Escolar Documentos
Profissional Documentos
Cultura Documentos
FACTS/ISSUE
RULING
LOAN
2.
ISSUES:
Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455),
we have explained, in holding the carrier and the arrastre operator
liable in solidum, thus:The legal relationship between the consignee
and the arrastre operator is akin to that of a depositor and
warehouseman. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre
operator. Since it is the duty of the ARRASTRE to take good care of
the goods that are in its custody and to deliver them in good condition
to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in good condition
to the consignee.
Reckoning point and rate of legal interest- THE RULES
When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable
damages.
With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
Page 1
2 FLORENDO VS. CA
FACTS: Petitioner Gilda Florendo was an employee of Respondent Bank from
May 17, 1976 until August 16, 1984 when she voluntarily resigned. However,
before her resignation, she applied for a housing loan of P148,000.00, payable
within 25 years from respondent bank's Provident Fund. Petitioners and
respondent bank, through the latter's duly authorized representative, executed
the Housing Loan Agreement. Together with the Housing Loan Agreement,
petitioners and respondent bank, through the latter's authorized representative,
also
executed
a
Real
Estate
Mortgage
and
Promissory
Note. The loan was actually given to petitioner Gilda Florendo, in her capacity
as employee of respondent bank. Thereafter, respondent bank increased the
interest rate on petitioner's loan from 9% per annum to 17%, the said increase
to take effect on March 19, 1985. That petitioners protested the increase.
ISSUE: Did the respondent bank have a valid and legal basis to impose an
increased interest rate on the petitioners' housing loan?
Page 2
What is actually central to the disposition of this case is not really the validity of
the escalation clause but theretroactive enforcement of the ManCom Resolution
as against petitioner-employee. In the case at bar, petitioners have put forth a
telling argument that there is in fact no Central Bank rule, regulation or other
issuance which would have triggered an application of the escalation clause as
to her factual situation.
The loan was perfected on July 20, 1983. PD No. 116 became effective on
January 29, 1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ.
504 was issued February 6, 1976. CB Circ. 706 was issued December 1, 1979.
CB Circ. 905, lifting any interest rate ceiling prescribed under or pursuant to the
Usury Law, as amended, was promulgated in 1982. These and other relevant
CB issuances had already come into existence prior to the perfection of the
housing loan agreement and mortgage contract, and thus it may be said that
these regulations had been taken into consideration by the contracting parties
when they first entered into their loan contract. In light of the CB issuances in
force at that time, respondent bank was fully aware that it could have imposed
an interest rate higher than 9% per annum rate for the housing loans of its
employees, but it did not. In the subject loan, the respondent bank knowingly
agreed that the interest rate on petitioners' loan shall remain at 9% p.a. unless
a CB issuance is passed authorizing an increase (or decrease) in the rate on
such employee loans and the Provident Fund Board of Trustees acts
accordingly. Thus, as far as the parties were concerned, all other onerous
factors, such as employee resignations, which could have been used to trigger
an application of the escalation clause were considered barred or waived. If the
intention were otherwise, they especially respondent bank should have
included such factors in their loan agreement.
ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the
Monetary Board, cannot be used as basis for the escalation in lieu of CB
issuances, since paragraph (f) of the mortgage contract very categorically
specifies that any interest rate increase be in accordance with "prevailing rules,
regulations and circulars of the Central Bank . . . as the Provident Fund
Board . . . may prescribe." The Banco Filipino and PNB doctrines are applicable
four-square in this case. As a matter of fact, the said escalation clause further
provides that the increased interest rate "shall only take effect on the date of
effectivity of (the) increase/decrease" authorized by the CB rule, regulation or
circular. Without such CB issuance, any proposed increased rate will never
become effective.
On the other hand, it will not be amiss to point out that the unilateral
determination and imposition of increased interest rates by the herein
Page 3
PNB informed private respondents that the interest rate of the loan account with
us is now 25% per annum plus a penalty of 6% per annum on past dues." The
PNB further increased this interest rate to 30% on October 15, 1984; and to
42% on October 25, 1984.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods or credits. In fine, they
can agree to adjust, upward or downward, the interest previously stipulated.
However, contrary to the stubborn insistence of petitioner bank, the said law
and circular did not authorize either party to unilaterally raise the interest rate
without the other's consent.
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is
wanting on the part of the one who contracts, his act has no more efficacy than
if it had been done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any binding effect.
DEPOSIT
1. YES. As a general rule, a bank has a right of set off of the deposits in its
hands for the payment of any indebtedness to it on the part of a depositor. Civil
Code contains provisions regarding compensation (set off) and deposit.The
portions of Philippine law provide that compensation shall take place when two
persons are reciprocally creditor and debtor of each other . In his connection, it
has been held that the relation existing between a depositor and a bank is that
of creditor and debtor.
2. NO.The action of the bank was prejudicial to Gullas notice should actually
have been given him in order that he might protect his interests. While notice of
the application of his deposit to a debt to the bank is not necessary in case of a
maker, the same cannot be applied to an indorser, such as Gullas.
Page 4
respondent David invested with the Nation Savings and Loan Association (NSLA). NSLA was
placed under receivership by the Central Bank, so that David filed claims therewith for his
investments but he only recovered a lesser an amount than that he invested. Believing that
petitioners misappropriated the balance of the investments, at the same time violating Central
Bank Circular No. 364 and related Central Bank regulations on foreign exchange transactions,
David filed a case for estafa against petitioners.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
Pets filed MTD to the charges against them for lack of jurisdiction because David's claims
allegedly comprised a purely civil obligation which was itself novated (civil obligations on the
part of NSLA which were novated when Guingona, Jr. and Martin assumed them)
W/N the public respondents have no jurisdiction when they investigated the charges
(estafa and violation of CB Circular No. 364 and related regulations regarding foreign
exchange transactions)
"Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time- and
return it, in which case the contract is called a commodatum; or money or other
consumable thing, upon the condition that the same amount of the same kind and
quality shall he paid in which case the contract is simply called a loan or mutuum.
"Commodatum is essentially gratuitous.
"Simple loan may be gratuitous or with a stipulation to pay interest.
YES. Petitioners liability is civil in nature and therefore, public respondents have no jurisdiction
over the charge of estafa.
It must be pointed out that when private respondent David invested his money on nine and
savings deposits with the aforesaid bank, the contract that was perfected was a contract of
simple loan or mutuum and not a contract of deposit. Thus, Article 1980 of the New Civil Code
provides that:
Article 1980. Fixed, savings, and current deposits of-money in banks and
similar institutions shall be governed by the provisions concerning simple
loan.
In Serrano vs. Central Bank of the Philippines:
Bank deposits are in the nature of irregular deposits. They are really 'loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to
be treated as loans and are to be covered by the law on loans (Art. 1980 Civil Code
Gullas vs. Phil. National Bank, 62 Phil. 519). Current and saving deposits, are loans to
"In commodatum the bailor retains the ownership of the thing loaned while in simple
loan, ownership passes to the borrower.
"Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of
the same kind and quality."
It can be readily noted from the above-quoted provisions that in simple loan (mutuum), as
contrasted to commodatum the borrower acquires ownership of the money, goods or personal
property borrowed Being the owner, the borrower can dispose of the thing borrowed (Article 248,
Civil Code) and his act will not be considered misappropriation thereof' (Yam vs. Malik, 94 SCRA
30, 34 [1979]; Emphasis supplied).
But even granting that the failure of the bank to pay the time and savings deposits of private
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation
involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other property.
Page 5
a bank because it can use the same. The petitioner here in making time deposits that
earn interests will respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a debtor of
petitioner. Failure of the respondent Bank to honor the time deposit is failure to pay its
obligation as a debtor and not a breach of trust arising from a depositary's failure to
return the subject matter of the deposit
Hence, the relationship between the private respondent and the Nation Savings and Loan
Association is that of creditor and debtor; consequently, the ownership of the amount
deposited was transmitted to the Bank upon the perfection of the contract and it can make use of
the amount deposited for its banking operations, such as to pay interests on deposits and to pay
withdrawals. While the Bank has the obligation to return the amount deposited, it has, however,
no obligation to return or deliver the same money that was deposited. And, the failure of the Bank
to return the amount deposited will not constitute estafa through misappropriation punishable
under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise to civil liability over
which the public respondents have no- jurisdiction.
3 REYES VS BPI
(March 24, 1995) Reyes spouses executed a real estate mortgage on their
property in Iloilo City in favor of respondent BPI to secure a P15,000,000 loan of
Transbuilders. Transbuilders failed to pay its P15M loan within the stipulated
period of one year, the bank restructured the loan through a promissory note
executed by Transbuilders in its favor.
Petitioners filed separate petitions for mandamus and prohibition with the RTC
of Manila to compel the bank to return their certificate of title and cancel the
mortgage. BPI-FSB instituted extrajudicial foreclosure proceedings against
petitioners in Iloilo City after Transbuilders defaulted in its payments.
Consequently, a sheriffs notice of sale of petitioners property at public auction
was issued.
ISSUE: Whether there was a novation of the mortgage loan contract between
petitioners and BPI-FSB that would result in the extinguishment of petitioners
liability to the bank.
respondent David would constitute a violation of paragraph 1(b) of Article 315 of the Revised
Penal Code, nevertheless any incipient criminal liability was deemed avoided, because when the
aforesaid bank was placed under receivership by the Central Bank, petitioners Guingona and
Martin assumed the obligation of the bank to private respondent David, thereby resulting in the
novation of the original contractual obligation arising from deposit into a contract of loan and
converting the original trust relation between the bank and private respondent David into an
ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of
private respondent would not constitute a breach of trust but would merely be a failure to pay the
obligation as a debtor.
Page 6
(3) the extinguishment of the old contract; and (4) validity of the new one.
There must be consent of all the parties to the substitution, resulting in the
extinction of the old obligation and the creation of a valid new one. The
acceptance of the promissory note by the plaintiff is not novation of the
contract. The legal doctrine is that an obligation to pay a sum of money is not
novated in a new instrument by changing the term of payment and adding other
obligations not incompatible with the old one. It is not proper to consider an
obligation novated as in the case at bar by the mere granting of extension of
payment which did not even alter its essence. To sustain novation necessitates
that the same be declared in unequivocal terms or that there is complete and
substantial incompatibility between the two obligations. An obligation to pay a
sum of money is not novated in a new instrument wherein the old is ratified by
changing only the terms of payment and adding other obligations not
incompatible with the old one or wherein the old contract is merely
supplementing the old one.
Thus, the well-settled rule is that, with respect to obligations to pay a
sum of money, the obligation is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations
not incompatible with the old ones, or the new contract merely supplements the
old one.
BPI-FSB and Transbuilders only extended the repayment term of the loan
from one year to twenty quarterly installments at 18% interest per annum.
There was absolutely no intention by the parties to supersede or abrogate the
old loan contract secured by the real estate mortgage executed by petitioners in
favor of BPI-FSB. In fact, the intention of the new agreement was precisely to
revive the old obligation after the original period expired and the loan remained
unpaid. The novation of a contract cannot be presumed. In the absence of
an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point.
Moreover, under the real estate mortgage executed by them in favor of
BPI-FSB, petitioners undertook to secure the P15M loan of Transbuilders to
BPI-FSB and other credit accommodations of whatever nature obtained by the
Borrower/Mortgagor. While this stipulation proved to be onerous to petitioners,
neither the law nor the courts will extricate a party from an unwise or
undesirable contract entered into with all the required formalities and with full
Page 7
GUARANTY
1 TRADERS INSURANCE and SURETY COMPANY vs. DY ENG GIOK,
PEDRO LOPEZ DEE and PEDRO E. DY-LIACCO
DLT & Co AGENT DY Eng Giok who has a running account in favor of principal,
executed surety bond as principal and Traders as guarantor. Gioks remittances
were applied first to his outstanding balance. DLT & CO demanded payment for
remaining balance which was paid by surety. Surety demanded reimbursement
from Giok.
Reasons:
I
The first is that, in the absence of express stipulation, a guaranty or suretyship
operates prospectively and not retroactively; that is to say, it secures only the
debts contracted after the guaranty takes effect. This rule is a consequence of
the statutory directive that a guaranty is not presumed, but must be express,
and can not extend to more than what is stipulated. (New Civil Code, Art. 2055).
To apply the payments made by the principal debtor to the obligations he
contracted prior to the guaranty is, in effect, to make the surety answer for debts
incurred outside of the guaranteed period, and this cannot be done without the
express consent of the guarantor.
II
Debts covered by a guaranty are deemed more onerous to the debtor than the
simple obligations because, in their case, the debtor may be subjected to action
not only by the creditor, but also by the guarantor, and this even before the
guaranteed debt is paid by the guarantor.
Page 8
Page 9
In the present case not only has the ownership and the origin of the jewels
misappropriated been unquestionably proven but also that Clarita R. Sison,
acting fraudulently and in bad faith, disposed of them and pledged them
contrary to agreement with no right of ownership, and to the prejudice of
Suntay, who was illegally deprived of said jewels and who, as the owner, has an
absolute right to recover the jewels from the possession of whosoever holds
them, which in this case is Dizons pawnshop. Dizon ought to have been on his
guard before accepting the pledge in question, but evidently there was no such
precaution availed of and he has no one to blame but himself.
While the activity he is engaged in is no doubt legal, it is not to be lost sight of
that it thrives on taking advantage of the necessities precisely of that element of
our population whose lives are blighted by extreme poverty. From whatever
angle the question is viewed then, estoppel certainly cannot be justly invoked
2 UY TONG VS. CA
FACTS: Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok
(SPOUSES) used to be the owners of Apartment No. 307 of the Ligaya
Building, together with the leasehold right for ninety- nine (99) years over the
land on which the building stands. The land is registered in the name of Ligaya
Investments, Inc. It appears that Ligaya Investments, Inc. owned the building
which houses the apartment units but sold Apartment No. 307 and leased a
portion of the land in which the building stands to the SPOUSES.
In February, 1969, the SPOUSES purchased from private respondent
Bayanihan Automotive, Inc. (BAYANIHAN) seven (7) units of motor vehicles for
a total amount of P47,700.00 payable in three (3) installments. The transaction
was evidenced by a written "Agreement" wherein the terms of payment had
been specified as follows: That if for any reason the VENDEE should fail to pay
her aforementioned obligation to the VENDOR,the latter shall become
automatically the owner of the former's apartment which is located at No. 307,
Ligaya Building, Alvarado St., Binondo, Manila, with the only obligation on its
part to pay unto the VENDEE the amount of Three Thousand Five Hundred
Thirty Five (P3,535.00) Pesos, Philippine Currency; and in such event the
VENDEE shall execute the corresponding Deed of absolute Sale in favor of the
VENDOR and or the Assignment of Leasehold Rights.
After making a downpayment of P7,700.00, the SPOUSES failed to pay the
balance of P40,000.00. Due to these unpaid balances, BAYANIHAN filed an
action for specific performance against the SPOUSES.
Page 10
ISSUE: Whether deed of assignment is null and void because it is in the nature
of a pactum commissoriumand/or was borne out of the same.
property involved in this case. The SPOUSES elected to execute the deed of
assignment pursuant to said judgment.
Clearly, there was no automatic vesting of title on BAYANIHAN because it took
the intervention of the trial court to exact fulfillment of the obligation, which, by
its very nature is ". . anathema to the concept of pacto commissorio" And even
granting that the original agreement between the parties had the badges
of pactum commissorium, the deed of assignment does not suffer the same fate
as this was executed pursuant to a valid judgment in Civil Case .
4 ROXAS VS CA
Petitioner Blanca Consuelo Roxas is the owner of a parcel of land. She
executed a special power of attorney appointing her brother, the late Manuel
Roxas, as her attorney-in-fact for the purpose of applying for an agricultural
loan with private respondent Rural Bank of Dumalag, Inc. using said land as
makes it obvious that the debt referred to in the law is a CURRENT, not an
obligation that is yet merely contemplated. In the chattel mortgage here
involved, the only obligation specified in the chattel mortgage contract was the
P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of
Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage void or terminated.
It is settled doctrine that failure to publish notice of auction sale as required by
the statute constitutes a jurisdiction defects with invalidates the sale. Even slight
deviations therefrom are not allowed.
Section 5 of Republic Act No. 720, as amended by Republic Act No. 5939 the
Page 11
NO. Only Delgado signed the promissory note and accordingly, he was the only one
bound by the contract of loan. Nowhere did it appear in the promissory note that
petitioner was a co-debtor. The law is clear that "(c)ontracts take effect only between
the parties. But by some stretch of the imagination, petitioner was held solidarily liable
for the debt allegedly because he was a co-mortgagor of the principal debtor, Delgado.
This ignores the basic precept that "(t)here is solidarily liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity."
We have already stated that the contract of loan, as evidenced by the promissory note,
was signed by Delgado only. Petitioner had no part in the said contract. Thus,
nowhere could it be seen from the agreement that petitioner was solidarily bound with
Delgado for the payment of the loan.
There is also no legal provision nor jurisprudence in our jurisdiction which makes a third
The mortgage contract was signed only by Delgado as mortgagor. The Special
Power of Attorney did not make petitioner a mortgagor. All it did was to authorize
Delgado to mortgage certain properties belonging to petitioner. And this is in
compliance with the requirement in Article 2085 of the Civil Code which states that:
"Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
xxx xxx xxx
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose."
In effect, petitioner lent his car to Delgado so that the latter may mortgage the same to
secure his debt. Thus, from the contract itself, it was clear that only Delgado was the
mortgagor regardless of the fact the he used properties belonging to a third person to
secure his debt.
Granting, however, that petitioner was obligated under the mortgage contract to
answer for Delgado's indebtedness, under the circumstances, petitioner could
not be held liable because the complaint was for recovery of a sum of money, and
not for the foreclosure of the security. We agree with petitioner that the filing of
collection suit barred the foreclosure of the mortgage.
Page 12
person who secures the fulfillment of another's obligation by mortgaging his own
property to be solidarily bound with the principal obligor. A chattel mortgage may be
"an accessory contract" to a contract of loan, but that fact alone does not make a
third-party mortgagor solidarily bound with the principal debtor in fulfilling the
principal obligation that is, to pay the loan. The signatory to the principal contract
loan remains to be primarily bound. It is only upon the default of the latter that the
creditor may have been recourse on the mortgagors by foreclosing the mortgaged
properties in lieu of an action for the recovery of the amount of the loan. And the liability
of the third-party mortgagors extends only to the property mortgaged. Should there be
any deficiency, the creditors has recourse on the principal debtor.
Respondent Honesto Ong and City Sheriff of Manila filed a motion for the
reconsideration of this Court's resolution of August 29, 1975. In that resolution,
it was held that the lien of Northern Motors, Inc., as chattel mortgagee, over
certain taxicabs is superior to the levy made on the said cabs by Honesto Ong,
the assignee of the unsecured judgment creditor of the chattel mortgagor,
Manila Yellow Taxicab Co., Inc. Northern Motors, Inc. in its motion for the
partial reconsideration, prayed for the reversal of the TC's orders cancelling the
bond filed by Filwriters Guaranty Assurance Corporation. Northern Motors, Inc.
The essence of the chattel mortgage is that the mortgaged chattels should
answer for the mortgage credit and not for the judgment credit of the
mortgagor's unsecured creditor. The mortgagee is not obligated to file an
"independent action" for the enforcement of his credit. To require him to do so
would be a nullification of his lien and would defeat the purpose of the chattel
mortgage which is to give him preference over the mortgaged chattels for the
satisfaction of his credit.
Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel
mortgage should not affect him because he is not privy of such contract is
untenable. The registration of the chattel mortgage is an effective and
binding notice to him of its existence. The mortgage creates a real right or
a lien which, being recorded, follows the chattel wherever it goes.
Doctrine: The execution was not justified and that Northern Motors, Inc., as
mortgagee, was entitled to the possession of the eight taxicabs. Those cabs
should not have been levied upon and sold at public auction to satisfy the
judgment credit which was inferior to the chattel mortgage. Since the cabs could
no longer be recovered because apparently they had been transferred to
persons whose addresses are unknown, the proceeds of the execution sale
may be regarded as a partial substitute for the unrecovarable cabs (arts.
1189[2] and 1269, Civil Code; Urrutia & Co. vs. Baco River Plantation Co., 26
Phil. 632). Northern Motors, Inc. is entitled to the entire proceeds without
deduction of the expenses of execution.
Page 13
further prayed that the sheriff should be required to deliver to it the proceeds of
the execution sale of the mortgaged taxicabs without deducting the expenses of
execution.
ISSUE: Whether the levy made by mortgagor's judgment creditor against the
chattel mortgagor should prevail over the chattel mortgage credit.
If a house of strong materials, like what was involved in Tumalad case, may be
considered as personal property for purposes of executing a chattel mortgage
thereon as long as the parties to the contract so agree and no innocent third
party will be prejudiced thereby, there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because one who
has so agreed is estopped from denying the existence of the chattel mortgage.
As held in the case of Tumalad vs vicencio:
Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way of
chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they
should not now be allowed to make an inconsistent stand by claiming otherwise.
Moreover, the subject house stood on a rented lot to which defendantsappellants merely had a temporary right as lessee, and although this can not in
itself alone determine the status of the property, it does so when combined with
other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality. Finally, unlike in the Iya
cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong
Machinery & Williamson, wherein third persons assailed the validity of the
chattel mortgage, it is the defendants-appellants themselves, as debtorsmortgagors, who are attacking the validity of the chattel mortgage in this case.
The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Page 14
1.
2.
3.
4.
5.
6.
7.
ISSUE:
There is no question as to IYAs right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of
2 mortgages; controversy arise as to which of these encumbrances should
receive preference over the other?
Page 15
Yes. In Philippine Commercial and Industrial Bank (PCIB) us. National Mines
and Allied Workers Union, 4 the Solicitor General took a different view and there
urged that the term "wages" under Article 110 of the Labor Code may be
regarded as embracing within its scope severance pay or termination or
separation pay. In PCIB, this Court agreed with the position advanced by the
Solicitor General. We see no reason for overturning this particular position. We
continue to believe that, for the specific purposes of Article 110 and in the
context of insolvency termination or separation pay is reasonably regarded as
forming part of the remuneration or other money benefits accruing to employees
or workers by reason of their having previously rendered services to their
employer; as such, they fall within the scope of "remuneration or earnings for
services rendered or to be rendered ." Liability for separation pay might
indeed have the effect of a penalty, so far as the employer is concerned. So far
as concerns the employees, however, separation pay is additional remuneration
to which they become entitled because, having previously rendered services,
they are separated from the employer's service. The relationship between
separation pay and services rendered is underscored by the fact that separation
pay is measured by the amount (i.e., length) of the services rendered.
Turning first to special preferred credits under Articles 2241 and 2242, it should
be noted at once that these credits constitute liens or encumbrances on the
specific movable or immovable property to which they relate. Article 2243
makes clear that these credits "shall be considered as mortgages or pledges of
real or personal property, or liens within the purview of legal provisions
governing insolvency." It should be emphasized in this connection that "duties,
taxes and fees due [on specific movable property of the insolvent] to the State
or any subdivision thereof" (Article 2241 [1]) and "taxes due upon the
[insolvent's] land or building (2242 [1])"stand first in preference in respect of the
particular movable or immovable property to which the tax liens have attached.
Article 2243 is quite explicit: "[T]axes mentioned in number 1, Article 2241 and
number 1, Article 2242 shall first be satisfied. " The claims listed in numbers 2 to
13 in Article 2241 and in numbers 2 to 10 in Articles 2242, all come after taxes
in order of precedence; such claims enjoy their privileged character as liens and
may be paid only to the extent that taxes have been paid from the proceeds of
the specific property involved (or from any other sources) and only in respect of
the remaining balance of such proceeds. What is more, these other (non-tax)
credits, although constituting liens attaching to particular property,
are not preferred one over another inter se. Provided tax liens shall have been
satisfied, non-tax liens or special preferred credits which subsist in respect of
specific movable or immovable property are to be treated on an equal basis and
to be satisfied concurrently and proportionately. Put succintly, Articles 2241
Page 16
and 2242 jointly with Articles 2246 to 2249 establish a two-tier order of
preference. The first tier includes only taxes, duties and fees due on specific
movable or immovable property. All other special preferred credits stand on the
same second tier to be satisfied, pari passu and pro rata, out of any residual
value of the specific property to which such other credits relate.
Credits which are specially preferred because they constitute liens (tax or nontax) in turn, take precedence over ordinary preferred credits so far as concerns
the property to which the liens have attached. The specially preferred credits
must be discharged first out of the proceeds of the property to which they relate,
before ordinary preferred creditors may lay claim to any part of such proceeds.
If the value of the specific property involved is greater than the sum total of the
tax liens and other specially preferred credits, the residual value will form part of
the "free property" of the insolvent i.e., property not impressed with liens by
operation of Articles 2241 and 2242. If, on the other hand, the value of the
specific movable or immovable is less than the aggregate of the tax liens and
other specially preferred credits, the unsatisfied balance of the tax liens and
other such credits are to the treated as ordinary credits under Article 2244 and
to be paid in the order of preference there set up.
In contrast with Articles 2241 and 2242, Article 2244 creates no liens on
determinate property which follow such property. What Article 2244 creates are
simply rights in favor of certain creditors to have the cash and other assets of
the insolvent applied in a certain sequence or order of priority.
Only in respect of the insolvent's "free property" is an order of priority
established by Article 2244. In this sequence, certain taxes and assessments
also figure but these do not have the same kind of overriding preference that
Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens on
the taxpayer's property.
We come to the question of what impact Article 110 of the Labor Code has had
upon the complete scheme of classification, concurrence and preference of
credits in insolvency set out in the Civil Code. We believe and so hold that
Article 110 of the Labor Code did not sweep away the overriding preference
accorded under the scheme of the Civil Code to tax claims of the government or
any subdivision thereof which constitute a lien upon properties of the Insolvent.
It is frequently said that taxes are the very lifeblood of government. The
effective collection of taxes is a task of highest importance for the sovereign. It
is critical indeed for its own survival. It follows that language of a much higher
degree of specificity than that exhibited in Article 110 of the Labor Code is
Page 17
necessary to set aside the intent and purpose of the legislator that shines
through the precisely crafted provisions of the Civil Code. It cannot be
assumed simpliciter that the legislative authority, by using in Article 110 the
words "first preference" and "any provision of law to the contrary
notwithstanding" intended to disrupt the elaborate and symmetrical structure set
up in the Civil Code. Neither can it be assumed casually that Article 110
intended to subsume the sovereign itself within the term "other creditors" in
stating that "unpaid wages shall be paid in full before other creditors may
establish any claim to a share in the assets of employer." Insistent
considerations of public policy prevent us from giving to "other creditors" a
linguistically unlimited scope that would embrace the universe of creditors save
only unpaid employees.
We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given to
taxes, duties and fees by the Civil Code and the fact that the Labor Code does
not impress any lien on the property of an employer, the use of the phrase "first
preference" in Article 110 indicates that what Article 110 intended to modify
is the order of preference found in Article 2244, which order relates, as we have
seen, to property of the Insolvent that is not burdened with the liens or
encumbrances created or recognized by Articles 2241 and 2242. We have
noted that Article 2244, number 2, establishes second priority for claims for
wages for services rendered by employees or laborers of the Insolvent "for one
year preceding the commencement of the proceedings in insolvency." Article
110 of the Labor Code establishes "first preference" for services rendered
"during the period prior to the bankruptcy or liquidation, " a period not limited to
the year immediately prior to the bankruptcy or liquidation. Thus, very
substantial effect may be given to the provisions of Article 110 without
grievously distorting the framework established in the Civil Code by holding, as
we so hold, that Article 110 of the Labor Code has modified Article 2244 of the
Civil Code in two respects: (a) firstly, by removing the one year limitation found
in Article 2244, number 2; and (b) secondly, by moving up claims for unpaid
wages of laborers or workers of the Insolvent from second priority to first
priority in the order of preference established I by Article 2244.
Page 18