REAL ESTATE MORTGAGE, Second Mortgagee

Pablo P. Garcia, vs. Yolanda Valdez Villar

G.R. No. 158891, June 27, 2012
Leonardo De Castro J:
Facts:
Galas is the owner of a piece of property, She, with her daughter Pingol, later mortgaged such
Property, to secure a loan borrowed from Villar. Thereafter, they again mortgaged the same property to secure a
loan borrowed from Garcia. Both mortgages were annotated at the back of the certificate of title.
Then, Galas sold the property to Villar and the title transferred in the name of Villar. Both mortgages were still
carried over and annotated at the back of the new certificate of title. Afterwards, Garcia filed a complaint for
foreclosure of real estate mortgage with damages against Villar before the RTC. The RTC ruled in favor of
Garcia, Villar appealed. The CA reversed the decision of the RTC. Hence, this petition for review on certiorari.
Garcia contends that Villar violated the provisions on laws on judicial and extrajudicial foreclosure of
mortgaged property and that, as first mortgagee, he should have foreclosed the property to provide him (as
junior mortgagee) the opportunity to satisfy his claims from the residue of the sale proceeds. He also added that
Galas was relieved of her contractual obligation and the character s of creditor and debtor were merged in the
person of Villar. Therefore, Garcia argued that he , as the second mortgagee, was subrogated to Villars original
status as first mortgagee, which is the creditor with the right to foreclose. Further, Garcia argued that the
mortgage followed the property when it was sold to Villar. Lastly, he added that the sale to Villar was void being
in the nature of a pactum commissorium.
Villar , on the other hand, contends that Garcia has no cause of action against her and that Garcia acted
in bad faith when he entered into a contract of mortgage with Galas in view of the restriction imposed by the
first mortgage.
ISSUES:
1) Whether the second mortgage to Garcia is valid
2) Whether the sale made to Villar is valid
3) Whether Garcias action for foreclosure of the mortgage of the property is proper.
HELD:
(1)YES. The second mortgage to Garcia was valid. While it is true that the annotation of the first mortgage to
Villar on GALASS, TCT contained a restriction on further encumbrances without the mortgagees prior
consent, this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this Deed became the
basis for the annotation on Galas title, its terms and conditions take precedence over the standard, stamped
annotation placed on her title. If it were the intention of the parties to imposed such restriction, they would have
and should have stipulated such in the Deed of Real Estate Mortgage.
Nether did this Deed proscribe the sale of alienation of the subject property during the life of the mortgage.
Garcias insistence that Villar should have judicially or extra judicially foreclosed the mortgage to satisfy
Galass debt is misplaced. The Deed of Real Estate Mortgage merely provided for the options Villar may
undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed of Galas could not
opt to sell the subject property to Villar, or to any other persons. Such stipulation would have been void anyway,
as it is not allowed under Article 2130 of the Civil Code to wit: A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
(2) YES. The sale was valid.The stipulation appointing Villar, the mortgagee, as the mortgagers attorney-infact5, to sell the property in case of default in the payment of the load did not violate the prohibition on pactum
commissorium. The power of attorney provision did not provide that the ownership over the subject property
would automatically pass to Villar upon Galass failure to pay the loan on time. What it granted was the mere
appointment of Villar as attorney-in-fact , with authority to sell or otherwise disposed of the subject property,
and to apply the proceeds to the payment of the loan. The provision is customary in mortgage contracts, and is
in conformity with Article 2087 of the Civil Code, which read: It is also of the essence of these contracts that
when the principal obligation becomes due, the things in which the pledge consists may be alienated for the
payment to the creditor.

Galass decision to eventually sell the subject property to Villar was well within the scope of her rights as the
owner of the subject property. The subject property was transferred to Villar by virtue of another and separate
contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was
automatic upon Galass failure to discharge her debt, or that the sale was simulated to cover-up such automatic
transfer.
(3) NO, the action on foreclosure cannot prosper. Villar in buying the subject property with notice that it was
mortgaged, only undertook to pay such mortgage or allow the subject property to be sold upon failure of the
mortgage creditor to obtain payment from the principal debtor once the debt matures. Villar did not obligate
herself to replace the debtor in the principal obligation, and could not do so in law without the creditors
consent. Article 1293 of the Civil Code provides :Novation, which consist in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Therefore, the obligation to pay the mortgage indebtedness remains with the
original debtors Galas and Pingol.
The spirit of the Civil Code is to let the obligation of the debtor to pay the debt stand although the
property mortgaged to secure the payment of the said debt may have been transferred to a third person (E.C.
McCullough & Co. vs Veloso and Serna, 46 Phil, 1924) Garcia has no cause of action against Villar in the
absence of evidence to show that the second mortgage executed in favor of Garcia has been violated by his
debtors, Galas and Pingol, i.e, specifically that Garcia has made a demand on said debtors for the payment of
the obligation secured by the second mortgage and they have failed to pay.
REAL ESTATE MORTGAGE, Ownership Rquired
Philippine National Bank vs. Spouses Alejandro and Myrna Reblando
G.R. No. 194014, September 12, 2012
Velasco Jr., j:
FACTS:
The Philippine National Bank (PNB) seeks for the reversal of the decision on a real estate mortgage (REM)
obtained by Alejandro and Myrna Reblando (Reblandos). The Regional Trial Court (RTC) and the
Court
of Appeals (CA) both agreed that the REM was null and void.
The facts show that the Alejandros obtained a P150,000 loan from PNB which was secured by REM over 2
parcels of land, one of which registered under the name of Leticia Reblando-Bartolome, who executed a Special
Power of Attorney granting Alejandro to secure a loan not exceeding (150,000 and the other one covered by Tax
Declaration (TD) No. 59006 and designated as Cadastral Lot No. 10 which was formerly in the name of
Ministry of Human Settlements and later replaced under Alejandros name.
A few years later, the parties executed an Amendment to Real Estate Mortgage reflecting an increase to
P260,000 . Barely 2 weeks, the parties executed a second Amendments to REM with an increase to P312,000.
Alejandro and the Bliss Development Corporation (BDC) entered in a Contract to sell over a dwelling unit.
Reblandos defaulted in the payment of their obligation which prompted PNB to extra judicially foreclose the
mortgage. Reblandos received the notice but ignored it. PNB was the lone bidder, therefore he obtained the lots.
The Reblandos failed to redeem the properties within the period which made PNB to consolidate its ownership.
The RTC granted the PNBS ex parte petition. But the Reblandos asks for the nullity of the mortgage because
Lot No. 10 does not belong to them at the execution of the REM, it was owned by the Ministry of Human
Settlement. The RTC declared the REM as null and void. Same result was given by the CA.
ISSUE:
Whether the mortgage constituted over Lot No. 10 valid?
HELD:
YES, Article 2085 of the Civil Code provides that a mortgage contract, to be valid, must have the following
requisites: (a) that it be constituted to secure the fulfillment of a principal obligation. (b)that the mortgagor be
the absolute owner of the thing mortgaged, and (c) that the persons constituting the mortgage have free disposal
of their property, and in the absence of free disposal, that they be legally authorized for the purpose. The
presence requisite absolute ownership is the contentious determinative issue.

The records, are bereft of evidence, other than respondents bare and self-serving assertion, to support their
contention about being more applicants in a social housing project at the time and that Lot No. 10 was , indeed
government property. And as may be noted, TD No. 38950 over Lot No. 10 in the name of the Ministry of
Human Settlements, which should otherwise lend proof to the Ministry ownership of the lot had, as of 1990 ,
already been cancelled; and in lieu of it, TD No. 59006 was issued in Alejandros name, two (2) years prior to
the constitution of the REM. Well settled is the rule that (b) are and unsubstantiated allegation do not
constitute substantial evidence and have no probative value. Therefore the mortgage is valid.
REAL ESTATE MORTGATE , Mortgage in Good Faith/Bad Faith
Philippine Banking Corporation vs Arturo Dy, Bernardo Dy, Jose Delgado and Cipriana Delgado
G.R. NO. 183774 , November 14, 2012
Perlas-Bernabe, J:
FACTS:
Respondent spouses Jose and Cipriana Delgado are the owners of the land in dispute, while respondent Arturo
Dy and Bernardo Dy are the alleged buyers of the land. Petitioner Philippine Banking Corporation (Philbank)
on the other hand is the mortgagee of the land in dispute.
This case is a Petition for Review on Certiorari of the Court of Appeals decision which set aside the Regional
Trial Courts decision and which directed the Register of Deeds of Cebu City to cancel Transfer Certificate of
Title in the names of respondents Arturo Dy and Bernardo Dy (Dys) and to issue the corresponding TCTs in the
name of respondents Cipriana Delgado (Cipriana).
Cipriana was the registered owner of lot which she and her husband, respondents Jose Delgado (Jose) sold to
certain Cecilia Tan (buyer). It was agreed that the buyer shall make partial payments from time to time and to
pay the balance when Cipriana and Jose (Sps. Delgado) are ready to execute the deed of sale and transfer the
title to her.
At the time of sale, the buyer (Tan) was already occupying a portion of the property where she operates a needle
(bihon) factory while the rest was occupied by tenants which Sps. Delgado undertook to clear prior to full
payment. After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer (Tan)
demanded the execution of the deed, which was refused. Eventually, the buyer learned of the sale of the
property to the Dys and its subsequent mortgage to petitioner Philippine Banking Corporation (Philbank),
prompting the filing of the Complaints for annulment of certificate of title, specific and /or reconveyance with
damages against Sps. Delgado, the Dys and Philbank.
Sps. Delgado insisted that Philbank was not a mortgagee in good faith for having granted the loan and accepted
the mortgage despite knowledge of the simulation of the sale to the Dys and for failure to verity the nature of
the buyers physical possession of a portion of Lot, while Philbank filed its Answer asserting that it is an
innocent mortgages for value without notice of the defect in the title of the Dys.
ISSUE:
Whether Philbank is a mortgagee in good faith.
HELD:
YES, Philbank is a mortgagee in good faith. While it is settled that a simulated deed of sale is null and void and
therefore , does not convey any right that could ripen into a valid title, it has been equally ruled that for reasons
of public policy, the subsequent nullification of title to a property is not ground to annul the contractual right
which may have been derived by a purchaser, mortgagee or other transferee who acted in good faith. Indeed, a
finding of negligence must always be contextualized in line with the attendant circumstances of a particular
case.

As aptly held in Philippine National Bank vs Heir of Estanislao Militar, the diligence with which the law
requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the
situation in which one is placed, and the importance of the act which is to be performed. Thus, without
diminishing the time-honored principle that nothing short of extraordinary diligence is required of banks whose
business is impressed with public interest, Philbanks inconsequential oversight should not and cannot serve as
a bastion for fraud and deceit.
In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties
offered for mortgage, its omission did not prejudice any innocent third parties. In particular, the buyer did not
pursue her cause and abandon her claim on the property. On the other hand, Sps. Delgado were parties to the
simulated sale in favor of the Dys which was intended to mislead Philbank into granting the loan application.
Thus, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the
complicity between the ostensible mortgagors (the Dys) and the true owner (Sps. Delgado). In fine, Philbank
can hardly be deemed negligent under the premises since the ultimate cause of mortgagors (the Dys) defective
title was the simulated sale to which Sps. Delgado were privies.
Hence, Philbank is a mortgagee in good faith.
REAL ESTATE MORTGAGE, Mortgage in Good Faith/Bad Faith
Philippine Bank of Communication vs Pridisons Realty Corporation, Antonio Gonzales, Bormacheco,
Inc. Nazario F. Santos, Teresita Chua Tek, Carito Ong Lee and Ernesto Sibal
G.R. No. 155113 , January 9, 2013
Brion, J:
FACTS:
The petitioner Philippine Bank of Communication (PBCOM) seeks the reversal of the decision and the
resolution of the Court of Appeals (CA) through a petition for review on certiorari.
Respondent, Predisons Realty Corporation (PRIDSONS) obtained loan from PBCOM with a land as the
collateral. The real estate mortgage was registered and annotated on PRIDSONS title on the same date but
thereafter transferred all rights over the land to its sister company, Ivory Crest Realty and Development
Corporation (IVORY) which Respondent Antonio Gonzales is the President. Both corporations were granted
license to sell and the certificate of registration by the Housing and Land Use Regulatory Board (HLURB) to
construct and sell condominiums on the land.
PRIDSONS defaulted in paying its obligations; PBCOM extra judicially foreclosed the mortgage. The public
auction however was forestalled by a preliminary injunction by the HLURB. The remaining respondents of the
case availed of the condominium and demanded IVORY and PRIDSONS to transfer in its favor the titles of the
condominium titles, already paid full without any liens and encumbrances. PBCOM claims that the mortgage is
superior to the claims of the respondent buyers since it was executed before their purchases. The HLURB ruled
against the validity of the mortgage and pointed out that such mortgage was done without the approval of the
HLURB as required. The CA declared HLURB power to regulate real estate trade and although the mortgage
was done before the condominium project started, PBCOM was aware of the proposed conversion of the
property, thus it can apply Sec. 18 PD. No. 957. The owner or developer shall make no mortgage on any unit or
lot without prior written approval of the Authority. Thus the CA ruled that failure to secure HLURB approval
makes the mortgage null, but such debt can be considered as a contract of indebtedness.
ISSUE:
Whether the CA erred in upholding HLURBs decision in the nullification of the mortgage?
HELD:
NO. The Supreme Court believes that the surrounding circumstances show that PBCOM was aware of the
proposed conversion of the land into a condominium project, thus Sec. 18 of PD No. 957 is merited, PBCOM
has not denied prior knowledge of the condominium project and relies mainly on the fact that the mortgage was
executed seven months before the registration and license to sell condominium units with the HLURB.

The standard industry practice for banks is to require loan applicants to disclose the nature and purpose of the
loan, and the court knows that the disclosure of loan purpose and presenta6ion of loan documents is expected
considering the applicant PRIDSONS was a realty company.
There was finding of several annotations and renewal notes concerning the loans of PBCOM extended to
PRIDSONS during the project was under development, suggesting the existence of progressive releases for
project development. Thus, the court can conclude that PBCOM had actual knowledge of the project making
the mortgage void but still it may stand as evidence of a contract of indebtedness which PBCOM may demand
payment thereof.
FINANCIAL REHABILITATION AND INSOLVENCY ACT, Corporate Rehabilitation
Express Investments III Private Ltd. And Export Development Canada vs. Bayan Telecommunications,
INC. , the Bank of New York (as Trustee for the Holders of the US$2,000.000 13.5% Senior Notes of
Bayan Telecommunication , Inc.) and Atty. Remigio A. Noval (as the Court Appointed Rehabilitation
Receiver of Bayantel)
G.R. No. 174457-59 , December 5, 2012
Villarama, Jr. J:
FACTS:
Respondent Bayantel is a duly organized domestic corporation engaged in the business of providing
telecommunication services and is the debtor of petitioner corporations. The case involves seven consolidated
petitions for review on certiorari filed in connection with the corporate rehabilitation of Bayan
Telecommunication Incx. (Bayantel).
Bayantel entered into several credit agreements with Express Investments III Private Ltd. And Export
Development of Canada, Asian Finance and Investment Corporation, Bayanriche Landesbank (Singapore
Branch) and Clearwater Capital Partners Singapore Pte. Ltd. As agent for Credit Industriel et
Commercial(Singapore), Deutsche Bank AG, Equitable PCI Bank, JP Morgan Chase Bank, Metropolitan Bank
and Trust Co., P.T. Bank Negara Indonesia (Persero), TBK, Hongkong Branch, Rizal Commercial Banking
Corporation and Standard Chartered Bank. To secure said loans, Bayantel executed an Omnibus Agreement and
an EVTELCO Mortgage Trust Indenture.
Pursuant to the Omnibus Agreement, Bayantel executed an Assignment Agreement in favor of the lenders under
the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or secured creditors). In the
Assignment Agreement, Bayantel bound itself to assign, convey and transfer to the Collateral Agent, properties
as collateral security for the prompt and complete payment of its obligation to the Omnibus Creditors.
The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel on Acceleration Letter declaring
immediately due and payable the principal, premium interest, and other monetary obligations on all outstanding
Notes. Then, the Bank of New York filed a petition for the corporate rehabilitation of Bayantel upon instructions
of the Informal Steering Committee.
The petitioner secured creditors argue primarily that the pari passu treatment of creditors during rehabilitation
has no basis in law. In line with this, petitioners assert priority under the Assignment Agreement to receive from
Bayantels surplus cash flow and to be paid in full, ahead of all other creditors. For its part, respondents
Bayantel reasons that enforcing preference in payment at this stage of the rehabilitation would only disrupt the
progress it has made so far.
ISSUE:
Whether the secured creditors can enforce preference in payment during rehabilitation by virtue of a contractual
agreement.
HELD:
NO. The secured creditors cannot enforce preference by virtue of a contractual agreement .Rehabilitation is an
attempt to conserve and administer the assets of an insolvent corporation in the hope of its eventual return from
financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful operation and liquidity. The purpose of
rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings.

Rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is
economically feasible and its creditors can recover, by way of the present value of payments projected in the
plan, more, if the corporation continues as a going concern than if it is immediately liquidated.
Section 6(c), PD 902-A provides that upon the appointment of a management committee, rehabilitation receiver,
board on body, all actions for claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall be suspended accordingly. The suspension
action for claims against the corporation under a rehabilitation receiver or management committee embraces all
phases of the suit, be it before the trial court or any tribunal or before this Court.
The justification for suspension of actions for claims is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might
unduly hinder or prevent the rescue of the debtor company. It is intended to give enough breathing space for
the management committee or rehabilitation receiver to make the business viable again without having to divert
attention and resources to litigation in various fora
In the 1990 case of Alemars Sibal & Sons, Inc. vs. Judge Elbinias, the Court first enunciated the prevailing
principle which governs the relationship among creditors during rehabilitations. In said case, G.A. Yupangco
sought the issuance of a writ of execution to implement a final executor default judgment in its favor and after
Alemars Sibal & Sons, Inc. was placed under rehabilitation. In ordering the stay of execution, the Court held:
During rehabilitation receivership, the assets are held in trust for the equal benefits of all creditors to preclude
one from obtaining an advantage or preference over another5 by the expediency of an attachment, execution or
otherwise. For what would prevent an alert creditor, upon learning of the receivership, from rushing posthaste to
the courts to secure judgments for the satisfaction of its claims to the prejudice of the less alert creditors.
As between the creditors, the key phrase is equality is equity. When a corporation threatened by bankruptcy is
taken over by a receiver, all the creditors should stand on equal footings. Not anyone of them should be given
preference by paying one or some of them ahead of the others. This is precisely the reason for the suspension of
all pending claims against the corporation under receivership. Instead of creditors vexing the courts with suits
against the distressed firm, they are directed to file their claims with the receiver who is a duly appointed officer
of the SEC.
Since then, the principle of equality in equity has been cited as the basis for placing secured and unsecured
creditors in equal footing or in pari passu with each other during rehabilitation. In legal parlance, pari passu is
used especially of creditors who, in marshaling assets, are entitled to receive out of the same fund without any
precedence over each other.
Basically once a management committee or rehabilitation receiver has been appointed in accordance with PD
902-A, no action for claims may be initiated against a distressed corporation and those already pending in court
shall be suspended in whatever stage they may be. Notwithstanding, secured creditors shall continue to have
preferred status but the enforcement thereof is likewise held in abeyance. However, if the court later determines
that the rehabilitation of the distressed corporation is no longer feasible and its assets are liquidated/secured
claims shall enjoy priority in payment.
We perceived no good reason to depart from established jurisprudence. While Section 24 (d) Rule 4 of the
Interim Rules states that contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply, this holds true only to the extent that they do not conflict with the provision
of the plan.
Here, the stipulation in the Assignment Agreement to the effect that respondent Bayantel shall pay petitioners in
full and ahead of other creditors out of cash flow during rehabilitation directly impinges on the provision of
approved Rehabilitation Plat that the creditors Bayantel, whether secured or unsecured should be treated
equally and on the same footing or pari passu until the rehabilitation proceedings is terminated in accordance
with the Interim Rules.

As applied to this case, the pari passu treatment of claims during rehabilitation entitles all creditors whether
secured or unsecured to receive payment out of Bayantels cash flow. Despite their preferred position therefore,
the secured creditors hall not be paid ahead of the unsecured creditors but shall received payment only in the
proportion owing to them.
Hence, secured creditors cannot enforce preference in payment during rehabilitation by virtue of a contractual
agreement.
FINANCIAL REHABILITATION AND INSOLVENCY ACT, Corporate Rehabilitation
Situs Dev. Corporation, Daily Supermarket, Inc, and Color Lithograph Press, Inc. vs. Asiatrust Bank of
Allied Banking Corporation, Metropolitan Band and Trust Company and Cameron Granville II Asset
Management, Inc , (Cameron).
G.R. No. 180036 January 16, 2013
Sereno, CJ:
FACTS:
The petitioner Situs Dev. Corporation, Daily Supermarket, Inc. (SITUS) and Color Lithograph Press, Inc.
(COLOR) seeks a motion for reconsideration the decision of the Supreme Court (SC) and the Court of Appeals
(CA) which reversed and set aside the Adjudication of the Regional Trial Court (RTC )which had approved the
Second Amended Rehabilitation Plan of petitioners Situs Development Corporation, Daily Supermarket Inc.
and Color Lithographic Press Inc. (collectively, petitioners or petitioners corporation) over the objection of
respondents Asia Trust Bank(Asiatrust); Allied Banking Corporation (Allied Bank) and Metropolitan Bank and
Trust Company(Metrobank); Respondent(Cameron Granville II Asset Management Inc. (Cameron), A Special
Purpose Vehicle, was the transferee of Metrobanks right , title and interest in the instant case.
Tony Chua, started COLOR and ventured into real estates development/leasing by organizing SITUS in order to
build a shopping mall complex know as Metrolane Complex (COMPLEX). To finance the construction of the
COMPLEX, SITUS, COLOR and Tony Chua and his wife Siok Lu Chua, obtained several loan from (1)
ALLIED secured by real estate mortgages over two lots (2) ASIATRUST secured by a real estate mortgage and
(3) Global Banking Corporation, now METROBANK secured ay a real estate mortgaged. The Chua Family
expanded into retail merchandizing and organized Daily Supermarket Inc.(DAILY). All three (3) corporations
have interlocking directors and are all housed in the COMPLEX. The Chua family also resides in the
COMPLEX, while the other units are being leased to tenants SITUS, COLOR AND DAILY obtain additional
loans from ALLIED, ASIATRUST AND METROBANK and their real estate mortgages were updated and or
amended . Spouses Chua likewise executed five (5) Continuing Guarantee Comprehensive Surety in favor of
ALLIED to guarantee the payment of the loans of SITUS AND DAILY but they failed to pay their obligations
as they fell due, despite demands. Extra judicial foreclosure was obtained by some of the respondents.
The petitioners raised arguments that are too substantial to merit the courts consideration and some are merely
rehashed from previous proceedings./ One of the contentions raised was the properties belonging to the
petionerss corporations majority stockholders may be included in the rehabilitation plan. The properties should
be included in the ambit of the Stay Order and Allied and Metro Bank were not the owners of the mortgaged
properties when the Stay Order was issued by the rehabilitation court.
ISSUE:
Whether the SC erred in affirming the decisions of the CA towards the properties of the petitioners.
HELD:
NO, the cased cited Metropolitan Bank and Trust Company vs. ASB Holdings, Inc. shows it is not a ruling on
the property of the joinder of parties rather, it is a statement of the fact that the afore-quoted allegation was
made in the petition for rehabilitation in that case. Therefore, the first issue raised was incorrectly argued.

Under the FRIA, the stay order may now cover third party or accommodation mortgages, in which the mortgage
is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver. Section 146 of FRIA clearly shows that it is application to all further proceedings. In no
way could it be made retrospectively applicable to the STAY ORDER issued by the rehabilitation court back in
2002. At the time of the issuance of the Stay Order he rules in force were the 2000 Interim Rules of Procedure
on Corporate Rehabilitation, thus was only empowered to suspend claims against the debtor, its guarantors, and
sureties not solidarily liable proceedings against properties or third party mortgagors. Since the subject
properties are beyond the reach of the Stay Order and since foreclosure and consolidation of title may no longer
be stalled, petitioners rehabilitation plan is no longer feasible. The court therefore did not err in finding that the
dismissal of the Petition for the Declaration of State of Suspension of Payments with Approval of Proposed
Rehabilitation Plan is in order.
TORTS AND DAMAGES
QUASI-DELICT, CAUSE OF ACTION
Equitable Banking Corporation vs Special Steel Products, Inc. and August L. Pardo
G.R. No. 175350 June 13, 2012
Del Castillo j:
FACTS:
Respondent Special Steel Products Inc. (SSPI) sold welding electrodes to International Copra Export
Corporation (Interco) . In payment thereof Interco issued three checks payable to the order of SSPI. Each check
was crossed with the notation account payee only and was drawn against Equitable. The records do not identify
the signatory for these three checks or explain how Jose Uy, Intercos purchasing officer came into possession
of these checks.
Uy presented each crossed check to Equitable on the day of its issuance, claimed that he had good title thereto,
and demanded that they be deposited in his personal accounts in Equitable. The latter acceded to Uys demands
on the assumption that Uy as the son-in-law of Intercos majority stockholder was acting pursuant to Intercos
orders.
Having not received the full value of the interest income, SSPI filed a complaint for damages. Equitable then
argued for the dismissal of the complaint for lack of cause of action; the interest income having not expressly
stipulated in writing.
ISSUE:
Whether the SSPI has a cause of action against Equitable or quasi-delict.
HELD:
YES, This case involves a complaint for damages based on quasi-delict . A quasi-delict is an act of omission ,
there is being fault or negligence which causes damage to another. Quasi-delicts exist even without contractual
relation between the parties.
The courts below correctly ruled that SSPI has a cause of action for quasi-delict against Equitble. Uys willful
and illegal conversion of the check payable to SSPI , and of Equitable gross negligence, which facilitated Uys
actions deprived SSPI of interest income on the said moneys for almost two years. Thus SSPI claims damages
in the form of interest income for the said period.
The checks that Interco issued in favor of SSPI were all crossed, made payable to SSPIs order, and contained
the notation accounts payee only. This creates a reasonable expectation that the payee alone would received the
proceeds of the checks and that diversion of the checks would be averted. This expectation arises from the
accepted banking practice that crossed checks are intended for deposit in the name payee account only and no
other.
Equitable did not observed the required degree of diligence expected of a banking institution under the existing
actual circumstances. The act that a person other than the named payee of the crossed check was representing
for deposit should have put the bank on guard it should have verified if the payee (SSPI) authorized the

holder( UY) to present the same in its behalf, or indorsed it to him . It is gross negligence for a bank to ignore
this rule solely on the basis of a third partys oral representation of having a good little thereto.
Hence, SSPI has a cause of action for quasi-delict against Equitable Banking Corporation.
DAMAGES, Liability for Damages
Nancy Lozano vs Jun Tabayag Jr.
G.R. No. 18964, February 6, 2012
Reyes, j:
FACTS:
The petitioner and respondents are the children of the late Juan Tabuyag who owned a land situated in Sto
.Domingo, Iriga City. After the burial of their father the petitioner requested from her siblings that he be allowed
to take possession of the land and receive income from the same until her eldest son graduate from college.
After the petitioners eldest son graduated from college her siblings requested the return of the land so that they
can partition the land among themselves. However, the petitioner refused to return the possession of the land
alleging that the said land has been sold by their father to her before he died as evidenced by a Deed of Sale.
Respondents claim that their father did not execute an absolute deed of sale and that the signature appearing in
the deed was in fact a forgery. They also alleged that the petitioner forged the signature of their father in the
deed to deprive them of their share in the land.
The petitioner maintained that she is the owner of the land , and that the respondent failed to prove that the
signature was a forgery as it was not submitted to examination to a handwriting expert.
ISSUE:
Whether the respondent are entitled to Attorneys fees and Moral damages.
HELD:
YES. The petitioners question the award of attorneys fees and damages in the Supreme Court. Time and time
again the decisions of the court upheld that the Supreme Court is a NOT a Trier of tacts. The decisions of the
lower courts if regular are binding to the Supreme Court. Questions on whether or not there was a
preponderance of evidence to justify the award of damages or whether or not there was a causal connection
between the given set of facts and the damage suffered by the private complainant or whether or not the act
from which civil liability might arise exists are questions of fact.
Moral damages are not intended to enrich the complainant at the expense of the defendant. Rather these are
awarded only to enable the injured party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering that resulted by reason of the defendants culpable action.
Hence, Attorneys fee and moral damages are properly awarded.
DAMAGES, Liability for Damages
Bright Maritime Corporation (BMC) Desiree P. Tenorio v. Fantonial
G.R. No. 165935, Feb. 8, 2012
FACTS:
A contract of employment was entered into by BMC and Fantonial which was verified and approved by the
POEA, Respondent was required to undergo medical examination at Christian Medical Clinic . On January 17,
2000, the respondent was declared FIT TO WORK by the clinic. However when he was about to depart he
was not allowed to leave due to some defects on his medical certificate. He was told at the clinic that there was
nothing wrong with his medical certificate. He returned to the petitioners office to ask for an explanation and
was told to wait for their call from the petitioners prompting the respondent to file a complaint against petitioner
dismissal, payment of salaries for the unexpired portion of the employment contract and for the award of moral
exemplary, and actual damages.

ISSUE:
YES, In Santiago v CF Sharp Crew Management, Inc. Court held the employment contract did not commence
when the petitioner therein, a hired seaman, was not able to depart from the airport or seaport in the point of
hire; thus, no employer-employee relationship was created between the parties.
Nevertheless, even before the start of any employer-employee relationship, contemporaneous with the
perfection of the employment contract was the birth of certain rights and obligations, the breach of which may
give rise to a cause of action against the erring party.
The petitioners act of preventing the respondent from leaving to commence the employment contract entitles the
respondent to payment of actual damages. The court upheld the payment of moral damages as there was bad
faith in preventing the respondent from leaving.
BMC is liable to respondent for exemplary damages, which imposed by way of example or correction for the
public good in view of petitioners act of preventing respondent from being deployed n the ground that he was
not yet declared fit to work on the date of departure, despite evidence to the contrary. Exemplary damages are
imposed not to enrich one party or impoverish another, but to serve as deterrent against or as a negative
incentive to curb socially deleterious actions.
Attorneys fees are recoverable when the defendants act or omission has compelled the plaintiff to incur
expenses to protect his interest. Hence, Fantonial is entitled to payment of damages.
DAMAGES, Liability for Damages
People of the Philippines v Teofilo Rey Buyagan
G.R. No. 187733, Feb. 8, 2012
Brion, J:
FACTS:
The case is an appeal from the decision of the Court of Appeals finding Rey Buyagan guilty of the special
complex crime of robbery with homicide for robbing WT Construction Supply Store and for the death of Jun
Calixto and SPO2 Osorio. Records show that a John Doe robbed WT Construction Supply Store and while
walking out of the crime scene Calixto grabbed John Doe and during the grappling the appellant shot Calixto in
the head from behind.
ISSUE:
Whether the heirs are entitled to damages.
HELD:
YES. The court affirmed the award of loss earning capacity to PO2 Osorio. However, the court deleted the
award to Calixtos heir for failure to prove entitlement to the same.
With respect to actual damages, jurisprudence only allows expenses duly supported by receipts. Considering
that the proven amount is less than P25, 000.00, we award temperate damages in the amount of P25,000.00 in
lieu of actual damages , pursuant to our ruling in People v Villanueva.
The existence of one aggravating circumstances also merits the grants of exemplary damages under Article
2230 of the New Civil Code. Pursuant to prevailing jurisprudence, we award exemplary damages of
P30, 000.00 respectively, to the heirs of P02 Osorio and of Calixto.
The court upheld the award of moral damages to the heirs of PO2 Osorio and to the heirs of Calixto, but reduce
the amount awarded from P200,000.00 to P75,000.00 to conform to prevailing jurisprudence. Hence, payment
of damages is properly meted.
DAMAGES, Liability for Damages
Banco Filipino Savings and Mortgage Bank v. Miguelito M. Lazaro

G.R. No. 185346 / G.R. No. 185442, June 27, 2012

FACTS:
The CA sustained the judgments of the labor arbiter denying Lazaros monetary claims for salary differential,
attorneyss fees and profit sharing. Nevertheless, the appellate court granted him seven years of retirement
differential pay covering the period within which the bank was under liquidation. Hence these two consolidated
Petitions for Review under Rule 45.
Lazaro has been working with Banco Filipino since 1968 until the bank closed by the Central Bank of the
Philippines in January 1985. Notwithstanding the cessation of the regular operation of the bank, Lazaro was
reemployed in April 1992 as a member of a task force assigned to collect its delinquent accounts. Banco
Filipino eventually reopened in June 1992 after being adjudged illegally closed and it continued to employ
Lazaro until he retired as assistant vice-president in December 1995.
Lazaro asserted that his retirement benefits be paid for 27 years and 10 months of service, instead of being paid
only 20 years and 7 months; claimed that the base amount of his retirement pay should be increased from
P38,000.00 to P50,000.00 to reflect the salary increase given by the bank to its senior officers in December
1995. The bank, however denied it including Lazaros claim for attorneys fees while foreclosing delinquent
accounts and his profit share from 1984 to 1995.
Additionally, he prays for more damages, exemplary damages, attorneys fees and expenses of the suit.
ISSUE:
Whether Lazaro is entitled for moral and exemplary damages, attorneys fees and expenses of suit.
HELD:
NO. Lazaro is not entitled for the payment of damages. To obtain moral damages, the claimant must prove the
existence of bad faith by clear and convincing evidence, for the law always presumes good faith. It is not even
enough that one merely suffered sleepless nights, mental anguish and serious anxiety as the result of the
actuation of the other party.
In this case, Lazaro did not state any moral anguish that he suffered. Neither did he substantiate his imputations
of malice to Banco Filipino. He only made sweeping declarations, without concrete proof that the bank in
refusing his claim maliciously damaged his property rights and interest. Accordingly, neither moral damages nor
exemplary damages can be awarded to him.
With respect to attorneys fees, an award is proper only if the one was forced to litigate and incur expenses to
protect ones right and interest by reason of an unjustified act or omission of the party for whom it is sought.
The reward of attorneys fee is more of an exception than the general rule, since it is not sound policy to place a
penalty on the right to litigate.
Here, Banco Filipino had a prima facie legitimate defense that, because it underwent liquidation proceedings, it
cannot be compelled to credit that period to the retirement pay and profit shares of its employees. It also
rationalized that Lazaro cannot be additionally paid attorneys fees without showing any basis for the
compensation. Considering that Banco Filipino s refusal cannot be accurately characterized as unjustified.
Lazaro cannot claim an award of attorneys fee.
Hence, Lazaro is not entitled for the payment of damages, attorneys fee and expenses of suit.

DAMAGES , Liability for Damages

University of the Philippines v. Hon. Agustin Dizon, Stern Builders, Inc. and Servillano Dela Cruz

C .R. No. 171182, August 23, 2012

Bersamin, J.:
FACTS:
The CA upheld the order of the RTC that directed the garnishment of public funds amounting to P16,370,191,74
belonging to the UP to satisfy the writ of execution issued to enforce the already final and executor judgment
against the UP, hence, this petition for review on certiorari.
Parties University of the Philippines and Stern Builders entered into a contract for the construction of extension
building and renovation of the College of Arts and Sciences of the UP-Los Banos.
In then course of the contract, Stern submitted three progress billings, but UP only paid two. The third billing
was disallowed by the COA , but even if subsequently the same was allowed, UP did not pay the same
prompting Stern to sue UP and its officials to collect the unpaid billing and recover various damages.
ISSUE:
Whether private respondent is entitled to payment of damages.
HELD:
NO, Section 14, Article 8 of the Constitution provides that No decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law on which it is based.
The decision of the RTC stating that the private respondent suffered losses and incurred expenses as he was
forced to re-mortgaged his house and lot to pay its monetary obligations in the form of interests and penalties
was a conclusion of fact and did not comply with the statutory prescription. Being bereft of factual support as to
the losses of expenses STERN incurred, the award was whimsical and speculative. Article 2199, Civil Code
provides for the statutory basis for the award of actual damages, which entitled a person to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved.
There was also no clear and distinct statement of the factual and legal support for the award of moral damages.
The grant of moral damages in that manner contravened the law that permitted the recovery of moral damages
as the means to assuage physical suffering, mental anguish, fright, serious anxiety, besmirched reputation
wounded moral smock, social humiliation, and similar injury.
Hence, in order to recover damages the same must have a factual basis and should be indicated in the decision.
Private respondent STERN therefore is not entitled to any payment of damages.
DAMAGES, Liability for Damages
Sps. Teodoro and Nanette Perena v. Sps. Nicolas and Teresita Zarate, Philippine National
Railways
G.R. No 157917, August 29, 2012
FACTS:
By petition for review on certiorari Spouses Teodoro and Nanette Perena appeal the adverse decision of CA
affirming with modification the decision of RTC that had decreed them jointly and severally liable with
Philippine National Railways (PNR), to Spouses Nicolas and Teresita (Zarate) for the death of their 15 year old
son, Aaron), then in high school student of Don Bosco Technical Institute (Don Bosco).
In June 1996, the Zarates contracted the Perenas to transport Aaron to and from Don Bosco. On August 22,
1996, the van picked Aaron up around from the Zarates residence. Considering that the students were already
running late because of the heavy traffic , Alfaro took the van to an alternate underneath the Magallanes
interchange as a short cut to Makati. At the time, the narrow path had no railroad warning signs.

In fact, the bamboo baradilla was up, leaving the railroad crossing open. At the time the van traverses the
railroad crossing, PNR commuter No. 302 (train) , operated by Jhonny Alano, was in the vicinity travelling
northbound. Alfaro drove the van eastward across the railroad tracks, closely tailing a large passenger bus. His
view of the oncoming train was blocked because he overtook the passenger bus on its left side. The train blew
its horn to warn motorist of its approach. When the train was about 50 meters away, from the passenger bus,
Alano applied the ordinary brakes of the train. He applied the emergency brakes only when he saw that a
collision was imminent. The passenger bus successfully crossed the railroad tracks, but the van driven by Alfaro
did not. The train hit the rear end of the van and killed Aaron. Alano fled the scene on board the train and did
not wait for the police investigators.
ISSUE:
Whether the spouses are employees and PNR jointly and severally liable for damages.
HELD:
YES, The lower courts correctly held both the Perenas and the PNR jointly and severally liable for damages
arising from the death of Aaron. Although the basis of the right to relief of the Zacarias (i.e. breach of contract
of carriage) against the Perenas was distinct from the basis of the Zarates right to relief against the PNR (i.e.
quasi-delict) their respective negligence combining to cause the death of Aaron.
As to the PNR, the RTC rightly found that it is also guilty of negligence despite the school van of the Perenas
traversing the railroad tracks at a point not dedicated by the PNR as a railroad crossing for pedestrian and
motorist, because the PNR did not ensure the safety of others through the placing of crossbars, signal lights,
warning signs, and other permanent safety barriers to prevent vehicles or pedestrians from crossing there.
Verily, the Perenas and the PNR were jointly tortfeasors.
The award of moral damages is proper because they were intended by the law to assuage the Zarates deep
mental anguish over their sons unexpected and violent death, and their moral shock over the senseless accidents.
That amount not be too much considering that it would help the Zarates obtain the means, diversions or
amusements that would alleviate their suffering for the loss of their child.
Anent the exemplary damages, we should not reduce the amount if only to render effective, the desired example
for the public good. As a common carrier, the Perenas needed to be vigorously reminded to observe their duty to
exercise extraordinary diligence to prevent similarly senseless accidents from happening again. Only by an
award of exemplary damages in that amount would stuff to instill in them and other similarly situated the ever
present need to greater and constant vigilance in the conduct of a business imbued with public interest.
Hence, both the PNR and the spouse employers are liable jointly and severally for damages.
DAMAGES, Liability for Damages
R.V. Santos Company, Inc. Belle Corporation
G.R. Nos. 159561-62, October 3, 2012
De Castro, j:
FACTS:
The CA affirmed the decision of the CIAC declaring overpayment made by respondent Belle to petitioners
RVSCI based on the progress billing made by the latter. The latters motion for reconsideration having been
denied, hence, this Petition for Review on certiotori under Rule 45.
Belle and RVSCI entered into a Construction Contract. RVSCI undertook to construct a detailed underground
electrical network for Belles Tagaytay Woodlands Condominium Project. However, the project was allegedly
not completed within the stipulated time frame. Subsequently, Belle placed additional work orders with RVSCI.

Later, RVSCI submitted its Progress Billing to Belle, claiming that the value of the work accordingly was
P7,159,216.63 on the main project and P1,768,000.00 on the additional work order.
Parties representative met and during meeting RVSCI allegedly advised Belle that it will return to the site until
the outstanding balance due to its is paid RVSCI allegedly refused to return the excess payment despite repeated
demands.
ISSUE:
Whether RVSCI is entitled to an award damages.
HELD:
NO. This is consistent with the law against unjust enrichment under Article 22 of the Civil Code Expounding on
this provision in a recent case, we have held that the principle of unjust enrichment essentially contemplates
payment when there is no duty to pay6, and the person who receives the payment has no right to receive it.
IN the case at bar, we uphold CIACs factual that the value of the total work accomplished by RVSCI on the
main projecxt was for a total of P6,658,885.86. On the other hand, Belle had made payments in the total amount
of P11,598,994.44.36. It is thus undeniable that RVSCI had received payments from Belle in excess of the value
of its work accomplishment.
In light of this overpayment, it seems specious for RVSCI to claim that it has suffered damages from Belles
refusal to pay its Progress Billing, which had been proven to be excessive and inaccurate.
Bearing in mind the law and jurisprudence on unjust enrichment, we hold that RVSCI is indeed liable to return
what it had received beyond the actually value of the work it had done for Belle.
Hence, RVSCI is not entitled to any award for damages.