COMMON PROVISIONS

1. UY TONG VS. CA 161 SCRA 383

FACTS:

Petitioners Uy Tong and Kho Po Giok (SPOUSES) purchased Apartment No. 307 of the Ligaya
Building and leased a portion of the land in which the building stands from Ligaya Investments, Inc, the
registered owner of the land. In February, 1969, the SPOUSES purchased from private respondent
Bayanihan Automotive, Inc. (BAYANIHAN) seven (7) units of motor vehicles for a total amount of
P47,700.00 payable in three (3) installments. The transaction was evidenced by a written "Agreement"
which states that should the VENDEE fail to pay her obligation to the VENDOR, the latter shall become
automatically the owner of the former's apartment. After making a downpayment of P7,700.00, the
SPOUSES failed to pay the balance of P40,000.00. BAYANIHAN filed an action for specific performance.
Notwithstanding the execution of the deed of assignment, the SPOUSES remained in possession of the
premises. Subsequently, they were allowed to remain in the premises as lessees for a stipulated monthly
rental until November 30,1972. Despite the expiration of the said period and demands to vacate, the
SPOUSES failed to surrender possession of the premises. BAYANIHAN filed an action for recovery of
possession with damages whereby the court favored BAYANIHAN. The SPOUSES appealed to the CA.

CONTENTION: The SPOUSES contends that the deed of assignment is null and void because it is in the
nature of a pactum commissorium and/or was borne out of the same. They further contend that the
deed is unenforceable because the condition for its execution was not complied with.

ISSUE:

Whether or not the deed of assignment is in the nature of a pactum commissorium

HELD:

No. The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the
Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of the same. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that
there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.

A perusal of the terms of the questioned agreement evinces no basis for the application of the
pactum commissorium provision. First, there is no indication of 'any contract of mortgage entered into
by the parties. It is a fact that the parties agreed on the sale and purchase of trucks.

Second, there is no case of automatic appropriation of the property by BAYANIHAN. When the
SPOUSES defaulted in their payments of the second and third installments of the trucks they purchased,
BAYANIHAN filed an action in court for specific performance. The trial court rendered favorable
judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case
of failure to do so, to execute a deed of assignment over the property involved in this case. The
SPOUSES elected to execute the deed of assignment pursuant to said judgment.

Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the
trial court to exact fulfillment of the obligation, which, by its very nature is ". . anathema to the concept
of pacto commissorio" [Northern Motors, Inc. v. Herrera, G.R. No. L-32674, February 22, 1973, 49 SCRA
392]. And even granting that the original agreement between the parties had the badges of pactum
commissorium, the deed of assignment does not suffer the same fate as this was executed pursuant to
a valid judgment in Civil Case… This being the case, there is no reason to impugn the validity of the
said deed of assignment

2. FRANCISCO REALTY AND DEVELOPMENT CORP. VS. CA [298 SCRA 349 (OCT 30 1998)]

Facts:

A. Francisco Realty granted a loan of P7.5 M to spouses Javillonar, in consideration of which,

the latter executed a promissory note, a real estate mortgage over a certain property, and a deed of
sale of said mortgaged property in favor of A. Francisco. Upon maturity, Javillonar spouses failed to
pay, and as a consequence, A. Francisco registered the sale of the mortgaged property, for which a
new TCT was issued. A. Francisco demanded possession of the mortgaged realty. Spouses refused to
vacate. Hence, A. Francisco filed a case for possession before the RTC. The spouses admitted that they
owed money in favor of A. Francisco but they also alleged that it was not their intention to sell the
realty as the deed of sale executed by them was merely an additional security for the payment of their
loan. RTC adjudged in favor of A. Francisco. On appeal, CA reversed RTC decision and dismissed the
complaint against the spouses holding that the deed of sale was void, being in the nature of a pactum
commissorium prohibited by law. Hence, this petition with the SC.

Issue:

Whether or not the deed of sale executed by the spouses was void, being in the nature of
pactum commissorium.

Held:

Yes. Art. 2088 of the Civil Code provides that the creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is void. What is
envisioned by this article is a provision in the deed of mortgage providing for the automatic
conveyance of the mortgaged property in case of the failure of the debtor to pay the loan. A pactum
commissorium is a forfeiture clause in a deed of mortgage. The proscribed stipulation of automatic
conveyance must be found in the mortgage deed itself. In the case at bar, the stipulations in the
promissory note provide that, upon failure of spouses to pay interest, ownership of the property would
be automatically transferred to A. Francisco and the deed of sale in its favor would be registered. These
stipulations are in substance a pactum commissorium. They embody the two elements of pactum
commissorium, to wit: (1) that there should be a pledge or mortgage wherein a property is pledged or
mortgaged by way of security for the payment of the principal obligation; (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the
event of non-payment of the principal obligation within the stipulated period.

3. REYES v. SIERRA

Facts:

 Vicente Reyes sought to register under his name a parcel of land located in Antipolo, Rizal which was
opposed by Sierra et al

 TC approved Reyes’ application, declaring him owner of said land owing to his and his predecessor-
in-interest’s constructive possession of the same, particularly because they had been paying the realty
taxes thereon since 1926 until 1961
 Origin of the dispute over land was because in 1926, the Sierras’ predecessor, Basilia Beltran,
borrowed P100 from Vicente Reyes, Sr. and secured the loan with the said piece of land. In so doing,
Basilia’s children executed together with her a document (“katibayan ng papgpapahintulot sa aming
ina na ipananagutan kay Vicente Reyes sa inutang na halagang P100”)

 Beltran, however, died in 1938 without being able to pay the loan and Vicente Reyes, Jr. continued
in possession thereof, believing that the document executed was a contract of sale and not of
mortgage

 Oppositors Sierra et al now claiming that the words “sangla”, “ipinanagutan sa halagang
isangdaang piso” manifest that the document was one of mortgage

Issue:

What was the nature of the document?

Held:

It is a mortgage contract. The intention of the parties at the time it was executed must prevail,
i.e., the borrowing and lending of money with security. The terms indicate a debt and the creation of
a creditor-debtor relationship, where the land was used to secure repayment of the loan. Following
established doctrine, once a mortgage attaches to a transaction, its character as a mortgage will
always continue. The parties cannot by any stipulation deprive it of the essential attributes of a
mortgage in equity. Civil Code itself provides: The creditor cannot appropriate the things given by way
of mortgage

Act of Vicente Reyes in registering the property in his name after failure of mortgagor to redeem
the property constitutes a pactum commisorium which is against good morals and public policy.

Court also declared that possession by Reyes has not been continuous (they had only used the
property to spend some vacation time there, but this was discontinued for the last 23 years). Moreover,
mere failure of owner to pay taxes does not necessarily imply abandonment of a right to property; and
on the other hand, payment of realty taxes by itself does not constitute sufficient evidence of title.

Application by Reyes for registration should therefore be dismissed. Oppositors directed to pay
back the P100 debt plus interest (6% p.a.) from 1926 until paid.

4. OLEA VS. CA

Facts:

On 27 January 1947 spouses Filoteo Pacardo and Severa de Pacardo executed a deed of Sale
Con Pacto de Retro over Lot No. 767 of the Passi Cadastre in their name for a consideration of P950.00
in favor of Maura Palabrica, predecessor in interest of petitioner, subject to the condition that —
. . if we, the said spouses, Filoteo Pacardo and Severa de Pacardo, our heirs, assigns, successors-
in-interest, executors and administrators shall and will truly repurchase the above-described parcel of land
from the said Maura Palabrica, her heirs, assigns, successors-in-interest after THREE YEARS counting from the
date of the execution of this instrument, to wit, on January 27, 1950 in cash payment in the sum of Five
Hundred Pesos, Philippine currency, plus Four Hundred and Fifty Pesos (P450), also lawful currency, in cash
or eighteen (18) cavans of palay (Provincial Measurement) at our option, then this sale shall become null
and void and of no force and effect whatsoever. On the contrary, the same will become irrevocable,
definite and final.

The contract of sale with right to repurchase was acknowledged by the vendors before Notary
Public Victorio Tagamolila on the same day the contract was executed in the Municipality of Passi,
Province of Iloilo. After the execution of the sale, the Pacardo spouses as vendors remained in
possession of the land and continued the cultivation thereof. Since the sale on 27 January 1947 up to
August 1987, or for a period of about 40 years, the spouses delivered annually one-third (1/3) of the
produce of the land to Maura Palabrica and kept for themselves the remaining two-thirds (2/3).
Despite the lapse of 3 years, the Sps. Pacardo failed to repurchase the property but still gave the 1/3
share of the produce to Maura Palabrica. Filoteo Sr. died and Filoteo Jr. continued to give the 1/3 share
to Maura and eventually to Thelma Olea, daughter of Maura, to whom she eventually sold the land.
Maura caused the registration of the sale con pacto de retro on 22 Sept 1969. Filoteo Jr. died and Sps.
Jesus and Elizabeth Palencia took over but they gave the 1/3 share not to Thelma but to Elena
Pacardo, wife of Filoteo Jr. Thelma filed a case against sps. Palencia and Elena for recovery of
possession with damages. Private respondents Elena Vda. de Pacardo and Jesus and Elizabeth
Palencia filed their answer alleging that their parents intended the disputed transaction to be an
equitable mortgage and not a sale with right to repurchase. Respondent Monserrat Paciente, another
daughter of the vendor-spouses Filoteo and Severa Pacardo, filed an answer in intervention raising
likewise as defense that the Sale Con Pacto de Retro was indeed an equitable mortgage.

Issue:

W/N the sale was a Sale Con Pacto de Retro?

Held:

No, Sale was an Equitable Mortgage. We cannot sustain petitioner. Art. 1602 of the New Civil
Code provides that the contract of sale with right to repurchase shall be presumed to be an equitable
mortgage in any of the following cases: (a) when the price of the sale is unusually inadequate; (b)
when the vendor remains in possession as lessee or otherwise; (c) when upon or after the expiration of
the right to repurchase another instrument extending the period of redemption or granting a new
period is executed; (d) when the purchaser retains for himself a part of the purchase price; (e) when
the vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may be
fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a
debt or the performance of any other obligation. Being remedial in nature, Art. 1602 may be applied
retroactively to cases prior to the effectivity of the New Civil Code 3 Hence it may apply to the instant
case where the deed of sale with right to repurchase was executed on 27 January 1947. It has been
held that a contract should be construed as a mortgage or a loan instead of a pacto de retro sale
when its terms are ambiguous or the circumstances surrounding its execution or its performance are
incompatible or inconsistent with the theory that it is a sale.

Even when a document appears on its face to be a sale with pacto de retro the owner of the
property may prove that the contract is really a loan with mortgage by raising as an issue the fact that
the document does not express the true intent and agreement of the parties. In this case, parol
evidence then becomes competent and admissible to prove that the instrument was in truth and in
fact given merely as a security for the repayment of a loan.

In pacto de retro sale the payment of the repurchase price does not merely render the
document null and void but there is the obligation on the part of the vendee to sell back the property.
This is so because pacto de retro sales with the stringent and onerous effects that accompany them
are not favored. In case of doubt, a contract purporting to be a sale with right to repurchase shall be
construed as an equitable mortgage.

5. DAYRIT vs. CA

FACTS:
 Dayrit, Sumbillo and Angeles entered into a contract with Mobil Oil Phil, entitled LOAN &
MORTGAGE AGREEMENT. Defendants violated the LOAN & MORTGAGE AGREEMENT because they
only paid one installment. They also failed to buy the quantities required in the Sales Agreement. The
plaintiff made a demand, Dayrit answered acknowledging his liability. Trial Court ruled in favor of
plaintiff and also ruled that each of the three defendants shall pay 1/3 of the cost. No appeal had
been taken so the decision became final and executor. Mobil filed for the execution of the judgment.
Dayrit opposed alleging that they had an agreement with Mobil, that he would not appeal anymore
but Mobil would release the mortgage upon payment of his 1/3 share. Mobil claimed that the
agreement was that it would only release the mortgage if the whole principal mortgaged debt plus
the whole accrued interest were fully paid.

ISSUE:

Whether or not the CFI erred in ordering the sale at public auction of the mortgaged properties
to answer for the entire principal obligation of Dayrit, Sumbillo and Angeles.

HELD:

While it is true that the obligation is merely joint and each of the defendant is obliged to pay his
1/3 share of the joint obligation, the undisputed fact remains that the intent and purpose of the LOAN
& MORTGAGE AGREEMENT was to secure the entire loan. The court ruled that a mortgage directly and
immediately subjects the property upon which it is imposed, the same being indivisible even though
the debt may be divided, and such indivisibility likewise unaffected by the fact that the debtors are
not solidarily liable.

6. BELO vs. PNB

PLEDGE

1. DIOSDADO YULIONGSIU vs PHILIPPINE NATIONAL BANK (Cebu Branch)

FACTS:

Plaintiff-appellant Yuliongsiu was the owner of two vessels, purchased by installment or on

account. Plaintiff, however, failed to pay for the vessels. Thereafter, plaintiff obtained a loan of P50,000
from the defendant PNB. To guarantee its payment, plaintiff pledged his vessels.

Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The remaining
balance was renewed by the execution of two (2) promissory notes in the bank's favor. These two notes
were never paid at all by plaintiff on their respective due dates.

Meanwhile defendant bank took physical possession of three pledged vessels after the first note
fell due and was not paid. The FS-203 was subsequently surrendered by the defendant bank to the
Philippine Shipping Commission which rescinded the sale to plaintiff for failure to pay the remaining
installments on the purchase price thereof. The other two boats, the M/S Surigao and the M/S Don Dino
were sold by defendant bank to third parties.

Plaintiff commenced action in the Court of First Instance of Cebu to recover the three vessels or
their value and damages from defendant bank. The lower court rendered its decision in favor of the
defendant bank. Plaintiff’s motion for reconsideration and new trial was denied.

Issue:
1) Whether or not the taking of physical possession of the vessels by the bank was justified by the
contract of pledge

2) Whether or not the private sale of the pledged vessels by the defendant to itself without notice to
the plaintiff was valid

Held:

In support of the first assignment of error, plaintiff-appellant would have this Court hold it is a
chattel mortgage contract so that the creditor defendant could not take possession of the chattels
object thereof until after there has been default. The submission is without merit. The parties stipulated
as a fact that it is a pledge contract. Necessarily, this judicial admission binds the plaintiff. The
defendant bank as pledgee was therefore entitled to the actual possession of the vessels.

Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make
pledge effective. In other words, the type of delivery will depend upon the nature and the peculiar
circumstances of each case. The parties here agreed that the vessels be delivered by the "pledgor to
the pledgor who shall hold said property subject to the order of the pledgee." Considering the
circumstances of this case and the nature of the objects pledged, i.e., vessels used in maritime
business, such delivery is sufficient. It is contended first, that the cases holding that the statutory
requirements as to public sales with prior notice in connection with foreclosure proceedings are
waivable, are no longer authoritative in view of the passage of Act 3135, as amended; second, that
the charter of defendant bank does not allow it to buy the property object of foreclosure in case of
private sales; and third, that the price obtained at the sale is unconscionable.

There is no merit in the claims. Act 3135 refers only, and is limited, to foreclosure of real estate
mortgages. So, whatever formalities there are in Act 3135 do not apply to pledge. Regarding the bank's
authority to be the purchaser in the foreclosure sale, if the sale is public, the bank could purchase the
whole or part of the property sold " free from any right of redemption on the part of the mortgagor or
pledgor." This even argues against plaintiff's case since the import thereof is this if the sale were private
and the bank became the purchaser, the mortgagor or pledgor could redeem the property. Hence,
plaintiff could have recovered the vessels by exercising this right of redemption. He is the only one to
blame for not doing so.

Regarding the third contention, on the assumption that the purchase price was
unconscionable, plaintiff's remedy was to have set aside the sale. He did not avail of this.

2.

3.

4. PARAY vs. RODRIGUEZ

Facts:

Respondents were the owners, in their respective personal capacities, of shares of stock in a
corporation known as the Quirino-Leonor-Rodriguez Realty Inc.Respondents secured by way of pledge
of some of their shares of stock to petitioners Bonifacio and Faustina Paray (“Parays”) the payment of
certain loan obligations.

When the Parays attempted to foreclose the pledges on account of respondents’ failure to pay
their loans, respondents filed complaints which sought the declaration of nullity of the pledge
agreements.
 Respondents consign to RTC which they interpreted as redemption.

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner
Vidal Espeleta successfully bidding the amount of P6,200,000.00 for all of the pledged shares.

Issue:

WON Petitioners were authorized to refuse as they did the tender of payment since they were
undertaking the auction sale pursuant to the final and executory decision in Civil Cases.

Held:

Yes. it must be clarified that the subject sale of pledged shares was an extrajudicial sale,
specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under
the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All
the creditor needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary
Public to the sale of the thing pledged.

In this case, petitioners attempted as early as 1980 to proceed extrajudicially with the sale of the
pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases
No. R-20120 and 20131, which sought to annul the pledge contracts. The final and executory judgment
in those cases affirmed the pledge contracts and disposed.

Since the pledged shares in this case are not subject to redemption, the Court of Appeals had
no business invoking and applying the inexistent right of redemption. We cannot thus agree that the
consigned payments should be treated with liberality, or somehow construed as having been made
in the exercise of the right of redemption. We also must reject the appellate court’s declaration that
the buyer of at the public auction is not “ipso facto” rendered the owner of the auctioned shares,
since the debtor enjoys the one-year redemptive period to redeem the property. Obviously, since
there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the
foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.

REAL ESTATE MORTGAGE

1. ISAGUIRRE vs. DE LARA

Facts:

Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Application
over a parcel of land identified as portion of Lot 502, Guianga Cadastre, filed with the Bureau of Lands
with an area of 2,342 square meters. Upon his death, his wife – respondent Felicitas de Lara, as
claimant, succeeded Alejandro de Lara. The Undersecretary of Agriculture and Natural Resources
amended the sales application to cover only 1,600 square meters. By virtue of a decision rendered by
the Secretary of Agriculture and Natural Resources, a subdivision survey was made and the area was
further reduced to 1,000 square meters. On this lot stands a two-story residential-commercial apartment
declared for taxation purposes in the name of respondent’s sons – Apolonio and Rodolfo, both
surnamed de Lara.

Respondent obtained several loans from the Philippine National Bank. When she encountered
financial difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her
niece, for assistance. A document denominated as “Deed of Sale and Special Cession of Rights and
Interests” was executed by respondent and petitioner, whereby the former sold a 250 square meter
portion of Lot No. 502, together with the two-story commercial and residential structure standing
thereon, in favor of petitioner, for and in consideration of the sum of P5,000.

Apolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership
and possession of the two-story building. However, the case was dismissed for lack of jurisdiction.
Petitioner filed a sales application over the subject property on the basis of the deed of sale. His
application was approved, resulting in the issuance of Original Certificate of Title, in the name of
petitioner. Meanwhile, the sales application of respondent over the entire 1,000 square meters of
subject property (including the 250 square meter portion claimed by petitioner) was also given due
course, resulting in the issuance of Original Certificate of Title, in the name of respondent.

Due to the overlapping of titles, petitioner filed an action for quieting of title and damages with
the RTC of Davao City against respondent. After trial on the merits, the trial court rendered judgment,
in favor of petitioner, declaring him to be the lawful owner of the disputed property. However, the
Court of Appeals reversed the trial court’s decision, holding that the transaction entered into by the
parties, as evidenced by their contract, was an equitable mortgage, not a sale. The appellate court’s
decision was based on the inadequacy of the consideration agreed upon by the parties, on its finding
that the payment of a large portion of the “purchase price” was made after the execution of the deed
of sale in several installments of minimal amounts; and finally, on the fact that petitioner did not take
steps to confirm his rights or to obtain title over the property for several years after the execution of the
deed of sale. As a consequence of its decision, the appellate court also declared Original Certificate
issued in favor of petitioner to be null and void. This Court affirmed the decision of the Court of Appeals,
we denied petitioner’s motion for reconsideration.

Respondent filed a motion for execution with the trial court, praying for the immediate delivery
of possession of the subject property, which motion was granted. Respondent moved for a writ of
possession. Petitioner opposed the motion, asserting that he had the right of retention over the property
until payment of the loan and the value of the improvements he had introduced on the property. The
trial court granted respondent’s motion for writ of possession. The trial court denied petitioner’s motion
for reconsideration. Consequently, a writ of possession, together with the Sheriff’s Notice to Vacate,
was served upon petitioner.

Issue:

Whether or not the mortgagee in an equitable mortgage has the right to retain possession of
the property pending actual payment to him of the amount of indebtedness by the mortgagor.

Held:

A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation.
Recording the document, in which it appears with the proper Registry of Property, although, even if it
is not recorded, the mortgage is nevertheless binding between the parties, constitutes it. Thus, the only
right granted by law in favor of the mortgagee is to demand the execution and the recording of the
document in which the mortgage is formalized. As a general rule, the mortgagor retains possession of
the mortgaged property since a mortgage is merely a lien and title to the property does not pass to
the mortgagee. However, even though a mortgagee does not have possession of the property, there
is no impairment of his security since the mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted. If the debtor is unable to pay his debt, the mortgage creditor may institute
an action to foreclose the mortgage, whether judicially or extrajudicially, whereby the mortgaged
property will then be sold at a public auction and the proceeds there from given to the creditor to the
extent necessary to discharge the mortgage loan. Apparently, petitioner’s contention that “to require
him to deliver possession of the Property to respondent prior to the full payment of the latter’s mortgage
loan would be equivalent to the cancellation of the mortgage is without basis. Regardless of its
possessor, the mortgaged property may still be sold, with the prescribed formalities, in the event of the
debtor’s default in the payment of his loan obligation.

A simple mortgage does not give the mortgagee a right to the possession of the property unless
the mortgage should contain some special provision to that effect. Regrettably for petitioner, he has
not presented any evidence, other than his own gratuitous statements, to prove that the real intention
of the parties was to allow him to enjoy possession of the mortgaged property until full payment of the
loan.

The trial court correctly issued the writ of possession in favor of respondent. Such writ was but a
necessary consequence of affirming the validity of the original certificate of title in the name of
respondent Felicitas de Lara, while at the same time nullifying the original certificate of title in the name
of petitioner Cornelio Isaguirre. Possession is an essential attribute of ownership; thus, it would be
redundant for respondent to go back to court simply to establish her right to possess subject property.

Caveat: Anyone who claims this digest as his own without proper authority shall be held liable
under the law of Karma.

2. MOBIL PHILIPPINES v DIOCARES

FACTS:

The parties Mobil and Diocares entered an agreement wherein on cash basis, Mobil will deliver
minimum of 50k liters of petroleum a month. To secure this, diocares executed a Real Mortgage.
Diocares failed to pay the balance of their indebtedness and Mobil filed an action for the collection
of the balance of the purchase amount or that the Real Property mortgaged by Diocares be sold to a
public auction and the proceeds be applied to the payment of the obligation. LC did not grant
foreclosure on the ground that the mortgage was not validly executed (not registered).

ISSUE:

WON failure to register the Real Mortgage would render it invalid

HELD:

NO!

- If the instrument is not recorded, the mortgage is nevertheless binding between the parties. Its
conclusion, however, is that what was thus created was merely a “personal obligation but did not
establish a real estate mortgage.”

- The mere fact that there is as yet no compliance with the requirement that it be recorded cannot be
a bar to foreclosure.

3. Medida vs. Court of Appeals and Sps. Dolino 208 SCRA 887

Facts:

Private respondents, Spouses Dolino, alarmed of losing their right of redemption over the subject
parcel of land from Juan Gandiocho, purchaser of the aforesaid lot at a foreclosure sale of the
previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana, President of
the City Savings Bank (formerly known as Cebu City Savings and Loan Association, Inc.), to obtain a
loan of P30, 000. Prior thereto, their son Teofredo filed a similar loan application and the subject lot was
offered as security. Subsequently they executed a promissory note in favor of CSB. The loan became
due and demandable without the spouses Dolino paying the same, petitioner association caused the
extrajudicial foreclosure of the mortgage. The land was sold at a public auction to CSB being the
highest bidder. A certificate of sale was subsequently issued which was also registered. No redemption
was being effected by Sps. Dolino, their title to the property was cancelled and a new title was issued
in favor of CSB.

Sps. Dolino then filed a case to annul the sale at public auction and for the cancellation of
certificate of sale issued pursuant thereto, alleging that the extrajudicial foreclosure sale was in
violation of Act 3135, as amended. The trial court sustained the validity of the loan and the real estate
mortgage, but annulled the extrajudicial foreclosure on the ground that it failed to comply with the
notice requirement of Act 3135. Not satisfied with the ruling of the trial court, Sps. Dolino interposed a
partial appeal to the CA, assailing the validity of the mortgage executed between them and City
Savings Bank, among others. The CA ruled in favor of private respondents declaring the said mortgage
as void.

Issue:

Whether or not a mortgage, whose property has been extrajudicially foreclosed and sold at a
corresponding foreclosure sale, may validly execute a mortgage contract over the same property in
favor of a third party during the period of redemption.

Held:

It is undisputed that the real estate mortgage in favor of petitioner bank was executed by
respondent spouses during the period of redemption. During the said period it cannot be said that the
mortgagor is no longer the owner of the foreclosed property since the rule up to now is the right of a
purchaser of a foreclosure sale is merely inchoate until after the period of redemption has expired
without the right being exercised. The title to the land sold under mortgage foreclosure remains in the
mortgagor or his grantee until the expiration of the redemption period and the conveyance of the
master deed.

The mortgagor remains as the absolute owner of the property during the redemption period
and has the free disposal of his property, there would be compliance with Article. 2085 of the Civil
Code for the constitution of another mortgage on the property. To hold otherwise would create an
inequitable situation wherein the mortgagor would be deprived of the opportunity, which may be his
last recourse, to raise funds to timely redeem his property through another mortgage.

4. DBP vs. COURT OF APPEALS

Facts:

Private respondent Lydia Cuba is a grantee of a fishpond lease agreement from the
Government. She later obtained a loan from DBP in the amounts of P109, 000, P109, 000, and P98, 700
under the terms stated in the three promissory notes. As a security for the said loan Cuba executed a
two Deed of Assignment of her Leasehold Rights. Then she failed to pay her loan when it became due
in accordance with the terms of the promissory notes. DBP in turn appropriated the leasehold rights of
Cuba over the fishpond, without foreclosure proceedings, whether judicial or extrajudicial. After
appropriating the said leasehold rights DBP executed a Deed of Conditional Sale of the Leasehold
Rights in favor of respondent Cuba over the same fishpond, to which Cuba agreed. Respondent Cuba
failed to pay the amortizations stipulated in the Deed of Conditional Sale, however she was able enter
with DBP a temporary arrangement with DBP for the Deferment Notarial Rescission of Deed of
Conditional Sale. However, a Notice of Rescission thru Notarial Act was sent the DBP to Cuba, then it
took possession of the fishpond in question. After it took possession of the said fishpond, DBP disposed
the property in favor of Agripina Caperal through a deed of conditional sale. Then a new fishpond
lease agreement was awarded by the Government to Caperal.

Lydia Cuba filed an action with the Regional Trial Court of Pangasinan for the declaration of
nullity of DBP’s appropriation of her leaseholds over the subject fishpond, for the annulment of the
Deed of Conditional Sale executed in her favor by DBP, the annulment of DBP’s sale of the fishpond to
Caperal, and the restoration of her rights over the said fishpond and for damages. The RTC ruled in
favor of Cuba, declaring that DBP’s taking possession and ownership of the subject property without
foreclosure was violative of Art. 2088 of the Civil Code, and that condition No. 12 of the Assignment of
the Leasehold Rights was void for being a clear case of pactum commissorium. Both Cuba and DBP
elevated the case to the CA, with Cuba seeking an increase in the amount of damages, while DBP
questioned the findings of fact and law of the RTC. The CA reversed the ruling of the RTC with regards
to the validity of the acts of DBP.

Issues:

1. Whether or not the two Deed of Assignment executed by Cuba in favor of DBP would operate as a
mortgage or some other contract.

2. Whether or not condition No. 12 of the Assignment of the Leasehold Rights would operate as case
of pactum commissorium

3. Whether the act of DBP in appropriating to itself Cuba’s leasehold rights over the fishpond in question
without foreclosure proceeding was contrary to Article 2088 of the Civil Code, and therefore, invalid.

Held:

1. Lydia executed the 2 Deeds of Assignment as a security for the loans that she obtained from DBP,
according the case of People’s Bank and Trust Co. vs. Odom an assignment to guaranty an obligation
is in effect a mortgage. And it was also indicated in the provisions of the promissory note executed by
Cuba, that the her assigned leasehold rights were referred to as mortgaged properties and the
instrument itself a mortgage contract.

2&3. The act of DBP under condition No. 12 of the Assignment of Leasehold Rights did not constitute as
a case of pactum commissorium, when appropriated for itself Cuba’s leasehold rights over the subject
fishpond, because condition No. 12 only gave DBP the authority to sell the said property and use the
proceeds of the sale to satisfy Cuba’s obligation, it did not operate as an automatic transfer of
ownership of the said property to DBP.

However, DBP exceeded its authority granted under condition No. 12, when it appropriated for itself
such rights without judicial or extrajudicial foreclosure, thereby making his acts violative of Article 2088
of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security
for the payment of a debt.

5. PEOPLE’S BANK v DAHICAN LUMBER

FACTS:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation
licensed to do business in the Philippines— hereinafter referred to as ATLANTIC — sold and assigned all
its rights in the Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as
DALCO. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank
& Trust Company. As security for the payment of the abovementioned loans, DALCO executed in favor
of the BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C.
— a deed of mortgage covering five parcels of land together with all the buildings and other
improvements existing thereon and all the personal properties of the mortgagor located in its place of
business.

On the same date, DALCO executed a second mortgage on the same properties in favor of
ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession.

Both deeds contained the following provision extending the mortgage lien to properties to be
subsequently acquired — referred to hereafter as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all
buildings, machinery, fixtures, tools equipment and other property which the Mortgagor may hereafter
acquire, construct, install, attach, or use in, to, upon, or in connection with the premises, shall
immediately be and become subject to the lien of this mortgage in the same manner and to the same
extent as if now included therein, and the Mortgagor shall from time to time during the existence of
this mortgage furnish the Mortgagee with an accurate inventory of such substituted and subsequently
acquired property.

Both mortgages were registered in the Office of the Register of Deeds. In addition thereto
DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO
to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK
paid the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its
credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April
1, 1953 to pay the overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO
purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement
of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the
mortgage deeds quoted theretofore regarding "after acquired properties," the BANK requested
DALCO to submit complete lists of said properties but the latter failed to do so.

The alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to It, was
subsequently rescinded by the parties.

The BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so. As a result, ATLANTIC and the BANK
commenced foreclosure proceedings.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties"
were subject to the deeds of mortgage mentioned heretofore; that said properties were acquired
from suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were
the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor
of plaintiffs.

The defendants-appellants contend that the mortgages aforesaid were null and void as regards
the "after acquired properties" of DALCO because they were not registered in accordance with the
Chattel Mortgage Law.

ISSUES:

1. are the so-called "after acquired properties" covered by and subject to the deeds of mortgage
subject of foreclosure?
2. assuming that they are subject thereto, are the mortgages valid and binding on the properties
aforesaid inspite of the fact that they were not registered in accordance with the provisions of the
Chattel Mortgage Law?

RULING:

1. it is crystal clear that all property of every nature and description taken in exchange or replacement,
as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor
may acquire, construct, install, attach; or use in, to upon, or in connection with the premises — that is,
its lumber concession — "shall immediately be and become subject to the lien" of both mortgages in
the same manner and to the same extent as if already included therein at the time of their execution.
Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by circumstances, the original value of the properties given as security. Indeed, if such
properties were of the nature already referred to, it would be poor judgment on the part of the creditor
who does not see to it that a similar provision is included in the contract.

2. the chattels were placed in the real properties mortgaged to plaintiffs, they came within the
operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code. It is not disputed in the case at
bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in
the development of its lumber concession and that they were purchased in addition to, or in
replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be
deemed to have been immobilized, with the result that the real estate mortgages involved herein —
which were registered as such — did not have to be registered a second time as chattel mortgages in
order to bind the "after acquired properties" .

6. Mojica vs. CA

Facts:

Plaintiff Leonardo Mojica (now deceased) contracted a loan of P20,000.00 secured by a real
estate mortgage from defendant Rural Bank. The loan by the plaintiffs spouses was fully and
completely paid. On March, 1974, a new loan of P18,000.00 was obtained by plaintiffs spouses from
the defendant Rural Bank which loan matured on March 1975. No formal deed of real mortgage was
constituted, although the former promissory note dated March 5, 1974, contained the following
notation. “This promissory note is secured by a Real Estate Mortgage executed before the Notary Public
of the Municipality of Kawit, Mrs. Felisa Senti under Doc. No. 62, Page No. 86, Book No.__, Series of 1971”.

The spouses failed to pay their obligation. Respondent rural bank extrajudicially foreclosed the
real estate mortgage. The subject property was set for auction sale and the defendant rural bank was
the highest bidder.

On July, 1980, the son of petitioners-spouses, in an apparent attempt to pay the debt of made
a partial payment in the amount of P24,658.00 (P19,958.00 of this amount in check bounced) which
the defendant rural bank received and accepted.

On August 1980, another partial payment was made by Dionisio Mojica in the amount of
P9,958.00 was received by the defendant rural bank. These payments were, however, considered by
the bank as deposit for the repurchase of the foreclosed property.

On August 1981, upon inquiry by Dionisio Mojica on the unpaid balance of the loan, the
respondent rural bank issued a 'Computation Slip" indicating therein, that as of August , 1981, the
outstanding balance plus interest computed was P21,272.50.
 On November 10, 1981, After having consolidated its ownership over the foreclosed property,
defendant bank scheduled the parcel of land to be sold at public auction on February 1982. Dionisio
Mojica and one Teodorico Rufido, brother-in-law of plaintiff Leonardo Mojica, were notified of such
auction sale However, no sale was consummated during that scheduled sale and the property
concerned up to now still remains in the possession of respondent bank.

The refusal of the same bank to allow Dionisio Mojica to pay the unpaid balance of the loan as
per the "Computation Slip" amounting to P21,272.50, resulted in the filing of a complaint. On
September, 1984, the trial court rendered judgment dismissing the complaint. Petitioner filed a motion
for reconsideration but was denied. On January 2, 1985, a notice of appeal was filed in the IAC. On
February 1990, the Appellate Court, rendered its decision, aiming in to the decision of the trial court
finding no reversible error in the decision appealed.

Issue:

whether or not the foreclosure sale by the Sheriff on June 1979, had for its basis, a valid and
subsisting mortgage contract.

Held:

Yes. As earlier stated, the Real Estate Mortgage in the case at bar expressly stipulates that it
serves as guaranty — ... for the payment of the loan ... of P20,000.00 and such other loans or other
advances already obtained or still to be obtained by the mortgagors as makers ...

It has long been settled by a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts; that the amounts named as consideration in said
contract do not limit the amount for which the mortgage may stand as security if from the four corners
of the instrument the intent to secure future and other indebtedness can be gathered. A mortgage
given to secure advancements is a continuing security and is not discharged by repayment of the
amount named in the mortgage, until the full amount of the advancements are paid (Lim Julian v.
Lutero, 49 Phil. 704-705 [1926]). In fact, it has also been held that where the annotation on the back of
a certificate of title about a first mortgage states "that the mortgage secured the payment of a certain
amount of money plus interest plus other obligations arising there under' there was no necessity for any
notation of the later loans on the mortgagors' title. It was incumbent upon any subsequent mortgagee
or encumbrances of the property in question to the books and records of the bank, as first mortgagee,
regarding the credit standing of the debtors Tady-Y v. PNB, 12 SCRA 19-20 [1964]).

7. PRUDENTIAL BANK VS ALVIAR

Doctrine: The “dragnet clause” in the first security instrument constituted a continuing offer by the
borrower to secure further loans under the security of the first security instrument, and that when the
lender accepted a different security he did not accept the first offer.

Facts:

 Spouses Alviar are the registered owners of a parcel of land in San Juan, Metro Manila  They
executed a deed of real estate mortgage of the said property in favor of petitioner Prudential Bank to
secure the payment of a loan worth P250,000.00. (PN BD#75/C-252) was then issued covering the said
loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per annum with
a 2% service charge, and that the note is secured by a real estate mortgage as aforementioned with
a “blanket mortgage clause” or the “dragnet clause”.

 The spouses thereafter issued other promissory notes (PN):

 o PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129, signifying that the loan was
secured by a “hold-out” on the mortgagor’s foreign currency savings account with the bank
under Account No. 129

o In the name of Donalco Trading, Inc., PN BD#76/C-430 covering P545,000.000 to be secured

by “Clean-Phase out TOD CA 3923. Bank also mentioned in their approval letter that additional
securities for the loan were the deed of assignment on two PNs executed by Bancom Realty
and the chattel mortgage on various heavy and transportation equipment.

 Spoused Alviar paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty
and Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan
covering the two (2) lots in San Juan, Metro Manila. The payment was acknowledged by petitioner
who accordingly released the mortgage over the two properties

 Prudential Bank moved for the extrajudicial foreclosure of the mortgage on the property since
respondents had the total obligation of P1,608,256.68, covering the three (3) promissory notes.

 Respondents then filed a complaint for damages with a prayer for the issuance of a writ of preliminary
injunction with the RTC of Pasig,[11] claiming that they have paid their principal loan secured by the
mortgaged property, and thus the mortgage should not be foreclosed

 RTC, on its final decision, favored respondents saying that the extrajudicial foreclosure was improper
for the mortgage only covers the first loan of P250,000

 CA affirmed the decision of the RTC

Issue: WON real estate mortgage secures only the first loan of P250,000.

Held:

Yes. While the existence and validity of the “dragnet clause” cannot be denied, there is a need
to respect the existence of the other securities given for the two other promissory notes. The foreclosure
of the mortgaged property should only then be for theP250,000.00 loan covered by PN BD#75/C-252,
and for any amount not covered by the security for the second promissory note.

Petitioner and respondents intended the real estate mortgage to secure not only the
P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be
obtained by the respondents. However, the subsequent loans obtained by respondents were secured
by other securities.

When the mortgagor takes another loan for which another security was given it could not be
inferred that such loan was made in reliance solely on the original security with the “dragnet clause,”
but rather, on the new security given. This is the “reliance on the security test.”

If the parties intended that the “blanket mortgage clause” shall cover subsequent
advancement secured by separate securities, then the same should have been indicated in the
mortgage contract. This ambiguity shall be interpreted strictly against petitioner for having drafted the
same.

Petitioner, however, is not without recourse. Both the lower courts found that respondents have
not yet paid the P250,000.00. Thus, the mortgaged property could still be properly subjected to
foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency
after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses
which are available to respondents.
Petition is DENIED. CA affirmed.