CASE DIGEST IN CREDIT TRANSACTIONS
Ravie D. Piansay 2014-0120
Dean Porfirio DG Panganiban, Jr. Professor
I CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEA?O, respondents. G.R. No. 118375 | 2003-10-03 Doctrine: A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract. Facts: Queaño obtained a loan amounting to 200,000 due on 11 September 1980 evidenced by a promissory note from Naguiat and issued for a loan secured by a real estate mortgage. in the amount of P200,000.00, which is secured by a real estate mortgage. The loan proceeds was endorsed by Nuguiat through two checks amounting 95,000. Aside from the PN, Nugiat issued a Security Bank check amounting to 200,000 due on due date. On maturity date, the check was dishonored for insufficiency of funds. Queaño received a letter from Naguiat’s lawyer, demanding settlement of the loan. Shortly thereafter, Queaño and Ruebenfeldt met with Naguiat. At the meeting, Queaño told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who purportedly was Naguiat’s agent. Naguiat applied for the extrajudicial foreclosure of the mortgage. Queaño filed the case before the RTC, seeking the annulment of the mortgage deed. RTC declared the Deed of Real Estate Mortgage null and void which the CA affirmed. Issue: Whether Queaño had actually received the loan proceeds which were supposed to be covered by the two checks Naguiat had issued or indorsed. Held: No. No evidence was submitted by Naguiat that the checks she issued or endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed. It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides: "An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract." A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the object of the contract. In this case, the objects of the contract are the loan proceeds which Queaño would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to Queaño’s account.
II BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT CORPORATION, respondents. G.R. No. 133632 | 2002-02-15 DOCTRINE: A simple loan is perfected upon the delivery of the object of the contract, hence a real contract FACTS: Ayala Investment and Development Corporation (AIDC), [BPIIC] granted a loan to Frank Roa for the construction of a house on his lot in Muntinlupa for 500,000 with an interest of 16.25%. Roa executed a mortgaged over said property to secure said loan. Subsequently, in 1980 the said property was sold to ALS and Antonio Litonjua for 850,000. Buyers of the property assumed the 500,000 and paid cash of 350,000 to Frank Roa. However AIDC is not amenable to extend the same terms to ALS and Antonio Litonjua, instead a new loan of 500,000 at 20% interest with monthly amortization of 9,996.58 for ten years. In March 1981, private respondents executed a mortgage deed to effect the new stipulations with the amortization to start on 01 May 1981. On 13 August 1982, ALC and Litonjua paid Roa’s arrearages by paying 190,601.35. Outstanding balance from the old loan was reduced to 457,204.90, and applying the new loan of ALC and Litonjua, BPIIC returned 7,146.87 pertaining to the excess of the proceeds of their loan against the balance of Roa’s loan. In June 1984, BPIIC moved for the foreclosure of the mortgage on the grounds that respondents failed to pay from May 1, 1981 to June 30, 1984, amounted to P475,585.31. On 28 February 1985, ALS and Litonjua filed a case against BPIIC, alleging that they were not in arrears, maintaining that they should not have been made to answer for the amortization (Roa’s arrearages) before the actual release of their loan in August and September 1982. Further they alleged that they only received 464,351.77 out of their 500,000, hence applying legal compensation, the balance of 35,648.23 should be applied on the initial monthly amortization. RTC ruled in favor of ALS Management and Development Corporation and Litonjua. CA affirmed the decision of RTC ISSUE: Whether a contract of loan is a consensual contract HELD: No A loan contract is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the other, was perfected only on September 13, 1982, the date of the second release of the loan. Following the intentions of the parties on the commencement of the monthly amortization, as found by the Court of Appeals, private respondents’ obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract. We also agree with private respondents that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. As averred by private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the date when
BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
III HERMENEGILDO AGDEPPA (substituted by his heirs MAGDALENA S. AGDEPPA, EMMANUEL S. AGDEPPA, NELIA A. UNISA, MARILYN A. LEONES, EVANGELINE A. PIMENTEL, EDWIN S. AGDEPPA EDNA A. AGDEPPA EDNA A. ABELLA, JOCELYN A. VICUNA, MA. THERESA S. AGDEPPA and VIVIANNE S. AGDEPPA, petitioners, vs. EMILIANO IBE (substituted by her husband FRUCTUOSO IBE and children LOLITA and CESAR IBE), BENJAMIN IBE and FERDINAND IBE, respondents. G.R. No. 96770 | 1993-03-30 DOCTRINE: A material document being a public document, mere preponderance of evidence cannot destroy its validity. Much stronger evidence is required. FACTS: Rosario Igarta was one of the three daughters of the deceased Joaquin Igarta and Angela Gascon. Her two sisters were Carmen and Emiliana. Carmen married Maximo Agdeppa and they begot Hermenegildo and Jose. The latter died in 1954 leaving three sons named Joseph, Jefferson and Stevenson. Rosario's other sister Emiliana married Fructuoso Ibe. The couple had three children: Benjamin, Lolita and Cesar. Rosario, an octogenarian, died single and without issue. At that time, her nearest relatives were her sister Emiliana Ibe and her nephew Hermenegildo Agdeppa as Carmen, the latter's mother, had predeceased Rosario. All the properties of Rosario were in the possession of the family of her sister Emiliana Ibe to the exclusion of the heirs of her other sister, Carmen. From time to time, however, Hermenegildo would get a share from the produce of the properties. Hermenegildo thus expressed his desire to partition Rosario's estate in accordance with law but the Ibes adamantly objected. Hermenegildo, together with the sons of his deceased brother Jose named Joseph, Jefferson and Stevenson Agdeppa, filed a complaint against Emiliana Ibe, assisted by her husband for partition of Rosario's properties. In their answer to the complaint, the defendants alleged that some of the properties had been conveyed and transferred by Rosario to different recipients. In support of their claim, the defendants presented the following documents: 1.) A deed of quitclaim and transfer of ownership executed by Rosario Igarta ; 2.) A deed of quitclaim executed by Rosario Igarta ceding all her rights to three parcels of land ; 3.) A deed of absolute sale. Another document, denominated as a deed of quitclaim was presented to show that Rosario Igarta renounced all her rights and interests over properties The trial court also notes that conveying inter vivos certain properties of Rosario Igarta to Benjamin Ibe and his children, were executed "at different hours of the same day." In view thereof, the said court observed that the "situation does not seem to jibe with the ordinary and natural course of things because if it were true, as alleged, that the grantor freely, voluntarily and intelligently disposed of her properties in favor of the Ibes in more than one instance on the same day, the dispositions should have been embodied in only one document" Court of Appeals rules that the presumption of validity of the questioned documents have not been overcome by the circumstances surrounding its execution. There is no showing that fraud, force or intimidation was perpetuated on Rosario Igarta in the preparation of the documents. Neither have plaintiff-appellees shown that the signature of Rosario Igarta appearing on said documents was forged. Forgery cannot be presumed. It must be proved. Faced with the fact that the signature of Rosario Igarta on said documents appears to be genuine, the provisions of said documents must be upheld. ISSUE: Whether or not the documents executed by Rosario Igarta conveying certain properties belonging to her to the herein respondents were valid.
HELD: A residence certificate, being a receipt prescribed by the government to be issued upon receipt of money for public purposes (Moran, Comments on the Rules of Court, Vol. 6, 1980 ed., p. 101), is a public document. As such, presentation of the same document would suffice to prove its contents. As part of the public record, it may also be proved by the presentation of a copy attested by the officer having legal custody of the duplicates (Sec. 25, Rule 132, Rules of Court) if, as in this case, a certified copy of the residence certificate itself cannot be presented. Exhibit F, upon which the trial court relied in nullifying the questioned documents, is, as correctly pointed out by the Court of Appeals, merely a secondary evidence. It is even based on the lost pages of an abstract of the residence certificates issued by the municipal treasurer of Sinait. The evidentiary value of Exh. F. is therefore suspect. The questioned deeds, being public documents as they are duly notarized (Moran, Comments on the Rules of Court, supra), therefore retain the presumption of validity in the absence of a full, clear and convincing evidence to overcome such presumption (Favor vs. Court of Appeals, 194 SCRA 308 [1991] citing Antonio vs. Estrella, 156 SCRA 68 [1987]). Merely preponderant evidence may not destroy such presumption because strong evidence is required to prove a defect of a public instrument. In the case at bar, no clear and convincing evidence had been adduced by petitioners to impugn the validity of the documents executed by Rosario Igarta. Consequently, the validity of the said documents must be, as they are hereby, upheld.
V SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant. G.R. No. L-24968 | 1972-04-27 DOCTRINE: An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. FACTS: Saura, Inc. applied to the RFC, for an industrial loan of P500,000.00 which approved by the latter and to be secured by a mortgage. Loan documents were executed: the promissory note and the corresponding deed of mortgage, which was duly registered. Subsequently in a meeting of RFC board to which the President of Saura, Inc. was present, the loan was reduced to 300,000. Saura Inc. however that the loan of 500,000 be approved. RFC accepted and approved the loan application subject to some conditions which Saura admitted it could not comply with. Correspondence and negotiations came to a halt and Saura, Inc. did not pursue further and instead requested the cancellation of mortgage and was delivered to the President of Saura, Inc. Almost nine years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for damages, alleging failure of RFC (DBP) to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project. ISSUES 1. Whether there was there a perfected consensual contract? 2. Whether there was a real contract of loan which would warrant recovery of damages arising out of breach of such contract? HELD 1. Yes. There was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides: An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. 2. None. Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon. When RFC turned down the request in its letter the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by both parties was in the nature of mutual desistance — what Manresa terms "mutuo disenso" — which is a mode of extinguishing obligations. It is a concept
that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.
VI RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners, vs. THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents. G.R. No. L-49101 | 1983-10-24 DOCTRINE: A mortgage contract does not become invalid by mere failure of debtor to get the mortgage consideration on the date the mortgage was executed. A loan is a consensual contract. FACTS: Honesto Bonnevie filed a complaint against, mortgagee, Philippine Bank of Commerce for the annulment of the mortgage dated 06 December 1966 execued by Spouses Jose and Josefa Lozano and to declare null and void the extrajudicial foreclosure made on 04 September 1968. Bonnevie alleged that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by one who was not the owner of the mortgaged property. In addition it alleged that the property in question was foreclosed pursuant to Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure. Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank should have accepted petitioner's offer to redeem the property under the principle of equity said justice. On the other hand, the answer of defendant Bank, raised the following affirmative defenses: (a) that the defendant has not given its consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that the property in question remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is an established banking practice that payments against accounts need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and registration, was without consideration as alleged because the execution and registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of the proceeds of the loan are mere implementation of the basic consensual contract of loan. Subsequently, petitioner Raoul SV Bonnevie filed a motion for intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner HonestoBonnevie over the subject property. The intervention was ultimately granted in order that all issues be resolved in one proceeding to avoid multiplicity of suits. RTC dismissed the complaint. CA affirmed the decision of the RTC ISSUE: Whether the real estate mortgage executed by the spouses Lozano in favor of respondent bank was validly and legally executed HELD: Yes The terms of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed. The promissory note executed
on 12 December 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of its execution.
VII CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents. G.R. No. L-45710 | 1985-10-03 DOCTRINE: In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other; and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay. FACTS: The loan application of Sulpicio M. Tolentino for 80,000 was approved by Island Savings Bank, which, as a security for the loan, executed on the same day a real estate mortgage over a property owned by the latter. Said loan stipulated for a lump sum 80,000 loan, payable in semi-annual installments for a period of 3 years, with 12% annual interest. Of the 80,000 only 17,000.00 was released by the Bank; and Tolentino signed a PN for said amount at interest earlier stipulated, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00. The Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued a resolution which prohibits the bank from making new loans and investments excluding extensions or renewals of already approved loans. The Monetary Board, after finding that Island Savings Bank failed to put up the required capital to restore its solvency, issued another resolution which prohibited Island Savings Bank from doing business in the Philippines. Island Savings Bank, in view of non-payment of the P17,000.00 covered by the PN, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100hectare land of Tolentino. The latter filed a petition for specific performance or rescission and damages with, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum and if said balance cannot be delivered, to rescind the real estate mortgage. RTC finding unmeritorious the petition of Tolentino, ordering him to pay Island Savings Bank the amount of PI7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure. CA modified the RTC’s decision by affirming the dismissal of Tolentino’s specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan. ISSUES 1. Whether the action of Sulpicio for specific performance prosper. 2. Whether Tolentino is liable to pay the P17,000.00 debt covered by the promissory note. 3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount? HELD: 1. No. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Tolentino under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution, WE cannot grant specific performance in favor of Tolentino. When Island Savings Bank and Tolentino entered into an P80,000.00 loan agreement, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other; and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio executed a real estate mortgage, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started when Sulpicio executed a real estate mortgage, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution, which prohibited Island Savings Bank from doing further business. Such prohibition cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. 2. Yes. As far as the partial release of P17,000.00, which Sulpicio accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The PN gave rise to Sulpicio reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). 3. The real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt. Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares.
VIII FRANCISCO HERRERA, plaintiff-appellant, vs. PETROPHIL CORPORATION, defendantappellee. G.R. No. L-48349 | 1986-12-29 DOCTRINE: The elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared. FACTS: On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (Petrophil Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion of his property for a period of twenty (20) years from said date. On December 31, 1969, pursuant to the said contract, the PETROPHIL CORPORATION paid to the HERRERA advance rentals for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting the interest or discount for the first eight years, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee, explaining that there had been a mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03. On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegally deducted from him in violation of the Usury Law. Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the computation of the interest collected out of the rentals paid for the first eight years; that such interest was excessive and violative of the Usury Law; and that he had neither agreed to nor accepted the defendant-appellant's computation of the total amount to be deducted for the eight years advance rentals. The defendant maintains that the correct amount of the discount is P98,828.03 and that the same is not excessive and above that allowed by law. ISSUE: Whether or not the contract is a loan HELD: No As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount. There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession. 9 There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.
IX CHINA BANKING CORPORATION, in substitution of Filipinas Compania de Seguros, plaintiff-appellee, vs. FAUSTINO LICHAUCO ET AL., defendants-appellants. G.R. No. L-22001 | 1924-11-04 DOCTRINE: The consideration of a mortgage, which is an accessory contract, is that of the principal contract, from which it receives its life, and without which it cannot exist as an independent contract, even if the obligation thereby secured is of a third person, and therefore it will be valid, if the principal one is valid, and cannot be avoided on the ground of lack of consideration. FACTS: Lichauco & Company, Inc., has a loan with Filipinas Compania de Seguros (China Banking Corporation), herein plaintiff. Spouses Faustino and Luisa Lichauco executed a mortgage in favor of the plaintiff upon the property described in the document to secure the payment of a part of this loan in the amount of P50,000 with interest at 9%. It was agreed that in case of nonfulfillment of the contract, this mortgage would stand as security also for the payment of all the costs of the suit and expenses of any kind, including attorney’s fees, which by way of liquidated damages are fixed at 5% of the principal. In addition, it states that if Faustino and Luisa should fail to pay this amount of P50,000, the mortgage shall be in full force and effect. Lichauco & Co., Inc., Faustino, and Luisa F executed another document, in which, among other things, they ratified the former mortgage and stated that the payment of the P50,000 shall continue to be secured in the same manner and with the same property, and shall earn interest at 12%/year. Issue: Whether the obligation of Spouses Lichauco lacked consideration, because what they guaranteed with the mortgage was a debt of Lichauco & Co., Inc. Held: No. As a mortgage is an accessory contract, its consideration is the very consideration of the principal contract, from which it receives its life, and without which it cannot exist as an independent contract, although, as in the instant case, it may secure an obligation incurred by another (art. 1857 of the Civil Code).
X FILIPINAS MARBLE CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, THE HONORABLE CANDIDO VILLANUEVA, Presiding Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF THE PHILIPPINES (DBP), BANCOM SYSTEMS CONTROL, INC. (Bancom), DON FERRY, CASIMERO TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T. PARDO, ROLANDO ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R. LIM, respondents. DOCTRINE: A mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it. FACTS: Filipinas Marble Corporation filed a complaint for the annulment of the deeds of mortgage and deed of assignment which it executed in favor of the Development Bank of the Philippines (DBP) to secure the $5,000,000.00 loan contending that there was no loan at all to secure since what DBP "lent" to petitioner with its right hand, it also got back with its left hand; and that, there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the petitioner. The petitioner further prayed that pending the trial on the merits of the case, the trial court immediately issue a restraining order and a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila and in Romblon. DBP in its opposition to a writ of preliminary injunction said that under PD 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same PD, no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least 20% of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and, therefore, irrespective of whoever is responsible for placing them in their positions, their receipt of the money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended by the petitioner's management, the allegedly precipitate manner with which DBP proceeded with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease rights. RTC held that it cannot enjoin DBP from complying with the mandatory provisions of the said PD It having been shown that plaintiff's outstanding obligation amounted to P151,957,641.72 and with arrearages reaching up to 81 % against said total obligation, the Court finds the provisions of P.D. 385 applicable to the instant case. CA upheld the trial court's decision. ISSUES: If there was no valid loan contract for failure of consideration, the mortgage cannot exist or stand by itself being a mere accessory contract. Additionally, the chattel mortgage has not been registered. Therefore, the same is null and void under Article 2125 of the New Civil Code HELD: A mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it. We, however, reject the petitioner's argument that since the chattel mortgage involved was not registered, the same is null and void. Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. It states: “Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a
mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.” The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in favor of respondent DBP.
XI Producers Bank Of The Philippines (Now First International Bank), Petitioner, Vs. Hon. Court Of Appeals And Franklin Vives, Respondents. G.R. No. 115324 | 2003-02-19 DOCTRINE: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. FACTS: Sanchez asked Franklin Vives to deposit in a bank a certain amount of money in the bank account of Sterela Marketing and Services for purposes of its incorporation, the corporation was owned by Doronilla. Sanchez assured Vives that he could withdraw the money from the account of Sterela a month’s time. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check in favor of Sterela. The check was deposited to the newly opened savings account of Sterela Marketing and Services in the Producers Bank of the Philippines (Producers). The passbook, given to the wife of Vives, had an instruction that no withdrawals/deposits will be allowed unless the passbook is presented. The authorized signatories of said account were Mrs. Vives and/or Sanchez. Subsequently, Vives learned that Sterela was no longer holding office in the address previously given to him. Alarmed, he and his wife went to the Producers to verify if their money was still intact. They were informed that part of the money in account had been withdrawn by Doronilla and could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. Vives tried to get in touch with Doronilla through Sanchez. He received a letter from Doronilla, assuring him that his money was intact and would be returned to him. Doronilla issued a postdated check in favor Vives. However, upon presentment thereof to the drawee bank, the check was dishonored. Vives filed an action for recovery of sum of money in the RTC against Doronilla, Sanchez, Dumagpi and Producers. RTC ruled in favor of Vives holding Doronila, Dumagpi and Producers jointly and severally liable and ordered the payment thereof. ISSUE: Whether the transaction between Vives and Doronilla is a simple loan (mutuum) HELD: No A circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise: “By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest.In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.” The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination. As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within 30 days. Vives merely "accommodated" Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction that the
money would not be removed from Sterela’s savings account and would be returned to private respondent after thirty (30) days. Doronilla’s attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterela’s account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latter’s money deposited with petitioner.
XII REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE V. BAGTAS, defendant. FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-appellant 1962-10-25 | G.R. No. L-17474 DOCTRINE: A bailee in a contract of commodatum is liable for loss of the thing, even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event. FACTS • On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a government charge of breeding fee of 10% of the book value of the bulls. • On 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. • On 25 March 1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the three bulls or to return them. • On 20 December 1950 in the Court of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding fee in the sum of P499.62. • On 26 June 1959, son of the appellant by the late defendant, returned the Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter. • The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huks in November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept, and that as such death was due to force majeure she is relieved from the duty of the returning the bull or paying its value to the appellee. ISSUE: Whether the estate of estate of Jose V. Bagtas liable for the bull that was unreturned and loss due to fortuitous events. HELD: Yes. The contention is without merit. The loan by the appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially
gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the thing, even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event. The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value, to wit: the Sindhi, at P1,176.46; the Bhagnari, at P1,320.56 and the Sahiniwal; at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.
XIII ALEJANDRA MINA, ET AL., plaintiffs-appellants, vs. RUPERTA PASCUAL, ET AL., defendants-appellees. G.R. No. 8321 | 1913-10-14 DOCTRINE: It is an essential feature of commodatum that the use of the thing belonging to another shall be for a certain period. FACTS: Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that lot. Both Francisco and Andres died. Mina was recognized as the heir of Francisco and Pascual for Andres. Pascual sold his share of the warehouse and lot. Mina opposed because the lot is hers because Francisco never parted with its ownership when he let Andres construct a warehouse, hence, it was a contract of commodatum. ISSUE: Whether the contract between Francisco and Andres is in the nature of commodatum HELD: No It is an essential feature of commodatum that the use of the thing belonging to another shall be for a certain period. The parties never fixed a definite period during which Andres could use the lot and afterwards return it.
XIV SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants, vs. BENITO GONZALEZ SY CHIAM, defendants-appellee. G.R. No. 26085 August 12, 1927 DOCTRINE: Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto. FACTS: Prior to 28 November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a parcel of land with the camarin located thereon, situated in Tarlac for P25,000, promising to pay in 3 installments. The first installment of P2,000 was due on or before the 02 May 1921; the second installment of P8,000 was due on or before 31 May 1921; the balance of P15,000 at 12% interest was due and payable on or about the 30 November 1922. One of the conditions of purchase was that failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of the installments on the date agreed, the property bought would revert to the original owner. The payments due on May 1921, aggregating P10,000. The balance of P15,000 due on said contract of purchase was paid on or about the 01 December 1922, in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to the purchasers TCT No. 528. Said TCT (No. 528) was transfer certificate of title from No. 40, which shows that said land was originally registered in the name of the vendor on the 07 November 1913. On the 07 November 1922 the representative of the vendor of the property in question wrote a letter to the appellant Potenciana Manio, notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of recovering the property, together with damages for non compliance with the condition of the contract of purchase. The appellant obtained a loan amounting to P17,500 upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property. ISSUE: Whether or not the contract is that of a mortgage HELD: No It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare the same to be a mortgage and not a sale whenever the interpretation of such a contract justifies that conclusion. There must be something, however, in the language of the contract or in the conduct of the parties which shows clearly and beyond doubt that they intended the contract to be a "mortgage" and not a pacto de retro. There is not a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract of pacto de retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of the contracting parties, attention must be paid principally to their conduct at the time of making the contract and subsequently thereto.
XV REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO, defendantappellant. G.R. No. L-20240 | 1965-12-31 DOCTRINE: By a contract of simple loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid. The obligation is to deliver a sum of money, a generic thing. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. FACTS: Grijaldo obtained 5 loans from the Bank of Taiwan, Ltd evidenced by 5 promissory notes. All notes are without due dates, but because the loans were due one year after they were incurred. As a security the appellant executed a chattel mortgage on the standing crops on his land. The assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. These assets, including the loans in question, were subsequently transferred to the Republic of the Philippines. The Republic of the Philippines made a written extrajudicial demand upon the appellant for the payment of the loans. The record shows that the appellant had actually received the written demand for payment, but he failed to pay. The appellee filed a complaint in to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, dismissed the case on the ground that the action had prescribed. ISSUE: Whether the obligation to pay is extinguished. HELD: No The obligation of Grijaldo was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing — the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money — a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.
XVI PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and AMBROSIO PADILLA, Respondents. G.R. No. 88880. April 30, 1991. DOCTRINE: Removal of Usury Law Ceiling on interest rates does not authorize banks to unilaterally and successively increase interest rates. FACTS: Ambrosio Padilla, private respondents, was granted by petitioner Philippine National Bank, a credit line, secured by a real estate mortgage, for a term of 2 years, with 18% interest per annum. Private respondent executed in favor of the PNB a Credit Agreement, 2 promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. Stipulations in the PN authorizes PNB to increase the stipulated 18% interest per annum "within the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board." Padilla requested to the increase in the rate of interest from 18% be fixed at 21% or 24% but was denied by PNB. ISSUE: Whether PNB, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased. HELD: No. Central Bank Circular No. 905, Series of 1982 removed the Usury law ceiling on interest rates, however, it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to "once every twelve months."
XVII ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES, respondents. G.R. No. 116285 | 2001-10-19 DOCTRINE A stipulation about payment of an additional interest rate partakes of the nature of a penalty clause. Penalty clauses can be in the form of penalty or compensatory interest. FACTS Antonio Tan, herein petitioner, obtained 2 loans from the Cultural Center of the Philiipines (CCP). After partial payments, the petitioner was not able to pay the balance of the loan and requested from CCP for the restructuring of the loan which was granted by the latter. Tan failed to pay any installment on the said restructured loan. Tan requested from CCP a moratorium on his loan obligation. No favorable response was made, instead, CCP, wrote a letter to Tan demanding full payment of the restructured loan. CCP filed a complaint for collection of a sum of money, against Tan after the latter failed to settle his said restructured loan obligation. Tan interposed the defense that he merely accommodated a friend, who allegedly asked for his help to obtain a loan from CCP. Petitioner claimed that he has not been able to locate his friend. While the case was pending in the trial court, Tan filed a Manifestation wherein he proposed to settle his indebtedness to CCP. However, CCP did not agree to Tan’s proposals and so the trial of the case ensued. Trial court ordered Tan to pay CCP his outstanding account with the corresponding stipulated interest and charges (penalty and interest on penalty) thereof, until fully paid. CA affirmed the decision. ISSUES: 1. Whether there are contractual and legal bases for the imposition of the penalty and interest on the penalty. 2. Whether interest may accrue on the penalty or compensatory interest without violating the provisions of Article 1959 of the New Civil Code, which provides that: HELD: 1. Yes. Article 1226 of NCC provides that: In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. The PNs expressly provides for the imposition of both interest and penalties in case of default on the part of the petitioner in the payment of the subject restructured loan. Penalty on delinquent loans may take different forms. In GSIS v. CA, this Court has ruled that the NCC permits an agreement upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary interest, and as such the two are different and distinct from each other and may be demanded separately. Quoting Equitable Banking Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about payment of an additional interest rate partakes of the nature of a penalty clause which is sanctioned by law, more particularly under Article 2209 of the NCC which provides that: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.
2. Yes. Penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding of the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering that: First, there is an express stipulation in the PN permitting the compounding of interest. Second, Article 2212 of the New Civil Code provides that "Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point." In the instant case, interest likewise began to run on the penalty interest upon the filing of the complaint in court by CCP.
XVIII TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY BANK & TRUST COMPANY, respondents. G.R. No. 138677 February 12, 2002 DOCTRINE: A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. Although a court may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal obligation has been partly or irregularly complied with. FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from respondent Security Bank and Trust Company on on 11 May 1981. The loan was evidenced by a promissory note with interest of 15.189% per annum, a penalty of 5% every month on the outstanding principal and interest in case of default. The obligation matured on 8 September 1981; the bank, however, granted an extension but only up until 29 December 1981. Despite several demands from the Security Bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners informing them that they had five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3 November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount. RTC ruled in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, to the plaintiff. Petitioners interposed an appeal with the Court of Appeals, assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney's fees. In its decision of 7 March 1996, the appellate court affirmed the judgment of the trial court except on the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied with the decision of the appellate court, both parties filed their respective motions for reconsideration. Petitioners prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of default as so stipulated in the contract of the parties. On 28 October 1998, the Court of Appeals resolved the two motions thusly: "We find merit in plaintiff-appellee’s claim that the principal sum of P114,416.00 with interest thereon must commence not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation became due. Default generally begins from the moment the creditor demands the performance of the obligation. However, demand is not necessary to render the obligor in default when the obligation or the law so provides. In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the date of default.
Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9 July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly "I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners’ loan obligation are still manifestly exorbitant, iniquitous and unconscionable. Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar, taking into account the time frame of its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted out of the entire loan of P120,000. ISSUE: Whether the penalty imposed is reasonable HELD: Yes The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded.What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank's existence.
XIX LIAM LAW, plaintiff-appellee, vs. OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants. G.R. No. L-30771 | 1984-05-28 DOCTRINE: Usury has been legally non-existent. Interest can now be charged as lender and borrower may agree upon. FACTS: Liam Law loaned P10,000, without interest, to Olympic Sawmill and Elino Lee Chi. The later defaulted on the said loan. The debtors were asking for an extension, hence they parties executed another loan document. The loan due date was extended by the loan amount was increased to 16,000. Again, Olympic and Elino again failed to pay their obligation (under the new terms). Liam Law instituted a collection case. Olympic and Elino admitted the P10,000 principal obligation, but claimed that the additional P6,000 constituted usurious interest. The trial court ordered the Olympic and Elino to pay Liam Law the amount of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal rate of interest on both amounts. ISSUE: Whether the additional loan of P6,000 constituted usurious interest. HELD: No. Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the P6,000.00 obligation, it is presumed that it exists and is lawful, unless the debtor proves the contrary. No evidentiary hearing having been held, it has to be concluded that defendants had not proven that the P6,000.00 obligation was illegal. Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as lender and borrower may agree upon. The Rules of Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.
XX PACITA F. REFORMINA and HEIRS OF FRANCISCO REFORMINA, petitioners, vs. THE HONORABLE VALERIANO P. TOMOL, JR., as Judge of the Court of First Instance, Branch XI, CEBU CITY, SHELL REFINING COMPANY (PHILS.), INC., and MICHAEL, INCORPORATED, respondents. G.R. No. L-59096 October 11, 1985 DOCTRINE: Act No. 2655 Usury Law which allowed 12% interest deals only on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments. FACTS: The REFORMINAS (herein petitioners) filed an action against Shell and Michael., Inc. for Recovery of Damages for injury to Person and Loss of Property. In which the Court ruled in their favor, imposing the legal interest rate of 6% as provided in Article 2209 of the New Civil Code. The said decision having become final on October 24, 1980, the case was remanded to the lower court for execution and this is where the controversy started. In the computation of the "legal interest" decreed in the judgment sought to be executed, petitioners claim that the "legal interest" should be at the rate of twelve (12%) percent per annum, invoking in support of their aforesaid submission, Central Bank of the Philippines Circular No. 416. Upon the other hand, private respondents insist that said legal interest should be at the rate of six (6%) percent per annum only, pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles 2210 and 2211 thereof. ISSUE: Whether the legal interest allowed in judgements referred to in Sec 1 of Act No. 2655 Usury Law covers monetary judgment arising from recovery of damages for injury to a person and loss of property HELD: No The decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads “If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum.”
XXI BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance of Manila, Branch XXXI and FLORANTE DEL VALLE, respondents. DOCTRINE: CIRCULAR No. 494, although it has the effect of law, is not a law. FACTS: Florante del Valle obtained a loan secured by a real estate mortgage Banco Filipino in the sum of P41,300.00 Pesos, payable and to be amortized within 15 years at 12% per cent interest annually. Hence, the loan still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the PN evidencing the loan is an Escalation Clause, authorizing Banco Filipino to correspondingly increase the interest rate stipulated in this contract in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued making the maximum rate of interest on loans with maturity of more than 730 days, by banking institutions, shall be 19% per annum. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed by the Usury Law, as amended. ISSUE: Whether or not the BANCO FILIPINO can increase the interest rate on the loan from 12% to 17% per annum under the Escalation Clause. HELD: No It is clear from the stipulation between the parties that the Escalation Clause was dependent on an increase of rate made by law alone. CIRCULAR No. 494, although it has the effect of law, is not a law. Escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board."
XXII PHILIPPINE NATIONAL BANK, petitioner vs. The HON. INTERMEDIATE APPELLATE COURT and SPOUSES FERMIN MAGLASANG and ANTONIA SEDIGO, respondents. G.R. No. 75223 March 14, 1990 DOCTRINE: The Escalation Clause is a valid provision in the loan agreement provided that — (1) the increased rate imposed or charged does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase; and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. FACTS: Petitioner, PNB, extended financial assistance to the private respondents (Magsalang&Sedigo) in the form of loans, in total of P82,682.39 as embodied in the promissory notes that the latter have executed on various dates from February 5, 1976 to May 18, 1979, the payment of which to come from the proceeds of sugar sales of the private respondents. The promissory notes bore 12% interest per annum plus 1% interest as penalty charge in case of default in the payments. January 16, 1969, the private respondents mortgaged several real estate properties in favor of the petitioner as security of their loans, which mortgage was amended on December 17, 1969, December 22, 1970 and February 12, 1975, as to the consideration thereof. December 1, 1979, the Monetary Board of the Central Bank, by virtue of Presidential Decree No. 116, issued CB Circular No. 705 increasing the ceiling on the rate of interest on both secured and unsecured loans up to no more than 21% per annum. In view of this development, the PNB Board of Directors revised its lending interest rates on the medium and long-term loans effective June 1, 1980, per PNB board resolution dated May 26, 1980. The private respondents defaulted in the payments of their loans, the petitioner demanded not only the settlement of their outstanding obligation but also the payment of the new interest rate of 21% per annum beginning June 1, 1980 per the PNB board resolution. For failure of the private respondents to settle their obligation, then in the amount of P84,743.34, the petitioner foreclosed the mortgage. Since the proceeds of the auction sale, P63,000.00 was not enough to satisfy private respondents' outstanding obligation, the petitioner filed an action for deficiency judgment with the Court of First Instance of Leyte against the private respondents. Trial Court ruled in favor of the PNB. Ordering the defendants to pay the plaintiff the amount of P21,743.34; said amount shall earn interest at 21 % per annum and 3% penalty charge starting November 27, 1981, until the whole obligation is fully paid; Appellate Court affirmed the decision of the trial court with modification: Ordering the defendants to pay the plaintiff the amount of P12,551.16 which shall earn interest at 12% per annum and 1% penalty charge starting November 27, 1981 until fully paid. PNB filed a petition at Supreme Court with contention that pursuant to Presidential Decree No. 116, the Monetary Board issued Central Bank Circular No. 705 on December 1, 1979, prescribing the maximum rate of interest on loan transactions with maturities of more than seven hundred thirty (730) days and shall not exceed twenty-one percent (21%) per annum. Hence, the upward revision of interest rate as stipulated in the Promissory Notes and Amendment of Real Estate Mortgage dated February 12, 1975, is in accordance with Presidential Decree No. 116 promulgated on January 29, 1973 and Central Bank Circular No. 705 issued on December 1, 1979, and the imposition of 21% rate of interest on the loan obligations of private respondents is within the limits prescribed by law. ISSUE Whether or not the revised rate of interest imposed on the loans of the private respondents is legal.
HELD No. There is no question that PNB board resolution dated May 26, 1980 contains such deescalation clause, under paragraph 8 thereof, to wit: (8) To enable us to adjust interest rates in accordance with CB Circular letter of March 19, 1980, the covering promissory note for all short/medium/long terms loans shall include the following conditions: The Bank reserves the right to increase the interest rate within the limits allowed by law or by the Monetary Board, provided, that the interest rate agreed upon shall be reduced in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board: Provided, further, that the adjustment in the interest rate shall take effect on or after the effectivity of the increase or increase in the maximum rate of interest. Central Bank Circular No. 705, authorizing the increase from 12% to 21% was issued on December 1, 1979. The promissory notes executed by the private respondents show that they are all payable on demand but the records do not show when payment was demanded. Even granting that it was demanded on the effectivity of law, it is obvious that the period of 730 days has not yet elapsed at the date the mortgaged properties were sold at the public auction on November 27, 1981 (Certificate of Sheriff's Sale, Records of Exhibits, p. 84). Accordingly, as of December 1, 1979, the remaining maturity days of the loans were less than 730 days. Hence, the increased rate imposed or charged is not valid.
XXIII PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS and AMBROSIO PADILLA, respondents. The Chief Legal Counsel for petitioner. Ambrosio Padilla, Mempin & Reyes Law Offices for private respondent. G.R. No. 88880 | 1991-04-30 DOCTRINE: Removal of Usury Law Ceiling on interest rates does not authorize banks to unilaterally and successively increase interest rates. FACTS: In July 1982, Ambrosio Padilla applied for, and was granted by PNB, a credit line of 321.8 million, for a term of 2 years, with 18% interest per annum. Ambrosio Padilla executed in favor of the PNB a Credit Agreement, 2 PNs in the amount of P900,000.00 each, and a Real Estate Mortgage Contract. The PNs in turn, uniformly authorized the PNB to increase the stipulated 18% interest per annum "within the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. Upon renewal of the loan, PNB unilaterally increased the interest rates from 18% to 32%, then to 41% and again to 48%. It rejected the request of the plaintiff that adjustment of his interest rate would be fixed from 18% to 24%. ISSUE: Whether the bank, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased. HELD: No Although PD. No. 116, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever warranted by prevailing economic and social conditions, it expressly provides that "such changes shall not be made oftener than once every 12 months." In this case, PNB, over the objection of the private respondent, and without authority from the Monetary Board, within a period of only four 4 months, increased the 18% interest rate on the private respondent’s loan obligation 3 times. Those increases were null and void, for if the Monetary Board itself was not authorized to make such changes oftener than once a year, even less so may a bank which is subordinate to the Board.
XXIV
G.R. No. 107569 November 8, 1994 PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ, respondents. DOCTRINE: It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect. FACTS: On April 7, 1982, (private respondents) as owners of a NACIDA-registered enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty Thousand (P50,000.00) Pesos, as evidenced by a Credit Agreement. Under the Promissory Note covering the loan, the loan was to be amortized over a period of three (3) years to end on March 29, 1985, at twelve (12%) percent interest annually. To secure the loan, (private respondents) executed a Real Estate Mortgage and a Chattel Mortgage. The agreement herewith authorized the PNB to raise the rate of interest, at any time without notice, beyond the stipulated rate of 12% but only "within the limits allowed by law." During the term of the agreement, PNB on several occasion imposed interest rate of 25% per annum to 30% to 42% on Private Respondents plus a penalty of 6% per annum on past dues." Private respondents filed a suit for specific performance against petitioner PNB and the NACIDA. The trial court dismissed private respondents' complaint. The Court of Appeals reversed the dismissal with respect to petitioner bank, and disallowed the increases in interest rates. Petitioner bank now contends that "respondent Court of Appeals committed grave error when it ruled (1) that the increase in interest rates are unauthorized. ISSUE: Can a creditor raise the legal interest based on a certain clause in the contract and without consent from the debtor HELD: No.We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right tounilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held — . . . The unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force or law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void . . . . Hence, even assuming that the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citation omitted.)
XXV SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs. COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents. G.R. No. 101771 | 1996-12-17 DOCTRINE: Without such CB issuance, any proposed increased rate will never become effective. FACTS: Gilda Florendo was an employee of Land Bank from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan payable within 25 years from Land Bank’s Provident Fund on July 20, 1983; On March 19, 1985, Lankd Bank increased the interest rate on Florendo’s loan from 9% per annum to 17%, the said increase to take effect on March 19, 1985 The details of the increase are embodied in Landbank's ManCom Resolution No. 85-08 and in a Provident Fund Memorandum Circular. Land Bank kept on demanding that Florendo pay the increased interest or the new monthly installments based on the increased interest rate, but Florendo just as vehemently maintained that the said increase is unlawful and unjustifiable. ISSUE: Whether or not Land Bank has a valid and legal basis to impose an increased interest rate on the petitioners' housing loan? HELD: No The court held that there troactive enforcement of the ManCom Resolution as against petitioneremployee is invalid since in the case at bar, there is in fact no Central Bank rule, regulation or other issuance which would have triggered an application of the escalation clause as to petitioner’s factual situation. The loan was perfected on July 20, 1983. PD No. 116 became effective on January 29, 1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ. 504 was issued February 6, 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905, lifting any interest rate ceiling prescribed under or pursuant to the Usury Law, as amended, was promulgated in 1982. These and other relevant CB issuances had already come into existence prior to the perfection of the housing loan agreement and mortgage contract, and thus it may be said that these regulations had been taken into consideration by the contracting parties when they first entered into their loan contract. ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board, cannot be used as basis for the escalation in lieu of CB issuances, since paragraph (f) of the mortgage contract very categorically specifies that any interest rate increase be in accordance with “prevailing rules, regulations and circulars of the Central Bank . . . as the Provident Fund Board . . . may prescribe.”
XXVI INVESTORS FINANCE CORPORATION, petitioner, vs. AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY DEVELOPMENT CORPORATION,respondents. G.R. No. 128990 September 21, 2000 DOCTRINE: In usurious loans, the creditor can always recover the principal debt FACTS: In August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied. But sometime thereafter, FNCB's Assistant Vice President, Mr. LeoncioAraullo, informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed "IPP" transaction was — (1) First, PioBarretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments of P216,666.66. Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD; (2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be "flowed back" to AUTOWORLD; (3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to FNCB;2 and (4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed "IPP" transaction. On 9 February 1981 the parties signed three (3) contracts to implement the "IPP" transaction: (1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No. 129763 for the price of P12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations. (3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment.5
After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum. In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments of P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction. On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter's computation of its outstanding balances. On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded. Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account. On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84. According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction. On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. ISSUE: Whether or not the 3 contract of loan is usurious HELD: Yes. The attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. These contracts should therefore be declared void. While we do not dispute the appellate court's finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt.35However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law.
XXVII PURIFICACION PASCUA, petitioner, vs. HON. JESUS Y. PEREZ, ET AL., respondents. G.R. No. L-19554 | 1964-01-31 DOCTRINE: Non-forfeiture of principal in usurious contracts FACTS: Purificacion Pascua mortgaged on December 13, 1956 two parcels of land in favor of Elisa Paraiso Vda. de Verzosa to secure a loan of P25,000.00 on condition that mortgage may be redeemed within one year from said date. When Pascua failed to redeem the mortgage stipulated, Verzosa took steps to foreclose it extrajudicially thru the sheriff of Manila. At the foreclosure sale Verzosa purchased the property for P35,000.00 and on May 8, 1959 the sheriff issued in her favor the correspond certificate of sale. The sheriff fixed the expiration the redemption period of April 29, 1959. When Verzosa tried to take possession of the property as a result of its sale in her favor, Pascua commenced an action before the Court of First Instance of Manila to annul the foreclosure sale on the ground that the mortgage was null and void because it involved a usurious transaction. On November 16, 1960, the court rendered decision finding the transaction to be usurious and annulling the sale made by the sheriff in favor of Verzosa. Because of the failure of Pascua to redeem the property within the period of one year from the date of the receipt of the decision, Verzosa filed motion on praying that, since Pascua failed to redeem the property as stated in the decision, an order be issued vesting in her the title to the property and directing the cancellation of the notice of lis pendens that was annotated on the two titles covering the property. And acceeding to the motion, over the opposition of Pascua, the court a quo issued an order declaring that title to the properties mortgaged under the mortgage deed is already vested in Elisa F. Vda. de Verzosa and the Register of Deeds of Manila is ordered, upon payment of the proper legal fees, to cancel the notice of lis pendens. ISSUE: Assuming that Pascua failed to redeem the property, whether the court erred in vesting the title of the property to Verzosa without corresponding appropriate action and without due process of law. HELD: Yes Note that what was ordered by the court a quo in said case was to allow petitioner to redeem the property upon payment of the sum P20,100.00 which is contrary to its decision annulling the deed of sale in favor of respondent. The most, therefore, that respondent could do upon failure of petitioner to pay the above amount was to ask for the execution of the decision, and not the vesting of title to the property in her, as the court did. The only right of respondent in the premises was merely to collect the amount of the loan, plus the interest due thereon, which can be effected by filing a motion for execution in the annulment case. This respondent can still do.
XXVIII AURELIO G. BRIONES, plaintiff-appellee, vs. PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants. G.R. No. L-23559 October 4, 1971 DOCTRINE: Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater sum or value than is allowed in said law, may recover the whole interest paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest paid in excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of 20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest, not just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The whole stipulation as to interest is void, since payment of said interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in excess of that allowed by law, which the Usury Law already provided for, but to add that the same can be recovered "with interest thereon from the date of payment." FACTS: On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit. Defendants executed the real estate mortgage as security for the loan of P1,200.00 given to Primitivo P. Cammayo upon the usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff reserved and secured himself, out of the alleged loan of P1,500.00 as interest the sum of P300.00 for one year; although the mortgage contract, was executed for securing the payment of P1,500.00 for a period of one year, without interest, the truth and the real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year; On account of said loan of P1,200.00, Primitivo P. Cammayo paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account but as in interest of the said loan for an extension of another term of one year; ISSUE: Whether the creditor is entitled to collect from the debtor the amount representing the principal obligation HELD: YES. In Go Chioco vs. Martinez, 45 Phil. 256 that even if the contract of loan is declared usurious the creditor is entitled to collect the money actually loaned and the legal interest due thereon. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209,
Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint.
XXIX PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, Administrator of the Testate Estate of the Deceased Plaintiff C. N. Hodges, plaintiff-appellant, vs. JUAN GRINO, defendant-appellee, ANUNCIACION C. GRINO, RAMONA JILOCA VDA. DE GUSTILO and SERAFIN TOLONES, intervenors-appellees. G.R. No. L-27205 | 1968-08-15. FACTS: The pivotal question to be determined in this case is whether the true contract between C.N. Hodges and Juan Griño is that embodied in the "contract to sell" wherein it appears that Hodges agreed to sell, and Griño agreed to buy, Lots Nos. 1368 and 1536-A, for the sum of P13,200 payable by defendant to plaintiff in installments with 1% monthly interest until fully paid, as claimed by plaintiff, or that of loan of P11,000 secured by an equitable mortgage on the aforesaid lots with 20% interest, or the sum of P2,200, immediately added to the capital plus 1% monthly interest until the whole amount of P13,200 is fully paid by Griño to Hodges, as claimed by Griño and intervenors. ISSUES: 1. Whether or not the transaction between C.N. Hodges and Juan Griño is usurious. 2. Whether or not C.N. Hodges is entitled to payment of any interest provided for by law. HELD: 1. Yes. The Supreme Court ruled in the affirmative. The transaction between C.N. Hodges and Juan Griño was indeed usurious. 2. Yes. As correctly ruled by the Court of Appeals, Griño was ordered to pay interest at the legal rate, on the amount of P9,002.90 to be computed from the filing of the complaint up to the time the same had been paid. Citing the case of Sajo v. Gustilo, it was held that: 'The Usury Law, as construed by this court, permits the creditor to recover the principal but not the stipulated usurious interest. This could well be taken to mean a forfeiture of the right to any interest so as not, to arrive at a contradiction in terms. Nevertheless, the court has fallen into the habit in cases of this character of allowing the creditor the legal rate of interest on the judgment from the date of the filing of the complaint. 'The objection of PCIB which was grounded on Article 1253 of the Civil Code which provides that 'If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered’ was ruled by the Court to be unmeritorious. The Court held further that the fact that Griño’s motion of August 23, 1965 involved nothing more than the satisfaction of the decision rendered by the Court of Appeals. Indeed, after the same had become final and executory, there was no other question left but its faithful execution.
XXX LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents. DOCTRINE: Interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. FACTS: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servando and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the loan. On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia MakalintalYaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275.000.00, was given to them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. ISSUE: Whether or not the interest is valid HELD: NO. We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally inexistent".
XXXI TEODORO SANCHEZ, petitioner, vs. HON. CARLOS R. BUENVIAJE, Presiding Judge, Branch VII, Court of First Instance of Camarines Sur, Iriga City, and ALEJO SANCHEZ, respondents. G.R. No. L-57314 | 1983-11-29 DOCTRINE: When the interest is declared usurious, the principal obligation is still valid, only the usurious is declared void. FACTS: On August 25, 1976, Alejo Sanchez sued Teodoro Sanchez and Leonor Santilles in the Municipal Court of Bato, Camarines Sur, for the recovery of P2,000.00 which the latter had promised to pay in two notes. Said notes also contained stipulations for interest at the rate of 10% per month The Municipal Court rendered judgment ordering Teodoro Sanchez only to pay to Alejo Sanchez P2,000.00 plus interest thereon at the legal rate from the filing of the complaint. ISSUE: Whether in loan contracts where it is found that the interest is usurious renders the entire contract void, i.e., both the principal and the interest. HELD: No, only with respect to interest, in that case, legal interest rate shall apply. It is now well-settled that: "the Usury Law (Act No. 2655), by its letter and spirit, does not deprive the lender of his right to recover of the borrower the money actually loaned this only in the case that the interest collected is usurious. The law, as it is now, does not provide for the forfeiture of the capital in favor of the debtor in usurious contract ... (Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, 275 [1925].)
XXXIII SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR, respondent. G.R. No. 125944 | 2001-06-29 DOCTRINE: While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. FACTS: On August 22, 1986, Spouses Solangon executed a deed or real estate mortgage in favor of the respondent to secure payment of a loan of P60,000.00 payable within a period of 4 months, with interest thereon at the rate of 6% per month Spouses Solangon executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the respondent, to secure payment of a loan of P136,512.00, payable within a period of 1 year, with interest thereon at the legal rate. On December 29, 1990, the Spouses Solangon executed a deed of real estate mortgage in which they mortgaged the same parcel of land in favor of respondent to secure payment of a loan in the amount of P230,000.00 payable within a period of 4 months, with interest thereon at the legal rate ISSUE: Whether the stipulated interest rate of 72% per annum or 6% per month is not unconscionable. HELD: No While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable. The appealed decision of the CA is affirmed subject to the modification that the interest rate of 72% per annum is ordered reduced to 12 % per annum.
XXXV BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. THE INTERMEDIATE APPELLATE COURT and RIZALDY T. ZSHORNACK respondents. G.R. No. L-66826 | 1988-08-19 DOCTRINE: A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. FACTS: The original parties to this case were Zshornack and COMTRUST. In 1980, BPI absorbed COMTRUST through a corporate merger, and was substituted as party to the case. On December 8, 1975, Zshornack entrusted to COMTRUST, thru Garcia, US $3,000.00 cash popularly known as greenbacks for safekeeping, and that the agreement was embodied in a document. Despite demands, the bank refused to return the money. COMTRUST averred that the US$3,000 was credited to Zshornack's peso current account at prevailing conversion rates. BPI argues that the contract embodied in the document is the contract of deposit as defined in Article 1962, NCC, which banks do not enter into. The bank alleges that Garcia exceeded his powers when he entered into the transaction. Hence, it is claimed, the bank cannot be liable under the contract, and the obligation is purely personal to Garcia. ISSUE: Whether or not the nature of contract entered into by the parties was a contract of deposit. HELD: The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time, Thus, Zshornack demanded the return of the money. The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.
XXXIX TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS, petitioners, vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL FELIZARDO N. LOTA and CLEMENT DAVID, respondents. G.R. No. L-60033 | 1984-04-04 DOCTRINE: Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited FACTS: David, together with his sister, invested with the NSLA the sum of P1,145,546.20 on time deposits covered by Bankers Acceptances and Certificates of Time Deposits and the sum of P13,531.94 on savings account deposits or a total of P1,159,078.14. It appears further that David, made investments in the aforesaid bank in the amount of US$75,000.00. When the aforesaid bank was placed under receivership petitioners Guingona and Martin, upon the request of David, assumed the obligation of the bank to private respondent David by executing a joint promissory note in favor of David acknowledging an indebtedness of Pl,336,614.02 and US$75,000.00. This PN was based on the statement of account prepared by the David. The amount of indebtedness assumed appears to be bigger than the original claim because of the added interest and the inclusion of other deposits of David’s sister in the amount of P116,613.20. Guingona and Martin agreed to divide the said indebtedness, and petitioner Guingona executed another PN whereby he personally acknowledged an indebtedness of P668,307.01 and US$37,500.00 in favor of David. The aforesaid PNs were executed as a result of deposits made by David and his sister Kuhne with the NSLA. ISSUE: Whether the transactions between David and NSLA were simple loans and not a contract of deposit. HELD: It must be pointed out that when private respondent David invested his money on nine. and savings deposits with the aforesaid bank, the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code provides that: Article 1980. Fixed, savings, and current deposits of-money in banks and similar institutions shall be governed by the provisions concerning simple loan. Hence, the relationship between the private respondent and the Nation Savings and Loan Association is that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the Bank upon the perfection of the contract and it can make use of the amount deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation to return the amount deposited, it has, however, no obligation to return or deliver the same money that was deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through misappropriation punishable under Article
315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over which the public respondents have no- jurisdiction.
XLI MANUEL M. SERRANO, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents. G.R. No. L30511 | 1980-02-14 DOCTRINE: All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. FACTS: Serrano made a time deposit, of P150,000.00 with the respondent Overseas Bank of Manila. Concepcion Maneja also made a time deposit, for of P200,000.00 with the same respondent. Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila, not a single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila. Respondent Central Bank denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner. Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest Concepcion Maneja when their time deposits were made with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central Bank. ISSUE: Whether respondent Central Bank is jointly and severally liable. HELD: No Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on loans. Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit.
XLIII BANK OF THE PHILIPPINE ISLANDS (successor-in-interest of COMMERCIAL BANK AND TRUST CO.), petitioner, vs. HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents. DOCTRINE: Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. FACTS: Eastern and Lim an officer and stockholder of Eastern, held at least one joint bank account with the CBTC, the predecessor-in-interest of petitioner BPI. Sometime in March 1975, a joint checking account with Lim was opened by Velasco with funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim. The money therein was placed in the money market. At the time of Velasco’s death, the outstanding balance of the account stood at P662,522.87. By virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of Eastern, ½ of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. Thereafter, Eastern obtained a loan of P73,000.00 from CBTC.For this loan, Eastern issued on the same day a negotiable PN for P73,000.00 payable on demand to the order of CBTC. The note was signed by Lim both in his own capacity and as President and General Manager of Eastern. In addition, Eastern and Lim, and CBTC signed another document entitled Holdout Agreement, wherein it was stated that as security for the Loan, Lim and Eastern have offered CBTC and the latter accepts a holdout on said to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties thereto. ISSUE: Whether or not BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout Agreement. HELD: Yes It is clear that CBTC, or BPI, had every right to demand that Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the application. To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option to exercise. Article 1980 of the Civil Code expressly provides that fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money deposited in the account.
XLV LUA KIAN, plaintiff and appellee, vs. MANILA RAILROAD COMPANY AND MANILA PORT SERVICE, defendants and appellants. G.R. No. L-23033 | 1967-01-05 DOCTRINE: The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman. As custodian of the goods discharged from the vessel, it was arrastre operator's duty, like that of any ordinary depositary, to take good care of the goods and to turn them over to the party entitled to their possession. FACTS: Lua Kian imported 2,000 cases of Carnation Milk and shipped on Board SS "GOLDEN BEAR". Out of the aforesaid shipment of 2,000 cases, only 1,829 cases marked `LUA KIAN 1458' were discharged from the vessel and received by Manila Port Service. Discharged from the same vessel on the same date unto the custody of defendant were 3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu United Enterprises, and on this shipment, Cebu United Enterprises has a pending claim for short-delivery against defendant Manila Port Service. Defendant delivered to the plaintiff thru its broker, 1,913 cases of Carnation Milk marked "LUA KIAN 1458". The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been shortdelivered by defendant is P1,183.11 while the invoice value of the 87 cases of Carnation Milk claimed by the defendant Manila Port Service to have been over-delivered by it to plaintiff is P1,130.65; The 1,913 cases of Carnation were taken by the broker at Pier 13, Shed 3, where at the time, there were stored therein, aside from the shipment involved herein, 1000 cases of Carnation Milk bearing the same marks and also consigned to plaintiff Lua Kian but had been discharged from SS `STEEL ADVOCATE'. Of the shipment of 1000 cases of Carnation Milk bearing the same marks as the shipment herein but had been discharged from S/S "STEEL ADVOCATE" and, Lua Kian as consignee thereof filed a claim for short-delivery against defendant. ISSUE: Whether the defendants should not be made to answer for the undelivered cases of milk, insisting that Manila Port Service was bound to deliver only 1,829 cases to Lua Kian and that it had there before in fact over-delivered to the latter. HELD: The bill of lading in favor of Cebu United Enterprises indicated that only 3,000 cases were due to said consignee, although 3,171 cases were marked in its favor. Accordingly, the excess 171 cases marked "Cebu United" placed the defendant arrastre operator in a dilemma, for should it deliver them to Lua Kian the goods could be claimed by the consignee Cebu United Enterprises whose markings they bore, and should it deliver according to markings, to Cebu United Enterprises, it might be sued by the consignee, Lua Kian whose bill of lading indicated that it should receive 171 cases more. The dilemma itself, however, offered the solution. The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman. As custodian of the goods discharged from the vessel, it was defendant arrastre operator's duty, like that of any ordinary depositary, to take good care of the goods and to turn them over to the party entitled to their possession. Under this particular set of circumstances, said defendant should have withheld
delivery because of the discrepancy between the bill of lading and the markings and conducted its own investigation, not unlike that under Section 18 of the Warehouse Receipts Law, or called upon the parties, to interplead, such as in a case under Section 17 of the same law, in order to determine the rightful owner of the goods.
XLVII SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants, vs. INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee. G.R. No. 73271 | 1987-05-29 DOCTRINE: The entruster does not become the real owner of the goods but merely the holder of a security title for the advances made under the Letter of Credit. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. FACTS: Petitioner spouses Vintola owns and manages manufacturing of raw seashells into finished products, under their business name, Dax kin International. They applied for domestic letter of credit by respondent Insular Bank of Asia and America which was granted. Then, executed a Trust Receipt Agreement with Insular bank stipulating that the Vintolas shall hold the goods in trust for IBAA. Having defaulted in its payment, the Vintolas offered to return the goods to IBAA, but the latter refused. Due to their continued refusal, IBAA charged them with estafa. The Court acquitted the Vintolas. ISSUE: Whether or not IBAA became the real owners of the goods held in trust by the Vintolas. RULING: No. Insular bank of Asia and America did not become the holder or real owner of the goods. The Vintola’s retained ownership of the goods. The Court held that the trust receipt arrangement did not convert the IBAA into an investor, it remained a lender and creditor. Under the law, a trust receipt is a document wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster to sell or otherwise dispose of the goods, to the amount owing to the entruster.
LVI PHILIPPINE NATIONAL BANK, petitioner, vs. HON. MARCELINO L. SAYO, JR., in his capacity as Presiding Judge of the Regional Trial Court of Manila (Branch 45), NOAH'S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO, respondents.
G.R. No. 129918 | 1998-07-09 FACTS: • In accordance with Act No. 2137, the Warehouse Receipt Law, Noah’s Ark Sugar Refinery (Noah’s Ark) issued the following warehouse receipts (quedans): (1) Receipt No. 18062, covering sugar deposited by Ms. Rosa Sy on 01 March 1989; (2) Receipt No. 18080, deposited by RNS Merchandising on 07 March 1989; (3) Receipt No. 18081, deposited by St. Therese Merchandising on 21 March 1989 (4) Receipt No. 18086, deposited by St. Therese Merchandising on 31 March 1989; and (5) Receipt No. 18087, deposited by RNS Merchandising on 01 April 1989. • Receipt 18080 and 18081 were negotiated and endorsed to Luis T. Ramos and Receipt 18086, 18087 and 18062 were negotiated and endorsed to Cresencia K. Zoleta. Ramos and Zoleta then used the quedans as a security for 2 loan agreements – P15.6 million and P23.5 million obtained by them from the Philippine National Bank (PNB). Said quedans were indorsed by them to PNB • Zoleta and Ramos failed to pay their maturing loans on 09 January 1990. On 16 March 1990, PNB wrote to Noah’s Ark demanding delivery of sugar covered by the quedans endorsed to it by Zoleta and Ramos. • Noah’s Ark refused to comply with the demand, alleging ownership thereof • According to Noah’s Ark, on 01 April 1989, the defendant agreed to sell the total volume of sugar as indicated in the quedans for a total consideration of P63 million to Rosa Sy of RNS Merchandising and Teresita Ng of St. Therese Merchandising. The corresponding payment was in the form of check issued to the vendees. However the checks was dishonored by drawee bank for being drawn against insufficient funds. • Considering that the vendees and first endorsers of subject quedans did not acquire ownership thereof, the subsequent endorsers and plaintiff itself did not acquire a better right of ownership than the original vendees/first endorsers. • The matter reached the Court and in its decision in G.R. No. 107243, the Court ordered the delivery of stocks of sugar covered by the subject quedan receipts to PNB and pay actual damages amounting to P39.1 million with interest thereon and litigation and judicial expenses amounting to P150,000 • Private respondents filed an omnibus motion to deferred the proceedings until they are heard on the warehouseman’s lien. On 22 August 1994, the petitioners filed a motion for the issuance of the writ of execution and opposition to the omnibus motion of the respondents. • The trial court granted private respondents' Omnibus Motion on December 20, 1994 and set reception of evidence on their claim for warehouseman's lien. The resolution of the PNB's Motion for Execution was ordered deferred until the determination of private respondents' claim. • The matter again reached the Court and in its decision in GR No. 119231, Court held that While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the possession of the goods without requiring payment of his
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lien, because a warehouseman's lien is possessory in nature. The private respondents then filed a motion for the execution of the defendant’s lien as a warehouseman on 27 November 1996. Such motion was opposed by PNB on the following grounds: o The lien claimed by Noah's Ark in the unbelievable amount of P734,341,595.06 is illusory; and o There is no legal basis for execution of defendants' lien as warehouseman unless and until PNB compels the delivery of the sugar stocks. On 07 April 1997, the trial court granted the motion for the execution of the warehouseman’s lien in the amount of 662,548,611.50 net of the claims by the petitioners. Hence this petition with the Court.
ISSUES: Whether the respondents is entitled to the warehouseman’s lien amounting to 734,341,595.06 from the petitioners. HELD We confirmed petitioner's liability for storage fees in G.R. No. 119231. However, petitioner's status as to the quedans must first be clearly defined and delineated to be able to determine the extent of its liability. Petitioner insisted, both in its petition and during the oral arguments on 24 November 1997, that it was a mere pledgee as the quedans were used to secure two loans it granted. In our decision in G.R. No. 107243, we upheld this contention of petitioner, thus: Zoleta and Ramos then used the quedans as security for loans obtained by them from the Philippine National Bank (PNB) as security for loans obtained by them in the amounts of P23.5 million and P15.6 million, respectively. These quedans they indorsed to the bank. As such, Martinez v. Philippine National Bank becomes relevant: In conclusion, we hold that where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale, this for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost without the fault or negligence of the mortgagee or pledgee or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. The indorsement and delivery of the warehouse receipts (quedans) by Ramos and Zoleta to petitioner was not to convey "title" to or ownership of the goods but to secure (by way of pledge) the loans granted to Ramos and Zoleta by petitioner. The indorsement of the warehouse receipts (quedans), to perfect the pledge, merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary, termed pactum commissorio, is null and void. The law requires foreclosure in order to allow a transfer of title of the good given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods.
The warehouseman, nevertheless, is entitled to the warehouseman's lien that attaches to the goods invokable against anyone who claims a right of possession thereon. The next issue to resolve is the duration of time the right of petitioner over the goods may be held subject to the warehouseman's lien. Sections 8, 29 and 31 of the Warehouse Receipts Law now come to fore. They provide, as follows: SEC. 8. Obligation of warehousemen to deliver. A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor, if such demand is accompanied with: (a) An offer to satisfy warehouseman's lien; (b) An offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation of the receipt; and (c) A readiness and willingness to sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the warehouseman. In case the warehouseman refuses or fails to deliver the goods in compliance with a demand by the holder or depositor so accompanied, the burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal. SEC. 29. How the lien may be lost. A warehouseman loses his lien upon goods; (a) By surrendering possession thereof, or (b) By refusing to deliver the goods when a demand is made with which he is bound to comply under the provisions of this Act. SEC. 31. Warehouseman need not deliver until lien is satisfied. A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. Simply put, where a valid demand by the lawful holder of the quedans for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse provided by the statute itself, the warehouseman's lien is thereafter concomitantly lost. As to what the law deems a valid demand, Section 8 enumerates what must accompany a demand; while as regards the reasons which a warehouseman may invoke to legally refuse to effect delivery of the goods covered by the quedans, these are: (1) That the holder of the receipt does not satisfy the conditions prescribed in Section 8 of the Act. (See Sec. 8, Act No. 2137) (2) That the warehouseman has legal title in himself on the goods, such title or right being derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from the warehouseman's lien. (Sec. 16, Act No. 2137) (3) That the warehouseman has legally set up the title or right of third persons as lawful defense for non-delivery of the goods as follows: (a) Where the warehouseman has been requested, by or on behalf of the person lawfully entitled to a right of property of or possession in the goods, not to make such delivery (Sec. 10, Act No. 2137), in which case, the warehouseman may, either as a defense to an action brought against him for nondelivery of the goods, or as an original suit, whichever is appropriate, require all known claimants to interplead (Sec. 17, Act No. 2137); (b) Where the warehouseman had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods (Sec. 10, Act No. 2137), in which case, the warehouseman shall be excused from liability for refusing to deliver the goods, either to the depositor or person claiming under him or to the adverse claimant, until the warehouseman has had a reasonable time to ascertain the validity of the adverse claims or to bring legal proceedings
to compel all claimants to interplead (Sec. 18, Act No. 2137); and (c) Where the goods have already been lawfully sold to third persons to satisfy a warehouseman's lien, or have been lawfully sold or disposed of because of their perishable or hazardous nature. (Sec. 36, Act No. 2137). (4) That the warehouseman having a lien valid against the person demanding the goods refuses to deliver the goods to him until the lien is satisfied. (Sec. 31, Act No. 2137) (5) That the failure was not due to any fault on the part of the warehouseman, as by showing that, prior to demand for delivery and refusal, the goods were stolen or destroyed by fire, flood, etc., without any negligence on his part, unless he has contracted so as to be liable in such case, or that the goods have been taken by the mistake of a third person without the knowledge or implied assent of the warehouseman, or some other justifiable ground for non-delivery. (67 C.J. 532) Regrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Section 8 of the law. The presumption, nevertheless, would be that the law was complied with, rather than breached, by petitioner. Upon the other hand, it would appear that the refusal of private respondents to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of the warehouseman's lien over the goods, but on an adverse claim of ownership. Private respondents justified their refusal to deliver the goods, as stated in their Answer with Counterclaim and Third-Party Complaint in Civil Case No. 90-53023, by claiming that they "are still the legal owners of the subject quedans and the quantity of sugar represented therein." Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the warehouseman's lien, however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noah's Ark to heed the lawful demand by petitioner for the release of the goods. The finality of our denial in G.R. No. 119231 of petitioner's petition to nullify the trial court's order of 01 March 1995 confirms the warehouseman's lien; however, such lien, nevertheless, should be confined to the fees and charges as of the date in March 1990 when Noah's Ark refused to heed PNB's demand for delivery of the sugar stocks and in no event beyond the value of the credit in favor of the pledgee (since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors even while such buyer acquires title over the goods less any existing preferred lien thereover). The foreclosure of the thing pledged, it might incidentally be mentioned, results in the full satisfaction of the loan liabilities to the pledgee of the pledgors. The Court has therefore granted the petition and directed the court to conduct further proceedings to: (1) to allow petitioner to present its evidence on the matter of the warehouseman's lien;
(2) to compute the petitioner's warehouseman's lien in light of the foregoing observations; and (3) to determine whether, for the relevant period, Noah's Ark maintained a sufficient inventory to cover the volume of sugar specified in the quedans.
LVII AUGUSTO COSIO and BEATRIZ DE RAMA, petitioners, vs. CHERIE PALILEO, respondent. G.R. No. L-18452 | 1966-05-20
FACTS • In Palileo v Cosio, 97 Phil 919, the Court held that Cosio de Rama was a mortgagee of the property subject of this case. • That in their contract it was denominated as conditional sale to Cosio until Palileo has fully paid the loan amounting to 12,000. • However, Palileo will continue to occupy the property and will pay the rent. • The house on the property was subsequently burned, causing the respondent to leave the property momentarily. • The petitioner then claimed the insurance proceeds from the Associated Insurance and Surety Company and occupied the property. • That as a result of the decision in Palileo v Cosio, the contract was declared by the court as mortgaged and the petitioner-mortgagee were declared as possessors in bad faith and was ordered to pay the rental. • The petitioners argue that they were given possession of the property when the previous contract of Conditional Sale was executed. • The petitioner has cited Legaspi v Celestial saying that, inasmuch as it is not an essential requisite of the contract of mortgage to remain in the possession of the mortgagor, the latter may deliver said property to the mortgagee without altering the nature of the contract, it being not an essential element of a contract of mortgage. ISSUE Whether the petitioners were possessors in bad faith and is liable to pay for the rentals during its possession of the property. HELD: Yes In a contract of mortgage, the mortgagor, as a general rule, retains the possession of the property mortgaged as security for the payment of the sum borrowed from the mortgagee, and pays the latter a certain per cent thereof as interest on his principal by way of compensation for his sacrifice in depriving himself of the use of said money and the enjoyment of its fruits, in order to give them to the mortgagor. Inasmuch as it is not an essential requisite of the contract of mortgage that the property mortgaged remain in the possession of the mortgagor (Article 1857 of the Civil Code) the latter may deliver said property to the mortgagee, without thereby altering the nature of the contract. It not being an essential requisite of said contract of mortgage that the principal of the mortgage credit bear interest, or that the interest, as compensation for the use of the principal and enjoyment of its fruits, be in the form of a certain per cent thereof, such interest may be in the form of fruits of the mortgaged property, without the contract's losing thereby its character of a mortgage contract. (At 377-378) We may mention, at this point, that this ruling was made in answer to the contention of the appellant in that case that the contract was an antichresis and not a mortgage. Of course in other cases the rule has been laid down that where by agreement the mortgaged property is delivered to the mortgagee, such mortgagee in possession is subject to the obligation of an antichretic creditor to apply the fruits to the payment, first, of the interest and, later, of the principal. Now, was there an agreement in this case to permit Cosio de Rama to have possession of the
house in lieu of the payment of interest? Quite the contrary, the parties stipulated that interest (in the form of rent) was to be paid at the rate of P250 a month, an amount which we found to be excessive. For petitioners, therefore, to espouse the theory of a mortgagee in possession would be for them to admit unwittingly that doubly excessive interest was collected for a loan of P12,000 which Cosio de Rama had extended to Palileo. Hence, Cosio was not the lawful possessor of the property in this case and is liable to pay for the rentals from the time they took actual possession of the property.
LVIII IN RE: Petition for Cancellation of Adverse Claim. ANANIAS ABUSTAN, petitioner-appellee, vs. RUPERTO FERRER and CONSUELO V. GOLEZ (spouses), oppositors-appellants.
G.R. No. L-19519 | 1964-11-28 DOCTRINE: Being merely an accessory contract, a mortgage cannot exist without the principal obligation it seeks to guarantee FACTS: Spouses Ruperto Ferrer and Consuelo Golez seeks the review of the court order of the Court of First Instance of Rizal directing the cancellation of an adverse claim to a land in Makati covered by TCT No. 76141 issued in the name of the appellee Ananais Abustan on 04 May 1960 upon the cancellation of TCT 30520 in the name of Vicente Gomez. On 06 April 1955, Vicente Gomez executed a document constituting a mortgage in favor of the Ferrers, to guarantee payment of P2,500 loan, within one year from said date. That in the case of non-payment, the Ferrers, at their election would assume the obligation of Gomez from Meralco Loan and Savings Association which had first mortgage over the property a deed of sale shall be executed in favor of the Ferrers. The document was not registered due to the erroneous reference of the document to the title number of the property. On 09 May 1956, the mortgage in favor of Meralco Loans was cancelled and another mortgage was registered in favor of Spouses Brigido Campita and Fausta Domingo for 3,000, this was subsequently cancelled on 08 June 1957, on which another mortgage was registered in favor of Manila Building and Loan Association for a loan amounting to P6,000. On 04 March 1959 the Ferrers instituted Civil Case No. 4820 at the CFI of Rizal for the recovery of the sum of money for the loan mentioned above. The case was dimissed for failure of the parties to appear. The Ferrers instated Civil Case 5726 alleged, the failure of Gomez to pay the guaranteed debt, the reasons why the mortgage was not registered, the execution of the first mortgaged in favor of Manila Association, laches on the part of Manila Association for failure to require an affidavit from Gomez stating that the property is unemcumbered; and prayed that the property be conveyed to them as well as for damages. The case was dismissed on the ground that the dismissal in the Case 4820 is a bar from further actions on the matter. On 04 May 1960, TCT 76141 was issued in the name of Ananais Abustan carrying the annotation of mortgage of Manila Association and the adverse claim of the Ferrers. On 13 July 1960, Abustan filed in Land Registration Case No. 3861 GLRO Cadastral Record 2029 for the cancellation of the adverse claim by virtue of the final order (dismissal) in Civil Case 5726. The claims of the Ferrers being mproperly registered in violation of Section 112 of Act 496, because the right or interest sought to be enforced by the spouses, Ruperto Ferrer and Consuelo Golez, had become unenforceable. The petition was granted. The Ferrers maintain that the lower court erred (a) in holding that the deed of mortgage constituted in their favor had became unenforceable owing to the dismissal of Civil Cases Nos. 4820 and 5726 of Rizal; (b) in not holding that the registration of the adverse claim in question operated as a registration of the deed of real estate mortgage in their favor. ISSUE: Whether the registered adverse claim or mortgage of the Ferrers is still valid and enforceable. HELD: This appeal is clearly devoid of merit. Indeed, the dismissal of Case No. 4820 had the effect of extinguishing the debt of Gomez in favor of the Ferrers. As a consequence, the latter lost the right to demand the conveyance in their favor of the lot in dispute, such right being predicated upon the default of Gomez in the payment of said debt. The extinction thereof necessarily operated to
wipe out the default, if any, and, as a consequence, the relief stipulated for such event, namely, the conveyance of the property to the Ferrers. Regardless of the foregoing, the dismissal of Case No. 5726 extinguished the right, if it still existed, to said conveyance, which was sought to be enforced in that case. Even if the annotation of the adverse claim amounted to the registration of a deed of real estate mortgage - and it did not have such effect - the dismissal of Case No. 4820 had extinguished the debt secured by the mortgage, and, accordingly, of the latter. Being merely an accessory contract, a mortgage cannot exist without the principal obligation it seeks to guarantee (Article 2085, Civil Code of the Philippines). So, too, even if Case No. 5726 had amounted to a reopening of Case No. 4820, which is not a fact, the dismissal of Case No. 5726 wiped out the right of the Ferrers under Exhibit E to the conveyance in their favor of the property in question regardless of its nullity under Article 2088 of the Civil Code of the Philippines - no appeal having been taken from the order of dismissal of said Case No. 5726.
LIX General Insurance and Surety Corporation, petitioners, vs. Hon. Honorato B. Masakayan, Judge of the Court of First Instance of Rizal, Branch V, Quezon City; Leondro E. Castelo and Josefa Payumo Castelo, respondents.
G.R. No. L-28764 | 1973-11-29 DOCTRINE: Future property cannot be pledged or mortgaged. FACTS: By virtue of a contract to sell, Gregorio Araneta, Inc. represented by J.M. Tuason was bound to convey plaintiff ownership over a house and lot upon full payment of the purchase price which was payable in installment to Leondro and Josefa Castelo, herein respondent. Gregorio Araneta, Inc. gave the possession of the property to the respondents. The respondent through the help of General Insurance and Surety Corporation, petitioner, obtained loan from Philippine Bank of Commerce (PBC) amounting to P4,000 documented by promissory note, wherein the petitioner signed as an accommodation party. In view of such arrangement the petitioner and the respondent signed an indemnity agreement, whereby the respondent mortgage the property to the petitioner, however, it did not meet the approval of Gregorio Araneta, Inc., because the respondent has not yet fully paid the price. The plaintiff and respondent instead executed a “Deed of Sale with Right to Repurchase (in lieu of the real estate mortgage) whereby they sold to the latter all their rights and interest over the lot. Then another loan was obtained by the respondent from PBC again the plaintiff as an accommodation party. The plaintiff then paid the balance to Gregorio Araneta, Inc., and a deed of sale was executed by the latter in favor of the former and new title was issued by the Registry of Deeds of Quezon City in favor of the plaintiff. The petitioner then filed an unlawful detainer against the respondents, it was ruled by the RTC declared the deed of sale with a right to repurchase as additional security for the loan with PBC and ordered the reconveyance of the property to the respondents. ISSUE: Whether the respondent has sufficient rights to support the allegation that the contract was in fact that of a real estate mortgage. HELD: No. No valid mortgage could have been executed between the parties as the respondents were not the absolute owners of the land as required by Art. 2085 of the New Civil Code.
LX Development Bank of the Philippines, petitioner, vs. Court of Appeals, Mylo O. Quinto and Jesusa Christine S. Chupueco, respondents.
G.R. No. 109946 | 1996-02-09 DOCTRINE: It is the registration and issuance of the certificate of title that segregate public lands from the mass of public domain and convert it into private property. FACTS: The petitioner, Development Bank of the Philippines granted a loan amounting to 94,000 to Sps. Santiago and Olivia Olidiana secured real estate mortgage on Lot 2029 with Tax Declaration No. 2335/1 which at the time subject by a free patent application/sales application with the Bureau of Lands. Subsequently in 02 November 1978, Sps. Olidiana filed an amendment of their application relinquishing the property to Jesusa Christine Chupuico and Mylo O. Quinto, subsequently titles where issued on the name of both respondents. On 23 April 1979, Sps. Santiago executed additional mortgage on said property for subsequent loan amounting to 62,000. Thereafter Sps. Santiago became in default on their obligations. DBP filed an extrajudicial foreclosure, DBP being the highest bidder. A certificate of sale was issued in favor of DBP, however when the affidavit of consolidation and the certificate of sale is to be registered, it was discovered that titles were issued on said respondents. DBP filed a motion for quieting of title and cancellation on annulment of certificate of title. Trial court ruled that Sps. Olidiana were not yet absolute owners of the property at the time the real estate mortgage was issued for they were not yet owners of the property as it is a public land. Upon appeal, Court of Appeals ruled in favor of the respondents as well, hence this instant petition. ISSUE: Whether the real estate mortgage over the property is valid. HELD: No. In Visayan Realty, Inc. v. Meer we ruled that the approval of a sales application merely authorized the applicant to take possession of the land so that he could comply with the requirements prescribed by law before a final patent could be issued in his favor. Meanwhile the government still remained the owner thereof, as in fact the application could still be canceled and the land awarded to another applicant should it be shown that the legal requirements had not been complied with. What divests the government of title to the land is the issuance of the sales patent and its subsequent registration with the Register of Deeds. It is the registration and issuance of the certificate of title that segregate public lands from the mass of public domain and convert it into private property. Since the disputed lot in the case before us was still the subject of a Free Patent Application when mortgaged to petitioner and no patent was granted to the Olidiana spouses, Lot No. 2029 (Pls-61) remained part of the public domain. With regard to the validity of the mortgage contracts entered into by the parties, Art. 2085, par. 2, of the New Civil Code specifically requires that the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged. Thus, since the disputed property was not owned by the Olidiana spouses when they mortgaged it to petitioner the contracts of mortgage and all their subsequent legal consequences as regards Lot No. 2029 (Pls-61) are null and void. In a much earlier case we held that it was an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the property mortgaged, and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor, the mortgage in question must of necessity be void and ineffective. For, the law explicitly requires as imperative for the validity of a mortgage that the mortgagor be the absolute owner of what is mortgaged.
LXI Northern Motors. Inc., petitioner, vs. Hon. Jorge R. Coquia, etc., et. al., respondents, Filinvest Credit Corporation, intervenor. G.R. No. L-40018 | 1975-12-15 DOCTRINE: The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. FACTS: Respondent Honesto Ong and City Sheriff of Manila filed a motion for reconsideration of this Court’s resolution holding that a lien of Northern Luzon Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made on the said cabs by Honesto Ong, the assignee of the unsecured judgment creditor of the chattel mortgagor, Manila Yellow Taxicab Co., Inc. On the other hand, on the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same August 29 resolution, prayed for the reversal of the lower court's orders cancelling the bond filed by Filwriters Guaranty Assurance Corporation. Northern Motors, Inc. further prayed that the sheriff should be required to deliver to it the proceeds of the execution sale of the mortgaged taxicabs without deducting the expenses of execution. ISSUES: 1. Whether the judgment creditor’s claim is superior to mortgagor’s lien over the property. 2. Whether Northern Motors Inc., is entitled to the proceeds of the sale without deductions HELD 1: No. Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. He contends that his only recourse was to levy upon the taxicabs which were in the possession of the judgment debtor, Manila Yellow Taxicab Co. Inc., whereas, Northern Motors, Inc., as unpaid seller and mortgagee, "has still an independent legal remedy" against the mortgagor for the recovery of the unpaid balance of the price. That contention is not a justification for setting aside the holding that Ong had no right to levy upon the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. The mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To require him to do so would be a nullification of his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. (See art. 2087, Civil Code) HELD 2: Yes. We already held that the execution was not justified and that Northern Motors, Inc., as mortgagee, was entitled to the possession of the eight taxicabs. Those cabs should not have been levied upon and sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage. Since the cabs could no longer be recovered because apparently they had been transferred to persons whose addresses are unknown (see par. 12, page 4, Annex B of motion), the proceeds of the execution sale may be regarded as a partial substitute for the unrecoverable cabs (See arts. 1189[2] and 1269, Civil Code; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632). Northern Motors, Inc. is entitled to the entire proceeds without deduction of the expenses of execution.
LXII Government Service Insurance System, petitioner, vs. Court of Appeals and Mr. and Mrs. Isabelo R. Rancho, respondents, G.R. No. L-40824 | 1989-02-23 DOCTRINES: The facts that the loans were solely for the benefit of one party would not invalidate the mortgage. In extrajudicial foreclosure sale, personal notice on the mortgagor is not required FACTS: Spouses Racho, respondents, together with the Spouses Lagasca, executed two deeds of mortgage in favor of Government Service Insurance System (GSIS) in connection with two loans granted by the latter in the sums of P11,500 and P3,000, respectively. They executed a "promissory note" wherein the spouses bound themselves “jointly, severally, and solidarily” to pay GSIS the loan amount with 6% interest compounded monthly, payable in 120 equal monthly installments of P127.65 each. A parcel of land (TCT No. 38989) co-owned by said mortgagor spouses was given as security under the said mortgage deeds. The Lagasca spouses thereafter executed an "Assumption of Mortgage" assuming the obligation to the GSIS and to secure the release of the mortgage covering that portion of the land belonging to the spouses Racho. Upon failure of the mortgagors to pay the amortizations due, GSIS extrajudicially foreclosed the mortgage and caused the mortgaged property to be sold at public auction on December 3, 1962. More than two years thereafter, or on August 23, 1965, the spouses Racho filed a complaint against GSIS and the Lagasca spouse praying that the extrajudicial foreclosure made on their property be declared null and void. Spouses Racho alleged that they signed the mortgage contracts not as sureties or guarantors for the Lagasca spouses but they merely gave their common property to the said co-owners who were solely benefited by the loans from the GSIS. The trial court dismissed the complaint for failure to establish a cause of action. However, the Court of Appeals (CA) reversed and held that the spouses Racho were accommodation mortgagors. Moreover, the foreclosure of the mortgage was void insofar as it affects the share of the spouses Racho since GSIS foreclosed the mortgage without having given sufficient notice to the spouses Rachos either as to their delinquency in the payment of amortization or as to the subsequent foreclosure of the mortgage. The notice published in the newspaper, `Daily Record' and posted pursuant to Sec. 3 of Act 3135 is not the notice to which the mortgagor is entitled upon the application being made for an extrajudicial foreclosure. Hence, the present petition for review filed by GSIS. ISSUES: 1. Whether the mortgage is affected by the fact that the loan is for the sole benefit of the other party 2. Whether notice requirement for extra-judicial foreclosure complied. HELD 1: No, mortgage still valid. The spouses Racho signed the documents "only to give their consent to the mortgage as required by GSIS" with the latter having full knowledge that the loans secured thereby were solely for the benefit of the Lagasca spouses. Indeed, it would be unusual for the GSIS to arrange for and deduct the monthly amortizations on the loans from the salary as an army officer of Flaviano Lagasca without likewise affecting deductions from the salary of Isabelo Racho who was also an army sergeant. Then there is also the undisputed fact, as already stated, that the Lagasca spouses executed a so-called "Assumption of Mortgage" promising to exclude the spouses Racho and their share of the mortgaged property from liability to the mortgagee. There is no intimation that the former executed such instrument for a consideration, thus confirming that they did so pursuant to their original agreement. However, it cannot be said that the spouses Racho are without liability
under the aforesaid mortgage contracts. The last paragraph of Article 2085 of the Civil Code is to the effect that third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. So long as valid consent was given, the fact that the loans were solely for the benefit of the Lagasca spouses would not invalidate the mortgage with respect to the spouses Racho's share in the property. In consenting thereto, even assuming that the spouses Racho may not be assuming liability for the debt, their share in the property shall nevertheless secure and respond for the performance of the principal obligation. The parties to the mortgage could not have intended that the same would apply only to the aliquot portion of the Lagasca spouses in the property, otherwise the consent of the spouses Racho would not have been required. The supposed requirement of prior demand on the spouses Racho would not be in point here since the mortgage contracts created obligations with specific terms of the compliance thereof. Moreover, the spouses Racho expressly bound themselves as solidary debtors in the promissory note. HELD 2: Yes. Notice requirement complied. As to the extrajudicial foreclosure effected by GSIS, we cannot agree with the ruling of the CA that lack of notice to the spouses Racho of the extrajudicial foreclosure sale impairs the validity thereof. Act No. 3135, as amended, does not require personal notice on the mortgagor. (see Bonnevie vs. Court of Appeals)
LXIII MANOLO P. CERNA, petitioner, vs. THE HONORABLE COURT OF APPEALS and CONRAD C. LEVISTE, respondents. G.R. No. L-48359 | 1993-03-30 DOCTRINE: A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit. FACTS: On October 16, 1972, Celerino Delgado obtained a 90-day loan amounting to 17,500 from Conrad Leviste. On the same date, the former executed a chattel mortgage on Willy’s jeep owned by him and acting as attorney-in-fact of Cerna, he also mortgage a Taunus car owned by the latter. The period lapsed without Delgado paying the loan. Leviste filed a collection suit against Delgado and Cerna, as solidary debtor. Cerna filed a motion to dismissed citing lank of cause of action against the petitioner and the death of Delgado. Petitioner also stated that for filing a collection suit he looses the right to foreclose the mortgage and that Leviste’s claim should be filed in the settlement proceedings of the estate of Delgado. The trial court dismissed his motion. The Court of Appeals (CA) as well has denied his petition for a special civil action of certiorari, mandamus and prohibition with preliminary injunction on 28 June 1976. On 18 February 1977, the petitioner again filed a second motion to dismiss on the ground that the court, now presided by a new judge, Judge Nelly L. Romero Valdellon, acquired no jurisdiction on the case. The petition was denied since an earlier petition, on the same grounds was already resolved. A petition for certiorari was filed with the CA and the same was dismissed. Hence, this instant petition for review was raised. ISSUE 1. Whether Delgado and Cerna were solidary creditors. 2. Whether upon filing of the collection, the creditor, Leviste looses its right to foreclosure losing its right against the property of Cerna. HELD 1: No. Only Delgado signed the promissory note and accordingly, he was the only one bound by the contract of loan. Nowhere did it appear in the promissory note that petitioner was a co-debtor. The law is clear that "(c)ontracts take effect only between the parties. There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract of loan remains to be primarily bound. It is only upon the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditors has recourse on the principal debtor. HELD 2: Yes Granting, however, that petitioner was obligated under the mortgage contract to answer for Delgado's indebtedness, under the circumstances, petitioner could not be held liable because the complaint was for recovery of a sum of money, and not for the foreclosure of the security. We agree with petitioner that the filing of collection suit barred the foreclosure of the mortgage. A mortgage who files a suit for collection abandons the remedy of foreclosure of the chattel
mortgage constituted over the personal property as security for the debt or value of the promissory note which he seeks to recover in the said collection suit. Despite the merits of the case of the petitioner, the petition was dismissed on procedural ground. The first motion which was appealed to the CA raising the same facts and circumstances was already final. We agree with the contention of private respondent, that the action has been barred by the principle of res judicata.
LXIV GUILLERMO ADRIANO, petitioner, vs. ROMULO PANGILINAN, respondents. G.R. No. L-137471 | 2002-01-16 DOCTRINE: Mortgage is invalid if the mortgagor is not the owner of the property mortgaged. FACTS: Guillermo Adriano is the owner of a certain parcel of land covered by Transfer Certificate of Title No. 337942 with an area of 304 sq.m more or less. Adriano entrusted said title to Angelina Salvador for the purpose of securing a mortgage loan. Without the knowledge and consent of Adriano, Salvador mortgaged the subject property to Romulo Pangilinan, a businessman regularly engaged in mortgaged of real properties. After a time, Adriano verified the status of his title in the Registry of Deeds (ROD) of Marikina and was surprised that the title has an annotation in favor of Romulo Pangilinan for a loan of 60,000. Adriano denied having executed the real estate mortgage and alleged that his signature is a forgery. He demanded reconveyance of the property in his name and when these demands were ignored he instituted the present suit. Pangilinan, in his defense said that sometime in December 1990, Salvador went to him for assistance in securing a loan over a land. Pangilian gave her the requirements. When Pangilinan conducted an ocular inspection of the property, he met a person representing to be Adriano and gave him the original title of the property. He verified with the ROD of Marikina the genuiness of the property and founding its veracity and after signing the promissory note by alleged Adriano, he released the proceeds of the loan. The trial court find in favor of the petitioner, declaring the mortgage null and void and ordered the reconveyance of the property to Adriano. Court of Appeals reversed the decision of the trial court. CA faulted the petitioner as negligent for entrusting and delivering the property to Salvador. Hence this instant petition. ISSUES: 1. Whether the mortgage is valid. 2. Who bears the loss if both parties are negligent. HELD: We hold that both law and equity favor petitioner. First, the relevant legal provision, Article 2085 of the Civil Code, requires that the "mortgagor be the absolute owner of the thing x x x mortgaged." Here, the mortgagor was an impostor who executed the contract without the knowledge and consent of the owner. Second, equity dictates that a loss brought about by the concurrent negligence of two persons shall be borne by one who was in the immediate, primary and overriding position to prevent it. Herein respondent – who, we repeat, is engaged in the business of lending money secured by real estate mortgages – could have easily avoided the loss by simply exercising due diligence in ascertaining the identity of the impostor who claimed to be the owner of the property being mortgaged. Finally, equity merely supplements, not supplants, the law. The former cannot contravene or take the place of the latter.
In any event, respondent is not precluded from availing himself of proper remedies against Angelina Salvador and her cohorts.
LXV UNIONBANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF APPEALS and FERMINA S. DARIO and REYNALDO S. DARIO, respondents. G.R. No. 133366 | 1999-0805 DOCTRINE: Upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds. FACTS: On 17 December 1991, Sps. Leopoldo and Jessica Dario executed a deed of real estate mortgage in favor of Unionbank to secure a 3 million loan including interest. The mortgaged covered a Quezon City property with TCT No. 41828 in Leopoldo Dario’s name, and was annotated on 18 December 1991. For non-payment of the principal obligation, Unionbank extrajudicially foreclosed the property on 12 August 1993 and sold the same at the public auction, it being the highest bidder. On 04 October 1994, one week before the expiration of the one year redemption period, private respondent filed a complaint with the RTC of Quezon City for the annulment of sale and real estate mortgage and the reconveyance and prayer of retraining notice of lis pendes was annotated on the title. On 10 October 1994, the RTC issued a TRO enjoining the restraining the statutory redemption period. At a hearing, four days later, Unionbank moved orally for the dismissal of the case alleging that the certification for non-forum shopping is not attached. The RTC settled the motion in favor of Unionbank. Respondents filed a motion for reconsideration of the dismissal of the case on 20 October 1994 praying that they may be permitted to amend their complaint and be allowed to comply with the requirements of certification of non-forum shopping. The RTC allowed the respondents to do so. Meanwhile, Unionbank, without notice to the respondents, consolidated title over the foreclosed property on 24 October 1994. On December 1994, the respondents filed a amended complaint alleging the invalidity of the mortgage and of the sale. They were alleging that they, not the mortgagors, are the true owners of the property mortgaged and insisting on the invalidity of both the mortgage and its subsequent extrajudicial foreclosure. They claimed that the original title, TCT No. 61571, was entrusted to a certain Atty. Reynaldo Singson preparatory to its administrative reconstitution after a fire gutted the Quezon City Hall building. Mortgagor Leopoldo, private respondent Fermina's son, obtained the property from Atty. Singson, had the title reconstituted under his name without private respondents knowledge, executed an ante- dated deed of sale in his favor and mortgaged the property to Unionbank. ISSUE: Whether the right to due process of the respondents were violated in the consolidation of the property in the name of Unionbank. HELD: No We disagree with the appellate court's observation that consolidation deprived private respondents of their property without due process. It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during the period of one year after the registration of the sale. Consolidation took place as a matter of right since there was no redemption of the foreclosed property and the TRO expired upon dismissal of the complaint. UNIONBANK need not have informed private respondent that it was consolidaint its title over the property, upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, the ownership of the property sold becomes consolidated in the purchaser.
LXV EDUARDO LUCENA and NATIVIDAD PARALES, petitioner, vs. COURT APPEALS and RURAL BANK OF NAUJAN, INC., ROGELIO PINEDA, MARIANITO BAJA, PATRIA ARAJA, BRAULIO BAGUS, REYNALBO MAMBIL and RAMON GARCIA, respondents. G.R. No. L-77468 | 1999-08-25 DOCTRINE: Foreclosure of land by rural bank shall be null and void when it fails to comply with the requirement of notice of the sale in the barrio where the property is located. The exemption on the publication requirements apply only when the total amount of loan including interest due and unpaid does not exceed P3,000.00 FACTS: Lucena and Parales are registered owners of land located in barrio of Mag-asawang Tubig, Municipality of Naujan, Oriental Mindoro, covered by TCT No. 41512 of the Registry of Deeds of Oriental Mindoro. On 29 October 1969, the petitioners executed a real estate mortgage in favor of Rural Bank of Naujan (RB Naujan) to secure the petitioners loan amounting to 3,000.00. When the loan matured on 01 October 1970, the petitioner made a partial payment amounting to 1,000.00. On 07 May 1974, after several demands, RB Nuajan extrajudically foreclosed the property, RB Naujan being the highest bidder, who in turn acquired the property. Prior to the auction sale, notices of foreclosure were posted in at least three conspicuous public places in the municipality where the subject property was located, as indicated in the affidavit of posting dated May 6, 1974. No notices were posted in the barrio where the property was located, nor were any published in a newspaper of general circulation. The Certificate of Sale dated May 7, 1974 issued by private respondent Deputy Sheriff Braulio Bagus was registered with the Registry of Deeds of Oriental Mindoro only on January 9, 1975. On 26 June 1975, an affidavit consolidation was executed by RB Naujan which was subsequently recorded and then a new title was issued in its name on 08 July 1975. On 14 July 1975, a deed of sale was executed in favor of herein respondents, Marianito Baja and Patricia Araja and in effect, a new title was issued in the their name. On 12 January 1977, petitioner filed a complaint for reconveyance and damages against private respondents before the then Court of First Instance (CFI) of Oriental Mindoro, to recover the subject property from private respondents and to compel the latter to compensate them for damages and losses suffered. The CFI rendered judgment in favor of the petitioners. Both parties appealed the case with the Court of Appeals (CA). The CA reverse and set aside the ruling of the CFI, hence the instant petition. ISSUE: Whether the notice requirements of foreclosure was complied. HELD: The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication in newspapers were the total amount of the loan, including interests due and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are posted in at least three of the most conspicuous public places in the municipality and barrio were the land mortgaged is situated during the period of sixty days immediately preceding the public auction. Proof of publication as required herein shall be accomplished by affidavit of the sheriff or officer conducting the foreclosure sale and shall be attached with the records of the case. In the case at bar, the affidavit of posting executed by the sheriff states that notices of the public auction sale were posted in three (3) conspicuous public places in the municipality such as (1) the bulletin board of the Municipal Building (2) the Public Market and (3) the Bus Station. There is no indication that notices were posted in the barrio where the subject property lies. Clearly, there was
a failure to publish the notices of auction sale as required by law.
In Roxas vs. Court of Appeals, this Court has ruled that the foreclosure and public auction sale of a parcel of land foreclosed by a rural bank were null and void when there was failure to post notices of auction sale in the barrio where the subject property was located. This Court finds that the same situation obtains in the case at bar. Further still, there was a failure on the part of private respondents to publish notices of foreclosure sale in a newspaper of general circulation. Section 5 of R.A. 720 as amended by R.A. 5939 provides that such foreclosures are exempt from the publication requirement when the total amount of the loan including interests due and unpaid does not exceed three-thousand pesos (P3,000.00). The law clearly refers to the total amount of the loan along with interests and not merely the balance thereof, as stressed by the use of the word "total." At the time of foreclosure, the total amount of petitioners' loan including interests due and unpaid was P3,006.90. Publication of notices of auction sale in a newspaper was thus necessary.
In light of private respondents' failure to comply with the statutory requirements of notice and publication, we rule that the foreclosure and public auction sale of petitioners' property are null and void. Hence, the Rural Bank of Naujan did not acquire valid title to the property in question. This reversal of the Court of Appeals disposes of the other errors assigned by petitioners.
LXVII RENATO CRISTOBAL and MARCELINA CRISTOBAL, petitioner, vs. THE COURT APPEALS and RURAL BANK OF MALOLOS and ATTY. VICTORINO EVANGELISTA, respondents. G.R. No. L-124372 | 2000-03-06 DOCTRINE: The publication of the notice of sale in a newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirements of the law. Clearly, the respondent appellate court did not err in finding that respondent bank had substantially complied with those requirements. FACTS: Petitioners are engaged in the buying and selling of palay. To augment their capital the petitioners obtained several loans from Rural Bank of Malolos. The first was a 30,000 loan secured by a real estate mortgage on T-64721. Because the petitioners failed to pay the loan the bank foreclosed the property, subsequently the petitioners failed to redeem said property, hence a consolidation of title in the name of RB Malolos was issued. Subsequently, the petitioners through their attorneyin-fact obtained another loan amounting to 70,000 secured by real estate mortgaged on four real estate properties. The loan was again not paid on time, hence it was foreclosed and consolidated in the name of RB Malolos. Petitioners, as plaintiffs below, impugned the validity of the extrajudicial foreclosure sales on the grounds that they were not furnished a copy of the application for foreclosure by the bank and a notice of the foreclosure sale; that the bank did not comply with the requirements of Act No. 3135 with respect to posting of the notice of sale (for failure to present a certificate of posting) and the publication of the sale in a newspaper of general circulation. The trial court ruled in favor of the petitioners and declared the foreclosure sale null and void. The respondents appealed the case to the Court of Appeals which reversed and set aside the decision of the trial court, hence this instant petition. ISSUE Whether the respondents have complied with the requirement of notice of foreclosure. HELD: Yes. We have ruled that non-presentation of a certificate of posting does not affect the intrinsic validity of the questioned foreclosure sale. As therein held, "a certificate of posting is not required, much less considered indispensable, for the validity of a foreclosure sale" under Act 3135.
Further, as respondent bank asserts, a mortgagor who alleges absence of a requisite has the burden of establishing that fact. Petitioners failed in this regard. Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to rebut the same is on the petitioners. In addition, as held in Olizon vs. Court of Appeals, 236 SCRA 148, 156 (1994), we held that, the publication of the notice of sale in a newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirements of the law. Clearly, the respondent appellate court did not err in finding that respondent bank had substantially complied with those requirements.
LXVIII GODFREY BOHONAN, petitioner, vs. THE COURT APPEALS, L & R CORPORATION and SPOUSES ROSARIO & DIONISIO CABRERA, JR., respondents. G.R. No.111654 | 1996-04-18 DOCTRINE: The non-presentation of a certificate of posting does not affect the intrinsic validity of the questioned foreclosure sale. FACTS: On 17 September 1983, Godfrey Bohonan obtained a loan for 200,000 from L & R Corporation payable in 60 monthly installments and executed a real estate mortgage over his two lots with the four unit apartment situated in Sta. Ana, Manila covered by TCT No. 92334 and 92335 of the Registry of Deeds of Manila. The petitioner had failed to pay four monthly amortizations which made the entire obligations due and demandable. Petitioner was given 10 days to pay however failed to settle the obligation. Thus L & R sent a notice of foreclosure and filed a petition in the Manila Sheriff's Office to commence extrajudicial foreclosure proceedings against him. Accordingly, a notice of extrajudicial foreclosure sale under Act 3135, as amended, was made and copies thereof sent to L & R and petitioner by the Deputy Sheriff acting for the Sheriff of Manila. The notice was published in the 20 and 27 August and 3 September 1984 issues of The Metropolitan Mail per affidavit of its editor-publisher. At the scheduled sale on 14 September 1984 L & R became the successful bidder with its bid of P327,615.54 and was issued a certificate of sale. However, upon failure of petitioner to redeem his property within the one-year redemption period provided by law, L & R executed an Affidavit of Consolidation of Ownership leading to the issuance on 1 October 1985 of TCT Nos. 167051 and 167052 in its name and the cancellation of petitioner's TCT Nos. 92334 and 92335. On 17 February 1987 L & R's titles were in turn cancelled to give way to TCT Nos. 172718 and 172719 in the name of Rosario Guanzon, married to Dionisio Cabrera Jr., who bought the property from L & R for P200,000.00. On 23 February 1997 petitioner filed a complaint against L & R and its vendees contending that the sale between L & R and Cabrera is surrounded with fraud and to declare the foreclosure sale as null and void. The trial court decided in favor of the petitioner, which was reversed and set aside by the Court of Appeals. Petitioner contends that respondent Court of Appeals erred in concluding that there was a valid foreclosure sale despite the fact that (a) he was not notified of the sale; (b) the deputy sheriff who conducted the sale did not submit a certificate of posting to prove the alleged posting in three (3) public places required under Act No. 3135; and, (c) the Post Office and Finance buildings where the notice of sale was allegedly posted (in addition to the City Hall) were not public places. ISSUE: Whether the requirement of notice of foreclosure sale is complied with. HELD: Yes We agree with respondent Court of Appeals that the records show no irregularity in the foreclosure sale held on 14 September 1984. First, personal notice on the mortgagor is not required under Act No. 3135 as amended. All that is required is that notice be given by posting notices of the sale for not less than twenty (20) days in at least three (3) public places of the municipality or city where the property is situated, and publication once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the municipality or city, if the property is worth more than four hundred pesos. The non-presentation of a certificate of posting does not affect the intrinsic validity of the questioned foreclosure sale. As already stated, all that is required by Sec. 3 of Act No. 3135 is that public notice of the place and time of the sale be posted in three (3) public places
and, where the property is worth more than P400.00, published in a newspaper of general circulation. Non-compliance constitutes a jurisdictional defect sufficient to invalidate the sale. However, a certificate of posting is not a statutory requirement. Rather, it is significant only in the matter of proving compliance with the required posting of notice. As to the contention that the Post Office and Finance Buildings were not public places, besides merely alleging the same (we do not even know which post office and what finance building petitioner was referring to), petitioner did not question the validity of the foreclosure sale on any ground whatsoever after its termination. On the contrary, his conduct afterwards even seems to indicate that he has no objection whatsoever as to its validity.
LXIX ARMANDO S. OLIZON and ILUMINADA C. OLIZON, petitioners, vs. THE COURT APPEALS and PRUDENTIAL BANK, respondents. G.R. No.107075 | 1994-09-01 DOCTRINE: The publication of the notice of sale in the newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By such publication, a reasonably wide publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby subserved. FACTS: Sometime in 1967 Sps. Armando and Iluminda Olizon, petitioners obtained a loan amounting to 25,000 from Prudential Bank and as a security thereof, they executed a mortgage over a parcel of land of 1,000 square meters covered by Transfer Certificate of Title No. 24604 of the Registry of Deeds of Kalookan City. Apparently the petitioner failed to pay the loan when it fell due and the respondent Prudential Bank foreclosed the property at an auction sale, the latter being the highest bidder held on 24 March 1975 and in 05 June 1978 upon failure of Sps. Olizon to redeem the property, Prudential Bank consolidated title in its name. On 27 November 1989, Prudential Bank filed with the RTC a petition for a writ of possession of the property which was granted. On 08 March 1990, the petitioner by way of opposition filed a petition for the cancellation of the writ of possession, declaring the foreclosure proceedings null and void for lack of compliance with the notice of the auction sale and the lack of posting of the notice of the sale as required by Section 3 of Act 3135, as amended. The RTC ruled in favor of the petitioners. The same decision was reversed by the Court of Appeals, hence this instant petition. ISSUE: Whether the notice requirement as required in Section 3 of Act 3135 was complied with. HELD: Yes. We take judicial notice of the fact that newspaper publications have more far-reaching effects than posting on bulletin boards in public places. There is a greater probability that an announcement or notice published in a newspaper of general circulation, which is distributed nationwide, shall have a readership of more people than that posted in a public bulletin board, no matter how strategic its location may be, which caters only to a limited few. Hence, the publication of the notice of sale in the newspaper of general circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By such publication, a reasonably wide publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby subserved. Moreover, herein petitioners failed to discharge the burden of proving by convincing evidence their allegation that there was actually no compliance with the posting requirement. The foreclosure proceeding has in its favor the presumption of regularity, and the burden of evidence to rebut the same is on petitioners. Where the allegation is an essential part of the cause of action or defense in a civil case, whether posited in an affirmative or negative form, the burden of evidence thereon lies with the pleader. Besides, the fact alone that there was no certificate of posting attached to the sheriff's records of the extrajudicial foreclosure sale is not sufficient to prove the lack of posting, especially in this case where the questioned act and the record thereof are already 16 years old. It is quite unfair to now shift to respondent bank the burden of proving the fact of posting considering the length of time that has elapsed, aside from the fact that the sheriff who conducted the public sale and who was responsible for the posting of the notice of sale is already out of the country, with the records being silent on his present whereabouts or the possibility of his returning here.
LXX PHILIPPINE NATIONAL BANK, petitioner, vs. SPOUSES FRANCISCO and MERCED RABAT, respondents. G.R. No.134406 | 2000-11-15 DOCTRINE: In extrajudicial foreclosure sales, personal notice to the mortgagor is not necessary. FACTS: Spouses Francisco and Merced Rabat (the Rabats) obtained loan aggregating 3,517,280 due on 14 March 1983, evidenced by several promissory notes by virtue of a credit line agreement (as amended) between the Rabats, herein respondents and Philippine National Bank (PNB), herein petitioners. The same was secured by a real estate mortgage executed by the respondents over a total of 21 parcels of land. The Rabats failed to settle their outstanding balance on due date. The Rabats requested more time within which to arrive at a viable proposal for the settlement of their account but the same was denied by PNB through a letter send to the Rabats address in San Juan, Manila. For failure to settle the balance due, PNB filed a petition for the extrajudicial foreclosure of the real estate mortgage executed by the Rabats. After due notice and publication, the mortgaged parcels of land were sold at a public auction on 20 February 1987 and 14 April 1987, PNB being the lone and highest bidder. The proceeds of the sale was not enough to satisfy the entire obligation of Rabats, PNB sent new demand letters, upon failure of Rabats to comply with the demand to settle their remaining outsanding obligation which then stood at 14,745,398.25, including interest, penalties and other charges, PNB filed on 05 May 1992 a complaint for a sum of money before the RTC of Manila. The Rabats filed an answer assailing the validity of the auction sales for want of notice to them before and after the foreclosure sale, the publication at San Pedro times a newspaper not of general circulation, gross inadequate and unconscionable bid price and the validity of the accumulated interest from May 1987 up to the present. The RTC dismissed the complaints and ordered the reconveyance of the property in favor of the respondents, in effect invalidating the auction sale and dismissing the claim for deficiency as a result of the nullification of the sale. The RTC ruled that personal notice is not required in foreclosure proceedings and find San Pedro Times as a newspaper of general circulation, however nullified the sale based on the gross inadequacy of the bid price. The RTC also held that the respondents should not be made to answer for interest and other charges from May 1987 up to the present. The CA upheld the nullification of the RTC however raised a different ground, lack of personal notice to the mortgagor. Hence this instant petition. ISSUE: Whether the requirement of notice on extrajudicial foreclosure is complied with. HELD: Yes. In extrajudicial foreclosure sales, personal notice to the mortgagor is not necessary. Section 3 of Act No. 3135 reads:
Section 3. Notice shall be given by posting of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos, such notice shall be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. Clearly personal notice to the mortgagor is not required. Second, the requirements of posting and publication in a newspaper of general circulation were duly complied with by the PNB as correctly found by the trial court, to which we accord great respect. A question of non-compliance with the notice and publication requirements of an extrajudicial foreclosure sale is a factual issue and the resolution thereof by the trial court is binding and conclusive upon us absent any showing of grave abuse of discretion.
However, the Court has directed the CA to decide with reasonable dispatch on the basis of errors raised by PNB (gross inadequacy of bid price) and whether the respondents are liable for interest and other charges from May 1987 to present. These issues were the issues raised on appeal but where not addressed by the CA.
LXXI DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. VERONICA AGUIRRE and THE HONORABLE COURT OF APPEALS (Ninth Division), respondents. G.R. No.144877 | 2001-09-07 DOCTRINE: Personal notice not required. The auction sale of the property must take place on the date indicated in the notice of auction sale and that notice that was published, a re-scheduled auction sale without corresponding republication of notice renders the foreclosure proceedings null and void. FACTS In 1980, the Development Bank of the Philippines granted a loan amounting to 99,500 to Veronica Aguirre and as a security thereof, a real estate mortgage over a 180-square meter lot in Paranaque and issue two promissory notes covering the amount of the loan. Aguirre defaulted on the loan and DBP took steps to foreclose the property. Upon the request of Aguirre, DBP offered a restructuring of the loan and was given seven days to accept it. Upon the lapse of the seven-day period, Aguirre did not communicated her reply prompting DBP to proceed with the foreclosure of the mortgage. Aguirre made two payments on 24 September and 10 October 1986. The notice of the foreclosure sale, to be held on 25 September 1985 was published in Mabuhay, a newspaper of general circulation in Bulacan and Metro Manila, for some reasons the foreclosure sale did not push through and was conducted on 07 January 1986, DBP being the highest bidder of 99,300.00. The outstanding balance of Aguirre that time was 247,740.70. The respondent failed to redeem the property causing its consolidation in the name of DBP. DBP advertised the auction sale of said property on 06 December 1988. Aguirre brought a suit against DBP in the RTC to enjoin the auction sale and to annul the foreclosure proceedings on the grounds that her loan was not yet due since it was restructured and that she was not notified of the foreclosure sale. The trial court ruled in favor of the petitioner. The case was appealed to the Court of Appeals (CA). The CA ruled that the foreclosure sale was invalid for failure to present proof of posting of the notice of the auction sale. ISSUE: Whether the notice requirement was duly complied with. HELD: No. As this Court explained in Olizon v. Court of Appeals: [N]ewspaper publications have more farreaching effects than posting on bulletin boards in public places. There is a greater probability that an announcement or notice published in a newspaper of general circulation, which is distributed nationwide, shall have a readership of more people than that posted in a public bulletin board, no matter how strategic its location may be, which caters only to a limited few. Hence. the publication of the notice of sale in the newspaper of general circulation alone is more than sufficient compliance with the noticeposting requirement of the law. By such publication, a reasonably wide publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby subserved. However, although the notice of foreclosure sale was duly published, the sale did not take place as scheduled on September 25, 1985. Instead, it was held more than two months after the published date of the sale or on January 7, 1986. This renders the sale void. As held in Masantol Rural Bank, Inc. v. Court of Appeals, in which the foreclosure sale likewise took place several months after the date indicated in the published notice of sale.
LXXII DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellee, vs. DIONISIO MIRANG, defendant-appellant. G.R. No. L-29130 | 1975-08-08 DOCTRINE: The creditor-mortgagee may recover deficiency resulting from the foreclosure sale from the debtor-mortgagor. FACTS: Dioniso Mirang, appellant, obtained a loan approval from the Development Bank of the Philippines amounting to 14,000 (1,000 for the purchase of work animals and farm implements; 1,500 for the construction of farmhouse and laborers’ quarters; and 11,500 for development and maintenance of 18.5 hectares of abaca land). A mortgage in favor of DBP was executed by the appellant over his homestead. DBP released the proceeds of the loan gradually and it total up to 13,000. After then, DBP refused to make further releases due to pestilence that wrecked the plantation being financed. The appellant failed to make amortization and as a result thereof, DBP foreclosed the property mortgaged extrajudicially and was sold to a public auction on 30 July 1957. By that time, the appellant indebtedness reached 19,714.35 including interest excluding expenses of sale and registration. DBP as the bidder for 2,010 acquired ownership over the property. Mirang was not able as well to exercise his right of redemption. Mirang filed a complaint in 29 May 1962. He raised the issue (1) whether DBP can recover the deficiency from the auction sale; (2) whether he is exempted from paying his loan since the proceeds were used in the cultivation of his homestead; (3) whether when the mortgagor wishes to repurchase the property should he pay the amount paid by the purchases in the auction sale or the total obligation incurred by him and still outstanding. ISSUE Whether the issues raised by the appellant has merits. HELD: On the first issue, it is clear that in the absence of a similar provision in Act 3135, as amended, it cannot be concluded that the creditor loses his right given him under the Mortgage Law and recognized in the Rules of Court, to take action for the recovery of any unpaid balance on the principal obligation, simply because he has chosen to foreclose his mortgage extra-judicially, pursuant to a special power of attorney given him by the mortgagor in the mortgage contract. As stated by this Court in Medina vs. Philippine National Bank (56 Phil. 651), a case analogous to the one at bar, the step taken by the mortgagee-bank in resorting to extra-judicial foreclosure under Act No. 3135, was 'merely to find a proceeding for the sale, and its action cannot be taken to mean a waiver of its right to demand the payment of the whole debt.'
On the second issue, His predicament may evoke sympathy, but it does not justify a disregard of the terms of the contract he entered into. His obligation thereunder is neither conditional nor aleatory its terms are clear and subject to no exception. On the final issue, the unavoidable conclusion is that the appellant, in redeeming the foreclosed property, should pay the entire amount he owed to the Bank on the date of the sale, with interest thereon at the rate agreed upon.
LXXIII DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellee, vs. JOVENCIO A. ZARAGOZA and AVELINA E. ZARAGOZA, defendants-appellants. G.R. No. L-23493 | 1978-08-23 DOCTRINE: In extrajudicial foreclosure of mortgage, where the proceeds of the sale is insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the debtor. FACTS: On December 10, 1952, appellee foreclosed extrajudicially the appellant’s mortgaged property and the Sheriff posted the requisite notice of sale at public auction. The property was sold at public auction on June 10, 1957 after numerous transfers made of the date of sale upon requests of the appellants themselves. Because the proceeds of the sale were not sufficient to satisfy the balance of appellant’s indebtedness, appellee sued the appellants for the deficiency. The trial court found for appellee and ordered the appellants to pay the deficiency, with interest thereon at the legal rate until fully paid plus the sum equivalent to 10% of the amount due as attorney’s fees and cost of suit. ISSUES: 1. Whether the mortgagee is entitled to claim the deficiency in extrajudicial foreclosure of mortgage; and 2. Whether additional interests are properly chargeable on the balance of the indebtedness during the period from notice of sale to actual sale. HELD 1. Yes. In extrajudicial foreclosure of mortgage, where the proceeds of the sale are insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended (re extrajudicial foreclosure) discloses nothing as to the mortgagee’s right to recover such deficiency, neither does it expressly or impliedly prohibit such recovery. Article 2131 of the New Civil Code expressly provides that the form, extent and consequences of a mortgage and as to other matters not included in the Civil Code shall be governed by the provisions of the Mortgage Law and of the Land Registration Law. And under the Mortgage Law, the mortgagee has the right to claim for the deficiency resulting from the price obtained in the sale of the real property at public auction and the outstanding obligation. Moreover, if the legislature intended to foreclose the right of a creditor to sue for deficiency resulting from the foreclosure of the security to guarantee the obligation, it so expressly provides. 2. No Where the sale of the mortgaged property in an extrajudicial foreclosure proceedings had been held in abeyance for four years due to the numerous transfers made of the date of sale upon requests of the mortgage debtors themselves, the latter cannot take advantage of the delay which was of their own making, to the prejudice of the other party, so that prior to the completion of the foreclosure, the mortgagor is liable for the interest on the mortgage.
LXXIV PRUDENTIAL BANK, plaintiff-appellee, vs. RENATO M. MARTINEZ and VIRGINIA J. MARTINEZ, defendants-appellants. G.R. No. L-51768 | 1990-09-14 DOCTRINE: it is true, as to the mortgagee's right to recover such deficiency. But neither do we find any provision thereunder which expressly or impliedly prohibits such recovery. FACTS: Renato M. Martinez and Virginia J. Martinez, appellants obtained a loan amounting to 48,000 with interest of 12% and partially secured by a real estate mortgage over the property of the appellants. Appellants failed defaulted in the loan and subsequently, Prudential Bank foreclosed the mortgage, it being the lone bidder in the auction sale for 52,760. As a result a deficiency amounting to 25,775 after deducting the attorney’s fees, sheriff fees and publication expense. The appellee sued for the said deficiency, interest thereof and attorney’s fees. ISSUES: 1. Whether the appellee is entitled for the recovery of the deficiency. 2. Whether the appellee is entitled for an award of attorney’s fees. HELD: 1. Yes. We have already ruled in several cases that in extrajudicial foreclosure of mortgage, where the proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor. A careful scrutiny of the arguments presented in the case at bar yields no substantial and convincing reasons for Us to depart from Our previous ruling. Appellants' arguments merely rehashed the objections already considered and overruled in the aforementioned cases. Thus, in Philippine Bank of Commerce v. De Vera (supra), We declared that:
A reading of the provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discloses nothing, it is true, as to the mortgagee's right to recover such deficiency. But neither do we find any provision thereunder which expressly or impliedly prohibits such recovery.
Moreover, the fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. 2. Yes. We find that the award of attorney's fees is proper. It can not be disputed that the proceedings in the extrajudicial foreclosure and the deficiency suit are altogether different. The first is extrajudicial and summary in nature while the second is a court action. Hence, the efforts exerted by the lawyer in these two separate courses of action should be recognized.
LXXV PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. MANUEL ERNESTO GONZALES, defendant-appelle. SATURNINO LOPEZ, buyer-appellant. G.R. No. L-21026 | 1924-02-13 DOCTRINE: A judicial sale of real estate will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness.
FACTS: On 23 November 1921, the Philippine National Bank has commenced a suit against Manuel Ernesto Gonzales to foreclose a mortgage property securing a promissory note for 15,000. On 17 March 1922 an amended complaint against the same defendant was filed, a reproduction of the original for the second mortgage on the said property for 15,000. The judgement for the first cause amounted to 17,313.59 and for the second 17,755. The property was advertised for sale covered by Transfer Certificates of Title described in Exhibit A (3,657,703 sq.m), Exhibit B (1,335,505 sq.m.) and Exhibit C (263,765 sq.m). Exhibit C was sold at the auction sale to Mr. Saturnino Lopez for 15,000 (3,000 less than the claim). The court has confirmed the sale declaring that the sale complied with the requirements of the law. On 05 April 1923, defendant Gonzales filed a complaint that the said order was “not in accordance with law” presenting only an assessed valuation of the land for 45,490 from the municipal treasurer, without proof that the said land was in fact can be sold for mor than 15,000 nor calling any witness for that matter. ISSUE: Whether the sale should be invalidated for gross inadequacy of price. HELD: The rule is well stated in Graffam and Doble vs. Burgess (117 U.S., 180), in which the syllabus says:
A judicial sale of real estate will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience, or unless there be additional circumstances against its fairness.
If the inadequacy of price paid for the purchase of real estate at a sale on an execution be so gross as to shock the conscience, or if in addition to gross inadequacy the purchaser has been guilty of unfairness or has taken any undue advantage, or if the owner of the property or the party interested in it has been for any other reason misled or surprised, then the sale will be regarded as fraudulent and void, and the party injured will be permitted to redeem the property sold.
In the instant case, there is no claim or pretense that there was any fraud or collusion, or that in any way Gonzales was misled or deceived. The bank was personally represented at the sale, and there is no showing whatever that, if the property was resold, it would sell for a centavo more than the P15,000.
For such reasons, the judgment of the trial court, setting aside the confirmation of the sale, is reversed, and the sale will stand affirmed as of the date of the original confirmation by the trial court, with costs in favor of the appellant. Such judgment to be without prejudice to the right of Gonzales, if any, to redeem. So ordered.
LXXVI JALANDONI, plaintiff-appellee, vs. LEDESMA, buyer-appellant. G.R. No. XXXXXXX | XXXX-XX-XX
LXXVII CESAR SULIT, petitioner, vs. COURT OF APPEALS and ILUMINADA CAYCO, respondents. G.R. No. 119247 | 1997-02-17 DOCTRINE: If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus. FACTS: On 09 June 1992, Iluminada Cayco, herein respondent executed a real estate mortgage to secure his loan with Cesar Sulit, herein petitioner amounting to 4,000,000. Upon failure of Cayco to settle the obligation when it fell due, Sulit resorted to extrajudicial foreclosure conducted by a Notary Public on 28 September 1993 with Sulit as the winning bidder submitting a bid amounting to 7,000,000. On 13 December 1993, private respondent petitioned the RTC for a writ of possession over the property. On 28 March 1994 petitioner filed a Motion to have the auction sale of the mortgaged property set aside and to defer the issuance of the writ of possession. She invited the attention of the court a quo to some procedural infirmities in the said proceeding and further questioned the sufficiency of the amount of bond. In the same Motion petitioner prayed as an alternative relief that private respondent be directed to pay the sum of P3 Million which represents the balance of his winning bid of P7 Million less the mortgage indebtedness of P4 Million. This Motion was opposed by private respondent who contended that the issuance of a writ of possession upon his filing of a bond was a ministerial duty on the part of respondent Judge, to which Opposition petitioner submitted a Reply. On 11 May 1994 respondent Judge denied petitioner's Motion and directed the issuance of a writ of possession and its immediate enforcement by deputy sheriff. ISSUE: Whether the mortgagee or purchaser in an extrajudicial foreclosure sale is entitled to the issuance of a writ of possession over the mortgaged property despite his failure to pay the surplus proceeds of the sale to the mortgagor HELD: No The governing law thus explicitly authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption period by filing an ex parte motion under oath for that purpose in the corresponding registration or cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the approval of the corresponding bond, the law also in express terms directs the court to issue the order for a writ of possession.
No discretion appears to be left to the court. Any question regarding the regularity and validity of the sale, as well as the consequent cancellation of the writ, is to be determined in a subsequent proceeding as outlined in Section 8, and it cannot be raised as a justification for opposing the issuance of the writ of possession since, under the Act, the proceeding for this is ex parte. Such recourse is available to a mortgagee, who effects the extrajudicial foreclosure of the mortgage, even before the expiration of the period of redemption provided by law and the Rules of Court. The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules of Court, which is made applicable to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure "unless a third party is actually holding the property adversely to the judgment debtor." A surplus from the proceeds of the sale equivalent to approximately 40% of the total mortgage debt, which excess is indisputably a substantial amount. Nevertheless, it is our considered opinion, and we so hold, that equitable considerations demand that a writ of possession should also not issue in this case. The better rule
is that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus. This is likewise in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made. In the early case of Caparas vs. Yatco, etc., et al., it was also held that where the mortgagee has been ordered by the court to return the surplus to the mortgagor or the person entitled thereto, and the former fails to do so and flagrantly disobeys the order, the court can cite the mortgagee for contempt and mete out the corresponding penalty under Section 3(b) of the former Rule 64 (now Rule 71) of the Rules of Court.
LXXVIII (Same as LXXIV)
LXXIX DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellee, vs. LEONOR R. VDA. DE MOLL, SEBASTIAN MOLL, JR., BACILIO MOLL, ERIBERTO MOLL, ESTRELLA MOLL, SALVADOR MOLL, SEGUNDO MOLL and AURORA MOLL, defendantsappellants. G.R. No. L-25802 | 1997-01-31 DOCTRINE FACTS: On 12 April 1947 and 15 December 1947, the Development Bank of the Philippines, appellee granted agricultural loans in the amount of 120,000 and 22,000 respectively in favor of Sebastian Moll, Sr. who secured said loan by 14 parcels of land – comprising the property known as Hacienda Moll. Said Sebastian Moll, Sr. subsequently died and on 14 May 1949 had his properties extrajudicially partitioned among themselves and that they jointly and severally assumed the liabilities of the estate and were granted additional loans, -industrial loan of 150,000, -additional agricultural loan of 100,000 and another industrial loan of 580,000. The said appellants failed to comply with the terms and conditions of the agreement which rendered them in default. The appellee foreclosed mortgaged, and the bank being the sole and highest bidder for 176,174.50 and 19,750. Appelle subsequently filed for a deficiency claim. Appellants contends the deficiency claims as the property is valued for not less than 5,000,000. ISSUES: 1. Whether the inadequacy of the bid price affect the validity of the sale 2. Whether the appellee is entitled for the deficiency. HELD: 1. No. Mere inadequacy of the price obtained at the sheriff's sale unless shocking to the conscience will not be sufficient to set aside the sale if there is no showing that, in the event of a regular sale, a better price can be obtained. The reason is that, generally, and, in forced sales, low prices are usually offered. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. 2. Yes. Once the auction sale of the mortgaged property is effected and the resulting deficiency in the mortgage debt is ascertained, the mortgagee- creditor is then and there entitled to secure a deficiency judgment which may immediately be executed, whether or not the mortgagor is still entitled to redeem the property sold. We hold then that appellants' right to redeem their auctioned properties could not be a bar to the present action of appellee to recover the deficiencies which it claims to have resulted after applying the proceeds of the foreclosure sales here involved in payment of appellants' mortgage debt.
LXXX RESTITUTA V. VDA. DE GORDON, petitioner, vs. THE COURT OF APPEALS and ROSARIO DUAZO, respondents. G.R. No. L-37831 | 1981-11-23 DOCTRINE: Mere inadequacy of the price alone is not sufficient ground to annul the public sale. FACTS: Restituta V. Vda. De Gordon’s property was sold in a public auction conducted by the City Treasurer of Quezon City for non payment of taxes. A public sale was conducted a sale on 03 December 1964. The property was sold to Rosario Duazo for 15,000 representing the tax, penalty and cost. The combined assessed value of the two parcels of land is P16,800.00. The price paid at the public sale is P10,500.00. The residential house on the land is assessed at P45,580.00. But the assessment was made in 1961. The present value of the residential house must be much less now considering the depreciation for over ten years. ISSUE: Whether the price is so grossly inadequate as to justify the setting aside of the public sale HELD: No. While the price of P10,500.00 is less than the total assessed value of the land and the improvement thereon, said price cannot be considered so grossly inadequate as to be shocking to the conscience of the court.
In Director of Lands vs. Abarca, 61 Phil. 70, cited by the lower court in the order appealed from, the Supreme Court considered the price of P877.25 as so inadequate to shock the conscience of the court because the assessed value of the property in question was P60,000.00. The assessed value of the land was more than sixty times the price paid at the auction sale. In the case at bar, the price of P10,500.00 is about one sixth of the total assessed value of the two parcels of land in question and the residential house thereon. The finding of the lower court that the house and land in question have a fair market value of not less than P200,000.00 has no factual basis. It cannot be said, therefore, that the price of P10,500.00 is so inadequate as to be shocking to the conscience of the court. Mere inadequacy of the price alone is not sufficient ground to annul the public sale. (Barrozo vs. Macaraeg, 83 Phil. 378).
LXXXI (See LXXIV)
LXXXII Juan Sumerariz And Luisa Sumerariz, Plaintiffs-Appellants, Vs. Development Bank Of The Philippines And Philippine Surety And Insurance Co., Inc., Defendants-Appellees. G.R. No. L23764 | 1967-12-26 DOCTRINE: Period not suspended by filing action to annul foreclosure sale.—There is no statute or decision which supports plaintiffs’ contention that the period of one year to redeem land sold at the sheriff’s sale was suspended by the institution of an action to annul the foreclosure sale. Moreover, up to now plaintiffs have not exercised the right to redemption. Indeed, although they have intimated their wish to redeem the property in question, they have not deposited the amount necessary therefor. FACTS: On September 15, 1948, plaintiffs herein, Juan Sumerariz, and his wife, Luisa Samerariz constituted, in favor of the Rehabilitation Finance Corporation — now Development Bank of the Philippines, and hereinafter referred to as the Bank — a real estate mortgage of two (2) parcels of land forming part of San Andres Subdivision, Manila, to guarantee a P15,000.00 loan granted them by the Bank, payable within ten (10) years, at a given monthly amortization. In view of plaintiffs' failure to comply with the terms and conditions of their contract, the Bank asked the sheriff of Manila to take possession of the property and sell it at public auction. After several postponements made upon plaintiffs' request, the sale was set for March 29, 1955. Upon the behest of Juan Sumerariz made the day before, the Bank agreed, however, to postpone the sale if there was a token payment of at least P100.00, before 9:00 a.m., the next day. No such payment having been made, the Bank bought the property, on March 29, for P8,000.00, as the highest bidder. The Bank repeatedly notified the plaintiffs that they could redeem the property within one (1) year, or not later than March 29, 1956, upon a down payment. Instead of exercising the right of redemption on March 26, 1956, plaintiffs instituted Civil Case against the Bank and the sheriff of Manila, to set aside the aforementioned foreclosure sale, upon the ground that the Bank had failed to comply with its agreement to postpone the auction sale scheduled to be held on March 29, 1956. July 19, 1956, while the case was pending in the trial Court, the Bank sold the property to the Philippine Surety and Insurance Co., Inc., Subsequently, or on January 13, 1958, laid Court rendered a decision dismissing the complaint, for the reason that plaintiffs had not redeemed the property within the period prescribed by law therefor and that the Bank had thereby become its absolute owner. On March 16, 1960, plaintiffs commenced the present action, in the Court of First Instance of Manila, against the Bank and the Surety Co., to annul sale made to the latter by the Bank and to be allowed to redeem the property in question. ISSUE: Whether or not the filing of foreclosure suspend the redemption period HELD: No.
Under the second assignment of error, plaintiffs maintain that the period of one (1) year to redeem the property in question was suspended by the institution of Case No. 29306, on March 26, 1956, or three (3) days before the expiration of said period. We have not found, however, any statute or decision in support of this pretense. Moreover, up to now plaintiffs have not exercised the right of redemption. Indeed, although they have intimated their wish to redeem the property in question, they have not deposited the amount necessary therefor.
LXXXIV UNION BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS, APOLONIA DE JESUS GREGORIO, LUCIANA DE JESUS GREGORIO, GONZALO VINCOY, married to TRINIDAD GREGORIO VINCOY, respondents. G.R. No. 134068 | 2001-06-25 DOCTRINE: The one-year period is actually to be reckoned from the date of the registration of the sale. The one-year period to redeem the property foreclosed is not suspended by the institution of an action to annul the foreclosure sale FACTS: On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged their residence in favor of petitioner to secure the payment of a loan to Delco Industries (Phils.), Incorporated in the amount of Two Million Pesos (P2,000,000.00). For failure of the respondents to pay the loan at its date of maturity, petitioner extrajudicially foreclosured the mortgage and scheduled the foreclosure sale on April 10, 1991. The petitioner submitted the highest bid at the foreclosure sale. Prior to the expiration of the redemption period on May 8, 1992, the respondents filed a complaint for annulment of mortgage with the lower court. In their complaint, respondents alleged that the subject property mortgaged to petitioner had in fact been constituted as a family home RTC rendered judgment declaring the constitution of the family home void and the mortgage executed in favor of the petitioner valid. Court of Appeals upheld the validity of the mortgage executed over the said property in favor of the petitioner. ISSUE: Whether or not the filing of action for annulment of the mortgage tolled the running of the oneyear period of redemption HELD: No It cannot also be argued that the action for annulment of the mortgage filed by the respondents tolled the running of the one-year period of redemption. In the case of Sumerariz v. Development Bank of the Philippines, petitioners therein contended that the one-year period to redeem the property foreclosed by respondent was suspended by the institution of an action to annul the foreclosure sale filed three (3) days before the expiration of the period. To this we ruled that: "We have not found, however, any statute or decision in support of this pretense. Moreover, up to now plaintiffs have not exercised the right of redemption. Indeed, although they have intimated their wish to redeem the property in question, they have not deposited the amount necessary therefor. It may not be amiss to note that, unlike Section 30 of Rule 39 of the Rules of Court, which permits the extension of the period of redemption of mortgaged properties, Section 3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property mortgaged to the Bank does no contain a similar provision. Again this question has been definitely settled by the previous case declaring that plaintiff's right of redemption has
already been extinguished in view of their failure to exercise it within the statutory period." Also, in the more recent case of Vaca v. Court of Appeals, we declared that the pendency of an action questioning the validity of a mortgage cannot bar the issuance of the writ of possession after title to the property has been consolidated in the mortgagee. The implication is clear: the period of redemption is not interrupted by the filing of an action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure sale can proceed to have the title consolidated in his name and a writ of possession issued in his favor.
LXXXVI BENJAMIN BELISARIO, PACITA B. PINAR, VICTORIA BELISARIO, SILVERIO BELISARIO, FRANCISCO BELISARIO, ANATOLIA B. JACULAN, FELIPE BELISARIO and TERESITA B. ALKUINO, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, LOURDES CABRERA, VICENTE CABRERA, JR., ROBERTO CABRERA, MANUEL CABRERA and PNB, Cagayan de Oro Branch, respondents. G.R. No. 73503 | 1988-08-30 DOCTRINE: General rule in redemption that in making the repurchase there must be simultaneous tender of payment of the full amount of the repurchase price. FACTS: On August 3, 1948, upon the death of Rufino Belisario, the ownership of the land was extrajudicially settled among his children (petitioners herein), namely: Benjamin, Pacita, Victoria Silverio, Francisco, Anatolia Felipe and Teresita, all surnamed Belisario and his widow, Felipa Lauga. Sometime in 1950, on the strenght of a special power of attorney executed by some of the petitioners in favor of petitioner, Benjamin Belisario, said land was mortgaged to the Philippine National Bank (PNB) to secure a promissory note. Petitioners-mortgagors defaulted in the payment of the loan. Consequently, the mortgage was extra-judicially foreclosed and on January 31, 1963 the land was sold at public auction with respondent PNB as the highest bidder. On April 21, 1971, petitioners wrote to respondent PNB making known their "desire to redeem and/or repurchase the said property for and in the same price as the auction sale, P3,134.76," and enclosed therein a postal money order in the amount of P630.00 as partial payment, with the balance to be paid in twelve equal monthly installments. At the time petitioners offered to redeem the subject property, the Sheriff's Certificate of Sale covering the sale at public auction to the respondent PNB was not yet registered. Having been apprised of the non-registration, the respondent PNB caused the registration of the Sheriff's Certificate of Sale with the Register of Deeds of Bukidnon on July 22, 1971 and Transfer Certificate of Title No. T-6834 was later issued in the name of respondent bank. On August 24, 1971, respondent PNB sent a reply letter to petitioners, refusing the tender of P630.00 as partial payment of the total obligations of P7,041.41 due from petitioners (which included the amount of P2,027.02 allegedly paid by respondent Vicente Cabrera to respondent PNB) and stating further that under existing regulations of the bank, payment by way of redemption must be paid in full and not by installments. It cannot, however, be determined from the records of the case why the amount of P2,027.02 was received from respondent Cabrera by respondent PNB on December 12, 1967 and why the same was included in the statement of accounts sent by respondent PNB to petitioners. On February 8, 1973, respondent PNB sold the land in question to respondent Cabrera. On November 20, 1974, respondent Cabrera filed an action for Recovery of Possession and Damages against herein petitioners, together with their tenants, who were actual possessors of the land, with the Court of First Instance (now Regional Trial Court) of Bukidnon. In turn, petitioners filed on January 9, 1975, an action for Repurchase of Homestead against the
respondents PNB and Cabrera with the Court of First Instance of Bukidnon, being interrelated, the two cases were heard jointly. ISSUE: Whether or not the absence of tender of payment is equivalent ineffectual of redemption of the said property HELD: Yes The general rule in redemption is that in making a repurchase, it is not sufficient that a person offering to redeem makes manifestation of his desire to repurchase; this statement of intention must be accompanied by an actual and simultaneous tender of payment, which constitutes the legal use or exercise of the right to repurchase (Angao vs. Clavano, 17 Phil. 152). Likewise, in several cases decided by this Court (Fructo vs. Fuentes, 15 Phil. 362; Retes vs. Suelto, 20 Phil. 394; Rosales vs. Reyes, et al., 25 Phil. 495, Canuto vs. Mariano, 37 Phil. 840; Dela Cruz, et al. vs. Resurreccion, et al., 98 Phil. 975) where the right to repurchase was held to have been properly exercised, there was a definite finding of tender of payment having been made by the vendor. The tender of payment must be for the full amount of the repurchase price, otherwise the offer to redeem will be held ineffectual. (Rumbaoa vs. Arzaga, 84 Phil. 812) Bona fide redemption necessarily imports a reasonable and valid tender of the entire repurchase price. There is no cogent reason for requiring the vendee to accept payment by installments from the redemptioner, as it would ultimately result in an indefinite extension of the redemption period (Conejero, et al. vs. Court of Appeals, et al., L-21812, April 29, 1966, 16 SCRA 775, 780). The rule that tender of payment of the repurchase price is necessary to exercise the right of redemption finds support is civil law. Articles 1616 of the Civil Code of the Philippines, in the absence of an applicable provision in Commonwealth Act No. 141, fumishes the guide, to wit: "The vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale ... " (Uy Lee vs. Court of Appeals, L-28126, November 28, 1975, 68 SCRA 196, 204).
LXXXVIII VICENTA P. TOLENTINO and JOSE TOLENTINO, petitioners, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, et al., respondents. G.R. No. 50405-06 | 1981-08-05 DOCTRINE: The right of redemption is not an obligation but an absolute privilege. A bona fide tender of the redemption price and formal offer to redeem is not essential where the redemption is being exercised by way of judicial action. A redemption is not rendered invalid by the fact that the sheriff accepted check rather than cash. The exercise of this right being optional no importance can be attached to the fact that a stop payment order was issued against the check Section 31, Rule 39 of the Rules of Court, it is expressly provided that the tender of the redemption money may be made to the Sheriff who made the sale. And the redemption is not rendered in valid by the fact that the said officer accepted a check for the amount necessary to make the redemption instead of requiring payment in money. FACTS: Ceferino de la Cruz died and left a parcel of land leaving his as his only heirs his widow, Consuelo de la Cruz, and their children Hilario, Tarcelo, and Godofredo, all surnamed de la Cruz (hereinafter referred to as the De la Cruzes). In a deed of sale executed by the De la Cruzes on April 30, 1962, the land was sold to the spouses Jose Tolentino and Vicenta Tolentino (hereinafter referred to as the Tolentinos). In 1963, the Tolentinos constituted a first mortgage over the land, together with two other parcels of land in favor of the Bank of the Philippine Islands, (BPI) Davao Branch, for a loan of P40,000. Another mortgage was constituted over the said properties in 1964 in favor of Philippine Banking Corporation. The Tolentinos failed to pay their mortgage indebtedness to the BPI upon maturity in the judicial foreclosure sale that followed, conducted by the City Sheriff of Davao on July 15, 1967, BPI was the sole and highest bidder. The Sheriff's Certificate of Sale in favor of BPI was registered only on April 2, 1969 in the Registry of Deeds of Davao. On February 4, 1967, the De la Cruzes filed an action with the Court of First Instance of Davao against the Tolentinos for the repurchase of the land. On March 27, 1969, the lower court rendered a decision allowing the De la Cruzes to repurchase the land. In the meantime, on March 2, 1970, petitioner Vicente Tolentino went to see Mr. Ramon Lopez, Branch Manager of BPI Davao Branch, carrying a letter of even date, offering to redeem the homestead property covered by a check. Upon being informed that she can no longer redeem the same for the reason that it was already conveyed to the De la Cruzes pursuant to the decision dated March 27, 1969, Vicenta left the office of the manager. Mr. Lopez sent said letters to the BPI's legal counsel with specific request to inform the Tolentinos that they can still redeem the two other properties before the expiration of the redemption period. However, instead of complying with BPI's advice, Vicente consigned with the Office of the City Sheriff of Davao a crossed PNB check drawn against the PNB Kidapawan Branch, Cotabato, on March 31, 1970, allegedly for the redemption of the 3 lots, including the homestead land. The following day, however, upon advice of their counsel, Vicente issued a stop-payment order against the said crossed check purportedly to protect her rights and to prevent BPI cashing said check without returning all the properties which BPI had foreclosed and purchased.
Simultaneously with the consignation of the crossed check with the City Sheriff of Davao on March 31, 1970, the Tolentinos filed a complaint (redemption case) against BPI, amended on April 15, 1970, with the Davao Court of First Instance for the redemption of their properties. ISSUES: 1. Whether or not Art. 1249 of the New Civil Code applies 2. Whether or not the tender of payment and cosignation before the Sheriff of Davao were valid HELD: 1. Yes. We agree that the act of redeeming of a property mortgaged is not an obligation but a privilege, in the sense that the mortgagor may or may not redeem his property. That of course is a privilege. He may choose to give up the property and have the mortgage foreclosed, or redeem the property with the obligation of course to pay the loan or indebtedness. But where he elects to redeem the property and he has to pay the loan for which the mortgage was constituted, then Art. 1249 of the Civil Code applies because it involves now the 'payment of debts.' It is only the act of redeeming or not that is considered a privilege, but not the act of paying the obligation once the mortgagor has elected to redeem the property, in which case the check issued or drawn shall produce the effect of payment only when it has been cashed. 2. Under existing jurisprudence, what the redemptioner should pay, is not the amount of the "loan for which the mortgage was constituted" as stated by the Court of Appeals, but the auction purchase price plus 1 % interest per month on the said amount up to the time of redemption, together with the taxes or assessment paid by the purchaser after the purchase, if any. And in this connection, a formal offer to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not essential where, as in the instant case, the right to redeem is exercised thru the filing of judicial action, which as noted earlier was made simultaneously with the deposit of the redemption price with the Sheriff, within the period of redemption. The formal offer to redeem, accompanied by a bona fide tender of the redemption price within the period of redemption prescribed by law, is only essential to preserve the right of redemption for future enforcement even beyond such period of redemption. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. Should the court allow redemption, the redemptioners should then pay the amount already adverted to.
XC ARNEL SY, petitioner, vs. HONORABLE COURT OF APPEALS, STATE INVESTMENT HOUSE, INC. and THE REGISTER OF DEEDS OF RIZAL, respondents. G.R. No. 83139 | 1989-04-12 DOCTRINE: The amounts to be paid to redeem a foreclosed property are the amounts due under the mortgage deed plus interest and expenses; Petitioner is deemed subrogated by virtue of the deed of assignment to the rights and obligations of the assignor and bound by exactly the same conditions relative to the redemption of the property that bound the latter as debtor and mortgagor. FACTS: On March 2, 1979, Carlos Coquinco executed in favor of private respondent State Investment House, Inc. (SIHI) a real estate mortgage over a land in San Juan, Metro-Manila, together with all the improvements thereon, issued in his name, as security for the payment of a loan. For failure of Carlos Coquinco to pay his outstanding balance the mortgaged property was extrajudicially foreclosed by SIHI and was sold at public auctionto SIHI as the only bidder. On May 22, 1983, SIHI filed before the Regional Trial Court (RTC) of Manila an action against Carlos Coquinco for the collection of the deficiency of his indebtedness. In the meantime, petitioner acquired by virtue of a deed of assignment Carlos Coquinco's right of redemption for and in consideration of P500,000.00. Before the expiration of the one-year redemption period, petitioner offered to redeem the foreclosed property from SIHI but the same was rejected. Thus, on February 20, 1984, petitioner filed an action for consignation of the aforesaid amount with the RTC, to compel SIHI to accept the money as payment of the redemption price for the foreclosed property, to order SIHI to surrender the title over the property and to issue a certificate of redemption in favor of petitioner. On February 27, 1984, a day before the expiration of the redemption period, petitioner decided to redeem the foreclosed property directly from the Ex-Officio Regional Sheriff of Rizal, who accepted from him the money as redemption price, and issued to him the corresponding certificate of redemption. On March 30,1984, SIHI filed a motion to dismiss on the ground of lack of cause of action, alleging that the amount sought to be consigned was insufficient for purposes of redemption pursuant to Section 78 of Rep. Act No. ISSUE: Whether the redemption price are the amounts due under the mortgage deed HELD: Yes. Moreover, petitioner by virtue of the deed of assignment of Carlos Coquinco’s right of redemption must be deemed subrogated to the rights and obligations of his assignor, and bound by exactly the same conditions, relative to the redemption of the subject property that bound the latter as debtor and mortgagor [Gorospe v. Santos, G.R. No. L-30079, January 30, 1976, 69 SCRA 191]. Had Carlos Coquinco attempted to redeem the subject foreclosed property, he would have had to pay “the amount due under the mortgage deed . . . with interest thereon at the rate specified in the mortgage and all costs . . . and other expenses incurred . . . by reason of the execution [or foreclosure] and sale and as a result of the custody of said property less the income
received from the property . . .” pursuant to Section 78 of the General Banking Act in order to effect a valid redemption. Since petitioner merely stepped into the shoes of Carlos Coquinco, his assignor, petitioner should have tendered and paid that same amount in order to redeem the property. Although the foreclosure and sale of the subject property was done by SIHI pursuant to Act No. 3135, as amended (whereby entities like SIHI are authorized to extrajudicially foreclose and sell mortgaged properties only under a special power inserted in or annexed to the real estate mortgage contract, and interested parties, like petitioner herein, are given one year from the date of sale within which to redeem the foreclosed properties), Section 78 of the General Banking Act, as amended, provides the amount at which the subject property is redeemable from SIHI, which is, in this case, the amount due under the mortgage deed, or the outstanding obligation of Carlos Coquinco plus interest and expenses
XCII (See XC)
XCIV FILIPINAS MARBLE CORPORATION, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT, THE HONORABLE CANDIDO VILLANUEVA, Presiding Judge of Br. 144, RTC, Makati, DEVELOPMENT BANK OF THE PHILIPPINES (DBP), BANCOM SYSTEMS CONTROL, INC. (Bancom), DON FERRY, CASIMERO TANEDO, EUGENIO PALILEO, ALVARO TORIO, JOSE T. PARDO, ROLANDO ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R. LIM, respondents. G.R. No. L-68010 | 1986-05-30 DOCTRINE: An unregistered chattel mortgage is a valid one.—Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. It states: “Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.” FACTS: On January 19, 1983, petitioner Filipinas Marble Corporation filed an action for nullification of deeds and damages with prayer for a restraining order and a writ of preliminary injunction against the private respondents. The petitioner alleged in substance that it applied for a loan in the amount of $5,000,000.00 with respondent Development Bank of the Philippines (DBP) in its desire to develop the fun potentials of its mining claims and deposits; that DBP granted the loan subject, however, to sixty onerous conditions. In essence, the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the $5,000,000.00 loan because it is petitioner's contention that there was no loan at all to secure since what DBP "lent" to petitioner with its right hand, it also got back with its left hand; and that, there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the petitioner. The petitioner further prayed that pending the trial on the merits of the case, the trial court immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila and in Romblon Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No. 385, DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123,801,265.82 as against its total obligation of P151,957,641.72; that under the same decree, no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations; that the alleged non-receipt of the loan proceeds by the petitioner could, at best, be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and, therefore, irrespective of whoever is responsible for placing them in their positions, their receipt of the money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended by the petitioner's management, the allegedly precipitate manner with which DBP proceeded with the foreclosure, and the capacity of the DBP to be an assignee of the mining lease rights.
ISSUE: Whether or not an unregistered chattel mortgage is a valid HELD: Yes We agree with the petitioner that a mortgage is a mere accessory contract and, thus, its validity would depend on the validity of the loan secured by it. We, however, reject the petitioner’s argument that since the chattel mortgage involved was not registered, the same is null and void. Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties.
XCVI SALVADOR PIANSAY and CLAUDlA V. VDA. DE UY KIM, plaintiffs-appellants, vs. CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees. G.R. No. L-19468 | 1964-10-30 DOCTRINE: Mortgages; Chattel mortgage on a house cannot bind third persons not parties to said contract.—A contract constituting a chattel mortgage on a house cannot bind third persons not parties to said contract or their privies. FACTS: On December 11, 1948, defendant herein Conrado S. David received a loan of P3,000 with interest at 12% per annum from Claudia B. Vda. de Uy Kim, one of the plaintiffs, and to secure the payment of the same, Conrado S. David executed a chattel mortgage on a house situated at 1259 Sande Street, Tondo, Manila On February 10, 1953, the mortgaged house was sold at public auction to satisfy the indebtedness to Claudia B. Vda. de Uy Kim, and the house was sold to Claudia B. Vda. de Uy Kim in the said foreclosure proceedings; On March 22, 1954, Claudia B. Vda. de Uy Kim sold the said house to Marcos Mangubat, and on March 1, 1956. Marcos Mangubat filed a complaint against Conrado S. David, in the Court of First Instance of Manila, for the collection of the loan of P2,000; that on March 24, 1956, the complaint was amended to include the plaintiffs herein Salvador Piansay and Claudia B. Vda. de Uy Kim as party defendants and praying that auction sale executed by the Sheriff on February 10, 1953, and the deed of absolute sale executed by Claudia B. Vda. de Uy Kim in favor of Salvador Piansay be annulled RTC ruled ordering Conrado S. David to pay the plaintiff the sum of P2,000, and dismissing the complaint with respect to Claudia B. Vda. de Uy Kim, Leonardo Uy Kim and Salvador Piansay; Court of Appeals affirmed the decision. On July 31, 1961, Piansay and Mrs. Uy Kim, instituted the present action against David and Mangubat. In their complaint, prayed that a writ of preliminary injunction to restrain said levy and sale at public auction be issued and that, after appropriate proceedings, judgment be rendered declaring that Piansay is the true and lawful owner of said house sentencing the defendants to pay damages and making the preliminary injunction permanent. ISSUE: Whether or not the Chattel Mortgage can bind third person not parties to the said contract HELD: No. Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage constituted in her favor, because it was in reality a mere contract of an unsecured loan. It follows that the Sheriff was not authorized to sell thehouse as a result of the foreclosure of such chattel mortgage. And as Mrs. Uy Kim could not have acquired the house when the Sheriff sold it at public auction, she could not, in the same token, it validly to Salvador Piansay. Conceding that the contract of sale between Mrs. Uy Kim and Salvador Piansay was of no effect, we cannot nevertheless set it aside upon instance of Mangubat because, as the court below opined, he is not a party thereto nor has he any interest in the subject matter therein, as it was never sold or mortgaged to him (Emphasis supplied);
At any rate, regardless of the validity of a contract constituting a chattel mortgage on a house, as between the parties to said contract (Standard Oil Co. of N. Y. vs. Jaramillo, 44 Phil. 632-633), the same cannot and does not bind third persons, who are not parties to the aforementioned contract or their privies (Leung Yee vs. Strong Machinery Co., 37 Phil. 644; Evangelista vs. Alto Surety, G.R. No. L-11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L-18456, November 30, 1963). As a consequence, the sale of the house in question in the proceedings for the extrajudicial foreclosure of said chattel mortgage, is null and void insofar as defendant Mangubat is concerned, and did not confer upon Mrs. Uy Kim, as buyer in said sale, any dominical right in and to said house (De la Riva vs. Ah Yee, 60 Phil. 800), so that she could not have transmitted to her assignee, plaintiff Piansay any such right as against defendant Mangubat. In short plaintiffs have no cause of action against the defendants herein.
XCVIII MAGDALENA C. DE BARRETTO, ET AL., plaintiffs-appellants, vs. JOSE G. VILLANUEVA, ET AL., defendants-appellees. G.R. No. L-14938 | 1961-01-28
C DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION, ET. AL, respondents. G.R. No. 106655 | 1994-09-01 DOCTRINE: The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is a right to a first preference in the discharge of the funds of the judgment debtor. FACTS Resort Hotel Corporation ("RHC") was the former owner and operator of the Pines Hotel in Baguio City, where private respondents were employed. The property was hypothecated to petitioner Development Bank of the Philippines ("DBP"). When RHC failed to comply with its obligations, DPB foreclosed on the mortgage. Following the foreclosure, Hotel Development Corporation ("HDC"), a subsidiary of DBP, assumed the management and operations of the hotel. Private respondents were rehired by HDC. On 23 October 1984, Pines Hotel, unfortunately, was razed by fire. On 05 November 1985, private respondents filed a complaint against RHC for money claims still outstanding in their favor at the time the foreclosure was effected. HDC and DBP were also impleaded upon the thesis that, should RHC be bereft of sufficient property to answer for those claims, the foreclosed property could be levied against in accordance with Article 110 of the Labor Code. The Labor Arbiter ruled that the foreclosure of the assets of the Resort Hotels Corporation by the Development Bank of the Philippines had the effect of placing the workers in a situation similar to that of establishments that are bankrupt, or those that are dissolved, hence workers claims should be paid in full before the Development Bank of the Philippines may establish any claim over the assets of the RHC; That the Development Bank of the Philippines is hereby ordered to deliver the complainants claims for separation pay, earned vacation and sick leave benefits, meal provisions service charge share pay claims and March 1984 service charge claims. That the Hotel Development Corporation does not have any liability to the complainants, in so far as the claims for separation pay, earned vacation and sick leave benefits, meal provisions service charge share pay claim and March 1984 service charge claims are concerned, hence it should dropped from this complaint. The NLRC, affirmed the decision of the Labor Arbiter. ISSUE: Whether the private respondents claim against RHC enjoys first preference over the mortgage credit of DBP. HELD: No Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of
specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: 'claims for laborers' wages, on the goods manufactured or the work done;' or by Article 2242, number 3: 'claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works.' To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244." A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent’s assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.
