Group 4 (final) - Credit Transactions Consolidated Cases.docx

TABLE OF CONTENTS Case No. 4 - BPI Investment Co. v. CA G.R. 133632, February 15, 2002................................. 3 Case No. 8 - Tolentino and Manio v. Gonzales G.R. 26085, August 12 ................................... 4 Case No. 12 Eastern Shipping Lines vs. CA G.R. No. 97412, July 12 1994.............................. 5 Case No. 16 The United States vs. Jose M. Igpuara G.R. No. L-7593, March 27, 1913............ 6 Case no. 20 - PNB vs. Macapanga Producers Inc. No. L-8349, May 23, 1956 ......................... 7 Case No. 24 -Paramount Insurance Corp. vs. CA and Dagupan Electric Corp. GR No. 110086, July 19, 1999 ............................................................................................................................... 8 Case No. 28 - International Finance Corporation vs. Imperial Textile Mills, Inc. G.R. No. 160324. November 15, 2005 ....................................................................................................... 9 Case No. 32 - BA Finance Corp vs. CA G.R. No. 94566. July 3, 1992 ................................... 10 Case No. 36 - Security Bank and Trust Company, Inc. vs. Cuenca G.R. No. 138544, October 3, 2000 ....................................................................................................................................... 11 Case No. 40 – Cavite Development Bank vs. Lim GR 131679, February 1, 2000................... 12 Case No. 44 - Caltex (Philippines), Inc. vs. CA G.R. No. 9775, August 10, 1992 .................. 13 Case No. 48 – People’s Bank and Trust Co. and ATLANTIC vs. Dahican Lumber Co. G.R. No. L-17500. May 16, 1967 ...................................................................................................... 14 Case No. 52 – Republic of the Philippines vs. Lim G.R. No. 161656. June 29, 2005.............. 15 Case No. 56 - Spouses Agbada vs. Inter-Urban Developers, Inc. G.R. No. 144029, September 19, 2002 ..................................................................................................................................... 16 Case No. 60 - Fortune Motors (Phils.), Inc. vs. Metropolitan Bank and Trust Company ........ 17 Case No. 64 - Cesar Sulit vs. Court of Appeals and Iluminada Cayco G.R. No. 119247, February 17, 1997 ..................................................................................................................... 18 Case No. 68 - Ibasco vs. Caguioa No. L-62619, August 19, 1986 ........................................... 19 Case No. 72 - Tsai vs. Court of Appeals G.R. No. 120098, October 2, 2001.......................... 20 Case No. 76 – Manolo P. Cerna vs. CA and Conrad C. Leviste G.R. No. 48359. March 30, 1993 ........................................................................................................................................... 21

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Case No. 80 - J.L. Bernardo Construction vs. CA and Mayor Jose L. Salonga G.R. No. 105827 January 31, 2000 ....................................................................................................................... 22 Case No. 84 – North Bulacan Corp. v. Philippine Bank of Communications GR 183140, August 2, 2010 .......................................................................................................................... 23

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Case No. 4 - BPI Investment Co. v. CA G.R. 133632, February 15, 2002 FACTS: Frank Roa obtained a loan from Ayala Investment and Development Co. (AIDC), predecessor of BPI Investment Co. (BPIIC) for the construction of a house on his lot. To secure the loan, Roa mortgaged the said property to AIDC. Roa subsequently sold the house and lot to ALS and Antonio who assumed the former’s indebtedness with AIDC. AIDC, not willing to extend the old interest, granted ALS and Antonio a new loan to be applied to Roa’s loan balance and to be secured by the same property. The two then executed a mortgage deed containing the new stipulations. Later, BPIIC released to ALS and Antonio what was left of their loan after full payment of Roa’s indebtedness. Thereafter, BPIIC instituted foreclosure proceedings against ALS and Antonio on the ground that they failed to pay the mortgage indebtedness with monthly amortization which commenced one month from the date of execution of the mortgage deed. BPIIC claimed that a contract of loan is a consensual contract and is perfected at the time the contract of mortgage is executed. On the other hand, ALS and Antonio contended that that they were not in arrears in their payment and asserted based on Article 1934 of the Civil Code that a simple loan is perfected upon delivery of the object of the contract, hence, a real contract. Their loan contract was perfected only when the full loan was released to them. ISSUE: Whether or not a contract of loan is a consensual contract. RULING: No. The Court held that a contract of loan is not a consensual contract but a real contract. It is perfected only upon the delivery of the object of the contract. Here, the loan contract between BPIIC and ALS and Antonio was perfected only on the date of the full release of the loan. The court likewise ruled that a contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other. The promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Antonio shall pay the monthly amortization commencing one month after the supposed release of the loan. It is basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner of what is incumbent upon him. Only when a party has performed his part of the contract can he demand that the other party also fulfils his own obligation and if the latter fails, default sets in. Here, the BPIIC could only demand for the payment of the monthly amortization only after when it complied with its obligation.

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Case No. 8 - Tolentino and Manio v. Gonzales G.R. 26085, August 12, 1927 FACTS: Severino Tolentino and Potenciana Manio purchased a parcel of land from Luzon Rice Mills, Inc., situated in the municipality of Tarlac with a promise to pay in three installments. The first two installments were paid but realizing that they would be unable to pay the balance on due date, Tolentino and Manio applied from the defendant Benito Gonzales a loan to satisfy their indebtedness on the condition that they would execute a pacto de retro sale on the property in favor of Gonzales. As stated in the said contract of pacto de retro, the vendor became the “tenant” of the purchaser and during the period of right to repurchase, required the former a monthly rental fee of P375 and in default in their thereof for two consecutive months will terminate the lease and forfeit the right to repurchase. Tolentino and Manio charged Gonzales in violation of the Usury Law upon the ground that the amount of rental price paid during the period of the existence of the right to repurchase, or the sum of P375 per month, based upon the real value of the property, amounts to a usurious rate of interest. ISSUES: 1. Whether or not the rental price rendered the contract Usurius when the amount paid computed based on the value of the property amounts to higher interest upon said amount than that allowed by law. HELD: No. The Court held that a contract for the lease of property is not a "loan." Thus, under the Usury Law the defense of usury cannot be based thereon. The Usury Law in this jurisdiction prohibits a certain rate of interest on "loans." A contract of "loan" is a very different contract from that of "rent." A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credit to another, with a promise to repay, but not a promise to return the same thing. In a con-tract of "rent' the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of rent the relation between the contractors is that of landlord and tenant. In a contract of loan of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee.

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Commented [MECT1]: De Leon: Page 39-40; 61

Case No. 12 Eastern Shipping Lines vs. CA G.R. No. 97412, July 12 1994 FACTS: An action was filed against Eastern Shipping Lines (shipping company), Metro Port Service, Inc (arrastre operator) and Allied Brokerage Corporation (broker-forwarder) for damages sustained by a shipment of one of the fiber drums of riboflavin while in their custody, by Mercantile Insurance Company, Inc (insurer-subrogee) who paid the consignee the value of such losses/damages. The Court of Appeals affirmed in toto the judgement of the lower court that the defendants shall pay damages, with the present legal interest of 12% per annum from the date of filing of complaint until fully paid. Upon appeal, Eastern Shipping Lines assailed that 6% per annum should be applied as prescribed under Art. 2209 of the Civil Code from the date of the finality of decision until paid. ISSUES: a. Whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and b. Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%) HELD: The Court held that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision of the court a quo (lower court). A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. The court provided that when an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. Also, when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

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Case No. 16 The United States vs. Jose M. Igpuara G.R. No. L-7593, March 27, 1913

FACTS: Jose Igpuara, voluntarily accepted sales commission in the amount of P2,498 in favor of the principal, Juana Montilla. This balance remained in the possession of the Jose Igpuara who drew up an instrument payable on demand. They remained in his possession, surely in no other sense than to take care of them. Thereafter, Veraguth demanded for him through a notarial instrument for the restitution, in which he did not restored. The defendant herein is charged with the crime of estafa, for having swindled Juana Montilla and Eugenio Veraguth out of P2,498 Philippine currency, which he had taken on deposit from the former to be at the latter's disposal. Igpuara contended against the existence of a deposit and argued that his possession of the amount is that of a loan. ISSUE: Whether or not there was a contract of deposit existed between Ipuara as an agent of Montilla and Veraguth. HELD: Yes. The Court held that the balance of a commission account remaining in possession of the agent at the principal's disposal acquires at once the character of a deposit which the former must return or restore to the latter at any time it is demanded, nor can he lawfully dispose of it without incurring criminal responsibility for appropriating or diverting to his own use another's property. It is also erroneous to assert that sum of money set forth in said certificate is, according to it, in Igpuara’s possession as a loan. In a loan the lender transmits to the borrower the use of the thing lent, while in a deposit the use of the thing is not transmitted, but merely possession for its custody or safe-keeping. It. could only become his as a loan, if so expressly agreed by its owner, who would then be obligated not to demand it until the expiration of the legal or stipulated period for a loan. He undoubtedly commits the crime of estafa who, having in his possession a certain amount of another's money on deposit at its owner's disposal, appropriates or diverts it to his own use, with manifest damage to its owner, for he has not restored it and has so acted willfully and wrongfully in abuse of the confidence reposed in him.

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Case no. 20 - PNB vs. Macapanga Producers Inc. No. L-8349, May 23, 1956 FACTS: Luzon Sugar Company leased a sugar mill to Macapanga Producers at a minimum annual royalty which shall be a lien on the sugar produced by the latter and shall be paid before sale or removal of sugar from warehouse. Macapanga, as principal, and Plaridel Surety & Insurance, as surety, executed and delivered to Luzon Sugar Company a performance bond for the full compliance by the former of all terms and conditions of the lease. Luzon Sugar Company then assigned to PNB the payment due from Macapanga in the said amount, representing royalty for the lease of the sugar mill. When demanded for payment, Macapanga refused to pay. Thereafter, PNB made demand on Plaridel Surety, as it bound itself solidarily with Macapanga., in which it also refused. Plaridel Surety alleged that it is a guarantor and as such, responsible only if Macapanga has no property or assets to pay its obligation as lessee. It also argued that it was not a party to the assignment, and same made without its consent, Plaridel Surety is, therefore discharged from its obligation. ISSUES: 1. Whether or not Plaridel Surety & Insurance’s liability under the surety bond is that of a guarantor. 2. Whether or not the assignment of credit exempted Plaridel Surety from its obligation under the surety bond. HELD: 1. No. The Court ruled that Plaridel Surety is not a guarantor but a surety. ART. 2047 provides that if a person binds himself solidarily with the principal debtor, the provisions of section 4, Charter 3, Title I of this Book(Civil Code) shall be observed. In such case the contract is called a suretyship.

2. No. The Court held that the assignment of credit did not release Plaridel Surety from its obligation under surety bond. An assignment without knowledge or consent of the surety is not a material alteration of the contract, sufficient to discharge the surety. on in the deed of assignment, or any change therein that makes the obligation of surety more onerous than that stated in the performance bond.

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Commented [MECT2]: Sa tingin ko we should avoid using “respondent” “plaintiff”? especially pagnagrerecite ng case, ako kac as a listener, meju nalilito ako minsan kung cno na c respondednt at plaintiff. Hehehe Pero pwede pa din naman gamitin, di lang cguro msyadong redundant? Commented [MECT3]: Full text: Page 182 De Leon: Page 218 (1) Commented [MECT4]: Full text: Page 184 last page De Leon: Page 300 (d)

Case No. 24 -Paramount Insurance Corp. vs. CA and Dagupan Electric Corp. GR No. 110086, July 19, 1999

Commented [MECT5]: De Leon: Page 221

FACTS: McAdore Finance and Investment, Inc. (McADORE) and Dagupan Electric Corporation (DECORP) entered into a contract whereby DECORP shall provide electric power to McADORE's Hotel. During the term of the contract, DECORP noticed discrepancies between the actual monthly billings and the estimated monthly billings of McADORE. DECORP issued a corrected bill but McADORE refused to pay thus, DECORP disconnected power supply to the hotel. McADORE commenced a suit against DECORP for damages with prayer for a writ of preliminary injunction. McADORE posted injunction bonds from several sureties, one of which was Paramount Insurance Corp.. Accordingly, a writ of preliminary injunction was issued wherein DECORP was ordered to continue supplying electric power to the hotel and restrained from further disconnecting it. The RTC rendered judgment in favor of DECORP and held that the bonding companies are jointly and severally liable with McADORE. The CA affirmed the decision of the RTC but Paramount contends that it is liable to pay actual damages only. ISSUE: Whether or not Paramount’s liability under the injunction bond is limited only to actual damages. HELD: No. The Court held that Paramount is not only liable to pay actual damages but is answerable to all damages. By the contract of suretyship, it is not for the obligee to see to it that the principal pays the debt or fulfills the contract, but for the surety to see to it that the principal pay or perform. The purpose of the injunction bond is to protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated to account to the defendant in the injunction suit for all damages, or costs and reasonable counsel's fees, incurred or sustained by the latter in case it is determined that the injunction was wrongfully issued. When Paramount issued the bond in favor of its principal, it undertook to assume all the damages that may be suffered after finding that the principal is not entitled to the relief being sought.

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Commented [MECT6]: De Leon: Page 221

Case No. 28 - International Finance Corporation vs. Imperial Textile Mills, Inc. G.R. No. 160324. November 15, 2005 FACTS: International Finance Corporation (IFC) granted a loan to Philippine Polyamide Industrial Corporation (PPIC). To secure the loan agreement, A ‘Guarantee Agreement’ was executed by Grandtex Manufacturing Corporation (Grandtex) and Imperial Textile Mills, Inc. (ITM) in favor of IFC to guarantee PPIC’s obligations under the loan agreement. Under the agreement, the parties agreed “jointly and severally, irrevocably, absolutely and unconditionally guarantee, as primary obligors and not as sureties merely, the punctual payment of all obligations as set forth in the Loan Agreement”. However, despite written demand, PPIC failed to pay the balance of the loan and its interests. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. ITM asserts that, by the terms of the Guarantee Agreement, it was merely a Guarantor and not a surety. Since PPICÊs inability to comply with its obligation was not sufficiently established, ITM could not immediately be made to assume the liability. ISSUE: Whether or not under the Guarantee Agreement, ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC for the payment of the loan. HELD: Yes. The court held that ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for the payment of the loan. The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by the term “jointly and severally,” the use of the word “guarantor” to refer to a “surety” does not violate the law. As Article 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the Agreement “as primary obligor and not merely as surety”—stresses that ITM is being placed on the same level as PPIC. Those words emphasize the nature of their liability, which the law characterizes as a suretyship. The use of the word “guarantee” does not ipso facto make the contract one of guaranty. The very terms of a contract govern the obligations of the parties or the extent of the obligor’s liability. Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a “Guarantor’s Undertaking” or a “Continuing Guaranty.” Contracts have the force of law between the parties, who are free to stipulate any matter not contrary to law, morals, good customs, public order or public policy. The creditor in this case was able to show convincingly that, although denominated as a “Guarantee Agreement,” the Contract was actually a surety. Notwithstanding the use of the words “guarantee” and “guarantor,” the subject Contract was indeed a surety, because its terms were clear and left no doubt as to the intention of the parties.

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Commented [MECT7]: deDe Leon: Page 228

Commented [MECT8]: De Leon: Page 246; 498; 501

Case No. 32 - BA Finance Corp vs. CA G.R. No. 94566. July 3, 1992 FACTS: Renato Gaytano, doing business under the name Gebbs International, applied for and was granted a loan with respondent Traders Royal Bank in the amount of P60,000.00. As security for the payment of said loan, the Gaytano spouses executed a deed of suretyship whereby they agreed to pay jointly and severally to respondent bank the amount of the loan including interests, penalty and other bank charges. In a letter addressed to Traders Royal Bank, Philip Wong as credit administrator of BA Finance Corporation for and in behalf of the latter, undertook to guarantee the loan of the Gaytano spouses. When the spouses refused to pay the unpaid balance, Royal Traders Bank filed a complaint for sum of money against the Gaytano and BA Finance. The spouses did not present any evidence for their defense. BA Finance on the other hand, contended that the letter guaranty executed by its credit administrator, Philip Wong, was ultra vires and therefore unenforceable since even if he was authorized to approve loans up to P350,000, Wong lacks authority to bind the corporation as guarantee.

Commented [MECT9]: case listed under Guranty and suretyship under the Outline; page 246 in de leon

ISSUE: Whether or not the letter guaranty executed by Philip Wong is unenforceable, thus releasing BA Finance as a guarantor. HELD: Yes. The court held that the Philip Wong lacks authority to bind the corporation, and thus, BA Finance was released from liability as a guarantor. Although Wong was authorized in a memorandum to approve loans even up to P350,000.00 without any security requirement, which is far above the amount subject of the guaranty in the amount of P60,000.00, nothing in the said memorandum expressly vests on the credit administrator power to issue guarantees. The court cannot agree with Royal Traders Bank’s contention that the phrase “contingent commitment” set forth in the memorandum authorizing Philip Wongs’s authority, means guarantees. It has been held that a power of attorney or authority of an agent should not be inferred from the use of vague or general words. Guaranty is not presumed, it must be expressed and cannot be extended beyond its specified limits .

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Commented [MECT10]: de leon: psge 2

Commented [MECT11]: De Leon: Page 258; 299;303

Case No. 36 - Security Bank and Trust Company, Inc. vs. Cuenca G.R. No. 138544, October 3, 2000 FACTS: Security Bank and Trust Company, Inc. (SBTC) granted Sta. Ines Melale Corporation (SIMC) a credit line for the additional capitalization requirements of its logging activities. As a security for payments of amounts drawn from the credit line, Cuenca, then President and Chairman of the Board, executed an Indemnity Agreement in favor of SBTC whereby he solidarily bound himself with SIMC. However, SIMC encountered difficulty in making the amortization payments and without notice or prior consent from Cuenca, SBTC agreed to completely restructure the former’s indebtedness. To formalize the restructuring, they executed a Loan Agreement with stipulation that the new loan shall be applied to liquidate the outstanding principal, past due interest and penalty portion of the indebtedness. Thereafter, SIMC defaulted in the payment of the restructured obligation and despite demands from the bank, both SIMC and Cuenca individually and collectively refused to pay. Cuenca contended that his obligation under the Indemnity Agreement was extinguished when the bank and SIMC modified the nature and scope of the original accommodation without his consent. ISSUE: Whether or not the execution of the Loan Agreement releases Cuenca from his liability under the Indemnity Agreement. HELD: Yes. The Court held that Cuenca’s liability was extinguished. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend, the outstanding indebtedness. Moreover, Cuenca did not sign or consent to the Loan Agreement, which had allegedly extended the original credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that an extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. As the Court held in National Bank v. Veraguth, it is fundamental in the law of suretyship that any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract, without the consent of the surety, will release the surety from liability. An essential alteration in the terms of a Loan Agreement without the consent of the surety chased extinguishes the latter’s obligation. At the outset, we should emphasize that an essential alteration in the terms of the Loan Agreement without the consent of the surety extinguishes the latter’s obligation. Page | 11

Case No. 40 – Cavite Development Bank vs. Lim GR 131679, February 1, 2000 FACTS: Rodolfo Guansing obtained a loan from Cavite Development Bank (CDB) and as security, he mortgage a parcel of land. As he defaulted in payment of his loan, CDB foreclosed the mortgage. The mortgage property was sold to CDB as the highest bidder. Private respondent Lolita Chan Lim purchased the property from CDB. However, Lim discovered that the subject property was fraudulently acquired by Rodolfo from his father Perfecto Guansing, who is the rightful owner. Aggrieved by what she considered a serious misrepresentation of CDB and FEBTC on their ability to sell and transfer the ownership of the property, Lim filed for specific performance and damages. CBD on the other hand claims that he acquired valid title over the property through the subsequent foreclosure sale and as a mortgagee bank, based on the doctrine of “mortgagee in good faith” it is not required to make a detailed investigation of the history of the title of the property given as security before accepting a mortgage. ISSUE: 1. Whether or not CBD acquired valid title over the property mortgaged through the foreclosure sale. 2. Whether or not CBD was a “mortgagee in good faith”. HELD: 1. No. The court ruled that CDB since did not have a valid title to the said property. A foreclosure sale, though essentially a “forced sale”, is still a sale in accordance with Art. 1458 of the Civil Code. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. Under Art. 2085 of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires that the mortgagor or pledger be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. CDB never acquired a valid title to the property because the foreclosure sale, even though the property has been awarded to CDB as highest bidder, is void since the mortgagor was not the owner of the property foreclosed. 2. No. While a bank is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, it cannot be excused from the duty of exercising the due diligence required of banking institutions, for banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. Here, CDB did not exercised due diligence in ascertaining the validity of Rodolfo Guansing title since they were aware that the property was being occupied by persons other than Rodolfo.

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Commented [MECT12]: De Leon: Page 350; 423

Case No. 44 - Caltex (Philippines), Inc. vs. CA G.R. No. 9775, August 10, 1992 FACTS: On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch issued 280 certificates of time deposit (CTDs) in favor of Angel de la Cruz who later lost them. Upon advice, Angel dela Cruz executed and delivered an Affidavit of Loss and as a result, replacement CTDs were issued. Subsequently, Angel de la Cruz obtained a loan from SBTC and executed a notarized Deed of Assignment of Time Deposit surrendering to the latter full control of the indicated time deposits and authorizing said bank to pre-terminate, set-off and apply the said time deposits to the payment of whatever amounts may be due on the loan upon its maturity. Thereafter, Caltex (Phils.) Inc., went to the SBTC’s Sucat branch and presented for verification the CTDs previously declared lost by Angel dela Cruz alleging that the same were delivered by the latter ‘as security for purchases made with Caltex Philippines, Inc.’ Later on, Caltex informed SBTC of its possession of the CTDs and decision to pre-terminate the same. SBTC rejected Caltex’s demand and claim for payment of the value of the CTDs and argued that said certificates of deposit are non-negotiable and that Caltex (Philippines), Inc. did not become a holder of the said certificates. ISSUE: Whether or not Caltex (Philippines) did become a holder of the CTDs when the same were delivered as security for purchases on account. HELD: No. The Court held that the delivery of the CTDs as security for the purchases constituted Caltex as a holder for value by reason of his lien. As such holder of collateral security, he would be a pledgee but the requirements therefore and the effects thereof, not being provided for by the Negotiable Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights, which provide: “Incorporeal rights, evidenced by negotiable instruments, x x x may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed” (Art. 2095) and that “A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument.” (Art. 2096). Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon SBTC. The requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract cannot affect third persons adversely.

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Case No. 48 – People’s Bank and Trust Co. and ATLANTIC vs. Dahican Lumber Co. G.R. No. L-17500. May 16, 1967 FACTS: Dahican Lumber Company (DALCO) executed a deed of mortgage covering five parcels of land together with buildings and other improvements existing thereon and all the personal properties located in its business in favor of People's Bank & Trust Company (PBTC). On the same date, DALCO executed a second mortgage on the same properties in favor Atlantic Gulf and Pacific Co. of Manila (ATLANTIC). Both deeds contained a provision extending the mortgage lien to properties to be subsequently acquired, also referred to as “after acquired properties” After the execution of the mortgages, DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the said date. It was found out that that these properties were purchased from CONNELL and DAMCO. Thereafter, DALCO and these suppliers agreed to rescind the alleged sales. Upon knowledge, PBTC and ATLANTIC demanded the said agreements rescinding the sales be cancelled on the ground that said “after-acquired properties” were covered by the mortgage lien and ordered DALCO to restrain removing the said properties. DALCO contended that the mortgages were null and void as regards “the after-acquired properties” because they were not registered in accordance with the Chattel Mortgage Law. ISSUE: 1. Whether or not the mortgages were null and void as regards “after-acquired properties because they were not registered with Chattel Mortgage Law. HELD: No. The Court held that that mortgages were as regard the ”after-acquired properties” were. Where the machinery and fixtures installed by a lumber company in its concession had become immobilized and were included in the registered real mortgage as "after acquired properties", it was not necessary to register them a second time as chattel mortgages in order to affect third persons/ The fact that the lumber company is not the owner of the land is not important since the parties to the mortgage had characterized the said "after acquired properties" as real property.The mortgagor is estopped to contend that the said properties had not become immobilized. It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on the execution of the mortgages. In law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein, which were registered as such, did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties.

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Commented [MECT13]: De Leon: Page 487

Case No. 52 – Republic of the Philippines vs. Lim G.R. No. 161656. June 29, 2005 FACTS: Republic of the Philippines (Republic) instituted a special civil action for expropriation, of which one of the two lots for purpose of establishing a military reservation for the Philippine Army. After depositing an amount to Philippine National Bank, the Republic took possession of the lots and ordered by was the court to pay additional amount for just compensation. Thereafter, for failure of the Republic to pay, successors-in-interest of Denzon filed an action for the recovery of possession with damages. In the interim, lots 932 and 939 were issued in the name of Francisca Valdehueza and Josefina Panerio, successors-in-interest of Denzon and Eulalia. Annotated thereon was the phrase “ subject to the priority of the National Airports Corporation to acquire parcels of land upon previous payment of market value.” Thereafter, Valdehueza and Panerio mortgaged Lot 932 to Vicente Lim as security for their loans. For failure to pay despite demand, Lim foreclosed the said mortgage and later a TCT was issued under his name. He then filed complaint for quieting of title in which RTC rendered Lim the absolute and exclusive owner of Lot 932. The Republic, through Office of the Solicitor General, alleged that the it remained the owner of Lot 932 as held in Valdehueza vs. Republic It also argued that Lim acted in bad faith in entering into a contract of mortgage despite clear annotations in the TCT. ISSUE: Whether or not Vicente Lim acted in bad faith when he entered into a contract of mortgage despite clear annotations of preferential right of the Republic. HELD: No. The Court held that Vicente Lim is the rightful owner of the lot and that he did not act in bad faith when he entered into the contract of mortgage. Assuming that he had indeed knowledge of the annotation, still nothing would have prevented him from entering into a mortgage contract involving Lot 932 while the expropriation proceeding was pending. Any person who deals with a property subject of an expropriation does so at his own risk, taking into account the ultimate possibility of losing the property in favor of the government. Here, the annotation merely served as a caveat that the Republic had a preferential right to acquire Lot 932 upon its payment of a reasonable market value. It did not proscribe Valdehueza and Panerio from exercising their rights of ownership including their right to mortgage or even to dispose of their property. In Republic vs. Salem Investment Corporation, we recognized the owner’s absolute right over his property pending completion of the expropriation proceeding, thus: It is only upon the completion of these two stages that expropriation is said to have been completed. Moreover, it is only upon payment of just compensation that title over the property passes to the government. Therefore, until the action for expropriation has been completed and terminated, ownership over the property being expropriated remains with the registered owner. Consequently, the latter can exercise all rights pertaining to an owner, including the right to dispose of his property subject to the power of the State ultimately to acquire it through expropriation. Page | 15

Commented [MECT14]: De Leon: Page 402

Case No. 56 - Spouses Agbada vs. Inter-Urban Developers, Inc. G.R. No. 144029, September 19, 2002 FACTS: Spouses Agbada loaned from respondent Inter-Urban Developers, Inc. through its President, Simeon Ong Tiam. As a security for the said loan, the parties executed a Deed of Real Estate Mortgage over a parcel of land owned by the Spouses. The loan is payable within six (6) months at three percent (3%) interest per month. The Spouses failed to pay the loan despite several out-of-court demands. This led to filing of a complaint for foreclosure of real estate mortgage which resulted in the Summary Judgment. The mortgaged real estate was sold at public auction to respondent as highest bidder. The Spouses moved for reconsideration of the confirmation order insisting the inadequacy of the purchase price, but this was denied. For the first time since Summary Judgment had been rendered against the Spouses, they filed a Motion to Cancel Certificate of Sale for being Signed by an Unauthorized Officer and to recall Summary Judgment for Lack of Jurisdiction, which was denied. The petition sought the annulment of the Summary Judgment for alleged violation of their right to due process arising from the absence of a full-blown trial on a genuine issue of fact that the loan and mortgage would mature only on the fifth year following its execution on 21 February 1991. ISSUE: Whether or not the petition for annulment of the Summary Judgment filed by the Spouses is the proper remedy to seek reversal judgment for foreclosure of real estate mortgage. HELD: No. The Court held that the proper remedy to seek reversal of judgment in an action for foreclosure of real estate mortgage is not a petition for annulment of judgment but an appeal from the judgment itself or from the order confirming the sale of the foreclosed real estate. Since the Spouses failed to avail of appeal without sufficient justification, they cannot conveniently resort to the action for annulment for otherwise they would benefit from their own inaction and negligence. Since the civil action before the trial court was for foreclosure of real estate mortgage, the material issues were the existence of the debt and its demandability. The Spouses admitted the existence of the debt in favor of respondent Inter-Urban Developers, Inc. as well as the authenticity and due execution of the deed of real estate mortgage. The mortgage deed, which the spouses duly signed and acknowledged before a notary public, pegged the loans maturity date at six (6) months from 21 February 1991 at 3% interest per month. In effect, by the admission of the due execution of the loan and mortgage deed, the Spouses confessed that they voluntarily signed it, and by the admission of the genuineness of the document, they also acknowledged that at the time it was signed it was in the words and figures exactly as set out in the pleading of respondent Inter-Urban Developers, Inc.

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Case No. 60 - Fortune Motors (Phils.), Inc. vs. Metropolitan Bank and Trust Company GR No. 115068, November 28, 1996 FACTS: Fortune Motors (Phils.) Inc. obtained a loan from the Metropolitan Bank and Trust Company (MBTC). To secure the obligation, petitioner mortgaged certain real estate in favor of MBTC. Petitioner failed to pay the loan upon maturity and MTBC initiated extrajudicial foreclosure proceedings and in effect, foreclosed the real estate mortgage. Fortune Motors filed for the annulment of the extrajudicial foreclosure contending that the newspaper where the notice of extrajudicial foreclosure was published does not qualify as a newspaper of general circulation; Fortune Motors did not personally receive the notices of extrajudicial foreclosure; and the Sheriff failed to post the notices of sale in conspicuous places required by law. MBTC presented an affidavit executed by the executive editor of its publisher who was a witness for the petitioner: a) that the Daily Record contains news; b) that it has subscribers from Metro Manila and from all over the Philippines; c) that it is published once a week or four times a month; and d) that he had been connected with the said paper since 1958, an indication that the said newspaper had been in existence even before that year. ISSUE: Whether or not the publication of the notice of extrajudicial foreclosure was valid. HELD: Yes. To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; that it is published at regular intervals." The newspaper need not have the largest circulation so long as it is of general circulation. In the case at bench, there was sufficient compliance with the requirements of the law regarding publication of the notice in a newspaper of general circulation. Further, settled is the rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary. Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages, as amended by Act No. 4118, requires only the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation. It is pristine clear from the above provision that the lack of personal notice to the mortgagor, herein petitioner, is not a ground to set aside the foreclosure sale. Lastly, Section 3 of Act No. 3135 merely requires that the notice of the sale be posted for not less than twenty days in at least three public places of the municipality or city where the property is situated. The Sheriff posted the notices of sale to wit: the Sheriff's Office, the Assessor's Office and the Register of Deeds and these are certainly the public places contemplated by law, as these are places where people interested in purchasing real estate congregate.

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Commented [MECT15]: De Leon: Page 239; 407-408; 410; 578

Commented [MECT16]: De Leon: Pages 403; 408; 411; 422; 444; 462

Case No. 64 - Cesar Sulit vs. Court of Appeals and Iluminada Cayco G.R. No. 119247, February 17, 1997 FACTS: Iluminada Cayco executed a Real Estate Mortgage (REM) over a lot located in Caloocan City in favor of Cesar Sulit, to secure a loan of P4 Million. Upon failure of Sulit to pay said loan within the stipulated period, Cayco resorted to extrajudicial foreclosure of the mortgage as authorized in the contract. Hence, in a public auction conducted by Notary Public Felizardo M. Mercado the lot was sold to the mortgagee, Cayco, who submitted a winning bid of P7 Million. As stated in the Certificate of Sale executed by the notary public mortgaged property was sold at public auction to satisfy the mortgage indebtedness of P4 Million. Cayco petitioned the Regional Trial Court of Kalookan City for the issuance of a writ of possession in his favor. Sulit, on the other hand, filed a Motion to have the auction sale of the mortgaged property set questioning the sufficiency of the amount of bond and at the same time prayed that he be directed to pay the sum of P3 Million which represents the balance of his winning bid of P7 Million less the mortgage indebtedness of P4 Million. ISSUE: Whether or not the mortgagee or purchaser in an extrajudicial foreclosure sale is entitled to the issuance of a writ of possession over the mortgaged property despite his failure to pay the surplus proceeds of the sale to the mortgagor or the person entitled thereto. HELD: The governing law thus explicitly authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption period by filing an ex parte motion under oath for that purpose in the corresponding registration or cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the approval of the corresponding bond, the law also in express terms directs the court to issue the order for a writ of possession. The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules of Court, which is made applicable to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure “unless a third party is actually holding the property adversely to the judgment debtor.” When there is the right to redeem, inadequacy of price becomes immaterial since the judgment debtor may reacquire the property or sell his right to redeem, and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to recover such surplus.

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Commented [MECT17]: De Leon: Page 459

Case No. 68 - Ibasco vs. Caguioa No. L-62619, August 19, 1986 FACTS: The real property subject of the case is being leased and religiously being paid its monthly rentals by its lessees. Unaware of the fact that the leased property was mortgaged by its owner the mortgagor while it is being leased, the said property had been foreclosed due to non-payment of the mortgagor and its redemption had subsequently expired. The lessees were served with a writ of possession because of the circumstances. ISSUES: 1) Whether or not a mortgagor, who has foreclosed upon the mortgaged real property of a delinquent debtor and has purchased the same at the foreclosure sale, can be granted a writ of possession over the property despite the fact that the premises are in the possession of a lessee thereof and whose lease has not as yet been terminated? 2) Whether or not Act 3135 (re the grant of the writ of possession) was impliedly repealed by Batas Pambansa Blg. 25 (the House Rental Law) 3) The writ of possession may be granted only in a land registration case, not in an extrajudicial foreclosure of a mortgage. HELD: 1) The answer is in the affirmative, unless the lease had been previously registered in the Registry of Property or unless despite non-registration, the mortgagee had prior knowledge of the existence and duration of the lease (actual knowledge being equivalent to registration). 2) With reference to the alleged repeal, there is no such repeal, there being nothing inconsistent between the two laws. Act 3135 provides for the procedure in extra-judicial foreclosure of mortgages, while Batas Pambansa Blg. 25 refers to the maximum rent in certain leases and to grounds for ejectment. While it is true that under the latter law, there can be no ejectment of the lessee simply because the property has been sold or mortgaged to another, it is different if as a result of said mortgage, the same has been foreclosed upon, as provided for in Act 3135 which expressly grants the issuance of a writ of possession (without prejudice to the rights of a lessee under the Civil Code). Besides, Batas Pambansa Blg. 25 can in no case apply here because the rental of the property is P1,500.00 monthly (far in excess of the P300.00 rent regulated by the Batas). Anent the contention that the writ of possession can be obtained only in a land registration case, suffice it to say that in Section 7 of Act 3135, the writ of possession will be issued only in the land registration or cadastral proceedings of the property involved. This is precisely what has been done in the instant case. Section 7, hereinabove referred to, reads as follows: In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without complying with the requirements of this Act. Such petition shall be made oath and filed in form of an ex-parte motion in the registration or cadastral proceedings if the property is registered. ... 3) Before We close, We wish to point out that conformably with the provisions of Art. 1648 of the Civil Code, the petitioners herein could have continued in their possession as lessees if the lease had been registered in the Registry of Property, or if the existence and duration of the lease had been known to the private respondents. Art. 1648 of the Civil Code reads: Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons.

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Case No. 72 - Tsai vs. Court of Appeals G.R. No. 120098, October 2, 2001 FACTS: Ever Textile Mills, Inc. (EVERTEX) obtained a loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. Later, PBCom granted a second loan to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. Due to business reverses, EVERTEX filed insolvency proceedings. The Court declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned. Upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings where PBCom emerged as the highest bidder. PBCom consolidated its ownership over the lot and all the properties in it. PBCom then sold the factory, lock, stock and barrel to Tsai, including the contested machineries. EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets. EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgages. ISSUE: Whether or not inclusion of the questioned properties in the foreclosed properties is proper. HELD: No, Inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding." And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages.

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Case No. 76 – Manolo P. Cerna vs. CA and Conrad C. Leviste G.R. No. 48359. March 30, 1993

Commented [MECT18]: De Leon: Pages 327; 505

FACTS: Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced by a promissory note. Subsequently, Delgado executed a chattel mortgage over Willy’s jeep owned by him. Acting as the attorney-in-fact of Manolo P. Cerna, he also mortgaged a Taunus' car owned by Cerna by virtue of a Special Power of Attorney executed by the latter authorizing Delgado to mortgage the same. The period lapsed without Delgado paying the loan which prompted Leviste to file a collection suit against him and Cerna as solidary debtors. Cerna pleaded that he did not sign as joint obligor in the promissory note, hence, Delgado has no course of action against him since Leviste already opted to collect on the note, he could no longer foreclose the mortgage. ISSUE: Whether or not the execution of the chattel mortgage on Cerna’s car made him solidarily liable with the debt of Delgado. HELD: No. The Court held that Cerna was not a co-debtor. It was only Delgado who signed the promissory note and accordingly, he was the only one bound by the contract of loan. The law is clear that contracts take effect only between the parties. There is also no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with the principal obligor. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that is, to pay the loan. The signatory to the principal contract—loan—remains to be primarily bound. It is only upon the default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditor has recourse on the principal debtor. A Special Power of Attorney authorizing another to mortgage one's property as security of latter's obligation does not in itself makes the person executing the same a co-mortgagor thereof. This alone does not make Cerna a co-mortgagor especially so since only Delgado signed the chattel mortgage as mortgagor. The Special Power of Attorney did not make Cerna a mortgagor. All it did was to authorize Delgado to mortgage certain properties belonging to Cerna. And this is in compliance with the requirement in Article 2085 of the Civil Code which states that the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. In effect, Cerna lent his car to Delgado so that the latter may mortgage the same to secure his debt. Thus, from the contract itself, it was clear that only Delgado was the mortgagor regardless of the fact that he used properties belonging to a third person to secure his debt. Page | 21

Case No. 80 - J.L. Bernardo Construction vs. CA and Mayor Jose L. Salonga G.R. No. 105827 January 31, 2000 FACTS: JL Bernardo Construction entered into a contract with Mayor Jose Salonga of Municipal government of San Antonio, Nueva Ecija for the construction of San Antonio Public Market. The former claimed that the municipality agreed to assume the expenses for the demolition, clearing and site filling of the construction site and provide cash equity. After failure to pay the reimbursement for such expenses, JL Bernardo Construction filed a complaint for breach of contract and specific performance thereof., with prayer for preliminary attachment and enforcement of contractor's lien against the Municipality of San Antonio specifically granted under Article 2242 of the Civil code which provides that that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be preferred with respect to the specific building or other immovable property constructed. RTC granted the complaint with the authority to hold on to the possession of the public market in question and to open and operate the same based on fair and reasonable guidelines and other mechanics of operation. The Court of Appeals subsequently nullified the lower court’s decision on the ground that Articles 2242 of the Civil Code finds application only in the context of insolvency proceedings, as expressly stated in Article 2243. ISSUE: Whether JL Bernardo Construction is correct in enforcing the creditor’s lien in accordance with Article 2242 of the Civil Code. HELD: No. The Court held that Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others. Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific performance and damages. Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the contractor’s lien granted under Article 2242, such lien cannot be enforced in the present action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio Public Market. The records do not contain any allegation that petitioners are the only creditors with respect to such property. The fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and claiming that they also have preferred liens against the property involved. Page | 22

Commented [MECT19]: De Leon: Page 529

Case No. 84 – North Bulacan Corp. v. Philippine Bank of Communications GR 183140, August 2, 2010

Commented [MECT20]:

FACTS: North Bulacan Co. (NBC) is engaged in the business of developing low and medium-cost housing projects. Its parent company, Centro Ville Inc. (CVI) entered into a joint venture agreement to develop a property into low and medium-cost housing projects. Phil. Bank of Communications (PBCom) offered to finance the whole project and immediately provide NBC loan facility on the condition that the PAG-IBIG directly paid PBCom for the houses upon its completion, whether or not these had been sold. Relying on PBCom’s commitment, NBC accepted the offer, assigning its rights and interests over all payments that may be due it from PAG-IBIG. Thereafter, PBCom discontinued its financial support to NBC because Bangko Sentral ng Pilipinas (BSP) had issued a cease-and-desist order against the bank. When it became apparent that PBCom had no intention of complying with its commitment, NBC sought help from other banks which expressed their intention to finance the project by taking out NBC’s loan from PBCom. But the latter refused the offer, insisting on the supposed BSP cease-and-desist order. NBC’s construction eventually stopped for lack of funds. On December 28, 2006, NBC filed a petition for corporate rehabilitation with Mandaluyong RTC and the first hearing was conducted on February 15, 2007. It was on January 24, 2008 that an order was issued by the RTC judge giving due course to NBC’s rehabilitation. PBCom challenged the RTC order arguing that the petition should be dismissed since the RTC was unable to approve a rehabilitation plan after 180 days from the date of the initial hearing, as provided by Interim Rules of Procedure on Corporate Rehabilitation. ISSUE: Whether or not the petition for corporate rehabilitation filed by NBC should be dismissed. HELD: Yes. The Court held that the action for rehabilitation filed by NBC should be dismissed largely because of NBC’s numerous prohibited pleadings, nearly a year had passed since the petition’s initial hearing, and still the RTC had not approved a rehabilitation plan for the company. Under the Rehabilitation Rules, if upon the lapse of 180 days from the date of the initial hearing there is still no approved rehabilitation plan, the RTC must dismiss the petition. Here, however, the RTC proceeded beyond the 180-day period even in the absence of a motion to extend the same and despite the lack of strong and compelling evidence which showed that NBC’s continued operation was still economically feasible. The Court enacted the Interim Rules of Procedure on Corporate Rehabilitation to provide a remedy for summary and non-adversarial rehabilitation proceedings of distressed but viable corporations. The intent is consistent with the commercial nature of rehabilitation which seeks to expedite its resolution for the benefit of all the parties involved and the economy in general. These rules are to be construed liberally to obtain for the parties a just, expeditious, and inexpensive disposition of the case. The parties may not, however, invoke such liberality if it will result in the utter disregard of the rules or cause delay in the administration of justice. Page | 23