CivRev2: Case Doctrines – Credit Transactions (Atty.
Legarda) UST 4B
CREDIT TRANSACTIONS
1. Common Provisions – NCC 1156, 1249, 1305, 1306, 1316, 1933 and 1934
2. Commodatum – NCC 1935-1952
Pajuyo v CA, 430 SCRA 492
In a contract of commodatum, one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return
it. An essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted. If the bailor should have urgent need of the thing, he
may demand its return for temporary use. If the use of the thing is merely tolerated
by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code, precarium is a kind
of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not require
Guevarra to pay rent, it obligated him to maintain the property in good condition.
The imposition of this obligation makes the Kasunduan a contract different from
a commodatum. The effects of the Kasunduan are also different from that of
a commodatum. Case law on ejectment has treated relationship based on tolerance as
one that is akin to a landlord-tenant relationship where the withdrawal of permission
would result in the termination of the lease. The tenants withholding of the property
would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one
of commodatum, Guevarra as bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum. These contracts certainly involve the obligation to
deliver or return the thing received.
3. Simple Loan or Mutuum, NCC 1953-1955
Equitable v Ng Sheung Ngor, 541 SCRA 223
Extraordinary inflation exists when there is an unusual decrease in the purchasing
power of currency (that is, beyond the common fluctuation in the value of currency)
and such decrease could not be reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.
For extraordinary inflation (or deflation) to affect an obligation, the following
requisites must be proven:
1. that there was an official declaration of extraordinary
inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP);
2. that the obligation was contractual in nature; and
3. that the parties expressly agreed to consider the effects
of the extraordinary inflation or deflation.
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose out
of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation). The RTC never mentioned that there was a such stipulation
either in the promissory note or loan agreement. Therefore, respondents should pay
their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.
Almeda v Bathala Marketing, 542 SCRA 470
While, indeed, condition No. 7 of the contract speaks of extraordinary inflation or
devaluation as compared to Article 1250s extraordinary inflation or deflation, we
find that when the parties used the term devaluation, they really did not intend to
depart from Article 1250 of the Civil Code. Condition No. 7 of the contract should,
thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners letter dated January
26, 1998, where, in demanding rental adjustment ostensibly based on condition No.
7, petitioners made explicit reference to Article 1250 of the Civil Code, even quoting
the law verbatim. Thus, the application of Del Rosario is not warranted. Rather,
jurisprudential rules on the application of Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
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Inflation has been defined as the sharp increase of money or credit, or both, without a
corresponding increase in business transaction. There is inflation when there is an
increase in the volume of money and credit relative to available goods, resulting in a
substantial and continuing rise in the general price level. In a number of cases, this
Court had provided a discourse on what constitutes extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase
in the purchasing power of the Philippine currency which is
unusual or beyond the common fluctuation in the value of said
currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation.
The factual circumstances obtaining in the present case do not make out a case of
extraordinary inflation or devaluation as would justify the application of Article 1250
of the Civil Code. We would like to stress that the erosion of the value of the
Philippine peso in the past three or four decades, starting in the mid-sixties, is
characteristic of most currencies. And while the Court may take judicial notice of the
decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code. Furthermore, absent an official
pronouncement or declaration by competent authorities of the existence of
extraordinary inflation during a given period, the effects of extraordinary inflation
are not to be applied.
MetroBank v Rosales et al, G.R. No. 183204, January 13, 2014
Petitioner’s reliance on the “Hold Out” clause in the Application and
Agreement for Deposit Account is misplaced.
The ―Hold Out‖ clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 of the Civil Code,
to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner
failed to show that respondents have an obligation to it under any law, contract,
quasi-contract, delict, or quasi-delict. And although a criminal case was filed by
petitioner against respondent Rosales, this is not enough reason for petitioner to issue
a ―Hold Out‖ order as the case is still pending and no final judgment of conviction
has been rendered against respondent Rosales. In fact, it is significant to note that at
the time petitioner issued the ―Hold Out‖ order, the criminal complaint had not yet
been filed. Thus, considering that respondent Rosales is not liable under any of the
five sources of obligation, there was no legal basis for petitioner to issue the ―Hold
Out‖ order. Accordingly, we agree with the findings of the RTC and the CA that the
―Hold Out‖ clause does not apply in the instant case.
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In view of the foregoing, we find that petitioner is guilty of breach of contract when
it unjustifiably refused to release respondents‘ deposit despite demand. Having
breached its contract with respondents, petitioner is liable for damages.
Jalandoni v Encomienda, G.R. No. 205578, March 1, 2017
The RTC likewise harped on the fact that if Encomienda really intended the amounts
to be a loan, normal human behavior would have prompted at least a handwritten
acknowledgment or a promissory note the moment she parted with her money for the
purpose of granting a loan. This would be particularly true if the loan obtained was
part of a business dealing and not one extended to a close friend who suddenly
needed monetary aid. In fact, in case of loans between friends and relatives, the
absence of acknowledgment receipts or promissory notes is more natural and real. In
a similar case, the Court upheld the CA‘s pronouncement that the existence of a
contract of loan cannot be denied merely because it was not reduced in writing.
Surely, there can be a verbal loan. Contracts are binding between the parties, whether
oral or written. The law is explicit that contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their
validity are present. A simple loan or mutuum exists when a person receives a loan of
money or any other fungible thing and acquires its ownership. He is bound to pay to
the creditor the equal amount of the same kind and quality. Jalandoni posits that the
more logical reason behind the disbursements would be what Encomienda candidly
told the trial court, that her acts were plainly an ―unselfish display of Christian help‖
and done out of ―genuine concern for Georgia‘s children.‖ However, the ―display of
Christian help‖ is not inconsistent with the existence of a loan. Encomienda
immediately offered a helping hand when a friend asked for it. But this does not
mean that she had already waived her right to collect in the future. Indeed, when
Encomienda felt that Jalandoni was beginning to avoid her, that was when she
realized that she had to protect her right to demand payment. The fact that
Encomienda kept the receipts even for the smallest amounts she had advanced,
repeatedly sent demand letters, and immediately filed the instant case when
Jalandoni stubbornly refused to heed her demands sufficiently disproves the latter‘s
belief that all the sums of money she received were merely given out of charity.
4. Interest, NCC 1956-1961, 2209, 2212-2213
Nacar v. Gallery Frames, August 13, 2013, G.R. No. 189871
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in
its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of
Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of
2013, effective July 1, 2013, the pertinent portion of which reads:
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The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.136 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 are hereby
amended accordingly.
This Circular shall take effect on 1 July 2013.
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 Linesand 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.
Nonetheless, with regard to those judgments that have become final and executory
prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.
To recapitulate and for future guidance, the guidelines laid down in the case of
Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No.
799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on ―Damages‖ of the
Civil Code govern in determining the measure of recoverable damages.
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II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented applying
the rate of interest fixed therein.
Benvidez v. Salvador, G.R. No. 173331, December 11, 2013
This Court is not unmindful of the fact that parties to a loan contract have wide
latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905
s. 1982 which suspended the Usury Law ceiling on interest effective January I, 1983.
It is, however, worth stressing that interest rates whenever unconscionable may still
be declared illegal. There is nothing in said circular which grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their
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borrowers or lead to a hemorrhaging of their assets. In Menchavez v. Bermudez, the
interest rate of 5% per month, which when summed up would reach 60% per annum,
is null and void for being excessive, iniquitous, unconscionable and exorbitant,
contrary to morals, and the law.
Accordingly, in this case, the Court considers the compounded interest rate of 5%
per month as iniquitous and unconscionable and void and inexistent from the
beginning. The debt is to be considered without the stipulation of the iniquitous and
unconscionable interest rate. In line with the ruling in the recent case of Nacar v.
Gallery Frames, the legal interest of 6% per annum must be imposed in lieu of the
excessive interest stipulated in the agreement.
First United v. Bayanihan, G.R. No. 164985, January 15, 2014
The Court affirms the decisions of the lower courts that petitioners could
not validly resort to recoupment against respondent, but ruled that legal
compensation was permissible. Moreover, the Court deems it necessary to modify
the interest rate imposed by the trial and appellate courts. The legal interest rate to be
imposed from February 11, 1993, the time of the extrajudicial demand by
respondent, should be 6% per annum in the absence of any stipulation in writing in
accordance with Article 2209 of the Civil Code, which provides:
Article 2209. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum.
Lumantas v. Calapiz, G.R. No. 163753. January 15, 2014
It is axiomatic that every person criminally liable for a felony is also civilly
liable. Nevertheless, the acquittal of an accused of the crime charged does not
necessarily extinguish his civil liability. In Manantan v. Court of Appeals, the Court
elucidates on the two kinds of acquittal recognized by our law as well as on the
different effects of acquittal on the civil liability of the accused, viz:
Our law recognizes two kinds of acquittal, with different effects on the civil
liability of the accused. First is an acquittal on the ground that the accused is
not the author of the act or omission complained of. This instance closes the
door to civil liability, for a person who has been found to be not the
perpetrator of any act or omission cannot and can never be held liable for
such act or omission. There being no delict, civil liability ex delicto is out of
the question, and the civil action, if any, which may be instituted must be
based on grounds other than the delict complained of. This is the situation
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contemplated in Rule 111 of the Rules of Court. The second instance is an
acquittal based on reasonable doubt on the guilt of the accused. In this case,
even if the guilt of the accused has not been satisfactorily established, he is
not exempt from civil liability which may be proved by preponderance of
evidence only.
The Rules of Court requires that in case of an acquittal, the
judgment shall state ―whether the evidence of the prosecution absolutely
failed to prove the guilt of the accused or merely failed to prove his guilt
beyond reasonable doubt. In either case, the judgment shall determine if the
act or omission from which the civil liability might arise did not exist.‖
Conformably with the foregoing, therefore, the acquittal of an accused does
not prevent a judgment from still being rendered against him on the civil aspect of
the criminal case unless the court finds and declares that the fact from which the civil
liability might arise did not exist.
Although it found the Prosecution‘s evidence insufficient to sustain a
judgment of conviction against the petitioner for the crime charged, the RTC did not
err in determining and adjudging his civil liability for the same act complained of
based on mere preponderance of evidence. In this connection, the Court reminds that
the acquittal for insufficiency of the evidence did not require that the complainant‘s
recovery of civil liability should be through the institution of a separate civil action
for that purpose.
The petitioner‘s contention that he could not be held civilly liable because
there was no proof of his negligence deserves scant consideration. The failure of the
Prosecution to prove his criminal negligence with moral certainty did not forbid a
finding against him that there was preponderant evidence of his negligence to hold
him civilly liable. With the RTC and the CA both finding that Hanz had sustained
the injurious trauma from the hands of the petitioner on the occasion of or incidental
to the circumcision, and that the trauma could have been avoided, the Court must
concur with their uniform findings. In that regard, the Court need not analyze and
weigh again the evidence considered in the proceedings a quo.
Every person is entitled to the physical integrity of his body. Although we
have long advocated the view that any physical injury, like the loss or diminution of
the use of any part of one‘s body, is not equatable to a pecuniary loss, and is not
susceptible of exact monetary estimation, civil damages should be assessed once that
integrity has been violated. The assessment is but an imperfect estimation of the true
value of one‘s body. The usual practice is to award moral damages for the physical
injuries sustained. In Hanz‘s case, the undesirable outcome of the circumcision
performed by the petitioner forced the young child to endure several other
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procedures on his penis in order to repair his damaged urethra. Surely, his physical
and moral sufferings properly warranted the amount of ₱50,000.00 awarded as moral
damages.
Many years have gone by since Hanz suffered the injury. Interest of 6% per
annum should then be imposed on the award as a sincere means of adjusting the
value of the award to a level that is not only reasonable but just and commensurate.
Unless we make the adjustment in the permissible manner by prescribing legal
interest on the award, his sufferings would be unduly compounded. For that purpose,
the reckoning of interest should be from the filing of the criminal information on
April 17, 1997, the making of the judicial demand for the liability of the petitioner.
De la Paz v L&J Development Company, G.R. No. 183360, Sept. 8, 2014
The lack of a written stipulation to pay interest on the loaned amount
disallows a creditor from charging monetary interest. Under Article 1956 of the
Civil Code, no interest shall be due unless it has been expressly stipulated in writing.
Jurisprudence on the matter also holds that for interest to be due and payable, two
conditions must concur: a) express stipulation for the payment of interest; and b) the
agreement to pay interest is reduced in writing. Here, it is undisputed that the parties
did not put down in writing their agreement. Thus, no interest is due. The collection
of interest without any stipulation in writing is prohibited by law.
In the case at bench, there is no specified period as to the payment of the
loan. Hence, levying 6% monthly or 72% interest per annum is ―definitely
outrageous and inordinate.‖ The situation that it was the debtor who insisted on the
interest rate will not exempt Rolando from a ruling that the rate is void. As this Court
cited in Asian Cathay Finance and Leasing Corporation v. Gravador, ―[t]he
imposition of an unconscionable rate of interest on a money debt, even if knowingly
and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to the common sense
of man.‖ Indeed, ―voluntariness does not make the stipulation on [an
unconscionable] interest valid.‖
As exhaustibly discussed, no monetary interest is due Rolando pursuant to
Article 1956. The CA thus correctly adjudged that the excess interest payments made
by L&J should be applied to its principal loan. As computed by the CA, Rolando is
bound to return the excess payment of ₱226,000.00 to L&J following the principle of
solutio indebiti.
However, pursuant to Central Bank Circular No. 799 s. 2013 which took
effect on July 1, 2013, the interest imposed by the CA must be accordingly modified.
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The ₱226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6%
per annum from the finality of this Decision.
Federal Builders v Foundation Specialists, G.R. No. 194507, Sept. 8, 2014
Anent FBI‘s second assignment of error, however, the Court finds merit in
the argument that the 12% interest rate is inapplicable, since this case does not
involve a loan or forbearance of money.
In S.C. Megaworld Construction and Development Corporation v. Engr.
Parada, the Court clarified the meaning of obligations constituting loans or
forbearance of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or forbearance of
money, goods or credit describes a contractual obligation whereby a lender or
creditor has refrained during a given period from requiring the borrower or debtor to
repay the loan or debt then due and payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum
under Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving
the loan or forbearance of money. And for transactions involving payment of
indemnities in the concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a loan or
forbearance of money, goods, or credit, the governing provision is Art. 2209 of the
Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
The term ―forbearance,‖ within the context of usury law, has been described as a
contractual obligation of a lender or creditor to refrain, during a given period of time,
from requiring the borrower or debtor to repay the loan or debt then due and payable.
Forbearance of money, goods or credits, therefore, refers to arrangements
other than loan agreements, where a person acquiesces to the temporary use of his
money, goods or credits pending the happening of certain events or fulfilment of
certain conditions. Consequently, if those conditions are breached, said person is
entitled not only to the return of the principal amount paid, but also to compensation
for the use of his money which would be the same rate of legal interest applicable to
a loan since the use or deprivation of funds therein is similar to a loan.
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This case, however, does not involve an acquiescence to the temporary use
of a party‘s money but a performance of a particular service, specifically the
construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar
Plaza.
A review of similar jurisprudence would tell us that the Court had
repeatedly recognized this distinction and awarded interest at a rate of 6% on actual
or compensatory damages arising from a breach not only of construction
contracts, such as the one subject of this case, but also of contracts wherein one of
the parties reneged on its obligation to perform messengerial services, deliver certain
quantities of molasses, undertake the reforestation of a denuded forest land, as well
as breaches of contracts of carriage, and trucking agreements. The Court has
explained therein that the reason behind such is that said contracts do not partake of
loans or forbearance of money but are more in the nature of contracts of service.
Thus, in the absence of any stipulation as to interest in the agreement
between the parties herein, the matter of interest award arising from the dispute in
this case would actually fall under the second paragraph of the above-quoted
guidelines in the landmark case of Eastern Shipping Lines, which necessitates the
imposition of interest at the rate of 6%, instead of the 12% imposed by the courts
below.
The 6% interest rate shall further be imposed from the finality of the
judgment herein until satisfaction thereof, in light of the Court‘s recent ruling in
Nacar v. Gallery Frames.
Sun Life Canada vs. Tan Kit, G.R. No. 183272, October 15, 2014
The Court finds, however, that Tio Khe Chio is not applicable here as it
deals with payment of interest on the insurance proceeds in which the claim therefor
was either unreasonably denied or withheld or the insurer incurred delay in the
payment thereof. In this case, what is involved is an order for petitioner to refund to
respondents the insurance premium paid by Norberto as a consequence of the
rescission of the insurance contract on account of the latter‘s concealment of material
information in his insurance application. Moreover, petitioner did not unreasonably
deny or withhold the insurance proceeds as it was satisfactorily established that
Norberto was guilty of concealment.
There are two kinds of interest – monetary and compensatory. ―Monetary
interest refers to the compensation set by the parties for the use or forbearance of
money.‖ No such interest shall be due unless it has been expressly stipulated in
writing. ―On the other hand, compensatory interest refers to the penalty or indemnity
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for damages imposed by law or by the courts.‖ The interest mentioned in Articles
2209 and 2212of the Civil Code applies to compensatory interest.
Clearly and contrary to respondents‘ assertion, the interest imposed by the
CA is not monetary interest because aside from the fact that there is no use or
forbearance of money involved in this case, the subject interest was not one which
was agreed upon by the parties in writing. This being the case and judging from the
tenor of the CA, there can be no other conclusion than that the interest imposed by
the appellate court is in the nature of compensatory interest.
The CA incorrectly imposed compensatory interest on the premium refund
reckoned from the time of death of the insured until fully paid. As a form of
damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.
Rivera vs. Spouses Chua, supra
The liability for damages of those who default, including those who are
guilty of delay, in the performance of their obligations is laid down on Article
1170 of the Civil Code. Corollary thereto, Article 2209 solidifies the consequence of
payment of interest as an indemnity for damages when the obligor incurs in delay:
―If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six percent per annum.‖
Article 2209 is specifically applicable in this instance where: (1) the
obligation is for a sum of money; (2) the debtor, Rivera, incurred in delay when he
failed to pay on or before 31 December 1995; and (3) the Promissory Note provides
for an indemnity for damages upon default of Rivera which is the payment of a
5%monthly interest from the date of default.
5. Chattel Mortgage, NCC 2140-2141, Act 1508
PNB v. Manila Investment, April 29, 1971, 38 SCRA 462
In relation to the first, it is true that the decision rendered in Civil Case
33074 of the Court of First Instance of Manila provided for the sale at public auction
of the personal properties covered by the chattel mortgage executed in favor of the
Bank, but it is likewise true that said personal properties were sold at a private sale
by agreement between the parties. Besides, the Court sees nothing illegal, immoral
or against public order in such agreement entered into freely and voluntarily. In line
with the provisions of the substantive law giving the contracting parties full freedom
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to contract provided their agreement is not contrary to law, morals, good customs,
public order or public policy (Article 1306, Civil Code of the Philippines), the Court
held in Philippine National Bank vs. De Poli thus:
Under article 1255 of the Civil Code (Art. 1306 New Civil Code), the
contracting parties may stipulate that in case of violation of the conditions
of the mortgage contract, the creditor may sell, at private sale and without
previous advertisement or notice, the whole or part of the good mortgaged
for the purpose of applying the proceeds thereof on the payment of the debt.
Said stipulation is not contrary to law or public order, and therefore it is
valid.
As the disposition of the mortgaged personalities in a private sale was
by agreement between the parties, it is clear that appellants are now in estoppel to
question it except on the ground of fraud or duress — pleas that they do not invoke.
They do not even claim that the private sale agreed upon had caused them substantial
prejudice.
Lastly, it is appellants‘ contention that the appellee Bank is not entitled to a
deficiency judgment, invoking the provisions of Article 2115 of the new Civil Code.
The issue thus raised was already resolved in the negative in Ablaza vs. Ignacio,
G.R. No. L-11466, promulgated on March 23, 1958 where the Court said, inter alia,
the following:
We are of the opinion that the trial court is in error. It is clear from Article
2141 that the provisions of the New Civil Code on pledge shall apply to a
chattel Mortgage only in so far as they are not counter to any provision of
the Chattel Mortgage Law, otherwise the provisions of the latter will not
apply. Here we find that the provisions of the Chattel Mortgage with regard
to the effects of the foreclosure of a chattel mortgage are precisely contrary
to the provisions of Article 2115 which were applied by the trial Court.
xxx xxx xxx
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other
authors in the question of chattel mortgages, have said, that in case of a sale
under a foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain an action for the deficiency, if any
should occur. And the fact that Act No. 1508 permits a private sale, such
sale is not in fact, a satisfaction of the debt, to any greater extent than the
value of the property at the time of the sale. The amount received at the time
of the sale, of course, always requiring good faith and honesty in the sale, is
only a payment, pro tanto and an action may be maintained for a deficiency
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in the debt. (Manila Trading and Supply Co., vs. Tamaraw Plantation Co.,
47 Phil. 513; Emphasis supplied.)
It is clear, therefore, that the proceeds of the sale of the mortgaged personal
properties of the herein appellants constitute only a pro tanto satisfaction of the
monetary award made by the court and the appellee Bank is entitled to collect the
balance.
Pameca Wood v CA, 310 SCRA 281
This is a review on certiorari of a judgment of the Court of Appeals
affirming in toto the decision of the Regional Trial Court of Makati to award
respondent bank‘s deficiency claim, arising from a loan secured by a chattel
mortgage. The Court denied the petition. It held that since the Chattel Mortgage
Law bars the creditor-mortgagee from retaining the excess of the sale proceeds, there
is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in
case of a reduction in the price at public auction.
As to petitioners‘ contention that the public auction sale is void on ground
of fraud and inadequacy of price, the Court ruled that parties may not bring on
appeal issues that were not raised on trial. Petitioners never assailed the validity of
the sale in the RTC and only in the Court of Appeals did they attempt to prove
inadequacy of price. Moreover, fraud is a serious allegation that requires full and
convincing evidence and may not be inferred from the lone circumstance that it was
only respondent bank that bid in the sale of the foreclosed properties.
6. Pactum Commissorium
7. Real Estate Mortgage, Act 3135 as amended
Isaguirre v de Lara, 331 SCRA 803
A mortgage is a contract entered into in order to secure the fulfillment of a
principal obligation. It is constituted by recording the document in which it appears
with the proper Registry of Property, although, even if it is not recorded, the
mortgage is nevertheless binding between the parties. Thus, the only right granted
by law in favor of the mortgagee is to demand the execution and the recording of the
document in which the mortgage is formalized. As a general rule, the mortgagor
retains possession of the mortgaged property since a mortgage is merely a lien and
title to the property does not pass to the mortgagee. However, even though a
mortgagee does not have possession of the property, there is no impairment of his
security since the mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the
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obligation for whose security it was constituted. If the debtor is unable to pay his
debt, the mortgage creditor may institute an action to foreclose the mortgage,
whether judicially or extrajudicially, whereby the mortgaged property will then be
sold at a public auction and the proceeds therefrom given to the creditor to the extent
necessary to discharge the mortgage loan. Apparently, petitioner‘s contention that
―[t]o require [him] . . . to deliver possession of the Property to respondent prior to the
full payment of the latter‘s mortgage loan would be equivalent to the cancellation of
the mortgage‖ is without basis. Regardless of its possessor, the mortgaged property
may still be sold, with the prescribed formalities, in the event of the debtor‘s default
in the payment of his loan obligation.
In Alvano v. Batoon, this Court held that ―[a] simple mortgage does not give
the mortgagee a right to the possession of the property unless the mortgage should
contain some special provision to that effect.‖ Regrettably for petitioner, he has not
presented any evidence, other than his own gratuitous statements, to prove that the
real intention of the parties was to allow him to enjoy possession of the mortgaged
property until full payment of the loan.
Garcia v. Villar, G.R. No. 158891, June 27, 2012
The following are the elements of pactum commissorium: (1) There should
be a property mortgaged by way of security for the payment of the principal
obligation; and (2) There should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.
Villar‘s purchase of the subject property did not violate the prohibition on
pactum commissorium. The power of attorney provision in the Deed of Real Estate
Mortgage did not provide that the ownership over the subject property would
automatically pass to Villar upon Galas‘s failure to pay the loan on time. What it
granted was the mere appointment of Villar as attorney-in-fact, with authority to sell
or otherwise dispose of the subject property, and to apply the proceeds to the
payment of the loan. This provision is customary in mortgage contracts, and is in
conformity with Article 2087 of the Civil Code: ―It is also of the essence of these
contracts that when the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment to the creditor.‖
The real nature of a mortgage is described in Article 2126 of the Civil
Code: ―The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted.‖ Simply put, a mortgage is a real right, which
follows the property, even after subsequent transfers by the mortgagor. ―A registered
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mortgage lien is considered inseparable from the property inasmuch as it is a right in
rem.‖
The sale or transfer of the mortgaged property cannot affect or release the
mortgage; thus the purchaser or transferee is necessarily bound to acknowledge and
respect the encumbrance. In fact, under Article 2129 of the Civil Code, the mortgage
on the property may still be foreclosed despite the transfer: ―The creditor may claim
from a third person in possession of the mortgaged property, the payment of the part
of the credit secured by the property which said third person possesses, in terms and
with the formalities which the law establishes.‖
While the Court agrees with Garcia that since the second mortgage, of
which he is the mortgagee, has not yet been discharged, the Court finds that said
mortgage subsists and is still enforceable. However, Villar, in buying the subject
property with notice that it was mortgaged, only undertook to pay such mortgage or
allow the subject property to be sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt matures. Villar did not obligate
herself to replace the debtor in the principal obligation, and could not do so in law
without the creditor‘s consent. Therefore, the obligation to pay the mortgage
indebtedness remains with the original debtors Galas and Pingol.
Okabe v Saturnino, G.R. No. 196040, August 26, 2014 [en banc]
Section 7 of Act No. 3135, as amended by Act No. 4118, states:
Section 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance of the province or place where the
property or any part thereof is situated, to give him possession thereof
during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the
mortgage or without complying with the requirements of this Act. Such
petition shall be made under oath and filed in the form of an ex parte motion
x x x and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the
property is situated, who shall execute said order immediately.
Under the provision cited above, the purchaser or the mortgagee who is also
the purchaser in the foreclosure sale may apply for a writ of possession during the
redemption period, upon an ex-parte motion and after furnishing a bond.
In GC Dalton Industries, Inc. v. Equitable PCI Bank, the Court held that the
issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is
Page 8 of 24

summary and ministerial in nature as such proceeding is merely an incident in the
transfer of title. Also, in China Banking Corporation v. Ordinario, we held that under
Section 7 of Act No. 3135, the purchaser in a foreclosure sale is entitled to
possession of the property. In the recent case of Spouses Nicasio Marquez and Anita
Marquez v. Spouses Carlito Alindog and Carmen Alindog, although the Court
allowed the purchaser in a foreclosure sale to demand possession of the land during
the redemption period, it still required the posting of a bond under Section 7 of Act
No. 3135. Thus:
It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of
one year after the registration of the sale. As such, he is entitled to the
possession of the said property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him of a new
transfer certificate of title. The buyer can in fact demand possession of the
land even during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not redeemed.
Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of
the writ of possession becomes a ministerial duty of the court.
Here, petitioner does not fall under the circumstances of the aforequoted
case and the provisions of Section 7 of Act No. 3135, as amended, since she bought
the property long after the expiration of the redemption period. Thus, it is PNB, if it
was the purchaser in the foreclosure sale, or the purchaser during the foreclosure
sale, who can file the ex-parte petition for the issuance of writ of possession during
the redemption period, but it will only issue upon compliance with the provisions of
Section 7 of Act No. 3135.
Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights, title, interest and claim
of the judgment debtor to the property, and its possession shall be given to the
purchaser or last redemptioner unless a third party is actually holding the property
adversely to the judgment debtor. In which case, the issuance of the writ of
possession ceases to be ex-parte and non-adversarial. Thus, where the property
levied upon on execution is occupied by a party other than a judgment debtor, the
procedure is for the court to conduct a hearing to determine the nature of said
possession, i.e., whether or not he is in possession of the subject property under a
claim adverse to that of the judgment debtor.
It is but logical that Section 33, Rule 39 of the Rules of Court be applied to
cases involving extrajudicially foreclosed properties that were bought by a purchaser
CivRev2: Case Doctrines – Credit Transactions (Atty. Legarda) UST 4B
and later sold to third-party-purchasers after the lapse of the redemption period. The
remedy of a writ of possession, a remedy that is available to the mortgagee-purchaser
to acquire possession of the foreclosed property from the mortgagor, is made
available to a subsequent purchaser, but only after hearing and after determining that
the subject property is still in the possession of the mortgagor. Unlike if the
purchaser is the mortgagee or a third party during the redemption period, a writ of
possession may issue ex-parte or without hearing. In other words, if the purchaser is
a third party who acquired the property after the redemption period, a hearing must
be conducted to determine whether possession over the subject property is still with
the mortgagor or is already in the possession of a third party holding the same
adversely to the defaulting debtor or mortgagor. If the property is in the possession
of the mortgagor, a writ of possession could thus be issued. Otherwise, the remedy of
a writ of possession is no longer available to such purchaser, but he can wrest
possession over the property through an ordinary action of ejectment.
Gatuslao vs. Yanson, G.R. No. 191540, January 21, 2015
(1) It is settled that the issuance of a Writ of Possession may not be stayed by a
pending action for annulment of mortgage or the foreclosure itself.
It is petitioners‘ stand that the pending action for annulment of foreclosure
of mortgage and of the corresponding sale at public auction of the subject properties
operates as a bar to the issuance of a writ of possession. The Court rules in the
negative. BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc.
reiterates the long-standing rule that:
[I]t is settled that a pending action for annulment of mortgage or foreclosure
sale does not stay the issuance of the writ of possession. The trial court,
where the application for a writ of possession is filed, does not need to look
into the validity of the mortgage or the manner of its foreclosure. The
purchaser is entitled to a writ of possession without prejudice to the
outcome of the pending annulment case.
This is in line with the ministerial character of the possessory writ. Thus, in
Bank of the Philippine Islands v. Tarampi, it was held:
To stress the ministerial character of the writ of possession, the Court has
disallowed injunction to prohibit its issuance, just as it has held that its
issuance may not be stayed by a pending action for annulment of mortgage
or the foreclosure itself.
Clearly then, until the foreclosure sale of the property in question is
annulled by a court of competent jurisdiction, the issuance of a writ of
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possession remains the ministerial duty of the trial court. The same is true
with its implementation; otherwise, the writ will be a useless paper
judgment – a result inimical to the mandate of Act No. 3135 to vest
possession in the purchaser immediately.
(2) Petitioners are not strangers or third parties to the foreclosure sale; they were
not deprived of due process.
Section 7 of Act No. 3135, as amended, sets forth the following procedure
in the availment of and issuance of a writ of possession in cases of extrajudicial
foreclosures, viz:
SECTION 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance (Regional Trial Court) of
the province or place where the property or any part thereof is situated, to
give him possession thereof during the redemption period, furnishing bond
in an amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements
ofthis Act. Such petition shall be made under oath and filed in form of an ex
parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under
the Mortgage Law or under section one hundred and ninety-four of the
Administrative Code, or of any other real property encumbered with a
mortgage duly registered in the office of any register of deeds in accordance
with any existing law, and in each case the clerk of the court shall, upon the
filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and
ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-
six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the
property is situated, who shall execute said order immediately.
Although the above provision clearly pertains to a writ of possession availed of and
issued within the redemption period of the foreclosure sale, the same procedure also
applies to a situation where a purchaser is seeking possession of the foreclosed
property bought at the public auction sale after the redemption period has expired
without redemption having been made. The only difference is that in the latter case,
no bond is required therefor.
Upon the expiration of the period to redeem and no redemption was made,
the purchaser, as confirmed owner, has the absolute right to possess the land and the
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issuance of the writ of possession becomes a ministerial duty of the court upon
proper application and proof of title.
Nevertheless, where the extra-judicially foreclosed real property is in the
possession of a third party who is holding the same adversely to the judgment debtor
or mortgagor, the RTC‘s duty to issue a writ of possession in favor of the purchaser
of said real property ceases to be ministerial and, as such, may no longer proceed ex
parte. In such a case, the trial court must order a hearing to determine the nature of
the adverse possession. For this exception to apply, however, it is not enough that
the property is in the possession of a third party, the property must also be held by
the third party adversely to the judgment debtor or mortgagor, such as a co-owner,
agricultural tenant or usufructuary.
In this case, petitioners do not fall under any of the above examples of such
a third party holding the subject properties adversely to the mortgagor; nor is their
claim to their right of possession analogous to the foregoing situations. Admittedly,
they are the mortgagor Limsiaco‘s heirs. It was precisely because of Limsiaco‘s
death that petitioners obtained the right to possess the subject properties and, as such,
are considered transferees or successors-in-interest of the right of possession of the
latter. As Limsiaco‘s successors-in-interest, petitioners merely stepped into his shoes
and are, thus, compelled not only to acknowledge but, more importantly, to respect
the mortgage he had earlier executed in favor of respondent. They cannot effectively
assert that their right of possession is adverse to that of Limsiaco as they do not have
an independent right of possession other than what they acquired from him. Not
being third parties who have a right contrary to that of the mortgagor, the trial court
was thus justified in issuing the writ and in ordering its implementation.
GE Money Bank vs. Sps. Dizon, G.R. No. 184301, March 23, 2015
The right of redemption should be exercised within the period required by
law, which should be counted not from the date of foreclosure sale but from the time
the certificate of sale is registered with the Register of Deeds. Fixing a definite term
within which a property should be redeemed is meant to avoid prolonged economic
uncertainty over the ownership of the thing sold.
In this case, considering that the creditor-mortgagee is a banking institution,
the determination of the redemption price is governed by Section 78 of Republic Act
No. 337 or ―The General Banking Act,‖ as amended by Presidential Decree No.
1828.
x x x In Ponce de Leon v. Rehabilitation Finance Corporation, this Court had
occasion to rule that Section 78 of the General Banking Act had the effect of
amending Section 6 of Act No. 3135 insofar as the redemption price is concerned
Page 10 of 24

when the mortgagee is a bank, as in this case, or a banking or credit institution. The
apparent conflict between the provisions of Act No. 3135 and the General Banking
Act was, therefore, resolved in favor of the latter, being a special and subsequent
legislation. This pronouncement was reiterated in the case of Sy v. Court of Appeals
where we held that the amount at which the foreclosed property is redeemable is the
amount due under the mortgage deed, or the outstanding obligation of the mortgagor
plus interest and expenses in accordance with Section 78 of the General Banking
Act. It was, therefore, manifest error on the part of the Court of Appeals to apply in
the case at bar the provisions of Section 30, Rule 39 of the Rules of Court in fixing
the redemption price of the subject foreclosed property.
Redemption within the period allowed by law is not a matter of intent but a question
of payment or valid tender of the full redemption price. It is irrelevant whether the
mortgagor is diligent in asserting his or her willingness to pay. What counts is that
the full amount of the redemption price must be actually paid; otherwise, the offer to
redeem will be ineffectual and the purchaser may justly refuse acceptance of any
sum that is less than the entire amount.
To be valid and effective, the offer to redeem must be accompanied by an
actual tender of the redemption price. Redemption price should either be fully
offered in legal tender or validly consigned in court. Only by such means can the
auction winner be assured that the offer to redeem is being made in good faith. Here,
the offer of the Spouses Dizon was an invalid and ineffectual exercise of their right
of redemption; hence, the refusal of the offer by the Bank was completely justified.
Bascara vs. Pangilinan, G.R. No. 188069, June 17, 2015
Under Section 33, Rule 39 of the Rules of Court, the possession of the
property shall be given to the purchaser or last redemptioner unless a third party is
actually holding the property in a capacity adverse to the judgment obligor. Thus, the
court‘s obligation to issue an ex parte writ of possession in favor of the purchaser in
an extrajudicial foreclosure sale ceases to be ministerial when there is a third party in
possession of the property claiming a right adverse to that of the judgment
debtor/mortgagor. In such a case, the issuance of the writ of possession ceases to be
ex-parte and non-adversarial as the trial court must order a hearing to determine the
nature of said possession, i.e., whether or not possession of the subject property is
under a claim averse to that of the judgment debtor. We repeatedly emphasize
though that the exception provided under Section 33 contemplates a situation in
which a third party holds the property by adverse title or right vis-a-vis the judgment
debtor or mortgagor, such as that of a co-owner, agricultural tenant or usufructuary,
who possesses the property in his or her own right, and is not merely the successor or
transferee of the right of possession of another co-owner or the owner of the
property.
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In this case, while it is undisputed that petitioner was in possession of the
subject property, it cannot be said that his right to possess the same is by virtue of
being a co-owner, agricultural tenant or usufructuary; nor is the claim to his right of
possession analogous to the foregoing situations. What is clear is that he allegedly
acquired the property from Pardo by reason of a donation mortis causa. He is,
therefore, a transferee or successor-in-interest who merely stepped into the shoes of
his aunt. He cannot assert that his right of possession is adverse to that of Pardo as he
has no independent right of possession. Consequently, under legal contemplation, he
cannot be considered as a ―third party who is actually holding the property adversely
to the judgment obligor.‖ The trial court had the ministerial duty to issue, as it did
issue, the possessory writ in favor of respondent Pangilinan. As it appeared, there
was no reason for it to order the recall of the writ already issued.
AQA Global Construction vs. Planters Development Bank, G.R. No. 211649,
August 12, 2015
A writ of possession is an order by which the sheriff is commanded to place
a person in possession of a real or personal property. It may be issued under any of
the following instances: (a) land registration proceedings under Section 17 of Act
No. 496, otherwise known as the ―The Land Registration Act‖; (b) judicial
foreclosure, provided the debtor is in possession of the mortgaged realty and no third
person, not a party to the foreclosure suit, had intervened; and (c) extrajudicial
foreclosure of a real estate mortgage under Section 7 of Act No. 3135, as amended
by Act No. 4118.
The general rule is that after the lapse of the redemption period, the
purchaser in a foreclosure sale becomes the absolute owner of the property
purchased who is entitled to the possession of the said property. Upon ex parte
petition, it is ministerial upon the trial court to issue the writ of possession in his
favor. The exception, however, is provided under Section 33, Rule 39 of the
Rules, which applies suppletorily to extrajudicial foreclosures of real estate
mortgages. Under the said provision of law, the possession of the mortgaged
property may be awarded to a purchaser in the extrajudicial foreclosure unless a third
party is actually holding the property adversely to the judgment debtor.
Thus, where a parcel of land levied upon on execution is occupied by a
party other than a judgment debtor, the procedure is for the court to order a hearing
to determine the nature of said adverse possession. For the exception to apply,
however, the property need not only be possessed by a third party, but also held by
him adversely to the judgment obligor - such as that of a co-owner, agricultural
tenant or usufructuary, who possess the property in their own right and not merely
the successor or transferee of the right of possession of, or privy to, the judgment
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obligor. In this case, petitioners‘ claim of right of possession over the subject
properties is not analogous to any of the foregoing as to render such
possession adverse to the judgment obligor, KTC, under legal contemplation.
Claudio v. Spouses Saraza, G.R. No. 213286, August 26, 2015
In Cavite Development Bank v. Lim, 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 ―the mortgagee in
good faith‖ based on the rule that all persons dealing with 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 the
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.
Verily, a mortgagee has a right to rely in good faith on the certificate of title
of the mortgagor and, in the absence of any sign that might arouse suspicion, has no
obligation to undertake further investigation. Accordingly, even if the mortgagor is
not the rightful owner of, or does not have a valid title to, the mortgaged property,
the mortgagee in good faith is entitled to protection. This doctrine presupposes,
however, that the mortgagor, who is not the rightful owner of the property, has
already succeeded in obtaining a Torrens title over the property in his name and
that, after obtaining the said title, he succeeds in mortgaging the property to
another who relies on what appears on the said title.
The doctrine of mortgagee in good faith only applies when the mortgagor
has already obtained a certificate of title in his or her name at the time of the
mortgage. Accordingly, an innocent mortgagee for value is one who entered into a
mortgage contract with a mortgagor bearing a certificate of title in his name over the
mortgaged property. Such was not the situation of Spouses Saraza. They cannot
claim the protection accorded by law to innocent mortgagees for value considering
that there was no certificate of title yet in the name of Florentino to rely on when the
mortgaged contract was executed.
Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Spouses Saraza could not be deemed to have
acted in good faith because they knew that they were not dealing with the registered
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owner of the property when it was mortgaged and that the subject land had yet to be
titled in the name of mortgagor Florentino. To repeat, the protection accorded to a
mortgagee in good faith cannot be extended to a mortgagee who knowingly entered
into a mortgage agreement wherein the title to the mortgaged property presented was
still in the name of the rightful owner and the mortgagor has no legal authority yet to
mortgage the same.
Landbank vs. Belle Corporation, G.R. No. 205271, September 2, 2015
A person who deliberately ignores a significant fact that could create
suspicion in an otherwise reasonable person is not a mortgagee in good faith. A
mortgagee cannot close his eyes to facts which should put a reasonable man on his
guard and claim that he acted in good faith under the belief that there was no defect
in the title of the mortgagor. His mere refusal to believe that such defect exists or the
willful closing of his eyes to the possibility of the existence of a defect in the
mortgagor‘s title will not make him an innocent mortgagee for value if it afterwards
develops that the title was in fact defective, and it appears that he had such notice of
the defect as would have led to its discovery had he acted with that measure of
precaution which may reasonably be required of a prudent man in a like situation.
Here, the facts show that petitioner disregarded circumstances that should
have aroused its suspicion. After encountering a dead end in the DENR‘s Land
Management Section Region IV and the Tax Mapping Section of the Tagaytay City
Assessor‘s Office, it manifestly failed to inquire further on the identity of possible
adverse claimants and the status of their occupancy. Had petitioner earnestly probed,
by simply talking to Bautista or asking the possessors/owner of adjacent lots as
regards the presence of the traversing access road, it could have easily discovered the
opposing claim of respondent, which is a known real estate developer in the area.
Indeed, failing to make such inquiry would hardly be consistent with any pretense of
good faith. Given the suspicious-provoking presence of the concrete road on the
mortgaged lot, it behooved petitioner to conduct a more exhaustive investigation on
the history of Bautista‘s title. The acceptance of the mortgaged property
notwithstanding the existence of an actual and visible improvement thereon
constitutes gross negligence amounting to bad faith. Where the mortgagee acted with
haste in granting the mortgage loan and did not ascertain the ownership of the land
being mortgaged it cannot be considered an innocent mortgagee.
Carodan v China Bank, GR 210542, February 24, 2016
In Belo v. PNB, 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
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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.
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. 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.
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.
Ruiz v Dimailig, G. R. No. 204280, Nov. 9, 2016
No valid mortgage will arise unless the mortgagor has a valid title or
ownership over the mortgaged property. By way of exception, a mortgagee can
invoke that he or she derived title even if the mortgagor‘s title on the property is
defective, if he or she acted in good faith. In such instance, the mortgagee must
prove that no circumstance that should have aroused her suspicion on the veracity of
the mortgagor‘s title on the property was disregarded.
Such doctrine of mortgagee in good faith presupposes ―that the mortgagor,
who is not the rightful owner of the property, has already succeeded in obtaining a
Torrens title over the property in his name and that, after obtaining the said title, he
succeeds in mortgaging the property to another who relies on what appears on the
said title.‖ In short, the doctrine of mortgagee in good faith assumes that the title to
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the subject property had already been transferred or registered in the name of the
impostor who thereafter transacts with a mortgagee who acted in good faith. In the
case at bench, it must be emphasized that the title remained to be registered in the
name of Bernardo, the rightful and real owner, and not in the name of the impostor.
The burden of proof that one is a mortgagee in good faith and for value lies
with the person who claims such status. A mortgagee cannot simply ignore facts that
should have put a reasonable person on guard, and thereafter claim that he or she
acted in good truth under the belief that the mortgagor‘s title is not defective. And,
such good faith entails an honest intention to refrain from taking unconscientious
advantage of another. In other words, in order for a mortgagee to invoke the doctrine
of mortgagee in good faith, the impostor must have succeeded in obtaining a Torrens
title in his name and thereafter in mortgaging the property. Where the mortgagor is
an impostor who only pretended to be the registered owner, and acting on such
pretense, mortgaged the property to another, the mortgagor evidently did not succeed
in having the property titled in his or her name, and the mortgagee cannot rely on
such pretense as what appears on the title is not the impostor's name but that of the
registered owner. In this case, Evelyn insists that she is a mortgagee in good faith
and for value. Thus, she has the burden to prove such claim and must provide
necessary evidence to support the same. Unfortunately, Evelyn failed to discharge
her burden.
Penaflor v Dela Cruz, G.R. No. 197797, August 9, 2017
―It is well-settled that the purchaser in an extrajudicial foreclosure of real
property becomes the absolute owner of the property if no redemption is made
within one [(1)] year from the registration of the certificate of sale by those entitled
to redeem. As absolute owner, he is entitled to all the rights of ownership over a
property recognized in Article 428 of the New Civil Code, not least of which is
possession, or jus possidendi[.]‖ Possession being an essential right of the owner
with which he is able to exercise the other attendant rights of ownership, after
consolidation of title, the purchaser in a foreclosure sale may demand possession as a
matter of right. This is why Section 7 of Act No. 3135, as amended by Act No. 4118,
imposes upon the RTC a ministerial duty to issue a writ of possession to the new
owner upon a mere ex parte motion.
In Spouses Arquiza v. CA, it was reiterated that simply on the basis of the
purchaser‘s ownership of the foreclosed property, there is no need for an ordinary
action to gain possession thereof. In Asia United Bank v. Goodland Company, Inc.,
the Court observed that the ex parte application for a writ of possession is a non-
litigious summary proceeding without need to post a bond, except when possession
is being sought even during the redemption period. Further, in BPI Family Savings
Bank, Inc. v. Golden Power Diesel Sales Center, lnc. (BPI Family), the Court
Page 13 of 24

remarked that not even a pending action to annul the mortgage or the foreclosure sale
will by itself stay the issuance of the writ of possession.
However, Section 33, Rule 39 of the Rules of Court – which is applied to
extrajudicial foreclosure of mortgages per Section 6 of Act No. 3135 – provides that
upon the expiration of the redemption period, the possession of the property shall be
given to the purchaser or last redemptioner, unless a third party is actually holding
the property adversely to the judgment obligor. In China Banking Corporation v.
Spouses Lozada, it was held that for the court‘s ministerial duty to issue a writ of
possession to cease, it is not enough that the property be held by a third party, but
rather the said possessor must have a claim thereto adverse to the
debtor/mortgagor. Specifically, the Court held that to be considered in adverse
possession, the third party possessor must have done so in his own right and not
merely as a successor or transferee of the debtor or mortgagor. Thus, in BPI
Family, the Court ruled that it was an error to issue an ex parte writ of possession to
the purchaser in an extrajudicial foreclosure, or to refuse to abate one already
granted, where a third party has raised in an opposition to the writ or in a
motion to quash the same, his actual possession thereof upon a claim of
ownership or a right adverse to that of the debtor or mortgagor. The procedure,
according to Unchuan v. CA, is for the trial court to order a hearing to
determine the nature of the adverse possession, conformably with the time-
honored principle of due process.
8. Pledge, NCC 2093-2123
Ong v Roban Lending, 557 SCRA 516
This Court finds that the Memorandum of Agreement and Dacion in Payment
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil
Code which provides that, the creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and
void.
The elements of pactum commissorium, which enables the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure
proceedings are: (1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period.
9. Guaranty and Suretyship, NCC 2157-2081
Phil-Am v. Ramos, February 28, 1966, 16 SCRA 298
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Finally, even under Schedule C, the defendants as counter-guarantors are not entitled
to demand exhaustion of the properties of the principal debtor. For Schedule C is a
counter-guaranty with real estate mortgage. It is accepted that guarantors have no
right to demand exhaustion of the properties of the principal debtor, under Article
2058 of the New Civil Code, where a pledge or mortgage has been given as a special
security.
Toh v Solid Bank, 408 SCRA 554
This Court holds that the Continuing Guaranty is a valid and binding contract of
petitioner-spouses as it is a public document that enjoys the presumption of
authenticity and due execution. Although petitioners as appellees may raise issues
that have not been assigned as errors by respondent Bank as party-appellant, i.e.,
unenforceability of the surety contract, we are bound by the consistent finding of the
courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh "voluntarily
affixed their signature[s]" on the surety agreement and were thus "at some given
point in time willing to be liable under those forms." In the absence of clear,
convincing and more than preponderant evidence to the contrary, our ruling cannot
be otherwise.
Furthermore, the assurance of the sureties in the Continuing Guaranty that ―[n]o act
or omission of any kind on [the Bank's] part in the premises shall in any event affect
or impair this guaranty‖ must also be read ―strictissimi juris‖ for the reason that
petitioners are only accommodation sureties, i.e., they received nothing out of the
security contract they signed. Thus said, the acts or omissions of the Bank conceded
by petitioners as not affecting nor impairing the surety contract refer only to those
occurring ―in the premises,‖ or those that have been the subject of the waiver in the
Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the
period for enforcing the indebtedness does not by itself bring about the discharge of
the sureties unless the extra time is not permitted within the terms of the waiver, i.e.,
where there is no payment or there is deficient settlement of the marginal deposit and
the twenty-five percent (25%) consideration, in which case the illicit extension
releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety is
measured by the terms of his contract, and while he is liable to the full extent thereof,
his accountability is strictly limited to that assumed by its terms.
The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the
waiver stipulated in the Continuing Guaranty. Evidently, they constitute illicit
extensions prohibited under Art. 2079 of the Civil Code, ―[a]n extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the
guaranty.‖ This act of the Bank is not mere failure or delay on its part to demand
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payment after the debt has become due, as was the case in unpaid five (5) letters of
credit which the Bank did not extend, defer or put off, but comprises conscious,
separate and binding agreements to extend the due date.
As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan
Toh are relieved of their obligations as sureties of respondent FBPC under Art. 2079
of the Civil Code.
Autocorp Group v Intra Strata, 556 SCRA 250
It is worthy to note that petitioners did not impugn the validity of the stipulation in
the Indemnity Agreements allowing ISAC to proceed against petitioners the moment
the subject bonds become due and demandable, even prior to actual forfeiture or
payment thereof. Even if they did so, the Court would be constrained to uphold the
validity of such a stipulation for it is but a slightly expanded contractual expression
of Article 2071 of the Civil Code which provides, inter alia, that the guarantor may
proceed against the principal debtor the moment the debt becomes due and
demandable. Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the period
for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for
its maturity, unless it be of such nature that it cannot be extinguished except within a
period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty,
or to demand a security that shall protect him from any proceedings by the creditor
and from the danger of insolvency of the debtor.
The provisions of the Civil Code on Guarantee, other than the benefit of excussion,
are applicable and available to the surety. The Court finds no reason why the
provisions of Article 2079 would not apply to a surety.
This, however, would not cause a reversal of the Decision of the Court of Appeals.
The Court of Appeals was correct that even granting arguendo that there was a
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modification as to the effectivity of the bonds, petitioners would still not be absolved
from liability since they had authorized ISAC to consent to the granting of any
extension, modification, alteration and/or renewal of the subject bonds, as expressly
set out in the Indemnity Agreements.
The foregoing provision in the Indemnity Agreements clearly authorized ISAC to
consent to the granting of any extension, modification, alteration and/or renewal of
the subject bonds.
There is nothing illegal in such a provision. In Philippine American General
Insurance Co., Inc. v. Mutuc, the Court held that an agreement whereby the sureties
bound themselves to be liable in case of an extension or renewal of the bond, without
the necessity of executing another indemnity agreement for the purpose and without
the necessity of being notified of such extension or renewal, is valid; and that there is
nothing in it that militates against the law, good customs, good morals, public order
or public policy.
Gateway Electronics v Asiabank, 574 SCRA 698
Suretyship is covered by Article 2047 of the Civil Code, which states:
By guaranty a person, called the 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 solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the
contract is called a suretyship.
The Court‘s disquisition in Palmares v. Court of Appeals on suretyship is instructive,
thus:
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 x x
x. 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. x x x In other words, a surety undertakes directly for the payment and is so
responsible at once if the principal debtor makes default x x x.
xxxx
A creditor‘s right to proceed against the surety exists independently of his right to
proceed against the principal. Under Article 1216 of the Civil Code, the creditor may
proceed against any one of the solidary debtors or some or all of them
simultaneously. The rule, therefore, is that if the obligation is joint and several, the
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creditor has the right to proceed even against the surety alone. Since, generally, it is
not necessary for the creditor to proceed against a principal in order to hold the
surety liable, where, by the terms of the contract, the obligation of the surety is the
same as that of the principal, then soon as the principal is in default, the surety is
likewise in default, and may be sued immediately and before any proceedings are
had against the principal. Perforce, x x x a surety is primarily liable, and with the rule
that his proper remedy is to pay the debt and pursue the principal for reimbursement,
the surety cannot at law, unless permitted by statute and in the absence of any
agreement limiting the application of the security, require the creditor or obligee,
before proceeding against the surety, to resort to and exhaust his remedies against the
principal, particularly where both principal and surety are equally bound.
Clearly, Asianbank‘s right to collect payment for the full amount from Geronimo, as
surety, exists independently of its right against Gateway as principal debtor; it could
thus proceed against one of them or file separate actions against them to recover the
principal debt covered by the deed on suretyship, subject to the rule prohibiting
double recovery from the same cause. This legal postulate becomes all the more
cogent in case of an insolvency situation where, as here, the insolvency court is
bereft of jurisdiction over the sureties of the principal debtor. As Asianbank aptly
points out, a suit against the surety, insofar as the surety‘s solidary liability is
concerned, is not affected by an insolvency proceeding instituted by or against the
principal debtor. The same principle holds true with respect to the surety of a
corporation in distress which is subject of a rehabilitation proceeding before the
Securities and Exchange Commission (SEC).
In Diño vs. Court of Appeals, we again had occasion to discourse on continuing
guaranty/suretyship thus:
―x x x A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked. It is prospective in its
operation and is generally intended to provide security with respect to future
transactions within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing
guaranty is one which covers all transactions, including those arising in the future,
which are within the description or contemplation of the contract, of guaranty, until
the expiration or termination thereof. A guaranty shall be construed as continuing
when by the terms thereof it is evident that the object is to give a standing credit to
the principal debtor to be used from time to time either indefinitely or until a certain
period x x x.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of ‗any debt,‘ ‗any indebtedness,‘ ‗any deficiency,‘ or
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‗any sum,‘ or the guaranty of ‗any transaction‘ or money to be furnished the
principal debtor ‗at any time,‘ or ‗on such time‘ that the principal debtor may
require, have been construed to indicate a continuing guaranty.‖ (Emphasis
supplied.)
By its nature, a continuing suretyship covers current and future loans, provided that,
with respect to future loan transactions, they are, to borrow from Diño, as cited
above, ―within the description or contemplation of the contract of guaranty.‖ The
Deed of Suretyship Geronimo signed envisaged a continuing suretyship when, by the
express terms of the deed, he warranted payment of the PhP 10 million-Domestic
Bills Purchased Line and the USD 3 million-Omnibus Credit Line.
Evidently, under the deed of suretyship, Geronimo undertook to secure all
obligations obtained under the Domestic Bills Purchased Line and Omnibus Credit
Line, without any specification as to the period of the loan.
Aglibot v Santia, G.R. No. 185945, December 5, 2012
It is settled that the liability of the guarantor is only subsidiary, and all the properties
of the principal debtor, the PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against the principal debtor
and the latter is unable to pay, for obviously the exhaustion of the principals property
the benefit of which the guarantor claims cannot even begin to take place before
judgment has been obtained. This rule is contained in Article 2062 of the Civil Code,
which provides that the action brought by the creditor must be filed against the
principal debtor alone, except in some instances mentioned in Article 2059 when the
action may be brought against both the guarantor and the principal debtor.
The Court must, however, reject Aglibot‘s claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2) of the
Civil Code, embodying the Statute of Frauds. Under the above provision, concerning
a guaranty agreement, which is a promise to answer for the debt or default of
another, the law clearly requires that it, or some note or memorandum thereof, be in
writing. Otherwise, it would be unenforceable unless ratified, although under Article
1358 of the Civil Code, a contract of guaranty does not have to appear in a public
document. Contracts are generally obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present, and the
Statute of Frauds simply provides the method by which the contracts enumerated in
Article 1403(2) may be proved, but it does not declare them invalid just because they
are not reduced to writing. Thus, the form required under the Statute is for
convenience or evidentiary purposes only.
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On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of guarantee is unenforceable
unless made in writing or evidenced by some writing.
Trade v. Asia, G.R. No. 187403, February 12, 2014
A surety is considered in law as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. Although the contract of a surety is in essence
secondary only to a valid principal obligation, his liability to the creditor is direct,
primary and absolute; he becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor does he receive any
benefit therefrom. The fundamental reason therefor is that a contract of suretyship
effectively binds the surety as a solidary debtor. This is provided under Article 2047
of the Civil Code.
Thus, since the surety is a solidary debtor, it is not necessary that the original debtor
first failed to pay before the surety could be made liable; it is enough that a demand
for payment is made by the creditor for the surety‘s liability to attach.
Comparing a surety‘s obligations with that of a guarantor, the Court, in the case of
Palmares v. CA, illumined that a surety is responsible for the debt‘s payment at once
if the principal debtor makes default, whereas a guarantor pays only if the principal
debtor is unable to pay, viz.:
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.
Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance
Co., Inc., and later in the case of Security Bank, held that Article 2079 of the Civil
Code, which pertinently provides that ―an extension granted to the debtor by the
creditor without the consent of the guarantor extinguishes the guaranty,‖ equally
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applies to both contracts of guaranty and suretyship. The rationale therefor was
explained by the Court as follows:
The theory behind Article 2079 is that an extension of time given to the
principal debtor by the creditor without the surety‘s consent would deprive the surety
of his right to pay the creditor and to be immediately subrogated to the creditor‘s
remedies against the principal debtor upon the maturity date. The surety is said to be
entitled to protect himself against the contingency of the principal debtor or the
indemnitors becoming insolvent during the extended period.
Applying these principles, the Court finds that the payment extensions granted by
Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement
did not have the effect of extinguishing the bonding companies‘ obligations to
TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions
were made without their consent. This is because Article 2079 of the Civil Code
refers to a payment extension granted by the creditor to the principal debtor without
the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship
contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of
Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur
under the Letters of Guarantee, within the bounds of the bonds‘ respective coverage
periods and amounts. No payment extension was, however, granted by TIDCORP in
favor of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be
applied with respect to the bonding companies‘ liabilities to TIDCORP under the
Surety Bonds.
Lim v Security Bank, G.R. No. 188539, March 12, 2014
A contract of suretyship is an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. Although the
contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom.
Thus, suretyship arises upon the solidary binding of a person deemed the surety with
the principal debtor for the purpose of fulfilling an obligation. A surety is considered
in law as being the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.
In this case, what petitioner executed was a Continuing Suretyship. The essence of a
continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise:
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Comprehensive or continuing surety agreements are, in fact, quite
commonplace in present day financial and commercial practice. A bank or financing
company which anticipates entering into a series of credit transactions with a
particular company, normally requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement,
the principal places itself in a position to enter into the projected series of
transactions with its creditor; with such suretyship agreement, there would be no
need to execute a separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor.
The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are
very clear. It states that petitioner, as surety, shall, without need for any notice,
demand or any other act or deed, immediately become liable and shall pay ―all credit
accommodations extended by the Bank to the Debtor, including increases, renewals,
roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i)
all obligations of the Debtor presently or hereafter owing to the Bank, as appears in
the accounts, books and records of the Bank, whether direct or indirect, and (ii) any
and all expenses which the Bank may incur in enforcing any of its rights, powers and
remedies under the Credit Instruments as defined hereinbelow.‖ Such stipulations are
valid and legal and constitute the law between the parties, as Article 2053 of the
Civil Code provides that ―[a] guaranty may also be given as security for future debts,
the amount of which is not yet known; . . . .‖ Thus, petitioner is unequivocally bound
by the terms of the Continuing Suretyship. There can be no cavil then that petitioner
is liable for the principal of the loan, together with the interest and penalties due
thereon, even if said loan was obtained by the principal debtor even after the date of
execution of the Continuing Suretyship.
Stronghold Insurance Company vs. Sps. Rune, G.R. No. 204689, January 21,
2015
A guarantee or a surety contract under Article 2047 of the Civil Code of the
Philippines is an accessory contract because it is dependent for its existence upon the
principal obligation guaranteed by it.
A performance bond is a kind of suretyship agreement. A suretyship agreement is an
agreement ―whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor
of another party, called the obligee.‖ In the same vein, a performance bond is
―designed to afford the project owner security that the . . . contractor, will faithfully
comply with the requirements of the contract . . . and make good [on the] damages
sustained by the project owner in case of the contractor‘s failure to so perform.‖
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It is settled that the surety‘s solidary obligation for the performance of the principal
debtor‘s obligation is indirect and merely secondary. Nevertheless, the surety‘s
liability to the ―creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal.‖
Verily, ―in enforcing a surety contract, the ‗complementary contracts-construed-
together‘ doctrine finds application. According to this principle, an accessory
contract must be read in its entirety and together with the principal agreement.‖
Article 1374 of the Civil Code provides:
ART. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of
them taken jointly.
Applying the ―complementary-contracts-construed-together‖ doctrine, this court in
Prudential held that the surety willingly acceded to the terms of the construction
contract despite the silence of the performance bond as to arbitration.
This court, however, cannot apply the ruling in Prudential to the present case.
Several factors militate against petitioner‘s claim. The contractual stipulations in this
case and in Prudential are different. This court in Prudential held that the
construction contract expressly incorporated the performance bond into the contract.
In the present case, Article 7 of the Owners-Contractor Agreement merely stated that
a performance bond shall be issued in favor of respondents, in which case petitioner
and Asis-Leif Builders and/or Ms. Ma. Cynthia Asis-Leif shall pay ₱4,500,000.00 in
the event that Asis-Leif fails to perform its duty under the Owners-Contractor
Agreement. Consequently, the performance bond merely referenced the contract
entered into by respondents and Asis-Leif, which pertained to Asis-Leif‘s duty
toconstruct a two-storey residence building with attic, pool, and landscaping over
respondents‘ property.
To be clear, it is in the Owners-Contractor Agreement that the arbitration clause is
found. The construction agreement was signed only by respondents and the
contractor, Asis-Leif, as represented by Ms. Ma. Cynthia Asis-Leif. It is basic that
"contracts take effect only between the parties, their assigns and heirs." Not being a
party to the construction agreement, petitioner cannot invoke the arbitration clause.
Petitioner, thus, cannot invoke the jurisdiction of the CIAC.
CCC Insurance vs. Kawasaki Steel, G.R. No. 156162, June 22, 2015
The statutory definition of suretyship is found in Article 2047 of the Civil Code.
Jurisprudence also defines a contract of suretyship as ―an agreement where a party
called the surety guarantees the performance by another party called the principal or
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obligor of an obligation or undertaking in favor of a third person called the obligee.
Specifically, suretyship is a contractual relation resulting from an agreement
whereby one person, the surety, engages to be answerable for the debt, default or
miscarriage of another, known as the principal.‖ The Court expounds that ―a
surety‘s liability is joint and several, limited to the amount of the bond, and
determined strictly by the terms of contract of suretyship in relation to the principal
contract between the obligor and the obligee. It bears stressing, however, that
although the contract of suretyship is secondary to the principal contract, the surety's
liability to the obligee is nevertheless direct, primary, and absolute.‖
The Court cannot give any additional meaning to the plain language of the
undertakings in the Surety and Performance Bonds. The extent of a surety's liability
is determined by the language of the suretyship contract or bond itself. Article 1370
of the Civil Code provides that ―if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.‖
As provided in Article 2047, the surety undertakes to be bound solidarily with the
principal obligor. That undertaking makes a surety agreement an ancillary contract as
it presupposes the existence of a principal contract. Although the contract of a surety
is in essence secondary only to a valid principal obligation, the surety becomes liable
for the debt or duty of another although it possesses no direct or personal interest
over the obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party to the undertaking.
Article 2079 of the New Civil Code is not applicable to the instant case. The
theory behind Article 2079 is that an extension of time given to the principal debtor
by the creditor without the surety‘s consent would deprive the surety of his right to
pay the creditor and to be immediately subrogated to the creditor‘s remedies against
the principal debtor upon the maturity date. The surety is said to be entitled to protect
himself against the contingency of the principal debtor or the indemnitor‘s becoming
insolvent during the extended period.
Under these circumstances, there was no creditor-debtor relationship
between the Republic and FFMCCI and Article 2079 of the Civil Code did not apply.
The extension granted by the Republic to Kawasaki modified the deadline for the
completion of the Project under the Construction Contract, but had no effect on the
obligations of FFMCCI to Kawasaki under the Consortium Agreement, much less,
on the liabilities of CCCIC under the Surety and Performance Bonds.
Indeed, a surety is released from its obligation when there is a material alteration of
the principal contract in connection with which the bond is given, such as a change
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which imposes a new obligation on the promising party, or which takes away some
obligation already imposed, or one which changes the legal effect of the original
contract and not merely its form. However, a surety is not released by a change in the
contract, which does not have the effect of making its obligation more onerous.
In the instant case, the revision of the subcontract agreement did not in any way
make the obligations of both the principal and the surety more onerous. To be sure,
petitioner never assumed added obligations, nor were there any additional
obligations imposed, due to the modification of the terms of the contract. Failure to
receive any notice of such change did not, therefore, exonerate petitioner from its
liabilities as surety.
What is the source of this right to full reimbursement by the surety? We
find the right under Article 2066 of the Civil Code, which assures that "the guarantor
who pays for a debtor must be indemnified by the latter," such indemnity comprising
of, among others, "the total amount of the debt." Further, Article 2067 of the Civil
Code likewise establishes that "the guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the debtor."
Articles 2066 and 2067 explicitly pertain to guarantors, and one might
argue that the provisions should not extend to sureties, especially in light of the
qualifier in Article 2047 that the provisions on joint and several obligations should
apply to sureties. We reject that argument, and instead adopt Dr. Tolentino‘s
observation that ―the reference in the second paragraph of Article 2047 to the
provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several
obligations, however, does not mean that suretyship is withdrawn from the
applicable provisions governing guaranty.‖ For if that were not the implication, there
would be no material difference between the surety as defined under Article 2047
and the joint and several debtors, for both classes of obligors would be governed by
exactly the same rules and limitations.
Accordingly, the rights to indemnification and subrogation as established
and granted to the guarantor by Articles 2066 and 2067 extend as well to sureties as
defined under Article 2047.
Pursuant to Articles 2066 and 2067, the rights of CCCIC as surety to indemnification
and subrogation will arise only after it has paid its obligations to Kawasaki as the
debtor-obligee. In Autocorp Group v. Intra Strata Assurance Corporation, the Court
ruled that:
The benefit of subrogation, an extinctive subjective novation by a change of
creditor, which ―transfers to the person subrogated, the credit and all the rights
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thereto appertaining, either against the debtor or against third persons,‖ is granted by
the Article 2067 of the Civil Code only to the ―guarantor (or surety) who pays.‖
Allied Banking Corporation v. Yujuico, G.R. No. 163116, June 29, 2015
In guaranty, the guarantor ―binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so.‖ The liability of the
guarantor is secondary to that of the principal debtor because he ―cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the debtor.‖ In contrast, the
surety is solidarily bound to the obligation of the principal debtor.
Although the first part of the continuing guaranties showed that Jesus as the
signatory had agreed to be bound ―either as guarantor or otherwise,‖ the usage of
term guaranty or guarantee in the caption of the documents, or of the word guarantor
in the contents of the documents did not conclusively characterize the nature of the
obligations assumed therein. What properly characterized and defined the
undertakings were the contents of the documents and the intention of the parties.
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.
With the stipulations in the continuing guaranties indicating that he was the surety of
the credit line extended to YLTC, Jesus was solidarity liable to Genbank for the
indebtedness of YLTC. In other words, he thereby rendered himself ―directly and
primarily responsible‖ with YLTC, ―without reference to the solvency of the
principal.‖
Ejercito v. Oriental Assurance, G.R. No. 192099, July 08, 2015
The contract of indemnity is the law between the parties. It is a cardinal rule in the
interpretation of a contract that if its terms are clear and leave no doubt on the
intention of the contracting parties, the literal meaning of its stipulation shall control.
Clearly, as far as respondent is concerned, petitioners have expressly bound
themselves to the contract, which provides for the terms granting authority to the
Company to renew the original bond. The terms of the contract are clear, explicit and
unequivocal. Therefore, the subsequent acts of the Company, through Somes, that
led to the renewal of the surety bond are binding on petitioners as well.
Carodan v China Bank, GR 210542, February 24, 2016
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In Belo v. PNB, 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, ―third 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.
Apart from being an accommodation mortgagor, Rosalina is also a surety, defined
under Article 2047 of the Civil Code. 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.
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
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principal does not join. It is usually entered into before or after that of the principal,
and is often supported on a separate consideration from that supporting the contract
of the principal. The original contract of his principal is not his contract, and he is
not bound to take notice of its non-performance. He is often discharged by the mere
indulgence of the creditor to the principal, and is usually not liable unless notified of
the default of the principal.
Simply put, a surety is distinguished from a guaranty in that a guarantor is
the insurer of the solvency of the debtor and thus binds himself to pay if the principal
is unable to pay while a surety is the insurer of the debt, and he obligates himself to
pay if the principal does not pay.
When Rosalina affixed her signature to the Real Estate Mortgage as mortgagor and
to the Surety Agreement as surety which covered the loan transaction represented by
the Promissory Note, she thereby bound herself to be liable to 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.
10. Deposit, NCC 1962-1967
YHT Realty v CA, 451 SCRA 638
Article 2003 was incorporated in the New Civil Code as an expression of public
policy precisely to apply to situations such as that presented in this case. The hotel
business like the common carrier‘s business is imbued with public interest. Catering
to the public, hotelkeepers are bound to provide not only lodging for hotel guests and
security to their persons and belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be negated or
diluted by any contrary stipulation in so-called ―undertakings‖ that ordinarily appear
in prepared forms imposed by hotel keepers on guests for their signature.
In an early case (De Los Santos v. Tan Khey), CA ruled that to hold hotelkeepers or
innkeeper liable for the effects of their guests, it is not necessary that they be actually
delivered to the innkeepers or their employees. It is enough that such effects are
within the hotel or inn. With greater reason should the liability of the hotelkeeper be
enforced when the missing items are taken without the guest‘s knowledge and
consent from a safety deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the ―undertaking‖ manifestly contravene Article 2003, CC
for they allow Tropicana to be released from liability arising from any loss in the
contents and/or use of the safety deposit box for any cause whatsoever. Evidently,
the undertaking was intended to bar any claim against Tropicana for any loss of the
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contents of the safety deposit box whether or not negligence was incurred by
Tropicana or its employees.
The New Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests even if caused by
servants or employees of the keepers of hotels or inns as well as bystanders, except
as it may proceed from any force majeure.
11. Truth in Lending Act
UCPB v Beluso, 530 SCRA 567
The interest rate provisions in the case at bar are illegal not only because of the
provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed
later, because they violate the Truth in Lending Act. Not disclosing the true
finance charges in connection with the extensions of credit is, furthermore, a form of
deception which we cannot countenance. It is against the policy of the State as stated
in the Truth in Lending Act:
Sec. 2. Declaration of Policy. – It is hereby declared to be the policy of the
State to protect its citizens from a lack of awareness of the true cost of credit to the
user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.
Moreover, while the spouses Beluso indeed agreed to renew the credit line, the
offending provisions are found in the promissory notes themselves, not in the credit
line. In fixing the interest rates in the promissory notes to cover the renewed credit
line, UCPB still reserved to itself the same two options – (1) a rate indicative of the
DBD retail rate; or (2) a rate as determined by the Branch Head.
12. Quasi-Contracts, NCC 2154-2163
MIAA v COA, G.R. No. 194710, February 14, 2012
There is no dispute that the grant of a signing bonus had been previously
disallowed by the express mandate of then President Gloria Macapagal-Arroyo.
Essentially, the conclusion reached by this Court is anchored on the following: (a)
the benefit in question is, in fact, a signing bonus, which is an illegal disbursement;
(b) even assuming that the subject benefit is a CNA Incentive, MIAA non-
compliance with the requirements under PSLMC Resolution No. 2 and DBM Budget
Circular No. 2006-1 rendered the same illegal; and (c) MIAA Board of Directors
decision to authorize the grant of a signing bonus and its officers act of approving the
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release thereof and certifying its validity notwithstanding former President Arroyo
mandate, PSLMC Resolution No. 2, and this Court ruling in SSS v. COA is an error
so gross that is tantamount to bad faith, thus, rendering them personally liable.
Clearly, good faith is anchored on an honest belief that one is legally entitled to the
benefit. In this case, the MIAA employees who had no participation in the approval
and release of the disallowed benefit accepted the same on the assumption that
Resolution No. 2003-067 was issued in the valid exercise of the power vested in the
Board of Directors under the MIAA charter. As they were not privy as to reason and
motivation of the Board of Directors, they can properly rely on the presumption that
the former acted regularly in the performance of their official duties in accepting the
subject benefit. Furthermore, their acceptance of the disallowed grant, in the absence
of any competent proof of bad faith on their part, will not suffice to render liable for
a refund.
The same is not true as far as the Board of Directors. Their authority under Section 8
of the MIAA charter is not absolute as their exercise thereof is ―subject to existing
laws, rules and regulations‖ and they cannot deny knowledge of SSS v. COA and the
various issuances of the Executive Department prohibiting the grant of the signing
bonus. In fact, they are duty-bound to understand and know the law that they are
tasked to implement and their unexplained failure to do so barred them from
claiming that they were acting in good faith in the performance of their duty. The
presumptions of ―good faith‖ or ―regular performance of official duty‖ are disputable
and may be contradicted and overcome by other evidence.
Granting that the benefit in question is a CNA Incentive, MIAA Board of Directors
has no authority to include its members, the members of the Board Secretariat,
ExeCom and other employees not occupying rank-and-file positions in the grant.
Indeed, this is an open and contumacious violation of PSLMC Resolution No. 2 and
A.O. No. 135, which were unequivocal in stating that only rank-and-file employees
are entitled to the CNA Incentive. Given their repeated invocation of these rules to
justify the disallowed benefit, they cannot feign ignorance of these rules. That they
deliberately ignored provisions of PSLMC Resolution No. 2 and A.O. No. 135 that
they failed to observe bolsters the finding of bad faith against them.
The same is true as far as the concerned officers of MIAA are concerned. They
cannot approve the release of funds and certify as to the legality of the subject
disbursement knowing that it is a signing bonus. Alternatively, if they acted on the
belief that the benefit is a CNA Incentive, they were in no position to approve its
funding without assuring themselves that the conditions imposed by PSLMC
Resolution No. 2 are complied with. They were also not in the position to release
payment to the members of the Board of Directors, ExeCom and employees who do
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not occupy rank-and-file positions considering the express language of PSLMC
Resolution No. 2.
Simply put, these individuals cannot honestly claim that they have no knowledge of
the illegality of their acts. Thus, this Court finds that a refund of the amount of
P30,000.00 received by each of the responsible officers and members of MIAA
Board of Directors is in order.
PNB v Chong, G.R. No. 170865, April 25, 2012
Incidentally, PNB obliges the spouses Cheah to return the withdrawn money under
the principle of solutio indebiti.
The indispensable requisites of the juridical relation known as solutio indebiti, are,
(a) that he who paid was not under obligation to do so; and (b) that the payment was
made by reason of an essential mistake of fact.
In the case at bench, PNB cannot recover the proceeds of the check under the
principle it invokes. In the first place, the gross negligence of PNB, as earlier
discussed, can never be equated with a mere mistake of fact, which must be
something excusable and which requires the exercise of prudence. No recovery is
due if the mistake done is one of gross negligence.
The spouses Cheah are guilty of contributory negligence and are bound to share the
loss with the bank.
―Contributory negligence is conduct on the part of the injured party, contributing as a
legal cause to the harm he has suffered, which falls below the standard to which he is
required to conform for his own protection.‖
Indeed, Ofelia failed to observe caution in giving her full trust in accommodating a
complete stranger and this led her and her husband to be swindled. Considering that
Filipina was not personally known to her and the amount of the foreign check to be
encashed was $300,000.00, a higher degree of care is expected of Ofelia which she,
however, failed to exercise under the circumstances. Another circumstance which
should have goaded Ofelia to be more circumspect in her dealings was when a bank
officer called her up to inform that the Bank of America check has already been
cleared way earlier than the 15-day clearing period. The fact that the check was
cleared after only eight banking days from the time it was deposited or contrary to
what Garin told her that clearing takes 15 days should have already put Ofelia on
guard. She should have first verified the regularity of such hasty clearance
considering that if something goes wrong with the transaction, it is she and her
husband who would be put at risk and not the accommodated party. However, Ofelia
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chose to ignore the same and instead actively participated in immediately
withdrawing the proceeds of the check.
In any case, the complaint against the spouses Cheah could not be dismissed. As
PNB‘s client, Ofelia was the one who dealt with PNB and negotiated the check such
that its value was credited in her and her husband‘s account. Being the ones in
privity with PNB, the spouses Cheah are therefore the persons who should return to
PNB the money released to them.
Asia Trust v Tuble, G.R. No. 183987, July 25, 2012
In foreclosures, the mortgaged property is subjected to the proceedings for the
satisfaction of the obligation. As a result, payment is effected by abnormal means
whereby the debtor is forced by a judicial proceeding to comply with the
presentation or to pay indemnity.
Once the proceeds from the sale of the property are applied to the payment of the
obligation, the obligation is already extinguished. Thus, in Spouses Romero v. Court
of Appeals, we held that the mortgage indebtedness was extinguished with the
foreclosure and sale of the mortgaged property, and that what remained was the right
of redemption granted by law.
Consequently, since the Real Estate Mortgage Contract is already extinguished,
petitioner can no longer rely on it or invoke its provisions, including the dragnet
clause stipulated therein. It follows that the bank cannot refer to the 18% annual
interest charged in Promissory Note No. 0143, an obligation allegedly covered by the
terms of the Contract.
Neither can the bank use the consummated contract to collect on the rest of the
obligations, which were not included when it earlier instituted the foreclosure
proceedings. It cannot be allowed to use the same security to collect on the other
loans. To do so would be akin to foreclosing an already foreclosed property.
Despite the extinguishment of the Real Estate Mortgage Contract, Tuble had the
right to redeem the security by paying the redemption price. The right of redemption
of foreclosed properties was a statutory privilege he enjoyed. Redemption is by force
of law, and the purchaser at public auction is bound to accept it. Thus, it is the law
that provides the terms of the right; the mortgagee cannot dictate them.
Metropolitan Bank v Absolute, G.R. No. 170498, January 9, 2013
Quasi-contracts are included in claims that should be filed under Rule 86, Section 5
of the Rules of Court
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The Court held under Maclan v Garcia, that a claim for necessary expenses spent as
previous possessor of the land is a kind of quasi-contract. Citing Leung Ben v.
O‘Brien, it explained that the term ―implied contracts,‖ as used in our remedial law,
originated from the common law where obligations derived from quasi-contracts and
from law are both considered as implied contracts. Thus, the term quasi-contract is
included in the concept ―implied contracts‖ as used in the Rules of Court.
Accordingly, liabilities of the deceased arising from quasi-contracts should be filed
as claims in the settlement of his estate, as provided in Section 5, Rule 86 of the
Rules of Court.
Both the RTC and the CA described Metrobank‘s claim against Chua‘s estate as one
based on quasi-contract. A quasi-contract involves a juridical relation that the law
creates on the basis of certain voluntary, unilateral and lawful acts of a person, to
avoid unjust enrichment. The Civil Code provides an enumeration of quasi-contracts,
but the list is not exhaustive and merely provides examples.
Metrobank‘s fourth-party complaint falls under the quasi-contracts enunciated in
Article 2154 of the Civil Code. Article 2154 embodies the concept ―solutio indebiti‖
which arises when something is delivered through mistake to a person who has no
right to demand it. It obligates the latter to return what has been received through
mistake.
Solutio indebiti, as defined in Article 2154 of the Civil Code, has two indispensable
requisites: first, that something has been unduly delivered through mistake; and
second, that something was received when there was no right to demand it.
In its fourth-party complaint, Metrobank claims that Chua‘s estate should reimburse
it if it becomes liable on the checks that it deposited to Ayala Lumber and
Hardware‘s account upon Chua‘s instructions. This fulfills the requisites of solutio
indebiti.
Golez v. Nemeño, G.R. No. 178317, September 23, 2015
This Court finds no reason to depart from the ruling of the courts a quo that
petitioners should pay respondent for back rentals. There is no dispute that the
contract entered into by the parties is one of lease. True, it had some modifications
such that instead of paying the rent in the form of money, petitioners will withhold
such payment and will apply the accumulated rent to the cost of the building they
built on the leased property. Thereafter, at the end of the lease period or until such
time the cost of the building has been fully covered by the rent accumulated,
petitioners, as lessees will transfer the ownership of said building to respondent.
Unfortunately, the subject building was gutted down by fire. However, the
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destruction of the building should not in any way be made a basis to exempt
petitioners from paying rent for the period they made use of the leased property.
Otherwise, this will be a clear case of unjust enrichment.

As held in P.C. Javier & Sons, Inc. v. Court of Appeals:

x x x The fundamental doctrine of unjust enrichment is the transfer of value

without just cause or consideration. The elements of this doctrine are: enrichment on
the part of the defendant; impoverishment on the part of the plaintiff; and lack of
cause. The main objective is to prevent one to enrich himself at the expense of
another. It is commonly accepted that this doctrine simply means that a person shall
not be allowed to profit or enrich himself inequitably at another‘s expense.

In the instant case, there is no dispute that petitioners used the property for several
years for their own benefit having operated a restaurant thereon. Therefore, it would
be the height of injustice to deprive respondent of compensation due him on the use
of his property by petitioners. The fact that the parties agreed to a different mode of
payment – in this case, a building – does not in any way exempt petitioners from
paying compensation due to respondent for the use of the latter‘s property because
the building was destroyed.

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