Penullar vs. PNB (G.R. No.

32762, January 27, 1983)

Facts that are stated in this case are as follows:
1. Penullar wants to validate the title of the parcels of lands since it was ruled to be nulled
and void.
2. It is stated by the Court that Penular is claiming to be absolute owner of the property but
that therein defendants were pretending to have an interest in the property and had
intruded sometime in December, 1935.
3. Pennullar then decided to file a Civil Case No, T-894 for annulment of the Registration
Proceeding specifically the decision rendered therein and the titles ISSUEd. In which the
court decided that the case held for Cristina Penullar successor in the interest of Praxedes
Moya and Josefa Sison and annulled the titles ISSUEd pursuant to the decision of the
Land Registration Court in favor of the successors in interest of Genoveva Miguel.
4. Not satisfied with the modified decision, plaintiff-appellee Cristina Penullar filed a
motion for reconsideration and when the motion was denied by the respondent court,
filed the instant petition.
5. The petitioner contends: 1. that the Court of Appeals did not have a basis to rule on the
matter since the ISSUE of the Philippine National Bank as a mortgagee in good faith was
never raised before the trial court and the Court of Appeals, and 2. under the facts
obtaining in the case was not justified in ruling that respondent Philippine National
Bank's mortgages were valid.
6. In the instant case, the Philippine National Bank relied on the torrens titles of the
mortgagors which had been regularly ISSUEd. The torrens titles were the result of
regular land registration proceedings duly registered with the Register of Deeds. There
was nothing in the torrens titles which would excite suspicion that the same were
fraudulently processed by the mortgagors. Applying, therefore, the principles enunciated
in the afore- cited cases, the respondent Bank was not duty bound to further investigate
the validity and/or invalidity of the torrens title.

ISSUE:
The principal ISSUE raised in this petition is whether or not the Court of Appeals, even
as it sustained the trial court's finding that the titles covering the disputed parcels of land are null
and void, could still declare that the mortgages annotated on those titles are valid.
The main ISSUE centers on the ruling of the Court of Appeals' sustaining the validity of
the mortgages in favor of the respondent Philippine National Bank.

RULING:
As successor-in-interest, the petitioner did not only succeed to the rights and interests of her
predecessor-in-interest but she was also bound to recognize the liens and/or encumbrances attached to
the subject parcels of land which by law are considered to be valid though not inscribed in the torrens
title of that land. The petitioner cannot invoke her relationship with her predecessor when it is to her
advantage and yet disclaim the effects of said relationship on exactly the same subject matter when it is
to her disadvantage. This is the principle which the Court of Appeals took into consideration when it
ruled that the negligence of petitioner's predecessor-in-interest was binding upon the petitioner herself
notwithstanding her non- substitution as party to the subject land registration proceedings.

WHEREFORE. the decision appealed from is hereby affirmed. Costs against the petitioner.
Maria Bautista Vda. De Reyes et al and Lanuza vs. De Leon (G.R.
No . 22331, June 6, 1967)
FACTS:
1. Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of
the Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the
Consolidated Asiatic Co. On January 12, 1961, Lanuza executed a document entitled
"Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de
Reyes and Aurelia R. Navarro the house, together with the leasehold rights to the lot, a
television set and a refrigerator in consideration of the sum of P3,000.
2. When the original period of redemption expired, the parties extended it to July 12, 1961
by an annotation to this effect on the left margin of the instrument. Lanuza's wife, who
did not sign the deed, this time signed her name below the annotation.
3. It appears that after the execution of this instrument, Lanuza and his wife mortgaged the
same house in favor of Martin de Leon to secure the payment of P2,720 within one year.
This mortgage was executed on October 4, 1961 and recorded in the Office of the
Register of Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344.
4. De Leon appealed directly to this Court, contending (1) that the sale in question is not
only voidable but void ab initio for having been made by Lanuza without the consent of
his wife; (2) that the pacto de retro sale is in reality an equitable mortgage and therefore
can not be the basis of a petition for consolidation of ownership; and (3) that at any rate
the sale, being unrecorded, cannot affect third parties.
5. De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on
the fact that, first, the supposed vendors (the Lanuzas) remained in possession of the
thing sold and, second, when the three-month period of redemption expired the parties
extended it. These are circumstances which indeed indicate an equitable mortgage. But
their relevance emerges only when they are seen in the perspective of other
circumstances which indubitably show that what was intended was a mortgage and not a
sale.
ISSUE:
The ISSUE that De Leon appeals to court are as follows:
1. That the sale in question is not only voidable but void ab initio for having been made by
Lanuza without the consent of his wife;
2. That the pacto de retro sale is in reality an equitable mortgage and therefore cannot be the
basis of a petition for consolidation of ownership and;
3. That at any rate the sale, being unrecorded, cannot affect third parties.
RULING:
Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that this
action for consolidation of ownership is improper, as De Leon claims, but, what is more that
between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage,
and the registered mortgage of De Leon, the latter must be preferred. Preference of mortgage
credits is determined by the priority of registration of the mortgages, following the maxim "Prior
tempore potior jure" (He who is first in time is preferred in right.) Under article 2125 of the Civil
Code, the equitable mortgage, while valid between Reyes and Navarro, on the one hand, and the
Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the registered
mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.
El Hogar Filipino vs. PNB (G.R. Nos. 43459 and 43460, August 11,
1937)
FACTS
1. On November 5, 1949, Serafin Novella, Mercedes Novella, Cecilia Magalona and
Robustiano Magalona constituted a first mortgage on lots Nos. 194, 158 and 14 of the
cadastre of Victorias, Occidental Negros, and on lots Nos. 700, 817 and 706 of the
cadastre of Saravia, Occidental Negros, to secure the payment of the sum of P28,000,
with interest thereon at 9 per cent per annum, representing their indebtedness to El Hogar
Filipino, Mutual Building and Loan Association.
2. Subsequently, on June 6, 1930, Serafin Novella, constituted a second mortgage on his 3/4
share of said lots in favor of the Philippine National Bank. El Hogar Filipino consented to
the constitution of the second mortgage in favor of the Philippine National Bank on
condition that it be considered subordinate to the first mortgage constituted in favor of the
former.
3. The Novellas and Magalonas having violated the contract, El Hogar Filipino declared
due, as to them, and proceeded with the auction sale of the mortgaged lots strictly in
accordance with the conditions set forth in the above-quoted tenth clause of the mortgage
deed. El Hogar Filipino having been the highest bidder at said sale, the lots sold were
adjudicated to it for the amount of its credit of P39,063.71.
4. Before the auction sale of the lots in question was carried out, the Philippine National
Bank was notified thereof. After the sale had been made, it was likewise notified for the
purposes of its right of repurchase. The Philippine National Bank, however, never made
use of its right of repurchased to this date.
5. Thirty days after the auction sale had been made, the corresponding deed of sale was
ISSUEd in favor of El Hogar Filipino. When said document was presented to the office
of the register of deeds for the cancellation of the titles to said lots and the issuance of
new certificates in favor of El Hogar Filipino, the Philippine National Bank opposed,
alleging that, under the law, it had one year within which to redeem the lots.
Notwithstanding said opposition, the documents was registered with a notation of the
mortgage in favor of the Philippine National Bank, which notation was agreed to by El
Hogar Filipino provided it was made to appear that it was merely taken from the original
certificate of the title.

ISSUE:
Whether the second mortgage that is ISSUEd by Serafin Novella, that is sold to El Hogar
Filipino be valid and should it be in favor of El Hogar Filipino.

RULING:
In this instance, Serafin Novella filed a petition to intervene on April 6, 1937, after the
case had already been submitted. As said petition was not filed on time, it should be denied
(Felismino vs. Gloria, 47 Phil., 967; De Borja vs. Jugo, p. 464, ante).
For the foregoing considerations, the appealed judgment is reversed, and the second
mortgage constituted on the lots in question in favor of the Philippine National Bank is ordered
cancelled, without special pronouncement as to costs. So ordered.
Sps. Uy Tong & Kho Po Giok vs. CA (G.R. No. 77465, May 21,
1988)
FACTS:
1. Uy Tong and KhoPo Giok used to be the owners of Apartment No. 307 of the Ligaya
Building, together with the leasehold right for 99 years over the land on which the
building stands. The land is registered in the name of Ligaya Investments, Inc. It
appears that Ligaya Investments, Inc. owned the building which houses the apartment
units but sold Apartment No.307 and leased a portion of the land in which the
building stands to the Spouses the SPOUSES purchased from private respondent
Bayanihan Automotive, Inc. (BAYANIHAN) 7 units of motor vehicles for a total
amount of P47,700.00 payable in 3 installments
2. After making a downpayment of P7.700.00. the SPOUSES failed to pay the balance
of P40.000.00. Due to these unpaid balances, BAYAN1HAN filed an action for
specific performance against the SPOUSES
3. Notwithstanding the execution of the deed of assignment, the SPOUSES remained in
possession of the premises. Subsequently, they were allowed to remain in the
premises as lessees for a stipulated monthly rental until November 30. 1972.
Despite the expiration of the said period, the SPOUSES failed to surrender possession
of the premises in favor of BAYANIHAN. This prompted BAYANIHAN to file an
ejectment case against them in the City Court of Manila docketed as Civil Case No.
240019. This action was however dismissed on the ground that BAYANIHAN was
not the real party in interest, not being the owner of the building.

ISSUE:
The deed of assignment is null and void because it is in the nature of a pactum
commissorium and/or was borne out of the same.

RULING:
The prohibition on pactum commissorium stipulations is provided for by Article 2088 of
the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of the same. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist:
(1) that 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) 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.
A perusal of the terms of the questioned agreement evinces no basis for the application of
the pactum commissorium provision. First, there is no indication of any contract of mortgage
entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of the property by BAYANIHAN.
When the SPOUSES defaulted in their payments of the second and third installments of the
trucks they purchased, BAYANIHAN filed an action an court for specific performance.
DBP vs. Court of Appeals and Cuba (G.R. No. 118342 and 118367,
January 5, 1998)
FACTS:
Lydia P. Cuba is a grantee of a Fishpond Lease Agreement from the Government
1. Cuba obtained loans from DBP stated under promissory notes dated September 6,
1974; August 11, 1975; and April 4, 1977 executing 2 Deeds of Assignment of her
Leasehold Rights as securityUpon failure to pay, without foreclosure proceedings it
was appropriated and DBP executed in turn a Deed of Conditional Sale of the
Leasehold Rights in her favor
2. Her offer to repurchase was accepted and a new Fishpond Lease Agreement was
ISSUEd by the Ministry of Agriculture and Food in her favor alone excluding her
husband. Failing to pay her amortizations, she entered into a temporary agreement
with DBP. Soon, she was sent a Notice of Rescission and DBP took possession of the
Leasehold Rights of the fishpond
3. After the public bidding, DBP executed a Deed of Conditional Sale in favor of
defendant Agripina Caperal. Cuba filed against DBP since no foreclosure proceedings
was done thus, contrary to Article 2088 of the Civil Code
4. RTC: favoured Cuba, it being a pactum commissorium, return leasehold rights to
Cuba ,entitling P1,067,500 actual damages, P100,000 moral and P50,000 exemplary
damages and P100,000 attorney’s fees

ISSUE:
W/N Cuba should be awarded with actual and compensatory damages

RULING:
NO. CA reversed except the P50,000 as moral damages. REMANDED to the trial court
for the reception of the income statement of DBP, as well as the statement of the account of
Lydia P. Cuba, and for the determination of each party’s financial obligation to one another
• assignment of leasehold rights was a mortgage contract (Article 2087)
• not novated, cession (Article 1255 of the Civil Code), dation in payment (Article 1245 of
the civil Code), pactum commissorium
• condition no. 12 did not provide that CUBA’s default would operate to vest in DBP
ownership of the said rights
• The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did
not estop her from questioning DBP’s act of appropriation.
• estoppel cannot give validity to an act that is prohibited by law or against public policy
• alleged loss of personal belongings and equipment was not proved by clear evidence.
Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of
those items before DBP took over the fishpond in question. Neither was a single receipt or record
of acquisition presented.
• dated 17 May 1985, CUBA included “losses of property” as among the damages resulting
from DBP’s take-over of the fishpond. Yet, it was only in September 1985 when her son and a
caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss
of several articles
• bangus which died also not duly proved nor was it expressed in her later 7 months after
DBP took over
• Exemplary or corrective damages in the amount of P25,000 should likewise be awarded
by way of example or correction for the public good. There being an award of exemplary
damages, attorney’s fees are also recoverable
Hechanova vs. Adil (G.R. No. 49940, September 25, 1986)
FACTS:
1. On June 23, 1978, defendant Jose Y. Servando died. The defendants filed a
Manifestation and Motion, informing the trial court accordingly, and moving for the
dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court,
pointing out that the action was for recovery of money based on an actionable
document to which only the deceased defendant was a party. The motion to dismiss
was denied on July 25, 1978, "it appearing from the face of the complaint that the
instant action is not purely a money claim, it being only incidental, the main action
being one for annulment and damages"
2. The defendants moved to dismiss the complaint on the grounds that it did not state a
cause of action, the alleged mortgage being invalid and unenforceable since it was a
mere private document and was not recorded in the Registry of Deeds; and that the
plaintiff was not the real party in interest and, as a mere mortgagee, had no standing
to question the validity of the sale. The motion was denied by the respondent Judge,
in its order dated June 20, 1978, "on the ground that this action is actually one for
collection".
3. On June 23, 1978, defendant Jose Y. Servando died. The defendants filed a
Manifestation and Motion, informing the trial court accordingly, and moving for the
dismissal of the complaint pursuant to Section 21 of Rule 3 of the Rules of Court,
pointing out that the action was for recovery of money based on an actionable
document to which only the deceased defendant was a party. The motion to dismiss
was denied on July 25, 1978, "it appearing from the face of the complaint that the
instant action is not purely a money claim, it being only incidental, the main action
being one for annulment and damages".
4. On August 1, 1978, plaintiff filed a motion to declare defendants in default, and on
the very next day, August 2, the respondent Judge granted the motion and set the
hearing for presentation of plaintiff's evidence ex-parte on August 24, 1978.
5. On August 2, 1978, or the same day that the default order was ISSUEd, defendants
Hechanova and Masa filed their Answers, denying the allegations of the complaint
and repeating, by way of special and affirmative defenses, the grounds stated in their
motions to dismiss.
6. On August 25, 1978, a judgment by default was rendered against the defendants,
annulling the deed of sale in question and ordering the Register of Deeds of Iloilo to
cancel the titles ISSUEd to Priscilla Masa and Gemma Hechanova, and to revive the
title ISSUEd in the name of Jose Y. Servando and to deliver the same to the plaintiff.
7. The defendants took timely steps to appeal the decision to the Court of Appeals by
filing a notice of appeal, an appeal bond, and a record on appeal. However, the trial
court disapproved the record on appeal due to the failure of defendants to comply
with its order to eliminate therefrom the answer filed on August 2, 1978 and
accordingly, dismissed the appeal, and on February 2, 1979, ISSUEd an order
granting the writ of execution prayed for by plaintiff.

ISSUE
Plaintiff has no standing to question the validity of the deed of sale executed by the
deceased defendant Jose Servando in favor of his co-defendants Hechanova and Masa. No valid
mortgage has been constituted in plaintiff’s favor, the alleged deed of mortgage being a mere
private document and not registered; moreover, it contains a stipulation (pacto comisorio) which
is null and void under Article 2088 of Civil Code. Even assuming that the property was validly
mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not to seek annulment of
the sale.

RULING:
The decision of the respondent court dated August 25, 1973 and its Order of February 2,
1979 are set aside, and the complaint filed by plaintiff dated February 4, 1978 is hereby
dismissed.
Ong vs. Intermediate Appellate Court (G.R. No. 74073, September
13, 1991)
Facts:
1. On July 27, 1977, Madrigal Shipping Co., Inc. applied for and was granted a loan by
the Consolidated Bank and Trust Corporation (Solidbank for short) in the amount of
P2,094,000.00 payable on or before July 27, 1978 at ten (10%) percent interest per
annum as evidenced by Promissory Note No. 57884 (Rollo, p. 61).
2. To secure the fulfillment of the obligations of Madrigal Shipping Co., Inc. to the
Solidbank, and credit accommodations which the former may from time to time
obtain from the latter both parties executed a document denominated as "Pledge
Agreement" dated December 4, 1978 (Rollo, pp. 77-78).
3. Under the said Pledge Agreement, Madrigal Shipping, Co., Inc. gave additional
securities or collaterals in the form of a pledge in favor of the bank, its barge and
tugboat particularly described, as follows:
4. "Tugboat CARBPM" of 27/42 gross tonnage 13.87 net tonnage, one (1) deck, no
mast, 13.77 mt. long, 4.32 mt. broad, 1.73 mt. steep, with Certificate of Ownership
No. 1283 and Certificate of Registration No. 6886.
5. MSC Barge No. 601, of 372.28 gross tonnage, 361.96 net tonnage, 120 mt. long, 32
mt. broad, 10 ft. deep, with Certificate of Ownership No. 6213, Certificate No. 127-
68. (Ibid.)

ISSUE:
Madrigal Shipping Co., Inc. failed to pay its obligation to the Solidbank. The creditor
bank had to sell the pledged properties. Nevertheless, when the pledgee bank was to sell the
pledged properties, it found out that the tugboat and the barge had surreptitiously been taken
from the Tanque Bodega, Pasig River, Manila, where the vessels were moored and towed to Pier
2, North Harbor, Manila, without the knowledge and consent of the Solidbank (Rollo, p. 62).
Meanwhile, on August 1, 1979, petitioner Honesto Ong bought one (1) MSC Barge No.
601 with 300 net tonnage, the same barge which was subject of the pledge from Santiago S.
Ocampo, a successful bidder in a public auction by virtue of a writ of execution ISSUEd by the
National Labor Relations Commission (NLRC) in a case entitled "Union de Marinos v. Madrigal
Shipping Co., Inc.". (Rollo, Annex "A", p. 23).

Ruling:
Under the circumstances, the court a quo's orders which were affirmed by the Court of
Appeals cannot be faulted.
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit, and the
assailed decision dated January 31, 1986 of the Intermediate Appellate Court is AFFIRMED.
Yuliongsiu vs. PNB (G.R. No. 19227, February 1, 1968)
Facts:
1. Plaintiff-appellant Diosdado Yuliongsiu was the owner of two (2) vessels, namely:
The M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued at
P63,000.00, and operated the FS-203, valued at P210,672.24, which was purchased
by him from the Philippine Shipping Commission, by installment or on account. As
of January or February, 1943, plaintiff had paid to the Philippine Shipping
Commission only the sum of P76,500 and the balance of the purchase price was
payable at P50,000 a year, due on or before the end of the current year.
2. On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged
the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for the Port of
Cebu.
3. Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000.
The remaining balance was renewed by the execution of two (2) promissory notes
in the bank's favor. The first note, dated December 18, 1947, for P20,000, was due
on April 16, 1948 while the second, dated February 26, 1948, for P10,000, was due
on June 25, 1948. These two notes were never paid at all by plaintiff on their
respective due dates.

ISSUE:
On April 6, 1948, the bank filed criminal charges against plaintiff and two other
accused for estafa thru falsification of commercial documents, because plaintiff had, as last
indorsee, deposited with defendant bank, from March 11 to March 31, 1948, seven Bank of the
Philippine Islands checks totalling P184,000. The drawer thereof — one of the co-accused —
had no funds in the drawee bank. However, in connivance with one employee of defendant bank,
plaintiff was able to withdraw the amount credited to him before the discovery of the
defraudation on April 2, 1948. Plaintiff and his co-accused were convicted by the trial court and
sentenced to indemnify the defendant bank in the sum of P184,000. On appeal, the conviction
was affirmed by the Court of Appeals on October 31, 1950. The corresponding writ of execution
ISSUEd to implement the order for indemnification was returned unsatisfied as plaintiff was
totally insolvent.

Ruling:
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against
plaintiff-appellant. So ordered.
Caltex vs. Court of Appeals and Security Bank (G.R. No. 97753,
August 10, 1992)
Facts:
1. On various dates, defendant, a commercial banking institution, through its Sucat Branch
ISSUEd 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein defendant the aggregate amount of P1,120,000.00
2. Sometime in March 1982, Angel dela Cruz informed Mr. Timoteo Tiangco, the Sucat
Branch Manager, that he lost all the certificates of time deposit in dispute. Mr. Tiangco
advised said depositor to execute and submit a notarized Affidavit of Loss, as required by
defendant bank's procedure, if he desired replacement of said lost CTDs (TSN, February
9, 1987, pp. 48-50). On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit 281).
3. Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.)
Inc., went to the defendant bank's Sucat branch and presented for verification the CTDs
declared lost by Angel dela Cruz alleging that the same were delivered to herein plaintiff
"as security for purchases made with Caltex Philippines, Inc." by said depositor (TSN,
February 9, 1987, pp. 54-68). On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally informing it of its possession of
the CTDs in question and of its decision to pre-terminate the same. On December 8,
1982, plaintiff was requested by herein defendant to furnish the former "a copy of the
document evidencing the guarantee agreement with Mr. Angel dela Cruz" as well as "the
details of Mr. Angel dela Cruz" obligation against which plaintiff proposed to apply the
time deposits (Defendant's Exhibit 564). No copy of the requested documents was
furnished herein defendant. Accordingly, defendant bank rejected the plaintiff's demand
and claim for payment of the value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566). In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter set-off and applied the time
deposits in question to the payment of the matured loan (TSN, February 9, 1987, pp. 130-
131).

ISSUE:
This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No. 23615 affirming with
modifications, the earlier decision of the Regional Trial Court of Manila, Branch XLII, which
dismissed the complaint filed therein by herein petitioner against respondent bank.

Ruling:
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.
 Estate of George Litton vs. Mendoza and Court of Appeals
(G.R. No. 49120, June 30, 1988)
Facts:
1. Bernal spouses are part of manufacturing of embroidery, garments and cotton. Mendoza
guaranteed the purchased of cotton materials of Bernal from Tan. Postdated checks were
ISSUEd by Bernal to Mendoza. The check matured without being encashed. Another
check was ISSUEd in the same amount.
2. Mendoza ISSUEs 2 checks in favor of Tan. Tan had both checks ISSUEd by Mendoza
discounted in a bank. The two checks were returned to Tan with "stop payment" which
have been ordered by Mendoza due to failure of deposit of the Bernals for the checks
ISSUEd in favor of Mendoza.
3. Tan have acted against Mendoza. While the case was pending, Mendoza entered into
agreement with Tan. Tan acknowledged that all his claims to Mendoza had been settled
and both parties were waive, release and quit whatever claims they may have against
each other. The action was continued by administrators of Litton estate although Tan had
died.

ISSUE:
Compromise agreement is null and void because he was not duly represented by his
counsel and that he had no right to alienate said credit.

Held:
The deed of assignment accomplished the requisites of a valid pledge or mortgage.
Although it is true that Tan may validly alienate the litigations credit as ruled by the appellate
court, citing Article 1634 of the Civil Code, said provision should not be taken as means as a
grant of an absolute right on the part of the assignor Tan to discriminately dispose of the thing or
the right given as security. The provision should be read in consonance with Article 2097 of the
same code. Although the pledgee, Litton, Sr. did not ipso facto become the creditor of private
respondent Mendoza, the pledge being valid, the incorporeal right assigned by Tan in favor of
the former can only be alienated by the latter with due notice to Litton, Sr.
 Cruz and Serrano vs. Chua A.H. Lee (G.R. No. 31018,
November 6, 1929)

Facts:
Chua took from Cruz and Serrano a pawn ticket in pledge to secure an obligation. The
pledge was lost for failure of Chua to renew the loan of Cruz and Serrano with the pawnbroker

ISSUE:
WON Chua is bound to renew the ticket from time to time, by the payment of interest or
premium

Held:
Yes. The ordinary pawn ticket is a document by virtue of which the property in the thing
pledged passes from hand to hand by mere delivery of the ticket. It results that one who takes a
pawn ticket in pledge acquired domination over the pledge. Article 2099 contemplates that the
pledge may have to undertake expenses in order to prevent the pledge from being lost; and these
expenses the pledge is entitled to recover from the pledger. This follows that where, in a case
like this, the pledge is lost by failure of Chua to renew the loan, and he is liable for the resulting
damage. This duty of Chua is not destroyed by the fact that he has obtained a judgment for the
debt of Cruz and Serrano which was secured by the pledge. The duty to use the diligence of good
father of a family in caring for the thing pledged as long as the same remains in the power of the
pledge.
Manila Surety and Fidelity Company Inc. vs. Velayo (G.R. No.
21069, October 26, 1967)
Facts:
1. In 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond
for P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados
in a suit against Rodolfo Velayo in the Court of First Instance of Manila. Velayo
undertook to pay the surety company an annual premium of P112.00; to indemnify the
Company for any damage and loss of whatsoever kind and nature that it shall or may
suffer, as well as reimburse the same for all money it should pay or become liable to pay
under the bond including costs and attorneys' fees. As "collateral security and by way of
pledge" Velayo also delivered four pieces of jewelry to the Surety Company "for the
latter's further protection", with power to sell the same in case the surety paid or become
obligated to pay any amount of money in connection with said bond, applying the
proceeds to the payment of any amounts it paid or will be liable to pay, and turning the
balance, if any, to the persons entitled thereto, after deducting legal expenses and costs.
2. Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo,
and execution having been returned unsatisfied, the surety company was forced to pay
P2,800.00 that it later sought to recoup from Velayo; and upon the latter's failure to do so,
the surety caused the pledged jewelry to be sold, realizing therefrom a net product of
P235.00 only.
3. Thereafter and upon Velayo's failure to pay the balance, the surety company brought suit
in the Municipal Court. Velayo countered with a claim that the sale of the pledged
jewelry extinguished any further liability on his part under Article 2115 of the 1950 Civil
Code.
4. The Municipal Court disallowed Velayo's claims and rendered judgment against him.
Appealed to the Court of First Instance, the defense was once more overruled, and the
case decided in the terms set down at the start of this opinion. Thereupon, Velayo
resorted to this Court on appeal.

ISSUE:
WON the sale of the pledged jewelry extinguished any further liability under Article
2115 of the CC.

HELD:
YES. Article 2115, in its last portion, clearly establishes that the extinction of the
principal obligation supervenes by operation of imperative law that the parties cannot override: If
the price of the sale is less, neither shall the creditor be entitled to recover the deficiency
notwithstanding any stipulation to the contrary. The provision is clear and unmistakable, and its
effect cannot be evaded. By electing to sell the articles pledged, instead of suing on the principal
obligation, the creditor has waived any other remedy, and must abide by the results of the sale.
No deficiency is recoverable.

It is well to note that the rule of Article 2115 is by no means unique. It is but an extension
of the legal prescription contained in Article 1484(3) of the same Code, concerning the effect of
a foreclosure of a chattel mortgage constituted to secure the price of the personal property sold in
installments, and which originated in Act 4110 promulgated by the Philippine Legislature in
1933.