SECTRANS+finals+case+digests

Ruiz v. Caneba G.R. No. 84884, December 3, 1990 Ponente: Paras, J. Facts Private respondents Zenaida Sangalang and Adolfo Cruz are common law spouses and owners in common of a two-storey house and lots. Petitioners, the spouses Eulalio Ruiz and Iluminada Ruiz are the lessees of Door No. 1 of the two-storey house divided into two doors, for a monthly rental of P650. Sometime on November 19, 1982, Eulalio Ruiz and Zenaida Sangalang executed an agreement where it was provided that Ruiz will buy the house and lot for the sum of P175, 000 under the following terms and conditions: P65,000 down payment and will assume the balance of P31,500 with the BPI (balance mortgage) After the payment of the balance mortgage, a balance of P78,500 will be payable on or before December 31, 1983 It was also stipulated that Ruiz spouses will continue paying monthly rental of P650 until the amount of P175,000 shall have been fully satisfied. There is no dispute that the following payments were made by Ruiz: P65,000 to Sangalang as down payment and P21,119.62 to the Bank on the assumed mortgage. There is disagreement, however, as to the amount paid to Sangalang on the balance of P78,500. Sangalang maintains that she received only P33,793 while Ruiz insists that they paid P53,073. Thus, Ruiz spouses filed a complaint for specific performance with damages against Sangalang and Cruz. On May 15, 1986, the trial court ruled in favor of Sangalang and Cruz. Specifically, the dispositive portion of the decision reads: “Wherefore, we hereby rule as follows: Ordering plaintiffs to pay Zenaida Sangalang the amount of P20,000 moral damages Ordering plaintiffs to pay defendant Sangalang, attorney’s fees in the amount of P15,000 and to pay the cots of suit; and Defendant Zenaida Sangalang is hereby ordered to return to the payments made by the plaintiffs pursuant to the Agreement.” The Ruiz spouses appealed to the CA but the same was dismissed. The Clerk of Court, in his capacity as ex-oficio sheriff, caused the execution of the 1st and 2nd paragraphs of the dispositive portion. Thereafter, the Ruiz spouses filed a motion praying that a writ of execution be issued for par. 3 of the said dispositive portion and that the sheriff be ordered to make full execution of the said decision by “off-setting” and/or setting-off par. 3 as against pars. 1 and 2 thereof, which the judge granted. As expected, the parties could not agree on the execution of the decision as regards par. 3 thereof. While the trial court is fully aware that a decision once final and executory can no longer be amended or revised, it opted, for the purpose of finally settling the claims of the parties, to amend the decision in question on July 27, 1988. The Ruizes claim that they are entitled to a refund of P121,192.62 plus 24% interest compounded annually, the alleged legal rate under the Central Bank Circular, or a total amount of P169,414.95. Sangalang, on the other hand, countered that she received only the amount of P120,092.62 or a difference of P4,100 from that claimed by the Ruizes, let alone the compounded interest. Furthermore, Sangalang insists that she is entitled to P1,500 a month rental for Door No. 2 of said house which the Ruizes occupied after the execution of the agreement instead of confining themselves to Door No. 1 which they used to occupy and for which they have originally been paying rentals. Issue Whether or not there is an ambiguity in the dispositive of the May 15, 1986 decision sufficient to warrant the questioned order of the respondent court amending subject final and executory judgment Held NO. A careful study of the decision of the trial court of May 15, 1986 shows that aside from the fact that the refund ordered to be made by Sangalang was not specified in exact numbers, there appears to be no ambiguity in the decision to such an extent as to warrant an amendment of the dispositive portion. From the total amount of P139,192.62 claimed by the Ruiz spouses to have been actually paid to Sangalang, only the amount of P15,000 in the form of dishonored checks have been discounted by the trial court, leaving a balance of P124,192.62. Hence, it is evident that this is the amount that Sangalang was ordered to return to the Ruizes pursuant to par. 3 of the said dispositive portion. The only set-off specified by the trial court in the assailed May 15, 1986 decision were the lost profits suffered by Sangalang because of the annotation of the notice of lis pendens on her title by the Ruiz spouses which were considered compensated by the increase in value of the property due to the repair made by the latter. Moreover, it appearing that there was in fact a part execution of pars. 1 and 2 of the dispositive portion of the 1986 decision against the Ruizes, it is but proper that the amount to be paid by Sangalang is the total payments made by the petitioners in the amount of P124,192,62 Where the court judgment which did not provide for the interest is already final, there is no reason to add interest in the judgment. Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is no reason for this Court to grant such claim. As ruled by this Court, such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final. The petition is granted. The order of the respondent judge dated July 27, 1988 is null and void, and respondent Sangalang is required to pay petitioners Ruiz spouses the amount of P124,192.62. Petitioners Ruizes are required to vacate the property and pay P650 monthly as rental as agreed upon and as required by the May 15, 1986 decision until they vacate the premises. Eastern Shipping Lines v. CA G.R. No. 97412 July 12, 1994 Ponente: Vitug, J. Facts On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by Eastern Shipping Lines. The shipment was insured under Allied Brokerage Corporation’s Marine Insurance Policy. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to Allied Brokerage Corporation. On January 7, 1982 Allied Brokerage Corporation received the shipment from Metro Port Service, Inc., one drum opened and without seal. Thereafter, Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. Allied contended that due to the losses/damage sustained by said drum, the consignee suffered losses due to the fault and negligence of Eastern Shipping Lines and Metro Port. As a consequence of the losses sustained, Allied was compelled to pay the consignee under the marine insurance policy, so that it became subrogated to all the rights of action of said consignee against petitioners. The trial court ruled against petitioner. The appellate court affirmed. Issues Whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%) Held YES. The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. The legal interest to be paid is 6% on the amount due computed from the decision, dated 03 February 1988, of the court a quo. 12% interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. It may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance: When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 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. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, 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. Central Bank vs. Morfe No. L-38427, March 12, 1975 Ponente: Aquino, J. Facts On February 18, 1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the Superintendent of Banks to take charge of its assets and forbade it to do business. On December 9, 1969, the Board resolved to seek the court’s assistance and supervision in the liquidation of the bank. The resolution was implemented only on January 25, 1972 when the Central Bank of the Philippines filed the corresponding petition for assistance and supervision in the CFI of Manila. Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the spouses Job Elizes and Marcela Elizes filed a complaint in the CFI of Manila against the Fidelity Savings Bank for the recovery of the balance of their time deposits, which was granted by that court. In another case, the spouses Augusto Padilla and Adelaida Padilla secured a judgment against the Fidelity Savings Bank for the balance of their time deposits plus interests. The lower court, upon motion of the Elizes and Padilla spouses and over the opposition of the Central Bank, directed the latter, as liquidator, to pay their time deposits as preferred credits, evidenced by the final judgments, within the meaning of Article 2244 (14) (b) of the Civil Code, if there are enough funds in the liquidator’s custody in excess of the creditors more preferred. The Central Bank appealed, contending that the Elizes and Padilla spouses do not enjoy any preference because: (a) they were rendered after the Fidelity Savings Bank was declared insolvent, and (2) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank. Issue Whether or not a final judgment for the payment of a time deposit in a savings bank, which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank Held NO. It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits. One purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under Article 2244 (14)(b) of the Civil Code. We are of the opinion that such judgments cannot be considered preferred and that Article 2244 (14)(b) does not apply to such judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time deposits. The lower court’s orders are reversed and set aside.  Banzon v. Court of Appeals G.R. No. 47258, July 13, 1989 Ponente: Fernandez, C.J. Facts Sometime in 1952, defendant Maximo Sta. Maria obtained several crop loans from PNB. For these loans, Associated acted as surety for defendant Maximo Sta. Maria by filing surety bonds in favor of PNB to guarantee and answer for the prompt and faithful repayment of said loans. In turn, plaintiff Antonio Banzon and Emilio Naval acted as indemnitors of Associated in the indemnity agreements, obligating themselves to indemnify and hold it harmless from any liabilities. However, defendant Maximo Sta. Maria failed to pay his crop loan obligations in favor of PNB when the same fell due, and accordingly, the bank demanded payment thereof from Associated as surety. Instead of paying the bank, Associated filed a complaint in the CFI against Maximo Sta. Maria and indemnitors Banzon and Naval. The court sentenced Sta. Maria, Banzon, and Naval to pay jointly and severally Associated for the benefit of PNB. Pursuant to the judgment, a corresponding writ of execution was issued and the properties of Banzon were levied and later on sold in execution, with Associated, the judgment creditor, as the highest bidder. The redemption period having expired, Associated obtained in due time the final certificate of title of the properties which was registered. Demands were made to Banzon to deliver to Associate the owner’s duplicate TCTs, but Banzon failed to do so, prompting Associated to file a petition for an order directing Banzon to produce and surrender his owner’s duplicate TCTs. The records show that sometime in 1965, even before ownership over the two parcels of land belonging to the Banzons could be consolidated in the name of Associated, the spouses Pedro Cardenas and Leonila Baluyot were able to execute upon and buy one of the two parcels of land to satisfy a judgment debt of Associated in favor of Cardenas spouses. Cardenas was awarded the property in full satisfaction of his judgment, and eventually succeeded in canceling Banzon’s title and in having a new one issued in his name. Thereafter, a writ of possession was issued in favor of Cardenas. The Banzons, however, refused to vacate the premises and to remove the improvements thereon. Because of this, an order was issued for the issuance of a writ of demolition, but the same was not enforced for the reason that a writ of preliminary injunction was issued by the Court of Appeals. Cardenas thereafter field a motion for the enforcement of the order of demolition and writ of possession. The SC restrained Cardenas spouses and Associated and their representatives from enforcing the writ of possession and order of demolition and respondent Associated from disposing of its rights and interests over the two lots in question. It appears that a special deputy sheriff of Rizal succeeded in demolishing Banzon’s building erected on the lot in question. The SC thereafter ruled that the “petition for a permanent injunction against the disposition in any manner of the two parcels of land subject of said case other than their reconveyances to petitioners as the rightful owners thereof as expressly recognized insurance commissioner as liquidator of Associated is granted.” Petitioners spouses Banzon and Rosa Balmaceda filed before the CFI a complaint against the Sta. Marias for damages allegedly arising from the deprivation of their property due to the Sta. Maria’s failure and refusal to pay their obligations to PNB. Issue Whether or not the Sta. Marias are liable to petitioners for damages Held NO. What appears to us as error is the trial court’s conclusion that private respondents are responsible for the prejudice caused petitioners. As a general rule, the guarantor must first pay the outstanding amounts due before it can exact payment from the principal debtor. Hence, since Associated had not paid nor compelled private respondent to pay the bank, it had no right in law or equity to execute the judgment against Banzon as indemnitor. While ideally, this debacle could have been avoided by private respondents’ payment of their obligations to PNB, such fact of non-payment alone, without Associated’s premature action and subsequent fraudulent acts, could not possibly have resulted in the prejudice and damage complained of. Thus, while private respondents’ non-payment was admittedly the remote cause or the factor which set in motion the ensuing events, Associated’s premature action and execution were the immediate and direct causes of the damage and prejudice suffered by petitioners. In other words, active supervening events, consisting of said premature and fraudulent acts of the Associated Insurance and Surety, Inc., had broken the causal connection between the fact of non-payment and the damage suffered by petitioners, so that their claim should be directed not against private respondents but against Associated. There is no denying that the damage and prejudice suffered by petitioners is too high a price to pay for an act of benevolence. By now, however, they should have obtained adequate relief in accordance with our ruling in Banzon v. Cruz: “…respondent court shall at Banzon’s petition cause respondents Cardenases to restore the demolished building or pay Banzon the determined value thereof…” The petition for review is denied. Atok Finance Corporation v. CA G.R. No. 80078, May 18, 1993 Ponente: Feliciano, J. Facts On July 27, 1989, private respondents Sanyu Chemical Corporation as principal, and Sanyu Trading Corporation along with individual private stockholders of Sanyu Chemical namely, private respondents spouses Danilo Arrieta and Nenita Arrieta, Leopoldo Halili and Pabilito Bermudo as sureties, executed a Continuing Suretyship agreement in favor of Atok Finance Corporation as creditor. Under this Agreement, Sanyu Trading and private respondents jointly, unconditionally, and severally guarantee to Atok Finance the full payment and discharge of any and all indebtedness of Sanyu Chemical. The agreement also provides that the agreement is a continuing suretyship relating to any indebtedness. On November 27, 1981, Sanyu Chemical (principal) assigned its trade receivables to Atok Finance (Creditor). The Deed of Assignment provides that the failure to pay by the debtors of the assigned contracts or any installment thereon upon maturity thereof shall be conclusively considered as violation of the warranty. Moreover, the Deed of Assignment also provides that any violation of the warranties in the assignment shall render the assignor immediately and unconditionally liable to pay the assignee jointly and severally with the debtors under the assigned contracts. On January 13, 1984, Atok Finance commenced an action against Sanyu chemical and private respondents before the RTC, alleging that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables. Private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of the execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. The trial court ruled in favor of Atok Finance. The appellate court reversed. Issues Whether the Continuing Suretyship Agreement is null and void as having been executed without consideration and without a pre-existing principal obligation to sustain it Whether private respondents are liable under the Deed of Assignment which they, along with principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned Held NO. It is true that a guaranty or suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or a financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor. With such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the case at bar. YES. Article 1629 of the Civil Code invoked by private respondents is not material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of warranty of solvency; the liability of Sanyu Chemical was not ex lege (ex. Art. 1629) but rather ex contractu. Under the Deed of Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement. Put a little differently, the obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu chemical is not subject to the limiting period set out in Article 1629 of the Civil Code. The petition is granted. Integrated Realty Corporation v. CA G.R. No. 60705, June 28, 1989 Ponente: Regalado, J. Facts On 11 January 1967, petitioner Raul Santos made a time deposit with respondent Overseas Bank of Manila (OBM) in the amount of P500,000, and was issued a Certificate of Time Deposit. On 6 February 1967, Santos also made a time deposit with OBM in the amount of P200,000 and was issued a certificate of time deposit. On 9 February 1967, petitioner Integrated Realty Corporation (IRC), through its president Raul Santos, applied for a loan and/or credit line in the amount of P700,000 with respondent Philippine National Bank. To secure the said loan, Santos executed a Deed of Assignment of the two time deposits in favor of PNB. OBM gave its conformity to the assignment. OBM, after the due dates of the time deposit certificates, did not pay PNB. Hence, PNB demanded payment from defendants IRC and Santos and from OBM. IRC and Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of time deposit certificates. PNB filed a complaint against IRC and Santos and impleaded OBM as a defendant to compel it to redeem and pay to it Santos’ time deposit certificates with interest. IRC and Santos alleged that PNB had no cause of action against them because their obligation to PNB was fully paid or extinguished upon the “irrevocable” assignment of the time deposit certificates, and that they are not answerable for the insolvency of OBM. OBM acknowledged the certificates of time deposit that it issued to Santos and admitted its failure to pay the same due to its distressed financial situation. OBM alleged that by reason of its state of insolvency its operations have been suspended by Central Bank since August 1, 1986, hence, the time deposits ceased to earn interest from that date. OBM also alleged that it may not give preference to any depositor or credtior, and that payment of PNB’s claim is prohibited. The trial court ruled the IRC and Santos are jointly and solidarily liable to pay PNB. It also ordered OMB to pay IRC and Santos whatever amounts the latter will pay to PNB with interest from date of payment. The appellate court modified the trial court’s decision by deleting the portion of the judgment ordering OBM to pay IRC and Santos whatever amounts the latter will pay to PNB with interest from date of payment. Issue Whether the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment made by the former in favor of PNB Held NO. There are cogent reasons to conclude that the parties intended that deed of assignment to complement the promissory notes. The deed of assignment did not operate as payment of the loan so as to extinguish the obligations of IRC and Santos with PNB. For all intents and purposes, the deed of assignment in this case is actually a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, an din the absence thereof, that they be legally authorized for the purpose. The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB. It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders, or decisions of the court or for any other cause whatsoever. The unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with corresponding interest thereon. GSIS v. CA G.R. No. 128471, March 6, 1998 Ponente: Romero, J. Facts Private respondents Jose Salonga, Tan Kiat Tian, and Josefina Usman were registered co-owners pro-indiviso of two parcels of land located at Bacoor Cavite. Sometime in 1974, the Municipal Treasure of Cavite refused private respondents’ payment for real estate taxes of the property on the ground that the tax declarations of the property were already cancelled. Upon investigation, they discovered that new tax declarations and titles of said property were issued in the name of Queen’s Row Subdivision, Inc. (QRSI). Thereafter, private respondents sent a letter-complaint to the Public Assistance Office seeking assistance and asking for an immediate investigation of QRSI and the Register of Deeds of Cavite. No action, however, was taken by PAO. Hence, private respondents filed an action for declaration of ownership and cancellation of title against QRSI, the Register of Deeds of Cavite, and the Government Service Insurance System (GSIS). GSIS was impleaded in the action since records show that it entered into a project and loan agreement with QRSI wherein the former granted the latter a loan secured by a real estate mortgage covering QRSI’s properties in Bacoor, Cavite. Upon QRSI’s default in payment, the properties were extra-judicially foreclosed by GSIS. The trial court ruled in favor of respondents. The Court of Appeals affirmed. Issue Whether or not GSIS was a mortgagee and purchaser in good faith Held NO. The GSIS Act grants the GSIS the power to invest its funds, directly or indirectly. Being allowed to engage in financing, the GSIS should, therefore, exercise care and prudence in investing its funds, such as in granting loans. Although the GSIS is categorized as a social security and insurance entity, its ancillary function of investing funds imposes upon it the duty of exercising due diligence in dealing with properties submitted as collateral for loans. The records fail to reveal that GSIS exercised due diligence in ascertaining the real owners of the transfer certificate of titles of the properties. If the GSIS had investigated the same, then it would have learned that the said TCTs were illegally obtained. Moreover, it should have been more cautious, considering the substantial amount of the loan granted. Thus, the GSIS cannot assert the defense of good faith, considering that it did not exercise the proper diligence required by the situation. If a bank failed to exercise due diligence, it is not considered a mortgagee in good faith. Petitioner is deemed to have failed to exercise the requisite of due diligence in ascertaining if the land mortgaged to it by QRSI covered by the TCTs was valid and free from any legal defect. This failure is tantamount to negligence for petitioner cannot simply rely on the face of the title of the property, as its ancillary function of investing funds requires a greater degree of diligence. It cannot, therefore, be considered as a mortgagee and subsequent purchaser in good faith, and necessarily, private respondents are deemed to have a better right over the property. The petition is denied. BA Finance Corporation v. CA G.R. No. 102998, July 5, 1996 Ponente: Vitug, J. Facts On May 15, 1980, spouses Reyanldo and Florencia Manahan executed a promissory note binding themselves to pay Carmasters,Inc. To secure payment, the Manahan spouses executed a deed of chattel mortgage over a motor vehicle, a Ford Cortina. Carmasters later assigned the promissory note to petitioner BA Finance Corporation with the conformity of the Manahans. When the latter failed to pay the due installments, petitioner sent demand letters. The demands not having been heeded, petitioner filed a complaint for replevin with damages against the spouses. The service of summons upon the spouses was caused to be served by petitioner. The original of the summons had the name and the signature of private respondent Roberto Reyes indicating that he received a copy of the summons and the complaint. Thereafter, the petitioner issued a certification that it had received from the deputy sheriff of the RTC the Ford Cortina seized from private respondents. The lower court came out with an order of seizure. The petitioner filed a notice of dismissal and sought in another motion the withdrawal of the replevin bond. In view of the earlier dismissal of the case for petitioner’s failure to prosecute, the court merely noted the notice of dismissal but denied the motion to withdraw the replevin bond considering that the writ of replevin had meanwhile been implemented. The private respondent filed a motion praying that petitioner be directed to comply with the court order requiring petitioner to return the vehicle to him. The petitioner argued that the order to return the vehicle to private respondent was a departure from jurisprudence recognizing the right of the mortgagee to foreclose the property to respond to the unpaid obligation secured by the chattel mortgage. The court granted petitioner’s motion. A few month’s later, petitioner filed a motion to declare private respondent in default. The court dismissed the case against Manahans for failure to prosecute the case against them. The trial court also dismissed the case against private respondent for failure of petitioner to show any legal basis for said respondent’s liability. In its appeal to the CA, petitioner has asserted that a suit for replevin aimed at a foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the principal obligors as long as the court does not render any personal judgment against them. CA denied their petition. Issue Whether or not a mortgagee may maintain an action for replevin against any possessor of the object of a chattel mortgage even if the latter were not a party to a mortgage Held NO. Replevin, as broadly understood, is both a form of principal remedy and of a provisional relief. It may refer to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the thing during the pendency of the action and hold it pendente lite. As an “action in rem,” the gist of the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason of his being the owner or of his having a special interest therein. Consequently, the person in possession of the property sought to be replevied is ordinarily the proper and only necessary party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the property but no in possession thereof. Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the action need only be maintained against him who possesses the property. In effect, then, the mortgagee, upon the mortgagor’s default, is constituted as an attorney in fact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the plaintiff’s right to possess the thing is not or cannot be disputed. In case the right of possession on the part of the plaintiff or his authority to claim such possession or that of his principal is put to great doubt, it cold become essential to have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. A chattel mortgage, unlike a pledgee, need not be in, nor entitled to, the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee’s right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties, like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor’s default on, the chattel mortgage that, among other things, can properly uphold the reight to replevy the property. The burden to establish a valid justification for that action lies within the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract simply because the mortgagee brings upon an action for replevin. The decision of the CA is affirmed.  Development Bank of the Philippines v. National Labor Relations Commission G.R. No. 100264-81, January 29, 1993 Ponente: Gutierrez Jr., J. Facts On November 14, 1986, private respondents filed with the Provincial Extension Office of the Department of Labor and Employment (DOLE) 17 individual complaints against Republic Hardwood Inc. (RHI) for unpaid wages and separation pay. RHI alleged that it had ceased to operate in 1983 due to the government ban against tree-cutting. It further alleged that in 1981, RHI failed to pay its loan with the Development Bank of the Philippines (DBP). RHI contended that since DBP foreclosed its mortgaged assets on September 24, 1985, then any adjudication of monetary claims in favor of its former employees must be satisfied against DBP. Thereafter, the private respondents filed a motion to implead DBP The Executive Labor Arbiter rendered a decision in favor of private respondents. DBP filed an appeal to the National Labor Relations Commission (NLRC) but it affirmed the decision of the labor arbiter. Issue Whether or not private respondents are entitled to separation pay Held YES. There is no merit to DBP’s contention that the workers are not entitled to separation pay. Despite the enormous losses incurred by RHI due to the fire that gutted the sawmill in 1981 and despite the logging ban in 1983, the uncontroverted claims for separation pay show that most of the private respondents still worked up to the end of 1985. RHI would still have continued its business had not the petitioner foreclosed all of its assets and properties on September 24, 1985. Thus, the closure of RHI’s business was not primarily brought about by serious business losses. Such closure was a consequence of DBP’s foreclosure of RHI’s assets. Because of the petitioner’s assertion that the labor arbiter and respondent NLRC incorrectly applied the provisions of Art. 110 of the Labor Code, we are constrained to grant the petition for certiorari. Art. 110, prior to its amendment by RA 6715, reads: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. We have repeatedly stressed that before the workers’ preference provided by Article 110 may be invoked, there must first be a declaration of bankruptcy or a judicial liquidation of the employer’s business. The NLRC therefore, committed grave abuse of discretion when it affirmed the labor arbiter’s ruling that the workers’ preference espoused in Article 110 may be applied even in the absence of a declaration of bankruptcy or a liquidation order. We must also emphasize that DBP’s lien on RHI’s mortgaged assets, being a mortgage credit, is a special preferred credit under Article 2242 of the Civil Code while the workers’ preference is an ordinary preferred credit under Article 2244. Clearly, even if DBP and the private respondents assert their preferred credits in a judicial proceeding, the former’s claim must first be satisfied. Art. 110 of the Labor Code has been amended by RA 6715 and now reads: Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, and any provision of law to the contrary notwithstanding. Such unpaid wages, and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. We ruled in DBP v. NLRC, that the amendment “expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of Government must be deemed subordinate.” Hence, under the new law, even mortgage credits are subordinate to workers’ claims. RA 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be retroactively applied to, nor can it affect, the mortgage credit which was secured by the petitioner several years prior to its effectivity. The public respondent, therefore, committed grave abuse of discretion when it retroactively applied the amendment introduced by RA 6715 in the case at bar. The petition is granted. State Investment House, Inc. v. Citibank, N.A. G.R. Nos. 79926-27, October 17, 1991 Ponente: Narvasa, J. Facts The foreign banks involved in the controversy are Bank of America NT and SA, Citibank NA, and Hongkong and Shanghai Banking Corporation. On December 11, 1981, they jointly filed with the CFI a petitioner for involuntary insolvency of Consolidated Mines, Inc. (CMI). The petition was opposed by State Investment House Inc. (SIHI) and State Financing Cener (SFCI), claiming that the court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are not resident creditors of CMI in contemplation of Insolvency Law. The trial court ruled in favor of petitioner SIHI. The appellate court reversed. Issue Whether or not foreign banks licensed to do business in the Philippines may be considered “residents of the Philippine Islands” within the meaning of Section 20 of the Insolvency Law Held YES. The answer cannot be found in the Insolvency Law itself, which contains no definition of the term resident, or an clear indication of its meaning. This Court itself has already occasion to hold that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment against a defendant not residing in the Philippine Islands. In other words, a preliminary attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippines – and is consequently and necessarily, “a party who resides out of the Philippines.” Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who resides out of the country, then, logically, it must be considered a party who does not reside in the Philippines, who is a resident of the country. Obviously, the assimilation of foreign corporations authorized to do business in the Philippines “to the status of domestic corporations,” subsumes their being found and operating as corporations, hence, residing in the country. The law plainly grants to a juridical person, whether it e a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to the Bankruptcy Court. The petition is denied. “Nothing is more practical than finding God, that is falling in love in a quite absolute, final way.” Security Transactions: Finals case digests Atty. De Leon - Manzano Lesley Claudio (2A 2012) Page 15 of 15 THE WOMEN OF ALEITHEIA TRUTH. HONOR. EXCELLENCE.