1.) G.R. No.

101163 January 11, 1993

STATE INVESTMENT HOUSE, INC., petitioner,

vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.

Escober, Alon & Associates for petitioner.

Martin D. Pantaleon for private respondents.

BELLOSILLO, J.:

The liability to a holder in due course of the drawer of checks issued to another merely as security,
and the right of a real estate mortgagee after extrajudicial foreclosure to recover the balance of
the obligation, are the issues in this Petition for Review of the Decision of respondent Court of
Appeals.

Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of jewelry
to be sold on commission, two (2) post-dated Equitable Banking Corporation checks in the
amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the other, 30
September 1979. Thereafter, the payee negotiated the checks to petitioner State Investment
House. Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before maturity
of the checks. The checks, however, could no longer be retrieved as they had already been
negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds from the
drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20
December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and requested
that it be paid in cash instead, although MOULIC avers that no such notice was given her.

On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and
expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the checks because the
jewelry was never sold and the checks were negotiated without her knowledge and consent. She
also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed full
responsibility for the checks.

On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party Complaint,
and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.
STATE elevated the order of dismissal to the Court of Appeals, but the appellate court affirmed
the trial court on the ground that the Notice of Dishonor to MOULIC was made beyond the period
prescribed by the Negotiable Instruments Law and that even if STATE did serve such notice on
MOULIC within the reglementary period it would be of no consequence as the checks should
never have been presented for payment. The sale of the jewelry was never effected; the checks,
therefore, ceased to serve their purpose as security for the jewelry.

We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all, at
the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of the
checks in due course.1

In this regard, Sec. 52 of the Negotiable Instruments Law provides —

Sec. 52. What constitutes a holder in due course. — A holder in due course is a holder who has
taken the instrument under the following conditions: (a) That it is complete and regular upon its
face; (b) That he became the holder of it before it was overdue, and without notice that it was
previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That
at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.

Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course.2 Consequently, the burden of proving that STATE is not a
holder in due course lies in the person who disputes the presumption. In this regard, MOULIC
failed.

The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their due
dates;3 (c) petitioner took these checks in good faith and for value, albeit at a discounted price;
and, (d) petitioner was never informed nor made aware that these checks were merely issued to
payee as security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free from
any defect of title of prior parties, and from defenses available to prior parties among themselves;
STATE may, therefore, enforce full payment of the checks.4

MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration. MOULIC can only invoke this defense against STATE if it was privy to the purpose
for which they were issued and therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground for the discharge of
the instrument as against a holder in due course. For the only grounds are those outlined in Sec.
119 of the Negotiable Instruments Law:
Sec. 119. Instrument; how discharged. — A negotiable instrument is discharged: (a) By
payment in due course by or on behalf of the principal debtor; (b) By payment in due course by
the party accommodated, where the instrument is made or accepted for his accommodation; (c)
By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a
simple contract for the payment of money; (e) When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the discharge
of the instrument. But, the intentional cancellation contemplated under paragraph (c) is that
cancellation effected by destroying the instrument either by tearing it up,5 burning it,6 or writing
the word "cancelled" on the instrument. The act of destroying the instrument must also be made
by the holder of the instrument intentionally. Since MOULIC failed to get back possession of the
post-dated checks, the intentional cancellation of the said checks is altogether impossible.

On the other hand, the acts which will discharge a simple contract for the payment of money
under paragraph (d) are determined by other existing legislations since Sec. 119 does not specify
what these acts are, e.g., Art. 1231 of the Civil Code7 which enumerates the modes of
extinguishing obligations. Again, none of the modes outlined therein is applicable in the instant
case as Sec. 119 contemplates of a situation where the holder of the instrument is the creditor
while its drawer is the debtor. In the present action, the payee, Corazon Victoriano, was no longer
MOULIC's creditor at the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the mere
expediency of withdrawing her funds from the drawee bank. She is thus liable as she has no legal
basis to excuse herself from liability on her checks to a holder in due course.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no moment. The
need for such notice is not absolute; there are exceptions under Sec. 114 of the Negotiable
Instruments Law:

Sec. 114. When notice need not be given to drawer. — Notice of dishonor is not required to be
given to the drawer in the following cases: (a) Where the drawer and the drawee are the same
person; (b) When the drawee is a fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment: (d) Where
the drawer has no right to expect or require that the drawee or acceptor will honor the
instrument; (e) Where the drawer had countermanded payment.

Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when she
returned the jewelry. She simply withdrew her funds from her drawee bank and transferred them
to another to protect herself. After withdrawing her funds, she could not have expected her
checks to be honored. In other words, she was responsible for the dishonor of her checks, hence,
there was no need to serve her Notice of Dishonor, which is simply bringing to the knowledge of
the drawer or indorser of the instrument, either verbally or by writing, the fact that a specified
instrument, upon proper proceedings taken, has not been accepted or has not been paid, and
that the party notified is expected to pay it.8

In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper. Thus, the said statute should not be
tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the
necessities in a single case.9

The drawing and negotiation of a check have certain effects aside from the transfer of title or the
incurring of liability in regard to the instrument by the transferor. The holder who takes the
negotiated paper makes a contract with the parties on the face of the instrument. There is an
implied representation that funds or credit are available for the payment of the instrument in
the bank upon which it is drawn.10 Consequently, the withdrawal of the money from the drawee
bank to avoid liability on the checks cannot prejudice the rights of holders in due course. In the
instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to STATE, a holder in
due course of the checks.

Under the facts of this case, STATE could not expect payment as MOULIC left no funds with the
drawee bank to meet her obligation on the checks,11 so that Notice of Dishonor would be futile.

The Court of Appeals also held that allowing recovery on the checks would constitute unjust
enrichment on the part of STATE Investment House, Inc. This is error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation of
Corazon Victoriano and her husband at the time their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only P1
million.12 Thus, the value of the property foreclosed was not even enough to pay the debt in full.

Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure
of mortgage, the mortgagee is entitled to claim the deficiency from the debtor.13 The step thus
taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a
proceeding for the sale of the property and its action cannot be taken to mean a waiver of its
right to demand payment for the whole debt.14 For, while Act 3135, as amended, does not
discuss the mortgagee's right to recover such deficiency, it does not contain any provision either,
expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature intends to
foreclose the right of a creditor to sue for any deficiency resulting from foreclosure of a security
given to guarantee an obligation, it so expressly provides. For instance, with respect to pledges,
Art. 2115 of the Civil Code15 does not allow the creditor to recover the deficiency from the sale
of the thing pledged. Likewise, in the case of a chattel mortgage, or a thing sold on installment
basis, in the event of foreclosure, the vendor "shall have no further action against the purchaser
to recover any unpaid balance of the price. Any agreement to the contrary will be void".16

It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it cannot
be concluded that the creditor loses his right recognized by the Rules of Court to take action for
the recovery of any unpaid balance on the principal obligation simply because he has chosen to
extrajudicially foreclose the real estate mortgage pursuant to a Special Power of Attorney given
him by the mortgagor in the contract of mortgage.17

The filing of the Complaint and the Third-Party Complaint to enforce the checks against MOULIC
and the VICTORIANO spouses, respectively, is just another means of recovering the unpaid
balance of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in due
course, STATE, without prejudice to any action for recompense she may pursue against the
VICTORIANOs as Third-Party Defendants who had already been declared as in default.

WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a new one
entered declaring private respondent NORA B. MOULIC liable to petitioner STATE INVESTMENT
HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660 in the total amount of
P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without prejudice to any action
for recompense she may pursue against the VICTORIANOs as Third-Party Defendants.

Costs against private respondent.

SO ORDERED.
2.) Sps. Reynaldo K. Litonjua & Erlinda P. Litonjua & Phil. White House Auto Supply, Inc. vs. L & R
Corporation, Vicente M. Coloyan in his capacity as Acting Registrar of the Register of Deeds of
Quezon City thru Deputy Sheriff Roberto R. Garcia, G.R. No. 130722, December 9, 1999 (320 SCRA
405)

Facts: The spouses Litonjua obtained loans from the L & R Corp. in the aggregate sum of
P400,000. The loans were secured by a mortgage constituted by the spouses upon their 2 parcels
of land and the improvements thereon located in Cubao, Quezon City. The mortgage provided
that the mortgagor cannot sell the mortgaged property without getting the consent of the
mortgagee and that the mortgagee shall have the right of first refusal.
The spouses Litonjua then sold the property to Phil. White House Auto Supply, Inc. The sale was
annotated at the back of the certificate of title.
The spouses Litonjua defaulted on their loan, so L & R Corp. started extrajudicial foreclosure of
the property. During the public auction, L & R Corp., as the sole bidder, bought the land. When
L & R Corp attempted to have their Certificate of Sale recorded, it discovered the prior sale of the
land to PWHAS for the first time. L & R Corp. wrote a letter to the Register of Deeds requesting
the cancellation of the annotation of the sale on the ground that the contract of mortgage
prohibited such sale. 7 months after the foreclosure sale, PWHAS, for the account of the spouses
Litonjua, tendered payment of the full redemption price to L & R Corp in the form of a Chinabank
manager’s check. L
& R Corp refused to accept the payment. Hence, PWHAS was compelled to redeem the
mortgaged properties through the ex-officio sheriff who, in turn, issued a Certificate of
Redemption.
Due to the refusal of L & R Corp to return their owner’s duplicate certificate of title, the spouses
Litonjua asked the Register of Deeds to annotate their Certificate of Redemption as an adverse
claim on the titles. The Register of Deeds refused to do so, hence the spouses Litonjua filed a
petition against L & R Corp for the surrender of the title.
While the case was pending, L & R Corp. executed an Affidavit of Consolidation of Ownership.
The Register of Deeds then issued it a TCT, free of any lien and encumbrance. L & R Corp then
informed all tenants of the property to pay the rentals to it. Upon learning of this, the spouses
Litonjua filed an adverse claim and a notice of lis pendens with the Register of Deeds. In the
process, they learned that the prior sale of the properties to PWHAS was not annotated on the
titles. A complaint for quieting of title, annulment of title & damages was filed. The lower court
dismissed the complaint. CA reversed at first, but set aside its decision in an amended decision.

Issue: Whether a mortgage contract may provide that the mortgagor cannot sell the mortgaged
property without first obtaining the consent of the mortgagee. Whether a mortgage contract
may provide for a right of first refusal in favor of the mortgagee.

Held: No. Yes. Affirmed with modifications.

Ratio: In the case of Philippine Industrial Co. v. El Hogar Filipino and Vallejo, a stipulation
prohibiting the mortgagor from entering into second or subsequent mortgages was held valid.
This is clearly not the same as that contained in paragraph 8 of the subject Deed of Real Estate
Mortgage which also forbids any subsequent sale without the written consent of the mortgagee.
Yet, in Arancillo v. Rehabilitation Finance Corporation, the case of Philippine Industrial Co., supra,
was erroneously cited to have held a mortgage contract against the encumbrance, sale or
disposal of the property mortgaged without the consent of the mortgagee is valid. No similar
prohibition forbidding the owner of mortgaged property from (subsequently) mortgaging the
immovable mortgaged is found in our laws, making the ruling in Philippine Industrial Co., supra,
perfectly valid. On the other hand, to extend such a ruling to include subsequent sales or
alienation runs counter not only to Philippine Industrial Co., itself, but also to Article 2130 of the
New Civil Code.
Meanwhile in De la Paz v. Macondray &; Co., Inc., it was held that while an agreement of such
nature does not nullify the subsequent sale made by the mortgagor, the mortgagee is authorized
to bring the foreclosure suit against the mortgagor without the necessity of either notifying the
purchaser or including him as a defendant. At the same time, the purchaser of the mortgaged
property was deemed not to have lost his equitable right of redemption.
In Bonnevie v. Court of Appeals, where a similar provision appeared in the subject contract of
mortgage, the petitioners therein, to whom the mortgaged property were sold without the
written consent of the mortgagee, were held as without the right to redeem the said property.
No consent having been secured from the mortgagee to the sale with assumption of mortgage
by petitioners therein, the latter were not validly substituted as debtors. It was further held that
since their rights were never recorded, the mortgagee was charged with the obligation to
recognize the right of redemption only of the original mortgagors-vendors. Without discussing
the validity of the stipulation in question, the same was, in effect, upheld.
On the other hand, in Tambunting v. Rehabilitation Finance Corporation, the validity of a similar
provision was specifically raised and discussed and found as invalid. It was there ratiocinated that
the provision can only be construed as directed against subsequent mortgages or encumbrance,
not to an alienation of the immovable itself. For while covenants prohibiting the owner from
constituting a later mortgage over property registered under the Torrens Act have been held to
be legally permissible (Phil. Industrial Co. v. El Hogar Filipino, et al., 45 Phil. 336, 341-342; Bank
of the Philippines v. Ty Camco Sobrino, 57 Phil. 801), stipulations "forbidding the owner from
alienating the immovable mortgaged" are expressly declared void by law (Art. 2130, Civil Code).
Earlier, in PNB v. Mallorca, it was reiterated that a real mortgage is merely an encumbrance; it
does not extinguish the title of the debtor, whose right to dispose – a principal attribute of
ownership – is not thereby lost. Thus, a mortgagor had every right to sell his mortgaged property,
which right the mortgagee cannot oppose.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling his
mortgaged property without the consent of the mortgagee is concerned, therefore, the ruling in
the Tambunting case is still the controlling law. Indeed, we are fully in accord with the
pronouncement therein that such a stipulation violates Article
2130 of the New Civil Code. Both the lower court and the Court of Appeals in its Amended
Decision rationalize that since paragraph 8 of the subject Deed of Real Estate Mortgage contains
no absolute prohibition against the sale of the property mortgaged but only requires the
mortgagor to obtain the prior written consent of the mortgagee before any such sale, Article
2130 is not violated thereby. This observation takes a narrow and technical view of the stipulation
in question without taking into consideration the end result of requiring such prior written
consent. True, the provision does not absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all
intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to
prevent any sale of the mortgaged property to a third party. The mortgagee can simply withhold
its consent and thereby, prevent the mortgagor from selling the property. This creates an
unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the owner
to sell his mortgaged property. In other words, stipulations like those covered by paragraph 8 of
the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of the
New Civil Code. Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage
is not binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R Corporation, is valid.
While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to
be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L & R
Corporation the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision.
The right of first refusal has long been recognized as valid in our jurisdiction. The consideration
for the loan-mortgage includes the consideration for the right of first refusal. L & R
Corporation is, in effect, stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it, then L & R Corporation
shall be given the right to match the offered purchase price and to buy the property at that price.
Thus, while the spouses Litonjua had every right to sell their mortgaged property to PWHAS
without securing the prior written consent of L & R Corporation, they had the obligation under
paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell the
property and give it priority over other buyers. It is only upon failure of L & R Corporation to
exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to
others, under the same terms and conditions offered to L & R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation's contractual
right of first refusal? The Contract of Sale was not voidable but rescissible. Under Article 1380 to
1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded
by reason of injury to third persons, like creditors. The status of creditors could be validly
accorded by the Bonnevies for they had substantial interest that were prejudiced by the sale of
the subject property to the Contract of Lease. In the case at bar, PWHAS cannot claim ignorance
of the right of first refusal granted to L & R Corporation over the subject properties since the
Deed of Real Estate Mortgage containing such a provision was duly registered with the Register
of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which
equates to notice to the whole world.
We note that L & R Corporation had always expressed its willingness to buy the mortgaged
properties on equal terms as PWHAS. Indeed, in its Answer to the Complaint filed, L & R
Corporation expressed that it was ready, willing and able to purchase the subject properties at
the same purchase price of P430,000.00, and was agreeable to pay the difference between such
purchase price and the redemption price of P249,918.77, computed as of August 13, 1981, the
expiration of the one-year period to redeem. That it did not duly exercise its right of first refusal
at the opportune time cannot be taken against it, precisely because it was not notified by the
spouses Litonjua of their intention to sell the subject property and thereby, to give it priority over
other buyers.
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate:, the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to PWHAS
was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of
the spouses Litonjua, within the one-year period should have been accepted as valid by the L &
R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored
L & R Corporation's right of first refusal.

Vitug, concurring & dissenting: What I find quite difficult to accept, with all due respect, is the
pre-emptive and peremptory pronouncement in the ponencia that the sale between the
Litonjuas and PWHAS is rescissible because it ignored the "right of first refusal" of L
& R Corporation. I must stress that a right of first refusal is not a perfected contract. Neither does
it qualify as an option under the second paragraph of Article 1479, which itself must be supported
by a consideration separate and distinct from the price itself, nor an offer which Article 1319 of
the Code requires to be definitive and certain both as to object and cause of the contemplated
agreement. Even while the object in a "right of first refusal" might be determinate, the exercise
of the right, nevertheless, would still be dependent not only on the grantor's eventual intention
to enter into a binding juridical relation but also on terms, including the price, that obviously are
yet to be fixed. It would be absurd to suggest that a right of first refusal can be the proper subject
of an action for specific performance but, of course, neither would it be correct to say that a
breach of such right would be totally inconsequential. A grantor who unjustly discards his own
affirmation violates the basic dogma in human relations so well expressed as in Article 19 of the
Civil Code to the effect that every person is expected to act with justice, give another his due and
observe honesty and good faith. When ignored, the legal feasibility of an action for damages is a
matter now long settled.
Most importantly, a rescissory action in consonance with Article 1380, in relation to Article 1381,
paragraph (3), of the New Civil Code so invoked (by citing Guzman, Bocaling & Co. vs. Bonnevie)
as the authority for the rescission of the sale between the Litonjua spouses and PWHAS is here
off the mark unfortunately. An action for rescission under said provisions of the Code is merely
subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his
creditor, enters into a contract with another that deprives the creditor to recover his just claim
and leaves him with no other legal means, than by rescission, to obtain reparation. Hence, the
rescission is only to the extent necessary to cover the damages caused pursuant to Article 1384
of the Civil Code. Verily, the case and factual settings in the instant controversy (for "Quieting of
Title, Annulment of Title and Damages with Preliminary Injunction") initiated by the Litonjua
spouses and PWHAS against herein respondents is neither the occasion nor the proper forum for
such an issue to be considered.

3.) G.R. No. 100635 February 13, 1995

SPOUSES RAMON TARNATE and ERLINDA TARNATE, petitioners,
vs.
HONORABLE COURT OF APPEALS, HON. JUDGE REGIONAL TRIAL COURT BATANGAS and IBAAN
RURAL BANK, INC., respondents.

VITUG, J.:

This petition for review on certiorari disputes the decision, dated 20 March 1991, of the Court of
Appeals, as well as its resolution of 26 June 1991 denying the motion for reconsideration of said
decision, that has affirmed a summary judgment of the court a quo.

The facts, gathered from the questioned decision, may be summarized thusly:

In order to secure various loans obtained from the Ibaan Rural Bank, Inc., the spouses Ramon
and Erlinda Tarnate, along with Vicente Templo and Manuel Villacorte, executed real estate
mortgages over different parcels of land, each covered by a Transfer Certificate of Title ("TCT"),
all situated in Mataas na Lupa, Lipa City.

When the loans were not repaid at maturity, the hypothecated parcels of land were
extrajudicially foreclosed by the bank in accordance with Act No. 3135. At the auction, the bank
gave the highest bids. The corresponding certificates of sale were issued in favor of the bank on
07 October 1981.

On 03 May 1982, the bank commenced an action to recover the remaining deficiency on the total
indebtedness. It averred that while the loan secured by the mortgage on TCT No. T-37203
amounted to P99,190.97, the foreclosed property, however, was sold for just P46,512.00, thus
leaving a balance of P52,678.97; that with regard to the loan of P146,429.38, secured by TCT No.
37204, the auction sale brought in an amount of P46,440.00, similarly resulting in a deficiency of
P99,989.38; that the obligation secured by TCT No. 37202 was for P96,259.16, but its foreclosure
merely commanded an auction price of P42,156.00, or a deficit of P54,103.16; and that relative
to the P136,304.63 loan, covered by a mortgage on TCT No. 37751, the winning bid price of
P65,232.00 was likewise short by P71,072.63. In their answer, the defendants, questioned the
validity of the extrajudicial foreclosure of the mortgaged parcels of land but, by and large,
maintained that the complaint had been filed prematurely since the redemption period at the
time had yet to expire.

A pre-trial conference was held. The bank was accorded a period of up to ten (10) days to formally
submit its motion for summary judgment. The defendants were also given (10) days from receipt
of said motion within which to present their opposition. On 13 October 1983, the bank filed a
motion for summary judgment. On 17 November 1983, it manifested that counsel for the
defendants was furnished, by registered mail, a copy of its motion but that the same was
"returned unclaimed." The bank prayed that the defendants be deemed to have waived their
right to oppose the motion. On 21 November 1983, the defendants sought to have their
supplemental answer with counterclaim admitted, stating that during the pendency of the case,
the bank applied for, and was granted, the consolidation of ownership over the foreclosed
property. The bank filed a counter-manifestation and opposition. The court a quo set these
incidents for hearing on 10 January 1984, but neither of the parties appeared. The trial court
forthwith considered the motion for summary judgment, as well as the pleadings related thereto,
submitted for resolution.

On 19 June 1986, the court a quo finally rendered judgment thusly:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:

1. Under the first cause of action, ordering the defendants spouses Ramon Tarnate and
Erlinda Tarnate to pay the plaintiff the sum of P52,678.97, with interest thereon at the legal rate
per annum starting from October 7, 1981 until fully paid;

2. Under the second cause of action, ordering the defendants Spouses Ramon Tarnate and
Erlinda Tarnate to pay plaintiff the sum of P99,989.38 with legal rate of interest thereon from
October 7, 1981 until fully paid;

3. Under the third cause of action, ordering the defendants Spouses Ramon Tarnate and
Erlinda Tarnate and Vicente Templo to pay, jointly and severally, the plaintiff the sum of
P54,103.16 with legal rate of interest thereon per annum from October 7, 1981 until fully paid;

4. Under the fourth cause of action, ordering the defendants Spouses Ramon Tarnate and
Erlinda Tarnate and Manuel Villacorte to pay, jointly and severally, the plaintiff the sum of
P71,072.63 with legal rate of interest thereon per annum from October 7, 1981 until fully paid;

5. Under all the causes of action, ordering the defendants to pay, jointly and severally, the
plaintiff attorney's fees in the amount equivalent to 10% of the sum due and payable; and

6. The costs of suit.

SO ORDERED.1

The defendants brought the case to the Court of Appeals. On 20 March 1991, the appellate court
affirmed the assailed decision of the court a quo and dismissed the appeal for lack of merit. The
motion for reconsideration filed by the defendant-appellants was denied by the appellate court
in its resolution of 26 June 1991.

In the instant recourse, the spouses Ramon and Erlinda Tarnate merely reiterated the claim that
they had made before the appellate court to the effect that:

1. THE LOWER COURT ERRED IN NOT GIVING THE DEFENDANTS-APPELLANTS THE

OPPORTUNITY TO FILE THEIR OPPOSITION TO MOTION FOR SUMMARY JUDGMENT.
2. THE LOWER COURT ERRED IN RENDERING JUDGMENT BASED ON THE PLEADINGS IN
FAVOR OF THE PLAINTIFF-APPELLEE AND AGAINST DEFENDANTS-APPELLANTS.

3. THE LOWER COURT ERRED IN GRANTING THE MOTION FOR SUMMARY JUDGMENT.

4. THE LOWER COURT ERRED IN DENYING DEFENDANTS-APPELLANTS MOTION TO ADMIT

SUPPLEMENTAL ANSWER WITH COUNTERCLAIM.2

The petition is bereft of merit.

Summary judgment is proper when, except with respect to the amount of damages, there is no
veritable issue on any material fact, and the moving party is entitled to such summary judgment
as a matter of course.3 The appellate court clearly did not commit error in concluding that
summary judgment could be had in the case at bench. Neither the existence of the loans and the
mortgage deeds, nor the fact of default on the due repayments, is disputed. Concededly, the
bank has had the unquestioned right to foreclose on the mortgages. It is a settled rule that a
mortgagee may recover any deficiency in the mortgage account which is not realized in a
foreclosure sale,4 and that the action for recovery of that deficiency may be filed even during the
redemption period.5

The contention that petitioner have been made to believe by respondent bank that the loans
extended to them would be for long-term, not short-term, accommodations does not appear to
indeed be a real genuine issue. The loan documents admittedly executed by the parties clearly
contradict petitioners' asseverations. The parties must have realized that when the terms of an
agreement are unequivocally reduced to writing, such as in this case, they hardly can be
controverted by oral evidence to the contrary.

Petitioners decry their not having been given an opportunity to submit their opposition to the
motion for summary judgment. This contention is simply not true.

The bank served on petitioners' counsel a copy, through registered mail, of its motion for
summary judgment (albeit "returned unclaimed").6 Upon petitioners' manifestation of its failure
to receive that copy, the court a quo set the motion, as well as the incidents that followed, for
hearing. Since neither petitioners nor respondent bank appeared, the court considered the
matter submitted for resolution. Four months having elapsed without the motion being yet
resolved, respondent bank, on 18 May 1985, moved for an early resolution. Close to a year later,
or on 15 April 1986, a second motion was filed to resolve the pending matter. On 30 April 1986,
the motion for summary judgment was finally granted. During the interim, no further step was
taken by herein petitioners. After an evaluation of the pleadings before it, the court a quo,
rendered judgment, on 19 June 1986, in favor of the bank.

Anent the contention that the property has been sold at an extremely low price, suffice it to say
that, if correct, it would have, in fact, favored an easy redemption of the property.7 That remedy
could have well been availed of but petitioners did not. Neither can the charge of irregularity in
the foreclosure sale for lack of notice and publication be seriously considered. The records of the
case immediately belie such a claim (Annexes "A," "B," "C," and "D," Motion for Summary
Judgment, pp. 67-70, Records).

In their supplemental answer, petitioners have called attention to respondent bank's

consolidation of ownership over the mortgaged property during the pendency of this case. We
see nothing wrong in this action of the bank. Upon a failure to redeem a foreclosed realty, the
consolidation of title becomes a matter of right on the part of the auction buyer.

The award of attorney's fees made by the court a quo has not been questioned in petitioners'
appeal to the Court of Appeals. It is too late in the day to do it now.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto. Costs against petitioners.

SO ORDERED.

4.) Huerta Alba Resort Inc v CA (Special Commercial Law)

Huerta Alba Resort Inc. v CA
GR No. 128567, September 1, 2000

FACTS:
Syndicated Management Group, Inc. (SMGI), as mortgagee-assignee, filed a complaint before the
RTC for foreclosure of 4 parcels of land mortgaged by Huerta Alba Resort to Intercon Fund
Resource (“Intercon”).
DECISION OF LOWER COURTS:
(a) RTC – granted the complaint
(b) CA – dismissed appeal due to late payment of docket fees (c) Supreme Court – dismissed
petition for certiorari.
SMGI then filed with the trial court of origin a motion for execution of decision. Thus, a writ of
execution was issued. Petitioner filed an urgent motion to quash and set aside the writ of
execution. The dispute is principally is as to when the 150 period within which Huerta Alba may
exercise its equity of redemption be counted.

DECISIONS:
(a) RTC – denied to urgent motion to quash.
Meanwhile, the auction sale proceeded with SMGI as the sole bidder.
(b) CA – held that the 150 periods should be computed from the date petitioner was notified of
the Entry of Judgment but the same period has expired already.
Huerta Alba filed with the RTC a motion for clarification seeking clarification whether or not the
12 month period of redemption for ordinary execution should apply.

DECISIONS:
(1) RTC: redemption should be governed by the rule on the sale of judicially foreclosed property
under Rule 68 of the Rules of Court
Huerta Alba again sought clarification with CA of the date of the commencement of the 1 year
period for the redemption of the properties
(2) CA: Foreclosure in this case is judicial and as such mortgagor has only the equity and not the
right or redemption. Even if under section 78 of RA 337 (General Banking Act), a mortgagor of a
bank, banking or credit institution, whether the foreclosure was done judicially or extrajudicially,
has a period of 1 year from the auction sale within which to redeem the foreclosed property, it
was never raised whether SMGI is a bank or credit institution.
Upon motion for a writ of possession by SMGI, Huerta Alba then filed in opposition a motion to
compel respondent to accept redemption, alleging for the first time his right under RA 337,
theorizing that the original mortgagee being a credit institution, its assignment of mortgage
credit did not remove the coverage of RA 337

DECISIONS:
(1) RTC: denied SMGI’s writ of possession.
(2) CA: set aside the RTC’s decision.
Hence, the present petition.

ISSUE:
Whether or not Huerta Alba has the one year right of redemption of subject properties under
Section 78 of RA 337

RULING:
YES, however, this was not seasonably filed.
The claim that it is entitled to the beneficial provisions of RA 337 – since SMGI’s predecessor-in-
interest is a credit institution – is in a nature of a compulsory counterclaim which should have
been averred in its answer to the complaint for judicial foreclosure.
The failure of petitioner to seasonably assert its right under RA 337 precludes it from so doing at
this late stage case. Estoppel may be successfully invoked if the party fails to raise the question
in the early stages in proceeding.
The sale of the properties, as confirmed by the court, operated to divest Huerta Alba of its right
of redemption. There then existed only what is known as equity of redemption, which is simply
the right of the petitioner to extinguish the mortgage and retain ownership of the property by
paying the secured debt within the 90 day period after the judgment became final. However,
redemption can no longer be effected since petitioner failed to exercise its equity of redemption
within the prescribed period.
“The equity of redemption is, to be sure, different from and should not be confused with the
right of redemption.

RIGHT OF REDEMPTION
General Rule:
The right of redemption in relation to a mortgage – understood in the sense of a prerogative to
re-acquire mortgaged property after registration of the foreclosure sale – exists only in the case
of the extrajudicial foreclosure of the mortgage.
Exception:
No such right is recognized in a judicial foreclosure except only where the mortgagee is the
Philippine National Bank or a bank or banking institution.
I. Extrajudicial foreclosure –right of redemption
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of
redemption within one (1) year from the registration of the sheriff’s certificate of foreclosure
sale.
II. Judicial foreclosure
Where the foreclosure is judicially effected, however, no equivalent right of redemption exists.
The law declares that a judicial foreclosure sale, ‘when confirmed by an order of the court, x x
shall operate to divest the rights of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption a may be allowed by law.’
Such rights exceptionally “allowed by law’ (i.e. even after confirmation by an order of the court)
are those granted by the charter of the Philippine National Bank (Acts No. 2747 and 2938), and
the General Banking Act (R.A. 337). These laws confer on the mortgagor, his successors in interest
or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure
– after confirmation by the court of the foreclosure sale – which may be exercised within a period
of one (1) year, counted from the date of registration of the certificate of sale in the Registry
Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if
the mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure
sale, ‘when confirmed by an order of the court. x x shall operate to divest the rights of all the
parties to the action and to vest their rights in the purchaser.’

EQUITY OF REDEMPTION
There then exists only what is known as the equity of redemption. This is simply the right of the
defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying
the secured debt:

1. within the 90-day period after the judgment becomes final, in accordance with Rule 68, or
2. even after judgment becomes final, in accordance with Rule 68, or
3. even after the foreclosure sale but prior to its confirmation.
Section 2, Rule 68 provides that – ‘xx If upon the trial xx the court shall find the facts set forth in
the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage
debt or obligation, including interest and costs, and shall render judgment for the sum so found
due and order the same to be paid into court within a period of not less than ninety (90) days
from the date of the service of such order, and that in default of such payment the property be
sold to realize the mortgage debt and costs.’ This is the mortgagor’s equity (not right) of
redemption which, as above stated, may be exercised by him even beyond the 90-day period
‘from the date of service of the order,’ and even after the foreclosure sale itself, provided it be
before the order of confirmation of the sale. After such order of confirmation, no redemption
can be effected any longer.”

5.) Estanislao Bodiongan vs. CA & Lea Simeon, G.R. No. 114418, September 21, 1995 (248 SCRA
496)
Facts: On October 4, 1982, respondent Lea Simeon obtained from petitioner Estanislao
Bodiongan and his wife a loan of P219,117.39 secured by a mortgage on three (3) parcels of land
with a four-storey hotel building and personal properties located at Gango, Ozamiz City. Private
respondent failed to pay the loan. Petitioner thus instituted against her a case for collection of
sum of money or foreclosure of mortgage. A judgment was issued against the private
respondent. The decision was affirmed by the CA and later became final and executory. Private
respondent again failed to pay the judgment debt hence, the mortgaged properties were
foreclosed and sold on execution. At the auction sale, petitioner submitted to the sheriff a
written bid of P309,000.00 and at the same time reserved in said bid a deficiency claim of
P439,710.57. The properties were awarded to petitioner as sole bidder and a certificate of sale
was issued in his name and registered with the Register of Deeds of Ozamiz City.
Petitioner then took possession of the properties after filing, per order of the trial court, a
guaranty bond of P350,000.00 to answer for any damage thereon during the redemption period.
On January 8, 1988, private respondent offered to redeem her properties and tendered to the
Provincial Sheriff a check in the amount of P337,580.00. This amount was based on a tentative
computation by the sheriff. The check was received by petitioner on the same day after
which the sheriff issued a certificate of redemption to private respondent also on the same day.
On January 11, 1988, petitioner, claiming additional interest at 38% per annum, moved to correct
the computation of the redemption price and to suspend the issuance of a writ of possession
pending computation. The motion was denied by the trial court. On July 8, 1988, the trial court
issued the said writ and private respondent took possession of her properties.
Petitioner filed a case for annulment of redemption and confirmation of the foreclosure sale on
the ground of insufficiency of the redemption price. On October 7,
1988, petitioner consigned the redemption money with the court. The trial court dismissed
the complaint but reduced the 12% interest rate on the purchase price to 6% and ordered
petitioner to refund private respondent the excess 6%. The CA affirmed except for the refund
of the 6%.

Issue: Whether the redemption price should be the purchase price at the auction sale and not
the amount stated in the judgment.

Held: Yes. Affirmed.

Ratio: In order to effect a redemption, the judgment debtor must pay the purchaser the
redemption price composed of the following: (1) the price which the purchaser paid for the
property; (2) interest of 1% per month on the purchase price; (3) the amount of any assessments
or taxes which the purchaser may have paid on the property after the purchase; and (4) interest
of 1% per month on such assessments and taxes. The redemption price must be for the full
amount, otherwise the offer to redeem will be ineffectual. And if the tender is for less than the
entire amount, the purchaser may justly refuse acceptance thereof. In the instant case, the
redemption price covers the purchase price of P309,000.00 plus 1% interest thereon per
month for twelve months at P37,080.00. Petitioner does not claim ant taxes or assessments he
may have paid on the property after his purchase. He, however, add P5,000.00 to the price
to cover the attorney's fees awarded him by the trial court.
In the redemption of property sold at an extrajudicial foreclosure sale, the amount payable is no
longer the judgment debt but the purchase price at the auction sale. In other words, the
attorney's fees awarded by the trial court should not have been added to the redemption price
because the amount payable is no longer the judgment debt, but that which is stated in Section
30 of Rule 39. The redemption price for the mortgaged properties in this case should therefore
be P346,080.00, not P531,080.00.
Private respondent's tender was P337,580.00 which is still short by P8,500.00. The Provincial
Sheriff declared that private respondent ordered him to deduct from the redemption price the
value of certain personal properties in the hotel. During petitioner's possession of the lots, he
sold some of the furniture, water pump and electrical installations in the hotel and appropriated
the proceeds to himself without private respondent's knowledge and approval. Petitioner does
not deny the fact that he sold the personal properties and appropriated the proceeds of
P13,500.00 to himself. He has expressly admitted this in his written bid to the sheriff. He,
however, cannot be considered in estoppel because the deduction for the loss of the personal
properties was not authorized under Section 30 of Rule 39. In the first place, the sheriff should
not have issued the certificate of redemption without a final determination of the amount of the
redemption price. This unauthorized deduction of the value of private respondent's personal
properties and the sheriff's over zealousness in issuing the certificate of redemption are
aggravated by the fact that private respondent later sought for and was actually compensated
for the said loss.
Indeed, if we were to allow the deduction of the value of private respondent's personal
properties from the redemption price, this will amount to double compensation and unjust
enrichment at the expense of petitioner. On the other hand, it would be highly unjust to deprive
private respondent of her right to redeem by a strict application of the Rules of Court. It must be
remembered that the policy of the law is to aid rather than defeat the right of redemption.
Inasmuch as in the instant case tender of the redemption price was timely made and in good
faith, and the deficiency in said price is not substantial, we are inclined to give private
respondent the opportunity to complete the redemption of her properties within fifteen days
from the time this decision becomes final.

6.) FLORES vs LIM

FACTS:
 This case involves a land located in the barrio of Pinaninding, municipality of Laguimanoc
Province of Tayabas, and is about 73 hectares, on which were 164 coconut bearing trees and
1,000 non-bearing, and about 300 buri trees. On January 20, 1923, Isabel Flores’(plaintiff) the
subject land was sold at sheriff’s sale to the Trinidad Lim(defendant) for P1,603.78. ]. The usual
certificate of sale was issued to the defendant.

Prior to the one year period of redemption, Lim took the actual, physical possession of the
property. The latter refused and still refuses to render an account of fruits, profits, to plaintiff's
damage in the sum of P1,000. Flores prays judgment that the defendant be ordered to render an
itemized account, the amount of which should be deducted from the price of the redemption;
that plaintiff have the right to redeem; and that defendant pay her P1,000 as damages and costs.

The Trial Court rendered judgment giving plaintiff the right to redeem the land upon the payment
to the defendant within fifteen days from notice the following amounts:
(a) The price of the land at the auction sale with legal interest thereon up to this date;
(b) The amount of the land tax paid by the defendant with legal interest up to this date; and
(c) The sum of P15,000, the value of the improvements made by the defendant on the land, and
in case redemption is not made within that period, the right is lost, and relieved the defendant
from rendering an account.

On appeal the plaintiff alleged that the trial court erred in sentencing plaintiff to reimburse
defendant in the sum of P15,000 for improvements alleged to have been introduced by said
defendant in the land in suit, although said improvements were placed thereon by defendant
with manifest bad faith. Moreover, the trial court erred in not ordering defendant to account to
plaintiff for fruits and benefits received by said defendant from the land, and credit plaintiff
against the amount due for its redemption the value of said fruits and benefits.

ISSUE:
Is Lim entitled to reimbursement for the coconut trees he had planted as well as for the other
improvements?

HELD:
No, Lim here is a possessor in bad faith (for he should have waited for the termination of the
one-year redemption period before entering into the possession of the property), and is
therefore not entitled to a refund of useful improvements. On the other hand, the expenses he
sought to recover were not even necessary expenses. Moreover, regarding judicial sales, the law
defines and specifies what the redemptioner is required to pay in order to redeem, and in the
absence of something unusual or extraordinary expense incurred in the preservation of the
property (which incidentally has to be approved by the court), the redemptioner will not be
required to pay any other or greater amount.