Name: Kevin B.

De Aroz
Case Title and Case no.: Union Bank of the Philippines vs Spouses Tiu, GR No. 173090-
91 September 7, 2011
Pontente: Associate Justice Teresita De Castro
Topic: Mutuum
Principle: Art. 1249 – Payment of debts in money shall be made in currency.

Facts:
Petitioner Union Bank of the Philippines (Union Bank) and respondent spouses Rodolfo
T. Tiu and Victoria N. Tiu (the spouses Tiu) entered into a Credit Line Agreement (CLA),
whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such
amounts as may be approved. Within 6 months, the spouses Tiu took out various loans
pursuant to this CLA in total of US$3,632,000.00 received in equivalent Philippine pesos at the
prevailing exchange rate of US$1=₱26.

Union Bank advised the spouses Tiu that, in view of the existing currency risks, the loans shall
be redenominated to their equivalent Philippine peso. Union Bank and the spouses Tiu entered
into a Restructuring Agreement to redenominate the loans at the rate of US$1=₱41.40 with
interest of 19% for one year, with an additional loan of 5M which was applied as interest
payments. Under said agreement, the parties declared that the loan obligation to be
restructured and executed Deeds of Dation in Payment over Labangon properties and Mandaue
property.

The spouses Tiu executed also a Real Estate Mortgage in favor of Union Bank over their
residential property inclusive of lot and improvements. Asserting that the spouses Tiu failed to
comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated
extrajudicial foreclosure proceedings on their residential property. The CA rendered the assailed
Joint Decision:
1. dismissed the Petition for Prohibition; and
2. ruled in favor of the spouses Tiu, invalidating the RA on account of its being a failed
novation of the original loan agreements, and 5M charge of interest therein, and enjoining Union
Bank from foreclosing the mortgaged properties.

Issue:
WON receiving the peso equivalent of dollar loan proves the intention of the parties that
such loans should be paid in pesos.

Held:
No, the Court disagrees with the CA ruling and holds that the parties intended the
amount of the loans in US dollars and not in any other currency as stipulated in the promissory
notes.
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
In the instant case, the promissory notes indicated that the spouses Tiu borrowed
amounts in US dollars although they received peso equivalents. Hence, they were bound to pay
Union Bank in dollars and not in any other currency.
Thus, the Petition is PARTIALLY GRANTED.
Name: Kevin B. De Aroz
Case Title and Case No.: Spouses Palada vs Solid Bank Corporation, GR No. 172227
June 29, 2011
Ponente: Associate Justice Mariano Del Castillo
Topic: Commodatum
Principle: Allegations of bad faith and fraud must be proved by clear and convincing
evidence.

Facts:
In February or March 1997, petitioners, spouses Wilfredo and Brigida Palada, applied for
a P3 million loan broken down as follows: P1 million as additional working capital under the bills
discounting line; P500,000.00 under the bills purchase line; and P1.5 million under the time loan
from respondent Solidbank Corporation (bank). 

On March 17, 1997, petitioners received from the bank the amount of P1 million as additional
working capital evidenced by a promissory note  and secured by a real estate mortgage  in favor
of the bank covering several real properties situated in Santiago City. 

Due to the failure of petitioners to pay the obligation, the bank foreclosed the mortgage and sold
the properties at public auction. 

On August 19, 1999, petitioners filed a Complaint  or nullity of real estate mortgage and sheriff's
certificate of sale with prayer for damages, docketed as Civil Case No. 35-2779, against the
bank and respondent Sheriff Mayo dela Cruz (sheriff) before the Regional Trial Court (RTC) of
Santiago City, Branch 35. Petitioners alleged that the bank, without their knowledge and
consent, included their properties covered by Transfer Certificate of Title (TCT) Nos. T-225131
and T-225132, among the list of properties mortgaged; that it was only when they received the
notice of sale from the sheriff in August 1998 that they found out about the inclusion of the said
properties; that despite their objection, the sheriff proceeded with the auction sale; and that the
auction sale was done in Santiago City in violation of the stipulation on venue in the real estate
mortgage. 

The bank, in its Answer,  denied the material allegations of the Complaint and averred that since
petitioners were collaterally deficient, they offered TCT Nos. T-237695, T-237696, T-225131
and T-225132 as additional collateral; that although the said properties were at that time
mortgaged to the Philippine National Bank (PNB), the bank accepted the offer and caused the
annotation of the mortgage in the original copies with the Register of Deeds with the knowledge
and consent of petitioners; and that when petitioners' obligation to PNB was extinguished, they
delivered the titles of the four properties to the bank. 

Issue:
Was the contract of loan perfected?

Held:

Ruling of the RTC

On October 21, 2004, the RTC rendered a Decision declaring the real estate mortgage
void for lack of sufficient consideration.  According to the RTC, the real estate mortgage lacks
consideration because the loan contract was not perfected due to the failure of the bank to
deliver the full P3 million to petitioners.  The RTC also found the bank guilty of fraud and bad
faith, thereby ordering it to pay petitioners moral and exemplary damages, and attorney's fees. 
The RTC ruled:

Furthermore, it appears that the defendant unilaterally changed the term and condition of their
loan contract by releasing only P1M of the P3M approved loan.  The defendant, in so doing,
violated their principal contract of loan in bad faith, and should be held liable therefor.

Likewise, the defendant bank acted in bad faith when it made it appear that the mortgage was
executed by the plaintiffs on June 16, 1997, when the document was acknowledged before Atty.
German Balot, more so, when it made it appear that the mortgage was registered with the
Register of Deeds allegedly on the same date, when in truth and in fact, the plaintiffs executed
said mortgage sometime [in] March, 1997, obviously much earlier than June 16, 1997; for, if
indeed the mortgage was executed on said date, June 16, 1997, it should have been written on
the mortgage contract itself.  On the contrary, the date and place of execution [were left blank]. 
Amazingly, defendant claims that it was the plaintiffs who [had the] mortgage notarized by Atty.
Balot; such claim however is contrary or against its own interest, because, the defendant should
be the most interested party in the genuineness and due execution of material important papers
and documents such as the mortgage executed in its favor to ensure the protection of its
interest embodied in said documents, and the act of leaving the notarization of such a very
important document as a mortgage executed in its favor is contrary to human nature and
experience, more so against its interest;  hence,  the claim is untrue.

Moreover, the defendant also appears to have been motivated by bad faith amounting to fraud
when it was able to register the mortgage with the Register of Deeds at the time when the
collateral certificates of titles were still in the custody and possession of another mortgagee
bank (PNB) due also to an existing/subsisting mortgage covering the same. Definitely, the
defendant resorted to some machinations or fraudulent means in registering the contract of
mortgage with the Register of Deeds.  This should not be countenanced.

Thus, on account of defendant's bad faith, plaintiffs suffered mental anguish, serious anxiety,
besmirched reputation, wounded feelings, moral shock and social humiliation, which entitle
them to the award of moral damages, more so, that it was shown that defendants' bad faith was
the proximate cause of these damages plaintiffs suffered.

Rulling of the CA

On appeal, the CA reversed the ruling of the RTC.  The CA said that based on the
promissory note and the real estate mortgage contract, the properties covered by TCT Nos. T-
225131 and T-225132 were mortgaged to secure the loan in the amount of P1 million, and not
the P3 million loan applied by petitioners. As to the venue of the auction sale, the CA declared
that since the properties subject of the case are in Santiago City, the holding of the auction sale
in Santiago City was proper  pursuant to Sections 1  and 2  of Act No. 3135. The CA likewise
found no fraud or bad faith on the part of the bank to warrant the award of damages by the RTC,
thus:

The List of Properties Mortgaged printed at the dorsal side of the real estate mortgage contract
particularly includes the subject parcels of land covered by TCT No. T-225132 and TCT No. T-
225131.  Below the enumeration, the signatures of [petitioners] clearly appear.  The document
was notarized before Notary Public German M. Balot.  We therefore find no cogent reason why
the validity of the real estate mortgage covering the two subject properties should not be
sustained.

Settled is the rule in our jurisdiction that a notarized document has in its favor the presumption
of regularity, and to overcome the same, there must be evidence that is clear, convincing and
more than merely preponderant; otherwise the document should be upheld. Clearly, the positive
presumption of the due execution of the subject real estate mortgage outweighs [petitioners']
bare and unsubstantiated denial that the parcels of land covered by TCT Nos. T-225132 and T-
225131 were among those intended to secure the loan of One Million Pesos.  Their imputation
of fraud among the officials of [the bank] is weak and unpersuasive. x x x

x x x x

We also note why despite the alleged non-approval of [petitioners'] application for additional
loan, the owner's copy of TCT Nos. T-225131 and T-225132 remained in the possession of [the
bank].  [Petitioners'] claim that they were still hoping to obtain an additional loan in the future
appears to this court as a weak explanation. The continued possession by the bank of the
certificates of title merely supports the bank's position that the parcels of land covered by these
titles were actually mortgaged to secure the payment of the One Million Peso loan.

The Ruling of the SC

The petition is bereft of merit.

The loan contract was perfected.

Under Article 1934  of the Civil Code, a loan contract is perfected only upon the delivery of the
object of the contract.

In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was
approved by the bank because petitioners became collaterally deficient when they failed to
purchase TCT No. T-227331 which had an appraised value of P1,944,000.00.  Hence, on
March 17, 1997, only the amount of P1 million was released by the bank to petitioners. 

Upon receipt of the approved loan on March 17, 1997, petitioners executed a promissory note
for the amount of P1 million.  As security for the P1 million loan, petitioners on the same day
executed in favor of the bank a real estate mortgage over the properties covered by TCT Nos.
T-237695, T-237696, T-237698, T-143683, T-143729, T-225131 and T-225132.  Clearly,
contrary to the findings of the RTC, the loan contract was perfected on March 17, 1997 when
petitioners received the P1 million loan, which was the object of both the promissory note and
the real estate mortgage executed by petitioners in favor of the bank.

Claims of  fraud and  bad faith are

Petitioners claim that there was fraud and bad faith on the part of the bank in the execution and
notarization of the real estate mortgage contract.

We do not agree.

There is nothing on the face of the real estate mortgage contract to arouse any suspicion of
insertion or forgery.  Below the list of properties mortgaged are the signatures of petitioners. 
Except for the bare denials of petitioner, no other evidence was presented to show that the
signatures appearing on the dorsal portion of the real estate mortgage contract are forgeries.

Likewise flawed is petitioners' reasoning that TCT Nos. T-225131 and T-225132 could not have
been included in the list of properties mortgaged as these were still mortgaged with the PNB at
that time.  Under our laws, a mortgagor is allowed to take a second or subsequent mortgage on
a property already mortgaged, subject to the prior rights of the previous mortgages. 

As to the RTC's finding that "the x x x bank acted in bad faith when it made it appear that the
mortgage was executed by the [petitioners] on June 16, 1997, when the document was
acknowledged before Atty. German, x x x when in truth and in fact, the [petitioners] executed
said mortgage sometime in March, 1997 x x x," we find the same without basis.  A careful
perusal of the real estate mortgage contract would show that the bank did not make it appear
that the real estate mortgage was executed on June 16, 1997, the same day that it was
notarized, as the date of execution of the real estate mortgage contract was left blank. And the
mere fact that the date of execution was left blank does not prove bad faith.  Besides, any
irregularity in the notarization or even the lack of notarization does not affect the validity of the
document.  Absent any clear and convincing proof to the contrary, a notarized document enjoys
the presumption of regularity and is conclusive as to the truthfulness of its contents. 

All told, we find no error on the part of the CA in sustaining the validity of the real estate
mortgage as well as the certificate of sale.