Spouses Sierra v. Paic Savings and Mortgage Bank
G.R. No. 197857 | Sept. 10, 2014
Perlas-Bernabe, J.
Doctrine: An accommodation mortgagor is a third person who is not a debtor to a
principal obligation but merely secures it by mortgaging his or her own property.
Facts:
The Goldstar Conglomerates, Inc. (GCI) obtained a loan from First Summa Savings and
Mortgage Bank (Summa Bank), which is now known as Paic Savings and Mortgage
Bank, Inc. (PSMB). Herein petitioners Francisco Sierra, Rosario Sierra, and Spouses
Felix Gatlabayan and Salome Sierra mortgaged four parcels of land in Antipolo City
as additional security for the said loan. The GCI then defaulted in the loan resulting
in the foreclosure of the mortgaged properties. The said properties were eventually
acquired by the PSMB.
Petitioners then filed against the respondent in the RTC a complaint for the
declaration of nullity of the real estate mortgage and its extrajudicial foreclosure.
They argued that they were made to believe, due to their lack of education, that they
applied for a loan, in which the proceeds thereof would be released through checks
drawn against Summa Bank. They also added that the loan agreement was not
explained in a language known to them and they were also not furnished with copies
of the loan documents.
On the other hand, the respondent argued that PSMB and Summa Bank were the
same entity and that they never extended a loan to petitioners.
The RTC ruled in favor of petitioners stating that their consent was invalidated when
they were made to believe that they were the principal obligors in the loan. The CA
however reversed the trial court’s ruling and held that the petitioners were unable to
prove that they were uneducated after having previously mortgaged their properties
twice to the Rural Bank of Antipolo.
Issue:
Were the petitioners aware that they were mere accommodation mortgagors?
Ruling:
Yes. The petitioners are aware that they were mere accommodation mortgagors. As
correctly observed by the CA, the testimony of petitioner Francisco Sierra as to
petitioners’ respective educational backgrounds remained uncorroborated. The other
petitioners-signatories to the deed never testified that their educational background
prevented them from knowingly executing the subject deed as mere accommodation
mortgagors. Petitioners’ claim of lack of "proper instruction on the intricacies in
securing the loan from the bank"is further belied by the fact that petitioners
Francisco and Rosario Sierra had previously mortgaged two (2) of the subject
properties twice to the Rural Bank of Antipolo. Moreover, petitioners did not: (a)
demand for any loan document containing the details of the transaction, i.e., monthly
amortization, interest rate, added charges, etc., and the release of the remaining
amount of their alleged loan; and (b) offer to pay the purported partial loan proceeds
they received at any time, complaining thereof only in 1991 when they filed their
complaint. Indeed, the foregoing circumstances clearly show that petitioners are
aware that they were mere accommodation mortgagors, debunking their claim that
mistake vitiated their consent to the mortgage.
Thus, there being valid consent on the part of petitioners to act as accommodation
mortgagors, no reversible error was committed by the CA in setting aside the RTC’s
Decision declaring the real estate mortgage as void for vices of consent and
awarding damages to petitioners. As mere accommodation mortgagors, petitioners
are not entitled to the proceeds of the loan, nor were required to be furnished with
the loan documents or notice of the borrower’s default in paying the principal,
interests, penalties, and other charges on due date, or of the extrajudicial
foreclosure proceedings, unless stipulated in the subject deed. As jurisprudence
states, an accommodation mortgagor is a third person who is not a debtor to a
principal obligation but merely secures it by mortgaging his or her own property.
Like an accommodation party to a negotiable instrument, the accommodation
mortgagor in effect becomes a surety to enable the accommodated debtor to obtain
credit, as petitioners in this case.
Vitug v. Abuda
G.R. No. 201264, January 11, 2016
Leonen, J.
Doctrine: Contracts entered into in violation of restrictions on a property owner's rights
do not always have the effect of making them void ab initio especially when these
restrictions do not divest petitioner of his ownership rights. These restrictions are mere
burdens or limitations on petitioner's jus disponendi. Contracts that only subject a
property owner's property rights to conditions or limitations but otherwise contain all
the elements of a valid contract are merely voidable by the person in whose favor the
conditions or limitations are made.
Facts:
Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As security for the
loan, Vitug mortgaged to Abuda his property in Tondo. Spouses Vitug failed to pay
their loans despite Abuda’s demands. Abuda filed a Complaint for Forclosure of
Property. The RTC ruled in Abuda’s favor, ordering the Spouses Vitug to pay their
debt and upon default, the sale of the property mortgaged. Spouses Vitug appealed
the decision. Vitug contends that he lacks free disposal of the property due to the
restrictions imposed on his title by the National Housing Authority. These
restrictions were annotated on his title:
Entry No. 4519/V-013/T-234246 — RESTRICTION — that the Vendee shall not
sell, encumber, mortgage, lease, sub-let or in any manner, alter or dispose the
lot or right therein at any time, in whole or in part without obtaining the written
consent of the Vendor.
Vitug submits that not all the requisites of a valid mortgage are present. A
mortgagor must have free disposal of the mortgaged property. The existence of a
restriction clause means that he does not have free disposal of his property. The
restriction clause does not allow him to mortgage the property without the NHA’s
approval. Since the NHA never gave its consent to the mortgage, the mortgage
between him and respondent is invalid.
Issue:
Is the mortgage void for failure to comply with the restriction clause in favor of
NHA?
Ruling:
No. The mortgage is not void. The Supreme Court held that restrictions do not divest
petitioner of his ownership rights. They are mere burdens or limitations on
petitioner's jus disponendi. Thus, petitioner may dispose or encumber his property.
However, the disposition or encumbrance of his property is subject to the limitations
and to the rights that may accrue to the National Housing Authority. When annotated
to the title, these restrictions serve as notice to the whole world that the NHA has
claims over the property, which it may enforce against others. Furthermore, contracts
that only subject a property owner's property rights to conditions or limitations but
otherwise contain all the elements of a valid contract are merely voidable by the
person in whose favor the conditions or limitations are made.
In this case, the mortgage contract entered into by petitioner and respondent
contains all the elements of a valid contract of mortgage. The trial court and the
Court of Appeals found no irregularity in its execution. The restrictions annotated on
petitioner’s title gave NHA the right to assail the validity and seek the annulment of
the mortgage contract. Petitioner has no actionable right or cause of action based on
those restrictions. Therefore, since the restrictions did not divest petitioner of his
ownership rights, the mortgage contract is valid as between the mortgagor and the
mortgagee and only the NHA has the right to seek the annulment of the mortgage
contract based on the restriction clause.
The Bachrach Motors, Inc. v. Esteva
G.R.No. L-40233 February 14, 1934
Malcolm, J.
Doctrine: In the law of chattel mortgages the debt is the principal thing. The mortgage
is but an incident to the debt. Separated from the debt, the mortgage has no
determinate value.
Facts:
Jose Esteva bought a number of motor trucks from the Teal Motor Co., Inc. The latter
company assured Esteva that it would not make any attempt to repossess the
property in less than three months after the due date of any one note. On April 8,
1930, a chattel mortgage was made which consolidated all of Jose Esteva's
indebtedness to the Teal Motor Co., Inc. The mortgage was for the sum of P54,500,
and was given as security for the payment of twenty-two promissory notes maturing
on specified dates. On April 12, 1930, the Teal Motor Co., Inc., endorsed the
promissory notes to the Bachrach Motor Co., Inc. Esteva failed to make payments of
certain notes as they became due.
On March 31, 1931, foreclosure proceedings were started by the Teal Motor Co., Inc.,
and shortly thereafter the trucks, trailers, and automobile of Esteva were sold to the
highest bidder, Teal Motor Co., Inc., for the sum of P20,000. Subsequently, on
December 9, 1931, the instant action was begun by the Bachrach Motor Co., Inc., to
secure the payment from Jose Esteva and the Teal Motor Co., Inc., of the amounts due
under the promissory notes.
Herein respondent claims that the foreclosure of the mortgage by Teal Motor Co.,
Inc., was illegal.
Judgment was rendered in favor of Bachrach Motor co., and against Jose Esteva and
the Teal Motor Co., Inc.,jointly and severally, for the sum of P34,749.41, with interest
at the rate of 12 per cent per annum.
Issue:
Was there a valid foreclosure considering the endorsement of Teal Motor to
Bachrach?
Ruling:
No, there was no valid foreclosure because the passing of the mortgage with the
notes as incidents to them was precluded by a special agreement between Esteva and
Teal Motors to the contrary.
Our Chattel Mortgage Law, Act No. 1508, in its section 3, defines a chattel mortgage
as "a conditional sale of personal property as security for the payment of a debt, or
the performance of some other obligation specified therein." In the same, the debt is
the principal thing. The mortgage is but an incident to the debt. Separated from the
debt, the mortgage has no determinate value.
A sale and delivery of notes secured by a chattel mortgage, although unaccompanied
by an assignment of the mortgage itself, authorizes the purchaser to act as the
mortgagee's agent and to do whatever he could have done to enforce the mortgage.
Whatever discharges the debt discharges the mortgage. If by special agreement the
chattel mortgage does not accompany the security assigned, it is ipso facto
extinguished, and ceases to be a subsisting demand.
In the instant case, given the contrary agreement between the Esteva and Teal Motor
Co., Inc., the latter retained the mortgage and foreclosed it, while the Bachrach
Motor Co., Inc., received the promissory notes and sued upon them.
As to the mortgage, since it ceased to exist because there was no debt to which it
could attach, the foreclosure proceedings were in consequence a nullity, and as to
the debt, the promissory notes unpaid, they were obligations which the holder of the
notes could sue upon.
Ong v. Roban Lending Corp.
G.R. No. 172592, July 9, 2008
Carpio Morales, J.
Doctrine: The elements of pactum commissorium which enables the mortgagee to
acquire ownership of the mortgaged property without the need of any foreclosure
proceedings, are: (1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.
Facts:
Petitioner-spouses Wilfredo Ong and Edna Ong obtained several loans from
respondent Roban Lending Corporation in the total amount of P4 Million. The loans
were secured by a real estate mortgage on parcels of land owned by petitioners
located in Tarlac City.
On February 12, 2001, petitioners and respondent executed an Amendment to
Amended Real Estate Mortgage consolidating their loans inclusive of charges which
totaled P5,916,117.50. The parties executed a Dacion in Payment Agreement where
the petitioners assigned their properties in Tarlac City to respondent in settlement
of their total obligation. In view of such settlement, a Memorandum of Agreement
was also executed.
On April 2002, petitioners filed a complaint with the RTC of Tarlac City for
declaration of mortgage contract as abandoned, annulment of deeds, illegal
exaction, unjust enrichment, accounting and damages alleging that the MOA and
Dacion in Payment are void for being pactum commissorium.
Petitioners alleged that the loans extended to them were founded on uniform
promissory notes which provided for monthly interest rates, monthly penalty rates,
and attorney’s fees. Petitioners claimed that the additional charges are illegal,
among others. It was further alleged that they had previously made payments on
their loan accounts, but because of the illegal exactions thereon, the total balance
appears not to have moved at all, hence, accounting was in order.
In their answer, respondent insisted on the legality of its transactions with
petitioners.
The RTC ruled in favor of respondent and held that there was no pactum
commissorium. On appeal, the CA upheld the trial court’s decision that there was no
pactum commissorium.
Issue:
Does pactum commissorium exist which would make the MOA and Dacion in
Payment void?
Ruling:
YES, the court finds that the MOA and Dacion in Payment constitute pactum
commissorium which is prohibited under Art. 2088 of the Civil Code which provides:
“The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.”
The elements of pactum commissorum which enables the mortgagee to acquire
ownership of the mortgaged property without the need of any foreclosure
proceedings, are: (1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of nonpayment
of the principal obligation within the stipulated period.
In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain
no provisions for foreclosure proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt within the one-year period
gives respondent the right to enforce the Dacion in Payment transferring to it
ownership of the properties in Tarlac City. Respondent, in effect, automatically
acquires ownership of the properties upon petitioners’ failure to pay their debt
within the stipulated period.
Furthermore, In a true dacion en pago, the assignment of the property extinguishes
the monetary debt.33 In the case at bar, the alienation of the properties was by way
of security, and not by way of satisfying the debt.34 The Dacion in Payment did not
extinguish petitioners’ obligation to respondent. On the contrary, under the
Memorandum of Agreement executed on the same day as the Dacion in Payment,
petitioners had to execute a promissory note for ₱5,916,117.50 which they were to
pay within one year.
Nakpil v. IAC
G.R. No. 74449. August 20, 1993.
Bellosillo, J.
Doctrine: Pactum commissorium which is expressly prohibited by Art. 2088 of the Civil
Code.
Facts:
Jose “Pinggoy” Nakpil and Carlos “Charlie” Valdez were best of friends. However, the
relationship had to end when a tragedy struck on July 1973. While they were
vacationing at Bataan, Pinggoy drowned. Charlie went to the succor of Pinggoy’s
distressed wife, Nena. He acted as the legal counsel and accountant of Nena, who
became the administratrix of her husband’s estate.
Towards the end of 1978, the question arose as to who between the Nakpils and the
Valdeses should own Pulong Maulap, a summer residence in Baguio City.
Petitioner instituted an action for reconveyance with damages for breach of trust
before the RTC against respondents Valdes and Caval Realty Corp. She alleged in her
complaint that her husband prior to his death had requested Valdes to purchase
Pulong Maulap and thereafter register the sale and hold the title thereto in trust for
him (Pinggoy Nakpil), which respondent Valdes did. But after her husband's death,
Valdes concealed and suppressed all information regarding the trust agreement;
instead, he transferred Pulong Maulap in the name of respondent Caval Realty
Corporation, which is 99.7% owned by him, in exchange for 1,500 shares of stock.
However, the respondent denied the existence of any trust agreement over Pulong
Maulap.
The RTC rendered a decision holding that a trust relationship existed. But dismissed
the petition for reconveyance on the ground that petitioner, by conforming to Exh. "J"
and acquiescing with Exh. "L," the very documents she presented to prove the
existence of a trust relationship, has waived her right over Pulong Maulap.
Both parties appealed to respondent IAC which on December 1985 reversed the trial
court and ruled that there was no trust at all. The petitioner filed for reconsideration
but the appellate court denied it for absolute lack of merit.
Issue:
Is there a pactum commissorium existing?
Ruling:
Yes. The arrangement entered into between the parties, whereby Pulong Maulap was
to be considered sold to the respondent in case petitioner fails to reimburse Valdes,
must then be construed as tantamount to a pactum commissorium which is expressly
prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
appropriation of the property by Valdes in the event of failure of petitioner to pay
the value of the advances. Thus, contrary to respondent's manifestations, all the
elements of a pactum commissorium were present:
1. there was a creditor-debtor relationship between the parties;
2. the property was used as security for the loan; and
3. there was automatic appropriation by respondent of Pulong Maulap in case of
default of petitioner.
Petitioner may redeem and compel conveyance of the disputed property but only
after reimbursing respondent the sum of P375,056.64, with legal interest from July
31, 1978, the amount advanced by Valdes for the purchase of the Pulong Maulap.
Philnico Industrial Corporation v. Privatization and Management
Office
G.R. No. 199420. August 27, 2014
Leonardo-De Castro, J.
Doctrine: The automatic reversion of the PPC shares of stock to PMO in case of default
by PIC constitutes pactum commissorium which is null and void.
Facts:
Philnico Industrial Corporation (PIC) along with Philnico Processing Corporation
(PPC) and Pacific Nickel Philippines, Inc. (PNPI) form the Philnico Group. The
group is engaged in nickel mining and refining. Privatization and Management
Ofice (PMO), on the other hand, is a government agency under the Department of
Finance which is tasked to take title to and possession of, conserve,
provisionally manage, and dispose of assets previously identified for
privatization.
The Development Bank of the Philippines and the Philippine National Bank, by
virtue of foreclosure proceedings, became the holders of all the shares of stock of
PPC which they subsequently transferred to PMO. The PMO, PPC, and PIC executed
a contract denominated as the Amended and Restated Definitive Agreement (ARDA)
which laid down the terms and conditions of the purchase and acquisition by PIC
from PMO of 22,500,000 shares of stock of PPC. Under the ARDA, PIC agreed to pay
PMO the peso equivalent of US$333,762,000.00 as purchase price. Pursuant to Sec.
8.02 of the ARDA, there was a need to execute a pledge over the shares, and in case
of default, the title of the shares shall ipso facto revert to PMO without need of
demand if not remedied by PIC within 90 days. Moreover, by virtue of the ARDA’s
security clause, the PIC and PNPI as pledgors and PMO as pledgee executed a
Pledge Agreement to secure payment by PIC of the purchase price and all amounts
due to PMO under the ARDA, and the performance by PIC of its obligations.
When PIC had defaulted in the payment of its obligations, PMO demanded that the
former to settle its unpaid amortizations, otherwise it would would enforce the
automatic reversion of the PPC shares of stock under Section 8.02 of the ARDA.
A day before the deadline for payment set by PMO, the PIC filed before the RTC a
Complaint for Prohibition against Reversion of Shares, among others. The RTC ruled
in favor of PIC as it declared the ARDA provision providing for the ipso facto
reversion of the shares of stock is null and void for being a pactum commissorium.
On appeal, the CA declared that the ARDA did not constitute a pactum commissorium
since the ARDA and Pledge Agreement are entirely separate and distinct contracts
and neither contract satisfies both elements of pactum commissorium.
Issue:
Does Section 8.02 of the ARDA which provides for the automatic reversion of the PPC
shares of stock to PMO in case of default by PIC constitute a pactum commissorium?
Ruling:
Yes.
Pactum commissorium is defined as stipulation empowering the creditor to
appropriate the thing given as guaranty for the fulfillment of the obligation in the
event the obligor fails to live up to his undertakings, without further formality, such
as foreclosure proceedings, and a public sale. The elements thereof are 1) there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way
of security for the payment of the principal obligation; and 2) there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged or
mortgaged in the event of nonpayment of the principal obligation within the
stipulated period.
In this case, both elements are present. For the first element, by virtue of the Pledge
Agreement , PIC pledged its PPC shares of stock in favor of PMO as security for the
fulfillment of the former's obligations under the ARDA and the Pledge Agreement
itself. For the second element, there is automatic appropriation as under Section 8.02
of the ARDA, in the event of default by PIC, title to the PPC shares of stock shall ipso
facto revert from PIC to PMO without need of demand. Moreover, the ruling of the
CA is incorrect as the ARDA and the Pledge Agreement herein, although executed in
separate written instruments, are integral to one another. It has been settled that the
agreement of the parties may be embodied in only one contract or in two or more
separate writings. In case of the latter, the writings of the parties should be read and
interpreted together in such a way as to render their intention effective.
Given the foregoing, Sec. 8.02 of the ARDA constitutes a pactum commissorium and
is thus null and void for being contrary to Art. 2088 of the Civil Code.
Spouses Pen v. Spouses Julian
G.R. No. 160408 ; January 11, 2016
Bersamin, J.
Doctrine: Article 2088 of the Civil Code prohibits the creditor from appropriating the
things given by way of pledge or mortgage, or from disposing of them; any stipulation
to the contrary is null and void.
Facts:
Respondent Sps. Julian obtained loans from petitione Adelaida Pen in the amount of
P60,000, P50,000 and P10,000 respectively which they secured by a REM over their
property. When they defaulted in payment, they agreed that the mortgaged property
would instead become a payment in kind to avoid foreclosure proceedings. Sps. Pen
then required Sps. Julian to sign a one-page Deed of Sale. However, it was found out
that the property is already registered under the name of Sps. Julian so Pen filed an
Affidavit of Adverse Claim. Sps. Julian then averred that the sale is void alleging that
Pen merely used the spurious deed of sale as the vehicle for the transfer of land to
herself.
Issue:
1. Is the Absolute Deed of Sale valid?
2. Is the transaction a valid dacion en pago?
Ruling:
1. No, the contract of sale is void and inexistent. The court ruled that the
transaction was a pactum commisorium.
Article 2088 of the Civil Code prohibits the creditor from appropriating the things
given by way of pledge or mortgage, or from disposing of them; any stipulation to
the contrary is null and void. The elements for pactum commissorium to exist are
as follows, to wit: (a) that there should be a pledge or mortgage wherein property
is pledged or mortgaged by way of security for the payment of the principal
obligation; and (b) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of
non-payment of the principal obligation within the stipulated period. The first
element was present considering that the property of the respondents was
mortgaged by Linda in favor of Adelaida as security for the farmer's indebtedness.
As to the second, the authorization for Adelaida to appropriate the property
subject of the mortgage upon Linda's default was implied from Linda's having
signed the blank deed of sale simultaneously with her signing of the real estate
mortgage. Therefore, the haste with which the transfer of property was made
upon the default by Linda on her obligation, and the eventual transfer of the
property in a manner not in the form of a valid dacion en pago ultimately
confirmed the nature of the transaction as a pactum commissorium.
2. No, it is a pactum commissorium and not a dacion en pago.
The petitioners have theorized that their transaction with the respondents was a
valid dacion en pago by highlighting that it was Linda who had offered to sell her
property upon her default. Their theory cannot stand scrutiny. Dacion en pago is
in the nature of a sale because property is alienated in favor of the creditor in
satisfaction of a debt in money. For a valid dacion en pago to transpire, however,
the attendance of the following elements must be established, namely: (a) the
existence of a money obligation; (b) the alienation to the creditor of a property
by the debtor with the consent of the former; and (c) the satisfaction of the
money obligation of the debtor. To have a valid dacion en pago, therefore, the
alienation of the property must fully extinguish the debt. Yet, the debt of the
respondents subsisted despite the transfer of the property in favor of Adelaida.
Development Bank of the Phil. v. Court of Appeals
G.R. Nos. 118342, 118367. January 5, 1998
Davide, Jr., J.
Doctrine: The elements of pactum commissorium are as follows: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and
(2) there should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.
Facts:
Lyndia Cuba obtained from DBP three separate loans totaling P335,000, each of
which was covered by a promissory note. Simultaneous with the execution of the
notes was the execution of "Assignments of Leasehold Rights” where CUBA assigned
her leasehold rights and interest on a 44-hectare fishpond, together with the
improvements thereon.
For failure of Cuba to pay her loans, DBP appropriated her Leasehold Rights over
the fishpond without foreclosure proceedings. Subsequently, Cuba offered and
agreed to repurchase her leasehold rights from DBP. For failure to pay the monthly
amortizations stipulated in the deed of conditional sale executed by DBP in favor of
Cuba, DBP took possession of the leasehold right and subsequently sold the same to
Agripina Capera.
Cuba filed a complaint with the Regional Trial Court seeking declaration of nullity
DBP's appropriation of her leasehold rights without foreclosure proceedings which
is contrary to Article 2088 of the Civil Code. The trial court resolved the issue in
favor of Cuba and declared invalid the deed of assignment for being a clear case of
pactum commissorium. On appeal, the Court of Appeals reversed the decision of the
trial court and declared that the deed of assignment was an express authority from
Cuba for DBP to sell whatever right she had over the fishpond.
Issue:
Is the questioned deed of assignment a pactum commissorium?
Ruling:
No. The elements of pactum commissorium are as follows: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation,
and (2) there should be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.
Condition no. 12 did not provide that the ownership over the leasehold rights would
automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely
provided for the appointment of DBP as attorney-in-fact with authority, among other
things, to sell or otherwise dispose of the said real rights, in case of default by
CUBA, and to apply the proceeds to the payment of the loan. This provision is a
standard condition in mortgage contracts and is in conformity with Article 2087 of
the Civil Code, which authorizes the mortgagee to foreclose the mortgage and
alienate the mortgaged property for the payment of the principal obligation.
DBP, however, exceeded the authority vested by condition No. 12 of the deed of
assignment. As admitted by it during the pre-trial, it had "without, foreclosure
proceedings, whether judicial or extrajudicial . . . appropriated the leasehold rights
of plaintiff Lydia Cuba over the fishpond in question."
Bustamante v. Rosel
G. R. No. 126800. November 29, 1999
Pardo, J.
Doctrine: The general rule is contracts have the force of law between contracting
parties, and that parties are free to establish stipulations,clauses, terms, and conditions
as they may deem convenient. One of the exceptions is when the stipulation is contrary
to law, which in this case,was a pactum commissorium. According to Article 2088, “The
creditor cannot appropriate the things given by way of pledge or motgage, ordispose of
them. Any stipulation to the contrary is null and void.”
Facts:
Respondent Rosel entered into a loan agreement with petitioner spouses
Bustamante wherein the latter borrowedP100,000 payable in 2 years. To guarantee
payment, the spouses put as collateral 70 sq m of their lot inclusive of the
apartment therein. In the event of borrowers default, contract states the lender has
the option to buy or purchase the collateral for P200,000.
When the loan was about to mature on March 1, 1989, respondents proposed to buy
the said portion at the pre-set price. Petitioners, however, refused and requested
for extension of time to pay the loan. On the due date, petitioners tendered
payment of the loan to respondents which the latter refused to accept. On March 4,
1990, respondents sent a demand letter asking petitioner to sell the collateral
pursuant to the option to buy embodied in the loan agreement. Prior to that, they
filed with the RTC an action for specific performance in February.
Issue:
Is the respondent justified in compelling petitioners to sell the portion of the lot
pursuant to the stipulation in the agreement?
Ruling:
No. The SC said that the stipulation is void. the intent of the creditor appears to be
evident,for the debtor is obliged to dispose of the collateral at the pre agreed
consideration amounting to practically the same amount as the loan. In effect, the
creditor acquires the collateral in the event of non-payment of the loan. This is
within the concept of pactum commissorium. Such stipulation is void.
Philippine National Bank v. Amores
G.R.No. 54551, November 9, 1987
Sarmiento, J.
Doctrine: Explicit is the law that a mortgage obligation is one and indivisible. Every
portion of the property mortgaged is answerable for the whole obligation as soon as the
latter falls due.
Facts:
The plaintiffs Kalaw Investment and Augusto Kalaw obtained a loan from defendant
Philippine National Bank in the amount of 150,000.00, and in order to secure the
said loan a property was mortgaged to defendant PNB. A portion of said property,
with an area of 45.186 hectares, was subjected to Operations Land Transfer in favor
of tenants-beneficiaries in accordance with Presidential Decree No. 27 and the
provisions of Republic Act No. 3844 (otherwise known as the Code of Agrarian
Reform of the Philippines), as amended more particularly by Presidential Decree No.
251. Defendant Land Bank of the Philippines paid defendant PNB for the account of
the plaintiffs P14,588.50 in cash and Land Bank Bonds with a total face value of
P130,000.00.
Pursuant to PNB Board Resolution No. 627, defendant PNB, after crediting the sum of
P 14,588.50 to the account of plaintiff Augusto Kalaw, applied the land Bank bonds
to the payment of the account on a one-to-one basis to the extent of P31,000.00 and
on a discounted basis to the extent of P59,400.00, or a total of P90,400,00.
Contesting the manner of application of Land Bank bonds to the payment of loan
obligations pursuant to Board Resolution No. 627 plaintiffs herein wrote the PNB
requesting the reconsideration or revision of its policy. Defendant PNB, however, did
not find merit in the request of plaintiffs but agreed that the latter seek judicial
ruling to which it would abide. As a consequence, plaintiffs brought the present
action for declaratory relief. The petitioner Philippine National Bank (PNB) appealed
from the decision of the lower court and assigned several errors.
Issue:
Is PNB correct in applying Land bank bonds on a one-to-one basis pro tanto on a part
of a mortgage and discounted basis with the other parts of the same mortgage?
Ruling:
No. Explicit is the law that a mortgage obligation is one and indivisible. Every
portion of the property mortgaged is answerable for the whole obligation as soon as
the latter falls due. The mortgagor cannot opt, much less compel the mortgagee, to
apply any payment made by him on a specific portion of the mortgaged property to
effect release. Neither may the mortgagee apply payments made to it on, and
consequently release, a portion of the mortgaged property and effect foreclosure on
the rest.
In this case, the petitioner's method evidently contravenes the principle of
indivisibility of mortgage for it applied the Land Bank bonds as payment on a one-toone
basis pro tanto of the mortgage debt secured by the particular portion acquired
by the Land Bank which had an area of 45.186 hectares, but on a discounted basis
with respect to the other portions of the debt secured by the same mortgage. From
the foregoing, it is clear that petitioner PNB cannot be allowed to do precisely what
it had done in the case at bar.
Sps. Gonzales v. GSIS
G.R. No. L-51997, September 10, 1981
Melencio - Herrera, J.
Doctrine: A real estate mortgage voluntarily constituted by the debtor on two or more
parcels of land is one and indivisible. Each and every parcel under mortgage answers
for the totality of the debt.
Facts:
Petitioner-spouses obtained a housing loan of P80,000.00 from the respondent GSIS,
repayable within 15 years and secured by their two residential lots and two parcels
of agricultural lands. After they compulsorily retired from the government service,
they left an unpaid obligation of over P73,000.00 which later on amounted to
P135,884.87 due to accumulated interests or arrearages. In the meantime, a parcel of
their agricultural lands earlier put up as collateral for the loan was subdivided
among the tenant-farmers pursuant to Presidential Decree No. 27 under Operation
Land Transfer, and the Land Bank accordingly tendered to the GSIS as payment for
the loan, the amount of P117,005.00 which was the appraised value of said land
broken down as follows; 20% in cash P23,505.00) and 80% in bonds (P93,500.00).
The GSIS, however, refused acceptance unless the bonds were given a creditable
value of only P41,775.00 instead of its face value of P93,500.00. Petitioners accepted
under protest the condition of the GSIS, and failing to get a reconsideration of the
GSIS decision, filed the instant petition praying that respondent GSIS be directed to
accept payment of the Land Bank bonds at par value so that all their collaterals
could be released.
Issue:
Were the four parcels of land given in mortgage guarantees only a determinate
portion of the credit and which contemplates separate debts secured by separate
properties?
Ruling:
No. The case at bar does not fall under the exception in Article 2089 of the Civll
Code.
Article 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or
cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given
in mortgage or pledge, each one of them guarantees only a determinate portion of the
credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is
satisfied.
It can neither be said that the Land Bank, by operation of law, has rendered the
mortgage of the four parcels divisible by taking only one of them solely to obtain its
release. The basic indivisibility of the mortgage obligation still remains unimpaired
despite that fact. To hold that the acceptance of the bonds at par value should be
limited only to the loan value of properties acquired by the Land Bank but should be
discounted as to other lands not so acquired, would not only run counter to the
principle of indivisibility of a mortgage and contravene the clear mandate of PD No.
251, but would also reduce the bond payment to the dispossessed landowner by
approximately one-half, to his complete detriment. This is a consequence that
neither law, equity, nor justice would countenance.
A real estate mortgage voluntarily constituted by the debtor on two or more parcels
of land is one and indivisible. Each and every parcel under mortgage answers for the
totality of the debt. Hence, the four parcels of land given in mortgage is indivisible
and each land answers for the totality of the debt.
Bank of the Philippine Islands v. Vda. De Coscolluela
GR No 167724, June 27, 2006
Callejo, Sr, J.
Doctrine: If the mortgagee opts to foreclose the real estate mortgage, he thereby
waives the action for the collection of the debt and vice versa. If the creditor is allowed
to file its separate complaints simultaneously or successively, one to recover his credit
and another to foreclose his mortgage, he will, in effect, be authorized plural redress
for a single breach of contract at so much costs to the court and with so much vexation
and oppressiveness to the debtor.
Facts:
Respondent Margarita and her husband Oscar Coscolluela obtained an agricultural
sugar crop loan from FEBTC (later on merged with petitioner BPI) for crop years
1997 and 1998. However, in the book of FEBTC, the loan account of the spouses
was treated as a single account which amounted to Php13,592,492.00 as evidenced
by 67 promissory notes executed on various dates from Aug 29, 1996 to Jan 23,
1998. Promissory note nos 1 to 3 bear the maturity date of Feb 9, 1998 with a 30-
day extension while the rest bear Dec 28, 1998 as maturity date. On June 13, 1997,
the spouses executed a real estate mortgage with an acceleration clause in favor of
FEBTC over subject land as security of loans on credit accommodation obtained
from FEBTC. Respondents failed to settle the outstanding obligation which
prompted FEBTC to demand the principal of the loan amounting to
Php13,481,498.68 plus interest and penalties. Respondent failed to settle her
obligation. Shortly thereafter, FEBTC filed a petition for the extrajudicial
foreclosure of the mortgaged property for the total amount of Php4,687,006.68.
While the extrajudicial foreclosure proceeding was pending, FEBTC filed a
complaint against respondent for the collection of the principal amount of
Php8,794,492.00, plus interest and penalty, indicated in promissory note nos 34 to
67.
Issue:
Should the action concerning promissory note nos 34-67 prosper?
Ruling:
No. it was held in Industrial Finance Corporation v. Apostol that “If the mortgagee
opts to foreclose the real estate mortgage, he thereby waives the action for the
collection of the debt and vice versa.” Moreover, it was held in Bachrach Motor Co.,
Inc. V. Esteban Icarañgal and Oriental Commercial that, “If the creditor is allowed to
file its separate complaints simultaneously or successively, one to recover his credit
and another to foreclose his mortgage, he will, in effect, be authorized plural redress
for a single breach of contract at so much costs to the court and with so much
vexation and oppressiveness to the debtor.” In the present case, petitioner opted to
file a petition for extrajudicial foreclosure of the real estate mortgage but only for
the principal amount of P4,687,006.08 covering only 31 of the 67 promissory notes.
By resorting to the extrajudicial foreclosure of the real estate mortgage, petitioner
thereby waived its personal action to recover the amount covered not only by said
promissory notes but also of the rest of the promissory notes.
Spouses Viola v. Equitable PCI Bank, Inc.
G.R. No. 177886, November 27, 2008
Carpio Morales, J.
Doctrine: A mortgage must "sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not secured
by a mortgage unless it comes fairly within the terms of the mortgage.
Facts:
Via a contract denominated as “Credit Line and Real Estate Mortgage Agreement for
Property Line” (Credit Line Agreement) Leo-Mers Commercial Inc, as the client, and
its officers Sps. Leopoldo and Mercedita Viola obtained a loan through a credit line
facility in the maximum amount of P4,700,000 from PCI Bank, which later emerged
and became known as Equitable PCI Bank. The Credit Line Agreement stipulated that
the loan would bear interest at the "prevailing PCIBank lending rate" per annum on
the principal obligation and a "penalty fee of three percent (3%) per month on the
outstanding amount." To secure the payment of the loan, petitioners executed a real
estate mortgage in favor of PCIBank over their two parcels of land. Petitioners
availed of the full amount of the loan and paid partial payments amounting to P
3,669,210.67. However, petitioner since November 24, 2000 made no further
payments and despite demand, they failed to pay the outstanding obligation
amounting to P 14,024,623.22. Thus respondent extrajudicially foreclosed the
mortgage. The mortgaged properties were sold at a public auction to respondent
Equitable PCI Bank. More than 5 months later, petitioners filed a complaint for
annulment of foreclosure sale before the RTC.
Petitioners argue that that "the parties never agreed and stipulated in the real estate
mortgage contract" that the 15% interest per annum on the principal loan and the 3%
penalty fee per month on the outstanding amount would be covered or secured by
the mortgage;
Respondent denied petitioner’s assertions and contended that the absence of
stipulation in the mortgage contract securing the payment of 15% interest per annum
on the principal loan, as well as the 3% penalty fee per month on the outstanding
amount, is immaterial since the mortgage contract is "a mere accessory contract
which must take its bearings from the principal Credit Line Agreement."
The trial court ruled in favor of Respondent Equitable PCI Bank. Accordingly, the
court nullified the foreclosure proceedings. On appeal to the Court of Appeals, the
CA dismissed the same for lack of merit. holding that "the Real Estate Mortgage
covers not only the principal amount, of P4,700,000.00, but also the 'interest and
bank charges,' which refers to the penalty charges stipulated in the Credit Line
Agreement."
Issue:
Did the mortgage contract also secure the penalty fee per month on the outstanding
amount as stipulated in the Credit Line Agreement?
Ruling:
No. The mortgage contract did not secure the penalty fee per month on the
outstanding amount as stipulated in the Credit Line Agreement.
A mortgage must "sufficiently describe the debt sought to be secured, which
description must not be such as to mislead or deceive, and an obligation is not
secured by a mortgage unless it comes fairly within the terms of the mortgage.
In the case at bar, the parties executed two separate documents the Credit Line
Agreement granting the Client a loan through a credit facility in the maximum
amount of P4,700,000.00, and the Real Estate Mortgage contract securing the
payment thereof.
The Credit Line Agreement contained the stipulation on interest and delinquency
charges:
9. INTEREST ON AVAILMENTS
The CLIENT shall pay the BANK interest on each availment against the Credit
Facility at the rate of:
PREVAILING PCIBANK LENDING RATE
for the first interest period as defined in A(10) hereof. x x x.
x x x
15. DELINQUENCY
CLIENT's account shall be considered delinquent if the availments exceed the
amount of the line and/or in case the Account is debited for unpaid interest
and the Available Balance is insufficient to cover the amount debited. In such
cases, the Available Balance shall become negative and the CLIENT shall pay
the deficiency immediately in addition to collection expenses incurred by the
BANK and a penalty fee of three percent (3%) per month of the outstanding
amount to be computed from the day deficiency is incurred up to the date of
full payment thereon.
The Real Estate Mortgage contract states its coverage as:
Xxx That for and in consideration of certain loans, credit and other banking
facilities obtained x x x from the Mortgagee, the principal amount of which is
PESOS FOUR MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00)
Philippine Currency, and for the purpose of securing the payment thereof,
including the interest and bank charges accruing thereon, xxx
The immediately-quoted provision of the mortgage contract does not specifically
mention that, aside from the principal loan obligation, it also secures the payment of
"a penalty fee of three percent (3%) per month of the outstanding amount to be
computed from the day deficiency is incurred up to the date of full payment thereon,"
which penalty as the above-quoted portion of the Credit Line Agreement expressly
stipulates.
Since an action to foreclose "must be limited to the amount mentioned in the
mortgage" and the penalty fee of 3% per month of the outstanding obligation is not
mentioned in the mortgage, it must be excluded from the computation of the amount
secured by the mortgage.
Prudential Bank v. Alviar
G.R. No. 150197, July 28, 2005
Tinga, J.
Doctrine: Mortgages given to secure future advancements are valid and legal contracts,
and the amounts named as consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.
Facts:
Respondent spouses are the registered owners of a parcel of land. They executed a
deed of real estate mortgage in favor of the petitioner to secure the payment of a
loan worth P250,000.00. Thereafter, respondents executed a promissory note
covering the said loan, which provided that the loan matured on August 4, 1976 at
an interest rate of 12% per annum with a 2% service charge, and that the note is
secured by a real estate mortgage. Significantly, the real estate mortgage contained
the following clause:
“That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR, and to
secure the payment of the same and those that may hereafter be obtained, the
principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(₱250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and expenses or any
other obligation owing to the Mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records of the Mortgagee..”
Don Alviar executed another promissory note for P2,640,000 signifying that the loan
was secured by a “hold-out” on the mortgagor’s foreign currency savings account,
and that the mortgagor’s passbook is to be surrendered to the bank until the amount
secured by the “hold-out” is settled. Afterwards, respondent spouses executed for
Donalco Trading Inc., a promissory note covering P545,000. As provided in the note,
the loan is secured by “Clean-Phase out TOD CA 3923” which means that the
temporary overdraft incurred by Donalco Trading, Inc. with the petitioner is to be
converted into an ordinary loan. Petitioner then wrote Donalco Trading Inc.,
informing the latter of its approval of a straight loan of P545,000, the proceeds of
which shall be used to liquidate the outstanding loan of P545,000 TOD. The letter
likewise mentioned that the securities of the loan were the deed of assignment on
two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and the chattel mortgage on various
heavy and transportation equipment. Respondents paid petitioner P2,000,000, to be
applied to the obligations of G.B Alviary Realty and Development, Inc., and for the
release of the real estate mortgage for the P450,000 loan covering the two lots
located at Vam Buren and Madison Streets in San Juan, Manila. The payment was
acknowledged by the petitioner who released the mortgage over the two properties.
Petitioner moved for the extrajudicial foreclosure of the mortgage on the property.
Per petitioner’s computation, respondents had the total obligation of P1,608,256.68
covering the three promissory notes. Respondents then filed for a complaint for
damages with a prayer for the issuance of a writ of preliminary injunction, claiming
that they have paid their principal loan secured by the mortgaged property, and thus
the mortgage should not be foreclosed.
The trial court dismissed the complaint and ordered the Sheriff to proceed with the
extrajudicial foreclosure. The court further ruled that only the P250,000 loan is
secured by the mortgage on the land. On the other hand, the P382,680.83 loan is
secured by the foreign currency deposit account of Don Alviar, while the P545,000
obligation was an unsecured loan, being a mere conversion of the temporary
overdraft of Donalco Trading Inc. The “blanket mortgage clause” relied upon by
petitioner applies only to future loans obtained by the mortgagors, and not by
parties other than the said mortgagors. On appeal, the CA ruled that the extrajudicial
foreclosure sale of the property for the three loans is improper. Further, it found that
respondents have not yet paid the P250,000 since the payment of P2,000,000
adverted to by respondents was issued for the obligations of G.B. Alviar Realty and
Development Inc.
Issue:
Does the “blanket mortgage” clause applies even to subsequent advances for which
other securities were intended?
Ruling:
Yes. A “blanket mortgage clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrase to subsume all debts of past or
future origins. Mortgages of this character enable the parties to provide continuous
dealings, the nature or extend of which may not be known or anticipated at the time,
and they avoid the expense and inconvenience of executing a new security on each
new transaction. Indeed, it has been settled in a long line of decisions that
mortgages given to secure future advancements are valid and legal contracts, and
the amounts named as consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four corners of the instrument
the intent to secure future and other indebtedness can be gathered. The “blanket
mortgage clause” in the instant case states:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR, and to
secure the payment of the same and those that may hereafter be obtained, the
principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(₱250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and expenses or any
other obligation owing to the Mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee,
its successors or assigns, the parcels of land which are described in the list inserted
on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or
constructed thereon, of which the Mortgagor declares that he/it is the absolute
owner free from all liens and incumbrances. . . .
Thus, contrary to the finding of the Court of Appeals, petitioner and respondents
intended the real estate mortgage to secure not only the P250,000 loan from the
petitioner, but also future credit facilities and advancements that may be obtained by
the respondents. The terms of the above provision being clear and unambiguous,
there is neither need nor excuse to construe it otherwise. The subsequent loans
obtained by respondents were secured by other securities, thus: a promissory note
executed by Don Alviar which was secured by a “hold-out” on his foreign currency
savings account, while the promissory note which was executed by respondents for
Donalco Trading, Inc., was secured by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U Valencia and Co., and by a chattel mortgage on various
heavy and transportation equipment. It was therefore improper for the petitioner in
this case to seek foreclosure of the mortgage property because of non-payment of all
the three promissory notes. While the existence and validity of the “dragnet clause”
cannot be denied, there is a need to respect the existence of the other security given
for one of the promissory notes.
Vda. De Delfin v. Dellota
G.R. No. 143697. January 28, 2008
Sandoval -Gutierrez, J.
Doctrine: ART. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases: (1) When the price of a sale with right to repurchase is
unusually inadequate
Facts:
Dionisia Dorado Delfin was the registered owner of Lot No. 1213 in Capiz with an
area of 143, 935 sqm. Dionisia executed an “Escritura De Venta Con Pacto de Retro”
over a 50,000 sqm portion of the lot in favor of spouses Dellota and Patricia Delfin.
Dionisia failed to exercise her right of redemption. Dionisia sold another portion of
the lot (50,000 sqm to Gumersindo Delena evidenced by a notarized “Deed of Sale
with right of redemption.” Dionisia never redeemed this portion of the land from
Gumersindo. Records show that Salvador Dellota leased this area from Gumersindo.
Sometime in 1956, Dionisia executed a “Deed of mortgage and promise to sell” in
favor of Salvador over a 90,000 sqm portion of Lot No. 1213 without specifying
whether it included the 50,000 sqm portion sold to Gumersindo. Dionisia filed with
the CFI a complaint for recovery of possession. The trial court declared that the
ownership over the 50,000 sqm portion of the subject lot is owned by the heirs of
Gumersindo. This was affirmed by the Court of Appeals. Petitioner contends that the
Court of Appeals erred in not holding that the Deed of Sale with the right of
redemption is an equitable mortgage under Art. 1602. They insist that the P5,300
price for a five hectare portion is grossly inadequate.
Issue:
Was there an equitable mortgage because P5,300 was grossly inadequate?
Ruling:
No. The Sale with a right of redemption is not an equitable mortgage.
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is extended;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to
the usury laws.
In this case, the courts find no cogent reason to conclude that the price as agreed
upon by the parties was unreasonable or unusually inadequate. According to
jurisprudence, the price agreed upon should not generally be considered as the just
value of the thing sold, absent other corroborative evidence. This is due to the fact
that the right to repurchase the land makes it immaterial to him whether or not the
price of the sale is the just value thereof.
The deed of sale with right to redemption is not an equitable mortgage and the
consideration of P5,300 is not grossly inadequate.
Erena v. Querrer-Kauffman
G.R. No. 165853, June 22, 2006
Callejo, Sr., J.
Doctrine: The doctrine of "mortgagee in good faith" is based on the rule that persons
dealing with properties covered by a Torrens certificate of title are not required to go
beyond what appears on the face of the title. However, this is only in a situation where
the mortgagor has a fraudulent or otherwise defective title, but not when the
mortgagor is an impostor and a forger.
Facts:
Vida Dana Querrer-Kauffman is the owner of a residential lot with a house
constructed thereon covered with a TCT. The owner’s duplicate copy of the title and
the tax declarations covering the property were kept in a safety deposit box in the
house. As she was going to the U.S., Kauffman entrusted her minor daughter, Vida
Rose, and the key to her house to her live-in partner, Eduardo Victor. Later on, both
Vida Rose and Victor also left for the U.S. and Mira Bernal, Victor’s sister, was
entrusted with the house and the key thereto. Afterwards, Kauffman asked her
sister, Evelyn Pares, to get the house from Bernal so that the property could be
sold, which the latter did. Upon the opening of the safe, Pares discovered that the
owner’s duplicate title and the tax declarations were missing. Kauffman returned to
the Philippines and went with Pares to the Register of Deeds. They found out that
the lot had been mortgaged to Rosana Ereña. Further, it appeared that respondent
had “signed” the real estate mortgage as owner-mortgagor, together with Jennifer
Ramirez, Victor’s daughter, as attorney-in-fact. As such, Kauffman filed a complaint
for nullification of deed of real estate mortgage and damages against Ereña, Bernal,
and Ramirez before the trial court. The trial court ruled that although Kauffman
provided proof that she owned the property and that her signatures were forged,
Ereña provided evidence that she was a mortgagee in good faith. On appeal, the CA
reversed the decision of the trial court and ruled in favor of Kauffman.
Issue:
Can the doctrine of “mortgagee in good faith” be applied in this case?
Ruling:
No, the doctrine of “mortgagee in good faith” cannot be applied in this case. One of
the essential requisites of a mortgage contract is that the mortgagor must be the
absolute owner of the thing mortgaged. A mortgage is invalid if the mortgagor is not
the property owner. In this case, the owner of the property is the respondent who
was not the one who mortgaged the same to the petitioner. Meanwhile, the doctrine
of "mortgagee in good faith" is based on the rule that persons dealing with
properties covered by a Torrens certificate of title are not required to go beyond
what appears on the face of the title. However, this is only in a situation where the
mortgagor has a fraudulent or otherwise defective title, but not when the mortgagor
is an impostor and a forger. In a forged mortgage, the doctrine of "mortgagee in good
faith" cannot be applied and will not benefit a mortgagee no matter how large is his
or her reservoir of good faith and diligence. Such mortgage is void and cannot
prejudice the registered owner whose signature to the deed is falsified. When the
instrument presented is forged, even if accompanied by the owner’s duplicate
certificate of title, the registered owner does not lose his title, and neither does the
assignee in the forged deed acquire any right or title to the property. In this case,
respondent’s signature on the real estate mortgage was forged by an impostor.
Hence, the doctrine of “mortgagee in good faith” cannot be applied in this case.
Cavite Development Bank v. Spouses Lim
G.R. No. 131769, February 1, 2000
Mendoza, J.
Doctrine: Under Art. 1459 of the Civil Code, at the time of delivery or consummation
stage of the sale, it is required that the seller be the owner of the thing sold.
Otherwise, he will not be able to comply with his obligation to transfer ownership to
the buyer.
Facts:
A certain Rodolfo Guinsang obtained a loan in the amount of P90,000 from CDB, to
secure which he mortgaged a parcel of land registered in his name. As Guinsang
defaulted in the payment of his loan, CDB foreclosed the mortgage. At the
foreclosure sale, the mortgaged property was sold to CDB as the highest bidder.
Private respondent Lim, assisted by broker Gatpandan, offered to purchase the
property from CDB for P300,000, payable 10% “Option Money”, balance in cash.
However, the prospective buyer found out that Rodolfo’s title had been cancelled
for being fraudulent. The buyer and her husband then filed an action against CDB
for specific performance and damages arguing that the latter committed serious
misrepresentation. CDB contended, among others, that there was no perfected
contract of sale yet as the buyer’s offer was still subject to approval. The RTC ruled
in favor if the buyers holding, among others, that there was already a perfected
contract of sale and that the sellers failed to exercise due diligence for failure to
discover the defect in Rodolfo’s title. The CA affirmed the RTC ruling.
Issue:
Was the CDB, a “mortgagee in good faith”, which would allow the foreclosure sale
to be given effect by reason of public policy?
Ruling:
No. Under Art. 1459 of the Civil Code, at the time of delivery or consummation
stage of the sale, it is required that the seller be the owner of the thing sold.
Otherwise, he will not be able to comply with his obligation to transfer ownership
to the buyer. The sale by CDB to Lim of the property mortgaged by Rodolfo
Guansing is deemed null and void for CDB did not have a valid title to the said
property because at the time that CDB was awarded with the property as the
highest bidder, the mortgagor was not the owner of the property foreclosed.
CDB failed to exercise their duty of exercising the due diligence of banking
institutions. While it is not required to make a detailed investigation of the history of
the title of the property given as security before accepting a mortgage as this was
covered by a Torrens Title, it was noted by the Supreme Court that it is standard for
banks to investigate on the properties offered to them as security for loans. Banks
are held at stricter standards given that their business is imbued with public interest.
In this case, it was shown that Rodolfo obtained his fraudulent title via a selfexecuted
deed showing that he, and another, were the only heirs over the subject
properties and that the latter waived his rights thereto. This should have placed the
bank on-guard to conduct further inquiry. There was also no showing that the records
of the investigation conducted by CDB was introduced as evidence.
Agag v. Alpha Financing Corp.
G.R. No. 154826, July 31, 2003
Ynares-Santiago, J.
Doctrine: When the purchaser or mortgagee is a financing institution, the general rule
that a purchaser or mortgagee of land is not required to look further than what appears
on the face of the title does not apply.
Facts:
In 1977, petitioner Romy Agag and Teresita Vda. De Castro executed a document
whereby the latter sold to petitioner three parcels of land. On the same date,
petitioner took possession of and occupied said lots after paying a down payment. He
also then introduced improvements on the subject lots and repeatedly demanded
from De Castro the delivery to him of the title of the lots but the latter failed to do
so. In 1997, respondent Alpha Financing Corporation requested petitioner to vacate
the disputed lots and claimed that it is the lawful owner of the subject parcels of
land occupied by petitioner, having purchased the same in a foreclosure sale after De
Castro failed to pay her loan with a mortgagee bank. Thereafter, TCT in the name of
De Castro were cancelled, and TCT were issued in the name of respondent in 1986.
Since petitioner refused to vacate the premises, respondent filed an ejectment case
with the Municipal Trial Court. MTC ruled in favor of petitioner holding that the
mortgage and the foreclosure sale from which respondent allegedly derived his
rights are inferior to the prior unregistered deed of absolute sale executed by De
Castro, the original owner in favor of petitioner. Since De Castro was no longer the
owner of the property at the time of the mortgage, respondent acquired no right from
her. MTC further ruled that respondent was not a purchaser in good faith because it
failed to exercise the degree of diligence required of financing institutions in dealing
with registered lands. The said decision was sustained by the Regional Trial Court.
However, on the petition for review, it was reversed by the Court of Appeals by
holding that the respondent had a better right to possess the lots because the best
proof of ownership is the indefeasible and incontrovertible title registered in its
name.
Issue:
Does the respondent have a better right to possess the disputed lots?
Ruling:
No. Indeed, as a general rule, where there is nothing on the certificate of title to
indicate any cloud or vice in the ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore further than what the Torrens Title
indicates on its face, in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This rule, however, applies only to innocent
purchasers for value and in good faith. It excludes a purchaser or mortgagee who has
knowledge of a defect or lack of title in the vendor, or of facts sufficient to induce a
reasonably prudent man to inquire into the status of the property.
In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court, the Court
ruled that when the purchaser or mortgagee is a financing institution, the general
rule that a purchaser or mortgagee of land is not required to look further than what
appears on the face of the title does not apply. "Ascertainment of the status and
condition of properties offered to it as security for the loans it extends must be a
standard and indispensable part of its operations. Surely it cannot simply rely on an
examination of a Torrens certificate to determine what the subject property looks
like as its condition is not apparent in the document." In Cruz v. Bancom Finance
Corporation, the Court ruled that their expertise or experience in dealing with
encumbrances on lands, not to mention the public interest affecting their business,
require them to exercise more care and prudence in dealing even with registered
lands.
In the case, respondent, being a financial institution, cannot claim good faith
considering that neither it nor the alleged mortgagee bank was in possession of the
lots prior and after the foreclosure sale. Had respondent conducted an ocular
inspection of the premises, this being the standard practice in the real estate
industry, it would have discovered that the land is occupied by petitioner. The failure
of respondent to take such precautionary steps is considered negligence on its part
and would thereby preclude the defense of good faith. Therefore, it is the petitioner
who has the better right on the disputed lots, the mortgage and the foreclosure sale
being inferior to the prior unregistered deed of absolute sale executed by De Castro,
in favor of petitioner.
Luntao v. BAP Credit Guaranty Corp.
G.R. No. 204412, September 20, 2017
Leonen, J.
Doctrine: As an accessory contract, a mortgage contract's validity depends on the loan
contract's validity.
Facts:
Vicente was the owner of a real property He executed a Special Power of Attorney in
favor of his sister Nanette, authorizing her (1) to mortgage his real property; (2) to
apply for any commercial loan as she may deem proper using the aforesaid property
as collateral for the loan; (3) to receive the proceeds of the loan to be used in the
improvements of her business; and (4) to sign, execute and deliver any documents to
effect the purposes aforestated. Using the authorization given to her, Nanette
applied for a loan with BAP and used Vicente's property as collateral. The loan was
for the improvement of the facilities of her business, the Holy Infant Medical Clinic.
Upon approval of the loan, the amount of P900,000.00, representing the loan
proceeds, was ordered to be released to the clinic through Security Bank. When the
loan obligation became due, BAP sent demand letters. In a letter dated October 14,
1997, Nanette and Eleanor's brother Jesus Luntao (Jesus) wrote BAP, asking for
additional time to settle his sisters’ accounts, which states “With reference to the
loans of my sisters, Nanette and Eleanor Luntao, under the name of Holy Infant
Medical Clinic, please be advised that due to some business reverses experienced for
the last several months, substantial losses were incurred that greatly affected our
capacity to service the loans. Perhaps, it could be recalled that in the past, we have
been meeting religiously the installments due.”
However, Nanette's loan was still left unpaid. As a result, BAP applied for Extra-
Judicial Foreclosure of Vicente's property. On November 27, 1997, the Regional Trial
Court issued a Notice of Foreclosure and a Notice of Extrajudicial Sale.
Subsequently, Vicente and Nanette filed a Complaint for Declaration of Nullity of
Real Estate Mortgage with a prayer for the issuance of a Temporary Restraining Order
and Writ of Preliminary Injunction against BAP. They also prayed for the award of
damages and attorney's fees in their favor.
According to Nanette, she was surprised to receive the notice of foreclosure since
she did not “receive” the proceeds of the loan. She also noticed that the documents
attached to the notice of foreclosure were the blank documents she signed earlier.
Upon checking, she was shocked to see that Eleanor's name was included in the loan
documents. It was Nanette's position to obtain the principal loan as stated in the
Special Power of Attorney as she was the only person authorized to mortgage
Vicente's property.
Issue:
Should the Real Estate Mortgage be nullified?
Ruling:
No, the Real Estate Mortgage should not be nullified. As an accessory contract, a
mortgage contract's validity depends on the loan contract's validity. It is, thus,
imperative for the Court to determine if the contract of loan between petitioners and
private respondent is valid. It has been held that like any other contract, a contract
of loan is subject to the rules governing the requisites and validity of contracts in
general. The elements of a valid contract are enumerated in Article 1318 of the Civil
Code, which states that there is no contract unless the following requisites concur:
(1) Consent of the contracting parties; (2) Object certain which is the subject matter
of the contract; (3) Cause of the obligation which is established.
Here, both the trial court and the Court of Appeals found that petitioners received
the proceeds of the loan through the account under the name of Holy Infant Medical
Clinic/Nanette Luntao/Eleanor Luntao. This finding was supported by evidence
presented by the parties. Both courts also gave weight to Jesus' October 14, 1997
letter. Despite having the opportunity to prove that the admission of Jesus is false,
petitioners failed to present rebuttal evidence. They also failed to present evidence
to support their allegation that Eleanor received the loan proceeds or that Eleanor's
non-payment of her alleged personal loan with BAP caused the foreclosure of the
mortgage. What petitioners presented were mere denials. Therefore, the Real Estate
Mortgage is valid and should not be nullified.
Spouses Ellis R. Miles and Carolina Ronquillo-Miles v. Bonnie
Bautista Lao
G.R. No. 209544, November 22, 2017
Tijam, J.
Doctrine: The doctrine of "the mortgagee in good faith" is based on the rule that buyers
or mortgagees dealing with property covered by a Torrens Certificate of Title are not
required to go beyond what appears on the face of the title.
Facts:
Petitioners were registered owners of a parcel of land located in Makati City. Before
they left for the US, the duplicate copy of the said land was entrusted to their niece
Rodora. Petitioners alleged that Rodora and spouses Ocampo conspired and made it
appear, through a falsified Deed of Donation that petitioners were donating the
subject property to spouses Ocampo wherein a new TCT was issued to the latter.
Later on, petitioners claimed that spouses Ocampo caused the execution of a
falsified Real Estate Mortgage in favor of respondent Lao, with the subject property
as security, in exchange for a loan.
Defendant Rodora claimed that the sale was with petitioners' knowledge and consent
through a SPA. Spouses Ocampo maintained that they acquired the property in good
faith and for value. Respondent alleged that she entered into the mortgage contract
without knowledge that the title was defective.
A complaint was filed wherein the RTC ruled in favor of petitioners, which was
however reversed by the CA and ruled that respondent is a mortgagee in good faith.
Issue:
Does the Court of Appeals erred in ruling that the respondent is a mortgagee in good
faith?
Ruling:
No. A mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property given as security, and in the absence of any sign that
might arouse suspicion, the mortgagee has no obligation to undertake further
investigation. This doctrine presupposes, however, that the mortgagor, who is not
the rightful owner of the property, has already succeeded in obtaining Torrens title
over the property in his name and that, after obtaining the said title, he succeeds in
mortgaging the property to another who relies on what appears on the title.
In this case, the title of the property under the name of spouses Ocampo was already
registered as early as May 6, 1998, while the real estate mortgage was executed
December 16, 1998. Hence, it is clear that respondent had every right to rely on the
TCT presented to her insofar as the mortgagors' right of ownership over the subject
property is concerned.
Neither is respondent's act of filing a foreclosure suit instead of a criminal case
against spouses Ocampo indicative of her bad faith. In Sps. Yap and Guevarra v. First
e-Bank Corp., this Court already recognized that if the debtor fails (or unjustly
refuses) to pay his debt when it falls due and the debt is secured by a mortgage and
by a check, the creditor has three options against the debtor and the exercise of one
will bar the exercise of the others. The remedies include foreclosure and filing of a
criminal case for violation of BP 22 (Bouncing Checks Law).
Verily, when respondent opted to foreclose, he merely exercised a privilege granted
to him by law as a secured creditor.
Hence, being a mortgagee in good faith the real estate mortgage is valid and with
legal force and effect.
Spouses Teves v. Integrated Credit & Corporate Services, Co.
G.R. No. 216714, April 4, 2018
Del Castillo, J.
Doctrine: It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of one year
after the registration of the sale. The buyer can in fact demand possession of the land
even during the redemption period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is required after the redemption
period if the property is not redeemed.
Facts:
Sometime in 1996, Standard Chartered Bank extended various loans to petitioners
Godfrey and Ma. Teresa Teves. As security, petitioners mortgaged their property
covered by Transfer Certificate of Title No. 107520. When petitioners defaulted in
their loan payments, Standard extrajudicially foreclosed on the mortgage, and the
property was sold to Integrated Credit and Corporate Services. ICCS was then issued
a new title when petitioners failed to redeem the subject property on May 23, 2007.
During the proceedings, in May 2010, ICCS was substituted by respondent Carol
Aqui who appears to have acquired the property from ICCS, and a new certificate of
title was issued in Aqui’s favor. The RTC then issued a decision ordering Petitioners
to surrender the property and that the rentals collected by them be surrendered as
well. Petitioners contend that the subject property has a notice of lis pendens and
that Standard waived its right for any deficiency and that the remedy for redeeming
the possession of the property and the collection of the back rentals are not proper
since Respondents should have filed a separate ordinary action. Respondents on the
other hand contend that petitioners are guilty of delaying the proceedings precisely
so that they may continue to unlawfully enjoy the use, fruits, and possession of the
subject property; that the Petition for Certiorari before the CA was an improper
remedy; and that what she is collecting from petitioners are not "back rentals" but
rents collected by the latter from tenants of the property, which she is entitled to
as a matter of law - being the owner of the subject property. The Court of Appeals
held that the remedy was proper since the action merely involved an interlocutory
order and does not refer to preliminary matters but rather they disposed of the
subject matter in its entirety, leaving nothing more to be done except to enforce it
by execution.
Is Respondent entitled to the possession and the back rentals of the subject
property?
Does the Regional Trial Court have the power to issue a writ of execution filed by
the purchaser in this case during the period of redemption?
Yes. Under Section 32, Rule 39 of the Rules of Court second sentence provides
that, “All rents, earnings and income derived from the property pending
redemption shall belong to the judgment obligor, until the expiration of his
period of redemption.” In this case, if petitioners leased out the property to third
parties after their period for redemption expired, as was in fact the case here,26
the rentals collected properly belonged to ICCS or Aqui, as the case may be.
Petitioners had no right to collect them. Aqui acquired the subject property from
ICCS only in 2010. Aqui cannot claim the subject rental collections from 2007,
because she was not yet the owner of the subject property at the time; they
belonged to ICCS. She is entitled to rentals collected only from the time she
became the owner of the property. However, as the substituted party in these
proceedings, this Court will allow her to collect the award of rentals collected by
petitioners but which pertain to ICCS - with the obligation to remit the same to
the latter. After all, she is merely ICCS's successor-in-interest. Thus Aqui is
entitled to such orders.
Yes. In the case of China Banking Corporation v. Spouses Lozada, the Supreme
Court held that if under Section 7 of Act No. 3135, as amended, the RTC has the
power during the period of redemption to issue a writ of possession on the ex
parte application of the purchaser, there is no reason why it should not also have
the same power after the expiration of the redemption period, especially where a
new title has already been issued in the name of the purchaser. Hence, the
procedure under Section 7 of Act No. 3135, as amended, may be availed of by a
purchaser seeking possession of the foreclosed property he bought at the public
auction sale after the redemption period has expired without redemption having
been made. Thus, the remedy of Respondent is proper and hence, entitled to the
possession of the subject property.
Bank Corporation v. Spouses Mercado
G.R. No. 192934, June 27, 2018
Jardeleza, J.
Doctrine: Act No. 3135 provides for the statutory requirements for a valid extrajudicial
foreclosure sale. Section 3 thereof requires that when the value of the property reaches
a threshold, the notice of sale must be published once a week for at least three
consecutive weeks in a newspaper of general circulation. Publication of the notice is
required to give the foreclosure sale a reasonably wide publicity such that those
interested might attend the public sale. It gives as much advertising to the sale as
possible in order to secure bidders and prevent a sacrifice of the property. Failure to
advertise a mortgage foreclosure sale in compliance with statutory requirements
constitutes a jurisdictional defect which invalidates the sale.
Facts:
Security Bank granted spouses Mercado a revolving credit line in the amount of
P1,000,000.00 subject to certain stipulations. To secure the credit line, the spouses
executed a Real Estate Mortgage in favor of petitioner Security bank over their
properties covered by TCT No. T-103519 (in Lipa City) and TCT No. T-89822 (in San
Jose, Batangas). Another Real Estate Mortgage in favor of Security Bank was
executed by the respondent-spouses over their properties covered by TCT Nos. T-
33150, T-34288, and T-34289 (all in Batangas City) to secure an additional amount
of P7,000,000.00 under the same revolving credit agreement.
Spouses Mercado defaulted in their payment under the revolving credit line
agreement. Security Bank requested the spouses Mercado to update their account,
and sent a final demand letter. It thereafter filed a petition for extrajudicial
foreclosure with respect to the parcel of land situated in Lipa City, San Jose,
Batangas, and Batangas City. The notices of the foreclosure sales of the properties
were published in newspapers of general circulation once a week for three
consecutive weeks as required by Act No. 3135, as amended. However, the
publication of the notices of the foreclosure of the properties in Batangas City and
San Jose, Batangas contained errors with respect to their technical description. The
errors in the notice consist of: (1) TCT No. T-33150- "Lot 952-C-1" which should be
"Lot 952-C-1-B;" (2) TCT No. T-89822 "Lot 1931, Cadm- 164-D" which should be "Lot
1931 Cadm 464-D;''[64] and (3) the omission of the location. Security Bank caused
the publication of an erratum in a newspaper to correct these errors. The erratum
was published only once, and did not correct the lack of indication of location in
both cases. The foreclosure sale of the properties were held wherein Security Bank
was adjudged as the winning bidder. The Certificate of Sale over these properties
were issued and registered with their respective Registry of Deeds. Spouses Mercado
offered to redeem the foreclosed properties for P10,000,000.00. However, Security
Bank allegedly refused the offer and made a counter-offer in the amount of
P15,000,000.00.
Respondent-spouses filed a complaint for annulment of foreclosure sale, damages,
injunction, specific performance, and accounting with application for temporary
restraining order and/or preliminary injunction with the RTC averring among others,
that (1) the parcel of land in San Jose, Batangas should not have been foreclosed
together with the properties in Batangas City because they are covered by separate
real estate mortgages; (2) the requirements of posting and publication of the notice
under Act No. 3135, as amended, were not complied with; (3) Security Bank acted
arbitrarily in disallowing the redemption of the foreclosed properties for
P10,000,000.00. Security Bank after consolidating its titles to the foreclosed parcels
of land, filed a petition for issuance of a writ of possession. The two cases were
consolidated before the RTC of Batangas City.
The RTC of Batangas City initially ruled that the foreclosure sales of the five parcels
of land were void, but later on modified its decision declaring that only the
foreclosure sales of the parcels of land in Batangas City and San Jose, Batangas are
void as it has no jurisdiction over the properties in Lipa City. The CA, on appeal,
affirmed with modification the RTC Amended Decision.
One of the arguments of Security Bank was that the CA erred in declaring that the
foreclosure sale was invalid. It argued that the foreclosure sale is valid because
Security Bank complied with the publication requirements of Act No. 3135, as
amended. The mistake in the original notice is inconsequential or minor since it only
pertains to a letter and number in the technical description without actually
affecting the actual size, location, and/or description or title number of the property.
It invokes Office of the Court Administrator (OCA) Circular No. 14 issued on May 29,
1984 governing the format of sale which allegedly does not require that the
complete technical description of the property be published.
Issue:
Are the foreclosure sales of the parcels of land in Batangas City and San Jose,
Batangas valid?
Ruling:
No. The foreclosure sales of the properties in Batangas City and San Jose, Batangas
are void for non-compliance with the publication requirement of the notice of sale.
Act No. 3135, as amended, provides for the statutory requirements for a valid
extrajudicial foreclosure sale. Among the requisites is a valid notice of sale. Section
3, as amended, requires that when the value of the property reaches a threshold, the
notice of sale must be published once a week for at least three consecutive weeks in
a newspaper of general circulation. Publication of the notice is required to give the
foreclosure sale a reasonably wide publicity such that those interested might attend
the public sale. It gives as much advertising to the sale as possible in order to secure
bidders and prevent a sacrifice of the property. Failure to advertise a mortgage
foreclosure sale in compliance with statutory requirements constitutes a
jurisdictional defect which invalidates the sale. This jurisdictional requirement may
not be waived by the parties; to allow them to do so would convert the required
public sale into a private sale. Thus, the statutory provisions governing publication
of notice of mortgage foreclosure sale must be strictly complied with and that even
slight deviations therefrom will invalidate the notice and render the sale at least
voidable.
Nevertheless, the validity of a notice of sale is not affected by immaterial errors.
Only a substantial error or omission in a notice of sale will render the notice
insufficient and vitiate the sale. An error is substantial if it will deter or mislead
bidders, depreciate the value of the property or prevent it from bringing a fair price.
In this case, while the errors seem inconsequential, they in fact constitute data
important to prospective bidders when they decide whether to acquire any of the lots
announced to be auctioned. First, the published notice misidentified the identity of
the properties. Since the lot numbers are misstated, the notice effectively identified
lots other than the ones sought to be sold. Second, the published notice omitted the
exact locations of the properties. As a result, prospective buyers are left completely
unaware of the type of neighborhood and conforming areas they may consider buying
into. With the properties misidentified and their locations omitted, the properties'
sizes and ultimately, the determination of their probable market prices, are
consequently compromised. The errors are of such nature that they will significantly
affect the public's decision on whether to participate in the public auction. The
errors in this case can deter or mislead bidders, depreciate the value of the
properties or prevent the process from fetching a fair price. To hold that the
publication of the correct technical description, with an incorrect title number, of the
property to be sold constitutes substantial compliance would certainly defeat the
purpose of the Notice. This is not to say that a correct statement of the title number
but with an incorrect technical description in the notice of sale constitutes a valid
notice of sale. The Notice of Sheriff’s Sale, to be valid, must contain the correct title
number and the correct technical description of the property to be sold.
While it is true that the circular does not require the full technical description of the
properties, it still requires the inclusion of the salient portions such as the lot
number of the property and its boundaries. In any case, what is apparent is that
Security Bank published incorrect data in the notice that could bring about confusion
to prospective bidders. In fact, their subsequent publication of an erratum is
recognition that the error is significant enough to bring about confusion as to the
identity, location, and size of the properties. However, the publication of a single
erratum does not cure the defect. The act of making only one corrective publication
in the publication requirement, instead of three corrections is a fatal omission
committed by the bank. The erratum is considered as a new notice that is subject to
the publication requirement for once a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality or city where the property is
located. Thus, the foreclosure sales are void for non-compliance with the publication
requirement of the notice of sale.
Diego v. Fernando
GR No. L-15128, August 25, 1960
Reyes, J.B.L., J.
Doctrine: If a contract of loan with security does not stipulate the payment of interest,
and possession of the mortgaged property is delivered to the mortgagee in order that
the latter may gather its fruits, but without stating that said fruits are to be applied to
the payment of interest, if any, and afterwards that of the principal, the contract is a
mortgage and not antichresis.
Facts:
On May 26, 1950, the defendant Segundo Fernando executed a deed of mortgage in
favor of plaintiff Cecilio Diego over two parcels of land registered in his name, to
secure a loan of P2,000, without interest, payable within four years from the date of
the mortgage. After the execution of the deed, possession of the mortgaged
properties were turned over to the mortgagee. The debtor having failed to pay the
loan after four years, the mortgagee Diego made several demands upon him for
payment; and as the demands were unheeded, Diego filed this action for foreclosure
of mortgage.
Defendant Fernando's defense was that the true transaction between him and
plaintiff was one of antichresis and not of mortgage; and that as plaintiff had
allegedly received a total of 120 cavans of palay from the properties given as
security, which, at the rate of P10 a cavan, represented a value of P5,200, his debt
had already been paid, with plaintiff still owing him a refund of some P2,720.00.
The Court, however, found that there was nothing in the deed of mortgage to show
that it was not a true contract of mortgage, and that the fact that possession of the
mortgaged properties were turned over to the mortgagee did not alter the
transaction; that the parties must have intended that the mortgagee would collect
the fruits of the mortgaged properties as interest on his loan, which agreement is not
uncommon; and that the evidence showed that plaintiff had already received 55
cavans of palay from the properties during the period of his possession. Whereupon,
judgment was rendered for plaintiff.
Issue:
Is the contract between the parties one of mortgage?
Ruling:
Yes,the contract between the parties is a true mortgage and not an antichresis. As
ruled in Legaspi and Salcedo vs. Celestial, it is not an essential requisite of a
mortgage that possession of the mortgaged premises be retained by the mortgagor.
Pursuant to Article 2132 of the Civil Code, to be antichresis, it must be expressly
agreed between creditor and debtor that the former, having been given possession of
the properties given as security, is to apply their fruits to the payment of the
interest, if owing, and thereafter to the principal of his credit; so that if a contract of
loan with security does not stipulate the payment of interest but provides for the
delivery to the creditor by the debtor of the property given as security, in order that
the latter may gather its fruits, without stating that said fruits are to be applied to
the payment of interest, if any, and afterwards that of the principal, the contract is a
mortgage and not antichresis.
The above conclusion does not mean, however, that appellee, having received the
fruits of the properties mortgaged, will be allowed to appropriate them for himself
and not be required to account for them to the appellant. Similarly, in Enriquez vs.
National Bank, 55 Phil., 414, we ruled that a creditor with a lien on real property
who took possession thereof with the consent of the debtor, held it as an "antichretic
creditor with the right to collect the credit with interest from the fruits, returning to
the antichretic debtor the balance, if any, after deducting the expenses", because the
fact that the debtor consented and asked the creditor to take charge of managing his
property "does not entitle the latter to appropriate to itself the fruits thereof unless
the former has expressly waived his right thereto".
In the present case, the parties having agreed that the loan was to be without
interest, and the appellant not having expressly waived his right to the fruits of the
properties mortgaged during the time they were in appellee's possession, the latter,
like an antichretic creditor, must account for the value of the fruits received by him,
and deduct it from the loan obtained by appellant.
Valencia v. Alcala
G.R. No. 16256, September 28, 1921
Villamor, J.
Doctrine: When the terms of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its clauses should prevail.
Facts:
This is an action for the redemption of certain land, which is described in the
complaint. In the year 1891, the plaintiff herein, Dionisia Valencia, and her
deceased husband, Daniel Adepueng, conveyed to one Severino Agbagala and his
wife Francisca Cadapan the land in question. Later on in the year 1899 Francisca
Cadapan, wife of Severino Agbagala, conveyed this same property to Juan Cagayat
and Josefa Galendis. That the possession of the land passed to Pedro Acala, who is
one of the Acalas, the defendants in the present action. In the year 1912, the herein
defendants Acala sold the land unconditionally to the herein defendant Bagayanan
for the sum of P70.
Issue:
Is their contract antichresis?
Ruling:
Yes. When the terms of a contract are clear and leave no doubts as to the intention
of the contracting parties, the literal meaning of its clauses should prevail. We are
of the opinion that the contract herein above copied is a contract of antichresis and
not of sale with the right of repurchase.
In the case of De la Vega v. Ballilos (34 Phil., 683), this court said:
"When money is loaned and the debtor places the creditor in possession of a
piece of real property as security for the sum loaned in order that he may hold it
in usufruct, in consideration for the said loan, the contract is not one of
mortgage, notwithstanding the terms thereof, inasmuch as it is not of the nature
of a public instrument, and even though it were, it does not appear to have been
recorded in the property registry. Neither can such a contract be classified as
one of sale under pacto de retro, notwithstanding that it is set forth therein that
the debtor cedes and conveys to the creditor the ownership and possession of the
said real property. Therefore, such a contract should be classified as one of
antichresis, by means of which the creditor acquires the right to collect the fruits
of the real property turned over to him by his debtor, but with the obligation to
apply them to the payment of whatever interest is due and the contracting parties
may stipulate that he interest of the debt be paid by the fruits of the property
given in antichresis."
The legal nature of the contract in question having thus been determined, it is
evident that the antichretic creditor and his successors in interest cannot acquire
ownership by prescription of the realty given in antichresis.
That the defendants Acala could not sell unconditionally the same land to their
codefendant Bagayanan, is proved by the agreed statement of facts according to
which the possession of the predecessor in interest of the Acala people was the same
precarious possession of his assignor Juan Cagayat.
Enriquez v. National Bank
GR. No. 33584, December 15, 1930
Villa-Real, J.
Doctrine: Since the bank took possession of the two parcels of land
with the consent of the debtor, the plaintiff herein, it held the land as an antichretic
creditor with the right to collect the credit with interest from the fruits, returning to the
antichretic debtor the balance, if any, after deducting the expenses.
Facts:
This is an appeal from the judgment of Court of First Instance. On and prior to the
15th of June, 1926, Marcelo Enriquez (debtor) was indebted to the Philippine
National Bank of Cebu (creditor) in the amount of P4,512.21, one of his sureties
being the defendant-appellee, Laureano Abella. By virtue of a complaint filed by said
bank against Marcelo Enriquez, Laureano Abella and Andres Abellana to collect the
amount of P3,554.66, the Court of First Instance of Cebu rendered judgment
requiring said defendants, Marcelo Enriquez, Laureano Abella, and Andres Abellana,
to pay the plaintiff the sum of P4,512.21 jointly and severally, with interest at nine
per cent per annum. With the consent of the bank, said decision was revoked by
Judge Guillermo F. Pablo. On March 26, 1927, by an agreement of counsel for both
parties, Judge Jose de la Rama reinstated the judgment, with the condition that a writ
of execution would be issued first against the defendant Marcelo Enriquez, and in
case of his insolvency, against the defendants Andres Abellana and Laureano Abella.
In accordance with said judgment a writ of execution was issued on March 29, 1927,
attaching the two parcels of land belonging to the judgment debtor, Marcelo
Enriquez, which were sold afterwards to the bank itself, being the highest bidder.
Later on, Marcelo Enriquez’s right of redemption was likewise sold, being adjudicated
to the defendant Laureano Abella. For nonpayment of the land tax, the two lots were
forfeited by the Government. At the request of the defendant judgment debtor, the
bank redeemed said lands from the Government on September 27, 1927, paying the
delinquent land taxes which amounted to P2,004.48. Said public auction sale has
been declared null and void by the court below in the judgment appealed from.
Issue:
Is the Philippine National Bank is bound to render an account to the net proceeds
from the said property.
Ruling:
Yes.
Article 2135 of the New Civil Code provides that the creditor, unless there is a
stipulation to the contrary, is obliged to pay the taxes and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and repair. The
sums spent for the purposes stated in this article shall be deducted from the fruits.
In this case, since the Philippine National Bank took possession of the two parcels of
land with the consent of the debtor, Marcelo Enriquez, it held the land as an
antichretic creditor with the right to collect the credit with interest from the fruits,
returning to the antichretic debtor the balance, if any, after deducting the expenses.
The fact that Marcelo Enriquez consented and asked the bank to take charge of
managing said property does not entitle the latter to appropriate to itself the fruits
thereof unless the former has expressly waived his right thereto.
In view of the foregoing consideration, we are of opinion and so hold that the
creditor who redeems from the Government real estate belonging to his debtor,
forfeited for delinquency in the payment of the land tax, and takes possession
thereof, is bound to render an account of the net proceeds received from said
property after deducting all the expenses incurred and the amount advanced for
redemption, with interest.
By virtue whereof, and with the sole modification that the defendant-appellee, the
Philippine National Bank, is required to render an account of the net proceeds from
the lands redeemed by it during its possession thereof, after deducting all the
expenses incurred and the amount paid for redemption, with interest, the judgment
appealed from is affirmed, with costs against the appellant.
Spouses Reyes v. Heirs of Malance
G.R. No. 219071, August 24, 2016
Perlas-Bernabe, J.
Doctrine: Thus, antichresis involves an express agreement between parties whereby :
(a) the creditor will have possession of the debtor's real property given as security;
(b)such creditor will apply the fruits of the said property to the interest owed by the
debtor, if any, then to the principal amount;(c) the creditor retains enjoyment of such
property until the debtor has totally paid what he owes; and (d) should the obligation
be duly paid, then the contract is automatically extinguished proceeding from the
accessory character of the agreement.
Facts:
Benjamin Malance owned a parcel of agricultural land in Pulilan, Bulacan. He
obtained from the Magtalas sisters a loan worth Php 600,000.00 as evidenced by a
Kasulatan Ng Ukol Sa Utang executed on June 26, 2006. Under the Kasulatan, the
Magtalas sisters shall have the right to the fruits of the subject land for six years or
until the loan is fully paid. Benjamin passed away on September 29, 2006.
His siblings, hereinr espondents, went to expect the subject property and
discovered that the Magtalas sisters and their spouses and father, were cultivating
the land. This prompted the respondents to file a Complaint for Recovery of
Possession, and sought to declare the nullity of the Kasulatan.
Respondents claimt that: a) during his lifetime, Benjamin accumulated enough
wealth to sustain himself, was unmarried and had no children to support; b) the
Kasulatan was executed during the time when Benjamin was seriously ill and
mentally incapacitated due to his illness and advanced age; and c) the Kasulatan
was simulated as the signature of Benjamin appearing thereon was not his
signature.
The petitioners, on the other hand, claim that Benjamin had not accumulated
enough wealth to sustain himself as his only income was his farm and further
averred that: a) when Benjamin became sickly in 2000, he leased the subject land to
different people who cultivated the same with their (petitioners') help; b) the
Kasulatan was executed before a notary public at the time when Benjamin was of
sound mind, though sickly; c) they were cultivating the subject land in accordance
with the said Kasulatan; d) the case involved an agrarian conflict within the
jurisdiction of the Department of Agrarian Reform Adjudication Board; and e) the
Malance heirs must pay Benjamin's indebtedness prior to recovery of possession
The RTC dismissed the complaint of the Malance heris for failing to substantiate
their claims. Upon appeal, the CA upheld the lower court's ruling and declared that
the contract between the parties wasa contract of antichresis.
Issue:
Is the contract between the parties a contract of Antichresis?
Ruling:
Yes. Art. 2132 of the Civil Code provides: "By the contract of antichresis the creditor
acquires the right to receive the fruits of an immovable of his debtor, with the
obligation to apply them to the payment of the interest, if owing, and thereafter to
the principal of his credit."
As correctly observed by the CA, The document specifically authorizes [the Magtalas
sisters] to receive the fruits of the subject landholding with the obligation to apply
them as payment to his [₱]600,000.00 principal loan for a period of six years.
From the provisions of Art. 2132, antichresis involves an express agreement between
parties whereby : (a) the creditor will have possession of the debtor's real property
given as security; (b)such creditor will apply the fruits of the said property to the
interest owed by the debtor, if any, then to the principal amount;(c) the creditor
retains enjoyment of such property until the debtor has totally paid what he owes;
and (d) should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character of the agreement.
Victorino Verzosa v. Pedro Bucag
GR No. L-8031 | Oct 29, 1955
Labrador, J.
Doctrine: An antichretic contract wherein the products of the land should be applied to
the interest and then to the principal
Facts:
On November 1, 1926, the defendants herein, Pedro Bucag and Bibiano Bucag, their
sister, Irene Bucag, and their mother, Ambrocia Malenab, conveyed a certain parcel
of land (unirrigated) situated in Angadanan, Isabela, to the spouses Faustino Andres
and Petra Abara, in consideration of an amount of P1,620, which the former had
received from the latter by way of indebtedness.
The heirs of Faustino Andres and Petra Abara transferred the land to Victorino
Verzosa, plaintiff herein, in 1948, in consideration of the sum of Pl,000, and
plaintiff was in possession and enjoyment thereof from then until November 29,
1950, when the defendants took possession without the consent of the plaintiff and
without returning the amount of indebtedness. The defendants are two of the
signers of the original deed of conveyance, Exhibit A.
The present action was instituted on January 24, 1951. The plaintiff alleges that he
is entitled to the possession of the land by virtue of deeds of conveyance, Exhibit A
and Exhibit B. The defendants in answer allege that the deed of conveyance, Exhibit
A, by virtue of which plaintiff's predecessors in interest were in possession of the
property, is null and void us the contract contained the rein is usurious, and that
their (defendants) original indebtedness has been sufficiently paid from the
products of the land during the time that it was in the possession of the plaintiff
and his predecessors in interest. The parties submitted the case for decision upon a
stipulation of facts, the most important of which have been set forth above.
The trial court held that the claim of the defendants that the indebtedness has
already been paid from the products of the laid so as to make the contract one of
antichresis is not justified by the evidence, and that neither was the transaction
usurious or contrary to good morals or public policy. It further held that defendants
could not recover the property without first paying the amount of the indebtedness.
The trial court, therefore, ordered the defendants to return the possession of the
land to the plaintiff, and for their wrongful possession of the property, the
defendants were also ordered to pay to the plaintiff the sum of P200.00 as liquidated
damages and P200.00 every year from November 29, 1950 until the possession of the
land in returned.
The principal contentions of the appellants are: that the trial court erred in not
declaring that the contract (Exhibit A) is antichretic in character, and that the
appellants have fully paid the amount of indebtedness and in ordering them to
return the possession of the property to the plaintiff and the payment to him of
damages.
Issue:
Is the contract between plaintiff and defendants one of mortgage?
Ruling:
Yes. The Supreme Court held in this case upon a careful study of the contract, Exhibit
A discloses the existence of three provisions which are indicative of the contract as
one mortgage and not of antichresis. In the first place, it is agreed that the full
amount of the indebtedness of P1,620 must be returned to the lenders before the
borrowers could demand the return of the property. This is contrary to an antichretic
contract wherein the products of the land should be applied to the interest and then
to the principal. In the second place, the contracting parties used the term mortgage
(hipoteca) in various parts of the contract, thus: (1) "con que hemos hipotecado el
terreno," (2) "El terreno que hipotecamos and (3) "con que hipotecamos el arriba
mencionado terreno." In the third place, the parties agreed that the lenders are not
to pay rentals on the property in consideration of the fact that the borrowers do not
pay interest on the land which they obtained as a loan. Therefore the contract is a
contract of mortgage.
Cotoner-Zacarias v. Revilla
G.R. No. 190901, November 12, 2014
Leonen, J.
Doctrine: Article 2132 of the Civil Code provides that "[b]y the contract of antichresis
the creditor acquires the right to receive the fruits of an immovable of his debtor, with
the obligation to apply them to the payment of the interest, if owing, and thereafter to
the principal of his credit."
Antichresis involves an express agreement between parties such that the creditor will
have possession of the debtor's real property given as security, and such creditor will
apply the fruits of the property to the interest owed by the debtor, if any, then to the
principal amount.
Facts:
Respondents are the owners of an unregistered land,ownership being evidenced by
Tax Declaration No. 7971, s. 1980. Sometime in 1981, plaintiffs needed money for
the travel and deployment of plaintiff Alfredo to Saudi Arabia. Plaintiff Paz Revilla
sought financial help from defendant Cotoner- Zacarias from whom she was able to
obtain a loan but secured with and by way of mortgage of the subject property . The
parties further agreed that defendant Cotoner-Zacarias would take possession of the
subject property and cultivate it with the earnings therefrom to be used to pay-off
the loan and the annual realty taxes on the land. It was their agreement with
defendant Cotoner-Zacarias that the latter will rent the subject property and with
that agreement, the lease started sometime in 1981 and plaintiffs got from
defendant Cotoner-Zacarias the amount of Php3,000.00 as rental for the first year,
1981, with no specific
agreement as to the period covered by such rental. Unknown to the Revilla spouses,
Amada presented a fictitious document entitled "Kasulatan ng Bilihan ng Lupa"
before the Provincial Assessor of Cavite. On August 25, 1984, Amada sold the
property to the spouses Adolfo and Elvira Casorla by "Deed of Absolute Sale-
Unregistered Land." Then Casorla spouses sold the same to Sun spouses.
(Petitioner’s argument)
Petitioner argues that the antichresis claim of the Revilla spouses was not reduced
into writing, thus, it is void under Article 2134 of the Civil Code. 26 She submits that
the allegation of antichresis was only an excuse by the Revilla spouses for their
failure to impugn possession of the property by Amada and her successors-in-interest
for over 16 years.
(Respondent’s argument)
Respondents Revilla spouses counter that the factual issue of whether the "Kasulatan
ng Bilihan ng Lupa" is a falsified document was already conclusively resolved by the
lower courts and, generally, factual findings are beyond this court's power of review.
The Regional Trial Court 22 found the "Kasulatan ng Bilihan ng Lupa" to be a
fictitious document, and ruled in favor of the Revilla spouses.
Issue:
Was the contract between the parties an antichresis?
Ruling:
Yes. Article 2132 of the Civil Code provides that "[b]y the contract of antichresis the
creditor acquires the right to receive the fruits of an immovable of his debtor, with
the obligation to apply them to the payment of the interest, if owing, and thereafter
to the principal of his credit."
Thus, antichresis involves an express agreement between parties such that the
creditor will have possession of the debtor's real property given as security, and such
creditor will apply the fruits of the property to the interest owed by the debtor, if
any, then to the principal amount.
Antichresis requires delivery of the property to the antichretic creditor, but the latter
cannot ordinarily acquire this immovable property in his or her possession by
prescription. Similar to the prohibition against pactum commissorium 83 since
creditors cannot "appropriate the things given by way of pledge or mortgage, or
dispose of them," an antichretic creditor also cannot appropriate the real property in
his or her favor upon the non-payment of the debt.
Antichresis also requires that the amount of the principal and the interest be in
writing for the contract to be valid.
Respondents Revilla spouses' complaint sought "to annul the sales and transfers of
title emanating from Tax Declaration No. 7971 registered in their name. There was
no prayer to declare the purported contract of sale as antichresis. Thus, respondents
Revilla spouses neither discussed nor used the term "antichresis" in their comment
and memorandum before this court. They focused on the nature of their complaint as
one for annulment of titles on the ground of forgery.
The issue before us does not concern the nature of the relationship between the
parties, but the validity of the documents that caused the subsequent transfers of the
property involved.
Pacific Farms, Inc. v. Esguerra
G.R. No. L-21783, November 29, 1969
Castro, J.
Doctrine: Before there can be a pro rata payment of credits entitled to preference as to
the same specific real property, there must first be some proceeding where the claims of
all the preferred creditors may be bindingly adjudicated, such as insolvency, the
settlement of a decedent's estate under Rule 87 of the Rules of Court, or liquidation
proceedings of similar import.
Facts:
Carried Lumber Company sold and delivered lumber and construction materials to
Insular Farms, Inc. which the latter used in the construction of the aforementioned
six buildings at its compound. However, the value of the materials was not paid by
Insular Farms, Inc. Company instituted a civil case with the CFI of Pangasinan to
recover the said unpaid balance from Insular Farms, Inc. The Trial court rendered
judgment sustaining the Company's claim. The judgment debtor did not appeal; so
the corresponding writ of execution was issued. Pacific Farms, Inc. then filed a third
party claim, asserting ownership over levied buildings which it acquired from Insular
Farms, its predecessor-in-interest. Thereafter, the sheriff proceeded with public
auction. Meanwhile, Pacific Farms filed a complaint against the Company and the
sheriff with the court a quo, praying that judgment be rendered, (a) declaring null
and void the levy and judicial sale of the six buildings, and (b) adjudging the
defendants jointly and severally liable to the plaintiff in the sum of P2,000 by way of
actual damages and for such amount as the court may deem proper and just to
impose by way of exemplary damages and for costs of suit Trial court annulled the
levy but denied claim for actual and exemplary damages.
Issue:
Was the credit of defendant-appellant, Carried Lumber Company, against the Insular
Farms, Inc., consisting of the value of lumber and construction materials used in the
buildings which were later acquired by the Pacific Farms, Inc., the appellee, not a
statutory lien on those buildings as decided by the lower court?
Ruling:
NO, the lower court erred in holding that the credit of Carried Lumber Company
against Insular Farms were not statutory lien. The trial court in this case relied
mainly on the resolution promulgated on December 29, 1962 by this Court in De
Barretto, et al. vs. Villanueva, et al. The said case, however, is inapplicable because
it concerned not one but two or more preferred creditors who, pursuant to articles
2242 and 2249 of the Civil Code, must necessarily be convened and the nature and
extent of their respective claims ascertained. Thus, we held that before there can be
a pro rata payment of credits entitled to preference as to the same specific real
property, there must first be some proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency, the settlement of a
decedent's estate under Rule 87 of the Rules of Court, or liquidation proceedings of
similar import. But the case before us does not involve a question of preference of
credits, and is not one where two or more creditors have separate and distinct claims
against the same debtor who has insufficient property. Indeed, it is a matter of
necessity and logic that the question of preference should arise only where the
debtor cannot pay his debts in full.
Hence, the appellant acted correctly in bringing an action against the Insular Farms,
Inc. and enforcing its right of reimbursement through the execution of the final
judgment. It obtained in the said case against the six buildings in the possession of
the appellee who now stands to benefit therefrom. It follows, as a necessary
corollary, that the sale at public auction conducted by the defendant sheriff of the
six buildings described in the Certificate of Sale was valid and effective.
Also, the application by analogy of the rules of accession would suffice for a just
adjudication. Article 447 of the Civil Code provides:
Art. 447. The owner of the land who makes thereon, personally or through another,
plantings, constructions or works with the materials of another, shall pay their value;
and, if he acted in bad faith, he shall also be obliged to the reparation of damages.
The owner of the materials shall have the right to remove them only in case he can
do so without injury to the work constructed, or without the plantings, constructions
or works being destroyed. However, if the landowner acted in bad faith, the owner of
the materials may remove them in any event, with a right to be indemnified for
damages.
The above-quoted legal provision contemplates a principal and an accessory, the
land being considered the principal, and the plantings, constructions or works, the
accessory. The owner of the land who in good faith —whether personally or through
another —makes constructions or works thereon, using materials belonging to
somebody else, becomes the owner of the said materials with the obligation however
of praying for their value. The owner of the materials, on the other hand, is entitled
to remove them, provided no substantial injury is caused to the landowner.
Otherwise he has the right to reimbursement for the value of his materials.
Yngson, Jr. v. Philippine National Bank
G.R. No. 171132, August 15, 2012
Villarama, Jr., J.
Doctrine: The creditor-mortgagee has the right to foreclose the mortgage over a
specific real property whether or not the debtor-mortgagor is under insolvency or
liquidation proceedings. The right to foreclose such mortgage is merely suspended upon
the appointment of a management committee or rehabilitation receiver or upon the
issuance of a stay order by the trial court. However, the creditor-mortgagee may
exercise his right to foreclose the mortgage upon the termination of the rehabilitation
proceedings or upon the lifting of the stay order.
Facts:
In this petition for review a certiorari, petitioner Manuel D. Yngson, Jr., liquidator of
ARCAM & Company, Inc., assails the decision of the CA dismissing its petition for
review of the resolution of the SEC denying his petition to nullify the auction sale of
ARCAM’s mortgaged properties. Action came after ARCAM was granted a loan by
PNB, with a real estate mortgage covering a 350,004 parcel of land being established
as security thereto. ARCAM then defaulted on its obligation to pay to PNB, leading to
the latter initiating foreclosure proceedings against the former. Thereafter, ARCAM
filed with the SEC a petition for the suspension of payments and the initiation of
rehabilitation proceedings. SEC eventually concluded that ARCAM could no longer be
rehabilitated, and ordered the lifting of the suspension of payments, as well as the
corporation be liquidated. PNB then revived the case of foreclosure. Petitioner
assails this, contending that foreclosure of the properties of ARCAM while its
liquidation was ongoing is improper.
Issue:
Is the PNB barred from foreclosing the mortgages?
Ruling:
No. The creditor-mortgagee has the right to foreclose the mortgage over a specific
real property whether or not the debtor-mortgagor is under insolvency or liquidation
proceedings. The right to foreclose such mortgage is merely suspended upon the
appointment of a management committee or rehabilitation receiver or upon the
issuance of a stay order by the trial court. However, the creditor-mortgagee may
exercise his right to foreclose the mortgage upon the termination of the
rehabilitation proceedings or upon the lifting of the stay order. Thus, PNB is not
barred from foreclosing the mortgages in the case at bar.
DBP v. Secretary of Labor
G.R. No. 79351, November 28, 1989
Cortes, J.
Doctrine: Article 110 of the Labor Code establishes not a lien but a preference of credit
in favor of employees where during bankruptcy, insolvency or liquidation proceedings
against the employer, the employees are given the priority in having their claims
proved therein satisfied.
Facts:
Private respondents won a case for illegal dismissal, unfair labor practice, illegal
deductions from salaries and violation of the minimum wage law against Riverside
Mills Corporation. Consequently, a writ of execution was issued, on October 22,
1985, against the goods and chattel of RMC. Said assets however had already been
foreclosed by petitioner Development Bank of the Philippines (DBP) through an
extra-judicial proceedings as early as 1983. Private respondents, in a motion, moved
for the delivery of RMC properties in possession of DBP, relying on the provisions of
Article 110 of the Labor Code giving them first preference over the mortgaged
properties of RMC for the satisfaction of the judgment rendered in their favor. Which
motion was granted. On appeal, the decision was affirmed.
Respondents, in citing the case of PCIB v. NAMAWU-MIF, argue that by virtue of
Article 110 of the Labor Code, an "automatic first lien" was created in favor of
private respondents on RMC properties — a "lien" which pre-dated the foreclosure of
the subject properties by petitioner, and remained vested on these properties even
after its sale to petitioner and other parties.
Article 110. WORKER PREFERENCE IN CASE OF BANKRUPTCY. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy first
preference as regards wages due them for services rendered during the period
prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may
establish any claim to a share in the assets of the employer.
It is clear from the wording of the law that the preferential right accorded to
employees and workers under Article 110 may be invoked only during bankruptcy
or judicial liquidation proceedings against the employer. The rationale for making
the application of Article 110 of the Labor Code contingent upon the institution
of bankruptcy or judicial liquidation proceedings against the employer is
premised upon the very nature of a preferential right of credit. A preference of
credit bestows upon the preferred creditor an advantage of having his credit
satisfieed first ahead of other claims which may be established against the
debtor. In this jurisdiction, bankruptcy, insolvency and general judicial
liquidation proceedings provide the only proper venue for the enforcement of a
creditor's preferential right such as that established in Article 110 of the Labor
Code, for these are in rem proceedings binding against the whole worldwhere all
persons having any interest in the assets of the debtor are given the opportunity
to establish their respective credits
In this case, It appears on record, and remains undisputed by respondents, that
petitioner had extra-judicially foreclosed the subject properties from RMC as
early as 1983 and purchased the same at public auction, and that RMC had failed
to exercise its right to redeem. Thus, when Officer-in-Charge Young issued on
December 11, 1986 the order which directed the delivery of these properties to
the Ministry (now Department) of Labor and Employment, RMC had ceased to be
the absolute owner thereof Consequently, the order was directed against
properties which no longer belonged to the judgment debtor RMC.
2. No. What Article 110 of the Labor Code establishes is not a lien, but a preference
of credit in favor of employees where during bankruptcy, insolvency or liquidation
proceedings against the employer, the employees are given the priority in having
their claims proved therein satisfied. Unlike a lien, a preference of credit does
not create in favor of the preferred creditor a charge or proprietary interest upon
any particular property of the debtor. Neither does it vest as a matter of course
upon the mere accrual of a money claim against the debtor. Certainly, the debtor
could very well sell, mortgage or pledge his property, and convey good title
thereon, to third parties free from such preference.
DBP v. NLRC
G.R. No. 86227, January 19, 1994
Vitug, J.
Doctrine: Worker preference in case of bankruptcy must be viewed and read in
consonance with the provisions of the civil code on concurrence and preference of
credit.
Facts:
The private respondents were employees of ATLAS, a textile firm, which
hypothecated its certain assets to DBP. After ATLAS defaulted in its obligations,
DBP foreclosed on the mortgage in March 1985. The latter acquired the mortgaged
assets by virtue of the foreclosure sale. The private respondents filed their
aforementioned claim, on 30 October 1985, against both ATLAS and DBP. The Labor
Arbiter ruled for the private respondents. On appeal by DBP, the decision was
sustained by the NLRC. Hence, the instant petition. The petitioner contends that it
is error on the part of the public respondent to consider the workers' preference
under Article 110 of the Labor Code over that of DBP's mortgage lien.
Issue:
Is the petitioner liable for monetary claims of the private respondents?
Ruling:
No. Article 110 of the Labor Code, as amended, must be viewed and read in
conjunction with the provisions of the Civil Code on concurrence and preferences of
credits. Article 110 of the Labor Code cannot be viewed in isolation but must be
read in relation to the Civil Code scheme on classification and preference of credits.
In the same way that the Civil Code provisions on classification of credits and the
Insolvency Law have been brought into harmony, so also must the kindred
provisions of the Labor Law be made to harmonize with those laws. In the event of
insolvency, a principal objective should be to effect an equitable distribution of the
insolvent's property among his creditors. To accomplish this there must first be
some proceeding where notice to all of the insolvent's creditors may be given and
where the claims of preferred creditors may be bindingly adjudicated (De Barreto vs.
Villanueva). The right of first preference as regards unpaid wages recognized by
Article 110 does not constitute a lien on the property of the insolvent debtor in favor
of workers. It is but a preference of credit in their favor, a preference in application.
It is a method adopted to determine and specify the order in which credits should be
paid in the final distribution of the proceeds of the insolvent's assets. It is a right to
a first preference in the discharge of the funds of the judgment debtor." (DBP vs.
Secretary of Labo)
Here, it concerns monetary claims of workers that are not involved in judicial
proceedings in rem in adjudication of claims of creditors vis-a-vis the assets of the
debtor, nor have such claims accrued after the effectivity of Republic Act 6715.
Therefore, the petitioner is not liable for monetary claims of the private respondents.
Associated Labor Unions v. Court of Appeals
G.R. No. 156882. October 31, 2008
Velasco, Jr., J.
Doctrine:. Art. 110 of the Labor Code applies only to cases of bankruptcy and
liquidation. Likewise, Arts. 2242, 2243, and 2244 of the Civil Code on concurrence and
preference of credits properly come into play only in cases of insolvency.
Facts:
The Roman Catholic Archbishop of Palo, Leyte sold to Societas Verbum Dei the
subject 13 parcels of land. The Deed of Sale contained the condition that the lands
and properties shall be used by the SVD for educational purposes, especially and as
far as possible, for the maintenance and further development of the institution
known as the ST. PAUL'S COLLEGE and shall be turned over to the ownership and
possession of the Roman Catholic Bishop of Palo in case there is or are
circumstances which will be beyond the control of the contracting parties forcing
the abandonment of educational and religious work of the Society of the Divine
Word. While the conveying document was not notarized, the SVD was able to secure
the corresponding transfer certificates of title over the subject lots, but the deed
conditions, restrictions, and reversionary right of the RCAP were not annotated on
the new titles. Due to labor unrest, DWUT, run by the SVD, and petitioners engaged
in a protracted legal battle. DWUT was rendered liable to petitioners amounted to
PhP200 million, more or less. RCAP filed a petition before the RTC and prayed for
an order directing the Registry of Deeds of Tacloban City to register the Deed of
Sale and annotate on the corresponding SVD titles the conditions, restrictions, and
a reversionary interest of the RCAP stipulated in the deed. DWUT issued notices to
petitioners' members, advising them of the decision of the DWUT Board of Trustees
to consider themselves dismissed effective at the close of business hours of June
15, 1995.
Meanwhile, National Conciliation and Mediation Board ordered DWUT to pay
PhP163,089,337.57 to the members of petitioner Union as partial satisfaction of the
final resolution of this Court. Prompted by the closure of DWUT and the resulting
termination of its members' services, the Union filed a complaint, against DWUT, its
Board of Trustees, and the RCAP for Unfair Labor Practice, Illegal Dismissal, and
Damages before the Regional Arbitration Branch. The Union alleged in its complaint
that the sale of the subject properties over which the DWUT is located was
incomplete due to the adverted conditions, restrictions, and a reversionary right of
the RCAP over the subject properties and that RCAP did not, despite the sale, sever
its employment relations with DWUT which, thus, rendered the RCAP solidarily liable
with DWUT for the payment of the benefits of the Union members.
Petitioners filed their Motion to Intervene relying on Article 110 of the Labor Code in
relation to Arts. 2242, 2243, and 2244 of the Civil Code on concurrence and
preference of credits, they asserted preferential rights over the subject properties
now owned by and registered under the name of the SVD. RTC dismissed the petition.
Unsatisfied, the RCAP filed a motion for reconsideration which was likewise denied.
Issue:
Do the petitioners have the preferential rights over the subject properties now
owned by and registered under the name of the SVD?
Ruling:
No. A judgment lien over the subject properties has not legally attached and that Art.
110 of the Labor Code, in relation to Arts. 2242, 2243, and 2244 of the Civil Code on
concurrence and preference of credits, does not cover the subject properties. Art. 110
of the Labor Code applies only to cases of bankruptcy and liquidation. Likewise, the
above mentioned articles of the Civil Code on concurrence and preference of credits
properly come into play only in cases of insolvency. Since there is no bankruptcy or
insolvency proceeding to speak of, much less a liquidation of the assets of DWUT, the
Union cannot look to said statutory provisions for support. Moreover, the utter lack
of showing that DWUT has no other assets to answer its obligations. DWUT may have
liquidity problems hampering its ability to meet its judicially-imposed obligations.
The school, however, appears to have other properties it can and in fact did use to
settle its obligations as shown in the February 24, 1997 MOA between DWUT, the
Union, and RCAP. A scrutiny of the MOA readily shows that the subject properties
were not included in the assets or properties earmarked to settle DWUT's obligations.
Thus, petition denied.
Strategic Alliance Development Corporation v Radstock
Securities, Ltd.
G.R. No. 178158. December 4, 2009
Carpio, J.
Doctrine: Articles 2241, 2242 and 2243 of the Civil Code expressly mandate that taxes
and fees due the National Government "shall be preferred" and "shall first be satisfied"
over claims like those arising from the Marubeni loans which "shall enjoy no
preference" under Article 2244.
Facts:
Philippine National Construction Corporation (PNCC) was incorporated with the
name Construction Development Corporation of the Philippines (CDCP). The CDCP
was granted a franchise to construct, operate, and maintain toll facilities in the
North and South Luzon Tollways, and later, in the Metro Manila Expressway.
Sometime between 1978 and 1981, Basay Mining Corporation, a CDCP affiliate,
obtained loans from Marubeni Corporation of Japan, amounting to ¥5,460,000,000
and US$5 million. A CDCP official issued letters of guarantee for the loans, binding
CDCP to pay solidarily for the full amount of the ¥5,460,000,000 loan, and to the
extent of ₱20 million for the US$5 million loan. However, the issuance of the
letters of guarantee was not authorized by CDCP Board Resolution. Later, Basay
Mining changed its name to CDCP Mining Corporation. CDCP Mining secured the
Marubeni loans when CDCP and CDCP Mining were still privately owned and
managed.
CDCP had changed its name to PNCC. Due to its inability to pay off its loans, it had
converted some of these loans into equity. However, the Marubeni loans remained
unpaid. On 20 October 2000, the PNCC Board of Directors passed a resolution
admitting PNCC’s liability to Marubeni for ₱10,743,103,388, and to the Government
of the Republic of the Philippines in the amount of ₱36,023,784,751 in concession
fees, as of 30 September 1999.
Three months later, Marubeni assigned its entire credit against PNCC to Radstock
Securities Limited for US$2 million. Radstock immediately sent a notice and demand
letter to PNCC. Having been unpaid, Radstock filed an action for collection and
damages against PNCC before the RTC of Mandaluyong City. PNCC moved to dismiss
and to have the order of attachment and garnishment set aside. These motions were
denied by the RTC, and such denial was assailed by the PNCC all the way to the
Supreme Court. Meanwhile, the RTC ruled in favor of Radstock on the merits.
Pending appeal of the decision on the merits to the CA, Radstock and PNCC entered a
Compromise Agreement to reduce PNCC’s liability to ₱6,185,000,000. The CA
approved the Compromise Agreement.
Strategic Alliance Development Corporation (STRADEC) intervened, alleging that it
has a claim against PNCC as a bidder of the National Government’s shares in PNCC,
and the matter is subject of a complaint it filed against PNCC with the RTC of Makati.
The CA denied STRADEC’s motion for intervention. Thus, STRADEC filed a petition for
review before the Supreme Court, assailing the validity of the Compromise
Agreement, arguing that the same violates the Constitution, law, and public policy.
One of the issues raised was PNCC’s non-compliance with the rules on preference of
credit under the Civil Code when it chose to give preference to Radstock’s credit over
that of the government.
Issue:
Does the Compromise Agreement contravene the Civil Code’s rules on preference of
credit?
Ruling:
Yes. Articles 2241, 2242, and 2243, all expressly provide that taxes and fees due the
National Government shall be preferred and shall first be satisfied over claims which
enjoy no preference. The rules on preference of credit exist so that creditors may be
protected against any intention by the debtor to defraud them in case of insolvency.
First of these creditors is the National Government on the taxes and fees due to it.
In this case, PNCC expressly admitted that there existed a liability on its part to the
government, to the tune of ₱36 billion. This was admitted at the same time it
admitted its liability to Marubeni for loans which the latter extended to it. Also,
PNCC had already been in a state of insolvency due to its negative net worth in the
billions of pesos, as it had debts that remained unpaid, such as the Marubeni loans,
even though some of its other liabilities had been converted into equity. Being in
such a state of financial embarrassment, PNCC ought to follow the rules on
preference of credit under the Civil Code. However, PNCC opted to prioritize and
prefer the credit which Radstock held against it over the concession fees and taxes
due to the Government when it entered into a Compromise Agreement with Radstock.
With all these in consideration, the Compromise Agreement violated the Civil Code’s
rules on preference of credit.
Republic v. Peralta
GR No. L-56568| May 20, 1987
Feliciano, J.
Doctrine: Claims for unpaid wages do not therefore fall at all within the category of
specially preferred claims established under Articles 2241 and 2242 of the Civil Code,
except to the extent that such claims for unpaid wages are already covered by Article
2241, number 6. "claims for laborers' wages, on the goods manufactured or the work
done;" or by Article 2242, number 3: "claims of laborers and other workers engaged in
the construction, reconstruction or repair of buildings, canals and other works, upon
said buildings, canals or other works.
Facts:
Private respondent Quality Tobacco Corporation instituted voluntary insolvency
proceedings with the CFI of Manila. Among its creditors were two unions (USTC and
FOITAF) who wanted to collect separation pay for their members.
The CFI held that the said claims of the unions embodied in final awards of the
National Labor Relations Commission were to be preferred over the claims of the
Bureau of Customs and the Bureau of Internal Revenue. The CFI relied primarily upon
Article 110 of the Labor Code in its ruling.
In the instant petition for certiorari, however, the Supreme Court emphasized that in
order to resolve the issue at hand, Article 110 of the Labor Code must be read in
relation to the provisions of the Civil Code concerning the classification, concurrence
and preference of credits, which provisions find particular application in insolvency
proceedings where the claims of all creditors, preferred or non-preferred, may be
adjudicated in a binding manner.
Issue:
Are the claims for unpaid wages fall within the category of specially preferred claims
established under Articles 2241 and 2242 of the Civil Code?
Ruling:
No. Article 110 of the Labor Code does not purport to create a lien in favor of
workers or employees for unpaid wages either upon all of the properties or upon any
particular property owned by their employer. Claims for unpaid wages do not
therefore fall at all within the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims
for unpaid wages are already covered by Article 2241, number 6. "claims for laborers'
wages, on the goods manufactured or the work done;" or by Article 2242, number 3:
"claims of laborers and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works, upon said buildings, canals or other
works." To the extent that claims for unpaid wages fall outside the scope of Article
2241, number 6 and 2242, number 3, they would come within the ambit of the
category of ordinary preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the claims of the Unions for
separation pay of their members constitute liens attaching to the processed leaf
tobacco, cigars and cigarettes and other products produced or manufactured by the
Insolvent, but not to other assets owned by the Insolvent. And even in respect of
such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only after the Bureau of Internal Revenue's claim for
unpaid tobacco inspection fees shall have been satisfied out of the products so
manufactured by the Insolvent.
Article 2242, number 3, also creates a lien or encumbrance upon a building or other
real property of the Insolvent in favor of workmen who constructed or repaired such
building or other real property. Article 2242, number 3, does not however appear
relevant in the instant case, since the members of the Unions to whom separation
pay is due rendered services to the Insolvent not (so far as the record of this case
would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The
Unions' claims do not therefore constitute a lien or encumbrance upon any
immovable property owned by the Insolvent, but rather, as already indicated, upon
the Insolvent's existing inventory (if any of processed tobacco and tobacco products).
Development Bank of the Philippines v. National Labor
Relations Commission
G.R. No. 82763-64, March 19, 1990
Melencio-Herrera, J.
Doctrine: A distinction should be made between a preference of credit and a lien. A
preference applies only to claims which do not attach to specific properties. A lien
creates a charge on a particular property. The right of first preference as regards
unpaid wages recognized by Article 110 does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a
preference in application. It is a method adopted to determine and specify the order in
which credits should be paid in the final distribution of the proceeds of the insolvent’s
assets. It is a right to a first preference in the discharge of the funds of the judgment
debtor.
Facts:
Lirag Textile Mills, Inc. started terminating the services of its employees on the
ground of retrenchment. The employees dismissed filed against LIRAG seeking
separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and
emergency allowance. The labor arbiter ordered LIRAG to pay the individual
complainants. The NLRC affirmed the same and the judgment became executory. A
Writ of Execution was subsequently issued. On the same day, DBP extrajudicially
foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage
obligation with DBP as the only bidder. Due to the foreclosure, the Writ of
Execution issued in favor of complainants remained unsatisfied. LAND filed a
motion for Writ of Execution and Garnishment of the proceeds of the foreclosure
sale. The labor arbiter granted the Writ of Garnishment and directed DBP to remit to
the NLRC the sum of P6,292,380 out of the proceeds of the foreclosed properties of
LIRAG sold at public auction in order to satisfy the judgment previously rendered.
DBP appealed. The NLRC affirmed the appealed order and dismissed the DBP
appeal.
Issue:
Can the ordinary preference granted to labor claims, be given priority against the
order of preference of special preferred credits such as a mortgage credit in this
case?
Ruling:
No. The Supreme Court held that Article 110 of the Labor Code cannot be viewed in
isolation but must be read in relation to the Civil Code scheme on classification and
preference of credits. A distinction should be made between a preference of credit
and a lien. A preference applies only to claims which do not attach to specific
properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by Article 110 does not constitute a
lien on the property of the insolvent debtor in favor of workers. It is but a preference
of credit in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in the final
distribution of the proceeds of the insolvent’s assets. It is a right to a first preference
in the discharge of the funds of the judgment debtor.
In this case, the DBP anchors its claims on a mortgage credit. A mortgage directly
and immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was
constituted. It creates a real right which is enforceable against the whole world. It is
a lien on an identified immovable property, which a preference is not. A recorded
mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code
on classification of credits. The preference given by Article 110, when not falling
within Article 2241(6) and Article 2242 (3) of the Civil Code and not attached to any
specific property, is an ordinary preferred credit although its impact is to move it
from second priority to first priority in the order of preference established by Article
2244 of the Civil Code. Thus, the right to preference given to workers under Article
110 of the Labor Code cannot exist in any effective way prior to the time of its
presentation in distribution proceedings. It will find its application when, in
proceedings such as insolvency, such unpaid wages shall be paid in full before the
“claims of the Government and other creditors” may be paid. But, for an orderly
settlement of debtors assets, all creditors must be convened, their claims ascertained
and inventoried, and thereafter the preferences determined in the course of judicial
proceedings which have for their object the subjection of the property of the debtor
to the payment of his debts and other lawful obligations. Therefore, there must be a
declaration of bankruptcy or liquidation proceedings before the preference for labor
claims may be applied.
Philippine Deposit Insurance Corporation v. Bureau of Internal
Revenue
G.R. No. 172892, June 13, 2013
Leonardo-De Castro, J.
Doctrine: The law expressly provides that debts and liabilities of the bank under
liquidation are to be paid in accordance with the rules on concurrence and preference
of credit under the Civil Code.
Facts:
The Monetary Board of the BSP prohibited the Rural Bank of Tuba (Benguet), Inc.
(RBTI) from doing business in the Philippines, placed it under receivership and
designated the Philippine Deposit Insurance Corporation (PDIC) as receiver. PDIC
conducted an evaluation of RBTI’s financial condition and determined that RBTI
remained insolvent. Monetary Board issued Resolution directing PDIC to proceed
with the liquidation of RBTI.
Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed in
the Regional Trial Court (RTC) of La Trinidad, Benguet a petition for assistance in the
liquidation of RBTI.
The Bureau of Internal Revenue (BIR) intervened and prayed that the proceedings be
suspended until PDIC has secured a tax clearance required under Section 52(C) of
Republic Act No. 8424, otherwise known as the “Tax Reform Act of 1997” or the “Tax
Code of 1997.” The purpose of a tax clearance requirement under Section 52(C) of
the Tax Code of 1997 is to ensure the collection of income taxes due to the
government by imposing upon a corporation undergoing liquidation the obligation of
reporting the income it earned, if any, for the purpose of determining the amount of
imposable tax.
PDIC argues that Section 52(C) of the Tax Code of 1997 does not cover closed
banking institutions as the liquidation of closed banks is governed by Section 30 of
the New Central Bank Act. As opposed to the liquidation of all other corporations,
the Monetary Board, not the Securities and Exchange Commission (SEC), has the
power to order or approve the closure and liquidation of banks. Section 52(C) of the
Tax Code of 1997 applies only to corporations under the supervision of the SEC.
RTC found merit in BIR’s motion. After partial reconsideration initiated by PDIC, the
appellate court agreed with the trial court that banks under liquidation by PDIC are
covered by Section 52(C) of the Tax Code of 1997. Hence, this petition for review on
certiorari.
Issue:
Does the PDIC need to comply with the tax liabilities of RBTI first?
Ruling:
Section 30 of the New Central Bank Act provides:
If the receiver determines that the institution cannot be rehabilitated or permitted to
resume business xxxx The receiver shall:
Xxx
(2) convert the assets of the institution to money, dispose of the same to creditors
and other parties, for the purpose of paying the debts of such institution in
accordance with the rules on concurrence and preference of credit under the Civil
Code of the Philippines
Duties, taxes, and fees due the Government enjoy priority only when they are with
reference to a specific movable property, under Article 2241(1) of the Civil Code, or
immovable property, under Article 2242(1) of the same Code. However, with
reference to the other real and personal property of the debtor, sometimes referred
to as “free property,” the taxes and assessments due the National Government, other
than those in Articles 2241(1) and 2242(1) of the Civil Code, such as the corporate
income tax, will come only in ninth place in the order of preference.
The position of the BIR is contrary to both the letter and intent of the law on
liquidation of banks by the PDIC. In order to secure a tax clearance which will serve
as proof that the taxpayer had completely paid off his tax liabilities, PDIC will be
compelled to settle and pay first all tax liabilities and deficiencies of the bank,
regardless of the order of preference under the pertinent provisions of the Civil
Code. Following the BIR’s stance, therefore, only then may the project of distribution
of the bank’s assets be approved and the other debts and claims thereafter settled,
even though under Article 2244 of the Civil Code such debts and claims enjoy
preference over taxes and assessments due the National Government. Such a stance
disregards both Sec. 30 of the NCBA and Article 2244 of the New Civil Code, which
the court cannot allow.
Cordoba v. Reyes Daway Lim Bernardo Lindo Rosales Law Offices
G.R. NO. 146555
Corona, J.
Doctrine: As to an ordinary creditor, Article 2245 provides that: Credits of any other
kind or class, or by any other right or title not comprised in the four preceding articles,
shall enjoy no preference.
Facts:
Sometime in 1977 and 1978, petitioner Jose Cordova bought from Philippine
Underwriters Finance Corporation (Philfinance) certificates of stock of Celebrity
Sports Plaza Incorporated (CSPI) and shares of stock of other various corporations.
Thus, a confirmation of sale was issued to him. The CSPI shares were physically
delivered to Philfinance and Philtrust Bank, as custodian banks, to hold the shares in
behalf of and for the benefit of petitioner.
In 1981, Philfinance was placed under receivership by SEC. Thereafter, private
respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell
Coronel were appointed as liquidators. However, without the knowledge and consent
of petitioner and without authority from SEC, private respondents withdrew the CSPI
shares from the custodian banks and were sold to Northeast Corporation. The
proceeds of such sale were included in the funds of Philfinance.
Petitioner later learned about the unauthorized sale of his shares and filed a
complaint against private respondents in the receivership proceedings with the SEC.
The SEC initially rendered judgment dismissing the petition, but later on
reconsidered its decision and granted the claims of petitioner. It was held that
petitioner was the owner of the CSPI shares by virtue of a confirmation of sale issued
to him. Private respondents were ordered to pay petitioner P5,062,500, representing
the 15% monetary value of the CSPI shares plus interest at the legal rate from the
time of their unauthorized sale since the shares had already been sold and the
proceeds commingled with other assets of Philfinance, petitioner’s status was
converted into an ordinary creditor for the value of such shares.
On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner
of the CSPI shares but the recovery of the shares were impossible. Hence, this
petition.
Petitioner is seeking the return of his CSPI shares. However, such is no longer
possible since the shares were already sold by respondents and the proceeds
commingled with the assets of Philfinance. Hence, petitioner is now a claimant for
the value of those shares.
Issue:
Can the petitioner be considered as a preferred and secured creditor of Philfinance?
Ruling:
NO, petitioner is an ordinary creditor of Philfinance and not a preferred and secured
creditor.
Art. 2241, upon which petitioner based his argument that he was a preferred creditor,
is not applicable to him. Art. 2241 refers only to specific movable property.
In this case, petitioner’s claim for the payment of money is generic property and not
specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to
preferred creditors, he was deemed an ordinary creditor under Art 2245 which
provides that,
“Credits of any other kind or class, or by any other right or title not comprised in the
four preceding articles, shall enjoy no preference.”
Therefore, Art. 2251(2) applies in this case. Art. 2251(2) states that:
“Common credits referred to in Art. 2245 shall be paid pro rata regardless of dates.”
In sum, petitioner is not a preferred and secured creditor of Philfinance, but rather
an ordinary creditor. As an ordinary creditor, he is entitled to a rate of recovery of
only 15% of his money claim and not the payment of the value of his shares.
Philippine Export and Foreign Loan Guarantee Corp. v. Court of
Appeals
G.R. No. 118701. December 12, 1995.
Vitug, J.
Doctrine: Article 110 of the Labor Code cannot be viewed in isolation but must be read
in relation to the Civil Code scheme on classification and preference of credits.
Facts:
Private respondent Diehl, a resident alien, lodged a complaint for illegal dismissal
against the Philippine German Wire Mesh Reinforcing Corp. (FILFORCE) with the
National Labor Relations Commission. 5 years earlier, FILFORCE had mortgaged its
plant and other property located at EPZA, Bataan, in favor of herein petitioner
Philippine Export and Foreign Loan Guarantee Corporation (PHILGUARANTEE), to
secure a guarantee which the latter executed in favor of Kuwait Asia Bank. The
mortgage in PHILGUARANTEE’s favor was duly registered with the Register of Deeds
of Bataan.
December 21, 1990, a judgment favorable to respondent Diehl was rendered by Labor
Arbiter Pangan.
Labor Arbiter Pangan then issued a writ of execution directing NLRC Sheriff Estrada
to execute the judgment against FILFORCE. Failing to collect the sum due, the
Sheriff was directed to cause the satisfaction of the award by levying on the property
of FILFORCE. Estrada effected the levy and scheduled a public auction sale. Since
the assets had previously been mortgaged to it, PHILGUARANTEE filed a third party
claim which resulted in the suspension of the scheduled auction sale. Diehl
submitted an indemnity bond issued by Plaridel Surety and Insurance company and
the Deputy Sheriff issued a notice resetting the auction sale. PHILGUARANTEE filed a
petition before the Labor Arbiter questioning the integrity of the indemnity bond and
asserting its superior right and prior lien over the levied property. Deputy Sheriff
Estrada proceeded, nonetheless, with the auction sale at which Diehl was declared
the sole and winning bidder. Forthwith, a Certificate of Sale was issued by the
Deputy Sheriff in favor of respondent Diehl.
PHILGUARANTEE went to the RTC of Makati and filed a complaint for annulment of
sale and recovery of possession. The RTC granted PHILFGUARANTEE’s application.
Separate motions to dismiss were filed by Diehl, the Labor Arbiter and the Deputy
Sheriff on the ground that RTC had no jurisdiction over the case. But the motions
were denied.
Diehl brought it to the Court of Appeals and the appellate court found the petition to
be impressed with merit.
Issue: Is the right to preference given to workers under Article 110 of the Labor Code
cannot exist in any effective way prior to the time of its presentation in distribution
proceedings?
Ruling: Yes. The right to preference given to workers under Article 110 of the Labor
Code cannot exist in any effective way prior to the time of its presentation in
distribution proceedings.
It will find application when, in proceedings such as insolvency such unpaid wages
shall be paid in full before the claims of the Government and other creditors' may be
paid. But, for an orderly settlement of a debtor's assets, all creditors must be
convened, their claims ascertained and inventoried, and thereafter the preferences
determined in the course of judicial proceedings which have for their object the
subjection of the property of the debtor to the payment of his debts or other lawful
obligations. Thereby, an orderly determination of preference of creditors' claims is
assured (Philippine Savings Bank vs. Lantin); the adjudication made will be binding
on all parties-in-interest, since those proceedings are proceedings in rem; and the
legal scheme of classification, concurrence and preference of credits in the Civil
Code, the Insolvency Law, and the Labor Code is preserved in harmony."
Even if Article 110 and its Implementing Rule, as amended, should be interpreted to
mean 'absolute preference,' the same should be given only prospective effect in line
with the cardinal rule that laws shall have no retroactive effect, unless the contrary
is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional
guarantee on non-impairment of the obligation of contracts (Section 10, Article III,
1987 Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated
by several years the amendatory law, RA No. 6715. To give Article 110 retroactive
effect would be to wipe out the mortgage in DBP's favor and expose it to a risk
which it sought to protect itself against by requiring a collateral in the form of real
property.
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