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RP vs. Jose V. Bagtas, G.R. No. L-17474, October 25, Ratio: The loan by the appellee to the late defendant Jose
1962 (6 SCRA 262) V. Bagtas of the three bulls for breeding purposes for a
period of one year from 8 May 1948 to 7 May 1949,
Facts: Jose V. Bagtas borrowed from the RP through later on renewed for another year as regards one bull, was
the Bureau of Animal Industry three bulls, a Red Sindhi, subject to the payment by the borrower of breeding fee of
a Bhagnari, and a Sahiniwal, for a period of one year 10% of the book value of the bulls. The appellant contends
from 8 that the contract was commodatum and that, for that
May 1948 to 7 May 1949 for breeding purposes subject to reason, as the appellee retained ownership or title to the
a government charge of breeding fee of 10% of the book bull it should suffer its loss due to force majeure A contract
value of the bulls. Upon the expiration on 7 May 1949 of of commodatum is essentially gratuitous. If the breeding
the contract, the borrower asked for a renewal for fee were considered a compensation, then the contract
another period of one year. However, the Secretary of would be a lease of the bull. Under article 1671 of the
Agriculture and Natural Resources approved a renewal Civil Code, the lessee would be subject to the
thereof of only one bull for another year from 8 May responsibilities of a possessor in bad faith, because she
1949 to 7 May 1950 and requested the return of the had continued possession of the bull after the expiry of the
other two. contract. And even if the contract be commodatum, still
On 25 March 1950 Jose V. Bagtas wrote to the the appellant is liable, because article 1942 of the Civil
Director of Animal Industry that he would pay the value of Code provides that a bailee in a contract of commodatum
the three bulls. On 17 October 1950 he reiterated his is liable for loss of the thing, even if it should be through a
desire to buy them at a value with a deduction of fortuitous event: (2) If he keeps it longer than the period
yearly depreciation to be approved by the Auditor stipulated or (3) If the thing loaned has been delivered
General. On 19 October 1950 the Director of Animal with appraisal of its value, unless there is a stipulation
Industry advised him that the book value of the three bulls exempting the bailee from responsibility in case of a
could not be reduced and that they either be returned or fortuitous event.
their book value paid not later than 31 October 1950. The original period of the loan was from 8 May
Jose V. Bagtas failed to pay the book value of the 1948 to 7 May 1949. The loan of one bull was renewed for
three bulls or to return them. So, on 20 December 1950 in another period of one year to end on 8 May 1950. But the
the CFI of Manila, the RP commenced an action against him appellant kept and used the bull until November 1953
praying that he be ordered to return the three bulls when during a Huk raid it was killed by stray bullets.
loaned to him or to pay their book value in the total sum Furthermore, when lent and delivered to the deceased
of P3,241.45 and the unpaid breeding fee in the sum of husband of the appellant, the bulls had each an appraised
P499.62, both with interests, and costs. book value, to wit: the Sindhi, at P1,176.46; the Bhagnari,
Bagtas countered that because of the bad peace at P1,320.56 and the Sahiniwal; at P744.46. It was not
and order situation in Cagayan Valley, and of the stipulated that in case of loss of the bull due to fortuitous
pending appeal he had taken to the Secretary of event the late husband of the appellant would be exempt
Agriculture and Natural Resources and the President of from liability.
the Philippines from the refusal by the Director of Animal Special proceedings for the administration and
Industry to deduct from the book value of the bulls settlement of the estate of the deceased Jos V. Bagtas
corresponding yearly depreciation of 8% from the date having been instituted in the Court of First Instance of
of acquisition, to which depreciation the Auditor Rizal (Q-
General did not object, he could not return the animals nor 200), the money judgment rendered in favor of the
pay their value and prayed for the dismissal of the appellee cannot be enforced by means of a writ of
complaint. execution but must be presented to the probate court
The Court ruled in favor of the RP. The RP for payment by the appellant, the administratrix
moved ex parte for a writ of execution which was appointed by the court.
granted. The surviving spouse of the now deceased Jose V.
Bagtas filed a motion praying for the quashal of the writ of RP (Bureau of Lands) vs. CA, Heirs of Domingo
execution alleging that 2 bulls had already been returned Baloy, G.R. No. L-46145, November 26, 1986. (146
while the third bull died from gunshot wounds inflicted SCRA 15)
during a Huks raid on Hacienda Felicidad Intal. The court
denied her motion. Facts: Domingo Baloy is the owner of a parcel of land
whose title to the land dates back to Spanish times.. On
Issue: Whether a bailee in commodatum is absolved of November 26, 1902 pursuant to the executive order
the obligation to return the thing if it is lost due to force of the President of the U.S., the area was declared
majeure within the U.S. Naval Reservation. Under Act 627 as
amended by Act 1138, a period was fixed within which
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persons affected thereby could file their application, (that 511).
is within 6 months from July 8, 1905) otherwise the said The finding of respondent court that during
lands or interests therein will be conclusively adjudged to the interim of 57 years from November 26, 1902 to
be public lands and all claims on the part of private December 17, 1959 (when the U.S. Navy possessed the
individuals for such lands or interests therein not to area) the possessory rights of Baloy or heirs were merely
presented will be forever barred. The U.S. Navy did suspended and not lost by prescription, is supported by
occupy the land for some time as a recreation area. After Exhibit "U," a communication or letter No. 1108-63, dated
the U.S. Navy abandoned the land, Baloy came in and June 24, 1963, which contains an official statement of the
asserted title once again, only to be troubled by first position of the Republic of the Philippines with regard to
Crispiniano Blanco who however in due time, the status of the land in question. Said letter recognizes
quitclaimed in favor of applicants, and then by private the fact that Domingo Baloy and/or his heirs have been
oppositors now, apparently originally tenants of Blanco. in continuous possession of said land since
Baloy filed an application for land registration, but this was 1894 as attested by an "Informacion Possessoria" Title,
denied. CA reversed. which was granted by the Spanish Government. Hence, the
disputed property is private land and this possession was
Issue: Whether possession of land not in the concept of interrupted only by the occupation of the land by the U.S.
owner is a commodatum. Navy in 1945 for recreational purposes. The U.S. Navy
eventually abandoned the premises. The heirs of the late
Held: Yes. Affirmed. Domingo P. Baloy, are now in actual possession, and this
has been so since the abandonment by the U.S. Navy. A
Ratio: Private land could be deemed to have become new recreation area is now being used by the U.S. Navy
public land only by virtue of a judicial declaration after personnel and this place is remote from the land in
due notice and hearing. It runs contrary therefore to the question.
contention of petitioners that failure to present claims set Clearly, the occupancy of the U.S. Navy was not in
forth under Sec. 2 of Act 627 made the land ipso facto the concept of owner. It partakes of the character of a
public without any need of judicial pronouncement. commodatum. It cannot therefore militate against the title
Petitioner in making such declaration relied on Sec. 4 of of Domingo Baloy and his successors-in-interest. One's
Act 627 alone. But in construing a statute the entire ownership of a thing may be lost by prescription by reason
provisions of the law must be considered in order to of another's possession if such possession be under claim
establish the correct interpretation as intended by the of ownership, not where the possession is only intended to
law-making body. Act 627 by its terms is not self- be transient, as in the case of the U.S. Navy's occupation of
executory and requires implementation by the Court of the land concerned, in which case the owner is not
Land Registration. Act 627, to the extent that it creates a divested of his title, although it cannot be exercised in the
forfeiture, is a penal statute in derogation of private meantime.
rights, so it must be strictly construed so as to
safeguard private respondents' rights. Significantly, Margarota Quintos & Angel A. Ansaldo vs. Beck,
petitioner does not even allege the existence of any G.R. No. 46240, November 3,
judgment of the Land Registration court with respect to 1939 (69 Phil 108)
the land in question. Without a judgment or order
declaring the land to be public, its private character and Facts: The defendant was a tenant of the plaintiff and
the possessory information title over it must be respected. occupied the latter's house on M. H. del Pilar street, No.
Since no such order has been rendered by the Land 1175. On January 14, 1936, upon the novation of the
Registration Court it necessarily follows that it never contract of lease between the plaintiff and the defendant,
became public land thru the operation of Act 627. To the former gratuitously granted to the latter the use of the
assume otherwise is to deprive private respondents of furniture, subject to the condition that the defendant
their property without due process of law. In fact it can be would return them to the plaintiff upon the latter's
presumed that the notice required by law to be given by demand. The plaintiff sold the property to Maria Lopez
publication and by personal service did not include the and Rosario Lopez, and on September 14, 1936, these
name of Domingo Baloy and the subject land, and hence three notified the defendant of the conveyance, giving him
he and his land were never brought within the operation 60 days to vacate the premises under one of the clauses of
of Act the contract of lease. Thereafter, the plaintiff required the
627 as amended. The procedure laid down in Sec. 3 is a defendant to return all the furniture transferred to him for
requirement of due process. "Due process requires that his use. The defendant answered that she may call for
the statutes under which it is attempted to deprive a them in the house where they are found. On November 5,
citizen of private property without or against his consent 1936, the defendant, through another person, wrote to the
must, as in expropriation cases, be strictly complied with, plaintiff reiterating that she may call for the furniture in
because such statutes are in derogation of general rights." the ground floor of the house. On the 7th of the same
(Arriete vs. Director of Public Works, 58 Phil. 507, 508, month, the defendant wrote another letter to the plaintiff
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informing her that he could not give up the three gas The costs in both instances should be borne by the
heaters and the four electric lamps because he would use defendant because the plaintiff is the prevailing party
them until the 15th of the same month when the lease is (section 487 of the Code of Civil Procedure). The
due to expire. The plaintiff refused to get the furniture in defendant was the one who breached the contract of
view of the fact that the defendant had declined to deliver commodatum, and without any reason he refused to return
all of them. On November 15th, before vacating the and deliver all the furniture upon the plaintiff's demand.
house, the defendant deposited with the Sheriff all the In these circumstances, it is just and equitable that he
furniture belonging to the plaintiff and they are now on pay the legal expenses and other judicial costs which
deposit in the warehouse situated at No. 1521, Rizal the plaintiff would not have otherwise defrayed.
Avenue in the custody of the said sheriff.
The plaintiff filed suit for the return of the The Consolidated Bank & Trust Corp (Solidbank)
furniture. The lower court ordered the return of the vs. CA, Continental Cement
furniture which were already in the possession of the Corp, Gregory T. Lim & Spouse, G.R. No. 114286, April
sheriff at the plaintiffs expense and the payment of any 19, 2001. (356 SCRA 671)
fees for the deposit of the furniture to be share pro rata
between the parties. Facts: On July 13, 1982, respondents Continental Cement
Corporation (hereinafter, respondent Corporation) and
Issue: Whether a bailee in commodatum is obligated to Gregory T. Lim (hereinafter, respondent Lim) obtained
return the thing loaned at the premises of the bailor. from petitioner Consolidated Bank and Trust
Corporation Letter of Credit No. DOM-
Held: Yes. Reversed. 23277 in the amount of P1,068,150. On the same date,
respondent Corporation paid a marginal deposit of
Ratio: The contract entered into between the parties is P320,445 to petitioner. The letter of credit was used to
one of commodatum, because under it the plaintiff purchase around five hundred thousand liters of bunker
gratuitously granted the use of the furniture to the fuel oil from Petrophil Corporation, which the latter
defendant, reserving for herself the ownership thereof; by delivered directly to respondent Corporation in its
this contract the defendant bound himself to return the Bulacan plant. In relation to the same transaction, a trust
furniture to the plaintiff, upon the latter's demand. receipt for the amount of P1,001,520.93 was executed
The obligation voluntarily assumed by the defendant to by respondent Corporation, with respondent Lim as
return the furniture upon the plaintiff's demand, means signatory.
that he should return all of them to the plaintiff at the Claiming that respondents failed to turn over
latter's residence or house. The defendant did not comply the goods covered by the trust receipt or the proceeds
with this obligation when he merely placed them at the thereof, petitioner filed a complaint for sum of money with
disposal of the plaintiff, retaining for his benefit the three application for preliminary attachment before the RTC of
gas heaters and the four electric lamps. The provisions of Manila. In answer to the complaint, respondents averred
article 1169 of the Civil Code cited by counsel for the that the transaction between them was a simple loan and
parties are not squarely applicable. The trial court, not a trust receipt transaction, and that the amount
therefore, erred when it came to the legal conclusion claimed by petitioner did not take into account payments
that the plaintiff failed to comply with her obligation to get already made by them. Respondent Lim also denied any
the furniture when they were offered to her. personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for
As the defendant had voluntarily undertaken to
reimbursement of alleged overpayment to petitioner of the
return all the furniture to the plaintiff, upon the latter's
amount of P490,228.90.
demand, the Court could not legally compel her to bear
The trial court dismissed the complaint and
the expenses occasioned by the deposit of the furniture at
granted the respondents counterclaim. CA partially
the defendant's behest. The latter, as bailee, was not
modified the decision with respect to the award of the
entitled to place the furniture on deposit; nor was the
counterclaim.
plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the
three gas heaters and the four electric lamps. Issue: Whether a provision of a floating interest rate which
As to the value of the furniture, we do not has no reference rate is valid.
believe that the plaintiff is entitled to the payment thereof
by the defendant in case of his inability to return some of Held: No. Affirmed.
the furniture, because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to
nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value
thereof should be later determined by the trial court
through evidence which the parties may desire to present.
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respondent Corporation of the goods subject of the trust
Ratio: There is no error in setting aside the floating rate receipt occurred long before the trust receipt itself
of interest in the trust receipt. The provision on interest was executed. More specifically, delivery of the bunker
states: I, WE jointly and severally agree to any increase fuel oil to respondent Corporations Bulacan plant
or decrease in the interest rate which may occur after July commenced on July 7, 1982 and was completed by July 19,
1, 1981, when the Central Bank floated the interest rate, 1982. Further, the oil was used up by respondent
and to pay additionally the penalty of 1% per month Corporation in its normal operations by August, 1982. On
until the amount/s or installment/s due and unpaid under the other hand, the subject trust receipt was only
the trust receipt on the reverse side hereof is/are fully executed nearly two months after full delivery of the oil
paid. was made to respondent Corporation, or on September 2,
The foregoing stipulation is invalid, there being 1982.
no reference rate set either by it or by the Central Bank, The danger in characterizing a simple loan as a
leaving the determination thereof at the sole will and trust receipt transaction was explained in Colinares, to wit:
control of petitioner. While it may be acceptable, for The Trust Receipts Law does not seek to enforce payment
practical reasons given the fluctuating economic of the loan, rather it punishes the dishonesty and abuse of
conditions, for banks to stipulate that interest rates on a confidence in the handling of money or goods to the
loan not be fixed and instead be made dependent upon prejudice of another regardless of whether the latter is the
prevailing market conditions, there should always be a owner. Here, it is crystal clear that on the part of
reference rate upon which to peg such variable interest Petitioners there was neither dishonesty nor abuse of
rates. An example of such a valid variable interest rate confidence in the handling of money to the prejudice of
was found in Polotan, Sr. v. Court of Appeals. In that PBC. Petitioners continually endeavored to meet their
case, the contractual provision stating that if there obligations, as shown by several receipts issued by PBC
occurs any change in the prevailing market rates, the acknowledging payment of the loan. The Information
new interest rate shall be the guiding rate in charges Petitioners with intent to defraud and
computing the interest due on the outstanding obligation misappropriating the money for their personal use. The
without need of serving notice to the Cardholder other mala prohibita nature of the alleged offense
than the required posting on the monthly statement notwithstanding, intent as a state of mind was not proved
served to the Cardholder was considered valid. The to be present in Petitioners situation. Petitioners
aforequoted provision was upheld notwithstanding that it employed no artifice in dealing with PBC and never did
may partake of the nature of an escalation clause, because they evade payment of their obligation nor attempt to
at the same time it provides for the decrease in the interest abscond. Instead, Petitioners sought favorable terms
rate in case the prevailing market rates dictate its precisely to meet their obligation.
reduction. In other words, unlike the stipulation subject Also noteworthy is the fact that Petitioners are
of the instant case, the interest rate involved in the Polotan not importers acquiring the goods for re-sale, contrary to
case is designed to be based on the prevailing market the express provision embodied in the trust receipt. They
rate. On the other hand, a stipulation ostensibly are contractors who obtained the fungible goods for their
signifying an agreement to any increase or decrease in construction project. At no time did title over the
the interest rate, without more, cannot be accepted by construction materials pass to the bank, but directly to the
this Court as valid for it leaves solely to the creditor the Petitioners from CM Builders Centre. This impresses
determination of what interest rate to charge against an upon the trust receipt in question vagueness and
outstanding loan. ambiguity, which should not be the basis for criminal
Petitioner has also failed to convince us that its prosecution in the event of violation of its provisions.
transaction with respondent Corporation is really a trust The practice of banks of making borrowers sign
receipt transaction instead of merely a simple loan, as trust receipts to facilitate collection of loans and place
found by the lower court and the Court of Appeals. The them under the threats of criminal prosecution should
recent case of Colinares v. Court of Appeals appears to be they be unable to pay it may be unjust and inequitable, if
foursquare with the facts obtaining in the case at bar. not reprehensible. Such agreements are contracts of
There, we found that inasmuch as the debtor received adhesion which borrowers have no option but to sign lest
the goods subject of the trust receipt before the trust their loan be disapproved. The resort to this scheme
receipt itself was entered into, the transaction in question leaves poor and hapless borrowers at the mercy of banks,
was a simple loan and not a trust receipt agreement. Prior and is prone to misinterpretation, as had happened in this
to the date of execution of the trust receipt, ownership over case. Eventually, PBC showed its true colors and
the goods was already transferred to the debtor. This admitted that it was only after collection of the money,
situation is inconsistent with what normally obtains in a as manifested by its Affidavit of Desistance.
pure trust receipt transaction, wherein the goods belong
in ownership to the bank and are only released to the Oscar D. Ramos & Luz Agudo vs. CA, Adelaida Ramos &
importer in trust after the loan is granted. Lazaro E. Meneses, G.R. No. 42108, December 29, 1989
In the case at bar, as in Colinares, the delivery to (180 SCRA 635)
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Facts: Sometime in January, 1959, private respondent
Adelaida Ramos borrowed from her brother, petitioner
Oscar D. Ramos, the amounts of P5,000.00 and P9,000.00
in connection with her business transaction with one
Flor Ramiro, Fred Naboa and Atty. Ruperto Sarandi
involving the recovery of a parcel of land in Tenejeros,
Malabon. The said amount was used to finance the trip to
Hawaii of Ramiro, Naboa and Atty. Sarandi. As security for
said loan, private respondent Adelaida Ramos executed in
favor of petitioners two (2) deeds of conditional sale dated
May 27, 1959 and August 30, 1959, of her rights, shares,
interests and participation respectively over Lot No. 4033
covered by Original Certificate of Title No. 5125
registered in the name of their parents, Valente Ramos
and Margarita Denoga, now deceased, and Lot No. 4221
covered by Transfer Certificate of Title No. 10788 then
registered in the names of Socorro Ramos, Josefina Ramos
and Adelaida Ramos.
Upon the failure of said private respondent as
vendor a retro to exercise her right of repurchase within
the redemption period, aforenamed petitioner filed a
petition for consolidation and approval of the conditional
sale of Lot No. 4033 in Special Proceedings No. 5174,
entitled "Intestate Estate of the late Margarita Denoga,"
and a petition for
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approval of the pacto de retro sale of Lot No. 4221 in the be sales with pacto de retro; however, since the same
former Court of First Instance of Tarlac acting as a were actually executed in consideration of the aforesaid
cadastral court. The probate court and cadastral court loans said contracts are indubitably equitable
granted the petitions. mortgages. The rule is firmly settled that whenever it is
Private respondents had been and remained in clearly shown that a deed of sale with pacto de retro,
possession of these properties until sometime in 1964 regular on its face, is given as security for a loan, it must be
when petitioner took possession thereof. regarded as an equitable mortgage.
On February 28, 1968, private respondent filed
Civil Case No. 4168 with the then Court of First Instance of
Tarlac for declaration of nullity of orders, reformation of
instrument, recovery of possession with preliminary
injunction and damages. The complaint therein alleged
that the deeds of conditional sale, dated May 27, 1959 and
August 30, 1959, are mere mortgages and were vitiated by
misrepresentation, fraud and undue influence and that the
orders dated January 22, 1960 and April 18, 1960,
respectively issued by the probate and cadastral courts,
were null and void for lack of jurisdiction. The court
ruled that the contract between the parties is a loan
secured by a real estate mortgage, and set aside the
titles issued in favor of the petitioner. CA affirmed.
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the same be considered as irregular deposits, because the appellants claim should be earned by their deposits after
payment of interest only takes place in the case of loans. said date and until the full amounts thereof are paid to
On the other hand, as we stated with respect to the them. And with respect to the question of set-off, this
claim of Tan Tiong Tick (In re Liquidation of Mercantile should be deemed made, of course, as of the date when the
Bank of China, G. R. No. 43682), the provisions of the Code Mercantile Bank of China was declared in a state of
of Commerce, and not those of the Civil Code, are, liquidation, that is, on December 4, 1931, for then there
applicable to cases of the nature of those at bar, which was already a reciprocal concurrence of debts, with
have to do with parties who are both merchants. (Articles respect to said bank and the appellants.
303 and 309, Code of Commerce.) We there said, and it is
not amiss to repeat now, that the so-called current account
and savings deposits have lost their character of deposits,
properly so-called, and are converted into simple
commercial loans because, in cases of such deposits, the
bank has made use thereof in the ordinary course of its
transactions as an institution engaged in the banking
business, not because it so wishes, but precisely because
of the authority deemed to have been granted to it by the
appellants to enable them to collect the interest which
they had been and they are now collecting, and by virtue
further of the authority granted to it by section 125 of the
Corporation Law (Act No. 1459), as amended by Acts Nos.
2003 and 3610 and section 9 of the Banking Law (Act No.
3154), without considering of course the provisions of
article 1768 of the Civil Code. Wherefore, it is held that the
deposits on current account of the appellants in the bank
under liquidation, with the right on their part to collect
interest, have not created and could not create a juridical
relation between them except that of creditors and debtor,
they being the creditors and the bank the debtor.
The question of set-off raised by them cannot be
resolved except in the same way that we resolved a like
question in the said case, G. R. No. 43672, entitled "In re
Liquidation of Mercantile Bank of China. Tan Tiong Tick,
claimant." It is proper that set- offs be made, inasmuch as
the appellants and the bank being reciprocally debtors
and creditors, the same is only just and according to law
(art. 1195, Civil Code), particularly as none of the
appellants falls within the exceptions mentioned in section
58 of the Insolvency Law (Act No. 1956) which states, (i)n
all cases of mutual debts and mutual credits between the
parties, the account between them shall be stated, and one
debt set off against the other, and the balance only shall be
allowed and paid. But no set-off or counterclaim shall be
allowed of a claim in its nature not provable against
the estate: Provided, That no set-off or counterclaim shall
be allowed in favor of any debtor to the insolvent of a
claim purchased by or transferred to such debtor within
thirty days immediately preceding the filing, or after the
filing of the petition by or against the insolvent.
The question of whether they are entitled to
interest should be resolved in the same way that we
resolved the case of the claimant Tan Tiong Tick. The
circumstances in these two cases are certainly the same
as those in the said case with reference to the said
question. the Mercantile Bank of China owes to each of the
appellants the interest claimed by them, corresponding to
the year ending December 4, 1931, the date it was
declared in a state of liquidation, but not those which the
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parties do not bargain on equal footing, the weaker
partys participation being reduced to the alternative to
United Coconut Planters Banks vs. Sps. Samuel and take it or leave it. Such a contract is a veritable trap for
Odette Beluso, G.R. No. the weaker party whom the courts of justice must protect
159912, August 17, 2007 (530 SCRA 567) against abuse and imposition.
The provision stating that interest rate shall be at
Facts: On April 16, 1996, UCPB granted spouses Beluso a the rate indicative of DBD retail rate or as determined by
Promissory Notes Line under a Credit Agreement whereby the Branch Head is indeed dependent solely on the
the latter could avail from the former credit of up to a will of
maximum amount of P1.2 million for 1 year. A real estate
mortgage was executed as an additional security. The
credit agreement was subsequently amended to increase
the amount to a maximum of P2.35 million and to
extend the term to Feb. 28, 1998. The spouses Beluso
fully availed of the credit at varying times and upon
execution of promissory notes, although they would later
deny the receipt of P350,000. UCPB applied interest rates
on the different promissory notes ranging from 18% to
34%. The spouses Beluso were able to pay the total
sum of P763,692 up to Feb. 28, 1998. They were
unable to pay afterwards. Their loans were still being
charged interest at varying rates from 28% to 33%.
On September 2, 1998, UCPB demanded the
payment of the total obligation of P2,932,543 plus 25%
attys fees. On December 28 1998, UCPB foreclosed the
properties mortgaged by the spouses Beluso due to the
non-payment of their debt which had ballooned to
P3,784,603.
On February 9, 1999, the spouses Beluso filed a
Petition for Annulment, Accounting and Damages against
UCPB with the RTC of Makati City. RTC ruled in favor of
the spouses Beluso, although they were still made to pay
P1,560,308 to the bank. CA affirmed.
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UCPB. Under such provision, UCPB has 2 choices on a full disclosure of such cost with a view of preventing the
what interest rate shall be: (1) a rate indicative of the uninformed use of credit to the detriment of the national
DBD retail rate; or (2) a rate as determined by the branch economy. Moreover, while the spouses Beluso indeed
head. As UCPB is given this choice, the rate should be agreed to renew the credit line, the offending provisions
categorically determined in both choices. If either of these are found in the promissory notes themselves, not in the
2 choices presents an opportunity for UCPB to fix the rate credit line. In fixing the interest rates in the promissory
at will, the bank can easily choose such an option, thus notes to cover the renewed credit line, UCPB still reserved
making the entire interest rate provision violative of the to itself the same two options (1) a rate indicative of the
principle of mutuality of contracts. DBD retail rate; or (2) a rate as determined by the Branch
Not just one, but rather both, of these choices are Head.
dependent solely on the will of UCPB. Clearly, a rate as
determined by the Branch Head gives the latter
unfettered discretion on what the rate may be. The
Branch Head may choose any rate he or she desires. As
regards the rate indicative of the DBD retail rate, the
same cannot be considered as valid for being akin to a
prevailing rate or prime rate allowed by this Court in
Polotan vs CA (296 SCRA 247). The interest rate in Polotan
reads: The Cardholder agrees to pay interest per annum at
3% plus the prime rate of Security Bank and Trust
Company. In this provision in Polotan, there is a fixed
margin over the reference rate: 3%. Thus, the parties
can easily determine the interest rate by applying simple
arithmetic. On the other hand, the provision in the case
at bar does not specify any margin above or below the
DBD retail rate. UCPB can peg the interest at any
percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest
rate.
The stipulation in the promissory notes subjecting
the interest rate to review does not render the imposition
by UCPB of interest rates on the obligations of the
spouses Beluso valid. It should be pointed out that the
authority to review the interest rate was given UCPB
alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes.
As worded in the above provision, UCPB may give as
much weight as it desires to each of the following
considerations: (1) the prevailing financial and
monetary condition; (2) the rate of interest and charges
which other banks or financial institutions charge or
offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the
spouses Beluso). Again, as in the case of the interest rate
provision, there is no fixed margin above or below these
considerations.
The interest rate provisions in the case at bar are
illegal not only because of the provisions of the Civil Code
on mutuality of contracts, but also, as shall be discussed
later, because they violate the Truth in Lending Act. Not
disclosing the true finance charges in connection with the
extensions of credit is, furthermore, a form of deception
which we cannot countenance. It is against the policy of
the State as stated in the Truth in Lending Act: Sec. 2.
Declaration of Policy. It is hereby declared to be the
policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring
10
As for the claim of UCPB that, in lieu of the banks UCPBs contention that this action to recover the
interest rate, legal interest rate should apply, the court penalty for the violation of the Truth in Lending Act has
upheld this claim. The excess amount in such a demand already prescribed is likewise without merit. The penalty
does not nullify the demand itself, which is valid with for the violation of the act is P100 or an amount equal to
respect to the proper amount. A contrary ruling would twice the finance charge required by such creditor in
put commercial transactions in disarray, as validity of connection with such transaction, whichever is greater,
demands would be dependent on the exactness of the except that such liability shall not exceed P2,000.00 on
computations thereof, which are too often contested. any credit transaction. As this penalty depends on the
There being a valid demand on the part of UCPB, albeit finance charge required of the borrower, the borrowers
excessive, the spouses Beluso are considered in default cause of action would only accrue when such finance
with respect to the proper amount and, therefore, the charge is required. In the case at bar, the date of the
interests and the penalties began to run at that point. As demand for payment of the finance charge is 2 September
regards the award of 12% legal interest in favor of 1998, while the foreclosure
petitioner, the RTC actually recognized that said legal
interest should be imposed, thus: There being no valid
stipulation as to interest, the legal rate of interest shall be
charged. It seems that the RTC inadvertently overlooked
its non-inclusion in its computation.
The contract stipulation providing the
compounding of interest is likewise upheld because it was
neither nullified by the lower court nor assailed by the
spouses Beluso.
The penalty imposed by UCPB, ranging from
30.41% to 36% was held to be iniquitous. It was reduced
to 12% per annum.
Since both parties were compelled to litigate and
both parties were legally entitled to attys fees, their claims
are set off and neither are given any award for such.
The foreclosure is valid because there was a valid
demand on the spouses Beluso, although excessive, and
the spouses Beluso were in default. The proceeds of the
foreclosure sale should be applied to the extent of the
amounts to which UCPB is rightfully entitled. The grounds
for the proper annulment of the foreclosure sale are not
present in this case such as (1) fraud, collusion, accident,
mutual mistake, breach of trust or misconduct by the
purchase; (2) sale had not been fairly and regularly
conducts; or (3) the price was inadequate and the
inadequacy was so great as to shock the conscience of the
court.
The fine of P26,000 issued against UCPB for
violation of RA 3765 of the Truth in Lending Act is
affirmed. Even though the spouses Beluso did not
categorically charge UCPB of violating such Act in their
complaint, the allegations in the complaint, much more
than the title thereof, are controlling. The allegation that
the promissory notes grant UCPB the power to unilaterally
fix the interest rates certainly also means that the
promissory notes do not contain a clear statement in
writing of (6) the finance charge expressed in terms of
pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed
expressed as a simple annual rate on the outstanding
unpaid balance of the obligation. Furthermore, the
spouses Belusos prayer for such other reliefs just and
equitable in the premises should be deemed to include
the civil penalty provided for in Section 6(a) of the Truth in
Lending Act.
11
was made on 28 December 1998. The filing of the case on of interests from the loaned amount, and the like. The
9 February 1999 is therefore within the one-year law thereby seeks to protect debtors by permitting them
prescriptive period. to fully appreciate the true cost of their loan, to enable
UCPB argues that a violation of the Truth in them to give full consent to the contract, and to properly
Lending Act, being a criminal offense, cannot be inferred evaluate their options in arriving at business decisions.
nor implied from the allegations made in the complaint. Upholding UCPBs claim of substantial compliance would
As can be gleaned from Section 6(a) and (c) of the Truth in defeat these purposes of the Truth in Lending Act. The
Lending Act, the violation of the said Act gives rise to both belated discovery of the true cost of credit will too often
criminal and civil liabilities. Section 6(c) considers a not be able to reverse the ill effects of an already
criminal offense the willful violation of the Act, imposing consummated business decision.
the penalty therefor of fine, imprisonment or both. There was no forum shopping when the spouses
Section 6(a), on the other hand, clearly provides for a civil Beluso first filed an action for injunction which was
cause of action for failure to disclose any information of dismissed due to improper venue and later filed an
the required information to any person in violation of the action for
Act. In the case at bar, therefore, the civil action to recover
the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare
the interests in the promissory notes void, and (2) the
action to declare the foreclosure void. This joinder is
allowed under Rule 2, Section 5 of the Rules of Court.
Petitioner further posits that it is the
Metropolitan Trial Court which has jurisdiction to try and
adjudicate the alleged violation of the Truth in Lending
Act, considering that the present action allegedly involved
a single credit transaction as there was only one
Promissory Note Line. We disagree. We have already
ruled that the action to recover the penalty under Section
6(a) of the Truth in Lending Act had been jointly instituted
with (1) the action to declare the interests in the
promissory notes void, and (2) the action to declare the
foreclosure void. There had been no question that the
above actions belong to the jurisdiction of the RTC.
Furthermore, opening a credit line does not create a credit
transaction of loan or mutuum, since the former is
merely a preparatory contract to the contract of loan or
mutuum. Under such credit line, the bank is merely
obliged, for the considerations specified therefor, to lend
to the other party amounts not exceeding the limit
provided. The credit transaction thus occurred not
when the credit line was opened, but rather when the
credit line was availed of. In the case at bar, the
violation of the Truth in Lending Act allegedly occurred
not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the
parties executed the promissory notes, where the allegedly
offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso
were duly given copies of the subject promissory notes
after their execution, then they were duly notified of the
terms thereof, in substantial compliance with the Truth
in Lending Act. Once more, we disagree. Section 4 of
the Truth in Lending Act clearly provides that the
disclosure statement must be furnished prior to the
consummation of the transaction. The rationale of this
provision is to protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost
by hidden charges, uncertainty of interest rates, deduction
12
annulment. Even assuming there was forum shopping, that the applicable rate of interest is 12% per annum.
the rule that the later action should be dismissed is not Petitioner argues that the applicable law is Article
absolute. The more appropriate case may prevail. 2209 of the Civil Code, not the Central Bank Circular No.
416. Said Article 2209 provides that if the obligation
consists in the payment of a sum of money, and the
Pilipinas Bank vs. CA & Lilia R. Echaus, G.R. No.
debtor incurs in delay, the indemnity for damages, there
97873, August 12, 1993 (225
being no stipulation to the contrary, shall be the payment
SCRA 268)
of the interest
Facts: The petitioner and Greatland Realty Corporation
(Greatland) executed a "Dacion en Pago," wherein
Greatland conveyed to petitioner several parcels of land in
consideration of the sum of P7,776,335.69. Greatland
assigned P2,300,000.00 out of the total consideration of
the Dacion en Pago, in favor of private respondent.
Notwithstanding her demand for payment, petitioner, in
bad faith, refused and failed to pay the said amount
assigned to her. Private respondent sued.
Petitioner, while admitting the execution of the
Dacion en Pago, claimed: (1) that its former president
had no authority to enter into such agreement; (2)
that it never ratified the same; and (3) that assuming
arguendo that the agreement was binding, the conditions
stipulated therein were never fulfilled.
Trial court ruled in favor of private
respondent. The case was appealed. A motion for
execution pending appeal was filed and approved by the
lower court. The CA modified the execution pending
appeal by deferring the execution of the award for moral,
exemplary and nominal damages to await the final
judgment of the main case. The SC affirmed the CA.
The CA eventually ruled in favor of private
respondent. The decision awarded interest at the legal
rate from the date when the demand was first made.
The decision became final and executory.
The petitioner sought for payment of interest at
the rate of 6% per annum only. The private respondent
sought for interest at the rate of 12% per annum pursuant
to CB Circular No. 416. The court ruled that the proper
interest rate was 12%. A clarification was sought with the
CA which ruled that the proper interest rate was 12%.
16
operate, and that which they may earn from the time the authority under the law, it would be, to put it tritely,
bank's operations were stopped until the date of payment "squeezing blood out of turnip" for Us to grant private
of the deposits. As to the first class, we hold that it should respondent's demand.
be paid because such interest has been earned in the Parenthetically, We may add for the guidance of
ordinary course of the bank's business and before the those who might be concerned, and so that unnecessary
latter has been declared in a state of liquidation. Moreover, litigations may be avoided from further clogging the
the bank being authorized by law to make use of the dockets of the courts, that in the light of the
deposits, with the limitation stated, to invest the same in considerations expounded in the above opinion, the
its business and other operations, it may be presumed that same formula that exempts petitioner from the payment of
it bound itself to pay interest to the depositors as in fact it interest to its depositors during the whole period of factual
paid interest prior to the dates of the said claims. As to the stoppage of its operations by orders of the Central Bank,
interest which may be charged from the date the bank modified in effect by the decision as well as the approval of
ceased to do business because it was declared in a state a formula of rehabilitation by
of liquidation, we hold that the said interest should not be
paid.
It is a matter of common knowledge, which We
take judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru
the other aspects of its operation it is able to generate
funds to cover the payment of such interest. Unless a bank
can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds
and generally engage in other banking and financing
activities from which it can derive income, it is
inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom
dictates this inexorable fair and just conclusion. And it
can be said that all who deposit money in banks are
aware of such a simple economic proposition.
Consequently, it should be deemed read into every
contract of deposit with a bank that the obligation to pay
interest on the deposit ceases the moment the operation
of the bank is completely suspended by the duly
constituted authority, the Central Bank.
We consider it of trivial consequence that the
stoppage of the bank's operation by the Central Bank has
been subsequently declared illegal by the Supreme Court,
for before the Court's order, the bank had no alternative
under the law than to obey the orders of the Central Bank.
Whatever be the juridical significance of the subsequent
action of the Supreme Court, the stubborn fact remained
that the petitioner was totally crippled from then on from
earning the income needed to meet its obligations to its
depositors. If such a situation cannot, strictly speaking, be
legally denominated as "force majeure", as maintained by
private respondent, We hold it is a matter of simple equity
that it be treated as such.
As We have explained earlier, the complete factual
suspension of petitioner's operation as a bank disabled
it to commit itself to the payment of such interest.
Hopefully, petitioner may be able to resume operations
and recover its standing as a normal bank. But it is almost
vain to expect that within the forseeable future, it would
be in a position to pay in full even at least the
deposits themselves, not to mention the interest
thereon. In justice and equity, having been subjected to
what the Supreme Court has found to be an unfortunate
excess or abuse by the Central Bank of the exercise of its
17
this court, should be, as a matter of consistency, applicable OBM vs. CA and Tony Tapia.
or followed in respect to all other obligations of petitioner To solve the impasse, COMBANK and the Central
which could not be paid during the period of its actual Bank agreed to abide by any clarificatory ruling the
complete closure. Supreme Court may render on the matter. The
Supreme Court ruled that the bank is not liable for
interest on the Central Bank loans and advances during
The Overseas Bank of Manila vs. Vicente Cordero,
the period of its closure. Central Bank moved to
G.R. No. L-33582, March 30,
reconsider.
1982 (113 SCRA 303)
19
nor COMBANK will be affected, one way or the other,
Plana, dissenting: Ramos vs. Central Bank was decided by any ruling of the Supreme Court on the issue at bar.
by this Court way back on October 4, 1971 on the issue But certainly, the Central Bank and the Philippine
of the validity of the OBM closure. The case did not involve Government stand to lose some P47 million in interests
any question as to the liability of OBM for interest on should the Supreme Court hold that COMBANK is not
deposits or any other obligation. Surprisingly, however, liable to pay interest on CB pre-1968 loans and advances
on February 17, 1982 more than 10 years after the from which OBM has unquestionably benefited.
entry of judgment in Ramos vs. Central Bank
COMBANK filed a motion to intervene in said case as well
as a motion praying for a clarificatory ruling on the
liability of OBM to pay interest on Central Bank loans and
advances.
In a Minute Resolution dated October 19, 1982,
this Court ruled that OBM is not liable to pay interest on
Central Bank loans and advances during the period of its
closure. The motion of the Central Bank under
consideration seeks a reconsideration of that ruling.
There are cogent reasons why OBM (now
COMBANK) should be held liable for the payment of
interests on CB loans and advances. (a) The loans and
advances in question were granted by the Central Bank to
OBM before the latter's closure in 1968 to enable it to
meet its obligations to its depositors whose money
(deposits) it had been able to use in the generation of
income. (b) For the period during which OBM
stopped banking operations, it collected interests on
loans granted by it to its clients. (Actually, the Central
Bank closure order was limited only to normal banking
operations; it did not prohibit the collection of OBM
receivables, including interests due.) If OBM thus collected
interests on loans granted by it, why should it not pay
interest on loans and advances given to it by the Central
Bank to meet its liquidity problems? Is it not enough that
OBM has already been exempted from the payment of
interests on bank deposits? (c) Money does not come
gratuitously to the Central Bank. It has cost. This is now of
common knowledge because the JOBO bills and the high
interests rates they carry are familiar to all. But even
before the advent of JOBO bills, the Central Bank was
borrowing money locally and/or from external sources
and paying interests on borrowed funds. By all relevant
standards, it is only fair and proper that the Central Bank
should be allowed to recover its investment and the cost
thereof. (d) I do not think that the liability or non-
liability of the OBM (COMBANK) for interest payment
on CB loans and advances would either prejudice or
benefit the GSIS, the government instrumentality which
owns 99.93% of the outstanding capital stock of
COMBANK. When the GSIS bought the controlling interest
in COMBANK, the vendor (IUCP/Herdis Group) together
with the Emerito Ramos Group placed in escrow with the
INTERBANK the amount of P47.2 million to answer for
the interest liability of COMBANK in case the Supreme
Court rules that the latter is liable therefor. On the other
hand, however, should the Supreme Court decide that
COMBANK is not liable, the amount held in escrow would
be returned to the IUCP/Herdis Group and the Emerito
Ramos Group. It is therefore clear that neither the GSIS
20
Bank of the Philippine Islands, Inc. vs. Sps. Norman the debtor incident to the extension of credit." The
and Angelina Yu and Tuanson lender may provide for a penalty clause so long as the
Builders Corporation represented by Norman Yu, amount or rate of the charge and the conditions under
G.R. No. 184122, January 20, which it is to be paid are disclosed to the borrower
2010 (610 SCRA 412) before he enters into the credit agreement. In this case,
although BPI failed to state the penalty charges in the
disclosure statement, the promissory note that the Yus
Facts: Spouses Yu, doing business as Tuanson Trading and
signed, on the same date as the disclosure statement,
Tuanson Builders Corporation, borrowed various sums
contained a penalty clause that said: "I/We jointly and
totaling P75 million from Far East Bank and Trust
severally, promise to further pay a late payment
Company. For collateral, they executed real estate
charge on any overdue amount herein at the rate of 3%
mortgages over several of their properties including
per month." The promissory note is an acknowledgment
certain lands in Legazpi City owned by Tuanson Trading.
Unable to pay their loans, they requested a loan
restructuring which the bank, now merged with BPI,
granted. By this time, the balance of the loan was P33.4
million. Despite the restructuring, the Yus still had
difficulty paying the loan. The Yus asked BPI to release
some of the mortgaged lands since their total appraised
value far exceeded the amount of the remaining debt.
When BPI ignored their request, they withheld payment of
their amortizations. Thus, BPI extrajudicially foreclosed
the mortgaged properties. The Yus countered by filing an
annulment case of the foreclosure sale against BPI and the
winning bidder, Magnacraft Development Corporation.
The Yus and Magnacraft were able to reach a
compromise agreement that affirmed Magnacrafts
ownership of three (3) of the ten (10) lots that were
auctioned. The court, therefore, dismissed the case
against Magnacraft, without prejudice to any case being
filed against BPI.
The Yus filed a case against BPI for excessive
penalty charges, attorneys fees, and foreclosure expenses
that the bank caused to be incorporated in the price of the
auctioned properties. In the alternative, the Yus claimed
that BPI is in estoppel to claim more than the amount
stated in the published notices, therefore, they must
turnover the excess bid amounts worth over P6 million.
Initially, the RTC, in a partial summary judgment, reduced
the penalty charges from 36% to 12% and the
attorneys fees from
25% to 10%. Upon motion for reconsideration of the Yus
on the ground that the penalty charges were violative of
the Truth in Lending Act (R.A. 3765) as BPI did not
disclose the rate of penalties for late amortizations, the
court deleted the penalty charges and reduced Attorneys
Fees to 1%. CA affirmed.
21
of a debt and commitment to repay it on the date and following reasons: (1) attorneys fee is not essential to
under the conditions that the parties agreed on. It is a valid the cost of borrowing, but a mere incident of collection;
contract absent proof of acts which might have vitiated (2) 1% is just and adequate because BPI had already
consent. charged foreclosure expenses; (3) attorneys fee of
The question is whether or not the reference to 10% of the total amount due is onerous considering
the penalty charges in the promissory note constitutes the rote effort that goes into extrajudicial foreclosures.
substantial compliance with the disclosure requirement of
the Truth in Lending Act. The RTC and CA relied on the Asian Construction and Development Corporation
ruling in New Sampaguita as authority that the non- vs. Cathay Pacific Steel
disclosure of the penalty charge renders its imposition Corporation (Capasco), G.R. No. 167942, June 29, 2010
illegal. But New Sampaguita is not attended by the same ()
circumstances. What New Sampaguita disallowed, because
it was not mentioned either in the disclosure statement or Facts: On several occasions between June and July of
in the promissory note, was the unilateral increase in 1997, Asian Construction and
the rates of penalty charges that the creditor imposed Development Corp. purchased from Cathay Pacific Steel
on the borrower. Here, however, it is not shown that BPI Corp. various reinforcing steel
increased the rate of penalty charge that it collected from
the Yus.
The ruling that is more in point is that laid down
in The Consolidated Bank and Trust Corporation v.
Court of Appeals, a case cited in New Sampaguita.
The Consolidated Bank ruling declared valid the penalty
charges that were stipulated in the promissory notes.
What the Court disallowed in that case was the collection
of a handling charge that the promissory notes did not
contain.
The Court has affirmed that financial charges are
amply disclosed if stated in the promissory note in the
case of Development Bank of the Philippines v. Arcilla, Jr.
The Court there said, "Under Circular 158 of the
Central Bank, the lender is required to include the
information required by R.A. 3765 in the contract covering
the credit transaction or any other document to be
acknowledged and signed by the borrower. In addition,
the contract or document shall specify additional charges,
if any, which will be collected in case certain stipulations
in the contract are not met by the debtor." In this case,
the promissory notes signed by the Yus contained data,
including penalty charges, required by the Truth in
Lending Act. They cannot avoid liability based on a rigid
interpretation of the Truth in Lending Act that contravenes
its goal.
Nonetheless, the courts have authority to
reduce penalty charges when these are unreasonable
and iniquitous. Considering that BPI had already
received over P2.7 million in interest and that it seeks to
impose the penalty charge of 3% per month or 36% per
annum on the total amount dueprincipal plus interest,
with interest not paid when due added to and becoming
part of the principal and also bearing interest at the same
rate
the Court finds the ruling of the RTC in its original
decision reasonable and fair. Thus, the penalty charge of
12% per annum or 1% per month is imposed.
As for the award of attorneys fee, it being part
of a partys liquidated damages, the same may likewise be
equitably reduced. The CA correctly affirmed the RTC
Order to reduce it from 10% to 1% based on the
22
bars worth P2,650,916.40 covered by a total of 12 invoice, petitioner did not only bind itself to pay the stated
invoices. On November 21, 1997, ACDC made a partial selling price, it also bound itself to pay (1) interest of
payment of P2,159,211.49, and on March 2, 1998, another 24% per annum on overdue accounts and (2) 25% of the
partial payment of P250,000, leaving a balance of unpaid invoice for attorneys fees. Thus, the lower courts
P214,704.91. Capasco sent two demand letters dated did not err in using the invoices as basis for the award
May 12, 1998, and August 10, 1998, respectively, but no of interest.
payment was made by ACDC. On November 24, 1998, In the present case, the invoices stipulate for 25%
Capasco filed a complaint for a sum of money and of the overdue accounts as attorneys fees. The overdue
damages. account in this case amounts to P241,704.91, 25% of
The trial court ruled for Capasco and held ACDC which is P60,426.23. This amount is not excessive or
liable to pay for the balance of their account with interest unconscionable, hence, the court sustained the amount
and with an additional 2% interest per month and to pay of attorneys fees as stipulated by the parties.
attorneys fees. The CA affirmed with some modifications
on the amount of the balance and the attorneys fees which
was set at 10%.
Facts: By an instrument dated June 29, 1944, Vicenta Held: Yes. Reversed.
Matias Vda. de Cornejo, and her son, Amado Cornejo, Jr.,
mortgaged to the spouses Dominador Nicolas and Olimpia
Matias, four (4) parcels of land, situated in San Roque,
municipality of Gapan, Province of Nueva Ecija, to
guarantee the payment of the sum of P30,000 then lent
by the mortgagees to the mortgagors and received by
the latter, in Japanese military notes one (1) year after
the expiration of five (5) years from said date, with
interest thereon, at the rate of six per cent (6%) per
annum. On July 15, 1944, said mortgagors offered to pay
the debt, with interest for five (5) years, but the
mortgagees rejected the offer. Whereupon, in August,
1944, the mortgagors deposited judicially the sum of
P39,000 representing the principal (P30,000), plus
interest for five (5) years, at the stipulated rate
and instituted Civil Case No. 156 of the Court of First
Instance of Nueva Ecija for the purpose of compelling the
mortgagees to accept said amount and to discharge the
mortgage. Although holding that the mortgagees were not
justified in rejecting the tender of payment made by the
mortgagors, said court rendered judgment, on August 12,
1946, declaring the consignation invalid for failure of the
mortgagors to give previous notice thereof, and sentencing
the mortgagors to pay the mortgagees the sum of P2,000
as the equivalent in Philippine currency, pursuant to the
Ballantyne schedule, of P30,000 in Japanese military notes
with interest, at the legal rate, from June 29, 1944.
The CA held the consignation valid and the obligation
guaranteed by the mortgage fully discharged. The
mortgagees, however, brought the case, for review by
writ of certiorari, to this Court, which held that the
mortgagors could not, without the mortgagees' consent,
accelerate the date of maturity of the obligation in
question, which is payable after the fifth year from June
29, 1944; that the mortgagees cannot be compelled to
accept payment prior to the expiration of said fifth year;
and that the judicial consignation made by the mortgagors
is, consequently, invalid, except as regards the amount
corresponding to the interest for one (1) year from June
29, 1944.
Soon thereafter, or on August 22, 1951, the
mortgagees instituted the present action for foreclosure of
said mortgage. The only issue raised in the lower court
was whether the sum of P30,000, lent by the
mortgagees in Japanese war notes, should be paid by the
mortgagors in Philippine currency, peso for peso, or in
accordance with the Ballantyne schedule. The lower court
35
1945, and thereupon Ang Lam presented a claim against
Ratio: In Cruz vs. Del Rosario (G. R. No. L-4859) decided her estate for the full amount of the indebtedness.
on July 24, 1951, it was held that if according to the Judgment having been rendered thereon for P1,000, the
stipulation of the parties, the money to be paid by the equivalent thereof according to the Ballantyne Conversion
debtor to the creditor, or by the vendor with pacto to the Table, Ang Lam has prosecuted this appeal, contending
creditor to redeem the property mortgaged, or sold, shall that as the currency in which the indebtedness was to
be due and payable after liberation as agreed upon by the be paid was not agreed upon or stipulated in the
parties in the present case, it shall be paid in legal tender contract of loan, this should be in the legal tender on
or Philippine currency at par value or at the rate of one December 25, 1945, or one year
Philippine peso for each peso in Japanese military notes;
but if it shall be due and payable before liberation it shall
be paid after the liberation in Philippine currency in
accordance with the Ballentyne schedule. This ruling
was reiterated in Arevalo vs. Barreto (89 Phil. 633)
decided on July 31, 1951. To the same effect was the
conclusion reached in the case of Wilson vs.
Berkenkotter (49 Off. Gaz., p. 1401). The foregoing view
has been consistently applied by this Court in a
number of other cases, among which the following may
be mentioned: Ilusorio vs. Busuego, 84 Phil., 630; Roo
vs. Gomez, 46 Off. Gaz., Supp. No. 11, 339; Gomez vs. Tabia,
47 Off. Gaz., 641, Ponce de Leon vs. Syjuco, 90 Phil., 311;
Garcia vs. De los Santos, 49 Off. Gaz., 4830. What is
more, the strong dissents written in some of the cases
cited indicated that adherence to said view was effected
upon thorough consideration of the different aspects
thereof, that said doctrine is now in the nature of stare
decisis and that the issue is now close as regards this
Court.
It is thus settled that the contracting parties are
free to stipulate on the currency in which their respective
obligations shall be settled, and that whenever,
pursuant to the terms of an agreement, an obligation
assumed during the Japanese occupation is not payable
until after liberation of the Philippines, the parties to the
agreement are deemed to have intended that the amount
stated in the contract be paid in such currency as may be
legal tender at the time when the obligation becomes due.
This is, precisely, the situation obtaining in the case at bar.
The deed of mortgage in question provides that the
obligation of the mortgagees shall be paid one year after
the expiration of five (5) years from June
29, 1944, which is the date of said instrument. In
other words, the obligation is not payable until June 29,
1949. Thus, the obligation became due after liberation.
The obligation involved in the present case must be
satisfied, peso for peso, in Philippine currency.
Padilla&Paras,dissenting.
41
of 1982 to be of no force and legal effect, it having been attorneys fees is different from that mentioned in and
promulgated by the Monetary Board of the Central Bank of regulated by the Rules of Court. Rather, the attorneys
the Philippines with grave abuse of discretion amounting fees here are in the nature of liquidated damages and the
to excess of jurisdiction. The lower court reduced the stipulation therefor is aptly called a penal clause. So
interest rate to 28% per annum. CA affirmed. long as the stipulation does not contravene the law,
morals, public order or public policy, it is binding upon
the obligor. It is the litigant, not
Issue: Whether the court can reduce usurious interest rate
to a lower interest rate of its discretion.
43
Ratio: The Interest Rate and Penalty Charge of 3% Mariano Aquino vs. Tomas Deala, G.R. No. 43304,
Per Month or 36% Per Annum Should Be Reduced to October 21, 1936 (63 Phil 582)
2% Per Month or 24% Per Annum. In its Complaint,
respondent BPI originally imposed the interest and Facts: The defendant approached Mariano Aquino, the
penalty charges at the rate of 9.25% per month or plaintiff's father, to solicit a P4,000 loan secured by the
111% per annum. This was declared as unconscionable real property on which a house of strong materials was
by the lower courts for being clearly excessive, and was built. Mariano Aquino acceded on condition that the
thus reduced to 2% per month or 24% per annum. On transaction be evidenced by a deed of sale with a 4 year
appeal, the CA modified the rate of interest and penalty right of repurchase, obligation to build a house, and
charge and increased them to 3% per month or 36% per obligation to lease the property from Mariano Aquino for
annum based on the Terms and Conditions Governing the the sum of P40 per month. The instrument was later
Issuance and Use of the BPI Credit Card, which governs the novated, the only alteration being the price and the rent
transaction between petitioner Macalinao and respondent P4,500 and P45, respectively. It was novated again to
BPI. change the price and rent to P5,200 and P52, respectively.
Indeed, in the Terms and Conditions Governing Then again to P6,600 and P49.50 and extending the period
the Issuance and Use of the BPI Credit Card, there was a or repurchase to April 20, 1933.
stipulation on the 3% interest rate. Nevertheless, it
should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum
as excessive and unconscionable as held in Chua vs.
Timan. Since the stipulation on the interest rate is void, it
is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and equity
demand.
The same is true with respect to the penalty
charge. Notably, under the Terms and Conditions
Governing the Issuance and Use of the BPI Credit Card,
it was also stated therein that respondent BPI shall
impose an additional penalty charge of 3% per month.
Pertinently, Article 1229 of the Civil Code states that the
judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. In exercising
this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of
each case since what may be iniquitous and
unconscionable in one may be totally just and equitable in
another.
Thus, under the circumstances, the Court finds it
equitable to reduce the interest rate pegged by the CA at
1.5% monthly to 1% monthly and penalty charge fixed by
the CA at 1.5% monthly to 1% monthly or a total of 2% per
month or 24% per annum in line with the prevailing
jurisprudence and in accordance with Art. 1229 of the Civil
Code.
Significantly, the CA correctly used the beginning
balance of PhP 94,843.70 as basis for the re-computation
of the interest considering that this was the first
amount which appeared on the Statement of Account of
petitioner Macalinao. There is no other amount on which
the re-computation could be based, as can be gathered
from the evidence on record. The principal amount to be
paid should be P112, 309,52.
Facts: The defendants received from the plaintiff the sum Facts: Rizaldy Zshornack and his wife, Shirley Gorospe,
of P2,686.58 as a deposit without interest sometime in maintained in COMTRUST, Quezon City Branch, a dollar
1897 which was to be returned, jointly and severally, in savings account and a peso current account.
1898. When the obligation became due, the defendants
begged the plaintiff for an extension of time for the
payment thereof, binding themselves to pay interest at
the rate of 15 per cent on the amount of their
indebtedness, to which the plaintiff acceded. On May 15,
1902, the debtors paid interest of P1,000 and then made no
other payments.
The plaintiff filed a case. CFI found the defendants liable
jointly and severally.
50
subject to future withdrawal by the depositors or subject commodatum; and of course by appropriating the thing,
to some future sale which was never effected. He the bailee becomes responsible for its value. In this
therefore supposes himself to be relieved from all connection we wholly reject the defendant's pretense that
responsibility by virtue of the fire of January 17, 1921, the palay delivered by the plaintiffs or any part of it was
already mentioned. actually consumed in the fire of January, 1921. Nor is the
The plaintiffs further say that their palay was liability of the defendant in any wise affected by the
delivered to the defendant at his special request, coupled circumstance that, by a custom prevailing among rice
with a promise on his part to pay for the same at the millers in this country, persons placing palay with them
highest price per cavan at which palay would sell during without special agreement as to price are at liberty to
the year 1920; and they say that in August of that year the withdraw it later, proper allowance being made for storage
defendant promised to pay them severally the price of and shrinkage, a thing that is sometimes done, though
P8.40 per cavan, which was about the top of the market rarely.
for the season, provided they would wait for payment until
December.
A case was filed against the defendant. The court
ruled that the alleged promise to pay at the highest price
was not made, but gave judgment in favor of the plaintiffs
for the recovery of the sums of P5,238.51 and P5,734.60.
Both parties appealed.
CA
affirmed.
65
The hotel provided the testimony of its 646)
employees and a security expert on its security
procedures and its dedication to adhering to those Facts: On March 31, 1959, the Court of First Instance of
procedures, particularly for providing guests with notice Manila, in its Civil Case No.
of the availability of safety deposit boxes. On cross- 36525, rendered a decision ordering the City of Baguio to
examination of the security expert, he was asked about pay the National Power Corporation various sums of
past security problems at Innkeepers hotel in which money totalling P240,000.00 representing the unpaid
Innkeepers employees spied on guests through electric charges, and rentals for the lease of two electric
peepholes. The expert replied that he was not aware of generators, etc. The aforesaid decision having become
those prior incidents. final, the court of Manila granted on June 4, 1959, the
The jury awarded the Ippolitos $350,000 in National
actual damages. However, the jury found that the
Ippolitos were forty percent comparatively negligent,
and reduced the award to $210,000.
Issue: Whether a person who is expressly designated as a Held: No. No. Affirmed.
guarantor can be held as a surety.
71
Ratio: The appellant contends that although in the Had the appellant meant otherwise, he would have
stipulation of facts entered into by and between him and immediately denied that he ever guaranteed payment of
the appellee, he had admitted the liability of his co- the principal debtors' obligation. This he did not do.
defendants, who were declared in default, under the The appellant's very letter constitutes his
principle of res inter alios acta, that an admission by a undertaking of guaranty. "Contracts shall be obligatory
third person can not bind another, his admission cannot in whatever form they may have been entered into,
bind the defendants in default, and no judgment against provided all the essential requisites for their validity are
them may be rendered on the basis of the stipulation of present." A contract of guaranty is not a formal contract
facts referred to. Since the appellee had not established a and shall be valid in whatever form it may be, provided
case against the defendants in default, the principal that it complies with the statute of frauds.
debtors, it cannot directly hold liable the appellant, the The appellant insists that he should have been
guarantor, whose obligation is only subsidiary to that of notified by the appellee of the acceptance of his offer of
the former. guaranty. In the first place, his letter already constitutes
The appellant proceeds from the wrong premise his
that the case was submitted to the Court solely on the
stipulation of facts entered into by and between him and
the appellee. The records show that when the case was
called for trial on 30 August 1956, after the appellant's co-
defendants had been declared in default, the appellee
presented its evidence, testimonial and documentary,
against them, and thereby established their primary
liability.
The appellant claims that the letter is merely a
letter of introduction and does not constitute an offer of
guaranty. A cursory reading of the letter belies his
assertion. While in his opening sentence he says that "This
will introduce to you the bearers, Messrs. Conrado Piring
and Perfecto Pion," who "wish to place an order for"
cinematographic films, yet in the later part he says that
"for which by their guaranty I pledge payment." This can
only mean that he undertakes to guarantee payment of
the principal debtors' obligation should they fail to pay.
The appellant is a responsible man and may be presumed
to mean what he says. At that time, he was occupying the
exalted position of member of the Senate and his plighted
word given to another would immediately be accepted. It
is not, therefore, odd that upon receipt of the appellant's
letter, the appellee readily sold on credit to the principal
debtors, the defendants in default, the cinematographic
films in question.
That the appellant really meant to guarantee
payment of the principal debtors' obligation should they
default, is patent in his answer to the appellee's letter
dated 27
May 1954, reminding him that on 30 January he requested
it "to give Messrs. Conrado Piring and Perfecto Pion, of
"All Stars Productions', certain rolls of negative and
positive films, the cost of which was payable in three
months time and payment of which you guaranteed; that
the ''films were delivered and billed at P6,985.00 on Feb.
9th, last;" and that "the amount has not been paid (and)
we have difficulty locating the above gentlemen as they
cannot be found in their offices," and requesting the
appellant to send a check for the amount. In his answer to
the foregoing letter, dated 31 May 1954, he acknowledged
receipt of the appellee's letter of the 27th of the same
month and informed it that the principal debtors were
"being contacted to invite their attention to your letter."
72
undertaking of guaranty. In the second place, the contract defense that the bond could not be held liable for damages
entered into by and between the appellee and the and attorney's fees, that plaintiff Philippine Tobacco
defendants in default is the principal contract and the Corporation was barred from presenting this action
contract entered into by and between the appellant and against the surety due to laches, waiver of claim and
the appellee is subsidiary to the principal contract. Since estoppel.
the principal contract had already been perfected, the Ricardo D. Lorenzana denied the allegation of
subsidiary contract of guaranty became binding upon the complaint that he refused or failed to pay the
effectivity of the principal contract. Hence no notice of plaintiff. He set up the defense that the agreement
acceptance by the appellee to the appellant is necessary for was partially modified when plaintiffs agreed and allowed
its validity. him to sell the tobacco products not only in the City of
Manila and Rizal province but throughout the island of
Luzon. By virtue of such modifications, he sold plaintiff's
Pacific Tobacco Corp. vs. Ricardo D. Lorenzana &
products in places as far as the northern provinces on
Visayan Surety & Insurance Corp. Visayan Surety &
credit basis. On August 2, 1952, when defendant arrived
Insurance Corp, cross claimant & 3 rd party, vs. from his trip from the Ilocos regions, plaintiff terminated
Ricardo D. Lorenzana, cross defendant, Calixto D. his services on the ground that the corporation was
Lorenzana, Jose M. Lorenzana & Benigno C. Gutierrez, losing
3rd party defendants, G.R. No. L-8086, October 31,
1957 (102 Phil 234)
76
plaintiffs' motion to recover on the counterbond, and upon the Revised Rules of Court. The petitioner surety as
denial thereof, filed a petition for certiorari with the Court solidary obligor is liable just the same.
of Appeals. The petition was dismissed.
Jose M. Arroyo, guardian of Tito Jocsing, an
Issue: Whether a bonding company issuing a counterbond imbecile vs. Florentino Hilario
to lift an attachment is a guarantor. Whether the wording Jungsay, et al., G.R. No. 10168, July 22, 1916 (34 Phil
of a guarantee can turn it into a surety. 589)
78
and appellant's failure to pay the same to appellee inspite The 1979 letter of credit was negotiated.
sarah jane
of repeated demands, but does not touch on the alleged Metrobank paid Planters Products the amount of
D:20140108141753+08'00'1/8/2014 1:17:53 AM P815,600.00 which payment was covered by a Bill of
payment made by appellee to the bank. The plaintiff
-------------------------------------------- Exchange in favor of the former, drawn on and
likewise contends that it is immaterial to its cause of
Art. 2071. The guarantor, even before having paid, accepted by UTEFS. Pursuant to the above
action against appellant whether or not it had actually paid
may proceed against the principal debtor: commercial transaction, UTEFS executed and delivered to
the Philippine National Bank, citing Art. 2071 of the New
(1) When he is sued for the payment; Metrobank a Trust Receipt whereby the former
Civil Code to the effect that a guarantor may proceed
(2) In case of insolvency of the principal debtor; acknowledged receipt in trust from the latter of the
against the principal debtor, even before having paid,
(3) When the debtor has bound himself to relieve him aforementioned goods from Planters Products which
when the debt has become demandable. The last
from the guaranty within a specified period, and this
paragraph of this same article, however, provides that in amounted to P815,600.00. Being the entrustee, the
period has
suchexpired;
instance, the only action the guarantor can file former agreed to deliver to Metrobank the entrusted goods
(4) When against thethedebt
debtor hasis tobecome demandable,
obtain release from theby guaranty, in the event of non-sale or, if sold, the proceeds of the sale
reason or of the expiration of the period for
to demand a security that shall protect him payment; (5) from any thereof, on or before September 2, 1979.
After the lapse of ten
proceeding byyears, when the and
the creditor principal
from the danger of
obligation
insolvency of the debtor ." An actionunless
has no fixed period for its maturity, by theit guarantor
be of against
such nature that it cannot be extinguished
the principal debtor for payment, before the
except former
within ahasperiod
paid longer than ten
the creditor, years;
is premature.
(6) If there are reasonable grounds
The judgment appealed from to fear that
is the
hereby set aside
principal debtor intends to abscond;
and the lower court is ordered to set anew this case for
(7) If the principal
trial on thedebtor is in of
sole issue imminent
whetherdanger
or not ofappellee General
becoming Indemnity Co, Inc., had already paid the loan in question to
insolvent.
the Philippine
In all these cases, theNational
action of Bank.
the guarantor is to
obtain release from the guaranty, or to demand a
securityJacinto
that shallUy protect
Dio &him from any
Norberto Uy proceedings
vs CA & Metropolitan
by the creditor and from the
Bank & Trust Co., G.R. No. danger of insolvency of
the debtor.
89775, November 26, 1992 (216 SCRA 9)
82
the payments as hereinbefore provided, the whole amount proved prejudicial to the surety or not. The rule stated
remaining unpaid under this mortgage shall immediately is quite independent of the event, and the fact that the
become due and payable and this mortgage on the principal is insolvent or that the extension granted
property herein mentioned as well as the Luzon Surety promised to be beneficial to the surety would give no right
Bond may be foreclosed by the vendor- mortgagee. to the creditor to change the terms of the contract without
Roa sought an extension in the payment of the the knowledge or consent of the surety. Nor does it matter
loan from February to April which Radio Corp approved. for how short a period the time of payment may be
When Roa failed to pay, a case was filed. The court ruled in extended. The principle is the same whether the time is
favor of Radio Corp and held Roa and his sureties jointly long or short. The creditor must be in such a situation that
and severally liable. when the surety comes to be substituted in his place by
paying the debt, he
Issue: Whether an extension granted without the consent
of the guarantors extinguishes the guarantors liability not
only as to the installments due at that time, but also as to
the whole amount of their obligation.
Ratio: The undertaking signed by Roberto Regala, Facts: Dr. Marylou J. Perlas, called up the Vizconde, a long-
Jr. although denominated "Guarantor's Undertaking," time friend and former high school classmate, asking her
was in substance a contract of surety. As distinguished to sell Perlas' 8-carat diamond ring. Shortly afterwards,
from a contract of guaranty where the guarantor binds Perlas delivered the ring to Vizconde to be sold on
himself to the creditor to fulfill the obligation of the commission for P85,000.00. Vizconde signed a receipt for
principal debtor only in case the latter should fail to do so, the ring.
in a contract of suretyship, the surety binds himself About a week and a half later, Vizconde
solidarily with the principal debtor. returned the ring to Perlas, who had asked for it
We need not look elsewhere to determine the because she needed to show it to a cousin. However,
nature and extent of private respondent Roberto Regala, Vizconde afterwards
Jr.'s undertaking. As a surety he bound himself jointly and
severally with the debtor Celia Regala "to pay the Pacific
Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the use of
Pacificard or renewals thereof issued in (her) favor by
Pacific Banking Corporation."
It is true that under Article 2054 of the Civil Code,
"(A) guarantor may bind himself for less, but not for
more than the principal debtor, both as regards the
amount and the onerous nature of the conditions. It is
likewise not disputed by the parties that the credit limit
granted to Celia Regala was P2,000.00 per month and that
Celia Regala succeeded in using the card beyond the
original period of its effectivity, October 29,
1979. We do not agree however, that Roberto Jr.'s
liability should be limited to that extent. Private
respondent Roberto Regala, Jr., as surety of his wife,
expressly bound himself up to the extent of the debtor's
(Celia) indebtedness likewise expressly waiving any
"discharge in case of any change or novation of the
terms and conditions in connection with the issuance of
the Pacificard credit card." Roberto, in fact, made his
commitment as a surety a continuing one, binding upon
himself until all the liabilities of Celia Regala have been
fully paid. All these were clear under the "Guarantor's
Undertaking' Roberto signed.
Private respondent Roberto Regala, Jr. had been
made aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that
notwithstanding, he voluntarily agreed to be bound as a
surety. As in guaranty, a surety may secure additional and
future debts of the principal debtor the amount of which is
not yet known.
A guarantor or surety does not incur liability
unless the principal debtor is held liable. It is in this sense
that a surety, although solidarily liable with the principal
debtor, is different from the debtor. It does not mean,
however, that the surety cannot be held liable to the same
extent as the principal debtor. The nature and extent of the
liabilities of a guarantor or a surety is determined by the
clauses in the contract of suretyship.
97
writ of preliminary attachment which was granted. The a Memorandum of Agreement was executed by and
deputy sheriff attached the properties of the Ong spouses between Slobec Realty and Development, Inc., represented
in Valencia, Bukidnon and in Cagayan de Oro City. To lift by its President Santiago Rivera and the Castillo family. In
the attachment, the Ong spouses filed a counterbond in the this agreement, Santiago Rivera obliged himself to pay the
amount of P58,400 with Towers Assurance Corporation as Castillo family the sum of P70,000.00 immediately after
surety. In that undertaking, the Ong spouses and Towers the execution of the agreement and to pay the additional
Assurance Corporation bound themselves to pay solidarily amount of P400,000.00 after the property has been
to See Hong the sum of P58,400. converted into a subdivision. Rivera,
The lower court ruled for See Hong and ordered
not only the Ong spouses but also their surety, Towers
Assurance Corporation to pay solidarily to See Hong the
sum of P58,400. A writ of execution was issued. Towers
Assurance Corporation filed a petition for certiorari where
it assailed the decision and the writ of execution.
Peoples Bank & Trust Co. & Atlantic, Gulf & Pacific
Co. of Manila vs. Dahican Lumber Company, Dahican
American Lumber Corporation, & Connell Bros. Co.
(Phil), G.R. No. L-17500, May 16, 1967 (20 SCRA 84)
118
Respondent is not an ordinary mortgagee; it is a At most, the vendee in the contract to sell was entitled
mortgagee-bank. As such, unlike private individuals, it is only to damages.
expected to exercise greater care and prudence in its Petitioner attributes her decision to stop paying
dealings, including those involving registered lands. A installments to the failure of the Monesets to comply with
banking institution is expected to exercise due diligence their agreement to deliver the transfer certificate of title
before entering into a mortgage contract. The after the down payment of P50,000.00. On this point, the
ascertainment of the status or condition of a property trial court was correct in holding that for such failure, the
offered to it as security for a loan must be a standard and Monesets are liable to pay damages pursuant to Art. 1169
indispensable part of its operations. of the Civil Code on reciprocal obligations. The vendors'
Our agreement with petitioner on this point of breach of the contract, notwithstanding, ownership still
law, notwithstanding, we are constrained to refrain from remained with the Monesets and petitioner cannot
granting the prayers of her petition. The reason is that, justify her failure to complete the payment.
the contract between petitioner and the Monesets being
one of "Contract to Sell Lot and House," petitioner, under
the circumstances, never acquired ownership over the
property and her rights were limited to demand for
specific performance from the Monesets, which at this
juncture however is no longer feasible as the property
had already been sold to other persons.
A contract to sell is a bilateral contract whereby
the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof
to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full
payment of the purchase price. In such contract, the
prospective seller expressly reserves the transfer of title to
the prospective buyer, until the happening of an event,
which in this case is the full payment of the purchase
price. What the seller agrees or obligates himself to do
is to fulfill his promise to sell the subject property when
the entire amount of the purchase price is delivered to
him. Stated differently, the full payment of the purchase
price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer.
It is different from contracts of sale, since ownership in
contracts to sell is reserved by the vendor and is not to
pass to the vendee until full payment of the purchase
price, while in contracts of sale, title to the property
passess to the vendee upon the delivery of the thing sold.
In contracts of sale the vendor loses ownership over the
property and cannot recover it unless and until the
contract is resolved or rescinded, while in contracts to sell,
title is retained by the vendor until full payment of the
price. In contracts to sell, full payment is a positive
suspensive condition while in contracts of sale, non-
payment is a negative resolutory condition.
Since the contract in this case is a contract to sell,
the ownership of the property remained with the
Monesets even after petitioner has paid the down payment
and took possession of the property. In Flancia vs. CA,
where the vendee in the contract to sell also took
possession of the property, this Court held that the
subsequent mortgage constituted by the owner over said
property in favor of another person was valid since the
vendee retained absolute ownership over the property.
119
In Pangilinan vs CA, the vendees contended that passed to another person by virtue of a deed of absolute
their failure to pay the balance of the total contract price sale.
was because the vendor reneged on its obligation to
improve the subdivision and its facilities. In said case, the Teotimo Rivera vs. Timoteo Pea, Rehabilitation
Court held that the vendees were barred by laches from Finance Corporation & Register of Deeds Tarlac, G.R.
asking for specific performance eight years from the date of No. L-11781, March 24, 1961 (1 SCRA 747)
last installment.
The legal adage finds application in the case at Facts: Timoteo Pea was the registered owner of 2 lots
bar. Tempus enim modus tollendi obligations et actiones, of the barrios of Pacalcal and Anupul, respectively,
quia tempus currit contra desides et sui juris municipality of Bamban, province of Tarlac, and covered
contemptores-For time is a means of dissipating by TCTs. Timoteo Pea executed in favor of petitioner
obligations and actions, because time runs against the Rivera a contract of lease over said two (2)
slothful and careless of their own rights.
In this case, petitioner instituted an action for
"Declaration of Non-Effectivity of Mortgage with Damages"
four years from the date of her last installment and only as
a reaction to the foreclosure proceedings instituted by
respondent Bank. After the Monesets failed to deliver the
TCT, petitioner merely stopped paying installments and
did not institute an action for specific performance,
neither did she consign payment of the remaining balance
as proof of her willingness and readiness to comply with
her part of the obligation. As held in San Lorenzo
Development Corp vs. CA, the perfected contract to sell
imposed on the vendee the obligation to pay the
balance of the purchase price. There being an obligation
to pay the price, the vendee should have made the
proper tender of payment and consignation of the price in
court as required by law. Consignation of the amounts due
in court is essential in order to extinguish the vendee's
obligation to pay the balance of the purchase price.
Since there is no indication in the records that petitioner
even attempted to make the proper consignation of the
amounts due, the obligation on the part of the Monesets
to transfer ownership never acquired obligatory force.
In other words, petitioner did not acquire
ownership over the subject property as she did not pay in
full the equal price of the contract to sell. Further, the
Monesets' breach did not entitle petitioner to any
preferential treatment over the property especially when
such property has been sold to other persons.
Petitioner's rights were limited to asking for
specific performance and damages from the Monesets.
Specific performance, however, is no longer feasible at this
point as explained above. This being the case, it follows
that petitioner never had any cause of action against
respondent Bank. Having no cause of action against the
bank and not being an owner of the subject property,
petitioner is not entitled to redeem the subject property.
Indeed, it is the Monesets who first breached their
obligation towards petitioner and are guilty of fraud
against her. It cannot be denied however that petitioner is
also not without fault. She sat on her rights and never
consigned the full amount of the property. She therefore
cannot ask to be declared the owner of the property, this
late, especially since the same has already passed hands
several times, neither can she question the mortgage
constituted on the property years after title has already
120
parcels of land, for the period from September 14, 1956 to commitments in favor of said corporation, it is clear that
September 15,1960, as evidenced by a public document appellant has no valid adverse claim which may be
in the Pampango dialect. This contract was merely a ordered registered and that, accordingly, the lower court
renewal of a previous contract of lease over the same has not erred in denying his petition, regardless of the
parcels of land, between the same parties. The owner's language or dialect in which the deed of lease in question
duplicates of the aforementioned transfer certificates of is written and of the inaccuracy of the number therein
title are in the possession of the Rehabilitation Finance given of one of the transfer certificates of title involved in
Corporation, to whom said lands were mortgaged by this incident.
Timoteo Pea on October 26, 1955, to guarantee the
payment of a P25,000.00 loan, which mortgage is duly
annotated on the aforementioned transfer certificates of
title; and that, in order to protect his rights over the
parcels of land aforementioned, petitioner Rivera desires
to have said rights registered in the office of the register of
deeds of Tarlac and annotated in the certificates of title
above referred to, for which reason he prayed that the
Rehabilitation Finance Corporation be ordered to
surrender to said register of deeds the owner's duplicates
of the aforementioned transfer certificates of title and that
said register of deeds be directed to register the original of
the contract of lease, and to make the corresponding
annotations in said transfer certificates of title, upon
presentation of said original of the contract of lease and
payment of the corresponding fees.
The Rehabilitation Finance Corporation objected
to said petition upon the ground that, pursuant to the deed
of mortgage executed in its favor by Timoteo Pea, the
lands above referred to shall not be encumbered in any
manner without the written consent of the mortgagee;
that the consent of the corporation to the contract of lease
had never been sought. The corporation had granted the
loan guaranteed by said mortgage for the development of
the property in question, to be undertaken by the
mortgagor; and, as a matter of policy, the corporation does
not allow, therefore, the leasing of mortgaged property.
The lower court denied the petition because the
deed of lease sought to be registered is in the Pampango
dialect and that it does not bear the correct number of the
title covering the leased property.
Yes. Reversed.
Ratio: The records show that Chu Kim Kit entrusted his
Transfer Certificate of Title No. T-1412 to his mother,
Felisa Boyano, before he left for mainland China and
allowed his mother to administer the property, and to
enjoy its fruits in his absence. Those acts of his enabled
Felisa Boyano to cause the cancellation of TCT No. T-1412
and to obtain TCT No. T-1439 in her name. That Felisa
Boyano was administering his property may also have
created the impression in the mind of third persons that
she was the owner of the property and could dispose of it.
It is plain to see that by his own acts of confidence in
Felisa Boyano, the private respondent was partly to
blame for the commission of the fraud against himself by
his mother. As between him and the petitioner which was
totally innocent and free from negligence or wrongdoing
in the transaction, the latter is entitled to the protection of
the law.
There is no question that the petitioner PNB is a
mortgagee in good faith and for value. At the time the
mortgage was constituted on the property on October 30,
1963, it was covered by TCT No. T-1439 in the name of
122
Where there was nothing in the certificate of title DBP made a counter-offer of P25,500.00 which was
to indicate any cloud or vice in the ownership of the accepted by respondent spouses. The parties further
property, or any encumbrance thereon, the purchaser is agreed that payment was to be made within six months
not required to explore farther than what the Torrens thereafter for it to be considered as cash payment. On
Title upon its face indicates in quest for any hidden July 20, 1981, a deed of absolute sale was executed. Said
defect or inchoate right that may subsequently defeat his document contained a waiver of the seller's warranty against
right thereto. If the rule were otherwise, the efficacy and eviction.
conclusiveness of the certificate of title which the Thereafter, the spouses Mangubat applied for an
Torrens System seeks to insure would entirely be futile and industrial tree planting loan with DBP. The latter
nugatory. required the former to submit a certification from the
Where innocent third persons relying on the Bureau of Forest Development that the land is alienable
correctness of the certificate of title issued, acquire rights and disposable. However, on October 29, 1981, said
over the property, the court cannot disregard such rights office issued a certificate attesting to the fact that the said
and order the total cancellation of the certificate for that property was classified as timberland, hence not subject to
would impair public confidence in the certificate of title; disposition. The loan application of respondent spouses
otherwise everyone dealing with property registered
under the torrens system would have to inquire in every
instance as to whether the title had been regularly or
irregularly issued by the court. Indeed, this is contrary to
the evident purpose of the law. Every person dealing with
registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no
way oblige him to go behind the certificate to determine
the condition of the property. Stated differently, an
innocent purchaser for value relying on a torrens title
issued is protected. A mortgagee has the right to rely on
what appears in the certificate of title and, in the absence
of anything to excite suspicion, he is under no obligation to
look beyond the certificate and investigate the title of the
mortgagor appearing on the face of said certificate.
The right or lien of an innocent mortgagee for
value upon the land mortgaged must be respected and
protected, even if the mortgagor obtained his title through
fraud. The remedy of the persons prejudiced is to bring an
action for damages against those who caused the fraud,
and if the latter are insolvent, an action against the
Treasurer of the Philippines may be filed for recovery of
damages against the Assurance Fund.
Facts: Rodolfo Lanuza and his wife Belen were the owners
of a two-story house built on a lot of the Maria Guizon
Subdivision in Tondo, Manila, which the spouses leased
from the Consolidated Asiatic Co. On January 12, 1961,
Lanuza executed a document entitled "Deed of Sale with
Right to Repurchase" whereby he conveyed to Maria
Bautista Vda. de Reyes and Aurelia R. Navarro the house,
together with the leasehold rights to the lot, a television
set and a refrigerator in consideration of the sum of
P3,000. When the original period of redemption expired,
135
As the Lanuzas failed to pay their obligation, De considered. We refer to the nature of the so-called "Deed
Leon filed a petition for the extrajudicial foreclosure of the of Sale with Right to Repurchase" and the claim that it is
mortgage. On the other hand, Reyes and Navarro followed in reality an equitable mortgage. Circumstances are
suit by filing in the Court of First Instance of Manila a clearly present that indicate the existence of the equitable
petition for the consolidation of ownership of the house mortgage. The price is grossly inadequate. There was no
on the ground that the period of redemption expired on transmission of ownership to the vendees. There was a
July 12, delay in the filing of a petition for consolidation. Under
1961 without the vendees exercising their right of these circumstances we cannot but conclude that the
repurchase. The petition for consolidation of ownership deed in question is in reality a mortgage. This conclusion is
was filed on October 19. On October 23, the house was of far-reaching consequences because it means not only
sold to De Leon as the only bidder at the sheriff's sale. De that this action for consolidation of ownership is
Leon immediately took possession of the house, secured a improper as
discharge of the mortgage on the house in favor of a rural
bank by paying P2,000 and, on October 29, intervened in
court and asked for the dismissal of the petition filed by
Reyes and Navarro on the ground that the unrecorded
pacto de retro sale could not affect his rights as a third
party.
The court ruled for Reyes and Navarro.
137
Facts: On Dec. 29, 1965, spouses Loreto Claravall and public policy and, therefore, void. Before perfect title over a
Victoria Claravall executed a deed of sale in favor of mortgaged property may thus be secured by the
the spouses Francisco Ramirez, Jr. and Carolina mortgagee, he must, in case of non-payment of the debt,
Ramirez covering a parcel of land, including foreclose the mortgage first and thereafter purchase the
improvements thereon, situated in Ilagan, Isabela. On mortgaged property at the foreclosure sale. In fine, the
even date, another instrument was executed granting the ownership of the property was not vested to the spouses
spouses Claravall an option to repurchase the property Ramirez upon private respondents failure to pay their
within a period of two years from December 29, 1965 but indebtedness, the registration of the property in the
not earlier nor later than the month of December, 1967. formers names notwithstanding, absent any showing that
At the expiration of the two-year period, the Claravalls they foreclosed the mortgage and purchased the property
failed to redeem the property, prompting them to file a at a foreclosure sale.
complaint against the spouses Francisco Ramirez, Jr. and
Carolina Ramirez to compel the latter to sell the property
back to them. After trial, judgment was rendered in favor
of the spouses Ramirez which was, on appeal, affirmed by
the Court of Appeals. On review, however, this Court,
finding that the Deed of Absolute Sale with option to
repurchase executed by private respondents in favor of
the spouses Ramirez was one of equitable mortgage,
reversed the decision of the appellate court by
Decision of October 15, 1990. The decision of this Court
having become final and executory, possession of the
property was turned over to private respondents after
they settled their obligation to the spouses Ramirez.
Following the death of Francisco Ramirez, Jr., the
spouses Claravall filed a complaint for accounting and
damages against the intestate estate of Francisco Ramirez,
his widow and children. A motion to dismiss was filed
alleging, among other things, that the Ramirezes, as
registered owners of the lot prior to its redemption,
were entitled to collect rentals for the lot. The
resolution of the motion to dismiss was deferred. The
Ramirezes filed a petition for certiorari which was denied.
140
Neither do we find that it authorizes him to appropriate the undersigned should be declared invalid, as being contrary
same. What it says is merely a promise to pay the debt to the spirit, if not the letter, of article 1859 of the Civil
with such properties, if at its maturity it is not satisfied. Code, as well as directly contrary to the general
It is merely a promise made by the debtor to assign the principles of jurisprudence applicable to the relation of
property given as security in payment of the debt, which mortgagor and mortgagee. If a stipulation of this kind is
promise is accepted by the creditor. There is no doubt valid, every mortgage in which such stipulation is
that a debtor may make an assignment of his properties in inserted will become self-executing, and the debtor,
payment of a debt. (Art. 1175, Civil Code.) And the upon making default in the payment of the debt, will be
assignment is not made unlawful by the fact that said bound to transfer the property in satisfaction of the
properties are mortgaged, because the title thereto mortgage, with the result that the right of redemption is
remains in the debtor; nor is a promise to make such an lost from the mere fact that the debtor is unable to pay at
assignment in violation of the law. We are, therefore, of the date stipulated.
the opinion that this case does not come under the
provisions of article 1859 of the Civil Code, and therefore
said article is not applicable to the stipulation in question.
Upon the expiration of the period for the payment
of the debt without the same having been paid, Eugenio
Gomez did not wait nor require Ciriaco Villarin to make
a formal assignment of the mortgaged property in
payment of the debt, and transferred the same to Juan
Dalay in the document Exhibit C. And in doing so, Eugenio
Gomez did not dispose of property merely mortgaged,
but of property promised to be assigned in payment of
the debt which had not been paid at the expiration of the
period fixed for its payment.
Gomez had not, by virtue alone of the promise of
assignment of said property, any real right thereon, but
he did have a personal action against Villarin to compel
him to execute the proper deed of assignment. For this
reason the conveyance made by Gomez in favor of Dalay
was defective, it having been made in advance of the actual
assignment of said property in his favor. This transfer,
however, is not void per se inasmuch as Villarin consented
to the said property passing to Gomez in payment of the
debt after the expiration of the period for payment, if the
debt was not paid. There is no question as to the
concurrence of the other elements of this contract made in
favor of Dalay, the defect consisting in Villarin not having
previously executed the deed of assignment he had
promised. This defect, which would have been a ground
for annulling this transfer made by Gomez in favor of
Dalay, had Villarin brought the proper action, was cured
by the act of said Villarin in executing the document
wherein he acknowledged that the title to, and possession
of, said lands were transferred to Gomez as in a real and
absolute sale. This confirmation, valid and effective under
the provisions of article 1311 of the Civil Code, gave full
effect to the transfer of these properties made by Gomez in
favor of Dalay.
The allegation of the defendant Aquiatin that this
sale in favor of Dalay is simulated and fraudulent cannot
be held proven. It does not appear that when he executed
the document, Ciriaco Villarin was indebted to anybody
with the exception of Gomez, nor that he owed anything
to anybody when he executed the affidavit which cured the
defect of the transfer in favor of Dalay.
Ratio: Even if it were true that the Notice of Sale was not
posted in three public places as required, this would not
invalidate the foreclosure conducted. As explained in
Olizon vs. Court of Appeals, 238 SCRA 148, 155-156
Furthermore, unlike the situation in previous cases where
the foreclosure sales were annulled by reason of failure to
comply with the notice requirement under Section 3 of Act
3135, as amended, what is allegedly lacking here is the
posting of the notice in three public places, and not the
144
the notice of sale in the newspaper of general circulation venue under Section 2 of Act 3135.
alone is more than sufficient compliance with the notice- We agree with the petitioner that under the terms
posting requirement of the law. By such publication, a of the contract, the extra-judicial foreclosure sale could be
reasonably wide publicity had been effected such that held at Trece Martires, the capital of the province which
those interested might attend the public sale, and the has territorial jurisdiction over the foreclosed property.
purpose of the law had been thereby subserved. The object The stipulation of the parties in the real estate mortgage
of a notice of sale is to inform the public of the nature and contract is clear, and therefore, should be respected
condition of the property to be sold, and of the time, absent any showing that such stipulation is contrary to
place and terms of the sale. Notices are given for the law, morals, good customs, public policy or public order. A
purpose of securing bidders and to prevent a sacrifice of contract is the law between the parties. However, since the
the property. If these objects are attained, immaterial stipulation of the parties lack qualifying or restrictive
errors and mistakes will not affect the sufficiency of the words to indicate the exclusivity of the agreed forum, the
notice; but if mistakes or omissions occur in the notices of stipulated place is considered only as an additional,
sale which are calculated to deter or mislead bidders, to not a limiting venue.
depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be
fatal to the validity of the notice, and also to the sale made
pursuant thereto. In the case at bench, this objective was
attained considering that there was sufficient publicity of
the sale through the Record Newsweekly.
In ascertaining whether or not the venue of the
extra-judicial foreclosure sale was improperly laid, it is
imperative to consult Act No. 3135, as amended, the law
applicable to such a sale. Section 2 provides that the
sale cannot be made legally outside of the province
which the property sold is situated; and in case the place
within said province in which the sale is to be made is the
subject of stipulation, such sale shall be made in said place
or in the municipal building of the municipality in
which the property or part thereof is situated. The
mortgage contract specifically provided that the auction
sale shall be held at the capital of the province, if the
property is within the territorial jurisdiction of the
province concerned, or shall be held in the city, if the
property is within the territorial jurisdiction of the city
concerned.
The foreclosed property is located in Dasmarinas,
a municipality in Cavite. Dasmarinas is within the
territorial jurisdiction of the province of Cavite, but not
within that of the provincial capital, Trece Martires City,
nor of any other city in Cavite. The territorial
jurisdiction of Dasmarinas is covered by the RTC
of Imus, another municipality in Cavite. The petitioner
contends that the extra-judicial foreclosure sale should
have been held in Trece Martires City, the capital of Cavite,
following the above- quoted stipulation in the real estate
mortgage contract; or, in the alternative, Section 2 of Act
3135 should have been applied, and the sale conducted at
the municipal building of Dasmarinas where the property
is situated. On the other hand, the private respondent
argues that the extra-judicial foreclosure sale was
properly held at the main entrance of the Office of the
Clerk of Court and Ex-officio Sheriff of the RTC of Imus
which has territorial jurisdiction over Dasmarinas, as
provided in the Supreme Court Administrative Order No.
7 (1983) issued pursuant to Section 18 of B.P. Blg.
129. The private respondent further contends that
Section 18 of B.P. Blg. 129 repealed the provision on
145
Therefore, the stipulated venue and that provided under have waived its right to object to the venue of the sale, and
Act 3135 can be applied alternatively. Now, applying Act cannot belatedly raise its objection in this petition filed
3135, the venue of the sale should be at the municipal before us.
building of Dasmarinas since the foreclosed property is
located in the municipality of Dasmarinas. Spouses Guillermo Agbada & Maxima Agbada vs. Inter-
We cannot sustain the contention of the private Urban Developers, Inc. & RTC Br. 105, QC, G.R. No.
respondent that the proper venue for the sale of the 144029, September 19, 2002 (389 SCRA 430)
Dasmarinas property is the RTC of Imus which has
territorial jurisdiction thereon as provided under SC Facts: On 21 February 1991 petitioner-spouses Guillermo
Administrative Order No. 7 issued pursuant to Section 18 Agbada and Maxima Agbada borrowed P1,500,000.00
of B.P. Blg. 129, which allegedly repealed the venue from respondent Inter-Urban Developers, Inc. through its
provision under Section president, Simeon L. Ong Tiam. To secure the loan, the
2 of Act 3135. Section 18 of B.P. Blg. 129 provides for the parties concurrently executed a
power of the Supreme Court to define the territorial
jurisdiction of the Regional Trial Courts. Pursuant
thereto, the Supreme Court issued Administrative Order
No. 7, placing the municipalities of Imus, Dasmarinas and
Kawit within the territorial jurisdiction of the RTC of Imus.
On the other hand, Section 2 of Act 3135 refers to the
venue of an extra-judicial foreclosure sale. t is difficult to
fathom how a general law such as B.P. Blg. 129 can repeal
a special law like Act 3135. Aside from involving two
entirely different legal concepts such as jurisdiction (B.P.
Blg. 129) and venue (Section 2 of Act 3135), this
proposition goes against a basic rule in statutory
construction that the enactment of a later legislation
which is a general law cannot be construed to have
repealed a special law. Much less can the private
respondent invoke Supreme Court administrative
issuances as having amended or repealed Section 2 of
Act 3135. A statute is superior to an administrative
issuance, and the former cannot be repealed or amended
by the latter.
Notwithstanding the foregoing, however, this
Court finds the extra-judicial foreclosure sale held at the
RTC of Imus to be valid and legal. Well-known is the basic
legal principle that venue is waivable. Failure of any party
to object to the impropriety of venue is deemed a waiver
of his right to do so. In the case at bar, we find that
such waiver was exercised by the petitioner. An extra-
judicial foreclosure sale is an action in rem, and thus
requires only notice by publication and posting to bind
the parties interested in the foreclosed property. No
personal notice is necessary. As such, the due publication
and posting of the extra-judicial foreclosure sale of the
Dasmarinas property binds the petitioner, and failure of
the latter to object to the venue of the sale constitutes
waiver. From 1986 to April 1989, despite knowledge of
the foreclosure sale of their property, Langkaan did not
take any step to question the propriety of the venue of
the sale. It was only on May 30, 1989 that the petitioner
filed a Complaint for Annulment of the foreclosure sale,
and only after its offer to repurchase the foreclosed
property, the title to which had been consolidated in the
name of private respondent UCPB, had been rejected by
the bank. Nowhere can it be found that the petitioner
objected to or opposed the holding of the sale at the RTC
of Imus. By neglecting to do so, Langkaan is deemed to
146
Deed of Real Estate Mortgage over a parcel of land Developers, Inc. the opportunity to cross-examine
and the improvements thereon situated in Tandang Sora, whatever such evidence would tend to establish. Equally
Quezon City owned by the spouses. The loan was payable significant, the low purchase price could have worked in
within six (6) months from 21 February 1991 at three the petitioner-spouses' favor if they promptly exercised
percent (3%) interest per month, otherwise, failure to their equity of redemption. As held in Tarnate v. Court
discharge the loan within the stipulated period would of Appeals, "[a]nent the contention that the property has
entitle Inter- Urban Developers, Inc. to foreclose the been sold at an extremely low price, suffice it to say that, if
mortgage judicially or extra-judicially. The spouses failed correct, it would have, in fact, favored an easy redemption
to pay the loan within the six-month period despite of the property. That remedy could have well been availed
several out-of-court demands made by respondent Inter- of but petitioners did not."
Urban Developers, Inc.
On 10 December 1993 Inter-Urban Developers,
Inc. filed with the Regional Trial Court of Quezon City,
Branch 105, a complaint for foreclosure of real estate
mortgage. On 2 March 1994, without assistance of counsel,
the spouses filed their unverified answer admitting that
they had borrowed the amount of P1,500,000.00 from
respondent and had executed the real estate mortgage to
secure the loan but alleging that it was payable within
five (5) years and at twelve percent (12%) interest per
annum. Pre-trial was set, but reset several times on
account of the spouses Agbada. Guillermo Agbada
submitted a
1-page handwritten letter admitting his liability to pay
Inter-Urban Developers, Inc. A motion for summary
judgment was filed supported by an affidavit of the
treasurer who witnessed the transaction. The spouses
Agbada, this time represented by a lawyer, attempted to
submit an amended answer that denied any obligation to
the interest. The judge disallowed the amended answer
and promulgated a summary judgment against the
spouses Agbada.
The spouses Agbada did not appeal the summary
judgment nor did they pay the judgment debt. A decree of
foreclosure was issued and a foreclosure sale was held
with Inter-Urban Developers, Inc. winning the bidding.
The court confirmed the sale over the opposition of the
spouses Agbada that the purchase price of the property
was below the appraised value as stated in an appraisal
report. After the sale became final, Inter-Urban
Developers, Inc. prayed for a writ of possession. The
spouses Agbada filed other dilatory motions which were
denied. They then filed a petition for annulment of the
summary judgment on the ground that violated their right
to due process. The petition was dismissed.
Issue: Whether the period to redeem is suspended upon Manuel D. Medida, Deputy Sheriff of the Province of
the filing of an action to enforce the right to redeem. Cebu, City Savings Bank (formerly Cebu City Saving &
Loan Assoc, Inc.) & Teotimo Abellana vs. CA & Sps.
Andres Dolino & Pascuala Dolino, G.R. No.98334, May
Held: No. Affirmed.
8, 1992 (208 SCRA 887)
Ratio: A prejudicial question is one that arises in a
case the resolution of which is a logical antecedent of
the issue involved therein, and the cognizance of which
pertains to another tribunal. It generally comes into play
in a situation where a civil action and a criminal action
are both pending and there exists in the former an issue
that must be preemptively resolved before the criminal
action may proceed, because howsoever the issue raised
in the civil action is resolved would be determinative juris
et de jure of the guilt or innocence of the accused in the
criminal case. The rationale behind the principle of
prejudicial question is to avoid two conflicting decisions.
In the present case, the complaint of the
petitioners for Annulment of Extrajudicial Sale is a civil
action and the respondents petition for the issuance of a
writ of possession is but an incident in the land
registration case and, therefore, no prejudicial question
can arise from the existence of the two actions.
Our ruling in Belisario has no application in this
case because in the said case, no prejudicial question was
involved. We merely held therein that the filing of an
action to enforce redemption within the period of
redemption is equivalent to a formal offer to redeem,
and should the Court allow the redemption, the
redemptioner should then pay the amount already
determined. In fine, the filing of an action by the
redemptioner to enforce his right to redeem does not
suspend the running of the statutory period to redeem
the property, nor bar the purchaser at public auction
from procuring a writ of possession after the statutory
period of redemption had lapsed, without prejudice to the
final outcome of such complaint to enforce the right of
redemption.
The remedy of the petitioners from the assailed
decision of the RTC in LRC Case No. 3 was to appeal by
writ of error to the Court of Appeals. However, instead of
appealing by writ of error, the petitioners filed their
petition for certiorari. Certiorari is not proper where the
aggrieved party has a plain, speedy and adequate remedy
at law. Moreover, the error of the trial court in granting the
respondent bank a writ of possession, if at all, was an
error of judgment correctible only by an ordinary
appeal. It bears stressing that the proceedings in a
petition and/or motion for the issuance of a writ of
possession, after the lapse of the statutory period for
redemption, is summary in nature. The trial court is
mandated to issue a writ of possession upon a finding of
the lapse of the statutory period for redemption without
the redemptioner having redeemed the property. It
cannot be validly argued that the trial court abused its
156
Facts: On October 10, 1974 plaintiff spouses, alarmed of the redemption period without his credit having been
losing their right of redemption over a parcel of land to the discharged, it is illogical to hold that during that same
purchaser of the aforesaid lot at the foreclosure sale of the period of twelve months the mortgagor was "divested" of
previous mortgage in favor of Cebu City Development his ownership, since the absurd result would be that the
Bank, went to Teotimo Abellana, president of defendant land will consequently be without an owner although it
Association, to obtain a loan of P30,000.00. Prior thereto remains registered in the name of the mortgagor. That is
or on October 3, 1974, their son Teofredo Dolino filed a why the discussion in said case carefully and felicitously
similar loan application for Twenty- Five Thousand states that what is divested from the mortgagor is only his
(P25,000.00) Pesos with lot No. 4731 offered as security. "full right as owner thereof to dispose (of) and sell the
When the loan became due and demandable lands," in effect, merely
without plaintiff paying the same, defendant association
caused the extrajudicial foreclosure of the mortgage.
After the posting and publication requirements were
complied with, the land was sold at public auction. No
redemption having been effected, a new TCT was issued
in favor of the association.
The spouses Dolino filed a case for the annulment
of the sale at public auction, as well as the corresponding
certificate of sale issued pursuant thereto by assailing the
validity of the extrajudicial foreclosure sale of their
property, claiming that the same was held in violation of
Act No. 3135.
The lower court rendered judgment upholding the
validity of the loan and the real estate mortgage, but
annulling the extrajudicial foreclosure sale inasmuch as
the same failed to comply with the notice requirements in
Act No. 3135. Not satisfied, the spouses Dolino interposed
a partial appeal with respect to the portions in the
decision declaring that the mortgage executed is valid.
CA modified the decision of the lower court and
declared the mortgage null and void.
168
Issue: Whether an order executing a judgment which aforementioned De Leon case.
neither contains an order requiring the mortgagors to pay
their obligation to the mortgagees nor grants said Spouses Rempson Samson & Milagros Samson, &
mortgagors the Rempson Realty & Development Corporation vs. Judge
90-day period within which to pay the mortgaged debt Mauricio M. Rivera, in his capacity as Presiding Judge
is valid. Whether the 90 day period for payment should of the RTC of Antipolo City, Br. 73, Atty. Joselito
be counted from the date of service of the order directing Malibago-Santos, in her capacity as Ex- Officio Sheriff,
the mortgagors to pay their obligation. RTC of Antipolo City, & Lenjul Realty Corporation,
G.R. No.
Held: No. Yes. Reversed. 154344, May 20, 2004 (428 SCRA 759)
Jose Sison & Emilio Sison vs. F.M. Yap Tico &
Amando Avancea, provincial sheriff of Iloilo, G.R. No.
L-11583, February 8, 1918 (37 Phil 584)
200
purchased by Clemente Pedrea. The lower court ruled 19227, February 17, 1968 (22 SCRA 585)
that the mortgage was a preferred credit because it was a
prior document. Facts: Diosdado Yuliongsiu was the owner of two (2)
vessels, namely: the M/S Surigao and the M/S Don Dino,
Issue: Whether a pledge whose date does not appear in a and operated the FS-203 which was purchased by him
from the Philippine Shipping Commission, by installment
public instrument is effective against 3rd persons. or on account. As of January or February, 1948,
Whether a pledge is effective when there has been no Yuliongsiu had paid to the Philippine Shipping
actual delivery of the thing pledged. Commission only the
210
Mendoza introduced the Bernals to Alfonso Tan. Thus, the decision and approved the compromise agreement.
Bernals purchased on credit from Tan some cotton
materials, payment of which was guaranteed by Mendoza. Issue: Whether an assignor (Tan) can dispose or
Thereupon, Tan delivered the said cotton materials to alienate a pledged credit (credit of
the Bernals. Mendoza received checks from the Bernals Mendoza) without notice and consent of the assignee
with the understanding that the said check will remain (Litton Sr.).
in the possession of Mendoza until the cotton materials
are finally manufactured into garments after which time Held: No. Reversed.
Mendoza will sell the finished products for the Bernals.
Meanwhile, the said check matured without having been
cashed and Mendoza demanded the issuance of another
check in the same amount without a date.
On the other hand, Mendoza issued two (2) PNB
checks in favor of Tan. He informed the Bernals of the
same and told them that they are indebted to him and
asked the latter to sign an instrument whereby Mendoza
assigned the said amount to Insular Products Inc. Tan
had the two checks issued by Mendoza discounted in
a bank. However, the said checks were later returned to
Tan with the words stamped "stop payment" which
appears to have been ordered by Mendoza for failure of
the Bernals to deposit sufficient funds for the check that
the Bernals issued in favor of Mendoza.
Tan brought an action against Mendoza while the
Bernals brought an action for interpleader for not
knowing whom to pay. While both actions were pending
resolution by the trial court, Tan assigned in favor of
George Litton, Sr. his litigatious credit against Mendoza
duly submitted to the court with notice to the parties.
After due trial, the lower court ruled that the
said PNB checks were issued by Mendoza in favor of Tan
for a commission and held Mendoza liable as a drawer
whose liability is primary and not merely as an indorser.
CA affirmed.
Meanwhile, pending the resolution of the said
appeal, Mendoza entered into a compromise agreement
with Tan wherein the latter acknowledged that all his
claims against Mendoza had been settled and that by
reason of said settlement both parties mutually waive,
release and quit whatever claim, right or cause of action
one may have against the other, with a provision that the
said compromise agreement shall not in any way affect the
right of Tan to enforce by appropriate action his claims
against the Bernal spouses.
Mendoza filed a motion for reconsideration
praying that the decision be set aside, principally anchored
upon the ground that a compromise agreement was
entered into between him and Tan which in effect released
Mendoza from liability. Tan filed an opposition to this
motion claiming that the compromise agreement is null
and void as he was not properly represented by his
counsel of record and principally because of the deed of
assignment that he executed in favor of George Litton, Sr.
alleging that with such, he has no more right to
alienate said credit. While the case was still
pending reconsideration, Tan, the assignor, died leaving
no properties whatsoever to satisfy the claim of the
estate of the late George Litton, Sr. The CA set aside its
211
Ratio: The validity of the guaranty or pledge in favor of Josefina Rocco. On the same date, Detective Corporal
Litton has not been questioned. Our examination of the Oswaldo Mateo of the Manila Police also claims to have
deed of assignment shows that it fulfills the requisites of a gone to the pawnshop, showed Yu An Kiong the report of
valid pledge or mortgage. Although it is true that Tan may Serrano and left the latter a note asking him to hold the
validly alienate the litigatious credit as ruled by the jewelry and notify the police in case someone should
appellate court, citing Article 1634 of the Civil Code, redeem the same. The next day, on 10 July 1968, Yu An
said provision should not be taken to mean as a grant of Kiong permitted one Tomasa de Leon, exhibiting the
an absolute right on the part of the assignor Tan to appropriate pawnshop ticket, to redeem the jewelry.
indiscriminately dispose of the thing or the right given as
security. The Court rules that the said provision should be
read in consonance with Article 2097 of the same code.
Although the pledgee or the assignee, Litton, Sr. did not
ipso facto become the creditor of private respondent
Mendoza, the pledge being valid, the incorporeal right
assigned by Tan in favor of the former can only be
alienated by the latter with due notice to and consent of
Litton, Sr. or his duly authorized representative. To allow
the assignor to dispose of or alienate the security without
notice and consent of the assignee will render nugatory
the very purpose of a pledge or an assignment of credit.
Moreover, under Article 1634, the debtor has a
corresponding obligation to reimburse the assignee, Litton,
Sr. for the price he paid or for the value given as
consideration for the deed of assignment. Failing in this,
the alienation of the litigated credit made by Tan in favor
of private respondent by way of a compromise agreement
does not bind the assignee, petitioner herein.
Cornelio Cruz & Ciriaca Serrano vs. Chua A.H. Lee, G.R.
No. 31018, November 6,
1929 (54 Phil 10)
Tan Chun Tic vs. West Coast Life Insurance Co. &
214
mortgagee who shall then be the owner thereof in fee Velayo, G.R. No. L-21069, October 26, 1967 (21 SCRA
simple, dispensing with expensive lawsuits. 515)
On September 16, 1925, West Coast Life
Insurance Company filed a complaint against Go Chulian, Facts: Manila Surety & Fidelity Co., Inc., upon request of
Julio Gonzaga, and Francisco Sanchez for the recovery of a Rodolfo Velayo, executed a bond for P2,800.00 for the
sum of money. On the same day, the West Coast Life dissolution of a writ of attachment obtained by one
Insurance Company obtained from the court a writ of Jovita Granados in a suit against Rodolfo Velayo. Velayo
preliminary attachment of which the sheriff attached the 2 undertook to pay the surety company
parcels of land mentioned above.
On March 30, 1926, the date on which the
mortgage fell due, Genoveva de Jayme assigned and
transferred her rights and actions in the mortgage contract
to Tan Chun Tic. On March 7, 1927, Tan Chun Tic
presented to the registrar of deeds of Occidental Negros an
affidavit wherein he stated that the period granted to the
debtor in the said mortgage had already elapsed without
payment of its value. The registrar of deeds then cancelled
the certificates of title in the name of Go Chulian, and in
lieu thereof issued others in the name of Tan Chun Tic,
but preserved the annotation of the preliminary
attachment in favor of the West Coast Life Insurance
Company. Tan Chun Tic filed a complaint to seek the
annulment and cancellation of the preliminary attachment.
This was granted by the lower court.
215
an annual premium of P112 to indemnify the Company for property sold in installments, and which originated in Act
any damage and loss of whatsoever kind and nature that it 4110 promulgated by the Philippine Legislature in 1933.
shall or may suffer, as well as reimburse the same for all
money it should pay or become liable to pay under the Zosimo D. Uy vs. Jose R. Zamora, The Allied
bond including costs and attorneys' fees. Finance, Inc., G.R. No. L-19482, March 31, 1965 (13
As "collateral security and by way of pledge" SCRA 508)
Velayo also delivered four pieces of jewelry to the Surety
Company "for the latter's further protection", with power
to sell the same in case the surety paid or become
obligated to pay any amount of money in connection with
said bond, applying the proceeds to the payment of any
amounts it paid or will be liable to pay, and turning the
balance, if any, to the persons entitled thereto, after
deducting legal expenses and costs.
Judgment having been rendered in favor of Jovita
Granados and against Rodolfo Velayo, and execution
having been returned unsatisfied, the surety company
was forced to pay P2,800.00 that it later sought to recoup
from Velayo; and upon the latter's failure to do so, the
surety caused the pledged jewelry to be sold, realizing
therefrom a net product of P235.00 only. Thereafter and
upon Velayo's failure to pay the balance, the surety
company brought suit in the Municipal Court. Velayo
countered with a claim that the sale of the pledged jewelry
extinguished any further liability on his part under Article
2115 of the 1950 Civil Code.
The municipal court disallowed Velayos claims
and rendered judgment against him. CFI affirmed.
219
where there are concurrence of credits would be left vendors since they lost their rights as owners of the
without any rules to govern them, and it would render property when they failed to pay RFC the purchase price.
purposeless the special laws on insolvency. What they sold to Pura was their rights, title, interest
and dominion to the property. They merely assigned
whatever rights or claims they might still have thereto.
Ratio of MFR: Under the system of the Civil Code,
The ownerhip of the property rested with RFC which was
only taxes enjoy an absolute preference. All the
the one that sold the property to Pura. The sale from
remaining classes of preferred creditors under Art. 2242
Cruzado to Villanueva, therefore, was not so much a sale of
enjoy no priority among themselves, but must be paid pro
the land as it was a quitclaim deed in favor of Villanueva.
rata, i.e. in proportion to the amount of the respective
credits. But in order to make this prorating fully
effective, the preferred creditors must necessarily be
convened, and the import of their claims ascertained. It is
thus apparent that the full application of Art. 2249 and
2242 demands that there must be first some proceeding
where the claims of all the preferred creditors may be
bindingly adjudicated, such as insolvency, the settlement
of decedents estate, or other liquidation proceedings of
similar import. This explains the rule of Art. 2243 NCC that
the claims or credits enumerated shall be considered as
mortgages or pledges of real or personal property or liens
within the purview of legal provisions governing insolvency.
Thus, it becomes evident that one preferred creditors 3 rd
party claim to the proceeds of a foreclosure sale is not the
proceeding contemplated by law for the enforcement of
preferences under Art. 2242, unless the claimant was
enforcing a credit for taxes that enjoys absolute priority.
If none of the claims is for taxes, a dispute between 2
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 cannot be ascertained.
In the absence of insolvency proceedings, the
conflict between the parties now before us must be
decided pursuant to the well established principle
concerning registered lands; that a purchaser in good
faith and for value takes registered property free from
liens and encumbrances other than statutory liens and
those recorded in the certificate of title. There being no
insolvency or liquidation, the claim of the unpaid vendor
did not acquire the character and rank of a statutory lien
co-equal to the mortgagees recorded encumbrance, and
must remain subordinate to the latter. The court is
understandably loathed to adopt a rule that would
undermine the faith and credit to be accorded to
registered Torrens titles and nullify the beneficent
objectives sought to be obtained by the Land Registration
Act. No argument is needed to stress that if a person
dealing with registered land were to be held to take in
every instance subject to all 14 preferred claims
enumerated in Art. 2242 NCC, even if the existence and
import thereof cannot be ascertained from the records, all
confidence in Torrens titles would be destroyed. Upon the
other hand, it does not appear excessively burdensome to
require the privileged creditors to cause their claims to be
recorded in the books of the Register of Deeds should they
desire to protect their rights even outside of insolvency or
liquidation proceedings.
The Cruzados also cannot be considered as unpaid
220
J.L. Bernardo Construction, represented by attorneys- insolvency proceedings.
in-fact Santiago R. Sugay, Edwin A. Sugay & Fernando The action filed by the petitioners in the trial
S.A. Erana, Santiago R. Sugay, Edwin A. Sugan & court does not partake of the nature of an insolvency
Fernando S.A. Erana vs CA & Mayor Jose L. Salonga, proceeding. It is basically for specific performance and
G.R. No. 105827, January damages. Thus, even if it is finally adjudicated that
31, 2000 (324 SCRA 24) petitioners actually stand in the position of unpaid
contractors and are entitle to invoke the contractors lien,
such lien cannot be enforced in the present action for
Facts: The municipal government of San Antonio,
there is no way of determining whether or not there exist
Nueva Ecija approved the construction of San Antonio
other preferred creditors with respect to such property.
Public Market to be funded by the Economic Support Fund
Secretariat (ESFS), a government agency working with the The fact that no 3 rd party claims have
USAID. The petitioners entered into a business venture
for the purpose of participating in the bidding for the
public market. The contract was awarded to them. Under
the Construction Agreement, the municipality agreed to
assume the expenses for the demolition, and clearing and
site filling and to provide cash equity.
Although the whole amount of the cash equity
became due, the municipality refused to pay despite
repeated demand and notwithstanding that the public
market was
98% complete. Furthermore, the petitioners advanced
the expenses for the demolition, clearing and site filling,
and they have not yet been reimbursed.
The petitioners filed a case. The court
granted a preliminary attachment. Although the usual
way of enforcing a lien is by a decree of sale of the
property and the application of the proceeds to the
payment of the debt secured by it, the court found it more
practical and reasonable to permit the petitioners to
operate the public market and to apply to their claims the
income derived therefrom, in the form of rentals and
goodwill from the prospective stallholders of the market.
The CA reversed the order of the lower court.
221
been filed in the trial court will not bar other creditors
from subsequently bringing actions and claiming that they Ratio: DBP and PNB are mandated by law to foreclose
also have preferred liens against the property involved. when an account has reached certain arrearages, thus
Petitioners may only obtain possession and use of they were only fulfilling a duty when they foreclosed on
the public market by means of a preliminary attachment the properties.
upon such property, in the event that they obtain a In the absence of liquidation proceedings, the
favorable judgment in the trial court. Clearly, the trial claim of Remington cannot be enforced against DBP.
courts order granting possession and use of the public The ruling in the Barretto case applies to this case.
market to the petitioners does not adhere to the Although
procedure for attachment laid out in the Rules of Court.
222
Barretto involved specific immovable property, the ruling specially preferred credits, the residual value will form
therein should apply equally in this case where specific part of the free property of the insolvent.
movable property is involved. As the extrajudicial In contrast, Art. 2244 creates no liens on
foreclosure instituted by PNB and DBP is not the determinate property which follow such property. What
liquidation proceeding contemplated by the Civil Code, Art. 2244 creates is simply rights in favor of certain
Remington cannot claim its pro rata share from DBP. creditors to have the cash and other assets of the insolvent
applied in a certain sequence or order of priority. In this
sequence, certain taxes and assessments also figure but
RP, represented by the Bureau of Customs & BIR vs.
these do not have the same kind of overriding preference
Honorable E.L. Peralta, Presiding Judge of the CFI of
that Art. 2241 No. 1 and 2242 No. 1 create for taxes which
Manila, Branch XVII, Quality Tobacco Corp., Francisco
constitutes liens on the taxpayers property.
Candeleria, Federacion Obrero de la Industria
Tabaquera Y Otros Trabajadores de Filipinas
(FOITAF), USTC Employees Association Workers
Union-PTGWO, G.R. No. L-56568, May 20, 1987 (150
SCRA 37)
224
Cruz, dissenting: If the law had intended an exception, it scheme of concurrence and preference of credit is to
would have and could easily have provided for it. The raise the workers claim into first priority under Art. 2244
Labor Code was promulgated by President Marcos who NCC. Not being an absolutely preferred credit, as taxes
was aware of the usual preference of tax claims. So under Art. 2241 (1) and 2242 (1), Dizons claims cannot
informed, he would have reserved that primacy in the be paid ahead of other credits and outside of the
above article if that was what he really wanted. The fact liquidation proceeding because the free property has not
that he did not is to me certain indication of his yet been determined. Thus, Dizons adjudicated claims
intention, viz., that under the said article the claims of should be submitted to the liquidators for processing. If
laborers for unpaid wages shall have priority above all it is later adjudicated that the liquidation is improper,
else. It is axiomatic that the words of a statute are to be then the NLRCs decision may be executed
given their normal and ordinary connotation. Moreover,
the Labor Code was promulgated later than the Civil Code,
the Insolvency Law, and the Internal Revenue Code. The
Labor Code prevails over these earlier statutes as it
represents the later expression of legislative will.