GSIS vs.

Santiago
FACTS: From September 1956 to October 1957, spouses Jose C. Zulueta
and Soledad Ramos (Zulueta spouses) obtained various loans from GSIS
totaling P3,117,000.00 secured by a real estate mortgage on several
parcels of land located in Pasig City and covered by Transfer Certificates of
Title (TCTs) Nos. 26105, 37177, and 50356 (the mother titles) in their
name.
The Zuluetas failed to pay their loans to defendant GSIS and the latter
foreclosed the real estate mortgages. On August 1974, the mortgaged
properties were sold at public auction with defendant GSIS being the
highest bidder. Not all lots covered by the mortgaged titles, however,
were sold. Ninety-one (91) lots were expressly excluded from the auction
since the lots were sufficient to pay for all the mortgage debts.
A Certificate of Sale was issued later on and an Affidavit of Consolidation
of Ownership was executed by defendant GSIS over Zuluetas lots,
including the lots, which as earlier stated, were already excluded from the
foreclosure. On March 1980, GSIS sold the foreclosed properties to
Yorkstown Development Corporation which sale was disapproved by the
Office of the President. The sold properties were returned to GSIS and the
land titles issued in favour of Yorkstown were subsequently cancelled.
Thereafter, GSIS began disposing the foreclosed lots including the
excluded ones.
On April 7, 1990, Representative Eduardo Santiago and then plaintiff
Antonio Vic Zulueta executed an agreement whereby Zulueta transferred
all his rights and interests over the excluded lots. Plaintiff Santiagos
lawyer wrote a demand letter dated May 11, 1989 to defendant GSIS
asking for the return of the eighty-one (81) excluded lots.
On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M.
Santiago, filed with the Regional Trial Court (RTC) of Pasig City, Branch
71, and a complaint for reconveyance of real estate against the
GSIS. Spouses Alfeo and Nenita Escasa, Manuel III and Sylvia G. Urbano,
and Marciana P. Gonzales and the heirs of Mamerto Gonzales moved to be
included as intervenors and filed their respective answers in
intervention. Subsequently, the petitioner, as defendant therein, filed its
answer alleging inter alia that the action was barred by the statute of
limitations and/or laches and that the complaint stated no cause of
action. Subsequently, Zulueta was substituted by Santiago as the plaintiff
in the complaint a quo. Upon the death of Santiago in 1996, he was
substituted by his widow as the plaintiff. After due trial, the RTC rendered
judgment against the petitioner ordering it to reconvey to the respondent,
Rosario Enriquez Vda. De Santiago, in substitution of her deceased

husband Eduardo, the seventy-eight lots excluded from the foreclosure

sale.
ISSUES:Whether or not the petitioner acted in bad faith in consolidating
ownership and causing the issuance of titles in its name over the subject
lots, notwithstanding that these were expressly excluded from the
foreclosure sale.
RULING: YES. The acts of defendant-appellant GSIS in concealing from
the Zuluetas the existence of these excluded lots, in failing to notify or
apprise the spouses Zulueta about the excluded lots from the time it
consolidated its titles on their foreclosed properties, in failing to inform
them when it entered into a contract of sale of the foreclosed properties
to Yorkstown as well as when the said sale was revoked by then President
during the same year, demonstrated a clear effort on its part to defraud
the spouses Zulueta and appropriate for itself the subject properties.
Even if titles over the lots had been issued in the name of the defendantappellant, still it could not legally claim ownership and absolute dominion
over them because indefeasibility of title under the Torrens system does
not attach to titles secured by fraud or misrepresentation. The fraud
committed by defendant-appellant in the form of concealment of the
existence of said lots and failure to return the same to the real owners
after their exclusion from the foreclosure sale made defendant-appellant
holders in bad faith. It is well-settled that a holder in bad faith of a
certificate of title is not entitled to the protection of the law for the law
cannot be used as a shield for fraud.
The petitioners defense of prescription is untenable. As held by the CA,
the general rule that the discovery of fraud is deemed to have taken place
upon the registration of real property because it is considered a
constructive notice to all persons does not apply in this case.
Contrary to its claim, the petitioner unarguably had the legal duty to
return the subject lots to the Zuluetas. The petitioners attempts to justify
its omission by insisting that it had no such duty under the mortgage
contract is obviously clutching at straw. Article 22 of the Civil Code
explicitly provides that every person who, through an act of performance
by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall
return the same to him.

PNB VS BANATAO
FACTS: On
November 16, 1962, Banatao, et al. initiated an action
against Marciano Carag for the recovery of real property (disputed
property) situated at Malabac, Iguig, Cagayan. The disputed property
was a new land formation on the banks of the Cagayan River an
accretion that the plaintiffs-respondents claimed as the owners of the
adjoining lot. The defendants-respondents, on the other hand, were the
occupants of the disputed property.
While the case was pending, the defendants-respondents were able to
secure homestead patents) issued in their names. The OCTs were issued
in 1965 and 1966, and all bear the proviso that, in accordance with the
Public Land Act, the patented homestead shall neither be alienated nor
encumbered for five (5) years from the date of the issuance of the patent.
Armed with their OCTs, the defendants-respondents separately applied for
loans with the Philippine National Bank secured by real estate mortgages
on their respective titled portions of the disputed property and was
approved. PNB relied solely on the OCTs which, at the time, did not
contain any notice of lis pendens or annotation of liens and
encumbrances.
On February 22, 1968, the trial court decided the case in favor of
the plaintiffs-respondents and against defendant-respondent Carag, and
ordered the return of the disputed property to the plaintiffs-respondents.
Carag appealed the trial court decision to the Court of Appeals (CA).
On March 29, 1973, while the case was pending before the trial court, the
bank extrajudicially foreclosed the property covered by OCT No. 24800
issued to the spouses Pedro Soriano and Paz Tagacay. The bank was
declared the highest bidder in the ensuing public auction. The spouses
Soriano failed to redeem the foreclosed property, resulting in the
consolidation of title in the banks name; and certificate was issued in the
name of the bank.
On
February 28, 1991, the plaintiffs-respondents and the
defendants-respondents entered into a compromise agreement whereby
ownership of virtually the northern half of the disputed property was
ceded to the plaintiffs-respondents, while the remaining southern half was
given to the defendants-respondents.

In the same compromise agreement, the defendants-respondents

acknowledged their indebtedness to petitioner PNB and bound themselves
to pay their respective obligations to the bank, including the interests
accruing thereon.
On March 15, 1991, the trial court rendered its decision, approving
and adopting in toto the compromise agreement, and ordering the
participating parties to strictly comply with its terms
On March 30, 2001The appellate court dismissed the appeal made
by PNB, ruling that the bank is not an indispensable party to the
compromise agreement.
On the cause of action for annulment of mortgage, the court held
the bank is only a necessary party and the issue could be dealt with in a
separate and distinct action. The appellate court in the same decision
proceeded to strike down the mortgages as void because the mortgagors
(defendants-respondents), not being the absolute owners of the disputed
parcels of land as agreed upon in the compromise agreement, did not
have the right to constitute a mortgage on these properties.
ISSUE: WHETHER THE COMPROMISE AGREEMENT ENTERED INTO BY
AND
BETWEEN
THE
HEREIN
PLAINTIFFS-RESPONDENTS
AND
DEFENDANTS-RESPONDENTS AND APPROVED BY THE TRIAL COURT
LEGALLY BINDS PETITIONER PNB WHICH IS NOT A PARTY THERETO AND
CONSTITUTES SUFFICIENT LEGAL BASIS TO NULLIFY PNB'S MORTGAGE
LIEN ON THE REALTY IN QUESTION.

RULING: The Supreme Court resolves to dismiss the petition for the
following reasons.
SC contended that the main cause of action is the Recovery of
Realty and Reconveyance, the Annulment of Mortgage is only an
ancillary cause of action. In the decision approving the compromise
agreement it disposes and finally determined the Recovery of Realty and
Reconveyance.
The Supreme Court also ruled that the [defendants-respondents],
not being the absolute owners and not having been authorized to

mortgage the subject real property, could not validly mortgage the said
real property with [petitioner PNB]. However, SC are also not unmindful
of the [defendants-respondents'] liability to the bank. But such issue
could be dealt with in a separate and distinct action.
SC concluded that OCTs that the mortgages cannot but be void ab
initio on the faces of all the OCTs which contained:THE LAND HEREBY
ACQUIRED SHALL BE INALIENABLE AND SHALL NOT BE SUBJECT TO
[E]NCUMBRANCE FOR A PERIOD OF FIVE (5) YEARS NEXT FOLLOWING
THE DATE OF THIS PATENT,
In the present case, the annotation of the mortgage liens occurred
only months after the date of the issuance of the homestead patents.
In the present case that Supreme Court said that PNB cannot claim
that it is a mortgagee in good faith. The proscription against alienation or
encumbrance is unmistakable even on a cursory reading of the the OCTs.
Thus, one who contracts with a homestead patentee is charged with
knowledge of the law's proscriptive provision that must necessarily be
read into the terms of any agreement involving the homestead. Under the
circumstances, the PNB simply failed to observe the diligence required in
the handling of its transactions and thus made the fatal error of approving
the loans secured by mortgages of properties that cannot, in the first
place, be mortgaged.
On Compromise Agreement:
Further, the SC held that, A compromise agreement, as a contract,
is binding only upon the parties to the compromise, and not upon nonparties. This is the doctrine of relativity of contracts. Consistent with this
principle, a judgment based entirely on a compromise agreement is
binding only on the parties to the compromise the court approved, and
not upon the parties who did not take part in the compromise agreement
and in the proceedings leading to its submission and approval by the
court. Otherwise stated, a court judgment made solely on the basis of a
compromise agreement binds only the parties to the compromise, and
cannot bind a party litigant who did not take part in the compromise
agreement.
WHEREFORE, the Supreme Court DECLARED the mortgages
constituted on OCT Nos. 24800, 24801, 25217 and 25802 VOID and, for
this reason, DISMISSED the petition. SC AFFIRMED the approval of the
compromise agreement by the Court of Appeals and the disposition of the
case on the basis of compromise.
5

LOPEZ VS. CA
FACTS: On June 2, 1959, petitioner Benito H. Lopez obtained a loan in
the amount of P20,000.00 from the Prudential Bank and Trust Company.
On the same date, he executed a promissory note for the same amount,
in favor of the said Bank, binding himself to repay the said sum one (1)
year after the said date, with interest at the rate of 10% per annum.
In addition to said promissory note, he executed Surety Bond No.
14164 in which he, as principal, and Philippine American General
Insurance Co., Inc. (PHILAMGEN) as surety, bound themselves jointly and
severally in favor of Prudential Bank for the payment of the sum of
P20,000.00.
On the same occasion, Lopez also executed in favor of Philamgen an
indemnity agreement whereby he agreed "to indemnify the Company and
keep it indemnified and hold the same harmless from and against any and
all damages, losses, costs, stamps, taxes, penalties, charges and
expenses of whatever kind and nature which the Company shall or may at
any time sustain or incur in consequence of having become surety upon
the bond." At the same time, Lopez executed a deed of assignment of
4,000 shares of the Baguio Military Institution entitled "Stock Assignment
Separate from Certificate.
On June 2, 1960, Lopez' obligation matured without it being settled.
Thus, the Prudential Bank made demands for payment. In turn,
Philamgen sent Lopez several written demands for the latter to pay his
note but Lopez did not comply with said demands. Hence, the Prudential
Bank sometime in August, 1961 filed a case against them to enforce
payment on the promissory note plus interest.
The complaint was thereafter dismissed. But when no payment was
still made by the principal debtor or by the surety, the Prudential Bank
filed on November 8, 1963 another complaint for the recovery of the
P20,000.00. obligation.
On December 9, 1963, Philamgen was forced to pay the Prudential Bank
the sum of P27,785.89 which included the principal loan and accumulated
interest and the Prudential Bank executed a subrogation receipt on the
same date.

On March 18, 1965, Philamgen brought an action for reimbursement

of the said amount. After hearing, the said court rendered judgment
dismissing the complaint holding, that the stock of the defendant was
merely pledged to it by the defendant. On the contrary, it appears to be
contradicted by the facts of the case. The shares of stock of the defendant
were actually transferred to the plaintiff when it became clear after the
plaintiff and the defendant had been sued by the Prudential Bank that
plaintiff would be compelled to make the payment to the Prudential Bank,
in view of the inability of the defendant Benito H. Lopez to pay his said
obligation.
The certificate bearing No. 44 was cancelled and upon request of
the plaintiff to the Baguio Military Institute a new certificate of stock was
issued in the name of the plaintiff bearing No. 171, by means of which
plaintiff became the registered owner of the 4,000 shares originally
belonging to the defendant.
Issue: Whether or not the stock assignment is a pledge or an
absolute conveyance?
The Supreme Court ruled that 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.
The SC agreed with the holding of the respondent Court of Appeals
that the stock assignment, Exhibit C, is in truth and in fact, a pledge.
Indeed, the facts and circumstances leading to the execution of the stock
assignment, Exhibit C, and the admission of Lopez prove that it is in fact a
pledge. The appellate court is correct in ruling that the following
requirements of a contract of pledge have been satisfied: (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; and (3) that the
person constituting the pledge has the free disposal of the property, and

in the absence thereof, that he be legally authorized for the purpose.

(Article 2085, New Civil Code).
In addition to the requisites prescribed in article 2085, it is necessary, in
order to constitute the contract of pledge, that the thing pledged be
placed in the possession of the creditor, or of a third person by common
agreement. (Art. 2093, N.C.C.) Incorporeal rights, including shares of
stock may also be pledged (Art. 2095, N.C.C.) All these requisites are
found in the transaction between the parties leading to the execution of
the Stock Assignment, and that it is a pledge was admitted by the
defendant in his letter of November 18, 1963, already quoted above,
where he asked what had happened to his shares of stock "which were
pledged to your goodselves to secure the said obligation".
The SC also do not agree with the contention of petitioner that
"petitioner's 'sale assignment and transfer' unto private respondent of the
shares of stock, coupled with their endorsement in blank and delivery,
comes exactly under the Civil Code's definition of dation in payment.
According to Article 1245 of the New Civil Code, dation in payment,
whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
The modern concept of dation in payment considers it as a novation by
change of the object, and this is to our mind the more juridically correct
view. There is a real novation with immediate performance of the new
obligation. The fact that there must be a prior agreement of the parties on
the delivery of the thing in lieu of the original prestation shows that there
is a novation which, extinguishes the original obligation, and the delivery
is a mere performance of the new obligation.
SC finds that the debt or obligation at bar has not matured on June 2,
1959 when Lopez "alienated" his 4,000 shares of stock to Philamgen.
Lopez' obligation would arise only when he would default in the payment
of the principal obligation (the loan) to the bank and Philamgen had to
pay for it. Such fact being adverse to the nature and concept of dation in
payment, the same could not have been constituted when the stock
assignment was executed.

In case of doubt as to whether a transaction is a pledge or a dation

in payment, the presumption is in favor of pledge, the latter being the
lesser transmission of rights and interests.
It must also be made clear that there is no double payment nor unjust
enrichment in this case because We have ruled that the shares of stock
were merely pledged.
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the
Court of Appeals is AFFIRMED in toto, with costs against the petitioner.

CAVITE DEVELOPMENT BANK AND FAR EAST BANK AND TRUST

COMPANY, PETITIONERS, VS. SPOUSES CYRUS LIM AND LOLITA
CHAN LIM AND COURT OF APPEALS, RESPONDENTS.

FACTS: Rodolfo Guansing obtained a loan from Cavite Development

Bank(CDB) and offered as security his real estate property. For failing to
pay his loan the property was foreclosed and title was issued in the name
of CDB.
Now here comes Lolita Chan Lim, the respondent on this case who
offered to buy the property from CDB. Mrs. Lim paid P30,000.00 as option
money and was issued receipt by CDB. However , Mrs. Lim later
discovered that the title of the property is being disputed by Perfecto
Guansing, the father of the mortgagee Rodolfo Guansing. In fact, in a
separate case it was declared that Rodolfo fraudulently secured title to the
said mortgaged property and title to it was restored to Perfecto . The
decision has since become final and executory.
Aggrieved by what she considered a serious misrepresentation by
CDB and its mother company FEBTC, on their ability to sell the subject
property, filed an action for specific performance and damage against
petitioners.

ISSUES:

Was the sale between CDB and Mrs. Lim perfected?

Is CDB liable for damges? Is the sale valid?

RULING: Contracts are not defined by the parties thereto but by the
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.
It is because when Mrs. Lim offered to buy the property the 10% so
called option money forms part of the purchase price as contemplated
under Art. 1482 of the Civil Code. It is clear then that the parties in this

10

case actually entered into a contract of sale, partially consummated as to

the payment of the price.
CDB cannot invoke the defense that it is a mortgagee in good faith.
It only applies to private individuals and not to banking institutions. They
cannot be excused from the duty of exercising the due diligence required
of banking institutions. It is standard practice for banks, before approving
a loan, to investigate who are the real owners thereof. Banking is affected
with public interest that is why they are expected to exercise more care
and prudence than private individuals.
Considering CDBs negligence it is therefore liable for damages.
As to its validity, the doctrine of Nemo dat quod non habet applies. One
cannot give what one does not have. The seller not being the owner the
sale is void.

11

MONTANO VS LIM-ANG
FACTS: Delfin Montano brought to the Philippines from the United States
a Cadillac car which he registered in his name in the Motor Vehicles Office
and for which he obtained a certificate of registration.
On May 30, 1952, he sold the car to Jose Lim Ang and his wife
Teodora A. Gonzales for the sum of P28,000.00, payable in installments,
for which the latter executed a promissory note. Having paid part of the
price, said spouses executed on the same date a chattel mortgage on the
car in favor of Montano to guarantee the payment of the balance.
Because Montano did not want to transfer the registration certificate
to Jose Lim Ang before the registration of the mortgage, the latter was
registered in the office of the register of deeds on June 4, 1952, but
Montano failed to notify the Motor Vehicles Office of the execution of the
mortgage.
On June 12, 1952, Jose Lim Ang transferred the registration certificate to
Eugenio Villanueva. Villanueva sold the car to Amador D. Santos for
P25,000.00, transferring to the latter the registration certificate. On the
same date, Santos sold the car to the Manila Trading & Supply Company
for P25,000.00, and on the same date this company sold the car to Angel
M. Tinio for P26,000.00. Tinio made a down payment of P12,000.00 and
for the balance he executed a promissory note which he assumed to pay
in monthly installments. He also executed a chattel mortgage on the
same car to secure the payment of the promissory note.
This mortgage was registered both in the office of the register of
deeds as well as in the Motor Vehicles Office. After paying his obligation in
full, the mortgage executed by Tinio in favor of the Manila Trading &
Supply Company was cancelled, and as a consequence he secured the
transfer to his name of the certificate of registration from the Motor
Vehicles Office. None of the transferees took the trouble of investigating
from whom Jose Lim Ang had acquired the Cadillac car, and neither did
any of them investigate in the office of the register of deeds if there was
any encumbrance existing thereon.
Jose Lim Ang failed to pay the balance of the purchase price to
Montano in spite of the latter's demand and so on December 8, 1952
Montano requested the sheriff of Manila to sell the car in accordance with

12

the conditions agreed upon in the chattel mortgage. Having found,

however, that the car was no longer in the possession of Lim Ang but in
that of Angel M. Tinio who claimed ownership thereof, on July 8, 1953
Montano commenced the present action of replevin before the Court of
First Instance of Manila against spouses Jose Lim Ang and Teodora A.
Gonzales and Angel M. Tinio to recover the ownership and possession of
the car in question.
ISSUES: (1) whether or not the chattel mortgage executed by Jose Lim
Ang and his wife Teodora A. Gonzales on May 30, 1952 before the car was
actually registered in their name is valid and regular;
(2) Whether or not the chattel mortgage executed by Jose Lim Ang and
Teodora A. Gonzales in favor of Delfin Montano is binding against third
persons even if they failed to give notice thereof to the Motor Vehicles
Office as required by Section 5(e) of the Revised Motor Vehicle Law; and
RULING: The Supreme Court ruled in the negative on the first issue.
The Supreme Court held the contention is untenable. It reasoned
that it is not disputed that Montano agreed to sell and the spouses Ang
agreed to buy the car for P28,000.00 for which a promissory note was
executed and that to guarantee the same the spouses executed a chattel
mortgage and took possession of the car sold. It is therefore safe to
conclude that at the time of the sale wherein the parties agreed over the
car and the price, the contract became perfected, and when part of the
purchase price was paid and the car was delivered upon the execution of
the promissory note and the mortgage, the same became consummated.
The fact that the registration certificate of the car has not as yet
been transmitted to the purchasers when the mortgage was constituted is
of no moment for, as this Court well said: "The registry of the transfer of
automobiles and of the certificates of license for their use in the Bureau of
Public Works (now Motor Vehicles Office) merely constitutes an
administrative proceeding which does not bear any essential relation to
the contract of sale entered into between the parties.
The Supreme Court continued that the flaw, if there was any, is
deemed to have been cured when after the registration of the mortgage
the registration certificate was transferred to the purchasers on June 4,
1952.

13

On the second issue, the Supreme Court hels that the issue raised is
not new. In a similar case3 decided by them they said: "A mortgage in
order to affect third persons should not only be registered in the Chattel
Mortgage Registry, but the same should also be recorded in the Motor
Vehicles Office as required by section 5(e) of the Revised Motor Vehicle
Law. And the failure of the respondent mortgagee to report the mortgage
executed in its favor had the effect of making said mortgage ineffective
against Borlough, who had his purchase registered in the said Motor
Vehicles Office."'
Adopting this view in our case the inevitable conclusion is that as
between Montano whose mortgage over the car was not recorded in the
Motor Vehicles Office and Angel M. Tinio who notified said office of his
purchase and registered the car in his name, the latter is entitled to
preference considering that the mere registration of the chattel mortgage
in the office of the register of deeds is in itself not sufficient to hold it
binding against third persons.
WHEREFORE, the decision appealed from is affirmed insofar as it orders
defendants Jose Lim Ang and his wife Teodora A. Gonzales to pay Delfin
Montano the sum of P6,000.00, plus 12% interest thereon per annum
from August 15, 1952 until it is fully paid.

14

DURAN vs. INTERMEDIATE APPELLATE COURT

FACTS:Petitioner Duran owned 2 parcels of land. She left the Philippines
in June 1954 and returned in May 1966. On 1963, a Deed of Sale was
made in favor of the petitioners mother. On December 1965, Durans
mother mortgaged the same property to private respondent Erlinda
Marcelo-Tiangco. When Duran came to know about the mortgage made by
her mother, she wrote the Register of Deeds informing the latter that she
had not given her mother any authority to sell or mortgage any of her
properties in the Philippines. Meanwhile, foreclosure proceedings were
initiated by Tiangco upon the failure of Durans mother to redeem the
mortgaged properties.
Duran claims that the Deed of Sale is a forgery, saying that at the
time of its execution in 1963 she was in the United States. Respondent
Court ruled that there is a presumption of regularity in the case of a
public document.
ISSUE:Whether private respondent was a buyer in good faith and for
value
RULING: es. Good faith consists in the possessors belief that the person
from who he received the thing was the owner of the same and could
convey his title (Arriola v. Gomez Dela Serna, 14 Phil. 627). Good faith,
while it is always to be presumed in the absence of proof to the contrary,
requires a well-founded belief that the person from whom title was
received was himself the owner of the land, with the right to convey it.
The mortgagee has the right to rely on what appears in the
certificate of title and, in the absence of anything to excite suspicion, he is
under no obligation to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of the said certificate. Every
person dealing with registered land may safely rely on the correctness of
the certificate of title issued therefore and the law will in no way oblige
him to go behind the certificate to determine the condition of the
property. If the rule were otherwise, the efficacy and conclusiveness of
the Torrens Certificate of Titles would be futile and nugatory. Thus the rule
is simple: the fraudulent and forged document of sale may become the
root of a valid title if the certificate has already been transferred from the
name of the true owner to the name indicated by the forger.
While it is true that under Article 2085 of the Civil Code, it is essential
that the mortgagor be the absolute owner of the property mortgaged, and
while as between the daughter and her mother, it was the daughter who
still owns the lots, STILL insofar as innocent third persons are concerned
the owner was already the mother inasmuch as she had already become
the registered owner.

15

FLORDELIZA CABUHAT vs. CA and MERCEDES H. AREDE

FACTS: Mary Ann Arede was the adopted daughter of appellant Mercedes
Arede. In 1972, appellant purchased a parcel of land in Cavite, and was
registered by appellant in Mary Ann Aredes name and the corresponding
title was issued by the Register of Deeds of Cavite as TCT No. T-56225.
Later on, unknown to appellant, Mary Ann Arede obtained a
reconstituted owners duplicate of TCT No. T-56225 thru the use of a
falsified court order. Using this reconstituted title, Mary Ann Arede
mortgaged the land to Rural Bank. Upon release of the mortgage, the
land was again mortgaged by Mary Ann Arede to appellee Flordeliza
Cabuhat, which mortgage was registered by appellee on the following day
at the Register of Deeds of Cavite.
It appeared however that prior to the second mortgage, the subject
lot was sold by Mary Ann Arede to appellant Mercedes Arede as evidenced
by a Deed of Sale. Unfortunately, this sale was not registered by
appellant.
Hence, upon knowledge of the mortgage to appellee Cabuhat,
appellant was prompted to commence the instant suit for annulment of
title.
Judgment was rendered by the lower court against defendant Mary
Ann Arede, decreeing, among others, that the mortgage lien in favor of
defendant Flordeliza Cabuhat is rendered valid and binding.
Mercedes appealed to the CA arguing that the mortgage lien was invalid
because: (1) the registration was procured through the presentation of a
forged owners duplicate certificate of title, in violation of Section 53 of
Presidential Decree 1529; and (2) the mortgage constituted when Mary
Ann was no longer the absolute owner of the subject property
contravened Article 2085 of the New Civil Code.
CA rendered judgment granting Mercedes appeal, reversing and
setting aside the trial courts decision upholding the mortgage lien in favor
of Flordeliza.
CA relied solely on the provisions of Article 2085 of the New Civil
Code, which states, in part, that for a mortgage to be valid, the persons

16

constituting the pledge or mortgage should have the free disposal of their
property, and in the absence thereof, they should be legally authorized for
the purpose. It also cited the 1954 case of Parqui v. PNB,[3] wherein the
mortgage was declared null and void since the registration thereof was
procured by the presentation of a forged deed.

ISSUE: Whether or not the mortgage lien, in favor of Cabuhat, over the
subject property is valid.
RULING: Yes. It is well-settled that even if the procurement of a
certificate of title was tainted with fraud and misrepresentation, such
defective title may be the source of a completely legal and valid title in
the hands of an innocent purchaser for value.
Just as an innocent purchaser for value may rely on what appears in
the certificate of title, a mortgagee has the right to rely on what appears
in the title presented to him, and in the absence of anything to excite
suspicion, he is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the face of the said
certificate. Furthermore, it is a well-entrenched legal principle that when
an innocent mortgagee who relies upon the correctness of a certificate of
title consequently acquires rights over the mortgaged property, the courts
cannot disregard such rights.
Article 2085 of the Civil Code, which requires that the mortgagor
must have free disposal of the property, or at least have legal authority to
do so, admits of exceptions. In quite a number of instances, this Court
has ruled that the said provision does not apply where the property
involved is registered under the Torrens System.
Furthermore, Section 39 of Act No. 496 provides that every person
receiving a certificate of title in pursuance of a decree of registration, and
every subsequent purchaser (or mortgagee) of registered land who takes
a certificate of title for value in good faith, shall hold the same free of all
encumbrance except those noted on said certificate.
In the case at bar, there is no doubt that petitioner was an innocent
mortgagee for value. When Mary Ann mortgaged the subject property,
she presented to petitioner Flordeliza an owners duplicate certificate of
title that had been issued by the Register of Deeds. The title was neither

17

forged nor fake. Petitioner had every right to rely on the said title which
showed on its face that Mary Ann was the registered owner. There was
no reason to suspect that Mary Anns ownership was defective. Besides,
even if there had been a cloud of doubt, Flordeliza would have found upon
verification with the Register of Deeds that Mary Ann was the titled owner
and that the original title on file with the said office was free from any lien
or encumbrance, and that no adverse claim of ownership was annotated
thereon.
Petitioners reliance on the clean title of Mary Ann was reinforced by
the fact that the latter had previously mortgaged the same property to a
bank which accepted the property as collateral on the strength of the
same owners duplicate copy of the title presented by Mary Ann.
Certainly, petitioner Flordeliza cannot be expected or obliged to inquire
whether the said owners duplicate copy presented to her was regularly or
irregularly issued, when by its very appearance there was no reason to
doubt its validity.
In accepting such a mortgage, petitioner was not required to make further
investigation of the title presented to her to bind the property being given
as security for the loan.
The Decision of the CA is SET ASIDE, and the Decision of the RTC of
Cavite City, is REINSTATED in all aspects.

18

Spouses Ramos vs. Obispo Sr.

FACTS: Petitioner Nilo Ramos and respondent Raul Obispo met each
other and became best friends while they were working in Saudi Arabia as
contract workers.
Sometime in August 1996, petitioners executed a Real Estate
Mortgage in favor of respondent Far East Bank and Trust CompanyFairview Branch, over their property covered by Transfer Certificate of
Title (TCT) No. RT-64422 (369370). The notarized REM secured credit
accommodations extended to Obispo in the amount of P1,159,096.00. On
even date, the REM was registered and annotated on the aforesaid title.
On September 17, 1999, FEBTC received a letter from petitioners
informing that Obispo, to whom they entrusted their property to be used
as collateral for a P250,000.00 loan in their behalf, had instead secured a
loan for P1,159,096.00, and had failed to return their title despite full
payment by petitioners of P250,000.00. Petitioners likewise demanded
that FEBTC furnish them with documents and papers pertinent to the
mortgage failing which they will be constrained to refer the matter to their
lawyer for the filing of appropriate legal action against Obispo and FEBTC.
A complaint for annulment of real estate mortgage with damages
against FEBTC and Obispo commenced. Petitioners alleged that they
signed the blank REM form given by Obispo who facilitated the loan with
FEBTC, and that they subsequently received the loan proceeds of
P250,000.00 which they paid in full through Obispo.
With their loan fully settled, they demanded the release of their title
but Obispo refused to talk or see them, as he is now hiding from them.
Upon verification with the Registry of Deeds of Quezon City, petitioners
said they were surprised to learn that their property was in fact
mortgaged for P1,159,096.00. Petitioners thus prayed that the REM be
declared void and cancelled; that FEBTC be ordered to deliver to them all
documents pertaining to the loan and mortgage of Obispo; and that
FEBTC and Obispo be ordered to pay moral damages and attorneys fees.
In its Answer With Compulsory Counterclaim and Cross-claim,
FEBTC averred that petitioners agreed to execute the REM over their
property as partial security for the loans obtained by Obispo with a total
principal balance of P2,500,000.00. Since the obligation secured by the
REM remains unpaid, FEBTC contended that it should not be compelled to
release the mortgage on the subject property. FEBTC further asserted that
petitioners are guilty of laches and their claim already barred by estoppel.
RTC rendered a decision I favor of the respondents. FEBTC appealed
to the CA which reversed the trial courts decision and dismissed the

19

complaint, holding that petitioners were third-party mortgagors under

Article 2085 of the Civil Code and that they failed to present any evidence
to prove their allegations.
ISSUES: Whether or not the petitioners are accommodation mortgagors?
Whether or not, the respondent bank is a mortgagee in good faith?
RULING: The Supreme Court declared that the petition has no merit. It
reasoned that the validity of an accommodation mortgage is allowed
under Article 2085 of the Civil Code which provides that "[t]hird persons
who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property." An accommodation
mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that
would be contrary to his designation as such.
In this case, the SC said that petitioners denied having executed an
accommodation mortgage and claimed to have executed the REM to
secure only their P250,000.00 loan and not the P1,159,096.00 personal
indebtedness of Obispo. SC sustained the decision of the Court of
Appeals, which found the subject REM as a valid third-party or
accommodation mortgage due to petitioners failure to substantiate their
allegations with the requisite quantum of evidence.
Furthermore, In civil cases, they say, basic is the rule that the party
making allegations has the burden of proving them by a preponderance of
evidence. Moreover, parties must rely on the strength of their own
evidence, not upon the weakness of the defense offered by their
opponent.
SC declared that in this case, petitioners testimonial evidence failed
to convince that Obispo deceived them as to the debt secured by the
REM. Petitioners factual allegations are not firmly supported by the
evidence on record and even inconsistent with ordinary experience and
common sense.
The Supreme Court continued that despite being aware of the
absence of any document to ascertain if Obispo indeed filled up the REM
contract form in accordance with their instructions, petitioners accepted
the supposed loan proceeds in the form of personal checks issued by
Obispo who claimed to have an account with FEBTC, instead of checks
issued by the bank itself. These alleged checks were not submitted in
evidence by the petitioners who could have easily obtained copies or
record proving their issuance and encashment.
Another disturbing fact that the SC found out, is why, despite
having signed the REM contract in their name as mortgagors, petitioners

20

did not go directly to the bank to pay their loan. One is also tempted to
ask how petitioners could have possibly arrived at the amount of
amortization payments without having seen any document from FEBTC
pertaining to their loan account. Such conduct of petitioners in not
bothering to appear before the bank or directly dealing with it regarding
their outstanding obligation strongly suggests that there was no such loan
account in their name and it was really Obispo who was the borrower and
petitioners were merely accommodation mortgagors.
They stressed that an accommodation mortgagor, ordinarily, is not
himself a recipient of the loan, otherwise that would be contrary to his
designation as such. We have held that it is not always necessary that the
accommodation mortgagor be apprised beforehand of the entire amount
of the loan nor should it first be determined before the execution of the
Special Power of Attorney in favor of the debtor.
This is especially true when the words used by the parties indicate
that the mortgage serves as a continuing security for credit obtained as
well as future loan availments. Here, petitioners as owners signed the
REM as mortgagors and there is no evidence adduced that suggests fraud
or irregularity in its execution.
From all indications, the failure of defendant Obispo to pay his loan
resulted to the prejudice of plaintiffs-appellees which may have led them
to disown the Real Estate Mortgage they executed in favor of defendantappellant FEBTC to accommodate the loan of defendant Obispo.
There being valid consent on the part of petitioners as
accommodation mortgagors, no reversible error was committed by the CA
in reversing the trial courts decision which declared the REM as void and
awarded damages to petitioners.
WHEREFORE, the SC held that the petition for review on certiorari is
DENIED for lack of merit. The Decision dated January 27, 2010 of the
Court of Appeals in CA-G.R. CV No. 82378 is AFFIRMED and UPHELD.
With costs against the petitioners.
SO ORDERED.

Insurance services Commercial Traders Inc. vs Court of Appeals

21

FACTS: The Salvaleons borrowed two thousand (P2,000.00) pesos from

spouses Amador and Mila de Castro under the following conditions: (1)
They mortgage their parcel of land in favor of the spouses de Castro. (2)
They surrender the possession of the title to the latter. And (3) they sign
an authorization to obtain a loan from a bank.
Amador sought the advice of Cesar Busque, the General Manager of
Cantrade Davao, on how to solicit a mortgage, using the Salvaleons'
property as collateral. Busque recommended a "fast loan," where the
Salvaleons would sign a prepared special power of attorney. The spouses
de Castro refused. Instead, a special power of attorney authorizing Mila to
mortgage the property was signed by the Salvaleons. Amador
surrendered the said document "already notarized" to Busque.
Afterwards, Busque negotiated a real estate mortgage with
Insurance Services and Commercial Traders, Inc. (Instrade), using a
forged special power of attorney purportedly signed by the Salvaleons,
authorizing Busque to use the property as security for Cantrade's
indebtedness to Instrade. When Cantrade failed to fulfill its obligation,
Instrade initiated foreclosure proceedings on the property.
Eventually, the Salvaleons learned of the scheduled extra-judicial
foreclosure of their property by the City Sheriff. They filed a complaint for
annulment of the foreclosure sale and damages before the Regional Trial
Court of Davao City, against Instrade, Cantrade, and Busque. Paz and
Vivencia were assisted by their respective husbands, Manuel Garcia and
Dalmacio Abad.
The foreclosure sale pushed through and after the expiration of the
period for redemption, TCT No. T-80694 was issued in the name of
Instrade. The new title bore the annotation, Lis Pendens, under Entry No.
267545, carried over from the cancelled title.
The Salvaleons claimed that the special power of attorney
authorizing Busque to mortgage their property to Instrade was a forgery.
Allegedly, the real estate mortgage between Cantrade and Instrade and
its subsequent foreclosure were null and void. The Salvaleons prayed for
the reconveyance of the property in their favor.
On October 13, 1978, Busque admitted in his Answer that Cantrade
was indebted to Instrade. Busque's version was that Instrade required a
surety bond to cover Cantrade's purchases of automotive parts on credit.
Cantrade failed to furnish a surety bond, hence, Instrade agreed to accept
a direct real estate mortgage. The plan was for the spouses de Castro to
sell the Salvaleons' foreclosed property for thirty thousand (P30,000.00)
pesos. Inasmuch as the Salvaleons were anyway willing to sell their

22

property for only an additional ten thousand (P10,000.00) pesos, apart

from the extinguishment of a P2,000.00 debt, Busque thought he would
as well pay the balance of twenty thousand (P20,000.00) pesos directly to
the spouses de Castro. Then in turn, the spouses de Castro and Busque
would mortgage the property to Instrade and the final deed of absolute
sale would be executed later on. Before the plan materialized, a special
power of attorney signed by the Salvaleons authorizing Busque to
mortgage the property and its TCT- 37249 were forwarded to Instrade.
Cantrade even submitted as optional collateral to Instrade, two other
properties owned by a certain Conchita Ambe. Instrade accepted the
properties owned by Ambe, but refused to surrender the documents of
the Salvaleons' parcel of land.
On January 12, 1979, Busque, to exculpate himself, filed an
amended answer, denying he owned Cantrade, and pointing to Antonio J.
Palma, Jr., as its proprietor.
On January 22, 1979, Instrade in its Answer alleged good faith, not
knowing nor participating in the irregularity. It asserted that it merely
relied on the express authority given by the Salvaleons to Cantrade.
On February 5, 1979, Busque moved to join as indispensable party the
alleged proprietor of Cantrade, Antonio J. Palma, Jr. The motion was
denied for lack of merit on March 1, 1979. However, the motion of Busque
for leave to file third party complaint against the spouses de Castro, was
given due course.
As third party defendants, the spouses de Castro denied they
offered to sell the Salvaleons' property to Busque. They claimed Busque
promised to help them secure a loan from JVA Financing Corporation and
they entrusted the Salvaleons' title and Mila's authority as mortgagor to
Busque. It was only later when Amador de Castro discovered that JVA
Financing Corporation was non-existent. When he confronted Busque, the
latter admitted that the Salvaleons' title was used as mortgage for a loan
from Instrade. Amador repeatedly asked for the proceeds of the loan and
Busque assured him that as soon as a certain Mr. Frace arrived, the
money would be released. This never happened. When the spouses de
Castro threatened to sue, Busque made a ten thousand (P10,000.00)
peso deposit and guaranteed the return of the Salvaleons' title. The
spouses de Castro asserted they never transacted with Cantrade nor
Instrade.
On December 28, 1986, the lower court rendered judgment in favor
of the Salvaleons.

23

ISSUE: Whether or not the Court of Appeals erred in affirming the

decision of the trial court, which nullified a forged notarized special power
of attorney purportedly executed by the Salvaleons.
Petitioner claims that the special power of attorney allegedly executed by
the Salvaleons authorizing Cantrade and/or Busque as their agent is a
public document duly executed by the parties, in accordance with notarial
law. Vivencia Salvaleon's testimony that their signatures were forged was
belied by the notarial attestation of Atty. Bumanglag. Since the attestation
of the notary was not controverted, its regularity is presumed.
Furthermore, petitioner stresses that Vivencia offered contradictory
evidence. She denied she appeared before the office of Atty. Bumanglag.
At the same time, she presented another power of attorney, authorizing
Mila as the Salvaleons' representative. This power of attorney was
curiously also notarized by Atty. Bumanglag.
The SC agreed with the trial court when it said:
"From all the foregoing assertions which were not only left undisputed,
but in fact admitted, there exists very strong and sufficient grounds to
believe that the controversial notarized documents were really procured
under questionable circumstances, as fraudulent misrepresentations
appear perceptibly obvious in obtaining the supposed signatures which
were repudiated as forged, and the admittedly irregular manner by which
said documents were notarized, would clearly establish the conclusion
that the Special Power of Attorney purportedly executed by the plaintiffs
suffers from a congenital flaw thus subjecting its validity to serious legal
doubt.
Petitioner contends that it was an innocent purchaser for value, and
it should be protected as against the registered owners who were
negligent. As early as Juaquin vs. Madrid, the SC already said that in
order that the holder of a certificate for value issued by virtue of the
registration of a voluntary instrument may be considered a holder in good
faith and for value, the instrument registered should not be forged.
When the instrument presented is forged, even if accompanied by
the owner's duplicate certificate of title, the registered owner does not
lose his title, and neither does the assignee in the forged deed acquire
any right or title to the property. An innocent purchaser for value is one
who purchases a titled land by virtue of a deed executed by the registered
owner himself not by a forged deed. Patently, petitioner is not an innocent
purchaser.
The SC in Pichay vs. Celestino, 20 SCRA 314 (1967) that:

24

"One who purchases real estate with knowledge of a defect or lack of title
in his vendor cannot claim that he has acquired title thereto in good faith
as against the true owner of the land of an interest therein; and the same
rule must be applied to one who has knowledge of facts which should
have put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor. A purchaser
cannot close his eyes to facts, which should put a reasonable man upon
his guard, and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor. His mere refusal to believe
that such defect exists, or his willful closing of his eyes to the possibility
of the existence of a defect in his vendor's title, will not make him an
innocent purchaser for value, if it afterwards develops that the title was in
fact defective and it appears that he had such notice of the defect as
would have led to its discovery had he acted with that measure of
precaution which may reasonably be required of a prudent man in a like
situation."
Cantrade attempted to settle its indebtedness with a check that
bounced. Cantrade offered a security registered under the names of third
persons. When a special power of attorney allegedly signed by the
Salvaleons was presented to the petitioner's counsel, the latter approved
the same, without investigation as to the true owners who were residing
within the same vicinity. As ruled by respondent court, an ordinarily
prudent man would have inquired into the authenticity of the title, its
location, and the owners. Petitioner's failure to investigate betrays its
good faith. We, therefore, find that petitioner cannot be an innocent
purchaser.
WHEREFORE, the SC instantly DENIED petition. The Decision and
Resolution of the Court of Appeals in CA G.R. CV No. 15737 are hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.

25

BANK OF AMERICA VS. AMERICAN REALTY

FACTS: Petitioner granted loans to 3 foreign corporations. As security, the
latter mortgaged a property located in the Philippines owned by herein
respondent ARC. ARC is a third party mortgagor who pledged its own
property in favor of the 3 debtor-foreign corporations.
The debtors failed to pay. Thus, petitioner filed collection suits in
foreign courts to enforce the loan. Subsequently, it filed a petition in the
Sheriff to extra-judicially foreclose the said mortgage, which was granted.
On 12 February 1993, private respondent filed before the Pasig RTC,
Branch 159, an action for damages against the petitioner, for the latters
act of foreclosing extra-judicially the real estate mortgages despite the
pendency of civil suits before foreign courts for the collection of the
principal loan.
ISSUE: Whether petitioners act of filing a collection suit against the
principal debtors for the recovery of the loan before foreign courts
constituted a waiver of the remedy of foreclosure.
RULING: Yes.
In the absence of express statutory provisions, a mortgage creditor
may institute against the mortgage debtor either a personal action or
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.
In our jurisdiction, the remedies available to the mortgage creditor
are deemed alternative and not cumulative. Notably, an election of one
remedy operates as a waiver of the other. For this purpose, a remedy is

26

deemed chosen upon the filing of the suit for collection or upon the filing
of the complaint in an action for foreclosure of mortgage. As to
extrajudicial foreclosure, such remedy is deemed elected by the mortgage
creditor upon filing of the petition not with any court of justice but with
the Office of the Sheriff of the province where the sale is to be made.
In the case at bar, petitioner only has one cause of action which is nonpayment of the debt. Nevertheless, alternative remedies are available for
its enjoyment and exercise. Petitioner then may opt to exercise only one
of two remedies so as not to violate the rule against splitting a cause of
action.
Accordingly, applying the foregoing rules, we hold that petitioner, by
the expediency of filing four civil suits before foreign courts, necessarily
abandoned the remedy to foreclose the real estate mortgages constituted
over

the

properties

of

third-party

mortgagor

and

herein

private

respondent ARC. Moreover, by filing the four civil actions and by

eventually foreclosing extra-judicially the mortgages, petitioner in effect
transgressed the rules against splitting a cause of action well-enshrined in
jurisprudence and our statute books.

27

Sps BELO VS PNB & Sps ESLABON

FACTS: Eduarda Belo owned an agricultural land which she leased a
portion to Sps Eslabon in connection with the said spouses sugar
plantation business.
To finance their business venture, respondents spouses Eslabon
obtained a loan from PNB secured by a real estate mortgage on their own
four (4) residential houses located in Roxas City, as well as on the land
owned by Eduarda Belo. SPA was issued by Eduarda Belo as to the
mortgage of her property
Sps Eslabon failed to pay mortgages and thereafter extrajudicial
foreclosure proceedings against the mortgaged properties were instituted
by PNB. PNB was the highest bidder at the auction sale (P447,632.00).
PNB appraised Eduarda Belo of the sale at public auction of her
agricultural land. She had one-year period to redeem the land.
Eduarda Belo sold her right of redemption to petitioner Sps Belo
under a deed of absolute sale of proprietary and redemption rights.
Sps Belo tendered payment for the redemption of the agricultural
land for (P484,482.96), which includes the bid price of respondent PNB,
plus interest and expenses as provided under Act No. 3135.
PNB rejected payment contending that redemption price should be
the total claim of the bank on the date of the auction sale and custody of
property plus charges accrued and interests (P2,779,978.72).
Sps Belo filed action to annul the mortgage, with an alternative
cause of action to compel PNB to accept offer of spouses Belo which is
based on the winning bid price of PNB (P447,632.00) plus interest and
expenses.
RTC: Granted alternative cause of action of Sps Belo P447,632.00,
plus interest and other charges
CA: Modified TC ruling that the petitioners should pay the entire
amount due to PNB under the mortgage deed at the time of the
foreclosure sale plus interest, costs and expenses. As assignees of
Eduarda Belos right of redemption, the appellees succeed to the precise
right of Eduarda including all conditions attendant to such right. Moreover,
the indivisible character of a contract of mortgage (Article 2089, Civil
Code) will extend to apply in the redemption stage of the mortgage.

28

ISSUE: Whether or not

SPA, real estate mortgage contract, the
foreclosure proceedings and the subsequent auction sale involving
Eduarda Belos property are valid. YES
Whether or not the petitioners are required to pay, as redemption price,
the entire claim of respondent PNB (P2,779,978.72) NO
RULING:
1. YES.The subject SPA, the real estate mortgage contract, the
foreclosure proceedings and the subsequent auction sale of Eduarda
Belos property are valid and legal.
The findings of trial courts which are factual in nature must not be
disturbed.
It is stipulated in paragraph three (3) of the SPA that Eduarda Belo
appointed the Eslabon spouses as her agents. The accommodation real
estate mortgage over her property is merely an accessory contract.
An accommodation mortgage is not necessarily void simply because the
accommodation mortgagor did not benefit from the same. The validity of
an accommodation mortgage is allowed under Article 2085 of the New
Civil Code which provides that (t)hird persons who are not parties to the
principal obligation may secure the latter by pledging or mortgaging their
own property.
The letter of Eduarda Belo addressed to respondent PNB manifesting her
intent to redeem the property is a waiver of her right to question the
validity of the SPA, etc.
2. NO. This Court finds the petitioners position on that issue to be
meritorious.
There is no doubt that Eduarda Belo, assignor of the petitioners, is an
accommodation mortgagor. Mortgagor in Section 25 of P.D. No. 694
pertains only to a debtor-mortgagor and not to an accommodation
mortgagor.
Respondent PNB maintains that Section 25 of Presidential Decree No. 694
(right to redeem the property by paying all claims of the Bank against him
on the date of the sale)
Petitioners assert to follow Section 6 of Act No. 3135 & Section 28 of Rule
39 of the Rules of Court (by paying the purchaser the amount of his
purchase plus interest & other expenses)

29

The interpretation accorded by respondent PNB to Section 25 of P.D. No.

694 is unfair and unjust to accommodation mortgagors and their
assignees. Forcing an accommodation mortgagor like Eduarda Belo to pay
for what the principal debtors (Eslabon spouses) owe to respondent bank
is to punish her for the accommodation and generosity she accorded to
the Eslabon spouses. Also, PNBs application for extrajudicial foreclosure
and public auction sale of Eduarda Belos mortgaged property[30] was
filed under Act No. 3135 and none of the proceedings thereafter
mentioned P. D. No. 694 as the basis for redemption.
The General Banking Act and P.D. No. 694 shall prevail over Act No.
3135 with respect to the redemption price. accommodation mortgagors as
such are not in anyway liable for the payment of the loan or principal
obligation of the debtor/borrower. The liability of the accommodation
mortgagors extends only up to the loan value of their mortgaged property
and not to the entire loan itself.
While the petitioners, as assignees of Eduarda Belo, are not required to
pay the entire claim of respondent PNB against the principal debtors,
spouses Eslabon, they can only exercise their right of redemption with
respect to the parcel of land belonging to Eduarda Belo, the
accommodation mortgagor. Thus, they have to pay the bid price less the
corresponding loan value of the foreclosed four (4) residential lots of the
spouses Eslabon.
PNB contends to allow petitioners to redeem only the property belonging
to their assignor, Eduarda Belo, would violate the principle of indivisibility
of mortgage contracts (Art 2089).
The indivisibility concept does not
apply to the right of redemption of an accommodation mortgagor and her
assignees.
Indivisibility arises only when there is a debt, that is, there is a debtorcreditor relationship. But, this relationship is wanting in the case at bar in
the sense that petitioners are assignees of an accommodation mortgagor
and not of a debtor-mortgagor. Hence, it is fair and logical to allow the
petitioners to redeem only the property belonging to their assignor,
Eduarda Belo.
Redemption only extends to the subject property of Eduarda Belo for the
reason that the notice of the sale limited the redemption to said property.
Petition is partially granted: Petitioner Sps Belo are allowed to redeem
only the property of Eduarda Belo, by paying only the bid price less the
corresponding loan value of the foreclosed four (4) residential lots of the
respondents Sps Eslabon, consistent with the RTC
DIZON V. SUNTAY
30

An owner of a movable unlawfully pledged by another is not estopped

from recovering possession. Where the owner delivered the diamond ring
solely for sale on commission but the seller instead pawned it without
authority, the owner is not stopped form pursuing an action against the
pawnshop.
FACTS: Lourdes Suntay is the owner of a 3-carat diamond ring valued at
P5,500. She and Clarita Sison entered into a transaction wherein the ring
would be sold on commission. Clarita received the ring and issued a
receipt. After some time, Lourdes made demands for the return of the
ring but the latter refused to comply. When Lourdes insisted on the
return, Clarita gave her the pawnshop ticket which is the receipt of the
pledge and she found out that 3 days after the ring was received by
Clarita, it was pledged by Melia Sison, the niece of Claritas husband in
connivance with Clarita with the pawnshop of Dominador Dizon for
P2,600. Lourdes then filed an estafa case. She then asked Dominador
Dizon for the return of the ring pledged but refused to return the ring thus
the case filed by Lourdes.
The CFI issued a writ of replevin so Lourdes was able to have possession
of the ring during the pendency of the case. The CFI also ruled in her
favor which was affirmed by the CA on appeal. Thus the case at bar.
ISSUE: W/N the CA erred in ruling that Lourdes has a right to possession
of the ring
HELD: NO
It reiterated the ruling in de Garcia v. CA, that the controlling
provision is Art. 559 of the CC which states that the possession ofmovable
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.
Lourdes, being unlawfully deprived of her ring thus she has a right
to recover it from the current possessor. Dizon is engaged in a business
where presumably ordinary prudence would require him to inquire
whether or not an individual who is offering the jewelry by pledge is
entitled to do so. The principle of estoppel cannot help him at all. Since
there was no precaution availed of, perhaps because of the difficulty of
resisting opportunity for profit, he only has himself to blame and should
be the last to complain if the right of the true owner of the jewelry should
be recognized.
PNB v. CA

31

Facts: Private respondents, who are owners of a NACIDA-registered

enterprise, obtained from petitioner PNB a loan initially pegged at 12%
per annum interest. The contract agreement includes, among others, a
clause which allows PNB to raise the rate of interest depending onn the
bank's future policies. During the term of the agreement, PNB on several
occasions imposed subsequent raises to the applicable rate ranging from
the original 12% up to 42%, imposing also a 6% penalty per annum.
Issue: Can a creditor raise the rate of interest based solely on a certain
clause in the contract and without consent from the debtor as to the
amount and rate of increase?
Held: No. It is basic that there can be no contract in the true sense in the
absence of the element of agreement, or of mutual assent of the parties.
If this assent is wanting on the part of the one who contracts, his act has
no more efficacy than if it had been done under duress or by a person of
unsound mind.
Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of
the agreement. In the case of loan contracts, it cannot be gainsaid that
the rate of interest is always a vital component, for it can make or break a
capital venture. Thus, any change must be mutuallya greed upon,
otherwise, it is bereft of any binding effect. The Court cannot countenance
petitioner bank's posturing that the escalation clause at bench gives it
unbridled right tounilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away from private
respondents the right to assent to an important modification in their
agreement, and would negate the element of mutuality in contracts.

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