DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS G.R. No. 118367. January 5, 1998

FACTS:

Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government; Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights; Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba; After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question; That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property; That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 6, 1984; Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food.

ISSUE: Whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid.

AN ASSIGNMENT TO GUARANTEE AN OBLIGATION IS VIRTUALLY A MORTGAGE;

HELD: We agree with CUBA that the assignment of leasehold rights was a mortgage contract. Simultaneous with the execution of the notes was the execution "Assignments of Leasehold Rights" where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition No. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition No. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. In People's Bank & Trust Co. vs. Odom, this Court had the occasion to rule that an assignment to guarantee an obligation is in effect as mortgage.

CALIFORNIA BUS LINES INC. vs STATE INVESTMENT HOUSE, INC. G.R. No. 147950. December 11, 2003

QUISUMBING, J:

Facts: 

Delta Motors Corporation  applied for financial assistance from respondent State Investment House, Inc., a domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta which eventually became indebted to SIHI. Meanwhile, petitioner purchased on installment basis several buses to Delta. To secure the payment of the obligation petitioner executed promissory notes in favor of Delta. When petitioner defaulted on the payments of the debts, it entered into an agreement with delta to cover its due obligations. However, petitioner still had trouble meeting its obligations with delta. Pursuant to the memorandum of agreement delta executed a deed of sale assigning to respondent, the promissory notes from petitioner. Respondent subsequently sent a demand letter to petitioner requiring remitting payments due on the promissory notes. Petitioner replied informing respondent of the fact that delta had taken over its management and operations.   

Issue: 

Whether the Restructuring Agreement dated October 7, 1981, between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI,

Held:  

The attendant facts do not make out a case of novation. The restructuring agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not expressly stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of complete incompatibility between the old and the new obligation would sustain a finding of novation by implication. 59 However, our review of its terms yields no incompatibility between the promissory notes and the restructuring agreement.

CA Agro Industrial Development Corp., vs Court of Appeals GR# 90027 March 3, 193

DAVIDE, JR., J:

Facts:  

Petitioner and the spouses Ramon and Paula Pugao entered into an agreement whereby the former purchased from the latter two (2) parcels of land. Among the terms and conditions of the agreement were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto, and that title shall be deposited shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then rented Safety Deposit Box of private respondent Security Bank and Trust Company.

Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank to open the safety deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no such certificates.

Issue: 

 Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its contents placed by the latter one of bailor and bailee or one of lessor and lessee?

Held: 

 The contract for the rent of the safety deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the box.

BPI vs. Intermediate Appellate Court GR# L-66826, August 19, 1988

CORTES, J:

Facts: 

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount was to be charged to the dolar savings account of the Zshornacks. There wasa no indication of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack noticed the withdrawal from his account, he demanded an explainaiton from the bank. In its answer, Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers check for P8450 issued by the manila banking corporation payable to Ernesto. 

Issue: Whether the contract between petitioner and respondent bank is a deposit?

Held: The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later.

The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

PEDRO ALCANTARA vs AMBROSIO ALINEA GR# L-3227 March 22, 1907

TORRES, J.:

FACTS:

            In 1905, the defendants borrowed from the plaintiff 480 pesos, payable in January of said year under the agreement that if, at the expiration of the said period, said amount should not be paid it would be understood that the house and lot they owned be considered as absolutely sold to the plaintiff for the said sum.  The plaintiff filed a complaint in the Court of First Instance of La Laguna, praying that judgment be rendered in his behalf ordering the defendants to deliver to him the house and lot claimed, and to pay him in addition thereto as rent the sum of pesos per month from February of that year, and to pay the costs of the action.

            The defendants argued that the principal borrowed was only 200 pesos and that the interest was 280 pesos, although the amount of indebtedness was made to appear in the sum of 480 pesos; and that as their special defense defendants alleged that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff had refused to accept the same. 

            The trial court rendered a judgment ordering the defendants to deliver to the plaintiff the house and lot and to pay the costs of the action. 

ISSUE:

            Whether or not the two contracts entered into between the parties are void.

HELD:

            The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the nonpayment or return of the amount loaned, has not produced any charge in the nature and legal conditions of either contract, or any essential defect which would tend to nullify the same. 

            If the promise of sale is not vitiated because, according to the agreement between the parties thereto, the price of the same is to be the amount loaned and not repaid, neither would the loan be null or illegal, for the reason that the added agreement provides that in the event of failure of payment the sale of property as agreed will take effect, the consideration being the amount loaned and not paid.

            The property, the sale of which was agreed to by the debtors, does not appear mortgaged in favor of the creditor, because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property, in accordance with article 1875 of the Civil Code.  In the case at bar, the transaction does not constitute a mortgage, nor could it possibly be a mortgage, for the reason of said document is not vested with the character and conditions of a public instrument.  Also, the said property could not be pledged, not being personal property, and notwithstanding the said double contract the debtor continued in possession thereof and the said property has never been occupied by the creditor.

            Neither was there ever any contract of antichresis by reason of the said contract of loan, inasmuch as the creditor-plaintiff has never been in possession thereof, nor has he enjoyed the said property, nor for one moment ever received its rents; therefore, there are no proper terms in law, taking into consideration the terms of the conditions contained in the aforesaid contract, whereby this court can find that the contract was null, and under no consideration whatever would it be just to apply to the plaintiff articles 1859 and 1884 of the same code.

            The contract (pactum commissorium), indicates the existence of the contracts of mortgage or of pledge or that of antichresis, none of which have coincided in the loan indicated herein.

            It is a principle in law, that the will of the contracting parties is the law of contracts.  It was agreed between plaintiff and defendants herein that if defendants should not pay the loan of 480 pesos in January1905, the property belonging to the defendants and described in the contract should remain sold for the aforesaid sum.        The document of contract has been recognized by the defendant Alinea and by the witnesses who signed same with him, being therefore an authentic and efficacious document, in accordance with article 1225 of the Civil Code; and as the amount loaned has not been paid and continues in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instrument be executed by the vendees. 

            Therefore, by virtue of the reasons given above and accepting the findings given in the judgment appealed from, we affirm the said judgment herein, with the costs against the appellants.

            After expiration of twenty days from the date of the notification of this decision let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the court from whence it came for proper action.

WILLARD, J., dissenting:

This contract violates the fundamental principle of the Spanish law, which does not permit a debtor, at the time he secures a loan of money, to make an agreement whereby the mere failure to pay the loan at maturity shall divest him irrevocably or allow his interest in the specific property mentioned in the agreement without any right on his part to redeem or to have the property sold to pay the debt. (Civil Code, arts. 1859, 1872, and 1884.) I therefore dissent.

ATOK FINANCE CORPORATION vs. COURT OF APPEALS G.R. No. 80078. May 18, 1993

FELICIANO, J.:

FACTS:
On 27 July 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading Corporation along with individual private stockholders of Sanyu Chemical as sureties, executed a Continuing Suretyship Agreement in favor of Atok Finance as creditor.

In 1981, Sanyu Chemical assigned its trade receivables outstanding to Atok Finance in consideration of receipt from Atok Finance of the amount of P105,000.00. The assigned receivables carried a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to grant an extension of up to one hundred twenty (120) days without penalties.

In 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect a sum of money plus penalty charges starting from 1 September 1983. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables.

Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.

After trial the trial court rendered a decision in favor of Atok Finance. On appeal the CA reversed and set aside the decision of the trial court and entered a new judgment dismissing the complaint of Atok Finance.

ISSUE:
Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Continuing Suretyship Agreement, or whether that Agreement must be held null and void as having been executed without consideration and without a pre-existing principal obligation to sustain it.

Whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned.

HELD:
Although obligations arising from contracts have the force of law between the contracting parties, (Article 1159 of the Civil Code) this does not mean that the law is inferior to it; the terms of the contract could not be enforced if not valid. So, even if, as in this case, the agreement was for a continuing suretyship to include obligations enumerated in the agreement, the same could not be enforced. First, because this contract, just like guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt (Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be considered 'future debt' as envisioned by this law.

There is no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served as the principal obligation between the parties. Furthermore, the 'future debts' alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was acquired two years after the agreement."

A guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." Moreover, Article 2053 of the Civil Code states that a guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured."

Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or a financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the case at bar.

As regards the second issue, the contention of Sanyu Chemical was that Atok Finance had no cause of action under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had ceased. It relied on Article 1629 of the Civil Code which provides: In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the maturity."

The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor which were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor to the assignee as contended by the appellant. Applying the said law to the case at bar, the records disclose that none of the assigned receivables had matured when the Deed of Assignment was executed.

It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical. Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefitted from the assignment. The payments due in the first instance from the trade debtors of Sanyu Chemical would represent the return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such receivables.

Article 1629 of the Civil Code is not material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency; the liability of Sanyu Chemical was not ex lege but rather ex contractu. Under the Deed of Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. The obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code.

It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and enforceable cause of action against Sanyu Chemical and the other private respondents.

The Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals are hereby REVERSED and SET ASIDE. A new judgment is hereby entered REINSTATING the Decision of the trial court.