QUIZ NO.

9
(CREDIT TRANSACTIONS – Loan; Deposit; Guaranty and Suretyship; Pledge, Mortgage and
Antichresis, Chattel Mortgage (include Act No. 1508 and Section 47 of R.A. No. 8791 or the
General Banking Act of 2000); Quasi-Contracts; Concurrence and Preference of Credits Include:
Section 133 of R.A. No. 10142 [Financial Rehabilitation and Insolvency Act (FRIA) of 2010])
April 28, 2018

I
A contract of loan was entered into. The question is whether it is perfected at the time of the
delivery or the release of the loan or signing of the contract such that, even without the release of
the loan, the debtor can now incur in delay. It was contended by the debtor that since there was
no actual release yet, it should not be made to pay amortizations. Is the contention correct?
Explain. (5%)

Answer: Albano, pp. 727-728; Monte de Piedad vs. Javier, 36 O.G. 2176; Rose Packing Co. Inc.
vs. CA, 167 SCRA 309; BPI Investment Corp. vs. CA, et. al., G.R. No. 133632, February 15,
2002

Yes, the contention is correct for the reason that a contract of loan is not a consensual contract
but a real contract. It is perfected only upon the delivery of the object of the contract. (Monte de
Piedad vs. Javier, 36 O.G. 2176).

The contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. (Rose Packing Co. Inc. vs. CA, 167 SCRA 309). It
is a basic principle in reciprocal obligations that neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. (Art.
1169, NCC). Only when a party has performed his part of the contract can he demand that the
other party also fulfills his own obligation and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the monthly amortization after the release of the
loan, for it was only then when it complied with its obligation under the loan contract. (BPI
Investment Corp. vs. CA, et. al., G.R. No. 133632, February 15, 2002).

II
A and B entered into a contract whereby A agreed to deposit the amount of P200,000.00 with B’s
account for the purpose of making it appear that A had sufficient capitalization for incorporation
with the purpose of returning the amount within 30 days. The amount together with P12,000.00
interest was returned to A. What is the true nature of the contract? Explain. (5%)

Answer: Albano, p. 730; Producers Bank of the Philippines (now First International Bank) vs.
CA, et. al., G.R. No. 115324, February 19, 2003

It is one of commodatum. The payment of the interest did not convert the contract from
commodatum to mutuum because such was not the intention of the parties. The additional
amount of P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Under the law,
the bailee in commodatum acquires the use of the thing loaned but not its fruits. (Art. 1935,
NCC; Producers Bank of the Philippines (now First International Bank) vs. CA, et. al., G.R. No.
115324, February 19, 2003).

III
In June 1988, X obtained a loan from A and executed with Y as solidary co-maker a promissory
note in favor of A for the sum of P200,000.00. The loan was payable at P20,000.00 with interest
monthly within the first week of each month beginning July 1988 until maturity in April 1989.
To secure the payment of the loan, X put up as security a chattel mortgage on his car, a Toyota
Corolla sedan. Because of failure of X and Y to pay the principal amount of the loan, the car was
extrajudicially foreclosed. A acquired the car at A’s highest bid of P120,000.00 during the auction
sale.

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After several fruitless letters of demand against X and Y, A sued Y alone for the recovery of
P80,000.00 constituting the deficiency.

Y resisted the suit raising the following defenses:

a) That Y should not be liable at all because X was sued together with Y. (2%)
b) That the obligation has been paid completely by A’s acquisition of the car through
“dacion en pago” or payment by cession. (1%)
c) That Y should not be held liable for the deficiency of P80,000.00 because he was not a
co-mortgagor in the chattel mortgage of the car, which contract was executed by X alone
as owner and mortgagor. (1%)
d) That assuming that Y is liable, he should only pay the proportionate sum of P40,000.00.
(1%)

Decide each defense with reasons.

Answer: Ulep, pp. 29-3; Bicol Savings and Loan Associates vs. Guinhawa, 188 SCRA 642

a) The first defense of Y is untenable. Y is still liable as solidary debtor. The creditor may
proceed against any one of the solidary debtors. The demand against one does not
preclude further demand against the others so long as the debt is not fully paid.
b) The second defense of Y is untenable. Y is still liable. The chattel mortgage is only given
as a security and not as payment for the debt in case of failure to pay. Y as a solidary co-
maker is not relieved of further liability on the promissory note as a result of the
foreclosure of the chattel mortgage.
c) The third defense of Y is untenable. Y is a surety of X and the extrajudicial demand
against the principal debtor is not inconsistent with a judicial demand against the surety.
A suretyship may co-exist with a mortgage.
d) The fourth defense of Y is untenable. Y is liable for the entire prestation since Y incurred
a solidary obligation with X. Art. 1207, 1216, 1252 and 1247, NCC; Bicol Savings and
Loan Associates vs. Guinhawa, 188 SCRA 642). (Answer by UP Law Center).

IV
A and B entered into a contract of loan without providing that it shall earn interest. When the
obligation became due and demandable, can A, the creditor, demand the payment of interest?
Why? (5%)

Answer: Albano, p. 733; De la Paz vs. L & J Dev. Co., G.R. No. 183360, September 8, 2014;
Siga-an vs. Villanueva, 596 Phil. 760, 769 [2009]; Sun Life of Canada (Phils.), Inc. vs. Sandra
Tan Kit, et. al., G.R. No. 183272, October 15, 2014; Federal Builders, Inc. vs. Foundation
Specialists, Inc., G.R. No. 194507, September 8, 2014

No, because there was no express stipulation in writing. Under the law, no interest shall be due
unless it has been expressly stipulated in writing (Art. 1956, NCC). Since, in the contract, there
was no express stipulation that the obligation was with interest, no interest can be collected.

Well-settled is the rule that if there is no express stipulation on interest, no interest shall be due.
(De la Paz vs. L & J Dev. Co., G.R. No. 183360, September 8, 2014). 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.

If the parties did not put down in writing their agreement, no interest is due. The collection
without stipulation in writing is prohibited by law. (Siga-an vs. Villanueva, 596 Phil. 760, 769
[2009]; Sun Life of Canada (Phils.), Inc. vs. Sandra Tan Kit, et. al., G.R. No. 183272, October

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15, 2014; Federal Builders, Inc. vs. Foundation Specialists, Inc., G.R. No. 194507, September 8,
2014).

V
X, an external auditor of ABC Accounting Firm was sent to Cebu to conduct an audit on one of
the firm’s clients. He was given a cash advance of P10,000.00 with the condition that he would
liquidate the same within five days upon his arrival. He failed to liquidate, hence, he was sued
for estafa. If you were the judge, would you convict X as charged? Why? (5%)

Answer: Albano, p. 735; Kim vs. People, January 25, 1991

No, because ownership was transferred to X when he was given the cash advance, hence, no
fiduciary relationship was created. In the absence of this fiduciary relationship, which is an
essential element of the crime of estafa by misappropriation or conversion, X could not have
committed estafa. (Kim vs. People, January 25, 1991).

Liquidation simply means the settling of an indebtedness. An employee who liquidates a cash
advance is in fact paying his debt in the form of a loan of money advanced to him by his
employer. If the amount of the cash advanced he received is less than the amount he spent for
actual travel, he has the right to demand reimbursement from his employer, the amount he spent
coming from his personal funds. In other words, the money advanced by either party is actually a
loan to the other.

VI
X deposited 100 checks issued by his customers with the PNB. While the checks were being
cleared, X requested the bank to allow him to withdraw one-half (1/2) of the value of the checks
in the amount of P500,000.00. The checks, however, bounced for insufficiency of funds, hence,
X was sued for estafa. Is X liable? Why? (5%)

Answer: Albano, p. 739; People vs. Ong, G.R. No. 93849, December 20, 1991

No, because the act of allowing X to withdraw from uncollected deposits can be considered a
loan. (People vs. Ong, G.R. No. 93849, December 20, 1991).

VII
The hotel-keeper contended that it cannot be liable for the loss of the money since the guest
signed an “Undertaking For the Use of Safety Deposit Box” exempting the hotel-keeper from
liability in case of loss of the things kept in the safety deposit box. Is the contention correct?
Why? (5%)

Answer: Albano, pp. 754-755; YHT Realty Corp. vs. CA, et. al., G.R. No. 126780, February 17,
2005

No. Under the law, the hotel-keeper cannot free himself from responsibility by posting notices to
the effect that he is not liable for the articles brought by the guest. Any stipulation between the
hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998
to 2001 is suppressed or diminished shall be void. (Art. 2003, NCC).

Art. 2003 was incorporated in the New Civil Code as an expression of public policy precisely.
The hotel business like the common carrier’s business is imbued public interest. Catering to the
public, hotel keepers 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.

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The “undertaking” manifestly contravenes Article 2003 of the New Civil Code for it allows the
hotel-keeper 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 the hotel-keeper for any loss of the 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 hotel or inns as well as by
strangers, except as it may proceed from any force majeure. (Art. 2000, NCC). It is the loss
through force majeure that may spare the hotel-keeper from liability. In the case at bar, there is
no showing that the act of the thief or robber was done with the use of arms or through an
irresistible force to qualify the same as force majeure. (Art. 2001, NCC; YHT Realty Corp. vs.
CA, et. al., G.R. No. 126780, February 17, 2005).

VIII
Is it necessary that the things owned by the guests be submitted or surrendered to the hotel-
keeper to be liable in case of loss? Why? (5%)

Answer: Albano, p. 756; YHT Realty Corp. vs. CA, et. al., G.R. No. 126780, February 17, 2005

No. In an early case (Delos Santos vs. Tan Khey, 58 O.G. No. 45-53, p. 7693), the Court of
Appeals through its then Presiding Justice (later Associate Justice of the Court) Jose P. Bengzon,
ruled that to hold hotel-keepers 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 hotel-
keeper 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. (YHT Realty Corp. vs. CA,
et. al., G.R. No. 126780, February 17, 2005)

IX
Upon arrival of guest at City Garden Hotel, the guest gave notice to the doorman and parking
attendant of the hotel when he entrusted the ignition of his car to the latter. The attendant issued a
valet parking customer claim stab and parked the car at the Equitable PCI Bank parking area
which the latter allowed as parking space for vehicles of the hotel guests in the evening after
banking hours. Is the hotel management liable for damages for the loss of the car? Explain. (5%)

Answer: Albano, pp. 756-757; Durban Apartments Corp. vs. Pioneer Insurance & Surety Corp.,
G.R. No. 179419, January 12, 2011

Yes, because there was a contract of deposit with the hotelkeeper. The contract of deposit was
perfected from the owner’s delivery when he handed over the keys to his vehicle with the
parking attendant with the obligation of safely keeping and returning it. Hence, it is liable for
damages for the loss of the car. (Durban Apartments Corp. vs. Pioneer Insurance & Surety Corp.,
G.R. No. 179419, January 12, 2011).

A deposit is constituted from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is
not the principal purpose of the contract, there is no deposit but some other contract. (Art. 1962,
NCC).

The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was
given to them, or to their employees, of the effects brought by the guests and that, on the part of
the substitutes advised relative to the care and vigilance of their effects. (Art. 1998, NCC).

X
X and Y entered into a contract of loan with Z as the guarantor. Y, the debtor, failed to pay,
hence, demand was made for the payment of the loan. When he failed to pay, a suit was filed

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against Y and Z, where judgment was rendered holding them liable for the obligation. On appeal,
Z contended that (1) he cannot be held liable since X has not exhausted all the legal remedies
against Y and that he has not exhausted the properties of Y. Is the contention correct? Why? (5%)

Answer: Albano, p. 770; World Wide Insurance and Surety Corp. vs. Jose, 96 Phil. 45; Visayan
Surety and Insurance Corp. vs, De Laperal, 69 Phil. 688; Baylon vs. CA, et. al., G.R. No.
109941, August 17, 1999, 110 SCAD 877

Yes, because the creditor cannot compel the guarantor to pay unless he has exhausted all the
properties of the debtor and has resorted to all the legal remedies against the debtor. The reason
is that, the liability of the guarantor is only subsidiary. (World Wide Insurance and Surety Corp.
vs. Jose, 96 Phil. 45; Visayan Surety and Insurance Corp. vs, De Laperal, 69 Phil. 688). All the
properties of the principal debtor must be exhausted before his own is levied upon. (Baylon vs.
CA, et. al., G.R. No. 109941, August 17, 1999, 110 SCAD 877).

XI
X borrowed money from Y. As a surety for the payment of the obligation, Z executed a real
estate mortgage in favor of the creditor, Y. X failed to pay his obligation, hence, Y demanded the
payment of the obligation. As X failed to comply, Y foreclosed the mortgage executed by Z, who
moved for the nullification of the same contending that Y should have resorted first to the
properties of X before the foreclosure. Is Z’s action correct? Why? (5%)

Answer: Albano, p. 776; Distileria Limtuaco and Co., Inc. vs. IAC, January 29, 1988

No, the existence of a mortgage negates the benefit of excussion. A mortgage is completely
different from guaranty. It is the essence of the contract of mortgage that when the principal
obligation becomes due, the thing in which the mortgage consists may be alienated for the
payment of the creditor. The action against the guarantor or surety is personal, while the one
against the mortgagor is a real action or quasi in rem. (Distileria Limtuaco and Co., Inc. vs. IAC,
January 29, 1988).

XII
A debtor pledged to his surety pieces of jewelry to indemnify the latter in case the surety would
be obliged to pay the creditor. The surety paid P2,800 to the creditor. To recover the amount, the
surety sold at public auction the jewelry realized but realized only P500. May the surety recover
the deficiency from the debtor? Explain. (5%)

Answer: Ulep, pp. 166-167; Bar Problem (1975); Manila Surety vs. Velayo, 21 SCRA 515)

No, the surety is not entitled to recover the deficiency. Article 2115 of the Civil Code provides
that in the foreclosure of a pledge, if the price of the sale is less than the indebtedness secured by
the pledge, the creditor shall not be entitled to recover the deficiency, notwithstanding any
stipulation to the contrary. By electing to sell the articles pledged, the creditor waived any other
remedy, and must abide by the results of the sale. No deficiency is recoverable. (Manila Surety
vs. Velayo, 21 SCRA 515). (Answer by UP Law Center).

XIII
X mortgaged a car to secure the payment of his obligation to Y. When X failed to pay his
obligation, Y filed a suit in court to recover the amount of the obligation. What is the effect of the
filing of the complaint with respect to the right of Y on the mortgage? Explain. (5%)

Answer: Albano, p. 791; Danao vs. CA, 154 SCRA 446

The rule is settled that a mortgage creditor may elect to waive his security and bring instead, an
ordinary action to recover the indebtedness with the right to execute a judgment thereon on all
the properties of the debtor including the subject matter of the mortgage, subject to qualification

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that if he fails in the remedy elected by him, he cannot pursue further the remedy he has waived.
(Danao vs. CA, 154 SCRA 446).

XIV
After the foreclosure of a mortgage where the amount of the auction sale was P216,040.93, there
was a tender of P40,000,00 to redeem a property. The mortgagee contended that there must be
complete tender of the amount of the price since the mortgage is indivisible, hence, the entire
auction price must be paid. Is the contention correct? Why? (5%)

Albano, p. 794; Sps. Yap vs. Sps. Dy. Sr., G.R. No. 171868; Dumaguete Rural Bank, Inc. vs. Sps.
Dy, Sr., G.R. No. 171991, July 27, 2011

No. As held in the case of Philippine National Bank vs. De los Reyes, G.R. No. 46898-99,
November 28, 1989, 179 SCRA 619, the doctrine of indivisibility of mortgage does not apply
once the mortgage is extinguished by a complete foreclosure thereof. It provides that “a pledge
or mortgage is indivisible, even though the debt may be divided among the successors in interest
of the debtor or of the creditor. Therefore, the debtor's heir who has paid a part of the debt cannot
ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied. Neither can the creditor's heir who received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is expected the case in which, there being several things given in
mortgage or pledge, each one of them guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the
portion of the debt for which each thing is specially answerable is satisfied.” (Art. 2089, NCC;
Sps. Yap vs. Sps. Dy. Sr., G.R. No. 171868; Dumaguete Rural Bank, Inc. vs. Sps. Dy, Sr., G.R.
No. 171991, July 27, 2011).

XV
X delivered to Y a thing by way of pledge with the authority to use it. Suppose it is a car and the
pledgee can use it as a service for his daughters in school, but aside from this, he used it as a
means of transporting tourists to Baguio where the car met an accident, is Y liable for damage?
Why? (5%)

Answer: Albano, pp. 795-796

Yes, because while it is true that he was authorized to use the car for servicing his daughters to
school, he used it for other purposes. The law allows the use of the car for its preservation, but it
must be used only for the purposes allowed. (Art. 2104, NCC).

XVI
Don Alviar and his spouse obtained a loan from Prudential Bank in the amount of P250,000.00
secured by a real estate mortgage. The mortgage secured the payment of the loan and those that
may thereafter be obtained. They had other loans secured by promissory notes. They also
executed a promissory note for Donalco Trading to secure the loan of the latter. Does the dragnet
clause applies even to those advancement for which other securities were intended that the
mortgage may be foreclosed if there is non-payment of those obligations secured by other
securities? Explain. (5%)

Answer: Albano, p. 800; Prudential Bank vs. Alviar, et. al., G.R. No. 150197, July 28, 2005

No. The foreclosure should be limited for the amount of P250,000.00 because the other
obligations were secured by other securities. The mortgage with such a clause will not secure a
note that expresses that is secured by another security. When the mortgagor takes a loan for
which another security was given, it could not be inferred that such loan was made in reliance
solely on the original security with the dragnet clause but rather on the new security given. It is
therefore improper for the bank to foreclose the mortgaged properties because of non-payment of

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all the three promissory notes for there is a need to respect the existence of the other securities
given for other loans. (Prudential Bank vs. Alviar, et. al., G.R. No. 150197, July 28, 2005).

XVII
Lourdes Galas, the registered owner of a real property secured a loan from Yolanda Villar
secured by a mortgage over the said property. There was a second mortgage in favor of Pablo
Garcia. Thereafter, Galas sold the said property to Villar who obtained a title over the same.
Garcia filed a petition for foreclosure of the mortgage against Villar, claiming that when the
property was sold to her , Galas was relieved of her contractual obligation and the characters of
creditor and debtor were merged in Villar. Is the restriction on further encumbrance annotated on
the title controlling notwithstanding the absence of such restriction on the Deed of Real Estate
Mortgage? Explain. (5%)

Answer: Albano pp. 801-802; Pablo Garcia vs. Yolanda Villar, G.R. No. 158891, June 27, 2012

No. While it is true that the annotation of the first mortgage to Villar on the title contained a
restriction on further encumbrances, this restriction was nowhere to be found in the Deed of Real
Estate Mortgage. As the Deed became the basis for the annotation on the title, its terms and
conditions take precedence over the standard, stamped annotation placed in the title. If there was
such a stipulation, it would be void since Article 2130, NCC provides that a stipulation
forbidding the owner from alienating the immovable mortgaged shall be void. In sum, the sale
between Galas and Villar is valid. (Pablo Garcia vs. Yolanda Villar, G.R. No. 158891, June 27,
2012).

XVIII
May the mortgagor sell the property mortgaged without the consent of the mortgagee? Explain.
(5%)

Answer: Albano, pp. 794-795; Teoco vs, Metrobank, G.R. No. 162333, December 23, 2008, 575
SCRA 82; (Cinco vs. CA, G.R. No. 151903, October 9, 2009. 603 SCRA 108; Sps. Antonio and
Leticia Vega vs. SSS, et. al., G.R. No. 181672, September 20, 2010

Yes, but when the mortgagor sells the mortgaged property to a third person, the creditor may
demand from such third person the payment of the principal obligation. The reason for this is that
the mortgage credit is a real right, which follows the property wherever it goes, even if its
ownership changes. Article 2129 of the Civil Code gives the mortgagee, the option of collecting
from the third person in possession of the mortgaged property in the concept of owner. (Teoco
vs, Metrobank, G.R. No. 162333, December 23, 2008, 575 SCRA 82). The mortgagor-owner’s
sale of the property does not affect the right of the registered mortgagee to foreclose on the same
even if its ownership had been transferred to another person. The latter is bound by the registered
mortgage on the title he acquired.

The contract cannot absolutely forbid the mortgagor, as owner of the mortgaged property, from
selling the same while her loan remained unpaid. Such stipulation contravenes public policy,
being an undue impediment or interference on the transmission of property. (Cinco vs. CA, G.R.
No. 151903, October 9, 2009. 603 SCRA 108; Sps. Antonio and Leticia Vega vs. SSS, et. al.,
G.R. No. 181672, September 20, 2010).

XIX
In 1982, Steve borrowed P400,000.00 from Danny collateralized by a pledge of shares of stock
of Concepcion Corporation worth P800,000.00. In 1983, because of the economic crisis, the
value of shares pledged fell to only P100,000.00. Can Danny demand that Steve surrender the
other shares worth P700,000.00? (5%)

Answer: Ulep, pp. 176-177; Bar Problem (1994)

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No. Bilateral contracts cannot be changed unilaterally. A pledge is only a subsidiary contract, and
Steve is still indebted to Danny for the amount of P400,000.00 despite the fall in the value of the
stocks pledged. Danny’s right as pledgee is to sell the pledged shares at a public auction and keep
the proceeds as collateral for the loan. There is no showing that the fall in the value of the
pledged property was attributable to the pledger’s fault or fraud. On the contrary, the economic
crisis is the culprit. Had the pledgee been deceived as to the substance or quality of the pledged
shares of stock, he would have had the right to claim another thing in their place or to the
immediate payment of the obligation. This is not the case here. (Answer by UP Law Center).

XX
In the province, a farmer couple borrowed money from the local merchant. To guarantee
payment, they left the Torrens Title of their land with the merchant, for him to hold until they pay
the loan. Is there a contract of pledge, contract of mortgage, contract of antichresis or none of the
above? Explain. (5%)

Answer: Ulep, pp. 167-168; Bar Problem (1996)

The answer is none of the above. There is no pledge because only movable property may be
pledged (Art. 2094, NCC). If at all, there was a pledge of the paper or document consisting the
Torrens Title, as a movable by itself, but not the land which the title represents.

There is no mortgage because no deed or contract was executed in the manner required by law
for a mortgage. (Art. 2085 to 2092, NCC, 2124, 2131, NCC).

There is no contract of antichresis because no right to the fruits of the property was given to the
creditor. (Art. 2132, NCC).

A contract of simple loan was entered into with security arrangement agreed upon by the parties
which is not one of those mentioned above. (Answer by UP Law Center).

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