CREDIT TRANSACTIONS Commented [Jayvee M 1]: The parties

CASE DIGESTS stipulated as a fact that Exhibit "A" & "1-Bank" is

a pledge contract. Necessarily, this judicial
1. YULIONGUI v. PNB
admission binds Yuliongsiu. Without any showing
Facts: Diosdado Yuliongsiu was the owner of two (2) vessels, namely The M/S Surigao (valued at 109K) that this was made thru palpable mistake, no
and the M/S Don Dino (63K) and operated the FS-203, (210K) which he purchased from the Philippine amount
Shipping Commission, by installment or on account. As of January or February, 1948, he had paid to the
Philippine Shipping Commission only the sum of P76,500 and the balance of the purchase price was of rationalization can offset it.
payable at P50,000 a year, due on or before the end of the current year. He obtained a loan of 50K from
the PNB Cebu. To guarantee its payment, he pledged the M/S Surigao, M/S Don Dino and its equity in the PNB as pledgee was therefore entitled to the
FS-203 to PNB, evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same day and actual possession of the vessels. While it is true
duly registered with the office of the Collector of Customs for the Port of Cebu. Subsequently, he effected that
partial payment of the loan in the amount of 20K. The remaining balance was renewed by the execution
of two (2) promissory notes in the bank’s favor due on April 16 and June 25, 1948 respectively. These two Yuliongsiu continued operating the vessels after
notes were never paid on their respective due dates. PNB filed criminal charges against Yuliongsiu and the pledge contract was entered into, his
two other accused for estafa thru falsification of commercial documents, because Yuliungsiu had, as last possession
indorsee, deposited with PNB, from March 11 to March 31, 1948, seven BPI checks totalling 184K. They
were convicted by the trial court and sentenced to indemnify the PNB in the sum of 184K. CA affirmed. was expressly made “subject to the order of the
The corresponding writ of execution issued to implement the order for indemnification was returned pledgee." The provision of Art. 2110 of the
unsatisfied as Yuliongsiu was totally insolvent. Meanwhile, together with the institution of the criminal present Civil
action, PNB took physical possession of the three pledged vessels while they were at the Port of Cebu,
and after the first note fell due and was not paid, the PNB Cebu Branch Manager, acting as attorney-in- Code being new, cannot apply to the pledge
fact of Yuliongsiu pursuant to the terms of the pledge contract, executed a document of sale, Exhibit "4", contract here which was entered into on June 30,
transferring the two pledged vessels and plaintiff’s equity in FS-203, to PNB for 30K. The FS-203 was 1947. On
subsequently surrendered by the PNB to the Philippine Shipping Commission which rescinded the sale to
Yuliongsiu for failure to pay the remaining installments. The other two boats, the M/S Surigao and the the other hand, there is an authority supporting
M/S Don Dino were sold by PNB to third parties. Yuliongsiu commenced action in the Court of First the proposition that the pledgee can temporarily
Instance of Cebu to recover the three vessels or their value and damages from PNB. The lower court ruled
that the bank’s taking of physical possession of the vessels was justified by the pledge contract, Exhibit entrust the physical possession of the chattels
"A" & "1-Bank" and the law; (b) that the private sale of the pledged vessels by defendant bank to itself pledged to the pledgor without invalidating the
without notice to the plaintiff-pledgor as stipulated in the pledge contract was likewise valid; and (c) that pledge. In
the defendant bank should pay to plaintiff the sums of 1K and 8K, as his remaining account balance, or
set-off these sums against the indemnity which he was ordered to pay to it in the criminal cases. Yuliongsiu such a case, the pledgor is regarded as holding
contended that the contract was a chatte mortgage and constructive delivery is insufficient ti make the the pledged property merely as trustee for the
pledge effective. pledgee.

Issue: Whether or not the contract was pledge Yuliongsiu also urge Us to rule that constructive
delivery is insufficient to make pledge effective.
Ruling: Yes. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract — "3. That a The
credit line of 50K was extended to the him by PNB, and he obtained and received from the said Bank the
sum of 50K, and in order to guarantee the payment of this loan, the pledge contract, Exhibit "A" & Exhibit type of delivery will depend upon the nature and
"1-Bank" ; was executed and duly registered with the Office of the Collector of Customs for the Port of the peculiar circumstances of each case. The
Cebu on the date appearing therein;" This judicial admission binds the plaintiff. Without any showing that parties
this was made thru palpable mistake, no amount of rationalization can offset it. PNB as a pledgee was
therefore entitled to the actual possession of the vessels. While it is true that Yuliongsiu continued here agreed that the vessels be delivered by the
operating the vessels after the pledge contract was entered into, his possession was expressly made "pledgor to the pledgor who shall hold said
"subject to the order of the pledgee." There is authority supporting the proposition that the pledgee can property ...
temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating Commented [Jayvee M 2]: Maria Sales was
the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the registered owner of a parcel of land in
the pledgee. Yuliongsu contended that constructive delivery is insufficient to make pledge effective. The Laguna which she acquired under a free patent.
parties here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said Until they died, she and her husband (Bernardo)
property subject to the order of the pledgee." Considering the circumstances of this case and the nature lived on the said land in the house w/c they
of the objects pledged, i.e., vessels used in maritime business, such delivery is sufficient. Since PNB was, constructed. Maria died in August 1986.
pursuant to the terms of the pledge contract, in full control of the vessels thru the plaintiff, the former
could take actual possession at any time during the life of the pledge to make more effective its security. In January 1990, a real estate mortgage contract
In a contract of pledge, constructive delivery suffices. Hence, PNB's taking of the vessels therefore was (REM) was purportedly executed by Maria in
not unlawful. favor of Dominador Alzona. Estela Pelongco (one
of the daughters of Maria and Bernardo) signed
2. Llanto v. Alzona as witness. Ernesta Alzona (brother of
Dominador) admitted that his name does not
Facts: appear in the REM although he was a co-
Bernardo Sales and Maria Sales were husband and wife. They have twelve children, eleven of whom are mortgagee. The mortgage was foreclosed and
the present petitioners while the remaining child, Estela Sales Pelongco, is one of herein respondents. was sold in a mortgage sale to Ernesto. In
Maria was the registered owner of a certain parcel of land which she acquired under a free patent. Until January 1992, he executed a Consolidation of ...
they died, Maria and Bernardo, together with some of their children, lived on said land.
On January 29, 1990, a real estate mortgage contract was purportedly executed by Maria, who was Commented [Jayvee M 3]: > One of the
already deceased at that time, and Bernardo in favor of herein respondent Dominador Alzona. essential requisites of the contract of mortgage is
Respondent Estela Sales Pelongco signed as an instrumental witness to the mortgage contract. that the mortgagor should be the absolute
Respondent Ernesto Alzona admitted that while he was a co-mortgagee of his brother, Dominador, his owner of the property. An exception to this rule
name does not appear in the mortgage contract. The mortgage was subsequently foreclosed for alleged is the doctrine of a mortgagee in good faith.
failure of Bernardo and Maria to settle their obligation secured by the said mortgage. The property was
thereafter sold in a mortgage sale conducted on December 20, 1990 wherein Ernesto Alzona was the > A mortgagee has the right to rely on good faith
highest bidder. Consequently, a certificate of sale was awarded to Ernesto and he executed a on the certificate of title of the mortgagor to the
Consolidation of Ownership over the property. Accordingly, Transfer Certificate of Title was issued in his property given as security and in the absence of
name while the OCT in the name of Maria Sales was cancelled. any sign that might arouse suspicion, has no
On December 17, 1992, herein petitioners caused the inscription of an adverse claim on the title to the obligation to undertake further investigation
property.
On October 15, 1993, herein petitioners filed before the RTC a complaint for Annulment of Mortgage and > For a mortgagee to be in good faith,
of Auction Sale, with Reconveyance of Title and Damages. Respondents Ernesto and Dominador Alzona jurisprudence requires that they should take
and the Register of Deeds filed their answers, respectively. However, respondent Estela Sales Pelongco necessary precaution expected of a prudent man...
failed to file her answer; as a consequence of which, she was declared in default. Commented [Jayvee M 4]: One of the
RTC rendered judgment in favor of defendants Dominador Alzona and Ernesto Alzona and against Estela essential requisites of mortgage is that the
Sales dismissing plaintiffs’ complaint with costs against plaintiffs, and ordering plaintiffs to pay defendants mortgagor should be the absolute owner of
Dominador Alzona and Ernesto Alzona. Aggrieved by the trial court’s decision, petitioners filed an appeal property to be mortgaged, otherwise the
with the CA. mortgage is null and void. An exception to this is
CA rendered a decision affirming the judgment of the RTC but deleting the attorney’s fees awarded to the doctrine of mortgagee in good faith -to be
petitioners. considered as mortgagees in good faith,
jurisprudence require that they should take the
Issue: necessary precaution expected of a prudent man
Whether or not Ernesto and Dominador are mortgagees in good faith to ascertain the status and condition of
properties offered as collateral and to verify the
Held: persons they transact businesses with. This is
Yes. Petitioners contend that the principle regarding innocent purchasers for value enunciated by the CA based in the rule that all persons dealing with
in its decision is not applicable to the present case because in the cases cited by the CA there was no property covered by a Torrens title, as buyers or
mortgagees, are not required to go beyond what...
question that the mortgagors were the real owners of the property that was mortgaged, while in the
instant case, the mortgagors were impostors who pretended as the real owners of the property.
We do not agree. The principle of “innocent purchasers for value” is applicable to the present case.
Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the
mortgagor should be the absolute owner of the property to be mortgaged; otherwise, the mortgage is
considered null and void. However, an exception to this rule is the doctrine of “mortgagee in good faith.”
Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage
contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This
principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. This
is the same rule that underlies the principle of innocent purchasers for value cited by the CA in its decision.
The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title
of the mortgagor to the property given as security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the
rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith
is, nonetheless, entitled to protection.
For persons, more particularly those who are engaged in real estate or financing business like herein
respondents Ernesto and Dominador Alzona, to be considered as mortgagees in good faith, jurisprudence
requires that they should take the necessary precaution expected of a prudent man to ascertain the status
and condition of the properties offered as collateral and to verify the identity of the persons they transact
business with, particularly those who claim to be the registered property owners.
The CA affirmed the findings of the trial court that petitioners never disputed Ernestos claim that when
he inspected the subject property on January 26, 1990, he met petitioners Yolanda, Gloria and Conrado
together with Estela and the persons whom he knew as Bernardo and Maria Sales at the house built inside
the premises of the said property. A further reading of the transcript of stenographic notes reveals that
Ernesto even went inside the house and, in the presence of the aforementioned persons, discussed with
Estela the matter regarding the loan they were seeking and the mortgage of the subject property. It was
only in their motion for reconsideration filed with the CA did petitioners dispute the foregoing claims of
Ernesto. However, their disputation merely consisted in denying that Ernesto met Gloria Sales inside the
house of Bernardo and Maria. They did not contradict Ernestos claim that he also met Conrado and
Yolanda inside the said house. On the contrary, the truth of the abovementioned claims of Ernesto is
bolstered by the testimonies of Francisco and Gloria Sales to the effect that during the period between
1989 and 1990, Estela, Yolanda, Gloria and Conrado were all living in the house built on the subject
property. The trial court also gave credence to Ernestos testimony that prior to the execution of the
contract of mortgage, he was even shown a copy of the OCT and the tax declaration in the name of Maria
Sales.
From the foregoing, we find no error in the ruling of the CA that Ernesto sufficiently established that he
acted in good faith by exercising due diligence in ascertaining the status of the property mortgaged and
the identity of the owners and occupants of the said property; that it was Estela and the persons who
represented themselves as Bernardo and Maria who perpetrated the fraud.
While it was also established that petitioners Yolanda, Gloria and Conrado were present at the time
Ernesto conducted his credit investigation on January 26, 1990, no direct and conclusive evidence was
presented to show that they had sufficient knowledge of the fraud that was perpetrated by their sister
Estela and the persons posing as Bernardo and Maria as to hold them equally guilty of such fraud.
In fine, we hold that respondents Ernesto and Dominador Alzona are mortgagees in good faith and, as
such, they are entitled to the protection of the law.
 3. EREÑA v. QUERRER-KAUFFMAN

FACTS:
Vida Dana Querrer-Kauffman is the owner of a residential lot with a house constructed thereon located
at Las Piñas City. The owner’s duplicate copy of the title as well as the tax declaration covering the
property, were kept in a safety deposit box in the house.
Sometime in February 1997, as she was going to the United States, Kauffman entrusted her minor
daughter, Vida Rose, to her live-in partner, Eduardo Victor. She went back to the Philippines to get her
daughter and again left for the U.S. on the same day. Later on, Victor also left for the U.S. and entrusted
the house and the key thereto to his sister, Mira Bernal.
On October 25, 1997, Kauffman asked her sister, Evelyn Pares, to get the house from Bernal so that the
property could be sold. Pares did as she was told. Kauffman then sent the key to the safety deposit box to
Pares, but Pares did not receive it. Kauffman then asked Pares to hire a professional locksmith who could
open the safe. When the safe was broken open, however, Pares discovered that the owner’s duplicate
title and the tax declarations, including pieces of jewelry were missing.
Kauffman learned about this on October 29, 1997 and returned to the Philippines. She and Pares went to
the Register of Deeds of Las Piñas City and found out that the lot had been mortgaged to Rosana Ereña.
It appeared that a "Vida Dana F. Querrer" had signed the Real Estate Mortgage as owner-mortgagor,
together with Jennifer V. Ramirez, Victor’s daughter, as attorney-in-fact.
Kauffman and Pares were able to locate Bernal who, when asked, confirmed that Ramirez had taken the
contents of the safety deposit box. When Kauffman told Bernal that she would file a case against them,
Bernal cried and asked for forgiveness. Bernal admitted that Jennifer Ramirez had been in a tight financial
fix and pleaded for time to return the title and the jewelry.
Kauffman however still filed a complaint against Ereña, Bernal and Ramirez for the nullification of Real
Estate Mortgage and Damages. Ereña countered that she was a mortgagee in good faith.

ISSUE:
Whether or not the Real Estate Mortgage is valid

HELD:
No. According to Article 2085 (2), a pledgor or mortgagor has to be absolute owner of the thing pledged
or mortgaged for a contract of pledge and mortgage to be valid. Both the trial court and the appellate
courts found that Kauffman is the true owner of the property and that the signatures on the Special Power
of Attorney and Real Estate Mortgage are not her genuine signatures. The evidence on record shows that
Ramirez and her husband used an impostor who claimed she was the owner of the property. This impostor
was the one who signed the Real Estate Mortgage and showed to Ereña the owner's duplicate copy of the
title. When the instrument presented for registration is forged, even if accompanied by the owner's
duplicate title, the registered owner does not lose his title and neither does the mortgagee acquire any
right to the property. In such case, the mortgagee based on a forged instrument is not even a purchaser
or a mortgagee for value protected by law. Ereña is not a mortgagee in good faith. The doctrine of
mortgagee in good faith does not apply to a situation where the title is still in the name of the rightful
owner and the mortgagor is a different person pretending to be the owner. In such case, the mortgagee
is not an innocent mortgagee for value and the registered owner will generally not lose his title.

The petition is DENIED

 4. SPOUSES GODOFREDO & DOMINICA FLANCIA vs. COURT OF APPEALS & WILLIAM ONG GENATO

Facts:
This is an action to declare null and void the mortgage executed by defendant Oakland Development
Resources Corp. in favor of defendant William Ong Genato over the house and lot which plaintiff spouses
Godofredo and Dominica Flancia purchased from defendant corporation.
Sps. Flancia entered into a CONTRACT TO SELL involving a parcel of land with Oakland Corp. While the
contract is existing, Oakland mortgaged the land to Sps. Genato in consideration of a 2M peso loan.
Oakland failed to pay the mortgage which prompted Sps. Genato to foreclose the mortgage.
Sps. Flancia filed the case to protect their rights stemming from the Contract to Sell previously executed
with Oakland.

Issues:
(1) whether or not the registered mortgage constituted over the property was valid;
(2) whether or not the registered mortgage was superior to the contract to sell

Held:
1. Yes. Under the Art. 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a)
that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the
absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free
disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
All these requirements are present in this case.
As to the first essential requisite of a mortgage, it is undisputed that the mortgage was executed on May
15, 1989 as security for a loan obtained by Oakland from Genato.

2. In the contract between petitioners and Oakland, aside from the fact that it was denominated as a
contract to sell, the intention of Oakland not to transfer ownership to petitioners until full payment of the
purchase price was very clear. Acts of ownership over the property were expressly withheld by Oakland
from petitioner. All that was granted to them by the “occupancy permit” was the right to possess it.
In sum, we rule that Genato’s registered mortgage was superior to petitioner’s contract to sell, subject to
any liabilities Oakland may have incurred in favor of petitioners by irresponsibly mortgaging the property
to Genato despite its commitments to petitioners under their contract to sell.
WHEREFORE, the petition for review is hereby DENIED. The decision of the Court of Appeals reinstating
the August 16, 1996 decision of the trial court is hereby AFFIRMED.

5. BIENVENIDO C. TEOCO and JUAN C. TEOCO, JR. vs. METROPOLITAN BANK AND TRUST
COMPANY
FACTS:
Lydia T. Co, married to Ramon Co, was the registered owner of two parcels of land situated in Poblacion,
Municipality of Catbalogan, Province of Samar under Transfer Certificate of Title (TCT) Nos. T-6220 and T-
6910. Ramon Co mortgaged the said parcels of land to Metrobank for a sum of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank in an extrajudicial foreclosure sale under
Act No. 3135. One year after the registration of the Certificates of Sale, the titles to the properties were
consolidated in the name of Metrobank for failure of Ramon Co to redeem the same within the one year
period provided for by law. TCT Nos. T-6220 and T-6910 were cancelled and TCT Nos. T-8482 and T-8493
were issued in the name of Metrobank.
On November 29, 1993, Metrobank filed a petition for the issuance of a writ of possession against Ramon
Co and Lydia Co (the spouses Co). However, since the spouses Co were no longer residing in the Philippines
at the time the petition was filed.
On May 17, 1994, the brothers Teoco filed an answer-in-intervention alleging that they are the successors-
in-interest of the spouses Co, and that they had duly and validly redeemed the subject properties within
the reglementary period provided by law. The brothers Teoco thus prayed for the dismissal of
Metrobank’s petition for a writ of possession, and for the nullification of the TCTs issued in the name of
Metrobank. The brothers Teoco further prayed for the issuance in their name of new certificates of title.

ISSUE: W/N Brothers Teoco can redeem the properties of Spouses Co.

RULING:
YES. The Court holds that the fairest resolution is to allow the brothers Teoco to redeem the foreclosed
properties based on the amount for which it was foreclosed (P255,441.14 plus interest). This is subject,
however, to the right of Metrobank to foreclose the same property anew in order to satisfy the succeeding
loans entered into by the spouses Co, if they were, indeed, covered by the mortgage contract. The right
of Metrobank to foreclose the mortgage would not be hampered by the transfer of the properties to the
brothers Teoco as a result of this decision, since Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third
person.
Further, Article 2129 of the Civil Code provides:
Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the
payment of the part of the credit secured by the property which said third person possesses, in the terms
and with the formalities which the law establishes.
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. Otherwise
stated, a mortgage creates a real right which is enforceable against the whole world. Hence, even if the
mortgage property is sold or its possession transferred to another, the property remains subject to the
fulfillment of the obligation for whose security it was constituted.
Thus, the redemption by the brothers Teoco shall be without prejudice to the subsequent foreclosure of
same properties by Metrobank in order to satisfy other obligations covered by the Real Estate Mortgage.

6. SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO vs. SPOUSES RENATO CUYCO and
FILIPINA CUYCO

FACTS:
Petitioner obtained a loan in the amount of P1,500,000.00 from respondents, payable within one year at
18% interest per annum, and secured by
a Real Estate Mortgage over a parcel of land with improvements thereon situated in Cubao, Quezon City.
Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of
P1,250,000.00, broken down as follows: (1) P150,000.00, (2) P150,000.00, (3) P500,000.00, (4)
P200,000.00, and (5) P250,000.00.
Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan
obligations. Thus, respondents filed a complaint for foreclosure of mortgage with the RTC. They alleged
that petitioners’ loans were secured by the real estate mortgage; that their indebtedness amounted to
P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners’ refusal to settle
the same entitles the respondents to foreclose the real estate mortgage.
Petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00
was secured by the real estate mortgage at 18% per annum and that there was no agreement that the
same will be compounded monthly.
RTC ruled in favor of the respondents. Petitioner appealed, CA partially granted the petition
modified the RTC decision insofar as the amount of the loan obligations secured by the real estate
mortgage. It held that by express intention of the parties, the real estate mortgage secured the original
P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00.

ISSUE:
W/N the real estate mortgage executed by petitioner with respect to the first loan secured future loans
and advancements, as of in this case, the additional loans obtained by the petitioner.

RULING:
The Court ruled in negative.
As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However,
the amounts named as consideration in a contract of mortgage 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. This stipulation is valid and binding between the parties and is known in American
Jurisprudence as the “blanket mortgage clause,” also known as a “dragnet clause.”
A “dragnet clause” operates as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording fees, et cetera.
While a real estate mortgage may exceptionally secure future loans or advancements, these future debts
must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless
it comes fairly within the terms of the mortgage contract.
It is clear from the perusal of the real estate mortgage of the parties that there is no stipulation that the
mortgaged realty shall also secure future loans and advancements. Thus, what applies is the general rule
above stated.

Even if the parties intended the additional loans of P150,000.00 and P500,00.00 obtained to be secured
by the same real estate
mortgage, as shown in the acknowledgement receipts, it is
not sufficient in law to bind the realty for it was not made
substantially in the form prescribed by law.

In order to constitute a legal mortgage, it must be executed in a public document, besides being recorded.
A provision in a private document, although denominating the agreement as one of mortgage, cannot be
considered as it is not susceptible of inscription in the property registry. A mortgage in legal form is not
constituted by a private document, even if such mortgage be accompanied with delivery of possession of
the mortgaged property.35 Besides, by express provisions of Section 127 of Act No. 496, a mortgage
affecting land, whether registered under said Act or not registered at all, is not deemed to be sufficient in
law nor may it be effective to encumber or bind the land unless made substantially in the form therein
prescribed. It is required, among other things, that the document be signed by the mortgagor executing
the same, in the presence of two witnesses, and acknowledged as his free act and deed before a notary
public. A mortgage constituted by means of a private document obviously does not comply with such legal
requirements.
What the parties could have done in order to bind the realty for the additional loans was to execute a new
real estate mortgage or to amend the old mortgage conformably with the form prescribed by the law.
Failing to do so, the realty cannot be bound by such additional loans, which may be recovered by the
respondents in an ordinary action for collection of sums of money.

7. FORT BONIFACIO DEVELOPMENT CORPORATION vs. YLLAS LENDING CORPORATION and JOSE S.
LAURAYA

FACTS:
On 24 April 1998, FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno) over a unit at the
Entertainment Center - Phase 1 of the Bonifacio Global City in Taguig. The parties had the lease contract
notarized on the day of its execution. Tirreno used the leased premises for Savoia Ristorante and La Strega
Bar.
Two provisions in the lease contract are pertinent to the present case: Section 20, which is about the
consequences in case of default of the lessee, and Section 22, which is about the lien on the properties of
the lease. The pertinent portion of Section 20 reads:
Section 20. Default of the Lessee
20.1 The LESSEE shall be deemed to be in default within the meaning of this Contract in case:
(i) The LESSEE fails to fully pay on time any rental, utility and service charge or other financial obligation
of the LESSEE under this Contract;
20.2 Without prejudice to any of the rights of the LESSOR under this Contract, in case of default of the
LESSEE, the lessor shall have the right to:
(i) Terminate this Contract immediately upon written notice to the LESSEE, without need of any judicial
action or declaration;
Section 22, on the other hand, reads:
Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the Lease Period without the rentals, charges
and/or damages, if any, being fully paid or settled, the LESSOR shall have the right to retain possession of
the properties of the LESSEE used or situated in the Leased Premises and the LESSEE hereby authorizes
the LESSOR to offset the prevailing value thereof as appraised by the LESSOR against any unpaid rentals,
charges and/or damages. If the LESSOR does not want to use said properties, it may instead sell the same
to third parties and apply the proceeds thereof against any unpaid rentals, charges and/or damages.
Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno was already in arrears by
P5,027,337.91. FBDC and Tirreno entered into a settlement agreement on 8 August 2000. Despite the
execution of the settlement agreement, FBDC found need to send Tirreno a written notice of termination
dated 19 September 2000 due to Tirreno's alleged failure to settle its outstanding obligations. On 29
September 2000, FBDC entered and occupied the leased premises. FBDC also appropriated the equipment
and properties left by Tirreno pursuant to Section 22 of their Contract of Lease as partial payment for
Tirreno's outstanding obligations.
On 4 March 2002, Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as President,
(respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of seizure against
FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third-party claim. FBDC found
out that on 27 September 2001, respondents filed a complaint for Foreclosure of Chattel Mortgage with
Replevin against Tirreno, Eloisa Poblete Todaro (Eloisa), and Antonio D. Todaro, in their personal and
individual capacities, and in Eloisa's official capacity as President. In their complaint, respondents alleged
that they lent a total of P1.5 million to Tirreno, Eloisa, and Antonio and on 9 November 2000, Tirreno,
Eloisa and Antonio executed a Deed of Chattel Mortgage over the things inside the Bar which currently
under Lien of FBDC, as security for the loan.
The respondents contended that Sec.22 of the Contract of Lease is void being a pactum commissorium
under Art. 2088 of the Civil Code.
The RTC ruled in favor of the respondents.

ISSUE:
Whether or not, Sec. 22 of the Contract of Lease is a Pactum Commissorium.

RULING:
No. It is not a matter prohibited under Article 2088.
Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of pledge: (1)
the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor is the absolute
owner of the thing pledged; (3) the persons constituting the pledge have the free disposal of their property
or have legal authorization for the purpose; and (4) the thing pledged is placed in the possession of the
creditor, or of a third person by common agreement. Article 2088 of the Civil Code prohibits the creditor
from appropriating or disposing the things pledged, and any contrary stipulation is void.
Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of termination of the
lease contract or the expiration of the lease period and there are unpaid rentals, charges, or damages.
The existence of a contract of pledge, however, does not arise just because FBDC has means of collecting
past due rent from Tirreno other than direct payment. The trial court concluded that Section 22
constitutes a pledge because of the presence of the first three requisites of a pledge: Tirreno's properties
in the leased premises secure Tirreno's lease payments; Tirreno is the absolute owner of the said
properties; and the persons representing Tirreno have legal authority to constitute the pledge. However,
the fourth requisite, that the thing pledged is placed in the possession of the creditor, is absent. There is
non-compliance with the fourth requisite even if Tirreno's personal properties are found in FBDC's real
property. Tirreno's personal properties are in FBDC's real property because of the Contract of Lease, which
gives Tirreno possession of the personal properties. Since Section 22 is not a contract of pledge, there is
no pactum commissorium. Hence, FBDC can validly retain the things inside the Bar for the satisfaction of
the unpaid rent of Tirreno.

8. LUISA BRIONES-VASQUEZ vs. COURT OF APPEALS and HEIRS OF MARIA MENDOZA VDA DE OCAMPO

FACTS:

Maria Mendoza Vda De Ocampo entered into an agreement denominated as a pacto de retro sale with
Luisa Briones for a parcel of land. Briones reserved the right to repurchase the property up to December
31, 1970.

On June 14, 1990, heirs of Maria, Hipolita and Eusebio (private respondents), filed a consolidation of
ownership, alleging that Briones failed to exercise her right to repurchase on December 31, 1970. RTC
ruled that the pacto de retro submitted is true, while declaring that Briones can still claim the property
within 30 days from finality of the judgment.

Private respondents appealed with CA, CA set aside the RTC decision and declaring the 1970 sale with
right to repurchase as one of an equitable mortgage. Said decision had become final and executor.
Subsequently, an entry of final judgment had already been issued. Writ of Execution and Alias Writ of
Execution were both issued, however, was not able to take effect.

Petitioner, Briones, then filed with the RTC an omnibus motion declaring the equitable mortgage
discharged and directing the issuance of a Writ of Possession against private respondents for the delivery
of possession of the land in question to the petitioner.

RTC denied the omnibus motion as well as the Motion for Reconsideration filed by Petitioner, Briones.

Petitioner, Briones, then filed a clarificatory judgment with the CA, but it was likewise denied.

ISSUE: WON the 1970 Sale with Right of Repurchase was actually an equitable mortgage.

HELD:

YES, the CA correctly held that the Contract between the parties is indeed an equitable mortgage which
has already been declared as final and executor. Since the contract is characterized as a mortgage, the
provisions of the Civil Code governing mortgages apply. Article 2088 of the Civil Code states: The creditor
cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void. – The essence of pacto commissorio, which is prohibited by Article 2088 of
the Civil Code, is that ownership of the security will pass to the creditor by the mere default of the debtor.

The only right of a mortgagee in case of non-payment of a debt secured by mortgage would be to foreclose
the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The
mortgagors default does not operate to vest in the mortgagee the ownership of the encumbered
property, for any such effect is against public policy, as enunciated by the Civil Code.

Applying the principle of pactum commissorium specifically to equitable mortgages, the consolidation of
ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in equity to
pay the obligation, would amount to a pactum commissorium. The Court further articulated that an action
for consolidation of ownership is an inappropriate remedy on the part of the mortgagee in equity. The
only proper remedy is to cause the foreclosure of the mortgage in equity. And if the mortgagee in equity
desires to obtain title to the mortgaged property, the mortgagee in equity may buy it at the foreclosure
sale.

The private respondents do not appear to have caused the foreclosure of the mortgage much less have
they purchased the property at a foreclosure sale. Petitioner, therefore, retains ownership of the subject
property. The right of ownership necessarily includes the right to possess, particularly where, as in this
case, there appears to have been no availment of the remedy of foreclosure of the mortgage on the
ground of default or non-payment of the obligation in question.

WHEREFORE, the petition for certiorari is DISMISSED. The parties are directed to proceed upon the basis
of the final Decision of the Court of Appeals, dated June 29, 1995, in CA-G.R. CV No. 39025, that the
contract in question was an equitable mortgage and not a sale.
9. DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS and EMERALD RESORT HOTEL
CORPORATION

Facts:
Emerald Resort Hotel Corporation ("ERHC") obtained a loan from petitioner Development Bank of the
Philippines ("DBP"). DBP released the loan of P3,500,000.00 in three installments: P2,000,000.00 on 27
September 1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14 September 1976. To secure the
loan, ERHC mortgaged its personal and real properties to DBP.On 18 March 1981, DBP approved a
restructuring of ERHC’s loan subject to certain conditions.4 On 25 August 1981, DBP allegedly cancelled
the restructuring agreement for ERHC’s failure to comply with some of the material conditions5 of the
agreement. Subsequently, ERHC delivered to DBP three stock certificates of ERHC aggregating 3,477,052
shares with a par value of P1.00 per share. ERHC first delivered to DBP on 20 October 1981 Stock
Certificate No. 30 covering 1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock Certificate
No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering 923,852
shares.
On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the Office of the Sheriff, Regional
Trial Court of Iriga City, an Application for Extra-judicial Foreclosure of Real Estate and Chattel
Mortgages.Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required notices of
public auction sale of the personal and real properties. However, Sheriffs Ramos and Galeon failed to
execute the corresponding certificates of posting of the notices. On 10 July 1986, the auction sale of the
personal properties proceeded.The Office of the Sheriff scheduled on 12 August 1986 the public auction
sale of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August 1986
the notice of auction sale of the real properties. However, the Office of the Sheriff postponed the auction
sale on 12 August 1986 to 11 September 1986 at the request of ERHC. DBP did not republish the notice of
the rescheduled auction sale because DBP and ERHC signed an agreement to postpone the 12 August
1986 auction sale.
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a complaint for annulment of
the foreclosure sale of the personal and real properties alleging that the foreclosure was void mainly
because (1) DBP failed to comply with the procedural requirements prescribed by law; and (2) the
foreclosure was premature. ERHC maintained that the loan was not yet due and demandable because the
DBP had restructured the loan.
The trial court rendered a Decision8 dated 28 January 1992, the declaring as null and void the foreclosure
and auction sale of the personal properties of plaintiff corporation held on July 10, 1992 declaring as null
and void the foreclosure and auction sale of the real properties of plaintiff corporation in the auction sale
thereof held on September 11, 1986, and all the improvements therein.The Court of Appeals, which
consolidated the appeals, affirmed the decision of the trial court.9DBP filed a Motion for Reconsideration
which the Court of Appeals denied.

ISSUE:
Whether DBP complied with the posting and publication requirements under applicable laws for a valid
foreclosure?

RULING:
YES, DBP complied on the publication requirements for personal properties but it failed to comply for the
real properties.
The Court held recently in Ouano v. Court of Appeals22 that republication in the manner prescribed by
Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication
is required in case the auction sale is rescheduled, and the absence of such republication invalidates the
foreclosure sale.
The Court also ruled in Ouano that the parties have no right to waive the publication requirement in Act
No. 3135. The Court declared thus:
Petitioner and respondents have absolutely no right to waive the posting and publication requirements
of Act No. 3135.
Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity such that those
interested might attend the public sale. To allow the parties to waive this jurisdictional requirement would
result in converting into a private sale what ought to be a public auction.
DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows adjournment of execution
sales by agreement of the parties, applies to the present case. Section 24 of Rule 39 provides:
Sec. 24. Adjournment of Sale – By written consent of debtor and creditor, the officer may adjourn any sale
upon execution to any date agreed upon in writing by the parties. Without such agreement, he may
adjourn the sale from day to day, if it becomes necessary to do so for lack of time to complete the sale on
the day fixed in the notice.
The Court ruled in Ouano that Section 24 of Rule 39 does not apply to extrajudicial foreclosure sales,
DBP also maintains that ERHC’s act of requesting postponement of the 12 August 1986 auction sale estops
ERHC from challenging the absence of publication of the notice of the rescheduled auction sale.
We do not agree.
ERHC indeed requested postponement of the auction sale scheduled on 12 August 1986.24However, the
records are bereft of any evidence that ERHC requested the postponement without need of republication
of the notice of sale. In Philippine National Bank v. Nepomuceno Productions Inc.,25 the Court held that:
x x x To request postponement of the sale is one thing; to request it without need of compliance with the
statutory requirements is another. Respondents, therefore, did not commit any act that would have
estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No.
3135. x x x
The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-200226 issued by the Office
of the Court Administrator on 22 January 2002.
In the instant case, there is no information in the notice of auction sale of any date of a rescheduled
auction sale. Even if such information were stated in the notice of sale, the reposting and republication of
the notice of sale would still be necessary because Circular No. 7-2002 took effect only on 22 April 2002.
There were no such guidelines in effect during the questioned foreclosure.
Clearly, DBP failed to comply with the publication requirement under Act No. 3135. There was no
publication of the notice of the rescheduled auction sale of the real properties. Therefore, the extrajudicial
foreclosure of the real estate mortgage is void.
DBP, however, complied with the mandatory posting of the notices of the auction sale of the personal
properties. Under the Chattel Mortgage Law,27 the only requirement is posting of the notice of auction
sale. There was no postponement of the auction sale of the personal properties and the foreclosure took
place as scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant case suffers
from no procedural infirmity.

10. K-PHIL., INC., SOO MYUNG PARK and NETWORK DEVELOPMENT HOLDING CORP vs. METROPOLITAN
BANK & TRUST COMPANY, REGALADO E. EUSEBIO, in his capacity as Clerk of Court VI and Ex-
Officio Sheriff, and REYNALDO R. CAMERINO, in his capacity as Sheriff IV, Regional Trial Court of Imus,
Cavite
Facts:

Metropolitan Bank & Trust Company (Metrobank) extended to petitioner K-Phil., Inc. (K-Phil) various loans
and credit accommodations. These loans were secured by a mortgage[3] over two lots owned by
petitioner Network Development Holding Corporation (Network) and occupied by K-Phil.

Because of petitioners’ alleged violation of the terms and conditions of the loans, Metrobank filed a
petition for extrajudicial foreclosure of real estate and chattel mortgage.
Petitioner claimed that the foreclosure of mortgages was premature and in contravention of a
restructuring agreement of the loans and obligations of K-Phil. In addition, the petition for extrajudicial
foreclosure was defective because it indicated the wrong amount and failed to implead and notify
Network, an indispensable party as owner-mortgagor of the subject lots.

Issues:
(1) whether the petition for extrajudicial foreclosure was null and void for its failure to implead Network
and to state the correct amount of indebtedness;[18] (2) whether it was proper to order the issuance of
a new notice with the necessary corrections

Held:
1. No. Network’s name was indeed omitted from the caption of the application/petition for extrajudicial
foreclosure. However, this omission was not fatal to Metrobank’s application as it was not in violation of
Act 3135.[19] Moreover, the application included Network in its body. It is the allegations in the body of
the petition that control and not the heading or caption.[20] The notice clearly identified Network as the
mortgagor. Such identification in the notice of extrajudicial sale was what counted under the rules of
procedure in extrajudicial foreclosure of mortgage.[21]

2. Yes. The object of a notice of sale is to inform the public of the nature and condition of the property to
be sold, and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders
and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes
will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which
are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the
sale made pursuant thereto.[25]

The validity of a notice of sale is not affected by immaterial errors;[26] only substantial errors will
invalidate it.[27] Unless it was calculated to deter or mislead bidders, to depreciate the value of the
property or to prevent it from bringing a fair price, the discrepancy between the amount of the obligation
as reflected in the notice of sale and the amount actually due and collected during the bidding does not
constitute a substantial error that should invalidate the notice.[28]

Therefore, the CA’s order for the sheriff to issue, publish and serve a new notice of extrajudicial sale
correcting the inaccuracies and inadequacies of the prior notice was sufficient to remedy the
discrepancies.
11. Magna Financial Services Group Inc., vs. Elias Colarina

Facts:

Colarina bought a Suzuki multicab from the petitioner on June 11, 1997 with P229,284 as down payment
and the balance payable in 36 equal monthly installments. To secure payment, he executed a promissory
note and chattel mortgage in favor of the petitioner. Beginning 1999, Calorina failed to pay the monthly
amortization accumulating to P131K. thereafter, petitioner file for a foreclosure of chattel mortgage with
replevin. RTC ruled in favor of the petitioner and ordered Colarina to pay the balance, and upon default,
the multicab will be sold at public auction to satisfy the judgement. Colarina appealed to the CA which
ruled in his favor stating that RTC erred in ordering Colarina to pay the unpaid balance while the complaint
was for the foreclosure of the mortgage. Petitioner appealed but was denied. Hence, the case was
elevated to the SC.

Issue:

Whether the nature of a foreclosure of a chattel mortgage is an exercise of the 3rd option under article
1484 paragraph 3 of the civil code.

Ruling:

Yes. Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose the
chattel mortgage, he shall have no further action against the purchaser to recover any unpaid balance of
the purchase price. Any agreement to the contrary is void. In other words, in all proceedings for the
foreclosure of chattel mortgages executed on chattels which have been sold on the installment plan, the
mortgagee is limited to the property included in the mortgage. Since the, petitioner has undeniably
elected a remedy of foreclosure under Art. 1484(3), it is bound by its election and thus may not be allowed
to change what it has opted for nor to ask for more.

12. GREEN ASIA CONSTRUCTION AND DEVELOPMENT CORPORATION AND SPS. RENATO AND DELIA
LEGASPI v. THE HONORABLE COURT OF APPEALS AND PCI LEASING AND FINANCE, INC.

Facts:
On June 8, 1995, petitioner Green Asia Construction and Development Corporation (GACDC), represented
by its president, petitioner Renato Legaspi, obtained a loan of P2,600,0004 from private respondent PCI
Leasing and Finance, Inc. (PCILFI). As security, GACDC, executed a real estate mortgage5 for P450,000 in
favor of PCILFI. The mortgage covered three parcels of land located in Barrio Balibago, Angeles City. When
GACDC failed to pay the loan on maturity, the mortgage was foreclosed extrajudicially. A certificate of
sale7dated February 3, 1998 was accordingly issued to PCILFI and duly registered with the Registry of
Deeds of Angeles City.
On April 12, 2000, PCILFI filed a petition for the issuance of a writ of possession8 with the Regional Trial
Court. Trial court granted PCILFI's petition.

GACDC filed an urgent omnibus motion and a supplement to the urgent omnibus motion, respectively,
praying for the setting aside of the certificate of sale, cancellation of the writ of possession, and the
suspension of the implementation of the said writ of possession. GACDC's motion for reconsideration was
denied.
GACDC elevated the case to the Court of Appeals, which affirmed the assailed orders of the trial court.

Issue: Whether or not the CA err in affirming the ruling of the RTC.

Ruling:
The nullity of the mortgage is not covered by the remedy outlined under Section 8 of Act No. 3135. The
said provision specifically lists the following exclusive grounds for a petition to set aside the sale and cancel
the writ of possession: (1) that the mortgage was not violated; and (2) that the sale was not made in
accordance with the provisions of Act No. 3135.

SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty
days after the purchaser was given possession, petition that the sale be set aside and the writ of
possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or
the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of
this petition in accordance with the summary procedure provided for in section one hundred and twelve
of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall
dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of
the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered
Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of
the appeal.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing
the issuance of a writ of possession. Indeed, regardless of whether or not there is a pending suit for
annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of
possession.17Petitioners should have filed a separate and independent action for annulment of the
mortgage or the foreclosure.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The remedy under Section 8 of Act No. 3135 is inapplicable in this case.The Court of Appeals did not err,
nor did it commit grave abuse of discretion amounting to lack or excess of jurisdiction, in affirming the
assailed Orders of the trial court.

13. SPOUSES RUBEN SANTIAGO and INOCENCIA SANTIAGO vs. MERCHANTS RURAL BANK OF TALAVERA,
INC.

Facts:
Respondent Merchants Rural Bank of Talavera, Inc. filed an Ex Parte Petition with the Regional Trial Court
(RTC) of Cabanatuan City, for the issuance of a writ of possession over the two parcels of land covered by
Transfer Certificate of Title (TCT) Nos. NT-196197 and NT-187791 located in San Mariano, Sta. Rosa, Nueva
Ecija.

Issue:
Whether testimonial or documentary are needed to support petition for writ of execution.

Held:
No. The proceeding in a petition for a writ of possession is ex parte and summary in nature. It is a judicial
proceeding brought for the benefit of one party only and without notice by the court to any person
adverse of interest.
The petitioners have not cited any law or rule requiring that documentary and testimonial evidence be
first adduced in support of a petition for a writ of possession before the trial court may act upon and grant
the same.
Section 7 of Act No. 3135 merely requires that a petition for the issuance of a writ of possession shall be
in the form of an ex parte motion. Upon the filing of the said petition, the payment of the requisite fees
therefor, and the approval of the trial court if such petition is filed during the period for the redemption
of the property, the court shall order that a writ of possession be issued.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.

14. SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA vs. DRA. ABDULIA C. RODRIGUEZ,
MIGUELA R. JARIOL assisted by her husband ANTOLIN JARIOL, SR., LEONORA NOLASCO assisted by her
husband FELICIANO NOLASCO, DOLORES SOBERANO assisted by her husband JOSE SOBERANO, JR.,
JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assisted by her husband
ALFONSO SORONIO

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.[9]

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.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE and the
decision of the Cebu City RTC, Branch 16, dated 18 November 1992 is REINSTATED. Costs against
respondents