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REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

REAL ESTATE MORTGAGE

He who constitutes a mortgage is called mortgagor and he in


whose favor a mortgage is constituted is called mortgagee.
2.

1.

Mortgage, nature and meaning.

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.

There are various kinds of mortgages, but the most common of


them are: (a) conventional or voluntary mortgage; (b) legal mortgage;
(c) judicial mortgage; and (d) equitable mortgage.
A conventional or voluntary mortgage is one created by agreement of the parties.
A legal mortgage is one created by operation of law, wherein the
creditor is given a mortgage on the property of his debtor, without
the necessity of the parties actually stipulating for it. It may also be
dened as one required by express provision of law to be executed in
favor of certain persons to secure the performance of a principal obligation. For instance, claims of laborers engaged in the construction
of a building are to be considered as mortgages upon said building by
operation of Article 2243, in relation to Article 2242, of the new Civil
Code.

From the foregoing denitions, it will be observed that mortgage


is regarded as a mere lien, and not as creating a title or estate. It is
in essence a charge on property for the purpose of security. Stated
otherwise, a mortgage is an accessory undertaking for the convenience and security of the mortgage creditor, and exists independently
of the obligation to pay the debt secured by it. The mortgagee can
waive the mortgage security and proceed to collect the principal debt
by personal action against the original mortgagor.1

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.

The common-law theory of a mortgage is that the title of the


mortgagor passes to the mortgagee, subject to reversion upon the
performance of the condition subsequent. In the Philippines, however,
we do not adopt the common law theory, for here the owner who con-

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

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An equitable mortgage is one that is not a mortgage in form but


in substance a mere security for a debt or obligation. This commonly
occurs in the case of pacto de retro sales.
Laws governing mortgage in general.

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.
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REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

As to aliens becoming mortgagees, the pertinent law is Republic


Act No. 133, approved in 1947, as superseded by Republic Act 4381,
and later by Republic Act 4882, approved June 17, 1967.

extend even to persons regularly engaged in the business of lending


money secured by real estate mortgages. (Adriano vs. Pangilinan,
G.R. No. 13747, Jan. 16, 2002). Judicial notice is taken of the standard
practice for banks before they approve the loan to send representatives to the premises to investigate the collateral offered and the
ownership thereof. (DBP vs. CA, supra.) It should not simply rely on
the face of the Certicate of Title to the property as its ancillary function of investing funds required a greater degree of diligence. (GSIS
vs. CA, 287 SCRA 204). Considering the substantial loan involved, it
should exercise more caution. (GSIS vs. CA, supra.) Thus, a person
who deliberately ignores a signicant fact that would create suspicion
in an otherwise reasonable person is not an innocent purchaser for
value (DBP vs. CA, supra.).

4.

Essential requisites of mortgage.

According to Article 2085 of the Civil Code of the Philippines,


the essential requisites of a mortgage are:
(a) That it be constituted to secure the fulllment of a
principal obligation;
(b) That the mortgagor be the absolute owner of the thing
mortgaged;
(c) That the person constituting the mortgage has the
free disposal of the property, and in the absence thereof, that
he be legally authorized for the purpose.
A third person who is not a debtor or party to the principal
obligation may secure the latter by mortgaging his own property.

The mortgagee was already aware that there was an adverse


claim and notice of lis pendens annotated on the title when it registered the mortgage. Unless duly registered, a mortgage does not
affect third parties. (Sec. 51, P.D. 1529). The law, Sec. 51, P.D. 1529,
states:

As a further requisite, Article 2125 of our Civil Code provides


that it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be registered in the
Ofce of the Registry of Deeds concerned. Failure to register, according to the same article, does not necessarily invalidate the mortgage,
but limits its binding effect to the parties thereto only. It is also of the
essence of the contract of mortgage that when the principal obligation
becomes due, the property mortgaged cannot be appropriated by the
creditor, but must be sold at public auction in accordance with the
procedure prescribed by law for the satisfaction of the obligation.

Sec. 51. Conveyance and other dealings by registered


owner An owner of registered land may convey, mortgage,
lease, charge or otherwise deal with the same in accordance with
existing laws. He may use such forms of deeds, mortgages, leases
or other voluntary instruments as are sufcient in law. But no
deed, mortgage, lease, or other voluntary instrument except a
will, purporting to convey or affect registered land, shall take
effect as a conveyance or bind the land, but shall operate only
as a contract between the parties and as evidence of authority
to the clerk or register of deeds to make registration.

Mortgagee in bad faith.


At the time of the constitution of the mortgage, the mortgageebank failed to conduct an ocular inspection. It was already aware
that there was an adverse claim and notice of lis pendens annotated
on the Certicate of Title. The question is whether it is a mortgagee
in good faith or in bad faith.

The act of registration shall be the operative act to convey


and affect the land, and in all cases under this Act the registration shall be made in the ofce of the register of deeds of the
province or city, where the land lies.

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

True, registration is not the operative act for a mortgage to be


binding between the parties. But to third persons, it is indispensable. (Art. 2125, NCC). Settled in this jurisdiction is the doctrine that
a prior registration of a lien creates a preference. (Lavides vs. Pre,
G.R. No. 127830, Oct. 17, 2001). Even a subsequent registration of

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REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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).

The principle of innocent mortgagee for value is not applicable


here, such principle contemplates cases involving individuals who by
their negligence enabled other persons to cause the cancellation of
the original TCT and the issuance of a new one in their favor. Having obtained the new TCT, they conveyed the said property by way
of mortgage to third persons who are innocent mortgages for value.
In these cases, the mortgagors were the registered owners of the
property; whereas in this case, the mortgagor was an impostor, not
the registered owner.

Who may constitute a mortgage.


It is only the absolute owner of the property who can constitute
a valid mortgage on it. (Art. 2085, NCC). In case of foreclosure, a sale
would result in the transmission only of whatever rights the seller
had over the thing sold. (Art. 1458, NCC; Nufable vs. Nufable, 309
SCRA 692).
If the property is sold twice but the sales contract were simulated, they are null and void. (Francisco vs. Francisco-Alfonso, G.R.
No. 138774, Mar. 8, 2001). Thus, they did not convey any rights that
could ripen into valid titles. (Velasquez vs. CA, 345 SCRA 468). Necessarily, the subsequent real estate mortgage constituted in favor of
another was also null and void, because the mortgagor was not the
owner thereof. There being no valid real estate mortgage, there could
also be no valid foreclosure or valid auction sale. At bottom, the mortgage cannot be considered either as mortgagee or as a purchaser in
good faith. (Cruz, et al. vs. Bancom Finance Corp., G.R. No. 147788,
Mar. 19, 2002).
Who is mortgagee in good faith.
In Adriano vs. Pangilinan, G.R. No. 137471, Jan. 16, 2002, the
owner of a real property covered by a title entrusted it to another,
a distant relative, for the other to look for a nancier as he was in
need of money. The relative tried to look for one and it resulted in a
situation where there was an impostor who pretended as owner of
the property when the nancier inspected the same. The signature
of the owner was forged in the contract of mortgage.
In holding the mortgage void, the Supreme Court said that one
of the essential requisites of a valid mortgage under Article 2085 of
the Civil Code is that the thing mortgaged be owned by the person
who mortgages it. In this case, since the one who mortgaged it was
not the owner, the mortgage is void.
324

Besides, the mortgagee was not innocent mortgagee for value


because he failed to observe the due diligence in the grant of the loan
and in the execution of the mortgage. Tito has been engaged in the
real estate business particularly in mortgage nancing for almost
seven years. As such he is expected to ascertain the status and condition of the property offered to him as collateral as well as to verify the
identify of the person he transacts business with. He cannot simply
rely on a hasty examination of the property offered as security and
the documents backing it up. The ocular inspection the mortgagee
conducted was primarily intended to appraise the property. He did
not verify whether the mortgagor was really the owner of the property sought to be mortgaged. Furthermore he was informed that the
property was being leased. So he should have made inquiries about
the rights of the actual possessors and veried from them whether the
claimed owner was, indeed, their lessor. On the other hand, Jimmys
act of entrusting the TCT and his Residence Certicate to Anita was
only for helping him to nd a money lender. Not having executed a
Special Power of Attorney in her favor, he clearly did not authorize
her to be his agent in procuring the mortgage. Given the particular
circumstances of this case, the negligence of the owner is not enough
to offset the fault of the mortgagee in granting the loan. The failure
of the mortgagee to verify essential facts was the immediate cause of
his predicament. In any event, the mortgagee is not precluded from
going after his relative and her cohorts.
5.

Consent of both parties not necessary to registration of mortgage.

A mortgage may be registered at the instance of the mortgagee


alone, even over the objection of the mortgagor. The reasoning of a
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REGISTRATION OF LAND TITLES AND DEEDS

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.

Special characteristics of real mortgage.

The following are the special characteristics of a real mortgage:


(a) Realty as subject matter: Only real property or
alienable rights and interests therein may be the subject matter of a mortgage. Thus, not only the land and improvements
thereon may be mortgaged, but also the credits or rights of the
mortgagee or other encumbrancers.
(b) Real right: A mortgage lien is a real right and as
such it is good and binding against the whole world, and may
be enforced by real action against all persons who may have
existing rights or interests in the same property, not registered
prior to the mortgage. It was held that even if personal action on
the debt secured has prescribed, a suit to enforce the mortgage
may still lie so long all such debt has not yet been paid.3

REAL ESTATE MORTGAGE

(c) Accessory obligation: As an obligation, a mortgage


is only accessory and presupposes the existence of a principal
obligation. In the absence therefore of a principal obligation, a
mortgage cannot stand.
(d) Indivisibility: Even though the debt secured may be
divided among the debtors or the creditors or their successors
in interest, the mortgage shall remain as one and indivisible,
unless there have been several things given in mortgage and
each of them guarantees only a determinate portion of the obligation.4
However, the mere embodiment of the real estate and the
chattel mortgage in one single document does not fuse both
securities into an indivisible whole. Both remain distinct agreements, differing not only in the subject matter of the contract
but also in the governing legal provisions. Consequently, the
mortgagee has every right to foreclose the real estate mortgage,
and waive the chattel mortgage and maintain instead a personal
action for the recovery of the unpaid balance of the obligation
secured.5
(e) Inseparability: The mortgage lien and the property
affected are inseparable, so much so that whoever may subsequently acquire title to the mortgaged property is bound by the
terms of the mortgage, whether the transfer be with or without
the consent of the mortgagee. In other words, the mortgage,
until discharged, follows the property to whomever it may be
transferred no matter how many times over it changes hands
as long as the annotation is carried over.6
(f) Retention of possession. The mortgagor generally
retains possession of the mortgaged property inasmuch as a
mortgage is a mere lien and title to the property does not pass
to the mortgagee.

See Art. 2089, New Civil Code.


Phil. Bank of Commerce v. Macadaeg, 109 Phil. 981.
Cuchapin v. Lozano, 68 O.G. 3, Jan. 17, 1972, CA.

4
2

Gonzales v. Basa, Jr., 73 Phil. 704.


Sunico v. Ramirez, 14 Phil. 500.

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REGISTRATION OF LAND TITLES AND DEEDS

7.

Pacto de retro sale when considered an equitable mortgage.

Under the doctrine in a leading case,7 where a contract of sale


with pacto de retro is executed as security for a debt owing by the
grantor from the grantee, such conveyance must be treated in equity
substantially as a mortgage, that is, creating a mere equitable charge
in favor of the creditor or person named as purchaser therein; and
the fact that the conveyance was executed for this purpose may be
shown by oral evidence apart from the instrument of conveyance.
The equitable doctrine that any conveyance intended as security for
a debt will be held in effect to be a mortgage, whether actually so
expressed in the instrument or not, operates regardless of the form
of the agreement chosen by the contracting parties as repository of
their obligations. Equity looks through the form and considers the
substance; and no kind of engagement can be devised which will
enable the purchaser to evade the effects of the doctrine to which
reference is made.8
Similarly, in a case where a certain real property was sold and
immediately thereafter the purchaser sold the same property under
pacto de retro for the same price representing the amount of loan
advanced by the vendee a retro, with the further condition that the
repurchase price shall escalate month after month, it was held that
the latter transaction could not have been a sale under pacto de retro
but presumed to be an equitable mortgage as contemplated by Article
1602 of the Civil Code.9
So, also, where the mortgage had become overdue, and before
its foreclosure the mortgagor executed an absolute sale covering
the mortgaged property in favor of the mortgagee, but at the same
time the mortgagee in a separate instrument granted the mortgagor
an option to repurchase within a certain period, it was noted that
some doubt could have existed as to the real intention of the parties. But after considering the added fact that the mortgagor, later
turned seller, remained in actual possession of the land and enjoyed
the fruits thereof pending expiration of the period of redemption, it

REAL ESTATE MORTGAGE

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

Cuyugan v. Santos, 34 Phil. 100.


Macapinlac v. Gutierrez Repide, 43 Phil. 770.
Bundalian, et al. v. Ct. of App., et al., G.R. No. L-55739, June 22, 1984; 129
SCRA 645.

10
Capulong v. Ct. of App. and Tolentino, G.R. No. 61337, June 29, 1984; 130
SCRA 245.

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REAL ESTATE MORTGAGE

stipulated is subject to 12% interest per annum, the transaction was


held to be an equitable mortgage.11

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

On the question of whether or not the price of a sale under pacto


de retro is unusually inadequate, the law apparently leaves the answer to depend on existing conditions. Accordingly, where land which
reasonably cost P1,280.00 was sold for only P250.00 in Japanese at
money, it was held that the price was unusually inadequate.12 Mere
inadequacy is not sufcient. Thus, in a certain case inadequacy of
price was not considered sufcient ground for annulling the contract, it being a common practice to x a relatively reduced price to
afford the vendor a retro every facility to redeem the land, unlike in
an absolute sale where the vendor, in permanently giving away his
property, tries to get, as compensation, its real value.13
8.

Mortgage compared with antichresis.

(a) As to possession of the property given in security, the


debtor retains it in the case of a mortgage; whereas, the creditor
takes over in the case of antichresis. Thus, a mortgage, coupled with
delivery of possession of the land to the creditor, becomes antichresis,14
(b) With respect to the fruits, in a mortgage the creditor does not
gather or receive them whereas, in antichresis the creditor generally receives them with the obligation to apply the value thereof or
proceeds therefrom to the payment of interest due, and, if any still
remaining, to the principal obligation. (c) In antichresis the creditor
is obliged to pay for the taxes and charges upon the estate; whereas,
in mortgage it is the debtor.
In this connection, it may be stated by way of observation that
out in the provinces we have in practice a peculiar form of mortgage
which can easily be mistaken for antichresis. It is a sort of a mortgage
subject to usufruct whereby the debtor transfers to the creditor the
possession of the land given as security with the conditions, among
other things, that the capital or loan shall not bear interest but in lieu
11

Estrada v. Millet, 55 O.G. 31, Aug. 3, 1959, CA; Adrid v. Morga, 108 Phil.

12

Adrid v. Morga, supra.


Belonio v. Novella, 105 Phil. 756.
Trillana v. Manansala, et al., 96 Phil. 865.

But whether the contract be treated as a mortgage with usufruct


or as an antichresis, it would seem that the creditor just the same
cannot be entitled to a return, in lieu of interest, of more than that
allowed under the usury law. As a mortgage, under Article 1602 of
the new Civil Code, any money, fruits or other benet received by
the creditor shall be considered as interest which shall be subject to
the usury law. And as an antichresis, under Article 2138 of the same
Code the interest upon the debt may be compensated with the fruits
of the property but if the value thereof should exceed the amount of
interest allowed by the usury law the excess shall be applied to the
principal; hence, unless so applied to the principal, there would seem
to be usury.
9.

Real mortgage compared with chattel mortgage.

The principal difference is self-evident by what their respective


names imply. Real mortgage covers real property or real rights for
its subject matter; whereas, chattel mortgage covers only chattels or
personal property. Another difference is in the formality required for
their constitution. While real mortgage is required to be constituted
by means of a public instrument, chattel mortgage may be constituted

927.
13
14

330

15
16

Palao, et al. v. Cojuangco, et al., 54 O.G. 5, March 15, 1958, CA.


Legaspi and Salcedo v. Celestrial, 66 Phil. 372; Diego v. Fernando, 109 Phil.

143.

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REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

in a private document only, provided the latter be accompanied with


an afdavit of good faith.

otherwise dealing with the mortgage, shall be registered, and shall


take effect upon the title only from the time of registration.

In the foreclosure of real estate mortgage, right of redemption


is always available for a period of one year if the foreclosure was effected extrajudicially, or where the mortgage was constituted in favor
of a bank or a banking or credit institution, regardless of whether
the foreclosure was effected judicially or extrajudicially. On the other
hand, in the foreclosure of chattel mortgage, no right of redemption
can be invoked after the chattels have been sold at public auction.
Furthermore, where a real estate mortgage was foreclosed judicially
and in the foreclosure sale the proceeds thereof are insufcient to
cover the obligations secured, the creditor is not precluded to ask
for a deciency judgment to recover the balance. In the foreclosure
of a chattel mortgage, however, where the price of the thing sold at
public auction is not sufcient, the creditor can no longer recover the
deciency, if only to be consistent with Article 2141 of the New Civil
Code which states that the provisions of said Code on pledge, insofar
as they are not in conict with the Chattel Mortgage Law, shall be
applicable to chattel mortgages, and according to the pertinent provision of Article 2115 of the same Code on pledge, in connection with
foreclosure, if the price of the sale is less, neither shall the creditor be
entitled to recover the deciency, notwithstanding any stipulation to
the contrary. However, we are not unmindful of the previous rulings
of the court rendered squarely on this point prior to the promulgation of the New Civil Code to the effect that the amount received at
the time of the foreclosure sale of the chattels is only a payment pro
tanto, and an action may the maintained for the deciency in the debt,
arguing that to deny the mortgagee the right to maintain such action
to recover would be to overlook the fact that the chattel mortgage is
only given as a security and not as a payment for the debt in case of
failure of payment.

As to when such deeds are executed in a form sufcient in law,


Section 127 of Act No. 496, as amended by Sec. 112 of P.D. No. 1529,
provides that it shall be sufcient when made substantially in accordance with the forms prescribed therein, signed by the person or
persons executing the same, in the presence of two witnesses, who
shall sign the instrument as witnesses to the execution thereof, and
shall be acknowledged to be his or their free act and deed before a
notary public or other public ofcer authorized by law to take acknowledgment.

10.

As provided by Sec. 60 of P.D. No. 1529, the owner of registered


land may mortgage the same by executing a mortgage deed, and such
deed may be assigned, extended, discharged, released in whole or in
part, or otherwise dealt with by the mortgagee by any form of deed
or instrument sufcient in law for the purpose. But such mortgage
deed, and all instruments assigning, extending, discharging, and

However, the aforementioned Republic Act 133, as amended


by Republic Act 4381, was further amended by Republic Act 4882,
approved on June 17, 1967, eliminating the period limitation for
mortgage of private real property, but imposing certain restrictions
upon the mortgagee or his successor-in-interest, if disqualied to
acquire or hold lands of the public domain in the Philippines, by
forbidding him to take possession of the mortgaged property during
the existence of the mortgage; neither is possession allowed after

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333

Execution and registration of mortgage.

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.

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

default of the mortgagor except for the sole purpose of foreclosure,


receivership, enforcement of other proceedings and in no case for a
period of more than ve years from the actual possession. Of course,
such alien mortgage still cannot participate in the bidding nor take
part in any sale of such real property in case of foreclosure.

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.

What a married woman may mortgage without marital consent.

A married woman, of legal age, may mortgage her paraphernal


property without the permission of her husband.17
So, also, under the system of complete separation of property
of the spouses, the wife may dispose of or mortgage her separate
estate, without the consent of her husband, including what she may
accumulate from her profession, business, or industry.18
With respect to conjugal property, she may mortgage such property only in case the administration thereof has been transferred to
her by the court (a) when she becomes the guardian of her husband,
(b) when she asks for the declaration of his absence, and (c) in case
of civil interdiction of the husband.19
13.

Marital consent necessary under system of absolute community of property.

Under the system of absolute community of the property of the


spouses, Article 207 of the Civil Code of the Philippines provides that
neither spouse may alienate or encumber any common property
without the consent of the other. In case of unjustiable refusal by
the other spouse, the courts may grant the necessary consent. Thus,
the husband is as powerless as the wife under ordinary circumstances
to mortgage conjugal property without the consent of the other.
While the husband remains the administrator of the conjugal
partnership, he cannot alienate or encumber any real property of the
conjugal partnership, acquired after the taking effect of the new Civil

17
18
19

New Civil Code, Art. 140.


New Civil Code, Art. 214.
New Civil Code, Arts. 196 and 197.

334

Registration of mortgage; how effected.

The procedure in the registration of a mortgage is outlined in


Section 61 of Act No. 496, as amended by P.D. No. 1529. The mortgage deed is led together with the owners duplicate certicate of
title with the Register of Deeds of the city or province where the
land lies. Thereupon, this ofcial enters upon the original certicate
of title and the owners duplicate certicate a memorandum of the
purport of the mortgage deed, the time of ling, and the le number
of the deed, signing the memorandum after the entry. He also notes
down upon the mortgage deed the time of ling and a reference to
the volume and page of the registration book where it is registered.
15.

Issuance of mortgagees title.

At the instance of the mortgagee, the Register of Deeds shall


make out and deliver to him a duplicate of the certicate of title,
similar to the owners duplicate, but with the wordsmortgagees
duplicate stamped diagonally across its face. For records purposes, a
memorandum of the issue of the mortgagees duplicate is made upon
the original certicate of title.21
This practice has now been discontinued. Under the provision of
Section 60 of Presidential Decree No. 1529, no mortgagees or lessees
duplicate certicate of title shall be issued by the Register of Deeds,
and those issued prior to the effectivity of said Decree are deemed
cancelled and the holders thereof required immediately to surrender
same to the Registrar of Deeds concerned.
16.

Mortgage by non-owner unenforceable; exception.

Where a mortgagor has no title at all to the property mortgaged,


the mortgage is void. Thus, even if the person signing the mortgage
20
21

New Civil Code, Arts. 165 and 166.


Act 496, Sec. 61.

335

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

has been duly constituted and appointed as the attorney-in-fact of the


owner, with express power to mortgage, it is still necessary that the
document make some descriptive recitals indicative of the fact that
he was acting in representation of the owner. Where the instrument
has not been made and signed in the name of such owner or principal,
the mortgage is not valid as to said owner.22

banking institution for special reason of apparent negligence and lack


of good faith. Here, for instance, are substantially the concrete facts.
A was the registered owner of a certain land. During his lifetime B
executed an extrajudicial settlement of the estate of A, supposing
him dead, wherein As property was adjudicated to B. Thereafter,
B mortgaged the same property to the PNB. The question raised
is whether A could still recover the property at this stage, without
respecting the mortgage executed by B in favor of the PNB. This issue was decided in favor of A, adhering to the same principle that as
between two innocent parties, in this case it is A and the PNB, one
of whom must suffer the consequence of a breach of trust, the one
who made it possible by his act of condence must bear the loss. In
favoring the private individual as against the Bank as mortgagee,
the Court explains that it accords more with justice and equity, in
the light of the common practice of banking institutions, which is a
matter of public knowledge, that before approving a loan, they send
out representatives to the premises of the land offered as collateral
to investigate who are the owners thereof. Banks, indeed, should
exercise more care and prudence in dealing even in registered lands,
than private individuals, for their business is one affected with public interests, keeping in trust money belonging to their depositors,
which they should guard against loss by not committing any act of
negligence which amounts to lack of good faith by which they would
be denied the protective mantle of the Land Registration Act as extended only to purchasers for value and in good faith, as well as to
mortgagees of the same character and description.26

In line with the same principle, a mortgage of real property


executed by one who was not yet the owner thereof at the time of the
execution of said mortgage is without legal existence. This is so even
if the mortgagor subsequently acquired the same property. The legal
remedy in such a case is to have the mortgage conrmed and ratied
subsequent to the acquisition.23 Thus, the surviving widow, upon the
death of her husband, can validly mortgage only such portion of the
conjugal property as may nally be allotted to her in the settlement
of the estate of her deceased husband, that is, in the division of the
conjugal property upon the termination of the co-ownership.24 In that
way, the essential requisite of Article 2085, paragraph (b), of the Civil
Code, providing that the mortgagor must be the absolute owner of
the thing mortgaged, will have been fully met.
However, as an exception to the rule, we have a case where the
choice is between two innocent personsan innocent co-owner who
did not participate in the execution of the mortgage but was negligent, and the innocent mortgagee who relied upon a Torrens Title
and loaned money in all good faith on the basis of the title standing
in the name of the mortgagors, only thereafter to discover one of the
co-owners to be an alleged forger of the other who by his negligence
and acquiescence made the fraud possible as between these two
innocent persons, it was held that the negligent co-owner must bear
the loss.25
In more recent cases involving two innocent parties, however,
where a banking institution is one of them, a new trend seems to
have developed with the Supreme Court laying down a strict rule in
the choice of preference in favor of a private individual as against a

Philippine National Bank v. Palma Gil, et al., 55 Phil. 639.


Philippine National Bank v. Rocha, 55 Phil. 497.
PNB v. Ct. of App., G.R. No. L-34404, June 25, 1980; 98 SCRA 207.
25
Blondeau v. Nano, 61 Phil. 625.

On the other hand, where certain registered land was donated


and the donee subsequently mortgaged the land to a bank, and
thereafter the donation pursuant to which the Torrens title covering
the mortgaged property was declared null and void, what would be
its legal effect upon the mortgage to the bank which was foreclosed
and the subject property sold at public auction? Would the annulment of the donation operate to render the mortgage also null and
void to the prejudice of the purchaser at the foreclosure sale? Under
the circumstance, it was held that where a Torrens title of the land
was in the name of the donee-mortgagor and said land later given

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

REGISTRATION OF LAND TITLES AND DEEDS

as security for a bank loan, the subsequent declaration of said title


as null and void is not a ground for nullifying the mortgage rights of
the bank, which had acted in good faith, and in the same token the
rights of the purchaser at the foreclosure sale.27
17.

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

REAL ESTATE MORTGAGE

18.

Extent of subject matter of mortgage.

While a mortgage directly and immediately subjects the property


described therein and upon which it is imposed to the fulllment of
the obligation secured (Art. 2126, new Civil Code), it extends further
to the natural accessions, to the improvements, growing fruits, and
the rents or income not yet received when the obligation becomes due,
and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public use, whether the estate remains in the possession of
the mortgagor, or it passes into the hands of a third person.30
It is to be borne in mind that the basic object of a real mortgage
is land, and as a rule the word land includes every estate and interest in land. It therefore follows that, unless otherwise reserved, all
buildings and improvements existing thereon are deemed included.
19.

Future property as subject matter.

A stipulation to include in the mortgage other property to be


subsequently acquired by the mortgagor is without legal effect, even
if the instrument of mortgage was registered, because it is an essential requisite of such a contract that the mortgagor be at the time
the absolute owner of the thing mortgaged. Thus, in a case where a
mortgage was executed containing a stipulation that, inasmuch as
the land therein described and given as security was not sufcient
to cover all the obligations, the mortgagor constituted a mortgage on
any other property he might acquire in the future, it was held that
such stipulation did not constitute a valid mortgage on the property
subsequently acquired, even if there has been a notice of lis pendens
recorded upon the title of the new property, when judicial foreclosure
of the original mortgage was instituted. In holding that such stipulation does not constitute a valid mortgage upon the newly acquired
property, the court stated that the mortgagor could not legally
mortgage any property he did not yet own, applying Article 2085,
paragraph 2, of the Civil Code, and that in order that a mortgage may
be validly constituted the instrument by which it is created must be

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

mortgage encumbering the land and the construction thereon, it is


unquestionable that the mortgage actually includes the new building, which forms one indivisible whole with the land or lot on which
it was erected.33

Incidentally, it may be mentioned here that the principle with


respect to mortgage of future property may not necessarily be applicable to sale. For instance, where a person who is not yet the owner of
the land sells or alienates it to another, and later the seller acquires
title thereto, such title passes to the buyer by operation of Article
1434 of the New Civil Code. The sale is thus validated and the seller
cannot validly offer the same property to another buyer for a better
price and thereby realize greater prot, even with the intention of
refunding to the rst buyer the price previously paid for the same
property. The seller is held under estoppel by deed.
20.

A building constructed by the owner of a mortgaged land is an


improvement thereon, within the purview of Article 2127 of the new
Civil Code, and is included in the mortgage although constructed
after the said mortgage was constituted. It is explained that Article
1409 (3) of said Code, which declares as void and inexistent contracts
such as those whose cause or object did not exist at the time of the
transaction and Article 2085 which requires that the mortgagor be
the absolute owner of the thing mortgaged and that the person constituting the mortgage should have the free disposal of the property
or is legally authorized for the purpose, being general provisions,
must yield to particular provisions, namely, Article 2127 of the new
Civil Code and Articles 110 and 111 of the Spanish Mortgage Law,
in view of the rule that it is the special and specic provisions which
must control and the general provisions which must yield, and this
is irrespective of their dates or relative positions in the statute.34

Future improvements included in mortgage.

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

Dilag v. Heirs of Resurreccion, 76 Phil. 650.


Arts. 110 and 111 of the Mortgage Law, and 2127 of the Civil Code; decision
of the U.S. Supreme Court in the matter of Royal Insurance Co. v. R. Miller, et al., 26
Sup. Ct. 46; 199 U.S. 353; Bischoff v. Pomar, 12 Phil. 690.

21.

Machineries and xtures included in real mortgage; when


excluded.

It is a well-settled rule that all objects permanently attached


to a mortgaged building or land are deemed included. That includes
not only xtures but also machinery and other objects placed upon
and used in connection with the mortgaged estate. If it is intended
to exclude any of them, it is indispensable that it be so stipulated
between the contracting parties.35
22.

Fruits and rents of mortgaged property included.

All growing fruits on the mortgaged land are deemed to be


included in the mortgage, provided they have not yet been gathered

31

32

340

33
34
35

Philippine Sugar Estate Development Co. v. Camps, 36 Phil. 85.


Li Hsui Lin v. Phil.-American Life Ins. Co., 58 O.G. 40, Oct. 1, 1962, CA.
Bischoff v. Pomar, et al., 12 Phil. 690.

341

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

With respect to rents, only such rents of the mortgaged property


as are not collected when the obligation falls due, and all rents payable until the credit is satised, are deemed included.38
23.

Continuing credit secured by mortgage.

For business accommodation, banking practices permit the


granting of continuing credit line, such as overdraft, to be secured by
mortgage. Under such contract, the mortgagor is permitted to take
the money or so much thereof as may be needed from time to time,
and thus avoid the necessity of paying interest until the necessity for
its use actually arises.
A mortgage given to secure advancements is a continuing security, and the mere fact that the payments on a particular day equal
the amount of the mortgage will not discharge the mortgage before
maturity so long as advancement may be demanded and are received.
For the purpose of determining the amount due upon the mortgage
at maturity, there being money paid to the mortgagor little by little
and repayments are made from time to time, the advancements and
the repayments are taken together.39
By the same token, a stipulation in a mortgage contract to include as part of the obligation secured future amounts that may be
borrowed by the mortgagor from the mortgagee was held to be valid
where the consideration for which the mortgage may stand as security

36
37
38

Philippine National Bank v. Alejano, 55 Phil. 11.


Serra v. Philippine National Bank, 45 Phil. 907.
Hijos de I. de la Rama v. Betia, 54 Phil. 991; Afable v. La Urbana, 55 Phil.

64.

24.

Mortgage constituted by private document not legal.

In order to constitute a legal mortgage, it must be executed in


a public document, besides being recorded. A provision in a private
document, although denominating the agreement as one of mortgage,
cannot be so considered as it is not susceptible of inscription in the
property registry. A mortgage in legal form is not constituted by a
private document, even if such mortgage be accompanied with delivery of possession of the mortgaged property.41
Besides, by express provisions of Section 127 of Act No. 496, a
mortgage affecting land, whether registered under said Act or not
registered at all, is not deemed to be sufcient in law nor may it be
effective to encumber or bind the land unless made substantially in
the form therein prescribed. It is required, among other things, that
the document be signed by the mortgagor executing the same, in the
presence of two witnesses, and acknowledged as his free act and deed
before a notary public. A mortgage constituted by means of a private
document obviously does not comply with such legal requirements.
Furthermore, by express provision of Article 1358 of the new
Civil Code, acts and contracts which have for their object, among
other things, the creation of real rights over immovable property
must appear in a public document. By the constitution of a mortgage
upon real property, there is created in favor of the mortgagee such
real rights.
25.

Mortgage not registered; effect.

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

Lim Julian v. Lutero, 49 Phil. 703.

342

41

Tady-Y v. Philippine National Bank, 12 SCRA 19.


Enriquez v. Goduco, 23 Phil. 342; Mamuyac v. Abena, 67 Phil. 289.

343

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

certicate at a time and place to be named therein, and may enforce


the order by suitable process.

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.

May mortgage be registered without the owners duplicate


title?

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.

Assignment of mortgage; registration.

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

The mere fact that the purchaser of an immovable has notice


that the property is encumbered with a mortgage does not necessarily
render him liable for the payment of the mortgage debt, in the absence
of stipulation or condition that he is to assume payment thereof, because the mortgage is merely an encumbrance as distinct from the
principal obligation secured. Of course, if the principal obligor does
not pay, the mortgagee may foreclose the mortgage and have the
property sold at public auction, applying the proceeds of the sale to
the satisfaction of the mortgage obligation.52
Mortgagee in bad faith.

28.

Sale of mortgaged property does not necessarily constitute


novation of mortgage.

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

A property was acquired by a bank after the ling of an action


for specic performance was led and the fact that the foreclosure
and public auction sale took place after the institution of the case is
immaterial since the foreclosure sale retroacts to the date of the constitution of the mortgage. It further argued that it was a purchaser
for value long before the ling of the specic performance case and
thus, it cannot be considered a transferee pendente lite.
The Supreme Court considered the argument specious. The
bank acquired the property only after the ling of the case for specic
performance. When the mortgage was constituted, the bank was not
yet, properly speaking, a transferee, being a mere mortgagee of the
property. Only when it acquire the property in the foreclosure sale
and subsequently consolidated its title did it become the transferee of
the property. Thus, the bank is a transferee pendente lite of the property in litigation within the contemplation of Rule 29, Section 47(b).
As such, it is bound by the decision against Demetrio Llego. As the
Supreme Court held in one case: . . . A transferee pendente lite stands
exactly in the shoes of the transferor and is bound by any judgment
or decree which may be rendered for or against the transferor; his
title is subject to the incidents and results of the pending litigation,
and his transfer certicate of title will, in that respect, afford him no
special protection.
The bank insists that it is not a transferee pendente lite because
it was a purchaser for value long before the case for specic perform-

Fernandez v. Ayson, 50 O.G. 2906, May 6, 1963, CA.


Angeles v. Guevara, 62 O.G. 41, Oct. 10, 1966, CA.
McCullough & Co., Inc. v. Veloso, 46 Phil. 1.
51
Art. 1204, Civil Code of 1889; Art. 1292, new Civil Code; La Tondea, Inc. v.
Alto Surety Co., etc., 101 Phil. 879.

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

REGISTRATION OF LAND TITLES AND DEEDS

ance was led. The contention is without merit. Even if it is not a


transferee pendente lite, nevertheless cannot claim a right superior
to that of private respondents because petitioner acted in bad faith
when it foreclosed and acquired the property. The bank was aware
of the charge of fraud against the mortgagor in mortgaging the property to it despite the previous sale to another person. The trial court
found the existence of fraud in the transaction and declared to be the
absolute owners of the property. As already stated, this decision of
the trial court is now nal and is binding on petitioner bank. In the
meantime, the bank consolidated its title over the property. Since
the bank acquired the land in question with knowledge of the fraud
committed by the owner, it cannot claim to be a purchaser in good
faith and, therefore, to have a better right than its predecessor-ininterest.
The case of St. Dominic vs. IAC, 151 SCRA 577, in which it was
held that the foreclosure sale retroacts to the date of the registration of the registration of the mortgage and that a person who takes
a mortgage in good faith and for valuable consideration, the record
showing clear title to the mortgagor, will be protected against equitable claims on the title in favor of third persons of which he had no
actual or constructive notice cannot be applicable to this case. In the
case of St. Dominic, when the property was mortgaged to the bank,
the title showed that it was valid, regular, and free from any lien or
encumbrance. When it was later foreclosed, fold at public auction and
a new transfer certicate of title was issued to the buyer, the notice
of lis pendens was not carried over to the new title. And, when the
property was sold to petitioner, St. Dominic Corporation, which was
again issued TCT No. 22337, no notice of any lien of encumbrance
appeared on the title. These factual circumstances led the Court to
conclude that the mortgagee bank and its subsequent transferees
had acted in good faith. It is obvious that the case of St. Dominic
Corporation vs. IAC cannot be invoked in this case where both the
trial court and the CA found that petitioner bank did not act in good
faith in acquiring title to the property.
Under the doctrine of the mortgagee in good faith, despite the
fact that the mortgagor is not the owner of the mortgaged property,
his title being fraudulent, the mortgage contract and any foreclosure
sale arising therefrom are given effect by reason of public policy.
(Cavite Development Bank vs. Lim, 324 SCRA 346).
348

REAL ESTATE MORTGAGE

29.

Stipulation against subsequent mortgage.

Where the property mortgaged is registered in the registry of


property under the Torrens system provided by Act No. 496, as Article
107 of the Mortgage law is made inapplicable by express provision
of Section 124 of said Act No. 496, said stipulation not to make a
new mortgage not being contrary to law, morals, or public order, is
valid and is, therefore, an obstacle to the registration of subsequent
mortgages in the registry of property.53
As to whether the above ruling may be considered neutralized
by the provision of Article 2130 of the Civil Code of the Philippines,
to the effect that a stipulation forbidding the owner from alienating
the immovable mortgaged shall be void, will depend upon whether,
by statutory construction the word alienating embraces the act of
mortgaging.
But the mere fact that the mortgagee has authorized the debtor
to mortgage the property described in the mortgage given to secure
the debt to a third party does not imply the cancellation of said mortgage, for which the cancellation of its registration in the registry is
necessary, nor the extinction of the debt which subsists even supposing the mortgage was cancelled.54
30.

Second mortgage valid although constituted violation of


pact.

If the making of a second mortgage except with the written


consent of the mortgagee is prohibited, and the contract continues
and states the penalty for such a violation, namely, it gives to the
mortgagee the right to immediately foreclose the mortgage, it does not
give him the right to treat the second mortgage as null and void.55
31.

Authorization to constitute second mortgage understood unless prohibited.

As a rule there is no need to ask for authorization in order that


the mortgagor may mortgage the same land for the second time, since
the law permits him to do so, without prejudice to the previous mort53
54
55

Phil. Industrial Co. v. El Hogar Filipino, 45 Phil. 336.


Santos v. Macapinlac, 51 Phil. 224.
Bank of the P.I. v. Ty Camco Sobrino, 57 Phil. 801.

349

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

It is to be noted, however, that under the new Civil Code of the


Philippines, Article 2130, a stipulation forbidding the owner from
alienating the immovable mortgaged shall be void. The reason for
this is quite obvious, and that is, to preserve to the owner one of the
legal attributes of ownership.

32.

Mortgage prohibiting subsequent alienation.

The appellee relies upon the stipulation in the mortgage deed


executed in its favor by the spouses R which prohibits the latter from
alienating or encumbering the mortgaged lands without its written
consent, and contends that the sales made in favor of the spouses A
S. and B. L. and the appellants are null and void because its written
consent had not been previously obtained, thus violating the said
stipulation. The said stipulation reads: The mortgagor, during the
lifetime of the mortgage, may not sell or in any way alienate the mortgaged properties, or encumber the same by a subsequent mortgage
or lease them for more than one year without the written consent of
the mortgagee. This stipulation, styled pact de non alienando, sometimes found in mortgages executed in Louisiana and derived from
the Spanish law, binds the mortgagor neither to sell nor encumber
the mortgaged property to the prejudice of the mortgagee; does not
nullify the sale in favor of a third person, but gives the mortgagee the
right to proceed directly against the property, found in the purchasers
possession, in a proceeding against the mortgagor alone and without
notice to the purchaser.57
In a certain case of donation involving real estate subject to
a pre-existing mortgage, where the mortgage contract contained a
stipulation prohibiting the mortgagor to alienate the property without
the mortgagees consent, and the latter refusing to give its consent to
the contemplated donation, it was held that the prohibition against
such subsequent alienation is valid as not being contrary to law, morals or public interest, and that the mortgagee cannot be compelled
by the courts to give its consent to the registration of such deed of
donation by delivering for the purpose the certicate of title in its
possession, contrary to the prohibition.58

Right of mortgagor to sell the mortgaged property.


In Sps. Litonjua, et al. vs. L and R Corp., et al. vs. G.R.
No. 130722, Dec. 9, 1999 the question asked was whether the
agreement that the mortgagor cannot sell the mortgaged property without the consent of the mortgagee such that if it is sold
without his consent, valid or not?
Held:
It is not valid as it contravenes Article 2130, NCC which
provides that a stipulation forbidding the owner from alienating
the immovable mortgaged shall be void citing Tambunting vs.
Rehabilitation Finance Corp., 176 SCRA 493 (1989) where it was
said that the prohibition against subsequent contracts can only
be directed against subsequent mortgages or encumbrances, not
alienation of the immovable itself. (see Phil. Industrial Co. vs
El Hogar Filipino, et al., 45 Phil. 336). Such prohibition against
sale or disposition is void as it practically gives the mortgagee
the sole prerogative to prevent any sale of the mortgaged property to a third party. The mortgagee can simply withhold its
consent and thereby, prevent the mortgagor from selling the
property. This creates an unconscionable advantage for the
mortgagee and amounts to a virtual prohibition on the owner
to sell his mortgaged property which is contrary to law.
33.

Pactum commissorium, nature and effect.

Santos v. Macapinlac, 51 Phil. 224.


41 C.J. Sec. 741, p. 708; De la Paz and Santiesteban v. Macondray & Co., 66
Phil. 402.
58
Arancillo v. Rehabilitation Finance Corp., 89 Phil. 801.

Pactum commissorium, as understood in this jurisdiction, is a


stipulation empowering the creditor to appropriate the thing given
as guaranty for the fulllment of the obligation in the event the obligor fails to live up to his undertakings, without further formality,
such as foreclosure proceedings, and a public sale. Es el pacto de la
ley comisoria en las ventas de inmuebles el que se reglamenta en el
articulo 1504 (10 Manresa, Comentarios al Codigo Civil, p. 260) and

350

351

56

57

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

these agreements are declared void by the Civil Code in whatever


contract they are found. Historically, in point of view of strict law,
pactum commissorium, referred to in Law 41, Title 5, and Law 12,
Title 12 of the Fifth Partida, and included in Articles 1859 and 1884
of the Civil Code, presumes the existence of the contract of mortgage
or pledge or that of antichresis.59

cures the defect consisting in the latters not having assigned it before
to the creditor in payment of the debt, as was stipulated.

Thus, a covenant in a deed of mortgage which stipulates that


upon failure to redeem the mortgage the transaction shall automatically become one of sale without further action in Court constitutes
a pactum commissorium, and is therefore null and void.60
34.

Promise to pay debt with realty given in security, validity.

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.

How mortgage may be discharged.

A mortgage may be discharged by the creditor executing a public


instrument cancelling or releasing the mortgage, substantially in
accordance with the form prescribed by Section 127 of Act No. 496,
and the instrument being presented with the ofce of the Register of
Deeds of the city or province where the land lies, together with the
owners duplicate title, for registration. Thereupon, a memorandum
of cancellation is annotated.
Incidentally, a problem may arise as to whether by order of the
court a subsisting mortgage may be cancelled or discharged conditioned upon the posting of a surety bond. To order the substitution of
the mortgage for a surety bond would, in effect, operate as a novation
of the basic contract entered into by the parties, thereby discharging
the mortgage. This cannot be done without the express consent at
least of the mortgagee. To substitute the subsisting mortgage with a
surety bond would convert such lien on the property affected from a
right in rem to a right in personam and would abridge the mortgagees
right under the mortgage contract.62
36.

Stipulation of tipo or upset price in mortgage contract.

A stipulation in a mortgage of real property xing a tipo or


upset price to become operative in the event of a foreclosure was held
to be ineffective, for according to statutes the property must be sold
to the highest bidder at the auction sale. The parties to the mortgage
cannot by agreement contravene the statutes and interfere with the
existing legal procedure.63
Hence, the purchaser at public auction who won the bid at a
price lower than that xed in advance by agreement of the parties

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

to the contract must have to be upheld. But suppose the purchaser


happens to be the creditor or mortgagee himself, will the same rule
apply? This question, although suggested in a subsequent case,64 has
remained unresolved. While the pro and the con on this issue may
have good grounds on their respective sides, we feel more inclined
to believe that, insofar as the creditor or mortgagee is concerned,
the stipulations regarding the upset price should be binding for his
concurrence thereto places him under estoppel.

the mortgage securing it. In this jurisdiction, a creditor holding a


claim against the deceased, secured by a mortgage or other collateral
security, has to elect between enforcing such security or abandoning it
by presenting his claim before the committee (now taken over by the
Clerk of Court) and share in the general assets of the estate. Under
this provision, it has been uniformly held that, if the plaintiff elects
one of the remedies thus provided, he waives the other and if he fails,
he fails utterly.67

37.

Unregistered sale superior over a registered mortgage.

Recourse left to mortgagee upon death of mortgagor.

Rule 86, Section 7, of the Rules of Court, leaves the mortgagee


three alternative recourses, should the mortgagor die without having settled the obligation secured by the mortgage, as follows: (1) He
may abandon the security and prosecute his claim by ling it with
the ofce of the Clerk of Court, and share in the general distribution
of the assets of the estate; or (2) he may foreclose the mortgage, by
ordinary action in court, making the executor or administrator a
party defendant, and if there should be deciency after the sale of the
mortgaged property, he may prove the same in the estate proceeding,
or (3) he may continue to rely upon his mortgage and foreclose it, if
necessary, in due time, in which case he will not be admitted anymore
as creditor of the estate with right to share in the distribution of the
assets.65
Thus, if the mortgagee elects one of the alternatives enumerated
above, he must abandon the others. So, if he fails in one his cause
is lost. He is not permitted to annoy those interested in the estate
of a deceased person by two actions for exactly the same purpose. A
multiplicity of actions is abhorrent to the law and is not permitted
in equity and justice.66
It was held also that most of the provisions of our Code of Civil
Procedure (now superseded by the Rules of Court) were taken from
that of California, and in that jurisdiction the rule has always been,
and still is, that a party who sues and obtains a personal judgment
against a defendant upon a note waives thereby his right to foreclose

64
65
66

Banco Espaol-Filipino v. Palanca, 37 Phil. 921.


Reyes v. Rosenstock, 47 Phil. 784.
Osorio v. San Agustin, 25 Phil. 404; Veloso v. Heredia, 33 Phil. 306.

354

The registered right of the mortgagee of the property is inferior


to the unregistered right of the buyer to whom the property was
conveyed earlier. The reason is that the original owner had partied
with his ownership of the thing sold then he no longer had ownership
and free disposal of that thing so as to be able to mortgage it again.
Registration of the mortgage is of no moment since it is understood to
be without prejudice to the better right of third persons. (Dela Merced
vs. GSIS, et al., 365 SCRA 1). It was further said that when the
purchaser or mortgagee is a nancing institution, like the GSIS, the
general rule that a purchaser or mortgagee of land is not required to
look further than what appears on the face of the title does not apply.
The constructive knowledge of the mortgagee of the defect in the title
of the subject property, or lack of such knowledge due to negligence,
takes the place of registration of the rights of a party who to whom
the property had been earlier sold. If the title came from a foreclosure
sale which was void because the mortgagor was not the owner, the
title derived by the buyer in the sale did not acquire a better right.
Nemo potest plys juris ad alium transfere quam ipsa habet. No one
can transfer a greater right to another than he himself has. The rule
is based on the legal truism that the spring cannot rise higher than
the source.
Mortgagee as an indispensable party.
A mortgagee of a real property is an indispensable party in an
action for declaration of nullity of title. It was argued in Metrobank
vs. Alejo, G.R. No. 141970, Sept. 10, 2001 that the mortgagee can67

Bachrach Motor Co., Inc. v. Icarangal, et al., 68 Phil. 287.

355

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

not possibly be an indispensable party, since the mortgage may not


even be valid because of the possible absence of compliance with the
requirement (Artcle 2085, NCC), that the mortgagor be the absolute
owner of the thing mortgaged. It should be emphasized, however, that
at the time the mortgage was constituted, there was an existing title
which named the mortgagors as the registered owners of the property.
In Seno vs. Mangubat, 156 SCRA 113, it was held that:

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

The well-known rule in this jurisdiction is that a person


dealing with a registered land has a right to rely upon the face
of the Torrens Certicate of Title and to dispense with the
need of inquiring further, except when the party concerned has
actual knowledge of facts and circumstances that would impel
a reasonably cautious man to make such inquiry.
xxx

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.

The requirement for joinder of the person claiming an interest


subordinate to the mortgage sought to be foreclosed is not mandatory in character but merely directory, in the sense that failure to
comply therewith will not invalidate the foreclosure proceedings,69
but at most will only leave the equity of redemption unforeclosed
as against such lienholder not included as party defendant.70 Thus,
where a second mortgagee was not made a party to the proceeding
to foreclose a rst mortgage, an independent foreclosure proceeding
may be maintained against him by the creditor in the rst mortgage,
in which proceeding the court should require the second mortgagee to
redeem from the rst mortgagee within three months, under penalty
of being debarred from the exercise of his right to redeem.71
The same rule applies not only to a subordinate lienholder or
encumbrancer, but also to a purchaser of real property subject to a
pre-existing mortgage.72 Thus, it was held that where the mortgaged
property is sold to subsequent purchasers, the mortgage debtor and
the purchasers are necessary parties in the action to foreclose the
mortgage, these purchasers having or claiming an interest in the
premises subordinate in right to that of the holder of the mortgage
being foreclosed.73 Accordingly, where the purchaser at a foreclosure
sale of unregistered property applies for the original registration in
his name of the land sold, and a subordinate lienholder has not been
impleaded in the foreclosure proceeding, the land may be registered
in the purchasers name but subject to the lienholders unforeclosed
equity of redemption.74

Foreclosure suit; necessary parties thereto.

All persons having or claiming an interest in the mortgaged


property subordinate in right to that of the holder of the mortgage
should be made defendants in the action for the foreclosure of the
mortgage, in accordance with Rule 68, Section 1, of the Rules of
Court. It was held that where a person intervenes as a subordinate
lien-holder in a foreclosure case, merely to oppose the conrmation
356

Santiago v. Dionisio, et al., 92 Phil. 495.


Somes v. Government, 62 Phil. 432.
Government v. Cajigas, 55 Phil. 667.
71
Sun Life Assurance Co. v. Gonzales Diez, 52 Phil. 271.
72
De la Paz, et al. v. Macondray & Co., Inc., 66 Phil. 402.
73
De Villa v. Fabricante, 105 Phil. 672.
74
Santiago v. Dionisio, et al., supra.
68

69
70

357

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

Requisites in foreclosure sale.

the municipality or city where the property is situated, and if


such property is worth more than four hundred pesos, such
notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the
municipality or city.

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.

Action to foreclose subject to prescription.

Title to registered land does not stand on the same footing as


right to a registered mortgage, in the sense that while title to registered land under the Torrens system does not prescribe even for a
hundred years, the right of action to foreclose a mortgage affecting
registered land prescribes after ten years according to Article 1142
of the new Civil Code. Thus, in a case where the obligation guaranteed by a mortgage became due and demandable more than twentyyears ago, the mortgage remaining unforeclosed and the mortgage
contending that the action to foreclose did not prescribe by reason of
the fact that Section 46 of the Land Registration Act provides that
No title to registered land in derogation to that of the registered
owner shall be acquired by prescription of adverse possession, it was
held that the law cited did not apply inasmuch as the citation only
speaks of the title of the registered owner and refers to prescription or adverse possession as a mode of acquiring ownership, which
goes to show that the whole philosophy of the law is merely to make
a Torrens title indefeasible and surely not to cause a registered lien
or encumbrance such as a mortgage and the right of action to
359

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

enforce it imprescriptible as against the registered owner. The


important effect of the registration of a mortgage is obviously to bind
third parties; it does not go further as to make the action to foreclose
it imprescriptible.75

venue of an action may be changed or transferred from one province


to another. Besides, when improper venue is not objected to prior to
the trial, it is deemed waived.79

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.

Venue in an action for foreclosure.

It is a settled doctrine that when a contract of mortgage covers


various parcels of land situated in different provinces, the Court of
First Instance of any of said provinces has jurisdiction to take cognizance of an action for foreclosure of the mortgage, and the judgment
therein rendered can be executed in the other provinces where the
rest of the real estate is situated.80 There is no need of instituting
another action in any other place for the foreclosure of one and the
same mortgage. The other court has no jurisdiction to render a second judgment upon the same obligation and a second foreclosure of
the same mortgage, and should dismiss the petition seeking such
relief.81
41.

Attachment as additional remedy to foreclosure.

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

An action for foreclosure of mortgage on real property may be


commenced and tried in the city or province where the property or
any part thereof lies.78 However, by agreement of the parties, the
Rule 4, Sec. 5, Rules of Court.
El Hogar Filipino v. Seva, 57 Phil. 573.
Bank of P.I. v. Green, et al., 57 Phil. 712.
82
De los Reyes v. Court of First Instance of Batangas, 55 Phil. 408; and Pacic
Commercial Co. v. Rivera and Joscon, 73 Phil. 495.
83
Hijos de I. de la Rama v. Sajo, 45 Phil. 703, cited in Solomon and Lachica v.
Dantes, 63 Phil. 522.
79

80
81

Buhat, et al. v. Besana, et al., 95 Phil. 721.


Sunico v. Ramirez, 14 Phil. 500.
Estayo v. De Guzman, 104 Phil. 1038.
78
Rule 4, Sec. 2, Rules of Court.
75
76
77

360

361

REGISTRATION OF LAND TITLES AND DEEDS

42.

Right of mortgagee to take possession.

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

REAL ESTATE MORTGAGE

issued by the sheriff to the purchaser, but only woke up to impugn


the validity of the proceedings when the mortgagee who bought the
property at the auction sale led a motion for writ of possession of
the property, said mortgagor is guilty of laches and as such should
alone be blamed for the consequence.86
But suppose the judgment rendered only awarded the recovery
of a sum of money, with the alternative clause that only in default of
payment thereof would the mortgage be foreclosed, but that before
the full satisfaction of the amount adjudged the subject matter of
the mortgage was burned or destroyed, how could the foreclosure as
the alternative remedy granted in the judgment be enforced? Under
the circumstance, it was held, the remaining portion of the judgment
which can no longer be enforced may he made subject matter of an
independent civil action where the period of ve years had already
elapsed since the date of the nality of said judgment.87
44.

Buyer in foreclosure sale acquires title free from rights of


subsequent mortgagee.

Where property is subject to two successive mortgages, and the


rst one has been foreclosed, what will be the effect of the foreclosure
sale upon the second mortgage? The second mortgage is thereby extinguished, and the buyer in the foreclosure sale acquires title to the
property free from the second mortgage which is a mere subordinate
lien. The sole right of the second mortgagee, aside from the right to
repurchase as may be permitted by law, is to apply for the excess of
the proceeds of the sale after the payment of the credit of the rst
mortgage and other legal expenses.88
In line with the same principle, any subsequent lien or encumbrance annotated at the back of the certicate of title cannot in any
way prejudice a mortgage previously registered, and the lots subject
thereto pass to the purchasers at the public auction free from all lien
or encumbrance such as the notice of an adverse claim recorded after
the mortgage.89

Reyes v. Victoriano, 107 Phil. 763.


Justiniani v. Farin, 60 O.G. 39, Sept. 28, 1964, CA.
El Hogar Filipino v. Philippine National Bank, 64 Phil. 582.
89
Bank of the Philippine Islands v. Noblejas, 105 Phil. 418.
86

87

84
85

Agricultural and Industrial Bank v. Tambunting, et al., 73 Phil. 555.


Rule 68, Sec. 2, Rules of Court.

362

88

363

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

Thus, it will be seen that the right of a subordinate lienholder


cannot be enforced upon the property, until after the legal claims
of the superior lienholder shall have been fully satised. This rule
is true, whether the foreclosure has been carried out judicially or
extrajudicially.

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

It may be stated, however, in this connection that a foreclosure


sale is not complete until it is conrmed, and before said conrmation the court retains control of the proceedings by exercising sound
discretion in regard to it, either granting or withholding conrmation as the rights and interests of the parties and the ends of justice
may require.90 The maxim caveat emptor, which means purchaser
beware, applies only to execution sales and not to a sheriffs sale by
stipulation of the parties in a mortgage contract.91
45.

Right of buyer to take possession.

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.

Proceeds of foreclosure sale, how disposed of.

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.

Deciency judgment after foreclosure sale.

If the proceeds of the sale be not sufcient to cover the obligation


owing to the mortgagee, the court, upon motion, may render a de-

Salazar v. Torres, 108 Phil. 209.


Benipayo-Rodriguez v. Reyes, Benipayo, G.R. No. L-22958, Jan. 31, 1971, 67
O.G. 21, p. 3956, May 24, 1971; 37 SCRA 195.
92
Ludlow v. Lansing, Hopk., Ch. (N.Y.) 231; Jones v. Hooper, 50 Miss. 510, 514.
93
PNB v. Midpantao, et al., G.R. No. 52823, Nov. 2, 1982.

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

ciency judgment against the debtor-mortgagor for the balance, upon


which execution may issue immediately. But it would be premature
to ask the court for a deciency judgment before the sale for then it
is not yet known whether or not deciency would exist.98

pears that the mode of sale adopted was the most advantageous to
all parties, or at least, was not prejudicial to any.101

It should be borne in mind, however, that a deciency judgment


is not available against any mortgagor. For if the mortgagor is not
the debtor himself, a deciency judgment as a rule will not lie. Thus,
it was held that one who mortgages his property to secure the debt
of another without expressly assuming the personal liability for such
debt cannot be compelled to pay the deciency remaining due after
the mortgage is foreclosed.99
48.

When may foreclosure sale be set aside?

It is a fundamental rule that the setting aside of a foreclosure


sale is largely a matter of judicial discretion. But, for the purpose of
appealing to the sound discretion of the court, any of the following
grounds may be invoked and, if proven, may cause the setting aside
of the sale:
(1) That there was fraud, collusion, accident, mutual
mistake, breach of trust or misconduct by the purchaser; or
(2) That the sale has not been fairly and regularly conducted, or
(3) That the price was inadequate and the inadequacy is
so great as to shock the conscience of the court.100
With respect to the second ground above-enumerated, it is generally presumed that the method adopted in selling the property in
foreclosure is the one best calculated to realize the greatest amount
for the property sold. In order that such sale may be set aside upon
the ground that the property was sold in an improper mode, it must
appear that the sale was fraudulent or unfair or that the method
adopted substantially prejudiced the party seeking to set aside the
sale. Accordingly, a foreclosure sale will not be set aside where it ap-

In connection with the last ground above-stated, it was held that


the sale of the mortgaged property cannot be annulled for reason of
inadequacy of price (1) when there is no evidence as to the real market
value of the land sold, and (2) when there is no showing that another
purchaser was ready to offer a higher price than that for which it was
adjudicated by the sheriff to the highest bidder.102
So also in a case where the mortgagor attempted to annul an
extrajudicial foreclosure sale on the ground that the price for which
his property had been sold was unconscionable, the Supreme Court
took into account the fact that during the redemption period he could
have mortgaged said property to a bank or sold it to any other person
in order to pay the mortgage indebtedness. He having made no such
effort and, if he did, he having not succeeded in selling the property
to any person or entity for a higher price, it only goes to show that
the amount for which the property was sold at public auction was not
unconscionable.103
He could have also sold his right to redeem and thus recover any
loss that he might have suffered by reason of the alleged unconscionable price. As a matter of fact, the lesser the price the easier it is for
the mortgagor to effect the redemption.104
Thus, unless representation is duly made when the Certicate
of title is cancelled by reason of the foreclosure of the superior mortgage lien that irregularities attended the foreclosure, such as lack
of notice to or non-inclusion of inferior lienholders, the Register of
Deeds is authorized to issue a new title to the highest bidder due to
the consolidation of his right upon foreclosure, without carrying over
the annotation of subordinate liens.105

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

REGISTRATION OF LAND TITLES AND DEEDS

49.

Separate auction of individual lots not required in foreclosure


sale.

The rule that when the sale is of real property, consisting of


several known lots, they must be sold separately, applies to sales
on execution (Rule 39, Section 21, Rules of Court) but not to sales in
connection with foreclosure of mortgages. Even if it is assumed that
the prohibition applies to such foreclosure sales, still a particular sale
cannot be set aside where it is not shown that a better price could
have been obtained if the lots were sold separately, or that the sale of
one lot alone would bring sufcient proceeds to satisfy the judgment
in the foreclosure suit.106
50.

Supersedeas bond, purpose in forelosure of mortgage.

In an action to foreclose a real estate mortgage, the judgment is


secured by the mortgaged property and, therefore, the supersedeas
bond is not intended to cover the full amount of the judgment when
appealed. The only purpose of the supersedeas bond in such a case
is to secure the payment of any deciency judgment that may be
entered against the defendant, on the theory that by reason of the
delay caused by the appeal the mortgage may become inadequate to
secure the full amount of the judgment for the value of the mortgaged
property may fall in the meantime that the interest on the principal
of the judgment piles up. Thus, it was held that if the supersedeas
bond had been based on the full amount of the judgment, the same
must be reduced accordingly.107
51.

Registration of nal record in judicial foreclosure.

For transferring title after judicial foreclosure, Section 63 of Act


No. 496, as amended by P.D. No. 1529, requires that a certied copy
of the nal decree of the court conrming the sale under foreclosure
proceedings be led with the register of deeds after the time for appealing therefrom has expired, and the purchaser shall thereupon
be entitled to the entry of a new certicate and to the issuance of a
new owners duplicate certicate, a memorandum thereof being at
the same time likewise endorsed upon the mortgagors duplicate

106
107

Villar v. Javier de Paderanga, 97 Phil. 604.


Presbitero v. Rodas, 40 O.G. 18, Nov. 1, 1941, CA.

368

REAL ESTATE MORTGAGE

certicate. However, prior to the entry of a new certicate of title,


the mortgagor or any other person interested may, by proper legal
proceedings, impeach any foreclosure affecting registered land.
On the other hand, Rule 68, Section 7, of the Rules of Court,
requires that the nal record of a foreclosure proceeding shall set
forth, in brief, the petition and other pleadings, judgment and orders,
the proceedings under the order of sale, the order conrming the sale,
the name of the purchaser, with a description of the property by him
purchased, and the certicate of redemption, if any, or the nal deed
of conveyance executed in favor of the purchaser.
52.

Extrajudicial foreclosure of mortgage.

A mortgage may be foreclosed extrajudicially only if there has


been inserted in or attached to the real estate mortgage a special
power of attorney conferring upon the mortgagee the power to sell
the mortgaged property at public auction in the event of foreclosure,
conformably to the procedure prescribed in Act No. 3135, as amended
by Act No. 4118.
A power to sell extrajudicially conferred upon the mortgagee
is a power that survives the death of the mortgagor because it is an
agency coupled with interest.108 To constitute such power coupled
with interest, the rule is that there should coexist in the agent, along
with the power given him, an interest or estate in the thing to be
disposed of. It is not meant an interest in the exercise of the power
but an interest in the property on which the power is to operate.109
As to the place of sale, it cannot be made legally outside of the
province or city in which the property is situated; and in case the
place within said province or city in which the sale is to be made is
the subject of stipulation, such sale shall be made in said place or in
the municipal building of the municipality in which the property or
part thereof lies.
Publication is also required by posting notices of the sale for not
less than twenty days in at least three public places of the munici108
Pasno v. Ravia, 54 Phil. 378; Fernandez v. Sta. Maria, 29381-R Jan. 29,
1964, 61 O.G. 7, p. 895, Feb. 15, 1965, CA; Perez v. PNB, 124 Phil. 260.
109
Taylor v. Burns, 203 U.S. 120; Roque v. Tuason, 63 O.G. 17, Apr. 24, 1967,
CA.

369

REGISTRATION OF LAND TITLES AND DEEDS

pality or city where the property is situated, and if such property is


worth more than four hundred pesos, by publishing such notice once
a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city. In order that a newspaper may
be said to be of general circulation in a municipality, it must have
regular subscribers, buyers and readers therein.110 The law does not
require that notice of auction sale be given by the mortgagee to the
mortgagor.111
The contention that there was no personal notice in the foreclosure of mortgage is untenable. There being no contractual stipulation therefor, personal notice is not necessary and what governs is
the general rule in Sec. 3 of Act 3135, as amended which directs the
posting of notices of the sale in at lease three (3) places of municipality where the property is situated, and the publication thereof in a
newspaper of general circulation in said municipality.112
However, foreclosure of mortgages by rural banks are exempt
from the publication in newspaper where the total amount of loan
and interest due and unpaid does not exceed P3,000. It is sufcient
that there be posting of such notices in three most conspicuous public
places in the municipality or barrio where the land is situated during
a period of sixty days immediately preceding the public auction.113
The sale, which shall be under the direction of the sheriff, the
justice or auxiliary justice of the peace of the municipality, or of a
notary public of said municipality, shall be made at public auction
between the hours of nine in the morning and four in the afternoon.
In this sale, the creditor, trustee, or other person authorized to act
for the creditor, may participate in the bidding, and purchase under
the same conditions as any other bidder, unless the contrary has
been expressly provided in the mortgage or trust deed under which
the sale is made.

Sta. Romana v. Antonio, 65 O.G. 5, Feb. 3, 1969, CA.


Lucena v. Lucena (CA), 54 O.G. 3238; Lusanta v. RFC, CA-G.R. No. 23034-R,
Nov. 16, 1963; Valeriano v. Victor, et al., SP-11955, Jan. 29, 1981, CA, 78 O.G. 39,
Sept. 27, 1982.
112
PNB v. International Corporate Bank, G.R. No. 86679, July 23, 1991, 199
SCRA 508.
113
Presidential Decree 122.
110

REAL ESTATE MORTGAGE

53.

Particular formality when not required in power of sale.

In a contract of mortgage giving the mortgagee the election to


foreclose it extrajudicially, but where the power of sale was not conferred expressly as in the following stipulation:
3. It is also stipulated that the mortgagee, in selling the
property at public auction, shall follow the procedure provided
for in Act No. 3135, the mortgagor in any case to be notied by
the mortgagee in writing by registered mail of the sale.
it was held that the mortgagee is thereby empowered to sell the
mortgaged property without proceeding in court in accordance with
the provisions of Act No. 3135.114 Although a power of sale will not be
recognized as combined in a mortgage unless it is given by express
grant in clear and explicit terms, and that there can be no implied
power to that effect, it is generally held that no particular formality is
required in the creation of the power of sale. Any words are sufcient
which evince an intention that the sale may be made upon default
or other contingency.115
Effect of failure to post notice in foreclosure sale.
Under Act No. 3135, Section, 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 the Supreme
Court explained in Olizon vs. CA, 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

111

370

114
115

Tan Chat v. Hodges, 98 Phil. 928.


41 Corpus Juris, p. 926.

371

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

the law. By such publication, a reasonably wide publicity had been


affected such that those interested might attend the public sale, and
the purpose of the law had been thereby subserved. (DBP vs. Aguirre,
et al., 364 SCRA 755).

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.

Mortgage creditor to control details of sale.

It is to be noted that the law on extrajudicial foreclosure of


mortgage contains no provision that notice of the sale be given the
executing mortgagee-creditor. The absence of the provision is explained by the fact that it is the creditor who causes the mortgaged
property to be sold, and the date of sale is xed upon his instruction
because it is he who causes the sale and controls its details. That
the creditor should x the date of the sale is clearly to be inferred
from the provision that it is he (the creditor) who is required by the
law to give notice of the sale and its date to the mortgagor. Where,
therefore, the sheriff sets a day for the sale different from that xed
for it by the creditor, in violation of the orders of the latter or of the
understanding he had with the creditor, the sheriff exceeds the limits
of his authority, and the sale so executed is null and void. In such
case, the debtors recourse, if he has any, is against the sheriff for
damages but not against the creditor.116
55.

Right of redemption in foreclosure of mortgage.

In all cases in which an extrajudicial foreclosure sale has been


made under a special power, the debtor, his successors in interest
or any judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage or
deed of trust under which the property has been sold, may redeem
the same within the term of one year from and after the sale.
The term successor-in-interest includes one to whom the debtor has transferred his statutory right of redemption; or one to whom
116

Lang v. Acting Prov. Sheriff of Surigao, 93 Phil. 661.

372

The period of redemption begins to run, according to judicial


construction, not from the date of the sale but from the date of
registration of the sale in the ofce of the Register of Deeds, applying this rule not only to execution sale but also to an extrajudicial
foreclosure sale of registered land.118 It may not be amiss to state, as
an apparent deviation from the general rule, that where the parties
entitled to redeem were duly notied of the sale, which sale was even
postponed upon their own request, such circumstance has relevance
in the consideration of the equities, as distinguished from the purely
legal technicalities; and on account of such actual notice on the part of
said parties entitled to redeem and of their subsequent agreement to
postpone the sale, the concept of legal redemption would seem to have
been abandoned and converted into one of conventional redemption,
in which case the only governing factor was the agreement between
them. Hence, the registration of the certicate of sale sufciently
in advance to be able to reckon the one-year period within which to
redeem, would entirely be unnecessary and irrelevant to the question
of when the right of redemption should commence or expire.119 Needless to say, in this connection, that their actual notice of the sale is
more than registration itself inasmuch as the latter only accomplishes
constructive notice.
However, where the subject of the mortgage is a homestead
and this has been sold at public auction by virtue of an extrajudicial
foreclosure, the same may be repurchased by the mortgagor and
homesteader within ve years, in accordance with Section 119 of Com-

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

The purpose of the law in xing a period of redemption where


the mortgage has been foreclosed extrajudicially is to afford the owner
or mortgagor a chance to recover his property inasmuch as almost
invariably he forfeits it at a great loss as it is purchased usually at a
nominal cost by the mortgagee himself who ordinarily bids at no more
than the credit or the balance thereof at the auction sale. That is the
reason why the law gives him, who is decidedly at a great disadvantage, a chance to redeem the property within a xed period.123
Such right of redemption is an absolute privilege, the exercise
of which is entirely dependent upon the will and discretion of the
redemptioner. There is thus no legal obligation to exercise the right
of redemption. This right can in no sense be considered an obligation, for the mortgagor is under no compulsion to exercise the same.
Should he choose not to exercise it, nobody can compel him to do
so, nor will such choice give rise to a cause of action in favor of the
purchaser at public auction. If the redemptioner chooses to exercise

The above rule regarding the redemption price, however, does


not apply where the foreclosing mortgagee is the Development Bank
of the Philippines, wherein it was held that the mortgagor whose
property was sold at public auction, either judicially or extrajudicially, shall have the right to redeem the property by paying all the
amounts owed to the Bank on the date of the sale, with interest
thereon at the rate specied in the contract, and not the amount
for which the property was acquired at the foreclosure sale, for the
reason that the charter of the Development Bank of the Philippines
so requires the payment of such amount.125
As regards the interest on the purchase price, the date of redemption being computed from the date of registration of the certicate of sale, such interest should also be made to commence from that
date. As to the fees paid to the Register of Deeds for the registration
of the certicate of sale, plus the interest thereon, the non-payment
thereof by the mortgagor will not render invalid the redemption since
the legal requirements for a valid redemption have been substantially
complied with. And so also with the non-payment of real estate taxes
on the subject property since this should not affect the regularity and
validity of the redemption made by the mortgagor.126
It is to be borne in mind, in this connection, that in judicial
foreclosure of mortgage, there is no right of redemption reserved to

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

the debtor or mortgagor, unless expressly permitted by law. However,


before the sale is conrmed by the court, it is not considered nal or
perfected; so that, before such conrmation, the mortgagor has still
a chance to redeem the property. This is otherwise known as equity
of redemption. Thus, the equity of redemption in judicial foreclosure
in favor of the mortgagor, consisting in the equitable right to redeem
the mortgaged property, may be exercised within a period of ninety
days from the order of foreclosure or even thereafter but before the
judicial conrmation of the sale. When the foreclosure sale is validly
conrmed by the court, title to the property vests upon the purchaser
and the conrmation retroacts to the date of the sale.127

partner who redeems it in his personal capacity becomes a trustee


and holds the property in trust for his co-partner, subject to his right
to demand from the latter his contribution to the amount of redemption, plus legal interest. He cannot invoke the principle of subrogation, and this is especially true in a case where a person redeems the
mortgaged property from its purchaser at public auction who had
merely received from the sheriff a provisional certicate of sale and
who therefore had not become the absolute owner thereof with title
which he could convey to the redemptioner.131

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

Villar v. Javier de Paderanga, 97 Phil. 604.


Cojuangco v. Batangan, 74 Phil. 862.
Gonzales v. Philippine National Bank, 48 Phil. 824.
130
Raymundo v. Sunico, 25 Phil. 365.

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

Director of Lands v. Alba, 105 Phil. 1270 [unrep.].


PNB v. Landeta & Ct. of Appeals, G.R. No. L-20657, Sept. 30, 1966; 64 O.G.
11, p. 2434, March 11, 1968, 18 SCRA 272.
131

132

377

REGISTRATION OF LAND TITLES AND DEEDS

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

REAL ESTATE MORTGAGE

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

REGISTRATION OF LAND TITLES AND DEEDS

requiring for purposes of redemption the payment of all the amount


that the mortgagor owed to DBP, with interest on the total indebtedness at the rate agreed upon in the obligation, reckoned from the
date of the public auction. Respondent cannot evade the application
of this provision because it is part of its undertaking as assignee of
the mortgagor Bacolod Medical Center.
The cases of Co vs. Philippine National Bank and Philippine
National Bank vs. CA are not controlling. These involve the redemption of property levied upon and sold at public auction to satisfy a
judgment and unlike the instant case there is no charter that requires
the payment of sums of money other than those stipulated in Sec. 30
of Rule 39, Rules of Court. In the cited cases the mortgage contracts
were executed when the then charter of the Philippine National Bank
under R.A. 1300 did not provide for extrajudicial foreclosure nor the
amount necessary to redeem the property foreclosed extrajudicially.
In effecting an extrajudicial property foreclosed, the Philippine National Bank has then no other recourse but to rely wholly upon Act
No. 3135 in relation to Sec. 30 of Rule 39, Rules of Court for all matters related thereto including the amount of redemption. It is thus
fairly evident that at all the times relevant to the cited cases, the
bank did not resort to Act No. 3135 merely to nd a proceeding for
the sale but to secure basic authority for its actions.
The import of the citations is further claried by our statement in Co vs. Philippine National Bank differentiating the latter
from Nepomuceno vs. Rehabilitation Finance Corporation in light of
the enactment of P.D. 694 (1975 Revised Charter of the Philippine
National Bank) which provided for extrajudicial foreclosure and redemption price similar to the standard provisions in the charters of
the Development Bank of the Philippines. In Co, the Supreme Court
said unmistakably
In the Nepomuceno case, what confronted the Court was a
question relative to a mortgage with the Rehabilitation Finance
Corporation. The Court found no difculty in not applying Section 6 of Act No. 3135 because it found that there is in Section 31
of the Charter of the RFC a provision basically similar to Section
25 of P.D. No. 694, now being invoked here by PNB. Naturally,
the Court upheld the RFCs contention that the whole amount of
380

REAL ESTATE MORTGAGE

the mortgagors indebtedness should be paid. But in the instant


case, as already discussed earlier, P.D. 694 came too late.
Quite obviously, the pivotal circumstance that distinguishes
Co vs. Philippine National Bank and Philippine National Bank vs.
CA from the instant case is the existence of provisions in the charter
of the government bank authorizing extrajudicial foreclosure and
determining the amount required to redeem the foreclosed property.
The charter provisions constitute a special law exclusively applicable
to properties mortgaged to the government bank in question, and as
such they prevail over Sec. 30 of Rule 39, Rules of Court which represents a general law. In Dulay vs. Cariaga, the Supreme Court said
that the mortgagor must pay his entire indebtedness to the mortgagee
plus the agreed interest thereon before redemption can be effected,
because the charter of the mortgagee (DBP) required the payment of
such amount. Thus, while the charter of petitioner DBP authorized
the extrajudicial foreclosure of mortgaged property and its redemption effective only upon payment of the outstanding indebtedness and
interest, the charter of the Philippine National Bank involved in the
citations in question did not supply similar privileges and would not
therefore properly control the disposition of the instant case.
The unavoidable conclusion is that in redeeming the foreclosed
property respondent West Negros College as assignee of Bacolod
Medical Center should pay the balance of the amount owed by the
latter to petitioner DBP with interest thereon at the rate agreed upon
as of the date of the public auction on 24 August 1989.
Mortgages; foreclosures; redemption; the one-year period is actually to be reckoned from the date of the registration of the sale.
Pursuant to Section 788 of the General Banking Act, a mortgagor whose real property has been sold at a public auction, judicially
or extrajudicially, for the full or partial payment of an obligation to
any bank, shall have the right, within one year after the sale of the
real estate to redeem the property. The one-year period is actually
to be reckoned from the date of the registration of the sale. their
failure to exercise that right of redemption by paying the redemption
price within the period prescribed by law effectively divested them of
said right. (Union Bank of the Philippines vs. CA, et al., 359 SCRA
480).
381

REGISTRATION OF LAND TITLES AND DEEDS

56.

Redemption in foreclosure under the General Banking Act.

Under Section 78 of Republic Act. No. 337, otherwise known


as the General Banking Act, approved July 24, 1948, it is expressly
provided that: In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any
loan granted before the passage of this Act or under the provisions of
this Act, the mortgagor or debtor whose real property has been sold
at public auction, judicially or extrajudicially, for the full or partial
payment of an obligation to any bank, banking, or credit institution,
within the purview of this Act, shall have the right, within one year
after the sale of the real estate as a result of the foreclosure of the
respective mortgage, to redeem the property by paying the amount
xed by the court in the order of execution, with interest thereon at
the rate specied in the mortgage, and all the costs and other judicial
expenses incurred by the bank or institution concerned by reason of
the execution and sale and as a result of the custody of said property
less the income received from the property. However, the purchaser
at the auction sale concerned shall have the right to enter upon and
take possession of such property immediately after the date of the
conrmation of the auction sale and administer the same in accordance with law.
Redemption under the General Banking Act.
Pursuant to Section 78 of the General Banking Act, a mortgagor
whose real property has been sold at a public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any
bank, shall have the right within one year after the sale of the real
estate to redeem the property. The one-year period is actually to be
reckoned from the date of the registration of the sale. Clearly therefore, respondents had only until May 8, 1992 to redeem the subject
foreclosed property. Their failure to exercise that right of redemption
by paying the redemption price within the period prescribed by law
effectively divested them of said right. It bears reiterating that during the one year redemption period, respondents never attempted
to redeem the subject property but instead persisted in their theory
that the mortgage is null and void. To allow them now to redeem the
same property would, as petitioner aptly puts it, by letting them have
their cake and eat it too. (Union Bank of the Philippines vs. CA, 359
SCRA 480).
382

REAL ESTATE MORTGAGE

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.

Redemption in foreclosure under the Rural Bank Act.

Under the provision of Section 5 of Republic Act 720, otherwise


known as the Rural Bank Act, as amended by Republic Act 5939, in
case of foreclosure of a mortgage involving a homestead or land acquired under a free patent, the homesteader or free patent holder as
well as his heirs shall have the right to redeem the property sold in
foreclosure within a period of two years from the date of the auction
sale in case of land not covered by a Torrens title or two years from
the date of the registration of the foreclosure in case of land covered
by a Torrens title.
Incidentally, however, where the land involved was acquired
as a homestead or under a free patent, the question that may be
raised is: Will the right of legal redemption provided in Section 119
of the Public Land Act be deemed inoperative upon the lapse of the
redemption period after the foreclosure sale? To be consistent with
the current trend in the rulings in pertinent cases decided (Cassion,
et al. v. Phil. National Bank, 89 Phil. 560; Paras v. Court of Appeals,
et al., 91 Phil. 389; Manuel v. Phil. National Bank, 101 Phil. 968), one
cannot but be inclined to the view that the right of legal redemption
available to the patentee under Section 119 of the Public Land Act
383

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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.).

Effect of foreclosure by the GSIS.


If the GSIS forecloses a mortgage and there is already a conrmation of the public auction, there is no more right of redemption.
In Bacaling vs. Muya, et al., G.R. No. 148404-05, Apr. 11, 2002, it
was held that there is no longer any right of redemption in a judicial
foreclosure proceeding after the conrmation of the public auction.
Only foreclosures of mortgages in favor of banking institutions and
those made extrajudicially are subject to legal redemption. Since
GSIS is not a banking institution and the procedure of the foreclosure
is not extrajudicial in nature, no right of redemption exists after the
judicial conrmation of the public auction sale of the said lots.
Who may le an action for reversion.
A private individual may not bring an action for reversion or
any action which would have the effect of canceling a free patent
and the corresponding certicate of title issue don the basis thereof,
such that the land covered thereby will again form part of the public
domain. Only the Solicitor General or the ofcer acting in his stead
may do so. Since the title originate from a grant by the government,
its cancellation is a matter between the grantor and the grantee.
(De Ocampo v. Asis, 343 SCRA 716). Clearly then, petitioner has no
standing at all to question the validity of anothers title. It follows
that he cannot recover the property because, to begin with, he has
not shown that he is the rightful owner thereof. (Alvarico vs. Sola,
G.R. No. 138953, June 6, 2002).
Anent petitioners contention that it was the intention of
Fermina for Amelita to hold the property in trust for him, we held
that if this was really the intention of Fermina, then this should
have been clearly stated in the Deed of Self-Adjudication executed in
1983, in the Deed of Donation executed in 1984, or in a subsequent
instrument. Absent any persuasive proof of that intention in any
written instrument, we are not prepared to accept petitioners bare
allegation concerning the donors state of mind.
384

When the registration of a sale is not made in good faith, a party


cannot base his preference of title thereon, because the law will not
protect anything done in bad faith. Bad faith renders the registration
futile. Thus, if a vendee registers the sale in his favor after he has acquired knowledge that there was a previous sale of the same property
to a third party, or that another person claims said property under
a previous sale, or that the property is in the possession of one who
is not a vendor, or that there were aws and defects in the vendors
title, or that this was in dispute, the registration will constitute x x
x bad faith, and will not confer upon him any preferential right. The
situation will be the same as if there had been no registration, and
the vendee who rst took possession of the real property in good faith
shall be preferred.
Equally important, under Section 44 of the Property Registration
Decree (P.D. No. 1529), every registered owner receiving a certicate
of title in pursuance of a decree of registration and every subsequent
purchaser of registered land taking such certicate for value and in
good faith shall hold the same free from all encumbrances, except
those noted on the certicate and enumerated therein.
All told, the right of a buyer to rely upon the face of the title
certicate and to dispense with the need of inquiring further is upheld only when the party concerned had no actual knowledge of facts
and circumstances that should impel a reasonably cautious man to
conduct further inquiry.
Buyer in good faith/bad faith.
A purchaser in god faith or an innocent purchaser for value is
one who buys property and pays a full and fair price for it, at the time
385

REGISTRATION OF LAND TITLES AND DEEDS

of the purchase or before any notice of some other persons claim on


or interest in it. (David vs. Malay, 318 SCRA 711). One cannot close
ones eyes to facts that should put a reasonable person on guard and
still claim to have acted in good faith. As aptly explained by Justice
Vitug:
The governing principle is prius tempore, potior jure (rst
in time, stronger in right). Knowledge by the rst buyer of the
second sale cannot defeat the rst buyers rights except when
the second buyer rst registers in good faith the second sale.
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge
gained by the second buyer of the rst sale defeats taints his
registration with bad faith. (see also Astorga vs. CA, G.R. No.
58530, Dec. 26, 1984). In Cruz vs. Cabaa, G.R. No. 56232, June
22, 1984, it was held that it is essential, to merit the protection
of Article 1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale. (citing
Carbonell vs. CA, 69 SCRA 99; Crisostomo vs. CA, G.R. No.
95843, Sept. 2, 1992).
The registration contemplated under Article 1544 has been
held to refer to registration under Act 496 Land Registration Act
(now P.D. 1529) which considers the act of registration as the
operative act that binds the land. (See Mediante vs. Rosabal, 1
O/G. 900; Garcia vs. Rosabal, 73 Phil. 694). On lands covered
by the Torrens system, the purchaser acquires such rights and
interest as they appear in the certicate of title, unaffected by any
prior lien or encumbrance not noted therein. The purchaser is
not required to explore farther than what the Torrens title, upon
its face indicates. The only exception is where the purchaser has
actual knowledge of a aw or defect in the title of the seller or
of such liens or encumbrances which, as to him, is equivalent to
registration. (see Sec. 39, Act 496; Bernales vs. IAC, G.R. No.
75336, Oct. 18, 1988; Hernandez vs. Sales, 69 Phil. 744; Tajonera
vs. CA, G.R. No. L-26677, Mar. 27, 1981).
By his own allegations, petitioner admits he was not a purchaser
in good faith. A buyer of real property which is in the possession of
another must be wary and investigate the rights of the latter. Otherwise, without such inquiry, the buyer cannot be said to be in good
faith.
386

REAL ESTATE MORTGAGE

58.

Possession during period of redemption.

During the period of redemption the mortgagor is entitled to


remain in possession of the property and to collect rents and prots
therefrom.133 However, if desired, the purchaser may take over with
the proper authority from the court, which may be granted upon petition led in the original registration proceedings and furnishing a
bond in an amount equivalent to the use of the property, to indemnify
the debtor in case the sale is set aside or in case the property is redeemed after the purchaser has been given possession.134 As a matter
of fact, even after the period of redemption has expired, possession of
the property may be asked by the purchaser upon motion for a writ
of possession in the same action. It is not necessary to institute a
regular action in order to secure possession of the property.135
In extrajudicial foreclosure of mortgage, once a bond is led and
approved under Section 7 of Act No. 3135, as amended by Act No.
4118, the court has no discretion to refuse the issuance of the writ
of possession in favor of the purchaser in the public auction sale, or
to set it aside on motion of the adverse party attacking the courts
jurisdiction to issue the same.136 It was also held that under the same
section, the purchaser is entitled to the possession of the property
during the redemption period, provided that a proper motion has been
led, a bond approved, and no third person is involved.137
In an extrajudicial foreclosure sale of a mortgaged property,
after the redemption period has expired, an ex parte motion for a
writ of possession may be led without the necessity of ling a bond
anent Sec. 70 of Act 3135, as amended. To impose a bond upon the
purchaser who is now the owner of the foreclosed property would be
unreasonable if not illogical for it there are any rights to be protected,
they are those of the purchaser who as owner has a superior right over

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

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

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

proper motion and approval of the corresponding bond. No discretion


is left to the court. And any question regarding the regularity and
validity of the sale (and the consequent cancellation of the writ) is left
to be determined in a subsequent proceeding as outlined in Section 8.
Such question is not to be raised as a justication for opposing the issuance of the writ of possession, since, under the Act, the proceeding
is ex parte. (Sps. Camacho, et al. vs. PNB, et al., 363 SCRA 352).

Foreclosure under Act No. 3135.


Under Act No. 3135, Section 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. Newspaper
publications have more far-reaching effects than posting on bulleting 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 noticeposting 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. (DBP vs. CA, 364 SCRA 755).
Real estate mortgages; extrajudicial foreclosures; writs of possession; Act No. 3135

59.

Requisites for registration of sale in extrajudicial foreclosure.

The instructions promulgated by the Chief of the General Land


Registration Ofce (formerly Commissioner of Land Registration and
now Administrator of Land Registration Authority), with the approval
of the Secretary of Justice, to all Registers of Deeds require that the
deed of sale must be supported by a certicate of the sheriff, justice
of the peace, or notary public, under whose direction the sale was
made, purporting to show that said sale was conducted in accordance
with the provisions of Act No. 3135, as amended by Act No. 4118, and
stating among other particulars the following: (a) date, time, and
place of the sale; (b) names of the creditor and debtor; (c) name of
the attorney-in-fact; (d) brief description of the property; (e) name of
the highest bidder; and (f) selling price. However, if the deed of sale
contains a narrative of how the sale was made, including the data
just mentioned, and is jointly signed by the ofcial who conducted
the sale, a separate certicate as above required may be dispensed
with.

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

The law expressly authorizes the purchaser to petition for a


writ of possession during the redemption period by ling an ex parte
motion under oath for that purpose in the corresponding registration
or cadastral proceeding in the case of property with Torrens title; and
upon the ling of such motion and approval of the correspondent bond,
the law also in express terms directs the court to issue the order of a
writ of possession. Under the legal provisions above copied, the order
for a writ of possession issues as a matter of course upon ling of the

REGISTRATION OF LAND TITLES AND DEEDS

REAL ESTATE MORTGAGE

applicable. However, if the property is redeemed, the instrument of


redemption or repurchase shall be treated as an ordinary deed of sale
and registered accordingly; that is, in the case of registered land, the
registration is accomplished by way of memorandum on the proper
certicate of title.139

the ling of an action assailing the validity of the mortgage, so that


at the expiration thereof, the mortgagee who acquires the property at
the foreclosure sale can proceed to have the title consolidated in his
name and a writ of possession issued in his favor. To rule otherwise,
and allow the institution of an action questioning the redemption
would constitute a dangerous precedent. A likely offshoot of such a
ruling is the institution of frivolous suits for annulment of mortgage
intended merely to give the mortgagor more time to redeem the
mortgaged property. (Union Bank of the Philippines vs. CA, et al.,
359 SCRA 480).

60.

Deciency in extrajudicial foreclosure sale.

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

The pendency of an action questioning the validity of a mortgage


cannot bar the issuance of the writ of possession after title to the
property has been consolidated in the mortgagee.
The pendency of an action questioning the validity of a mortgage cannot bar the issuance of the writ of possession the validity
of a mortgage cannot bar the issuance of the writ of possession after
title to the property has been consolidated in the mortgagee. The
implication is clear: the period of redemption is not interrupted by

139

G.L.R.O. Circular No. 262, dated September 3, 1941, to all Registers of

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

REGISTRATION OF LAND TITLES AND DEEDS

CHATTEL MORTGAGES

3.

Chapter XII

CHATTEL MORTGAGES
1.

Preliminary statement.

This chapter on chattel mortgages may seem to be out of place


in this work on LAND TITLES AND DEEDS, but, inasmuch as we
have covered real estate mortgages in our discussion in the preceding
chapter, our knowledge of mortgages in general may not be complete
without sufcient understanding of what a chattel mortgage is, the
laws governing the same, and the form, extent and consequences
thereof, especially as to its constitution, modication and extinguishment.
Hence, its treatment in the present chapter, though not essentially necessary for the purposes of the present work, will nd
justication as an incidental feature. Besides, the ofce involved in
the registration of this kind of mortgage is the Registry of Deeds.
2.

Laws governing chattel mortgages.

Chattel mortgages are governed principally by Act No. 1508,


otherwise known as the Chattel Mortgage Law, as amended. The
Civil Code does not supersede nor repeal the Chattel Mortgage Law,
although it may serve the latter in a suppletory character. Thus,
whenever conict should arise in the application of the Civil Code,
the Chattel Mortgage Law as a special law on the subject should
prevail, and this is in consonance with the express provision of the
Civil Code, which reads:
Art. 2141. The provisions of this Code on pledge, insofar
as they are not in conict with the Chattel Mortgage Law, shall
be applicable to chattel mortgages.
In matters of recording chattel mortgages, the latest governing
law is Presidential Decree No. 1529, particularly Sections 114 to 116
thereof.
392

Chattel mortgage, nature and meaning.

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

Act 1508, Sec. 3.

393

REGISTRATION OF LAND TITLES AND DEEDS

CHATTEL MORTGAGES

intended in this jurisdiction, proposed to dene it in the following


wise:

no more than the mortgagors right of redemption as provided for in


Section 13 of Act No. 1508. The mortgagor had an attachable interest
in the automobile which he had sold conditionally and that interest
was the right to redeem it by paying the balance due under the chattel mortgage (conditional sale, Sec. 3, Act No. 1508).

A chattel mortgage is a contract which purports to be, as


in form is, a sale of personal property, intended as security for
the payment of a debt, or the performance of some other obligation specied therein, upon the condition subsequent that such
sale shall be void upon payment of the debt or performance of
the specied obligation according to the term of the contract. 2
In other words, and following our local tendency, we may dene
the true nature of a chattel mortgage as a sale only in form, while in
substance essentially a contract of security.
Thus, the mortgagee does not become the owner of the property
mortgaged, the ownership remaining with the mortgagor, and consequently, under the maxim: res perit domino suo, the mortgagor-owner
shall bear the loss of the thing mortgaged. Accordingly, where a
warehouse receipt or quedan is transferred or endorsed to a creditor, only to secure the payment of a debt, the transferee or endorsee
does not automatically become the owner of the goods covered by said
receipt or quedan but merely retains the right to keep them and with
the consent of the owner (mortgagor) to sell them so as to satisfy the
obligation from the proceeds of the sale.3
4.

Chattel mortgage as conditional sale leaves mortgagor right


of redemption.

It has been held that since a chattel mortgage is a conditional


sale (Section 3, Act No. 1508) and assuming that the ownership of the
chattels mortgaged passes to the mortgagee,4 the only thing that can
be attached under an execution against the mortgagor is his right to
redeem the mortgaged chattels.5 Under this doctrine the purchaser
at public auction of an automobile previously mortgaged acquired

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.

Levy Hnos. v. Ramirez, 60 Phil. 978.


Northern Motors, Inc. v. Coquia, G.R. No. L-40018, March 21, 1975; 71 O.G. 1,
p. 5808, Sept. 1975; 63 SCRA 200.

394

395

REGISTRATION OF LAND TITLES AND DEEDS

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.

tial requirement of a valid mortgage contract. The manifestations of


ownership are control and enjoyment over the thing owned. (Land
Settlement and Development Corp. vs. Carlos, 22 SCRA 202).

Without such signed documents, no sale, must less delivery, of


the subject jeepney could be made. The documents were not therefore
an acknowledgment by respondent spouses of the physical acquisition
of the subject motor vehicle but merely a requirement of petitioner so
that the said subject motor vehicle would be delivered to them. The
issuance of a sales invoice does not prove transfer of ownership of the
thing sold to the buyer, an invoice is nothing more than a detailed
statement of the nature, quantity and cost of the thing sold and has
been considered not a bill of sale.
The registration certicate signed by the respondent spouses
does not conclusively prove that constructive delivery was made nor
that ownership has been transferred to the respondent spouses. Like
the receipt and the invoice, the signing of the said documents was
qualied by the fact that it was a requirement of petitioner for the
sale and nancing contract to be approved. In all forms of delivery, it
is necessary that the act of delivery, whether constructive or actual,
should be coupled with the intention of delivering the thing. The act,
without the intention, is insufcient. The critical factor in the different modes of effecting delivery which gives legal effect to the act,
is the actual intention of the vendor to deliver, and its acceptance
by the vendee. Without that intention, there is no tradition. (Union
Motor Corp. vs. CA, et al., 361 SCRA 506).
Inasmuch as there was neither physical nor constructive delivery of a determinate thing (in this case, the subject motor vehicle),
the thing sold remained at the sellers risk. The petitioner should
therefore bear the loss of the subject motor vehicle after Sosmea
stole the same.
Ownership as a requirement of a chattel mortgage.
The motor vehicle was never delivered to the buyers. They
however executed a chattel mortgage over the car. The chattel mortgage has no effect. In Union Motors Corporation vs. CA, 361 SCRA
506, it was ruled that the accessory contract of chattel mortgage has
no legal effect whatsoever inasmuch as the mortgagors are not the
absolute owners thereof, ownership of the mortgagor being an essen396

Direct attack on a title.


A Torrens title can only be attacked directly. In Tan vs. Philippine Banking Corporation, 355 SCRA 292, a parcel of land and a
title was issued to him. The buyer relied upon the sellers title when
he brought it as it was free from any liens, claims or encumbrances.
Later on, the bank questioned the title after the foreclosure sale
where it was the highest bidder. The Supreme Court said that the
buyers title can only be challenged in a direct action. It is well-settled
that a certicate of title cannot be subject to collateral attack and
can be altered, modied or cancelled only in a direct proceeding in
accordance with law. (Carreon vs. CA, 291 SCRA 78). Having obtained
a valid title over the subject lot, petitioner is entitled to protection
against indirect attacks against his title. The lower courts ruling
on the matter, as stated in its decision, denying respondent banks
prayer for reinstatement of its canceled titles without prejudice to
the ling of proper action should thus stand. It is more in keeping
with the purpose of the adoption of the Torrens system in our country:
The Torrens system was adopted in this country because
it was believed to be the most effective measure to guarantee the
integrity of land titles and to protect their indefeasibility once
the claim of ownership is established and recognized. If a person
purchases a piece of land on the assurance that the sellers title
thereto is valid, he should not run the risk of being told later
that his acquisition was ineffectual after all. This would not
only be unfair to him. What is worse is that if this were permitted, public condence in the system would be eroded and land
transactions would have to be attended by complicated and not
necessarily conclusive investigations and proof of ownership.
The further consequence would be that land conicts could even
more numerous and complex than they are now and possibly also
more abrasive, if not even violent. The Government, recognizing
the worthy purpose of the Torrens system, should be the rst to
accept the validity of the titles issued thereunder once the conditions laid down by the law are satised. (Tenorio-Obsequio vs.
CA, 230 SCRA 550).
397

REGISTRATION OF LAND TITLES AND DEEDS

5.

Subject matter of chattel mortgage.

By express provision of Section 2 of Act No. 1508, as amended,


only personal property may be subject of chattel mortgage.
As a building is not as a rule a personal property, it was held
that a chattel mortgage of a building, its inscription in the chattel
mortgage registry, and the annotation of its sale under such chattel mortgage, are each and ineffective to change its character. The
placing of the document on record in the chattel mortgage register,
not being required by law, is a futile act.8 So, also, a mortgage creditor who purchases real property at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect to said real
property, acquires no right thereto by virtue of said purchase.9
6.

House as object of chattel mortgage.

The rule just enunciated above is not without exception under


some special circumstances. If the owner of the building is distinct
and different from the owner of the land, it may be considered a
personal property upon stipulation of the parties, for the purpose of
constituting a chattel mortgage. So, also, where a building erected
on land belonging to another is merely superimposed on the soil or is
sold for immediate demolition, the same may be considered as movable or personal property.10
Thus, it was held that while a house is inherently real property,
a chattel mortgage executed on a house may be perfectly valid, for
it is now well-settled that an object placed on land by one who has
only a temporary right to the same, such as a lessee or usufructuary, does not become immobilized by attachment.11 Hence, if a house
belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property if so stipulated
in the document of mortgage.12

Leung Yee v. Strong Machinery Co., 37 Phil. 644.


De la Riva v. Ah Kee, et al., 80 Phil. 899.
Hondangan v. Supnad, 59 O.G. 10, Mar. 11, 1963, CA.
11
Valdez v. Central Altagracia, 225 U.S. 58, cited in Davao Sawmill Co., Inc. v.
Castillo, et al., 61 Phil. 709.
12
Evangelista v. Abad, 36 O.G. 131, Tomines v. San Juan, et al., 45 O.G. July,
1949, CA; Manarang v. Olada, 99 Phil. 108.

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

Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630.


Standard Oil v. Jaramillo, supra; and De Jesus v. Guan Bee Co., 72 Phil.

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

REGISTRATION OF LAND TITLES AND DEEDS

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

Suba v. Amparo, 52 O.G. 2, Feb. 1955, CA.


Manarang v. Olada, 99 Phil. 108.
Evangelista v. Alto Surety & Insurance Co., 103 Phil. 401.
20
Associated Insurance & Surety Co. v. Iya, 103 Phil. 972.

CHATTEL MORTGAGES

7.

Machinery and xture as subject matter.

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.

An interest in a business mortgageable if properly described.

An interest in a business may be subject to chattel mortgage,


for it is a personal property, being capable of appropriation, and not
included among the real properties enumerated in Article 334 (now
415) of the Civil Code. But the description of such chattel must be
sufcient enough so as to enable the parties to the mortgage or any
other person to identify the same after a reasonable investigation
or inquiry. Thus, if the thing is described as the half interest of the
debtor in the drug business known as Antigua Botica Ramirez
(owned by a certain person therein named and the mortgagor) located
at Nos. 123 and 125, Calle Real, District of Intramuros, Manila, P.I.,
the description meets the requirements of the law.22
However, where the mortgaged property was described as 1.
A store No. 79 on Magallanes Street, Municipality of Cebu, formerly
belonging to T. Thakurdas, with all merchandise, effects, wares, and
other bazaar goods contained in the said store. 2. A store No. 19
on Real Street, Iloilo, Panay, P.I., formerly belonging to Guillermo

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

REGISTRATION OF LAND TITLES AND DEEDS

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.

Shares of stock as security of an obligation.

Whether in this jurisdiction an equity in shares of stock may


properly be made the subject of a chattel mortgage was open to question. But it was held that such chattel mortgage will at least operate
as a conditional equitable assignment valid between the parties and
third persons with actual notice.25
However, it is now considered that certicates of stock or of
stock dividends, under the Corporation Law, are quasi-negotiable
instruments in the sense that they may be given in pledge or mortgage to secure an obligation. The question is settled in this wise by
the weight of American authorities and it is the modern doctrine of
general acceptance by the court.26
Besides, although shares of stock of a corporation represent equities that may consist of real as well as personal property therein, they
are considered under applicable law and jurisprudence as intangible
personal property,27 and therefore may properly be subject of chattel
mortgage.
10.

Growing crops as personal property.

Growing crops, like ungathered sugar cane in the eld, are personal property and as such may be subject matter of chattel mortgage.

Giberson v. Jureidini Bros., 44 Phil. 216.


24
Saldaa v. Phil. Guaranty Co., Inc., 106 Phil. 919.
25
Fua Cua v. Summers and China Banking Corporation, 44 Phil. 705.
26
Bachrach Motor Co. v. Lacson Ledesma, 64 Phil. 682.
27
Collector of Int. Rev. v. Anglo California Nat. Bank, G.R. No. L-12476, Jan.
29, 1960, 60 O.G. 30, p. 4436, July 27, 1964; 106 Phil. 903.
23

402

In the case of Lumber Co. v. Sheriff and Tax Collector,29 the


Supreme Court of Louisiana laid down the following ruling: True, by
Article 465 of the Civil Code it is provided that standing crops and
the fruits of trees not gathered and trees before they are cut down .
. . are considered as part of the land to which they are attached, but
the immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by others than the owners of the property to which the crop is attached. xxx. The existence
of a right on the growing crop is a mobilization by anticipation, a
gathering as it were in advance, rendering the crop movable quod
the right acquired therein. Our jurisprudence recognizes the possible
mobilization of the growing crop.
Our Chattel Mortgage Law in its Section 7, paragraph 3, not
only permits that growing crops be made subject of a chattel mortgage
but even cautions that if growing crops be mortgaged the mortgage
may contain an agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop while growing, and
faithfully and without delay to harvest the same, and that in default
of the performance of such duties the mortgagee may enter upon the
premises, take all the necessary measures for the protection of said
crop, and retain possession thereof and sell the same, and from the
proceeds of such sale pay all expenses incurred in caring for, harvesting, and selling the crop and the amount of the indebtedness or
obligation secured by the mortgage, and the surplus thereof, if any,
shall be paid to the mortgagor or those entitled to the same.
11.

Vessels as subject matter.

Vessels are considered personal property under the civil law.


Thus, Article 585 of the Code of Commerce provides that for all

28
29

Sibal v. Valdez, et al., 50 Phil. 512.


106 La. 418.

403

REGISTRATION OF LAND TITLES AND DEEDS

CHATTEL MORTGAGES

purposes of law vessels shall continue to be considered as personal


property similarly under the common law, vessels are personal property although occasionally referred to as a peculiar kind of personal
property.30 Since the term personal property includes vessels, they
are subject to mortgage agreeably to the provisions of the Chattel
Mortgage Law. Indeed, it has heretofore been accepted without
discussion that a mortgage on a vessel is in nature a chattel mortgage.31

required by said ofce. Such notice, which is to be signed, jointly by


the parties to the mortgage, is likewise required upon termination,
cancellation or foreclosure of mortgage. And these notices as led
in the motor vehicle records serve as evidence of the true status of
ownership of the motor vehicle.

The only difference between a chattel mortgage of a vessel and


a chattel mortgage of other personalty is that it is not now necessary
for a chattel mortgage of a vessel to be recorded in the ofce of the
Register of Deeds, but it is essential that a record of documents affecting the title to a vessel be entered in the record of the Collector
of Customs at the port of entry.32 However, under the provision of
Section 3 of Presidential Decree No. 1521, no mortgage, which covers
a vessel of domestic ownership or any portion thereof, shall be valid
against any third person other than the mortgagor, his heirs and assigns, and such other person having actual knowledge thereof, until
such mortgage is recorded in the ofce of the Philippine Coast Guard
of the port of documentation of such vessel. Otherwise a mortgage on
a vessel is generally like other chattel mortgages as to its requisite
and validity.33
12.

Motor vehicle when object of chattel mortgage.

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

The recording provisions of the Motor Vehicles Law are deemed


to be complementary to those of the Chattel Mortgage Law. Thus,
it was held that a mortgage of any motor vehicle in order to affect
third persons should not only be registered in the Chattel Mortgage
Registry, but the same should also be recorded in the Motor Vehicles
Ofce, and that the failure of the mortgagee to report the mortgage
executed in his favor has the effect of making said mortgage ineffective against a purchaser in good faith who registered his purchase
in the Motor Vehicle Ofce.34
Where a copy of the deed of mortgage is furnished the Motor
Vehicles Ofce, it is deemed that the legal requirement is substantially complied with since the duty of entering such mortgage in the
records is placed by law upon the chief of said ofce.35
It may not be amiss to state here that the registration of the
transfer of a car and of the certicate of license for its use in the Motor
Vehicle Ofce (now Land Transportation Ofce) merely constitutes an
administrative proceeding which does not bear any essential relation
to the contract of sale entered into between the parties. However,
a chattel mortgage of a car in order to affect third persons should
not only be registered in the Chattel Mortgage Registry but should
also be recorded in the Land Transportation Commission (now Land
Transportation Ofce), as required by the Revised Motor Vehicles
Law.36
To clarify the above requirements, Batas Pambansa Blg. 74,
approved June 11, 1980, amended Section 5 of Republic Act 4136, by
expressly providing that mortgages, attachments, and other encumbrances of motor vehicles, in order to be valid against third persons,
must be recorded in the Land Transportation Ofce. Such voluntary

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

REGISTRATION OF LAND TITLES AND DEEDS

CHATTEL MORTGAGES

transactions or encumbrances shall also be properly recorded on the


face of all outstanding copies of the certicates of registration of the
vehicle concerned. The cancellation or foreclosure of such mortgages,
attachments, and other encumbrances shall likewise be recorded, and
in the absence of such cancellation, no certicate of registration shall
be issued without the corresponding notation of mortgage, attachment
and/or other encumbrances.
13.

A mortgage may, by express stipulations, be drawn to


cover goods put in stock in place of others sold out from time to
time. A mortgage may be made to include future acquisitions
of goods to be added to the original stock mortgaged, but the
mortgage must expressly provide that such future acquisitions
shall be held as included in the mortgage. x x x Where a mortgage covering the stock in trade, furniture, and xtures in the
mortgagors store provides that all goods, stock in trade, furniture and xtures hereafter purchased by the mortgagor shall be
included in and covered by the mortgage, the mortgage covers
all after-acquired property of the classes mentioned, and, upon
foreclosure, such property may be then and sold by the mortgagee the same as the property in the possession of the mortgagor
at the time the mortgage was executed.38

Mortgage of after-acquired property valid.

The problem of whether after-acquired property may be object of


a chattel mortgage has confronted stores open to the public for retail
business, where the goods are constantly sold and substituted with
new stock from time to time.
In the construction of the provision of the last paragraph of
Section 7 of Act No. 1508, reading as follows:
A chattel mortgage shall be deemed to cover only property
described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depository as
the property originally mortgaged, anything in the mortgaged
to the contrary notwithstanding.
our Supreme Court invoked the spirit and intent of the law, holding
that when said Act was placed in our statute books by the United
States Philippine Commission on July 2, 1906, the primary aim of
the lawmaking body was undoubtedly to promote business and trade
in these Islands and to give impetus to the economic development
of the country, and, bearing this in mind, it could not have been the
intention of the Philippine Commission to apply the provision of Section 7 above-quoted to stores open to the public for retail business
where the goods are constantly sold and substituted with new stock.
Otherwise, it would defeat the purpose for which the law was enacted,
that is, the promotion of business and the economic development of
the country.37
In this connection, our Supreme Court cited with approval the
views of Cobbey, a well-known authority on Chattel Mortgages, reading as follows:

14.

Large cattle as object of chattel mortgage; how described.

Large cattle includes the horse, mule, ass, carabao, or other


domesticated member of the bovine family.39
Section 7 of the Chattel Mortgage Law provides that if the property mortgaged be large cattle, the description thereof shall include
the brands, class, age, knots of radiated hair commonly known as
remolinos, or cowlicks, and other marks of ownership as described
and set forth in the certicate of ownership of said animal or animals,
together with the number and place of issue of such certicates of
ownership.
15.

Where to register chattel mortgage.

As required by Section 114 of Presidential Decree No. 1529,


a chattel mortgage shall be recorded in the ofce of the Register of
Deeds of the province or city where the mortgagor resides as well as
where the property is situated or ordinarily kept. However, this requirement of double registration does not seem mandatory, inasmuch
as under an express proviso in subsequent Section 116, Subsection
2(e), of the same Presidential Decree, the registration of the chattel
mortgage in the province where the property is situated is deemed

38
37

39

Torres v. Limjap, 56 Phil. 141.

406

Cobbey on Chattel Mortgages, Vol. 1, Secs. 361, 474, 475.


Sec. 511, par. 1, Act 2711.

407

REGISTRATION OF LAND TITLES AND DEEDS

CHATTEL MORTGAGES

sufcient registration. In effect, the same rule as provided in Section


4 of the Chattel Mortgage Law, as amended by Republic Act 271, still
governs.

corporation has its principal ofce or place of business. In this sense


the property mortgaged is not the certicate but the participation
and share of the owner in the assets of the corporation.43

Where the object of a chattel mortgage is a vessel, registration


thereof in the ofce of the Register of Deeds is not even required.
What is legally essential is its registration in the record of the Collector of Customs at the port of entry,40 and now at the ofce of the
Philippine Coast Guard at the port of documentation of such vessel.41
Thus, with respect to recording of documents affecting title to
vessels, Republic Act No. 1937, otherwise known as the Tariff and
Customs Code of the Philippines, provides in Section 805, as follows:
SEC 805. Record of Documents Affecting Title. In the
record of transfers and encumbrances of vessels, to be kept
at each principal port of entry, shall be recorded at length all
transfers, bills of sale, mortgages, liens or other documents
which evidence ownership or directly or indirectly affect the title
of registered vessels and therein shall be recorded all receipts,
certicates or acknowledgment cancelling or satisfying, in whole
or in part, any such obligations. No other record of any such
document or paper shall be required than such as is effected
hereunder.
Where the subject matter of a chattel mortgage consists of
shares of stock, the registration thereof in the ofce of the corporation
is not necessary and has no legal effect, inasmuch as the transaction
does not involve transfer of ownership but as mere security.42
As to where the property represented in the shares of stock is
situated, there have been conjectures. The situs of shares of stock for
some purpose may be at the domicile of the owner, and for others at
the domicile of the corporation; and even elsewhere. However, for the
purposes of Section 4 of Act No. 1508, it was held that the property in
the shares may be deemed to be situated in the province in which the
40

Arroyo v. Yu de Sane, 54 Phil. 511; Philippine Rening Co. v. Jarque, 61 Phil.

41

PD 1521, Sec. 3.
Monserrat v. Ceron, et al., 58 Phil. 469.

16.

Sufciency of registration.

For the purpose of recording chattel mortgages in accordance


with Act No. 1508, otherwise known as the Chattel Mortgage Law,
the Register of Deeds carries a set of books, namely, Day Book of
Chattel Mortgage Register (Judicial Form No. 77) and Chattel
Mortgage Register (Judicial Form No. 51), and in order to facilitate
public inspection of such records he further carries an index system
on Judicial Form No. 50. To accomplish registration, he causes to be
entered in the Day Book, in the strict order of their presentation, chattel mortgages and other instruments relating thereto, and this act
constitutes the primary process. Thereafter he causes to be entered
in a more detailed form the essential contents of the instrument in
the Chattel Mortgage Register, and this latter act constitutes the
complementary process.
It is to be noted that when a party in interest has presented
his instrument and paid in full the registration fees required by law,
and such instrument has been duly entered in the Day Book of the
Chattel Mortgage Register, nothing more is to be done by such private
party. What remains to be done is incumbent upon the government,
thru the Registrar to perform. Such being the case, it is believed that,
insofar as the registrant is concerned, registration should be deemed
sufcient, even if the complementary process thereof has not yet
been actually accomplished; the party in interest should thereupon
be entitled to the full protection of the law. For if the Registrar thru
negligence should fail to give immediate course to this complementary
process in registration, the blame therefor cannot be attributed to a
private individual who under the presumption of regularity has the
right to expect that the duty imposed by law upon the government
has been performed accordingly.
We are not unmindful of a decisions44 of the Court of Appeals
holding that mere inscription or entry in the Day Book is not sufcient
Chua Guan v. Samahang Magsasaka, Inc., 62 Phil. 472.
Associated Insurance and Surety Co., Inc. v. Lim Ang, et al., No. 13828-R, May
15, 1956, 52 0.G. 11, p. 5218, Sept. 15, 1956, CA.
43

229.
42

408

44

409

REGISTRATION OF LAND TITLES AND DEEDS

and that for a chattel mortgage to be considered as such the deed of


mortgage must be recorded also in the Chattel Mortgage Register. It
seems that in said decision it was not considered that the Day Book is
a complementary part of the Chattel Mortgage Register, for if it were
it can readily be seen that whatever is entered in such Day Book may
be deemed recorded in the Chattel Mortgage Register. This view, it is
submitted, does not in any way deviate from the provisions of Article
1240 of the new Civil Code or even Section 15 of the Chattel Mortgage
Law. By way of demonstrating that the two books are linked together,
which is as true of the journal and the ledger in accounting, for the
purpose of determining priority between two documents registered
in the Chattel Mortgage Register proper, their respective entries in
the Day Book must be consulted for the answer. Thus, registration in
the Chattel Mortgage Register, although actually accomplished at a
much later date, takes effect retroactively as of the date of the entry
in the Day Book of the Chattel Mortgage Register.
However, in a subsequent decision of the Court of Appeals,45
it nally realized that the weight of authority is to the effect that
the ling of the chattel mortgage at the proper ofce and with the
proper ofcer, although the ofcer did not make the proper recording
thereof, operates as a constructive notice to subsequent purchasers,46
and accordingly held that where the instrument of chattel mortgage
was not only delivered to the ofce of the Register of Deeds but also
entered in the Day Book, such entry is for all intents and purposes
notice to all concerned that a lien or encumbrance has been created
upon the chattel so mortgaged.
As to the proper time to register a chattel mortgage, the Civil
Code does not provide any specic time within which this should be
accomplished. It was thus held that where the registration thereof is
made by the mortgagee before the mortgagor has complied with his
principal obligation and no right of innocent third person is prejudiced, the law requiring registration is substantially and sufciently
complied with inasmuch as it does not intend that its provisions be
used as a shield to avoid performance of an obligation under what
would otherwise be a valid contract.47

CHATTEL MORTGAGES

17.

Effect of registration.

While registration adds nothing to the instrument, considered


as the source of title of the mortgagee, it operates as a constructive
notice of the existence of the chattel mortgage. The transaction
thereby becomes binding against third persons.
An otherwise invalid or legally defective document is not
validated or cured of its legal defects by registration. For instance, a
chattel mortgage contract entered into by a public service corporation
is ineffective without the authorization and approval of the Public
Utility Commission (now Public Service Commission), and remains
so even if registered with the ofce of the Register of Deeds. But the
moment all the material and formal requisites demanded by law for
its validity are complied with, the Public Service Commission may
make it retroactive by nunc pro tunc authorization and approval.48
Incidentally, it may be stated here that the approval by the Public
Service Commission of chattel mortgages involving public conveyance
is necessary only when the mortgage or encumbrance is for liabilities
of more than one year maturity.49
18.

Mortgage binding on subsequent purchasers.

Instruments of mortgage are binding, while they subsist, not


only upon the parties executing them but also upon those who later,
by purchase or otherwise, acquire the mortgaged properties. The
right of those who so acquire said properties should not and cannot
be superior to that of the creditor who has in his favor an instrument
of mortgage executed with the formalities of the law, in good faith,
and without the least indication of fraud. In a decided case, the purchaser of an automobile knew or at least was presumed to know, by
the mere fact that the mortgage was registered in the ofce of the
Register of Deeds, that said property was subject to a mortgage lien.
In purchasing it, with full knowledge that such circumstances existed,
it should be presumed that he did so, very much willing to respect the
lien existing thereon, since he should not have expected that with the
purchase he would acquire a better right than that which the vendor
then had.50

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.

Zamboanga Transportation Co. v. Bachrach Motor Co., 52 Phil. 244.


Sec. 20, paragraph g, Commonwealth Act No. 146, as amended; Lim v. Miranda, 55 O.G. 2, Jan. 12, 1959, CA.
50
Ong Liong Tiak v. Luneta Motor Co., et al., 66 Phil. 459.

410

411

48
49

REGISTRATION OF LAND TITLES AND DEEDS

The chattel mortgage lien attaches to the property wherever it


may be; hence, the buyer acquires the property subject to such liens
and encumbrances as existed at the time of the execution sale.51
19.

Sale of chattel without consent of mortgagee.

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.

Government lien superior to mortgage lien.

Taxes due the government are preferred and superior to the


mortgage lien. Thus, where it has been established that the properties
covered by plaintiffs mortgages and which were sold by the provincial
government of Leyte at public auction were used by the defendant in
the business or occupation on which the merchants sales tax had been
assessed against him, the lien of the government on said properties
is held to be superior to the mortgage lien of the plaintiff.53

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.

Effect of failure to register.

Where there exists a chattel mortgage contract in due form, but


for some reason or another it was not, as it should be, registered in
the ofce of the Register of Deeds concerned, the effect would be that
it still remains a valid chattel mortgage as against the mortgagor,
his executors or administrators,54 but void as against third persons,
such as intervening purchasers or creditors claiming liens by attachment, judgment or execution.55 Article 2125 of the Civil Code
clearly provides that the non-registration of the mortgage does not
affect the immediate parties. It states: Art. 2125. In addition to the
requisites stated in Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the document in which it
appears to be recorded in the Registry of Property. If the instrument
is not recorded, the mortgage is nevertheless binding between the
parties.56
But, supposing that while such chattel mortgage remains unregistered, the chattel given as security was delivered to and retained
by the creditor, what will be its effect? Will it be a chattel mortgage
or a pledge?
If we look at it from the standpoint of Article 2140 of the New
Civil Code, as the movable instead of being recorded has been delivered to the creditor, it would seem to be a pledge and not a chattel
mortgage. But that notwithstanding, if the description of the thing
given and the date of the delivery do not appear in a public instrument, as required by Article 2096, it cannot be a pledge insofar as
third persons are concerned. On the other hand, viewing it from the
standpoint of Section 4 of the Chattel Mortgage Law, even if the
description and the date of delivery do not appear in a public instrument, there being actual delivery, it would still be a chattel mortgage,
good and effective as against third persons. Thus, it would appear
that the Chattel Mortgage Law, if invoked under the circumstances,
could offer a better protection than the Civil Code, and the aim of
both laws is to protect the rights of the creditor who needs it more.
But, for the purposes of determining how strong is the position of

54
55
56

Sec. 4, Chattel; Mortgage Law.


McCullough & Co. v. Zoboli, 28 Phil. 301.
Filipinas Marble Corporation v. IAC, L-68010, May 30, 1986, 142 SCRA 180-

192.

413

REGISTRATION OF LAND TITLES AND DEEDS

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.

another is equivalent to registration. Whatever right may have been


acquired by said vendee by virtue of the sale in his favor is subject to
the superior lien of the mortgagee although unrecorded at the time
of the sale.58 It is observed here that the Court did not regard the
unrecorded chattel mortgage as a pledge.

From the foregoing discussion, we may draw the conclusion that,


in case of failure to register, the chattel mortgage remains valid but
only as against the mortgagor; but that, if the thing given in mortgage
has been delivered to the creditor, the chattel mortgage extends its
binding effect to third persons in spite of lack of registration. However, where the description of the property and date of delivery appear
in a public instrument, and there was no chattel mortgage contract
executed, only then may we properly treat it as a pledge, and not a
chattel mortgage good and valid against third persons. For how can
there be a chattel mortgage when there exists no document to that
effect? But one thing should not be overlooked, and that is, the provisions of the Civil Code on pledge cannot apply to chattel mortgages
where to do so will conict with the Chattel Mortgage Law.

We severally swear that the foregoing mortgage is made


for the purpose of securing the obligation specied in the conditions thereof, and for no other purpose, and that the same
is a just and valid obligation, and one not entered into for the
purpose of fraud.

We are not unmindful of the fact, however, that in spite of the


provision of Article 2141 of the New Civil Code above discussed, the
Court of Appeals has taken the position that Section 4 of the Chattel
Mortgage Law shall be deemed to be modied by Article 2140 of said
Code, thereby giving full force and effect to the precept that if the
movable, instead of being recorded, is delivered to the creditor or to a
third person, the contract is a pledge and not a chattel mortgage.57
On the other hand, the same Court ruled in a subsequent case
that knowledge of an unregistered chattel mortgage is equivalent
to registration. Thus, it was held that the actual knowledge by a
vendee that the chattel sold to him has been previously mortgaged to

22.

Afdavit of good faith; effect of omission.

The Chattel Mortgage Law in its Section 5 describes an afdavit


of good faith, in the following form:

This afdavit is required to be appended to such mortgage and recorded therewith.


When a corporation is a party to such mortgage the afdavit
required may be made and subscribed by a director, trustee, cashier, treasurer, or manager thereof, or by a person authorized on the
part of such corporation to make or to receive such mortgage. When
a partnership is a party to the mortgage the afdavit may be made
and subscribed by one member thereof.59
The absence of such afdavit vitiates a mortgage as against
creditors and subsequent encumbrancers.60 As a consequence a chattel mortgage of a vessel wherein the afdavit of good faith required by
the Chattel Mortgage Law is lacking is unenforceable against third
persons.61
A chattel mortgage may, however, be valid as between the parties without such afdavit of good faith. In fact it does not even have
to be acknowledged before a notary public or evidenced by a public
document.62

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.

Lim v. Miranda, et al., 55 O.G. 2, Jan. 12, 1959. CA.


Sec. 6, Chattel Mortgage Law.
Giberson v. Jureidini Bros., 44 Phil. 216; Benedicto de Tarrosa v. Yap Tico &
Co., et al., 46. Phil. 753.
61
Philippine Rening Co. v. Jarque, 61 Phil. 229.
62
Lilius and Lilius v. Manila Railroad Co., 62 Phil. 56.

414

415

58
59

60

REGISTRATION OF LAND TITLES AND DEEDS

23.

Effect of increase of security; chattel mortgage to secure future debts, void.

The increase of a mortgage security becomes a new mortgage in


itself where the original mortgage does not contain any stipulation
in regard to the increase of the mortgage credit, and, even if it does,
said increase would take effect only from the date of the increase. A
mortgage which contains a stipulation in regard to future increases
of credit will take effect from the date the same are made and not
from the date of the original mortgage. This principle is especially
true in the case of chattel mortgage, where the law provides that the
parties thereto must take an oath of good faith to the effect that the
debt or obligation secured thereby is a just debt or obligation, honestly due and owing from the mortgagor to the mortgagee, and not
one entered into for the purpose of fraud. Hence, it is obvious that a
chattel mortgage cannot be made to secure a future debt.63
24.

Registration of assignment of mortgage.

While an assignment of real estate mortgage is required by law64


to be registered in order that it may take effect upon the title to the
property, the rule used to be otherwise in the case of an assignment
of chattel mortgage. With respect to the registration of an assignment
of chattel mortgage, it was held that the Chattel Mortgage Law was
only permissive and not mandatory, and that an inscription of an
assignment of chattel mortgage in the ofce of the Register of Deeds
did not operate as constructive notice to third persons, such as, the
mortgage debtor who was not a party to the contract of assignment;
and that where the debtor paid the original creditor, before having
actual knowledge of assignment, he should be released from the obligation in accordance with Article 1626 of the Civil Code.65
However, it is to be borne in mind that according to the latest
amendments to the Chattel Mortgage Law it has now become the duty
of the Register of Deeds to record in the registration book for chat-

63

Belgian Catholic Missionaries, Inc. v. Magallanes Press, Inc., et al., 49 Phil.

64

Sec. 60, Act 496; Art. 1625, New Civil Code.


Sison and Sison v. Yap Tico, 37 Phil. 584.

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.

Cancellation of chattel mortgage.

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.

Redemption right of junior mortgagee and attaching creditor.

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

Rep. Acts 116 and 2711.


Sec. 13, Chattel Mortgage Law.
Tizon v. Valdez and Morales, 48 Phil. 910.

417

REGISTRATION OF LAND TITLES AND DEEDS

27.

Foreclosure of chattel mortgage; condition precedent.

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.

Foreclosure may be carried out extrajudicially in accordance


with the procedure outlined in Section 14 of the Chattel Mortgage
Law, unless the mortgagee elects to institute an ordinary action in
court, instead, to recover the indebtedness, with right to execute the
judgment thereon upon all the properties of the debtor, including
the subject matter of the mortgage. In the later event, if the creditor
should fail to obtain a favorable judgment, he will be precluded from
pursuing the further remedy he has waived. The mortgage lien on
the chattels is deemed abandoned.70
However, where the mortgagor refused to deliver possession
of the mortgaged property, the mortgagee cannot take the law into
his own hands and wrest the property violently from the possession
of the mortgagor. Neither can he do thru the medium of a public ofcer, such as the sheriff, that which he cannot directly do himself.
The consequence is that in such case the creditor must either resort
to a civil action to recover possession as a preliminary to a sale, or
preferably he may bring an action to obtain a judicial foreclosure in
conformity, so far as practicable, with the provisions of the Chattel
Mortgage Law.71
The provisions of Rule 68 of the New Rules of Court relative to
foreclosure of real estate mortgages are now made expressly applicable to judicial foreclosure of chattel mortgages, except that the sale
of the mortgaged property shall be held as provided by the Chattel
Mortgage Law and without prejudice to the provisions of Articles

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.

Procedure in foreclosure of chattel mortgage.

The procedure prescribed in Section 14 of the Chattel Mortgage


Law for the foreclosure of chattel mortgage may be outlined as follows:
1.

Notices are posted for at least ten days in at least two


public places in the municipality where the mortgaged
property is to be sold, designating the time, place, and
purpose of the sale.

2.

The mortgagee, his executor, administrator or assign,


noties in writing, at least ten days before the sale, the
mortgagor or person holding under him and other persons
holding subsequent mortgages of the time and place of the
sale, said notice to be delivered personally to the party if
residing in the same municipality or sent by mail if residing outside.

3.

The mortgaged property is sold at public auction by a


public ofcer at a public place in the municipality where

See Section 14, Chattel Mortgage Law.


Manila Trading & Supply Co. v. Ko Kim, 71 Phil. 448; Movido v. Rehabilitation
Finance Corporation, et al., 105 Phil. 886.
71
Bachrach Motor Co. v. Summers, 42 Phil. 3.

Rule 68, Sec. 8, New Rules of Court.


Phil. Bank of Commerce v. Macadaeg, 109 Phil. 981.
Trinidad v. Yatco, 111 Phil. 466; Secs. 44 and 48, Judiciary Act of 1948, as
amended by Rep. Acts Nos. 2613 and 3828.

418

419

69
70

72
73

74

REGISTRATION OF LAND TITLES AND DEEDS

the mortgagor resides or where the property is situated,


as designated in the notice.
4.

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)

Cost and expenses of keeping and sale;

(b)

Amount of demand or obligation secured by the chattel mortgage;

(c)

Obligations due to persons holding subsequent mortgages, in their order, and

(d)

Balance turned over to the mortgagor or person holding under him on demand.

Act 3135 not applicable to foreclosure of chattel mortgage.

When the undertaking executed by and between the mortgagor


and the mortgagee is a chattel mortgage, and not a real estate mortgage, it is a mistake for the mortgagee to request the sheriff, under
Act No. 3135, as amended by Act No. 4118, to sell extrajudicially the
house subject of the mortgage in order to secure full satisfaction of
the indebtedness owed by the mortgagor, specially when the house is
of mixed materials which by its very nature is considered as personal
property. Act No. 3135, as amended, covers only real estate mortgages
and is intended merely to regulate the extrajudicial sale of the property mortgaged if and when the mortgagee is given a special power to
sell or express authority to do so in the deed itself or in a document
annexed thereto. Chattel mortgages are covered and regulated by the
Chattel Mortgage Law (Act No. 1508). Section 14 of this Act allows
the mortgagee to have the property mortgaged sold at public auction
through a public ofcer, although in almost the same manner as that
allowed by Act No. 3135, as amended by Act No. 4118, provided that
420

CHATTEL MORTGAGES

the requirements of the law relative to notice and registration are


complied with.75 It is not necessary that a power of attorney with a
special power to sell be inserted in a chattel mortgage instrument in
order that such mortgage may be foreclosed extrajudicially.
31.

Sale by installment secured by chattel mortgage; remedies in


case of default.

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

Luna v. Encarnacion, et al., 91 Phil. 531.


Bachrach Motor Co. v. Millan, 61 Phil. 409.
Southern Motors, Inc. v. Magbanua, 100 Phil. 155.

421

REGISTRATION OF LAND TITLES AND DEEDS

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.

Place of auction sale.

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.

May deciency in proceeds from foreclosure sale be recovered?

It has been held that in case of deciency in the foreclosure of


a chattel mortgage arising not from a sale on installment basis an
independent action may be instituted for the recovery of said de-

Luneta Motor Co. v. Salvador, 108 Phil. 1037.


Southern Motors, Inc. v. Moscoso, 112 Phil. 94; Nonato v. Int. App. Ct. and
Investors Finance Corp., G.R. No. 67181, Nov. 22, 1985.
80
Cruz v. Filipinas Investment & Finance Corp., G.R. No. L-24772, May 27,
1968; 65 O.G. 31, p. 7934, Aug. 4, 1949; 23 SCRA 791.

Riosa v. Stillanapulos, Inc., 67 Phil. 422.


82
Mambulao Lumber Co. v. PNB, G.R. No. L-22973, Jan. 31, 1968, 64 O.G. 43,
p. 10942, Oct. 21, 1968; 22 SCRA 359.
83
Bachrach v. Golingco, 39 Phil. 138.
84
Mahoney v. Tuason, 39 Phil. 952.

422

423

78

79

81

REGISTRATION OF LAND TITLES AND DEEDS

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

for the recovery of deciency in the debt secured in case a chattel


mortgage has been foreclosed and a deciency exists. It is assumed
that the provision of Article 2115 of the New Civil Code on pledge,
providing that the sale of the thing pledged extinguishes the obligation, regardless of whether the proceeds thereof are sufcient or not,
is deemed to be in conict with the Chattel Mortgage Law, and that
under Article 2141 of the said Code in case of such conict the Chattel
Mortgage Law should prevail.87

While the philosophy of the foregoing doctrine seems to be


sound enough, the conclusion arrived at may be open to question in
the light of Article 2115 of the new Civil Code, relating to pledge,
which provides, among other things, that if the price of the sale is
less, neither shall the creditor be entitled to recover the deciency,
notwithstanding any stipulation to the contrary.
It is to be observed, in this connection, that the Chattel Mortgage Law is silent on such question of deciency and for that reason
it would seem that the aforementioned Article 2115 on pledge may
properly be applied to chattel mortgages. It is so provided in Article
2141 of the same Code that the provisions of this Code on pledge,
insofar as they are not in conict with the Chattel Mortgage Law,
shall be applicable to chattel mortgages, and no distinction is made
between an ordinary chattel mortgage and one constituted in conjunction with sale payable in installments. The only way to escape
the application therefor is where we can show that the Civil Code
conicts with the Chattel Mortgage Law. But the two laws seem to
get along together well enough on this question of deciency when
the Supreme Court held that it is the actual sale of the mortgaged
chattel in accordance with section 14 of Act No. 1508 that would bar
the creditor (who chooses to foreclose) from recovering any unpaid
balance.86
We are not unmindful, however, of the more recent decision of
the Supreme Court to the effect that an action may be maintained

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

Ablaza v. Ignacio, 103 Phil. 1151 (unrep.)


Manila Trading & Supply Co. v. Ko Kim, 71 Phil. 448.

425

REGISTRATION OF LAND TITLES AND DEEDS

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.

Under the Civil Code of the Philippines, a contract of lease may


be of things, or of work and service (Article 1642). In the present
chapter, however, we shall deal only with lease of things, such as
real estate.
The nature of a contract of lease is concisely dened by Article
1643 of the Civil Code in the following tenor: In the lease of things,
one of the parties binds himself to give to another the enjoyment
or use of a thing for a price certain, and for a period which may be
denite or indenite. However, no lease for more than ninety-nine
years shall be valid.
In this connection, it is also well to understand the implication of
landlord and tenant. As a joint term it indicates a legal relation existing between the lessor and the lessee, which relation is contractual
and initiated by a lease agreement for a period which may he either
express or implied. By the lease agreement, possession is delivered
to the tenant or lessee, and the latter, who is under obligation to pay
rent for the right of use or occupation of the property, acknowledges
at all times the title thereto of the landlord or lessor.
2.

Assignment of lease and sublease distinguished.

In an assignment of lease, the lessee makes an absolute transfer


of his interest as such lessee, thus disassociating himself from the
original contract of lease, so that his personality disappears and there
remains only in the juridical relation two persons, the lessor and
the assignee who is converted into a lessee; whereas, if he retains a
reversionary interest, however small, the transfer is deemed a mere
sublease.1
89
Bank of P.I. v. Olutanga Lumber Co., 47 Phil. 20; Manila Trading & Supply
Co. v. Tamaraw Plantation Co., 47 Phil. 513.

426

Manlapat v. Salazar, 98 Phil. 356.

427

REGISTRATION OF LAND TITLES AND DEEDS

LEASES

A mere sublessee, however, cannot invoke any right superior to


that of the sublessor or the direct lessee, and the transfer of physical possession of the leased premises to a sublessee or a privy of the
latter does not affect the lessors right to evict him judicially.2 Thus,
it is now settled that a judgment of eviction against a tenant affects
a sublessee even if the latter is not made a party to the ejectment
case,3 so much so that a writ of execution issued in a forcible entry
and detainer case is enforceable not only against the defendant but
also his privies even though the latter had not been made a partydefendant in the judgment case.4

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.

Leases of registered land shall be registered in the manner


provided in Section 52 of Act No. 496, as amended by Section 54 of
P.D. 1529, that is, by ling with the Register of Deeds the instrument
creating the lease and by a brief memorandum made by this ofcial
upon the certicate of title signed by him. A lessees duplicate certicate may be issued to the lessee, if desired in the same way and
under similar conditions that a mortgagees duplicate is issued.5 This
practice of issuing such additional certicates has been discontinued
by P.D. 1529.
A contract of lease or sublease of real estate should be in writing so that it may be registered and thereby be binding upon third
persons.6
4.

Lease affecting property previously mortgaged in spite of


stipulation against subsequent encumbrance.

In a case where real property was previously mortgaged, the


mortgage stipulating that the owner could not sell, assign or encumber the mortgaged property without the written consent of the
mortgagee, the owner subsequently executed a lease contract covering

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

It may be stated here, however, that in a more recent decision


of the Supreme Court it was held that where the mortgage deed contains prohibition against encumbrance of the mortgaged property,
leasehold rights over the same property subsequently acquired cannot
be registered or annotated in the title thereof.9
5.

Unregistered lease not void.

Section 50 of Act 496, as amended by Section 51 of P.D. No. 1529,


does not say that an unregistered lease is void. On the otherhand,
it says that the lease shall operate as a contract between the parties
and as evidence of authority to the Register of Deeds to make registration. It is true that it is the act of registration that conveys and
affects the land; but this does not mean that before registration the
lease is inoperative or not binding between the parties themselves.
As to them, the lease is a perfect contract and may be enforced by one
against the other, but without prejudice to the rights of third persons

428

Act 496, Sec. 51.


Gurbax Singh Pabla & Co., et al. v. Reyes and Tantoco, 92 Phil. 177.
Rivera v. Pea, 111 Phil. 346.

7
8
9

429

REGISTRATION OF LAND TITLES AND DEEDS

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.

Registration of lease, upon whom incumbent.

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.

Does lease of real estate create real rights?

If it does not, then it cannot be registered, for only real rights


are susceptible of registration in the Registry of Deeds. As to whether
or not a lease creates a real right in favor of the lessee, Manresa had
the following to say:

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.

Knowledge of existing lease binding on purchaser.

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

Where the purchaser has knowledge at the time of the purchase


that the land has been leased to a third person and is informed of the
terms of such lease, he is bound to respect it, although it is not entered
upon the certicate of title, the lease is such a case to be deemed a
part of the contract of sale.14 That is the rule under Article 1676 of the
new Civil Code, consistent with the principle that actual knowledge
is equivalent to registration. However, said rule applies only to leases
for xed terms and not to those from month to month.15

From the foregoing authority, it can be gleaned that, in general,


with respect to land registered under the Spanish Mortgage Law, a
lease creates only personal rights and not real rights, unless any of
the three exceptions mentioned above exists. As a rule, therefore, it
cannot be registered.

If aliens cannot buy lands in the Philippines, then how may


those permitted to stay here be accommodated? On this point, the
Supreme Court elaborated, as follows:

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.

Lease of lands to aliens.

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

REGISTRATION OF LAND TITLES AND DEEDS

We are construing the Constitution as it is, and not as


we may desire it to be. Perhaps the effect of our construction
is to preclude aliens, admitted freely into the Philippines, from
owning sites where they may build their homes. But, if this is
the solemn mandate of the Constitution, we will not attempt
to compromise it, even in the name of amity or equity. We are
satised, however, that aliens are not completely excluded by
the Constitution from the use of lands for residential purposes.
Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract, which is
not forbidden by the Constitution. Should they desire to remain
here forever and share our fortunes and misfortunes, Filipino
citizenship is not impossible to acquire.16
In the same case, the Supreme Court made commitments incidentally endorsing favorably the idea of leasing even public lands to
aliens. Thus the Court said:
. . . prior to the Constitution, under section 57 of Public
Land Act No. 2874, land of the public domain suitable for residence or industrial purposes could be sold or leased to aliens, but
after the Constitution and under Section 60 of Commonwealth
Act No. 141, such land may only be leased, but not sold, to aliens,
and the lease granted shall only be valid while the land is used
for the purpose referred to. The exclusion of sale in the new Act
is undoubtedly in pursuance of the constitutional limitation, and
this again is another legislative construction that the term public agricultural land includes land for residence purposes.17
Then, in a subsequent case,18 the Supreme Court once more
afrmed the above commitments regarding lease of public lands to
aliens impliedly, with the following questions and answers: Si la
Constitucion no prohibe el arrendamiento de terrenos publicos a ciudadanos ertranjerosi por que el Congreso va a prohibirles, por medio
del Codigo Ciuil nueuo, el arrendamiento de los bienes de la propiedad priuada? Zpara que los proprietarios no reciban la renta de sus
ncas? El arrendamiento de terrenos publicos fomento su desarrollo y
16
17
18

Krivenko v. Register of Deeds of Manila, 79 Phil. 461.


Krivenko v. Register of Deeds of Manila, supra.
Smith, Bell & Co., Ltd. v. Register of Deeds of Davao, 96 Phil. 53.

432

LEASES

los mejora. Si se limitase su arrendamiento solamente a los naturales,


Za mejora seria lenta.
The citizenship of an applicant is not decisive as to his right to
lease public land, such as a foreshore land, because under Section
60 of the Public Land Law, any person, corporation, association, or
partnership disqualied from purchasing public land for agricultural
purposes, may lease public land for industrial or residential purposes,
provided that such lease shall only be valid while said land is used
for the purposes indicated.19
10.

Period of lease allowable to aliens.

As may be observed in the above opinion of the Supreme Court


in the Krivenko case, aliens may be granted temporary rights in the
Philippines, such as the leasing of lands for residential purposes,
this being considered not forbidden by the Constitution. However, as
to how long a period may be granted an alien for the purpose, there
have been serious doubts.
In Consulta No. 136 of the Register of Deeds of Camarines Sur,
the Court of First Instance of Manila, Branch IV, held that until
otherwise xed by a superior authority, twenty-ve years is a reasonable period or duration for the lease of a private agricultural land in
favor of an alien qualied to acquire and hold such right, which has
been recognized by the Supreme Court in its decision in the case of
Krivenko vs. Register of Deeds of Manila In line with the same ruling, the Secretary of Justice rendered an opinion to the effect that the
period of twenty-ve years may be adopted as the maximum period
beyond which a contract of lease in favor of an alien cannot extend
without violating the constitutional prohibition against acquisition
of lands by such aliens.20 This opinion is founded on the theory that
a lease for a longer period may be tantamount to vesting ownership
in an alien lessee.
Now, however, the question has been resolved by the Supreme
Court, ruling that where a contract of lease of land in favor of an

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

REGISTRATION OF LAND TITLES AND DEEDS

LEASES

alien stipulates a period of twenty-ve years, renewable for another


twenty-ve years, it is still within ninety-nine years, and therefore
is valid, invoking Article 1643 of the Civil Code of the Philippines.21

Conformably to the same principle, it was held that where one


party is the owner of the land, and the other is the owner, in good
faith, of the building thereon, the owner of the land is entitled to acquire the building by paying its owner the value thereof, the owner
of the building having the right to retain the same until the value is
paid; or compel the owner of the building to pay him the price of the
land as may be agreed upon; and, if the parties cannot agree on the
price, the same may be xed by the competent court.25

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.

Right of builder in good faith to register.

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

De Guzman v. De la Fuente, 55 Phil. 501.


Grana v. Ct. of Appeals, et al., 109 Phil. 260.
Abad v. Miradura, et al., 11 O.G. 7, July 1943, CA.
28
New Civil Code Art. 1616.
25

26
27

435

REGISTRATION OF LAND TITLES AND DEEDS

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

he knows that he is not the owner of the leased premises. Neither


can he deny the ownership or title of his lessor.33

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.

Commitment to pay for improvements when enforceable by


execution.

In a case where the owner of the land, in conformity with a


court decision, has made his choice to appropriate the building and
has duly informed the court of said choice, and accordingly is ordered
to comply with the same by buying the building erected on his land
and pay the value thereof as xed by the court, such commitment of
the owner of the land is thereby converted into a money obligation
which can be enforced by execution, regardless of the unwillingness
and inability of the party concerned to pay the amount.34

oOo

A different rule may hold in the case of a lessee who introduced


improvements in the leased premises. He does so at his own risk in
the sense that he cannot recover their value from the lessor, much
less retain the premises until he is reimbursed. The principle of possessor in good faith cannot apply to a lessee because as such lessee

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

REGISTRATION OF LAND TITLES AND DEEDS

Chapter XIV

TRUSTS AND POWERS OF ATTORNEY

1.

TRUSTS AND POWERS OF ATTORNEY

parol evidence.3 On the other hand, an implied trust exists only by


operation of law (Article 1441), and may be proved by parol evidence.
(Article 1457). No particular form of words or conduct is necessary
for the manifestation of intention to create a trust. It is possible to
create a trust without using word trust or trustee.4 Thus, where
the grantor conveys land to the grantee with the understanding that
after the latters death the property would be returned to the grantor
or his heirs, an implied trust is created in favor of the grantor or his
heirs.5

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

Carter v. Gibson, 29 Neb. 324, N.W. 634, 26 A.S.R. 381.


Burleigh v. Clough, 52 N.H. 267, 13 Am. Rep. 23.

438

2.

Characteristics of trust.
The characteristics of a trust are the following:

3.

1.

It is a relationship;

2.

It is a relationship duciary in character;

3.

It is a relationship with respect to property, not one involving merely personal duties;

4.

It involves the existence of equitable duties imposed upon


the holder of the title to the property, to deal with it for
the benet of another; and

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).

Power of attorney, dened.

A power of attorney has been dened as an authority enabling


one person to dispose of the interest which is vested in another.6 It
is also referred to as an authority to do some act in relation to lands,
or the creation of estates therein, or of charges thereon, which the
owner, granting or reserving such power, might himself lawfully per-

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

REGISTRATION OF LAND TITLES AND DEEDS

TRUSTS AND POWERS OF ATTORNEY

form.7 A general power of disposition as may be granted to another in


a power of attorney does not imply ownership. In fact, the existence
of such grant of power stands to prove the exclusion of the idea of an
absolute fee simple in the person who possesses the power.

order to satisfy the demands of justice and prevent unjust enrichment.


They arise contrary to intention against one who, by fraud, duress,
or abuse of condence, obtains or holds the legal right to property
which he ought not, in equity and good conscience, to hold. (Huang
vs. CA, G.R. No. 108525, September 13, 1994, 55 SCAD 289; Vda. de
Esconde vs. CA, G.R. No. 103635, February 11, 1996, 67 SCAD 642;
Morales, et al. vs. CA, et al., supra).

4.

Power of attorney distinguished from trust.

In a power of attorney only two persons are necessary, namely,


the principal and the attorney-in-fact; whereas, in a trust there are
generally three persons involved, namely, the trustor, the trustee,
and the cestui que trust or beneciary. A power of attorney is never
imperative but always discretionary, while a trust is always imperative and leaves nothing to the option of the trustee. The attorney-infact in a power of attorney acts for the use and benet of the principal
who appointed him, while the trustee in a trust instrument acts not
necessarily for the benet of the trustor who appointed him but, upon
his discretion, for the ultimate benet of a third party the cestui
que trust.
5.

Kinds of trust and how are they created.

Trusts are either express or implied. Express trusts are created


by the intention of the trustor or of the parties, while implied trusts
come into being by operation of law, either through implication of
an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to, any such
intention.
In turn, implied trusts are either resulting or constructive
trusts. (Heirs of Maximo Labanon v. Heirs of Constantino Labanon,
G.R. No. 160711, August 14, 2007). Resulting trusts are based on the
equitable doctrine that valuable consideration, and not legal title
determines the equitable title or interest and are presumed always to
have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby
a person thereby becomes invested with legal title but is obligated in
equity to hold the legal title for the benet of another. On the other
hand, constructive trusts are created by the construction of equity in

Tilden v. Green, 130 N.Y. 29, N.E. 880, 14 L.R.A. 33.

440

An implied trust is one that, without being express, is deductible


from the nature of the transaction as a matter of intent or which is
superinduced on the transaction by operation of law as a matter of
equity, independently of the particular intention of the parties. It may
either by resulting or constructive trust. (Sps. Bejos vs. Cabreros, et
al., G.R. No. 145849, July 22, 2005).
6.

Implied trusts.

Among the cases of implied trusts recognized in this jurisdiction,


the following are expressly dened in our New Civil Code:
ART. 1448. There is an implied trust when property is sold and
the legal estate is granted to one party but the price is paid by another
for the purpose of having the benecial interest of the property. The
former is the trustee, while the latter is the beneciary. However, if
the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by
law, it being disputably presumed that there is a gift in favor of the
child.
ART. 1449. There is also an implied trust when a donation
is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no benecial
interest or only a part thereof.
ART. 1450. 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. 1451. When land passes by succession to any person and
he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benet of the true owner.
441

REGISTRATION OF LAND TITLES AND DEEDS

ART. 1452. If two or more persons agree to purchase property


and by common consent the legal title is taken in the name of one of
them for the benet of all, a trust is created by force of law in favor of
the others in proportion to the interest of each.
ART. 1453. When property is conveyed to a person in reliance
upon his declared intention to hold it for, or transfer it to another or the
grantor, there is an implied trust in favor of the person whose benet
is contemplated.
ART. 1454. If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor toward
the grantee, a trust by virtue of law is established. If the fulllment of
the obligation is offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him.
ART. 1455. When any trustee, guardian or other person holding
a duciary relationship uses trust funds for the purchase of property
and causes the conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the person to whom
the funds belong.
ART. 1456. If the 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.

It is to be borne in mind that the enforcement of an implied or


constructive trust is, in effect, to provide an equitable remedy against
unjust enrichment of a person at the expense of another. The cases
of implied trust as dened in Arts. 1448 to 1456 above do not exclude
such other instances as contemplated by Article 1442 of the same
Code, which may be established by the principles of general law of
trusts insofar as they are not in conict with the Civil Code, the Code
of Commerce, the Rules of Court, and special laws.
Fraudulent registration of land holds the person in whose name
the land is registered as a mere trustee.8 Thus, there the land is decreed in the name of a person through fraud or mistake, such person
is by operation of law considered a trustee of an implied trust for the
benet of the person from whom the property comes. The beneciary shall have the right to enforce the trust, notwithstanding the

Pagkatipunan v. Intermediate Appellate Court, 198 SCRA 719.

442

TRUSTS AND POWERS OF ATTORNEY

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.

Kinds of implied trusts.

Implied trusts may either be: (1) resulting, or (2) constructive


trusts, both coming into being by operation of law. (OLaco, et al. vs.
Valentin Co Cho Chit, et al., G.R. No. 58010, March 31, 1993).
8.

Concept of resulting trust.

A resulting trust is presumed to have been contemplated by


the parties, the intention as to which is to be found in the nature of
their transaction but not expressed in the deed itself. It is based on
the equitable doctrine that valuable consideration, not legal title,

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

REGISTRATION OF LAND TITLES AND DEEDS

determines the equitable title or interest. (Sps. Bejos vs. Cabreros,


et al., G.R. No. 145849, July 22, 2005).
9.

Concept of constructive trust.

A constructive trust is created, not by any word evincing a direct


intention to create trust, but by operation of law in order to satisfy the
demand of justice and to prevent unjust enrichment. It arises contrary
to an agreement or intention against one who, by fraud, duress or
abuse of condence, obtains or holds the legal right to property which
he ought not, in equity and good conscience, to hold. A constructive
trust is illustrated in Article 1456 of the Civil Code when it provides
that if the 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. (Sps.
Bejos vs. Cabreros, et al., G.R. No. 145849, July 22, 2005).
10.

How resulting trust arise; its basis.

Resulting trust is based on the equitable doctrine that valuable


consideration, and not legal title determines the equitable title or
interest and is presumed always to have been contemplated by the
parties.
It arises from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with legal title but is obliged in equity to hold his legal title
for the benet of another. (OLaco vs. Valentin Co Cho Chit, et al.,
supra, citing 76 Am. Jur. 2d. 429).
11.

TRUSTS AND POWERS OF ATTORNEY

12.

Burden to prove the existence of trust and the nature of the


evidence.

As a rule, the burden of proving the existence of a trust is on


the party asserting its existence, and such proof must be clear and
satisfactorily to show the existence of the trust and its elements.
While implied trusts may be proved by oral evidence, the evidence
must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indenite
declarations. Trustworthy evidence is required because oral evidence
can easily be fabricated. (Salao vs. Salao, 70 SCRA 65; OLaco vs. Co
Cho Chit, 220 SCRA 656; Ong Ching Po vs. CA, 57 SCAD 619, 239
SCRA 341).
13.

How constructive trust created and its basis.

A constructive trust is created by the construction of equity in


order to satisfy the demands of justice and prevent unjust enrichment.
It arises contrary to intention against one who, by fraud, duress, or
abuse of condence, obtains or holds the legal right to property which
he ought not, in equity and good conscience, to hold. (OLaco, et al.
vs. Valentin Co Cho Chit, supra, citing 76 Am. Jur. 2d. 446).
14.

Examples of resulting trusts.


The following are examples of resulting trusts.
(1)

There is an implied trust when property is sold, and the


legal estate is granted to one party but the price is paid by
another for the purpose of having the benecial interest of
the property. The former is the trustee, while the latter is
the beneciary. However, if the person to whom the title
is conveyed is a child, legitimate or illegitimate, of the one
paying the price of the sale, not trust is implied by law, it
being disputably presumed that there is a gift in favor of
the child. (Art. 1448).

(2)

There is also an implied trust when a donation is made to


a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have
no benecial interest or only a part thereof. (Art. 1449).

Requisites of a purchase of money resulting trust.

To give rise to a purchase money resulting trust, it is essential


that there be:
1.

an actual payment of money, property or services, or an


equivalent, consisting of valuable consideration; and

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

REGISTRATION OF LAND TITLES AND DEEDS

(3)

(4)

If two or more persons agree to purchase property and by


common consent the legal title is taken in the name of one
of them for the benet of all, a trust is created by force of
law in favor of the others in proportion to the interest of
each. (Art. 1452).
When property is conveyed to a person in reliance upon his
declared intention to hold it for, or transfer it to another or
the grantor, there is an implied trust in favor of the person
whose benet is contemplated. (Art. 1453).

TRUSTS AND POWERS OF ATTORNEY

16.

In regard to private trust, it is not always necessary that the


cestui que trust should be named, or even in esse at the time the trust
is created in his favor.13 Thus, a devise to a father in trust for accumulation for his children lawfully begotten at the time of his death
has been held to be good although the father had no children at the
time of the vesting of the funds in him as trustee. In charitable trust
the rule is still further relaxed.14
17.

15.

Examples of constructive trusts.


The following are examples of constructive trusts.
(1)

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)

If an absolute conveyance of property is made in order


to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established.
If the fulllment of the obligation is offered by the grantor
when it become due, he may demand the reconveyance of
the property to him. (Art. 1454).

(3)

When any trustee, guardian or other person holding a


duciary relationship uses trust funds for the purchase
of property and causes the conveyance to be made to him
or to a third person, a trust is established by operation of
law in favor of the person to whom the funds belong. (Art.
1455).

(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

Existence of cestui que trust not indispensable.

Trust created to go around the law, void.

The prohibition of our Constitution against aliens acquiring


lands in the Philippines, except through hereditary succession, has
brought forth the anomalous practice among disqualied persons of
employing dummies or qualied third persons to acquire for them
by purchase lands which they otherwise could not acquire legally.
While the scheme may simulate a trust, the creation thereof being
prompted by an intent to go around the law, it is void and of no legal
force and effect. This, it has been held that a trust will not be created
when, for the purpose of evading the law prohibiting one from taking
or holding real property, he takes a conveyance thereof in the name
of a third person.15
By transgressing the law and allowing one to be a dummy in
the acquisition of land, he has eliminated the very source of his claim
in the land and, consequently, he cannot lawfully assert any right or
interest therein.16
18.

Registration of trust.

Whenever a deed or other instrument is led for the purpose


of transferring registered land in trust, or upon any equitable condition or limitation expressed therein, or for the purpose of creating
or declaring a trust or other equitable interest in such land without

Flint on Trusts and Trustees, Sec. 25.


Perry on Trust, 5th ed., Sec. 66; Government v. Abadilla, 46 Phil. 642.
26 R.C.L. 1214-1222; Kiel v. Estate of Sabert, 46 Phil. 193.
16
Francisco v. Rodriguez, G.R. No. L-31083, Sept. 30, 1975; 72 O.G. 2685, March,
1976; 67 SCRA 212.
13
14
15

447

REGISTRATION OF LAND TITLES AND DEEDS

TRUSTS AND POWERS OF ATTORNEY

transfer, the particulars of the trust, condition, limitation, or other


equitable interest shall not be entered by the words in trust, or
upon condition, or other apt words, and by a reference by number
to the instrument authorizing or creating the same. A similar memorandum shall be made upon the duplicate certicate. The Register of
Deeds shall note upon the original instrument creating or declaring
the trust or other equitable interest a reference by number to the
certicate of title to which it relates, and to the volume and page in
the registration book where it is registered.17

statement thereof with the Register of Deeds. The statement shall


contain a description of the land, and a reference to the number of
the certicate. Such claim shall not affect the title of a purchaser for
value and in good faith before its registration.20

19.

Trust with express power to sell, etc.

If the instrument creating or declaring a trust or other equitable


interest contains an express power to sell, mortgage, or deal with the
land in any manner, such power shall be stated in the certicate of title by the words of description in case of other powers. No instrument
transferring, mortgaging, or in any way dealing with registered land
held in trust shall be registered, unless the power thereto enabling is
expressly conferred in the instrument of trust, or unless the decree
of a court of competent jurisdiction has construed the instrument in
favor of such power, in which case a certied copy of such decree may
be led with the Register of Land Titles and Deeds and he shall make
registration in accordance therewith.18
20.

Appointment of new trustee.

When a new trustee of registered land is appointed by a court of


competent jurisdiction, a new certicate shall be entered to him upon
presentation to the Register of Deeds of a certied copy of the decree
and the surrender and cancellation of the duplicate certicate.19
21.

Registration of constructive

Whoever claims an interest in registered land by reason of


any implied or constructive trust shall le for registration a sworn

22.

Right of trustee to apply for registration.

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.

Trustee cannot assert title adverse to his principal.

The rule has it that the relations of an agent to his principal


are duciary, and it is an elementary and very old rule that in regard
to property forming the subject matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the principal.
His position is analogous to that of a trustee and he cannot consistently with principles of good faith, be allowed to create in himself an
interest in opposition to that of his principal or cestui que trusts.21
Afrming the same doctrine, the Supreme Court declared that the
registration of the property in the name of the trustee in possession
thereof must be deemed to have been effected for the benet of the
cestui que trust.22 Where there is bad faith or fraud in obtaining a
decree with respect to a registered property, the same does not belong
to the person in whose favor it was issued, and the real owners would
be entitled to recover the ownership of the property so long as the
same has not been transferred to a third person who has acquired it
in good faith and for a valuable consideration. This right to recover
is sanctioned by Section 55 of Act No. 496, as amended by Act No.
3322.23 The registrant is regarded in the eyes of the law as a mere
trustee. Hence, he is under obligation to execute the deed of reconveyance in favor of the true owner in keeping with the primary principle

Act 496, Sec. 68; PD 1529, Sec. 68.


Severino v. Severino, 44 Phil. 343.
Barretto v. Tuason, 50 Phil. 888.
23
Palet v. Tejedor, 55 Phil. 790; Palma v. Reyes Cristobal, 77 Phil. 712.
20

Act 496, Sec. 65; PD 1529, Sec. 65.


Act 496, Sec. 66; PD 1529, Sec. 66.
19
Act 496, Sec. 67; PD 1529, Sec. 67
17

21

18

22

448

449

REGISTRATION OF LAND TITLES AND DEEDS

TRUSTS AND POWERS OF ATTORNEY

of law and equity that one should not unjustly enrich himself at the
expense of another.24
24.

Possession by trustee, when deemed adverse.

It is a well-settled rule that possession of a trustee is, in law,


possession of the cestui qui trust and, therefore, it cannot be a good
ground for title by prescription. The only instance in which the possession of a trustee may be deemed adverse to the cestui que trust is
when the former makes an open repudiation of the trust by unequivocal acts made known to the latter. It has been held that the trustee
may claim title by prescription founded on adverse possession, where
it appears that he has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust. A mere silent possession of the trustee unaccompanied with acts amounting to an ouster
of the cestui que trust cannot be construed as an adverse possession.
Mere perception of rents and prots by the trustee, and erecting
fences and buildings adapted for the cultivation of the land held in
trust, are not equivalent to unequivocal acts of ouster of the cestui
que trust. So also, the fact of having declared the land in the name of
the trustee for taxation purposes constitutes no such unequivocal act
of repudiation amounting to an ouster and: cannot thus constitute
adverse possession as basis for title by prescription.25 A concrete
instance to prove adverse possession by a trustee amounting to an
ouster of the owner is where the trustee has refused to share the
products of the land with said owner or his heirs.26
25.

(b)

A trustee may not acquire title over a property held in trust.

As a rule, no because the possession is not adverse. In order


that he may acquire title by acquisitive prescription, the following
requisites must be present:
(a)

He must repudiate the trust;

He must communicate such repudiation to the beneciaries;

(c)

The evidence thereon must be clear and conclusive;

(d)

There must be adverse, open, public, and continuous possession within the period xed by law.

In an implied trust, the action to recover must be brought within


10 years from the issuance of the title to the property. Thereafter,
the action shall prescribe. In Gicano vs. Gegato, et al., G.R.No. 63575,
January 20, 1988, the SC said that if an action is led after 23
years, time would have already eroded the right of action and ultimately erased it, as a sand castle on a shore is slowly and inexorably
obliterated by the rising tide. (See also Lebrilla vs. IAC, G.R. No.
72623, December 18, 1989; Adille vs. CA, L-44546, January 29, 1988;
Gonzales vs. IAC, G.R. No. 66479, November 21, 1991).
26.

Prescription of action for reconveyance of property held under


constructive trust.

An action for reconveyance of real property based on an implied


or constructive trust prescribes in ten years, provided that no fraud
has been employed by the trustee prior to or simultaneous with the
procurement of the property in his name, in which case the enforcement of the implied trust does not prescribe.27 While implied trust
prescribes in ten years, the explicit acknowledgment of the trust in
a public instrument by the trustee makes it an express trust, which
continues and subsists until repudiated, in which case prescription
runs from repudiation.28
Thus, it cannot be overemphasized that now it is a settled
doctrine that an action for reconveyance based on implied or constructive trust is prescriptible. It prescribes in ten years. And where
the transaction constituting implied or constructive trust has been

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

REGISTRATION OF LAND TITLES AND DEEDS

TRUSTS AND POWERS OF ATTORNEY

registered, the period of prescription commences as of the date of its


registration.29

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.

Effect if a property is acquired through mistake or fraud.

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, NCC). Thus, the law thereby creates the obligation of the
trustee to reconvey the property and the title thereto in favor of the
true owner. The prescriptive period for the reconveyance for fraudulently registered real property is ten (10) years reckoned from the date
of the issuance of the certicate of title. (Consuelo Vda. de Alberto,
et al. vs. Francis Go, et al., G.R. No. 139843, July 21, 2005).
28.

Registration of power of attorney.

Any person may by power of attorney procure land to be


registered and convey or otherwise deal with registered land, but
the letters of attorney shall be acknowledged before a notary public
and shall be led with the Register of Deeds of the city or province
where the land lies, and registered. Any instrument revoking such
letters shall be acknowledged, and registered in like manner.30
Like a trustee, an attorney in fact cannot assert title adverse to his
principal. Persons dealing with an assumed agent, whether the
assumed agency be a general or a special one are bound at their peril,
if they would hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority, and in case either
is controverted, the burden of proof is upon them to establish it.31
29.

30.

How power of attorney should be construed.

Power of attorney, like any other instrument, is to be construed


according to the natural import of its language; and the authority
which the principal has conferred upon his agent is not to be extended
by implication beyond the natural and ordinary signicance of the
terms in which that authority has been given. The attorney has only
such authority as the principal has chosen to confer upon him, and
one dealing with him must ascertain at his own risk whether his acts
will bind the principal.
A power of attorney which vests the agent with authority for
me and in my name to sign, seal, and execute, and as my act and
deed, deliver any lease, or any other deed for conveying any real or
personal property does not carry with it or imply that the agent for
and on behalf of his principal has the power to execute a promissory
note or a mortgage to secure its payment.33 For the purpose of executing a mortgage, an express power is required; and if an attorney in
fact is authorized to mortgage he cannot sell, and vice versa. In fact,
under Article 1878, par. 8 of the new Civil Code, even to lease real
property to another person for more than one year now requires special power, just as for any act of strict dominion. However, the said
Article of the Civil Code does not apply to a judicial administrator
who may validly lease, even if the same exceeds one year, property
of the estate without prior judicial authority and approval, since in
that case lease is considered an act of administration.34

Notation of power of attorney on title.


oOo

The memorandum of a power of attorney made on the back of a


certicate of title is not admissible as evidence of the contents of said

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

REGISTRATION OF LAND TITLES AND DEEDS

Chapter XV

INVOLUNTARY DEALINGS WITH REGISTERED


LAND ATTACHMENT AND OTHER LIENS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

plaintiff seeks to subject to his claim property of the defendant in the


hands of a third person called the garnishee, as well as money owed by
such third person to defendant. Garnishment proceedings are usually
directed to personal property. Levy on execution is the attachment
issued after the nal judgment in satisfaction thereof.3
Under the Land Registration Act we shall not be concerned
about garnishment.
3.

1.

Involuntary dealings.

As the phrase indicates, involuntary dealings with registered


lands refer to certain kind of transactions affecting such lands in
which the cooperation of the registered owner is not needed. It may
even be against his will.
Involuntary dealing and involuntary transactions are synonymous. Under the Uniform Land Registration Act, the term is
dened as the transmission of registered land or any interest therein
by descent, the right of curtesy and dower, all equitable rights and
claims, judicial proceedings or statutory liens or charges, the exercise
of the right of eminent domain, the lien of delinquent taxes and levies,
affecting registered land or any interest therein.1
2.

Attachment, nature and kinds.

In general, an attachment is a writ issued at the institution or


during the progress of an action, commanding the sheriff or other
public ofcer to attach the property, rights, credits, or effects of the
defendant to satisfy the demands of the plaintiff.2
Attachment may be classied into three kinds, namely: (1)
preliminary attachment; (2) garnishment; and (3) levy on execution.
Preliminary attachment is that issued at the institution or during
the progress of an action. It is a mesne process, liable to be dissolved
at any time and the judgment upon which may or may not affect the
property seized. Garnishment is an attachment by means of which

1
2

9 Uniform Laws Annotated 223.


Cyclopedic Law Dictionary.

Registration of attachments and other liens.

Under the provisions of Section 69 of P.D. 1529, an attachment


or copy of any writ, order or process, in order to create or preserve
any lien, right or attachment upon registered land, may be led and
registered in the ofce of the Register of Deeds for the province or city
in which the land lies, such writing to contain, among other things,
a reference to the number of the certicate of title of the land to be
affected, and also if the attachment, right, or lien is not claimed on all
the land in any certicate of title, a description sufciently accurate
for identication of the land intended to be affected.
On the other hand, Rule 57, Section 7, of the Rules of Court, requires that a copy of the order of attachment, together with a description of the property attached, and a notice that it is attached, be led
with the Registrar, the notice to contain a reference to the number
of the certicate of title and the volume and page in the registration
book where the certicate is registered. The Registrar is also directed
to index the attachment in the names of both the plaintiff and the
defendant as well as in the name of the persons, if any, by whom the
property is held or in whose name it stands on the records.
4.

Owners duplicate title not immediately required for annotation


of attachment, etc.

In every case where an attachment or other lien or adverse claim


of any description is registered, and the duplicate certicate is not
presented at the time of the registration to the Register of Deeds, he
shall within thirty-six hours thereafter send notice by mail to the
registered owner, stating that such papers have been registered, and
3

454

Moran, Comments on the Rules of Court, 1963 ed., vol. 3, pp. 4-5.

455

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

requesting him to send or produce the duplicate certicate in order


that memorandum of the attachment or other lien or adverse claim
may be made thereon. If the owner neglects or refuses to comply
within a reasonable time, the Register of Deeds shall report the matter to the court, and the court, after notice, shall enter an order to the
owner to surrender his certicate at a time and place to be named
therein, and may enforce the order by suitable process. It is for the
court and not for the Administrator of Land Registration Authority
to compel the surrender.4

It may be stated here, however, that according to a more recent


decision,8 cited with approval by the Supreme Court in the case of
Levin vs. Bass,9 in involuntary registration, such as an attachment,
levy upon execution, lis pendens and the like, entry thereof in the
day book is a sufcient notice to all persons of such adverse claim.

The procedure as outlined above may also be followed in the


registration of a mortgage deed affecting registered land, upon the
request of the mortgagee, if it is not possible for him to produce the
owners duplicate certicate of title.5
5.

Entry of attachment in day book; sufciency.

It was formerly held that although the notice of attachment


has not been noted on the certicate of title, its notation in the book
of entry of the Register of Deeds produces all the effects which the
law gives to its registration or inscription.6 That rule, however, has
been reversed in a subsequent case,7 holding that while the effect of
registration retroacts as of the date of the entry in the day book of
the Register, of Deeds, registration is not considered accomplished
until and unless a memorandum of such document has been made
on the corresponding certicate of title. To hold that the mere entry
of a document in the day book without noting it on the certicate of
title, is sufcient, would render Section 52 of the Land Registration
Act (now Section 54 of P.D. No. 1529) nugatory and destroy one of the
principal features of Torrens system of registration, requiring that
all encumbrances on the land or special estates therein be shown or
at least intimated upon the certicate of title.

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.

What purchaser of attached property gets.

When an attachment has been duly levied upon property, a


purchaser thereof subsequent to the attachment takes the property
subject to the attachment.10 But, in determining priority between
two attachments on execution affecting the same property, it is not
the priority of the execution sales held pursuant thereto that will
determine the preference, but the priority between the two attachments, that is, the attachment previously registered is superior and
preferred to a subsequent one.11
In line with the same principle, it was held that where a preliminary attachment in favor of A was recorded on November 11,
1932, and the private sale of the attached property in favor of B
was executed on May 29, 1933, the attachment lien has priority over
the private sale, which means that the purchaser took the property
subject to such attachment lien and to all of its consequences, one of
which is the subsequent sale on execution.12 The auction sale being
a necessary sequel to the levy, it enjoys the same preference as the
attachment lien enjoys over the private sale. In other words, the auction sale retroacts to the date of the levy. Where the rule be otherwise,
the preference enjoyed by the levy of execution would be meaningless
and illusory.13 It thus follows that the purchaser in the execution sale,
whom we may call C, has a better right than B over the property in
question. But, where prior to the attachment lien and the subsequent
execution sale, the property was validly mortgaged to a person who
in this case happened to be B also, it was held that the execution

Villasor v. Camon, et al., 89 Phil. 404.


91 Phil. 419.
Joaquin v. Avellano, 6 Phil. 551.
11
Cruz v. Sandoval, 69 Phil. 736.
12
Yambao v. Suy, 52 Phil. 237.
13
Capistrano v. Phil. Nat. Bank, 101 Phil. 1117.
8
9

10

457

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

sale in favor of C is subject to the rights of B as mortgage creditor,


whose right to a foreclosure thereof is reserved.14

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.

Exception to bad faith rule due to previous knowledge.

Where the purchaser at a public auction sale had knowledge,


prior to or at the time of the levy, of a previous lien or encumbrance
object of a third party claim, he does not come under the protection
of the law. In such case, his knowledge is equivalent to registration
and taints his purchase with bad faith.16 But if knowledge of any
lien or encumbrance upon the property is acquired after the levy,
the purchaser cannot be said to have acted in bad faith in making
the purchase and, therefore, such lien or encumbrance cannot affect
his title.17
Thus, where a third-party claim was led about one month after
the levy was recorded, the validity of the levy is unaffected by any
subsequent knowledge: which the judgment creditor might have derived from the third-party claim. The fact that the third-party claim
was presented one day before the execution sale is immaterial. If the
levy is valid, as it was, the execution sale made in pursuance thereof
is also valid, just as a mortgage lien validly constituted may validly
be foreclosed regardless of any equities that may have arisen after
its constitution.
It may be stated in passing that knowledge of counsel of the
existence of a prior lien, encumbrance or burden affecting registered
property, does not of itself taint the purchase of such property by his

8.

Property of person other than judgment debtor cannot be attached.

A sheriff is not authorized to attach the property of any person


under an execution except that of the judgment debtor. If he does so,
the writ of execution affords him no justication, for the action is not
in obedience to the mandate of the writ. Acts of the ofcer which are
not justied by the writ are without authority of law. An injunction
is a proper remedy to prevent the sheriff from selling the property for
the purpose of paying the debts of another.19 Thus, where the plaintiff
has no cause of action against the defendant in a case, the latter is
entitled to prove the allegations in his answer regarding damages
incurred by him when his property was attached.20
A writ of attachment ordering the sheriff to attach not only
the properties of the defendant but also properties in the name of
third persons who may have purchased said properties at one time
or another from the defendant or his wife and children, irrespective
of whether or not the sales were made in good faith and for value,
is one issued in excess of jurisdiction and, therefore, null and void.
Consequently, all the acts of the sheriff pursuant to such void writ
of attachment are likewise void and of no effect.21
9.

Property redeemed by wife when not attachable.

Where the wife redeemed the land belonging to the conjugal


partnership which was sold on execution, with money obtained by
her from her father, said land has become paraphernal and as such is
beyond the reach of further execution.22 She has acquired it by right
of redemption as successor in interest of her husband. It has ceased

Lopez, et al. v. Vijandre, et al., 72 Phil. 56.


Alzate v. PNB, 64 O.G. 34, Aug. 19, 1968; 126 Phil. 772.
Custilo v. Maravilla, 48 Phil. 442; La Urbana v. Bernardo, 62 Phil. 790; 23 C.J.,
Sec. 812; Parsons Hardware Co. v. Court of Appeals, G.R. No. L-46141.
17
Hernandez v. Katigbak, 69 Phil. 744.

Uytiepo v. Uytiepo, Jr., 63 O.G. 14, Apr. 3, 1967, CA.


Codesal and Ocampo v. Ascue, 38 Phil. 902.
Elmac, Inc. v. Gustilo, 37 O.G. 8, p. 189, CA.
21
Malong v. Olada, 55 O.G. 46, Nov. 16, 1959, CA.
22
Sec. 29, Rule 39; 1 Moran, Comments on the Rules of Court, 1952 ed., pp. 841842; Article 1596, old Civil Code; Hepfner v. Orton, 12 Pac. 486; Taylor v. Taylor, 92
So. 109; Malone v. Nelson, 167 So. 712.

458

459

18
19

14
15
16

20

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

to be the property of the judgment debtor. It can no longer therefore


be the subject of execution under a judgment exclusively affecting
the personal liability of the latter.23

provisions of Section 26 of Commonwealth Act No. 459, which was


approved June 9, 1939, and which abrogates the previous law and
rulings insofar as the securities on loans granted by the Agricultural
and Industrial Bank are concerned.27

It may not be amiss to mention here, however, that a widow


who, pursuant to a stipulation for repurchase, redeems the property
of her deceased husband from a contract of sale executed during the
lifetime of the husband does not thereby acquire the property in
her own absolute right. In such case the title reverts to the heirs of
the deceased husband, subject to a lien in favor of the widow for the
amount paid out by her to redeem the property.24 On the other hand,
when land belonging to a married woman in her own right, whether
of a total or paraphernal character, is redeemed from a contract of
sale under pacto de retro by the use of funds pertaining to the community estate, such property continues to be the separate property
of the wife, but the community estate becomes creditor to the extent
of the amount expended to effect redemption.25
10.

Inheritance and indeterminate interests may be attached.

An undivided interest of a co-heir may be attached, without


the necessity of waiting for a judicial declaration of heirs. So also,
any interest which a person may or might have in certain land may
be attached, even if said interest be indeterminate because of the
pendency of the liquidation of the intestate estate.26
11.

When attachment may be refused registration.

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

Rosete v. Prov. Sheriff of Zambales, et al., 95 Phil. 560.


Guinto v. Lim Bonng and Abendan, 48 Phil. 884.
25
Santos v. Bartolome, 44 Phil. 76; Sayson v. Gonzales, 60 O.G. 16, Apr. 20,
1964, CA.
26
Consulta No. 1013 of the Register of Deeds of Tayabas, 59 Phil. 756; Pacic
Commercial Co. v. Geaga, 69 Phil. 64.

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

REGISTRATION OF LAND TITLES AND DEEDS

12.

Family home exempt from attachment.

Under the provisions of the Family Code, the family home is


exempt from execution, forced sale or attachment except as provided
for by the law, specically, Article 155 of the Family Code provides:
Article 155. The family home shall be exempt from execution, forced sale or attachment except:
(1)

For nonpayment of taxes;

(2) For debts incurred prior to the constitution of the


family home;
(3) For debts secure by mortgages on the premises before
or after such constitution; and
(4) For debts due to laborers, mechanics, architects,
builders, materialmen and others who have rendered service
or furnished materials for the construction of the building.
13.

Attachment of wifes share in conjugal property.

On the question of whether the share or interest of the wife in


the conjugal partnership property may be attached, it was held that
such right of the wife is merely an interest inchoate, a mere expectancy, which constitutes neither a legal right nor an equitable estate
and does not ripen into title until it appears that there are assets in
the community after liquidation and settlement. Such being the status of such right or interest of the wife, the same cannot be attached
and sold at execution. The real test as to whether or not property
can be attached and sold upon execution is whether the judgment
debtor hold such a benecial interest in the property that he can sell
or otherwise dispose of for value.30
14.

When attachment comes after a mortgage.

An attachment properly levied upon a property registered under


the Land Registration Act; once annotated, recorded, or registered in
the ofce of the Register of Deeds, affects the realty to which it refers,

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

and from the moment it is inscribed, recorded, or noted, it constitutes


a lien on the property.31 It follows that, in accordance with Section
225 of the Code of the Civil Procedure, the attaching creditor should
have been included as party defendant, he having or claiming an
interest in the premises subordinate in right to that of the holder of
the mortgage.32
15.

Attachment, how continued, reduced, or discharged.

Attachment and liens of every description upon registered land


shall be continued, reduced, discharged, and dissolved by any method
sufcient in law, and to give effect thereof the certicate or other
instrument for that purpose shall be registered with the Register of
Deeds.33
Thus, it is also provided in Section 76 of Act No. 496 that
whenever an attachment on mesne process is continued, reduced,
dissolved, or otherwise affected by an order, decision or judgment of
the court in which the action or proceeding in which said attachment
was made is pending, or by the order of any judge or court having
jurisdiction thereof, a certicate of the entry of such order, decision,
or judgment from the clerk of the court or judge by which such order,
decision, or judgment has been rendered, and under the seal of the
court or judge, shall be entitled to be registered on presentation to
the Register of Deeds.
16.

Attachment for recovery of debt confers no real right under


Spanish Mortgage Law.

An attachment obtained under the Spanish Mortgage Law


by virtue of a judgment for the recovery of a debt not secured by a
mortgage does not confer real right. It is the general opinion that
when a person, by virtue of a judgment for the recovery of a debt not
supported by a mortgage, secured an attachment against property
which turns out to have been previously sold, although the purchaser

31
32
30

Planas v. Phil. Nat. Bank, 57 O.G. 6, Feb. 6, 1961, CA.

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

REGISTRATION OF LAND TITLES AND DEEDS

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

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

17.

Registration of execution sale.

In order to enforce a lien of any description on registered land,


Section 74 of P.D. No. 1529 provides that whenever registered land
is sold on execution, or taken or sold for taxes or for any assessment,
or to enforce a lien of any character, or for any costs and charges
incident to such liens, any execution, or copy of execution, any ofcers return, or any deed, demand, certicate, or afdavit or 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 of title, in each case, as an adverse
claim or encumbrance.
An auction sale of property made pursuant to a levy of execution should be recorded in the ofce of the Register of Deeds. The
twelve-month redemption period provided by law commences to run
not from the date of the sale but from the registration of the same.
Consequently, until after the expiration of this period, the buyer is
not yet the absolute owner of the property; he has no right to the possession of the same, and if rents were collected by him, those rents
shall be a credit upon the redemption money to be paid in accordance with Section 30, Rule 39 of the Rules of Court.39
18.

Auction sale retroacts to date of attachment lien.

For purposes of determining preference of rights between two


or more lienholders of the same property, an auction sale made by
virtue of a preliminary attachment duly recorded retroacts to the date
of the attachment lien. The preference enjoyed by the lien of attachment would be meaningless and illusory if preference should not, in
like manner, be given to the auction sale. It was for this reason that
the Supreme Court invariably held that the auction sale retroacts to
the date of attachment.40
The above doctrine was reiterated in a subsequent case,41 ruling
that a levy on execution duly registered takes precedence over a prior

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

Garcia v. Ocampo, 105 Phil. 1102.


Philippine Executive Commission v. Abadilla, et al., 74 Phil. 68.
Defensor, et al. v. Brillo, et al., 98 Phil. 427.

465

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

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.

the interests of the judgment debtor in a certain tract of land, and


paid his money for the same, and meanwhile suit is brought to recover
the land, and he is defeated in the suit, he has no right to recover his
money back, because he has paid that much for the interests that the
particular judgment debtor had in that tract of land.44

In case of conict between the rights under two attachments


pursuant to which execution sales were subsequently held, the
property involved being registered under the Torrens system, the
priority is generally determined by the priority of registration not of
the execution sales but of the attachment. The auction sales being
merely the completion of the attachment liens, should relate back to
the latter and enjoy the same priority.42
19.

Purchasers risks at auction sale.

While it is true that the rights acquired by the purchaser in an


auction sale pursuant to an attachment retroact to the date of the
attachment lien, where prior thereto there have been registered other
liens or encumbrances, said purchaser is bound to abide by the nal
outcome in the enforcement of such liens or encumbrances. Thus,
it was held that the purchaser at an execution sale should bear in
mind that the rule of caveat emptor applies to such sales, that the
Sheriff does not warrant the title to the real property sold by him as
the auctioneer, and that it is neither incumbent upon him to place
the purchaser in possession of the subject property.43
In effect, at a sheriffs sale the land actually sold is not necessarily that as described and advertised in the notice of sale, although
that is a common acceptation, but only so much of the rights or
interests which the judgment debtor may or might have in the land
being offered for sale, and if the purchaser buys the judgment debtors
interests therein and it afterwards develops that he has none, the
purchaser is still liable on his bid because he has offered so much for
such interests in open market, so that it is for the purchaser to determine at his own risk before he bids what such interests are worth.
Hence, even if it should appear that at a sheriffs sale one has bought

42
43

Asturias sugar Central v. Segovia, 109 Phil. 383.


Pabico v. Ong Pauco, 43 Phil. 572.

466

20.

Assignment in payment of judgment debt.

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.

Tax sale procedure one in personam.

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

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

be deprived of his right.46 Notice by publication, which is sufcient


in proceedings in rem, does not as a rule satisfy the requirements of
proceedings in personam.

landowner is summoned by publication, he should be sent personal


notice of the delinquency and of the necessity to answer, mailed to
his last known address. This is in accordance with the provisions of
Rule 14, Section 17 of the Rules of Court, taken from Section 399 of
the Code of Civil Procedure, referring to publication of summons in
a civil action, mentioned in Section 13 of the Irrigation Act.49

Thus, under Section 35 of Commonwealth Act No. 470, notice


of the public sale must be given to the delinquent taxpayer. This has
reference to the registered owner liable to pay taxes, although the
delinquent property remains assessed in the name of a former owner.
There can be no reason, it is pointed out, why a Torrens title which
binds the whole world cannot at least charge the government which
has issued it with notice thereof. Although the taxpayer may be criticized for his failure to have the land transferred in his name in the
assessment record, that circumstance nevertheless cannot supplant
the absence of notice. Of course, it is the duty of any person acquiring
real property to prepare and submit a tax declaration within sixty
days under Section 12 of Commonwealth Act No. 470, but it is no less
true under Section 14 of the same Act that when the owner refuses or
fails to make the required declaration, the provincial assessor should
himself declare the property in the name of the defaulting owner.47
Variance in the description of the property stated in the notice of
tax sale from that appearing in the certicate of title, with respect to
boundaries, location and area, is fatal, and the proceeding in such a
case does not really give to the registered owner the notice demanded
by the requirements of due process.48
22.

Enforcement of irrigation charges likewise in personam.

While the proceeding provided by law in the enforcement of


the Government lien on lands by reason of irrigation fees is a little
different from that followed in connection with the enforcement of
realty tax lien, for the protection of the landowner delinquent in the
payment of said irrigation fee, the better rule is that said proceeding
be considered in personam in the sense that, although the delinquent

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.

Tax sale in Manila a deviation from rule; anomaly now corrected.

We have had a number of cases decided, involving lands in the


City of Manila, which deviated from the rule. It was held therein that
in the sale of real estate in the City of Manila to satisfy delinquent
taxes, under the provisions of Sections 2497 and 2498 of the Revised
Administrative Code, as amended by Act No. 4173, it is not necessary
that the delinquent taxpayer or anyone holding or owning the delinquent property be notied of the sale. It is sufcient for the validity
of the tax sale that it is advertised and that said advertisement is
accomplished by posting a notice at the main entrance of the public
building and in a public and conspicuous place in the district in which
the property lies, and by publication in a newspaper.50
In the other case, where the same ruling was reiterated, the
Supreme Court expressed itself in sympathy with the delinquent
taxpayer who was not personally notied of the sale of her property,
but maintains that the law is positive and leaves no choice; that it is
admittedly harsh and drastic but at the same time it is a necessary
means of insuring the prompt collection of taxes so essential to the
life of the government. According to the court, it is the categorical
mandate of the law which she is presumed to know and which makes
it the duty of each person acquiring real estate in the city to make
a new declaration thereof, with the advertence that failure to do so
shall make the assessment in the name of the previous owner valid
and binding on all persons interested, and for all purposes, as though
the same had been assessed in the name of its actual owner.51

49
50
51

Gatmaitan v. Director of Public Works, 109 Phil. 581.


Valbuena v. Reyes v. 84 Phil. 676.
Paguio v. Rosado de Ruiz, 93 Phil. 306.

469

REGISTRATION OF LAND TITLES AND DEEDS

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.

Due process of law in tax sale.

The law does not create a presumption of the regularity of


any administrative action which results in depriving a citizen or
taxpayer of his property, but, on the contrary, the due process of law
to be followed in tax proceedings must be established by proof, and
the general rule is that the purchaser of a tax title is bound to take
upon himself the burden of showing the regularity of all proceedings
leading up to the sale.54

Title acquired in tax sale.

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.

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

Tax lien superior to attachment.

Even assuming that an attachment is valid and effective, yet


as a lien it is inferior or subordinate to a tax lien for Section 2497 of
the Revised Administrative Code, as amended, provides that taxes
and penalties assessed against realty shall constitute a lien thereon,
which shall be superior to all other liens, mortgages or encumbrances
of any kind whatsoever,53 Hence, a subordinate lien holder by virtue
of a registered attachment or mortgage could and should redeem the
property sold by virtue of a tax lien within the period allowed and, in
default thereof, his right as a junior encumbrancer lapses, rendering
nugatory any attempt to enforce or foreclose the encumbrance.

52
53

Lopez v. Director of Lands, 47 Phil. 23, 24, 33.


Metropolitan Water District v. Reyes, 74 Phil. 142.

470

27.

Tax sales to conform strictly to law.

The rule should be that a taxpayer should not be deprived of his


property for tax delinquency except in strict conformity with the law
authorizing and regulating tax sales. Exact and complete adherence
to the law governing tax sales is indispensable, therefore, not only
for the protection of the taxpayer, but also to allay possible suspicion
of collusion between the buyer and the public servants called upon to
enforce such laws. Where there is no evidence as to the contents of
the notice of sale, or that said notice was made in English, Spanish,
and the local dialect commonly used in the region and posted in a
public and conspicuous place in the barrio wherein the property is
situated, and at the main entrance of the provincial building, or as
to how long it was posted and, further, where it appears that the sale
was not held at the exact place designated by statute, from which
possible bidders may not have seen or noticed the sale made in the
ofce of the municipal treasurer, the validity of the tax sale cannot
be upheld.55
28.

Date of tax sale to be denitely specied.

In a case of tax delinquency sale where the notice thereof was


published that it would be held on December 15, 1940 at 9:00 a.m.
and every day thereafter, at the same place and hour until all the
properties shall have been sold to the highest bidder, our Supreme
Court ruled that such sale is invalid. Under the law (Commonwealth

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

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

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.

Necessity of registering tax sale.

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.

When period for redemption begins to run.

In cases of tax sales as well as those of other auction sales by


virtue of attachments, the statutes generally provide for a period of
one year (two years in certain cases of tax sales under Commonwealth
Act No. 470, otherwise known as the Assessment Law, as amended
by Republic Act No. 1275) for purposes of redemption. When sale
involves registered land, the problem that may confront us is: When

56
57

Cabrera v. Prov. Treasurer of Tayabas and Catigbac, 76 Phil. 780.


Metropolitan water District v. Reyes, 74 Phil. 142.

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

Philippine Executive commission v. Abadilla, et al., 74 Phil. 68.


Metropolitan Water District v. Reyes, 74 Phil. 142.

473

REGISTRATION OF LAND TITLES AND DEEDS

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.

Effect of failure to register tax sale on time.

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

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

32.

Issuance of new title to wait for expiration of period.

Upon the expiration of the time, if any, allowed by law for


redemption after registered land has been sold on any execution,
or taken or sold for the enforcement of any lien of any description,
the person claiming under the execution, or under any deed or other
instrument made in the course of the proceedings to levy such execution or enforce any lien, may petition the court for the entry of a
new certicate to him, and the application may be granted: Provided,
however, That every new certicate entered under this section shall
contain a memorandum of the nature of the proceeding on which it
is based: And Provided, further, That at any time prior to the entry
of a new certicate the registered owner may pursue all his lawful
remedies to impeach or annul proceedings under execution or to
enforce liens of any description.63
While redemption in the case of execution sale must be effected
within the time prescribed, that is, within twelve months after the
sale, there are indeed cases where, having in view the purpose sought
to be achieved by statutory provisions of this kind and principally to
promote justice and avoid injustice, courts may by reasonable construction allow redemption notwithstanding the actual expiration of
the period xed in the statute.64
Besides, in case any objection is interposed relative to the validity of the proceedings under execution, or a question is raised as to
whether or not the property attached and sold is conjugal in nature,
or that it has been constituted as a family home, which under the
law is exempt from execution, such matter should be determined and
threshed out by the court in a separate appropriate action inasmuch
as the relief provided under Section 78 of Act No. 496 (now Sec. 75 of
P.D. No. 1529) is available only where there is a unanimity among
the parties or that no serious objection is interposed by a party in
interest.65

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

REGISTRATION OF LAND TITLES AND DEEDS

33.

Who may redeem in execution sales.

The property sold on execution may be redeemed either by the


judgment debtor, or his successor in interest in the whole or any
part of the property, or by the creditor having a subordinate lien by
attachment, judgment, or mortgage on the property sold or on some
part thereof.66
As to who may be considered successor in interest of the judgment debtor for the purposes of such right of redemption, it was held
that the wife of such debtor who redeemed the property, even with
her own money, could do so as successor in interest of the conjugal
property sold on execution, because she has an inchoate right to such
conjugal property.67 By analogy, the right of a son, with respect to the
property of a father or mother, is also an inchoate or contingent interest, because upon the death of the father or the mother or both, he will
have a right to inherit said conjugal property. Now, if any holder of
an inchoate interest is a successor in interest with right to redeem a
property sold on execution, then the son is such a successor in interest, as he has an inchoate right to the property of his father.68
Under the law which permits a successor in interest to redeem
the property sold on execution, the term successor in interest generally includes one to whom the debtor has transferred his statutory
right of redemption, one to whom 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; it also includes 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.69
Redemption is proper when made by the debtors grantee or assignee, or assignee for the benet of creditors, or assignee or trustee
in insolvency proceedings.70 If, in conventional redemption, the vendor
can alienate in favor of a third person his right to redeem the property
sold, it is logical and not prohibited by law, that the judgment debtor

Rule 39, Sec. 29, Rules of Court.


Rosete v. Prov. Sheriff of Zambales, et al., 95 Phil. 560.
Director of Lands, et al. v. Jocson, 103 Phil. 889.
69
Magno v. Viola and Sotto, 61 Phil. 80.
70
21 Am. Jur. 176

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

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.

During the period of redemption a question that may arise is:


Who is entitled to the rentals of the property bought at the execution
sale? Is it the purchaser or the judgment-debtor? The rule is that if
during the period of redemption the judgment-debtor is in possession
of the property sold; he is entitled not only to retain it but also to receive its fruits, the purchaser not being entitled to its possession; but
if the property is in the possession of a tenant, it is only then that the
purchaser is entitled to receive its rents or the reasonable value for
its use and occupation. In such a case, the purchaser is accountable
for the amount thus received to the judgment-debtor when he effects
the redemption. But where the judgment-debtor has failed to redeem
within the prescribed one-year period and the property was leased
to different tenants and was not possessed by the judgment-debtor,
it follows that the purchaser is entitled to the rentals that had accrued during the period of redemption and he is not at all accountable
therefor to the judgment-debtor.72
35.

Cancellation of certicate of title and issuance of new one.

The Court of First Instance (now Regional Trial Court), in the


exercise of its powers as a land registration tribunal, has special and
limited jurisdiction. But this does not argue against the existence of
the power of such a court to order the cancellation of certicates of
title and the issuance of new ones. Specic authority for this purpose
is found in Sections 78 and 112 of the Land Registration Act.73
The court, under the provisions of Sections 78 and 112 of the
Land Registration Act, has the authority to decide whether or not the
cancellation of the existing title and the issuance of a new certicate
of title in the name of the petitioner should be granted. The entry of
a new certicate authorized by Section 78 of the Land Registration

66
67
68

476

71
72
73

Gonzales Diez v. Delgado, et al., 37 Phil. 389.


Chan v. Espe, 111 Phil. 624.
Cordero v. Court of First Instance of Laguna, 67 Phil. 358.

477

REGISTRATION OF LAND TITLES AND DEEDS

INVOLUNTARY DEALINGS WITH REGISTERED LAND


ATTACHMENT AND OTHER LIENS

Act is not a mechanical function of the lower court, which, in the


nature of things, is empowered to pass upon and determine whether
the petition is supported by good and valid reasons. This is also true
in relation to the authority given the court under Section 112 of the
same Act.74

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.

Registration of title to land of tenant-farmers.

With a view to emancipating tenant-farmers from the bondage


of the soil and transferring to them the ownership of the land they
and their predecessors have been tilling from time immemorial, Presidential Decree No. 27 was promulgated on October 21, 1972, during
the Martial Law. Under this decree, a tenant-farmer of a private
agricultural land planted to rice and/or corn is deemed the owner of
a portion thereof constituting a farm-sized farm of ve hectares if

Under the provisions of a subsequent Presidential Decree (No.


266), providing for the mechanics of registration of ownership of such
land under the Torrens system, the land transfer certicates issued
to tenant-farmers are to be led and registered, free of any fees or
charges, with the ofces of the Registers of Deeds of the city or province where the land lies, the same to be entered in the Day Book and
the corresponding memorandum thereof annotated on the certicate
of title of the landlord owner. If the land involved has never been
previously registered under the Torrens system, the land transfer
certicate is recorded in the books made and provided for such unregistered land under Act 3344 (now Sec. 113, P.D. No. 1529).
Then as soon as a tenant-farmer shall have fully complied with
the requirements prescribed by Presidential Decree No. 27, including the payment of the full amount of the price of the land, to him is
issued an Emancipation Patent which, upon being led with the Register of Deeds, shall be the basis of a transfer certicate of title issued
under the Torrens system in the name of the tenant-farmer, setting
forth therein the description and extent of the farmland belonging
to him in accordance with a duly approved survey plan. An original
certicate of title is also issued to such land even if the same has not
yet been originally registered under the Torrens system.
oOo

Reyes v. Evangelista, 71 Phil. 487.


Valbuena, et al. v. Reyes, et al., 84 Phil. 676.
Cavan v. Wislizenus, 48 Phil. 632, Alto Surety & Insurance Co. v. Limcaco,
105 Phil. 295.
74
75
76

478

479

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