051 PAMECA Wood Treatment Plant, Inc. V. CA
1508, as amended, or the Chattel
G.R. No. 106435 July 14, 1999
TOPIC: Foreclosure of Chattel Mortgage; Right to Surplus or Deficiency, Act.
No 1508, Sec. 14
PONENTE: Gonzaga-Reyes, J.
FACTS:
1. April 17, 1980: Petitioner PAMECA obtained a loan equivalent to P2M
from respondent DBP Bank. So, PAMECA, through its President
executed a promissory note and as security for said loan, a chattel
mortgage was executed over PAMECA’s furniture and equipment to
cover the whole value of the loan.
2. PAMECA Failed to pay and respondent bank extrajudicially
foreclosed the chattel mortgage, and as sole bidder in the public
auction, purchased the foreclosed properties for a sum of
P322,350.00
3. Respondent bank filed a complaint for the collection of the balance
of P4,366,332 against PAMECA and private petitioners, as solidary
debtors with PAMECA under the promissory note.
4. RTC: ordered the defendants to pay jointly and severally to the
plaintiff the sum of P4,366,332
5. CA: affirmed the RTC decision.
6. Petitioner’s contention:
 that P322,350.00 at which respondent bank bid for and purchased the
mortgaged properties was unconscionable and inequitable considering
that, at the time of the public sale, the mortgaged properties had a total
value of more than P2,000,000.00 and this is evident from an inventory
dated March 31, 1980.
 to hold private petitioners, officers and stockholders of PAMECA, liable
with PAMECA for the obligation under the loan obtained from
respondent bank, is contrary to the doctrine of separate and distinct
corporate personality
invoking the equity jurisdiction of the SC, petitioners submit that Articles 1484
and 2115 of the Civil Code be applied in analogy to the instant case to
preclude the recovery of a deficiency claim
ISSUE:
WON the public auction sale of petitioner PAMECA’s chattels were tainted
with fraud, as the chattels of the said petitioner were bought by private
respondent as sole bidder in only 1/6 of the market value of the property,
hence unconscionable and inequitable, and therefore null and void –No.
RATIO:
1. This Court reversed the ruling of the lower court and held that the
provisions of the Chattel Mortgage Law regarding the effects of
foreclosure of chattel mortgage, being contrary to the provisions of
Article 2115, Article 2115 in relation to Article 2141, may not be applied to
the case. Section 14 of Act No.
Mortgage Law, states:
The officer making the sale shall, within thirty days thereafter, make in writing a
return of his doings and file the same in the office of the Registry of Deeds
where the mortgage is recorded, and the Register of Deeds shall record the
same.... The return shall particularly describe the articles sold, and state the
amount received for each article, and shall operate as a discharge of the lien
thereon created by the mortgage. The proceeds of such sale shall be applied
to the payment, first, of the costs and expenses of keeping and sale, and then
to the payment of the demand or obligation secured by such mortgage, and
the residue shall be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgage, shall be paid to the
mortgagor or persons holding under him on demand.” (Emphasis supplied)
It is clear from the above provision that the effects of foreclosure under the
Chattel Mortgage Law run inconsistent with those of pledge under Article
2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire
principal obligation, such that the pledgor may no longer recover proceeds of
the sale in excess of the amount of the principal obligation, Section 14 of the
Chattel Mortgage Law expressly entitles the mortgagor to the balance of the
proceeds, upon satisfaction of the principal obligation and costs.
3. Since the Chattel Mortgage Law bars the creditor-mortgagee from
retaining the excess of the sale proceeds there is a corollary obligation
on the part of the debtor-mortgagee to pay the deficiency in case of a
reduction in the price at public auction.
4. Having nonetheless examined the inventory and chattel mortgage
document as part of the records, We are not convinced that they
effectively prove that the mortgaged properties had a market value of
at least P2,000,000.00 on January 18, 1984, the date of the foreclosure
sale. At best, the chattel mortgage contract only indicates the
obligation of the mortgagor to maintain the inventory at a value of at
least P2,000,000.00, but does not evidence compliance therewith.
5. The mere fact that respondent bank was the sole bidder for the
mortgaged properties in the public sale does not warrant the conclusion
that the transaction was attended with fraud. Fraud is a serious
allegation that requires full and convincing evidence, and may not be
inferred from the lone circumstance that it was only respondent bank
that bid in the sale of the foreclosed properties
We likewise affirm private petitioners’ joint and several liability with petitioner
corporation in the loan. As found by the trial court and the Court of Appeals,
the terms of the promissory note unmistakably set forth the solidary nature of
private petitioners’ commitment
CASE LAW/ DOCTRINE:
The effects of foreclosure under the Chattel Mortgage Law run inconsistent
with those of pledge under Article 2115. Whereas, in pledge, the sale of the
thing pledged extinguishes the entire principal obligation, such that the
pledgor may no longer recover proceeds of the sale in excess of the amount
of the principal obligation, Section 14 of the Chattel Mortgage Law expressly
entitles the mortgagor to the balance of the proceeds, upon satisfaction of
the principal obligation and costs.
052 Prudential Bank v. Alviar & Alviar
G.R. No. 150197 July 28, 2005
TOPIC: Real Estate Mortgage; Obligation Secured
PONENTE: Tinga, J
FACTS:
1. Spouses Don Alviar and Georgia Alviar executed a deed of REM in favour of
Prudential Bank to secure the payment of a loan worth P250,000. The
mortgage was annotated at the back of TCT No. 438157 which covers their
land in San Juan
2. Aug. 4, 1975: spouses executed a promissory note,PN BD#75/C-252 covering
the said loan and that the note is secured by a REM.
3. Don Alviar executed another promissory note, PN BD#76/C-345, for
P2,640,000 secured by a “hold-out” on Alviar’s foreign currency saving
account with the bank
4. spouses executed for Donalco Trading, which they are officers, a promissory
note, PN BD#76/C-430, covering P545,000. It is secured by “Clean-Phase out
TOD CA 3923” which means that the temporary overdraft incurred by
Donalco with the bank is to be converted into an ordinary loan in
compliance with a Central Bank circular directing the discontinuance of
overdrafts.
5. March 1979 : spouses paid the bank P2,000,000 to be applied to the
obligations of G.B Alviar Realty and for the release of the REM for the
P450,000 loan covering the lots in San Juan.
6. January 15, 1980: the bank moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157. the spouses had the
total obligation of P1,608,256.68, covering the 3 promissory notes
7. the spouses filed a complaint for damages and praying for issuance of writ of
preliminary injunction with RTC
 Claiming that they have paid their principal loan secured by the
mortgaged property, and thus the mortgage should not be
foreclosed
8. RTC: dismissed the complaint. Ordered the Sheriff to proceed with the
extrajudicial foreclosure
9. RTC: set aside its earlier decision upon a motion for reconsideration.
 It found that only the P250,000 loan is secured by the mortgage on
the land covered by No. 43815.
 P382,680.83 loan is secured by the foreign currency deposit account
of Don Alviar
 P545,000 was an unsecured loan, being a mere conversion of
temporary overdraft
 “blanket mortgage clause” (meaning can be found at the doctrine
part) relied upon by the Bank applies only to future loans obtained
by the mortgagors and not by the parties other than the mortgagors.
10. CA:affirmed the order of the RTC
Parties executed different promissory notes agreeing to a particular security
for each loan
ISSUE:
Whether or not the “blanket mortgage clause” covers not only the promissory
note covering the P250,000 loan but also the other 2 promissory notes –No.
RATIO:
1. The parties having conformed to the “blanket mortgage clause” or “dragnet
clause,” it is reasonable to conclude that they also agreed to an implied
understanding that subsequent loans need not be secured by other
securities, as the subsequent loans will be secured by the first mortgage. But
of course, there is no prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent loans. Thus, when
the mortgagor takes another loan for which another security was given it
could not be inferred that such loan was made in reliance solely on the
original security with the “dragnet clause,” but rather, on the new security
given.
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 theP250,000.00 loan covered by PN BD#75/C-252, and for any amount not
covered by the security for the second promissory note.
CASE LAW/ DOCTRINE:
A “blanket mortgage clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrased to subsume all debts of past
or future origins. Mortgages of this character enable the parties to provide
continuous dealings, the nature or extent of which may not be known or
anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A “dragnet clause”
operates as a convenience and accommodation to the borrowers as it
makes available additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing costs, costs of
extra legal services, recording fees, et cetera.
Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a “dragnet clause” so worded as to be
broad enough to cover all other debts in addition to the one specifically
secured will be construed to cover a different debt, although such other debt
is secured by another mortgage.] The contrary thinking maintains that a
mortgage with such a clause will not secure a note that expresses on its face
that it is otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein, such deficiency
being an indebtedness within the meaning of the mortgage, in the absence
of a special contract excluding it from the arrangement. The latter school
represents the better position.
053 People’s Bank and Trust Company and Atlantic Gulf and Pacific Co. of
Manila vs. Dahican Lumber Company et.al.
GR No. L-17500 Date May 16, 1967
TOPIC: Object of Real Estate Mortgage- After Acquired Properties
PONENTE: Dizon, J.
FACTS:
1. ATLANTIC, a duly licensed corporation, sold and assigned all its rights
in the Dahican Lumber concession to Dahican Lumber Company
(DALCO) for the total sum of $500,000.00, of which only the amount
of $50,000.00 was paid.
2. To develop the concession, DALCO obtained various loans from the
BANK amounting 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 (DAMCO), a
foreign corporation and a stockholder of DALCO, all payable to the
BANK or its order.
3. As security for the payment of the abovementioned loans, 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 situated in the province of
Camarines Norte together with all the buildings and other
improvements existing thereon and all the personal properties of the
mortgagor.
4. 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 the
following provision extending the mortgage lien to properties to be
subsequently acquired — referred to hereafter as "after acquired
properties" — by the mortgagor:
“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.”
5. Upon DALCO's and DAMCO's failure to pay the fifth promissory note
upon its maturity, the BANK paid the same to the Export-Import Bank
of Washington D.C., and the latter assigned to the former its credit
and the first mortgage securing it. Subsequently, the BANK gave
DALCO and DAMCO up to April 1, 1953 to pay the overdue
promissory note.
6. After 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.
7. The Board of Directors of DALCO passed a resolution agreeing to
rescind the alleged sales of equipment, spare parts and supplies by
CONNELL and DAMCO to it. Thereafter, the corresponding
agreements of rescission of sale were executed between DALCO
and DAMCO, on the one hand and between DALCO and CONNELL,
on the other.
8. The BANK, in its own behalf and that of ATLANTIC, demanded that
said agreements be cancelled but CONNELL and DAMCO refused
to do so. As a result, ATLANTIC and the BANK, commenced
foreclosure proceedings in the Court of First Instance of Camarines
Norte against DALCO and DAMCO.
TRIAL COURT’S RULING: Condemns Dahican to pay People’s Bank, Atlantic
Gulf, and Connel Bros.
ISSUE:
Whether or not DAMCO and CONNELL have rights over the "after acquired
properties" superior to the mortgage lien constituted thereon in favor of
plaintiffs (DALCO)
Other Issues (not-so-important):
1. Whether or not the proceeds obtained from the sale of the "after
acquired properties" should have been awarded exclusively to the
plaintiffs or to DAMCO and CONNELL, and if in law they should be
distributed among said parties, whether or not the distribution should
be pro-rata or otherwise;
2. Whether or not plaintiffs are entitled to damages; and
3. Lastly, whether or not the expenses incidental to the Receivership
should be borne by all the parties on a pro- rata basis or exclusively by
one or some of them are of a secondary nature as they are already
impliedly resolved by what has been said.
RATIO: MAIN ISSUE
No, DAMCO and CONNELL do not have rights over the “after acquired
properties”. The report of the auditors and its annexes show that neither
DAMCO nor CONNELL had supplied any of the goods of which they
respective claimed to be the unpaid seller; that all items were supplied by
different parties, neither of whom appeared to be DAMCO or CONNELL that,
in fact, CONNELL collected a 5% service charge on the net value of all items it
claims to have sold to DALCO and which, in truth, it had purchased for
DALCO as the latter's general agent; that CONNELL had to issue its own
invoices in addition to those o f the real suppliers in order to collect and justify
such service charge.
Taking into account the above circumstances together with the fact that
DAMCO was a stockholder and CONNELL was not only a stockholder but the
general agent of DALCO, their claim to be the suppliers of the "after acquired
required properties" would seem to be preposterous. The most that can be
claimed on the basis of the evidence is that DAMCO and CONNELL probably
financed some of the purchases. But if DALCO still owes them any amount in
this connection, it is clear that, as financiers, they can not claim any right over
the "after acquired properties" superior to the lien constituted thereon by
virtue of the deeds of mortgage under foreclosure. Indeed, the execution of
the rescission of sales mentioned heretofore appears to be but a desperate
attempt to better or improve DAMCO and CONNELL's position by enabling
them to assume the role of "unpaid suppliers" and thus claim a vendor's lien
over the "after acquired properties". The attempt, of course, is utterly
ineffectual, not only because they are not the "unpaid sellers" they claim to be
but also because there is abundant evidence in the record showing that both
DAMCO and CONNELL had known and admitted from the beginning that the
"after acquired properties" of DALCO were meant to be included in the first
and second mortgages under foreclosure.
OTHER ISSUES:
1. As regard the proceeds obtained from the sale of the of after
acquired properties" and the "undebated properties", it is clear that
said proceeds should be awarded exclusively to the plaintiffs in
payment of the money obligations secured by the mortgages under
foreclosure.
2. 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.
3. It is, however, our considered opinion that, upon the facts
established, all the expenses of the Receivership, which was
deemed necessary to safeguard the rights of the plaintiffs, should be
borne by the defendants, jointly and severally, in the same manner
that all of them should pay to the plaintiffs, jointly a severally,
attorney's fees awarded in the appealed judgment.
*Case was remanded for further proceedings.
054 CASE TITLE : Star Two (SPV-AMC), Inc., v. Paper City Corporation of the
Philippines
G.R. No. 169211 March 6, 2013
TOPIC: Object of Real estate Mortgage: Effect and Extent
PONENTE: PEREZ, J
FACTS:
1. From 1990-1991, Paper City applied for and was granted four (4) loans and
credit accommodations by Rizal Commercial Banking Corporation (RCBC),
now substituted by Star Two (SPV-AMC), Inc by virtue of Republic Act No.
9182. The loans were secured by four (4) Deeds of Continuing Chattel
Mortgages on its machineries and equipments found inside its paper plants.
However, RCBC eventually executed a unilateral Cancellation of Deed of
Continuing Chattel Mortgage.
2. In 1992, RCBC, as the trustee bank, together with Metrobank and Union Bank,
entered into a Mortgage Trust Indenture (MTI), with Paper City. In the said
MTI, Paper City acquired additional loans secured by five (5) Deed of Real
Estate Mortgage, plus real and personal properties in an annex to the MTI,
which covered the machineries and equipment of Paper City. The MTI was
later on amended and supplemented three (3) times, wherein the loan was
increased and included the same mortgages with an additional building
and other improvements in the plant site. Paper City was able to comply with
the loans but only until 1997 due to an economic crisis. RCBC filed a petition
for extra- judicial foreclosure against the real estate executed by Paper City
including all the improvements because of payment default. The property
was foreclosed and subjected to public auction.
3. The three banks and the highest bidder were issued a Certificate of Sale.
Paper City filed a complaint alleging that the sale was null and void due to
lack of prior notice. During the pendency of the complaint, Paper City filed a
motion to remove machinery out of the foreclosed land and building, that
the same were not included in the foreclosure of the real estate mortgage.
The trial court denied the motion, ruling that the machineries and equipment
were included. Thereafter, Paper City's Motion for Reconsideration, the trial
court granted the same and justified the reversal by finding that the
machineries and equipment are chattels by agreement thru the four Deeds
of Continuing Chattel Mortgages; and that the deed of cancellation
executed by RCBC of said mortgage was not valid because it was one
unilaterally. RCBC's Motion for Reconsideration was denied.
CA Petion:
1. That Paper City gave its consent to consider the disputedmachineries and
equipment as real properties when they signed the MTI's and all its
amendments; 2. That the machineries and equipment are the same as inthe
MTI's, hence treated by agreement of the parties as real properties.
The CA affirmed the orders of the trial court because it relied on the plain
language of the MTI's stating that nowhere from any of the MTIs executed by
the parties can we find the alleged "express" agreement adverted to by
petitioner. There is no provision in any of the parties’ MTI, which expressly states
to the effect that the parties shall treat the equipments and machineries as
 real property. On the contrary, the plain and unambiguous language of the
aforecited MTIs, which described the same as personal properties, contradicts
petitioner’s claims. Hence the case.
ISSUE:
1. Whether the subsequent contracts of the parties such as Mortgage
Trust Indenture as well as the subsequent supplementary amendments
included in its coverage of mortgaged properties the subject
machineries and equipment; and
2. Whether or not the subject machineries and equipment were
considered real properties and should therefore be included in the
extra-judicial foreclosure which in turn were sold to the banks.
RATIO:
1. Repeatedly, the parties stipulated that the properties mortgaged by Paper
City to RCBC are various parcels of land including the buildings and existing
improvements thereon as well as the machineries and equipments, which as
stated in the granting clause of the original mortgage, are "more particularly
described and listed that is to say, the real and personal properties listed in
Annexes ‘A’ and ‘B’ x x x of which the Paper City is the lawful and registered
owner." Significantly, Annexes "A" and "B" are itemized listings of the buildings,
machineries and equipments typed single spaced in twenty-seven pages of
the document made part of the records. As held in Gateway Electronics
Corp. v. Land Bank of the Philippines, the rule in this jurisdiction is that the
contracting parties may establish any agreement, term, and condition they
may deem advisable, provided they are not contrary to law, morals or public
policy. The right to enter into lawful contracts constitutes one of the liberties
guaranteed by the Constitution.
2. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage
includes the machineries and equipments of respondent. 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 mortgages which specifically included the
machineries and equipments were subsequent to the chattel mortgages.
Without doubt, the real estate mortgages superseded the earlier chattel
mortgages.
3. 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; xxx
(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;
055 GARCIA V VILLAR
G.R. No. 158891 Date June 27, 2012
TOPIC: REAL ESTATE MORTGAGE – Right to alienate collateral PONENTE:
Leonardo-De Castro, J.
FACTS:
1. Galas was the original owner of the subject property located
Quezon City.
2. July 6, 1993: Galas, with her daughter Pingol (as co-maker)
mortgaged the property to Villar as security for a loan in the
amount of P2.2M.
3. October 10, 1994: Galas, again with Pingol as her co-maker,
mortgaged the same property to Garcia to secure her loan of
P1.8M. Both mortgages were annotated at the back of the TCT
with a restriction that “mortgagee’s consent is necessary in case
of subsequent encumbrance or alienation of the property”.
4. November 21, 1996: Galas sold the subject property to Villar for
P1.5M and declared in the Deed of Sale that the property was
free from all liens and encumbrances. The Deed of Sale was
registered and subsequently, a new TCT was issued in the name
of Villar. Both Villar’s and Garcia’s mortgages were annotated at
the back of Villar’s new TCT.
5. October 27, 1999: Garcia filed a Petition for Mandamus with
Damages against Villar with the RTC QC. But later on amended
his petition to a Complaint for Foreclosure of Real Estate
Mortgage with Damages alleging that Villar acted in bad faith
when she purchased the property because she knowingly and
willfully disregarded the provisions on laws on judicial and
extrajudicial foreclosure of mortgaged property. Also, 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, as the
second mortgagee, was subrogated to Villar’s original status as
first mortgagee, which is the creditor with the right to foreclose.
*Villar’s Answer: 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. There’s no subrogation as the assignment of credit was done with
neither her knowledge nor prior consent.
RTC: in favour of Garcia - 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. Upon Galas’s failure to pay her obligation, Villar should have
foreclosed the subject property pursuant to Act No. 3135 as amended, to
provide junior mortgagees like Garcia, the opportunity to satisfy their claims
from the residue, if any, of the foreclosure sale proceeds The second
mortgage constituted in Garcia’s favor had not been discharged, and that
Villar, as the new registered owner of the subject property with a subsisting
mortgage, was liable for it
CA: reversed TC’s decision - Galas was free to mortgage the subject property
even without Villar’s consent as the restriction that the mortgagee’s consent
was necessary in case of a subsequent encumbrance was absent in the
Deed of Real Estate Mortgage.
ISSUE:
1. Whether or not the second mortgage to Garcia was valid? YES
2. Whether or not the sale of the subject property to Villar was valid? YES
3. Whether or not the sale of the subject property to Villar was in
violation of the prohibition on pactum commissorium; NO.
4. Whether or not Garcia’s action for foreclosure of mortgage on the
subject property can prosper? NO.
RATIO:
ISSUE Nos. 1 and 2
a. Both the sale of the subject property and the second mortgage are valid.
While it is true that the annotation of the first mortgage to Villar on Galas’s TCT
contained a restriction on further encumbrances without the mortgagee’s
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
Galas’s 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.
Garcia’s insistence that Villar should have judicially or extrajudicially
foreclosed the mortgage to satisfy Galas’s 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, to wit:
Art. 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void.
Issue No. 3
Elements of pactum commissorium: (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.
Villar’s 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 Galas’s 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. This provision is customary in mortgage contracts, and is in
conformity with Article 2087 of the Civil Code, which reads:
Art. 2087. It is also of the essence of these contracts that when the principal
obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment to the creditor.
Galas’s 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
Galas’s failure to discharge her debt, or that the sale was simulated to cover
up such automatic transfer.
Issue No. 4
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 creditor’s consent. Thus, 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.
056 Korea Exchange Bank v. Filkor Business Integrated, Inc.
380 SCRA 381 (2002)
TOPIC: Judgment on Foreclosure
PONENTE: QUISUMBING, J.:
FACTS:
1. Filkor Business Integrated, Inc. (Filkor), borrowed US$140,000 from
petitioner Korea Exchange Bank in order to secure payment of all its
obligations, Filkor executed a Real Estate Mortgage.
2. It mortgaged to petitioner the improvements belonging to it constructed
on the lot it was leasing at the Cavite Export Processing Zone Authority.
Only US$40,000 was paid by Filkor.
3. Petitioner in the Regional Trial Court of Cavite In its complaint, petitioner
prayed that (a) it be paid by respondents;
(b) the property mortgaged be foreclosed and sold at public auction in case
respondents failed to pay petitioner within ninety days from entry of judgment;
and (c) other reliefs just and equitable be granted.
 4. It appears that 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.
5. The trial court then rendered judgment in favor of petitioner, however,
failed to order that the property mortgaged by respondent Filkor be
foreclosed and sold at public auction.
6. Petitioner filed a motion for partial reconsideration of the trial court’s
order, praying that the foreclosure and sale at public auction be
granted.
Trial court denied petitioner’s motion: 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.
ISSUE: Whether or not the petitioner had abandoned the Real Estate
Mortgage in its favor, because it filed a smiple collection case?
HELD: No. The Court finds no indication whatsoever that petitioner had waived
its rights under the real estate mortgage executed in its favor. Thus, the trial
court erred in concluding that petitioner had abandoned its mortgage lien on
Filkor’s property, and that what it had filed was an action for collection of a
sum of money.
RATIO:
Petitioner’s allegations in its complaint, and its prayer that the mortgaged
property be foreclosed and sold at public auction, indicate that petitioner’s
action was one for foreclosure of real estate mortgage. We have consistently
ruled that what determines the nature of an action, as well as which court or
body has jurisdiction over it, are the allegations of the complaint and the
character of the relief sought. In addition, we find no indication whatsoever
that petitioner had waived its rights under the real estate mortgage executed
in its favor. Thus, the trial court erred in concluding that petitioner had
abandoned its mortgage lien on Filkor’s property, and that what it had filed
was an action for collection of a sum of money.
Petitioner’s action being one for foreclosure of real estate mortgage, it was
incumbent upon the trial court to order that the mortgaged property be
foreclosed and sold at public auction in the event that respondent Filkor fails
to pay its outstanding obligations.
CASE LAW/ DOCTRINE: 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 (90) days nor
more than (120) days, and that in default of such payment the property shall
be sold at public auction to satisfy the judgment.
057 Huerta Alba Resort, Inc. v. Court of Appeals
G.R. No. 128567 September 1, 2000 TOPIC: Right of Redemption PONENTE:
Purisima, J.
FACTS:
1. Syndicated Management Group, Inc., filed a complaint for judicial
foreclosure of mortgage with preliminary injunction filed with the RTC of
Makati City. It sought the foreclosure of 4 parcels of land mortgaged by
petitioner to Intercon Fund Resource, Inc.
2. Syndicated Management filed the case as mortgagee-assignee of a loan
amounting to P8.5M obtained by petitioner from Intercon, in whose favor
petitioner mortgaged the aforesaid parcels of land as security for the said
loan.
3. Petitioner questioned the assignment by Intercon of its mortgage right, on
the ground that the same was ultra vires.
4. RTC granted the judicial foreclosure. CA dismissed petitioner’s appeal due to
late payment of docket fees. Petitioner then filed with the SC a pet. for
certiorari which was also dismissed.
5. The order became final and executory and was entered in the Book of
Entried of Judgement.
6. Syndicated Mgmt. then filed with the RTC a motion for execution of
judgment which was granted.
7. Pet. then filed an urgent motion to quash and set aside the writ of execution
alleging grave abuse of discretion. Pet. argued that the records of the case
were still with the CA and therefore, issuance of the writ of execution was
premature since the 150-day period for petitioner to pay the judgment
obligation had not yet lapsed and petitioner had not yet defaulted in the
payment thereof since no demand for its payment was made by the private
respondent. (RTC denied.)
8. Pet. filed once more with the CA another petition for certiorari and
prohibition with preliminary injunction.
9. Consequently, the scheduled auction sale of subject pieces of properties
proceeded and the private respondent was declared the highest bidder.
Thus, it was awarded subject properties. Certificate of Sale issued in its favor
was registered with the Registry of Deeds.
10. Pet. filed an Ex-Parte Motion for Clarification asking the trial court to
“clarify” whether or not the 12 month period of redemption for ordinary
execution applied in the case. The trial court 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 of the ROC.
11. Meanwhile, the CA ls resolved the issues raised by the petitioner and
held that the 150-day period within which petitioner may redeem subject
properties should be computed from the date petitioner was notified of the
Entry of Judgment; and that the 150-day period within which petitioner may
exercise its equity of redemption expired on September 11, 1994. (MR
denied.)
Then, the lower court confirmed the sale of subject properties to the private
respondent. The Order declared that all pending incidents relating to the
Order had become moot and academic. The Transfer Certificates of Title to
subject pieces of property were then issued to the private respondent.
ISSUE: Whether or not the petitioner has the 1-year right of redemption of
subject properties under Section 78 of Republic Act No. 337 otherwise known
as the General Banking Act.
HELD: No, petitioner failed to exercise its equity of redemption within the
prescribed period, redemption can no longer be effected. The confirmation
of the sale and the issuance of the TCTs covering the subject properties was in
order.
RATIO:
It can be gleaned that what petitioner has been adjudged to have was only
the equity of redemption over subject properties. On the distinction between
the equity of redemption and right of redemption, the case of Limpin vs. IAC
held: 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 by an order of the court, x x 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’ (i.e., even after confirmation by an order of
the court) are those granted by the charter of the Philippine National Bank
(Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These 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. Thus, no such
right of redemption exists in case of judicial foreclosure of a mortgage if the
mortgagee is not the PNB or a bank or banking institution. In such a case, the
foreclosure sale, ‘when confirmed by an order of the court. x x shall operate to
divest the rights of all the parties to the action and to vest their rights in the
purchaser.’ There then exists only what is known as the equity of redemption.
This is simply the right of the defendant mortgagor to extinguish the mortgage
and retain ownership of the property by paying the secured debt within the
90-day period after the judgment becomes final, in accordance with Rule 68,
or even after the foreclosure sale but prior to its confirmation.
Section 2, Rule 68 provides that: “ x x If upon the trial x x 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 costs,
and shall render judgment for the sum so found due and order the same to be
paid into court within a period of not less than ninety (90) days from the date of
the service of such order, and that in default of such payment the property be
sold to realize the mortgage debt and costs.” – This is the mortgagor’s equity
(not right) of redemption which may be exercised by him even beyond the 90-
day period ‘from the date of service of the order,’ and even after the
foreclosure sale itself, provided it be before the order of confirmation of the
sale. After such order of confirmation, no redemption can be effected any
longer.”
It was too late in the day for petitioner to invoke a right to redeem under
Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several
crucial stages of the proceedings. (Pet. failed to allege and prove that private
respondent's predecessor in interest was a credit institution.)
Moreover, the claim that pet. is entitled to the beneficial provisions of Sec 78 of
R.A. No. 337 - since private respondent’s predecessor-in-interest is a credit
institution - is in the nature of a compulsory counterclaim which should have
been averred in petitioner’s answer to the compliant for judicial foreclosure. (A
counterclaim is a cause of action existing in favor of the defendant against the
plaintiff. It is a claim which, if established, will defeat or in some way qualify a
judgment or relief to which plaintiff is otherwise entitled.) The very purpose of a
counterclaim would have been served had petitioner alleged in its answer its
purported right under Section 78 of R.A. No. 337.
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 of the case.
Estoppel may be successfully invoked if the party fails to raise the question in
the early stages of the proceedings.
CASE LAW/ DOCTRINE:
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.
058 Grand Farms and Philippine Shares Corporation vs Court of Appeals
G.R. No. 91779 Date Feb 7 1991
TOPIC: JUDICIAL FORECLOSURE (b. Judgment on Foreclosure)
PONENTE: Regalado, J.
FACTS:
1. Grand Farms filed an annulment and/or declaration of nullity of the
extrajudicial foreclosure proceedings over their mortgaged properties with
 damages against respondents clerk of court, deputy sheriff and herein
private respondent Banco Filipino Savings and Mortgage Bank in RTC-
Valenzuela.
2. After Banco Filipino and Mortgage Bank filed their answer, Grand Farms filed
a request for admission by private respondent of the allegation, inter alia,
that no formal notice of intention to foreclose the real estate mortgage was
sent by private respondent to petitioners.
3. Banco Filipino averred that that petitioners were "notified of the auction sale
by the posting of notices and the publication of notice in the Metropolitan
Newsweek, a newspaper of general circulation in the province where the
subject properties are located.
4. With this, Grand Farms filed a motion for summary judgment contending that
the foreclosure was violative of the mortgage contract, specifically:
"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;"
5. Banco Filipino maintains that paragraph (k) of the mortgage contract fails to
consider paragraphs (b) and (d) of the same contract, which respectively
provide as follows:
"b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor (plaintiff)
hereby appoints the Mortgagee (BF) his attorney-in-fact to sell the property
mortgaged, to sign all documents and perform any act requisite and
necessary to accomplish said purpose and to appoint its substitutes as such
attorney-in-fact, with the same powers as above- specified. The Mortgagor
hereby expressly waives the term of thirty (30) days or any other term granted
or which may hereafter be granted him by law as the period which must
elapse before the Mortgagee shall be entitled to foreclose this mortgage, it
being specifically understood and agreed that the said Mortgagee may
foreclose this mortgage at any time after the breach of any conditions hereof
. . ."
"d) Effective upon the breach of any conditions of the mortgage and in
addition to the remedies herein stipulated, the Mortgagee is hereby likewise
appointed attorney-in-fact of the Mortgagor with full powers and authority,
with the use of force, if necessary, to take actual possession of the mortgaged
property, without the necessity for any judicial order or any permission of
power to collect rents, to eject tenants,… and perform any other act which the
Mortgagor may deem convenient . . ."
RTC denied Grand Farms’ motion for summary judgment. Motion for
Reconsideration also denied. CA ruled that no notice was required,
paragraph (k) merely specified where the notice should be sent (address),
therefore, complaint dismissed. Hence this appeal.
ISSUE: WON personal notice is required before foreclosure?
HELD: YES. As expressly provided in the mortgage contract.
SC: implied admission that there was no PERSONAL NOTICE, other issues are
unnecessary to discuss. REMANDED to TC.
RATIO:
1. 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.
While private respondent was constituted as their attorney-in-fact by
petitioners, the inclusion of the aforequoted paragraph (k) in the mortgage
contract nonetheless rendered personal notice to the latter indispensable.
We do not agree with respondent court that paragraph (k) of the mortgage
contract in question was intended merely to indicate the address to which the
communications stated therein should be sent. This interpretation is rejected
by the very text of said paragraph as above construed.
What private respondent would want is to have paragraph (k) considered as
non-existent and consequently disregarded, a proposition which palpably
does not merit consideration. Furthermore, it bears mention that private
respondent having caused the formulation and preparation of the printed
mortgage contract in question, any obscurity that it imputes thereto or which
supposedly appears therein should not favor it as a contracting party.
059 SPOUSES FRANCISCO and MERCED RABAT v. PNB
G.R. No. 158755 June 18, 2012
TOPIC: Extrajudicial Foreclosure – Conduct of Sale
PONENTE: BERSAMIN, J.
FACTS:
1. Parties are before the court a second time. First case: PNB v. Rabat, decided
in Nov. 15, 2000, G.R. Np. 134406. Facts are based on above mentioned
case.
2. Aug. 25, 1979: Spouses Rabat (RABATS) applied, and were granted a loan by
PNB on 01/14/80, a medium term loan of Php4M, to mature in 3 years.
3. January 28, 1980: (1) RABATS signed a credit agreement; (2) executed a real
estate mortgage over 12 parcels of land.
4. Loan stipulation states interest = 17% per year, plus service charge, and
penalty of 3% on amount unpaid or not renewed when due.
5. September 25, 1980: RABATS executed an “Amendment of the Credit
Agreement” to increase interest rate from 17 to 21%. Also executed another
real estate mortgage on 9 parcels of land located in Davao Oriental
(agricultura, commercial, and residential) as additiona security for their
Php4M loan.
6. Loans of RABATS reached total amount of Php3,517,380, due 3/14/83,
evidenced by several PN’s.
7. RABATS failed to pay their outstanding balance when it became due.
8. July 24, 1986: PNB responded with a denial to request of RABAT for extension
of time for settlement. PNB have a deadline of until 4/30/86 for settlement,
which they sent to address at Wilson St, San Juan, MM.
9. PNB filed for extrajudicial foreclosure of mortgage executed by RABATS.
10. Parcels of land were sold at Public auction, with PNB as highest bidder
at Php3,874,800.
11. Proceeds were inadequate to satisfy entire obligation, so PNB sent
additional demand letters to RABAT (2 at Wilson, San Juan on 11/15/90, and
8/30/91, and another at Davao Oriental)
12. PNB filed with RTC of Manila a complaint for a sum of money, due to
failure by RABATS to settle obligation which had already amounted to
Php14,745,398.25 (with interest, penalties, and other charges).
13. RABATS: (1) admitted loan availments and default in payment, but (2)
assailed validity of the auction sales, for want of notice to them before and
after the foreclosure sales.
14. RABATS also claim: (1) They have been residents of Mati, Davao
Oriental since 1970-present; (2) received nor heard about the foreclosure
proceedings, in spite of PNB’s claim of publication in San Pedro Times; (3)
Latter is not a newspaper of general circulation; (4) bid price was grossly
inadequate and unconscionable; (5) accumulated interest and penalty
charges were invalid because properties were sold in ’87, but PNB waited till
’92 to file the case. Therefore, they should not be made to suffer payment of
interest and penalty charges from May ’87 to present, because such would
allow PNB to profit from its “questionable scheme”
15. RTC dismissed the complaint; Auction sales of the properties were set
aside, and PNB was ordered to reconvey to RABATS the remaining properties
after sufficient sale of properties to satisfy the obligation.
16. PNB appealed to CA, which upheld RTC’s decision for nullification of
foreclosure sales.
17. PNB appealed to SC (G.R. No. 134406). SC granted petition. Case was
remanded to CA to DECIDE on the basis of the errors raised by petitioner PNB
in its brief. CA amended its decision, resolving errors assigned by PNB, but still
affirmed RTC decision. On MR, however, CA found for PNB.
RABATS moved for reconsideration, but was denied, hence appeal by them
to SC.
ISSUE:
W/N the inadequacy of PNB’s bid price renders the forced sale of the
properties invalid; (2) W/N PNB was entitled to recover any deficiency from
the RABATS.
HELD: (NO; SC ruled against spouses Rabat. Auction bid was valid. (2) YES; PNB
is entitled to recover from the RABATS.
RATIO:
The mode of forced sale utilized by petitioner was an extrajudicial foreclosure
of real estate mortgage which is governed by Act No. 3135, as amended. Law
reveals nothing to the effect that there should be a minimum bid price or that
the winning bid should be equal to the appraised value of the foreclosed
property or to the amount owed by the mortgage debtor. What is clearly
provided is that a mortgage debtor is given the opportunity to redeem the
foreclosed property "within the term of one year from and after the date of
sale." In the case at bar, other than the mere inadequacy of the bid price at
the foreclosure sale, respondent did not allege any irregularity in the
foreclosure proceedings nor did she prove that a better price could be had
for her property under the circumstances.
2. PNB’s bid price of P 3,874,800.00 not outrageously low as to be shocking to
the conscience. Bid price was almost equal to both the P 4M applied for by
RABATS, to the total sum of P 3,517,380.00 of their actual availment from PNB.
3. In Bank of the Philippine Islands, etc. v. Reyes: unlike in an ordinary sale,
inadequacy of the price at a forced sale is immaterial and does not nullify a
sale since, in a forced sale, a low price is more beneficial to the mortgage
debtor for it makes redemption of the property easier.
4. Hulst v. PR Builders: “[G]ross inadequacy of price does not nullify an
execution sale. In an ordinary sale, for reason of equity, a transaction may be
invalidated on the ground of inadequacy of price, or when such
inadequacy shocks one’s conscience as to justify the courts to interfere; such
does not follow when the law gives the owner the right to redeem as when a
sale is made at public auction, upon the theory that the lesser the price, the
easier it is for the owner to effect redemption. When there is a right to
redeem, inadequacy of price should not be material because the judgment
debtor may re-acquire the property or else sell his right to redeem and thus
recover any loss he claims to have suffered by reason of the price obtained
at the execution sale. Thus, respondent stood to gain rather than be harmed
by the low sale value of the auctioned properties because it possesses the
right of redemption. x x x”
SECOND ISSUE:
PNB was legally entitled to recover the penalty charge of 3% per annum and
attorney’s fees equivalent to 10% of the total amount due. The documents
relating to the loan and the real estate mortgage showed that the Spouses
Rabat had expressly conformed to such additional liabilities; hence, they could
not now insist otherwise. To be sure, the law authorizes the contracting parties
to make any stipulations in their covenants provided the stipulations are not
contrary to law, morals, good customs, public order or public policy. Equally
axiomatic are that a contract is the law between the contracting parties, and
that they have the autonomy to include therein such stipulations, clauses,
terms and conditions as they may want to include.
Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy
of the additional liabilities being charged by PNB, they could not now bar PNB
from recovering the deficiency representing the additional pecuniary liabilities
that the proceeds of the forced sales did not cover. Prudential Bank v.
Martinez, fact that the mortgaged property was sold at an amount less than its
actual market value should not militate against the right to such recovery.
CASE LAW/ DOCTRINE: Inadequacy of the bid price at a forced sale, unlike
that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a
forced sale, a low price is considered more beneficial to the mortgage debtor
because it makes redemption of the property easier.
The inadequacy of the bid price in an extrajudicial foreclosure sale of
mortgaged properties will not per se invalidate the sale. Additionally, the
foreclosing mortgagee is not precluded from recovering the deficiency should
the proceeds of the sale be insufficient to cover the entire debt.
060 Goldenway Merchandising Corporation v. Equitable PCI Bank
GR No. 195540 March 13, 2013
Extrajudicial Foreclosure, Right of Redemption Villarama, Jr., J
FACTS:
1. Nov. 29, 1985 – A Real Estate Mortgage was executed by Goldenway
Merchandising Corp. In favour of Equitable PCI Bank over its real properties
situated in Valenzuela, Bulacan (Now Valenzuela). It was security for a P2
Million loan grant by the Bank to Goldenway
2. Petitioner failed to settle its loan obligation so the Bank extrajudicially
foreclosed the mortgage.
3. During public auction, the mortgaged properties were sold for P3.5 Million to
the Bank.
4. March 12, 2001 – Petitioner’s counsel met with Bank’s counsel with intention
to exercise the right of redemption. However, they were told that such
redemption is no longer possible because the certificate of sale had already
been registered. The titles had already been consolidated and new
certificates were issued in the name of Bank.
5. Dec. 7, 2001 – Petitioner filed a complaint for specific performance and
damages.
6. Petitioner’s contention: that the one-year period of redemption under Act
No. 3135 should be applied to the real estate mortgage, not RA 8791 which
would impair the obligation of contracts and violation of the equal
protection clause under the Constitution
7. Respondent Bank’s contention: Petitioner cannot claim that it was unaware
of the redemption price which is clearly provided in Sec. 47, RA 8791, and
that they had all the opportune time to redeem the foreclosed properties.
7. TC: dismissed complaint AND counter-claim. Petitioner never raised the issue
of constitutionality of RA No. 8791. Petitioner’s counsel was not duly
authorized by their Board of Directors to transact for and in their behalf.
CA affirmed TC for failure of petitioner to justify unconstitutionality. The
redemption period for juridical persons have been shortened when RA No.
8791 took effect. MR likewise denied.
ISSUE:
Whether RA No. 8791 is unconstitutional.
HELD:
NO. It is constitutional and does not impair the obligation of contract. RA No.
8791 is validly applied in the case of a real estate mortgage contract which
was executed in 1985 and the mortgage foreclosed.
RATIO:
1. Purpose of the non-impairment clause: safeguard the integrity of contracts
against unwarranted interference by the State. Sec. 47 did not divest juridical
persons of the right to redeem their foreclosed properties but only modified
the time for the exercise of such right by reducing the one-year period
Under Sec. 6 of Act No. 3135 (of 1924) as amended by Act 4118, the one-year
redemption is be counted from the date of the registration of the certificate of
sale. However, Sec. 47 of RA No. 8791 (The General Banking Law of 2000)
provides an exception in the case of juridical persons in exercising the right of
redemption: only “until, but not after, the registration of the certificate of
foreclosure sale” and in no case more than 3 months after foreclosure,
whichever comes first.
2. There is no retroactive application of the new redemption period because
Sec 47 exempts from its operation those properties foreclosed prior to its
effectivity and whose owners shall retain their redemption rights under Act
No. 3135.
3. Section 47 embodied one of such safe and sound practices aimed at
ensuring the solvency and liquidity of our banks. It cannot therefore be
disputed that the said provision amending the redemption period in Act 3135
was based on reasonable classification and germane to the purpose of the
law.
4. Right of redemption, being statutory, must be exercised in the manner
prescribed by the statute, and within the prescribed time limit. It has to give
way to police power exercised for public welfare.
5. The Bank is imbued with public interest and must submit to the State’s power
of regulation. Regulations must be subject to change from time to time.
CASE LAW/ DOCTRINE:
Non-impairment clause of the Constitution must yield to the loftier purposes
targeted by the Government. The right granted by this provision must submit
to the demands and necessities of the State’s power of regulation.
061 Medida et al v. CA
G.R. No. 98334 May 8, 1992
TOPIC: Right of Redemption, Act No 3135, Sec. 6 A.M. No. 99-10-05-0; Who
may redeem Act No. 3135, Sec. 6, Rules of Court, Rule 9, Sec. 27
PONENTE: Regalado, J.
FACTS:
1. Plaintiff spouses, alarmed of losing their right of redemption over Lot
4731 of Cebu City from Mr. Juan who purchased it at a foreclosure
sale, obtained a loan of P30,000 from Abellana who is the president
of defendant corporation. Also, the spouses’ son also obtained a
loan for P25,000 with Lot No. 4731 as security
2. When the loan became due and demandable without plaintiff
paying, defendant association caused the extrajudicial foreclosure
of the mortgage. 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
3. May 24, 1971: no redemption having been effected by plaintiff, TCT
was cancelled and a new one was issued in the name of defendant
association
4. Private respondents filed for the annulment of the sale at public
auction and issuance of certificate of sale. They claim that the
foreclosure sale violated Act No. 3135, as amended. But the
defendant association denied the material allegations of the
complaint and averred that the present private respondent spouses
may still avail of their right of redemption over the land in question.
5. TC: upheld the validity of the loan and the real estate mortgage, but
annulling the extrajudicial foreclosure inasmuch as the same failed
to comply with the notice requirements in Act. No. 3135, as
amended.
CA: modified the decision of the TC, and modified declaring as void and
ineffective the real estate mortgage executed by plaintiffs in favour of
defendant association.
ISSUE: Whether or not a mortgagor, whose property has been extrajudicially
foreclosed and sold at a corresponding foreclosure sale, may validly execute
a mortgage contract over the same property in favor of a third party during
the period of redemption –Yes.
RATIO:
1. During the said period of redemption, it cannot be said that the
mortgagor is no longer the owner of the foreclosed property since the
rule up to now is 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 under mortgage
foreclosure remains in the mortgagor or his grantee until the expiration of
the redemption period and the conveyance of the master deed. The
mortgagor remains as the absolute owner of the property during the
redemption period and has 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
inequitable 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.
2. CA declared the real estate mortgage in question void for the reason
that the mortgagor spouses, at the time when the said mortgage was
executed, were no longer the owners of the lot, having supposedly lost
the same when the lot was sold to a purchaser in the foreclosure sale
under the prior mortgage. This holding cannot be sustained.
 The CA, in making its decision, relied only on an obiter dictum of a case
Dizon v. Gaborro.
3. The American rule is similarly to the effect that the redemption of
property sold under a foreclosure sale defeats the inchoate right of the
purchaser and restores the property to the same condition as if no sale
had been attempted. Further, it does not give to the mortgagor a new
title, but merely restores to him the title freed of the encumbrance of the
lien foreclosed.
We cannot rule on the plaint of petitioners that the trial court erred in
declaring ineffective the extrajudicial foreclosure and the sale of the property
to petitioner bank. The court below spelled out at length in its decision the
facts which it considered as violative of the provisions of Act No. 3135, as
amended, by reason of which it nullified the extrajudicial foreclosure
proceeding and its effects. Such findings and ruling of the trial court are
already final and binding on petitioners and can no longer be modified,
petitioners having failed to appeal therefrom.
CASE LAW/ DOCTRINE:
it is undisputed that the real estate mortgage in favor of petitioner bank was
executed by respondent spouses during the period of redemption. We
reiterate that during said period it cannot be said that the mortgagor is no
longer the owner of the foreclosed property since the rule up to now is that
the right of a purchaser at a foreclosure sale is merely inchoate until after the
period of redemption has expired without the right being exercised. The title to
land sold under mortgage foreclosure remains in the mortgagor or his grantee
until the expiration of the redemption period and conveyance by the master's
deed. To repeat, the rule has always been that it is only upon the expiration of
the redemption period, without the judgment debtor having made use of his
right of redemption, that the ownership of the land sold becomes
consolidated in the purchaser.
062 Spouses Yap v. Spouses Dy, et al.
G.R.No. 171991 and 171868, July 27, 2011
TOPIC: How to redeem
PONENTE: Villarama, Jr.,J.
FACTS:
1. Tirambulos owned 6 parcels of land(Lot 1 and Lots 3-6 and Lot 8).
2. Dec. 3,1976: Tirambulos executed a Real Estate Mortgage over Lots 1,4,5,6
and 8 in favour of Rural Bank of Dumaguete, predecessor of Dumaguete
Rural Bank (DRBI), to secure P105,000 loan extended by the bank to them.
3. Tirambulos obtained a second loan of P28,000 secured with REM over Lot 3 in
favour of DRBI
4. Tirambulos sold all lots to the Dy spouses and to the Maximo spouses without
the consent and knowledge of DRBI.
5. After the sale, Tirambulos failed to pay their loans to DRBI
6. DRBI extrajudicially foreclosed the Dec.3 mortgage and had Lots 1,4,5,6 and
8 sold at public auction. DRBI was proclaimed the highest bidder and bought
the lots for P216, 040.93
7. After the sale was registered, DRBI sold Lots 1,3 and 6 to Yap spouses under a
Deed of Sale with Agreement to Mortgage (**Lot 3 was not among the 5 lots
foreclosed and bought by DRBI at the auction)
8. A month before the 1 year redemption period was set to expire, the Dys and
Maxinos attempted to redeem Lots 1, 3 and 6. They tendered the amount to
DRBI and the Yaps, but both refused, contending that the redemption should
be for the full amount of P216,040.93.
9. Dys and Maxinos paid P50,625.29 to the Office of the Sheriff to effect the
redemption.
10. The Yaps refused to take the delivery of the redemption price
contesting that the mortgage is indivisible and one cannot redeem only
some of the lots foreclosed because all the parcels were sold for a single
price at the auction sale.
11. Dys and Maxinos filed a civil case for accounting, injunction,
declaration of nullity of Deed of Sale with Agreement to Mortgage (with
regard to Lot 3), and damages. They also consigned an additional
P83,850.50 representing the remaining balance of the purchase price that
Yaps still owed DBRI
12. Yaps filed a civil case for consolidation of ownership, annulment of
certificate of redemption, and damages. The 2 civil cases were tried jointly
13. RTC: rendered decision in favor of the Yaps
 Dys and Maxinos failed to offer evidence
 Deed of Sale with Agreement to Mortgage is not contrary to law,
morals, good customs, public policy or order
 Dys and Maxinos failed to exercise their rights of redemption properly
and timely. They deposited only P50,625.29 where the amount due is
P216,040.93.
14. CA: reversed the decision of RTC.
Yaps argue that there is no valid redemption of the properties extrajudicially
foreclosed
ISSUE: 1. Was there a valid redemption by the Dys and Maxinos
2. Whether or not the Dys and Maxinos are entitled to redeem
3. Whether or not the mortgage is indivisible
HELD: 1 & 2: YES.
3. NO. Dys and Maxinos can effect the redemption of even only two of the
five properties foreclosed. And since they can effect a partial redemption,
they are not required to pay the P216,040.93 considering that it is the
purchase price for all the five properties foreclosed.
RATIO:
1. Dys and the Maxinos complied with Section 31, Rule 39 of the Rules of Court.
Well within the redemption period, they initially attempted to pay the
redemption money not only to the purchaser, DRBI, but also to the Yaps. Both
DRBI and the Yaps however refused, insisting that the Dys and Maxinos should
pay the whole purchase price at which all the foreclosed properties were sold
during the foreclosure sale. Because of said refusal, the Dys and Maxinos
correctly availed of the alternative remedy by going to the sheriff who made
the sale. As held in a case, the tender of the redemption money may be
made to the purchaser of the land or to the sheriff. If made to the sheriff, it is
his duty to accept the tender and execute the certificate of redemption.
2. Dys and Maxinos have legal personality to redeem the subject properties
despite the fact that the sale to the Dys and Maxinos was without DRBI’s
consent. In a case, the Court held that the sale by the mortgagor of the
mortgaged property to a third person notwithstanding the lack of written
consent by the mortgagee is valid, and likewise recognized the third person’s
right to redeem the foreclosed property, the buyer steps into the shoes of the
mortgagor on account of such sale and was in effect, their successor-in-
interest.
3. It is undisputed that the Dys and the Maxinos made the redemption within
the 12-month period from the registration of the sale. The Dys and Maxinos
effected the redemption on May 24, 1984, with the Provincial Sheriff, and on
June 19, 1984, when they deposited an additional. Both dates were well
within the one-year redemption period reckoned from the June 24, 1983
date of registration of the foreclosure sale. Likewise, the Provincial Sheriff who
made the sale was properly notified of the redemption since the Dys and
Maxinos deposited with him the redemption money after both DRBI and the
Yaps refused to accept it.
Debtor cannot ask for the release of any portion of the mortgaged property or
of one or some of the several lots mortgaged unless and until the loan thus,
secured has been fully paid, notwithstanding the fact that there has been a
partial fulfillment of the obligation. <-This does not apply to the case. It 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. 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.
CASE LAW/ DOCTRINE:
The requisites for a valid redemption are:
(1) the redemption must be made within twelve (12) months from the time of the
registration of the sale in the Office of the Register of Deeds;
(2) payment of the purchase price of the property involved, plus 1% interest per
month thereon in addition, up to the time of redemption, together with the
amount of any assessments or taxes which the purchaser may have paid
thereon after the purchase, also with 1% interest on such last named amount;
and
(3) written notice of the redemption must be served on the officer who made
the sale and a duplicate filed with the Register of Deeds of the province.
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
063 Heirs of the late spouses FLAVIANO MAGLASANG and SALUD ADAZA-
MAGLASANG, namely, OSCAR A. MAGLASANG, EDGAR A. MAGLASANG,
CONCEPCION CHONA A. MAGLASANG, GLENDA A. MAGLASANG-ARNAIZ,
LERMA A. MAGLASANG, FELMA A. · MAGLASANG, FE DORIS A. MAGLASANG,
LEOLINO A. MAGLASANG, MARGIE LEILA
A. MAGLASANG,MA. MILALIE A. MAGLASANG, SALUD A. MAGLASANG, and
MA. FLASALIE A. MAGLASANG, REPRESENTING THE ESTATES OF THEIR
AFORE-NAMED DECEASED PARENTS, Petitioners vs.
Manila Banking Corporation, now substituted by FIRST SOVEREIGN ASSET
MANAGEMENT SPV-AMC, INC. FSAMI, Respondent.
GR No. 171206 Date September 23, 2013
TOPIC: Right to Deficiency, Rules of Court, Rule 86, Section 7
PONENTE: Perlas-Bernabe, J.
FACTS:
1. Spouses Flaviano and Salud Maglasang obtained a credit line from
respondent in the amount of P350,000.00 which was secured by a
real estate mortgage executed over 7 of their properties located in
Ormoc City, Leyte. They availed of their credit line by securing loans
in the amounts of P209,790.50 and P139,805.83 both of which
becoming due and demandable within a period of one year.
Further, the parties agreed that the said loans would earn interest at
12% per annum and an additional 4% penalty would be charged
upon default.
2. After Flaviano Maglasang died intestate, his widow Salud and their
surviving children, herein petitioners, appointed their brother
petitioner Edgar Maglasang as their attorney-in-fact. Thus, Edgar
filed a verified petition for letters of administration of the intestate
estate of Flaviano before the then Court of First Instance of Leyte,
Ormoc City, Branch 5. Thereafter, the probate court issued an Order
granting the petition, thereby appointing Edgar as the administrator
of Flaviano’s estate.
3. In view of the issuance of letters of administration, the probate court,
issued a Notice to Creditors for the filing of money claims against
Flaviano’s estate. Accordingly, as one of the creditors of Flaviano,
respondent notified the probate court of its claim in the amount of
P382,753.19 exclusive of interests and charges.
4. During the pendency of the intestate proceedings, Edgar and Oscar
were able to obtain several loans from respondent, secured by
promissory notes which they signed.
5. In an Order, the probate court terminated the proceedings with the
surviving heirs executing an extra-judicial partition of the properties
of Flaviano’s estate. The loan obligations owed by the estate to
respondent, however, remained unsatisfied due to respondent’s
certification that Flaviano’s account was undergoing a restructuring.
Nonetheless, the probate court expressly recognized the rights of
respondent under the mortgage and promissory notes executed by
the Sps. Maglasang, specifically, its "right to foreclose the same
within the statutory period."
6. In this light, respondent proceeded to extra-judicially foreclose the
mortgage covering the Sps. Maglasang’s properties and emerged
as the highest bidder at the public auction for the amount of
P350,000.00. There, however, remained a deficiency on Sps.
Maglasang’s obligation to respondent. Thus, on June 24, 1981,
respondent filed a suit to recover the deficiency amount.
RTC RULING: After trial on the merits, the RTC rendered a Decision directing the
petitioners to pay respondent, jointly and severally, the amount of P434,742.36
with interest at the rate of 12% p.a., plus a 4% penalty charge, reckoned from
September 1984 until fully paid. The RTC found that it was shown, by a
preponderance of evidence, that petitioners, after the extra-judicial
foreclosure of all the properties mortgaged, still have an outstanding
obligation in the amount and as of the date as above-stated. The RTC also
found in order the payment of interests and penalty charges as above-
mentioned as well as attorney’s fees equivalent to 10% of the outstanding
obligation.
CA RULING: Petitioners elevated the case to the CA on appeal that the
remedies available to respondent under Section 7, Rule 86 of the Rules of
Court (Rules) are alternative and exclusive, such that the election of one
operates as a waiver or abandonment of the others. Thus, when respondent
filed its claim against the estate of Flaviano in the proceedings before the
probate court, it effectively abandoned its right to foreclose on the mortgage.
Moreover, even on the assumption that it has not so waived its right to
foreclose, it is nonetheless barred from filing any claim for any deficiency
amount.
The CA denied the petitioners’ appeal and affirmed the RTC’s Decision.
Further, the CA held that Section 7, Rule 86 of the Rules does not apply to the
present case since the same does not involve a mortgage made by the
 administrator over any property belonging to the estate of the decedent.
According to the CA, what should apply is Act No. 3135 which entitles
respondent to claim the deficiency amount after the extra-judicial foreclosure
of the real estate mortgage of Sps. Maglasang’s properties.
Petitioners’ motion for reconsideration was subsequently denied in a
Resolution. Hence, the present recourse.
ISSUE:
1. Whether or not the CA erred in affirming the RTC’s award of the deficiency
amount in favor of respondent.
2. Whether or not the extra-judicial foreclosure of the subject properties was null
and void since the same was conducted in violation of the stipulation in the
real estate mortgage contract stating that the auction sale should be held in
the capital of the province where the properties are located, i.e., the
Province of Leyte.
RATIO:
1. Yes, the CA erred. It bears to stress that the CA’s reliance on Philippine
National Bank v. CA was misplaced as the said case did not, in any manner,
limit the scope of Section 7, Rule 86. It only stated that the aforesaid section
equally applies to cases where the administrator mortgages the property of
the estate to secure the loan he obtained. Clearly, the pronouncement was a
ruling of inclusion and not one which created a distinction. It cannot,
therefore, be doubted that it is Section 7, Rule 86 which remains applicable in
dealing with a creditor’s claim against the mortgaged property of the
deceased debtor, as in this case, as well as mortgages made by the
administrator, as that in the PNB case.
Claims against deceased persons should be filed during the settlement
proceedings of their estate. Such proceedings are primarily governed by
special rules found under Rules 73 to 90 of the Rules. Among these special
rules, Section 7, Rule 86 of the Rules (Section 7, Rule86) provides the rule in
dealing with secured claims against the estate:
SEC. 7. Mortgage debt due from estate. – A creditor holding a claim against
the deceased secured by a mortgage or other collateral security, may
abandon the security and prosecute his claim in the manner provided in this
rule, and share in the general distribution of the assets of the estate; or he may
foreclose his mortgage or realize upon his security, by action in court, making
the executor or administrator a party defendant, and if there is a judgment for
a deficiency, after the sale of the mortgaged premises, or the property
pledged, in the foreclosure or other proceeding to realize upon the security,
he may claim his deficiency judgment in the manner provided in the
preceding section; or he may rely upon his mortgage or other security alone,
and foreclose the same at any time within the period of the statute of
limitations, and in that event he shall not be admitted as a creditor, and shall
receive no share in the distribution of the other assets of the estate; but
nothing herein contained shall prohibit the executor or administrator from
redeeming the property mortgaged or pledged, by paying the debt for which
it is held as security, under the direction of the court, if the court shall
adjudged it to be for the best interest of the estate that such redemption shall
be made.
As the foregoing generally speaks of "a creditor holding a claim against the
deceased secured by a mortgage or other collateral security" as above-
highlighted, it may be reasonably concluded that the aforementioned
section covers all secured claims, whether by mortgage or any other form of
collateral, which a creditor may enforce against the estate of the deceased
debtor.
***Jurisprudence breaks down the rule under Section 7, Rule 86 and explains
that the secured creditor has three remedies/options that he may
alternatively adopt for the satisfaction of his indebtedness. In particular, he
may choose to:
***(a) waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim;
(b) foreclose the mortgage judicially and prove the deficiency as an ordinary
claim; and
(c) rely on the mortgage exclusively, or other security and foreclose the same
before it is barred by prescription, without the right to file a claim for any
deficiency.
***It must, however, be emphasized that these remedies are distinct,
independent and mutually exclusive from each other; Thus, the election of
one effectively bars the exercise of the others.
To eliminate any confusion, the Court observes that the operation of Act No.
3135 does not entirely discount the application of Section 7, Rule 86, or vice-
versa. Rather, the two complement each other within their respective spheres
of operation. Thus, having unequivocally opted to exercise the third option of
extra-judicial foreclosure under Section 7, Rule 86, respondent is now
precluded from filing a suit to recover any deficiency amount as earlier
discussed. (See ***)
2. No, the extra-judicial foreclosure is not null and void. As may be gleaned
from the records, the stipulation under the real estate mortgage executed by
Sps. Maglasang which fixed the place of the foreclosure sale at Tacloban City
lacks words of exclusivity which would bar any other acceptable for a wherein
the said sale may be conducted, to wit:
“It is hereby agreed that in case of foreclosure of this mortgage under Act
3135, the auction sale shall be held at the capital of the province if the
property is within the territorial jurisdiction of the province concerned, or shall
be held in the city if the property is within the territorial jurisdiction of the city
concerned; x x x.”
In particular, Section 2 of Act No. 3135 allows the foreclosure sale to be done
within the province where the property to be sold is situated, viz.:
“SEC. 2. Said sale cannot be made legally outside of the province which the
property sold is situated; and in case the place within said province in which
the sale is to be made is subject to stipulation, such sale shall be made in said
place or in the municipal building of the municipality in which the property or
part thereof is situated.”
In this regard, since the auction sale was conducted in Ormoc City, which is
within the territorial jurisdiction of the Province of Leyte, then the Court finds
sufficient compliance with the above-cited requirement.
All told, finding that the extra-judicial foreclosure subject of this case was
properly conducted in accordance with the formalities of Act No. 3135, the
Court upholds the same as a valid exercise of respondent's third option under
Section 7, Rule 86. To reiterate, respondent cannot, however, file any suit to
recover any deficiency amount since it effectively waived its right thereto
when it chose to avail of extra-judicial foreclosure as jurisprudence instructs.
064 Suico v. PNB
G.R. No. 170215, August 28, 2007
TOPIC: Extra-judicial foreclosure: Right to surplus
PONENTE: Chico –Nazario
FACTS:
1. The spouses Suico obtained a loan from PNB secured by a real
estate mortgage on real properties in the name of the spouses. The
problem arose when the spouses were unable to pay their obligation
prompting PNB to extrajudicially foreclose the mortgage over the
subject properties before the City Sherriff of Mandaue City.
2. The spouses thereafter filed a complaint against the PNB declaring
nullity of extrajudicial foreclosure of mortgage. PNB filed with the
Office of the Sheriff for the extrajudicial foreclosure of properties for
the outstanding loan amounting to P1,001.770.38.
Spouses Petitioner contends:
 During the auction, PNB, as the lone bidder, offered a bid in the amount
of P8,5,11.00. However PNB did not pay the sheriff the said amount.
 Since the amount of the bid grossly exceeded the amount of the
obligation. PNB has the legal duty to deliver the excess amount of the
bid after deducting the amount of the outstanding obligation.
Hence the auction should be deemed null and void Respondent PNB
contends in the Motion to dismiss:
 Other obligations of the spouses have already accrued hence the
amount of the auction covered such obligations.
 The rest of the amount was paid for expenses incurred in the case such
as attorney’s fees.
 PNB admitted the non-deliver of the bid price to the sheriff. RTC Ruling:
RTC ruled in favor of the spouses declaring nullity to the auction and ordering
restitution to the spouses. It argued that petitioners had other loan obligation
which had not yet matured on March 19, 1992 but became due by the date
of the auction sale. It does not justify the shortcut taken by PNB and will not
excuse it from paying to the Sheriff who conducted the auction sale the
excess bid in the foreclosure sale. PNB appealed in the CA
CA Ruling:
Reversed and set aside the ruling of the RTC. It argued that spouses expressly
admitted their outstanding obligations by offering to redeem the properties
through letters. All those offers made by the [petitioners] not only contradicted
their very assertion that their obligation is merely that amount appearing on
the petition for foreclosure but are also indicative of the fact that they have
admitted the validity of the extra judicial foreclosure proceedings and in
effect have cured the impugned defect. Hence the case.
ISSUE: WON the Spouses Suico has a right to the surplus of the auction
payment.
HELD: The Supreme Court ruled that PNB should return the surplus of the
auction sale to the spouses
RATIO:
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 suchencumbrancers 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:
(a) first, pay the costs
(b) secondly, pay off the mortgage debt
(c) thirdly, pay the junior encumbrancers, if any in the order of
priority
(d) 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. Perforce, a mortgagee who exercises the power of sale
contained in a mortgage is considered a custodian of the fund and, 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.
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.
065 CHU, ET.AL V. LACQUI & PBComm
G.R. No. 169190 Date February 11, 2010
TOPIC: REAL ESTATE MORTGAGE – Extrajudicial foreclosure: right to possession
after consolidation of ownership PONENTE: Carpio, J.
FACTS:
1. Petitioners (Spouses Castro and Chu) obtained a P3.2M loan from
private respondent Phil. Bank of Communication. To secure the loan,
petitioners executed a deed of real estate mortgage over the
property of petitioner spouses. Petitioners executed an Amendment
to the Deed of Real Estate Mortgage increasing the amount of the
loan to P5M.
2. Since petitioners failed to pay the full amount of the outstanding
loan upon demand, private respondent applied for the extrajudicial
foreclosure of the real estate mortgage. At the foreclosure sale,
private respondent emerged as the highest bidder. After the lapse
of the one-year redemption period, it filed an affidavit of
consolidation to consolidate its ownership and title to the foreclosed
property. A new TCT was issued in the name of private respondent.
3. The private respondent applied for the issuance of a writ of
possession of the foreclosed property. Petitioners filed an opposition.
The trial court granted private respondent’s motion for a declaration
of general default and allowed private respondent to present
evidence ex parte. The trial court denied petitioners’ notice of
appeal. Undeterred, petitioners filed in the Court of Appeals a
petition for certiorari. The appellate court dismissed the petition. It
also denied petitioners’ motion for reconsideration
TC: 8 October 2004 Order granted private respondent’s motion for a
declaration of general default and allowed private respondent to present
evidence ex parte. 6 January 2005 Order denied petitioners’ motion for
reconsideration of the prior order. 24 February 2005 Order denied petitioners’
notice of appeal.
CA: dismissed the petition for certiorari of petitioners since counsel for
petitioners failed to indicate in the petition the updated PTR Number and
petitioners’ right to due process was not violated even if they were not given
a chance to file their opposition (a proceeding for the issuance of a writ of
possession is ex parte in nature)
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 –Yes.
RATIO:
1. 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
pursuant to Section 7 of Act No. 3135, as amended.
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.
2. 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. Petitioners cannot oppose or appeal the court’s order granting
the writ of possession in an ex parte proceeding. The remedy of petitioners is
to have the sale set aside and the writ of possession cancelled in
accordance with Section 8 of Act No. 3135, as amended, to wit:
SEC. 8. The debtor may, in the proceedings in which possession was
requested, but not later than thirty days after the purchaser was given
possession, petition that the sale be set aside and the writ of possession
cancelled, specifying the damages suffered by him, because the mortgage
was not violated or the sale was not made in accordance with the provisions
hereof. x x x
Any question regarding the validity of the extrajudicial foreclosure sale and
the resulting cancellation of the writ may be determined in a subsequent
proceeding as outlined in Section 8 of Act No. 3135, as amended. Such
question should not be raised as a justification for opposing the issuance of a
writ of possession since under Act No. 3135, as amended, the proceeding for
this is ex parte.
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.
066 BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc.
639 SCRA 405 (2011)
TOPIC: Right to Possession – When Held by a Third Party
PONENTE: Carpio, J;
FACTS:
1. CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land in
favor of BPI Family to secure a loan of P6,570,000. CEDEC obtained
from BPI Family additional loans of P2,160,000 and P1,140,000,
respectively, and again mortgaged the same properties.
2. Despite demand, CEDEC defaulted in its mortgage obligations.
3. BPI Family filed with Regional Trial Court of Pasay City a petition for
extrajudicial foreclosure of real estate mortgage over the properties.
After due notice and publication, the sheriff sold the properties at
public auction. BPI Family, as the highest bidder, acquired the
properties for P13,793,705.31.
4. The one-year redemption period expired without CEDEC redeeming
the properties. Thus, the titles to the properties were consolidated in
the name of BPI Family. However, despite several demand letters,
CEDEC refused to vacate the properties and to surrender possession
to BPI Family.
5. BPI Family filed an Ex-Parte Petition for Writ of Possession, the trial
court granted BPI Familyʼs petition
6. On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc.
and Renato C. Tan (respondents) filed a Motion to Hold
Implementation of the Writ of Possession.
7. 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). Respondents argued that they are third persons claiming rights
adverse to CEDEC, the judgment obligor and they cannot be
deprived of possession over the properties.
8. The trial court denied respondents’ motion. Thereafter, the trial court
issued an alias writ of possession which was served upon CEDEC and
all other persons claiming rights under them.
9. However, 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. In an Order
dated 27 January 2003, the trial court granted BPI Familyʼs motion.
10. Before the alias writ could be implemented, respondent Renato C.
Tan filed with the trial court an Affidavit of Third Party Claim on the
properties. Instead of implementing the writ, the sheriff referred the
matter to the trial court for resolution.
11. The trial court denied BPI Familyʼs motion and ordered the sheriff to
suspend the implementation of the alias writ of possession.
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.” The trial court admitted that in issuing the first
writ of possession it failed to take into consideration respondents’
complaint claiming ownership of the property. The trial court 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. The Court of Appeals dismissed BPI Familyʼs petition.
ISSUE: Whether or not private respondents being the vendee of the properties
in question, they are categorized as third persons in possession who are
claiming a right adverse to that of the debtor/mortgagor CEDEC.
HELD: No. Respondents are CEDEC’s successors-in-interest. Therefore,
respondents hold title to and possess the properties as CEDECʼs transferees
and any right they have overthe properties is derived from CEDEC. As
transferees of CEDEC, they merely stepped into CEDEC’s shoes and are
bound to acknowledge and respect the mortgage CEDEC had executed in
favor of BPI Family.
RATIO:
It is thus settled that the buyer in a foreclosure sale becomes the absolute
owner of the property purchased if it is not redeemed during the period of
one year after the registration of the sale. As such, he is entitled to the
possession of the said property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him of a new
transfer certificate of title. The buyer can in fact demand possession of the
land even during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not redeemed.
Possession of the land then becomes an absolute right of the purchaser as
confirmed owner. Upon proper application and proof of title, the issuance of
the writ of possession becomes a ministerial duty of the court.
It is clear that respondents acquired possession over the properties pursuant to
the Deed of Sale which provides that for P15,000,000 CEDEC will “sell, transfer
and convey” to respondents the properties “free from all liens and
encumbrances excepting the mortgage as may be subsisting in favor of the
BPI FAMILY SAVINGS BANK.” Moreover, the Deed of Sale provides that
respondents bind themselves to assume “the payment of the unpaid balance
of the mortgage indebtedness of the VENDOR (CEDEC) amounting to
P7,889,472.48, as of July 31, 1998, in favor of the aforementioned mortgagee
(BPI Family) by the mortgage instruments and does hereby further agree to be
bound by the precise terms and conditions therein contained.”
Respondents cannot assert that their right of possession is adverse to that of
CEDEC when 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.
It is settled that a pending action for annulment of mortgage or foreclosure
sale does not stay the issuance of the writ of possession. The trial court, where
the application for a writ of possession is filed, does not need to look into the
validity of the mortgage or the manner of its foreclosure. The purchaser is
entitled to a writ of possession without prejudice to the outcome of the
pending annulment case. (see case law/doctrine)
CASE LAW/ DOCTRINE:
The general rule is that 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: 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.
067 Nagtalon v. United Coconut Planter’s Bank
G.R. No. 172504 July 31, 2013
TOPIC: Right to Possession
PONENTE: Brion, J.
FACTS:
1. Roman Nagtalon and the petitioner (Spouses Nagtalon) entered into a
credit accommodation agreement (credit agreement) with UCPB. In order
to secure the credit agreement, Spouses Nagtalon, together with the
Spouses Lao, executed deeds of real estate mortgage over several
properties in Kalibo, Aklan.
2. Thereafter, the Spouses Nagtalon failed to abide and comply with the terms
and conditions of the credit agreement and the mortgage.
3. UCPB then filed with the Ex-Officio Provincial Sheriff a verified petition for
extrajudicial foreclosure of the mortgage.
4. The mortgaged properties were consequently foreclosed and sold at public
auction for the sum of P3,215,880.30. UCPB emerged as the sole and highest
bidder.
5. After the issuance of the sheriff’s certificate of sale, UCPB caused the entry of
the sale in the records of the Registry of Deeds of Kalibo, Aklan and its
annotation on the transfer certificates of titles.
6. With the lapse of the 1 year redemption period and the petitioner’s failure to
exercise her right to redeem the foreclosed properties, UCPB consolidated
the ownership over the properties, resulting in the cancellation of the titles in
the name of the petitioner and the issuance of TCTs in the name of UCPB.
7. UCPB filed an ex parte petition for the issuance of a writ of possession with
the RTC, to which pet. opposed alleging the pendency of a Civil Case for
declaration of nullity of the foreclosure and the sale.
8. RTC: Ordered the holding in abeyance of the issuance of the writ of
possession.
CA: Reversed RTC ruling. It ruled that equitable and peculiar circumstances
must first be shown to exist before the issuance of a writ of possession may be
deferred.
ISSUE: Whether or not the pendency of a civil case challenging the validity of
the credit agreement, the promissory notes and the mortgage can bar the
issuance of a writ of possession after the foreclosure and sale of the
mortgaged properties; and the lapse of the 1 year redemption period.
HELD: No, the issuance of a writ of possession to a purchaser in a public
auction is a ministerial function of the court, which cannot be enjoined or
restrained, even by the filing of a civil case for the declaration of nullity of the
foreclosure and consequent auction sale.
RATIO:
1. Once title to the property has been consolidated in the buyer’s name upon
failure of the mortgagor to redeem the property within the one-year
redemption period, the writ of possession becomes a matter of right
belonging to the buyer. Consequently, the buyer can demand possession of
the property at anytime. Its right to possession has then ripened into the right
of a confirmed absolute owner and the issuance of the writ becomes a
ministerial function that does not admit of the exercise of the court’s
discretion. The court, acting on an application for its issuance, should issue
the writ as a matter of course and without any delay.
2. In Spouses Sagun v. PBC and CA, the Court laid down the established rule on
the issuance of a writ of possession, pursuant to Act 3135, as amended. The
Court said that a writ of possession may be issued 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.
3. During the one-year redemption period, as contemplated by Section 7 of
the above-mentioned law, a purchaser may apply for a writ of possession by
filing an ex parte motion under oath in the registration or cadastral
proceedings if the property is registered, or in special proceedings in case
the property is registered under the Mortgage Law. In this case, a bond is
required before the court may issue a writ of possession.
Upon the lapse of the redemption period, a writ of possession may be issued in
favor of the purchaser in a foreclosure sale, also upon a proper ex parte
motion. This time, no bond is necessary for its issuance; the mortgagor is now
considered to have lost any interest over the foreclosed property. The
purchaser then becomes the owner of the foreclosed property, and he can
demand possession at any time following the consolidation of ownership of
the property and the issuance of the corresponding TCT in his/her name. It is at
this point that the right of possession of the purchaser can be considered to
have ripened into the absolute right of a confirmed owner. The issuance of
 the writ, upon proper application, is a ministerial function that effectively
forbids the exercise by the court of any discretion.
5. We have ruled in the past that any question regarding the validity of the
mortgage or its foreclosure is not a legal ground for refusing the issuance of a
writ of execution/writ of possession.
6. Exceptions to the rule that issuance of a writ of possession is a ministerial
function: (a) gross inadequacy of pruchase price, (b) 3 rd party claiming right
adverse to debtor/mortgagor, and (c) failure to pay the surplus proceeds of
the sale to mortgagor. The petitioner’s case is not analogous to any of the
exceptions.
Petitioner was also accorded due process. The law does not require that the
writ of possession be granted only after the issues raised in a civil case on
nullity of the loan and mortgage are resolved and decided with finality. To do
so would completely defeat the purpose of an ex parte petition under
Sections 6 and 7 of Act 3135 that, by its nature, should be summary; we stress
that it would render nugatory the right given to a purchaser to acquire
possession of the property after the expiration of the redemption period.
CASE LAW/ DOCTRINE:
Upon the lapse of the redemption period, a writ of possession may be issued in
favor of the purchaser in a foreclosure sale, also upon a proper ex parte
motion. The issuance of the writ, upon proper application, is a ministerial
function that effectively forbids the exercise by the court of any discretion.
068 DIEGO VS FERNANDO
G.R. No. L-15128 Date Aug 25 1960
TOPIC: ANTICHRESIS (D. Foreclosure of antichresis)
PONENTE: Reyes, J.
FACTS:
1. Segundo Fernando executed a deed of mortgage in favor of Cecilio Diego
over two parcels of land registered in his name, to secure a P2,000 loan,
without interest, payable in four years from the date of the mortgage.
Possession of the mortgaged properties were turned over to the mortgagee.
2. Fernando failed to pay the loan after four years, the mortgagee Diego made
several demands but to no avail. Hence this action for foreclosure of
mortgage.
3. Fernando contends that the true transaction was an antichresis and not of
mortgage; and that as plaintiff had allegedly received a total of 120 cavans
of palay from the properties given as security, which, at the rate of P10 a
cavan, represented a value of P5,200, his debt had already been paid, with
plaintiff still owing him a refund of some P2,720.00.
4. RTC ruled that it was a mortgage. The fact that possession of the mortgaged
properties were turned over to the mortgagee did not alter the transaction;
that the parties must have intended that the mortgagee would collect the
fruits of the mortgaged properties as interest on his loan, and that the
evidence showed that Diego had already received 55 cavans from the
properties during the period of his possession.
Certified to the SC, because the issue is question of law.
ISSUE: WON the transaction is an antichresis or a mortgage.
HELD: A mortgage. it is not an essential requisite of a mortgage that possession
of the mortgaged premises be retained by the mortgagor
SC: modified TC. that the amount of appellee's principal recovery is reduced
to P1,505, with an obligation on the part of appellee to render an accounting
of all the fruits received by him.
RATIO:
1. To be antichresis, it must be expressly agreed between creditor and debtor
that the former, having been given possession of the properties given as
security, is to apply their fruits to the payment of the interest, if owing, and
thereafter to the principal of his credit so that if a contract of loan with security
does not stipulate the payment of interest but provides for the delivery to the
creditor by the debtor of the property given as security, in order that the latter
may gather its fruits, without stating that said fruits are to be applied to the
payment of interest, if any, and afterwards that of the principal, the contract is
a mortgage and not antichresis. The court below, therefore, did not err in
holding that the contract Exhibit "A" is a true mortgage and not an antichresis.
The above conclusion does not mean, however, that appellee, having
received the fruits of the properties mortgaged, will be allowed to appropriate
them for himself and not be required to account for them to the appellant.
The true position of appellee herein under his contract with appellant is a
"mortgage in possession" as that term is understood in American equity
jurisprudence; that is, "one who has lawfully acquired actual or constructive
possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing
his security upon such property or making its income help to pay his debt". As
such mortgagee in possession, his rights and obligations are, as pointed out by
this Court in Macapinlac vs. Gutierrez Repide, similar to those of an antichretic
creditor.
In the present case, the parties having agreed that the loan was to be without
interest, and the appellant not having expressly waived his right to the fruits of
the properties mortgaged during the time they were in appellee's possession,
the latter, like an antichretic creditor, must account for the value of the fruits
received by him, and deduct it from the loan obtained by appellant.
CASE LAW/ DOCTRINE:
Antichresis: possession of property as security, its fruits as interest
Mortgage: possession not necessary, fruits remains to the owner of the
properties, not used as interest.