Bar Q and A #34

1.) X, who has a savings deposit with Y Bank in the sum of P1,000,000.00 incurs a loan obligation with the said Bank in the sum of P800000.00 which has become due. When X tries to withdraw his deposit, Y Bank allows only P200,000.00 to be withdrawn, less service charges, claiming that compensation has extinguished its obligation under the savings account to the concurrent amount of X’s debt. X contends that compensation is improper when one of the debts, as here, arises from a contract of deposit. Assuming that the promissory note signed by X to evidence the loan does not provide for compensation between said loan and his savings deposit, who is correct?

Y Bank is correct. Art. 1287 of the Civil Code does not apply. All the requisites of Art. 1279, Civil Code are present. In the case of Gullas v. PNB (62 Phil. 519), the Supreme Court held: “The Civil Code contains provisions regarding compensation (set off) and deposit. These portions of Philippine Law provide that compensation shall take place when two persons are reciprocally creditor and debtor of each other. In this connection, it has been held that the relation existing between a depositor and a bank is that of creditor and debtor. xxx As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor.” Hence, compensation took place between the mutual obligations of X and Y Bank.

2.) What is the difference between "guaranty" and "suretyship"?

Guaranty and Suretyship distinguished:

1. The obligation in guaranty is secondary; whereas, in suretyship, it is primary.
2. In guaranty, the undertaking is to pay if the principal debtor cannot pay; whereas, in suretyship, the undertaking is to pay if the principal debtor does not pay.
3. In guaranty, the guarantor is entitled to the benefit of excussion; whereas, in suretyship the surety is not entitled.
4. Liability in guaranty depends upon an independent agreement to pay the obligations of the principal if he fails to do so; whereas, in suretyship, the surety assumes liability as a regular party.
5. The Guarantor insures the solvency of the principal debtor; whereas, the surety insures the debt.
6. In a guaranty, the guarantor is subsidiarily liable; whereas, in a suretyship, the surety binds himself solidarity with the principal debtor. (Art. 2047)

3.) AB sold to CD a motor vehicle for and in consideration of P120,000, to be paid in twelve monthly equal instalments of P10,000.00, each instalment being due and payable on the 15th day of each month starting January 1997. To secure the promissory note, CD (a) executed a chattel mortgage on the subject motor vehicle, and (b) furnished a surety bond issued by Philamlife. CD failed to pay more than two (2) instalments. AB went after the surety but he was only able to obtain three-fourths (3/4) of the total amount still due and owing from CD. AB seeks your advice on how he might, if at all recover the deficiency. How would you counsel AB?

Yes, he can recover the deficiency. The action of AB to go after the surety bond cannot be taken to mean a waiver of his right to demand payment for the whole debt. The amount received from the surety is only payment pro tanto, and an action may be maintained for a deficiency debt.

4.) Bruce is the registered owner, of a parcel of land with a building thereon and is in peaceful possession thereof. He pays the real estate taxes and collects the rentals therefrom. Later, Catalino, the only brother of Bruce, filed a petition where he, misrepresenting to be the attorney-in-fact of Bruce and falsely alleging that the certificate of title was lost, succeeded in obtaining a second owner’s duplicate copy of the title and then had the same transferred in his name through a simulated deed of sale in his favor. Catalino then mortgaged the property to Desiderio who had the mortgage annotated on the title. Upon learning of the fraudulent transaction, Bruce filed a complaint against Catalino and Desiderio to have the title of Catalino and the mortgage in favor of Desiderio declared null and void. Will the complaint prosper, or will the title of Catalino and the mortgage to Desiderio be sustained?

Yes, the complaint for the annulment of Catalino’s Title will prosper. In the first place, the second owner’s copy of the title secured by him form the Land Registration Court is void ab initio, the owner’s copy thereof having never been lost let alone the fact that said second owner’s copy of the title was fraudulently procured and improvidently issued by the Court. In the second place, the Transfer Certificate of Title procured by Catalino is equally null and void, it having been issued on the basis of a simulated or forged Deed of Sale. A forged deed is an absolute nullity and conveys no title.

The mortgage in favor of Desiderio is likewise null and void because the mortgagor is not the owner of the mortgaged property. While it may be true that under the “Mirror Principle” of the Torrens System of Land Registration, a buyer or mortgagee has the right to rely on what appears on the Certificate of Title, and in the absence of anything to excite suspicion, is under no obligation to look beyond the certificate and investigate the mortgagor’s title, this rule does not find application in the case at hand because here, Catalino’s title suffers from two fatal infirmities, namely:

1. The fact that it emanated from a forged deed of a simulated sale;
2. The fact that it was derived from a fraudulently procured or improvidently issued second owner’s copy, the real owner’s copy being still intact and in the possession of the true owner, Bruce.

The mortgage to Desiderio should be cancelled without prejudice to his right to go after Catalino and/or the government for compensation from the assurance fund.

5.) In 1982, Steve borrowed P400,000.00 from Danny, collateralized by a pledge of shares of stock of Concepcion Corporation worth P800,000.00. In 1983, because of the economic crisis, the value of the shares pledged fell to only P100,000.00. Can Danny demand that Steve surrender the other shares worth P700,000.00?

No. Bilateral contracts cannot be changed unilaterally. A pledge is only a subsidiary contract, and Steve is still indebted to Danny for the amount of P400,000.00 despite the fall in the value of the stocks pledged.

6.) Distinguish a contract of chattel mortgage from a contract of pledge.

In a contract of CHATTEL MORTGAGE, possession belongs to the creditor, while in a contract of PLEDGE, possession belongs to the debtor.

A chattel mortgage is a formal contract while a pledge is a real contract.

A contract of chattel mortgage must be recorded in a public instrument to bind third persons while a contract of pledge must be in a public instrument containing description of the thing pledged and the date thereof to bind third persons.

7.) Are the right of redemption and the equity of redemption given by law to a mortgagor the same? Explain.

The equity of redemption is different from the right of redemption. EQUITY OF REDEMPTION is the right of the mortgagor after judgment in a judicial foreclosure proceedings, within a period of not less than 90 days, before the sale or confirmation of the sale, to pay into the court the amount of the judgment debt. On the other hand, RIGHT OF REDEMPTION is the right of the mortgagor, after the sale of the mortgaged property, to redeem the property by paying to the purchaser in the sale or for him to the sheriff who made the sale, the amount paid by him, with interest, within one year from the sale. There is no right of redemption, only equity of redemption, in a judicial foreclosure under the Rules of Court.

8.) Olivia owns a vast mango plantation which she can no longer properly manage due to a lingering illness. Since she is indebted to Peter in the amount of P500, 000.00 she asks Peter to manage the plantation and apply the harvest to the payment of her obligation to him, principal and interest, until her indebtedness shall have been fully paid. Peter agrees. 1. What kind of contract is entered into between Olivia and Peter? Explain. 2. What specific obligations are imposed by law on Peter as a consequence of their contract? 3. Does the law require any specific form for the validity of their contract? Explain 4. May Olivia reacquire the plantation before her entire indebtedness shall have been fully paid? Explain.

1. A contract of antichresis was entered into between Olivia and Peter. Under Art. 2132, by a contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, and thereafter to the principal of his credit.

2. Peter must pay taxes and charges upon the land and bear the necessary expenses for preservation and repair which he may deduct from the fruits. (Art. 2135)

3. The amount of the principal and interest must be specified in writing, otherwise the antichresis will be void. (Art. 2134)

4. No. Art. 2136 specifically provides that the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. However, it is potestative on the part of the creditor to do so in order to exempt him from his obligation under Art. 2135, the debtor cannot re-acquire the enjoyment unless Peter compels Olivia to enter again the enjoyment of the property.

9.) X constructed a house on a lot which he was leasing from Y. Later, X executed a chattel mortgage over said house in favor of Z as security for a loan obtained from the latter. Still later, X acquired ownership of the land where his house was constructed, after which he mortgaged both house and land in favor of a bank, which mortgage was annotated on the Torrens Certificate of Title. When X failed to pay his loan to the bank, the latter, being the highest bidder at the foreclosure sale, foreclosed the mortgage and acquired X’s house and lot. Learning of the proceedings conducted by the bank, Z is now demanding that the bank reconvey to him X’s house or pay X’s loan to him plus interests. Is Z’s demand against the bank valid and sustainable? Why?

No, Z’s demand is not valid. A building is immovable or real property whether it is erected by the owner of the land, by a usufructuary, or by a lessee. It may be treated as a movable by the parties to chattel mortgage but such is binding only between them and not on third parties. (Evangelista v. Alto Surety Col, Inc., G.R. No. L- 11139, April 23, 1958) In this case, since the bank is not a party to the chattel mortgage, it is not bound by it, as far as the Bank is concerned, the chattel mortgage, does not exist. Moreover, the chattel mortgage is void because it was not registered. Assuming that it is valid, it does not bind the Bank because it was not annotated on the title of the land mortgaged to the bank. Z cannot demand that the Bank pay him the loan Z extended to X, because the Bank was not privy to such loan transaction.

10.) In fear of reprisals from lawless elements besieging his barangay, X abandoned his fishpond, fled to Manila and left for Europe. Seeking that the fish in the fishpond were ready for harvest, Y, who is in the business of managing fishponds on a commission basis, took possession of the property, harvested the fish and sold the entire harvest to Z. Thereafter, Y borrowed money from W and used the money to buy new supplies of fish fry and to prepare the fishpond for the next crop. 1. What is the Juridical relation between X and Y during X's absence? 2. Upon the return of X to the barangay, what are the obligations of Y to X as regards the contract with Z? 3. Upon X's return, what are the obligations of X as regards Y's contract with W? 4. What legal effects will result if X expressly ratifies Y's management and what would be the obligations of X in favor of Y?

1. The juridical relation is that of the quasi-contract of "negotiorum gestio". Y is the "gestor" or "officious manager" and X is the "owner." (Art. 2144)

2. Y must render an account of his operations and deliver to X the price he received for the sale of the harvested fish. (Art. 2145)

3. X must pay the loan obtained by Y from W because X must answer for obligations contracted with third persons in the interest of the owner. (Art. 2150)

4. Express ratification by X provides the effects of an express agency and X is liable to pay the commissions habitually received by the gestor as manager. (Art. .2149)