UNION BANK OF THE PHILIPPINES vs. HON.

COURT OF APPEALS and D'ROSSA,

INCORPORATED

Facts:
In a memorandum of agreement, D'Rossa Incorporated (DRI) agreed to mortgage its parcels of land in
favor of Union Bank of the Philippines (Union Bank) as security for the credit facility of Josephine Marine Trading
Corporation (JMTC). JMTC availed P3 million from the credit line.
Subsequently, Union Bank increased the credit facility of JMTC to P27 million. Upon JMTC's failure to pay
its obligation, Union Bank instituted foreclosure proceedings on DRI's properties.
DRI's properties were auctioned where Union Bank was declared the highest bidder.
DRI filed a supplemental complaint seeking to declare the public sale as null. It claimed that its liability is
only P3 million which was the liability incurred by JMTC under its first agreement with Union Bank. However, Union
Bank alleged that DRI was liable to JMTC's total outstanding obligations, regardless of whether it was incurred
during or subsequent to the first agreement.
The Trial Court ruled in favor of UPB.
On appeal, the Court of Appeals reversed the decision of the trial court. While it upheld Union Bank's right
to foreclose, it found that DRI's mortgage liability is pegged at P3 million and which was later amended and
increased to P8.61 million. It ruled that DRI could not be held liable for more than P8.61 million even if JMTC
availed more than this amount. It also noted that the date of the public sale as contained in the notice varies with
the actual date of sale. As such, it declared as null the foreclosure sale because a foreclosure sale carried out on a
day different from the published notice is a total nullity.

Issue:

1. Whether the Court of Appeals erred in holding that the liability of DRI is limited only to P8.61 million;
2. Whether the Court of Appeals erred in finding the foreclosure sale of DRI's mortgaged properties as null
for lack of republication of the notice of sale.

Held:

1. YES.
The pertinent provisions of the Real Estate Mortgage clearly show the parties' intent to constitute DRI's
real estate properties as continuing securities, liable for the current as well as the future obligations of
JMTC. Indeed, a mortgage liability is usually limited to the amount mentioned in the contract, but where
the intent of the contracting parties is manifest that the mortgage property shall also answer for future
loans or advancements, the same is valid and binding between the parties. In this case, DRI expressly
agreed to secure all the obligations of JMTC, whether presently owing or subsequently incurred. Thus, its
liability is not limited to P8.61 million only.
A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is
specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized
and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the
nature or extent of which may not be known or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new transaction.
2. YES.
DRI did not present proof that there was no republication of the notice of sale. On the other hand, Union
Bank presented a Certificate of Posting and the Affidavit of Publication, attesting to the publication of the
notice. The original issues of Pilipino Newsline where the notice was republished were also attached in
 the records. Verily, in the face of such overwhelming evidence, there is no reason why the regularity and
validity of the mortgage foreclosure should not be upheld as the trial court did.
Foreclosure proceedings have in their favor the presumption of regularity and the burden of evidence to
rebut the same is on the party that seeks to challenge the proceedings. Likewise, the presumption of
regularity in the performance of duty applies in this case in favor of the Sheriff. These presumptions have
not been rebutted by convincing and substantial evidence by DRI.

DAVID MAGLAQUE, JOSE MAGLAQUE, MAURO MAGLAQUE and PACITA MAGLAQUE vs.
PLANTERS DEVELOPMENT BANK, and SPOUSES ANGEL S. BELTRAN AND ERLINDA C.
BELTRAN

Facts:
The spouses Egmidio Maglaque and Sabina Payawal were the owners of a parcel of land.
On March 19, 1974, the spouses Maglaque obtained a loan of (P2,000.00) pesos from the Bulacan
Development Bank 6 evidenced by a promissory note, payable in two installments, the first payment of P1,000.00,
shall be due on September 19, 1974, and the second payment of P1,000.00, shall be due on March 19, 1975, with
interest at 12% per annum. To secure the loan, the spouses executed a deed of real estate mortgage on the above-
described parcel of land, including its improvements.
On September 15, 1976, Sabina Payawal died. On December 22, 1977, Egmidio Maglaque paid Planters
Development Bank the amount of P2,000.00, which the bank accepted.
On April 9, 1979, Egmidio Maglaque died.
For non-payment in full of the loan, the bank extra-judicially foreclosed on the real estate mortgage. The
bank was the highest bidder.
After the lapse of the redemption period, the bank consolidated its title to the property, and became its
registered owner.
Defendant-Bank sold the property to the spouses Angel S. Beltran and Erlinda Beltran in a Deed of
Conditional Sale.
The Register of Deeds wrote a letter dated September 8, 1980, informing the bank about a notice of lis
pendens. However, the records of the bank show that the letter was received only on November 19, 1981. On
March 16, 1984, Spouses Angel Beltran and Erlinda Beltran registered an adverse claim on the property.
The trial rendered decision dismissing the complaint for lack of merit or insufficiency of evidence.
The Court of Appeals rendered decision affirming the appealed decision in toto.

Issue: Whether or not the Bank should have filed its claim in the settlement of the estate of the deceased
mortgagors.

Held: NO.
The rule is that a secured creditor holding a real estate mortgage has three (3) options in case of death of
the debtor. 13 These are: (1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as
an ordinary claim; (2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; (3) to rely
on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right
to file a claim for any deficiency.
Obviously, respondent bank availed itself of the third option.
E. C. McCULLOUGH & CO., INC. vs. MARIANO VELOSO and JOAQUIN SERNA, MARIANO VELOSO

Facts:
The plaintiff corporation, E. C. McCullough & Co., Inc., sold to Mariano Veloso the property known as
"McCullough Building," consisting of a land, with the building thereon, for the price of P700,000, Veloso having
paid P50,000 cash on account at the execution of the contract, the balance of P650,000 to be paid in installments,
all of said amounts to draw interest at the rate of 7 percent per annum. Veloso agreed, furthermore, to pay 10
percent of the amount of the debt, as attorney's fee, in the event that a judicial action should be necessary for the
collection of the whole or a part of the debt. To secure the payment of these amounts, Veloso mortgaged the
property purchased, this encumbrance having been noted on the certificate of title. It was, finally, stipulated that
in case of failure on the part of Veloso to comply with any of the stipulations contained in the mortgage deed, all
the installments with the interest thereon shall become due, and the creditor shall then have the right to bring the
proper action for the collection of the part of the debt.
Subsequently, Mariano Veloso sold the property to Joaquin Serna, who agreed to respect the mortgage of
the property in favor of the plaintiff and to assume Mariano Veloso's obligation to pay the plaintiff the balance due
of the estate on the respective dates when payments should be made.
Veloso paid P50,000 on account of the P650,000, and Serna made several payments up to the total sum of
P250,000. Subsequently, however, neither Veloso, nor Serna, made any payment upon the last installments, by
virtue of which delay, the whole obligation became due, and Veloso lost the right to the installments stipulated in
his contract with the plaintiff.
The defendant contends that having sold the property to Serna, and the latter having assumed the
obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property, he was
relieved from this obligation and it then devolved upon Serna to pay the plaintiff. This means that as a
consequence of the contract between the defendant and Serna, the contract between the defendant and the
plaintiff was novated by the substitution of Serna as a new debtor.

Issue: Whether or not there is novation as to relieve Veloso from liability.

Held: NO.
In order that this novation may take place, the law requires the consent of the creditor (art. 1205 of the
Civil Code). The plaintiff did not intervene in the contract between Veloso and Serna and did not expressly give his
consent to this substitution. Novation must be express, and cannot be presumed.
In connection with the contention of the defendant, the fact that the plaintiff did not oppose the sale
subsequently made by the defendant to Serna of the mortgaged property does not mean anything. The mortgage
is merely an encumbrance upon the property and does not extinguish the title of the debtor, who does not,
therefore, lose his principal attribute as owner, that is, the right to dispose. This being so, the fact that the plaintiff
recognized the efficaciousness of that sale cannot prejudice him, which sale the defendant had the right to make
and the plaintiff cannot oppose and which, at all events, could not affect the mortgage, as the latter follows the
property whoever the possessor may be.
the fact that the plaintiff has received payments from Serna on account of Veloso's debt is of no
importance, for this is, at most, a payment by a third person, which, while it may create a juridical relation
between Serna and Veloso, cannot affect the relation between the latter and the plaintiff, except that the
obligation thus paid is discharged.
 PHILIPPINE TRUST COMPANY vs. HON. COURT OF APPEALS and FORFOM DEVELOPMENT
CORPORATION
Facts:
Forfom Development Corporation is the registered owner of two (2) parcels of land subject of the present
controversy, situated in Angeles City, Pampanga, under Transfer Certificate of Title Nos. 10896 and 64884.
Sometime in 1989, plaintiff received a letter from the Department of Agrarian Reform with the names Ma. Teresa
Limcauco and Ellenora Limcauco as addressees. Upon verification with the DAR and the Register of Deeds, plaintiff
discovered that the subject properties had already been transferred in the names of said Ma. Teresa Limcauco and
Ellenora Limcauco who were never known to plaintiff or its employees. Plaintiff's Board of Directors decided to
seek the assistance of the National Bureau of Investigation (NBI) to conduct an investigation on the matter.
The results of the NBI Investigation revealed the following acts through which the subject parcels of land
were transferred in the names of Ma. Teresa Limcauco and Ellenora Vda. De Limcauco, fictitious names which
were used by defendant Honorata Dizon in the questioned transactions:
(1)A "Deed of Absolute Sale" was executed over the lot covered by TCT No. 64884 in favor of Ellenora Vda.
De Limcauco for the price of P500,000.00. A separate "Deed of Absolute Sale" was likewise executed over the
property covered by TCT No. 10896 in favor of Ma. Teresa Limcauco in consideration of P500,000.00. In both
instruments, the signature of the plaintiff's President, Felix H. Limcauco was forged. Likewise, a certification to the
effect that plaintiff's Board of Directors had duly approved the sale contained the forged signature of plaintiff's
President, Felix H. Limcauco.
(2)A petition for issuance of owner's duplicate copy was filed with the Regional Trial Court by Ellenora
Limcauco who allegedly lost said owner's duplicate copy of TCT No. 64884. A separate petition for the issuance of a
new owner's duplicate copy was filed with the same court by counsel for Ma. Teresa Limcauco who allegedly lost
the owner's duplicate copy of TCT No. 10896. After due hearing, the court granted the petition which directed the
Register of Deeds to issue another owner's duplicate copy of TCT No. 10896 in place of the lost one.
(3)TCT No. 10896 was cancelled and TCT No. 82760/T-414 was issued in the name of Ma. Teresa Limcauco
who had the property subdivided into different lots. As to TCT No. 64884, this was also cancelled by the Register of
Deeds of Angeles City, Honesto G. Guarin, by virtue of a purported court order issued by Judge Eliodoro B. Guinto
of RTC. Also appearing as Entry No. 1127 in TCT No. 64884 is the "Secretary's Certificate" in favor of Felix H.
Limcauco and Entry No. 1128 which is the sale in favor of Ellenora Limcauco. However, the copy of the court order
presented to said Register of Deeds was not signed by Judge Guinto who had denied before the NBI authorities
having signed such order or having conducted hearing on said case. The copy submitted to the Register of Deeds
was merely stamped "Original Signed." Another document certifying that the Order granting the petition had
become final and executory was also submitted to the Register of Deeds in connection with the cancellation of TCT
No. 64884. However, then Branch Clerk of Court Benedicto A. Pineda testified that he did not sign said certification
and neither had he been aware of the proceedings. Atty. Pineda's signature on said certification appears to have
been falsified by one Lorenzo San Andres.
(4)Although the property covered by TCT No. 10896 has already been subdivided into different lots and
covered by separate titles in the name of Ma. Teresa Limcauco, said lots were not yet transferred or conveyed to
third parties. But as to the property covered by TCT No. 64884, said certificate of title was cancelled and a new
certificate of title, TCT No. 75436/T-378 was issued in the name of Ellenora Vda. De Limcauco. a Deed of Absolute
Sale was executed by Ellenora Vda. De Limcauco in favor of defendant Raul P. Claveria whereby the property
covered by TCT No. 64884 was supposedly sold to said defendant for the sum of P5,139,126.00. Spouses Raul and
Elea Claveria mortgaged the property with the defendant Philippine Trust Company to guarantee a loan in the
amount of P8,000,000.00.
Plaintiff instituted the present action against the defendants Ma. Teresa Limcauco, Ellenora D. Limcauco,
spouses Raul P. Claveria and Elea R. Claveria, Philippine Trust Company and the Register of Deeds of Angeles City.
The Complaint alleged conspiratorial acts committed by said defendants who succeeded in causing the fraudulent
transfer of registration of plaintiff's properties in the names of Ma. Teresa Limcauco and Ellenora D. Limcauco and
the subdivision of the land covered by TCT No. 10896 over which separate titles have been issued.
Plaintiff alleged that (1) the supposed court Order directing the issuance of another owner's duplicate
copy actually did not exist, copy of said Order not bearing either the signature of the judge or his branch clerk of
court as well as the court seal, and yet accepted at face value in conspiracy or at least negligently, by defendant
Register of Deeds of Angeles City, not to mention the haste, among other signs of conspiracy, with which said new
owner's duplicate copy of the title was issued; (2) the mortgage executed by defendant-spouses Claveria in favor
of defendant bank was characterized by irregularities, the bank having extended a loan in the amount of P8
million, far in excess of the property's market value of P2,855,070.00, as well as the haste in which said loan was
granted.
In its Answer, defendant Philippine Trust Company denied the allegations of the Complaint as to the
irregularities in the granting of the P8 million loan to defendant-spouses Raul and Elea Claveria. According to said
defendant, the Claveria spouses have been their clients since 1986 and on October 2, 1987, all their outstanding
obligations in the amount of P7,300,000.00 were consolidated into one (1) account on clean basis. Defendant bank
had required the Claveria spouses to secure their clean loan of P7,300,000.00 with a real estate mortgage, and
hence on October 21, 1987, said spouses executed mortgage on real property covered by TCT No. 75533 for an
obligation of P8 million after securing an advance from the defendant bank in the amount of P700,000.00. It had
subjected the land offered as security to the usual bank appraisals and examined the genuineness and authenticity
of TCT No. 75533 with the Register of Deeds of Angeles City and found the same to be in existence and in order.
The RTC rendered its Decision in favor of private respondent Forfom Development Corporation.
The Court of Appeals rendered the assailed Decision affirming the Decision of the RTC.
According to the Court of Appeals, Philtrust was negligent in its credit investigation procedures and its
standards for granting of loans, as shown by (a) its previously extending unsecured and uncollateralized loans to
the spouses Raul and Elea Claveria, and (b) its failure to discover the latter's statement of a fictitious address in the
mortgage contract and being the subject of estafa cases. The Court of Appeals agreed with the trial court's finding
that Philtrust acted in haste in the execution of the mortgage and loan contracts, as the property, assessed only at
more than P2 million and allegedly purchased at more than P5 million, was made to secure the principal loan
obligation of P8 million.

Issue: Whether or not Philtrust is a mortgagee in good faith.

Held: NO.
It is settled that banks, their business being impressed with public interest, are expected to exercise more
care and prudence than private individuals in their dealings, even those involving registered lands. The rule that
persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.
Consequently, Philtrust should prove that it exercised extraordinary diligence required of it in approving the
mortgage contract in favor of the spouses Claveria.
Philtrust, presented no evidence rebutting the following badges of bad faith shown in the records of the
case. The following adequately prove by preponderance of evidence that Philtrust was aware of the fraudulent
scheme perpetrated upon Forfom: (1)Within a period of less than one year, Philtrust extended unsecured loans
amounting to P7,300,000.00 to the spouses Claveria; (2) Although the spouses Claveria had declared their
residence to be in the plush subdivision in Ayala Alabang, Philtrust was content to receive as security a land
outside Metro Manila, which was only recently acquired by the said spouses. (3) It is presumed that evidence
willfully suppressed would be adverse if produced. 34 When pressed in the Request for Interrogatories for details
of the investigation of the bank, and for the names of the persons who allegedly visited the subject property and
the alleged home of the spouses Claveria, and the names of the bank officers who dealt with said spouses,
Philtrust refused to do so; (4) Philtrust persistently refused to cooperate with the National Bureau of Investigation
(NBI) in its investigation of the fraudulent scheme perpetrated against Forfom, as testified by NBI agents; and (5)
Had Philtrust properly conducted a credit investigation of the spouses Claveria, it would have easily discovered
that they did not reside and never resided in the address declared by them, as revealed in the investigation by the
NBI 44 and declared by the association of homeowners in the New Alabang subdivision.

Note: Philtrust contended that answers to interrogatories since notarized, has the presumption of regularity being
a public document. However the SC ruled that the presumption of regularity with respect to notarized documents
only refers to the date of execution and that it is sworn and ascribed by the notarial officer, and not to the
conclusiveness of the facts indicated therein.

PHILIPPINE NATIONAL BANK vs. SPOUSES BERNARD and CRESENCIA MARAÑON

Facts:
The controversy at bar involves a parcel of land erected with a building leased by various tenants. The
subject lot was among the properties mortgaged by Spouses Rodolfo and Emilie Montealegre (Spouses
Montealegre) to PNB as a security for a loan. In their transactions with PNB, Spouses Montealegre used Transfer
Certificate of Title (TCT) No. T-156512 over the subject lot purportedly registered in the name of Emilie
Montealegre.
When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings on the
mortgaged properties, including the subject lot. In the auction sale, PNB emerged as the highest bidder.
Before the expiration of the redemption period, Spouses Marañon filed before the RTC a complaint
against Spouses Montealegre, PNB, the Register of Deeds of Bacolod City and the Ex-Officio Provincial Sheriff of
Negros Occidental. The complaint alleged that Spouses Marañon are the true registered owners of the subject lot
by virtue of TCT No. T-129577 which was illegally cancelled by TCT No. T-156512, under the name of Emilie who
used a falsified Deed of Sale bearing the forged signatures of Spouse Marañon.
In its Answer, PNB averred that it is a mortgagee in good faith and for value and that its mortgage lien on
the property was registered thus valid and binding against the whole world.
While the trial proceedings were ongoing, (Tolete), one of the tenants of the building erected on the
subject lot deposited his rental payments with the Clerk of Court which amounted to P144,000.00.
the RTC rendered its Decision in favor of the respondents after finding that the signatures of Spouses
Marañon in the Deed of Sale presented by Spouses Montealegre before the Register of Deeds to cause the
cancellation of TCT No. T-129577 were forged. Hence, the RTC concluded the sale to be null and void and as such it
did not transfer any right or title in law. PNB was adjudged to be a mortgagee in good faith whose lien on the
subject lot must be respected.
Spouses Marañon filed an Urgent Motion for the Withdrawal of Deposited Rentals 15 praying that the
P144,000.00 rental fees deposited by Tolete with the Clerk of Court be released in their favor for having been
adjudged as the real owner of the subject lot which was granted.
Spouses Marañon again filed with the RTC an Urgent Ex-Parte Motion for Withdrawal of Deposited
Rentals praying that the P30,000.00 rental fees paid to PNB by Tolete on December 12, 1999 be released in their
favor which was granted.

Issue: Whether or not the Spouses Maranon is entitled to the Rents of the subject lot.

Held: YES.
 Rent, as an accessory follow the principal. In fact, when the principal property is mortgaged, the mortgage
shall include all natural or civil fruits and improvements found thereon when the secured obligation becomes due
as provided in Article 2127 of the Civil Code.
Consequently, in case of non-payment of the secured debt, foreclosure proceedings shall cover not only
the hypothecated property but all its accessions and accessories as well.
However, the rule is not without qualifications. The Court explained that Article 2127 is predicated on the
presumption that the ownership of accessions and accessories also belongs to the mortgagor as the owner of the
principal. After all, it is an indispensable requisite of a valid real estate mortgage that the mortgagor be the
absolute owner of the encumbered property.
Otherwise stated, absent an adverse claimant or any evidence to the contrary, all accessories and
accessions accruing or attached to the mortgaged property are included in the mortgage contract and may thus
also be foreclosed together with the principal property in case of non-payment of the debt secured.
Any evidence sufficiently overthrowing the presumption that the mortgagor owns the mortgaged
property precludes the application of Article 2127. Otherwise stated, the provision is irrelevant and inapplicable to
mortgages and their resultant foreclosures if the mortgagor is later on found or declared to be not the true owner
of the property, as in the instant case.
It is beyond question that PNB's mortgagors, Spouses Montealegre, are not the true owners of the subject
lot much less of the building which produced the disputed rent. The foreclosure proceedings on August 16, 1991
caused by PNB could not have, thus, included the building found on the subject lot and the rent it yields. PNB's lien
as a mortgagee in good faith pertains to the subject lot alone because the rule that improvements shall follow the
principal in a mortgage under Article 2127 of the Civil Code does not apply under the premises. Accordingly, since
the building was not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-redemption
and is excluded from any consolidation of title made by PNB over the subject lot. Thus, PNB's claim for the rent
paid by Tolete has no basis.

MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES vs.
MALARAYAT RURAL BANK, INC.
Facts:
The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural. On December 1,
1990, Fermina M. Guia sold the south portion of the land to the spouses Petronio and Macaria Arguelles. Although
the spouses Arguelles immediately acquired possession of the land, the Deed of Sale was neither registered with
the Register of Deeds nor annotated. At the same time, Fermina M. Guia ordered her son Eddie Guia and the
latter's wife Teresita Guia to subdivide the land covered by OCT No. P-12930 into three lots and to apply for the
issuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she directed the delivery of
the Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the vendees of the unregistered sale or the
spouses Arguelles. However, despite their repeated demands, the spouses Arguelles claimed that they never
received the TCT corresponding to Lot 3-C from the spouses Guia.
Subsequently, the spouses Guia obtained a loan in the amount of P240,000 from the respondent
Malarayat Rural Bank and secured the loan with a Deed of Real Estate Mortgage over Lot 3-C. The loan and Real
Estate Mortgage were made pursuant to the Special Power of Attorney purportedly executed by the registered
owner of Lot 3-C, Fermina M. Guia, in favor of the mortgagors, spouses Guia.
Thereafter, the spouses Arguelles filed a complaint 1for Annulment of Mortgage and Cancellation of
Mortgage Lien with Damages against the respondent Malarayat Rural Bank with the RTC. In asserting the nullity of
the mortgage lien, the spouses Arguelles alleged ownership over the land that had been mortgaged in favor of the
respondent Malarayat Rural Bank. On August 16, 1999, the respondent Malarayat Rural Bank filed an Answer
wherein it argued that the failure of the spouses Arguelles to register the Deed of Sale dated December 1, 1990
was fatal to their claim of ownership.
The RTC found that the spouses Guia were no longer the absolute owners of the land described as Lot 3-C
at the time they mortgaged the same to the respondent Malarayat Rural Bank in view of the unregistered sale in
favor of the vendee spouses Arguelles. Thus, the RTC annulled the real estate mortgage, the subsequent
foreclosure sale, and the corresponding issuance of the certificate of title. Moreover, the RTC declared that the
respondent Malarayat Rural Bank was not a mortgagee in good faith as it failed to exercise the exacting degree of
diligence required from banking institutions.
The CA held that because of the failure of the spouses Arguelles to register their deed of sale, the
unregistered sale could not affect the respondent Malarayat Rural Bank. Thus, the respondent Malarayat Rural
Bank has a better right to the land mortgaged as compared to spouses Arguelles who were the vendees in the
unregistered sale. In addition, the CA found that the respondent Malarayat Rural Bank was a mortgagee in good
faith as it sufficiently demonstrated due diligence in approving the loan application of the spouses Guia.

Issue: Whether or not Malarayat Rural Bank is a Mortgagee in good faith.

Held: NO.
"[i]n cases where the mortgagee does not directly deal with the registered owner of real property, the law
requires that a higher degree of prudence be exercised by the mortgagee."
Thus, where the mortgagor is not the registered owner of the property but is merely an attorney-in-fact
of the same, it is incumbent upon the mortgagee to exercise greater care and a higher degree of prudence in
dealing with such mortgagor.
Moreover, in a long line of cases, we have consistently enjoined banks to exert a higher degree of
diligence, care, and prudence than individuals in handling real estate transactions.
Where the mortgagee is a bank, it cannot rely merely on the certificate of title offered by the mortgagor
in ascertaining the status of mortgaged properties. Since its business is impressed with public interest, the
mortgagee-bank is duty-bound to be more cautious even in dealing with registered lands. Indeed, the rule that
person dealing with registered lands can rely solely on the certificate of title does not apply to banks.
In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of
diligence, prudence, and care in approving the loan application of the spouses Guia.
Respondent should have diligently conducted an investigation of the land offered as collateral. The
respondent turned a blind eye to the finding therein that the "lot is planted [with] sugarcane with annual yield
(crops) in the amount of P15,000." We disagree with respondent's stance that the mere planting and harvesting of
sugarcane cannot reasonably trigger suspicion that there is adverse possession over the land offered as mortgage.
Indeed, such fact should have immediately prompted the respondent to conduct further inquiries, especially since
the spouses Guia were not the registered owners of the land being mortgaged. They merely derived the authority
to mortgage the lot from the Special Power of Attorney allegedly executed by the late Fermina M. Guia. Hence, it
was incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing with the spouses Guia,
and inquire further regarding the identity and possible adverse claim of those in actual possession of the property.

DSM CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS

and MEGAWORLD GLOBUS ASIA, INC.
Facts:
Petitioner and respondent entered into agreements for the construction of a condominium project owned
by respondent called "The Salcedo Park", with petitioner as contractor. In the course of the project's construction,
differences with respect to billings arose between the parties. Petitioner thus filed a complaint for compulsory
arbitration before the CIAC claiming payment for approximately P97 Million as the outstanding balance due from
respondent pursuant to the agreements. The CIAC rendered a decision partially granting both petitioner's and
respondent's claims, with a net award of (P62,760,558.49) in favor of petitioner.
This award was affirmed by the CA, which however permanently enjoined petitioner from registering its
contractor's lien on all except six (6) units of the condominium project. This step was in line with respondent's
manifestation that the principal award of P62,760,558.49 in petitioner's favor can be covered by the value of (6)
condominium units. (7) Condominium units, however, were eventually levied upon as a result of respondent's act
of substituting two (2) units for the one already paid for by the buyer-spouses, Shaul and Rina Golan. The
execution sale of the levied properties did not push through after this Court issued a TRO upon respondent's filing
of a petition.
Thereafter, the Court promulgated its Decision affirming the judgment of the Court of Appeals and lifting
the TRO that was then still in effect. Finding no merit in respondent's motions for reconsideration.
Its judgment having become final and executory, the CIAC issued an alias writ of execution.
Respondent sought to clarify if the writ of execution shall be limited to six condominium units in
consonance with the Court of Appeals' observation in its decision in the first case that the petitioner's claims can
be satisfied by the value of only six units. The CIAC replied in the negative.
Respondent filed a Petition with the Court of Appeals to restrain the scheduled execution sale and to
nullify the orders of the CIAC issued pursuant thereto. In said Petition, respondent claimed that the sheriffs
exceeded their authority when they included in the notice of execution sale five condominium units fully paid for
by its buyers. Respondent also asserted that the inclusion of three additional units in the levy on execution was
excessive, thereby rendering the same void.
The Court of Appeals issued the questioned Resolution restraining the implementation of the alias writ, as
well as the holding of the auction sale for a period of sixty days from notice thereof. Petitioner filed the instant
petition imputing grave abuse of discretion on the part of the Court of Appeals in taking cognizance of
respondent's petition and in issuing the assailed Resolution. Petitioner prayed for the issuance of a temporary
restraining order and/or a writ of preliminary injunction to enjoin the Court of Appeals from acting on
respondent's petition.
The Court of Appeals rendered a Decision granting respondent's petition and declaring the CIAC's assailed
order null and void.

Issue:

1. Whether or not petitioner is limited to 6 condominium units for the purpose of satisfying the award
rendered by the CIAC;
2. Whether or not the Alias Writ is void for failure to state the specific amount due.

Held:

1. NO.
There is no ambiguity in the Court of Appeal's pronouncement, that is, that the principal award of P62
million can be covered by six condominium units. However, such pronouncement did not make
allowances for the interests of 6% and 12% imposed by the CIAC because the alleged limit related merely
to the provisional remedy, not the eventual execution of the judgment. The six unit limit was never
intended by the Court of Appeals to operate in perpetuity as to sanction recovery of the principal award
sans legal interest.
 If there was indeed a six unit limit, respondent itself breached the same. In a letter to the Register of
Deeds, respondent asked that the Notice of Levy/Attachment was well as the Decision annotated at the
back of Condominium Certificate of Title No. 65320 (Unit 25A) of the Salcedo Park condominium project
be transferred to Condominium Certificates of Title Nos. 65389 and 65395 (Units 14C and 16C,
respectively) of the same project. The substitution was made so that the unit already paid for by its
buyers can be transferred in the latter's name free from all liens and encumbrances.
The replacement increased the number of units levied upon from (6) to (7). This weakens respondent's
reliance on the purported (6)-unit limit since its own act renders it in estoppel. By estoppel is meant that
an admission or representation is rendered conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon. Since respondent instigated the resultant increase of the
units levied upon, both petitioner and the CIAC cannot be faulted for assuming that the rest of the
condominium units may also be levied upon on execution.
2. NO.
A perusal of the alias writ convinces this Court that it complies substantially with the requirements of law.
It states the principal award sought to be satisfied, as well as the percentage to be imposed thereon as
interest. It even specifies the lawful fees that are due to the sheriffs for the satisfaction of the judgment.
Rule 39, Sec. 8(e) c precisely requires the movant to specify the amount sought to be satisfied so the
Court fails to see why petitioner should be faulted for doing so. If the objection hinges on the fact that the
exact mathematical computation did not appear in the alias writ itself, respondent could easily have
moved that said computation be incorporated by the CIAC thereon. Such perceived deficiency is certainly
not sufficient to justify recourse to a special civil action for certiorari to have the alias writ declared null
and void in its entirety.

NOTE: The cases cited clearly indicated that the parties involved were the condominium buyers and mortgage
creditors. A mortgage creditor is not synonymous to a judgment creditor contrary to what respondent asserts.
While the law expects a mortgage creditor to inquire as a reasonably prudent man would regarding the
encumbrances on the property in question, no such knowledge is imputed to a judgment creditor who merely
seeks the satisfaction of the judgment awarded in his favor.

LUIS CASTRO, JR., MARISSA CASTRO, RAMON CASTRO, MARY ANN CASTRO, CATHERINE
CASTRO and ANTONIO CASTRO vs. HON. COURT OF APPEALS and UNION BANK OF THE
PHILIPPINES

Facts:
Cabanatuan City Colleges obtained a loan from the Bancom Development Corporation. In order to secure
the indebtedness, the college mortgaged to Bancom two parcels of land. The parcels were both within the school
site. While the mortgage was subsisting, the college board of directors agreed to lease to petitioners a portion of
the encumbered property on which the latter, eventually, built a residential house. Bancom, the mortgagee, was
duly advised of the matter.
The school defaulted in the due payment of the loan. In time, Bancom extrajudicially foreclosed on the
mortgage, and the mortgaged property was sold at public auction with Bancom coming out to be the only bidder.
A certificate of sale was accordingly executed by the provincial sheriff in favor of Bancom. Subsequently, the latter
assigned its credit to herein private respondent Union Bank of the Philippines.
Following the expiration of the redemption period without the college having exercised its right of
redemption, private respondent consolidated title to the property.
 Thereafter private respondent filed an ex-parte motion for the issuance of a writ of possession not only
over the land and school buildings but also the residential house constructed by petitioners.
The lower court granted the motion and direct issuance of the corresponding writ.

Issue: Whether or not the house constructed by the petitioners is included in the foreclosure.

Held : NO.
"Art. 2127. The mortgage extends 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, with the declarations, amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or passes into the hands of a third person."
This article extends the effects of the real estate mortgage to accessions and accessories found on the
hypothecated property when the secured obligation becomes due. The law is predicated on an assumption that
the ownership of such accessions and accessories also belongs to the mortgagor as the owner of the principal. The
provision has tbeen seen by the Court, to mean that all improvements subsequently introduced or owned by the
mortgagor on the encumbered property are deemed to form part of the mortgage. That the improvements are to
be considered so incorporated only if so owned by the mortgagor is a rule that can hardly be debated since a
contract of security, whether real or personal, needs as an indispensable element thereof the ownership by the
pledgor or mortgagor of the property pledged or mortgaged.

PRUDENTIAL BANK vs. DON A. ALVIAR and GEORGIA B. ALVIAR

Facts:
Spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land. They executed a
deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth
P250,000.00. This mortgage was annotated at the back of TCT. Respondents executed the corresponding
promissory note, PN BD#75/C-252, covering the said loan.
Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, signifying that the loan
was secured by a "hold-out" on the mortgagor's foreign currency savings account with the bank.
Respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President
and Chairman of the Board and Vice President, respectively, PN BD#76/C-430 covering P545,000.000. As provided
in the note, the loan is secured by "Clean-Phase out TOD CA 3923," which means that the temporary overdraft
incurred by Donalco Trading, Inc. with petitioner is to be converted into an ordinary loan in compliance with a
Central Bank circular directing the discontinuance of overdrafts.
Petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of
P545,000.00, the proceeds of which shall be used to liquidate the outstanding loan of P545,000.00 TOD. The letter
likewise mentioned that the securities for the loan were the deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel
mortgage on various heavy and transportation equipment.
Respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2)
lots located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was
acknowledged by petitioner who accordingly released the mortgage over the two properties.
Subsequently, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered
by TCT No. 438157. Per petitioner's computation, respondents had the total obligation of P1,608,256.68, covering
the (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN
BD#76/C-340 for P545,000.00.
Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary
injunction with the RTC claiming that they have paid their principal loan secured by the mortgaged property, and
thus the mortgage should not be foreclosed. For its part, petitioner averred that the payment of P2,000,000.00
made on 6 March 1979 was not a payment made by respondents, but by G.B. Alviar Realty and Development Inc.,
which has a separate loan with the bank secured by a separate mortgage.
The trial court ruled in favor of respondents which were affirmed by the court of appeals.

Issue:

1. Whether or not the blanket mortgage between petitioner and respondents covers subsequent loans
separately secured;
2. Whether or not the foreclosure is valid.

Held:

1. NO.
Under American jurisprudence, two schools of thought have emerged on this question. One school
advocates that a "dragnet clause" so worded as to be broad enough to cover all other debts in addition to
the one specifically secured will be construed to cover a different debt, although such other debt is
secured by another mortgage. The contrary thinking maintains that a mortgage with such a clause will not
secure a note that expresses on its face that it is otherwise secured as to its entirety, at least to anything
other than a deficiency after exhausting the security specified therein, such deficiency being an
indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from
the arrangement.
The latter school represents the better position. The parties having conformed to the "blanket mortgage
clause" or "dragnet clause," it is reasonable to conclude that they also agreed to an implied understanding
that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by
the first mortgage. In other words, the sufficiency of the first security is a corollary component of the
"dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes
another loan for which another security was given it could not be inferred that such loan was made in
reliance solely on the original security with the "dragnet clause," but rather, on the new security given.
This is the "reliance on the security test."
Accordingly, finding a different security was taken for the second loan no intent that the parties relied on
the security of the first loan could be inferred, so it was held. The rationale involved, the court said, was
that the "dragnet clause" in the first security instrument constituted a continuing offer by the borrower
to secure further loans under the security of the first security instrument, and that when the lender
accepted a different security he did not accept the offer.
2. NO.
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property
because of non-payment of all the three promissory notes. While the existence and validity of the
"dragnet clause" cannot be denied, there is a need to respect the existence of the other security given for
PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the P250,000.00 loan
covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory
note. As held in one case, where deeds absolute in form were executed to secure any and all kinds of
 indebtedness that might subsequently become due, a balance due on a note, after exhausting the special
security given for the payment of such note, was in the absence of a special agreement to the contrary,
within the protection of the mortgage, notwithstanding the giving of the special security. This is
recognition that while the "dragnet clause" subsists, the security specifically executed for subsequent
loans must first be exhausted before the mortgaged property can be resorted to.

SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE AUTO
SUPPLY, INC. vs. L & R CORPORATION, VICENTE M. COLOYAN in his capacity as Acting
Registrar of the Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA

Facts:
The controversy stems from loans obtained by the spouses Litonjua from L & R Corporation in the
aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining
P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon
their two parcels of land and the improvements thereon.
Thereafter, the spouses Litonjua sold to Philippine 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. The sale was annotated at
the back of the respective certificates of title of the properties.
Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation
initiated extrajudicial foreclosure proceedings. The mortgaged properties were sold at public auction to L & R
Corporation as the only bidder for the amount of P221,624.58. When L & R Corporation presented its
corresponding Certificate of Sale to the Quezon City Register of Deeds for registration, it learned for the first time
of the prior sale of the properties made by the spouses Litonjua to PWHAS upon seeing the inscription at the back
of the certificates of title. Thus, it wrote a letter to the Register of Deeds requesting for the cancellation of the
annotation regarding the sale to PWHAS. L & R Corporation invoked a provision in its mortgage contract with the
spouses Litonjua stating that the mortgagee's prior written consent was necessary in case of subsequent
encumbrance or alienation of the subject properties. Thus, it argued that since the sale to PWHAS was made
without its prior written consent, the same should not have been registered and/or annotated.
Seven months after the foreclosure sale, PWHAS, for the account of the spouses Litonjua, tendered
payment of the full redemption price to L & R Corporation in the form of China Bank Manager's Check. L & R
Corporation, refused to accept the payment, hence, PWHAS was compelled to redeem the mortgaged properties
through the Ex-Oficio Sheriff of Quezon City. It tendered payment of the redemption price to the Deputy Sheriff.
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
owner's 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 against L & R Corporation for the
surrender of the owner's duplicate of Transfer Certificates.
L & R Corporation executed an Affidavit of Consolidation of Ownership.
With titles issued in its name, L & R Corporation advised the tenants of the apartments situated in the
subject parcels of land that being the new owner, the rental payments should be made to them. Upon learning of
this incident from their tenants, the spouses Litonjua filed an adverse claim 18 and a notice of lis pendens with the
Register of Deeds. In the process, they learned that the prior sale of the properties in favor of PWHAS was not
annotated on the titles issued to L & R.

Issue:
 1. Whether or not a provision in a mortgage contract requiring the consent of the mortgagee to sell the
property subject of the mortgage is valid;
2. Whether or not the redemption of PWHAS is valid.

Held:

1. NO.
We are fully in accord with the pronouncement that such a stipulation violates Article 2130 of the New
Civil Code. Both the lower court and the Court of Appeals in its Amended Decision rationalize that since
paragraph 8 of the subject Deed of Real Estate Mortgage contains no absolute prohibition against the sale
of the property mortgaged but only requires the mortgagor to obtain the prior written consent of the
mortgagee before any such sale, Article 2130 is not violated thereby. This observation takes a narrow and
technical view of the stipulation in question without taking into consideration the end result of requiring
such prior written consent. True, the provision does not absolutely prohibit the mortgagor from selling his
mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all intents and
purposes, the stipulation 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. In other words,
stipulations like those covered by paragraph 8 of the subject Deed of Real Estate Mortgage circumvent
the law, specifically, Article 2130 of the New Civil Code.
2. YES.
The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid. Therefore, PWHAS
stepped into the shoes of the spouses Litonjua on account of such sale and was in effect, their successor-
in-interest. As such, it had the right to redeem the property foreclosed by L & R Corporation.
The right of PWHAS to redeem the subject properties finds support in Section 6 of Act 3135 itself which
gives not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of
the subject properties, PWHAS qualifies as such a successor-in-interest of the spouses Litonjua.

Note: Par 9 of the mortgage contract grants L&R Corporation the right of first refusal which was violated by
Litonjua Spouses when they sold the subject property without first notifying L&R Corporation. Hence, the sale,
although valid, is rescissible, as it is in violation of the right of first refusal.

LUZON DEVELOPMENT BANK vs. BENEDICTO C. CONQUILLA, CORNELIA C. CONQUILLA

DOROTEA C. ORCINE and FELICIANO S. CONQUILLA

Facts:
Feliciano Conquilla was the president of an educational institution known as Columbia College. He was
joined by his children Benedicto, Cornelio and Dorotea in mortgaging the three properties on which the school sat
and titled in their names to secure a loan from the Luzon Development Bank. Initially, they borrowed P4,720,000,
which was increased to P7,220,000 by way of a Promissory Note and Amendment Of Real Estate Mortgage. The
Promissory Note appears to have been signed by the four in their personal capacities, but Feliciano's name in the
Amendment of Real Estate Mortgage was preceded by the telling phrase Columbia College By.
After some months, Feliciano Conquilla applied for a restructuring of the loan. He wrote the bank that
they had sought extra funding to finish the school building, and with the increased enrollment that would follow
on the heels of their expansion program, assured that their loan obligations would be met. The request was
granted.
 They failed to deliver on their promise, and their unpaid amortizations rose to more than P4 million. To
prevent the impending foreclosure of the mortgaged properties, Feliciano filed in the name of Columbia College
with the RTC against Luzon Development Bank and the notary public. The court dismissed the case on the ground
that the plaintiff failed to establish its cause of action. As mentioned in his order, the case was set for hearing on
March 5, and on this date only Feliciano Conquilla appeared. Nothing more was said about the hearing, but it is
difficult to see what else could happen in the absence of the other parties, and all the lawyers. 6 days later, in the
order, he declared that there was no reason why the foreclosure of mortgage should be enjoined, and ruled that in
the face of the clear admission of plaintiff that they were unable to settle their obligations, which were secured by
the mortgage, defendants have a clear right to foreclose the mortgage, which is the remedy provided by law.
The next day, Feliciano Conquilla, joined by his wife filed a case in his own name, which still fell in the sala
of Judge [Lock], praying for the same remedy of injunction against the foreclosure. On a motion to dismiss, he
ruled that the complaint was a rehash of the one made in N-6659 and already dismissed.
The properties were auctioned off to Luzon Development Bank. It advised Columbia College through
Feliciano of its right to buy back the lots within the redemption period. Not amenable to this solution, Feliciano
Conquilla and his children filed the present case.
The Conquillas alleged in their complaint that of the amount of the loan of P7.2 million, the defendant
Luzon Development Bank failed to release to them the amount of P1,940,000, thus causing a breach of contract
and rendering the foreclosure premature. The contract obligation was, furthermore, increased to over P12 million
without further releases. Even as it bidded for the properties in the amount of over P18 million, it failed to turn
over to them the difference between this price and the amount of the actual releases, representing a balance of
about P13 million.
The bank moved to dismiss the Complaint on the ground that the case had already been barred by two
prior judgments. The trial court issued an Order dismissing ("Third Case") on the ground of res judicata. In denying
the Motion for Reconsideration, the trial court explained that the causes of action in the Third Case were so
intimately and closely related to those in the First and the Second Cases that to allow a re-litigation would
constitute a circuity of suits.
Respondents argued that the trial court had erred in dismissing Civil Case on the ground of res judicata.
They added that the Third Case had a different cause of action and was not barred by the unfavorable judgments
in the previous two cases. While the First and the Second Cases were filed in order to prevent the mortgage
foreclosure, the object of the Third Case was the nullification of the foreclosure proceedings and the collection of
the balance of the loan.

Issue: Whether the dismissal of the First Case on the ground of failure to establish a cause of action operates as
res judicata on the Third Case.

Held: NO. (3 issues in the third case. Only first 2 issues is barred by res judicata)
A case is barred by prior judgment or res judicata when the following requisites concur: (1) the former
judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a
judgment or an order on the merits; (4) there is — between the first and the second actions — identity of parties,
of subject matter, and of causes of action.
It is axiomatic that to invoke res judicata, absolute identity of parties is not required. A substantial identity
of parties is sufficient. 59 There is substantial identity of parties when there is a community of interest between a
party in the first case and that in the second one, even if the latter party was not impleaded in the first case.
In the instant controversy, the Complaint alleged that Columbia College, Inc., was the only debtor. But the
CA found that the Promissory Note given to petitioner contained the signatures of all the four registered owners,
without any qualification.
 It is only logical that the present respondents were debtors, together with Columbia College, Inc. This fact
explains why they are also claiming the balance of the loan, instead of merely asking for the nullification of the
foreclosure of their property. Together with Columbia College, Inc., they are interested in annulling the contracted
loan and in preventing the foreclosure of the properties.
Therefore, they were all parties to the same Contract, protecting the same interests, and seeking the
same relief. Clearly, the actions were instituted for the protection of the common interest of respondents in the
loan and the mortgage. They shared an identity of interest from which flowed an identity of relief sought; that is,
to have the foreclosure nullified. Their identity of interest in the loan and the mortgaged property is enough to
hold them privy-in-law; this fact meets the substantive requisite of identity of parties.
The cause of action in the First Case arose from petitioner's alleged premature foreclosure of the
mortgage. On the other hand, the Third Case involves three alternative causes of action: (1) nullification of the
foreclosure and the auction sale, (2) release of the balance of the loan, or (3) recovery of the excess proceeds of
the sale.
The test to determine whether the causes of action are identical is to ascertain whether the same
evidence will sustain both actions, or whether there is an identity in the facts essential to the maintenance of the
two actions. If the same facts or evidence would sustain both, the two actions are considered the same, and a
judgment in the first case is a bar to the subsequent action.
The validity of the foreclosure in Civil Case No. LP 99-0019 is assailed by respondents on the ground of
prematurity. 70 Despite the stipulation that the loan would mature only on December 27, 2001, the foreclosure of
their mortgage took place on March 16, 1998. 71 Notably, that cause of action was the same as that raised,
considered, and conclusively passed upon in Civil Case No. N-6659. In the latter case, Respondent Feliciano sought
to prevent foreclosure by also contending that it was premature.
In order to obtain the reliefs sought, respondents in both cases should have presented proof that the
bank had no right to foreclose before December 27, 2001. By applying the "same evidence" test, it becomes
readily apparent that the evidence or facts needed to sustain the cause of action in Civil Case No. N-6659 is the
same as the evidence or facts needed to allow relief in Civil Case No. LP 99-0019. Tellingly, the first cause of action
in Civil Case No. LP 99-0019 (nullification of foreclosure) is identical with that in Civil Case No. N-6659 (injunction of
foreclosure).
The second cause of action in the Third Case (recovery of the balance of the loan) is likewise identical with
that in the First Case. Respondents allege that petitioner bank released only P5.2 million of the total P7.42 million
agreed upon; thus, there was a breach of the Contract. What respondents are saying is that petitioner has no right
to foreclose, on the ground that it has yet to comply fully with its obligation. In other words, the foreclosure is
allegedly premature and invalid. In order to sustain their claim, respondents should have presented proof that
petitioner had no right to foreclose at the time of their application. It will be recalled that this was the same proof
needed to sustain the claim in the First Case. Since the same evidence sustains both actions, they are considered to
be the same for purposes of res judicata.
A different fate befalls the third alternative cause of action in Civil Case No. LP 99-0019, which is for
recovery of the excess proceeds of the foreclosure sale. Respondents allege that the mortgaged property was sold
for P18,462,900, which allegedly far exceeded the amount of loan agreed upon by the parties.
Under the "same evidence" test, this is a different cause of action from an injunction of foreclosure. As
already discussed, Civil Case No. N-6659 requires proof that the mortgagee had no right to foreclose; on the other
hand, the alternative cause of action in Civil Case No. LP 99-0019 requires proof that the bid price of the
mortgaged property was in excess of the contracted loan. The two issues require different sets of evidence; there
is no identity of causes of action.
Moreover, the recovery of the excess proceeds of the sale was not and could not be included in Civil Case
No. N-6659, because it was a new cause of action that had arisen only after the foreclosure. It was not barred by
res judicata, because it could not have been raised then. This is the only matter that may be remanded to the trial
court.
If it is proven that the mortgaged property was foreclosed and sold for an amount exceeding the loan
contracted, respondent must be allowed to recover the excess. 81 By the accessory nature of mortgage, the
mortgagee has the right to foreclose the mortgaged property only to the extent of the loan secured by it. Any
decision to the contrary abets unjust enrichment.

SYCAMORE VENTURES CORPORATION and SPOUSES SIMON D. PAZ AND LENG LENG PAZ vs.
METROPOLITAN BANK AND TRUST COMPANY.

Facts:
Sycamore and the spouses Paz obtained from respondent Metropolitan Bank and Trust Company
(Metrobank) a credit line of P180,000,000.00, secured by 10 real estate mortgages 4 over Sycamore's 11 parcels of
land, 5 together with their improvements. 6 Sycamore and the spouses Paz withdrew from the credit line the total
amount of P65,694,914.26, evidenced by 13 promissory notes.
Because the petitioners failed to pay their loan obligations and for violations of the terms and conditions
of their 13 promissory notes, Metrobank instituted extrajudicial foreclosure proceedings over the six real estate
mortgages. The public auction sale was set for various dates the sale did not take place because Sycamore and the
spouses Paz asked for postponements.
Despite reminders, Sycamore and the spouses Paz still failed to settle their loan obligations, compelling
Metrobank to file a second petition for auction sale.
Sycamore and the spouses Paz once again asked for the postponement of the October 25, 2002 public
auction sale; they asked that the sale be moved to November 26, 2002, but this time Metrobank refused to give in.
Sycamore and the spouses Paz filed before the RTC a complaint for the annulment of the contract and of
the real estate mortgage. They likewise asked for the issuance of a temporary restraining order.
The petitioners disputed Metrobank's alleged unilateral and arbitrary reduction of the mortgaged
properties' appraisal value.
On the same day, the Executive Judge issued a 72-hour TRO, directing the sheriff to cease and desist from
proceeding with the scheduled public auction. After summary hearing, the RTC ordered the extension of the TRO
to its full 20-day term.
Meanwhile, the proceedings in the main case continued. At the trial, Sycamore and the spouses Paz
moved for the appointment of independent commissioners to determine the mortgaged properties' appraisal
value. They mainly alleged that Metrobank arbitrarily and unilaterally reduced the mortgaged properties' appraisal
value; hence, the need for their reappraisal to determine their true value.
The RTC granted the petitioners' motion.
The CA this time granted Metrobank's petition for certiorari and set aside the RTC's orders. It found that
the appraisal value of the mortgaged properties was not an issue since the real estate mortgage and the
promissory note already indicated with certainty the amount of the loan obligation.
Sycamore and the spouses Paz contend that the CA erred in setting aside the RTC's order granting their
motion for appointment of independent commissioners. They argue that it had the effect of preventing the RTC's
determination of a critical question of fact — i.e., the determination of the mortgaged properties' true valuation —
which, they insist, is an issue that needs to be resolved prior to the determination of the foreclosure's validity.

Issue: Whether the determination of the mortgaged properties' appraisal value constitutes a prejudicial
question that warrants the suspension of the foreclosure proceedings.
Held: NO.
Act No. 3135 has no requirement for the determination of the mortgaged properties' appraisal value.
Nothing in the law likewise indicates that the mortgagee-creditor's appraisal value shall be the basis for the bid
price. Neither is there any rule nor any guideline prescribing the minimum amount of bid, nor that the bid should
be at least equal to the properties' current appraised value. What the law only provides are the requirements,
procedure, venue and the mortgagor's right to redeem the property. When the law does not provide for the
determination of the property's valuation, neither should the courts so require, for our duty limits us to the
interpretation of the law, not to its augmentation.
Under the circumstances, we fail to see the necessity of determining the mortgaged properties' current
appraised value. We likewise do not discern the existence of any prejudicial question, anchored on the mortgaged
properties' appraised value, that would warrant the suspension of the foreclosure proceedings.
A prejudicial question is a prior issue whose resolution rests with another tribunal, but at the same time is
necessary in the resolution of another issue in the same case. For example, there is a prejudicial question where
there is a civil action involving an issue similar or intimately related to the issue raised in a criminal action, and the
resolution of the issue in the civil action is determinative of the outcome of the criminal action.
As so defined, we do not see how the motion for the appointment of independent commissioners can
serve as a prejudicial question. It is not a main action but a mere incident of the main proceedings; it does not
involve an issue that is intimately related to the foreclosure proceedings; and lastly, the motion's resolution is not
determinative of the foreclosure's outcome.
We have held in a long line of cases that mere inadequacy of price per se will not invalidate a judicial sale
of real property. It is only when the inadequacy of the price is grossly shocking to the conscience or revolting to the
mind, such that a reasonable man would neither directly nor indirectly be likely to consent to it, that the sale shall
be declared null and void. This rule, however, does not strictly apply in the case of extrajudicial foreclosure sales
where the right of redemption is available.
That when there is a right of redemption, the inadequacy of the price becomes immaterial because the
judgment debtor may still re-acquire the property or even sell his right to redeem and thus recover the loss he
might have suffered by reason of the "inadequate price" obtained at the execution sale. In this case, the judgment
debtor even stands to gain rather than be harmed.

SPS. NESTOR AND MA. NONA BORROMEO vs. HONORABLE COURT OF APPEALS and
EQUITABLE SAVINGS BANK

Facts:
Respondent is a domestic savings bank corporation. At the time the dispute began, it was a subsidiary of
Equitable PCI Bank (EPCIB), a domestic universal banking corporation. After the merger of EPCIB and Banco de Oro
(BDO), they have adopted the corporate name "Banco de Oro".
Petitioners were client-depositors of EPCIB. Petitioners alleged that the branch manager of EPCIB offered
a loan to the petitioners under its "Own-a-Home Loan Program." Petitioners applied for a loan of P4,000,000.00
and were informed of the approval of their loan application sometime in October 1999. It was in the early part of
2000 that petitioners signed blank loan documents consisting of the Loan Agreement, Promissory Notes, a Real
Estate Mortgage (REM) and Disclosure Statements.
To secure the payment of the loan, petitioners executed an REM over their land. Petitioners asserted that
even if the loan documents were signed in blank, it was understood that they executed the REM in favor of EPCIB.
Petitioners made repeated verbal requests to EPCIB to furnish them their copies of the loan documents.
They sent the president of EPCIB a letter which reiterated their request for copies of the loan documents. They
further claimed that they purposely did not draw the remaining balance of the loan in the amount of P400,000.00
and stopped paying their loan amortizations to protest EPCIB's continued failure to provide them copies of the
loan documents and its imposition of an interest rate higher than that agreed upon.
In reply to the petitioners' letter the Vice President of EPCIB, Gary Vargas, sent to the petitioners a letter
explaining that as a matter of practice, their clients were given original copies of the loan documents only upon full
release of the amount loaned. EPCIB clarified that since petitioners' loan had not been fully released, the original
documents were not yet sent to them.
In the meantime, respondent, through counsel, also sent a letter to the petitioners demanding payment
for their obligation. Respondent informed petitioners that failure to pay their obligation would result in its
pursuing legal action against petitioners, including foreclosure proceedings on their REM.
Finally, petitioners received copies of the loan documents which they had earlier signed in blank.
According to petitioners, they were surprised to find out that the Loan Agreement and REM designated
respondent ESB as lender and mortgagor, instead of EPCIB with whom they allegedly entered into the agreement.
However, in contrast to the Loan Agreement and the REM, the four Promissory Notes designated EPCIB as the
lender.
When the petitioners failed to pay for the loan in full respondent sought to extra-judicially foreclose the
REM.
Petitioners filed with the RTC a Complaint for Injunction, Annulment of Mortgage with Damages and with
Prayer for Temporary Restraining Order and Preliminary and Mandatory Injunction against EPCIB and respondent.
In their Complaint, petitioners alleged that the loan documents failed to reflect the true agreement between the
parties. Firstly, the agreement was between the petitioners and EPCIB and, consequently, respondent had no
interest in the REM. Secondly, the interest rates reflected in the Promissory Notes were not the interest rates on
which the parties had settled. They also averred in their Complaint that EPCIB committed a breach of contract
when it failed to release the fifth and last installment of the loan to petitioners.
The RTC determined that there was no longer any need to issue a temporary restraining order (TRO)
and/or preliminary injunction.
The RTC granted petitioners' motion for reconsideration and ordered the issuance of a preliminary
injunction after declaring that the validity of the REM was yet to be determined. It found that petitioners were
bound to suffer grave injustice if they were deprived of their property before the RTC could rule on the validity of
the REM constituted on the same.
The Court of Appeals decreed that pending the RTC's determination of the validity of the REM, its validity
should be presumed. It further ruled that the intended foreclosure of the mortgage by respondent was a proper
exercise of its right after petitioners admittedly stopped paying their loan amortizations. Moreover, it held that the
foreclosure of the REM would not result in any grave and irreparable damage to the petitioners since petitioners,
as mortgagors, may redeem the subject property or avail themselves of the remedy of claiming damages or
nullifying the sale.

Issue:

1. Whether or not the preliminary injunction should be granted;

2. Whether or not respondent has a right to foreclose the mortgage.

Held:

1. YES.
A writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be
protected during the pendency of the principal action. The twin requirements of a valid injunction are the
 existence of a right and its actual or threatened violations. Thus, to be entitled to an injunctive writ, the
right to be protected and the violation against that right must be shown.
The extrajudicial foreclosure of the petitioners' property pending the final determination by the RTC of
their complaint for annulment of the REM and claim for damages would result in an injustice to the
petitioners. If the RTC would subsequently declare that respondent was entitled to have petitioners'
property foreclosed, it may still foreclose the subject property which is valued at P12,000,000.00, 48 to
answer for the debt which is estimated at P5,000,000.00, and further claim the P3,500,000.00 surety
bond posted by petitioners with the RTC. On the other hand, if the RTC later finds that respondent is not
the creditor-mortgagee and, therefore, the foreclosure of the property is invalid, petitioners would be
placed in an oppressively unjust situation where they will be tied up in litigation for the recovery of their
property while their debt to the real creditor-mortgagee, EPCIB, would remain unpaid and continue to
accrue interest and other charges.
2. NO.
The right of foreclosure cannot be exercised against the petitioners by any person other than the creditor-
mortgagee or its assigns.
An extrajudicial foreclosure instituted by a third party to the Loan Agreement and the REM would,
therefore, be a violation of petitioners' rights over their property.
It is clear that under Article 1311 of the Civil Code, contracts take effect only between the parties who
execute them.
In the instant case, petitioners assert that their creditor-mortgagee is EPCIB and not respondent. While
ESB claims that petitioners have had transactions with it, particularly the five check payments made in the
name of ESB, it fails to categorically state that ESB and not EPCIB is the real creditor-mortgagor in this loan
and mortgage transaction. This Court finds the position taken by the petitioners to be more credible. The
four Promissory Notes designate EPCIB as the "lender." In a letter, addressed to Home Guaranty
Corporation, EPCIB Vice President Gary Vargas even specified petitioners' loan as one of its housing loans
for which it sought insurance coverage. Records also show that petitioners repeatedly dealt with EPCIB.
When the petitioners complained of not receiving the loan documents and the allegedly excessive interest
charges, they addressed their letter to the president of EPCIB. The response, which explained the loan
transactions in detail in a letter, was written by Gary Vargas, EPCIB Vice President. Of almost three years'
amortization, the checks were issued by petitioners in the name of EPCIB, except only for five checks
which were issued in respondent's name.
From a perusal of the records, petitioners did not enter into a Loan Agreement and REM with respondent.
Respondent, therefore, has no right to foreclose the subject property even after default, since this right
can only be claimed by the creditor-mortgagor, EPCIB; and, consequently, the extrajudicial foreclosure of
the REM by respondent would be in violation of petitioners' property rights.

BLANCA CONSUELO ROXAS vs. COURT OF APPEALS and RURAL BANK OF DUMALAG, INC.

Facts:
Petitioner Blanca Consuelo Roxas is the owner of a parcel of land. She executed a special power of
attorney appointing her brother, the late Manuel Roxas, as her attorney-in-fact for the purpose of applying for an
agricultural loan with private respondent Rural Bank of Dumalag, Inc. using said land as collateral. Armed with said
special power of attorney, Manuel Roxas applied for, was granted and received an agricultural loan in the amount
of P2,000.00 from private respondent . As security for the loan, he executed the corresponding real estate
mortgage over the subject land.
 Private respondent foreclosed the real estate mortgage for failure to pay the loan on maturity. The
subject land was sold at public auction to private respondent, being the highest bidder. For failure to exercise the
right of redemption, private respondent consolidated its ownership over the subject land.
Petitioner filed a complaint for cancellation of foreclosure of mortgage and annulment of auction sale
against private respondent before the Regional Trial Court.
Petitioner claimed that Manuel Roxas never informed her about the approval of the loan. When the loan
matured, she did not receive any demand for payment from private respondent nor was there any information
from Manuel Roxas about the maturity of the loan. The foreclosure did not comply with the requirement of giving
written notices to all possible redemptioners, neither did Manuel Roxas inform her about the foreclosure. She
went to private respondent to inquire about the status of her loan, that is, the amount of her total account and for
that matter, she asked for a statement of account. Her request was refused or ignored. After repeated requests
therefor went unheeded, she consulted her lawyer, who sent a letter to private respondent, requesting for said
statement of account. She wrote another letter to private respondent, reiterating her previous request. Private
respondent finally replied, informing petitioner that it already foreclosed the subject land and it can no longer be
redeemed since the redemption period has expired. She consigned with the trial court the amount of P4,194.50 as
redemption price of the subject land.
Refuting the claims of petitioner, private respondent contended in its answer that petitioner never cared
about the payment of her loan although she knew of the status of her account; that she was duly notified of the
foreclosure and public auction sale since notice to Manuel Roxas, her agent, was notice to the principal; that the
sheriff duly posted copies of the notice of foreclosure sale in conspicuous public places before the actual auction
sale; and that she acted negligently in not taking steps to redeem the subject land.

Issue: Whether the foreclosure is null and void.

Held: YES.
It is settled doctrine that failure to publish notice of auction sale as required by the statute constitutes a
jurisdictional defect which invalidates the sale. Even slight deviations therefrom are not allowed.
Section 5 of R.A. No. 720, as amended by R.A. No. 5939, provides that notices of foreclosure should be
posted in at least three (3) of the most conspicuous public places in the municipality and barrio where the land
mortgaged is situated.
In the case at bar, the Certificate of Posting which was executed by the sheriff states that he posted three
(3) copies of the notice of public auction sale in (3) conspicuous public places in the municipality of Panay, where
the subject land was situated and in like manner in Roxas City, where the public auction sale took place. It is
beyond dispute that there was a failure to publish the notices of auction sale as required by law. Section 5 provides
further that proof of publication shall be accomplished by an affidavit of the sheriff or officer conducting the
foreclosure sale. In this case, the sheriff executed a certificate of posting, which is not the affidavit required by law.

GREGORIO SALAZAR vs. JUSTINIANA DE TORRES, ET AL.

Facts:
The original action was brought by respondents against petitioner to foreclose a real estate mortgage.
Both parties, assisted by counsel, filed a joint motion for judgment on a compromise agreement.
The trial court approved the joint motion for judgment. However, petitioner Salazar paid only P1,030.00,
failing to pay the balance of P1,866.50. As a result, respondents asked for the issuance of the writ of execution and
a writ of foreclosure was issued, which resulted in the sale at public auction of the mortgaged property to three of
the four respondents.
 Respondents moved to confirm the Sheriff's sale, but upon objection of petitioner on the ground that the
sale had been made to only three of the four respondents, and that there was no proof that the fourth
respondent, Bonifacia de Torres, had been paid her share of the proceeds of the sale, the trial court denied the
motion to confirm and ordered the property to be sold anew at public auction.
The second auction sale was made, in the course of which, petitioner submitted a written bid which he
handed to the Sheriff, in the amount of P2,069.00, to cover the judgment credit of P1,866.50 and the costs of the
second foreclosure sale amounting to P202.50. However, the Sheriff returned petitioner's bid after respondents
had made their bid for P2,257.34, representing the balance of the judgment, the Sheriff's fees and the costs of the
sale at public auction, which the Sheriff considered to be the highest bid. A deed of sale was subsequently issued
to respondents, without requiring them to pay down the amount of the bid for the reason that they were the
judgment creditors.
Respondents moved to confirm the second sale. On his part, petitioner filed two motions: to declare the
judgment debtor (himself), as the highest bidder and to set aside the sale; and the other, to stay confirmation of
the sale until after his motion to annul the same had been acted upon. It is petitioner's contention that although
respondents' bid was higher than his, nevertheless, the former was void since respondents did not actually pay
down or offer to pay the amount of their bid of P2,257.34; that Bonifacia de Torres' participation in the bid was
illegal and unauthorized, she having previously waived whatever cause or causes of action she had against him;
that his bid of P2,069.00 representing the judgment credit of P1,866.50 and the costs of the second sale
amounting to P202.50 fully satisfied the obligation and so should have been accepted as the highest bid.
The trial court held the motion of respondents to confirm the sale, in abeyance. In an order, the trial court
upheld the right of Bonifacia de Torres to participate in the bid, at the same time declaring untenable petitioner's
petition regarding the failure of respondents to pay down the amount of their bid, saying that being judgment
creditors, they need not pay down their bid unless it exceeded the amount of the judgment, in which case, they
had to pay only the excess. The court alternatively gave defendant-petitioner an unextendible period of two days
within which to pay the amount of his bid of P2,069.00 to the Sheriff, otherwise, the plaintiffs-respondents were
equally given an unextendible period of two days within which to pay to the Sheriff the sum of P167.50,
representing the excess over the balance of the judgment, after which the sale would be confirmed.
Instead of complying with the order, petitioner filed a notice of appeal. In the meantime, respondents
paid the sum of P167.50 to the Sheriff and on December 3, 1957, upon their motion, the trial court confirmed the
Sheriff's sale of the property in question.
The lower court issued an order dismissing petitioner's appeal (one of the orders sought to be voided),
the court stating that the order of November 21, 1957 which petitioner was appealing did not finally dispose of the
case as between the parties, inasmuch as there was something more left to be done by the court, and that
petitioner's failure to appeal the order of December 3, 1957 confirming the Sheriff's sale has allowed said order to
become final, thereby rendering his appeal from the order of November 27, 1957, a moot question.

Issue: Whether or not the appeal was properly made.

Held: NO.
It will be observed that the appealed order neither set aside nor confirmed the foreclosure sale, but it
held confirmation in abeyance so as to give petitioner an opportunity to pay to the Sheriff the amount of his bid.
The same opportunity was alternatively given to the respondents to pay to the Sheriff the excess of their bid over
the judgment credit. But even after the payment by respondents of the said amount because of the failure of
petitioner to take advantage of the opportunity accorded to him by the court, still, the proceedings were not
ended for the reason that the court had yet to confirm the sale, which would have been the final act to
consummate and complete the foreclosure sale.
 Courts have defined a final order or judgment which is appealable as one which either terminates the
action itself or operates to vest some right in such manner as to put it out of the power of the court making the
order to place the parties in their original condition.
A foreclosure sale is not complete until it is confirmed, and before said confirmation, the court retains
control of the proceedings by exercising a sound discretion in regard to it, either granting or withholding
confirmation as the rights and interests of the parties and the ends of justice may require. From this standpoint,
the order which neither set aside nor confirmed the foreclosure sale was merely interlocutory in character.
The final act which consummates a decretal sale is an order confirming the sale, and only when that order
is entered can there be an appeal.

SPOUSES GUILLERMO AGBADA and MAXIMA AGBADA, petitioners, vs. INTER-URBAN

DEVELOPERS, INC., and REGIONAL TRIAL COURT-BR. 105, QUEZON CITY

Facts:
Petitioner-spouses Agbada borrowed P1,500,000.00 from respondent Inter-Urban Developers, Inc.
through its president, Simeon L. Ong Tiam. To secure the loan, the parties executed a Deed of Real Estate
Mortgage over a parcel of land owned by the spouses. The loan was payable within six (6) months from at (3%)
interest per month, otherwise, failure to discharge the loan would entitle Inter-Urban Developers, Inc. to foreclose
the mortgage. The spouses failed to pay the loan within the six-month period despite several demands made by
respondent.
Inter-Urban Developers, Inc. filed with the Regional Trial Court a complaint for foreclosure of real estate
mortgage. Without assistance of counsel, the spouses filed their unverified answer admitting that they had
borrowed the amount of P1,500,000.00 from respondent and had executed the real estate mortgage to secure the
loan but denying that it was payable within (6) months and at (3%) interest per month.
When the pre-trial was set, it had to be postponed on account of petitioner-spouses' absence. It was reset
but it was again postponed upon request of petitioner Guillermo Agbada who had no lawyer yet to assist him. But
he submitted a one-page hand written letter addressed to the trial judge asking for continuance of the pre-trial
and further admitting liability for the due and demandable loan: "hindi ko po nais makipaglaban dito sa kasong ito
dahilan po itong perang ito dapat ko pong bayaran." Inter-Urban Developers, Inc. moved for summary judgment.
This time with the assistance of counsel, petitioner-spouses Agbada moved to amend their answer to
allege that the mortgage contract was not reflective of the true intention of the parties since in reality the loan was
interest-free and would mature only after (5) years from execution thereof and that they were denying under oath
the due execution and authenticity of the mortgage document. The trial court denied the amendment of the
answer holding that the change would substantially alter the gist of the defense.
The trial court promulgated its Summary Judgment in favor of respondent Inter-Urban Developers, Inc.
Petitioner-spouses did not appeal the Summary Judgment nor did they pay the judgment debt. Inter-
Urban Developers, Inc. moved for a decree of foreclosure which the spouses did not oppose nor did they attend
the hearing on the motion. The trial court granted the motion and issued a decree of foreclosure.
Respondent moved for an order authorizing the sale of the mortgaged real estate. Once again the
petitioner-spouses did not oppose the motion nor did they attend the hearing thereon. The trial court ordered the
foreclosure sale of the mortgaged property. The mortgaged real estate was sold at public auction to respondent
Inter-Urban Developers, Inc. as highest bidder.
Upon motion of Inter-Urban Developers, Inc. and despite petitioner-spouses' opposition thereto on the
ground that the purchase price of the mortgaged property was below its appraised value according to an appraisal
report, the trial court confirmed the sale in favor of Inter-Urban Developers, Inc. The trial court ruled that it could
not have given weight to the appraisal report since it was not authenticated nor was the appraiser presented to
allow Inter-Urban Developers, Inc. an opportunity to cross-examine on the appraised value of the property.
The spouses moved for reconsideration of the confirmation order several times insisting on the
inadequacy of the purchase price but was denied by the trial court.
the petitioner-spouses filed a Motion to Tender the Full Obligation of the Defendant Spouses alleging that
they had paid their obligation in the form of cashier's check which they left with the maid of the counsel of record
for Inter-Urban Developers, Inc. The trial court denied the motion.
For the first time since Summary Judgment had been rendered against them, petitioner-spouses filed with
the trial court a Motion to Cancel Certificate of Sale for being signed by an Unauthorized Officer/Person and to
Recall Summary Judgment for Lack of Jurisdiction which was denied.
Thereafter, petitioner-spouses filed a petition with the Court of Appeals. The petition sought the
annulment of the Summary Judgment for alleged violation of their right to due process arising from the absence of
a full-blown trial on a genuine issue of fact that the loan and mortgage would mature only on the fifth year
following its execution.
the Court of Appeals dismissed the petition and held that the subject matter thereof was barred by res
judicata, referring to the case wherein the appellate court denied with finality petitioner-spouses' second motion
for extension of time to file Petition for Review. The Court of Appeals also ruled that petitioner-spouses were in no
position to ask for annulment of the Summary Judgment since their negligence denied them the right to avail of
other remedies otherwise open to them, such as appeal, and that the spouses were estopped from assailing the
jurisdiction of the trial court after filing several motions to re-evaluate the assessed value of the mortgaged
property.

Issue: Whether or not the Real Estate Mortgage contract is valid and binding upon the parties.

Held: YES.
A party may be barred from raising questions of jurisdiction where estoppel by laches has set in. Estoppel
by laches is failure or neglect for an unreasonable and unexplained length of time to do what, by exercising due
diligence, ought to have been done earlier, warranting a presumption that the party entitled to assert it has either
abandoned to defend it or has acquiesced to the correctness and fairness of its resolution. Verily, after voluntarily
submitting a cause, it is too late for the loser to question the jurisdiction or power of the court just so he could
escape an adverse decision on the merits.
In the instant case, the allegation of deprivation of due process took more than (4) years of hibernation,
from 13 January 1995 when the trial court promulgated its Summary Judgment only to resurrect after failed
attempts to thwart the transfer of title over the foreclosed real estate in favor of respondent Inter-Urban
Developers, Inc. Evidently, petitioner-spouses are barred by laches from assailing the regularity of the Summary
Judgment as shown not only by their silence when they should have defended their alleged right to establish their
understanding of the interest rate and maturity of the loan and mortgage contract, but also by their full and
knowing participation in the proceedings, with the assistance of counsel, leading to the confirmation of the
foreclosure sale in favor of respondent Inter-Urban Developers, Inc.
It bears stressing that the proper remedy to seek reversal of judgment in an action for foreclosure of
real estate mortgage is not a petition for annulment of judgment but an appeal from the judgment itself or from
the order confirming the sale of the foreclosed real estate. Since petitioner-spouses failed to avail of appeal
without sufficient justification, they cannot conveniently resort to the action for annulment for otherwise they
would benefit from their own inaction and negligence.
 In the instant case, while petitioner-spouses appear to tender a material issue of fact, i.e., demandability
and interest rate of the loan, summary judgment would nonetheless be proper where it is shown that issues
tendered are sham, fictitious, contrived, set up in bad faith, or patently unsubstantial.
We rule that the affirmative defense sets up a sham issue which justifies summary judgment. For one,
petitioner-spouses have not explained how their affirmative defense, since it attempts to vary a written
agreement, could be proved by admissible evidence. It would be useless to avail of a complete trial where the
issue proposed by petitioner-spouses could not be resolved in any manner other than by referring to the explicit
terms of the loan and mortgage agreement. To be sure, where the parties have reduced their agreement in
writing, it is presumed that they have made the writing the only repository and memorial of the truth and
whatever is not found in the writing must be understood to have been waived and abandoned.
While it is true that contracting parties may establish stipulations, clauses, terms and conditions as they
may deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy,
the parol evidence rule forbids any addition to or contradiction of the terms of an agreement reduced into writing
by testimony purporting to show that, at or before the signing of the document, other or different terms were
orally agreed upon by the parties. As applied herein, the alleged terms of the contemporaneous agreement
between petitioner-spouses and Simeon Ong Tiam cannot be proved for they are not embodied in the mortgage
deed but exist only in their faint recollection. Only the terms of the loan and mortgage agreement providing for six
(6) months maturity from date of execution thereof and the interest rate of three percent (3%) per month are
worth considering and implementing.
Petitioner-spouses cannot invoke any of the exceptions to the parol evidence rule, more particularly, the
alleged failure of the writing to express the true intent and agreement of the parties. The exception obtains only
where the written contract is so ambiguous or obscure in terms that the contractual intention of the parties
cannot be understood from a mere reading of the instrument, thus necessitating the reception of relevant extrinsic
evidence of the contractual provision in dispute to enable the court to make a proper interpretation of the
instrument.
Finally, we find no merit in petitioner-spouses' claim that the purchase price of the mortgaged real
property was way below its appraised value. To begin with, they deliberately withheld the presentation of their
own evidence which might have proved this matter and thus unfortunately deprived respondent Inter-Urban
Developers, Inc. the opportunity to cross-examine whatever such evidence would tend to establish. Equally
significant, the low purchase price could have worked in the petitioner-spouses' favor if they promptly exercised
their equity of redemption.

PHILIPPINE NATIONAL BANK vs. SPOUSES TOMAS CABATINGAN and AGAPITA EDULLANTES
Represented by RAMIRO DIAZ as Their Attorney-in-Fact

Facts:
Respondent spouses obtained two loans, secured by a real estate mortgage from petitioner Philippine
National Bank. However, they were unable to fully pay their obligation despite having been granted more than
enough time to do so. Thus, petitioner extrajudicially foreclosed on the mortgage pursuant to Act 3135.
Thereafter, a notice of extrajudicial sale was issued stating that the foreclosed properties would be sold at
public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m.
Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction
began at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder.
Respondent spouses filed in the (RTC) a complaint for annulment of extrajudicial foreclosure of real estate
mortgage and the November 5, 1991 auction sale. They invoked Section 4 of Act 3135 which provides: The sale
shall be made at public auction, between the hours of nine in the morning and four in the afternoon, and shall be
under the direction of the sheriff of the province, the justice or auxiliary justice of peace of the municipality in
which such sale has to be made, or of a notary public of said municipality, who shall be entitled to collect a fee of
Five pesos for each day of actual work performed, in addition to his expenses.
Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the public
auction was held for only 20 minutes (instead of seven hours as required by law), the consequent sale was void.
The RTC ruled in favor of the respondent spouses.

Issue: Whether a sale at public auction, to be valid, must be conducted the whole day from 9:00 a.m. until 4:00
p.m. of the scheduled auction day.

Held: NO.
Act 3135 regulates the extrajudicial sale of mortgaged real properties by prescribing a procedure which
effectively safeguards the rights of both debtor and creditor. Thus, its construction must be equally and mutually
beneficial to both parties.
A creditor may foreclose on a real estate mortgage only if the debtor fails to pay the principal obligation
when it falls due. The foreclosure of a mortgage does not ipso facto extinguish a debtor's obligation to his creditor.
The proceeds of a sale at public auction may not be sufficient to extinguish the liability of the former to the latter.
For this reason, we favor a construction of Section 4 of Act 3135 that affords the creditor greater opportunity to
satisfy his claim without unduly rewarding the debtor for not paying his just debt.
The word "between" ordinarily means "in the time interval that separates." Thus, "between the hours of
nine in the morning and four in the afternoon" merely provides a time frame within which an auction sale may be
conducted. Therefore, a sale at public auction held within the intervening period provided by law (i.e., at any time
from 9:00 a.m. until 4:00 p.m.) is valid, without regard to the duration or length of time it took the auctioneer to
conduct the proceedings.

AMPARO G. PEREZ, ET AL. vs. PHILIPPINE NATIONAL BANK, Binalbagan Branch, ET AL.

Facts:
Vicente Perez mortgaged Lot No. 286-E to the appellant Philippine National Bank in order to secure
payment of a loan of P2,500, plus interest, payable in yearly installments. On October 7, 1942, Vicente Perez,
mortgagor, died intestate, survived by his widow and children. At that time, there was an outstanding balance of
P1,917.00, and corresponding interest, on the mortgage indebtedness.
The widow of Perez instituted Special Proceedings of the Court of First Instance for the settlement of the
estate of Vicente Perez. The widow was appointed Administratrix, and notice to creditors was duly published. The
Bank did not file a claim. The project of partition was submitted and was approved and the properties distributed
accordingly.
It appears also that, as early as March of 1947, the widow of the late Vicente Perez inquired by letter from
the Bank the status of her husband's account and she was informed that there was an outstanding balance
thereon of P2,758.84 earning a daily interest of P0.4488. She was furnished a copy of the mortgage.
The Bank, pursuant to authority granted it in the mortgage deed, caused the mortgaged properties to be
extrajudicially foreclosed. In the ordinary course, after the lapse of the year of redemption, Certificate of Title was
issued in the name of the Bank. The widow and heirs of Perez were not notified.
Three months later, the widow and heirs of Vicente Perez instituted this case against the Bank in the court
below, seeking to annul the extra-judicial foreclosure sale, claiming that the Bank had acted illegally and in bad
faith. After trial, the court rendered judgment holding that the Bank should have foreclosed its mortgage in court;
that the power to sell contained in the deed of mortgage had terminated upon the death of the mortgagor.
Issue: Whether the power of extra judicial sale terminates upon the death of the mortgagor making the
extrajudicial foreclosure invalid.

Held: NO.
The ruling in Pasno vs. Ravina not having been reiterated in any other case, we have carefully reexamined
the same, and after mature deliberation have reached the conclusion that the dissenting opinion is more in
conformity with reason and law.
the three alternative courses that section 7, Rule 87 (now Rule 86), offers the mortgage creditor, to wit,
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (2)
foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely on the mortgage
exclusively, foreclosing the same at any time before it is barred by prescription, without right to file a claim for any
deficiency.
The argument that foreclosure by the Bank under its power of sale is barred upon death of the debtor,
because agency is extinguished by the death of the principal, neglects to take into account that the power to
foreclosure is not an ordinary agency that contemplates exclusively the representation of the principal by the
agent, but is primarily an authority conferred upon the mortgagee for the latter's own protection. It is, in fact, an
ancillary stipulation supported by the same causa or consideration for the mortgage and forms an essential and
inseparable part of that bilateral agreement.

LUISA GUANCO, assisted by her husband, LEONARDO GUANCO vs. ISIDRO ANTOLO

Facts:
Isidro Antolo, applied for a loan from the Rural Bank of Sibalom (RBS). To secure payment, Antolo
executed a Real Estate Mortgage over a parcel of land. Sometime thereafter, Antolo transferred his residence to
Bacolod City, where he found work, without, however, leaving any forwarding address to RBS.
RBS, through its Manager, Mañosa, sent a letter to Antolo reminding him that his loan was to mature on
April 21, 1977, and that he was expected at the bank on said date. However, Antolo did not go to the RBS or pay
his loan on its maturity date.
Mañosa again requested him to pay his account with RBS, otherwise the real estate mortgage would be
foreclosed. Antolo failed to pay his loan account.
In a letter dated December 7, 1983, Antolo inquired how much his loan account with the bank was, ito
enable him to "redeem" his title. The bank replied via a letter informing Antolo that his loan account had already
been paid on August 29, 1977, as evidenced by Official Receip, and that consequently, the owner's duplicate of his
title had already been released. In a letter dated January 10, 1984, Antolo informed RBS that he had no knowledge
that his loan account had been paid and the owner's duplicate of title over the mortgaged property released.
Antolo furnished the Central Bank of the Philippines with a copy of his letter.
The Office of the Special Assistant to the Central Bank Governor informed Antolo that verification of the
matter yielded the following: Antolo was granted a supervised credit loan of P600.00 to mature on April 21, 1977;
he failed to pay the loan upon maturity; the bank's legal counsel sent a collection letter on June 21, 1977, after
which his account was transferred to Items in Litigation on July 21, 1977; he paid his account on August 29, 1977
for which he was issued Official Receipt No. 5280 for P705.88.
In a letter to the Central Bank , Antolo complained that RBS had released the owner's duplicate of his title
to a third-party which he had not authorized. He made inquiries from the Register of Deeds and discovered that
the TCT had been cancelled by a Certificate of Sale executed by the Provincial Sheriff through Deputy Sheriff Alvior.
It appears on the face of the said certificate that Antolo's property was sold at a public auction held at 10:00 a.m.
on August 19, 1977 in favor of one Luisa Guanco for P775.00, who was allegedly the sole bidder. The certificate of
sale was annotated at the dorsal portion of his title, and a Final Deed of Sale was executed in favor of Guanco on
by Deputy Sheriff Alvior for P930.00.
Antolo filed a complaint against Luisa Guanco and her husband Leonardo Guanco, Provincial Sheriff Alvior
and the RBS, for annulment of the sheriff's sale, recovery of ownership with damages.
Antolo testified that he had inherited the subject property from his aunt, Maria Combong. He executed an
affidavit of self-adjudication as her sole heir, and othe Register of Deeds issued TCT covering the property in his
name. He signed an acknowledgment receipt for an additional amount for and in behalf of his aunt, acknowledging
receipt of P200.00 under the contract of sale with right to repurchase in favor of Luisa Guanco executed in 1974.
He insisted that he never received any notice from the Provincial Sheriff relative to the extrajudicial foreclosure of
the real estate mortgage he executed in favor of RBS and the sale thereof at public auction.
Guanco testified that Maria Combong executed in her favor a contract of sale, with right to repurchase
within (5) years from execution. Maria Combong, through her nephew, Isidro Antolo, received P200.00 from her as
additional consideration for the sale of the property under the contract of sale with right to repurchase. Combong
had agreed to extend the period to repurchase the property to August 1980. This is evidenced by an
acknowledgment receipt of the additional amount of P200.00 signed by Antolo.
Guanco further testified that Antolo's wife, handed to her the demand letter of RBS, in which it
demanded payment of Antolo's loan account within 10 days. She went to see Deputy Sheriff Alvior who advised
her to buy the property directly from RBS before it was sold at public auction.
Guanco declared that she never filed a petition for consolidation of her title over the property. She then
decided to purchase the property, since it had already been sold to her by Maria Combong. However, she was not
issued any receipt by the RBS for the amount.
The RTC rendered judgment in favor of petitioners herein holding that notwithstanding the absence of
notice, the sale is valid.
The CA rendered judgment reversing the decision of the RTC.

Issue: Whether the sale at public auction is valid.

Held: NO.
First. Under Section 5 of Republic Act No. 720, as amended by Rep. Act No. 7939, the provincial sheriff is
mandated to post a notice of the foreclosure of the real estate mortgage in at least three of the most conspicuous
public places not only in the municipality but also in the barrio where the land mortgaged is situated during the 60-
day period immediately preceding the public auction.
In this case, the provincial sheriff failed to comply with the law. It appears on the face of the Final Deed of
Sale executed by Deputy Sheriff Alvior that the petition for extrajudicial foreclosure of the real estate mortgage
purportedly filed with the said office was dated July 21, 1977. The deputy sheriff set the public auction sale on
August 19, 1977, or less than a month after the filing of the said petition, short of the 60 day-period under Section
5 of Rep. Act No. 720, as amended.
Second. Deputy Sheriff Alvior made it appear in the Certificate of Sale that he sold the property to
petitioner Luisa Guanco, allegedly the lone bidder for P775.00. Moreover, the deputy sheriff certified in the Final
Deed of Sale dated August 28, 1977 that he sold the property to petitioner Luisa Guanco on August 19, 1977 not
only for P775.00 but also for P930.00.
Third. What happened was that the petitioner Luisa Guanco arrived at the Office of the RBS, paid
respondent's loan account and was issued Official Receipt. Since respondent's loan account had been paid, there
was no more need for the extrajudicial foreclosure of the real estate mortgage. The RBS released the real estate
mortgage, as well as the owner's duplicate to petitioner Luisa Guanco without respondent's authorization.
 Fourth. The RBS had no copy of any petition for the extrajudicial foreclosure of the real estate mortgage
filed with the Office of the Provincial Sheriff. The RBS did not, in fact, file any because the loan account of
respondent had already been paid. However, petitioner Luisa Guanco and the deputy sheriff made it appear that a
public auction sale took place, that she purchased the property for on said date, that respondent failed to redeem
the property within the requisite period, and, consequently, a final deed of sale was executed.The only conclusion
is that Deputy Sheriff Alvior made it appear in the certificate of sale that a sale at public auction was conducted on
August 19, 1977, and that respondent failed to redeem the property within one year from registration of the sale.

SPOUSES NORMAN K. CERTEZA, JR. and MA. ROSANILA V. CERTEZA, AND AMADA P.
VILLAMAYOR and HERMINIO VILLAMAYOR, JR. vs. PHILIPPINE SAVINGS BANK

Facts:
Petitioners obtained a loan from respondent (PS Bank), secured by two parcels of land.
Petitioners failed to pay their outstanding obligation despite demands hence PS Bank instituted an action
for Extrajudicial Foreclosure of the Real Estate Mortgage.
During the auction sale PS Bank emerged as the sole and highest bidder.
Petitioners filed an Omnibus Motion for Leave to Intervene and to Stay Issuance or Implementation of
Writ of Possession. They sought the nullification of the extrajudicial foreclosure sale for allegedly having been
conducted in contravention of the procedural requirements prescribed in A.M. No. 99-10-05-0 (Re: Procedure in
Extrajudicial Foreclosure of Real Estate Mortgages).
The RTC of Quezon City issued an Order denying the motion for intervention and to stay the
implementation of the writ stating that the issuance of the writ of possession is ministerial in character hence the
implementation of such is likewise ministerial.
The CA affirmed the decision of the RTC.
Petitioners submit that the writ of possession is null and void because of patent irregularities in the conduct of the
foreclosure sale. In support of their contention, petitioners argue that A.M. No. 99-10-05-0 which took effect on
January 15, 2000, requires that there must be at least two participating bidders in an auction sale.

Issue: Whether there must be at least 2 participating bidders in an auction sale.

Held: NO.
The requirement for at least two participating bidders provided in the original version of paragraph 5 of
A.M. No. 99-10-05-0 is not found in Act No. 3135. Hence, in the Resolution of the Supreme Court en banc dated
January 30, 2001, we made the following pronouncements: (1) this requirement is not found in Act No. 3135 and
that it is impractical and burdensome, considering that not all auction sales are commercially attractive to
prospective bidders; (2) The two-bidder rule is provided under P.D. No. 1594 and its implementing rules with
respect to contracts for government infrastructure projects because of the public interest involved. Although there
is a public interest in the regularity of extrajudicial foreclosure of mortgages, the private interest is predominant.
The reason, therefore, for the requirement that there must be at least two bidders is not as exigent as in the case
of contracts for government infrastructure projects; (3) the new requirement will necessitate republication of the
notice of auction sale in case only one bidder appears at the scheduled auction sale. This is not only costly but,
more importantly, it would render naught the binding effect of the publication of the originally scheduled sale.
The use of the word "bids" (in plural form) does not make it a mandatory requirement to have more than
one bidder for an auction sale to be valid. A.M. No. 99-10-05-0, as amended, no longer prescribes the requirement
of at least two bidders for a valid auction sale.
 SPOUSES VICENTE YU AND DEMETRIA LEE-YU vs. PHILIPPINE COMMERCIAL INTERNATIONAL
BANK
Facts:
Under a Real Estate Mortgage spouses Vicente Yu and Demetria Lee-Yu (petitioners) mortgaged their title
over several parcels of land in favor of the Philippine Commercial International Bank (respondent) as security for
the payment of a loan in the amount of P9,000,000.00.
As the petitioners failed to pay the loan, respondent filed owith the Office of the Clerk of Court and Ex-
Officio Sheriff of the Regional Trial Court a Petition for Extra-Judicial Foreclosure of Real Estate Mortgage.
At the auction sale, respondent emerged as the highest bidder.
About two months before the expiration of the redemption period, respondent filed an Ex-Parte Petition
for Writ of Possession before the Regional Trial Court.
Petitioners filed a Motion to Dismiss stating that the Certificate of Sale is void because respondent
violated Article 2089 of the Civil Code on the indivisibility of the mortgaged by conducting two separate
foreclosure proceedings on the mortgage properties in Dagupan City and Quezon City.
In the meantime, petitioners filed a complaint for Annulment of Certificate of Sale before the Regional
Trial Court.
RTC denied petitioners' Motion to Dismiss ruling that the filing of a motion to dismiss is not allowed in
petitions for issuance of writ of possession under Section 7 of Act No. 3135.
Petitioners filed a Motion for Reconsideration, further arguing that the pendency of Civil Case (Anullment
of Certificate of Sale) is a prejudicial issue to Spec. Proc. in RTC (Ex-Parte Petition for Writ of Possession), the
resolution of which is determinative on the propriety of the issuance of a writ of possession.
RTC Branch denied petitioners' Motion for Reconsideration, holding that the principle of prejudicial
question is not applicable because both cases are civil in nature.
The petitioners filed a petition for certiorari in the CA which was dismissed on the grounds that
petitioners violated Section 8 of Act No. 3135 and disregarded the rule against multiplicity of suits in filing Civil
Case RTC Branch despite full knowledge of the pendency of Spec. Proc. in RTC; that since the one-year period of
redemption has already lapsed, the issuance of a writ of possession in favor of respondent becomes a ministerial
duty of the trial court; that the issues in Civil Case are not prejudicial questions to Spec. Proc.
Petitioners contend that since a real estate mortgage is indivisible, the mortgaged properties in Dagupan
City and Quezon City cannot be separately foreclosed. Petitioners further point out that two notices of extra-
judicial sale indicated that petitioners' obligation is P10,437,015.20 22 each as of March 31, 1998 or a total of
P20,874,030.40, 23 yet their own computation yields only P9,957,508.90
Petitioners posit that the pendency of Civil Case is a prejudicial issue, the resolution of which will render
the issues in Spec. Proc. moot and academic. Petitioners further aver that they did not violate Section 8 of Act No.
3135 in filing a separate case to annul the certificate of sale since the use of the word "may" in said provision
indicates that they have the option to seek relief of filing a petition to annul the certificate of sale in the
proceeding involving the application for a writ of possession or in a separate proceeding.
Respondent contends that the filing of two separate foreclosure proceedings did not violate the
indivisibility of a real estate mortgage since Section 2 of Act No. 3135 expressly provides that extra-judicial
foreclosure may only be made in the province or municipality where the property is situated. That the filing of
separate applications for extra-judicial foreclosure of mortgage involving several properties in different locations is
allowed by A.M. No. 99-10-05-0, the Procedure on Extra-Judicial Foreclosure of Mortgage.
That petitioners should have filed their Petition to Annul the Certificate of Sale in the same case where
possession is being sought, that is, in Spec. Proc. and not in a separate proceeding (Civil Case) because the venue
of the action to question the validity of the foreclosure is not discretionary since the use of the word "may" in
Section 8 of Act No. 3135 refers to the filing of the petition or action itself and not to the venue.
Issue:

1. Whether foreclosure conducted on separate locations involving separate properties violates the rule on
indivisibility;
2. Whether there is multiplicity of suits by instituting a separate civil suit for the annulment of the
Certificate of sale.

Held:

1. NO.
The rule on indivisibility of mortgage presupposes several heirs of the debtor or creditor and therefore
not applicable to the present case. What the law proscribes is the foreclosure of only a portion of the
property or a number of the several properties mortgaged corresponding to the unpaid portion of the
debt where, before foreclosure proceedings, partial payment was made by the debtor on his total
outstanding loan or obligation. This also means that the debtor cannot ask for the release of any portion
of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus
secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the
obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the
proportionate extinguishment of the mortgage as long as the debt is not completely satisfied.
The Procedure on Extra-Judicial Foreclosure of Mortgage, lays down the guidelines for extra-judicial
foreclosure proceedings on mortgaged properties located in different provinces. It provides that the
venue of the extra-judicial foreclosure proceedings is the place where each of the mortgaged property is
located.
The indivisibility of the real estate mortgage is not violated by conducting two separate foreclosure
proceedings on mortgaged properties located in different provinces as long as each parcel of land is
answerable for the entire debt. Petitioners' assumption that their total obligation is P20,874,030.40
because the two notices of extra-judicial sale indicated that petitioners' obligation is P10,437,015.20 31
each, is therefore flawed. Considering the indivisibility of a real estate mortgage, the mortgaged
properties in Dagupan City and Quezon City are made to answer for the entire debt of P10,437,015.29.
2. NO.
Under Sec. 8 of Act 3135 the mortgagor may file a petition to set aside the sale and for the cancellation of
a writ of possession with the trial court which issued the writ of possession within 30 days after the
purchaser mortgagee was given possession. Thus, this provision presupposes that the trial court already
issued a writ of possession.
Accordingly, Section 8 of Act No. 3135 is not applicable to the present case since at the time of the filing
of the separate civil suit for annulment of the certificate, no writ of possession was yet issued

Note: No prejudicial question because both cases are civil in nature and issues in the said cases are different
(whether certificate is null and void, Whether respondent is entitled to possession); No litis pendentia for the
absence of the 2nd and 3rd requisite. (a) identity of parties or at least such as represent the same interest in both
actions; (b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and, (c)
the identity in the two cases should be such that the judgment that may be rendered in one would, regardless of
which party is successful, amount to res judicata in the other.
 UNITED COCONUT PLANTERS BANK vs. SPOUSES SAMUEL and ODETTE BELUSO

Facts:
UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter
could avail from the former credit of up to a maximum amount of P1.2 Million pesos. The spouses Beluso
constituted, other than their promissory notes, a real estate mortgage over parcels of land as additional security
for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory
Notes Line to a maximum of P2.35 Million pesos.
The promissory notes were renewed several times and in order to avail of the maximum credit, the
spouses executed two more promissory notes.
UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to
February 1998 the spouses Beluso were able to pay the total sum of P763,692.03.
The spouses failed to make any further payments.
UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorney's
fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties
mortgaged by the spouses.
The spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of
Makati City.
The RTC ruled in favor of the Spouses which was affirmed by the CA.
The spouses Beluso's contends that the demand made by UCPB is for a considerably bigger amount and,
therefore, the demand should be considered void. There being no valid demand, according to the spouses Beluso,
there would be no default, and therefore the interests and penalties would not commence to run. The spouses
Beluso retort that since they had the right to refuse payment of an excessive demand on their account, they
cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses Beluso, the
foreclosure is improper.
UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at
bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said bank. UCPB claims that the spouses Beluso's
action for annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by
Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree.

Issue: Whether the foreclosure on the properties is valid.

Held: YES.
Default commences upon judicial or extrajudicial demand. The excess amount in such a demand does not
nullify the demand itself, which is valid with respect to the proper amount. A contrary ruling would put commercial
transactions in disarray, as validity of demands would be dependent on the exactness of the computations thereof,
which are too often contested.
There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in
default with respect to the proper amount and, therefore, the interests and the penalties began to run at that
point.
We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a
valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are
considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they
mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be
applied to the extent of the amounts to which UCPB is rightfully entitled.
 As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case.
The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion,
accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and
regularly conducted; or (3) that the price was inadequate and the inadequacy was so great as to shock the
conscience of the court.

Note: The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as determined by
the Branch Head" is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB
has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in
both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can
easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality
of contracts; There is a violation of the Truth in Lending Act because prior to the consummation of the transaction,
the interest rates in the promissory notes were left blank. Thus UCPB failed to discharge its duty to the Spouses to
disclose in full the charges applicable to their loans.

CHATTEL MORTGAGE

DAVAO SAW MILL CO., INC. vs. APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO.,
INC.
Facts:
The Davao Saw Mill Co., Inc., operated a saw mill in the Province of Davao. However, the land upon which
the business was conducted belonged to another person. On the land, the sawmill company erected a building
which housed the machinery used by it. In the contract of lease between the sawmill company and the owner of
the land there appeared the provision that upon the expiration of the period of the lease improvements and
buildings on the land shall pass to the exclusive ownership of the lessor without any obligation to pay any
compensation; in the event that the lessee abandons the land prior to the expiration period, all improvements
thereon shall also pass to the ownership of the lessor; provided however, that accessories and machineries are not
included.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao Saw Mill Co.,
Inc., was the defendant, a judgment was rendered in favor of the plaintiff; a writ of execution issued thereon, and
the properties now in question were levied upon as personalty by the sheriff. No third party claim was filed for
such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein. Indeed
the bidder, which was the plaintiff in that action, and the defendant herein having consummated the sale,
proceeded to take possession of the machinery and other properties described in the corresponding certificates of
sale executed in its favor by the sheriff of Davao.

Issue: Whether the subject machineries are personal properties.

Held: YES.
In the first place, it must again be pointed out that the appellant should have registered its protest before
or at the time of the sale of this property. It must further be pointed out that while not conclusive, the
characterization of the property as chattels by the appellant is indicative of intention and impresses upon the
property the character determined by the parties.
 It was held that machinery which is movable in its nature only becomes immobilized when placed in a
plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person
having only a temporary right, unless such person acted as the agent of the owner.
Machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner
of the property or plant. Such result would not be accomplished, therefore, by the placing of machinery in a plant
by a tenant or a usufructuary or any person having only a temporary right.

ALEJANDRA TORRES ET AL. vs. FRANCISCO LIMJAP, Special Administrator of the estate of the
deceased Jose B. Henson

Facts:
In the first case, the plaintiffs alleged that Jose B. Henson, in his lifetime, executed in their favor a chattel
mortgage on his drug store known as Farmacia Henson, to secure a loan.
In the second case the plaintiffs alleged that they were the heirs of the late Don Florentino Torres; and
that Jose B. Henson, in his lifetime, executed in favor of Don Florentino Torres a chattel mortgage on his three
drug stores known as Henson's Pharmacy, Farmacia Henson and Botica Hensonina, to secure a loan of P50,000,
which was later reduced to P26,000, and for which, Henson's Pharmacy at Nos. 71-73 Escolta, remained as the only
security by agreement of the parties.
In both cases the plaintiffs alleged that the defendant violated the terms of the mortgage and that, in
consequence thereof they became entitled to the possession of the chattels and to foreclose their mortgages
thereon.
After hearing the evidence adduced during the trial, the Honorable Mariano Albert, arrived at the
conclusion (a) that the defendant defaulted in the payment of interest on the loans secured by the mortgages; (b)
that by reason of said failure said mortgages became due, and (c) that the plaintiffs, as mortgagees, were entitled
to the possession of the drug stores Farmacia Henson and Henson's Pharmacy.
The appellant attacks the validity of the stipulation in said mortgages authorizing the mortgagor to sell the
goods covered thereby and to replace them with other goods thereafter acquired. He insists that a stipulation
authorizing the disposal and substitution of the chattels mortgaged does not operate to extend the mortgage to
after-acquired property, and that such stipulation is in contravention of the express provision of the last paragraph
of section 7 of Act No. 1508, which reads as follows:
"A chattel mortgage shall be deemed to cover only the 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 mortgage to the contrary notwithstanding."

Issue: Whether or not a chattel mortgage may extend to after acquired properties.

Held: YES.
In order to give a correct construction to the above-quoted provision of our Chattel Mortgage Law, the
spirit and intent of the law must first be ascertained. When said Act was placed on our statute books by the United
States Philippine Commission, the primary aim of that law-making body was to promote business and trade in
these Islands and to give impetus to the economic development of the country. 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, such as
drug stores, grocery stores, dry- goods stores, etc. If said provision were intended to apply to this class of business,
it would be practically impossible to constitute a mortgage on such stores without closing them, contrary to the
very spirit and purpose of said Act.
 A stipulation in the mortgage, extending its scope and effect to after-acquired property, is valid and
binding where the after-acquired property is in renewal of, or in substitution for, goods on hand when the
mortgage was executed, or is purchased with the proceeds of the sale of such goods, etc.
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.

PASTOR TOLENTINO vs. BASILIO BALTAZAR, DIRECTOR OF THE BUREAU OF LANDS and
ESTATE OF ANGEL BALTAZAR, deceased

Facts:
The object of this litigation is a parcel of land located in the province of Nueva Ecija. Angel Baltazar filed
therefor a homestead application which was approved by the Director of Lands. Subsequently, he mortgaged the
present and future improvements on said land to Pastor Tolentino, for the sum of P1,500, with the understanding
that if the same were not paid, Tolentino could elect, either to foreclose the mortgage or to compel the debtor to
execute a deed of absolute sale of said improvements. After the death of Angel Baltazar in 1945, his widow and
children conveyed to his son Basilio Baltazar their rights and interest in and to said land. Apparently relying upon
this conveyance, Basilio Baltazar filed with the Bureau of Lands a petition praying that the homestead application
in his father's name be cancelled, and that, in lieu thereof, his own application be admitted. This petition was soon
granted.
Tolentino instituted the present action against the estate of Angel Baltazar, deceased, his son Basilio
Baltazar, and the Director of Lands, for the cancellation of said Original Certificate upon the ground that Basilio
Baltazar had secured it by fraud.
In due course, the Court of First Instance of Nueva Ecija rendered a decision holding that Basilio Baltazar
had not been guilty of fraud in securing the homestead patent and certificate of title in his name; That Tolentino
has merely a money claim that should be filed against the estate of the deceased, Angel Baltazar, and does not
warrant cancellation of Basilio Baltazar's patent and certificate of title and consequently, dismissing plaintiff's
complaint.
the Court of Appeals affirmed the decision of the Court of First Instance upon the ground that Tolentino
has no personality to bring the present action, the same being, in effect, one for reversion under section 101 of
Commonwealth Act No. 141, which may be initiated only by the Solicitor General, and the Director of Lands not
having appealed from the decision of the court of first instance; that an action for cancellation of a title issued by
virtue of a homestead patent should be instituted within one (1) year from the issuance thereof, which had
elapsed prior to the commencement of this case; that the instrument executed by Angel Baltazar in favor of Pastor
Tolentino seems to partake of the nature of a chattel mortgage; that as such it is defective and cannot be
registered owing to its failure to describe properly the improvements sought to be encumbered thereby; that a
homestead cannot become liable for the satisfaction of a debt contracted within five (5) years from and after
the date of issuance of the corresponding patent; that the monetary obligation of Angel Baltazar in favor of
Pastor Tolentino was contracted within said period of time, and, hence, the homestead in question cannot be
annotated on Basilio Baltazar's certificate of title, even if it had been issued in favor of the heirs of Angel
Baltazar.

Issue: Whether the chattel mortgage is valid.

Held: YES.
 Section 118 of Commonwealth Act No. 141 reads:
"Except in favor of the Government or any of its branches, units, or institutions, or legally
constituted banking corporations, lands acquired under the free patent or homestead provisions shall not
be subject to encumbrance or alienation from the date of the approval of the application and for a term
of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops
on the land may be mortgaged or pledged to qualified persons, associations, or corporations."
Pursuant to this provision a land acquired by homestead patent may neither be encumbered or alienated
from the date of the approval of the corresponding homestead application and for a period of five (5) years after
the issuance of the patent, nor be held liable for any debt contracted within such period of time. However, said
section 118 explicitly permits the encumbrance, by mortgage or pledge, of the improvements and crops on the
land, without any limitation in point of time. Although the parties to a contract may treat certain improvements
and crops as chattels, insofar as they are concerned, it is now settled in this jurisdiction that, in general, and insofar
as the public are concerned, such improvements, if falling under the provisions of Article 415 ,of the Civil Code of
the Philippines, are immovable property.
As a consequence, a mortgage constituted on said improvements must be susceptible of registration as a
real estate mortgage and of annotation on the certificate of title to the land of which they form part, although the
land itself may not be subject to said encumbrance, if the debt guaranteed thereby was contracted within the
period stated in said section 118 of Commonwealth Act No. 141. Otherwise, the provision authorizing the
mortgage of the improvements would be defeated.

CONCURRENCE AND PREFERENCE OF CREDIT

MAGDALENA S. DE BARRETTO and JOSE G. BARRETTO vs. JOSE G. VILLANUEVA

Facts:
Rosario Cruzado sold all her rights and interest in the house and lot herein involved to Pura L. Villanueva
for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of
P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor
obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean
certificate of title, and mortgaged the property to appellant Magdalena C. Baretto, married to Jose G. Barretto, to
secure a loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barreto. The latter foreclosed the mortgage in
her favor. Subsequently, Cruzado filed a motion for recognition for her "vendor's lien", invoking Articles 2242,
2243, and 2249 of the new Civil Code. After hearing, the court below ordered the "line" annotated on the back of
Certificate of Title, with the proviso that in case of sale under the foreclosure decree the vendor's lien and the
mortgage credit of appellant Barreto should be paid pro rata from the proceeds. Our original decision affirmed this
order of the Court of First Instance of Manila.
Appellants insists that: (1) The vendor's lien, under Articles 2242 and 2243 of the new Civil Code of the
Philippines, can only become effective in the event of insolvency of the vendee, which has not been proved to exist
in the instant case; and (2) That the appellee Cruzando is not a true vendor of the foreclosed property.

Issue: Whether the Vendor’s lien is a statutory lien co-equal to the recorded mortgage encumbrance.

Held: NO.
 Under the system of the Civil Code of the Philippines, only taxes enjoy a similar absolute preference. All
the remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but
must be paid pro rata, i.e., in proportion to the amount of the respective credits.
But in order to make the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of
Article 2242 (or such of them as have credits outstanding) must necessarily be convened, and the import of their
claims ascertained. It is thus apparent that the full application of Articles 2249 and 2242 demands that there
must be first some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such
as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
It becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale is
not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the
claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute
between two creditors will not enable the court to ascertain the pro rata dividend corresponding to each, because
the rights of the other creditors likewise enjoying preference under Article 2242 cannot be ascertained.
There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did not acquire the
character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain
subordinate to the latter.
Note: The Cruzados cannot be considered as vendors of the property because prior to the sale to the Villanuevas,
ownership of the subject lot is already in RFC pursuant to a foreclosure of the said property. Although the RFC
resold the said property to the Cruzados, ownership did not pass to the latter as the transaction is a conditional
sale. Hence, ownership of the property remained to the RFC and what was sold to the Villanuevas is only the right
to repurchase the said property.

PHILIPPINE SAVINGS BANK vs. HON. GREGORIO T. LANTIN, Presiding Judge, Court of First
Instance of Manila, Branch VII, and CANDIDO RAMOS

Facts:
Involved in this case is a duplex-apartment house on a lot situated at Manila, and owned by the spouses
Filomeno and Socorro Tabligan.
The duplex-apartment house was built for the spouses by private respondent Candido Ramos, at a total
cost of P32,927.00. The spouses paid private respondent the sum of P7,139.00 only. Hence, the latter used his own
money, P25,788.50 in all, to finish the construction of the duplex-apartment.
Meanwhile, the spouses Tabligan obtained from petitioner Philippine Savings Bank (3) loans. To secure
payment of the loans, the spouses executed in favor of the petitioner (3) promissory notes and (3) deeds of real
estate mortgages over the property subject matter of this litigation.
The petitioner registered the deeds of real estate mortgage with the Register of Deeds of Manila. At the
time of the registration of these mortgages, Transfer Certificate of Title No. 86195 was free from all liens and
encumbrances.
The spouses failed to pay their monthly amortizations. As a result thereof, the petitioner bank foreclosed
the mortgages, and at the public auction was the highest bidder.
On the other hand, the private respondent filed an action against the spouses to collect the unpaid cost of
the construction of the duplex-apartment before the Court of First Instance. During its pendency, the private
respondent succeeded in obtaining the issuance of a writ of preliminary attachment, and pursuant thereto, had
the property in question attached.
A decision was rendered in favor of the private respondent and against the spouses. A writ of execution
was accordingly issued but was returned unsatisfied.
 As the spouses did not have any properties to satisfy the judgment, the private respondent addressed a
letter to the petitioner for the delivery to him of his pro-rata share in the value of the duplex-apartment in
accordance with Article 2242 of the Civil Code. The petitioner refused to pay the pro-rata value prompting the
private respondent to file the instant action.
The petitioner bank would impress upon this Court that the proceedings had before the court below is not
one of the proceedings contemplated in the De Barreto case that will sustain the authority of the respondent court
to adjudicate the claims of all preferred creditors under Article 2242 of the Civil Code. Petitioner argues that for
Article 2242 of the Civil Code to apply, there must have been an insolvency proceeding or other liquidation
proceedings of similar import.
Upon the other hand, private respondent Ramos maintains that the proceedings had before the court
below can qualify as a general liquidation of the estate of the spouses Tabligan because the only existing property
of said spouses is the property subject matter of this litigation.

Issue: Whether the proceedings instituted by Private Respondent is in the nature of an insolvency proceeding as
to entitle him to a pro-rata share of the value of the duplex-apartment.

Held: NO.
The full application of Articles 2242 and 2249 demands that there must first be some proceeding where
the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a
decedent's estate under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the
construction of the duplex apartment. It is far from being a general liquidation of the estate of the Tabligan
spouses.
In the case at bar, although the lower court found that "there were no known creditors other than the
plaintiff and the defendant herein", this cannot be conclusive. It will not bar other creditors in the event they show
up and present their claims against the petitioner bank, claiming that they also have preferred liens against the
property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank which is
supposed to be indefeasible would remain constantly unstable and questionable. Such could not have been the
intention of Article 2243 of the Civil Code although it considers claims and credits under Article 2242 as statutory
liens.
Since the action filed by the private respondent is not one which can be considered as "equivalent general
liquidation" having the same import as an insolvency or settlement of the decedent's estate proceeding, the well
established principle must be applied that a purchaser in good faith and for value takes registered land free from
liens and encumbrances other than statutory liens and those recorded in the Certificate of Title. It is an admitted
fact that at the time the deeds of real estate mortgage in favor of the petitioner bank were constituted, the
transfer certificate of title of the spouses Tabligan was free from any recorded lien and encumbrances, so that the
only registered liens in the title were deeds in favor of the petitioner.
Note: Concurrence of credits occurs when the same specific property of the debtor or all of his property is
subjected to the claims of several creditors. The concurrence of credits raises no questions of consequence where
the value of the property or the value of all assets of the debtor is sufficient to pay in full all the creditors.
However, it becomes material when said assets are insufficient for then some creditors of necessity will not be
paid or some creditors will not obtain the full satisfaction of their claims. In this situation, the question of
preference will then arise, that is to say who of the creditors will be paid ahead of the others.
 DEVELOPMENT BANK OF THE PHILIPPINES vs. NATIONAL LABOR RELATIONS COMMISSION,
LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL
DEVELOPMENT
Facts:
The complainants in the two cases filed below were former employees of Lirag Textile Mills, Inc. (LIRAG,
for short). LIRAG was a mortgage debtor of DBP. Private respondent Labor Alliance for National Development
(LAND, for brevity) was the bargaining representative of the more or less 800 former rank and file employees of
LIRAG. LIRAG started terminating the services of its employees on the ground of retrenchment.
Joselito Albay, one of the employees dismissed , filed a complaint before the National Labor Relations
Commission (NLRC) against LIRAG for illegal dismissal. On 1 March 1982, LAND, on behalf of 180 dismissed
members, also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity pay, sick leave
and vacation leave pay and emergency allowance.
In a Decision, Labor Arbiter ordered LIRAG to pay the individual complainants. The NLRC (Third Division)
affirmed the same. That judgment became final and executor.
On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially foreclosed the
mortgaged properties for failure of LIRAG to pay its mortgage obligation. As the only bidder at the foreclosure sale,
DBP acquired said mortgaged properties.
By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained
unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was then entered.
LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale.
Upon motion of LAND, Labor Arbiter ordered the DBP impleaded.
Over the opposition of DBP, Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to
remit to the NLRC the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at
public auction in order to satisfy the judgment previously rendered.
In the meantime, by virtue of Proclamation Nos. 50 and 50-A, the Asset Privatization Trust (APT) became
the transferee of the DBP foreclosed assets of LIRAG. by virtue of that transfer, we deemed APT impleaded as a
party-petitioner.
It appears that a partial Compromise Agreement was entered into between APT and LAND (Litex Chapter)
whereby APT paid the complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their
claims, past and present, with respect to all assets of LITEX transferred by DBP to APT." That amount was received
by LAND's local President. Apparently , LAND, through its national President, filed its opposition to the
Compromise Agreement for being contrary to law, morals and public policy.

Issue: Whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor Arbiter granting
the Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in
these cases.

Held: YES.
Notably, after several amendments to the labor code, the terms "declaration" of bankruptcy or "judicial"
liquidation have been eliminated. This does not mean that liquidation proceedings have been done away with.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather,
Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence
and preference of credits, which provisions find particular application in insolvency proceedings where the claims
of all creditors, preferred or non-preferred, may be adjudicated in a binding manner.
In the event of insolvency, a principal objective should be to effect an equitable distribution of the
insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to
all of the insolvents's creditors may be given and where the claims of preferred creditors may be bindingly
adjudicated.
Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims
for unpaid wages do not therefore fall at all within the category of specially preferred claims established under
Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already
covered by Article 2241, number 6: `claims for laborers' wages, on the goods manufactured or the work done;' or
by Article 2242, number 3: `claims of laborers and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works.' To the extent that claims for unpaid wages fall outside the scope of
Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary
preferred credits under Article 2244.
A 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 (Article 2176, Civil
Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable
property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5)
of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article
2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred
credit although its impact is to move it from second priority to first priority in the order of preference established
by Article 2244 of the Civil Code.
Note: A distinction should be made between a preference of credit and a lien. A preference applies only to claims
which do not attach to specific properties. A lien creates a charge on a particular property.

A.C. RANSOM LABOR UNION-CCLU vs. NATIONAL LABOR RELATIONS COMMISSION, First
Division, A.C. RANSOM (PHILS.) CORPORATION, RUBEN HERNANDEZ, MAXIMO C. HERNANDEZ,
SR., PORFIRIO R. VALENCIA, LAURA H. CORNEJO, FRANCISCO HERNANDEZ, CELESTINO C.
HERNANDEZ and MA. ROSARIO HERNANDEZ

Facts:
In two earlier cases, petitioner was found guilty of unfair labor practice and was sentenced to reinstate
their 22 employees and to pay backwages.
The backwages due the 22 employees having been computed at P199,276.00 by the (CIR) Examiner,
successive Motions for Execution were filed by the UNION all of which RANSOM opposed stressing its "precarious
financial position if immediate execution of the backwages would be ordered." RANSOM manifested that it did not
have the necessary funds to deposit and asked that the employees' earnings elsewhere during this suspension be
deducted. After several hearings, a recomputation was made and the award of P199,276.00 was reduced to
P164,984.00.
The records show that, upon application filed by RANSOM on April 2, 1973, it was granted clearance by
the Secretary of Labor on June 7, 1973 to cease operation and terminate employment effective May 1, 1973,
without prejudice to the right of subject employees to seek redress of grievances under existing laws and decrees.
the UNION filed another Motion for Execution alleging that although RANSOM had assumed a posture of
suffering from business reverse, its officers and principal stockholders had organized a new corporation, the
Rosario Industrial Corporation (thereinafter called ROSARIO), using the same equipment, personnel, business
stocks and the same place of business. For its part, RANSOM declared that ROSARIO is a distinct and separate
corporation, which was organized long before these instant cases were decided adversely against RANSOM.
Writs of execution were issued successively against RANSOM, to no avail.
 the UNION again filed an ex-parte Motion for Writ of Execution and Garnishment praying that the Writ
issue against the Officers/Agents of RANSOM personally and or their estates, as the case may be, considering their
success in hiding or shielding the assets of said company. RANSOM countered that the CIR Decision could no longer
be enforced by mere Motion because more than five (5) years had already lapsed.
The motion was granted by the labor arbiter Genilo and held that the corporation’s officers and agents be
personally liable.
The NLRC, on appeal, modified the Decision by relieving the officers and agents of liability.
Reconsideration sought by the UNION from the NLRC was denied, hence this special civil action of
Certiorari.

Issue: Whether the Employees are entitled to payment of backwages.

Held: YES.
Incontrovertible is the fact that RANSOM was found guilty by the CIR, in its Decision of August 19, 1972, of
unfair labor practice; that its officers and agents were ordered to cease and desist from further committing acts
constitutive of the same, and to reinstate immediately the 22 union members to their respective positions with
backwages from July 25, 1969 until actually reinstated.
The alleged bankruptcy of RANSOM furnishes no justification for non-payment of backwages to the
employees concerned taking into consideration Article 110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Section 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before
the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first
preference and shall be paid in full before other creditors may establish any claim to a share in the assets
of the employer.
The decision of the CIR was rendered on August 19, 1972. Clearance to RANSOM to cease operations and
terminate employment granted by the Secretary of Labor was made effective on May 1, 1973. The right of the
employees concerned to backwages awarded them, therefore, had already vested at the time and even before
clearance was granted. Note should also be taken of the fact that the clearance was without prejudice to the right
of subject employees to seek redress of grievances under existing laws and decrees.
The worker preference applies even if the employer's properties are encumbered by means of a
mortgage contract, as in this case. So that, when machinery and equipment of RANSOM were sold to Revelations
Manufacturing Corporation for P2M in 1975, the right of the 22 laborers to be paid from the proceeds should have
been recognized, even though it is claimed that those proceeds were turned over to the Commercial Bank and
Trust Company (Comtrust) in payment of RANSOM obligations, since the workers' preference is over and above
the claim of other creditors.
 PHILIPPINE NATIONAL BANK vs. TERESITA CRUZ, JOSE AGRIPINO, BERNARDO BAUZON,
LUCRECIA BILBAO, MA. LUISA CABRERA, FRANCIS BAACLO, GUADALUPE CAMACHO, LUZ DE
LEON, MIKE VILLAVERDE, NEPOMUCENO MEDINA, EDGARDO MENDOZA, JENNIFER VELEZ,
AMELIA MEDINA, EDUARDO ESPEJO and RICARDO BATTO

Facts:
Aggregate Mining Exponents (AMEX) laid-off about (70%) of its employees because it was experiencing
business reverses. The retained employees constituting (30%) of the work force however, were not paid their
wages. This non-payment of salaries went on until July 1982 when AMEX completely ceased operations and
instead entered into an operating agreement with T.M. San Andres Development Corporation whereby the latter
would be leasing the equipment and machineries of AMEX.
The unpaid employees sought redress from the Labor Arbiter 1 who, on August 27, 1986 rendered a
decision finding their claim valid and meritorious.
AMEX and its President, Tirso Revilla did not appeal from this decision. But PNB, in its capacity as
mortgagee-creditor of AMEX interposed an appeal with the respondent Commission, not being satisfied with the
outcome of the case. The appeal was primarily based or the allegation that the workers' lien covers unpaid wages
only and not the termination or severance pay which the workers likewise claimed they were entitled to.

Issue: Whether the workers’ lien takes precedence over any other claim;

Held: YES.
This Court must uphold the preference accorded to the private respondents in view of the provisions of
Article 110 of the Labor Code which are clear and which admit of no other interpretation. The phrase "any
provision of law to the contrary notwithstanding" indicates that such preference shall prevail despite the order set
forth in Articles 2241 to 2245 of the Civil Code.6a No exceptions were provided under the said article, henceforth,
none shall be considered. Furthermore, the Labor Code was signed into Law decades after the Civil Code took
effect.
This Court declared that whenever two statutes of different dates and of contrary tenor are of equal
theoretical application to a particular case, the statute of later date must prevail being a later expression of
legislative will. Applying the aforecited case in the instant petition, the Civil Code provisions cited by the petitioner
must yield to Article 110 of the Labor Code.
This Court must reiterate the dictum laid down in A.C . Ransom that the conflict between Article 110 of
the Labor Code and Article 2241 to 2245 of the Civil Code must be resolved in favor of the former. A contrary ruling
would defeat the purpose for which Article 110 was intended; that is, for the protection of the working class,
pursuant to the never-ending quest for social justice.
Note: The court ruled that termination or separation pay is deemed as unpaid wages because in order to compute
for the same, the years of service rendered by the employee must be taken into account.

DEVELOPMENT BANK OF THE PHILIPPINES vs. HON. LABOR ARBITER ARIEL C. SANTOS,
PHILIPPINE ASSOCIATION OF FREE LABOR UNIONS (PAFLU-RMC CHAPTER) and its members,
MICHAEL PENALOSA, ET AL., SAMAHANG DIWANG MANGGAGAWA SA RMC-FFW CHAPTER,
and its members, JAIME ARADA, ET AL.

Facts:
In an earlier case, Labor Arbiter Manuel Caday awarded separation pay, wage and/or living allowance
increases and 13th month pay to the individual complainants who comprise some of the respondents in this case.
 Labor Arbiter Teodorico Dogelio likewise awarded separation pay, vacation and sick leave pay and unpaid
increases in the basic wage and allowances to the other private respondents herein in a previous case. After the
judgment had become final and executory, Dogelio issued a writ of execution directing NLRC Deputy Sheriff
Juanito Atienza to collect the total sum of (P85,961,058.70). The Deputy Sheriff, however, failed to collect the
amount so he levied upon personal and real properties of RMC.
A notice of levy on execution of certain real properties was annotated on the certificate of title filed with
the Register of Deeds of Pasig, Metro Manila, where all the said properties are situated.
Meanwhile, petitioner DBP obtained a writ of possession on June 7, 1985 from the Regional Trial Court
(RTC) of all the properties of RMC after having extra-judicially foreclosed the same at public auction earlier in 1983.
DBP subsequently leased the said properties to Egret Trading and Manufacturing Corporation, Rosario Textile Mills
and General Textile Mills.
The writ of possession prevented the scheduled auction sale of the RMC properties which were levied
upon by the private respondents. As a result, the latter filed an incidental petition with the NLRC to declare their
preference over the levied properties.
Labor Arbiter Dogelio issued an order declaring the respondents' first preference as regards wages and
other benefits due them over and above all earlier encumbrances on the aforesaid properties of said company,
particularly those being asserted by respondent Development Bank of the Philippines.
The petitioner appealed the order of Dogelio to the NLRC. The latter in turn, set aside the order and
remanded the case to public respondent Labor Arbiter Santos for further proceedings.
Meanwhile, another set of complainants (who are also named as respondents herein) filed a complaint
for separation pay, underpayment, damages, etc. This case was subsequently consolidated with the case pending
before respondent Santos.
Public Respondent Santos rendered a decision declaring that all complainants enjoy first preference as
regards separation pay, unpaid wages, and other benefits due them over all other encumbrance.
Petitioner DBP maintains that the public respondent misinterpreted Article 110 of the Labor Code and
Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code in that the said
respondent upheld the existence of the worker's preference over and above earlier encumbrances on the
properties of RMC despite the absence of any bankruptcy or liquidation proceeding instituted against the latter.
On the other hand, the respondents contend that under both Article 110 and its implementing rule, the
claims of the laborers for unpaid wages and other monetary benefits due them for services rendered prior to
bankruptcy enjoy first preference in the satisfaction of credits against a bankrupt company; that the word
"bankruptcy" in the Labor Code is used in its generic sense, meaning that condition of inability to pay one's debt;
and that Article 110 of the Labor Code is not confined to the situation contemplated in Articles 2236-2245 of the
Civil Code where all the preferred creditors must necessarily be convened and the import of their claims
ascertained.

Issue: Whether a liquidation proceeding is necessary in order to enforce preference.

Held: YES.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather,
Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence
and preference of credits, which provisions find particular application in insolvency proceedings where the claims
of all creditors, preferred or non-preferred, may be adjudicated in a binding manner.
A declaration of bankruptcy or a judicial liquidation must be present before the worker's preference may
be enforced. Thus, Article 110 of the Labor Code and its implementing rule cannot be invoked by the respondents
in this case absent a formal declaration of bankruptcy or a liquidation order.
 The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones
and the totality of the employer's asset should be brought into the picture. There can then be an authoritative,
fair, and binding adjudication instead of the piece meal settlement which would result from the questioned
decision in this case.

JERRY ONG vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its
Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE

Facts:
Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos. 13769
and 13770 against Rural Bank of Olongapo, Inc. (RBO). The petition averred that petitioner is the owner of the
aforementioned parcels of land. Said parcels of Land were mortgaged to petitioner by Respondent bank to
guarantee the obligation of Omnibus Finance. Omnibus Finance not being able to pay its obligation, petitioner
foreclosed the said properties. Petitioner has not been able to register the said properties because of the refusal
of the respondent to surrender the certificate of titles.
Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier
sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed with
finality on appeal before the Court of Appeals.
In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and,
pursuant to prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance
of petitioner's claim.
The trial court denied the motion to dismiss because it found that the causes of action in the previous and
present cases were different although it was silent on the jurisdictional issue.
The Bank appealed to the CA which reversed the decision of the Trial Court on the ground that Sec. 29,
par. 3, of R.A. 265 as amended by P.D. 1827 does not limit the jurisdiction of the liquidation court to claims against
the assets of the insolvent bank. The provision is general in that it clearly and unqualifiedly states that the
liquidation court shall have jurisdiction to adjudicate disputed claims against the bank. "Disputed claims" refer to
all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract,
damages, or whatever.

Issue: Whether the trial court has jurisdiction to take cognizance of the petitioners claim.

Held: NO.
Section 29, par. 3, of R.A. 265 as amended by P.D. 1827 provides:
If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . is insolvent or
business with safety to its depositors, creditors and the general public, it shall, if the public interest
requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The
Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance reciting the
proceedings which have been taken and praying the assistance of the court in the liquidation of such
institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims
against the bank . . . and enforce individual liabilities of the stockholders and do all that is necessary to
preserve the assets of such institution and to implement the liquidation plan approved by the Monetary
Board)
In Hernandez v. Rural Bank of Lucena, Inc., this Court ruled:
The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the
Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken
 with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent
bank should be filed in the liquidation proceeding.
The judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a
pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate
the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for
convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendent of Banks and regulate his operations.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK (Represented by its liquidator, MS. CARLOTA
P. VALENZUELA) vs. NATIONAL LABOR RELATIONS COMMISSION, Labor Arbiter EVANGELINE
LUBATON and FORTUNATO DIZON, JR.

Facts:
After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under receivership, and later ordered
liquidated by the Monetary Board of the Central Bank, FORTUNATO M. DIZON, Jr., who was then holding the
position of Executive Vice President and Chief Operating Officer of the bank, received a letter from the Central
Bank appointed liquidator, MS. CARLOTA P. VALENZUELA, informing him that his employment is being terminated.
Mr. Dizon filed with the liquidator a request for the payment to him of the cash equivalent of his vacation
and sick leave credits and unexpended/unused reimbursable allowance. His claims were not paid by the liquidator
upon counsel's advice that Dizon's claim should be treated as a claim of a creditor and should therefore be
processed pursuant to the liquidation plan as approved by the Monetary Board. Subsequent demands for payment
having been denied, Dizon filed a complaint with the labor arbiter against the bank for recovery of unpaid salary,
the cash equivalent of his accumulated vacation and sick leaves, termination pay.
The liquidator moved to dismiss the complaint questioning the jurisdiction of the labor arbiter.
The labor arbiter upheld her jurisdiction and promulgated a decision in favor of Dizon.
The liquidator contends that Firstly "all disputed claims against banks under liquidation pertain to the
exclusive jurisdiction of the liquidation court Secondly, the liquidator points out that "[t]he assailed decisions
directing the payment of the claims outside of the liquidation process amount to an undue preference in favor of a
particular creditor." The provision [Art. 110, Labor Code] entitles them only to preferential treatment over other
creditors in the same liquidation proceedings to the proceeds of the assets of the employer after the distributable
assets shall have been determined therein,".

Issue:

1. Whether the NLRC has jurisdiction over the case.

2. Whether the claim of Mr. Dizon enjoys preference over other creditors.

Held:

1. YES
There is nothing in Section 29 of the Central Bank act which suggests that the jurisdiction of the
liquidation court to adjudicate claims against the insolvent bank is exclusive. On the other hand, Article
217 of the Labor Code explicitly provides that labor arbiters have original and exclusive jurisdiction over
money claims of an employee against his employer.
We do not think that this jurisdiction would be lost simply because a former employer had been placed
under liquidation. The legislature deemed it wise to confer jurisdiction over labor disputes to a body
 exclusively of others and We are not prepared to divest such authority from the labor arbiter and the
NLRC absent any clear provision of law to that effect.
It is not a legal aberration that certain claims against an insolvent bank be litigated in another court where
to do so would be more practical; and more so in this case where it is not legally possible to litigate
Dizon's claims other than with the Labor Arbiter and the NLRC because of the express provision of the
Labor Code.
2. NO.
Article 110 of the Labor Code did not upgrade the worker's claim as absolutely preferred credit. There We
explained that the provision did not alter Articles 2241 and 2242 of the Civil Code so much so that
creditors with liens over a certain property are still given special preference over the proceeds of that
property. And it is only after these specially preferred credits are satisfied may the ordinary preferred
credits enumerated in Article 2244 of the Civil Code be paid according to their order of priority. The
significance of Article 110 in the scheme of concurrence and preference of credit is to raise the worker's
money claim into first priority under Article 2244.
Not being an absolutely preferred credit, as taxes are under Articles 2241 (1) and 2242 (1), Dizon's claims
cannot be paid ahead of other credits and outside of the liquidation proceeding because the "free
property" or the property left after the creditors mentioned in Articles 2241 and 2242 are paid has not yet
been determined.