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Special Preferred Credits
(Important: See full text of the Resolution)

Facts: Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot
herein involved to Villanueva for P19K. The purchaser paid P1,500 in advance, and executed a
promissory note for the balance. However, the buyer could only pay P5,500 On account of the note, for
which reason the vendor obtained judgment for the unpaid balance. In the meantime, the buyer
Villanueva was able to secure a clean certificate of title and mortgaged the property to appellant
Barretto to secure a loan of P30K, said mortgage having been duly recorded.

Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in
her favor, obtained judgment, and upon its becoming final asked for execution. Cruzado filed a motion
for recognition for her "vendor's lien" invoking Articles 2242, 2243, and 2249 of the new Civil Code.
After hearing, the court below ordered the "lien" annotated on the back of the title, with the proviso
that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant
Barretto should be paid pro rata from the proceeds.

Appellants insist that:

1. The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only
become effective in the event of insolvency of the vendee, which has not been proved to exist in the
instant case; and .
2. That the Cruzado is not a true vendor of the foreclosed property.

Article 2242 of the new Civil Code enumerates the claims, mortgage and liens that constitute an
encumbrance on specific immovable property, and among them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."

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

Held: Application of the above-quoted provisions to the case at bar would mean that the herein
appellee Rosario Cruzado as an unpaid vendor of the property in question has the right to share pro-rata
with the appellants the proceeds of the foreclosure sale.

Issue: Appellants argument: inasmuch as the unpaid vendor's lien in this case was not registered, it
should not prejudice the said appellants' registered rights over the property.

Held: There is nothing to this argument. Note must be taken of the fact that article 2242 of the new Civil
Code enumerating the preferred claims, mortgages and liens on immovables, specifically requires that.
Unlike the unpaid price of real property sold. mortgage credits, in order to be given preference, should
be recorded in the Registry of Property. If the legislative intent was to impose the same requirement in
the case of the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily
inserted the same qualification which now modifies the mortgage credits. The law, however, does not
make any distinction between registered and unregistered vendor's lien, which only goes to show that
any lien of that kind enjoys the preferred credit status.

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

Resolution on Motion to Consider (1962)

Appellants, spouses Barretto, have filed a motion vigorously urging that our decision be reconsidered
and set aside, and a new one entered declaring that their right as mortgagees remain superior to the
unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and
interests in the mortgaged property.

We have reached the conclusion that our original decision must be reconsidered and set aside:

Under the system of the Civil Code of the Philippines, only taxes enjoy a similar absolute preference. All
the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among
themselves, but must be paid pro-rata i.e., in proportion to the amount of the respective credits. Thus,
Article 2249 provides:
If there are two or more credits with respect to the same specific real property or real rights, they, shall
be satisfied pro-rata after the payment of the taxes and assessments upon the immovable property or
real rights."

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

This explains the rule of Article 2243 of the new Civil Code that
The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or
pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.

And the rule is further clarified in the Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by Article
2243. The preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in
accordance with the Insolvency Law."

Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure
sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of
preferences under Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute
priority. If none of the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro-rata dividend corresponding to each, because the rights of the other creditors
likewise" enjoying preference under Article 2242 can not be ascertained.

Held: There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not
require the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance,
and must remain subordinate to the latter.
SPS. FELINO S. SAMATRA and CHARLITA ISIDRO, petitioners, vs. RITA S. VDA. DE PARIAS, respondent.


The case at bar originated from an agrarian case involving two (2) agricultural lotsi with an
aggregate area of 28,375 square meters and a homelot ii with an area of 472 square meters, all situated
in Sto. Domingo, Nueva Ecija. These lots were originally owned by spouses Donato Samatra and Macaria
Sana. Petitioner FELINO SAMATRA and respondent RITA S. VDA. DE PARIAS are their legitimate children.
On March 20, 1972, the spouses mortgaged one of the agricultural lots and the homelot to the
Rural Bank of Sto. Domingo (N.E.) Inc. to secure their P2,500.00 loan that would mature on August 25,
1975. A year later, or on September 21, 1973, the spouses constituted another real estate mortgage
over the other lot in favor of the same bank to secure their second loan of P1,300.00. This loan was to
mature on April 3, 1975.
On January 3, 1975, while the mortgages were still subsisting, mortgagor Donato Samatra executed
a Kasunduang Buwisan sa Sakahaniii constituting his daughter, respondent Rita S. Vda. de Parias, as
agricultural lessee over the mortgaged lots, without the consent of the mortgagee bank.
When the mortgagors-spouses failed to pay their loans upon maturity, the mortgagee bank
extrajudicially foreclosed the mortgages over the subject lots. At a public auction, the lots were sold to
the mortgagee bank as the sole and highest bidder. The corresponding certificates of sale were issued
in its favor and registered with the Register of Deeds of Nueva Ecija on May 27, 1976. As the
mortgagors-spouses failed to redeem the lots within a year from its registration, the mortgagee bank
consolidated its ownership over the subject lots. Nonetheless, respondent continued in possession of
the lands.
Thereafter, negotiations were conducted between the manager of the mortgagee bank Ricardo E.
Gonzales and the heirs of the mortgagor-spouses, with the bank offering the heirs priority to repurchase
the lots. Respondent Rita S. Vda. de Parias and her son Perfecto showed interest in the offer. Thus, it
was agreed that respondent would buy back the lots by gradually depositing small amounts for the
repurchase of the properties until the full purchase price is paid and, thereafter, the mortgagee bank
would execute the corresponding deed of sale in favor of respondent.
Initially, the agreement was carried out by the respondent. Later, however, respondent and her son
discontinued depositing money in their account for the repurchase of the lots. Instead, they began to
withdraw small amounts from their account until it was depleted and their account closed in November
1982. From then on, nothing was heard from respondent and her son about their intention to
repurchase the lots. Thus, the mortgagee bank construed their silence and inaction as a lack of further
interest to continue with the agreed plan of sale.
In December 1983, petitioner Felino Samatra, one of the heirs of the mortgagor-spouses and a
brother of respondent, expressed his intention to repurchase the lots from the bank. Consequently, on
July 17, 1984, the bank sold the lots to petitioners FELINO SAMATRA and CHARLITA ISIDRO. iv The sale
was duly registered and title was issued in the name of petitioners. v
When respondent learned about the sale, she immediately went to the bank and declared that she
was ready to buy them back. The mortgagee bank informed her that they were already validly sold to
petitioners. Respondent adamantly held on to the lots and continued her possession claiming right over
them as agricultural lessee. She filed a complaint with the barangays Lupong Tagapayapa for
reconveyance of the lots as she has right of pre-emption as agricultural lessee. As the issue could not be
settled at the barangay level, the Lupon issued a certification to enable the parties to file the necessary
action in court.
On December 26, 1984, respondent filed an agrarian case vi with the Regional Trial Court against the
mortgagee bank and the petitioners: (1) to annul the sale by the mortgagee bank of said lots to
petitioners, claiming right of pre-emption or legal redemption as agricultural tenant and homelot
possessor of the subject lots; (2) to order the mortgagee bank to reconvey the lands to her after
exercising her right of legal redemption; and (3) for payment of damages.
In their Answer, petitioners argued that respondent was not an agricultural lessee over the subject
lots as it was their parents, mortgagor-spouses Donato Samatra and Macaria Sana, who personally
cultivated the lots as previous owners.
After the issues were joined, trial ensued. On October 13, 1994, the trial court rendered a
decisionvii in favor of the petitioners. It found that respondent was not a bonafide lessee of the lands
as she did not present proof that she personally cultivated them. Not being a bonafide agricultural
lessee, the trial court ruled that respondent has no right of pre-emption and legal redemption over said
lots. sThe trial court disposed, thus:
WHEREFORE, judgment is hereby rendered:
1. ordering the dismissal of the complaint;
2. declaring the document entitled KASUNDUANG BUWISAN SA SAKAHAN as fraudulent,
illegal and null and void;
3. declaring the sale of the properties in question by the defendant Rural Bank of Sto.
Domingo (NE), Inc. in favor of the defendants-spouses Felino Samatra and Charlita Isidro as
legal and valid;
4. ordering the plaintiff to vacate the subject landholdings and deliver the possession
thereof to the spouses Felino Samatra and Charlita Isidro;
5. ordering the plaintiff to pay the defendants-spouses Felino Samatra and Charlita Isidro
the amount of P50,000.00 as unrealized income from the disputed land from 1984 up to the
6. ordering the plaintiff to pay to the defendants-spouses Felino Samatra and Charlita
Isidro the amount of P3,000.00 as attorneys fees and the amount of P2,000.00 as expenses of
litigation and the defendant Rural Bank of Sto. Domingo (N.E.), Inc. the amount of P3,000.00 as
attorneys fees and the amount of P2,000.00 as litigation expenses; and
7. ordering the plaintiff to pay the costs of suit.
On appeal, the court of Appeals held that although the appellant did not personally cultivate the
subject lands, could still be considered an agricultural lessee as the law allows the lessee to be assisted
by farm laborers in working the land. The Court of Appeals also relied on two (2) documents attesting
that the respondent is the registered legitimate agricultural lessee of the disputed lands, thus: (1) the
Certification, dated May 8, 1985, issued by the Ministry of Agrarian Reform (MAR) District Officer
Eugenio B. Bernardo, in compliance with the Order of the trial court, dated April 23, 1985; (2) an
Affidavit of one Ponciano Alejo, ix President of the Malaya Samahang Nayon, dated October 4, 1984.
Although the Court of Appeals ruled that respondent is a bonafide lessee, it denied her the right of pre-
emption as she was already given by the bank sufficient opportunity to exercise it but she failed to avail
of it. It also held that respondent did not possess the right of redemption as the sale by the mortgagee
bank of the disputed lands to petitioners was not unknown to her. Hence, the Court of Appeals
WHEREFORE, with the modification declaring the legality and validity of the contract of
lease or KASUNDUAN BUWISAN SA SAKAHAN, finding appellant Rita S. Vda. de Parias a
bonafide agricultural lessee/tenant of the landholdings in dispute, viz., Lots Nos. 2891, 2908
and Lot 2434 and deleting the award for damages and attorneys fees and payment of
litigation expenses and cost of suit, the Decision appealed from is AFFIRMED in all other
No Costs.
SO ORDERED.x (emphasis supplied)
Petitioners motion for reconsideration was denied.
Hence this petition, where the following issues were raised:
4.2.1. Whether or not the Court of Appeals correctly reviewed the findings of the trial
court on the issue of whether or not respondent Rita S. Parias is deemed to have personally
cultivated the landholding, considering the rule that the only duty of the Court of Appeals in
agrarian cases is to determine whether the findings of the trial court are supported by
substantial evidence.
4.2.2. Whether or not the Court of Appeals correctly appreciated documentary evidence
in support of its ruling that respondent Rita S. Parias is the one personally cultivating the
4.2.3. Whether or not the resolution of (sic) this second main issue and its following two
corollary issues are tantamount to (sic) questions of law that ought to be reviewed by this
Honorable Supreme Court.
We shall discuss the issues in seriatim.
Petitioners insist that the tenancy contract was illegal as the mortgagor-spouses cannot validly
enter into an agricultural lease agreement with respondent during the effectivity of the mortgage
We disagree. The Court of Appeals correctly applied Article 2130 of the Civil Code which renders
void any stipulation forbidding the owner from alienating the immovable mortgaged (pacto de non
aliendo) property. It is settled that a real estate mortgage does not extinguish the title of the debtor. He
does not lose his right to use or dispose of the mortgaged property (jus disponendi) which is one of the
principal attributes of ownership. Thus, in the case at bar, the mortgagor-spouses were well within their
rights when they constituted respondent as an agricultural lessee and the legality of the leasehold
contract cannot be validly assailed on this ground.
The second issue deals with whether or not respondent may be considered a bonafide agricultural
lessee of the subject lands as to give her the right to repurchase the foreclosed lands. The findings of the
trial court and the Court of Appeals on this matter are directly opposed to each other. Thus, a scrutiny of
the evidence on record is in order to determine if there is merit in the petition at bar.
The essential elements of agricultural leasehold relationships are: (1) the parties are the landowner
and the agricultural lessee; (2) the subject matter of the relationship is agricultural land; (3) there is
consent between the parties to the relationship; (4) the purpose of the relationship is to bring about
agricultural production; (5) there is personal cultivation on the part of the agricultural lessee; and (6)
the harvest is shared between the landowner and the agricultural lessee.xi
In the case at bar, the resolution of the second issue involves proof of the fifth element, i.e.,
personal cultivation of the lands by respondent as to constitute her a bonafide agricultural lessee
thereof. While the trial court found that respondent was not a bonafide tenant, the Court of Appeals
declared that she is but she failed to exercise her right to redeem the lands within the required period.
As a result, both the trial court and the Court of Appeals decreed that the sale of the lands to petitioners
is valid although they disagreed on the fact of personal cultivation by respondent as to constitute her a
bonafide lessee. Thus, the petitioners now seek a declaration from this Court that the respondent has
no right to further possess the disputed lands as she is not a bonafide agricultural lessee thereof.
On this aspect, we find for the petitioners.
In support of her claim of legitimate tenancy, respondent presented the following documents: (1)
the Kasunduang Buwisan sa Sakahan, dated January 3, 1975; (2) the certificate of the Ministry of
Agrarian Reform (MAR) District Officer Eugenio B. Bernardo; and (3) the October 4, 1984 affidavit of
Ponciano Alejo, President of the Malayang Samahang Nayon. We find, however, that these documents
are insufficient to support respondents claim of tenancy.
First, the Kasunduang Buwisan sa Sakahan entered into by the original owners and the respondent
does not per se prove that respondent is a bonafide lessee. The five (5) elements of agricultural
leasehold relationship are still required to be established. In the case at bar, the element of personal
cultivation by the respondent was not adequately proved. This is fatal to respondents cause as without
the element of personal cultivation, a person cannot be considered a tenant even if he is so
designated in the written agreement of the parties.xii
Second, the Certification issued by MAR District Officer Bernardo is likewise insufficient to prove
that respondent is a bonafide lessee as it did not make a finding that respondent personally cultivated
the land either by herself or through farm laborers. The Certification simply made a general conclusion
that respondent is a registered agricultural lessee of the lands per records of their office, as the
Kasunduang Buwisan sa Sakahan was registered there.
Third, the 1984 Affidavit of Alejo,xiii the President of the Malayang Samahang Nayon likewise
deserves scant consideration. Its contents leave much to be desired insofar as proof that respondent is a
bonafide lessee of the subject lots. Its ambiguous and sweeping statements cannot support
respondents claim of legitimate tenancy. Consider these statements:
2. That on July 2, 1984, I issued a certification that one MR. DONATO SAMATRA, of Barangay
Malaya, Sto. Domingo, Nueva Ecija is the owner, and at the same time the actual tiller of
two (2) parcels of agricultural land situated thereat, with a combined area of 26,746 square
meters, more or less including a residential portion, without carefully verifying the facts.
3. That it now appears that I was misled into believing, and thus certifying, that said
landholding was not tenanted but is actually being tilled by the registered owner DONATO
4. That in truth and in fact, said landholding is tenanted by virtue of a Kasunduang Buwisan
sa Sakahan, dated January 3, 1975, by and between its registered owner DONATO SAMATRA
and RITA S. VDA. DE PARIAS, with Rufino Q. Roque and Ernesto C. Castelo as instrumental
witnesses, and which document is known as Dok. Blg. 145; Pahina Blg. 50; Aklat Blg. VII, duly
notarized by Hon. Judge Manuel Dela Cruz, Notary Public Ex-Oficio and registered with the
Office of the Municipal Treasurer of Sto. Domingo, Nueva Ecija, on the same date;
5. That I am executing this affidavit in order to set the record straight and to correct an error
that may prejudice, or may have prejudiced, the lawful tenant, possessor and cultivator, MRS.
RITA S. VDA. DE PARIAS. (emphasis supplied)
Thus, it appears that Alejo based the foregoing affidavit certifying that respondent is the actual
cultivator and lawful lessee of the land solely on the existence of the registered contract of agricultural
lease. His certification on the fact of personal cultivation by the respondent as to constitute her a
bonafide or legitimate lessee was not based on personal knowledge or factual information. There is no
mention in his Affidavit that he investigated respondents status and saw for himself or knew for a fact
that respondent personally cultivated the lots. His Affidavit is wanting in particulars and its ambiguous
contents were never explained in court. We likewise find it curious that Alejo had earlier issued a
conflicting Affidavit,xiv dated July 2, 1984, certifying that the subject lands were untenanted and the
actual tiller was the mortgagor Donato Samatra. Three months later, he issued the aforequoted
Affidavit stating in paragraph 3 that it was respondent who personally cultivated the lands. Curiously,
Alejo did not elaborate in the same Affidavit or during the trial of the case the circumstances and
reasons that allegedly misled him to issue the first certificate.
In the light of these two (2) conflicting affidavits issued by Alejo, the issue on personal cultivation
by the respondent as to constitute her a bonafide lessee was not adequately proved. We reiterate our
ruling in Bernas vs. Court of Appealsxv that the legal question of agricultural leasehold relationship
cannot be made to depend on mere certifications issued by the president or officers of associations
and organizations. This ruling applies with greater force in the case at bar as the documents and
certifications issued by the same person contradict each other.
Aside from respondents conflicting documentary evidence, the trial court rightly observed that
respondent was of advance age which immediately puts in doubt her ability to personally cultivate the
disputed lands. It would have been appropriate for respondent to have testified on her behalf or
presented witnesses to attest that she performed any of the various acts of caring for the plants, as to
fall under the definition of personal cultivation.xvi While the evidence shows that respondent was in
possession of the lands, it is not enough to prove that she cultivated them. As correctly pointed out by
petitioners, cultivation, although not limited to plowing and harrowing of the soil, requires some general
industry on the part of the tenant in caring for the plants. In the case at bar, we find absolutely no
evidence on record to show that respondent performed any act that may be considered as falling under
the phrase personal cultivation. Neither can we affirm the Court of Appeals conclusion that, although
respondent may not have personally cultivated the lands, she could have been helped by farm laborers
in the care of the plants as this is allowed by law. To be sure, there is a dearth of evidence on record to
show that respondent personally cultivated the lands, much less that she was assisted by hired
personnel in her farm work.
Prescinding from these premises, we affirm the conclusion of the trial court that respondent is not
a bonafide agricultural lessee of the subject lands for failure to prove the important element of
personal cultivation.
Finally, we affirm the award of actual damages to petitioners in the form of unrealized income
from the lands in view of respondents refusal to surrender the disputed lands to them. The actual
amount thereof should be recomputed by the trial court based on the total expected harvest from the
date the lots were sold to petitioners in 1984 until finality of the decision. However, we affirm the
deletion of the award of attorneys fees and litigation expenses as the trial court failed to discuss in its
Decision the reasons for their grant. The settled rule is that the matter of attorneys fees cannot be
mentioned only in the dispositive portion of the decision.xvii The same goes for the award of litigation
expenses. They must be clearly explained and justified by the trial court in the body of its decision for
the general rule is that attorneys fees and expenses of litigation cannot be recovered in the absence of
IN VIEW WHEREOF, the impugned Decision of the Court of Appeals in CA-G.R. CV No. 51831, dated
March 12, 1999, is SET ASIDE. The Decision of the Regional Trial Court, Branch 37, Sto. Domingo, Nueva
Ecija, dated October 17, 1994, in Agrarian Case No. 113/Civil Case No. SD-1194, is REINSTATED, with the
modifications that the awards of attorneys fees and litigation expenses to petitioners are deleted. The
records of the case are remanded to the court a quo for recomputation of the proper amount of actual
damages to be paid by respondent Rita S. Vda. de Parias to petitioners Felino Samatra and Charlita
Davide, Jr., C.J., (Chairman), and Austria-Martinez, JJ., concur.
Kapunan, and Ynares-Santiago, on official leave.
SPCL Chattel Mortgage
2. Filipinas Marble Corporation v. Intermediate Appellate Court, 142 SCRA 180 (1986)

-Filipinas Marble Corporation applied for a loan with Development Bank of the Philippines (DBP)
in its desire to develop the fun potentials of its mining claims and deposits and to finance
acquisition of machinery. DBP granted the loan subject, however, to sixty onerous conditions,
among which are: Filipinas Marble shall have to enter into a management contract with
respondent Bancom Systems Control, Inc. [Bancom] and that the loan be secured by a

-The mortgage was not registered.

-Bancom and its directors/ officers mismanaged and misspent the loan.
-Bancom resigned with the approval of DBP even before the expiration of the management
contract, leaving Filipinas Marble desolate and devastated.
-Machineries arrived in the Philippines but alleged not delivered to Filipinas Marble.
-Also, instead of helping Filipinas Marble get back on its feet, DBP completely abandoned
Filipinas Marbles project and proceeded to foreclose the properties mortgage without previous
demand or notice.
-In essence, the Filipinas Marble seeks the annulment of the deeds of mortgage and deed of
assignment because there was no loan at all to secure since what DBP "lent" to Filipinas Marble
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 Filipinas
-The Filipinas Marble 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 Filipinas
Marbles properties in Metro Manila and in Romblon.
-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

-While evidence of Filipinas Marble Corporation appears persuasive, still it cannot enjoin DBP
from complying with the mandatory provisions of PD 385.

Page 4 of 33/Comia, A.T.

SPCL Chattel Mortgage

If there was no valid contract of loan for failure of consideration, whether or not the mortgage
can exist or stand by itself being a mere accessory contract.
Whether or not the non-registration of the Chattel Mortgage affects its validity.
- Presidential Decree No. 385 was issued primarily to see to it that government financial
institutions are not denied substantial cash inflows, which are necessary to finance development
projects all over the country, by large borrowers who, when they become delinquent, resort to
court actions in order to prevent or delay the government's collection of their debts and loans.
-The government, however, is bound by basic principles of fairness and decency under the due
process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government
lending institutions who take over the management of a borrower corporation, lead that
corporation to bankruptcy through mismanagement or misappropriation of its funds, and who,
after ruining it, use the mandatory provisions of the decree to avoid the consequences of their
-The designated officers of the government financing institution cannot simply walk away and
then state that since the loans were obtained in the corporation's name, then P.D. 385 must be
peremptorily applied and that there is no way the borrower corporation can prevent the
automatic foreclosure of the mortgage on its properties once the arrearages reach twenty
percent (20%) of the total obligation no matter who was responsible.
-In the case at bar, the respondents try to impress upon this Court that the $5,000,000.00 loan
was actually granted and released to the petitioner corporation and whatever the composition of
the management which received the loan is of no moment because this management was
acting in behalf of the corporation. The respondents also argue that since the loan was
extended to the corporation, the releases had to be made to the then officers of that borrower
-Precisely, what the petitioner is trying to point out is that the DBP and Bancom people who
managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the
positions that they were occupying in the corporation which resulted in the latter's devastation
instead of its rehabilitation. The petitioner does not question the authority under which the loan
was delivered but stresses that it is precisely this authority which enabled the DBP and Bancom
people to misspend and misappropriate the proceeds of the loan thereby defeating its very
purpose, that is, to develop the projects of the corporation. Therefore, it is as if the loan was
never delivered to it and thus, there was failure on the part of the respondent DBP to deliver the
consideration for which the mortgage and the assignment of deed were executed.
- 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.
Filipinas marble, however, cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP

Bonnevie v. CA
GR No. L-49101 October 24, 1983
Facts: Spouses Lozano mortgaged their property to secure the payment of a loan amounting to 75K with
private respondent Philippine Bank of Communication (PBCom). The deed of mortgage was executed on
12-6-66, but the loan proceeds were received only on 12-12-66. Two days after the execution of the
deed of mortgage, the spouses sold the property to the petitioner Bonnevie for and in consideration of
100k25K of which payable to the spouses and 75K as payment to PBCom. Afterwhich, Bonnevie
defaulted payments to PBCom prompting the latter to auction the property after Bonnivie failed to
settle despite subsequent demands, in order to recover the amount loaned. The latter now assails the
validity of the mortgage between Lozano and Pbcom arguing that on the day the deed was executed
there was yet no principal obligation to secure as the loan of P75,000.00 was not received by the Lozano
spouses, so that in the absence of a principal obligation, there is want of consideration in the accessory
contract, which consequently impairs its validity and fatally affects its very existence.

Issue: Was there a perfected contract of loan?

Held: Yes. From the recitals 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 December 12,
1966 is only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at
the time of its execution.

Eastern Shipping Lines v. CA

GR No. 97412 July 12, 1994

Facts: Petitioner-defendant was consigned to deliver a cargo. Upon embarkment, the cargo was found
to be damaged while on transit. Private respondent-plaintiff, Mercantile Insurance, paid the consignee
the amount of damage based on a marine insurance policy. Mercantile consequently sued the petitioner
for recovery of damages it paid to the consignee. The court a quo decided in favor of the plaintiff and
further stressing the amount paid by the insurance company to the consignee be paid and with the
present legal interest of 12% per annum commencing on the date of filing of the complaint, until fully
paid. The petitioner now contests the ruling particularly on the issue of interest.
Issue: When should the reckoning period be for the computation of the payment of legal interest on an
award for loss or damage? What is the applicable rate of interest?

Held: The Court laid down the following rules of thumb for guidance in cases like that of the above:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.


parcel of land covered by Transfer Certificate of Title No. 337942. Sometime on 1990, petitioner
entrusted the original copy of the TCT to Salvador, a distant relative, for the purpose of securing a
mortgage loan. Thereafter without the knowledge and consent of petitioner, Salvador mortgaged the
property to Respondent Pangilinan. Subsequently when petitioner verified the status of his title with the
RD of Marikina, he was surprised to discover that there was already annotation for REM in the title,
purportedly executed by one Adriano, in favor of the Respondent, in consideration of P60,000.00,
petitioner then denied that he executed deed.

After repeated demand by the petitioner that respondent return or reconvey to him his title to the said
property and when these demands were ignored or disregarded, he instituted the present suit.
Respondent stated that he was a businessman engaged in the buying and selling as well as in the
mortgage of real estate properties; that sometime in December, 1990 Salvador, together with Macanaya
and a person who introduced himself as Adriano, came to his house inquiring on how they could secure
a loan over a parcel of land; that he asked them to submit the necessary documents, such as the
owner's duplicate of the transfer certificate of title to the property, the real estate tax declaration, its
vicinity location plan, a photograph of the property to be mortgaged, and the owner's residence
certificate; that when he conducted an ocular inspection of the property to be mortgaged, he was there
met by a person who had earlier introduced himself as Adriano, and the latter gave him all the original
copies of the required documents to be submitted; that after he (defendant) had verified from the RD
that the title to the property to be mortgaged was indeed genuine, he and that person Adriano executed
the REM, and then had it notarized and registered with the RD.

After that, the alleged owner, Adriano, together with Macanaya and another person signed the
promissory note in the amount of P60,000.00 representing the appraised value of the mortgage
property. This done, he defendant gave them the aforesaid amount in cash.

Respondent claimed that petitioner voluntarily entrusted his title Salvador for the purpose of securing a
loan, thereby creating a principal-agent relationship between the plaintiff and Salvador for the aforesaid
purpose. Thus, according to respondent, the execution of the REM was within the scope of the authority
granted to Salvador; that in any event that since the said TCT has remained with petitioner, the latter
has no cause of action for reconveyance against him." The trial court ruled in favor of the petitioner, and
the CA reversed the said decision.

ISSUES: W/N consent is an issue in determining who must bear the loss if a mortgage contract is sought
to be declared a nullity.

RULING: The court ruled in favor of the petitioner, setting aside the decision of the CA, and reinstating
the Ruling of the RTC.

The court ruled that the mortgage is null and void, for being entered into by a person who is not the
absolute owner of the thing. The court also found that the petitioner is a not a purchaser for value, that
his negligence is the proximate cause to the property being registered REM. According to the court the
respondent is a businessman and that while it is true that when dealing with Torrens title one may rely
on the face of the title, the court held that the negligence of the respondent to ascertain the identity of
the imposter is critical that it is due to this mistake that the property is now encumbered by a REM. The
court in granting that the respondent is negligent finds that if there was any negligence eon the party of
Salvador, then such is inconsequential. The court therefore ruled in favor of the petitioner due to the
negligence of the respondent.