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stitutes a mortgage retains title to the property and does not lose his
attributes as an owner. He only creates a lien or encumbrance upon
his property.
Chapter XI
1.
A mortgage, according to Sanchez Roman, is a real right constituted to secure an obligation upon real property or rights therein
to satisfy with the proceeds of the sale thereof such obligation when
the same becomes due and has not been paid or fullled.
By statutory denition under the Civil Code of California, a
mortgage is a contract by which specic property is hypothecated
for the performance of an act, without the necessity of a change of
possession.
The Civil Code of Louisiana denes a mortgage as a right
granted to the creditor over the property of the debtor for the security
of his debt, and gives him the power of having the property seized
and sold in default of payment.
Kinds of mortgages.
A judicial mortgage is one resulting from a judgment. For instance, a plain deed of sale may be declared to be a mortgage by a
competent court.
3.
Benipayo Rodriguez v. Reyes, Benipayo, G.R. No. L-22958, Jan. 30, 1971, 67
O.G. 21, p. 3956, May 24, 1971; 37 SCRA 195.
1
320
Contract of real estate mortgage in general is governed by Articles 2085 to 2092 and 2124 to 2131 of the Civil Code of the Philippines.
As to foreclosure of mortgages, Rule 68 of the Rules of Court
governs the procedure in judicial foreclosures, while Act No. 3135,
as amended by Act No. 4118, governs extrajudicial foreclosure.
321
4.
The bank is not a mortgagee in good faith. (DBP vs. CA, 331
SCRA 267). It was said that the due diligence required of banks
322
323
the prior mortgage will not diminish this preference, which retroacts
to the date of the annotation of the notice of lis pendens and the adverse claim. (Lavides vs. Pre, supra.). Thus, the mortgagees failure to
register the real estate mortgage prior to these annotations, resulted
in the mortgage being binding only between it and the mortgagor.
Third parties to the mortgage are not bound by it. (Ramos vs. CA,
302 SCRA 589).
register of deeds that inasmuch as a mortgage is a voluntary transaction, he had no authority to register it without the consent of both
parties, is fallacious. He confuses the execution of a mortgage with
its registration. It is the execution of the mortgage that is voluntary. 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 fulllment of contracts cannot be left to the will of
one of the contracting parties.2
The above doctrine applies particularly to land previously registered under the Torrens system. Where the land involved, however,
has not been registered under said system and the mortgage is sought
to be recorded under Act No. 3344, it is expressly required that the
parties have agreed to register said instrument under the provisions
of this Act. In other words, the mortgagee cannot record such mortgage of unregistered land over the objection of the mortgagor.
6.
4
2
326
327
7.
was held that, all the facts taken together, it only conrms the real
intention of the parties to secure the payment of the loan with the
land as security. Stated otherwise, the transaction is deemed to be
an equitable mortgage.10
However, for the purpose of determining whether a contract is
truly a sale under pacto de retro or an equitable mortgage, the Civil
Code of the Philippines has provided a number of tests embodied in
the following article:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
usually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or other benet
to be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws.
In case there should be a doubt as to whether the contract in
question is one of sale with right to repurchase or an equitable mortgage, Article 1603 of the Civil Code of the Philippines resolves it in
favor of the latter. So much so that where the repurchase price as
10
Capulong v. Ct. of App. and Tolentino, G.R. No. 61337, June 29, 1984; 130
SCRA 245.
328
329
thereof the creditor shall have the right to have the land cultivated
and the products thereof shall belong to the creditor exclusively,
which right of usufruct shall pertain to him as long as the mortgage
is in full force and effect. As held by the Court of Appeals in a certain case,15 such contract is one of mortgage with usufruct and not of
antichresis, citing an earlier authority, which nds recent corroboration, stating thus: When a contract of loan with security does not
stipulate the payment of interest but provides for the delivery to the
creditor by the debtor of the real property constituted as security for
the payment thereof, in order that the creditor may administer the
same and avail himself of its fruits, without stating that said fruits
are to be applied to the payment of interest, if any, and afterwards
to that of the principal of the credit, the contract shall be considered
to be one of mortgage and not of antichresis.16
Estrada v. Millet, 55 O.G. 31, Aug. 3, 1959, CA; Adrid v. Morga, 108 Phil.
12
927.
13
14
330
15
16
143.
331
10.
332
333
11.
Mortgage to aliens.
As to whether an alien may accept a mortgage on privatelyowned lands in the Philippines, after the promulgation of the 1935
Constitution, this question had been the subject of serious doubts
until Congress passed Republic Act No. 133, approved in 1947, providing that private real property may be mortgaged for a period not
exceeding ve years, renewable for another ve, in favor of any individual, corporation, or association, but the mortgagee or his successor
in interest, if disqualied to acquire or hold lands of public domain
in the Philippines, shall not bid or take part in any sale of such real
property as a consequence of such mortgage.
It is to be noted, in this connection, that according to a legal
opinion rendered by the Secretary of Justice for the Secretary of
Commerce and Industry, dated July 10, 1964 the aforementioned law
does not contemplate to disallow Filipinos and other persons qualied
to acquire and own lands in the Philippines from holding real estate
mortgages in excess of ve years. It is inconceivable when they can
even acquire lands by outright sale.
Code, without the wifes consent, unless the wife has been declared
a non compos mentis or a spendthrift or is under civil interdiction or
is conned in a leprosarium, or unless she refuses unreasonably to
give her consent, in which case the court may compel her to grant
the same.20
12.
14.
17
18
19
334
335
22
23
24
336
26
Tomas v. Tomas, G.R. No. L-36897, June 25, 1980; 98 SCRA 280; Pichay v.
Celestino, G.R. No. L-18292-94, May 30, 1967; 20 SCRA 314.
337
Consideration of mortgage.
Where the mortgagor is the debtor or obligor himself, the consideration of the mortgage is the debt or the obligation assumed and
secured by this accessory contract. However, where the mortgagor
is a third person, who is not the debtor or obligor himself, there may
arise a question as to the validity of the mortgage in view of the apparent lack of consideration. On this point, the following principle
has been laid down: The consideration of a mortgage, which is an
accessory contract, is that of the principal contract, from which it
receives its life, and without which it cannot exist as an independent
contract, even if the obligation thereby secured is of a third person,
and therefore it will be valid, if the principal one is valid, and cannot
be voided on the ground of lack of consideration.28
Suppose the loan agreed upon to be secured by a mortgage has
not yet been released, nor the corresponding promissory note signed
by the debtor, may the mortgage instrument executed in advance
be considered valid? In a case led seeking the annulment of such
a mortgage and the extrajudicial foreclosure thereof on the ground
that it was invalid because when it was executed there was yet no
principal obligation to secure as the loan had not yet been released,
so that in the absence of a principal obligation there was want of
consideration in the accessory contract of mortgage, it was held that
the fact that the loan agreed upon had not yet been released on the
date of the execution of the mortgage is immaterial. It was explained
that the contract of loan being a consensual contract, such contract
was deemed perfected at the time the contract of mortgage was executed.29
18.
27
Phil. Nat. Cooperative Bank v. Carandang-Villalon, et al., G.R. No. 55144,
Nov. 11, 1985.
28
China Banking Corporation v. Lichauco, 46 Phil. 460.
29
Bonnevie v. Ct. of App. and Phil. Bank of Commerce, G.R. No. L-49101, Oct.
24, 1983; 125 SCRA 122.
30
New Civil Code, Art. 2127; Manahan v. Cruz, G.R. No. L-26086, Nov. 21, 1974,
71 O.G. 4821, Aug. 4, 1975; 61 SCRA 137.
338
339
recorded in the ofce of the register of deeds (Article 2125, id) and
so far as the additional property is concerned the registration of the
mortgage did not affect and could not have affected it because it was
not specically described therein. The ling of a notice of lis pendens
with the registry of deeds purporting to affect the additional property
served only to emphasize the fact that there was no mortgage thereon, otherwise there would have been no necessity for any notice of
lis pendens.31
It is a rule established by the Civil Code and also by the Mortgage Law, with which the decisions of the Courts of the United States
are in accord, that in a mortgage of real estate the improvements on
the same are included; therefore, all objects permanently attached to
a mortgaged building or land, although they may have been placed
there after the mortgage was constituted, are also included.32
Where a parcel of land, together with the building thereon
erected, has been mortgaged, and where after execution of the mortgage but before the expiration of the mortgage period, the debtor
tears down the building and erects another and more costly one in
its place, no stipulation whatever being contained in the mortgage
deed that the new building should be expressly excluded from the
21.
31
32
340
33
34
35
341
when the obligation secured falls due. Between the creditor under the
real mortgage and the creditor under a subsequent chattel mortgage,
the former shall prevail.36 However, where it appears that a third
person as a creditor in possession has in good faith made advances
for the growth and production of the crop, in a suit by the mortgagee
to recover the value of growing fruits, such creditor is entitled to be
rst paid the amount of his advances before the mortgagee may hold
liable the growing fruits under Article 2127 of the new Civil Code.37
is not limited to the amount actually obtained at the time, and from
the four corners of the instrument the intent to secure future and
other indebtedness can be gathered.40
36
37
38
64.
24.
Before the promulgation of the New Civil Code, a mortgage affecting land registered under the Torrens system or under the Spanish Mortgage Law, although constituted in a public document, was not
valid even as between the parties unless registered in the registry of
40
39
342
41
343
deeds. However, the failure to register did not nullify the obligation
secured. As between the parties, such contract constituted a valid
subsisting obligation and could be used as evidence or proof in an action for collection. Once a judgment was obtained, the same property
could be attached on execution and sold at public auction.42
On the other hand, a mortgage affecting land not registered under the Torrens system or under the Spanish Mortgage Law, although
not recorded under Act No. 3344, was considered valid as between
the parties.43
The foregoing rulings of our Supreme Court seem to discriminate between mortgages affecting lands registered under the Torrens
system or under the Spanish Mortgage Law and mortgages affecting unregistered lands. With a view to doing away with the possible
confusion and adopting a uniform rule, our Civil Code now provides,
among other things, in Article 2125 that if the instrument is not recorded, the mortgage is nevertheless binding between the parties.44
26.
Where a mortgage deed has been led for registration and the
owners duplicate certicate of title is being withheld by the owner
or otherwise could not be presented at the time of registration, the
Register of Deeds may be requested to proceed in accordance with
Section 72 of Act No. 496 (now Section 71, P.D. No. 1529), in which
case he shall send within twenty-four hours notice by mail to the
registered owner, stating that such mortgage has been registered,
and requesting that the owners duplicate certicate be produced in
order that the corresponding memorandum of the mortgage could be
made thereon. If the owner neglects or refuses to comply within a
reasonable time the Registrar may suggest the fact to the court, and
the court, after notice, may enter an order to the owner to produce his
The above practice is generally followed only in cases of attachment and notice of lis pendens. Under special circumstances, however,
the provisions of said Section 72 of Act No. 496 may also be applied
to the registration of a mortgage affecting registered land.45
Thus, in a case where the subject of a mortgage was limited to
a share of a co-owner in the property described in a certicate of title
and does not in any way affect the interest and participation of the
other co-owners, and the registration of said mortgage could not be
given due course because the other co-owners refused to surrender
the duplicate certicate of title, it was held that for the registration
of such a mortgage, if the owners duplicate title is being withheld
or otherwise could not be presented at the time of registration, the
procedure outlined in Section 72 of Act No. 496 may be availed of by
the interested party to the end that registration of the mortgage may
be accomplished.46
27.
By express provisions of law (Section 60, Act No. 496, as amended by P.D. 1529), it is required that an assignment of mortgage be
registered, the same to take effect upon the title only from the time
of registration. This does not mean, however, that as between the
parties the assignment is without legal effect, unless registered.
Thus, it was held that the alienation or assignment of a credit
secured by mortgage is valid and efcient and legally transfers the
dominion or ownership of the same, even if the transfer of said credit
was not recorded in the registry.47 The danger lies, however, in the
fact that meanwhile the interest of a third person may intervene, and
unless the assignment takes effect upon the title, which can only be
done thru registration, the assignee may not be able to avail himself
of the due protection of the law.
42
Cia General de Tabacos de Filipinas v. Jeanjaquet, 12 Phil. 196; Lim Julian
v. Lutero, 49 Phil. 703.
43
Estate of Mota v. Concepcion, 66 Phil. 712.
44
Tan v. Valdehueza, G.R. No. L-38745, Aug. 6,1975; 72 O.G. 565, Jan. 1976; 66
SCRA 61.
45
Director of Lands v. Heirs of Abadezco, G.R. No. L-36155, May 8, 1934, Lawyers
League Journal, Sept. 1934, Unrep. 60 Phil. 1003.
46
Co Chin Leng v. Co Chin Tong, et al., G.R. No. L-29119, Feb. 28, 1983; 120
SCRA 821.
47
Lopez v. Alvarez, et al., 9 Phil. 28.
344
345
Under Article 2128 of the Civil Code and Article 152 of the
Mortgage Law, the mortgage credit may be alienated or assigned to
a third person, provided that it is effected in a public instrument,
notice thereof given to the debtor, and it is recorded in the Registry.48
However, the rule requiring that the assignment be constituted in a
public instrument or that the instrument be recorded in the Registry
of Property where it involves real property, applies only to the case
of third persons and the mortgagor is not considered third person.
Hence, as to the mortgagor the assignment may be binding even if it
be made in a private instrument.49
28.
The fact that the mortgagor has transferred the mortgaged property to a third person does not relieve him of his obligation to pay the
debt to the creditor, although the person to whom he has transferred
the property has assumed the obligation to pay said debt, and the
creditor accepted payments from said transaction on account of the
debt; for, said transfer having been made without the consent of the
creditor, the contract was not thereby novated.50
Novation of mortgage may only be accomplished with the express, not implied, consent of the mortgagee. In the above-cited case,
if there were a novation, the effect would be that the original debtor
would have been relieved of the obligation and only the transferee of
the mortgaged property would be bound.
Incidentally, it may be stated here that neither extension of time
to pay an obligation necessarily constitutes a novation. Thus, it was
held that the act of giving a debtor more time to pay an obligation
is not a novation that will extinguish the original debt. In order to
extinguish or discharge an obligation by novation the intent of the
parties to do so (animus novandi) must be either expressed or else
clearly apparent from the incompatibility on all points of the old
and the new obligations.51
52
Benipayo-Rodriguez v. Reyes, Benipayo, G.R. No. L-22958, Jan. 30, 1971, 67
O.G. 21, p. 3956, May 24, 1971; 37 SCRA 195.
346
347
48
49
50
29.
349
gage. To seek the previous consent of the rst mortgagee, in the absence of any agreement to that effect, is to ask what the mortgagor is
already permitted by law to do, even without such authorization.56
32.
350
351
56
57
cures the defect consisting in the latters not having assigned it before
to the creditor in payment of the debt, as was stipulated.
While Article 1859 (now Article 2088) of the Civil Code forbids
the creditor, upon breach of the principal obligation, to appropriate
the property given as security, an agreement by the mortgagor, that
in the event of his failure to pay the debt when due the same will be
paid with the mortgaged property, is valid and enforceable. Thus,
where the debtor acknowledged a debt under the following terms:
x x x and if I cannot pay the aforesaid amount, when the
date, agreed upon comes, the same shall be paid with the lands
given as security, the lot and house and lands described in
the aforesaid seven documents.
it was held that such a stipulation is valid as it does not authorize
the creditor to appropriate the property pledged or mortgaged, nor to
dispose thereof, and constitutes only a promise to assign said property
in payment of the obligation if, upon its maturity, it is not paid.61
In this case, the creditor went further by selling the property to a
third person without waiting for the debtor to rst assign or transfer
to him the property. Such sale, according to the court, is not void per
se; and if such a sale is conrmed by the debtor, said conrmation
35.
59
Alcantara v. Alinea, et al., 8 Phil. 111; Caridad Estates, Inc. v. Santero, 71
Phil. 114.
60
Lopez Reyes v. Nebrija, et al., 98 Phil. 639.
61
Dalay v. Aquiatin, et al., 47 Phil. 951.
62
Magdalena Estate, Inc. v. Yuchengco, 108 Phil. 340; Ganzon v. Inserto, G.R.
No. 56450, July 25, 1983; 123 SCRA 713.
63
Banco Espaol-Filipino v. Donaldson, Sim & Co., 5 Phil. 418; Yangco v. Cruz
Herrera, 11 Phil. 402.
352
353
37.
64
65
66
354
355
of the sale upon learning that such a sale had been made, he does
not thereby become a party to the suit to the extent of being bound
by the judgment in the foreclosure case.68
xxx
xxx
Thus, where innocent third person relying on the correctness of the certicate of title issued, acquire rights over the
property, the court cannot disregard such rights and order the
total cancellation of the certicate for that would impair public
condence in the certicate of title; otherwise everyone dealing with property registered under the Torrens system would
have to inquire to every instance as to whether the title has
been regularly or irregularly issued by the court. Indeed this is
contrary to the evidence purpose of the law.
After the land has been originally registered, the Court of Land
Registration ceases to have jurisdiction over contests concerning the
location of boundary lines. In such case, the action in personam has to
be instituted before an ordinary court of general jurisdiction. (Aguilar
vs. Chui, 195 Phil. 613; Cerofer Realty Corporation vs. CA, et al., G.R.
No. 139539, Feb. 5, 2002).
38.
69
70
357
Under Act No. 3135, Sec. 3, if the value of the property subject
of the foreclosure is more than (P400.00, the notice of sale must be
posted and published. The failure to post a notice is not per se a
ground for invalidating the sale provided that the notice thereof is
duly published in a newspaper of general circulation. As explained
in Olizon vs. CA, 236 SCRA 148:
Newspaper publications have more far-reaching effects
than posting on bulletin boards in public places. There is a
greater probability that an announcement or notice published in
a newspaper of general circulation, which is distributed nationwide, shall have a readership of more people than that posted
in a public bulletin board, no matter how strategic its location
may be, which caters only to a limited few. Hence, the publication of the notice of sale in the newspaper of general circulation
alone is more than sufcient compliance with the notice-posting
requirement of the law. by such publication, a reasonably wide
publicity had been effected such that those interested might attend the public sale, and the purpose of the law had been thereby
subserved.
In this case, a notice of extrajudicial foreclosure sale was published on August 25, September 1, and 8, 1985 in a newspaper of
general circulation in Metro Manila in accordance with Section 3,
stating that the foreclosure sale would be held on September 25,
1985.
However, although the notice of foreclosure sale was duly published, the sale did not take place as scheduled on September 25,
1985. Instead, it was held more than two months after the published
date of the sale or on January 7, 1986. This renders the sale void.
As held in Masantol Rural Bank, Inc. vs. CA, 204 SCRA 752; Tambunting vs. CA, 167 SCRA 16, in which the foreclosure sale likewise
took place several months after the date indicated in the published
notice of sale:
Act No. 3135, as amended, which governs the extrajudicial
foreclosure of mortgages on real property species the following
publication requirements:
Sec. 3. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
358
It is settled doctrine that failure to publish the notice of auction sale as required by the statute constitutes a jurisdictional
defect which invalidates the sale. The Court is not persuaded
either that the evidence presented by Masantol Bank sufciently
established its compliance with the statutory requirement of notice, or that the testimony of Remedios Sorianos witness showed
non-compliance with such requirement. (Masantol Rural Bank
vs. CA, supra.)
The foregoing ruling squarely applies in this case, although
the lack of republication of the notice of sale has not been raised, the
Court is possessed of ample power to look into a relevant issue, such
as the lack of jurisdiction to hold the foregoing sale. (DBP vs. Aguirre,
et al., G.R. No. 144877, Sept. 7, 2001).
39.
However, recourse may be had to foreclose a mortgage, notwithstanding the fact that the personal action to recover the indebtedness
secured by said mortgage may have prescribed at the time when the
foreclosure is instituted, so long as the debt has not in fact been paid
and the latter action has not itself prescribed.76
Formerly, under the provision of Article 1964 of the old Civil
Code, mortgage actions prescribed in twenty years. This period has
been reduced to ten years by Article 1142 of the new Civil Code which
took effect on August 30, 1950. In an actual case where action to
enforce a mortgage became effective from August 4, 1940, or before
the approval of the new Civil Code, the problem arose as to whether
the prescriptive period should be governed by the old Civil Code or
by the new Civil Code. Following the old Civil Code, it should prescribe on August 6, 1960; while under the new Civil Code, it should
prescribe on August 6, 1950. Here it was held that the new Civil Code
should apply, and therefore action to foreclose in this particular case
is deemed to have prescribed, the reason being that under Article
1116 of the new Civil Code, Prescription already running before the
effectivity of this Code shall be governed by laws previously in force,
but if since the time this Code took effect the entire period herein
required for prescription (ten years) should elapse the present Code
shall be applicable, even though by the former laws, a longer period
might be required.77
40.
A mortgagee has the right to rely on the mortgaged property, undiminished and unimpaired by any superior lien or legal impediment
brought about by the act or omission of the mortgagor. In a mortgage
foreclosure proceeding the court has jurisdiction to grant an attachment against the property of the debtor, to be levied upon property
not covered by the mortgage, upon proper showing by afdavit that
the value of the mortgaged property is insufcient to cover the debt
and that the debtor has disposed or is about to dispose of his other
property with intent to defraud his creditors.82
As a matter of fact, it was pointed out that the rule is wellestablished that the creditor may waive whatever security he has
and maintain a personal action, in the absence of statutory prohibition.83
80
81
360
361
42.
In a leading case,84 the question raised on appeal was the validity of a stipulation in a mortgage contract authorizing the mortgagee
to take possession of the mortgaged property upon foreclosure of the
mortgage. In deciding the question, the Supreme Court, after making
reference to Article 1859 (now 2088) of the Civil Code, which provides
that the creditor may not appropriate to himself the things given in
pledge or mortgage, or dispose of them, and also Article 1884 (now
2137) of the same Code, which provides that the nonpayment of the
debt within the term agreed upon does not vest the ownership of
the property in the creditor and that any stipulation to the contrary
shall be void, held that the stipulation in question authorizing the
mortgagee, for the purposes therein specied, to take possession of the
mortgaged premises upon foreclosure of the mortgage is not repugnant to either of these articles. On the other hand, such stipulation
is in consonance with or analogous to the provisions of Article 1881
(now 2132) et seq. of the Civil Code regarding antichresis and the provisions of the Rules of Court regarding the appointment of a receiver
as a convenient and feasible means of preserving and administering
the property in litigation.
43.
Judgment on foreclosure.
If upon the trial in such action the court shall nd 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
interests and costs, and shall render judgment for the sum so found
due and order that the same be paid into court within a period of not
less than ninety 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.85
However, where the mortgagee led within the 90-day reglementary period a petition for writ of execution or the sale of the mortgaged
property, and the mortgagor failed to oppose the petition, or the
auction sale as announced by the sheriff, as well as the petition for
the conrmation of the sale and the approval of the certicate of sale
87
84
85
362
88
363
But where a party in possession was not a party to the foreclosure, and did not acquire his possession from a person who was bound
by the decree, but who is a mere stranger and who entered into possession before the suit was begun, the court has no power to deprive
him of possession by enforcing the decree.94 Thus, it was held that
only parties to the suits, persons who came in under them pendente
lite, and trespassers or intruders without title can be evicted by a writ
of possession.95 The reason for this limitation is that the writ does
not issue in case of doubt, nor will a question of legal title be tried
or decided in proceedings looking to the exercise of the power of the
court to put a purchaser in possession. A very serious question may
arise upon full proofs as to where the legal title to the property rests,
and should not be disposed of in a summary way. The petitioner, it is
held should be required to establish his title in a proceeding directed
to that end.96
The general rule is that after a sale has been made under a
decree in a foreclosure suit, the court has the power to give possession to the purchaser, and the latter will not be driven to an action
at law to obtain possession. The power of the court to issue a process
and place the purchaser in possession is said to rest upon the ground
that it has power to enforce its own decree and thus avoid circuitous
actions and vexatious litigations.92
Where the foreclosure has been carried out extrajudicially and
the mortgaged property sold at public auction, after the expiration
of the prescribed period of redemption the buyer may take over the
possession of the property foreclosed as a matter of right. Thus, in a
case where the writ of possession was issued but its enforcement was
suspended by the Sheriff who has no authority to do so, and later by
the order of the Judge on a very dubious ground such as humanitarian reason, it was held that inasmuch as the applicable laws allow
the buyer to have possession of the property foreclosed and mandate
the court to give effect to such right, it would be a gross error for the
Judge to suspend the implementation of the writ of possession, which
should issue as a matter of course.93
46.
Rule 68, Section 4, of the Rules of Court provides that the proceeds of the sale shall be paid to the person foreclosing the mortgage,
after deducting therefrom the expenses of the sale, and if there is any
surplus the same shall be paid to junior encumbrancers, if any, in the
order of their priority as may be determined by the court, otherwise
the entire surplus shall be turned over to the mortgagor or his agent
or to the person entitled thereto.
The application of the proceeds from the sale of the mortgaged
property to the mortgagors obligation is an act of payment, not
payment by dation; hence, it is the mortgagees duty to return any
surplus in the selling price to the mortgagor.97
47.
94
2 Witsie on Mortgage Foreclosure, 1061-1062; 3 Jones on Mortgages, 301; and
the cases cited therein.
95
Thompson v. Campbell, 57 Ala. 183, 188; Cooper v. Cloud, 194 Ala. 499, 452.
96
Rivero v. Natividad, 71 Phil. 340.
97
Gorospe v. Gochangco, 106 Phil. 426.
364
365
90
91
pears that the mode of sale adopted was the most advantageous to
all parties, or at least, was not prejudicial to any.101
98
Government v. Torralba Vda. de Santos, 61 Phil. 689; DBP v. Vda. de Moll,
G.R. No. L-25802, Jan. 31, 1972; 68 O.G. 12, Mar. 20, 1972; 43 SCRA 82.
99
See Philippine Trust Co. v. Echaus Tan Siua, 52 Phil. 852.
100
See Philippine National Bank v. Gonzales, 45 Phil. 693.
101
37 Am. Jur., Sec. 627, pp. 394-395; Montinola v. Garrido, 60 O.G. 8, p. 1137,
Feb. 24, 1964, CA.
102
Cu Unjieng e Hijos v. Mabalacat Sugar Co., 58 Phil. 439; La Urbana v. Belando,
54 Phil. 930; Cojuangco v. Batangan, 74 Phil. 362.
103
Aquino v. Macondray & Co., et al., 97 Phil.731.
104
Barrozo v. Macaraig, 83 Phil. 378; DBP v. Vda. de Moll, 68 O.G. 12, Mar. 20,
1972; 43 SCRA 82.
105
Gonzalo Puyat & Sons, Inc. v. PNB, 114 Phil. 1202.
366
367
49.
106
107
368
369
53.
111
370
114
115
371
the debtor has conveyed his interest in the property for the purpose
of redemption; or one who succeeds to the interest of the debtor by
operation of law; or one or more joint debtors who were joint owners
of the property sold; or the wife as regards her husbands homestead
by reason of the fact that some portion of her husbands title passes
to her.117
However, although the notice of foreclosure sale was duly published, the sale did not take place as scheduled but instead, it was
held more than two months after the published date of the sale. This
renders the sale void.
54.
372
117
Sec. 6, Act 3135, as amended by Act 4118; Gorospe v. Santos, G.R. No. L-30079,
Jan. 30, 1976; 72 O.G. 5251, May 17, 1976; 69 SCRA 191.
118
Salazar v. Meneses, 118 Phil. 512; Reyes v. Noblejas and Santos, G.R. No.
L-23691, Nov. 25, 1967; 65 O.G. 21, May 26, 1969; 21 SCRA 1027; Santos v. RFC, 101
Phil. 980; Reyes v. Tolentino, G.R. No. L-29142, Nov. 29, 1971; 42 SCRA 365.
119
Lazo v. Rep. Surety & Ins. Co., Inc. G.R. No. L-27365, Jan. 30, 1970; 66 O.G.
28, July 13, 1970; 31 SCRA 329.
373
monwealth Act No. 141 otherwise known as the Public Land Act.120
On the question of when to commence the running of the ve-year
period, it was held that the period within which a homesteader or his
widow or heirs may repurchase a homestead sold at public auction
or foreclosure sale under Act No. 3135, as amended, begins not on
the date of the sale when merely a certicate is issued by the sheriff
or other ofcial, but rather on the date after the expiration of the
one-year period of repurchase provided by said law, when the deed
of absolute sale is executed and the property formally transferred to
the purchaser.121 In support of this conclusion, the Supreme Court
cited an earlier case,122 wherein it was held that the certicate of sale
issued to the purchaser at an auction sale is intended to be a mere
memorandum of the purchase. It does not transfer the property, but
merely identies the purchaser and the property, states the price
paid and the date when the right of redemption expires. The effective
conveyance is made by the deed of absolute sale executed after the
expiration of the period of redemption.
his right of redemption, it is the policy of the law to aid rather than
to defeat his right. It stands to reason, therefore, that redemption
should be looked upon with favor and where no injury is to follow, a
liberal construction will be given to our redemption laws as well as
to the exercise of the right of redemption. As to the redemption price,
it is not the amount of the mortgage loan but the auction purchase
price plus 1% interest per month on said amount up to the time of
redemption, together with the taxes or assessment, if any, paid by
the purchaser after the purchase.124
120
Cassion, et al. v. Philippine National Bank, 89 Phil. 560.
121
Paras v. Court of Appeals, et al., 91 Phil. 389; Manuel v. Phil. National Bank,
101 Phil. 968.
122
Gonzales v. Calimbas, 51 Phil. 355.
123
General v. Barrameda, G.R. No. L-29906, Jan. 30, 1976; 72 O.G. 5006, May,
1976; 69 SCRA 182.
124
Tolentino v. Ct. of App., Bank of P.I., et al., G.R. No. 50405-06, Aug. 5, 1981;
106 SCRA 513.
125
DBP v. Mirang, G.R. No. L-29130, Aug. 8, 1975; 72 O.G. 1424, Feb. 1976; 66
SCRA 141.
126
Rosales v. Yboa, Reg. of Deeds of Samar, G.R. No. L-42282, Feb. 28, 1983; 120
SCRA 869.
374
375
Under Section 3 of Rule 68 of the Rules of Court the sale pursuant to a judicial foreclosure, when conrmed by an order of the court,
shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. The saving clause quoted refers to
the right of redemption expressly authorized by special laws, such as
Acts 2747 and 2938, known as the charter of the Philippine National
Bank, and Commonwealth Act No. 459 creating the Agricultural and
Industrial Bank (succeeded by the Rehabilitation Finance Corporation now the Development Bank of the Philippines), which allow the
redemption in the foreclosure of mortgages executed in favor of said
banks. Where the mortgage was not executed under any of the said
special laws, its foreclosure does not come within the purview of the
said saving clause.128 The period of redemption allowed is one year,
to be counted not from the date of the foreclosure sale but from the
date of the conrmation thereof by the court.129 This is so because
the acceptance of a bid at the foreclosure sale confers no title on the
purchaser. Until the sale has been validly conrmed by the court, he
is nothing more than a preferred bidder. Title vests only when the
sale has been validly conrmed by the court.130
Where the property sold as a consequence of foreclosure of
mortgage is subject to redemption by the mortgagor partnership, a
Suppose the buyer at the foreclosure sale, during the period of redemption, resells the property to another for an amount greater than
the mortgage obligations, the question to be determined is whether
the mortgagor should repurchase the property from the buyer at the
foreclosure sale or from the subsequent purchaser, and in the latter
case, what may be the amount to be paid by him as consideration for
the repurchase. Here it was held that the mortgagor is entitled to
repurchase the property either from the buyer at the foreclosure sale
or from his transferee, and the amount to be paid therefore should
be only such amount as may correspond to the principal obligation
and the accumulated interest thereon up to and including the time
of actual repurchase. A different ruling would render it easy for the
buyer at the foreclosure sale to render nugatory the right of repurchase granted by law to the mortgagor, by conveying the property to
another person for an amount beyond the capacity of said mortgagor
to pay.132
How much to pay in case of redemption of a real property mortgaged.
How much should a mortgagor pay to redeem a real property
mortgaged if foreclosed extrajudicially by the Development Bank of
the Philippines? Must he pay to the bank the entire amount he owed
the latter on the date of the sale with interest on the total indebtebness at the rate agreed upon in the obligation, or is it enough for
purposes of redemption that he reimburses the amount of purchase
with one per cent (1%) monthly interest thereon including other expenses defrayed by the purchaser at the extrajudicial sale?
127
128
129
376
132
377
This was the question in DBP vs. West Negros College, Inc.,
G.R. No. 152359, Oct. 28, 2002.
The Supreme Court said where the real property is mortgaged to
and foreclosed judicially or extrajudicially by the Development Bank
of the Philippines, the right of redemption may be exercised only by
paying the bank all the amount he owed the latter on the date of the
sale, with interest on the total indebtedness at the rate agreed upon
in the obligation from said date, unless the bidder has taken material possession of the property or unless this had been delivered to
him, in which case the proceeds of the property shall compensate the
interest. This rule applies whether the foreclosed property is sold to
the DBP or another person at the public auction, provided of course
that the property was mortgaged to DBP. Where the property is sold
to persons other than the mortgagee, the procedure is for the DBP
in case of redemption, to return to the bidder the amount it received
from him as a result of the auction sale with the corresponding interest paid by the debtor.
The foregoing rule is embodied consistently in the charters of
petitioner DBP and its predecessor agencies. Section 31 of CA 459
creating the Agricultural and Industrial bank explicitly set the redemption price at the total indebtedness plus contractual interest
as of the date of the auction sale. Under R.A. 85 the powers vested
in and the duties conferred upon the Agricultural and Industrial
Bank by C.A. 459 as well as its capital, assets, accounts, contracts
and choses in action were transferred to the Rehabilitation Finance
Corporation. It has been held that among the salutary provisions of
C.A. 359 ceded to the Rehabilitation Finance Corporation by R.A. 85
was Sec. 31 dening the manner of redeeming properties mortgaged
with the corporation. Subsequently, by virtue of R.A. 2081, the powers, assets, liabilities and personnel of the Rehabilitation Finance
Corporation under R.A. 85 and C.A. 459, particularly Sec. 31 thereof,
were transferred to petitioner DBP. Signicantly, Sec. 31 of C.A. 459
has been reenacted substantially in Sec. 16 of the present charter of
the DBP, i.e., E.O. 81 (1986) as amended by R.A. 8523.
Development Bank of the Philippines vs. CA notes the impressive consistency of the successive charters of the DBP with respect
to the manner of redeeming properties mortgaged to it
Prior to the enactment of E.O. 82, the redemption price for
property foreclosed by the Development Bank of the Philippines,
378
whether judicially or extrajudicially, was determined by Commonwealth Act No. 459, which contained a provision substantially similar to Section 16 of E.O. 81 insofar as the redemption
price was concerned x x x Thus, in DBP vs. Mirang (66 SCRA
141), the Supreme Court held that appellant could redeem the
subject property by paying the entire amount he owed to the
bank on the date of the foreclosure sale, with interest thereon at
the rate agreed upon, pursuant to Section 31 of C.A. 459. The
ruling herein was reiterated by the Supreme Court in the more
recent case of Dulay vs. Cariaga (123 SCRA 794). In the earlier
case of Nepomuceno vs. Rehabilitation Finance Corporation (110
Phil. 42), the Supreme Court explained that Section 31 of C.A.
459, being a special law applicable only to properties mortgaged
to the Rehabilitation Finance Corporation the predecessor of
DBP should prevail over Section 6 of Act No. 3135, which is
the more general law applicable to all mortgaged properties extrajudicially foreclosed, regardless of the mortgage. (G.R. No.
139034, June 6, 2001)
In Development Bank of the Philippines vs. Jimenez, the Supreme Court claried the proper applications of Sec. 31 of C.A. 459
and Sec. 30, Rule 39 of the Rules of Court, where it was held that
Section 31 of Commonwealth Act No. 459, and not Section 26, Rule
39, of the Rules of Court, is applicable in case of redemption of real
estate mortgaged to the DBP to secure a loan. As such, the redemption price to be paid by the mortgagor or debtor to the DBP is all the
amount he owes the latter on the date of the sale, with interest on
the total indebtedness at the rate agreed upon, and not merely the
amount paid for by the purchaser at the public auction, pursuant to
Section 26, Rule 39, of the Rules of Court. (36 SCRA 426). Clearly
the redemption of properties mortgaged with the Development Bank
of the Philippines and foreclosed either judicially or extrajudicially
is governed by special laws which provide for the payment of all the
amounts owed by the debtor. This special protection given to a government lending institution is not accorded to judgment creditors in
ordinary civil actions. (Dulay vs. Carriaga, 208 Phil. 702).
It is worth noting that the mortgage contract between petitioner
DBP and Bacolod Medical Center as assignor of respondent West
Negros College was expressly constituted, subject to the provisions
of R.A. 85 which by explicit reference include Sec. 31 of C.A. 459
379
56.
Section 78 of the General Banking Act governs the determination f the redemption price of the subject property. In Ponce de Leon
vs. Rehabilitation Finance Corporation, 146 SCRA 862, the Court had
occasion to rule that Section 78 of the General Banking Act had the
effect of amending Section 6 of Act No. 3135 insofar as the redemption price is concerned when the mortgagee is a bank, as in this case,
or a banking or credit institution. The apparent conict between the
provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor of the latter, being a special and subsequent
legislation. This pronouncement was reiterated in the case of Sy
vs. CA, 172 SCRA 125 where it was held that the amount at which
the foreclosed property is redeemable is the amount due under the
mortgage deed, or the outstanding obligation of the mortgagor plus
interest and expenses in accordance with Section 78 of the General
Banking Act. It was therefore manifest error on the part of the Court
of Appeals to apply in the case at bar the provisions of Section 30,
Rule 39 of the Rules of Court in xing the redemption price of the
subject foreclosed property.
57.
may still be exercised to be reckoned from the date the property involved was formally transferred to, and the ownership thereof vested
in, the purchaser at public auction.
Registration is not the equivalent of title. (Lee Tek Sheng vs. CA,
292 SCRA 544). Under the Torrens system, registration only gives
validity to the transfer or creates a lien upon the land. (Sajonas vs.
CA, 258 SCRS 79). It was not established as a means of acquiring
title to private land because it merely conrms, but does not confer,
ownership. (Republic vs. CA, 301 SCRA 366). The preferential right
of the rst registrant of a real property in a case of double sale is
always qualied by good faith under Article 1544 of the Civil Code.
(Baricuatro vs. CA, 325 SCRA 137). A holder in bad faith of a certicate of title is not entitled to the protection of the law, for the law
cannot be used as a shield for fraud. (Baricuatro vs. CA, supra.).
58.
133
Gorospe v. Gochangco, G.R. No. L-12735, Oct. 30, 1959; 58 O.G. 21, p. 4189,
May 21, 1962, 106 Phil. 425.
134
See Secs. 7 and 9, Act 3135, as amended by Act 4118.
135
IFC Service Leading & Acceptance Corp. v. Nera, 19 SCRA 181; Barrameda
v. Gontang, et al., 125 Phil. 787.
136
Gracia v. San Jose, et al., 94 Phil. 623; Butte v. Lano, 58 O.G. 37, Sept. 10,
1962, CA.
137
Banco Filipino Savings & Mortgage Bank v. IAC, L-68878, April 8, 1986, 142
SCRA 44-48.
387
said property as against all other persons. Besides under Section 35,
Rule 39 of the Revised Rules of Court the purchaser or his assignee
is entitled to possession if no redemption is made within 12 months
after the sale.138
59.
138
United Coconut Planters Bank vs. Reyes, G.R. No. 95095, Feb. 7, 1991, 193
SCRA 756.
The deed of sale must be executed by the attorney-in-fact appointed in the special power of attorney inserted in or attached to
the mortgage, and not by the ofcial who conducted the sale at public
auction. Registration is effected by means of a memorandum on the
back of the certicate of title, in the same way as an ordinary deed
of sale with pacto de retro is registered. After the expiration of one
year from the date of the sale, an afdavit of the purchaser, showing
that the said period has expired and that the right of the vendor or
any interested party to redeem the property has not been exercised,
is considered sufcient for the purpose of registering the consolidation of ownership or issuing the corresponding transfer certicate of
title, provided the outstanding owners duplicate certicate is surrendered. Section 78 of Act No. 496 (now Section 75 of P.D. 1529) is not
388
389
60.
In judicial foreclosure of mortgage there is no question that deciency judgment may be asked and granted inasmuch as this recourse
is expressly provided in Rule 68, Section 6, of the Rules of Court.
But in extrajudicial foreclosure, which is resorted to in accordance
with Act No. 3135, as amended, the law is silent as to whether the
mortgagee may recover the deciency arising from the extrajudicial
foreclosure sale. This open gap in the law has been supplied by the
Supreme Court after considering that said Act No. 3135, as amended,
neither contains any provision which expressly or impliedly prohibits
such recovery, by so holding that Article 2131 of the new Civil Code,
the Rules of Court (Section 6, Rule 68) and the Mortgage Law would
justify the recovery of the deciency by the mortgagee. It noted that
after all a mortgage is but a security for and not a satisfaction of
an indebtedness, and when the legislature expressly provides for
the foreclosure thereof it can only mean that it intends to give the
creditor the right to sue for any deciency that may result from such
foreclosure.140
oOo
139
Deeds.
Phil. Bank of Commerce v. Vera, 6 SCRA 1026; Dev. Bank of the Phil. v.
Mirang, G.R. No. L-29130, Aug. 8, 1975; DBP v. Zaragoza, L-23493, Aug. 23, 1978.
140
390
391
CHATTEL MORTGAGES
3.
Chapter XII
CHATTEL MORTGAGES
1.
Preliminary statement.
At common law a chattel mortgage is a sale of personalty conveying the title to the mortgagee under the condition that, if the
terms of redemption are not complied with, then the title becomes
absolute in the mortgagee. Thus, according to Thomas on Mortgages,
it is a transfer of personal property as security for a debt or obligation in such form that, upon failure of the mortgagor to comply with
the terms of the contract, the title to the property will be in the
mortgagee. Similarly, according to Jones on Chattel Mortgages, it is
a conditional sale of chattel as security for the payment of a debt or
the performance of some other obligation.
The Philippines not being a common-law country, we cannot
look upon a chattel mortgage as a sale or something that transfers
title. Yet, our Chattel Mortgage Law denes it in a tenor conveying
the idea of a conditional sale, as follows:
A chattel mortgage is a conditional sale of personal property as security for the payment of a debt, or the performance of
some other obligation specied therein, the condition being that
the sale shall be void upon the seller paying to the purchaser a
sum of money or doing some other act named. If the condition
is performed according to its terms the mortgage and sale immediately becomes void, and the mortgagee is thereby divested
of his title.1
On the other hand, the New Civil Code of the Philippines denes
a chattel mortgage with an apparently different view, as follows:
Art. 2140. By a chattel mortgage, personal property is
recorded in the Chattel Mortgage Register as a security for the
performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage.
Before the adoption of the Civil Code embodying the foregoing
denition, our Supreme Court, cognizant of the fact that the denition in the Chattel Mortgage Law may not convey the right meaning
393
CHATTEL MORTGAGES
But it should not be overlooked that the mortgagor has also the
right of possession. Thus, where a car was mortgaged, and then it was
attached and levied on in a separate proceeding and subsequently
sold at public auction, the purchaser is entitled to take over the possession thereof, but only subject to the mortgage lien. The mortgagee
cannot insist that he settles the mortgage obligation rst, inasmuch
as the purchaser merely steps into the shoes of the mortgagor who
is entitled to the right of possession before the mortgage shall have
been foreclosed and the car sold at public auction as a consequence
thereof.6
But, where the condition of the chattel mortgage as registered
prior to the levy on execution had been broken and the mortgagee
already instituted an action for replevin to take over the possession
of the mortgaged property preparatory to the foreclosure sale, the
mortgagee has a superior, preferential and paramount right to have
the possession thereof and to claim the proceeds of the execution sale
under the attachment. The execution creditor could have levied only
upon the right or equity of redemption pertaining to the mortgagor
inasmuch as that is the only leviable or attachable property right of
said mortgagor in the mortgaged property.7
Chattel mortgage.
The accessory contract of chattel mortgage has no legal effect
whatsoever where the mortgagor is not the absolute owner of the
property mortgaged, ownership of the mortgagor being an essential
requirement of a valid mortgage contract. The manifestations of
ownership are control and enjoyment over the thing owned. While
there were documents, like the registration certicate, receipt and
2
Bachrach Motor Co. v. Summers, 42 Phil. 3, 8.
3
Martinez v. Phil. Nat. Bank, 93 Phil. 765; Warner, Barnes & Co. v. Flores,
G.R. No. L-12377, March 29, 1961; 58 O.G. 39, p. 6258, Sept. 24, 1962; 111 Phil. 483,
1 SCRA 881.
4
Meyers v. Thein, 15 Phil. 303.
5
Manila Mercantile Co. v. Flores, 50 Phil. 759, 763.
394
395
CHATTEL MORTGAGES
sales invoice that were signed, such were merely parts of the processing and for the approval of their application to buy the subject motor
vehicle.
5.
CHATTEL MORTGAGES
In an actual case where it was sought to register a chattel mortgage covering a house and the Register of Deeds refused to admit
same to record, our Supreme Court ruled that the duties of the Register of Deeds in respect to the registration of chattel mortgages are
purely of a ministerial character, and he is clothed with no judicial or
quasi-judicial power to determine the nature of the property, whether
real or personal, which is the subject of the mortgage. Generally
speaking, he should accept the qualication of the property adopted
by the person who presents the instrument for registration and
should place the instrument on record, upon payment of the proper
fees, leaving the effects of registration to be determined by the court
if such question should arise for legal determination. Registration
adds nothing to the instrument, considered as a source of title, and
affects nobodys rights except as a species of constructive notice.13
However, while the dicta in the decisions of the Supreme Court14
and of the Court of Appeals15 have tended to erode the doctrine of
Leung Yee vs. Strong Machinery Co., supra, and admitted the validity
of chattel mortgages on houses built on rented land, it is well to note
that the cases mentioned were predicated on statements by the owner
declaring his house to be a chattel, a conduct that may conceivably
stop him from subsequently claiming otherwise. They are not applicable to a case where no similar declaration or commitment can be
attributed to the owner of the house who built it not as a mere lessee
but occupied the land under a valid contract that said land would be
sold to him. Hence, for purposes of foreclosure or where such house
was object of levy and sale, it should be deemed to be real property,
in which case, the publication in the newspaper of general circulation is indispensable where the assessed value thereof exceeds four
hundred pesos, under Section 18 of Rule 39 of the Rules of Court;
otherwise, the execution sale was void and conferred no title on the
purchaser.16
Likewise, a mortgage contract involving a house and the leasehold right over the land on which said house stands, duly registered
13
10
14
398
464.
15
Evangelista v. Abad, supra; and Tomines v. San Juan, supra.
16
Balagtas v. Arguelles, 57 Phil. 317; Compomanes v. Bartolome, 38 Phil. 808;
Ituralde v. Velasquez, 41 Phil. 886; Lareda v. Hodges, 48 O.G. 12, Dec. 1952, CA.
399
in the Registry of Deeds under Act No. 3344, is not a chattel mortgage
but a real estate mortgage, and the proceeding for its foreclosure is
cognizable by the Court of First Instance.17
Consistent with the same trend, it was held that the mere fact
that a house was the subject of a chattel mortgage and was considered
a personal property by the parties does not make said house personal
property for purposes of notice to be given for its sale at public auction. It remains real property within the purview of Rule 39, Section
18, of the Rules of Court as it has become a permanent xture on
the land, which is real property. The sheriff is therefore bound to
advertise the auction sale of such property as he would have done so
in the case of an execution sale of real property.18
There seems in fact to be a growing tendency to withdraw sanction to a house being considered as proper subject matter of a chattel
mortgage. Thus, it was held that the view as above enunciated that
the parties to a deed of chattel mortgage may agree to consider a
house as personal property, for purposes of such a contract, shall be
deemed good only insofar as the contracting parties are concerned
and is not applicable to strangers to the contract or to a case where
there is no contract whatsoever with respect to the status of the
house.19 Consequently, the right under such a chattel mortgage over
a house may yield to that under a real estate mortgage subsequently
constituted in which such house was included as security, in spite
of the prior registration of the chattel mortgage. A house cannot be
divested of its character as real property although the land on which it
is erected may belong to another, so that a chattel mortgage executed
covering said house is clearly invalid and a nullity, its registration
in the chattel mortgage register notwithstanding; and a mortgage
creditor who purchases such real property at an extrajudicial foreclosure sale thereof by virtue of a chattel mortgage constituted in his
favor acquires no right thereto by virtue of the sale as against third
persons.20
CHATTEL MORTGAGES
7.
Machinery and xture are personal property by their very nature, and there can be no question that as a rule they may be object
of chattel mortgage. However, if they are attached to real property
or placed in a factory building or plant, with the character of permanence according to their purpose and in such manner that they cannot
be detached therefrom without causing destruction of, or material
injury to, the things real with which they are connected, they would
be regarded as part of the real estate, and therefore cannot be object
of a valid chattel mortgage. This is particularly true if the owner of
the machinery or xture and the owner of the building or plant were
they are installed or attached and the owner of the land where the
building is erected are one and the same person. On the other hand,
if they are so placed by a tenant, or a usufructuary, or someone else
having only a temporary right on the real property, then they may
be treated as movable property and made object of a valid chattel
mortgage.21
8.
17
18
19
400
21
Ford v. Cobb, 20 N.Y. 344; Standard Oil Co. of New York v. Jaramillo, 44 Phil.
630; Davao Sawmill Co., Inc. v. Castillo, et al., 61 Phil. 709.
22
Involuntary Insolvency of Strocheker v. Ramirez, 44 Phil. 933.
401
CHATTEL MORTGAGES
Asayas, with all the merchandise, effects, wares and other bazaar
goods contained in the said store, it was held to be impossible of
identication, and the chattel mortgage considered not in order.23
At common law all annual crops which are raised by yearly manurance and labor and essentially owe their existence to cultivation may
be levied on as personal property. As ungathered products, they
have the nature of personal property, at least for the purposes of the
Chattel Mortgage Law.28
On the other hand, Section 7 of Act No. 1508 does not demand a
minute and specic description of every chattel mortgaged in the deed
of mortgage but only requires that the description thereof be such
as to enable the parties in the mortgage, or any other person, after
reasonable inquiry and investigation, to identify the same. Gauged
by this standard, general descriptions have been held valid.24
9.
Growing crops, like ungathered sugar cane in the eld, are personal property and as such may be subject matter of chattel mortgage.
402
28
29
403
CHATTEL MORTGAGES
Under the provisions of Section 5 (e) of the Revised Motor Vehicles Law, whenever any owner mortgages any motor vehicle as
security for a debt or other obligation, the creditor or person in whose
favor the mortgage is made is required, within seven days, to notify
the Chief of the Motor Vehicles Ofce in writing to that effect, stating
the registration number of the motor vehicle, date of mortgage, names
and addresses of both parties, and such other information as may be
30
Reynolds v. Nielson, 96 Am. Rep. 1000; Atlantic Maritime Co. v. City of
Gloucester, 117 N.E. 924.
31
McMicking v. Banco Espaol-Filipino, 13 Phil. 429; Arroyo v. Yu de Sane, 54
Phil. 511.
32
Rubiso and Gelito v. Rivera, 37 Phil. 72; Arroyo v. Yu de Sane, supra.
33
58 C.J. 92; Philippine Rening Co. v. Jarque, 61 Phil. 229, 231-232.
34
Borlough v. Fortune Enterprises, Inc., 100 Phil. 1063; Martin v. Gomez, 56
O.G. 14, April 4, 1960, CA; Aleman v. Catera, 111 Phil. 377.
35
Fortune Enterprise, Inc. v. Obieta, 58 O.G. 51, Dec. 17, 1962, CA.
36
Montano v. Lim Ang, 117 Phil. 262.
404
405
CHATTEL MORTGAGES
14.
38
37
39
406
407
CHATTEL MORTGAGES
41
PD 1521, Sec. 3.
Monserrat v. Ceron, et al., 58 Phil. 469.
16.
Sufciency of registration.
229.
42
408
44
409
CHATTEL MORTGAGES
17.
Effect of registration.
45
Salcedo v. Lim Ang, et al., No. 16996-R, Feb. 20, 1958, 54 O.G. 18, p. 5153,
Aug. 11, 1958, CA.
46
10 Am. Jur. 779.
47
Ledesma v. Perez, 58 O.G. 42, Oct. 15, 1962, CA.
410
411
48
49
While a mortgagor of real estate may sell the mortgaged property even without the consent of the mortgagee, the rule is not true
in the case of a chattel mortgage. Under the provisions of Article 319,
paragraph 2, of the Revised Penal Code, any mortgagor who shall sell
or pledge personal property already pledged or mortgaged under the
Chattel Mortgage Law, without the consent of the mortgagee written on the back of the mortgage and noted on the record thereof in
the ofce of the Register of Deeds of the province or city where such
property is located, incurs criminal responsibility. A mere stipulation
in the deed of sale that it revokes the chattel mortgage and quashes,
nullies and terminates all proceedings, judicial or extrajudicial,
arising out of and incident to the transaction, does not and cannot
have the effect of wiping out the criminal liability. And this is true
even in those cases where the purchaser or pledgee has knowledge of
the fact that the things he bought or accepted as security for a loan
are encumbered by a prior loan, for the seller or pledgor is criminally
responsible where he sells or pledges the chattel without the written
consent of the rst mortgagee.52
20.
51
Northern Motors, Inc. v. Coquia, G.R. No. L-40018, Mar. 21, 1975, 71 O.G.
5808, Sept., 1975; 63 SCRA 200.
52
People v. Alvarez, 45 Phil. 472; People v. Ferrer, 51 O.G. 12, Dec. 1955, CA;
People v. Daproza, 62 O.G. 33, Aug. 16, 1966, CA.
53
Garcia v. Ty Camco Sobrino, 67 Phil. 384.
412
CHATTEL MORTGAGES
21.
54
55
56
192.
413
CHATTEL MORTGAGES
the creditor who invokes the Chattel Mortgage Law, a question may
incidentally crop up, and that is: Which of the two laws should properly apply, or in case they come into conict, which should prevail?
In such a predicament it may sufce to call attention to the fact that
the provisions of the Civil Code on pledge seem to be subordinate to
the Chattel Mortgage Law and may only apply to chattel mortgages
if and when they do not come in conict with the latter law, Article
2141 of the new Civil Code providing that its provisions on pledge,
only insofar as they are not in conict with the Chattel Mortgage
Law, shall be applicable to chattel mortgages.
22.
57
Malonzo v. Luneta Motors Co., et al., 52 O.G. 12, Sept. 30, 1956, CA; People
v. Mata, 58 O.G. 39, Sept. 24, 1962, CA.
414
415
58
59
60
23.
63
64
CHATTEL MORTGAGES
tel mortgages not only a chattel mortgage and the discharge thereof
but also an assignment and such other instruments relating to the
recorded mortgage.66
25.
Upon settlement of the principal obligation secured by the chattel mortgage, the mortgagee is required to execute a discharge of the
mortgage in the manner provided by law. In case of his failure to do
so, within ten days after being requested by the mortgagor or any
other person entitled to redeem, the mortgagee may be held liable
for his negligence as well as for all damages occasioned thereby in
an action in any court having jurisdiction over the subject matter
thereof, as provided by Section 8 of the Chattel Mortgage Law.
26.
When the condition of a chattel mortgage is broken, the mortgagor or person holding a subsequent mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the
mortgagee the amount due on such mortgage and the reasonable costs
and expenses incurred by such breach of condition before the sale
thereof. An attaching creditor who so redeems shall be subrogated
to the rights of the mortgagee and entitled to foreclose the mortgage
in the same manner that the mortgagee could foreclose it by terms
of the law.67
After a rst mortgage has been executed by the mortgagor, what
remains with him is a mere right of redemption, and only this right
passes to the second mortgagee when a second mortgage is executed.
It was held therefore that as between the rst and second mortgages,
the second mortgagee has at most only the right to redeem, and even
when the second mortgagee goes through the formality of a foreclosure, the purchaser acquires no more than the right of redemption
from the rst mortgagee.68
66
647.
65
416
67
68
417
27.
Before foreclosure may be resorted to, it is necessary as a condition precedent that there be a violation of the condition of the chattel mortgage and that at least thirty days shall have elapsed since
then.69
28.
Alternatives in foreclosure.
CHATTEL MORTGAGES
1484, 1485 and 1486 of the Civil Code relating to chattel mortgages
constituted in connection with sales on installment basis.72
Of course, the embodiment of the real estate mortgage and the
chattel mortgage in one single document does not fuse both securities
into one indivisible whole, and, therefore, the mortgagee may foreclose the real estate mortgage and waive the chattel mortgage and
maintain instead a personal action for the recovery of the balance of
the credit.73
However, where there is no allegation in the complaint nor does
the deed of mortgage show that the mortgaged property is valued at
more than P10,000 and the amount of the demand does not exceed
said gure, exclusive of interest and costs, the case comes within the
jurisdiction of the Justice of the Peace or Municipal Court.74
29.
2.
3.
418
419
69
70
72
73
74
5.
30.
Within thirty days after the sale, the public ofcial who
conducted the sale makes a return of his doings, the same
to be led and recorded with the Ofce of the Register of
Deeds where the mortgage has been recorded. The ofcers
return describing the articles sold and stating the amount
received for each article operates as a discharge of the lien
created by the mortgage.
The proceeds of the sale will be distributed and applied to
the following payments:
(a)
(b)
(c)
(d)
Balance turned over to the mortgagor or person holding under him on demand.
CHATTEL MORTGAGES
In a sale of personal property on the installment plan, the vendor may elect to exact the fulllment of the obligation if the vendee
defaults, or cancel the sale, or foreclose his mortgage if one has been
given on the property so sold. If he elects to cancel or foreclose he
is bound by the provisions of Article 1454-A (now 1484 and 1485) of
the Civil Code.76 Where the vendor, however, has chosen to exact the
fulllment of the obligation, he may enforce execution of the judgment
rendered in his favor on the personal and real properties of the vendee
not exempt from execution sufcient to satisfy the judgment.77
The law on this point has been made clear by Articles 1484 and
1485 of the New Civil Code of the Philippines, reading as follows:
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 fulllment of the obligation, should the vendee fail
to pay;
(2) Cancel the sale, should the vendees failure to pay cover
two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendees 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.
75
76
77
421
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option
to buy, when the lessor has deprived the lessee of the possession
or enjoyment of the thing.
It is quite clear that under the above-quoted provisions of
law foreclosure of the chattel mortgage and recovery of the unpaid
balance of the price are alternative remedies, not cumulative, and
may not be pursued conjunctively. Thus, by having seized the truck
sold on installment basis and foreclosed the mortgage, the vendor
renounced whatever claim he may have under the promissory note,
and consequently he has no more cause of action against the promissor and the guarantor, if any.78 But where the buyer on installment
basis and mortgagor has defaulted and the action instituted by the
mortgagee is for specic performance and the mortgaged property is
subsequently attached and sold, the sale thereof does not amount to
a foreclosure of the mortgage; hence, the seller-creditor is entitled to
deciency judgment.79
Suppose aside from the chattel mortgage constituted by the
vendee in connection with a sale on installment basis, there was a
guarantor to secure full payment, and the vendor as mortgagee, instead of exacting fulllment of the obligation, has chosen to foreclose
the chattel mortgage, and it resulted that the proceeds of the sale
are not sufcient to cover the obligation. Of course, the mortgagee
has no recourse to recover the deciency from the mortgagor under
Article 1484, sub-paragraph 3 of the Civil Code. May the guarantor
be held liable therefor? It is submitted that the guarantor under the
circumstance may not be held liable to pay the deciency because if
he should be compelled to pay such deciency or the balance of the
purchase price, the guarantor will in turn be entitled to recover what
he has paid from the debtor, so that ultimately it will be the vendee
who will be made to bear the payment of the balance of the purchase
price, despite the earlier foreclosure of the chattel mortgage given by
him. Thus, the protection given him by Article 1484 of the Civil Code
would be indirectly subverted, and public policy overturned.80
CHATTEL MORTGAGES
32.
While the law designates the place where the auction sale of the
mortgaged chattel may take place, namely, at a public place in the
municipality where the mortgagor resides or where the property is
situated, it has been held that such sale may be held somewhere else,
provided that the owner thereof consents thereto or that there is an
agreement to that effect between the mortgagor and the mortgagee.
This ruling is based upon the legal principle that a person may waive
any right conferred upon him by law, unless such waiver is prohibited
or is not authorized by law because it is against public interest or
prejudicial to a third person.81
The parties may also agree to have the property sold at the residence of the mortgagor, in which event the mortgagee has no power
and authority to select from among the places provided for in the law
and the place designated in their agreement, over the objection of the
mortgagor.82
On the other hand, where the mortgagee removes the mortgaged
chattel to another province, without the consent of the mortgagor,
and there causes it to be sold, although there has been publication of
notice in the municipality where the sale is effected, the mortgagee
in effect unlawfully converts the property and is liable to the mortgagor for its full value.83 The mortgagee has no right to appropriate
for himself the property nor can he make payment by himself and to
himself for his own credit with the value thereof, because he is only
permitted to recover his credit from the proceeds of the sale at public
auction.84
33.
422
423
78
79
81
CHATTEL MORTGAGES
ciency. The fact that Act No. 1508 permits a private sale, such sale
is not, in fact, a satisfaction of the debt, to any greater extent than
the value of the property at the time of the sale. The amount received
at the time of the sale, of course, is only a payment pro tanto, which
stands to reason why an action may be maintained for a deciency
in the debt. To deny to the mortgagee the right to maintain an action
to recover the deciency after the foreclosure of the chattel mortgage
would be, according to that ruling, to overlook the fact that the chattel
mortgage is only given as a security and not as payment for the debt
in case of failure of payment.85
85
Bank of P.I. v. Olutanga Lumber Co., 47 Phil. 20; Manila Trading & Supply
Co. v. Tamaraw Plantation Co., 47 Phil. 513.
86
Manila Motor Co. v. Fernandez, 99 Phil. 783.
424
By way of comment and with all due respect to the more recent
ruling referred to in the preceding paragraph, however, it may be
worth observing that the decision did not point out where the conict
between the Civil Code and the Chattel Mortgage Law exactly lies on
the matter of recovering deciency after the foreclosure sale of the
mortgaged chattel. It may be repeated here that the Chattel Mortgage
Law is silent on that point. On the other hand, besides the Civil Code
providing in the case of pledge that the sale of the thing pledged shall
extinguish the obligation regardless of whether the proceeds thereof
are sufcient or not (Article 2115), a rule of similar pattern is found
also in Article 1484 of the same Code but only in relation to a chattel
mortgage constituted upon personal property purchased on installment basis precluding the mortgagee to maintain any further action
against the debtor for the purpose of recovering whatever balance of
the debt secured, and even adding that any agreement to the contrary shall be null and void. Again, it is a well-settled rule that if a
mortgagee elects as he may do to waive the foreclosure of the chattel
mortgage and bring, instead, an ordinary action in Court to recover
the debt with the right to execute the judgment on all the properties
of the debtor including the chattel mortgaged, and he should fail in
the remedy by him so elected, he utterly fails.88 Conversely, it would
seem that where the mortgagee elects to foreclose the mortgage and
he fails, he can no longer pursue the other remedy of maintaining a
separate action to recover. Thus, it should be a matter of exercising a
sound judgment in the choice of the most appropriate remedy under
the circumstances. To allow the foreclosure of a chattel mortgage
and the subsequent separate action in court for the recovery of the
deciency would seem to be violative of an old maxim nemo debet
87
88
425
bis vexari pro una et cadem causa (no man shall be twice vexed for
one and the same cause).
An analysis of the previous decisions89 of the Supreme Court
permitting the maintenance of a separate action in case deciency in
the proceeds of the sale in foreclosure of chattel mortgage will reveal
the fact that the conclusion had to be arrived at in order that a chattel
mortgage which is a contract of security may not be treated wrongly
as a sale of personal property. But we cannot fail to observe that, according to the present trend as evident in the existing legal provisions
on pledge as well as on chattel mortgage constituted to guarantee
the price of personal property purchased on the installment basis,
the recovery of any deciency after the foreclosure sale is expressly
prohibited under any circumstance. Obviously, in both transactions
we do have contracts of security, and not of sale, and yet no further
recourse is given to the creditor who chooses to foreclose.
oOo
Chapter XIII
LEASES
1.
Lease in general.
426
427
LEASES
the same property. When the contract of lease was presented to the
Ofce of the Register of Deeds for registration, the mortgagee refused
to surrender the certicate of title and objected to the registration
on the ground that such contract violated the prohibition regarding
subsequent encumbrance of the same property. In passing upon the
propriety of the registration of the lease, the court held that in spite of
the prohibition contained in the contract of mortgage, the subsequent
lease of the property may still be registered, without prejudice to the
right to foreclose the mortgage in view of the alleged violation. The
mere registration of the lease will not operate to destroy the mortgage
rights. In elaborating on this point, the court states that the purpose
of registering an instrument is to give notice thereof to all persons;7 it
is not intended by the proceedings for registration to seek to destroy
or otherwise affect already registered rights over the land, subsisting
or existing at the time of the registration. The rights of the parties,
which have been registered, are not put in issue when an instrument
is subsequently presented for registration; nor are its effects on other
instruments previously registered put in issue by the procedure of
registration.8
3.
Registration of leases.
Sipin, et al. v. CFI, et al., 74 Phil. 649; Tan Han Co v. Tuazon, 59 O.G. 6259.
Ng Siu, Tam, et al. v. Amparo, 80 Phil. 921.
Gozon v. Dela Rosa, 77 Phil. 752; Taysan v. Icasiano, 46 O.G. 458; Yan v.
Panlilio, et al., CA-G.R. No. 8601-R, Dec. 26, 1951; and Go King v. Geronimo, et al.,
81 Phil. 445.
5
Act No. 496, Sec. 64; PD 1529, Sec. 60.
6
Yusay v. Alojado, 107 Phil. 1156.
2
3
428
7
8
9
429
LEASES
who had no notice of the unregistered lease. In other words, the law
did not mean to make the act of registration an essential requisite
for the validity of the contract of lease, but has only intended it as a
protection for innocent third persons.10
But, where the property leased is registered not under the old
Mortgage Law but under Act No. 496, in accordance with the Torrens system, the rule is different. The latter Act provides expressly
that all interests and this word includes the interest arising from
a contract of lease even for a period of less than six years in land
registered in the registry under said Act are not only susceptible
of registration therein but must necessarily be registered in order
to affect third persons.13 Under the Torrens system, it is the act of
registration that is the operative act to bind the land and thereby
creates real rights enforceable against the whole world.
6.
While the lease is registrable, the law does not make it the
duty of the lessor to register it. It is for the lessee to ask for such
registration, if he wants to protect his leasehold, and the document
of lease operates as evidence of authority to the Registrar to effect
the registration.11
7.
But now, under Article 1648 of the Civil Code of the Philippines,
a general rule seems to have been set, that is, unless a lease is recorded, it shall not be binding upon third persons. The law makes
no distinction as to whether the real estate being leased has been
originally registered under the Spanish Mortgage Law or under the
Torrens system.
8.
From study of the preceding and the actual state of legislation, we are led to the conclusion that, in our law, the right
created in favor of the lessee by reason of the contract is, as a
general rule, personal in nature; and by exception, real, when it
is among the cases provided for in article 2, No. 5, of the Mortgage Law that is, when the lease is for a period exceeding
six years, or when the rent for three years is paid in advance,
or when there is an express covenant for its inscription in the
registry of deeds, which are the only three cases in which the
lease is registrable.12
10
11
12
Azores v. Lazatin, No. 1253-R, Feb. 23, 1948, 45 O.G. 9, Sept., 1949 CA.
Azores v. Lazatin, supra.
Manresa 637.
430
9.
13
Act 496, Secs. 51 and 52; Employees Club, Inc. v. China Banking Corporation,
60 Phil. 233, 236.
14
Gustilo v. Maravilla, 48 Phil. 442; Dantis v. Castro, 56 Phil. 821; Winkleman
v. Veluz, 43 Phil. 604; Galvan v. Villamil, 44 O.G. 12, December 19, 1948, CA.
15
Rivera v. Trinidad, 48 Phil. 396; Howmart Corp. v. San Juan, 58 O.G. 1, Jan.
1, 1962, CA.
431
432
LEASES
19
Mauleon v. Court of Appeals, et al., G.R. No. L-27762, Aug. 7, 1975; 75 O.G.
10, p. 2416, Mar. 8, 1976; 66 SCRA 92.
20
Secretary of Justice Opinion No. 216, s. 1952.
433
LEASES
On the other hand, where a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens is readily
revealed in the purpose of the contract, then the illicit purpose becomes the illegal cause rendering the contract void. Thus, if an alien
is given not only lease of, but also an option to buy, a piece of land,
by virtue of which the Filipino owner cannot sell or otherwise dispose
of his property, this to last for fty years as in this case, then it becomes clear that the arrangement is a virtual transfer of ownership,
whereby the owner divests himself not only of the right to enjoy the
land (jus possidendi, jus utendi, jus fruendi and jus abutendi), but
also the right to dispose of it (jus disponendi) rights the sum total
of which makes up ownership.22
To counteract and discourage leases of long duration which may
amount to a virtual transfer of ownership to aliens, the maximum
period for leases of private lands to such aliens or alien-owned corporations, associations, or entities not qualied to acquire private
lands in the Philippines, has now been xed to 25 years, renewable
for another period of 25 years upon mutual agreement of both lessor
and lessee.23
11.
A possessor in good faith who builds or makes useful improvements on the estate possessed is entitled to demand payment of the
value thereof and to retain the estate until the expenditures incurred
therein are paid to him, in accordance with Article 453 (now Article
546) of the Civil Code. That right to retain which the possessor has
over the estate is a real right, and may be registered in accordance
with Section 70 et seq. of the Land Registration Act.24
Smith, Bell & Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53.
22
Phil. Banking Corp. v. Lui She, G.R. No. L-17587, Sept. 12, 1967; 65 O.G. 9,
p. 2101, Mar. 3, 1969; 21 SCRA 52.
23
Pres. Decree No. 471, May 24, 1974.
24
Robles v. Lizarraga Hermanos, etc., 42 Phil. 584.
However, the builder cannot be obliged to pay for the land if its
value is considerably more than that of the building. According to
Article 448 of the New Civil Code, in such case he shall pay reasonable rent, if the owner of the land does not choose to appropriate the
building after proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the court shall x
the terms thereof. Under the circumstance it would be inequitable to
compel the builder to pay for the price of the land, which is considerably much more than that of the building.
In a certain instance it was held that a builder in good faith may
not be required to pay rentals. He has a right to retain the land on
which he has built in good faith until he is reimbursed the expenses
incurred by him.26
On the other hand, where the improvements have been introduced on a parcel of land by its purchaser under a deed of sale with
pacto de retro, and there is no stipulation as to the repurchasers
paying for the improvements, the value of the same is irrecoverable
because the purchaser knew that he was introducing said improvements at the risk of losing them should the land be redeemed.27 However, with respect to necessary and useful expenses incurred on the
thing sold, the vendor cannot avail himself of the right to repurchase
without reimbursing the vendee for such expenses and returning the
same price.28 Being a possessor in good faith when he incurred such
expenses, the vendee may retain the thing sold until reimbursement
21
434
26
27
435
LEASES
is made, or in case of useful expenses, until the payment of the increase in value of the thing sold, at the option of the vendor.29
Under Article 527 of the Civil Code, good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof. This legal presumption of good faith
is not quickly transferred into the opposite presumption of bad faith
solely on the basis of the legal ction of constructive notice of the
registration proceeding. So long as the possessor is not actually aware
of any defect invalidating his title or mode of acquisition or any fact
or circumstance which would put a prudent man upon his guard or
require him to discover the aw in his transferors title, just so long
will he be deemed a possessor in good faith with concomitant right
over his improvements.30
In any event the owner of the land where a house was constructed by a builder in good faith is given the choice either to
pay for the value of the house or to require the builder to pay for the
value of the land.31 In case of disagreement, the parties may resort
to the following remedies: (1) The parties may decide to leave things
as they are and assume the relation of lessor and lessee; and should
they disagree as to the amount of the rental, then they can go to the
court to x that amount; (2) Should the parties not agree to assume
the relation of lessor and lessee, the owner of the land is entitled to
have the improvement removed; and (3) The land and the improvement may be sold at public auction, applying the proceeds thereof
rst to the payment of the value of the land and the excess, if any, to
be delivered to the owner of the improvement in payment thereof.32
12.
oOo
29
New Civil Code, Art. 546; Unson, et al. v. Gumban, et al., 55 O.G. 50, Dec. 14,
1959, CA.
30
J.M. Tuason & Co., Inc. v. Lopez, 62 O.G. 23, June 6, 1966, CA.
31
Martin v. Martin, 105 Phil. 750.
32
Filipinas Colleges, Inc. v. Garcia Timbang, 106 Phil. 247.
33
Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348; Arguelles v. Quiapo
Anglo Chinese School, 60 O.G. 36, Sept. 7, 1964, CA.
34
Uy Tayag, et al. v. Caizares, 105 Phil. 484.
436
437
Chapter XIV
1.
Trust, dened.
It has been said that a trust, in its simplest elements, is a condence reposed in one person, who is termed trustee, for the benet
of another, who is called the cestui que trust, the source of the trust
being called the trustor.1 It has also been dened as an obligation of a
person to whom the legal title to property has been transferred arising out of a condence reposed in him to apply the property faithfully
and according to such condence.2 This should not be confused with
the term trust as used in some popular sense in the United States,
which refers to monopolitic combinations.
It is the legal relationship between one person having an equitable ownership over a certain property and another having legal
title thereto, the equitable ownership of the former entitling him to
the performance of certain duties and the exercise of certain powers
of the latter. This legal relationship can be distinguished from other
relationships of a duciary character, such as deposit, guardianship
and agency, in that the trustee has legal title to the property. (Heirs
of Maximo Labanon, etc. v. Heirs of Constantino Labanon, etc., G.R.
No. 160711, August 14, 2007).
In the Philippines, our Civil Code (Article 1441) recognizes two
kinds of trusts, namely, express trust and implied trust. An express
trust is created by the intention of the trustor or of the parties and,
when concerning real property or any interest therein, is required
to be evidenced by writing, parol evidence not being sufcient (Article 1443). Thus, it was held that express trust cannot be proved by
1
2
438
2.
Characteristics of trust.
The characteristics of a trust are the following:
3.
1.
It is a relationship;
2.
3.
It is a relationship with respect to property, not one involving merely personal duties;
4.
5.
It arises as a result of a manifestation of intention to create the relationship. (Morales, et al. vs. CA, et al., G.R. No.
117228, June 19, 1997, 83 SCAD 750).
3
Escay v. Ct. of App., G.R. No. L-37504, Dec. 18, 1974; 71 O.G. 6534, Oct., 1975;
61 SCRA 369; Salao v. Salao, G.R. No. L-26699, Mar. 16, 1976; 72 O.G. 5071, May 16,
1976; 70 SCRA 65.
4
Lorenzo v. Posadas, 64 Phil. 353.
5
Magtulis, et al. v. Espartero, 63 O.G. 24, June 12, 1967, CA.
6
Burleigh v. Clough, 52 N.H. 267, 13 Am. Rep. 23.
439
4.
440
Implied trusts.
442
irrevocability of the Torrens title and the trustee and his successorsin-interest are bound to execute the deed of reconveyance.9
Thus a holder in bad faith of a Torrens title is not entitled to the
protection of the law inasmuch as the law cannot be used as a shield
for the commission of frauds. Fraud vitiates everything tainted by it,
and the mere fact that the vendee has succeeded in registering his
deed of sale in the registry of property and the corresponding transfer
certicate of title issued cannot vest in him any right over the land.
Such land being impressed with a trust, the holder thereof may be
compelled to reconvey it to the lawful owner in accordance with the
provision of Article 1456 of the Civil Code.10 A purchaser who obtained
a certicate of title in his name with his admitted knowledge of the
facts about the ownership of the property is considered as a trustee,
not in its technical sense, but for a want of a better term.11
So, also in case of mistake in the insertion of the lot description
of the property intended to be sold, the registration of the deed of sale
does not give any rights to the vendee over the wrong lot described
therein but instead impresses his acquisition with a trust and he can
be compelled to reconvey the property to the lawful owner in accordance with the provisions of Article 1456 of the Civil Code.12
7.
9
Pacheco v. Arro, 85 Phil. 505; Escobar v. Locsin, 74 Phil. 86; Attos v. Itil, 59
O.G. 20, May 20, 1963, CA.
10
Director of Lands v. Abalateo, et al., 53 O.G. 10, May 31, 1957, CA.
11
Malincon v. De Vera, 86 Phil. 115.
12
Reyes v. Cabaero, 64 O.G. 37, Sept. 9, 1968, CA.
443
12.
(2)
2.
such consideration must be furnished by the alleged beneciary of a resulting trust. (76 Am. Jur. 2d. Trusts 180;
Morales vs. CA, et al., G.R. No. 117228, June 19, 1997, 83
SCAD 750).
444
445
(3)
(4)
16.
15.
If the price of a sale of property is loaned or paid by one person for the benet of another and the conveyance is made
to the lender or payor to secure the payment of the debt,
a trust arises by operation of law in favor of the person
to whom the money is loaned or for whom it is paid. The
latter may redeem the property and compel a conveyance
thereof to him. (Art. 1450).
(2)
(3)
(4)
If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of
an implied trust for the benet of the person from whom
the property comes. (Art. 1456).
446
Registration of trust.
447
19.
Registration of constructive
22.
Section 14 of P.D. No. 1529 expressly grants any trustee authority to le an application for registration of any land held in trust by
him, provided he is not expressly prohibited to do so by the instrument creating the trust.
23.
21
18
22
448
449
of law and equity that one should not unjustly enrich himself at the
expense of another.24
24.
(b)
(c)
(d)
There must be adverse, open, public, and continuous possession within the period xed by law.
24
Aban v. Cendaa, 103 Phil. 1153; Quibao v. Valcarcel, 63 O.G. 32, Aug. 7,
1967, CA.
25
Cortez v. Oliva, 33 Phil. 480; Bargayo v. Camumot, 40 Phil. 857; Espeidel v.
Henrici, 120 U.S. 377; Laguna v. Levantino, et al., 71 Phil. 566.
26
Golfeo v. Ct. of App. and So Chu Bee, G.R. No. L-15841, Oct. 30, 1964, 63 O.G.
23, p. 4895, June 5, 1967; 12 SCRA 199.
27
Cruz v. Jose, 61 O.G., p. 2967, May 17, 1965, CA; Matias de Buencamino v.
Dizon de Matias, 63 O.G. p. 2967.
28
Tamayo v. Callejo, G.R. No. L-25563, July 28, 1972; 68 O.G. 8661, Nov., 1972;
46 SCRA 27; Varsity Hills, Inc. v. Navarro, G.R. No. L-30889, 29, 1972, 68 O.G. 21, p.
4103, May 22, 1972; 43 SCRA 503.
450
451
power of attorney, but only of the fact of its execution, of its presentation for notation, and of its notation for the purposes of constructive
notice to the public in connection with the creation of preferential
rights to the registered land covered by the title.32
27.
30.
29
Carantes v. Ct. of App., et al., G.R. No. L 33360, April 25, 1977; 73 O.G. 7898,
Aug., 1979; 76 SCRA 514; Duque v. Domingo, G.R. No. L-33762, Dec. 29, 1977; 80
SCRA 654; 1 PLAJ 413.
30
Act 496, Sec. 108; PD 1529, Sec. 64.
31
Harry E. Keeler Electric Co. v. Rodriquez, 44 Phil. 19.
452
32
33
34
Phil. National Bank v. Tan Ong Zse, G.R. No. L-27991, 51 Phil. 317.
Philippine National Bank v. Tan Ong Zse, 63 Phil. 451.
San Diego v. Nombre, 120 Phil. 162.
453
Chapter XV
1.
Involuntary dealings.
1
2
454
Moran, Comments on the Rules of Court, 1963 ed., vol. 3, pp. 4-5.
455
4
PD 1529, Sec. 71; Register of Deeds of Manila v. Magdalena Estate, Inc., 105
Phil. 734.
5
Director of Lands v. Heirs of Abadezco, G.R. No. L-36155, prom. May 8, 1934,
Unrep., 60 Phil. 1003.
6
Government v. Aballe, 60 Phil. 986.
7
Bass v. De la Rama, 73 Phil. 682.
456
6.
10
457
client with bad faith, in the absence of evidence indicating that the
counsel had communicated his information to the client.18
Thus the purchaser at an execution sale acquires only the identical interest of the judgment debtor in the property which is the subject
of the sale. It follows that if at the time said judgment debtor had no
more right to or interest in the property because he had already sold
it to another prior to the attachment or levy, then the purchaser at
the auction sale acquires nothing.15
7.
8.
458
459
18
19
14
15
16
20
While it is true that the duty of the Register of Deeds to register notice of attachment is ministerial, in cases like the one under
consideration, where the law provides that certain properties given
in security to the Agricultural and Industrial Bank are not subject to
attachment, this provision of law shall be obeyed, and the only solution is for the Register of Deeds to refuse inscription in view of the
Thus, it was repeatedly held by the Supreme Court that, according to Section 26 of Commonwealth Act No. 459, properties mortgaged
to the Agricultural and Industrial Bank, which was succeeded to by
the Rehabilitation Finance Corporation and later by the Development
Bank of the Philippines, are not subject to attachment unless all
debts and obligations in favor thereof have been previously paid, in
spite of the vigorous objection of the attachment creditor who maintained that the court sitting as a land court may order the cancellation
of such attachment under Section 112 of Act No. 496 (now Section
108 P.D. No. 1529), only when there is no substantial controversy,
or serious objection and there is unanimity among the parties
concerned.28 However, the right of the mortgagor to redeem securities
in favor of the Development Bank of the Philippines may be attached
and said attachment registered. What the law prohibits is attachment
of securities on loans granted by said Bank and not the attachment
of the right to redeem said securities. (Register of Deeds of Cagayan
de Oro City, LRC Consulta No. 309, Jan. 3, 1961.)
So also, the Register of Deeds can properly deny inscription of
a levy of execution, when the title to the land is not in the name of
the defendant and no evidence is submitted to show that he has any
present or possible future interest in the land. However, if evidence is
submitted, as, for instance, a copy of the petition led in court in the
intestate proceeding, from which it could be inferred that the owner is
dead and that the judgment debtor is one of the heirs of the deceased,
his right of participation in the estate, though still indeterminable,
may be attached and sold.29
27
Consulta No. 1487 of Register of Deeds of Manila, decided by the Court September 3, 1941.
28
Geonanga v. Hodges, 103 Phil. 387; Associated Insurance and Surety Co.
v. Register of Deeds of Pampanga, 105 Phil. 123. See Reg. of Deeds of Iloilo v. C.N.
Hodges, 117 Phil. 160.
29
Gotauco & Co. v. Register of Deeds of Tayabas, 59 Phil. 756.
460
461
23
24
12.
31
32
30
462
33
Cf. Lava, et al. v. Usapdin, 36 O.G. 76, June 25, 1938, CA.
Ching Liu & Co. v. Mercado, 67 Phil. 409; see Rule 68, Sec. 1.
Act 496, Sec. 73; PD 1529, Sec. 72.
463
did not have the property registered in his name, the latter has the
superior right, as the attachment does not confer a real right.34 The
reason for this is that the attachment does not change the character
of the debt; that it did not convert into a right to the thing itself the
claim of the creditor; that it did not give him any preference over preexisting claims which were not so provisionally recorded.35
Accordingly, the Supreme Court further ruled that an unregistered deed is admissible in evidence to show a transfer of title as
against an attaching creditor, holding that the attaching creditor was
not third persons mentioned in Article 389 of the Mortgage Law,
and that the levy of an execution against a judgment debtor upon real
estate which stands in his name does not take precedence over an
unrecorded deed to the same property made by the judgment debtor
prior to the levy in question.36
Thus, it was held that a contract of sale is good as between the
parties to it without registration and is effective as against third
persons not holding a registered title, including creditors, with attachments and judgments.37
But it is to be observed that in none of the above cases had the
property been registered under the provisions of Act No. 496, known
as The Land Registration Act, nor were the levies of attachment
made under the provisions of that Act touching on attachments and
other liens. And while an unrecorded deed of conveyance executed by
the owner of the land not registered under the provisions of the Land
Registration Act conveys the title and ownership to the purchaser as
of the date of its execution, so that a subsequent levy or an attachment or execution by a judgment creditor of the vendor is void and
of no effect, the same rule cannot be applied where the land has been
registered under that Act, because, by its terms, an unrecorded deed
of conveyance does not convey or affect the land until and unless the
transaction is duly registered.38
17.
34
Galindo & Escosura, Commentaries on the Mortgage Law, 2nd ed., vol. 2,
p. 635; Fabian v. Smith, Bell & Co., 8 Phil. 496, 499.
35
Martinez v. Holiday, Wise & Co., 1 Phil. 194, 197.
36
Boncan v. Smith, Bell & Co., 9 Phil. 109.
37
Casimiro v. Fernandez, et al., 9 Phil. 562.
38
Buzon v. Licauco, 13 Phil. 354.
464
39
40
41
465
unregistered sale, and that even if the prior sale is subsequently registered before the sale in execution but after the levy was duly made,
the preferred right under the execution sale should be maintained,
because it retroacts to the date of the levy.
42
43
466
20.
Where two attachments had been registered successively affecting the same land, and meanwhile the attachment debtor executed a
deed of assignment of the property in favor of the creditor under the
rst attachment in payment of the judgment debt, will the assignment operate to dissolve the lien under the rst attachment? It may
be stated parenthetically that in this particular case the assignment
was not registered. Held: That since the purpose of the assignment
is the transfer of the ownership of the property in payment of the
judgment debt, although it may be mentioned that the conveyance
did not materialize because of failure of registration, it would be incongruous to hold that the said assignment operated to dissolve the
rst attachment. Under the law and equity, the prior attachment lien
cannot be deemed lost by the execution of the deed of assignment as
in this case.45
21.
The practice and procedure adopted in the Revised Administration Code in connection with the sale of land for the collection of
delinquent taxes and penalties due the government is considered
as one in personam, and not in rem. Hence, it is necessary that all
persons interested in the property involved be served personal notice, to give them an opportunity to be heard before their rights can
be nullied. No rule is better established in the Philippines under
the due-process-law provision of the organic law than the one which
requires notice and an opportunity to be heard before any citizen can
44
Leyson v. Tanada, Nacion, et al., G.R. No. L-31472, Nov. 10, 1981, 109 SCRA
66; Long v. Mckissick, 50 S.C. 218, 27 SE 636; 30 Am. Jur. 2d, 428.
45
Philippine National Bank v. Luzon Surety Co., Inc., 103 Phil. 853.
467
46
Lopez v. Director of Lands, 47 Phil. 23; Pantaleon v. Santos, 101 Phil. 1001;
Vicencio v. Quintos, No. 44697-R, Jan. 23, 1975, 72 O.G. 11, p. 2801, Mar. 15, 1976,
CA.
47
Cabrera v. Prov. Treasurer of Tayabas and Catigbac, 75 Phil. 780.
48
Velayo v. Ordoveza, et al., 102 Phil. 395; De los Angeles v. Yapchiongco, 62
O.G. 40, Oct. 3, 1966, CA.
468
23.
49
50
51
469
However, to remedy the anomalous situation of delinquent Manila real estate being sold at public auction without personal notice
served to the landowner, Republic Act No. 1571, approved June 16,
1956, has sought to correct the pre-existing practice by providing that
no such sale shall proceed unless the delinquent taxpayer shall have
been notied thereof by registered mail at least sixty days before the
date xed for the sale.
24.
26.
The tax title issued under the procedure adopted in the City of
Manila for the recovery of delinquent taxes conveys only such title
as was vested in the delinquent taxpayer. Such sale cannot affect the
rights of other lienholders, unless by the procedure adopted they have
been given an opportunity to defend their rights. The purchaser at
a tax sale, under the procedure adopted in the present case, gets no
better title under his deed than that which was held by the person
assessed. In this case, the respondent-appellant had a mortgage duly
registered upon the land sold. The sale was made after notice posted
in different places in the City of Manila. No notice whatever was given
to him, not even an attempt to notify him was made. Therefore, said
respondent-appellant cannot be deprived of his mortgage, and the
judgment of the trial court depriving him of his lien without notice
and an opportunity to be heard is null and void.52
25.
52
53
470
27.
54
Valencia v. Jimenez, 11 Phil. 492, 498-500, quoted with approval in Camo v.
Riosa Boyco, 29 Phil. 437.
55
Lucido v. Isaias, 71 Phil. 180.
471
Act No. 470, Section 35), the provincial treasurer is enjoined to set
forth in the notice, among other particulars, the date of the tax sale.
This mandatory requirement was not satised in that case, because
the announcement that the sale would take place on December 15,
1940 and every day thereafter is as general and indenite as a notice
for the sale within this or next year or sometime within the month
of December. In order to enable a taxpayer to protect his rights, he
should at least be apprised of the exact date of the proceeding by
which he is to lose his property.56
does that period commence to run? Is it from the actual date of the
auction sale or from the date of registration of said sale?
29.
It is not necessary to register a tax lien because it is automatically registered, once the tax accrues, by virtue of Section 44 of P.D.
No. 1529. But there is no provision of law to the effect that the sale of
registered land to foreclose a tax lien need not be registered. On the
contrary, Section 74 of said Decree specically provides (insofar as it
is pertinent here) that whenever registered land is sold for taxes or for
any assessment, any ofcers return, or any deed, demand, certicate
or afdavit or any other instrument made in the course of proceedings
to enforce such liens shall be led with the Register of Deeds for the
province where the land lies and registered in the registration book,
and a memorandum made upon the proper certicate, in each case, as
an adverse claim or encumbrance. Section 51 also expressly provides
that the act of registration shall be the operative act to convey and
affect the land. Hence, the tax sale made by the City Treasurer could
not bind the land until it was registered.57
30.
56
57
472
Upon the assumption that in the case of tax sale the period
commences from the actual date set for the auction, it has been the
common practice among purchasers, from whom the property may
be redeemed, to withhold the registration of the deed or certicate
of sale until after the lapse of the period, when the sale has become
nal, thinking that if registration were to be done earlier the owner
or holder of the title would be awakened in time, for incidentally he
would be advised by the Register of Deeds to surrender the title for
annotation of the sale, preparatory to its consolidation in the vendee
after the lapse of one year (or two years, as the case may be). On the
other hand, if registration takes place after the lapse of the statutory period, the owner would no longer have any more opportunity
to exercise his legal right of redemption.
The above attitude of mind seems to be quite erroneous. Thus,
it was held that where registered land has been sold at public auction by virtue of an attachment and the persons entitled to redeem
had no notice thereof, they are allowed for purposes of redemption one year from such date as the auction sale may have been
registered.58 Similarly, it was held that the tax sale in favor of the
purchaser at public auction becomes binding upon third persons only
upon registration, so that the period for redemption only begins to
run from the date of such registration as regards third persons who
had no actual notice.59
While Section 70 of Republic Act No. 409, otherwise known as
the Revised Charter of the City of Manila, expressly provides that the
period of redemption should start from the date of sale, which may
run counter to Section 50 of Act No. 496 (now Sec. 51 of P.D. 1529)
which, if applied, would make the period of redemption start from
the registration of the tax sale, our Supreme Court favored a stand
that the two apparently conicting laws must be harmonized and to
that effect held that the phrase the period of redemption shall be
within one year from the date of sale should be interpreted to refer
to the date that the sale is actually registered. It took into considera-
58
59
473
tion that inasmuch as practically all the real properties in the City
of Manila are registered under the Torrens system, the transactions
and conveyances and liens, whether voluntary or otherwise, involving such properties must be recorded in the Ofce of the Register of
Deeds and annotated in the corresponding certicates of title, for the
information not only of the registered owners but also of third persons, and this is in line with Section 50 of the Land Registration Act
which expressly provides that the act of registration is the operative
act that conveys the land or affects title thereto.60 Of course, actual
knowledge of an unregistered sale on the part of the registered owner
or of third persons is equivalent to registration; it is equivalent to
such notice as may result from registration. Really, the law does not
require the unnecessary and to those persons already having actual
notice the necessity of registration does not exist.61
31.
It is required that the tax sale, whether in the form of an ofcers return or a certicate of sale, be led with the Register of Deeds
concerned and registered in the registry book, and a memorandum
thereof be made upon the proper certicate of title to afford constructive notice to all the world. For this purpose it is not necessary to wait
for the expiration of the period prescribed by law for redemption. In
that way the registered owner may be apprised of the annotation of
the encumbrance and may take the necessary steps to protect his
interest. He may choose either to abandon his property or redeem it
within the period provided by law. This requirement is fundamental
because it is one of the safeguards that the law establishes in order
that owners of land who may have failed to take note of the sale of
their property for delinquency in the payment of taxes may be notied
of the action taken in connection with such property. The failure of
the purchaser at the tax sale to take this step vitiates fundamentally
his petition for the consolidation of his title.62
32.
60
Santos v. Rehabilitation Finance Corporation, et al., 101 Phil. 980; Techico v.
Serrano, G.R. No. L-12693, May 29, 1959; 57 O.G. 42, p. 7623, Oct. 16, 1961; 105 Phil.
966; Reyes v. Tolentino, G.R. No. L-29142, Nov. 29, 1971; 42 SCRA 365.
61
Vda. de Carvajal v. Coronado, et al., G R. No. L-23250, Nov. 12, 1966; 64 O.G.
7342, July, 1968; 124 Phil. 1246; 18 SCRA 635.
62
Tolentino v. Agcaoili, et al., 91 Phil. 917 (unreported).
63
Act 496, Sec. 78; Leyson v. Taada, et al., G.R. No. L-31472, Nov. 10, 1981,
109 SCRA 66.
64
Doronila v. Vasquez, 72 Phil. 572.
65
Balanga v. Manalang, G.R. No. L-18830, Oct. 30, 1965; 59 O.G. 20, May 20,
1963; 15 SCRA 211.
474
475
33.
whose property has been attached on execution and sold may convey
or sell to third persons his right to exercise legal redemption.71
34.
Right to rentals.
66
67
68
476
71
72
73
477
not irrigated or three hectares if irrigated. Eventually, the tenantfarmer will become the absolute owner of the farm after compliance
with certain conditions, among which being that he shall pay for the
land by annual equal amortizations for a period of fteen years, in
default of which payment the cooperative association of farmers, of
which he is required to be a full-pledged member, shall be bound to
assume and pay. This obligation is guaranteed by the government
with shares of stock in government-owned and government-controlled corporations.
In this connection, it was held that under Sections 78, 111, and
113 of Act No. 496, known as the Land Registration Law, where one
acquires a valid deed or title to a property as a result of an execution
sale, tax sale, or any sale to enforce a lien, after the expiration of the
period, if any, allowed by law for redemption, when said new owner
goes to the court and to the ofce of the Register of Deeds to have his
deed recorded and have a new certicate of title issued in his name,
it is sufcient for purposes of notifying the former owner to surrender
his certicate of title and show cause why it should not be cancelled;
that the notication is effected by mail or by publication as the court
may order; and if despite such notication by mail or by publication,
he fails to appear and surrender his certicate of title, the court may
validly order the cancellation of that certicate of title and the issuance of a new one in favor of the new owner.75
A motion for the cancellation of certicate of title and the issuance of a new certicate in its place must be led and entitled in the
original case in which the decree of registration was entered, and the
Court of First Instance has no jurisdiction to entertain such motion
in an ordinary civil case.76
36.
478
479