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4. DBP vs SPOUSES JESUS and ANACORITA DOYON G.R. No.

167238 FACTS: In the early 1990s, respondent spouses obtained several loans amounting to P10 million from petitioner DBP. As security for the loans, respondents mortgaged their real estate properties as well as the motor vehicles of JD Bus Lines. Due to their inability to fully pay their obligations upon maturity, respondents requested petitioner to restructure their past due loans. Petitioner agreed. Hence, respondents signed three promissory notes in 1994. Nonetheless, respondents still failed to pay the quarterly installments on the promissory notes. Thus, petitioner demanded the payment of the total value of their loans from respondents. Respondents, however, ignored petitioner and adamantly refused to pay their loans. Consequently, petitioner filed an application for extrajudicial foreclosure of real estate mortgages in the RTC of Ormoc City in 1995. To forestall the foreclosure proceedings, respondents immediately filed an action for their nullification claiming that they had already paid the principal amount of their loans (or P10 million) to petitioner. For three years, it was not acted upon by the RTC. In 1998, petitioner withdrew the application for extrajudicial foreclosure and thereafter moved for the dismissal of case filed by respondent spouses which the RTC granted. Weeks later, petitioner demanded from respondents the payment of their outstanding obligations which had by then ballooned to more than P20M. Again, respondents ignored petitioner. Petitioner filed an application for extrajudicial foreclosure of respondents real and chattel mortgages with the DBP special sheriff in Makati and subsequently took constructive possession of the foreclosed properties. It posted guards at the perimeter of respondents Cabulihan property where the foreclosed motor vehicles of JD Bus Lines were parked. Subsequently, the DBP special sheriff issued notices of sale at public auction of the foreclosed properties. Meanwhile, respondents filed a complaint for damages against petitioner and the DBP special sheriff in the RTC of Ormoc City. According to respondents, by withdrawing the application for extrajudicial foreclosure and moving for the dismissal of the case they filed, petitioner led them to believe that it would no longer seek the satisfaction of its claims. Petitioner therefore acted contrary to Article 19 of the Civil Code when it foreclosed on the real and chattel mortgages March 25, 2009

anew. They also claimed that the provision in the mortgage contracts allowing petitioner as mortgagee to take constructive possession of the mortgaged properties upon respondents default was void. The provision allegedly constituted a pactum commissorium since it permitted petitioner to appropriate the mortgaged properties. Petitioner, in its answer, pointed out that despite the restructuring, respondents refused to pay the amortizations on the promissory notes. Moreover, the filing of civil case and the delay in its resolution prevented petitioner from collecting on the said notes from respondents. It withdrew the application in the RTC and moved for the dismissal of civil case only for the purpose of availing of a more efficient legal remedy, that is, foreclosure through a special sheriff, as authorized by its charter. The RTC found that, by withdrawing its application for extrajudicial foreclosure and moving for the dismissal of civil case, petitioner led respondents to believe that their loans had been extinguished. Thus, petitioner acted in bad faith when it foreclosed on the real and chattel mortgages anew. The CA affirmed the RTC decision with modification of the liability for damages. Because the DBP special sheriff merely performed his ministerial duty, petitioner alone was liable. Petitioner moved for reconsideration but it was denied. Hence, this petition. ISSUE: WO petitioner acted in bad faith when it foreclosed on respondents real and chattel mortgages anew. HELD: NO. Because respondents loans were past due, petitioner had the right to satisfy its credit by foreclosing on the mortgages. Since respondents neither assailed the due execution of the promissory notes nor presented proof of payment thereof, their obligation remained outstanding. Upon default, by prior mutual agreement, petitioner had the right to foreclose on the real and chattel mortgages securing their loans. The 1994 promissory notes uniformly stated that failure to pay an installment (or interest) on the due date was an event of default. Respondents were therefore in default when they failed to pay the quarterly amortizations on the designated due dates. When the principal obligation becomes due and the debtor fails to perform his obligation, the creditor may foreclose on the mortgage for the purpose of alienating the (mortgaged) property to satisfy his credit.

The RTC of Ormoc City sat on civil case for three long years. This inordinate delay prejudiced petitioner. Inasmuch as petitioner was in the business of lending out money it borrowed from the public, sound banking practice called for the exercise of a more efficient legal remedy against a defaulting debtor like respondent. Thus, petitioner could not be faulted for resorting to foreclosure through a special sheriff. Such procedure was, after all, the more efficient method of enforcing petitioners rights as mortgagee under its charter. Moreover, the order of the RTC merely stated that the withdrawal of the application for extrajudicial foreclosure in the RTC rendered the civil case moot and academic. Nothing in the said order stated, or even hinted, that respondents obligation to petitioner had in fact been extinguished. Thus, there was nothing on the part of petitioner even remotely showing that it led respondents to believe that it had waived its claims. The fact that a demand for payment was made negated bad faith on the part of petitioner. Despite giving respondents the opportunity to pay their long overdue obligations and avoid foreclosure, respondents still refused to pay. Since respondents did not have a cause of action against petitioner, the RTC and CA erred in granting damages to them. A stipulation allowing the mortgagee to take actual or constructive possession of a mortgaged property upon foreclosure is valid. The real estate and chattel mortgage contracts uniformly provided that petitioner could take possession of the foreclosed properties upon the failure of respondents to pay even one amortization. Thus, respondents refusal to pay their obligations gave rise to petitioners right to take constructive possession of the foreclosed motor vehicles. WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the CA in affirming the RTC of Ormoc City are SET ASIDE. The case is DISMISSED for lack of cause of action.

G.R. No. L-22331 June 6, 1967 IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE RIGHTS TO A LOT. MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees. RODOLFO LANUZA, vendor, vs. MARTIN DE LEON, intervenor-appellant. REGALA, J.: FACTS OF THE CASE Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the house, together with the leasehold rights to the lot, a television set and a refrigerator in consideration of the sum of P3,000. When the original period of redemption expired, the parties extended it to July 12, 1961 by an annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the deed, this time signed her name below the annotation. It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same house in favor of Martin de Leon to secure the payment of P2,720 within one year. This mortgage was executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344. As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of ownership of the house on the ground that the period of redemption expired on July 12, 1961 without the vendees exercising their right of

repurchase. The petition for consolidation of ownership was filed on October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriffs sale. De Leon immediately took possession of the house, secured a discharge of the mortgage on the house in favor of a rural bank by paying P2,000 and, on October 29, intervened in court and asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the unrecorded pacto de retro sale could not affect his rights as a third party. The CFI of Manila confirmed the ownership of Reyes and Navarro in the house and the leasehold right to the lot to which Martin De Leon appealed immediately to the Supreme Court. ISSUES (1) WON the sale in question is not only voidable but void ab initio for having been made by Lanuza without the consent of his wife. (2) WON the sale, being unrecorded, cannot affect third parties. (3) WON the pacto de retro sale is in reality an equitable mortgage and therefore cannot be the basis of a petition for consolidation of ownership. RULING OF THE SUPREME COURT 1. As to whether the sale is void ab initio We are in accord with the trial court's ruling that a conveyance of real property of the conjugal partnership made by the husband without the consent of his wife is merely voidable. This is clear from article 173 of the Civil Code which gives the wife ten years within which to bring an action for annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her conformity to the extension of the period of redemption by signing the annotation on the margin of the deed. We may add that actions for the annulment of voidable contracts can be brought only by those who are bound under it, either principally or subsidiarily (art. 1397), so that if there was anyone who could have questioned the sale on this ground it was Lanuza's wife alone. 2. As to sale being unrecorded Held: We also agree with the lower court that between an unrecorded sale of a prior date and a recorded mortgage of a later date the former is preferred to the latter for the reason that if the original owner had parted with his ownership of the thing sold then he no longer had the ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the better right of third parties.2 Nor would it avail the mortgagee any to assert that he is in actual possession of the property for the execution of the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the vendee. 3. As to the pacto de retro sale being in reality an equitable mortgage But there is one aspect of this case which leads us to a different conclusion. It is a point which neither the parties nor the trial court appear to have sufficiently considered. We refer to the nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an equitable mortgage. De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold and, second, when the three-month period of redemption expired the parties extended it. These are circumstances which indeed indicate an equitable mortgage.4 But their relevance emerges only when they are seen in the perspective of other circumstances which indubitably show that what was intended was a mortgage and not a sale.These circumstances are: 1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the decision of the trial court, the fact has not been mentioned that for the price of P3,000, the supposed vendors "sold" not only their house, which they described as new and as being made of strong materials and which alone had an assessed value of P4,000, but also their leasehold right television set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for consolidation of ownership is limited to the house and the leasehold right, while the stipulation of facts of the parties merely referred to the object of the sale as "the property in question." The failure to highlight this point, that is, the gross inadequacy of the price paid, accounts for the error in determining the true agreement of the parties to the deed. 2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not really transfer their ownership of the properties in question to Reyes and Navarro. What was agreed was that ownership of the things supposedly sold would vest in the vendees only if the vendors failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount rather than on the redemption of the things supposedly sold. This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires ownership of the thing sold immediately upon execution of the sale, subject only to the vendor's right of redemption.5 Indeed, what the parties established by this stipulation is an odious pactum commissorium which enables the mortgageE to acquire ownership of the mortgaged properties without need of foreclosure proceedings. Needless to say, such a stipulation is a nullity, being contrary to the provisions of article 2088 of the Civil Code.6 Its insertion in the contract of the parties is an avowal of an intention to mortgage rather than to sell.7 3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in the consideration of this case is the fact that the period of redemption expired on July 12, 1961 and yet this action was not brought until October 19, 1962 and only after De Leon had asked on October 5, 1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas remained in possession of the properties they were supposed to have sold and they remained in possession even long after they had lost their right of redemption. Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage. This conclusion is of far-reaching consequence because it means not only that this action for consolidation of ownership is improper, as De Leon claims, but, what is more that between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is determined by the priority of registration of the mortgages,8 following the maxim "Prior tempore potior jure" (He who is first in time is preferred in right.)9 Under article 2125 of the Civil Code, the equitable mortgage, while valid between Reyes and Navarro, on the one hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the registered mortgage of De Leon. Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is dismissed. Costs against Reyes and Navarro. Concepcion, C.J., Dizon, Bengzon, J.P., Sanchez and Castro, JJ., concur. Reyes, J.B.L., and Zaldivar, JJ., reserved their votes. Makalintal, J., concurs in the result.

29. BPI FAMILY SAVINGS BANK, INC vs. SPOUSES JANUARIO ANTONIO AND NATIVIDAD VELOSO G.R. No. 141974. August 9, 2004 FACTS:

In 1983, respondent spouses obtained a loan of P1.3M from petitioners predecessor-ininterest Family Bank and Trust Company. To secure payment of the loan, respondent spouses executed in favor of the bank a deed of mortgage over three parcels of land, with improvements, registered in their names with the Registry of Deeds of Quezon City. Thereafter, respondents, for value received, executed a promissory note for P1.3M. Subsequently, however, respondents defaulted in the monthly installments due on their loan. When efforts to update the account failed, Family Bank instituted extra-judicial foreclosure proceedings on the respondents mortgaged properties. The properties were sold at public auction with Family Bank as the highest bidder for P2.78M. Family Bank assigned all its rights and interests in the foreclosed properties to petitioner BPI Family Bank, Inc. (BPI). The sheriffs certificate of sale was registered with the Registry of Deeds of Quezon City. Respondents wrote BPI offering to redeem the foreclosed properties for P1.87M which was rejected by petitioner. This prompted the respondents to file in the RTC of QC a complaint for annulment of foreclosure, with consignation and prayer for damages. The trial court rendered a decision declaring the validity of the extra-judicial foreclosure of the mortgaged properties of respondents but allowed the redemption of the same at a redemption price of P2.14M. BPI elevated the matter to the CA which affirmed the trial courts decision, with modification declaring P2.67M as the redemption price due the appellant. Hence, this petition. The fact is that, at the time of the foreclosure sale, respondent spouses Veloso had already defaulted on their loan to petitioners predecessor-in-interest family bank. In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose on the mortgage and to have the property seized and sold, and to apply the proceeds to the obligation. Foreclosure is proper if the debtor is in default in the payment of his obligation. And in this case, the validity of the extra-judicial foreclosure was confirmed by both the RTC and CA. SC found no reason to question it. ISSUE: WO respondent spouses comply with all the requirements for the redemption of the subject properties HELD: NO. The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an

actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase. Consequently, in this case, the offer by respondents to redeem the foreclosed properties for P1.87M and the subsequent consignation in court of P1.5M, while made within the period of redemption, was ineffective since the amount offered and actually consigned did not include the interest and was also way below the P2.78M paid by the highest bidder/purchaser of the properties during the auction sale. In order to effect a redemption, the judgment debtor must pay the purchaser the redemption price composed of the following: (1) the price which the purchaser paid for the property; (2) interest of 1% per month on the purchase price; (3) the amount of any assessments or taxes which the purchaser may have paid on the property after the purchase; and (4) interest of 1% per month on such assessments and taxes. The vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale. Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption within the period allowed by law is not a matter of intent but a question of payment or valid tender of the full redemption price within said period. WHEREFORE, the appealed decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The complaint filed by respondents, the spouses Veloso, is hereby dismissed.