SIMPLE LOAN OR MUTUUM

G.R. No. L-20240

December 31, 196

REPU!LI" O# T$E P$ILIPPINES, %&'()*(++-'%%e&&ee, ,-. .OSE [Link], /e+e)/')*-'%%e&&')*. FACTS: In the year 1943 appellant Jose Grijaldo obtained five loans fro the bran!h offi!e of the "an# of Tai$an% &td' in "a!olod City% in the total s( of )1%*+1'9, $ith interest at the rate of -. per ann( % !o po(nded /(arterly' These loans are eviden!ed by five pro issory notes e0e!(ted by the appellant in favor of the "an# of Tai$an% &td'% as follo$s: 1n J(ne 1% 1943% )-22'223 on J(ne 3% 1943% )149'113 on J(ne 1+% 1943% )**'+-3 on A(5(st 9% 1943%)322'223 on A(5(st 13% 1943% )*22'22% all notes $itho(t d(e dates% b(t be!a(se the loans $ere d(e one year after they $ere in!(rred' To se!(re the pay ent of the loans the appellant e0e!(ted a !hattel ort5a5e on the standin5 !rops on his land% &ot 6o' 1494 #no$n as 7a!ienda Ca p(5as in 7ini5iran% 6e5ros 1!!idental' "y virt(e of 8estin5 1rder 6o' )94% dated Jan(ary *1% 194-% and (nder the a(thority provided for in the Tradin5 $ith the :ne y A!t% as a ended% the assets in the )hilippines of the "an# of Tai$an% &td' $ere vested in the Govern ent of the ;nited States' )(rs(ant to the )hilippine )roperty A!t of 194- of the ;nited States% these assets% in!l(din5 the loans in /(estion% $ere s(bse/(ently transferred to the <ep(bli! of the )hilippines by the Govern ent of the ;nited States (nder Transfer A5ree ent dated J(ly *2% 1944' These assets $ere a on5 the properties that $ere pla!ed (nder the ad inistration of the "oard of &i/(idators !reated (nder :0e!(tive 1rder 6o' 3,*% dated 6ove ber *4% 1942% and in a!!ordan!e $ith <ep(bli! A!ts 6os' + and 4,, and other pertinent la$s' 1n Septe ber *9% 1944 the appellee% <ep(bli! of the )hilippines% represented by the Chair an of the "oard of &i/(idators% ade a $ritten e0traj(di!ial de and (pon the appellant for the pay ent of the a!!o(nt in /(estion' The re!ord sho$s that the appellant had a!t(ally re!eived the $ritten de and for pay ent% b(t he failed to pay' 1n Jan(ary 1,% 19-1 the appellee filed a !o plaint in the J(sti!e of the )ea!e Co(rt of 7ini5aran% 6e5ros 1!!idental% to !olle!t fro the appellant the (npaid a!!o(nt in /(estion' The J(sti!e of the )ea!e 1f 7ini5aran% after hearin5% dis issed the !ase on the 5ro(nd that the a!tion had pres!ribed' The appellee appealed to the Co(rt of First Instan!e of 6e5ros 1!!idental and on =ar!h *-% 19-* the !o(rt a

quo rendered a de!ision orderin5 the appellant to pay the appellee the s( of )*%3,,'*3 as of >e!e ber 31% 1949% pl(s interest at the rate of -. per ann( !o po(nded /(arterly fro the date of the filin5 of the !o plaint (ntil f(ll pay ent $as ade' The appellant $as also ordered to pay the s( e/(ivalent to 12. of the a o(nt d(e as attorney?s fees and !osts' The appellant appealed dire!tly to this Co(rt' >(rin5 the penden!y of this appeal the appellant Jose Grijaldo died' ;pon otion by the Soli!itor General this Co(rt% in a resol(tion of =ay 13% 19-3% re/(ired =an(el &a5tapon% Ja!into &a5tapon% <(ben &a5tapon and Anita &' A5(ilar% $ho are the le5al heirs of Jose Grijaldo to appear and be s(bstit(ted as appellants in a!!ordan!e $ith Se!tion 1, of <(le 3 of the <(les of Co(rt' ISS;:: @hether or not the obli5ation to pay is e0tin5(ished' The appellant li#e$ise aintains% in s(pport of his !ontention that the appellee has no !a(se of a!tion% that be!a(se the loans $ere se!(red by a !hattel ort5a5e on the standin5 !rops on a land o$ned by hi and these !rops $ere lost or destroyed thro(5h ene y a!tion his obli5ation to pay the loans $as thereby e0tin5(ished' 7:&>: This ar5( ent is (ntenable' The ter s of the pro issory notes and the !hattel ort5a5e that the appellant e0e!(ted in favor of the "an# of Tai$an% &td' do not s(pport the !lai of appellant' The obli5ation of the appellant (nder the five pro issory notes $as not to deliver a deter inate thin5 na ely% the !rops to be harvested fro his land% or the val(e of the !rops that $o(ld be harvested fro his land' <ather% his obli5ation $as to pay a 5eneri! thin5 A the a o(nt of oney representin5 the total s( of the five loans% $ith interest' The transa!tion bet$een the appellant and the "an# of Tai$an% &td' $as a series of five !ontra!ts of si ple loan of s( s of oney' B"y a !ontra!t of Csi pleD loan% one of the parties delivers to another ''' oney or other !ons( able thin5 (pon the !ondition that the sa e a o(nt of the sa e #ind and /(ality shall be paid'B CArti!le 1933% Civil CodeD The obli5ation of the appellant (nder the five pro issory notes eviden!in5 the loans in /(estions is to pay the val(e thereof3 that is% to deliver a s( of oney A a !lear !ase of an obli5ation to deliver% a 5eneri! thin5' Arti!le 1*-3 of the Civil Code provides: In an obli5ation to deliver a 5eneri! thin5% the loss or destr(!tion of anythin5 of the sa e #ind does not e0tin5(ish the obli5ation' The !hattel ort5a5e on the !rops 5ro$in5 appellant?s land si ply stood as a se!(rity for f(lfill ent of appellant?s obli5ation !overed by the pro issory notes% and the loss of the !rops did on the five not

S:CT<A6S *212E ATTF' AG;I6A&>1

e0tin5(ish his obli5ation to pay% be!a(se the a!!o(nt !o(ld still be paid fro other so(r!es aside fro the ort5a5ed !rops'

)etitioner s(bse/(ently failed to ret(rn the )* pesos'

illion

#r('- ,- S') D(e0o-S(-o) G.R. No. 1 223 A%r(& 4, 2001 Fa!ts )etitioner is the o$ner of a ho(se and lot in Ayala Alaban5' )etitioner and >ra' Flora San >ie5o9Sison C<espondentD entered into a =e orand( of A5ree ent C=1AD over the !ited property $ith the follo$in5 ter s: 1' The land is to be sold for ) -'4 *' )etitioner $ill re!eive )3 respondent as do$npay ent' illion' illion fro

CA r(led that the )* illion do$npay ent shall in!l(de interest !o p(ted at the ti e the disp(ted a o(nt $as !onsidered a loan' Th(s% this petition'

Iss(e: @hether or not the interest sho(ld be li ited to the 1st si0 onths as !ontained in the =1AG <(lin5: 6o' SC r(led in favo(r of <espondent' The SC opined that if the ter s of an a5ree ent are !lear and leave no do(bt as to the intention of the !ontra!tin5 parties% the literal eanin5 of its stip(lations shall prevail' It is f(rther re/(ired that the vario(s stip(lations of a !ontra!t shall be interpreted to5ether' In this !ase% the phrase Bfor the last si0 onths onlyB sho(ld be ta#en in the !onte0t of the entire a5ree ent' The =1A spea#s of * periods of si0 o onths ea!h'

3' In li5ht of the do$npay ent% respondent had - onths C1stD to notify the )etitioner of her intention to p(r!hase the land' 7o$ever% the balan!e is to be paid $ithin another onths' 4' )rior to the first si0 onths% the )etitioner ay still offer the !ited land to other persons provided that the )3 illion do$npay ent shall be ret(rned to the <espondent in!l(din5 interest based on prevailin5 !o po(nded ban# interest' 4' 6evertheless% in !ase there are no other b(yers $ithin the first - onths% no interest shall be !har5ed on the )3 illion' -' 7o$ever% in the event that on the -th onth the <espondent does not p(r!hase the land% the )etitioner has a period of another onths C*ndD $ithin $hi!h to pay the s( of )3 illion $ith interest for the last six months only' The do$npay ent shall be treated as loan 5ranted by the <espondent' )etitioner re!eived fro <espondent )* illion in !ash and )1 illion in a post9dated !he!# $hi!h $as s(bse/(ently !onsidered as stale' Therefore% only )* illion $as re!eived as do$npay ent' "efore the !he!# be!a e stale% )etitioner 5ave <espondent the TCT and the >eed of Absol(te Sale of the land' S(bse/(ently% <espondent de!ided not to p(r!hase the property and notified )etitioner of this re indin5 the latter that the a o(nt of )* illion sho(ld be !onsidered as a loan payable $ithin si0 onths as stip(lated in the =1A $ith interest !o p(ted fro s(!h notifi!ation'

The 1st si09 onths $as 5iven to <espondent to a#e (p her ind $hether or not to p(r!hase )etitioner?s property' The *nd si09 onths $as 5iven to )etitioner to pay the )* illion loan Cdo$npay entD in the event that <espondent de!ided not to b(y the property in $hi!h !ase interest $ill be !har5ed Bfor the last six months only", referring to the 2nd six-month period' This eans that no interest $ill be !har5ed for the 1st si09 onths $hile <espondent !onte platin5 on $hether to b(y the property% b(t only for the *nd si09 onths after <espondent had de!ided not to b(y the property' This is the eanin5 of the phrase Bfor the last si0 onths onlyB' Certainly% there is nothin5 in their a5ree ent that s(55ests that interest $ill be !har5ed for - onths only even if it ta#es defendant9 appellant an eternity to pay the loan

This does 61T ean that interest $ill no lon5er be !har5ed after the *nd si09 onth period sin!e s(!h stip(lation $as ade on the lo5i!al and reasonable e0pe!tation that s(!h a o(nt $o(ld be paid $ithin the date stip(lated' Therefore% the onetary interest

S:CT<A6S *212E ATTF' AG;I6A&>1

for the last - onths !ontin(ed to a!!r(e (ntil a!t(al pay ent of the loaned a o(nt' It has been held that for a debtor to !ontin(e in possession of the prin!ipal of the loan and to !ontin(e to (se the sa e after at(rity of the loan $itho(t pay ent of the onetary interest% $o(ld !onstit(te (nj(st enri!h ent on the part of the debtor at the e0pense of the !reditor' Ar*. 19 6. No ()*ere-* -2'&& be /3e 42e) )o* e5%re--&6 -*(%3&'*e/ () 4r(*()0. AR7OOD INDUSTRIES, IN". ,-. D.M. "o)-3)8(, I)c. FACTS: )etitioner and respondent% as o$ner and !ontra!tor% respe!tively entered into an A5ree ent for the !onstr(!tion of petitionerHs !ondo ini( ' >espite the !o pletion of the proje!t% petitioner $as not able to pay respondent the f(ll a o(nt and left a balan!e' <epeated de ands $ere left (nheeded pro ptin5 respondent to file a !ivil !ase a5ainst petitioner% $ith a prayer a on5 others that the f(ll a o(nt be paid $ith interest of *. per onth% fro 6ov' 1992 (p to the ti e of pay ent' <TC r(led in favor of respondent' )etitioner appealed to the CA% parti!(larly opposin5 the i position of the *. interest' The CA r(led in favor of the *. interest' )etitionerHs !ontention9 The i position of the interest is $itho(t basis be!a(se C1D altho(5h it $as $ritten in the A5ree ent% it $as not entioned by the <TC in the dispositive portion and C*D the interest does not apply to the respondentHs !lai b(t to the I onthly pro5ress billin5J' ISS;:: @16 the <TC and Ca is !orre!t in i posin5 a *. per onth interest on the onetary a$ard or the balan!e of the !ontra!t pri!e' 7:&>: Fes' The A5ree ent bet$een the parties is the for al e0pression of the partiesH ri5hts% d(ties and obli5ations' It is the best eviden!e of the intention of the parties' Conse/(ently% (pon the f(lfill ent by respondent of its obli5ation to !o plete the !onstr(!tion proje!t% petitioner had the !orrelative d(ty to pay for respondentHs servi!es' 7o$ever% petitioner ref(sed to pay the balan!e of the !ontra!t pri!e' Fro the o ent respondent !o pleted the !onstr(!tion of the !ondo ini( proje!t and petitioner ref(sed to pay in f(ll% there $as delay on the part of petitioner' >elay in the perfor an!e of an obli5ation is loo#ed (pon $ith disfavor be!a(se% $hen a party to a !ontra!t in!(rs delay% the other party $ho perfor s his part of the !ontra!t s(ffers da a5es thereby' 1bvio(sly% respondent s(ffered da a5es bro(5ht abo(t by the fail(re of petitioner to !o ply $ith its obli5ation on ti e' And% sans elaboration of the atter at hand% da a5es ta#e the for of interest' A!!ordin5ly% the appropriate eas(re of da a5es in this !ase is the pay ent of

interest at the rate a5reed (pon% $hi!h is *. interest for every onth of delay' It (st be noted that the A5ree ent provided the !ontra!tor% respondent in this !ase% t$o options in !ase of delay in onthly pay ents% to $it: aD s(spend $or# on the proje!t (ntil pay ent is re itted by the o$ner or bD !ontin(e the $or# b(t the o$ner shall be re/(ired to pay interest at a rate of t$o per!ent C*.D per onth or a fra!tion thereof' :vidently% respondent !hose the latter option% as the !ondo ini( proje!t $as in fa!t already !o pleted' The pay ent of the *. onthly interest% therefore% !annot be jettisoned overboard' Sin!e the A5ree ent stands as the la$ bet$een the parties% this Co(rt !annot i5nore the e0isten!e of s(!h provision providin5 for a penalty for every onthHs delay' Facta legem facunt inter partes' 6either !an petitioner i p(5n the A5ree ent to $hi!h it $illin5ly 5ave its !onsent' Fro the o ent petitioner 5ave its !onsent% it $as bo(nd not only to f(lfill $hat $as e0pressly stip(lated in the A5ree ent b(t also all the !onse/(en!es $hi!h% a!!ordin5 to their nat(re% ay be in #eepin5 $ith 5ood faith% (sa5e and la$' )etitionerHs atte pt to iti5ate its liability to respondent sho(ld th(s fail' As a last9dit!h effort to evade liability% petitioner ar5(es that the a o(nt of )9-*%434',+ !lai ed by respondent and later a$arded by the lo$er !o(rts does not refer to I onthly pro5ress billin5s%J the delayed pay ent of $hi!h $o(ld earn interest at *. per onth' )etitioner appears !onf(sed by a se anti!s proble ' I=onthly pro5ress billin5sJ !ertainly for part of the !ontra!t pri!e' If the a o(nt !lai ed by respondent is not the I onthly pro5ress billin5sJ provided in the !ontra!t% $hat then does s(!h a o(nt representG )etitioner has not in point of fa!t !onvin!in5ly s(pplied an ans$er to this /(ery' 6either has petitioner sho$n any effort to !larify the eanin5 of I onthly pro5ress billin5sJ to s(pport its position' This leaves (s no !hoi!e b(t to a5ree $ith respondent that the phrase I onthly pro5ress billin5sJ refers to a portion of the !ontra!t pri!e payable by the o$ner CpetitionerD of the proje!t to the !ontra!tor CrespondentD based on the per!enta5e of !o pletion of the proje!t or on $or# a!!o plished at a parti!(lar sta5e' It refers to that portion of the !ontra!t pri!e still to be paid as $or# pro5resses% after the do$npay ent is ade'J This definition is% indeed% not $itho(t basis' Arti!les -'2* and -'23 of the A5ree ent% $hi!h respe!tively provides that the ICbDalan!e shall be paid in onthly pro5ress pay ents based on a!t(al val(e of the $or# a!!o plishedJ and that Ithe pro5ress pay ents shall be red(!ed by a portion of the do$npay ent ade by the 1@6:< !orrespondin5 to the val(e of the $or# !o pletedJ 5ive sense to respondentHs interpretation of I onthly pro5ress billin5s'J

S:CT<A6S *212E ATTF' AG;I6A&>1

SON"U9A :. A;ARRAGA RO9AL S$IRT #A"TOR9, IN". , "O FACTS: The parties entered into a !ontra!t $herein it is stip(lated that 342 pairs of ballet shoes $ill be sold by Co and that Co had 9 days fro delivery of the shoes to a#e his !hoi!e of * alternatives: aD !onsider the sale for the shoes !losed at a flat rate% or bD ret(rn the re ainin5 (nsold ones to <oyal' Co failed to ret(rn the (nsold pairs after 9 days and a!t(ally be5an a#in5 partial pay ents on a!!o(nt of the p(r!hase pri!e a5reed (pon' Co then !ontended that there $as erely a !onsi5n ent of the 5oods and he $anted to ret(rn the (nsold shoes' <oyal ref(sed !ontendin5 that it $as an o(tri5ht sale'

Fa!ts: This involves /(estion as to appli!ability of Tapia r(lin5 $herein the Co(rt held that Bthe obli5ation to pay interest on the deposit !eases the o ent the operation of the ban# is !o pletely s(spended by the d(ly !onstit(ted a(thority% the Central "an#%B to loans and advan!es by the Central "an# 7eld: <espondents have failed to add(!e any !o5ent ar5( ent to pers(ade the Co(rt to re!onsider its <esol(tion at bar that the Tapia r(lin5 is f(lly appli!able to the non9pay ent of interest% d(rin5 the period of the ban#?s for!ible !los(re% on loans and advan!es ade by respondent Central "an#' <espondent Central "an# itself $hen it $as then ana5in5 the 1verseas "an# of =anila Cno$ Co er!ial "an# of =anilaD (nder a holdin5 tr(st a5ree ent% held the sa e position in Idelfonso D. Yap vs. !" $herein it ar5(ed that BCIDn a s(it a5ainst the re!eiver of a national ban# for oney loaned to the "an# $hile it $as a 5oin5 !on!ern% it $as error to per it plaintiff to re!over interest on the loan after the ban#?s s(spensionB A si5nifi!ant develop ent of the !ase% the Govern ent Servi!e Ins(ran!e Syste CGSISD has a!/(ired o$nership of 99'93. of the o(tstandin5 !apital sto!# of C1="A6M' The Co(rt?s <esol(tion anifestly redo(nds to the benefit of another 5overn ent instit(tion% the GSIS% and to the preservation of the ban#in5 syste ' LIRAG TE>TILE MILLS, IN". :S. SSS 1 3 S"RA 33? Fa!ts: SSS CrespondentD and &ira5 Te0tile =ills C)etitionerD entered into a )(r!hased A5ree ent $hi!h <espondent a5reed to p(r!hase preferred sto!#s of )etitioner $orth )1 illion s(bje!t to !onditions: o For )etitioner to rep(r!hase the shares of sto!#s at a re5(lar interval of one year and to pay dividends' o Fail(re to redee and pay the dividend% the entire obli5ation shall be!o e d(e and de andable and it shall be liable for an a o(nt e/(ivalent to 1*. of the a o(nt then o(tstandin5 as li/(idated da a5es' "asilio &ira5 C"asilioD as )resident of &ira5 Te0tile =ills si5ned the A5ree ent as a s(rety to 5(arantee the rede ption of the sto!#s% the pay ent of dividends and other obli5ations' )(rs(ant to the A5ree ent% <espondent paid )etitioner )422%222 on t$o o!!asions and the latter iss(ed 4%222 preferred sto!#s $ith a par val(e of )122 as eviden!ed by Sto!# Certifi!ate 6os' 1*+ and 139'

ISS;:: @o6 the sale $as an o(tri5ht sale E @o6 Co is bo(nd by the interest stip(lated in the invoi!e' SC: F:SK E 61K 1;T<IG7T SA&: o Co a!!epted the invoi!e of the ballet shoes and he even noted do$n in his o$n hand$ritin5 the partial pay ents that he ade' If the sale has been on !onsi5n ent% a stip(lation as to the period of ti e for the ret(rn of the (nsold shoes sho(ld have been ade% ho$ever% this $as not done

61T "1;6> "F T7: I6T:<:ST o 7e did not si5n the invoi!e slip the stip(lated interest $as *2.% hen!e% not bindin5 7o$ever% he is bo(nd by the le5al interest of -.

o -

7en!e% Co $as ordered to pay the balan!e of the p(r!hase pri!e for the ballet shoes L le5al interest

EMERITO M. RAMOS, e* '&., %e*(*(o)er-, ,-. "ENTRAL !AN< O# T$E P$ILIPPINES, re-%o)/e)*-= "OMMER"IAL !AN< O# MANILA, ()*er,e)or.

S:CT<A6S *212E ATTF' AG;I6A&>1

After sendin5 <espondent sent de and letters% )etitioner and "asilio still ade no rede ption nor ade dividend pay ents' <espondent filed an a!tion for spe!ifi! perfor an!e and da a5es a5ainst )etitioner: )etitioner !ontends that there is no obli5ation on their part to redee the sto!# !ertifi!ates sin!e <espondent is still a preferred sto!# holder of the !o pany and s(!h rede ption is dependent (pon the finan!ial ability of the !o pany' 1n the part of "asilio% he !ontends that his liability only arises only if the !o pany is liable and does not perfor its obli5ations (nder the A5ree ent'

da a5es is e0pressly provided for the )(r!hase A5ree ent in !ase of !ontra!t(al brea!h' Sin!e &ira5 did not deny its fail(re to redee the preferred shares and the non9pay ent of dividends $hi!h are overd(e% they are bo(nd to earn le5al interest fro the ti e of de and% in this !ase% j(di!ial i'e' the ti e of filin5 the a!tion'

ANGEL 7ARE$OUSING ,- "$ELDA Fa!ts: An5el @areho(sin5 s(ed Chelda for the re!overy of (npaid loans a o(ntin5 to )*2%++2 be!a(se the post dated !he!#s iss(ed by Chelda $ere dishonored' Chelda said that An5el @areho(sin5 !har5ed (s(rio(s interests% th(s they have no !a(se of a!tion a5ainst the N !anHt re!over the re ainin5 balan!e' Iss(e: @E6 ille5al ter s as to pay ent of interest li#e$ise renders a n(llity the le5al ter s as to the pay ent of the prin!ipal debtG <(lin5: 6o' The !ontra!t of loan $ith (s(rio(s interest !onsists of prin!ipal and a!!essory stip(lations and the t$o stip(lations are divisible in the sense that the prin!ipal debt !an stand $itho(t the (s(rio(s interest Ca!!essoryD' These are divisible !ontra!ts' In divisible !ontra!ts% if the ille5al ter s !an be separated fro le5al ones% the latter ay be enfor!ed' Ille5ality lies only as to the prestation to pay interest% bein5 separable% th(s sho(ld be rendered void' If the prin!ipal $ill be forfeited this $o(ld (nj(stly enri!h the borro$er at the e0pense of the lender' "[Link] :. MA!ALA"AT Fa!ts: C( ;njien5 e 7ijos loaned =abala!at 1-3 #% for se!(rity% =abala!at ort5a5ed its property' =abala!at failed to pay% b(t C( ;njien5 e0tended the pay ent' C( ;njien5 filed a !ase a5ainst =abala!at for fore!los(re of property and pay ent of attorney?s fees' It also !lai s interest over interest' =abala!at insisted that the a5ree ent for the e0tension of the ti e of pay ent had the effe!t of abro5atin5 the stip(lation of the ori5inal !ontra!t $ith respe!t to the a!!eleration of the at(rity of the debt by non9!o plian!e $ith the ter s of the ort5a5e' The iss(e related on this !ase is the interest over interest' Iss(e: @o6 C(9;njien5 is entitled to interest over interest' <(lin5: It is $ell settled that% (nder arti!le 1129 of the Civil Code% as $ell as (nder se!tion 4 of the ;s(ry &a$ CA!t 6o' *-44D% the parties ay stip(late that interest shall be !o po(nded3 and rests for the !o p(tation of !o po(nd interest !an !ertainly be ade onthly% as $ell as /(arterly% se iann(ally% or ann(ally' "(t in the

Iss(e: 1D @hether or not the )(r!hase A5ree ent entered into by the )arties is a debt instr( entG *D If so% Is "asilio liable as s(retyG 3D @hether or not &ira5 is liable for the interest as li/(idated da a5esG 7eld: 1) F:S% the )(r!hase A5ree ent is a debt instr( ent' The ter s and !onditions of the A5ree ent sho$ that parties intended the rep(r!hase of preferred shares on the respe!tive s!hed(led dates to be an absol(te obli5ation% $hi!h does not depend on the finan!ial ability of the !orporation' o This absol(te obli5ation on the part of the )etitioner !orporation is ade anifest by the fa!t that a s(rety $as re/(ired to see to it that the obli5ation is f(lfilled in the event the prin!ipal debtorHs inability to do so' o It !annot be said that SSS is a preferred sto!#holder' The ri5hts 5iven by the )(r!hase A5ree ent to SSS are not ri5hts enjoyed by ordinary sto!#holders' Sin!e there $as a !ondition that fail(re to rep(r!hase the sto!#s on the s!hed(led dates renders the entire obli5ation d(e and de andable $ith interest' These feat(res !learly sho$ that intent of the parties to be bo(nd therein as debtor and !reditor and not as a !orporation and sto!#holder' 2) F:S% "asilio is liable as s(rety' Th(s it follo$s that he !annot deny liability for &ira5Hs defa(lt' As s(rety% he is bo(nd i ediately to pay SSS the a o(nt then o(tstandin5' 3) The a$ard of li/(idated da a5es represented by 1*. of the a o(nt then o(tstandin5 is !orre!t% !onsiderin5 that the petitioners in the stip(lation of fa!ts ad itted havin5 failed to f(lfill their obli5ations (nder the A5ree ent' The 5rant of li/(idated

S:CT<A6S *212E ATTF' AG;I6A&>1

absen!e of e0press stip(lation for the a!!( (lation of !o po(nd interest% no interest !an be !olle!ted (pon interest (ntil the debt is j(di!ially !lai ed% and then the rate at $hi!h interest (pon a!!r(ed interest (st be !o p(ted is fi0ed at - per !ent per ann( ' In this !ase% there $as no !o po(nd interest in the a5ree ent' DA:ID ,-. "A [Link]. 11 ?21, Oc*ober 13, 1999 Fa!ts: A $rit of atta!h ent over the real properties o$ned by 8alentin Afable% Jr'' <TC ordered Afable% Jr' To pay >avid )--%422 pl(s interest fro J(ly *4% 19,4% (ntil f(lly paid' <TC a ended its de!ison and r(led that le5al rate of interest sho(ld be !o p(ted fro Jan(ary 4% 19--% instead of fro J(ly *4% 19,4' Afable appealed to the Co(rt of Appeals and then to the S(pre e Co(rt' In both instan!es% the de!ision of the lo$er !o(rt $as affir ed' :ntries of j(d5 ent $ere ade and the re!ord of the !ase $as re anded to "ran!h *, for the final e0e!(tion' An Alias @rit of :0e!(tion $as iss(ed by virt(e of $hi!h respondent Sheriff =el!hor )' )eOa !ond(!ted a p(bli! a(!tion' Sheriff )eOa infor ed the petitioner that the total a o(nt of the j(d5 ent is )*,2%942'4*' The a o(nt in!l(ded a !o p(tation of si ple interest' Afable% ho$ever% !lai ed that the j(d5 ent a$ard sho(ld be )3%2*,%*3+'42% be!a(se the a o(nt d(e o(5ht to be based on !o po(nded interest' Altho(5h the a(!tioned properties $ere sold to the petitioner% Sheriff )eOa did not iss(e the Certifi!ate of Sale be!a(se there $as an e0!ess in the bid pri!e in the a o(nt of )*%941%4*4'4,% $hi!h the petitioner failed to pay despite noti!e' >avid filed a =otion prayin5 that respondent J(d5e Cr(P iss(e an order dire!tin5 respondent Sheriff )eOa to prepare and e0e!(te a !ertifi!ate of sale in his favor' 7is reason is that !o po(nd interest% $hi!h is allo$ed by Arti!le **1* of the Civil Code% sho(ld apply in this !ase' >avid !lai that in !o p(tin5 the interest d(e of the )--%422'22% interest sho(ld be !o p(ted at -. on the prin!ipal s( of )--%422'22 p(rs(ant to Arti!le **29 and then Iinterest on the le5al interestJ sho(ld also be !o p(ted in a!!ordan!e $ith the lan5(a5e of Arti!le **1* of the Civil Code' Iss(e: @hether or not the a o(nt d(e sho(ld be s(bje!t to a si ple interest or !o po(nded interest' <(lin5: In !ases $here no interest stip(lated% no !o po(nded interest !o(ld be f(rther earned The Co(rt r(led that Arti!le **1* !onte plates the presen!e of stip(lated or !onventional interest $hi!h

has a!!r(ed $hen de and $as j(di!ially ade' In !ases $here no interest had been stip(lated by the parties% as in the !ase of #hilippine $merican $ccident %nsurance, no a!!r(ed !onventional interest !o(ld f(rther earn interest (pon j(di!ial de and' In this !ase% no interest $as stip(lated by the parties' In the pro issory note deno inated ICo pro ise A5ree entJ si5ned by the Afable% Jr' $hi!h $as d(ly a!!epted by the >avid no interest $as entioned' That bein5 the !ase% the interest sho(ld only be s(bje!t to a si ple interest'

To%(c@ S(m%&e Lo') or M3*33m= Ar*(c&e 1960 :e&eA ,. !'&A'rr' FACTS: )laintiff 8eleP filed a !o plaint for the ret(rn of par!els of land sold by >efendant to )laintiffHs h(sband' She f(rther alle5ed that defendants had re ained in possession of said land (nder Contra!t of &ease b(t for over * years defendants had not paid the a5reed rentals' >efendant alle5ed that the real a5ree ent $as a loan se!(red by a ort5a5e of those lands' Trial !o(rt fo(nd that the pay ents ade by defendants $ere not ade by $ay of interest b(t as pay ents for the prin!ipal' >efendant overpaid therefore )laintiff sho(ld ret(rn e0!ess' ISS;:: @hether pay ents $ere intended to be applied to the prin!ipal 1< $ere !onsidered as rents% interestsG 7:&>: )ay ents $ere 61T rents% interests 6eri too# possession of land and !olle!ted fr(its' The !reditor havin5 enjoyed the benefi!ial (se of the lands delivered as se!(rity for the loan% it appears to have been the intention of the parties that the !reditor sho(ld be !o pensated thereby' Tho(5h re!eipts% pay ents are !alled rents% they $ere prepared by 6eri C)Hs h(sbandD and )laintiff% and defendants in their i5noran!e did not loo# into the $ordin5% bein5 erely satisfied that they $ere proofs of pay ent' The liability of plaintiff to ret(rn the e0!ess pay ents is in #eepin5 $ith Arti!le 1+94 C1ld Civil CodeD $hi!h provides that% I$hen so ethin5 is re!eived $hi!h there is no ri5ht to !olle!t% and $hi!h by ista#e has been (nd(ly delivered% the obli5ation to restore it arises'J The * re/(isites are present: 1D There is no ri5ht to !olle!t these e0!ess s( s3 and *D the a o(nts have been paid thro(5h ista#e by defendants' S(!h ista#e is sho$n by the fa!t that their !ontra!ts never intended that either rents or interest sho(ld be paid% and by the f(rther fa!t that $hen these pay ents $ere

S:CT<A6S *212E ATTF' AG;I6A&>1

ade% they $ere intended by defendants to be applied to the prin!ipal% b(t they overpaid the a o(nts loaned to the '

C3D "A<<:TT1% $o(ld in t(rn% e0e!(te a >eed of Assi5n ent Cin favor of F6C"D obli5in5 A;T1@1<&> to pay the install ents of the )1*%999%999'-2 p(r!hase pri!e dire!tly to F6C"3 and C4D &astly% to se!(re the pay ent of the re!eivables (nder the >eed of Assi5n ent% "A<<:TT1 $o(ld ort5a5e the property s(bje!t of the sale to F6C"' 1n 1, 6ove ber 19+2 F6C" infor ed A;T1@1<&> that its :0e!(tive Co ittee approved the proposed BI))B transa!tion' The la$yers of F6C" then drafted the !ontra!ts needed and f(rnished Anthony Q(e $ith !opies thereof' 1n 9 Febr(ary 19+1 the parties si5ned three C3D !ontra!ts to i ple ent the BI))B transa!tion: C1D Contra!t to Sell $hereby "A<<:TT1 sold a par!el of land to A;T1@1<&>% sit(ated in San =i5(el% =anila% to5ether $ith the i prove ents thereon% !overed by TCT 6o' 1*9,-3 for the pri!e of )1*%999%999'-2 payable in si0ty C-2D !onse!(tive and e/(al onthly install ents of )*1-%---'--' C*D >eed of Assi5n ent $hereby "A<<:TT1 assi5ned and sold in favor of F6C" all its ri5hts% title and interest to all the oney and other re!eivables d(e fro A;T1@1<&> (nder the Contra!t to Sell% s(bje!t to the !ondition that the assi5nee CF6C"D has the ri5ht of re!o(rse a5ainst the assi5nor C"A<<:TT1D in the event that the payor CA;T1@1<&>D defa(lted in the pay ent of its obli5ations' C3D <eal :state =ort5a5e $hereby "A<<:TT1% as assi5nor% ort5a5ed the property s(bje!t of the Contra!t to Sell to F6C" as se!(rity for pay ent of its obli5ation (nder the >eed of Assi5n ent' After the three C3D !ontra!ts $ere !on!l(ded A;T1@1<&> started payin5 the onthly install ents to F6C"' 1n 1+ J(ne 19+* A;T1@1<&> transa!ted $ith F6C" for the se!ond ti e obtainin5 a loan of )3%222%222'22 $ith an effe!tive interest rate of *+. per ann( ' A;T1@1<&> and "A<<:TT1% as !o9 a#ers% then si5ned a pro issory note in favor of F6C" $orth )4%-24%4+2'22 payable in si0ty C-2D !onse!(tive onthly install ents of )93%42+'22' To se!(re the pro issory note% A;T1@1<&> ort5a5ed a par!el of land lo!ated in Sa palo!% =anila% to F6C"' Thereafter% A;T1@1<&> be5an payin5 the install ents'

USUR9 LA7 G.R. No. 12?990 Se%*ember 21, 2000

IN:ESTORS #INAN"E "ORPORATION, %e*(*(o)er, ,-. AUTO7ORLD SALES "ORPORATION, ')/ PIO !ARRETTO REALT9 DE:ELOPMENT "ORPORATION,re-%o)/e)*-. FACTS: )etitioner Investors Finan!e Corporation% then #no$n also as F6C" Finan!e Cno$ doin5 b(siness (nder the na e of Citytr(st Finan!e CorporationD% is a finan!in5 !o pany doin5 b(siness $ith private respondent A(to$orld Sales Corporation CA;T1@1<&>D sin!e 19,4' Anthony Q(e% president of A;T1@1<&>% also held the sa e position at its affiliate !orporation% private respondent )io "arretto <ealty Corporation C"A<<:TT1D' So eti e in A(5(st 19+2 Anthony Q(e% in behalf of A;T1@1<&>% applied for a dire!t loan $ith F6C"' 7o$ever% sin!e the ;s(ry &a$ i posed an interest rate !eilin5 at that ti e% F6C" infor ed Anthony Q(e that it $as not en5a5ed in dire!t lendin53 !onse/(ently% A;T1@1<&>?s re/(est for loan $as denied' "(t so eti e thereafter% F6C"?s Assistant 8i!e )resident% =r' &eon!io Ara(llo% infor ed Anthony Q(e that altho(5h it !o(ld not 5rant dire!t loans it !o(ld e0tend f(nds to A;T1@1<&> by p(r!hasin5 any of its o(tstandin5 re!eivables at a dis!o(nt' After a series of ne5otiations the parties a5reed to e0e!(te an Install ent )aper )(r!hase CBI))BD transa!tion to enable A;T1@1<&> to a!/(ire the additional !apital it needed' The e!hani!s of the proposed BI))B transa!tion $as A C1D First% )io "arretto C"A<<:TT1D $o(ld e0e!(te a Contra!t to Sell a par!el of land in favor of A;T1@1<&> for )1*%999%999'-2 payable in si0ty C-2D e/(al onthly install ents of )*1-%---'--' Conse/(ently% "A<<:TT1 $o(ld a!/(ire )1*%999%999'-2 $orth of re!eivables fro A;T1@1<&>3 C*D F6C" $o(ld then p(r!hase the re!eivables $orth )1*%999%999'-2 fro "A<<:TT1 at a dis!o(nted val(e of )-%9+2%222'22 s(bje!t to the !ondition that s(!h a o(nt $o(ld be Bflo$ed ba!#B to A;T1@1<&>3

S:CT<A6S *212E ATTF' AG;I6A&>1

In >e!e ber 19+*% after payin5 nineteen C19D onthly install ents of )*1-%---'-- on the first transa!tion CBI))B $orth )-%9+2%222'22D and three C3D onthly install ents of )93%42+'22 on the se!ond transa!tion Cloan $orth )3%222%222'22D% A;T1@1<&> advised F6C" that it intended to preter inate the t$o C*D transa!tions by payin5 their o(tstandin5 balan!es in f(ll' It then re/(ested F6C" to provide a !o p(tation of the re ainin5 balan!es' F6C" sent A;T1@1<&> its !o p(tation re/(irin5 it to pay a total a o(nt of )12%2*-%,3-',+% $here )-%,+4%441'*4 $as the a o(nt to settle the first transa!tion $hile )3%*4*%1-4'44 $as the a o(nt to settle the se!ond transa!tion' 1n *2 >e!e ber 19+* A;T1@1<&> $rote F6C" that it disa5reed $ith the latter?s !o p(tation of its o(tstandin5 balan!es' 1n *, >e!e ber 19+* F6C" replied that it $o(ld only be $illin5 to re!on!ile its a!!o(ntin5 re!ords $ith A;T1@1<&> (pon pay ent of the a o(nts de anded' Th(s% despite its obje!tions% A;T1@1<&> rel(!tantly paid F6C" )12%2*-%,3-',+ thro(5h its ;C)" a!!o(nt' 1n 4 Jan(ary 19+3 A;T1@1<&> as#ed F6C" for a ref(nd of its overpay ents in the total a o(nt of )3%2+*%2*1'+4' A!!ordin5 to A;T1@1<&>% it overpaid )*%4+-%234'44 to settle the first transa!tion and )41+%*-*'22 to settle the se!ond transa!tion' The parties atte pted to re!on!ile their a!!o(ntin5 fi5(res b(t the s(bse/(ent ne5otiations bro#e do$n pro ptin5 A;T1@1<&> to file an a!tion before the <e5ional Trial Co(rt of =a#ati to ann(l the Contra!t to Sell% the Deed of $ssignment and the &eal 'state "ortgage all dated 9 Febr(ary 19+1' It li#e$ise prayed for the n(llifi!ation of the#romissory (ote dated 1+ J(ne 19+* and the &eal 'state "ortgage dated *4 J(ne 19+*' In its !o plaint% A;T1@1<&> alle5ed that the afore entioned !ontra!ts $ere only perfe!ted to fa!ilitate a (s(rio(s loan and therefore sho(ld be ann(lled F6C" ar5(ed that the !ontra!ts dated 9 Febr(ary 19+1 $ere not e0e!(ted to hide a (s(rio(s loan' Instead% the parties entered into a le5iti ate Install ent )aper )(r!hase CBI))BD transa!tion% or p(r!hase of re!eivables at a dis!o(nt% $hi!h F6C" !o(ld le5ally en5a5e in as a finan!in5 !o pany' @ith re5ard to the se!ond transa!tion% the e0isten!e of a (s(rio(s interest rate had no bearin5 on the )3%222%222'22 loan sin!e at the ti e it $as perfe!ted on 1+ Jan(ary 19+* Central "an# Cir!(lar 6o' +,1 dated *1 J(ly 19+1 had effe!tively lifted the !eilin5 rates for loans havin5 a period of ore than three h(ndred si0ty9five C3-4D days' 1n 11 J(ly 19++ the <e5ional Trial Co(rt of =a#ati r(led in favor of F6C" de!larin5 that the parties vol(ntarily and #no$in5ly e0e!(ted a le5iti ate BI))B transa!tion or the dis!o(ntin5 of re!eivables' A;T1@1<&> $as not

entitled to any rei b(rse ent sin!e it $as (nable to prove the e0isten!e of a (s(rio(s loan' The Co(rt of Appeals odified the de!ision of the trial !o(rt and !on!l(ded that the BI))B transa!tion% !o prisin5 of the three C3D !ontra!ts perfe!ted on 9 Febr(ary 19+1% $as erely a s!he e e ployed by the parties to dis5(ise a (s(rio(s loan' It ordered the ann(l ent of the !ontra!ts and re/(ired F6C" to rei b(rse A;T1@1<&> )*%4+-%234'44 as e0!ess interest pay ents over the 1*. !eilin5 rate' 7o$ever% $ith re5ard to the se!ond transa!tion% the appellate !o(rt r(led that at the ti e it $as e0e!(ted the !eilin5 rates i posed by the ;s(ry &a$ had already been lifted th(s allo$in5 the parties to stip(late any rate of interest' ISS;:: @e stress at the o(tset that this petition !on!erns itself only $ith the first transa!tion involvin5 the alle5ed? BI))B $orth )-%9+2%222'22% $hi!h $as i ple ented thro(5h the three C3D !ontra!ts of 9 Febr(ary 19+1' As to the se!ond transa!tion% $hi!h involves the )3%222%222'22 loan% $e a5ree $ith the appellate !o(rt that it $as e0e!(ted $hen the !eilin5 rates of interest had already been re oved% hen!e the parties $ere free to fi0 any interest rate' The pivotal iss(e therefore is $hether the three C3D !ontra!ts all dated 9 Febr(ary 19+1 $ere e0e!(ted to i ple ent a le5iti ate Install ent )aper )(r!hase CBI))BD transa!tion or erely to !on!eal a (s(rio(s loan' 7:&>: The three C3D !ontra!ts $ere e0e!(ted to !on!eal a (s(rio(s loan' Generally% the !o(rts only need to rely on the fa!e of $ritten !ontra!ts to deter ine the intention of the parties' B7o$ever% the la$ $ill not per it a (s(rio(s loan to hide itself behind a le5al for ' )arol eviden!e is ad issible to sho$ that a $ritten do!( ent tho(5h le5al in for $as in fa!t a devi!e to !over (s(ry' If fro a !onstr(!tion of the $hole transa!tion it be!o es apparent that there e0ists a !orr(pt intention to violate the ;s(ry &a$% the !o(rts sho(ld and $ill per it no s!he e% ho$ever in5enio(s% to be!lo(d the !ri e of (s(ry'B The follo$in5 !ir!( stan!es sho$ that s(!h s!he e $as indeed e ployed: First% petitioner !lai s that it $as never a party to the )ontract to *ell bet$een A;T1@1<&> and "A<<:TT1' As far as it $as !on!erned% it erely p(r!hased re!eivables at a dis!o(nt fro "A<<:TT1 as eviden!ed by the >eed of Assi5n ent dated 9 Febr(ary 19+1' @hether the )ontract to *ell $as fi!titio(s or not $o(ld have no effe!t on its ri5ht to !lai the re!eivables of "A<<:TT1 fro A;T1@1<&> sin!e the t$o !ontra!ts $ere entirely separate and distin!t fro ea!h other'

S:CT<A6S *212E ATTF' AG;I6A&>1

C(rio(sly ho$ever% petitioner ad itted that its la$yers $ere the ones $ho drafted all the three C3D !ontra!ts involved $hi!h $ere e0e!(ted on the sa e day' Also% petitioner $as the one $ho pro!(red the servi!es of the Asian Appraisal Co pany to deter ine the fair ar#et val(e of the land to be sold $ay ba!# in Septe ber of 19+2 or si0 C-D onths prior to the sale' If it $ere tr(e that petitioner $as never privy to the )ontract to *ell% then $hy $as it interested in appraisin5 the lot si0 C-D onths prior to the saleG And $hy did petitioner?s o$n la$yers prepare the Contra!t to SellG 1bvio(sly% petitioner a!tively parti!ipated in the sale to ens(re that the appraised lot $o(ld serve as ade/(ate !ollateral for the (s(rio(s loan it 5ave to A;T1@1<&>' *econd% petitioner insists that the 9 Febr(ary 19+1 transa!tion $as a le5iti ate BI))B transa!tion $here it only bo(5ht the re!eivables of "A<<:TT1 fro A;T1@1<&> a o(ntin5 to )1*%999%999'-2 at a dis!o(nted pri!e of )-%9+2%222'22' 7o$ever% per instr(!tion of petitioner in its letter to "A<<:TT1 dated 1, 6ove ber 19+2 the $hole p(r!hase pri!e of the re!eivables $as to be Bflo$ed ba!#B to A;T1@1<&>' And in its s(bse/(ent letter of *4 Febr(ary 19+1 petitioner also 5ave instr(!tions on ho$ "A<<:TT1 sho(ld apply the pro!eeds $orth )-%9+2%222'22' It !an be seen that o(t of the nine C9D ite s of appropriation stated Cin the letterD% Ite 6os' *9+ had to be ret(rned to petitioner' Th(s% in !o plian!e $ith the aforesaid letter% "A<<:TT1 had to yield )4%24+%4-+'4, of the )-%9+2%222'22 to petitioner to settle so e of A;T1@1<&>?s previo(s debts to it' Any re ainin5 a o(nt after the appli!ation of the pro!eeds $o(ld then be s(rrendered to A;T1@1<&> in !o plian!e $ith the letter of 1, 6ove ber 19+23 none $ent to "A<<:TT1' The fore5oin5 !ir!( stan!es !onfir that the )-%9+2%222'22 $as really an indire!t loan e0tended to A;T1@1<&> so that it !o(ld settle its previo(s debts to petitioner' 7ad petitioner entered into a le5iti ate p(r!hase of re!eivables% then "A<<:TT1% as seller% $o(ld have re!eived the $hole p(r!hase pri!e% and free to dispose of s(!h pro!eeds in any anner it $anted' It $o(ld not have been obli5ed to follo$ the BAppli!ation of )ro!eedsB stated in petitioner?s letter' Third% in its 1, 6ove ber 19+2 letter to "A<<:TT1% petitioner itself desi5nated the pro!eeds of the BI))B transa!tion as a Bloan'B In that letter% petitioner stated that the Bloan pro!eedsB a o(ntin5 to )-%9+2%222'22 $o(ld be released to "A<<:TT1 only (pon s(b ission of the do!( ents it re/(ired' And as previo(sly entioned% one of the re/(ired do!( ents $as a letter a5ree ent bet$een "A<<:TT1 and A;T1@1<&> stip(latin5 that the )-%9+2%222'22 sho(ld be Bflo$ed ba!#B to A;T1@1<&>' If it $ere a 5en(ine BI))B transa!tion then petitioner $o(ld not have desi5nated the oney to be released as Bloan pro!eedsB and "A<<:TT1 $o(ld have been the end re!ipient of s(!h

pro!eeds $ith no obli5ation to t(rn the A;T1@1<&>'

over to

Fourth% after the interest rate !eilin5s $ere lifted on *1 J(ly 19+1 petitioner e0tended on 1+ J(ne 19+* a dire!t loan of )3%222%222'22 to A;T1@1<&>' This ti e ho$ever% $ith no ore !eilin5 rates to hinder it% petitioner i posed a *+. effe!tive interest rate on the loan' And no lon5er havin5 a need to !loa# the e0orbitant interest rate% the pro issory note eviden!in5 the se!ond transa!tion 5larin5ly bore the *+. interest rate on its fa!e' @e are therefore of the i pression that had there been no interest rate !eilin5s in 19+1% petitioner $o(ld not have resorted to the fi!titio(s BI))B transa!tion3 instead% it $o(ld have dire!tly loaned the oney to A;T1@1<&> $ith an interest rate hi5her than 1*.' Th(s% altho(5h the three C3D !ontra!ts see in5ly sho$ at fa!e val(e that petitioner only entered into a le5iti ate dis!o(ntin5 of re!eivables% the !ir!( stan!es !ited prove that the )-%9+2%222'22 $as really a (s(rio(s loan e0tended to A;T1@1<&>' )etitioner an!hors its defense on Se!' , of the ;s(ry &a$ $hi!h states A )rovided% finally% That nothin5 herein !ontained shall be !onstr(ed to prevent the p(r!hase by an inno!ent p(r!haser of a ne5otiable er!antile paper% (s(rio(s or other$ise% for val(able !onsideration before at(rity% $hen there has been no intention on the part of said p(r!haser to evade the provisions of the A!t and said p(r!hase $as not a part of the ori5inal (s(rio(s transa!tion' In any !ase ho$ever% the a#er of said note shall have the ri5ht to re!over fro said ori5inal holder the $hole interest paid by hi thereon and% in any !ase of liti5ation% also the !osts and s(!h attorney?s fees as ay be allo$ed by the !o(rt' Indeed% the ;s(ry &a$ re!o5niPes the le5iti ate p(r!hase of ne5otiable er!antile paper by inno!ent p(r!hasers' "(t even the la$ has anti!ipated the potential ab(se of s(!h transa!tions to !on!eal (s(rio(s loans' Th(s% the la$ itself ade a /(alifi!ation' It $o(ld re!o5niPe le5iti ate p(r!hase of ne5otiable er!antile paper% $hether (s(rio(s or other$ise% only if the p(r!haser had no intention of evadin5 the provisions of the ;s(ry &a$ and that the p(r!hase $as not a part of the ori5inal (s(rio(s transa!tion' 1ther$ise% the la$ $o(ld not hesitate to ann(l s(!h !ontra!ts' Th(s% Art' 194, of the Civil Code provides A Contra!ts and stip(lations% (nder any !loa# or devi!e $hatever% intended to !ir!( vent the la$s on (s(ry shall be void' The borro$er ay re!over in a!!ordan!e $ith the la$s on (s(ry'

S:CT<A6S *212E ATTF' AG;I6A&>1

In the !ase at bar% the attendin5 fa!tors s(rro(ndin5 the e0e!(tion of the three C3D !ontra!ts on 9 Febr(ary 19+1 !learly establish that the parties intended to transa!t a (s(rio(s loan' These !ontra!ts sho(ld therefore be de!lared void' 7avin5 de!lared the transa!tion bet$een the parties as void% $e are no$ tas#ed to deter ine ho$ (!h rei b(rse ent A;T1@1<&> is entitled to' The Co(rt of Appeals% adoptin5 the !o p(tation of A;T1@1<&> in its plaintiff9appellant?s brief% r(led A A!!ordin5 to plaintiff9appellant% defendant9 appellee $as able to !olle!t )3%9*1%*1,',+ in interests fro appellant' This is not denied by the appellee' Co p(ted at 1*. the effe!tive interest sho(ld have been )1%444%422'22' 7en!e% appellant ay re!over )*%4+-%234'44% representin5 overpay ent arisin5 fro (s(rio(s interest rate !har5ed by appellee' @hile $e do not disp(te the appellate !o(rt?s findin5 that the first transa!tion $as a (s(rio(s loan% $e do not a5ree $ith the a o(nt of rei b(rse ent a$arded to A;T1@1<&>' Indeed% it erred in a$ardin5 only the interest paid in e0!ess of the 1*. !eilin5' In (s(rio(s loans% the !reditor !an al$ays re!over the prin!ipal debt' 7o$ever% the stip(lation on the interest is !onsidered void th(s allo$in5 the debtor to !lai the $hole interest paid' In a loan of )1%222'22 $ith interest at *2. per ann( or )*22'22 per year% if the borro$er pays )*22'22% the $hole )*22'22 $o(ld be !onsidered (s(rio(s interest% not j(st the portion thereof in e0!ess of the interest allo$ed by la$' In the instant !ase% A;T1@1<&> obtained a loan of )-%9+2%222'22' Thereafter% it paid nineteen C19D !onse!(tive install ents of )*1-%---'-- a o(ntin5 to a total of )4%11-%---'44% and f(rther paid a balan!e of )-%,+4%441'*4 to settle it' All in all% it paid the a55re5ate a o(nt of )12%921%*1,',+ for a debt of )-%9+2%222'22' For the *39 onth period of the e0isten!e of the loan !overin5 the period Febr(ary 19+1 to Jan(ary 19+*% A;T1@1<&> paid a total of )3%9*1%*1,',+ in interests' Applyin5 the 1*. interest !eilin5 rate andated by the ;s(ry &a$% A;T1@1<&> sho(ld have only paid a total of )1%-24%422'22 in interests' 7en!e% A;T1@1<&> is entitled to re!over the $hole (s(rio(s interest a o(ntin5 to )3%9*1%*1,',+'

onths% 1 year% and 4 onths in that order% $ith -. onthly interest on the first loan% and le5al interests on the others' This a!tion $as initiated by the )etitioner9spo(ses to prevent the fore!los(re of the ort5a5ed property' They alle5ed that they obtained only one loan fro the <espondent $hi!h $as the )-2 M se!(red by the first ort5a5e' Also% )etitioner9spo(ses opined that the -. onthly interest $as (n!ons!ionable' The s(bse/(ent ort5a5es $ere erely !ontin(ations of the first one% $hi!h is n(ll and void' =oreover% the <espondent ass(red the that he $ill not fore!lose the ort5a5e as lon5 as they pay the stip(lated interest (pon at(rity or $ithin a reasonable ti e thereafter' )etitioner9spo(ses s(bstantially paid the loans $ith interest b(t $ere (nable to pay it in f(ll' 1n the other hand% the <espondent !lai ed that the ort5a5es $ere e0e!(ted to se!(re 3 separate loans of and that the first t$o loans $ere paid% b(t the last one $as not' 7e denied havin5 represented that he $ill not fore!lose the ort5a5e as lon5 as the )etitioner9 spo(ses pay interest' &o$er !o(rts r(led in favo(r of <espondent' Th(s% this petition'

Iss(e: @hether or not (n!ons!ionableG <(lin5: Fes' The SC r(led that this is (n!ons!ionable' @hile the ;s(ry &a$ !eilin5 on interest rates $as lifted by C'"' Cir!(lar 6o' 924% nothin5 in the said !ir!(lar 5rants lenders carte +lanche a(thority to raise interest rates to levels $hi!h $ill either enslave their borro$ers or lead to a he orrha5in5 of their assets' In "edel v. )ourt of $ppeals, the Co(rt de!reed that the 4'4. interest or --. per ann( $as not (s(rio(s b(t held that the sa e (st be e/(itably red(!ed for bein5 iniquitous% unconsciona+le and exor+itant , and hen!e% !ontrary to orals CR!ontra bonos oresHD% if not a5ainst the la$' In the !ase at ben!h% )etitioner9spo(ses stand on a $orse sit(ation' They are re/(ired to pay the stip(lated interest rate of -. per onth or ,*. per ann( $hi!h is definitely o(tra5eo(s and inordinate' the -. onthly interest is

So&')0o) ,- S'&'A'r G.R. No. 12 944 .3)e 29, 2001

Fa!ts: )etitioner9spo(ses e0e!(ted 3 real estate ort5a5es on a par!el of land sit(ated in "(la!an% in favor of the sa e <espondent SalaPar to se!(re pay ent of loans of )-2 M% )13- M and )*32 M payable $ithin 4

S:CT<A6S *212E ATTF' AG;I6A&>1

12

7en!e% the interest rate (st be red(!ed e/(itably' An interest of 1*. per ann( is dee ed fair and reasonable'

entitle the to the vi5ilant prote!tion of the !o(rts as andated by Arti!le *4 of the Civil Code' @ith the s(spension of the ;s(ry &a$ and the re oval of interest !eilin5% the parties are free to stip(late the interest to be i posed on loans' Absent any eviden!e of fra(d% (nd(e infl(en!e% or any vi!e of !onsent e0er!ised by <A=1S on the )ASC;A&s% the interest a5reed (pon is bindin5 (pon the ' This Co(rt is not in a position to i pose (pon parties !ontra!t(al stip(lations different fro $hat they have a5reed (pon RE#ORMINA :. TOMOL EASTERN S$IPPING , "A FACTS: * Fiber dr( s of <iboflavin $ere shipped fro Japan for delivery vessel o$ned by :astern Shippin5 C)D and that the ship ent $as ins(red by =er!antile Ins(ran!e C<D ;pon arrival in =anila% it $as dis!har5ed (nto the !(stody of =etro )ort% $hi!h it stated in its s(rvey that 1 dr( $as in bad order' It $as then re!eived by Allied "ro#era5e $herein it stated in its s(rvey that one dr( opened and $itho(t seal $as

SPOUSES PAS"UAL :S. RAMOS FACTS: )etitioners e0e!(ted a >eed of Absol(te Sale $ith <i5ht to <ep(r!hase $ith respondent% in !onsideration of )hp 142%222' The petitioners did not e0er!ise their ri5ht to rep(r!hase the property $ithin the stip(lated one9year period3 hen!e% respondent prayed that the title over the par!els of land be !onsolidated in his favor' )etitioners aver that $hat $as really e0e!(ted bet$een the and the respondent is a real estate ort5a5e and that there $as no a5ree ent li itin5 the period $ithin $hi!h to e0er!ise the ri5ht to rep(r!hase and that they have even overpaid respondent' <espondent offered in eviden!e a do!( ent deno inated as *inumpaang *alaysay $hi!h had a provision of an interest of ,. per onth on the prin!ipal loan of )hp 142%222' <TC r(led that the transa!tion $as a!t(ally a loan and the pay ent $as se!(red by a ort5a5e of the property% and that the petitioners had ade pay ents $hi!h res(lted in overpay ent as the interest $as at ,. per ann( ' <espondent filed an =< alle5in5 that the interest stip(lated in the *inumpaang *alaysay $as ,. per onth' The <TC r(led in favor of the respondent a!#no$led5in5 that the !orre!t interest rate stip(lated $as ,. per onth' 7o$ever% the <TC de!lared that the ,. per onth interest is too b(rdenso e and onero(s and so the !o(rt (nilaterally red(!ed the interest rate fro ,. per onth to 4. per onth' )etitioners filed an =< alle5in5 that either 4. or ,. per onth is e0orbitant% (n!ons!ionable% (nreasonable% (s(rio(s and ine/(itable' ISS;:: @16 the interest of 4. (n!ons!ionable% (nreasonable% ine/(itable' onth is e0orbitant% (s(rio(s and

Allied then delivered it to the !onsi5neeHs @E7% $hi!h it e0!epted that 1 dr( !ontained spilla5es $hile the rest $as ad(lteratedEfa#e < then filed !lai s a5ainst ) for the losses s(stained by the !onsi5nee C$hi!h < s(bro5atedD' &C r(led in favor of < and ordered ) to pay da a5es% ho$ever% it failed to state $hen the interest rate sho(ld !o en!e S fro date of filin5 of !o plaint at 1*. or fro date of j(d5 ent of TC at -. en!e and at date of

7:&>: 61' It is a basi! prin!iple in !ivil la$ that parties are bo(nd by the stip(lations in the !ontra!ts vol(ntarily entered into by the ' )arties are free to stip(late ter s and !onditions $hi!h they dee !onvenient provided they are not !ontrary to la$% orals% 5ood !(sto s% p(bli! order% or p(bli! poli!y' The interest rate of ,. per onth $as vol(ntarily a5reed (pon by <A=1S and the )ASC;A&s' There is nothin5 fro the re!ords and% in fa!t% there is no alle5ation sho$in5 that petitioners $ere vi!ti s of fra(d $hen they entered into the a5ree ent $ith <A=1S' 6either is there a sho$in5 that in their !ontra!t(al relations $ith <A=1S% the )ASC;A&s $ere at a disadvanta5e on a!!o(nt of their oral dependen!e% i5noran!e% ental $ea#ness% tender a5e or other handi!ap% $hi!h $o(ld

ISS;:: @hen sho(ld the interest rate !o $hat rate

SC: -. fro the date of de!ision and 1*. fro finality of j(d5 ent (ntil pay ent -

This !ase laid do$n the r(les on the interest rates: AD $hen an obli5ation re5ardless of its so(r!e% is brea!hed% the !ontravenor !an be held liable for da a5es "D $ith re5ard parti!(larly to an a$ard of interest in the !on!ept of a!t(al and !o pensatory da a5es% the rate of interest% as $ell as the a!!r(al thereof% shall be as follo$s:

S:CT<A6S *212E ATTF' AG;I6A&>1

11

If it !onsists of pay ent of CloanEforbearan!eD o o o

oney

Interest d(e i posed T as stip(lated in $ritin5 and the Interest d(e T earn le5al interest fro the ti e it is j(di!ially de anded 6o stip(lation T 1*. per ann( fro date of defa(lt Cj(di!ialEe0tra j(di!ialD

(npaid balan!e of interest of the prin!ipal a o(nt of )*42%222'22 e/(ivalent to -. per annum fro J(ne *-% 19+1 to Septe ber 32%1994' 3D )etitioner :ASC1 appealed to the Co(rt of Appeals% $hi!h% on J(ly 32% 1993% affir ed the de!ision of the trial !o(rt' The CA% on the a(thority of prior !ase% 'astern *hipping ,ines, %nc' v' )ourt of $ppeals% that the interest rate on the a o(nt d(e sho(ld be -. per annum fro J(ne *-% 19+1 to A(5(st *4% 1993% and 1*. per annum be5innin5 A(5(st *4% 1993 (ntil the oney j(d5 ent is paid' 4D Thereafter% petitioner :ASC1 tendered pay ent of the oney j(d5 ent in the a o(nt of )*42%222'22 pl(s interest of -. per annum fro J(ne *-% 19+1 to J(ly 32% 1993' 4D 7o$ever% private respondent ref(sed to a!!ept pay ent on the 5ro(nd that the appli!able le5al rate of interest $as 1*. per annum' S(bse/(ently% private respondent bro(5ht the atter to the Ins(ran!e Co ission' -D Then in% 1994% the parties a5reed before the hearin5 offi!er of the !o ission that the interest sho(ld be !o p(ted fro J(ne *-% 19+1 to Septe ber 32% 1994' )etitioner $o(ld file $ith the trial !o(rt a otion to fi0 the le5al rate of interest atta!hin5 thereto a !he!# in the a o(nt of )*42%222'22 $ith -. interest per annum' ,D In its appeal :ASC1 to the SC% it !ontended that the CA $ron5f(lly applied the afore!ited para5raph 3 of the s(55ested r(les of th( b for f(t(re 5(idan!e Uas for (lated in :astern Shippin5 &ines% In!' v' Co(rt of Appeals% and (nla$f(lly i5nored or disre5arded the a5reed !(t9off date for the pay ent of the le5al rate' Iss(e: -hen the .udgment of the court a/arding a sum of money +ecomes final and executory $hat is the rate to be i posedG 7eld: )etitioner?s !ontentions are $itho(t erit'

If it is not loanEforbearan!e o o Interest on a o(nt of da a5es T i posed by dis!retion of !o(rt at -. 6o interest shall be ordered on (nli/(idated !lai sEda a5es (ntil de and !an be established $ith reasonable !ertainty @hen de and is established $ith reasonable !ertainty% interest shall be5in to r(n fro the ti e the !lai is ade Cj(di!iallyEe0traj(di!iallyD "(t if it !annot be reasonably established at the ti e de and $as ade T interest to r(n fro date of j(d5 ent of the !o(rt

If j(d5 ent be!o es Final and :0e!(tory o o o <ate of le5al interest T 1*. Fro finality to satisfa!tion

@hyG It is already !onsidered as forbearan!e

EASTERN ASSURAN"E AND SURET9 "ORPORATION BEAS"OC, ,-. "o3r* o+ A%%e'&-

Fa!ts: 1D 1n April 9% 19+1% private respondent 8i!ente Tan ins(red his b(ildin5 in >( a5(ete City a5ainst fire $ith petitioner :astern Ass(ran!e and S(rety Corporation C:ASC1D for )*42%222'22' *D 1n J(ne *-% 19+1% the b(ildin5 $as destroyed by fire' As his !lai for inde nity $as ref(sed% private respondent filed a !o plaint for brea!h of !ontra!t $ith da a5es a5ainst petitioner' The <TC Co(rt% de!ided in favo(r of 8i!ente Tan' In its r(lin5% the <TC !o(rt i posed the rate of interest at 1*. per annum% and de!ided that :ASC1 to pay i ediately to 8i!ente Tan the

The prior 'astern *hipping ,ines% %nc' v' )ourt of $ppeals% $as held: I' @hen an obli5ation% re5ardless of its so(r!e% i'e'% la$% !ontra!ts% /(asi9!ontra!ts% deli!ts or /(asi9deli!ts% is brea!hed% the !ontravener !an be held liable for da a5es' The provisions (nder B>a a5esB of the Civil Code 5overn in deter inin5 the eas(re of re!overable da a5es'

S:CT<A6S *212E ATTF' AG;I6A&>1

1*

II' @ith re5ard parti!(larly to an a$ard of interest in the !on!ept of a!t(al and !o pensatory da a5es% the rate of interest% as $ell as the a!!r(al thereof% is i posed% as follo$s: )ar' 3: -hen the .udgment of the court a/arding a sum of money +ecomes final and executory, the rate of legal interest, /hether the case falls under paragraph 0 or paragraph 2, a+ove, shall +e 021 per annum from such finality until its satisfaction, this interim period +eing deemed to +e +y then an equivalent to a for+earance of credit. ;n/(estionably% this !ase falls (nder the r(le stated in para5raph 3' The /(estion is $hether this r(le !an be applied to this !ase' The prior 'astern *hipping ,ines, case' did not lay do$n any ne$ r(les be!a(se it $as j(st a a !o prehensive s( ary of e0istin5 r(les on the !o p(tation of le5al interest' As to the B!(t9off dateB for the pay ent of le5al interest: The trial !o(rt?s findin5 on this point is bindin5' 7en!e% the pay ent of 1*. le5al interest per annum sho(ld !o en!e fro A(5(st *4% 1993% the date the de!ision of the trial !o(rt be!a e final% (p to Septe ber 32% 1994% the a5reed B!(t9off9dateB for the pay ent of le5al interest' The de!ision of the CA is affir ed'

Trial !o(rt 5ranted the ne$ otion for e0e!(tion pendin5 appeal' )etitioner !o plied $ith the $rit of e0e!(tion pendin5 appeal by iss(in5 t$o ana5er?s !he!#s in the total a o(nt of )4%41,%,2,'22 The Co(rt of Appeals rendered a de!ision in CA9G'<' 6o' C892-21,% $hi!h odified the j(d5 ent of the trial !o(rt )etitioner filed a otion in the trial !o(rt prayin5 that private respondent to ref(nd to her the e0!ess pay ent of )1%+9+%-*3'-, $ith interests at -.' It (st be re!alled that $hile private respondent $as able to !olle!t )4%41,%,2,'22 fro petitioner p(rs(ant to the $rit of advan!e e0e!(tion% the final j(d5 ent in the ain !ase a$arded to private respondent da a5es in the total a o(nt of )3%-19%2+3'33 ISS;:: @hat interest rate appli!ableG 7:&>: 6ote that Cir!(lar 6o' 41-% fi0in5 the rate of interest at 1*. per ann( % deals $ith C1D loans3 C*D forbearan!e of any oney% 5oods or !redit3 and C3D j(d5 ents' C1D the a o(nt of )*%322%222'22 adj(d5ed to be paid by petitioner to private respondent shall earn interest of -. per annum - The said obli5ation arose fro a !ontra!t of p(r!hase and sale and not fro a !ontra!t of loan or (t(( ' 7en!e% $hat is appli!able is the rate of -. per ann( as provided in Arti!le **29 of the Civil Code of the )hilippines and not the rate of 1*. per ann( as provided in Cir!(lar 6o' 41-' C*D the a o(nt of )1%+9+%-*3'-, to be ref(nded by private respondent to petitioner shall earn interest of 1*. per ann( ' 9 $here oney is transferred fro one person to another and the obli5ation to ret(rn the sa e or a portion thereof is s(bse/(ently adj(d5ed'

PILIPINAS !AN<, %e*(*(o)er, ,-. T$E $ONORA!LE "OURT O# APPEALS, ')/ LILIA R. E"$AUS, re-%o)/e)*-. Fa!ts: private respondent filed a !o plaint a5ainst petitioner and its president% Constantino "a(tista% for !olle!tion of a s( of oney' The !o plaint alle5ed: C1D that petitioner and Greatland e0e!(ted a B>a!ion en )a5o%B $herein Greatland !onveyed to petitioner several par!els of land in !onsideration of the s( of ),%,,-%334'-93 C*D that Greatland assi5ned )*%322%222'22 o(t of the total !onsideration in favor of private respondent3 and C3D that not$ithstandin5 her de and for pay ent% petitioner ref(sed and failed to pay the said a o(nt assi5ned to her' )etitioner !lai ed: C1D that its for er president had no a(thority C*D that it never ratified the sa e3 and C3D that ass( in5 arguendo that the a5ree ent $as bindin5% the !onditions stip(lated therein $ere never f(lfilled' The trial !o(rt r(led in favor of private respondent' Co(rt of Appeals odified the 1rder dated April 3% 19+4% by li itin5 the e0e!(tion pendin5 appeal a5ainst petitioner to )4%41,',2,'22

PN! , "A FACTS: )rovin!e of Isabela iss(ed several !he!#s dra$n a5ainst its a!!o(nt $ith )6" C)D in favor of Ibarrola C<D% as pay ents for the p(r!hase of edi!ines' The !he!#s $ere delivered to <Hs a5ents $ho t(rned the over to <% e0!ept *3 !he!#s a o(ntin5 to )9+#' >(e to fail(re to re!eive f(ll a o(nt% < filed !ase a5ainst ) &C% CA and SC ordered )6" to pay ho$ever% all 3 !o(rts failed to spe!ify the le5al rate of interest S -. or 1*.

S:CT<A6S *212E ATTF' AG;I6A&>1

13

ISS;:: @o6 the rate to be (sed is -. SC: F:SK This !ase does not involve a loan% forbearan!e of oney or j(d5 ent involvin5 a loan or forbearan!e of oney as it arose fro a !ontra!t of sale $hereby < did not re!eive f(ll pay ent for her er!handise' @hen an obli5ation arises Ifro a !ontra!t of p(r!hase and sale and not fro a !ontra!t of loan or (t(( %J the appli!able rate is -. per ann( as provided in Art' **29 of the 6CC -. fro filin5 of !o plaint (ntil f(ll pay ent before finality of j(d5 ent 1*. fro finality of j(d5 ent

properly pertained to the J(d5e' Fet% respondent ass( ed the tas#' For doin5 so instead of pointin5 o(t to the !o(rt the defi!ien!y of the $rit% he sho(ld be san!tioned' 7e sho(ld not have arro5ated (nto hi self j(di!ial f(n!tions that $ere to be perfor ed only by the j(d5e'

The !o p(tation of the a o(nt d(e (nder the $rit is not the d(ty of the sheriff' S(!h a o(nt sho(ld have already been spe!ifi!ally stated in the $rit if e0e!(tion iss(ed by the !o(rt (nder Se!tion 3 <(le 39 of the 199, <(les of Co(rt' All that the sheriff sho(ld do (pon re!eipt of that $rit is the inisterial d(ty of enfor!in5 it'

R"!" ,- AL#A Fa!ts: Alfa on separate instan!es $as 5ranted by <C"C 4 letters of !redit to fa!ilitate the p(r!hase of ra$ aterials for their 5ar ents b(siness' Alfa e0e!(ted 4 tr(st re!eipts and ade !o prehensive s(rety a5ree ents $herein the si5natory offi!ers of Alfa a5reed in jointEseveral !apa!ity to pay <C"C in !ase the !o pany defa(lted' <C"C filed a !ase vers(s Alfa for a s( of oney' The CA a$arded only )3= C ini ( a o(ntD to <C"C instead of )1+= as stip(lated in their !ontra!t' Iss(e: @E6 the CA !an deviate fro provisions of the !ontra!t bet$een the partiesG the

PLANTILLA ,-. !ALI7AG 3 ? S"RA 396 Fa!ts:

In a !ivil !ase% lo$er !o(rt rendered a de!ision orderin5: o Spo(ses 1r5a and )lantilla to reinstate S(iPa as share tenant o That they pay S(iPa (nrealiPed shares fro the harvests of !o!on(t fr(its fro A(5(st (ntil reinstated the a o(nt of )1%222 $ith le5al interest (ntil f(lly paid' The de!ision% ho$ever% did not state the interest to be !har5ed' A $rit of e0e!(tion $as iss(ed addressed to Sheriff "ali$a5' "ali$a5 de anded pay ent fro the spo(ses representin5 the share of S(iPa the a o(nt of 4+2#% representin5 the !o!on(t harvest fro A(5 19,9 to Jan 199+ at )1%222 $ith + harvests per year $ith an interest rate of 1*. per ann( or a total of ***. pl(s attorneyHs fees' Col' )lantilla% ad inistrator of the spo(ses% filed an ad inistrative !o plaint a5ainst "ali$a5 !har5in5 hi of serio(s irre5(larities in i ple entation of the $rit of e0e!(tion alle5in5 that dispositive portion of the de!ision did not !ontain + harvest per year and "ali$a5 too# it (pon hi self to spe!ify the n( ber of harvests'

<(lin5: 6o' Contra!tin5 parties ay establish a5ree ents ter s% dee ed advisable provided they are not !ontrary to la$Ep(bli! poli!y' A !ontra!t is a la$ bet$een the parties' In this !ase itHs valid be!a(se it $as not e0!essive (nder the ;s(ry &a$' VAtty' A5(inaldo assi5ned this !ase be!a(se he j(st $anted to sho$ (s ho$ to !o p(te for the interest in lon5 ter deals' 7e even ade a dia5ra on the board' >i #o na ilala5ay (n sa di5est be!a(se I ass( e that y ind(strio(s N responsible !lass ates too# do$n notes''' Tp ROD;SSEN SUPPL9 :. #AR EAST Fa!ts: 1n Jan(ary 14% 19,9% defendant <odPssen S(pply% In!' opened $ith plaintiff Far :ast "an# and Tr(st Co' a 329day do esti! letter of !redit% in the a o(nt of )192%222'22 in favor of :# an and Co pany% In!' C:# anD for the p(r!hase fro the latter of five (nits of hydra(li! loaders% to e0pire on Febr(ary 14% 19,9' The three loaders $ere delivered to defendant for $hi!h plaintiff paid :# an and $hi!h defendant paid plaintiff before e0piry date of &C' The re ainin5 t$o loaders $ere delivered to defendant b(t the latter ref(sed to pay' :# an pressed pay ent to plaintiff'

Iss(e: @hether or not Sheriff is 5(ilty of irre5(laritiesG 7eld: Fes% "ali$a5 is 5(ilty of alfeasan!e% not irre5(larities' The deter ination of the a o(nt d(e (nder the $rit

S:CT<A6S *212E ATTF' AG;I6A&>1

14

)laintiff paid :# an for the t$o loaders and later de anded fro defendant s(!h a o(nt as it paid :# an' >efendant ref(sed pay ent !ontendin5 that there $as a brea!h of !ontra!t by plaintiff $ho in bad faith paid :# an% #no$in5 that the t$o (nits of hydra(li! loaders had been delivered to defendant after the e0piry date of s(bje!t &C' Iss(e: @16 petitioner is liable to respondent'

in the first pro issory note and 1+. instead of 1*. in the se!ond pro issory note' The * pro issory notes also provided es!alation !la(ses' The * ne$ly e0e!(ted pro issory notes novated the three 19,9 pro issory notes and 11 Appli!ation and A5ree ent for Co er!ial &etter of Credit e0e!(ted by =endoPa earlier' After so eti e% p(rs(ant to the es!alation !la(se% the interests in the t$o pro issory notes $ere a5ain in!reased' >(e to =endoPaHs fail(re to pay the * pro issory notes% )6" fore!losed the real and personal ort5a5es' =endoPa filed for spe!ifi! perfor an!e% n(llifi!ation of fore!los(re and da a5es'

<(lin5: The SC a5rees $ith the CA that petitioner sho(ld pay respondent ban# the a o(nt the latter e0pended for the e/(ip ent belatedly delivered by :# an and vol(ntarily re!eived and #ept by petitioner' :/(itable !onsiderations behoove (s to allo$ re!overy by respondent' Tr(e% it erred in payin5 :# an% b(t petitioner itself $as not $itho(t fa(lt in the transa!tion' It (st be noted that the latter had vol(ntarily re!eived and #ept the loaders sin!e 1!tober 19,9' @hen both parties to a transa!tion are (t(ally ne5li5ent in the perfor an!e of their obli5ations% the fa(lt of one !an!els the ne5li5en!e of the other and% as in this !ase% their ri5hts and obli5ations ay be deter ined e/(itably (nder the la$ pros!ribin5 (nj(st enri!h ent' MENDO;A ,- "A [Link]. 116110, .3)e 2 ,2001 Fa!ts: )6" e0tended )422%222 !redit line and )1 illion letter of !redit infavor of =endoPa' As se!(rity for the !redit a!!o odations% he ort5a5ed real and personal properties to )6"' The real estate ort5a5e provided for an es!alation !la(se' 7e also e0e!(ted 3 pro issory notes !overin5 the )422%222 !redit line in 19,9' The said notes also provided for an interest at the rate of 1*. per ann( (ntil paid % and that )6" ay raise the interest $itho(t f(rther noti!e' 7e also e0e!(ted 11 Appli!ation and A5ree ent for the !o er!ial letter of !redit providin5 for 9. interest per ann( fro the date of drafts (ntil the arrival of pay ent in 6e$ For# and that the ban# ay in!rease the interest $itho(t f(rther noti!e' The ban# sent a letter to =endoPa% infor in5 hi that the interest rates in!reased to 14. per ann( ' =endoPa ade so e proposals for the restr(!t(rin5 of his past d(e a!!o(nts into 4 year ter loan and for an additional )* illion letter of !redit' 7o$ever% )6" did not approve his proposal and red(!ed the letter of !redit to ) 1 illion only' =endoPa !lai ed that he $as for!ed to si5n * blan# pro issory notes and !lai ed that his proposal for 4 year restr(!t(rin5 of his past d(e a!!o(nts $as approved ' 7e also alle5ed taht )6" violated their a5ree ent be!a(se )6" inserted *1. instead of 1+.

Iss(e: @hether or not the interest rates i posed on the * ne$ly e0e!(ted pro issory notes $ere valid' <(lin5: The Co(rt (pheld the validity of the * ne$ly e0e!(ted pro issory notes on the 5ro(nd that private transa!tions are pres( ed to be fair and re5(lar' 7o$ever% it r(led that interest rates i posed on the * ne$ly e0e!(ted pro issory notes are not valid on the 5ro(nd that =endoPa $as not infor ed beforehand by )6" of the !han5e in the stip(lated interest rates' It held that (nilateral deter ination and i position of in!reased interest rates by )6" is violative of the prin!iple of (t(ality of !ontra!t' Contra!t !han5es (st be ade $ith the !onsent of the !ontra!tion5 parties' The inds of all parties (st eet as to the proposed odifi!ation% espe!ially $$hen it affe!ts an i portant aspe!t of the a5ree ent' 6o one re!eivin5 a proposal to !han5e a !ontra!t to $hi!h the party is obli5ed to ans$er the proposal% and his silen!e per se !annot be !onstr(ed as a!!eptan!e' DEPOSIT

To%(c@ De%o-(*= Ar*(c&e 1962 "'&(bo ,. "A FACTS: <espondent AbellaHs son =i#e rented for residential p(rposes the ho(se of )etitioner Calibo' <espondent left a tra!tor in his sonHs 5ara5e for safe#eepin5 )etitioner S =i#e had not paid rentals% ele!tri! and $ater bills =i#e reass(red Calibo that the tra!tor $o(ld stand as 5(arantee for its pay ent <espondent $anted to ta#e possession of his tra!tor b(t )etitioner said that the =i#e had left

S:CT<A6S *212E ATTF' AG;I6A&>1

14

the tra!tor $ith hi as se!(rity for the pay ent of =i#eHs obli5ation to hi ' <espondent iss(ed postdated !he!#s b(t )etitioner $ill only a!!ept !he!# if <espondent e0e!(tes )ro issory 6ote to !over pay ent for (npaid ele!tri! and $ater bills' )etitioner instit(ted an a!tion for replevin !lai in5 o$nership of the tra!tor and see#in5 to re!over possession thereof fro petitioner' &i#e$ise% he asserts that the tra!tor $as left $ith hi % in the !on!ept of an inn#eeper% on deposit and that he ay validly hold on thereto (ntil =i#e Abella pays his obli5ations' TC and CA S =i#e !o(ld not have validly pled5ed the tra!tor be!a(se he $as not the o$ner' 61 >:)1SIT

S(bse/(ently% * renter?s #eys $ere 5iven to the renters A one to the )etitioner and the other to the )(5aos' A 5(ard #ey re ained in the possession of the <espondent "an#' The S>" !an only be opened (sin5 these * #eys si (ltaneo(sly' After$ards% a !ertain =rs' <a os offered to b(y fro the )etitioner the * lots that $o(ld yield a profit of )*+4M' =rs' <a os de anded the e0e!(tion of a deed of sale $hi!h ne!essarily entailed the prod(!tion of the !ertifi!ates of title' Th(s% )etitioner $ith the spo(ses $ent to <espondent "an# to retrieve the titles' 7o$ever% $hen opened in the presen!e of the "an#?s representative% the S>" yielded no s(!h !ertifi!ates' "e!a(se of the delay in the re!onstit(tion of the title% =rs' <a os $ithdre$ her earlier offer to p(r!hase the lots3 as a !onse/(en!e% the )etitioner alle5edly failed to realiPe the e0pe!ted profit of )*+4M' 7en!e% )etitioner filed a !o plaint for da a5es a5ainst <espondent "an#' &o$er !o(rts r(led in favo(r of <espondent "an#' Th(s% this petition'

ISS;:: @16 there $as a valid depositG 7:&>: 61 In a !ontra!t of deposit% a person re!eives an obje!t belon5in5 to another $ith the obli5ation of safely #eepin5 it and of ret(rnin5 the sa e' )etitioner hi self stated that he re!eived the tra!tor not to safely #eep it b(t as a for of se!(rity for the pay ent of =i#e AbellaHs obli5ations' There is no deposit $here the prin!ipal p(rpose for re!eivin5 the obje!t is not safe#eepin5' Conse/(ently% petitioner had no ri5ht to ref(se delivery of the tra!tor to its la$f(l o$ner' 1n the other hand% private respondent% as o$ner% had every ri5ht to see# to repossess the tra!tor in!l(din5 the instit(tion of the instant a!tion for replevin' !IS$OP O# .ARO :. DELA PENA "A A0ro-I)/3-*r('& ,- "A G.R. No. 90021 M'rc2 3, 1993 Fa!ts )etitioner Cthro(5h its )residentD p(r!hased * par!els of land fro spo(ses )(5ao for )342 M $ith a do$npay ent of ),4 M' )er a5ree ent% the land titles $ill be transferred (pon f(ll pay ent and $ill be pla!ed in a safety deposit bo0 CS">"D of any ban#' =oreover% the sa e !o(ld be $ithdra$n only (pon the joint si5nat(res of a representative of the )etitioner and the )(5aos (pon f(ll pay ent of the p(r!hase pri!e' Thereafter% )etitioner and spo(ses pla!ed the titles in S>" of <espondent Se!(rity "an# and si5ned a lease !ontra!t $hi!h s(bstantially states that the "an# $ill not ass( e liability for the !ontents of the S>"'

Iss(es: 1' @hether or not the disp(ted !ontra!t is an ordinary !ontra!t of leaseG *' @hether or not the provisions of the !ited !ontra!t are validG 3' @hether or not <espondent "an# is liable for da a5esG <(lin5: 1' 6o' SC r(led that it is a spe!ial #ind of deposit be!a(se: the f(ll and absol(te possession and !ontrol of the S>" $as not 5iven to the joint renters A the )etitioner and the )(5aos' The 5(ard #ey of the bo0 re ained $ith the <espondent "an#3 $itho(t this #ey% neither of the renters !o(ld open the bo0 and vi!e versa' In this !ase% the said #ey had a d(pli!ate $hi!h $as ade so that both renters !o(ld have a!!ess to the bo0'

S:CT<A6S *212E ATTF' AG;I6A&>1

1-

 =oreover% the rentin5 o(t of the S>"s is not independent fro % b(t related to or in !onj(n!tion $ith% the prin!ipal f(n!tion of a !ontra!t of deposit the re!eivin5 in !(stody of f(nds% do!( ents and other val(able obje!ts for safe#eepin5' *' 61' SC opined that it is void' Generally% the Civil Code provides that the depositary C<espondent "an#D $o(ld be liable if% in perfor in5 its obli5ation% it is fo(nd 5(ilty of fra(d% ne5li5en!e% delay or !ontravention of the tenor of the a5ree ent' In the absen!e of any stip(lation% the dili5en!e of a 5ood father of a fa ily is to be observed' 7en!e% any stip(lation e0e ptin5 the depositary fro any liability arisin5 fro the loss of the thin5 deposited on a!!o(nt of fra(d% ne5li5en!e or delay $o(ld be void for bein5 !ontrary to la$ and p(bli! poli!y C$hi!h is present in the disp(ted !ontra!tD Said provisions are in!onsistent $ith the <espondent "an#?s responsibility as a depositary (nder Se!tion ,*CaD of the General "an#in5 A!t'

re/(est ade by plaintiff9appellee' The lo$er !o(rt r(led in favor of plaintiff9appellee for the re!overy of the a o(nt d(e' ISS;:: @hether the a5ree ent entered into by the parties is one of loan or of depositG 7:&>: The do!( ent e0e!(ted $as a !ontra!t of loan' @here oney% !onsistin5 of !oins of le5al tender% is deposited $ith a person and the latter is a(thoriPed by the depositor to (se and dispose of the sa e% the a5ree ent is not a !ontra!t of deposit% b(t a loan' A s(bse/(ent a5ree ent bet$een the parties as to interest on the a o(nt said to have been deposited% be!a(se the sa e !o(ld not be ret(rned at the ti e fi0ed therefor% does not !onstit(te a rene$al of an a5ree ent of deposit% b(t it is the best eviden!e that the ori5inal !ontra!t entered into bet$een therein $as for a loan (nder the 5(ise of a deposit' G.R. No-. L-2694? ')/ L-26949 1921 SIL:ESTRA !ARON, %&'()*(++-'%%e&&')*, ,-. PA!LO DA:ID, /e+e)/')*-'%%e&&')*. A)/ GUILLERMO !ARON, %&'()*(++-'%%e&&')*, ,-. PA!LO DA:ID, /e+e)/')*-'%%e&&')*. FACTS: The defendant o$ns a ri!e ill% $hi!h $as $ell patroniPed by the ri!e 5ro$ers of the vi!inity' - 1n Jan(ary 1,% 19*1% a fire o!!(rred that destroyed the ill and its !ontents% and it $as so e ti e before the ill !o(ld be reb(ilt and p(t in operation a5ain' - Silvestra "aron C)1D and G(iller o "aron C)*D ea!h filed an a!tion for the re!overy of the val(e of palay fro the defendant C>D% alle5ed that: o The palay have been sold by both plaintiffs to the > in the year 19*2 o )alay $as delivered to > at his spe!ial re/(est% $ith a pro ise of !o pensation at the hi5hest pri!e per !avan - > !lai s that the palay $as deposited s(bje!t to f(t(re $ithdra$al by the depositors or to so e f(t(re sale% $hi!h $as never effe!ted' > also !ontended that in order for the plaintiffs to re!over% it is ne!essary that they sho(ld be able to establish that the plaintiffs? palay $as delivered in the !hara!ter of a sale% and that if% on the !ontrary% the defendant sho(ld prove that the delivery $as ade in the !hara!ter of deposit% the defendant sho(ld be absolved' ISS;:: @o6 there $as deposit Oc*ober ?,

3' 61' SC r(led that: no !o petent proof $as presented to sho$ that <espondent "an# $as a$are of the private a5ree ent bet$een the )etitioner and the )(5aos that the &and titles $ere $ithdra$able fro the S>" only (pon both parties? joint si5nat(res% and that no eviden!e $as s(b itted to reveal that the loss of the !ertifi!ates of title $as d(e to the fra(d or ne5li5en!e of the <espondent "an#'

ART. 1911. O!LIGATION NOT TO MA<E USE O# T$ING DEPOSITED UNLESS AUT$ORI;ED. .A:ELLANA :S. LIM FACTS: >efendants e0e!(ted a do!( ent in favor of plaintiff9appellee $herein it states that they have re!eived% as a deposit% $itho(t interest% oney fro plaintiff9appellee and a5reed (pon a date $hen they $ill ret(rn the oney' ;pon the stip(lated d(e date% defendants as#ed for an e0tension to pay and bindin5 the selves to pay 14. interest per ann( on the a o(nt of their indebtedness% to $hi!h the plaintiff9 appellee a!!eded' The defendants $ere not able to pay the f(ll a o(nt of their indebtedness not$ithstandin5 the

S:CT<A6S *212E ATTF' AG;I6A&>1

1,

SC: 61 Art' 19,+' @hen the depositary has per ission to (se the thin5 deposited% the !ontra!t loses the !on!ept of a deposit and be!o es a loan or !o odat( % e0!ept $here safe#eepin5 is still the prin!ipal p(rpose of the !ontra!t' The per ission shall not be pres( ed% and its e0isten!e (st be proved' The !ase does not depend pre!isely (pon this e0pli!it alternative3 for even s(pposin5 that the palay ay have been delivered in the !hara!ter of deposit% s(bje!t to f(t(re sale or $ithdra$al at plaintiffs? ele!tion% nevertheless if it $as (nderstood that the defendant i5ht ill the palay and he has in fa!t appropriated it to his o$n (se% he is of !o(rse bo(nd to a!!o(nt for its val(e' In this !onne!tion $e $holly reje!t the defendant?s pretense that the palay delivered by the plaintiffs or any part of it $as a!t(ally !ons( ed in the fire of Jan(ary% 19*1' 6or is the liability of the defendant in any $ise affe!ted by the !ir!( stan!e that% by a !(sto prevailin5 a on5 ri!e illers in this !o(ntry% persons pla!in5 palay $ith the $itho(t spe!ial a5ree ent as to pri!e are at liberty to $ithdra$ it later% proper allo$an!e bein5 ade for stora5e and shrin#a5e% a thin5 that is so eti es done% tho(5h rarely'

IA deposit is !onstit(ted fro the ti e a person re!eives a thin5 belon5in5 to another $ith the obli5ation of #eepin5 and ret(rnin5 it' CArt' 1,4+% Civil Code'D I 7is !ontention is $itho(t erit be!a(se firstly% the defendant dre$ (p a do!( ent de!larin5 that they re ained in his possession' @ith the (nderstandin5 that he $o(ld% for it has no other p(rpose' The !ertifi!ate of deposit in /(estion is not ne5otiable be!a(se only instr( ents payable to order are ne5otiable' 7en!e% this instr( ent not bein5 to order b(t to bearer% it is not ne5otiable' As for the ar5( ent that the depositary ay (se or dispose oft he thin5s deposited% the depositor?s !onsent is re/(ired th(s% the ri5hts and obli5ations of the depositary and of the depositor shall !ease and the r(les and provisions appli!able to !o er!ial loans% !o ission% or !ontra!t $hi!h too# the pla!e of the deposit shall be observed' I5p(ara ho$ever has sho$n no a(thoriPation $hatsoever or the !onsent of the depositary for (sin5 or disposin5 of the )*%49+' That there $as not de and on the sa e or the ne0t day after the !ertifi!ate $as si5ned% does not operate a5ainst the depositor% or si5nify anythin5 e0!ept the intention not to press it' Fail(re to !lai at on!e or delay for so eti e in de andin5 restit(tion of the thin5s deposited% $hi!h $as i ediately d(e% does not i ply s(!h per ission to (se the thin5 deposited as $o(ld !onvert the deposit into a loan' J(d5 ent appealed fro is affir ed

UNITED STATES, ,-. IGPUARA Fa!ts: The defendant Jose i5p(ara $as entr(sted $ith the a o(nt of )*%49+ by =ontilla and 8era5(th' @itho(t the !onsent of =ontilla and 8era5(th ho$ever% I5p(ara (sed the said a o(nt for his o$n ends' Th(s% i5p(ara $as !har5ed and !onvi!ted $ith estafa% for havin5 s$indled J(ana =ontilla and :(5enio 8era5(th o(t of )*%49+ $hi!h he had ta#en as deposit fro the for er to be at the his disposal' I5p(ara $as senten!ed to pay J(ana =ontilla )*%49+ ' The instr( ent for the deposit reads: -e hold at the disposal of 'ugenio 2eraguth the sum of t/o thousand four hundred and ninety-eight pesos 3#2,4567, the +alance from 8uana "ontilla9s sugar. : %loilo, 8une 2;, 0500, : 8ose %gpuara, for &amire< and )o I5p(ara !ontended that the a o(nt $as not deposit for there $as no !ertifi!ate of deposit% there $as no transfer or delivery of the )*%49+ and $hat transpired $as a loan' If ass( in5 that it $as deposit% this is ne5otiable' Iss(es: @hether or not it is ne!essary that there be transfer or delivery in order to !onstit(te a deposit' 7eld: 6o'

ANI"ETA PALA"IO, %&'()*(++-'%%e&&ee, ,-. DIONISIO SUDARIO, /e+e)/')*-'%%e&&')*. FACTS: The plaintiff ade an arran5e ent for the past(rin5 of ei5hty9one head of !attle% in ret(rn for $hi!h she has to 5ive one9half of the !alves that i5ht be born and $as to pay the defendant one9half peso for ea!h !alf branded' 1n de and for the $hole% forty9ei5ht head of !attle $ere after$ards ret(rned to her and this a!tion is bro(5ht to re!over the re ainin5 thirty9three' >efendant in reply to the de and for the !attle% in $hi!h he see#s to e0!(se hi self for the loss of the issin5 ani als' As a se!ond defense it is !lai ed that the thirty9three !o$s either died of disease or $ere dro$ned in a flood' The defendant?s $itnesses s$ore that of the !o$s that perished% si0 died fro overfeedin5% and they failed to a#e !lear the happenin5 of any flood s(ffi!ient to destroy the others'

S:CT<A6S *212E ATTF' AG;I6A&>1

1+

7:&>: If $e !onsider the !ontra!t as one of deposit% then (nder arti!le 11+3 of the Civil Code% the b(rden of e0planation of the loss rested (pon the depositary and (nder arti!le 1,-9 the fa(lt is pres( ed to be his' The defendant has not s(!!eeded in sho$in5 that the loss o!!(rred either $itho(t fa(lt on his part or by reason of caso fortuito' If% ho$ever% the !ontra!t be not one stri!tly of deposit b(t one a!!ordin5 to a lo!al !(sto for the past(rin5 of !attle% the obli5ations of the parties re ain the sa e'

5ood for the treas(ry $arrant' At this point re!all that G(llas $as erely an indorser' 6oti!e sho(ld have been 5iven to hi in order that he i5ht prote!t his interest' 7e sho(ld be a$arded $ith no inal da a5es be!a(se of the pre at(re a!tion of the "an#'

SERRANO ,- "ENTRAL !AN< Fa!ts: Serrano had )342M $orth of ti e deposits in 1verseas "an# of =anila' 7e ade a series of en!ash ent b(t $as not s(!!essf(l' 7e filed a !ase a5ainst 1verseas "an# N he also in!l(ded the Central "an# so that the latter ay also be jointly and severally liable' Serrano ar5(ed that the C" failed to s(pervise the a!ts of 1verseas "an# and prote!t the interests of its depositors by virt(e of !onstr(!tive tr(st' Iss(e: @E6 the Central "an# is liableG

GULLAS ,-. NATIONAL !AN< 62 P$IL 19 Fa!ts: Atty' G(llas has a !(rrent a!!o(nt $ith )6"' The treas(ry of the ;S iss(ed a $arrant in the a o(nt of W3-1 payable to the order of "a!os' G(llas and &opeP si5ned as indorsers of this $arrant' There(pon it $as !ashed by )6"' The $arrant $as s(bse/(ently dishonored by the Ins(lar treas(rer' At that ti e% G(llas had a balan!e of )422 in )6"' Fro this balan!e% he also iss(ed so e !he!#s $hi!h event(ally !o(ld not be paid $hen it $as se/(estered by the "an#' @hen it learned of the dishonor% )6" sent noti!e to G(llas statin5 that it applied the o(tstandin5 balan!es fro his !(rrent a!!o(nt as pay ent of the dishonored $arrant' S(!h noti!e !o(ld not be delivered to hi sin!e he $as o(t of to$n' @itho(t any a!tion fro G(llas% )6" applied the dishonored $arrant a5ainst his a!!o(nt' "e!a(se of this% G(llas $as (nable to pay for the !he!#s he iss(ed before the appli!ation' G(llas filed a !o plaint a5ainst )6"'

<(lin5: 6o' There is no brea!h of tr(st fro a ban#Hs fail(re to ret(rn the s(bje!t atter of the deposit' "an# deposits are in the nat(re of irre5(lar deposits' All #inds of ban# deposits are to be treated as loans and are to be !overed by the la$ on loans Art'19+2' In reality the depositor is the !reditor $hile the ban# is the debtor' Fail(re of the respondent ban# to honor the ti e deposit is fail(re to pay its obli5ation as a debtor'

SES!RENO :. "A Fa!ts: Sesbreno entered into a oney ar#et% 5ivin5 322# to )hilfinan!e' As an e0!han5e% )hilfinan!e 5ave !he!#s and !onfir ation of sale of >elta =otor Corp !ertifi!ates' Che!#s bo(n!ed' Sesbreno is r(nnin5 after )hilipinas "an# CpayeeD C7older of se!(rity of pri issory noteD and >elta C a#erD' >elta !ontends that it is not liable be!a(se there $as Bre!onstr(!tionB of debt of >elta to )hilfinan!e% the pro issory note is not valid any ore' It also !ontends that the do!( ent !annot be assi5ned be!a(se its non ne5otiable' <TC r(led that )hilfinan!e is liable be!a(se )hilfinan!e already #no$s that the liability $as already $aived and it still iss(ed the !ertifi!ate' 7o$ever% sin!e )hilfinan!e $as not i pleaded% j(d5 ent !annot be ade a5ainst )hilfinan!e' The iss(e related in this !ase is re5ardin5 trasferrability and assi5nability' Iss(e: @o6 the non9ne5otiable instr( ent is non transferrableEassi5nable <(lin5: Assi5nable is different fro tranferrability' 6e5otiable instr( ents !an be indorsed' 6on ne5otiable instr( ets !an be assi5ned' Therefore% non ne5otiable instr( ent !an be assi5ned'

Iss(e: @hether or not )6" has a ri5ht to apply a deposit to the debt of a depositor to the ban#G 7eld: Fes% )6" has a ri5ht to apply the pay ent a5ainst the a!!o(nt of the depositor' The relation bet$een a depositor and a ban# is that if !reditor and debtor' The 5eneral r(le is that a ban# has a ri5ht to set off of the deposit in its hands for the pay ent of any indebtedness to it on the part of the depositor' 7o$ever% prior to the ailin5 of the noti!e of dishonor and $itho(t $aitin5 for any a!tion by G(llas% the ban# ade (se of the oney standin5 in his a!!o(nt to a#e

S:CT<A6S *212E ATTF' AG;I6A&>1

19

DE LOS SANTOS ,- TAN <$E9 [Link].2669 -R, .3&6 30, 1962 Fa!ts: Tan Mhey $as the o$ner of International 7otel lo!ated in Iloilo !ity' <o eo de los Santos lod5ed in Tna MheyHs hotel' After arrival% he left the hotel% depositin5 his revolver and his ba5 $ith the person in !har5e in the hotel' @hen he ret(rned to the hotel% he too# his revolver and his ba5 fro the person in !har5e in the hotel and pro!eeded to his roo ' 7e lo!#ed the door before sleepin5' @hen he $o#e (p% he dis!overed that the door in his roo $as opened and his ba5 and pants% $herein he pla!ed his revolver % $as issin5' 7e reported the atter to the Assistant =ana5er of the hotel% $ho in t(rn infor ed Tan Mhey' A se!ret servi!e a5ent $as sent to investi5ate and it $as fo(nd that the $all of the roo o!!(pied by >e los Santos $as only seven feet hi5h $ith an open spa!e above thro(5h $hi!h one !o(ld enter fro o(tside' >e los Santos told the dete!tive that he lost his revolver' Tan Mhey dis!lai ed liability be!a(se >e los Santos did not deposit his properties $ith the ana5er despite a noti!e to that effe!t $as posted in the hotel' Tan Mhey !ontended that to be liable (nder Arti!le 199+ of the Civil Code% the follo$in5 !onditions (st !on!(r: 1' >eposit of effe!ts by travellers in hotel or inn *' 6oti!e 5iven to hotel #eepers or e ployees of the effe!ts bro(5ht by 5(ests 3' G(est or travellers ta#e the pre!a(tions $hi!h said hotel #eepers or their s(bstit(tes advised relative to the !are and vi5ilan!e of their effe!ts' Iss(e: @hether the hotel o$ner sho(ld be held liable for the loss of the effe!ts of the 5(estG <(ln5: The Co(rt r(led that the hotel o$ner sho(ld be liable for the loss of the revolver% pants and ba5 of the 5(est' >eposit @hile the la$ spea#s of IdepositJ of effe!ts by travellers in hotels or inns% personal re!eipt by the inn#eeper for safe #eepin5 of effe!ts is not ne!essaily eant thereby' The reason therefor is the fa!t that it is the nat(re of b(siness of an inn#eeper to provide not

only lod5in5 for travellers b(t also to se!(rity to their persons and effe!ts' The se!(ity entioned is not !onfined to the effe!ts a!t(ally delivered to the inn#eeper b(t also to all effe!ts pla!ed $ithin the pre ises of the hotel' This is be!a(se inn#eepers by the net(re of their b(siness% have s(pervision and !ontrolof their inns and the pre ises threof' It is not ne!essary that the effe!t $as a!t(ally delivered b(t it is eno(5h that they are $ithin the inn' If a 5(est and 5oods are $ithin the inn% that is s(ffi!ient to !har5e hi ' The o$ner of a hotel ay e0onerate hi self fro liability by sho$in5 that the 5(est has ta#en e0!l(sive !ontrol of his o$n 5oods% b(t this (st be e0!l(sive !(stody and !ontrol of a 5(est% and (st not be held (nder the s(pervision and !are of the inn#eeper%ey are #ept in a roo assi5ned to a 5(est or the other proper depository in the ho(se' In this !ase% the 5(est deposited his effe!ts in the hotel be!a(se they are in his roo and $ithin the pre ises of the hotel% and therefore% $ithin the s(pervision and !ontrol of the hotel o$ner'

6oti!e The Co(rt r(led that there $as no do(bt that the person in !har5e had #no$led5e of his revolver% the ba5% and pants of the 5(est% >e los Santos' The re/(ire ent of noti!e bein5 evidently for the p(rpose of !losin5 the door to fra(d(lent !lai s for non9 e0istent arti!les% the la!# thereof $as fatal to >e los SantosH !lai for reparation for the loss of his eye5lass% rin5% and !ash' )re!a(tions @hile an inn#eeper !annot free hi self fro responsibility by postin5 noti!es% there !an be no do(bt of the inn#eeperHs ri5ht to a#e s(!h re5(lations in the ana5e ent of his inn as $ill ore effe!t(ally se!(re the property of his 5(est and operate as prote!tion to hi self% and that it is in!( bent (pon the 5(est% if he eans to hold the in#eeper ho his responsibility% to !o ply $ith any re5(lation that is j(st and reasonable% $hen he is re/(ested to do so' 7o$ever% in this !ase% the noti!e re/(irin5 a!t(al deposit of the effe!ts $ith the ana5er $as an (nreasonable re5(lation' It $as (nreasonable to re/(ire the 5(est to deposit his ba5 %pants and revolver to the ana5er' >e los Santos had e0er!ised the ne!essary dili5en!e $ith respe!t to the !are and vi5ilan!e of his effe!ts' To%(c@ De%o-(*= Ar*(c&e 2003

S:CT<A6S *212E ATTF' AG;I6A&>1

*2

9$T Re'&*6 ,. "A FACTS: <espondent =!&o(5hlin $o(ld stay at Tropi!ana 7otel every ti e he is here in the )hilippines and $o(ld rent a safety deposit bo0' The safety deposit bo0 !o(ld only be opened thro(5h the (se of * #eys% one of $hi!h is 5iven to the re5istered 5(est% and the other re ainin5 in the possession of the ana5e ent of the hotel' =!&o(5hlin alle5edly pla!ed the follo$in5 in his safety deposit bo0 S * envelopes !ontainin5 ;S >ollars% one envelope !ontainin5 A(stralian >ollars% &etters% !redit !ards% ban#boo#s and a !he!#boo#' @hen he $ent abroad% a fe$ dollars $ere issin5 and the je$elry he bo(5ht $as li#e$ise issin5' :vent(ally% he !onfronted &aineP and )aiya $ho ad itted that Tan opened the safety deposit bo0 $ith the #ey assi5ned to hi ' =!&o(5hlin $ent (p to his roo $here Tan $as stayin5 and !onfronted her' Tan ad itted that she had stolen =!&o(5linHs #ey and $as able to open the safety deposit bo0 $ith the assistan!e of &opeP% )aiya and &aineP' &opeP alsto told =!&o(5hlin that Tan stole the #ey assi5ned to =!&o(5lin $hile the latter $as asleep' =!&o(5hlin insisted that it (st be the hotel $ho (st ass( e responsibility for the loss he s(ffered' &opeP ref(sed to a!!ept responsibility relyin5 on the !onditions for rentin5 the safety deposit bo0 entitled I;nderta#in5 For the ;se of Safety >eposit "o0J ISS;:: @hether the hotelHs ;nderta#in5 is validG 7:&>: 61 Arti!le *223 $as in!orporated in the 6e$ Civil Code as an e0pression of p(bli! poli!y pre!isely to apply to sit(ations s(!h as that presented in this !ase' The hotel b(siness li#e the !o on !arrierHs b(siness is i b(ed $ith p(bli! interest' Caterin5 to the p(bli!% hotel#eepers are bo(nd to provide not only lod5in5 for hotel 5(ests and se!(rity to their persons and belon5in5s' The t$in d(ty !onstit(tes the essen!e of the b(siness' The la$ in t(rn does not allo$ s(!h d(ty to the p(bli! to be ne5ated or dil(ted by any !ontrary stip(lation in so9!alled I(nderta#in5sJ that ordinarily appear in prepared for s i posed by hotel #eepers on 5(ests for their si5nat(re' In an early !ase C>e &os Santos v' Tan MheyD% CA r(led that to hold hotel#eepers or inn#eeper liable for the effe!ts of their 5(ests% it is not ne!essary that they be a!t(ally delivered to the inn#eepers or their e ployees' It is eno(5h that s(!h effe!ts are $ithin the hotel or inn' @ith 5reater reason sho(ld the liability of the

hotel#eeper be enfor!ed $hen the issin5 ite s are ta#en $itho(t the 5(estHs #no$led5e and !onsent fro a safety deposit bo0 provided by the hotel itself% as in this !ase' )ara5raphs C*D and C4D of the I(nderta#in5J anifestly !ontravene Arti!le *223% CC for they allo$ Tropi!ana to be released fro liability arisin5 fro any loss in the !ontents andEor (se of the safety deposit bo0 for any !a(se $hatsoever' :vidently% the (nderta#in5 $as intended to bar any !lai a5ainst Tropi!ana for any loss of the !ontents of the safety deposit bo0 $hether or not ne5li5en!e $as in!(rred by Tropi!ana or its e ployees' T$E 7ARE$OUSE RE"EIPTS LA7

G.R. No. L-1631

M'6 30, 1964

"OMMISSIONER O# INTERNAL RE:ENUE, %e*(*(o)er, ,-. $A7AIIAN-P$ILIPPINE "OMPAN9, re-%o)/e)*. FACTS: The petitioner% a !orporation d(ly or5aniPed in a!!ordan!e $ith la$% is operatin5 a s(5ar !entral in the City of Silay% 1!!idental 6e5ros' It prod(!es !entrif(5al s(5ar fro s(5ar!ane s(pplied by planters' The pro!essed s(5ar is divided bet$een the planters and the petitioner in the proportion stip(lated in the illin5 !ontra!ts% and thereafter is deposited in the $areho(ses of the latter' C)p' 494% t's'n'D For the s(5ar deposited by the planters% the petitioner iss(es the !orrespondin5 $areho(se re!eipts of B/(edansB' It does not !olle!t stora5e !har5es on the s(5ar deposited in its $areho(se d(rin5 the first 92 days period !o(nted fro the ti e it is e0tra!ted fro the s(5ar!ane' ;pon the lapse of the first ninety days and (p to the be5innin5 of the ne0t illin5 season% it !olle!ts a fee of )2'32 per pi!(l a onth' 7en!eforth% if the s(5ar is not yet $ithdra$n% a penalty of )2'*4 per pi!(l or fra!tion thereof a onth is i posed' C:0hibits B"91B% BC91B% B>91B% B"9*B% BC9*B% p' 12% t's'n'D The stora5e of s(5ar is !arried in the boo#s of the !o pany (nder A!!o(nt 6o' 4222% deno inated B=an(fa!t(rin5 Cost &ed5er ControlB3 the stora5e fees (nder A!!o(nt 6o' 4*1-*23 the e0pense a!!o(nts of the fa!tory (nder A!!o(nt 6o' 4*223 and the so9!alled BS(5ar "ode5a 1perationsB (nder A!!o(nt 6o' 4*1-% (nder $hi!h is a S(b9A!!o(nt 6o' *2% !aptioned% BCreditsB' C)p' 1-91,% t's'n'% :0hibit BFB'D The !olle!tions fro stora5e after the lapse of the first 92 days period are entered in the !o pany?s boo#s as debit to CAS7% and !redit to :0pense A!!o(nt 6o' *41-9*2 Cp' 1+% t's'n'D'

S:CT<A6S *212E ATTF' AG;I6A&>1

*1

The !redit for stora5e !har5es de!reased the ded(!tible e0pense res(ltin5 in the !orrespondin5 in!rease of the ta0able in!o e of the petitioner' This is refle!ted by the entries en!losed in parenthesis in :0hibit BGB% (nder the headin5 BStora5e Char5esB' C)' 1+% t's'n'D The alle5ed reason for this a!!o(ntin5 operation is that% inas (!h as the BS(5ar "ode5a 1perationsB is !onsidered as an e0pense a!!o(nt% entries (nder it are BdebitsB' Si ilarly% sin!e BStora5e Char5esB !onstit(te B!reditB% the !orrespondin5 fi5(res Csee :0hibit BCBD are en!losed in parenthesis as they de!rease the e0penses of aintainin5 the s(5ar $areho(ses' ;pon investi5ation !ond(!ted by the "(rea(% it $as fo(nd that d(rin5 the years 1949 to 194,% the petitioner realiPed fro !olle!ted stora5e fees a total 5ross re!eipts of )*1*%+43'22% on the basis of $hi!h the respondent deter ined the petitioner?s liability for fi0ed and per!enta5e ta0es% *4. s(r!har5e% and ad inistrative penalty in the a55re5ate a o(nt of )+%411'99 C:0hibit B4B% p' 11% "I< re!'D After d(e hearin5 the Co(rt of Ta0 Appeals ordered the CI< to ref(nd to respondent 7a$aiian9)hilippine Co pany the a o(nt of )+%411'99 representin5 fi0ed and per!enta5e ta0es assessed a5ainst it and $hi!h the latter had deposited $ith the City Treas(rer of Silay% 1!!idental 6e5ros ISS;:: @hether or notpetitioner is a $areho(se an liable for the pay ent of the fi0ed and per!enta5e ta0es pres!ribed in Se!tions 1+* and 191 of the 6ational Internal <even(e Code 7:&>: F:S' <espondent dis!lai s liability (nder the provisions /(oted above% alle5in5 that it is not en5a5ed the b(siness of storin5 its planters? s(5ar for profit3 that the aintenan!e of its $areho(ses is erely in!idental to its b(siness of an(fa!t(rin5 s(5ar and in !o plian!e $ith its obli5ation to its planters' @e find this to be $itho(t erit' It is !lear fro the fa!ts of the !ase that% after an(fa!t(rin5 the s(5ar of its planters% respondent stores it in its $areho(ses and iss(es the !orrespondin5 B/(edansB to the planters $ho o$n the s(5ar3 that $hile the s(5ar is stored free d(rin5 the first ninety days fro the date the it B/(edansB are iss(ed% the (ndisp(ted fa!t is that% (pon the e0piration of said period% respondent !har5er% and !olle!ts stora5e fees3 that for the period be5innin5 1949 to 194,% respondent?s total 5ross re!eipts fro this parti!(lar enterprise a o(nted to )*1*%+43'22'

A $areho(se an has been defined as one $ho re!eives and stores 5oods of another for !o pensation C44 @ords and )hrases% p' -34D' For one to be !onsidered en5a5ed in the $areho(sin5 b(siness% therefore% it is s(ffi!ient that he re!eives 5oods o$ned by another for stora5e% and !olle!ts fees in !onne!tion $ith the sa e' In fa!t% Se!tion * of the General "onded @areho(se A!t% as a ended% defines a $areho(se an as Ba person en5a5ed in the b(siness of re!eivin5 !o odity for stora5e'B That respondent stores its planters? s(5ar free of !har5e for the first ninety days does not e0e pt it fro liability (nder the le5al provisions (nder !onsideration' @ere s(!h fa!t s(ffi!ient for that p(rpose% the la$ i posin5 the ta0 $o(ld be rendered ineffe!t(al'

Go)A'&eA ,- Go T(o)0 Fa!ts: Go Tion5 CrespondentD o$ned a ri!e ill and $areho(se% lo!ated in )an5asinan' Thereafter% he obtained a li!ense to en5a5e in the b(siness of a bonded $areho(se an' S(bse/(ently% respondent Tion5 e0e!(ted a G(aranty "ond $ith the &(Pon S(rety Co to se!(re the perfor an!e of his obli5ations as s(!h bonded $areho(se an% in the s( of )1+%334% in !ase he $as (nable to ret(rn the sa e' After$ards% respondent Tion5 ins(red the $areho(se and the palay deposited therein $ith the Allian!e S(rety and Ins(ran!e Co pany' "(t prior to the iss(an!e of the li!ense to <espondent% he had on several o!!asions re!eived palay for deposit fro )laintiff GonPales% totalin5 3-+ sa!#s% for $hi!h he iss(ed re!eipts' After he $as li!ensed as a bonded $areho(se an% Go Tion5 a5ain re!eived vario(s deliveries of palay fro )laintiff% totalin5 49* sa!#s% for $hi!h he iss(ed the !orrespondin5 re!eipts% all the 5rand total of +-2 sa!#s% val(ed at )+%-22 at the rate of )12 per sa!#' 6ote$orthy is that the re!eipts iss(ed by Go Tion5 to the )laintiff $ere ordinary re!eipts% not the B$areho(se re!eiptsB defined by the @areho(se <e!eipts A!t CA!t 6o' *13,D' 1n or abo(t =ar!h 14% 1943% )laintiff de anded fro Go Tion5 the val(e of his deposits in the a o(nt of )+%-22% b(t he $as told to ret(rn after t$o days% $hi!h he did% b(t Go Tion5 a5ain told hi to !o e ba!#'

S:CT<A6S *212E ATTF' AG;I6A&>1

**

A fe$ days later% the $areho(se b(rned to the 5ro(nd' "efore the fire% Go Tion5 had been a!!eptin5 deliveries of palay fro other depositors and at the ti e of the fire% there $ere 4%+4, sa!#s of palay in the $areho(se% in e0!ess of the 4%222 sa!#s a(thoriPed (nder his li!ense' After the b(rnin5 of the $areho(se% the depositors of palay% in!l(din5 )laintiff% filed their !lai s $ith the "(rea( of Co er!e' 7o$ever% a!!ordin5 to the de!ision of the trial !o(rt% nothin5 !a e fro )laintiff?s efforts to have his !lai paid' Thereafter% GonPales filed the present a!tion a5ainst Go Tion5 and the &(Pon S(rety for the s( of )+%-22% the val(e of his palay% $ith le5al interest% da a5es in the s( of )4%222 and )1%422 as attorney?s fees' @hile the !ase $as pendin5 in !o(rt% GonPales and Go Tion5 entered into a !ontra!t of a i!able settle ent to the effe!t that (pon the settle ent of all a!!o(nts d(e to hi by Go Tion5% he% GonPales% $o(ld have all a!tions pendin5 a5ainst Go Tion5 dis issed' Inas (!h as Go Tion5 failed to settle the a!!o(nts% GonPales prose!(ted his !o(rt a!tion

As the trial !o(rt $ell observed% as far as Go Tion5 $as !on!erned% the fa!t that the re!eipts iss(ed by hi $ere not B/(edansB is no valid 5ro(nd for defense be!a(se he $as the prin!ipal obli5or' F(rther ore% as fo(nd by the trial !o(rt% Go Tion5 had repeatedly pro ised )laintiff to iss(e to hi B/(edansB and had ass(red hi that he sho(ld not $orry3 and that Go Tion5 $as in the habit of iss(in5 ordinary re!eipts Cnot B/(edansBD to his depositors' F(rther ore% Se!tion , of said la$ provides that as lon5 as the depositor is inj(red by a brea!h of any obli5ation of the $areho(se an% $hi!h obli5ation is se!(red by a bond% said depositor ay s(e on said bond' In other $ords% the s(rety !annot avoid liability fro the ere fail(re of the $areho(se an to iss(e the pres!ribed re!eipt'

7ARE$OUSE RE"EIPT@ #'(&3re *o m'rD E)o))e0o*('b&e.F ROMAN :. ASIA !AN<ING "ORPORATION FACTS: ;' de )oli% for val(e re!eived% iss(ed a quedan !onverin5 the 4,- +ultos of toba!!o to the Asia "an#in5 Corporation C!lai ant N appellantD' It $as e0e!(ted as a se!(rity for a loan' The aforesaid 4,- b(tlos are part and par!el of the *% ,-- +ultos p(r!hased by ;' de )oli fro Felisa <o an C!lai ant N appelleeD' The quedan $as ar#ed as :0hibit > $hi!h is a $areho(se re!eipt iss(ed by the $areho(se of ;' de )oli for 4,- +ultos of toba!!o' In the left ar5in of the fa!e of the re!eipt% ;' de )oli !ertifies that he is the sole o$ner of the er!handise therein des!ribed' The re!eipt is endorsed in blan#3 it is not ar#edJnon9ne5otiableJ or Inot ne5otiableJ' Sin!e a sale $as !ons( ated bet$een <o an and ;' de )oli% <o anHs !lai is a vendorHs lien' The lo$er !o(rt r(led in favor of <o an on the theory that sin!e the transfer to Asia "an#in5 Corp' CASIAD $as neither a pled5e nor a ort5a5e% b(t a se!(rity for a loan% the vendorHs lien of <o an sho(ld be a!!orded preferen!e over it' 7o$ever% if the $areho(se re!eipt iss(ed $as non9 ne5otiable% the vendorHs lien of <o an !annot prevail a5ainst the ri5hts of ASIA as indorsee of the re!eipt' ISS;:: @16 the /(edan iss(ed by ;' de )oli in favor of ASIA' is ne5otiable% despite fail(re to ar# it as not ne5otiableG 7:&>: F:S' The $areho(se re!eipt in /(estion is ne5otiable' It re!ited that !ertain er!handise deposited

ISS;:: @hether or not )laintiffHs !lai is 5overned by the "onded @areho(se A!t d(e to Go Tion5Hs a!t of iss(in5 to the for er ordinary re!eipts% not $areho(se re!eiptsG <;&I6G: F:S' SC r(led in favor )laintiff' A!t 6o' 3+93 provides that any deposit ade $ith <espondent Tion5 as a bonded $areho(se an (st ne!essarily be 5overned by the provisions of A!t 6o' 3+93' The #ind or nat(re of the re!eipts iss(ed by hi for the deposits is not very aterial (!h less de!isive sin!e said provisions are not andatory and indispensable ;nder Se!tion 1 of the @areho(se <e!eipts A!t% the iss(an!e of a $areho(se re!eipt in the for provided by it is erely per issive and dire!tory and not obli5atory' ' B<e!eiptB% (nder this se!tion% !an be !onstr(ed as any re!eipt iss(ed by a $areho(se an for !o odity delivered to hi

S:CT<A6S *212E ATTF' AG;I6A&>1

*3

in the $are ho(se Ipor ordenJ of the depositor instead of Ia la ordenJ% there $as no other dire!t state ent sho$in5 $hether the 5oods re!eived are to be delivered to the bearer% to a spe!ified person% or to a spe!ified order or his order' 7o$ever% the (se of Ipor ordenJ $as erely a !leri!al or 5ra ati!al error and that the re!eipt $as ne5otiable' As provided by the @areho(se <e!eipts A!t% in !ase the $areho(se an fails to ar# it as Inon9ne5otiableJ% a holder of the re!eipt $ho p(r!hase if for val(e s(pposin5 it to be ne5otiable ay% at his option% treat s(!h re!eipt as i posin5 (pon the $areho(se an the sa e liabilities he $o(ld have in!(rred had the re!eipt been ne5otiable' This appears to have 5iven any $areho(se re!eipt not ar#ed Inon9ne5otiableJ pra!ti!ally the sa e effe!t as a re!eipt $hi!h% by its ter s% is ne5otiable provided the holder of s(!h (n ar#ed re!eipt a!/(ired it for val(e s(pposin5 it to be ne5otiable% !ir!( stan!es $hi!h ad ittedly e0ist in the present !ase' 7en!e% the ri5hts of the indorsee% ASIA% are s(perior to the vendorHs lien'

ban# and a5ainst the forei5n p(r!haser% $ith bill of landin5 atta!hed% and the entire pro!eeds of the e0port sale $ere re!eived by the ban# and !redited to the !(rrent a!!o(nt of >e )oli'!hanroble >e )oli $as de!lared insolvent by the Co(rt of First Instan!e of =anila $ith liabilities to the a o(nt of several illion pesos over and above his assets' An assi5nee $as ele!ted by the !reditors and the ele!tion $as !onfir ed by the !o(rt A on5 the property ta#en over the assi5nee $as the er!handise stored in the vario(s $areho(ses of the insolvent' This er!handise !onsisted prin!ipally of he p% a5(ey and toba!!o' The vario(s ban#s holdin5 $areho(se re!eipts iss(ed by >e )oli !lai o$nership of this er!handise (nder their respe!tive re!eipts% $hereas the other !reditors of the insolvent aintain that the $areho(se re!eipts are not ne5otiable% that their endorse ent to the present holders !onveyed no title to the property% that they !annot be re5arded as pled5es of the er!handise inas (!h as they are not p(bli! do!( ents and the possession of the er!handise $as not delivered to the !lai ants and that the !lai s of the holders of the re!eipts have no preferen!e over those of the ordinary (nse!(red !reditors'la$ lib

!')D o+ P.I. ,. $err(/0e FACTS: The insolvent ; berto de )oli $as for several years en5a5ed on an e0tensive s!ale in the e0portation of =anila he p% a5(ey and other prod(!ts of the !o(ntry' 7e $as also a li!ensed p(bli! $areho(se an% tho(5h ost of the 5oods stored in his $areho(ses appear to have been er!handise p(r!hased by hi for e0portation and deposited there by he hi self'!hanr In order to finan!e his !o er!ial operations >e )oli established !redits $ith so e of the leadin5 ban#in5 instit(tions doin5 b(siness in =anila at that ti e% a on5 the the 7on5#on5 N Shan5hai "an#in5 Corporation% the "an# of the )hilippine Islands% the Asia "an#in5 Corporation% the Chartered "an# of India% A(stralia and China% and the A eri!an Forei5n "an#in5 Corporation' >e )oli opened a !(rrent a!!o(nt !redit $ith the ban# a5ainst $hi!h he dre$ his !he!#s in pay ent of the prod(!ts bo(5ht by hi for e0portation' ;pon the p(r!hase% the prod(!ts $ere stored in one of his $areho(ses and $areho(se re!eipts iss(ed therefor $hi!h $ere endorsed by hi to the ban# as se!(rity for the pay ent of his !redit in the a!!o(nt !(rrent' @hen the 5oods stored by the $areho(se re!eipts $ere sold and shipped% the $areho(se re!eipt $as e0!han5ed for shippin5 papers% a draft $as dra$n in favor of the ISSS;:: @hether or not the $areho(se re!eipts iss(ed are ne5otiableG 7:&>: Fes% a $areho(se an $ho deposited er!handise in his o$n $areho(se% iss(ed a $areho(se re!eipts therefore and thereafter ne5otiated the re!eipts by endorse ent' The re!eipt re!ites that the 5oods $ere deposited Ipor ordenJ of the depositor% the $areho(se an% b(t !ontained no state ent that the 5oods $ere to be delivered to the bearer of the re!eipts or to a spe!ified person' It is in the for of a $areho(se re!eipts and $as not ar# Inonne5otiableJ' Therefore the re!eipts $as ne5otiable $areho(se re!eipts and the $ords Ipor ordenJ (st be !onstr(ed to ean Ito the orderJ'

PN! , PRODU"ERGS 7ARE$OUSE ASSO"IATION FACTS: )6" C)D is a ban# in )7% )rod(!erHs @areho(se Asso!iation C>D is a do esti! !orporation doin5 5eneral $areho(se b(siness and )hil' Fiber and

S:CT<A6S *212E ATTF' AG;I6A&>1

*4

)rod(!e Co pany CFiberD is another do esti! !orporation' > and Fiber entered into a $ritten !ontra!t% $herein Fiber $o(ld a!t as the 5eneral ana5er of the b(siness of > and that Fiber $o(ld e0er!ise a 5eneral and !o plete s(pervision over the ana5e ent of the b(siness of >' 6ov and >e! 191+ S > iss(ed ne5otiable /(edans to Fiber for 14#LL pi!(ls of Copra% $hi!h the ter s states that o o o > a5reed to deliver that a o(nt of !opra to Fiber or its order > $ill deliver the pa!#a5es noted therein (pon the s(rrender of the $arrant to > 6o transfer of interestEo$nership $ill be re!o5niPed (nless re5istered in the boo#s of > The $ords Ine5otiable $arrantJ $ere printed in red in# in the /(edan Fa!ts:

"RU; ,-. :ALERO

8alero is president of the &(Pon S(5ar Co' $hile appellant Cr(P had a share a o(ntin5 to 1%444'3+ piculs e0port !entrif(5al s(5ar% $hi!h $as e0!han5ed for an e/(al a o(nt of do esti! !entrif(5al s(5ar' Cr(P deposited in the &(Pon S(5ar Co pany?s $areho(se $ithin its !o po(nd% $ith the obli5ation on its part to deliver it to the appellant on de and% that the appellant $as entitled to *3+'*2 piculs of do esti! !entrif(5al s(5ar as his share in the 194291941 !rop' 1n different dates% the appellant had $ithdra$n several piculs of s(5ar% red(!in5 red(!in5 the n( ber of 5allons of olasses' Cr(P !lai s that on >e!e ber 1941% the &(Pon S(5ar Co pany C&SCD did not have in its $areho(se the s(5ar he had stored in its $areho(se for safe#eepin5 and the n( ber of 5allons of olasses he had left in its possession !ontained in !ylindri!al tan#s% be!a(se the 8alero had disposed of the sa e $itho(t the #no$led5e and !onsent of appellant and that $hen the appellant $anted to $ithdra$ his s(5ar fro the $areho(se of &SC% the a o(nt of s(5ar stored in the $areho(se $as not an(fa!t(red by the &(Pon S(5ar Co pany b(t by a different !o pany' This $as denied by &SC% !ontendin5 that it had s(ffi!ient a o(nt of s(5ar an(fa!t(red by it and $as in a position to deliver s(5ar' Its $areho(se $as ho$ever bo bed by Japanese and the $areho(se da a5ed by shrapnel and so e piculs of !entrif(5al s(5ar $ere looted% so e ta#en by the Japanese after the o!!(pation and the re ainin5 bro(5ht by the Japanese Ar y to 6orthern &(Pon' Th(s it be!a e i possible the deliver the !entrif(5al s(5ar and olasses belon5in5 of Cr(P' Iss(e: @hether or not the &SC still has the obli5ation to deliver the sa e a o(nt and #ind of s(5ar stored in its $areho(se' 7:&>: Sin!e there $as eno(5h s(5ar to !over and deliver 1%2+1',9 piculs of do esti!% reserve and additional s(5ar belon5in5 to the Cr(P $ho% a!!ordin5 to the illin5 !ontra!t% $as in d(ty bo(nd to ta#e delivery thereof at the $areho(se% sin!e it $as established that the &SC !o po(nd $as bo bed on >e!e ber 1941 by the Japanese $ho also o!!(pied it fro 1 Jan(ary to *2 Febr(ary 194*% the loss $as d(e to the $ar or to a fort(ito(s event and therefore% the obli5ation of the depositary to deliver $hat has been deposited in hi has been e0tin5(ished by the happenin5 of a fort(ito(s event% $hi!h in this !ase% is the pa!ifi! $ar' The j(d5 ent appealed fro is affir ed' This is an appeal fro a de!ision of the Co(rt of First Instan!e of 6(eva :!ija $hi!h orders the defendant to pay to the plaintiff the s( of )3%222% $ith interest

o -

Fiber then arran5ed for overdraft $ith ) for )1= and to se!(re it% the s(bje!t /(edans $ere endorsed in blan# and delivered by Fiber to )% $hi!h be!a e the o$ner and holder thereof' ) later on re/(ested > the delivery of !opra des!ribed in the /(edans% ho$ever% > ref(sed to !o ply despite repeated re/(ests of )% statin5 that it !o(ld not be delivered sin!e the 5oods entioned are not in the $areho(se' > stated that the /(edans $ere invalid and $ron5f(lly iss(ed and that the !opra $as not in its $areho(se &C r(led in favor of >

ISS;:: @o6 the /(edans $ere validly ne5otiated to ) SC: F:SK The /(edans have le5al for!e and effe!t o They $ere d(ly e0e!(ted by @i!#s% as treas(rer and Torres as $areho(se an% for and in behalf of >' The said /(edans $ere endorsed in blan# and physi!al possession $as delivered to ) as !ollateral se!(rity for the overdraft of Fiber Co pany and That the /(edans $ere in ne5otiable for '

o -

> !annot no$ deny the e0isten!e of the /(edans

S:CT<A6S *212E ATTF' AG;I6A&>1

*4

thereon at the rate of -. per ann( 1942% and the !osts of a!tion'

fro

J(ne *-% "ONSOLIDATED ,- ARTE>

ESTRADA :. "AR DMG IN". ,- "ONSOLIDATED TERMINALS IN". 63 OG 10 Fa!ts: >=G ordered repla!e ent parts for diesel !onversion en5ine fro Ger any' ;pon arrival in =anila% the ship ent $as pla!ed in the $areho(se of Consolidated Ter inals' @hen >=G de anded for the delivery of the 5oods% Consolidated stated that it $as already released and delivered to >=G thro(5h a delivery per it $hi!h $as presented by a !ertain Sandoval a(thoriPed by AltePa' >=G !ontends that it has no s(!h e ployees' It de anded for the pay ent of s(!h 5oods'

Fa!ts: Consolidated Ter inals In! CCTID operated a !(sto s $areho(se in =anila' It re!eived 193 bales of hi5h density !o pressed ra$ !otton $orth )99#' It $as (nderstood that CTI $o(ld #eep the !otton on behalf of &(Pon "ro#era5e (ntil the !onsi5nee )ara o(nt Te0tile had opened the !orrespondin5 letter of !redit in favor of Adolph 7ansli# Cotton' "y virt(e of for5ed per its% Arte0 $as able to obtain the bales of !otton and paid )14#' Iss(e: @E6 CTI as $areho(se an $as entitled to the possession of the bales of !ottonG <(lin5: 6o' CTI had no !a(se of a!tion' It $as not the o$ner of the !otton' It $as not a real party of interest in the !ase' CTI $as not s(ed for da a5es by the real party in interest' LUA <IAN :S. MANILA RAILROAD

Iss(e: @hether or not Consolidated is liable to >=GG 7eld: Fes% Consolidated is liable to >=G' Consolidated did not faithf(lly !o ply $ith its d(ties and obli5ations' Se!tion 9 of the @areho(se <e!eipts &a$ does not dee it s(ffi!ient as prere/(isite for delivery the ere present ent of the re!eipt' It f(rther re/(ires that the person to $ho the 5oods sho(ld be delivered is Ione $ho is either hi self entitled to the propertyXor $ho has $ritten a(thority fro the person so entitled'J )resent ent of the re!eipt (st be !o(ple $ith as!ertain ent that the person so presentin5 it is ri5htf(lly entitled to ta#e delivery of the 5oods !overed by the re!eipt' Consolidated did not as!ertain the identity of Sandoval and AltePa' They have not !alled (p >=G first and as!ertained the 5en(ineness of the a(thority in $ritin5 before deliverin5 the arti!les !onsiderin5 that they did not #no$ either Sandoval or AltePa' Consolidated be!o es liable (nder Se!tion 12 of the @<& for isdelivery' 1n the !ontention that >=G $as ne5li5ent for allo$in5 s(!h per its to fall into the hands of (na(thoriPed persons% !ontrib(tory ne5li5en!e is not one of the defenses spe!ified in its ans$er' In order to for it to be a defense% it (st previo(sly sho$ to have been !o itted' The b(rden of proof is in hi self $ho alle5es it as a defense' It !annot be inferred fro the fa!t that persons other than the !onsi5nee or o$ner $ere able to ta#e possession of the shippin5 do!( ents or the per it papers $hi!h $ere s(pposed to be in the latterHs !(stody'

Fa!ts: =anila <ailroad re!eived into its !(stody a ship ent of !ases of il#% of $hi!h 3'1,1 $$ere ar#ed for Ceb( and 1%+*9 for &(a Mia b(t a!!ordin5 to the bills of ladin5 in =anila <ailroad?s possession% &(a Mia $as entitled to *222 !ases and Ceb( $as entitled to 3222 !ases' =anila <ailroad delivered 1%913 !ases to &(a Mia% $hi!h is +, !ases short in the bill of ladin5' Iss(e: @o6 anila <ail<oad is liable to &(a Mia for the (nderlivered !ases of il# <(lin5' Fes' The le5al relationship bet$een an arrastre operator and the !onsi5nee is a#in to that of a depositor and $areho(se an' As !(stodian of the 5oods dis!har5ed fro the vessel% it $as A?s d(ty li#e that of nay other depositary to ta#e 5ood !are of the 5oods and t(rn the over to the party entitled to their possession' ;nder this parti!(lar set of !ir!( stan!es% A sho(ld have held delivery be!a(se of the dis!repan!y bet$een the bill of ladin5 and the ar#in5s and !ond(!ted its o$n investi5ation not (nli#e that (nder Se!top 1+ of the @areho(se <e!eipts la$% or !alled (pon the parties to interplead s(!h ias in !ase (nder Se!tion 1, of the sa e la$% in order to deter int the ri5htf(l o$ner of the 5oods'

AMERI"AN #OREIGN !AN<ING "ORPORATION ,$ERRIDGE [Link].2100 , December 20, 1924 Fa!ts: ;' de )oli $as a debtor of A eri!an Forei5n "an#in5 Corporation' 7e iss(ed a $areho(se re!eipt%

S:CT<A6S *212E ATTF' AG;I6A&>1

*-

!o only #no$n as /(edan' The $areho(se re!eipt of the er!ahndise !overed thereby $as des!ribed as Ca5ayan taba!!o en ra a' It $as indorsed in blan# by ;' >e )oli to A eri!an Forei5n "an#in5 Corporation As se!(rity for an overdraft' ;' >e )oli be!a e insolvent and the ban# presented its !lai for the delivery of the toba!!o !overed in the $areho(se re!eipt' 7o$ever% it $as fo(nd that the toba!!o had !o e fro Isabela and not fro Ca5ayan% and the ban#Hs !lai $as disp(ted by other !reditors of the insolvent on the 5ro(nd that% a on5 others% that the toba!!o !lai ed% bein5 Isabela toba!!o% $as not !orre!tly des!ribed in the $areho(se re!eipt and that% therefore% the re!eipt $as ineffe!tive as a5ainst the 5eneral !reditors' Iss(e: @hether the (se of the $ord ICa5ayanJ instead of IIsabelaJ in des!ribin5 the toba!!o in the /(edan renders the /(edan n(ll and void as ne5otiable $areho(se re!eipt for the toba!!o intended to be !overed by it' <(lin5: The identity of the toba!!o $as s(ffi!iently established by the eviden!e' In the $areho(se% there $as no other toba!!o stored n(t only the Isabela toba!!o' The debtor also said that Isabela toba!!o $as the toba!!o $hi!h he transsfered to A eri!an Forei5n "an#in5 Corporation' Aside fro that% $hen the s(ba!!o(ntant of the ban# $ent to the $areho(se to !he!# $hi!h toba!!o $as !overed by the $areho(se re!eipt% the assi5nee and one of his a!!o(ntants pointed to hi the Isabela toba!!o' The intention of the parties to the transa!tion (st prevail a5ainst s(!h a te!hni!al obje!tion to the s(ffi!ien!y of the des!ription of the toba!!o' It i5ht be different if there had been Ca5ayan toba!!o in the $areho(se at the ti e of the iss(an!e of the /(edan% or if there $ere any do(bt as to the identity of the toba!!o intended to be !overed by the /(edan' The /(edan $as a ne5otiable $areho(se re!eipt $hi!h $as d(ly iss(ed and delivered by the debtor ;' de )oli to A eri!an Forei5n "an#in5 Corporation and it divested hi of his title to said toba!!o and transferred the position and the title thereof the A eri!an Forei5n "an#in5 Corporation'

to that effe!t the borro$er endorsed in favo(r of the ban# the !orrespondin5 $areho(se re!eipt' "efore the at(rity of the loan% the *222 !avans of palay disappeared for (n#no$n reasons in the $areho(se' @hen the loan at(red% the borro$er failed to pay obli5ation >efendant !lai ed that the $areho(se re!eipt !overin5 the palay $hi!h $as 5iven as se!(rity havin5 been endorsed in blan# in favo(r of the ban# and the palay havin5 been lost or disappeared% he thereby be!a e relieved of liability'

ISS;:: @hether the s(rrender of the $areho(se re!eipt !overin5 *222 !avans of palay 5iven as se!(rity% endorsed in blan#% to )6"% has the effe!t of transferrin5 their title or o$nership 1< it sho(ld be !onsidered erely as a 5(arantee to se!(re the pay ent of the obli5ation of >efendantG 7:&>: 6at(re of !ontra!t is )led5e s(pported by the stip(lations e bodied in the !ontra!t si5ned by >efendant $hen he se!(red the loan fro )6"' The *222 !avans of palay !overed by the $areho(se re!eipt $ere 5iven to )6" only as a 5(arantee to se!(re the f(lfil ent by >efendant in his obli5ation' This !learly appears in the !ontra!t $herein it is e0pressly stated that said *222 !avanes of palay $ere 5iven as !ollateral se!(rity' It follo$s that by the very nat(re of the transa!tion its o$nership re ains $ith the pled5or s(bje!t only to fore!los(re in !ase of non9f(lfill ent of the obli5ation' "y this $e ean that if the obli5ation is not paid (pon at(rity the ost that the pled5e !an do is to sell the property and apply the pro!eeds to the pay ent of the obli5ation and to ret(rn the balan!e% if any% to the pled5or' This is the essen!e of the !ontra!t% for% a!!ordin5 to la$% a pled5e !annot be!o e the o$ner of% nor appropriate to hi self the thin5 5iven in pled5e' If by the !ontra!t of pled5e% the pled5or !ontin(es to be the o$ner of the thin5 pled5ed d(rin5 the penden!y of the obli5ation% it stands to reason that in !ase of loss of the property% the loss sho(ld be borne by the pled5or' The fa!t that the $areho(se re!eipt !overin5 the palay $as delivered% endorsed in blan#% to the ban# does not alter the sit(ation% the p(rpose of s(!h endorse ent bein5 erely to transfer the j(ridi!al possession of the property to the pled5e and to forestall any possible disposition thereof on the part of the pled5or' @here a $areho(se re!eipt or /(edan is transferred or endorsed to a !reditor only to se!(re the pay ent of a loan or debt% the transferee or endorsee does not a(to ati!ally be!o e the o$ner of the 5oods !overed by the $areho(se re!eipt or /(edan b(t he erely

To%(c@ 7're2o3-e Rece(%*- L'4= -ec. 3? PN! ,. A*e)/(/o FACTS: &a(reano Atendido obtained fro )6" a loan of )3# and pled5ed *222 !avans of palay to 5(arantee pay ent $hi!h $ere then deposited in the $areho(se of Chen5 Sion5 &a N Co and

S:CT<A6S *212E ATTF' AG;I6A&>1

*,

retains the ri5ht to #eep and $ith the !onsent of the o$ner to sell the so as to satisfy the obli5ation fro the pro!eeds of the sale' This is for the si ple reason that the transa!tion involved is not a sale b(t only a ort5a5e or pled5e% and that if the property !overed by the /(edans or $areho(se re!eipts is lost $itho(t fa(lt or ne5li5en!e of the ort5a5ee or pled5e or the transferee or endorsee of the $areho(se re!eipt or /(edan% then said 5oods are to be re5arded as lost on a!!o(nt of the real o$ner% ort5a5or or pled5or'

Shortly thereafter the )laintiff filed a !lai for the aforesaid s( of )31%-44 in the intestate pro!eedin5s of the estate of the de!eased 1tto <anft% $hi!h on an appeal fro the de!ision of the !o ittee on !lai s% $as allo$ed by the CFI =anila' In the eanti e% de and had been ade by the )laintiff on the >efendant ban# for the ret(rn of the /(edans% or their val(e% $hi!h de and $as ref(sed by the ban# on the 5ro(nd that it $as a holder of the /(edans in d(e !o(rse'

MARTINE; :. PN! S(6 "o)0 !(e) ,- $S!" FACTS )laintiff is a !orporation en5a5ed in b(siness 5enerally% and that the >efendant 7S"C is a forei5n ban# a(thoriPed to en5a5e in the ban#in5 b(siness in the )hilippines' 1n J(ne *4% 19*-% 1tto <anft !alled the offi!e of the )laintiff to p(r!hase he p Caba!aD% and he $as offered the bales of he p as des!ribed in the !ontested ne5otiable /(edans' The parties a5reed to the aforesaid pri!e% and on the sa e date the /(edans% to5ether $ith the !overin5 invoi!e% $ere sent to <anft by the )laintiff% $itho(t havin5 been paid for the he p% b(t the )laintiff?s (nderstandin5 $as o o that the pay ent $o(ld be sa e /(edans% ade a5ainst the @hether or not the Q(edans endorsed in blan# 5ave the 7S"C ri5htf(l and valid title to the 5oodsG ISS;:

7:&>

F:S' SC r(led in favo(r of >efendant 7S"C'

It

ay be noted% o first% that the quedans in /(estion $ere ne5otiable in for 3 o second% that they $ere pled5ed by 1tto <anft to the >efendant ban# to se!(re the pay ent of his pree0istin5 debts to said ban#3 third% that s(!h of the quedans as $ere iss(ed in the na e of the )laintiff $ere d(ly endorsed in blan# by the )laintiff and by 1tto <anft3 and fo(rth% that the t$o re ainin5 quedans $hi!h $ere d(ly endorsed in blan# by hi '

and it appear that in previo(s transa!tion of the sa e #ind bet$een the ban# and the )laintiff% /(edans $ere paid one or t$o days after their delivery to the '

I ediately these Q(edans $ere pled5ed by 1tto <anft to the >efendant 7S"C to se!(re the pay ent of his pree0istin5 debts to the latter' The baled he p !overed by these $areho(se re!eipts $as $orth )31%-343 - re!eipts $ere endorsed in blan# by the )laintiff and 1tto <anft% and * $ere endorsed in blan#% by 1tto <anft alone 1n the evenin5 of the said delivery date% 1tto <anft died s(ddenly at his ho(se in the City of =anila' @hen the )laintiff fo(nd o(t% it i ediately de anded the ret(rn of the /(edans% or the pay ent of the val(e% b(t $as told that the /(edans had been sent to the herein >efendant as soon as they $ere re!eived by <anft'

The ban# had a perfe!t ri5ht to a!t as it did% and its a!tion is in a!!ordan!e $ith se!tions 4,% 3+% and 42 of the @areho(se <e!eipts A!t 7o$ever% the pertinent provision re5ardin5 the ri5hts the >efendant ban# a!/(ired over the aforesaid /(edans after indorse ent and delivery to it by <anft% is fo(nd in se!tion 41 of the @areho(se <e!eipts A!t CA!t 6o' *13,D:

S:CT<A6S *212E ATTF' AG;I6A&>1

*+

S:C' 41' &ights of person to /hom a receipt has +een negotiated' A A person to $ho a ne5otiable re!eipt has been d(ly ne5otiated a!/(ires thereby: 3a7 S(!h title to the 5oods as the person ne5otiatin5 the re!eipt to hi had or had ability to !onvey to a p(r!haser in 5ood faith for val(e% and also such title to the goods as the depositor of person to /hose order the goods /ere to +e delivered +y the terms of the receipt had or had a+ility to convey to a purchaser in good faith for value% and' ' ' '

In the ans$er of Sy and 65% they alle5ed that the transa!tion bet$een the and 6oahHs% !on!ernin5 the /(edans% $as bo5(s and si (lated' It $as part of a !o ple0 ban#in5 s!he e and finan!ial ane(vers to avoid 8AT pay ent and other "I< assess ents' ISS;:S: 1' @16 the non9pay ent of the p(r!hase pri!e for the s(5ar sto!# eviden!ed by the /(edans% rendered invalid the ne5otiation of said /(edans by Sy and 65 to indorsers <a os and Yoleta and the s(bse/(ent ne5otiation of <a os and Yoleat to )6"G *' @16 )6" as indorsee of /(edans $as entitled to delivery of s(5ar sto!#s fro the $areho(se an% 6oahHs Ar#G

Therefore% the ban# is not responsible for the loss3 the ne5otiable /(edans $ere d(ly ne5otiated to the ban# and as far as the re!ord sho$s% there has been no fra(d on the part of the >efendant' =oreover% )laintiff is estopped to deny that the ban# had a valid title to the quedans for the reason that the )laintiff had vol(ntarily !lothed <anft $ith all the attrib(tes of o$nership and (pon $hi!h the >efendant ban# relied' S(bse/(ently% )laintiff in this !ase has s(ffered the loss of the quedans% b(t as far as the !o(rt sees it% there is no$ no re edy available to the )laintiff e/(itable estoppel pla!e the loss (pon hi $hose ispla!ed !onfiden!e has ade the $ron5 possible as r(led in 6ational Safe >eposit vs' 7ibbs Ca ;S !aseD 7ARE$OUSE RE"EIPT@ 72o m'6 )e0o*('*e ' rece(%*H PN! ,. NOA$GS AR< SUGAR RE#INER9

FACTS: >efendant iss(ed on several dates $areho(se re!eipts% $hi!h $ere s(bstantial in for and !ontained the ter s pres!ribed by la$% to <osa Sy and Teresita 65' S(bse/(ently% so e of the $areho(se re!eipts $ere ne5otiated and indorsed to &(is <a os and Cresen!ia Yoleta' <a os and Yoleta then (sed the /(edans as se!(rity for loans obtained by the fro )6"' ;pon at(rity% both failed to pay% pro ptin5 )6" to de and the delivery of the s(5ar !overed by the /(edans indorsed to it by <a os and Yoleta' 6oahHs ref(sed to !o ply $ith the de and% )6" filed a !ase for Spe!ifi! )erfor an!e' The ain !ontention of 6oahHs $as that it $as still the o$ner of the s(bje!t /(edans and the /(antity of s(5ar represented thereon be!a(se the !orrespondin5 pay ent of Sy and 65 thro(5h !he!#s $ere dishono(red and so they did not a!/(ire o$nership' The it follo$s that the s(bse/(ent indorsers and plaintiff itself did not a!/(ire a better ri5ht of o$nership than the ori5inal vendees or first indorsers'

7:&>: The validity of the ne5otiation by <6S =er!handisin5 and St' Therese =er!handisin5 to <a os and Yoleta% and by the latter to )6" to se!(re a loan !annot be i paired by the fa!t that the ne5otiation bet$een 6oah?s Ar# and <6S =er!handisin5 and St' Therese =er!handisin5 $as in brea!h of faith on the part of the er!handisin5 fir s or by the fa!t that the o$ner C6oah?s Ar#D $as deprived of the possession of the sa e by fra(d% ista#e or !onversion of the person to $ho the $areho(se re!eiptE/(edan $as s(bse/(ently ne5otiated if C)6"D paid val(e therefor in 5ood faith $itho(t noti!e of s(!h brea!h of d(ty% fra(d% ista#e or !onversion' CSee Arti!le 141+% 6e$ Civil CodeD' And the !reditor C)6"D $hose debtor $as the o$ner of the ne5otiable do!( ent of title C$areho(se re!eiptD shall be entitled to s(!h aid fro the !o(rt of appropriate j(risdi!tion atta!hin5 s(!h do!( ent or in satisfyin5 the !lai by eans as is allo$ed by la$ or in e/(ity in re5ard to property $hi!h !annot be readily atta!hed or levied (pon by ordinary pro!ess' CSee Art' 14*2% 6e$ Civil CodeD' If the /(edans $ere ne5otiable in for and d(ly indorsed to )6" Cthe !reditorD% the delivery of the /(edans to )6" a#es the )6" the o$ner of the property !overed by said /(edans and on deposit $ith 6oah?s Ar#% the $areho(se an' CSee Sy Con5 "ien5 N Co' vs' 7on5#on5 N Shan5hai "an# Corp'% 4- )hil' 49+D' In the !ase at bar% )6"?s ri5ht to enfor!e the obli5ation of 6oah?s Ar# as a $areho(se an% to deliver the s(5ar sto!# to )6" as holder of the /(edans% does not depend on the o(t!o e of the third9party !o plaint be!a(se the validity of the ne5otiation transferrin5 title to the 5oods to )6" as holder of the /(edans is not affe!ted by an a!t of <6S =er!handisin5 and St' Therese =er!handisin5% in brea!h of tr(st% fra(d or !onversion a5ainst 6oah?s Ar#' PN! , SA9O, .R. FACTS 6oahHs Ar# S(5ar <efinery C6oahHsD iss(ed several $areho(se re!eipts C/(edansD% $hi!h

S:CT<A6S *212E ATTF' AG;I6A&>1

*9

$ere ne5otiated to <osa% <6S and St' Therese CvendeesD% $hi!h $ere a5ain ne5otiated to &(is and Cresen!ia% $hi!h they C&(is and Cresen!iaD endorsed to )6" as se!(rity for * loan a5ree ents' o Transfer of /(edans S 6oahHs <osa% <6S and St' Therese &(is and Cresen!ia )6"

&(is and Cresen!ia failed to pay their loans hen!e )6" de anded delivery of s(5ar sto!#s% ho$ever% 6oahHs Ar# ref(sed% alle5in5 o$nership thereof' 6oahHs Ar# !ontended that the a5ree ent ade by the $ith the vendees $as stopped sin!e the ban# dishonored the pay ents ade by the vendees to 6oahHs Ar#' As s(!h% the vendees and the endorsers of the /(edans never a!/(ired o$nership thereof' 6oahHs Ar# !lai ed for $areho(se anHs lien for the stora5e of the 5oods' &C 5ranted lien )6" appealed

ISS;:: @o6 )6" is entitled to the sto!#s of s(5ar as the endorsee of the /(edans% $itho(t payin5 the lien SC: F:S @hile )6" is entitled to the sto!#s of s(5ar as the endorsee of the /(edans% delivery to it shall be effe!ted only (pon pay ent of the stora5e fees' The $areho(se an is entitled to the $areho(se anHs lien that atta!hes to the 5oods invo#able a5ainst anyone $ho !lai s a ri5ht of possession thereon' 7o$ever% in this !ase% the lien $as lost $hen < ref(sed to deliver the 5oods% $hi!h $ere not an!hored to a valid e0!(se Ci'e' non satisfa!tion of @E7 an &ienD b(t on an adverse !lai of o$nership' The loss of @E7 =anHs lien does not ne!essarily ean the e0tin5(ish ent of the obli5ation to pay the @E7 fees and !har5es $hi!h !ontin(es to be a personal liability of the o$ners% )6" in this !ase' 7o$ever% s(!h fees and !har5es have !eased to a!!r(e fro the date of the reje!tion by 6oahHs Ar# to heed the la$f(l de and for the release of the 5oods' GUARANT9 AND SURET9S$IP

=AC7:TTI v 71S)ICI1 >: SA6 J1S: #A"TS@ 1D In 191-% <o (lo =a!hetti% a5reed to !onstr(!t a b(ildin5 in =anila for the 7ospi!io de San Jose% for )-4%222' 1ne of the !onditions of the a5ree ent $as that the !ontra!tor sho(ld obtain the B5(aranteeB of the Fidelity and S(rety Co pany of the )hilippine Islands to the a o(nt of )1*+%+22' Said !ontra!t read: =For value received /e here+y guarantee compliance /ith the terms and conditions as outlined in the a+ove contract. = *D Thereafter =a!hetti !onstr(!ted the b(ildin5 and% as the $or# pro5ressed% pay ents $ere ade to hi fro ti e to ti e% (ntil the entire !ontra!t pri!e% e0!ept the s( of )4%9,+'2+% $as paid'

S:CT<A6S *212E ATTF' AG;I6A&>1

32

3D &ater on it $as fo(nd that the $or# had not been !arried o(t in a!!ordan!e $ith the spe!ifi!ations $hi!h for ed part of the !ontra!t and that the $or# anship $as not of the standard re/(ired% and th(s the 7ospi!io presented a !o(nter!lai for da a5es for the partial non!o plian!e $ith the ter s of the a5ree ent above entioned% in the total s( of ),1%342' 4D >(rin5 the d(ration of the trial ho$ever% =a!hetti% de!lared insolvent and an order $as entered s(spendin5 the pro!eedin5 in the present !ase' Th(s% the 7ospi!io filed a otion as#in5 that the Fidelity and S(rety Co pany be ade !ross9defendant to the e0!l(sion of =a!hetti and that the pro!eedin5s be !ontin(ed as to said !o pany% $hi!h otion $as 5ranted and s(bse/(ently% the 7ospi!io filed a !o plaint a5ainst the Fidelity and S(rety Co pany for a j(d5e ent a5ainst the !o pany (pon its 5(aranty' The CFI rendered j(d5 ent a5ainst Fidelity' ISSUE@ @hether or not Fidelity is ans$erable to the 7ospi!io as 5(aranty of =a!hetti'

That the 5(arantee iss(ed by the petitioner is (n!onditional and irrevo!able does not a#e the petitioner a s(rety' As a 5(aranty% it is still !hara!teriPed by its s(bsidiary and !onditional /(ality be!a(se it does not ta#e effe!t (ntil the f(lfill ent of the !ondition' ;n!onditional 5(arantee is still s(bje!t to the !ondition that the prin!ipal debtor sho(ld defa(lt in his obli5ation first before resort to the 5(arantor !o(ld be had' =A6I&A <AI&<1A> v A&8:6>IA Fa!ts: CFI senten!ed =anila <ailroad Co' C=<CD and =anila )ort Servi!e C=)SD to pay "ataan <efinin5 Corp' =)S filed a noti!e of appeal a!!o panied by an appeal bond' 6oti!in5 that the appeal bond $as only e0e!(ted by =)S si5ned by the ana5er and Standard Ins(ran!e Cas s(retyD si5ned by the vi!e9president% the trial !o(rt reje!ted the re!ord on appeal' It is !ontended by =<C that the =)S% bein5 a ere s(bsidiary or depart ent of =<C% $itho(t le5al personality of its o$n% the bond filed by the for er sho(ld be a bond for the =<C and that the appeal of the latter sho(ld have been 5iven d(e !o(rse'

$ELD@ AC G(arantor i plies an (nderta#in5 of 5(aranty% as distin5(ished fro s(retyship and in this !ase% it appears that the !ontra!t is the 5(arantor?s separate (nderta#in5 in $hi!h the prin!ipal does not join% that its rests on a separate !onsideration ovin5 fro the prin!ipal and that altho(5h it is $ritten in !ontin(ation of the !ontra!t for the !onstr(!tion of the b(ildin5% it is a !ollateral (nderta#in5 separate and distin!t fro the latter' All of these !ir!( stan!es are distin5(ishin5 feat(res of !ontra!ts of 5(aranty' "D 1n the other hand% a s(rety (nderta#es to pay if the prin!ipal does not pay% the 5(arantor only binds hi self to pay if the prin!ipal !annot pay' The one is the ins(rer of the debt% the other an ins(rer of the solven!y of the debtor' This latter liability is $hat the Fidelity Co pany ass( ed in this !ase' Th(s% Fidelity havin5 bo(nd itself to pay only the event its prin!ipal% !annot pay it follo$s that it !annot be !o pelled to pay (ntil it is sho$n that =a!hetti is (nable to pay' The j(d5 ent appealed fro is therefore reversed'

Iss(e: @hether or not the noti!e of appeal sho(ld be a!!eptedG 7eld: 6o% the noti!e of appeal sho(ld be reje!ted' 72ere *2ere (- )o %r()c(%'& /eb*or () *2e '%%e'& bo)/, (* (- ,o(/ ')/ 3)e)+orce'b&e. The ere re!ital in the body of the instr( ent% I@e% =<C et' al% as prin!ipal and the Standard Ins(ran!e Co' In! 000 as s(retyJ does not s(ffi!e to a#e !ontra!t bindin5 on the =<C (nless it is sho$n that the sa e $as a(thoriPed by it' 6either the si5nat(re nor the a!#no$led5 ent indi!ates that the a!t of that of the =<C or that the latter had e po$ered =)S to e0e!(te the bond in its behalf' The res(lt $o(ld be that the appeal bond is void and (nenfor!eable for la!# of prin!ipal debtor or obli5ation' @hile the s(rety bo(nd itself to pay jointly and severally% s(!h an (nderta#in5 pres(pposes that the obli5ation is to be enfor!eable a5ainst so eone else besides the s(rety and the latter !o(ld al$ays !lai that it $as never its intention to be the sole person obli5ed thereby' IFC v I=):<IA& T:ZTI&: Fa!ts: IFC e0tended to ))IC a loan of ;SW,%222%222'22% payable in si0teen C1-D se i9 ann(al install ents of ;SW43,%422'22 ea!h% be5innin5 J(ne 1% 19,, to >e!e ber 1% 19+4' 1n >e!e ber 1,% 19,4% a IG(arantee

)7I& :Z)1<T v 8) :;S:"I1 FACTS: <espondent entered into !ontra!t $ith S1" for !onstr(!tion of Therapy "ld5' S1" de anded bonds to se!(re perfor an!e' )roje!t $as delayed >1CT<I6:: "y 5(aranty a person% !alled the 5(arantor% binds hi self to the !reditor to f(lfill the obli5ation of the prin!ipal debtor in !ase the latter sho(ld fail to do so3 if the person binds hi self solidarily $ith the prin!ipal debtor% the !ontra!t is !alled s(retyship'

S:CT<A6S *212E ATTF' AG;I6A&>1

31

A5ree entJ $as e0e!(ted $ith I perial Te0tile =ills% In!' CIT=D' IT= a5reed to 5(arantee ))IC?s obli5ations (nder the loan a5ree ent' ))IC paid the install ents d(e on J(ne 1% 19,,% >e!e ber 1% 19,, and J(ne 1% 19,+' >espite the res!hed(lin5 of the install ent pay ents% ho$ever% ))IC defa(lted' IFC de anded IT= and Grandte0% as 5(arantors of ))IC% to pay the o(tstandin5 balan!e' 7o$ever% the o(tstandin5 balan!e re ained (npaid' Iss(e: The iss(e is $hether IT= is a s(rety% and th(s solidarily liable $ith ))IC for the pay ent of the loan' <(lin5: Fes' The A5ree ent (ses I5(arantee and 5(arantorsJ% pro ptin5 IT= to base its ar5( ent on those $ords' This Co(rt is not !onvin!ed that the (se of the t$o $ords li its the Contra!t to a ere 5(aranty' The spe!ifi! stip(lations in the Contra!t sho$ other$ise' @hile referrin5 to IT= as a 5(arantor% the A5ree ent spe!ifi!ally stated that the !orporation $as ?jointly and severally liable' To p(t e phasis on the nat(re of that liability% the Contra!t f(rther stated that IT= $as a pri ary obli5or% not a mere s(rety' Those stip(lations eant only one thin5: that at +ottom% and to all le5al intents and p(rposes% it $as a s(rety' Ind(bitably therefore% IT= bo(nd itself to be solidarily' S:8:<I61 v S:8:<I61 F: (pon the death of 0% $ho left !onsiderable property% a liti5ation ens(ed bet$een !% 0Hs $ido$% and other heirs of 0' a !o pro ise $as effe!ted by $hi!h d% a son of 0% too# over the property pertainin5 to the estate of 0 at the sa e ti e a5reein5 to pay )122# to !% payable% first in )42# !ash (pon the e0e!(tion of the do!( ent of !o pro ise and the balan!e% in three e/(al install ents' G' affi0ed his na e as 5(arantor ;pon dHs fail(re to pay the balan!e% ! instit(ted an a!tion a5ainst d and 5% the latter !ontendin5 that he re!eived nothin5 for affi0in5 his si5nat(re as 5(arantor to the !ontra!t and that in effe!t the !ontra!t $as la!#in5 in !onsideration as to hi ' Iss(e: is there a !onsideration for the 5(arantyG <(lin5: a 5(arantor or s(rety is bo(nd by the sa e !onsideration that a#es the !ontra!t effe!tive bet$een the prin!ipal parties thereto' The !o pro ise and dis issal of la$s(it is re!o5niPed in la$ as a val(able !onsideration3 and the dis issal of the a!tion $hi!h ! instit(ted a5ainst d $as an ade/(ate !onsideration to s(pport the pro ise on the part of d to pay the s( s stip(lated in the !ontra!t s(bje!t of the a!tion It is neither ne!essary that the 5(arantor or s(rety sho(ld re!eive any part of the benefit% if s(!h there be

a!!r(in5 to his prin!ipal' The tr(e !onsideration of this !ontra!t $as the detri ent s(ffered by ! in the for er a!tion in dis issin5 the pro!eedin5 and it is i aterial that no benefit ay have a!!r(ed either to the prin!ipal or his 5(arantor &:: v CA #A"TS@ )"C1= $as f(rnished by a board resol(tion statin5 that they a(thoriPe )resident% =r' Charles &ee% and the 8i!e9)resident and General =ana5er% =r' =ariano A' Sio to apply for% ne5otiate and se!(re the approval of !o er!ial loans and other ban#in5 fa!ilities and a!!o odations% fro the )hilippine "an# of Co (ni!ations% in s(!h s( s as they shall dee advanta5eo(s% the prin!ipal of all of $hi!h shall not e0!eed the total a o(nt of T:6 =I&&I16 ):S1S C)12%222%222'22D% )hilippine C(rren!y% pl(s any interests' =i!o availed of the loans and as se!(rity for the loans% =IC1 thro(5h its 8i!e9)resident and General =ana5er% =ariano Sio% e0e!(ted on =ay 1-% 19,9 a >eed of <eal :state =ort5a5e over its properties sit(ated in )asi5% =etro =anila' 1n =ar!h *-% 19,9 Charles &ee% Ch(a Sio# S(y% =ariano Sio% Alfonso Fap and <i!hard 8elas!o% in their personal !apa!ities e0e!(ted a S(rety A5ree ent in favor of )"Co $hereby the petitioners jointly and severally% 5(aranteed the pro pt pay ent on d(e dates of overdrafts% pro issory notes% dis!o(nts% drafts% letters of !redit% bills of e0!han5e% tr(st re!eipts% and other obli5ations of every #ind and nat(re% for $hi!h =IC1 ay be held a!!o(ntable by )"Co ' It $as provided% ho$ever% that the liability of the s(reties shall not at any one ti e e0!eed the prin!ipal a o(nt of Three =illion )esos pl(s interest% !osts% losses% !har5es and e0penses in!l(din5 attorneyHs ' 1n J(ly 14% 19+2% petitioner Charles &ee% in his !apa!ity as president of =IC1% $rote )"Co and applied for an additional loan in the s( of Fo(r =illion )esosD' The loan $as intended for the e0pansion and oderniPation of the !o panyHs a!hineries' ;pon approval of the said appli!ation for loan% =IC1 availed of the additional loan of Fo(r =illion )esos Cas eviden!ed by )ro issory 6ote TA 6o' 294' As per a5ree ent% the pro!eeds of all the loan avail ents $ere !redited to =IC1Hs !(rrent !he!#in5 a!!o(nt $ith )"Co ' To ind(!e the )"Co to in!rease the !redit line of =IC1% Charles &ee% Ch(a Sio# S(y% =ariano Sio% Alfonso Fap% <i!hard 8elas!o and Alfonso Co Chereinafter referred to as petitioners9s(retiesD% e0e!(ted another s(rety a5ree ent in favor of )"Co on J(ly *+% 19+2% $hereby they jointly and severally 5(aranteed the pro pt pay ent on d(e of overdrafts% pro issory notes% dis!o(nts% drafts% letters of !redit% bills of e0!han5e% tr(st re!eipts and all other obli5ations of

S:CT<A6S *212E ATTF' AG;I6A&>1

3*

any #ind and nat(re for $hi!h =IC1 ay be held a!!o(ntable by )"Co ' It $as provided% ho$ever% that their liability shall not at any one ti e e0!eed the s( of Seven =illion Five 7(ndred Tho(sand )esos in!l(din5 interest% !osts% !har5es% e0penses and attorneyHs fees in!(rred by =IC1 in !onne!tion there$ith' ;pon at(rity of all !redit avail ents obtained by =IC1 fro )"Co % the latter ade a de and for pay ent' For fail(re of petitioner =IC1 to pay the obli5ations in!(rred despite repeated de ands% private respondent )"Co e0traj(di!ially fore!losed =IC1Hs real estate ort5a5e and sold the said ort5a5ed properties in a p(bli! a(!tion sale held on 6ove ber *3% 19+* and )"Co $on and applied the pro!eeds of the p(r!hase pri!e at p(bli! a(!tion of Three =illion )esos to the e0penses of the fore!los(re% interest and !har5es and part of the prin!ipal of the loans% leavin5 an (npaid balan!e of Five =illion Fo(r 7(ndred Forty91ne Tho(sand Si0 7(ndred Si0ty9Three )esos and 6inety Centavos e0!l(sive of penalty and interest !har5es' Aside fro the (npaid balan!e% =IC1 li#e$ise had another standin5 obli5ation and )"Co then de anded the settle ent of the aforesaid obli5ations fro herein petitioners9s(reties $ho% ho$ever% ref(sed to a!#no$led5e their obli5ations to )"Co (nder the s(rety a5ree ents' 7en!e% )"Co filed a !o plaint $ith prayer for $rit of preli inary atta!h ent% alle5in5 that =IC1 $as no lon5er in operation and had no properties to ans$er for its obli5ations' )"Co f(rther alle5ed that petitioner Charles &ee has disposed or !on!ealed his properties $ith intent to defra(d his !reditors' :0!ept for =IC1 and Charles &ee% the sheriff of the <TC failed to serve the s( ons on herein petitioners9s(reties sin!e they $ere all reportedly abroad at the ti e' An alias s( ons $as later iss(ed b(t the sheriff $as not able to serve the sa e to petitioners Alfonso Co and Ch(a Sio# S(y $ho $as already si!#ly at the ti e and reportedly in Tai$an $here he later died' )etitioners !ontend that there $as no proof that the pro!eeds of the loans or the 5oods (nder the tr(st re!eipts $ere ever delivered to and re!eived by =IC1' "(t the re!ord sho$s other$ise' )etitioners9s(reties f(rther !ontend that ass( in5 that there $as delivery by )"Co of the pro!eeds of the loans and the 5oods% the !ontra!ts $ere e0e!(ted by an (na(thoriPed person% ore spe!ifi!ally Ch(a Sio# S(y $ho a!ted fra(d(lently and in !oll(sion $ith )"Co to defra(d =IC1' ISSUE@ @hether or not the individ(al petitioners% as s(reties% ay be held liable (nder the t$o C*D S(rety A5ree ents e0e!(ted on =ar!h *-% 19,9 and J(ly *+% 19+2' RULING@ 9e-.

The !o(rt r(led that it is proven that =IC1 re!eived the pro!eeds of the loan and that )"Co has the ri5ht to to believe that Ch(a Sio# S(y based on the Certifi!ate iss(ed by the Se!tretary of =IC1' The !o(rt r(led that as re5ards petitioners9s(reties !ontention that they obtained no !onsideration $hatsoever on the s(rety a5ree ents% the !o(rt pointed that the !onsideration for the s(reties is the very !onsideration for the prin!ipal obli5or% =IC1% in the !ontra!ts of loan' In the !ase of -illex #lastic %ndustries )orporation vs. )ourt of $ppeals, $e r(led that *2e co)-(/er'*(o) )ece--'r6 *o -3%%or* ' -3re*6 ob&(0'*(o) )ee/ )o* %'-- /(rec*&6 *o *2e -3re*6, ' co)-(/er'*(o) mo,()0 *o *2e %r()c(%'& '&o)e be()0 -3++(c(e)*. #or ' 03'r')*or or -3re*6 (- bo3)/ b6 *2e -'me co)-(/er'*(o) *2'* m'De- *2e co)*r'c* e++ec*(,e be*4ee) *2e %'r*(e- *2ere*o. I* (- )o* )ece--'r6 *2'* ' 03'r')*or or -3re*6 -2o3&/ rece(,e ')6 %'r* or be)e+(*, (+ -3c2 *2ere be, 'ccr3()0 *o 2(- %r()c(%'&. >: G;Y=A6 v SA6T1S FACTS: Jerry 1' Toole% Antonio Abad and Anasta!io Santos for ed a 5eneral er!antile partnership S )hilippine A eri!an Constr(!tion Co pany $ith a !apital of )14#' )12# of $hi!h $ere ta#en by $ay of loan fro )a(lino Candelaria' The partnership and the !o9 partners (ndertoo# and bo(nd the selves to pay jointly and severally the indebtedness' ;pon defa(lt% )a(lino filed !ivil !ase a5ainst )hil9A Constr(!tion Co pany and !o9partners for the re!overy of loan TC S ordered all >efendants to pay jointly and severally3 CA affir ed ;pon filin5 of !o plaint% )a(lino obtained a $rit of atta!h ent a5ainst >efendants' The Sheriff atta!hed properties of 3 partners' )artnership offered to post a bond of )12#' )hil9A Constr(!tion Co pany as prin!ipal then represented by the partner Antonio Abad% Santia5o &(!ero and =eliton Carlos as 5(arantors e0e!(ted a bond of )12# in favo(r of )a(lino for the liftin5 of the atta!h ent' After iss(an!e of $rit of e0e!(tion% Sheriff fo(nd no property of the j(d5 ent debtors' )a(lino oved for the iss(an!e of $rit of e0e!(tion a5ainst the 5(arantors of >efendants' G(arantor9)laintiff and !o95(arantor =eliton Carlos later paid the !reditor and $ere able to re!over fro Antonio Abad a s( of )3+22% $hi!h they divided e/(ally' It appeared that the pay ent ade by the plaintiff to )a(lino $as red(!ed to the s( of )3--4' )laintiff no$ de ands fro Anasta!io Santos the ret(rn of the aforesaid s( b(t Anasta!io ref(sed'

S:CT<A6S *212E ATTF' AG;I6A&>1

33

ISS;:: @hether or not >efendant is bo(nd to pay )laintiff $hat he had advan!ed to )a(linoG 7:&>: F:S Arti!le 1+3+ provides that any 5(arantor $ho pays for the debtor shall be inde nified by the latter even sho(ld the 5(aranty have been (nderta#en $itho(t the #no$led5e of the debtor' I6 T7IS CAS:: The 5(arantor $as the de!eased Santia5o &(!ero% no$ represented by the plaintiff in her !apa!ity as j(di!ial ad inistratri0% and the debtor is the defendant9 appellant' Applyin5 the provision !ited% it is obvio(s that the >efendant is le5ally bo(nd to pay $hat the )laintiff had advan!ed to the !reditor (pon the j(d5 ent% not$ithstandin5 the fa!t that the bond had been 5iven $itho(t his #no$led5e' A)6 %er-o) 42o m'De- ' %'6me)* +or *2e 'cco3)* o+ ')o*2er m'6 reco,er +rom *2e /eb*or *2e 'mo3)* o+ *2e %'6me)*, 3)&e-- (* 4'- m'/e '0'()-* *2e e5%re-- 4(&& o+ *2e &'**er. I) *2e &'**er c'-e, 2e c') o)&6 reco,er +rom *2e /eb*or () -o +'r '- *2e %'6me)* 2'bee) be)e+(c('& *o *2e &'**er. It is evident that >efendant is bo(nd to pay to the plaintiff $hat the latter had advan!ed to the !reditor (pon the j(d5 ent% and this is ore so be!a(se it appears that altho(5h &(!ero e0e!(ted the bond $itho(t his #no$led5e% nevertheless he did not obje!t thereto or rep(diate the sa e at any ti e' =;6ICI)A&ITF 1F GASA6 v =A<ASIGA6 FACTS: The plaintiff9appellee (ni!ipality% on >e!e ber 9% 1932% p(t (p at a(!tion the privile5e of 5atherin5 $hitefish spa$n in its j(risdi!tional $aters for the period of one year fro Jan(ary 1% 1931' T$o bidders% Gra!iano 6apa and =i5(el =arasi5an% appeared at the a(!tion' Gra!iano 6apa proposed to a!!ept the privile5e by payin5 )4%222 therefor% =i5(el =arasi5an proposed to do li#e$ise% b(t by payin5 only )4%*22' The !o(n!il of the plaintiff9appellee (ni!ipality% in its resol(tion 6o' 1-1 C:0hibit 1D of >e!e ber 11% 1932 reje!ted Gra!iano 6apa?s bid and a!!epted that of the appellant =i5(el =arasi5an' To se!(re his !o plian!e $ith the ter s of the !ontra!t $hi!h $as i ediately for aliPed by hi and the plaintiff% and p(rs(ant to the provisions of se!tion + of resol(tion 6o' 1*+% series of 19*4% of the !o(n!il of said plaintiff% =i5(el =arasi5an filed the bond% :0hibit "% s(bs!ribed on >e!e ber 14% 1932% by the defendants9 appellants An5el <' Sevilla and GonPalo &' &(na% $ho bo(nd the selves in said do!( ent to pay to the plaintiff

the s( of )+%422% if =i5(el =arasi5an failed to deposit one9fo(rth of )4%*22 /(arterly in advan!e in the (ni!ipal treas(ry of Gasan' Gra!iano 6apa for$arded a protest C:0hibit 4D to the provin!ial board% $hi!h protest $as later indorsed by said provin!ial board to the Chief of the :0e!(tive "(rea(% alle5in5 that the plaintiff (ni!ipality violated the provisions of se!tion *3*3 of the Ad inistrative Code in reje!tin5 his bid' The provin!ial board% passin5 (pon Gra!iano 6apa?s protest and a!tin5 (nder the a(thority $hi!h% in its opinion% $as 5ranted to it by se!tion **33 of the Ad inistrative Code% held that resol(tion 6o' 1-1% series of 1932% by virt(e of $hi!h the (ni!ipal !o(n!il of Gasan reje!ted Gra!iano 6apa?s bid and a!!epted that of =i5(el =arasi5an% not$ithstandin5 the fa!t that the latter offered to pay less% $as invalid% and s(55ested that the privile5e sho(ld be% a$arded to Gra!iano 6apa $ho% in its opinion% appeared to be the hi5hest bidder in a!!ordan!e $ith the provisions of se!tions *3*3 and *319 of the Ad inistrative Code C:0hibit 9D' The :0e!(tive "(rea(% !on!(rrin5 $ith the provin!ial board?s points of vie$% de!lared% in t(rn% that the !on!ession ade to =arasi5an $as ille5al in vie$ of the fa!t that Gra!iano 6apa $as the hi5hest bidder C:0hibit 13D' The plaintiff (ni!ipality de!ided to a$ard the privile5e of 5atherin5 $hitefish spa$n $ithin its $aters to Gra!iano 6apa% 5ivin5 hi a period of seven days% fro Jan(ary +% 1931 C:0hibit 199AD% to deposit the s( of )422' Gra!iano 6apa not only failed to a#e the deposit re/(ired by the plaintiff b(t he for ally de!lared% thro(5h his d(ly a(thoriPed representative% that he yielded the privile5e 5ranted hi to =i5(el =arasi5an or to any other person sele!ted by the (ni!ipal a(thorities' 1ne day later plaintiff9appellee (ni!ipality sent the letter :0hibit *1 to =i5(el =arasi5an infor in5 hi that the !ontra!t bet$een the be!o es effe!tive on Jan(ary 14% 1931' )rior to this% plaintiff infor ed =arasi5an that the !ontra!t 5rantin5 =arasi5an the privile5e is s(spended N !onsidered ineffe!tive $hile the protest is pendin5' )laintiff filed an a!tion to re!over fro =arasi5an% Sevilla and &(ana the s( of ) 3%,+2 as part of li!ense fees $hi!h they failed to pay' ISS;:: $En respondents are liable 7:&>: 6o' The !ontra!t $as not !ons( ated b(t !an!elled' only !onsidered not

It !eased to be valid $hen it $as !an!elled

S:CT<A6S *212E ATTF' AG;I6A&>1

34

6either the appellant nor his s(reties $ere bo(nd to !o ply $ith the ter s of their respe!tive !ontra!ts of fishin5 privile5e and s(retyship' This is so parti!(larly $ith respe!t to the s(reties% be!a(se s(retyship !annot e0ist $itho(t a valid obli5ation' G(aranty is not pres( ed' The eli ination of the obli5ation for $hi!h said s(reties desired to ans$er $ith their bond also rendered the bond also eli inated' S=IT7 ":&& v )6" #A"TS 1n April 191+% Fred =' 7arden applied to S ith% to b(y + Anderson e0pellers end drive% latest odel% for the pri!e of )+2%222% to be paid on delivery' This $o(ld be (sed for the e0tra!tion of !o!on(t oil' It $as (nderstood that these e0pellers $o(ld be an(fa!t(red in the ;S and delivery $o(ld be in the onth of Febr(ary or =ar!h of the ens(in5 year' In order to ass(re the pro pt pay ent of the pri!e (pon delivery% an arran5e ent $as ade bet$een 7arden and the )hilippine 6ational "an# C)6"D $hereby the latter bo(nd itself to S ith% "ell N Co' for the pay ent of the !ontra!t pri!e% b(t provided that the e0pellers $o(ld delivered to the and (st be ne$ and in first !lass $or#in5 order' Shortly after the !ontra!t $as ade% 7arden appeared in the offi!e of S ith% "ell N Co' and re/(ested the to !han5e the order for the e0pellers fro Bend9driveB to Bside9drive3B and in obedien!e to this instr(!tion% the ho(se !abled to its a5ent in 6e$ For# to !han5e the order a!!ordin5ly% $hi!h $as done' 1n J(ly 1919% S ith% "ell N Co' infor ed both 7arden and )6" that the e0pellers had arrived' Shortly thereafter 7arden% havin5 e0a ined the a!hinery in the )laintiff?s bode5a% advised the "an# that the e0pellers $ere not as ordered' Conse/(ently% the "an# nat(rally ref(sed to a!!ept and pay for the a!hinery% and the )laintiff disposed of the to the best advanta5e in the =anila ar#et at a pri!e $hi!h $as belo$ the pri!e at $hi!h 7arden had a5reed to ta#e the ' The 5ro(nd (pon $hi!h the defense is !hiefly rested is that the e0pellers tendered by the )laintiff $ere Bside9driveB instead of Bend9driveB e0pellers% and in s(pport of this !ontention 7arden $as prod(!ed by

the >efendant as a $itness% and he denied that the order for e0pellers had been !han5ed (pon his instr(!tions' I--3e@ @hether or not )6" is s(bsidiary liableG R3&()0-@ 61' The SC r(led that )6"Hs liability is pri ary in nat(re' The !ontra!t by $hi!h the "an# obli5ated itself is both in for and effe!t an independent (nderta#in5 on the part of the "an# dire!tly to the )laintiff3 and inas (!h as the )laintiff had !o piled% or offered to !o ply% $ith the ter s of said !ontra!t% the "an# is bo(nd by its pro ise to pay the p(r!hase pri!e' Its obli5ation to the )laintiff is dire!t and independent' The debt (st be !onsidered a li/(idated debt% in the sense intended in arti!le 1+*4 of the Civil Code3 and the a!tion is no$ aintainable by the )laintiff dire!tly a5ainst the "an# $itho(t re5ard to the position of 7arden' The "an# is to be !onsidered stri!tly in the li5ht of an independent pro isor% a !onse/(en!e $o(ld be that 7arden had no a(thority to !han5e the order fro end9drive to side9drive e0pellers3 in other $ords% that the "an# sho(ld be held to be obli5ated a!!ordin5 to the ter s of the order as it stood $hen the "an# entered into the (nderta#in5 $hi!h is the s(bje!t of the s(it'

@IS: N C1' v M:&&F FACTS: Melly bo(5ht 5oods and er!handise on !redit fro @ise and Co'% $ith the a5ree ent that Melly $ill apply the pro!eeds of its sale to the dis!har5e of his indebtedness' &i % as s(rety for Melly% 5(aranteed (nto @ise N Co' the pay ent of a s( of oney $hi!h Melly o$es to @ise for 5oods and er!handise re!eived and p(r!hased by Melly% to be sold in his establish ent% (pon the !ondition that Melly $ill pay over to @ise at the end of ea!h onth all s( s $hi!h he ay re!eive fro the sale of said 5oods and er!handise% and that in the !ontrary event% the s(rety (nderta#es to pay @ise s(!h s( s as Melly ay fail to t(rn in' As alle5ed by @ise% Melly has not paid any oney and th(s filed a !olle!tion !ase a5ainst Melly and &i ' &i interposed the defense that the obli5ation $as !onditional as to hi % and that the fa!t !onstit(tin5 the !ondition had not o!!(rred' &o$er !o(rt dis issed the !ase a5ainst &i on the 5ro(nd that $ise has not proven that Melly had failed to t(rn over any oney and established the !on!l(sion that &i had in!(rred no liability'

S:CT<A6S *212E ATTF' AG;I6A&>1

34

ISS;:: @16 &i

sho(ld be held liable'

7:&>: 61' &i is not liable for the differen!e bet$een the a o(nt realiPed fro the sale of the er!handise and the p(r!hase pri!e of the sa e' &i as s(rety did not (nderta#e to pay the prin!ipal a o(nt d(e' 7is a5ree ent $as li ited to respond for the perfor an!e by Melly of one of the a!!essory pa!ts% na ely% the (nderta#in5 to deliver to @ise the total pro!eeds of the sales of the er!handise for the invoi!e val(e of $hi!h the pro issory note $as 5iven' @ise has not proved that it has 61T in fa!t re!eived all the oney derived fro the sale of the er!handise entioned in the note% it follo$s that there is no eviden!e of the e0isten!e of the !ondition to $hi!h the obli5ation ass( ed by &i $as s(bordinated' In obli5ations s(bje!t to a s(spensive !ondition the a!/(isitions of the ri5ht on the part of the !reditor depends (pon the o!!(rren!e of the event !onstit(tin5 the !onditions'

<espondent !o(rt said that !orollary to that a5ree ent (st be another instr( ent eviden!in5 the obli5ation in a for of a pro issory note or any other eviden!e of indebtedness $itho(t $hi!h the said a5ree ent serves no p(rpose3 that sin!e the pro issory notes% $hi!h is pri arily the basis of the !a(se of a!tion of petitioner% is not si5ned by private respondent% the latter !an not be liable thereon'

ISS;:: $hether private respondent is liable to pay the obli5ation eviden!e by the pro issory noteG 7:&>: F:S% The !o prehensive s(rety a5ree ent $as jointly e0e!(ted by <esidoro Ch(a and :nri/(e Go% Sr'% )resident and General =ana5er% respe!tively of >ai!or% 19,- to !over e0istin5 as $ell as f(t(re obli5ations $hi!h >ai!or ay in!(r $ith the petitioner ban#% s(bje!t only to the proviso that their liability shall not e0!eed at any one ti e the a55re5ate prin!ipal s( of )122%222'22 The a5ree ent $as e0e!(ted obvio(sly to ind(!e petitioner to 5rant any appli!ation for a loan >ai!or ay desire to obtain fro petitioner ban#' The 5(aranty is a !ontin(in5 one $hi!h shall re ain in f(ll for!e and effe!t (ntil the ban# is notified of its ter ination' The s(rety a5ree ent $hi!h $as earlier si5ned by :nri/(e Go% Sr' and private respondent% is an a!!essory obli5ation% it bein5 dependent (pon a prin!ipal one $hi!h% in this !ase is the loan obtained by >ai!or as eviden!ed by a pro issory note' @hat obvio(sly ind(!ed petitioner ban# to 5rant the loan $as the s(rety a5ree ent $hereby Go and Ch(a bo(nd the selves solidarily to 5(aranty the p(n!t(al pay ent of the loan at at(rity' "y ter s that are (ne/(ivo!al% it !an be !learly seen that the s(rety a5ree ent $as e0e!(ted to 5(arantee f(t(re debts $hi!h >ai!or ay in!(r $ith petitioner% as is le5ally allo$able (nder the Civil Code @I&&:Z )&ASTICS v CA FACTS: - Inter <esin opened a &etter of Credit $ith =anila "an#in5 Corp' $ith se!(rity of IContin(in5 S(rety A5ree ent si5ned by Inter <esin and Invest ent and ;nder$ritin5 Corp CI;C)D $herein they bo(nd the selves solidarily for the' - &ater Inter <esin to5ether $ith @ille0 C)D e0e!(ted a !ontin(in5 5(aranty in favor of I;C)% statin5 that Inter <esin and ) are solidarily

<C"C v A<<1 FACTS: <esidoro Ch(a and :nri/(e Go% Sr' e0e!(ted a !o prehensive s(rety a5ree ents to 5(aranty a on5 others% any e0istin5 indebtedness of >avao A5ri!(lt(ral Ind(stries Corporation provided that the liability shall not e0!eed at any one ti e the a55re5ate prin!ipal s( of )122%222'22' A pro issory note in the a o(nt of )122%222'22 $as iss(ed in favor of petitioner' Said note $as si5ned by :nri/(e Go% Sr' in his personal !apa!ity and in behalf of >ai!or' The pro issory note $as not f(lly paid despite repeated de ands3 hen!e petitioner filed a !o plaint for a s( of oney a5ainst >ai!or% :nri/(e Go% Sr' and <esidoro Ch(a )etitioner alle5ed that by virt(e of the e0e!(tion of the !o prehensive s(rety a5ree ent% private respondent is liable be!a(se said a5ree ent !overs not erely the pro issory note s(bje!t of the !o plaint% b(t is !ontin(in53 and it en!o passes every other indebtedness the "orro$er ay% fro ti e to ti e in!(r $ith petitioner ban#' The sole iss(e resolved by respondent !o(rt $as the interpretation of the !o prehensive s(rety a5ree ent% parti!(larly in referen!e to the indebtedness eviden!ed by the pro issory note involved in the instant !ase% said !o prehensive s(rety a5ree ent havin5 been si5ned by :nri/(e Go% Sr' and private respondent% bindin5 the selves as solidary debtors of said !orporation not only to e0istin5 obli5ations b(t to f(t(re ones'

S:CT<A6S *212E ATTF' AG;I6A&>1

3-

liable' >(e to this% I;C) paid =anila "an# )4= C&etter of CreditD I;C) then de anded pay ent of the a o(nt% ho$ever% Inter <esin and ) failed to do so' 7en!e% this !ase ) !ontends that it sho(ld not be liable sin!e ) is erely a 5(arantor

1941% before the s(retyship a5ree ent $as e0e!(ted% in the s( of )1*%+9+'-13 and the balan!e of )*+%9-4'++ to >y?s obli5ations bet$een A(5(st 4% 1941 and A(5(st 3% 194*' 4D Then de anded pay ent of the re ainder fro >y% and later% fro the appellant S(rety Co pany' The latter paid )12%222'22 Cthe a0i ( of its bondD on J(ly 1,% 1943% apparently% $itho(t /(estionin5 the de and3 and then so(5ht rei b(rse ent fro >y :n5 Gio# and his !o(nter 5(arantors% $ho ho$ever failed to pay' "e!a(se of this the !o pany bro(5ht an a!tion to enfor!e !olle!tion' 4D The CFI absolved the !o(nter95(arantors on the theory that in so far as they are !on!erned% the pay ents ade by >y fro A(5(st 4% 1941 to A(5(st 3% 194*% sho(ld have been applied to his obli5ations d(rin5 that period% $hi!h $ere the ones !overed by the s(rety bond and the !o(nter95(aranty3 and sin!e these obli5ations only a o(nted to )41%449'93% the pay ents e0!eedin5 the obli5ations% the CFI !on!l(ded that the S(rety Co pany in!(rred no liability and the !o(nterbonds en in t(rn had nothin5 to ans$er for' $ELD@ AD The CFI is !orre!t' There are t$o reasons $hy the re ittan!es by >y :n5 Gio# in the s( of )41%+-4'49 sho(ld be applied to the obli5ation of )41%449'93 !ontra!ted by hi d(rin5 the period !overed by the s(retyship a5ree ent: a'' In the absen!e of e0press stip(lation% a 5(aranty or s(retyship operates prospe!tively and not retroa!tively3 that is to say% it se!(res only the debts !ontra!ted after the 5(aranty ta#es effe!t be!a(se a 5(aranty is not pres( ed% b(t (st be e0press% and !an not e0tend to ore than $hat is stip(lated' b'' Sin!e the obli5ations of >y bet$een A(5(st 4% 1941 to A(5(st 4% 194*% $ere 5(aranteed% $hile his indebtedness prior to that period $as not se!(red% then in the absen!e of e0press appli!ation by the debtor% any partial pay ents ade by hi sho(ld be i p(ted or applied to the debts that $ere 5(aranteed% sin!e they are re5arded as the ore onero(s debts fro the standpoint of the debtor' "D In essen!e therefore debts !overed by a 5(aranty are dee ed ore onero(s to the debtor than the si ple obli5ations be!a(se% in their !ase% the debtor ay be s(bje!ted to a!tion not only by the !reditor% b(t also by the 5(arantor% and this even before the 5(aranteed debt is paid by the 5(arantor3 hen!e% the pay ent of the 5(aranteed debt liberates the debtor fro liability to the !reditor as $ell as to the 5(arantor% $hile pay ent of the

ISS;:: @o6 ) a be held jointly and severally liable $ith Inter <esin for the a o(nt paid by Interban# to =anila "an# SC: F:S - The a o(nt had been paid by Inter"an# to =anila ban# - The intention of the parties is to se!(re the pay ent of the obli5ation' o CA held9to se!(re the 5(arantee (nderta#en by Interban# of the !redit a!!o odation 5ranted to Inter <esin by =anila "an#% Interban# re/(ired ) to si5n a Contin(in5 G(aranty >1CT<I6:: Altho(5h a !ontra!t of s(retyship is ordinarily not be !onstr(ed retrospe!tive% in the end the ()*e)*(o) of the parties as revealed by the eviden!e is !ontrollin5 T<A>:<S I6S;<A6C: v >F #A"TS@ 1D For several years >estilleria &i T(a!o N Co'% In!' had one >y :n5 Gio# as its provin!ial sales a5ent $ho has the d(ty of t(rnin5 over the pro!eeds of his sales to the distillery !o pany' In 1941% >yHs o(tstandin5 r(nnin5 a!!o(nt $as in the s( of )1*%+9+'-1' Thereafter% a s(rety bond $as e0e!(ted by >y as prin!ipal and Traders Ins(ran!e as solidary 5(arantor% $hereby they bo(nd the selves% jointly and severally% =->'&'$*, the contract requires the a+ove +ounden principal to give a good and sufficient +ond in the a+ove stated sum to secure the full and faithful fulfillment on its part of said contract? namely, to guarantee the full payment of the #rincipal9s o+ligation not to exceed the a+ove stated sum.@ *D 1n the sa e date% by :n5 Gio#% as prin!ipal% $ith )edro &opeP >ee and )edro >y9&ia!!o% as !o(nterbo(nds en% s(bs!ribed an inde nity a5ree ent in favor of appellant S(rety Co pany% $here% in !onsideration of its s(rety bond% the three a5reed to be obli5ated to the s(rety !o pany' Thereafter% >y !ontra!ted obli5ations in favor of the >estilleria in the a o(nt of )41%449'933 and >y ade re ittan!es of the sa e a o(nt 3D The distillary% ho$ever% applied said re ittan!es first to >y :n5 Gio#?s o(tstandin5 balan!e prior to A(5(st 4%

S:CT<A6S *212E ATTF' AG;I6A&>1

3,

(nse!(red obli5ation only dis!har5es hi fro possible a!tion by only one party% the (nse!(red !reditor' CD Th(s% pay ent vol(ntarily ade by appellant $as i proper sin!e it $as not liable (nder its bond3 !onse/(ently% it !an not de and rei b(rse ent fro the !o(nterbonds en b(t only fro >y' >D ;lti ately% the appli!ation by a !reditor depends (pon the debtor a!/(ies!en!e thereto' In the present !ase% as already noted% there is no eviden!e that the re!eipts for pay ent e0pressed any i p(tation% or that the debtor a5reed to the sa e' J(d5 ent is affir ed'

S1C16F v C71 SI16G FACTS: Cho Sion5 entered into !ontra!t of a5en!y for distrib(tion of petrole( prod(!ts% ass( ed liability of for er a5ent Ton5 M(an' 7is a5en!y bond $as se!(red by 1n5 G(an Can' >efa(lted in the a o(nt of )-4'22 >1CT<I6:: ;nder the ter s of the bond si5ned by the s(rety% he did not ans$er for the prin!ipal obli5or save for the &atterHs a!ts by virt(e of the !ontra!t of a5en!y' 7e !annot be held liable for the debt of a for er a5ent% $hi!h the prin!ipal obli5or ass( ed by virt(e of another !ontra!t% of $hi!h said s(rety $as not even a$are' A !ontra!t of s(retyship is to be stri!tly interpreted and is not to be e0tended beyond its ter s'

re/(irin5 )=<>C to e0e!(te and deliver a (nilateral >eed of Assi5n ent of its leasehold ri5hts over the !o er!ial spa!es' Garon also sent a de and letter to the s(rety on 6ov -' For fail(re to !o ply $ith the de and% Garon filed a !o plaint for !olle!tion of the prin!ipal obli5ation a5ainst )=<>C and the s(rety' The s(rety !ontends that the !o plaint stated no !a(se of a!tion and $as pre at(rely filed' At the ti e Garon sent the de and letter% the obli5ation 5(aranteed by the bond had not yet at(red' 1n the part of )=<>C% it denied that it e0e!(ted the pro issory noted and alle5ed instead that they $ere ere roll9overs' It also alle5ed that it already !o plied $ith its (nderta#in5 (nder the pro issory notes $hen it p(t (p a s(rety bond' And that $hen Garon !hose to de and fro the s(rety% she effe!tively $aived the ri5ht to !lai for it'

Iss(e: @hether or not the s(rety is liable to Garon (nder its s(rety bond' 7eld: Fes% the s(rety is liable in 5eneral' The prin!ipal obli5ation 5(aranteed by the s(rety bond is the assi5n ent of leasehold ri5hts of )=<>C to Garon over the s(bje!t spa!es' Garon ade a for al de and b(t )=<>C defa(lted' As s(!h% )=<>CHs liability arose' Conse/(ently% the s(retyHs liability li#e$ise arose' S(retyship arises (pon the solidary bindin5 of a person $ith the prin!ipal debtor% for the p(rpose of f(lfillin5 an obli5ation' A s(rety is !onsidered in la$ as bein5 the sa e party as the debtor in relation to $hatever is adj(d5ed as to(!hin5 the obli5ation of the latter and their liabilities are inter$oven as to be inseparable' A&*2o302 ' -3re*6 co)*r'c* (- -eco)/'r6 *o *2e %r()c(%'& ob&(0'*(o), *2e &('b(&(*6 o+ *2e -3re*6 (- /(rec*, %r(m'r6 ')/ 'b-o&3*e or eI3(,'&e)* *o *2'* o+ ' re03&'r %'r*6 *o *2e 3)/er*'D()0. 6ote: S(rety in this !ase $as not held liable sin!e its (nderta#in5 (nder the s(rety bond $as erely to 5(arantee the assi5n ent of )=<>CHs leasehold ri5hts and not the pay ent of the entire obli5ation and Garon is see#in5 to enfor!e her ri5ht to !olle!t the prin!ipal debt rather than enfor!e the se!(rity' <:);"&IC v )A&9F1Z &;=":< Fa!ts: )al9Fo0 &( ber Co'% In!' $as indebted to the "(rea( of Internal <even(e for forest !har5es and s(r!har5es a o(ntin5 to )11%+41'4-% and that the Far :astern S(rety N Ins(ran!e Co'% In!' $as jointly and severally liable $ith the l( ber !o pany for the pay ent of said forest !har5es (p to )4%222'22' <ep(bli! oved

GA<16 v )<1J:CT =18:<S Fa!ts: )roje!t =overs <ealty and >evt Corp C)=<>CD obtained a loan fro Garon' The loan $as !overed by a )ro issory note to at(re on >e!e ber 19' The stip(lated interest rate $as 3-. per ann( ' To se!(re the pay ent of the loan% )=<>C (ndertoo# to assi5n to Garon its leasehold ri5hts over a spa!e at the =on( ento )laPa Co er!ial Co ple0' The parties stip(lated that fail(re to pay the note or any portion thereof% or any interest thereon% shall !onstit(te as defa(lt and the entire obli5ation shall be!o e d(e and de andable $itho(t need of de and' )=<>C obtained another loan fro Garon at 1,. per ann( to at(re on >e!e ber 31' It is !overed by another pro issory note and se!(re a leasehold ri5hts over another spa!e in =on( ento )laPa' To se!(re its obli5ations to assi5n the leasehold ri5hts to Garon% )=<>C pro!(red a s(rety bond fro Stron5hold Ins(ran!e% $hi!h the liability of the s(rety $ill not e0!eed the s( of )1*= and $ill e0pire on 6ov ,' @hen )=<>C defa(lted in the pay ent of its obli5ations% Garon sent a de and letter dated 6ov 3

S:CT<A6S *212E ATTF' AG;I6A&>1

3+

for re!onsideration% pointin5 o(t that the s(rety !o pany?s !orre!t liability (nder the appealed de!ision $as )4%222'22 pl(s le5al interest fro the filin5 of the !o plaint' In other $ords% the <ep(bli! $o(ld $ant the s(rety !o pany to pay the le5al interest adj(d5ed by the trial !o(rt before the !ase ay finally be !onsidered dis issed' Far :astern?s denial of liability for s(!h interest is based on the stip(lation in the bond that it $as bo(nd to the plaintiff Bin the s( of )4%222'22'B Iss(e: @E6 Far :astern sho(ld also pay interestG <(lin5: Fes' Arti!le *244% para5raph *% of the Civil Code of the )hilippines is !learly appli!able' If it Cthe 5(arantyD be si ple or indefinite% it shall !o prise not only the prin!ipal obli5ation +ut also all its accessories% in!l(din5 j(di!ial !osts' C1==16@:A&T7 v CA This !ase is abo(t SIGS and :&"A borro$in5 oney fro <C"C $orth )4 ' Co on$ealth bein5 the s(rety' SIGS and :&"A defa(lted so <C"C $ent after Co on$ealth' Co on$ealth insists on not payin5' &o$er Co(rt r(led in favor of <C"C and ordered Co on$ealth to pay the prin!ipal debt pl(s interest' Co on$ealth ref(sed' Co on$ealth appealed to CA and /(estions the r(lin5 of the lo$er !o(rt a$ardin5 interest' Cfo!(s on interestD Iss(e: @o6 Co on$ealth $ho(ld pay prin!ipal and interest <(lin5: 1bvio(sly% Co on$ealth is obli5ed to pay the prin!ipal bein5 the s(rety' <e5ardin5 the interest% 5enerally no' 7o$ever be!a(se Co on$ealth ref(sed to pay the prin!ipal $hen the lo$er !o(rt ordered it to do so% it is no$ bo(nd to pay the interest' 6A=A<C1 v =A<Q;:Y #A"TS@ )roperties% ri5hts% obli5ations% and !ontra!ts of the )hilippine <elief and Trade <ehabilitation Ad inistration C)<AT<AD had been transferred to the )ri!e StabiliPation Corporation C)<ISC1D and s(bse/(ently all ri5hts and !ontra!ts of the )<ISC1 involvin5 real estate% fi0ed assets and sto!# in trade had been ass( ed by herein plaintiff% the 6A=A<C1' =ar/(eP se!(red fro the )<AT<A one tra!tor and one ri!e thresher% $ith a total val(e of )*2%222'22 for $hi!h the said defendant paid thereon the s( of )+%222'22 as do$n pay ent% thereby leavin5 a balan!e of )1*%222'22' =ar/(eP e0e!(ted a pro issory note in the a o(nt of )1*%222'22 payable in install ents !o en!in5 fro J(ne *4% 1941 to J(ne *4% 194*% $ith interest thereon at the rate of ,. per ann( fro J(ne *4% 1942 (ntil finally paid' To 5(arantee f(ll !o plian!e $ith the afore entioned obli5ation% defendant =ar/(eP% as prin!ipal% and defendant )laridel S(rety N Ins(ran!e Co pany% as

s(rety% e0e!(ted G(aranty "ond )' S' N I' 6o' 4**2 in favor of the )<AT<A% $herein they bo(nd the selves% jointly and severally% to pay the said a o(nt of )1*%222'22 C:0hibit CD' In this 5(aranty bond% the s(rety e0pressly $aives its ri5ht to de and pay ent and noti!e of non9pay ent and a5rees that the liabilities of this 5(aranty shall be dire!t and i ediate and not !ontin5ent (pon the e0ha(stion by the )<AT<A of $hatever re edies it ay have a5ainst the prin!ipal% and that the sa e shall be valid and !ontin(o(s (ntil the obli5ation so 5(aranteed is paid in f(ll' After a#in5 partial pay ent% =ar/(eP defa(lted in the pay ent of the other install ents' )laintiff de anded fro defendants =ar/(eP and )laridel S(rety N Ins(ran!e Co pany% pay ent of their o(tstandin5 obli5ation' The !lai % therefore% of defendant )laridel S(rety N Ins(ran!e Co pany that they never re!eived a de and for pay ent fro plaintiff (st ne!essarily fail% !onsiderin5 that it is !learly sho$n in re5istry ret(rn re!eipts that the sa e had been re!eived by the addressee' ISSUES@ @hether the s(rety?s liability !an e0!eed the s( of )1*%222'22' RULING@ 9e@hile the 5(arantee $as for the ori5inal a o(nt of the debt of Gabino =ar/(eP% the a o(nt of the j(d5 ent by the trial !o(rt in no $ay violates the ri5hts of the s(rety' The j(d5 ent on the prin!ipal $as only for )12%222'22% $hile the re ainin5 )9%992'91 represent the moratory interest d(e on a!!o(nt of the fail(re to pay the prin!ipal obli5ation fro and after the sa e had fallen d(e% and defa(lt had ta#en pla!e' Appellant s(rety $as f(lly a$are that the obli5ation earned interest% sin!e the note $as anne0ed to its !ontra!t% :0hibit BCB'

The !ontra!t of 5(aranty e0e!(ted by the appellant Co pany no$here e0!l(des this interest% and Ar*(c&e 20 , %'r'0r'%2 2, o+ *2e "(,(& "o/e of the )hilippines is !learly appli!able' I+ (* B*2e 03'r')*6C be -(m%&e or ()/e+()(*e, (* -2'&& com%r(-e )o* o)&6 *2e %r()c(%'& ob&(0'*(o) b3* '&-o '&& (*'cce--or(e-, ()c&3/()0 83/(c('& co-*-, %ro,(/e/ 4(*2 re-%ec* *o *2e &'**er, *2'* *2e 03'r')*or -2'&& o)&6 be &('b&e +or *2o-e co-*()c3rre/ '+*er 2e 2'- bee) 83/(c('&&6 reI3(re/ *o %'6. Co pensated s(reties are not entitled to have their !ontra!ts interr(pted stri!tissi i j(ris in their favor 8IYC16>: v IAC FACTS:

S:CT<A6S *212E ATTF' AG;I6A&>1

39

)erlas !alled 8iP!onde and as#ed her to sell an + !arat dia ond rin5 on a !o ission for )+4# 8iP!onde later ret(rned the rin5' After$ards% 8iP!onde !alled on )erlas and !lai ed that there $as a Is(re b(yerJ for the rin5% )ilar )a5(layan )a5(layan 5ave a post9dated !he!#3 )erlas and 8iP!onde si5ned a re!eipt C:0h' AD The !he!# $as dishono(red' After 9 days% )a5(layan paid )erlas )4# a5ainst the val(e of the rin5 and 5ave 3 Certifi!ates of Title to 5(arantee delivery of the balan!e of s(!h val(e C:0h >D )erlas filed a !o plaint a5ainst )a5(layan and 8iP!onde for estafa' TC and CA S 8iP!onde and )a5(layan had ass( ed a joint a5en!y in favo(r of )erlas for the sale of the latterHs rin5% $hi!h rendered the !ri inally liable% (pon fail(re to ret(rn the rin5 or deliver its a5reed val(e% (nder Art 314% par 1CbD of the <evised )enal Code S1& G:6 S disa5reed3 8iP!onde !anHt be !onvi!ted of estafa based on the :0hibits presented

that 8iP!onde $as !onstit(ted% or a5reed to a!t as% a5ent jointly $ith )a5(layan for the sale of the rin5' @hat 8iP!onde solely (ndertoo# $as to 5(arantee the obli5ation of )a5(layan to ret(rn the rin5 or deliver its val(e3 and that 5(arantee !reated only a !ivil obli5ation% $itho(t ore% (pon defa(lt of the prin!ipal' ;pon the eviden!e% 8iP!onde $as a ere 5(arantor% a solidary one to be s(re% of the obli5ation ass( ed by )a5(layan to !o plainant )erlas for the ret(rn of the latterHs rin5 or the delivery of its val(e' @hatever liability $as in!(rred by )a5(layan for defa(ltin5 on s(!h obli5ation S and this is not in/(ired into S that of 8iP!onde !onse/(ent (pon s(!h defa(lt $as erely !ivil% not !ri inal' :STAT: 1F 7:=A>F v &;Y16 S;<:TF

FACTS: The &(Pon S(rety Co' had filed a !lai a5ainst the :state based on t$enty different inde nity a5ree ents% or !o(nter bonds% ea!h s(bs!ribed by a distin!t prin!ipal and by the de!eased M' 7' 7e ady% a s(rety solidary 5(arantorD in all of the % in !onsideration of the &(Pon S(rety Co'Hs of havin5 5(aranteed% the vario(s prin!ipals in favor of different !reditors' The &(Pon S(rety Co'% prayed for allo$an!e% as a !ontin5ent !lai % of the val(e of the t$enty bonds it had e0e!(ted in !onsideration of the !o(nterbonds% and f(rther as#ed for j(d5 ent for the (npaid pre i( s and do!( entary sta ps affi0ed to the bonds% $ith 1* per !ent interest thereon' The lo$er !o(rt% by order of Septe ber *3% 1943% dis issed the !lai s of &(Pon S(rety Co'% on the 5ro(nd that I$hatever losses ay o!!(r after 7e adyHs death% are not !har5eable to his estate% be!a(se (pon his death he !eased to be 5(arantor'J The reasonin5 of the !o(rt belo$ ran as follo$s: IThe ad inistratri0 f(rther !ontends that (pon the death of 7e ady% his liability as a 5(arantor ter inated% and therefore% in the absen!e of a sho$in5 that a loss or da a5e $as s(ffered% the !lai !annot be !onsidered !ontin5ent' This Co(rt believes that there is erit in this !ontention and finds s(pport in Arti!le *24- of the ne$ Civil Code' It sho(ld be noted that a ne$ re/(ire ent has been added for a person to /(alify as a 5(arantor% that is: inte5rity' As !orre!tly pointed o(t by the Ad inistratri0% inte5rity is so ethin5 p(rely personal and is not trans issible' ;pon the death of 7e ady% his inte5rity $as not trans itted to his estate or s(!!essors' @hatever loss therefore% ay o!!(r after 7e adyHs death% are not !har5eable to his estate be!a(se (pon his death he !eased to be a 5(arantor' Another !lear and stron5 indi!ation that the s(rety !o pany has e0!l(sively relied on the personality% !hara!ter% honesty and inte5rity of the no$ de!eased M' 7' 7e ady% $as the fa!t that in the printed for of the

ISS;:: @hether 8iP!onde $as !onsidered as a5ent of )erlas or ere 5(arantor of obli5ation of )a5(layanG 7:&>: =ere 5(arantor 6othin5 in the lan5(a5e of the re!eipt% :0h A% or in the proven !ir!( stan!es attendin5 its e0e!(tion !an lo5i!ally be !onsidered as eviden!in5 the !reation of an a5en!y bet$een )erlas% as prin!ipal% and 8iP!onde as a5ent% for the sale of the for erHs rin5' If any a5en!y $as established% it $as one bet$een )erlas and )a5(layan only% this bein5 the lo5i!al !on!l(sion fro the (se of the sin5(lar IIJ in said !la(se% in !onj(n!tion $ith the fa!t that the part of the re!eipt in $hi!h the !la(se appears bears only the si5nat(re of )a5(layan' To $arrant anythin5 ore than a ere !onje!t(re that the re!eipt also !onstit(ted 8iP!onde the a5ent of )erlas for the sa e p(rpose of sellin5 the rin5% the !ited !la(se sho(ld at least have (sed the pl(ral I$e%J or the te0t of the re!eipt !ontainin5 that !la(se sho(ld also have !arried 8iP!ondeHs si5nat(re' The joint and several (nderta#in5 ass( ed by 8iP!onde in a separate $ritin5 belo$ the ain body of the re!eipt% :0hibit IA%J erely 5(aranteed the civil o+ligation )a5(layan to pay )erlas the val(e of the rin5 in the event of her C)a5(layanHsD fail(re to ret(rn said arti!le' @hat is !lear fro :0h A is that the rin5 $as entr(sted to )a5(layan to be sold on !o ission3 there is no ention therein that it $as si (ltaneo(sly delivered to and re!eived by 8iP!onde for the sa e p(rpose or% therefore%

S:CT<A6S *212E ATTF' AG;I6A&>1

42

inde nity a5ree ent there is a para5raph entitled RSe!(rity by $ay of first ort5a5e% $hi!h $as e0pressly $aived and reno(n!ed by the se!(rity !o pany' The se!(rity !o pany has not de anded fro M' 7' 7e ady to !o ply $ith this re/(ire ent of 5ivin5 se!(rity by $ay of first ort5a5e' In the s(pportin5 papers of the !lai presented by &(Pon S(rety Co pany% no real property $as entioned in the list of properties ort5a5ed $hi!h appears at the ba!# of the inde nity a5ree ent'J C<e!' App'% pp' 42,942+D' ISS;:: @E6 the liability of the 5(arantor $as ter inated (pon his death 7:&>: 61' ;nder the present Civil Code CArti!le 1311D% as $ell as (nder the Civil Code of 1++9 CArti!le 1*4,D% the r(le is that A IContra!ts ta#e effe!t only as bet$een the parties% their assi5ns and heirs% e0!ept in the !ase $here the ri5hts and obli5ations arisin5 fro the !ontra!t are not trans issible by their )'*3re% or by -*(%3&'*(o) or by %ro,(-(o) o+ &'4.J ;nder o(r la$% therefore% the 5eneral r(le is that a partyHs !ontra!t(al ri5hts and obli5ations are trans issible to the s(!!essors' 1f the three e0!eptions fi0ed by Arti!le 1311% the nat(re of the obli5ation of the s(rety or 5(arantor does not $arrant the !on!l(sion that his pe!(liar individ(al /(alities are !onte plated as a prin!ipal ind(!e ent for the !ontra!t' @hat did the !reditor &(Pon S(rety Co' e0pe!t of M' 7' 7e ady $hen it a!!epted the latter as s(rety in the !o(nterbondsG 6othin5 b(t the rei b(rse ent of the oneys that the &(Pon S(rety Co' i5ht have to disb(rse on a!!o(nt of the obli5ations of the prin!ipal debtors' This rei b(rse ent is a pay ent of a s( of oney% res(ltin5 fro an obli5ation to 5ive3 and to the &(Pon S(rety Co'% it $as indifferent that the rei b(rse ent sho(ld be ade by 7e ady hi self or by so e one else in his behalf% so lon5 as the oney $as paid to it' The se!ond e0!eption of Arti!le 1311% p' 1% is intrans issibility by stip(lation of the parties' "ein5 e0!eptional and !ontrary to the 5eneral r(le% this intrans issibility sho(ld not be easily i plied% b(t (st be e0pressly established% or at the very least% !learly inferable fro the provisions of the !ontra!t itself% and the te0t of the a5ree ents s(ed (pon no$here indi!ate that they are non9transferable' "e!a(se (nder the la$ CArti!le 1311D% a person $ho enters into a !ontra!t is dee ed to have !ontra!ted for hi self and his heirs and assi5ns% it is (nne!essary for hi to e0pressly stip(late to that effe!t3 hen!e% his fail(re to do so is no si5n that he intended his bar5ain to ter inate (pon his death' Si ilarly% that the &(Pon S(rety Co'% did not re/(ire bonds an 7e ady to e0e!(te a ort5a5e indi!ates nothin5 ore than the !o panyHs faith and !onfiden!e in the finan!ial stability of the s(rety% b(t not that his obli5ation $as stri!tly personal'

The third e0!eption to the trans issibility of obli5ations (nder Arti!le 1311 e0ists $hen they are Inot trans issible by operation of la$J' The provision a#es referen!e to those !ases $here the la$ e0presses that the ri5hts or obli5ations are e0tin5(ished by death% as is the !ase in le5al s(pport CArti!le 322D% parental a(thority CArti!le 3*,D% (s(fr(!t CArti!le -23D% !ontra!ts for a pie!e of $or# CArti!le 1,*-D% partnership CArti!le 1+32 and a5en!y CArti!le 1919D' "y !ontra!t% the arti!les of the Civil Code that re5(late 5(aranty or s(retyship CArti!les *24, to *2+4D !ontain no provision that the 5(aranty is e0tin5(ished (pon the death of the 5(arantor or the s(rety' @IS: N C1' v TA6G&A1 #A"TS In the CFI of =anila% @ise N Co filed a !ivil !ase a5ainst Cornelio C' >avid for the re!overy of a !ertain s( of oney' >avid $as an a5ent of @ise N Co' and the a o(nt !lai ed fro hi $as the res(lt of a li/(idation of a!!o(nts sho$in5 that he $as indebted in said a o(nt' In said !ase @ise N Co' as#ed and obtained a preli inary atta!h ent of >avid?s property' To avoid the e0e!(tion of said atta!h ent% >avid s(!!eeded in havin5 the defendant Attorney Tan5lao si5n a po$er of attorney in his favor% $ith a !la(se C!onsidered a spe!ial )1A to >avidD I To si5n as 5(arantor for hi self in his indebtedness to @ise N Co pany of =anila% and to ort5a5e the AttorneyHs lotJ S(bse/(ently% >avid ade a !o pro ise $ith the petitioner by payin5 )342 leavin5 an (npaid balan!e of )*9- and pled5ed the lot o$ned by the Atty as a 5(aranty for the balan!e' @ise N Co' no$ instit(tes this !ase a5ainst Tan5lao for the re!overy of said (npaid a o(nt' There is no do(bt that (nder )1A% Tan5lao e po$ered >avid% in his na e% to enter into a !ontra!t of s(retyship and a !ontra!t of ort5a5e of the property des!ribed in the do!( ent% $ith @ise N Co' 7o$ever% >avid (sed said po$er of attorney only to mortgage the property and did not enter into !ontra!t of s(retyship'

ISSUE @hether or not Atty' Tan5lao is liableG

S:CT<A6S *212E ATTF' AG;I6A&>1

41

RULING 61' The SC r(led that there is nothin5 stated in the Co pro ise A5ree ent to the effe!t that Tan5lao be!a e >avid?s s(rety for the pay ent of the s( in /(estion' 6either is this inferable fro any of the !la(ses thereof% and even if this inferen!e i5ht be ade% it $o(ld be ins(ffi!ient to !reate an obli5ation of s(retyship $hi!h% (nder the la$% (st be e0press and !annot be pres( ed' The only obli5ation $hi!h the Co pro ise A5ree ent% in !onne!tion $ith )1A% has !reated on the part of Tan5lao% is that res(ltin5 fro the mortgage of a property belon5in5 to hi to se!(re the pay ent of said )-42' 7o$ever% a fore!los(re s(it is not instit(ted in this !ase a5ainst Tan5lao% b(t a p(rely personal a!tion for the re!overy of the a o(nt still o$ed by >avid' At any rate% even 5rantin5 that >efendant Tan5lao ay be !onsidered as a s(rety (nder the !ited Co pro ise the a!tion does not yet lie a5ainst hi on the 5ro(nd that all the le5al re edies a5ainst the debtor have not previo(sly been e0ha(sted Cart' 1+32 of the Civil Code% and de!ision of the S(pre e Co(rt of Spain of =ar!h *% 1+91D' The )laintiff has in its favor a j(d5 ent a5ainst debtor >avid for the pay ent of debt' It does not appear that the e0e!(tion of this j(d5 ent has been as#ed for and the Co pro ise% on the other hand% sho$s that >avid has t$o pie!es of property the val(e of $hi!h is in e0!ess of the balan!e of the debt the pay ent of $hi!h is so(5ht of Tan5lao in his alle5ed !apa!ity as s(rety'

7:&>: 61' The ri5ht of 5(arantors% (nder Art' *24+ of the Civil Code% to de and e0ha(stion of the property of the prin!ipal debtor% e0ists only $hen a pled5e or a ort5a5e has not been 5iven as spe!ial se!(rity for the pay ent of the prin!ipal obli5ation' Altho(5h an ordinary personal 5(arantor S not a ort5a5or or pled5or S ay de and e0ha(stion of the properties of the prin!ipal debtor% *2e cre/(*or m'6, %r(or *2ere*o, -ec3re 83/0me)* '0'()-* -'(/ 03'r')*or, 42o -2'&& be e)*(*&e/, 2o4e,er, *o ' /e+erme)* o+ *2e e5ec3*(o) o+ -'(/ 83/0me)* '0'()-* 2(m 3)*(& '+*er *2e %ro%er*(e- o+ *2e %r()c(%'& /eb*or -2'&& 2',e bee) e52'3-*e/ *o -'*(-+6 *2e ob&(0'*(o) (),o&,e/ () *2e c'-e.

SAA8:><A v )<IC: FACTS: This is a pro!eedin5 instit(ted by the petitioner to ann(l the order of =ay +% 1939% entered by the Co(rt of First Instan!e of &eyte% $hi!h provided for the sale at p(bli! a(!tion of the real property des!ribed in Transfer Certifi!ate of Title 6o' 394 iss(ed in favor of the petitioner% so that the pro!eeds thereof ay be applied to the pay ent of the !redit of the respondent @'S' )ri!e in the s( of )14%222 In !ivil !ase 6o' 3,2, of the Co(rt of First Instan!e of &eyte% @'S' )ri!e% plaintiff vs. Ceferino IbaOeP et al., defendants% said !o(rt rendered j(d5 ent orderin5 the defendants to pay the plaintiff $ithin ninety days the s( of )14%222% $ith the le5al interest thereon fro Jan(ary 1-% 1934% and in !ase of defa(lt on their part% that the real property s(bje!t atter of the ort5a5e be sold at p(bli! a(!tion so that the pro!eeds thereof ay be applied to the pay ent of the s( in /(estion and the interest thereon' After the period of ninety days has elapsed and <afael =artineP and Ceferino IbaOeP failed to pay the s( in /(estion $ith the interest thereon% the respondent )ri!e filed a otion prayin5 that the real property ort5a5ed be sold at p(bli! a(!tion for the pay ent of his ort5a5e !redit and its interest' This $as denied' The petitioner no$ !lai s that the respondent J(d5e a!ted $ith ab(se of his dis!retion in not transferrin5 the hearin5 of the otion for the sale of the ort5a5ed realty and that he e0!eeded his j(risdi!tion in orderin5 the sale of said property'

S1;T7:<6 =1T1<S v "A<"1SA FACTS: >efendant "arbosa e0e!(ted a real estate ort5a5e for the only p(rpose of 5(aranteein5 S as s(rety andEor 5(arantor S the pay ent of the debt of one Alfredo "rillantes in favor of So(thern =otors% In!' d(e to the fail(re of "rillantes to settle his obli5ation3 plaintiff filed an a!tion a5ainst defendant to fore!lose the real estate ort5a5e' >efendant filed an ans$er alle5in5 that the plaintiff has no ri5ht of a!tion a5ainst hi be!a(se the plaintiff did not intent to e0ha(st all re!o(rses to !olle!t fro the tr(e debtor C"rillantesD% not$ithstandin5 the fa!t that the latter is solvent and has any properties $ithin the )rovin!e of Iloilo' ISS;:: @7:T7:< T7: =1<TGAG: I6 Q;:STI16 C1;&> ": F1<:C&1S:> A&T71;G7 )&AI6TIFF 7A> 61T :Z7A;ST:>% A6> >I> 61T I6T:6> T1 :Z7A;ST% T7: )<1):<TI:S 1F 7IS )<I6CI)A& >:"T1<'

S:CT<A6S *212E ATTF' AG;I6A&>1

4*

ISS;:: @hether or not the order of sale of s(!h property $as properG 7:&>: It is !ontended that sin!e the petitioner is not the debtor and as she% on the other hand is the o$ner of the ort5a5ed realty% she erely a!ted as s(rety to <afael =artineP% the prin!ipal debtor% and as s(!h she entitled to the benefit of the e0ha(stion of the property of the prin!ipal debtor% in a!!ordan!e $ith the provision of arti!le 1+32 of the Civil Code' @e are of the opinion that this last !ontention is li#e$ise (nfo(nded and (ntenable' o In the first pla!e% this alle5ed defense sho(ld have been interposed before the j(d5 ent $as rendered in this !ase and it is too late to raise it for the first ti e as a 5ro(nd for opposin5 the otion to sell the real property in /(estion' o In the se!ond pla!e% the !ontention that the ort5a5ed real property belon5in5 to the petitioner !annot be sold to pay the debt for the reason that she is a ere s(rety of <afael =artineP% finds no s(pport in the la$' It is tr(e that the petitioner is a s(rety $ith re5ard to <afael =artineP and as s(!h s(rety she is entitled to resort to the a!tions and re edies a5ainst hi $hi!h the la$ affords her% b(t $e sho(ld not lose si5ht of the fa!t that she $as s(ed not as a s(rety b(t as a ort5a5e debtor for bein5 the o$ner of the ort5a5ed property A<<1F1 v J;6GSAF FACTS: - Arroyo C)D is an appointed 5(ardian of an i be!ile% $hile J(n5say et al C>D are the previo(s 5(ardian and bonds en $ho abs!onded' - >% the for er 5(ardian of the $ard% abs!onded $ith the f(nds of his $ard' - &C ordered > to pay )% $hi!h the bonds en appealed' > also pointed o(t properties of the previo(s 5(ardian $hi!h are no$ bein5 adversely !lai ed by 3rd parties ISS;:: @o6 the bonds en are liable SC: F:S - For the s(rety to be not liable% he (st be able to point o(t property of the prin!ipal debtor $hi!h are realiPable and is sit(ated $ithin the )hilippines S to ins(re the f(lfill ent of the

obli5ation and f(rnish the !reditor $ith the eans of obtainin5 its f(lfill ent $itho(t delay The property pointed o(t by the s(reties is not s(ffi!ient to pay the indebtedness3 it is not salable3 it is en!( bered to 3rd parties "ITA6GA v )F<A=I>

#A"TS@ 1D 1n =ar!h *- 199,% )yra id entered into an a5ree ent $ith =a!ro5en <ealty% of $hi!h "itan5a is the )resident% to !onstr(!t for the latter a b(ildin5% lo!ated in S(!at% )araOa/(e' )yra id then !o en!ed !ivil% str(!t(ral% and ar!hite!t(ral $or#s on the !onstr(!tion proje!t' 7o$ever% =a!ro5en <ealty failed to settle respondentHs pro5ress billin5s' "itan5a% ass(red )yra id that the o(tstandin5 a!!o(nt of =a!ro5en <ealty $o(ld be paid'Th(s% )yra id !ontin(ed the !onstr(!tion proje!t' *D In A(5(st 199+% )yra id s(spended $or# on the !onstr(!tion proje!t sin!e the !onditions that it i posed for the !ontin(ation thereof% in!l(din5 pay ent of (nsettled a!!o(nts% had not been !o plied $ith by =a!ro5en <ealty and event(ally% on 1 Septe ber 1999% respondent instit(ted $ith the Constr(!tion Ind(stry Arbitration Co ission CCIACD a !ase for arbitration a5ainst =a!ro5en <ealty see#in5 pay ent by the latter of its (npaid billin5s and proje!t !osts' =a!ro5en% !hose to a i!ably settle the arbitration !ase and both parties entered into a Co pro ise A5ree ent% $ith "itan5a a!tin5 as si5natory for and in behalf of =a!ro5en <ealty' 3D ;nder the A5ree ent% =a!ro5en <ealty a5reed to pay )yra id the total a o(nt in si0 e/(al onthly install ents% that if it $o(ld defa(lt in the pay ent of t$o s(!!essive onthly install ents% i ediate e0e!(tion !o(ld iss(e a5ainst it for the (npaid balan!e% $itho(t need of j(d5 ent fro any !o(rt or trib(nal' "itan5a 5(aranteed the obli5ations of =a!ro5en <ealty (nder the Co pro ise A5ree ent by e0e!(tin5 a Contra!t of G(aranty in favor of respondent% by virt(e of $hi!h he irrevo!ably and (n!onditionally 5(aranteed the f(ll and !o plete pay ent of the prin!ipal a o(nt of liability of =a!ro5en <ealty' 4D 7o$ever% despite this% =a!ro5en <ealty failed and ref(sed to pay all the onthly install ents a5reed (pon in the Co pro ise A5ree ent' Th(s% on , Septe ber *222% respondent oved for the iss(an!e of a $rit of e0e!(tion a5ainst =a!ro5en <ealty% $hi!h $as 5ranted' 4D The sheriff ho$ever filed a ret(rn statin5 that he $as (nable to lo!ate any property of =a!ro5en <ealty% e0!ept its ban# deposit of )*2%*4*'33% $ith the )lanters "an#% "(endia "ran!h' <espondent then ade% on Jan(ary 3% *221% a $ritten de and on petitioner% as 5(arantor of =a!ro5en <ealty% to pay the )-%222%222'22% or to have properties of the =a!ro5en

S:CT<A6S *212E ATTF' AG;I6A&>1

43

<ealty s(ffi!ient to !over the obli5ation 5(aranteed' Said de ands et no reply' -D As to =arilynHs Cbitan5aHs $ifeD liability% )yra id !ontended that =a!ro5en <ealty $as o$ned and !ontrolled by bitan5a and =arilyn andEor by !orporations o$ned and !ontrolled by the ' 1n the theory that sin!e the !o pletion of the !onstr(!tion proje!t $o(ld have redo(nded to the benefit of both petitioner and =arilyn andEor their !orporations3 and !onsiderin5% =arilynHs interest in a !orporation $hi!h !ontrols =a!ro5en <ealty% =arilyn !annot be (na$are of the obli5ations in!(rred by =a!ro5en <ealty andEor petitioner in the !o(rse of the b(siness operations of the said !orporation' ,D )yra id filed s(it that a j(d5 ent be rendered orderin5 petitioner and =arilyn to !o ply $ith their obli5ation (nder the Contra!t of G(aranty by payin5 respondent the a o(nt of )-%222%222'222' +D =arilyn !ontended that% sin!e she did not !o9si5n the Contra!t of G(aranty $ith her h(sband3 nor $as she a party to the Co pro ise A5ree ent bet$een respondent and =a!ro5en <ealty' She had no part at all in the e0e!(tion of the said !ontra!ts' This $as denied ISSUES@ C1D $hether the defendants $ere liable (nder the !ontra!t of 5(arantee dated April 1,% *222 entered into bet$een "enja in "itan5a and the plaintiff3 C*D $hether defendant $ife =arilyn "itan5a is liable in this a!tion3 $ELD@ AD ;nder a !ontra!t of 5(arantee% the 5(arantor binds hi self to the !reditor to f(lfill the obli5ation of the prin!ipal debtor in !ase the latter sho(ld fail to do so' The 5(arantor $ho pays for a debtor% in t(rn% (st be inde nified by the latter' 7o$ever% the 5(arantor !annot be !o pelled to pay the !reditor (nless the latter has e0ha(sted all the property of the debtor and resorted to all the le5al re edies a5ainst the debtor' This is $hat is other$ise #no$n as the benefit of e0!(ssion' Arti!le *2-2 of the Civil Code reads: %n order that the guarantor may maAe use of the +enefit of excussion, he must set it up against the creditor upon the latterBs demand for payment from him, and point out to the creditor availa+le property of the de+tor /ithin #hilippine territory, sufficient to cover the amount of the de+t. !7 Said provision i poses a !ondition for the invo!ation of the defense of e0!(ssion' Arti!le *2-2 of the Civil Code !learly re/(ires that in order for the 5(arantor to

a#e (se of the benefit of e0!(ssion% he (st set it (p a5ainst the !reditor (pon the latterHs de and for pay ent and point o(t to the !reditor available property of the debtor $ithin the )hilippines s(ffi!ient to !over the a o(nt of the debt' CD In this !ase% despite havin5 been served a de and letter at his offi!e% petitioner still failed to point o(t to the respondent properties of =a!ro5en <ealty s(ffi!ient to !over its debt' S(!h fail(re on petitionerHs part fore!loses his ri5ht to set (p the defense of e0!(ssion' >D Arti!le *249C4D of the Civil Code th(s finds appli!ation and pre!l(des petitioner fro interposin5 the defense of e0!(ssion' @e /(ote: 3C7 %f it may +e presumed that an execution on the property of the principal de+tor /ould not result in the satisfaction of the o+ligation. '7 )etition is >:6I:>' 16G v )CI" FACTS: Cho Sion5 entered into !ontra!t of a5en!y for distrib(tion of petrole( prod(!ts% ass( ed liability of for er a5ent Ton5 M(an' 7is a5en!y bond $as se!(red by 1n5 G(an Can' >efa(lted in the a o(nt of )-4'22 >1CT<I6:: ;nder the ter s of the bond si5ned by the s(rety% he did not ans$er for the prin!ipal obli5or save for the &atterHs a!ts by virt(e of the !ontra!t of a5en!y' 7e !annot be held liable for the debt of a for er a5ent% $hi!h the prin!ipal obli5or ass( ed by virt(e of another !ontra!t% of $hi!h said s(rety $as not even a$are' A !ontra!t of s(retyship is to be stri!tly interpreted and is not to be e0tended beyond its ter s'

=I<A 7:<=A61S v =A6I&A T1"ACC16ISTS Fa!ts: "y virt(e of a $ritten !ontra!t% =ira 7er anos C=7D a5reed to deliver to =anila Toba!!onists C=TD er!handise for sale on !onsi5n ent (nder !ertain spe!ified ter s and =T a5reed to pay =7 on or before the *2th day of ea!h onth the invoi!e val(e of all the er!handise sold d(rin5 the pre!edin5 onth' =7 re/(ired =T a bond of 3%222 $hi!h $as e0e!(ted by )rovident Ins(ran!e C)ID' The vol( e of the b(siness of =T in!reased so that the er!handise re!eived by $ay of !onsi5n ent fro =7 e0!eeded 3%222 in val(e' =7 re/(ired =T to post an additional bond of *%222 $hi!h =T !o plied% e0e!(tin5 a bond $ith sa e !onditions $ith the =anila Co pania de Se5(ros C=CSD for the e0!ess of 3%222 (p to 4%222'

S:CT<A6S *212E ATTF' AG;I6A&>1

44

After li/(idation of the transa!tion% a balan!e $as d(e fro =T to =7 for the a o(nt of *%*22 $hi!h =T is (nable to pay' )I% as s(rety% only paid 1%322% alle5in5 that the re ainin5 42. sho(ld be paid by the other s(rety% =CS'

Iss(e: @hether or not =CS sho(ld be held liable for the re ainin5 42. of the balan!e d(eG 7eld: 6o% the bond of 3%222 filed obli5ation of =T (p to the so the bond of *%222 filed by obli5ation of =T only insofar and (p to 4%222' by )I responded for the e of 3%222% inas (!h as =CS responded for the as it i5ht e0!eed 3%222

F: ;niversal Tradin5 Co pany $as 5oin5 to $ithdra$ 5oods fro the "(rea( of C(sto s to be delivered to ")I' To $ithdra$% they 5ave a bond e0e!(ted by =anila Co pania de Se5(ros' That bond $as se!(red solidarily by T(ason Co' and =a!h(!a of ;niversal Tradin5' It $as to be paid $hether or not =anila Co pania already paid CI<' =anila Co pania de anded pay ent fro T(ason' =anila Co pania filed a !ase a5ainst t(ason' T(ason later payed b(t in!(rred liti5ation e0penses' T(ason no$ de ands pay ent fro =a!h(!a' T(ason filed a !ase for !olle!tion of oney fro =a!h(!a' The lo$er !o(rt r(led that =a!h(!a sho(ld pay the debt and the e0penses in!(rred by T(ason in the !ase for !olle!tion of oney' Iss(e: @on =a!h(!a sho(ld pay the e0penses in!(rred by T(ason in its !ase vs' =anila Co pania <(lin5: 61K it $as not =a!h(!aHs fa(lt $hy t(ason in!(rred e0penses in the liti5ation of =anila Co pania and T(ason' If t(ason paid =anila !o pania% no liti5ation e0penses $ill be paid' A;T1C1<) v I6T<A ST<ATA #A"TS@ A(to!orp Gro(p% represented by its )resident% petitioner )eter F' <odri5(eP% se!(red t$o ordinary re9 e0port bond fro private respondent Intra Strata Ass(ran!e Corporation CISACD in favor of p(bli! respondent "(rea( of C(sto s C"1CD to 5(arantee the re9e0port of one (nit of 7y(ndai :0!el 49door 1'4 &S and 7y(ndai Sonata *'4 G&S% andEor to pay the ta0es and d(ties thereon' )etitioners e0e!(ted and si5ned t$o Inde nity A5ree ents $ith identi!al stip(lations in favor of ISAC% a5reein5 to a!t as s(rety of the s(bje!t bonds' )etitioner <odri5(eP si5ned the Inde nity A5ree ents both as )resident of the A(to!orp Gro(p and in his personal !apa!ity' In s( % ISAC iss(ed the s(bje!t bonds to 5(arantee !o plian!e by petitioners $ith their (nderta#in5 $ith the "1C to re9e0port the i ported vehi!les $ithin the 5iven period and pay the ta0es andEor d(ties d(e thereon' In t(rn% petitioners a5reed% as s(rety% to inde nify ISAC for the liability the latter ay in!(r on the said bonds' )etitioner A(to!orp Gro(p failed to re9e0port the ite s 5(aranteed by the bonds andEor li/(idate the entries or !an!el the bonds% and pay the ta0es and d(ties pertainin5 to the said ite s despite repeated de ands ade by the "1C% as $ell as by ISAC' "y reason thereof% the "1C !onsidered the t$o bonds% $ith a total fa!e val(e of )1%234%-49'22% forfeited' Failin5 to se!(re fro petitioners the pay ent of the fa!e val(e of the t$o bonds% despite several de ands sent to ea!h of the as s(rety (nder the Inde nity A5ree ents% ISAC filed $ith the <TC on *4 1!tober 1994 an a!tion a5ainst petitioners'

The provision in the 6CC $ith re5ard to several s(reties of only one debtor for the sa e debt does not apply in this !ase' Altho(5h the t$o bonds on their fa!e appear to 5(arantee the sa e debt !oe0tensively (p to *%222 S that of )I alone e0tendin5 beyond that s( (p to 3%222 S it $as pleaded and !on!l(sively proven that in reality said bonds% or the t$o s(reties% do not 5(arantee the sa e debt be!a(se )I 5(arantees only the first 3%222 $hile =CS only the e0!ess (p to 4%222' CAC71 v 8A&&:S Fa!ts: 1n 1!tober *9% 19*2% the 6ational Sportin5 Cl(b% of =anila% obli5ated itself by a pro issory note payable at fo(r onths to pay to Jose =a' Ca!ho' "elo$ the si5nat(re of said 6ational Sportin5 Cl(b% as si5ned by the proper offi!ers of the Cl(b% the follo$in5 personal 5(aranty $as $ritten: B@e 5(arantee this obli5ation'B CS5d'D J' A' 8alles% J' &' =ate(% G' J' 7efftin5% :d' Chesley% "aldo ero <o0as' This note $as not paid at at(rity' An a!tion $as instit(ted thereon a5ainst the 6ational Sportin5 Cl(b and the 5(arantors' "aldo ero <o0as interposed a defen!e !lai in5 the ri5ht of division as a on5 the !o9s(reties% and as#in5 that in !ase he sho(ld be fo(nd liable that he sho(ld be held responsible only for his ali/(ot part of the debt' Iss(e: @E6 in !ase of the insolven!y of one or ore of several si ple s(reties% those $ho re ain solvent !an be ade to pay the entire debtG <(lin5: 6one of the s(reties% so far as this re!ord sho$s% has been de!lared ban#r(pt' The benefit of division therefore has not been lost% and the r(le de!larin5 ea!h s(rety liable only for his ali/(ot part of the 5(aranteed debt% (st hold' The obli5ation of the s(rety !annot be e0tended beyond its spe!ified li its' A !o9s(rety is entitled to the benefit of division fro the very o ent that he !ontra!ts the obli5ation% e0!ept $here there is stip(lation to the !ontrary' T;AS16 v =AC7;CA

S:CT<A6S *212E ATTF' AG;I6A&>1

44

)etitioners !ontend that their obli5ation to ISAC is not yet d(e and de andable' They !annot be ade liable by ISAC in the absen!e of an a!t(al forfeit(re of the s(bje!t bonds by the "1C andEor an e0pli!it prono(n!e ent by the sa e b(rea( that ISAC is already liable on the said bonds' ISSUES@ @hether a!t(al forfeit(re of the s(bje!t bonds is ne!essary for the petitioners to be liable to ISAC (nder the Inde nity A5ree entsG RULING@ T2e &('b(&(*6 o+ *2e 03'r')*or '&re'/6 *r(00er- *2e &('b(&(*6 o+ *2e /eb*or. A3*ocro%G- &('b(&(*6 A!t(al forfeit(re of the s(bje!t bonds is )o* )ece--'r6 for petitioners to be liable thereon to ISAC as s(rety (nder the Inde nity A5ree ents' )etitioners? obli5ation to inde nify ISAC be!a e d(e and de andable the o ent the bonds iss(ed by ISAC be!a e ans$erable for petitioners? non9!o plian!e $ith its (nderta#in5 $ith the "1C' Stated differently% petitioners be!a e liable to inde nify ISAC at the sa e ti e the bonds iss(ed by ISAC $ere pla!ed at the ris# of forfeit(re by the "1C for non9!o plian!e by petitioners $ith its (nderta#in5' It is $orthy to note that petitioners did not i p(5n the validity of the stip(lation in the Inde nity A5ree ents allo$in5 ISAC to pro!eed a5ainst petitioners the o ent the s(bje!t bonds be!o e d(e and de andable% even prior to a!t(al forfeit(re or pay ent thereof' :ven if they did so% the Co(rt $o(ld be !onstrained to (phold the validity of s(!h a stip(lation for it is b(t a sli5htly e0panded !ontra!t(al e0pression of Arti!le *2,1 of the Civil Code $hi!h provides% inter alia% *2'* *2e 03'r')*or m'6 %rocee/ '0'()-* *2e %r()c(%'& /eb*or *2e mome)* *2e /eb* become- /3e ')/ /em')/'b&e. Art' *2,1' T2e 03'r')*or, e,e) be+ore 2',()0 %'(/, m'6 %rocee/ '0'()-* *2e %r()c(%'& /eb*or@ C1D @hen he is s(ed for the pay ent3 C*D In !ase of insolven!y of the prin!ipal debtor3 C3D @hen the debtor has bo(nd hi self to relieve hi fro the 5(aranty $ithin a spe!ified period% and this period has e0pired3 B4C 72e) *2e /eb* 2'- become /em')/'b&e, b6 re'-o) o+ *2e e5%(r'*(o) o+ *2e %er(o/ +or %'6me)*= C4D After the lapse of ten years% $hen the prin!ipal obli5ation has no fi0ed period for its at(rity% (nless it be of s(!h nat(re that it !annot be e0tin5(ished e0!ept $ithin a period lon5er than ten years3 C-D If there are reasonable 5ro(nds to fear that the prin!ipal debtor intends to abs!ond3

C,D If the prin!ipal debtor is in i be!o in5 insolvent'

inent dan5er of

In all these !ases% the a!tion of the 5(arantor is to obtain release fro the 5(aranty% or to de and a se!(rity that shall prote!t hi fro any pro!eedin5s by the !reditor and fro the dan5er of insolven!y of the debtor' Ro/r(03eAG- &('b(&(*6 )etitioner <odri5(eP posits that he is erely a 5(arantor% and that his liability arises only $hen the person $ith $ho he 5(arantees the !redit% A(to!orp Gro(p in this !ase% fails to pay the obli5ation' )etitioner <odri5(eP invo#es Arti!le *2,9 of the Civil Code on :0tin5(ish ent of G(aranty% $hi!h states: Art' *2,9' An e0tension 5ranted to the debtor by the !reditor $itho(t the !onsent of the 5(arantor e0tin5(ishes the 5(aranty' The ere fail(re on the part of the !reditor to de and pay ent after the debt has be!o e d(e does not of itself !onstit(te any e0tension of ti e referred to herein' The (se of the ter guarantee in a !ontra!t does not ipso facto ean that the !ontra!t is one of 5(aranty' It th(s r(led that both petitioners ass( ed liability as a re5(lar party and obli5ated the selves as ori5inal pro issors% i.e'% s(reties' The provisions of the Civil Code on G(arantee% other than the benefit of e0!(ssion% are appli!able and available to the s(rety'U**[ The Co(rt finds no reason $hy the provisions of Arti!le *2,9 $o(ld not apply to a s(rety' This% ho$ever% $o(ld not !a(se a reversal of the >e!ision of the Co(rt of Appeals' The Co(rt of Appeals $as !orre!t that even 5rantin5 arguendo that there $as a odifi!ation as to the effe!tivity of the bonds% petitioners $o(ld still not be absolved fro liability sin!e they had a(thoriPed ISAC to !onsent to the 5rantin5 of any e0tension% odifi!ation% alteration andEor rene$al of the s(bje!t bonds SA:6Y v FA) C7;A6 FACTS: :n5ra!io )alan!a S a j(di!ial ad inistrator 5ave bond to 5(arantee his ad inistration of the estate of =ar5arita Jose The bond $as e0e!(ted by :n5ra!io% )laintiff SaenP and t$o others in favo(r of the 5overn ent for the s( of )-2# 1n the sa e date% :n5ra!io and 4 others e0e!(ted a bond in favo(r of SaenP3 Fap Ch(an )*2# and the other 4 )4# ea!h TC ordered SaenP% as s(rety in solidum of the e09ad inistrator :n5ra!io to pay the estate the s( of )41# SaenP paid to the ad inistrator of the estate )+#3 7e filed s(t a5ainst 4 s(reties $ho e0e!(ted the bond

S:CT<A6S *212E ATTF' AG;I6A&>1

4-

TC a!/(itted >efendant fro the )*2# !lai and ordered the other 4 to pay )*# ea!h' "oth parties appealed' >efendants $ere !lai in5 that they are only liable for )1# ea!h only a!!ordin5 to the ter s of the !ontra!t' )laintiff $as !lai in5 that he is entitled to a0i ( s( of )4# for $hi!h ea!h one had bo(nd hi self in the !ontra!t'

Constr(!tion N Co pany and the defendants Carlos 6' "a/(iran and GonPales )' A boy e0e!(ted an inde nity a5ree ent to prote!t the =anila S(rety N Fidelity Co' In!''% a5ainst da a5e% loss or e0penses $hi!h it ay s(stain as a !onse/(en!e of the s(rety bond e0e!(ted by it jointly $ith "at( Constr(!tion N Co pany' 1n or abo(t =ay 32% 1941% the plaintiff re!eived a noti!e fro the >ire!tor of )(bli! @or#s C:0hibit "D ann(llin5 its !ontra!t $ith the Govern ent for the !onstr(!tion of the "a!arra "rid5e be!a(se of its fail(re to a#e satisfa!tory pro5ress in the e0e!(tion of the $or#s% $ith the $arnin5 that %any a o(nt spent by the Govern ent in the !ontin(ation of the $or#% in e0!ess of the !ontra!t pri!e% $ill be !har5ed a5ainst the s(rety bond f(rnished by the plaintiff' It also appears that a !o plaint by the laborers in said proje!t of the "at( Constr(!tion N Co pany $as filed a5ainst it and the =anila S(rety and Fidelity Co'% In!'% for (npaid $a5es a o(ntin5 to )4%9-2'12' Trial Co(rt dis issed the !ase holdin5 that provisions of arti!le *2,1 of the ne$ Civil Code ay be availed of by a 5(arantor only and not by a s(rety the !o plaint% $ith !osts a5ainst the plaintiff' ISS;:: The ain /(estion to deter ine is $hether the last para5raph of arti!le *2,1 of the ne$ Civil Code ta#en fro arti!le 1+43 of the old Civil Code ay be availed of by a s(rety' 7:&>: A 5(arantor is the ins(rer of the solven!y of the debtor3 a s(rety is an ins(rer of the debt' A 5(arantor binds hi self to pay if the prin!ipal is (nable to pay3 a s(rety (nderta#es to pay if the prin!ipal does not pay' 1 The reason $hi!h !o(ld be invo#ed for the non9availability to a s(rety of the provisions of the last para5raph of arti!le *2,1 of the ne$ Civil Code $o(ld be the fa!t that 5(aranty li#e !o odat( * is 5rat(ito(s' "(t 5(aranty !o(ld also be for a pri!e or !onsideration as provided for in arti!le *24+' So% even if there sho(ld be a !onsideration or pri!e paid to a 5(arantor for hi to ins(re the perfor an!e of an obli5ation by the prin!ipal debtor% the provisions of arti!le *2,1 $o(ld still be available to the 5(arantor' In s(retyship the s(rety be!o es liable to the !reditor $itho(t the benefit of the prin!ipal debtor?s e0!l(sion of his properties% for he Cthe s(retyD aybe s(ed independently' So% he is an ins(rer of the debt and as s(!h he has ass( ed or (nderta#en a responsibility or obli5ation 5reater or ore onero(s than that of 5(arantor' S(!h bein5 the !ase% the provisions of arti!le *2,1% (nder 5(aranty% are appli!able and available to a s(rety' The referen!e in arti!le *24, to% the provisions of Se!tion 4% Chapter 3% Title 1% "oo# I8 of the ne$ Civil Code% on solidary or several obli5ations% does not ean that s(retyship $hi!h is a solidary obli5ation is $ithdra$n fro the appli!able provisions 5overnin5 5(aranty'

ISS;:: @hether or not 8iP anos is entitled to )*2#% a rei b(rse ent of )4# ea!h fro the >efendantsG 7:&>: 61 The bond of a debtor to prote!t his s(rety is not a s(b bond nor a se!ond bond $ith respe!t to the ori5inal !reditor' It is nothin5 b(t a s(bstit(tion of the obli5ation of the debtor $ith respe!t to his s(rety% and is ne!essarily 5overned by the le5al provisions $hi!h re5(late the ri5ht of a!tion of the s(rety a5ainst the party for $ho he 5ave the bond% that is% an a!tion of s(bro5ation $hi!h lies $ith the s(rety to !o pel the debtor to !o ply $ith the obli5ation to rei b(rse' This a!tion arisin5 o(t of -3bro0'*(o) is the re edy for se!(rin5 rei b(rse ent of the a o(nt that another has paid% and !annot e0!eed% e0!ept there is an e0press a5ree ent to the !ontrary% the a o(nt a!t(ally paid by the s(rety in pla!e of the debtor' I6 T7IS CAS:: The follo$in5 ter s of an obli5ation !annot be !onsidered as an e0press a5ree ent to the !ontrary: I 0 0 0 bind the selves as s(!h !onjointly to rei b(rse or pay $hatever a o(nts the latter Cthe s(retyD may have to pay or shall have paid by reason of the j(di!ial bond%J inas (!h as this anner of e0pressin5 the intention of the obli5ated parties does not !onstit(te a tr(e disj(n!tive proposition% b(t is erely e0planatory of the obli5ation as if !ontra!ted by the debtor hi self% the only nat(ral and lo5i!al interpretation' To as# an inde nity of )*2#% $hen the loss to be inde nified is only )+# is !ontrary to la$' 8iP anos only entitled to an a!tion a5ainst 4 >efendants for re!overy of a0i ( )4#' 7e !annot !olle!t ore than the s( $hi!h he hi self $as a!t(ally !o pelled to pay' =A6I&A S;<:TF v "AT; C16ST<;CTI16 FACTS: 1n J(ly +% 1942% the defendant "at( Constr(!tion N Co pany% as prin!ipal% and the plaintiff =anila S(rety N Fidelity Co' In!'% as s(rety% e0e!(ted a s(rety bond for the s( of )+%+1*'22 to ins(re faithf(l perfor an!e of the for er?s obli5ation as !ontra!tor for the !onstr(!tion of the "a!arra "rid5e% )roje!t )<9,* C6o' 3D Ilo!os 6orte )rovin!e' 1n the sa e date% J(ly +%1942% the "at(

S:CT<A6S *212E ATTF' AG;I6A&>1

4,

The plaintiff?s !a(se of a!tion does not fall (nder para5raph * of arti!le *2,1 of the ne$ Civil Code% be!a(se there is no proof of the defendants? insolven!y' The fa!t that the !ontra!t $as ann(lled be!a(se of la!# of pro5ress in the !onstr(!tion of the brid5e is no proof of s(!h insolven!y' It does not fall (nder para5raph 3% be!a(se the defendants have not bo(nd the selves to relieve the plaintiff fro the 5(aranty $ithin a spe!ified period $hi!h already has e0pired% be!a(se the s(rety bond does not fi0 any period of ti e and the inde nity a5ree ent stip(lates one year e0tendible or rene$able (ntil the bond be !o pletely !an!elled by the person or entity in $hose behalf the bond $as e0e!(ted or by a Co(rt of !o petent j(risdi!tion' It does not !o e (nder para5raph 4% be!a(se the debt has not be!o e de andable by reason of the e0piration of the period for pay ent' It does not !o e (nder para5raph 4 be!a(se of the lapse of 12 years% $hen the prin!ipal obli5ation has no period for its at(rity% et!'% for 12 years have not yet elapsed' It does not fall (nder para5raph -% be!a(se there is no proof that Bthere are reasonable 5ro(nds to fear that the prin!ipal debtor intends to abs!ond'B It does not !o e (nder para5raph ,% be!a(se the defendants% as prin!ipal debtors% are not in i inent dan5er of be!o in5 insolvent% there bein5 no proof to that effe!t' "(t the plaintiff?s !a(se of a!tion !o es (nder para5raph 1 of arti!le *2,1 of the ne$ Civil Code% be!a(se the a!tion bro(5ht by <i!ardo FernandeP and 124 persons in the J(sti!e of the )ea!e Co(rt of &aoa5% provin!e of Ilo!os 6orte% for the !olle!tion of (npaid $a5es a o(ntin5 to )4%9-2'12% is in !onne!tion $ith the !onstr(!tion of the "a!arra "rid5e% )roje!t )<9,* C3D% (nderta#en by the "at( Constr(!tion N Co pany% and one of the defendants therein is the herein plaintiff% the =anila S(rety and Fidelity Co'% In!'% and para5raph 1 of arti!le *2,1 of the ne$ Civil Code provides that the 5(arantor% even before havin5 paid% ay pro!eed a5ainst the prin!ipal debtor Bto obtain release fro the 5(aranty% or to de and a se!(rity that shall prote!t hi fro any pro!eedin5s by the !reditor or fro the dan5er of insolven!y of the debtor% $hen he Cthe 5(arantorD is s(ed for pay ent' It does not provide that the 5(arantor be s(ed by the !reditor for the pay ent of the debt' It si ply provides that the 5(arantor of s(rety be s(ed for the pay ent of an a o(nt for $hi!h the s(rety bond $as p(t (p to se!(re the f(lfill ent of the obli5ation (nderta#en by the prin!ipal debtor' So% the s(it filed by <i!ardo FernandeP and 124 persons in the J(sti!e of the )ea!e Co(rt of &aoa5% provin!e of Ilo!os 6orte% for the !olle!tion of (npaid $a5es earned in !onne!tion $ith the $or# done by the in the !onstr(!tion of the "a!arra "rid5e% )roje!t )<9,*C3D% is a s(it for the pay ent of an a o(nt for $hi!h the s(rety bond $as p(t (p or posted to se!(re the faithf(l perfor an!e of the obli5ation (nderta#en by the prin!ipal debtors Cthe defendantsD in favor of the !reditor% the Govern ent of the )hilippines' The order appealed fro reversed and set aside' dis issin5 the !o plaint is

#A"TS@ 1n Febr(ary 1944% Appellee General Inde nity Co'% In!'% filed a !o plaint in the CFI =anila a5ainst Appellant :stanislao AlvareP for the re!overy of the s( of )*%222 representin5 the a o(nt of a loan alle5edly ta#en by the Appellant fro the )6"% $hi!h the Appellee 5(aranteed $ith an inde nity bond% and for $hi!h Appellant% as !o(nter95(aranty% e0e!(ted in )laintiff?s favor a ort5a5e on his share of land in a par!el of land ' The !o plaint f(rther alle5ed that the Appellant failed to pay said loan% to5ether $ith interest% to )6" as a res(lt of $hi!h the ban# ded(!ted the a o(nt thereof )laintiff?s deposit' Thereafter% Appellant averred that the loan in /(estion $as se!(red by hi only in a!!o odation of one 7ao &a % and that )laintiff a5reed not to ta#e any steps a5ainst Appellant and the ort5a5e e0e!(ted by hi in )laintiff?s favor (ntil the latter had failed to obtain pay ent fro said 7ao &a ' :i5ht onths later% )laintiff filed a otion for s( ary j(d5 ent sayin5 that Appellan5 presented no real and eritorio(s defense and that it $as entitled to a s( ary j(d5 ent in its favor% based on the affidavit of its !o ptroller )edro <' =endiola essentially sayin5 that: o That he has personal #no$led5e of the indebtedness of the >efendant' 6ot$ithstandin5 said several de ands by )laintiff% >efendant has failed and ref(sed and still fails and ref(ses to pay the sa e'

The lo$er !o(rts r(led in favo(r of )laintiff' Th(s this petition'

I--3e@ @hether or not >efendant AlvareP is liableG R3&()0@ NO. The SC r(led that there e0ists a !ontroversy in the !o plaint and ans$er as to $hether or not Appellee had a!t(ally paid Appellant?s obli5ation to the )hilippine 6ational "an#% a atter $hi!h sho(ld be de!ided in the affir ative before Appellant% as s(rety% !an !lai rei b(rse ent fro Appellant% the prin!ipal debtor' 7o$ever% Appellee is !orre!t in sayin5 that said defense is i aterial to its ri5ht to re!overy% sin!e the ort5a5e deed e0e!(ted by Appellant in its favor Cthe 5en(ineness and d(e e0e!(tion of $hi!h Appellant ad itted in his ans$erD sho$s Appellant to be the a!t(al and only debtor% and Appellant is

G:6' I6>:=6ITF v A&8A<:Y

S:CT<A6S *212E ATTF' AG;I6A&>1

4+

pre!l(ded fro eviden!e'

varyin5 this representation by parol

personal interest over the latterHs obli5ations and does not re!eive any benefit therefro ' Considered in relation $ith the (nderlyin5 la$s that are dee ed read into these bonds% it is at on!e !lear that the bonds shall s(bsist S that is% =shall remain in full force and effect@ S (nless the i ported arti!les are =regularly and la/fully /ithdra/n. . .on payment of the legal customs duties, internal revenue taxes, and other charges to /hich they shall +e su+.ectD.@ F(lly fleshed o(t% the obli5ation to pay the d(ties% ta0es% and other !har5es pri arily rested on the prin!ipal Grand Te0tile3 it $as allo$ed to $areho(se the i ported arti!les $itho(t need for prior pay ent of the a o(nts d(e% conditioned on the filing of a +ond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. ;nder these ter s% the fa!t that a $ithdra$al has been ade and its !ir!( stan!es are not aterial to the s(retiesH liability% except to signal +oth the principalBs default and the elevation to a due and demanda+le status of the suretiesB solidary o+ligation to pay ' ;nder the bondsH plain ter s% this solidary obli5ation s(bsists for as lon5 as the a o(nts d(e on the i portations have not been paid' Th(s% it is !o pletely erroneo(s for the petitioners to say that they $ere released fro their obli5ations (nder their bond $hen Grand Te0tile $ithdre$ the i ported 5oods $itho(t pay ent of ta0es% d(ties% and !har5es' Fro a !o onsensi!al perspe!tive% it ay $ell be as#ed: $hy else $o(ld the la$ re/(ire a s(rety $hen s(!h s(rety $o(ld be bo(nd only if the $ithdra$al $o(ld be re5(lar d(e to the pay ent of the re/(ired d(ties% ta0es% and other !har5esG @e note in this re5ard the r(le that a s(rety is released fro its obli5ation $hen there is a aterial alteration of the !ontra!t in !onne!tion $ith $hi!h the bond is 5iven% s(!h as a !han5e $hi!h i poses a ne$ obli5ation on the pro isin5 party% or $hi!h ta#es a$ay so e obli5ation already i posed% or one $hi!h !han5es the le5al effe!t of the ori5inal !ontra!t and not erely its for ' A s(rety% ho$ever% is not released by a !han5e in the !ontra!t $hi!h does not have the effe!t of a#in5 its obli5ation ore onero(s' @e find (nder the fa!ts of this !ase no si5nifi!ant or aterial alteration in the prin!ipal !ontra!t bet$een the 5overn ent and the i porter% nor in the obli5ation that the petitioners ass( ed as s(reties' Spe!ifi!ally% the petitioners never ass( ed% nor $ere any additional obli5ation i posed% d(e to any odifi!ation of the ter s of i portation and the obli5ations there(nder' The obli5ation% and one that never varied% is S on the part of the i porter% to pay the !(sto s d(ties% ta0es% and !har5es d(e on the i portation% and on the part of the s(reties% to be solidarily bo(nd to the pay ent of the a o(nts d(e on the i ported 5oods (pon their $ithdra$al or (pon e0piration of the 5iven ter s' The petitionersH la!# of !onsent to the $ithdra$al of the 5oods% if this is their !o plaint% is a atter bet$een the and the prin!ipal Grand Te0tile3 it is a atter o(tside the

In r(lin5 for the Appellant% the SC opined that the last para5raph of Art' *2,1 of the 6e$ Civil Code% provides that the only a!tion the 5(arantor !an file a5ainst the debtor Bto obtain release fro the 5(aranty% or to de and a security that shall prote!t hi fro any pro!eedin5 by the !reditor and fro the dan5er of insolven!y of the debtor'B An a!tion by the 5(arantor a5ainst the prin!ipal debtor for pay ent% before the for er has paid the !reditor% is pre at(re'

I6T<A ST<ATA v <:);"&IC FACTS: Grand Te0tile i ported aterials fro other !o(ntries $hi!h% (pon arrival% $ere transferred to C(sto s "onded @areho(se' Grand Te0tile $as obli5ed to pay !(sto s !har5es' To se!(re pay ent of these obli5ations% petitioners iss(ed 5eneral $areho(sin5 bonds in favor of the "(rea( of C(sto s C"1CD' @itho(t pay ent of any of the obli5ations d(e% Grand Te0tile $ithdre$ the i ported 5oods fro stora5e' "1C de anded pay ent fro Grand Te0tile as i porter and fro the petitioners as s(reties' All three failed to pay' The 5overn ent filed a !olle!tion s(it a5ainst the parties' &o$er Co(rt r(led a5ainst petitioners% CA affir ed' )etitioners alle5e that: C1D they $ere released fro their obli5ations (nder their bonds $hen Grand Te0tile $ithdre$ the i ported 5oods $itho(t pay ent of ta0es% d(ties% and other !har5es3 and C*D that their non9 involve ent in the a!tive handlin5 of the $areho(sed ite s fro the ti e they $ere stored (p to their $ithdra$als s(bstantially in!reased the ris#s they ass( ed (nder the bonds they iss(ed% thereby releasin5 the fro liabilities (nder these bonds' ISS;:: @hether the $ithdra$al of the stored 5oods% $ares% and er!handise S $itho(t noti!e to the as s(reties S released the fro any liability for the d(ties% ta0es% and !har5es they !o itted to pay (nder the bonds they iss(edG 7:&>: 61' "y its very nat(re (nder the ter s of the la$s re5(latin5 s(retyship% the liability of the s(rety is joint and several b(t li ited to the a o(nt of the bond% and its ter s are deter ined stri!tly by the ter s of the !ontra!t of s(retyship in relation to the prin!ipal !ontra!t bet$een the obli5or and the obli5ee' The definition and !hara!teristi!s of a s(retyship brin5 into fo!(s the fa!t that a s(rety a5ree ent is an a!!essory !ontra!t that introd(!es a third party ele ent in the f(lfill ent of the prin!ipal obli5ation that an obli5or o$es an obli5ee' In short% there are effe!tively t$o C*D !ontra!ts involved $hen a s(rety a5ree ent !o es into play S a prin!ipal !ontra!t and an a!!essory !ontra!t of s(retyship' ;nder the a!!essory !ontra!t% the s(rety be!o es dire!tly% pri arily% and e/(ally bo(nd $ith the prin!ipal as the ori5inal pro issor altho(5h he possesses no dire!t or

S:CT<A6S *212E ATTF' AG;I6A&>1

49

!on!ern of 5overn ent $hose interest as !reditor9 obli5ee in the i portation transa!tion is the pay ent by the i porter9obli5or of the d(ties% ta0es% and !har5es d(e before the i portation pro!ess is !on!l(ded' @ith respe!t to the s(reties $ho are there as third parties to ens(re that the a o(nts d(e are paid% the !reditor9 obli5ee?s a!tive !on!ern is to enfor!e the s(retiesH solidary obli5ation that has be!o e d(e and de andable' @ith re5ard to the iss(e on the noti!e% the s(rety does not% by reason of the s(rety a5ree ent% earn the ri5ht to intervene in the prin!ipal !reditor9debtor relationship3 its role be!o es alive only (pon the debtorHs defa(lt% at $hi!h ti e it !an be dire!tly held liable by the !reditor for pay ent as a solidary obli5or' A s(rety !ontra!t is ade prin!ipally for the benefit of the !reditor9obli5ee and this is ens(red by the solidary nat(re of the s(retiesH (nderta#in5' ;nder these ter s% the s(rety is not entitled as a r(le to a separate noti!e of defa(lt% nor to the benefit of e0!(ssion% and ay be s(ed separately or to5ether $ith the prin!ipal debtor' Si5nifi!antly% no$here in the petitionersH bonds does it state that prior noti!e is re/(ired to fi0 the s(retiesH liabilities' @itho(t s(!h e0press re/(ire ent% the !reditorHs ri5ht to enfor!e pay ent !annot be denied as the petitioners be!a e bo(nd as soon as Grand Te0tile% the prin!ipal debtor% defa(lted' Th(s% the filin5 of the !olle!tion s(it $as s(ffi!ient noti!e to the s(reties of their prin!ipalHs defa(lt' <A>I1 C1<)' 1F T7: )7I&S' v <1A FACTS: The defendant Jes(s <' <oa be!a e indebted to the )hilippine Theatri!al :nterprises% In!'% in the s( of )*+%422 payable in seventy9one e/(al onthly install ents at the rate of )422 a onth !o en!in5 thirty days after >e!e ber 11% 1931% $ith five days 5ra!e onthly (ntil !o plete pay ent of said s( ' 1n that sa e date the )hilippine Theatri!al :nterprises% In!'% assi5ned all its ri5ht and interest in that !ontra!t to the <adio Corporation of the )hilippines' In the said !ontra!t there $as an a!!eleratin5 !la(se that in !ase the vendee9 ort5a5or fails to a#e any of the pay ents as hereinbefore provided% the $hole a o(nt re ainin5 (npaid (nder this ort5a5e shall i ediately be!o e d(e and payable and this ort5a5e on the property herein entioned as $ell as the &(Pon S(rety "ond ay be fore!losed by the vendor9 ort5a5ee <oa failed to pay the onthly install ent and the $hole a o(nt fell d(e' The defendant as#ed for an e0tension $hi!h $as 5ranted'

After the e0tension 5iven% the s(rety no$ ar5(ed that they already release fro their obli5ation'

ISS;:: @hether or not the e0tension 5ranted in the above !opied letter by the plaintiff% $itho(t the !onsent of the 5(arantors% the herein appellants% e0tin5(ishes the latter?s liability not only as to the install ents d(e at that ti e% as held by the trial !o(rt% b(t also as to the $hole a o(nt of their obli5ationG

7:&>: 61% The r(le that an e0tension of ti e 5ranted to the debtor by the !reditor% $itho(t the !onsent of the s(reties% e0tin5(ishes the latter?s liability is !o on both to Spanish j(rispr(den!e and the !o on la$3 and it is $ell settled in :n5lish and A eri!an j(rispr(den!e that $here a s(rety is liable for different pay ents% s(!h as install ents of rent% or (pon a series of pro issory notes% an e0tension of ti e as to one or ore $ill not affe!t the liability of the s(rety for the others

8I&&A v GA<CIA "1SQ;: FACTS: A sale of property $as ade by the attorney in fa!t for a stated !onsideration% part of $hi!h $as paid in !ash and the balan!e ade payable in deferred instal ents' The attorney in fa!t then e0e!(ted a s(bstit(ted po$er of attorney in favor of a third person to enable the latter to !olle!t the deferred instal ents' SC: :0tension of ti e by Creditor to )rin!ipal >ebtor3 :ffe!t on liability of s(reties @here the p(r!hase pri!e of property is payable in vario(s install ents% an e0tension of ti e 5ranted by the !reditor to the debtor $ith respe!t to one instal ent $ill dis!har5e the s(reties% $hether si ple or solidary% fro A&& liability as to s(!h instal ent bit it >1:S 61T AFF:CT their liability for other instal ents (n!onne!ted $ith the e0tension of ti e' 71S)ICI1 >: SA6 J1S: v FI>:&ITF S:C;<ITF "A6M v C;:6CA >1CT<I6:: An e0tension 5ranted to the debtor by the !reditor $itho(t the !onsent of the 5(arantor e0tin5(ishes the 5(aranty' The 19+9 &oan A5ree ent e0pressly stip(lated that its p(rpose $as to Ili/(idate%J not to rene$ or e0tend% the o(tstandin5 indebtedness' =oreover% respondent did not si5n or !onsent to the 19+9 &oan A5reee ent% $hi!h had alled5edly e0tended the ori5inal )+ illion !redit fa!ility' 7en!e% his obli5ation

S:CT<A6S *212E ATTF' AG;I6A&>1

42

as a s(rety sho(ld be dee ed e0tin5(ished% p(rs(ant to Arti!le *2,9 of the Civil Code% $hi!h spe!ifi!ally states that IUa[n e0tension 5ranted to the debtor by the !reditor $itho(t the !onsent of the 5(arantor e0tin5(ishes the 5(aranty' An essential alteration in the ter s of a &oan A5ree ent $itho(t the !onsent of the s(rety e0tin5(ishes the latterHs obli5ation' The s(b ission that only the borro$er% not the s(rety% is entitled to be notified of any odifi!ation in the ori5inal loan a!!o odation is (ntenable9s(!h theory is !ontrary to the to the prin!iple that a s(rety !annot ass( e an obli5ation ore onero(s than that of the prin!ipal' That the Inde nity A5ree ent is a !ontin(in5 s(rety does not a(thoriPe the lender to e0tend the s!ope of the prin!ipal obli5ation inordinately3 A !ontin(in5 5(aranty is one $hi!h !overs all transa!tion% in!l(din5 those arisin5 in the f(t(re% $hi!h are $ithin the des!ription or !onte plation of the !ontra!t of 5(aranty% (ntil the e0piration or ter ination thereof'

Iss(e: @hether or not =FSC sho(ld be held liable for the (npaid balan!eG 7eld: 6o% =FSC is not liable' )6" is not ne5li5ent in failin5 to !olle!t fro the prin!ipal debtor b(t is ne5li5ent for its fail(re in !olle!tin5 the s( s d(e to the debtor fro the "(rea( of )(bli! @or#s% !ontrary to its d(ty as holder of an e0!l(sive and irrevo!able po$er of attorney to a#e s(!h !olle!tions% sin!e an a5ent is re/(ired to a!t $ith !are of a 5ood father of the fa ily and be!o es liable for da a5es $hi!h the prin!ipal ay s(ffer thro(5h non9perfor an!e' :ven if the assi5n ent $ith po$er of attorney fro the prin!ipal debtor $ere !onsidered as ere additional se!(rity% still by allo$in5 the assi5ned f(nds to be e0ha(sted $itho(t notifyin5 the s(rety% )6" deprived the for er of any possibility of re!o(rsin5 a5ainst that se!(rity' Ar*(c&e 20?0 o+ *2e "(,(& "o/e %ro,(/e- *2'* 03'r')*or- e,e) *2o302 *2e6 're -o&(/'r6, 're re&e'-e/ +rom *2e(r ob&(0'*(o) 42e)e,er -ome 'c* o+ *2e cre/(*or *2e6 c'))o* be -3bro0'*e/ *o *2e r(02*-, mor*0'0e- ')/ %re+ere)ce- o+ *2e &'**er. PRO:ISIONS "OMMON TO PLEDGE AND MORTGAGE A<:6AS v <AF=;6>1 Fa!ts: :stanisla(a Arenas and J(lian &a 1% bro(5ht s(it a5ainst Fa(sto 1' <ay (ndo Cpa$nshop o$nerD' The plaintiffs alle5ed that the said je$elry% d(rin5 the last part of April or the be5innin5 of =ay% 192+% $as delivered to :lena de 8e5a to sell on !o ission% and that the latter% in t(rn% delivered it to Con!eption )erello% li#e$ise to sell on !o ission% b(t that )erello% instead of f(lfillin5 her tr(st% pled5ed the je$elry in the defendant?s pa$nshop' The said je$elry $as then (nder the !ontrol and in the possession of the defendant% as a res(lt of the pled5e by )erello% and that the for er ref(sed to deliver it to the plaintiffs' Iss(e: @E6 the pa$nshop sho(ld ret(rn the je$elry to the plaintiffsG <(lin5: Fes' In the present s(it% it $as not proven that :stanisla(a Arenas a(thoriPed )erello to pa$n the je$elry 5iven to her by Arenas to sell on !o ission' Con!eption )erello $as not the le5iti ate o$ner of the je$elry $hi!h she pled5ed to the defendant <ay (ndo% for a !ertain s( that she re!eived fro the latter as a loan% the !ontra!t of pled5e entered the je$elry so pa$ned !annot serve as se!(rity for the pay ent of the s( loaned% nor !an the latter be !olle!ted o(t of the val(e of the said je$elry' The Civil Code pres!ribes as one of the essential re/(isites of the !ontra!ts of pled5e and of ort5a5e% that the thin5 pled5ed or ort5a5ed (st belon5 to the person $ho pled5es or ort5a5es it' This essential re/(isite for the !ontra!t of pled5e

)6" v =A6I&A S;<:TF Fa!ts: )6" had opened a letter of !redit and advan!ed thereon W1*2M to :d5in5to 1il <efinery for +%222 tons of hot asphalt' 1f this a o(nt% *%222 tons $ere released and delivered to Ada s N Ta5(ba Corp CATAC1D (nder a tr(st re!eipt 5(aranteed by =anila S(rety N Fidelity Co' C=SFCD (p to the a o(nt of ,4M' To pay for the asphalt% ATACo !onstit(ted )6" its assi5nee and atty9in9fa!t to re!eive and !olle!t fro the "(rea( of )(bli! @or#s C")@D the a o(nt aforesaid o(t of f(nds payable to the assi5nor (nder a p(r!hase order' ATAC1 delivered to ")@ and the latter a!!epted the asphalt to the total val(e of 422M' After this% )6" re5(larly !olle!ted for + onths' Thereafter% it !eased to !olle!t (ntil after 4 years% its investi5ators fo(nd that ore oney $ere payable to ATAC1 fro ")@% be!a(se the latter allo$ed other !reditors to !olle!t f(nds d(e to ATAC1 (nder the sa e p(r!hase order' )6" de anded fro ATAC1 and =SFC for pay ent b(t both ref(sed' )6" filed a !o plaint a5ainst ATAC1 and =SFC to re!over the balan!e $ith interests and !osts' )6" !ontends that the po$er of attorney obtained fro ATAC1 $as erely an additional se!(rity in its favor and that it $as the d(ty of the s(rety not that of the !reditor to see to it that the obli5or f(lfills his obli5ations and that the !reditor o$ed the s(rety no d(ty of a!tive dili5en!e to !olle!t any s( fro the prin!ipal debtor'

S:CT<A6S *212E ATTF' AG;I6A&>1

41

bet$een )erello and the defendant bein5 absent as the for er $as not the o$ner of the je$elry 5iven in pled5e' ;6I16 =1T1< C1<)' v CA This !ase is abo(t the spo(ses respondents $ho bo(5ht a jeepney $orth 32#' to finan!e the p(r!hase% the spo(ses entered into a !hattel ort5a5e $ith ;nion =otors $herein the se!(rity $ill be the jeepney' ;nion otors then transferred the ort5a5e to a finan!in5 !o pany' <e!eipts and other do!( ents of o$nership $ere iss(ed ho$ever% the jeep is still not in the possession of the spo(ses' The spo(ses tried to have possession of the jeep b(t failed' Fr(strated% they did not !ontin(e the pay ent' &C r(led in favor of the spo(ses sayin5 that they are not liable be!a(se there is still no delivery' Finan!e Co' !lai ed there $as !onstr(!tive delivery be!a(se ho$ !an the spo(ses ort5a5e the property if they do not o$n the it' Iss(e: @o6 there $as delivery <(lin5: 6onK Chattel ort5a5e do not prove delivery'

the property had been a$arded to C>" as hi5hest bidder% is li#e$ise void sin!e the ort5a5or $as not the o$ner of the property fore!losed' >: &:16 v CA&A&1 FACTS: This !ase $as bro(5ht belo$ by respondent :d(ardo Calalo for the ann(l ent of the ort5a5e e0e!(ted by his brother% A(5orio Calalo% in favor of petitioner <oberto de &eon !overin5 a pie!e of land and the i prove ents thereon% !onsistin5 of a residential ho(se and a !o er!ial b(ildin5 lo!ated at 44E4th Street% :ast Tapina!% 1lon5apo City' <espondent :d(ardo alle5ed that he $as the o$ner of the property ort5a5ed% havin5 bo(5ht it for )32-%222'22 fro the spo(ses Federi!o and =arietta =alit on Septe ber 13% 19+4' 7e !lai ed that% as he $as then a e ber of the er!hant arines and stayed abroad% the >eed of Absol(te Sale !overin5 the land $as ade in favor of his brother% A(5orio Calalo3 that on April +% 19+4% A(5orio e0e!(ted a >eed of >onation in favor of the inor J(ls(nthie Calalo% herein respondentHs son% $ho% fro the ti e the property $as p(r!hased (ntil the filin5 of the !o plaint% had been re!eivin5 the fr(its of the property3 that on Septe ber 14% 19++% A(5orio ort5a5ed the said property to petitioner <oberto de &eon $itho(t his UrespondentHs[ #no$led5e and !onsent3 that the ort5a5e $as a ended on Septe ber 32% 19++3 that A(5orio did not have any ri5ht to ort5a5e the property be!a(se he $as not the o$ner thereof3 and that he Crespondent :d(ardoD learned only in J(ne 199* that the property $as the s(bje!t of an e0traj(di!ial fore!los(re' 6a ed defendants in the a!tion $ere petitioner <oberto de &eon% A(5orio Calalo and "enja in GonPales% the sheriff !ond(!tin5 the fore!los(re pro!eedin5' In d(e ti e% petitioner >e &eon filed an ans$er in $hi!h he !lai ed to be a ort5a5ee in 5ood faith% havin5 previo(sly as!ertained the o$nership of A(5orio $ho o!!(pied and possessed the land in /(estion and in $hose na e the land $as re5istered in the <e5ister of >eeds and in vario(s other do!( ents' 7e pointed o(t that even the deed of sale atta!hed to respondentHs !o plaint sho$ed that the land $as in A(5orioHs na e% !learly provin5 that the latter o$ned the property' )etitioner >e &eon averred that the ort5a5e in his favor $as re5istered $ith the <e5ister of >eeds and that it had been a ended fo(r ti es' ISS;:: @E6 the ort5a5e e0e!(ted by A(5orio Calalo in favor of petitioner >e &eon is valid' 7:&>: There is no disp(te that the land s(bje!t of the ort5a5e is titled in the na e of A(5orio Calalo' 6or is there any /(estion that petitioner >e &eon did not #no$ of the !lai of o$nership of respondent :d(ardo Calalo (ntil

>") v )<;>:6TIA& CA8IT: >:8:&1)=:6T v S)1;S:S &I= FACTS: <odolfo G(ansin5 obtained a loan in the a o(nt of )92# fro Cavite >evt "an# CC>"D and ort5a5ed a par!el of land !overed by TCT in his na e to se!(re the loan' @hen G(ansin5 defa(lted in the pay ent of his loan% C>" fore!losed the ort5a5e and !onsolidated the title to the property in its na e < &i offered to p(r!hase the property fro C>" and paid )32# as option oney' She later on dis!overed that the s(bje!t property $as ori5inally re5istered in the na e of )erfe!to G(ansin5% father of <odolfo G(ansin5' < filed an a!tion for spe!ifi! perfor an!e and da a5es a5ainst C>" for serio(s isrepresentation C>" denied that a !ontra!t of sale $as ever perfe!ted bet$een the and <' <Hs letter offer !learly states that the s( of )32# $as 5iven as option oney 61T earnest oney3 therefore only an option !ontra!t ISS;:: @16 there $as a valid fore!los(re of the ort5a5e and s(bse/(ently a !ontra!t of saleG 7:&>: 61 6:=1 >AT Q;1> 616 7A":T The sale by C>" to &i of the property ort5a5ed by <odolfo G(ansin5 is dee ed a n(llity for C>" did not have a valid title to the said property' C>" never a!/(ired a valid title to the property be!a(se the fore!los(re sale% by virt(e of $hi!h%

S:CT<A6S *212E ATTF' AG;I6A&>1

4*

after the present a!tion $as instit(ted' As the trial !o(rt fo(nd% petitioner >e &eon e0a ined the relevant do!( ents pertainin5 to the land% !onsistin5 of the transfer !ertifi!ate of title% the ta0 de!larations in the City AssessorHs 1ffi!e and infor ation on the re!ords in the baran5ay% and fo(nd that the land $as re5istered in the na e of A(5orio Calalo' ;pon d(e inspe!tion of the property% he also fo(nd it to be o!!(pied by A(5orio Calalo' )etitioner had no reason to believe that the land did not belon5 to A(5orio' )ersons dealin5 $ith property !overed by a torrens !ertifi!ate of title% as b(yers or ort5a5ees% are not re/(ired to 5o beyond $hat appears on the fa!e of the title' The p(bli! interest in (pholdin5 the indefeasibility of torrens titles% as eviden!e of the la$f(l o$nership of the land or of any en!( bran!e thereon% prote!ts b(yers or ort5a5ees $ho% in 5ood faith% rely (pon $hat appears on the fa!e of the !ertifi!ate of title'4 )etitioner >e &eon is a ort5a5ee in 5ood faith' @hether the oney (sed in a!/(irin5 the property fro the ori5inal o$ners !a e fro respondent :d(ardo Calalo and the title to the property $as pla!ed in the na e of his brother A(5(rio Calalo only be!a(se respondent tho(5ht he $as not /(alified to a!/(ire lands in the )hilippines be!a(se he had be!o e an A eri!an !itiPen% and that the land $as s(bse/(ently donated to respondent :d(ardoHs son% J(ls(nthie% are atters not #no$n to petitioner' 7en!e% $hether A(5orio Calalo !o itted a brea!h of tr(st and $hether the property $as validly donated to petitionerHs son J(ls(nthie are /(estions $hi!h (st be resolved in a separate pro!eedin5' C:"; I6T:<6ATI16A& v CA :<:6A v Q;:<<A9MA;FF=A6 FACTS: <espondent is the o$ner of a lot $ith ho(se% $ith the TCT #ept in a safety deposit bo0' She left the #ey of the bo0 to her h(sband as she $as leavin5 for the ;S' &ater on% the da(5hter of respondent as $ell as her h(sband left for the ;S% and the #ey $as entr(sted to the sister of her h(sband% =ira "ernal' After a fe$ onths% respondent as#ed her sister to 5et the TCT in the safety deposit bo0 to be able to sell the property' @hen the safe $as bro#en% the ite s inside $ere issin5% in!l(din5 the title to the lot and ta0 de!larations% as $ell as je$elry'

notariPed and filed $ith the 1ffi!e of the <e5ister of >eeds and annotated on the TCT'

<espondent filed a !o plaint a5ainst petitioner% "ernal and <a ireP for 6(llifi!ation of >eed of <eal :state =ort5a5e'

The <TC r(led in favor of petitioner and de!lared the >eed of <eal :state =ort5a5e valid' The CA rendered j(d5 ent in favor of defendant on the 5ro(nd that in a <eal :state =ort5a5e !ontra!t% it is essential that the ort5a5or be the absol(te o$ner of the property to be ort5a5ed3 other$ise the ort5a5e is void'

ISS;:: @16 T7: <:A& C16T<ACT IS 8A&I>G

:STAT:

=1<TGAG:

7:&>: 61' 1ne of the essential re/(isites of a ort5a5e !ontra!t is that the ort5a5or (st be the absol(te o$ner of the thin5 ort5a5ed' A ort5a5e is% th(s% invalid if the ort5a5or is not the property o$ner' In this !ase% the trial !o(rt and the CA are one in findin5 that based on the eviden!e on re!ord the o$ner of the property is respondent $ho $as not the one $ho ort5a5ed the sa e to the petitioner'

)etitioner !annot be !onsidered an inno!ent p(r!haser for val(e% relyin5 on the Torrents title' @hile a Torrens title serves as eviden!e of an indefeasible title to the property in favor of the person $hose na e appears therein% $hen the instr( ent presented for re5istration is for5ed% even if a!!o panied by the o$nerHs d(pli!ate !ertifi!ate of title% the re5istered o$ner does not thereby lose his title% and neither does the assi5nee of the ort5a5ee% for that atter% a!/(ire any ri5ht or title to the property' In s(!h a !ase% the transferee or the ort5a5ee% based on a for5ed instr( ent% is not even a p(r!haser or a ort5a5ee for val(e prote!ted by la$'

<espondent dis!overed fro "ernal that she and Jennifer <a ireP% 8i!torHs da(5hter too# the title and ort5a5ed it to petitioner' There $as a $o an $ho pretended to be the o$ner of the lot% sho$in5 the TCT in her na e as I8ida >ana Q(errer and identifi!ation !ard' )etitioner verified $ith the 1ffi!e of the <e5ister of >eeds that the property $as in the na e of 8ida >ana Q(errer and that it $as free of any lien or en!( bran!e' S(bse/(ently% petitioner $as !onvin!ed to enter into a <eal :state =ort5a5e Contra!t $hi!h $as later on

)etitioner !annot also invo#e the do!trine of a ort5a5ee on 5ood faith' Said do!trine spea#s of a sit(ation $here% despite the fa!t that the ort5a5or is not the o$ner of the ort5a5ed property% his title bein5 fra(d(lent% the ort5a5e !ontra!t or any fore!los(re sale arisin5 therefro are 5iven effe!t by reason of p(bli! poli!y' The do!trine of ort5a5ee in 5ood faith pres(pposes that the ort5a5or% $ho is not the ri5htf(l o$ner of the property% has already s(!!eeded in obtainin5 a Torrens title over the property in his na e

S:CT<A6S *212E ATTF' AG;I6A&>1

43

and that% after obtainin5 the said title% he s(!!eeds in ort5a5in5 the property to another $ho relies on $hat appears on the said title9 it does not apply to a sit(ation $here the title is still in the na e of the ri5htf(l o$ner and the ort5a5or is a different person pretendin5 to be the o$ner' )6" v AG;>:&1 8da' >: JAF=: v CA FACTS: - Spo(ses Jay e C)D are the re5istered o$ners of a par!el of land' They entered into a !ontra!t of lease $ith Asian Cars C<D !overin5 half of the lot for *2 years - The !ontra!t allo$s < to ort5a5e the property as lon5 as the pro!eeds $ill be for the !onstr(!tion of a b(ildin5 on the land' - < ort5a5ed the property for )-= to =etro"an#% !overin5 the $hole lot% and in $hi!h ) si5ned the do!( ents' < also e0e!(ted an (nderta#in5 $herein the offi!ers of < are liable personally to the ort5a5e - < defa(lted and =etro"an# fore!losed the property' - ) filed for ann(l ent of ort5a5e as it $as a!/(ired thro(5h fra(d - <TC and CA de!lared the ort5a5e and (nderta#in5 valid ISS;:: @16 =ort5a5e allo$in5 < to property $as valid ort5a5e the

1D :d(arda "elo o$ned an a5ri!(lt(ral land $ith an area of --1%*++ s/(are eters in )anitan% CapiP% $hi!h she leased a portion to respondents spo(ses :slabon% for a period of , years at the rate of ),%222'22 per year' *D <espondents spo(ses :slabon obtained a loan fro )6" se!(red by a real estate ort5a5e on their o$n 4 residential ho(ses lo!ated in <o0as City% as $ell as on the a5ri!(lt(ral land o$ned by :d(arda "elo' The assent of :d(arda "elo to the ort5a5e $as a!/(ired thro(5h a spe!ial po$er of attorney $hi!h $as e0e!(ted in favor of respondent =ar!os :slabon on J(ne 14% 19+*' 3D The spo(ses :slabon failed to pay their loan obli5ation% and so e0traj(di!ial fore!los(re pro!eedin5s a5ainst the ort5a5ed properties $ere instit(ted by )6" and $as the hi5hest bidder of the fore!losed properties at )44,%-3*'22' 4D =ean$hile% :d(arda "elo sold her ri5ht of rede ption to petitioners spo(ses :nri/(e and Floren!ia "elo (nder a deed of absol(te sale of proprietary and rede ption ri5hts' "efore the e0piration of the rede ption period% petitioners spo(ses "elo tendered pay ent for the rede ption of the a5ri!(lt(ral land $hi!h in!l(des the bid pri!e of respondent )6"% pl(s interest and e0penses' 4D 7o$ever% )6" reje!ted the tender of pay ent of petitioners spo(ses "elo !ontendin5 that the rede ption pri!e sho(ld be the total claim of the +anA on the date of the auction sale and custody of property plus charges accrued and interests a o(ntin5 to )*%,,9%9,+',* to $hi!h the spo(ses disa5reed and ref(sed to pay the said total !lai of respondent )6"' Thereafter the\ spo(ses "elo filed in the <TC an a!tion for de!laration of n(llity of ort5a5e% $ith an alternative !a(se of a!tion% in the event that the a!!o odation ort5a5e be held to be valid% to !o pel respondent )6" to a!!ept the rede ption pri!e tendered by petitioners spo(ses "elo $hi!h is based on the $innin5 bid pri!e of respondent )6" in the e0traj(di!ial fore!los(re' The <TC r(led in favo(r of the spo(ses belo' -D 1n appeal% the CA r(led that the petitioners spo(ses "elo sho(ld pay the entire amount due to #(! under the mortgage deed at the time of the foreclosure sale plus interest, costs and expenses' ISSUE@ $hether or not the S)A the real estate ort5a5e !ontra!t% the fore!los(re pro!eedin5s and the s(bse/(ent a(!tion sale involvin5 :d(arda "elo?s property are valid' And ass( in5 they are valid% $hether or not the petitioners are re/(ired to pay% as rede ption pri!e% the entire !lai of respondent )6" in the a o(nt of )*%,,9%9,+',* as of the date of the p(bli! a(!tion sale on J(ne 12% 1991' $ELD@

SC: F:S - It has lon5 been settled that it is valid so lon5 as valid !onsent $as 5iven' In !onsentin5 thereto even 5rantin5 that petitioner ay not be ass( in5 personal liability for the debt% her property shall nevertheless se!(re and respond for the perfor an!e of the prin!ipal obli5ation - The la$ re!o5niPes instan!es $hen persons not dire!tly parties to a loan a5ree ent ay 5ive as se!(rity their o$n properties for the prin!ipal transa!tion' - In this !ase% the spo(ses sho(ld not be allo$ed to dis!lai the validity of a transa!tion they vol(ntarily and #no$in5ly entered into for the si ple reason that s(!h transa!tion t(rned o(t prej(di!ial to the later on' - <e!ords sho$ that ) vol(ntarily a5reed to (se their property as !ollateral for <Hs loan% hen!e% no fra(d - The (nderta#in5 ade by < and its offi!ers are valid% hen!e they are liable to rei b(rse ) for the da a5es they s(ffered by reason of the ort5a5e S)1;S:S ":&1 v )6" #A"TS@

S:CT<A6S *212E ATTF' AG;I6A&>1

44

AD The validity of the S)A and the ort5a5e !ontra!t !annot any ore be assailed d(e to petitioners "elo fail(re to appeal the sa e after the trial !o(rt rendered its de!ision affir in5 their validity' "D Also% the S)A e0e!(ted by :d(arda "elo in favor of the respondents spo(ses :slabon and the <eal :state =ort5a5e e0e!(ted by the respondents spo(ses in favor of respondent )6" are valid' It is stip(lated in para5raph three C3D of the S)A that :d(arda "elo appointed the :slabon spo(ses "to maAe, sign, execute and deliver any contract of mortgage or any other documents of /hatever nature or Aind . . . /hich may +e necessary or proper in connection /ith the loan herein mentioned, or /ith any loan /hich my attorney-in-fact may contract personally in his o/n name@ CD ThisS)A $as not eant to a#e her a !o9obli5or to the prin!ipal !ontra!t of loan bet$een respondent )6"% as lender% and the spo(ses :slabon% as borro$ers' :d(arda "elo !onsented to be an a!!o odation ort5a5or in the sense that she si5ned the S)A to a(thoriPe respondents spo(ses :slabons to e0e!(te a ort5a5e on her land' >D An a!!o odation ort5a5e isnHt void si ply be!a(se the a!!o odation ort5a5or did not benefit fro the sa e' The validity of an a!!o odation ort5a5e is allo$ed (nder Arti!le *2+4 of the 6e$ Civil Code $hi!h provides that "3t7hird persons /ho are not parties to the principal o+ligation may secure the latter +y pledging or mortgaging their o/n property." :D An a!!o odation ort5a5or% ordinarily% is not hi self a re!ipient of the loan' FD There is no do(bt that :d(arda "elo% assi5nor of the petitioners% is an a!!o odation ort5a5or' Se!tion *4 of )'>' 6o' -94 provides that Bthe ort5a5or shall have the ri5ht to redee the property by payin5 all claims of the !anA against himB' Fro said provision !an be ded(!ed that the ort5a5or referred to by that la$ is one fro $ho the ban# has a !lai in the for of o(tstandin5 or (npaid loan3 he is also !alled a borro$er or debtor9 ort5a5or' GD )6" has no !lai a5ainst a!!o odation ort5a5or :d(arda "elo inas (!h as she only ort5a5ed her property to a!!o odate the :slabon spo(ses $ho are the loan borro$ers of the )6"' The prin!ipal !ontra!t is the !ontra!t of loan bet$een the :slabon spo(ses% as borro$ersEdebtors% and the )6" as lender' The a!!o odation real estate ort5a5e $hi!h se!(res the loan is only an a!!essory !ontra!t' Th(s% the ter B ort5a5orB in Se!tion *4 of )'>' 6o' -94 pertains only to a debtor9 ort5a5or and not to an a!!o odation ort5a5or' 7D =oreover% the ort5a5e !ontra!t provides that ". . . the mortgagee may immediately foreclose this mortgage

.udicially in accordance /ith the &ules of )ourt or [Link] in accordance /ith $ct (o. E0EC, as amended and #residential Decree (o. E6C I Th(s% sin!e the ort5a5e !ontra!t in this !ase is in the nat(re of a !ontra!t of adhesion as it $as prepared solely by respondent% it has to be interpreted in favor of petitioners' JD @hile the petitioners% as assi5nees of :d(arda "elo% are not re/(ired to pay the entire !lai of respondent )6" a5ainst the prin!ipal debtors% they !an only e0er!ise their ri5ht of rede ption $ith respe!t to the par!el of land belon5in5 to :d(arda "elo% the a!!o odation ort5a5or' Th(s% they have to pay the bid pri!e less the !orrespondin5 loan val(e of the fore!losed 4 residential lots of the spo(ses :slabon' Th(s% petitioners are allo$ed to redee only the property re5istered in the na e of :d(arda "elo% by payin5 only the bid pri!e less the !orrespondin5 loan val(e of the fore!losed C4D residential lots of the respondents spo(ses :slabon'

";STA=A6T: v <1S:& A&CA6TA<A v A&I6:A Fa!ts: Alinea and "elar ino loaned )4+2 fro Al!antara' A!!ordin5 to the loan a5ree ent% if the period has e0pired $itho(t pay ent of the loan% the ho(se and lot of Alinea and "elar ino $ill be !onsidered sold to Al!antara' Alinea and "elar ino failed to pay' They ref(sed to deliver the property to Al!antara' Al!antara filed an a!tion a5ainst the ' The defendants !ontend that the a o(nt !lai ed by Al!antara in!l(ded the interest and that the prin!ipal borro$ed $as only *22 and that the interest $as *+2' They also alle5ed as their spe!ial defense that they offered to pay Al!antara the s( of 4+2 b(t the latter had ref(sed to a!!ept the sa e'

Iss(e: 1D @16 there $as a valid ort5a5eG *D @16 the defendants sho(ld deliver the property to Al!antaraG 7eld: 1D 6o' The property% the sale of $hi!h $as a5reed to by the debtors does not appear ort5a5ed in favor of the !reditor be!a(se in order to !onstit(te a valid ort5a5e it is indispensable that the instr( ent be re5istered in the <e5ister of )roperty and the do!( ent !ontra!t does not !onstit(te a ort5a5e nor it !o(ld possibly be a ort5a5e% for the reason

S:CT<A6S *212E ATTF' AG;I6A&>1

44

that the said do!( ent is not vested $ith the !hara!ter and !onditions of a p(bli! instr( ent' The !ontra!t is not a pled5e sin!e the said property is not personal property and the debtor !ontin(ed in possession thereof and $as never been o!!(pied by the !reditor' It is also not an anti!hresis by reason that as the !reditor has never been in possession of the property nor has enjoyed the said property nor for one o ent re!eived its rents' *D Fes' The $ill of the parties are !ontrollin5% In this !ase% a !ontra!t of loan and a pro ise of sale of a ho(se and lot% the pri!e of $hi!h sho(ld be the a o(nt loaned% if $ithin a fi0ed period of ti e s(!h a o(nt sho(ld not be paid by the debtor9vendor of the property to the !reditor9vendee of sa e' The fa!t that the parties have a5reed at the sa e ti e% in s(!h a anner that the f(lfill ent of the pro ise of sale $o(ld depend (pon the nonpay ent or ret(rn of the a o(nt loaned% has not prod(!ed any !han5e in the nat(re and le5al !onditions of either !ontra!t% or any essential defe!t $hi!h $o(ld tend to n(llify the sa e' =A716:F v T;AS16 Fa!ts: )' "lan!% the o$ner of the je$els% entered into a !ontra!t of pled5e% deliverin5 to the !reditor =ariano T(ason several je$els and other er!handise for the p(rpose of se!(rin5 the f(lfill ent of the obli5ation $hi!h he C"lan!D had !ontra!ted in favor of the latter $ho had 5(aranteed the pay ent of a !onsiderable a o(nt of oney $hi!h "lan! o$ed to the Chartered "an#' Creditor T(ason paid to the Chartered "an# the s( of si0teen tho(sand pesos C)1-%222D $hi!h the debtor "lan! o$ed and failed to pay% and that the latter did not rei b(rse T(ason the a o(nt paid to the ban# to5ether $ith interests thereon' Iss(e: @E6 T(ason !an appropriate the thin5s 5iven by $ay of pled5eG <(lin5: 6o' T(ason is entitled to retain and appropriate to hi self the er!handise re!eived in pled5e is n(ll and indefensible% be!a(se he !an only re!over his !redit% a!!ordin5 to la$% fro the pro!eeds of the sale of the sa e' Art' *2++' &A6;YA v >: &:16 Spo(ses lan(Pa e0e!(ted a deed of sale $ith a ri5ht to rep(r!hase to <eyes' ;pon e0piration of ter to rep(r!hase% the ti e $as e0tended $itho(t the $ife of lan(Pa si5nin5 the do!( ent' A stip(lation to the effe!t that the o$nership $ill only be passed to the vendee if the vendor fails to rep(r!hase the property $as in!l(ded' The spo(ses then ort5a5e the property to respondent

to se!(re a debt' The debt $as (npaid and respondent filed a !ase to fore!lose the ort5a5e $hi!h $as 5ranted' <eyes filed a !ase for !onsolidation% !lai in5 she has the ri5ht to the property' <eyes !lai s the o$nership in the property a(to ati!ally passes i ediately to hi after the sale and not after the end of the period to rep(r!hase' Iss(e: $on reyes !ontention valid <(lin5: yes' a stip(lation in a p(rported pa!to de retro sale that the o$nership over the property sold $o(ld a(to ati!ally pass to the vendee in !ase no rede ption $as effe!ted $ithin the stip(lated period is !ontrary to the nat(re of a tr(e pa!to de retro sale% (nder $hi!h the vendee a!/(ires o$nership of the thin5 sold i ediately (pon the e0e!(tion of the sale% s(bje!t only to the vendors ri5hts of rede ption' The said stip(lation is a pa!t( !o issori( $hi!h enables the ort5a5ee to a!/(ire o$nership of the ort5a5ed property $itho(t need of for!los(re' It is void' Its insertion in the !ontra!t is an avo$al of the intention to ort5a5e rather than to sell the property' >AF<IT v CA #A"TS@ >ayrit% S( billo and An5eles entered into a !ontra!t $ith =obil 1il )hil% entitled &1A6 N =1<TGAG: AG<::=:6T' >efendants violated the &1A6 N =1<TGAG: AG<::=:6T be!a(se they only paid one install ent' They also failed to b(y the /(antities re/(ired in the Sales A5ree ent' The plaintiff ade a de and% >ayrit ans$ered a!#no$led5in5 his liability' Trial Co(rt r(led in favor of plaintiff and also r(led that ea!h of the three defendants shall pay 1E3 of the !ost' 6o appeal had been ta#en so the de!ision be!a e final and e0e!(tor' =obil filed for the e0e!(tion of the j(d5 ent' >ayrit opposed alle5in5 that they had an a5ree ent $ith =obil% that he $o(ld not appeal any ore b(t =obil $o(ld release the ort5a5e (pon pay ent of his 1E3 share' =obil !lai ed that the a5ree ent $as that it $o(ld only release the ort5a5e if the $hole prin!ipal ort5a5ed debt pl(s the $hole a!!r(ed interest $ere f(lly paid' ISSUE@ @hether or not the CFI erred in orderin5 the sale at p(bli! a(!tion of the ort5a5ed properties to ans$er for the entire prin!ipal obli5ation of >ayrit% S( billo and An5eles' RULING@ @hile it is tr(e that the obli5ation is erely joint and ea!h of the defendant is obli5ed to pay his 1E3 share of the joint obli5ation% the (ndisp(ted fa!t re ains that the intent and p(rpose of the &1A6 N =1<TGAG: AG<::=:6T $as to se!(re the entire loan'

S:CT<A6S *212E ATTF' AG;I6A&>1

4-

T2e co3r* r3&e/ *2'* ' mor*0'0e /(rec*&6 ')/ (mme/('*e&6 -3b8ec*- *2e %ro%er*6 3%o) 42(c2 (* ((m%o-e/, *2e -'me be()0 ()/(,(-(b&e e,e) *2o302 *2e /eb* m'6 be /(,(/e/, ')/ -3c2 ()/(,(-(b(&(*6 &(De4(-e 3)'++ec*e/ b6 *2e +'c* *2'* *2e /eb*or- 're )o* -o&(/'r(&6 &('b&e. F; v )CI" FACTS: ) ort5a5ed their title% interest% and parti!ipation over several par!els of land lo!ated in >a5(pan City and Q(ePon City in favo(r of )CI" C<D as se!(rity for the pay ent of a loan in the a o(nt of )9 ill ) failed to pay the loan3 < filed a )etition for :0traj(di!ial Fore!los(re of <eal :state =ort5a5e on the >a5(pan City properties' A Certifi!ate of Sale $as iss(ed in favo(r of <' S(bse/(ently% < filed an :09)arte )etition for @rit of )ossession before <TC >a5(pan ) filed a =otion to >is iss' They ar5(ed that the Certifi!ate of Sale is void be!a(se the real estate ort5a5e is indivisible% the ort5a5ed properties in >a5(pan City and Q(ePon City !annot be separately fore!losed' < S the filin5 of t$o separate fore!los(re pro!eedin5s did not violate Arti!le *2+9 of the Civil Code on the indivisibility of a real estate ort5a5e sin!e Se!tion * of A!t 6o' 3134 e0pressly provides that e0tra9j(di!ial fore!los(re ay only be ade in the provin!e or (ni!ipality $here the property is sit(ated' < f(rther s(b its that the filin5 of separate appli!ations for e0tra9j(di!ial fore!los(re of ort5a5e involvin5 several properties in different lo!ations is allo$ed by A'=' 6o' 9991292492% the )ro!ed(re on :0tra9J(di!ial Fore!los(re of =ort5a5e% as f(rther a ended on A(5(st ,% *221' TC denied =otion ISS;:: @16 a real estate ort5a5e over several properties lo!ated in different lo!alities !an be separately fore!losed in different pla!esG 7:&>: F:S @hat the la$ pros!ribes is the fore!los(re of only a portion of the property or a n( ber of the several properties ort5a5ed !orrespondin5 to the (npaid portion of the debt $here% before fore!los(re pro!eedin5s% partial pay ent $as ade by the debtor on his total o(tstandin5 loan or obli5ation' This also eans that the debtor !annot as# for the release of any portion of the ort5a5ed property or of one or so e of the several lots ort5a5ed (nless and (ntil the loan th(s se!(red has been f(lly paid% not$ithstandin5 the fa!t that there has been partial f(lfill ent of the obli5ation' 7en!e% it is provided that the debtor $ho has paid a part of the debt !annot as# for

the proportionate e0tin5(ish ent of the ort5a5e as lon5 as the debt is not !o pletely satisfied' In essen!e% indivisibility eans that the ort5a5e obli5ation !annot be divided a on5 the different lots% that is% ea!h and every par!el (nder ort5a5e ans$ers for the totality of the debt A.M. No. 99-10-0 -0,the )ro!ed(re on :0tra9 J(di!ial Fore!los(re of =ort5a5e% lays do$n the 5(idelines for e0tra9j(di!ial fore!los(re pro!eedin5s on ort5a5ed properties lo!ated in different provin!es' It provides that the ven(e of the e0tra9j(di!ial fore!los(re pro!eedin5s is the pla!e $here ea!h of the ort5a5ed property is lo!ated' <elevant portion provides: @here the appli!ation !on!erns the e0traj(di!ial fore!los(re of ort5a5es of real estates andEor !hattels in different lo!ations !overin5 one indebtedness% only one filin5 fee !orrespondin5 to s(!h indebtedness shall be !olle!ted' The !olle!tin5 Cler# of Co(rt shall% apart fro the offi!ial re!eipt of the fees% iss(e a !ertifi!ate of pay ent indi!atin5 the a o(nt of indebtedness% the filin5 fees !olle!ted% the ort5a5es so(5ht to be fore!losed% the real estates andEor !hattels ort5a5ed and their respe!tive lo!ations% 42(c2 cer*(+(c'*e -2'&& -er,e *2e %3r%o-e o+ 2',()0 *2e '%%&(c'*(o) /ocDe*e/ 4(*2 *2e "&erD- o+ "o3r* o+ *2e %&'ce- 42ere *2e o*2er %ro%er*(e- 're &oc'*e/ ')/ o+ '&&o4()0 *2e e5*r'83/(c('& +orec&o-3re*o %rocee/ *2ere'*' C: phasis s(ppliedD

The indivisibility of the real estate ort5a5e is not violated by !ond(!tin5 t$o separate fore!los(re pro!eedin5s on ort5a5ed properties lo!ated in different provin!es as lon5 as ea!h par!el of land is ans$erable for the entire debt =:T<1"A6M v S&GT

FACTS: 1n 1!tober *4% 1994% >ylan!o and S&GT ea!h entered into a !ontra!t to sell $ith AS" for the p(r!hase of a (nit C;nit 112- for >ylan!o and ;nit 1*11 for S&GTD at "SA To$ers then bein5 developed by the latter' As stip(lated% AS" $ill deliver the (nits th(s sold (pon !o pletion of the !onstr(!tion or before >e!e ber 1999' <elyin5 on this and other (nderta#in5s% >ylan!o and S&GT ea!h paid in f(ll the !ontra!t pri!e of their respe!tive (nits' The pro ised !o pletion date !a e and $ent% b(t AS" failed to deliver% as the )roje!t re ained (nfinished at that ti e' To a#e atters $orse% they learned that the lots on $hi!h the "SA To$ers $ere to be ere!ted had been ort5a5ed- to =etroban#% as the lead ban#% and

S:CT<A6S *212E ATTF' AG;I6A&>1

4,

;C)", $itho(t the prior $ritten approval of the 7o(sin5 and &and ;se <e5(latory "oard C7&;<"D' Alar ed by this fore5oin5 t(rn of events% >ylan!o% on A(5(st 12% *224% filed $ith the 7&;<" a !o plaint for delivery of property and title and for the de!laration of n(llity of ort5a5e' A si ilar !o plaint filed by S&GT follo$ed three C3D days later' At this ti e% it appears that the AS" Gro(p of Co panies% $hi!h in!l(ded AS"% had already filed $ith the Se!(rities and :0!han5e Co ission a petition for rehabilitation and a rehabilitation re!eiver had in fa!t been appointed' @hat happened ne0t are laid o(t in the 1) de!ision adverted to above% th(s: In response to the above !o plaints% AS" alle5ed X that it en!o(ntered li/(idity proble s so eti e in X *222 after its !reditors U;C)" and =etroban#[ si (ltaneo(sly de anded pay ents of their loansX3 that on =ay 4% *222% the X Co ission CS:CD 5ranted its petition for rehabilitation3 that it ne5otiated $ith ;C)" and =etroban# X b(t nothin5 !a e o(t positive fro their ne5otiation X' 1n the other hand% =etroban# !lai s that !o plainants U>ylan!o and S&GT[ have no personality to as# for the n(llifi!ation of the ort5a5e be!a(se they are not parties to the ort5a5e transa!tion X3 that the !o plaints (st be dis issed be!a(se of the on5oin5 rehabilitation of AS"3 000 that its !lai a5ainst AS"% in!l(din5 the ort5a5e to the U)roje!t[ have already been transferred to Asia <e!overy Corporation3 000' ;C)"% for its part% denies its liability to S&GT Ufor la!# of privity of !ontra!t[ X Uand[ /(estioned the personality of S&GT to !hallen5e the validity of the ort5a5e reasonin5 that the latter is not party to the ort5a5e !ontra!t X Uand[ aintains that the ort5a5e transa!tion $as done in 5ood faithX' Finally% it prays for the s(spension of the pro!eedin5s be!a(se of the on95oin5 rehabilitation of AS"' In resolvin5 the !o plaint in favor of >ylan!o and S&GT% the 7o(sin5 Arbiter r(led that the ort5a5e !onstit(ted over the lots is invalid for la!# of ort5a5e !learan!e fro the 7&;<"' ISS;:: @E6 The de!laration of n(llity of the entire ort5a5e !onstit(ted on the proje!t land site and the i prove ents $as valid' and 7:&>: "oth petitioners do not disp(te e0e!(tin5 the ort5a5e in /(estion $itho(t the 7&;<"Hs prior $ritten approval

and noti!e to both individ(al respondents' Se!tion 1+ of )residential >e!ree 6o' C)>D 94, S The *u+division and )ondominium !uyersB #rotective Decree S provides: S:C' 1+' =ort5a5es' 9 No mor*0'0e o+ ')6 3)(* or &o* -2'&& be m'/e b6 *2e o4)er or /e,e&o%er 4(*2o3* %r(or 4r(**e) '%%ro,'& o+ *2e [HLURBJ' S(!h approval shall not be 5ranted (nless it is sho$n that the pro!eeds of the ort5a5e loan shall be (sed for the develop ent of the !ondo ini( or s(bdivision proje!t X' The loan val(e of ea!h lot or (nit !overed by the ort5a5e shall be deter ined and *2e b36er *2ereo+, (+ ')6, -2'&& be )o*(+(e/ be+ore *2e re&e'-e o+ *2e &o')' The b(yer ay% at his option% pay his install ent for the lot or (nit dire!tly to the ort5a5ee $ho shall apply the pay ents to the !orrespondin5 ort5a5e indebtedness se!(red by the parti!(lar lot or (nit bein5 paid for X' C: phasis and $ord in bra!#et addedD There !an th(s be no /(ibblin5 that the proje!t lotEs and the i prove ents introd(!ed or be introd(!ed thereon $ere ort5a5ed in !lear violation of the afore/(oted provision of )> 94,' And to be s(re% >ylan!o and S&GT% as )roje!t (nit b(yers% $ere not notified of the ort5a5e before the release of the loan pro!eeds by petitioner ban#s' As it $ere% )> 94, ai s to prote!t inno!ent s(bdivision lot and !ondo ini( (nit b(yers a5ainst fra(d(lent real estate pra!ti!es' Its prea b(latory !la(ses say so and the Co(rt need not belabor the atter presently' Se!tion 1+% supra% of the de!ree dire!tly addresses the proble of fra(d and other anip(lative pra!ti!es perpetrated a5ainst b(yers $hen the lot or (nit they have !ontra!ted to a!/(ire% and $hi!h they reli5io(sly paid for% is ort5a5ed $itho(t their #no$led5e% let alone their !onsent' The avo$ed p(rpose of )> 94, !o pels% as the 1) !orre!tly stated% the readin5 of Se!tion 1+ as prohibitory and a!ts !o itted !ontrary to it are void' Any less strin5ent !onstr(al $o(ld only a!!ord (ns!r(p(lo(s developers and their finan!iers (nbridled dis!retion to follo$ or not to follo$ )> 94, and th(s defeat the very lofty p(rpose of that de!ree' It th(s stands to reason that a ort5a5e !ontra!t e0e!(ted in brea!h of Se!tion 1+ of the de!ree is n(ll and void' The ne0t /(estion to be addressed t(rns on $hether or not the n(llity e0tends to the entire ort5a5e !ontra!t' The poser sho(ld be resolved% as the CA and 1) did resolve it% in the affir ative' This disposition ste s fro the basi! post(late that a ort5a5e !ontra!t is% by nat(re% indivisible' Conse/(ent to this feat(re% a debtor !annot as# for the release of any portion of the ort5a5ed property or of one or so e of the several properties ort5a5ed (nless and (ntil the loan th(s se!(red has been f(lly paid% not$ithstandin5 the fa!t that there has been partial f(lfill ent of the obli5ation'

S:CT<A6S *212E ATTF' AG;I6A&>1

4+

7en!e% it is provided that the debtor $ho has paid a part of the debt !annot as# for the proportionate e0tin5(ish ents of the ort5a5e as lon5 as the debt is not !o pletely satisfied' The sit(ation obtainin5 in the !ase at ben!h is $ithin the p(rvie$ of the aforesaid r(le on the indivisibility of ort5a5e' It ay be that Se!tion 1+ of )> 94, allo$s partial rede ption of the ort5a5e in the sense that the b(yer is entitled to pay his install ent for the lot or (nit dire!tly to the ort5a5ee so as to enable hi 9 the said b(yer 9 to obtain title over the lot or (nit after f(ll pay ent thereof' S(!h a!!o odation stat(torily 5iven to a (nitElot b(yer does not% ho$ever% render the ort5a5e !ontra!t also divisible' Generally% the divisibility of the prin!ipal obli5ation is not affe!ted by the indivisibility of the ort5a5e' The real estate ort5a5e vol(ntarily !onstit(ted by the debtor CAS"D on the lots or (nits is one and indivisible' In this !ase% the ort5a5e !ontra!t e0e!(ted bet$een AS" and the petitioner ban#s is !onsidered indivisible% that is% it !annot be divided a on5 the different b(ildin5s or (nits of the )roje!t' 6e!essarily% partial e0tin5(ish ent of the ort5a5e !annot be allo$ed' In the sa e to#en% the ann(l ent of the ort5a5e is an all or nothin5 proposition' It !annot be divided into valid or invalid parts' The ort5a5e is either valid in its entirety or not valid at all' In the present !ase% there is do(btless only one ort5a5e to spea# of' :r5o% a de!laration of n(llity for violation of Se!tion 1+ of )> 94, sho(ld res(lt to the ort5a5e bein5 n(llified $holly' It $ill not avail the petitioners any to fei5n i5noran!e of )> 94, re/(irin5 prior $ritten approval of the 7&;<"% they bein5 !har5ed $ith #no$led5e of s(!h re/(ire ent sin!e 5rantin5 loans se!(red by a real estate ort5a5e is an ordinary part of their b(siness' C:6T<A& "A6M v CA PLEDGE F;&I16GSI; v )6" FACTS: F(lon5si( o$ned * vessels and e/(ity in FS9 *23% $hi!h $ere p(r!hased by hi fro the )hilippine Shippin5 Co ission% by install ent' )laintiff obtained a loan fro defendant and to 5(arantee pay ent% plaintiff pled5ed the * vessels and the e/(ity on FS9*23% as eviden!ed by a pled5e !ontra!t' )laintiff ade a partial pay ent and the re ainin5 balan!e $as rene$ed by the e0e!(tion of * pro issory notes in the ban#Hs favor' These t$o notes $ere never paid at all by plaintiff on their respe!tive d(e dates'

the order for inde nifi!ation $as ret(rned (nsatisfied as plaintiff $as totally insolvent'

=ean$hile% to5ether $ith the instit(tion of the !ri inal a!tion% defendant too# physi!al possession of the * vessels and transferred the e/(ity on FS9*23 to the defendant' &ater on% the * vessels $ere sold by defendant to third parties'

)laintiff !o en!ed an a!tion for re!overy on the pled5ed ite s% and alle5es% a on5 others% that the !ontra!t e0e!(ted $as a !hattel ort5a5e so the !reditor defendant !o(ld not ta#e possession of the !hattel obje!t thereof (ntil after there has been defa(lt'

ISS;:: @hether the !ontra!t entered into bet$een plaintiff and defendant is a !hattel ort5a5e or a valid !ontra!t of pled5eG

7:&>: ItHs a !ontra!t of pled5e' The !ontra!t itself provides that it is a !ontra!t of pled5e and the j(di!ial ad ission that it is a pled5e !ontra!t !annot be offset $itho(t sho$in5 of palpable ista#e'

The pled5ee defendant $as therefore entitled to the a!t(al possession of the vessels' The plaintiffHs !ontin(ed operation of the vessels after the pled5e !ontra!t $as entered into pla!es his possession s(bje!t to the order of the pled5e' The pled5e !an te porarily entr(st the physi!al possession of the !hattels pled5ed to the pled5or $itho(t invalidatin5 the pled5e' In this !ase% the pled5or is re5arded as holdin5 the pled5e erely as a tr(stee for the pled5e'

As to the validity of the pled5e !ontra!t $ith re5ard to delivery% plaintiff alle5es that !onstr(!tive delivery is ins(ffi!ient to a#e pled5e effe!tive' The Co(rt r(led that type of delivery $ill depend on the nat(re and pe!(liar !ir!( stan!es of ea!h !ase' Sin!e the defendant ban# $as% p(rs(ant to the pled5e !ontra!t% in f(ll !ontrol of the vessels thro(5h plaintiff% the for er !o(ld ta#e a!t(al possession at any ti e d(rin5 the life of the pled5e to a#e ore effe!tive its se!(rity' F">C v F&&AS &:6>I6G FACTS:

>efendant ban# filed a !ri inal !ase a5ainst plaintiff !har5in5 the latter $ith estafa thro(5h falsifi!ation of !o er!ial do!( ents% and the trial !o(rt !onvi!ted the plaintiff and $as senten!ed to inde nify the defendant' The !orrespondin5 $rit of e0e!(tion iss(ed to i ple ent

S:CT<A6S *212E ATTF' AG;I6A&>1

49

F">C e0e!(ted a lease !ontra!t in favor of Tirreno% In!' CTirrenoD over a (nit at the :ntertain ent Center 9 )hase 1 of the "onifa!io Global City in Ta5(i5% =etro =anila T$o provisions in the lease !ontra!t are pertinent to the present !ase: Se!tion *2% $hi!h is abo(t the !onse/(en!es in !ase of defa(lt of the lessee% and Se!tion **% $hi!h is abo(t the lien on the properties of the lease' Tirreno be5an to defa(lt in its lease pay ents in 1999' "y J(ly *222% Tirreno $as already in arrears by )4%2*,%33,'91' F">C and Tirreno entered into a settle ent a5ree ent on + A(5(st *222' >espite the e0e!(tion of the settle ent a5ree ent% F">C fo(nd need to send Tirreno a $ritten noti!e of ter ination dated 19 Septe ber *222 d(e to Tirreno?s alle5ed fail(re to settle its o(tstandin5 obli5ations F">C entered and o!!(pied the leased pre ises' F">C also appropriated the e/(ip ent and properties left by Tirreno p(rs(ant to Se!tion ** of their Contra!t of &ease as partial pay ent for Tirreno?s o(tstandin5 obli5ations' Fllas &endin5 Corporation and Jose S' &a(raya% in his offi!ial !apa!ity as )resident% CrespondentsD !a(sed the sheriff of "ran!h 49 of the trial !o(rt to serve an alias $rit of seiP(re a5ainst F">C' 1n the sa e day% F">C served on the sheriff an affidavit of title and third party !lai >espite F">C?s servi!e (pon hi of an affidavit of title and third party !lai % the sheriff pro!eeded $ith the seiP(re of !ertain ite s fro F">C?s pre ises The sheriff delivered the seiPed properties to respondents' F">C /(estioned the propriety of the seiP(re and delivery of the properties to respondents $itho(t an inde nity bond before the trial !o(rt' F">C ar5(ed that $hen respondents and Tirreno entered into the !hattel ort5a5e a5ree ent on 9 6ove ber *222% Tirreno no lon5er o$ned the ort5a5ed properties as F">C already enfor!ed its lien on *9 Septe ber *222'

6o% This stip(lation is in the nat(re of a resol(tory !ondition% for (pon the e0er!ise by the Ulessor[ of his ri5ht to ta#e possession of the leased property% the !ontra!t is dee ed ter inated' This #ind of !ontra!t(al stip(lation is not ille5al% there bein5 nothin5 in the la$ pros!ribin5 s(!h #ind of a5ree ent' J(di!ial per ission to !an!el the a5ree ent $as not% therefore ne!essary be!a(se of the e0press stip(lation in the !ontra!t of Ulease[ that the Ulessor[% in !ase of fail(re of the Ulessee[ to !o ply $ith the ter s and !onditions thereof% !an ta#e9over the possession of the leased pre ises% thereby !an!ellin5 the !ontra!t of s(b9 lease' <esort to j(di!ial a!tion is ne!essary only in the absen!e of a spe!ial provision 5rantin5 the po$er of !an!ellation' @e allo$ F">C?s forfeit(re of Tirreno?s properties in the leased pre ises' "y a5ree ent bet$een F">C and Tirreno% the properties are ans$erable for any (npaid rent or !har5es at any ter ination of the lease' S(!h a5ree ent is not !ontrary to la$% orals% 5ood !(sto s% or p(bli! poli!y' Forfeit(re of the properties is the only se!(rity that F">C ay apply in !ase of Tirreno?s defa(lt in its obli5ations )6" v AT:6>I>1 C<e In!orporeal <i5htsD

FACTS: &a(reano Atendido C&AD obtained fro )6" C)D a loan payable in 1*2 days $ith interest' To 5(arantee its pay ent &A pled5e to the ban# *%222 !avans of palay $hi!h $ere deposited in a $areho(se and to that effe!t endorsed in favor of the ban# the !orrespondin5 @7 re!eipt' "efore the at(rity of the loan% the !avans of ri!e dissappeared fro the @7' &A failed to pay the loan (pon atrity and so the present a!tion $as instit(ted' &A set (p the defense that the /(edan !overin5 the palay $hi!h $as 5iven as se!(rity havin5 been endorsed in blan# in favor of the ban# and the palay havin5 been lost or disappeared% he thereby be!a e relieved of liability' ISS;:: @o6 &A is relieved fro liability

ISS;:: @hether or not the dis issal of F">C?s third party !lai (pon the trial !o(rt?s erroneo(s interpretation that F">C has no ri5ht of o$nership over the s(bje!t properties be!a(se Se!tion ** of the !ontra!t of lease is void for bein5 a pled5e and a pactum commissoriumF 7:&>:

SC: 61K The s(rrender of the $areho(se re!eipt fiven as se!(rity% endorsed in blan# $as 61T that of a final transfer or that @7 re!eipt b(t erely as a 5(aranty to the f(lfill ent of the obli5ation of )3#' This bein5 so% the o$nership re ains $ith the pled5or s(bje!t only to fore!los(re in !ase of nonf(lfill ent of obli5ation' The pled5or% !ontin(in5 to be the o$ner of the 5oods pled5ed d(rin5 the penden!y of the obli5ation in !ase of the loss of the property% the loss is borne by hi ' 1C:J1 ):<:Y v I6T:<6ATI16A& "A6M #A"TS@

S:CT<A6S *212E ATTF' AG;I6A&>1

-2

1D 1n =ar!h ,% 1914% Ch(a Ten5 Chon5% e0e!(ted to the International "an#in5 Corporation a pro issory note% payable one onth after date% for the s( of )*2%222 $hi!h note $as also atta!hed to another private do!( ent% si5ned by Ch(a% $hi!h stated that he had deposited $ith the ban#% as se!(rity for the said note% 4%222 pi!(ls of s(5ar% $hi!h $ere said stored in a $areho(se in "inondo% =anila' *D The ban# ade no effort to e0er!ise any a!tive o$nership over said er!handise (ntil the April 1-% $hen it dis!overed that the a o(nt of s(5ar stored in the said $areho(se $as (!h less than $hat $as entioned in the !ontra!t' The a5ree ent bet$een the ban# and Ch(a Ten5 Chon5 $ith respe!t to the alle5ed pled5e of the s(5ar $as never re!orded in a p(bli! instr( ent' 3D 1n =ar!h *4% 1914% the plaintiff partnership 1!ejo% )ereP and Co'% entered into !ontra!t $ith Ch(a for the sale to hi of s(5ar $here the delivery sho(ld be ade in April' The delivery $as !o pleted April 1-% 1914% and the s(5ar $as stored in the b(yer?s $areho(se sit(ated at =(elle de la Ind(stria' 1n this sa e date% the ban# sent an e ployee to inspe!t the s(5ar des!ribed in the pled5e a5ree ent% $hi!h sho(ld have been stored in the Calle Toneleros $areho(se' It $as dis!overed that the a o(nt of s(5ar in that $areho(se did not e0!eed 1%+22 pi!(ls% it $as s(pposed to have 4%222 pi!(ls of s(5ar' :vent(ally% the e ployee $as infor ed that the rest of the s(5ar !overed by the pled5e a5ree ent $as stored in the $areho(se at 6o' 119% =(elle de la Ind(stria' The ban#?s representative i ediately $ent to this $areho(se% fo(nd 3%*22 pi!(ls of s(5ar% of $hi!h he too# i ediate possession% !losin5 the $areho(se $ith the ban#?s padlo!#s' 4D 1n April 1,% 1914% partnership 1!ejo presented% for !olle!tion% its a!!o(nt for the p(r!hase pri!e of the s(5ar% b(t !h(a ref(sed to a#e pay ent% and (p to the present ti e the sellers have been (nable to !olle!t the p(r!hase pri!e of the er!handise in /(estion' 4D The partnership 1!ejo ade a de and on the ban# for the delivery of the s(5ar% to $hi!h de and the ban# ref(sed to a!!ede' A s(it $as filed by 1!ejo alle5in5 that said defendant $as (nla$f(lly holdin5 the seiPed s(5ar% the property of the plaintiff fir 1!ejo% $hi!h the ban# had re!eived fro Ch(a Ten5 Chon5% and prayed for the j(d5 ent for the possession of said s(5ar' -D S(bse/(ently% by a5ree ent of the parties% the s(5ar $as sold and the pro!eeds of the deposited in the ban#' After$ards% a !o plaint in intervention $as filed by Ch(a Se!o% the assi5nee of the insolven!y of Ch(a Ten5 Chon5% assertin5 a preferential ri5ht to the s(5ar% or to the pro!eeds of its sale !ontendin5 that the s(5ar is the property of the insolvent estate represented by hi ' The lo$er !o(rt rendered j(d5 ent in favor of the 1!eja ISSUES@

CaD >id title to the s(5ar pass to the b(yer (pon its delivery to hi C!h(a se!oDG C+D Ass( in5 to pay that the title passed to the b(yer% did his fail(re to pay the p(r!hase pri!e a(thoriPe the seller to res!ind the saleG CcD Can the pled5e of the s(5ar to the ban# be s(stained (pon the eviden!e as to the !ir!( stan!es (nder $hi!h it obtained physi!al possession thereofG $ELD@ AD The SC a5reed $ith Ch(aHs !ontention that he $as entitled to de and pay ent of the s(5ar at any ti e after the delivery' 6o ter havin5 been stip(lated $ithin $hi!h the pay ent sho(ld be ade% pay ent $as de andable at the ti e and pla!e of the delivery of the thin5 sold' The seller did not avail hi self of his ri5ht to de and pay ent as soon as the ri5ht to s(!h pay ent arose% b(t as no ter for pay ent $as stip(lated% he $as entitled% to re/(ire pay ent to be ade at any ti e after delivery% and it $as the d(ty of the b(yer to pay the pri!e i ediately (pon de and' In essen!e% the delivery had the effe!t of trans ittin5 the title of the s(5ar to the b(yer' "D Fail(re on the part of the b(yer to pay the pri!e on de and: Arti!le 142- of the Civil Code provides that the !ontra!t of sale ay be res!inded for the sa e !a(ses as all other obli5ations% in addition to the spe!ial !a(ses en( erated in the pre!edin5 arti!les' It is also observed that the arti!le does not distin5(ish the consummated sale fro the erely perfected sale' In the !ontra!t of the sale the obli5ation to pay the pri!e is !orrelative to the obli5ation to deliver the thin5 sold' 6onperfor an!e by one of the parties a(thoriPes the other to e0er!ise the ri5ht% !onferred (pon hi by the la$% to ele!t to de and the perfor an!e of the obli5ation or its res!ission' CD The s(5ar here in /(estion !o(ld not be possibly have been the s(bje!t atter of the !ontra!t of pled5e $hi!h the parties (ndertoo# to !reate by the private do!( ent% inas (!h as it $as not at the ti e the property of the ban#% and this !onstit(tes an indispensable re/(isite for the !reation of a pled5e' >D It is not sho$n that an effort $as ade to pled5e the s(5ar% the s(bje!t atter of this !ase' Tho(5h it happened that the day the s(5ar $as delivered% the Ch(a 5ave the ban#?s representative the #eys of the $areho(se on the =(elle de la Ind(stria in $hi!h the s(5ar $as stored% it $as not be!a(se of an a5ree ent !on!ernin5 the pled5e of the s(5ar' Fro the fa!ts% no atte pt $as ade to enter into any a5ree ent for the pled5e of the s(5ar here in /(estion' The ban# too# possession of that s(5ar (nder the erroneo(s belief% based (pon the false state ent of Ch(a Ten5 Chon5% that it $as a part of the lot entioned in the private do!( ent' :ven ass( in5 that an atte pt $as ade to

S:CT<A6S *212E ATTF' AG;I6A&>1

-1

pled5e the s(5ar and that delivery $as ade in a!!ordan!e $ith the a5ree ent% the pled5e so established $o(ld be void as a5ainst third persons sin!e it is provided Arti!le 1+-4 of the Civil Code that a pled5e is $itho(t effe!t as a5ainst third persons Bif the certainty of the date does not appear +y pu+lic instrument 'B :D As to assi5nee Ch(a Se!o: 7e filed a !o plaint in intervention in this s(it% in $hi!h he !ontends that by reason of its sale and delivery by plaintiff to the insolvent% title to the s(5ar passed to the latter and that the pled5e set (p by the ban# is void as to third persons' The title to the s(5ar havin5 been !o en!ed a5ainst hi before the de!laration of insolven!y% the assi5nee% Ch(a Se!o% has a better ri5ht to its possession or to the prod(!t of its sale d(rin5 the penden!y of this a!tion' The de!ision of the !o(rt belo$ is therefore reversed% and it is de!ided that the assi5nee of the ban#r(pt!y of Ch(a Ten5 Chon5 is entitled to the prod(!t of the sale of the s(5ar here in /(estion% to $it% )12%+*-',-% to5ether $ith the interest a!!r(in5 thereon% reservin5 pro!eedin5s' So ordered' C<;Y v &:: SA<=I:6T1 v JA8:&&A6A Fa!ts: Spo(ses 8illasenor obtained a loan fro Javellana to be paid $ithin one year $ith an interest of *4. p'a' eviden!ed by to do!( ents' They pled5ed 4%222 $orth of je$els' ;pon at(rity% the Spo(ses re/(ested for an e0tension' After , years% 8illasenor offered to pay the loan and redee the je$els' Javellana ref(sed on the 5ro(nd that rede ption period has already e0pired and he has already bo(5ht the je$els fro the $ife of 8illasenor' 8illasenor bro(5ht an a!tion a5ainst Javellana to !o pel the ret(rn of the je$els pled5ed'

*D An a!tion for re!overy of the 5oods $hi!h $ere pled5ed to se!(re the pay ent of a loan eviden!ed by a do!( ent is an a!tion on a $ritten !ontra!t $hi!h has a pres!riptive period of 12 years fro the date on $hi!h the debtor ay have paid the debt and de anded the ret(rn of the 5oods pled5ed' In this !ase% the e0piration of the !ontra!t $as in 191* and the a!tion to re!over $as filed in 19*2% therefore% the a!tion has not yet pres!ribed' )A<AF v <1><IG;:Y Fa!ts: <espondents $ere the o$ners% in their respe!tive personal !apa!ities% of shares of sto!# in a !orporation #no$n as the Q(irino9&eonor9<odri5(eP <ealty In!' 1 So eti e d(rin5 the years 19,9 to 19+2% respondents se!(red by $ay of pled5e of so e of their shares of sto!# to petitioners "onifa!io and Fa(stina )aray CB)araysBD the pay ent of !ertain loan obli5ations' @hen the )arays atte pted to fore!lose the pled5es on a!!o(nt of respondentsH fail(re to pay their loans% respondents filed !o plaints $ith the <e5ional Trial Co(rt C<TCD of Ceb( City and % so(5ht the de!laration of n(llity of the pled5e a5ree ents' 7o$ever the <TC% in its de!ision3 dated 14 1!tober 19++% dis issed the !o plaint and 5ave Bd(e !o(rse to the fore!los(re and sale at p(bli! a(!tion of the vario(s pled5es' <espondents then re!eived 6oti!es of Sale $hi!h indi!ated that the pled5ed shares $ere to be sold at p(bli! a(!tion' 7o$ever% before the s!hed(led date of a(!tion% all of respondents !a(sed the !onsi5nation $ith the <TC Cler# of Co(rt of vario(s a o(nts' It $as !lai ed that respondents had atte pted to tender these pay ents to the )arays% b(t had been reb(ffed' 6ot$ithstandin5 the !onsi5nations% the p(bli! a(!tion too# pla!e as s!hed(led% $ith petitioner 8idal :speleta s(!!essf(lly biddin5' <espondents instead filed on 13 6ove ber 1991 a !o plaint see#in5 the de!laration of n(llity of the !on!l(ded p(bli! a(!tion' )etitioners no$ ar5(e that the essential pro!ed(ral re/(isites for the a(!tion sale had been satisfied' Iss(e: @E6 the the essential pro!ed(ral re/(isites for the a(!tion sale had been satisfiedG <(lin5: Fes' ;nder the Civil Code% the fore!los(re of a pled5e o!!(rs e0traj(di!ially% $itho(t intervention by the !o(rts' All the !reditor needs to do% if the !redit has not been satisfied in d(e ti e% is to pro!eed before a 6otary )(bli! to the sale of the thin5 pled5ed' =A6I&A S;<:TF v 8:&AF1 F: =anila S(rety N Fidelity Co'% (pon re/(est of <odolfo 8elayo% e0e!(ted a bond for )*%+22'22 for the dissol(tion of a $rit of atta!h ent obtained by one Jovita Granados in a s(it a5ainst <odolfo 8elayo in the Co(rt of First Instan!e of =anila' 8elayo (ndertoo# to pay the s(rety !o pany an ann(al pre i( of )11*'22 and

Iss(es: 1D @16 8illasenor !an still redee the je$elsG *D @16 the ri5ht to redee has already e0piredG 7eld: 1D Fes' As the je$els in /(estion $ere in the possession of the defendant to se!(re the pay ent of a loan of 1%422 $ith interest thereon and for havin5 s(bse/(ently e0tended the ter of the loan indefinitely% and so lon5 as the val(e of the je$els pled5ed $as s(ffi!ient to se!(re the pay ent of the !apital and the a!!r(ed interest% the defendant is bo(nd to ret(rn the je$els or their val(e to the plaintiffs% and the plaintiffs have the ri5ht to de and the sa e (pon the pay ent by the of the s( of 1%422 pl(s interest'

S:CT<A6S *212E ATTF' AG;I6A&>1

-*

provided !ollateral je$elry $ith the a(thority to sell in !ase =anila S(rety $ill be obli5ed to pay' J(d5 ent havin5 been rendered in favor of Jovita Granados and a5ainst <odolfo 8elayo% and e0e!(tion havin5 been ret(rned (nsatisfied% the s(rety !o pany $as for!ed to pay )*%+22'22 that it later so(5ht to re!o(p fro 8elayo3 and (pon the latter?s fail(re to do so% the s(rety !a(sed the pled5ed je$elry to be sold% realiPin5 therefro a net prod(!t of )*34'22 only The s(rety files a !lai a5ainst 8elayo be!a(se the se!(rity Is ins(ffi!ient' 8elayo !lai s the sale of the je$elry even if ins(ffi!ient e0tin5(ishes the prin!ipal obli5ation' Iss(e: @on 8elayoHs !ontention is !orre!t <(lin5: FesK The sale of the thin5 pled5ed shall e0tin5(ish the prin!ipal obli5ation% $hther or not the pro!eeds of the sale are e/(al to the a o(nt of the prin!ipal obli5ation% interest and e0penses in a proper !ase' REAL MORTGAGE 8I1&A v :)CI" #A"TS@ 2ia a !ontra!t deno inated as IC<:>IT &I6: A6> <:A& :STAT: =1<TGAG: AG<::=:6T F1< )<1):<TF &I6:J C)redit ,ine $greementD e0e!(ted on =ar!h 31% 199,% &eo9=ers Co er!ial% In!'% as the Client% and its offi!ers spo(ses &eopoldo and =er!edita 8iola CpetitionersD obtained a loan thro(5h a !redit line fa!ility in the a0i ( a o(nt of )4%,22%222'22 fro the )hilippine Co er!ial International "an# C)CI "an#D% $hi!h $as later er5ed $ith :/(itable "an# and be!a e #no$n as :/(itable )CI "an#% In!' To se!(re the pay ent of the loan% petitioners e0e!(ted also on =ar!h 31% 199, a I<eal :state =ort5a5eJ in favor of )CI"an# over their t$o par!els of land' )etitioners availed of the f(ll a o(nt of the loan' S(bse/(ently% they ade partial pay ents and ade no f(rther pay ents and despite de and% they failed to pay their o(tstandin5 obli5ation' <espondent th(s e0traj(di!ially fore!losed the ort5a5e before the 1ffi!e of the Cler# of Co(rt N :091ffi!io )rovin!ial Sheriff of the <e5ional Trial Co(rt C<TCD of =ari#ina City' The ort5a5ed properties $ere sold on April 12% *223 for )4%*+4%222'22 at p(bli! a(!tion to respondent% after $hi!h a Certifi!ate of Sale dated April *1% *223 $as iss(ed' =ore than five onths later or on 1!tober +% *223% petitioners filed a !o plaint for ann(l ent of fore!los(re sale' They !lai that: aD they had ade s(bstantial pay ents bD the fore!los(re pro!eedin5s and a(!tion sale $ere not only irre5(larly and pre at(rely held b(t $ere n(ll and void be!a(se the ort5a5e debt is only )*%**4%2,3'31 on the prin!ipal obli5ation and )1%444%13,'3- on the interest% or

a total of only )3%-,9%*12'-, as of April 14% *223% b(t the ort5a5ed properties $ere sold to satisfy an inflated and erroneo(s prin!ipal obli5ation of #4,G6E,2C4.;5, plus E1 penalty fee per month or EE1 per year and 0C1 interest per year, /hich amounted to #04,H24,;2E.22 as of *eptem+er EH, 2HH23J !D that Ithe parties never agreed and stipulated in the real estate mortgage contract J that the 0C1 interest per annum on the principal loan and the E1 penalty fee per month on the outstanding amount $o(ld be !overed or se!(red by the ort5a5e3 ISSUE@ $hether the ort5a5e !ontra!t also se!(red the penalty fee per onth on the o(tstandin5 a o(nt as stip(lated in the )redit ,ine $greement' RULING@ A mor*0'0e m3-* E-3++(c(e)*&6 /e-cr(be *2e /eb* -o302* *o be -ec3re/, 42(c2 /e-cr(%*(o) m3-* )o* be -3c2 '- *o m(-&e'/ or /ece(,e, ')/ ') ob&(0'*(o) (- )o* -ec3re/ b6 ' mor*0'0e 3)&e-- (* come- +'(r&6 4(*2() *2e *erm- o+ *2e mor*0'0e. In the !ase at bar% the parties e0e!(ted t$o separate do!( ents on =ar!h 31% 199, S the )redit ,ine $greement 5rantin5 the Client a loan thro(5h a !redit fa!ility in the a0i ( a o(nt of )4%,22%222'22% and the <eal :state =ort5a5e !ontra!t se!(rin5 the pay ent thereof' ;ndisp(tedly% both !ontra!ts $ere prepared by respondent and $ritten in fine print% sin5le spa!e' The provision of the ort5a5e !ontra!t does not spe!ifi!ally ention that% aside fro the prin!ipal loan obli5ation% it also se!(res the pay ent of Ia penalty fee of three per!ent C3.D per onth of the o(tstandin5 a o(nt to be !o p(ted fro the day defi!ien!y is in!(rred (p to the date of f(ll pay ent thereon%J $hi!h penalty $as e0pressly stip(lates in the )redit ,ine $greement' Sin!e an a!tion to fore!lose I (st be li ited to a o(nt entioned in the ort5a5eJ and the penalty of 3. per onth of the o(tstandin5 obli5ation is entioned in the ort5a5e% it (st be e0!l(ded fro !o p(tation of the a o(nt se!(red by the ort5a5e' the fee not the

)enalty feeJ is entirely different fro Iban# !har5es'J The phrase Iban# !har5esJ is nor ally (nderstood to refer to !o pensation for servi!es' A Ipenalty feeJ is li#ened to a !o pensation for da a5es in !ase of brea!h of the obli5ation' "ein5 penal in nat(re% s(!h fee (st be spe!ifi! and fi0ed by the !ontra!tin5 parties% (nli#e in the present !ase $hi!h slaps a 3. penalty fee per onth of the o3*-*')/()0 a o(nt of the obli5ation' >I&AG v 7:I<S 1F <:SS;<:CCI16 FACTS: ":F1<: 193-: &a(reano =ar/(eP C&=D $as indebted to Fort(nato <es(rre!!ion CF<D in the

S:CT<A6S *212E ATTF' AG;I6A&>1

-3

s( of )4# as the balan!e of p(r!hase pri!e of a par!el of land $hi!h &= bo(5ht and re!eived fro F<' F< $as in t(rn indebted to &(Pon S(rety Co pany in the sa e a t% se!(red by a ort5a5e on 3 par!els of land S one of $hi!h $as bo(5ht by &= fro hi AS :A<&F AS 193: &= had a5reed to pay F<Hs indebtedness to &(Pon S(rety Co pany by $ay of satisfa!tion of his o$n indebtedness to F< in the sa e a t &= failed to pay indebtedness of F< to the &(Pon S(rety Co pany% and the latter fore!losed j(di!ially the ort5a5e e0e!(ted in its favo(r by F< Sin!e &= did not f(lfil his pro ise% F< !o en!ed an a!tion a5ainst &= to re!over the val(e of lost properties &= S sale at p(bli! a(!tion of 4 par!els of land entioned in F<Hs !o plaint is invalid be!a(se they are not spe!ifi!ally des!ribed in the ort5a5e deed' &= a!/(ired those par!els of land s(bse/(ent to the e0e!(tion of ort5a5e deed' In the fifth !la(se of said do!( ent &a(reano =ar/(eP stip(lated that inas (!h as the five par!els of land des!ribed in the fo(rth !la(se $ere not s(ffi!ient to !over all his obli5ations in favor of Fort(nato <es(rre!!ion% he also !onstit(ted a ort5a5e in favor of the latter and his assi5nees on any other property he then i5ht have and on those he i5ht a!/(ire in the f(t(re'

and thirty ta0i!abs' <espondents havin5 failed to pay the total a o(nt of )1*+%92*'4* d(e on the !redit a!!o odation referred to% the petitioner ban# pro!(red the e0traj(di!ial fore!los(re of the real estate ort5a5e in a!!ordan!e $ith A!t 6o' 3134% as a ended% and at the fore!los(re sale on Jan(ary 9% 194-% the ban# a!/(ired the properties ort5a5ed as the hi5hest bidder for the s( of )-+%3-4'-2' Clai in5 a balan!e of )-*% ,49',* still d(e% the petitioner ban#% instead of fore!losin5 respondents? !hattel ort5a5e% filed a5ainst the on ay **% 194-% Civil Case 6o' *9,4* for the !olle!tion of said balan!e' The lo$er !o(rt% on J(ne 32% 194-% rendered j(d5 ent orderin5 defendants to pay the plaintiff ban#% jointly and severally% the s( of )-*% ,49',*% $ith interest thereon at the rate of ,. per ann( fro =ay **% 194- (ntil the said a o(nt is f(lly paid' 1n Septe ber 1+%194-% the !o(rt iss(ed an order to e0e!(te said j(d5 ent3 it does not appear% tho(5h% that plaintiff so(5ht the enfor!e ent of the $rit of e0e!(tion' 1n April *4% 194,% the !o(rt iss(ed another order for the e0e!(tion of the j(d5e ent% p(rs(ant to $hi!h the sheriff of =anila p(blished a B6oti!e of Sale%B settin5 for sale at p(bli! a(!tion on =ay 13% 194, the ri5hts% interest or parti!ipation of respondents on the !ertifi!ate of p(bli! !onvenien!e re5istered in the na e of the Flash Ta0i Co' in !ases 6os' 3*4,+ of the )(bli! Servi!e Co ission' 1n =ay 13% 194,% the sheriff sold the ri5hts% interests% or parti!ipation of respondents in the !ertifi!ate of p(bli! !onvenien!e in /(estion to the plaintiff ban# as the hi5hest bidder for the a o(nt of )-2%3,1'*4% and t$o days later% on =ay 14% the sheriff iss(ed to plaintiff the !orrespondin5 !ertifi!ate of sale' <espondents )edro "' "a(tista% et al'% filed in the !o(rt belo$ a B)etition To Set Aside 1rder dated J(ne +% 194,% Confir in5 Sheriffs Sale of ay 14% 194, and to >e!lare its 6(llity%B !lai in5% as 5ro(nds for the petitions% that they had other properties $hi!h they had pointed o(t to the plaintiff ban# $ith $hi!h the j(d5e ent !o(ld be satisfied that the la$ 5rants to the j(d5e ent debtor the ri5ht to dire!t $hi!h of his properties sho(ld be sold in e0e!(tion of a j(d5e ent3 that the sale of the !ertifi!ate of p(bli! !onvenien!e in /(estion $o(ld ean irreparable da a5e to the and $o(ld prove of $or# abo(t forth drivers e ployed in their ta0i!ab b(siness3 and that defendants had no obje!tion to bearin5 the e0penses of the sale so(5ht to be revo#ed and of any s(bse/(ent e0e!(tion sales in satisfa!tion of the j(d5e ent' )laintiff ban# opposed the petition% !ontendin5 that there $as no sho$in5 that the sheriff?s sale in /(estion $as irre5(lar or not in a!!ordan!e $ith la$3 that the s(bje!t of the e0e!(tion sale bein5 personal property% and a

ISS;:: @16 s(!h a stip(lation !onstit(te a valid ort5a5e on the 4 other par!els of land $hi!h &= s(bse/(ently a!/(iredG 7:&>: 61 &= !o(ld not le5ally ort5a5e any property he did not yet o$n' In order that a ort5a5e ay be validly !onstit(ted the instr( ent by $hi!h it is !reated (st be re!orded in the <e5istry of >eeds and so far as the additional par!els of land are !on!erned% the re5istration of >eed of =ort5a5e did not affe!t and !o(ld not have affe!ted the be!a(se they $ere not spe!ifi!ally des!ribed therein' )"C1= v =ACA>A:G FACTS: 1n Septe ber 32% 1942% respondents )edro "' "a(tista% >ativa Corrales "a(tista% Ino!en!io C' Ca pos% and the Flash Ta0i Co pany jointly and severally applied for and obtained a !redit a!!o odation fro the petitioner ban# in the s( of )122%222'22% and as a se!(rity therefor e0e!(ted in favor of the ban#% in one sin5le do!( ent% a real estate ort5a5e over fo(r par!els of land% and a !hattel ort5a5e on so e ovie e/(ip ent

S:CT<A6S *212E ATTF' AG;I6A&>1

-4

!ertifi!ate of sale havin5 already been delivered to it by the sheriff% the !o(rt !o(ld no lon5er set aside said sale ISS;:: @E6 the sheriffHs sale $as irre5(lar and therefore n(ll and void' 7:&>: The alle5ed n(llity is !lai ed to arise fro the fa!t that the real estate and !hattel ort5a5e e0e!(ted by respondents to se!(re their !redit a!!o odation $ith the petitioner ban# $as indivisible% and that !onse/(ently% the ban# had no le5al ri5ht to e0tra j(di!ially fore!lose only the real estate ort5a5e and leave o(t the !hattel ort5a5e% and then s(e respondents for a s(pposed defi!ien!y j(d5e ent3 and for this reason% respondents assert that the j(d5e ent in the ban#?s favor for s(!h defi!ien!y in Civil Case 6o' *9,4* is a n(llity' The ar5( ent is falla!io(s be!a(se the ere e bodi ent of the real estate ort5a5e and the !hattel ort5a5e in one do!( ent does not f(se both se!(rities into an indivisible $hole' "oth re ain distin!t a5ree ents% differin5 not only in the s(bje!t9 atter of the !ontra!t b(t in the b(t in the 5overnin5 le5al provisions' )etitioner ban#% therefore% had every ri5ht to fore!lose the real estate ort5a5e and $aive the !hattel ort5a5e% and aintain instead a personal a!tion for the re!overy of the (npaid balan!e of its !redit C>e la <a a vs. Sajo% 44 )hil'% ,233 Salo on vs. >antees% -3 )hil'% 4**3 "ran!har!h =otor Co' vs. <an5al% et al'% -+ )hil'% *+,% *92D' This petitioner did by filin5 !ivil Case 6o' *9,4* for the !olle!tion of the (npaid balan!e of respondents? indebtedness3 and the validity and !orre!tness of the a!tion $as ad itted by respondents the selves $hen they !onfessed j(d5e ent thereto' The !o(rt in fa!t de!ision p(rs(ant to s(!h !onfession of j(d5e ent% and the de!ision has lon5 sin!e been final and e0e!(tory' )<;>:6TIA& "A6M v )A6IS 71=: "A6M:<S v CA Fa!ts: )rivate respondents entered into a Contra!t to Sell A5ree ent $ith TransA eri!an thro(5h :n5r' Gar!ia over portions of land $ith one (nit three9storey to$nho(se to be b(ilt on ea!h portion' :n5r' Gar!ia obtained a loan fro petitioner and as se!(rity e0e!(ted a ort5a5e over the property s(bje!t to the Contra!t to Sell $ith the private respondents' )etitioner re5istered its ort5a5e on these titles $itho(t any other en!( bran!e or lien annotated therein'

@hen the loan $as d(e% :n5r' Gar!ia failed to pay hen!e petitioner instit(ted an e0traj(di!ial fore!los(re on the s(bje!t lots' )rivate respondents prayed for the ann(l ent of the ort5a5e in favor of petitioner' )etitioner filed its Ans$er !ontendin5 that private respondents have no !a(se of a!tion a5ainst it3 that at the ti e of the loan appli!ation and e0e!(tion of the pro issory note and real estate ort5a5e by Gar!ia% there $ere no #no$n individ(al b(yers of the s(bje!t land nor annotation of any !ontra!ts% liens or en!( bran!es of third persons on the titles of the s(bje!t lots3 that the loan $as 5ranted and released $itho(t notifyin5 7&;<" as it $as not ne!essary' CA r(led in favor of private respondents sayin5 that despite the !ontra!ts to sell% Gar!iaETransA eri!an did not apprise petitioner of the e0isten!e of these !ontra!ts nor did petitioner e0ha(st any effort to in/(ire into their e0isten!e sin!e petitioner erely relied on the p(rported !lean re!onstit(ted titles in the na e of Gar!ia3 that the ort5a5e of the s(bje!t lots $itho(t the !onsent of the b(yers and the a(thoriPation of the 7&;<" is a !lear violation of )'>' 6o' 94,3 that the ort5a5e !ontra!t is void and (nenfor!eable a5ainst private respondents'

ISS;:S: 1' @16 7&;<" has j(risdi!tion over the !aseG *' @16 the ort5a5e is validG

3' @16 petitioner is a ort5a5ee in 5ood faith and sin!e the titles on their fa!e $ere free fro any !lai s% liens and en!( bran!es at the ti e of the ort5a5e% it is not obli5ed (nder the la$ to 5o beyond the !ertifi!ates of title re5istered (nder the Torrens syste and had every reason to rely on the !orre!tness and validity of those titles'G 7:&>: 1' 7&;<" has j(risdi!tion' The Co(rt r(led in a prior !ase that Ithe j(risdi!tion of the 7&;<" to re5(late the real estate trade is broad eno(5h to in!l(de j(risdi!tion over !o plaints for spe!ifi! perfor an!e of the sale% or '))3&me)* o+ *2e mor*0'0e% of a !ondo ini( (nit% $ith da a5es'J *' T7: =1<TGAG: IS 81I>' ;nder Se!tion 1+ of )'>' 6o' 94,% it is provided that no ort5a5e on any (nit or lot shall be ade by the o$ner or developer $itho(t prior $ritten approval of the

S:CT<A6S *212E ATTF' AG;I6A&>1

-4

7&;<" S(!h approval shall not be 5ranted (nless it is sho$n that the pro!eeds of the ort5a5e loan shall be (sed for the develop ent of the !ondo ini( or s(bdivision proje!t and effe!tive eas(res have been provided to ens(re s(!h (tiliPation' @itho(t the prior $ritten approval of the 7&;<"% the latter has the j(risdi!tion to ann(l the ort5a5e for bein5 void' 3' )etitioner is 61T A =1<TGAG:: I6 G11> FAIT7' )etitioner #ne$ that the loan it $as e0tendin5 to Gar!iaETransA eri!an $as for the p(rpose of the develop ent of the ei5ht9(nit to$nho(ses' )etitionerHs insisten!e that prior to the approval of the loan% it (ndertoo# a thoro(5h !he!# on the property and fo(nd the titles free fro liens and en!( bran!es $o(ld not s(ffi!e' It $as in!( bent (pon petitioner to in/(ire into the stat(s of the lots $hi!h in!l(des verifi!ation on $hether Gar!ia had se!(red the a(thority fro the 7&;<" to ort5a5e the s(bje!t lots' )etitioner failed to do so' @e li#e$ise find petitioner ne5li5ent in failin5 to even as!ertain fro Gar!ia if there are b(yers of the lots $ho t(rned o(t to be private respondents' )etitionerHs $ant of #no$led5e d(e to its ne5li5en!e ta#es the pla!e of re5istration 9 th(s it is pres( ed to #no$ the ri5hts of respondents over the lot 9 and the !onversion of its stat(s as ort5a5ee to b(yer9o$ner $ill not lessen the i portan!e of s(!h #no$led5e' SA=A6I&&A v CAJ;C1= =1"I& )7I&I))I6:S v >I1CA<:S FACTS: The parties =obil and >io!ares entered an a5ree ent $herein on !ash basis% =obil $ill deliver ini ( of 42# liters of petrole( a onth' To se!(re this% dio!ares e0e!(ted a <eal =ort5a5e' >io!ares failed to pay the balan!e of their indebtedness and =obil filed an a!tion for the !olle!tion of the balan!e of the p(r!hase a o(nt or that the <eal )roperty ort5a5ed by >io!ares be sold to a p(bli! a(!tion and the pro!eeds be applied to the pay ent of the obli5ation' &C did not 5rant fore!los(re on the 5ro(nd that the ort5a5e $as not validly e0e!(ted Cnot re5isteredD' ISS;:: @16 fail(re to re5ister the <eal =ort5a5e $o(ld render it invalid SC: 61K - If the instr( ent is not re!orded% the ort5a5e is nevertheless bindin5 bet$een the parties' Its !on!l(sion% ho$ever% is that $hat $as th(s !reated $as erely a Ipersonal obli5ation b(t did not establish a real estate ort5a5e'J - The ere fa!t that there is as yet no !o plian!e $ith the re/(ire ent that it be re!orded !annot be a bar to fore!los(re

=CC;&&1;G7 v 8:&1S1 #A"TS@ 1D 1n =ar!h *3% 19*2% the plaintiff =!C(llo(5h N Co'% sold to =ariano 8eloso the B=!C(llo(5h "(ildin5%B and the land thereon% for the pri!e of ),22%222' 8eloso paid )42%222 !ash on a!!o(nt at the e0e!(tion of the !ontra!t% leavin5 a balan!e of )-42%222 to be paid' *D 8eloso ass( ed also the obli5ation to ins(re the property for not less than )422%222% as $ell as to pay all le5al ta0es that i5ht be i posed (pon the property% and in the event of his fail(re to do so% the plaintiff sho(ld pay said ta0es at the e0pense of 8eloso% $ith the ri5ht to re!over of hi the a o(nts th(s paid% $ith interest at , per !ent per year' To se!(re the pay ent of these a o(nts% 8eloso ort5a5ed the property p(r!hased 3D It $as% also% stip(lated that in !ase of fail(re on the part of 8eloso to !o ply $ith any of the stip(lations !ontained in the ort5a5e deed% all the install ents $ith the interest thereon shall be!o e d(e% and the !reditor shall then have the ri5ht to brin5 the proper a!tion for the !olle!tion of the (npaid part of the debt' 4D 1n A(5(st *1% 19*2% =ariano 8eloso% in t(rn% sold the property% $ith the i prove ents thereon for )122%22 to Joa/(in Serna% $ho a5reed to respe!t the ort5a5e of the property in favor of the plaintiff and to ass( e =ariano 8eloso?s obli5ation to pay the plaintiff the balan!e d(e of the pri!e of the estate on the respe!tive dates $hen pay ents sho(ld be ade a!!ordin5 to the !ontra!t bet$een =ariano 8eloso and the plaintiff' 4D 8eloso paid )42%222 on a!!o(nt of the )-42%222% and Serna ade several pay ents (p to the total s( of )*42%222' S(bse/(ently% ho$ever% neither 8eloso% nor Serna% ade any pay ent (pon the last install ents% by virt(e of $hi!h delay% the $hole obli5ation be!a e d(e% and 8eloso lost the ri5ht to the install ents stip(lated in his !ontra!t $ith the plaintiff' -D ;pon a li/(idation of the debt of =ariano 8eloso in favor of the plaintiff% in!l(din5 the interest d(e% $ith the res(lt that 8eloso o$ed e0a!tly )412%24,'34' Th(s% the plaintiff brin5s this a!tion to re!over of the defendant the s( d(e of )412%24,'34' The defendant !ontends ho$ever that havin5 sold the property to Serna% and the latter havin5 ass( ed the obli5ation to pay the plaintiff the (npaid balan!e of the pri!e se!(red by the ort5a5e (pon the property% he no ore obli5ation and it is (pon Serna to pay the plaintiff' $ELD@ AD The ort5a5e is erely an en!( bran!e (pon the property and does not e0tin5(ish the title of the debtor% $ho does not% therefore% lose his prin!ipal attrib(te as

S:CT<A6S *212E ATTF' AG;I6A&>1

--

o$ner% that is% the ri5ht to dispose' the fa!t that the plaintiff re!o5niPed the effi!a!io(sness of that sale !annot prej(di!e hi % $hi!h sale the defendant had the ri5ht to a#e and the plaintiff !annot oppose and $hi!h% at all events% !o(ld not affe!t the ort5a5e% sin!e it follo$s the property $hoever the possessor ay be' "D The =ort5a5e &a$ in for!e at the pro (l5ation of the Civil Code and referred to in the latter% provided% a on5 other thin5s% that the debtor sho(ld not pay the debt (pon its at(rity after a j(di!ial or notarial de and for pay ent has been ade by the !reditor (pon hi ' A!!ordin5ly% the obli5ation of the ne$ possessor to pay the debt ori5inated only fro the ri5ht of the !reditor to de and pay ent of hi % it bein5 ne!essary that a de and for pay ent sho(ld have previo(sly been ade (pon the debtor and the latter sho(ld have failed to pay' CD The Civil Code i poses the obli5ation of the debtor to pay the debt stand altho(5h the property ort5a5ed to se!(re the pay ent of said debt ay have been transferred to a third person'

)aderes and "er5ardo filed a petition statin5 that their ri5ht is s(perior than "F sin!e they are b(yers in 5ood faith and are still entitled to redee '

Iss(e: @16 )aderes and "er5ardo has still ri5hts over the propertiesG 7eld: 6o' Sale or transfer !annot affe!t or release the ort5a5e' A p(r!haser is ne!essarily bo(nd to a!#no$led5e and respe!t the en!( bran!e to $hi!h is s(bje!ted the p(r!hased thin5 and $hi!h is at the disposal of the !reditor in order that he% (nder the ter s of the !ontra!t% ay re!over the a o(nt of his !redit therefro ' For a re!orded real estate ort5a5e is a ri5ht in re % a lien on the property $hoever its o$ner ay be be!a(se the personality of the o$ner is disre5arded' The ort5a5e s(bsists not$ithstandin5 !han5es of o$nership' The last transferee is j(st as (!h of a debtor as the first one' A ort5a5e lien is inseparable fro the property ort5a5ed' All s(bse/(ent p(r!hasers thereof (st respe!t the ort5a5e% $hether the transfer to the be $ith or $itho(t the !onsent of the ort5a5ee' For the ort5a5e (ntil dis!har5ed% follo$s the property' @ith re5ard to the rede ption period% it is settled that the b(yer in a fore!los(re sale be!o es the absol(te o$ner of the property p(r!hased if it is not redee ed d(rin5 the period of one year after the re5istration of the sale' As s(!h% he is entitled to the possession of the said property and !an de and it any ti e follo$in5 the !onsolidation of o$nership in his na e and the iss(an!e to hi of a ne$ TCT' If the b(yer de ands the possession of the property before the e0piration period% he has to post a bond' 6o bond is re/(ired after the rede ption period if the property is not redee ed' 8:&ASC1 v CA

SA6TIAG1 v >I16ISI1 >1CT<I6:: All persons havin5 or !lai in5 an interest in the ort5a5ed pre ises s(bordinate in ri5ht to that of the holder of the ort5a5e sho(ld be ade defendants in the a!tion for the fore!los(re of the ort5a5e' Intervenin5 as a s(bordinate lienholder in a fore!los(re !ase erely to oppose the !onfir ation of the sale (pon learnin5 that s(!h a sale had been ade% is no the sa e as bein5 a party to the s(it to the e0tent of bein5 bo(nd by the j(d5e ent in the fore!los(re s(it' The effe!t of the fail(re to i plead a s(bordinate lienholder or s(bse/(ent p(r!haser or both is to render the fore!los(re ineffe!tive as a5ainst the % $ith the res(lt that there re ains in their favor the (nfore!losed e/(ity of rede ption'

)A>:<:S v CA Fa!ts: =anila International Constr(!tion Corporation C=ICCD ort5a5ed *1 properties in favor of "an!o Filipino C"FD for a loan of )1'+=' The ort5a5ed $as re5istered $ith the <e5istry of >eeds' * of the lots $ere later sold to Spo(ses )aderes and Spo(ses "er5ardo' =ICC failed to pay the loan' @itho(t any rede ption havin5 been ade $ithin the re5le entary period% "an!o Filipino fore!losed the properties e0tra j(di!ially' "F $on as the hi5hest bidder in the a(!tion sale'

Facts: November 10, 1965, Alta Farms secured from the GSIS a Three M ll o! T"o #u!dred F ft$ F ve Thousa!d %esos &%',(55,000)00* loa! a!d a! add t o!al loa! of F ve M ll o! S +t$,T"o Thousa!d %esos &%5,06(,000)00* o! -ctober 5, 196., to f !a!ce a / 00er$ /ro1ect) Alta Farms defaulted ! the /a$me!t because of th s that Alta Farms e+ecuted a 2eed of Sale 3 th Assum/t o! of Mort0a0e " th As a! 4!0 !eer !0 5or/orat o! o! 6ul$ 10, 1969 but " thout the /rev ous co!se!t or a//roval of the GSIS a!d ! d rect v olat o! of the /rov s o!s of the mort0a0e co!tracts) 4ve! " thout the a//roval of the 2eed of Sale 3 th Assum/t o! of Mort0a0e b$ the GSIS, As a! 4!0 !eer !0 5or/orat o! e+ecuted a! 4+clus ve Sales A0e!c$,
S:CT<A6S *212E ATTF' AG;I6A&>1 -,

Ma!a0eme!t a!d Adm ! strat o! 5o!tract ! favor of 7a 0o 8ealt$ 5or/orat o!, " th the !te!t o! of co!vert !0 the / 00er$ farm !to a subd v s o!) After develo/ !0 the area, o! 2ecember 9, 1969, 7a 0o e!tered !to a co!tract " th Amable 7uma!la!, o!e of the /et t o!ers, to co!struct for the home bu$ers, (0 houses o! the subd v s o!) %et t o!er 7uma!la! alle0edl$ co!structed (0 houses for the home bu$ers a!d for "h ch he cla ms a bala!ce of %'09,1:.).6 from the home bu$ers a!d 7a 0o) -ut of h s cla m, /et t o!er 7uma!la! adm ts that Mrs) 8hod$ 7a 0o /a d h m ! several chec;s totall !0 %1(9,:55)00 but "h ch chec;s "ere all d sho!oured) -! 2ecember (9, 1969, 7a 0o e!tered !to a co!tract " th /et t o!er %e/ to <elasco to co!struct houses for the home bu$ers "ho a0reed " th <elasco o! the /r ces a!d the do"!/a$me!t) %et t o!er <elasco co!structed houses for var ous home bu$ers, "ho !d v duall$ a0reed " th <elasco, as to the /r ces a!d the do"!/a$me!t to be /a d b$ the !d v dual home bu$ers)3he! !e ther 7a 0o !or the !d v dual home bu$ers /a d for the home co!structed, <elasco "rote the GSIS to !tercede for the u!/a d accou!ts of the home bu$ers) Issue: 3=N GSIS s l able to the /et t o!ers for the cost of the mater als a!d labor fur! shed b$ them ! co!struct o! of the 6' houses !o" o"!ed b$ the GSIS> 8ul !0: ?es) GSIS should /a$ the /et t o!ers) GSIS assumed o"!ersh / of the houses bu lt b$ /et t o!ers a!d "as be!ef ted b$ the same) Art) (1(., the mort0a0e e+te!ds to the !atural access o!s, to the m/roveme!ts, 0ro" !0 fru ts, re!ts)
AFA"&: v ":&A6>1 Afable bro(5ht a s(it a5ainst "elando for an (npaid pro issory note' J(d5 ent $as rendered in favor of hi and be!a(se "elando has no oney% the rents in her property $as 5iven to Afable' It t(rns o(t% before Afable filed a !ase for the !olle!tion of oney% another !reditor of "elando% &a ;rbana% already had a lien on the property be!a(se "elando borro$ed oney fro &a ;rbana and as a se!(rity% "elando ort5a5ed the property bein5 rented to &a ;rbana' &a ;rbana filed a petition to intervene in the !ase of Afable v "elando and !lai s that sin!e the property $as ort5a5ed to the % they also o$n the rents and the rents !annot be 5iven to Afable' Iss(e: @on the !ontention of &a ;rbana is valid

<(lin5: Fes' The ort5a5e e0tends to the rents not yet re!eived $hen the obli5ation be!o es d(e' In this !ase% be!a(se the property $as ort5a5ed to &a ;rbana% they also o$n the rents of the ort5a5ed property' "an# of A eri!a v A eri!an <ealty F: )etitioner "an# of A eri!a 6T N SA C"A6TSAD is an international ban#in5 and finan!in5 instit(tion "an# of A eri!a International &i ited C"AI&D% on the other hand% is a li ited liability !o pany or5aniPed and e0istin5 (nder the la$s of :n5land' "A6TSA and "AI& on several o!!asions 5ranted three ajor (lti9 illion ;nited States C;SD >ollar loans to the follo$in5 !orporate borro$ers and $hi!h are forei5n affiliates of private respondent' 3 >(e to the defa(lt in the pay ent of the loan a ortiPations% "A6TSA and the !orporate borro$ers si5ned and entered into restr(!t(rin5 a5ree ents' As additional se!(rity for the restr(!t(red loans% private respondent A<C CA eri!an <ealtyD as third party ort5a5or e0e!(ted t$o real estate ort5a5es% over its par!els of land in!l(din5 i prove ents thereon% lo!ated at "(la!an' :vent(ally% the !orporate borro$ers defa(lted in the pay ent of the restr(!t(red loans pro ptin5 petitioner "A6TSA to file !ivil a!tions before forei5n !o(rts for the !olle!tion' This in!l(des the property of A eri!an <ealty' )etitioners already filed !olle!tion !ases in forei5n !o(rts' It also filed an e0traj(di!ial fore!los(re on the property in "(la!an in $hi!h A eri!an <ealty /(estion be!a(se the petitioners !annot file a !ase for !olle!tion and a !ase for e0traj(di!ial fore!los(re at the sa e ti e' Iss(e: @on the !ontention of respondents are valid <(lin5: yesK The ort5a5ee !annot have both re edies' 7e has only one !a(se of a!tion% i'e'% non9pay ent of the ort5a5e debt3 hen!e% he !annot split (p his !a(se of a!tion by filin5 a !o pliant for pay ent of the and another !o plaint for fore!los(re' ):1)&:HS "A6M v >A7ICA6 &;=":< FACTS: 1n Septe ber +% 194+% Atlanti! G(lf N )a!ifi! Co pany of =anila% a @est 8ir5inia !orporation li!ensed to do b(siness in the )hilippinesA hereinafter referred to as AT&A6TIC A sold and assi5ned all its ri5hts in the >ahi!an &( ber !on!ession to >ahi!an &( ber Co pany A hereinafter referred to as >A&C1' Thereafter% to develop the !on!ession% >A&C1 obtained vario(s loans fro the )eople?s "an# N Tr(st Co pany' As se!(rity for the pay ent of the above entioned loans% >A&C1 e0e!(ted in favor of the "A6M A the latter a!tin5 for itself and as tr(stee for the :0port9I port "an# of @ashin5ton >'C' A a deed of ort5a5e !overin5 five par!els of land to5ether $ith all the

S:CT<A6S *212E ATTF' AG;I6A&>1

-+

b(ildin5s and other i prove ents e0istin5 thereon and all the personal properties of the ort5a5or lo!ated in its pla!e of b(siness' 1n the sa e date% >A&C1 e0e!(ted a se!ond ort5a5e on the sa e properties in favor of AT&A6TIC to se!(re pay ent of the (npaid balan!e of the sale pri!e of the l( ber !on!ession' "oth deeds !ontained the follo$in5 provision e0tendin5 the ort5a5e lien to properties to be s(bse/(ently a!/(ired A referred to hereafter as Bafter a!/(ired propertiesB A by the ort5a5or: All property of every nat(re and des!ription ta#en in e0!han5e or repla!e ent% and all b(ildin5s% a!hinery% fi0t(res% tools e/(ip ent and other property $hi!h the =ort5a5or ay hereafter a!/(ire% !onstr(!t% install% atta!h% or (se in% to% (pon% or in !onne!tion $ith the pre ises% shall i ediately be and be!o e s(bje!t to the lien of this ort5a5e in the sa e anner and to the sa e e0tent as if no$ in!l(ded therein% and the =ort5a5or shall fro ti e to ti e d(rin5 the e0isten!e of this ort5a5e f(rnish the =ort5a5ee $ith an a!!(rate inventory of s(!h s(bstit(ted and s(bse/(ently a!/(ired property' "oth ort5a5es $ere re5istered in the 1ffi!e of the <e5ister of >eeds' In addition thereto >A&C1 and >A=C1 pled5ed to the "A6M ,%*9- shares of sto!# of >A&C1 and 9%*+- shares of >A=C1 to se!(re the sa e obli5ations' ;pon >A&C1?s and >A=C1?s fail(re to pay the fifth pro issory note (pon its at(rity% the "A6M paid the sa e to the :0port9I port "an# of @ashin5ton >'C'% and the latter assi5ned to the for er its !redit and the first ort5a5e se!(rin5 it' S(bse/(ently% the "A6M 5ave >A&C1 and >A=C1 (p to April 1% 1943 to pay the overd(e pro issory note' After J(ly 13% 1942 A the date of e0e!(tion of the ort5a5es entioned above A >A&C1 p(r!hased vario(s a!hineries% e/(ip ent% spare parts and s(pplies in addition to% or in repla!e ent of so e of those already o$ned and (sed by it on the date aforesaid' )(rs(ant to the provision of the ort5a5e deeds /(oted theretofore re5ardin5 Bafter a!/(ired properties%B the "A6M re/(ested >A&C1 to s(b it !o plete lists of said properties b(t the latter failed to do so' The alle5ed sales of e/(ip ent% spare parts and s(pplies by C166:&& and >A=C1 to It% $as s(bse/(ently res!inded by the parties' The "A6M% in its o$n behalf and that of AT&A6TIC% de anded that said a5ree ents be !an!elled b(t C166:&& and >A=C1 ref(sed to do so' As a res(lt%

AT&A6TIC and the "A6M !o pro!eedin5s'

en!ed fore!los(re

=ain !ontentions of plaintiffs as appellants are the follo$in5: that the Bafter a!/(ired propertiesB $ere s(bje!t to the deeds of ort5a5e entioned heretofore3 that said properties $ere a!/(ired fro s(ppliers other than >A=C1 and C166:&&3 that even 5rantin5 that >A=C1 and C166:&& $ere the real s(ppliers% the res!ission of the sales to >A&C1 !o(ld not prej(di!e the ort5a5e lien in favor of plaintiffs' The defendants9appellants !ontend that the ort5a5es aforesaid $ere n(ll and void as re5ards the Bafter a!/(ired propertiesB of >A&C1 be!a(se they $ere not re5istered in a!!ordan!e $ith the Chattel =ort5a5e &a$' ISS;:S: 1' are the so9!alled Bafter a!/(ired propertiesB !overed by and s(bje!t to the deeds of ort5a5e s(bje!t of fore!los(reG *' ass( in5 that they are s(bje!t thereto% are the ort5a5es valid and bindin5 on the properties aforesaid inspite of the fa!t that they $ere not re5istered in a!!ordan!e $ith the provisions of the Chattel =ort5a5e &a$G <;&I6G: 1' it is !rystal !lear that all property of every nat(re and des!ription ta#en in e0!han5e or repla!e ent% as $ell as all b(ildin5s% a!hineries% fi0t(res% tools% e/(ip ents% and other property that the ort5a5or ay a!/(ire% !onstr(!t% install% atta!h3 or (se in% to (pon% or in !onne!tion $ith the pre ises A that is% its l( ber !on!ession A Bshall i ediately be and be!o e s(bje!t to the lienB of both ort5a5es in the sa e anner and to the sa e e0tent as if already in!l(ded therein at the ti e of their e0e!(tion' S(!h stip(lation is neither (nla$f(l nor i oral% its obvio(s p(rpose bein5 to aintain% to the e0tent allo$ed by !ir!( stan!es% the ori5inal val(e of the properties 5iven as se!(rity' Indeed% if s(!h properties $ere of the nat(re already referred to% it $o(ld be poor j(d5 ent on the part of the !reditor $ho does not see to it that a si ilar provision is in!l(ded in the !ontra!t' *' the !hattels $ere pla!ed in the real properties ort5a5ed to plaintiffs% they !a e $ithin the operation of Art' 414% para5raph 4 and Art' *1*, of the 6e$ Civil Code' It is not disp(ted in the !ase at bar that the Bafter a!/(ired propertiesB $ere p(r!hased by >A&C1 in !onne!tion $ith%

S:CT<A6S *212E ATTF' AG;I6A&>1

-9

and for (se in the develop ent of its l( ber !on!ession and that they $ere p(r!hased in addition to% or in repla!e ent of those already e0istin5 in the pre ises on J(ly 13% 1942' In &a$% therefore% they (st be dee ed to have been immo+ili<ed% $ith the res(lt that the real estate ort5a5es involved herein A $hi!h $ere re5istered as s(!h A did not have to be re5istered a se!ond ti e as !hattel ort5a5es in order to bind the Bafter a!/(ired propertiesB '

In that !ase% this !o(rt dis!(ssed the very arti!les of the =ort5a5e &a$ (pon $hi!h Ca ps no$ see#s relief' In that !ase the Co(rt said: So that even tho(5h no ention had been ade of said a!hinery and tra $ay in the ort5a5e instr( ent% the ort5a5e of the property $hereon they are lo!ated in (nderstood by la$ to e0tend to the and they (st be !onsidered as in!l(ded therein% as $ell as all other i prove ents% (nless there $as an e0press stip(lation bet$een the parties that they sho(ld be e0!l(ded'

)7I& S;GA< :STAT: v CA=)S FACTS: >efendant e0e!(ted and delivered to )laintiff a ort5a5e on !ertain real estate% $hi!h is parti!(larly des!ribed therein% in!l(din5 Ithe b(ildin5 ere!ted thereon%J in order to 5(arantee the pay ent of !ertain s( of oney3 Another ort5a5e (pon the sa e property to se!(re the pay ent of an additional s( of oney )laintiff !o en!ed an a!tion to re!over said s( s and to fore!lose said ort5a5es $hen neither of said s( s of oney se!(red by said ort5a5es $as f(lly paid and satisfied >ef S denied3 alle5ed that the s( of )3# in!l(ded in said ort5a5es for the pay ent of e0penses $as e0!essive TC J(d5e 1strand S ordered fore!los(re of said ort5a5es @hile Sheriff tried to sell the property in!l(ded in said ort5a5es% >ef interposed an obje!tion that a !ertain !ine ato5raph $hi!h had been !onstr(!ted (pon the property ort5a5ed $as not in!l(ded therein and that it sho(ld not% therefore% be sold (nder said e0e!(tion' >espite obje!tion% Sheriff sold the property ort5a5ed Ito5ether $ith the b(ildin5s ere!ted thereonJ >ef obje!ted to the !onfir ation of said sale3 said !ine ato5raph in /(estion $as !reated by si ply refor in5 a b(ildin5 lo!ated on the land at the ti e said ort5a5e $as e0e!(ted and delivered3 that it $as not a ne$ str(!t(re on said land3 that it $as the res(lt of !han5in5 and alterin5 a b(ildin5 already (pon the land% for the p(rpose of a#in5 it into a !ine ato5raph TC J(d5e 7arvey !onfir ed said sale ISS;:: @16 the sale (nder e0e!(tion by the sheriff of !ertain real property in!l(din5 the b(ildin5s thereon sho(ld be !onfir edG 7:&>: F:S Q(estions presented by Ca ps have been dis!(ssed by this !o(rt and de!ided a5ainst his !ontention in the !ase of "is!hoff v' )o ar and Co pania General de Taba!os'

I6 T7IS CAS:: the b(ildin5s ere!ted thereonB $ere e0pressly in!l(ded in the ort5a5e' 6othin5 in the for of b(ildin5s $as e0!l(de' The b(ildin5s% therefore% $ere anifestly in!l(ded in the ort5a5e' TA>F9F v )6" )<;>:6TIA& "A6M v A&8IA<

&1):Y v A&8A<:Y FACTS: Appellee :varisto holds a lien over the estate of one 8i!ente &opeP as the latter e0e!(ted a ort5a5e deed in favor of :varisto' 1n April 4% 1924% :varisto assi5ned his lien on the estate to appellant =an(el &opeP thro(5h a p(bli! instr( ent b(t the sa e $as not re5istered in the <e5istry of >eeds' Appellee Grindrod is a !reditor of :varisto% to $ho the latter pro ised to pay his obli5ation thro(5h the s(5ar yielded by the ha!ienda% said a5ree ent $as entered into J(ly ,% 1922' "(t the ha!ienda $as not able to in!rease the s(5ar it yielded and defendant 1n A(5(st 4% 1924% Grindrod $ho feared of not 5ettin5 paid obtained a preli inary atta!h ent over all the property of :varisto in!l(din5 the lien that $as assi5ned to appellant' The sa e $as re5istered on A(5(st 1*% 1924' A disp(te arised over the ri5htf(l o$ner of the lien% defendantHs ain !ontention is that sin!e the assi5n ent ade to &opeP $as not re5istered it is not bindin5 and has no effe!t' ISS;:: @16 T7: ASSIG6=:6T 1F A =1<TGAG: C<:>IT 6::> T1 ": <:GIST:<:> F1< IT T1 ": 8A&I> A6> :FF:CTI8:G 7:&>: 61' Altho(5h the Civil Code provides that I A ort5a5e !redit ay be alienated or assi5ned to a third person% $holly or partially% 4(*2 *2e +orm'&(*(ereI3(re/ b6 &'4J% the fa!t that s(!h assi5n ent $as not re5istered in the property re5ister is no obsta!le to the transfer of the do inion or o$nership of said !redit in the s( therein stated in favor of &opeP' In as (!h as the assi5n ent or alienation of a !redit% ade by the o$ner thereof in favor of another% is prior to the a!t of its re5istration% and entirely independent of s(!h for ality to

S:CT<A6S *212E ATTF' AG;I6A&>1

,2

s(!h an e0tent that% if any /(estion sho(ld arise over the !ontra!t bet$een the assi5nor and the assi5nee% it $o(ld have to be de!ided a!!ordin5 to !o on la$ $itho(t need of previo(s re5istration of the title% $hi!h sho$s that a !redit se!(red by a ort5a5e ay be assi5ned or alienated% and is a perfe!tly valid !ontra!t even if it $ere not re5istered' Also% the re5istration of the assi5n ent or alienation of a !redit se!(red by ort5a5e% re/(ired% a on5 others% of the =ort5a5e &a$% is only ne!essary in order that it ay be effe!t(al as a5ainst third parties' ")I v C16C:)CI16 &IT16J;A v &N< C1<)1<ATI16 FACTS: - Spo(ses &itonj(a C)D obtained a loan fro & N < Corporation C<D S A(5 -% 19,4 C)*22#D and =ar *,% 19,+ C)*22#D S $hi!h are se!(red by a ort5a5e on * par!els of land o$ned by ) - 7o$ever% ) sold to )hil @hite 7o(se A(to S(pply C)@7ASD the s(bje!t par!els of land% $itho(t prior $ritten !onsent of <% p(rs(ant to the =ort5a5e a5ree ent that they have' - ;pon defa(lt of )% < initiated an e0traj(di!ial sale and $on the biddin5' - ) later on filed for rede ption of the property b(t < ref(sed to do a!!ept the pay ent !ontendin5 that ) violated the !ontra!t - < infor ed the Sheriff and <e5ister of >eeds% statin5: C1D that the sale of the ort5a5ed properties to )@7AS $as $itho(t its !onsent% in !ontravention of their >eed of <eal :state =ort5a5e3 and C*D that it $as not the spo(ses &itonj(a% b(t )@7AS% $ho $as see#in5 to redee the fore!losed properties% - <e5ister of >eeds iss(ed TCT in favor of < - A !o plaint for Q(ietin5 of Title% Ann(l ent of Title and >a a5es $ith preli inary inj(n!tion $as filed by the spo(ses &itonj(a and )@7AS a5ainst < - &C r(led in favor of < and affir ed by CA ISS;:: @16 para5raphs + and 9 of the <eal :state =ort5a5e are valid and enfor!eable3 SC: 61K - Art' *132 S stip(lation forbiddin5 alienation of ort5a5ed property is 81I> - A real ort5a5e is erely an en!( bran!e3 it does not e0tin5(ish the title of the debtor% $hose ri5ht to dispose A a prin!ipal attrib(te of o$nership A is not thereby lost' Th(s% a ort5a5or had every ri5ht to sell his ort5a5ed property% $hi!h ri5ht the ort5a5ee !annot oppose' - Altho(5h the provision does not absol(tely prohibit the ort5a5or fro sellin5 his

ort5a5ed property3 b(t $hat it does not o(tri5htly prohibit% it nevertheless a!hieves' For all intents and p(rposes% the stip(lation pra!ti!ally 5ives the ort5a5ee the sole prero5ative to prevent any sale of the ort5a5ed property to a third party' The ort5a5ee !an si ply $ithhold its !onsent and thereby% prevent the ort5a5or fro sellin5 the property' This !reates an (n!ons!ionable advanta5e for the ort5a5ee and a o(nts to a virt(al prohibition on the o$ner to sell his ort5a5ed property' In other $ords% stip(lations li#e those !overed by para5raph + Cre/(irin5 ) to a!/(ire prior !onsent of < before alienatin5 the propertyD of the s(bje!t >eed of <eal :state =ort5a5e !ir!( vent the la$% spe!ifi!ally% $rticle 20EH of the (e/ )ivil )ode' "ein5 !ontrary to la$% para5raph + of the s(bje!t >eed of <eal :state =ort5a5e is not bindin5 (pon the parties' ;6I16 "A6M v CA

#A"TS@ 1D A real estate ort5a5e $as e0e!(ted on >e!e ber 1991 by spo(ses >ario Chereafter ort5a5orsD in favor of ;6I16"A6M to se!(re a )3 illion loan $hi!h !overed a Q(ePon City property in &eopoldo >ario?s na e and $as annotated on the title' For non9pay ent of the prin!ipal obli5ation% ;6I16"A6M e0traj(di!ially fore!losed the property ort5a5ed on A(5(st 1993 and sold the sa e at p(bli! a(!tion% $ith itself postin5 the hi5hest bid' *D 1ne $ee# before the one9year rede ption period e0pired% private respondents filed a !o plaint $ith the <TC a5ainst the ort5a5ors% ;6I16"A6M and the <e5ister of >eeds ann(l ent of sale and real estate ort5a5e re!onveyan!e and prayer for restrainin5 noti!e of lis pendens $as annotated on the title' 3D 1n 1!tober 1994% the <TC iss(ed a T<1 enjoinin5 the rede ption of property $ithin the stat(tory period and its !onsolidation (nder ;6I16"A6M?s na e' 4D @itho(t notifyin5 private respondents% ;6I16"A6M !onsolidated its title over the fore!losed property on 1!tober 1994% ;6I16"A6M?s na e $as iss(ed in the ne$ TCT' 4D )rivate respondents filed an a ended !o plaint% alle5in5 that they% not the ort5a5ors% are the tr(e o$ners of the property ort5a5ed and insistin5 on the invalidity of both the ort5a5e and its s(bse/(ent e0traj(di!ial fore!los(re' They !lai ed that the ori5inal title% $as entr(sted to a !ertain Atty' <eynaldo Sin5son preparatory to its ad inistrative re!onstit(tion after a fire 5(tted the Q(ePon City 7all b(ildin5' =ort5a5or &eopoldo% private respondent Fer ina?s son% obtained

S:CT<A6S *212E ATTF' AG;I6A&>1

,1

the property fro Atty' Sin5son% had the title re!onstit(ted (nder his na e $itho(t private respondents? #no$led5e% e0e!(ted an ante9dated deed of sale in his favor and ort5a5ed the property to ;6I16"A6M' -D 1n >e!e ber 1994% the <TC ad itted the afore entioned a ended !o plaint' ;6I16"A6M filed its ans$er ad cautelam assertin5 its stat(s as an inno!ent ort5a5ee for val(e $hose ri5ht or lien (pon the property ort5a5ed (st be respe!ted even if% the ort5a5or obtained his title thro(5h fra(d' It also averred that the a!tion had be!o e B oot and a!ade i! by the !onsolidation of the fore!losed property on *4 1!tober 1994B in its na e' ,D 1n appeal% the CA n(llified the !onsolidation of o$nership% $hi!h $as the prior j(d5 ent in the <TC% ordered the <e5ister of >eeds to !an!el the !ertifi!ate of title in ;6I16"A6M?s na e and to reinstate TCT of respondents' ISSUE@ @hether ;6I16"A6M is a ort5a5ee in 5ood faith and for val(e $ith a ri5ht to !onsolidate o$nership over the fore!losed property $ith the rede ption period havin5 e0pired and there havin5 been no rede ptioners' $ELD@ AD The SC disa5rees $ith the CAHs j(d5 ent that !onsolidation deprived private respondents of their property $itho(t d(e pro!ess' "e!a(se the b(yer in a fore!los(re sale be!o es the absol(te o$ner of the property p(r!hased if it is not redee ed d(rin5 the period of one year after the re5istration of the sale' In effe!t% !onsolidation too# pla!e as a atter of ri5ht sin!e there $as no rede ption of the fore!losed property and the T<1 e0pired (pon dis issal of the !o plaint' CD ;6I16"A6M need not have infor ed private respondent that it $as !onsolidaint its title over the property% (pon the e0piration of the rede ption period% $itho(t the j(d5 ent debtor havin5 ade (se of his ri5ht of rede ption% the o$nership of the property sold be!o es !onsolidated in the p(r!haser' ;pon fail(re to redee fore!losed realty% !onsolidation of title be!o es a atter of ri5ht on the part of the a(!tion b(yer% and the iss(an!e of a !ertifi!ate of title in favor of the p(r!haser be!o es inisterial (pon the <e5ister of >eeds' CD At any rate% the !onsolidation of o$nership over the ort5a5ed property in favor of ;6I16"A6M and the iss(an!e of a ne$ title in its na e d(rin5 the penden!y of an a!tion for ann(l ent and re!onveyan!e $ill not !a(se inj(ry to private respondents be!a(se as p(r!haser at a p(bli! a(!tion% ;6I16"A6M is only s(bstit(ted to and a!/(ires the ri5ht% title% interest and !lai of the j(d5 ent debtors or ort5a5ors to the property at the ti e of levy' @ith the ain a!tion for re!onveyan!e pendin5 before the <TC% the noti!e of lis

pendens% s(ffi!iently prote!ts private respondents interest over the property' Th(s the >e!ision of the Co(rt of Appeals is <:8:<S:> and S:T ASI>:' The order of the trial !o(rt dated , A(5(st 1999% de!larin5 ;6I16"A6M?s prayer for $rit of preli inary inj(n!tion oot and a!ade i!% is hereby <:I6STAT:>' &et this !ase be re anded to the <e5ional Trial Co(rt for trial on the erits' >") v &IC;A6A6 >1CT<I6:: All persons havin5 or !lai in5 an interest in the ort5a5ed pre ises s(bordinate in ri5ht to that of the holder of the ort5a5e sho(ld be ade defendants in the a!tion for the fore!los(re of the ort5a5e' Intervenin5 as a s(bordinate lienholder in a fore!los(re !ase erely to oppose the !onfir ation of the sale (pon learnin5 that s(!h a sale had been ade% is no the sa e as bein5 a party to the s(it to the e0tent of bein5 bo(nd by the j(d5e ent in the fore!los(re s(it' The effe!t of the fail(re to i plead a s(bordinate lienholder or s(bse/(ent p(r!haser or both is to render the fore!los(re ineffe!tive as a5ainst the % $ith the res(lt that there re ains in their favor the (nfore!losed e/(ity of rede ption' >") v G1 Fa!ts: In 19+*% Go obtained a loan fro >") eviden!ed by t$o pro issory notes% one for 194M payable /(arterly for 4 years and the other 322M payable /(arterly for , years' 7e ort5a5ed his real and personal property' A !ontra!t provision states that >") !an (nilaterally in!rease the interest rate and re/(ires Go to ins(re the ort5a5ed properties' >") in!reased its interest rate to 34. then lo$ered it to *9.' Go failed to pay the loan' In 19+-% >") e0traj(di!ially fore!losed the property and $as de!lared the $inner as the hi5hest bidder in the a(!tion sale' Go filed an a!tion to ann(l the a(!tion sale' "oth <TC and CA de!lared that the e0traj(di!ial fore!los(re $as void be!a(se loan has not yet at(re at the ti e of the fore!los(re sale Cthe fore!los(re $as done less than 4 years fro the e0e!(tion of the !ontra!tD'

Iss(e: @16 the e0traj(di!ial fore!los(re sho(ld be de!lared n(ll and voidG 7eld: Fes' The ort5a5e !ontra!t states that petitioner ay resort to either j(di!ial or e0traj(di!ial fore!los(re in !ase

S:CT<A6S *212E ATTF' AG;I6A&>1

,*

of defa(lt' )etitioner opted for e0traj(di!ial fore!los(re' 7o$ever% both the trial !o(rt and the CA de!lared that the e0traj(di!ial fore!los(re void for bein5 pre at(re' For all intents and p(rposes% there has been no fore!los(re' Therefore% this Co(rt or any !o(rt !annot iss(e a $rit of e0e!(tion to j(di!ially fore!lose the property' FI:STA6 v CA

Facts: 2 o! s o F esta! a!d 6ua! ta Arco!ada o"!ers of a /arcel of la!d &7ot No) (@* s tuated ! Ilocos Sur covered b$ T5T T,1'(1: "h ch the$ mort0a0ed to the 2evelo/me!t @a!; of the %h l // !es &2@%* as secur t$ for the r %((,900)00 loa!) 7ot No) (,@ "as acAu red b$ the 2@% as the h 0hest b dder at a /ubl c auct o! sale o! Au0ust 6, 19.9 after t "as e+tra1ud c all$ foreclosed b$ the 2@% ! accorda!ce " th Act No) '1'5, as ame!ded b$ Act No) 911:, for fa lure of /et t o!ers to /a$ the r mort0a0e !debted!ess) -! A/r l 1',19:(, the 2@% sold the lot to Fra!c sco %er a ! a 2eed of Absolute Sale) Fra!c sco %er a mort0a0ed sa d lot to the %N@ < 0a! @ra!ch as secur t$ for h s loa! of %115,000)00 as reAu red b$ the ba!; to !crease h s or 0 !al loa! from %99,000)00 to %66,000)00 u!t l t f !all$ reached the a//roved amou!t of %115,000)00) S !ce /et t o!ers "ere st ll ! /ossess o! of 7ot No) (,@, the %rov !c al Sher ff ordered them to vacate the /rem ses) Issue: 3=N there "as a val d e+tra1ud c al foreclosure sale> 8ul !0: ?es) The formal t es of a lev$, as a! esse!t al reAu s te of a val d e+ecut o! sale u!der Sect o! 15 of 8ule '9 a!d a val d attachme!t l e! u!der 8ule 5. of the 8ules of 5ourt, are !ot bas c reAu reme!ts before a! e+tra1ud c all$ foreclosed /ro/ert$ ca! be sold at /ubl c auct o!) The case at bar, as the facts d sclose, !volves a! e+tra1ud c al foreclosure sale) Act No) '1'5, as ame!ded b$ Act No) 911: other" se ;!o"! as BA! Act to 8e0ulate the Sale of %ro/ert$ u!der S/ec al %o"ers I!serted ! or A!!e+ed to 8eal 4state Mort0a0esB a//l es ! cases of e+tra1ud c al foreclosure sale)

FI<ST =A<":&&A v GAT=AFTA6 FACTS: < is the re5istered o$ner of Fontavilla 6o' 421 C!ondo (nitD% =arbella I Condo ini( % <o0as "lvd (nder CCT 6o' 19,* ) filed a )etition for :0trad(di!ial fore!los(re of the !ondo ini( (nit of < and alle5ed that ) is a d(ly or5aniPed asso!iation of the tenants and ho eo$ners of =arbella I Condo ini( 3 that < is a e ber thereof b(t has (npaid asso!iation d(es a o(ntin5 to )3'* ill3 that < ref(sed to to pay his d(es despite de and ) 9 that it is e0pressly provided (nder Se!tion *2 of <ep(bli! A!t C<'A'D 6o' 4,*- that it has the ri5ht to !a(se the e0traj(di!ial fore!los(re of its annotated lien on the !ondo ini( (nit' Its petition then is !o5niPable by the <TC (nder Ad inistrative =atter 6o' 99912924 < S obje!ted to )?s ri5ht to file the petition for e0tra9j(di!ial fore!los(re% pointin5 o(t that the latter does not hold a real estate ort5a5e on the !ondo ini( (nit or a spe!ial po$er of attorney to !a(se the e0tra9j(di!ial fore!los(re sale of said (nit' 9 there is even a pendin5 liti5ation re5ardin5 the validity of petitioner?s !onstit(tion as a ho eo$ners asso!iation and its a(thority to assess asso!iation d(es% annotate (npaid assess ents on !ondo ini( titles and enfor!e the sa e thro(5h e0traj(di!ial fore!los(re sale Cler# of Co(rt% as :091ffi!io Sheriff% re!o ended to <TC :0e!' J(d5e : ;nder the fa!ts 5iven% no ort5a5e e0ists bet$een the petitioner and respondent' :vidently% it is not one of those !onte plated (nder A!t 3134 as a ended by A!t 411+' The alle5ation si ply does not sho$ a ort5a5or9 ort5a5ee relationship sin!e respondent liability arises fro his fail(re to pay d(es% assess ents and !har5es d(e to the petitioner' As !learly stated% the a(thority of the :0e!(tive J(d5e (nder Ad inistrative =atter 6o' 999129 2492% as a ended dated =ar!h 1% *221% !overs e0tra9j(di!ial fore!los(re of real estate ort5a5es (nder <'A' 6o' 3134 and !hattel ort5a5es (nder )'>' 6o' 142+' There is nothin5 in the above entioned Cir!(lar $hi!h a(thoriPes the :0e!(tive J(d5e andEor the :09 1ffi!io Sheriff to e0tra j(di!ially fore!lose properties !overed by obli5ations other than the said ort5a5es' 7en!e% the s(bje!t petition is not proper for e0tra9j(di!ial fore!los(re (nder the s(pervision of the :0e!(tive J(d5e' >is issal of the s(bje!t petition is re!o ended TC S denied re/(est for e0traj(di!ial fore!los(re of the s(bje!t !ondo (nit and dis issed the

"A6M 1F A=:<ICA v A=:<ICA6 <:A&TF C7I:6G v S)1;S: SA6T1S

S:CT<A6S *212E ATTF' AG;I6A&>1

,3

petition3 It not $ithin the a(thority of :0e!' J(d5e to s(pervise and approve the e0traj(di!ial fore!los(res of ort5a5e ISS;:: @16 ) has a ri5ht to file a petition for e0traj(di!ial fore!los(reG 7:&>: 61 In order to avail itself of a $rit of mandamus% petitioner (st establish that it has a !lear ri5ht to the e0traj(di!ial fore!los(re sale of the !ondo ini( (nit of respondent' ;nder Cir!(lar 6o' ,9*22*% i ple entin5 S(pre e Co(rt Ad inistrative =atter 6o' 9991292492% it is andatory that a petition for e0traj(di!ial fore!los(re be s(pported by eviden!e that petitioner holds a spe!ial po$er or a(thority to fore!lose @itho(t proof of petitioner?s spe!ial a(thority to fore!lose% the Cler# of Co(rt as :091fi!io Sheriff is pre!l(ded fro a!tin5 on the appli!ation for e0traj(di!ial fore!los(re I6 T7IS CAS:: the only basis of petitioner for !a(sin5 the e0traj(di!ial fore!los(re of the !ondo ini( (nit of respondent is a noti!e of assess ent annotated on CCT 6o' 19,* in a!!ordan!e $ith Se!tion *2 of <'A' 6o' 4,*-' 7o$ever% neither annotation nor la$ vests it $ith s(ffi!ient a(thority to fore!lose on the property The noti!e of assess ent !ontains no provision for the e0traj(di!ial fore!los(re of the !ondo ini( (nit' All that it states is that the assess ent of petitioner a5ainst respondent for (npaid asso!iation d(es !onstit(tes a Bfirst lien a5ainst Uthe[ !ondo ini( (nit Se!tion *2 of <A 4,*- does not 5rant ) spe!ial a(thority to fore!lose' It erely pres!ribes the pro!ed(re by $hi!h petitioner?s !lai ay be treated as a s(perior lien 9 i.e'% thro(5h the annotation thereof on the title of the !ondo ini( (nit' @hile the la$ also 5rants petitioner the option to enfor!e said lien thro(5h either the j(di!ial or e0traj(di!ial fore!los(re sale of the !ondo ini( (nit% Se!tion *2 does not by itself% ipso facto% a(thoriPe j(di!ial as e0tra9 j(di!ial fore!los(re of the !ondo ini( (nit' )etitioner ay avail itself of either option only in the anner provided for by the 5overnin5 la$ and r(les' As already pointed o(t% A'=' 6o' 6o' 9991292492% as i ple ented (nder Cir!(lar 6o' ,9*22*% re/(ires that petitioner f(rnish eviden!e of its spe!ial a(thority to !a(se the e0traj(di!ial fore!los(re of the !ondo ini( (nit' &A6GMAA6 <:A&TF v ;C)" "17A6A6 v CA =:T<1"A6M v @16G

FACTS: =indanao Grains% In!' applied for a !redit a!!o odation $ith petitioner' As se!(rity for s(!h !redit a!!o odation% respondent @on5 e0e!(ted a real estate ort5a5e in favor of petitioner' >(e to =GIHs fail(re to pay the obli5ation% petitioner filed an appli!ation for e0traj(di!ial fore!los(re $hi!h $as p(blished in )a5adian Ti es on!e% for three !onse!(tive $ee#s settin5 the date for the a(!tion sale' 6o noti!e $as posted in the (ni!ipality or !ity $here the ort5a5ed property $as sit(ated' The a(!tion sale pro!eeded and petitioner $as adj(d5ed as the sole and hi5hest bidder' After the e0piration of the one year rede ption period% o$nership $as !onsolidated and TCT !orrespondin5ly iss(ed in the na e of petitioner'

<espondent (na$are of the fore5oin5 develop ents% applied for a !redit a!!o odation $ith another ban#% only to find o(t that his property $as already fore!losed by petitioner' <espondent filed a !ase assailin5 the validity of the e0traj(di!ial fore!los(re on the 5ro(nd that petitioner did not !o ply $ith the pro!ed(ral re/(ire ents of la$'

)etitioner on the other hand j(stifies his !lai by !itin5 1liPon v' CA% C1D that its fail(re to !o ply $ith the postin5 re/(ire ent did not ne!essarily res(lt in the n(llifi!ation of the fore!los(re sale sin!e it !o plied $ith the p(bli!ation re/(ire ent3 and C*D that personal noti!e of the fore!los(re pro!eedin5s to respondent is not a !ondition sine qua non for its validity'

ISS;:: 1' @16 ):<S16A& 61TIC: T1 <:S)16>:6T IS A C16>ITI16 *%(' IJ$ ( ( T1 T7: 8A&I>ITF 1F T7: F1<:C&1S;<: )<1C::>I6GSG *' @16 ):TITI16:<HS 6169C1=)&IA6C: @IT7 T7: )1STI6G <:Q;I<:=:6T IS FATA& T1 T7: 8A&I>ITF 1F T7: F1<:C&1S;<: )<1C::>I6GSG

7:&>: 1' Se!tion 3 of A!t no' 3134 only re/(ires: C1D the postin5 of noti!es of sale in three p(bli! pla!es% and C*D the p(bli!ation of the sa e in a ne$spaper of 5eneral !ir!(lation' )ersonal noti!e to the ort5a5or is not ne!essary' 6evertheless% the parties are not pre!l(ded fro e0a!tin5 additional re/(ire ents' In the !ase at bar% it $as stip(lated that noti!e sho(ld be served to the ort5a5or' @hen petitioner failed to send the noti!e of fore!los(re sale to respondent% he !o itted a !ontra!t(al brea!h

S:CT<A6S *212E ATTF' AG;I6A&>1

,4

s(ffi!ient to render the fore!los(re sale n(ll and void' *' The 5eneral r(le is that non9!o plian!e $ith the postin5 re/(ire ent is fatal to the validity of the fore!los(re pro!eedin5s' The 1liPon !ase $as an e0!eption d(e to the (n(s(al nat(re of the attendant fa!ts and pe!(liarity of the !onfl(ent !ir!( stan!es $hi!h are not present in the instant !ase' @hile the la$ re!o5niPes the ri5ht of the ban# to fore!lose a ort5a5e (pon the ort5a5orHs fail(re to pay his obli5ation% it is i portant that s(!h ri5ht be e0er!ised a!!ordin5 to its !lear andate' :a!h and every re/(ire ent of the la$ (st be !o plied $ith )6" v CA )6" v 6:)1=;C:61 )<1>;CTI16S% I6C' FACTS: )6" 5ranted respondents C<D a !redit line to finan!e the fil in5 of the ovie I)a!ifi! Conne!tionJ' The loan $as se!(red by ort5a5es on <Hs real and personal properties C=al(5ay property% Forbes )ar# )roperty and otion pi!t(re e/(ip entsD' 7o$ever% < defa(lted in their obli5ation' )6" so(5ht fore!los(re of the ort5a5ed properties $here p6" $as the hi5hest bidder' < filed for ann(l ent of fore!los(re sale sin!e it is n(ll and void for la!# of p(bli!ation of the noti!e of sale' &C ann(lled fore!los(re' ISS;:: @o6 the fore!los(re sale $as valid despite la!# of p(bli!ation SC: 61K - A!t 3134% 5overnin5 :JF of ort5a5es on real property is spe!ifi! $ith re5ard to the postin5 and p(bli!ation re/(ire ents of the noti!e of sale% $hi!h re/(ires: o )ostin5 of noti!es of sale in 3 p(bli! pla!es o )(bli!ation of the sa e in a ne$spaper of 5eneral !ir!(lation' o FAI&;<: T1 );"&IS7 the noti!e of sale !onstit(tes a j(risdi!tional defe!t% $hi!h I68A&I>AT:S the sale' - <:: @AI8:< 1F );"&ICATI16 <:Q;I<:=:6TS o )6" and < have absol(tely 61 <IG7T to $aive the postin5 and p(bli!ation re/(ire ents of the la$' o The prin!ipal obje!t of a noti!e of sale in a fore!los(re of ort5a5e is not so (!h to notify the ort5a5or as to infor the p(bli! 5enerally of the nat(re and !ondition of the property to be sold% and of the ti e% pla!e and ter s of the sale - 6oti!e is 5iven to se!(re bidders and prevent a sa!rifi!e of the property - Stat(tory re/(ire ent of )(bli!ation is andatory not for the ort5a5orHs benefit% b(t for the p(bli! or 3rd persons'

)6" v S)1;S:S CA"ATI6GA6 #A"TS@ 1D <espondent spo(ses Cabatin5an obtained t$o loans% se!(red by a real estate ort5a5e% in the total a o(nt of )4*1%*22 fro petitioner )6"' They $ere (nable to f(lly pay their obli5ation despite havin5 been 5ranted ore than eno(5h ti e to do so' *D Th(s% )6" e0traj(di!ially fore!losed on the ort5a5e' Thereafter% a noti!e of e0traj(di!ial sale $as iss(ed' )(rs(ant to this% the properties $ere sold at p(bli! a(!tion on 6ove ber 4% 1991' )6" $as the hi5hest bidder' 3D 1n =ar!h 1-% 1993% respondent spo(ses filed in the <TC a !o plaint for ann(l ent of e0traj(di!ial fore!los(re of real estate ort5a5e and the 6ove ber 4% 1991 a(!tion sale' 4D )etitioners !lai ed that the provisions of ACT no' 3134 (st be observed stri!tly' Th(s% be!a(se the p(bli! a(!tion of the fore!losed properties $as held for only *2 in(tes Cinstead of seven ho(rs as re/(ired by la$D% the !onse/(ent sale $as void' Th(s% the <TC iss(ed an order ann(llin5 the sale at p(bli! a(!tion' ISSUE@ @hether a sale at p(bli! a(!tion% to be valid% (st be !ond(!ted the /hole day fro 9:22 a' ' (ntil 4:22 p' ' of the s!hed(led a(!tion day' $ELD@ AD Se!tion 4 of A!t 3134 provides that the sale (st ta#e pla!e bet$een the ho(rs of nine in the ornin5 and fo(r in the afternoon' "D A !reditor ay fore!lose on a real estate ort5a5e only if the debtor fails to pay the prin!ipal obli5ation $hen it falls d(e' "(t the fore!los(re of a ort5a5e does not e0tin5(ish a debtorHs obli5ation to his !reditor' The pro!eeds of a sale at p(bli! a(!tion ay not be s(ffi!ient to e0tin5(ish the liability of the for er to the latter' For this reason% Se!tion 4 of A!t 3134 sho(ld be !onstr(ed in s(!h a $ay that affords the !reditor 5reater opport(nity to satisfy his !lai $itho(t (nd(ly re$ardin5 the debtor for not payin5 his j(st debt' CD The $ord Ibet$eenJ ordinarily eans Iin the ti e interval that separates'J Th(s% Ibet$een the ho(rs of nine in the ornin5 and fo(r in the afternoonJ erely provides a ti e fra e $ithin $hi!h an a(!tion sale ay be !ond(!ted' Therefore% a sale at p(bli! a(!tion held $ithin the intervenin5 period provided by la$ is valid% $itho(t re5ard to the d(ration or len5th of ti e it too# the a(!tioneer to !ond(!t the pro!eedin5s' Sin!e it $as !ond(!ted $ithin the ti e fra e provided by la$% the sale $as valid'

S:CT<A6S *212E ATTF' AG;I6A&>1

,4

=16Y16 v <:&18A >1CT<I6:: Any person havin5 a lien on the property s(bse/(ent to the ort5a5e or deed of tr(st (nder $hi!h the property is sold% ay redee the sa e at any ti e $ithin the ter of one year fro and after the date of sale' :ven if% for the sa#e of ar5( ent% <(le -+ is to be applied to e0traj(di!ial fore!los(re of ort5a5es% s(!h ri5ht !an only be 5iven to se!ond ort5a5ees $ho are ade parties to the Cj(di!ialD fore!los(re' @hile a se!ond ort5a5ee is a proper and in a sense even a ne!essary party to a pro!eedin5 to fore!lose a first ort5a5e on real property% he is not an indispensable party% be!a(se a valid de!ree ay be ade% as bet$een the ort5a5or and the first ort5a5ee% $itho(t re5ard to the se!ond ort5a5ee3 b(t the !onse/(en!e of a fail(re to a#e the se!ond ort5a5ee a party to the pro!eedin5 is that the lien of the se!ond ort5a5ee on the e/(ity of rede ption is not affe!ted by the de!ree of fore!los(re' SAG;A6 v )"C1= Fa!ts: Sa5(an obtained a loan of 3= fro )"C and ort5a5ed his 4 lands' Sa5(an defa(lted' )"C e0traj(di!ially fore!losed the property and $on as the hi5hest bidder in the a(!tion sale' "e!a(se Sa5(an failed to redee % the properties $ere !onsolidated in the na e of )"C $hi!h later on filed a $rit of possession' Sa5(an filed an opposition sin!e )"C failed to ret(rn the e0!ess a o(nt of the e0traj(di!ial fore!los(re sale' )"C points to Sa5(anHs re ainin5 (nse!(red obli5ations $ith the for er to $hi!h the e0!ess or s(rpl(s pro!eeds $ere applied'

the trial !o(rt to 5rant a $rit of possession in s(!h instan!es is inisterial% and the !o(rt ay not e0er!ise dis!retion or j(d5 ent' :ven if the e0!ess pro!eeds $ere not ret(rned to the petitioner% the $rit is still valid'

A party ay file a petition to set aside the fore!los(re sale to !an!el the $rit of possession in the sa e pro!eedin5 $here the $rit $as re/(ested' 7o$ever% in this !ase% petitioners do not !hallen5e the validity of the fore!los(re only the !ontention that the e0!ess pro!eeds $ere not ret(rned to the '

*D 6o' The fore!los(re of petitionerHs properties $as eant to ans$er only the obli5ation se!(red by the ort5a5e' :ven if the petitioners have re ainin5 obli5ations $ith the respondent% these obli5ations $ere not !ollateraliPed by the fore!losed ort5a5e' The petitionersH re edy lies in a separate !ivil a!tion for !olle!tion of a s( of oney and not an a!tion to set aside the fore!los(re sale' S;IC1 v CA Q;I<I61 G16YA&:S v CA Fa!ts: )etitioners applied for !redit a!!o odations $ith respondent ban#% $hi!h the ban# approved 5rantin5 a !redit line of )hp922%222'22' )etitionerHs obli5ations $ere se!(red by a real estate ort5a5e on fo(r par!els of land' Also% petitioners had ade !ertain advan!es in separate transa!tions fro the ban# in !onne!tion $ith QG&CHs e0portation of lo5s and e0e!(ted a pro issory note in 19-4' >(e to petitionerHs lon5 defa(lt in the pay ent of their obli5ations (nder the !redit line% the ban# fore!losed the ort5a5e and sold the properties !overed to the hi5hest bidder in the a(!tion' <espondent ban#% alle5in5 non9 pay ent of the balan!e of QG&CHs obli5ation after the pro!eedin5s of the fore!los(re sale $ere applied and non9pay ent of pro issory notes despite repeated de ands% filed a !o plaint for s( of oney a5ainst petitioners' )etitioners% on the other hand% asserted that the !o plaint states no !a(se of a!tion and ass( in5 that it does% the sa e is barred by pres!ription or void for $ant of !onsideration' Iss(e: @hether or not the !a(se of a!tion is barred by pres!ription' 7eld: An a!tion (pon a $ritten !ontra!t% an obli5ation !reated by la$% and a j(d5 ent (st be bro(5ht $ithin 12 years fro the ti e the ri5ht of a!tion a!!r(es' The findin5 of the trial !o(rt that ore than ten years had elapsed sin!e the ri5ht to brin5 an a!tion on the "an#Hs

Iss(e: 1D @16 the $rit of possession sho(ld be iss(edG *D @16 )"C ay (nilaterally apply the e0!ess pro!eeds to petitionerHs re ainin5 (nse!(red obli5ationsG 7eld: 1D Fes' A $rit of possession is an order enfor!in5 a j(d5 ent to allo$ a personHs re!overy of possession of real or personal property' This $rit ay be iss(ed either 1D $ithin the one9year rede ption period% (pon filin5 of the bond% *D after the lapse of the rede ption period% $itho(t the need of a bond' In this !ase% the iss(an!e of <TC of a $rit of possession in favor of )"C is proper sin!e the rede ption period has already e0pired' The d(ty of

S:CT<A6S *212E ATTF' AG;I6A&>1

,-

first to si0th !a(ses had arisen is not disp(ted' The "an# !ontends% ho$ever% that the noti!es of fore!los(re sale in the fore!los(re pro!eedin5s of 19-4 are tanta o(nt to for al de ands (pon petitioners for the pay ent of their past d(e loan obli5ations $ith the "an#3 hen!e% said noti!es of fore!los(re sale interr(pted the r(nnin5 of the pres!riptive period' The "an#Hs !ontention has no erit' )res!ription of a!tions is interr(pted $hen they are filed before the !o(rt% $hen there is a $ritten e0traj(di!ial de and by the !reditors% and $hen there is any $ritten a!#no$led5 ent of the debt by the debtor' The la$ spe!ifi!ally re/(ires a $ritten e0traj(di!ial de and by the !reditor $hi!h is absent in the !ase at bar' The !ontention that the noti!es of fore!los(re are tanta o(nt to a $ritten e0traj(di!ial de and !annot be appre!iated% the !ontents of said noti!es not havin5 been bro(5ht to li5ht' "(t even ass( in5 that the noti!es interr(pted the r(nnin5 of the pres!riptive period% the ar5( ent $o(ld still not lie for the follo$in5 reasons: The "an# see#s the re!overy of the defi!ient a o(nt of the obli5ation after the fore!los(re of the ort5a5e' S(!h s(it is in the nat(re of a ort5a5e a!tion be!a(se its p(rpose is to enfor!e the ort5a5e !ontra!t' A ort5a5e a!tion pres!ribes after ten years fro the ti e the ri5ht of a!tion a!!r(ed' The la$ 5ives the ort5a5ee the ri5ht to !lai for the defi!ien!y res(ltin5 fro the pri!e obtained in the sale of the property at p(bli! a(!tion and the o(tstandin5 obli5ation pro!eedin5s' In the present !ase% the "an#% as ort5a5ee% had the ri5ht to !lai pay ent of the defi!ien!y after it had fore!losed the ort5a5e in 19-4' as it filed the !o plaint only on Jan(ary *,% 19,,% ore than ten years had already elapsed% hen!e% the a!tion had then pres!ribed' )IA61 v CAFA616G FACTS: 1n =ar!h 1,% 194*% the plaintiffs !o en!ed an a!tion to fore!lose a ort5a5e e0e!(ted by the defendant in favor of the plaintiffs (pon a par!el of land' The parties9liti5ant s(b itted a !o pro ise a5ree ent' The defendant failed to pay the obli5ation $ithin the period set by the Co(rt3 so the property in /(estion $as sold at p(bli! a(!tion on Jan' 32% 194*Csho(ld be 1943D per order of the !o(rt% by the dep(ty sheriff of =aasin% &eyte% to the plaintiffs% they bein5 the only bidders for )*%4,4' The !ertifi!ate of sheriff?s sale !ontained the provision that the said property is s(bje!t Bto rede ption $ithin one year fro the date hereof in the anner provided by the la$ appli!able to the !ase'B 1n =ar!h 11% 1943% the plaintiffs filed a otion for the !onfir ation of the sale e0e!(ted by the sheriff% $hi!h $as (nopposed by the defendant' The sale $as !onfir ed by the Co(rt on =ar!h *1% 1943' Thereafter% the plaintiffs filed a petition for $rit of possession3 by virt(e of s(!h petition the !o(rt adj(di!ated possession to the plaintiffs on A(5' 14%

1943' 1n A(5' *2% 1943% the dep(ty !ler# iss(ed the $rit of possesion prayed for by the plaintiffs' 1n Jan' *-% 1944% the defendant deposited $ith the !o(rt the s( of )*%,+3'93% )*%,,* of $hi!h $as in the !on!ept of rede ption deposit to be delivered to Generosa Cayanon5 and her h(sband' The oppositor Fran!is!o )ilapil% on Feb' 11% 1944% filed an opposition to the defendants? otion of Jan' *-% 1944% !lai in5 that the property% s(bje!t of fore!los(re% havin5 been sold at a j(di!ial fore!los(re sale% $as not s(bje!t to rede ption after the j(di!ial sale $as !onfir ed% title thereto havin5 been f(lly vested and !onsolidated in favor of Cayanon5 and "ellones% their assi5nees and s(!!essors9in9interest' ISS;:: @hether the property s(bje!t of fore!los(re% havin5 been sold at a j(di!ial fore!los(re sale is s(bje!t to rede ption after the j(di!ial sale $as !onfir ed' <;&I6G: In a fore!los(re of ort5a5e (nder <(le ,2 of the <(les of Co(rt% there is no ri5ht of rede ption after the sale is !onfir ed% altho(5h there is an e/(ity of rede ption in favor of the ort5a5or or j(nior en!( bran!er% !onsistin5 in the ri5ht to redee the ort5a5ed property $ithin the 929day period% or even thereafter% b(t before the !onfir ation of the sale' It is only in !ases of fore!los(res of ort5a5es in favor of ban#in5 and !redit instit(tions CSe!' ,-% General "an#in5 A!t U<ep' A!t 33,[D% to the )hilippine 6ational "an# CA!ts 6os' *,4,% and *93+D% and in e0traj(di!ial fore!los(res CA!t 3134 as a ended by A!t 411+D% $here% by e0press provision% the la$ allo$s rede ption' In all other fore!los(re !ases% there is no le5al rede ption' The sheriff% therefore% has no a(thority to 5rant or insert a period of rede ption in the !ertifi!ate of sale% $hen the sa e is !ond(!ted p(rs(ant to <(le ,2 and% $antin5 in said a(thority% any insertion therein has no validity and effe!t' 1n!e the j(di!ial sale is !onfir ed by the !o(rt% the ri5hts are vested in the p(r!haser CSe!' 3% <(le ,2D'

&A6><IT1 v CA FACTS: ) obtained a loan of )342# fro < and se!(red pay ent by e0e!(tin5 a deed of real estate ort5a5e of their par!el of land at =(ntinl(pa3 obtained a5ain another loan ) 1 ill and $as 5ranted by < $ith an a end ent of real estate ort5a5e ) defa(lted and ref(sed to !o ply $ith their obli5ation despite repeated de ands < filed a petition for the e0traj(di!ial fore!los(re of the ort5a5e' =ort5a5ed property $as sold in a p(bli! a(!tion $ith < as hi5hest bidder' < re5istered sheriffHs !ertifi!ate of sale'

S:CT<A6S *212E ATTF' AG;I6A&>1

,,

) filed a !o plaint for ann(l ent of the e0traj(di!ial fore!los(re and a(!tion sale and alle5ed that said fore!los(re and a(!tion sale $ere n(ll and void for fail(re to !o ply $ith re/(ire ents of noti!e and p(bli!ation3 the ort5a5ed property $as ille5ally fore!losed3 appli!ation for !onsolidation of title $as pre at(re be!a(se the <Hs 7(sband 5ranted the an e0tension of the period of rede ption TC S 5ranted <Hs =otion to >is iss3 a!tion already barred by la!hes' CA affir ed

ISS;:: @16 the e0traj(di!ial fore!los(re and p(bli! a(!tion sale of the s(bje!t par!el of land are valid and la$f(lG 7:&>: F:S <e!ords ind(bitably sho$ that at the ti e of the fore!los(re sale on 11 A(5(st 1993% petitioners $ere already in defa(lt in their loan obli5ation to respondent Car en!ita San >ie5o' A final noti!e of de and for pay ent had been sent to the % despite $hi!h they still failed to pay' 7en!e% respondent Car en!ita San >ie5oHs resort to e0traj(di!ial fore!los(re% provided no less in the partiesH I $mendment of &eal 'state "ortgageJ' The r(le has been% and still is% that in real estate ort5a5e% $hen the prin!ipal obli5ation is not paid $hen d(e% the ort5a5ee has the ri5ht to fore!lose on the ort5a5e and to have the ort5a5ed property seiPed and sold $ith the vie$ of applyin5 the pro!eeds thereof to the pay ent of the obli5ation I6 T7IS CAS:: The validity of the e0traj(di!ial fore!los(re on 11 A(5(st 1993 $as virt(ally !onfir ed by the trial !o(rt $hen it dis issed petitionersH !o plaint% and ri5htly so% $hat $ith the fa!t that petitioners failed to e0er!ise their ri5ht of rede ption $ithin the 19year period therefor !o(nted fro the re5istration of the sheriffHs !ertifi!ate of sale' It appears fro the eviden!e on re!ord that despite d(e noti!e and p(bli!ation of the sa e in a ne$spaper of 5eneral% ) did not bother to attend the fore!los(re sale nor raise any /(estion re5ardin5 the propriety of the sale' It $as only on 6ove ber 9% 1994% or ore than one year fro the re5istration of the SheriffHs Certifi!ate of Sale% that ) filed the instant !o plaint' Clearly% ) had slept on their ri5hts and are therefore 5(ilty of la!hes% $hi!h is defined as the fail(re or ne5le!t for an (nreasonable or e0plained len5th of ti e to do that $hi!h% b6 e5erc(-()0 /3e /(&(0e)ce% !o(ld or sho(ld have been done earlier% fail(re of $hi!h 5ives rise to the pres( ption that the person possessed of the ri5ht or privile5e has abandoned or has de!lined to assert the sa e' In ,a<o v. &epu+lic *urety K %nsurance )o., %nc.% this Co(rt has ade it !lear that it is only $here%

by vol(ntary a5ree ent of the parties% !onsistin5 of e0tensions of the rede ption period% +o&&o4e/ b6 comm(*me)* b6 *2e /eb*or *o %'6 *2e re/em%*(o) %r(ce '* ' +(5e/ /'*e% $ill the !on!ept of le5al rede ption be !onverted into one of !onventional rede ption' I6 T7IS CAS:: There is no sho$in5 $hatsoever that petitioners a5reed to pay the rede ption pri!e on or before 11 6ove ber 1994% as alle5edly set by =rs' San >ie5oHs h(sband' 1n the !ontrary% their a!t of filin5 their !o plaint on 29 6ove ber 1994 to de!lare the n(llity of the fore!los(re sale is indi!ative of their ref(sal to pay the rede ption pri!e on the alle5ed deadline set by the h(sband' At the very least% if they so believed that their loan obli5ation $as only for )1%222%222'22% petitioners sho(ld have ade an offer to redee $ithin one C1D year fro the re5istration of the sheriffHs !ertifi!ate of sale% to5ether $ith a tender of the sa e a o(nt' This% they never did' =:T<1"A6M v TA6 I"AA6 <;<A& "A6M v CA

<A=I<:Y v CA FACTS: 1ne <onnie Gar!ia e0e!(ted a first ort5a5e over a par!el of land in favor of )6" as a se!(rity for a loan 5ranted by )6"' The deed $as re5istered $ith the <e5ister of >eeds and annotated in the title of the ort5a5ed property' >(rin5 the s(bsisten!e of the first ort5a5e% <onnie e0e!(ted a se!ond ort5a5e over the sa e property in favor of private respondent =ar eto $hi!h $as also re!orded on the title' For fail(re to pay his loan% )6" e0tra9j(di!ially fore!losed the ort5a5e and a Certifi!ate of Sale $as iss(ed in its favor on 6ov' +% 19,,' The se!ond ort5a5e $as also e0tra9j(di!ially fore!losed and a Certifi!ate of Sale $as iss(ed in favor of =ar eto on J(ne *,% 19,+' 1n Febr(ary 19+2% <onnie e0e!(ted a I@aiver and <en(n!iation of <i5htsJ $ith respe!t to his ri5ht of rede ption $ith respe!t to the first ort5a5e in favor of his father' The latter assi5ned his ri5ht to petitioner 6i fa <a ireP% $ho in t(rn paid the total rede ption pri!e to )6" $hi!h a!!epted it' =ean$hile% <onnie havin5 not e0er!ised his ri5ht of rede ption over the se!ond ort5a5e% =ar eto filed in !o(rt for the Consolidation of 1$nership over the ort5a5ed property to $hi!h petitioner <a ireP filed an adverse !lai ' ISS;:: 1' @hether <a ireP had a!/(ired any ri5ht by virt(e of her havin5 redee ed the property in /(estion beyond the one9year rede ption periodG *' @hat $ill be the effe!t of the rede ption by <a ireP on private respondent =ar etoG

S:CT<A6S *212E ATTF' AG;I6A&>1

,+

7:&>: 1' Fes% by a!!eptin5 the rede ption pri!e after the stat(tory period for rede ption had e0pired% )6" is !onsidered to have $aived the one C1D year period $ithin $hi!h <a ireP !o(ld redee the property' There is nothin5 in the la$ $hi!h prevents s(!h a $aiver' Allo$in5 a rede ption after the lapse of the stat(tory period% $hen the b(yer at the fore!los(re does not obje!t b(t even !onsents to the rede ption% $ill (phold the poli!y of the la$' Th(s% there is no do(bt that the rede ption ade by petitioner <a ireP is valid' *' The r(le is $ell settled that a se!ond ort5a5ee erely ta#es $hat is !alled an e/(ity of rede ption and th(s a se!ond ort5a5ee has to $ait (ntil after the debtor?s obli5ation to the first ort5a5ee has been f(lly settled' The ri5hts of a se!ond ort5a5ee are stri!tly s(bordinate to the s(perior lien of the first ort5a5ee' In the !ase at bar% the proper fore!los(re of the first ort5a5e 5ave% not only the first ort5a5or% b(t also s(bse/(ent lien holders li#e =ar eto% the ri5ht to redee the property $ithin the stat(tory period' =ar eto failed to a#e the rede ption b(t instead it $as the petitioner $ho ade s(!h rede ption' T1&:6TI61 v CA S)1;S:S 1&I8:<1S v )<:SI>I6G J;>G: FACTS: The ort5a5ors C)D obtained * loans for the !onstr(!tion of the Cab(yao Co er!ial Co ple0 for )4+= as eviden!ed by pro issory notes fro =etroban# C<D' To se!(re the loans% Spo(ses 1liveros and 6eval5a e0e!(ted a >eed of <eal :state =ort5a5e in favor of =etroban# over the 3 par!els of land to5ether $ith all the b(ildin5s and i prove ents e0istin5 thereon' >(e to the fail(re of ort5a5ors to pay their loan% =etroban# instit(ted an :JF over the <eal :state =ort5a5e' =etroban# $on the bid' =ort5a5ors failed to redee the property hen!e% =etroban# !onsolidated its title to the s(bje!t property' =etroban# de anded ) to t(rn over the a!t(al possession of the property b(t the ort5a5ors failed and ref(sed to do so' =etroban# filed a $rit of possession $hi!h the )etitioner Spo(ses opposed !lai in5 thata pendin5 !ase $as in another !o(rt for n(llifi!ation of fore!los(re pro!eedin5s' ISS;:: @o6 a $rit of possession is proper $hen there is a pendin5 !ase to n(llify the fore!los(re sale SC: F:SK - =etroban# p(r!hased the properties at a p(bli! a(!tion follo$in5 the :JF of the s(bje!t properties' Certifi!ate of sale over the properties $ere iss(ed in favor of =etroban# and re5istered $ith <>' ) as ort5a5ors failed to redee the properties $ithin the 1 year period of -

rede ption hen!e =etroban# !onsolidated its o$nership over the s(bje!t properties' =etroban# havin5 !onsolidated its title to the ort5a5ed properties is even ore entitled no$ to possession thereof and a#es ore (n ista#able its ri5ht to file an e0 parte otion for the iss(an!e of a $rit of possession' The iss(an!e of the $rit of possession be!o es a ere inisterial d(ty on the part of the j(d5e% re5ardless of @o6 there is a pendin5 a!tion for n(llifi!ation of the sale at p(bli! a(!tion or fore!los(re itself C7I6A "A6M v 1<>I6A<I1

#A"TS@ 1D )etitioner China"an# 5ranted 3 loans to TransA eri!an o$ned by spo(ses Gar!ia% se!(red by real estate ort5a5es !onstit(ted by Jes(s Gar!ia 44 par!els of land The !ontra!ts of ort5a5e $ere all re5istered in the sa e <e5istry' S(bse/(ently for fail(re of TransA eri!an to pay its loans% Chinaban# fore!losed e0traj(di!ially the three real estate ort5a5es $hi!h $ere then sold at p(bli! a(!tion for )3+%224%*24'21 to the sa e ban#' The Certifi!ate of Sale $as then re5istered in the <e5istry of >eeds of Q(ePon City' *D Thereafter Chinaban# filed $ith the <TC a petition for iss(an!e of a $rit of possession% $hi!h $as 5ranted% th(s pla!in5 Chinaban# in possession of the 44 par!els of land' Then% spo(ses 1rdinario% filed a otion for re!onsideration prayin5 that the par!el of land be e0!l(ded fro the above order alle5in5% that they p(r!hased the land !overed on $hi!h $as !onstr(!ted their to$nho(se and that the ort5a5e fore!los(re !annot prevail over their s(perior ri5ht as le5iti ate b(yers of the area' 3D To this% Chinaban# filed its opposition to respondentsH otion for re!onsideration' The trial !o(rt denied Sps 1rdinarioHs otion for re!onsideration' 1n appeal% this $as overt(rned by the CA' $ELD@ AD ;nder Se!tion , of A!t 6o' 3134% the p(r!haser in a fore!los(re sale is entitled to possession of the property' Th(s the $rit prayed for by petitioner 5rantin5 it possession has to be iss(ed '- ' m'**er o+ co3r-e% bein5 a m()(-*er('& /3*6 of the trial !o(rt to 5rant s(!h $rit of possession' No /(-cre*(o) (- &e+* +or *2e *r('& co3r*' "D ;nder the <(les of Co(rt a third9party !lai ant or a stran5er to the fore!los(re s(it% li#e respondents herein% !an opt to file a re edy #no$n as ter!eria a5ainst the sheriff or offi!er effe!tin5 the $rit by servin5 on hi an affidavit of his title and a !opy thereof (pon the j(d5 ent !reditor' "y the terceria% the offi!er shall not be bo(nd to

S:CT<A6S *212E ATTF' AG;I6A&>1

,9

#eep the property and !o(ld be ans$erable for da a5es' A third9party !lai ant ay also resort to an independent Bseparate a!tion%B the obje!t of $hi!h is the re!overy of o$nership or possession of the property seiPed by the sheriff% as $ell as da a5es arisin5 fro $ron5f(l seiP(re and detention of the property despite the third9party !lai ' If a Bseparate a!tionB is the re!o(rse% the third9party !lai ant (st instit(te in a for( of !o petent j(risdi!tion an a!tion% distin!t and separate fro the a!tion in $hi!h the j(d5 ent is bein5 enfor!ed% even before or $itho(t need of filin5 a !lai in the !o(rt that iss(ed the $rit' "oth re edies are !( (lative and ay be availed of independently of or separately fro the other' Avail ent of the terceria is not a !ondition sine qua non to the instit(tion of a Bseparate a!tion'B CD In essen!e% the Co(rt of Appeals !o itted palpable error $hen it 5ranted Spo(ses 1rdinarioHs otion for re!onsideration and set aside the orders dated April 12% 1991 and Septe ber *1% 199* of the <TC' Th(s% the appealed >e!ision and <esol(tion of the Co(rt of Appeals are RE:ERSED and SET ASIDE' The orders of the <TC% "ran!h 92% Q(ePon City% dire!tin5 the iss(an!e of a $rit of possession in favor of petitioner ban# are A##IRMED' ANTI"$RESIS

t$o brothers no$ dead% ea!h re!eivin5 one9ninth part' Alberto "arretto% !o plyin5 $ith the !ondition i posed in said do!( ent of the donation paid to ea!h of his brothers and nephe$s% and in e0!han5e for the s( s re!eived as s(!h pri!e his !o9donees assi5ned and !onveyed to hi one9ei5ht part of the third of the said ha!ienda and $hatever ri5hts and interests the 5rantors i5ht have by virt(e of the said donation in favor of the plaintiff "arretto' It is to be noted that the plaintiff bo(5ht one9ei5ht (ndivided part of the third of the $hole ha!ienda of "alinta5a! and paid to every !lai ant the pri!e of the ei5ht part sold to hi ' The third part of the o$nership of the ha!ienda $as transferred to the plaintiff by the donor G(adal(pe "arretto' Antonio and <i!ardo% as 5rantors% sold and !onveyed all their ri5hts and a!tions in!l(ded and derived fro the said hypothe!ary !redit for the pri!e of )14%222 $hi!h $o(ld be paid by the 5rantee and vendee by install ents and in the anner pres!ribed in the said deed% assi5nin5 to hi % besides% all the ri5hts $hi!h the said brothers had over the t$o9third parts of the said ha!ienda'

Iss(e: @16 there $as a transfer of o$nership to AlbertoG 7eld:

>:&A 8:GA v "A&&I&1S "A<<:TT1 v "A<<:TT1 Fa!ts: After the death of J(an Antonio "arretto% Sr'% his son J(an Antonio Grandpre% in his o$n behalf and as the e0e!(tor of his father% ort5a5ed% the !(ltivated half of said ha!ienda in favor of Antonio 8i!ente "arretto as se!(rity for the a o(nt of )11%222 $hi!h the latter loaned to hi ' "y verbal a5ree ent% Antonio $ill !olle!t his !redit fro the prod(!ts of the property' 7is three !hildren and heirs Antonio =a "arretto% <i!ardo :steban "arretto% and G(adal(pe "arretto !a e to s(!!eed after the death of Antonio' G(adal(pe ade a donation inter vivos in favor of the plaintiff Alberto "arretto of the (ndivided one9 third part of the hypothe!ary !redit and of the ri5hts belon5in5 to her de!eased father Antonio 8i!ente "arretto% assi5nin5 to the donee all the ri5hts and a!tions $hi!h she i5ht have in the fore!los(re pro!eedin5s e0hibited at the trial of the present a!tion% on the !ondition that as soon as the donee Alberto "arretto !o(ld !olle!t the said one9third part of the !redit or sho(ld obtain the assi5n ent of the property of the debtor% he $o(ld divide $hat $as donated% into nine e/(al parts a on5 the donee hi self and si0 livin5 brothers and the heirs of their

6o' the plaintiff did not obtain by assi5n ent% sale% or transfer% as e0pressed in said deeds% the o$nership of the said ha!ienda of "alinta5a!% b(t only the hypothe!ary !redit $hi!h the heirs of the de!eased !reditor Antonio 8i!ente "arretto had inherited fro the latter% after the plaintiff had obtained fro his other brothers the !onveyan!e of their respe!tive ri5hts to the donation'

The ri5hts a!/(ired by the !reditor $ere trans itted by hereditary title thro(5h operation of la$ to the heirs of the sa e Antonio ='a% <i!ardo :steban% and G(adal(pe% "arretto y <o!ha and these in t(rn assi5ned% sold and transferred the !redit $ith all their ri5hts as hypothe!ary !reditors% as $ell as the ri5ht to the (s(fr(!t of all the ha!ienda of "alinta5a! to the plaintiff Alberto "arretto'

@hen in the re!ord of an a!tion it is f(lly established that the parties indebted in a !ertain a o(nt% $hi!h is se!(red $ith a ort5a5e over ] of their ha!ienda% havin5 delivered to the !reditor not only the ort5a5ed half b(t the $hole ha!ienda% not in the nat(re of an assi5n ent of property in pay ent of a debt% still (npaid% b(t $ith the obje!t that the !reditor ay !olle!t by eans of (s(fr(!t his !redit and the interest a5reed (pon% the

S:CT<A6S *212E ATTF' AG;I6A&>1

+2

verbal !ontra!t $hi!h is inferred fro s(!h fa!ts and pres( ed to have been entered into bet$een the parties% altho(5h not set in any do!( ent% deserves in la$ the na e of anti!hresis as defined in Arti!le 1++1 of the Civil Code'

ri5ht on the lot (pon $hi!h it stands C:0hibit AD' This $as payable on 1!tober *,% 19*4% b(t% in spite of nonpay ent% the !reditor% $ho is the plaintiff herein% did not fore!lose the ort5a5e' The defendant $as leavin5 the City of =anila in order to attend to his b(siness in the )rovin!e of Ca5ayan% and at the spe!ial instan!e and re/(est of the herein plaintiff% said defendant 5ave to the plaintiff the f(ll !ontrol% and !o plete and absol(te ad inistration of the b(ildin5 and the par!el of land on $hi!h said b(ildin5 $as ere!ted% sit(ated in Santa =esa% >istri!t of Santa =esa% ort5a5ed to the plaintiffIt and it $as a5reed bet$een the that the plaintiff $o(ld !olle!t the rents of said ho(se% in order to apply the to the pay ent of interest on the a o(nt of the indebtedness' For defa(lt in the pay ent of ta0es for the years 19*4 and 19*-% the ho(se $as on 6ove ber *3% 19*- sold at p(bli! a(!tion% and% for fail(re to e0er!ise the ri5ht of le5al rede ption% the City of =anila% the atta!h ent !reditor and vendor of the property% e0e!(ted a final deed of sale in favor of the p(r!haser% the other defendant =assy Tea5(e' F(rther ore% for defa(lt in the pay ent of the rents d(e on the lot of said ho(se for the years 19*4 to 19*+% the Santa =esa estate% the lessor of said land% !an!elled the lease on J(ly 13% 19*+% p(rs(ant to the ter s of the !ontra!t' The appellant Gi eneP !ontends that the plaintiff $as responsible for the delin/(en!y in the pay ent of both the ta0 on the ho(se and the rent of the lot% $hi!h !a(sed hi the loss of the said ho(se and the leasehold ri5ht on the lot% be!a(se the plaintiff $as at that ti e in !har5e of the ad inistration of the pre ises $ith the obli5ation to attend to the pay ent of the ta0 and the rents' The plaintiff denied that he had s(!h obli5ation% alle5in5 that his d(ties $ere !onfined to the !olle!tion of the rents of the ho(se in order to apply the to the pay ent of the interest on the ort5a5e' S(!h $as in fa!t the ori5inal a5ree ent3 b(t the appellant asserts that it $as odified by the letter'

"y the anti!hresis a !reditor a!/(ires a ri5ht to re!eive the fr(its of real property of his debtor% $ith the obli5ation to apply the to the pay ent of the interest% if d(e% and after$ards to the prin!ipal of his !redit'

The !reditor in anti!hresis !annot by ere possession of the real property $hi!h he re!eived by virt(e of an anti!hresis a!/(ire o$nership over the sa e for fail(re of the debtor to pay the debt $ithin the stip(lated ti e% any a5ree ent to the !ontrary bein5 void3 and the debtor on his part !annot re!over the enjoy ent and (se of the real property 5iven in anti!hresis to the !reditor% $itho(t havin5 previo(sly paid the latter all his debt and interests thereon% the !reditor bein5 entitled to as# the !o(rts that the said real property be sold to satisfy his !redit'

@ith re5ard to pres!ription% the !reditor in anti!hresis !an never by pres!ription a!/(ire the o$nership of the real property re!eived in anti!hresis% as he entered into the possession of the sa e not as an o$ner b(t as a !reditor $ith ri5ht only to !olle!t his !redit fro the fr(its of said real property'

The e0tin5(ish ent of the ri5ht as !reditor and the ter ination of his (se and possession of the real property 5iven in anti!hresis depend (pon the f(ll pay ent of the debt and its interests% after the li/(idation of the a o(nts entered on the a!!o(nt of the debtors and re!eived by the !reditor' &:GAY)I N SA&C:>1 v C:&:STIA& A6G:&:S v S:C' 1F J;STIC: )A6>1 v GI=:6:Y #A"TS@ This a!tion $as instit(ted for the p(rpose of fore!losin5 a ort5a5e e0e!(ted by defendant Antonio Gi eneP' =assy Tea5(e $as also i pleaded for havin5 p(r!hased at p(bli! a(!tion one of the ort5a5ed properties' In order to se!(re the pay ent of )+%222 $hi!h the defendant Gi eneP o$ed the plaintiff% he ort5a5ed the ho(se at 6o' -44 Santa =esa% =anila% and the leasehold

ISSUE@ @hether or not the the ad inistration of the property in /(estion ass( ed by the plaintiff to$ard the end of 1!tober% 19*4 is anti!hreti! in !hara!ter' RULING@ Ta#in5 into a!!o(nt the lan5(a5e of the letter :0hibit 1 and the appellant?s (ni pea!hed testi ony% $e are !onstrained to hold that it has been proved by a preponderan!e of eviden!e% that even tho(5h at first the plaintiff had only (nderta#en to !olle!t the rents of the

S:CT<A6S *212E ATTF' AG;I6A&>1

+1

ho(se% later on% to$ards the end of 1!tober% 19*4% he ass( ed the obli5ation to pay both the ta0 on the ho(se% and the rent of the lot' As to the !onsideration !ontained in the j(d5 ent appealed fro to the effe!t that% in vie$ of the red(!tion of the rent of the ho(se in =ay% 19*-% the plaintiff $o(ld not have a!!epted the ad inistration (nder the !onditions alle5ed by the defendant9appellant% it (st be re e bered that the plaintiff too# over s(!h !o plete ad inistration onths before s(!h red(!tion of rents% and it does not appear that the red(!tion $as foreseen' Fro all these !ir!( stan!es it follo$s that the ad inistration of the property in /(estion ass( ed by the plaintiff to$ard the end of 1!tober% 19*4 is anti!hreti! in !hara!ter% and therefore j(sti!e and e/(ity de and that appli!ation be here ade of the Civil Code provisions to(!hin5 the obli5ations of the anti!hreti! !reditor% to $it: The !reditor is obli5ed to pay the ta0es and !har5es $hi!h b(rden the estate% in the absen!e of an a5ree ent to the !ontrary' 7e shall also be obli5ed to pay any e0penses ne!essary for its preservation and repair' Any s( s he ay e0pend for s(!h p(rposes shall be !har5eable a5ainst the fr(its' CArt' 1++*% Civil Code'D These obli5ations arise fro the very nat(re of the !ovenant% and are !orrelated $ith the plaintiff?s a!/(ired ri5ht to ta#e !har5e of the property and !olle!t the fr(its for hi self'

;pon iss(an!e of the 6oti!e of SheriffHs sale% private respondent filed a otion in !o(rt to enjoin the p(bli! a(!tion alle5in5 that the properties have been previo(sly levied and atta!hed by the Sheriff of <iPal' =etroban# is a !reditor of Gen!orHs president and !lai s the properties as the e0!l(sive property of the president doin5 b(siness (nder the fir na e of Gen!or )rintin5 and as s(!h ay not be fore!losed and sold at a(!tion' >(rin5 the trial it $as ad itted by petitioner that the properties belon5ed to the president and not to Gen!or' ISS;:: @71 bet$een the t$o !lai ants has a better ri5ht over the property' 7:&>: )etitioner has the better ri5ht' :ven tho(5h petitioner ad itted that it $as the president and not 5en!or $ho o$ned the properties% the Co(rt nevertheless finds that the !hattel ort5a5e over the printin5 a!hineries and e/(ip ent $as ratified and approved by Claren!io F(j(i!o' As earlier stated and as pointed o(t by petitioner% it $as Claren!io F(j(i!o as president of Gen!or =ar#etin5% In!'% $ho si5ned the pro issory note eviden!in5 the ti e loan 5ranted by petitioner?s prede!essor General "an# and Tr(st Co pany in favor of Gen!or =ar#etin5% In!' Findin5 the !hattel ort5a5e to be valid% the Co(rt ta#es spe!ial note of the fa!t that said !hattel ort5a5e $as re5istered and d(ly re!orded in the Chattel =ort5a5e <e5istry of Q(ePon City on Febr(ary ,% 19,4% prior to April **% 19,,% the date the $rit of atta!h ent of the properties in /(estion $as iss(ed' This is a si5nifi!ant fa!tor in deter inin5 $ho of t$o !ontendin5 !lai ants sho(ld be 5iven preferen!e over the sa e properties in /(estion' The re5istration of the !hattel ort5a5e ore than three years prior to the $rit of atta!h ent iss(ed by respondent j(d5e is an effe!tive and bindin5 noti!e to other !reditors of its e0isten!e and !reates a real ri5ht or a lien% $hi!h bein5 re!orded% follo$s the !hattel $herever it 5oes' 1 The !hattel ort5a5e lien atta!hes to the property $herever it ay be' Th(s% private respondent as atta!hin5 !reditor a!/(ired the properties in /(estion s(bje!t to petitioner?s ort5a5e lien as it e0isted thereon at the ti e of the atta!h ent' In this re5ard% it (st be stressed that the ri5ht of those $ho so a!/(ire said properties sho(ld not and !annot be s(perior to that of the !reditor $ho has in his favor an instr( ent of ort5a5e e0e!(ted $ith the for alities of la$% in 5ood faith% and $itho(t the least indi!ation of fra(d' ? Applyin5 the fore5oin5 prin!iple to the !ase at bar% the Co(rt finds the lien of petitioner?s !hattel ort5a5e over the ort5a5ed properties in /(estion s(perior to the levy on atta!h ent ade on the sa e by private respondent as !reditor of !hattel ort5a5or Claren!io F(j(i!o' @hat ay be atta!hed by private respondent as !reditor of

):<A&TA v Q;I=)1 1 OG No. 3 %. 13?3, Se%* 19 4 61 C1)F A8AI&A"&: 8I&&A6;:8A v I)16>1 "$ATTEL MORTGAGE

A&:=A6 v CAT:<A A&&I:> "A6M v SA&AS FACTS: )etitioner9ban# Cthro(5h petitionerHs prede!essorD 5ranted Gen!or =ar#etin5% In!' a ti e loan and $as se!(red by a >eed of Chattel =ort5a5e over !ertain printin5 a!hineries and e/(ip ents3 said deed $as re!orded in the Chattel =ort5a5e <e5istry in Feb' ,% 19,4' Gen!or failed to pay pro ptin5 petitioner to e0tra j(di!ially fore!lose the ort5a5e and re/(ested the Sheriff of Q(ePon City to effe!t the said fore!los(re'

S:CT<A6S *212E ATTF' AG;I6A&>1

+*

said !hattel ort5a5or is only the e/(ity or ri5ht of rede ption of the ort5a5or' =AMATI &:ASI6G v @:A<:8:< T:ZTI&:S TSAI v CA FACTS: - :ver Te0tile C<D obtained a )3= loan fro )"C1= C)D% $ith <eal )roperty and Chattel =ort5a5e over the lot% $here its fa!tory stands and the !hattels lo!ated therein as en( erated in its atta!hed s!hed(le - A *nd loan $as obtained se!(red by a Chattel =ort5a5e over personal properties listed in its atta!hed list% $hi!h is si ilar to the atta!hed list to the 1st ort5a5e' - 1n the sa e date of the * nd loan% < p(r!hased vario(s a!hines and e/(ip ents - &ater% < filed insolven!y pro!eedin5s - ) !o en!ed an e0traj(di!ial fore!los(re C:JFD% $herein ) $on the bid and the properties $ere leased and later sold to Tsai' ) sold the fa!tory% properties and the !ontested a!hineries of <' - < filed for ann(l ent of sale !ontendin5 that the a!hineries bo(5ht by < $hi!h are not in!l(ded in the list sho(ld be e0!l(ded fro the sale to TSAI - ) !ontended that the a!hineries% $hi!h are !onne!ted to the land% are part of the real estate stated in the =ort5a5e' - <TC and CA r(led in favor of <' ISS;:: @o6 the !ontested a!hineries Cproperty bo(5ht by < on the sa e day that the * nd loan $as e0e!(tedD sho(ld be inl!l(ded in the a(!tion sale and sale to TSAI SC: 61K - "ased on the pie!es of eviden!e% the tr(e intention of ) and < is to treat a!hinery and e/(ip ent as !hattels' - The !ontroverted a!hineries are not !overed by or in!l(ded in either of the * ort5a5es - The a!hineries $ere not in!l(ded in the 6oti!e of Sale - An i ovable ay be !onsidered a personal property if there is a stip(lation as $hen it is (sed as se!(rity in the pay ent of an obli5ation $here a !hattel ort5a5e is e0e!(ted over it% as in the !ase at bar' >1CT<I6:: a !hattel ort5a5e shall be dee ed to !over only the property des!ribed therein and not li#e or s(bstit(ted property thereafter a!/(ired by the ort5a5or and pla!ed in the sa e depository as the property ori5inally ort5a5ed' AC=: S71: v CA #A"TS@

1D )etitioner Ch(a )a!% the president and 5eneral ana5er of !o9petitioner A! e Shoe% e0e!(ted on J(ne 19,+% for and in behalf of the !o pany% a !hattel ort5a5e in favor of private respondent )rod(!ers "an# of the )hilippines as se!(rity for petitioner?s !orporate loan of )3%222%222'22' It $as stated that: =%n case the " &TL$L & executes su+sequent promissory note or notes either as a rene/al of the former note, as an extension thereof, or as a ne/ loan, or is given any other Aind of accommodations such as overdrafts, letters of credit, acceptances and +ills of exchange, releases of import shipments on Trust &eceipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes andMor accommodations /ithout the necessity of executing a ne/ contract and this mortgage shall have the same force and effect as if the said promissory note or notes andMor accommodations /ere existing on the date thereof. This mortgage shall also stand as security for said o+ligations and any and all other o+ligations of the " &TL$L & to the " &TL$L'' of /hatever Aind and nature, /hether such o+ligations have +een contracted +efore, during or after the constitution of this mortgage@ *D 1n 12 and 11 Jan(ary 19+4% the ban# yet a5ain e0tended to petitioner !orporation a loan of )1%222%222'22 !overed by fo(r pro issory notes for )*42%222'22 ea!h' >(e to finan!ial !onstraints% the loan $as not settled at at(rity' The ban# then applied for an e0tra j(di!ial fore!los(re of the !hattel ort5a5e% $ith the Sheriff of pro ptin5 A! e to file an inj(n!tion% $hi!h $as dis issed' The !o(rt also ordered the fore!los(re of the !hattel ort5a5e' It held petitioner !orporation bo(nd by the stip(lations'

ISSUE@ @hether it is valid and effe!tive to have a !la(se in a !hattel ort5a5e that p(rports to li#e$ise e0tend its !overa5e to obli5ations yet to be !ontra!ted or in!(rred' $ELD@ AD Contra!ts of se!(rity are either personal or real' In !ontra!ts of personal se!(rity% s(!h as a 5(aranty or a s(retyship% the faithf(l perfor an!e of the obli5ation by the prin!ipal debt or is se!(red by the personal !o it ent of another' "D In !ontra!ts of real se!(rity% s(!h as a pled5e% a ort5a5e or an anti!hresis% that f(lfill ent is se!(red by an encum+rance of property A in pled5e% the pla!in5 of ovable property in the possession of the !reditor3 in !hattel ort5a5e% by the e0e!(tion of the !orrespondin5 deed s(bstantially in the for pres!ribed by la$3 in real estate mortgage% by the e0e!(tion of a p(bli! instr( ent en!( berin5 the real property !overed thereby3 and in antichresis% by a $ritten instr( ent 5rantin5 to the

S:CT<A6S *212E ATTF' AG;I6A&>1

+3

!reditor the ri5ht to re!eive the fr(its of an i ovable property $ith the obli5ation to apply s(!h fr(its to the pay ent of interest% if o$in5% and thereafter to the prin!ipal of his !redit A (pon the essential !ondition that if the obli5ation be!o es d(e and the debtor defa(lts% then the property en!( bered !an be alienated for the pay ent of the obli5ation% b(t that sho(ld the obli5ation be d(ly paid% then the !ontra!t is a(to ati!ally e0tin5(ished pro!eedin5 fro the a!!essory !hara!ter ? of the a5ree ent' CD @hile a pled5e% real estate ort5a5e% or anti!hresis ay se!(re after9in!(rred obli5ations so lon5 as these f(t(re debts are a!!(rately des!ribed% a !hattel ort5a5e% !an only !over obli5ations e0istin5 at the ti e the ort5a5e is !onstit(ted' >D Altho(5h a promise e0pressed in a !hattel ort5a5e to in!l(de debts that are yet to be !ontra!ted !an be a bindin5 !o it ent that !an be !o pelled (pon% the se!(rity itself% ho$ever% does not !o e into e0isten!e or arise (ntil after a !hattel ort5a5e a5ree ent !overin5 the ne$ly !ontra!ted debt is e0e!(ted either by !on!l(din5 a fresh !hattel ort5a5e or by a endin5 the old !ontra!t' <ef(sal on the part of the borro$er to e0e!(te the a5ree ent so as to !over the after9in!(rred obli5ation !an !onstit(te an a!t of defa(lt on the part of the borro$er of the finan!in5 a5ree ent $hereon the pro ise is $ritten b(t the re edy of fore!los(re !an only !over the debts e0tant at the ti e of !onstit(tion and d(rin5 the life of the !hattel ort5a5e so(5ht to be fore!losed' :D A !hattel ort5a5e% as hereinbefore so inti ated% (st !o ply s(bstantially $ith the for pres!ribed by the Chattel =ort5a5e &a$ itself' 1ne of the re/(isites% (nder Se!tion 4 thereof% is an affidavit of 5ood faith' The fa!t% 'that the stat(te has provided that the parties to the !ontra!t (st e0e!(te an oath that =the mortgage is made for the purpose of securing the o+ligation specified in the conditions thereof, and for no other purpose, and that the same is a .ust and valid o+ligation, and one not entered into for the purpose of fraud@ eans that the debt referred to in the la$ is a !(rrent% not an obli5ation that is yet erely !onte plated' FD In the !hattel ort5a5e here involved% the only obli5ation spe!ified in the !hattel ort5a5e !ontra!t $as the )3%222%222'22 loan $hi!h petitioner !orporation later f(lly paid' "y virt(e of Se!tion 3 of the Chattel =ort5a5e &a$% the pay ent of the obli5ation a(to ati!ally rendered the !hattel ort5a5e void or ter inated' In other $ords% IA ort5a5e that !ontains a stip(lation in re5ard to f(t(re advan!es in the !redit $ill ta#e effe!t only fro the date the sa e are ade and not fro the date of the ort5a5e'J

Fa!ts: :lias Colarina bo(5ht on install ent fro =a5na Finan!ial Servi!es C=FSD one S(P(#i =(lti!ab' After a#in5 a do$n pay ent% Colarina e0e!(ted a pro issory note for the balan!e of )**9%*+4'22 payable in 3- e/(al onthly install ents' To se!(re pay ent% Colarina e0e!(ted an inte5rated pro issory note and deed of !hattel ort5a5e over the otor vehi!le' Colarina failed to pay the onthly a ortiPation a!!( (latin5 an (npaid balan!e of )131%-2,'22' >espite repeated de ands% he failed to a#e the ne!essary pay ent' =FS filed a Co plaint for Fore!los(re of Chattel =ort5a5e $ith <eplevin' ;pon the filin5 of a <eplevin "ond% a @rit of <eplevin $as iss(ed' S( ons% to5ether $ith a !opy of the @rit of <eplevin% $as served on Colarina $ho vol(ntarily s(rrendered physi!al possession of the vehi!le to the Sheriff' The otor vehi!le $as t(rned over by the sheriff to =a5na Finan!ial Servi!es Gro(p% In!' The trial !o(rt rendered j(d5 ent in favor of =FS and as#ed Coralina to pay the (npaid balan!e and fore!lose the !hattel ort5a5e' Colarina appealed to the <e5ional Trial Co(rt $hi!h affir ed in toto the de!ision of the =TCC' CA reversed the de!ision of =TCC and <TC statin5 that =TC and the <TC erred in orderin5 the defendant to pay the (npaid balan!e of the p(r!hase pri!e of the s(bje!t vehi!le irrespe!tive of the fa!t that the instant !o plaint $as for the fore!los(re of its !hattel ort5a5e'

Iss(e: 1D @16 =FS !an avail of the t$o re edies% pay ent of (npaid balan!e and fore!los(re of !hattel ort5a5eG *D @16 there $as a!t(al fore!los(reG 7eld: 1D 6o' Arti!le 14+4% para5raph 3% provides that if the vendor has availed hi self of the ri5ht to fore!lose the !hattel ort5a5e% he shall have no f(rther a!tion a5ainst the p(r!haser to re!over any (npaid balan!e of the p(r!hase pri!e' Any a5ree ent to the !ontrary shall be void' In other $ords% in all pro!eedin5s for the fore!los(re of !hattel ort5a5es e0e!(ted on !hattels $hi!h have been sold on the install ent plan% the ort5a5ee is li ited to the property in!l(ded in the ort5a5e' )etitioner resol(tely de!lared that it has opted for the re edy provided (nder Arti!le 14+4C3D of the Civil Code% that is% to fore!lose the !hattel ort5a5e' The

C:<6A v CA =AG6A FI6A6CIA& v C1&A<I6A

S:CT<A6S *212E ATTF' AG;I6A&>1

+4

petitionerHs prayer !ontains t$o re edies% pay ent of (npaid balan!e and fore!los(re of !hattel ort5a5e' S(!h a s!he e is not only irre5(lar b(t is a fla5rant !ir!( vention of the prohibition of the la$' "y prayin5 for the fore!los(re of the !hattel% =a5na Finan!ial Servi!es Gro(p% In!' reno(n!ed $hatever !lai it ay have (nder the pro issory note' *D 6o' In the !ase at bar% there is no disp(te that the s(bje!t vehi!le is already in the possession of the petitioner% =a5na Finan!ial Servi!es Gro(p% In!' 7o$ever% a!t(al fore!los(re has not been p(rs(ed% !o en!ed or !on!l(ded by it' @here the ort5a5ee ele!ts a re edy of fore!los(re% the la$ re/(ires the a!t(al fore!los(re of the ort5a5ed !hattel' It is the a!t(al sale of the ort5a5ed !hattel that $o(ld bar the !reditor C$ho !hooses to fore!loseD fro re!overin5 any (npaid balan!e' And it is dee ed that there has been fore!los(re of the ort5a5e $hen all the pro!eedin5s of the fore!los(re% in!l(din5 the sale of the property at p(bli! a(!tion% have been a!!o plished' "e that as it ay% altho(5h no a!t(al fore!los(re as !onte plated (nder the la$ has ta#en pla!e in this !ase% sin!e the vehi!le is already in the possession of =a5na Finan!ial Servi!es Gro(p% In!' and it has persistently and !onsistently avo$ed that it ele!ts the re edy of fore!los(re% the Co(rt of Appeals% th(s% r(led !orre!tly in dire!tin5 the fore!los(re of the said vehi!le $itho(t ore' "A FI6A6C: v CA "IC1& SA8I6GS v G;I67A@A F: 8i!torio >epositario to5ether $ith private respondent Jai e G(inha$a% a!tin5 as solidary !o9 a#er% too# a loan fro petitioner "i!ol Savin5s and &oan Asso!iation C"IS&AD payable every 19th day of ea!h onth' To se!(re the pay ent of the fore5oin5 loan obli5ation% the prin!ipal borro$er 8i!torio >epositario p(t (p as se!(rity a !hattel ort5a5e $hi!h $as a Fa aha =otor!y!le' Said otor!y!le $as event(ally fore!losed by reason of the fail(re of >epositario and private respondent G(inha$a to pay the loan' There $as a defi!ien!y in the a o(nt of )4%14+'2- $here "IS&A ade a de and to pay the sa e' )etitioner "IS&A Cplaintiff thereinD filed a !o plaint for the re!overy of a s( of oney !onstit(tin5 the defi!ien!y after fore!los(re of the !hattel ort5a5e p(t (p by the prin!ipal borro$er >epositario a5ainst the latter and his solidary !o9 a#er G(inha$a Cherein private respondentD as defendants' :vent(ally% a stip(lation of fa!ts $as entered into bet$een "IS&A and G(inha$a' They a5reed to drop >epositario% as Bhis $hereabo(ts bein5 (n#no$n no$ and he !o(ld not be served $ith s( onsB' The !reditor !lai s that he !an aintain an a!tion for defi!ien!y and !lai )4# balan!e'

Iss(e: @o6 !reditor !an !lai

re ainin5 balan!e

<(lin5: FesK The !reditor ay aintain an a!tion for defi!ien!y altho(5h the !hattel ort5a5e la$ Is silent on this point' The reason is tat a !hattel ort5a5e is only 5iven as a se!(rity and not as pay ent for the debt in !ase of fail(re of pay ent )A=:CA @11> v CA FACTS: 1n April 1,% 19+2% petitioner )A=:CA @ood Treat ent )lant% In!' C)A=:CAD obtained a loan of ;SW*-,%++1'-,% or the e/(ivalent of )*%222%222'22 fro respondent "an#' "y virt(e of this loan% petitioner )A=:CA% thro(5h its )resident% petitioner 7er inio C' Teves% e0e!(ted a pro issory note for the said a o(nt% pro isin5 to pay the loan by install ent' As se!(rity for the said loan% a !hattel ort5a5e $as also e0e!(ted over )A=:CA?s properties in >( a5(ete City% !onsistin5 of inventories% f(rnit(re and e/(ip ent% to !over the $hole val(e of the loan' 1n Jan(ary 1+% 19+4% and (pon petitioner )A=:CA?s fail(re to pay% respondent ban# e0traj(di!ially fore!losed the !hattel ort5a5e% and% as sole bidder in the p(bli! a(!tion% p(r!hased the fore!losed properties for a s( of )3**% 342'22' 1n J(ne *9% 19+4% respondent ban# filed a !o plaint for the !olle!tion of the balan!e' )etitioners s(b it that Arti!les 14+4 and *114 of the Civil Code be applied in analo5y to the instant !ase to pre!l(de the re!overy of a defi!ien!y !lai ' ISS;:S: @hether the fore!los(re of the !hattel ort5a5e valid <;&I6G: The !o(rt did not find anythin5 irre5(lar or fra(d(lent in the !ir!( stan!e that respondent ban# $as the sole bidder in the sale% as all the le5al pro!ed(res for the !ond(!t of a fore!los(re sale have been !o plied $ith% th(s 5ivin5 rise to the pres( ption of re5(larity in the perfor an!e of p(bli! d(ties' The effe!ts of fore!los(re (nder the Chattel =ort5a5e &a$ r(n in!onsistent $ith those of pled5e (nder Arti!le *114' @hereas% in pled5e% the sale of the thin5 pled5ed e0tin5(ishes the entire prin!ipal obli5ation% s(!h that the pled5or ay no lon5er re!over pro!eeds of the sale in e0!ess of the a o(nt of the prin!ipal obli5ation% Se!tion 14 of the Chattel =ort5a5e &a$ e0pressly entitles the ort5a5or to the balan!e of the pro!eeds% (pon satisfa!tion of the prin!ipal obli5ation and !osts' Sin!e the Chattel =ort5a5e &a$ bars the !reditor9 ort5a5ee fro retainin5 the e0!ess of the sale pro!eeds there is a !orollary obli5ation on the part of the debtor9 ort5a5ee to pay the defi!ien!y in !ase of a red(!tion in the pri!e at p(bli! a(!tion'

S:CT<A6S *212E ATTF' AG;I6A&>1

+4

As !orre!tly pointed o(t by the trial !o(rt% the said arti!le applies !learly and solely to the sale of personal property the pri!e of $hi!h is payable in install ents' Altho(5h Arti!le 14+4% para5raph C3D e0pressly bars any f(rther a!tion a5ainst the p(r!haser to re!over an (npaid balan!e of the pri!e% $here the vendor opts to fore!lose the !hattel ort5a5e on the thin5 sold% sho(ld the vendee?s fail(re to pay !over t$o or ore install ents% this provision is spe!ifi!ally appli!able to a sale on install ents' S;):<&I6:S v ICC FACTS: S(perlines de!ided to a!/(ire five C4D ne$ b(ses fro the >ia ond =otors Corporation for the pri!e of )12#' 7o$ever% S(perlines la!#ed finan!ial reso(r!es for the p(rpose so by virt(e of a board resol(tion% it a(thoriPed its )resident and Gen =5r &avides to loo# for a loan for the p(r!hase of said b(ses' &avides ne5otiated $ith ICC &easin5' ICC a5reed to finan!e the p(r!hase of the ne$ b(ses via a loan and proposed a 39yr ter for the pay ent' The ne$ b(ses to be p(r!hased $ere to be (sed by S(perlines as se!(rity for the loan' >ia ond =otors sold to S(perlines 4 ne$ b(ses and $as re5istered (nder the na e of S(perlines' S(perlines e0e!(ted * do!(s S >eed of Chattel =ort5a5e over said b(ses a se!(rity for the p(r!hase pri!e of b(ses in )13 ill loaned by ICC to S(perlines3 a Contin(in5 G(aranty to pay jointly and severally in favo(r of ICC the a o(nt of )13 ill After payin5 only , onthly a ortiPations% S(perlines defa(lted in the pay ent of its obli5ation to ICC' ICC filed a !o plaint for !olle!tion of s( of oney $ith a prayer for a $rit of replevin TC dis issed3 ICC and S(perlines for5ed a !ons( er loan a5ree ent and not an a ortiPed !o er!ial loan' CA reversed3 9 ICC and S(perlines entered into an a ortiPed !o er!ial loan a5ree ent $ith ICC as !reditor9 ort5a5ee and S(perlines as debtor9 ort5a5or% and ordered S(perlines and &avides to pay jointly and severally the s( of )4 ill as defi!ien!y 9 It $as >ia ond =otors Corporation and not ICC $hi!h sold the s(bje!t b(ses to S(perlines' It held that no eviden!e had been presented by S(perlines to sho$ that ICC bo(5ht the said b(ses fro >ia ond =otors Corporation (nder a spe!ial arran5e ent and that ICC sold the b(ses to S(perlines' The appellate !o(rt also r(led that Arti!le 14+4C3D is appli!able only $here there is vendor9vendee relationship bet$een the parties and sin!e ICC did not sell the

b(ses to S(perlines% the latter !annot invo#e said la$' ISS;:: @16 there $as an a ortiPed !o a5ree entG er!ial loan

7:&>: F:S >IA=16> is the seller of the five (nits of b(ses and not the plaintiff 6o !onvin!in5 eviden!e% e0!ept the self9servin5 testi ony of defendant =anolet &avides% $as presented to prove that there $as an internal arran5e ent bet$een the plaintiff% as finan!in5 a5ent% and >ia ond% as seller of the b(ses' In fa!t% defendant &avides ad itted (nder oath that >IA=16> and plaintiff did not enter into transa!tion over the sale of the b(ses The eviden!e sho$s that the transa!tion bet$een the parties $as an Ba ortiPed !o er!ial loanB to be paid in install ents ) failed to add(!e a preponderan!e of eviden!e to prove that < and >ia ond =otors Corporation entered into a spe!ial arran5e ent relative to the iss(an!e of !ertifi!ates of re5istration over the b(ses (nder the na e of petitioner S(perlines' ) $ere also (nable to prove that respondent p(r!hased fro >ia ond =otors Corporation the ne$ b(ses' In !ontrast% the vehi!le invoi!es of >ia ond =otors Corporation irrefra5ably sho$ that it sold the said b(ses to petitioner S(perlines' The net pro!eeds of the loan $ere re itted by respondent to petitioner S(perlines and the latter re itted the sa e to >ia ond =otors Corporation in pay ent of the p(r!hase pri!e of the b(ses' In fine% respondent and >ia ond =otors Corporation had no dire!t b(siness transa!tions relative to the p(r!hase of the b(ses and the pay ent of the p(r!hase pri!e thereof' The eviden!e on re!ord sho$s that (nder the )ro issory 6ote% Chattel =ort5a5e and Contin(in5 G(aranty% respondent $as the !reditor9 ort5a5ee of petitioner S(perlines and not the vendor of the ne$ b(ses' 7en!e% petitioners !annot find ref(5e in Arti!le 14+4C3D of the 6e$ Civil Code' @hat sho(ld apply $as the Chattel =ort5a5e e0e!(ted by petitioner S(perlines and < in relation to the Chattel =ort5a5e &a$' This Co(rt had !onsistently r(led that if in an e0tra9j(di!ial fore!los(re of a !hattel ort5a5e a defi!ien!y e0ists% an independent !ivil a!tion ay be instit(ted for the re!overy of said defi!ien!y' To deny the ort5a5ee the ri5ht to aintain an a!tion to re!over the defi!ien!y after fore!los(re of the !hattel ort5a5e $o(ld be to overloo# the fa!t that the !hattel ort5a5e is only 5iven as se!(rity and not as pay ent for the debt in !ase of fail(re of pay ent' "oth the Chattel =ort5a5e &a$ and A!t 3134 5overnin5

S:CT<A6S *212E ATTF' AG;I6A&>1

+-

e0tra9j(di!ial fore!los(re of real estate ort5a5e% do not !ontain any provision% e0pressly or i pliedly% pre!l(din5 the ort5a5ee fro re!overin5 defi!ien!y of the prin!ipal obli5ation' :SG;:<<A v CA ")I C<:>IT v CA S:<8IC:@I>: v CA FACTS: <espondents e0e!(ted a pro issory note and a !hattel ort5a5e over a vehi!le they bo(5ht fro the ort5a5ee itself% C' <' Te!son :nterprises% for the pay ent in install ents of the vehi!le' C' <' Te!son :nterprises% on the sa e date% assi5ned in favor of Filinvest Credit Corporation' The respondents $ere a$are that the ne$ orta5ee is Filinvest' <espondent spo(ses by $ay of >eed of Sale $ith Ass( ption of =ort5a5e transferred and delivered the vehi!le to Conrado Te!son' S(bse/(ently% Filinvest assi5ned all its ri5hts as ort5a5ee to petitioner' <espondents failed to pay the install ents and despite de ands fro petitioner9 ort5a5ee to pay or to ret(rn the vehi!le' )etitioner filed a !o plaint for <eplevin b(t the respondents alle5ed in their Ans$er that they !an no lon5er be held liable as they had already !onveyed the !ar to Conrado Te!son'

ort5a5or' This is tanta o(nt to a novation' As the ne$ assi5nee% petitioner?s !onsent is ne!essary before respondent spo(ses? alienation of the vehi!le !an be !onsidered as bindin5 a5ainst third persons' )etitioner is !onsidered a third person $ith respe!t to the sale $ith ort5a5e bet$een respondent spo(ses and third party defendant Conrado Te!son'

"ON"URREN"E AND PRE#EREN"E O# "REDITS

>: "A<<:TT1 v 8I&&A6;:8A SA=)AG;ITA )ICT;<:S v JA&@I6>1< FACTS: - Sa pa5(ita C)D is the o$ner of a b(ildin5 $hi!h its roofde!# $as leased to Capitol 322 CCapitolD% $herein it $as a5reed that $hatever i prove ents introd(!ed therein by Capitol $ill later be o$ned by )' - Capitol p(r!hased on !redit fro Jal$indor C<D 5lass and $ooden jalo(sies $hi!h $ere >:&I8:<:> and I6STA&&:> in the leased pre ises by <% repla!in5 the e0istin5 $indo$s of )' - Capitol failed to pay and < filed an a!tion for !olle!tion of s( of oney a5ainst Capitol' - < ade a levy on the 5lass and $ooden jalo(sies in /(estion% $hi!h ) intervened in the !ase alle5in5 that it !annot be levied (pon sin!e it is already the o$ner of the s(bje!t jalo(sies' ISS;:: @o6 < ay levy the jalo(sies

ISS;:: 1' @16 the assi5n ent of !redit by the !reditor9 ort5a5ee /(ires the noti!e and !onsent of the debtor9 ort5a5orG *' @16 the assi5n ent of !redit by the debtor9 ort5a5or re/(ires the noti!e and !onsent of the !reditor9 ort5a5eeG 7:&>: 1' 1nly )o*(ce *o *2e /eb*or9 ort5a5or of the assi5n ent of !redit is re/(ired' 7is !onsent is not re/(ired' *' In !ontrast% co)-e)* o+ *2e cre/(*or-mor*0'0ee to the alienation of the ort5a5ed property is ne!essary in order to bind said !reditor' Sin!e the assi5nee of the !redit steps into the shoes of the !reditor9 ort5a5ee to $ho the !hattel $as ort5a5ed% it follo$s that the assi5nee?s !onsent is ne!essary in order to bind hi of the alienation of the ort5a5ed thin5 by the debtor9

SC: 61K - @hen the 5lass and $ooden jalo(sies $ere delivered and installed in the leased pre ises% ) be!a e the o$ner thereof% d(e to the !ontra!t bet$een ) and Capitol in $hi!h it stated that all per anent i prove ents ade by lessee shall belon5 to the lessor and that said i prove ents hav been !onsidered as part of the onthly rentals' - The fa!t that Capitol failed to pay < the p(r!hase pri!e of the ite s levied (pon did not prevent the transfer of o$nership to Capitol and then to )' ;F v YA=1<A #A"TS@ 1D At the instan!e of plaintiff ;y% the =TC ordered the atta!h ent of a vehi!le belon5in5 to Ya ora' The $rit $as levied on the vehi!le on A(5(st 11% 19-2' S(bse/(ently% the =(ni!ipal Co(rt rendered j(d5 ent

S:CT<A6S *212E ATTF' AG;I6A&>1

+,

for the plaintiff ;y and ordered defendant Ya ora to pay the s( of )1%,42' Ya ora appealed to the CFI' Fa!ts: *D @hile the !ase $as pendin5 appeal% the Allied Finan!e% In!' intervene' A!!ordin5 to it% the vehi!le% $hi!h $as atta!hed by the Sheriff% had previo(sly been ort5a5ed to it by Ya ora to se!(re the pay ent of a loan and that at the ti e of the filin5 of the !o plaint in intervention% a balan!e of )*%441'93 re ained in its favor' Allied% prayed that Ya ora be ordered to pay )*%441'93 as prin!ipal' 3D 1n Jan(ary 1*% 19-1% ;y and Ya ora% s(b itted to the !o(rt a !o pro ise a5ree ent $herein Ya ora ad itted bein5 indebted to ;y' Sin!e the otor vehi!le had already been sold on order of the Co(rt for )*%422 to prevent depre!iation% defendant Ya ora a5reed to have plaintiff ;y?s !redit paid o(t of the pro!eeds of the sale' 4D The !o(rt fo(nd defendant Ya ora to be liable to plaintiff ;y in the a o(nt of )*%422% and to the intervenor in the a o(nt of )*%441'93% pl(s interest' ;y !lai s preferen!e on the basis of a lien arisin5 fro the atta!h ent of the vehi!le on A(5(st 11% 19-2' 1n the other hand% allied bases its !lai to preferen!e on a >eed of Chattel =ort5a5e !overin5 the sa e otor vehi!le' ISSUE@ @hi!h of the t$o !redits is preferredG $ELD@ AD Considerin5 the fa!t that Allied Finan!e% In!' re5istered its ort5a5e only on A(5(st *4% 19-2% or s(bse/(ent to the date of the $rit of atta!h ent obtained by plaintiff ;y on A(5(st 11% 19-2% the !redit of the intervenor !annot prevail over that of the plaintiff' "D The SC disa5reed $ith the lo$er !o(rtHs de!ision (pheld AlliedHs !redit on the 5ro(nd that% bein5 e bodied in a p(bli! instr( ent of an earlier date CJ(ne *2% 19-2D% it sho(ld ta#e pre!eden!e over plaintiff?s lien by atta!h ent CA(5(st 11% 19-2D% p(rs(ant to Arti!le **44 of the Civil Code% for the reason that% as already stated% the !redit of the Allied !annot be !onsidered as preferred (ntil the sa e has been re!orded in the =otor 8ehi!les 1ffi!e' CD A ort5a5e of otor vehi!les% in order to affe!t third persons% sho(ld not only be re5istered in the Chattel =ort5a5e <e5istry% b(t the sa e sho(ld also be re!orded in the =otor 8ehi!les 1ffi!e The de!ision of the lo$er !o(rt is reversed% $itho(t prono(n!e ent as to !osts'

C:6T<A& "A6M v =1<F:

The =onetary "oard fo(nd the Fidelity Savin5s "an# to be insolvent' The "oard dire!ted the S(perintendent of "an#s to ta#e !har5e of its assets% forbade it to do b(siness and instr(!ted the Central "an# &e5al Co(nsel to ta#e le5al a!tions' )rior to the instit(tion of the li/(idation pro!eedin5 b(t after the de!laration of insolven!y% the spo(ses :liPes filed a !o plaint in the CFI a5ainst the Fidelity Savin5s "an# for the re!overy of the balan!e of their ti e deposits' In the j(d5 ent rendered in that !ase% the Fidelity Savin5s "an# $as ordered to pay the :liPes spo(ses the s( pl(s a!!( (lated interest' In another !ase% the spo(ses )adilla se!(red a j(d5 ent a5ainst the Fidelity Savin5s "an# for the s( s as the balan!e of their ti e deposits% pl(s interests% oral and e0e plary da a5es and attorney?s fees' The lo$er !o(rt Chavin5 !o5niPan!e of the li/(idation pro!eedin5D% (pon otions of the :liPes and )adilla spo(ses and over the opposition of the Central "an#% dire!ted the latter as li/(idator% to pay their ti e deposits as preferred j(d5 ents% eviden!ed by final j(d5 ents% $ithin the eanin5 of arti!le **44C14DCbD of the Civil Code' Central "an# !ontends that the final j(d5 ents se!(red by the :liPes and )adilla spo(ses do not enjoy any preferen!e be!a(se CaD they $ere rendered after the Fidelity Savin5s "an# $as de!lared insolvent and CbD (nder the !harter of the Central "an# and the General "an#in5 &a$% no final j(d5 ent !an be validly obtained a5ainst an insolvent ban#'

Iss(e: @hether a final j(d5 ent for the pay ent of a ti e deposit in a savin5s ban# $hi!h j(d5 ent $as obtained after the ban# $as de!lared insolvent% is a preferred !lai a5ainst the ban#G 7eld: 6o' It sho(ld be noted that fi0ed% savin5s% and !(rrent deposits of oney in ban#s and si ilar instit(tions are not tr(e deposits' They are !onsidered si ple loans and% as s(!h% are not preferred !redits' The afore/(oted se!tion *9 of the Central "an#?s !harter e0pli!itly provides that $hen a ban# is fo(nd to be insolvent% the =onetary "oard shall forbid it to do b(siness and shall ta#e !har5e of its assets' :vidently% one p(rpose in prohibitin5 the insolvent ban# fro doin5 b(siness is to prevent so e depositors fro havin5 an (nd(e or fra(d(lent preferen!e over other !reditors and depositors'

C1<>18A v <:F:S

S:CT<A6S *212E ATTF' AG;I6A&>1

++

@e are of the opinion that s(!h j(d5 ents !annot be !onsidered preferred and that arti!le **44C14DCbD does not apply to j(d5 ents for the pay ent of the deposits in an insolvent savin5s ban# $hi!h $ere obtained after the de!laration of insolven!y' In the <ohr !ase% the 5eneral prin!iple of e/(ity that the assets of an insolvent are to be distrib(ted ratably a on5 5eneral !reditors applies $ith f(ll for!e to the distrib(tion of the assets of a ban#' A 5eneral depositor of a ban# is erely a 5eneral !reditor% and% as s(!h% is not entitled to any preferen!e or priority over other 5eneral !reditors' The assets of a ban# in pro!ess of li/(idation are held in tr(st for the e/(al benefit of all !reditors% and one !annot be per itted to obtain an advanta5e or preferen!e over another by an atta!h ent% e0e!(tion or other$ise' Considerin5 that the deposits in /(estion% in their in!eption% $ere not preferred !redits% it does not see lo5i!al and j(st that they sho(ld be raised to the !ate5ory of preferred !redits si ply be!a(se the depositors% ta#in5 advanta5e of the lon5 interval bet$een the de!laration of insolven!y and the filin5 of the petition for j(di!ial assistan!e and s(pervision% $ere able to se!(re j(d5 ents for the pay ent of their ti e deposits' =A6A"AT v &AG;6A F:> )7I& SA8I6GS "A6M v &A6TI6 F: ! b(ilt a d(ple0 apart ent ho(se on a re5istered lot of spo(ses 0 and y% (sin5 his o$n oney% )*4# to finish the !onstr(!tion' =ean$hile% 0 and y obtained fro psb a loan se!(red by a ort5a5e to !o plete !onstr(!tion' At the ti e of the re5istration of the ort5a5e% the transfer !ertifi!ate of title over the property $as free fro all liens and en!( bran!es' )S" fore!losed the ort5a5e% and bein5 the hi5hest bidder a ne$ !ertifi!ate of title $as s(bse/(ently iss(ed in its favor C filed an a!tion a5ainst the spo(ses to !olle!t the (npaid !ost of !onstr(!tion' As 0 and y did not have any properties to satisfy the j(d5 ent rendered in his favor% ! de anded fro psb a pro rata share in the val(e of the d(ple0 apart ent in a!!ordan!e $ith arti!le **4*' Iss(e: is ! entitled to !lai the property in /(estion' pro rata share in the val(e of

psb $hi!h is s(pposed to be indefeasible $o(ld re ain !onstantly (nstable and /(estionable' S(!h !o(ld not have been the intention of arti!le **43 of the !ivil !ode altho(5h it !onsiders !lai s and !redits (nder arti!le **4* as stat(tory liens' 6either does the de barreto !aes san!tion s(!h instability'

<(lin5: no' the a!tion filed by ! to !olle!t the (npaid !ost of the !onstr(!tion of the d(ple0 apart ent is far fro bein5 a 5eneral li/(idation of the estate of 0 and y' Altho(5h the lo$er !o(rt fo(nd that there $ere no #no$n !reditors other than ! and psb% this !annot be !on!l(sive' It $ill not bar other !reditors in the event they sho$ (p and present their !lai s a5ainst psb% !lai in5 they have also preferred !lai s a5ainst the property' Conse/(ently% the transfer !ertifi!ate of title iss(ed to

S:CT<A6S *212E ATTF' AG;I6A&>1

+9