REAL SECURITY

Based from our last file (and old sequencing) it ended with De Mesa, that’s why Real Security starts with
Magsaysay.

DBP v CA, 284 FACTS:

SCRA 14 (1998) ● Plaintiff CUBA is a grantee of a Fishpond Lease Agreement No. 2083
(new) dated May 13, 1974 from the Gov’t.
MAGSAYSAY
● CUBA obtained loans from DBP in the amounts of P109k; P109k; and P98k
under the terms stated in the Promissory Notes dates Sept. 6, 1974; Aug.
11, 1975; and April 4, 1977.

● CUBA executed (2) Deeds of Assignment for her Leasehold Rights as

security for the loans.

● CUBA failed to pay her loan on the scheduled dates in accordance with
the terms of the PNs.

● Defendant DBP appropriated the Leasehold Rights of Plaintiff CUBA over

the fishbpond without foreclosure proceedings, whether judicial or extra-
judicial.

● After DBP appropriated the Leasehold Rights of CUBA, it executed a Deed

of Conditional Sale (DCS) of the Leasehold Rights in favor of CUBA over
the same fishpond.

● Negotiating the repurchase, CUBA addressed (2) letters to the DBP

manager dated Nov. 6, 1979 and Dec. 20, 1979. DBP accepted the offer
to repurchase in a letter addressed to plaintiff.

● After the DCS was executed in favor of plaintiff CUBA, a new Fishpond
Lease Agreement No. 2083-A was issued by the Ministry of Agriculture
and Food in favor of plaintiff.

● CUBA failed to pay the amortizations stipulated in the DCS. After such
failure, she entered with the DBP a Temporary Agreement dated Feb. 23,
1982 whereby in consideration for the deferment of the Notarial Rescission
of DCS, CUBA promised to make certain payments.

● Defendant DBP sent a Notice of Rescission thru Notarial Act dated March
13, 1984, and which was received by CUBA. After such notice, DBP took
possession of the Leasehold Rights of the fishpond.

● After taking possession, DBP advertised in the SUNDAY PUNCH the

public bidding to dispose of the property.

● DBP thereafter executed a DCS in favor of defendant Agripina Caperal.

● Caperal was awarded Fishpond Lease Agreement No. 2083-A by the

Ministry of Agri. and Food.

● Before the RTC, CUBA asserted that the act of DBP in appropriating to

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 itself CUBA’s leasehold rights over the fishpond without foreclosure
proceedings was contrary to Art. 2088 of the CC and therefore invalid. DBP
countered that it merely exercised its contractual right under the
Assignments of Leasehold Rights, which was not a contract of mortgage.
RTC resolved the issue in favor of CUBA declaring that DBP’s act of taking
possession and ownership of the property was violative of At. 2088 of CC:
Art. 2088. 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.

It disagreed with DBP's stand that the Assignments of Leasehold Rights

were not contracts of mortgage because (1) they were given as security
for loans, (2) although the "fishpond land" in question is still a public land,
CUBA's leasehold rights and interest thereon are alienable rights which
can be the proper subject of a mortgage; and (3) the intention of the
contracting parties to treat the Assignment of Leasehold Rights as a
mortgage was obvious and unmistakable; hence, upon CUBA's default,
DBP's only right was to foreclose. RTC further declared as invalid a
condition in the Assignment of Leasehold Rights for being a clear case of
pactum commissorium expressly prohibited and declared null and void by
Art. 2088.

● CA ruled that the RTC erred in declaring that the Deed of Assignment was
null and void and that defendant Caperal could not validly acquire the
leasehold rights from DBP.

Contrary to the claim of DBP, the assignment was not a cession under Art.
1255 of the CC because DBP appeared to be the sole creditor to CUBA
(cession presupposes plurality of debts and creditors). The deeds of
assignment represented the voluntary act of Cuba in assigning her
property rights in payment of her debts, which amounted to a novation of
the promissory notes executed by CUBA in favor of DBP. CUBA was
estopped from questioning the assignment of the leasehold rights, since
she agreed to repurchase the said rights under a DCS. The condition,
which the RTC ruled as pactum commissorium, was an express authority
from CUBA for DBP to sell whatever right she had over the fishpond.

ISSUE: W/N the assignment of leasehold rights was a mortgage contract? Yes.

HELD: Decision of CA reversed, except as to the award of moral damages which

is sustained. Decision of RTC modified setting aside the finding that the condition
of the deed of assignment constituted pactum commissorium. DBP is ordered to
render an accounting of the income derived from the operation of the fishpond.

● The SC agrees with CUBA that the assignment of leasehold rights was a
mortgage contract. CUBA obtained from DBP three separate loans
totalling P335k, each was covered by a PN. In all those PNs, there was a
provision that: “in the event of foreclosure of the mortgage securing this
notes, I/We further bind myself/ourselves, jointly and severally, to pay the
deficiency, if any.”

● Together with the execution of the notes was an execution of “assignment

of Leasehold Rights” where CUBA assigned her leasehold rights and
interest on a 44-hectare fishpond, with its improvements. The deeds of
Assignment constantly referred to the assignor (CUBA) as “borrow”; the

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 assigned rights, as mortgaged properties; and the instrument itself, as
mortgage contract. Under one condition of the deed, it was provided that
“failure to comply with the terms and condition of any of the loans shall
cause all other loans to become due and demandable and all mortgages
shall be foreclosed." Another condition states that if "foreclosure is actually
accomplished, the usual 10% attorney's fees and 10% liquidated damages
of the total obligation shall be imposed."

Therefore, there is no shred of doubt that a mortgage was intended.

● Besides, in their stipulation of facts the parties admitted that the

assignment was by way of security for the payment of the loans. (3rd bullet
under FACTS.)

● People’s Bank & Trust Co. v. Odom: As assignment to guarantee an

obligation is in effect a mortgage.

● SC does not agree with DBP’s contention that the assignment novated the
promissory notes. The said assignment merely complemented or
supplemented the notes; both could stand together. The former was only
an accessory to the latter. Contrary to DBP's submission, the obligation to
pay a sum of money remained, and the assignment merely served as
security for the loans covered by the promissory notes.

● Neither did the assignment amount to payment by cession, nor did the
assignment constitute dation in payment.

● The assignment, being in its essence a mortgage, was but a security and
not a satisfaction of indebtedness.

● The elements of pactum commissorium are as follows:

(1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and
(2) there should be a stipulation for automatic appropriation by the creditor
of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.

The condition assailed did not provide that the ownership over the
leasehold rights would automatically pass to DBP upon CUBA's failure to
pay the loan on time. It merely provided for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or otherwise
dispose of the said real rights, in case of default by CUBA, and to apply
the proceeds to the payment of the loan. Such provision is a standard
condition in mortgage contracts.

● DBP's act of appropriating CUBA's leasehold rights was 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.

Bustamante v Rosel, FACTS:

319 SCRA 413 ● MAR. 8, 1987 — Respondent Norma Rosel entered into a loan agreement
(1999) with petitioner Natalia Bustamante and her late husband Ismael
Bustamante. The agreement had the following terms and conditions:
MARASIGAN ○ Natalia and Ismael owned a parcel of land with an area of 423 sq.

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 mts. in Congressional Ave. She wanted to borrow a sum of P100K
from Rosel for a period of 2 years, counted from Mar. 1, 1987 with
an interest of 18% per annum. To guaranty the payment thereof,
they are putting as a collateral 70 sq. mts. portion, inclusive of the
apartment therein, of the aforestated parcel of land and in the
event that Natalia and Ismael fail to pay, Rosel has the option
to purchase the collateral for P200K, inclusive of the amount and
interest therein.

● When the loan was about to mature on Mar. 1, Rosel proposed to buy the
70 sq. mtr. Lot (the collateral) for P200K. Natalia refused and instead
requested for an extension of time. She even offered to sell to Rosel
another residential lot located in Proj. 8, QC, but the latter refused.

● MAR. 1, 1987 — Natalia tendered the payment of the loan, but Rosel
refused to accept the payment and insisted that Natalia prepare the signing
of the deed of absolute sale of the collateral. Natalia then filed a complaint
with the RTC for specific perfomance and consignation against Rosel.

● MAR. 4, 1987 — Rosel filed a demand letter asking petitioner to sell the
collateral pursuant to the option to buy in the loan agreement. However,
Natalia consigned with the court the amount of P47,500.
○ Natalia considered the principal loan of P100K and 18% interest
per annum (P52K). The principal lot and the interest taken together
amounted to P152K, leaving a balance of P47,500.

● RTC — Ordered Natalia to pay P100K with 18% interest per annum
commencing on Mar. 2, 1989 up to and until Aug. 10, 1990.

● Rosel filed for an appeal. In the CA, the court stated “x x x and for
defendants to execute the necessary Deed of Sale in favor of plaintiffs over
the 70 sq. mtr. portion and the apartment standing thereon occupied by the
plaintiffs within 15 days thereof x x x”

● Thus, this case.

ISSUE: WoN Natalia failed to pay the loan at its maturity and is thus obliged to sell
the 70 sq. mtr. lot in accordance with the loan contract? NO.

HELD:
● Natalia contended that the agreement was not a sale with a right to re-
purchase, but a loan with an interest of 18% per annum and if petitioner
fails to pay, Rosel was given the right to purchase the property or
apartment for P200K.

● The Court ruled in favor of Natalia and stated that she did not fail to pay.
On Mar. 1, 1989 or the date of maturity, Natalia was able to settle her loan.
When Rosel refused to accept the payment, Natalia consigned with the
Court.

● The sale of the collateral is an obligation with a suspensive condition. It is

dependent upon the happening of an event, without which the obligation
to sell does not arise. In this case, the event of non-payment did not occur,
thus Rose does not have the right to demand the sale of the 70 sq.
mtr. property.

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 ● The Court stated that the subtle intention of the creditor was to acquire the
property given as security for the loan. This is called pactum
commissorium, which is prohibited by law. Its elements are:
○ There is a property mortgaged by way of security for the payment
of the principal obligation.
○ There is a stipulation automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.

● In Nakpil v. IAC, the Court held that pactum commissorium is expressly

prohibited by Art. 2088 of the CC.

● In this case, the intent to appropriate the property given as collateral in

favor of the creditor is evident, for the debtor is obliged to dispose of the
collateral at the pre-agreed consideration amounting to practically the
same amount as the loan. In effect, the creditor acquires the collateral in
the event of non-payment of loan. This is pactum commissorium and such
is void.

● Petition is granted.

Ong v Roban Ponente: Justice Carpio Morales

Lending Corp., 557
SCRA 516 (2008) FACTS:
Petitioners: Spouses Wilfredo Ong and Edna Shiela Paguio-Ong
TAONGAN Respondent: Roban Lending Corp.

● On different dates from July 14, 1999 to March 20, 2000, petitioner-
spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several
loans from Roban Lending Corporation (respondent) in the total amount of
₱4,000,000.00. These loans were secured by a real estate mortgage on
petitioners’ parcels of land located in Binauganan, Tarlac City.

● On February 12, 2001, petitioners and respondent executed an

Amendment to Amended Real Estate Mortgage consolidating their loans
inclusive of charges thereon which totaled ₱5,916,117.50. They then
executed a Dacion in Payment Agreement wherein petitioners assigned
the properties (parcels of land in Tarlac) to respondent in settlement of their
total obligation, and a Memorandum of Agreement.

● The MOA reads:

That the FIRST PARTY [Roban Lending Corporation] and the SECOND
PARTY [Spouses Ong] agreed to consolidate and restructure all
aforementioned loans, which have been all past due and delinquent since
April 19, 2000, and outstanding obligations totaling P5,916,117.50. The
SECOND PARTY hereby sign another promissory note in the amount of
P5,916,117.50 (a copy of which is hereto attached and forms xxx an
integral part of this document), with a promise to pay the FIRST PARTY in
full within one year from the date of the consolidation and restructuring,
otherwise the SECOND PARTY agree to have their "DACION IN
PAYMENT" agreement, which they have executed and signed today in
favor of the FIRST PARTY be enforced.

● In April 2002, Spouses Ong filed a Complaint before the RTC for

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 declaration of mortgage contract as abandoned, annulment of deeds,
illegal exaction, unjust enrichment, accounting, and damages, alleging that
the Memorandum of Agreement and the Dacion in Payment executed are
void for being pactum commissorium.

● Spouses Ong alleged that the loans extended to them from July 14, 1999
to March 20, 2000 were founded on several uniform promissory notes,
which provided for 3.5% monthly interest rates, 5% penalty per month on
the total amount due and demandable, and a further sum of 25% attorney’s
fees thereon, and in addition, respondent exacted certain sums
denominated as "EVAT/AR." They stated these additional charges as
"illegal, iniquitous, unconscionable, and revolting to the conscience as they
hardly allow any borrower any chance of survival in case of default."

● Spouses Ong further alleged that they had previously made payments on
their loan accounts, but because of the illegal exactions thereon, the total
balance appears not to have moved at all, hence, accounting was in order.

● Roban Lending Corp maintained the legality of its transactions with

petitioner spouses alleging that:
○ If the voluntary execution of the Memorandum of Agreement
(MOA) and Dacion in Payment Agreement (DPA) novated the Real
Estate Mortgage then the allegation of Pactum Commissorium has
no more legal leg to stand on;
○ The Dacion in Payment Agreement is lawful and valid as it is
recognized under Art. 1245 of the Civil Code as a special form of
payment whereby the debtor-Plaintiffs alienates their property to
the creditor-Defendant in satisfaction of their monetary obligation;
○ The accumulated interest and other charges which were computed
for more than two (2) years would stand reasonable and valid
taking into consideration that the principal loan is ₱4,000,000 and
if indeed it became beyond the Plaintiffs’ capacity to pay then the
fault is attributed to them and not the Defendant.

● The hearing was rescheduled four times. In its decision, RTC, finding on
the basis of the pleadings that there was no pactum commissorium,
dismissed the complaint.

● CA noted that the summary judgment of RTC was not proper as the answer
in this case had an issue, the validity of the MOA and DPA. Nevertheless,
CA upheld the RTC decision that there was no pactum commissorium.

ISSUE: Whether or not the Memorandum of Agreement (MOA) and the Dacion En
Pago agreement (DPA) were designed to circumvent the law against pactum
commissorium. - YES

HELD:
● YES. This Court finds that the Memorandum of Agreement and Dacion in
Payment constitute pactum commissorium, which is prohibited under
Article 2088 of the Civil Code which provides:

○ “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."

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 ● The elements of pactum commissorium, which enables the mortgagee to
acquire ownership of the mortgaged property without the need of any
foreclosure proceedings, are:
○ (1) there should be a property mortgaged by way of security for the
payment of the principal obligation, and
○ (2) there should be a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.

● In the case at bar, the Memorandum of Agreement and the Dacion in

Payment contain no provisions for foreclosure proceedings nor
redemption. Under the Memorandum of Agreement, the failure by the
petitioners to pay their debt within the one-year period gives respondent
the right to enforce the Dacion in Payment transferring to it ownership of
the properties originally covered. Respondent, in effect, automatically
acquires ownership of the properties upon petitioners’ failure to pay their
debt within the stipulated period.

● Respondent argues that the law recognizes dacion en pago as a special

form of payment whereby the debtor alienates property to the creditor in
satisfaction of a monetary obligation. This is incorrect. In a true dacion en
pago, the assignment of the property extinguishes the monetary debt. In
the case at bar, the alienation of the properties was by way of security, and
not by way of satisfying the debt.

● The Dacion in Payment did not extinguish petitioners’ obligation to

respondent. On the contrary, under the Memorandum of Agreement
executed on the same day as the Dacion in Payment, petitioners had to
execute a promissory note for ₱5,916,117.50 which they were to pay within
one year.

● That the questioned contracts were freely and voluntarily executed by

petitioners and respondent is of no moment, pactum commissorium being
void for being prohibited by law.

● This Court, based on existing jurisprudence, finds the monthly interest rate
of 3.5%, or 42% per annum unconscionable and thus reduces it to 12%
per annum. This Court finds too the penalty fee at the monthly rate of 5%
(60% per annum) of the total amount due and demandable – principal plus
interest, with interest not paid when due added to and becoming part of the
principal and likewise bearing interest at the same rate, compounded
monthly – unconscionable and reduces it to a yearly rate of 12% of the
amount due, to be computed from the time of demand. This Court finds the
attorney’s fees of 25% of the principal, interests and interests thereon, and
the penalty fees unconscionable, and thus reduces the attorney’s fees to
25% of the principal amount only.

● The prayer for accounting in petitioners’ complaint requires presentation of

evidence, they claiming to have made partial payments on their loans, vis
a vis respondent’s denial thereof. A remand of the case is thus in order.
The RTC and the CA also erred in holding that a summary judgment is
proper.

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET

ASIDE. The Memorandum of Agreement and the Dacion in Payment executed by

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 petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent
Roban Lending Corporation are declared NULL AND VOID for being pactum
commissorium.

Sps Sy v De Vera- FACTS:

Navarro (G.R. No. ● Petitioner John was one of the co-owners of a parcel of land and the four-
239088. April 3, storey building situated at Rizal Street, Barangay Zone IV, Zamboanga
2019) City. Petitioners Sps. Sy alleged that the subject property has a market
value of more than P40,000,000.00.
VILLAVIRAY ● On May 31, 2006, petitioner John, for himself and in representation of his
co-owners, borrowed P3,720,000.00 from respondent De Vera- Navarro,
secured by a Real Estate Mortgage Contract (Mortgage Contract) over the
subject property which was annotated on TCT T-171,105 on June 2, 2006.
Petitioners Sps. Sy then alleged that immediately after the execution of the
Mortgage Contract, as per usual practice, respondent De Vera-Navarro
asked petitioner John to execute an undated Deed of Absolute Sale with a
stated consideration in the amount of P5,000,000.00, supposedly for the
purpose of providing additional security for the loan. Petitioners Sps. Sy
also claimed that petitioner John and respondent De Vera-Navarro verbally
agreed that the mode of payment for the said loan would be respondent
De Vera-Navarro's collection of rental payments from the tenants of the
subject property in the total amount of P70,000.00 per month for five years.
● On March 22, 2011, to the surprise of petitioner John, he was informed by
respondent Benjaemy Ho Tan Landholdings, Inc. (BHTLI) through a letter
from its representative that the ownership of the subject property had been
transferred to respondent De Vera- Navarro; that a TCT, i.e., TCT T-
199,288, was issued in favor of respondent De Vera- Navarro; and that
respondent BHTLI was demanding that the petitioners Sps. Sy vacate the
subject property.
● On March 24, 2011, one of the co-owners, petitioner Valentino, caused the
annotation of an adverse claim on TCT T-199,288. Such annotation of
adverse claim was carried over to TCT T-129-2011001530.
● On March 30, 2011, a Deed of Absolute Sale was executed by respondent
De Vera-Navarro in favor of respondent BHTLI. The records reveal that on
July 21, 2011, a new title, i.e., TCT T-129-2011001530, was issued in favor
of respondent BHTLI.
● Petitioners Sps. Sy claimed that they are the rightful owners of the subject
property since the undated Deed of Absolute Sale executed purportedly
between petitioner John and respondent De Vera-Navarro is allegedly null
and void, and that, despite the execution of the Deed of Absolute Sale
dated March 30, 2011 by respondent De Vera-Navarro in favor of
respondent BHTLI, the latter has no right to own the property as it was
allegedly not a buyer in good faith.
● Respondent De Vera-Navarro, while admitting the existence of the
Mortgage Contract to secure the P3,720,000.00 loan agreement with
petitioners Sps. Sy, alleged that the amount remained unpaid and that
John even obtained additional loans reaching more or less
P10,500,000.00. Further, respondent De Vera- Navarro claimed that on
February 6, 2007, petitioner John sold to her the subject property by virtue
of the undated Deed of Absolute Sale.
● RTC ruled in favor of the Spouses Sy. CA reversed this decision, thus this
petition.
ISSUES:
1. Whether the transaction between petitioner John and respondent De Vera-

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 Navarro was a valid contract of sale and not an equitable mortgage? NO.
2. Whether respondent BHTLI was a buyer in good faith? NO
HELD:
1st Issue- The purported contract of sale is an equitable mortgage.
● An equitable mortgage is defined as one which although lacking in some
formality, or form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property as
security for a debt, and contains nothing impossible or contrary to law. Its
essential requisites are: (1) that the parties entered into a contract
denominated as a contract of sale; and (2) that their intention was to secure
an existing debt by way of a mortgage.
● Article 1602 of the Civil Code states that a contract shall be presumed to
be an equitable mortgage, in any of the following cases:
1. When the price of a sale with right to repurchase is unusually
inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. 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;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. 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.
● Article 1604 of the Civil Code provides that the above-mentioned badges
of an equitable mortgage apply to a contract purporting to be an absolute
sale, such as in the instant case.
● Jurisprudence consistently shows that the presence of even one of the
circumstances enumerated in Article 1602 suffices to convert a purported
contract of sale into an equitable mortgage. The existence of any of the
circumstances defined in Article 1602, not the concurrence nor an
overwhelming number of such circumstances, is sufficient for a contract of
sale to be presumed an equitable mortgage. In fact, the Court has
previously ruled that when in doubt, courts are generally inclined to
construe a transaction purporting to be a sale as an equitable mortgage,
which involves a lesser transmission of rights and interests over the
property in controversy.
● The Court finds that the presence of at least four badges of an equitable
mortgage creates a very strong presumption that the purported contract of
sale entered between petitioner John and respondent De Vera- Navarro is
an equitable mortgage.
1. Petitioner John, remains to be in possession of the subject property
despite purportedly selling the latter to respondent De Vera-Navarro.
2. The purchase price of the purported sale indicated in the undated
Deed of Absolute Sale is inadequate. RTC found that similar
establishments located at the commercial center of Zamboanga City
have a value of around P20,000,000.00. Thus, the P5,000,000.00
purchase price supposedly agreed upon by the parties is grossly
inadequate. The inadequacy of the purchase price is even confirmed
by the acts of respondent De Vera-Navarro herself. She was able to
mortgage the subject property with Landbank for an amount of
P13,000,000.00. She also sold the subject property to respondent
BHTLI for the same amount of P13,000,000.00.
3. The evidence on record shows that respondent De Vera-Navarro
retained for herself the supposed purchase price. RTC also noted

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 that no proof was presented by respondent De Vera-Navarro that
she actually parted with the sum of P5,000,000.00 in favor of
petitioner John pursuant to the undated Deed of Absolute Sale.
4. It is established that the real intention of the parties is for the
purported contract of sale to merely secure the payment of their debt
owing to respondent De Vera-Navarro.
● A document which appears on its face to be a sale may be proven by the
vendor to be one of a loan with mortgage. In this case, parol evidence
becomes competent and admissible to prove that the instrument was in
truth and in fact given merely as a security for the payment of a loan. And
upon proof of the truth of such allegations, the court will enforce the
agreement or understanding in consonance with the true intent of the
parties at the time of the execution of the contract.
● All the documentary evidence of respondent De Vera-Navarro supporting
her claims were not admitted into evidence; the Formal Offer of Evidence
of De Vera-Navarro was ordered expunged by the RTC. Evidence not
formally offered has no probative value and must be excluded by the court.

2nd Issue- BHTLI is NOT a buyer in good faith.

● Jurisprudence holds that he who alleges that he is a purchaser of
registered land is burdened to prove such statement. Such burden is not
discharged by simply invoking the ordinary presumption of good faith.In the
instant case, the Court finds that respondent BHTLI failed to discharge
such burden. Instead of showing good faith on the part of respondent
BHTLI, the incontrovertible facts establish respondent BHTLI's status as a
buyer in bad faith.
● The Court has held that actual lack of knowledge of the flaw in title by one's
transferor is not enough to constitute a buyer in good faith where there are
circumstances that should put a party on guard, such as the presence of
occupants in the subject property. Again, it is not disputed that petitioners
Sps. Sy have been in continuing possession of the subject property. Yet,
this fact did not prompt respondent BHTLI to investigate further as to the
contract of sale it entered with respondent De Vera-Navarro.
● Respondent BHTLI cannot seriously feign ignorance of any infirmity,
considering that prior to its entering into the Deed of Absolute Sale with
respondent De Vera-Navarro, petitioner Valentino had already caused the
annotation of an adverse claim on TCT T-199,288.

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November

23, 2017 and Resolution dated April 20, 2018 of the Court of Appeals in CA-G.R.
CV No. 04016-MIN are REVERSED. Accordingly, the Decision dated October 8,
2014 issued by the Regional Trial Court of Zamboanga City, Branch 12 in Civil
Case No. 6333 is REINSTATED WITH MODIFICATIONS

From this point on, the new sequencing will start including Jaleco and Peñafiel.

REAL ESTATE MORTGAGE

Prudential Bank v FACTS:

Alviar and Alviar, 464 ● Respondents, spouses Don and Georgia Alviar are the registered owners
SCRA 353 (2005) of a parcel of land in San Juan, Metro Manila, covered by Transfer
Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal.
ALMADRO ● On July 10, 1975, they executed a deed of real estate mortgage (REM) in
favor of petitioner Prudential bank to secure the payment of a loan worth

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 Php250,000. It was annotated at the back of the TCT
● The respondents executed the corresponding promissory note, PN
BD#75/C-252, covering the said loan, which provides that the loan matured
on Aug. 4 1976 at an interest rate of 12% per annum with a 2% service
charge, and that the note is secured by a REM.
● REM clause:
That for and in consideration of certain loans, overdraft and other
credit accommodations obtained from the Mortgagee by the
Mortgagor and/or ________________ hereinafter referred to,
irrespective of number, as DEBTOR, and to secure the payment
of the same and those that may hereafter be obtained, the
principal or all of which is hereby fixed at Two Hundred Fifty
Thousand (P250,000.00) Pesos, Philippine Currency, as well as
those that the Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary as appears in the accounts, books and
records of the Mortgagee, the Mortgagor does hereby transfer and
convey by way of mortgage unto the Mortgagee, its successors or
assigns, the parcels of land which are described in the list inserted
on the back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . .
● On Oct. 22, 1976, Don Alviar executed another PN for Php2,640,000.00
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, and that the mortgagor's passbook is to be
surrendered to the bank until the amount secured by the "hold-out" is
settled.
● The respondent spouses subsequently executed for Donalco Trading Inc.,
of which they were President and Chairman of the Board of Vice Pres., a
PN covering Php545,000.00. The loan is secured by “Clean-Phase out
TOD CA 3923,” which means that the temporary overdraft incurred by
Donalco Trading, Inc. with petitioner will be converted to an ordinary loan
in compliance with the Central Bank circular directing the discontinuance
of overdrafts.
● Petitioner wrote Donalco Trading, Inc., informing the latter of its approval
of a straight loan of P545,000.00, the proceeds of which shall be used to
liquidate the outstanding loan of P545,000.00 TOD. It also mentioned that
the securities for the loan were the deed of assignment on two promissory
notes executed by Bancom Realty Corporation with Deed of Guarantee in
favor of A.U. Valencia and Co. and the chattel mortgage on various heavy
and transportation equipment.
● On 06 March 1979, respondents 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 located at Vam Buren and Madison Streets, North
Greenhills, San Juan, Metro Manila. Petitioner then released the mortgage
over the 2 properties.
● On Jan. 15, 1980, the petitioner moved for the extrajudicial foreclosure of
the mortgage on the property because the respondents had a total
obligation of Php1,608,256.68 covering 3 promissory notes.

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 ● Respondents filed a complaint for damages with a prayer for the issuance
of a writ of preliminary injunction with the RTC of Pasig, claiming that they
have paid their principal loan secured by the mortgaged property, and thus
the mortgage should not be foreclosed. Petitioner said that the payment of
Php2,000,000.00 made on March 6, 1979 was not a payment by
respondents, but by G.B Alviar Realty.
● RTC dismissed the complaint and ordered the sheriff to proceed with extra-
judicial foreclosure. Respondents sought reconsideration and thereafter
the trial court issued an order setting aside its earlier decision and awarded
attorney's fees to respondents.
● It found that only the P250,000.00 loan is secured by the mortgage on the
land covered by TCT No. 438157. On the other hand, the P382,680.83
loan is secured by the foreign currency deposit account of Don A. Alviar,
while the P545,000.00 obligation was an unsecured loan, being a mere
conversion of the temporary overdraft of Donalco Trading, Inc. in
compliance with a Central Bank circular.
● According to the trial court, mortgagors, such as Donalco Trading, Inc., for
which respondents merely signed as officers thereof.
● CA affirmed the order of the trial court but deleted the award of attorney’s
fees.
● It ruled that while a continuing loan or credit accommodation based on only
one security or mortgage is a common practice in financial and commercial
institutions, such agreement must be clear and unequivocal. In the instant
case, the parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate court ruled that the
extrajudicial foreclosure sale of the property for the three loans is improper.
● The CA also found that the respondents have not yet paid the
Php250,000.00 covered by PN BD#75/C-252 since the Php2,000,000.00
paid by respondents was for the obligations of G.B. Alviar Realty and
Development.

ISSUE/S:
1. W/N the “blanket mortgage clause” or the “dragnet clause” is valid?
Yes?
2. W/N the “blanket mortgage clause” or the “dragnet clause” covers the
3 promissory notes? No

HELD:

Piercing the veil of corporate fiction:

One of the loans sought to be included in the "blanket mortgage clause"

was obtained by respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430
was executed by respondents on behalf of Donalco Trading, Inc. and not in their
personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction
and hold respondents liable even for obligations they incurred for the corporation.
The mortgage contract states that the mortgage covers "as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary." Well- settled is the rule that a corporation has a personality
separate and distinct from that of its officers and stockholders. Officers of a
corporation are not personally liable for their acts as such officers unless it is shown
that they have exceeded their authority. However, the legal fiction that a
corporation has a personality separate and distinct from stockholders and

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members may be disregarded if it is used as a means to perpetuate fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the circumvention
of statutes, or to confuse legitimate issues. PN BD#76/C-430, being an obligation
of Donalco Trading, Inc., and not of the respondents, is not within the
contemplation of the "blanket mortgage clause.” Moreover, petitioner is unable
to show that respondents are hiding behind the corporate structure to evade
payment of their obligations. Save for the notation in the promissory note that the
loan was for house construction and personal consumption, there is no proof
showing that the loan was indeed for respondents' personal consumption.

Main Issues:

A "blanket mortgage clause," also known as a "dragnet clause" in

American jurisprudence, is one which is specifically phrased to subsume all debts
of past or future origins. Such clauses are "carefully scrutinized and strictly
construed." Mortgages of this character enable the parties to provide continuous
dealings, the nature or extent of which may not be known or anticipated at the time,
and they avoid the expense and inconvenience of executing a new security on each
new transaction. 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. Indeed,
it has been settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts, and the amounts named as
consideration in said contracts 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.

The blanket mortgage clause in the instant case states: (Now go back to the REM
clause and mind the words in bold/underline)

Thus, contrary to the finding of the Court of Appeals, 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. The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe it otherwise.

The cases cited by petitioner, are of a different factual milieu from the instant case
because the subsequent loans in those cases were not covered by any security
other than the mortgage deeds which contained the dragnet clause.

In the case at bar, the subsequent loans obtained by respondents were secured by
other securities such as the “hold-out” on Don Alviar’s foreign currency savings
account, the PN executed by respondents for Donalco Trading, secured by a
“Clean-Phase out,” (discussed above that it is not part of the blanket mortgage
clause), and a deed of assignment on two promissory notes executed by Bancom
Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and
by a chattel mortgage on various heavy and transportation equipment.

2 schools of thought in American Jurisprudence:

1. One school advocates that a "dragnet clause" so worded as to be
broad enough to cover all other debts in addition to the one
specifically secured will be construed to cover a different debt,
although such other debt is secured by another mortgage.

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 2. The contrary thinking maintains that a mortgage with such a clause
will not secure a note that expresses on its face that it is otherwise
secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein, such
deficiency being an indebtedness within the meaning of the
mortgage, in the absence of a special contract excluding it from
the arrangement.

We go with the second one. The parties having conformed to the "blanket mortgage
clause" or "dragnet clause," it is reasonable to conclude that they also agreed to
an implied understanding that subsequent loans need not be secured by other
securities, as the subsequent loans will be secured by the first mortgage. Thus,
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."

Indeed, in some instances, it has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a "dragnet clause" will not
be extended to cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing security therefor.

It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory notes.
While the existence and validity of the "dragnet clause" cannot be denied, there is
a need to respect the existence of the other security given for PN BD#76/C-345.
The foreclosure of the mortgaged property should only be for the P250,000.00 loan
covered by PN BD#75/C- 252, and for any amount not covered by the security for
the second promissory note.

Note: While the "dragnet clause" subsists, the security specifically executed for
subsequent loans must first be exhausted before the mortgaged property can be
resorted to.

Contract of adhesion: (No need to really read this part but in the off chance sir
asks about contracts of adhesion)

One other crucial point. The mortgage contract, as well as the promissory notes
subject of this case, is a contract of adhesion, to which respondents' only
participation was the affixing of their signatures or "adhesion" thereto. 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. Consequently, any ambiguity is to be taken contra proferentum,
that is, construed against the party who caused the ambiguity which could have
avoided it by the exercise of a little more care. To be more emphatic, any ambiguity
in a contract whose terms are susceptible of different interpretations must be read
against the party who drafted it, which is the petitioner in this case.

Petitioner, however, is not without recourse. Both the Court of Appeals and the trial
court found that respondents have not yet paid the P250,000.00, and gave no
credence to their claim that they paid the said amount when they paid petitioner
P2,000,000.00. 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

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 been exhausted, subject of course to defenses which are available to respondents.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in

CA-G.R. CV No. 59543 is AFFIRMED.

People's Bank & FACTS:

Trust Co. and AG&P ● On September 8, 1948, Atlantic Gulf & Pacific Company of Manila
Manila v Dahican (ATLANTIC) sold and assigned all its rights in the Dahican Lumber
Lumber Co., 20 concession to Dahican Lumber Company (DALCO) for the total sum of
SCRA 84 (1967) $500,000.00, of which only the amount of $50,000.00 was paid.
● Thereafter, to develop the concession, DALCO obtained various loans
BERNARDO from the People's Bank & Trust Company (BANK) — amounting, as of July
13, 1950, to P200,000.00. In addition, DALCO obtained, through the
BANK, a loan of $250,000.00 from the Export-Import Bank of Washington
D.C., evidenced by five promissory notes of $50,000.00 each, maturing on
different dates, executed by both DALCO and the Dahican America
Lumber Corporation (DAMCO), a foreign corporation and a stockholder of
DALCO, all payable to the BANK or its order.
● As security for the payment of the abovementioned loans, on July 13, 1950
DALCO executed in favor of the BANK a deed of mortgage covering five
parcels of land situated in the province of Camarines Norte together with
all the buildings and other improvements existing thereon and all the
personal properties of the mortgagor located in its place of business in the
municipalities of Mambulao and Capalonga, Camarines Norte.
● 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 amounting to the sum of
$450,000.00. 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:
● 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.
● In connection with these purchases, there appeared in the books of
DALCO as due to Connell Bros. Company (Philippines) (CONNELL) — a
domestic corporation who was acting as the general purchasing agent of
DALCO the sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.
● On December 16, 1952, the Board of Directors of DALCO, in a special
meeting called for the purpose, passed a resolution agreeing to rescind the
alleged sales of equipment, spare parts and supplies by CONNELL and
DAMCO to it. Thereafter, the corresponding agreements of rescission of
sale were executed between DALCO and DAMCO, on the one hand and
between DALCO and CONNELL, on the other.
● On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC,
demanded that said agreements be cancelled but CONNELL and DAMCO

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 refused to do so. As a result, on February 12, 1953; ATLANTIC and the
BANK, commenced foreclosure proceedings in the Court of First Instance
of Camarines Norte against DALCO and DAMCO.
● On the same date they filed an ex-parte application for the appointment of
a Receiver and/or for the issuance of a writ of preliminary injunction to
restrain DALCO from removing its properties. The court granted both
remedies and appointed George H. Evans as Receiver. Upon defendants'
motion, however, the court, in its order of February 21, 1953, discharged
the Receiver.
● On August 30, 1958, upon motion of all the parties, the Court ordered the
sale of all the machineries, equipment and supplies of DALCO, and the
same were subsequently sold for a total consideration of P175,000.00
which was deposited in court pending final determination of the action.
● By a similar agreement one-half (P87,500.00) of this amount was
considered as representing the proceeds obtained from the sale of the
"undebated properties" (those not claimed by DAMCO and CONNELL),
and the other half as representing those obtained from the sale of the "after
acquired properties".

ISSUE:
Whether or not the so-called "after acquired properties" are covered by and subject
to the deeds of mortgage subject of foreclosure [Y]

Whether or not the mortgages are 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? [Y, they became real property]

Whether or not the foreclosure proceedings were immature [N]

HELD:
#1
● Under the fourth paragraph of both deeds of mortgage, 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.”
● As the language thus used leaves no room for doubt as to the intention of
the parties, We see no useful purpose in discussing the matter extensively.
● Suffice it to say that the stipulation referred to is common, and We might
say logical, in all cases where the properties given as collateral are
perishable or subject to inevitable wear and tear or were intended to
be sold, or to be used — thus becoming subject to the inevitable wear
and tear — but with the understanding — express or implied — that
they shall be replaced with others to be thereafter acquired by the
mortgagor.
● 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

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 ● As adverted to hereinbefore, it states that all property of every nature,
building, machinery etc. taken in exchange or replacement by the
mortgagor "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". No clearer language could have been chosen.
● Conceding, on the other hand, that it is the law in this jurisdiction that, to
affect third persons, a chattel mortgage must be registered and must
describe the mortgaged chattels or personal properties sufficiently to
enable the parties and any other person to identify them, We say that such
law does not apply to this case.
● Article 415 does not define real property but enumerates what are
considered as such, among them being machinery, receptacles,
instruments or replacements intended by owner of the tenement for an
industry or works which may be carried on in a building or on a piece of
land, and shall tend directly to meet the needs of the said industry or works.
● On the strength of the above-quoted legal provisions, the lower court held
that inasmuch as "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".

We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334,
paragraph 5 of the Civil Code (old) gives the character of real property to
machinery, liquid containers, instruments or replacements intended by the owner
of any building or land for use in connection with any industry or trade being carried
on therein and which are expressly adapted to meet the requirements of such trade
or industry.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a
mortgage constituted on a sugar central includes not only the land on which it is
built but also the buildings, machinery and accessories installed at the time the
mortgage was constituted as well as the buildings, machinery and accessories
belonging to the mortgagor, installed after the constitution thereof .

● 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" and affect third
parties.

Davao v Sawmill does not apply

● But defendants, invoking the case of Davao Sawmill Company vs. Castillo,
61 Phil. 709, claim that the "after acquired properties" did not become
immobilized because DALCO did not own the whole area of its lumber
concession all over which said properties were scattered.
● The facts in the Davao Sawmill case, however, are not on all fours with the
ones obtaining in the present. In the former, the Davao Sawmill Company,
Inc., had repeatedly treated the machinery therein involved as
personal property by executing chattel mortgages thereon in favor of
third parties,
● In the present case the parties had treated the "after acquired
properties" as real properties by expressly and unequivocally

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 agreeing that they shall automatically become subject to the lien of
the real estate mortgages executed by them.

#3
● Defendants claim that the action to foreclose the mortgages filed on
February 12, 1953 was premature because the promissory note sued upon
did not fall due until April 1 of the same year, concluding from this that,
when the action was commenced, the plaintiffs had no cause of action.
Upon this question the lower court says the following in the appealed
judgment;
● The other is the defense of prematurity of the causes of action in that
plaintiffs, as a matter of grace, conceded an extension of time to pay up to
1 April, 1953 while the action was filed on 12 February, 1953, but, as to
this, the Court taking it that there is absolutely no debate that Dahican
Lumber Co., was insolvent as of the date of the filing of the complaint, it
should follow that the debtor thereby lost the benefit to the period.
● The finding of the trial court is sufficiently supported by the evidence
particularly the resolution marked as Exhibit K, which shows that on
December 16, 1952 — in the words of the Chairman of the Board —
DALCO was "without funds, neither does it expect to have any funds in the
foreseeable future."
● The facts of this case, as stated heretofore, clearly show that DALCO and
DAMCO, after failing to pay the fifth promissory note upon its maturity,
conspired jointly with CONNELL to violate the provisions of the fourth
paragraph of the mortgages under foreclosure by attempting to defeat
plaintiffs' mortgage lien on the "after acquired properties". As a result, the
plaintiffs had to go to court to protect their rights thus jeopardized.
Defendants' liability for damages is therefore clear.

*Dispositive Portion of lower court that was affirmed by the SC just in case
IN VIEW WHEREFORE, the Court:
1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of
P200,000,00 with 7% interest per annum from July 13, 1950, Plus another
sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus
10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of
P900,000.00 with 4% interest per annum from July 3, 1950, plus 10% on
both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of
P425,860.55, and to pay unto Dahican American Lumber Co. the sum of
P2,151,678.24 both with legal interest from the date of the filing of the
respective answers of those parties, 10% of the principals as attorney's
fees;

4. Orders that of the sum realized from the sale of the properties of
P175,000.00, after deducting the recognized expenses, one-half thereof
be adjudicated unto plaintiffs, the court no longer specifying the share of
each because of that announced intention under the stipulation of facts to
"pool their resources"; as to the other one-half, the same should be
adjudicated unto both plaintiffs, and defendant Dahican American and
Connell Bros. in the proportion already set forth on page 9, lines 21, 22
and 23 of the body of this decision; but with the understanding that

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 whatever plaintiffs and Dahican American and Connell Bros. should
receive from the P175,000.00 deposited in the Court shall be applied to the
judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as

to the debated properties shall be borne by People's Bank, Atlantic Gulf,
Connell Bros., and Dahican American Lumber Co., pro-rata.

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90)
days, the Court orders the sale at public auction of the lands object of the
mortgages to satisfy the said mortgages and costs of foreclosure.

Star Two (SPV- FACTS:

AMC), Inc. v Paper ● Respondent Paper City is a domestic corporation engaged in the
City Corp. of the manufacture of paper products particularly cartons, newsprint and clay-
Phil., 692 SCRA 438 coated paper
(2013) ● On 1990-1991, Paper City applied for and was granted the following loans
by RCBC: P10,000,000.00, P14,000,000.00, P10,000,000.00, and
DE MESA P16,615,000.00 on different dates.
● The loans were secured by four (4) Deeds of Continuing Chattel Mortgages
on its machineries and equipments found inside its paper plants.
● On 25 August 1992, a unilateral Cancellation of Deed of Continuing
Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade was
executed by RCBC over the merchandise and stocks-in-trade covered by
the continuing chattel mortgage
● On 26 August 1992, RCBC, Metrobank and Union Ban entered into a
Mortgage Trust Indenture (MTI) with Paper City.
● In the said MTI, Paper City acquired an additional loan of One Hundred
Seventy Million Pesos (P170,000,000.00) from the creditor banks in
addition to the previous loan from RCBC amounting to P110,000,000.00
thereby increasing the entire loan to a total of P280,000,000
● The old loan of P110,000,000.00 was partly secured by 6 parcels of land
situated in Valenzuela City pursuant to five (5) Deeds of Real Estate
Mortgage
● The new loan obligation of P170,000,000.00 would be secured by the
same five (5) Deeds of Real Estate Mortgage and additional real and
personal properties
● The MTI was later amended to increase the contributions of the RCBC and
Union Bank to P80,000,000.00 and P70,000,000.00. As a consequence,
they executed a Deed of Amendment to MTI but still included as part of
the mortgaged properties by way of a first mortgage the various
machineries and equipments located in and bolted to and/or forming
part of buildings
● A Second Supplemental Indenture to the 26 August 1992 MTI was
executed on 7 June 1994 to increase the amount of the loan from
P280,000,000.00 to P408,900,000.00 secured against the existing
properties composed of land, building, machineries and equipments
and inventories
● A Third Supplemental Indenture to the 26 August 1992 MTI was
executed on 24 January 1995 to increase the existing loan obligation of
P408,900,000.00 to P555,000,000.00 with an additional security
composed of a newly constructed two-storey building and other
improvements, machineries and equipments located in the existing
plant site
● Paper City was able to comply with its loan obligations until July 1997. But

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 economic crisis ensued which made Paper City default in their obligations
● RCBC filed a Petition for Extrajudicial Foreclosure for the foreclosure
of eight (8) parcels of land including all improvements thereon
● Paper City then had an outstanding obligation with the creditor banks
adding up to (P901,801,484.10)
● A Certificate of Sale was executed on 8 February 1999 certifying that
the eight (8) parcels of land with improvements thereon were sold on
27 November 1998 in the amount (P702,351,796.28) in favor of the
creditor banks RCBC, Union Bank and Metrobank as the highest
bidders
● Paper City filed a Complaint on 15 June 1999 against the creditor banks
alleging that the extra-judicial sale of the properties and plants was null
and void due to lack of prior notice and attendance of gross and evident
bad faith on the part of the creditor banks
● Then Paper City and Union Bank entered into a Compromise Agreement.
● The negotiations between the other creditor banks and Paper City
remained pending
● During the interim, Paper City filed with the trial court a Manifestation
with Motion to Remove and/or Dispose Machinery on 18 December
2002 reasoning that the [machineries] located inside the foreclosed
land and building were deteriorating.
● Paper City contend that that since the machineries were not included
in the foreclosure of the real estate mortgage, it is appropriate that it
be removed from the building and sold to a third party
● The trial court, issued an Order denying the prayer and ruled that the
machineries and equipments were included in the annexes and form
part of the MTI dated 26 August 1992 as well as its subsequent
amendments.
● Further, the machineries and equipments are covered by the
Certificate of Sale issued as a consequence of foreclosure.
● Paper City filed its Motion for Reconsideration which was favorably granted
by the trial court in its Order dated 15 August 2003.
● RCBC filed with the CA a Petition for Certiorari
● The CA affirmed order of the trial court which granted a favorable
judgement to Paper City in its Motion for Reconsideration.
● RCBC elevated the matter to the SC.

ISSUE:

Whether the subject machineries are included in the foreclosure and cant be sold
by Paper City [Yes. The Machineries are included in the Real Estate Mortgage and
the foreclosure done by RCBC and It cannot be sold by Paper City]

HELD:.

[The Contracts]
The Original MTI dated 26 August 1992 states that : WHEREAS, against the same
mortgaged properties and additional real and personal properties more particularly
described in ANNEX "B" hereof, the MORTGAGOR desires to increase their
borrowings to (P280,000,000.00) or an increase of(P170,000,000.00) from various
banks/financial institutions

THAT the MORTGAGOR in consideration of the premises and of the acceptance

by the TRUSTEE of the trust hereby created, and in order to secure the payment
of the MORTGAGE OBLIGATIONS which shall be incurred by the MORTGAGOR

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pursuant to the terms hereof hereby states that with the execution of this
INDENTURE it will assign, transfer and convey as it has hereby ASSIGNED,
TRANSFERRED and CONVEYED by way of a registered first mortgage unto
[RCBC] the various parcels of land covered by several Transfer Certificates of Title
issued by the Registry of Deeds, including the buildings and existing improvements
thereon, as well as of the machinery and equipment more particularly
described and listed that is to say, the real and personal properties listed in
Annexes "A" and "B" hereof of which the MORTGAGOR is the lawful and
registered owner.

The Mortgage Trust Indenture and the Real Estate Mortgage are hereby amended
to include as part of the Mortgage Properties, by way of a first mortgage and for
pari-passu and pro-rata benefit of the existing and new creditors, various
machineries and equipment owned by the [Paper City], located in and bolted
to and forming part of the following, generally describes as . . . more particularly
described and listed in Annexes "A" and "B" which are attached and made integral
parts of this Amendment. The machineries and equipment listed in Annexes
"A" and "B" form part of the improvements listed above and located on the
parcels of land subject of the Mortgage Trust Indenture and the Real Estate
Mortgage

WHEREAS, the [Paper City] desires to increase its borrowings to be secured by

the INDENTURE from PESOS: (P280,000,000.00) to PESOS: (P408,900,000.00)
or an increase of PESOS of (P128,900,000.00).which represents additional loan/s
granted to the [Paper City] to be secured against the existing properties
composed of land, building, machineries and equipment and inventories
more particularly described in Annexes "A" and "B" of the INDENTURE

WHEREAS, in order to secure NEW/ADDITIONAL LOAN OBLIGATION under the

Indenture, there shall be added to the collateral pool subject of the Indenture
properties of the [Paper City] composed of newly constructed two (2)-storey
building, other land improvements and machinery and equipment all of which
are located at the existing Plant Site in Valenzuela, Metro Manila and more
particularly described in Annex "A" hereof

● By the contracts, the machineries and equipments are included in the

mortgage in favor of RCBC, in the foreclosure of the mortgage and in the
consequent sale on foreclosure
● The parties repeatedly stipulated that the properties mortgaged by Paper
City to RCBC are various parcels of land including the buildings and
existing improvements thereon as well as the machineries and
equipments
● The plain language and literal interpretation of the MTIs must be applied.
The petitioner, other creditor banks and Paper City intended from the very
first execution of the indentures that the machineries and equipments
enumerated in Annexes "A" and "B" are included.
● Law and jurisprudence provide and guide that even if not expressly so
stated, the mortgage extends to the improvements.
● 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

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 a third person.
● The Extra-Judicial Foreclosure of Mortgage includes the machineries and
equipments of respondent. While captioned as a "Petition for Extra-Judicial
Foreclosure of Real Estate Mortgage Under Act No. 3135 as Amended,"
the averments state that the petition is based on " the Mortgage Trust
Indenture, the Deed of Amendment to the Mortgage Trust Indenture, the
Second Supplemental Indenture to the Mortgage Trust Indenture, and the
Third Supplemental Indenture to the Mortgage Trust Indenture”
● Considering that the Indenture exactly states through the Deed of
Amendment that the machineries and equipments listed in Annexes "A"
and "B" form part of the improvements listed and located on the parcels of
land subject of the mortgage, such machineries and equipments are
surely part of the foreclosure of the "real estate properties, including
all improvements thereon" as prayed for in the petition.
● The real estate mortgage over the machineries and equipments is even in
full accord with the classification of such properties by the Civil Code of the
Philippines as immovable property. Thus: Article 415. The following are
immovable property: (1) Land, buildings, roads and constructions of all
kinds adhered to the soil; (5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
● The machineries that Paper City tried to sell belongs to RCBC pursuant to
the foreclosure and certificate of sale issued in favor of the banks.
● Petition of RCBC granted.

Garcia v Villar, 675 FACTS:

SCRA 80 (2012) ● Lourdes V. Galas (Galas) was the original owner of a piece of property
(subject property) located at Malindang St., Quezon City.
JALECO
● July 6, 1993 - Galas together with her daughter, Ophelia Pingol (Pingol),
as co-maker, mortgaged the subject property to Yolanda Valdez Villar
(Villar) as security for a loan in the amount ₱2,200,000.00

● Oct. 10, 1994 - Galas and Pingol, again, mortgaged the same property to
Pablo P. Garcia (Garcia) to secure her loan of One Million Eight Hundred
Thousand Pesos (₱1,800,000.00)

● Both mortgages were annotated at the back of TCT No. RT-67970

(253279)

● Nov. 21, 1996 - Galas sold the subject property to Villar for ₱1,500,000.00,
and declared in the Deed of Sale that such property was "free and clear of
all liens and encumbrances of any kind whatsoever.

● Dec 31, 1996 - the Deed of Sale was registered and, consequently, both
Villar’s and Garcia’s mortgages were carried over and annotated at the
back of Villar’s new TCT

● October 27, 1999 - Garcia filed a Petition for Mandamus with Damages
against Villar before the RTC QC. Garcia subsequently amended his
petition to a Complaint for Foreclosure of Real Estate Mortgage with
Damages. Garcia alleged that when Villar purchased the subject property,
she acted in bad faith and with malice as she knowingly and willfully

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 disregarded the provisions on laws on judicial and extrajudicial foreclosure
of mortgaged property. Garcia further claimed that when Villar purchased
the subject property, Galas was relieved of her contractual obligation and
the characters of creditor and debtor were merged in the person of Villar.
Therefore, Garcia argued, he, as the second mortgagee, was subrogated
to Villar’s original status as first mortgagee, which is the creditor with the
right to foreclose. Garcia further asserted that he had demanded payment
from Villar, whose refusal compelled him to incur expenses in filing an
action in court.

● Villar, in her Answer, claimed that the complaint stated no cause of action
and that the second mortgage was done in bad faith as it was without her
consent and knowledge. Villar alleged that she only discovered the second
mortgage when she had the Deed of Sale registered. Villar blamed Garcia
for the controversy as he accepted the second mortgage without prior
consent from her. She averred that there could be no subrogation as the
assignment of credit was done with neither her knowledge nor prior
consent. Villar added that Garcia should seek recourse against Galas and
Pingol, with whom he had privity insofar as the second mortgage of
property is concerned.

● May 27, 2002 - The RTC ruled that the direct sale of the subject property
to Villar, the first mortgagee, could not operate to deprive Garcia of his right
as a second mortgagee. The RTC said that upon Galas’s failure to pay her
obligation, Villar should have foreclosed the subject property pursuant to
Act No. 3135 as amended, to provide junior mortgagees like Garcia, the
opportunity to satisfy their claims from the residue, if any, of the foreclosure
sale proceeds. This, the RTC added, would have resulted in the
extinguishment of the mortgages.

● The RTC held that the second mortgage constituted in Garcia’s favor had
not been discharged, and that Villar, as the new registered owner of the
subject property with a subsisting mortgage, was liable for it.

● Villar appealed this Decision to the Court of Appeals based on the

arguments that Garcia had no valid cause of action against her; that he
was in bad faith when he entered into a contract of mortgage with Galas,
in light of the restriction imposed by the first mortgage; and that Garcia, as
the one who gave the occasion for the commission of fraud, should suffer.
Villar further asseverated that the second mortgage is a void and inexistent
contract considering that its cause or object is contrary to law, moral, good
customs, and public order or public policy, insofar as she was concerned

● CA reversed the RTC’s decision and declared that Galas was free to
mortgage the subject property even without Villar’s consent as the
restriction that the mortgagee’s consent was necessary in case of a
subsequent encumbrance was absent in the Deed of Real Estate
Mortgage. In the same vein, the Court of Appeals said that the sale of the
subject property to Villar was valid as it found nothing in the records that
would show that Galas violated the Deed of Real Estate Mortgage prior to
the sale.

● In dismissing the complaint for judicial foreclosure of real estate mortgage

with damages, the Court of Appeals held that Garcia had no cause of
action against Villar "in the absence of evidence showing that the second

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 mortgage executed in his favor by Lourdes V. Galas [had] been violated
and that he [had] made a demand on the latter for the payment of the
obligation secured by said mortgage prior to the institution of his complaint
against Villar.

● Garcia is now before this Court, with the same arguments he posited
before the lower courts. In his Memorandum, he added that the Deed of
Real Estate Mortgage contained a stipulation, which is violative of the
prohibition on pactum commissorium.

ISSUES:

1. Whether or not the second mortgage to Garcia was valid -- YES

2. Whether or not the sale of the subject property to Villar was valid -- YES

3. Whether or not the sale of the subject property to Villar was in violation of the
prohibition on pactum commissorium -- NO

4. Whether or not Garcia’s action for foreclosure of mortgage on the subject

property can prosper -- NO

HELD:
First and second Issue - Validity of second mortgage to Garcia and sale of subject
property to Villar

● The validity of the second mortgage to Garcia and the sale of the subject
property to Villar are valid under the terms and conditions of the Deed of
Real Estate Mortgage executed by Galas and Villar.

● While it is true that the annotation of the first mortgage to Villar on Galas’s
TCT contained a restriction on further encumbrances without the
mortgagee’s prior consent, this restriction was nowhere to be found in the
Deed of Real Estate Mortgage. As this Deed became the basis for the
annotation on Galas’s title, its terms and conditions take precedence over
the standard, stamped annotation placed on her title. If it were the intention
of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.

● Neither did this Deed proscribe the sale or alienation of the subject property
during the life of the mortgages. Garcia’s insistence that Villar should have
judicially or extrajudicially foreclosed the mortgage to satisfy Galas’s debt
is misplaced. The Deed of Real Estate Mortgage merely provided for the
options Villar may undertake in case Galas or Pingol fail to pay their loan.
Nowhere was it stated in the Deed that Galas could not opt to sell the
subject property to Villar, or to any other person. Such stipulation would
have been void anyway, as it is not allowed under Article 2130 of the Civil
Code

Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.

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Third issue - Prohibition on pactum commissorium

● Garcia claims that the stipulation appointing Villar, the mortgagee, as the
mortgagor’s attorney-in-fact, to sell the property in case of default in the
payment of the loan, is in violation of the prohibition on pactum
commissorium, as stated under Article 2088 of the Civil Code, viz:

Art. 2088. 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 power of attorney provision in the Deed of Real Estate Mortgage

reads:

5. Power of Attorney of MORTGAGEE. – Effective upon the breach of any

condition of this Mortgage, and in addition to the remedies herein
stipulated, the MORTGAGEE is likewise appointed attorney-in-fact of the
MORTGAGOR with full power and authority to take actual possession of
the mortgaged properties, to sell, lease any of the mortgaged properties,
to collect rents, to execute deeds of sale, lease, or agreement that may be
deemed convenient, to make repairs or improvements on the mortgaged
properties and to pay the same, and perform any other act which the
MORTGAGEE may deem convenient for the proper administration of the
mortgaged properties.

● The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security for the

payment of the principal obligation; and

(2) There should be a stipulation for automatic appropriation by the creditor

of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.

● Villar’s purchase of the subject property did not violate the prohibition on
pactum commissorium. The power of attorney provision did not provide
that the ownership over the subject property would automatically pass to
Villar upon Galas’s failure to pay the loan on time. What it granted was the
mere appointment of Villar as attorney-in-fact, with authority to sell or
otherwise dispose of the subject property, and to apply the proceeds to the
payment of the loan. This provision is customary in mortgage contracts,
and is in conformity with Article 2087 of the Civil Code, which reads:

Art. 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage
consists may be alienated for the payment to the creditor.

● Galas’s decision to eventually sell the subject property to Villar for an

additional ₱1,500,000.00 was well within the scope of her rights as the
owner of the subject property. The subject property was transferred to Villar
by virtue of another and separate contract, which is the Deed of Sale.
Garcia never alleged that the transfer of the subject property to Villar was
automatic upon Galas’s failure to discharge her debt, or that the sale was
simulated to cover up such automatic transfer.

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Fourth Issue - Propriety of Garcia’s action for foreclosure of mortgage

● Art. 2126. 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.

● A mortgage is a real right, which follows the property, even after

subsequent transfers by the mortgagor. A registered mortgage lien
is considered inseparable from the property inasmuch as it is a right
in rem."

● The sale or transfer of the mortgaged property cannot affect or release the
mortgage; thus the purchaser or transferee is necessarily bound to
acknowledge and respect the encumbrance. Under Article 2129 of the Civil
Code, the mortgage on the property may still be foreclosed despite the
transfer: 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 terms and
with the formalities which the law establishes.

● While we agree with Garcia that since the second mortgage, of which he
is the mortgagee, has not yet been discharged, we find that said mortgage
subsists and is still enforceable. However, Villar, in buying the subject
property with notice that it was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon failure of the
mortgage creditor to obtain payment from the principal debtor once the
debt matures. Villar did not obligate herself to replace the debtor in the
principal obligation, and could not do so in law without the creditor’s
consent.

Therefore, the obligation to pay the mortgage indebtedness remains with

the original debtors Galas and Pingol. In E.C. McCullough & Co. v. Veloso
and Serna the court held: the obligation of the new possessor to pay the
debt originated only from the right of the creditor to demand payment of
him, it being necessary that a demand for payment should have previously
been made upon the debtor and the latter should have failed to pay. And
even if these requirements were complied with, still the third possessor
might abandon the property mortgaged, and in that case it is considered to
be in the possession of the debtor. (Art. 136 of the same law.) This clearly
shows that the spirit of the Civil Code is to let the obligation of the debtor
to pay the debt stand although the property mortgaged to secure the
payment of said debt may have been transferred to a third person. While
the Mortgage Law of 1893 eliminated these provisions, it contained nothing
indicating any change in the spirit of the law in this respect. Article 129 of
this law, which provides the substitution of the debtor by the third person
in possession of the property, for the purposes of the giving of notice, does
not show this change and has reference to a case where the action is
directed only against the property burdened with the mortgage. (Art. 168
of the Regulation.)

● Thus, Garcia has no cause of action against Villar in the absence of

evidence to show that the second mortgage executed in favor of Garcia
has been violated by his debtors, Galas and Pingol, i.e., specifically that
Garcia has made a demand on said debtors for the payment of the

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 obligation secured by the second mortgage and they have failed to pay.

Pineda v Zuñiga Vda FACTS:

De Vega (G.R. No. ● Petitioner filed a complaint against respondent, praying for the payment of
233774. April 10, the latter’s principal obligation and the interest thereon OR, in default of
2019) such payment, the foreclosure of the property subject of a real estate
mortgage.
MAGSAYSAY
● March 25, 2003 – Petitioner alleged that respondent borrowed from her
P500k payable within one year with an interest rate of 8% per month. To
secure the loan, respondent executed a real estate mortgage (2003
Agreement) over a lot, together with all the buildings and improvements
existing thereon (property), in petitioner’s favor.

● On the loan’s maturity, respondent failed to pay the loan despite demand.
As of May 2005, the unpaid accumulated interest amounted to P232k.

● Respondent denied petitioner’s material allegations and countered that the

complaint is dismissible x x x she argued that the interest rate agreed upon
was excessive and unconscionable, thus illegal. She denied receiving
P500k from petitioner and claimed that the said amount was the
accumulation of another obligation she earlier secured from petitioner.

● Petitioner averred that although the agreement was to charge an interest

rate of 8% per month, what was actually charged was just 4% per month.
Petitioner admitted that the original loan which respondent obtained in the
year 2000 was only P200k with an undertaking to pay 3% interest per
month.

She admitted that the P500k indicated in the 2003 Agreement referred to
a previously executed undated real estate mortgage (undated Agreement)
between the parties which secured respondent’s loan of P200k.

● RTC ordered the herein respondent to pay the herein petitioner the loaned
amount of P200k plus interest of 12% per annum from Sept. 3, 2004–the
date the respondent received the demand letter, until the finality of the
decision and the satisfaction of the amount due. She was also ordered to
pay the petitioner the amount of P50k as nominal damages and P30k as
attorney’s fees.

In default of payment, the mortgaged property, together with all the

buildings and improvements existing thereon, shall be foreclosed and sold
and the proceeds of their sale shall be applied to the payment of the
amounts due to petitioner, including damages and attorney’s fees.

● CA reversed the decision of the RTC and dismissed the complaint. It found
that petitioner failed to prove that prior demand had been made upon
respondent for the full payment of the latter’s obligation.
● While the complaint alleged and petitioner testified that demand was sent
to respondent by registered mail and received on September 7, 2004, the
registry return card evidencing such receipt was not specifically and
formally offered in evidence. The CA concluded that for failing to prove the
requisite demand under Article 1169 of the Civil Code, respondent could
not be considered in default and petitioner's case must fail.

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 ● Elevated to the SC, petitioner stresses that in respondent’s answer and
pre-trial brief, the latter admitted “Annex C,” which is a copy of the demand
letter.

ISSUE:
1. W/N a demand letter was sent by petitioner to respondent and received by
the latter, thus making respondent liable to pay the loan and his property
subject to foreclosure proceedings? It was not proven, however,
respondent is still liable to pay the loan based on the judicial demand
made thru the filing of the complaint.

HELD: Decision of CA REVERSED and SET ASIDE. RTC’s judgment is PARTLY

REINSTATED.

● The admission by respondent of Annex "C" is at most an admission of the

demand letter's existence and due execution. Since there was no
allegation of receipt by respondent of Annex "C" in the complaint, such fact
had to be established by petitioner.
○ CA correctly pointed out that the registry return card evidencing
receipt, of the demand letter thru registered mail, was not
specifically and formally offered in evidence. What she presented
instead was a copy of the said demand letter with only a photocopy
of the face of a registry return card claimed to refer to said letter.
● It would have constituted the best evidence of the fact of mailing.
● CA found that petitioner failed to prove the extrajudicial demand eas made
and that the petitioner had not asserted any of the exceptions to the
requisite demand under Art. 1169 CC, therefore respondent could not be
considered in default and petitioner’s case should fail –– while the CA is
correct on its factual finding, its legal conclusion is flawed.
● What petitioner seeks to enforce against respondent is a contract of loan,
which is secured by a real estate mortgage. Based on the sources of
obligations enumerated under Article 1157 of the Civil Code, the
obligation that petitioner seeks to make respondent liable for is one
which arises from contract. Liability for damages arises, pursuant to Art.
1170 CC against “those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof.” Delay or mora is governed by Art. 1169 of
the CC:
ART. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in

order that delay may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.

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 In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.

● Default or mora, which is a kind of voluntary breach of an obligation,

signifies the idea of delay in the fulfillment of an obligation with respect to
time. Whether the demand is judicial or extrajudicial, if the obligor or debtor
fails to fulfill or perform his obligations, like payment of a loan, as in this
case, he is in mora solvendi, and, thus, liable for damages.
● While delay on the part of respondent was not triggered by an extrajudicial
demand because petitioner had failed to establish receipt of her demand
letter, this delay was triggered when petitioner judicially demanded
the payment of respondent's loan from petitioner.

● When petitioner filed her complaint dated June 10, 2005, such filing
constituted the judicial demand upon respondent to pay the latter's
principal obligation and the interest thereon. Respondent, having thus
incurred in delay (counted from the filing of the complaint), is liable for
damages pursuant to Article 1170 of the Civil Code.

● Respondent is ordered to pay petitioner the loaned amount of P200k and

P30k as attorney’s fees is concerned. The former is also ordered to pay
the latter interest on the loaned amount at the rate of 12% per annum from
the filing of the original complaint up to June 30, 2013, and 6% per annum
from July 1, 2013 until the finality of this Decision; and on the total amount
due on the Decision’s finality, interest rate of 6% per annum from such date
of finality until full payment thereof.

Korea Exchange FACTS:

Bank v Filkor ● Respondent Filkor borrowed $140K from petitioner Korea Exchange Bank,
Business Integrated, payable on July 9, 1997. Only $40K was paid by Filkor.
Inc., 380 SCRA 381
(2002) ● In order to secure payment of its obligations, Filkor executed a Real Estate
Mortgage on improvements belonging to it constructed on the lot it was
MARASIGAN leasing at the Cavite Export Processing Zone Authority. Kim Eung Joe and
Lee Han Sang also executed Continuing Suretyships binding themselves
jointly and severally with Filkor to pay for the latter’s obligations to
petitioner.

● 9 trust receipts were executed by Filkor in favor of Korea Exchange from

June 1997 - Sept. 1997. However, Filkor failed to turn over to petitioner the
proceeds from the sale of the goods, or the goods themselves as required
by the trust receipts in case Filkor could not sell them.

● JUN. 9, 1997 to OCT. 1, 1997 — Filkor negotiated to petitioner the

proceeds of 17 letters of credit issued by Republic Bank of New York and
Banaque France, S.A. to pay for goods which Filkor sold to Segerman
International, Inc. and Davyco, S.A. When petitioner collected the letters of
credit, they were dishonored because of discrepancies.

● As Filkor failed to make good on their obligations, petitioner filed a case

with the RTC. One of petitioner’s prayers was that the property mortgaged
be foreclosed and sold at public auction in case Filkor failed to pay

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 petitioner within 90 days from the entry of judgment.

● TRIAL COURT — Rendered judgment in favor of petitioners, but failed to

order that the property mortgaged by Filkor be foreclosed and sold at public
auction in the event that Filkor fails to pay its obligations to petitioner.

● Petitioner then filed for an MR praying that the foreclosure of the property
be granted. It was denied. The trial court stated, citing the case of Danao,
that “a mortgage creditor may elect to waive his security and bring,
instead, an ordinary action to recover the indebtedness with the right to
execute judgment thereon on all properties of the debtor, including the
subject matter of the mortgage subject to the qualification that it he fails in
the remedy by him elected, he cannot pursue further the remedy he has
waived.”

ISSUE: WoN petitioner’s complaint before the trial court was an action for
foreclosure of a real estate mortgage or an action for collection of a sum of money?
FORECLOSURE OF A REAL ESTATE MORTGAGE.

HELD:
● Parag. 183 of petitioner’s complaint before the trial court stated that to
secure payment of the obligations of Filkor, on Feb. 9, 1999, it executed a
Real Estate Mortgage of the improvements standing on Block 13, Lot 1,
Cavite Export Processing Zone, Rosario, Cavite. It consisted of a one-story
building called warehouse and spooling area, the guardhouse, the
cutting/sewing area building and packing area building.

● Rule 68, Sec. 1, Rules of Civil Procedure: Complaint in action for

foreclosure. — In an action for the foreclosure of a mortgage or other
encumbrance upon real estate, the complaint shall set forth the date and
due execution of the mortgage; its assignments, if any; the names and
residences of the mortgagor and the mortgagee; a description of the
mortgaged property; a statement of the date of the note or other
documentary evidence of the obligation secured by the mortgage, the
amount claimed to be unpaid thereon; and the names and residences of
all persons having or claiming an interest in the property subordinate in
right to that of the holder of the mortgage, all of whom shall be made
defendants in the action.

● The Court held that the requirements of the provision above were met
because Parag. 183 of the complaint stated the date and due execution of
the real estate mortgage, its description, the names and residences of
Filkor, as mortgagor and of petitioner, as mortgagee. The dates of the
obligations secured by the mortgage and the amounts unpaid are alleged
in the petitioner’s 1st - 27th causes of action.

● In addition, petitioner’s allegations indicate that the action was one for
foreclosure of real estate mortgage. What determines the nature of the
action, as well as which court or body has jurisdiction over it, are the
allegations of the complaint and the character of the relief sought. The
trial court erred in concluding that petitioner abandoned its mortgage lien
on Filkor’s property, and that what it had filed was an action for collection
of sum of money.

● It was incumbent upon the trial court to order that the mortgaged property

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 be foreclosed and sold at public auction in the event that Filkor fails to pay
its outstanding obligations.

● Sec. 2, Rule 68, Rules of Civil Procedure states that: “x x x shall render
judgment for the sum so found due and order that the same be paid to the
court or to the judgment obligee within a period of not less than 90 days
nor more than 120 days from entry of judgment, and that in default of
such payment, the property shall be sold at public auction to satisfy
judgement.”

● The Court held that the judgement of the trial court must be modified to
comply with the provision above. Petition was granted.

[ FIRST ]
STOP HERE. Deadline: Aug. 23, 2019 at 11:59PM.

Welbit Construction FACTS:

Corp. v Heirs of de
Castro (GR 210286, ● The petitioners in this case are Welbit Construction and Wack Wack
July 23, 2018) Condominium Corp. who developed and managed the Wack Wack
Apartments Building together with Spouses Eugenio Juan and Matilde
PEÑAFIEL Gonzales who owned said condominium; while the respondents are the
children on Cresenciano De Castro, the registered owner of Unit 802 in the
said condominium.

● As of July 31 1986 and despite demand, De Castro has failed to pay

assessment dues worth P79,905.41 so the petitioners annotated a lien for
unpaid assessments and other dues at the back of De Castro’s
Condominium Certificate Title (CCT). This is pursuant to Section 4 of the
Master Deed with Restrictions of Wack Wack Condominium.

● Because the dues remained unsettled, petitioners:

○ Filed for the extra-judicial foreclosure of the condo unit
○ Complied with the publication and posting of notice
○ Sent notice to De Castro
○ Won as the highest bidder for P88,809.94

● De Castro failed to redeem property until a certificate of sale was issued in

favor of respondents and such sale was already registered with the
Register of Deeds in Pasig. When De Castro was requested to surrender
his duplicate copy of the CCT, he filed a petition for annulment of
foreclosure proceedings before the Securities and Exchange Commission,
with the following claims:
○ That the extra judicial proceedings were highly irregular and
without factual/legal basis
○ That the assessments imposed were unconscionable
○ That the petitioners had no special power of attorney or authority,
nor any agreement to that effect.

● To counter, the petitioners argued:

○ That the foreclosure was lawful pursuant to the Master Deed
○ De Castro was bound to that Master Deed as a unit owner
○ That the assessment was fair and reasonable, applied to all unit
owners
○ De Castro never made an opposition to the Notice of foreclosure

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 proceedings

● Ruling of the Regional Trial Court – decided in favor of the petitioners with
the following reasons:
○ Evidence clearly show that De Castro was aware of his unsettled
dues and penalties
○ De Castro cannot deny that he was bound by the Master Deed
○ That in the By-laws of the condominium corporation, a foreclosure
was one of the remedies provided in the authority of the Board of
Directors for the enforcement of collection of unpaid assessments
(and as guided by RA 4726 or the Condominium Act)

● Ruling of the Court of Appeals – reversed and set aside the decision of the
RTC:
○ on the sole ground that petitioners did not have sufficient authority
to extra-judicially foreclose the property
○ by citing the case of First Marbella vs. Gatmaytan where the Court
ruled that it is mandatory that a petition for extra-judicial
foreclosure be supported by evidence that petitioner holds a
special power or authority to foreclose pursuant to Circular No. 7-
2002
○ That the Master Deed did not vest the petitioners with sufficient
authority to extra-judicially foreclose
○ Section 20 of the Condominium Act does not give authority to the
petitioners to enforce the liens

ISSUE: W/N the extra-judicial foreclosure proceeding was valid

HELD: The Court ruled in favor of the Petitioners and reinstated the decision of the
RTC:

● Section 20 of the Condominium Act merely provides that the assessments,

upon any condominium made in accordance with a duly registered
declaration of restrictions, shall be a lien upon the said condominium, and
also prescribes the procedure by which such liens may be enforced.

Sec. 20. The assessment upon any condominium

Xxxx
shall be and become a lien upon the condominium to be
registered with the Register of Deeds of the city or province where
such condominium project is located.
Xxx
such liens may be enforced in the same manner provided for by
law for the judicial or extra-judicial foreclosure of mortgage or real
property.
Xxx

● It does not grant the petitioners the authority to foreclose. The aforecited
provision clearly provides that the rules on extra-judicial foreclosure of
mortgage or real property should be followed. Accordingly, Section 1 of
Act No. 3135, which prescribes for the procedure for the extra-judicial
foreclosure of real properties subject to real estate mortgage, in relation to
Circular No. 7-2002 and SC A.M. No. 99-10-05-0 requires that the petition
for extra-judicial foreclosure be supported by evidence that petitioners hold
a special power or authority to foreclose.

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 Sec. 1. All applications for extra-judicial foreclosure of mortgage,
whether under the direction of the Sheriff or a notary public
pursuant to Art. No. 3135, as amended, and Act 1508, as
amended, shall be filed with the Executive Judge, through the
Clerk of Court, who is also the Ex--Officio Sheriff (A.M. No. 99-
10-05-0, as amended, March 1, 2001).
Sec. 2. Upon receipt of the application, the Clerk of Court shall:
a. Examine the same to ensure that the special power of attorney
authorizing the extra-judicial foreclosure of the real property is
either inserted into or attached to the deed of real estate
mortgage (Act No. 3135, Sec. 1, as amended) x x x.

● The case of First Marbella does not apply to this case. In First Marbella,
the only basis of the petitioners for causing the extra-judicial foreclosure
was a mere notice of assessment annotated in the CCT; but in the case at
bar, the foreclosure was also based on the Master Deed and the
condominium corporation’s by-laws --- “Under Section 5 of Article [V] of the
By-Laws, in the event a member defaults in the payment of any
assessment duly levied in accordance with the Master Deed and the By-
Laws, the Board of Directors may enforce collection thereof by any of the
remedies provided by the Condominium Act and other pertinent laws, such
as foreclosure. x x x.”

● De Castro was once a member of the Board of Directors of the

condominium (back in 1984) when the Board made Resolution No. 84-007
---- “RESOLVED to, as we do hereby authorize our President, Arch.
Eugenio Juan Gonzalez and/or the law offices of Siguion Reyna,
Montecillo and Ongsiako and/or whomsoever Arch. Gonzalez may
appoint or designate, to effect foreclosure of Condominium
Apartment Units at Wack Wack Apartment Building Condominium
Project, Mandaluyong, Metro Manila with unpaid or delinquent
accounts to satisfy the unit's obligation to Wack Wack Condominium
Corporation; xxx”

● In a similar case (Wack Wack Condominium Corp. vs. CA), the Court held
that the Condominium Act and the By-Laws of the condominium
corporation recognize and authorize assessments upon a condominium
unit to constitute a lien on such unit which may be enforced by judicial or
extra-judicial foreclosure. In that sense, petitioners' authority to foreclose,
and to enforce assessments (pursuant to the Condominium Act and the
condominium corporation's Master Deed and By-Laws) had long been
established.

WHEREFORE, premises considered, the Petition is GRANTED. Accordingly, the

Decision dated September 30, 2013 and Resolution dated December 4, 2013 of
the Court of Appeals in CA-G.R. CV No. 93366 are hereby REVERSED and SET
ASIDE. The Decision dated March 31, 2009 of the Regional Trial Court of
Mandaluyong City, Branch 211 in SEC Case No. MC-02-002 is REINSTATED.

Grand Farms, Inc. FACTS:

and Phil. Shares
Corp. v CA, 193 Petitioners: Grand Farms, Inc. and Philippine Shares Corp.
SCRA 748 (1991) Private Respondent: Banco Filipino Savings and Mortgage Bank

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TAONGAN ● Sometime on April 15, 1988, petitioners filed a civil case in the Regional
Trial Court of Valenzuela, Metro Manila for annulment and/or declaration
of nullity of the extrajudicial foreclosure proceedings over their mortgaged
properties, with damages, against respondents clerk of court, deputy
sheriff and herein private respondent Banco Filipino Savings and Mortgage
Bank (BFSM).
● Petitioners filed a request for admission by private respondent of the
allegation that no formal notice of intention to foreclose the real estate
mortgage was sent by private respondent to petitioners.
● Respondents countered that petitioners were “notified” of the auction sale
by the posting of notices and the publication of notice in the Metropolitan
Newsweek, a newspaper of general circulation in the province where the
subject properties are located and in the Philippines on February 13, 20
and 28, 1988.
● On the basis of the alleged implied admission by private respondent that
no formal notice of foreclosure was sent to petitioners, the latter filed a
motion for summary judgment contending that the foreclosure was violative
of the provisions of the mortgage contract, specifically under par. (K) which
provides:

○ “All correspondence relative to this Mortgage,...... shall be sent to

the Mortgagor at the address given above or at the address that
may hereafter be given in writing by the Mortgagor to the
Mortgagee, ......and the fact that any communication is not actually
received by the Mortgagor, or that it has been returned unclaimed
to the Mortgagee, or that no person was found at the address
given, or that the address is fictitious, or cannot be located, shall
not excuse or relieve the Mortgagor from the effects of such
notice.”

● The motion was opposed by private respondent which argued that

petitioners' reliance on said paragraph (k) of the mortgage contract fails to
consider paragraphs (b) and (d) of the same contract, which respectively
provide as follows:
b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor
(plaintiff) hereby appoints the Mortgagee (BF) his attorney-in-fact
to sell the property mortgaged, to sign all documents and perform
any act requisite and necessary to accomplish said purpose... The
Mortgagor hereby expressly waives the term of thirty (30) days or
any other term granted or which may hereafter be granted him by
law... it being specifically understood and agreed that the said
Mortgagee may foreclose this mortgage at any time after the
breach of any conditions hereof. . . .
xxx xxx xxx
d) Effective upon the breach of any conditions of the mortgage and
in addition to the remedies herein stipulated, the Mortgagee is
hereby likewise appointed attorney-in-fact of the Mortgagor with
full powers and authority, with the use of force, if necessary, to
take actual possession of the mortgaged property, without the
necessity for any judicial order or any permission of power to
collect rents, to eject tenants, to lease or sell the mortgaged
property, or any part thereof, at public or private sale without
previous notice or adverstisement of any kind..”
● The RTC denied petitioner’s motion for summary judgment on the ground

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 that genuine and substantial issues exist which require the presentation of
evidence during the trial.
● Petitioners filed a petition for certiorari attacking the RTC’s order.
Respondent court dismissed the petition, holding that no personal notice
was required to foreclose since private respondent was constituted by
petitioners as their attorney-in-fact to sell the mortgaged property. It further
held that paragraph (k) of the mortgage contract merely specified the
address where correspondence should be sent and did not impose an
additional condition on the part of private respondent to notify petitioners
personally of the foreclosure. Respondent court also denied petitioners
motion for reconsideration, hence the instant petition.

ISSUE: Whether or not the notice by publication of the foreclosure constitutes

sufficient notice to petitioners under the mortgage contract. - NO.

HELD:
● The Court finds petitioners' action in the court below for annulment and/or
declaration of nullity of the foreclosure proceedings and damages ripe for
summary judgment. Private respondent tacitly admitted in its answer to
petitioners' request for admission that it did not send any formal notice of
foreclosure to petitioners. Stated otherwise, and as is evident from the
records, there has been no denial by private respondent that no personal
notice of the extrajudicial foreclosure was ever sent to petitioners prior
thereto.

● This omission, by itself, rendered the foreclosure defective and irregular

for being contrary to the express provisions of the mortgage contract.

● While private respondent was constituted as their attorney-in-fact by

petitioners, the inclusion of the aforequoted paragraph (k) in the mortgage
contract nonetheless rendered personal notice to the latter indispensable.

● Community Savings & Loan Association, Inc., et al. vs. CA - “Thus, while
publication of the foreclosure proceedings in the newspaper of general
circulation was complied with, personal notice is still required, as in the
case at bar, when the same was mutually agreed upon by the parties as
additional condition of the mortgage contract. Failure to comply with this
additional stipulation would render illusory Article 1306 of the New Civil
Code of the Philippines.”

● The Court does not agree with respondent court that paragraph (k) of the
mortgage contract in question was intended merely to indicate the address
to which the communications stated therein should be sent. This
interpretation is rejected by the very text of said paragraph as above
construed.

● There is no irreconcilable conflict between, as in fact a reconciliation should

be made of, the provisions of paragraphs (b) and (d) which appear first in
the mortgage contract and those in paragraph (k) which follow thereafter.
Those mentioned in paragraph (k) are specific and additional requirements
intended for the mortgagors so that, thus apprised, they may take the
necessary legal steps for the protection of their interests such as the
payment of the loan to prevent foreclosure or to subsequently arrange for
redemption of the property foreclosed.

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 ● It bears mention that private respondent having caused the formulation and
preparation of the printed mortgage contract in question, any obscurity that
it imputes thereto or which supposedly appears therein should not favor it
as a contracting party.

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE
and this case is REMANDED to the court of origin for further proceedings in
conformity with this decision. This judgment is immediately executory.

Spouses Bautista v FACTS:

Premiere ● Spouses Bautista are the registered owners of the parcel of land located
Development Bank in Rodriguez, Montalban, Rizal, with an area of 1,248 square meters.
(GR 201881, Sept 5, ● On January 7, 1994, the petitioners obtained a loan of P500,000.00 from
2018) respondent Premiere Development Bank (Premiere Bank) for which they
executed a corresponding promissory note. To secure the performance of
VILLAVIRAY their obligation, they also executed a real estate mortgage over the parcel
of land and its improvements. The loan agreement stipulated that the
obligation would be payable in three years through monthly amortizations
of P20,412.51, subject to interest and penalty charges
● Premiere Bank collected the monthly amortizations by debiting the same
from the petitioners' savings account.
● For failure of the petitioners to settle their obligation in full, the sheriff sent
the first notice of extrajudicial foreclosure sale to them on October 17,
1995, informing that the mortgaged property would be sold in a public sale
to be conducted on November 17, 1995. The petitioners requested the
postponement of the scheduled sale as well as a detailed computation of
their outstanding obligations several times, as borne out by the exchange
of letters between them and Premiere Bank.
● On December 6, 2001, the sheriff sent notice of the extrajudicial
foreclosure sale to be held on January 15, 2002. The notice was published
in The Challenger News, a newspaper of general circulation in the Province
of Rizal, in the issues of December 10, 17, and 24, 2001. The sheriff posted
the notice of the sale in public places within San Mateo, Rizal and in the
place where the property was located. However, the sale did not push
through as scheduled because the representative of Premiere Bank did not
appear, and was rescheduled to February 18, 2002.
● Although no publication and posting of the notice of the rescheduled date
of February 18, 2002 were made thereafter, the sheriff conducted the
foreclosure sale on February 18, 2002, and struck off the property of the
petitioners to Premiere Bank as the lone bidder. The sheriff issued the
certificate of sale in the name of Premiere Bank, and the same was
annotated on the original copy of TCT No. 150668 on November 7, 2002.
The statement of account indicated that the petitioners' outstanding
obligation totalled P2,062,254.26 as of February 18, 2002.
● The petitioners redeemed the property within the required period by
tendering the amount of P401,820.00. The sheriff issued the certificate of
redemption in their name, but Premiere Bank refused to accept the
redemption price because their total unpaid outstanding obligation had
accumulated to P2,062,254.26. Premiere Bank then consolidated its
ownership, and the Register of Deeds of Marikina City issued TCT No.
452198 in the name of Premiere Bank.
● RTC dismissed petitioners’ complaint. CA affirmed.
ISSUES:
1. Whether the extrajudicial foreclosure sale was valid despite the failure to
publish and post the notice of the rescheduled foreclosure sale? NO

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 2. Whether the loan obligation had already been fully settled by the
petitioners? Court cannot rule on the matter.
HELD:
1st Issue- The extrajudicial foreclosure sale held on February 18, 2002 was void
ab initio.
● Act No. 3135 prescribes the requirements of posting and publication of the
notice for the extrajudicial foreclosure sale. The law specifically mandates
the publication of the notice in a newspaper of general circulation for at
least three consecutive weeks if the value of the property is more than
P400,000.00. The invalidity of the public sale of the petitioners' property
sprang from such non-compliance with the requirements under Act No.
3135.
● CA’s reliance on Perez v. Court of Appeals was misplaced. A careful
reading of Perez v. Court of Appeals discloses that the defects and
irregularities during the foreclosure proceedings adverted to therein were
limited to the erroneous computation of the balance on the respondents'
unsettled account and to the lack of notice of sale to the respondents prior
to the conduct of the sale. The Court, in that case, did not directly address
and resolve therein whether or not the foreclosure sale was valid despite
the failure to publish or to post the notice of the postponed sale.
● The requirements for posting and publication under Act No. 3135 were
mandatory and jurisdictional. The Court held that statutory provisions
governing the publication of notice of mortgage foreclosure sales must be
strictly complied with; hence, even slight deviations from the requirements
would invalidate the notice and render the sale at least voidable. The
objective of the notice requirements is to achieve a "reasonably wide
publicity" of the public sale so that whoever may be interested may know
of and attend the public sale. This is the reason why the publication must
be made in a newspaper of general circulation. The Court has previously
taken judicial notice of the "far-reaching effects" of publishing the notice of
sale in a newspaper of general circulation. As such, the publication of the
notice of sale in a newspaper of general circulation is essential to the
validity of the foreclosure proceedings. To allow the parties to waive the
jurisdictional requirement can convert into a private sale what ought to be
a public auction.
● Philippine National Bank v. Nepomuceno Productions, Inc.: Notices are
given to secure bidders and to prevent a sacrifice of the property. Clearly,
the statutory requirements of posting and publication are mandated, not for
the mortgagor's benefit, but for the public or third persons. In fact, personal
notice to the mortgagor in extrajudicial foreclosure proceedings is not even
necessary, unless stipulated. As such, it is imbued with public policy
consideration and any waiver thereon would be inconsistent with the letter
and intent of Act No. 3135.

2nd Issue- The petitioners' liability to Premiere Bank cannot be determined by the
Court for being a factual matter
● Such issue is a factual one that the Court cannot review and resolve
through this mode of appeal.
● The petitioners' appeal of this issue should be disallowed for being in
contravention of Section 1, Rule 45 of the Rules of Court, which limited the
appeal to questions of law that the petitioners must distinctly set forth. The
limitation to questions of law is observed because the Court is not a trier of
fact.
WHEREFORE, the CourtPARTIALLY GRANTS the petition for review on certiorari;
and MODIFIES the decision promulgated on January 27, 2012

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Lim vs. Development FACTS:
Bank of the ● On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all
Philippines, 700 surnamed Lim, obtained a loan of P40,000.00 (Lim Account) from
SCRA 210 (2013) respondent Development Bank of the Philippines (DBP) to finance their
cattle raising business. On the same day, they executed a Promissory Note
VILLAVIRAY undertaking to pay the annual amortization with an interest rate of 9% per
annum and penalty charge of 11% per annum.
● On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and
Edmundo, all surnamed Lim; Shirley Leodadia Dizon, Arleen Lim
Fernandez, Juan S. Chua, and Trinidad D. Chua obtained another loan
from DBP in the amount of P960,000.00 (Diamond L Ranch Account). They
also executed a Promissory Note, promising to pay the loan annually from
August 22, 1973 until August 22, 1982 with an interest rate of 12% per
annum and a penalty charge of 1/3% per month on the overdue
amortization. To secure the loans, petitioners executed a Mortgage in favor
of DBP over several titled real properties.
● Due to violent confrontations between government troops and Muslim
rebels in Mindanao from 1972 to 1977, petitioners were forced to abandon
their cattle ranch. As a result, their business collapsed and they failed to
pay the loan amortizations.
● In 1978, petitioners made a partial payment in the amount of P902,800.00,
leaving an outstanding loan balance of P610,498.30, inclusive of charges
and unpaid interest, as of September 30, 1978.
● In 1989, petitioners, represented by Edmundo Lim, requested from DBP
Statements of Account for the "Lim Account" and the "Diamond L Ranch
Account." Edmundo proposed the settlement of the accounts through
dacion en pago, with the balance to be paid in equal quarterly payments
over five years but in a reply-letter DBP rejected the proposal and informed
Edmundo that unless the accounts are fully settled as soon as possible,
the bank will pursue foreclosure proceedings. Several requests and
extentions for payment were made by Edmundo but no compliance was
ever made.
● On December 19, 1993, Edmundo received the draft of the Restructuring
Agreement but subsequently, the bank cancelled the Restructuring
Agreement due to his failure to comply with the conditions within a
reasonable time. On January 10, 1994, DBP sent Edmundo a Final
Demand Letter asking that he pay the outstanding amount of
P6,404,412.92, as of November 16, 1993, exclusive of interest and penalty
charges.
● On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of
the mortgaged properties for the satisfaction of petitioners’ total obligations
in the amount of P5,902,476.34. DBP was the highest bidder in the amount
of P3,310,176.55. On July 13, 1994, the Ex-Officio Sheriff issued the
Sheriff’s Certificate of Extra-Judicial Sale in favor of DBP covering 11
parcels of land. In a letter dated September 16, 1994, DBP informed
Edmundo that their right of redemption over the foreclosed properties
would expire on July 28, 1995.
● On July 28, 1995, petitioners filed before the RTC of General Santos City,
a Complaint against DBP for Annulment of Foreclosure and Damages with
Prayer for Issuance of a Writ of Preliminary Injunction and/or Temporary
Restraining Order. Petitioners alleged that DBP’s acts and omissions
prevented them from fulfilling their obligation; thus, they prayed that they
be discharged from their obligation and that the foreclosure of the
mortgaged properties be declared void. They likewise prayed for actual
damages for loss of business opportunities, moral and exemplary

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 damages, attorney’s fees, and expenses of litigation.
● On the same date, the RTC issued a Temporary Restraining Order
directing DBP to cease and desist from consolidating the titles over
petitioners’ foreclosed properties and from disposing the same. In an Order
dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction
and directed petitioners to post a bond in the amount of P3,000,000.00.
ISSUES:
1. Whether petitioners’ obligation to DBP has already been fulfilled? NO
2. Whether the foreclosure proceedings of the mortgaged property of
petitioners were valid? NO
3. Whether penalties and interest rates should be expressly stipulated in
writing? YES
HELD:
1st Issue
● The Promissory Notes subject of the instant case became due and
demandable as early as 1972 and 1976. The only reason the mortgaged
properties were not foreclosed in 1977 was because of the restraining
order from the court. In 1978, petitioners made a partial payment of
P902,800.00. No subsequent payments were made. It was only in 1989
that petitioners tried to negotiate the settlement of their loan obligations.
And although DBP could have foreclosed the mortgaged properties, it
instead agreed to restructure the loan.
● Article 1186 of the Civil Code, which states that "the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment," does
not apply in this case
● Petitioners have no one to blame but themselves for the cancellation of the
Restructuring Agreement.
● When the Regional Credit Committee reconsidered petitioners' proposal to
restructure the loan, it imposed additional conditions. In fact, when DBP's
General Santos Branch forwarded the Restructuring Agreement to the
Legal Services Department of DBP in Makati, petitioners were required to
pay the amount of P1,300,672.75, plus a daily interest of P632.15 starting
November 16, 1993 up to the date of actual payment of the said amount.
This, petitioners failed to do. DBP therefore had reason to cancel the
Restructuring Agreement.
● Since the Restructuring Agreement was cancelled, it could not have
novated or extinguished petitioners' loan obligation. And in the absence of
a perfected Restructuring Agreement, there was no impediment for DBP
to exercise its right to foreclose the mortgaged properties.

2nd Issue
● But while DBP had a right to foreclose the mortgage, we are constrained
to nullify the foreclosure sale due to the bank's failure to send a notice of
foreclosure to petitioners.
● Unless the parties stipulate, "personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary“ because Section 3
of Act 3135 only requires the posting of the notice of sale in three public
places and the publication of that notice in a newspaper of general
circulation.
● The parties stipulated in paragraph 11 of the Mortgage that:
11. All correspondence relative to this mortgage, including demand letters,
summons, subpoenas, or notification of any judicial or extra-judicial action shall be
sent to the Mortgagor at . . . or at the address that may hereafter be given in writing
by the Mortgagor or the Mortgagee;
● However, no notice of the extrajudicial foreclosure was sent by DBP to

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 petitioners about the foreclosure sale scheduled on July 11, 1994. The
letters dated January 28, 1994 and March 11, 1994 advising petitioners to
immediately pay their obligation to avoid the impending foreclosure of their
mortgaged properties are not the notices required in paragraph 11 of the
Mortgage. The failure of DBP to comply with their contractual agreement
with petitioners, i.e., to send notice, is a breach sufficient to invalidate the
foreclosure sale.

3rd Issue
● As to the imposition of additional interest and penalties not stipulated in the
Promissory Notes, this should not be allowed. Article 1956 of the Civil Code
specifically states that "no interest shall be due unless it has been
expressly stipulated in writing." Thus, the payment of interest and penalties
in loans is allowed only if the parties agreed to it and reduced their
agreement in writing.
● In this case, petitioners never agreed to pay additional interest and
penalties. Hence, we agree with the RTC that these are illegal, and thus,
void.
● As to petitioner’s claim for damages, DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner in cancelling the Restructuring
Agreement. As already said, DBP had reason to cancel the Restructuring
Agreement because petitioners failed to pay the amount required by it
when it reconsidered petitioners' request to restructure the loan.
● Likewise, DBP's failure to send a notice of the foreclosure sale to
petitioners and its imposition of additional interest and penalties do not
constitute bad faith. There is no showing that these contractual breaches
were done in bad faith or in a wanton, reckless, or oppressive manner.

WHEREFORE, the Petition is PARTLY GRANTED . The assailed February 22,

2007 Decision of the Court of Appeals in CA-G.R. CV No. 59275 is
herebyMODIFIED in accordance with this Decision. The case is hereby
REMANDED to the Regional Trial Court of General Santos City, Branch 22, for the
proper determination of petitioners' total loan obligations based on the interest and
penalties stipulated in the Promissory Notes dated November 24, 1969 and
December 30, 1970. The foreclosure sale of the mortgaged properties held on July
11, 1994 is DECLARED void ab initio for failure to comply with paragraph 11 of the
Mortgage, without prejudice to the conduct of another foreclosure sale based on
the recomputed amount of the loan obligations, if necessary.

Huerta Alba Resort, FACTS:

Inc. v CA, 339 SCRA
534 (2000) Petitioner: Huerta Alba Resort Inc.
Private Respondent: Syndicated Management Group Inc. (SMGI)

TAONGAN ● This petition assails the decision of the CA and RTC which held that
petitioner had the right to redeem subject pieces of property within the one-
year period prescribed by Section 78 of Republic Act No. 337 otherwise
known as the General Banking Act.

● Section 78 of R.A. No. 337 provides that "in case of a foreclosure of a

mortgage in favor of a bank, banking or credit institution, whether judicially
or extrajudicially, the mortgagor shall have the right, within one year after
the sale of the real estate as a result of the foreclosure of the respective
mortgage, to redeem the property."

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● Private respondent SMGI sought the foreclosure of four (4) parcels of land
mortgaged by petitioner to Intercon Fund Resource, Inc. ("Intercon").

● Private respondent instituted the civil case as mortgagee-assignee of a

loan amounting to P8.5 million obtained by petitioner from Intercon, in
whose favor petitioner mortgaged the aforesaid parcels of land as security
for the said loan.

● Petitioner questioned the assignment by Intercon of its mortgage right

thereover to the private respondent, on the ground that the same was ultra
vires. Petitioner also questioned during the trial the correctness of the
charges and interest on the mortgage debt in question.

● April 30, 1992 - The trial court came out with its decision granting
private respondent SMGI’s complaint for judicial foreclosure of
mortgage.

● Judgment was hereby rendered ordering defendant to pay plaintiff the

following: (1) P8,500,000.00 representing the principal of the amount due;
(2) P850,000.00 as penalty charges with interest at 6% per annum, until
fully paid; (3) 22% per annum interest on the above principal from
September 6, 1998, until fully paid; (4) 5% of the sum total of the above
amounts, as reasonable attorney’s fees; and, (5) Costs.

● All the above must be paid within a period of not less than 150 days from
receipt hereof by the defendant. In default of such payment, the four
parcels of land subject matter of the suit including its improvements shall
be sold to realize the mortgage debt and costs, in the manner and under
the regulations that govern sales of real estate under execution.

● Petitioner appealed the decision of the trial court to the Court of Appeals
which dismissed the case on the ground of late payment of docket fees.

● Petitioner came to the SC via petition for certiorari however SC resolved to

dismiss it on the finding that CA did not err in its decision. The MR of the
petitioner was denied with finality. A second MR was filed to submit the
case for hearing but this was likewise denied.

● March 14, 1994 - The Resolution became final and executory.

● A writ of execution was issued and a Notice of Levy and Execution was
issued by the Sheriff.

● On September 6, 1994, the scheduled auction sale of subject pieces of

properties proceeded and the private respondent was declared the highest
bidder. Thus, private respondent was awarded subject bidded pieces of
property. The covering Certificate of Sale issued in its favor was registered
with the Registry of Deeds on October 21, 1994.

● The trial court ruled that the period of redemption of subject property should
be governed by the rule on the sale of judicially foreclosed property under
Rule 68 of the Rules of Court.

● Thereafter, petitioner then filed an Exception to the Order dated September

26, 1994 and Motion to Set Aside Said Order, contending that the said

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 Order materially altered the Decision dated April 30, 1992 "which declared
that the satisfaction of the judgment shall be in the manner and under the
regulation that govern sale of real estate under execution.

● September 30, 1994 - The Court of Appeals resolved the issues raised by
the petitioner holding that the one hundred-fifty day period within which
petitioner may redeem subject properties should be computed from the
date petitioner was notified of the Entry of Judgment in G.R. No. 112044;
and that the 150-day period within which petitioner may exercise its equity
of redemption expired on September 11, 1994.

● January 25, 1995 - The decision of the CA rendered on September 30,

1994 became final and executory.

● Petitioner filed a Motion for Clarification seeking “clarification” of the

date of commencement of the one (1) year period for the properties
in question.

● CA merely noted such Motion for Clarification since its decision on Sept.
30, 1994 had already become final and executory.

● The CA stated:
○ “But we never made any pronouncement on the one-year right of
redemption of petitioner because, in the first place, the foreclosure
in this case is judicial. and as such the mortgagor has only the
equity not the right of redemption . . . While it may be true that
under Section 78 of R.A. 337 as amended, otherwise known as
the General Banking Act, a mortgagor of a bank, banking or credit
institution, whether the foreclosure was done judicially or
extrajudicially, has a period of one year from the auction sale within
which to redeem the foreclosed property, the question of whether
the Syndicated Management Group,. Inc., is a bank or credit
institution was never brought before us squarely, and it is indeed
odd and strange that petitioner would now sarcastically ask a
rhetorical question in its motion for clarification.”

● In opposition to private respondent’s Motion for Issuance of writ of

Possession, petitioner filed a "Motion to Compel Private Respondent to
Accept Redemption." It was the first time petitioner ever asserted the right
to redeem subject properties under Section 78 of R.A. No. 337, the General
Banking Act; theorizing that the original mortgagee, being a credit
institution, its assignment of the mortgage credit to petitioner did not
remove petitioner from the coverage of the law. Therefore, it should have
the right to redeem subject properties within one year from registration of
the auction sale, theorized the petitioner which concluded that in view of
its "right of redemption," the issuance of the titles over subject parcels of
land to the private respondent was irregular and premature.

● The trial court denied the private respondents motion for a writ of
possession opining that pursuant to Sec. 78 of the General Banking Act,
petitioner had until October 21, 1995 to redeem the said parcels of land.

● Private respondent opposed by filing an MR. This was granted by CA which

then denied its earlier decision.

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ISSUE: Whether or not petitioner Huerta Alba Resort, Inc. has the one-year right
of redemption of the subject properties under Sec. 78 of RA No. 337 (The General
Banking Act) - YES. However, petitioner is already estopped.

HELD:
● From the various decisions, resolutions and orders a quo it can be gleaned
that what petitioner has been adjudged to have was only the equity of
redemption over subject properties.

● On the distinction between the equity of redemption and right of

redemption, the case of Gregorio Y. Limpin v. Intermediate Appellate
Court, comes to the fore. Held the Court in the said case:
○ "The equity of redemption is, to be sure, different from and should
not be confused with the right of redemption.
○ The right of redemption in relation to a mortgage –
understood in the sense of a prerogative to re-acquire
mortgaged property after registration of the foreclosure sale
– exists only in the case of the extrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial
foreclosure except only where the mortgagee is the Philippine
National Bank or a bank or banking institution.
○ Where a mortgage is foreclosed extrajudicially, Act 3135
grants to the mortgagor the right of redemption within one (1)
year from the registration of the sheriff’s certificate of
foreclosure sale.
○ Where the foreclosure is judicially effected, however, no
equivalent right of redemption exists. The law declares that a
judicial foreclosure sale ‘when confirmed to be an order of the
court. . . . shall operate to divest the rights of all the parties to the
action and to vest their rights in the purchaser, subject to such
rights of redemption as may be allowed by law.’ Such rights
exceptionally ‘allowed by law’ (i.e., even after confirmation by an
order of the court) are those granted by the charter of the
Philippine National Bank (Acts No. 2747 and 2938), and the
General Banking Act (R.A. 337).
○ These laws confer on the mortgagor, his successors in interest or
any judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosure — after confirmation by the court of
the foreclosure sale — which right may be exercised within a
period of one (1) year, counted from the date of registration of the
certificate of sale in the Registry of Property.
○ In such a case, the foreclosure sale, ‘when confirmed by an
order of the court. . . shall operate to divest the rights of all
the parties to the action and to vest their rights in the
purchaser.’ There then exists only what is known as the
equity of redemption. This is simply the right of the defendant
mortgagor to extinguish the mortgage and retain ownership
of the property by paying the secured debt within the 90-day
period after the judgment becomes final, in accordance with
Rule 68, or even after the foreclosure sale but prior to its
confirmation.
○ This is the mortgagor’s equity (not right) of redemption which, as
above stated, may be exercised by him even beyond the 90-day
period ‘from the date of service of the order,’ and even after the
foreclosure sale itself, provided it be before the order of

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 confirmation of the sale. After such order of confirmation, no
redemption can be effected any longer."

● Petitioner failed to seasonably invoke its purported right under Section 78

of R.A. No. 337.

● Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after
confirmation by the court of the foreclosure sale, and within one (1) year
from the date of registration of the certificate of sale. Indeed, the facts show
that it was only on May 2, 1995 when, in opposition to the Motion for
Issuance of Writ of Possession, did petitioner file a Motion to Compel
Private Respondent to Accept Redemption, invoking for the very first time
its alleged right to redeem subject properties under to Section 78 of R.A.
No. 337.

● In light of the aforestated facts, it was too late in the day for petitioner to
invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed
to assert a right to redeem in several crucial stages of the proceedings.

● Indeed, at the earliest opportunity, when it submitted its answer to the

complaint for judicial foreclosure, petitioner should have alleged that it was
entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again,
it did not make any allegation in its answer regarding any right thereunder.

● It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges
on the factual question of whether or not private respondent’s predecessor
in interest was a credit institution. As was held in Limpin, a judicial
foreclosure sale, "when confirmed by an order of the court, . . shall operate
to divest the rights of all the parties to the action and to vest their rights in
the purchaser, subject to such rights of redemption as may be allowed by
law’," which confer on the mortgagor, his successors in interest or any
judgment creditor of the mortgagor, the right to redeem the property sold
on foreclosure after confirmation by the court of the judicial foreclosure
sale. Thus, the claim that petitioner is entitled to the beneficial
provisions of Section 78 of R.A. No. 337 —since private respondent’s
predecessor-in-interest is a credit institution — is in the nature of a
compulsory counterclaim which should have been averred in
petitioner’s answer to the compliant for judicial foreclosure.

● The failure of petitioner to seasonably assert its alleged right under Section
78 of R.A. No. 337 precludes it from so doing at this late stage case.
Estoppel may be successfully invoked if the party fails to raise the question
in the early stages of the proceedings. Thus, "a party to a case who failed
to invoked his claim in the main case, while having the opportunity to do
so, will be precluded, subsequently, from invoking his claim, even if it were
true, after the decision has become final, otherwise the judgment may be
reduced to a mockery and the administration of justice may be placed in
disrepute.

● There is, therefore, merit in private respondent’s contention that to allow

petitioner to belatedly invoke its right under Section 78 of R.A. No. 337 will
disturb the "law of the case." However, private respondent’s statement of
what constitutes the "law of the case" is not entirely accurate. The "law of
the case" is not simply that the defendant possesses an equity of
redemption. As the Court has stated, the "law of the case" holds that

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 petitioner has the equity of the redemption without any qualification
whatsoever, that is, without the right of redemption afforded by Section 78
of R.A. No. 337. Whether or not the "law of the case" is erroneous is
immaterial, it still remains the "law of the case." A contrary rule will
contradict both the letter and spirit of the rulings of the Court of Appeals.

The confirmation of the sale and the issuance of the transfer certificates of title
covering the subject properties to private respondent was then, in order. The trial
court therefore, has the ministerial duty to place private respondent in the
possession of subject properties.

Goldenway FACTS:
Merchandising ● Goldenway obtained a loan worth P2,000,000.00 from Equitable PCI Bank
Corporation vs. and secured it with a real estate mortgage over its real properties in
Equitable PCI Bank, Valenzuela.
693 SCRA 439
(2013) ● Since Goldenway failed to settle the loan obligation, PCI Bank
extrajudicially forclosed the mortgage (December 2000) and subsequently
won in the public auction so the Certificate of Sale was issued and
PEÑAFIEL registered in their favor (February 2001).

● Goldenway’s counsel, Atty. Abat-Vera offered to redeem the foreclosed

properties by tendering a check worth P3,500,000.00, but was told by the
bank’s counsel that it was no longer possible (because the certificate of
sale was already issued and registered).

● Goldenway filed a complain for performance and damages against PCI

Bank, with the following claims:
○ That they should be given a one-year period of redemption
pursuant to Act No. 3135
○ The shorter redemption provided in RA 8791 should not apply
because the real estate mortgage was executed in 1985, so
applying the said RA will result to the impairment of obligations and
contracts which is against the Constitution
○ That the bank failed to furnish the and the clerk of court with the
statement of account as directed in the Certificate of Sale,
meaning they were not apprised of the assessment and fees
incurred (redemption price), thereby depriving them of the right of
redemption prior to the registration of the sale

● The bank answered with its counterclaim:

○ Goldenway cannot claim being unaware of the redemption price
because it was clearly provided in Sec. 47 of RA 8791
○ Goldenway had all the time to redeem the properties from the time
it received the demand letter until before the registration of the sale
○ Even if the check tendered was made in time, it was not the right
amount required by the said provision of law

● Decision of the Trial Court – dismissed both complaint and counterclaim

because:
○ The constitutionality of Sec. 47 of RA 8791 was never raised
○ There was no valid redemption made because Atty. Abat-Vera
was not properly authorized by Goldenway’s Board of Directors to
transact with the bank on its behalf because it was only the alleged

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 president of Goldenway who gave the instruction for her to go to
the bank’s legal division

● Decision of the Court of Appeals – affirmed the decision of the trial court
because:
○ Goldenway failed to justify why Section 47 of RA 8791 was
unconstitutional
○ The reading of the said provision shows the intention to shorten
the period of redemption for juridical persons
○ RA 8791 was already in effect when the properties in this case was
foreclosed

● In the petition before the Supreme Court, Goldenway presented the

following arguments:
○ Section 47 of R.A. No. 8791 is inapplicable considering that the
contracting parties expressly and categorically agreed that the
foreclosure of the real estate mortgage shall be in accordance with
Act No. 3135
○ Cited the case of Co v. Philippine National where the Court held
that "Under the terms of the mortgage contract, the terms and
conditions under which redemption may be exercised are deemed
part and parcel thereof whether the same be merely conventional
or imposed by law."
○ That applying Section 47 of R.A. No. 8791 to the present case
would be a substantial impairment of its vested right of redemption
under the real estate mortgage contract
○ RA 8719 has no retroactive effect
○ Act No. 3135 is a special law specifically governing real estate
mortgage and foreclosure; while RA 8719 is a general law
pertaining to the banking industry
○ Cited the case of Sulit v. Court of Appeals, claiming that it has
always been the policy of the Court to aid rather than defeat the
mortgagor’s right to redeem his property.

ISSUE: W/N the foreclosure proceeding was valid

HELD: The Supreme Court upheld the ruling of both the trial court and the Court
of Appeals

● The law governing cases of extrajudicial foreclosure of mortgage is Act No.

3135, as amended by Act No. 4118. The one-year period of redemption is
counted from the date of the registration of the certificate of sale. In this
case, the parties provided in their real estate mortgage contract that
upon petitioner’s default and the latter’s entire loan obligation
becoming due, respondent may immediately foreclose the mortgage
judicially in accordance with the Rules of Court, or extrajudicially in
accordance with Act No. 3135, as amended.

● Section 47 of R.A. No. 8791 otherwise known as "The General Banking

Law of 2000" which took effect on June 13, 2000, amended Act No. 3135.
In the amendment, notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial foreclosure, shall have
the right to redeem until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after

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 foreclosure, whichever is earlier. Owners of property that has been sold
in a foreclosure sale prior to the effectivity of the Act shall retain their
redemption rights until their expiration.

● The amendment is validly applied in this case, even when the real estate
mortgage contract was executed in 1985 because when the mortgage
foreclosed, R.A. No. 8791 was already in effect

● Extra issue on constitutionality - The purpose of the non-impairment clause

of the Constitution20 is to safeguard the integrity of contracts against
unwarranted interference by the State. Impairment is anything that
diminishes the efficacy of the contract. Section 47 did not divest juridical
persons of the right to redeem their foreclosed properties but only modified
the time for the exercise of such right by reducing the one-year period
originally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires upon
registration of the certificate of sale or three months after foreclosure,
whichever is earlier.

● The difference in the treatment of juridical persons and natural persons

was based on the nature of the properties foreclosed – whether these are
used as residence, for which the more liberal one-year redemption period
is retained, or used for industrial or commercial purposes, in which
case a shorter term is deemed necessary to reduce the period of
uncertainty in the ownership of property and enable mortgagee-
banks to dispose sooner of these acquired assets. It must be
underscored that the General Banking Law of 2000 was crafted in the
aftermath of the 1997 Southeast Asian financial crisis, fashioning a legal
framework for maintaining a safe and sound banking system. Section 47
embodied one of such safe and sound practices aimed at ensuring the
solvency and liquidity of our banks. Settled is the rule that the non-
impairment clause of the Constitution must yield to the loftier purposes
targeted by the Government

WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The
Decision dated November 19, 2010 and Resolution dated January 31, 2011 of the
Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.

Cameron Granville 3 FACTS: This case is more procedural than real estate mortgage but I still have to
Asset Management, put it because knowing Sir, he might ask.
Inc. v Chua and ● Respondents obtained an initial loan of P4M from Metrobank. It was
Filiden Realty and secured by a real estate mortgage constituted over 3 parcels of land
Development Corp. located in Parañaque. They had additional loans incurred over the years.
(GR No. 191170,
Sept. 14, 2016) ● JAN. 13, 2000 — Respondents and Metrobank restructured the obligation
through a Debt Settlement Agreement over the outstanding obligation of
MARASIGAN P88,101,093.98.

● Respondents failed to pay and Metrobank sought the extrajudicial

foreclosure of the real estate mortgage over the property.

● MAY 4, 2001 — A Notice of Sale was sent to the respondents. The public
auction was to happen on May 31. Respondents then filed a complaint for
injunction with prayer for the issuance of a TRO, preliminary injunction and
damages seeking to stop the intended public auction. This was granted.

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 ● Upon the expiration of the TRO, Metrobank scheduled another public
auction on Nov. 8, 2001. RTC issued an Order directing Metrobank to
reschedule the intended sale to a date after the resolution of the application
for preliminary injunction. However, Metrobank alleged that it only received
the Order on Nov. 12. The auction was on Nov. 8.
○ Thus, the RTC rendered the application for preliminary injunction
as moot because the public auction sale was already
consummated.

● CA — Reversed the ruling of the RTC and remanded the case for further
proceedings. Meanwhile, respondents filed a Motion to Admit Amended
Complaint with attached Amended Verified Complaint for annulment of
foreclosure of mortgage, declaration of nullity of certificate of sale, and
injunction.

● OCT. 17, 2007 — Petitioner Cameron filed a Motion for Joinder of Party
and/or substitution. Metrobank allegedly sold to Asia Recovery Corporation
(ARC) its credit against respondents including all rights, interests, claims
and causes of action arising out of the loan and mortgage agreements
between Metrobank and respondents. Petitioner Cameron prayed that it
be substituted in lieu of Metrobank.
○ Metrobank filed a Comment and stated that it had no objection to
the substitution; that the account of respondents is considered a
nonperforming loan pursuant to the Special Purpose Vehicle Act
of 2002. The account of the respondent was one of those sold by
virtue of Deed of Absolute Sale.
○ This was opposed by respondents. They alleged that they were
entitled to the full disclosure of the details of the sale.

● RTC — Ordered petitioner to be joined as party-defendant without

dropping Metrobank as defendant because the latter was a necessary
party to the final determination of the case.

● CA — If Metrobank has divested itself of the debt of respondent, it should

have been dropped as a necessary party to the case. The RTC provided
for a provisional joinder which is against the basic rule that every action
must be prosecuted or defended in the name of the real party in interest.

● [IMPORTANT!] It questioned by CA whether the substitution was proper

because the Deed of Absolute Sale between Metrobank and ARC did not
specify that respondent’s debt was included in the portfolio of
nonperforming loans sold.

ISSUE:

1. [IMPORTANT!] WoN there was enough evidence in the records to support the
transfer of interest between Metrobank and Petitioner? YES.

2. WoN petitioner may be joined as a party-defendant? YES.

HELD:

1.
● The CA highlights only that it was not clear whether respondent’s debt was

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 included in the portfolio of nonperforming loans. However, the Court held
that there is enough evidence to support the transfer of interest between
Metrobank and Petitioner — Metrobank’s confirmation of the fact of
transfer of interest to ARC and then later to petitioner. The admission by
Metrobank sufficiently supplied whatever what was omitted by the non-
presentation of the entire portfolio of nonperforming loans.
○ The reason for non-presentation of the portfolio is its sensitive
nature and contents.

● Contrary to the findings of the CA that the disclosure of the consideration

for the transfer of rights was a condition precedent for the joinder of
petitioner in the proceedings, the Court held that the transfer of interest is
not a requirement for a party to be joined in a proceeding.

● Lastly, the Court held that the trial court has a wide discretion to determine
who may be joined in a proceedings, or whether a party may be substituted
by another due to transfer of interest. Therefore, RTC’s grant of joinder is
valid.

2.
● Sec. 6, Rule 3, RoC. Permissive joinder of parties. — “All persons in whom
or against whom any right to relief in respect to or arising out of the same
transaction or series of transactions is alleged to exist, whether jointly,
severally, or in the alternative, may, except as otherwise provided in these
Rules, join as plaintiffs or be joined as defendants in one complaint, where
any question of law or fact common to all such plaintiffs or to all such
defendants may arise in the action; but the court may make such orders
as may be just to prevent any plaintiff or defendant from being
embarrassed or put to expense in connection with any proceedings in
which he may have no interest.”

● The rule on joinder of parties is construed with flexibility. The Courts are
given a broad discretion in determining who may properly be joined in a
proceeding.

● In case of a transfer of interest, the Court may direct the person to whom
the interest is transferred to be substituted in an action or joined with the
original party through a motion.
○ Transferees pendente lite stands exactly in the where the original
party stood. They are bound by the proceedings and judgment in
the case and there is no need for them to be impleaded by
name.
○ The Court has ruled in previous cases that transferee is joined or
substituted by operation of law the moment the transfer of interest
is perfected.

● RTC’s statement that “x x x petitioner be joined as a party defendant

without dropping Metrobank at this stage conditioned x x x” was considered
by the CA as allowing for a “provisional” joinder/substitution of
parties. However, the Court held that Sec. 11, RoC provides that parties
may be dropped or added by order of the Court on motion of any party
or on the Court’s own initiative at any stage of the action and on just
terms.

● For CA to say that only one between Metrobank and petitioner may

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 participate in the proceedings shows a lack of understanding of the rules.

White Marketing FACTS:

Development Corp. v ● May 26, 1995 – respondent Grandwood Furniture & Woodwork, Inc.
Granwood Furniture (Grandwood) obtained a loan in the amount of P40M from Metropolitan
& Woodwork, Inc. Bank and Trust Company (Metrobank). The loan was secured by a real
(G.R. No. 222407, estate mortgage over a parcel of land (TCT No. X).
Nov. 23, 2016) ● Metrobank eventually sold its rights and interests over the loan and
mortgage contract to Asia Recovery Corporation (ARC). The latter then
MAGSAYSAY assigned the same rights and interests to Cameron Granville 3 Asset
Management, Inc. (CGAM3)
● July 24, 2013 – after Grandwood failed to pay the loan which already
amounted to P68.941,239. 46, CGAM3 initiated extrajudicial foreclosure
proceedings of the real estate mortgage.
● During the September 17, 2013 Auction Sale, petitioner White Marketing
Dev. Corp. (White Marketing) was the highest bidder and a certificate of
sale was issued in its favor.
● Sept. 30, 2013 – certificate of sale was registered and annotated on
TCT No. X.
● Nov. 21, 2013 – White Marketing received a letter from sheriff informing it
had Grandwood intended to redeem the foreclosed property. White
Marketing responded thru letter informing the sheriff that Grandwood no
longer had right to redeem.
● Dec. 3, 2013– Insisting on its right to redeem the property, Grandwood sent
a letter to the Ofc. Of the Clerk of Court of RTC (OCC-RTC) insisting that
it was the latter’s ministerial duty to recognize its right to redemption, to
accept the tender of payment and to issue a certificate of redemption.
OCC-RTC refused to accept the tender of payment on the ground that it
was confronted with the conflicting applicable laws on the matter of
redemption period.
● Consequently, Grandwood filed its Petition for Consignation, Mandamus
and Damages before the RTC. It reiterated its right to redeem the property.
● RTC dismissed and ruled that the redemption period applicable in the
mortgage between Metrobank and Grandwood was Sec. 47 of RA 8791 or
the General Banking Law of 2000; that by virtue of the said law,
Grandwood should have redeemed the property before the registration of
the certificate of sale on September 30, 2013; stressed that White
Marketing acquired all the rights of Metrobank in the mortgage contract,
which was eventually assigned to CGAM3.
● CA reversed the RTC ruling and remanded the case to the latter for
determination of the amount of redemption price. It ordered the OCC-RTC
to accept the consigned amount and to issue the corresponding certificate
of redemption in Grandwood's favor. It emphasized that Section 47 of R.A.
No. 8791 applied only in cases of foreclosure of real estate by a mortgagee
bank in order to provide sufficient legal remedies to banks in case of unpaid
debts or loans. As White Marketing was not privy to the contract of loan
and the accessory contract of mortgage, it considered the limitation on the
right of redemption on juridical persons as inapplicable. It was of the view
that in case of doubt on the issue of the right of redemption, it should be
resolved in favor of the mortgagor.

SEC. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether judicially
or extra-judicially, of any mortgage on real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real property has been sold for the
full or partial payment of his obligation shall have the right within one year after the sale of the
real estate, to redeem the property by paying the amount due under the mortgage deed, with

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 interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by
the bank or institution from the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned whether in a judicial or
extra-judicial foreclosure shall have the right to enter upon and take possession of such
property immediately after the date of the confirmation of the auction sale and administer the
same in accordance with law. Any petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this provision shall be given due course only
upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he
will pay all the damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3) months after
foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale
prior to the effectivity of this Act shall retain their redemption rights until their expiration.

● Elevated to the SC, White Marketing insisted that Grandwood’s right of

redemption had lapsed because under the mortgage contract the parties
agreed that the same would be governed by RA 8791. It argued that
because the parties voluntarily stipulated on the governing law, the same
was binding on them. White Marketing asserted that when Metrobank
assigned its rights, its assignees acquired whatever rights the former had
under the REM.
● White Marketing further reiterated that the subject law was the applicable
one with regard to the period of redemption therefore Grandwood should
have redeemed the foreclosed property before the registration of the
certificate of sale on Sept. 30, 2013.
● Grandwood argued that the provisions of the real estate mortgage were
pro forma as the original mortgagee, Metrobank, was a banking institution;
and so, the contract would necessarily contain a provision indicating that
the mortgagor would be bound by R.A. No. 8791. Grandwood, however,
explained that White Marketing could not enjoy the provision of R.A. No.
8791 on the redemption period because it was not a banking institution. It
asserted that its exercise of redemption rights was not against Metrobank
in accordance with the real estate mortgage, but against White Marketing
as the highest bidder in the foreclosure sale. Grandwood further reiterated
that pursuant to the spirit and intent of R.A. No. 8791, the shorter
redemption period applied in favor of banking institutions only. In its view,
R.A. No. 8791 would apply only when the mortgagee bank itself would
foreclose the property and not when the same had already assigned or
conveyed its mortgage rights for a consideration.

ISSUE: W/N the CA erred in reversing the decision of the RTC when it declared
that Sec. 47 of RA 8791 is not applicable in the case at bar? Yes.

HELD: The Court finds that Grandwood's redemption was made out of time as it
was done after the certificate of sale was registered on September 30, 2013.
Pursuant to Section 47 of R.A. No. 8791, it only had three (3) months from
foreclosure or before the registration of the certificate of foreclosure sale, whichever
came first, to redeem the property sold in the extrajudicial sale.

● The mortgage between Grandwood and Metrobank, as the original

mortgagee, was subject to the provisions of Section 47 of R.A. No. 8791.
Section 47 provides that when a property of a juridical person is sold
pursuant to an extrajudicial foreclosure, it "shall have the right to redeem
the property in accordance with this provision until, but not after, the
registration of the Certificate of foreclosure sale with the applicable
Register of Deeds which in no case shall be more than three (3) months

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 after foreclosure, whichever is earlier."
● White Marketing stepped into the shoes of Metrobank.
● Fort Bonifacio v. Fong, The Court explained the effects of assignment of
credit:
○ The reason that a contracting party's assignees, although
seemingly a third party to the transaction, remain bound by the
original party's transaction under the relativity principle further lies
in the concept of subrogation, which inheres in assignment.
○ when a person assigns his credit to another person, the latter is
deemed subrogated to the rights as well as to the obligations of
the former. By virtue of the Deed of Assignment, the assignee
is deemed subrogated to the rights and obligations of the
assignor and is bound by exactly the same conditions as
those which bound the assignor.
○ An assignee cannot acquire greater rights than those pertaining to
the assignor.
○ The general rule is that an assignee of a non-negotiable chose in
action acquires no greater right than what was possessed by his
assignor and simply stands into the shoes of the latter.
● In an assignment of credit, the assignee is subrogated to the rights of the
original creditor, such that he acquires the power to enforce it, to the same
extent as the assignor could have enforced it against the debtor.
● Through the assignment of credit, the new creditor is entitled to the rights
and remedies available to the previous creditor, and includes
accessory rights such as mortgage or pledge.
● ARC acquired all the rights, benefits and obligations of Metrobank under
its mortgage contract with Grandwood. The same could be said for
subsequent assignees or successors-in-interest after ARC like White
Marketing.
● Grandwood had three months from the foreclosure or before the certificate
of foreclosure sale was registered to redeem the foreclosed property. This
holds true even when Metrobank ceased to be the mortgagee in view of its
assignment to ARC of its credit, because the latter acquired all the rights
of the former under the mortgage contract — including the shorter
redemption period. The shorter redemption period should also redound to
the benefit of White Marketing as the highest bidder in the foreclosure sale
as it stepped into the shoes of the assignee-mortgagee.
● Such interpretation is in harmony with the avowed purpose of R.A. No.
8791 in providing for a shorter redemption period for juridical persons. The
shortened period under Sec. 47 serves as additional security for banks to
maintain their solvency and liquidity.
● The shorter redemption period is an incentive which mortgagee-banks may
use to encourage prospective assignees to accept the assignment of credit
for a consideration. If the redemption period under R.A. No. 8791 would be
extended upon the assignment by the bank of its rights under a mortgage
contract, then it would be tedious for banks to find willing parties to be
subrogated in its place.
● Although it is true that, generally, redemption is liberally construed in favor
of the mortgagor, the rule cannot be applied in the present case. The liberal
construction of the redemption period is not a panacea readily invoked by
mortgagors whose right to redeem had been justifiably defeated.

Medida v CA, 208 FACTS:

SCRA 887 (1992) ● Oct 10, 1974 - plaintiff spouses, alarmed of losing their right of redemption

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 over lot 4731 and embraced under TCT No. 14272 from Mr. Juan
JALECO Gandioncho, purchaser of the lot at the foreclosure sale of the previous
mortgage in favor of Cebu City Development Bank, went to Teotimo
Abellana, president of defendant Association, to obtain a loan of
P30,000.00. Prior thereto or on Oct 3, 1974, their son Teofredo Dolino filed
a similar loan application for P25,000.00 with lot No. 4731 offered as
security for the P30,000.00 loan from defendant association.
Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for
P30,000.00 payable in one year with interest at 12% per annum.

● When the loan became due and demandable without plaintiff paying the
same, defendant association caused the extrajudicial foreclosure of the
mortgage on March 16, 1976. The land was sold at public auction on April
19, 1976 to defendant association being the highest bidder. The certificate
of sale was issued on April 20, 1976 and registered on May 10, 1976 with
the Register of Deeds of Cebu.

● May 24, 1977 – plaintiff failed to exercise his right of redemption thus TCT
No. 14272 was cancelled and TCT No. 68041 was issued in the name of
defendant association.

● October 18, 1979 - private respondents filed a Civil Case in the court a quo
for the annulment of the sale at public auction conducted on April 19, 1976,
as well as the corresponding certificate of sale issued pursuant thereto.

In their complaint, private respondents, as plaintiffs therein, assailed the

validity of the extrajudicial foreclosure sale of their property, claiming that
the same was held in violation of Act No. 3135, as amended, and prayed,
for the cancellation of TCT No. 68041 issued in favor of therein defendant
City Savings and Loan Association, Inc., now known as City Savings Bank
and one of the petitioners herein.

In its answer, the defendant association denied the material

allegations of the complaint and averred that the present
private respondent spouses may still avail of their right of redemption
over the land in question.

● January 12, 1983 - the RTC upheld the validity of the loan and the real
estate mortgage, but annulled the extrajudicial foreclosure sale inasmuch
as the same failed to comply with the notice requirements in Act No. 3135,
as amended, under the following dispositive part: xxx
2. Ordering the cancellation of TCT No. 68041 of the Registry of
Deeds of the City of Cebu in the name of defendant Cebu City
Savings and Loan Association, Inc. the corresponding issuance of
a new transfer certificate to contain all the annotations made in
TCT No. 14272 of the plaintiffs Pascuala Sabellano, married to
Andres Dolino;
3. Ordering the plaintiffs aforenamed to pay the defendant Cebu
City Savings and Loan Association, Inc. the unpaid balance of the
loan, plus interest; and reimbursing said defendant the value of
any necessary and useful expenditures on the property after
deducting any income derived by said defendant from the
property. xxx

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 ● Private respondents appealed with respect to the second and third
paragraphs of the decretal portion, contending that the lower court erred in
(1) declaring that the mortgage executed by the therein plaintiff spouses
Dolino is valid; (2) permitting therein Cebu City Savings and Loan
Association, Inc. to collect interest after the same foreclosure proceedings
and auction sale which are null and void from the beginning; (3) not
ordering the forfeiture of the capital or balance of the loan with usurious
interest; and (4) not sentencing therein defendant to pay damages and
attorney's fees to plaintiffs.

● Sept 28, 1990 – CA modified RTC’s decision which declared the REM
executed by plaintiffs in favor of defendant association as void and
ineffective.

● March 5, 1991 – CA denied petitioner’s MR. hence the present petition

which postulates that respondent court erred in declaring the real estate
mortgage void, and also impugns the judgment of the trial court declaring
ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of TCT No. 68041 issued in favor of the predecessor of
petitioner bank.

ISSUE: WON a mortgagor, whose property has been extrajudicially foreclosed and
sold at the corresponding foreclosure sale, may validly execute a mortgage
contract over the same property in favor of a third party during the period of
redemption – YES.

HELD:
● What is presently involved is a mortgage, not a sale, to petitioner bank.
Such mortgage does not involve a transfer, cession or conveyance of the
property but only constitutes a lien thereon. There is no obstacle to the
legal creation of such a lien even after the auction sale of the property but
during the redemption period, since no distinction is made between a
mortgage constituted over the property before or after the auction sale
thereof.

● A redemptioner is defined as a creditor having a lien by attachment,

judgment or mortgage on the property sold, or on some part thereof,
subsequent to the judgment under which the property was sold. Of course,
while in extrajudicial foreclosure the sale contemplated is not under a
judgment but the proceeding pursuant to which the mortgaged property
was sold, a subsequent mortgage could nevertheless be legally constituted
thereafter with the subsequent mortgagee becoming and acquiring the
rights of a redemptioner, aside from his right against the mortgagor.

● What bears attention is that since 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 the requisites of
Article 2085 of the Civil Code for the constitution of another mortgage on
the property. To hold otherwise would create the inequitable situation
wherein the mortgagor would be deprived of the opportunity, which may be
his last recourse, to raise funds wherewith to timely redeem his property
through another mortgage thereon.

● It is undisputed that the real estate mortgage in favor of petitioner bank

was executed by respondent spouses during the period of redemption.

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 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 that the
right of a purchaser at a foreclosure sale is merely inchoate until after the
period of redemption has expired without the right being exercised. The
title to land sold under mortgage foreclosure remains in the mortgagor or
his grantee until the expiration of the redemption period and conveyance
by the master's deed. To repeat, the rule has always been that it is only
upon the expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, that the ownership of the land
sold becomes consolidated in the purchaser.

● What is effected where redemption is seasonably exercised by the

judgment or mortgage debtor is not the recovery of ownership of his land,
which ownership he never lost, but the elimination from his title thereto of
the lien created by the levy on attachment or judgment or the registration
of a mortgage thereon. The American rule is similarly to the effect that the
redemption of property sold under a foreclosure sale defeats the inchoate
right of the purchaser and restores the property to the same condition as if
no sale had been attempted. Further, it does not give to the mortgagor a
new title, but merely restores to him the title freed of the encumbrance of
the lien foreclosed.

● We cannot rule on the plaint of petitioners that the trial court erred in
declaring ineffective the extrajudicial foreclosure and the sale of the
property to petitioner bank. The court below spelled out at length in its
decision the facts which it considered as violative of the provisions of Act
No. 3135, as amended, by reason of which it nullified the extrajudicial
foreclosure proceeding and its effects. Such findings and ruling of the trial
court are already final and binding on petitioners and can no longer be
modified, petitioners having failed to appeal therefrom.

Thus, CA’s modification of the trial court’s judgment is REVERSED and SET
ASIDE. The judgment of said trial court is REINSTATED.

**Other matters in case sir asks

CA erred when it ruled that the real estate mortgage in question null and void for
the reason that the mortgagor spouses, at the time when the said mortgage was
executed, were no longer the owners of the lot, having supposedly lost the same
when the lot was sold to a purchaser in the foreclosure sale under the prior
mortgage.

Preliminarily, the issue of ownership of the mortgaged property was never alleged
in the complaint nor was the same raised during the trial, hence that issue should
not have been taken cognizance of by the CA. An issue which was neither averred
in the complaint nor ventilated during the trial in the court below cannot be raised
for the first time on appeal as it would be offensive to the basic rule of fair play,
justice and due process.

Respondent court placed full reliance on what obviously is an obiter dictum laid
down in Dizon vs. Gaborro, which states "(t)he basic issue to be resolved in this
case is whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to
Purchase Real Estate,' two instruments executed by and between petitioner Jose
P. Dizon and Alfredo G. Gaborro (defendant below) on the same day, October 6,
1959, constitute in truth and in fact an absolute sale of the three parcels of land
therein described or merely an equitable mortgage or conveyance thereof by way

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of security for reimbursement or repayment by petitioner Jose P. Dizon of any and
all sums which may have been paid to the Development Bank of the Philippines
and the Philippine National Bank by Alfredo G. Gaborro..." Said documents were
executed by the parties and the payments were made by Gaborro for the debt of
Dizon to said banks after the Development Bank of the Philippines had foreclosed
the mortgage executed by Dizon and during the period of redemption after the
foreclosure sale of the mortgaged property to said creditor bank.

The trial court held that the true agreement between the parties therein was that
Gaborro would assume and pay the indebtedness of Dizon to the banks and, in
consideration thereof, Gaborro was given the possession and enjoyment of the
properties in question until Dizon shall have reimbursed him for the amount paid to
the creditor banks. Accordingly, the trial court ordered the reformation of the
documents to the extent indicated and such particular relief was affirmed by the
CA. This Court held that the agreement between the parties is one of those
innominate contracts under Article 1307 of the Civil Code whereby the parties
agreed "to give and to do" certain rights and obligations, but partaking of the nature
of antichresis.

Hence, on appeal to this Court, the judgment of the CA in that case was affirmed
but with the following pronouncements:
xxx
Under the Revised Rules of Court, Rule 39, Section 33, the
judgment debtor remains in possession of the property foreclosed
and sold, during the period of redemption. If the judgment debtor
is in possession of the property sold, he is entitled to retain it, and
receive the fruits, the purchaser not being entitled to such
possession.
Upon foreclosure and sale, the purchaser is entitled to a certificate
of sale executed by the sheriff. (Section 27, Revised Rules of
Court). After the termination of the period of redemption and no
redemption having been made, the purchaser is entitled to a deed
of conveyance and to the possession of the properties. (Section
35, Revised Rules of Court). The weight of authority is to the effect
that the purchaser of land sold at public auction under a writ of
execution has only an inchoate right to the property, subject to be
defeated and terminated within the period of 12 months from the
date of sale, by a redemption on the part of the owner. Therefore,
the judgment debtor in possession of the property is entitled to
remain therein during the period for redemption.
In the case before Us, after the extrajudicial foreclosure and sale
of his properties, petitioner Dizon retained the right to redeem the
lands, the possession, use and enjoyment of the same during the
period of redemption. And these are the only rights that Dizon
could legally transfer, cede and convey unto respondent Gaborro
under the instrument captioned Deed of Sale with Assumption of
Mortgage (Exh. A-Stipulation), likewise the same rights that said
respondent could acquire in consideration of the latter's promise
to pay and assume the loan of petitioner Dizon with DBP and PNB.
Such an instrument cannot be legally considered a real and
unconditional sale of the parcels of land, firstly, because there was
absolutely no money consideration therefor, as admittedly
stipulated, the sum of P131,831.91 mentioned in the document as
the consideration "receipt of which was acknowledged" was not
actually paid; and, secondly, because the properties had already

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 been previously sold by the sheriff at the foreclosure sale, thereby
divesting the petitioner of his full right as owner thereof to dispose
and sell the lands.

It was apparently the second reason stated by the Court in said case which was
relied upon by respondent court in the present case on which to premise its
conclusion. Yet, the stated obiter is inapplicable since evidently no sale was
concluded, inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale
merely acquired an inchoate right to the property which could ripen into ownership
only upon the lapse of the redemption period without his credit having been
discharged, it is illogical to hold that during that same period of twelve months the
mortgagor was "divested" of his ownership, since the absurd result would be that
the land will consequently be without an owner although it remains registered in
the name of the mortgagor.

What is divested from the mortgagor is only his "full right as owner thereof to
dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does
not have the unconditional power to absolutely sell the land since the same is
encumbered by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the period of
redemption. Even on that score, it may plausibly be argued that what is delimited
is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the
rights conferred by such act of disposal which may correspondingly be restricted.

Spouses Yap v FACTS:

Spouses Dy, 654 ● The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are
SCRA 593 (2011) the registered owners of several parcels of land located in Ayungon,
Negros Oriental
DE MESA ● On December 3, 1976, the Tirambulos executed a Real Estate Mortgage
3 over Lots 1, 4, 5, 6 and 8 in favor of the Rural Bank of Dumaguete, Inc.,
predecessor of Dumaguete Rural Bank, Inc. (DRBI), to secure a P105,000
loan extended by the latter to them. Later, the Tirambulos obtained a
second loan for P28,000 and also executed a Real Estate Mortgage 4 over
Lots 3 and 846 in favor of the same bank on August 3, 1978
● October 27, 1979, the Tirambulos sold all seven mortgaged lots to the
spouses Zosimo Dy, Sr. and Natividad Chiu (the Dys) and the spouses
Marcelino C. Maxino and Remedios Lasola (the Maxinos) without the
consent and knowledge of DRBI.
● This sale was followed by a default on the part of the Tirambulos to pay
their loans to DRBI. Thus, DRBI extrajudicially foreclosed the December 3,
1976 mortgage and had Lots 1, 4, 5, 6 and 8 sold at public auction on
March 31, 1982
● DRBI was proclaimed the highest bidder and bought said lots for
P216,040.93. The Sheriff's Certificate of Sale 6 stated that the "sale is
subject to the rights of redemption of the mortgagor(s) or any other persons
authorized by law so to do, within a period of one (1) year from registration
hereof." The certificate of sale, however, was not registered until almost a
year later
● On July 6, 1983, or twelve (12) days after the sale was registered, DRBI
sold Lots 1, 3 and 6 to the spouses Francisco D. Yap and Whelma D. Yap
(the Yaps) under a Deed of Sale with Agreement to Mortgage.
● On August 25, 1983, the Yaps again filed a Motion for Writ of Possession.
12 This time the motion was granted, and a Writ of Possession 13 over

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 Lots 1, 3 and 6 was issued in favor of the Yaps on September 5, 1983.
They were placed in possession of Lots 1, 3 and 6 seven days later.
● On May 22, 1984, roughly a month before the one-year redemption period
was set to expire, the Dys and the Maxinos attempted to redeem Lots 1, 3
and 6. They tendered the amount of P40,000.00 to DRBI and the Yaps,
but both refused, contending that the redemption should be for the full
amount of the winning bid of P216,040.93 plus interest for all the foreclosed
properties.
● May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of
Negros Oriental and paid P50,625.29 (P40,000.00 for the principal plus
P10,625.29 for interests and Sheriff's Commission) to effect the
redemption. 15 Noticing that Lot 3 was not included in the foreclosure
proceedings, Benjamin V. Diputado, Clerk of Court and Provincial Sheriff,
issued a Certificate of Redemption 16 in favor of the Dys and the Maxinos
only for Lots 1 and 6, and stated in said certificate that Lot 3 is not included
in the foreclosure proceedings.
● May 31, 1984, the Yaps refused to take delivery of the redemption
price arguing that one of the characteristics of a mortgage is its
indivisibility and that one cannot redeem only some of the lots
foreclosed because all the parcels were sold for a single price at the
auction sale.
● June 1, 1984, the Provincial Sheriff wrote the Dys and the Maxinos
informing them of the Yaps' refusal to take delivery of the redemption
money and that in view of said development, the tender of the redemption
money was being considered as a consignation.
● June 15, 1984, the Dys and the Maxinos filed Civil Case No. 8426 with the
Regional Trial Court of Negros Oriental for accounting, injunction,
declaration of nullity (with regard to Lot 3) of the Deed of Sale with
Agreement to Mortgage, and damages against the Yaps and DRB
● June 27, 1984, the Yaps told DRBI that no redemption has been made by
the Tirambulos or their successors-in-interest and requested DRBI to
consolidate its title over the foreclosed properties by requesting the
Provincial Sheriff to execute the final deed of sale in favor of the bank so
that the latter can transfer the titles of the two foreclosed properties to them
● July 5, 1984, the Yaps filed Civil Case No. 8439 for consolidation of
ownership, annulment of certificate of redemption, and damages against
the Dys, the Maxinos, the Provincial Sheriff of Negros Oriental and DRBI
● The trial court held that the Dys and the Maxinos failed to formally offer
their evidence; hence, the court could not consider the same.
● It also upheld the Deed of Sale with Agreement to Mortgage between the
Yaps and DRBI, ruling that its genuineness and due execution has been
admitted by the Dys and the Maxinos and that it is not contrary to law,
morals, good customs, public policy or public order. Thus, ownership of
Lots 1, 3 and 6 was transferred to the Yaps.
● The trial court further held that the Dys and the Maxinos failed to exercise
their rights of redemption properly and timely
● CA reversed and ruled in favor of Dys and the Maxinos
ISSUE:
(1) Is Lot 3 among the foreclosed properties? (2) To whom should the payment of
redemption money be made? (3) Did the Dys and Maxinos validly redeem Lots 1
and 6? and (4) Is DRBI liable for damages?

HELD:
● Dys and Maxinos have legal personality to redeem the subject properties
despite the fact that the sale to the Dys and Maxinos was without DRBI's

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 consent. In Litonjua v. L & R Corporation, 41 this Court declared valid the
sale by the mortgagor of mortgaged property to a third person
notwithstanding the lack of written consent by the mortgagee, and likewise
recognized the third person's right to redeem the foreclosed property
● The Dys and the Maxinos validly redeemed Lots 1 and 6.
● The requisites for a valid redemption are: (1) the redemption must be made
within twelve (12) months from the time of the registration of the sale in the
Office of the Register of Deeds; (2) payment of the purchase price of the
property involved, plus 1% interest per month thereon in addition, up to the
time of redemption, together with the amount of any assessments or taxes
which the purchaser may have paid thereon after the purchase, also with
1% interest on such last named amount; and (3) written notice of the
redemption must be served on the officer who made the sale and a
duplicate filed with the Register of Deeds of the province
● There is no issue as to the first and third requisites, The second
requisite, the proper redemption price, is the main subject of
contention of the opposing parties.
● We cannot subscribe to the Yaps' argument on the indivisibility of the
mortgage. As held in the case of Philippine National Bank v. De los
Reyes, the doctrine of indivisibility of mortgage does not apply once
the mortgage is extinguished by a complete foreclosure thereof as in
the instant case.
● Once the mortgage is extinguished by a complete foreclosure
thereof, said doctrine of indivisibility ceases to apply since, with the
full payment of the debt, there is nothing more to secure.
● Nothing in the law prohibits the piecemeal redemption of properties sold at
one foreclosure proceeding. In fact, in several early cases decided by this
Court, the right of the mortgagor or redemptioner to redeem one or some
of the foreclosed properties was recognized.
● The Dys and Maxinos can effect the redemption of even only two of the
five properties foreclosed. And since they can effect a partial redemption,
they are not required to pay the P216,040.93 considering that it is the
purchase price for all the five properties foreclosed.
● Decision of CA is affirmed.

[ SECOND ]
STOP HERE. Deadline: Sept. 6, 2019 at 11:59PM.

Suico v PNB, 531 FACTS:

SCRA 514 (2007)
ISSUE:
BERNARDO
HELD:

Cua Lai Chu v FACTS:

Lacqui and PBCom,
612 SCRA 227 ISSUE:
(2010)
HELD:
ALMADRO

Spouses Teves v. FACTS:

Integrated Credit and

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Corporate Services ISSUE:
(GR No. 216714,
Apr. 4, 2018) HELD:

BERNARDO

Ermitaño vs. Paglas, FACTS:

689 SCRA 158 ● On November 5, 1999, herein respondent and petitioner, through her
(2013) representative, Isabelo R. Ermitaño, executed a Contract of Lease wherein
petitioner leased in favor of respondent a 336 square meter residential lot
DE MESA and a house standing thereon located at No. 20 Columbia St., Phase 1,
Doña Vicenta Village, Davao City. The contract period is one (1) year,
which commenced on November 4, 1999, with a monthly rental rate of
P13,500.00. Pursuant to the contract, respondent paid petitioner
P27,000.00 as security deposit to answer for unpaid rentals and damage
that may be caused to the leased unit.
● Subsequent to the execution of the lease contract, respondent received
information that sometime in March 1999, petitioner mortgaged the subject
property in favor of a certain Charlie Yap (Yap) and that the same was
already foreclosed with Yap as the purchaser of the disputed lot in an extra-
judicial foreclosure sale which was registered on February 22, 2000. Yap's
brother later offered to sell the subject property to respondent. Respondent
entertained the said offer and negotiations ensued.
● On June 1, 2000, respondent bought the subject property from Yap for
P950,000.00. A Deed of Sale of Real Property was executed by the parties
as evidence of the contract. However, it was made clear in the said Deed
that the property was still subject to petitioner's right of redemption.
● Prior to respondent's purchase of the subject property, petitioner filed a suit
for the declaration of nullity of the mortgage in favor of Yap as well as the
sheriff's provisional certificate of sale which was issued after the disputed
house and lot were sold on foreclosure.

● Meanwhile, on May 25, 2000, petitioner sent a letter demanding

respondent to pay the rentals which are due and to vacate the leased
premises. A second demand letter was sent on March 25, 2001.
Respondent ignored both letters.

● On August 13, 2001, petitioner filed with the Municipal Trial Court in Cities
(MTCC), Davao City, a case of unlawful detainer against respondent.
● RTC and CA ruled in favor of respondent Paglas

ISSUE:

HELD:

● In an unlawful detainer case, the sole issue for resolution is the physical
or material possession of the property involved, independent of any claim
of ownership by any of the party litigants.
● In the instant case, pending final resolution of the suit filed by petitioner for
the declaration of nullity of the real estate mortgage in favor of Yap, the
MTCC, the RTC and the CA were unanimous in sustaining the presumption
of validity of the real estate mortgage over the subject property in favor of

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 Yap as well as the presumption of regularity in the performance of the
duties of the public officers who subsequently conducted its foreclosure
sale and issued a provisional certificate of sale.
● Based on the presumed validity of the mortgage and the subsequent
foreclosure sale, the MTCC, the RTC and the CA also sustained the validity
of respondent's purchase of the disputed property from Yap. The Court
finds no cogent reason to depart from these rulings of the MTCC, RTC and
CA. Thus, for purposes of resolving the issue as to who between petitioner
and respondent is entitled to possess the subject property, this
presumption stands.
● There is no dispute that at the time that respondent purchased Yap's rights
over the subject property, petitioner's right of redemption as a mortgagor
has not yet expired. It is settled that during the period of redemption, it
cannot be said that the mortgagor is no longer the owner of the foreclosed
property, since the rule up to now is that the right of a purchaser at a
foreclosure sale is merely inchoate until after the period of redemption has
expired without the right being exercised.
● The title to land sold under mortgage foreclosure remains in the mortgagor
or his grantee until the expiration of the redemption period and conveyance
by the master's deed. 17 Indeed, the rule has always been that it is only
upon the expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, that the ownership of the land
sold becomes consolidated in the purchaser. 18
● Under Act No. 3135, the purchaser in a foreclosure sale has, during the
redemption period, only an inchoate right and not the absolute right to the
property with all the accompanying incidents. 19 He only becomes an
absolute owner of the property if it is not redeemed during the redemption
period.
● It is clear from the abovequoted provision of law that, as a consequence of
the inchoate character of the purchaser's right during the redemption
period, Act No. 3135, as amended, allows the purchaser at the foreclosure
sale to take possession of the property only upon the filing of a bond, in an
amount equivalent to the use of the property for a period of twelve (12)
months, to indemnify the mortgagor in case it be shown that the sale was
made in violation of the mortgage or without complying with the
requirements of the law.
● during the period of redemption, the mortgagor, being still the owner of the
foreclosed property, remains entitled to the physical possession thereof
subject to the purchaser's right to petition the court to give him possession
and to file a bond pursuant to the provisions of Section 7 of Act No. 3135,
as amended. The mere purchase and certificate of sale alone do not confer
any right to the possession or beneficial use of the premises.
● In the instant case, there is neither evidence nor allegation that respondent,
as purchaser of the disputed property, filed a petition and bond in
accordance with the provisions of Section 7 of Act No. 3135. In addition,
respondent defaulted in the payment of her rents. Thus, absent
respondent's filing of such petition and bond prior to the expiration of the
period of redemption, coupled with her failure to pay her rent, she did not
have the right to possess the subject property.
● On the other hand, petitioner, as mortgagor and owner, was entitled not
only to the possession of the disputed house and lot but also to the rents,
earnings and income derived therefrom
● Since there is no allegation, much less evidence, that petitioner redeemed
the subject property within one year from the date of registration of the
certificate of sale, respondent became the owner thereof. Consolidation of

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 title becomes a right upon the expiration of the redemption period. 26
Having become the owner of the disputed property, respondent is then
entitled to its possession.
● As a consequence, petitioner's ejectment suit filed against respondent was
rendered moot when the period of redemption expired on February 23,
2001 without petitioner having redeemed the subject property, for upon
expiration of such period petitioner lost his possessory right over the same.
Hence, the only remaining right that petitioner can enforce is his right to
the rentals during the time that he was still entitled to physical possession
of the subject property — that is from May 2000 until February 23, 2001.
TDEASC
● In this regard, this Court agrees with the findings of the MTCC that, based
on the evidence and the pleadings filed by petitioner, respondent is liable
for payment of rentals beginning May 2000 until February 2001, or for a
period of ten (10) months. However, it is not disputed that respondent
already gave to petitioner the sum of P27,000.00, which is equivalent to
two (2) months' rental, as deposit to cover for any unpaid rentals. It is only
proper to deduct this amount from the rentals due to petitioner, thus leaving
P108,000.00 unpaid rentals

Spouses Tolosa v FACTS:

UCPB, 695 SCRA
138 (2013) ISSUE:

JALECO HELD:

BPI Family Savings FACTS:

Bank, Inc. v Golden
Power Diesel Sales ISSUE:
Center, Inc., 639
SCRA 405 (2011) HELD:

MAGSAYSAY

Homeowners FACTS:
Savings and Loan
Bank v Felonia, 717 ISSUE:
SCRA 358 (2014)
HELD:
MARASIGAN

PNB v Heirs of FACTS:

Alonday (GR No. ● The Spouses Alonday obtained two loans from PNB with mortgage
171865, 12 Oct. 2016) contracts containing identical provisions:

PEÑAFIEL 1.) PNB Davao Del Sur, Digos Branch

-Agricultural loan
-P28,000.00

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 -secured with real estate mortgage over a parcel of land in Sta.
Cruz, Davao Del Sur (P-3599)

2.) PNB Davao City

-Commercial loan
-P16,700
-secured with real estate mortgage over residential lot in Ulas,
Davao City (T-66139)

● The Spouses Alonday made partial payments on the commercial loan,

which they renewed for the balance of P15,950.00. The renewed
commercial loan, although due on December 25, 1984, was fully paid on
July 5, 1984.

● On August 6, 1984, Mercy and Alberto Alonday, the children of the

Spouses Alonday, demanded the release of the mortgage over the
residential property mortgaged from the commercial loan, but the bank
informed them that the mortgage could not be released because the
agricultural loan had not yet been fully paid, and that as the consequence,
they had foreclosed the mortgage over the parcel of land mortgaged from
the agricultural loan.

● It appeared that notwithstanding such foreclosure, a deficiency balance of

P91,525.22 remained.

● Hence, PNB applied for the extra-judicial foreclosure of the mortgage on

the residential lot. A notice of extra-judicial sale was issued on August 20,
1984, and the property was sold on September 28, 1984 to PNB in the
amount of P29,900.00. Since the Alondays were unable to redeem the
property, PNB consolidated its ownership and later sold it for P48,000.00
to one Felix Malmis.

● According to PNB, the deed of mortgage relating to the residential lot

included an "all-embracing clause" whereby the mortgage secured not only
the commercial loan contracted with its Davao City Branch but also the
earlier agricultural loan contracted with its Digos Branch.

● The RTC ruled in favor of the Alondays, observing that if PNB had the
intention of having the 2nd mortgage secure the agricultural loan, it should
have made an express reservation to that effect. Also, since the mortgage
was a contract of adhesion, it shall be construed against the bank.
However, since the property was already sold to a third party not included
in the suit, it could not order the return of the said property but instead,
PNB should pay the Alondays the value of the lot under its present market
valuation.

● The CA affirmed the decision of the RTC, in view that a contract of

adhesion shall be construed against the bank who drafted the contract.
Also, it was observed that the real estate mortgage on the residential lot
was specifically constituted to secure the payent of the commercial loan
only. With the execution of two separate mortgage contracts, it was clear
that the intention of the parties was to limit the mortgage to the loan for
which it was constituted.

ISSUE: W/N the standard “all-embracing clause” in this case should be upheld in

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 this case - NO

HELD:
● The Court affirms the decision with modification.

● The all-embracing clause have been recognized as a valid means to

secure debts of both future and past origins. However, it is an exceptional
mode of securing obligations, and that obligations could only be deemed
secure by the mortgage if they came fairly within the terms of the mortgage
contract. For all-embracing clauses to secure future loans, such loans
must be sufficiently described in the mortgage contract.

● The mere fact that the mortgage constituted on the residential lot made no
mention of the pre-existing agricultural loan could only strongly indicate
that each of the loans of the Spouses Alonday had been treated separately
by the parties themselves, which explains why the loans had been secured
in two different mortgages.

● Modification on interests: (the courts cannot grant reliefs not prayed for in
the pleadings or in excess of what is being sought by the party)

● To accord with what is fair, based on the records, the court reduce
the basis of the actual damages to P1,200.00/square meter. Such
valuation is insulated from arbitrariness because it was made by
the Spouses Alonday themselves in their complaint, rendering a
total of P717,600.00 as actual damages. The lower courts did not
impose interest on the judgment obligation to be paid by PNB.
Such interest is in the nature of compensatory interest, as
distinguished from monetary interest. (the Court used the case of
Siga-an v. Villanueva to distinguish the kinds of interest).

● PNB should be held liable for interest on the actual damages of

P717,600.00 representing the value of the propetiy with an area
598 square meters that was lost to them through the unwarranted
foreclosure, the same to be reckoned from the date of judicial
demand. At the time thereof, the rate was 12% per annum, and
such rate shall run until June 30, 2013. Thereafter, or starting on
July 1, 2013, the rate of interest shall be 6% per annum until full
payment of the obligation.

Roldan v Spouses FACTS:

Barrios (GR No. Petitioner: Alona Roldan
214803, Apr. 23, Respondents: Spouses Clarence Barrios and Anna Lee T. Barrios and Rommel
2018) Torres

TAONGAN ● On February 3, 2014, petitioner Alona G. Roldan filed an action for

foreclosure of real estate mortgage against respondents spouses Clarence
I. Barrios and Anna Lee T. Barrios and respondent Romel D. Matorres.

● Petitioner Alona alleged:

○ That on October 13, 2008, defendants borrowed from plaintiff the
sum of Two Hundred Fifty Thousand Pesos (P250,000.00),
Philippine Currency, payable within the period of one (1) year from
said date, with an interest thereon at the rate of 5% per month; and
to secure the prompt and full payment of the principal and interest,

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 defendants made and executed on October 13, 2008 a Deed of
Real Estate Mortgage in favor of plaintiff upon a parcel of land and
improvements (parcel of land in Baybay, Makato, Aklan with an
area of 478 square meters in the name of Spouses Clarence and
Anna Lee T. Barrios).

○ That the condition of said mortgage, as stated therein, is such, that

if within the period of one year from October 13, 2008, the
defendants shall pay or cause to be paid to the plaintiff, her heirs
and assigns, the said sum of P250,000 together with the agreed
interest, then the said mortgage shall be discharged; otherwise, it
shall remain in full force and effect, to be enforceable in the
manner provided by law.

○ That the time for payment of said loan is overdue and defendants
failed and refused to pay both the principal obligation and the
interest due starting from February 2011 to the present
notwithstanding repeated demands.

○ That there are no other persons having or claiming interest in the

mortgaged property except Romel D. Matorres whom plaintiff
recently discovered that the defendants mortgaged again to the
said person the same property subject of this suit for One Hundred
Fifty Thousand Pesos, (P150,000.00) on June 11, 2012 x x x The
said Romel D. Matorres is however a mortgagee in bad faith.

● Respondents spouses Barrios filed their Answer contending that the

computation of their alleged loan obligation was not accurate; that they had
filed with the RTC a petition for rehabilitation of a financially distressed
individuals under thus there is a need to suspend the foreclosure
proceedings.

● On the other hand, respondent Matorres filed his Answer admitting that the
subject land was mortgaged to him; that he had also filed a judicial
foreclosure case against respondents spouses Barrios pending with the
RTC of Kalibo Aklan, Branch; that petitioner had no cause of action against
him as they did not have any transaction with each other; and prayed for
damages and attorney's fees, and cross-claim against respondent spouses
for moral damages.

● RTC dismissed the complaint for lack of jurisdiction averring that since the
assessed value of the property is P13,380 which is below P 20,000, it is
the first level court that has jurisdiction over the cases.

● Petitioner and respondent Matorres filed an MR which was also denied by

the RTC.

● Petitioner filed the instant petition for certiorari alleging grave abuse of
discretion committed by the RTC when it ordered the dismissal of her
foreclosure case without prejudice and denying her motion for
reconsideration. She argues that foreclosure of mortgage is an action
incapable of pecuniary estimation which is within the exclusive jurisdiction
of the RTC.

ISSUE: Whether the RTC committed grave abuse of discretion in dismissing the

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foreclosure cases filed with it on the ground of lack of jurisdiction. - NO.

HELD:
● The direct recourse to the SC is highly improper for it violates the
established policy of strict observance of the judicial hierarchy of courts.
However, the judicial hierarchy of courts is not an iron-clad rule. A strict
application of the rule of hierarchy of courts is not necessary when the
cases brought before the appellate courts do not involve factual but legal
questions.

● The RTC dismissed the foreclosure cases finding that being a real action
and the assessed value of the mortgaged property is only P13,380.00, it is
the first level court which has jurisdiction over the case and not the RTC.

● Jurisdiction over the subject matter is the power to hear and determine
cases of the general class to which the proceedings in question belong. It
is conferred by law and an objection based on this ground cannot be
waived by the parties.

● Batas Pambansa Blg. (BP) 129 as amended by Republic Act No. (RA)
7691 pertinently provides for the jurisdiction of the RTC and the first level
courts as follows:
○ Sec. 19. Jurisdiction in civil cases. - Regional Trial Courts shall
exercise exclusive original jurisdiction:
■ 1. In all civil actions in which the subject of the litigation is
incapable of pecuniary estimation;
■ 2. In all civil actions which involve the title to, or
possession of, real property, or any interest therein, where
the assessed value of the property involved exceeds
Twenty thousand pesos (P20,000.00) or, for civil actions
in Metro Manila, where such value exceeds Fifty thousand
pesos (P50,000.00) except actions for forcible entry into
and unlawful detainer of lands or buildings, original
jurisdiction over which is conferred upon the Metropolitan
Trial Courts, Municipal Trial Courts, and Municipal Circuit
Trial Courts.

○ Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial

Courts and Municipal Circuit Trial Courts in civil cases. -
Metropolitan Trial Courts, Municipal Trial Courts, and Municipal
Circuit Trial Courts shall exercise:
○ xxxx
■ 3) Exclusive original jurisdiction in all civil actions which
involve title to, or possession of, real property, or any
interest therein where the assessed value of the property
or interest therein does not exceed Twenty thousand
pesos (P20,000.00) or, in civil actions in Metro Manila,
where such assessed value does not exceed Fifty
thousand pesos (P50,000.00) exclusive of interest,
damages of whatever kind, attorney's fees, litigation
expenses and costs: Provided, That in cases of land not
declared for taxation purposes, the value of such property
shall be determined by the assessed value of the adjacent
lots.

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 ● From the foregoing, the RTC exercises exclusive original jurisdiction in civil
actions where the subject of the litigation is incapable of pecuniary
estimation. It also has jurisdiction in civil cases involving title to, or
possession of, real property or any interest in it where the assessed value
of the property involved exceeds P20,000.00, and if it is below P20,000.00,
it is the first level court which has jurisdiction. An action "involving title to
real property" means that the plaintiffs cause of action is based on a claim
that he owns such property or that he has the legal right to have exclusive
control, possession, enjoyment, or disposition of the same.

● It is worthy to mention that the essence of a contract of mortgage

indebtedness is that a property has been identified or set apart from the
mass of the property of the debtor-mortgagor as security for the payment
of money or the fulfillment of an obligation to answer the amount of
indebtedness, in case of default in payment. Foreclosure is but a
necessary consequence of non-payment of the mortgage indebtedness. In
a real estate mortgage when the principal obligation is not paid when due,
the mortgagee has the right to foreclose the mortgage and to have the
property seized and sold with the view of applying the proceeds to the
payment of the obligation.

● Therefore, the foreclosure suit is a real action so far as it is against

property, and seeks the judicial recognition of a property debt, and an order
for the sale of the res.

● As foreclosure of mortgage is a real action, it is the assessed value of the

property which determines the court's jurisdiction. Considering that the
assessed value of the mortgaged property is only P13,380.00, the RTC
correctly found that the action falls within the jurisdiction of the first level
court. er Section 33(3) of BP 129 as amended.

● While civil actions which involve title to, or possession of, real property, or
any interest therein, are also incapable of pecuniary estimation as it is not
for recovery of money, the court's jurisdiction will be determined by the
assessed value of the property involved.

Petition for Certiorari is dismissed.

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