Академический Документы
Профессиональный Документы
Культура Документы
(4) To order defendant Ching to pay In its order dated 15 August 1983, 19 the trial court
P10,000,000.00 under the Deed of denied the motion to dismiss with respect to Ching and a
Suretyship in the event plaintiff can rmed its dismissal of the case with respect to PBM. The
trial court stressed that TRB was holding Ching liable after the implementation of payments scheduled under the
under the Deed of Suretyship. As Ching's obligation was rehabilitation plan, there would remain a balance of PBM's
solidary, the trial court ruled that TRB could proceed debt to TRB. 24 Although Ching admitted PBM's availment
against Ching as surety upon default of the principal of the credit accommodations, he did not show any proof
debtor PBM. The trial court also held that PD No. 1758 of payment by PBM or by him.
applied only to corporations, partnership and associations TRB admitted certain partial payments on the PBM
and not to individuals.
account made by PBM itself and by the SEC-appointed
Upon the trial court's denial of his Motion for receiver. 25 Thus, the trial court had to resolve the
Reconsideration, Ching led a Petition for Certiorari and following remaining issues:
Prohibition 20 before the Court of Appeals. The appellate
1. How much exactly is the corporate
court granted Ching's petition and ordered the dismissal
defendant's outstanding obligation to
of the case. The appellate court ruled that the SEC
the plaintiff?
assumed jurisdiction over Ching and PBM to the exclusion
of courts or tribunals of coordinate rank. 2. Is defendant Alfredo Ching personally
answerable, and for exactly how
TRB assailed the Court of Appeals' Decision 21
much? 26
before this Court. In Traders Royal Bank v. Court of
Appeals, 22 this Court upheld TRB and ruled that Ching TRB presented Mr. Lauro Francisco, loan o cer of
was merely a nominal party in SEC Case No. 2250. the Remedial Management Department of TRB, and Ms.
Creditors may sue individual sureties of debtor Carla Pecson, manager of the International Department of
corporations, like Ching, in a separate proceeding before TRB, as witnesses. Both witnesses testified to the
regular courts despite the pendency of a case before the following:
SEC involving the debtor corporation.
1. The existence of a Deed of Suretyship dated 21 July
In his Answer dated 6 November 1989, Ching 1977 executed by Ching for PBM's liabilities to TRB up
denied liability as surety and accommodation co-maker of to P10,000,000; 27
PBM. He claimed that the SEC had already issued a 2. The application of PBM and grant by
decision TRB on 13 March 1980 of Letter of
23 approving a revised rehabilitation plan for PBM's Credit No. 479 AD for US$591,043,
creditors, and that PBM obtained the credit and the actual availment by PBM of
accommodations for corporate purposes that did not the full proceeds of the credit
redound to his personal bene t. He further claimed that accommodation; 28
even as a surety, he has the right to the defenses personal 3. The application of PBM and grant by
to PBM. Thus, his liability as surety would attach only if, TRB on 6 August 1980 of Letter of
Credit No. 563 AD for US$156,000, hereto attached schedule). The
and the actual availment by PBM of amount of P1.373 million shall be
the full proceeds of the credit considered as full payment of PBM's
accommodation; 29 and account. (The receiver is amenable to
this alternative)
4. The existence of a trust loan of
P3,500,000 evidenced by a notarized The initial deposit/remittance which
Promissory Note dated 27 April 1981 amounts to P150,000.00 shall be
wherein Ching bound himself remitted upon approval of the above
solidarily with PBM; 30 and and conforme to PISCOR and PBM.
Subsequent deposits shall start on the
5. Per TRB's computation, Ching is 3rd year and annually thereafter
liable for P19,333,558.16 as of 31 (every June 30th of the year) until
October 1991. 31 June 30, 2006.
Ching presented Atty. Vicente Aranda, corporate Failure to pay one annual installment
secretary and First Vice President of Human Resources shall make the whole obligation due
Department of TRB, as witness. Ching sought to establish and demandable.
that TRB's Board of Directors adopted a resolution xing
the PBM account at an amount lower than what TRB b) Write-off immediately P4.278 million.
wanted to collect from Ching. The trial court allowed Atty. The balance [of] P1.373 million to
Aranda to testify over TRB's manifestation that the remain outstanding in the books of the
Answer failed to plead the subject matter of his testimony. Bank. Said balance will equal the
Atty. Aranda produced TRB Board Resolution No. 5935, deposits to be remitted to the Bank for
series of 1990, which contained the minutes of the special a period of 17 years. 34
meeting of TRB's Board of Directors held on 8 June 1990. However, Atty. Aranda himself testi ed that both items
32 In the resolution, the Board of Directors advised TRB's (a) and (b) quoted above were never complied with or
Management "not to release Alfredo Ching from his JSS implemented. Not only was there no initial deposit of
liability to the bank." 33 The resolution also stated the P150,000 as required in the resolution, TRB also
following: disapproved the document prepared by the receiver,
which would have released Ching from his suretyship.
35
a) Accept the P1.373 million deposits The Ruling of the Trial Court
remitted over a period of 17 years or
until 2006 which shall be applied The trial court found Ching liable to TRB for
directly to the account (as remitted per P19,333,558.16 under the Deed of
Suretyship. The trial court explained: On appeal, Ching stated that as surety and solidary
debtor, he should bene t from the changed nature of the
[T]he liability of Ching as a surety attaches
obligation as provided in Article 1222 of the Civil Code,
independently from his capacity as a
which reads:
stockholder of the Philippine Blooming Mills.
Indisputably, under the Deed of Suretyship Article 1222. A solidary debtor may, in actions
defendant Ching unconditionally agreed to led by the creditor, avail himself of all defenses which
assume PBM's liability to the plaintiff in the are deprived from the nature of the obligation and of
event PBM defaulted in the payment of the those which are personal to him, or pertain to his own
said obligation in addition to whatever share. With respect to those which personally belong
penalties, expenses and bank charges that to the others, he may avail himself thereof only as
may occur by reason of default. Clear enough, regards that part of the debt for which that latter are
under the Deed of Suretyship (Exh. J), responsible.
defendant Ching bound himself jointly and
severally with PBM in the payment of the Ching claimed that his liability should likewise be
latter's obligation to the plaintiff. The obligation reduced since the equitable apportionment of PBM's
being solidary, the plaintiff Bank can hold remaining assets among its creditors under the
Ching liable upon default of the principal rehabilitation proceedings would have the effect of
debtor. This is explicitly provided in Article reducing PBM's liability. He also claimed that the amount
1216 of the New Civil Code already quoted for which he was being held liable was excessive. He
above. 36 contended that the outstanding principal balance, as stated
in TRB Board Resolution No. 5893-1990, was only
The dispositive portion of the trial court's Decision reads: P5,650,749.09. 38 Ching also contended that he was not
WHEREFORE, judgment is hereby rendered liable for interest, as the loan documents did not stipulate
declaring defendant Alfredo Ching liable to plaintiff the interest rate, pursuant to Article 1956 of the Civil Code.
bank in the amount of P19,333,558.16 (NINETEEN 39 Finally, Ching asserted that the Deed of Suretyship
MILLION THREE HUNDRED THIRTY THREE executed on 21 July 1977 could not guarantee obligations
THOUSAND FIVE HUNDRED FIFTY EIGHT & incurred after its execution. 40
16/100) as of October 31, 1991, and to pay the legal
TRB did not le its appellee's brief. Thus, the Court
interest thereon from such date until it is fully paid.
To pay plaintiff 5% of the entire amount by way of of Appeals resolved to submit the case for decision. 41
attorney's fees. The Court of Appeals considered the following issues for its
SO ORDERED. 37 determination:
The Ruling of the Court of Appeals 1. Whether the Answer of Ching amounted to an
admission of liability.
2. Whether Ching can still be sued as a surety after the The dispositive portion of the Decision of the Court
SEC placed PBM of Appeals reads:
under rehabilitation receivership, and if in the
WHEREFORE, the judgment of the
a
lower court is hereby AFFIRMED but modi
rmative, for how much. 42 ed with respect to the amount of liability of
defendant; Alfredo Ching which is lowered
The Court of Appeals resolved the rst two from P19,333;558.16 to P15,773,708.78 with
questions in favor of TRB, The appellate court stated: legal interest of 12% per annum until it is fully
paid.
Ching did not deny under oath the
genuineness and due execution of the L/Cs, SO ORDERED. 44
Trust Receipts, Undertaking, Deed of Surety,
and the 3.5 Million Peso Promissory Note The Court of Appeals denied Ching's Motion for
upon which TRB's action rested. He is, Reconsideration for lack of merit.
therefore; presumed to be liable unless he Hence, this petition.
presents evidence showing payment,
partially or in full, of these obligations Issues
(Investment and Underwriting Corporation of
the Philippines v. Comptronics Philippines, Ching assigns the following as errors of the Court of
Inc. and Gene v. Tamesis, 192 SCRA 725 Appeals:
[1990]). 1. THE COURT OF APPEALS
As surety of a corporation placed COMMITTED AN ERROR WHEN IT
under rehabilitation receivership, Ching can RULED THAT PETITIONER
answer separately for the obligations of ALFREDO CHING WAS LIABLE FOR
debtor PBM (Rizal Banking Corporation v. OBLIGATIONS CONTRACTED BY
Court of Appeals, Philippine Blooming Mills, PBM LONG AFTER THE
Inc., and Alfredo Ching, 178 SCRA 738 EXECUTION OF THE DEED OF
[1990], and Traders Royal Bank v. Philippine SURETYSHIP.
Blooming Mills and Alfredo Ching, 177 SCRA 2. THE COURT OF APPEALS
788 [1989]) COMMITTED AN ERROR WHEN IT
Even a[n] SEC injunctive order cannot RULED THAT THE PETITIONERS
suspend payment of the surety's obligation WERE LIABLE FOR THE TRUST
since the rehabilitation receivers are limited RECEIPTS DESPITE THE FACT
to the existing assets of the corporation. 43
THAT PRIVATE RESPONDENT HAD Traders Royal Bank v. Court of Appeals 46 constitutes res
PREVENTED THEIR FULFILLMENT. judicata between the parties. Therefore, TRB could
3. THE COURT OF APPEALS proceed against Ching separately from PBM to enforce in
COMMITTED AN ERROR WHEN IT full Ching's liability as surety. 47
FOUND PETITIONER ALFREDO CHING The Ruling of the Court
LIABLE FOR P15,773.708.78 WITH
LEGAL INTEREST AT 12% PER The petition has no merit.
ANNUM UNTIL FULLY PAID DESPITE
THE FACT THAT UNDER THE
The case before us is an offshoot of the trial court's
REHABILITATION PLAN OF denial of Ching's motion to have the case dismissed
PETITIONER PBM, WHICH WAS against him. The petition is a thinly veiled attempt to make
APPROVED BY THE SECURITIES AND this Court reconsider its decision in the prior case of
EXCHANGE COMMISSION, PRIVATE Traders Royal Bank v. Court of Appeals. 48 This Court has
RESPONDENT IS ONLY ENTITLED TO already resolved the issue of Ching's separate liability as
P1,373,415.00. 45 a surety despite the rehabilitation proceedings before the
SEC. We held in Traders Royal Bank that:
Ching asserted that the Deed of Suretyship dated 21 July
1977 could not answer for obligations not yet in existence Although Ching was impleaded in SEC
at the time of its execution. Speci cally, Ching maintained Case No. 2250, as a co-petitioner of PBM, the
that the Deed of Suretyship could not answer for debts SEC could not assume jurisdiction over his
contracted by PBM in 1980 and 1981. Ching contended person and properties. The Securities and
that no accessory contract of suretyship could arise Exchange Commission was empowered, as
without an existing principal contract of loan. Ching rehabilitation receiver, to take custody and
likewise argued that TRB could no longer claim on the control of the assets and properties of PBM
trust receipts because TRB had already taken the only, for the SEC has jurisdiction over
properties subject of the trust receipts. Ching likewise corporations only [and] not over private
maintained that his obligation as surety could not exceed individuals, except stockholders in an intra -
the P1,373,415 apportioned to PBM under the SEC- corporate dispute (Sec. 5, P.D. 902-A and Sec.
approved rehabilitation plan. 2 of P.D. 1758). Being a nominal party in SEC
Case No. 2250, Ching's properties were not
In its Comment, TRB asserted that the rst two included in the rehabilitation receivership that
assigned errors raised factual issues not brought before the SEC constituted to take custody of PBM's
the trial court. Furthermore, TRB pointed out that Ching assets. Therefore, the petitioner bank was not
never presented PBM's rehabilitation plan before the trial barred from ling a suit against Ching, as a
court. TRB also stated that the Supreme Court ruling in surety for PBM. An anomalous situation would
arise if individual sureties for debtor
corporations may escape liability by simply co- accommodations TRB extended to PBM. The decision
ling with the corporation a petition for amounts to res judicata 49 which bars Ching from raising
suspension of payments in the SEC whose
the same issue again. Hence, the only question that
jurisdiction is limited only to corporations and
their corporate assets. remains is the amount of Ching's liability. Nevertheless,
we shall resolve the issues Ching has raised in his
xxx xxx xxx
attempt to escape liability under his surety.
Ching can be sued separately to Whether Ching is liable for obligations PBM
enforce his liability as surety for PBM, as
contracted after execution of the Deed of
expressly provided by Article 1216 of the
Suretyship
New Civil Code.
Ching is liable for credit obligations contracted by
xxx xxx xxx
PBM against TRB before and after the execution of the 21
It is elementary that a corporation has July 1977 Deed of Suretyship. This is evident from the
a personality distinct and separate from its tenor of the deed itself, referring to amounts PBM "may
individual stockholders and members. Being now be indebted or may hereafter become indebted" to
an o cer or stockholder of a corporation does TRB.
not make one's property the property also of
the corporation, for they are separate entities The law expressly allows a suretyship for "future
(Adelio Cruz vs. Quiterio Dalisay, 152 SCRA debts". Article 2053 of the Civil Code provides:
482). A guaranty may also be given as
security for future debts, the amount of which
is not yet known; there can be no claim against
Ching's act of joining as a co-petitioner the guarantor until the debt is liquidated. A
with PBM is SEC Case No. 2250 did not vest conditional obligation may also be secure.
in the SEC jurisdiction over his person or (Emphasis supplied)
property, for jurisdiction does not depend on
the consent or acts of the parties but upon Furthermore, this Court has ruled in Diño v. Court
express provision of law (Tolentino vs. Social of Appeals 50 that:
Security System, 138 SCRA 428; Lee vs.
Under the Civil Code, a guaranty may
Municipal Trial Court of Legaspi City, Br. I, 145
be given to secure even future debts, the
SCRA 408). (Emphasis supplied)
amount of which may not be known at the
Traders Royal Bank has fully resolved the issue time the guaranty is executed. This is the
regarding Ching's liability as a surety of the credit basis for contracts denominated as
continuing guaranty or suretyship. A
continuing guaranty is one which is not
Whether Ching's liability is limited to the amount stated in
limited to a single transaction, but which
PBM's rehabilitation plan
contemplates a future course of dealing, Ching would like this Court to rule that his liability is
covering; a series of transactions, generally
limited, at most, to the amount stated in PBM's
for an inde nite time or until revoked. It is
rehabilitation plan. In claiming this reduced liability, Ching
prospective in its operation and is generally
intended to provide security with respect to invokes Article 1222 of the Civil Code which reads:
future transactions within certain limits, and Art. 1222. A solidary debtor may, in actions led by
contemplates a succession of liabilities, for the creditor, avail himself of all defenses which are
which, as they accrue, the guarantor derived from the nature of the obligation and of those
becomes liable. Otherwise stated, a which are personal to him, or pertain to his own share.
continuing guaranty is one which covers all With respect to those which personally belong to the
transactions, including those arising in the others, he may avail himself thereof only as regards
future, which are within the description or that part of the debt for which the latter are
contemplation of the contract of guaranty, responsible.
until the expiration or termination thereof. A In granting the loan to PBM, TRB required
guaranty shall be construed as continuing Ching's surety precisely to insure full recovery of the loan
when by the terms thereof it is evident that in case PBM becomes insolvent or fails to pay in full. This
the object is to give a standing credit to the was the very purpose of the surety. Thus, Ching cannot
principal debtor to be used from time to time use PBM's failure to pay in full as justification for his own
either inde nitely or until a certain period;
reduced liability to TRB. As surely, Ching agreed to pay in
especially if the right to recall the guaranty is
expressly reserved. Hence, where the full PBM's loan in case PBM fails to pay in full for any
contract states that the guaranty is to secure reason, including its insolvency.
advances to be made "from time to time," it TRB, as creditor, has the right under the surety to
will be construed to be a continuing one.
proceed against Ching for the entire amount of PBM's
In other jurisdictions, it has been held loan. This is clear from Article 1216 of the Civil Code:
that the use of particular words and
ART. 1216. The creditor may proceed
expressions such as payment of "any debt,"
against any one of the solidary debtors or
"any indebtedness," or "any sum," or the
some or all of them simultaneously. The
guaranty of "any transaction," or money to be
demand made against one of thetas shall not
furnished the principal debtor "at any time,"
be an obstacle to those which may
or "on such time" that the principal debtor
subsequently be directed against the others,
may require, have been construed to indicate
a continuing, guaranty.
so long as the debt has not been fully the conditions in the TRB board resolution presented by
collected. (Emphasis supplied) Ching were not met or implemented, thus:
Ching further claims a reduced liability under TRB ATTY. AZURA
Board Resolution No. 5935. This resolution states that
Q Going into the resolution itself. A certain
PBM's outstanding loans may be reduced to P1.373
stipulation ha[s] been outlined, and may
million subject to certain conditions like the payment of
I refer you to condition or step No. 1,
P150,000 initial payment. 51 The resolution also states which reads: "a) Accept the P1.373
that TRB should not release Ching's solidary liability under million deposits remitted over a period
his surety. The resolution even directs TRB's of 17 years or until 2006 which shall be
management to study Ching's criminal liability under the applied directly to the account (as
trust documents. 52 remitted per hereto attached schedule).
Ching's own witness testi ed that Resolution No. The amount of P1.373 million shall be
considered as full payment of PBM's
5935 was never implemented. For one, PBM or its
account. (The receiver is amenable to
receiver never paid the P150,000 initial payment to TRB.
this alternative.) The initial
TRB also rejected the document that PBM's receiver deposit/remittance which amounts to
presented which would have released Ching from his P150,000.00 shall be remitted upon
suretyship. Clearly, Ching cannot rely on Resolution No. approval of the above and conforme of
5935 to escape liability under his suretyship. PISCOR [. . .] and PBM. Subsequent
Ching's attempts to have this Court review the deposit shall start on the 3rd year and
annually thereafter (every June 30th of
factual issues of the case are improper. It is not a function
the year) until June 30, 2006.
of the Supreme Court to assess and evaluate again the
evidence, testimonial and evidentiary, adduced by the Failure to pay one annual installment
parties particularly where the findings of both the trial shall make the whole obligation due
court and the appellate court coincide on the matter. 53 and demandable. Now Mr. Witness,
would you be in a position to inform
Whether Ching is liable for the trust receipts [the court] if these conditions listed in
Ching is still liable for the amounts stated in the item (a) in Resolution No. 5935, series
letters of credit covered by the trust receipts. Other than of 1990, were implemented or met?
his bare allegations, Ching has not shown proof of A Yes. I know for a fact that the
payment or settlement with TRB. Atty. Vicente Aranda, conditions, more particularly the initial
TRB's corporate secretary and First Vice President of its deposit/remittance in the amount of
Human Resource Management Department, testi ed that
P150,000.00 which have to be done implement these conditionalities [sic]
with approval was not remitted or met. was because the former defendant
corporation requested that the
Q Will you clarify your answer. Would
suretyship of Alfredo Ching be
you be in a position to inform the released, is that correct?
court if those conditions were met?
Because your initial answer was yes. A I did not say that. I said that in effect
the document prepared by the lawyer
A Yes sir, I am in a position to state that these of the receiver . . . the bank would
conditions were not met. release the suretyship of Alfredo
Q Let me refer you to the condition listed Ching, that is why the bank is not
as item (b) of the same resolution amenable to such a document.
which I read and quote: "Write off Q Despite this approved resolution the
immediately P4.278 million. The bank, because of said requirement or
balance of P1.373 million to remain
conformity did not seek to implement
outstanding in the books of the bank.
Said balance will be remitted to the these conditionalities [sic]?
Bank for a period of 17 years." Mr. A Yes sir because the conditions
Witness, would you be in a position to imposed by the board is not being
inform the court if the bank followed in that document because it
implemented that particular condition? was the condition of the board that the
A In the implementation of this settlement suretyship should not be released but
the receiver prepared a document for the document being presented to the
bank for signature and conformity in
approval and conformity of the bank.
effect if signed would release the
The said document would in effect
suretyship. So it would be a violation
release the suretyship of Alfredo Ching
with the approval of the board so the
and for that reason the bank refused or
bank did not sign the conformity. 54
denied fixing its conformity and
approval with the court. Ching also claims that TRB prevented PBM from ful lling
its obligations under the trust receipts when TRB, together
xxx xxx xxx
with other creditor banks, took hold of PBM's inventories,
ATTY. ATIENZA ON REDIRECT EXAMINATION including the goods covered by the trust receipts. Ching
asserts that this act of TRB released him from liability
Q Mr. Witness you stated that the reason under the suretyship. Ching forgets that he executed, on
why the plaintiff bank did not behalf of PBM, separate Undertakings for each trust
receipt expressly granting to TRB the right to take different merchandise is used in
possession of the goods at any time to protect TRB's completing such manufacture. In the
interests. TRB may exercise such right without waiving its event of any suspension, or failure or
right to collect the full amount of the loan to PBM. The assignment for the bene t of creditors
Undertakings also provide that any suspension of on the part of the undersigned or of
payment or any assignment by PBM for the bene t of the non-ful llment of any obligation,
creditors renders the loan due and demandable. Thus, the or of the non-payment at maturity of
separate Undertakings uniformly provide: any acceptance made under said
credit, or any other credit issued by
the said BANK on account of the
2. That the said BANK may at any time undersigned or of the non-payment
cancel the foregoing trust and take of any indebtedness on the part of
possession of said merchandise with the undersigned to the said BANK,
the right to sell and dispose of the all obligations, acceptances,
same under such terms and indebtedness and liabilities
conditions it may deem best, or of the whatsoever shall thereupon without
proceeds of such of the same as may notice mature and become due and
then have been sold, wherever the payable and the BANK may avail of
said merchandise or proceeds may the remedies provided herein. 55
then be found and all the provisions (Emphasis supplied)
of the Trust Receipt shall apply to
Presidential Decree No. 115 ("PD No. 115"),
and be deemed to include said
otherwise known as the Trust Receipts Law, expressly
above-mentioned merchandise if the
same shall have been made up or allows TRB to take possession of the goods covered by
used in the manufacture of any other the trust receipts. Thus, Section 7 of PD No. 115 states:
goods, or merchandise, and the said SECTION 7. Rights of the entruster.
BANK shall have the same rights and — The entruster shall be entitled to the
remedies against the said proceeds from the sale of the goods,
merchandise in its manufactured documents or instruments released under a
state, or the product of said trust receipt to the entrustee to the extent of
manufacture as it would have had in the amount owing to the entruster or as
the event that such merchandise had appears in the trust receipt, or to the return
remained [in] its original state and of the goods, documents or instruments in
irrespective of the fact that other and case of non-sale, and to the enforcement of
all other rights conferred on him in the trust
receipt provided such are not contrary to the remained liable for the entire amount of the loans
provisions of this Decree. covered by they trust receipts.
The entruster may cancel the trust and take Absent goof of payment or settlement of PBM and
possession of the goods, documents or Ching's credit obligations with TRB, Ching's liability is
instruments subject of the trust or of the what the Deed of Suretyship stipulates, plus the
proceeds realized therefrom at any time upon
applicable interest and penalties. The trust receipts, as
default or failure of the entrustee to comply
with any of the terms and conditions of the trust
well as the Letter of Undertaking dated 16 April 1980
56 executed by PBM, stipulate in writing the payment of
receipt or any other agreement between the
entruster and the entrustee, and the entruster interest without specifying the rate. In such a case, the
in possession of the goods, documents or applicable interest rate shall be the legal rate, which is
instruments may, on or after default, give now 12% per annum. 57 This is in accordance with Central
notice to the entrustee of the intention to sell, Bank Circular No. 416, which states:
and may, not less than ve days after serving or
By virtue of the authority granted to it
sending of such notice, sell the goods,
under Section 1 of Act No. 2655, as
documents or instruments at public or private
amended, otherwise known as the "Usury
sale, and the entruster may, at a public sale,
become a purchaser. The proceeds of any Law," the Monetary Board, in its Resolution
such sale, whether public or private, shall be No. 1622 dated July 29, 1974, has
applied (a) to the payment of the expenses prescribed that the rate of interest for the
thereof, (b) to the payment of the expenses of loan or forbearance of any money, goods or
re-taking, keeping and storing the goods, credits and the rate allowed in judgments, in
documents or instruments; (c) to the the absence of express contract as to such
satisfaction of the entrustee's indebtedness to rate of interest, shall be twelve per cent
the entruster. The entrustee shall receive any (12%) per annum. (Emphasis supplied)
surplus but shall be liable to the entruster for On the other hand, the Promissory Note evidencing
any de ciency. Notice of sale shall be the P3,500,000 trust loan provides for 18% interest per
deemed su ciently given if in writing, and
annum plus 2% penalty interest per annum in case of
either personally served on the entrustee or
default. This stipulated interest should continue to run until
sent by post-paid ordinary mail to the
full payment of the P3,500,000 trust loan. In addition, the
entrustee's last known business address.
accrued interest on all the credit accommodations should
(Emphasis supplied)
earn legal interest from the date of filing of the complaint
Thus, even though TRB took possession of the goods pursuant to Article 2212 of the Civil Code.
covered by the trust receipts, PBM and Ching
Art. 2212. Interest due shall earn 2. On Trust Receipt No. 113 (Letter of Credit No.
legal interest from the time it is judicially 563 AD)
demanded, although the obligation may be
silent upon this point. Outstanding Principal P1,191,137.13
Accrued Interest (12%
The trial court found and the appellate court a rmed per annum) 338,739.82
that the outstanding principal amounts as of the ling of the 3. On the Trust Loan (Promissory
complaint with the trial court on 13 May 1983 were Note)
P959,611.96 under Trust Receipt No. 106, P1,191,137.13
under Trust Receipt No. 113, and P3,500,000 for the trust Outstanding Principal P3,500,000.00
loan. As extracted from TRB's Statement of Account as of Accrued Interest (18% per
31 October 1991, 58 the accrued interest on the trust annum) 1,287,616.44
receipts and the trust loan as of the Accrued Penalty Interest (2%
ling of the complaint on 13 May 1983 were P311,387.51 per annum) 137,315.07
59 under Trust Receipt No. 106, P338,739.81 60 under
Trust Receipt No. 113, and P1,287,616.44 61 under the WHEREFORE, we AFFIRM the decision of the Court
trust loan. The penalty interest on the trust loan amounted of Appeals with MODIFICATION. Petitioner Alfredo Ching
to P137,315.07. 62 Ching did not rebut this Statement of shall pay respondent Traders Royal Bank the following (1)
Account which TRB presented during trial. on the credit accommodations under the trust receipts, the
total principal amount of P2,150,749.09 with legal interest at
Thus, the following is the summary of Ching's 12% per annum from 14 May 1983 until full payment;
liability under the suretyship as of 13 (2) on the trust loan evidenced by the Promissory Note,
May, 1983, the date of filing of TRB's complaint with the the principal sum of P3,500,000 with 20% interest per
trial court: annum from 14 May 1983 until full payment; (3) on the
1. On Trust Receipt No. 106 (Letter of Credit No. total accrued interest as of 13 May 1983, P2,075,058.84
479 AD) with 12% interest per annum from 14 May 1983 until full
payment. Petitioner Alfredo Ching shall also pay
attorney's fees to respondent Traders Royal Bank
Outstanding Principal P959,611.96
Accrued Interest (12% per equivalent to 5% of the total principal and interest. AIcaDC
The Case
The Facts
Before us is a Petition for Review 1 under Rule 45
of the Rules of Court, assailing the February 28, 2002 The facts are narrated by the appellate court as
Decision 2 and September 30, 2003 Resolution 3 of the follows:
accrued interests. Despite such notice, PPIC
"On December 17, 1974, [Petitioner] failed to pay the loan and its interests.
International Finance Corporation (IFC) and
[Respondent] Philippine Polyamide Industrial "By virtue of PPIC's failure to pay, IFC,
Corporation (PPIC) entered into a loan together with DBP, applied for the
agreement wherein IFC extended to PPIC a extrajudicial foreclosure of mortgages on the
loan of US$7,000,000.00, payable in sixteen real estate, buildings, machinery, equipment
(16) semi-annual installments of US plant and all improvements owned by PPIC,
$437,500.00 each, beginning June 1, 1977 to located at Calamba, Laguna, with the
December 1, 1984, with interest at the rate of regional sheriff of Calamba, Laguna. On July
10% per annum on the principal amount of the 30, 1985, the deputy sheriff of Calamba,
loan advanced and outstanding from time to Laguna issued a notice of extrajudicial sale.
time. The interest shall be paid in US dollars IFC and DBP were the only bidders during
semi-annually on June 1 and December 1 in the auction sale. IFC's bid was for
each year and interest for any period less than P99,269,100.00 which was equivalent to
a year shall accrue and be pro-rated on the US$5,250,000.00 (at the prevailing
basis of a 360-day year of twelve 30-day exchange rate of P18.9084 = US$1.00). The
months. outstanding loan, however, amounted to US
$8,083,967.00 thus leaving a balance of
"On December 17, 1974, a US$2,833,967.00. PPIC failed to pay the
'Guarantee Agreement' was executed with . remaining balance.
. . Imperial Textile Mills, Inc. (ITM), Grand
Textile Manufacturing Corporation "Consequently, IFC demanded ITM
(Grandtex) and IFC as parties thereto. ITM and Grandtex, as guarantors of PPIC, to pay
and Grandtex agreed to guarantee PPIC's the outstanding balance. However, despite
obligations under the loan agreement. the demand made by IFC, the outstanding
balance remained unpaid.
"PPIC paid the installments due on
June 1, 1977, December 1, 1977 and June "Thereafter, on May 20, 1988, IFC led
1, 1978. The payments due on December 1, a complaint with the RTC of Manila against
1978, June 1, 1979 and December 1, 1979 PPIC and ITM for the payment of the
were rescheduled as requested by PPIC. outstanding balance plus interests and
Despite the rescheduling of the installment attorney's fees.
payments, however, PPIC defaulted. Hence,
"The trial court held PPIC liable for the
on April 1, 1985, IFC served a written notice
payment of the outstanding loan plus
of default to PPIC demanding the latter to
interests. It also ordered PPIC to pay IFC its
pay the outstanding principal loan and all its
claimed attorney's fees. However, the trial "III Whether or not the Petition raises a theory not raised
court relieved ITM of its obligation as . in the lower court."
guarantor. Hence, the trial court dismissed 12
IFC's complaint against ITM. The main issue is whether ITM is a surety, and
xxx xxx xxx thus solidarily liable with PPIC for the payment of the
loan.
"Thus, apropos the decision
dismissing the complaint against ITM, IFC The Court's Ruling
appealed [to the CA]." 5
The Petition is meritorious.
Ruling of the Court of Appeals
Main Issue:
The CA reversed the Decision of the trial court, insofar as Liability of Respondent Under
the latter exonerated ITM from any obligation to IFC. the Guarantee Agreement
According to the appellate court, ITM bound itself under
The present controversy arose from the following
the "Guarantee Agreement" to pay PPIC's obligation upon
Contracts: (1) the Loan Agreement dated December 17,
default. 6 ITM was not discharged from its obligation as
guarantor when PPIC mortgaged the latter's properties to 1974, between IFC and PPIC; 13 and (2) the Guarantee
IFC. 7 The CA, however, held that ITM's liability as a Agreement dated December 17, 1974, between ITM and
guarantor would arise only if and when PPIC could not Grandtex, on the one hand, and IFC on the other. 14
pay. Since PPIC's inability to comply with its obligation IFC claims that, under the Guarantee Agreement,
was not su ciently established, ITM could not immediately ITM bound itself as a surety to PPIC's obligations
be made to assume the liability. 8 proceeding from the Loan Agreement. 15 For its part, ITM
The September 30, 2003 Resolution of the CA asserts that, by the terms of the Guarantee Agreement, it
was merely a guarantor 16 and not a surety. Moreover, any
denied reconsideration. 9 Hence, this Petition. 10
ambiguity in the Agreement should be construed against
The IFC — the party that drafted it. 17
Issues
Language of the
Petitioner states the issues in this wise: Contract
Whether or not ITM and Grandtex 11 are sureties and
"I. therefore, jointly and The premise of the Guarantee Agreement is found
severally liable with PPIC, for the payment of the in its preambular clause, which
loan. TaIHEA
reads:
12. ID.; ID.; EXEMPLARY OR After the joinder of issues following the ling by
CORRECTIVE DAMAGES; AWARDED IN CASE AT the parties of their respective pleadings, the trial court
BAR. — Exemplary or corrective damages in the conducted a pre- trial where CUBA and DBP agreed
amount of P25,000 should likewise be awarded by way on the following facts, which were embodied in the pre-
of example or correction for the public good. trial order: 2
13. ID.; ID.; ATTORNEY'S FEE; 1. Plaintiff Lydia P. Cuba is a grantee of
RECOVERABLE WHERE THERE IS AWARD OF a Fishpond Lease Agreement No.
EXEMPLARY DAMAGES. — There being an award of 2083 (new) dated May 13, 1974 from
exemplary damages, attorney's fees are also the Government;
recoverable. 2. Plaintiff Lydia P. Cuba obtained loans
from the Development Bank of the
Philippines in the amounts of
DECISION P109,000.00; P109,000.00; and
P98,700.00 under the terms stated in
the Promissory Notes dated
DAVIDE, JR., J :
p
September 6, 1974; August 11, 1975;
and April 4, 1977;
3. As security for said loans, plaintiff Agreement No. 2083-A dated March
Lydia P. Cuba executed two Deeds 24, 1980 was issued by the Ministry of
of Assignment of her Leasehold Agriculture and Food in favor of
Rights; plaintiff Lydia Cuba only, excluding
her husband;
4. Plaintiff failed to pay her loan on the
scheduled dates thereof in 9. Plaintiff Lydia Cuba failed to pay the
accordance with the terms of the amortizations stipulated in the Deed
Promissory Notes; of Conditional Sale;
5. Without foreclosure proceedings, 10. After plaintiff Lydia Cuba failed to pay
whether judicial or extra-judicial, the amortization as stated in Deed of
defendant DBP appropriated the Conditional Sale, she entered with the
leasehold Rights of plaintiff Lydia DBP a temporary arrangement
Cuba over the fishpond in question; whereby in consideration for the
6. After defendant DBP has appropriated the deferment of the Notarial Rescission of
Leasehold Rights of plaintiff Deed of Conditional Sale, plaintiff
Lydia Cuba over the shpond in Lydia Cuba promised to make certain
question, defendant DBP, in turn, payments as stated in temporary
executed a Deed of Conditional Sale Arrangement dated February 23, 1982;
of the Leasehold Rights in favor of
plaintiff Lydia Cuba over the same 11. Defendant DBP thereafter sent a
fishpond in question; Notice of Rescission thru Notarial Act
7. In the negotiation for repurchase, dated March 13, 1984, and which
plaintiff Lydia Cuba addressed two was received by plaintiff Lydia Cuba;
letters to the Manager DBP, Dagupan 12. After the Notice of Rescission,
City dated November 6, 1979 and
defendant DBP took possession of
December 20, 1979. DBP thereafter
the Leasehold Rights of the fishpond
accepted the offer to repurchase in a
in question;
letter addressed to plaintiff dated
February 1, 1982; 13. That after defendant DBP took possession
of the Leasehold Rights over
8. After the Deed of Conditional Sale was
the shpond in question, DBP
executed in favor of plaintiff Lydia
advertised in the SUNDAY PUNCH
Cuba, a new Fishpond Lease
the public bidding dated June 24,
It disagreed with DBP's stand that the Assignments of
1984, to dispose of the property;
Leasehold Rights were not contracts of mortgage
14. That the DBP thereafter executed a because (1) they were given as security for loans (2)
Deed of Conditional Sale in favor of although the "' shpond land"' in question is still a public
defendant Agripina Caperal on land, CUBA's leasehold rights and interest thereon are
August 6, 1984; alienable rights which can be the proper subject of a
mortgage; and
15. Thereafter, defendant Caperal was
(3) the intention of the contracting parties to treat the
awarded Fishpond Lease Agreement
Assignment of Leasehold Rights as a mortgage was
No. 2083-A on December 28, 1984 by
obvious and unmistakable; hence, upon CUBA's
the Ministry of Agriculture and Food. default, DBP's only right was to foreclose the
Defendant Caperal admitted only the facts Assignment in accordance with law.
stated in paragraphs 14 and 15 of the pre-trial order. 3 The trial court also declared invalid condition no.
Trial was thereafter had on other matters. 12 of the Assignment of Leasehold Rights for being a
clear case of pactum commissorium expressly
The principal issue presented was whether the prohibited and declared null and void by Article 2088
act of DBP in appropriating to itself CUBA's leasehold of the Civil Code. It then concluded that since DBP
rights over the shpond in question without foreclosure never acquired lawful ownership of CUBA's leasehold
proceedings was contrary to Article 2088 of the Civil rights, all acts of ownership and possession by the said
Code and, therefore, invalid. CUBA insisted on an a bank were void. Accordingly, the Deed of Conditional
rmative resolution. DBP stressed that it merely Sale in favor of CUBA, the notarial rescission of such
exercised its contractual right under the Assignments sale, and the Deed of Conditional Sale in favor of
of Leasehold Rights, which was not a contract of defendant Caperal, as well as the Assignment of
mortgage. Defendant Caperal sided with DBP. Leasehold Rights executed by Caperal in favor of
The trial court resolved the issue in favor of DBP, were also void and ineffective.
CUBA by declaring that DBP's taking possession and As to damages, the trial court found "ample evidence
ownership of the property without foreclosure was on record" that in 1984 the representatives of DBP
plainly violative of Article 2088 of the Civil Code which ejected CUBA and her caretakers not only from the
provides as follows: shpond area but also from the adjoining big house;
and that when CUBA's son and caretaker went there
ART. 2088. The creditor cannot on 15 September 1985, they found the said house
appropriate the things given by way of unoccupied and destroyed and CUBA's personal
pledge or mortgage, or dispose of them. Any belongings, machineries, equipment, tools, and other
stipulation to the contrary is null and void.
articles used in shpond operation which were kept in WHEREFORE, judgment is hereby rendered
the house were missing. The missing items were in favor of plaintiff:
valued at about P550,000. It further found that when
1. DECLARING null and void and
CUBA and her men were ejected by DBP for the rst
without any legal effect the act of
time in 1979, CUBA had stocked the shpond with defendant Development Bank of
250,000 pieces of bangus sh (milk sh), all of which the Philippines in appropriating
died because the DBP representatives prevented for its own interest, without any
CUBA's men from feeding the sh. At the conservative judicial or extra-judicial
price of P3.00 per sh, the gross value would have been foreclosure, plaintiffs leasehold
P690,000, and after deducting 25% of said value as rights and interest over the
reasonable allowance for the cost of feeds, CUBA shpond land in question under
suffered a loss of P517,500. It then set the aggregate her Fishpond Lease Agreement
of the actual damages sustained by CUBA at No. 2083 (new);
P1,067,500.
2. DECLARING the Deed of
The trial court further found that DBP was guilty Conditional Sale dated
of gross bad faith in falsely representing to the Bureau February 21, 1980 by and
of Fisheries that it had foreclosed its mortgage on between the defendant
CUBA's leasehold rights. Such representation induced Development Bank of the
the said Bureau to terminate CUBA's leasehold rights Philippines and plaintiff (Exh. E
and to approve the Deed of Conditional Sale in favor and Exh. 1) and the acts of
of CUBA. And considering that by reason of her notarial rescission of the
unlawful ejectment by DBP, CUBA "suffered moral Development Bank of the
shock, degradation, social humiliation, and serious Philippines relative to said sale
anxieties for which she became sick and had to be (Exhs. 16 and 26) as void and
hospitalized" the trial court found her entitled to moral ineffective;
and exemplary damages. The trial court also held that
3. DECLARING the Deed of
CUBA was entitled to P100,000 attorney's fees in view
Conditional Sale dated August
of the considerable expenses she incurred for lawyers' 16, 1984 by and between the
fees and in view of the finding that she was entitled to Development Bank of the
exemplary damages. Philippines and defendant
In its decision of 31 January 1990, 4 the trial court Agripina Caperal (Exh. F and
disposed as follows: Exh. 21), the Fishpond Lease
Agreement No. 2083-A dated
December 28, 1984 of
defendant Agripina Caperal b) The sum of ONE
(Exh. 23) and the Assignment HUNDRED
of Leasehold Rights dated THOUSAND
February 12, 1985 executed by (P100,000.00) PESOS
defendant Agripina Caperal in
as moral damages;
favor of the defendant
Development Bank of the c) The sum of FIFTY
Philippines (Exh. 24) as void ab THOUSAND
initio;
cdtai
(P50,000.00) PESOS,
4. ORDERING defendant as and for exemplary
Development Bank of the damages;
Philippines and defendant d) And the sum of ONE
Agripina Caperal, jointly and
HUNDRED
severally, to restore to plaintiff
THOUSAND
the latter's leasehold rights and
interests and right of (P100,000.00) PESOS,
possession over the shpond as and for attorney's
land in question, without fees;
prejudice to the right of 6. And ORDERING defendant
defendant Development Bank Development Bank of the
of the Philippines to foreclose Philippines to reimburse and
the securities given by plaintiff; pay to defendant Agripina
5. ORDERING defendant Caperal the sum of ONE
Development Bank of the Philippines MILLION FIVE HUNDRED
to pay to plaintiff the following THIRTY-TWO THOUSAND
amounts: SIX HUNDRED TEN PESOS
AND SEVENTY-FIVE
a) The sum of ONE CENTAVOS (P1,532,610.75)
MILLION SIXTY- representing the amounts paid
SEVEN THOUSAND by defendant Agripina Caperal
FIVE HUNDRED to defendant Development
PESOS Bank of the Philippines under
(P1,067,500.00), as and their Deed of Conditional Sale.
for actual damages;
CUBA and DBP interposed separate appeals executed by Cuba in favor of DBP; (3) the deed of
from the decision to the Court of Appeals. The former conditional sale between CUBA and DBP; and (4) the
sought an increase in the amount of damages, while deed of conditional sale between DBP and Caperal,
the latter questioned the findings of fact and law of the the Fishpond Lease Agreement in favor of Caperal,
lower court. and the assignment of leasehold rights executed by
Caperal in favor of DBP. It then ordered DBP to turn
In its decision 5 of 25 May 1994, the Court of
over possession of the property to Caperal as lawful
Appeals ruled that (1) the trial court erred in declaring
holder of the leasehold rights and to pay CUBA the
that the deed of assignment was null and void and that
following amounts: (a) P1,067,500 as actual damages;
defendant Caperal could not validly acquire the
leasehold rights from DBP; (2) contrary to the claim of P50,000 as moral damages; and P50,000 as
DBP, the assignment was not a cession under Article attorney's fees.
1255 of the Civil Code because DBP appeared to be Since their motions for reconsideration were denied, 6
the sole creditor to CUBA — cession presupposes DBP and CUBA filed separate petitions for review.
plurality of debts and creditors; (3) the deeds of In its petition (G.R. No. 118342), DBP assails
assignment represented the voluntary act of CUBA in the award of actual and moral damages and attorney's
assigning her property rights in payment of her debts,
fees in favor of CUBA.
which amounted to a novation of the promissory notes
executed by CUBA in favor of DBP; (4) CUBA was Upon the other hand, in her petition (G.R. No.
estopped from questioning the assignment of the 118367), CUBA contends that the Court of Appeals
leasehold rights, since she agreed to repurchase the erred (1) in not holding that the questioned deed of
said rights under a deed of conditional sale; and (5) assignment was a pactum commissorium contrary to
condition no. 12 of the deed of assignment was an Article 2088 of the Civil Code; (b) in holding that the
express authority from CUBA for DBP to sell whatever deed of assignment effected a novation of the
right she had over the shpond. It also ruled that CUBA promissory notes; (c) in holding that CUBA was
was not entitled to loss of pro ts for lack of evidence, estopped from questioning the validity of the deed of
but agreed with the trial court as to the actual damages assignment when she agreed to repurchase her
of P1,067,500. It, however, deleted the amount of leasehold rights under a deed of conditional sale; and
exemplary damages and reduced the award of moral (d) in reducing the amounts of moral damages and
damages from P100,000 to P50,000 and attorney's attorney's fees, in deleting the award of exemplary
fees, from P100.00 to P50,000. damages, and in not increasing the amount of
damages.
The Court of Appeals thus declared as valid the
following: (1) the act of DBP in appropriating Cuba's We agree with CUBA that the assignment of
leasehold rights and interest under Fishpond Lease leasehold rights was mortgage contract.
Agreement No. 2083; (2) the deeds of assignment
It is undisputed that CUBA obtained from DBP In People's Bank & Trust Co . vs. Odom, 9 this
three separate loans totalling P335,000, each of which Court had the occasion to rule that an assignment to
was covered by a promissory note. In all of these guarantee an obligation is in effect a mortgage.
notes, there was a provision that: "In the event of We nd no merit in DBP's contention that the
foreclosure of the mortgage securing this notes, I/We assignment novated the promissory notes in that the
further bind myself/ourselves, jointly and severally, to obligation to pay a sum of money the loans (under the
pay the deficiency, if any." 7 promissory notes) was substituted by the assignment
Simultaneous with the execution of the notes of the rights over the shpond (under the deed of
was the execution of "Assignments of Leasehold assignment). As correctly pointed out by CUBA, the
Rights" 8 where CUBA assigned her leasehold rights said assignment merely complemented or
and interest on a 44-hectare fishpond, together with supplemented the notes; both could stand together.
the improvements thereon. As pointed out by CUBA, The former was only an accessory to the latter.
the deeds of assignment constantly referred to the Contrary to DBP's submission, the obligation to pay a
assignor (CUBA) as "borrower"; the assigned rights, as sum of money remained, and the assignment merely
mortgaged properties; and the instrument itself, as served as security for the loans covered by the
mortgage contract. Moreover, under condition no. 22 promissory notes. Signi cantly, both the deeds of
of the deed, it was provided that "failure to comply with assignment and the promissory notes were executed
the terms and condition of any of the loans shall cause on the same dates the loans were granted. Also, the
all other loans to become due and demandable and all last paragraph of the assignment stated: "The assignor
mortgages shall be foreclosed." And, condition no. 33 further reiterates and states all terms, covenants and
provided that if " foreclosure is actually accomplished, conditions stipulated in the promissory note or notes
the usual 10% attorney's fees and 10% liquidated covering the proceeds of this loan, making said
damages of the total obligation shall be imposed." promissory note or notes, to all intent and purposes,
There is, therefore, no shred of doubt that a mortgage an integral part hereof."
was intended. Neither did the assignment amount to payment
Besides, in their stipulation of facts the parties by cession under Article 1255 of the Civil Code for the
admitted that the assignment was by way of security plain and simple reason that there was only one
for the payment of the loans; thus: creditor, the DBP. Article 1255 contemplates the
existence of two or more creditors and involves the
3. As security for said loans, plaintiff assignment of all the debtor's property.
Lydia P. Cuba executed two Deeds
Nor did the assignment constitute dation in
of Assignment of her Leasehold
payment under Article 1245 of the Civil Code, which
Rights. LibLex
SYNOPSIS
SO ORDERED. LLphil
CARPIO-MORALES, J : p
But neither is a judgment on the pleadings Civil Case No. 9322 is REMANDED to the
proper. A judgment on the pleadings may be rendered court of origin only for the purpose of receiving
only when an answer fails to tender an issue or evidence on petitioners' prayer for accounting.
otherwise admits the material allegations of the
SO ORDERED. THIRD DIVISION
Quisumbing, Tinga, Velasco, Jr. and
Brion, JJ., concur. [G.R. No. 132287. January 24, 2006.]
SYLLABUS
Since the pledged shares in this case are not and not the pledgor, who is given the right to choose
subject to redemption, the Court of Appeals had no which of the items should be sold if two or more things are
business invoking and applying the inexistent right of pledged. 15 No similar option is given to pledgors under
redemption. We cannot thus agree that the consigned the Civil Code. Moreover, there is nothing in the Civil
payments should be treated with liberality, or somehow Code provisions governing the extrajudicial sale of
construed as having been made in the exercise of the right pledged properties that prohibits the pledgee of several
of redemption. We also must reject the appellate court's different pledge contracts from auctioning all of the
declaration that the buyer of at the public auction is not pledged properties on a single occasion, or from the buyer
at the auction sale in purchasing all the pledged
"ipso facto" rendered the owner of the auctioned shares,
properties with a single purchase price. The relative
since the debtor enjoys the one-year redemptive period to
insignificance of ascertaining the definite apportionments
redeem the property. Obviously, since there is no right to
of the sale price to the individual shares lies in the fact
redeem personal property, the rights of ownership vested
that once a pledged item is sold at auction, neither the
unto the purchaser at the foreclosure sale are not pledgee nor the pledgor can recover whatever de ciency
or excess there may be between the purchase price and only until the debt is paid. Article 2105 of the Civil Code
the amount of the principal obligation. 16 further clari es that the debtor cannot ask for the return of
the thing pledged against the will of the creditor, unless
A different ruling though would obtain if at the
and until he has paid the debt and its interest. At the same
auction, a bidder expressed the desire to bid on a
time, the right of the pledgee to foreclose the pledge is
determinate number or portion of the pledged shares. In
also established under the Civil Code. When the credit
such a case, there may lie the need to ascertain with
has not been satis ed in due time, the creditor may
particularity which of the shares are covered by the bid
proceed with the sale by public auction under the
price, since not all of the shares may be sold at the auction
procedure provided under Article 2112 of the Code. IaAEHD
correctness of its conclusion. We may consider such The trial court held that the true agreement between the
procedure as analogous to the rule that an unassigned parties therein was that Gaborro would assume and pay
error closely related to an error properly assigned, or the indebtedness of Dizon to the banks and, in
upon which the determination of the question properly consideration thereof, Gaborro was given the
assigned is dependent, may be considered by an possession and enjoyment of the properties in question
appellate court. 9 We adopt this approach since, after until Dizon shall have reimbursed him for the amount
all, both lower courts agreed upon the invalidity of the paid to the creditor banks. Accordingly, the trial court
extrajudicial foreclosure but differed only on the matter ordered the reformation of the documents to the extent
of the validity of the real estate mortgage upon which indicated and such particular relief was affirmed by the
the extrajudicial foreclosure was based. Court of Appeals. This Court held that the agreement
In arriving at its conclusion, respondent court placed full between the parties is one of those innominate
reliance on what obviously is an obiter dictum laid down contracts under Article 1307 of the Civil Code whereby
in the course of the disquisition in Dizon vs. Gaborro, et the parties agreed "to give and to do" certain rights and
al. which we shall analyze. 10 For, as explicitly stated obligations, but partaking of the nature of antichresis.
therein by the Court, "(t)he basic issue to be resolved in
this case is whether the 'Deed of Sale with Assumption
Hence, on appeal to this Court, the judgment of the "Upon foreclosure and sale, the purchaser is entitled to
a certificate of sale executed by the sheriff. (Section 27,
Court of Appeals in that case was affirmed but with
Revised Rules of Court) . After the termination of the
the following pronouncements: period of redemption and no redemption having been
made, the purchaser is entitled to a deed of conveyance
"The two instruments sought to be reformed
and to the possession of the properties. (Section 35,
in this case appear to stipulate rights and Revised Rules of Court) . The weight of authority is to
obligations between the parties thereto the effect that the purchaser of land sold at public
pertaining to and involving parcels of land auction under a writ of execution has only an inchoate
that had already been foreclosed and sold right to the property, subject to be defeated and
extrajudicially, and purchased by the terminated within the period of 12 months from the date
mortgage creditor, a third party. It becomes, of sale, by a redemption on the part of the owner.
therefore, necessary, to determine the Therefore, the judgment debtor in possession of the
property is entitled to remain therein during the period
legality of said rights and obligations arising
for redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89;
from the foreclosure and sale proceedings
Gonzales vs. Calimbas, 51 Phil. 355).
not only between the two contracting parties
to the instruments executed between them "In the case before Us, after the
but also in so far as the agreement affects extrajudicial foreclosure and sale of his
the rights of the third party, the purchaser properties, petitioner Dizon retained the
Bank. right to redeem the lands, the possession,
xxx xxx xxx use and enjoyment of the same during the
period of redemption. And these are the
"Under the Revised Rules of Court, Rule only rights that Dizon could legally transfer,
39, Section 33, the judgment debtor cede and convey unto respondent Gaborro
remains in possession of the property under the instrument captioned Deed of
foreclosed and sold, during the period of Sale with Assumption of Mortgage (Exh. A-
redemption. If the judgment debtor is in Stipulation), likewise the same rights that
possession of the property sold, he is said respondent could acquire in
entitled to retain it, and receive the fruits, consideration of the latter's promise to pay
the purchaser not being entitled to such and assume the loan of petitioner Dizon
possession. (Riosa vs. Verzosa, 26 Phil. with DBP and PNB.
86; Velasco vs. Rosenberg's, Inc., 32 Phil.
"Such an instrument cannot be legally
72; Pabico vs. Pauco, 43 Phil. 572; Power
considered a real and unconditional sale of
vs. PNB, 54 Phil. 54; Gorospe vs.
the parcels of land, firstly, because there was
Gochangco, L-12735, Oct. 30, 1959).
absolutely no money consideration therefor,
xxx xxx xxx as admittedly stipulated, the sum of
P131,831.91 mentioned in the document as in the lienholder but only after the lapse of the period of
the consideration `receipt of which was redemption. Even on that score, it may plausibly be
acknowledged' was not actually paid; and, argued that what is delimited is not the mortgagor's jus
secondly, because the properties had already disponendi, as an attribute of ownership, but merely the
been previously sold by the sheriff at the rights conferred by such act of disposal which may
foreclosure sale, thereby divesting the correspondingly be restricted.
petitioner of his full right as owner thereof to
dispose and sell the lands." (Emphasis ours.) At any rate, even the foregoing considerations and
arguments would have no application in the case at bar
It was apparently the second reason stated by the and need not here be resolved since what is presently
Court in said case which was relied upon by involved is a mortgage, not a sale, to petitioner bank.
respondent court in the present case on which to Such mortgage does not involve a transfer, cession or
premise its conclusion. Yet, as demonstrated by the conveyance of the property but only constitutes a lien
relevant excerpts above quoted, not only was that thereon. There is no obstacle to the legal creation of
obiter therein unnecessary since evidently no sale was such a lien even after the auction sale of the property
concluded, but even inaccurate, if not inconsistent,
but during the redemption period, since no distinction is
when considered in the context of the discussion in its made between a mortgage constituted over the property
entirety. If, as admitted, the purchaser at the
before or after the auction sale thereof.
foreclosure sale merely acquired an inchoate right to
the property which could ripen into ownership only
upon the lapse of the redemption period without his
Thus, a redemptioner is defined as a creditor having a
credit having been discharged, it is illogical to hold that
lien by attachment, judgment or mortgage on the
during that same period of twelve months the
mortgagor was "divested" of his ownership, since the property sold, or on some part thereof, subsequent to
absurd result would be that the land will consequently the judgment under which the property was sold. 11 Of
be without an owner although it remains registered in course, while in extrajudicial foreclosure the sale
the name of the mortgagor. contemplated is not under a judgment but the
proceeding pursuant to which the mortgaged property
That is why the discussion in said case carefully and was sold, a subsequent mortgage could nevertheless
felicitously states that what is divested from the be legally constituted thereafter with the subsequent
mortgagor is only his "full right as owner thereof to mortgagee becoming and acquiring the rights of a
dispose (of) and sell the lands," in effect, merely redemptioner, aside from his right against the
clarifying that the mortgagor does not have the mortgagor. prcd
Melencio-Herrera, Paras, Padilla and Nocon, JJ ., concur. SPS. ESMERALDO and ELIZABETH
SUICO, petitioners, vs. PHILIPPINE
NATIONAL BANK and HON. COURT OF
APPEALS, respondents.
DECISION
CHICO-NAZARIO, J : p
City Sheriff in favor of PNB. PNB did not pay to the Sheriff
TAX DECL. NO. 00721 who conducted the auction sale the amount of its bid
which was P8,511,000.00 or give an accounting of how
"Two (2) parcels of land situated at Tabok,
said amount was applied against petitioners' outstanding
Mandaue City, Cad. lot nos. 700-C-3 and 700-
loan, which, as of 10 March 1992, amounted only to
C-2; bounded on the North by Lot Nos. 700-C-
P1,991,770.38. Since the amount of the bid grossly
1 and 700-B; on the South by Lot No. 700-D;
on the East by Lot Nos. 695 and 694; and on
exceeded the amount of petitioners' outstanding
the West by Lot Nos. 688 and 700-C-1, obligation as stated in the extrajudicial foreclosure of
containing an aggregate area of 1,683 sq. m. mortgage, it was the legal duty of the winning bidder, PNB,
more or less." to deliver to the Mandaue City Sheriff the bid price or what
IDaEHS
was left thereof after deducting the amount of petitioners'
TAX DECL. NO. 0237 outstanding obligation. PNB failed to deliver the amount
of their bid to the Mandaue City Sheriff or, at the very least,
the amount of such bid in excess of petitioners' ' Ordering the [PNB] to pay
outstanding obligation. [petitioners] moral damages
amounting to more than
One year after the issuance of the Certi cate of
P1,000,000.00; Exemplary
Sale, PNB secured a Certi cate of Final Sale from the
damages of P500,000.00;
Mandaue City Sheriff and, as a result, PNB transferred
Litigation expenses of
registration of all the subject properties to its name.
HDAaIc
In granting the nulli cation of the extrajudicial A careful scrutiny of the evidence
foreclosure of mortgage, the RTC reasoned that given that extant on record would show that in a letter
dated January 12, 1994, [petitioners] alleged surplus from the [PNB]. This ruling is in
expressly admitted that their outstanding harmony with the decisional rule that in suing
principal obligation amounted to P5.4 Million for the return of the surplus proceeds, the
and in fact offered to redeem the properties mortgagor is deemed to have a rmed the
at P6.5 Million. They eventually increased validity of the sale since nothing is due if no
their offer at P7.5 Million as evidenced by valid sale has been made. 16 aIHCSA
Even assuming that indeed there was a Un inching, petitioners elevated the case before this
surplus and the [PNB] is retaining more than Court via the present Petition for Review essentially
the proceeds of the sale than it is entitled, this seeking the nulli cation of the extrajudicial foreclosure of
fact alone will not affect the validity of the sale the mortgage constituted on the subject properties.
but simply gives the [petitioners] a cause of Petitioners forward two reasons for declaring null and void
action to recover such surplus. In ne, the the said extrajudicial foreclosure: (1) the alleged defect or
failure of the [PNB] to remit the surplus, if any, misrepresentation in the notice of sheriff's sale; and/or (2)
is not tantamount to a non-compliance of failure of PNB to pay and tender the price of its bid or the
statutory requisites that could constitute a surplus thereof to the sheriff.
jurisdictional defect invalidating the sale. This Petitioners argue that since the Notice of Sheriff's
situation only gives rise to a cause of action on
Sale stated that their obligation was only P1,991,770.38
the part of the [petitioners] to recover the
and PNB bidded P8,511,000.00, the said Notice as well validity of the notice, and also to the sale made pursuant
as the consequent sale of the subject properties were null thereto. 21
and void.
All these considered, we are of the view that the
It is true that statutory provisions governing
Notice of Sale in this case is valid. Petitioners failed to
publication of notice of mortgage foreclosure sales must
convince this Court that the difference between the
be strictly complied with, and that even slight deviations
amount stated in the Notice of Sale and the amount of
therefrom will invalidate the notice and render the sale at
PNB's bid resulted in discouraging or misleading bidders,
least voidable. 19 Nonetheless, we must not also lose sight
depreciated the value of the property or prevented it from
of the fact that the purpose of the publication of the Notice
commanding a fair price.
of Sheriff's Sale is to inform all interested parties of the
DaScCH
date, time and place of the foreclosure sale of the real The cases cited by the RTC in its Decision do not
property subject thereof. Logically, this not only requires apply herein. San Jose v. Court of Appeals 22 refers to a
that the correct date, time and place of the foreclosure Notice of Sheriff's Sale which did not state the correct
sale appear in the notice, but also that any and all number of the transfer certi cates of title of the property to
interested parties be able to determine that what is about be sold. This Court considered the oversight as a
to be sold at the foreclosure sale is the real property in substantial and fatal error which resulted in invalidating
which they have an interest. 20 the entire notice. The case of Community Savings and
Loan Association, Inc. v. Court of Appeals 23 is also
Considering the purpose behind the Notice of Sheriff's
inapplicable, because the said case refers to an
Sale, we disagree with the nding of the RTC that the
extrajudicial foreclosure tainted with fraud committed by
discrepancy between the amount of petitioners'
therein petitioners, which denied therein respondents the
obligation as re ected in the Notice of Sale and the
right to redeem the property. It actually has no reference
amount actually due and collected from the petitioners at
to a Notice of Sale.
the time of the auction sale constitute fraud which
renders the extrajudicial We now proceed to the effect of the non-delivery by
foreclosure sale null and void. DTEAHI
PNB of the bid price or the surplus to the petitioners. ISTECA
Notices are given for the purpose of securing The following antecedents are not disputed:
bidders and to prevent a sacri ce of the property. If these
objects are attained, immaterial errors and mistakes will For failure to pay their loan obligation secured by a real
not affect the su ciency of the notice; but if mistakes or estate mortgage on the subject properties, PNB
omissions occur in the notices of sale, which are foreclosed the said mortgage. In its petition for foreclosure
sale under ACT No. 3135 led before the Mandaue City
calculated to deter or mislead bidders, to depreciate the
Sheriff, PNB stated therein that petitioners' total
value of the property, or to prevent it from bringing a fair
outstanding obligation amounted to P1,991,770.38. 24
price, such mistakes or omissions will be fatal to the PNB bidded the amount of P8,511,000.00. Admittedly,
PNB did not pay its bid in cash or deliver the excess either Rule, and the sheriff's receipt shall be a su
to the City Sheriff who conducted the bid or to the cient discharge for the amount so paid or
petitioners after deducting the difference between the directed to be credited by the judgment
amount of its bid and the amount of petitioners' obligation obligee on the execution. EICScD
against property has been issued, a person Petitioners insist that the PNB should deliver the
indebted to the judgment obligor may pay to excess. On the other hand PNB counters that on the date
the sheriff holding the writ of execution the
of the auction sale on 30 October 1992, petitioners' other
amount of his debt or so much thereof as
loan obligation already exceeded the amount of
may be necessary to satisfy the judgment, in
the manner prescribed in section 9 of this P1,991,770.38 in the Notice of Sale.
Rule 68, Section 4 of the Rules of Court provides: who exercises the power of sale contained in a mortgage
is considered a custodian of the fund and, being bound to
SEC. 4. Disposition of proceeds of sale. — The
CDHacE
apply it properly, is liable to the persons entitled thereto if
amount realized from the foreclosure sale of the he fails to do so. And even though the mortgagee is not
mortgaged property shall, after deducting the costs of strictly considered a trustee in a purely equitable sense,
the sale, be paid to the person foreclosing the but as far as concerns the unconsumed balance, the
mortgage, and when there shall be any balance or
mortgagee is deemed a trustee for the mortgagor or
residue, after paying off the mortgage debt due, the
owner of the equity of redemption. 30
same shall be paid to junior encumbrancers in the
order of their priority, to be ascertained by the court,
or if there be no such encumbrancers or there be a Thus it has been held that if the mortgagee is
balance or residue after payment to them, then to the retaining more of the proceeds of the sale than he is
mortgagor or his duly authorized agent, or to the
entitled to, this fact alone will not affect the validity of the
person entitled to it.
Under the above rule, the disposition of the sale but simply give the mortgagor a cause of action to
recover such surplus. 31 ECDaAc
hence, it is the mortgagee's duty to return any surplus in Although petitioners denied the amounts reflected
the selling price to the mortgagor. Perforce, a mortgagee in the Statement of Account from PNB, they did not
interpose any defense to refute the computations therein. as of 30 October 1992 amounted to P6,409,814.92, and
Petitioners' mere denials, far from being compelling, had considering that the amount of PNB's bid is
nothing to offer by way of evidence. This then enfeebles P8,511,000.00, there is clearly an excess in the bid price
the foundation of petitioners' protestation and will not su which PNB must return, together with the interest
ce to overcome the computation of their loan obligations computed in accordance with the guidelines laid down by
as presented in the Statement of Account submitted by the court in Eastern Shipping Lines v. Court of Appeals, 36
PNB. 34 regarding the manner of computing legal interest, viz: HIaTDS
It did not escape the attention of this Court that petitioners 1. When the obligation is
wrote a number of letters to PNB almost two years after breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of
the auction sale, 35 in which they offered to redeem the
money, the interest due should be that which
property. In their last letter, petitioners offered to redeem
may have been stipulated in writing.
their foreclosed properties for P9,500,000.00. However, Furthermore, the interest due shall itself earn
these letters by themselves cannot be used as bases to legal interest from the time it is judicially
support PNB's claim that petitioners' obligation is more demanded. In the absence of stipulation, the
than its bid of P8,500,000.00, without any other evidence. rate of interest shall be 12% per annum to be
There was no computation presented to show how computed from default, i.e., from judicial or
petitioners' obligation already reached P9,500,000.00. extrajudicial demand under and subject to
Petitioners could very well have offered such an amount the provisions of Article 1169 of the Civil
on the basis of the value of the foreclosed properties Code. cDIHES
where money is transferred from one person It must be emphasized, however, that our holding
to another and the obligation to return the
in this case does not preclude PNB from proving and
same or a portion thereof is adjudged. Any
recovering in a proper proceeding any de ciency in the
other monetary judgment which does not
involve or which has nothing to do with loans amount of petitioners' loan obligation that may have
accrued after the date of the auction sale.
WHEREFORE, premises considered, the Decision THIRD DIVISION
of the Court of Appeals dated 12 April 2005 is MODIFIED
in that the PNB is directed to return to the petitioners the [G.R. No. 128567. September 1, 2000.]
amount of P2,101,185.08 with interest computed at 6%
per annum from the time of the filing of the complaint until HUERTA ALBA RESORT INC. ,
its full payment before nality of judgment. Thereafter, if the petitioner, vs. COURT OF APPEALS and
amount adjudged remains unpaid, the interest rate shall SYNDICATED MANAGEMENT GROUP
be 12% per annum computed from the time the judgment INC., respondents.
became nal and executory until fully satis ed. Costs
against private respondent. cDCSET
SYNOPSIS
Appeals denied petitioner's Motion for Reconsideration of In its comment on the petition, private respondent
the Decision promulgated on November 14, 1996 in CA- countered that:
G.R. No. 38747. ESCacI
main drive motor of said machinery. The appellate court A similar, if not identical issue was raised in Tumalad v.
rejected petitioner's argument that private respondent is Vicencio, 41 SCRA 143 where this
estopped from claiming that the machine is real property Court, speaking through Justice J.B.L. Reyes, ruled:
by constituting a chattel mortgage thereon.
"Although there is no specific statement
A motion for reconsideration of this decision of the Court referring to the subject house as personal
of Appeals having been denied, petitioner has brought property, yet by ceding, selling or
the case to this Court for review by writ of certiorari. It is transferring a property by way of chattel
contended by private respondent, however, that the mortgage defendants-appellants could only
instant petition was rendered moot and academic by have meant to convey the house as chattel,
or at least, intended to treat the same as
petitioner's act of returning the subject motor drive of
such, so that they should not now be
respondent's machinery after the Court of Appeals' allowed to make an inconsistent stand by
decision was promulgated. claiming otherwise. Moreover, the subject
The contention of private respondent is without merit. house stood on a rented lot to which
When petitioner returned the subject motor drive, it defendants-appellants merely had a
made itself' unequivocably clear that said action was temporary right as lessee, and although
this can not in itself alone determine the
without prejudice to a motion for reconsideration of
status of the property, it does so when
the Court of Appeals decision, as shown by the
combined with other factors to sustain the
receipt duly signed by respondent's representative. 1 interpretation that the parties, particularly
Considering that petitioner has reserved its right to the mortgagors, intended to treat the house
question the propriety of the Court of Appeals' as Personalty. Finally, unlike in the Iya
decision, the contention of private respondent that this cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong We should not lay down distinctions not contemplated
Machinery & Williamson, wherein third by law.
persons assailed the validity of the chattel
mortgage, it is the defendants-appellants It must be pointed out that the characterization of the
themselves, as debtors mortgagors, who subject machinery as chattel by the private respondent is
are attacking the validity of the chattel indicative of intention and impresses upon the property
mortgage in this case. The doctrine of the character determined by the parties. As stated in
estoppel therefore applies to the herein Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it
defendants appellants, having treated the is undeniable that the parties to a contract may by
subject house as personalty." agreement treat as personal property that which by
nature would be real property, as long as no interest of
third parties would be prejudiced thereby.
Examining the records of the instant case, We find no
Private respondent contends that estoppel cannot apply
logical justification to exclude the rule out, as the
against it because it had never represented nor agreed
appellate court did, the present case from the
that the machinery in suit be considered as personal
application of the abovequoted pronouncement. If a property but was merely required and dictated on by
house of strong materials, like what was involved in the herein petitioner to sign a printed form of chattel mortgage
above Tumalad case, may be considered as personal which was in a blank form at the time of signing. This
property for purposes of executing a chattel mortgage contention lacks persuasiveness. As aptly pointed out by
thereon as long as the parties to the contract so agree petitioner and not denied by the respondent, the status of
and no innocent third party will be prejudiced thereby, the subject machinery as movable or immovable was
there is absolutely no reason why a machinery, which is never placed in issue before the lower court and the Court
movable in its nature and becomes immobilized only by of Appeals except in a supplemental memorandum in
destination or purpose, may not be likewise treated as support of the petition filed in the appellate court.
such. This is really because one who has so agreed is Moreover, even granting that the charge is true, such fact
estopped from denying the existence of the chattel alone does not render a contract void ab initio, but can
mortgage. only be a ground for rendering said contract voidable, or
annullable pursuant to Article 1390 of the new Civil Code,
In rejecting petitioner's assertion on the applicability of by a proper action in court. There is nothing on record to
the Tumalad doctrine, the Court of Appeals lays stress show that the mortgage has been annulled. Neither is it
on the fact that the house involved therein was built on disclosed that steps were taken to nullify the same. On
a land that did not belong to the owner of such house. the other hand, as pointed out by petitioner and again not
But the law makes no distinction with respect to the refuted by respondent, the latter has indubitably benefited
ownership of the land on which the house is built and from said contract. Equity dictates that one should not
benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy THIRD DIVISION
of the chattel mortgage after it has benefited therefrom. LexLib
From what has been said above, the error of the appellate [G.R. No. 92989. July 8, 1991.]
court in ruling that the questioned machinery is real, not
personal property, becomes very apparent. Moreover, the PERFECTO DY, JR., petitioner,
case of Machinery and Engineering Supplies, Inc. v. CA, vs. COURT OF APPEALS,
96 Phil. 70, heavily relied upon by said court is not GELAC TRADING INC., and
applicable to the case at bar, the nature of the machinery ANTONIO V. GONZALES,
and equipment involved therein as real properties never
respondents.
having been disputed nor in issue, and they were not the
subject of a Chattel Mortgage. Undoubtedly, the Tumalad
case bears more nearly perfect parity with the instant case Zosa & Quijano Law Offices for petitioner.
to be the more controlling jurisprudential authority. Expedito P. Bugarin for respondent GELAC Trading, Inc.
WHEREFORE, the questioned decision and resolution
of the Court of Appeals are hereby reversed and set SYLLABUS
aside, and the Orders of the lower court are hereby
reinstated, with costs against the private respondent. 1. CIVIL LAW; SPECIAL CONTRACTS; CHATTEL
SO ORDERED. MORTGAGE; RIGHT OF MORTGAGOR TO SELL
THE PROPERTY MORTGAGED; RULE. — The
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero mortgagor who gave the property as security under a
and Escolin, JJ., concur. chattel mortgage did not part with the ownership over
the same. He had the right to sell it although he was
Abad Santos, J., concurs in the result.
under the obligation to secure the written consent of
the mortgagee or he lays himself open to criminal
prosecution under the provision of Article par. 2 of the
Revised Penal Code. And even if no consent was
obtained from the mortgagee, the validity of the
sale would still not be affected.
2. ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR.
— We see no reason why Wifredo Dy, as the
chattel mortgagor can not sell the subject tractor.
There is no dispute that the consent of Libra
Finance was obtained in the instant case. In a Martinez vs. PNB, 93 Phil. 765, 767 [1953]). There
letter dated August 27, 1979, Libra allowed the is no showing that Libra Finance has already
petitioner to purchase the tractor and assume the foreclosed the mortgage and that it was the new
mortgage debt of his brother. The sale between owner of the subject tractor. Undeniably, Libra
the brothers was therefore valid and binding as gave its consent to the sale of the subject tractor
between them and to the mortgagee, as well. to the petitioner. It was aware of the transfer of
3. ID.; ID.; ID.; REMEDY OF MORTGAGEE IN rights to the petitioner.
CASE MORTGAGOR FAILED TO PAY THE 4. ID.; ID.; ID.; PURCHASER OF MORTGAGED
DEBT. — It was Libra Finance which was in PROPERTY STEPS INTO THE SHOES OF THE
possession of the subject tractor due to Wilfredo's MORTGAGOR. — Where a third person purchases
failure to pay the amortization as a preliminary the mortgaged property, he automatically steps into
step to foreclosure. As mortgagee, he has the the shoes of the original mortgagor (See Industrial
right of foreclosure upon default by the mortgagor Finance Corp. vs. Apostol, 177 SCRA 521 [1989]).
in the performance of the conditions mentioned in His right of ownership shall be subject to the
the contract of mortgage. The law implies that the mortgage of the thing sold to him. In the case at
mortgagee is entitled to possess the mortgaged bar, the petitioner was fully aware of the existing
property because possession is necessary in mortgage of the subject tractor to Libra. In fact,
order to enable him to have the property sold. when he was obtaining Libra's consent to the sale,
While it is true that Wilfredo Dy was not in actual he volunteered to assume the remaining balance
possession and control of the subject tractor, his of the mortgage debt of Wilfredo Dy which Libra
right of ownership was not divested from him upon undeniably agreed to.
his default. Neither could it be said that Libra was 5. ID.; ID.; SALE; DELIVERY OF PROPERTY
the owner of the subject tractor because the VESTS OWNERSHIP TO THE VENDEE. —
mortgagee can not become the owner of or Article 1496 of the Civil Code states that the
convert and appropriate to himself the property ownership of the thing sold is acquired by the
mortgaged (Article 2088, Civil Code). Said vendee from the moment it is delivered to him in
property continues to belong to the mortgagor. any of the ways specified in Articles 1497 to 1501
The only remedy given to the mortgagee is to or in any other manner signifying an agreement
have said property sold at public auction and the that the possession is transferred from the vendor
proceeds of the sale applied to the payment of the to the vendee. We agree with the petitioner that
obligation secured by the mortgagee (See Articles 1498 and 1499 are applicable in the case
at bar.
6. ID.; ID.; ID.; ID.; RULE ON CONSTRUCTIVE The sale of the subject tractor was consummated
DELIVERY. — In the instant case, actual delivery upon the execution of the public instrument on
of the subject tractor could not be made. However, September 4, 1979. At this time constructive
there was constructive delivery already upon the delivery was already effected. Hence, the subject
execution of the public instrument pursuant to tractor was no longer owned by Wilfredo Dy when it
Article 1498 and upon the consent or agreement was levied upon by the sheriff in December, 1979.
of the parties when the thing sold cannot be Well settled is the rule that only properties
immediately transferred to the possession of the unquestionably owned by the judgment debtor and
vendee (Article 1499). which are not exempt by law from execution should
7. ID.; ID.; ID.; CONSUMMATION OF SALE; NOT be levied upon or sought to be levied upon. For the
DEPENDENT ON THE ENCASHMENT OF CHECK. power of the court in the execution of its judgment
— The payment of the check was actually intended extends only over properties belonging to the
to extinguish the mortgage obligation so that the judgment debtor (Consolidated Bank and Trust
tractor could be released to the petitioner. It was Corp. vs. Court of Appeals, G.R. No. 78771,
never intended nor could it be considered as January 23, 1991).
9. ID.; EVIDENCE; FRAUD; MUST BE ESTABLISHED
payment of the purchase price because the
BY CLEAR CONVINCING EVIDENCE.
relationship between Libra and the petitioner is not
one of sale but still a mortgage. The clearing or — There is no sufficient evidence to show that the sale
encashment of the check which produced the effect of the tractor was in fraud of Wilfredo and creditors.
of payment determined the full payment of the While it is true that Wilfredo and Perfecto are brothers,
money obligation and the release of the chattel this fact alone does not give rise to the presumption that
the sale was fraudulent. Relationship is not a badge of
mortgage. It was not determinative of the
fraud (Goquiolay vs. Sycip, 9 SCRA 663 [1963]).
consummation of the sale. The transaction between
Moreover, fraud can not be presumed; it must be
the brothers is distinct and apart from the
established by clear convincing evidence.
transaction between Libra and the petitioner. The
contention, therefore, that the consummation of the
sale depended upon the encashment of the check is DECISION
untenable.
8. REMEDIAL LAW; CIVIL PROCEDURE; GUTIERREZ, JR., J : p
"The rule is settled that the chattel mortgagor Thus, we see no reason why Wilfredo Dy, as the chattel
continues to be the owner of the property, mortgagor can not sell the subject tractor. There is no
and therefore, has the power to alienate the dispute that the consent of Libra Finance was obtained
same; however, he is obliged under pain of in the instant case. In a letter dated August 27, 1979,
penal liability, to secure the written consent of Libra allowed the petitioner to purchase the tractor and
the mortgagee. (Francisco, Vicente, Jr., assume the mortgage debt of his brother. The sale
Revised Rules of Court in the Philippines,
between the brothers was therefore valid and binding as
(1972), Volume IV-s Part I, p. 525) Thus,
between them and to the mortgagee, as well.
the instruments of mortgage are binding,
while they subsist, not only upon the Article 1496 of the Civil Code states that the ownership
parties executing them but also upon of the thing sold is acquired by the vendee from the
those who later, by purchase or moment it is delivered to him in any of the ways
otherwise, acquire the properties referred specified in Articles 1497 to 1501 or in any other manner
to therein. signing an agreement that the possession is transferred
"The absence of the written consent of the from the vendor to the vendee. We agree with the
mortgagee to the sale of the mortgaged petitioner that Articles 1498 and 1499 are applicable in
property in favor of a third person, therefore, the case at bar.
effects not the validity of the sale but only Article 1498 states:
the penal liability of the mortgagor under the
Revised Penal Code and the binding effect "Art. 1498. When the sale is made through
of such sale on the mortgagee under the a public instrument, the execution thereof
Deed of Chattel Mortgage." shall be equivalent to the delivery of the
thing which is the object of the contract, if
xxx xxx xxx
from the deed the contrary does not
appear or cannot clearly be inferred."
ownership was not divested from him upon his default.
xxx xxx xxx
Neither could it be said that Libra was the owner of the
Article 1499 provides: subject tractor because the mortgagee can not become
the owner of or convert and appropriate to himself the
"Article 1499. The delivery of movable property mortgaged. (Article 2088, Civil Code) Said
property may likewise be made by the mere property continues to belong to the mortgagor. The only
consent or agreement of the contracting remedy given to the mortgagee is to have said property
parties, if the thing sold cannot be
sold at public auction and the proceeds of the sale
transferred to the possession of the vendee
applied to the payment of the obligation secured by the
at the time of the sale, or if the latter already
mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767
had it in his possession for any other
[1953]) There is no showing that Libra Finance has
reason. (1463a)"
already foreclosed the mortgage and that it was the new
In the instant case, actual delivery of the subject tractor owner of the subject tractor. Undeniably, Libra gave its
could not be made. However, there was constructive consent to the sale of the subject tractor to the
delivery already upon the execution of the public petitioner. It was aware of the transfer of rights to the
instrument pursuant to Article 1498 and upon the petitioner.llcd
consent or agreement of the parties when the thing sold Where a third person purchases the mortgaged
cannot be immediately transferred to the possession of property, he automatically steps into the shoes of the
the vendee. (Art. 1499) original mortgagor. (See Industrial Finance Corp. v.
The respondent court avers that the vendor must first Apostol, 177 SCRA 521[1989]). His right of ownership
have control and possession of the thing before he shall be subject to the mortgage of the thing sold to
could transfer ownership by constructive delivery. Here, him. In the case at bar, the petitioner was fully aware
it was Libra Finance which was in possession of the of the existing mortgage of the subject tractor to Libra.
subject tractor due to Wilfredo's failure to pay the In fact, when he was obtaining Libra's consent to the
amortization as a preliminary step to foreclosure. As sale, he volunteered to assume the remaining balance
mortgagee, he has the right offoreclosure upon default of the mortgage debt of Wilfredo Dy which Libra
by the mortgagor in the performance of the conditions undeniably agreed to. cdphil
mentioned in the contract of mortgage. The law implies The payment of the check was actually intended to
that the mortgagee is entitled to possess the mortgaged extinguish the mortgage obligation so that the tractor
property because possession is necessary in order to could be released to the petitioner. It was never intended
enable him to have the property sold. nor could it be considered as payment of the purchase
price because the relationship between Libra and the
While it is true that Wilfredo Dy was not in actual
petitioner is not one of sale but still a mortgage. The
possession and control of the subject tractor, his right of
clearing or encashment of the check which produced the from taking other legal remedies to prosecute his
effect of payment determined the full payment of the claim. (Consolidated Bank and Trust Corp. v. Court of
money obligation and the release of the chattel Appeals, supra) This is precisely what the petitioner
mortgage. It was not determinative of the consummation did when he filed the action for replevin with the RTC.
of the sale. The transaction between the brothers is
distinct and apart from the transaction between Libra and
the petitioner. The contention, therefore, that the Anent the second and third issues raised, the Court
consummation of the sale depended upon the accords great respect and weight to the findings of fact
encashment of the check is untenable. of the trial court. There is no sufficient evidence to
show that the sale of the tractor was in fraud of
The sale of the subject tractor was consummated upon Wilfredo and creditors. While it is true that Wilfredo and
the execution of the public instrument on September 4, Perfecto are brothers, this fact alone does not give rise
1979. At this time constructive delivery was already to the presumption that the sale was fraudulent.
effected. Hence, the subject tractor was no longer owned Relationship is not a badge of fraud (Goquiolay v.
by Wilfredo Dy when it was levied upon by the sheriff in Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be
December, 1979. Well settled is the rule that only presumed; it must be established by clear convincing
properties unquestionably owned by the judgment debtor evidence. LexLib
It is inconsequential whether a third party claim has WHEREFORE, the petition is hereby GRANTED. The
been filed or not by the petitioner during the time the decision of the Court of Appeals promulgated on March
sheriff levied on the subject tractor. A person other 23,1990 is SET ASIDE and the decision of the
than the judgment debtor who claims ownership or Regional Trial Court dated April 8, 1988 is
right over levied properties is not precluded, however, REINSTATED.
SO ORDERED. THIRD DIVISION
Fernan, C.J., Feliciano and Bidin, JJ., concur.
[G.R. No. 106435. July 14, 1999.]
Davide, Jr., J., took no part.
PAMECA WOOD TREATMENT
PLANT, INC., HERMINIO G. TEVES,
VICTORIA V. TEVES and HIRAM
DIDAY R. PULIDO, petitioners, vs.
HON. COURT OF APPEALS and
DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.
SYNOPSIS
Jesus M. Ponce for private respondents. The Supreme Court found the petition meritorious.
Only notice to the debtor of the assignment of credit is
SYNOPSIS required. His consent is not required. In contrast, consent
of the creditor-mortgagee to the alienation of the
mortgaged property is necessary in order to bind said
Sometime in 1975, respondent spouses bought on
creditor. Accordingly, the decision of the Court of Appeals
installment a Holden Torana vehicle from CR Tecson
Enterprises. They executed a promissory note and a was reversed and set aside. The decision of the Regional
chattel mortgage in favor of Tecson, which in turn, Trial Court was affirmed and reinstated.
executed a deed of assignment of said promissory note
and chattel mortgage in favor of Filinvest Credit SYLLABUS
Corporation. In 1976, respondent spouses transferred
and delivered the vehicle to Tecson Enterprises by way of CIVIL LAW; CHATTEL MORTGAGE; ASSIGNEE'S
sale with assumption of mortgage. In 1978, Filinvest CONSENT IS NECESSARY IN ORDER TO BIND HIM OF
assigned all its rights and interest over the same THE ALIENATION OF THE MORTGAGED THING BY THE
promissory note and chattel mortgage to Servicewide DEBTOR-MORTGAGOR. — When the credit was assigned
Specialist Inc. without notice to respondent spouses. Due to petitioner, only notice to but not the consent of the debtor-
to the failure of herein respondents to pay the installments mortgagor was necessary to bind the latter. Applying Article
under the promissory note from October 1977 to March 1627 of the Civil Code, the assignment made to petitioner
1978 and despite demands to pay the same or return the includes the accessory rights such as the mortgage. Article
vehicle, petitioner was constrained to le before the 2141, on the other hand, states that the provisions
concerning a contract of pledge shall be applicable to a DEFEATED IF NO EVIDENCE IS GIVEN ON EITHER
chattel mortgage, such as the one at bar, insofar as there is SIDE. — When Tecson Enterprises assigned the
no con ict with Act No. 1508, the Chattel Mortgage Law. As promissory note and the chattel mortgage to Filinvest, it
provided in Article 2096 in relation to Article 2141 of the was made with respondent spouses' tacit approval. When
Civil Code, a thing pledged may be alienated by the Filinvest in turn, as assignee, assigned it further to
pledgor or owner "with the consent of the pledgee." This petitioner, the latter should have noti ed the respondent
provision is in accordance with Act No. 1508 which spouses of the assignment in order to bind them. This,
provides that "a mortgagor of personal property shall not they failed to do. The testimony of petitioner's witness that
sell or pledge such property, or any part thereof, notice of assignment was sent to respondent spouses was
mortgaged by him without the consent of the mortgagee stricken off the record. Having asserted the a rmative on
in writing on the back of the mortgage and on the margin the issue of notice, petitioner should have substantiated
of the record thereof in the o ce where such mortgage is its allegations in order to obtain a favorable judgment. In
recorded." Although this provision in the chattel mortgage civil cases, the burden is on the party who would be
has been expressly repealed by Article 367 of the Revised defeated if no evidence is given on either side. Being the
Penal Code, yet under Article 319 (2) of the same Code, plaintiff in the trial below, petitioner must establish its
the sale of the thing mortgaged may be made provided case, relying on the strength of its own evidence and not
that the mortgagee gives his consent and that the same is upon the weakness of that of its opponent. The consent to
recorded. In any case, applying by analogy Article 2128 of the assignment given by respondent spouses to Filinvest
the Civil Code to a chattel mortgage, it appears that a cannot be construed as the spouses' knowledge of the
mortgage credit may be alienated or assigned to a third assignment to petitioner precisely because at the time of
person. Since the assignee of the credit steps into the the assignment to the latter, the spouses had earlier sold
shoes of the creditor-mortgagee to whom the chattel was the vehicle to another. aEHIDT
DECISION
GRIÑO-AQUINO, J : p
Whether the debt had already been paid as now alleged BERSAMIN, J : p
of notice about the foreclosure sales because the fact that Upon PNB's motion for reconsideration, however,
the Spouses Rabat had not appealed the RTC's ruling as the CA promulgated its questioned second amended
regards the lack of notice but had in fact prayed for the a
decision on March 26, 2003, 12 holding and ruling as
rmance of the RTC's judgment had rendered nal the
RTC's rejection of their allegation of lack of personal follows:
notice; and that, consequently, the CA had committed After a thorough and conscientious
grave abuse of discretion in still resolving the issue of lack review of the records and relevant laws and
of notice despite its not having been raised during the jurisprudence, We find the motion for
appeal. 9 reconsideration to be meritorious.
On November 15, 2000, the Court promulgated its While indeed no evidence was
decision in G.R. No. 134406, decreeing: presented by appellant as to whether a
reappraisal of the mortgaged properties was
WHEREFORE, the petition is
conducted by it before submitting the bid
GRANTED. The decision of the Court of
price of P3,874,800.00 at the auction sale,
Appeals of 29 July 1998 in CA-G.R. CV No.
said amount approximates the loan value
49800 is hereby SET ASIDE. The Court of
Appeals is directed to DECIDE, with under its original appraisal in 1980, which
reasonable dispatch, CA-G.R. CV No. 49800 was P4 million.
on the basis of the errors raised by petitioner There is no dispute that mere inadequacy of
price per se will not set aside a judicial sale of
real property. Nevertheless, where the mortgagor as he stands to gain with a reduced
inadequacy of the price is purely shocking to price because he possesses the right of
the conscience such that the mind revolts at it redemption. Thus, the re-appraisal of the
and such that a reasonable man would neither mortgaged properties resulting in the appellant
directly nor indirectly be likely to consent to it, PNB's bid price of approximately the original
the sale shall be declared null and void. Said loan value of their mortgaged properties is
rule, however, does not strictly apply in the bene cial rather than harmful considering the
case of extrajudicial foreclosure sales so that right of redemption granted to appellees under
when a supposed "unconscionably low price" the law. The claim of nancial hardship or
paid by the bank-mortgagee for the losses in their business is not an excuse for
mortgaged properties at the public auction appellees-mortgagors to evade their clear
sale is assailed, the sale is not thereby obligation to the bank-mortgagee. SCaITA
did she prove that a better price could be had Indeed, as we indicated in Prudential Bank v.
for her property under the circumstances.
Martinez, 23 the fact that the mortgaged property was
At any rate, we consider it notable enough that sold at an amount less than its actual market value
PNB's bid price of P3,874,800.00 might not even be said should not militate against the right to such recovery.
to be outrageously low as to be shocking to the 24
conscience. As the CA cogently noted in the second
There should be no question that PNB was legally
amended decision, 20 that bid price was almost equal to entitled to recover the penalty charge of 3% per annum
both the P4,000,000.00 applied for by the Spouses Rabat and attorney's fees equivalent to 10% of the total amount
as loan, and to the total sum of P3,517,380.00 of their due. The documents relating to the loan and the real
actual availment from PNB. estate mortgage showed that the Spouses Rabat had
Resolving the second issue, we rule that PNB had expressly conformed to such additional liabilities; hence,
the legal right to recover the deficiency amount. In they could not now insist otherwise. To be sure, the law
authorizes the contracting parties to make any stipulations
Philippine National Bank v. Court of Appeals, 21 we held
in their covenants provided the stipulations are not
that:
contrary to law, morals, good customs, public order or
. . . it is settled that if the proceeds of public policy. 25 Equally axiomatic are that a contract is the
the sale are insu cient to cover the debt in an law between the contracting parties, and that they have
the autonomy to include therein such stipulations, mere technicality to be easily brushed aside, but a matter
clauses, terms and conditions as they may want to of public policy as well as a time-honored principle of
include. 26 Inasmuch as the Spouses Rabat did not procedural law.
challenge the legitimacy and e cacy of the additional
It is no different herein. The amended decision that
liabilities being charged by PNB, they could not now bar
favored the Spouses Rabat would have attained nality
PNB from recovering the de ciency representing the
only after the lapse of 15 days from notice thereof to the
additional pecuniary liabilities that the proceeds of the
parties without a motion for reconsideration being timely
forced sales did not cover. SACHcD