PEOPLES BANK V.

DAHICAN
PONENTE: DIZON,J
DATE: May 16, 1967
SUBJECT MATTER: Chattel mortgagesubject matter: machinery
I. FACTS
A. Dahican lumber company (DAMCO)
obtained several loans amounting to
250,000pesos from Peoples bank
(BANK) and ,together with DALCO,
another loan amounting to$250,000
from Export-Import bank secured by
five promissory notes through peoples
bank. Inboth loans, DAMCO executed
and registered respective mortgages
with inclusion of after acquired
properties. DAMCO and DALCO failed
to satisfy the fifth promissory note in
favor ofExport bank so Peoples bank
paid it and subsequently filed an
action for the foreclosure ofthe
mortgaged properties of DAMCO
including the after acquired
machinery, equipmentand spare parts
upon the latter's failure to fulfill its
obligation.
B. Contention of the Petitioner
Peoples bank asserted that the after
acquired machinery and equipment
of DAMCO are subject to the deed of
mortgage executed by DAMCO. Hence,
these can be included in the
foreclosure proceedings.
C. Contentions of the Respondent
DALCO argued that the mortgages
were void as regards the after
acquired properties because they were
not registered in accordance with the
chattel mortgage law. Moreover,
provision of the fourth paragraph of
each of said mortgages did not
automatically make subject to such
mortgages the "after acquired
properties", the only meaning thereof
being that the mortgagor was willing
to constitute a lien over such
properties.

II. ISSUES TO BE RESOLVED

Whether the after acquired
machinery and equipment of DAMCO
are included as subject of the Real
Estate mortgage, thus can be
foreclosed.
III. RULING OF THE SUPREME COURT
Judgment rendered in favor of Plaintiff
Peoples bank. The after acquired
machinery and equipment are
included in the executed mortgages. It
is not disputed in the case at bar that
the "after acquired properties" were
purchased by DALCO in connection
with, and for use in the development
of its lumber concession and that they
were purchased in addition to, or in
replacement of those already existing
in the premises on July 13, 1950. In
Law, therefore, they must be deemed
to have been immobilized, with the
result that the real estate mortgages
involved herein which were
registered as such did not have to be
registered a second time as chattel
mortgages in order to bind the "after
acquired properties" and affect third
parties. Under the fourth paragraph of
both deeds of mortgage, it is crystal
clear that all property of every nature
and description taken in exchange or
replacement, as well as all buildings,
machineries, fixtures, tools,
equipments, and other property that
the mortgagor may acquire, construct,
install, attach; or use in, to upon, or in
connection with the premises that is,
its lumber concession "shall
immediately be and become subject to
the lien" of both mortgages in the
same manner and to the same extent
as if already included therein at the
time of their execution. As the
language thus used leaves no room for
doubt as to the intention of the
parties, We see no useful purpose in
discussing the matter extensively.

Suffice it to say that the stipulation

referred to is common, and
We might say logical, in all cases
where the properties given as
collateral are perishable or subject to
inevitable wear and tear or were
intended to be sold, or to be used
thus becoming subject to the
inevitable wear and tear but with the
understanding express or implied
that they shall be replaced with others
to be thereafter acquired by the
mortgagor. Such stipulation is neither
unlawful nor immoral, its obvious
purpose being to maintain, to the
extent allowed by circumstances, the
original value of the properties given
as security. Indeed, if such properties
were of the nature already referred to,
it would be poor judgment on the part
of the creditor who does not see to it
that a similar provision is included in
the contract.
ISAGUIRRE V. DE LARA
Doctrine: As a general rule, the
mortgagor retains possession of the
mortgaged property since a mortgage
is merely a lien and title to the
property does not pass to the
mortgagee. However, even though a
mortgagee does not have possession
of the property, there is no impairment
of his security since the mortgage
directly and immediately subjects the
property upon which it is imposed,
whoever the possessor may be, to the
fulfillment of the obligation for whose
security it was constituted. If the
debtor is unable to pay his debt, the
mortgage creditor may institute an
action to foreclose the mortgage,
whether judicially or extra judicially,
whereby the mortgaged property will
then be sold at a public auction and
the proceeds there from given to the
creditor to the extent necessary to
discharge the mortgage loan.

Facts: Alejandro de Lara was the

original applicant-claimant for a
Miscellaneous Sales Application over a
parcel of land identified as portion of
Lot 502, Guianga Cadastre, filed with
the Bureau of Lands with an area of
2,342 square meters. Upon his death,
his wife respondent Felicitas de Lara,
as claimant, succeeded Alejandro de
Lara. The Undersecretary of
Agriculture and Natural Resources
amended the sales application to
cover only 1,600 square meters. By
virtue of a decision rendered by the
Secretary of Agriculture and Natural
Resources, a subdivision survey was
made and the area was further
reduced to 1,000 square meters. On
this lot stands a two-story residentialcommercial apartment declared for
taxation purposes in the name of
respondents sons Apolonio and
Rodolfo, both surnamed de Lara.
Respondent obtained several loans
from the Philippine National Bank.
When she encountered financial
difficulties, respondent approached
petitioner Cornelio M. Isaguirre, who
was married to her niece, for
assistance. A document denominated
as Deed of Sale and Special Cession
of Rights and Interests was executed
by respondent and petitioner, whereby
the former sold a 250 square meter
portion of Lot No. 502, together with
the two-story commercial and
residential structure standing thereon,
in favor of petitioner, for and in
consideration of the sum of P5,000.
Apolonio and Rodolfo de Lara filed a
complaint against petitioner for
recovery of ownership and possession
of the two-story building. However, the
case was dismissed for lack of
jurisdiction. Petitioner filed a sales
application over the subject property
on the basis of the deed of sale. His
application was approved, resulting in
the issuance of Original Certificate of
Title, in the name of petitioner.

Meanwhile, the sales application of

respondent over the entire 1,000
square meters of subject property
(including the 250 square meter
portion claimed by petitioner) was also
given due course, resulting in the
issuance of Original Certificate of Title,
in the name of respondent.
Due to the overlapping of titles,
petitioner filed an action for quieting
of title and damages with the RTC of
Davao City against respondent. After
trial on the merits, the trial court
rendered judgment, in favor of
petitioner, declaring him to be the
lawful owner of the disputed property.
However, the Court of Appeals
reversed the trial courts decision,
holding that the transaction entered
into by the parties, as evidenced by
their contract, was an equitable
mortgage, not a sale. The appellate
courts decision was based on the
inadequacy of the consideration
agreed upon by the parties, on its
finding that the payment of a large
portion of the purchase price was
made after the execution of the deed
of sale in several installments of
minimal amounts; and finally, on the
fact that petitioner did not take steps
to confirm his rights or to obtain title
over the property for several years
after the execution of the deed of sale.
As a consequence of its decision, the
appellate court also declared Original
Certificate issued in favor of petitioner
to be null and void. This Court affirmed
the decision of the Court of Appeals,
we denied petitioners motion for
reconsideration.
Respondent filed a motion for
execution with the trial court, praying
for the immediate delivery of
possession of the subject property,
which motion was granted.
Respondent moved for a writ of
possession. Petitioner opposed the
motion, asserting that he had the right
of retention over the property until

payment of the loan and the value of

the improvements he had introduced
on the property. The trial court granted
respondents motion for writ of
possession. The trial court denied
petitioners motion for
reconsideration. Consequently, a writ
of possession, together with the
Sheriffs Notice to Vacate, was served
upon petitioner.
Issue: Whether or not the mortgagee
in an equitable mortgage has the right
to retain possession of the property
pending actual payment to him of the
amount of indebtedness by the
mortgagor.
Held: A mortgage is a contract
entered into in order to secure the
fulfillment of a principal obligation.
Recording the document, in which it
appears with the proper Registry of
Property, although, even if it is not
recorded, the mortgage is
nevertheless binding between the
parties, constitutes it. Thus, the only
right granted by law in favor of the
mortgagee is to demand the execution
and the recording of the document in
which the mortgage is formalized. As a
general rule, the mortgagor retains
possession of the mortgaged property
since a mortgage is merely a lien and
title to the property does not pass to
the mortgagee. However, even though
a mortgagee does not have
possession of the property, there is no
impairment of his security since the
mortgage directly and immediately
subjects the property upon which it is
imposed, whoever the possessor may
be, to the fulfillment of the obligation
for whose security it was constituted.
If the debtor is unable to pay his debt,
the mortgage creditor may institute an
action to foreclose the mortgage,
whether judicially or extrajudicially,
whereby the mortgaged property will
then be sold at a public auction and

the proceeds there from given to the

creditor to the extent necessary to
discharge the mortgage loan.
Apparently, petitioners contention
that to require him to deliver
possession of the Property to
respondent prior to the full payment of
the latters mortgage loan would be
equivalent to the cancellation of the
mortgage is without basis. Regardless
of its possessor, the mortgaged
property may still be sold, with the
prescribed formalities, in the event of
the debtors default in the payment of
his loan obligation. A simple mortgage
does not give the mortgagee a right to
the possession of the property unless
the mortgage should contain some
special provision to that effect.
Regrettably for petitioner, he has not
presented any evidence, other than
his own gratuitous statements, to
prove that the real intention of the
parties was to allow him to enjoy
possession of the mortgaged property
until full payment of the loan. The trial
court correctly issued the writ of
possession in favor of respondent.
Such writ was but a necessary
consequence of affirming the validity
of the original certificate of title in the
name of respondent Felicitas de Lara,
while at the same time nullifying the
original certificate of title in the name
of petitioner Cornelio Isaguirre.
Possession is an essential attribute of
ownership; thus, it would be
redundant for respondent to go back
to court simply to establish her right to
possess subject property.
LITONJUA V. L & R CORP
FACTS: This stems from loans obtained
by the
spouses Litonjua from L&RCorporation
in the aggregate sum of P400,000.00;
P200,000.00 of which was obtained on
August 6, 1974 and the remaining
P200,000.00obtained on March 27,
1978. The loans were secured by a

mortgage constituted by the spouses

upon their two parcels of land and
theimprovements thereon. The mortga
ge was duly registered with the
Register of
Deeds.Spouses Litonjua sold to Philippi
ne White House Auto Supply, Inc.
(PWHAS) the parcels of land they had
previously mortgaged to L & R
Corporation for the sum of
P430,000.00. Meanwhile, with the
spousesLitonjua having defaulted in th
e payment of their loans, L & R
Corporation initiated extrajudicial
foreclosure proceedings with the ExOficio Sheriff of Quezon City. The
mortgaged properties were sold at
public auction to L & R Corporation as
the only bidder for the amount of
P221,624.58.On April 22, 1981, L & R
Corporation wrote a letter to the
Sheriff, copy furnished to the Register
of Deeds, stating: (1) that the sale of
themortgaged properties to PWHAS w
as without its consent, incontravention
of paragraphs 8 and 9 of their Deed of
Real EstateMortgage; and (2) that it
was not the spouses Litonjua, but
PWHAS,who was seeking to redeem th
e foreclosed properties, when underArt
icles 1236 and 1237 of the New Civil
Code, the latter had no legal
personality or capacity to redeem the
same. On the other hand, the spouses
Litonjua asked the Register of Deeds
to annotate their Certificate of
Redemption as an adverse claim on
the titles of the subject properties on
account of the refusal of L & R
Corporation to surrender the owners
duplicate copies of the titles to the
subject properties. With the refusal of
the Register of Deeds to annotate their
Certificate of Redemption, the Litonjua
spouses filed a Petition on July 17,
1981 against L & R Corporation for the
surrender of the owners duplicate of
Transfer Certificates of Title No.
197232 and197233 before the then
CFI.

ISSUE: WON there was a Valid and

enforceable stipulation granting the
mortgagee the right of first refusal.
HELD: While petitioners question the
validity of paragraph 8 of their
mortgage contract, they appear to be
silent insofar as paragraph 9 thereof is
concerned. Said paragraph 9 grants
upon L & R Corporation the right
Limpin v. IAC
Facts: Four lots were mortgaged by the
spouses Jose and Marcelina Aquino to
Guillermo Ponce and his wife
Adela (since deceased) as security for
a loan of P2,200,000.00. The
mortgages were registered. Two of the
lots, those covered by TCTs Nos.
92836 and 92837, were afterwards
sold by the Aquinos to the Butuan Bay
Wood Export Corporation, which
caused an adverse claim to
be annotated on the certificates of
title. Gregorio Y. Limpin, Jr. obtained a
money judgment against Butuan Bay
Wood Export Corporation in Court of
First Instance of Davao. To satisfy the
judgment, the lots covered by TCTs
Nos. 92836 and 92837 were levied
upon on and sold at public auction to
Limpin as the highest bidder for the
sum of P517,485.41.On order of the
trial court, the covering titles were
cancelled and issued to Limpin. Limpin
sold the two lots to Rogelio M.
Sarmiento. By virtue of said sale, TCTs
Nos. 285450 and285451 were
cancelled on November 4, 1983, and
TCTS were replaced in Sarmiento's
name. Ponce filed suit against the
Aquino spouses for judicial foreclosure
of the mortgage over the Aquinos' four
lots. Judgment was rendered in favor
of Ponce. After the judgment became
final, the Trial Court, directed the sale
at public auction of the 4 mortgaged
lots to satisfy the judgment. The 4
lots, including those formerly covered

by TCTs Nos.92836 and 92837, were

sold to Ponce himself whose bid was
the highest and exactly correspond to
the judgment debt. On the same day,
the sheriff's certificate of sale was
registered. Ponce then moved for the
confirmation of the sale and the
issuance of a writ of possession in his
favor covering the four lots. But the
Trial Court confirmed only the sale of
the lots covered by TCTs Nos. 02839
and 92840, refusing to confirm the
sale or issue a writ of possession in
regard to the lots covered by TCTs Nos.
92836 and 92837 on the ground that
those titles had already been
cancelled and new ones issued to
Gregorio F. Limpin. Limpin refused to
participate in the hearings contending
that the Court had no jurisdiction over
his person; but he did comment that
the mortgage over the lots covered
by TCTs Nos. 92836 and 92837 had
been released by Ponce by virtue of a
"Partial Release of Real Estate
Mortgage". The Trial Court denied
Ponce's motion for reconsideration,
whereupon he sought corrective relief
by filing a special civil action for
certiorari and mandamus in the
Intermediate Appellate Court,
impleading Limpin and Sarmiento, as
private respondents. IAC set aside the
judgment of the Trial Court and issue a
writ of possession to Ponce with
respect thereto, subject to Sarmiento's
equity of redemption.
Issue: Whether or not IAC erred in
according superiority to the mortgage
rights of Ponce over the levy and sale
in favor of Limpin and the subsequent
sale to Sarmiento.
Held: NO. The superiority of the
mortgagee's lien over that of a
subsequent judgment creditor is now
expressly provided in Rule 39, Section
16 of the Revised Rules of Court,
which states with regard to the effect

of levy on execution that it shall create

a lien in favor of a judgment creditor
over the right title and interest of the
judgment debtor in such property at
the time of the levy, subject to the
liens or encumbrances then existing.
Using jurisprudence in Santiago v
Dionisio, the Court in that case held
that:... [T]he effect of the failure
to implead a subordinate lienholder or
subsequent purchaser or both is to
render the foreclosure ineffective as
against them, with the result that
there remains in their favor the "un
foreclosed equity of redemption." But
the foreclosure is valid as between the
parties to the suit. Applied to this
case, this means that the sale to
Ponce, as the highest bidder in the
foreclosure sale of the two lots in
question should have been confirmed,
subject to Limpin's (and now
Sarmiento's equity to redemption. The
registration of the lands, first in the
name of Limpin and later
of Sarmiento, was premature. At most
what they were entitled to was the
registration of their equity
of redemption. It is well settled that a
recorded mortgage is a right in rem,
alien on the property whoever its
owner may be. The recordation of the
mortgage in this case puts the whole
world on constructive notice of its
existence and warned everyone who
thereafter dealt with the property on
which it was constituted that he would

have to reckon with that

encumbrance. Hence, Limpin's
subsequent purchase of the "interests
and participation" of Butuan Bay Wood
Export Corporation in the lots covered
by TCTs Nos. 92836 and92837, as well
as the sale of the same to Sarmiento
were both subject to said mortgage.-Additional rulings not related to topic:*
The fact that at the time Ponce
foreclosed the mortgage on October
21, 1983, the lots had already been
bought by Limpin and subsequently
sold to Sarmiento is of
no consequence, since the settled
doctrine is that the effects of the
foreclosure sale retroact to the date
of registration of the mortgage, i.e.,
March 1, 1973 in the present case.* As
regards the claim that Ponce executed
a deed of partial release of his
mortgage on July 20, 1977, the
evidence discloses that Ponce and Jose
Aquino, the mortgagor, thereafter
executed separate affidavits dated
December 1,1983, stating that the
said partial release was void, not only
for want of consideration but also for
lack of the signatures of Ponce's two
sons who at the time of the execution
of the document, were co-mortgagees
as successors and heirs of Mrs. Adela
Ponce. Moreover, the Deed of
Partial Release was not registered but
had simply been attached.