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School of Law
Credit Transactions
2 Semester, AY 2017-2018
Prof. R. R. Dujunco


A. Common Provisions (Articles 2085-2092)

 Manila Banking Corporation v. Teodoro, G.R. No. 53955, January 13, 1989
o Read concurring opinion of Justice Feliciano on pactum commissorium; re: how deed of assignments are used as vehicle
to avoid pactum commissorium
o J. Feliciano: a deed of assignment by way of security avoids the necessity of a public sale imposed by the rule on pactum
o J. Feliciano: in order that a deed of assignment of receivables may be qualified as a security arrangement, language to
such effect must be found in the document itself.

 Arenas v. Raymundo, G.R. No. 5741, March 13, 1911

o Law looks with favor upon owner of illegally pledged jewelry more than the pawnbroker
o Good faith of owner of stolen jewelry > good faith of pawnbroker
o The stolen jewelry which was pawned must be returned by the pawnbroker to the former
o The pawnbroker’s recourse is to try to claim the value from the embezzler

 Rural Bank of Caloocan v. Court of Appeals, G.R. No. L-32116, April 21, 1981
o 70 year old woman was defrauded by Valencia spouses
o relation to topic:
 for loan 1: all req’ts are present
 Are banks required to exercise higher degree of diligence compared to private persons? No, same degree.
They can rely on the face of the title of the property.
 The bank can also rely on the face if the title as conclusive presumption! BUT mere statement/representations
(as done by Valencia) is not enough! There must be an SPA from the owner
 Does it matter that the mortgagee is bank/private person? No, they should both exercise diligence

 Alcantara v. Alinea, G.R. No. 3227, March 22, 1907

o No pactum commissorium
o 1907 case
o in relation to Uy Tong (1988):
1. Element 1 – absent
2. Element 2 – absent bc no sale
o is the Court wrong? No, bc the court said it was a mere promise to sell and not an automatic contract of sale

 A. Francisco Realty v. Court of Appeals, G.R. No. 125055, October 30, 1998
o Prohibition on pactum commissorium
o The stipulation for automatic appropriation is found in the promissory note and not in the mortgage deed
o Francisco is contending that the stipulation should be in the mortgage deed
o SC: NO! the contract is pactum commissorium
o In relation to other cases:
 Alcantara: no pactum commissorium bc it was only a promise to sell
 Reyes: registration is the act constituting pactum commissorium
 Francisco: the stipulation allowing pactum commissorium is found in the promissory note and not in the
mortgage deed itself
o In relation to Reyes:

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 Both: no automatic transmission
 In Reyes: registration is needed
 In here: spouses need to vacate first
o In relation to Uy Tong:
1. Element 1 – present
2. Element 2 – absent (not in deed of mortgage; but present in the subsequent promissory note)

 Reyes v. Sierra, G.R. No. L-28658, October 18, 1979

o Contract of mortgage and not conditional sale
o Issue 1 – WON mortgage or conditional sale? Mortgage!
o Issue 2 – WON registration would amount to pactum commissorium? YES
o Was there a stipulation for automatic appropriation in the original contract? NO, but why is there pactum
commissorium? Bc the act of registration is tantamount to pactum commissorium!
o In relation to Uy Tong:
1. Element 1 – present
2. Element 2 – absent

 Spouses Uy Tong v. Court of Appeals, G.R. No. L-77465, May 21, 1988
o Issue 1: WON the deed of assignment is pactum commissorium? No
o Issue 2: WON it was sale/mortgage (element 1)? Sale!
o Issue 3: WON there is automatic appropriation (element 2)? No, bc it sued for specific performance; Bayanihan sought
court intervention instead of automatically appropriating

 Olea v. Court of Appeals, G.R. No. 109696, August 14, 1995

o Issue: WON equitable mortgage or pacto de retro? Equitable mortgage
o Why on topic? Bc the mere failure to exercise the right to repurchase will not mean it can be automatically
appropriated. Otherwise, it would be pactum commissorium
o Olea cannot rely on the stipulation for automatic appropriation bc such is pactum commissorium and is thus void.
o SC: Pactum commissorium is also invalid for a pacto de retro sale, which is actually an equitable mortgage

 Dayrit v. Court of Appeals, G.R. No. L-29388, December 28, 1970

o Art. 2089 – indivisibility of pledge/mortgage even if only jointly liable
o Dayrit, Sumbillo and Angeles entered into a contract of loan and mortgage with Mobil Oil which were mortgaged with 2
parcels of land (owned by Dayrit)
o The contract was violated so Mobil Oil filed a complaint in the RTC, wherein it won and the RTC declared the three
debtors were jointly liable for the obligation
o Dayrit filed a motion to have the mortgage cancelled if he pays his 1/3 share of the obligation
o ISSUE: WON the payment of the 1/3 obligation can release the collaterals owned by Dayrit although the 2/3 of the loan
was unsatisfied due to the insolvency of the two other debtors
o SC: NO. The mortgage of two parcels of land was intended to be a security for the entire loan. A mortgage voluntarily
constituted by the debtor on two or more parcels of land is one and indivisible.

 Central Bank v. Court of Appeals, G.R. No. L-45710, October 3, 1985

o XPN to the GR of indivisibility of mortgages since there was only partial release of a loan
o Tolentino applied for an Php80,000 loan from Island Savings, secured by a 100 hectare land
o Island Savings was only able to release Php 17,000, after which Tolentino issued a promissory note.
o Then, Island Savings was declared insolvent by the Central Bank, which prevented it from releasing any new loans
o When the loan became due and demandable and Tolentino defaulted, Island Savings moved for the foreclosure of
Tolentino’s land
o Tolentino sought for a TRO from the RTC and for specific performance to compel Island Savings to release the
remaining Php 63,000
 Can Tolentino’s action for specific performance prosper? NO

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 Resolution No. 1049 prohibits release of any new loans. However, the Board Resolution regarding
the insolvency of Island Savings is never an excuse for the non-fulfillment of an obligation but is
indeed taken as a breach of contract.
 As the aggrieved party due to the breach of Island Savings, Tolentino may choose between
rescission with damages or specific performance. However, specific performance cannot be done
because of the Board Resolution. Hence, rescission for the Php 63,000 balance is the only remedy
 Is Tolentino liable for the released Php 17,000 of the loan? YES
 The promissory note gave rise to Tolentino’s reciprocal obligation to pay the Php17,000 loan when it
became due.
 If yes, can his real estate mortgage be foreclosed to satisfy the said amount? NO, not fully.
 Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than the actual sum due. Since Island
Savings failed to furnish the Php 63,000, the real estate of Tolentino became enforceable to such an
extent. Hence, the real estate mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares,
 The rule of indivisiibility is inapplicable here. Art. 2089 presupposes several heirs of the debtor or
creditor, which does noy obtain in this case.
 Ma’am: but that’s an old distinction. The Court does not really follow that anymore.

 Spouses Belo v. PNB, G.R. No. 134330, March 1, 2001

o There was a lease contract between Spouses Eslabon and Eduarda Belo. Then, Eduarda became an accomodation
mortgagor for the Spouses Eslabon as evidenced by an SPA.
o Spouses Eslabon failed to pay so PNB foreclosed Eduarda’s land
o Eduarda then sold her right of redemption to the Spouses Belo
o The Spouses Belo then tried to exercise their right of redemption by paying Php400,000+ to PNB but the latter refused,
alleging that they should pay Php2.8M (value of the foreclosed land + loan of the Spouses Eslabon)
 WON the spouses Belo have to pay Php2.8M?
 NO. the SPA executed by Eduarda was not meant to make her a co-obligor. She was merely an
accomodation mortgagor. Hence, her assignees, the Spouses Belo, cannot be obliged to pay both
the value of the foreclosed land and the loan of the Spouses Eslabon.
o Ma’am: does the accomodation mortgagor need to receive any particular benefit for himself? No, but in this case,
Eduarda benefitted because she was able to collect the rentals of her property from the Eslabons. (Add-on lang yan)
o SC: indivisibility concept inapplicable to accomodation mortgagors. Indivisibility arises only when there is a debt and
there is a debtor-creditor relationship. This relationship is missing in the case at bar since the Spouses Belo are
assignees of an accomodation mortgagor and not of a debtor-mortgagor.

 Ajax Marketing and Development Corporation v. Court of Appeals, G.R. No. 118585, September 14, 1995
o Ylang-ylang Merchandising loaned from Metrobank, which was secured by a real estate mortgage (Php150,000)
o Another loan was obtained, which used the same land as mortgage (Php250,000)
o Then, Ylang-Ylang became a corporation named Ajax Marketing
o Ajax then loaned for the third time secured by the same real estate mortgage (Php600,000)
o Then, the bank restructured the loan to consolidate it to Php1M
o ISSUE: WON the restructuring of the loan resulted to a novation that would release the mortgage
 NO. Novation is never presumed. Also, the mortgage annotations on the back of the TCT remained
uncancelled. It thus indicated the continuing subsistence of the real estate mortgage.
 GR: an action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage.
 XPN: if the intent of the contracting parties is manifest that the mortgaged properties shall also answer for
future loans or advancements, then that is valid between the parties.
 The exception applies to this case.

B. Pledge (Articles 2093 – 2123)

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 Yuliongsui v. PNB, G.R. No. L-19227, February 17, 1968
o Yuliongsui loaned from PNB and pledged his three vessels through a “pledge contract”
o Yuliongsui defaulted so PNB took possession of the vessels
o SC ruled that the type of delivery will depend upon the nature and particular circumstances of each case. The parties
here agreed that the vessels be delivered by the “pledgor to the pledgor who shall hold said property subject to the
order of the pledgee.”
o Ma’am: I disagree with the Court. Art. 2093 states “possession of a third person by common agreement”, but in this
case, the “third person” is not really a third person since Yuliongsi himself is a party to the contract. Also, the vessels
are physical property capable of actual appropriation. So, constructive delivery should not have been sufficient.
o Ma’am: Compare this with Caltex and Pacific; it’s not in conformity with Caltex and Pacific bc the vessels are capable of
actual possession but the court ruled that constructive delivery was sufficient
o This case is an XPN to the Pacific case

 Pacific Commercial Company v. PNB, G.R. No. 24893, August 23, 1926
o Gulf Plantation loaned from PNB which was secured by Schedule A. In Schedule A, there is a list of pledged properties
including 534 hectares of land, 48 buildings, 1,000 piculs of hemp in a bodega, 5 boats and some livestock.
o Afterwards, Gulf Plantation became insolvent and an assignee was appointed.
o The creditors of Gulf Plantation are alleging that Schedule A does not transfer possession. Hence, no validly constituted
pledge and PNB does not enjoy preferred lien on the properties.
o ISSUE: WON the constitution of Schedule A is sufficient to constitute delivery or possession?
 NO. The bank must have taken actual and physical possession of the pledged properties. Since the bank was
not in possession of the pledged properties, the pledge was void.
o Ma’am: two requirements the bank should have shown was the following:
1. The bank must take actual, physical possession of the property, and to continue to remain in such possession;
2. The bank must have been in such actual, physical possession at the time Gulf Plantation was declared

 PNB v. Atendido, G.R. No. L-6342, January 26, 1954

o Laureano loaned from PNB; as security, he pledged palay stored in a warehouse through a warehouse receipt
o Then, for unknown reasons, the pala disappeared from the warehouse
o When he defaulted from payment, he contended that having given the warehouse receipt covering the palay was
enough to discharge him from liability (i.e. that it was the bank who should bear the loss of the disappeared palay)
o Court: NO. Res perit domino! The owner bears the risk of loss since in a contract of pledge, the pledgor retains
ownership over the thing pledged. What is transferred is merely possession.
o Ma’am: is delivery ABSOLUTELY essential to constitute a pledge? It depends on the nature of the thing pledged.

 Caltex Phils. Inc. v. Court of Appeals, G.R. No.97753, August 10, 1992
o Pledge of incorporeal rights = CTDs as security (Arts. 2095-96)
o Security Bank issued 280 CTDs in favor of Dela Cruz who deposited Php1.12M in the said bank
o Then, the CTDs were delivered by Dela Cruz to Caltex as “payment”
o Dela Cruz told the bank that he misplaced the CTDs and had the bank reissue him new CTDs.
o When Caltex presented the CTDs to the bank, the latter refused to release the amount.
o ISSUE: Is delivery of a CTD, which is a negotiable instrument, a valid pledge? YES
o Pacific case vs this case:
 Pacific: what was pledged are properties which were capable of actual appropriation
 In here: constructuve delivery of the negiotiable instrument is allowed since the property is not capable of
actual appropriation
 Pacific: constructive delivery was not allowed since Schedule A is not a negotiable instrument
o Symbolic delivery vs Constructive delivery
 Symbolic: keys to the car or stock certificate
 Constructive: merely a mode of delivery
o Remember:
 If physical property, there must be physical possession

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 If incorporeal rights, then constructive delivery is sufficient

 Sarmiento and Villasenor v. Javellana, 43 Phil. 884

o Sarmiento and Villasenor loaned from Javellana Php1,500 and pledged several jewelries as security
o When the loan became due, Vilalsenor obtained an extension. He said that the loan was to continue up to an indefinite
period of time so long as the value of the jewelries can cover the interest and the accrued principal
o 7 years later, Villasenor tried to pay the debt but Javellana refused by alleging that he had already bought the jewelries
from his wife, Sarmiento
o SC: No, the jewelries were only used as a pledge and was not sold to Javellana. Thus, he is obliged to return the pledged
thing upon the satisfaction of the principal obligation. This is because the duty of the creditor to return the thing
pledged in case the principal obligation is fulfilled is essential in all contracts of pledge.
o 10 years prescriptive period so the action of the debtor-mortgagors have not yet prescribed.
o Ma’am: what is the difference between pledge and deposit?
 Deposit
 Principal contract
 Main point is safekeeping of the thing
 Pledge
 Accessory contract
 Main point is to secure a principal obligation

 Manila Surety & Fidelity Co. v. Velayo, G.R. No. L-21069, October 26, 1967
o Manila Surety issued a bond in favor of Velayo for an amount of Php2,800. In exchange, Velayo pledged 4 pieces of
o Manila Surety then had to pay when a writ of execution was issued against Velayo.
o When they tried to claim the amount from Velayo and failed, the former sold the pledged jewelry. However, they were
only able to realize Php235.
o ISSUE: WON Manila Surety can claim the deficiency from Velayo?
o SC: NO. It is clear from Art. 2115 that “if the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency”. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived
any other remedy, and must abide by the results of the sale. No deficiency is recoverable.

C. Mortgage (Articles 2124 – 2131)

 Isaguirre v. de Lara, G.R. No. 138053, May 31, 2000

o As a general rule, the mortgagee is not entitled to possession over the property (which is the main distinction between
a pledge and a mortgage)
o XPN: agreement/stipulation to that effect
o The spouses de Lara were applicants for a parcel of land with the Bureau of Lands
o de Lara sold 250 sqm out of the entire 1,000 sqm land owned by her and her husband for P5,000 to Isaguirre through a
“Deed of Sale and Special Cession of Rights and Interests”
o Isaguirre was then given an OCT for the 250 sqm but meanwhile, the application of the spouses was granted and they
were issued an OCT for the entire 1,000 sqm of land, including the portion of Isaguirre
o In the RTC case regarding quieting of title, the RTC ruled in favor of Isaguirre and declared him the absolute owner of
the 250 sqm; but the CA reversed and held that the contract was not a sale but was an equitable mortgage only; which
ruling was affirmed by the SC
o Felicitas filed for a writ of possession in the RTC which was granted; hence, Isaguirre filed for certiorari in the SC
o ISSUE: WON Isaguirre, as mortgagee, was entitled to possession of the property until the full payment of the spouses’
o SC: NO! the only right given by the law to the mortgagee is to demand execution and registration of the mortgage
o Ma’am: if the only right of the mortgagee was to have the mortgage registered/annotated in the back of the title, how
can he register the executed “Deed of Sale” as mortgage? Execute the mortgage document first! And then have it
o Remember, there are two rights given to a mortgagee: (1) execution of mortgage and (2) registration/annotation

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 Canlas v. Court of Appeals & Asian Savings Bank & Contrares, G.R. No. 112160, February 28, 2000
o Mortgagor must be the absolute owner of the property mortgaged
o Canlas and Contrares were business partners so Canlas gave Contrares an SPA two mortgage two parcels of land
owned by him
o Canlas sold the lands to Mañosca for P850,000 but the check the latter gave for payment was unfunded
o Afterwards, Mañosca mortgaged the lands to Magno through two impostors pretending to be the Canlas spouses
o Apparently, Mañosca loaned from the bank half a million and used the lands as security; the former defaulted so the
bank foreclosed the properties
o When Canlas knew about it, he opposed and alleged that the mortgage was done without his consent
o The RTC annulled the mortgage; but the CA reversed the RTC
o ISSUE: WON there was a valid mortgage constituted
o SC: NO! The mortgage was not valid since the mortgagor as not the absolute owner at the time of the constitution of
the mortgage. A mortgage constituted by an impostor is void.

 Samanilla v. Cajucom, G.R. No. L-13683, March 28, 1960

o Registration as a matter of right for the mortgagee
o Registration only serves as notice to third persons but does not add to its validity; Registration is not an essential
element of a contract of mortgage
o Cajucom loaned P10,000 from Samanilla and mortgaged a land as security; he borrowed the title again from the latter
o When Samanilla filed for the surrender of the title in the CFI, Cajucom alleged that registration was an essential element
of mortgage
o SC: NO! Registration only operates as notice to others, but neither adds to its validity nor convert an invalid mortgage
into a valid one between the parties. Regardless of non-registration, the contract shall still be valid as between the
contracting parties
o Add’t question of ma’am: Is mortgage a formal contract? YES. De Leon: if purely private instrument (and thus not
registered) the contract was void
o If oral agreement only, the contract is not valid either

 Mobil Oil Phils. v. Diocares, G.R. No. L-26371, September 30, 1969
o Unregistered real estate mortgage is still valid between the parties
o Non-registration cannot be a ground for refusal of a foreclosure sale
o Spouses Diocares loaned P45,000 from Mobil Oil and executed a real estate mortgage in favor of the latter
o The spouses defaulted so Mobil Oil filed for foreclosure
o ISSUE: WON there is a validly constituted mortgage? YES. Even if the instrument were not recorded, the same is still
binding between the parties.

 Cruz v. Bancom Finance, G.R. No. 147788, March 19, 2002

o Unregistered REM does not bind third persons
o Norma offered to purchase the land of the Cruz brothers which was worth P700,000 with only P25,000 as earnest
money through the use of the Cruz Brothers’ friend, Candelaria.
o The Cruz brothers executed a document of sale in favor of Candelaria. On the same day, Candelaria executed a contract
of sale in favor of Norma.
o Then, the Cruz brothers found out that their land was already mortgaged for a P569,000 loan that Norma undertook
with Bancom
o Norma defaulted so Bancom foreclosed the land; the Cruz brothers filed a suit for the reconveyance of the land
o The RTC ruled in favor of the Cruz brothers since the sale was absolutely simulated; but the CA reversed the RTC
o ISSUE: WON there are validly constituted contracts of sale and contract of mortgage
o SC: NO! The contract of sale in favor of Candelaria was absolutely simulated. The following are its badges of simulation:
(1) the two deeds of sale were made in a single day; (2) there was no exchange of money as consideration; and (3)
Norma’s failure to take possession of the property
o Hence, all the subsequent contracts are void and without effect. Also the mortgagee-bank was held to be a mortgagee
in bad faith. As a mortgagee-bank, it was expected to exercise greater care and prudence in its dealings. It failed to

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conduct an ocular inspection and it allowed the registration of the mortgage despite knowing that there was already a
notice of lis pendens on the back of the title.
o Summary: The deeds of sale were absolutely simulated -> Subsequent mortgage by Norma was also null since she was
not the absolute owner -> No valid foreclosure by Bancom as a consequence of the nullity of the mortgage -> hence,
the bank cannot be considered a mortgagor and purchaser in good faith
o Ma’am: what would have been the remedy of the bank? Go after the mortgagor, Norma.

 Spouses Flancia v. CA, G.R. No. 146997, April 26, 2005

o Registered mortgage prevails over a contract to sell
o Spouses Flancia bought a parcel of land measuring 128 sqm from Oakland
o However, the land was foreclosed due to an indebtedness of Oakland to Genato amounting to P2M, wherein Oakland
used as security its parcel of land measuring 4.334 sqm, including the land previously bought by the Spouses Flancia.
o ISSUE: WON the contract of mortgage was valid
o SC: YES! It was proven that the contract between the Spouses Flancia and Oakland was merely a contract to sell. Being
a contract to sell, ownership over the property remained with Oakland. Being the absolute owner of the property,
Oakland had the right to mortgage the said property to Genato.

 Medida and Cebu City Savings and Loan Association v. Court of Appeals and Spouses Dolino, G.R. No. 98334, May 8, 1992
o Subsequent mortgage of foreclosed property during its redemption period is valid.
o Spouses Dolino owned a parcel of land that was mortgaged previously to Cebu City Development Bank , which was
then foreclosed by the latter and was sold in a public bidding with Mr. Gandioncho as the highest bidder.
o Wanting to redeem the property before the lapse of its redemption period, the Spouses loaned from the Association,
using as mortgage the previously mortgaged and foreclosed property that they were seeking to redeem
o The Spouses defaulted in their obligation to the Association so the latter foreclosed the property and was the highest
bidder in the auction
o The spouses filed a complaint in the RTC alleging that the sale was invalid
o The RTC ruled that the loan and the mortgage were valid but the foreclosure was defective for failure to comply with
the notice requirement in Act 3135
o But the CA reversed the RTC and ruled in favor of the Spouses
o The Association appeals to the SC, contending that the CA erred in ruling that the mortgage executed in favor of them
was invalid since at the time of the constitution of the said mortgage, the Spouses were no longer the property’s
absolute owner since the said land was already foreclosed and bought by Mr. Gandioncho
o ISSUE: WON the 2nd mortgage (in favor of the Association) was valid
o SC: YES! During the one year redemption period, the mortgagor remains the absolute owner of the foreclosed
property. The highest bidder/purchaser in the public auction only has an inchoate right over the property which could
ripen into ownership upon the lapse of the redemption period without the mortgagor exercising his right of
redemption. In the case at bar, since the 2nd mortgage was executed within the redemption period by the Spouses, who
are still its absolute owner, then the 2nd mortgage is valid.
o Ma’am: why is it only an inchoate right on the part of the purchaser of the foreclosed property? In a practical sense, if
ownership is transferred to the buyer, then such buyer would have free disposal of the property to another person and
so on and so forth. Hence, it would be inequitable for the mortgagor to have to deal with more people than only with
the purchaser when exercising his right of redemption.

 DBP v. Court of Appeals and Cuba, G.R. No. 118342 & 118367, January 5, 1998
o An assignment of real rights over immovables to secure an obligation is in effect a mortgage
o Cuba was a grantee of a fishpond lease agreement with the government
o She obtained multiple loans from DBP and executed two Deeds of Assignment of her Leasehold Rights to the latter
o When she defaulted, DBP appropriated for itself the said leasehold rights without conducting any foreclosure
proceedings, using as basis Condition No. 12 in the contract
o ISSUES: (1) WON the contract allowed for pactum commissorium; and (2) WON the contract was mortgage
o SC: (1) NO. the contract did not provide for pactum commissorium since element 2 (stipulation for automatic
appropriation) is missing. What is only provided is appointment of DBP as attorney-in-fact to sell her real rights in case
of her default. However, DBP exceeded its authority and was guilty of pactum commissorium when it appropriated for
itself the leasehold rights of Cuba without any foreclosure proceeding.

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o SC: (2) YES. The contract was mortgage since in the deeds of assignment, said document kept referring to herself as the
borrower, the assigned rights as the mortgaged properties, and the contract itself was named “mortgage contract”.
Also it was clear in the stipulations of the parties that the assignment was by way of security for the payment of loans.
o Ma’am: what would have been the remedy of DBP? Foreclose the mortgage first!

 People’s Bank & Trust Co. and Atlantic Gulf v. Dahican Lumber Company, G.R. No. L-17500, May 16, 1967
o Atlantic Gulf sold and assigned to DALCO its lumber concession for $500,000 but only $50,000 was paid by the latter
o To develop its concession, DALCO loaned from the Bank P200,000 and another $250,000 loan from Import-Export Bank
of Washington DC (with the bank as its trustee for DALCO’s loans)
o As security, DALCO executed 2 real estate mortgages. One was for the Bank and the other was for Atlantic Gulf.
o Both contracts of mortgage included 5 parcels of land along with all its buildings and improvements and “after acquired
properties of DALCO”
o DALCO defaulted so the Bank paid the former’s indebtedness to Washington Bank
o Meanwhile, DALCO subsequently acquired machineries. When the Bank requested for an inventory of the after-
acquired properties, DALCO refused.
o DALCO’s Board of Directors then issued a resolution rescinding the contract of sale for the purchase of the said
o The Bank demanded to have the rescission cancelled but DALCO refused. Hence, the Bank and Atlantic Gulf
commenced foreclosure proceedings on the mortgaged properties.
o ISSUES: (1) WON the inclusion of the “after acquired properties” in the mortgage is valid; (2) WON the mortgage was
valid considering the properties were not registered in accordance with the Chattel Mortgage Law; and (3) WON the
action to foreclose the properties was premature
o SC: (1)YES. Such stipulation was common and is neither unlawful nor immoral. Its purpose was to maintain the original
value of the properties given as security.
o SC: (2) YES. The Chattel Mortgage Law is inapplicable here. The said machineries are not movables but rather
immovables under Art. 415(5) of the Civil Code.
o SC: (3) NO. DALCO is contending that the mortgagees have no cause of action yet since the loan has not become due
and demandable yet when the latter initiated foreclosure proceedings. However, DALCO has already lost the benefit of
the period. As proven during the trial and the testimony of DALCO’s chairman, DALCO was already insolvent at the time
the mortgagees initiated foreclosure proceedings.

 Spouses Mojica v. Court of Appeals vs Rural Bank of Kawit, G.R. No. 94247, September 11, 1991
o Mortgage given for future advancements is a continuing security
o Spouses Mojica loaned P20,000 from the Bank and was secured by a parcel of land
o The Spouses were able to fully pay the P20,000 loan so they loaned another P18,000 from the Bank. There was no
formal deed of mortgage executed for the 2nd loan but in the promissory note, it was stated that the 2nd loan was
secured by a real estate mortgage.
o The Spouses defaulted so the Bank foreclosed the property and was the highest bidder in the auction; the redemption
period lapsed without the mortgagor spouses exercising their right of redemption
o After the redemption period, the son of the spouses made partial payments which was considered by the Bank as
deposit for the repurchase of the land
o When there was still a remaining balance of P21,000 for the repurchase, the Bank was issued a new TCT over the
purchased land.
o ISSUE: WON the 2nd loan was convered by the real estate mortgage in the 1st loan
o SC: YES! The document “Real Estate Mortgage” expressly stipulates that it serves as a guaranty “for the loan of
P20,000 and such other loans or advances already obtained or still to be obtained…”; hence, the mortgage which was
given to secure advancements is a continuing security and is not discharged by the payment of the amount named in
the mortgage but until the payment of the full amount of all other advancements made.
o Mojica vs People’s Bank
 In here: continuing security; present loan + future loans with only 1 security
 In People’s Bank: additional security; one loan with previously mortgaged property + after acquired properties
as security

 Santiago v. Pioneer Savings and Loan Bank, G.R. No. 77502, January 15, 1988

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o Dragnet clauses

 Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005

 Caltex v. Intermediate Appellate Court, G.R. No. 74730, August 25, 1989
 Gonzales v. Court of Appeals, G.R. No. 129090, April 30, 2003
o Loan was for Php 800,000
 Pineda v. Court of Appeals, G.R. No. 114172, August 25, 2003

Read also Act 3135 and Rule 68 of the Revised Rules of Civil Procedure

D. Chattel Mortagage (Act No. 1508, NCC Articles 2140 – 2141)

 Makati Leasing v. Wearever Textile, G.R. No. L-58469, May 16, 1983
o If the parties agreed that machinery is personal property and no right of innocent third persons will be prejudiced, then
the property can become the subject of a valid CM
o The mortgagor is now estopped from impugning the CM’s liability
o XPN to the GR that only movables can be subject to a CM
o Ma’am: why did the CA rule as such? Bc the property was immobilized by destination
 Torres v. Limjap, No. 34385, No. 34386, September 21, 1931
o Stipulation re: after acquired properties is valid and binding
o WON Sec. 7 of Act 1508 is applicable to revolving and floating businesses? NO, to rule otherwise would make it
necessary to close down such stores in order to subject it CM. Such would be contrary to the legislative intent to
promote trade and economic development
 Tumalad v. Vicencio, G.R. No. 30173, September 30, 1971
o House of mixed materials built on rented land can become subject of a CM
o Also, mortgagors are not entitled to pay rent to the mortgagee-purchaser during the period of redemption
o Rentals from lessees pertain still to the mortgagor during the redemption period since ownership still resides in him
o Ma’am: two factors were considered why such CM was allowed: (1) express stipulation; and (2) house was on rented lot
 Acme Shoe, Rubber & Plastic v. Court of Appeals, G.R. No. 103576, August 22, 1996
o CM cannot secure an after-incurred obli
o Affidavit of good faith required by the CM lae refers only to a current and existing obli
 Servicewide Specialists, Inc. v. Court of Appeals, G.R. No. 116363, December 10, 1999
o Mortgagee must give notice of assignment of mortgage credit to the mortgagors
o Mortgagors must first obtain consent of the mortgagee before alienating the mortgaged property
 Dy v. Court of Appeals, G.R. No. 92989, July 8, 1991
o Ma’am: Big “but” here is that the mortgagor must still obtain the consent of the mortgagee before alienating the
mortgaged property to a third person
o Failure to do so renders the mortgagor liable for criminal prosecution under Art. 319 of the RPC
 Pameca Wood Treatment Plant v. Court of Appeals, G.R. No. 106435, July 14, 1999
o In pledge, pledgor is not entitled to recover the deficiency since the sale of the property pledged extinguishes the
contract of pledge
o However in CM, the mortgage can still bring an action for the recovery of the deficiency even after foreclosing the
mortgaged property since the said mortgaged property is merely meant as a security for the principal obligation and
not as payment of the debt
o The prohibition on recovery of deficiency under Art. 1484 is only applicable to the sale of movables payable in
 Superlines Transportation v. ICC Leasing, G.R. No. 150673, February 28, 2003
o Similar to PAMECA
 California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, December 11, 2003
o Short version: CBLI owed Delta so it gave the latter 16 PNs; meanwhile, Delta was indebted to SIHI so Delta assigned the
5 PNs to SIHI as its payment; CBLI, despite knowing the assignment of the 5 PNs to SIHI, agreed in the compromise
agreement it entered into with Delta to have the latter foreclose all the buses it purchased; when SIHI went after CBLI
to collect the amounts covered by the 5 PNs, CBLI refused to pay, alleging that its obli was already discharged when
CBLI foreclosed its buses

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o SC ruled that CBLI’s contention was without merit since the assignment of the 5 PNs by Delta to SIHI created a distinct
and separate obligation on CBLI’s part. The assignment separated the 5 PNs from the 16 PNs.
o The extrajudicial foreclosure of Delta does not prejudice SIHI’s rights since the 5 PNs operated to create a separate
o Ma’am: previously there was no link between SIHI and CBLI but the assignment of the 5 out of 16 PNs by Delta to SIHI
connected SIHI and CBLI
o Ma’am: why did the foreclosure by Delta extinguish only CBLI’s obli to Delta and not SIHI? Bc the assignment of the 5
PNs separated it from the 16 PNs issued by CBLI

E. Antichresis (Articles 2132 – 2139)

 Pando v. Gimenez, G.R. No. 31816, February 15, 1930

o Mortgage became antichresis when creditor was given full administration of the mortgaged real property
o Creditor failed to comply with his obligations as an antichretic creditor so he is liable for damages
o Ma’am:
 Real contract? No.
 Formal? Yes. (2134) if not in writing, void!
 Accdg to De Leon, is delivery required? Yes, so that the creditor may receive the fruits (but not for perfection
of the contract)
 Is interest eesential? No.
 How do you apply the fruits? Actual market value during time of application
 Example: chili farm’s value appreciates -> use value at the time of application (higher value now)
 Who pays expenses and taxes? Creditor (2135)
 Can the debtor require return of immovable? Only upon satisfaction of the debt
 XPNs? If the creditor does not want to assume the obligations of paying the taxes and incurring the necessary
expenses, he can compel the debtor to take possession of the immovable
 XPN to XPN? Contrary stipulation
 Is pactum commissorium allowed in antichresis? No.
 Remedies of creditor? (1) action for specific performance or (2) foreclosure

II. DEPOSIT (Articles 1962 – 2009, 538, 559, 586, 2104)

 Bank of the Philippine Islands v. IAC, G.R. No. L-66826, August 19, 1988
o WON the contract was one of loan? GR: loan; XPN: deposit here bc the SC considered that the main purpose based on
the intention of the parties was safekeeping
o Ma’am disagrees with SC. Contract is loan bc (1) there is earning of interest and (2) not the exact same money will be
returned to the depositor
o Ma’am: this is not a good precedent! Most likely a loan
 Roman Catholic Bishop v. de la Pena, G.R. No. 6913, November 21, 1913
o Who bears the risk of loss in case the thing is lost without fault of the depositary? Depositor bc res perit domino
 CA Agro-Industrial Dev. Corp. v. Court of Appeals, G.R. No. 90027, March 3, 1993
o Contract of lease of safety deposit box is actually a contract of special deposit
 Javellana v. Lim, G.R. No. 4015, August 24, 1908
o Contract of deposit without interest that became a contract of deposit with interest upon extension was actually a
contract of loan
o When the depositary is given the authority to use the thing deposited, the contract loses its character as a deposit and
becomes either a loan or a commodatum
o Ma’am: what is the effect if loan? (1) allowed to use, (2) payment of interest and (3) not the exact same money is
 Chan v. Maceda, Jr., G.R. No. 142591, April 30, 2003
o No contract of deposit between Maceda and Chan
o Also, the alleged contract of deposit between Moreman and Chan was not duly proven
o Hence, Maceda has no cause of action against Chan, not being the contract of deposit’s depositor, assignee of the
depositor or heir of the depositor

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 YHT Realty Corp. v. Court of Appeals, G.R. No. 126780, February 17, 2005
o Waiver of liability of hotelkeepers is void
o Art. 2002, where a hotelkeeper would not be liable for loss or damage due to an act of the guest, servants or family,
only applies if the hotel itself was not guilty of concurrent negligence
 Triple-V Food Services, Inc. v. Filipino Merchants Insurance Corp., G.R. No. 160544, February 25, 2005
o Parking ticket as a contract of adhesion will be contrued in favor of the person who had to adhere
o Also, the parking ticket cannot absolve the restaurant from liability since
o The argument that the valet parking being free does not mean that the restaurant is an insurer of the vehicle is without
merit. A contract of deposit can be constituted without compensation. Besides, parking accomodations are one of
added attractions of a restaurant. A customer would fully expect the security of their vehicle inside the restaurant’s


*Memorize 2241 up to 2244.

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