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ATTY. SORAYA LAUT

CASE FACTS ISSUE/S RULING

LOANS

1) REPUBLIC VS FACTS: WON the contract was RULING:

BAGTAS Jose Bagtas borrowed from the Bureau of Animal Industry three
[G.R. No. L-17474 bulls for a period of one year for breeding purposes subject to a
October 25, 1962] government charge of breeding fee of 10% of the book value of the
books.
Upon the expiration of the contract, Bagtas asked for a renewal for
another one year, however, the Secretary of Agriculture and Natural
Resources approved only the renewal for one bull and other two
bulls be returned.
Bagtas then wrote a letter to the Director of Animal Industry that he
would pay the value of the three bulls with a deduction of yearly
depreciation. The Director advised him that the value cannot be
depreciated and asked Bagtas to either return the bulls or pay their
book value.
Bagtas neither paid nor returned the bulls. The Republic then
commenced an action against Bagtas ordering him to return the
bulls or pay their book value.
After hearing, the trial Court ruled in favor of the Republic, as such,
the Republic moved ex parte for a writ of execution which the court
granted.
Felicidad Bagtas, the surviving spouse and administrator of Bagtas’
estate, returned the two bulls and filed a motion to quash the writ of
execution since one bull cannot be returned for it was killed by
gunshot during a Huk raid. The Court denied her motion hence, this
appeal certified by the Court of Appeals because only questions of
law are raised.
commodatum;thus, Bagtas
be held liable for its loss due
to force majeure.
A contract of commodatum is essentially gratuitous. Supreme
Court held that Bagtas was liable for the loss of the bull even
though it was caused by a fortuitous event.
If the contract was one of lease, then the 10% breeding
charge is compensation (rent) for the use of the bull and
Bagtas, as lessee, is subject to the responsibilities of a
possessor. He is also in bad faith because he continued to
possess the bull even though the term of the contract has
already expired.
If the contract was one of commodatum, he is still liable
because: (1) he kept the bull longer than the period
stipulated; and (2) the thing loaned has been delivered with
appraisal of its value (10%). No stipulation that in case of loss
of the bull due to fortuitous event the late husband of the
appellant would be exempt from liability.
The original period of the loan was from 8 May 1948 to 7 May
1949. The loan of one bull was renewed for another period of
one year to end on 8 May 1950. But the appellant kept and
used the bull until November 1953 when during a Huk raid it
was killed by stray bullets.
Furthermore, when lent and delivered to the deceased
husband of the appellant the bulls had each an appraised
book value, to with: the Sindhi, at P1,176.46, the Bhagnari at
P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability.

2) PAJUYO v. CA Pajuyo entrusted a house to Guevara for the latter's use provided he Is the contractual No.
GR No. 14a6364 June 3, should return the same upon demand and with the condition that relationship of Pajuyo and The Court of Appeals’ theory that the Kasunduan is one of
2004 Guevara should be responsible of the maintenance of the property. Guevara that of a commodatum is devoid of merit. In a contract of
Upon demand Guevara refused to return the property to Pajuyo. The commodatum? commodatum, one of the parties delivers to another
petitioner then filed an ejectment case against Guevara with the something not consumable so that the latter may use the
MTC who ruled in favor of the petitioner. On appeal with the CA, the same for a certain time and return it. An essential feature of
appellate court reversed the judgment of the lower court on the commodatum is that it is gratuitous. Another feature of

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ground that both parties are illegal settlers on the property thus have
no legal right so that the Court should leave the present situation
with respect to possession of the property as it is, and ruling further
that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.
3) DE LA PAZ vs L & J Out of trust and confidence, Rolando dela Paz lent a sum of money
DEVELOPMENT, CO. worth Php 350,000 to L & J Development Corporation, a property
developer represented by Atty. Esteban Salonga as its president and
general manager.
The loan was executed without any security and no maturity date. It
was however agreed between the parties that the loan will have a
6% monthly interest (amounting to Php 21,000). So far, L&J paid a
total of Php 576,000 already – including interest charges from
December 2000 to August 2003.
L&J later failed to make payments due to financial difficulties in the
business. Rolando then filed a collection case with the MTC and
alleged as of January 2005, L&J still owes him Php 772,000
inclusive of monthly interests.
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Whether or not the unwritten
6% interest agreement
should be honored.
commodatum is that the use of the thing belonging to another
is for a certain period. Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor, he
can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil
Code, precarium is a kind of commodatum. The Kasunduan
reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition
of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment
has treated relationship based on tolerance as one that is
akin to a landlord-tenant relationship where the withdrawal
of permission would result in the termination of the lease. The
tenant’s withholding of the property would then be unlawful.
No.
The Supreme Court held that, as provided under the Civil
Code, an agreement regarding loan interests should be
stipulated in writing. Even if the 6% monthly rate was done
in writing, it will still be void for being unconscionable and
contrary to morals and public policy – for at this time, an
interest rate of 3% and higher is considered excessive and
exorbitant.
Furthermore, the lack of maturity date puts the total interest to
a whooping 72% per annum which the Supreme Court
considered to be “definitely outrageous and inordinate.” The
Supreme Court affirmed CA’s ruling, but as to Rolando’s
obligation to pay the excess Php 226,000, the interest rate
was reduced from 12% to 6% per annum.
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L&J (represented by Atty. Salonga) did not deny that they did
incurred a debt from Rolando,and admitted that they failed to pay
due to a fortuitous event (financial difficulties). They also contended
that the 6% monthly interest is unconscionable and that their total
payment of Php 576,000 should be applied to the principal loan
which only amounts to Php 350,000.

Rolando also contends that Atty. Salonga tricked him to execute the
said loan plus interest without reducing the agreement in writing. He
also said that the 6% interest rate was at the suggestion and
insistence of L&J.

The MTC rendered judgment in favor of Rolando and upheld the 6%

interest rate as valid since L&J complied to it as evidenced by the
payment they made from December 2000 to August 2003. L&J is
now estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on
the remaining loan for reasons of equity. They did not grant the
prayer of moral damages to Rolando since there was no bad faith on
the part of L&J.

L&J appealed the decision to the RTC – contending once again that
the 6% interest rate is unconscionable, and that their previous
payment which totaled Php 576,000 should be used to set off the
principal loan of Php 350,000. RTC however affirmed the decision of
the MTC. L&J appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was
not reduced in a written agreement and hence, it should not be
considered due. CA ruled that the loan was already paid, and that
Rolando should return the excess Php 226,000 with interest of 12%
per annum. The case has now reached the Supreme Court.

4) PNB vs HEIRS OF In 1974, the Sps. Alonday obtained an agricultural loan by Whether the dragnet clause The dragnet clause contained in the first contract executed
ALONDAY mortgaging their property in Davao. Later, the spouses obtained a in the first mortgage contract between the parties for security of the first loan could not

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commercial loan by mortgaging their residential lot. Notably, the
mortgage contracts both contained a dragnet clause, which state
that the “mortgage shall also stand as security for said obligations
and any and all other obligations of the Mortgagor to the Mortgagee
of whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of this mortgage.
The second loan was fully paid. The first loan, however, was not.
Hence, petitioner foreclosed the property mortgaged as a security for
the first loan. But since the proceeds of the sale were not sufficient
to cover the balance of the first loan, petitioner also foreclosed the
property mortgaged to secure the second loan.
The Sps. Alonday filed a complaint against petitioner to recover
damages and attorneys fees, averring that the foreclosure was
illegal. The RTC and CA ruled in favor of the Sps Alonday.
for the security of the first
loan could authorize the
foreclosure of the property
under the mortgage to
secure a second loan
despite the full payment of
the second loan.
authorize the foreclosure of the property under the mortgage
to secure the second loan.
In order for the all-embracing or dragnet clause to secure
future and other loans, the loans thereby secured must be
sufficiently described in the mortgage contract. Considering
that the agricultural loan had been pre-existing when the
mortgage was constituted on the property covered by TCT
No. T-66139, it would have been easy for the petitioner to
have expressly incorporated the reference to such agricultural
loan in the mortgage contract covering the commercial loan.
But the petitioner did not. Being the party that had prepared
the contract of mortgage, its failure to do so should be
construed that it did not at all contemplate the earlier loan
when it entered into the subsequent mortgage.

Moreover, the mortgage contracts executed by the Sps.

Alonday were contracts of adhesion exclusively prepared by
the petitioner. A contract of adhesion, albeit valid, becomes
objectionable only when it takes undue advantage of one of
the parties, the weaker party having just to adhere to the
terms of the contract. Hence, the mortgage contracts in this
case should be construed strictly against the petitioner as the
party who had drafted the same.

5) SPOUSES ABELLA vs. Salvador and Alma filed a complaint for sum of money and damages 1. Whether interest
SPOUSES ABELLA with prayer for preliminary attachment against Romeo and Annie accrued on
before the RTC in Kalibo, Aklan. In their complaint, Salvador and respondents’ loan
Alma alleged that Romeo and Annie obtained a loan from them in from petitioners. If
the amount P 500,000. The said loan was evidenced by an so, what rate?
acknowledgement receipt was payable within one year. Salvador 2. Whether petitioners
and Alma said that Romeo and Annie paid 100k in two separate are liable to
occasions (in total 200k) – leaving an unpaid balance of 300k. reimburse
Romeo and Annie answers that the amount involved did not pertain respondents for the
to a loan but was part of the capital for a joint venture involving the latter’s supposed
lending money. Romeo and Annie said that they were actually excess payments
approached by Salvador and Alma that if they were to undertake the and for interest.
management of whatever money Salvador and Alma would give WHEREFORE, the assailed
them, Salvador and Alma would get 2.5% a month with a 2.5% September 30, 2010
service fee to Romeo and Annie. The 2.5% that each party would be Decision and the January 4,
1. As noted by the Court of Appeals and the Regional
Trial Court, respondents entered into a simple loan or
mutuum, rather than a joint venture, with petitioners.
Although we have settled the nature of the contractual relation
between petitioners and respondents, controversy persists
over respondents’ duty to pay conventional interest, i.e.,
interest as the cost of borrowing money. Article 1956 of the
Civil Code spells out the basic rule that “[n]o interest shall
be due unless it has been expressly stipulated in writing.”
On the matter of interest, the text of the acknowledgment
receipt is simple, plain, and unequivocal.
It attests to the contracting parties’ intent to subject to interest
the loan extended by petitioners to respondents. The
controversy, however, stems from the acknowledgment
receipt’s failure to state the exact rate of interest.

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receiving represented their sharing of the 5% interest that the joint 2011 Resolution of the Court It is a basic precept in legal interpretation and construction
venture was supposedly going to charge against its debtors. Romeo of Appeals Nineteenth that a rule or provision that treats a subject with
and Annie further alleged that one year averred by Salvador and Division in C.A.-G.R. CV No. specificity prevails over a rule or provision that treats a
Alma was not a deadline for payment but the term within which they 01388 are SET ASIDE. subject in general terms.
were to return the money placed by Salvador and Alma should the Petitioners Spouses Mutuum is a type of nominate contract that is specifically
join venture prove to be not lucrative. Salvador and Alma Abella recognized by the Civil Code and for which the Civil Code
RTC ruled in favor of Salvador and Alma. It held that the are DIRECTED to jointly and provides a specific set of governing rules: Articles 1953 to
acknowledgement receipt clearly showed that there is a debt, that it severally reimburse 1961. In contrast, Article 1371 is among the Civil Code
must be paid in one year and it was subject to interest. The trial respondents Spouses provisions generally dealing with contracts. As this case
court, concluded that respondents obtained a simple loan, although Romeo and Annie Abella the particularly involves a simple loan, the specific rule spelled
they later invested its proceeds in the lending enterprise. Romeo amount of P3,379.17, which out in Security Bank and Spouses Toring finds preferential
and Annie moved for a reconsideration, denied by the RTC. respondents have overpaid. application as against Article 1371.
Romeo and Annie filed an appeal. The CA ruled that while Romeo A legal interest of 6% per
and Annie had indeed entered into a simple loan with Salvador and annum shall likewise be 2. The imposition of an unconscionable interest rate is
Alma, Romeo and Annie were no longer liable to pay the outstanding imposed on the total void ab initio for being “contrary to morals, and the law.”
amount of 300k. It reasoned that the loan could not have earned judgment award from the In determining whether the rate of interest is
interest, whether as contractually stipulated interest or as interest in finality of this Decision until unconscionable, the mechanical application of
the concept of actual or compensatory damages. Since the loan was its full satisfaction. SO preestablished floors would be wanting. The lowest rates
not having earned stipulated interest, CA based its ruling on Art 1956 ORDERED. that have previously been considered unconscionable
of the NCC, which requires interest to be stipulated in writing for it to need not be an impenetrable minimum. What is more
be due. The acknowledgement receipt showed that there is no crucial is a consideration of the parties’ contexts.
particular interest rate was specified. Thus, when the Romeo and Moreover, interest rates must be appreciated in light of
Annie was making interest payment these payments were invalid for the fundamental nature of interest as compensation to
not being stipulated by the parties. Since Salvador and Alma;s the creditor for money lent to another, which he or she
charging of interest was invalid, CA reasoned that all payments could otherwise have used for his or her own purposes at
should be deemed payments for the principal amount. CA held that the time it was lent. It is not the default vehicle for
after computing there is an overpayment, since Romeo and Annie’s predatory gain. As such, interest need only be
total payment is P 648,500, so there is an overpayment of P148,500. reasonable. It ought not be a supine mechanism for the
Applying the principle of solutio indebiti, the CA concluded that creditor’s unjust enrichment at the expense of another.
Salvador and Alma is liable to Romeo and Annie. MR denied. Hence, Apart from respondents’ liability for conventional interest at
this appeal. the rate of twelve percent (12%) per annum, outstanding
conventional interest — if any is due from respondents —
shall itself earn legal interest from the time judicial demand
was made by petitioners.
As respondents had already fully paid the principal and all
conventional interest that had accrued, they were no longer

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6) SPOUSES JONSAY VS. Momarco, controlled and owned by the Spouses Jonsay, is an
SOLID BANK CORP. importer, manufacturer and distributor of animal health and feedmill
products catering to cattle, hog and poultry producers. Momarco
obtained loans of P40,000,000.00 and P20,000,000.00, respectively,
from Solidbank for which the Spouses Jonsay executed a blanket
mortgage over three parcels of land they owned in Calamba City,
Laguna. The loans were consolidated under one promissory note for
the combined amount of P60,000,000.00, signed by Florante as
President of Momarco, with his wife Luz viminda also signing as co-
maker. The stipulated rate of interest was 18.75% per annum, along
with an escalation clause tied to increases in pertinent Central Bank-
declared interest rates, by which Solidbank was eventually able to
unilaterally increase the interest charges up to 30% per annum.
Momarco religiously paid the monthly interests charged by Solidbank
from November 1995 until January 1998, when it paid
P1,370,321.09. Claiming business reverses brought on by the 1997
Asian financial crisis, Momarco tried unsuccessfully to negotiate a
moratorium or suspension in its interest payments. Due to persistent
demands by Solidbank, Momarco made its next, and its last, monthly
interest payment in April 1998 in the amount of P1,000,000.00.
Solidbank applied the said payment to Momarco’s accrued interest
for February 1998. Momarco sought a loan from Landbank of the
Philippines to pay off its aforesaid debt but its application fell
through. The anticipated expropriation by the Department of Public
Works and Highways of the mortgaged lots for the extension of the
South Luzon Expressway (SLEX) also did not materialize.
Solidbank proceeded to extrajudicially foreclose on the mortgage,
and at the auction sale held on March 5, 1999, it submitted the
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WON CA erred in reversing
its decision.
WHEREFORE, premises
considered, the Amended
Decision dated November
26, 2012 of the Court of
Appeals in C.A.-G.R. CV No.
94012 is AFFIRMED with
MODIFICATION in that the
stipulated interest rate on
the loan obligation of
18.75% shall be applied,
resulting in P67,551,216.78
as the amount due from the
Spouses Florante E. Jonsay
and Luzviminda L. Jonsay
and Momarco Import Co.,
Inc. to Solidbank
Corporation (now
Metropolitan Bank and Trust
Company). In addition, the
Spouses Florante E. Jonsay
and Luzviminda L. Jonsay
and Momarco Import Co.,
Inc. are ORDERED to PAY
attorney’s fees in the amount
of P675,512.17, which is one
obliged to make further payments. Any further payment they
made was only because of a mistaken impression that they
were still due. Accordingly, petitioners are now bound by a
quasi-contractual obligation to return any and all excess
payments delivered by respondents. Nacar provides that
“[w]hen an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum.” This applies to obligations arising
from quasi-contracts such as solutio indebiti.
On the question of the petitioners’ failed proposal to
extinguish their loan obligations by way of dacion en pago, no
bad faith can be imputed to Solidbank for refusing the offered
settlement as to render itself liable for moral and exemplary
damages after opting to
extrajudicially foreclose on the mortgage. In Tecnogas
Philippines Manufacturing Corporation v. Philippine National
Bank, 551 SCRA 183 (2008), the Court held: Dacion en pago
is a special mode of payment whereby the debtor offers
another thing to the creditor who accepts it as equivalent of
payment of an outstanding obligation. The undertaking is
really one of sale, that is, the creditor is really buying the thing
or property of the debtor, payment for which is to be charged
against the debtor’s debt. As such, the essential elements of
a contract of sale, namely, consent, object certain, and cause
or consideration must be present. It is only when the thing
offered as an equivalent is accepted by the creditor that
novation takes place, thereby, totally extinguishing the debt.
In Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA 223
(2007), the Court annulled the escalation clause and imposed
the original stipulated rate of interest on the loan, until
maturity, and thereafter, the legal interest of 12% per annum
was imposed on the outstanding loans. Thus, the Court
ordered the borrower to pay Equitable the stipulated interest
rate of 12.66% per annum for the dollar denominated loans,
and the stipulated 20% per annum for the peso denominated
loans, up to maturity, and afterwards Equitable was to collect
legal interest of 12% per annum on all loans due. Incidentally,
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winning bid of P82,327,249.54,12 representing Momarco’s percent (1%) of the loan under Monetary Board Circular No. 799, the rate of interest
outstanding loans, interests and penalties, plus attorney’s fees of obligation. for the loan or forbearance of money, in the absence of
P3,600,000.00. But Momarco now claims that on the date of the Thus, Solidbank Corporation stipulation, shall now be 6% per annum starting July 1, 2013.
auction the fair market value of their mortgaged lots had increased (now Metropolitan Bank and
sevenfold to P441,750,000.00. the sheriff issued a certificate of sale Trust Company) is
to Solidbank. ORDERED to PAY to the
On March 9, 2000, a month before the expiration of the period to petitioners the amount of
redeem the lots, the petitioners filed a Complaint15 against P14,100,271.05,
Solidbank, Sheriff Perocho and the Register of Deeds of Calamba, representing the excess of
Laguna, docketed as Civil Case No. 2912-2000-C, for Annulment of its auction bid over the total
the Extrajudicial Foreclosure of Mortgage, Injunction, Accounting and loan obligation due from the
Damages with Prayer for the Immediate Issuance of a Writ of petitioners, plus interest at
Preliminary Prohibitory Injunction. six percent (6%) per annum
The RTC ruled that the mortgage contract and the promissory notes computed from the date of
prepared by Solidbank, which the Spouses Jonsay signed in blank, filing of the complaint or
were contracts of adhesion; that Solidbank failed to take into March 15, 2000 up to finality;
account Momarco’s payments in the two years preceding 1998 and thereafter, both the
totaling P24,277,293.22 (this amount was not disputed by excess of the auction
Solidbank); that the interest rates, ranging from 19% to 30%, as well proceeds and the cumulative
as the penalties, charges and attorney’s fees imposed by Solidbank, interest shall earn six
were excessive, unconscionable and immoral, and that Solidbank percent (6%) per annum
has no carte blanche authority under the Usury Law to unilaterally until fully paid. SO
raise the interest rates to levels as to enslave the borrower and ORDERED.
hemorrhage its assetss; that Solidbank’s verification in its application
for foreclosure of mortgage was defective because it was signed not
by its President but only by a vice president; that the Morning
Chronicle, in which the notice of auction was published, was not a
newspaper of general circulation because it had no bona fide list of
paying subscribers; that Solidbank manipulated the foreclosure sale
through a defective publication of the notice of auction and by
submitting an unconscionably low bid of P82,327,000.00, whereas
the value of the lots had risen sevenfold since the rehabilitation of
the SLEX.
On April 27, 2012, the CA rendered judgment affirming the RTC in
toto. It agreed that Solidbank did not comply with the publication
requirements under Section 3, Act No. 3135.
Upon MR to the CA decision, it amended its previous decision ruling
that; the CA now not only found the parties’ mortgage contract valid,
but also declared that Solidbank’s extrajudicial foreclosure of the
mortgage enjoyed the presumption of regularity. The CA stressed
that since the selection of Morning Chronicle to publish the notice
was through a courtsupervised raffle, Solidbank was fully justified in

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relying on the regularity of the publication of its notice in the
aforesaid newspaper, in the choice of which it had no hand
whatsoever. The CA further held that no malice can be imputed on
Solidbank’s refusal to accept the petitioners’ offer of dacion en pago,
since it was duly authorized under the parties’ mortgage contract to
extrajudicially foreclose on the mortgage in the event that Momarco
defaulted in its interest payments. Hence this petition.
7) VITUG VS. ABUDA, GR Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As
201264, January 11, 2016 security for the loan, Vitug mortgaged to Abuda his property. Vitug
failed to pay his obligation within the stipulated six-month period. As
a result of this failure, the parties then executed a restructured
mortgage contract on the property to secure the amount of
P600,000.00 representing the original P250,000.00 loan, additional
loans, and subsequent credit accommodations given by Abuda to
Vitug with an interest of five (5) percent per month. Spouses Vitug
failed to pay their loans despite Abuda's demands and a Complaint
for Foreclosure of Property before the Regional Trial Court of Manila
was filed. RTC ordered the defendant to pay the principal sum of
P600,000.00 with interest at 5% per month from May 31, 2002 to
actual date of payment. On appeal, CA found that the interest rates
imposed on Vitug's loan were "iniquitous, unconscionable and
exorbitant." It instead ruled that a legal interest of 1% per month or
12% per annum should apply from the judicial demand on November
21, 2003.
DEPOSIT
1) CA AGRO-INDUSTRIAL Petitioner and the spouses Ramon and Paula Pugao entered into an
VS CA agreement whereby the former purchased from the latter two (2)
parcels of land. Among the terms and conditions of the agreement
GR# 90027 were that the titles to the lots shall be transferred to the petitioner
March 3, 1993 upon full payment of the purchase price and that the owner's copies
of the certificates of titles thereto, and that title shall be deposited
shall be deposited in a safety deposit box of any bank. Petitioner
and the Pugaos then rented Safety Deposit Box of private
respondent Security Bank and Trust Company.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the
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Whether or not the Court of
Appeals erred in finding the
interest rates imposed as
unconscionable
Is the contractual relation
between a commercial bank
and another party in a
contract of rent of a safety
deposit box with respect to
its contents placed by the
latter one of bailor and
bailee or one of lessor and
lessee?
The Court of Appeals correctly found that the interest rates of
5% or 10% per month imposed on petitioner’s loan were
unconscionable. Parties are free to stipulate interest rates in
their loan contracts in view of the suspension of the
implementation of the Usury Law ceiling on interest effective
January 1, 1983. However, in stipulating interest rates,
parties must ensure that the rates are neither iniquitous nor
unconscionable. Iniquitous or unconscionable interest rates
are illegal and, therefore, void for being against public morals.
The lifting of the ceiling on interest rates may not be read as
“granting lenders carte blanche [authority] to raise interest
rates to levels which will either enslave their borrowers or lead
to a hemorrhaging of their assets. Even if the parties
voluntarily agree to an interest rate, courts are given the
discretionary power to equitably reduce it if it is later found to
be iniquitous or unconscionable.
The contract for the rent of the safety deposit box is not an
ordinary contract of lease as defined in Article 1643 of the
Civil Code. However, We do not fully subscribe to its view that
the same is a contract of deposit that is to be strictly governed
by the provisions in the Civil Code on deposit; the contract in
the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article
1643 because the full and absolute possession and control of
the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained
with the respondent Bank; without this key, neither of the
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petitioner the two (2) lots. Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the production of the
certificates of title. In view thereof, Aguirre, accompanied by the
Pugaos, then proceeded to the respondent Bank to open the safety
deposit box and get the certificates of title. However, when opened
in the presence of the Bank's representative, the box yielded no
such certificates.
2) SIA VS CA Plaintiff Luzon Sia rented a safety deposit box of Security Bank and
Trust Co. (Security Bank) at its Binondo Branch wherein he placed
his collection of stamps. The said safety deposit box leased by the
plaintiff was at the bottom or at the lowest level of the safety deposit
boxes of the defendant bank. During the floods that took place in
1985 and 1986, floodwater entered into the defendant bank’s
premises, seeped into the safety deposit box leased by the plaintiff
and caused, according damage to his stamps collection. Security
Bank rejected the plaintiff’s claim for compensation for his damaged
stamps collection.
Sia, thereafter, instituted an action for damages against the
defendant bank. Security Bank contended that its contract with the
Sia over safety deposit box was one of lease and not of deposit and,
therefore, governed by the lease agreement which should be the
applicable law; the destruction of the plaintiff’s stamps collection was
due to a calamity beyond obligation on its part to notify the plaintiff
about the floodwaters that inundated its premises at Binondo branch
which allegedly seeped into the safety deposit box leased to the
plaintiff. The trial court rendered in favor of plaintiff Sia and ordered
Sia to pay damages.
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renters could open the box. On the other hand, the
respondent Bank could not likewise open the box without the
renter's key. In this case, the said key had a duplicate which
was made so that both renters could have access to the box.
Whether or not the Bank is Contract of the use of a safety deposit box of a bank is not a
liable for negligence. deposit but a lease. Section 72 of the General Banking Act
[R.A. 337, as amended] pertinently provides: In addition to the
operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations
may perform the following services (a) Receive in custody
funds, documents, and valuable objects, and rent safety
deposit boxes for the safequarding of such effects.
As correctly held by the trial court, Security Bank was guilty of
negligence. The bank’s negligence aggravated the injury or
damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where the safe deposit box was located.
In view thereof, it should have lost no time in notifying the
petitioner in order that the box could have been opened to
retrieve the stamps, thus saving the same from further
deterioration and loss. In this respect, it failed to exercise the
reasonable care and prudence expected of a good father of a
family, thereby becoming a party to the aggravation of the
injury or loss. Accordingly, the aforementioned fourth
characteristic of a fortuitous event is absent. Article 1170 of
the Civil Code, which reads “Those who in the performance of
their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are
liable for damages” is applicable. Hence, the petition was
granted.
The provisions contended by Security Bank in the lease
agreement which are meant to exempt SBTC from any liability
for damage, loss or destruction of the contents of the safety
deposit box which may arise from its own agents’ fraud,
negligence or delay must be stricken down for being contrary
to law and public policy.
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3) - Pioneer Insurance and Surety Corp, by right of subrogation,
DURBAN APARTMENT VS. filed with the RTC of Makati a Complaint for Recovery of
PIONEER INSURANCE, Damages against Durban Apartments Corp. (or City Garden
Hotel) and defendant before the RTC, Vicente Justimbaste.
G.R. NO. 179419, 12 Jan - Pioneer (respondent) averred that it is the insurer for loss and
2011 damage of Jeffrey S. See’s 2001 Suzuki Grand Vitara in the
amount of P1,175,000.00.
- On 30 April 2002, See arrived and checked in at the City
Garden Hotel before midnight, and its parking attendant,
Justimbaste got the key to said Vitara from See to park it.
Thereafter, See received a phone call where the Hotel Chief
Security Officer informed him that his Vitara was carnapped
while it was parked unattended at the parking area of Equitable
PCI Bank
- See went to see the Security Officer, thereafter reported the
incident to the Operations Division of the Makati City Police
Anti-Carnapping Unit, and a flash alarm was issued. The police
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. and
Justimbaste. See gave his Sinumpaang Salaysay to the police
investigator, and filed a Complaint Sheet with the PNP Traffic
Management Group in Camp Crame, it paid the P1,163,250.00
money claim of See and mortgagee ABN AMRO Savings Bank,
Inc. as indemnity for the loss of the Vitara.
- The Vitara was lost due to the negligence of Durban
Apartments and Justimbaste because it was discovered during
the investigation that this was the second time that a similar
incident of carnapping happened in the valet parking service
and no necessary precautions were taken to prevent its
repetition. Durban Apartments was wanting in due diligence in
the selection and supervision of its employees particularly
defendant Justimbaste. Both failed and refused to pay its valid,
just, and lawful claim despite written demands.
4) - Mary Jo-Anne De Asis dined at petitioner's Kamayan
Triple-V Food Services vs. Restaurant at Quezon City. De Asis was using a Mitsubishi
Filipino Merchants, G.R. Galant Super Saloon Model 1995, assigned to her by her
NO. 160544, 21 Feb 2005 employer Crispa Textile Inc. (Crispa). Thereafter, De Asis
availed of the valet parking service of petitioner and entrusted
her car key to petitioner's valet counter. A corresponding
parking ticket was issued as receipt for the car. The car was
then parked by petitioner's valet attendant, a certain
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- Whether there exist a
contract of deposit.
- Whether petitioner is
liable for the loss of
See’s vehicle
- Whether or not
petitioner Triple-V
Food Services, Inc. is
liable for the loss.
Yes. There was a contract of necessary deposit.
- Article 1962, in relation to Article 1998, of the Civil Code
defines a contract of deposit and a necessary deposit
made by persons in hotels or inns:
- Art. 1962. A deposit is constituted from the moment a
person receives a thing belonging to another, with the
obligation of safely keeping it and returning the same. If
the safekeeping of the thing delivered is not the principal
purpose of the contract, there is no deposit but some
other contract.
- Art. 1998. The deposit of effects made by travelers in
hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them,
or to their employees, of the effects brought by the
guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes
advised relative to the care and vigilance of their effects.
- Plainly, from the facts found by the lower courts, the
insured See deposited his vehicle for safekeeping with
petitioner, through the latter’s employee, Justimbaste. In
turn, Justimbaste issued a claim stub to See. Thus, the
contract of deposit was perfected from See’s delivery,
when he handed over to Justimbaste the keys to his
vehicle, which Justimbaste received with the obligation
of safely keeping and returning it. Ultimately, petitioner
is liable for the loss of See’s vehicle.
- Yes. In a contract of deposit, a person receives an
object belonging to another with the obligation of safely
keeping it and returning the same. A deposit may be
constituted even without any consideration. It is not
necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
- When De Asis entrusted the car in question to
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Madridano, at the designated parking area.
- Few minutes later, Madridano noticed that the car was not in its
parking slot and its key no longer in the box where valet
attendants usually keep the keys of cars entrusted to them.
The car was never recovered. Thereafter, Crispa filed a claim
against its insurer, herein respondent Filipino Merchants
Insurance Company, Inc. (FMICI). Having indemnified Crispa
for the loss of the subject vehicle, FMICI, as subrogee to
Crispa's rights, filed with the RTC at Makati City an action for
damages against petitioner Triple-V Food Services, Inc.
- In its answer, petitioner argued that the complaint failed to aver
facts to support the allegations of recklessness and negligence
committed in the safekeeping and custody of the subject
vehicle, claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the
discovery of the loss.
- Petitioner further argued that in accepting the complimentary
valet parking service, De Asis received a parking ticket which
contained a waiver of petitioner’s liability in case of loss, she
had thereby waived her rights; and that De Asis knowingly
assumed the risk of loss when she allowed petitioner to park
her vehicle, adding that its valet parking service did not include
extending a contract of insurance or warranty for the loss of the
vehicle.
- The RTC issued its judgment in favor of the FMICI and against
the defendant Triple V .
- On appeal, petitioner contended that it was not a depositary of
the subject car and that it exercised due diligence and
prudence in the safe keeping of the vehicle, in handling the
carnapping incident and in the supervision of its employees. It
further argued that there was no valid subrogation of rights
between Crispa and respondent FMICI. The Court of Appeals
dismissed petitioner's appeal and affirmed the appealed
decision of the trial court.
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petitioners valet attendant while eating at petitioner's
Kamayan Restaurant, the former expected the car's
safe return at the end of her meal. Thus, petitioner was
constituted as a depositary of the same car. Petitioner
cannot evade liability by arguing that neither a contract
of deposit nor that of insurance, guaranty or surety for
the loss of the car was constituted when De Asis availed
of its free valet parking service.
- In a contract of deposit, a person receives an object
belonging to another with the obligation of safely
keeping it and returning the same. A deposit may be
constituted even without any consideration. It is not
necessary that the depositary receives a fee before it
becomes obligated to keep the item entrusted for
safekeeping and to return it later to the depositor.
- The parking claim stub embodying the terms and
conditions of the parking, including that of relieving
petitioner from any loss or damage to the car, is
essentially a contract of adhesion, drafted and prepared
as it is by the petitioner alone with no participation
whatsoever on the part of the customers, like De Asis,
who merely adheres to the printed stipulations therein
appearing. While contracts of adhesion are not void in
themselves, yet this Court will not hesitate to rule out
blind adherence thereto if they prove to be one-sided
under the attendant facts and circumstances.
- Hence, and as aptly pointed out by the Court of
Appeals, petitioner must not be allowed to use its
parking claim stub's exclusionary stipulation as a shield
from any responsibility for any loss or damage to
vehicles or to the valuables contained therein. Here, it is
evident that De Asis deposited the car in question with
the petitioner as part of the latter's enticement for
customers by providing them a safe parking space
within the vicinity of its restaurant. In a very real sense,
a safe parking space is an added attraction to
petitioner's restaurant business because customers are
thereby somehow assured that their vehicle are safely
kept, rather than parking them elsewhere at their own
risk. Having entrusted the subject car to petitioner's
valet attendant, customer De Asis, like all of petitioner's
customers, fully expects the security of her car while at
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petitioner's premises/designated parking areas and its

safe return at the end of her visit at petitioner's
restaurant.

GUARANTY &
SURETYSHIP

1) E. Zobel Inc v. CA Respondent spouses loaned 2.875M from respondent Consolidated
Bank (solidbank) to buy 2 maritime barges and 1 tugboat for their
molasses business. The condition was that the 3 vessels would be
subject to chattel mortgage and that E. Zobel Inc would execute
continuing guarantee in favor to SOLIDBANK. The spouses
defaulted and SOLIDBANK filed case against petitioner and
respondent spouses for sum of money. Petitioner moved that the file
be dismissed pursuant to Art. 2080 of Civil Code.
WON E Zobel Inc obligated
itself as surety or guaranty?
Surety is distinguished from a guaranty in that a guarantor is
the insurer of the solvency of the debtor and thus binds
himself to pay if the principal is unable to pay while a surety is
the insurer of the debt, and he obligates himself to pay if the
principal does not pay.
Based on the aforementioned definitions, it appears that the
contract executed by petitioner in favor of SOLIDBANK, albeit
denominated as a "Continuing Guaranty," is a contract of
surety.
The use of the term "guarantee" does not ipso facto mean
that the contract is one of guaranty. Authorities recognize that
the word "guarantee" is frequently employed in business
transactions to describe not the security of the debt but an
intention to be bound by a primary or independent obligation.
As aptly observed by the trial court, the interpretation of a
contract is not limited to the title alone but to the contents and
intention of the parties.
Having thus established that petitioner is a surety, Article
2080 of the Civil Code, relied upon by petitioner, finds no
application to the case at bar.

2) Palmares v. CA
Private respondent M.B Lending Corporation extended a loan to the
spouses Osmeña and Merlyn Azarraga
together with petitioner Estrella Palmares in the amount of
P30,000.00, with compounded interest at the rate of 6%
per annum. On four occasions after the execution of the promissory
note and even after the loan matured, petitioner
and the Azarraga spouses were able to pay a total of P16,300.00
thereby leaving a balance of P13, 700.00. No payments were made
after the last payment. On the basis of petitioners’ solidary liability
under the promissory note,
Respondent Corporation filed a complaint against petitioner
Palmares as a lone party-defendant, to the exclusion of
the principal debtors, allegedly by reason of the insolvency of the
WON petitioner Palmares is
solidarily liable.
Yes. The SC ruled that Palmares is a surety. Settled is the
rule that a surety is bound equally and absolutely
with the principal,and as such is deemed an original promisor
and debtor from the beginning. This is because in
suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. In
essence, the contract of a surety starts with the agreement,
which is precisely the situation obtaining in this case
before the Court.
It will further be observed that petitioner's undertaking as co-
maker immediately follows the terms and conditions
stipulated between Respondent Corporation, as creditor, and
the principal obligors. A surety is usually bound with his

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latter. RTC Dismissed the complaint and held that principal by the same instrument, executed at the same time
the offer made by petitioner to pay the obligation is considered a and upon the same consideration; he is an original
valid tender of payment sufficient to discharge a debtor, and his liability is immediate and direct. Thus, it has
person's secondary liability on the instrument; as co-maker, is only been held that where a written agreement on the same
secondarily liable on the instrument; and that the sheet of paper with and immediately following the principal
promissory note is a contract of adhesion. Contrary to the findings of contract between the buyer and seller is executed
the trial court, respondent appellate court simultaneously therewith, providing that the signers of the
declared that petitioner Palmares is a surety since she bound herself agreement agreed to the terms of the principal contract,
to be jointly and severally or solidarily liable the signers were "sureties" jointly liable with the buyer. A
with the principal debtors, the Azarraga spouses, when she signed surety usually enters into the same obligation as that of his
as a co-maker. principal, and the signatures of both usually appear upon the
same instrument, and the same consideration usually
Yes. The SC ruled that Palmares is a surety. Settled is the
rule that a surety is bound equally and absolutely
with the principal,and as such is deemed an original promisor
and debtor from the beginning. This is because in
suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. In
essence, the contract of a surety starts with the agreement,
which is precisely the situation obtaining in this case
before the Court.
It will further be observed that petitioner's undertaking as co-
maker immediately follows the terms and conditions
stipulated between Respondent Corporation, as creditor, and
the principal obligors. A surety is usually bound with his
principal by the same instrument, executed at the same time
and upon the same consideration; he is an original
debtor, and his liability is immediate and direct. Thus, it has
been held that where a written agreement on the same
sheet of paper with and immediately following the principal
contract between the buyer and seller is executed
simultaneously therewith, providing that the signers of the
agreement agreed to the terms of the principal contract,
the signers were "sureties" jointly liable with the buyer. A
surety usually enters into the same obligation as that of his
principal, and the signatures of both usually appear upon the
same instrument, and the same consideration usually.

3) Spouses Toh v. RESPONDENT SOLID BANK CORPORATION AGREED TO WON spouses TOH are Yes. This Court holds that the Continuing Guaranty is a valid
Solidbank, Gr. 154183, EXTEND an "omnibus line" credit facility worth P10 million in favor of discharged as sureties under and binding contract of petitioner-spouses as it is a public
August 7, 2003 (FBPC). The terms and conditions of the agreement as well as the the Continuing Guaranty? document that enjoys the presumption of authenticity and due
checklist of documents necessary to open the credit line were execution. Similarly, there is no basis for petitioners to limit

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stipulated in a "letter-advise" of the Bank. The documents essential
for the credit facility and submitted for this purpose were the… (c)
Continuing Guaranty for any and all amounts signed by petitioner-
spouses Luis Toh and Vicky Tan Toh, and respondent-spouses
Kenneth and Ma. Victoria Ng Li… The Continuing Guaranty set forth
no maximum limit on the indebtedness that respondent FBPC may
incur and contained a de facto acceleration clause. So as to
strengthen this security, the Continuing Guaranty waived rights of
the sureties against delay or absence of notice or demand on the
part of respondent Bank, and gave future consent to the Bank's
action to "extend or change the time payment, and/or the manner,
place or terms of payment," including renewal, of the credit facility or
any part thereof in such manner and upon such terms as the Bank
may deem proper without notice to or further assent from the
sureties.
On 16 June 1993 respondent FBPC started to avail of the credit
facility and secured letters of credit. FBPC opened thirteen (13)
letters of credit and executed a series of trust receipts over the
goods allegedly purchased from the proceeds of the loans.
On 13 January 1994 respondent Bank received information that
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had
fraudulently departed from their conjugal home. On 14 January 1994
the Bank served a demand letter upon FBPC and petitioner Luis Toh
invoking the acceleration clause in the trust receipts of FBPC and
claimed payment for P10,539,758.68 as unpaid overdue accounts
on the letters of credit plus interests and penalties within twenty-four
(24) hours from receipt thereof. The Bank also invoked the
Continuing Guaranty executed by petitioner-spouses Luis Toh and
Vicky Tan Toh.
On 17 January 1994 respondent Bank filed a complaint for sum of
money.
Petitioners also contended that through FBPC Board Resolution,
petitioner Luis Toh was removed as an authorized signatory for
FBPC and replaced by respondent-spouses Ng Li and Padilla for all
the transactions of FBPC with respondent Bank. They even resigned
from their respective positions in FBPC. Finally, petitioners averred
that sometime in June 1993 they obtained from respondent Kenneth
Ng Li their exclusion from the several surety agreements they had
entered into.
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their responsibility so long as they were corporate officers and
stockholders of FBPC. Nothing in the Continuing Guaranty
restricts their contractual undertaking to such condition or
eventuality.
Insofar as petitioners stipulate in the Continuing Guaranty that
respondent Bank "may at any time, or from time to time, in
[its] discretion x x x extend or change the time payment," this
provision even if understood as a waiver is confined per se to
the grant of an extension and does not surrender the
prerequisites therefor as mandated in the "letter-advise." In
other words, the authority of the Bank to defer collection
contemplates only authorized extensions, that is, those that
meet the terms of the "letter-advise."
Certainly, while the Bank may extend the due date at its
discretion pursuant to the Continuing Guaranty, it should
nonetheless comply with the requirements that domestic
letters of credit be supported by fifteen percent (15%)
marginal deposit extendible three (3) times for a period of
thirty (30) days for each extension, subject to twenty-five
percent (25%) partial payment per extension.
An extension of the period for enforcing the indebtedness
does not by itself bring about the discharge of the sureties
unless the extra time is not permitted within the terms of the
waiver, i.e., where there is no payment or there is deficient
settlement of the marginal deposit and the twenty-five percent
(25%) consideration, in which case the illicit extension
releases the sureties. Under Art. 2055 of the Civil Code, the
liability of a surety is measured by the terms of his contract,
and while he is liable to the full extent thereof, his
accountability is strictly limited to that assumed by its terms.
The foregoing extensions of the letters of credit made by
respondent Bank without observing the rigid restrictions for
exercising the privilege are not covered by the waiver
stipulated in the Continuing Guaranty. Evidently, they
constitute illicit extensions prohibited under Art. 2079 of the
Civil Code, "[a]n extension granted to the debtor by the
creditor without the consent of the guarantor extinguishes the
guaranty."
As a result of these illicit extensions, petitioner-spouses Luis
Toh and Vicky Tan Toh are relieved of their obligations as
sureties of respondent FBPC under Art. 2079 of the Civil
Code.
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4) Aglibot v. Santia, Gr. Private respondent-complainant Engr. Ingersol L. Santia loaned the
185945, December 5, 2012 amount of P2,500,000.00 to Pacific Lending & Capital Corporation
(PLCC), through its Manager, petitioner Fideliza J. Aglibot. The loan
was evidenced by a Promissory Note dated July 1, 2003, issued by
Aglibot in behalf of PLCC, payable in one year subject to interest at
24% per annum. Allegedly as a guaranty or security for the payment
of the note, Aglibot also issued and delivered to Santia eleven (11)
post-dated personal checks drawn from her own demand account
maintained at Metrobank, Camiling Branch. Aglibot is a major
stockholder of PLCC, with headquarters at 27 Casimiro Townhouse,
Casimiro Avenue, Zapote, Las Piñas, Metro Manila, where most of
the stockholders also reside.
Upon presentment of the aforesaid checks for payment, they were
dishonored by the bank for having been drawn against insufficient
funds or closed account. Santia thus demanded payment from PLCC
and Aglibot of the face value of the checks, but neither of them
heeded his demand.
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Whether or not Aglibot is an
accommodation party or a
guaranteeing party? If she is
the latter, is she benefitted
from excussion against
Santia?
For the same reason, the grace period granted by respondent
Bank represents unceremonious abandonment and forfeiture
of the fifteen percent (15%) marginal deposit and the twenty-
five percent (25%) partial payment as fixed in the "letter-
advise." These payments are unmistakably additional
securities intended to protect both respondent Bank and the
sureties in the event that the principal debtor FBPC becomes
insolvent during the extension period. Compliance with these
requisites was not waived by petitioners in the Continuing
Guaranty. For this unwarranted exercise of discretion,
respondent Bank bears the loss; due to its unauthorized
extensions to pay granted to FBPC, petitioner-spouses Luis
Toh and Vicky Tan Toh are discharged as sureties under the
Continuing Guaranty.
First ISSUE: Aglibot is an accommodation party and
therefore liable to Santia. The appellate court ruled that by
issuing her own post-dated checks, Aglibot thereby bound
herself personally and solidarily to pay Santia, and dismissed
her claim that she issued her said checks in her official
capacity as PLCC’s manager merely to guarantee the
investment of Santia. The facts present a clear situation
where Aglibot, as the manager of PLCC, agreed to
accommodate its loan to Santia by issuing her own post-
dated checks in payment thereof. She is what the Negotiable
Instruments Law calls an accommodation party.
The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that
a surety is bound equally and absolutely with the principal and
is deemed an original promisor and debtor from the
beginning. The liability is immediate and direct. It is not a valid
defense that the accommodation party did not receive any
valuable consideration when he executed the instrument; nor
is it correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the
instrument, he knew that the indorser was only an
accommodation party. Unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary
but also unconditional to a holder for value, such that even if
the accommodated party receives an extension of the period
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for payment without the consent of the accommodation party,

the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor

Second ISSUE: Aglibot cannot invoke the benefit of

excussion. It is settled that the liability of the guarantor is only
subsidiary, and all the properties of the principal debtor, the
PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt. Thus, the
creditor may hold the guarantor liable only after judgment has
been obtained against the principal debtor and the latter is
unable to pay, “for obviously the ‘exhaustion of the principal’s
property’ — the benefit of which the guarantor claims —
cannot even begin to take place before judgment has been
obtained.” This rule is contained in Article 2062 of the Civil
Code, which provides that the action brought by the creditor
must be filed against the principal debtor alone, except in
some instances mentioned in Article 2059 when the action
may be brought against both the guarantor and the principal
debtor.

The Court must, however, reject Aglibot’s claim as a mere

guarantor of the indebtedness of PLCC to Santia for want of
proof, in view of Article 1403(2) of the Civil Code, embodying
the Statute of Frauds. Under the above provision, concerning
a guaranty agreement, which is a promise to answer for the
debt or default of another, the law clearly requires that it, or
some note or memorandum thereof, be in writing. Otherwise,
it would be unenforceable unless ratified, although under
Article 1358 of the Civil Code, a contract of guaranty does not
have to appear in a public document. Contracts are generally
obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are
present, and the Statute of Frauds simply provides the
method by which the contracts enumerated in Article 1403(2)
may be proved, but it does not declare them invalid just
because they are not reduced to writing. Thus, the form
required under the Statute is for convenience or evidentiary
purposes only.

On the other hand, Article 2055 of the Civil Code also

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5) CCC Insurance v.
Kawasaki Steel; GR No.
156162, June 22, 2015
6)
7) Carodan v. China Bank A complaint for a sum of money was filed against Corodan, et.al by
Corporation, G.R. No. China Banking Corporation in relation to the promissory note which
210542, February 24, 2016 they promised to pay jointly and severally the amount of 2.8 Million
pesos. As security for the payment of the loan, Barbara, Rebecca
and Rosalina also executed a Real Estate Mortgage over a property
registered in the name of Rosalina. A Surety Agreement in favor of
China Bank as creditor was also executed by Barbara and Rebecca
as principals and Rosalina and her niece Madeline as sureties. The
warranties were made by the principal debtor.
The petitioners failed to pay their loan despite the demands made
which prompted China Bank to institute an extrajudicial foreclosure
proceedings on the mortgage property. China Bank clarified that it
was suing Barbara and Rebecca as debtors under the Promissory
Note and as principals in the Surety Agreement, as well as Rosalina
and Madeline as sureties in the Surety Agreement.
Rosalina averred that when Barbara and Rebecca paid half of the
loan under the Promissory Note, the properties of Barbara covered
by the mortgage were released by the bank from liability. The
cancellation of the mortgage lien was effected by an instrument. This
cancellation, according to Rosalina, illegally caused her property to
absorb the singular risk of foreclosure. The result, according to her,
was the extinguishment of the indivisible obligation contained in the
mortgage pursuant to Article 121632 of the Civil Code.
China Bank alleged that the issue of whether Rosalina obtained
material benefit from the loan was not material, since she had
voluntarily and willingly encumbered her property; that the
indivisibility of mortgage does not apply to the case at bar, since
ALENTON - ENIEGO - HONTIVEROS - LAGAPA - LANZADERAS - MAAGAD - MAGALLON - MALINGIN - NOBLE - ROA
provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of
guarantee is unenforceable unless made in writing or
evidenced by some writing.
Whether Rosalina is liable Strictly speaking, guaranty and surety are nearly related, and
jointly and severally with many of the principles are common to both. However, under
Barbara and Rebbeca for our civil law, they may be distinguished thus: A surety is
the payment of the loan usually bound with his principal by the same ibnstrument,
obligation? executed at the same time, and on the same consideration.
He is an original promissor and debtor from the beginning,
and is held, ordinarily, to know every default of his principal.
Usually, he will not be discharged, either by the mere
indulgence of the creditor to the principal, or by want of notice
of the default of the principal, no matter how much he may be
injured thereby. On the other hand, the contract of guaranty is
the guarantor's own separate undertaking, in which the
principal does not join. It is usually entered into before or after
that of the principal, and is often supported on a separate
consideration from that supporting the contract of the
principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-
performance. He is often discharged by the mere indulgence
of the creditor to the principal, and is usually not liable unless
notified of the default of the principal.
Simply put, a surety is distinguished from a guaranty in that a
guarantor is the insurer of the solvency of the debtor and thus
binds himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he obligates himself to
pay if the principal does not pay.
When Rosalina affixed her signature to the Real Estate
Mortgage as mortgagor and to the Surety Agreement as
surety which covered the loan transaction represented by the
Promissory Note, she thereby bound herself to be liable to
CREDTRANS MT CASES SY 2018- 2019
ATTY. SORAYA LAUT

Article 208938 of the Civil Code presupposes several heirs, a
condition that is not present in this case; that nothing short of
payment of the debt or an express release would operate to
discharge a mortgage; and that, as surety, Rosalina was equally
liable as principal debtor to pay the deficiency obligation.
China Bank in case the principal debtors, Barbara and
Rebecca, failed to pay. She consequently became liable to
respondent bank for the payment of the debt of Barbara and
Rebecca when the latter two actually did not pay

ALENTON - ENIEGO - HONTIVEROS - LAGAPA - LANZADERAS - MAAGAD - MAGALLON - MALINGIN - NOBLE - ROA