Digest set #7 – November 2, 2015
mortgage would include any property he might acquire in
MORTGAGE
1. DILAG v. HEIRS OF RESSURECCION
G.R. No. 48941
May 6, 1946
Art. 2124
Jimo Dimson
FACTS:
Before 1936 Laureano Marquez was indebted to
Fortunato Resurreccion for P5,000 as the balance of the
purchase price of land bought and received from the latter.
Resurreccion was indebted to the Luzon Surety Company in the
same amount, which was secured by a mortgage on three parcels
of land, one of which was that bought by Laureano Marquez from
him. The formal deed of sale from Resurreccion to Marquez was
to be executed after Marquez shall have fully paid the purchase
price and after Ressurreccion shall have secured the cancellation
of the mortgage by the Luzon Surety Company.
In 1933 Laureano Marquez, through a document, bound
to pay Fortunato Resurreccion's indebtedness of P5,000 to Luzon
Surety Company by way of satisfaction of his own indebtedness
and in the event of his failure to pay, Marquez will indemnify
Fortunato for damages he may suffer in case the mortgaged
properties are sold at a public auction.. Marquez failed to pay
Luzon Surety and so latter foreclosed judicially the mortgage
executed by Resurreccion.
April 25, 1936, pending the foreclosure sale of the lands
mortgaged by Resurreccion to the Luzon Surety Company,
Laureano Marquez executed and delivered to Fortunato
Resurreccion another document evidencing agreement to pay
indebtedness of FR to Luzon Surety, executing another mortgage
in favor of Fortunato over 5 properties and also stipulated in
the 5th clause that in the event that the 5 properties in
Bulacan described in the 4th clause are not sufficient, the
the future.
Marquez still failed to pay Luzon Surety and so
Fortunato filed the case to recover from Marquez the value of the
properties lost at public auction and to foreclose the mortgage
made by Marquez in favor of Fortunato. The trial court rendered
judgment in favor of Fortunato, ordering the foreclosure of the 5
properties plus other properties he acquired after the execution
of the mortgage. CA affirmed this decision allowing the auction of
5 parcels not indicated in the mortgage which where acquired
SUBSEQUENTLY. (during appeal to CA, RESU died and was
replaced by his heirs and Marquez replaced by Dilag,
administrator of his estate)
ISSUE:
Whether or not the stipulation(5th clause) constitutes a
valid mortgage on the 5 other parcels of land which Marquez
SUBSEQUENTLY acquired after deed executed
HELD:
NO. SC held that Future property cannot be the object
of a contract of mortgage since ownership is an essential
requisite of mortgage. In the fifth clause of said document L.
Marquez stipulated that in as much as the five parcels of land
described were not sufficient to cover all his obligations in favor
of Resureccion, he also constituted a mortgage in favor of later
on any other property he then MIGHT have and on those he
MIGHT acquire in the FUTURE. Such stipulation did not
constitute a valid mortgage on the five other parcels of land
which Marquez subsequently acquired. Marquez could not leally
mortgage any property he did not yet own. Also, in order that a
mortgage may be validly constituted the instrument MUST be
recorded in registry of deeds. Such 5 parcels were also not
described in the mortgage document. *there were concurring
and dissenting opinions IN SPANISH, me no comprehende…
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2.PHIL. BANK OF COMMERCE V. MACADAEG
G.R. No. L-14174
October 31, 1960
Article 2124. Only the following property may be the object
of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws,
imposed upon immovables. Nevertheless, movables may be
the object of a chattel mortgage. (1874a)
Prepared by: Joben Odulio | NOTE: The Court doesn’t explicitly
refer to Art. 2124 but for recit purposes, note the contents of the
contract (there were real and chattel mortgages) and the Court’s
response to respondents’ arguments (that these remain distinct
agreements despite the mortgages’ embodiment in one single
document).
FACTS: Respondents Pedro Bautista, Dativa Bautista, Innocencio
Campos, and the Flash Taxi Company jointly and severally
applied for and obtained a credit accommodation from the
PBCOM in the sum of P100,000. As security,
respondents executed in favor of the bank, in one single
document, a real estate mortgage over 4 parcels of land, and a
chattel mortgage on some movie equipment and 30 taxicabs.
Respondents having failed to pay the total amount of P129,000
due on the credit accommodation, the PBCOM procured the
extrajudicial foreclosure of the real estate mortgage and the bank
acquired the properties mortgaged as the highest bidder for the
amount of around P68,000.
Claiming a balance of P63,000 still due from respondents,
the petitioner bank, instead of foreclosing respondents' chattel
mortgage, filed against them for the collection of said balance.
The lower court then rendered judgment ordering respondents
to pay PBCOM, jointly and severally, the sum of P63,000 with
interest thereon until fully paid. The court issued an order to
execute said judgment, pursuant to which the sheriff of Manila
published a "Notice of Sale," setting for sale at public auction the
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rights, interests or participation of respondents on the certificate
of public convenience registered in the name of the Flash Taxi Co.
In the said auction, PBCOM was the highest bidder at P60,000.
The sale was confirmed and was evidenced by certificate of sale.
Sometime thereafter, PBCOM sold all its rights, interests,
or participation in the certificate of public convenience over to
Alberto Cruz. Public Service Commission provisionally approved
the sale of said certificate from respondents to PBCOM, and
PBCOM to Alberto Cruz. Pursuant to the provisional authority
granted him by the Commission to operate said certificate,
Alberto Cruz acquired and purchased twenty taxicabs and has
since then been operating said franchise.
However, it appears that the sale was sought to be
annulled by respondents through a petition to cancel the
certificate of sale issued by the sheriff, claiming that they still had
other properties from which the judgment could be satisfied,
among other arguments. PBCOM opposed, contending that there
was no showing of the sale’s irregularity. The trial court ruled in
favor of the respondents, and held that the properties offered by
respondents were more than sufficient to satisfy the judgment,
and that the sale of the certificate of public convenience in
question would cause them and their drivers in their taxicab
business grave and irreparable damage. As such, the sheriff’s sale
were ordered to be set aside. Hence, this petition.
ISSUE: Whether or not the execution sale of the certificate of
public interest on the taxicabs was valid? YES.
HELD/RATIO: The alleged nullity is claimed to arise from the
fact that the real estate and chattel mortgage executed by
respondents to secure their credit accommodation with the
petitioner bank was indivisible, and that consequently, the bank
had no legal right to extrajudicially foreclose only the real estate
mortgage and leave out the chattel mortgage, and then sue
respondents for a supposed deficiency judgment; and for this
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reason, respondents assert that the judgment in the bank's favor
for such deficiency is a nullity. The argument is fallacious
because the mere embodiment of the real estate mortgage and
the chattel mortgage in one document does not fuse both
securities into an indivisible whole. Both remain distinct
agreements, differing not only in the subject- matter of the
contract but in the governing legal provisions. Petitioner bank,
therefore, had every right to foreclose the real estate mortgage
and waive the chattel mortgage, and maintain instead a personal
action for the recovery of the unpaid balance of its credit.
The second claim of respondents that the execution sale
in question is void for lack of a valid levy is also untenable.
"Levy" includes a constructive as well as an actual taking into
possession of property under execution process and in the
present case, respondents admit three days prior to the
scheduled execution sale they received copy of the sheriff's
notice of sale.
Respondents' third charge is that the execution sale in
question is void as made in fraud of their rights, and allegedly
pursuant to an illicit scheme on the part of petitioner bank to
acquire the certificate of public convenience in question for
speculative purposes and not merely for the satisfaction of its
credit. However, the trial court already found both parties to be
in good faith.
Respondents did not come to the court for relief, but
merely reiterated their request to PBCOM either to be given
more time to pay or be allowed to pay the debt with other
properties. The offer to substitute the franchise sold at the
auction sale with other properties like the movie equipment
previously mortgaged to petitioner and the parcel of land
belonging to another person, however, came too late. If it were
true that the debtors had properties of adequate value, aside
from the franchise in question, with which to satisfy said
judgment, they could have easily sold them in the open market
and paid their indebtedness to the bank. But they neglected to
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meet their obligations, thus forcing the bank to ask for execution
of the judgment one year after it was rendered.
Thus, the order by the lower courts which set aside the
sale were, in turn, set aside.
3. PEOPLE’S BANK v DAHICAN LUMBER COMPANY
GR No. L-17500
May 16, 1967
FACTS:
Atlantic Gulf & Pacific Company of Manila (ATLANTIC)
sold and assigned all its rights in the Dahican Lumber concession
to Dahican Lumber Company (DALCO) for the sum of $500,000
of which only the amount of $50,000 was paid. Thereafter, to
develop the concession, DALCO obtained various loans form
People’s Bank amounting of $200,000. In addition to that, DALCO
obtained another loan of $250,000 from Export- Import Bank of
Washington D.C, as evidenced by 5 promissory notes of $50,000
each, executed by both DALCO and Dahican American Lumber
Corporation (DAMCO), all payable to People’s Bank or its order.
As security for the payment of contracted loans, DALCO
executed a deed of mortgage in favor of People’s Bank,
covering five parcels of land located in Camarines Norte together
with all the buildings and other improvements thereon and all
the personal properties of the mortgagor located in its place of
business in the municipality of Mambulao and Capalonga,
Camarines Norte. Further, DALCO executed a second mortgage
on the same properties now in favor of ATLANTIC to secure the
payment of the unpaid balance of sale price of the lumber
concession amounting $450,000. Both deeds contained a
provision extending the mortgage lien to properties to be
subsequently acquired, referred as “after acquired
properties”. Also, both mortgages were registered in Registry of
Deeds of Camarines Norte. In addition thereto, DALCO and
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DAMCO pledged to People’s Bank 7,296 shares of stock of DALCO
and 9,286 shares of DAMCO to secure their incurred obligations.
On the maturity of loan, DALCO and DAMCO failed to pay
the 5th promissory note; with this, People’s Bank paid the same
to the Export-Import Bank of Washington D.C. Later on, Export-
Import Bank assigned to People’s Bank its credit and the first
mortgage securing it. Subsequently, People’s Bank gave DALCO
and DAMCO an extension to pay the overdue promissory note.
After the date of execution of the mortgages, DALCO
purchased various machineries, equipment, spare parts and
supplies in replacement of some of those already owned and
used by the company. With these purchases, People’s Bank
requested DALCO to submit complete lists of said acquired
properties in compliance with the “after acquired properties”
provision in the mortgage deed; however, DALCO refused to
comply. In connection with these purchases, there appeared in
the books of DALCO as due to Connell Bros. Company the sum of
P452,860.55 and to DAMCO, the sum of P2,151,678.34. The
Board of Directors passed a resolution agreeing to rescind the
alleged sales of equipment by Connell and DAMCO to it. As a
result, the agreements of rescission of sale were executed
between DALCO and DAMCO, on one hand, and between DALCO
and CONNELL on the other.
In line with the aforesaid agreements of rescission,
People’s Bank demanded for its cancellation but Connel and
DAMCO refused to do so. As a result, ATLANTIC and People’s
Bank commenced foreclosure proceedings in the CFI of
Camarines Norte. Also, an ex-parte application for appointment
of Receiver and/ or for issuance of writ of preliminary injunction
to restrain DALCO from removing its properties were filed and
were granted by the Court. The CFI ordered DALCO and DAMCO
to pay People’s Bank and ATLANTIC with corresponding
interests.
Digest set #7 – November 2, 2015
ISSUES:
 WON the “after acquired properties” covered by and
subject to the deeds of mortgage subject of foreclosure. If
in affirmative, are the mortgages valid and binding on the
properties inspite of the fact that they were not
registered in accordance with the provisions of Chattel
Mortgage Law?
 WON DAMCO and CONNEL have rights over the “after
acquired properties” superior to the mortgage lien
constituted in favor of the People’s Bank.
 WON the proceeds of the “after acquired properties” be
awarded exclusively to People’s Bank.
HELD:
1. YES. Under the fourth paragraph of both deeds of
mortgage, it is clear that all property of every nature and
description taken in exchange or replacement, as well as all
buildings, machineries, fixtures, tools, equipment, “shall
immediately be and become subject to the lien.” The Supreme
Court ruled that such stipulation is common and logical in all
cases where the properties given as collateral are perishable or
subject to inevitable wear and tear or were intended to be sold
or to be used. Such stipulation is neither unlawful nor immoral,
its obvious purpose being to maintain, to the extent allowed by
circumstances, the original value of the properties given as
security.
Furthermore, the executed mortgages are valid and
binding despite of its non-registration under the Chattel
Mortgage Law. The Supreme Court held that such registration do
not apply in the case at hand on the ground that, where the
machinery and fixtures installed by a lumber company in its
concession had become immobilized and were included in the
registered real mortgage as "after acquired properties", it was
not necessary to register them a second time as chattel
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mortgages in order to affect third persons. The fact that the
lumber company is not the owner of the land is not important
since the parties to the mortgage had characterized the said
"after acquired properties" as real property. The mortgagor is
estopped to contend that the said properties had not become
immobilized.
2. The Supreme Court ruled that the most that can be
claimed on the basis of the evidence is that DAMCO and
CONNELL probably financed some of the purchases. But if
DALCO still owes them any amount, it is clear that, as financiers,
they cannot claim any right over the "after acquired properties"
superior to the lien constituted thereon by virtue of the deeds of
mortgage under foreclosure. Indeed, the execution of the
rescission of sales appears to be but a desperate attempt to
better or improve DAMCO and CONNELL's position by enabling
them to assume the role of "unpaid suppliers" and thus claim a
vendor's lien over the "after acquired properties". The attempt,
of course, is utterly ineffectual, not only because they are not the
"unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both DAMCO and
CONNELL had known and admitted from the beginning that the
"after acquired properties" of DALCO were meant to be included
in the first and second mortgages under foreclosure.
3. YES. In line with the ruling of the Supreme Court that
the mortgages are valid, the proceeds of the “after acquired
properties” should be awarded EXCLUSIVELY to People’s Bank in
payment of the money obligations secured by the mortgages
under foreclosure.
4. PRUDENTIAL BANK v. PANIS
G.R. No. L-50008
Art. 2124. Only the following property may be the object of a
contract of mortgage:
(1) Immovables;
Digest set #7 – November 2, 2015
(2) Alienable real rights in accordance with the laws,
imposed upon immovable.
Nevertheless, movables may be the object of a chattel
mortgage. (1874a)
FACTS:
Plaintiff-spouses Fernando and Teodula Magcale secured
a loan of P70k from defendant Prudential Bank, secured by a
Real Estate Mortgage over certain properties: a 2-storey semi-
concrete residential building with warehouse spaces, including
the right of occupancy on the lot where the property is erected.
It was also further agreed that in the event that a Sales Patent
previously applied for by the Spouses Magcale is released or
issued by the Bureau of Lands, the Spouses Magcale would
authorize the Register of Deeds to hold the Registration of such
patent until the mortgage is cancelled, or to annotate the
encumbrance on the title. From this stipulation, it is obvious that
Prudential Bank was at the outset aware of the fact that the
Spouses Magcale have already filed a Miscellaneous Sales
Application over the lot. Subsequent to this, Spouses Magcale
secured an additional loan from Prudential Bank in the amount
of P20k. To secure this payment, they executed another deed of
Real Estate Mortgage over the same lot. Both deeds were
registered with the Registry of Deeds.
Spouses Magcale failed to pay their obligation, thus the
deeds of Real Estate Mortgage were extrajudicially foreclosed.
There was a public auction sale with Prudential Bank as the
highest bidder. Later on, the Court of First Instance declared that
the deeds of Real Estate Mortgage are null and void.
ISSUE: W/N a valid real estate mortgage can be constituted on
the building erected on land belonging to another?
HELD: YES.
While it is true that a mortgage of land necessarily
includes, in the absence of stipulation of the improvements
thereon, buildings, still a building by itself may be mortgaged
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apart from the land on which it has been built. Such a mortgage
would be still a real estate mortgage for the building would still
be considered immovable property even if dealt with separately
and apart from the land.
In the case, the records show that the building and the
right of occupancy on the lot were mortgaged and such mortgage
was registered with the Register of Deeds. The original mortgage
on the building and right to occupancy of the land was executed
before the issuance of the sales patent and before the
government was divested of title to the land. Under the
foregoing, it is evident that the mortgage executed by private
respondent on his own building was a valid mortgage.
However, since the second mortgage of P20k was
done after the sales patent was issued, it is prohibited
according to the Public Land Act.
5. SAMANILLA v. CAJUCOM
107 Phil. 432
March 28, 1960
Katrina Gaw
Art. 2125. In addition to the requisites stated in Art. 2085, it is
indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded
in the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have
no other right than to demand the execution & the recording of
the document in which the mortgage is formalized. (1875a)
FACTS:
Samanilla filed a petition in a land registration case,
wanting to have the deed of mortgage between her and the
Cajucoms registered. Samanilla alleged that the Cajucoms had
executed in her favor a real estate mortgage over their rights on
a parcel of land to secure a loan of P10,000. Later, the Cajucoms
borrowed the title of the lot from Samanilla, supposedly so they
Digest set #7 – November 2, 2015
could segregate from the land the portion claimed by other
persons. However, when Samanilla asked for the title back so she
could register her mortgage, the Cajucoms refused to return it.
To support her petition, Samanilla attached the deed of mortgage
signed by the parties.
The Cajucoms, however, claimed that the mortgage was
void for lack of consideration. They also claimed that they could
not be compelled to surrender their title for registration of the
mortgage until they are given an opportunity to show its
invalidity in an ordinary civil action, because registration is an
essential element of a real estate mortgage and the surrender of
their title would complete this requirement of registration. The
trial court ruled in favor of Samanilla, ordering the Cajucoms to
surrender the title either to the Register of Deeds or to the Court.
ISSUES:
1. W/N the allegation that a mortgage contract is void is
sufficient to defeat the right of the mortgagee to have the
mortgage registered on the title.
2. W/N registration is an essential element for the
validity of a mortgage contract.
HELD:
1. No.
There is a legal presumption of sufficient consideration
supporting a contract, even if such cause is not stated therein,
which cannot be overcome by a simple assertion of lack of
consideration. Once a mortgage has been signed in due form, the
mortgagee is entitled to its registration as a matter of right. By
executing the mortgage the mortgagor is understood to have
given his consent to its registration, and he cannot be permitted
to revoke it unilaterally.
To overcome the presumption of consideration, the Cajucoms
must have shown the alleged lack of consideration of the
mortgage by preponderance of evidence in a proper action.
2. No.
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A mortgage, whether registered or not, is binding
between the parties, registration being necessary only to make
the same valid against third persons. Registration only operates
as a notice of the mortgage to others, but neither adds to its
validity nor convert an invalid mortgage into a valid one between
the parties. The Cajucoms still have the right to show that the
mortgage is invalid for lack of consideration in an ordinary
action and there ask for the avoidance of the deed and the
cancellation of its registration. But until such action is filed and
decided, it would be too dangerous to the rights of the mortgagee
to deny registration of her mortgage, because her rights can so
easily be defeated by a transfer or conveyance of the mortgaged
property to an innocent third person.
If the purpose of registration is merely to give notice, the
questions regarding the effect or invalidity of instruments are
expected to be decided after, not before, registration. It must
follow as a necessary consequence that registration must first be
allowed and validity or effect litigated afterwards.
6.
7. MCCOLLOUGH & CO. INC v. VELOSO
G.R. No. L-21455
April 5, 1924
Facts:
On March 23, 1920, McCullough sold to Mariano Veloso a
property known as the ‘McCullough Building’, which was
comprised of a piece of land, with the building found thereon.
This was sold to Veloso for the price of P700,000, with Veloso
having had paid P50,000 initially, and the remaining balance in
installments until 1925. These amounts were to draw interest at
7% per annum, and a further 10% of the amount of the debt as
attorney’s fees, should it be necessary for the petitioner to resort
to judicial action to compel payment.
Veloso proceeded to assume the obligation of insuring
the property for not less than P500,000 as well as paying the
Digest set #7 – November 2, 2015
legal taxes that may be imposed upon the property. Should
Veloso fail to pay said taxes, the petitioner should pay the taxes
at the expense of Veloso, subject to the right to recover from
Veloso the amounts with interest of 7% per annum. In order to
secure the payment of Veloso’s debt, Veloso mortgaged the
purchased, with the encumbrance having had been noted on the
certificate of title.There was also an acceleration clause on the
debt of Veloso, should he fail to pay any installments.
On August 21, 1920, Velolso sold the property with the
improvements thereon for P100,1000 to one Joaquin Serna. The
buyer agreed to respect the mortgage and to assume Veloso’s
obligation to pay the balance due of the price of the estate on the
respective dates of payments.
Veloso paid P50,000 of the remaining balance of
P650,000 while Serna made several payments amounting to
P250,000. However, neither Veloso nor Serna made any payment
upon the last installments. As such, the whole obligation became
due, and the right to installments was lost. Later on, Clarke &
Larkin accountants made a liquidation of debt of Veloso,
including the interest due. On March 26, 1923, Veloso was found
to still be owing P510,047.34 to McCullough, hence, steps to take
juridical action.
McCullough brings this action to recover the P510,047.34
along with 10% of the amount as attorney’s fees. The Trial Court
sentenced Veloso to pay the sum claimed with interest, from
when the liquidation was made until the full payment thereof.
The Trial Court also allowed only P2,000 for attorney’s fees, and
that failure to pay all the amounts due within three months
would lead to the forfeiture of the land and its consequent sale in
a public auction.
Both parties appealed to the decision. McCullough as to
the amount of the attorney’s fees, and Veloso as to his liability to
pay the P510,047.34 balance.
ISSUE:
- W/N there was a valid novation, with Serna taking the
place of Veloso as debtor.
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HELD:
1. Yes.
According to Article 1879 of the Civil Code, the creditor
may demand of the third person in possession of the property
mortgaged payment of such part of the debt, as is secured by the
property in his possession. The Mortgage Law in force at the time
provided, among other things, provides that the debtor should
not pay the debt upon its maturity after a judicial or notarial
demand payment has been made upon him. (Art. 135, Mortgage
Law 1889).
The spirit of the provision is that to let the obligation of
the debtor to pay the debt stands although the property
mortgaged to secure the payment of said debt may have been
transferred to a third person. While the Mortgage Law of 1893
eliminated these provisions, it contained nothing indicating any
change in the spirit of the law in this respect. Article 129 of this
law, which provides for the substitution of the debtor by the
third person in possession of the property, for the purposes of
the giving of notice, does not show this change and has reference
to a case where the action is directed only against the property
burdened with the mortgage.
Although McCullough also received payments from Serna
on account of Veloso’s debt, it is still, at most, a payment by a
third person. This does not affect the relation between Veloso
and McCullough, except as the portion of the obligation paid by
Serna will be discharged.
8. SANTIAGO V. DIONISIO
L-4008
January 15, 1953
by Kristel Descallar
FACTS:
In 1935, Roman San Diego sold a land to Apolonia
Santiago, and the sale was recorded in the Register of Deeds of
Digest set #7 – November 2, 2015
Bulacan, in accordance with Revised Administrative Code.
However, prior to the sale, Roman had already mortgaged the
land to Eulalia Resurreccion. Since the mortgage was also
registered pursuant to the Administrative Code, the mortgage to
Eulalia had precedence over the sale. Roman defaulted in his
debt, so Eulalia foreclosed the mortgage and the land was sold at
public auction to Angela Dionisio as the highest bidder.
Upon discovery of the sale of the same land to Dionisio,
Santiago brought an action to annul the sale to Dionisio, and
Santiago also intervened for the confirmation of the sale and filed
her opposition thereto. The lower court confirmed the sale to
Dionisio without prejudice to the rights of Santiago.
Judge Roldan, in Santiago’s action for annulment, ruled
that the sale of the land in favor of Dionisio was null and void,
since Santiago was not included as a party to the foreclosure
proceedings, but the ownership of Santiago over the land is
subject to the mortgage in favor of Eulalia.
In 1936, Santiago filed an application for registration of
the land under her name, and among the oppositors was Dionisio,
who claimed title to the land as purchaser in a foreclosure. Judge
Potenciano Pecson ruled that the foreclosure sale did not affect
the rights of the applicant Santiago, who had not been made a
party to the proceedings, and decreed the registration of the land
in her favor. So, Dionisio filed the present appeal.
ISSUES:
1. Whether or not the sale of land to Dionisio was valid, despite
Santiago not being impleaded to the foreclosure proceedings.
2. Whether or not the land should be registered in the name of
Santiago.
1. YES, insofar as to the parties to the suit, but not to
Santiago.
Dionisio argued that Santiago intervened in the
foreclosure suit, thus she is bound by its results. But, the Court
found that Santiago’s intervention consisted merely in opposing
the confirmation of the sale. This is not the same as being a party
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to the suit to the extent of being bound by the judgment. That
judgment had already been rendered and was already in the
process of execution when Santiago intervened. Though the sale
was confirmed, the court said that the confirmation was to be
without prejudice to the rights of Santiago. Judge Roldan did
not declare the foreclosure sale entirely void, but only "with
regards to the rights of Apolonia Santiago". This means that
the foreclosure was ineffective as against Santiago, although
it may be valid as between the parties to the suit (Eulalia
and Dionisio). Also, the sale is subject to Santiago's
unforeclosed equity of redemption.
While it is true that Santiago’s interest in the land was
subordinate to that of the mortgagee, Eulalia, the rule of
procedure in force at the time the foreclosure was section 255 of
Act 190, which required that in an action for foreclosure "all
persons having or claiming an interest in the premises
subordinate in right to that of the holder of the mortgage . . .
be made defendants in the action." This rule applied not only
to a subordinate lienholder, but also to a purchaser of real
property already mortgaged to another. Failure to implead a
subordinate lienholder or subsequent purchaser renders
the foreclosure ineffective as against them. Therefore, there
remains in their favor the "unforeclosed equity of
redemption." But the foreclosure is valid as between the
parties to the suit.
2. NO.
Santiago’s application for registration of the land under
her name should be denied. The unforeclosed equity of Santiago
still exists and must be recognized in either of the following ways:
1) to register the land in the name of Santiago but subject to the
mortgage in favor of Eulalia; 2) to register the land in the name
of the oppositor Dionisio subject to redemption by Apolonia
Santiago.
The Court’s preference is the second method, which was
already ruled in the case of De la Paz, et al. vs. McCondray & Co.,
Digest set #7 – November 2, 2015
Inc., supra, where the Court granted the registration applied for
but subject to the prior purchasers' equitable right of
redemption.
It is the previous purchaser, Santiago, who has applied
for the registration of the land. However, both by statute and by
jurisprudence, registration may be decreed in favor of an
oppositor (Dionisio in this case) whose ownership has been
established. More so, in the present case, the record shows that
the opposition of Dionisio prays for the registration of the land in
her favor by asking that she be substituted in place of Apolonia
Santiago in the application for registration.
Registration of the land in the name of Dionisio, the
herein oppositor, is proper, subject to Apolonia Santiago's
equitable right of redemption.
Registration of the land in the name of Santiago, who
does not become its owner until she has exercised her right
to redeem, would be subject to the objection that it is
premature, if not altogether anomalous. But, Santiago’s
equity of redemption is registerable, but only as an
encumbrance on a registered title of ownership.
The judgment appealed from is revoked and another one
entered, decreeing the registration of the land in the name of
Angela Dionisio, but subject to Apolonia Santiago's equitable
right of redemption, which right should be exercised by her
within three months from the date this decision becomes final.
9. PHIL. SUGAR ESTATES V. CAMPS
G.R. No. 11607
January 17, 1917
Kristine Uy
Facts: Armando Camps mortgaged a parcel of land, together with
the buildings thereon erected, situated on Plaza Santa Ana,
Quiapo to Phil. Sugar Estates as security for the payment of
P30,000 .
CREDIT TRANSACTIONS- ATTY. LERMA 9

At the time of mortgage, a building used as a lithographic plant
stood therein but subsequently torn down to build another
building for cinematographic purposes (called Cine Manila).
In the foreclosure proceedings, the order stated that if Camps
should not pay all the sums specified in the judgment, the sheriff
shall proceed to sell the entire property including the building
thereon.
Issue: Should Cine Manila be included in the foreclosure
proceedings?
Ruling: Yes, Cine Manila should be included in the foreclosure
proceedings
1. Article 2127 applies: A mortgage includes the natural
accessions, improvements, growing fruits, and rents not
collected when the obligation is due, and the amount of the
indemnities granted or due the owner by the underwriters of the
property mortgaged or by virtue of the exercise of eminent
domain by reason of public utility, with the declarations,
amplifications and limitations established by law, in case the
estate continues in the possession of the person who mortgaged
it, as well as when it passes into the hands of a third person.
2. The Cine Manila building, although not mentioned in the said,
is an improvement which is understood as having been
mortgaged jointly with the lot because it belongs to the same
owner and debtor and because it was erected on the site of the
former building.
10. AFABLE v. BELANDO
G.R. No. L-32154
October 20, 1930
Digest set #7 – November 2, 2015
FACTS:
- Ladislao Fable filed a case against Carmen Belando for the
payment of a promissory note amounting to Php 1,249. Fable
also obtained a preliminary attachment against Belando’s
property and certain rents on lands located in Cavite.
- The court rendered judgment in favour of Afable and required
Belando to pay the amount go Php 1,109 with interest at 12%
per annum and 12 per centrum of this amount as penalty and
in addition Php 160 for certain expenses.
- In pursuance of the writ of execution, the rents on the lands
were delivered to Afable.
- La Urbana was designated as intervenor to recover the rents
that were delivered to Afable. On August 5, 1927, La Urbana filed
a case against Carmelo Belando for foreclosure of mortgage
secured judgment for the amount of Php 49,162 and upon failure
to make payment within 3 months, the mortgaged property was
decreed for sale in satisfaction of this amount.
- Belando appealed but the Court affirmed the judgement in
favor of La Urbana.
- It also appears that the rents delivered to Afable were those
collected on the property mortgaged to La Urbana.
- In deciding the intervention of La Urbana, the court order the
sheriff to return the Php 1241 to BPI, the depositary in the
case of La Urbana v. Belando. This sum is the total amount of
rents delivered to Afable in pursuance of his judgement
against Belando.
ISSUE: Whether according to article 1877 of the CC and 111 of
the Mortgage Law, the rents of the property mortgaged to La
Urbana could have been attached by Afable in the course of
action against Belando for the collection of a sum of money?
HELD:
Summary: Afable brought suit against Belando on August
27,1928, and when on September 4,1928, a preliminary
attachment of the rents of the Belando’s property was granted,
CREDIT TRANSACTIONS- ATTY. LERMA 10

La Urbana had already brought an action against the same
Belando for the foreclosure of the mortgage (August 5,1927), and
had secured judgment therein (January 14,1928) which was
affirmed by this court. Therefore, when the Afable attached these
rents, Belando;s obligation to La Urbana had already fallen due.
No.
- According to article 1877 of the Civil Code and 110 and
11 of the Mortgage Law, a mortgage includes all rents of the
mortgaged property not collected when the obligation falls due,
and all rents payable until the credit is satisfied. In accordance
with this provision, when the rents were attached by the plaintiff,
they were already liable for the mortgage in favor of La Urbana,
and could not have legally been attached by the plaintiff.
- Immaterial that the judgment in favor of La Urbana
contained no mention of the rents, but only of the property itself,
for after all, under the law, every mortgage includes the rents. So
also is the fact that the court below excluded the P575, which is a
part of the amount of P1,241.84, from the deposit inasmuch as
that sum also comprises rents included in the mortgage in favor
of La Urbana.
11. TADY-Y v. PNB
September 28, 1964
Prepared by: Jillian Paris
FACTS:
On February 2, 1951, Segundo Swansing acting for
himself and as attorney-in-fact of Salvador Cabasaan and
Rebecca Swansing (Swansings hereafter), obtained an
agricultural loan from PNB in the sum of P840 and as a security,
mortgaged Lot No. 1257, Pontevedra Cadastre, Negros
Occidental. The mortgage deed was registered on the same date.
On April 30, 1955 Segundo constituted a second
mortgage on the same lot to Marcelo Aguirre for P1,600 with
interest at 12% per annum and attorney’s fees in the amount of
Digest set #7 – November 2, 2015
P550 in case of default. On December 5, 1957 Aguirre assigned
his rights and interests in the mortgage to Antonio Tady-Y in a
deed which was registered on August 17, 1959.
The mortgagors defaulted in their obligation thus PNB
extra-judicially foreclosed the first mortgage. The provincial
sheriff sold the mortgaged property at a public auction. PNB was
the winning purchaser. Because of this, Tady-Y filed with the
lower court a complaint for mandamus against PNB and the
Provincial Sheriff of Negros Occidental praying that the
defendants be ordered to deliver P2,868 plus P800 in attorney’s
fees plus costs.
Tady-Y’s complaint alleged that the purchase price of the
property (P5,093.45) was in excess of the registered credit of
PNB. Tady-Y insists that PNB is entitled only to P1,759.60 as of
January 31, 195 and deducting said amount this from the
purchase price, a balance of P3,279.85 would result, which is
more than enough to cover and satisfy the credit under the
second mortgage. The Swansings averred that the account
secured by the first mortgage did not include only the sum of
P840 referred to in the mortgage contract, but also “those that
the mortgagee may extend to the mortgagor, including interest
and expenses or any other obligation owing to the mortgagee
whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the mortgagee”; that as of
January 31, 1959 the total unpaid obligation to the bank was
P9,579.08 representing the time loan account, sugar crop loan
deficits, palay loan plus interest and attorney’s fees, with the
obvious result that the proceeds did not leave any surplus that
may be applied to the second mortgage. Also they ndnff that
there is no right of action as there is no law which requires the
bank to delivery the surplus of the proceeds from an extra
judicial foreclosure.
RTC: Dismissed the complaint
ISSUE: W/N The proceeds of the foreclosure sale should be
applied only to the initial obligation of P840?
CREDIT TRANSACTIONS- ATTY. LERMA 11

HELD: NO. The mortgage deed between the Swansings and the
PNB shows that the property was mortgaged was to secure the
payment of P840 and “those that the mortgagee may extend to
the mortgagor, including interest and expenses or any other
obligation owing to the mortgagee whether direct or indirect,
principal or secondary as appears in the accounts, books and
records of the mortgagee”. Even the entry on the back of their
TCT states that the mortgage secured the payment of P840 plus
interests “plus other obligations arising thereunder”. This
annotation should have cause any intending junior
encumbrancer to be wary and to examine the provisions of the
mortgage deed for complete details. This stipulation is not
improper as the amounts named as consideration in a contract of
mortgage do not limit the amount for which the mortgage may
stand as security, if from the four corners of the instrument, the
intent to secure future and other indebtedness can be gathered.
The PNB submitted evidence that the outstanding account
appearing in its books and records was P9,579.08, which was
never questioned by the Swansings.
Tady-Y argues that the latter loans should have also been noted
on the TCT but the court held that there is no necessity for such
notation because it already appeared on the title that other
obligations would also be secured by the mortgage. It is
incumbent upon any subsequent mortgagee or encumbrancer of
the property to have examined the books or records of the PNB,
as first mortgagee, the credit standing of the debtors. The
subsequent obligations were registered and thus there can be no
doubt that the second mortgagee is charged with notice of other
obligations of the mortgagors to the PNB. Being the second
mortgagee, Tady-Y is only entitled to whatever surplus there is, if
any, from the proceeds of the auction sale, after covering the
obligations to the PNB.
12. VELASCO v. CA
Digest set #7 – November 2, 2015
No. L-47544, January 28, 1980
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 it passes
into the hands of a third person.
FACTS:
 NB: This case was elevated to the Supreme Court in order
that the factual circumstances may be properly
appreciated. Originally, the issue was to determine w/n
the CA erred in ruling that the motion for new trial of
GSIS should be deemed pro-forma. The SC however
decided to go beyond this issue because substantial
justice might not be achieved if they decided the case on
a technical ground alone.
 Alta Farms secured from GSIS a Php 3,255, 000 loan, and
an additional Php 5, 062, 000 loan to finance a piggery
project. Both these loans were secured by two mortgages.
The property mortgaged to GSIS was 30 hectares, located
at Caloocan City.
 Alta Farms defaulted in payment of its amortizations.
Alta Farms then executes a Deed of Sale w/ Assumption
of Mortgage with Asian Engineering Corporation,
WITHOUT the consent or approval of GSIS. This was in
direct violation of the provisions of the mortgage
contracts.
 Asian Engineering Corporation executed an Exclusive
Sales Agency, Management and Administration Contract
in favor of Laigo Realty Corporation. The contract was for
converting the piggery farm into a subdivision.
 Laigo develops the lot into a subdivision.
CREDIT TRANSACTIONS- ATTY. LERMA 12

 After developing the area, Laigo enters into a contract
with Amable Lumanlan (one of the petitioners), to
construct HOUSES for the home buyers (the interested
buyers who want homes in the new subdivision Laigo
developed). Laigo undertook to pay for the houses on a
“turn-key” basis.
 Lumanlan constructs 20 houses, but the checks Laigo
issued for Lumanlan were all dishonored. Lumanlan is
one of the petitioners who now seek payment for the
houses constructed.
 Pepito Velasco (another petitioner) is also one of the
building contractors contracted by Laigo to construct
houses for the home buyers.
 Laigo issued Velasco 5 checks for Php 35,000 but these
bounced also.
 Neither Laigo nor the individual home buyers paid for
the houses constructed, so Velasco wrote to GSIS to
intercede for the unpaid accounts.
 NB: Basically the petitioners in this case are contractors
or parties with whom Laigo approached for the building
of houses and improvements on the subdivision project.
However, these petitioners were not paid in full by
neither Laigo nor the individual home buyers. The
petitioners are now seeking recovery of the balance from
GSIS, since Laigo won’t pay up.
 Rundown of the petitioners/ building contractors and
their claims in case sir asks:
a) Felipe Lumbang: 4 houses, balance of Php 82, 000
b) Ramon Galang, 1 house, balance of Php 12, 600
c) Pepito Velasco, (no number of houses stated),
balance of Php 101, 750
d) Amable Lumanlan, 20 houses, balance of Php 124,
855
 The Deed of Sale w/ Assumption of Mortgage between
Alta Farms and Asian Engineering was not approved by
the GSIS. Thus when Alta Farms failed to liquidate its
accounts, finally GSIS foreclosed the properties
Digest set #7 – November 2, 2015
including all improvements in 1970. (Note: these
improvements included the houses built.)
 While the properties were under foreclosure and even
pending the consolidation of titles in favor of GSIS, some
lots were sold on installment basis, for which Laigo
received Php 985, 000.
 Originally, claims were addressed to Laigo Realty
Corporation. However, when petitioners couldn’t collect
from Laigo and the home buyers, and only after GSIS
had foreclosed the subdivision including the
improvements (meaning the houses already
constructed), petitioners sent a letter of demand for
GSIS to pay for Laigo’s indebtedness.
 Finally, in 1975, the petitioners filed a case against
GSIS for the collection of sums of money representing
labor and materials used in the construction of
houses caused by home buyers through the
intercession of Laigo Realty Corp. in the principal
sum of PHP 607, 328.27
 GSIS defenses:
a) GSIS categorically and specifically denied the claims
because it had no privity of contract with the
petitioners
b) GSIS argues that petitioners have no cause of action,
since the services of petitioners were contracted by
Laigo and not GSIS
c) It is Laigo Realty Corporation which entered into
contracts with petitioners so Laigo is a necessary and
indispensable party who should be included as a
party
CREDIT TRANSACTIONS- ATTY. LERMA 13

d) In 1970, Laigo executed a Deed of Quit-Claim1 in
favor of GSIS, freeing GSIS from any and all claims
arising out of the suppliers, contractors and house
builders
e) At the time GSIS foreclosed on the Laigo properties,
the claims of the petitioners weren’t registered
f) GSIS, even if it had foreclosed on the properties and is
now the owner thereof, did not collect from the house
owners anyway
g) Invokes Article 525 of CC where good faith or bad
faith of builder is decisive factor in determining
liability
 Petitioners arguments:
a) JUSTICE AND EQUITY
b) Unjust enrichment on the part of GSIS, Laigo, and
home owners
c) GSIS, in foreclosing on the property (the land
mortgaged) upon which the improvements
(meaning the houses which are the subject of the
claims) are situated, became the owners thereof
 Trial court rules that GSIS must pay, but FOUR TIMES the
balance, because of inflation and increasing costs of
materials since the time the issue was litigated on.
ISSUE: W/N GSIS should pay for the construction, material, and
labor costs for the building of 63 houses (considered as
improvements) on the property (the land that was developed
into a subdivision) they foreclosed on
HELD: YES, after 30 pages of facts hahah all the SC just says is
YES PAY UP, BASED ON EQUITY.
1
Excerpt from the Deed of Quitclaim: “If the GSIS, for any reason, shall
be held liable on any such claims or liabilities or otherwise its mortgage
lien be diminished, Laigo Realty Corporation further binds itself to
indemnify the GSIS such sums corresponding to such claims or
diminution.”
Digest set #7 – November 2, 2015
RATIO:
 GSIS was the buyer of the mortgaged
subdivision where the constructions were
made by the petitioners. It has to pay for the
said improvements since GSIS is in law now
the owner of said houses. GSIS assumed
ownership of the houses built by petitioners
and was benefited by the same, and the fact
that it has not collected any payment from the
“house owners” (misleading term, since
technically, GSIS is now the owner of the
houses) for the construction of the houses is
irrelevant in determining liability of GSIS.
Once GSIS foreclosed the properties including
all improvements (the houses), it became the
owner of the said houses.
 GSIS cannot contend that Laigo should have been
joined as defendant in this case. It is not
mandatory, even if petitioners are free to do so.
Laigo is only a necessary party, NOT an
indispensible one. A mortgagor, once the
mortgaged property is already sold, becomes
a mere necessary party in an action by labor
contractor against the new owner.
 The terms of the Deed of Quitclaim show that
GSIS actually contemplated the possibility of its
being liable for Laigo’s account, otherwise, there
would be no need for the reservation done in the
deed. So the act of GSIS invoking the Deed of
Quitclaim to escape liability actually served as
evidence against GSIS. In effect the deed showed
that GSIS acknowledged it could be held liable.
 Article 525 is immaterial in this case for there is
no need to rule on w/n petitioners acted in good
or bad faith, since under the Deed of Quitclaim,
CREDIT TRANSACTIONS- ATTY. LERMA 14

GSIS freely accepted the benefits of what the
builders have accomplished
 This is a case with “peculiar circumstances” and
even in equity alone, GSIS should pay the
petitioners for the 63 houses. All GSIS has to do
is pass on to the individual home buyers what it
would have paid to petitioners. Article 17292
(due to the “peculiar circumstances” of the case)
must apply on the basis of fairness and justice. So,
petitioners are deemed as suing for
reimbursement of what they have already paid
their own laborers and materialmen, or else Laigo,
GSIS, and home buyers would enrich themselves
at the expense of the petitioners.
 It is not fair, however, to make GSIS liable for
interest in the amount that the trial court
imposed (which is 4x more, to account for
inflation). It would be fair enough to make GSIS
liable for the balance, at the legal interest rate
of 12% per annum from the time petitioners
filed their complaint in April 14, 1975.
-Maria Cervero
2
Art. 1729 of CC: Those who put their labor upon or furnish materials
for a piece of work undertaken by the contractor have an action against
the owner up to the amount owing from the latter to the contractor at
the time the claim is made. However, the following shall not prejudice
the laborers, employees and furnishers of materials:
1) Payments made by the owner to the contractor before they
are due;
2) Renunciation by the contractor of any amount due him from
the owner.
Digest set #7 – November 2, 2015
13. LOPEZ v. ALVAREZ
G.R. No. L-3438
October 12, 1907
Marianne A
Plaintiff: Manuel Lopez
Defendants: Alvarez, Grindrod and Cassels
FACTS: Vicente Lopez executed a mortgage deed in favor of the
defendant Evaristo Alvarez for the sum of 13,300 pesos and a
fraction on his estate named Bunglas, situated in Concepcion,
Iloilo, together with 20 castrated carabaos, 10 female carabaos,
an 8-horsepower steam engine, and a furnace with fittings.
Vicente died without the loan being paid.
In order to secure the payment of the lease of the
hacienda Estrella owned by the plaintiff, Manuel Lopez, the
defendant Evaristo Alvarez, by means of a public instrument,
assigned, conveyed, and transferred to the plaintiff part of his
said lien on the testate of Vicente to the amount of P5,973 pesos,
Mexican currency. He he further assigned to Manuel him all his
rights and actions to and in the estate of the deceased, with
power to ask for the judicial execution of the mortgage on the
hacienda Bunglas,
Alvarez also informed Manuel that J. H. Grindrod also had
a claim on the lien but it is subsequent to that of the plaintiff. In
consequence of the complaint filed, Grindrod pretended to
dispose by public auction of the rights of the defendant Evaristo
Alvarez over the hacienda Bunglas in favor of the other
defendant, Juan Thomson Casells, although the rights which the
latter had over said hacienda were subsequent and subject to
those of the plaintiff, Manuel Lopez.
(In summary, Vicente mortgaged Haceinda Bunglas to Alvarez,
Alvarez assigned his lien then to Manuel and Grindrod. It is
CREDIT TRANSACTIONS- ATTY. LERMA 15

claimed that Grindod’s right is only subsequent to Manuel’s. The
land was sold in a public auction and bought by Cassels.)
ISSUE: W/N who has a better right to the mortgaged land.
HELD:
MANUEL LOPEZ has better right. By virtue of the contract
executed in a public the plaintiff acquired indisputable dominion
over the credit for P5,973, and the mortgage over hacienda
Bunglas assigned to him by Alvarez. The assignment or transfer
of said portion of the credit is in accordance with the provisions
of article 1878 of the (Old) Civil Code, which reads:
“A mortgage credit may be alienated or assigned to a third
person, wholly or partially, with the formalities required by law.”
Article 152 of the Mortgage Law requires that the
alienation or assignment in favor of a third party of the whole or
any part of a credit secured by mortgage shall be done by means
of a public instrument, that the debtor be informed thereof, and
that the same be recorded in the register, the assignee being
subrogated to all the rights of the assignor; but in order that the
transfer may be effective as against a third party it is
indispensable that it be recorded in the registry of property,
although the lack of such registration will not invalidate the
assignment or transfer of the credit in favor of the assignee.
The assignment of the credit referred to was effected
by means of a public instrument; therefore, , it is evidence,
even against a third person, of the facts which gave rise to its
execution and of the date of the latter; and the transfer of the
credit must be held to be valid and efficient in view of the
authenticity of the document, which precludes all suspicion of
fraud with respect to the date when the transfer was made.
Notwithstanding the fact that the credit held by John
Henry Grindrod, which amounted to 15,722 pesos, and 16 cents,
Mexican currency, against the common debtor, Evaristo Alvarez,
is of prior date to the assignment of the credit for 5,97, the right
Digest set #7 – November 2, 2015
which Grindrod acquired by virtue of the said deed is merely a
personal right with none of the characteristics of a mortgage,
and for this reason the creditor, Grindrod, can not claim the
rights of the third person referred to in article 27 of the Mortgage
Law in connection with the contract of transfer or assignment of
the credit made by the common debtor, Alvarez, in favor of the
plaintiff, Manuel Lopez. In spite of the fact that John Henry
Grindrod took no part in the contract or assignation of the said
mortgage credit in favor of Lopez, and although the same was not
recorded in the registry of property, Grindrod, the personal
creditor, cannot be considered as a third person nor invoke
in support of his right the provisions of article 27 of the
Mortgage Law. This latter provision is for the purpose of
securing the dominion over real property and rights in rem, such
as that of the mortgage constituted thereon, and as the creditor is
merely a personal one he has no right in rem over the credit
assigned to the plaintiff, Lopez, by Alvarez, the common debtor.
On the other hand, Lopez is not a mere personal
creditor, but the exclusive owner of a credit secured by a
mortgage which was lawfully transferred to him by the
original owner thereof. When the sheriff undertook the sale of
the said mortgage credit in its totality, a part of the same, to the
value of 5,973 pesos, was no longer owned by the debtor,
Evaristo Alvarez, but belonged to the assignee Manuel Lopez, and
as the latter was not in any way obligated in favor of the said
Grindrod, the sale is null and void.
14. BPI v. CONCEPCION E HIJOS, INC.
G.R. No. 27701
July 21, 1928
By: Maureen Choa
FACTS:
Defendants Concepcion executed a promissory note in
favor of BPI for the sum of P342,372.64 payable on demand, and
as security for payment, deposited 700 shares of the PNB as
CREDIT TRANSACTIONS- ATTY. LERMA 16

collateral and gave it a mortgage on 5,689 sq. m. of land, with
improvements, situated on R. Hidalgo Street in Manila.
Defendants Concepcion defaulted in the payment of the note thus
the plaintiff instituted the present foreclosure proceedings.
Shortly afterwards, Henry W. Elser entered into
negotiations with the Concepcions and offered to take over the
mortgaged property and assume the mortgage debt. To this the
Concepcions agreed on the condition that they be relieved of all
liability for the debt. Elser sent 2 letters to the bank. The first
letter he stated his subrogation with regard to the mortgage and
PNB shares and that he will undertake to pay the bank not less
than P5,000 monthly on the principal together with interest
every 6 months and reduce the mortgage. No answer was given
by the bank to this. Also from evidence, it can be seen that it was
unwilling to release the Concepcions from their liability for the
mortgage debt and insisted on their confessing a judgment in the
foreclosure proceedings. This the Concepcions refused to do
unless the bank would agree to bid in the mortgaged property
for the full amount of the judgment. After further conversation
with the representatives of the plaintiff bank, Elser wrote a 2nd
letter.
The 2nd letter he requested that the bank confirm in
writing its verbal agreement that should the property become
the property of the bank, in the amount of P342,000 plus interest
to date, that it will sell the same to him for the same amount. It
must be inferred from this letter that Elser had been led to
understand that the bank would bid in the land at the foreclosure
sale for the full amount of judgment and sell it to him for the
same price. It will be readily seen that this proposition is entirely
different from that contained in the first letter. The bank made
no direct reply regarding this. Elser entered into an agreement in
the form of a bilateral deed of sale with the Concepcions stating
the subrogation of rights regarding the shares and mortgage. The
bank never gave notice of conformity with this agreement.
The bank later moved for the inclusion of Elser as
defendant in the foreclosure proceeding. The Concepcions
contended that the case should be dismissed as to them. Elser
Digest set #7 – November 2, 2015
contended that he could not be held liable for the debt because
the agreement to subrogate himself in place of the Concepcions
was never approved by the bank. BPI contended that both the
Concepcions and Elser should be held solidarily liable for the
debt.
The contract cannot be considered as a stipulation pour
autrui because the parties there was no intent by Elser and the
Concepcions to benefit the 3rd person (bank). If the bank accepts
the stipulation by the parties then it works a novation of the
original agreement and releases the original debtor from further
liability. The bank, however, never gave its written consent to
such stipulation. There was no sufficient acceptance, remember
in contracts acceptance should be absolute and unconditional or
else there will be no meeting of the minds.
The effects of a transfer of mortgaged property to a third
person is stated in the civil code “The creditor may demand of
the 3rd person in possession of the property mortgaged payment
of such part of the debt, as is secured by the property in his
possession, in the manner and form established by law.” The
mortgage law in force exacted the condition that after judicial or
notarial demand, the original debtor should have failed to make
payment of the debt at maturity. And if these requirements have
been complied with, still the 3rd possessor might abandon the
property mortgaged, and in that case it is considered to be in the
possession of the debtor. In short, she spirit of the code is to let
the obligation of the debtor to pay the debt stand although the
property mortgaged to secure the payment of said debt may have
been transferred to a 3rd person.
While the case was going on, Elser died. BPI moved for
the substitution of Elser with Rosenstock, the administrator of
his estate. This was granted by the court. The trial court absolved
the Elser estate from any liability for the deficiency between the
foreclosure price and the amount of debt, since the deficiency
was not presented to the committee which processes claims
against the estate. BPI filed a bill of exceptions with the Supreme
Court. It contended that since it could not ascertain the
deficiency of the proceeds of the mortgage sale and the actual
CREDIT TRANSACTIONS- ATTY. LERMA 17

debt before the foreclosure sale, it could not present the claim for
deficiency with the committee which processes claims against
the Elser estate.
Issue:
1. Whether or not it is necessary that the foreclosure proceeding
is already terminated for a mortgagee to claim a deficiency
judgment against the estate.
Held:
No. The mortgagee has the election of on out of three
courses: 1) He may abandon his security and share in the general
distribution of the assets of the estate; 2) he may foreclose,
secure a deficiency judgment and prove his deficiency judgment
before the committee, or 3) he may rely upon his security alone,
in which case he can receive no share in the distribution of the
assets of the estate.
In this case the bank did not abandon the security and
took no steps of any sort before the committee within the limit of
the Code of Civil Procedure. The committee ceased to function
long ago, and the bank has now nothing to rely on except the
mortgage. It then brought itself to the 3rd option and has no other
alternative.
For a mortgagee to claim a deficiency judgment on the
estate, he must file a claim for the deficiency within the period
provided, even if the foreclosure proceedings have not yet been
terminated. Until the foreclosure sale is made, the demand for
the payment of deficiency is a contingent claim. The committee
does not then pass upon the validity of the claim but reports it to
the court. If the court from the report of the committee or from
the proofs exhibited to it is satisfied that the contingent claim is
valid, the executor or administrator may be required to retain in
his possession sufficient assets to pay the claim when it becomes
absolute, or enough to pay the creditor his proportionate share if
the assets of the estate are insufficient to pay the debts. The bank
could and should have presented its claim to the committee
Digest set #7 – November 2, 2015
within the time prescribed by the law. But it did not, hence, it
could not recover anymore from the estate.
15. LITONJUA v. L & R CORPORATION
G.R. No. 130722
December 9, 1999
Art. 2130
Mia Dueñas
FACTS:
The Litonjua spouses obtained 2 loans from L & R
Corporation, totalling P400,000. The loans were secured by 2
parcels of land and the improvements thereon in Cubao, Quezon
City, of which the spouses were the registered owners. The
mortgage was registered with the Quezon City Register of Deeds.
Paragraph 8 of the contract was a stipulation wherein the
mortgagee's prior written consent was needed in case the lands
would be subsequently encumbrance or alienation of the subject
properties. Paragraph 9 contained a right of first refusal.
On July 14, 1979, the Litonjuas sold the mortgaged land to
Philippine White House Auto Supply, Inc. (PWHAS) for
P430,000.00. The sale was annotated on the TCTs.
When the Litonjuas defaulted, L & R Corporation initiated
extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of
Quezon City. The lands were sold at a public auction and bought
by L & R as the only bidder for P221,624.58. When the company
went to have the Certificate of Sale registered, it was only then
that it found out that the land had been sold to PWHAS.
L & R Corporation wrote a letter of the Register of Deeds of
Quezon City requesting for the cancellation of the annotation
regarding the sale to PWHAS. Paragraphs 8 and 9, it claimed, had
been violated by the spouses.
7 months after the 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
in the amount of P238,468.04. This, however, was refused by the
CREDIT TRANSACTIONS- ATTY. LERMA 18

corporation. Thus, PWHAS instead tendered the payment to the
Deputy Sheriff and the check was deposited with the Branch
Clerk of Court who issued a receipt therefor. The Deputy Sheriff
then issued a Certificate of Redemption in favor of the spouses.
The Litonjuas had the said certificate registered and L & R
was directed to surrender the owner's duplicate certificates of
title within five days. Since the corporation refused, the Litonjuas
asked for an adverse claim to be annotated on their certificate of
redemption. This was refused by the Register of Deeds, so the
spouses filed a petition against the corporation for the return of
the titles with the Quezon City CFI. While this was pending, L & R
Corporation executed an Affidavit of Consolidation of Ownership,
through which the Lintonjuas’ titles were cancelled and new
titles were created in favor of L & R Corporation, free of any lien
or encumbrance.
L & R Corporation advised the tenants of the apartments
situated in the land that the rental payments should be made to
them, and that new lease contracts will be executed with
interested tenants before the end of August, 1981. Upon learning
of this, the Litonjuas filed an adverse claim and a notice of lis
pendens with the Register of Deeds, whereupon they learned
that the sale to PWHAS was not annotated on the titles issued to
L & R.
A complaint for Quieting of Title, Annulment of Title and
Damages with preliminary injunction was filed by the Litonjuas
and PWHAS against the corporation before the CFI Quezon City.
The said court dismissed the complaint, finding both the sale and
the redemption void. The CA at first set aside this decision and
ruled the sale and redemption as valid, but later declared the
same void in an Amended Decision. In ruling so, the said court
relied Cruz v. Court of Appeals, and Medida v. Court of Appeals.
In the SC, the Lintonjuas maintained the validity of the sale
and redemption made. However, they also contended that in the
event of rescission, with no sale having been made, they should
be allowed to redeem the subject properties since the period of
redemption having been suspended during the period of
litigation.
Digest set #7 – November 2, 2015
ISSUES:
1. Whether or not paragraphs 8 and 9 of the Real Estate
Mortgage are valid and enforceable;
2. Whether or not the sale of the mortgaged properties by
the spouses Litonjua to PWHAS is valid
3. Whether or not there was a valid redemption
4. Whether or not the spouses can redeem the properties
and retain ownership.
HELD:
1. NO as to paragraph 8, YES as to paragraph 9
As to paragraph 8 (need of prior consent from mortgagee
before sale):
Paragraph 8 is void. A real mortgage is merely an
encumbrance; it does not extinguish the title of the debtor. Thus,
a mortgagor had every right to sell his mortgaged property.
Article 2130 provides that "(A) stipulation forbidding the owner
from alienating the immovable mortgaged shall be void."
The CA’s reliance on the aforementioned cases are
misplaced. In Cruz v. CA, while a similar provision was
recognized and applied, no discussion was made as to its validity
since the same was not raised as an issue. Meanwhile, the facts in
Medida v. CA are different from those in the present case for what
was in issue in the said case was a second mortgage over a
foreclosed property during the period of redemption.
What is applicable here is the ruling in Tambunting v.
Rehabilitation Finance, which held the said stipulation to be void.
While stipulations prohibiting the owner from constituting a
later mortgage or encumbrance over registered property are
valid, stipulations "forbidding the owner from alienating the
immovable mortgaged" are expressly declared void by Art.
2130. Thus, a sale--an alienation of the immovable — could not
lawfully be forbidden.
The lower courts, in upholding the validity of paragraph 8,
said that there was no prohibition against sale, only a condition
that the mortgagee must first give consent; thus, Art. 2130 was
CREDIT TRANSACTIONS- ATTY. LERMA 19

not violated. This is a narrow interpretation as the same achieves
the effect of prohibition anyway. It gives the mortgagee the sole
prerogative to prevent any sale of the mortgaged property to a
third party by withholding consent.
As to paragraph 9 (right of first refusal)
The right of first refusal in Paragraph 9 is valid. The
consideration for the loan-mortgage includes the consideration
for the right of first refusal. L & R Corporation consented to lend
money to the Litonjuas provided that in case they decide to sell
the property, then L & R Corporation shall be given the right to
match the offered purchase price and to buy the property at that
price. Thus, while the spouses Litonjua had every right to sell,
they had the obligation to notify L & R Corporation of their
intention to sell the property and give it priority over other
buyers. It would only be if the corporation failed to exercise their
right could the Litonjuas validly sell the lands to others, under
the same terms and conditions offered to L & R Corporation.
Sales made in violation of a right of first refusal are
rescissible by reason of injury to third persons, like creditors.
Since the mortgage contract which contained such stipulation
was registered, there was constructive notice to the world and as
such, PWHAS cannot claim to be ignorant of the right of first
refusal granted to L & R Corporation. Moreover, L & R
Corporation had always expressed its willingness to buy the
mortgaged properties on equal terms as PWHAS. It was just
unable to exercise such right because it was not notified by the
spouses.
2. YES
Being contrary to law, paragraph 8 of the subject Deed of
Real Estate Mortgage is not binding upon the parties.
Accordingly, the sale made by the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R
Corporation, is valid.
However, as stated above, though the sale is valid, it is
rescissible due to the violation of the right of first refusal.
Digest set #7 – November 2, 2015
3. YES.
The sale by the spouses Litonjua of the mortgaged
properties to PWHAS is valid. Sec. 3135, which governs
extrajudicial sales, gives not only the mortgagor-debtor the right
to redeem, but also his successors-in-interest. Through the
purchase, PWHAS stepped into the shoes of the spouses Litonjua
on account of such sale and was in effect, their successor-in-
interest. PWHAS assumed the registered obligations burdening
the property, and also obtained the right to remove such burdens
through redemption.
Under the said law, the redemption period runs for one year
from the date of registration of the sale. Since the redemption
was done 7 months after the date of registration, it is well within
the period provided by law.
4. NO
The Court cannot allow the Litonjuas to change their mind to
sell, as it would give the spouses undue advantage on account of
the appreciation of the value of the subject properties in the
intervening years when they precisely were the ones who
violated and ignored the right of first refusal of L & R
Corporation over the same. Moreover, the rescission of the sale
made to PWHAS was to enforce L & R Corporation’s right of first
refusal.
In sum, the sale between the Litonjuas and PWHAS was valid,
and the redemption by PWHAS was valid as well. However, since
the right of first refusal was violated, the sale is riscissible. Thus,
the Court:
1. Ordered the rescission of the sale of the mortgaged
properties between the Litonjuas and PWHAS and ordering the
former to return the purchase price
2. Disallowed the redemption made by PWAS and
ordering the sherrif to return the check
3. Allowed L & R Corporation to retain its consolidated
titles to the foreclosed properties but ordering it to pay to the
CREDIT TRANSACTIONS- ATTY. LERMA 20

Litonjuas P189,201.96, representing the difference from the
purchase price of P430,000.00 in the rescinded sale;
4. Deleted the awards for moral and exemplary damages
and attorney's fees to L & R Corporation.
Justice Vitug: Concurring and Dissenting Opinion
He agreed with the majority decision that paragraph 8 was
void for contravening Art. 2130. However, he believed it was
premature of the court to declare the sale rescissible for violating
the right of first refusal. Such right is not a perfected contract and
thus cannot be subject to specific performance. Violation of this
right can only lead to an action for damages. Moreover, the action
instituted in court (for quieting of title, etc) is not the proper
forum to address recission as it is merely subsidiary.
16. LUCENA v. CA
G.R. No. L-77468. August 25, 1999
By: Mico Clavano
FACTS:
 Eduardo Lucena (Lucena) obtained a loan of Php 3,000
from Rural Bank Naujan (Rural Bank).
 As a security, he executed a mortgage on a parcel of land
 The loan matured and he only paid Php 2,006.9 out and
left Php 1000. (The additional Php 6.9 is interest –
important!)
 Demands by Rural Bank for the balance went unheeded.
 The mortgage was then extrajudicially foreclosed and the
Rural Bank came out as the highest bidder
 THIS IS THE CASE: However, before the foreclosure,
notices were only posted at the municipality where the
property was located.
o 2 things were lacking:
 Posting notices in the Barrio where the
property is located
Digest set #7 – November 2, 2015
 Publishing in a newspaper of general
circulation
 The Rural Bank consolidated their ownership on the title.
 They then subsequently sold the parcel of land to
Spouses Marianito Baja and Patricia Araja (Spouses)
 Lucena sought to annul the foreclosure as he claimed the
same was not a valid one due to the non-compliance with
the required procedure
 The CA ruled:
o No need for notice at barrio because the law
contemplates posting only at the municipality
and not the barrio – (Wrong)
o No need for publishing in newspaper because the
amount of the balance is less than Php 3,000 –
(Wrong)
ISSUE:
(1) W/N a valid foreclosure sale of the subject property was
conducted (NO)
(2) W/N reconveyance and damages is the proper remedy
available to petitioners. (YES)
RATIO:
FIRST ISSUE: The Court ruled that failure to comply with
statutory requirements as to publication of notice of auction sale
constitutes a jurisdictional defect which invalidates the sale.
Even slight deviations therefrom are not allowed.
Notice in Barrio
Section 5 of Republic Act No. 720 as amended by Republic Act No.
[12]
5939 provides:
The foreclosure of mortgages covering loans granted by rural
banks shall be exempt from the publication in newspapers were
the total amount of the loan, including interests due and unpaid,
does not exceed three thousand pesos. It shall be sufficient
publication in such cases if the notices of foreclosure are posted
CREDIT TRANSACTIONS- ATTY. LERMA 21

in at least three of the most conspicuous public places in the
municipality and barrio were the land mortgaged is situated
during the period of sixty days immediately preceding the public
auction. Proof of publication as required herein shall be
accomplished by affidavit of the sheriff or officer conducting the
foreclosure sale and shall be attached with the records of the
case: x x x. (italics supplied) – This means the CA judges are blind
for not seeing the word Barrio in it
In the case at bar, the affidavit of posting executed by the sheriff
states that notices of the public auction sale were posted in three
(3) conspicuous public places in the municipality such as (1) the
bulletin board of the Municipal Building (2) the Public Market
and (3) the Bus Station. There is no indication that notices were
posted in the barrio where the subject property lies. Clearly,
there was a failure to publish the notices of auction sale as
required by law.
Publication in Newpaper of General Circulation
Further still, there was a failure on the part of private
respondents to publish notices of foreclosure sale in a
newspaper of general circulation. Section 5 of R.A. 720 as
amended by R.A. 5939 provides that such foreclosures are
exempt from the publication requirement when the total amount
of the loan including interests due and unpaid does not exceed
three-thousand pesos (P3,000.00). The law clearly refers to the
total amount of the loan along with interests and not merely
the balance thereof, as stressed by the use of the word total.
At the time of foreclosure, the total amount of petitioners loan
including interests due and unpaid was P3,006.90. Publication of
notices of auction sale in a newspaper was thus necessary.
SECOND ISSUE: The Court ruled that if the property has not yet
passed to an innocent purchaser for value, an action for
reconveyance is still available. Good faith or its absence must
thus be established on the part of spouses Marianito Baja and
Patricia Araja at the time that they purchased the subject
property from the Rural Bank of Naujan.
The trial court concluded that the spouses were purchasers in
Digest set #7 – November 2, 2015
bad faith due to the following reasons:
1. Their verification of the title prior to the sale by Rural
Bank to them gives rise to the presumption that they
knew of the right of redemption, which is supposed to be
indicated on the title.
2. Someone was leasing the parcel of land and actually
living on it. The land sold is in the possession of a person
other than the vendor, the purchaser is required to go
beyond the certificate of title and make inquiries
concerning the rights of the actual possessor. One who
purchases real property which is in the actual
possession of another should, at least make some
inquiry concerning the right of those in possession. The
actual possession by other than the vendor should, at
least put the purchaser upon inquiry. He can scarcely, in
the absence of such inquiry, be regarded as a bona fide
purchaser as against such possessors.
17. CRISTOBAL v. CA
GR. No. 124372
March 16, 2000
FACTS:
Petitioners are engaged in the buying and selling of palay.
To augment their capital, they applied and were granted a loan
by the respondent bank in the amount of P30,000.00 payable in
270 days. The loan was secured by a mortgage over a parcel of
land situated in Bulacan. Because petitioners failed to pay their
obligation on the date the loan fell due, the bank caused the
mortgaged property, to be foreclosed extrajudicially. At the
foreclosure sale, the bank was the sole bidder and due to the
petitioner’s failure to redeem the property, a new certificate of
title was issued in the bank’s name.
Through their attorney-in-fact Pacita Cristobal,
petitioners were granted another loan by the bank in the amount
of P70,000.00, secured by another real estate mortgage over four
CREDIT TRANSACTIONS- ATTY. LERMA 22

(4) parcels of land. When the obligation fell due without plaintiffs
paying their indebtedness, the bank extrajudicially foreclosed
the mortgage. As the highest bidder in the auction sale of subject
parcels, titles were consolidated in its favor when petitioners
failed to redeem the land. Consequently, new transfer certificates
of title were issued in the bank's name.
Petitioners filed an action for annulment of extrajudicial
foreclosure of mortgage and sale of property and for
reconveyance with damages, stating that among other things, the
bank did not comply with the requirements of Act. No. 3135 with
respect to posting of the notice of sale and the publication of the
sale in a newspaper of general circulation.
Trial court ruled in favor of the petitioners and issues a
writ of preliminary injunction enjoining the bank from taking the
possession of the property covered by the foreclosure sale.
CA reversed the decision.
ISSUE:
WON the bank complied with the requirements of Act No. 3135
with respect to posting and publication of the notices of sale to
make the foreclosure sale conducted valid
HELD:
Yes.
Petitioners argue that respondent bank not only failed to
submit the certificate of posting but also failed to present before
the court the Deputy Sheriff who allegedly did the postings. The
bank merely presented its own employee, Pedro Agustin, who
testified that he was merely verbally notified by the Sheriff that a
notice of sale was posted.
Respondent bank responded that the Sheriff then in-
charge of the matter was no longer available, and the records of
the foreclosure proceedings were no longer available also,
because of the length of time that had already elapsed. And
jurisprudence has settled that a certificate of posting is not
Digest set #7 – November 2, 2015
required, much less considered indispensable, for the validity of
a foreclosure sale
Furthermore, a mortgagor who alleges absence of a
requisite has the burden of establishing that fact. Petitioners
failed in this regard. Foreclosure proceedings have in their favor
the presumption of regularity and the burden of evidence to
rebut the same is on the petitioners.
Petitioners also claim that the Court of Appeals erred
when it held that publication in the Mabuhay newspaper is a
substantial compliance with the requirement of the law.
However, the records show that the sheriff's notice of sale was
published in the Mabuhay newspaper generally circulated in the
Province of Bulacan.
The SC has held that the publication of the notice of sale
in a newspaper of general circulation alone is more than
sufficient compliance with the notice-posting requirements of
the law
18.
19. PNB v. NEPOMUCENO
G.R. No. 139479
December 27, 2002
Ralph Yu
FACTS:
PNB granted Nepomuceno Productions, Inc. a 4M Credit
line, which was increased to 6M then to 7.5M. This is for the
production of the movie “Pacific Connection”. To secure the
credit line, a 7.6k sqm land in Makati, a 3k sqm in Forbes Park
and several motion picture equipment were mortgaged.
Nepomuceno defaulted in their obligation. PNB sought to
foreclose the properties. It was rescheduled several times
CREDIT TRANSACTIONS- ATTY. LERMA 23

without re-publication of the notice of sale as stipulated in the
agreement to postpone the sale. Finally, the auction sale
proceeded and PNB won as the highest bidder.
Nepomuceno filed an action for annulment, contending
that the sale is null and void because, among others, the lack of
publication.
ISSUE:
WoN the foreclosure is void due to the lack of publication.
HELD:
YES. The foreclosure is void due to the lack of publication.
The stipulation that publication is not required is void. Act No.
3135 stated that notice shall be given by posting notices of the
sale in at least 3 public places of the location where the property
is situated and published once a week for 3 weeks in a
newspaper of general circulation. Failure to publish the notice
constitute a jurisdictional defect, therefore invalidates the sale.
The parties has no right to waive the publication.
20.
21. PIANO v. CAYANONG
G.R. No. L-18603
Sean Borja
FACTS:
Cayanong (respondent) commenced an action to foreclose a
mortgage executed by Piano (petitioner) in favor of Cayanong
upon a parcel of land in Ormoc City. Later on, however, they
agreed to submit a compromise agreement, which formed the
basis of the trial court’s decision giving Piano 30 days to pay off
his debt of P2,000. The trial court also decided that failure to pay
said debt within 30 days places at the disposal of the court the
parcel of land, as security, for the satisfaction of the debt.
Digest set #7 – November 2, 2015
Piano failed to pay his debts so the property was sold at public
auction to Cayanong as the highest bidder. The certificate of sale,
however, contained the provision that the parcel of land is
subject to redemption within one year from the date thereof in
the manner provided by the law. After the public sale, Cayanong
filed a motion for the confirmation of the sale executed by the
sheriff, which was unopposed by Piano. The sale was thus
confirmed, and a writ of possession granted upon motion of
Cayanong.
Before the one-year period ended, Piano deposited the amount of
P2,783, alleging that he was doing so pursuant to the redemption
provision under the certificate of sale. Cayanong, however,
informed the court that a junior encumbrancer, Francisco Pilapil,
had redeemed the property by payment of P2,783, one day after
Piano deposited the redemption money with the court.
Francisco Pilapil opposed the redemption sought by Piano,
alleging that the parcel of land was sold at a judicial foreclosure
sale and was, therefore, not subject to redemption after the
judicial sale was confirmed, title thereto having been fully vested
and consolidated in favor of Cayanong.
Piano, however, alleges that the insertion made by the sheriff in
the certificate of sale provide for a one year period of redemption
is a permissible agreement between the parties who abide by
said period, considering that the trial court approved and
confirmed the sale.
ISSUE: W/N Piano can exercise the right to redemption under
the certificate of sale.
HELD/RATIO: NO.
In a judicial foreclosure of mortgage, there is no right of
redemption after the sale is confirmed. On an equity of
redemption in favor of the mortgagor or junior encumbrancer
CREDIT TRANSACTIONS- ATTY. LERMA 24

exists which consists of the right to redeem the mortgaged
property within the 90-day period, or even thereafter, but
before the confirmation of the sale.
The only exceptions to this rule would be foreclosures of
mortgages in favor of banking and credit institutions, in favor of
the Philippine National Bank, and in extrajudicial foreclosures,
where, by express provision, the law allows redemption. In all
other foreclosure mortgages, there is no legal redemption.
In this case, the sheriff had no authority to grant or insert a
period of redemption in the certificate of sale and, wanting in
said authority, and insertion therein has no validity and effect.
Once the judicial sale is confirmed by the court, the rights are
vested in the purchaser.
22. UNIONBANK v CA
GR No. 133366 (311 SCRA 795)
ART. 2131
Siegfried Kiel
FACTS:
On 17 December 1991, Spouses Leopoldo and Jessica
Dario (Mortgagors) executed a Real Estate Mortgage in favor of
UNIONBANK to secure a PHP3 Million loan (including interest
and other charges). The mortgage covered a Quezon City
property with TCT in Leopoldo Dario’s name. The title was
annotated with the mortgage a day after the contract.
UNIONBANK then extra judicially foreclosed (12 August 1993)
the property mortgaged and posted itself as the highest bidder in
the public auction.
On 4 October 1994, one week before the one-year
redemption period expired, Fermina S. Dario and Reynaldo S.
Dario (Respondents) filed a complaint3 with RTC of Quezon
3
The Complaint filed: Annulment of Sale and Real Estate Mortgage with
Reconveyance and Prayer for Restraining Order and Prohibitory Injunction)
Digest set #7 – November 2, 2015
City against the mortgagors, UNIONBANK, Register of Deeds, and
City Sheriff. A notice of Lis Pendens was annotated on the title.
After a few weeks, UNIONBANK consolidated its title over the
foreclosed property without notifying the private respondents.
The old TCT was cancelled for a new title in favor of UNIONBANK.
On 9 December 1994, the Respondents filed an amended
complaint alleging that they and not the mortgagors are the true
owners of the property mortgaged. They also insisted on the
validity of both the mortgage and its subsequent extrajudicial
foreclosure.
The respondents claimed the following in their amended
Complaint:
1. Original title was entrusted to Atty. Reynaldo Singson
preparatory to its administrative reconstitution after a
fire gutted the Quezon City Hall building.
2. Respondent’s son, mortgagor Leoplodo Dario, obtained
the property from Atty. Singson.
3. The Mortgagor had the title reconstructed under his
name without their knowledge.
4. The Mortgagor executed and antedated the Deed of Sale
in his favor and mortgaged the property of UNIONBANK.
On 9 February 1995, UNIONBANK filed its answer
asserting its status as an Innocent Mortgagee for Value whose
right or lien upon the property mortgaged must be respected
even if the mortgagor obtained his title through fraud.
NOTE: The case was re-raffled more than once due to different
reasons. Please refer to the original for a detailed discussion of
the procedural issues.
ISSUE:
CREDIT TRANSACTIONS- ATTY. LERMA 25
 Digest set #7 – November 2, 2015

1. Whether or not the Consolidation of Title in Unionbank’s The decision did not directly mention the related
name was proper? Yes Mortgage Law and Land Registration Law governing the
HELD: “form, extent, and consequences of mortgage, both as to its
1. It is settled that the Buyer in a Foreclosure Sale constitution, modification, and extinguishment, and as to
becomes the absolute owner of the property purchased if other matters not included in this Chapter”. For reference
it is not redeemed during the period one year after the with original: Footnote 15 and Footnote 16.
registration of the sale. Consolidation took place as a Secs. 1, 4-6 Act No. 3135: Sec. 63 of the Property
matter of right since there was no redemption of the An Act to Regulate the Sale of Registration Decree (PD
foreclosed property and the TRO expired upon dismissal Property under Special Powers 1529)
of the complaint. Inserted or Annexed to Real
Estate Mortgages
UNIONBANK need not have informed private respondent In a Public Bidding during In case of non-redemption, the
that it was consolidating its title over the property, upon Extrajudicial Foreclosure Sale, purchaser at foreclosure sale
the expiration of the redemption period, without the the creditor-mortgagee, shall file with Register of Deeds
judgment debtor having made use of his right of trustee, or other person either a final deed of sale
redemption; the ownership of the property sold becomes authorized to act for the executed by the person
creditor may participate and authorized by virtue of the
consolidated in the purchaser. Notice to the mortgagors
purchase the mortgaged power of attorney embodied in
and with more reason, to private respondents who are property as any other bidder. the deed or mortgage, or his
neither the parties to the mortgage contract nor to the Thereafter, the mortgagor has sworn statement attesting to the
extrajudicial sale are not necessary. one year within which to fact of non-redemption;
redeem the property from and whereupon the register of deeds
As to the issue of who between private respondents and registration of sale with the shall issue a new certificate of
UNIONBANK is negligent and hence must bear the loss, Register of Deeds. title in favor of the purchaser
the same is not the proper subject of the present petition after the owner’s duplicate of
and can only be resolved by the trial court after the trial the certificate has been
on the merit of the main case. previously delivered and
cancelled.
IMPORTANT: Relevance to the Assigned Provision in Thus, upon failure to redeem
the Outline foreclosed realty, consolidation
of title becomes a matter of right
on the part of the auction buyer,
and the issuance of a certificate
of title in favor of the purchaser
becomes ministerial upon the
Register of Deeds.

CREDIT TRANSACTIONS- ATTY. LERMA 26


Act No. 3135 and PD 1529 are the related Mortgage Law
and Land Registration Law that Art. 2131 is referring to.
23. COMETA v. CA
G.R. No. 141855
February 6, 2001
Art. 2131
FACTS:
CFI Makati rendered judgment against ZACARIAS COMETA,
granting P57,396.85 as damages to JOSE FRANCO. Judgment
became final, and the sheriff levied on execution COMETA’s 3
commercial lots in Guadalupe, Makati. On October 17, 1978, 2
lots were sold at public auction to FRANCO at P57,396.85, the
amount of the judgment. The certificate of sale was registered
and annotated on the certificates of title on January 25, 1980.
Then 3 years after the sale, or on November 17, 1981, HERCO
REALTY & AGRICULTURAL DEV’T CORP (HERCO) filed a case
with the same CFI branch to annul the levy on execution and sale
at public auction, saying that (1) COMETA had transferred the
lots to it before the execution sale, (2) that there was a disregard
of procedural practice because the sheriff should have first
exhausted COMETA’s personal properties, (3) the lots were sold
en masse and not by parcel, and (4) there was gross inadequacy
of price because the lots were valued at P500,000.
The RTC ordered the Register of Deeds to cancel COMETA’s
certificates of title over the lots and issue new ones in favor of
FRANCO. In the middle of the events, COMETA died and was
substituted by his heirs who filed a petition for certiorari with
the SC questioning the RTC decision. SC dismissed the case.
FRANCO then asked for a writ of possession, which the RTC
granted at first but then it reversed its decision, saying that the
issuance of a writ of possession was premature because the case
Digest set #7 – November 2, 2015
filed by HERCO and COMETA for the annulment of levy and sale
of the properties had not yet been decided.
IAC granted the writ of possession. But the SC reversed,
withholding the grant of writ of possession until RTC decided on
the validity of the levy and sale. IAC had said in its decision that
COMETA failed to redeem the properties, but the SC said that
redemption was inconsistent with assailing the validity of the
levy and sale, as redemption would be an implied admission of
regularity of the sale.
RTC Makati then dismissed the case assailing the validity of the
levy and sale because COMETA and HERCO failed to appear in
court. CA affirmed the dismissal. And so the SC Resolution, which
in effect upheld the validity of the assailed levy and sale, became
final and executory.
FRANCO again filed for a writ of possession and cancellation of
the notice of lis pendens. But COMETA’s heirs opposed the
motion saying that they wanted to redeem the properties.
COMETA’s heirs consigned with the Clerk of Court P38,761.05 as
purchase price, P78,762.69 as interest, and P1,175,25 as realty
tax, but the RTC said that the period of redemption had already
expired. RTC said that although the period of redemption is
suspended if the validity of the sale is questioned, if the period of
redemption lapses before the sale’s validity is questioned, there
would no longer be any redemption period to suspend. And in
this case, the sale was registered and annotated on the title on
January 25, 1980. Period of redemption according to Sec 30 Rule
39 of the Rules of Court, is 12 months from the registration of
the sale. And since the case assailing the validity of the sale was
filed only on Nov 27, 1981, 10 months had passed from the
expiration of the period of redemption. RTC thus ordered the
issuance of a writ of possession in favor of FRANCO. CA affirmed
the RTC’s decision.
ISSUE:
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 Digest set #7 – November 2, 2015

Whether COMETA’s heirs can still redeem the property.
HELD:
Yes. SC says that in interpreting the rules on redemption, it must
be viewed in such a way that the policy of law to aid rather than
to defeat the right of redemption is upheld. The SC discussed 5
points to support its decision:
4. On applicability of prescription and laches- SC says, rules
on prescription and laches cannot work to defeat justice
or to perpetrate fraud.
5. COMETA’s demonstrated, albeit tardily, an earnest and
sincere desire to redeem the properties, when they
consigned the purchase price, interest, and realty tax
with the office of the Clerk of Court.

1. RTC dismissed the case assailing the validity of the levy Since, rules on redemption are liberally construed in favor of the
and sale only on technicality (that HERCO and COMETA original owner of the property, SC granted the redemption and
failed to appear in court), so there was no ordered FRANCO to accept the tender of payment and deliver the
pronouncement as to the inadequacy of the price. SC says certificate of redemption to the COMETAs.
that rules of procedure should not be so strictly applied,
when to do so would frustrate rather than promote
substantial justice.
2. SC thus rules on the inadequacy of price: although as a
general rule, inadequacy of price does not set aside a
judicial sale, it would if the price is purely shocking to the
conscience, which it was in this case. (P57k for lots
conservatively valued at P500k).
3. The lots were levied and sold at public auction in a
questionable manner.
a. Sec 15 Rule 39 Rules of Court says that, “when
there is more property of the judgment debtor than
is sufficient to satisfy the judgment and accruing
costs, within the view of the officer, he must levy
only on such part of the property as is amply
sufficient to satisfy the judgment and costs.”
b. Sec 21 Rule 39 provides “After sufficient property
has been sold to satisfy the execution, no more shall
be sold. When the sale is of real property,
consisting of several known lots, they must be sold
separately.”
In this case, the lots were sold en masse and not
separately. The unusually low price and FRANCO’s
vehement unwillingness to allow redemption, heightens
the dubiousness of the transfer.
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