DBP vs. CA
It is undisputed that Cuba
GR No. 118342
PLAINTIFF: DBP
DEFENDANT: CA, Agripina Caperal
DATE: January 5, 1998
PONENTE: J. Davide
TOPIC:
Facts:
 This is a case wherein 2 consolidated cases stemmed form a complaint filed against the DBP and
Agripina Caperal filed by Lydia Cuba
o Declaration of Nullity of DBPs appropriation of CUbas’s rights over the 44hectare
fishpond, for being violative of Article 2088 (pactum commissorium)
o Annulment of Deed of Conditional Sale executed in her favor
o Annulment of DBPs sale to Caperal
o Restoration of her rights, title and interests over the fishpond
o Recovery of Attys fees, etc.
 That Lydia Cuba was a grantee from the government of a Fishpond Lease Agreement for a
44hectare fishpond in Bolinao, Pangasinan
 She obtained loans from DBP and as a security for the loans, she executed 2 Deeds of
Assignment of her Leasehold Rights
 Cuba failed to pay her loans on time so DBP, without foreclosure proceedings, appropriated the
Leasehold Rights over the fishpond
o After the said appropriation, DBP executed a Deed of Conditional Sale of the
Leasehold Rights in favor of Cuba
o DBP accepted Cuba’s offer to repurchase
 After the Deed of Conditional Sale was executed in favor of Cuba, a new Fishpond Lease
Agreement was issued by the Ministry of Agriculture and Food, excluding her husband
 Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale so she entered with
the DBP a Temporary Agreement whereby in consideration for the deferment of the Notarial
Rescission of Deed of Conditional Sale, Cuba promised to make certain payments
 DBP sent notice of rescission through Notarial Act and took possession of the Fishpond Leasehold
Rights
o After the Notice of Rescission, DBP took possession of the Leasehold Rights of
the fishpond in question
 DBP then conducted a public bidding to dispose of the property, which Agripina Caperal won
o DBP executed the Deed of Conditional Sale in favor of Caperal
o Caperal was awarded the Fishpond Lease
 Cuba filed a complaint against DBP before the RTC of Pangasinan
 RTC: favored Cuba,
o Declared DBPs taking possession and ownership of the property without foreclosure
was plainly violative of Article 2088 of the NCC
o The Assignment of Leasehold Rights for being a clear case of Pactum Commissorium
expressly prohibited and declared null and void by Article 2088 of the Civil Code.
o DBP never acquired lawful ownership of Cuba’s leasehold rights, all acts of ownership
and possession by the said bank were void.
o Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of
Leasehold Rights executed by Caperal in favor f DBP, were also void and ineffective.
 CA, reversed RTC, declared the following valid:
o DBP in appropriating Cuba’s leasehold rights and interest under the Fishpond Lease
o Deeds of Assignment executed by Cuba
o Deed of Conditional Sale Between Cuba and DBP
o Deed of Conditional Sale between DBP and Caperal, the Fishpond Lease Agreement
in favor of Caperal
o DBP to turn over the possession of the property to Caperal as lawful holder of the
leasehold rights
Issue: W/N the act of DBP to take possession and do acts of ownership over the subject parcel of land is
contrary to Article 2088 of the CC, YES
Ruling:
SC agrees that the Assignment of Leasehold Rights was a Mortgage Contract.
obtained 3 separate loans from DBP.
As for the violation of Article 2088,
DBPs acts of appropriating Cuba’s leasehold right was violative of Article 2088, which forbids a creditor from
appropriating, or disposing of the thing given as security for the payment of a debt.
The elements of Pactum Commissorium are as follows:
1. There should be a property mortgaged by way of security for the payment of the principal
obligation
2. There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case on non-payment of the principal obligation within the stipulated period
We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment constituted pactum
commissorium. Said condition reads:
Condition 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints
the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-
described, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and
Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or
improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or
might have over said property and/or its improvements and perform any other act which the Assignee may
deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose
above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this
Assignment. Any amount received from rents, administration, sale or disposal of said property may be
supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental
expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the
indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts
received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee
upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked
as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by
virtue of said power are hereby ratified.
 Such condition did not provide that ownership over the leasehold rights would automatically pass
to DBP upon Cuba’s failure to pay the loan on time
o Merely provided for the appointment of DBP as attorney-in fact to sell or otherwise
dispose of the said real rights in case of default by Cuba – and to apply the proceeds to
the payment of the loan
o This provision is a standard condition in mortgage contracts and is in conformity with
Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the
mortgage and alienate the mortgaged property for the payment of the principal
obligation.
 DBP exceeded in the authority vested by Condition No. 12
o DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act
of appropriating the leasehold rights. As stated earlier, condition no. 12 did not
provide that CUBAs default would operate to vest in DBP ownership of the said
rights. Besides, an assignment to guarantee an obligation, as in the present case, is
virtually a mortgage and not an absolute conveyance of title which confers
ownership on the assignee.
 The fact that Cuba offered and agreed to repurchase her leasehold rights from DBP did not estop
her from questioning DBPs act of appropriation, as such estoppel is unavailing in this case
What the DBP should have done:
 DBP should have foreclosed the mortgage, as stipulated in Condition no. 12 of the Deed of
Assignment
In view of the false representation that DBP has already foreclosed the mortgage, the following acts
are declared null Respondents argue that contracts have the force of law between the contracting parties and must be complied
 The cancellation of the fish pond permit with in good faith.
 Conditional sale to Caperal
 Appropriation of the leasehold rights
Certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:

BUSTAMANTE V ROSEL Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
G. R. No. 126800 may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.
FACTS:
 Rosel entered into a contract of loan with petitioner Natalia Bustamante and her late husband The stipulations in the contract of the parties embraced in the concept of pactum commissorium, which is
Ismael proscribed by law
 The elements of pactum commissorium are as follows:
Terms and conditions: o (1) there should be a property mortgaged by way of security for the payment of the
 The loan was for 100K payable in 2 years with 18% interest per annum and to guaranty payment principal obligation, and
they are putting as collateral a portion of a parcel of land in Congressional Ave. inclusive of the o (2) there should be a stipulation for automatic appropriation by the creditor of the thing
apartment therein mortgaged in case of non-payment of the principal obligation within the stipulated
 In the event that they failed to pay Bustamante has the option to purchase the collateral for 200K period.
inclusive of the borrowed amount
In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be
When the loan was about to mature on March 1, 1989 Rosel proposed to buy at the pre-set price of 200K evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration amounting to
practically the same amount as the loan.
 Bustamante refused and asked for an extension of time to pay the loan and offered to sell to  In effect, the creditor acquires the collateral in the event of non payment of the loan.
respondents another residential lot  SUCH IS VOID
o With the principal loan plus interest to be used as down payment.

 Rosel refused to extend the payment of the loan and to accept the lot as it was occupied by
squatters and Bustamante was not the owner but a mere land developers

March 1, 1989, petitioner tendered payment of the loan to respondents which the latter refused to accept,
insisting on petitioners signing a prepared deed of absolute sale of the collateral.

Rosel filed a complaint for specific performance with consignation against petitioner and her spouse.
 Nevertheless, respondents still send a demand letter to have them sell the collateral.

When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned the
amount of P47,500.00 with the trial court.

RTC, denied the execution of deed of sale and ordered Bustamante to pay the amount of the loan.

CA, reversed the decision of the lower court

 Ordering the petitioners to accept the amount of P 47,000.00
 Execute the necessary deed of sale

ISSUE: WON failed to pay the loan & WON the stipulations in the contract are valid

HELD:

Petitioner did not fail to pay the loan.

 The loan was due for payment on March 1, 1989
 On said date, petitioner tendered payment to settle the loan which respondents refused to accept,
insisting that petitioner sell to them the collateral of the loan.
 When respondents refused to accept payment, petitioner consigned the amount with the trial court

The sale of the collateral is an obligation with a suspensive condition

 Since the event did not occur, respondents do not have the right to demand fulfillment of
petitioners obligation, especially where the same would not only be disadvantageous to petitioner
but would also unjustly enrich respondents considering the inadequate
consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue,
Quezon City.
 The 3.5% monthly interest or 42% per annum reduced it to 12% per annum. The monthly penalty interest of
5% was reduced to 12% per annum of the amount due, to be computed from the time of demand. The 25%
attorney’s fee of the principal amount, interest and interest therein was reduced to 25% of the principal amount
only.

Sps. Ong vs Roban Lending Corp.

Facts:
 Petitioner obtained loans from the respondent. The total amount of the loan is P4 million. As a
security Petitioner executed a real estate mortgage in favor of Respondent.

 Petitioner and Respondent executed an amendment to amend the real estate mortgage which
consolidate their loan. The total amount of the loan is P5.9million. The parties, petitioner and
respondent, executed a Dacion in Payment agreement and Memorandum of Agreement.

 Petitioner filed a case against Respondent to declare the two agreement to be void because it is
pactum commissorium. The former also alleged that the monthly interest of 3.5%, 5% as a penalty,
and 25% attorney’s fee to be unconscionable.

 Respondent’s defense is that Dacion in Payment agreement is valid and lawful because it is
recognized by art. 1245 of the Civil Code.

RTC – dismissed the case and considered the two agreements to be valid, and there is no pactum
commissorium. On appeal, CA affirmed the RTC’s decision.
Issue:
W/N the two agreements is valid.
Held: NO. Void for being pactum commissorium

This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of the Civil Code which provides:

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void."

The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged
property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.

In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for
foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by the petitioners
to pay their debt within the one-year period gives respondent the right to enforce the Dacion in Payment
transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically
acquires ownership of the properties upon petitioners’ failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor
alienates property to the creditor in satisfaction of a monetary obligation. This does not persuade. In a
true dacion en pago, the assignment of the property extinguishes the monetary debt. In the case at bar, the
alienation of the properties was by way of security, and not by way of satisfying the debt. The Dacion in
Payment did not extinguish petitioners’ obligation to respondent. On the contrary, under the Memorandum of
Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note
for ₱5,916,117.50 which they were to pay within one year.
As for the interest, the Court said that it is unconscionable. The Court lowered the interest stated in the
agreement.

Prudential Bank vs Alviar
Facts of the case:
Sps. Alviar are the registered owners of a parcel of land in San Juan, Metro Manila. On 10 July 1975, they
executed a deed of real estate mortgage in favor of Prudential Bank to secure the payment of a loan worth
250k. On 4 August 1975, subsequently, they issued a Promissory Note covering the same load which provides
that the loan matures on 4 August 1976 with an interest rate of 12% per annum with 2 % service charge, and
that said note is secured by a Real estate mortgage. (1 st PN)
“That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR, and
to secure the payment of the same and those that may hereafter be obtained, the
principal or all of which is hereby fixed at Two Hundred Fifty Thousand (₱250,000.00)
Pesos, Philippine Currency, as well as those that the Mortgagee may extend to the
Mortgagor and/or DEBTOR, 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, the
Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee,
its successors or assigns, the parcels of land which are described in the list inserted on
the back of this document, and/or appended hereto, together with all the buildings and
improvements now existing or which may hereafter be erected or constructed thereon,
of which the Mortgagor declares that he/it is the absolute owner free from all liens and
incumbrances. . . .”
On 22 October 1976, Don Alviar executed another Promissory Note stating that the loan was secured by a
“hold-out” on the mortgagor’s foreign currency savings account and that the mortgagor’s passbook is to be
surrendered to the bank until the amount secured by the hold out is settled. (2 nd PN)
December 1976, Sps. Alviar executed for Donalco Trading, Inc., which the sps were president and chairman of
the corporation, another Promissory Note covering 545k. The Promissory note was secured by “Clean Phase
out TOD CA 3923”, which means that the temporary overdraft incurred by Donalo Trading with petitioner is to
be converted into an ordinary loan in compliance with the Central Bank circular directing the discontinuance of
overdrafts. (3rd PN)
March 1977, Prudential Bank informed Donalco of its approval of a straight loan of 545k, the proceeds of
which will liquidate its outstanding loan. The letter likewise mentioned that the securities for the loan were the
deed of assignment on the two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation
equipment
On 06 March 1979, respondents paid petitioner ₱2,000,000.00, to be applied to the obligations of G.B. Alviar
Realty and Development, Inc. and for the release of the real estate mortgage for the ₱450,000.00 loan
covering the two (2) lots located at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro
Manila. The payment was acknowledged by petitioner who accordingly released the mortgage over the two
properties.
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property
covered by TCT No. 438157. Per petitioner’s computation, respondents had the total obligation of
₱1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-252 for ₱250,000.00, PN
BD#76/C-345 for ₱382,680.83, and PN BD#76/C-340 for ₱545,000.00, plus assessed past due interests and
penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980.
Trial Court based on MR found:
that only the ₱250,000.00 loan is secured by the mortgage on the land covered
by TCT No. 438157. On the other hand, the ₱382,680.83 loan is secured by the
foreign currency deposit account of Don A. Alviar, while the ₱545,000.00
obligation was an unsecured loan, being a mere conversion of the temporary
overdraft of Donalco Trading, Inc. in compliance with a Central Bank circular.
According to the trial court, the "blanket mortgage clause" relied upon by
petitioner applies only to future loans obtained by the mortgagors, and not by
parties other than the said mortgagors, such as Donalco Trading, Inc., for which
respondents merely signed as officers thereof.
On appeal to the Court of Appeal
The Court of Appeals affirmed the Order of the trial court but deleted the award
of attorney’s fees. It ruled that while a continuing loan or credit accommodation
based on only one security or mortgage is a common practice in financial and
commercial institutions, such agreement must be clear and unequivocal. In the
instant case, the parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate court ruled that the
extrajudicial foreclosure sale of the property for the three loans is improper.The
Court of Appeals, however, found that respondents have not yet paid the
₱250,000.00 covered by PN BD#75/C-252 since the payment of ₱2,000,000.00
adverted to by respondents was issued for the obligations of G.B. Alviar Realty
and Development, Inc
Issue: Whether or not the blank mortgage clause covers all other PNs by the SPS. Alviar
Supreme Court:
No. A blank mortgage clause is one which is specifically phrased to subsume all debts of past or future origins.
Such clauses are carefully scrutinized and strictly construed. Thus contrary to the findings of the Court of
Appeals, petitioner and respondents intended the REM to secure not only the 250k loan but also future credit
facilities and advancement that may be obtained by the respondents.
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a "hold-out" on his foreign currency savings account,
while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured by "Clean-Phase out
TOD CA 3923" and eventually by a deed of assignment on two promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various
heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the
critical issue is whether the "blanket mortgage" clause applies even to subsequent advancements for which
other securities were intended, or particularly, to PN BD#76/C-345. Thus, it was concluded that the "offer" was
not accepted by the bank when a subsequent advance was made because (1) the second note was secured
by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such
chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection
between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her
name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business
under an assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied
on the security of the real estate mortgage in making the advance.
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of
non-payment of all the three promissory notes. While the existence and validity of the "dragnet clause" cannot
be denied, there is a need to respect the existence of the other security given for PN BD#76/C-345. The
foreclosure of the mortgaged property should only be for the ₱250,000.00 loan covered by PN BD#75/C-252,
and for any amount not covered by the security for the second promissory note. As held in one case, where
deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently
become due, a balance due on a note, after exhausting the special security given for the payment of such
note, was in the absence of a special agreement to the contrary, within the protection of the mortgage,
notwithstanding the giving of the special security.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that
respondents have not yet paid the ₱250,000.00, and gave no credence to their claim that they paid the said
amount when they paid petitioner ₱2,000,000.00. Thus, the mortgaged property could still be properly
subjected to foreclosure proceedings for the unpaid ₱250,000.00 loan, and as mentioned earlier, for any
deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to
defenses which are available to respondents.
PEOPLE’S BANK v. DAHICAN LUMBER
G.R. NO. L-17500 May 16, 1967
FACTS:
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do
business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the
Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO — for the total
sum of $500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to develop the concession,
DALCO obtained various loans from the People's Bank & Trust Company — hereinafter referred to as the
BANK — amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a
loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of
$50,000.00 each, maturing on different dates, executed by both DALCO and the Dahican America Lumber
Corporation, a foreign corporation and a stockholder of DALCO, — hereinafter referred to as DAMCO, all
payable to the BANK or its order.
As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the
BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed of
mortgage covering five parcels of land. On the same date, DALCO executed a second mortgage on the same
properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber
concession amounting to the sum of $450,000.00.
Both deeds contained a provision saying:
All property of every nature and description taken in exchange or replacement, and all buildings, machinery,
fixtures, tools equipment and other property which the Mortgagor may hereafter acquire, construct, install,
attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to the
lien of this mortgage in the same manner and to the same extent as if now included therein, and the
Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an
accurate inventory of such substituted and subsequently acquired property.
Both mortgages were registered in the registry of deeds. In addition thereto DALCO and DAMCO pledged to
the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.
After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various
machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already
owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted
theretofore regarding "after acquired properties," the BANK requested DALCO to submit complete lists of said
properties but the latter failed to do so.
The petitioners contend that the proceeds obtained from the sale of the "after acquired properties" as well as
those obtained from the sale of the "undebated properties" in the total sum of P175,000.00 should have been
awarded exclusively to plaintiffs by reason of the mortgage lien they had thereon; that damages should have
been awarded to plaintiffs against defendants, all of them being guilty of an attempt to defraud the former
when they sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien
Note: Dahican Lumber subsequently became insolvent and placed under receivership.
ISSUE:
WON the so-called "after acquired properties" are covered by and subject to the deeds of mortgage
subject of foreclosure.
HELD:
YES and the proceeds should be awarded to the petitioners. It is not disputed in the case at bar that the "after
acquired properties" were purchased by DALCO in connection with, and for use in the development of its
lumber concession and that they were purchased in addition to, or in replacement of those already existing in
the premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the
result that the real estate mortgages involved herein — which were registered as such — did not have to be
registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third
parties.
As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated
properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that
said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by
the mortgages under foreclosure.
On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of
the New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them; and
that any third person who induces another to violate his contract shall be liable for damages to the other
contracting party. Similar liability is demandable under Arts. 20 and 21 — which may be given retroactive effect
(Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.
The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth
promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the fourth
paragraph of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the "after
acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized.
Defendants' liability for damages is therefore clear.
ON THE ISSUE OF PREMATURE FORECLOSURE OF MORTGAGE
The defendant's claim that the action to foreclose the mortgages filed on February 12, 1953 was premature
because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this
that, when the action was commenced, the plaintiffs had no cause of action.
The SC ruled that Dahican Lumber was insolvent as of the date of the filing of the complaint, therefore, it
follows that they lose the benefit of the period. (Article 1198 of NCC).
 Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"
D. D. Material Handling Equipment
Paper Plant No. 3
The MTI was later amended to increase the contributions of the RCBC and Union Bank…still included as part
of the mortgaged properties by way of a first mortgage the various machineries and equipments located in and
bolted to and/or forming part of buildings.
A Second Supplemental Indenture to the MTI was executed to increase the amount of the loan secured
against the existing properties composed of land, building, machineries and equipments and inventories
described in Annexes "A" and "B."
Finally, a Third Supplemental Indenture to the MTI was executed to increase the existing loan obligation with
an additional security composed of a newly constructed two-storey building and other improvements,
machineries and equipments located in the existing plant site.
Paper City was able to comply with its loan obligations but economic crisis ensued which made it difficult for
Paper City to meet the terms of its obligations leading to payment defaults. Consequently, RCBC filed a
Petition for Extrajudicial Foreclosure.
The petition was for the extra-judicial foreclosure of eight parcels of land including all improvements thereon
which were sold in favor of the creditor banks RCBC, Union Bank and Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging that the extra-
judicial sale of the properties and plants was null and void due to lack of prior notice and attendance of gross
and evident bad faith on the part of the creditor banks.
STAR TWO (SPV-AMC), INC.,1 Petitioner,
vs. Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the machineries
PAPER CITY CORPORATION OF THE PHILIPPINES, Respondent. and equipments were included in the annexes and form part of the MTI.

Paper City filed its Motion for Reconsideration - granted by RTC with justification that the machineries and
FACTS equipments are chattels by agreement of the parties through their inclusion in the four Deeds of Chattel
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now Mortgage and the deed of cancellation executed by RCBC was not valid because it was done unilaterally and
substituted by Star Two (SPV-AMC), Inc. without the consent of Paper City.

Paper City is a domestic corporation engaged in the manufacture of paper products. Paper City applied for The CA affirmed the Order.
and was granted loans and credit accommodations in peso and dollar denominations by RCBC secured by 4
Deeds of Continuing Chattel Mortgages on its machineries and equipments found inside its paper plants. ISSUE WON the subject machineries and equipments forms part of the Real Estate Mortgage.
However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of
Merchandise/Stocks-in-Trade was executed by RCBC over the merchandise and stocks-in-trade covered by HELD:
the continuing chattel mortgages.
Yes. By contracts, all uncontested in this case, machineries and equipments are included in the mortgage in
RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank) entered into a
favor of RCBC, in the foreclosure of the mortgage and in the consequent sale on foreclosure also in favor of
Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City acquired an additional P170,
petitioner.
000,000.00 from the creditor banks in addition to the previous loan from RCBC amounting to P110,
000,000.00.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of
The old loan of P110,000,000.00 was partly secured by various parcels of land situated in Valenzuela City. The land including the buildings and existing improvements thereon as well as the machineries and equipments,
new loan obligation of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate which as stated in the granting clause of the original mortgage, are "more particularly described and listed that
Mortgage and additional real and personal properties described in an annex to MTI, Annex "B" which covered is to say, the real and personal properties listed in Annexes ‘A’ and ‘B’.”
the machineries and equipments of Paper City.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks
Annex "A" and Paper City intended from the very first execution of the indentures that the machineries and equipments
A. Office Building enumerated in Annexes "A" and "B" are included. Obviously, with the continued increase in the amount of the
Building 1, 2, 3, 4, and 5 loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable properties acceptable to the
Boiler House creditor banks.
Workers’ Quarter/Restroom
Canteen The MTIs did not describe the equipments and machineries as personal property. Notably, while "personal"
Guardhouse, Parking Shed, Elevated Guard appeared in the granting clause of the original MTI, the subsequent Deed of Amendment specifically stated
Post and other amenities that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements listed above
B. Pollution Tank Nos. 1 and 2. and located on the parcels of land subject of the Mortgage Trust Indenture and the Real Estate Mortgage.
Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank
Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2 2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the
Fabrication Building improvements.
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. (Underlining ours)…even if the
machinery in question was not included in the mortgage expressly, Article 111 of the old Mortgage Law
provides that chattels permanently located in a building, either useful or ornamental, or for the service of some
industry even though they were placed there after the creation of the mortgage shall be considered as
mortgaged with the estate, provided they belong to the owner of said estate.

Bischoff v. Pomar and Cia. General de Tabacos...Article 1877 provides that 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

The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co…the machineries were integral parts of said sugar
central hence included following the principle of law that the accessory follows the principal.

3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and
equipments of respondent. While captioned as a "Petition for Extra-Judicial Foreclosure of Real Estate
Mortgage Under Act No. 3135 As Amended," the averments state that the petition is based on "x x x the
Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust Indenture, the Second Supplemental
Indenture to the Mortgage Trust Indenture, and the Third Supplemental Indenture to the Mortgage Trust
Indenture (hereinafter collectively referred to as the Indenture) duly notarized and entered as x x x."60 Noting
that herein respondent has an outstanding obligation in the total amount of Nine Hundred One Million Eight
Hundred One Thousand Four Hundred Eighty Four and 10/100 Pesos (₱901,801,484.10), the petition for
foreclosure prayed that a foreclosure proceedings "x x x on the aforesaid real properties, including all
improvements thereon covered by the real estate mortgage be undertaken and the appropriate auction sale be
conducted x x x."61

Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states
through the Deed of Amendment that the machineries and equipments listed in Annexes "A" and "B" form part
of the improvements listed and located on the parcels of land subject of the mortgage, such machineries and
equipments are surely part of the foreclosure of the "real estate properties, including all improvements
thereon" as prayed for in the petition.

The real estate mortgage over the machineries and equipments is even in full accord with the classification of
such properties by the Civil Code of the Philippines as immovable property. Thus:

Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry
or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs
of the said industry or works.

PETITION GRANTED REINSTATING THE ORIGINAL DECISION OF TRIAL COURT DENYING MOTION TO
REMOVE/DISPOSE MACHINERIES

G.R. No. 158891 June 27, 2012
PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.
Facts:
 Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property), which
she mortgaged to Yolanda Valdez Villar (Villar) as security for a loan.
 Galas subsequently mortgaged the same subject property to Pablo P. Garcia (Garcia) to secure
another loan. Both mortgages were annotated on the subject property’s TCT.
 Galas thereafter sold the subject property to Villar. The Deed of Sale was registered
and, consequently, a new TCT was issued in the name of Villar. Both Villar’s and
Garcia’s mortgages were carried over and annotated on Villar’s new TCT.
 Garcia filed a Petition for Mandamus with Damages against Villar before the RTC. Garcia
subsequently amended his petition to a Complaint for Foreclosure of Real Estate Mortgage with
Damages and alleged that when Villar purchased the subject property, she acted in bad faith as
she knowingly and willfully disregarded the laws on judicial and extrajudicial foreclosure of
mortgaged property. Garcia further claimed that when Villar purchased the subject property, Galas
was relieved of her contractual obligation and the characters of creditor and debtor were merged in
the person of Villar. Therefore, Garcia argued, he, as the second mortgagee, was subrogated to
Villars original status as first mortgagee, which is the creditor with the right to foreclose.
 Villar claimed that the complaint stated no cause of action and that the second mortgage was done
in bad faith as it was without her consent and knowledge. Villar alleged that she only discovered
the second mortgage when she had the Deed of Sale registered. Villar blamed Garcia for the
controversy as he accepted the second mortgage without prior consent from her. She averred that
there could be no subrogation as the assignment of credit was done with neither her knowledge
nor prior consent. Villar added that Garcia should seek recourse against Galas and Pingol, with
whom he had privity insofar as the second mortgage of property is concerned.
 The RTC ruled in favor of Garcia. The RTC declared that the direct sale of the subject property to
Villar, the first mortgagee, could not operate to deprive Garcia of his right as a second
mortgagee. The RTC further explained that upon Galas’s failure to pay her obligation, Villar should
have foreclosed the subject property to provide junior mortgagees like Garcia the opportunity to
satisfy their claims from the residue, if any, of the foreclosure sale proceeds.
 Villar appealed and contended that the second mortgage is a void and inexistent contract. The
Court of Appeals reversed the RTC’s decision and declared that Galas was free to mortgage the
subject property even without Villar’s consent as the restriction that the mortgagees consent was
necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate
Mortgage. However, the Court of Appeals held that the sale of the subject property to Villar was
valid as it found nothing in the records that would show that Galas violated the Deed of
Real Estate Mortgage prior to the sale.
 Garcia appealed to the Supreme Court, with the same arguments he posited before the lower
courts, but added that the Deed of Real Estate Mortgage contained a stipulation, which is
violative of the prohibition on pactum commissorium.
Issues
1. WON second mortgage to Garcia was valid
2. Whether or not the sale of the subject property to Villar was valid
3. Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum
commissorium
4. Whether or not Garcia’s action for foreclosure of mortgage on the subject property can prosper.
Ratio:
Validity of second mortgage to Garcia and sale of subject property to Villar:
 The SC agrees with the Court of Appeals that both are valid under the terms and conditions of the
Deed of Real Estate Mortgage executed by Galas and Villar.
 While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a
restriction on further encumbrances without the mortgagees prior consent, this restriction was
nowhere to be found in the Deed of Real Estate Mortgage. As this Deed became the basis for the
annotation on Galass title, its terms and conditions take precedence over the standard, stamped
annotation placed on her title. If it were the intention of the parties to impose such restriction, they
would have and should have stipulated such in the Deed of Real Estate Mortgage itself.
 Neither did this Deed proscribe the sale or alienation of the subject property during the life of the
mortgages. Garcias insistence that Villar should have judicially or extrajudicially foreclosed the
mortgage to satisfy Galass debt is misplaced. The Deed of Real Estate Mortgage merely provided
for the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was it
stated in the Deed that Galas could not opt to sell the subject property to Villar, or to any other
person. Such stipulation would have been void anyway, as it is not allowed under Article 2130 of
the Civil Code
Prohibition on pactum commissorium
 The following are the elements of pactum commissorium:
o There should be a property mortgaged by way of security for the payment of the
principal obligation; and
o There should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal obligation within the stipulated
period.
 Villars purchase of the subject property did not violate the prohibition on pactum commissorium.
The power of attorney provision above did not provide that the ownership over the subject property
would automatically pass to Villar upon Galass failure to pay the loan on time. What it granted was
the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the
subject property, and to apply the proceeds to the payment of the loan.
 Galas’ decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was
well within the scope of her rights as the owner of the subject property. The subject property was
transferred to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia
never alleged that the transfer of the subject property to Villar was automatic upon Galass failure to
discharge her debt, or that the sale was simulated to cover up such automatic transfer.
Propriety of Garcias action for foreclosure of mortgage
 A mortgage is a real right, which follows the property, even after subsequent transfers by the
mortgagor. A registered mortgage lien is considered inseparable from the property inasmuch as it
is a right in rem. The sale or transfer of the mortgaged property cannot affect or release the
mortgage; thus the purchaser or transferee is necessarily bound to acknowledge and respect the
encumbrance.
 While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not
yet been discharged, we find that said mortgage subsists and is still enforceable. However, Villar,
in buying the subject property with notice that it was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt matures. Villar did not obligate herself to replace
the debtor in the principal obligation, and could not do so in law without the creditors consent as
provided in Art. 1293 of the CC
 Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors
Galas and Pingol.
 Garcia has no cause of action against Villar in the absence of evidence to show that the second
mortgage executed in favor of Garcia has been violated by his debtors, Galas and Pingol, i.e.,
 specifically that Garcia has made a demand on said debtors for the payment of the obligation
secured by the second mortgage and they have failed to pay.
Korea Exchange Bank vs. Filkor
GR No. 138292
PLAINTIFF: Korea Exchange Bank
DEFENDANT: Filkor Business Integrated, Kim Eung Joe, Lee Han Sang
DATE: April 10, 2002
PONENTE: J. Quisumbing
TOPIC:
Facts:
 That Respondent Filkor
o Borrowed USD 140k payable on July 9, 1997 – but only 40k was paid
o Executed 9 trust receipts in favor of Korea Exchange Bank – failed to turnover the
proceeds from the sale of the goods, or the goods themselves as required by the trust
receipts
o Also negotiated to petitioner the proceeds of 17 letters of credit issued by the Republic
Bank of New York and the Banque Leumi France, S. A. to pay for goods which Filkor
sold to Segerman International Inc and Davyco S. A. – petitioner tried to collect the
proceeds of the letters of credit by presenting the bills of exchange drawn to collect the
proceeds, they were dishonored because of the discrepancies
 In order to secure payment, Filkor executed a REM on February 9, 1996.
o Mortgages the improvements belonging to ot constructed on the lost it was leasing at
the Cavite Export Processing Zone Authority
o Private Respondents Kim Eung Joe and Lee Han Sang also executed Continuing
Suretyships binding themselves jointly and severally with respondent Filkor to pay for
the latters obligations to petitioner
 Respondents still failed to pay
 Petitioners prayed the ff:
o It be paid by respondents under the 27 causes of action
o Property mortgaged be foreclosed and sold at public auction in case of failure to pay
o Other reliefs equitable
 RTC favored the petitioner; granting the summary judgment but failed to order the foreclosure and
public auction of the mortgaged property in the event that Filkor fails to pay its obligation
 Basis for the TCs decision
o The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446,
citing Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448, where the
Supreme Court ruled that:
o The rule is now settled that a mortgage creditor may elect to waive his security and
bring, instead, an ordinary action to recover the indebtedness with the right to execute
a judgment thereon on all the properties of the debtor including the subject matter of
the mortgage, subject to the qualification that if he fails in the remedy by him elected,
he cannot pursue further the remedy he has waived.
 Petitioner filed a Motion for Partial Reconsideration seeking that the relief of foreclosure be granted
but such motion was denied ssaying that the petitioner in opting to fie a civil action for the
collection of the defendant’s obligation, has abandoned its mortgages lien on the property subject
of the real estate mortgage
Issue: W/N the petitioner had abandoned the REM in its favor, because it filed a simple collection case, NO
Ruling:
The only reason defendants deny all the material allegations in the complaint is because the documents
attached thereto are mere photocopies and not the originals thereof. Section 7, Rule 8 of the Rules of Court
allows copies of documents to be attached to the pleading as an exhibit. Defendants are, therefore, deemed to
have admitted the genuineness and due execution of all actionable documents attached to the complaint
inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of Court.
The SC, finds no indication whatsoever that petitioner had waived its rights under the REM executed in its
favor. Thus, the trial court erred in concluding that petitioner had abandoned its mortgage lien on Filkors
property, when it filed a collection for sum of money.
In petitioners complaint before the trial court, Paragraph 183 thereof alleges:
Paragraph 183. To secure payment of the obligations of defendant Corporation under the First to the Twenty-
Seventh Cause of Action, on February 9, 1996, defendant Corporation executed a Real Estate Mortgage by
virtue of which it mortgaged to plaintiff the improvements standing on Block 13, Lot 1, Cavite Export
Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax Declaration No. 5906-1
and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing
area building and the packing area building. (A copy of the Real Estate Mortgage is attached hereto as Annex
SS and made an integral part hereof.)
The allegations in Paragraph 183, the date and due and execution f the REM are alleged and satisfies the
requirement of foreclosure as provided for in Section 1, Rule 68 ROC
SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other
encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its
assignments, if any; the names and residences of the mortgagor and the mortgagee; a description of the
mortgaged property; a statement of the date of the note or other documentary evidence of the obligation
secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all
persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage,
all of whom shall be made defendants in the action.
It was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at the public
auction in the event that the Respondent Filkor fails to pay, in pursuant to:
This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such action the court shall find the
facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage
debt or obligation, including interest and other charges as approved by the court, and costs, and shall render
judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee
within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from entry of
judgment, and that in default of such payment the property shall be sold at public auction to satisfy the
judgment.

HUERTA ALBA V CA
G.R. No. 128567
FACTS:
 In a complaint for judicial foreclosure of mortgage private respondent Syndicated Management
Group (SMGI) sought the foreclosure of four (4) parcels of land mortgaged by petitioner to Intercon
 Private respondent instituted an action as as mortgagee-assignee of a loan amounting to P8.5M
obtained by petitioner from Intercon in which petitioner mortgaged the mentioned property as
security
Petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on
the ground that the same was ultra vires.
RTC, granted SMGI's complaint for judicial foreclosure of mortgage"
CA, dismissed; failure to pay docket fees
 As judgment became final and executory, execution thereof was a matter of right and the issuance
of the corresponding writ of execution became its ministerial duty.
 Auction sale proceeded and private respondent SMGI was declared the highest bidder
Petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the
twelve (12) month period of redemption for ordinary execution applied in the case.
 RTC ruled that the period of redemption of subject property should be governed by the rule on the
sale of judicially foreclosed property under Rule 68
 CA, holding that the one hundred-fifty day period within which petitioner may redeem subject
properties should be computed from the date petitioner was notified of the Entry of Judgment
o 150-day period within which petitioner may exercise its equity of redemption expired on
September 11, 1994
Motion for Reconsideration: Petitioner theorized that the period of one hundred fifty (150) days should not be
reckoned with from Entry of Judgment but from receipt on or before July 29, 1994
 petitioner maintained that it may not be considered in default, even after the expiration of 150 days
from July 29, 1994, because prior demand to pay was never made on it by the private respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification"
of the date of commencement of the one (1) year period for the redemption of the properties in question.
ISSUE: WON HUERTA has the right of redemption
HELD:
From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been
adjudged to have was only the equity of redemption over subject properties
"The equity of redemption is, to be sure, different from and should not be confused with the right of
redemption.
The right of redemption in relation to a mortgage – understood in the sense of a prerogative to
re-acquire mortgaged property after registration of the foreclosure sale – exists only in the case
of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure
except only where the mortgagee is the Philippine National Bank or a bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of
redemption within one (1) year from the registration of the sheriff's certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The
law declares that a judicial foreclosure sale 'when confirmed be an order of the court. . . . shall
operate to divest the rights of all the parties to the action and to vest their rights in the purchaser,
subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed
by law'
R.A. 337 laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor,
the right to redeem the property sold on foreclosure — after confirmation by the court of the foreclosure sale —
which right may be exercised within a period of one (1) year, counted from the date of registration of the
certificate of sale in the Registry of Property.
 Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337
Did petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem
subject properties? – NO
 September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner
failed to allege and prove that private respondent's predecessor in interest was a credit institution
and therefore, Section 78 of R.A. No. 337 was applicable
o Petitioner merely asked the trial court to clarify whether the sale of subject properties
was execution sale or judicial foreclosure sale.
 Nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the
predecessor in interest of private respondent as a credit institution, when the trial court came out
with an order on February 10, 1995, confirming the sale of subject properties in favor of private
respondent
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals,
seeking "clarification" of the date of commencement of the one (1) year redemption period for the subject
properties, petitioner never intimated any alleged right under Section 78 of R.A. No. 337 nor did it invite
attention to its present stance that private respondent's predecessor-in-interest was a credit institution.
  If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in
CA-G.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do
so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure,
petitioner should have alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but
again, it did not make any allegation in its answer regarding any right thereunder.
It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of
whether or not private respondent's predecessor in interest was a credit institution
The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it
from so doing at this late stage case.
It is decisively clear that the trial court erred in still allowing petitioner to introduce evidence that private
respondent's predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was
entitled to avail of the provisions of Section 78 of R.A. No. 337.
 Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-
interest of the private respondent is a credit institution.
 There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly
invoke its right under Section 78 of R.A. No. 337 will disturb the "law of the case."
Grand Farms Inc. vs CA
Facts:
 Petitioner filed a complaint against the private respondent, Banco Filipino Savings ang Mortgage
Bank, to declare the extrajudicial foreclosure of mortgage of the property of the former. Petitioner
alleging that there is no formal notice was made by the private respondent.
 Private respondent’s that there is notice that was made by the latter. They gave notice by posting
and publication. They published the notice in the Metropolitan Newsweek, a newspaper of general
circulation in the province of Valenzuela. It also admitted that there is no formal notice was made
by the Bank, private respondent, to the petitioner.
 Petitioner filed a motion for summary judgment saying that the extrajudicial foreclosure is void
because the private respondent violate their agreement:
o k) All correspondence relative to this Mortgage, including demand letters, summons,
subpoena or notifications of any judicial or extrajudical actions shall be sent to
the Mortgagor at the address given above or at the address that may hereafter be
given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and
effective notice to the Mortgagor for all legal purposes, and the fact that any
communication is not actually received by the Mortgagor, or that it has been returned
unclaimed to the Mortgagee, or that no person was found at the address given, or that
the address is fictitious, or cannot be located, shall not excuse or relieve the Mortgagor
from the effects of such notice;
 Private respondent opposed the motion because as under their agreement that the latter becomes
the attorney-in-fact of the petitioner.
RTC denied the motion of the petitioner. Saying that there is a genuine issued in the case at bar. The issues
are: (a) whether or not the loan has matured; (b) whether or not private respondent notified petitioners of the
foreclosure of their mortgage; (c) whether or not the notice by publication of the foreclosure constitutes
sufficient notice to petitioners under the mortgage contract; (d) whether or not the applicant for foreclosure of
the mortgage was a duly authorized representative of private respondent; and (e) whether or not the
foreclosure was enjoined by a resolution of this Court.
CA affirmed it. The CA said paragraph (k) of the mortgage contract merely specified the address where
correspondence should be sent and did not impose an additional condition on the part of private respondent to
notify petitioners personally of the foreclosure.
Issue: W/N formal notice is needed before private respondent extrajudicial foreclose petitioner’s property.
Held: YES
The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and
admissions on file, together with the affidavits, show that, except as to the amount of damages, there is no
issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. 10 Although
an issue may be raised formally by the pleadings but there is no genuine issue of fact, and all the facts are
within the judicial knowledge of the court, summary judgment may be granted. 11
The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in
support of the motion are sufficient to overcome the opposing papers and to justify a finding as a matter of law
that there is no defense to the action or that the claim is clearly meritorious. 12
Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or
declaration of nullity of the foreclosure proceedings and damages ripe for summary judgment. Private
respondent tacitly admitted in its answer to petitioners' request for admission that it did not send any formal
notice of foreclosure to petitioners. Stated otherwise, and as is evident from the records, there has been no
denial by private respondent that no personal notice of the extrajudicial foreclosure was ever sent to
petitioners prior thereto. This omission, by itself, rendered the foreclosure defective and irregular for being
contrary to the express provisions of the mortgage contract. There is thus no further necessity to inquire into
the other issues cited by the trial court, for the foreclosure may be annulled solely on the basis of such defect.
The Court said that even private respondent becomes the attorney-in-fact of the petitioner, formal notice is
indispensable as stated in paragraph k of their agreement.
while publication of the foreclosure proceedings in the newspaper of general circulation was complied with,
personal notice is still required, as in the case at bar, when the same was mutually agreed upon by the parties
as additional condition of the mortgage contract.
The Court also said that there is no need to interpret the agreement of the parties because paragraph K ,and A
and D are not conflicting to each other. As in fact a reconciliation should be made of, the provisions of
paragraphs (b) and (d) which appear first in the mortgage contract and those in paragraph (k) which follow
thereafter and necessarily took into account the provisions of the preceding two paragraphs. 14 The notices
respectively mentioned in paragraphs (d) and (k) are addressed to the particular purposes contemplated
therein. Those mentioned in paragraph (k) are specific and additional requirements intended for the
mortgagors so that, thus apprised, they may take the necessary legal steps for the protection of their interests
such as the payment of the loan to prevent foreclosure or to subsequently arrange for redemption of the
property foreclosed.
 Private Respondents interposed a partial appeal to the court with respect to the cancellation of TCT and the
order of paying Cebu City savings loan association. The Court of Appeals declared the REM void. The
decision of the Lower court was affirmed with modification.

Issue: WON a mortgage, whose property has been extrajudicially foreclosed and sold at a corresponding
foreclosure sale, may vlidly execute a mortgage contract over the same property in favor of a third party during
the redemption.

Ruling: Yes. it is undisputed that the real estate mortgage in favor of petitioner bank was executed by
respondent spouses during the period of redemption. During the said period, it cannot be said the mortgagor is
no longer the owner of the foreclosed property since the rule up to now iss the right of a purchaser of a
foreclosure sale is merely inchoate until after the period of redemption has expired without the right being
exercised. The title to the land sold udner mortgage foreclosure remains in the mortgagor or hi grantee until
the expiration of the redemption period and the conveyance of the master deed.

The mortgagor remains as the absolute owner as the absolute owner of the property during the redemption
period and h as the free disposal of his property, there would be compliance with Article 2085 of the Civil Code
for the constitution of another mortgage on the property. To hold otherwise would create an inquetibale
situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise
funds to timely redeem his property through another mortgage.

MADIDA vs CA
Facts of the case:

On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu
City Cadastre and embraced under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot
at the foreclosure sale of the previous mortgage in favor of Cebu City Development Bank, went to Teotimo
Abellana, president of defendant Association, to obtain a loan of P30,000.00. Prior thereto or on October 3,
1974, their son Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00) Pesos
with lot No. 4731 offered as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant
association. Subsequently, they executed a promissory note in favor of defendant association. Both
documents indicated that the principal obligation is for Thirty Thousand (P30,000.00) Pesos payable in one
year with interest at twelve (12%) percent per annum.

When the loan became due and demandable without plaintiff paying the same, defendant association caused
the extrajudicial foreclosure of the mortgage on March 16, 1976. After the posting and publication
requirements were complied with, the land was sold at public auction on April 19, 1976 to defendant
association being the highest bidder. The certificate of sale was issued on April 20, 1976 and registered on
May 10, 1976 with the Register of Deeds of Cebu.

On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled
and in lieu thereof TCT No. 68041 was issued in the name of defendant association.

The trial court upheld the validity of the loan and the REM but annulling the extra judicial foreclosure sale
inasmuch as the same failed to comply with the notice requirement.
 Roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos
attempted to redeem Lots 1, 3 and 6. They tendered the amount of P40,000.00 to DRBI and the Yaps, but both
refused, contending that the redemption should be for the full amount of the winning bid of P216,040.93 plus
interest for all the foreclosed properties.

Thus, on May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of Negros Oriental and paid
P50,625.29 (P40,000.00 for the principal plus P10,625.29 for interests and Sheriffs Commission) to effect the
redemption. Noticing that Lot 3 was not included in the foreclosure proceedings, Benjamin V. Diputado, Clerk
of Court and Provincial Sheriff, issued a Certificate of Redemption in favor of the Dys and the Maxinos only for
Lots 1 and 6, and stated in said certificate that Lot 3 is not included in the foreclosure proceedings. By letter of
even date, Atty. Diputado also duly notified the Yaps of the redemption of Lots 1 and 6 by the Dys and the
Maxinos, as well as the non-inclusion of Lot 3 among the foreclosed properties. He advised the Yaps to
personally claim the redemption money or send a representative to do so.

In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused to take delivery of the redemption price
arguing that one of the characteristics of a mortgage is its indivisibility and that one cannot redeem only some
of the lots foreclosed because all the parcels were sold for a single price at the auction sale.

ISSUE:

WON the doctrine of indivisibility as it relates to mortgage (Article 2089 of NCC) is applicable.

HELD:

No, it does not apply. Nothing in the law prohibits the piecemeal redemption of properties sold at one
foreclosure proceeding. In fact, in several early cases decided by this Court, the right of the mortgagor or
redemptioner to redeem one or some of the foreclosed properties was recognized.
The situation obtaining in the case at bar is not within the purview of the aforesaid rule on indivisibility is
obvious since the aggregate number of the lots which comprise the collaterals for the mortgage had already
been foreclosed and sold at public auction. There is no partial payment nor partial extinguishment of the
obligation to speak of. The aforesaid doctrine, which is actually intended for the protection of the mortgagee,
specifically refers to the release of the mortgage which secures the satisfaction of the indebtedness and
naturally presupposes that the mortgage is existing. Once the mortgage is extinguished by a complete
foreclosure thereof, said doctrine of indivisibility ceases to apply since, with the full payment of the
debt, there is nothing more to secure.
In the 1962 case of Castillo v. Nagtalon, ten parcels of land were sold at public auction. Nagtalon, who owned
three of the ten parcels of land sold, wanted to redeem her properties. Though the amount she tendered was
found as insufficient to effectively release her properties, the Court held that the tender of payment was made
timely and in good faith and thus, in the interest of justice, Nagtalon was given the opportunity to complete the
redemption purchase of three of the ten parcels of land foreclosed.
RELEVANT PROVISIONS (BUT NOT APPLICABLE IN THE PRESENT CASE ACCDG TO SC):
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in
interest of the debtor or of the creditor.
SPS. DY v. SPS. YAP Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of
G.R. NO. 171868 July 27, 2011 the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditors heir who received his share of the debt return the pledge or cancel the mortgage, to
the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given in mortgage or pledge,
FACTS: each one of these guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of
Spouses Tirambulo own several parcels of land which they used as a security for a REM in the amount of Php the debt for which each thing is specially answerable is satisfied.
105,000 from the Rural Bank of Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI). A
second loan for Php 28,000 was obtained by said spouses.

Subsequently, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and Natividad Chiu
(the Dys) and the spouses Marcelino C. Maxino and Remedios Lasola (the Maxinos) without the consent and
knowledge of DRBI.

The Tirambulos defaulted on their loan and it was foreclosed – DRBI being the highest bidder. The certification
of sale, however, was not registered until almost a year later.

Twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6 to the spouses Francisco D. Yap
and Whelma D. Yap (the Yaps) under a Deed of Sale with Agreement to Mortgage. It is important to note,
however, that Lot 3 was not among the five properties foreclosed and bought by DRBI at public
auction.

SPS. ESMERALDO AND ELIZABETH SUICO vs. PHILIPPINE NATIONAL BANK AND HON. COURT OF
APPEALS
FACTS:
Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties in the nameof
the former. They failed to pay the obligation prompting PNB to extrajudicially foreclose the mortgage over
thesubject properties.
Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure conducted and the Certificate
of Sale and the Certificate of Finality sale are null and void;
a.During the foreclosure sale, PNB was the lone bidder.
b.The amount of bid is P8,511,000.00.
c.Petitioners alleged that the outstanding obligation is only P1,991,770.38.
d.Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding obligation as stated in
the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder,PNB, to deliver to the
Mandaue City Sheriff the bid price or what was left thereof after deducting the amount of petitioners’
outstanding obligation.
e.PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least, the
amount of such bid in excess of petitioners’ outstanding obligation.
4. PNB moved to dismiss citing the pendency of another action between the same properties where PNB
was seeking payment of the balance of petitioner’s obligation not covered by the proceeds of the auction
sale.
RTC denied the Motion to Dismiss.
PNB asserted, in its answer, that petitioners had other loans which had likewise become due. PNBmaintained
that the outstanding obligation of the petitioners under their regular and export- relatedloans was already more
than the bid price of P8,511,000.00, contradicting the claim of surplus proceedsdue the petitioners. Petitioners
were well aware that their total principal outstanding obligation on thedate of the auction sale was
P5,503,293.21
RTC – declared the extrajudicial foreclosure null and void because petitioners had other loan obligations
which had not yet matured on 10 March 1992 but became due by the date of the auction sale on 30 October
1992, it does not justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff
whoconducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so wouldconstitute
fraud, for not only is the filing fee in the said foreclosure inadequate but, worse, thesame constitutes a
misrepresentation regarding the amount of the indebtedness to be paid inthe foreclosure sale as posted and
published in the notice of sale.
Such misrepresentation isfatal because in an extrajudicial foreclosure of mortgage, notice of sale is
jurisdictional. Anyerror in the notice of sale is fatal and invalidates the notice.8.
CA –reversed. Petitioners offered to redeem the properties several times from 6.5M to 7.5M.b.
All those offers made by the Sps. not only contradicted their very assertion that their obligation is merely that
amount appearing on the petition for foreclosure but are also indicativeof the fact that they have admitted the
validity of the extra judicial foreclosure proceedings andin effect have cured the impugned defect.
Even assuming that indeed there was a surplus and PNB is retaining more than the proceeds of the sale than
it is entitled, this fact alone will not affect the validity of the sale but simply gives the Sps a cause of action to
recover such surplus.
Such failure of PNB does not constitute jurisdictional defect.
ISSUE:
Whether or not the extrajudicial foreclosure is valid.--YES
Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the petitioners’
obligation ofP1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess? -YES
HELD:
1.
It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly
complied with, and that even slight deviations therefrom will invalidate the notice and render the sale at
least voidable. But the purpose of the publication of the Notice of Sheriffs Sale is to inform all interested parties
of the date, time and place of the foreclosure sale of the real property subject thereof. Logically, this not only
requires that the correct date, time and place of the foreclosure sale appear in the notice, but also that any and
all interested parties be able to determine that what is about to be sold at the foreclosure sale is the real
property in which they have an interest.
Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the finding of the RTC that the
discrepancy between the amount of petitioners obligation as reflected in the Notice of Sale and the amount
actually due and collected from the petitioners at the time of the auction sale constitute fraud which renders
the extrajudicial foreclosure sale null and void.
Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects
are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or
omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the
value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the
validity of the notice, and also to the sale made pursuant thereto.
the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the difference
between the amount stated in the Notice of Sale and the amount of PNBs bid resulted in discouraging
 or misleading bidders, depreciated the value of the property or prevented it from commanding a fair
price.
The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals[22] refers to a
Notice of Sheriffs Sale which did not state the correct number of the transfer certificates of title of the property
to be sold. This Court considered the oversight as a substantial and fatal error which resulted in invalidating
the entire notice. The case of Community Savings and Loan Association, Inc. v. Court of Appeals[23] is also
inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed by
therein petitioners, which denied therein respondents the right to redeem the property. It actually has no
reference to a Notice of Sale.
2.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage,
and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be
paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:
1. first, pay the costs
2. secondly, pay off the mortgage debt
3. thirdly, pay the junior encumbrancers, if any in the order of priority
4. fourthly, give the balance to the mortgagor, his agent or the person entitled to it.
Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first
mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be satisfied from the
surplus proceeds.
The application of the proceeds from the sale of the mortgaged property to the mortgagor’s obligation is an act
of payment, not payment by dacion; hence, it is the mortgagee’s duty to return any surplus in the selling
price to the mortgagor.
A mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the
fundand, being bound to apply it properly, is liable to the persons entitled thereto if he fails to do so. And even
though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as far as concerns
the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of
redemption.
Effect: Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is
entitled to, this fact alone will not affect the validity of the sale but simply give the mortgagor a cause of action
to recover such surplus.
Cua Lai Chi vs. Laqui
Facts:
 In November 1994, petitioners obtained a loan in the amount of P3,200,000 from private
respondent Philippine Bank of Communication. To secure the loan, petitioners executed in favor of
private respondent a Deed of Real Estate Mortgage over the property of petitioner spouses
covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an
Amendment to the Deed of Real Estate Mortgage increasing the amount of the loan by
P1,800,000, bringing the total loan amount to P5,000,000.
 For failure of petitioners to pay the full amount of the outstanding loan upon demand, private
respondent applied for the extrajudicial foreclosure of the real estate mortgage. Upon receipt of a
notice of the extrajudicial foreclosure sale, petitioners filed a petition to annul the extrajudicial
foreclosure sale with a prayer for temporary restraining order (TRO). The petition for annulment
was filed in the Regional Trial Court of Quezon City.
 The extrajudicial foreclosure sale did not push through as originally scheduled because the trial
court granted petitioners prayer for TRO. The trial court subsequently lifted the TRO and reset the
extrajudicial foreclosure sale on 29 May 2002. At the foreclosure sale, private respondent emerged
as the highest bidder.
 After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds
of Quezon City an affidavit of consolidation to consolidate its ownership and title to the foreclosed
property. Forthwith, on 8 July 2003, the Register of Deeds cancelled the old TCT and issued in its
stead a new one in the name of private respondent.
 On 18 August 2004, private respondent applied for the issuance of a writ of possession of the
foreclosed property.
 RTC: granted private respondents motion for a declaration of general default and allowed private
respondent to present evidence ex parte.
 CA: The Court of Appeals dismissed on both procedural and substantive grounds the petition for
certiorari filed by petitioners. The appellate court held that a proceeding for the issuance of a writ of
possession is ex parte in nature. As such, petitioners right to due process was not violated even if
they were not given a chance to file their opposition. The appellate court also ruled that there was
no violation of the rule against forum shopping since the application for the issuance of a writ of
possession is not affected by a pending case questioning the validity of the extrajudicial
foreclosure sale.
Issue:
Whether the writ of possession was properly issued despite the pendency of a case questioning the validity of
the extrajudicial foreclosure sale and despite the fact that petitioners were declared in default in the
proceeding for the issuance of a writ of possession
Ruling:
 Yes. Petition was without merit.
 Petitioners contend they were denied due process of law when they were declared in default
despite the fact that they had filed their opposition to private respondents application for the
issuance of a writ of possession. Further, petitioners point out that the issuance of a writ of
possession will deprive them not only of the use and possession of their property, but also of its
ownership. Petitioners cite Bustos v. Court of Appeals and Vda. De Legaspi v. Avendao in
asserting that physical possession of the property should not be disturbed pending the final
determination of the more substantial issue of ownership.
 Private respondent, on the other hand, maintains that the application for the issuance of a writ of
possession in a foreclosure proceeding is ex parte in nature. Hence, petitioners right to due
process was not violated even if they were not given a chance to file their opposition. Private
respondent argues that the issuance of a writ of possession may not be stayed by a pending case
questioning the validity of the extrajudicial foreclosure sale.
 The authorities relied upon by petitioners are not in point and have no application here. In Bustos
v. Court of Appeals, the Court simply ruled that the issue of possession was intertwined with the
issue of ownership in the consolidated cases of unlawful detainer and accion reinvindicatoria. In
Vda. De Legaspi v. Avendao, the Court merely stated that in a case of unlawful detainer, physical
possession should not be disturbed pending the resolution of the issue of ownership. Neither case
involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.
 Banco Filipino Savings and Mortgage Bank v. Pardo squarely ruled on the right to possession of a
purchaser at an extrajudicial foreclosure of a mortgage. This case involved a real estate mortgage
as security for a loan obtained from a bank. Upon the mortgagors default, the bank extrajudicially
foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A certificate of sale
was duly issued and registered. The bank then applied for the issuance of a writ of possession,
which the lower court dismissed. The Court reversed the lower court and held that the purchaser at
the auction sale was entitled to a writ of possession pending the lapse of the redemption period
upon a simple motion and upon the posting of a bond.
 In Navarra v. Court of Appeals, the purchaser at an extrajudicial foreclosure sale applied for a writ
of possession after the lapse of the one-year redemption period. The Court ruled that the
purchaser at an extrajudicial foreclosure sale has a right to the possession of the property even
during the one-year redemption period provided the purchaser files an indemnity bond. After the
lapse of the said period with no redemption having been made, that right becomes absolute and
may be demanded by the purchaser even without the posting of a bond. Possession may then be
obtained under a writ which may be applied for ex parte pursuant to Section 7 of Act No. 3135 as
amended by Act No. 4118
 In the present case, the certificate of sale of the foreclosed property was annotated on TCT No.
22990 on 7 June 2002. The redemption period thus lapsed on 7 June 2003, one year from the
registration of the sale. When private respondent applied for the issuance of a writ of possession
on 18 August 2004, the redemption period had long lapsed. Since the foreclosed property was not
redeemed within one year from the registration of the extrajudicial foreclosure sale, private
respondent had acquired an absolute right, as purchaser, to the writ of possession. It had become
the ministerial duty of the lower court to issue the writ of possession upon mere motion. Moreover,
once ownership has been consolidated, the issuance of the writ of possession becomes a
ministerial duty of the court, upon proper application and proof of title.
 In the present case, when private respondent applied for the issuance of a writ of possession, it
presented a new transfer certificate of title issued in its name dated 8 July 2003. The right of
 private respondent to the possession of the property was thus founded on its right of ownership. As
the purchaser of the property at the foreclosure sale, in whose name title over the property was
already issued, the right of private respondent over the property had become absolute, vesting in it
the corollary right of possession.
 Petitioners are wrong in insisting that they were denied due process of law when they were
declared in default despite the fact that they had filed their opposition to the issuance of a writ of
possession. The application for the issuance of a writ of possession is in the form of an ex parte
motion. It issues as a matter of course once the requirements are fulfilled. No discretion is left to
the court.
 Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by
a pending case questioning the validity of the foreclosure proceeding. The latter is not a bar to the
former. Even pending such latter proceeding, the purchaser at a foreclosure sale is entitled to the
possession of the foreclosed property.
Spouses Tolosa vs. UCPB
GR No. 183058
PLAINTIFF: Spouses Montano Tolosa, Merlinda Tolosa
DEFENDANT: UCPB
DATE: April 3, 2013
PONENTE: J. Perez
TOPIC:
Facts:
 This is a case wherein the Petitioner Spouses entered into a Credit Agreement with UCPB for the
purpose of availing of the latter’s credit facilities
 To secure the credit availments, Spouses Tolosa executed Deed of REM over 4 properties located
in Aklan
 That for their failure to pay their principal obligation of 13M, UCPB foreclosed the mortgage on the
REM and filed for the extra judicial sale thereof with the Office of the Clerk of Court
 After due notice and publication, the mortgaged properties were sold on January 4, 2000 at a
public auction where UCPB is the highest bidder (17M)
o Proceeds of the sale were credited to the partial fulfillment of the mortgage obligation
o UCPB caused the same to be registered under their name
o Spouses Tolosa failed to exercise their right of redemption within the prescribed 1year
period – UCPB then consolidated its ownership over the subject realties
 UCPB, filed an x-parte petition for issuance of a writ of possession before the RTC
o Upon notification, Spouses Tolosa filed their opposition, calling RTCs attention to the
pendency of the complaint for declaration of nullity of the PNs, foreclosure mortgage
and certificate of sale against UCPB
 That they have been misled by UCPB into signing the Credit Agreement,
PNs and REM
 Not releasing the full amount of the loan
 RTC ruled in favor of Spouses Tolosa, that the pendency of their complaint necessitated the
suspension of UCPBs petition – since there was a possibility that the foreclosure of the mortgage
may be adjudged as violative to the rights of Spouses Tolosa as mortgagors.
 CA nullified RTCs decision, favored UCPB
o That the Credit Agreemtn, PNs and REM had yet to be declared invalid
o That the pendency of the case of Spouses Tolosa cannot defeat the right to writ of
possession that law grants to UCPB as the absolute and registered owners of the
subject realties.
o That questions regarding the validity of of the foreclosure may be raised in pursuant to
Section 8 of Act 3135.
Issue: W/N the CA is correct in granting UCPBs petition for Write of Possession, YES
Ruling:
The record shows that UCPB caused the extrajudicial foreclosure of the mortgage on the subject realties as a
consequence of the Spouses Tolosa’s default on their mortgage. As the highest bidder at foreclosure sale,
UCPB consolidated its ownership on January 22, 2001 or upon failure of the Spouses to exercise their Right of
Redemption within 1year period prescribed.
Subsequent to the issuance of the certificates of title and tax declarations over the same properties in its
name, UCPB complied with the requirements under Act 3135 by filing ex-parte petition for the issuance of a
writ of possession before the RTC on September 2, 2004. Since UCPB has already become the absolute and
registered owner of said properties, the CA correctly ruled that it was the ministerial duty of the RTC to issue
the writ of possession in favor of the former.
A writ of possession is simply an order by which the sheriff is commanded by the court to place a person in
possession of a real or personal property.
Under Section 7 of Act No. 3135, as amended, a writ of possession may be issued in favor of a purchaser in a
foreclosure sale either
(1) within the one-year redemption period, upon the filing of a bond; or
(2) after the lapse of the redemption period, without need of a bond. Within the one-year redemption period,
the purchaser may apply for a writ of possession by filing a petition in the form of an ex parte motion under
oath, in the registration or cadastral proceedings of the registered property.
The law requires only that the proper motion be filed, the bond approved and no third person is involved. After
the consolidation of title in the buyer's name for failure of the mortgagor to redeem the property, entitlement to
the writ of possession becomes a matter of right. In the latter case, the right of possession becomes absolute
because the basis thereof is the purchaser's ownership of the property.
The rule is likewise settled that the proceeding in a petition for a writ of possession is ex-parte and summary in
nature. As one brought for the benefit of one party only and without notice by the court to any person adverse
of interest, it is a judicial proceeding wherein relief is granted without giving the person against whom the relief
is sought an opportunity to be heard. The issuance of the writ of possession is, in turn, a ministerial function in
the exercise of which trial courts are not granted any discretion. Since the judge to whom the application for
writ of possession is filed need not look into the validity of the mortgage or the manner of its foreclosure, it has
been ruled that the ministerial duty of the trial court does not become discretionary upon the filing of a
complaint questioning the mortgage. Corollarily, any question regarding the validity of the extrajudicial
foreclosure sale and the resulting cancellation of the writ may, likewise, be determined in a subsequent
proceeding as outlined in Section 8 of Act No. 3135.

BPI FAMILY V GOLDEN POWER DIESEL
GR NO . 176019
FACTS:
 CEDEC mortgaged two parcels of land including all improvements therein in favor of BPI Family to
secure a loan of ₱6,570,000
o On the same day, the mortgage was duly annotated on the titles
 CEDEC obtained from BPI Family additional loans of ₱2,160,000 and ₱1,140,000, respectively,
and again mortgaged the same properties.
Despite demand, CEDEC defaulted in its mortgage obligations.
 BPI Family filed with the ex-officio sheriff of RTC Pasay a verified petition for extrajudicial
foreclosure of real estate mortgage over the properties under Act No. 3135, as amended.
 After due notice and publication, the sheriff sold the properties at public auction. BPI Family, as the
highest bidder, acquired the properties for ₱13,793,705.31.
On 15 May 1999, the one-year redemption period expired without CEDEC redeeming the properties
 However, despite several demand letters, CEDEC refused to vacate the properties and to
surrender possession to BPI Family.
 BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties – GRANTED
issued writ of Possession
On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan filed a Motion to
Hold Implementation of the Writ of Possession.
 Respondents alleged that they are in possession of the properties which they acquired from
CEDEC on 10 September 1998 pursuant to the Deed of Absolute Sale with Assumption of
Mortgage (Deed of Sale)
RTC, denied respondent’s motion
 Issued an alias writ of possession which was served upon CEDEC and all other persons claiming
rights under them.
The writ of possession expired without being implemented.
 BPI Family filed an Urgent Ex-Parte Motion to Order the Honorable Branch Clerk of Court to Issue
Alias Writ of Possession.
 Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an
Affidavit of Third Party Claim
BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of
Possession and to Break Open the properties
 The trial court denied BPI Familyʼs motion and ordered the sheriff to suspend the implementation
of the alias writ of possession
o According to the trial court, "the order granting the alias writ of possession should not
affect third persons holding adverse rights to the judgment obligor."
o also noted that respondents were in actual possession of the properties and had been
updating the payment of CEDECʼs loan balances with BPI Family.
BPI Family then filed a petition for mandamus and certiorari with application for a temporary restraining order
or preliminary injunction before the Court of Appeals.
 It was the ministerial duty of the trial court to grant the writ of possession in its favor considering
that it was now the owner of the properties and that once issued, the writ should be implemented
without delay.
CA, trial court did not commit grave abuse of discretion in suspending the implementation of the alias writ of
possession because respondents were in actual possession of the properties and are claiming rights adverse
to CEDEC, the judgment obligor.
 The principle that the implementation of the writ of possession is a mere ministerial function of the
trial court is not without exception.
 Obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an
extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third party in
possession of the property who is claiming a right adverse to that of the debtor or mortgagor
ISSUE: WON Golden Power "a third party who is claiming a right adverse to that of the debtor or
mortgagor"
HELD:
NO
In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by
Section 7 of Act No. 3135, as amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance (Regional Trial Court) of the province or place where the property or any part thereof is situated, to
give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use
of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the requirements of this Act. Such petition shall
be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the
property is registered, or in special proceedings in the case of property registered under the Mortgage Law or
under section one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees
specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-
six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of
the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.

This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought
at the public auction sale after the redemption period has expired without redemption having been made.

GENERAL RULE: A purchaser in a public auction sale of a foreclosed property is entitled to a writ of
possession and, upon an ex parte petition of the purchaser, it is ministerial upon the trial court to issue the writ
of possession in favor of the purchaser.

EXCEPTION: Section 33, Rule 39 of the Rules of Court provides:

Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given.
-xxx

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and
acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the purchaser or last redemptioner by the same officer unless
a third party is actually holding the property adversely to the judgment obligor.

In an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third
party holding the same adversely to the judgment obligor, the issuance by the trial court of a writ of possession
in favor of the purchaser of said real property ceases to be ministerial and may no longer be done ex parte.

 Respondentsʼ possession of the properties was premised on the sale to them by CEDEC for the
amount of P15,000,000. Therefore, respondents hold title to and possess the properties as
CEDECʼs transferees and any right they have over the properties is derived from CEDEC.

 As transferees of CEDEC, respondents merely stepped into CEDEC’s shoes and are necessarily
bound to acknowledge and respect the mortgage CEDEC had earlier executed in favor of BPI
Family.25 Respondents are the successors-in-interest of CEDEC and thus, respondentsʼ occupancy
over the properties cannot be considered adverse to CEDEC.

Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party holds the
property by adverse title or right, such as that of a co-owner, tenant or usufructuary.
 The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and
they are not merely the successor or transferee of the right of possession of another co-owner or
the owner of the property

In this case, respondents cannot claim that their right to possession over the properties is analogous to any of
these.
 They have no independent right of possession other than what they acquired from CEDEC.

 Since respondents are not holding the properties adversely to CEDEC, being the latterʼs
successors-in-interest, there was no reason for the trial court to order the suspension of the
implementation of the writ of possession.

Pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of
possession

The trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of
possession