DIGESTED CASES

1. A. Francisco Realty & Dev Coro vs CA

Facts:
 In lieu of the loan extended by the petitioner (A. Francisco Realty and Development
Corporation), the respondent spouses (Javillonar) executed a promissory note which
provided that the possession of the mortgaged property shall be transferred, and a deed
of sale will be registered in favor of the petitioner.
Issue:
W/N pactum commissorium exits in the given case.

Ruling:
 The court ruled in the affirmative.
 Pactum commissorium has the effect of automatic conveyance of the mortgaged
property in favor of the mortgagee in case of the failure of the mortgagor to pay the
loan without observing the foreclosure process.
 Pursuant to the civil code, pactum commissorium is void, as The creditor cannot
appropriate the things given by way to pledge or mortgage, or dispose of them.
 Thus in the case at bar, the stipulation which provided that the possession of the
mortgaged property shall be transferred, and a deed of sale will be registered in favor of
the petitioner is void for such embraces pactum commissorium.

2. Hechanova vs. Adil

FACTS:

 Private respondent, Pio Servando sought to annul the sale made by Jose Servando
(deceased)in favor of the petitioners of three parcels of land which according to him
were mortgaged in his favor evidenced in a private document which provides that
upon failure to redeem the mortgaged property, Pio shall become the sole owner
thereof.

ISSUE:
WON the sale can be annulled as prayed by Pio

RULING:
NO.

 Pio has no standing to question the validity of the deed of sale executed by
defendant
Jose because there was no valid mortgage has been constituted in favor of the plaintiff.

 Aside from the fact that the alleged deed of mortgage being a mere private
document and not registered, it contains a pactum commissorium which is null and
void the Civil Code because the creditor cannot appropriate the things given by way
 to pledge or mortgage or dispose of them. His recourse was to foreclose the
mortgage, not to seek annulment of the sale.

3. Reyes vs. Sierra, L 28658

Facts:
 Petitioner sought for the approval of the land in dispute alleging that he inherited it
from his father through a document executed by the widow owner of the land as
security for the money borrowed from the petitioner’s father.
 Petitioner also said that the realty taxes were paid by his father and was
subsequently paid by its children upon his father’s death. And the loan was never
paid.

Issue:
Should the application for the registration be granted?

Ruling:
 No. The document executed by the widow in favor of the petitioner’s father was
not an absolute sale but a mortgage contract.
 To allow the registration of the land in favor of the petitioner would circumvent
the prohibition against Pactum commissorium.
 Pursuant to the civil code, pactum commissorium is void, as The creditor cannot
appropriate the things given by way to pledge or mortgage, or dispose of them
without observing the procedure on foreclosure.
 In addition, mere failure of the owner to pay the taxes does not warrant a
conclusion that there was abandonment of a right to the property. The payment
of taxes on property does not alone constitute sufficient evidence of title.

4. PNB vs. Banatao, G.R. 149221

Facts:
 Plaintiffs-respondents claiming as the owners of the disputed property initiated
an action for recovery of real property against one of the defendants-
respondents, occupants of the disputed property.
 While the case was pending, the defendants-respondents were able to secure
homestead patents.
 The OCTs contains a provision that the patented homestead shall neither be
alienated nor encumbered for five (5) years from the date of the issuance of the
patent.
 However, the defendants-respondents separately applied for loans with the PNB
secured by real estate mortgages on their respective titled portions of the
disputed property.
 The plaintiffs-respondents and the defendants-respondents entered into a
compromise agreement whereby ownership of the northern half of the disputed
property was ceded to the plaintiffs-respondents, while the remaining southern
half was given to the defendants-respondents.
 Issues:

1. Whether or not the compromise agreement entered into by some of the parties
in litigation is binding upon PNB.
2. Whether or not the mortgage constituted on the disputed land covered by a
homestead patent is valid.

Ruling:

1. No. The compromise agreement does not bind those who are not part of such
compromise. The doctrine of relativity of contracts dictates that a compromise
agreement, as a contract, is binding only upon the parties to the compromise, and
not upon non-parties. Since PNB is not a party the compromise agreement, such
agreement cannot bind PNB.

2. The mortgage on the land covered by a homestead patent is not valid. A party who
contracts with a homestead patentee is charged with knowledge of the law's
proscriptive provision that must necessarily be read into the terms of any agreement
involving the homestead.

5. Dayrit vs. Ca, L-29388

Facts:
 Petitioner together with 2 others entered into LOAN & MORTGAGE AGREEMENT
with the Mobil Oil Philippines, Inc.
 In lieu of the loan grant and faithful performance by Borrowers of Sales
Agreement, the land of Petitioner Dayrit was mortgaged.
 In case of default in payment of any of the installments and/or
failure to purchase the quantity of products in the sales agrrement shall
entitle Mobil to foreclose the mortgage
 The borrower’s only paid one installment in the amount failed to buy the
quantities of products as required in the Sales Agreement.
 the trial court rendered itsdecision: “ordering them to pay to the plaintiff one-
third each of the sum of P147,434.00 with interestof 10% per annum from the
time it fell due according to agreement, and in default of such payment, the
properties put up in collateral shall be sold in foreclosure sale inaccordance with
law, the proceeds to be applied in payment of the amount due to theplaintiff
from the defendants as claimed in the complaint provided that, as to Dayrit,
hisliability shall in no case exceed 1/3 of the total obligation”
 No appeal having been interposed by the defendants, the above decision became
final and executory.

Issue: Whether or not the refusal to allow the alleged proposed deposit of a sum
equivalent to 1/3 of the loan agreed upon and in refusing to release the collaterals
owned by Dayrit, although the other 2/3 portion of the loan obligation had not been
satisfied due to insolvency of the other two co-defendants
 Ruling:

 No. While it is true that the obligation is merely joint and each of the
defendants is obliged to pay only his/her 1/3 share of the joint obligation, the
undisputed fact remains that the intent and purpose of the Loan and
Mortgage Agreement was to secure, inter alia, the entire loan of P150,000
that the respondent Mobil extended to the defendants.
 "When several things are pledged or mortgaged, each thing for a
determinate portion of the debt, the pledges or mortgages are considered
separate from each other. But when the several things are given to secure
the same debt in its entirety, all of them are liable for the debt, and the
creditor does not have to divide his action by distributing the debt among the
various things pledged or mortgaged. Even when only a part of the debt
remains unpaid, all the things are still liable for such balance. Hence, a
mortgage voluntarily constituted by the debtor on two or more parcels of
land is one and indivisible, and the mortgagee has the right to have either or
both parcels, jointly or singly, sold to satisfy his claim.

6. Manila Banking Corp vs. Teodoro, G.R. 54955

There are three promissory notes involved in this case:

 Promissory Note 1: defendants, together with Teodoro, Sr., jointly and severally,
executed in favor of plaintiff a Promissory Note but they failed to pay in spite of
demands

 Promissory Notes 1 & 2defendants Teodoro, Sr. and Teodoro, Jr. executed in
favor of plaintiff two Promissory. Father and Son made a partial payment but still
an there was unpaid balance.

 Before the issuance of the promissory notes, it appears the Son executed in
favor of The Manila Banking Corporation a Deed of Assignment of Receivables
from the Emergency Employment Administration which provided that it was for
and in consideration of certain credits, loans, overdrafts and other credit
accommodations extended to defendants as security for the payment of said
sum and the interest thereon, and that defendants do hereby release all its
rights and interest in and to the accounts receivables.

 it is admitted by the parties that The Manila Banking Corporation extended loans
to defendants by reason of certain contracts entered into by the defunct EEA
with defendants for the fabrication of fishing boats, and that the Philippine
Fisheries Commission succeeded the EEA after its abolition; that nonpayment of
 the notes was due to the failure of the Commission to pay defendants after the
latter had complied with their contractual obligations.
For failure to pay the obligations due from the promissory notes, an action for sum of
money was filed against the defendants by the plaintiff with the CFI of Manila.

ISSUES:
1. WON the assignment of receivables has the effect of payment of all the loans
contracted by appellants from appellee bank. (no)

2. WON appellee bank must first exhaust all legal remedies against the PFC before it
can proceed against appellants for collections of loan under the promissory notes
which are plaintiffs’ bases in the action for collection in the civil case. (no)

RULING:
1. It is evident that the assignment of receivables executed by appellants, did not
transfer the ownership of the receivables to appellee bank and release appellants
from their loans with the bank incurred under promissory notes. The Deed of
Assignment provided that it was for and in consideration of certain credits, loans,
overdrafts, and their credit accommodations extended to appellants by appellee
bank, and as security for the payment of said sum and the interest thereon; that
Teorodo Jr and Grace as assignors, release, to assignee bank all their rights and
interest in and to the accounts receivable assigned.

Obviously, the deed of assignment was intended as collateral security for the bank
loans of Teorodo Jr and Grace, as a continuing guaranty for whatever sums would
be owing by defendants to plaintiff. In case of doubt as to whether a transaction is a
pledge or a dation in payment, the presumption is in favor of pledge, the latter being
the lesser transmission of rights and interests.

2. The obligation of appellants under the promissory notes not having been released by
the assignment of receivables, Teorodo Jr and Grace remain as the principal debtors
of appellee bank rather than mere guarantors.

The deed of assignment merely guarantees said obligations. That the guarantor
cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor and has resorted to all the legal remedies against the debtor,
under Article 2058 of the New Civil Code does not therefore apply to them. It is of
course of the essence of a contract of pledge or mortgage that when the principal
obligation becomes due, the things in which the pledge or mortgage consists of may
be alienated for the payment to the creditor.