Digests

A borrower executed a real estate mortgage over a co-owned parcel of land to secure a loan with a 5% monthly interest rate. Upon default, the lender initiated extrajudicial foreclosure proceedings, prompting the borrower to seek the annulment of the mortgage and the foreclosure sale on grounds of unconscionable interest and invalid mortgage over co-owned property.

A stipulated interest rate of 5% per month is unconscionable and void ab initio for being contrary to morals, warranting replacement with the BSP-prescribed legal interest; furthermore, a foreclosure based on a demand for an over-inflated amount is void because the debtor is not considered in default, and a co-owner's mortgage of a specific portion of co-owned property without consent of other co-owners is not void but merely ineffective, subject to estoppel up to the mortgagor's undivided share.

Security Bank granted Spouses Mercado a revolving credit line secured by real estate mortgages over several properties. Upon default, the bank initiated extrajudicial foreclosure. The published notices of sale contained errors in the lot numbers and omitted the locations of the properties. The bank attempted to correct these through a single erratum publication. The spouses contested the validity of the foreclosure and the imposed interest rates and penalties.

Extrajudicial foreclosure sales are void for non-compliance with statutory publication requirements when the notice contains substantial errors that mislead bidders, and a single erratum publication does not cure the defect; interest rate stipulations that grant a bank unbridled discretion to determine rates without a mutually agreed market-based reference rate violate the principle of mutuality of contracts.

A husband obtained multiple loans from a private corporation and secured them with a real estate mortgage over conjugal properties, misrepresenting himself as single. After making partial payments and obtaining further loans, a dispute arose regarding the exact amount due, leading the creditor to extrajudicially foreclose the properties.

A real estate mortgage encumbering conjugal property is void for lacking the written consent of the non-mortgagor spouse, and such nullity extends to the entire mortgage; however, the two-bidder rule does not apply to extrajudicial foreclosures under Act No. 3135, and a debtor cannot avoid default by demanding an accounting when the obligation is already liquidated.

Petitioners entrusted the duplicate of their TCT to their niece, Rodora Jimenez, to find a buyer. Instead, Rodora and spouses Ocampo conspired to falsify a Deed of Donation, transferring the property to spouses Ocampo. A new TCT was issued to spouses Ocampo, who subsequently mortgaged the property to respondent. When spouses Ocampo defaulted, respondent foreclosed.

A mortgagee has the right to rely in good faith on the face of the mortgagor's Torrens Certificate of Title, and in the absence of any sign arousing suspicion, has no obligation to undertake further investigation; dealing with the mortgagor through a middleman does not, by itself, constitute bad faith.

Overseas Filipino seafarers are governed by the POEA-SEC, which sets specific grounds and procedures for discipline and dismissal. While ship captains have authority to maintain discipline, dismissal requires just cause under the Labor Code and strict adherence to procedural due process under the POEA-SEC.

An employee's refusal to sign a written reprimand does not constitute willful disobedience justifying dismissal because the order to sign does not pertain to the employee's duties, and even if it did, dismissal is a disproportionate penalty for such refusal.

Spouses Roxas engaged Dominguez to construct a housing project financed by Philtrust Bank. To guarantee the project's completion, Dominguez secured a performance bond from FGU. Disputes arose when Dominguez demanded an upward adjustment for rising costs and payment for labor, while the Spouses Roxas failed to pay the agreed installments and diverted construction funds for personal use. Dominguez eventually abandoned the project, leading to multiple suits over the contract, the surety bond, and the parties' respective liabilities.

A surety's liability is determined strictly in accordance with the actual terms of the performance bond, and it is liable for the full face amount upon the principal's default unless specific limiting words are present; however, the surety may set up compensation against what the creditor owes the principal debtor.

Gotesco obtained a P300 million loan from Solidbank secured by a Mortgage Trust Indenture (Indenture). When the loan matured, Gotesco struggled to pay due to the 1997 Asian Financial Crisis and proposed a restructuring. Solidbank responded by demanding additional collateral due to a drop in property values. Gotesco refused, insisting its own valuation was sufficient. Solidbank foreclosed, prompting Gotesco to file a complaint for annulment of foreclosure while Solidbank sought a writ of possession.

The publication requirement for a Notice of Sale in an extrajudicial foreclosure is satisfied if the newspaper is of general circulation in the city or municipality where the property is located, regardless of where the newspaper is printed.

Sengkon Trading obtained various credit facilities from FEBTC. To partially secure Sengkon's obligations under a P60 Million Credit Line, PDCP executed two real estate mortgages (REMs) over its properties. Sengkon later defaulted, and FEBTC initiated extrajudicial foreclosure proceedings against PDCP's mortgaged properties.

A mortgagee's failure to comply with a contractual stipulation requiring personal notice of the foreclosure sale to the mortgagor nullifies the foreclosure proceedings. Furthermore, a dragnet clause in a mortgage does not automatically cover future advances if those subsequent loans are secured by other collaterals, applying the "reliance on security test."

A property was mortgaged to secure credit purchases, extrajudicially foreclosed upon default, and sold at public auction. The buyer of the property, who stepped into the shoes of the mortgagor, sought to redeem the property long after the statutory 1-year period had lapsed, claiming his prior lawsuit to annul the sale suspended the deadline.

The one (1)-year period of redemption under Act No. 3135 is fixed, non-extendible, and cannot be tolled or interrupted by the filing of an action to annul the foreclosure sale or to enforce the right of redemption.

Credit card provider Bankard filed a collection suit against cardholder Alarte, who completely ignored the proceedings at all levels. The lower courts dismissed the suit because the single statement of account submitted by Bankard did not detail the actual purchases made by Alarte, only the penalties and interest, making it impossible to determine how the debt was incurred.

A credit card statement of account showing only a previous balance and finance/penalty charges, without detailing specific purchases, is insufficient to prove a collection case by preponderance of evidence; however, if the statement indicates a running balance from past transactions, the case should be remanded to allow the credit card issuer to amend the complaint and present additional evidence of the cardholder's credit history.

BDO filed a collection suit against Tancho Corporation and its sureties, including Carmelita Borlongan. After securing a judgment, BDO levied and sold the Borlongans' conjugal property at an execution sale. The spouses only discovered the levy years later when they checked their title for a prospective sale, prompting them to file separate actions to annul the proceedings and protect their property.

Service of summons by publication is invalid if the plaintiff and sheriff fail to exert diligent inquiry to locate the defendant, and a non-debtor spouse is considered a "stranger" who may file an independent action to annul a levy on conjugal property when the other spouse's surety obligation did not redound to the benefit of the family.

Respondent Lilibeth S. Chan owned a commercial building which she leased to petitioner Philippine National Bank (PNB). Concurrently, Chan obtained a loan from PNB, secured initially by a mortgage over the leased property and a deed of assignment of rental proceeds. The mortgage was later substituted to a different property. When the lease expired, PNB continued occupying the property on a month-to-month basis but stopped paying rentals directly to Chan after a third party claimed ownership of the property.

A deposit of funds in a non-drawing savings account does not constitute valid consignation, and a mortgagee's right to recover a deficiency claim requires proper evidentiary determination of the outstanding obligation at the time of the foreclosure sale, not mere assumption based on the bid price.

Respondents Abad et al. obtained a loan from DBP and submitted their certificates of title for safekeeping. When the loan became due, DBP called on the guarantee of GFSME and turned the titles over to them. Respondents then filed a replevin case to recover the titles, securing a writ of seizure with a bond from CBIC. The RTC issued the writ, and the sheriff seized 228 titles from GFSME.

An application for damages against a replevin bond must be filed before trial, before appeal is perfected, or before the judgment becomes executory; it cannot be entertained after the judgment has become final and executory.

UNIALLOY obtained a credit accommodation from UCPB, partly secured by a surety agreement executed by the Spouses Chua and other corporate officers. As part of the consideration, UNIALLOY also entered into a lease-purchase contract with UCPB for certain real properties. When UNIALLOY defaulted, UCPB filed a collection case and rescinded the lease-purchase contract, prompting UNIALLOY to file a separate annulment case alleging fraud.

A surety is solidarily liable for the principal debtor's obligations, but stipulations allowing the lender to unilaterally adjust interest rates at its sole discretion without the borrower's consent are void for violating the mutuality of contracts.

Petitioners, doing business under the trade name Moondrops General Merchandising, urgently needed working capital and applied for a loan with Westmont Bank. The bank manager had them sign blank forms for promissory notes, disclosure statements, and a continuing suretyship agreement. The bank manager later informed them their application was disapproved but offered to facilitate a loan from a private individual, Amado Chua, which petitioners accepted and paid. Years later, Westmont Bank sued petitioners based on the promissory notes they had signed.

Substantial compliance with Section 8, Rule 8 of the Rules of Court is sufficient to deny the genuineness and due execution of an actionable document, provided the sworn answer sets forth the facts constituting the defense and places the adverse party on notice. Additionally, a contract of loan (mutuum) is not perfected until the delivery of the object of the contract; thus, the lender must prove actual delivery of the loan proceeds to the borrower.

Respondent lent money to both petitioner and petitioner's deceased parents over several years. After the parents died, petitioner issued a check to respondent covering the combined debts, but the check was dishonored upon presentment, leading respondent to file a collection suit.

Novation by substitution of debtors requires the express release of the former debtor; absent such release, a third party's assumption of the obligation merely results in the addition of debtors, not novation. Furthermore, no monetary interest is due unless it has been expressly stipulated in writing.

Go Tong Electrical obtained a loan from DBS Bank (successor-in-interest to Bank of South East Asia). As additional security, its president, Go, executed a CSA binding himself solidarity to the obligation. Upon default, DBS (later substituted by respondent BPI Family Savings Bank) demanded payment and subsequently filed a collection suit.

When an action is founded upon a written instrument, its genuineness and due execution are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what they claim to be the facts; a general denial qualified by the word "specifically" or coupled with conclusions like "self-serving" does not suffice.

Parties were long-standing friends and kumpadres. Rivera obtained a loan from the Spouses Chua, executing a promissory note. After Rivera defaulted and issued dishonored checks, the Spouses Chua sued for collection. Rivera claimed forgery and argued that demand was necessary to trigger default, while the Spouses Chua contested the reduction of their stipulated 5% monthly (60% annual) interest rate.

A stipulated interest rate of 60% per annum is unconscionable and must be reduced to the legal interest rate; demand is not necessary to constitute default when the promissory note expressly provides a date of default; and a promissory note payable to specific persons, not to order or bearer, is not a negotiable instrument.

Respondent Pacific Plans, Inc. (PPI) sold traditional open-ended educational plans (PEPTrads), which guaranteed the payment of full tuition and other school fees regardless of actual cost at the time of enrollment. Due to the deregulation of the education sector and the 1997 Asian financial crisis, tuition fees skyrocketed beyond PPI's projections, causing severe liquidity problems. PPI filed for corporate rehabilitation to suspend payments to its roughly 34,000 planholders.

The rehabilitation court has the authority to approve a modified rehabilitation plan over the objection of creditors (cram-down power), and such modification—even if it impairs contractual obligations or reduces claims—is valid if it serves the feasibility of rehabilitation and the interests of all stakeholders.

Corporate rehabilitation proceedings often involve multiple creditors who may file separate appeals, sometimes resulting in conflicting decisions from different divisions of the CA. This case addresses how conflicting CA rulings on the same rehabilitation order should be treated when one reaches finality, and clarifies the procedural requirements for issuing a stay order following the shift from Presidential Decree No. 902-A to the Interim Rules.

A final judgment upholding a corporate rehabilitation plan constitutes res judicata (bar by prior judgment) for subsequent petitions by other creditors with substantial identity of interests, and a rehabilitation court is not required to hold a hearing before issuing a stay order under the Interim Rules of Procedure on Corporate Rehabilitation.

The dispute arises from international construction financing involving a Philippine corporation (ASPAC) that obtained foreign loans to finance a subcontracting project in Libya. To secure these loans, a government financial institution (TIDCORP) issued Letters of Guarantee to foreign banks. To protect itself against potential liability, TIDCORP required ASPAC to obtain counter-surety bonds from insurance companies. When ASPAC defaulted and TIDCORP negotiated a debt restructuring with the foreign banks—extending payment schedules without the sureties' consent—the lower courts held that the sureties were released under Article 2079 of the Civil Code, necessitating Supreme Court review to clarify the scope of this provision in complex guarantee-surety arrangements.

Article 2079 of the Civil Code—which provides that an extension granted to the debtor by the creditor without the surety's consent extinguishes the suretyship—applies only when the extension is granted to the principal debtor whose obligation is secured by the surety. Where the creditor grants an extension to an intermediary guarantor of the principal debt (rather than to the principal debtor itself), the surety's obligation to the creditor is not extinguished, as the surety retains the right to pay upon maturity and be subrogated to the creditor's remedies against the principal debtor.

SCP, a domestic steel manufacturer, obtained loans from several creditors and mortgaged its assets, with BPI acting as the mortgage trustee. Under the Mortgage Trust Indenture (MTI), SCP was required to insure its assets until the loans were fully paid, with policies payable to BPI. SCP eventually suffered financial difficulties, leading a creditor to file a petition for corporate rehabilitation.

A rehabilitation court has no jurisdiction over claims by the debtor against third parties; such claims must be pursued in a separate action. Rehabilitation proceedings are summary and non-adversarial and cannot adjudicate claims requiring a full trial on the merits.

Corporate rehabilitation proceedings are designed to give financially distressed companies a chance to recover and pay creditors from future earnings, rather than facing immediate liquidation. The Interim Rules of Procedure on Corporate Rehabilitation include a "cram-down" clause, allowing courts to approve rehabilitation plans over majority creditor opposition if feasible and the opposition is manifestly unreasonable.

A rehabilitation plan may be approved over a majority creditor's opposition if rehabilitation is feasible and the opposition is manifestly unreasonable; opposition is manifestly unreasonable if the creditor insists on high interest rates that would impede rehabilitation despite adequate safeguards protecting its interests.

Petitioner Town & Country Enterprises, Inc. (TCEI) obtained a P12,000,000.00 loan from respondent Metropolitan Bank & Trust Co. (Metrobank), secured by a real estate mortgage over 20 parcels of land. Due to the Asian financial crisis, TCEI defaulted, prompting Metrobank to extrajudicially foreclose the mortgage.

A Stay Order in corporate rehabilitation proceedings does not apply to mortgage obligations already enforced and foreclosed prior to the filing of the rehabilitation petition; once the redemption period expires without redemption, the purchaser becomes the absolute owner and is entitled to a writ of possession as a matter of right.

JAPRL, a domestic corporation engaged in steel products, secured a P50,000,000.00 credit facility (Letter of Credit/Trust Receipt) from SBC. When JAPRL faced financial distress, its financial adviser convened creditors for restructuring. SBC discovered material inconsistencies in JAPRL's financial statements, constituting misrepresentation and an event of default under the Credit Agreement.

A creditor can demand payment from a surety solidarily liable with a corporation undergoing rehabilitation, as the stay order does not apply to them, and a defendant who seeks affirmative relief from the court submits voluntarily to its jurisdiction despite claiming lack of summons.

Respondents FADI and UDI, engaged in construction and real estate, obtained loan accommodations from Asiatrust totaling P114,000,000.00. During the Asian Financial Crisis, respondents could not pay in cash and negotiated to assign their receivables instead. Asiatrust insisted on cash payment, declared respondents in default, and demanded P145,830,220.95. respondents contested the amount, claiming they only owed P24,202,015.00, and demanded an accounting.

A rehabilitation court gravely abuses its discretion when it bars a major creditor from participating in rehabilitation proceedings solely based on procedural technicalities, especially when there is a vast discrepancy in the claimed debt and the petition itself seeks a determination of the correct amount owed. Furthermore, a regional trial court has no jurisdiction over a corporate rehabilitation petition filed by a debtor whose principal office is located outside the court's territorial jurisdiction, and the filing of a consolidated petition by separate corporations does not cure this venue defect.

Petitioners, as corporate officers of SIHI, filed a petition for suspension of payments and corporate rehabilitation. At the time of filing, they were facing multiple criminal charges for violating the Social Security Act (non-remittance of contributions) in relation to Estafa under the Revised Penal Code. They sought to suspend these criminal proceedings, arguing that the rehabilitation court's stay order covered all actions against them arising from their corporate positions.

A stay order issued in corporate rehabilitation proceedings does not suspend criminal proceedings against corporate officers, because criminal actions are designed to punish offenders for outrages against public order, and the suspension of "all claims" applies only to debts or demands of a pecuniary nature against the corporation.

Jeffrey See, a guest at City Garden Hotel, utilized the hotel's valet parking service. His vehicle was carnapped from the hotel's designated parking area. See's insurer, Pioneer Insurance, paid the claim and, by right of subrogation, sued the hotel corporation and the parking attendant for damages based on negligence.

A contract of necessary deposit is perfected when a hotel guest entrusts a vehicle's ignition key to the hotel's valet parking attendant, making the hotel liable as a depositary for the vehicle's loss. Additionally, a party's non-appearance at a pre-trial conference cannot be excused by a representative lacking written special authority to enter into stipulations or admissions, and failure to file a pre-trial brief has the same effect as failure to appear.

Carlos de Castro was employed as a chief building administrator at Liberty Broadcasting Network, Inc. (LBNI). He was dismissed for alleged serious misconduct, fraud, and breach of trust. After a protracted labor dispute where the Labor Arbiter and the NLRC found the dismissal illegal (a ruling reversed by the CA and then reversed again by the SC in favor of de Castro), LBNI filed a Motion for Reconsideration. Simultaneously, LBNI sought the suspension of the proceedings based on a Stay Order issued by the RTC of Makati in LBNI's corporate rehabilitation case.

A stay order in corporate rehabilitation proceedings does not deprive the court of its jurisdiction over a properly filed case; it merely suspends the enforcement of all claims against the corporation. Furthermore, an employee who has worked beyond the 6-month probationary period is a regular employee by operation of law, entitled to security of tenure.

Buyers of a condominium unit filed a complaint for rescission and refund against their developer before the HLURB for the developer's failure to deliver the property. Meanwhile, the developer's parent company was placed under corporate rehabilitation by the SEC, triggering the question of whether the buyer's suit should yield to the suspension mandated by rehabilitation laws.

A complaint for rescission of contract with damages seeking a refund of payments constitutes a "claim" under PD 902-A and the Interim Rules on Corporate Rehabilitation, which mandates the suspension of all pending actions against the corporation under receivership.

MWSS granted Maynilad a 20-year Concession Agreement to manage water and sewerage services in the West Zone. To secure Maynilad's performance and payment of concession fees, Maynilad arranged for an Irrevocable Standby Letter of Credit from a consortium of foreign banks led by Citicorp. After Maynilad defaulted on its fees and failed in its arbitration bid, MWSS sought to draw on the letter of credit, but Maynilad filed for corporate rehabilitation and secured a court order stopping the draw.

An irrevocable standby letter of credit is a primary, direct, absolute, and definite undertaking by the issuing bank, making its obligation solidary with the debtor; therefore, claims against the issuing bank are not stayed by a corporate rehabilitation stay order, which only applies to guarantors or sureties not solidarily liable.

Philfinance, a finance corporation, faced financial distress in the early 1980s. To prevent asset dissipation and ensure equitable treatment of creditors, the President of the Philippines directed the SEC to intervene. This led to a suspension of payments order, the appointment of a receiver, and eventually, an order for dissolution and liquidation. Amidst these proceedings, PCIB, holding a valid pledge over Philfinance's assets, moved to enforce its rights via public auction, triggering a legal conflict between the rights of a secured creditor and the powers of a rehabilitation receiver.

An order of suspension of payments issued by the SEC does not extend to secured creditors holding a mortgage, pledge, or lien unless they voluntarily surrender their security for the benefit of all creditors. Consequently, a secured creditor may proceed with the extrajudicial foreclosure of pledged properties despite the debtor's status under suspension of payments or rehabilitation.

Rizaldy Zshornack maintained a dollar savings account and a peso current account with COMTRUST (later absorbed by BPI). He sued the bank for four causes of action, two of which reached the SC: an unauthorized withdrawal of US$1,000 from his dollar account, and the bank's refusal to return US$3,000 in cash he had entrusted to the bank for safekeeping.

A contract of deposit for foreign exchange that violates mandatory Central Bank regulations is void, leaving the parties in pari delicto with no cause of action against each other. Furthermore, a corporation is deemed to have admitted the authority of its officer to bind it and its capacity to enter into a contract if it fails to specifically deny under oath the due execution of an actionable document.

Petitioner Dizon owned three parcels of land in Pampanga, mortgaged to DBP (first mortgage) and PNB (second mortgage). After he defaulted, DBP extrajudicially foreclosed the mortgage and purchased the properties at auction on May 26, 1959. Dizon retained his right of redemption under Act No. 3135.

A deed of sale over foreclosed property executed by the mortgagor during the redemption period is not an absolute sale but a transfer of the right of redemption, and the true intention of the parties governs the reformation of the instrument.

The case involves a dispute over the true nature of a security arrangement for a loan. The debtor defaulted and faced foreclosure, but argued that the arrangement was actually antichresis, claiming the harvests from the property had already overpaid the debt. The creditor insisted it was a simple mortgage and sought full payment plus interest.

A contract of loan secured by property is a mortgage and not antichresis unless there is an express agreement that the fruits of the property will be applied to the payment of interest and thereafter to the principal; however, a mortgagee who takes possession of the property must account for the fruits and apply them to the principal if the loan is stipulated to be without interest.

A dispute over a parcel of land in Hagonoy, Bulacan, where both parties traced their claims to the original owner, Marcos Bernardo. The core conflict is whether respondents, who possessed the land based on a 1934 agreement with the original owner, could acquire it through prescription against the heir who sold the land to the petitioner in 1948.

An antichretic creditor cannot acquire ownership of the property through acquisitive prescription, and a stipulation that property mortgaged is automatically paid to the creditor upon default does not transfer ownership but merely authorizes foreclosure proceedings.