Sps. Mamaril vs.

Boy Scout of the Philippines (2013) (Civil Law)

Sps. Mamaril vs. Boy Scout of the Philippines | G.R. No. 179382 | January 14, 2013

Facts: PUJ operators Sps. Mamaril would park their 6 passenger jeepneys every night at
BSP’s compound in Malate, Manila for a fee of P300.00 per month for each unit. One day,
one of the vehicles was missing and was never recovered. According to the security guards
Peña and Gaddi of AIB Security Agency with whom BSP had contracted for its security and
protection, a male person who looked familiar to them took the subject vehicle out of the
compound. Sps. Mamaril prayed that Peña and Gaddi, together with AIB and BSP, be held
liable for: (a) the value of the subject vehicle; (b) amount representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d)
moral damages; (e) attorney's fees; and (f) cost of suit.

BSP denied any liability contending that not only did Sps. Mamaril directly deal with AIB
with respect to the manner by which the parked vehicles would be handled, but the parking
ticket itself expressly stated that the "Management shall not be responsible for loss of vehicle
or any of its accessories or article left therein." It also claimed that Sps. Mamaril erroneously
relied on the Guard Service Contract. Apart from not being parties thereto, its provisions
cover only the protection of BSP's properties, its officers, and employees.

Issue: Whether or not BSP may be held liable for the loss of the vehicle caused by the
negligence of its security guards.

Held: The proximate cause of the loss of Sps. Mamaril's vehicle was the negligent act of
security guards Peña and Gaddi in allowing an unidentified person to drive out the subject
vehicle. The records are bereft of any finding of negligence on the part of BSP. Neither will
the vicarious liability of an employer under Article 2180 of the Civil Code apply in this case.
Peña and Gaddi were assigned as security guards by AIB to BSP pursuant to the Guard
Service Contract. No employer-employee relationship existed between BSP and the security
guards assigned in its premises. Sps. Mamaril are not parties to the Guard Service Contract.
Guard Service Contract between defendant-appellant BSP and defendant AIB Security
Agency is purely between the parties therein.

Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent. If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred
to as a stipulation pour autrui, may demand its fulfillment, the following requisites must
concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a part, not
the whole, of the contract; (3) The contracting parties clearly and deliberately conferred a
favor to the third person - the favor is not merely incidental; (4) The favor is unconditional
and uncompensated; (5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not represent, or are not authorized,
by the third party. However, none of the foregoing elements obtains in this case.There is
absolutely nothing in the said contract that would indicate any obligation and/or liability on
the part of the parties therein in favor of third persons such as herein plaintiffs-appellees.

Moreover, the Court concurs with the finding of the CA that the contract between the parties
herein was one of lease as defined under Article 1643 of the Civil Code. It has been held that
the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. The
agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated
only with AIB and its security guards, without the knowledge and consent of BSP.
Accordingly, the mishandling of the parked vehicles that resulted in herein complained loss
should be recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB;
and not against the lessor, BSP.

O’ Laco vs Co Cho Chit

Breach of Trust; Half-Sisters; Resulting and Constructive Trusts.
Facts: Emila is thehalf sister of O Lay Kia who is, as is her husband Co Cho Chit, a Chinese
nationaland cannot own property in the Philippines. O lay kia bought a piece of land and
hadit named under her sister, Emilia. Emilia on the other hand sold the property to theChurch
without the knowledge of her sister. When O Lay Kia found out, theyimmediately filed a case
for breach of contract.

Issue: WoN there was a trustrelationship between the sisters.

Held: Yes. ”… trust relations between parties mayeither be express or implied. Express trusts
are those which are created by thedirect and positive acts of the parties, by some writing or
deed, or will, or by wordsevincing an intention to create a trust.

Implied trusts are those which, without beingexpress, are deducible from the nature of
the transaction as matters of intent, orwhich are superinduced on the transaction by operation
of law as matters of equity,independently of the particular intention of the parties. Implied
trusts may either beresulting or constructive trusts, both coming into being by operation of
law.Resulting trusts are based on the equitable doctrine that valuable consideration andnot
legal title determines the equitable title or interest and are presumed always tohave been
contemplated by the parties. They arise from the nature orcircumstances of the consideration
involved in a transaction whereby one personthereby becomes invested with legal title but
is obligated in equity to hold his legaltitle for the benefit of another. On the other hand,
constructive trusts are createdby the construction of equity in order to satisfy the demands of
justice

and preventunjust enrichment. They arise contrary to intention against one who, by
fraud,duress or abuse of confidence, obtains or holds the legal right to property which
heought not, in equity and good conscience, to hold.”

VILLAREAL V. RAMIREZ

Facts:
In 1984, Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of
P750,000for the operation of a restaurant and catering business. Respondent Ramirez joined
as a partner in the business with the capital contribution of P250,000. In 1987, Jesus Jose
withdrew from the partnership and within the same time, Villareal and Carmelito Jose,
petitioners closed the business without prior knowledge of respondents In March 1987,
respondents wrote a letter to petitioners stating that they were no longer interested in
continuing the partnership and that they were accepting the latter’s offer to return their capital
contribution. This was left unheeded by the petitioners, and by reason of which respondents
filed a complaint in the RTC.RTC ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time, and this dissolution was showed by the
fact that petitioners stopped operating the restaurant. On appeal, CA upheld RTC’s decision
that the partnership was dissolved and it added that respondents had no right to demand the
return of their capital contribution. However since petitioners did not give the proper
accounting for the liquidation of the partnership, the CA took it upon itself to compute their
liabilities and the amount that is proper to the respondent. The computation of which
was:(capital of the partnership – outstanding obligation) / remaining partners =amount due to
private respondent

Issue: W/N petitioners are liable to respondents for the latter’s share in the partnership?

Ruling:

No. Respondents have no right to demand from petitioner the return of their equity share. As
found by the court petitioners did not personally hold its equity or assets. “The partnership
has a juridical personality separate and distinct from that of each of the partners.” Since the
capital was contributed to the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. Therefore, the exact
amount of refund equivalent to respondents’ one-third share in the partnership cannot be
determined until all the partnership assets will have been liquidated and all partnership
creditors have been paid. CA’s computation of the amount to be refunded to respondents as
their share was thus erroneous.

CA-Agro Industrial Devt Corp vs CA 219 SCRA 426

Facts:
On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses Ramon
and Paula Pugao entered into an agreement whereby the former purchase two parcel of lands
from the latter. It was paid of downpayment while the balance was covered by there
postdated checks. Among the terms and conditions embodied in the agreement were the titles
shall be transferred to the petitioner upon full payment of the price and the owner's copies of
the certificate of titles shall be deposited in a safety deposit box of any bank. Petitioner and
the Pugaos then rented Safety Deposit box of private respondent Security Bank and Trust
Company.

Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos demand
the execution of a deed of sale which necessarily entailed the production of the certificate of
titles. In view thereof, Aguirre, accompanied by the Pugaos, then proceed to the respondent
Bank to open the safety deposit box and get the certificate of titles. However, when opened in
the presence of the Bank's representative, the box yielded no such certificate. Because of the
delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.

Hence this petition.

Issue:
Whether or not the contract of rent between a commercial bank and another party for the use
of safety deposit box can be considered alike to a lessor-lessee relationship.

Ruling:
The petitioner is correct in making the contention that the contract for the rent of the deposit
box is not a ordinary contract of lease as defined in Article 1643 of the Civil Code. However,
the Court do not really subscribe to its view that the same is a contract of deposit that is to be
strictly governed by the provisions in Civil Code on Deposit; the contract in the case at bar is
a special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box
was not given to the joint renters- the petitioner and the Pugaos. The guard key of the box
remained with the respondent bank; without this key, neither of the renters could open the
box. On the other hand, the respondent bank could not likewise open the box without the
renter's key. The Court further assailed that the petitioner is correct in applying American
Jurisprudence. Herein, the prevailing view is that the relation between the a bank renting out
safe deposits boxes and its customer with respect to the contents of the box is that of a bail or/
and bailee, the bailment being for hire and mutual benefits. That prevailing rule has been
adopted in Section 72 of the General Banking Act.

Section 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other that building and loan associations may perform the following
services:
(a) Receive in custody funds, document and valuable objects and rents safety deposits taxes
for the safeguard of such effects.
xxx xxx xxx
The bank shall perform the services permitted under subsections (a) (b) and (c) of this section
as depositories or as agents.

Teofisto Guingona, Jr., Antonio Martin, and Teresita Santos vs. The City Fiscal of Manila,
Hon. Jose Flaminiano, Asst. City Fiscal Felizardo Lota and

Facts:

From March 1979 to March 1981, Clement David made several investments with the
National Savings and Loan Association. On March 21, 1981, the bank was placed under
receivership by the Bangko Sentral. Upon David’s request, petitioners Guingona and Martin
issued a joint promissory note, absorbing the obligations of the bank. On July 17, 1981, they
divided the indebtedness. David filed a complaint for estafa and violation of Central Bank
Circular No. 364 and related regulations regarding foreign exchange transactions before the
Office of the City Fiscal of Manila. Petitioners filed the herein petition for prohibition and
injunction with a prayer for immediate issuance of restraining order and/or writ of
preliminary injunction to enjoin the public respondents to proceed with the preliminary
investigation on the ground that the petitioners’ obligation is civil in nature.

Issue:

(1) Whether the contract between NSLA and David is a contract of depositor a contract of
loan, which answer determines whether the City Fiscal has the jurisdiction to file a case for
estafa

(2) Whether there was a violation of Central Bank Circular No. 364

Held:

(1) 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. 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
theamount 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.

But even granting that the failure of the bank to pay the time and savings deposits of private
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. Moreover, while it is true that novation does not extinguish
criminal liability, it may however, prevent the rise of criminal liability as long as it occurs
prior to the filing of the criminal information in court. In the case at bar, there is no dispute
that petitioners Guingona and Martin executed a promissory note on June 17, 1981 assuming
the obligation of the bank to private respondent David; while the criminal complaint for
estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the Office of the
City Fiscal. Consequently, as aforestated, any incipient criminal liability would be avoided
but there will still be a civil liability on the part of petitioners Guingona and Martin to pay the
assumed obligation.

[G.R. No. 115324. February 19, 2003] PRODUCERS BANK OF THE PHILIPPINES (now
FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS AND
FRANKLIN VIVES, respondents.
MONDAY, FEBRUARY 3, 2014 Labels: Credit Transactions

FACTS:

Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend

Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his

business, the Sterela Marketing and Services (“Sterela” for brevity). Specifically, Sanchez

asked private respondent to deposit in a bank a certain amount of money in the bank account

of Sterela for purposes of its incorporation. She assured private respondent that he could

withdraw his money from said account within a month’s time. With this, Mrs. Vivies,

Sanchez and a certain Estrella Dumagpi, secretary of Doronilla, went to the bank to open an

account with Mrs. Vives and Sanchez as signatories. A passbook was then issued to Mrs.

Vives. Subsequently, private respondent learned that part of the money was withdrawn

without presentment of the passbook as it was his wife got hold of such. Mrs. Vives could not

also withdraw said remaining amount because it had to answer for some postdated checks

issued by Doronilla who opened a current account for Sterela and authorized the bank to

debit savings.

Private respondent referred the matter to a lawyer, who made a written demand upon

Doronilla for the return of his client’s money. Doronilla issued another check for

P212,000.00 in private respondent’s favor but the check was again dishonored for
insufficiency of funds.

Private respondent instituted an action for recovery of sum of money in the Regional Trial

Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and

petitioner. The RTC ruled in favor of the private respondent which was also affirmed in toto

by the CA. Hence this petition.

ISSUE: WON THE TRANSACTION BETWEEN THE DORONILLA AND

RESPONDENT VIVES WAS ONE OF SIMPLE LOAN.

HELD: NO.

A circumspect examination of the records reveals that the transaction between them was a

commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in

this wise:

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 be 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.

In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan,

ownership passes to the borrower.

The foregoing provision seems to imply that if the subject of the contract is a consumable

thing, such as money, the contract would be a mutuum. However, there are some instances

where a commodatum may have for its object a consumable thing. Article 1936 of the Civil

Code provides:

Consumable goods may be the subject of commodatum if the purpose of the contract is not
the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention

of the parties is to lend consumable goods and to have the very same goods returned at the

end of the period agreed upon, the loan is a commodatum and not a mutuum.

The rule is that the intention of the parties thereto shall be accorded primordial consideration

in determining the actual character of a contract. In case of doubt, the contemporaneous and

subsequent acts of the parties shall be considered in such determination.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per annum — as reflected in the
case of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions, before its amendment by BSP-MB Circular No. 799 — but will now be six percent (6%) per
annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum
shall be the prevailing rate of interest when applicable.42(Emphasis supplied, citations omitted)

[ G.R. No. 210542, February 24, 2016 ]

ROSALINA CARODAN, PETITIONER, VS. CHINA BANKING CORPORATION,

RESPONDENT.

DECISION

SERENO, C.J.:
This is a Petition for Review on Certiorari[1] seeking to set aside the Decision[2] dated 9 July
2013 and the Resolution[3] dated 29 November 2013 rendered by the Court of Appeals (CA),
Ninth Division, Manila, in CA-G.R. CV No. 95835. The CA denied petitioner's appeal
assailing the Decision[4] dated 23 June 2010 issued by the Regional Trial Court (RTC) of
Tuguegarao City, Branch 2, in Civil Case No. 5692.

THE ANTECEDENT FACTS

The records reveal that on 6 June 2000, China Banking Corporation (China Bank) instituted a
Complaint[5] for a sum of money against Barbara Perez (Barbara), Rebecca Perez-Viloria
(Rebecca), Rosalina Carodan (Rosalina) and Madeline Carodan (Madeline). China Bank
claimed that on 15 January 1998, Barbara and Rebecca, for value received, executed and
delivered Promissory Note No. TLS-98/007[6] to respondent bank under which they promised
therein to jointly and severally pay the amount of P2.8 million.[7] China Bank further claimed
that as security for the payment of the loan, Barbara, Rebecca and Rosalina also executed a
Real Estate Mortgage[8] over a property registered in the name of Rosalina and covered by
Transfer Certificate Title (TCT) No. T-10216.[9] Respondent alleged that a Surety
Agreement[10] in favor of China Bank as creditor was also executed by Barbara and Rebecca
as principals and Rosalina and her niece Madeline as sureties. Through that agreement, the
principals and sureties warranted the payment of the loan obligation amounting to F2.8
million including interests, penalties, costs, expenses, and attorney's fees.[11]

Barbara and Rebecca failed to pay their loan obligation despite repeated demands from China
Bank. Their failure to pay prompted the bank institute extrajudicial foreclosure proceedings
on the mortgaged property on 26 November 1999.[12] From the extrajudicial sale, it realized
only PI.5 million as evidenced by a Certificate of Sale.[13] This amount, when applied to the
total outstanding loan obligation of PI,865,345.77, would still leave a deficiency of
P365,345.77. For that reason, the bank prayed that the court order the payment of the
deficiency amount with interest at 12% per annum computed from 13 January 2000;
attorney's fees equal to 10% of the deficiency amount; and litigation expenses and costs of
suit.[14]

Barbara and Rebecca filed their Answer. They interposed the defense that although they both
stood as principal borrowers, they had entered into an oral agreement with Madeline and
Rosalina. Under that agreement which was witnessed by China Bank's loan officer and
branch manager, they would equally split both the proceeds of the loan and the corresponding
obligation and interest pertaining thereto, and they would secure the loan with the properties
belonging to them.[15] Barbara and Rebecca used as security their real properties covered by
TCT Nos. T-93177, T-93176, T-93174, T-93167, T-93169, T-93170, T-93171 and T-93172;
while Rosalina and Madeline used for the same purpose the former's property covered by
TCT No. T-10216.[16]

Barbara and Rebecca further alleged that while Rosalina and Madeline obtained their share of
P1.4 million of the loan amount, the latter two never complied with their obligation to pay
interest. It was only Rebecca's account with China Bank that was automatically debited in the
total amount of P1,002,735.54.[17] Barbara and Rebecca asked China Bank for the
computation of their total obligation, for which they paid P1.5 million aside from the interest
payments, and respondent bank thereafter released the Real Estate Mortgage over their
properties.[18]

By way of crossclaim, Barbara and Rebecca asked Rosalina and Madeline to pay half of
P1,002,735.54 as interest payments, as well as the deficiency amount plus 12% interest per
annum and attorney's fees, the total amount of which pertained to the loan obligation of the
latter two.[19] By way of counterclaim, Barbara and Rebecca also asked China Bank to pay
P1million as moral damages, P500,000 as exemplary damages, plus attorney's fees and costs
of suit.[20]

China Bank filed its Reply and Answer to Counterclaim clarifying that it was suing Barbara
and Rebecca as debtors under the Promissory Note and as principals in the Surety
Agreement, as well as Rosalina and Madeline as sureties in the Surety Agreement.[21] It
claimed that equal sharing of the proceeds of the loan was "a bat at misrepresentation" and "a
self-serving prevarication," because what was clearly written on the note was that Rebecca
and Barbara were the principal debtors.[22] It reiterated that the two were liable for the full
payment of the principal amount plus the agreed interest, charges, penalties and attorney's
fees, with recourse to reimbursement from Rosalina and Madeline.[23]

China Bank also disputed the claim of Rebecca and Barbara that upon their payment to the
bank of P1.5 million, the Real Estate Mortgage over their properties was cancelled. Their
claim was disputed because, even after their payment of P1.5 million, Rebecca and Barbara
were still indebted in the amount of P1.3 million exclusive of interest, charges, penalties and
other legitimate fees.[24] Furthermore, respondent stated that if there was a cancellation of
mortgage, it referred to other mortgages securing other separate loan obligations of Barbara
and Rebecca; more particularly, that of Barbara.[25]

Rosalina filed her Answer with Counterclaim and Crossclaim.[26] She alleged that on 2 July
1997, she and Barbara executed (1) a Real Estate Mortgage covering Rosalina's lot and
ancestral house, as well as Barbara's eight residential apartments, annotated as an
encumbrance at the back of the TCTs corresponding to the properties as evidenced by the
Annexes to the Answer; and (2) a Surety Agreement to secure the credit facility granted by
the bank to Barbara and Rebecca up to the principal amount of P2.8 million.[27]Rosalina
further stated that the execution of the contracts was "made in consideration of the long-time
friendship" between Barbara and Rebecca, and Madeline, and that "no monetary or material
consideration whatsoever passed between [Barbara and Rebecca], on the one hand, and
[Rosalina], on the other hand.[28]

Rosalina acknowledged that on 15 January 1998, Barbara and Rebecca executed a

Promissory Note for the purpose of evidencing a loan charged against the loan facility
secured by the mortgage.[29] She averred, though, that when Barbara and Rebecca paid half of
the loan under the Promissory Note, the properties of Barbara covered by the mortgage were
released by the bank from liability. The cancellation of the mortgage lien was effected by an
instrument dated 27 May 1999 and reflected on the TCTs evidenced by the Annexes to the
Answer.[30]

This cancellation, according to Rosalina, illegally and unjustly caused her property to absorb
the singular risk of foreclosure.[31] The result, according to her, was the extinguishment of the
indivisible obligation contained in the mortgage pursuant to Article 1216[32] of the Civil
Code.[33]

Rosalina further averred that when the bank instituted the foreclosure proceedings, it
misrepresented that her property was the only one that was covered by the mortgage; omitted
from the schedule of mortgaged properties those of Barbara; and misrepresented that "the
terms and condition of the aforesaid mortgage have never been changed or modified whether
tacitly or expressly, by any agreement made after the execution thereof."[34]

Finally, Rosalina stated that she had made demands on Barbara and Rebecca to cause the
rectification of the illegal and unjust deprivation of her property in payment of the indemnity.
Allegedly, Barbara and Rebecca simply ignored her demands, so, she prayed that the two be
held solidarily liable for the total amount of damages and for the deficiency judgment sought
in this Complaint.[35]

China Bank filed its Reply and Answer to Counterclaim.[36] It alleged that the issue of
whether Rosalina obtained material benefit from the loan was not material, since she had
voluntarily and willingly encumbered her property;[37] that the indivisibility of mortgage does
not apply to the case at bar, since Article 2089[38] of the Civil Code presupposes several heirs,
a condition that is not present in this case;[39] that nothing short of payment of the debt or an
express release would operate to discharge a mortgage;[40] and that, as surety, Rosalina was
equally liable as principal debtor to pay the deficiency obligation in the sum of
P365,345.77.[41] The bank also filed its Comment/Opposition[42] to the Entry of Appearance
of Atty. Edwin V. Pascua as counsel for Rosalina. It said that Atty. Pascua had once been its
retained lawyer pursuant to a Retainer Agreement dated 5 September 1997.[43] Because of its
Opposition, Rosalina was subsequently represented by Atty. Reynaldo A. Deray.

All the parties submitted their Pre-Trial Briefs with the exception of Madeline, whose case
had been archived by the RTC upon motion of China Bank for the court's failure to acquire
jurisdiction over her person. The issues of the case were thereafter limited to the following:
(1) whether the defendants were jointly and severally liable to pay the deficiency claim; (2)
whether the surety was still liable to the bank despite the release of the mortgage of the
principal borrower; (3) whether there was a previous agreement among the defendants that
Barbara and Rebecca would receive half and Rosalina and Madeline, the other half; and (4)
whether respondent bank still had a cause of action against the surety after the mortgage of
the principal borrower had been released by the bank.[44]
 THE RULING OF THE RTC

The RTC ruled that although no sufficient proof was adduced to show that Rosalina had
obtained any pecuniary benefit from the loan agreement between Rebecca and Barbara and
China Bank, the mortgage between Rosalina and China Bank was still valid.[45] The trial
court declared that respondent bank had therefore lawfully foreclosed the mortgage over the
property of Rosalina, even if she was a mere accommodation mortgagor.[46] The RTC also
declared Rosalina's claim to be without merit and without basis in law and jurisprudence. She
claimed that because the Real Estate Mortgage covering her property was a single and
indivisible contract, China Bank's act of releasing the principal debtors' properties resulted in
the extinguishment of the obligation.[47] The trial court held that the creditor had the right to
proceed against any one of the solidary debtors, or some or all of them simultaneously; and
that a creditor's right to proceed against the surety exists independently of the creditor's right
to proceed against the principal.[48]

Finally, the RTC ordered Rebecca, Barbara and Rosalina to be jointly and severally liable to
China Bank for the deficiency between the acquisition cost of the foreclosed real estate
property and the outstanding loan obligation of Barbara and Rebecca at the time of the
foreclosure sale. Interest was set at the rate of 12% per annum from 13 January 2000 until full
payment. Rebecca and Barbara were also ordered to reimburse Rosalina for the amount of the
deficiency payment charged against her including interests thereon.[49]

THE RULING OF THE CA

Rosalina filed a timely Notice of Appeal and imputed error to the trial court in finding her,
together with Rebecca and Barbara, jointly and severally liable to pay the deficiency claim; in
finding that she was still liable as surety even if the bank had already released the collateral
of the principal borrower; and in not annulling the foreclosure sale of the property, not
reconveying the property to her, and not awarding her damages as prayed for in her
counterclaim. She said that these were done by the court despite the fact that China Bank had
deliberately and maliciously released the properties of the principal borrowers, thereby
exposing her property to risk.[50]

The CA found the appeal bereft of merit.[51] It qualified Rosalina as a surety who had
assumed or undertaken a principal debtor's responsibility or obligation. As such, she was
supposed to be principally liable for the payment of the debt in case the principal debtors did
not pay, regardless of their financial capacity to do so.[52] As for the deficiency, the CA
cited BPI Family Savings Bank v. Avenido,[53]The Supreme Court had ruled therein that the
creditor was not precluded from recovering any unpaid balance on the principal obligation if
the extrajudicial foreclosure sale of the property, subject of the real estate mortgage, would
result in a deficiency.[54] The CA ultimately affirmed the RTC Decision in toto[55] and denied
the Motion for Reconsideration.[56] Hence, this Petition.

Before this Court, petitioner Rosalina now imputes error to the CA's affirmance of the RTC
Decision. She says that the CA Decision was not in accord with law and jurisprudence in
holding that petitioner, jointly and severally with Barbara and Rebecca, was liable to pay
China Bank's deficiency claim after the bank's release of the collateral of the principal
debtors. Respondent bank's alleged act of exposing Rosalina's property to the risk of
foreclosure despite the indivisible character of the Real Estate Mortgage supposedly violated
Article 2089 of the New Civil Code.[57]

China Bank filed its Comment[58] claiming that all the grounds cited by petitioner were "mere
reiterations, repetitions, or rehashed grounds and arguments raised in the Appellant's Brief x
x x which were exhaustively passed upon and considered by the CA in its Decision";[59] and
that the petition "is wanting of any new, substantial and meritorious grounds that would
justify the reversal of the CA Decision affirming the RTC decision."[60]

THE ISSUE

The sole issue to be resolved by this Court is whether petitioner Rosalina is liable jointly and
severally with Barbara and Rebecca for the payment of respondent China Bank's claims.

THE RULING OF THIS COURT

Loan transactions in banking institutions usually entail the execution of loan documents,
typically a promissory note, covered by a real estate mortgage and/or a surety
agreement.[61] In the instant case, petitioner Rosalina admitted that she was a party to these
loan documents although she vehemently insisted that she had received nothing from the
proceeds of the loan.[62] Meanwhile, respondent bank offered in evidence the Promissory
Note, the Real Estate Mortgage and the Surety Agreement signed by the parties.

We find that Rosalina is liable as an accommodation mortgagor.

In Belo v. PNB,[63] we had the occasion to declare:

An accommodation mortgage is not necessarily void simply because the accommodation

mortgagor did not benefit from the same. The validity of an accommodation mortgage is
allowed under Article 2085 of the New Civil Code which provides that (t)hird persons who
are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property. An accommodation mortgagor, ordinarily, is not himself a recipient of the
loan, otherwise that would be contrary to his designation as such.[64]

Apart from being an accommodation mortgagor, Rosalina is also a surety, defined under
Article 2047 of the Civil Code in this wise:

Art. 2047. By guaranty a person, called a guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarity with the principal debtor, the provisions of Section 4,
Chapter 3, Title 1 of this Book shall be observed. In such case the contract is called a
suretyship.

A contract of suretyship (second paragraph of Article 2047) has been juxtaposed against a
contract of guaranty (first paragraph of Article 2047) as follows:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the
debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking
that the debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the
principal will not pay, while a guarantor agrees that the creditor, after proceeding against the
principal, may proceed against the guarantor if the principal is unable to pay.A surety binds
himself to perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will pay, but simply that he
is able to do so. In other words, a surety undertakes directly for the payment and is so
responsible at once if the principal debtor makes default, while a guarantor contracts to pay
if, by the use of due diligence, the debt cannot be made out of the principal
debtor.[65](Citations omitted)

In Inciong, Jr. v. CA,[66] we elucidated further in this wise:

While a guarantor may bind himself solidarity with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains:

A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes. There
is a difference between a solidary co-debtor, and a fiador in solidum (surety). The latter,
outside of the liability he assumes to pay the debt before the property of the principal debtor
has been exhausted, retains all the other rights, actions and benefits which pertain to him by
reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, title I, Book IV of the Civil Code.
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several
obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same
obligation, the presumption is that the obligation is joint so that each of the debtors is liable
only for a proportionate part of the debt. There is a solidarity liability only when the
obligation expressly so states, when the law so provides or when the nature of the obligation
so requires.[67] (Citations omitted)

Further discussion on the same legal concept proceeded thusly:

A contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A
contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another
in case the latter does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of the principles are
common to both. However, under our civil law, they may be distinguished thus: A surety is
usually bound with his principal by the same instrument, executed at the same time, and on
the same consideration. He is an original promissor and debtor from the beginning, and is
held, ordinarily, to know every default of his principal. Usually, he will not be discharged,
either by the mere indulgence of the creditor to the principal, or by want of notice of the
default of the principal, no matter how much he may be injured thereby. On the other hand,
the contract of guaranty is the guarantor's own separate undertaking, in which the principal
does not join. It is usually entered into before or after that of the principal, and is often
supported on a separate consideration from that supporting the contract of the principal. The
original contract of his principal is not his contract, and he is not bound to take notice of its
non-performance. He is often discharged by the mere indulgence of the creditor to the
principal, and is usually not liable unless notified of the default of the principal.

Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he obligates himself to pay if the principal does not
pay.[68](Citations omitted)

When Rosalina affixed her signature to the Real Estate Mortgage as mortgagor and to the
Surety Agreement as surety which covered the loan transaction represented by the
Promissory Note, she thereby bound herself to be liable to China Bank in case the principal
debtors, Barbara and Rebecca, failed to pay. She consequently became liable to respondent
bank for the payment of the debt of Barbara and Rebecca when the latter two actually did not
pay.

China Bank, on the other hand, had a right to proceed after either the principal debtors or the
surety when the debt became due. It had a right to foreclose the mortgage involving
Rosalina's property to answer for the loan.

The proceeds from the extrajudicial foreclosure, however, did not satisfy the entire
obligation. For this reason, respondent bank instituted the present Complaint against Barbara
and Rebecca as principals and Rosalina as surety.

A mortgage is simply a security for, and not a satisfaction of indebtedness.[69] If the proceeds
of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the
mortgagee is entitled to claim the deficiency from the debtor.[70] We have already recognized
this rule:

While Act No. 3135, as amended, does not discuss the mortgagee's right to recover the
deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery.
If the legislature had intended to deny the creditor the right to sue for any deficiency resulting
from the foreclosure of a security given to guarantee an obligation, the law would expressly
so provide. Absent such a provision in Act No. 3135, as amended, the creditor is not
precluded from taking action to recover any unpaid balance on the principal obligation
simply because he chose to extrajudicially foreclose the real estate mortgage.[71]

The creditor, respondent China Bank in this Petition, is therefore not precluded, from
recovering any unpaid balance on the principal obligation if the extrajudicial foreclosure sale
of the property, subject of the Real Estate Mortgage, would result in a deficiency.

Rosalina protests her liability for the deficiency. She claims that China Bank cancelled the
mortgage lien and released the principal borrowers from liability. She contends that this act
violated Article 2089 of the Civil Code on the indivisibility of mortgage and ultimately
discharged her from liability as a surety.

We disagree.
A resort to the terms of the Surety Agreement can easily settle the question of whether
Rosalina should still be held liable. The agreement expressly contains the following
stipulation:

The Surety(ies) expressly waive all rights to demand for payment and notice of non-payment
and protest, and agree that the securities of every kind that are now and may hereafter be
left with the Creditor its successors, indorsees or assigns as collateral to any evidence of debt
or obligation, or upon which a lien may exist therefor, may be substituted, withdrawn or
surrendered at any time, and the time for the payment of such obligations
extended, without notice to or consent by the Surety(ies) x x x.[72] (Emphases supplied)

We therefore find no merit in Rosalina's protestations in this petition. As provided by the

quoted clause in the contract, she not only waived the rights to demand payment and to
receive notice of nonpayment and protest, but she also expressly agreed that the time for
payment may be extended. More significantly, she agreed that the securities may be
"substituted, withdrawn or surrendered at any time" without her consent or without notice to
her. That China Bank indeed surrendered the properties of the principal debtors was precisely
within the ambit of this provision in the contract. Rosalina cannot now contest that act in light
of her express agreement to that stipulation.

There have been similar cases in which this Court was tasked to rule on whether a surety can
be discharged from liability due to an act or omission of the creditor. A review of these
rulings reveals though, that in the absence of an express stipulation, the surety was discharged
from liability if the act of the creditor was such as would be declared negligent or constitutive
of a material alteration of the contract. On the other hand, in the presence of an express
stipulation in the surety agreement allowing these acts, the surety was not considered
discharged and was decreed to be bound by the stipulations.

In PNB v. Manila Surety,[73] the Court en banc declared the surety discharged from liability
on account of the creditor's negligence. In that case, the creditor failed to collect the amounts
due to the debtor contrary to the former's duty to make collections as holder of an exclusive
and irrevocable power of attorney. The negligence of the creditor allowed the assigned funds
to be exhausted without notice to the surety and ultimately resulted in depriving the latter of
any possibility of recourse against that security.

Also, in PNB v. Luzon Surety,[74] the Court hinted at the possibility of the surety's discharge
from liability. It was recognized in that case that in this jurisdiction, alteration can be a
ground for release. The Court clarified, though, that this principle can only be successfully
invoked on the condition that the alteration is material. Failure to comply with this requisite
means that the surety cannot be freed from liability. Applying this doctrine in that case, the
Court ruled that the alterations in the form of increases in the credit line with the full consent
of the surety did not suffice to release the surety.

Meanwhile, in Pal mares v. CA[75] the Court ruled:

It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by
the creditor without change in the time when the debt might be demanded, does not constitute
an extension of the time of payment, which would release the surety. In order to constitute an
extension discharging the surety, it should appear that the extension of the time was for a
definite period, pursuant to an enforceable agreement between the principal and the creditor,
and that it was made without the consent of the surety or with the reservation of rights with
respect to him. The contract must be one which precludes the creditor from, or at least
hinders him in, enforcing the principal contract with the period during which he could
otherwise have enforced it, and which precludes the surety from paying the debt. (Citations
omitted)

In E. Zobel Inc. v. CA, et al.[76] the Court upheld the validity of the provision on the
continuing guaranty - which we had earlier interpreted as a surety consistent with its contents
and intention of the parties. The Court upheld the validity of the provision despite the
insistence of the surety that he should be released from liability due to the failure of the
creditor to register the mortgage. In particular, the Court decreed:

SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the
obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound
itself to the contract irrespective of the existence of any collateral. It even released
SOLIDBANK from any fault or negligence that may impair the contract. The pertinent
portions of the contract so provides:

the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and notwithstanding any
such change, exchange, settlement, compromise, surrender, release, sale, application, renewal
or extension, and notwithstanding also that all obligations of the Borrower to you outstanding
and unpaid at any time(s) may exceed the aggregate principal sum herein above prescribed.

This is a Continuing Guaranty and shall remain in force and effect until written notice shall
have been received by you that it has been revoked by the undersigned, but any such notice
shall not be released the undersigned from any liability as to any instruments, loans, advances
or other obligations hereby guaranteed, which may be held by you, or in which you may have
any interest, at the time of the receipt of such notice. No act or omission of any kind on your
part in the premises shall in any event affect or impair this guaranty, nor shall same be
affected by any change which may arise by reason of the death of the undersigned, of any
partner(s) of the undersigned, or of the Borrower, or of the accession to any such partnership
of any one or more new partners.[77]

Another illustrative case is Gateway Electronics Corporation and Geronimo delos Reyes v.
Asianbank,[78] in which the surety similarly asked for his discharge from liability. He invoked
the creditor's repeated extensions of maturity dates to the principal debtor's request, without
the surety's knowledge and consent. Still, this Court ruled:

Such contention is unacceptable as it glosses over the fact that the waiver to be notified of
extensions is embedded in surety document itself, built in the ensuing provision:

In case of default by any/or all of the DEBTOR(S) to pay the whole part of said indebtedness
herein secured at maturity, I/WE jointly and severally, agree and engage to the CREDITOR,
its successors and assigns, the prompt payment, without demand or notice from said
CREDITOR of such notes, drafts, overdrafts and other credit obligations on which the
DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR,
together with interest, penalty and other bank charges as may accrue thereon and all expenses
which may be incurred by the latter in collecting any or all such instruments.[79]

On Rosalina's argument that the release of the mortgage violates the indivisibility of
mortgage as enunciated in Article 2089[80] of the Civil Code, People's Bank and Trust
Company v. Tambunting et al.[81] is most instructive. In that case, the surety likewise argued
that he should be discharged from liability. He alleged that the creditor had extended the time
of payment and released the shares pledged by the principal debtors without his consent. The
Court en banc found his argument unpersuasive and decreed:

1. It is thus obvious that the contract of absolute guaranty executed by appellant Santana is
the measure of rights and duties. As it is with him, so it is with the plaintiff bank. What was
therein stipulated had to be complied with by both parties. Nor could appellant have any valid
cause for complaint. He had given his word; he must live up to it. Once the validity of its
terms is conceded, he cannot be indulged in his unilateral determination to disregard his
commitment. A promise to which the law accords binding force must be fulfilled. It is as
simple as that. So the Civil Code explicitly requires: "Obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith."

2. It could have been different if there were no such contract of absolute guaranty to which
appellant was a party under the aforesaid Article 2080. He would have been freed from the
obligation as a result of plaintiff releasing to the Tambuntings without his consent the 135
shares of the International Sports Development Corporation pledged to plaintiff bank
to secure the overdraft line. For thereby subrogation became meaningless. Such a
provision is intended for the benefit of a surety. That was a right he could avail of. He is not
precluded however from waiving it. That was what appellant did precisely when he agreed to
the contract of absolute guaranty. Again the law is clear. A right may be waived unless it
would be contrary to law, public order, public policy, morals or good customs. There is no
occasion here for the exceptions coming into play x x x[82]

While we rule that Rosalina, along with the principal debtors, Barbara and Rebecca, is still
liable as a surety for the deficiency amount, we modify the RTC's imposition of interest rate
at 12% per annum, which the CA subsequently affirmed. We must modify the rates according
to prevailing jurisprudence. Hence, the 12% legal interest should be imposed on the
deficiency amount from 13 January 2000 until 30 June 2013 and 6% legal interest from 1
July 2013 until full payment.

WHEREFORE, premises considered, the assailed CA Decision and Resolution finding

Rosalina Carodan jointly and severally liable with Barbara Perez and Rebecca Perez-Viloria
for the deficiency amount are AFFIRMED WITH MODIFICATIONS. Rebecca, Barbara
and Rosalina are held jointly and severally liable to China Bank for the deficiency amount of
P365,345.77 and interest thereon at the rates of 12% per annum from 13 January 2000 until
30 June 2013 and 6% per annum from 1 July 2013 until full payment; and that Rebecca and
Barbara are also ordered to reimburse Rosalina for the amount charged against her including
interests thereon.
G.R. No. 200468 March 19, 2014

MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES, Petitioners,
vs.
MALARAYAT RURAL BANK, INC., Respondent.

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari assailing the Decision1 dated December 19,
2011 and Resolution2dated February 6, 2012 of the Court of Appeals (CA) in CA-G.R . CV No.
92555. The CA had reversed and set aside the July 29, 2008 Decision3 of the Regional Trial
Court (RTC) Branch 86, of Taal, Batangas, in Civil Case No. 66.

The facts, as culled from the records, follow:

The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land in
Barrio Pinagkurusan, Alitagtag, Batangas, with an area of 4,560 square meters, as evidenced
by Original Certificate of Title (OCT) No. P-129304 of the Register of Deeds of Batangas. On
December 1, 1990, Fermina M. Guia sold the south portion of the land with an approximate
area of 1,350 square meters to the spouses Petronio and Macaria Arguelles.5 Although the
spouses Arguelles immediately acquired possession of the land, the Deed of Sale was neither
registered with the Register of Deeds nor annotated on OCT No. P-12930. At the same time,
Fermina M. Guia ordered her son Eddie Guia and the latter's wife Teresita Guia to subdivide
the land covered by OCT No. P-12930 into three lots and to apply for the issuance of separate
titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she directed the delivery of
the Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the vendees of the
unregistered sale or the spouses Arguelles. However, despite their repeated demands, the
spouses Arguelles claimed that they never received the TCT corresponding to Lot 3-C from
the spouses Guia.

Nevertheless, in accordance with the instructions of Fermina M. Guia, the spouses Guia
succeeded in cancelling OCT No. P-12930 on August 15, 1994 and in subdividing the lot in the
following manner:

Lot No. TCT No. Registered Owner

3-A T-83943 Fermina M. Guia

3-B T-83945 Spouses Datingaling

3-C T-83944 Fermina M. Guia6

On August 18, 1997, the spouses Guia obtained a loan in the amount of ₱240,000 from the
respondent Malarayat Rural Banlc and secured the loan with a Deed of Real Estate
Mortgage7 over Lot 3-C. The loan and Real Estate Mortgage were made pursuant to the
Special Power of Attorney8 purportedly executed by the registered owner of Lot 3-C, Fermina
M. Guia, in favor of the mortgagors, spouses Guia. Moreover, the Real Estate

Mortgage and Special Power of Attorney were duly annotated in the memorandum of
encumbrances of TCT No. T-83944 covering Lot 3-C.

The spouses Arguelles alleged that it was only in 1997 or after seven years from the date of
the unregistered sale that they discovered from the Register of Deeds of Batangas City the
following facts: (1) subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of separate
TCTs for each lot; and (3) the annotation of the Real Estate Mortgage and Special Power of
Attorney over Lot 3-C covered by TCT No. T-83944. Two years thereafter, or on June 17,
1999, the spouses Arguelles registered their adverse claim9 based on the unregistered sale
dated December 1, 1990 over Lot 3-C.

On July 22, 1999, the spouses Arguelles filed a complaint10 for Annulment of Mortgage and
Cancellation of Mortgage Lien with Damages against the respondent Malarayat Rural Banlc
with the RTC, Branch 86, of Taal, Batangas. In asserting the nullity of the mortgage lien, the
spouses Arguelles alleged ownership over the land that had been mortgaged in favor of the
respondent Malarayat Rural Bank. On August 16, 1999, the respondent Malarayat Rural Bank
filed an Answer with Counterclaim and Cross-claim11 against cross-claim-defendant spouses
Gui a wherein it argued that the failure of the spouses Arguelles to register the Deed of Sale
dated December 1, 1990 was fatal to their claim of ownership.

On July 29, 2008, the RTC rendered a Decision, the dispositive portion of which reads as
follows:

WHEREFORE, premises considered judgment is hereby rendered:

1) declaring the mortgage made by the defendants spouses Eddie Guia and Teresita Guia in
favor of defendant Malarayat Rural Bank null and void;

2) setting aside the foreclosure sale had on December 6, 1999 and the corresponding
certificate of sale issued by this Court dated May 12, 2000;

3) ordering the Register of Deeds of the Province of Batangas to cancel the annotation
pertaining to the memorandum of encumbrances (entries no. 155686 and 155688) appearing
in TCT No. T-839[4]4;

4) ordering cross defendants spouses Eddie and Teresita Guia to pay the amount of
Php240,000.00 to cross claimant Malarayat Rural [B]ank corresponding to the total amount
of the loan obligation, with interest herein modified at 12% per annum computed from
default;

5) ordering defendants spouses Eddie and Teresita Guia to pay plaintiffs Arguelles the
amount of Php100,000.00 as moral damages. However, the prayer of the plaintiffs to order
the registration of the deed of sale in their favor as well as the subsequent issuance of a new
title in their names as the registered owners is denied considering that there are other acts
that the plaintiffs ought to do which are administrative in nature, and are dependent upon
compliance with certain requirements pertaining to land acquisition and transfer.

SO ORDERED.12

The RTC found that the spouses Guia were no longer the absolute owners of the land
described as Lot 3-C and covered by TCT No. T-83944 at the time they mortgaged the same
to the respondent Malarayat Rural Bank in view of the unregistered sale in favor of the
vendee spouses Arguelles. Thus, the RTC annulled the real estate mortgage, the subsequent
foreclosure sale, and the corresponding issuance of the certificate of title. Moreover, the RTC
declared that the respondent Malarayat Rural Bank was not a mortgagee in good faith as it
failed to exercise the exacting degree of diligence required from banking institutions.

On September 16, 2008, the respondent filed a notice of appeal with the CA.

On December 19, 2011, the CA reversed and set aside the decision of the court a quo:

IN LIGHT OF THE FOREGOING, premises considered, the instant appeal is GRANTED.

Accordingly, the Decision of the RTC of Taal, Batangas, Branch 86 promulgated on July 29,
2008 in Civil Case No. 66 is hereby REVERSED AND SET ASIDE and the complaint below
dismissed.

SO ORDERED.13

In granting the appeal, the CA held that because of the failure of the spouses Arguelles to
register their deed of sale, the unregistered sale could not affect the respondent Malarayat
Rural Bank. Thus, the respondent Malarayat Rural Bank has a better right to the land
mortgaged as compared to spouses Arguelles who were the vendees in the unregistered sale.
In addition, the CA found that the respondent Malarayat Rural Bank was a mortgagee in good
faith as it sufficiently demonstrated due diligence in approving the loan application of the
spouses Guia. Aggrieved, the petitioners filed the instant petition raismg the following issues
for resolution:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE EXECUTED BY FERMINA
GUIA IN FAVOR OF THE SPOUSES PETRONIO AND MACARIA ARGUELLES CANNOT BE
ENFORCED AGAINST APPELLANT BANK FOR NOT BEING REGISTERED AND ANNOTATED IN THE
CERTIFICATE OF TITLE, DESPITE THE FACT THAT THE BANK HAD ACTUAL KNOWLEDGE
THEREOF.

THE COURT OF APPEALS COMMITTED A MISTAKE IN FINDING THAT APPELLANT BANK IS A

MORTGAGEE IN GOOD FAITH NOTWITHSTANDING CONCLUSIVE EVIDENCE ON RECORD THAT
IT WAS GROSSLY NEGLIGENT IN NOT ASCERTAINING THE REAL CONDITION OF THE PROPERTY
IN THE POSSESSION OF THE SPOUSES ARGUELLES BEFORE ACCEPTING IT AS COLLATERAL FOR
THE LOAN APPLIED FOR BY A MERE ATTORNEY-IN-FACT.

THE COURT OF APPEALS COMMITTED AN ERROR IN DECLARING APPELLANT BANK HAS

BECOME THE ABSOLUTE OWNER OF THE SUBJECT PROPERTY NOTWITHSTANDING THE
NULLITY OF THE REAL ESTATE MORTGAGE EXTRAJUDICIALL Y FORECLOSED BY IT.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE SPOUSES ARGUELLES DID NOT PUT IN
ISSUE THAT APPELLANT BANK HAD CONSTRUCTIVE NOTICE AND POSSESSION OF THE
SUBJECT LOT.14

In fine, the issue in this case is whether the respondent Malarayat Rural Bank is a mortgagee
in good faith who is entitled to protection on its mortgage lien.
Petitioners imputed negligence on the part of respondent Malarayat Rural Bank when it
approved the loan application of the spouses Guia. They pointed out that the bank failed to
conduct a thorough ocular inspection of the land mortgaged and an extensive investigation
of the title of the registered owner. And since the respondent Malarayat Rural Bank cannot
be considered a mortgagee in good faith, petitioners argued that the unregistered sale in
their favor takes precedence over the duly registered mortgage lien. On the other hand,
respondent Malarayat Rural Bank claimed that it exercised the required degree of diligence
before granting the loan application. In particular, it asserted the absence of any facts or
circumstances that can reasonably arouse suspicion in a prudent person. Thus, the
respondent Malarayat Rural Bank argued that it is a mortgagee in good faith with a better
right to the mortgaged land as compared to the vendees to the unregistered sale.

The petition is meritorious.

At the outset, we note that the issue of whether a mortgagee is in good faith generally
cannot be entertained in a petition filed under Rule 45 of the 1997 Rules of Civil Procedure,
as amended.15 This is because the ascertainment of good faith or the lack thereof, and the
determination of negligence are factual matters which lay outside the scope of a petition for
review on certiorari.16 However, a recognized exception to this rule is when the RTC and the
CA have divergent findings of fact17 as in the case at bar. We find that the respondent
Malarayat Rural Bank is not a mortgagee in good faith. Therefore, the spouses Arguelles as
the vendees to the unregistered sale have a superior right to the mortgaged land.

In Cavite Development Bank v. Spouses Lim,18 the Court explained the doctrine of mortgagee
in good faith, thus:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of
the mortgaged property, his title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public policy. This is the
doctrine of "mortgagee in good faith" based on the rule that all persons dealing with the
property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required
to go beyond what appears on the face of the title. The public interest in upholding the
indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what
appears on the face of the certificate of title.

In Bank of Commerce v. Spouses San Pablo, Jr.,19 we declared that indeed, a mortgagee has a
right to rely in good faith on the certificate of title of the mortgagor of the property offered
as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no
obligation to undertake further investigation.

However, in Bank of Commerce v. Spouses San Pablo, Jr.,20 we also ruled that "[i]n cases
where the mortgagee does not directly deal with the registered owner of real property, the
law requires that a higher degree of prudence be exercised by the mortgagee." Specifically,
we cited Abad v. Sps. Guimbci21 where we held, "x x x While one who buys from the
registered owner does not need to look behind the certificate of title, one who buys from
one who is not the registered owner is expected to examine not only the certificate of title
but all factual circumstances necessary for [one] to determine if there are any flaws in the
title of the transferor, or in [the] capacity to transfer the land. " Although the instant case
does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself
includes a mortgagee in the term "purchaser."

Thus, where the mortgagor is not the registered owner of the property but is merely an
attorney-in-fact of the same, it is incumbent upon the mortgagee to exercise greater care
and a higher degree of prudence in dealing with such mortgagor.22 Recently, in Land Bank of
the Philippines v. Poblete,23 we affirmed Bank of Commerce v. Spouses San Pablo, Jr.:

Based on the evidence, Land Bank processed Maniego's loan application upon his
presentation of OCT No. P-12026, which was still under the name of Poblete. Land Bank even
ignored the fact that Kapantay previously used Poblete's title as collateral in its loan account
with Land Bank. In Bank of Commerce v. San Pablo, Jr., we held that when "the person
applying for the loan is other than the registered owner of the real property being
mortgaged, [such fact] should have already raised a red flag and which should have induced
the Bank xx x to make inquiries into and confirm x x x [the] authority to mortgage x x x. A
person who deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent purchaser for value."

Moreover, in a long line of cases, we have consistently enjoined banks to exert a higher
degree of diligence, care, and prudence than individuals in handling real estate transactions.

In Cruz v. Bancom Finance Corporation,24 we declared:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike

private individuals, it is expected to exercise greater care and prudence in its dealings,
including those involving registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.

In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it cannot rely
merely on the certificate of title offered by the mortgagor in ascertaining the status of
mortgaged properties. Since its business is impressed with public interest, the mortgagee-
bank is duty-bound to be more cautious even in dealing with registered lands.26Indeed, the
rule that person dealing with registered lands can rely solely on the certificate of title does
not apply to banks. Thus, before approving a loan application, it is a standard operating
practice for these institutions to conduct an ocular inspection of the property offered for
mortgage and to verify the genuineness of the title to determine the real owners thereof.
The apparent purpose of an ocular inspection is to protect the "true owner" of the property
as well as innocent third parties with a right, interest or claim thereon from a usurper who
may have acquired a fraudulent certificate of title thereto.27

In Metropolitan Bank and Trust Co. v. Cabilzo,28 we explained the socio-economic role of
banks and the reason for bestowing public interest on the banking system:

We never fail to stress the remarkable significance of a banking institution to commercial

transactions, in particular, and to the country's economy in general. The banking system is an
indispensable institution in the modem world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of
money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.

In this case, we find that the respondent Malarayat Rural Bank fell short of the required
degree of diligence, prudence, and care in approving the loan application of the spouses
Guia.

Respondent should have diligently conducted an investigation of the land offered as

collateral.1âwphi1 Although the Report of Inspection and Credit Investigation found at the
dorsal portion of the Application for Agricultural Loan29 proved that the respondent
Malarayat Rural Bank inspected the land, the respondent turned a blind eye to the finding
therein that the "lot is planted [with] sugarcane with annual yield (crops) in the amount of
₱15,000."30

We disagree with respondent's stance that the mere planting and harvesting of sugarcane
cannot reasonably trigger suspicion that there is adverse possession over the land offered as
mortgage. Indeed, such fact should have immediately prompted the respondent to conduct
further inquiries, especially since the spouses Guia were not the registered owners of the
land being mortgaged. They merely derived the authority to mortgage the lot from the
Special Power of Attorney allegedly executed by the late Fermina M. Guia. Hence, it was
incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing with
the spouses Guia, and inquire further regarding the identity and possible adverse claim of
those in actual possession of the property.

Pertinently, in Land Bank of the Philippines v. Poblete,31 we ruled that "[w]here the
mortgagee acted with haste in granting the mortgage loan and did not ascertain the
ownership of the land being mortgaged, as well as the authority of the supposed agent
executing the mortgage, it cannot be considered an innocent mortgagee."

Since the subject land was not mortgaged by the owner thereof and since the respondent
Malarayat Rural Bank is not a mortgagee in good faith, said bank is not entitled to protection
under the law. The unregistered sale in favor of the spouses Arguelles must prevail over the
mortgage lien of respondent Malarayat Rural Bank.

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated December
19, 2011 and Resolution dated February 6, 2012 of the Court of Appeals in CA-G.R. CV No.
92555 are REVERSED and SET ASIDE. The Decision dated July 29, 2008 of the Regional Trial
Court, Branch 86, of Taal, Batangas, in Civil Case No. 66 is REINSTATED and UPHELD.

Robles v. Yapcinco, G.R. No. 169568, October 22, 2014.

01SEP

[BERSAMIN, J.:]

FACTS: Petitioner argues that the non-registration of the certificate of sale did not affect the
title acquired by Apolinario Cruz as the purchaser in the judicial foreclosure of mortgage and
that the finality of the judgment rendered in the judicial action for foreclosure of mortgage
was valid and binding on the respondents as the successors-in interest of the judgment
debtor. In contrast, the respondents maintain that they were lawfully entitled to the property
in litis because there was no registration of the certificate of sale or confirmation from the
court and that with the release of mortgage being validly registered in the Office of Registry
of Deeds, thereby rendering the title free from any lien and encumbrances, they already had
the right to transfer the property in their names.

ISSUE: Is non-registration of property after judicially foreclosure and sale had the effect of
invalidating the foreclosure proceedings, such that ownership reverts to the original owner?

HELD: NO.

The effect of the failure of Apolinario Cruz to obtain the judicial confirmation was only to
prevent the title to the property from being transferred to him. For sure, such failure did not
give rise to any right in favor of the mortgagor or the respondents as his successors-in-
interest to take back the property already validly sold through public auction. Nor did such
failure invalidate the foreclosure proceedings. To maintain otherwise would render nugatory
the judicial foreclosure and foreclosure sale, thus unduly disturbing judicial stability. The non-
transfer of the title notwithstanding, Apolinario Cruz as the purchaser should not be deprived
of the property purchased at the foreclosure sale. With the respondents having been fully
aware of the mortgage, and being legally bound by the judicial foreclosure and consequent
public sale, and in view of the unquestioned possession by Apolinario Cruz and his
successors-in-interest (including the petitioner) from the time of the foreclosure sale until
the present, the respondents could not assert any better right to the property. It would be
the height of inequity to still permit them to regain the property on the basis alone of the
lack of judicial confirmation of the sale. After all, under the applicable rule earlier cited, the
judicial confirmation operated only “to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be allowed by
law.”

Consequently, the late Fernando F. Yapcinco and the respondents as his successors-in-
interest were divested of their right in the property, for they did not duly exercise the equity
of redemption decreed in the decision of the trial court. With Yapcinco having thereby
effectively ceased to be the owner of the property sold, the property was taken out of the
mass of the assets of Yapcinco upon the expiration of the equity of redemption.

Gregorio Y. Limpin and Rogelio Sarmiento vs. Intermediate Appellate Court and Guillermo
Ponce GR No. L-70987. 30 January 1987 FACTS Spouses Aquino mortgaged four lots (TCTs
Nos. 92836, 92837, 92839 and 92840) to Ponce as security for a loan. Two of the lots (TCTs
Nos. 92836 and 92837) were sold by the Aquinos to the Butuan Bay Wood Export
Corporation. A year later, Gregorio Limpin, Jr. obtained a money judgment against Butuan
Bay Wood Export Corporation. The lots were sold to Limpin as the highest bidder at the
public auction. Limpin then sold the two lots to Rogelio Sarmiento. B efore Limpin’s levy
on the two lots, Ponce filed suit against the Aquino spouses for judicial foreclosure of the
mortgage in the Court of First Instance. o Judgment was rendered in favor of Ponce. The
four lots were sold to him as the highest bidder. Ponce then moved for the confirmation
of the sale and the issuance of a writ of possession. o The Trial Court however confirmed
only the sale of TCTs Nos. 02839 and 92840 on the ground that the other titles had already
been cancelled and new ones issued to Limpin. Ponce filed a motion for reconsideration.
When the Trial Court denied this, he filed a special civic action for certiorari and mandamus
in the Intermediate Appellate Court, impleading Limpin and Sarmiento. o The IAC then set
aside the Trial Court’s decision and ordered the latter to confirm the sale and issue a writ of
possession. Petitioners now contend that the action of certiorari and mandamus by Ponce
was not the proper remedy, since the orders are final. ISSUE 1. Whether or not the
execution of final and executory judgment in this case may still be contested. 2. Whether
the IAC correctly ruled in according superiority to the mortgage rights of Ponce over the levy
and sale in favor of Limpin and the subsequent sale to Sarmiento. HELD 1. Yes. Courts have
plenary authority and control over the execution of their final and executory judgments and
orders. Indeed, once that authority is timely and properly invoked, it becomes the court’s
ministerial and mandatory function to direct execution. That authority lasts until the
judgments are fully satisfied, subject only to the time limitations prescribed therefor. With
particular reference to the execution of a judgment in a mortgage foreclosure action, the
authority to direct and effect the same exists until the confirmation of the foreclosure sale
(and issuance and implementation of the writ of possession). The execution of final and
executory judgments may no longer be contested and prevented, and no appeal should lie
therefrom; otherwise, cases would be interminable, and there would be negation of the
overmastering need to end litigations. o However, execution and final judgment may not lie
in the following instances, as an error may be committed in the course of execution
proceedings prejudicial to the rights of a party, and call for correction by a superior court:
The writ of execution varies the judgment There has been a change in the situation of
the parties making execution inequitable or unjust Execution is sought to be enforced
against property exempt from execution; It appears that the controversy has never been
submitted to the judgment of the court; The terms of the judgment are not clear enough
and there remains room for interpretation thereof; or It appears that the writ of execution
has been improvidently issued, or that it is defective in substance, or is issued against the
wrong party, or that the judgment debt has been paid or otherwise satisfied, or the writ was
issued without authority o Applying such to this case, Ponce correctly filed an action for
certiorari and mandamus. 2. Yes. The Appellate Court ruled correctly that the rights and
interests of Limpin and Sarmiento to the property are subordinate to those of Ponce, who
holds a prior and senior lien. In Santiago v. Dionisio: … th e effect of the failure to implead
a subordinate lienholder or subsequent purchaser or both is to render the foreclosure
ineffective as against them, with the result that there remains in their favor the unforeclosed
equity of redemption. But the foreclosure is valid as between the parties to the suit. Rule
39, Section 16 of the Rules of Court also provides that with regard to the effect of levy on
execution, it shall create a lien in favor of a judgment creditor over the right title and interest
of the judgment debtor in such property at the time of the levy, subject to the liens or
encumbrances then existing. o Applied to this case, this means that the sale to Ponce, as the
highest bidder in the foreclosure sale of the two lots should have been confirmed, subject to
Limpin's (and now Sarmiento's) equity to redemption. The registration of the lands, first in
the name of Limpin and later of Sarmiento, was premature. At most what they were entitled
to was the registration of their equity of redemption.

Gregorio Y. Limpin and Rogelio Sarmiento vs. Intermediate Appellate Court and Guillermo
Ponce GR No. L-70987. 30 January 1987

FACTS Spouses Aquino mortgaged four lots (TCTs Nos. 92836, 92837, 92839 and 92840) to
Ponce as security for a loan. Two of the lots (TCTs Nos. 92836 and 92837) were sold by the
Aquinos to the Butuan Bay Wood Export Corporation. A year later, Gregorio Limpin, Jr.
obtained a money judgment against Butuan Bay Wood Export Corporation. The lots were
sold to Limpin as the highest bidder at the public auction. Limpin then sold the two lots to
Rogelio Sarmiento. B efore Limpin’s levy on the two lots, Ponce filed suit against the Aquino
spouses for judicial foreclosure of the mortgage in the Court of First Instance. o Judgment
was rendered in favor of Ponce. The four lots were sold to him as the highest bidder.
Ponce then moved for the confirmation of the sale and the issuance of a writ of
possession. o The Trial Court however confirmed only the sale of TCTs Nos. 02839 and
92840 on the ground that the other titles had already been cancelled and new ones issued to
Limpin. Ponce filed a motion for reconsideration. When the Trial Court denied this, he filed
a special civic action for certiorari and mandamus in the Intermediate Appellate Court,
impleading Limpin and Sarmiento. o The IAC then set aside the Trial Court’s decision and
ordered the latter to confirm the sale and issue a writ of possession. Petitioners now contend
that the action of certiorari and mandamus by Ponce was not the proper remedy, since the
orders are final.

ISSUE 1. Whether or not the execution of final and executory judgment in this case may still
be contested. 2. Whether the IAC correctly ruled in according superiority to the mortgage
rights of Ponce over the levy and sale in favor of Limpin and the subsequent sale to
Sarmiento.

HELD 1. Yes. Courts have plenary authority and control over the execution of their final and
executory judgments and orders. Indeed, once that authority is timely and properly invoked,
it becomes the court’s ministerial and mandatory function to direct execution. That
authority lasts until the judgments are fully satisfied, subject only to the time limitations
prescribed therefor. With particular reference to the execution of a judgment in a mortgage
foreclosure action, the authority to direct and effect the same exists until the confirmation of
the foreclosure sale (and issuance and implementation of the writ of possession). The
execution of final and executory judgments may no longer be contested and prevented, and
no appeal should lie therefrom; otherwise, cases would be interminable, and there would be
negation of the overmastering need to end litigations. o However, execution and final
judgment may not lie in the following instances, as an error may be committed in the course
of execution proceedings prejudicial to the rights of a party, and call for correction by a
superior court: The writ of execution varies the judgment There has been a change in
the situation of the parties making execution inequitable or unjust Execution is sought to
be enforced against property exempt from execution; It appears that the controversy has
never been submitted to the judgment of the court; The terms of the judgment are not
clear enough and there remains room for interpretation thereof; or It appears that the
writ of execution has been improvidently issued, or that it is defective in substance, or is
issued against the wrong party, or that the judgment debt has been paid or otherwise
satisfied, or the writ was issued without authority o Applying such to this case, Ponce
correctly filed an action for certiorari and mandamus.

2. Yes. The Appellate Court ruled correctly that the rights and interests of Limpin and
Sarmiento to the property are subordinate to those of Ponce, who holds a prior and senior
lien. In Santiago v. Dionisio: … th e effect of the failure to implead a subordinate
lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against
them, with the result that there remains in their favor the unforeclosed equity of
redemption. But the foreclosure is valid as between the parties to the suit. Rule 39,
Section 16 of the Rules of Court also provides that with regard to the effect of levy on
execution, it shall create a lien in favor of a judgment creditor over the right title and interest
of the judgment debtor in such property at the time of the levy, subject to the liens or
encumbrances then existing. o Applied to this case, this means that the sale to Ponce, as the
highest bidder in the foreclosure sale of the two lots should have been confirmed, subject to
Limpin's (and now Sarmiento's) equity to redemption. The registration of the lands, first in
the name of Limpin and later of Sarmiento, was premature. At most what they were entitled
to was the registration of their equity of redemption.

SPOUSES BENITO BAYSA and VICTORIA BAYSA vs. SPOUSES FIDEL PLANTILLA and
SUSANPLANTILLA, REGISTER OF DEEDS OF QUEZON CITY, and THE SHERIFF OF QUEZON CITY

G.R. No. 159271, July 13, 2015

DOCTRINE:

To enable the extra judicial foreclosure of the REM of the petitioners, the special powerto sell
should have been either inserted in the REM itself or embodied in a separate
instrumentattached to the REM. The omission of the special power to sell the property
subject of themortgage was fatal to the validity and efficacy of the extrajudicial foreclosure,
and warrantedthe invalidation of the entire proceedings conducted by the sheriff.

FACTS

The case involves a real estate mortgage (REM) entered into by the petitioners involvingtheir
parcel of land in Cubao, Quezon City to secure the payment of their obligation amountingto
P2.3 Million in favor of the respondent spouses. Based on the terms of the REM, the
petitionersagreed to pay interest on the principal amount. Upon the default of the
petitioners, therespondent spouses commenced the extrajudicial foreclosure of the REM to
recover from thepetitioners their total liability. The petitioners sued the respondent spouses
in the Regional TrialCourt (RTC) in Quezon City to annul the extrajudicial foreclosure of the
REM and the publicauction conducted pursuant to the extrajudicial foreclosure. They alleged
that all theproceedings relevant to the extrajudicial foreclosure were null and void, pointing
out that therehad been no power or authority to sell inserted in the REM or attached thereto
as required bySection 1 Act No. 3135; and that the interest rate of 8% was unconscionable
and violative of theAnti-Usury Law.

ISSUE

Whether or not the extrajudicial foreclosure is valid despite the lack of provision in
themortgage deed granting special power to sell to the mortgagee?

HELD

No, to enable the extra judicial foreclosure of the REM of the petitioners, the specialpower to
sell should have been either inserted in the REM itself or embodied in a separateinstrument
attached to the REM. But it is not disputed that no special power to sell was eitherinserted in
the REM or attached to the REM. Hence, the respondent spouses as the
foreclosingmortgagees could not initiate the extrajudicial foreclosure, but must resort to
judicial foreclosurepursuant to the procedure set forth in Rule 68 of the Rules of Court. The
omission of the specialpower to sell the property subject of the mortgage was fatal to the
validity and efficacy of theextrajudicial foreclosure, and warranted the invalidation of the
entire proceedings conductedby the sheriff.

G.R. No. 174161, February 18, 2015

R TRANSPORT CORPORATION, Petitioner, vs. LUISITO G. YU

Loreta, after having alighted from a passenger bus, was hit and run over by a bus driven by
Gimena, who was then employed by petitioner R Transport Corporation. Loreta was
immediately rushed to the hospital where she was pronounced dead on arrival. As testified
by the police officer on duty at the time of the incident and indicated in the Autopsy Report,
the deceased’s clothes were ripped off from her body, her brain even spewed out from her
skull and spilled over the road. The bus driven by Gimena bumped the deceased in a loading
and unloading area of a commercial center.

The husband of the deceased, respondent Luisito, filed a Complaint for damages before the
RTC against petitioner R Transport, Gimena, and Metro Manila Transport Corporation
(MMTC) for the death of his wife.

MMTC denied its liability reasoning that it is merely the registered owner of the bus involved
in the incident, the actual owner, being petitioner R Transport. Since it was not actually
operating the bus which killed respondent’s wife, nor was it the employer of the driver
thereof, MMTC alleged that the complaint against it should be dismissed. For its part,
petitioner R Transport alleged that respondent had no cause of action against it for it had
exercised due diligence in the selection and supervision of its employees and drivers and that
its buses are in good condition. Meanwhile, the driver Gimena was declared in default for his
failure to file an answer to the complaint.

After trial on the merits, the trial court rendered judgment in favor of respondent Luisito
ruling that petitioner R Transport failed to prove that it exercised the diligence required of a
good father of a family in the selection and supervision of its driver. The RTC ordered
defendants R Transport and Metro Manila Transport Corporation (MMTC) to be primarily and
solidarily liable and defendant Gimena subsidiarily liable to plaintiff Luisito. The CA affirmed
the Decision of the RTC with modification that defendant Antonio Gimena is made solidarily
liable for the damages caused to respondent.

ISSUE:

Is the petitioner liable for the damages caused by its employee?

RULING:

The petitioner is liable for the damages caused by its employee. Negligence has been defined
as "the failure to observe for the protection of the interests of another person that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury." Verily, foreseeability is the fundamental test of negligence. It is the
omission to do something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing of something which
a prudent and reasonable man would not do.

Under Article 2180 of the New Civil Code, employers are liable for the damages caused by
their employees acting within the scope of their assigned tasks. Once negligence on the part
of the employee is established, a presumption instantly arises that the employer was remiss
in the selection and/or supervision of the negligent employee. To avoid liability for the quasi-
delict committed by its employee, it is incumbent upon the employer to rebut this
presumption by presenting adequate and convincing proof that it exercised the care and
diligence of a good father of a family in the selection and supervision of its employees.

Unfortunately, however, the records of this case are bereft of any proof showing the exercise
by petitioner of the required diligence. As aptly observed by the CA, no evidence of whatever
nature was ever presented depicting petitioner’s due diligence in the selection and
supervision of its driver, Gimena, despite several opportunities to do so. In fact, in its petition,
apart from denying the negligence of its employee and imputing the same to the bus from
which the victim alighted, petitioner merely reiterates its argument that since it is not the
registered owner of the bus which bumped the victim, it cannot be held liable for the
damage caused by the same. Nowhere was it even remotely alleged that petitioner had
exercised the required diligence in the selection and supervision of its employee. Because of
this failure, petitioner cannot now avoid liability for the quasi-delict committed by its
negligent employee.

G.R. No. 108164 February 23, 1995

Far East Bank and Trust Company, petitioner
vs Court of Appeals, Luisa Luna and Clarita Luna, respondents
Ponente: Vitug

Facts:
Luis Luna applied for a far east card issued by far east bank at its Pasig branch. Upon his
request, the bank also issued a supplemental card to private respondent Clarita Luna.
Then Clarita lost her credit card and submitted an affidavit of loss. Later on October 6,
1988 in a restaurant, Luis' credit card was not honored.

Luis thru a counsel then demanded from far east to pay damages for the humiliation he
felt. The vice-president of the bank expressed bank's apologies to Luis.
Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a
complaint for damages with the Regional Trial Court ("RTC") of Pasig against FEBTC.
On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a
decision ordering FEBTC to pay private respondents (a) P300,000.00 moral damages;
(b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees.
On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial
court.
Its motion for reconsideration having been denied by the appellate court, FEBTC has
come to this Court with this petition for review.

There is merit in this appeal.

In culpa contractual, moral damages may be recovered where the defendant is shown to
have acted in bad faith or with malice in the breach of the contract. The Civil Code
provides:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages
if the court should find that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant acted fraudulently or in
bad faith.

Bad faith, in this context, includes gross, but not simple, negligence. Exceptionally, in a
contract of carriage, moral damages are also allowed in case of death of a passenger
attributable to the fault (which is presumed) of the common carrier.

Held:
The Court has not in the process overlooked another rule that a quasi-delict can be the
cause for breaching a contract that might thereby permit the application of applicable
principles on tort 9 even where there is a pre-existing contract between the plaintiff and
the defendant. This doctrine, unfortunately, cannot improve private respondents' case
for it can aptly govern only where the act or omission complained of would constitute an
actionable tort independently of the contract. The test (whether a quasi-delict can be
deemed to underlie the breach of a contract) can be stated thusly: Where, without a pre-
existing contract between two parties, an act or omission can nonetheless amount to an
actionable tort by itself, the fact that the parties are contractually bound is no bar to the
application of quasi-delict provisions to the case. Here, private respondents' damage
claim is predicated solely on their contractual relationship; without such agreement, the
act or omission complained of cannot by itself be held to stand as a separate cause of
action or as an independent actionable tort.