Carpo vs. Chua

Law 107 :: Credit Transactions Loan: Delivery by one party and the receipt by the other party of a given
e receipt by the other party of a given sum of

Atty. Stephanie V. Gomez-Somera money, upon an agreement, express or implied, to repay the sum loaned, with or
without interest
University of the Philippines | College of Law
Second Semester | AY 2008-2009 The concession of a credit necessarily involves the granting of loans up to the limit of
the amount fixed in the credit.
Weeks 1 to 4
ISSUE #2
Was the granting of credit to the co-partnership a loan or discount?
Introduction Credit Transactions Defense: the provision prohibits granting of a loan, not a discount
1. Concept of Credit Background Facts: H. Parker Willis, then NB President inquired of Insular Auditor
whether Sec 37 Act 2612 applied to discounts – loans alone
2. Issues and Problems Relating to Credit: The 2008 Credit Crisis
DISCOUNT LOAN
Interest deducted in advance Interest deducted at expiration of credit
3. Concept of Credit Transactions Double-name paper Single-name paper
Case: HELD
PEOPLE vs. CONCEPCION LOAN. In the last analysis, to discount a paper is only a mode of loaning money.
G.R. No. L-19190 | 29 November 1922 Interest on the demand notes signed by the copartnership was paid when notes fell
due, and single-name paper.
FACTS
1. PNP President and BOD member Venancio Concepcion authorized an extension ISSUE #3
of credit (P300k) to a partnership capitalized at P100k (Puno y Concepcion, S. en Was the granting of credit to co-partnership an indirect loan within meaning of
C.), half of which was owned by his wife Rosario San Agustin. the provision?
2. Anacleto Concepcion (P5k), Clara vda de Concepcion (P5k), Miguel S.
Concepcion (admin, P20k), Clemente Puno (P20k) HELD
3. CFI Cagayan (Judge Enrique V. Filamor) declared him guilty of violating of Sec YES. A loan to a partnership of which a wife of a bank director is a member is an
35 of Act 2747 (1y6m imprisonment, P3k fine, with subsidiary imprisonment, indirect loan to the director due to conjugal partnership.
costs) Purpose of Provision: Erect a wall of safety against temptation for a bank
4. Act 2747 (Effective 20 February 1918) director (protection of stockholders, depositors and creditors of the bank)
a. Sec 35: The National Bank shall not, directly or indirectly, grant loans to any
of the members of the board of the bank nor to agents of the branch banks.
b. Sec 49: Any person who shall violate any of the provisions of this Act shall Loan
be punished by a fine not to exceed P10k, or by imprisonment not to exceed 4. General Provisions on Loan, Articles 1933 and 1934, Civil Code
5y, or by both.
c. Above sections were in effect when alleged violation took place, but were
5. Commodatum, Articles 1935 to 1952, Civil Code
repealed by Act 2938 (app 30 Jan 1921)
ISSUE #1 6. Simple Loan, Articles 1953 to 1961, 1980, 2209, 2212, 2213,
Was the granting of credit to the copartnership a loan within the meaning of the Civil Code, Central Bank Circular No. 416
provision?
Defense’s Contention: documents on record do not prove that authority to make a
loan was given, but only the concession of credit
Cases:
REPUBLIC vs. BAGTAS
HELD (G.R. No. L-17474 | 25 October 1962)
NO. Defense is correct; exhibits speak of credit and not loan. >> D2008 Credit Reviewer, p.3
Credit: Ability to borrow money by virtue of the confidence or trust reposed by a QUINTOS vs. BECK
lender that he will pay what he may promise (G.R. No. L-46240 | 03 November 1939)
LAW 107 :: CREDIT TRANSACTIONS (Russ + Awi + Joyce + Happy + Judith) Page 1 of 22
>> D2008 Credit Reviewer, p.4 HELD
Said Amendment was never intended to completely supersede the mortgage
SAURA IMPORT & EXPORT CO., INC. vs. DBP contract dated April 4, 1962. In fact, GSIS, as a matter of policy, imposes uniform
terms and conditions for all its real estate loans, particularly with respect to
(G.R. No. L-24968 | 27 April 1972) compounding of interest.
>> D2008 Credit Reviewer, p.8
 GSIS: Did not supersede; amended only wrt the amount secured thereby and the
amount of monthly amortizations; others – deemed rewritten
GSIS vs. CA  Medinas: no express stipulation on the compounded interest → OP
G.R. No. L-52478 | 30 October 1986 o The difference in the computation lies in the inclusion of the compounded
interest as demanded by the GSIS on the one hand and the exclusion
FACTS thereof, as insisted by the Medinas on the other.
Sps. Medina applied for a loan with GSIS in the amount of P600,000. But only
P350,000 had been approved (BR 5041) subject to the conditions: ISSUE # 2
a. that 9% per annum shall be the interest rate, compounded monthly; WON the CA erred in sustaining the Sp. Medinas’ claim of OP, by crediting the
b. that the loan shall be repayable in 10 years at a monthly mortization of fire insurance proceeds in the sum of P11,152.02 to the total payment made by
P4,433.65 including principal and interest, and that any installment or said spouses as of Dec. 11, 1975
amortization due and unpaid shall bear an interest of 9%/12 per month.
The Office of the Economic Coordinator, in a 2nd Indorsement, further HELD
reduced the approved amount to P295,000. The Medinas accepted the reduced YES. The plaintiffs were not entitled to a credit of P19,381.07 as FI proceeds, as they
amount, executed a promissory note and a REM in favor of GSIS. On June 6, 1962, were only entitled to and were credited with P11,152.02.
the approved loan was restored to P350,000 and was denominated as Account No.
31055. ISSUE # 3
As a consequence, the Medinas subsequently executed an Amendment of WON the CA erred in holding that the interest rates on the loan accounts of the
Real Estate Mortgage. Upon application by the Medinas, GSIS adopted Resolution Medinas are usurious
No. 121, as amended by Resolution No. 348, granting an additional loan of P230,000
on the security of the same mortgaged properties and additional properties. The loan HELD
was denominated as Account No. 31442. NO. Usury Law applies only to interest by way of compensation for the use or
Beginning 1965, the Medinas defaulted in their payments and in 1967, they forbearance of money. Interest by way of damages is governed by Article 2209 of the
began defaulting in the payment of their fire insurance premiums. On May 3, 1974, Civil Code
GSIS informed the debtors that they had arrearages in the amount of P575,652.42 as
of April 18, 1974 and demanded payment within 7 days, otherwise, it would foreclose ISSUE # 4:
the mortgage. WON the CA erred in affirming the annulment of the subject EJ foreclosure and
On Apr. 21, 1975, GSIS applied for foreclosure of the mortgage. The sheriff’s Certificate of Sale
Medinas filed a complaint, praying for the issuance of a restraining order or writ of PI,
but no such RO or WPI was issued in view of PD No. 385. On Apr. 25, 1975, the HELD
Medinas made a last partial payment in the amount of P209, 662.80. Since the Medinas failed to settle their accounts with the GSIS, the latter had a
The properties of the medinas were sold at public auction with GSIS as the perfect right to foreclose the mortgage.
highest bidder. Hence, the Medinas filed an amended complaint, praying for the
declaration of nullity of their 2 REM contracts with the GSIS, as well as of the EJ → Reversed and set aside…VALID.
foreclosure proceedings, and for the refund of excess payments, damages and AF.
TC: N&V + Medinas to pay GSIS P1,611.12 in fully payment of their
obligation with 9% p.a. interest from Dec. 11, 1975 LIGUTAN VS. CA
CA: Affirmed: GSIS to reimburse P9,580 OP and pay Sp Medina P3,000 AF
G.R. No. 138677 | 12 February 2002
and P1,000 litigation exp;
SC: PRC ↓; MR: due course FACTS
1. Tolomeo Ligutan and Leonidas dela Llana obtained a loan from private
ISSUE # 1 respondent Security Bank and Trust Company (PN, jointly and severally, P120k,
WON the CA erred in holding that the amendment of the REM dated July 6, 1962 15.189% p.a., penalty of 5% every month on outstanding principal and interest in
superseded the mortgage contract dated Apr. 4, 1962, particularly wrt the case of default, 10% atty fees). Maturity date: 8 Sep 1981, extension till 29 Dec
compounding of interest 1981.
2. Several demands from bank; as of 20 May 1982: P114,416.10
3. Final demand letter (full payment required): 30 Sep 1982; default ISSUE # 3
4. Bank filed a complaint for recovery: RTC Makati Br 143 Did the execution of the mortgage novate the contract?
a. Bank presented evidence, rested case
b. Petitioners reset on 2 occasions RATIO
1) Bank moved to declare petitioners in default  granted NO. Petitioners acknowledge that there is no express stipulation that the mortgage is
2) 2 years later, petitioners MR’d  denied intended to supersede the loan agreement.
c. TC ruled in favor of plaintiff (P114,416, 15.189% p.a., 2% service charge,
5% p.m. penalty charge, commencing 20 May 1982 until fully paid, 10% atty (Besides, as we now know, mortgage is an accessory obligation!  )
fees)
5. Petitioners appealed to CA
a. Assailed rejection of motion to present evidence, 2% service charge, 5% EASTERN SHIPPING LINES vs. CA
p.m. penalty charge, 10% atty fees G.R. No. 97412 | 12 July 1994
b. CA affirmed except for 2% service charge (deleted pursuant to CB
Circular 783) FACTS
c. Petitioners MR’d for reduction of 5% p.m. penalty charge for being 1. Contract of carriage between Eastern Shipping Lines & an unnamed shipper to
unconscionable carry 2 fiber drums of riboflavin aboard SS Eastern Comet from Yokohama,
d. Bank MR’d that payment of interest and penalty commences from time of Japan to Manila, insured by respondent Mercantile Insurance Company
default (not filing of complaint) a. Arrastre operator Metro Port Service received one drum in bad order (others
e. CA: when obligation fell due, 5% p.m. penalty charge OK)
f. Petitioners filed omnibus MR and to admit newly- discovered evidence b. Broker-forwarder Allied Brokerage Corporation received one drum opened
alleging executing a real estate mortgage as security  effect of novation and without seal (others OK)
g. Mortgage foreclosed without notice; they did not credit them with proceeds c. Consignee’s warehouse received one drum which contained spillages, while
h. CA denied MR (R52 S2: no second MR allowed) and admission of newly- the rest of the contents were adulterated/fake; losses: P19,032.95 which
discovered evidence (evidence known to them, not newly-discovered) insurance paid for
2. RTC held the defendants (common carrier) liable
ISSUE # 1 3. CA affirmed
Was penalty clause unconscionable?
ISSUE
RATIO WON interest should commence at filing of complaint (12% p.a.) or at date of
Impliedly NO, but reduced due to partial performance. SC agreed with CA that it TC decision (6% p.a.)
may be reduced due to partial performance and to allow petitioners to finally settle the
obligation. (Art 1229 CC) HELD
6% p.a. legal interest, then 12% p.a. from finality of decision till payment
 Penalty Clause: Accessory undertaking to assume greater liability on the part of 1) loan or forbearance of money
an obligor in case of breach of an obligation a. as stipulated in writing, or
 Function of Penalty Clause b. 12% p.a. from default (extra-judicial/judicial demand)
o To strengthen the coercive force of the obligation; 2) not loan or forbearance of money
o To provide, in effect, for what could be the liquidated damages resulting from a. reasonable certainty – 6% p.a. from judicial/extra-judicial demand
such a breach b. no certainty – 6% p.a. from date of judgment
3) legal interest – 12% p.a. from finality till satisfaction
ISSUE # 2
Was the 15% p.a. interest unreasonable?
PRODUCERS BANK OF THE PHILIPPINES vs. CA
RATIO
(G.R. No. 115324 | 19 February 2003)
NO. The interest on its face is not excessive.
>> D2008 Credit Reviewer, p.4
 Interest: Cost of money; fundamental part of banking business; core of bank’s
existence GARCIA vs. THIO
(G.R. No. 154878 | 16 March 2007)
Interest and penalty are distinct concepts which may separately be demanded.
constitutes consideration. It is incorrect because as a bailee, it is Guevarra’s duty
PAJUYO vs. CA to clean and maintain the house in good condition.
G.R. No. 146364 | 03 June 2004
FACTS BPI Family Bank v. Franco & CA

Pajuyo paid P400 to a certain Pedro Perez for the rights over a lot in Quezon G.R. No. 123498 | 23 November 2007
City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and
his family lived in the house. On 8 December 1985, Pajuyo and private respondent ISSUE
Guevarra executed a Kasunduan or agreement. Pajuyo, as owner of the house, WON BPI-FB can unilaterally freeze Franco’s accounts and preclude him from
allowed Guevarra to live in the house for free provided Guevarra would maintain the withdrawing his deposits
cleanliness and orderliness of the house. Guevarra promised that he would voluntarily
vacate the premises on Pajuyo’s demand. In September 1994, Pajuyo informed HELD
Guevarra of his need of the house and demanded that Guevarra vacate the house. NO. The deposit of money in banks is governed by the Civil Code provisions on
Guevarra refused. simple loan or mutuum. As there is a debtor-creditor relationship between a
bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s
ISSUE deposits, but such ownership is coupled with a corresponding obligation to
What is the contract entered into by Pajuyo with Guevarra? commodatum or pay him an equal amount on demand.
lease? Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent
him from payment of BPI-FB’s obligation by drawing checks against his current
HELD account, or asking for the release of the funds in his savings account. Thus, when
LEASE. In a contract of commodatum, one of the parties delivers to another Franco issued checks drawn against his current account, he had every right as
something not consumable so that the latter may use the same for a certain time and creditor to expect that those checks would be honored by BPI-FB as debtor.
return it. An essential feature of commodatum is that it is gratuitous. Another feature Furthermore, BPI-FB does not have a unilateral right to freeze the accounts of Franco
of commodatum is that the use of the thing belonging to another is for a certain based on its mere suspicion that the funds therein were proceeds of the multi0-million
period. Thus, the bailor cannot demand the return of the thing loaned until after peso scam Franco was allegedly involved in. To grant BPI-FB, or any other bank for
expiration of the period stipulated, or after accomplishment of the use for which the that matter, the right to unilaterally freeze its depositors’ accounts would open
commodatum is constituted. If the bailor should have urgent need of the thing, he floodgates of public distrust in the banking industry.
may demand its return for temporary use. If the use of the thing is merely tolerated by
the bailor, he can demand the return of the thing at will, in which case the contractual
relation is called a precarium. Under the Civil Code, precarium is a kind of PEOPLE vs. PUIG & PORRAS
commodatum. G.R. No. 173654-765 | 28 August 2008
The Kasunduan reveals that the accommodation accorded by Pajuyo
to Guevarra was not essentially gratuitous. While the Kasunduan did not require
ISSUE
Guevarra to pay rent, it obligated him to maintain the property in good condition. The
WON the 112 information for qualified theft sufficiently allege the element of
imposition of this obligation makes the Kasunduan a contract different from a
taking without the consent of the owner, and the qualifying circumstance of
commodatum. The effects of the Kasunduan are also different from that of a
grave abuse of discretion
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
HELD
would result in the termination of the lease. The tenant’s withholding of the property
YES. The Court has held in a line of cases that where the Informations merely
would then be unlawful. This is settled jurisprudence.
alleged the positions of the respondents; that the crime was committed with grave
Even assuming that the relationship between Pajuyo and Guevarra is one of
abuse of confidence, with intent to gain and without the knowledge and consent of the
commodatum, Guevarra as bailee would still have the duty to turn over possession of
Bank, without necessarily stating the phrase being assiduously insisted upon by
the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
respondents, “of a relation by reason of dependence, guardianship or vigilance,
received attaches to contracts for safekeeping, or contracts of commission,
between the respondents and the offended party that has created a high degree
administration and commodatum. These contracts certainly involve the obligation to
of confidence between them, which respondents abused,” and without employing
deliver or return the thing received.
the word “owner” in lieu of the “Bank” were considered to have satisfied the test of
sufficiency of allegations.
CLASS NOTES >>
Allegations in the Information that such employees acted with grave abuse
Ma’am made a comment that the contention that the Court was
of confidence, to the damage and prejudice of the Bank, without particularly referring
incorrect when it said that the duty on the part of Guevarra to clean the house
to it as owner of the money deposits, as sufficient to make out a case of Qualified G.R. No. 126780 | 17 February 2005
Theft.
Depositors who place their money with the bank are considered creditors of ISSUE:
the bank. WON a hotel may evade liability for the loss of items left with it for safekeeping
Tellers, Cashiers, Bookkeepers and other employees of a Bank who come by its guests, by having these guests execute written waivers ("Undertaking
into possession of the monies deposited therein enjoy the confidence reposed in For The Use of Safety Deposit Box") holding the establishment or its
them by their employer. Banks, on the other hand, where monies are deposited, are employees free from blame for such loss in light of Article 2003 of the Civil
considered the owners thereof. Code which voids such waivers
The relationship between banks and depositors has been held to be that of
creditor and debtor, by virtue of Art. 1980, CC, which provides that “fixed, savings, HELD:
and current deposits of money in banks and similar institutions shall be governed by NO. Article 2003 is controlling, thus:
the provisions concerning simple loans,” and corollarily thereto, Art. 1953, CC
provides that “a person who receives a loan of money or any other fungible thing Art. 2003. The hotel-keeper cannot free himself from responsibility
acquires the ownership thereof, and is bound to pay to the creditor an equal amount by posting notices to the effect that he is not liable for the articles
of the same kind and quality.” brought by the guest. Any stipulation between the hotel-keeper and
the guest whereby the responsibility of the former as set forth in
Articles 1998 to 2001 is suppressed or diminished shall be void.
Deposit
7. Concept of Deposit, Articles 1962 to 1967, Civil Code In an early case, the Court of Appeals through its then Presiding Justice
(later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold hotelkeepers
or innkeeper liable for the effects of their guests, it is not necessary that they be
8. Voluntary Deposit, Articles 1968 to 1995, Civil Code actually delivered to the innkeepers or their employees. It is enough that such
effects are within the hotel or inn. With greater reason should the liability of the
9. Necessary Deposit, Article 1996 to 2004, Civil Code hotelkeeper be enforced when the missing items are taken without the guest's
knowledge and consent from a safety deposit box provided by the hotel itself, as in
10. Judicial Deposit, Articles 2005 to 2009, Civil Code this case.
The New Civil Code is explicit that the responsibility of the hotel-
keeper shall extend to loss of, or injury to, the personal property of the guests
Cases: even if caused by servants or employees of the keepers of hotels or inns as
BPI vs. IAC well as by strangers, except as it may proceed from any force majeure.
(G.R. No. L-66826 | 19 August 1988) Petitioners likewise anchor their defense on Article 2002 which exempts the
>> D2008 Credit Reviewer, p.50 hotel-keeper from liability if the loss is due to the acts of his guest, his family, or
visitors. Even a cursory reading of the provision would lead us to reject petitioners'
contention. The justification they raise would render nugatory the public interest
BISHOP OF JARO vs. DE LA PENA sought to be protected by the provision. What if the negligence of the employer or its
(G.R. No. L-6913 | 21 November 1913) employees facilitated the consummation of a crime committed by the registered
>> D2008 Credit Reviewer, p.50 guest's relatives or visitor? Should the law exculpate the hotel from liability since the
loss was due to the act of the visitor of the registered guest of the hotel? Hence, this
CA AGRO-INDUSTRIAL DEV’T. CORP. vs. CA provision presupposes that the hotel-keeper is not guilty of concurrent
(G.R. No. 90027 | 03 March 1993) negligence or has not contributed in any degree to the occurrence of the loss.
>> D2008 Credit Reviewer, p.51 A depositary is not responsible for the loss of goods by theft, unless his
actionable negligence contributes to the loss.
In the case at bar, the responsibility of securing the safety deposit box was
TRIPLE-V FOOD SERVICES, INC. shared not only by the guest himself but also by the management since two keys are
vs. FILIPINO MERCHANTS INSURANCE CO., INC. necessary to open the safety deposit box. Without the assistance of hotel employees,
(G.R. No. 160544 | 21 February 2005) the loss would not have occurred. Thus, Tropicana was guilty of concurrent
>> D2008 Credit Reviewer, p.52 negligence in allowing Tan, who was not the registered guest, to open the
safety deposit box of McLoughlin, even assuming that the latter was also guilty
of negligence in allowing another person to use his key. To rule otherwise would
YHT REALTY CORP. vs. CA result in undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the pretense of
being a family member or a visitor of the guest, to have access to the safety deposit SEC. 2. Declaration of Policy. – It is hereby declared to be the
box without fear of any liability that will attach thereafter in case such person turns out policy of the State to protect its citizens from a lack of awareness of
to be a complete stranger. This will allow the hotel to evade responsibility for any the true cost of credit to the user by assuring a full disclosure of
liability incurred by its employees in conspiracy with the guest's relatives and visitors. such cost with a view of preventing the uninformed use of credit to
the detriment of the national economy.
Week 5 Moreover, while the spouses Beluso indeed agreed to renew the credit line,
the offending provisions are found in the promissory notes themselves, not in the
credit line. In fixing the interest rates in the promissory notes to cover the renewed
Special Commercial Laws credit line, UCPB still reserved to itself the same two options – (1) a rate indicative of
11. Merchants and Commercial Transactions, Articles 1-63, Code of the DBD retail rate; or (2) a rate as determined by the Branch Head.
Commerce
Liability for Violation of Truth in Lending Act
The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for
12. Letters of Credit, Articles 567-5725, Code of Commerce UCPB’s alleged violation of Republic Act No. 3765, otherwise known as the Truth in
Lending Act. UCPB challenges this imposition, on the argument that Section 6(a) of
13. Trust Receipts Law the Truth in Lending Act which mandates the filing of an action to recover such
penalty must be made under the following circumstances:
Case: SEC. 6. (a) Any creditor who in connection with any credit
COLINARES & VELOSO vs. CA transaction fails to disclose to any person any information in
(G.R. No. 90828 | 05 September 2000) violation of this Act or any regulation issued thereunder shall be
liable to such person in the amount of P100 or in an amount equal
to twice the finance charge required by such creditor in connection
with such transaction, whichever is greater, except that such liability
14. Truth in Lending Act shall not exceed P2,000 on any credit transaction. Action to
recover such penalty may be brought by such person within
Case: one year from the date of the occurrence of the violation, in
any court of competent jurisdiction. x x x
UCPB vs. SAMUEL & BELUSO
G.R. No. 159912 | 17 August 2007 The allegations in the complaint, much more than the title thereof, are
controlling. Other than that stated by the Court of Appeals, we find that the allegation
FACTS of violation of the Truth in Lending Act can also be inferred from the same allegation
On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under in the complaint we discussed earlier:
a Credit Agreement whereby the latter could avail from the former credit of up to a
maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. In any b.) In unilaterally imposing an increased interest rates (sic)
case, UCPB applied interest rates on the different promissory notes ranging from respondent bank has relied on the provision of their promissory
18% to 34% which interest rate shall be determined by petitioner’s head office. note granting respondent bank the power to unilaterally fix the
interest rates, which rate was not determined in the promissory
ISSUE note but was left solely to the will of the Branch Head of the
WON the stipulation as to interest by the parties is valid respondent Bank, x x x.
HELD The allegation that the promissory notes grant UCPB the power to
NO. The interest rate provisions in the case at bar are illegal not only because of the unilaterally fix the interest rates certainly also means that the promissory notes do not
provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed contain a “clear statement in writing” of “(6) the finance charge expressed in terms of
later, because they violate the Truth in Lending Act. Not disclosing the true finance pesos and centavos; and (7) the percentage that the finance charge bears to the
charges in connection with the extensions of credit is, furthermore, a form of amount to be financed expressed as a simple annual rate on the outstanding unpaid
deception which we cannot countenance. It is against the policy of the State as balance of the obligation.” Furthermore, the spouses Beluso’s prayer “for such other
stated in the Truth in Lending Act: reliefs just and equitable in the premises” should be deemed to include the civil
penalty provided for in Section 6(a) of the Truth in Lending Act.
UCPB’s contention that this action to recover the penalty for the violation of The rationale of this provision is to protect users of credit from a lack of
the Truth in Lending Act has already prescribed is likewise without merit. The penalty awareness of the true cost thereof, proceeding from the experience that banks are
for the violation of the act is P100 or an amount equal to twice the finance charge able to conceal such true cost by hidden charges, uncertainty of interest rates,
required by such creditor in connection with such transaction, whichever is greater, deduction of interests from the loaned amount, and the like. The law thereby seeks to
except that such liability shall not exceed P2,000.00 on any credit transaction. As this protect debtors by permitting them to fully appreciate the true cost of their loan, to
penalty depends on the finance charge required of the borrower, the borrower’s enable them to give full consent to the contract, and to properly evaluate their options
cause of action would only accrue when such finance charge is required. In the case in arriving at business decisions. Upholding UCPB’s claim of substantial compliance
at bar, the date of the demand for payment of the finance charge is 2 September would defeat these purposes of the Truth in Lending Act. The belated discovery of
1998, while the foreclosure was made on 28 December 1998. The filing of the case the true cost of credit will too often not be able to reverse the ill effects of an already
on 9 February 1999 is therefore within the one-year prescriptive period. consummated business decision.
Further, the fact that the rates are disclosed in the credit line does not create In addition, the promissory notes, the copies of which were presented to the
a credit transaction of loan or mutuum, since the former is merely a preparatory spouses Beluso after execution, are not sufficient notification from UCPB. As earlier
contract to the contract of loan or mutuum. Under such credit line, the bank is merely discussed, the interest rate provision therein does not sufficiently indicate with
obliged, for the considerations specified therefor, to lend to the other party amounts particularity the interest rate to be applied to the loan covered by said promissory
not exceeding the limit provided. The credit transaction thus occurred not when the notes.
credit line was opened, but rather when the credit line was availed of. In the case at
bar, the violation of the Truth in Lending Act allegedly occurred not when the parties
executed the Credit Agreement, where no interest rate was mentioned, but when the 15. The Usury Law
parties executed the promissory notes, where the allegedly offending interest rate
was stipulated. UCPB further argues that since the spouses Beluso were duly given
copies of the subject promissory notes after their execution, then they were duly Case:
notified of the terms thereof, in substantial compliance with the Truth in Lending Act. CARPO vs. CHUA & DY NG
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that G.R. Nos. 150773 & 153599 | 30 September 2005
the disclosure statement must be furnished prior to the consummation of the
transaction: FACTS
Sps. Carpo borrowed from respondents Eleanor Chua and Elma Dy Ng the sum of
SEC. 4. Any creditor shall furnish to each person to whom credit is P175,000, payable within 6 months with an interest rate of 6% per month, secured by
extended, prior to the consummation of the transaction, a clear a mortgage the spouses executed over their residential house and lot. For failure to
statement in writing setting forth, to the extent applicable and in pay, the said property was extra-judicially foreclosed and sold at public auction to the
accordance with rules and regulations prescribed by the Board, the respondents, who were the only bidders for the amount of P367,457.80. Upon failure
following information: of the petitioners to exercise their right of redemption, a certificate of sale was issued
and the old title over the property was cancelled and a new one issued in the name of
(1) the cash price or delivered price of the respondents.
property or service to be acquired; Petitioners continued to occupy the premises, prompting the respondents to
(2) the amounts, if any, to be credited as down file a petition for writ of possession with the RTC, which was granted and an order
payment and/or trade-in; was issued on March 23, 1999.
(3) the difference between the amounts set forth It was only on July 23, 1999 that petitioners filed a complaint for annulment
under clauses (1) and (2); of real estate mortgage and the consequent foreclosure proceedings, and thereupon
(4) the charges, individually itemized, which are consigned the amount of P257,197.26 with the RTC.
paid or to be paid by such person in
connection with the transaction but which are ISSUE # 1
not incident to the extension of credit WON the invalidity of the stipulation on interest carries with it the invalidity of
(5) the total amount to be financed the principal obligation
(6) the finance charge expressed in terms of
pesos and centavos; and HELD
(7) the percentage that the finance bears to the NO. The invalidation of the interest rate is congruent with the rule that a usurious loan
total amount to be financed expressed as a transaction is not a complete nullity but defective only with respect to the agreed
simple annual rate on the outstanding unpaid interest. Art. 1420, CC allows the severance of the illegal terms of a divisible contract,
balance of the obligation. thereby allowing the legal ones to be enforced.
In simple loan with stipulation of usurious interest, the prestation of the face of the Warehouse Receipts as to the payment of storage fees. Even in the
debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil absence of such a provision, law and equity dictate the payment of the
Code) is not illegal. The illegality lies only as to the prestation to pay the stipulated warehouseman's lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law
interest; hence, being separable, the latter only should be deemed void, since it is the (R.A. 2137).
only one that is illegal. After being declared not the owner, but the warehouseman, the decision
having been affirmed by us on December 1, 1993, private respondents cannot legally
ISSUE # 2 be deprived of their right to enforce their claim for warehouseman's lien, for
WON the ancillary mortgage contract is rendered void by the invalid stipulation reasonable storage fees and preservation expenses. Pursuant to Section 31, the
on interest rate goods under storage may not be delivered until said lien is satisfied. Considering that
petitioner does not deny the existence, validity and genuineness of the Warehouse
HELD Receipts on which it anchors its claim for payment against private respondents, it
NO. Since the principal obligation still stands and remains valid and the mortgage cannot disclaim liability for the payment of the storage fees stipulated therein.
contract derives its validity from the validity of the principal obligation, the invalid Petitioner is in estoppel in disclaiming liability for the payment of
stipulation on interest rate is similarly insufficient to render void the ancillary mortgage storage fees due the private respondents as warehouseman while claiming to
contract. be entitled to the sugar stocks covered by the subject Warehouse Receipts on
the basis of which it anchors its claim for payment or delivery of the sugar
ISSUE # 3 stocks. The unconditional presentment of the receipts by the petitioner for payment
WON the petitioners can still assail the validity of the stipulated interest rates against private respondents on the strength of the provisions of the Warehouse
Receipts Law (R.A. 2137) carried with it the admission of the existence and validity of
HELD the terms, conditions and stipulations written on the face of the Warehouse Receipts,
NO. Since an excessive stipulated interest rate may be void for being contrary to including the unqualified recognition of the payment of warehouseman's lien for
public policy, an action to annul said interest rate does not prescribe. Such indeed is storage fees and preservation expenses. Petitioner may not now retrieve the sugar
the remedy; it is not the action for annulment of the ancillary real estate mortgage. stocks without paying the lien due private respondents as warehouseman.
Note that the general rule is that an action to annul an excessive stipulated While the PNB is entitled to the stocks of sugar as the endorsee of the
(usurious) interest does not provide, for such interest rate is void for being contrary to quedans, delivery to it shall be effected only upon payment of the storage fees.
public policy. However, in this case, since the petitioners assailed the validity of the Imperative is the right of the warehouseman to demand payment of his lien at this
interest rate only when the writ of possession was issued, the Court held that the juncture, because, in accordance with Section 29 of the Warehouse Receipts Law,
petitioners slept on their rights. the warehouseman loses his lien upon goods by surrendering possession thereof. In
other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a
16. The Warehouse Receipts Law and the General Bonded warehouseman's lien is possessory in nature.
Warehouse Act
Weeks 6 to 11
Case:
PNB vs. Se, et al.
G.R. No. 119231 | 18 April 1996 Security Transactions
17. Concept of Security Transactions
ISSUE
WON the warehouseman can enforce his warehouseman's lien before 18. Guaranty, Articles 2047 to 2081, Civil Code
delivering the sugar stocks as ordered by the Court of Appeals or need he file a
separate action first to enforce payment of storage fees
19. Surety, Articles 1207 to 1222, 2082 to 2084, Civil Code
HELD
YES. It is not disputed, therefore, that, under the subject Warehouse Receipts Cases:
provision, storage fees are chargeable. Petitioner anchors its claim against private E. ZOBEL, INC. vs. CA
respondents on the five (5) Warehouse Receipts issued by the latter to third-party
(G.R. No. 113931 | 06 May 1998)
defendants Rosa Ng Sy of RNS Merchandising and Teresita Ng of St. Therese
>>D2008 Credit Reviewer, p.39
Merchandising, which found their way to petitioner after they were negotiated to them
by Luis T. Ramos and Cresencia K. Zoleta for a loan of P39.1 Million. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions on the PHILIPPINE BLOOMING MILLS, INC. vs. CA
(G.R. No. 142381 | 15 October 2003) notice of extra-judicial sale. IFC and DBP were the only bidders during the auction
sale. IFC’s bid was for P99,269,100.00 which was equivalent to US$5,250,000.00 (at
the prevailing exchange rate of P18.9084 = US$1.00). The outstanding loan,
INTERNATIONAL FINANCE CORP. vs. however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00.
PPIC failed to pay the remaining balance.
IMPERIAL TEXTILE MILLS, INC. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to
G.R. No. 160324 | 15 November 2005 pay the outstanding balance. However, despite the demand made by IFC, the
outstanding balance remained unpaid.
FACTS
International Finance Corporation (IFC) extended to Philippine Polyamide Industrial ISSUE
Corporation (PPIC) a loan of US$7,000,000.00, payable in sixteen (16) semi-annual WON ITM and Grandtex are sureties and therefore, jointly and severally liable
installments of US$437,500.00 each. A “Guarantee Agreement” was also executed with PPIC, for the payment of the loan
with Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation
(Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPIC’s HELD
obligations under the loan agreement. YES. While referring to ITM as a guarantor, the Agreement specifically stated that the
The premise of the Guarantee Agreement is found in its preambular clause, corporation was “jointly and severally” liable. To put emphasis on the nature of that
which reads: 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
“Whereas, and purposes, it was a surety.
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the
“(A) By an Agreement of even date herewith between latter’s obligations under the Loan Agreement with IFC. ITM thereby brought itself to
IFC and PHILIPPINE POLYAMIDE INDUSTRIAL the level of PPIC and could not be deemed merely secondarily liable.
CORPORATION (herein called the Company), which Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC.
agreement is herein called the Loan Agreement, IFC ITM’s liability commenced only when it guaranteed PPIC’s obligation. It became a
agrees to extend to the Company a loan (herein called the surety when it bound itself solidarily with the principal obligor. Thus, the applicable
Loan) of seven million dollars ($7,000,000) on the terms law is as follows:
therein set forth, including a provision that all or part of the
Loan may be disbursed in a currency other than dollars, “Article 2047. By guaranty, a person, called the guarantor binds
but only on condition that the Guarantors agree to himself to the creditor to fulfill the obligation of the principal in case
guarantee the obligations of the Company in respect of the the latter should fail to do so.
Loan as hereinafter provided. If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of this Book
“(B) The Guarantors, in order to induce IFC to enter into shall be observed. In such case the contract shall be called
the Loan Agreement, and in consideration of IFC entering suretyship.”
into said Agreement, have agreed so to guarantee such
obligations of the Company.” The aforementioned provisions refer to Articles 1207 to 1222 of the Civil
Code on “Joint and Solidary Obligations.” Relevant to this case is Article 1216, which
The obligations of the guarantors are meticulously expressed in the following states:
provision:
“The creditor may proceed against any one of the solidary debtors
“Section 2.01. The Guarantors jointly and severally, or some or all of them simultaneously. The demand made against
irrevocably, absolutely and unconditionally guarantee, as primary one of them shall not be an obstacle to those which may
obligors and not as sureties merely, the due and punctual payment subsequently be directed against the others, so long as the debt
of the principal of, and interest and commitment charge on, the has not been fully collected.”
Loan, and the principal of, and interest on, the Notes, whether at
stated maturity or upon prematuring, all as set forth in the Loan Pursuant to this provision, petitioner (as creditor) was justified in taking
Agreement and in the Notes.” action directly against respondent.
By virtue of PPIC’s failure to pay, IFC, together with DBP, applied for the No Ambiguity in the Undertaking
extra-judicial foreclosure of mortgages on the real estate, buildings, machinery, The Court does not find any ambiguity in the provisions of the Guarantee
equipment plant and all improvements owned by PPIC. The deputy sheriff issued a Agreement. When qualified by the term “jointly and severally,” the use of the
word “guarantor” to refer to a “surety” does not violate the law. As Article 2047 7. In the negotiation for repurchase, Cuba addressed two (2) letters to the Manager
provides, a suretyship is created when a guarantor binds itself solidarily with the DBP, Dagupan City. DBP thereafter accepted the offer to repurchase in a letter
principal obligor. Likewise, the phrase in the Agreement—“as primary obligor and not addressed to Cuba;
merely as surety”—stresses that ITM is being placed on the same level as PPIC.
Those words emphasize the nature of their liability, which the law characterizes as a 8. After the Deed of Conditional Sale was executed in favor of Cuba, a new
suretyship. Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by
The use of the word “guarantee” does not ipso facto make the contract the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only,
one of guaranty. This Court has recognized that the word is frequently employed in excluding her husband;
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 9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of
parties or the extent of the obligor’s liability. Thus, this Court has ruled in favor of Conditional Sale;
suretyship, even though contracts were denominated as a “Guarantor’s Undertaking”
or a “Continuing Guaranty.” 10. After Cuba failed to pay the amortization as stated in Deed of Conditional Sale,
she entered with the DBP a temporary arrangement whereby in consideration
for the deferment of the Notarial Rescission of Deed of Conditional Sale, Cuba
20. Pledge and Mortgage, Common Provisions, Articles 2085 to promised to make certain payments as stated in temporary Arrangement dated
2092, Civil Code February 23, 1982;
11. DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13,
Cases: 1984, and which was received by plaintiff Lydia Cuba;
DBP vs. CA
G.R. No. 118367 & 118342 | 05 January 1998 12. After the Notice of Rescission, DBP took possession of the Leasehold Rights of
>> D2008 Credit Reviewer, p.24 of 52 the fishpond in question;
13. That after DBP took possession of the Leasehold Rights over the fishpond in
FACTS question, DBP advertised in the SUNDAY PUNCH the public bidding dated
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 June 24, 1984, to dispose of the property;
(new) dated 13 May 1974 from the Government;
14. That the DBP thereafter executed a Deed of Conditional Sale in favor of
2. Cuba obtained loans from the Development Bank of the Philippines (DBP) in the defendant Agripina Caperal on August 16, 1984;
amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated
in the Promissory Notes dated 06 September 1974; 11 August 1975; and 04 April 15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No.
1977; 2083-A on December 28, 1984 by the Ministry of Agriculture and Food.
3. As security for said loans, Cuba executed two (2) Deeds of Assignment of her Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-
Leasehold Rights; trial order.
4. Cuba failed to pay her loan on the scheduled dates thereof in accordance with Cuba insisted on an affirmative resolution. DBP stressed that it merely exercised its
the terms of the Promissory Notes; contractual right under the Assignments of Leasehold Rights, which was not a
contract of mortgage. Defendant Caperal sided with DBP.
5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant
DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the ISSUE
fishpond in question; WON the act of DBP in appropriating to itself CUBA’s leasehold rights over the
fishpond in question without foreclosure proceedings was contrary to Article
6. After DBP has appropriated the Leasehold Rights of Cuba over the fishpond in 2088 of the Civil Code and, therefore, invalid
question, DBP, in turn, executed a Deed of Conditional Sale of the Leasehold
Rights in favor of Cuba over the same fishpond in question; HELD
The SC Agreed with Cuba. THE ASSIGNMENT OF LEASEHOLD RIGHTS WAS A
MORTGAGE CONTRACT.
It is undisputed that CUBA obtained from DBP three separate loans totalling (1) A property mortgaged by way of security for the payment of the principal
P335,000, each of which was covered by a promissory note. In all of these notes, obligation; and
there was a provision that: “In the event of foreclosure of the mortgage securing this (2) Stipulation for automatic appropriation by the creditor of the thing mortgaged in
notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, case of non-payment of the principal obligation within the stipulated period
if any.” Condition no. 12: No automatic appropriation to DBP upon CUBA’s failure
Simultaneous with the execution of the notes was the execution of to pay the loan on time. It merely provided for the appointment of DBP as
“Assignments of Leasehold Rights” where CUBA assigned her leasehold rights and attorney-in-fact with authority, among other things, to sell or otherwise dispose
interest on a 44-hectare fishpond, together with the improvements thereon. As of the said real rights, in case of default by CUBA, and to apply the proceeds to
pointed out by CUBA, the deeds of assignment constantly referred to the assignor the payment of the loan. This provision is a standard condition in mortgage
(CUBA) as “borrower”; the assigned rights, as mortgaged properties; and the contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the
instrument itself, as mortgage contract. mortgagee to foreclose the mortgage and alienate the mortgaged property for the
Condition no. 22: It was provided that “failure to comply with the terms and payment of the principal obligation.
condition of any of the loans shall cause all other loans to become due and HOWEVER!!!
demandable and all mortgages shall be foreclosed.” DBP EXCEEDED THE AUTHORITY IN COND. NO. 12. “[w]ithout
Condition no. 33: provided that if “foreclosure is actually accomplished, the foreclosure proceedings, whether judicial or extra-judicial, …DBP appropriated the
usual 10% attorney’s fees and 10% liquidated damages of the total obligation shall be [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question.” Its
imposed.” There is, therefore, no shred of doubt that a mortgage was intended. contention that it limited itself to mere administration by posting caretakers is further
belied by the deed of conditional sale it executed in favor of CUBA.
 People’s Bank & Trust Co. vs. Odom: DBP cannot take refuge in Cond. no. 12 of the deed of assignment to justify
An assignment to guarantee an obligation is in effect a mortgage. its act of appropriating the leasehold rights. As stated earlier, Cond. no. 12 did not
provide that CUBA’s default would operate to vest in DBP ownership of the said
NOVATION rights. Besides, an assignment to guarantee an obligation, as in the present case, is
We find NO MERIT in DBP’s contention that the assignment novated the virtually a mortgage and not an absolute conveyance of title which confers ownership
promissory notes in that the obligation to pay a sum of money the loans (under the on the assignee.
promissory notes) was substituted by the assignment of the rights over the fishpond At any rate, DBP’s act of appropriating CUBA’s leasehold rights was
(under the deed of assignment). violative of Article 2088 of the Civil Code, which forbids a creditor from
As correctly pointed out by CUBA, the said assignment merely appropriating, or disposing of, the thing given as security for the payment of a
complemented or supplemented the notes; both could stand together. THE debt.
OBLIGATION TO PAY A SUM OF MONEY REMAINED, (READ: NO NOVATION)
and the assignment merely served as security for the loans covered by the ESTOPPEL
promissory notes. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP
(ASSIGNMENT = ACCESSORY OF THE PROMISSORY NOTES) DID NOT ESTOP HER from questioning DBP’s act of appropriation. Estoppel is
There was a stipulation. “The assignor further reiterates and states all terms, unavailing in this case. As held by this Court in some cases, estoppel cannot give
covenants, and conditions…making said promissory note or notes, to all intent and validity to an act that is prohibited by law or against public policy. Hence, the
purposes, an integral part hereof.” appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code
and to public policy, cannot be deemed validated by estoppel.
PAYMENT BY CESSION
NO. Art.1255 contemplates the existence of TWO OR MORE CREDITORS and FALSE REPRESENTATION
involves the assignment of all the debtor’s property. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP
There was only one creditor, the DBP. should have foreclosed the mortgage, as has been stipulated in condition no. 22 of
the deed of assignment. But, as admitted by DBP, there was no such foreclosure.
DATION IN PAYMENT/EN PAGO Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and
NO. Art. 1245: “Dation in payment, whereby property is alienated to the creditor in Natural Resources and coursed through the Director of the Bureau of Fisheries and
satisfaction of a debt in money, shall be governed by the law on sales.” Aquatic Resources, DBP declared that it “had foreclosed the mortgage and
It bears stressing that the assignment, being in its essence a mortgage, was enforced the assignment of leasehold rights on March 21, 1979 for failure of
but a security and not a satisfaction of indebtedness. said spouses [Cuba spouces] to pay their loan amortizations.” This only goes to
show that DBP was aware of the necessity of foreclosure proceedings.
PACTUM COMMISSORIUM
NO. SC did not side with CUBA. APPROPRIATION OF LEASEHOLD RIGHTS
ELEMENTS: In view of the false representation of DBP that it had already foreclosed the mortgage,
the Bureau of Fisheries cancelled CUBA’s original lease permit, approved the deed of
conditional sale, and issued a new permit in favor of CUBA. Said acts which were
predicated on such false representation, as well as the subsequent acts emanating 9. 05 March 1990: Bustamante filed in the RTC, Quezon City a petition for
from DBP’s appropriation of the leasehold rights, should therefore be SET ASIDE. To consignation, and deposited the amount of Php 153,000.00 with the City
validate these acts would open the floodgates to circumvention of Article 2088 of the Treasurer of Quezon City on 10 August 1990.
Civil Code.
10. When Bustamante refused to sell the collateral and barangay conciliation failed,
Sps. Rosel consigned the amount of P47,500.00 with the RTC. In arriving at the
BUSTAMANTE vs. ROSEL amount deposited, respondents considered the principal loan of P100,000.00
G. R. No. 126800 | 29 November 1999 and interest of 18%/annum thereon, which amounted to P52,500.00. The
principal loan and the interest taken together amounted to P152,500.00, leaving
FACTS a balance of P 47,500.00.
1. 08 March 1987: Respondent Norma Rosel (CREDITOR) entered into a loan
agreement with petitioner Natalia Bustamante and her late husband Ismael C. ISSUE # 1
Bustamante (DEBTOR). WON petitioner Bustamante failed to pay the loan at its maturity date
2. Loan Conditions HELD

NO. Bustamante DID NOT FAIL to pay the loan. The loan was due for payment on 01
a. Sps. Bustamante owned land along Congressional Ave. 423 sq.m.
March 1989. On said date, Bustamante tendered payment to settle the loan which
b. Sps. Bustamante borrowed PhP100,000 payable in two (2) years, counted respondents refused to accept, insisting that petitioner sell to them the collateral of
from 01 March 1987.
the loan.
c. Interest: 18%/annum When respondents refused to accept payment, petitioner consigned the
d. Guaranty: 70 sq.m. portion, inclusive of the apartment therein, of the amount with the RTC
aforestated parcel of land served as a collateral
e. However, in the event the borrowers (Sps. Bustamante) fail to pay, the ISSUE # 2
lender has the OPTION TO BUY OR PURCHASE the collateral for a total WON the stipulation in the loan contract was valid and enforceable
consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS,
inclusive of the borrowed amount and interest therein; HELD
THE SALE OF THE COLLATERAL IS AN OBLIGATION WITH A SUSPENSIVE
3. Loan about to mature. Sps. Rosel proposed to buy at the pre-set price of CONDITION. It is dependent upon the happening of an event, without which the
P200,000.00, the 70 sq.m. parcel of land covered by TCT No. 80667, given as obligation to sell does not arise.
collateral to guarantee payment of the loan. Since the event did not occur, Sps. Rosel DO NOT HAVE THE RIGHT TO
DEMAND fulfillment of Bustamante's obligation, especially where the same would not
4. Sps. Bustamante refused to sell and requested for extension of time to pay only be disadvantageous to Bustamante but would also unjustly enrich respondents
the loan and offered to sell to respondents another residential lot located at considering the inadequate consideration (P200,000.00) for a 70 sq.m. property
Road 20, Project 8, Quezon City, with the principal loan plus interest to be used situated at Congressional Ave., Quezon City.
as down payment.
Respondent’s Contention: Contracts have the force of law between the contracting
5. Sps. Rosel refused to extend the payment of the loan and to accept the lot in parties and must be complied with in good faith.
Road 20 as it was occupied by squatters and Sps. Bustamante were not the
owners thereof but were mere land developers entitled to subdivision shares SC: Exceptions to the rule –
or commission if and when they develope at least one half of the subdivision NCC Art. 1306. The contracting parties may establish such stipulations,
area. clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
6. 01 March 1989: Bustamante tendered payment. Sps. Rosel refused and insisted
on Sps. Bustamante’s signing a prepared deed of absolute sale of the collateral. A scrutiny of the stipulation of the parties reveals a subtle intention of the
creditor (Sps. Rosel) to acquire the property given as security for the loan. This
7. 28 February 1990: Sps. Rosel filed with the RTC, Quezon City, a complaint for is embraced in the concept of pactum commissorium, which is proscribed by law.
specific performance with consignation against Bustamante and her spouse.
ELEMENTS OF PACTUM COMMISSORIUM
8. 04 March 1990: Sps. Rosel sent a demand letter asking petitioner to sell the a. A property mortgaged by way of security for the payment of the principal
collateral pursuant to the option to buy embodied in the loan agreement. obligation; and
b. A stipulation for automatic appropriation by the creditor of the thing mortgaged in The Dacion in Payment Agreement is lawful and valid as it is
case of non-payment of the principal obligation within the stipulated period. recognized x x x under Art. 1245 of the Civil Code as a special form of
payment whereby the debtor-Plaintiffs alienates their property to the
Nakpil vs. IAC: The arrangement entered into between the parties, whereby Pulong creditor-Defendant in satisfaction of their monetary obligation; x x x”
Maulap was to be "considered sold to him (respondent) . . . in case petitioner fails to
reimburse Valdes, must then be construed as tantamount to pactum commissorium ISSUE
which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be Whether the MOA and Dacion in Payment contracts constitute pactum
automatic appropriation of the property by Valdes in the event of failure of petitioner commissorium or dacion en pago.
to pay the value of the advances. Thus, contrary to respondent's manifestation, all the
elements of a pactum commissorium were present: there was a creditor-debtor HELD
relationship between the parties; the property was used as security for the loan; and THE CONTRACTS CONSTITUTE PACTUM COMMISSORIUM.
there was automatic appropriation by respondent of Pulong Maulap in case of default The MOA and the DIP contain no provisions for foreclosure
of petitioner. 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 Dacion
“All persons in need of money are liable to enter into contractual relationships in Payment transferring to it ownership of the properties covered by TCT No. 297840.
whatever the condition if only to alleviate their financial burden albeit temporarily. Respondent, in effect, automatically acquires ownership of the properties upon
Hence, courts are duty bound to exercise caution in the interpretation and resolution petitioners' failure to pay their debt within the stipulated period.
of contracts lest the lenders devour the borrowers like vultures do with their prey.” In a true dacion en pago, the assignment of the property extinguishes
the monetary debt. In the case at bar, the alienation of the properties was by way of
security, and not by way of satisfying the debt. The Dacion in Payment did not
ONG vs. ROBAN LENDING CORP. extinguish petitioners' obligation to respondent. On the contrary, under the MOA
G.R. No.172592 | 09 July 2008 executed on the same day as the Dacion in Payment, Sps.Ong had to execute a
promissory note for P5,916,117.50 which they were to pay within one year.
FACTS
SIDE ISSUE: USURIOUS INTEREST
1. 14 July 1999 – 20 March 2000: The Sps. Ong obtained several loans from
In a true dacion en pago, the assignment of the property extinguishes the
Roban Lending Corp. in the total amount of P4,000,000.00. These loans were
monetary debt.[33] In the case at bar, the alienation of the properties was by way of
secured by a real estate mortgage on Sps. Ong’s parcels of land located in [34]
security, and not by way of satisfying the debt. The Dacion in Payment did not
Binauganan, Tarlac City.
extinguish petitioners' obligation to respondent. On the contrary, under the
2. 12 February 2001: Sps. Ong and Roban executed an Amendment to Amended
Memorandum of Agreement executed on the same day as the Dacion in Payment,
Real Estate Mortgage consolidating their loans inclusive of charges thereon
petitioners had to execute a promissory note for P5,916,117.50 which they were to
which totaled P5,916,117.50.
pay within one year.
3. On even date, the parties executed a
a. Dacion in Payment Agreement: Wherein Sps. Ong assigned the Tarlac DISPOSITION
properties to Roban in settlement of their total obligation, and a WHEREFORE, the challenged Court of Appeals Decision is REVERSED and
b. Memorandum of Agreement: Where the parties agreed to agreed to SET ASIDE.
consolidate and restructure all loans, all past due and delinquent since 19 Civil Case No. 9322 is REMANDED to the court of origin only for the
April 2000, and outstanding obligations totaling P5,916,117.50. purpose of receiving evidence on petitioners' prayer for accounting.
1) Signs a promissory note amounting to the outstanding loan
2) Promise to pay: W/in 1 year otherwise the Sps. Ong agree to execute
the "DACION IN PAYMENT" agreement,
4. April 2002: The Sps. Ong filed a Complaint before the RTC of Tarlac City, for 21. Pledge, Articles 2093 to 2123, Civil Code
declaration of mortgage contract as abandoned, annulment of deeds, illegal
exaction, unjust enrichment, accounting, and damages, alleging that the Case:
Memorandum of Agreement and the Dacion in Payment executed are void for
PARAY & ESPELETA vs. RODRIGUEZ, ET AL.
being pactum commissorium.
G.R. NO. 132287 | 24 JANUARY 2006
5. Respondent’s Contention:
“If the voluntary execution of the Memorandum of Agreement and Dacion in ISSUE
WON the consignation made by the Respondents sufficiently acquitted them of
Payment Agreement novated the Real Estate Mortgage then the allegation of
their principal obligation
Pactum Commissorium has no more legal leg to stand on;
HELD
NO. The pledged shares in this case, being personal property, are not subject ISSUE
to redemption. Such being the case, the CA had no business invoking and applying WON Huerta ALBA has the one-year right of redemption under Sec. 78 of the
the inexistent right of redemption. General Banking Act
There is also nothing that prohibits the pledgee of several pledge
contracts from auctioning all of the pledged properties with a single purchase HELD
price. Extra-judicial case. NO. What Huerta was adjudicated to have was only the equity of redemption.
The Court also said that the amounts consigned by the Respondents were The right of redemption in relation to mortgage exists only in case of
not sufficient to cover the interests due on the loans pegged at 5%/month or extra-judicial foreclosure. No such right is recognized in a judicial foreclosure
60%/annum. Such being the case, the consignations could not have the effect of EXCEPT only where the mortgagee is the PHB or a bank/banking institution.
extinguishing the pledge contracts since both the principal loan and the monthly Instead, there is only equity of redemption which is the right of the mortgagor to
interests thereon should be satisfied. extinguish the mortgage and retain ownership if the property by paying the secured
debt within a period of not less than 90 days nor more than 120 days from the entry of
judgment or even after foreclosure but prior to confirmation. Afterwhich, no
22. Real Estate Mortgage, Articles 2124 to 2131, Civil Code, Rule redemption can be effected.
The further said that Huerta failed to seasonably invoke its purported right
68, Rules of Court, Act No. 3135, as amended under Sec. 78 of R.A. 337 which provides that "in case of a foreclosure of a
mortgage in favor of a bank, banking or credit institution, whether judicially or
Cases: extrajudicially, the mortgagor shall have the right, within one year after the sale
MEDIDA vs. CA of the real estate as a result of the foreclosure of the respective mortgage, to
G.R. No. 98334 | 08 May 1992 redeem the property." Huerta averred that since Intercon was a credit institution,
>> D2008 Credit Reviewer, p.24 of 52 R.A. 337 should apply and it should be allowed one (1) year within which to redeem
its mortgage properties. It was only in May 1995 that it raised the said right. (The
ISSUE auction happened in Spetember 1994.)
WON a Mortgagor whose property had been extra-judicially foreclosed and sold It also bears stressing that the applicability of the said law hinges on a
at the corresponding foreclosure sale may validly execute a mortgage contract factual question whether Intercon was a credit institution which was never brought
over the same property in favor of a third party during the period of redemption until now. Huerta is estopped.
HELD 23. Chattel Mortgage, Articles 2140 to 2141, The Chattel Mortgage
YES. A mortgage does not involve a transfer, cession or conveyance of the subject Law (Act No. 1508, as amended)
property but only constitutes a lien thereon. There is no obstacle to the legal
creation of such a lien even after the auction sale but during the redemption
period since no distinction is made between a mortgage constituted over the Cases:
property before or after the auction sale thereof. Such being the case, there would PEOPLE'S BANK & TRUST COMPANY
be compliance with the requisites of Article 2085 of the Civil Code for constitution of vs. DAHICAN LUMBER CO.
another mortgage over the property. A contrary holding would be inequitable for the (G.R. No. L-17500 | 16 May 1967)
mortgagors. >> D2008 Credit Reviewer, p.25 of 52
Parenthetically, what actually is effected where redemption is seasonably
exercised by the judgment/mortgage debtor is not the recovery of ownership of his
land, which was never lost, but the elimination from his title thereto of the lien created
MAKATI LEASING & FINANCE CORP.
by levy or attachment or judgment or the registration of the mortgage thereon. vs. WEAREVER TEXTILE MILLS, INC.
(G.R. No. L-58469 | 16 May 1983)
>> D2008 Credit Reviewer, p.29 of 52)
SUICO vs. PNB
(G.R. No. 170215 | 28 August 2007) DY vs. CA
>> Hard Copy | D2008 Credit Reviewer, p.24 of 52 (G.R. No. 92989 | 08 July 1991)
>> D2008 Credit Reviewer, p.30 of 52
HUERTA ALBA RESORT, INC. vs. CA PAMECA WOOD TREATMENT PLANT vs. CA
G.R. No. 128567 | 01 September 2000 (G.R. No. 106435 | 14 July 1999)
>> D2008 Credit Reviewer, p.31 of 52 When will concurrence and preference of credit apply?
ACME SHOE RUBBER AND PLASTIC CORP. vs. CA HELD

IT WILL APPLY ONLY DURING A PROCEEDING WHERE ALL THE PREFERRED
(G.R. No. 103576 | 22 August 1996) CREDITORS’ CLAIMS CAN BE PRESENTED AND BINDINGLY ADJUDICATED.
>> D2008 Credit Reviewer, p.25 of 52
The vendor's lien, under Articles 2242 and 2243 of the new Civil Code of the
Philippines, can only become effective in the event of insolvency of the vendee, which
SERVICEWIDE SPECIALIST, INC. V. CA has not been proved to exist in the instant case; and
(G.R. No. 116363 | 10 December 1999) Under the system of the Civil Code of the Philippine, only taxes enjoy a
>> D2008 Credit Reviewer, p.30 of 52 similar absolute preference. All the remaining thirteen classes of preferred creditors
under Article 2242 enjoy no priority among themselves but must be paid pro rata, i.e.,
in proportion to the amount of the respective credits. Thus, Article 2249 provides:
24. Antichresis, Articles 2132 to 2139, Civil Code
“If there are two or more credits with respect to specific real
property or real rights, they shall be satisfied pro rata, after the
payment of the taxes and assessments upon the immovable
Weeks 12 to 16 property or real right.”
But in order to make this prorating fully effective, the preferred creditors
Insolvency and Rehabilitation enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have credits
25. Concurrence and Preference of Credits, Articles 2241 to 2251, outstanding) must necessarily be convened, and the import of their claims
Civil Code ascertained. It is thus apparent that the full application of Articles 2249 and 2242
demands that there must first some proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency, the settlement of a
26. Insolvency Law (Act No. 1956, as amended) decedent's estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
Cases: This explains the rule of Article 2243 of the new Civil Code that “The claims
DE BARRETTO vs. VILLANUEVA or credits enumerated in the two preceding articles shall be considered as mortgages
G.R. No. L-14938 | 29 December 1962 or pledges of real or personal property or liens within the purview of legal provision
governing insolvency…” and the rule is further clarified in the Report of the Code
Commission, as follows:
FACTS
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title,
The question as to whether the Civil Code and the Insolvency Law
and interest and that of her children in the house and lot herein involved to Pura L.
can be harmonized is settled by this Article (2243). The preferences
Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a
named in Articles now 2241 and 2242 are to be enforced in
promissory note for the balance of P17,500.00. However, the buyer could only pay
accordance with the Involvency Law.
P5,500 on account of the note, for which reason the vendor obtained judgment for the
unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean
Thus, it becomes evident that one preferred creditor's third-party claim to the
certificate of title and mortgaged the property to appellant Magdalena C. Barretto,
proceeds of a foreclosure sale is not the proceeding contemplated by law for the
married to Jose G. Barretto, to secure a loan of P30,000.03, said mortgage having
enforcement of preferences under Article 2242, unless the claimant were enforcing a
been duly recorded.
credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The
between two creditors will not enable the Court to ascertain the pro rata dividend
latter foreclosed the mortgage in her favor, obtained judgment, and upon its becoming
corresponding to each, because the rights of the other creditors likewise enjoying
final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion
preference under Article 2242 cannot be ascertained. Wherefore, the order of the
for recognition for her "vendor's lien" in the amount of P12,000.00 plus legal interest,
Court of First Instance of Manila now appealed from decreeing that the proceeds of
invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the court
the foreclosure sale be apportioned only between appellant and appellee, is incorrect
below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with
and must be reversed.
the proviso that in case of sale under the foreclosure decree the vendor's lien and the
mortgage credit of appellant Barretto should be paid pro rata from the proceeds.
ISSUE J.L. BERNARDO CONSTRUCTION vs. CA
G.R. No. 105827 | 31 January 2000 filed in the trial court will not bar other creditors from subsequently bringing
actions and claiming that they also have preferred liens against the property
ISSUE # 1 involved.
WON the Court of Appeals correctly assumed jurisdiction over the petition for
certiorari filed by respondents herein assailing the trial court’s interlocutory
orders granting the writ of attachment and the contractor’s lien DBP vs. CA
G.R. No. 126200 | 16 August 2001
HELD
NO. We hold that the petition for certiorari filed by Salonga and the Municipality with FACTS
the Court of Appeals questioning the writ of attachment issued by the trial court Remington Industrial Supplies Sales Corporation, which sold and delivered
should not have been given due course for they still had recourse to a plain, speedy construction materials and other merchandise worth P921,755.95, which purchases
and adequate remedy - the filing of a motion to fix the counter-bond, which they in remained unpaid, sought to recover payment by filing a complaint for sum of money
fact filed with the trial court, the grant of which would effectively prevent the issuance and damages against the debtor, Marinduque Mining, and its creditors, PNB and
of the writ of attachment. Moreover, they could also have filed a motion to discharge DBP, which extra-judicially foreclosed on the mortgages executed by Marinduque
the attachment for having been improperly or irregularly issued or enforced, or that over its assets, as well as, the corporations they formed to make use of the assets of
the bond is insufficient, or that the attachment is excessive.12 [Rules of Court, Rule Marinduque.
57, sec. 13.] With such remedies still available to the Municipality and Salonga, the
filing of a petition for certiorari with the Court of Appeals insofar as it questions the ISSUE # 1
order of attachment was clearly premature. WON the articles of the Civil Code on concurrence and preference of credits are
applicable only to the insolvent debtor
ISSUE # 2
WON contractor’s lien should be awarded to the petitioners HELD
NO. There is nothing in the law that shows such limitations. If we are to interpret this
HELD portion of the Code as intended only for insolvency cases, then other creditor-debtor
NO. Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy relationships where there are concurrence of credits would be left without any rules to
preference with respect to specific personal or real property of the debtor. govern them, and it would render purposeless the special laws on insolvency.
Specifically, the contractor’s lien claimed by petitioners is granted under the third
paragraph of Article 2242 which provides that the claims of contractors engaged in ISSUE # 2
the construction, reconstruction or repair of buildings or other works shall be preferred What is the remedy of a preferred creditor under the articles on concurrence
with respect to the specific building or other immovable property constructed. and preference of credits?
However, Article 2242 only finds application when there is a concurrence of
credits, i.e. when the same specific property of the debtor is subjected to the claims of HELD
several creditors and the value of such property of the debtor is insufficient to pay in HE CAN COLLECT HIS PRO RATA SHARE UNDER ART. 2249, which provides
full all the creditors. In such a situation, the question of preference will arise, that is, that “if there are two or more credits with respect to the same specific real property or
there will be a need to determine which of the creditors will be paid ahead of the real rights, they shall be satisfied pro rata, after the payment of the taxes and
others. Fundamental tenets of due process will dictate that this statutory lien should assessments upon the immovable property or real right.” However, in order to make
then only be enforced in the context of some kind of a proceeding where the claims of this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of
all the preferred creditors may be bindingly adjudicated, such as insolvency Article 2242 (or such of them as have credits outstanding) must necessarily be
proceedings. This is made explicit by Article 2243 which states that the claims and convened, and the import of their claims ascertained. It is thus apparent that the full
liens enumerated in articles 2241 and 2242 shall be considered as mortgages or application of Articles 2249 and 2242 demands that there must be first some
pledges of real or personal property, or liens within the purview of legal provisions proceeding where the claims of all the preferred creditors may be bindingly
governing insolvency. adjudicated, such as insolvency, the settlement of decedent's estate under Rule 87 of
The action filed by petitioners in the trial court does not partake of the the Rules of Court, or other liquidation proceedings of similar import.
nature of an insolvency proceeding. It is basically for specific performance and An exception applies to taxes, which enjoy a similar absolute
damages. Thus, even if it is finally adjudicated that petitioners herein actually preference. If none of the claims is for taxes, a dispute between two creditors will not
stand in the position of unpaid contractors and are entitled to invoke the enable the Court to ascertain the pro rata dividend corresponding to each, because
contractor’s lien granted under Article 2242, such lien cannot be enforced in the rights of the other creditors likewise enjoying preference under Article 2242 can
the present action for there is no way of determining whether or not there exist not be ascertained.
other preferred creditors with claims over the San Antonio Public Market. The
records do not contain any allegation that petitioners are the only creditors
with respect to such property. The fact that no third party claims have been
The extra-judicial foreclosure instituted by PNB and DBP is not the YES. Even the SEC en banc, in its 30 July 1993 Order affirming the approval of the
liquidation proceeding contemplated by the Civil Code, so Remington cannot claim its Revised BENHAR/RUBY Plan, has acknowledged the invalidity of the subject deeds
pro rata share from DBP. of assignment. However, to justify its approval of the plan and the appointment of
BENHAR to the new management committee, it gave the lame excuse that BENHAR
became RUBY's creditor for having paid RUBY's debts. We quote the relevant portion
*** WON the fact that some of the directors of the creditor corporation were also of the SEC's ruling, thus:
directors of the debtor corporation sufficient to conclude the presence of
fraudulent preference in this case. "Anent the contention that BENHAR should not take an
From Appellee’s Brief: Where one corporation was ‘insolvent and indebted to active participation in the management of petitioner corporation, the
another, it has been held that the directors of the creditor corporation were same deserves scant consideration.”
disqualified, by reason of self-interest, from acting as directors of the debtor "While the Deeds of Assignment executed by creditors of
corporation in the authorization of a mortgage or deed of trust to the former to secure Ruby in favor of Benhar were all declared null and void, the
such indebtedness x x x” (page 105 of the Appellee’s Brief). In the same manner Revised Rehabilitation Plan, as herein approved by the
that “x x x when the corporation is insolvent, its directors who are its creditors cannot Commission, shows that Benhar will assign its credit lines/loan
secure to themselves any advantage or preference over other creditors. xxx If they proceeds or will act as financier whereby it re-lends the contracted
do, equity will set aside the transaction at the suit of creditors of the corporation or loan to Ruby thereby converting Benhar as a creditor of the
their representatives, without reference to the question of any actual fraudulent intent petitioner corporation once the Rehabilitation Plan is implemented.
on the part of the directors, for the right of the creditors does not depend upon fraud In fact, as of 31 March 1990, it appears that Benhar had made
in fact, but upon the violation of the fiduciary relation to the directors xxx “x x x some advance payments to some creditors of Ruby further
directors of insolvent corporation, who are creditors of the company, cannot secure to strengthening its status as a creditor. We cannot, therefore, see
themselves any preference or advantage over other creditors in the payment of their any reason why Benhar should not sit in the management team to
claims. It is not good morals or good law. oversee the implementation of the Plan."
For its part, the Court of Appeals noted that the approved Revised
27. Corporate Rehabilitation BENHAR/RUBY Plan gave undue preference to BENHAR. The records, indeed,
show that BENHAR's offer to lend its credit facility in favor of RUBY is conditioned
a. Sections 5 (d), 6 (c), and 6(d) of Presidential Decree No. 902-A
upon the payment of the amount it advanced to RUBY's creditors, thus:
Cases: "FUND SOURCING

RUBY INDUSTRIAL CORP. vs. CA xxx
G.R. No. 124185-87 | 20 January 1998 1.1. Deed of Assignment of Credit Facility (or Loan Proceeds) to be
executed by Benhar in favor of Ruby, under pre-arrangement with
FACTS China Banking Corporation or by any other creditor-banks, and
On 28 October 1988, the SEC Hearing Panel approved the BENHAR/RUBY upon payment by Ruby of such amount already advanced by
Rehabilitation Plan. The minority stockholders, thru private respondent Lim, appealed Benhar."
the approval to the SEC en banc. On 15 November 1988, the SEC en banc
temporarily enjoined the implementation of the BENHAR/RUBY Plan. On 20 In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million
December 1988, after the expiration of the TRO, the SEC en banc granted the writ of credit facility to be extended to RUBY for the latter's rehabilitation.
preliminary injunction against the enforcement of the BENHAR/RUBY Plan. Rehabilitation contemplates a continuance of corporate life and
Before the SEC Hearing Panel approved the BENHAR/RUBY Plan on 28 activities in an effort to restore and reinstate the corporation to its former
October 1988, BENHAR had already implemented part of the plan by paying off Far position of successful operation and solvency. When a distressed company is
East Bank & Trust Company (FEBTC), one of RUBY's secured creditors. Thus, by 30 placed under rehabilitation, the appointment of a management committee follows to
May 1988, FEBTC had already executed a deed of assignment of credit and avoid collusion between the previous management and creditors it might favor, to the
mortgage rights in favor of BENHAR. Moreover, despite the SEC en banc's TRO and prejudice of the other creditors. All assets of a corporation under rehabilitation
injunction, BENHAR still paid RUBY's other secured creditors who, in turn, assigned receivership are held in trust for the equal benefit of all creditors to preclude one from
their credits in favor of BENHAR. 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.
ISSUE Once the corporation threatened by bankruptcy is taken over by a receiver, all the
WON BENHAR is guilty of indirect contempt creditors ought to stand on equal footing. Not any one of them should be paid ahead
of the others. This is precisely the reason for suspending all pending claims against
HELD the corporation under receivership.
Parenthetically, BENHAR is a domestic corporation engaged in importing G.R. No. 166800 & 168924 | 25 September 2007
and selling vehicle spare parts with an authorized capital stock of thirty million pesos.
Yet, it offered to lend its credit facility in the amount of sixty to eighty millions pesos to FACTS
RUBY. It is to be noted that BENHAR is not a lending or financing corporation The petition alleges that Respondent (Manuela) is a corporation duly organized and
and lending its credit facilities, worth more than double its authorized existing under the laws of the Republic of the Philippines, primarily engaged in the
capitalization, is not one of the powers granted to it under its Articles of business of leasing to retailers commercial spaces in shopping malls. Its principal
Incorporation. Significantly, Henry Yu, a director and a majority stockholder of RUBY office address is Alabang-Zapote Road, Pamplona, Las Piñas City. Respondent is the
is, at the same time, a stockholder of BENHAR, a corporation owned and controlled owner and operator of the malls. Respondent has assets valued at P12.43 billion and
by his family. These circumstances render the deals between BENHAR and total liabilities of P4.87 billion as of 31 December 2001.
RUBY highly irregular. However, due to reasons that shall be discussed below, respondent is now
To justify its appointment in the new management committee and to dispute having severe cash flow problems which prevent it from paying its debts as they fall
that it will become a creditor of RUBY only on account of the proposed assignment of due.
its credit facility to RUBY, BENHAR avers that as early as 27 December 1988, it On 05 February 2002, the trial court issued a Stay Order. x x x
already lent one million pesos (P1,000,000.00) to RUBY for the latter's working
capital. (a) a stay in the enforcement of all claims, whether for money or otherwise
The submission deserves scant consideration. To start with, this and whether such enforcement is by court action or otherwise, against
argument was raised by BENHAR for the first time in its motion for reconsideration petitioner MANUELA, its guarantors and sureties not solidarily liable
before the Court of Appeals. The settled rule is that issues not raised in the court a with it;
quo cannot be raised for the first time on appeal—in this case, in a motion for (b) prohibiting MANUELA from selling, encumbering, transferring
reconsideration—for being offensive to the basic rules of fair play, justice and due or disposing in any manner any of its properties except in the
process. ordinary course of business;
Moreover, when RUBY initiated its petition for suspension of payments (c) prohibiting MANUELA from making any payment of its liabilities
with the SEC, BENHAR was not listed as one of RUBY's creditors. BENHAR is a outstanding as of the filing of the instant petition;
total stranger to RUBY. If at all, BENHAR only served as a conduit of RUBY. As (d) prohibiting MANUELA’s suppliers of goods and services from
aptly stated in the challenged Court of Appeals decision: withholding supply of goods and services in the ordinary
"Benhar's role in the Revised Benhar/Ruby Plan, as course of business as long as MANUELA makes payments for
envisioned by the majority stockholders, is to contract the loan for the goods and services supplied after the issuance of this Stay
Ruby and, serving the role of a financier, relend the same to Ruby. Order; and
Benhar is merely extending its credit line facility with China Bank, (e) directing the payment in full of all administrative expenses
under which the bank agrees to advance funds to the company incurred after the issuance of this Stay Order.
should the need arise. This is unlikely a loan in which the entire
amount is made available to the borrower so that it can be used In the same Stay Order, the trial court appointed Marilou Adea, also a
and programmed for the benefit of the company's financial and respondent, as Rehabilitation Receiver. On July 28, 2003, the trial court issued an
operational needs. Thus, it is actually China Bank which will be the Order approving the Rehabilitation Plan. However, Petitioner Leca, opposes the
source of the funds to be relent to Ruby. Benhar will not shell out a approval of said rehabilitation plan contending that the approved Rehabilitation Plan
single centavo of its own funds. It is the assets of Ruby which will drastically altered the terms of its lease contract with respondent Manuela, hence,
be mortgaged in favor of Benhar. Benhar's participation will only should be declared void.
make the rehabilitation plan more costly and, because of the
mortgage of its (Ruby's) assets to a new creditor, will create a ISSUE
situation which is worse than the present. x x x." WON the rehabilitation receiver can alter the terms of the contract of lease
between Petitioner and Respondent
RUBBERWORLD (PHILS.), INC. vs. NLRC, ET AL. HELD

(G.R. NO. 126773 | 14 APRIL 1999) NO. There is a gross discrepancy between the amounts of rent agreed upon by the
parties and those provided in the Rehabilitation Plan.
In its Decision, the Court of Appeals rejected petitioner’s contention that the
approved Rehabilitation Plan impairs the obligation of contract, ratiocinating that the
b. Interim Rules of Procedure on Corporate Rehabilitation automatic stay of all actions is sanctioned by Section 5 (c) of Presidential Decree
(P.D.) No. 902-A which provides that “all actions for claims against corporations,
Cases: partnerships or associations under management or receivership pending before any
LECA REALTY CORP. vs. MANUELA CORP. court, tribunal, board or body shall be suspended accordingly.”
The amount of rental is an essential condition of any lease contract. such ruling, no matter how practical and noble, would be to encroach upon legislative
Needless to state, the change of its rate in the Rehabilitation Plan is not prerogative to define the wisdom of the law– plainly judicial legislation.
justified as it impairs the stipulation between the parties. We thus rule that the
Rehabilitation Plan is void insofar as it amends the rental rates agreed upon by ISSUE # 2
the parties. WON an order of suspension of payments as well as actions for claims applies
It must be emphasized that there is nothing in Section 5 (c) of P.D. No. only to claims of unsecured creditors and cannot extend to creditors holding a
902-A authorizing the change or modification of contracts entered into by the mortgage, pledge, or any lien on the property
distressed corporation and its creditors.
Moreover, the Stay Order issued by the trial court directed respondent HELD
Manuela to pay in full, after the issuance of such Order, all administrative expenses NO. SC, in this case, laid down the ff. rules:
incurred. Administrative expenses are costs associated with the general 1. All claims against corporations, partnerships, or associations that are pending
administration of an organization and include such items as utilities, rents, before any court, tribunal, or board, without distinction as to whether or not a
salaries, postages, furniture, and housekeeping charges. creditor is secured or unsecured, shall be suspended effective upon the
Inasmuch as rents are considered administrative expenses and considering appointment of a management committee, rehabilitation receiver, board, or body
that the Stay Order directed respondent Manuela to pay the rents in full, then it must
comply at the rates agreed upon in accordance with the provisions of Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but
CLASS NOTES >> enforcement of such preference is equally suspended upon the appointment of a
Take note that in this case, the Petition for the approval Rehabilitation Plan management committee, rehabilitation receiver, board, or body. In the event that
had been filed in the RTC. the assets of the corporation, partnership, or association are finally liquidated,
however, secured and preferred credits under the applicable provisions of the
Civil Code will definitely have preference over unsecured ones.
CHAS REALTY AND DEV’T. CORP. vs. TALAVERA In other words, once a management committee, rehabilitation receiver,
(G.R. No. 151925 | 06 February 2003) board or body is appointed pursuant to P.D. 902-A, all actions for claims against a
distressed corporation pending before any court, tribunal, board or body shall be
suspended accordingly.
RCBC vs. IAC This suspension shall not prejudice or render ineffective the status of a
G.R. No. 74851 | 09 December 1999 secured creditor as compared to a totally unsecured creditor. P.D. 902-A does
not state anything to this effect. What it merely provides is that all actions for claims
ISSUE # 1: against the corporation, partnership or association shall be suspended. This should
WON RCBC, being a mortgaged creditor, is entitled to rely solely on its security give the receiver a chance to rehabilitate the corporation if there should still be a
and to refrain from joining the unsecured creditors in SEC Case No. 002693, the possibility for doing so. (This will be in consonance with Alemar’s, BF Homes,
petition for rehabilitation filed by private respondent Araneta, and RCBC insofar as enforcing liens by preferred creditors are concerned.)
However, in the event that rehabilitation is no longer feasible and claims
HELD against the distressed corporation would eventually have to be settled, the secured
YES. The issue of whether or not preferred creditors of distressed corporations stand creditors shall enjoy preference over the unsecured creditors (still maintaining PCIB
on equal footing with all other creditors gains relevance and materiality only upon the ruling), subject only to the provisions of the Civil Code on Concurrence and
appointment of a management committee, rehabilitation receiver, board, or body. Preferences of Credit (our ruling in State Investment House, Inc. vs. Court of Appeals,
Insofar as petitioner RCBC is concerned, the provisions of Presidential Decree 277 SCRA 209 [1997]).
No. 902-A are not yet applicable and it may still be allowed to assert its The majority ruling in our 1992 decision that preferred creditors of distressed
preferred status because it foreclosed on the mortgage prior to the corporations shall, in a way, stand on equal footing with all other creditors, must be
appointment of the management committee on March 18, 1985. The Court, read and understood in the light of the foregoing rulings. All claims of both a secured
therefore, grants the motion for reconsideration on this score. It is thus or unsecured creditor, without distinction on this score, are suspended once a
adequately clear that suspension of claims against a corporation under rehabilitation management committee is appointed. Secured creditors, in the meantime, shall not
is counted or figured up only upon the appointment of a management committee or a be allowed to assert such preference before the Securities and Exchange
rehabilitation receiver. The holding that suspension of actions for claims against a Commission. It may be stressed, however, that this shall only take effect upon the
corporation under rehabilitation takes effect as soon as the application or a petition for appointment of a management committee, rehabilitation receiver, board, or body, as
rehabilitation is filed with the SEC – may, to some, be more logical and wise but opined in the dissent.
unfortunately, such is incongruent with the clear language of the law. To insist on
SOBREJUANITE vs. ASB DEV’T. CORP. CLARION PRINTING HOUSE, INC. vs. NLRC
(G.R. No. 165675 | 30 September 2005) G.R. No. 148372 | 27 June 2005
ISSUE FACTS
WON the claim of rescission of contracts with damages is a claim within the On 16 September 1997, the EYCO Group of Companies of which CLARION formed
contemplation of PD 902-A part filed with the SEC a "Petition for the Declaration of Suspension of Payment,
Formation and Appointment of Rehabilitation Receiver/ Committee, Approval of
HELD Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of
YES. The Interim Rules define a “claim” as referring to all claims or demands, of Corporation."
whatever nature or character against a debtor or its property, whether for On 19 September 1997, the SEC issued a a Stay Order.
money or otherwise. (The definition is all encompassing.) On 22 October 1997, the Assistant Personnel Manager of CLARION
Although the petition for rehabilitation was filed PRIOR to the effectivity of informed Miclat by telephone that her employment contract had been terminated
the Interim Rules, the same would still apply pursuant to Section 1 of Rule 1 thereof. effective 23 October 1997. No reason was given for the termination.
Even under the rulings in Finasia and Arranza, the complaint for The following day or on 23 October 1997, on reporting for work, Miclat was
rescission with damages would still fall under the category of a claim informed by the General Sales Manager that her termination was part of CLARION’s
considering that it is for pecuniary considerations. In this case, the HLURB gave cost-cutting measures.
undue preference to Sobrejuanite over other creditors of ASB. On 17 November 1997, Miclat filed a complaint for illegal dismissal against
CLARION and Yutingco (Petitioners) before the NLRC.
On the other hand, petitioners claimed that they could not be faulted for
METROPOLITAN BANK & TRUST COMPANY, INC. retrenching some of its employees including Miclat, they drawing attention to the
vs. SLGT HOLDINGS, INC., ET AL. EYCO Group of Companies’ being placed under receivership, notice of which
was sent to its supervisors and rank and file employees via a Memorandum of July
(G.R. Nos. 175181-82, 175354 & 175387-88 | 21, 1997; that in the same memorandum, the EYCO Group of Companies advised
14 September 2007) them of a scheme for voluntary separation from employment with payment of
severance pay; and that CLARION was only adopting the "LAST IN, FIRST OUT
PRINCIPLE" when it terminated Miclat who was relatively new in the company.
PAL vs. CA The Labor Arbiter, NLRC and the CA all held that Miclat was illegally
G.R. No. 123238 | 11 July 2005 dismissed.
Take note that in a related case (Nikon Industrial Corp. et al. v. PNB et al),
ISSUE the SEC disapproved the EYCO Group of Companies’ petition to be declared in
WON a suspension of proceedings on a complaint for damages based on a state of suspension of payment which was filed before Miclat’s termination, and
contract of carriage may be granted by virtue of the SEC’s order, appointing an that the SEC’s consequently ordered for the group of companies’ dissolution
Interim Rehabilitation Receiver and enjoining the suspension of all claims for and liquidation.
payment against the petitioner
ISSUE
HELD WON the proceedings concerning Miclat’s labor claim can continue
NO. Upon the appointment by the SEC of a management committee or a
rehabilitation receiver, all actions for claims against a corporation pending before any HELD
court, tribunal or board shall ipso jure be suspended in whatever stage (and this YES. With the appointment of a management receiver in September 1997, however,
includes every other stage of the proceedings aside from the payment of claims all claims and proceedings against CLARION, including labor claims, were deemed
during the execution stage) such actions may be found. No other action may be suspended during the existence of the receivership. The Labor Arbiter, the NLRC, as
taken, including the rendition of judgment during the state of suspension. well as the CA should not have proceeded to resolve respondent’s complaint for
The suspension of action for claims against a corporation under illegal dismissal and should instead have directed respondent to lodge her claim
rehabilitation receiver or management committee embraces all phases of the suit, be before the then duly-appointed receiver of CLARION.
it before the trial court or any tribunal or before this Court. Furthermore, the actions BUT!!!
that are suspended cover all claims against a distressed corporation whether for To still require respondent, however, at this time to refile her labor
damages founded on a breach of contract of carriage, labor cases, collection suits or claim against CLARION under the peculiar circumstances of the case—that 8
any other claims of a pecuniary nature. years have lapsed since her termination and that all the arguments and
defenses of both parties were already ventilated before the labor arbiter, NLRC
and the CA; and that CLARION is already in the course of liquidation—this
Court deems it most expedient and advantageous for both parties that
CLARION’s liability be determined with finality, instead of still requiring 2. On 22 November 1991, BMC filed a petition for rehabilitation and suspension of
respondent to lodge her claim at this time before the liquidators of CLARION payments with the SEC after its properties were attached by creditors. The bank
which would just entail a mere reiteration of what has been already argued and therefore considered BMC in default and sought to collect payment from the
pleaded. Furthermore, it would be in the best interest of the other creditors of spouses by filing a case for collection of a sum of money against the spouses
CLARION that claims against the company be finally settled and determined so as to themselves on 20 April 1992.
further expedite the liquidation proceedings. For the lesser number of claims to be
proved, the sooner the claims of all creditors of CLARION are processed and settled. 3. On 13 October 1992, a MOA was executed by BMC, the petitioner-spouses and
The SC declared Miclat’s dismissal as legal as it was brought about by the consortium of creditor banks of BMC. This MOA took effect upon its approval
business reverses but ordered CLARION however, to PAY her the following in by the SEC on 27 November 1992, and on the basis of this MOA, as well as the
accordance with the foregoing discussions: SEC’s declaration that BMC is in a state of suspension of payments, the spouses
1. P6,500.00 as nominal damages for non-compliance with statutory due process; moved to dismiss the complaint, for the benefits of the MOA should allegedly be
2. P6,500.00 as separation pay; and extended to the petitioners-spouses who acted as BMC’s sureties.
3. P3,250.00 as 13th month pay.
4. Petitioners-spouses’ claim for dismissal was hinged on the MOA, the SEC’s
A copy of the SC Decision was ordered to be furnished to the SEC Hearing declaration placing BMC under suspension of payments, under Article 2063,
Panel charged with the liquidation and dissolution of petitioner corporation for which provides that a compromise between the creditor and the principal debtor
inclusion, in the list of claims of its creditors, respondent Michelle Miclat’s claims, to benefits the guarantor and under Article 2081, which provides that the guarantor
be satisfied in accordance with Article 110 of the Labor Code in relation to the Civil may set up against the creditor all the defenses which pertain to the principal
Code provisions on Concurrence and Preference of Credits. debtor.
CLASS NOTES >> ISSUE

Ma’am said that this is one case where the Supreme Court decided based WON the benefits of the MOA should be extended to the petitioners-spouses
on equity. (Eight years had already passed; the claim of Miclat had long been who acted as BMC’s sureties
overdue.) The Supreme Court did the calculation of Miclat’s claims.
Clarion is already under liquidation BUT the Court allowed the proceedings HELD
to continue so that it may determine the amount of Miclat’s claim. However, such NO. The SC ruled that the petitioners’ reliance on Articles 2063 and 2081 of the Civil
COULD NOT be enforced as her claim has to be first included in the list of Code was misplaced as these provisions refer to contracts of guaranty only, and not
claims of creditors which would share in the proceeds of the liquidation to suretyship contracts, for there are differences in the rights and liabilities of a
proceedings. Her labor claim shall then be satisfied in accordance with the guarantor and a surety.
provisions on Concurrence and Preference of Credits. A guarantor insures the solvency of the debtor, while a surety is an
insurer of the debt itself, and that while the guarantor’s liability for the payment of
the obligation is subsidiary and solidary the principal debtor’s, that of the surety is
ONG vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK principal. A surety is directly, equally and absolutely bound with the principal debtor
G.R. No. 160466 | 17 January 2005 for the payment of the debt and is deemed as an original promissory and debtor from
the beginning.
Therefore, under Article 1216 of the Civil Code, E-PCIB as creditor may
FACTS
proceed against petitioners-spouses as sureties despite the execution of the
1. Petitioner-spouses, Alfredo and Susana Ong are the President and Treasurer,
MOA which provided for the suspension of payment and filing of collection
respectively, of Baliwag Mahogany Corporation, a domestic corporation engaged
suits against BMC. Furthermore, the provisions of the MOA regarding suspension of
in the manufacture and export of finished wood products. In 1991, BMC needed
payments by BMC and the non-filing of collection suits by the creditor banks pertain
additional capital for its business and applied for various loans amounting to a
only to the property of BMC and the SEC’s jurisdiction is limited only to corporations
total of P5M with Philippine Commercial International Bank (now Equitable-
and corporate assets. SEC has no jurisdiction over the properties of BMC’s officers or
Philippine Commercial International Bank or E-PCIB). The spouses acted as
sureties. In view whereof, the Supreme Court dismissed the petition for lack of merit.
sureties for these loans and issued 3 promissory notes for that purpose. Under
the terms of the notes, it was stipulated that the bank may consider BMC in
default and demand payment of the balance of the loan upon the levy,
attachment or garnishment of any of its properties, or upon BMC’s insolvency, or SY CHIM vs. SY SIY HO & SONS, INC.
if it is declared to be in a state of suspension of payments. The bank thereafter (G.R. No. 164958 | 27 January 2006)
granted BMC’s loan applications. >> N/A
METROPOLITAN BANK & TRUST COMPANY
vs. ASB HOLDINGS, INC., ET AL.
(G.R. No. 166197 | 27 February 2007)
MWSS vs. DAWAY & MAYNILAD WATER SERVICES, INC.

G.R. No. 160732 | 21 June 2004
ISSUE # 1
WON the Rehabilitation Court acted in excess of its jurisdiction when it
enjoined MWSS from seeking payment of concession fees from the bank that
issued the Letter of Credit (LC) in its favor and for the account of Maynilad
HELD
YES. The reference to “all those affected by the proceedings” covers creditors or
such other persons or entities holding assets belonging to the debtor under
rehabilitation which should be reflected in its audited financial statements. The banks
do NOT hold any assets of Maynilad that would be material to the rehabilitation
nor is Maynilad liable to the banks at this point. Therefore, in issuing the disputed
clarificatory order which enjoined MWSS for claiming from an asset that did not
belong to the debtor and over which it did not have jurisdiction, the Rehabilitation
Court acted in excess of its jurisdiction.
ISSUE # 2
WON the LC is a solidary obligation and therefore does NOT fall under the
coverage of the Stay Order
HELD
THE LC IS SOLIDARY AND IS EXEMPT FROM THE STAY ORDER. LCs were
developed for the purpose of insuring to seller payment of a definite amount upon the
presentation of documents and is thus a commitment by the issuer that the party in
whose favor it is issued and who can collect upon it will have his credit against the
applicant of the LC duly paid of the amount specified therein. They are in effect
absolute undertakings. They are primarily obligations and not accessory contracts.
While they are security arrangements, they are not converted thereby into contracts
of guaranty. It is distinct from an accessory contract in that it engages the
issuing bank to pay the seller once he documents and draft are presented to it.
The prohibition in the rules does NOT apply to MWSS as the prohibition is on
the enforcement of claims against guarantors whose obligations are not
solidary with the debtor. The banks’ ibligations are solidary with Maynilad as it
is primarily, direct and definite and an absolute undertaking to pay and is not
conditioned on prior exhaustion of debtor’s assets.
Therefore, being a solidary obligation, the LC is excluded from the
jurisdiction of the Rehabilitation Court.

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Law 107 :: Credit Transactions Loan: Delivery by one party and the receipt by the other party of a given

e receipt by the other party of a given sum of

FACTS BPI Family Bank v. Franco & CA

2. Loan Conditions HELD

ACME SHOE RUBBER AND PLASTIC CORP. vs. CA HELD

ISSUE J.L. BERNARDO CONSTRUCTION vs. CA

Cases: "FUND SOURCING

RUBBERWORLD (PHILS.), INC. vs. NLRC, ET AL. HELD

CLASS NOTES >> ISSUE

MWSS vs. DAWAY & MAYNILAD WATER SERVICES, INC.

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