Manuel L.

Quezon University

CASE DIGEST
CREDIT TRANSACTIONS
PROFESSOR: PROS. DELA CRUZ

Submitted by: Ma. Ethel Christine S. Din

March 30, 2017
C a s e D i g e s t C r e d i t Tr a n s a c t i o n s 2 0 1 7 ( P r o f .
Dela Cruz)
Ma. Ethel Christine S. Din

Lim vs. Lutero (G.R. No. L-25235, December 9, 1926)

Facts:
Lims mortgage was executed on the 15 th day of April 1920, and presented to the
register of deeds on the 20th day of April 1920, and actually registered on the 16 th day of
June 1920, while the mortgage in favor of the Hospital was not executed until the 17 th day of
June 1920. The former was executed to secure future advancements to be made by Lim
Julian to the mortgagors to cover expenses incurred by the mortgagors in the cultivation and
harvesting to the agricultural crops for the year 1920-1921. The case at bar alleged that
there was still due and unpaid on said mortgage of which was denied by the spouses Lutero
and Magalona. There was a petition for intervention filed by the Hospital de San Pablo de
Iloilo which was granted upon its allegation that it had prior mortgage upon the property in
question of which was never registered in the registry of property. In this connection, Judge
Salas concluded that: (1) the complaint against Lutero and Magalona should be dismissed
with costs against the plaintiff; (2) the Rafael Lutero, the tenant should be absolved from all
the liability; (3) the RD of the Province of Iloilo should cancel the mortgage in favor of Lim;
(4) the mortgage in favor of the aforesaid hospital be registered; and (5) the mortgage in
favor the hospital should take preference over the mortgage executed in favor of Lim.
Hence, this petition.

Issues:

Whether or not the mortgage executed in favor of the plaintiff should preference over
the mortgage in favor of the hospital.

Held:

In the first place, it may be noted that the alleged mortgage claimed by said hospital
was not mortgage at all and could not, by any possibility, therefore be given priority
over a former mortgage legally executed and recorded. The contention of the
hospital would, of course, therefore be given but a little consideration except for the
fact that it claims that it was given priority over the mortgage held by the appellant
by virtue of an oral agreement or understanding.
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Ma. Ethel Christine S. Din

Hence, the mortgage executed by Lutero and Magalona to Lim constitutes a lien upon
the property mortgaged and is prior lien over the alleged mortgage in favor of the
Hospital de San Pablo de Iloilo.

China Banking Corp. vs. CA

Facts:
On August 21, 1974, Calapatia, a stockholder of Private Valley Golf & Country Club,
Inc. (VGCCI) pledged his stock Certificate No. 1219 to China Banking Corp. (CBC) and CBC
requested the aforementioned pledge agreement be recorded to VGCCIs books and the
latter replied that the same was duly noted in its corporate books.

Calapatia obtained a loan of P 20,000 from CBC secured by the deed of pledged. He
defaulted and CBC filed a petition for extra-judicial foreclosure before a Notary Public De
Vera requesting the latter to conduct a public auction sale of the pledged stock. CBC
informed VGCCI of the abovementioned foreclosure proceedings and requested the pledged
stock be transferred to CBC and the same be recorded in VGCCIs corporate books.

Nonetheless, VGCCI informed CBC that they cannot do their request for the reason
that Calapatia has unsettled accounts with the club. Despite of this, De Vera held a public
auction and CBC emerged as the highest bidder at 20,000.00 and thereafter issued a
certificate of sale.

VGCCI, due to failure of Calapatias monthly dues delinquencies, also held an action
of the stock certificates, one of which is Stock Certificate No. 1219. CBC requested to cancel
the said stock certificate and make a new one under its name but to no avail due to VGCCI
has been sold the same at a public auction. Consequently, CBC filed against VGCCI before
the RTC Makati for the nullification but was later dismissed due to the premise that it lacked
jurisdiction over the subject matter on the theory that it involves an intra-corporate dispute.
SEC Hearing Officer rendered a decision in favor of VGCCI but later, CBC appealed to the SEC
en Banc order the reversal of the decision of the Hearing Officer holding that CBC has a prior
right over the pledged. VGCCI then appealed before the CA and order the reversal of SEC en
Bancs Decision.

Issue:
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Ma. Ethel Christine S. Din

Whether or not CBC bound by the VGCCIs by-laws.

Held:
In order to be bound, the 3rd party must have acquired knowledge of the pertinent by-
laws at the time the transaction or agreement said 3rd party and shareholder was entered
into. In this case, at the time the pledge agreement was executed. VGCCI could have easily
informed CBC of its by-laws when it sent notice formally recognizing CBC as pledgee of one
of Calapatias Stock Certificates. The purpose of the by-laws is to regulate the conduct and
define the duties of members towards the corporation and among themselves. They are self-
imposed and, although adopted pursuant to statutory authority, have no status as public
law. Hence, it is the generally accepted rule that 3 rd persons are not bound by by-laws
except when they have knowledge of the provisions either actually or constructively.
Further, Sec. 63 of the Corporation Code provides that no shares of stock against
which the corporation holds any unpaid claim shall be transferrable in the books the
corporation cannot be utilized by the VGCCI. The term unpaid claims refer to any unpaid
claim arising from unpaid subscription and not indebtedness which a subscriber or
stockholder may owe the corporation arising from other transaction. Hence, the assailed
decision of the CA is reversed and the order of SEC en banc is affirmed.
C a s e D i g e s t C r e d i t Tr a n s a c t i o n s 2 0 1 7 ( P r o f .
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Ma. Ethel Christine S. Din

EL BANCO ESPANOL FILIPINO vs. PALANCA

Facts:

Engracio Palanca executed a mortgaged his parcel of land in favor of El Banco as a

security for his indebtedness amounting to P 218, 294. 10. His property is only worth
75,000.00 more than what he owes. El Banco then mortgaged the property of Palanca due to
his failure to make his payments. However, Palanca left for China and never came back until
he died. El Banco later granted by the court to execute Engracios property. Seven years
later, Vicente as the administrator of the estate of Engracio filed a petition for the annulment
of the courts ruling in favor of El Banco alleging that Engracio was not given due process as
he never received the summons.

Issue:

Whether or not due process was not observed.

Held:

Yes. The Court ruled against Palanca. The requisites for judicial due process had been
met which are:
1. There must be an impartial court or tribunal clothed with judicial power to
hear and decide the matter before it;
2. Jurisdiction must be lawfully acquired over the person of the defendant or
over the property subject of the proceedings;
3. The defendant must be given the opportunity to be heard; and
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Ma. Ethel Christine S. Din

4. Judgment must be rendered after a lawful hearing.

Hence, the judgment in question is not void. It is entirely regular in form, and the
alleged defect is one which is not apparent on its face. The judgment appealed from is
without error and the same is accordingly affirmed.

VALMONTE VS. CA

Facts:
Joaquin Valmonte sold to his daughter Pastora 3 parcels of land located in Jaen,
Nueva Ecija with a total area of 70.6 hectares. A few days later, Pastora obtained a loan of
16,000 from the PNB and executed a mortgage as a security for payment thereof. Pastora
then defaulted in the payment of the loan therefore PNB conducted an extra-judicial sale of
the subject property for the satisfaction of Pastoras debt. PNB was the sole and only bidder
for P 5,524.40. On October 10, 1955, Valmonte sent a letter-request to PNB for additional
time within which he may repurchase the properties of which Valmonte failed to do so.
Valmonte filed a complaint which was dismissed by the trial court and CA which came out
with a judgment affirming the trial courts decision.

Petitioners averred that there was insufficient publication of the notice of sale, the
posting of the notice was not in accordance with law, the price obtained during auction sale
was unconscionably low, the sheriff who conducted the sales had authority to do so, and the
auction sale was void as it was conducted on a declared holiday.

Issues:

1. Whether or not the foreclosure sale invalidated because it was conducted on a

holiday.
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Ma. Ethel Christine S. Din

2. Whether or not the auction should be nullified due to the price obtained during
said auction sale was unconscionably low.

Held:

1. No. Petitioners relied on Section 31 of the Revised Administrative Code. However,

said provision is not applicable to auction sales. The pretermission of a holiday
applies only where that day or the last day for the doing any act required or
permitted by law falls on a holiday, or when the last day of a given period for doing
an act falls on a holiday. It does not apply to a day fixed by an office or officer of the
government for an act to be done, as distinguished from a period of time within
which an act should be done, which may be on any day within that specified period.
Since April 10, 1961 was not the day or last day set by law for the extrajudicial
foreclosure sale, nor the last day of a given period, but a date fixed by the deputy
sheriff, the aforesaid sale cannot legally be made on the next succeeding business
day without the notices of sale on the day being posted as prescribed under Section
9, Act. No 3135.
Conformably, the extrajudicial foreclosure conducted on August 19, 1954 was valid,
notwithstanding the fact that the said date was declared a holiday. Act 3135 merely
requires sufficient publication and posting of the notice of sale be done, as required
by law.

2. No. When there is a right to redeem, inadequacy of the price is of no moment for the
reason that the judgment debtor has always the chance to redeem and reacquire
property. The purchase price of P 5,524.40 was found by the court to suffice. In fact,
the property may be sold for less than its fair market value precisely because the
lesser the price the easier for the owner to effect redemption.
C a s e D i g e s t C r e d i t Tr a n s a c t i o n s 2 0 1 7 ( P r o f .
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Ma. Ethel Christine S. Din

DEVELOPMENT BANK OF THE PHILIPPINES vs. VDA. DE MOLL

Facts:

On April 12, 1947 and December 5, 1947, DBP (then known as the Rehabilitation
Finance Corp.) granted agricultural loans in the amount of 120,000.00 and 22,000.00,
respectively in favor of Sebastian Moll Sr., who to secure the payment of said loans
mortgaged in favor of DBP 14 parcels of land comprising the property known Hacienda
Moll. Moll Sr. subsequently died and thereafter, his heir executed an extrajudicial partition
of his estate including the subject property despite the fact they are bound, jointly and
severally, to assume payment of the indebtedness of the deceased with DBP. On the same
date, DBP granted additional loans (agricultural and industrial). Said loans were granted on
the security of the same properties already mortgaged to DPB while industrial loans were
secured by mortgages on machineries, equipment and some other real estate.

Thereafter, the heirs failed to comply with the terms of the loan contracts and
consequently, properties were extra-judicially foreclosed and later on awarded to the DBP
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Ma. Ethel Christine S. Din

which is the sole and highest bidder. As the proceeds of the foreclosure sale do not suffice
the indebtedness, the DBP filed a complaint for collection of sum of money stating the
deficiencies of the heirs. RTC Manila sustained the aforestated deficiency claims of DBP.

Issues:

1. Whether or not the foreclosure sale must be set aside for the reason that the price
obtained was unconscionable.
2. Whether or not the action for recovery was prematurely instituted during the
redemption period.

Held:

1. No. The foreclosure sale cannot be set aside.

2. No. The action for recovery of deficiency judgment may be filed during
period of redemption. Once the auction sale of the mortgaged property is effected
and the resulting deficiency in the mortgage debt is ascertained, the mortgagee-
creditor is then and there entitled to secure deficiency judgment which may
immediately be executed, whether or not the mortgagor is still entitled to redeem the
property sold.

TUMALAD vs. VICENCIO (41 SCRA 143)

Facts:

Vicencios obtained a loan from Tumalad amounting to P 4,800.00. As a security for

the payment of the loan, they executed a chattel mortgage in favor of Tumalad over their
house of strong materials which stood on a land, rented from the Madrigal & Company.
Thereafter, they defaulted in payment of the loan which resulted to foreclosure of the house
in pursuance of their contract. Eventually, the house was sold to Tumalad and instituted a
civil case before the MTC of Manila to have Vicencios vacate the property of which was
sustained by the MTC. The trial court also ordered VIcencio to pay rent until they have
completely vacated the house. Vicencio then questioned the validity of the Chattel Mortgage
C a s e D i g e s t C r e d i t Tr a n s a c t i o n s 2 0 1 7 ( P r o f .
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Ma. Ethel Christine S. Din

on the ground that: (1) the signature on it was obtained through fraud; and (2) the mortgage
is a house therefore can only be the subject of a Real Estate Mortgage.
On appeal, RTC found in favor of Tumalad, and since Vicencio failed to comply with
the order of the MTC to pay rent until they have vacated the house, RTC issued a writ of
execution. Nonetheless, the subject house was demolished pursuant to an order of the court
in an ejectment suit against Vicencio for non-payment of rentals.

Issue:

Whether or not the chattel mortgage is void for having its subject an immovable
thing.

Held:

No. Although the house is an immovable property, parties to a contract may treat
the same as personal property which by nature would be real property and it would be valid
and good merely in so far as the contracting parties are concerned. By principle of estoppel,
the owner declaring his house to be a chattel may no longer subsequently claim otherwise.

MAKATI LEASING AND FINANCE CORP. vs. WEAREVER TEXTILE MILLS,

INC. AND COURT OF APPEALS

Facts:

Wearever Textile, to obtain financial accommodations from Makati Leasing,

discounted and assigned several receivables under a Receivable Purchase Agreement with
Makati Leasing. As a security for the collection of receivables, Wearever Textile executed a
chattel mortgage over several raw materials and machinery (dryer).
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Ma. Ethel Christine S. Din

Thereafter, Wearever defaulted and eventually the machinery was foreclosed.