Pledge, Mortgage, Antichresis

G.R. No. L-49568 October 17, 1979

BANCO DE ORO, vs. JAIME Z. BAYUGA and ROBERTO P. TOLENTINO
As security for a loan, Bayuga, as attorney-in-fact of Tolentino, and Zaballero, executed a
Real Estate Mortgage in favor of the Acme Savings Bank (now Banco de Oro) over a parcel
of land covered by TCT. The purpose of the loan was for the "acquisition of real estate
property." The mortgage was duly registered.
According to petitioner BANK, it approved the loan subject to the following terms and
conditions:
1. That the interest rate shall be 19% per annum;
2. That the monthly amortization shall be P7,000.12;
3. That the loan shall be payable within ten (10) years;
4. That the property sought to be acquired located in Tagaytay City, covered and
described under a TCT registered in the name of Algue Incorporated shall be given as
additional collateral;
5. That the property located at Calamba, Laguna shall first be registered provided,
however, that the release of tile proceeds shall be paid directly to the owner of the
property above-mentioned, and
6. That the loan shall be subject to availability of funds.
Respondents contend, however, that they were unaware of the said conditions, being
embodied only in the Minutes of the meeting of "the Board of Directors/Executive
Committee" of BDO, and, therefore, self-serving.
BDO made a partial release of P200,000.00 less charges, which amount was credited to the
account of TOLENTINO in the said BANK. Out of the balance of P194,000.00, TOLENTINO
purchased from the BANK a certificate of time deposit in the amount of P50,000.00. He also
withdrew P100,000.00, and P44,000.00. TOLENTINO then purchased from the BANK a
Manager's check in the total amount of P144,000.00, P135,000.00 of which he deposited in
his savings account, and P9,000.00 in his checking account.
Thereafter, claiming that the borrowers (respondents) showed no indication of complying
with his obligation to pay the amount of the loan to the vendor (Algue, Inc.) of the Tagaytay
City property, the BANK stopped payment of its Manager's check at the same time that it
refused to release the balance of the loan. That action was necessary, according to the
BANK, in order to prevent respondent from perpetrating a fraud against it.
TOLENTINO and Bayuga brought an action for Specific Performance with Damages against
BDO to which, a Writ of Preliminary Mandatory Injunction was issued directing the BANK to
comply with the mortgage contract by releasing immediately to Bayuga the consideration
thereof in the amount of P375,000.00 upon respondents' posting of a bond of P200,000.00.
Apparently, however, the BANK did not release the amount.
After the respondents posted the required bonds for special execution which were approved
by the trial Court, the corresponding Writ of Execution was issued by the trial Court, by

virtue of which the amount of P389,000.00 the BANK'S deposit with the Central Bank, was
garnished.
In a Motion filed before the trial Court, the BANK prayed for an Order directing private
respondents to execute the corresponding promissory note in its favor. This was followed by
a Manifestation that it was without prejudice to whatever action the Supreme Court may
take in the premises.
The trial Court opined that to deny execution pending appeal would have been to deny the
borrowers relief from the substantial injustice with which they have been burdened
considering that their land had been mortgaged without the BANK having paid any centavo
for the loan. The Court of Appeals, in turn ruled that the issuance of a Writ of execution
pending appeal is a matter of discretion on the part of the issuing Court and as long as it is
not exercised in a capricious or whimsical manner, and a special reason for its issuance is
stated in the Order, appellate Courts will not, disturb the same. The Court of Appeals was
most persuaded by the fact that the loan is intended to buy real estate property, the price of
which varies as days go by." Upon the other hand, the BANK maintains that the issuance of
the Writ would patently work violence with justice and equity because the property given as
collateral as well as the bonds which have been posted are inadequate, and petitioner would
be made to violate the General Banking Act which provides that the loan in question should
be for the purpose only of acquiring urban or rural land.

Whether or not the issuance of the Writ of execution pending appeal was proper.

No.
The lack of good faith and of a sense of fair play on the part of the respondents was all too
evident. 'They were treating the release of the amount of P389,000.00 in their favor more
as a money judgment, which it is not, rather than as a loan which it is. They want to avail of
the full benefits of the loan without assumption of the corresponding obligations, or very
minimally at, that. Since receipt of the aforestated amount, they have even refused to make
any monthly amortizations even upon demand by the BANK, contending that "no amount of
the said loan is due. It will only be paid ten (10) years after the execution of the mortgage
contract."
The unfairness and inequity of this posture to the banking business is too evident to require
elaboration. Funds of a bank are, in a sense, held in trust. There are the interests of
depositors to be protected. The collateral the BANK has in its favor, with a loan value of only
P157,889.76, is far from adequate to answer for the amount of P389,000.00 that is now in
the hands of the respondents. The manner of their repayment of that amount remains
nebulous. Of course, the BANK is not without fault for this sorry state of affairs.
As pointed out by the BANK, the Calamba property need not have remained subject to the
mortgage, the mortgage being but an accessory contract to the contract of loan which is the
principal obligation and which has been cancelled. The consideration of the mortgage is the
same consideration of the principal contract without which it cannot exist as an independent
contract. The "persuasive" factor considered by the Court of Appeals "that the loan is

intended to buy real estate property, the price of which varies as days go by" was disproved
by the fact that TOLENTINO utilized the amount initially released to purchase a certificate of
time deposit and to open bank accounts in his name rather than pay for the Algue property.
In the absence of good reasons, respondents have not shown a clear entitlement to
execution pending appeal. Moreover, after having received the loan proceeds of
P389,000.00 by means of the execution pending appeal improvidently granted, they refused
to make any monthly amortizations notwithstanding the BANK's demands, on the
outrageous claim against all banking practice that they are not obligated to pay any amount
on the loan until the lapse of ten (10) years after the execution of the mortgage contract.
Under the circumstances, defendants are clearly in default on their loan and are liable to
repay the whole amount with the stipulated interest.
WHEREFORE, respondents are hereby jointly and severally ordered to restore and repay
BDO the sum of P389,000.00 with the stipulated interest of 19% per annum. The property
given in mortgage by respondents under the mortgage contract as well as the bonds posted
by respondents for the issuance of the questioned order of execution pending appeal shall
stand liable for satisfaction of the judgment herein rendered in favor of BDO.

G.R. No. 117187

July 20, 2001

UNION MOTOR CORPORATION, vs. THE COURT OF APPEALS, JARDINE-MANILA

FINANCE, INC., SPOUSES ALBIATO BERNAL and MILAGROS BERNAL.
Bernal spouses purchased from Union Motor Corporation a Jeepney to be paid in
installments. For this purpose, the spouses executed a promissory note and a deed of
chattel mortgage in favor of the Company. Meanwhile, the Company entered into a contract
of assignment of the promissory note and chattel mortgage with Jardine-Manila Finance,
Inc. Through an agent of the Company, the parties agreed that the spouses would pay the
amount of the promissory note to Jardine-Manila Finance, Inc., the latter being the
assignee. To effectuate the sale as well as the assignment of the promissory note and
chattel mortgage, the spouses were required to sign a notice of assignment, a deed of
assignment, a sales invoice, a registration certificate, an affidavit, and a disclosure
statement. The spouses were obliged to sign all these documents for the reason that,
according to Sosmea, it was a requirement of Union Motor and Jardine-Manila Finance, Inc.
for the spouses to accomplish all the said documents in order to have their application
approved. Upon the spouses' tender of the downpayment, and the petitioner's acceptance of
the same, the latter approved the sale. Although the spouses have not yet physically
possessed the vehicle, Sosmea required them to sign the receipt as a condition for the
delivery of the vehicle.
The spouses continued paying the agreed installments even if the subject motor vehicle
remained undelivered inasmuch as Jardine-Manila Finance, Inc. promised to deliver the
subject jeepney. They discontinued paying on account of non-delivery of the subject motor
vehicle. According to the spouses, the reason why the vehicle was not delivered was due to
the fact that Sosmea allegedly took the subject motor vehicle in his personal capacity.
Jardine-Manila Finance, filed a complaint for a sum of money against the spouses.
Union Motor maintains that the spouses are not entitled to a return of the downpayment for
the reason that there was a delivery of the subject motor vehicle. Also, there was a
constructive delivery of the vehicle when Albiato Bernal signed the registration certificate of
the subject vehicle. Inasmuch as there was already delivery of the subject motor vehicle,
ownership has been transferred to the spouses. The Chattel Mortgage Contract signed by
the spouses in favor of the petitioner likewise proves that ownership has already been
transferred to them for the reason that, under Article 2085 of the New Civil Code, the
mortgagor must be the owner of the property. As owners of the jeepney, the spouses should
bear the loss thereof in accordance with Article 1504 of the New Civil Code which provides
that when the ownership of goods is transferred to the buyer, the goods are at the buyer's
risk whether actual delivery has been made or not.
The main allegation of the spouses, on the other hand, is that they never came into
possession of the subject motor vehicle. Thus, it is but appropriate that they be reimbursed
by the petitioner of the initial payment which they made. They also claim that JardineManila, and the petitioner conspired to defraud and deprive them of the subject motor
vehicle for which they suffered damages.

Whether or not there has been a delivery, physical or constructive, of the subject motor
vehicle.

*Whether or not the Chattel Mortgage may be offered as proof of transfer of ownership.

We rule in favor of the respondent Bernal spouses.

Undisputed is the fact that the spouses did not come into possession of the jeepney that
was supposed to be delivered to them by the petitioner. The registration certificate, receipt
and sales invoice that the spouses signed were explained during the hearing without any
opposition by the petitioner. The said documents were signed as a part of the processing
and for the approval of their application to buy the subject motor vehicle. Without such
signed documents, no sale, much less delivery, of the subject jeepney could be made. The
documents were not therefore an acknowledgment by spouses of the physical acquisition of
the subject motor vehicle but merely a requirement of petitioner so that the said subject
motor vehicle would be delivered to them.
We have ruled that the issuance of a sales invoice does not prove transfer of ownership of
the thing sold to the buyer; an invoice is nothing more than a detailed statement of the
nature, quantity and cost of the thing sold and has been considered not a bill of sale.
The registration certificate signed by the spouses does not conclusively prove that
constructive delivery was made nor that ownership has been transferred to the spouses.
Like the receipt and the invoice, the signing of the said documents was qualified by the fact
that it was a requirement of petitioner for the sale and financing contract to be approved. In
all forms of delivery, it is necessary that the act of delivery, whether constructive or actual,
should be coupled with the intention of delivering the thing. The act, without the intention,
is insufficient. The critical factor in the different modes of effecting delivery which gives legal
effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the
vendee. Without that intention, there is no tradition.
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed in the hands and possession of the vendee.
(Civil Code, Art. 1462). It is true that the same article declares that the execution of a
public instrument is equivalent to the delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery may produce the effect of tradition, it is
necessary that the vendor shall have had control over the thing sold that, at the moment of
the sale, its material delivery could have been made. It is not enough to confer upon the
purchaser the ownership and the right of possession. The thing sold must be placed in his
control. When there is no impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor; symbolic delivery through the
execution of a public instrument is sufficient. But if notwithstanding the execution of the
instrument, the purchaser cannot have the enjoyment and material tenancy of the thing
and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality the
delivery has not been effected. (Italics supplied)
The act of signing the registration certificate was not intended to transfer the ownership of
the subject motor vehicle to the spouses inasmuch as the petitioner still needed the same
for the approval of the financing contract with Jardine-Manila. The registration certificate
was submitted to Jardine-Manila, which took possession thereof until Sosmea requested
the latter to hand over the said document to him. The fact that the registration certificate
was still kept by Jardine-Manila and its unhesitating move to give the same to Sosmea just

goes to show that the spouses still had no complete control over the subject motor vehicle
as they did not even possess the said certificate of registration nor was their consent sought
when Jardine-Manila handed over the said document to Sosmea.
Inasmuch as there was neither physical nor constructive delivery of a determinate thing, the
thing sold remained at the seller's risk. The petitioner should therefore bear the loss of the
subject motor vehicle after Sosmea allegedly stole the same.
*Petitioner's reliance on the Chattel Mortgage Contract executed by the spouses does not
help its assertion that ownership has been transferred to the latter since there was neither
delivery nor transfer of possession of the subject motor vehicle to the spouses.
Consequently, the said accessory contract of chattel mortgage has no legal effect
whatsoever inasmuch as the respondent spouses are not the absolute owners thereof,
ownership of the mortgagor being an essential requirement of a valid mortgage contract.
The Carlos case cited by the petitioner is not applicable to the case at bar for the reason
that in the said case, apart from the fact that it has a different issue, the buyer took
possession of the personal property and was able to sell the same to a third party. In the
instant case, however, the spouses never acquired possession of the subject motor vehicle.
The manifestations of ownership are control and enjoyment over the thing owned. The
spouses never became the actual owners of the subject motor vehicle in as much as they
never had dominion over the same.

G.R. No. 131679

February 1, 2000

CAVITE DEVELOPMENT BANK (CDB) and FAR EAST BANK AND TRUST COMPANY
(FEBTC) vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS
Rodolfo Guansing obtained a loan from CDB, to secure which he mortgaged a parcel of land
covered by TCT registered in his name. As Rodolfo defaulted in the payment of his loan,
CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the
mortgaged property was sold to CDB as the highest bidder. Rodolfo failed to redeem.
It appears that Rodolfo obtained his fraudulent title by executing an Extra-Judicial
Settlement of the Estate With Waiver where he made it appear that he and Perfecto
Guansing were the only surviving heirs entitled to the property, and that Perfecto had
waived all his rights thereto. CDB consolidated title to the property in its name. TCT in the
name of Guansing was cancelled and, in lieu thereof, TCT was issued in the name of CDB.
Lolita Chan Lim offered to purchase the property from CDB.
Pursuant to the terms and conditions of the offer, Lim paid CDB P30,000.00 as Option
Money, for which she was issued Official Receipt, dated June 17, 1988, by CDB. However,
after some time following up the sale, Lim discovered that the subject property was
originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo, under a
TCT. Rodolfo succeeded in having the property registered in his name the same title he
mortgaged to CDB and from which the latter's title was derived. It appears, however, that
the father, Perfecto, instituted an action for cancellation of his son's title. On March 23,

1984, the trial court rendered a decision restoring Perfecto's previous title and cancelling
that of Rodolfo TCT on the ground that the latter was fraudulently secured by Rodolfo. This
decision has since become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and its mothercompany, FEBTC, on their ability to sell the subject property, Lim, joined by her husband,
filed an action for specific performance and damages against CDB and FEBTC.
Petitioners deny that a contract of sale was ever perfected between them and Lim. They
contend that Lim's letter-offer clearly states that the sum of P30,000,00 was given as option
money, not as earnest money. They thus conclude that the contract between CDB and Lim
was merely an option contract, not a contract of sale.

W/N there was a contract of sale between CBD and Lim.

*W/N the foreclosure sale was valid.
*W/N CDB can be considered a mortgagee in good faith

Contracts are not defined by the parries thereto but by principles of law. In determining the
nature of a contract, the courts are not bound by the name or title given to it by the
contracting parties. In the case at bar, the sum of P30,000.00, although denominated in the
offer to purchase as "option money," is actually in the nature of earnest money or down
payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,
we explained the nature of an option contract, viz.
An option contract is a preparatory contract in which one party grants to the other,
for a fixed period and under specified conditions, the power to decide, whether or not
to enter into a principal contract, it binds the party who has given the option not to
enter into the principal contract with any other person during the period; designated,
and within that period, to enter into such contract with the one to whom the option
was granted, if the latter should decide to use the option. It is a separate agreement
distinct from the contract to which the parties may enter upon the consummation of
the option.
An option contract is therefore a contract separate from and preparatory to a contract of
sale which, if perfected, does not result in the perfection or consummation of the sale. Only
when the option is exercised may a sale be perfected.
In this case, however, after the payment of the 10% option money, the Offer to Purchase
provides for the payment only of the balance of the purchase price, implying that the
"option money" forms part of the purchase price. This is precisely the result of paying
earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case
actually entered into a contract of sale, partially consummated as to the payment of the
price.

Given CDB's acceptance of Lim's offer to purchase, it appears that a contract of sale was
perfected and, indeed, partially executed because of the partial payment of the purchase
price. There is, however, a serious legal obstacle to such sale, rendering it impossible for
CDB to perform its obligation as seller to deliver and transfer ownership of the property.
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does
not have. In applying this precept to a contract of sale, a distinction must be kept in mind
between the "perfection" and "consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. It is, therefore, not required that, at
the perfection stage, the seller be the owner of the thing sold or even that such subject
matter of the sale exists at that point in time. Thus, under Art. 1434 of the Civil Code, when
a person sells or alienates a thing which, at that time, was not his, but later acquires title
thereto, such title passes by operation of law to the buyer or grantee. This is the same
principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However,
under Art. 1459, at the time of delivery or consummation stage of the sale, it is required
that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with
his obligation to transfer ownership to the buyer. It is at the consummation stage where the
principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals, the subject contract of sale was held void as the sellers of the
subject land were no longer the owners of the same because of a prior sale. Again, in Nool
v. Court of Appeals, we ruled that a contract of repurchase, in which the seller does not
have any title to the property sold, is invalid:
Article 1370 of the Civil Code is applicable only to valid and enforceable contracts.
The principal contract of sale and the auxiliary contract of repurchase are both void.
This conclusion of the two lower courts appears to find support in Dignos v. Court of
Appeals, where the Court held:
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is null
and void.
In the present case, it is clear that the sellers no longer had any title to the parcels
of land at the time of sale. Since the alleged contract of repurchase, was dependent
on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid
one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the
direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a "sale is null
and void" where the sellers "were no longer the owners" of the property. Such a
situation (where the sellers were no longer owners) does not appear to be one of the
void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code
itself recognizes a sale where the goods are to be acquired . . . by the seller after the
perfection of the contract of sale, clearly implying that a sale is possible even if the
seller was not the owner at the time of sale, provided he acquires title to the
property later on.
In the present case, however, it is likewise clear that the sellers can no longer deliver
the object of the sale to the buyers, as the buyers themselves have already acquired

title and delivery thereof from the rightful owner, the DBP. Thus, such contract may
be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of
Article 1409 of the Civil Code: Those which contemplate an impossible service.
Article 1459 of the Civil Code provides that "the vendor must have a right to transfer
the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery
of ownership is no longer possible. It has become impossible.
*No
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing
must, therefore, be deemed a nullity for CDB did not have a valid title to the said property.
To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by
virtue of which, the property had been awarded to CDB as highest bidder, is likewise void
since the mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art.
1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes
obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is
obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that
the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the
reason Art. 2085 of the Civil Code, in providing for the essential requisites of the contract of
mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the
absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure
sale should the mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is not the owner of
the mortgaged property, his title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public policy. This is the
doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required
to go beyond what appears on the face of the title. The public interest in upholding the
indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of
any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon
what appears on the face of the certificate of title.
This principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required
to make a detailed investigation of the history of the title of the property given as security
before accepting a mortgage.
*No.
We are not convinced, however, that under the circumstances of this case, CDB can be
considered a mortgagee in good faith. While petitioners are not expected to conduct an
exhaustive investigation on the history of the mortgagor's title, they cannot be excused
from the duty of exercising the due diligence required of banking institutions. In Tomas v.
Tomas, we noted that it is standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral and to investigate who are
real owners thereof, noting that banks are expected to exercise more care and prudence
than private individuals in their dealings, even those involving registered lands, for their
business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right
for the innocent original registered owner who obtained his certificate of title through
perfectly legal and regular proceedings, than one who obtains his certificate from a
totally void one, as to prevail over judicial pronouncements to the effect that one
dealing with a registered land, such as a purchaser, is under no obligation to look
beyond the certificate of title of the vendor, for in the latter case, good faith has yet
to be established by the vendee or transferee, being the most essential condition,
coupled with valuable consideration, to entitle him to respect for his newly acquired
title even as against the holder of an earlier and perfectly valid title. There might be
circumstances apparent on the face of the certificate of title which could excite
suspicion as to prompt inquiry, such as when the transfer is not by virtue of a
voluntary act of the original registered owner, as in the instant case, where it was by
means of a self-executed deed of extra-judicial settlement, a fact which should be
noted on the face of Eusebia Tomas certificate of title. Failing to make such inquiry
would hardly be consistent with any pretense of good faith, which the appellant bank
invokes to claim the right to be protected as a mortgagee, and for the reversal of the
judgment rendered against it by the lower court.
In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the
validity of Rodolfo Guansing's title. It appears that Rodolfo Guansing obtained his fraudulent
title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it
appear that he and Perfecto Guansing were the only surviving heirs entitled to the property,
and that Perfecto had waived all his rights thereto. This self-executed deed should have
placed CDB on guard against any possible defect in or question as to the mortgagor's title.
Moreover, the alleged ocular inspection report by CDB's representative was never formally
offered in evidence. Indeed, petitioners admit that they are aware that the subject land was
being occupied by persons other than Rodolfo Guansing and that said persons, who are the
heirs of Perfecto Guansing, contest the title of Rodolfo.

The sale by CDB to Lim being void We now come to the civil effects of the void contract of
sale between the parties. Article 1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what
has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his
promise.
Respondents are thus entitled to recover the option money paid by them. Moreover, since
the filing of the action for damages against petitioners amounted to a demand by
respondents for the return of their money, interest thereon at the legal rate should be
computed from the date of filing, when petitioners accepted the payment. This is in accord
with our ruling in Castillo v. Abalayan that in case of a void sale, the seller has no right
whatsoever to keep the money paid by virtue thereof and should refund it, with interest at
the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art.
1412(2) which provides that the non-guilty party "may demand the return of what he has

given" clearly implies that without such prior demand, the obligation to return what was
given does not become legally demandable.

G.R. No. L-25235

December 9, 1926

LIM JULIAN, vs. TIBURCIO LUTERO, ASUNCION MAGALONA, and RAFAEL LUTERO,
"EL HOSPITAL DE SAN PABLO DE ILOILO,"
A certain mortgage given to secure future advancements for the sum of P12,000, interest,
commissions, damages, and such other amounts as may be due at the time of maturity, was
executed and delivered to Lim Julian by Tiburcio Lutero and his wife Asuncion Magalona on
the 15th day of April, 1920. It was duly registered in the office of the registrar of deeds of
the Province of Iloilo on the 16th day of June, 1920. It was executed to secure future
"advancements" to be made by Lim Julian to the mortgagors to cover expenses "incurred by
the mortgagors in the cultivation and harvesting of the agricultural crops." To be a little
more specific concerning the purposes of the said "advancements," reference may be made
to the mortgage itself. The mortgage recites "that said credit (for future advancements) is
given to the mortgagors exclusively for the purpose of being employed in the cultivation and
care of the sugar plantations and the milling and production of sugar from said sugar
plantations and in the purchase of animals for the work in connection therewith and all
expenses that may be necessary for the work concerning said sugar plantations."
The mortgage covered several properties involving real and personal.
The complaint alleged that there was still due and unpaid on said mortgage (a) the sum of
P22,807.09 with interest at 12 per cent per annum from the 27th day of June, 1921, until
paid; and (b) the sum of P2,000 as penalty for failure on the part of the defendants to
comply with their contract. The plaintiff prayed for a judgment for said amounts, and that in
case of a failure on their part to pay the same, than an order be issued for the sale of the
mortgaged premises. Plaintiff also prayed for a judgment for costs.
"Hospital de San Pablo de Iloilo" presented a petition for intervention, which was granted.
The "Hospital de San Pablo de Iloilo" was permitted to intervene, upon its allegation that it
had a prior mortgage upon the property in question for the sum of P22,400. Said alleged
mortgage was executed on the 17th day of June, 1920. It was executed before a notary but
was never registered in the registry of property. Said document cannot be considered a
mortgage therefore. (Art. 1875, Civil Code.) It will be remembered that the mortgage in
favor of the plaintiff herein was executed upon the 15th day of April, 1920, nearly two
months before Exhibit AA was executed and delivered. The mortgage held by the plaintiff
was actually registered in the office of the registrar of deeds on the 16th day of June, 1920,
or one day before the alleged mortgage of the intervenor was executed.
Tiburcio Lutero and his wife alleged, in addition to a general denial, and after admitting the
execution and delivery of the mortgage in favor of the plaintiff, that said mortgage had been
paid and that whatever indebtedness still existed against them and in favor of the plaintiff
was an ordinary debt.
The mortgagors contend that the mortgage was for the sum of P12,000 with interest only;
that inasmuch as they have paid more than P14,000, the mortgage debt has been paid and
that they are theretofore not liable for any other amount on said mortgage; that whatever
other amount of indebtedness exists against them is an ordinary indebtedness and cannot
be recovered in an action to foreclose the mortgage; that they are entitled to have said
mortgage cancelled.

In making that contention the mortgagors have evidently overlooked paragraph 10 of their
mortgage, which provides "that all the obligations of the mortgagors and all the conditions
stipulated in this document must and shall be fulfilled on or before the 30th day of April,
1921, the date when said sugar plantations are to be harvested or converted into sugar and
shipped to the mortgagee, and the credit and its interest aforementioned, and such other
amounts as may be then due from the mortgagors to the mortgagee shall be totally paid by
the mortgagors." By reference to paragraph 12 of the mortgage it will be seen that if the
mortgagors, their heirs, assigns and successors in interest shall fail to fulfill all the
conditions and obligations of said mortgage, that the same shall remain in full force and
effect and may be enforcible in accordance with law.
If it had been the intention of the parties to said mortgage to make it a mortgage for the
security of the payment of P12,000 given for "future advancements" only, and no more,
with interest and damages, then what was the occasion or purpose of adding in said
paragraph 10 "and such other amounts as may be then due?" If P12,000 was the limit of
the obligation incurred by the obligors, and no more, then what did the parties to the
contract have in mind when they said "and such other amounts as may be then due from
the mortgagors to the mortgagee?" Is it not a reasonable presumption that the parties had
in mind that, for some reason or other, the mortgagors might need more money during the
year to be employed directly or indirectly in the cultivation and care of the sugar plantation
covered by the mortgage, or that more money might be necessary for the proper milling
and production of sugar from said plantations and in the purchase of animals for work in
connection with the cultivation of said plantations, or for expenses that might be necessary
for the proper working and cultivation of said sugar plantations?
Contracts for future advancements (mortgages) like the present were known at Common
Law. They are very common not only in the Philippines but elsewhere in agricultural
countries. Contracts for the advancement of money of assist agriculturists for the cultivation
and harvesting of crops are well known in all agricultural countries. Under such contracts of
"advancements" the agriculturists is permitted to take the money as it is needed and thus
avoid the necessity of paying interest until the necessity for its use actually arises. It is not
uncommon that said contracts are executed for a larger amount than is necessary and
sometimes they are executed for a less amount than is found to be necessary for the
economic and efficient cultivation of the land.
In the present case the mortgagors evidently believed that P1,500 per month would be
sufficient to supply all of their demands for the efficient and economic cultivation of their
hacienda for the year 1920-1921. They were to receive the money little by little until the
P12,000 was taken. If some favorable condition had arisen during the year so that the sum
of P1,500 was unnecessary, we cannot bring ourselves to believe that the mortgagee could
have compelled them to have received during the year the full P12,000. In that event could
the mortgagee have insisted upon a foreclosure of the mortgage for P12,000? Such a result
would have been unconscionable. The courts would not have permitted the foreclosure of a
mortgage for P12,000 when, for example, but P6,000 had been actually delivered to the
mortgagors. Upon the other hand, it is well known that in contracts of "advancements"
many conditions may arise during the agricultural year which would necessitate, for the
efficient and economic cultivation of the crops, the use of more money than either of the
parties to the contract had contemplated; such as floods, storm, diseases among animals
which might decimate them, all of which conditions would make it necessary to use more
money than the parties had contemplated. Conditions might arise during the year which
would render absolutely useless the expenditure of the amount of money mentioned in the
contract of advancements unless additional amounts are expended.

It is admitted that during the year the mortgagors received in cash and effects the sum of
P34,245.29. They admit that the plaintiff had no other security for the payment of the
difference between the P34,245.29 plus the interest, and the P12,000 unless said difference
was covered by the mortgage. The appellant contends that the phrase in paragraph 10 "and
such other amounts as may be then due" (in addition to the P12,000) was inserted in said
mortgage for the very purpose of covering any amount or amounts received by the
mortgagors over and above the P12,000. It is also admitted that there is still due the
amount of P22,807.09.
The rule, of course, is well settled that an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage. The exact amount, however, for which the
mortgage is given need not always be specifically named. The amount for which the
mortgage is given may be stated in definite or general terms, as is frequently the case in
mortgages to secure future advancements. The amount named in the mortgage does not
limit the amount for which it may stand as security, if, from the four corners of the
document, the intent to secure future indebtedness or future advancements is apparent.
Where the plain terms, of the mortgage, evidence such an intent, they will control as
against a contention of the mortgagor that it was the understanding of the parties that the
mortgage was security only for the specific count named.
Literal accuracy in describing the amount due, secured by a mortgage, is not required, but
the description of the debt must be correct and full enough to direct attention to the sources
of correct information in regard to it, and be such as not to mislead or deceive as to the
amount of it, by the language used. Reading the mortgage before us from its four corners,
we find that the description of the debt is full enough to give information concerning the
amount due. The mortgage recites that it is given to secure the sum of P12,000, interest,
commissions, damages, and all other amounts which may be found to be due at maturity.
The terms of the contract are sufficiently clear to put all parties who may have occasion to
deal with the property mortgaged upon inquiry. The parties themselves from the very terms
of the mortgage could not be in ignorance at any time of the amount of their obligation and
the security held to guarantee the payment.
When a mortgage is given for future advancements and the money is paid to the mortgagor
"little by little" and repayments are made from time to time, the advancements and the
repayments must be considered together for the purpose of ascertaining the amount due
upon the mortgage at maturity. Courts of equity will not permit the consideration of the
repayments only for the purpose of determining the balance due upon the mortgage. The
mere fact that in contract of advancements the repayments at any one time exceeds the
specific amount mentioned in the mortgage, will not have the effect of discharging the
mortgage when the advancements at that particular time are greatly in excess of the
repayments; especially is this true when the contract of advancement or mortgage contains
a specific provision that the mortgage shall cover all "such other amounts as may be then
due." Such a provision is added to the contract of advancements or mortgage for the
express purpose of covering advancements in excess of the amount mentioned in the
mortgage.
The sum found to be owing by the debtor at the termination of the contract of
advancements between him and the mortgagee, during continuing credit, is still secured by
the mortgage on the debtor's property, and the mortgagee is entitled to bring the proper
action for the collection of the amounts still due and to request the sale of the property
covered by the mortgage.

Under a mortgage to secure the payment of future advancements, the mere fact that the
repayments on a particular day equal the amount of the mortgage will not discharge the
mortgage before maturity so long as advancements may be demanded and are being
received.

We now come to the questions (a) What was the real amount of the mortgage given to
secure the "advancements" and (b) What amount or amounts have been paid and the
balance due, if any?

The appellant contends that the advancements including the interest secured by the
mortgage amounts to P36,964.27. The mortgagors admit that the advancements including
the interest was equal to that amount. They also admit that the payments amounted to
P14,157.18. They admit that there is a balance due from them to the appellant in the sum
of P22,807.09. They contend, however, that the mortgage only secures the repayment of
the sum of P12,000 and interest and damages. They also contend that the payments
already made have been more than sufficient to pay the full amount of the mortgage.
Contracts must interpreted from their four corners. It will be observed from what has been
said above, that the contract of advancements was given to secure the payment of (a)
P12,000, interest, commissions and damages, etc., and (b) "such other amounts as may be
then due" (at the termination of the contract), from the mortgagors to the mortgagee. In
our judgment the contract of advancements therefore not only covers the P12,000, etc., but
also all "such other amounts as may be then due" at the termination of the contract. It has
been settled by a long line of decisions that mortgages given to secure future
advancements are valid and legal contract; that the amounts named as consideration in said
contracts of mortgage do not limit the amount for which the mortgage may stand as
security, if, from the whole instrument, the intent to secure future and other indebtedness
can be gathered.
It has been decided in many cases that the consideration named in a mortgage for future
advancements does not limit the amount for which such contract may stand as security, if,
from the four corners of the document, the intent to secure future indebtedness is apparent.
Where, by the plain terms of the contract, such an intent is evident, it will control as against
the contention of the mortgagor that it was the intention of the parties that the mortgage
was secured only for the consideration expressly named.
And it has been held also that oral proof may be adduced for the purpose of showing the
real intent of the parties in contracts of advancements.
A mortgage given to secure advancements is continuing security and is not discharged by
repayment of the amount named in the bond or mortgage until the full amount of the
advancements are paid.
From a full consideration of the terms of the contract or mortgage for advancements and
the law applicable to such contracts, we must conclude that the said mortgage not only
covers the P12,000 with interest, commissions and damages, but also all the advancements
which had been made thereunder. From that conclusion it must follow from the admission of

the parties themselves that there is still due and unpaid upon said mortgage, due to the
advancements, the sum of P22,807.09.
It may be noted that the alleged mortgage claimed by said hospital was not executed until
long after the mortgage was executed in favor of the appellant and was never registered. It
is not a mortgage at all and could not, by any possibility, therefore be given priority over a
former mortgage legally executed and recorded.
The alleged oral agreement did not give the alleged second mortgage of the "Hospital de
San Pablo de Iloilo" a priority over the mortgage of the plaintiff.
It is an indispensable statutory requirement, in order that a mortgage by validly constituted,
that the instrument by which it is created be recorded in the registry of deeds. (Art. 1875 of
the Civil Code) to make a mortgage valid it is necessary that the document constituting it be
inscribed in the property registry." Such documents, however, are valid subsisting
obligations between the parties thereto and may be used as evidence or proof of such
obligations. They do not, however, constitute a mortgage in this jurisdiction.
We now come to a discussion of the mortgage in favor of the Philippine National Bank for
the sum of P9,500 for the purpose of determining whether or not said mortgage takes
priority over the mortgage of the plaintiff. It will be remembered that the mortgage of the
plaintiff was taken with the express understanding that it was subject to a first mortgage in
favor of the PNB for the sum of P9,500 with interest at 8 per cent per annum for the period
of ten years, payable by annual installments. The plaintiff thus recognized the existence of
said mortgage as a prior lien. The record show that the said mortgage of the PNB was paid
by the intervenor, the "Hospital de San Pablo de Iloilo," with its money. The intervenor,
therefore stands in the shoes of PNB and has a right to be paid by the plaintiff out of the
proceeds of the foreclosure whatever sum or sums it paid to the PNB, with interest thereon
at 8 per cent from the date of payment until paid.

The mortgage executed by Tiburcio Lutero and Asuncion Magalona, his wife, to the plaintiff
constitutes a lien upon the property mortgaged and is a prior lien over the alleged mortgage
executed by the same parties to the "Hospital de San Pablo de Iloilo" shall have a lien prior
to that of the plaintiff in whatever sum or sums it paid, together with 8 per cent interest on
the mortgage held by the Philippine National Bank.
There is still due and unpaid on said mortgage.

G.R. No. L-30817 September 29, 1972

DOMINADOR DIZON, doing business under
Dominador Dizon", vs. LOURDES G. SUNTAY

the

firm

name

"Pawnshop

of

the right of an owner of a diamond ring, Lourdes G. Suntay, as against the claim of
Dominador Dizon, who owns and operates a pawnshop.
The diamond ring was turned over to a certain Clarita R. Sison, for sale on commission,
along with other pieces of jewelry of Suntay. It was then pledged to petitioner. Since what
was done was violative of the terms of the agency, there was an attempt on her part to
recover possession thereof from petitioner, who refused. She had to file an action then for
its recovery. She was successful both in the lower court and thereafter in the CA. She
prevailed as she had in her favor the protection accorded by Article 559 of the Civil
Code.

"Suntay is the owner of a three-carat diamond ring valued. Suntay and Sison entered into a
transaction wherein Suntay's ring was delivered to Sison for sale on commission. Upon
receiving the ring, Sison executed and delivered to the plaintiff the receipt ... After the lapse
of a considerable time without Sison having returned to Suntay the latter's ring, the Suntay
made demands on Sison for the return of her ring but the latter could not comply with the
demands because, without the knowledge of Suntay, three days after the ring was received
by Sison from Suntay, said ring was pledged by niece of the husband of Sison, evidently in
connivance with the latter, with the defendant's pawnshop for P2,600.00 ... ."
"Since Suntay insistently demanded from Sison the return of her ring, the latter finally
delivered to the former the pawnshop ticket ... which is the receipt of the pledge with the
defendant's pawnshop of the ring. When Suntay found out that Sison pledged, she took
steps to file a case of estafa against the latter. Subsequently thereafter, the plaintiff, through
her lawyer, wrote a letter to the defendant asking for the delivery to Suntay of her ring
pledged with defendant's pawnshop under pawnshop receipt serial-B No. 65606. Since the
defendant refused to return the ring, Suntay filed an action for the recovery of said ring.
Suntay asked for the provisional remedy of replevin by the delivery of the ring to her, upon
her filing the requisite bond, pending the final determination of the action. The lower court
issued the writ of replevin prayed for and Suntay was able to take possession of the ring
during the pendency of the action upon her filing the requisite bond."
1. in De Gracia v. CA. Thus: "The controlling provision is Article 559 of the Civil Code. It
reads thus: 'The possession of movable property acquired in good faith is equivalent to a
title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof
may recover it from the person in possession of the same. If the possessor of a movable
lost of which the owner has been unlawfully deprived, has acquired it in good faith at a
public sale, the owner cannot obtain its return without reimbursing the price paid therefor.'
Respondent, having been unlawfully deprived of the diamond ring in question, was entitled
to recover it from petitioner who was found in possession of the same. The only exception
the law allows is when there is acquisition in good faith of the possessor at a public sale, in
which case the owner cannot obtain its return without reimbursing the price. As
authoritatively interpreted in Cruz v. Pahati, the right of the owner cannot be defeated even
by proof that there was good faith in the acquisition by the possessor. There is a reiteration
of this principle in Aznar v. Yapdiangco. Thus: 'Suffice it to say in this regard that the right

of the owner to recover personal property acquired in good faith by another, is based on his
being dispossessed without his consent. The common law principle that were one of two
innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss
upon the party who, by his misplaced confidence, has enabled the fraud to be committed,
cannot be applied in a case which is covered by an express provision of the new Civil Code,
specifically Article 559. Between a common law principle and a statutory provision, the
latter must prevail in this jurisdiction."
2. It must have been a recognition of the compulsion exerted by the above authoritative
precedents that must have caused petitioner to invoke the principle of estoppel. There is
clearly a misapprehension. Such a contention is devoid of any persuasive force.
Estoppel as known to the Rules of Court and prior to that to the Court of Civil Procedure, has
its roots in equity. Good faith is its basis. It is a response to the demands of moral right and
natural justice. For estoppel to exist though, it is indispensable that there be a declaration,
act or omission by the party who is sought to be bound. Nor is this all. It is equally a
requisite that he, who would claim the benefits of such a principle, must have altered his
position, having been so intentionally and deliberately led to comport himself thus, by what
was declared or what was done or failed to be done. If thereafter a litigation arises, the
former would not be allowed to disown such act, declaration or omission. The principle
comes into full play. It may successfully be relied upon. A court is to see to it then that
there is no turning back on one's word or a repudiation of one's act.
Rodriguez v. Martinez, a party should not be permitted "to go against his own acts to the
prejudice of [another]. Such a holding would be contrary to the most rudimentary principles
of justice and law." He is not, in Irlanda v. Pitargue, "allowed to gainsay [his] own acts or
deny rights which [he had] previously recognized."
An unqualified and unconditional acceptance of an agreement forecloses a claim for interest
not therein provided. Equally so the circumstance that about a month after the date of the
conveyance, one of the parties informed the other of his being a minor "is of no moment,
because [the former's] previous misrepresentation had already estopped him from
disavowing the contract. It is easily understandable why, under the circumstances disclosed,
estoppel is a frail reed to hang on to. There was clearly the absence of an act or omission,
as a result of which a position had been assumed by petitioner, who if such elements were
not lacking, could not thereafter in law be prejudiced by his belief in what had been
misrepresented to him.
"a person claimed to be estopped must have knowledge of the fact that his voluntary acts
would deprive him of some rights because said voluntary acts are inconsistent with said
rights."
To recapitulate, estoppel "has its origin in equity and, being based on moral right and
natural justice, finds applicability wherever and whenever the special circumstances of a
case so demand."
How then can petitioner in all seriousness assert that his appeal finds support in the
doctrine of estoppel? Neither the promptings of equity nor the mandates of moral right and
natural justice come to his rescue. He is engaged in a business where presumably ordinary
prudence would manifest itself to ascertain whether or not an individual who is offering a
jewelry by way of a pledge is entitled to do so. If no such care be taken, perhaps because of
the difficulty of resisting opportunity for profit, he should be the last to complain if

thereafter the right of the true owner of such jewelry should be recognized. The law for this
sound reason accords the latter protection.
So it has always been since Varela v. Finnick, " not only has the ownership and the origin of
the jewels misappropriated been unquestionably proven but also that the accused, acting
fraudulently and in bad faith, disposed of them and pledged them contrary to agreement,
with no right of ownership, and to the prejudice of the injured party, who was thereby
illegally deprived of said jewels; therefore, in accordance with the provisions of article 464,
the owner has an absolute right to recover the jewels from the possession of whosoever
holds them."
Petitioner ought to have been on his guard before accepting the pledge in question.
Evidently there was no such precaution availed of. He therefore, has only himself to blame
for the fix he is now in. It would be to stretch the concept of estoppel to the breaking point
if his contention were to prevail. Moreover, there should have been a realization on his part
that courts are not likely to be impressed with a cry of distress emanating from one who is
in a business authorized to impose a higher rate of interest precisely due to the greater risk
assumed by him. A predicament of this nature then does not suffice to call for less than
undeviating adherence to the literal terms of a codal provision. Moreover, while the activity
he is engaged in is no doubt legal, it is not to be lost sight of that it thrives on taking
advantage of the necessities precisely of that element of our population whose lives are
blighted by extreme poverty. From whatever angle the question is viewed then, estoppel
certainly cannot be justly invoked.

G.R. No. 118342 January 5, 1998

DEVELOPMENT BANK OF THE PHILIPPINES (DBP) vs. CA and LYDIA CUBA.
Cuba is a grantee of a Fishpond Lease Agreement from the Government. She obtained loans
from the DBP in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the
terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April
4, 1977. As security for said loans, she executed two Deeds of Assignment of her Leasehold
Rights. However, she failed to pay her loan on the scheduled dates thereof in accordance
with the terms of the Promissory Notes. Without foreclosure proceedings, whether judicial or
extra-judicial, DBP appropriated the Leasehold Rights of Cuba over the fishpond. After DBP
has appropriated the Leasehold Rights of Cuba over the fishpond in question, DBP, in turn,
executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba over the same
fishpond in question.
In the negotiation for repurchase, Cuba addressed two letters to the Manager DBP. DBP
thereafter accepted the offer to repurchase. After the Deed of Conditional Sale was
executed in favor of Cuba, a new Fishpond Lease Agreement was issued in favor of Cuba
only, excluding her husband. Cuba failed to pay the amortizations stipulated in the Deed of
Conditional Sale.

After Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered
with the DBP a temporary arrangement whereby in consideration for the deferment of the
Notarial Rescission of Deed of Conditional Sale, Cuba promised to make certain payments as
stated in temporary Arrangement . DBP thereafter sent a Notice of Rescission thru Notarial
Act, and which was received by Cuba. After the Notice of Rescission, DBP took possession of
the Leasehold Rights of the fishpond in question. And thereafter, DBP advertised the public
bidding to dispose of the property. DBP then executed a Deed of Conditional Sale in favor of
Caperal who was awarded Fishpond Lease Agreement No. 2083-A.

The principal issue presented was whether the act of DBP in appropriating to itself CUBA's
leasehold rights over the fishpond in question without foreclosure proceedings was contrary
to Article 2088 of the Civil Code and, therefore, invalid.
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.
CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its
contractual right under the Assignments of Leasehold Rights, which was not a contract of
mortgage. Defendant Caperal sided with DBP.

We agree with CUBA that the assignment of leasehold rights was a mortgage contract.
It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each
of which was covered by a promissory note. In all of these notes, 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."
Simultaneous with the execution of the notes was the execution of "Assignments of
Leasehold Rights" where CUBA assigned her leasehold rights and interest together with the
improvements thereon. As pointed out by CUBA, the deeds of assignment constantly
referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged
properties; and the instrument itself, as mortgage contract. Moreover, under 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." And, that if "foreclosure is actually accomplished, the usual 10% attorney's fees
and 10% liquidated damages of the total obligation shall be imposed." There is, therefore,
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; thus:
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of
Assignment of her Leasehold Rights.
In People's Bank & Trust Co. vs. Odom, an assignment to guarantee an obligation is in effect
a mortgage.

We find no merit in DBP's contention that the assignment novated the promissory notes in
that the obligation to pay a sum of money the loans (under the promissory notes) was
substituted by the assignment of the rights over the fishpond (under the deed of
assignment). As correctly pointed out by CUBA, 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. Significantly, both the deeds of assignment and the promissory notes were executed
on the same dates the loans were granted. Also, the last paragraph of the assignment
stated: "The assignor further reiterates and states all terms, covenants, and conditions
stipulated in the promissory note or notes covering the proceeds of this loan, making said
promissory note or notes, to all intent and purposes, an integral part hereof."
Neither did the assignment amount to payment by cession under Article 1255 of the Civil
Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255
contemplates the existence of two or more creditors and involves the assignment of all the
debtor's property.
Nor did the assignment constitute dation in payment under Article 1245 of the civil Code,
which reads: "Dation in payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing
that the assignment, being in its essence a mortgage, was but a security and not a
satisfaction of indebtedness.
We do not, however, buy CUBA's argument that the deed of assignment constituted pactum
commissorium.
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.
Condition no. 12 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. This provision is a standard condition in mortgage
contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment
of the principal obligation.
DBP, however, exceeded the authority vested by the deed of assignment. As admitted by it
during the pre-trial, it had "[w]ithout foreclosure proceedings, whether judicial or
extrajudicial, . . . appropriated the [l]easehold [r]ights of Cuba over the fishpond in
question." Its contention that it limited itself to mere administration by posting caretakers is
further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated:
WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor
by the herein vendees [Cuba spouses] the former acquired all the right and interest
of the latter over the above-described property;

The title to the real estate property [sic] and all improvements thereon shall remain
in the name of the Vendor until after the purchase price, advances and interest shall
have been fully paid. (Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP had appropriated and taken
ownership of CUBA's leasehold rights merely on the strength of the deed of assignment.
DBP cannot take refuge in the deed of assignment to justify its act of appropriating the
leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default
would operate to vest in DBP ownership of the said rights. Besides, an assignment to
guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute
conveyance of title which confers ownership on the assignee.
At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088
of the Civil Code, which forbids a credit or from appropriating, or disposing of, the thing
given as security for the payment of a debt.
The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not
estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As
held by this Court in some cases, estoppel cannot give validity to an act that is prohibited by
law or against public policy. Hence, the appropriation of the leasehold rights, being contrary
to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by
estoppel.
Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should
have foreclosed the mortgage, as has been stipulated in the deed of assignment. But, as
admitted by DBP, there was no such foreclosure. Yet, in its letter addressed to the Minister
of Agriculture and Natural Resources and coursed through the Director of the Bureau of
Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and
enforced the assignment of leasehold rights for failure of said spouses [Cuba spouses] to
pay their loan amortizations." This only goes to show that DBP was aware of the necessity
of foreclosure proceedings.
In view of the false representation of DBP that it had already foreclosed the mortgage, the
Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed of conditional
sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such
false representation, as well as the subsequent acts emanating from DBP's appropriation of
the leasehold rights, should therefore be set aside. To validate these acts would open the
floodgates to circumvention of Article 2088 of the Civil Code.
Even in cases where foreclosure proceedings were had, this Court had not hesitated to
nullify the consequent auction sale for failure to comply with the requirements laid down by
law, such as Act No. 3135, as amended. With more reason that the sale of property given
as security for the payment of a debt be set aside if there was no prior fore closure
proceeding.
Hence, DBP should render an accounting of the income derived from the operation of the
fishpond in question and apply the said income in accordance with condition no. 12 of the
deed of assignment which provided: "Any amount received from rents, administration, . . .
may be applied to the payment of repairs, improvements, taxes, assessment, and other
incidental expenses and obligations and the balance, if any, to the payment of interest and
then on the capital of the indebtedness. . ."

WHEREFORE, Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case
No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of
assignment constituted pactum commissorium. The Development Bank of the Philippines is
hereby ordered to render an accounting of the income derived from the operation of the
fishpond in question.

[G.R. No. L-29388. December 28, 1970.]

VINCENT P. DAYRIT v. THE COURT OF APPEALS, HON. FRANCISCO ARCA, Judge of
the Court of First Instance of Manila, Branch I, MOBIL OIL PHILIPPINES, INC., and
ELADIO YLAGAN, Special Sheriff.
Defendants entered into a contract with the Mobil Oil Philippines, Inc., entitled "LOAN &
MORTGAGE AGREEMENT," providing, among others, that:
"(a) For and in consideration of Sales Agreement among, the parties herein, Mobil
grants a loan of P150,000 to borrowers.
"(b) Defendants-Borrowers shall repay Mobil the whole amount of P150,000 plus
10% interest per annum on the diminishing balance for 48 months.
"(c) To secure the prompt repayment of such loan by defendants-borrowers to Mobil
and the faithful performance by Borrowers of that Sales Agreement, DefendantsBorrowers hereby transfer in favor of Mobil by way of first mortgage lands covered
by TCT No. 45169 and TCT No. 45170, together with the improvements existing in
said two (2) parcels of land.
"(d) In case of default of Defendants-Borrowers in payment of any of the
installments and/or their failure to purchase the quantity of products stated therein
Mobil shall have the right to foreclose this mortgage.
"(e) Mobil, in case of default and foreclosure, shall be entitled to attorneys fees and
cost of collection equivalent to not less than 25% of total indebtedness remaining
unpaid.
The defendants violated the Loan & Mortgage Agreement, they having paid
installment in the amount of P3,816, of which P1,250 was applied to interest,
remaining P2,566 to the principal obligation. The defendants likewise failed to
quantities of products as required in the Sales Agreement. The plaintiff made due
which the defendant Dayrit answered, acknowledging his liability in his letter.

but one
and the
buy the
demand,

After trial and after the parties had submitted their memoranda, the trial court rendered its
decision in favor of the plaintiff and against the defendants, ordering them to pay to the

plaintiff one-third each of the sum of P147,434.00 with interest of 10% per annum from the
time it fell due according to agreement, and in default of such payment, the properties put
up in collateral shall be sold in foreclosure sale in accordance with law, the proceeds to be
applied in payment of the amount due to the plaintiff from the defendants as claimed in the
complaint provided that, as to Dayrit, his liability shall in no case exceed 1/3 of the total
obligation.
No appeal having been interposed by the defendants, the above decision became final and
executory.
W/N the foreclosure of the mortgage property owned by one of the debtors would cover
only his share in the entire principal obligation.

No. It will cover the entire principal obligation.

The decision of the lower court, let it not be forgotten, has admittedly become final and
executory. The controverted judgment ordered the defendants "to pay to the plaintiff onethird each of the sum of P147,434.00 with interest of 10% per annum from the time it fell
due according to agreement, and in default of such payment, the properties put up in
collateral shall be sold in foreclosure sale in accordance with law, the proceeds to be applied
in payment of the amount due to the plaintiff from the defendants as claimed in the
complaint, provided that, as to Dayrit, his liability shall in no case exceed 1/3 of the total
obligation."
To begin with, the prayer of the complaint filed with the respondent Court of First Instance
recites as follows:
"WHEREFORE,

it

is

respectfully

prayed

that

judgment

be

rendered

"a) Ordering the defendants to pay the sum of P147,434 with 10% interest per
annum from the time it fell due as agreed upon and that in default of such payment,
the above described properties be sold and the proceeds of sale be applied to the
payment of the amount due to the plaintiff from the defendant under this complaint."
The complaint, in effect, is a collection suit with damages and foreclosure of mortgage
against the defendants. Although the Loan and Mortgage Agreement was signed by the
three defendants as mortgagors, the properties being foreclosed belong solely to, and are
registered solely in the name of, the Vincent Dayrit.
The pertinent dispositive portion of the decision rendered by the lower court reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering them
to pay to the plaintiff one-third each of the sum of P147,434 with interest of 10% per
annum from the time it fell due according to agreement, and in default of such
payment, the properties put up in collateral shall be sold in foreclosure sale in
accordance with law, the proceeds to be applied in payment of the amount due to
the plaintiff from the defendants as claimed in the complaint, provided that, as to
Dayrit, his liability shall in no case exceed 1/3 of the total obligation."

The petitioner contends that the said judgment is a simple money judgment and not a
foreclosure judgment, and that because the respondent Mobil resorted to the remedy of
enforcing his right by a complaint against the defendant-petitioner for collection of a sum of
money, with the consequent simple money judgment, the satisfaction of his 1/3 share of the
joint obligation would release all the mortgaged properties put up as collateral to secure the
payment of the whole obligation. The reason advanced by the petitioner is that the decision
rendered being a simple money judgment and not a mortgage-foreclosure judgment, the
distinction in its execution is decisive, that is, whereas in mortgage foreclosure the
judgment should conform to the requirement, embodied in section 2, Rule 68 of the Rules of
Court, that the order of payment be made into the court "within a period not less than
ninety (90) days . . . and in default of such payment, the property mortgaged be sold to
realize" the indebtedness, in a simple money judgment, upon satisfaction of part in the
instant case his 1/3 share) of the joint obligation, the mortgaged properties should be
released from such mortgage contract.
The decision which the petitioner describes as a simple money judgment orders the
defendants to pay the plaintiff the sum of P147,434, and in default of such payment, the
properties put up in collateral shall be sold in foreclosure sale in accordance with law, the
proceeds to be applied in payment of the amount due to the plaintiff from the defendants as
claimed in the complaint. While it is true that the obligation is merely joint and each of the
defendants is obliged to pay only his/her 1/3 share of the joint obligation, the undisputed
fact remains that the intent and purpose of the Loan and Mortgage Agreement was to
secure, inter alia, the entire loan of P150,000 that the Mobil extended to the defendants.
The court below found that the defendants had violated the Loan and Mortgage Agreement,
they having paid but one installment. The undisputed fact also remains that the petitioner
alone benefited from the proceeds of the loan of P150,000, the said amount having been
paid directly to the Bank of the Philippines to bail out the same properties from a mortgage
that was about to be foreclosed. In effect, Mobil merely stepped into the shoes of the Bank
of the Philippines.
The petitioner insists that the dispositive portion of the judgment declaring the obligation
merely joint with the proviso that "as to Dayrit, his liability shall in no case exceed 1/3 of
the total obligation," should be construed in the light of the opinion of the lower court that
"said collateral must answer in full but only to the extent of Dayrits liability which as above
determined" is 1/3 of the obligation," thereby entitling him to pay or deposit in court his
corresponding share of the joint obligation in satisfaction thereof, with the automatic release
of all the mortgaged properties.
A judgment must be distinguished from an opinion. The latter is the informal expression of
the views of the court and cannot prevail against its final order or decision. "While the two
may be combined in one instrument, the opinion forms no part of the judgment. There is a
distinction between the findings and conclusion of a court and its judgment. While they may
constitute its decision and amount to a rendition of a judgment they are not the judgment
itself. They amount to nothing more than an order for judgment which must be
distinguished from the judgment Only the dispositive portion may be executed."
Besides, well-entrenched in law is the rule that a mortgage directly and immediately
subjects the property upon which it is imposed, the same being indivisible even though the
debt may be divided, and such indivisibility likewise being unaffected by the fact that the
debtors are not solidarily liable.As Tolentino, in his Commentaries and Jurisprudence on the
Civil Code of the Philippines, puts it

"When several things are pledged or mortgaged, each thing for a determinate portion
of the debt, the pledges or mortgages are considered separate from each other. But
when the several things are given to secure the same debt in its entirety, all of them
are liable for the debt, and the creditor does not have to divide his action by
distributing the debt among the various things pledged or mortgaged. Even when
only a part of the debt remains unpaid, all the things are still liable for such balance.
Hence, a mortgage voluntarily constituted by the debtor on two or more parcels of
land is one and indivisible, and the mortgagee has the right to have either or both
parcels, jointly or singly, sold to satisfy his claim. In case the mortgaged properties
are a house and lot, it can not be claimed that the lot and the house should be sold
separately and not together."
But then there is this other seeming posture of the petitioner: that the judgment which has
become final and executory either modified or superseded the Loan and Mortgage
Agreement between the parties, and since the obligation is merely joint, upon payment
thereof, as in attachment, the properties mortgaged are released from liability. The decision
under consideration, however, did nothing of the sort. The petitioner conveniently refuses to
recognize the true import of the dispositive portion of the judgment. The said portion
unequivocally states that "in default of such payment, the properties put up in collateral
shall be sold in foreclosure sale in accordance with law, the proceeds to be applied in
payment of the amount due to the plaintiff as claimed in the complaint." And the claim in
the complaint was the full satisfaction of the total indebtedness of P147,434; therefore, the
release of all the mortgaged properties may be authorized only upon the full payment of the
above-stated amount secured by the said mortgage.

Pledge
G.R. No. L-60705 June 28, 1989
INTEGRATED REALTY CORPORATION (IRC) and RAUL L. SANTOS, vs. PHILIPPINE
NATIONAL BANK (PNB), OVERSEAS BANK OF MANILA (OBM) and CA
Raul L. Santos made a time deposit with OBM in the amount of P500,000.00 and was issued
a Certificate of Time Deposit. Santos also made a time deposit with OBM in the amount of
P200,000.00 and was issued certificate of Time Deposit.
IRC thru its President Raul L. Santos, applied for a loan and/or credit line in the amount of
P700,000.00 with PNB. To secure the said loan, Santos executed a Deed of Assignment of
the two time deposits in favor of plaintiff. OBM gave its conformity to the assignment thru
letter. On the same date, IRC also executed a Deed of Conformity to Loan Conditions.
The OBM after the due dates of the time deposit certificates, did not pay PNB. PNB
demanded payment from IRC and Santos and from OBM. IRC and Santos replied that the
obligation (loan) of IRC was deemed paid with the irrevocable assignment of the time
deposit certificates.

PNB filed a complaint to collect from IRC and Santos the loan of P700,000.00. It impleaded
OBM as a defendant to compel it to redeem and pay to it Santos' time deposit certificates.

whether the liability of IRC and Santos with PNB should be deemed to have been paid by
virtue of the deed of assignment made by the former in favor of PNB

No.
Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus:
The contention of IRC and Santos that the irrevocable assignment of the time deposit
certificates to PNB constituted payment' of their obligation to the latter is not well
taken.
Where a certificate of deposit in a bank, payable at a future day, was handed over by
a debtor to his creditor, it was not payment, unless there was an express agreement
on the part of the creditor to receive it as such, and the question whether there was
or was not such an agreement, was one of facts to be decided by the jury.
We uphold respondent court on this score.
In Lopez vs. Court of appeals, et al., Benito Lopez obtained a loan for P 20,000.00 from the
Prudential Bank and Trust Company. On the same day, he executed a promissory note in
favor of the bank and, in addition, he executed a surety bond in which he, as principal, and
Philippine American General Insurance Co., Inc. (Philamgen), as surety, bound themselves
jointly and severally in favor of the bank for the payment of the loan. On the same occasion,
Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to
indemnify the company against any damages which the latter may sustain in consequence
of having become a surety upon the bond. At the same time, Lopez executed a deed of
assignment of his shares of stock in the Baguio Military Institute, Inc. in favor of Philamgen.
When Lopez' obligation matured without being settled, Philamgen caused the transfer of the
shares of stocks to its name in order that it may sell the same and apply the proceeds
thereof in payment of the loan to the bank. However, when no payment was still made by
the principal debtor or surety, the bank filed a complaint which compelled Philamgen to pay
the bank. Thereafter, Philamgen filed an action to recover the amount of the loan against
Lopez. The trial court therein held that the obligation of Lopez was deemed paid when his
shares of stocks were transferred in the name of Philamgen. On appeal, the Court of
Appeals ruled that Lopez was still liable to Philamgen because, pending payment, Philamgen
was merely holding the stock as security for the payment of Lopez' obligation.
In upholding the finding therein of the Court of Appeals, We held that:
Notwithstanding the express terms of the 'Stock Assignment Separate from
Certificate', however, We hold and rule that the transaction should not be regarded
as an absolute conveyance in view of the circumstances obtaining at the time of the
execution thereof.

It should be remembered that the day Lopez obtained a loan of P 20,000.00 from
Prudential Bank, Lopez executed a promissory note for P 20,000.00, plus interest at
the rate of ten (10%) per cent per annum, in favor of said Bank. He likewise posted
a surety bond to secure his full and faithful performance of his obligation under the
promissory note with Philamgen as his surety. In return for the undertaking of
Philamgen under the surety bond, Lopez executed on the same day not only an
indemnity agreement but also a stock assignment.
The indemnity agreement and stock assignment must be considered together as
related transactions because in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered.
(Article 1371, New Civil Code). Thus, considering that the indemnity agreement
connotes a continuing obligation of Lopez towards Philamgen while the stock
assignment indicates a complete discharge of the same obligation, the existence of
the indemnity agreement whereby Lopez had to pay a premium of P l,000.00 for a
period of one year and agreed at all times to indemnify Philamgen of any and all
kinds of losses which the latter might sustain by reason of it becoming a surety, is
inconsistent with the theory of an absolute sale for and in consideration of the same
undertaking of Philamgen. There would have been no necessity for the execution of
the indemnity agreement if the stock assignment was really intended as an absolute
conveyance. ...
Along the same vein, in the case at bar it would not have been necessary on the part of IRC
and Santos to execute promissory notes in favor of PNB if the assignment of the time
deposits of Santos was really intended as an absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed of assignment to
complement the promissory notes.
For all intents and purposes, the deed of assignment in this case is actually a pledge.
Adverting again to the Court's pronouncements in Lopez, supra, we quote therefrom:
The character of the transaction between the parties is to be determined by their
intention, regardless of what language was used or what the form of the transfer
was. If it was intended to secure the payment of money, it must be construed as a
pledge; but if there was some other intention, it is not a pledge. However, even
though a transfer, if regarded by itself, appears to have been absolute, its object and
character might still be qualified and explained by a contemporaneous writing
declaring it to have been a deposit of the property as collateral security. It has been
said that a transfer of property by the debtor to a creditor, even if sufficient on its
face to make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that accordingly, the
use of the terms ordinarily importing conveyance, of absolute ownership will not be
given that effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute
ownership, in the absence of clear and unambiguous language or other
circumstances excluding an intent to pledge.
The facts and circumstances leading to the execution of the deed of assignment yield said
conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements
of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal
obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the

persons constituting the pledge have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose. The further requirement that the
thing pledged be placed in the possession of the creditor, or of a third person by common
agreement was complied with by the execution of the deed of assignment in favor of PNB.
It must also be emphasized that Santos, as assignor, made an express undertaking that he
would remain liable for any outstanding balance of his obligation should PNB be unable to
actually receive or collect the assigned sums resulting from any agreements, orders or
decisions of the court or for any other cause whatsoever. The term "for any cause
whatsoever" is broad enough to include the situation involved in the present case.
Under the foregoing circumstances and considerations, the unavoidable conclusion is that
IRC and Santos should be held liable to PNB for the amount of the loan with the
corresponding interest thereon.
3. On the issue of whether OBM should be held liable for interests on the time deposits of
IRC and Santos from the time it ceased operations until it resumed its business, the answer
is in the negative.
We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, that:
It is a matter of common knowledge, which We take judicial notice of, that what
enables a bank to pay stipulated interest on money deposited with it is that thru the
other aspects of its operation it is able to generate funds to cover the payment of
such interest. Unless a bank can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds and generally engage in
other banking and financing activities from which it can derive income, it is
inconceivable how it can carry on as a depository obligated to pay stipulated interest.
Conventional wisdom dictated; this inexorable fair and just conclusion. And it can be
said that all who deposit money in banks are aware of such a simple economic
proposition petition. Consequently, it should be deemed read into every contract of
deposit with a bank that the obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the duly constituted
authority, the Central Bank.
We consider it of trivial consequence that the stoppage of the bank's operation by
the Central Bank has been subsequently declared illegal by the Supreme Court, for
before the Court's order, the bank had no alternative under the law than to obey the
orders of the Central Bank. Whatever be the juridical significance of the subsequent
action of the Supreme Court, the stubborn fact remained that the petitioner was
totally crippled from then on from earning the income needed to meet its obligations
to its depositors. If such a situation cannot, strictly speaking, be legally denominated
as 'force majeure', as maintained by private respondent, We hold it is a matter of
simple equity that it be treated as such.
The Court further adjured that:
Parenthetically, We may add for the guidance of those who might be concerned, and
so that unnecessary litigations be avoided from further clogging the dockets of the
courts, that in the light of the considerations expounded in the above opinion, the
same formula that exempts petitioner from the payment of interest to its depositors
during the whole period of factual stoppage of its operations by orders of the Central

Bank, modified in effect by the decision as well as the approval of a formula of

rehabilitation by this Court, should be, as a matter of consistency, applicable or
followed in respect to all other obligations of petitioner which could not be paid
during the period of its actual complete closure.
We cannot accept the holding that the above-cited decisions apply only where the bank is in
a state of liquidation. In the very case aforecited, this issue was likewise raised and We
resolved:
Thus, Our task is narrowed down to the resolution of the legal problem of whether or
not, for purposes of the payment of the interest here in question, stoppage of the
operations of a bank by a legal order of liquidation may be equated with actual
cessation of the bank's operation, not different, factually speaking, in its effects,
from legal liquidation the factual cessation having been ordered by the Central Bank.
In the case of Chinese Grocer's Association, et al. vs. American Apothecaries, 65 Phil.
395, this Court held:
As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation
of the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant vs. American
Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held the
following:
4. The court held that the appellant is not entitled to charge interest on the amounts
of his claims, and this is the object of the second assignment of error, Upon this point
a distinction must be made between the interest which the deposits should earn from
their existence until the bank ceased to operate, and that which they may earn from
the time the bank's operations were stopped until the date of payment of the
deposits. As to the first-class, we hold that it should be paid because such interest
has been earned in the ordinary course of the bank's businesses and before the
latter has been declared in a state of liquidation. Moreover, the bank being
authorized by law to make use of the deposits with the limitation stated, to invest
the same in its business and other operations, it may be presumed that it bound
itself to pay interest to the depositors as in fact it paid interest prior to the dates of
the Id claims. As to the interest which may be charged from the date the bank
ceased to do business because it was declared in a state of liquidation, we hold that
the said interest should not be paid.
The Court of Appeals considered this ruling inapplicable to the instant case, precisely
because, as contended by private respondent, the said Apothecaries case had in fact in
contemplation a valid order of liquidation of the bank concerned, whereas here, the order of
the Central Bank of August 13, 1968 completely forbidding herein petitioner to do business
preparatory to its liquidation was first restrained and then nullified by this Supreme Court.
In other words, as far as private respondent is concerned, it is the legal reason for cessation
of operations, not the actual cessation thereof, that matters and is decisive insofar as his
right to the continued payment of the interest on his deposit during the period of cessation
is concerned.
In the light of the peculiar circumstances of this particular case, We disagree. It is Our
considered view, after mature deliberation, that it is utterly unfair to award private
respondent his prayer for payment of interest on his deposit during the period that
petitioner bank was not allowed by the Central Bank to operate.

4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts they
may be adjudged to pay PNB by way of compensation for damages incurred, pursuant to
Articles 1170 and 2201 of the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had already caused
mounting concern in the Central Bank. On December 5, 1967, new directors and officers
drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB) and the
Development Bank of the Philippines (DBP) were elected and installed and they took over
the management and control of the Overseas Bank. However, it was only on July 31, 1968
when OBM was excluded from clearing with the CB under Monetary Board Resolution No.
1263. Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB OBM's
operations were suspended. These CB resolutions were eventually annulled and set aside by
this Court on October 4, 1971 in the decision rendered in the herein cited case of Ramos.
Thus, when PNB demanded from OBM payment of the amounts due on the two time
deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was
as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder.
Consequently, for having incurred in delay in the performance of its obligation, OBM should
be held liable for damages. 17 When respondent Santos invested his money in time deposits
with OBM they entered into a contract of simple loan or mutuum, not a contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be due unless it
has been expressly stipulated in writing, this applies only to interest for the use of money. It
does not comprehend interest paid as damages. OBM contends that it had agreed to pay
interest only up to the dates of maturity of the certificates of time deposit and that
respondent Santos is not entitled to interest after the maturity dates had expired, unless
the contracts are renewed. This is true with respect to the stipulated interest, but the
obligations consisting as they did in the payment of money, under Article 1108 of the Civil
Code he has the right to recover damages resulting from the default of OBM and the
measure of such damages is interest at the legal rate of six percent (6%) per annum on the
amounts due and unpaid at the expiration of the periods respectively provided in the
contracts. In fine, OBM is being required to pay such interest, not as interest income
stipulated in the certificates of time deposit, but as damages for failure and delay in the
payment of its obligations which thereby compelled IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of damages for non-compliance with
an obligation to pay a sum of money, is recoverable from the date judicial or extra-judicial
demand is made, Which latter mode of demand was made by PNB, after the maturity of the
certificates of time deposit, on March 1, 1968. The measure of such damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed upon in the
certificates of deposit Which is six and onehalf percent (6-1/2%). Such interest due or
accrued shall further earn legal interest from the time of judicial demand.
We reject the proposition of IRC and Santos that OBM should reimburse them the entire
amount they may be adjudged to pay PNB. It must be noted that their liability to pay the
various interests of nine percent (9%) on the principal obligation, one and one-half percent
(1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their
failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM
was never a party to Id promissory notes. There is, therefore, no privity of contract between
OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose
liability should be strictly confined to and within the provisions of the certificates of time
deposit involved in this case. In fact, as noted by respondent court, when OBM assigned as

error that portion of the judgment of the court a quo requiring OBM to make the disputed
reimbursement, IRC and Santos did not dispute that objection of OBM Besides, IRC and
Santos are not without fault. They likewise acted in bad faith when they refuse to comply
with their obligations under the promissory notes, thus incurring liability for all damages
reasonably attributable to the non-payment of said obligations.
WHEREFORE, judgment is hereby rendered, ordering:
1. IRC and Santos to pay PNB, jointly and severally, the total amount of (P 700,000.00),
with interest thereon at the rate of (9%) per annum from the maturity dates of the two
promissory notes, plus (1-1/2%) additional interest per annum and additional penalty
interest of (1%) per annum of the said amount of (P 700,000.00) from the time of maturity
of said loan up to the time the said amount of (P 700,000.00) is fully paid to PNB.
2. IRC and Santos to pay solidarily PNB 10% of the amount of (P 700,000.00) as and for
attorney's fees.
3. OBM to pay IRC and Santos the sum of (P 700,000.00) due under Time Deposit
Certificates Nos. 2308 and 2367, with interest thereon of (6-1/2%) per annum from their
dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same are
fully paid, except that no interest shall be paid during the entire period of actual cessation of
operations by Overseas Bank of Manila;
4. OBM to pay IRC and Santos (6-1/2%) interest in the concept of damages on the principal
amounts of said certificates of time deposit from the date of extrajudicial demand by PNB,
plus legal interest of six percent (6%) on said interest, until fifth payment thereof, except
during the entire period of actual cessation of operations of said bank.

G.R. No. L-19227

February 17, 1968

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

Diosdado Yuliongsiu was the owner of two (2) vessels, namely: The M/S Surigao, valued at
P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-203, valued
at P210,672.24, which was purchased from the Philippine Shipping Commission, by
installment or on account. Diosdado had paid to the Philippine Shipping Commission only
the sum of P76,500 and the balance of the purchase price was payable at P50,000 a year,
due on or before the end of the current year.
Diosdado obtained a loan of P50,000 from the PNB. To guarantee its payment, Diosdado
pledged the M/S Surigao, M/S Don Dino and its equity in the FS-203 to PNB, as evidenced
by the pledge contract, executed on the same day and duly registered with the office of the
Collector of Customs for the Port of Cebu.

Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The
remaining balance was renewed by the execution of two (2) promissory notes in the bank's
favor. These two notes were never paid at all by Diosdado on their respective due dates.
PNB filed criminal charges against Diosdado for estafa thru falsification of commercial
documents, because Diosdado had, as last indorsee, deposited with PNB seven BPI checks
totalling P184,000. The drawer thereof had no funds in the drawee bank. However, in
connivance with one employee of PNB, Diosdado was able to withdraw the amount credited
to him before the discovery of the defraudation. Diosdado was convicted by the trial court
and sentenced to indemnify the defendant bank in the sum of P184,000. On appeal, the
conviction was affirmed by the CA. The corresponding writ of execution issued to implement
the order for indemnification was returned unsatisfied as plaintiff was totally insolvent.
Meanwhile, together with the institution of the criminal action, PNB took physical possession
of three pledged vessels while they were at the Port of Cebu, and after the first note fell due
and was not paid, the Cebu Branch Manager of PNB, acting as attorney-in-fact of Diosdado
pursuant to the terms of the pledge contract, executed a document of sale transferring the
two pledged vessels and Diosdado's equity in FS-203, to PNB for P30,042.72.
The FS-203 was subsequently surrendered by the PNB to the Philippine Shipping
Commission which rescinded the sale to Diosdado, for failure to pay the remaining
installments on the purchase price thereof. The other two boats, the M/S Surigao and the
M/S Don Dino were sold by PNB to third parties on March 15, 1951.
Diosdado commenced action to recover the three vessels or their value and damages from
PNB.
Diosdado claims that the contract is not a pledge, but a chattel mortgage contract so that
the creditor PNB could not take possession of the chattels object thereof until after there
has been default.

W/N the contract is a chattel mortgage.

No.
The submission is without merit. The parties stipulated as a fact that it is a pledge contract.
Necessarily, this judicial admission binds the Diosdado. Without any showing that this was
made thru palpable mistake, no amount of rationalization can offset it.
The PNB as pledgee was therefore entitled to the actual possession of the vessels. While it is
true that Diosdado continued operating the vessels after the pledge contract was entered
into, his possession was expressly made "subject to the order of the pledgee." The provision
of Art. 2110 of the present Civil Code being new cannot apply to the pledge contract here
which was entered into on June 30, 1947. On the other hand, there is an authority
supporting the proposition that the pledgee can temporarily entrust the physical possession

of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the
pledgor is regarded as holding the pledged property merely as trustee for the pledgee.
Diosdado would also urge Us to rule that constructive delivery is insufficient to make pledge
effective. He points to Betita v. Ganzon, there has to be actual delivery of the chattels
pledged. But then there is also Banco Espaol-Filipino v. Peterson, symbolic delivery would
suffice. An examination of the peculiar nature of the things pledged in the two cases will
readily dispel the apparent contradiction between the two rulings. In Betita v. Ganzon, the
objects pledged carabaos were easily capable of actual, manual delivery unto the
pledgee. In Banco Espaol-Filipino v. Peterson, the objects pledged goods contained in a
warehouse were hardly capable of actual, manual delivery in the sense that it was
impractical as a whole for the particular transaction and would have been an unreasonable
requirement. Thus, for purposes of showing the transfer of control to the pledgee, delivery
to him of the keys to the warehouse sufficed. In other words, the type of delivery will
depend upon the nature and the peculiar circumstances of each case. The parties here
agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said
property subject to the order of the pledgee." Considering the circumstances of this case
and the nature of the objects pledged, i.e., vessels used in maritime business, such delivery
is sufficient.
Since PNB was, pursuant to the terms of pledge contract, in full control of the vessels thru
Diosdado, the former could take actual possession at any time during the life of the pledge
to make more effective its security. Its taking of the vessels therefore was not unlawful. Nor
was it unjustified considering that Diosdado had just defrauded PNB in huge sum.
In the second assignment of error Diosdado attacks the validity of the private sale of the
pledged vessels in favor of the PNB itself. It is contended first, that the cases holding that
the statutory requirements as to public sales with prior notice in connection with foreclosure
proceedings are waivable, are no longer authoritative in view of the passage of Act 3135, as
amended; second, that the charter of defendant bank does not allow it to buy the property
object of foreclosure in case of private sales; and third, that the price obtained at the sale is
unconscionable.
There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, and El
Hogar Filipino v. Paredes, are still authoritative despite the passage of Act 3135. This law
refers only, and is limited, to foreclosure of real estate mortgages. So, whatever formalities
there are in Act 3135 do not apply to pledge. Regarding the bank's authority to be the
purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938
only states that if the sale is public, the bank could purchase the whole or part of the
property sold " free from any right of redemption on the part of the mortgagor or pledgor."
This even argues against plaintiff's case since the import thereof is this if the sale were
private and the bank became the purchaser, the mortgagor or pledgor could redeem the
property. Hence, Diosdado could have recovered the vessels by exercising this right of
redemption. He is the only one to blame for not doing so.
Regarding the third contention, on the assumption that the purchase price was
unconscionable, plaintiff's remedy was to have set aside the sale. He did not avail of this.
Moreover, as pointed out by the lower court, plaintiff had at the time an obligation to return
the P184,000 fraudulently taken by him from defendant bank.

G.R. No. L-24772

May 27, 1968

RUPERTO G. CRUZ, ET AL., vs. FILIPINAS INVESTMENT and FINANCE

CORPORATION
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes for cancellation
of the real estate mortgage constituted on the land of the latter in favor of Filipinas
Investment & Finance Corporation (as assignee of the Far East Motor Corporation), the
parties submitted the case for decision on the following stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be sued;
2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the Far
East Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint, for
P44,616.24, Philippine Currency, payable in installments of P1,487.20 per month for thirty
(30) months, beginning October 22, 1963, with 12 % interest per annum, until fully paid. As
evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far East Motor
Corporation a negotiable promissory note in the sum of P44,616.24, ...;
3. That to secure the payment of the promissory note, Annex "A", Cruz executed in favor of
the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid motor
vehicle...;
4. That as no down payment was made by Cruz, the seller, Far East Motor Corporation, on
the very improvements thereon, in San Miguel, Bulacan...; same date, July 15, 1963,
required and Cruz agreed to give, additional security for his obligation besides the chattel
mortgage, Annex "B"; that said additional security was given by plaintiff Felicidad Vda. de
Reyes in the form of SECOND MORTGAGE on a parcel of land owned by her, together with
the building and
5. That said land has an area of 68,902 square meters, more or less, and covered by
Transfer Certificate of Title No. 36480 of the Registry of Deeds of Bulacan in the name of
plaintiff Mrs. Reyes; and that it was at the time mortgaged to the Development Bank of the
Philippines to secure a loan of P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value received indorsed
the promissory note and assigned all its rights and interest in the Deeds of Chattel Mortgage
and in the Deed of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the defendant,
Filipinas Investment & Finance Corporation, with due notice of such assignment to the
plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ; that the
only sum ever paid to the defendant was Five Hundred Pesos (P500.00) on October 2, 1963,
which was applied as partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on any of the installments
stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to foreclose the chattel mortgage
on the bus; that said vehicle had been damaged in an accident while in the possession of
plaintiff Cruz;

9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila, the
defendant was the highest bidder, defendant's bid being for (P15,000.00)...;
10. That the proceeds of the sale of the bus were not sufficient to cover the expenses of
sale, the principal obligation, interests, and attorney's fees, i.e., they were not sufficient to
discharge fully the indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs.
Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to the Development
Bank of the Philippines, in the sum of P2,148.07, the unpaid balance of said obligation...;
12. That pursuant to a provision in the real estate mortgage contract, authorizing the
mortgagee to foreclose the mortgage judicially or extra-judicially, defendant on February 29,
1964 requested the Provincial Sheriff of Bulacan to take possession of, and sell, the land
subject of the Real Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92, the
total outstanding obligation of the plaintiffs to the defendant, as itemized in the Statement
of Account, which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the Mortgagor, Mrs. Reyes, pursuant
to and in compliance with the requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the defendant
asking for the cancellation of the real estate mortgage on her land, but defendant did not
comply with such demand as it was of the belief that plaintiff's request was without any
legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held in abeyance
the sale of the mortgaged real estate pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to (1) "Whether
defendant, which has already extrajudicially foreclosed the chattel mortgage executed by
the buyer, plaintiff Cruz, on the bus sold to him on installments, may also extrajudicially
foreclose the real estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as
additional security, for the payment of the balance of Cruz' Obligation, still remaining
unpaid"; and (2) whether or not the contending parties are entitled to attorney's fees the
court below, in its decision of April 21, 1965, sustained the plaintiffs' stand and declared
that the extrajudicial foreclosure of the chattel mortgage on the bus barred further action
against the additional security put up by plaintiff Reyes. Consequently, the real estate
mortgage constituted on the land of said plaintiff was ordered cancelled and defendant was
directed to pay the plaintiffs attorney's fees in the sum of P200.00. Defendant filed the
present appeal raising the same questions presented in the lower court.
There is no controversy that, involving as it does a sale of personal property on
installments, the pertinent legal provision in this case is Article 1484 of the Civil Code of the
Philippines, 2 which reads:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments, the vendor or
seller has the option to avail of any one of these three remedies either to exact fulfillment
by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted. These remedies have been recognized
as alternative, not cumulative, 3 that the exercise of one would bar the exercise of the
others. 4 It may also be stated that the established rule is to the effect that the foreclosure
and actual sale of a mortgaged chattel bars further recovery by the vendor of any balance
on the purchaser's outstanding obligation not so satisfied by the sale. 5 And the reason for
this doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to remedy the
abuses committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure was that the
mortgagor found himself minus the property and still owing practically the full
amount of his original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the right to
cancel the sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the amount of
the installments already paid, "if there be in agreement to that effect". Furthermore,
if the vendor avails himself of the right to foreclose the mortgage the amendment
prohibits him from bringing an action against the purchaser for the unpaid balance.
It is here agreed that plaintiff Cruz failed to pay several installments as provided in the
contract; that there was extrajudicial foreclosure of the chattel mortgage on the said motor
vehicle; and that defendant-appellant itself bought it at the public auction duly held
thereafter, for a sum less than the purchaser's outstanding obligation. Defendant-appellant,
however, sought to collect the supported deficiency by going against the real estate
mortgage which was admittedly constituted on the land of plaintiff Reyes as additional
security to guarantee the performance of Cruz' obligation, claiming that what is being
withheld from the vendor, by the proviso of Article 1484 of the Civil Code, is only the right
to recover "against the purchaser", and not a recourse to the additional security put up, not
by the purchaser himself, but by a third person.
There is no merit in this contention. To sustain appellant's argument is to overlook the fact
that if the guarantor should be compelled to pay the balance of the purchase price, the
guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art.
2066, Civil Code) ; so that ultimately, it will be the vendee who will be made to bear the
payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage
given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and
public policy overturned.

Neither is there validity to appellant's allegation that, since the law speaks of "action", the
restriction should be confined only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been invariably defined
as
... the legal demand of one's right, or rights; the lawful demand of one's rights in the
form given by law; a demand of a right in a court of justice; the lawful demand of
one's right in a court of justice; the legal and formal demand of ones rights from
another person or party, made and insisted on in a court of justice; a claim made
before a tribunal; an assertion in a court of justice of a right given by law; a demand
or legal proceeding in a court of justice to secure one's rights; the prosecution of
some demand in a court of justice; the means by which men litigate with each other;
the means that the law has provided to put the cause of action into effect;....
(Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484 was intended,
the word "action" used therein may be construed as referring to any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the
supposed unsatisfied balance of the purchase price from the purchaser or his privy.
Certainly, an extrajudicial foreclosure of a real estate mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit, so that this litigation
could have been avoided, the award by the lower court of attorney's fees to the plaintiff's in
the sum of P200.00 is reasonable and in order.
However, we find merit in appellant's complaint against the trial court's failure to order the
reimbursement by appellee Vda. de Reyes of the amount which the former paid to the
Development Bank of the Philippines, for the release of the first mortgage on the land of
said appellee. To the extent that she was benefited by such payment, plaintiff-appellee Vda.
de Reyes should have been required to reimburse the appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee Felicidad
Vda. de Reyes to reimburse to defendant-appellant Filipinas Investment & Finance
Corporation the sum of P2,148.07, with legal interest thereon from the finality of this
decision until it is fully paid. In all other respects, the judgment of the court below is
affirmed, with costs against the defendant-appellant.

Mortgage
G.R. No. 94247 September 11, 1991
DIONISIO MOJICA, in behalf of Spouses LEONARDO MOJICA (now deceased) and
MARINA RUFIDO, vs. HON. COURT OF APPEALS, and RURAL BANK OF YAWIT, INC.
On February 1, 1971, plaintiff Leonardo Mojica (now deceased) contracted a loan of
P20,000.00 from Rural Bank of Kawit, Inc. (now respondent). This loan was secured by a
real estate mortgage executed on the same date by the plaintiffs spouses Leonardo Mojica
and Marina Rufido (Rollo, Annex "C" p. 40).
The real estate mortgage contract states among others:
... agreement for the payment of the loan of P20,000.00 and such other loans or
other advances already obtained or still to be obtained by the mortgagors ...
2. ... but if the mortgagors shall well and truly fulfill the obligation above stated
according to the terms thereof then this mortgage shall become null and void.
The spouses mortgaged to the Rural Bank of Kawit, a parcel of land consisting of 218,794
square meters, located in Naic, Cavite, covered by Transfer Certificate of Title No. RT-155
(Rollo, Annex "A", p. 31). The real estate mortgage was duly registered under Entry No.
74661 of the Registry of Deeds of Cavite (Rollo, Annex "C", p. 41).
The loan of P20,000.00 by the plaintiffs spouses was fully and completely paid (Ibid.).
On March 5, 1974, a new loan in the amount of P18,000.00 was obtained by plaintiffs
spouses from the defendant Rural Bank which loan matured on March 5, 1975 (Rollo, pp.
32; 41).
No formal deed of real mortgage was constituted over any property of the borrowers,
although the top of the promissory note dated March 5, 1974, contained the following
notation.
This promissory note is secured by a Real Estate Mortgage executed before the
Notary Public of the Municipality of Kawit, Mrs. Felisa Senti under Doc. No. 62, Page
No. 86, Book No.__, Series of 1971.
The Real Estate Mortgage mentioned above is the registered mortgage which guaranteed
the already paid loan of P20,000.00 granted on February 1, 1971 (Rollo, p. 8,7).
The spouses Leonardo Mojica and Marina Rufido failed to pay their obligation after its
maturity on March 5, 1975. Respondent rural bank extrajudicially foreclosed the real estate
mortgage on the justification that it was adopted as a mortgage for the new loan of
P18,000.00 (Rollo, pp. 32; 41).
The subject property was set for auction sale by the Provincial Sheriff of Cavite for June 27,
1979. In that auction sale, defendant rural bank was the highest bidder, and its bid
corresponded to the total outstanding obligation of plaintiffs spouses Mojica and Rufido
(Reno, p. 32).

The proceeds from the sale of the piece of land of plaintiffs spouses were applied to their
outstanding obligation with defendant bank (Ibid.)
The corresponding certificate of sale in favor of defendant bank was executed by the
Provincial Sheriff also on June 27, 1979, and the instrument was recorded in the Office of
the Register of Deeds of Cavite on June 29, 1979. The one year period for redemption
elapses after June 1980 without plaintiffs spouses having redeemed the foreclosure property
(Ibid.)
Meanwhile, on July 19, 1980, Dionisio Mojica, the son of petitioners-spouses, in an apparent
attempt to pay the debt of P18,000.00 made a partial payment in the amount of P24,658.00
(P19,958.00 of this amount in check bounced) which the defendant rural bank received and
accepted with the issuance of the defendant's official receipt No. 101 269, ackowledging the
payment as partial payment of 'past due loan', together with the "interest on past due lose
(Rollo, p. 33).
On August 11, 1980, another partial payment was made by Dionisio Mojica in the amount of
P9,958.00 in payment also of 64 past due loan' plus "interest on past due loan 7 which
payment was received by the defendant rural bank and acknowledged with the issuance of
official receipt No. 101844. These payments were, however, considered by the bank as
deposit for the repurchase of the foreclosed property (Ibid., p. 33).
On August 14, 1981, upon inquiry by Dionisio Mojica on the unpaid balance of the loan, the
respondent rural bank issued a 'Computation Slip" indicating therein, that as of August 14,
1981, the outstanding balance plus interest computed from March 5, 1975 was P21,272.50
(Ibid.).
On November 10, 1981, said bank executed an affidavit of consolidation of ownership, which
it subsequently filed with the Register of Deeds of Cavite. As a result, Transfer Certificate of
Title No. T-123964, covering the foreclosed piece of land, was issued in its favor by the
Register of Deeds on January 19, 1982. After having consolidated its ownership over the
foreclosed property, defendant bank scheduled the parcel of land to be sold at public auction
on February 26, 1982, pursuant to the requirement of the law regarding the disposal by a
bank of its acquired assets. Dionisio Mojica and one Teodorico Rufido, brother-in-law of
plaintiff Leonardo Mojica, were notified of such auction sale However, no sale was
consummated during that scheduled sale and the property concerned up to now still
remains in the possession of respondent bank (Ibid.).
The refusal of the same bank to allow Dionisio Mojica to pay the unpaid balance of the loan
as per the "Computation Slip" amounting to P21,272.50, resulted in the filing of a complaint
(Rollo, p. 42).
On September 3, 1984, the trial court rendered judgment dismissing the complaint. On
November 5, 1984, petitioner filed a motion for reconsideration of the decision, which
motion was denied in the order dated November 17, 1984. On January 2, 1985, a notice of
appeal was filed in the Intermediate Appellate Court (Rollo, p. 42).
On February 15, 1990, the Appellate Court, rendered its decision, aiming in toto the decision
of the trial court. The dispositive portion of the decision of the appellate court reads:

WHEREFORE, finding no reversible error in the decision appealed from, the

game is hereby AFFIRMED in toto. With costs against plaintiffs-appellants.
The motion for reconsideration of said decision was denied in a resolution dated June 4,
1990 (Rollo, Annex "B", p. 39).
Hence, this petition.
This Court in its resolution dated September 3, 1990 dismissed the petition for noncompliance with certain requisites but later in its resolution dated November 5, 1990, it
reinstated the petition (Rollo, Petition pp. 9-28); Resolutions, pp. 52-53; 61).
The petition is devoid of merit.
The pivotal issue in this case is whether or not the foreclosure sale by the Sheriff on June
27, 1979, had for its basis, a valid and subsisting mortgage contract. Otherwise stated,
there is a need to ascertain the intention of the parties as to the coverage of the mortgage
in question with respect to future advancements.
Contracts which are not ambiguous are to be interpreted according to their literal meaning
and should not be interpreted beyond their obvious intendment (Plastic Town Center Corp.
v. NLRC, 172 SCRA 580 [1989]). Thus, where the intent of the parties has been shown
unmistakably with clarity by the language used, the literal meaning shall control (Paramount
Surety & Ins. Co., Inc. v. Ago, 171 SCRA 481 [1989]). Correspondingly, stipulations in the
mortgage document constitute the law between the parties, which must be complied with
faithfully (Community and Loan Assn., Inc. v. Court of Appeals, 153 SCRA 564 [1987]).
As earlier stated, the Real Estate Mortgage in the case at bar expressly stipulates that it
serves as guaranty
... for the payment of the loan ... of P20,000.00 and such other loans or other
advances already obtained or still to be obtained by the mortgagors as makers ...
(Rollo, p. 14).
It has long been settled by a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts; that the amounts named as consideration in
said contract do not limit the amount for which the mortgage may stand as security if from
the four corners of the instrument the intent to secure future and other indebtedness can be
gathered. A mortgage given to secure advancements is a continuing security and is not
discharged by repayment of the amount named in the mortgage, until the full amount of the
advancements are paid (Lim Julian v. Lutero, 49 Phil. 704-705 [1926]). In fact, it has also
been held that where the annotation on the back of a certificate of title about a first
mortgage states "that the mortgage secured the payment of a certain amount of money
plus interest plus other obligations arising there under' there was no necessity for any
notation of the later loans on the mortgagors' title. It was incumbent upon any subsequent
mortgagee or encumbrances of the property in question to e e the books and records of the
bank, as first mortgagee, regarding the credit standing of the debtors Tady-Y v. PNB, 12
SCRA 19-20 [1964]).
The evidence on record shows that the amounts of P4,700.00 and P9,958.00 were accepted
by the bank on July 19 and August 11, 1980 as deposits for conventional redemption after

the property covered by real estate mortgage became the acquired asset of the bank and
priced at P85,000.00 and after petitioner had lost all rights of legal redemption because
more than one year had already elapsed from June 29, 1979, the date the certificate of sale
was registered in the office of the Registry of Deeds of Cavite. Indeed, the conventional
redemption was subject to be exercised up to March 3, 1982 and was extended up to April
19, 1982 for a fixed amount of P85,000.00. The respondent bank even favored the
petitioner by giving them the first preference to repurchase the property but they failed to
avail of this opportunity, although the bank "is certainly disposed to release at anytime" the
deposits.
Further, the evidence on record also shows that the mortgage property was auctioned on
June 27, 1979. The only bidder was the respondent bank which bid for P26,387.04. As the
highest bidder, the respondent bank can rightfully consolidate its title over the property. As
aptly stated by respondent Court:
It would then be unfair to impute that the trial court allowed defendant bank to
appropriate the mortgage property, because after the plaintiff-appellants failed to
repurchase the property and filed this action with 'lis pendens', the actions prevented
the bank from negotiating for the sale of the property to other buyers. (p. 36, Rollo)
PREMISES CONSIDERED, the petition is DISMISSED and the assailed decision and resolution
of the Intermediate Appellate Court (Court of Appeals) are AFFIRMED.

[G.R. No. L-13683. March 28, 1960.]

PAZ SAMANILLA, v. CENEN A. CAJUCOM, ET AL.
1. CONTRACT; PRESUMPTION OF CAUSE OR CONSIDERATION; HOW OVERCOME. There
is a legal presumption of sufficient cause or consideration supporting a contract, even if
such cause is not stated therein (Art. 1354, New Civil Code; Rule 123, Sec. 69 (r), Rules of
Court). This presumption cannot be overcome by a simple assertion of lack of consideration,
especially when the contract itself states that consideration was given, and the same has
been reduced into a public instrument with all due formalities and solemnities. To overcome
the presumption of consideration, the alleged lack of consideration must be shown by
preponderance of evidence in a proper action.
2. MORTGAGES; REGISTRATION; RIGHT OF MORTGAGEE TO REGISTER CONTRACT.
"Once a mortgage has been signed in due form, the mortgagee is entitled to its registration
as a matter of right. By executing the mortgage the mortgagor is understood to have given
his consent to its registration, and he cannot be permitted to revoke it unilaterally. The
validity and fulfillment of contracts cannot be left to the will of one of the contracting parties
(Article 1254 of the Civil Code)."
3. ID.; ID.; VALIDITY BETWEEN PARTIES NOT AFFECTED BY ABSENCE OF REGISTRATION.
A mortgage, whether registered or not, is binding between the parties, registration being
necessary only to make the same valid against third persons (Art. 2125, New Civil Code). In
other words, registration only operates as a notice of the mortgage to others, but neither

adds to its validity nor converts an invalid mortgage into a valid one between the parties.
4. REGISTRATION OF DOCUMENTS; DETERMINATION OF VALIDITY AFTER REGISTRATION.
Since the purpose of registration is merely to give notice, the questions regarding the
effect or invalidity of instruments are expected to be decided after, not before registration.
Appeal interposed by respondents Cenen A. Cajucom and Jose A. Cajucom from the order of
the Court of First Instance of Nueva Ecija in Land Registration Case No. 210, G.L.R.O. Rec.
No. N-6010, requiring them to surrender Original Certificate of Title No. O-966 within ten
days either to the Register of Deeds or to the Court for the annotation of a mortgage
executed by them in favor of petitioner Paz Samanilla.
The case arose out of a petition presented by appellee Samanilla in said registration case
alleging that respondents Cajucom had executed in her favor, on December 20, 1955, a real
estate mortgage over their rights and participation on the parcel of land covered by Original
Certificate of Title No. O-966 to secure a loan of P10,000.00; that sometime in February,
1956, respondents borrowed the title from her on the excuse that they needed it to
segregate from the land the portion claimed by other persons; and that thereafter,
petitioner asked for the return of the title so that she could register her mortgage, but
respondents refused. Attached to the petition were the deed of mortgage and the affidavits
of petitioner and a certain Antonio G. Javier, who allegedly was the one who borrowed the
title from petitioner in behalf of respondents.
Respondents opposed the petition, claiming that the mortgage in question was void ab initio
for want of consideration, and that the issues should be litigated in an ordinary civil action.
The opposition notwithstanding, the lower court entered an order on June 12, 1956 finding
the petition well-taken and ordering respondents to surrender their title either to the
Register of Deeds or to the Court. From this order, respondents appealed to the Court of
Appeals, which forwarded the case to us for raising purely question of law.
The appeal has no merit. Appellants sole objection to the registration of the deed of
mortgage is that the same was executed without any consideration. But there is a legal
presumption of sufficient cause or consideration supporting a contract, even if such cause is
not stated therein (Art. 1354, New Civil Code; Rule 123, sec. 69 [r], Rules of Court). This
presumption appellants cannot overcome by a simple assertion of lack of consideration.
Especially may not the presumption be so lightly set aside when the contract itself states
that consideration was given, and the same has been reduced into a public instrument with
all due formalities and solemnities as in this case. As held by this Court.
"Once a mortgage has been signed in due form, the mortgagee is entitled to its registration
as a matter of right. By executing the mortgage the mortgagor is understood to have given
his consent to its registration, and he cannot be permitted to revoke it unilaterally. The
validity and fulfillment of contracts cannot be left to the will of one of the contracting parties
(Article 12c4 of the Civil Code)." (Gonzales v. Basa, Jr., Et Al., 73 Phil., 704).
To overcome the presumption of consideration, appellants must show the alleged lack of
consideration of the mortgage by preponderance of evidence in a proper action.
Appellants assert that they cannot be compelled to surrender their title for registration of
the mortgage in question until they are given an opportunity to show its invalidity in an
ordinary civil action, because registration is an essential element of a real estate mortgage
and the surrender of their title would complete this requirement of registration. The
argument is fallacious, for a mortgage, whether registered or not, is binding between the
parties, registration being necessary only to make the same valid against third persons (Art.

2125, New Civil Code). In other words, registration only operates as a notice of the
mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a
valid one between the parties. Appellants still have the right to show that the mortgage in
question is invalid for lack of consideration in an ordinary action and there ask for the
avoidance of the deed and the cancellation of its registration. But until such action is filed
and decided, it would be too dangerous to the rights of the mortgagee to deny registration
of her mortgage, because her rights can so easily be defeated by a transfer or conveyance
of the mortgaged property to an innocent third person. In Gurbax Singh Pabla & Co., Et. Al.
v. Reyes, Et Al., 92 Phil., 177; 48 Off. Gaz., 4365, this Court had the occasion to rule that "if
the purpose of registration is merely to give notice, the questions regarding the effect or
invalidity of instruments are expected to be decided after, not before, registration. It must
follow as a necessary consequence that registration must first be allowed and validity or
effect litigated afterwards."
Appellants cite the case of Government of the Philippine Islands v. Payva, 44 Phil., 629.
However, the appellee correctly points out that the same is inapplicable to this case because
the only question raised and decided therein was whether an order of the registration court
requiring the holder of a duplicate certificate of title for the purpose of annotating an
attachment, lien, or adverse claim under sec. 72 of Act 496 is appealable or not, and we
held that it was, because it resolves important questions as to the respective rights of the
parties. It should be remembered that the Land Registration Court may summarily pass
upon the validity of adverse claims sought to be registered under sections 72 and 110 of the
Land Registration Act, if all the parties agree to submit the precise question to the court
(see Gurbax Singh Pabla & Co. v. Reyes, supra); and when it is thus submitted, the losing
party may appeal the courts ruling, as held in the Payva case. But appellants herein, by
opposing appellees petition on the ground that their defense of invalidity of the mortgage
sought to be registered is contentious and should be litigated in a separate action, precisely
refused to submit said question to the Land Registration Court. The court, then, acted
correctly in ordering the recording without passing upon the validity of the mortgage in
question.
The order appealed from is affirmed, without prejudice to appellants right to bring a
separate action to question the validity of the mortgage in question and ask for the
cancellation of its registration. Costs against appellants.

G.R. No. L-45290

April 19, 1939

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, CHING LIU & CO., vs.
PAULA MERCADO
This is an appeal from an order of the Court of First Instance of the City of Manila directing
the register of deeds of the same city to cancel the annotation of a writ of attachment in
favor of the herein appellant, Paula Mercado, which appears on transfer certificate of title
No. 44406.
It appears that one Fernando Co Chioco was the owner of a piece of land with the
improvements thereon described in the transfer certificate No. 39578, issued by the register

of deeds of the City of Manila, which is now title No. 4406. On January 22, 1932, to secure
an obligation in the sum of P5,500, he executed a first mortgage in favor of Ching Yng Si
over said property for a period of one year at 10 per cent annul interest, which
encumbrance was duly registered. While the said mortgage was in force, Paula Mercado, the
appellant herein, brought an action against Go Chioco in the Court of First Instance of this
city, being civil case No. 41738, in which an order of attachment was issued over any right,
title, interest or share which said Go Chioco might have had over said property. Said
attachment was also duly annotated on April 12, 1932, on the back of said title No. 39578.
In civil case No. 41738, judgment was rendered in favor of Mercado for which an execution
was issued on November 25, 1932, but the sheriff returned the writ unsatisfied because
there was no property appearing in the name of Go Chioco in the registry and the appellant
was unable to point to any property belonging to the debtor.
Fernando Go Chioco having failed to comply with the conditions of said mortgage, Ching Yng
Si brought a foreclosure suit on February 21, 1933, against said Go Chioco, civil case No.
43820, for which on July 21, 1933, a judgment was rendered in favor of the mortgagee. On
November 13 of the same year the court ordered the sale at public auction of the
mortgaged property and the sale was effected on December 9, 1933, for P4,000, in favor of
Ching Yng Si, as the highest bidder. The sale was approved on January 2, 1934, and the
corresponding transfer certificate of title No. 44405 was issued in his favor. On February 13,
1934, Ching Yng Si, being then the registered owner thereof, sold and conveyed the said
property to Ching Liu & Co., the appellee herein, for which transfer certificate of title No.
44406 was issued in its favor, and said attachment as an encumbrance was duly annotated
at the back of said title as was done in the previous ones already cancelled. On May 25,
1936, Chin Liu & Co., filed in the Court of First Instance of Manila a motion alleging absolute
ownership over the land and improvements evidenced by transfer certificate of title No.
44406, and praying that the register of deeds of said city be ordered to cancel the
annotation of attachment issued in civil case No. 41738 appearing on the back of said
transfer certificate, and to return the same to said petitioner free from all encumbrances.
The lower court, notwithstanding the opposition of the appellant, granted the motion. The
appellant Paula Mercado, has brought this case before this court for review on the errors
assigned in her brief. Of the six errors assigned the most important are errors two and four
which are as follows:
II. The court a quo erred in declaring that the attachment levied upon by the herein
appellant over whatever right title, interest or share which Fernando Go Chioco, the
owner of the mortgaged property, may have had over said property, did not create
any right in favor of the herein appellant over the same.
IV. The court a quo erred in declaring that the herein appellant is not entitled to be
notified of and included in the foreclosure proceedings instituted by the alleged
mortgagee, Ching Yng Si, notwithstanding the writ of attachment validly levied upon
the mortgaged property prior to said foreclosure proceedings, and in not declaring
that appellant cannot be affected by such foreclosure proceedings.
At the outset, it should be observed that at the time of the attachment of the property, Go
Chioco was still the registered owner of said property. This is true because the mortgage is
merely an incumbrance upon the property and does not extinguished the title of the debtor
who does not lose his principal attribute as owner, that is the right to dispose. (E. C.
McCullough & Co. vs. Veloso and Serna, 46 Phil., 1, 4.) It should also be observed that the
attachment in favor of the appellant was annotated and recorded in accordance with the
provisions of sections 51 and 56 of the Land Registration Act. This being the case, "the

notation of the attachment of this lot in the entry book of the register of deeds produces all
the effects which the law gives to its registration or inscription." (Director of Lands vs. Abad,
61 Phil., 479, 486.) Attachment is in the nature of a proceeding in rem. It is against the
particular property. The attaching creditor thereby acquires a specific lien upon the attached
property which ripens into a judgment against the res when the order of sale is made. Such
a proceeding is in effect a finding that the property attached is an indebted thing and a
virtual condemnation of it to pay the owner's debt. The law does not provide the length of
time an attachment lien shall continue after the rendition of the judgment, and it must
therefore necessarily continue until the debt is paid, or sale is had under execution issued
on the judgment, or until the judgment is satisfied, or the attachment discharged or vacated
in some manner provided by law.
It has been held that the lien obtained by attachment stands upon as high equitable
grounds as a mortgage lien:
The lien or security obtained by an attachment, even before judgment, is a fixed and
positive security, a specific lien, and, although whether it will ever be made available
to the creditor depends on contingencies, its existence is in no way contingent,
conditional, or inchoate. It is a vested interest, an actual and substantial security,
affording specific security for satisfaction of the debt put in suit, which constitutes a
cloud on the legal title, and is as specific as if created by virtue of a voluntary act of
the debtor and stands upon a high equitable grounds as a mortgage lien. (7 Corpus
Juris Secundum, 433, and authorities therein cited.).
Appellee cites and relies on Molina Salvador vs. Somes (3l Phil., 76), and Lopez vs. Alvarez
(9 Phil., 28, 35). Examination of these cases will disclose that they dealt with the preference
of credits and the attachment therein referred to were not recorded under the Land
Registration Act (No. 496). Inasmuch as the facts of those cases and the questions therein
involved are not similar to the facts and questions of the case under consideration, we
decline to be bound thereby. Every case must be judged upon its own facts. A decision in
one case is no authority upon which to rest the decision in a later case unless the entire
factual basis in the latter is similar in kind or principle to that of the former.
We are of the opinion, and so hold, that an attachment properly levied upon a property
registered under the Land Registration act once annotated, recorded, or registered in the
office of the register of deeds, affects the realty to which it refers, and that from the
moment it is inscribed, recorded or noted in the office of the register of deeds for the
province or city in which the realty lies, it constitutes a lien on the property (Cf. Lava and
Llamas vs. Usapdin [C. A.], 36 Off. Gaz., 1591, 1592). It follows that, in accordance with
section 225 of the Code of Civil Procedure, the herein appellant should have been included
as party defendant, she "having or claiming an interest in the premises subordinate in the
right to that of the holder of the mortgage."
The judgment is accordingly reversed, with costs against the appellee. So ordered.

G.R. No. L-22331

June 6, 1967

IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE

AND THE RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., RODOLFO LANUZA, vs. MARTIN DE LEON.
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the
Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated
Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with
Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R.
Navarro the house, together with the leasehold rights to the lot, a television set and a
refrigerator in consideration of the sum of P3,000. The deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and
residing at 783-D Interior 14 Maria Guizon, Gagalangin, Tondo, Manila, hereby
declare that I am the true and absolute owner of a new two storey house of strong
materials, constructed on a rented lot Lot No. 12 of the Maria Guizon Subdivision,
owned by the Consolidated Asiatic Co. as evidenced by the attached Receipt No.
292, and the plan of the subdivision, owned by said company.
That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00)
which I have received this day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of
legal age, widow; and Aurelia Reyes, married to Jose S. Navarro, Filipinos, of legal
ages, and residing at 1112 Antipolo St., Tondo, Manila, I hereby SELL, CEDE,
TRANSFER, AND CONVEY unto said Maria Bautista Vda. de Reyes, her heirs,
succesors, administrators and assigns said house, including my right to the lot on
which it was constructed, and also my television, and frigidaire "Kelvinator" of nine
cubic feet in size, under the following conditions:
I hereby reserve for myself, my heirs, successors, administrators, and assigns the
right to repurchase the above mentioned properties for the same amount of
P3,000.00, without interest, within the stipulated period of three (3) months from
the date hereof. If I fail to pay said amount of P3,000.00, within the stipulated period
of three months, my right to repurchase the said properties shall be forfeited and the
ownership thereto shall automatically pass to Mrs. Maria Bautista Vda. de Reyes, her
heirs, successors, administrators, and assigns, without any Court intervention, and
they can take possession of the same.1wph1.t
IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this 12th
day of January, 1961.

s/t RODOLFO LANUZA

Vendor

s/t MARIA BAUTISTA VDA. DE REYES

Vendee

s/t AURELIA REYES

Vendee

WITH MY MARITAL CONSENT:

s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by
an annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not
sign the deed, this time signed her name below the annotation.
It appears that after the execution of this instrument, Lanuza and his wife mortgaged the
same house in favor of Martin de Leon to secure the payment of P2,720 within one year.
This mortgage was executed on October 4, 1961 and recorded in the Office of the Register
of Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October
5, 1962 a petition for the extra-judicial foreclosure of the mortgage. On the other hand,
Reyes and Navarro followed suit by filing in the Court of First Instance of Manila a petition
for the consolidation of ownership of the house on the ground that the period of redemption
expired on July 12, 1961 without the vendees exercising their right of repurchase. The
petition for consolidation of ownership was filed on October 19. On October 23, the house
was sold to De Leon as the only bidder at the sheriffs sale. De Leon immediately took
possession of the house, secured a discharge of the mortgage on the house in favor of a
rural bank by paying P2,000 and, on October 29, intervened in court and asked for the
dismissal of the petition filed by Reyes and Navarro on the ground that the unrecorded
pacto de retro sale could not affect his rights as a third party.
The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly
based and submitted the case for decision. In confirming the ownership of Reyes and
Navarro in the house and the leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961,
was not signed by Belen Geronimo-Lanuza, wife of the vendor a retro, Rodolfo
Lanuza, at the time of its execution. It appears, however, that on the occasion of the
extension of the period for repurchase to July 12, 1961, Belen Geronimo-Lanuza
signed giving her approval and conformity. This act, in effect, constitutes ratification
or confirmation of the contract (Annex "A" Stipulation) by Belen Geronimo-Lanuza,
which ratification validated the act of Rodolfo Lanuza from the moment of the
execution of the said contract. In short, such ratification had the effect of purging the
contract (Annex "A" Stipulation) of any defect which it might have had from the
moment of its execution. (Article 1396, New Civil Code of the Philippines; Tang Ah
Chan and Kwong Koon vs. Gonzales, 52 Phil. 180)
Again, it is to be noted that while it is true that the original contract of sale with right
to repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by
Belen Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the
contract merely voidable, if at all, and, therefore, susceptible of ratification. Hence,
the subsequent ratification of the said contract by Belen Geronimo-Lanuza validated
the said contract even before the property in question was mortgaged in favor of the
intervenor.
It is also contended by the intervenor that the contract of sale with right to
repurchase should be interpreted as a mere equitable mortgage. Consequently, it is
argued that the same cannot form the basis for a judicial petition for consolidation of
title over the property in litigation. This argument is based on the fact that the
vendors a retro continued in possession of the property after the execution of the
deed of sale with pacto de retro. The mere fact, however, that the vendors a retro
continued in the possession of the property in question cannot justify an outright

declaration that the sale should be construed as an equitable mortgage and not a
sale with right to repurchase. The terms of the deed of sale with right to repurchase
(Annex "A" Stipulation) relied upon by the petitioners must be considered as merely
an equitable mortgage for the reason that after the expiration of the period of
repurchase of three months from January 12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in equitable mortgage, in
any of the following cases;
xxx

xxx

xxx

"(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.
xxx

xxx

xxx

In the present case, it appears, however, that no other instrument was executed
between the parties extending the period of redemption. What was done was simply
to annotate on the deed of sale with right to repurchase (Annex "A" Stipulation) that
"the period to repurchase, extended as requested until July 12, 1961." Needless to
say, the purchasers a retro, in the exercise of their freedom to make contracts, have
the power to extend the period of repurchase. Such extension is valid and effective
as it is not contrary to any provision of law. (Umale vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a
public document. Consequently, the same is sufficient for the purpose of transferring
the rights of the vendors a retro over the property in question in favor of the
petitioners. It is to be noted that the deed of sale with right to repurchase (Annex
"A" Stipulation) was executed on January 12, 1961, which was very much ahead in
point of time to the execution of the real estate mortgage on October 4, 1961, in
favor of intervenor (Annex "B" Stipulation). It is obvious, therefore, that when the
mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza, executed the real estate
mortgage in favor of the intervenor, they were no longer the absolute owners of the
property since the same had already been sold a retro to the petitioners. The
spouses Lanuza, therefore, could no longer constitute a valid mortgage over the
property inasmuch as they did not have any free disposition of the property
mortgaged. (Article 2085, New Civil Code.) For a valid mortgage to exist, ownership
of the property mortgaged is an essential requisite. A mortgage executed by one who
is not the owner of the property mortgaged is without legal existence and the
registration cannot validate. (Philippine National Bank vs. Rocha, 55 Phil. 497).
The intervenor invokes the provisions of article 1544 of the New Civil Code for the
reason that while the real estate mortgage in his favor (Annex "B" Stipulation) has
been registered with the Register of Deeds of Manila under the provisions of Act No.
3344 on November 3, 1961, the deed of sale with right to repurchase (Annex "A"
Stipulation) however, has not been duly registered. Article 1544 of the New Civil
Code, however, refers to the sale of the same property to two or more vendees. This
provision of law, therefore, is not applicable to the present case which does not
involve sale of the same property to two or more vendees. Furthermore, the mere
registration of the property mortgaged in favor of the intervenor under Act No. 3344

does not prejudice the interests of the petitioners who have a better right over the
property in question under the old principle of first in time, better in right. (Gallardo
vs. Gallardo, C.B., 46 O.G. 5568)
De Leon appealed directly to this Court, contending (1) that the sale in question is not only
voidable but void ab initio for having been made by Lanuza without the consent of his wife;
(2) that the pacto de retro sale is in reality an equitable mortgage and therefore can not be
the basis of a petition for consolidation of ownership; and (3) that at any rate the sale,
being unrecorded, cannot affect third parties.
We are in accord with the trial court's ruling that a conveyance of real property of the
conjugal partnership made by the husband without the consent of his wife is merely
voidable. This is clear from article 173 of the Civil Code which gives the wife ten years
within which to bring an action for annulment. As such it can be ratified as Lanuza's wife in
effect did in this case when she gave her conformity to the extension of the period of
redemption by signing the annotation on the margin of the deed. We may add that actions
for the annulment of voidable contracts can be brought only by those who are bound under
it, either principally or subsidiarily (art. 1397), so that if there was anyone who could have
questioned the sale on this ground it was Lanuza's wife alone.
We also agree with the lower court that between an unrecorded sale of a prior date and a
recorded mortgage of a later date the former is preferred to the latter for the reason that if
the original owner had parted with his ownership of the thing sold then he no longer had the
ownership and free disposal of that thing so as to be able to mortgage it again. Registration
of the mortgage under Act No. 3344 would, in such case, be of no moment since it is
understood to be without prejudice to the better right of third parties. 2 Nor would it avail the
mortgagee any to assert that he is in actual possession of the property for the execution of
the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold
to the vendee.3
But there is one aspect of this case which leads us to a different conclusion. It is a point
which neither the parties nor the trial court appear to have sufficiently considered. We refer
to the nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it
is in reality an equitable mortgage. While De Leon raised the question below and again in
this Court in his second assignment of error, he has not demonstrated his point; neither has
he pursued the logical implication of his argument beyond stating that a petition for
consolidation of ownership is an inappropriate remedy to enforce a mortgage.
De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on
the fact that, first, the supposed vendors (the Lanuzas) remained in possession of the thing
sold and, second, when the three-month period of redemption expired the parties extended
it. These are circumstances which indeed indicate an equitable mortgage. 4 But their
relevance emerges only when they are seen in the perspective of other circumstances which
indubitably show that what was intended was a mortgage and not a sale.These
circumstances are:
1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as
in the decision of the trial court, the fact has not been mentioned that for the price of
P3,000, the supposed vendors "sold" not only their house, which they described as new and
as being made of strong materials and which alone had an assessed value of P4,000, but
also their leasehold right television set and refrigerator, "Kelvinator of nine cubic feet in
size." indeed, the petition for consolidation of ownership is limited to the house and the

leasehold right, while the stipulation of facts of the parties merely referred to the object of
the sale as "the property in question." The failure to highlight this point, that is, the gross
inadequacy of the price paid, accounts for the error in determining the true agreement of
the parties to the deed.
2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors
did not really transfer their ownership of the properties in question to Reyes and Navarro.
What was agreed was that ownership of the things supposedly sold would vest in the
vendees only if the vendors failed to pay P3,000. In fact the emphasis is on the vendors
payment of the amount rather than on the redemption of the things supposedly sold. Thus,
the deed recites that
If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of
three months, my right to repurchase the said properties shall be forfeited and the
ownership thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . .
without any Court intervention and they can take possession of the same.
This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee
acquires ownership of the thing sold immediately upon execution of the sale, subject only to
the vendor's right of redemption. 5 Indeed, what the parties established by this stipulation is
an odious pactum commissorium which enables the mortgages to acquire ownership of the
mortgaged properties without need of foreclosure proceedings. Needless to say, such a
stipulation is a nullity, being contrary to the provisions of article 2088 of the Civil Code. 6 Its
insertion in the contract of the parties is an avowal of an intention to mortgage rather than
to sell.7
3. The delay in the filing of the petition for consolidation. Still another point obviously
overlooked in the consideration of this case is the fact that the period of redemption expired
on July 12, 1961 and yet this action was not brought until October 19, 1962 and only after
De Leon had asked on October 5, 1962 for the extra-judicial for closure of his mortgage. All
the while, the Lanuzas remained in possession of the properties they were supposed to have
sold and they remained in possession even long after they had lost their right of
redemption.
Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that
this action for consolidation of ownership is improper, as De Leon claims, but, what is more
that between the unrecorded deed of Reyes and Navarro which we hold to be an equitable
mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference
of mortgage credits is determined by the priority of registration of the mortgages, 8 following
the maxim "Prior tempore potior jure" (He who is first in time is preferred in right.) 9 Under
article 2125 of the Civil Code, the equitable mortgage, while valid between Reyes and
Navarro, on the one hand, and the Lanuzas, on the other, as the immediate parties thereto,
cannot prevail over the registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.
G.R. No. L-23493 August 23,1978
DEVELOPMENT BANK OF THE PHILIPPINES, vs. JOVENCIO A. ZARAGOZA and
AVELINA E. ZARAGOZA.

This is an appeal from the judgment of the Court of First instance of Manila in Civil Case No.
47325, sentencing defendants-appellants Jovencio A. Zaragoza and Avelina E. Zaragoza to
pay jointly and severally plaintiff-appellee Development Bank of the Philippines the sum of
P7,779.36, with interest thereon at a legal rate from July 10, 1957 until fully paid, plus the
sum equivalent to 10% of the amount due as attorney's fees and costs of the suit.
The issues raised in this appeal are: (a) whether or not the mortgagee is entitled to claim
the deficiency in extrajudicial foreclosure of mortgage; and (b) whether or not additional
interests are properly chargeable on the balance of the indebtedness during the period from
notice of sale to actual sale.
The following facts are not disputed: Appellants obtained, on July 19, 1949, a loan of
P30,000 from the appellee which was secured by a real estate mortgage. It was stipulated
that upon failure of appellants to pay the amortization due, according to the terms and
conditions thereof, appellee shall have the authority to foreclose extrajudicially the
mortgaged property, pursuant to Republic Act No. 3135, as amended. Conformably to this
stipulation, upon breach of the conditions of the mortgage, appellee foreclosed
extrajudicially the mortgage on December 10, 1952, and the Provincial Sheriff of Pangasinan
posted the requisite notice of the sale at public auction of the mortgaged property.
On June 10, 1957, the property was sold at public auction to the appellee, being the highest
bidder therein, for the sum of P21,035.00. After applying the proceeds of the sale to satisfy
the outstanding balance of the indebtedness in the amount of P28,914.36, it was found that
appellants still owed the appellee in the amount of P7,779.36. Suit for the deficiency with
preliminary attachment was filed by appellee against appellants on June 20, 1961. In their
answer, appellants averred that after an extrajudicial foreclosure of property, no deficiency
judgment would lie and that from the date of the foreclosure to the sale of said property,
the mortgagor is no longer liable for the interest on the loan. The aforesaid contentions of
appellants were overruled by the trial court, who thereupon rendered the aforesaid
judgment in favor of the appellee. Contending that the trial court erred in resolving those
issues of law, appellants appealed directly to this court.
We find the appeal without merit.
The first issue had already been resolved in an earlier case. Thus, in Philippine Bank of
Commerce v. Tomas de Vera 1 this Court ruled that in extrajudicial foreclosure of mortgage,
where the proceeds of the sale is insufficient to cover the debt, the mortgagee is entitled to
claim the deficiency from the debtor. Explaining the reasons for this rule, the Court stated:
The sole issue to be resolved in this case is whether the trial court acted correctly in
holding appellee Bank entitled to recover from appellant the sum of P99,033.20 as
deficiency arising after the extrajudicial foreclosure, under Act No. 3135, as
amended, of the mortgaged properties in question. It is urged, on appellant's part,
that since Act No. 3135, as amended, is silent as to the mortgagee's right to recover
deficiency arising after an extrajudicial foreclosure sale of mortgage, he (mortgagee)
may not recover the same.
A reading of the provisions of Act No. 3135, as amended (re extrajudicial
foreclosure) discuss nothing, it is true, as to the mortgagee's right to recover such
deficiency. But neither do we find any provision thereunder which expressly or
impliedly prohibits such recovery.

Article 2131 of the new Civil Code, on the contrary, expressly provides that 'The
form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law. Under the Mortgage Law, which is still in force, the mortgagee has
the right to claim for the deficiency resulting from the price obtained in the sale of
the real property at public auction and the outstanding obligation at the time of the
foreclosure proceedings. (See Soriano v. Enriquez, 24 Phil. 584; Banco de Islas
Filipinos V. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101).
Under the Rules of Court (Sec. 6, Rule 70), 'Upon the sale of any real property, under
an order for a sale to satisfy a mortgage or other incumbrance thereon, if there be a
balance due to the plaintiff after applying the Proceeds of the sale, the court, upon
motion, should render a judgment against the defendant for any such balance for
which by the record of the case, he may be Personally liable to the plaintiff, ...' It is
true that this refers to a judicial foreclosure, but the underlying principle is the same,
that the mortgage is but a security and not a satisfaction of indebtedness.
xxx xxx xxx
Let it be noted that when the legislature intends to foreclose the right of a creditor to
sue for any deficiency resulting from the foreclosure of the security given to
guarantee the obligation, it so expressly provides. Thus, in respect to pledges, Article
2115 of the new Civil Code expressly states: ... If the Price of the sale is less (than
the amount of the principal obligation) neither shall the creditor be entitled to
recover the deficiency, notwithstanding any stipulation to the contrary.' Likewise, in
the event of a foreclosure of a chattel mortgage on the thing sold in installments he
(the vendor) shall have no further action against the purchaser to recover any unpaid
balance Of the price. Any agreement to the contrary shall be void.' (Article 1484,
paragraph 3, Ibid.). It is then clear that in the absence of a similar provision in Act
No. 3135, as amended, it can not be concluded that the creditor loses his right given
him under the Mortgage Law and recognized in the Rules Of Court, to take action for
the recovery of any unpaid balance on the Principal obligation, simply because he
has chosen to foreclose his mortgage extra-judically pursuant to a special Power of
attorney given him by the mortgagor in the mortgage contract. As stated by this
Court in Medina v. Philippine National Bank (56 Phil. 651), a case analogous to the
one at bar, the step taken by the mortgagee-bank in resorting to extrajudicial
foreclosure under Act 3135, was merely to find a proceeding for the sale, and its
action can not be taken to mean a waiver of its right to demand the payment of the
whole debt. (pp. 1028-1030).
This rule was reiterated in Development Bank of the Philippines v. Vda de Moll.

In connection with the second issue, appellants argue that since the appellee held in
abeyance the sale of the property for a period of four (4) years, they alone should suffer the
consequences of such delay. It was further contended that the debtor's liability in judicial
foreclosures is limited to the amount due at the time of the foreclosure and, therefore, such
should also apply to extrajudicial foreclosures. By way of refutation appellee explained that
the seemingly long interval between the date of issuance of the Sheriff's Notice of Sale and
the date of sale was due to the numerous transfers made of the date of the sale upon
requests of the appellants themselves. Each transfer is covered by a corresponding
agreement for postponement, executed jointly by appellants and appellee. Certainly, under
such circumstances, appellants cannot take advantage of the delay which was their own

making, to the prejudice of the other party. Apart from this consideration, it must be noted
that a foreclosure of mortgage means the termination of all rights of the mortgagor in the
property covered by the mortgage. It denotes the procedure adopted by the mortgagee to
terminate the rights of the mortgagor on the property and includes the sale itself. In judicial
foreclosures, the "foreclosure" is not complete until the Sheriff's Certificate is executed,
acknowledged and recorded. In the absence of a Certificate of Sale, no title passes by the
foreclosure proceedings to the vendee. 3 It is only when the foreclosure proceedings are
completed and the mortgaged property sold to the purchaser that all interests of the
mortgagor are cut off from the property. This principle is applicable to extrajudicial
foreclosures. Consequently, in the case at bar, prior to the completion of the foreclosure, the
mortgagor is, therefore, liable for the interest on the mortgage. 4
ACCORDINGLY, the judgment appealed from is hereby AFFIRMED. Costs against appellants.

G.R. No. 74730 August 25, 1989

CALTEX PHILIPPINES, INC., vs. THE INTERMEDIATE APPELLATE COURT and
HERBERT MANZANA.
This is a petition for review on certiorari of the resolution of respondent Intermediate
Appellate Court (now Court of Appeals) dated January 31, 1986 vacating its prior decision
dated June 29, 1984 and ordering that the records of the case be remanded to the Court of
First Instance (now Regional Trial Court) of Manila, and its resolution dated May 19,1986
denying the motion for reconsideration.
The antecedent facts are as follows:
Private respondent Herbert Manzana purchased on credit petroleum products from petitioner
Caltex Philippines, Inc. (CALTEX, for short). As of August 31, 1969, his indebtedness to
CALTEX has amounted to P361,218.66. On October 4, 1969, Manzana executed a Deed a
First Mortgage in favor of CALTEX over a parcel of land covered by OCT No. 0-274 of the
Register of Deeds of the Province of Camarines Norte to secure his debts to the latter. On
various occasions, CALTEX sent to Manzana statements of account and later demanded
payment of his entire debts. Because of Manzana's failure and refusal to pay, CALTEX filed a
complaint on August 17, 1970 before the trial court for the recovery of the whole amount of
P361,218.66.
Meanwhile, on September 15, 1970, CALTEX foreclosed extrajudicially the mortgaged
property. On October 30, 1970, the mortgaged property was sold at auction to CALTEX,
being the only bidder, for P20,000.00 as shown by the Sheriff s Certificate of Sale. The
foreclosure was allegedly known by Manzana only on October 4, 1980 when such fact was
manifested by CALTEX in its reply to the opposition of Manzana to the motion for execution
pending appeal.

On July 23, 1980, the trial court rendered judgment ordering Manzana to pay CALTEX the
amount of P353,218.66 after deducting P8,000.00 paid by Traders Insurance and Surety
Company on its surety bond, with interest thereon at 12% per annum from August 17,
1970, plus 20% thereof as attorney's fees (p. 115, Rollo).
Manzana appealed the trial court's decision to the respondent Intermediate Appellate Court
raising the following issues (p. 37, Rollo):
1. THAT PLAINTIFF APPELLEE CANNOT AVAIL BOTH OF A PERSONAL ACTION (THIS
CASE) AND AN EXTRAJUDICIAL FORECLOSURE AT THE SAME TIME AGAINST THE
DEFENDANT DEFENDANT-APPELLANT; AND,
2. THAT PLAINTIFF-APPELLEE CANNOT AVAIL OF A DEFICIENCY JUDGMENT AFTER
HE HAD EXTRAJUDICIALLY FORECLOSED ON THE PROPERTY OF DEFENDANTAPPELLANT.
It was the opinion of the respondent court that "a reading of the issues raised by the
defendant-appellant shows that the question that needs resolution is whether or not
plaintiff-appellee can still avail of the complaint for the recovery of the balance of
indebtedness after having already foreclosed the property securing the same" (p. 37, Rollo).
On June 29, 1984, the respondent court rendered a decision (pp. 36-39, Rollo) affirming in
toto the appealed decision after "finding no reversible error" therein. On July 19, 1984,
Manzana filed a motion for reconsideration of said decision. In its comment to the motion
for reconsideration, CALTEX prayed that "the judgment sought to be reconsidered be
modified by deducting the amount of P20,000.00 (foreclosure amount) from P353,218.66
thereby leaving a balance of P333,218.66 representing the deficiency that plaintiff-appellee
is entitled to recover from defendant-appellant plus interest, attorney's fees and costs of
suit" (p. 41, Rollo).
Acting on the motion for reconsideration, the respondent court issued a resolution dated
January 31, 1986, the dispositive portion of which reads (p. 59, Rollo):
WHEREFORE, in the interest of justice the decision of this Court promulgated June
29, 1984 is vacated and the records are ordered remanded for purposes of
determining the deficiency due the plaintiff-appellee and for the trial court to render
another and proper judgment based on the evidence adduced by all the parties.
Without pronouncement as to costs.
The respondent court was convinced that the following consideration justified a
reconsideration of its prior decision (pp. 55-56, Rollo): "..., the action (before the trial court)
cannot be said to be one for recovery of deficiency judgment because ... (it) seeks recovery
of the whole amount of indebtedness totalling P361,210.66" (should be P361,218.66).
The motion for reconsideration filed by CALTEX was denied.
Hence, the present petition.
The issues may be limited to the following:

1) Whether or not the respondent court committed an error in giving due course to
the question whether CALTEX can avail at the same time of a personal action in court
for collection of a sum of money and the extrajudicial foreclosure of the deed of first
mortgage, which was only raised for the first time on appeal;
2) Whether or not the mere filing of a collection suit for the recovery of the debt
secured by real estate mortgage constitutes waiver of the other remedy of
foreclosure;
3) Whether or not the filing of the complaint for recovery of the amount of
indebtedness and the subsequent extrajudicial foreclosure of the deed of first
mortgage constitutes splitting of a single cause of action.
FIRST ISSUE
CALTEX alleges that the only issue submitted for resolution before the trial court is whether
or not Manzana was indebted and liable to it in the sum of P361,218.66. The issue whether
or not CALTEX can avail at the same time of a personal action in court for collection of a
sum of money and the extrajudicial foreclosure of the Deed of First Mortgage, and the issue
whether or not CALTEX can avail of a deficiency judgment were never raised in the
pleadings of the parties nor at any stage of the proceedings before the trial court. These
were only raised by Manzana for the first time on appeal before the respondent court.
We rule that the respondent court did not commit any error in taking cognizance of the
aforestated issues, although not raised before the trial court. The presence of strong
consideration of substantial justice has led this Court to relax the well-entrenched rule that,
except questions on jurisdiction, no question will be entertained on appeal unless it has
been raised in the court below and it is within the issues made by the parties in their
pleadings (Cordero v. Cabral, G.R. No. L- 36789, July 25, 1983, 123 SCRA 532). The
compassionate spirit behind this rule will equally apply to the other allegation of CALTEX
that Manzana's indebtedness of P 361,218.66 was secured up to the extent of P120,000.00
only although it appears that this issue is raised for the first time in this present petition.
Thus, the liberal application of the rule will favor both parties.
On the basis of the first condition enumerated in the Deed of First Mortgage, CALTEX
submits that Manzana's indebtedness of P 361,218.66 was secured up to the extent of
P120,000.00 only, to wit (p. 50, Rollo):
This Mortgage is subject to the following terms and conditions:
l) The aforementioned indebtedness of THREE HUNDRED SIXTY-ONE THOUSAND
TWO HUNDRED EIGHTEEN & 66/100 (P361,218.66) of the MORTGAGOR shall be paid
upon demand by the MORTGAGEE; it being expressly understood that the limit or
maximum amount secured by this mortgage is ONE HUNDRED TWENTY THOUSAND
PESOS (P120,000.00) only.
On the other hand, on the basis of the fourth paragraph of the deed and the fourth condition
therein, Manzana contends that the whole outstanding obligation of P361,218.66 was
secured by the mortgage, to wit (pp. 49-50, Rollo):

NOW, THEREFORE, for and in consideration of the said overdue, payable and
demandable indebtedness of the MORTGAGOR to the MORTGAGEE in the sum of
THREE HUNDRED SIXTY-ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS &
66/100 (P361,218.66), Philippine Currency, the foregoing premises and other x x x
and valuable considerations, and to secure the faithful performance by the
MORTGAGOR of all the terms and conditions hereinafter set forth, particularly the
payment of the obligations hereby secured, the MORTGAGOR does hereby convey BY
WAY OF FIRST MORTGAGE. ...
x x x.
4) This mortgage shall remain in force to cover the afore-mentioned mentioned
outstanding indebtedness of the MORTGAGOR to the MORTGAGEE in the amount of
THREE HUNDRED SIDE ONE THOUSAND TWO HUNDRED EIGHTEEN PESOS & 66/100
(P361,218.66).
Article 1374 of the Civil Code, regarding interpretation of contracts, provides:
ART. 1374. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken
jointly.
The Deed of First Mortgage seems to contain provisions that contradict one another.
However, considering all the provisions together, the first condition cited by CALTEX is
actually a specific provision while the fourth paragraph and the fourth condition cited by
Manzana are general provisions. This interpretation is bolstered by the third WHEREAS
clause and the penultimate paragraph of the deed, to wit (pp. 49-50, Rollo):
WHEREAS, the MORTGAGOR has offered to execute, sign and deliver a First
Mortgage over his property ..., only as partial security for the aforementioned
overdue, payable and demandable indebtedness of the MORTGAGOR to the
MORTGAGEE, which offer of the MORTGAGOR is accepted by the MORTGAGEE.
(emphasis supplied)
x x x.
The MORTGAGOR binds himself to complete the securities required by the
MORTGAGEE and shall permit any authorized representative of the MORTGAGEE to
inspect the mortgaged property and all the properties offered to be mortgaged to
complete the required security.' (emphasis supplied)
We therefore hold that Manzana's indebtedness of P 361,218.66 was secured up to the
extent of P120,000.00 only.
The records show that CALTEX extended to Manzana a continuing credit line, with the result
that each transaction constituted a separate obligation. We affirm the trial court's ruling with
respect to the liability of Manzana to CALTEX in the amount of P233,218.66 (P353,218.66
less P120,000.00) with interest thereon at 12% per annum from August 17, 1970, plus 20%
thereof as attorney's fees. The evidence on record, both testimonial and documentary,
clearly support such amount of indebtedness. The trial court said (pp. 114- 115, Rollo):

Plaintiffs claim that as at (sic) termination of agreement on July 27, 1970, Manzana
had an outstanding account totalling P361,218.66, appears to be confirmed by the
following:
(1) On September 8, 1970, defendant Manzana, by a letter, acknowledged his
indebtedness, but asked for time to pay the unpaid balance (Exh. 'l" and "M").
(2) To secure as obligation of P 361,218.66, said defendant executed, on October 4,
1969, a Deed of First Mortgage on a piece of land covered by O.C.T. No. 0274 of the
Registry of Deeds for Camarines Norte (Exh. "N")
Rarely can a confirmation of an account be more definitive than the foregoing.
Defendant Manzana's defenses, set up in his answer, do not appear to have merit. In
the first place, the supposed lack of liquidation is belied by the periodical statements
of account showing the corresponding running balance thru the years 1968 to 1969
(Exhs. "N" to "O-7" inclusive), effectively constituting a form of liquidation. Secondly,
the very terms used repeatedly in the Dealer Agreement neither pleaded nor in
any manner assailed as ambiguous-are peculiar to purchase and sale transactions
and to the relationship of the parties thereto as debtor and creditor. There is no
reasonable way under the provisions thereof that Manzana can be deemed to be
either an agent or a mere collector with plaintiff bearing the risk of non-payment."
Furthermore, this case has been pending since August 17,1970 and to order its remand to
the trial court will necessarily entail additional expenses and unduly delay its disposition and
the administration of justice to the parties.
Remand of the case to the lower court for reception of evidence is not necessary if the
Supreme Court can resolve the dispute on the records before it. The common denominator
in cases holding that remand of a case is not necessary is the fact that the trial court had
received all the evidence intended to be presented by both parties (Hechanova v. Court of
Appeals, G.R. No. L-48787 November 14, 1986, 145 SCRA 550).
THE SUCCEEDING DISCUSSION WILL CONCERN THE SECURED INDEBTEDNESS OF
P120,000.00.
CALTEX, in effect, has made a mockery of our judicial system when it initially filed a
collection suit then, during the pendency thereof foreclosed extrajudicially the mortgaged
property which secured the indebtedness and still pursued the collection suit to the end. In
this light, the actuations of CALTEX are deserving of severe criticism, to say the least. Of
importance is the doctrine laid down by this court in the leading case of Bachrach Motor,
Inc. v. Icarangal et al., 68 Phil. 287, which was applied by the respondent Court in resolving
the case, where We ruled that;
... in the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to
foreclose the mortgage. In other words, he may pursue either of the two remedies,
but not both. By such election, his cause of action can by no means be impaired, for
each of the two remedies is complete in itself. Thus, an election to bring a personal
action will leave open to him all the properties of the debtor for attachment and
execution, even including the mortgaged property itself. And, if he waives such

personal action and pursues his remedy against the mortgaged property, an
unsatisfied judgment thereon would still give him the right to sue for a deficiency
judgment, in which case, all the properties of the defendant, other than the
mortgaged property, are again open to him for the satisfaction of the deficiency. In
either case, his remedy is complete, his cause of action undiminished, and any
advantages attendant to the pursuit of one or the other remedy are purely accidental
and are all under his right of election. ...
Thus, where a debt is secured by a mortgage and there is a default in payment on the part
of the mortgagor, the mortgagee has a choice of one (1) of two (2) remedies, but he cannot
have both. The mortgagee may:
1) foreclosure the mortgage; or
2) file an ordinary action to collect the debt.
When the mortgagee chooses the foreclosure of the mortgage as a remedy, he enforces his
lien by the sale on foreclosure of the mortgaged property. The proceeds of the sale will be
applied to the satisfaction of the debt. With this remedy, he has a prior lien on the property.
In case of a deficiency, the mortgagee has the right to claim for the deficiency resulting
from the price obtained in the sale of the real property at public auction and the outstanding
obligation at the time of the foreclosure proceedings.
On the other hand, if the mortgagee resorts to an action to collect the debt, he thereby
waives his mortgage lien. He will have no more priority over the mortgaged property. If the
judgment in the action to collect is favorable to him, and it becomes final and executory, he
can enforce said judgment by execution. He can even levy execution on the same
mortgaged property, but he will not have priority over the latter and there may be other
creditors who have better lien on the properties of the mortgagor.
CALTEX submits that the principles enunciated in the Bachrach case are not applicable nor
determinative of the case at bar for the reason that the factual circumstances obtained in
the said case are totally different from the instant case. In the Bachrach case, the plaintiff
instituted an action to foreclose the mortgage after the money judgment in its favor
remained unsatisfied whereas in the present case, CALTEX initially filed a complaint for
collection of the debt and during the pendency thereof foreclosed extrajudicially the
mortgage.
We disagree. Although the facts in the Bachrach case and in the present case are not
identical, there is similarity in the fact that the plaintiffs in these two cases availed of both
remedies although they are entitled to a choice of only one.
SECOND ISSUE
CALTEX alleges next that the mere act of filing a collection suit for the recovery of a debt
secured by real estate mortgage is not tantamount to an implied waiver of the mortgage
lien. Under Philippine jurisdiction, there is no statute which prohibits or precludes a
mortgagee from subsequently foreclosing the real estate mortgage shortly after the
collection suit has been filed. The real estate mortgage itself does not contain any explicit
provision that the filing of a collection suit would mean waiver of the remedy of foreclosure.

We hold otherwise. The mere act of filing a collection suit for the recovery of a debt secured
by a mortgage constitutes waiver of the other remedy of foreclosure. The rationale behind
this was adequately explained in the Bachrach case, supra:
... a rule that would authorize the plaintiff to bring a personal action against the
debtor and simultaneously or successively another action against the mortgaged
property, would result not only in multiplicity of suits so offensive to justice (Soriano
vs. Enriques, 24 Phil. 584) and obnoxious to law and equity (Osorio vs. San Agustin,
25 Phil. 404), but also in subjecting the defendant to the vexation of being sued in
the place of his residence or of the residence of the plaintiff, and then again in the
place where the property lies.
In the present case, however, We shall not follow this rule to the letter but declare that it is
the collection suit which was waived and/or abandoned. This ruling is more in harmony with
the principles underlying our judicial system. It is of no moment that the collection suit was
filed ahead, what is determinative is the fact that the foreclosure proceedings ended even
before the decision in the collection suit was rendered. As a matter of fact, CALTEX informed
the trial court that it had already consolidated its ownership over the property, in its reply to
the opposition of Manzana to the motion for execution pending appeal filed by it.
A corollary issue that We might as well resolve now (although not raised as an issue in the
present petition, but applying the rule in Gayos et al. v. Gayos et al., G.R. No. L-27812,
September 26, 1975, 67 SCRA 146, that it is a cherished rule of procedure that a court
should always strive to settle the entire controversy in a single proceeding leaving no root or
branch to bear the seeds of future litigation) is whether or not CALTEX can still sue for a
deficiency judgment P100,000.00 (secured debt of P120,000.00 less the foreclosure amount
of P20,000.00).
The collection suit filed before the trial court cannot be considered as a deficiency judgment
because a deficiency judgment has been defined as one for the balance of the indebtedness
after applying the proceeds of the sale of the mortgaged property to such indebtedness and
is necessarily filed after the foreclosure proceedings. It is significant to note that the
judgment rendered by the trial court was for the full amount of the indebtedness and the
case was filed prior to the foreclosure proceedings.
In general, a deficiency judgment is in the nature of an ordinary money judgment, may
constitute a cause of action and is barred by the statute of limitations applicable to ordinary
judgment (59 C.J.S. 1497). The ten (10) year period provided in Articles 1142 and 1144 of
the Civil Code applies to a suit for deficiency judgment, to wit:
Art. 1142. A mortgage action prescribes after ten years. (1964a)
Art. 1144. The following actions must be brought with ten years from the time
the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)

A suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature
of a mortgage action because its purpose is precisely to enforce the mortgage contract; it is
upon a written contract and upon an obligation of Manzana to pay the deficiency which is
created by law (see Development Bank of the Philippines v. Tomeldan et al., G.R. No.
51269, November 17, 1980, 101 SCRA 171). Therefore, since more than ten (10) years
have elapsed from the time the right of action accrued, CALTEX can no longer recover the
deficiency from Manzana.
THIRD ISSUE
CALTEX has only one cause of action against Manzana, that is, non-payment of the debt
although two choices of remedies are available to it. As held in the Bachrach case, supra:
For non-payment of a note secured by mortgage, the creditor has a single cause of
action against the debtor. This single cause of action consists in the recovery of the
credit with execution of the security. In other words, the creditor in his action may
make two demands, the payment of the debt and the foreclosure of his mortgage.
But both demands arise from the same cause, the non-payment of the debt, and, for
that reason, they constitute a single cause of action. Though the debt and the
mortgage constitute separate agreements, the latter is subsidiary to the former, and
both refer to one and the same obligation. Consequently, there exists only one cause
of action for a single breach of that obligation. Plaintiff, then, by applying the rule
above stated, cannot split up his single cause of action by filing a complaint for
payment of the debt, and thereafter another complaint for foreclosure of the
mortgage. If he does so, the filing of the first complaint will bar the subsequent
complaint. By allowing the creditor to file two separate complaint simultaneously or
successively, one to recover his credit and another to foreclose his mortgage, we will,
in effect, be authorizing him plural redress for a single breach of contract at so much
cost to the courts and with so much vexation and oppression to the debtor.
ACCORDINGLY, the resolution of the respondent Intermediate Appellate Court dated January
31,1986 is SET ASIDE. The decision of the trial court is AFFIRMED with the MODIFICATION
that private respondent Herbert Manzana's liability to petitioner Caltex Philippines, Inc. is
only up to the extent of P233,218.66 with interest thereon at 12% per annum from August
17, 1970, plus 20% thereof as attorney's fees.

G.R. No. 98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK
(formerly Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA,
vs. COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA DOLINO.
The core issue in this case is whether or not 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.

The present appeal by certiorari assails the decision 1 of respondent Court of Appeals in CAG.R. CV No. 12678 where it answered the question posed by the foregoing issue in the
negative and modified the decision 2 of the then Court of First Instance of Cebu in Civil Case
No. R-18616 wherein the validity of said subsequent mortgage was assumed and the case
was otherwise disposed of on other grounds.
The facts which gave rise to the institution of the aforesaid civil case in the trial court, as
found by respondent Court of Appeals, are as follows:
On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption
over lot 4731 of the Cebu City Cadastre and embraced under TCT No. 14272 from Mr.
Juan Gandioncho, purchaser of the aforesaid 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 October 3, 1974, their son Teofredo Dolino filed a similar loan
application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731 offered
as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant
association. Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for Thirty
Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%)
percent 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. After the posting and publication requirements were complied with, 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.
On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT
No. 14272 was cancelled and in lieu thereof TCT No. 68041 was issued in the name
of defendant association. 3
On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 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, inter alia, for the cancellation of Transfer
Certificate of Title 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 therein denied the material allegations of the
complaint and averred, among others, that the present private respondent spouses may still
avail of their right of redemption over the land in question.
On January 12, 1983, after trial on the merits, the court below rendered judgment
upholding the validity of the loan and the real estate mortgage, but annulling 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:

WHEREFORE, the foregoing premises considered and upon the view taken by the
Court of this case, judgment is hereby rendered, as follows:
1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No.
4731 of the Cadastral Survey of Cebu;
2. Ordering the cancellation of Transfer Certificate of Title 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.
For this purpose, defendant Association is given 15 days from receipt hereof within
which to submit its statement of the amount due it from the plaintiffs Dolino, with
notice to them. The payment to be made by the plaintiffs shall be within ninety (90)
days from their receipt of the order approving the amount due the defendant Cebu
City Savings and Loan Association, Inc.
Not satisfied therewith, herein private respondents interposed a partial appeal to respondent
court with respect to the second and third paragraphs of the aforequoted 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. 5
On September 28, 1990, respondent Court of Appeals promulgated its decision modifying
the decision of the lower court, with this adjudication:
WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby
MODIFIED declaring as void and ineffective the real estate mortgage executed by
plaintiffs in favor of defendant association. With this modification, the decision is
AFFIRMED in other respects. 6
Herein petitioners then filed a motion for reconsideration which was denied by respondent
court in its resolution dated March 5, 1991, hence the present petition which, in synthesis,
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 Transfer Certificate of Title No. 68041 issued
in favor of the predecessor of petitioner bank. 7
The first submission assailing the judgment of respondent Court of Appeals is meritorious.
Said respondent court declared 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. This holding cannot be
sustained.
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 Court of Appeals. 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. 8
Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its
modificatory judgment on its ratiocination of that issue, we are inclined to liberalize the rule
so that we can in turn pass upon the correctness of its conclusion. We may consider such
procedure as analogous to the rule that an unassigned error closely related to an error
properly assigned, or upon which the determination of the question properly assigned is
dependent, may be considered by an appellate court. 9 We adopt this approach since, after
all, both lower courts agreed upon the invalidity of the extrajudicial foreclosure but differed
only on the matter of the validity of the real estate mortgage upon which the extrajudicial
foreclosure was based.
In arriving at its conclusion, respondent court placed full reliance on what obviously is an
obiter dictum laid down in the course of the disquisition in Dizon vs. Gaborro, et al. which
we shall analyze. 10 For, as explicitly stated therein by the Court, "(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 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 Court of Appeals. 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 Court of Appeals in that case was
affirmed but with the following pronouncements:
The two instruments sought to be reformed in this case appear to stipulate rights
and obligations between the parties thereto pertaining to and involving parcels of

land that had already been foreclosed and sold extrajudicially, and purchased by the
mortgage creditor, a third party. It becomes, therefore, necessary, to determine the
legality of said rights and obligations arising from the foreclosure and sale
proceedings not only between the two contracting parties to the instruments
executed between them but also in so far as the agreement affects the rights of the
third party, the purchaser Bank.
xxx xxx 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.
xxx xxx xxx
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. AStipulation), 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 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. (Emphasis ours.)
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, as
demonstrated by the relevant excerpts above quoted, not only was that obiter therein
unnecessary since evidently no sale was concluded, but even 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.
That is why the discussion in said case carefully and felicitously states that 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.
At any rate, even the foregoing considerations and arguments would have no application in
the case at bar and need not here be resolved since 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.
Thus, 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. 11 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.
In either case, 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.
Coming back to the present controversy, it is undisputed that the real estate mortgage in
favor of petitioner bank was executed by respondent spouses during the period of
redemption. We reiterate that during 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. 12 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. 13 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. 14
Parenthetically, therefore, what actually 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. 15
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.
An appellee who has not himself appealed cannot obtain from the appellate court any
affirmative relief other than the ones granted in the decision of the court below. 16 He
cannot impugn the correctness of a judgment not appealed from by him. He cannot assign
such errors as are designed to have the judgment modified. All that said appellee can do is
to make a counter-assignment of errors or to argue on issues raised at the trial only for the
purpose of sustaining the judgment in his favor, even on grounds not included in the
decision of the court a quo nor raised in the appellant's assignment of errors or arguments.
17

WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the

judgment of the trial court, is REVERSED and SET ASIDE. The judgment of said trial court in
Civil Case No. R-18616, dated January 12, 1983, is hereby REINSTATED.

[G.R. No. 128567. September 1, 2000]

HUERTA ALBA RESORT, INC.,
MANAGEMENT GROUP, INC..

vs.

COURT

OF

APPEALS

and

SYNDICATED

Litigation must at some time be terminated, even at the risk of occasional errors. Public
policy dictates that once a judgment becomes final, executory and unappealable, the
prevailing party should not be denied the fruits of his victory by some subterfuge devised by
the losing party. Unjustified delay in the enforcement of a judgment sets at naught the role
of courts in disposing justiciable controversies with finality.

At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated
March 11, 1997, of the Court of Appeals in CA-G.R. No. 38747, which set aside the Order,
dated July 21, 1995, and Order, dated September 4, 1997, of the Regional Trial Court of
Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court 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.

In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on

October 19, 1989, docketed as Civil Case No. 89-5424 before the Regional Trial Court of
Makati City, the herein private respondent sought the foreclosure of four (4) parcels of land
mortgaged by petitioner to Intercon Fund Resource, Inc. (Intercon).
Private respondent instituted Civil Case No. 89-5424 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.
In its answer below, 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.
On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice
Buenaventura J. Guerrero, came out with its decision granting herein private respondent
SMGIs complaint for judicial foreclosure of mortgage, disposing as follows:
WHEREFORE, judgment is 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 attorneys fees; and,

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, the appeal
docketed as CA-G.R. CV No. 39243 before the Sixth Division of the appellate court, which
dismissed the case on June 29, 1993 on the ground of late payment of docket fees.
Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a
petition for certiorari, docketed as G.R. No. 112044, which this court resolved to dismiss on
December 13, 1993, on the finding that the Court of Appeals erred not in dismissing the
appeal of petitioner.
Petitioners motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was
denied with finality in this Courts Resolution promulgated on February 16, 1994. On March
10, 1994, leave to present a second motion for reconsideration in G.R. No. 112044 or to
submit the case for hearing by the Court en banc was filed, but to no avail. The Court
resolved to deny the same on May 11, 1994.
On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became
final and executory and was entered in the Book of Entries of Judgment.
On July 4, 1994, private respondent filed with the trial court of origin a motion for execution
of the Decision promulgated on April 30, 1992 in Civil Case No. 89-5424. The said motion
was granted on July 13, 1994.
Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of
Levy and Execution was issued by the Sheriff concerned, who issued on August 1, 1994 a
Notice of Sheriffs Sale for the auction of subject properties on September 6, 1994.
On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash
and Set Aside Writ of Execution ascribing to it grave abuse of discretion in issuing the
questioned Writ of Execution. To support its motion, petitioner invited attention and argued
that the records of the case were still with the Court of Appeals and therefore, issuance of
the writ of execution was premature since the 150-day period for petitioner to pay the
judgment obligation had not yet lapsed and petitioner had not yet defaulted in the payment
thereof since no demand for its payment was made by the private respondent. In petitioners
own words, the dispute between the parties was principally on the issue as to when the
150-day period within which Huerta Alba may exercise its equity of redemption should be
counted.
In its Order of September 2, 1994, the lower court denied petitioners urgent motion to
quash the writ of execution in Civil Case No. 89-5424, opining that subject judgment had
become final and executory and consequently, execution thereof was a matter of right and
the issuance of the corresponding writ of execution became its ministerial duty.
Challenging the said order granting execution, petitioner filed once more with the Court of
Appeals another petition for certiorari and prohibition with preliminary injunction, docketed
as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked for its Motion to Quash
Writ of Execution.

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.
On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the
trial court to clarify whether or not the twelve (12) month period of redemption for ordinary
execution applied in the case.
On September 26, 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 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.
Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues
raised by the petitioner in C.A.-G.R. SP No. 35086, 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 150day period within which petitioner may exercise its equity of redemption expired on
September 11, 1994. Thus:
Petitioner must have received the resolution of the Supreme Court dated February 16, 1994
denying with finality its motion for reconsideration in G.R. No. 112044 before March 14,
1994, otherwise the Supreme Court would not have made an entry of judgment on March
14, 1994. While, computing the 150-day period, petitioner may have until September 11,
1994, within which to pay the amounts covered by the judgment, such period has already
expired by this time, and therefore, this Court has no more reason to pass upon the parties
opposing contentions, the same having become moot and academic.(Underscoring
supplied).
Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP
No. 35086. In its Motion for Reconsideration dated October 18, 1994, petitioner theorized
that the period of one hundred fifty (150) days should not be reckoned with from Entry of
Judgment but from receipt on or before July 29, 1994 by the trial court of the records of
Civil Case No. 89-5424 from the Court of Appeals. So also, petitioner maintained that it may
not be considered in default, even after the expiration of 150 days from July 29, 1994,
because prior demand to pay was never made on it by the private respondent. According to
petitioner, it was therefore, premature for the trial court to issue a writ of execution to
enforce the judgment.
The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in
view of the pendency of petitioners Motion for Reconsideration in CA-G.R. SP No. 35086.
On December 23, 1994, the Court of Appeals denied petitioners motion for reconsideration
in CA-G.R. SP No. 35086. Absent any further action with respect to the denial of the subject
motion for reconsideration, private respondent presented a Second Motion for Confirmation
of Certificate of Sale before the trial court.

As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA
G.R. SP No. 35086 it became final and executory on January 25, 1995.
On February 10, 1995, the lower court confirmed the sale of subject properties to the
private respondent. The pertinent Order declared that all pending incidents relating to the
Order dated September 26, 1994 had become moot and academic. Conformably, the
Transfer Certificates of Title to subject pieces of property were then issued to the private
respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification
seeking clarification of the date of commencement of the one (1) year period for the
redemption of the properties in question.
In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for
Clarification since its Decision promulgated on September 30, 1994 had already become
final and executory; ratiocinating thus:
We view the motion for clarification filed by petitioner, purportedly signed by its proprietor,
but which we believe was prepared by a lawyer who wishes to hide under the cloak of
anonymity, as a veiled attempt to buy time and to delay further the disposition of this case.
Our decision of September 30, 1994 never dealt on the right and period of redemption of
petitioner, but was merely circumscribed to the question of whether respondent judge could
issue a writ of execution in its Civil Case No. 89-5424 xxx.
We further ruled that the one-hundred fifty day period within which petitioner may exercise
its equity of redemption should be counted, not from the receipt of respondent court of the
records of Civil Case No. 89-5424 but from the date petitioner was notified of the entry of
judgment made by the appellate court.
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 xxx. 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. (Underscoring supplied).
Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of
Appeals in CA-G.R. No. 35086 its pretended right under Section 78 of R.A. No. 337 but it
never did so.
At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure,
petitioner should have averred in its pleading that it was entitled to the beneficial provisions
of Section 78 of R.A. No. 337; but again, petitioner did not make any such allegation in its
answer.

From the said Resolution, petitioner took no further step such that on March 31, 1995, the
private respondent filed a Motion for Issuance of Writ of Possession with the trial court.
During the hearing called on April 21, 1995, the counsel of record of petitioner entered
appearance and asked for time to interpose opposition to the Motion for Issuance of /Writ of
Possession.
On May 2, 1995, in opposition to private respondents 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 Section 78 of R.A. No. 337. 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.
In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan,
denied private respondents motion for a writ of possession, opining that Section 78 of the
General Banking Act was applicable and therefore, the petitioner had until October 21, 1995
to redeem the said parcels of land, said Order ruled as follows:
It is undisputed that Intercon is a credit institution from which defendant obtained a loan
secured with a real estate mortgage over four (4) parcels of land. Assuming that the
mortgage debt had not been assigned to plaintiff, there is then no question that defendant
would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant
to the above quoted Section 78 of RA 337, as amended.
However, the pivotal issue here is whether or not the defendant lost its right of redemption
by virtue of the assignment of its mortgage debt by Intercon to plaintiff, which is not a bank
or credit institution. The issue is resolved in the negative. The right of redemption in this
case is vested by law and is therefore an absolute privilege which defendant may not lose
even though plaintiff-assignee is not a bank or credit institution (Tolentino versus Court of
Appeals, 106 SCRA 513). Indeed, a contrary ruling will lead to a possible circumvention of
Section 78 because all that may be needed to deprive a defaulting mortgagor of his right of
redemption is to assign his mortgage debt from a bank or credit institution to one which is
not. Protection of defaulting mortgagors, which is the avowed policy behind the provision,
would not be achieved if the ruling were otherwise. Consequently, defendant still possesses
its right of redemption which it may exercise up to October 21, 1995 only, which is one year
from the date of registration of the certificate of sale of subject properties.
Since the period to exercise defendants right of redemption has not yet expired, the
cancellation of defendants transfer certificates of title and the issuance of new ones in lieu
thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating
reconveyance (see Sec. 63 (a) PD 1529, as amended).
WHEREFORE, the Court hereby rules as follows:
(1) The Motion for Issuance of Writ of Possession is hereby denied;

(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an
amount computed according to the terms stated in the Writ of Execution dated July 15,
1994 plus all other related costs and expenses mentioned under Section 78, RA 337, as
amended; and
(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the
defendant the following titles of the four (4) parcels of land, namely TCT Nos. V-38878, V38879, V-38880, and V-38881, now in the name of plaintiff, and (b) to register the
certificate of sale dated October 7, 1994 and the Order confirming the sale dated February
10, 1995 by a brief memorandum thereof upon the transfer certificates of title to be issued
in the name of defendant, pursuant to Sec. 63 (a) PD 1529, as amended.
The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now
deemed resolved.
SO ORDERED.
Private respondent interposed a Motion for Reconsideration seeking the reversal of the
Order but to no avail. In its Order dated September 4, 1995, the trial court denied the
same.
To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of
September 4, 1995 of the trial court, the private respondent filed with this court a Petition
for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent any
special and cogent reason shown for entertaining the same, the Court referred the petition
to the Court of Appeals, for proper determination.
Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course
to the petition and set aside the trial courts Order dated July 21, 1995 and Order dated
September 4, 1995.
In its Resolution of March 11, 1997, the Court of Appeals denied petitioners Motion for
Reconsideration of the Decision promulgated on November 14, 1996 in CA-G.R. No. 38747.
Undaunted, petitioner has come to this Court via the present petition, placing reliance on
the assignment of errors, that:
I
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT
OF APPEALS (TWELFTH DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED WITH
FINALITY THAT PETITIONER HUERTA ALBA HAD NO RIGHT OF REDEMPTION BUT ONLY
THE EQUITY OF REDEMPTION.
II
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT
PETITIONER HUERTA ALBA POSSESSES THE ONE-YEAR RIGHT OF REDEMPTION UNDER
SECTION 78, R.A. NO. 337 (THE GENERAL BANKING ACT).
III

THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PRIVATE

RESPONDENT SYNDICATED MANAGEMENT GROUP, INC. IS ENTITLED TO THE
ISSUANCE OF A WRIT OF POSSESSION OVER THE SUBJECT PROPERTY.
In its comment on the petition, private respondent countered that:
A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED WITH
FINALITY IN C.A.-G.R. SP NO. 35086 THAT PETITIONER ONLY HAD THE RIGHT OF
REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.
B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE
FINALITY OF VARIOUS DECISIONS, RESOLUTIONS AND ORDERS WHICH HELD THAT
PETITIONER ONLY POSSESSES THE EQUITY OF REDEMPTION IN RESPECT OF THE
SUBJECT PROPERTIES.
C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS
ALLEGED RIGHT OF REDEMPTION.
D. IN HOLDING THAT THE PETITIONER HAD THE RIGHT OF REDEMPTION OVER THE
SUBJECT PROPERTIES, THE TRIAL COURT MADE A MOCKERY OF THE LAW OF THE
CASE.
And by way of Reply, petitioner argued, that:
I.
THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY
RESOLVED THEREIN - WHETHER WITH FINALITY OR OTHERWISE - THE ISSUE OF
PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO.
337.
II.
THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER
CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE, AND WITHIN ONE (1)
YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE.
III.
THE PRINCIPLE OF THE LAW OF THE CASE HAS ABSOLUTELY NO BEARING HERE:
(1)
THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT
PREDICATED UPON THE FINALITY AND CORRECTNESS OF THE DECISION IN CIVIL
CASE NO. 89-5424.
(2)

THUS, THE RTCS ORDER RECOGNIZING PETITIONER HUERTA ALBAS RIGHT OF

REDEMPTION UNDER SECTION 78, R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE
EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE DECISION IN CIVIL CASE
NO. 89-5424.
The above arguments and counter-arguments advanced relate to the pivotal issue of
whether or not the petitioner has the one-year right of redemption of subject properties
under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act.
The petition is not visited by merit.
Petitioners assertion of right of redemption under Section 78 of Republic Act No. 337 is
premised on the submission that the Court of Appeals did not resolve such issue in CA-G.R.
SP No. 35086; contending thus:
(1)
BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO.
35086 BE INTERPRETED TO MEAN THE COURT OF APPEALS HAD RESOLVED WITH
FINALITY THE ISSUE OF WHETHER PETITIONER HUERTA ALBA HAD THE RIGHT OF
REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE
MOTION FOR CLARIFICATION.
(2)
THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL
JUDGMENT, ORDER OR DECREE. IT IS NOT EVEN A JUDGMENT OR ORDER TO BEGIN
WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING.
(3)
PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37
WAS NOT AN ISSUE AND WAS NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN
AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086.
(4)
THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY
BECOME FINAL EVEN BEFORE THE FILING OF THE MOTION FOR CLARIFICATION, THE
COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO ACT OF THE MOTION OR
ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE MOTION.
II.
IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337 WAS DIRECTLY RAISED AND JOINED
BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE TRIAL COURT.
III.

THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND
AUTOMATICALLY EXISTS BY LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE
SUCH RIGHT.
IV.
EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA
ALBA, NOT THE LEAST OF WHICH IS THE WELL-SETTLED POLICY OF THE LAW TO AID
RATHER THAN DEFEAT THE RIGHT OF REDEMPTION.
V.
THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL
COURT ARE VALID AND PROPER IN ACCORDANCE WITH THE MANDATE OF THE LAW.
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 vs. 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 sheriffs 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 by an order of the
court, x x shall operate to divest the rights of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption 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.
But, to repeat, no such right of redemption exists in case of judicial foreclosure of a
mortgage if the mortgagee is not the PNB or a bank or banking institution. In such a case,
the foreclosure sale, when confirmed by an order of the court. x x shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser. 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.
Section 2, Rule 68 provides that x x If upon the trial x x the court shall find the facts set forth in the complaint to be true, it
shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation,
including interest and costs, and shall render judgment for the sum so found due and order
the same to be paid into court within a period of not less than ninety (90) days from the
date of the service of such order, and that in default of such payment the property be sold
to realize the mortgage debt and costs.
This is the mortgagors equity (not right) of redemption which, as above stated, may be
exercised by him even beyond the 90-day period from the date of service of the order, and
even after the foreclosure sale itself, provided it be before the order of confirmation of the
sale. After such order of confirmation, no redemption can be effected any longer.
(Underscoring supplied)
Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the private
respondent, is a credit institution, such that Section 78 of Republic Act No. 337 should apply
in this case. Stated differently, it is the submission of petitioner that it should be allowed to
redeem subject properties within one year from the date of sale as a result of the
foreclosure of the mortgage constituted thereon.
The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted
right under Section 78 of R.A. No. 337 to redeem subject properties.
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.
For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for
Clarification, petitioner failed to allege and prove that private respondent's predecessor in
interest was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable.
Petitioner merely asked the trial court to clarify whether the sale of subject properties was
execution sale or judicial foreclosure sale.
So also, when it presented before the trial court an Exception to the Order and Motion to Set
Aside Said Order dated October 13, 1994, petitioner again was silent on its alleged right
under Section 78 of R.A. No. 337, even as it failed to show that private respondent's

predecessor in interest is a credit institution. Petitioner just argued that the aforementioned
Order materially altered the trial court's Decision of April 30, 1992.
Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A.
No. 337 and of the predecessor in interest of private respondent as a credit institution,
when the trial court came out with an order on February 10, 1995, confirming the sale of
subject properties in favor of private respondent and declaring that all pending incidents
with respect to the Order dated September 26, 1994 had become moot and academic.
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court
of Appeals, seeking "clarification" of the date of commencement of the one (1) year
redemption period for the subject properties, petitioner never intimated any alleged right
under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private
respondent's predecessor-in-interest was a credit institution. Consequently, in its Resolution
dated March 20, 1995, the Court of Appeals ruled on the said motion thus:
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 xxx. 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 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. (Underscoring supplied).
If petitioner were really acting in good faith, it would have ventilated before the Court of
Appeals in CA-G.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but
petitioner never did do so.
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 respondents predecessor in interest
was a credit institution. As was held in Limpin, a judicial foreclosure sale, when confirmed
by an order of the court, xx 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 respondents
predecessor-in-interest is a credit institution - is in the nature of a compulsory counterclaim
which should have been averred in petitioners answer to the compliant for judicial
foreclosure.
xxx A counterclaim is, most broadly, a cause of action existing in favor of the defendant
against the plaintiff. More narrowly, it is a claim which, if established, will defeat or in some
way qualify a judgment or relief to which plaintiff is otherwise entitled. It is sometimes
defined as any cause of action arising in contract available against any action also arising in
contract and existing at the time of the commencement of such an action. It is frequently

defined by the codes as a cause of action arising out of the contract or transaction set forth
in the complaint as the foundation of the plaintiffs claim, or connected with the subject of
the action. (underscoring supplied)
The counterclaim is in itself a distinct and independent cause of action, so that when
properly stated as such, the defendant becomes, in respect to the matters stated by him, an
actor, and there are two simultaneous actions pending between the same parties, wherein
each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as
well as a defensive plea and is not necessarily confined to the justice of the plaintiffs claim.
It represents the right of the defendant to have the claims of the parties counterbalanced in
whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the
same footing, and is to be tested by the same rules, as if it were an independent action.
(underscoring supplied)
The very purpose of a counterclaim would have been served had petitioner alleged in its
answer its purported right under Section 78 of R.A. No. 337:
xxx The rules of counterclaim are designed to enable the disposition of a whole controversy
of interested parties conflicting claims, at one time and in one action, provided all parties be
brought before the court and the matter decided without prejudicing the rights of any party.
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 of the 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.
All things viewed in proper perspective, it is decisively clear that the trial court erred in still
allowing petitioner to introduce evidence that private respondents predecessor-in-interest
was a credit institution, and to thereafter rule that the petitioner was entitled to avail of the
provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to
accomplish what the latter failed to do before the Court of Appeals, that is, to invoke its
alleged right under Section 78 of R.A. No. 337 although the Court of Appeals in CA-G.R. no.
35086 already found that the question of whether the Syndicated Management Council
Group, Inc. is a bank or credit institution was never brought before (the Court of Appeals)
squarely. The said pronouncement by the Court of Appeals unerringly signified that
petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in
all the stages of the proceedings below.
Verily, the petitioner has only itself to blame for not alleging at the outset that the
predecessor-in-interest of the private respondent is a credit institution. Thus, when the trial
court, and the Court of Appeals repeatedly passed upon the issue of whether or not
petitioner had the right of redemption or equity of redemption over subject properties in the
decisions, resolutions and orders, particularly in Civil Case no. 89-5424, CA-G.R. CV No.
39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was unmistakable that the
petitioner was adjudged to just have the equity of redemption without any qualification
whatsoever, that is, without any right of redemption allowed by law.
The law of case holds that petitioner has the equity of redemption without any qualification.

There is, therefore, merit in private respondents 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 respondents 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 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 in CA-G.R. SP No. 35086, CAG.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of
petitioner to forestall so simple a matter as making the security given for a just debt to
answer for its payment.
Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as
confirmed by the Order dated February 10, 1995 of the trial court in Civil Case No. 89-5424
operated to divest the rights of all the parties to the action and to vest their rights in private
respondent. There then existed only what is known as the equity of redemption, which is
simply the right of the petitioner to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment became
final. There being an explicit finding on the part of the Court of Appeals in its Decision of
September 30, 1994 in CA-G.R. No. 35086 - that the herein petitioner failed to exercise its
equity of redemption within the prescribed period, redemption can no longer be effected.
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.
WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals,
declaring null and void the Order dated 21 July 1995 and Order dated 4 September 1997 of
the Regional Trial Court of Makati City in Civil Case No. 89-5424, AFFIRMED. No
pronouncement as to costs.

Antichresis
G.R. No. L-44841 January 27, 1986
CIPRIANO E. SAMONTE, FROILAN E. SAMONTE, LORENZO E. SAMONTE, TEODULA E.
SAMONTE, CONSTANCIA E. SAMONTE, and the late MIGUEL SAMONTE as
represented by his heirs REMEDIOS B. SAMONTE, NENITA E. SAMONTE, DIONICIO
B. SAMONTE, and ANTONIO SAMONTE, vs. THE HONORABLE COURT OF APPEALS,
BENILDA C. ACOSTA, and SALVADOR C. ACOSTA.
This Petition for Review on certiorari seeks the reversal of the Decision of respondent
Appellate Court in CA-G.R. No. 55914-R affirming that of the Trial Court and declaring
private respondents the owners of the lands in suit.
The antecedents of the case follow:
1. In 1930, PLACIDA Espiritu was the owner of five (5) parcels of rice land situated in
Dingras, Ilocos Norte.

2. Sometime during the last days of 1930, according to petitioners (Folio-8), or on

September 7, 1931, according to private respondents (Exhibit "7"), those five parcels were
transferred from PLACIDA to VICTORIA Mendoza (Folio142).
3. Two of the five parcels were subsequently washed away by a river (Folio-10, Exhibit "lB"). The remaining three parcels constitute the property subject of this case (the DISPUTED
PROPERTY).
4. PLACIDA passed away in December, 1941 (Folio-9), the petitioners herein being her
heirs.
5. VICTORIA died on April 19, 1937 (Exhibit "7"), succeeded by her mother Salvadora Feri
who died in 1947 (Folio 9), succeeded by her daughter BENILDA Mendoza (sister of
VICTORIA) who died on 11 November 1962 (Respondents I Brief, p. 3), and was succeeded
by her adopted children, the private respondents herein (Folio-9).
6. There is documentary evidence that BENILDA had claimed ownership of the DISPUTED
PROPERTY on May 23, 1947 (Exhibit "7"), reiterated on December 2, 1952 (Exhibit " 6 ").
7. On April 3, 1970, petitioners instituted Case No. 456911 of the then Court of First
Instance of Ilocos Norte, which started the present proceedings, their claim being for the
return to them of the DISPUTED PROPERTY for the reason that possession thereof was
transferred to VICTORIA by their mother PLACIDA only by way of antichresis. Private
respondents defended, stating that VICTORIA had purchased the DISPUTED PROPERTY on
September 7, 1931.
Previous to that case, Civil Case No. 3630-III was filed before the Court of First Instance of
Ilocos Norte by petitioners for the recovery of the DISPUTED PROPERTY but the same was
dismissed without prejudice.
8. On December 28, 1973, the Trial Court dismissed petitioners' complaint on the ground
that BENILDA having claimed ownership of the DISPUTED PROPERTY since 1952, and
petitioners' complaint having been filed only on April 3, 1970, or more than 10 years after
December 3, 1952 (date of registration of Exhibit "6"), private respondents should be
deemed to have acquired title to the DISPUTED PROPERTY through ordinary acquisitive
prescription under the provisions of the present Civil Code.
9. On appeal to respondent Appellate Court, the Trial Court's judgment was affirmed on
June 21, 1976. Respondent Court further held that private respondents being in possession
of the DISPUTED PROPERTY in the concept of owner, the legal presumption should be that
they have ownership under a just title, which they need not show, pursuant to Article 541 of
the Civil Code; and that petitioners had failed "to show through convincing evidence that it
was they who were the true owners; but their evidence is purely oral. " Respondent Court
also upheld the argument that, assuming the antichresis, petitioners' right to recover the
DISPUTED PROPERTY accrued in 1941 (when "the alleged loan with its interest at 6% had
been fully paid"), and they incurred in laches in not having asserted such right within a
reasonable time, instead of waiting until 1962 (or 1970), or 17 or 29 years thereafter.
10. The Petition for Review on certiorari was filed before this Court on October 4, 1976. It
was dismissed for lack of merit on November 26, 1976. The dismissal was reiterated in

several subsequent Resolutions, but the Petition was eventually given due course in the
Resolution of October 19, 1977 (Folio-220).
We have decided to uphold the questioned judgment of respondent Appellate Court.
(a) The Appellate Tribunal correctly affirmed the Decision of the Trial Court based on
ordinary acquisitive prescription, except that the required period should have been stated as
starting from May 23, 1947 when BENILDA executed the Affidavit, Exhibit "7", before Judge
Simeon Ramos of the then Court of First Instance of Ilocos Norte. In that Affidavit, BENILDA
claimed ownership over the DISPUTED PROPERTY. No judicial summons, which could
interrupt possession for purposes of prescription (Article 1123, Civil Code) had been served
on BENILDA. Neither have private respondents been served with judicial summons prior to
the institution, on April 3, 1970, of Case No. 4569-11 of the then Court of First Instance of
Ilocos Norte.
(b) It is also our opinion that respondent Court correctly invoked Article 541 of the Civil
Code 1 in concluding that private respondents should now be deemed the owners of the
DISPUTED PROPERTY. Petitioners' claim that an instrument of antichresis had been executed
by PLACIDA and VICTORIA in the later part of 1930, based on testimonial evidence, cannot
be considered legally sufficient. An unregistered lease for 50 years, enforceable against the
successors-in-interest of the lessee, could have been as easily alleged. A comment which we
might make is that on or about 1930, an express contract of antichresis would have been
unusual. 2
(c) As to respondent Court's indirect finding of laches, we repeat hereunder the following
statement in Pangadil vs. Court of First Instance of Cotabato, 116 SCRA, p. 353:
It is equally unbelievable that in the span of time from December 1941 up to the
date that Civil Case No. 2187 was filed on January 7, 1969, a period of more than
twenty-seven years, the petitioners would not have taken any step to verify the
status of the land of their father which had been in the possession of the private
respondents during all the time, particularly as to the possibility of redeeming the
supposed mortgage their father had constituted thereon. Their inaction for such a
considerable period of time reflects on the credibility of their pretense that they
merely intended to confirm an oral mortgage, instead of a sale of the land in
question.
WHEREFORE, the Decision appealed from is affirmed, with costs against petitioners.

G.R. No. L-27084 December 31, 1927

AMBROSIO T. ALOJADO, as administrator of the intestate estate of the deceased
Juana Mabaquiao, vs. M. J. LIM SIONGCO, ET AL.
On October 12, 1907 Juana Mabaquiao sold the land described in the complaint to Nicolas
Alegata for the sum of P7,744. After the death of Nicolas Alegata, proceeding for the
settlement of his estate was instituted, and on October 23, 1913 his property, which

included that purchased from Juana Mabaquiao, was adjudicated to Lim Kang Sang and Lim
Eng Teeng, his only heirs. On November 11, 1913 they sold this land to Lim Ponso & Co.,
with the right to repurchase for the period of one year, which period expired without this
right having exercised. On February 15, 1918 Lim Ponso & Co. transferred this land
unconditionally to Lim Siongco and Lim Kingko.
Upon the death of Juana Mabaquiao, proceeding for the settlement of her intestate estate
were also instituted in which Ambrosio T. Alojado was appointed administrator. The latter, in
said capacity, now brings this action against Lim Sionco, Lim Kingko and Lim Ponso & Co.
and prays that he be declared the absolute owner of this land with the improvements
thereon, and that the defendants be ordered to restore and respect his right of ownership,
possession and usufruct of the property; and, moreover, that other pronouncements be
made as prayed for in his complaint. The court absolved the defendants from the complaint
and plaintiff appealed from this judgment.
The plaintiff contends that the contract executed by Juana Mabaquiao with Nicolas Alegata
on October 12, 1907 was not a contract of sale with the right to repurchase, but a contract
or antichrises. This contention is untenable. From the terms of the contract it is clearly a
sale with the right to repurchase. It speaks in unequivocal terms of a sale and the
conveyance of land with the right to repurchase, and the character of the contract is that of
a sale with the right to repurchase. The contract is very defective in its wording, especially
so where it refers to the period within which to excercise the right to repurchase. But
examining it as a whole, it clearly appears that it was the parties' intention that the vendor
could repurchase the land without delay when he had the means to pay the purchase price.
What characterizes a contract or antichresis is that the creditor acquires the right to receive
the fruits of the property of his debtor with the obligation to apply them to the payment of
interests, if any is due, and then to the principal of his credit. Nowhere in the contract in
question does this character of a contract of antichresis appear. The only substantial thing
agreed upon between the parties was that Juana Mabaquiao could repurchase the land when
she had the means. The decision of this court in the case of De la Vega vs. Ballilos (34 Phil.,
683), which the appellant invokes in support of his contention, is in no way applicable. The
case dealt with a contract called mortgage by the parties and the court held that in reality it
was contract of antichresis. But in the contract in that case it was agreed that the debtor
assigned and transfer the ownership and possession of the land to the creditor for his
management and enjoyment as a profit from the amount for which it had been mortgaged.
This agreement, which characterizes the contract of antichresis, does not exist in the instant
case.
An attempt was made, by the testimony of Eulogia Espanola, Juana Mabaquio's
granddaughter, to prove that the contract entered into between Juana Mabaquiao and
Nicolas Alegata, was that Mabaquiao, or any of her heirs, might recover possession of the
land any time upon the payment of P7,744, and that while this remained unpaid the land
would continue in the possession of Nicolas Alegata, with the obligation to deliver one-fifth
of the products therefrom to Mabaquiao. Eulogia Espanola testified having been present
when the contract was entered into. Against this declaration the witness Vicente Gomez was
presented, who also stated that he was present at the time the contract was entered into
and contradicted Eulogia Espanola's testimony and, furthermore, stated that the latter was
not present then. The evidence is of such a character as not to justify in any manner the
alteration of the clear terms of the document in the sentence that it expresses a contract of
sale.

This action was brought in January, 1922, fifteen years after the contract was entered into.
This being a sale with the right to repurchase, the question, after this lapse of time, is
reduced to whether or not the title to the land conveyed by Juana Mabaquiao has been
consolidated. The contract, as been noted, fixes the period for the exercise of the right of
redemption until Juana Mabaquiao, or her heirs has the means. Whether or not this is
considered a period, it is clear that the title transmitted to Nicolas Alegata has been
consolidated. According to article 1508 of the Civil Code, when no period of redemption is
fixed it shall last four years, and it is fixed, it shall not exceed ten years. The right of
redemption not having been exercised the period of ten years, the title of Nicolas Alegata,
or his heirs, has by this fact alone been consolidated any events.
Considering the case from this point of view, the appellant argues that, as it was never
intention of the parties that, after a certain period, the land could not be repurchased by the
vendor, the contract cannot be one of sale with the right to repurchase, because it conflicts
with the nature of this contract, essential of which is the right of the purchaser to
consolidate his title immediately after the period of redemption has passed.
Another contention of the appellant is that if the right of redemption in this case is
considered null after ten years, this nullity must likewise affect the sale itself. These
questions have been resolved by this court in the case of Yadao vs. Yadao (20 Phil., 260). In
that case the contract contained a stipulation that the vendor repurchase the land any time
he had the money, it being understood that he could not exercise this right of redemption
after ten years, and not having done so within that period, the court held that the vendor
irrevocably acquired title to the land. In that case, notwithstanding the fact that the right of
redemption after ten years had been declared null, the sale itself however, was considered
valid and the title acquired thereunder consolidated; and that is because the stipulation to
repurchase is accidental to a sale and may be made at the will of the parties. A contract of
absolute sale may be made without this stipulation. It seems logical that if this stipulation is
made and it is declared, null, its nullity cannot affect the sale first since the latter might be
entered into without said stipulation.
The judgment appealed from is affirmed, with the costs against the appellant. So ordered.