for the creditor to encash the time deposit
certificates to pay the debtors' overdue obligation, with the latter's
consent.
- As there is no proof of payment made by her thereafter to reduce
or extinguish her debt, the application of her time deposits, which
she had assigned to the creditor to secure the payment of her debt,
was proper.
7. CITIBANK V. SABENIANO
GR NO. 156132, October 16, 2006
FACTS
- Respondent filed a complaint against petitioners claiming to
have substantial deposits and money market placements with
Citibank, as well as AIDC and FNCB, the proceeds of which were
supposedly deposited automatically and directly to respondent’s
account with the petitioner Citibank.
- Allegedly, petitioner refused to return her deposits and proceeds
despite repeated demands, and so filed a complaint before the
RTC
- Petitioner alleged that respondent obtained several loans from
the former and in default, Citibank exercised its right to set-off
respondent’s outstanding loans with her deposits and money.
- RTC ordered Citibank to refund the Sabeniano $149,632.99 with
legal interest at 12% per annum compounded yearly. It also
ordered Sabeniano to pay Citibank P1,069,847.40.
- Upon appeal, CA ruled in favor of Sabeniano.
- Before the CA, Citibank did not dispute the fact that Sabeniano
has substantial deposits and money market placements. However,
ib2i 17-18
Citibank claims that Sabeniano is indebted to Citibank, evidenced
by promissory notes amounting to P2,123,843.20.
- Moreover, as alleged, to secure the multiple loans, Sabeniano
executed a deed of assignment of her money market placements,
and a declaration of pledge covering all of her present and future
fiduciary placements.
- Sabeniano failed to pay her debt which led to Citibank to apply
the proceeds of the money market placements to satisfy her
outstanding loan balance.
HELD:
- As to the first point of issue, it was held that Citibank was able,
by preponderance of evidence, that Sabeniano has an outstanding
credit before the Citibank.
- Petitioner Citibank was only acting upon the authority granted
to it under the foregoing Deeds when it finally used the proceeds
of PNs No. 20138 and 20139, paid by petitioner FNCB Finance
(as Sabeniano has market placements thereon), to partly pay for
respondent's outstanding loans.
- Its application of the promissory notes on the outstanding credit
by Sabeniano partly extinguished respondent's obligations
through the application of the security given by the respondent for
her loans.
- Although the pertinent documents were entitled Deeds of
Assignment, they were, in reality, more of a pledge by respondent
to petitioner Citibank of her credit due from petitioner FNCB
Finance by virtue of her money market placements with the latter.
- Art. 2118 provides, “If a credit has been pledged becomes due
before it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his claim,
and deliver the surplus, should there be any, to the pledgor.”
- Since the aforestated PNs weren’t redeemed by the respondent,
the amount thereof, amounting to P1,022,916.66, were applied to
the same against her outstanding loans.
- While there is no express legal requirement that the Declaration
of Pledge had to be notarized to be effective, even so, it could not
enjoy the same prima facie presumption of due execution that is
extended to notarized documents, and petitioner Citibank must
discharge the burden of proving due execution and authenticity of
the Declaration of Pledge. At this point, it is suspicous that the
Deeds of Assignment of the PNs are notarized, while the
Declaration of Pledge aren’t.
- Without the Declaration of Pledge, petitioner Citibank had no
authority to demand the remittance of respondent's dollar accounts
with Citibank-Geneva and to apply them to her outstanding loans.
- Petitioner Citibank is also ordered to refund to respondent the
amount of US$149,632.99, or its equivalent in Philippine
currency, which had been remitted from her Citibank-Geneva
accounts.
- As for respondent, she is ordered to pay petitioner Citibank the
balance of her outstanding loans, which amounted to
P1,069,847.40 as of 5 September 1979.
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xXx
CHATTEL MORTGAGE
1. PCI Leasing v. Trojan Metal Industries
GR No. 176381, December 15, 2010
FACTS
- Sometime in 1997, respondent Trojan Metal Industries, Inc.
(TMI) came to petitioner PCI Leasing and Finance, Inc. (PCILF)
to seek a loan. Instead of extending a loan, PCILF offered to buy
various equipment TMI owned.
- Hard-pressed for money, TMI agreed. PCILF and TMI
immediately executed deeds of sale.
- Thereafter, they entered into a lease agreement whereby the latter
leased the various equipment it previously owned. The lease
agreement required TMI to give PCILF a guaranty deposit of
P1,030,350.00, which would serve as security for the timely
performance of TMI's obligations under the lease agreement, to
be automatically forfeited should TMI return the leased equipment
before the expiration of the lease agreement.
- To obtain additional loan from another financing company, TMI
used the leased equipment as temporary collateral. PCILF
considered the second mortgage a violation of the lease
agreement. And therefore a demand for the TMI’s outstanding
obligation was sought, but unheeded.
- Upon complaint by the PCILF, the RTC of Quezon City issued
a writ of replevin directing the sheriff to take custody of the
equipment.
- In their answer, respondents prayed that they be allowed to
reform the lease agreement to show the true agreement between
the parties, which was a loan secured by a chattel mortgage.
- RTC ruled in favor of PCI, that the lease agreement is valid;
reversed by CA ruling that it is, in fact, a loan secured by chattel
mortgage.
ISSUE: whether the sale with lease agreement the parties entered
into was a financial lease or a loan secured by chattel mortgage
HELD:
- in a true financial leasing, whether under RA 5980 or RA 8556,
a finance company purchases on behalf of a cash-strapped lessee
the equipment the latter wants to buy but, due to financial
limitations, is incapable of doing so. The finance company then
leases the equipment to the lessee in exchange for the latter's
periodic payment of a fixed amount of rental.
- In this case, however, TMI already owned the subject equipment
before it transacted with PCILF. Therefore, the transaction
between the parties in this case cannot be deemed to be in the
nature of a financial leasing as defined by law.
- In the present case, since the transaction between PCILF and
TMI involved equipment already owned by TMI, it cannot be
considered as one of financial leasing, as defined by law, but
simply a loan secured by the various equipment owned by TMI.
- Because the true transaction is actually simple loan secured by a
chattel mortgage, PCILF is entitled to seize the mortgaged
equipment as a creditor-mortgagee for the purpose of foreclosing
the chattel mortgage. Its sale to a third person shall be deemed as
its right and exercise to foreclose the chattel mortgage as creditor-
mortgagee.
ib2i 17-18
- However, in reckoning the amount of the principal obligation,
the Court of Appeals should have taken into account the proceeds
of the sale to PCILF less the guaranty deposit paid by TMI.
- As to the entitlement of TMI to the balance of the proceeds,
Section 14 of the Chattel Mortgage Law expressly entitles the
debtor-mortgagor to the balance of the proceeds, upon satisfaction
of the principal loan and costs. Prevailing jurisprudence also holds
that the Chattel Mortgage Law bars the creditor mortgagee from
retaining the excess of the sale proceeds.
- TMI’s right to refund accrued from the time PCILF received the
proceeds of the sale, but TMI never made a counterclaim, hence,
no interest shall accrue thereon. Interest shall only run 12% from
the time the finality of this Decision until fully paid.
xXx
2. ACME SHOE RUBBER v. CA
GR NO. 103576, August 22, 1996
FACTS
- Chua Pac, President of petitioner company executed for and in
behalf of the company, a chattel mortgage in favor of Producers
Bank of the Philippines, for a corporate loan of P3 million.
- A provision thereof provides that in case of subsequent notes as
a renewal of the former note or extension or new loan, the said
mortgage shall stand as security for the payment thereof.
- The initial loan P3 million was paid; another loan for P2.7
million was contracted and paid; and another P1 million loan
covered by 4 PNs, but due to financial constraints, it was not paid.
- The respondent bank then applied for extrajudicial foreclosure
of chattel mortgage, opposed by the petitioner through a separate
action for injunction. Ultimately, the court dismissed the
complaint and ordered the foreclosure of the chattel mortgage. It
held petitioner corporation bound by the stipulations, aforequoted,
of the chattel mortgage.
- CA affirmed in toto the decision of the trial court.
ISSUE: Would it be 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:
- While a pledge, real estate mortgage, or antichresis may
exceptionally secure after incurred obligations so long as these
future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the
mortgage is constituted.
- 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 nancing 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.
- Although a promise to constitute a chattel mortgage include
debts which are yet to be contracted may be binding, it does not
come into existence until after a chattel mortgage agreement is
executed by:
Credit Finals digest | asg galandines
a) fresh chattel mortgage; or
b) amending the old contract conforming with the Chattel
Mortgage Law.
- Sec. 5 of the Chattel Mortgage Law requires an affidavit of good
faith, as a requisite for a valid chattel mortgage. The provision
reads: ". . . (the) mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one
not entered into for the purpose of fraud”
- The provision makes it obvious that the debt referred to in the
law is a current, not an obligation yet to be contemplated.
- In the case at bar, what was contemplated was the P3 million
debt, which the petitioner later fully paid.
- Sec. 3, Chattel Mortgage Law provides that full payment of the
debt renders the mortgage invalid or terminated.
xXx
3. DY v. CA
GR No. 92989, July 8, 1991
FACTS
- The petitioner, Perfecto Dy and Wilfredo Dy are brothers.
Sometime in 1979, Wilfredo Dy purchased a 1) truck and 2) a farm
tractor through financing extended by Libra Finance and
Investment Corporation (Libra). Both truck and tractor were
mortgaged to Libra as security for the loan.
- Perfecto wanted to buy the tractor and so he sent a letter to Libra
requesting that he be allowed to purchase the same and assume the
mortgage debt of Wilfredo.
- Libra approved; Wilfredo executed a deed of absolute sale.
- Despite payment by Perfecto of the purchase price, Libra did not
effect the immediate release as Wilfredo had obtained financing
for both tractor and the truck, and Libra insists on payment of
both.
- Thereafter, a PNB check was issued in favor of Libra, settling in
full the indebtedness of Wilfredo. However, Libra insists that the
check need be cleared before it was issued.
- Meanwhile another civil case entitled “Gelac Trading v.
Wilfredo Dy” was pending and instituted, by which the provincial
sheriff was able to seize and levy on the tractor, then subsequently
sold at public auction. Gelac trading then sold the tractor to one of
its stockholders.
- Upon knowledge of the same, the petitioner filed an action to
recover the tractor against Gelac, which the RTC granted in favor
of Perfecto, which ordered the return of the tractor.
- CA reversed the decision, holding that the tractor still belonged
to Wilfredo when seized and levied by sheriff.
HELD
- The mortgagor who gave the property as security under a chattel
mortgage did not part with the ownership over the same. He had
the right to sell it although he was under the obligation to secure
the written consent of the mortgagee.
- Wilfredo, who do not part with the ownership, can well sell the
subject tractor; and that it is not disputed that the consent of Libra
was obtained upon sale.
- The sale, then, is valid between Wilfredo and Perfecto and to the
mortgagee as well.
- In the instant case, actual delivery of the subject tractor could not
be made. However, there was constructive delivery already upon
the execution of the public instrument pursuant to Article 1498
ib2i 17-18
and upon the consent or agreement of the parties when the thing
sold cannot be immediately transferred to the possession of the
vendee.
- While it is true that Wilfredo Dy was not in actual possession
and control of the subject tractor, his right of ownership was not
divested from him upon his default.
- Neither could it be said that Libra was the owner of the subject
tractor because the mortgagee can not become the owner of or
convert and appropriate to himself the property mortgaged, lest it
become constitutum possessorium.
- The remedy granted to the mortgagee is to have said property
sold at public auction and the proceeds applied to the payment of
the obligation secured by the mortgagee.
- The payment of the check was actually intended to extinguish
the mortgage obligation so that the tractor could be released to the
petitioner. It was never intended nor could it be considered as
payment of the purchase price because the relationship between
Libra and the petitioner is not one of sale but still a mortgage.
- The clearing or encashment of the check which produced the
effect of payment determined the full payment of the money
obligation and the release of the chattel mortgage.
- The sale of the subject tractor was consummated upon the
execution of the public instrument on September 4, 1979. At this
time constructive delivery was already effected.
- Hence, the subject tractor was no longer owned by Wilfredo Dy
when it was levied upon by the sheriff in December, 1979.
xXx
4. RIZAL COMMERCIAL BANKING V. ROYAL CARGO
GR NO. 179756, October 2, 2009
FACTS
- Terrymanila, Inc. filed a petition for voluntary insolvency with
Bataan RTC; with one of its creditors the petitioner bank which
had an obligation of P3 Million, secured by a chattel mortgage.
- Meanwhile, respondent Royal Cargo filed an action before
Manila RTC for collection of sum of money and attached some
properties to secure the judgement award.
- Bataan RTC then declared Terrymanila insolvent; but on the
other hand, Manila RTC rendered judgement in favor of
respondent.
- In the insolvency proceedings in Bataan RTC, a public auction
sale of the mortgaged personal properties was made, with the
petitioner as the sole bidder of the properties. Petitioner then sold
these properties to third persons.
- Respondent, on the other hand, seeks annulment of the auction
sale contending that it included some properties which it had
attached, and failure to notify of the sale at least 10 days before
the same, as provided by Sec. 14, of Chattel Mortgage Law.
RTC: In favor or respondent
CA: denied petitioner’s appeal.
HELD:
- On respondent’s contention that the petitioner, as mortgagee, had
the duty to notify it of the public auction sale, the Court finds it
immaterial to the case.
- Section 13 of the Chattel Mortgage Law allows the would-be
redemptioner thereunder to redeem the mortgaged property only
before its sale. Unmistakably, the redemption cited in Section 13
partakes of an equity of redemption, which is the right of the
mortgagor to redeem the mortgaged property after his default in
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the performance of the conditions of the mortgage but before the
sale of the property.
- That respondent's claim is much lower than the P1.5 million
actual bid of petitioner at the auction sale does not defeat
respondent's equity of redemption.
- Having thus attached Terrymanila's equity of redemption,
respondent had to be informed of the date of sale of the mortgaged
assets for it to exercise such equity of redemption over some of
those foreclosed properties, as provided for in Section 13. But
facts show that the respondent has notified of the foreclosure and
given the opportunity to
exercise its equity of redemption.
- Despite its window of opportunity to exercise its equity of
redemption, however, respondent chose to be technically shrewd
about its chances, preferring instead to seek annulment of the
auction sale, which was the result of the foreclosure of the
mortgage, permission to conduct which it had early on opposed
before the insolvency court.
- It is also not lost on the Court that as early as April 12, 1991,
Terrymanila had been judicially declared insolvent. Respondent's
recourse was thus to demand the satisfaction of its judgment
award before the insolvency court as its judgment award is a
preferred credit under Article 2244 of the Civil Code. To now
allow respondent have its way in annulling the auction sale and at
the same time let it proceed with its claims before the insolvency
court would neither rhyme with reason nor with justice.
- In any event, even if respondent would have participated in the
auction sale and matched petitioner's bid, the superiority of
petitioner's lien over the mortgaged assets would preclude
respondent from recovering the chattels.
- Since the chattel mortgage is registered and that it is a binding
notice to other creditors of its existence and creates a real lien that
follows the property.
- Therefore, the right of respondent, as an attaching creditor or as
a purchaser, is subordinate to the lien of the mortgagee who has in
his favor a valid chattel mortgage.
xXx
5. SERVICEWIDE SPECIALIST v. CA
GR NO. 116363, December 10, 1999
FACTS:
Sometime in 1975, respondent spouses Ponce bought on
installment a Holden Torana vehicle from CR Tecson Enterprises.
They executed a promissory note and a chattel mortgage in favor
of Tecson, which in turn, executed a deed of assignment of said
promissory note and chattel mortgage in favor of Filinvest Credit
Corporation. In 1976, respondent spouses transferred and
delivered the vehicle to Tecson Enterprises by way of sale with
assumption of mortgage. In 1978, Filinvest assigned all its rights
and interest over the same promissory note and chattel mortgage
to Servicewide Specialist Inc. without notice to respondent
spouses. Due to the failure of herein respondents to pay the
installments under the promissory note from October 1977 to
March 1978 and despite demands to pay the same or return the
vehicle, petitioner was constrained to file before the Regional
Trial Court of Manila on May 22, 1978, a complaint for replevin
with damages against respondents. After trial, the lower court
found respondent spouses jointly and solidarily liable to petitioner
andwere ordered to pay (a) P26,633.09; plus interest at 14% per
annum (b); 25% of the above sum as liquidated damages; (c)
ib2i 17-18
P5,000.00 as attorney's fees. The third party defendant Tecson was
ordered to reimburse the respondent spouses for the sum that they
would pay to petitioner. On appeal, the Court of Appeals reversed
and set aside the judgment of the Court of Appeals on the principal
ground that respondent spouses were not notified of the
assignment to petitioner. Hence, this petition for review.
ISSUE: Whether the assignment of a credit requires notice to the
debtor in order to bind him
HELD:
- Only notice to the debtor of the assignment of credit is required.
His consent is not required.
- In contrast, consent of the creditor-mortgagee to the alienation
of the mortgaged property is necessary in order to bind said
creditor.
- In the case at bar, what is relevant is not the assignment of credit
between petitioner and its assignor, but the knowledge or consent
of the creditor's assignee to the debtor mortgagor's sale of the
property to another.
- Since the assignee of the credit steps into the shoes of the
creditor-mortgagee to whom the chattel was mortgaged, it follows
that the assignee's consent is necessary in order to bind him of the
alienation of the mortgaged thing by the debtor-mortgagor. This
is tantamount to a novation.
- In this case, however, since the alienation by the respondent
spouses of the vehicle occurred prior to the assignment of credit
to petitioner, it follows that the former were not bound to obtain
the consent of the latter as it was not yet an assignee of the credit
at the time of the alienation of the mortgaged vehicle.
- When Tecson Enterprises assigned the promissory note and the
chattel mortgage to Filinvest, it was made with respondent
spouses' tacit approval. When Filinvest in turn, as assignee,
assigned it further to petitioner, the latter should have notified the
respondent spouses of the assignment in order to bind them. This,
they failed to do.
- The consent to the assignment given by respondent spouses to
Filinvest cannot be construed as the spouses' knowledge of the
assignment to petitioner precisely because at the time of the
assignment to the latter, the spouses had earlier sold the vehicle to
another.
- However, the spouses, although they are not bound to obtain the
consent of the petitioner before alienating the property, they
should have obtained the consent of Filinvest since they were
already aware of the assignment to the latter. So that, insofar as
Filinvest is concerned, the debtor is still respondent spouses
because of the absence of its consent to the sale. Worse, Filinvest
was not even notified of such sale. Having subsequently stepped
into the shoes of Filinvest, petitioner acquired the same rights as
the former had against respondent spouses.
6. PAMECA WOOD V. CA & DBP
GR No. 106435, July 14, 1999
FACTS
- PAMECA Wood obtained a loan of $267,881.67, with peso
equivalent of P2 Million from DBP. Aside from a promissory note
executed, for the said amount, promising to pay the loan by
installment, a chattel mortgage was executed consisting of
inventories, furniture, and equipment, to cover the whole value of
loan.
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- For failure to pay the loan, DBP extrajudicially foreclose the
mortgage and as sole bidder, purchased the properties for a sum
of P322,350. Moreover, DBP filed a compleint for collection of
the balance of P4,366,332.46 against PAMECA.
RTC: ruled against PAMECA for the sum ought for, with interest;
CA: affirmed RTC
HELD:
- Sec. 14 of the Chattel Mortgage Law, states:
“x x x 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.
This is in consonance to the ruling in Ablaza v. Ignacio, which
further states:
“The amount received at the time of the sale, of course,
always requiring good faith and honesty in the sale, is
only a payment, pro tanto, and an action may be
maintained for a deficiency in the debt."
- Neither is Article 1484 (3) applies in this case, for this provision
is specifically applicable to a sale on installments.
ib2i 17-18
the sheriff could do to enforce the writ was to take the main drive
motor of said machinery. Moreover, it cannot be claimed that the
private respondent is estopped from claiming that the machine is
real property by constituting a chattel mortgage thereon.
ISSUE: whether the machinery in suit is real or personal property
from the point of view of the parties
HELD:
- If a house of strong materials, may be considered as personal
propertyfor purposes of executing a chattel mortgage thereon as
long as the partiesto the contract so agree and no innocent third
party will be prejudicedthereby (Tumalad v. Vicencio) , there is
absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really because one
who has so agreed is estopped from denying theexistence of the
chattel mortgage.
- The characterization of the subject machinery as chattel by the
private respondent is indicative of intention and impresses upon
the property the character determined by the parties.

xXx
7. MAKATI LEASING V. WEAREVER TEXTILE
GR No. L-58469, May 16, 1983

FACTS
- To obtain financial accommodations from herein petitioner
Makati Leasing and Finance Corporation, the private respondent
Wearever Textile Mills, Inc., discounted and assigned several
receivables with the former under a Receivable Purchase
Agreement. To secure the collection of receivables assigned,
private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos
Aero Dryer Stentering Range.
- Upon default, petitioner filed for an action for extrajudicial
foreclosure to mortgage it, however the Deputy Sheriff failed to
gain entry to the private respondent’s premises and was not able t
seize the machinery.
- Acting on petitioner's application for replevin, the lower court
issued a writ of seizure. After several incidents, the lower court
finally issued on February 11, 1981, an order lifting the restraining
order for the enforcement of the writ.
- The sheriff enforcing the seizure order, repaired to the premises
of private respondent and removed the main drive motor of the
subject machinery.

CA: Reversed the lower court; ordered the return of the machinery
because it cannot be subject of replevin; the same a real property
under Art. 415, being attached to the ground by means of bolts
and the only way to remove it from respondent's plant would be
to drill out or destroy the concrete floor, the reason why all that
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ADDITIONAL CASE ASSIGNMENTS
1. BPI v. SEC
G.R. NO. 164641
December 20, 2007
INSOLVENCY
FACTS
- BPI, predecessor of BPI, extended credit to ASB Group with
outstanding amount of P86.8 Million, with real estate mortgage
constituted over the latter’s property in Greenhills, San Juan.
- On May 2000, ASB filed a petition for rehabilitation; with later
Proposed Rehabilitation includes dacion en pago to BPI on one
property with selling value of P84 Million, against the total
amount of exposure of ASB to BPI.
- BPI opposed the RP and moved for dismissal of ASB’s
rehabilitation. SEC denied opposition.
- CA also denied petition stating that at no point in the
Rehabilitation proceedings BPI is coerced to agree to the
settlement; and just assert is preferred right in the liquidation and
distribution of assets of the ASB.
- BPI, in its petition to the Court, argued that the proposed
agreement and the Rehabilitiation Proceedings is coercion on the
part of ASB, and hence impair their freedom to contract.
HELD: The petition is untenable.
- Ruling is based on MBTC v. ASB Holdings, having the same
issues, wherein the Court held that there is no impairment of
contracts because the approval of the Rehabilitation Plan and the
appointment of a rehabilitation receiver merely suspends the
action for claims against the ASB Group, and MBTC may still
enforce its preference when the assets of the ASB Group will be
liquidated.
- Rehabilitation, as provided by PD 902-A, aims to "effect a
feasible and viable rehabilitation,",by preserving a foundering
business as going concern, because the assets of a business are
often more valuable when so maintained than they would be when
liquidated.”
- Therefore, since the proceedings herein is Rehabilitation; and in
case Rehabilitation is found to be infeasible, then the claims
would have to be settled and the secured creditors will enjoy
preference over the unsecured ones.
- Besides, the mere fact that the Rehabilitation Plan proposes a
dacion en pago approach does not render it defective on the
ground of impairment of the right to contract. Dacion en pago is a
special mode of payment where the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an
outstanding debt. Above all, dacion en pago is a special kind of
sale, which, of course, has to possess essential elements,
specifically, consent. If BPI asserts itself against dacion en pago,
then there is no consent; the contract is not perfected and cannot
possibly be a limitation to its freedom to contract.
- Therefore, if BPI does not accept the proposal of dacion en pago:
a) It can propose to settle its debts as to such amount
equivalent to the price of the mortgaged properties;
b) BPI may assert its right in the liquidation and
distribution of the ASB’s assets;
c) BPI will not lose its status as a secured creditor,
enjoying preference when the assets of the corporation
are finally liquidated.
ib2i 17-18
2. RUBBERWORLD v. NLRC
G.R. NO. 126773
April 14, 1999
INSOLVENCY
FACTS
- Petitioner filed a petition before the SEC for suspension of
payments, to which the SEC ruled in favor thereof.
- SEC then ruled that all actions for claims pending shall be
SUSPENDED; and all pending injunctions and writ of
attachments are rendered MOOT. (December 28, 1994)
- On April to July 1995, employees of petitioner for their
respective complaints for illegal dismissal, damages, and payment
of separation pay, retirement benefits, and other benefits.
- Petitioner moved to dismiss the claim on the strength of the SEC
Ruling; but the LA denied the motion, holding that the suspension
of payments did not include suspension of proceedings involving
claims against petitioner which have yet to be ascertained.
ISSUE: Whether the NLRC committed GAD in affirming the
dismissal of motion to suspend proceeding despite the SEC Order.
HELD: YES, and the petition is meritorious.
- For one, where a petition is that of declaration of state of
suspension of payments,
(a) has sufficient property to cover all its debts but
foresees the impossibility of meeting them when they fall
due (solvent but illiquid); or
(b) has no sufficient property (insolvent) but is under the
management of a rehabilitation receiver or a
management committee.
- The applicable law then is Sec. 5(d), PD 902-A which provides
that the SEC has jurisdiction over declaration of state of
suspension of payments. Sec. 6c of the same also provides that
upon declaration thereof and appointment of a management
committee, x x x all actions against the corporation x x x under
management x x x shall be suspended accordingly.
- Labor cases are among those suspended. The law is clear: upon
the creation of a management committee or the appointment of a
rehabilitation receiver, all claims for actions "shall be suspended
accordingly." No exception in favor of labor claims is mentioned
in the law. Since the law makes no distinction or exemptions,
neither should this Court. Ubi lex non distingui nec nos
distinguere debemos.
- True, the NLRC has the power to hear and decide labor disputes
as provided in Art. 217, Labor Code, but such authority is deemed
suspended when PD 902-A is put into effect by the Securities and
Exchange Commission.
- Anent the allegation that the automatic stay by virtue of the
declaration is only 3 months, PD 902-A itself does not provide for
the duration of the automatic stay. Neither does the Order of the
SEC. Hence, the suspensive effect has no time limit and remains
in force as long as reasonably necessary to accomplish the purpose
of the Order.
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3. DE BARRETTO v. VILLANUEVA
G.R. NO. L-14938
January 28, 1961
December 29, 1962
CONCURRENCE AND PREFERENCE OF CREDIT
FACTS
- Rosario Cruzado obtained a loan in the amount of P11,000 from
Rehabilitation Finance Corporation, and mortgaged the land then
covered by a TCT No. 61358 issued in her name and that of her
deceased husband.
- She defaulted thereof and the land was then foreclosed by the
RFC and acquired the same but was sold back to Cruzado.
- Thereafter, Cruzado was authorized by the court to sell with
consent of the RFC the land to Pura Villanueva (respondent) for
P19,000. After paying P1,500 and an additional payment of
P5,500 on a promissory note, the respondent was able to secure in
her name a TCT covering the house and lot herein.
- Villanueva thereafter mortgaged the property to Magdalena
Barretto (petitioner) as a security for a loan in the amount of
P30,000. Villanueva however failed to pay the remaining
installments on the unpaid balance to Cruzado, a lien constituted
by way of levy attached in favor of Cruzado. The trial court
ordered Villanueva to pay Cruzado the unpaid balance of P12,000.
On the other hand, Villanueva likewise failed to pay her
indebtedness to Barretto, hence instituted an action for foreclosure
of mortgage, which was decided in favor of Barretto.
- Upon foreclosure, Barretto secured a writ of execution, with
Cruzado filing a “Vendor’s Lien”. Both granted, the court ruled
that the property shall be sold at a public action in the foreclosure
proceedings, subject to pro-rate share in favor of Cruzados
pursuant to provisions of Arts. 2248 and 2249 of the Civil Code,
in relation to Art. 2242(2). Barretto, as the highest bidder,
acquired for themselves the properties, subject however to the
vendor’s lien. Barretto seeks reconsideration therefor, to no avail.
Before this Court, petitioner argues that application of Art. 2242
only applies in case of insolvency of the vendee, which has not
been proved to exist.
ISSUE: Whether the Vendor’s Lien is in order
HELD:
January 28, 1961 Ruling:
- Article 2242 of the New Civil Code enumerates the claims,
mortgages and liens that constitute an encumbrance on specific
immovable property, and among them are:
"(2) For the unpaid price of real property sold, upon the
immovable sold"; and
"(5) Mortgage credits recorded in the Registry of
Property."
- Article 2249 of the same Code provides that "if there are two or
more credits with respect to the same specific real property or real
rights, they shall be satisfied pro-rata after the payment of the
taxes and assessments upon the immovable property of real rights.
- Application of the above-quoted provisions to the case at bar
would mean that the herein appellee Rosario Cruzado as an
unpaid vendor of the property in question has the pro-rata share
on the proceeds of the foreclosure sale.
- As regards the argument that the unpaid vendor’s lien should not
acquire preference greater than that of mortgage, Art. 2242 (2)
ib2i 17-18
does not provide distinctions between registered and unregistered
vendor’s liens, and both shall acquire equal preference together
with registered mortgage credits.
- As to the point made that the articles of the Civil Code on
concurrence and preference of credits are applicable only to the
insolvent debtor, suffice it to say that nothing in the law shows
any such limitation. If we are to interpret this portion of the Code
as intended only for insolvency cases, then other creditor-debtor
relationships where there are concurrence of credits would be left
without any rules to govern them.
December 29, 1962 ruling
- While Art. 2242 provides for prorating of claims of creditors
over a specific immovable property for thirteen other classes of
creditors, after payment of taxes under paragraph 1 thereof which
enjoys absolute preference, for it to be fully effective, must
necessarily be convened, and the import of their claims
ascertained.
- It is thus apparent that the full application of Articles 2249 and
2242 demands that there must be first some proceeding where the
claims of all the preferred creditors may be bindingly adjudicated,
such as insolvency, the settlement of a decedent's estate under
Rule 87 of the Rules of Court, or other liquidation proceedings of
similar import.
- Art. 2243 and Reports of the Code Commission is instructive
that the proceeding contemplated by law for the enforcement of
preferences under Art. 2242 should be that in the nature of
insolvency proceedings. If none of the claims is for taxes, and not
all but two creditors are contesting its claim, the preference over
the foregoing law cannot be ascertained.
- There being no insolvency or liquidation, the claim of the
appellee, as unpaid vendor, did not acquire the character and rank
of a statutory lien co-equal to the mortgagee's recorded
encumbrance, and must remain subordinate to the latter.
4. PACIFIC WIDE REALTY v. PUERTO AZUL
G.R. NO. 178768, 180893
November 25, 2009
FACTS
GR 180893
- Puerto Azul Land is owner and developer which business
involves development of Puerto Azul into a satellite city.
- To finance it business, it acquired loans from various banks with
amount totaling P640,225,324.
- It then started encountering problems with PSE, resulting in
investors and real estate buyers shying away from the business
ventures. Further struck by the 1997 Asian financial crisis, Puerto
Azul cannot keep up with payment of its obligations.
- One of its creditors, EIB, substituted by the petitioner, filed
foreclosure proceedings over the respondent’s mortgaged
properties. PAL then filed for suspension of payments and
rehabilitation.
- EIB (predecessor of petitioner) as soon as he finds the
rehabilitation plan unacceptable, filed with the CA petition to
review.
GR 178768
- Before the rehabilitation court, EIB sought clarification of the
stay order dated September 17, 2004 and/or leave to continue the
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extrajudicial foreclosure of the real estates owned by PALI's
accommodation mortgagors.
- RTC then issued an order denying EIB’s motion.
- Thereafter, it also filed a motion to order PALI to pay all taxes
due on the land covered by TCT No. 133164, with the RTC
holding that the property mentioned (actually mortgaged to EIB)
is now excluded in the Stay Order and EIB may pay taxes thereon,
and allows EIB to foreclose the property.
- CA reversed and nullified the RTC order.
ISSUES:
a) WN the terms of rehabilitation plan are unreasonable and in
violation of the non-impairment clause; and
b) whether the rehabilitation court erred when it allowed the
foreclosure of the mortgagee’s property and excluded from the
coverage of the stay order.
HELD:
- Under the Rules of Procedure on Corporate Rehabilitation,
“rehabilitation” is defined as the restoration of the debtor to a
position of successful operation and solvency, it it is shown that
its continuance of operation is economically feasible and its
creditors can recover by way of present value of payments
projected in the plan, more it the corporation continues as a going
concern than if it is immediately liquidated.
- An indispensable requirement in the rehabilitation of a distressed
corporation is the rehabilitation plan,
- The assailed rehabilitation plan is alleged to be unreasonable,
viz:
a) 50% reduction of principal obligation;
b) repayment for a period of 10 years;
c) interest of 2% on first 5 years and 5% over the next five years
until fully paid.
- The restructuring of the debts of PALI is part and parcel of its
rehabilitation. Moreover, per findings of fact of the RTC and as
armed by the CA, the restructuring of the debts of PALI would not
be prejudicial to the interest of PWRDC as a secured creditor.
- The rehabilitation plan, once approved, and even if opposed, is
binding upon the debtor and all persons who may be affected by
it, including the creditors, whether or not such persons have
participated in the proceedings or have opposed the plan or
whether or not their claims have been scheduled.
- The rehabilitation plan is not an impairment a violation against
impairment of obligations and contractual rights, for in Oposa v.
Factoran, it may be restricted and must yield to the police power
of the state for the common good of the general public.
- The rehabilitation of a financially distressed corporation benefits
its employees, creditors, stockholders and, in a larger sense, the
general public.
- Anent the second issue, in excluding the property from the
coverage of the stay order and allow PWRDC to foreclose on the
mortgage and settle the realty tax delinquency of the property with
Pasay City, the rehabilitation court used as justication Section 12,
Rule 4 of the Interim Rules on Corporate Rehabilitation, which
provides that a claim may be relieved from the coverage of the
stay order upon showing that: x x x b) a creditor does not have
adequate protection over property securing its claim.
- The creditor shall lack adequate protection if it can be
shown that:
ib2i 17-18
a. the debtor fails or refuses to honor a pre-existing agreement
with the creditor to keep the property insured;
b. the debtor fails or refuses to take commercially reasonable steps
to maintain the property; or
c. the property has depreciated to an extent that the creditor is
undersecured.
- The rehabilitation court excluded the property from the coverage
of the stay order to protect the secured claim because:
a) Considering the auction sale on the property by Pasay
City corresponds to taxes and penalties totaling to
P7.5M, the interest of the creditor EIB is greatly
prejudiced;
b) Vis-à-vis the value of the property and the claim of
EIB (P1.877 Billion to P1.4 Billion), not redeeming the
auctioned property definitely renders creditor EIB from
not possessing adequate protection over the property.
5. DBP v. CA AND REMINGTON
G.R. NO. 126200
August 16, 2001
CONCURRENCE AND PREFERENCE OF CREDIT
FACTS
- Marinduque Mining Industrial Corporation (MMC) obtained
from PNB various loan accommodations, executing a REM and
CM (real estate mortgage and chattel mortgage) over all MMC
real properties, the loan amounting to P4B.
- MMC executed a second mortgage agreement mortgaging to
PNB and DBP all real properties as well as all MMC’s chattels,
acquired and subsequently acquired by MMC, the loans thereto
totaled P2B.
- MMC failed to settle its obligations hence PNB and DBP
instituted extrajudicial foreclosure proceedings over the
mortgaged properties.
- They foreclosed the properties buildings, and machineries in
favorof PNB, and DBP in the amount of P2,383B and P543M
respectively.
- In the meantime, MMC purchased construction materials and
other merchandise from Remington worth P921,755, remained
unpaid. Therefore, a complaint was filed for sum of money and
damages against MMC for the value of unpaid construction
materials and other merchandise, which amended thrice to include
PNB, and DBP, in view of the mortgages foreclosed; the Nocnoc
Mning as assignee of PNB and DBP; and Maricalum Mining.
- RTC rendered a decision in favor of Remington;
- Respondents appealed; and Remingtom asserts that the transfer
of the properties was made in fraud of creditors.
HELD
- PNB and DBP are mandated to foreclose on the mortgage when
the mortgage past account had incurred arrearages of more than
20% of the total outstanding obligation, as provided in PD 385.
- On the other hand, the appellate court, anent the allegations of
bad faith on the part of the transferees, point to NO fact thereof,
as also affirmed by this Court.
- Anent the CA ruling that Remington possesses a lien as an
unpaid seller, in which DBP should be held liable thereof, the
Court held that in the absence of liquidation proceedings, the
claim of Remington cannot be enforced against DBP.
Credit Finals digest | asg galandines
- In De Barretto v. Villanueva, the Court held that full application
of Articles 2249 and 2242 demands that there must be first some
proceeding where the claims of all the preferred creditors may be
bindingly adjudicated, such as insolvency, the settlement of a
decedent's estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.
- The foregoing ruling may also applied in the case at bar, though
the law in point is Art. 2241, on application of proceedings in
specific immovable properties.
6. MEDIDA v. CA
G.R. NO. 98334
May 8, 1992
REAL ESTATE MORTGAGE
FACTS
- On October 10, 1974, spouses Dolino, loaned P30,000 from
Cebu City Development Bank for payment of redemption price
over a lot located in Cebu City Cadastre which was foreclosed for
for failure to pay a P25,000 loan incurred by their son secured by
the same lot.
- The loan became due and demandable without the spouses
paying for the same, hence the defendant association caused the
extrajudicial foreclosure.
- Private respondents (Sps. Dolino) seeks to annul the foreclosure
sale in view that it is held in violation of Act No. 3135.
- The trial court upheld the validity of the loan but invalidated the
foreclosure proceedings inasmuch as it indeed did not comply
with the provisions of Act No. 3135.
- Before the CA, the decision was affirmed, and declared that real
estate mortgage is void.
Petitioners, before this Court allege:
a) that the CA erred in declaring the REM void;
b) declaring as ineffective the extrajudicial foreclosure made; and
c) ordering the cancellation of the TCT issued in favor of the
predecessor of petitioner bank.
HELD:
a) Firstly, the issue of ownership was never alleged in the
complaint nor was the same raised during trial; an issue unaverred
in the complaint or in the trial cannot be raised for the first time
on appeal.
- Nonetheless, the purchaser at the foreclosure sale merely
acquired an inchoate right to the property which could ripen into
ownership only upon the lapse of the redemption period without
his credit having been discharged, it is illogical to hold that during
that same period of twelve months the mortgagor was "divested"
of his ownership.
- At that point, what was divested of the mortgagor is not his jus
disposidendi, but his full right as owner to dispose of and sell the
lands, as it may correspondingly be restricted.
- Therefore, there is no obstacle in the creation of a mortgage
during the redemption period, as mortgage do not involve transfer,
but merely constitutes lien thereon.
- A subsequent mortgage could nevertheless be legally constituted
thereafter with the subsequent mortgagee becoming and acquiring
the rights of a redemptioner, aside from his right against the
mortgagor.
- The real estate mortgage in favor of petitioner bank was executed
by respondent spouses during the period of redemption. We
ib2i 17-18
reiterate that during said period it cannot be said that the
mortgagor is no longer the owner of the foreclosed property since
the rule up to now is that the right of a purchaser at a foreclosure
sale is merely inchoate until after the period of redemption has
expired without the right being exercised.
- The Court though reinstated the decision of the trial court in
upholding the invalidity of the foreclosure proceedings, as there
are facts which would indeed be violative of Act No. 3135.
7. BPI v. GOLDEN POWER DIESEL SALES
G.R. NO. 176019
January 12, 2011
FACTS
- CEDEC Transport mortgaged two parcels of land situated in
Malibay, Pasay, including all improvements in favor of petitioner
to secure a loan of P6,570,000. Duly annotated.
- Additional loans of P2,160,000 and P1,140,000 on the same
properties. Both duly annotated.
- CEDEC defaulted in all of its obligations, hence BPI constituted
an extrajudicial foreclosure thereon. For failure then to redeem the
properties, the ownership is consolidated to BPI. However,
CEDEC refused to vacate the properties and surrender possession
to BPI.
- On the other hand, respondent Golden power Diesel Sales filed
a motion to hold implementation of the writ of execution for they
alleged to be owners thereof, pursuant to a Deed of Absolute Sale
with Assumption of Mortgage. Trial court denied.
- However, when BPI filed for an Urgent Motion to Compel to
Enforce Writ of Execution, the trial court held to suspend the
execution for it admitted that it failed to take into consideration
the respondent’s complaint before Branch 111 of Pasay RTC, and
is actually updating their payments before the BPI.
- BPI appealed the ruling, holding that it is ministerial on the part
of the court to issue the writ of execution, CA dismissed.
- CA held that the principle that the issuance of writ of execution
is not without exceptions. It ceases to be ministerial when a third
party in possession of the property who is claiming a right adverse
to that of the debtor or mortgagor.
HELD:
- The purchaser in a foreclosure sale has the right of possession of
the land as confirmed owner; the provisions on Act No. 3135 must
be complied with.
- Hence, upon ex parte petition of the petitioner, it is ministerial
on the part of the trial court to issue the writ of possession in favor
of the petitioner.
Exception: Sec. 33, Rule 39 of the Rules of Court: “x x x
a third party is actually holding the property adversely to
the judgement obligor” (Emphasis supplied)
- The respondent fails to persuade the Court that it falls under
exception. It is clear that respondents acquired possession over
the properties pursuant to the Deed of Sale which provides that
for P15,000,000 CEDEC will "sell, transfer and convey" to
respondents the properties "free from all liens and encumbrances
excepting the mortgage as may be subsisting in favor of the BPI
FAMILY SAVINGS BANK." (Emphasis supplied)
- Therefore, respondents merely stepped into CEDEC’s shoes and
are necessarily bound to acknowledge and respect the mortgage
CEDEC had earlier executed.
Credit Finals digest | asg galandines
8. DIEGO v. FERNANDO
G.R. NO. L-15128
August 25, 1960
ANTICHRESIS vs. MORTGAGE
FACTS
- On May 26, 1950, defendant Fernando executed a deed of
mortgage in favor of plaintiff Diego over 2 parcels of land
registered in his name.
- After the execution of the Deed, the possession were turned over
to the mortgagee.
- For failure topay the loan when demanded, Diego filed the action
for foreclosure of mortgage.
- Defendant Fernando's defense was that the true transaction
between him and plaintiff was one of antichresis and not of
mortgage; and that as plaintiff had allegedly received a total of
120 cavans of palay from the properties given as security, which,
at the rate of P10 a cavan, represented a value of P5,200, his debt
had already been paid, with plaintiff still owing him a refund of
some P2,720.00.
- The court a quo held that the fact that possession of the
mortgaged properties were turned over to the mortgagee did not
alter the transaction; that the parties must have intended that the
mortgagee would collect the fruits of the mortgaged properties as
interest on his loan, which agreement is not uncommon.
ISSUE: Whether the contract is that of mortgage or that of
antichresis.
HELD:
- 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. (Art. 2132, NCC)
- So, a contract of loan with security provides for the delivery to
the creditor by the debtor of the property given as security, in order
that the latter may gather its fruits, without stating that said fruits
are to be applied to the payment of interest, if any, and afterwards
that of the principal, the contract is a mortgage and not
antichresis.
- It does not mean, however, that appellee, having received the
fruits of the properties mortgaged, will be allowed to appropriate
them for himself and not be required to account for them to the
appellant.
- The rights of a “mortgagee in possession”, "one who has lawfully
acquired actual or constructive possession of the premises
mortgaged to him, are pointed out by Macapinlac v. Gutierrez
Repide:
a) he is entitled to retain such possession until the
indebtedness is satisfied and the property redeemed;
b) non-payment of the debt within the term agreed does
not vest the ownership of the property in the creditor;
c) that the general duty of the mortgagee in possession
towards the premises is that of the ordinary prudent
owner;
d) mortgagee must account for the rents and profits of the
land, or its value for purposes of use and occupation, any
amount thus realized going towards the discharge on the
mortgage debt;
ib2i 17-18
e) he becomes a trustee for the mortgagor as to the excess
of the rents and profits over such debt; and
f) can only enforce his rights to the land by an equitable
action for an account and to redeem.
In Enriquez v. PNB, a creditor with a lien on real property who
took possession thereof with the consent of the debtor, held it as
an "antichretic creditor with the right to collect the credit with
interest from the fruits, returning to the antichretic debtor the
balance, if any, after deducting the expenses".
9. BIR v. LEPANTO CERAMICS
G.R. NO. 224764 April 24, 2017
FRIA
FACTS
- Lepanto Ceramics (LCI) filed a petition for corporate
rehabilitation pursuant to RA 10142 (FRIA), as they alleged that
they entered into a state of insolvency, considering that their total
liabilities (P4,213,682,715) exceed its total assets worth
(P1,112,723,941), and further admitted of having tax liabilities to
the national government amounting to at least P6,355,368.
- The Rehabilitation Court issued a Commencement Order, which:
a) declared LCI to be under corporate rehabilitation;
b) suspended all actions or proceedings x x x for the
enforcement of claims against LCI;
c) prohibited LCI from making payments except in
pursuance of FRIA;
d) directed BIR to comment or oppose to petition.
- However, BIR sent a notice for informal conference for its tax
deficiency for the 2010 Fiscal Year, but the receiver reminded
BIR of LCI’s rehabilitation proceedings.
- However, BIR sent a Formal Letter of Demand requiring LCI to
pay tax deficiencies of P567,519,348.
- The Rehabilitation Court then cited BIR in indirect contempt in
accordance to Rules of Court and FRIA.
- BIR assailed this citation.
ISSUE: Whether the court correctly found the petitioners in
indirect contempt for having defied the Commencement Order.
HELD: Yes; petition is without merit.
- Corporate rehabilitation as an attempt to conserve and administer
the assets of an insolvent corporation in the hope of its eventual
return from financial stress to solvency.
- The inherent purpose of rehabilitation is to find ways and means
to minimize the expenses of the distressed corporation during the
rehabilitation period by providing the best possible framework for
the corporation to gradually regain or achieve a sustainable
operating form.
- Sec. 16, RA 10142 provides that upon issuance of a Stay Order,
all actions or proceedings, x x x for the enforcement of "claims"
against the distressed company shall be suspended
- Claim, anyway, “shall refer to all claims or demands of whatever
nature or character against the debtor or its property, whether for
money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed,
including, but not limited to;
(1) all claims of the government, whether national or
local, including taxes, tariffs and customs duties x x x
- This is not to mean that creditors are without remedy as they
may/must ventilate their claims before the rehabilitation court,
Credit Finals digest | asg galandines
and any attempts to seek legal resource against the distressed
corporation is sufficient to finding of indirect contempt of court.
- Notably, the acts of sending a notice of informal conference and
a Formal Letter of Demand are part and parcel of the entire
process for the assessment and collection of deficiency taxes from
a delinquent taxpayer, which should have been suspended
pursuant to the Commencement Order.
- It was improper then to collect, or attempt to collect, deficiency
from taxes from LCI outside of the rehabilitation proceedings
concerning the latter, and in the process, willful disregard of the
Commencement Order lawfully issued by the Rehabilitation
Court.
10. PACIFIC BANKING CORPORATION EMPLOYEES
ORGANIZATION v. CA
G.R. NO. 109373, March 20, 1995
FACTS
- Pacific Banking Corporation (PaBC) was placed under
receivership by the Central Bank of the Philippines pursuant to
Resolution No. 699 of the MB, and was later placed under
liquidation.
- Petitioner union filed a complaint-in-intervention seeking
payment of holiday pay, 13th month pay differential, salary
increase differential, etc (basically laborer benefits) due to is
members; trial court ordered payment thereof.
- The liquidator received a copy of the order September 16, 1991,
and filed a Motion for Reconsideration on October 16, 1991. The
MR was denied and Liquidator received order December 9, 1991,
and the following day he submitted a Notice of Appeal. December
20, 1991, filed the Record on Appeal.
- Respondent Judge disallowed for it was filed LATE, submitted
MORE THAN 15 DAYS AFTER the receipt of the decision. The
judge then issued the writ of execution.
- On the other hand, Ang Keong Lan and EJ Ang Intl filed claims
for the payment of investment in the PaBC constituting 11% of
the tital subscribed capital stock of the PaBC, or $2,531,632. They
allege they enjoy preference under the Foreign Investors Act.
- The judge directed the Liquidator to pay them as preferred
creditors on September 11, 1992, received by the Liquidator on
September 16, 1992. September 30, 1992 he moved for
reconsideration, denied October 2, 1992. Received notice October
5, 1992, Filed notice of appeal: October 14, 1992.
- Judge ordered that the Notice of Appeal as regards the case of
union to be stricken out for having been filed without authority
from the Central Bank and within 15 days.
- Before the CA, the two cases were raffled to different divisions,
rendering conflicting rulings:
a) As regards the Union it was raffled to the Fifth
Division, who held that the proceeding before the trial
court is a special proceeding, hence period of appealing
is 30 days.
b) As regards the Stockholders, it was raffled to
Fourtheenth Division, which held, on the other hand that
it is an ordinary proceeding, the period of appealing is
15 days.
ib2i 17-18
ISSUE: Whether a petition for liquidation under 29 of Rep. Act
No. 265, otherwise known as the Central Bank Act, is a special
proceeding or an ordinary civil action.
HELD:
- The CA 14th Division, in arriving to the conclusion that the action
is a ordinary action, it held that the proceeding is akin to an
interpleader, akin to an interpleader under Rule 63 of the Rules of
Court where there are conflicting claimants or several claims upon
the same subject matter, a person who claims no interest thereon
may file an action for interpleader to compel the claimants to
"interplead" and litigate their several claims among themselves.
- The Court disagrees. Rule 2 of the Rules of Court provides that:
- Action- an ordinary suit in a court of justice, by which
one party prosecutes another for the enforcement or
protection of a right, or the prevention or redress of a
wrong. On the other hand;
- Every other remedy, including one to establish the
status or right of a party or a particular fact, shall be by
special proceeding.
- A petition for liquidation of an insolvent corporation should be
classified as a special proceeding, because it doesnot seek the
enforcement or protection of a right nor the prevention or redress
of a wrong against a party.
- What it seeks is merely a declaration by the trial court of the
corporation's insolvency so that its creditors may be able to file
their claims in the settlement of the corporation's debts and
obligations.
- A liquidation proceeding resembles the proceeding for the
settlement of estate of deceased persons under Rules 73 to 91 of
the Rules of Court. The two have a common purpose: the
determination of all the assets and the payment of all the debts
and liabilities of the insolvent corporation or the estate.
- On Stockholders: Liquidator's notice of appeal was led on time,
having been led on the 23rd day of receipt of the order granting
the claims of the Stockholders/Investors. However, the Liquidator
did not file a record on appeal with the result that he failed to
perfect his appeal. As already stated, a record on appeal is required
under the Interim Rules and Guidelines in special proceedings and
for cases where multiple appeals are allowed.
- On Union: Fifth Division correctly granted the Liquidator's
Petition for Certiorari, Prohibition and Mandamus. As already
noted, the Liquidator led a notice of appeal and a motion for
extension to le a record appeal on December 10, 1991, i.e., within
30 days of his receipt of the order granting the Union's claim.
- On the propriety of the Liquidator to appeal: the Liquidator is
the representative not only of the Central Bank but also of the
insolvent bank. Under Secs. 28-A and 29 of RA 265 he acts in
behalf of the bank "personally or through counsel as he may retain,
in all actions or proceedings or against the corporation" and he
has authority "to do whatever may be necessary for these
purposes." This authority includes the power to appeal from the
decisions or final orders of the court which he believes to be
contrary to the interest of the bank. (Emphasis supplied)
Credit Finals digest | asg galandines
11. BPI v. SARABIA MANOR HOTEL
G.R. NO. 175844
July 29, 2013
FACTS
- Sarabia is a corporation duly organized under Philippine laws,
managing or operating hotels, restaurants, barber shops, beauty
parlors, sauna and steam bath, massage parlors and other
businesses necessary and incidental.
- Sarabia obtained a P150M special loan from Far East Bank and
Trust Company to finance the construction of a five-storey hotel
building, with additional P20M credit line.
- However, despite the fact that it had more assets than liabilities,
it filed for petition for corporate rehabilitation, with the
construction of the New Building delayed causing them cash flow
problems, as they foresaw the impossibility to meet its maturing
obligations when they fall due.
- Finding Sarabia’s rehabilitation plan sufficient in form and
substance, RTC issued a Stay order, with BPI filing its opposition.
- The RTC further noted that while it may be true that Sarabia has
been unable to comply with its existing terms with BPI, it has
nonetheless complied with its obligations to its employees and
suppliers and pay its taxes to both local and national government
without disrupting the day-to-day operations of its business as an
on-going concern.
- RTC did not give credence to BPI's opposition to the Receiver's
recommended rehabilitation plan as neither BPI nor the Receiver
was able to substantiate the claim that BPI's cost of funds was at
the 10% p.a. threshold. In this regard, the RTC gave more
credence to the Receiver's determination of fixing the interest rate
at 6.75% p.a.
- Before the CA, CA affirmed the RTC's ruling with the
modification of reinstating the surety obligations of Sarabia's
stockholders to BPI as an additional safeguard for the effective
implementation of the approved rehabilitation plan.
ib2i 17-18
b) has a definite source of financing for its proper and
full implementation;
c) and anchored on realistic assumptions and goals.
This remedy should be denied to corporations whose insolvency
appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered
obvious by the following:
a) the absence of a sound and workable business plan;
b) baseless and unexplained assumptions, targets and
goals;
c) speculative capital infusion or complete lack thereof
for the execution of the business plan;
d) cash flow cannot sustain daily operations; and
e) negative net worth and the assets are near full
depreciation or fully depreciated.
- On the other hand, it may be said that the opposition of a
distressed corporation's majority creditor is manifestly
unreasonable if it counter proposes unrealistic payment terms and
conditions which would, more likely than not, impede rather than
aid its rehabilitation.
- The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to
fulfill the majority creditor's claims, and yet the latter persists on
speculative or unfounded assumptions that his credit would
remain unfulfilled.
- Therefore, the Sarabia’s rehabilitation plan (CA version,
approved and modified), is sustained.

ISSUE: Whether or not the CA correctly affirmed Sarabia’s

rehabilitation plan, with the modification on the reinstatement of
the surety obligations of Sarabia’s stockholders.

HELD:
- The rules on corporate rehabilitation have been crafted in order
to give companies sufficient leeway to deal with debilitating
financial predicaments in the hope of restoring or reaching a
sustainable operating form if only to best accommodate the
various interests of all its stakeholders, may it be the corporation's
stockholders, its creditors and even the general public.
- A rehabilitation plan may be approved even over the opposition
of the creditors holding a majority of the corporation's total
liabilities if:
a) there is a showing that rehabilitation is feasible; and
b) the opposition of the creditors is manifestly unreasonable.
This is known as the cram-down rule, forcing the creditors to
accept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but incomplete
recovery.
- Lastly, on the propriety and the feasibility of rehabilitation,
Wonder Book Corporation v. PBC is instructive:
- In rehabilitation proceedings, its liquidity issues can be
addressed by a practicable business plan that:
a) will generate enough cash to sustain daily operations;