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CASE TABLE – CREDIT TRANSACTIONS (Prof. Rocky Reyes | AY 2009-2010) of 23

CREDIT TRANSACTIONS

CASE TITLE FACTS/ISSUE DOCTRINESLOAN

Commission on Internal

Revenue v Burroughs

Limited(1986; Paras, J.)

Handled by Sycip

Burroughs wants to remit to its parent company abroad, for which it paid 15% branch profit remittance tax, pursuant to Sec 24(b)(2)(ii) of NIRC. Burroughs however asked for tax reimbursement claiming that the basis for the profit remittance tax should be “amount actually remitted” and NOT the “amount before remittance tax”

Issue: Is Burroughs entitled to reimbursement? Yes.

Burroughs was entitled to reimbursement. The tax base upon which the 15% branch profit remittance tax shall be imposed is the profit actually remitted and not on the total branch profits out of which the remittance is to be made.

Rocky says: The law was amended because of this case, it now reads “profit applied for”. Solve the problem by the language of the law, don’t indiscriminately cite cases. CC is more important than cases kahit cross-eyed sila.

Pp v Concepcion

(1922; Malcolm, J.)

Venancio Concepcion, then President of PNB, granted special authority to the manager of Aparri branch [because the latter had limited discretion in granting loans exceeding P5,000] to extend credit in favor of the partnership of “Puno y Concepcion” [in which Venancio’s wife owns half of the capital share]. The only security given therefor were six demand notes. Concepcion was adjudged guilty of violating Sec 35 of Act No 2747 which prohibited direct or indirect loans to members of the board of directors of banks nor to agents of branch banks.

Rocky says:- What is S en C?- What is a double name paper? - What part of the law should you not touch?- Loans were actually granted. Why do you

have to raise something about concession of credit?

- All arguments here were obviously palusot. Silence is better. As Balane used to say, keep your mouth shut rather than confirm his suspicions of the student’s idiocy.

Issue No. 1: Is the grant of credit to the copartnership a loan within the meaning of Sec. 35? [Concepcion’s argument: It was only a “concession of a credit”]- “Credit” means ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise- “Loan” means delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned with or without an interest. - “Concession of credit” necessarily involves the granting of “loans” up to limit of the amount fixed in the “credit”

Issue No. 2: Was the granting of credit to copartnership a loan or a discount? [Concepcion’s argument: The prohibition applies only to “loans”, not on “discounts”]- Discounts are favored by bankers because of their liquid nature, as they grow out of an actual, live transaction. However, discount is only a mode of loaning money. But it has several distinctions:

DISCOUNT LOANInterest is deducted in advance

Interest is taken at the expiration of the credit

Always on double-name paper

Generally on single-name paper

- The demand notes were mere evidences of indebtedness because: 1) interest was not deducted from the face of the notes but was paid when the notes fell due, 2) they were single-name, not double name.

Issue No. 3: Was the granting of credit an “indirect loan”? - The purpose of the law is to erect a wall of safety against temptation for a director of the bank. Where personal interest clashes with fidelity to duty the latter almost always suffers. A loan to a partnership of which the wife of a director is a member falls within the prohibition.

Republic v Bagtas

(1962; Padilla, J.)

Bagtas borrowed 3 bulls from Bureau of Animal Industry. Upon expiration of the contract, he did not return but asked for extension, which was granted but only as to one bull. Bagtas expressed his willingness to

Bagtas contends that the contract was a commodatum and so the fact that Republic retained ownership or title to the bull it should suffer its loss due to force majeure.

karichi santos 0410862 | UPlaw2012


pay the bulls’ book value but subject to reduction for yearly depreciation. The Bureau refused this request and asked him to either return or pay the entire book value.Bagtas was unable to return the bulls because of bad peace and order situation and the pending appeal of the case. Bagtas died during pendency of case. His adminitratrix return two bulls because the third one had been accidentally shot during a raid by the Huks. Bagtas then claims that he is not liable for the loss of the bull as it was caused by a force majeure.

Issue: Is Bagtas liable to pay for the dead bull? Yes!

A contract of commodatum is essentially gratuitous. If the “breeding fee” be considered a compensation, then the contract would be a lease. Under 1671, Bagtas would be subject to the responsibilities of a possessor in BF because he had continued possession after the expiry of the contract. And if the contract be commodatum, he is still liable because of 1942 which provides that bailee is liable even in case of fortuitous event if: 2. he keeps it longer than the period stipulated3. thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of fortuitous event.

Chi asks: It appears that the GR in case of unstipulated liability for fortuitous event, the bailee is liable. Must the exemption be express?

Quintos v Beck(1939; Imperial)

Beck is a tenant of Quintos. Quintos granted Beck the use of the furniture found in the leased house, among these were 3 gas heaters and 4 electric lamps. Quintos sold the pieces of furniture to Lopez and thereafter notified Beck of the conveyance. Beck informed Quintos that the latter can get the furniture at the ground floor of the house. However, at a later date, Beck told Quintos that he will not return the furniture until after the expiration of lease contract. When the lease contract expired, Beck deposited the furniture to Sheriff’s warehouse.

- Chi says: There’s express prohibition in CC on the deposit with third persons of thing given by way of commmodatum. The closest would be 1942 as to liability for loss of thing due if the bailee lends to third person not member of his household.

Issue No. 1: Did Beck comply with his obligation to return the furniture upon Quintos’ demand? No. - The K entered into between the parties is one of commodatum, because under it the plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof, by this K, the defendant bound himself to return the furniture to the plaintiff, upon the latter’s demand. - The obligation voluntarily assumed by Beck to return the furniture upon the plaintiff’s demand means that he should return ALL of them to plaintiff AT THE BAILORS’S RESIDENCE OR HOUSE. Beck did not comply with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the 3 gas heaters and 4 electric lamps.

Issue No. 2: Where Quintos is bound to bear the deposit fees due to Sheriff? No.- The court could not legally compel her to bear the expenses occasioned by the deposit of the furniture aT the defendant’s behest. The bailee was not entitled to place the furniture on deposit; nor was the bailor under a duty to accept the offer to return because it was incomplete.

Saura Import & Export Co v

DBP(1972; Makalintal,

J.)

Saura applied for P500,000 loan with DBP (then RFC) for the construction of factory building and payment of balance price of the jute mill machinery and equipment. Saura intended to produce bags using locally grown raw materials (the first serious attempt in history, as they would call it). There was reexamination of the loan grant due to the atras-abante attitude of China Engineers who were to sign as co-makers, which even led to the reduction of loan price to P300,000. But at the end of the day, RFC granted the loan subject to two conditions: 1) raw materials needed by the Saura to carry out its operation are available in the immediate vicinity 2) there is prospect of increased production of raw materials to provide adequately for the requirements of the factory.

However, in view of Saura’s statement that they will have to import jute to produce the bags (read: inconsistent with the

Issue: Is there a perfected contract of loan? If yes, did DBP breach it? Yes, there’s a perfected contract of loan. There was no breach though, but mutual desistance by the parties. - There was indeed a perfected consensual contract as recognized in 1934. There was undoubtedly offer and acceptance, Saura applied for a loan which DBP approved by resolution. - Realizing that it will not meet the two conditions, Saura asked for cancellation of mortgage. The action thus taken was in the nature of mutual desistance (mutuo disenso, if you feel like invoking Manresa). Mutual disagreement by the parties can cause the contract’s extinguishment.

Rocky says: What is a jute sack?



conditions), DBP refused to approve the loan. Saura then asked for cancellation of the mortgage.

9 years later, Saura filed this suit for damages against DBP claiming that for the latter’s failure to release the proceeds of loan applied for and approved, it was prevented from completing or paying its contractual commitments in connection with the jute mill project.

GSIS v CA(1986; Paras, J.)

The Medinas were granted a loan of P350,000 by GSIS for which they constituted a Real Estate Mortgage. Thereafter, they again obtained an additional loan of P230,000. Medinas defaulted and naturally GSIS foreclosed.

Medinas demands refund for overpayment alleging that the Amendment of the Real Estate Mortgage superseded the original contract and failed to stipulate the “compounded interest” discharged them from the payment of the same.

Issue No. 1: Was there an overpayment? No! - The Amendment of the Real Estate Mortgage never intended to completely supersede the original mortgage contract. - This is shown by1. prior, contemporaneous and subsequent acts of the parties2. the contract itself, which:

- recognized the existence of the previous mortgage K- clearly stated in the last provision that “all other terms and condition of previous real estate mortgage continue to be in full force and effect.”- it just being amended as to amount and amortization

- As a matter of policy, GSIS imposes uniform terms and conditions for all its real estate loans, particularly with respect to compounding of interest. - It would be contrary to human experience and to ordinary practice for mortgagee to impose less onerous conditions on an increased loan by the deletion of compounded interest exacted on a lesser loan.

Issue No. 2: WON the interest rates on the loan accounts were usurious? No!- Interest by way of damages is governed by 2209. “If obligation consists in payment of sum of money, and debtor incurs in delay, the indemnity for damages there being no stipulation to contrary, shall be the payment of the interest agreed upon.” - CC permits agreement upon a penalty apart from the interest. - Stipulation about payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law.

7 Ligutan v CA(2002; Vitug, J.)

Spouses Ligutan obtained a loan of P120,000 from Security Bank and Trust Company. It contained the following stipulations as to interest:

- 15.189% per annum upon maturity- Penalty clause (in case of default): 5%

every month on the outstanding principal and interest

- Attorney’s fees: 10% of total amount due IF:

- Matters endorsed to a lawyer for collection

- Suit instituted to enforce payment Upon default, bank filed a collection suit. For spouses’ failure to answer, judgment was rendered on default. Upon MR and new evidence, it was revealed that 3 years after the loan, spouses executed a real estate mortgage which they claim to be a novation

Issue No. 1: WON penalty interest unconscionable? Yes.- CA correctly reduced the penalty interest from 5% to 3%- “Penalty clause,” expressly recognized by CC1226, is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. - It functions [1] to strengthen the coercive force of the obligation AND [2] to provide for what could be the liquidated damages resulting from such a breach. - The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. - Altho court may not at liberty ignore freedom of parties to agree on such terms and conditions as they see fit, a stipulated penalty may be



of the contract. It was even foreclosed without notification of spouses and that the bank did not even credit them with proceeds of the sale. (MR was denied bec it’s already their second! And the evidence was not really new because it was known since the commencement of the case)

Ligutan also appeals as to the amounts of interests imposable.

Chi recited this but only appreciated its value during the finals review when she actually read it. SAYANG!

equitably reduced by court if:- it is iniquitous or unconscionable OR- the principal obligation has been partly or irregularly complied with.

- If may even be deleted if/when:- there has been substantial performance in good

faith- penalty clause itself suffers from fatal infirmity- exceptional circumstances so exist as to

warrant it- Whether penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution depend on such factors as, but not necessarily confined to, the:

1. type, extent and purpose of the penalty2. nature of the obligation 3. mode of breach and its consequences4. supervening realities 5. standing and relationship of the parties

Issue No. 2: WON stipulated interest unconscionable? No.- The essence/rationale for the payment of interest, quite often referred to as “cost of money,” is not exactly the same as that of a surcharge/penalty. - A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may be separately demanded. Judicial grounds for disallowing imposition of full surcharges/penalties, despite express stipulation therefor in a valid agreement, may not equally apply in non-payment or reduction of interest. - Indeed, interest prescribed in loan financing agreement is a fundamental part of the banking business and the core of a bank’s existence.

Issue No. 2: Did the subsequent execution of the real estate mortgage for the existing loan resulted in the extinguishment of original contract because of novation? No. - Mortgage is but an accessory contract to secure the loan. - Elements of “extinctive novation”

1. previous valid obligation2. agreement of all the parties 3. extinguishment of the obligation: must be:

[a] declared in unequivocal terms (i.e. express) or [b] old and new obligation be on every point incompatible with each other (i.e. incompatibility) – should take place in any of the essential elements of obligation (i.e. juridical relation/tie, object, subject)

4. validity of the new one Eastern

Shipping Lines v CA

(1994; Vitug, J.)

The case of the broken drums of riboflavin. See Appendix A i.e. my amazing concept map of the Eastern Shipping Line doctrine on Rules on Interest.



TWO CONCEPTS ON PAYMENT OF INTEREST (from Sir Labitag’s handout)

1 Interest for the use or loan or forbearance of money, goods or credit

If no stipulation on payment of interest

No interest for use or forbearance * No interest shall be due unless it has been expressly stipulated in writing (CC1956)

If there is express stipulation (which must be in writing to be valid CC1956) for payment of interests, but no rate mentioned

Interest shall be 12% per annum (Sec. 2, Monetary Board Circular 905, 10 Dec 1982)

If there is stipulation in writing and rate of interest is agreed upon (including commissions, premiums, fees and other charges)

Such interest stipulated shall not be subject to ceiling prescribed under the Usury Law (Sec. 1, Monetary Board Circular 905, 10 Dec 1982)

2 Interest as damages for breach or default in payment of loan or forbearance of money,

goods, credit

No stipulation as to interest for use of money

In case of DEFAULT, loan or forbearance shall earn legal interest, at rate of 12% per annum from date of judicial or extrajudicial demand, subject to Art 1169 (delay/mora)

If rate of interest stipulated, e.g. 24% per annum

Loan + stipulated interest, shall earn 12% per annum from date of judicial demand* Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point (Art 2212)

3 If obligation NOT consisting of a loan or forbearance of money, goods or credit is breached, e.g. obligation to give, to do, not to do

o Interest may be imposed at the discretion of court at the rate of 6% per annum.o No interest adjudged on unliquidated claims or damages, until demand can be

established with reasonable certainty. o After thus established with reasonable certainty , interest of 6% per annum shall begin

to run from the date of judicial or extrajudicial demand.But if obligation cannot be established with reasonable certainty at time of demand, 6% per annum interest shall begin to run only from date of judgment – on amount finally adjudged by court.

4 When judgment of court awarding money becomes final and executory, money judgment is A, B and C (above) shall earn 12% per annum from finality of judgment until full payment – money judgment shall be considered as forbearance of credit

Macalinao v BPI

(2009; Velasco, Jr., J.)

Macalinao defaulted on the payment of her credit card dues. There was stipulation that the charges/balance shall earn 3%/month and additional penalty fee of another 3%/month. RTC reduced the 3% monthly interest to 2%. CA reversed the reduction saying that Macalinao freely availed herself of the CC facility offered by BPI to general public ergo, contracts of adhesion are not invalid per se. Credit card interests and penalty charges are unconscionable and iniquitous at 36%!

- SC said that the interest rate and penalty charge of 3%/mo or 36%pa should be reduced to 2%/mo or 24%pa. this is not the first time that SC considered the 36%pa to be excessive and unconscionable. - Citing 1229: In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another. - In the instant case, Macalinao made partial payments to BPI.

10 Producers Bank of the Phil v CA

(2003; Callejo, Sr., J.)

Vives was asked by his friend Sanchez to deposit P200,000 in the name of Sterela Marketing and Services (owned by Doronilla who is friend of Sanchez) for purposes of its incorporation and on the promise that it will be returned after 30 days.

Vives agreed and had his wife open an account in name of Sterela and deposit the amount there. The authorized signatories in the passbook were Sanchez and/or Vives.

Bank’s Defenses: The contract between them was a simple loan or mutuum because [1] the subject was money, there was an interest amounting to 12,000 and I was not privy thereto!As regards the “subject”- 1933 may seem to imply that if subject of contract is a consumable thing, e.g. money, the contract would be a mutuum. However, there are exceptions to this rule where the loan is commodatum and not mutuum.

- if consumable goods are loaned only for



However, Vives learned that Sterela was no longer holding office in the address given to him. Doronilla promised to return his money and issued checks therefor. The checks bounced. Vives later on found out that Atieza (the bank manager) allowed Doronilla to withdraw the money on the basis that he was the sole proprietor of Sterela.

Main issue: Is the bank liable to return to Vives the amount withdrawn by Doronilla? Yes!

purposes of exhibition OR - when the intention of parties is to lend

consumable goods and to have the very same goods returned at the end of the period agreed upon- Intention of parties shall be accorded primordial consideration in determining the actual character of a contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered. As regards the “interest”- Attempt to return P200,000 with additional P12,000 does not convert the transaction from commodatum to muttum absent any showing of such intention.- In fact, the 12k corresponds to the fruits of the thing. - 1935: bailee acquires only the USE but NOT the FRUITS. - It was only proper for Doronilla to remit to Vives the interest accruing to the money deposited in the bank. As regards the “privity”- Whether the transaction was mutuum or commodatum has no bearing on your liability. Your liability is founded upon your employee’s fault under 2180 (vicarious). - Atienza was in conspiracy with Doronilla’s scheme. The passbook in custody of Vives says that one cannot withdraw without that passbook. How come Doronilla was able to get the money? - Atienza also knew very well that Vives was the owner of the money as he was expressly told by the wife.

11 Garcia v Thio(2007; Corona, J.)

Carolyn Garcia gave to Rica Thio two crossed checks payable to the order of Marilou Santiago [the scenario here is Carolyn Rica Marilou]. Thio paid faithfully at first but eventually failed to pay the loans when they fell due. No PN because Carol and Rica used to be friends then.

Rica denied the loans and shifted the blame to Malou. She said that the initial payment were only to accommodate Carol’s request to use her own checks instead of Malou’s.

Rocky says: - What is a cross check?- What do you call yung pinautang mo yung inutang mo? Chi almost answered (because she was on deck at that time) “5-6-7”, the correct answer is “relending”

Issue: Who borrowed money from Carol: Rica or Malou? Rica!- A loan is a real contract, not consensual as such, is perfected only upon the delivery of the object of the contract. - Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Although Rica did not actually receive the proceeds of these checks, these instruments were placed in her control and possession, under an arrangement whereby she actually re-lent the amounts to Malou. - Factors to support this conclusion:1. Carol did not personally know Malou, why would she issue checks to strangers without any security whatsoever? 2. Leticia (witness for both parties) said that Rica’s real plan was to lend amounts to Malou at a higher amount. 3. Why would Rica issue checks to cover for loans and interest which she did not contract. Incredible to common experience. 4. In Malou’s petition for insolvency, Rica and not Carol was listed as creditor.5. Rica did not present Malou as witness.

- The interest was deleted though because there as not written proof therefor.

12 Pajuyo v CA(2004; Carpio, J.)

Pajuyo allowed Guevarra to occupy his house made of light materials (squatter) on the condition that Guev will ensure its maintenance and orderliness and vacate the premises upon demand. However, Guev

- The Kasunduan is not a commodatum. In a commodatum, the parties delivers to another something not consumable so that the latter may use the same for a certain time and then return it.- Features of a commodatum:



refused to vacate when Pajuyo asked him to saying that the latter had no valid title to the house or lot as a squatter. CA said that their Kasunduan was not a lease but a commodatum.

- gratuitous- for a certain period

- Thus, bailor cannot demand: [1] until after expiration of stipulated period or [2] after accomplishment of use for which the commodatum is constituted. - If bailor should have urgent need of the thing, he may demand its return for temporary use. - PRECARIUM: If use of thing is merely tolerated by the bailor, he can demand the return of the thing at will- the imposition of obligation to “maintain property in good condition” makes the Kasunduan a contract different from 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. - There must be honor even between squatters. The agreement is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of the contested property.

13BPI Family

Bank v Franco(2007; Nachura, J.)

[1] Tevetesco opened a savings and current account with BPI-FB P80M debited from FMIC[2] FMIC also opened a time deposit with same branch with P100M “authority to debit” P80M to Tevetesco [3] Franco opened savings (500k), current (500k) and time deposit (1M) with BPI-FB all amounts traceable to check issued by Tevetesco

The “authority to debit” was later on found to be a forgery. However, Tevetesco had already withdrawn several amounts from its current account amounting to 3M + 2M of Franco BPI-FB debit from Franco’s savings and current accounts all amounts remaining therein. Franco’s checks were also dishonored in view of the freezing/grarnishement . FMIC claims recovery of 80M from BPI-FB.

- BPI cannot unilaterally freeze Franco’s accounts and preclude him from withdrawing his deposits. - Art 559 on recovery of unlawfully deprived property is not applicable because the same pertains to “specific/determinate thing” Franco’s account consists of money which is movable, generic and fungible. The quality of being fungible depends upon the possibility of property, because of its NATURE or the WILL OF THE PARTIES, to be substituted by others of the same kind, not having a distinct individuality. - BPI owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. It should not forget that deposits of money in banks is governed by CC provisions on mutuum. - As there is a debtor-creditor relationship between bank and depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is couple with a corresponding obligation to pay him an equal amount on demand.

14 Pp v Puig (2008; Chico-

Nazario, J.)

Puig and Porras were bookkeeper and cashier of a bank. 112 informations for qualified theft were filed against them for their willful taking of cash deposited to the bank. RTC dismissed all the cases for insufficiency of allegations. Republic appeals.

What is the nature of possession by the bank? Cashiers, bookkeepers and other employees of a bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where the monies are deposited, are considered the owners thereof. 1953 (person who receives loan of money acquires ownership thereof) and 1980 (fixed, current and savings deposit of money in banks and similar institutions shall be governed by provisions on loan) attests to this. The information sufficiently allege all the essential elements constituting the crime of Qualified Theft i.e.

1.Taking of personal property 2.Property belongs to another (bank)3.Taking done with intent to gain4.Taking done without owner’s consent5.Accomplished without use of violence or

intimidation against persons, nor of force upon things



6.Done with grave abuse of confidence (nature of job)

DEPOSIT

15 BPI v IAC (1988; Cortes, J.)

Zaldy deposited US dollars in cash for safekeeping, but the bank sold the dollars. Bank’s defense: it credited the proceeds to the peso account of Zaldy.

- The contract is one of deposit as the greenbacks were given only for safekeeping. Zshornack demanded the return of the money five months later. - The bank violated its obligation as depositary. The contract is void though. They are in pari delicto therefore, they shall have no cause of action against each other. The only remedy is one on behalf of the State to prosecute the parties for violating the law.

Rocky says: - Who is Rizaldy Zschornack? An actor contemporary of FPJ and Erap. - Back then there was a prohibition on use of dollar to promote the use of peso currency. BUT we need dollars to purchase oil an plastic. Read the Constitutional case about Bataan Petrochemical. Sige nga, makakakuha ka ban g peso equivalent ng $200,000 in cash? There was even a time that Phil announced to the world in a 10m telex that we do not have dollars anymore. We need dollars because we do not have sufficient amount of peso in circulation. At that point nakipagbarter pa tayo ng banana with Czech for military hardware.

16Bishop of Jaro v Dela Pena

(1913; Moreland, J.)

Bishop of Jaro sued Father dela Pena for the latter’s inability to return the amount intended for the construction of leper hospital. The amount was deposited by Father in his own account. But when he was arrested by the US Army, the funds were confiscated because it was purportedly for the support of the insurgent and for revolutionary purposes.

- Bishop of Jaro lost this case, he was unable to recover.- By placing the money in the bank and mixing it with his personal funds, Father did not assume obligation different fromt hat under which he would have lain if such deposit had not been made, nor did he thereby make himself liable to repay the money at all hazards.- If the money had been forcibly taken from his pocket or from his house by military forces, he would have been exempt from responsibility. The fact he placed the trust fund in the bank in his personal account did not make him a debtor who must respond for all hazards.- There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility by reason of the deposit.

17

CA Agro-Industrial

Development Corp v CA

(1993; Davide, J.)

As a condition for sale, the two partied agreed to deposit the TCT in an SDB. However, when the vendee was to resell the property, the title was no longer there. As a result of delay of TCT reconstruction, the customer withdrew its offer. Vendee charges bank for unrealized profits. Is the contractual relation between a commercial bank and another party in a contract of rent of safety deposit box with respect to its contents placed by the later one of bailor/bailee or one of lessor/lessee?

Contract is not an ordinary contract of lease but a special kind of deposit. - Not lease because full and absolute possession and control of SDB was not given to the joint renters. Guard key remained with Bank without which renters could not open the box. - 1975 not applicable. Relation created is that of bailor and bailee.- The prevailing rule is that the relation between a bank rention out SDB and its customers with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit. - CA Agro’s petition is dismissed though because there’s no evidence that the bank is aware of the agreement between the two renters that they cannot withdraw the contents without the consent of the other.

18 Triple V Food v Filipino

Merchants

De Asis loss her employer-given Mitsubishi Galant when it was given to the valet service of Kamayan.

- Customer expected safe return of car at the end of her meal, thus Triple V constituted as a depositary. It cannot evade liability by arguing that neither a



(2005)

Resto’s defense: The ticket contains waiver of claims. Valet parking service did not include extending a contract of insurance or warranty for the loss of the vehicle.

contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service. - Parking claim stub embodying the terms and conditions of the parking, including that of relieving petitioner from any loss or damage to the car is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers.- De Asis deposited her car as part of Triple V’s enticement for customers by providing them a safe parking space within the vicinity of their restaurant. In a very real sense, a parking space is an added attraction to petitioner’s restaurant business because customers are thereby somehow assured that their vehicle are safely kept, rather than parking them somewhere else at their own risk.

19

YHT Realty Corporation v

CA(2005; Tinga, J.)

McLoughlin, a philanthropist, loss his dollars during his stay at Copacabana. This was discovered to be the act of his Filipina friend through the hotel employees who thought that she was his wife. Whether a hotel may evade liability for the loss of items left with it for safekeeping by its guest, by having these guests execute written waivers holding the establishment or its employees, free from blame for such loss in light of 2003 which voids such waivers?

- 2003 was incorporated in the CC as expression of public policy precisely to apply to situations such as here. The hotel business like common carriers is imbued with public interest.- Catering to the public, hotel keepers are bound to provide not only lodging for hotel guests but also security to their persons and belongings. - 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. - CC is explicite that the responsibility of the hk shall extend to the LOSS of or INJURY to the personal property of the guests even if caused by servants, employees and strangers. It is loss due to force majeure that may spare the hk from liability. - 2002 (acts of guest, servants, family or his visitors) is not applicable. What if the negligence of the employer or its employees facilitated the consummation of a crime committed by the registered guest’s visitors or relatives? 2002 presupposes that hk is not guilty of concurrent negligence or has not contributed to any degree to the occurrence of the loss. - A depositary is not responsible for the loss of goods by theft, unless his actionable negligence contributes to the loss.

SECURITY DEVICES20 E. Zobel Inc v

CA(1998; Martinez, J.)

Claveria obtained a loan with Consolidated Bank for P2.875M to purchase 2 maritime barges and 1 tugboat. As security, they constituted chattel mortgage over the boats and executed a Continuing Guaranty by E. Zobel. They defaulted so SolidBank filed a case against Claveria and E. Zobel. (Note: It did not foreclose.)

E. Zobel’s defense: Relieved as guarantor pursuant to 2080 when it lost its right to be subrogated to chattel mortgage for SolidBank’s failure to register the chattel mortgage with appropriate gov’t agency.

SolidBank: 2080 not applicable bec you’re a surety, not a guarantor.

- Continuing guaranty is a surety! Petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the obligation.

- 2080 does not apply where the liability is as a surety, not as a guarantor. Even assuming that 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral.

SURETY GUARANTY



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

Collateral undertaking to pay the debt of another in case the latter does not pay the debt

bound with his principal by the same instrument, executed at the same time, and on the same consideration

guarantor's own separate undertaking, in which the principal does not join

original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal

- 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- original contract of his principal is not his contract, and he is not bound to take notice of its non-performance

not 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

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

insurer of the debt, and he obligates himself to pay if the principal does not pay

insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay

27 Philippine Blooming Mills

v CA(2003; Carpio, J.)

PBM loaned from TRB. Ching signed Deed of Suretyship in his personal capacity, “not as mere guarantors but as primary obligors.”PBM and Ching filed petition for suspension of payments with SEC, and eventually placed under rehabilitation receivership. Because of this, TRB dismissed complaint as to PBM. Ching’s defense: Deed of Suretyship executed in 1977 could not answer for obligations not yet in existence at the time of its execution. It could not answer for debts contracted by PBM in 1980 and 1981. No accessory contract of suretyship could arise without an existing principal contract of loan.

Rocky says: - Does 2053 apply even if there is no pre-existing loan? Or kailangan ba may pre-existing loan bago to mag-operate?

Chi recited this. Dismal.

Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM “may now be indebted or may hereafter become indebted” to TRB.

- The law expressly allows a suretyship for "future debts". 2053 provides: “A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated.xxx”

- Diño v. Court of Appeals: A guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. 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.

- Continuing guaranty 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; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract states that the guaranty is to secure advances to be made "from time to time," it will be construed to be a continuing one.

- In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," or "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.

28IFC v Imperial Textile Mills

(2005; Panganiban)

After extrajudicially foreclosing the mortgage, there still remained deficiency so IFC asked surety to pay the outstanding balance. Issue: WON ITM a surety under the contract.

Rocky says: - What on earth does “not as sureties merely” mean?! Do they mean “sureties as well” It’s redundant in Civil law pero under common law it has different meaning. Pero shempre, walang Pilipinong nagcomment sa redundancy. - IFC is the lending arm of the World Bank. HQ is in Washington, so Amerikano mga lawyers nito. Hence, the confusion. Yung foreign form is bangga with CC.

- The Agreement uses “guarantee and guarantors,” prompting ITM to base its argument on those words. SC is not convinced that the use of the two words limits the Contract to a mere guaranty. The specific stipulations in the Contract show otherwise. - While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was 'jointly and severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a surety.- IFC was justified in taking action directly against respondent.- The use of the word guarantee does not ipso facto make the contract one of guaranty. The word is frequently employed in business transactions to describe the intention to be bound by a primary or an independent obligation. The very terms of a contract govern the obligations of the parties or the extent of the obligor's liability. Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a 'Guarantor's Undertaking or a 'Continuing Guaranty.

DBP v CA & Cuba

(1998; Davide, Jr., J.)

Lydia Cuba has Fishpond Lease Agreement. She assigned the same to DBP as security for her loans (security by way of assignment). Upon default, DBP appropriated the Leasehold rights without foreclosure proceedings. Issue: Is the act of DBP a violation of 2088?

Rocky says: - Why was it an issue? Because it was an “assignment” and not “pledge” or “mortgage”- There was intention to sell. At best it’s equitable mortgage. Round peg on a square hole.

The assignment of leasehold rights was a mortgage contract. - Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights" where Cuba assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by Cuba, the deeds of assignment constantly referred to the Cuba as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. 0- Under condition no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." - There is no shred of doubt that a mortgage was intended.- In their stipulation of facts the parties admitted that the assignment was by way of security for the



payment of the loans- People's Bank & Trust Co. vs. Odom: An assignment to guarantee an obligation is in effect a mortgage. BUT IT WAS NOT PACTUM COMMISSORIUM. Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by Cuba, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with 2087, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation.

30Bustamante v

Rosel (1999; Pardo, J.)

- Bustamante spouses borrowed P100,000 from Rosel and used as a guaranty 70 sqm of the 423 sqm land she owns. In case of failure to pay, Rosel is given the right to buy said land at P200,000 inclusive of the P100,000 borrowed amount and the interest.- Upon maturity of loan, Rosel proposed to buy the land. However, Bustamante refused to sell, but instead asked for extension of time to pay and offered Rosel another land they could buy.- Bustamante then offered to pay the loan but Rosel refused to accept payment and insisted that Bustamante sign the prepared deed of sale of the collateral land. - Both parties filed case against each other:

- Bustamante filed complaint for specific performance and consignation against Bustamante (for the payment of the loan)

- Rosel filed petition for consignation and deposited P153K with City Treasurer (for the purchase of the collateral). When Bustamante refused to sell, Rosel consigned the amount of P47,500.00 with the trial court. In arriving at the amount deposited, Rosel considered the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00. The principal loan and the interest taken together amounted to P152,500.00, leaving a balance of P 47,500.00. - RTC: In favor of Bustamante and payment of the loan (conversely, against Rosel and sale of collateral) - CA: Reversed in favor of Rosel- SC initially affirmed CA decision (saying that the contract is the law between the parties) but reversed on MR when Bustamante alleged that real intention of the parties to the loan was to put up the collateral as guarantee similar to an equitable mortgage according to 1602.

Issue No. 1 Whether Bustamante failed to pay the loan at its maturity date - NO- The loan was due for payment on March 1, 1989. On said date, Bustamante tendered payment to settle the loan which ROSEL refused to accept, insisting that BUSTAMANTE sell to them the collateral of the loan. When ROSELs refused to accept payment, BUSTAMANTE consigned the amount with the trial court.Issue No. 2 Whether the stipulation (sale of collateral) in the loan contract was valid and enforceable - NO- Rosel was eager to purchase the land given as guaranty, but Bustamante’s correlative obligation to sell is subject to suspensive condition (i.e. failure to pay debt upon maturity). Contract has the force of law between parties but this is subject to provisions of A1306 CC that stipulations should not be contrary to law, morals, good customs, public policy and public order. - A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the property given as security for the loan. This is embraced in the concept of pactum commissorium, which is proscribed by law. - ELEMENTS OF PACTUM COMMISSORIUM

(1) there should be a property mortgaged by way of security for the payment of the principal obligation,

(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.

- The intent to appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan- All persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their prey.



31

Ong v Roban Lending Corp

(2008; Carpio-Morales)

Spouses obtained several loans totaling to P4M, secured by real estate mortgage. Parties executed Dacion in Payment Agreement and Memo of Agreement where the agreed amount of indebtedness ballooned to P5.9M.

Issue: Is the DPA a pactum? Yes!- The MoA and DPA contain no provisions for foreclosure proceedings nor redemption. Under the MoA, the failure by the petitioners to pay their debt within the one-year period gives respondent the right to enforce the DPA transferring to it ownership of the properties. Roban, in effect, automatically acquires ownership of the properties upon petitioners failure to pay their debt within the stipulated period.- In a true dacion en pago, the assignment of the property extinguishes the monetary debt.[33] In the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the debt.[34] The Dacion in Payment did not extinguish petitioners obligation to respondent. On the contrary, under the Memorandum of Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note for P5,916,117.50 which they were to pay within one year.

32 Paray v Espeleta-Rodriquez

(2006; Tinga, J.)

Rodriguezes used their shares of stocks as pledge security to the loans they obtained from Paray. Paray filed a petition with the Court to sell the said stocks. Court upheld Paray’s right to sell it at a public sale (though SC notes that it was not mandatory since pledge foreclosure is generally done extrajudicially e.g. without the need for any court intervention). Rodriquezes consignated with the court their redemption money.

The CA’s upholding of the “right of redemption” muddles the case because such right only pertains to payments made by debtor after foreclosure and not before the foreclosure sale. It should have concentrated on the validity of the consignation which could have had the effect of extinguishing the principal obligation as well as the accessory contract of pledge.

They would have had a better right had they matched the terms of the highest bidder.

Under the circumstances, with the high interest payments that accrued after several years, respondents were even placed in a favorable position by the pledge agreements, since the creditor would be unable to recover any deficiency from the debtors should the sale price be insufficient to cover the principal amounts with interests. Certainly, had respondents participated in the auction, there would have been a chance for them to recover the shares at a price lower than the amount that was actually due from them to the Parays. That respondents failed to avail of this beneficial resort wholly accorded them by law is their loss. Now, all respondents can recover is the amounts they had consigned.

1. No right of redemption over pledged properties.

2. Foreclosure of pledge is always extrajudicial.

Does the right of redemption exist over personal property? No law or jurisprudence establishes or affirms such right. Indeed, no such right exists.

- The right to redeem property sold as security for the satisfaction of an unpaid obligation does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised only by the persons named in the statute.- The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same benefit to personal property.- Sibal v Valdez: Personal property are not subject to redemption.

Can pledged properties be sold together? - There is nothing in the CC governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation.

Termination of pledge by consignation of the obligation price?If the principal obligation is satisfied, the pledges should be terminated as well. 2098 provides that the


http://www.chanrobles.com/scdecisions/jurisprudence2008/july2008/172592.php#_ftn34

http://www.chanrobles.com/scdecisions/jurisprudence2008/july2008/172592.php#_ftn35


right of the creditor to retain possession of the pledged item exists only until the debt is paid. 2105 further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not been satisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided under 2112.

33Medida v CA

(1992; Regalado, J.)

Core issue: WON a mortgagor, whose property has been extrajudicially foreclosed and sold at the corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party during the period of redemption? Yes! - What is divested from the mortgagor is only his "full right as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the unconditional power to absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied, could result in a consolidation of ownership in the lienholder but only after the lapse of the period of redemption. What is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal which may correspondingly be restricted.

- A subsequent mortgage could nevertheless be legally constituted after extrajudicial foreclosure with the subsequent mortgagee becoming and acquiring the rights of a redemptioner, aside from his right against the mortgagor. - Since the mortgagor remains as the absolute owner of the property during the redemption period and has the free disposal of his property, there would be compliance with the requisites of 2085 for the constitution of another mortgage on the property. To hold otherwise would create the inequitable situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds wherewith to timely redeem his property through another mortgage thereon.- It is only upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, that the ownership of the land sold becomes consolidated in the purchaser.- What actually is effected where redemption is seasonably exercised by the judgment or mortgage debtor is not the recovery of ownership of his land, which ownership he never lost, but the elimination from his title thereto of the lien created by the levy on attachment or judgment or the registration of a mortgage thereon.

34 Suico v PNB(2007; Chico-

Nazario, J.)

- PNB extrajudicially foreclosed on the mortgage. It was the only bidder. However, it claimed again for the deficiency of the proceeds of the sale. Outstanding loan was only ~P2M but the highest bid was ~P8.5M. - Suico demanded recovery of the surplus. It questioned the non-delivery of PNB to Sheriff of the price as well as the validity of Sheriff’s Notice which said that the amount of obligation was only ~P2M. - PNB denied the claim for surplus as the Suico had other loans already due which amounted to more than the purchase price.

Effect of PNB’s non-delivery of surplus to Suico. The application of the proceeds from the sale of the mortgaged property to the mortgagors obligation is an act of payment, not payment by dacion; hence, it is the mortgagees duty to return any surplus in the selling price to the mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even

Notice of sale is valid. Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto.

Effect of PNB’s non-payment of cash to Sheriff. Under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of the bid, there is no need to pay the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser in an execution sale need not pay his bid if it does not exceed the amount of the judgment; otherwise, he shall pay only the excess. - The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the foreclosure sale to go through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did not contemplate such a



though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption. If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this alone will not affect the validity of the sale but simply give the mortgagor a cause of action to recover such surplus.

pointless application of the law in requiring that the creditor must bid under the same conditions as any other bidder. It bears stressing that the rule holds true only where the amount of the bid represents the total amount of the mortgage debt.

35Huerta Alba v

CA(2000; Purisima, J.)

Main issue: WON the petitioner has the one-year right of redemption of subject properties under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act.

What petitioner has been adjudged to have was only the equity of redemption over subject properties.The right of redemption in relation to a mortgage – understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the PNB or a bank or banking institution.

- Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within 1 year from the registration of the sheriff's certificate of foreclosure sale.

- Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale 'when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law' (i.e., even after confirmation by an order of the court) are those granted by the charter of the PNB (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure — after confirmation by the court of the foreclosure sale — which right may be exercised within a period of 1 year, counted from the date of registration of the certificate of sale in the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when confirmed by an order of the court. . . shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser.' There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.

36 People’s Bank Trust v Dahican Lumber

(1967; Dizon, J.)

DALCO executed real estate mortgage in favor of the bank, which contained a stipulation as to the extension of the security to “after acquired properties” referring to properties to be subsequently acquired. DALCO purchased new properties, Bank compelled DALCO to register the mortgage over the properties but before DALCO was able to do so, the purchase contract had already been rescinded.

DALCO’s arguments: 1. The inclusion of “after acquired properties” is void because they were not registered in

Even if contract was entered into under the old CC, the pertinent provisions were reproduced into NCC in 2127. The "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on July 13, 1950. In law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein — which were registered as such — did not have to be registered a second time as chattel mortgages in order to bind the "after acquired



accordance with the Chattel Mortgage Law2. The provision did not automatically make subject to such mortgages the properties and it only meant the willingness of DALCO to constitute a lien over the same

properties" and affect third parties.

37

Makati Leasing v Wearever

(1983; De Castro, J.)

Chattel mortgage was executed over certain raw materials inventory and Artos Aero Dryer Stentering Range. Sheriff could only take out the motor because it was too large and they had to drill it or destroy the concrete floor if only to take it out.

Is the machinery in suit a real or personal property? In which case, what law should govern?

- If a house of strong materials, like what was involved in the above Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really because one who has so agreed is estopped from denying the existence of the chattel mortgage. - It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention and impresses upon the property the character determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby.

38 Dy v CA (1991; Gutierrez, J.)

Wilfred bought a tractor through a loan from Libra, to which he also executed a chattel mortgage. Wilfred’s brother Perfecto bought the tractor from him and assumed the mortgage with Libra’s consent. However Libra did not release the tractor immediately because of uncleared check. The dealy resulted to the tractor’s purchase by Gerlac.

- The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the RPC. Even if no consent was obtained from the Libra, the validity of the sale would still not be affected.- Where a 3P purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, Perfecto was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

39

Pameca Wood v CA

(1999; Gonzaga-Reyes)

DBP foreclosed on the chattel mortgage and then claimed for the deficiency. PAMECA says that the book value of their chattel was P2M but DBP, being the sole bidder purchased it only for P322,350.

Rocky says: - Salbahe tong DBP no? Nawalan na nga ng property, siningil pa. Ang baba na nga ng bid tapos nagdeficiency pa. - Kinalimutan ng lawyers dito ang 2141. 2115 lang naman ang bangga dun eh. - Pledge is intended to regulate pawnshops. It’s a different concept from mortgage. At tayo lang ang ganun sa buong Asia. - What’s the intention of 2088? Get the best price for borrower. It’s okay to bid low. Sa bidding kasi may chance, nagkataon lang na walang nagbid nang mataas. Sa pactum kasi, yung creditor lang ang may chance bumili.

Issue: Can DBP recover the deficiency? Yes.- Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, S14 of Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs. - 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.- 1484 does not apply here because it is specifically applicable to sale on installments.



40Acme Shoe v

CA(1996; Vitug, J.)

Main issue: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred?

Rocky says: - What is the purpose of affidavit of good faith? Bakit sa real estate mortgage wala?

No. Chattel mortgage must comply substantially with the prescribed form. The execution of the oath means that the debt/obligation secured must be current and not that is yet merely contemplated.- While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage OR by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed.

41 Servicewide Specialist v CA

(1999; Ynares-Santiago)

Ponce bought from CR Tecson a Holden Torana and also executed Chattel Mortgage in its favor. CR Tecson assigned the credit to Filinvest with conformity of Ponce. Ponce sold the car to Tecson. Filinvest assigned its rights to Servicewide without notice to Ponce. Servicewide sues Ponce. Ponce files 3P complaint against Tecson.

ISSUES: - Whether the assignment of a credit requires notice to the Ponce in order to bind him? - More specifically, is Ponce, who sold the property to Tecson, entitled to notice of the assignment of credit made by the Filinvest to Servicewide such that if the Ponce was not notified of the assignment, he can no longer be held liable since he already alienated the property? - Conversely, is the consent of Servicewide necessary when Ponce alienated the property to Tecson?

Chi recited this. Fairly okay.

Only notice to the debtor (Ponce) of the assignment of credit is required. His consent is not required. In contrast, consent of the creditor-mortgagee (Servicewide) to the alienation of the mortgaged property is necessary in order to bind said creditor.

Article 2141, on the other hand, states that the provisions concerning a contract of pledge shall be applicable to a chattel mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel Mortgage Law. As provided in 2097 in relation to 2141, a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee. This provision is in accordance with Act No. 1508 which provides that a mortgagor of personal property shall not sell or pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is recorded. Although this provision in the chattel mortgage has been expressly repealed by Article 367 of the Revised Penal Code, yet under Article 319 (2) of the same Code, the sale of the thing mortgaged may be made provided that the mortgagee gives his consent and that the same is recorded. In any case, applying by analogy 2128 to a chattel mortgage, it appears that a mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that the assignees consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioners consent is necessary before respondent spouses alienation of the vehicle can be considered as



binding against third persons. Servicewide is considered a third person with respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson.

CONCURRENCE AND PREFERENCE OF CREDITS

42

De Barreto v Villanueva

(1961; Gutierrez David)

Does unregistered unpaid vendors lien prejudice the registered rights? No.

Where there is no insolvency or liquidation proceeding, the unpaid vendor’s lien does not acquire the character and rank of a statutory lien coequal to the recorded mortgage lien. Unpaid vendor must remain subordinate to recorded mortgage.

- Only some taxes enjoy a similar absolute preference. All the remaining 13 classes enjoy no priority among themselves but must be paid pro rata. - There must first be some proceeding [insolvency, settlement of decedent’s estate, other liquidation proceedings] where notice to all of the insolvent’s creditors may be given and where the claims of preferred creditors may be bindingly adjudicated. [Convene them creditors first.]- The question as to whether the CC and Insolvency Law can be harmonized is settled by 2243. The preferences named in 2241 and 2241 are to enforced in accordance with the Insolvency Law.

43

J. L. Bernardo v CA

(2000; Gonzaga-Reyes)

Contractor’s lien

Rocky says: Mortgage has its own life. It’s a lien in itself, no need for a proceeding.

- 2242 only finds application when there is a concurrence of credits i.e. same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will a need to determine which of the creditors will be paid ahead of the others. - Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings. - The action of JL Bernardo is not for insolvency but for specific performance and damages.

44 DBP v CA(2001; Kapunan, J.)

Mortgage by mining company of real estate, improvements thereon and chattel mortgage. DBP foreclosed but Remington claims for its lien on unpaid purchases by the company. Who has preference? DBP. In the absence of liquidation proceedings, the claim of Remington cannot be enforced against DBP.

Rocky says: - Walang tunay na sale sa Pilipinas. Go to HK for cheap electronics. - AIM means “Ayaw Ipasa ang Mic” Mag-apply sha sa Guinness para sa mga associate nilang walang natamaan kahit isang nota. Aba mahirap yun ah! We have natural built-in protection. We fool ourselves into thinking that we sound better than it actually is. That we are more beautiful than we really are. BAsahin niyo yung The Raven, Merchant of Venice and Picture of Dorian Gray for your soul.

Reiteration of the Barretto ruling. Although what was involved there was specific immovable property, the ruling therein should equally apply in this case where specific movable property is involved. As the extra-judicial foreclosure instituted by the PNB and DBP is not the liquidation proceeding contemplated by the CC, Remington cannot claim its pro rata share from DBP.

45 Ruby Industrial Corp v CA

(1998; Puno, J.)Handled by Sycip

Ruby filed Petition for Suspension of Payments with SEC. Benhar purchase the credits of Ruby’s creditors and mortgage Ruby’s property to get credit facilities for Ruby. Subrogated din si Benhar.

Rocky says: Redundant ang existence ni Benhar. Bakit pa kailangan ng middleman?

Rehabilitation contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. When a distressed company is placed under rehabilitation, the appointment of management committee follows to avoid collusion between the previous management and creditors it might favor, to the



Nakinabang si Benhar eh wala naman siya ginawa. - Ang mga lawyers hindi pwedeng maraming pera, hindi tayo marunong magbilang eh. - Rehab receiver is a good job.

prejudice of the other creditors. All assets of the corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the others.

46

Rubberworld v NLRC

(1999; Panganiban, J.)

Should NLRC suspend the proceedings before it when company is under declaration of suspension of payments i.e. all actions for claims are suspended? Rocky says: Distinction between suspension of payments and corporate rehabSUSPENSION OF PAYMENTS

CORPORATE REHABLITATION

Foresees impossibility of meeting debts when they due Applicable to both natural and juridical entity

Only corporations

Initiated by the debtor only

Initiated by debtor or creditor

- Convince the court na kaya pang i-rehab. - Eat at Esukiji, men fall in love with what they see, what is. Women with what they

- Upon creation of a management committee or the appointment of the rehabilitation receiver, all claims for actions “shall be suspended accordingly.” No exception in favor of labor claims is mentioned in the law. Allowing them to proceed may clearly defeats the purpose of the automatic stay and severely encumbers the management committee’s time and resources. - Preferential right of workers and employees under A110 of LC may be invoked only upon the institution of insolvency or judicial liquidation proceedings.

47

Leca Realty Corp v

Manuela Corp(2007; Sandoval-

Gutierrez, J.)

Rocky says: Non-impairment of contracts- Iba talaga ang adrenalin level namin dati kapag nakikipagdate kasi hindi pa uso ang credit card. Wala pang price yung menu na para sa ladies. Kaya dapat - Pinakamasarap na part ng tuna yung batok. Oily yun. Pero hindi naman generally oily ang tuna dahil it lives in warm water. - In view of the Valentines Day tomorrow, tinamad na magdiscuss ng Credit Trans si Rocky. Nagbigay na lang ng dating tips. Put your money where your motives are. Parang poker lang yan. All in. - Story about about a boy who was looking for a wife and his mother fed three ladies with cheese. - Bumili kayo ng ceramic knife. Parang papel o gulaman lang lahat ng hinihiwa niyo. - Don’t go Chinese pag date, ang dami nun. Wala kayong magagawa. Pangfamily lang ang Chinese.

- The amount of rental is an essential condition of any lease contract. Needless to state, the change of its rate in the Rehabilitation Plan is not justified as it impairs the stipulation between the parties. Rehab Plan is declared void insofar as it amends the rental rates agreed upon by the parties. - PD 502-A never authorized the change or modification of contracts entered into by the distressed corporation and its creditors.

48 Chas Realty Dev’t Corp v

Talavera(2003; Vitug, J.)

Validity of approval is in issue. Board of directors was even still being contested.

Rocky says: - Why 2/3 vote? In a big corporation, it’s dangerous to go to the stockholders. Example is PLDT where mere subscription to their services makes you a stockholder. - No similar provision in present Rules. - Is it not important enough to file petition for

Certification from the board of directors that filing of petition has been duly authorized and that it has been confirmed

Subject: repayment or restructuring schemeExtraordinary corporate action – 2/3 of stockholders outstanding capital stockNo extraordinary corporate action – majority in a quorum



rehab?

49 RCBC v IAC(1999; Melo, J.)

Rules of thumb laid down by the SC1. All claims against corporations, partnerships or associations that are pending before any court, tribunal or board, without distinction as to WON a creditor is secured or unsecured, shall be suspended effective upon the appointment of a management committee, rehabilitation receiver, board, or body in accordance with the provisions of PD 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment of a management committee, rehabilitation receiver, board or body. In the event that the assets of the corporation, partnership or association are finally liquidated, however, secured and preferred credits under applicable provisions of CC will definitely have preference over unsecured ones. All actions for claims against a distressed corporation pending before any court, tribunal or body shall be suspended accordingly to give receiver the chance to rehabilitate the corporation if there should still be possibility for doing so.

3. In the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the secured creditors shall enjoy preference over the unsecured creditors, subject only to the provisions of CC on Concurrence and Preference of Credit.

The issue of WON preferred creditors of distressed corporations stand on equal footing with all other creditors gains relevance and materiality only upon the appointment of management committee, rehabilitation receiver, board or body.

50

Sobrejuanite v ASB

(2005; Ynares-Santiago)

Company failed to deliver the condo unit upon the spouses’ demand. Spouses now want rescission of contract and refunt of payment + payment of moral damages, atty’s fees, litigation expenses, appearance fees and costs of suit

Issue: WON complaint for rescission with damages (specific performance) a “claim” covered by stay order? Yes, it is a claim which must be suspended.

Rocky asks: - What is the definition of claim under present rules? Same as Interim: “all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise.”- Why do we have surnames? It’s for geographical security to track movement. Parang pinaglaruan yung mga apelyido natin, Santos Reyes Cruz. Hinda naman apelyido yan sa Espanya eh. Mga Ordonez, Villalobos, Zobel sila dun. - First row ng bumaril kay Rizal eh Pinoy, nasa 2nd row eh mga Espanyol na nakatutok sa Pinoy na di babaril. We kill each other.

- The purpose of suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. It is intended to give enough breathing space for the management committee or rehabilitation receiver to make business viable again, without having to divert attention and resources to litigations in various fora. It would enable the management committee/rehab receiver to effectively exercise powers free from any judicial/extrajudicial interference that might unduly hinder or prevent the “rescue” of the debtor company.

Definitions of claim: - Finasia v CA: debts/demands pecuniary in nature- Arranza v BF Homes: actions involving monetary considerations- Interim rules: All claims or demands, of whatever nature or character against a debtor or its property , whether for money or otherwise. No distinctions or exemptions.

51Metrobank v

SLGT(2007; Garcia, J.)

Condominium project mortgaged without notice to owners of condominium units and without permission from HLURB. Bank’s defense: Divisibility/separability.Court said that the mortgage is void in entirety because it is indivisible by nature. Dylanco demanded the delivery of their units free from all liens and encumbrances. Issue: Is it a claim covered by the stay order?

There is an undue reliance on Sobrejuanite. The claim there involved pecuniary consideration (refund + damages) while here, it was only for the enforcement of contractual obligations (specific performance). - The Rules on rehabilitation and suspension of action apply only to those who stand in the category of debtors and creditors, which the parties in the case at bar are not.

52 PAL v CA(2005; Ponente, J.)

Two minor children left by the plane. Parents seek indemnity for damages from PAL. Execution stage na lang ito.

Upon the appointment by SEC of a management committee or rehab receiver, all actions for claims against a corp pending before any court, tribunal, board shall ipso jure be suspended in whatever



stage such actions may be found.

It must be stressed that what are automatically stayed or suspended are the proceedings of a suit and not just the payment of claims during the execution stage after the case had become final and executory.

53

Clarion Printing House

v NLRC(2005; Carpio-

Morales)Handled by UP OLA

Complaint for illegal dismissal of probationary employee. She was retrenched but during her retrenchment, the petition for declaration of suspension of payments by the company was denied.

Court took judicial notice of its own acts. It even allowed Miclat to recover despite the appointment of management committee for the company (this time their petition for corp rehab was granted).

54 Ong v PCIB(2005; Puno, J.)

Spouses are surety of the corporation of which they are the presidents and treasurers.

Rocky says: - Delikado maging surety, that’s the point

Despite the execution of the MoA which provided for the suspension of payment and filing of collection suits against BMC, the bank has the right to collect payment from the surety as it exists independently of its right to proceed directly against the principal debtor.

55

Sy Chim v Sy Siy Ho

(2006; Callejo Sr., J.)

Chinese family owns a company, a dispute took place between the stockholders. One party moved for the appointment of a management committee. Court granted.

Rocky says: - If someone takes over, it would be hard to recover. There may be something wrong going on internally, but as long as it does not affect the finances, don’t appoint management committee hastily. - Are the two requisites still required under the present rules?

Is the appointment of management committee proper under the Interim Rules? No. - Upon appointment of management committee/receiver, the elected/appointed officers of the corporation are divested of the management of such corporation in favor of the management committee/receiver.- The creation and appointment of a management committee and receiver is an extraordinary and drastic remedy to be exercised with care and caution; and only when the requirements under the Interim Rules are shown. It is a drastic course for the benefit of the minority stockholders, the parties-litigant or the general public are allowed only under pressing circumstances, and when there is inadequacy, ineffectual or exhaustion of legal or otre remedies. - In the absence of a strong showing of imminent danger of dissipation, loss, wastage or destruction of assets or other properties of a corporation and paralysis of its business operations, the mere apprehension of future misconduct based upon prior management will not authorize the appointment of a management committee/receiver.

56

Metrobank v ASB

(2007; Sandoval-Gutierrez , J.)

ASB drafted a dacion en pago in its Rehabilitation Plan. Metrobank refuse to accept because it does not agree with the valuation of the properties included therein.

Rocky says: - Confused yung lawyer dito. Malinaw naming subject to approval yung rehab plan, kinwestiyon pa. Sayang ang oras ng korte. Dapat bineberate yung mga ganitong abogado eh.

- The dacion en pago program and the intent of ASB to ask creditors to waive the interests, penalties and related charges are not compulsory in nature. They are merely proposals for the creditors to accept. There was even an initial discussion on these proposals and the majority of the secured creditors showed their desire to complete dacion en pago transactions, but they must be based on “mutually agreed upon terms.” - The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allows creditors to be paid their claims from its earnings.

57 MWSS v Daway (2004; Azcuna, J.)

Maynilad applied for Rehabilitation with Suspension of Actions and Proceedings. It had an Irrevocable Standby Letter of Credit issued by Citicorp. MWSS asked for its encashment for payment of concession fees. Is the claim covered by the stay order? Rocky says: - Maynilad owned by the Lopezes. Manila Water sa QC. Wala bang taga-Manila dito? Homogenous talaga kayo.

LoC is not covered by the stay order (hence, MWSS can enforce its claim) because it is solidary and primary undertaking. As such, claims against them can be pursued separately from and independently of the rehabilitation case (PBM v CA).



- Alam niyo ba kung bakit Brand X lang ang ginagamit sa mga local ads when in the US they bluntly say that Pepsi is better than Coke? No of course, it’s not delecadeza. It’s by agreement of ad companies, they have self-regulating rules.

58 Colinares v CA(2000; Davide, J.)

Colinares renovated the convent of Carmelite Sisters. To purchase materials for the construction, Colinares signed a pro-forma trust receipt with PBC. After default, PBC charged Colinares with violation of PD 115 in relation to A315 RPC (estafa).

Defense: They believed it was only a clean loan, the trust receipt implication was in fine print.

HELD: - The parties intended a simple loan and not a trust receipt agreement. Colinares already owned the goods when they applied for a loan for the payment of goods.- Usually, goods are owned by the bank. Upon release to entrustee, bank acquires “security interest” - Moreover, Colinares are not importers acquiring the goods for re-sale, contrary to the express provision embodied in the trust receipt.

Rocky says: - This may also be called “title retention security agreement” it’s the best type of security kasi nasa iyo na kagad in case of bankruptcy. - Eh bakit hindi lahat naka-trust receipt? It’s not because of the risk of loss, because you can transfer it naman. Magastos kasi to. Ibinebenta-benta pa, maraming tax na binabayaran tuloy. There’s also a limit on what the bank can purchase. - What’s another example of “title retention” Contract to sell. It’s better than mortgage kasi wala kang kalaban.

What is a trust receipt? S4 of PD 115: any transaction by and between a person referred to as the “entruster” and another person referred to as the “entrustee”, whereby the former who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a “trust receipt” wherein the entrustee binds himself to hold the designated goods, documents, or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt.

Two possible situations in “trust receipt” transaction 1.Money received (entregaria)2.Merchandise received (devolvera)

Failure of entrustee to turn over proceeds is punishable as estafa, without need of proving intent to defraud.

Policy questions: - Intended to aid in financing the importers and retail traders who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization as collateral, of the merchandise importer or purchased. - It does not seek the payment of the loan, but punishment of dishonesty and abuse of confidence in handling of money/goods to prejudice of another.

59 UCPB v Beluso(2007; Chico-

Nazario, J.)

Beluso obtained a credit line from UCPB. Interest was not numerically quantified but only categorically fixed [“rate indicative of DBD retail rate”]. Beluso says that it’s an infringement of the mutuality of contracts.

Rocky says: - Buddha died because of ulcer and bleeding.

- The interest rate provisions are illegal not only because of the CC provision on mutuality of contracts but also because it’s violative of the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is a form of deception which We cannot countenance. As to failure of Beluso to explicitly allege violation of Truth in Lending Act and prescription of 1 year- Allegations in complaint are much more controlling than its title. It can be inferred from the allegation of “unilateral imposition of increased interest rates”- Truth in Lending gives rise to both crim and civil liabilities. - Rationale for requiring the disclosure statement to be given prior to consummation: Protect users of credit from a lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of



interests from the loaned amount and the like. Fully appreciate the true cost of loan, give full consent to the contract, and properly evaluate their options in arriving at business decisions.

60Manila Banking

v Teodoro(1989; Bidin, J.)

Assignment of rights executed to guarantee an obligation. - An assignment of rights, receivables, titles or interest under a contract to guarantee an obligation is in effect, a pledge or mortgage contract to guarantee an obligation is, in effect, a pledge or mortgage and NOT an absolute conveyance of title which confers ownership on the assignee. In case of doubt as to whether a transaction is a pledge (or mortgage), or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests.


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