[G.R. No. 103576.

August 22, 1996]

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS
BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN CITY, respondents.
DECISION
VITUG, J.:
Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations
yet to be contracted or incurred? This question is the core issue in the instant petition for review on certiorari.
Petitioner Chua Pac, the president and general manager of co-petitioner "Acme Shoe, Rubber & Plastic Corporation," executed on
27 June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the
Philippines. The mortgage stood by way of security for petitioner's corporate loan of three million pesos (P3,000,000.00). A provision
in the chattel mortgage agreement was to this effect "(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation or obligations abovestated according to the terms thereof, then this mortgage shall be null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension
thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of
exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said
promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the
same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof. This mortgage
shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever
kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage."[1]
In due time, the loan of P3,000,000.00 was paid by petitioner corporation. Subsequently, in 1981, it obtained from respondent
bank additional financial accommodations totalling P2,700,000.00.[2] These borrowings were on due date also fully paid.
On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of one million pesos (P1,000,000.00)
covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.
[3]
Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage, hereinbefore cited, with the Sheriff of
Caloocan City, prompting petitioner corporation to forthwith file an action for injunction, with damages and a prayer for a writ of
preliminary injunction, before the Regional Trial Court of Caloocan City (Civil Case No. C-12081). Ultimately, the court dismissed the
complaint and ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations, aforequoted, of
the chattel mortgage.
Petitioner corporation appealed to the Court of Appeals[4] which, on 14 August 1991, affirmed, "in all respects," the decision of the
court a quo. The motion for reconsideration was denied on 24 January 1992.
The instant petition interposed by petitioner corporation was initially denied on 04 March 1992 by this Court for having been
insufficient in form and substance. Private respondent filed a motion to dismiss the petition while petitioner corporation filed a
compliance and an opposition to private respondent's motion to dismiss. The Court denied petitioner's first motion for reconsideration
but granted a second motion for reconsideration, thereby reinstating the petition and requiring private respondent to comment thereon.[5]
Except in criminal cases where the penalty of reclusion perpetua or death is imposed[6] which the Court so reviews as a matter of
course, an appeal from judgments of lower courts is not a matter of right but of sound judicial discretion. The circulars of the Court
prescribing technical and other procedural requirements are meant to weed out unmeritorious petitions that can unnecessarily clog the
docket and needlessly consume the time of the Court. These technical and procedural rules, however, are intended to help secure, not
suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus be allowed to attain the prime objective for,
after all, the dispensation of justice is the core reason for the existence of courts. In this instance, once again, the Court is constrained
to relax the rules in order to give way to and uphold the paramount and overriding interest of justice.
Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful
performance of the obligation by the principal debtor is secured by the personal commitment of another (the guarantor or surety). In

contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding
deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real
property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an
immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his
credit - upon the essential condition that if the principal obligation becomes due and the debtor defaults, then the property encumbered
can be alienated for the payment of the obligation, [7] but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character [8] of the agreement. As the law so puts it, once the obligation is complied with,
then the contract of security becomes, ipso facto, null and void.[9]
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future
debts are accurately described,[10] a chattel mortgage, however, can only cover obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the
old contract conformably with the form prescribed by the Chattel Mortgage Law. [11] Refusal on the part of the borrower to execute the
agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing
agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law
itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an affidavit is not
appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in good
faith[12]), the fact, however, that the statute has provided that the parties to the contract must execute an oath that "x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose,
and that the same is a just and valid obligation, and one not entered into for the purpose of fraud."[13]
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. In the chattel
mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the
chattel mortgage void or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al.,[14] the Court said "x x x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are
made and not from the date of the mortgage."[15]
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to exist coincidentally
with the full payment of the P3,000,000.00 loan, [16] there no longer was any chattel mortgage that could cover the new loans that were
concluded thereafter.
We find no merit in petitioner corporation's other prayer that the case should be remanded to the trial court for a specific finding on
the amount of damages it has sustained "as a result of the unlawful action taken by respondent bank against it." [17] This prayer is not
reflected in its complaint which has merely asked for the amount of P3,000,000.00 by way of moral damages.[18] In LBC Express, Inc.
vs. Court of Appeals,[19]we have said:
"Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only
in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental
anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life
- all of which cannot be suffered by respondent bank as an artificial person."[20]
While Chua Pac is included in the case, the complaint, however, clearly states that he has merely been so named as a party
in representationof petitioner corporation.
Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It instead turned out to be,
however, a source of disappointment for this Court to read in petitioner's reply to private respondent's comment on the petition his socalled "One Final Word;" viz:

"In simply quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals should be required to justify its
decision which completely disregarded the basic laws on obligations and contracts, as well as the clear provisions of the Chattel
Mortgage Law and well-settled jurisprudence of this Honorable Court; that in the event that its explanation is wholly unacceptable, this
Honorable Court should impose appropriate sanctions on the erring justices. This is one positive step in ridding our courts of law of
incompetent and dishonest magistrates especially members of a superior court of appellate jurisdiction."[21] (Italics supplied.)
The statement is not called for. The Court invites counsel's attention to the admonition in Guerrero vs. Villamor;[22] thus:
"(L)awyers x x x should bear in mind their basic duty `to observe and maintain the respect due to the courts of justice and judicial
officers and x x x (to) insist on similar conduct by others.' This respectful attitude towards the court is to be observed, `not for the sake
of the temporary incumbent of the judicial office, but for the maintenance of its supreme importance.' And it is `through a scrupulous
preference for respectful language that a lawyer best demonstrates his observance of the respect due to the courts and judicial officers
x x x.'"[23]
The virtues of humility and of respect and concern for others must still live on even in an age of materialism.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without prejudice to the
appropriate legal recourse by private respondent as may still be warranted as an unsecured creditor. No costs.
Atty. Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the courts.
SO ORDERED.

G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,
vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.
Loreto C. Baduan for petitioner.
Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.
Jose V. Mancella for respondent.

DE CASTRO, J.:
Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate Court) promulgated on August 27,
1981 in CA-G.R. No. SP-12731, setting aside certain Orders later specified herein, of Judge Ricardo J. Francisco, as Presiding Judge
of the Court of First instance of Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of
the said appellate court, denying petitioner's motion for reconsideration.
It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and Finance Corporation, the private
respondent Wearever Textile Mills, Inc., discounted and assigned several receivables with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables assigned, private respondent executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.
Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it. However, the
Deputy Sheriff assigned to implement the foreclosure failed to gain entry into private respondent's premises and was not able to effect
the seizure of the aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First
Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement of which was however
subsequently restrained upon private respondent's filing of a motion for reconsideration. After several incidents, the lower court finally
issued on February 11, 1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to break open
the premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private respondent's filing of a further
motion for reconsideration.
On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent and removed the main drive
motor of the subject machinery.
The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private respondent, set aside the Orders of
the lower court and ordered the return of the drive motor seized by the sheriff pursuant to said Orders, after ruling that the machinery in
suit cannot be the subject of replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new
Civil Code, the same being attached to the ground by means of bolts and the only way to remove it from respondent's plant would be to
drill out or destroy the concrete floor, the reason why all that the sheriff could do to enfore the writ was to take the main drive motor of
said machinery. The appellate court rejected petitioner's argument that private respondent is estopped from claiming that the machine is
real property by constituting a chattel mortgage thereon.
A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has brought the case to this Court
for review by writ of certiorari. It is contended by private respondent, however, that the instant petition was rendered moot and academic
by petitioner's act of returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.
The contention of private respondent is without merit. When petitioner returned the subject motor drive, it made itself unequivocably
clear that said action was without prejudice to a motion for reconsideration of the Court of Appeals decision, as shown by the receipt
duly signed by respondent's representative. 1 Considering that petitioner has reserved its right to question the propriety of the Court of
Appeals' decision, the contention of private respondent that this petition has been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is real or personal property from
the point of view of the parties, with petitioner arguing that it is a personality, while the respondent claiming the contrary, and was
sustained by the appellate court, which accordingly held that the chattel mortgage constituted thereon is null and void, as contended by
said respondent.
A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking through Justice J.B.L.
Reyes, ruled:
Although there is no specific statement referring to the subject house as personal property, yet by ceding, selling or
transferring a property by way of chattel mortgage defendants-appellants could only have meant to convey the house
as chattel, or at least, intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented lot to which defendantsappellants merely had a temporary right as lessee, and although this can not in itself alone determine the status of
the property, it does so when combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza
Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the validity of the
chattel mortgage, it is the defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of
the chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.
Examining the records of the instant case, We find no logical justification to exclude the rule out, as the appellate court did, the present
case from the application of the abovequoted pronouncement. If a house of strong materials, like what was involved in the above
Tumalad case, may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.
In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays stress on the fact that the house
involved therein was built on a land that did not belong to the owner of such house. But the law makes no distinction with respect to the
ownership of the land on which the house is built and We should not lay down distinctions not contemplated by law.
It must be pointed out that the characterization of the subject machinery as chattel by the private respondent is indicative of intention
and impresses upon the property the character determined by the parties. As stated inStandard Oil Co. of New York v. Jaramillo, 44
Phil. 630, it is undeniable that the parties to a contract may by agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.
Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in
suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and
not denied by the respondent, the status of the subject machinery as movable or immovable was never placed in issue before the lower
court and the Court of Appeals except in a supplemental memorandum in support of the petition filed in the appellate court. Moreover,
even granting that the charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for rendering
said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the same. On the other
hand, as pointed out by petitioner and again not refuted by respondent, the latter has indubitably benefited from said contract. Equity
dictates that one should not benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,
From what has been said above, the error of the appellate court in ruling that the questioned machinery is real, not personal property,
becomes very apparent. Moreover, the case of Machinery and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said
court is not applicable to the case at bar, the nature of the machinery and equipment involved therein as real properties never having
been disputed nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears more nearly
perfect parity with the instant case to be the more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set aside, and the Orders of
the lower court are hereby reinstated, with costs against the private respondent.
SO ORDERED.

G.R. No. 92989 July 8, 1991

PERFECTO DY, JR. petitioner,
vs.
COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES, respondents.
Zosa & Quijano Law Offices for petitioner.
Expedito P. Bugarin for respondent GELAC Trading, Inc.

GUTIERREZ, JR., J.:p

This is a petition for review on certiorari seeking the reversal of the March 23, 1990 decision of the Court of Appeals which ruled that
the petitioner's purchase of a farm tractor was not validly consummated and ordered a complaint for its recovery dismissed.
The facts as established by the records are as follows:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through
financing extended by Libra Finance and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for
the loan.
The petitioner wanted to buy the tractor from his brother so on August 20, 1979, he wrote a letter to Libra requesting that he be allowed
to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.
In a letter dated August 27, 1979, Libra thru its manager, Cipriano Ares approved the petitioner's request.
Thus, on September 4, 1979, Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question.
At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo Dy's failure to pay the amortizations.
Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be effected because Wilfredo
Dy had obtained financing not only for said tractor but also for a truck and Libra insisted on full payment for both.
The petitioner was able to convince his sister, Carol Dy-Seno, to purchase the truck so that full payment could be made for both. On
November 22, 1979, a PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of
Wilfredo Dy with the financing firm. Payment having been effected through an out-of-town check, Libra insisted that it be cleared first
before Libra could release the chattels in question.
Meanwhile, Civil Case No. R-16646 entitled "Gelac Trading, Inc. v. Wilfredo Dy", a collection case to recover the sum of P12,269.80
was pending in another court in Cebu.
On the strength of an alias writ of execution issued on December 27, 1979, the provincial sheriff was able to seize and levy on the
tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where Gelac Trading
was the lone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.
It was only when the check was cleared on January 17, 1980 that the petitioner learned about GELAC having already taken custody of
the subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC Trading with the Regional
Trial Court of Cebu City.
On April 8, 1988, the RTC rendered judgment in favor of the petitioner. The dispositive portion of the decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, pronouncing that the
plaintiff is the owner of the tractor, subject matter of this case, and directing the defendants Gelac Trading
Corporation and Antonio Gonzales to return the same to the plaintiff herein; directing the defendants jointly and

severally to pay to the plaintiff the amount of P1,541.00 as expenses for hiring a tractor; P50,000 for moral damages;
P50,000 for exemplary damages; and to pay the cost. (Rollo, pp. 35-36)
On appeal, the Court of Appeals reversed the decision of the RTC and dismissed the complaint with costs against the petitioner. The
Court of Appeals held that the tractor in question still belonged to Wilfredo Dy when it was seized and levied by the sheriff by virtue of
the alias writ of execution issued in Civil Case No. R-16646.
The petitioner now comes to the Court raising the following questions:
A.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN
NOT AFFIRMING THE TRIAL COURT'S FINDING THAT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY
PASSED TO HEREIN PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO
AN ALIAS WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING
INC.
B.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS EMBARKED ON MERE CONJECTURE AND
SURMISE IN HOLDING THAT THE SALE OF THE AFORESAID TRACTOR TO PETITIONER WAS DONE IN
FRAUD OF WILFREDO DY'S CREDITORS, THERE BEING NO EVIDENCE OF SUCH FRAUD AS FOUND BY THE
TRIAL COURT.
C.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS MISAPPREHENDED THE FACTS AND ERRED IN
NOT SUSTAINING THE FINDING OF THE TRIAL COURT THAT THE SALE OF THE TRACTOR BY RESPONDENT
GELAC TRADING TO ITS CO-RESPONDENT ANTONIO V. GONZALES ON AUGUST 2, 1980 AT WHICH TIME
BOTH RESPONDENTS ALREADY KNEW OF THE FILING OF THE INSTANT CASE WAS VIOLATIVE OF THE
HUMAN RELATIONS PROVISIONS OF THE CIVIL CODE AND RENDERED THEM LIABLE FOR THE MORAL AND
EXEMPLARY DAMAGES SLAPPED AGAINST THEM BY THE TRIAL COURT. (Rollo, p. 13)
The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since the
consummation of the sale depended upon the clearance and encashment of the check which was issued in payment of the subject
tractor.
In the case of Servicewide Specialists Inc. v. Intermediate Appellate Court. (174 SCRA 80 [1989]), we stated that:
xxx xxx xxx
The rule is settled that the chattel mortgagor continues to be the owner of the property, and therefore, has the power
to alienate the same; however, he is obliged under pain of penal liability, to secure the written consent of the
mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-B Part 1, p. 525).
Thus, the instruments of mortgage are binding, while they subsist, not only upon the parties executing them but also
upon those who later, by purchase or otherwise, acquire the properties referred to therein.
The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of a third person,
therefore, affects not the validity of the sale but only the penal liability of the mortgagor under the Revised Penal
Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.
xxx xxx xxx
The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. He had the
right to sell it although he was under the obligation to secure the written consent of the mortgagee or he lays himself open to criminal
prosecution under the provision of Article 319 par. 2 of the Revised Penal Code. And even if no consent was obtained from the
mortgagee, the validity of the sale would still not be affected.

Thus, we see no reason why Wilfredo Dy, as the chattel mortgagor can not sell the subject tractor. There is no dispute that the consent
of Libra Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the petitioner to purchase the tractor
and assume the mortgage debt of his brother. The sale between the brothers was therefore valid and binding as between them and to
the mortgagee, as well.
Article 1496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any of the ways specified in Articles 1497 to 1501 or in any other manner signing an agreement that the possession is
transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in the case at bar.
Article 1498 states:
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly
be inferred.
xxx xxx xxx
Article 1499 provides:
Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the
contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if
the latter already had it in his possession for any other reason. (1463a)
In the instant case, actual delivery of the subject tractor could not be made. However, there was constructive delivery already upon the
execution of the public instrument pursuant to Article 1498 and upon the consent or agreement of the parties when the thing sold
cannot be immediately transferred to the possession of the vendee. (Art. 1499)
The respondent court avers that the vendor must first have control and possession of the thing before he could transfer ownership by
constructive delivery. Here, it was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay the
amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the
performance of the conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to enable him to have the property sold.
While it is true that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not divested
from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee can not
become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property continues
to belong to the mortgagor. The only remedy given to the mortgagee is to have said property sold at public auction and the proceeds of
the sale applied to the payment of the obligation secured by the mortgagee. (See Martinez v. PNB, 93 Phil. 765, 767 [1953]) There is no
showing that Libra Finance has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra
gave its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner.
Where a third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. (See Industrial
Finance Corp. v. Apostol, 177 SCRA 521 [1989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the
case at bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libra's
consent to the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra undeniably
agreed to.
The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the
petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra
and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment
determined the full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the
consummation of the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the
petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the check is untenable.
The sale of the subject tractor was consummated upon the execution of the public instrument on September 4, 1979. At this time
constructive delivery was already effected. Hence, the subject tractor was no longer owned by Wilfredo Dy when it was levied upon by
the sheriff in December, 1979. Well settled is the rule that only properties unquestionably owned by the judgment debtor and which are
not exempt by law from execution should be levied upon or sought to be levied upon. For the power of the court in the execution of its

judgment extends only over properties belonging to the judgment debtor. (Consolidated Bank and Trust Corp. v. Court of Appeals, G.R.
No. 78771, January 23, 1991).
The respondents further claim that at that time the sheriff levied on the tractor and took legal custody thereof no one ever protested or
filed a third party claim.
It is inconsequential whether a third party claim has been filed or not by the petitioner during the time the sheriff levied on the subject
tractor. A person other than the judgment debtor who claims ownership or right over levied properties is not precluded, however, from
taking other legal remedies to prosecute his claim. (Consolidated Bank and Trust Corp. v. Court of Appeals, supra) This is precisely
what the petitioner did when he filed the action for replevin with the RTC.
Anent the second and third issues raised, the Court accords great respect and weight to the findings of fact of the trial court. There is no
sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that Wilfredo and Perfecto
are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent. Relationship is not a badge of fraud
(Goquiolay v. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be presumed; it must be established by clear convincing evidence.
We agree with the trial court's findings that the actuations of GELAC Trading were indeed violative of the provisions on human relations.
As found by the trial court, GELAC knew very well of the transfer of the property to the petitioners on July 14, 1980 when it received
summons based on the complaint for replevin filed with the RTC by the petitioner. Notwithstanding said summons, it continued to sell
the subject tractor to one of its stockholders on August 2, 1980.
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals promulgated on March 23, 1990 is SET ASIDE
and the decision of the Regional Trial Court dated April 8, 1988 is REINSTATED.
SO ORDERED.

RIZAL
COMMERCIAL
CORPORATION,
Petitioner,

- versus -

ROYAL CARGO CORPORATION,

Respondent.

BANKING

G.R. No. 179756

Present:
YNARES-SANTIAGO, *
CARPIO MORALES,**
Acting Chairperson,
PERALTA,***
DEL CASTILLO, and
ABAD, JJ.
Promulgated:

October 2, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
Terrymanila, Inc.[1] (Terrymanila) filed a petition for voluntary insolvency with the Regional Trial Court (RTC) of
Bataan onFebruary 13, 1991.[2] One of its creditors was Rizal Commercial Banking Corporation (petitioner) with which it had an
obligation ofP3 Million that was secured by a chattel mortgage executed on February 16, 1989. The chattel mortgage was duly
recorded in the notarial register of Amado Castano, a notary public for and in the Province of Bataan.[3]
Royal Cargo Corporation (respondent), another creditor of Terrymanila, filed an action before the RTC of Manila for collection
of sum of money and preliminarily attached some of Terrymanilas personal properties on March 5, 1991 to secure the satisfaction of a
judgment award of P296,662.16, exclusive of interests and attorneys fees.[4]
On April 12, 1991, the Bataan RTC declared Terrymanila insolvent.
On June 11, 1991,[5] the Manila RTC, by Decision of even date, rendered judgment in the collection case in favor of
respondent.
In the meantime, petitioner sought in the insolvency proceedings at the Bataan RTC permission to extrajudicially foreclose the
chattel mortgage which was granted by Order of February 3, 1992.[6] It appears that respondent, together with its employees union,
moved to have this Order reconsidered but the motion was denied by Order of March 20, 1992 Order.[7]
The provincial sheriff of Bataan thereupon scheduled on June 16, 1992 the public auction sale of the mortgaged personal
properties at the Municipal Building of Mariveles, Bataan. At the auction sale, petitioner, the sole bidder of the properties, purchased
them for P1.5 Million. Eventually, petitioner sold the properties to Domingo Bondoc and Victoriano See.[8]
Respondent later filed on July 30, 1992 a petition before the RTC of Manila, docketed as Civil Case No. 92-62106, against the
Provincial Sheriff of the RTC Bataan and petitioner, for annulment of the auction sale (annulment of sale case). Apart from questioning
the inclusion in the auction sale[9] of some of the properties which it had attached, respondent questioned the failure to duly notify it of
the sale at least 10 days before the sale, citing Section 14 of Act No. 1508 or the Chattel Mortgage Law which reads:
Sec. 14. The mortgagee, his executor, administrator or assign, may, after thirty days, from the time of
condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at
a public place in the municipality where the mortgagor resides, or where the property is situated, provided at least ten
days notice of the time, place, and purpose of such sale has been posted at two or more public places in such
municipality, and the mortgagee, his executor, administrator or assignee shall notify the mortgagor or person
holding under him and the persons holding subsequent mortgages of the time and place of sale, either by
notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not
reside in such municipality, at least ten days previous to the date. (Emphasis and underscoring supplied),
it claiming that its counsel received a notice only on the day of the sale.[10]
Petitioner, alleging that the annulment of sale case filed by respondent stated no cause of action, filed on December 3, 1992 a
Motion to Dismiss[11] which was, however, denied by Branch 16 of the Manila RTC.[12]
Petitioner appealed the denial of the Motion to Dismiss via certiorari to the Court of Appeals, docketed as CA-G.R. SP No.
31125. The appellate court dismissed the petition, by Decision of February 21, 1994, it holding that respondents petition for
annulment prima facie states a sufficient cause of action and that the [trial court] in denying [herein petitioner RCBCs] motion to
dismiss, had acted advisedly and well within its powers and authority.[13]
Petitioner thereupon filed before the Manila RTC its Answer Ex Abundante Cautelam[14] in the annulment of sale case in which
it lodged a Compulsory Counterclaim by seeking P1 Million for moral damages, P500,000 for exemplary damages, and P250,000 for
attorneys fees. It thereafter elevated the case to this Court via petition for review on certiorari, docketed as G.R. 115662. This Court by

minute Resolution of November 7, 1994,[15] denied the petition for failure to show that a reversible error was committed by the appellate
court.[16]
Trial on the merits of the annulment of sale case thereupon ensued. By Decision[17] of October 15, 1997, Branch 16 of the
Manila RTC rendered judgment in favor of respondent, disposing as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1.

ORDERING . . . RCBC to pay plaintiff [heein respondent Royal Cargo] the amount of P296,662.16
and P8,000.00 as reasonable attorneys fees.

2.

No pronouncement as to costs.

3.

DISMISSING the petition as to respondents Provincial Sheriff of Balanga, Bataan RTC;

SO ORDERED.
Both parties appealed to the Court of Appeals which, by Decision [18] of April 17, 2007, denied herein petitioners appeal and
partly granted herein respondents by increasing to P50,000 the attorneys fees awarded to it and additionally awarding it exemplary
damages and imposing interest on the principal amount payable to it. Thus it disposed:
WHEREFORE, the foregoing considered, the appeal instituted by appellant RCBC is hereby DENIED for
lack of merit while the appeal of appellant Royal Cargo is PARTLY GRANTED in that the amount of attorneys fees
awarded by the RTC is increased to P50,000.00.
In addition, RCBC is ordered to pay Royal Cargo the amount of P100,000.00 as exemplary
damages. The principal amount of P296,662.18 [sic] to be paid by RCBC to Royal Cargo shall likewise earn 12%
interest per annum from the time the petition was filed in the court a quo until fully paid. The rest of the decision is
AFFIRMED.
SO ORDERED.

(Emphasis and underscoring supplied)

In partly granting respondents appeal from the Decision of Br. 16 of RTC Manila, the appellate court ratiocinated that
respondent had a right to be timely informed of the foreclosure sale.
RCBCs citations [sic] of numerous rulings on the matter more than supports the fact that as mortgagee, it
had preferential right over the chattels subject of the foreclosure sale. This however is not at issue in this case. What
is being contested is the right of Royal Cargo to betimely informed of the foreclosure sale as it too had interests
over the mortgagee Terrymanila, Inc.s assets. We note that this matter hadalready been passed upon by this Court
on February 21, 1994 in CA-G.R. SP No. 31125 as well as by the Supreme Court on November 7, 1994 in G.R. No.
[1]15662. RCBC, by arguing about its preferential right as mortgagee in the instant appeal merely reiterates what
hadalready been considered and ruled upon in earlier proceedings.
xxxx
Moreover, Section 14 of the Chattel Mortgage Law pertaining to the procedure in the foreclosure of
chattel mortgages provides, to wit:
xxxx
The above-quoted provision clearly requires that the mortgagee should notify in writing the mortgagor
or person holding under himof the time and place of the sale by personal delivery of the notice. Thus, RCBCs
failure to comply with this requirement warranted a ruling against it by the RTC. (Italics in the original; emphasis
partly in the original; underscoring supplied)
Its motion for reconsideration having been denied by the appellate court, [19] petitioner lodged the present petition for review
which raises the following issues:
I
WHETHER OR NOT RESPONDENT SHOULD HAVE BEEN GIVEN A TEN(10)-DAY PRIOR NOTICE OF THE JUNE
16, 1992FORECLOSURE SALE
II

WHETHER OR NOT THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN DECLARING
PETITIONER GUILTY OF CONSTRUCTIVE FRAUD IN FAILING TO PROVIDE RESPONDENT A TEN (10)-DAY
PRIOR NOTICE OF THE FORECLOSURE SALE.
III
WHETHER OR NOT THE PETITIONER WAS CORRECTLY HELD LIABLE TO PAY RESPONDENT P296,662.[16]
PLUS INTERESTTHEREON, EXEMPLARY DAMAGES AND ATTORNEYS FEES.
IV
WHETHER OR NOT PETITIONER IS ENTITLED TO AN AWARD OF ATTORNEYS FEES.[20] (Underscoring
supplied)
Petitioner faults the appellate court in applying res judicata by holding that respondents entitlement to notice of the auction
sale had already been settled in its Decision in CA G.R. SP No. 31125 and in this Courts Decision in G.R. No. 115662. For, so it
contends, the decisions in these cases dealt on interlocutory issues, viz: the issue of whether respondents petition for annulment of
the sale stated a cause of action, and the issue of whether petitioners motion to dismiss was properly denied.[21]
Arguing against respondents position that it was entitled to notice of the auction sale, petitioner cites the Chattel Mortgage
Lawwhich enumerates who are entitled to be notified under Section 14 thereof. It posits that [h]ad the law intended to include in said
Section an attaching creditor or a judgment creditor [like herein respondent], it could have so specifically stated therein, since in the
preceding section, Section 13, it already mentioned that a subsequent attaching creditor may redeem.[22]
Petitioner goes on to fault the appellate court in echoing its ruling in CA-G.R. SP No. 31125 that Sections 13[23] and 14 of
theChattel Mortgage Law should be read in tandem since the right given to the attaching creditor under Section 13 would not serve its
purpose if we were to exclude the subsequent attaching creditor from those who under Section 14 need to be notified of the foreclosure
sale ten days before it is held.[24]
Petitioner likewise posits that Section 13 permits a subsequent attaching creditor to redeem the mortgage only before the
holding of the auction sale, drawing attention to Paray v. Rodriguez[25] which instructs that no right of redemption exists
overpersonal property as the Chattel Mortgage Law is silent thereon.[26]
Even assuming arguendo, petitioner contends, that there exists an obligation to furnish respondent a notice of the auction sale
10 days prior thereto, respondents judgment award of P296,662.16 with interest thereon at the legal rate from the date of filing of the
[c]omplaint and P10,000.00 as reasonable attorneys fees is very much less than the P1.5 [m]illion bid of petitioner[27]
As for the issue of constructive fraud-basis of the award of damages to respondent, petitioner maintains that both the trial and
appellate courts erred in concluding that it (petitioner) was the one which sent the notice of sheriffs sale to, which was received on the
day of the sale by, the counsel for respondent for, so it contends, it had absolutely no participation in the preparation and sending of
such notice.[28]
In its Comment,[29] respondent reiterates that the respective decisions of the appellate court and this Court in CA G.R. SP No.
31125 and G.R. No. 115662 are conclusive between the parties, hence, the right of [respondent] to a [ten-day] notice has a binding
effect and must be adopted in any other controversy between the same parties in which the very same question is raised.[30]
And respondent maintains that the obligation to notify the mortgagor or person holding under him and the persons holding
subsequent mortgages falls upon petitioner as the mortgagee.
The petition is MERITORIOUS.
The respective decisions of the appellate court in CA G.R. SP No. 31125 and this Court in G.R. No. 115662 did not
conclusively settle the issue on the need to give a 10-day notice to respondent of the holding of the public auction sale of the chattels.
The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on
the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action.[31]
Res judicata has two concepts: (1) bar by prior judgment as enunciated in Rule 39, Section 47 (b) of the Rules of Civil
Procedure; and (2) conclusiveness of judgment in Rule 39, Section 47 (c).[32]
There is bar by prior judgment when, as between the first case where the judgment was rendered, and the second case that
is sought to be barred, there is identity of parties, subject matter, and causes of action. Where there is identity of parties and subject
matter in the first and second cases, but no identity of causes of action, there is conclusiveness of judgment.[33] The first judgment is
conclusive only as to those matters actually and directly controverted and determined, not as to matters merely involved therein.
The Court of Appeals, in CA G.R. SP No. 31125, resolved only the interlocutory issue of whether the trial courts Order of April
12, 1993 denying petitioners motion to dismiss respondents petition for annulment was attended by grave abuse of discretion. The
appellate court did not rule on the merits of the petition as to establish a controlling legal rule which has to be subsequently followed by

the parties in the same case. It merely held that respondents petition in the trial court stated a sufficient cause of action. Its
determination of respondents entitlement to notice of the public auction sale was at best prima facie. Thus, the appellate court held:
In view of the above, We are of the considered view that the private respondents petition in the court a
quo prima facie states a sufficient cause of action and that the public respondent in denying the petitioners
motion to dismiss, had acted advisedly and well within its powers and authority. We, therefore, find no cause to
annul the challenged order issued by the respondent court in Civil Case No. 92-62106. (Underscoring in the
original; emphasis and italics supplied)[34]
An order denying a motion to dismiss is merely interlocutory and cannot give rise to res judicata, hence, it is subject to
amendments until the rendition of the final judgment.[35]
On respondents contention that petitioner, as mortgagee, had the duty to notify it of the public auction sale, the Court finds the
same immaterial to the case.
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the mortgaged property
onlybefore its sale. Consider the following pronouncement in Paray: [36]
[T]here is no law in our statute books which vests the right of redemption over personal property. Act No.
1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to bestow
a right of redemption over personal property, since that law governs the extrajudicial sale of
mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997 Rules of
Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of redemption applies
to realproperties, not personal properties, sold on execution. (Emphasis, italics and underscoring supplied)
Unmistakably, the redemption cited in Section 13 partakes of an equity of redemption, which is the right of the mortgagor to
redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the
property[37] to clear it from the encumbrance of the mortgage.[38] It is not the same as right of redemption which is the right of the
mortgagor to redeem the mortgaged property after registration of the foreclosure sale,[39] and even after confirmation of the sale.[40]
While respondent had attached some of Terrymanilas assets to secure the satisfaction of a P296,662.16 judgment rendered in
another case, what it effectively attached was Terrymanilas equity of redemption. That respondents claim is much lower than theP1.5
million actual bid of petitioner at the auction sale does not defeat respondents equity of redemption. Top Rate International Services,
Inc. v. IAC[41] enlightens:
It is, therefore, error on the part of the petitioner to say that since private respondents lien is only a
total of P343,227.40, they cannot be entitled to the equity of redemption because the exercise of such right
would require the payment of an amount which cannot be less than P40,000,000.00.
When herein private respondents prayed for the attachment of the properties to secure their respective
claims against Consolidated Mines, Inc., the properties had already been mortgaged to the consortium of twelve
banks to secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the respondents liens on
such properties became inferior to that of banks, which claims in the event of foreclosure proceedings, must first be
satisfied. The appellate court, therefore, was correct in holding that in reality, what was attached by the
respondents was merely Consolidated Mines . . . equity of redemption. x x x x
xxxx
We, therefore, hold that the appellate court did not commit any error in ruling that there was no over-levy on
the disputed properties. What was actually attached by respondents was Consolidated Mines right or equity of
redemption, an incorporeal and intangible right, the value of which can neither be quantified nor equated with the
actual value of the properties upon which it may be exercised.[42] (Emphasis, italics and underscoring supplied)
Having thus attached Terrymanilas equity of redemption, respondent had to be informed of the date of sale of the mortgaged
assets for it to exercise such equity of redemption over some of those foreclosed properties, as provided for in Section 13.
Recall, however, that respondent filed a motion to reconsider the February 3, 1992 Order of the RTC Bataan-insolvency court
which granted leave to petitioner to foreclose the chattel mortgage, which motion was denied. Notably, respondent failed to allege this
incident in his annulment of sale case before the RTC of Manila.
Thus, even prior to receiving, through counsel, a mailed notice of the auction sale on the date of the auction sale itself on June
16, 1992, respondent was already put on notice of the impending foreclosure sale of the mortgaged chattels. It could thus have
expediently exercised its equity of redemption, at the earliest when it received the insolvency courts Order of March 20, 1992 denying
its Motion for Reconsideration of the February 3, 1992 Order.

Despite its window of opportunity to exercise its equity of redemption, however, respondent chose to be technically shrewd
about its chances, preferring instead to seek annulment of the auction sale, which was the result of the foreclosure of the mortgage,
permission to conduct which it had early on opposed before the insolvency court. Its negligence or omission to exercise its equity of
redemption within a reasonable time, or even on the day of the auction sale, warrants a presumption that it had either abandoned it or
opted not to assert it.[43] Equitable considerations thus sway against it.
It is also not lost on the Court that as early as April 12, 1991, Terrymanila had been judicially declared insolvent. Respondents
recourse was thus to demand the satisfaction of its judgment award before the insolvency court as its judgment award is a preferred
credit under Article 2244[44] of the Civil Code. To now allow respondent have its way in annulling the auction sale and at the same time
let it proceed with its claims before the insolvency court would neither rhyme with reason nor with justice.
Parenthetically, respondent has not shown that it was prejudiced by the auction sale since the insolvency court already
determined that even if the mortgaged properties were foreclosed, there were still sufficient, unencumbered assets of Terrymanila to
cover the obligations owing to other creditors, including that of respondents.[45]
In any event, even if respondent would have participated in the auction sale and matched petitioners bid, the superiority of
petitioners lien over the mortgaged assets would preclude respondent from recovering the chattels.
It has long been settled by this Court that the right of those who acquire said properties should not and
can not be superior to that of the creditor who has in his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least indication of fraud. x x x. In purchasing it, with full
knowledge that such circumstances existed, it should be presumed that he did so, very much willing to respect the
lien existing thereon, since he should not have expected that with the purchase, he would acquire a better right than
that which the vendor then had. (Emphasis and underscoring supplied)[46]
It bears noting that the chattel mortgage in favor of petitioner was registered more than two years before the issuance of a writ
of attachment over some of Terrymanilas chattels in favor of respondent. This is significant in determining who between petitioner and
respondent should be given preference over the subject properties. Since the registration of a chattel mortgage is an effective and
binding notice to other creditors of its existence and creates a real right or lien that follows the property wherever it may be, [47] the right
of respondent, as an attaching creditor or as purchaser, had it purchased the mortgaged chattel at the auction sale, is subordinate to
the lien of the mortgagee who has in his favor a valid chattel mortgage.[48]
Contrary then to the appellate courts ruling, petitioner is not liable for constructive fraud for proceeding with the auction
sale. Nor for subsequently selling the chattel. For foreclosure suits may be initiated even during insolvency proceedings, as long as
leave must first be obtained from the insolvency court[49] as what petitioner did.
The appellate courts award of exemplary damages and attorneys fees for respondent, given petitioners good faith, is thus not
warranted.
As for petitioners prayer for attorneys fees in its Compulsory Counterclaim, the same is in order, the dismissal of respondents
Complaint nowithstanding.[50] Perkin Elmer Singapore v. Dakila Trading,[51] citing Pinga v. Heirs of German Santiago,[52]enlightens:
It bears to emphasize that petitioners counterclaim against respondent is for damages and attorneys fees arising
from the unfounded suit. While respondents Complaint against petitioner is already dismissed, petitioner may have
very well incurred damages and litigation expenses such as attorneys fees since it was forced to engage legal
representation in the Philippines to protect its rights and to assert lack of jurisdiction of the courts over its person by
virtue of the improper service of summons upon it. Hence, the cause of action of petitioners counterclaim is not
eliminated by the mere dismissal of respondents complaint.[53] (Underscoring supplied)
To the Court, the amount of P250,000 prayed for by petitioner in its Counterclaim is just and equitable, given the nature and extent of
legal services employed in controverting respondents unfounded claim.
WHEREFORE, the petition for review is GRANTED. The challenged Decision and Resolution of the Court of Appeals
areREVERSED and SET ASIDE. Civil Case No. 92-62106 lodged before the Regional Trial Court of Manila, Branch 16,
isDISMISSED for lack of merit.
Respondent, Royal Cargo Corporation, is ORDERED to pay petitioner, Rizal Commercial Banking Corporation, P250,000 as
and for attorneys fees.
No costs.
SO ORDERED.

[G.R. No. 116363. December 10, 1999]

SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON. COURT OF APPEALS, JESUS PONCE, and
ELIZABETH PONCE, respondents.
DECISION
YNARES-SANTIAGO, J.:
This controversy is between a mortgagor who alienated the mortgaged property without the consent of the mortgagee, on the one
hand, and the assignee of the mortgagee to whom the latter assigned his credit without notice to the mortgagor, on the other hand.
Sometime in 1975, respondent spouses Atty. Jesus and Elizabeth Ponce bought on installment a Holden Torana vehicle from C.
R. Tecson Enterprises. They executed a promissory note and a chattel mortgage on the vehicle dated December 24, 1975 in favor of
the C. R. Tecson Enterprises to secure payment of the note. The mortgage was registered both in the Registry of Deeds and the Land
Transportation Office. On the same date, C.R. Tecson Enterprises, in turn, executed a deed of assignment of said promissory note and
chattel mortgage in favor of Filinvest Credit Corporation with the conformity of respondent spouses. The latter were aware of the
endorsement of the note and the mortgage to Filinvest as they in fact availed of its financing services to pay for the car. In 1976,
respondent spouses transferred and delivered the vehicle to Conrado R. Tecson by way of sale with assumption of
mortgage. Subsequently, in 1978, Filinvest assigned all its rights and interest over the same promissory note and chattel mortgage to
petitioner Servicewide Specialists Inc. without notice to respondent spouses. Due to the failure of respondent spouses to pay the
installments under the promissory note from October 1977 to March 1978, and despite demands to pay the same or to return the
vehicle, petitioner was constrained to file before the Regional Trial Court of Manila on May 22, 1978 a complaint for replevin with
damages against them, docketed as Civil Case No. 115567. In their answer, respondent spouses denied any liability claiming they had
already returned the car to Conrado Tecson pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they filed a third party
complaint against Conrado Tecson praying that in case they are adjudged liable to petitioner, Conrado Tecson should reimburse them.
After trial, the lower court found respondent spouses jointly and solidarily liable to petitioner, however, the third party defendant
Conrado Tecson was ordered to reimburse the respondent spouses for the sum that they would pay to petitioner.[1] On appeal, the Court
of Appeals reversed and set aside the judgment of the court a quo on the principal ground that respondent spouses were not notified of
the assignment of the promissory note and chattel mortgage to petitioner.[2] Hence, this petition for review.
The resolution of the petition hinges on whether the assignment of a credit requires notice to the debtor in order to bind him. More
specifically, is the debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit made by the creditor
to another party such that if the debtor was not notified of the assignment, he can no longer be held liable since he already alienated
the property? Conversely, is the consent of the creditor-mortgagee necessary when the debtor-mortgagor alienates the property to a
third person?
Only notice to the debtor of the assignment of credit is required. His consent is not required. In contrast, consent of the creditormortgagee to the alienation of the mortgaged property is necessary in order to bind said creditor. To evade liability, respondent
spouses invoked Article 1626 of the Civil Code which provides that the debtor who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation. They argue that they were not notified of the assignment made to petitioner. This
provision, however, is applicable only where the debtor pays the creditor prior to acquiring knowledge of the latters assignment of his
credit. It does not apply, nor is it relevant, to cases of non-payment after the debtor came to know of the assignment of credit. This is
precisely so since the debtor did not make any payment after the assignment.
In the case at bar, what is relevant is not the assignment of credit between petitioner and its assignor, but the knowledge or
consent of the creditors assignee to the debtor-mortgagors sale of the property to another.
When the credit was assigned to petitioner, only notice to but not the consent of the debtor- mortgagor was necessary to bind the
latter. Applying Article 1627 of the Civil Code, [3] the assignment made to petitioner includes the accessory rights such as the
mortgage. Article 2141, on the other hand, states that the provisions concerning a contract of pledge shall be applicable to a chattel
mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel Mortgage Law. As provided in Article
2096 in relation to Article 2141 of the Civil Code, [4] a thing pledged may be alienated by the pledgor or owner with the consent of the
pledgee. This provision is in accordance with Act No. 1508 which provides that a mortgagor of personal property shall not sell or
pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee in writing on the back of the
mortgage and on the margin of the record thereof in the office where such mortgage is recorded. [5] Although this provision in the chattel

mortgage has been expressly repealed by Article 367 of the Revised Penal Code, yet under Article 319 (2) of the same Code, the sale
of the thing mortgaged may be made provided that the mortgagee gives his consent and that the same is recorded. [6] In any case,
applying by analogy Article 2128 of the Civil Code [7] to a chattel mortgage, it appears that a mortgage credit may be alienated or
assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was
mortgaged, it follows that the assignees consent is necessary in order to bind him of the alienation of the mortgaged thing by the
debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioners consent is necessary before respondent
spouses alienation of the vehicle can be considered as binding against third persons. Petitioner is considered a third person with
respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson.
In this case, however, since the alienation by the respondent spouses of the vehicle occurred prior to the assignment of credit to
petitioner, it follows that the former were not bound to obtain the consent of the latter as it was not yet an assignee of the credit at the
time of the alienation of the mortgaged vehicle.
The next question is whether respondent spouses needed to notify or secure the consent of petitioners predecessor to the
alienation of the vehicle. The sale with assumption of mortgage made by respondent spouses is tantamount to a substitution of
debtors. In such case, mere notice to the creditor is not enough, his consent is always necessary as provided in Article 1293 of the Civil
Code.[8] Without such consent by the creditor, the alienation made by respondent spouses is not binding on the former. On the other
hand, Articles 1625,[9] 1626[10] and 1627 of the Civil Code on assignment of credits do not require the debtors consent for the validity
thereof and so as to render him liable to the assignee. The law speaks not of consent but of notice to the debtor, the purpose of which
is to inform the latter that from the date of assignment he should make payment to the assignee and not to the original creditor. Notice
is thus for the protection of the assignee because before said date, payment to the original creditor is valid.
When Tecson Enterprises assigned the promissory note and the chattel mortgage to Filinvest, it was made with respondent
spouses tacit approval. When Filinvest in turn, as assignee, assigned it further to petitioner, the latter should have notified the
respondent spouses of the assignment in order to bind them. This, they failed to do. The testimony of petitioners witness that notice of
assignment was sent to respondent spouses was stricken off the record. Having asserted the affirmative on the issue of notice,
petitioner should have substantiated its allegations in order to obtain a favorable judgment. In civil cases, the burden is on the party
who would be defeated if no evidence is given on either side. [11] Being the plaintiff in the trial below, petitioner must establish its case,
relying on the strength of its own evidence and not upon the weakness of that of its opponent. [12] The consent to the assignment given
by respondent spouses to Filinvest cannot be construed as the spouses knowledge of the assignment to petitioner precisely because
at the time of the assignment to the latter, the spouses had earlier sold the vehicle to another.
One thing, however, that militates against the posture of respondent spouses is that although they are not bound to obtain the
consent of the petitioner before alienating the property, they should have obtained the consent of Filinvest since they were already
aware of the assignment to the latter. So that, insofar as Filinvest is concerned, the debtor is still respondent spouses because of the
absence of its consent to the sale. Worse, Filinvest was not even notified of such sale. Having subsequently stepped into the shoes of
Filinvest, petitioner acquired the same rights as the former had against respondent spouses. The defenses that could have been
invoked by Filinvest against the spouses can be successfully raised by petitioner. Therefore, for failure of respondent spouses to obtain
the consent of Filinvest thereto, the sale of the vehicle to Conrado R. Tecson was not binding on the former. When the credit was
assigned by Filinvest to petitioner, respondent spouses stood on record as the debtor-mortgagor.
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court is
AFFIRMED and REINSTATED. Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to pay petitioner, jointly and severally,
the following sums:
a) P26,633,09, plus interest at 14% per annum from April 26, 1978 until fully paid;
b) 25% of the above sum in item (a) as liquidated damages;
c) P5,000.00 as attorneys fees; and
d) costs of suit.
In connection with the Third Party Complaint of the respondents, the third party defendant Conrado Tecson is hereby ordered to
reimburse respondents Ponce for all the sums the latter would pay to petitioner, and attorneys fees of P3,000.00.
SO ORDERED.

[G.R. No. 106435. July 14, 1999]

PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R.
PULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES,respondents.
DECISION
GONZAGA-REYES, J.:
Before Us for review on certiorari is the decision of the respondent Court of Appeals in CA G.R. CV No. 27861, promulgated on
April 23, 1992,[1]affirming in toto the decision of the Regional Trial Court of Makati[2] to award respondent banks deficiency claim, arising
from a loan secured by chattel mortgage.
The antecedents of the case are as follows:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of US$267,881.67, or the
equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitioner PAMECA, through its President, petitioner
Herminio C. Teves, executed a promissory note for the said amount, promising to pay the loan by installment. As security for the said
loan, a chattel mortgage was also executed over PAMECAs properties in Dumaguete City, consisting of inventories, furniture and
equipment, to cover the whole value of the loan.
On January 18, 1984, and upon petitioner PAMECAs failure to pay, 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. On June 29, 1984,
respondent bank filed a complaint for the collection of the balance of P4,366,332.46 [3] with Branch 132 of the Regional Trial Court of
Makati City against petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the promissory note.
On February 8, 1990, the RTC of Makati rendered a decision on the case, the dispositive portion of which we reproduce as
follows:
WHEREFORE, judgment is hereby rendered ordering the defendants to pay jointly and severally plaintiff the (1) sum of P4,366,332.46
representing the deficiency claim of the latter as of March 31, 1984, plus 21% interest per annum and other charges from April 1, 1984
until the whole amount is fully paid and (2) the costs of the suit. SO ORDERED.[4]
The Court of Appeals affirmed the RTC decision. Hence, this Petition.
The petition raises the following grounds:
1. Respondent appellate court gravely erred in not reversing the decision of the trial court, and in not holding that the public auction
sale of petitioner PAMECAs 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.
2. Respondent appellate court gravely erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by reading the
spirit of the law, and taking into consideration the fact that the contract of loan was a contract of adhesion.
3. The appellate court gravely erred in holding the petitioners Herminio Teves, Victoria Teves and Hiram Diday R. Pulido solidarily liable
with PAMECA Wood Treatment Plant, Inc. when the intention of the parties was that the loan is only for the corporations benefit.
Relative to the first ground, petitioners contend that the amount of 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. According to petitioners, this is evident from an inventory dated March 31, 1980 [5], which
valued the properties at P2,518,621.00, in accordance with the terms of the chattel mortgage contract [6] between the parties that
required that the inventories be maintained at a level no less than P2 million. Petitioners argue that respondent banks act of bidding
and purchasing the mortgaged properties for P322,350.00 or only about 1/6 of their actual value in a public sale in which it was the sole
bidder was fraudulent, unconscionable and inequitable, and constitutes sufficient ground for the annulment of the auction sale.

To this, respondent bank contends that the above-cited inventory and chattel mortgage contract were not in fact submitted as
evidence before the RTC of Makati, and that these documents were first produced by petitioners only when the case was brought to the
Court of Appeals.[7] The Court of Appeals, in turn, disregarded these documents for petitioners failure to present them in evidence, or to
even allude to them in their testimonies before the lower court. [8]Instead, respondent court declared that it is not at all unlikely for the
chattels to have sufficiently deteriorated as to have fetched such a low price at the time of the auction sale. [9] Neither did respondent
court find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as all the legal
procedures for the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of regularity in the
performance of public duties.[10]
Petitioners also question the ruling of respondent court, affirming the RTC, to hold private petitioners, officers and stockholders of
petitioner PAMECA, liable with PAMECA for the obligation under the loan obtained from respondent bank, contrary to the doctrine of
separate and distinct corporate personality.[11] Private petitioners contend that they became signatories to the promissory note only as a
matter of practice by the respondent bank, that the promissory note was in the nature of a contract of adhesion, and that the loan was
for the benefit of the corporation, PAMECA, alone.[12]
Lastly, invoking the equity jurisdiction of the Supreme Court, petitioners submit that Articles 1484 [13] and 2115[14] of the Civil Code
be applied in analogy to the instant case to preclude the recovery of a deficiency claim.[15]
Petitioners are not the first to posit the theory of the applicability of Article 2115 to foreclosures of chattel mortgage. In the leading
case of Ablaza vs. Ignacio[16], the lower court dismissed the complaint for collection of deficiency judgment in view of Article 2141 of the
Civil Code, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not
in conflict with the Chattel Mortgage Law. It was the lower courts opinion that, by virtue of Article 2141, the provisions of Article 2115
which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less than the amount of
the principal obligation, will apply.
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. 1508, as amended, or the Chattel Mortgage Law, states:
x x x
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 fees of the officer for selling
the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the
amendments thereto, and the fees of the Register of Deeds for registering the officers return shall be taxed as a part of the costs of
sale, which the officer shall pay to the Register of Deeds. 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.
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. As explained in
Manila Trading and Supply Co. vs. Tamaraw Plantation Co.[17], cited in Ablaza vs. Ignacio, supra:
While it is true that section 3 of Act No. 1508 provides that a chattel mortgage is a conditional sale, it further provides that it is a
conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation specified
therein. The lower court overlooked the fact that the chattels included in the chattel mortgage are only given as security and not as a
payment of the debt, in case of a failure of payment.

The theory of the lower court would lead to the absurd conclusion that if the chattels mentioned in the mortgage, given as security,
should sell for more than the amount of the indebtedness secured, that the creditor would be entitled to the full amount for which it
might be sold, even though that amount was greatly in excess of the indebtedness. Such a result certainly was not contemplated by
the legislature when it adopted Act No. 1508. There seems to be no reason supporting that theory under the provision of the law. The
value of the chattels changes greatly from time to time, and sometimes very rapidly. If, for example, the chattels should greatly
increase in value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not
permitted to retain the excess, then the same token would require the debtor to pay the deficiency in case of a reduction in the price of
the chattels between the date of the contract and a breach of the condition.
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that
in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action
for the deficiency, if any should occur. And the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a satisfaction of the
debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, of course,
always requiring good faith and honesty in the sale, is only a payment, pro tanto, and an action may be maintained for a deficiency in
the debt.
We find no reason to disturb the ruling in Ablaza vs. Ignacio, and the cases reiterating it[18]
Neither do We find tenable the application by analogy of Article 1484 of the Civil Code to the instant case. As correctly pointed out
by the trial court, the said article applies clearly and solely to the sale of personal property the price of which is payable in
installments. Although Article 1484, paragraph (3) expressly bars any further action against the purchaser to recover an unpaid
balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendees failure to pay cover
two or more installments, this provision is specifically applicable to a sale on installments.
To accommodate petitioners prayer even on the basis of equity would be to expand the application of the provisions of Article
1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, which has been
aptly described as justice outside legality, is applied only in the absence of, and never against, statutory law or judicial rules of
procedure.[19]
We are also unable to find merit in petitioners submission that the public auction sale is void on grounds of fraud and inadequacy
of price. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove
inadequacy of price through the documents, i.e., the Open-End Mortgage on Inventory and inventory dated March 31, 1980, likewise
attached to their Petition before this Court. Basic is the rule that parties may not bring on appeal issues that were not raised on trial.
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. The inventory, in turn, was as of March 31, 1980, or even
prior to April 17, 1980, the date when the parties entered into the contracts of loan and chattel mortgage, and is far from being an
accurate estimate of the market value of the properties at the time of the foreclosure sale four years thereafter. Thus, even assuming
that the inventory and chattel mortgage contract were duly submitted as evidence before the trial court, it is clear that they cannot
suffice to substantiate petitioners allegation of inadequacy of price.
Furthermore, 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,[20] and may not be inferred from the lone circumstance that it was only respondent bank that bid in the sale of the foreclosed
properties. The sparseness of petitioners evidence in this regard leaves Us no discretion but to uphold the presumption of regularity in
the conduct of the public sale.
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. Thus:
On or before May 12, 1980, for value received, PAMECA WOOD TREATMENT PLANT, INC., a corporation organized and existing
under the laws of the Philippines, with principal office at 304 El Hogar Filipina Building, San Juan, Manila, promise to pay to the order of
DEVELOPMENT BANK OF THE PHILIPPINES at its office located at corner Buendia and Makati Avenues, Makati, Metro Manila, the
principal sum of TWO HUNDRED SIXTY SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY ONE & 67/100 US DOLLARS (US$
267,881.67) with interest at the rate of three per cent (3%) per annum over DBPs borrowing rate for these funds. Before the date of
maturity, we hereby bind ourselves, jointly and severally, to make partial payments as follows:

xxx
In case of default in the payment of any installment above, we bind ourselves to pay DBP for advances xxx
xxx
We further bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows:
xxx
"In addition to the above, we also bind ourselves to pay for bank advances for insurance premiums, taxes xxx
xxx
"We further bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from
where the loan shall be drawn xxx
xxx
In case of non-payment of the amount of this note or any portion of it on demand, when due, or any other amount or amounts due on
account of this note, the entire obligation shall become due and demandable, and if, for the enforcement of the payment thereof, the
DEVELOPMENT BANK OF THE PHILIPPINES is constrained to entrust the case to its attorneys, we jointly and severally bind
ourselves to pay for attorneys fees as provided for in the mortgage contract, in addition to the legal fees and other incidental
expenses. In the event of foreclosure of the mortgage securing this note, we further bind ourselves jointly and severally to pay the
deficiency, if any. (Emphasis supplied)[21]
The promissory note was signed by private petitioners in the following manner:
PAMECA WOOD TREATMENT PLANT, INC.
By:
(Sgd) HERMINIO G. TEVES
(For himself & as President of above-named corporation)
(Sgd) HIRAM DIDAY PULIDO
(Sgd) VICTORIA V. TEVES[22]
From the foregoing, it is clear that private petitioners intended to bind themselves solidarily with petitioner PAMECA in the
loan. As correctly submitted by respondent bank, private petitioners are not made to answer for the corporate act of petitioner
PAMECA, but are made liable because they made themselves co-makers with PAMECA under the promissory note.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Decision of the Court of Appeals dated April 23, 1992 in CA G.R.
CV No. 27861 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.

PRUDENTIAL BANK,
Petitioner,

G.R. No. 150197

Present:
PUNO, J.,
Chairman,

- versus -

AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

DON A. ALVIAR and GEORGIA

B. ALVIAR,
Respondents.

Promulgated:
July 28, 2005

x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner Prudential Bank seeks the reversal of
the Decision[1] of the Court of Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming the Decision of the Regional Trial
Court (RTC) of Pasig City, Branch 160, in favor of respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of a parcel of land in San Juan, Metro
Manila, covered by Transfer Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July 1975, they executed a
deed of real estate mortgage in favor of petitioner Prudential Bank to secure the payment of a loan worth P250,000.00.[2] This
mortgage was annotated at the back of TCT No. 438157. On 4 August 1975, respondents executed the corresponding promissory
note, PN BD#75/C-252, covering the said loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note is secured by a real estate mortgage as aforementioned. [3] Significantly, the real
estate mortgage contained the following clause:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the
Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation
owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the accounts, books and
records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee,
its successors or assigns, the parcels of land which are described in the list inserted on the back of this document,
and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute owner free from all liens
and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-345 for P2,640,000.00, secured by D/A
SFDX #129, signifying that the loan was secured by a hold-out on the mortgagors foreign currency savings account with the bank
under Account No. 129, and that the mortgagors passbook is to be surrendered to the bank until the amount secured by the hold-out
is settled.[5]
On 27 December 1976, respondent spouses executed for Donalco Trading, Inc., of which the husband and wife were President
and Chairman of the Board and Vice President, [6] respectively, PN BD#76/C-430 covering P545,000.000. As provided in the note, the
loan is secured by Clean-Phase out TOD CA 3923, which means that the temporary overdraft incurred by Donalco Trading, Inc. with
petitioner is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of its approval of a straight loan of P545,000.00, the
proceeds of which shall be used to liquidate the outstanding loan ofP545,000.00 TOD. The letter likewise mentioned that the securities
for the loan were the deed of assignment on two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in
favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment.[8]

On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00 loan covering the two (2) lots located at Vam
Buren and Madison Streets, North Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly
released the mortgage over the two properties.[9]

On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No.
438157. Per petitioners computation, respondents had the total obligation ofP1,608,256.68, covering the three (3) promissory notes, to
wit: PN BD#75/C-252 for P250,000.00, PN BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus assessed past
due interests and penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC of Pasig,
claiming that they have paid their principal loan secured by the mortgaged property, and thus the mortgage should not be foreclosed.
For its part, petitioner averred that the payment of P2,000,000.00 made on 6 March 1979 was not a payment made by respondents, but
by G.B. Alviar Realty and Development Inc., which has a separate loan with the bank secured by a separate mortgage. [12]
[11]

On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff to proceed with the extra-judicial foreclosure.
Respondents sought reconsideration of the decision.[14] On 24 August 1994, the trial court issued an Order setting aside its earlier
decision and awarded attorneys fees to respondents.[15] It found that only the P250,000.00 loan is secured by the mortgage on the land
covered by TCT No. 438157. On the other hand, the P382,680.83 loan is secured by the foreign currency deposit account of Don A.
Alviar, while the P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco
Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the blanket mortgage clause relied upon by
petitioner applies only to future loans obtained by the mortgagors, and not by parties other than the said mortgagors, such as Donalco
Trading, Inc., for which respondents merely signed as officers thereof.
[13]

On appeal to the Court of Appeals, petitioner made the following assignment of errors:
I.
The trial court erred in holding that the real estate mortgage covers only the promissory note
BD#75/C-252 for the sum of P250,000.00.
II.
The trial court erred in holding that the promissory note BD#76/C-345 for P2,640,000.00
(P382,680.83 outstanding principal balance) is not covered by the real estate mortgage by expressed
agreement.
III.
The trial court erred in holding that Promissory Note BD#76/C-430 for P545,000.00 is not
covered by the real estate mortgage.
IV.

The trial court erred in holding that the real estate mortgage is a contract of adhesion.

V.
The trial court erred in holding defendant-appellant liable to pay plaintiffs-appellees attorneys
fees forP20,000.00.[16]

The Court of Appeals affirmed the Order of the trial court but deleted the award of attorneys fees. [17] It ruled that while a
continuing loan or credit accommodation based on only one security or mortgage is a common practice in financial and commercial
institutions, such agreement must be clear and unequivocal. In the instant case, the parties executed different promissory notes
agreeing to a particular security for each loan. Thus, the appellate court ruled that the extrajudicial foreclosure sale of the property for
the three loans is improper.[18]
The Court of Appeals, however, found that respondents have not yet paid the P250,000.00 covered by PN BD#75/C-252 since
the payment of P2,000,000.00 adverted to by respondents was issued for the obligations of G.B. Alviar Realty and Development, Inc.
[19]

Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors raised in the Court of Appeals as grounds
herein.
Petitioner maintains that the blanket mortgage clause or the dragnet clause in the real estate mortgage expressly covers
not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the application for extrajudicial
foreclosure of real estate mortgage.[20] Thus, it claims that it acted within the terms of the mortgage contract when it filed its petition for
extrajudicial foreclosure of real estate mortgage. Petitioner relies on the cases of Lim Julian v. Lutero,[21] Tad-Y v. Philippine National
Bank,[22] Quimson v. Philippine National Bank,[23] C & C Commercial v. Philippine National Bank,[24] Mojica v. Court of Appeals,
[25]
and China Banking Corporation v. Court of Appeals, [26] all of which upheld the validity of mortgage contracts securing future
advancements.
Anent the Court of Appeals conclusion that the parties did not intend to include PN BD#76/C-345 in the real estate mortgage
because the same was specifically secured by a foreign currency deposit account, petitioner states that there is no law or rule which
prohibits an obligation from being covered by more than one security.[27] Besides, respondents even continued to withdraw from the
same foreign currency account even while the promissory note was still outstanding, strengthening the belief that it was the real estate
mortgage that principally secured all of respondents promissory notes.[28] As for PN BD#76/C-345, which the Court of Appeals found to

be exclusively secured by the Clean-Phase out TOD 3923, petitioner posits that such security is not exclusive, as the dragnet clause
of the real estate mortgage covers all the obligations of the respondents.[29]
Moreover, petitioner insists that respondents attempt to evade foreclosure by the expediency of stating that the promissory notes
were executed by them not in their personal capacity but as corporate officers. It claims that PN BD#76/C-430 was in fact for home
construction and personal consumption of respondents. Thus, it states that there is a need to pierce the veil of corporate fiction.[30]
Finally, petitioner alleges that the mortgage contract was executed by respondents with knowledge and understanding of the
dragnet clause, being highly educated individuals, seasoned businesspersons, and political personalities. [31] There was no oppressive
use of superior bargaining power in the execution of the promissory notes and the real estate mortgage.[32]
For their part, respondents claim that the dragnet clause cannot be applied to the subsequent loans extended to Don Alviar and
Donalco Trading, Inc. since these loans are covered by separate promissory notes that expressly provide for a different form of security.
[33]
They reiterate the holding of the trial court that the blanket mortgage clause would apply only to loans obtained jointly by
respondents, and not to loans obtained by other parties. [34] Respondents also place a premium on the finding of the lower courts that
the real estate mortgage clause is a contract of adhesion and must be strictly construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity of the blanket mortgage clause or the dragnet
clause; (ii) the coverage of the blanket mortgage clause; and consequently, (iii) the propriety of seeking foreclosure of the mortgaged
property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought to be included in the blanket mortgage clause was obtained by
respondents for Donalco Trading, Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco Trading, Inc. and
not in their personal capacity. Petitioner asks the Court to pierce the veil of corporate fiction and hold respondents liable even for
obligations they incurred for the corporation. The mortgage contract states that the mortgage covers as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary. Well-settled is the rule that a corporation has a personality separate and
distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers unless
it is shown that they have exceeded their authority.[36] However, the legal fiction that a corporation has a personality separate and
distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. [37] PN BD#76/C-430, being an
obligation of Donalco Trading, Inc., and not of the respondents, is not within the contemplation of the blanket mortgage clause.
Moreover, petitioner is unable to show that respondents are hiding behind the corporate structure to evade payment of their obligations.
Save for the notation in the promissory note that the loan was for house construction and personal consumption, there is no proof
showing that the loan was indeed for respondents personal consumption. Besides, petitioner agreed to the terms of the promissory
note. If respondents were indeed the real parties to the loan, petitioner, a big, well-established institution of long standing that it is,
should have insisted that the note be made in the name of respondents themselves, and not to Donalco Trading Inc., and that they
sign the note in their personal capacity and not as officers of the corporation.
Now on the main issues.
A blanket mortgage clause, also known as a dragnet clause in American jurisprudence, is one which is specifically phrased to
subsume all debts of past or future origins. Such clauses are carefully scrutinized and strictly construed. [38] 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. [39] 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.[40] Indeed, it
has been settled in a long line of decisions that mortgages given to secure future advancements are valid and legal contracts, [41] and
the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and other indebtedness can be gathered.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the
Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR,
andto secure the payment of the same and those that may hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the
accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of
mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted
on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing
or which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is
the
absolute owner free from all liens and incumbrances. . . .[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner and respondents intended the real estate mortgage to secure not
only the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be obtained by the
respondents. The terms of the above provision being clear and unambiguous, there is neither need nor excuse to construe it otherwise.

The cases cited by petitioner, while affirming the validity of dragnet clauses or blanket mortgage clauses, are of a different
factual milieu from the instant case. There, the subsequent loans were not covered by any security other than that for the mortgage
deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345,
executed by Don Alviar was secured by a hold-out on his foreign currency savings account, while PN BD#76/C-430, executed by
respondents for Donalco Trading, Inc., was secured by Clean-Phase out TOD CA 3923 and eventually by a deed of assignment on
two promissory notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a
chattel mortgage on various heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus,
the critical issue is whether the blanket mortgage clause applies even to subsequent advancements for which other securities were
intended, or particularly, to PN BD#76/C-345.
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.[44] 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, [45] such deficiency being an indebtedness within the meaning of the mortgage,
in the absence of a special contract excluding it from the arrangement.[46]
The latter school represents the better position. The parties having conformed to the blanket mortgage clause or dragnet
clause, it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by
other securities, as the subsequent loans will be secured by the first mortgage. In other words, the sufficiency of the first security is a
corollary component of the dragnet clause. But of course, there is no prohibition, as in the mortgage contract in issue, against
contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance solely on the original security with the dragnet clause,
but rather, on the new security given. This is the reliance on the security test.
Hence, based on the reliance on the security test, the California court in the cited case made an inquiry whether the second loan
was made in reliance on the original security containing a dragnet clause. Accordingly, finding a different security was taken for the
second loan no intent that the parties relied on the security of the first loan could be inferred, so it was held. The rationale involved, the
court said, was that the dragnet clause in the first security instrument constituted a continuing offer by the borrower to secure further
loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the
offer.[47]
In another case, it was held that a mortgage with a dragnet clause is an offer by the mortgagor to the bank to provide the
security of the mortgage for advances of and when they were made. Thus, it was concluded that the offer was not accepted by the
bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain vehicles, and
the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel
mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate
mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an
assumed name; and (4) there was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate
mortgage in making the advance.[48]
Indeed, in some instances, it has been held that in the absence of clear, supportive evidence of a contrary intention, a mortgage
containing a dragnet clause will not be extended to cover future advances unless the document evidencing the subsequent advance
refers to the mortgage as providing security therefor.[49]
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of
all the three promissory notes. While the existence and validity of the dragnet clause cannot be denied, there is a need to respect the
existence of the other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for
the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note.
As held in one case, where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently
become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a
special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. [50] This is
recognition that while the dragnet clause subsists, the security specifically executed for subsequent loans must first be exhausted
before the mortgaged property can be resorted to.
One other crucial point. The mortgage contract, as well as the promissory notes subject of this case, is a contract of adhesion, to
which respondents only participation was the affixing of their signatures or adhesion thereto. [51] A contract of adhesion is one in which
a party imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify.[52]
The real estate mortgage in issue appears in a standard form, drafted and prepared solely by petitioner, and which, according
to jurisprudence must be strictly construed against the party responsible for its preparation. [53] If the parties intended that the blanket
mortgage clause shall cover subsequent advancement secured by separate securities, then the same should have been indicated in
the mortgage contract. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused
the ambiguity which could have avoided it by the exercise of a little more care. [54] To be more emphatic, any ambiguity in a contract
whose terms are susceptible of different interpretations must be read against the party who drafted it, [55] which is the petitioner in this
case.

Even the promissory notes in issue were made on standard forms prepared by petitioner, and as such are likewise contracts of
adhesion. Being of such nature, the same should be interpreted strictly against petitioner and with even more reason since having been
accomplished by respondents in the presence of petitioners personnel and approved by its manager, they could not have been
unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid
the P250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner P2,000,000.00. Thus,
the mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned
earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which
are available to respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 59543 is AFFIRMED.
Costs against petitioner.
SO ORDERED.

G.R. No. L-17500

May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and CONNELL BROS. CO. (PHIL.), defendantsappellants.
Angel S. Gamboa for defendants-appellants.
Laurel Law Offices for plaintiffs-appellants.
DIZON, J.:
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the
Philippines hereinafter referred to as ATLANTIC sold and assigned all its rights in the Dahican Lumber concession to Dahican
Lumber Company hereinafter referred to as DALCO for the total sum of $500,000.00, of which only the amount of $50,000.00
was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company
hereinafter referred to as the BANK amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the
BANK, a loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00
each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a foreign corporation and a
stockholder of DALCO, hereinafter referred to as DAMCO, all payable to the BANK or its order.
As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK the latter acting
for itself and as trustee for the Export-Import Bank of Washington D.C. a deed of mortgage covering five parcels of land 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 located in its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). 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 (Exhibit G). 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.
Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto DALCO and DAMCO
pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.
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.
After July 13, 1950 the date of execution of the mortgages mentioned above DALCO purchased various machineries, equipment,
spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid.
Pursuant to the provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK requested DALCO
to submit complete lists of said properties but the latter failed to do so. In connection with these purchases, there appeared in the books
of DALCO as due to Connell Bros. Company (Philippines) a domestic corporation who was acting as the general purchasing agent
of DALCO thereinafter called CONNELL the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.
On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, 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.
On January 13, 1953, 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, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure proceedings in
the Court of First Instance of Camarines Norte against DALCO and DAMCO. On the same date they filed an ex-parte application for the

appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain DALCO from removing its properties.
The court granted both remedies and appointed George H. Evans as Receiver. Upon defendants' motion, however, the court, in its
order of February 21, 1953, discharged the Receiver.
On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging several affirmative
defenses and a counterclaim.
On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and possessor of some of the
equipments, spare parts and supplies which DALCO had acquired subsequent to the execution of the mortgages sought to be
foreclosed and which plaintiffs claimed were covered by the lien. In its order of March 18,1953 the Court granted the motion, as well as
plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was reinstated.
On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting affirmative defenses and a
counterclaim.
Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the action to the Court of First
Instance of Manila where it was docketed as Civil Case No. 20987.
On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and supplies of
DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was deposited in court pending final
determination of the action. By a similar agreement one-half (P87,500.00) of this amount was considered as representing the proceeds
obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as representing
those obtained from the sale of the "after acquired properties".
After due trial, the Court, on July 15, 1960, rendered judgment as follows:
IN VIEW WHEREFORE, the Court:
1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per annum from July
13, 1950, Plus another sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus 10% on both principal sums
as attorney's fees;
2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest per annum from July 3,
1950, plus 10% on both principal as attorney's fees;
3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto Dahican American
Lumber Co. the sum of P2,151,678.24 both with legal interest from the date of the filing of the respective answers of those
parties, 10% of the principals as attorney's fees;
4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the recognized expenses,
one-half thereof be adjudicated unto plaintiffs, the court no longer specifying the share of each because of that announced
intention under the stipulation of facts to "pool their resources"; as to the other one-half, the same should be adjudicated unto
both plaintiffs, and defendant Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22
and 23 of the body of this decision; but with the understanding that whatever plaintiffs and Dahican American and Connell
Bros. should receive from the P175,000.00 deposited in the Court shall be applied to the judgments particularly rendered in
favor of each;
5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties shall be borne by
People's Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.
On the following day, the Court issued the following supplementary decision:
IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following paragraph 6:
6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the sale at public auction
of the lands object of the mortgages to satisfy the said mortgages and costs of foreclosure.

From the above-quoted decision, all the parties appealed.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of mortgage
mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even granting that
DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor of
plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well as those
obtained from the sale of the "undebated properties" in the total sum of P175,000.00 should have been awarded exclusively to plaintiffs
by reason of the mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of them
being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for the purpose of defeating
their mortgage lien, and finally, that defendants should have been made to bear all the expenses of the receivership, costs and
attorney's fees.
On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had no cause of action
against them because the promissory note sued upon was not yet due when the action to foreclose the mortgages was commenced;
secondly, in not holding that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because
they were not registered in accordance with the Chattel Mortgage Law, the court erring, as a consequence, in holding that said
properties were subject to the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each
of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being
that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said stipulation was void as against
DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of the "after acquired properties" to the latter
exclusively; fifthly, in appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of the
depreciation or loss in value of the "after acquired properties" placed under receivership was damnum absque injuria and,
consequently, in not awarding, to said parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO
and DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership, instead of sentencing
plaintiffs to pay attorney's fees.
Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a total of seventeen.
However, the multifarious issues thus before Us may be resolved, directly or indirectly, by deciding the following issues:
Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure?; secondly,
assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they
were not registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the mortgages are
valid and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the
one hand, between DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose
the mortgages premature?
A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in
exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may
acquire, construct, install, attach; or use in, to upon, or in connection with the premises that is, its lumber concession "shall
immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included
therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no
useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say
logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be
sold, or to be used thus becoming subject to the inevitable wear and tear but with the understanding express or implied that
they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its
obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security.
Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see
to it that a similar provision is included in the contract.
B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after acquired properties"
of DALCO, the same are void and ineffectual because they were not registered in accordance with the Chattel Mortgage Law. In
support of this and of the proposition that, even if said mortgages were valid, they should not prejudice them, the defendants argue (1)
that the deeds do not describe the mortgaged chattels specifically, nor were they registered in accordance with the Chattel Mortgage
Law; (2) that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the
"after acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties" should
not prejudice creditors and other third persons such as DAMCO and CONNELL.
The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states that all property of
every nature, building, machinery etc. taken in exchange or replacement by the mortgagor "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". No clearer language could have been
chosen.
Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage must be registered and
must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify them, We
say that such law does not apply to this case.
As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no doubt that the
provisions of said code must govern their interpretation and the question of their validity. It happens however, that Articles 334 and 1877
of the old Civil Code are substantially reproduced in Articles 415 and 2127, respectively, of the new Civil Code. It is, therefore,
immaterial in this case whether we take the former or the latter as guide in deciding the point under consideration.
Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles,
instruments or replacements intended by owner of the tenement for an industry or works which may be carried on in a building or on a
piece of land, and shall tend directly to meet the needs of the said industry or works.
On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real
properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".
We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives the character of real
property to machinery, liquid containers, instruments or replacements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade
or industry.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar central includes not
only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as
well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof .
It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the
development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the
premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real estate
mortgages involved herein which were registered as such did not have to be registered a second time as chattel mortgages in
order to bind the "after acquired properties" and affect third parties.
But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after acquired properties" did
not become immobilized because DALCO did not own the whole area of its lumber concession all over which said properties were
scattered.
The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the former, the Davao
Sawmill Company, Inc., had repeatedly treated the machinery therein involved as personal property by executing chattel mortgages
thereon in favor of third parties, while in the present case the parties had treated the "after acquired properties" as real properties by
expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by
them. In the Davao Sawmill decision it was, in fact, stated that "the characterization of the property as chattels by the appellant is
indicative of intention and impresses upon the property the character determined by the parties" (61 Phil. 112, emphasis supplied). In
the present case, the characterization of the "after acquired properties" as real property was made not only by one but by both
interested parties. There is, therefore, more reason to hold that such consensus impresses upon the properties the character
determined by the parties who must now be held in estoppel to question it.
Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58) where it was held that while
under the general law of Puerto Rico, machinery placed on property by a tenant does not become immobilized, yet, when the tenant
places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against
his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the
"after acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed further that the same
shall become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence in the record
that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed validity until the present case was
filed. Consequently all of them must be deemed barred from denying that the properties in question had become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their contention that the
mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL.
Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties" superior to the mortgage lien
constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to said properties they are "unpaid sellers"; that as
such they had not only a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to DALCO.
This contention it is obvious would have validity only if it were true that DAMCO and CONNELL were the suppliers or vendors of
the "after acquired properties". According to the record, plaintiffs did not know their exact identity and description prior to the filing of the
case bar because DALCO, in violation of its obligation under the mortgages, had failed and refused theretofore to submit a complete list
thereof. In the course of the proceedings, however, when defendants moved to dissolve the order of receivership and the writ of
preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the
properties aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire properties," and
engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of the auditors and
its annexes (Exhibits V, V-1 V4) 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.
The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no consequence and does
not make the rescission valid and legally effective. It must be stated clearly, however, in justice to Belden, that, as a member of the
Board of Directors of DALCO, he opposed the resolution of December 15, 1952 passed by said Board and the subsequent rescission of
the sales.
Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory
note sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the plaintiffs
had no cause of action. Upon this question the lower court says the following in the appealed judgment;
The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace, conceded an extension of
time to pay up to 1 April, 1953 while the action was filed on 12 February, 1953, but, as to this, the Court taking it that there is
absolutely no debate that Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that
the debtor thereby lost the benefit to the period.
x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);
and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate, P1,200,000 excluding
interest while the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts was
P1,614,675.94, Exh. 1, Exh. V, report of auditors, and as a matter of fact, almost all the properties were sold afterwards for
only P175,000.00, page 47, Vol. IV, and the Court understanding that when the law permits the debtor to enjoy the benefits of
the period notwithstanding that he is insolvent by his giving a guaranty for the debt, that must mean a new and efficient
guaranty, must concede that the causes of action for collection of the notes were not premature.
Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding that, when the action
was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the Civil Code. We find, however, that the
finding of the trial court is sufficiently supported by the evidence particularly the resolution marked as Exhibit K, which shows that on

December 16, 1952 in the words of the Chairman of the Board DALCO was "without funds, neither does it expect to have any
funds in the foreseeable future." (p. 64, record on appeal).
The remaining issues, namely, 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; whether or not plaintiffs are entitled to damages; and, 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 heretofore.
As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of
our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs
in payment of the money obligations secured by the mortgages under foreclosure.
On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code)
provides that creditors are protected in cases of contracts intended to defraud them; and that any third person who induces another to
violate his contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21
which may be given retroactive effect (Arts. 225253) or under Arts. 1902 and 2176 of the Old Civil Code.
The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon its
maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by
attempting to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect
their rights thus jeopardized. Defendants' liability for damages is therefore clear.
However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference between the alleged
total obligation secured by the mortgages amounting to around P1,200,000.00, plus the stipulated interest and attorney's fees, on the
one hand, and the proceeds obtained from the sale of "after acquired properties", and of those that were not claimed neither by
DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the mortgages under foreclosure has
not been effected, and considering further the lack of evidence showing that the true value of all the properties already sold was not
realized because their sale was under stress, We feel that We do not have before Us the true elements or factors that should determine
the amount of damages that plaintiffs are entitled recover from defendants. 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.
In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover from the defendants,
the record of this case shall be remanded below for the corresponding proceedings.
Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

G.R. No. 169211

March 6, 2013

STAR TWO (SPV-AMC), INC.,1 Petitioner,

vs.
PAPER CITY CORPORATION OF THE PHILIPPINES, Respondent.
DECISION
PEREZ, J.:
For review before this Court is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now substituted by
Star Two (SPV-AMC), Inc. by virtue of Republic Act No. 91822 otherwise known as the "Special Purpose Vehicle Act of 2002," assailing
the 8 March 2005 Decision and 8 August 2005 Resolution of the Special Fourth Division of the Court of Appeals (CA) in CA-G.R. SP
No. 82022 upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela Regional Trial Court (RTC) ruling that the
subject machineries and equipments of Paper City Corporation (Paper City) are movable properties by agreement of the parties and
cannot be considered as included in the extrajudicial foreclosure sale of the mortgaged land and building of Paper City.3
The facts as we gathered from the records are:
Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co. (Metrobank) and Union Bank of the Philippines
(Union Bank) are banking corporations duly organized and existing under the laws of the Philippines.
On the other hand, respondent Paper City is a domestic corporation engaged in the manufacture of paper products particularly cartons,
newsprint and clay-coated paper.4
From 1990-1991, Paper City applied for and was granted the following loans and credit accommodations in peso and dollar
denominations by RCBC: P10,000,000.00 on 8 January 1990,5 P14,000,000.00 on 19 July 1990,6P10,000,000.00 on 28 June
1991,7 and P16,615,000.00 on 28 November 1991.8 The loans were secured by four (4) Deeds of Continuing Chattel Mortgages on its
machineries and equipments found inside its paper plants.
On 25 August 1992, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade was
executed by RCBC through its Branch Operation Head Joey P. Singh and Asst. Vice President Anita O. Abad over the merchandise and
stocks-in-trade covered by the continuing chattel mortgages.9
On 26 August 1992, RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank) entered into a
Mortgage Trust Indenture (MTI) with Paper City. In the said MTI, Paper City acquired an additional loan of One Hundred Seventy Million
Pesos (P170,000,000.00) from the creditor banks in addition to the previous loan from RCBC amounting to P110,000,000.00 thereby
increasing the entire loan to a total of P280,000,000.00. The old loan of P110,000,000.00 was partly secured by various parcels of land
covered by TCT Nos. T-157743, V-13515, V-1184, V-1485, V-13518 and V-13516 situated in Valenzuela City pursuant to five (5) Deeds
of Real Estate Mortgage dated 8 January 1990, 27 February 1990, 19 July 1990, 20 February 1992 and 12 March 1992.10 The new loan
obligation of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate Mortgage and additional real and personal
properties described in an annex to MTI, Annex "B."11 Annex "B" of the said MTI covered the machineries and equipments of Paper
City.12
The MTI was later amended on 20 November 1992 to increase the contributions of the RCBC and Union Bank toP80,000,000.00
and P70,000,000.00, respectively. As a consequence, they executed a Deed of Amendment to MTI13 but still included as part of the
mortgaged properties by way of a first mortgage the various machineries and equipments located in and bolted to and/or forming part of
buildings generally described as:
Annex "A"
A.

Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities

B.

Pollution Tank Nos. 1 and 2.

Reserve Water Tank and Swimming Pool
Waste Water Treatment Tank

Elevated Concrete Water Tank

And other Improvements listed in Annex "A"
C.

Power Plants Nos. 1 and 2

Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"

D.

D. Material Handling Equipment

Paper Plant No. 3

A Second Supplemental Indenture to the 26 August 1992 MTI was executed on 7 June 1994 to increase the amount of the loan
from P280,000,000.00 to P408,900,000.00 secured against the existing properties composed of land, building, machineries and
equipments and inventories described in Annexes "A" and "B."14
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI was executed on 24 January 1995 to increase the existing loan
obligation of P408,900,000.00 to P555,000,000.00 with an additional security composed of a newly constructed two-storey building and
other improvements, machineries and equipments located in the existing plant site.15
Paper City was able to comply with its loan obligations until July 1997. But economic crisis ensued which made it difficult for Paper City
to meet the terms of its obligations leading to payment defaults.16 Consequently, RCBC filed a Petition for Extrajudicial Foreclosure
Under Act No. 3135 Against the Real Estate Mortgage executed by Paper City on 21 October 1998.17 This petition was for the extrajudicial foreclosure of eight (8) parcels of land including all improvements thereon enumerated as TCT Nos. V-9763, V-13515, V-13516,
V-13518, V-1484, V-1485, V-6662 and V-6663 included in the MTI dated 26 August 1992, Supplemental
MTI dated 20 November 1992, Second Supplemental Indenture on the MTI dated 7 June 1994 and Third Supplemental Indenture on
the MTI dated 24 January 1995.18 Paper City then had an outstanding obligation with the creditor banks adding up to Nine Hundred
One Million Eight Hundred One Thousand Four Hundred Eighty-Four and 10/100 Pesos (P901,801,484.10), inclusive of interest and
penalty charges.19
A Certificate of Sale was executed on 8 February 1999 certifying that the eight (8) parcels of land with improvements thereon were sold
on 27 November 1998 in the amount of Seven Hundred Two Million Three Hundred Fifty-One Thousand Seven Hundred Ninety-Six
Pesos and 28/100 (P702,351,796.28) in favor of the creditor banks RCBC, Union Bank and Metrobank as the highest bidders.20
This foreclosure sale prompted Paper City to file a Complaint21 docketed as Civil Case No. 164-V-99 on 15 June 1999 against the
creditor banks alleging that the extra-judicial sale of the properties and plants was null and void due to lack of prior notice and
attendance of gross and evident bad faith on the part of the creditor banks. In the alternative, it prayed that in case the sale is declared
valid, to render the whole obligation of Paper City as fully paid and extinguished. Also prayed for was the return of P5,000,000.00 as
excessive penalty and the payment of damages and attorneys fees.
In the meantime, Paper City and Union Bank entered into a Compromise Agreement which was later approved by the trial court on 19
November 2001. It was agreed that the share of Union Bank in the proceeds of the foreclosure shall be up to 34.23% of the price and
the remaining possible liabilities of Paper City shall be condoned by the bank. Paper City likewise waived all its claim and counter
charges against Union Bank and agreed to turn-over its proportionate share over the property within 120 days from the date of
agreement.22
On the other hand, the negotiations between the other creditor banks and Paper City remained pending. During the interim, Paper City
filed with the trial court a Manifestation with Motion to Remove and/or Dispose Machinery on 18 December 2002 reasoning that the
machineries located inside the foreclosed land and building were deteriorating. It posited that since the machineries were not included
in the foreclosure of the real estate mortgage, it is appropriate that it be removed from the building and sold to a third party.23
Acting on the said motion, the trial court, on 28 February 2003 issued an Order denying the prayer and ruled that the machineries and
equipments were included in the annexes and form part of the MTI dated 26 August 1992 as well as its subsequent amendments.
Further, the machineries and equipments are covered by the Certificate of Sale issued as a consequence of foreclosure, the certificate
stating that the properties described therein with improvements thereon were sold to creditor banks to the defendants at public
auction.24
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was favorably granted by the trial court in its Order dated 15
August 2003. The court justified the reversal of its order on the finding that the disputed machineries and equipments are chattels by
agreement of the parties through their inclusion in the four (4) Deeds of Chattel Mortgage dated 28 January 1990, 19 July 1990, 28
June 1991 and 28 November 1991. It further ruled that the deed of cancellation executed by RCBC on 25 August 1992 was not valid

because it was done unilaterally and without the consent of Paper City and the cancellation only refers to the merchandise/stocks-intrade and not to machineries and equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade the court to reverse its 15 August 2003 Order. However, the same was
denied by the trial court through its 1 December 2003 Order reiterating the finding and conclusion of the previous Order.27
Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65 to annul the Orders dated 15 August 2003 and 1 December
2003 of the trial court,28 for the reasons that:
I. Paper City gave its conformity to consider the subject machineries and equipment as real properties when the president and
Executive Vice President of Paper City signed the Mortgage Trust Indenture as well as its subsequent amendments and all
pages of the annexes thereto which itemized all properties that were mortgaged.29
II. Under Section 8 of Act No. 1508, otherwise known as "The Chattel Mortgage Law" the consent of the mortgagor (Paper
City) is not required in order to cancel a chattel mortgage. Thus the "Cancellation of Deed of Continuing Chattel Mortgage on
Inventory of Merchandise/Stocks-in-Trade" dated August 25, 1992 is valid and binding on the Paper City even assuming that it
was executed unilaterally by petitioner RCBC.30
III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes "A" to "D" to the December 18, 2003 "Manifestation
with Motion to Remove and/or Dispose of Machinery" were executed from January 8, 1990 until November 28, 1991. On the
other hand, the "Cancellation of Deed of Continuing Chattel Mortgage" was executed on August 25, 1992 while the MTI and
the subsequent supplemental amendments thereto were executed from August 26, 1992 until January 24, 1995. It is of the
contention of RCBC that Paper Citys unreasonable delay of ten
(10) years in assailing that the disputed machineries and equipments were personal amounted to estoppel and ratification of
the characterization that the same were real properties.31
IV. The removal of the subject machineries or equipment is not among the reliefs prayed for by the Paper City in its June 11,
1999 Complaint. The Paper City sought the removal of the subject machineries and equipment only when it filed its December
18, 2002 Manifestation with Motion to Remove and/or Dispose of Machinery.32
V. Paper City did not specify in its various motions filed with the respondent judge the subject machineries and equipment that
are allegedly excluded from the extrajudicial foreclosure sale.33
VI. The machineries and equipments mentioned in the four (4) Deeds of Chattel Mortgage that were attached on the
Manifestation with Motion to Remove and/or Dispose of Machinery are the same machineries and equipments included in the
MTI and supplemental amendments, hence, are treated by agreement of the parties as real properties.34
In its Comment,35 Paper City refuted the claim of RCBC that it gave its consent to consider the machineries and equipments as real
properties. It alleged that the disputed properties remained within the purview of the existing chattel mortgages which in fact were
acknowledged by RCBC in the MTI particularly in Section 11.07 which reads:
Section 11.07. This INDENTURE in respect of the MORTGAGE OBLIGATIONS in the additional amount not exceeding TWO
HUNDRED TWENTY MILLION SIX HUNDRED FIFTEEN THOUSAND PESOS (P220,615,000.00) shall be registered with the Register
of Deeds of Valenzuela, Metro Manila, apportioned based on the corresponding loanable value of the MORTGAGED PROPERTIES,
viz:
a. Real Estate Mortgage P206,815,000.00
b. Chattel Mortgage P13,800,000.0036
Paper City argued further that the subject machineries and equipments were not included in the foreclosure of the mortgage on real
properties particularly the eight (8) parcels of land. Further, the Certificate of Sale of the Foreclosed Property referred only to "lands and
improvements" without any specification and made no mention of the inclusion of the subject properties.37
In its Reply,38 RCBC admitted that there was indeed a provision in the MTI mentioning a chattel mortgage in the amount
of P13,800,000.00. However, it justified that its inclusion in the MTI was merely for the purpose of ascertaining the amount of the loan to
be extended to Paper City.39 It reiterated its position that the machineries and equipments were no longer treated as chattels but
already as real properties following the MTI.40
On 8 March 2005, the CA affirmed41 the challenged orders of the trial court. The dispositive portion reads:

WHEREFORE, finding no grave abuse of discretion committed by public respondent, the instant petition is hereby DISMISSED for lack
of merit. The assailed Orders dated 15 August and 2 December 2003, issued by Hon. Judge Floro P. Alejo are hereby AFFIRMED. No
costs at this instance.42
The CA relied on the "plain language of the MTIs:
Undoubtedly, 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 petitioners claims.43
It was also ruled that the subject machineries and equipments were not included in the extrajudicial foreclosure sale. The claim of
inclusion was contradicted by the very caption of the petition itself, "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage
Under Act No. 3135 As Amended." It opined further that this inclusion was further stressed in the Certificate of Sale which enumerated
only the mortgaged real properties bought by RCBC without the subject properties.44
RCBC sought reconsideration but its motion was denied in the CAs Resolution dated 8 August 2005.
RCBC before this Court reiterated all the issues presented before the appellate court:
1. Whether the unreasonable delay of ten (10) years in assailing that the disputed machineries and equipments were personal
properties amounted to estoppel on the part of Paper City;
2. Whether the Cancellation of Deed of Continuing Mortgage dated 25 August 1992 is valid despite the fact that it was
executed without the consent of the mortgagor Paper City;
3. Whether the subsequent contracts of the parties such as Mortgage Trust Indenture dated 26 August 1992 as well as the
subsequent supplementary amendments dated 20 November 1992, 7 June 1992, and 24 January 1995 included in its
coverage of mortgaged properties the subject machineries and equipment; and
4. Whether the subject machineries and equipments were included in the extrajudicial foreclosure dated 21 October 1998
which in turn were sold to the creditor banks as evidenced by the Certificate of Sale dated 8 February 1999.
We grant the petition.
By contracts, all uncontested in this case, machineries and equipments are included in the mortgage in favor of RCBC, in the
foreclosure of the mortgage and in the consequent sale on foreclosure also in favor of petitioner.
The mortgage contracts are the original MTI of 26 August 1992 and its amendments and supplements on 20 November 1992, 7 June
1994, and 24 January 1995. The clear agreements between RCBC and Paper City follow:
The original MTI dated 26 August 1992 states that:
MORTGAGE TRUST INDENTURE
This MORTGAGE TRUST INDENTURE, executed on this day of August 26, 1992, by and between:
PAPER CITY CORPORATION OF THE PHILIPPINES, x x x hereinafter referred to as the "MORTGAGOR");
-andRIZAL COMMERCIAL BANKING CORPORATION, x x x (hereinafter referred to as the "TRUSTEE").
xxxx
WHEREAS, against the same mortgaged properties and additional real and personal properties more particularly described in ANNEX
"B" hereof, the MORTGAGOR desires to increase their borrowings to TWO HUNDRED EIGHTY MILLION PESOS (P280,000,000.00)
or an increase of ONE HUNDRED SEVENTY MILLION PESOS (P170,000,000.00) xxx from various banks/financial institutions;
xxxx

GRANTING CLAUSE
NOW, THEREFORE, this INDENTURE witnesseth:
THAT the MORTGAGOR in consideration of the premises and of the acceptance by the TRUSTEE of the trust hereby created, and in
order to secure the payment of the MORTGAGE OBLIGATIONS which shall be incurred by the MORTGAGOR pursuant to the terms
hereof xxx hereby states that with the execution of this INDENTURE it will assign, transfer and convey as it has hereby ASSIGNED,
TRANSFERRED and CONVEYED by way of a registered first mortgage unto RCBC x x x the various parcels of land covered by
several Transfer Certificates of Title issued by the Registry of Deeds, including the buildings and existing improvements thereon, as well
as of the machinery and equipment more particularly described and listed that is to say, the real and personal properties listed in
Annexes "A" and "B" hereof of which the MORTGAGOR is the lawful and registered owner.45(Emphasis and underlining ours)
The Deed of Amendment to MTI dated 20 November 1992 expressly provides:
NOW, THEREFORE, premises considered, the parties considered have amended and by these presents do further amend the
Mortgage Trust Indenture dated August 26, 1992 including the Real Estate Mortgage as follows:
xxxx
2. The Mortgage Trust Indenture and the Real Estate Mortgage are hereby amended to include as part of the Mortgage Properties, by
way of a first mortgage and for pari-passu and pro-rata benefit of the existing and new creditors, various machineries and equipment
owned by the Paper City, located in and bolted to and forming part of the following, generally describes as x x x more particularly
described and listed in Annexes "A" and "B" which are attached and made integral parts of this Amendment. The machineries and
equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the parcels of land subject of the
Mortgage Trust Indenture and the Real Estate Mortgage.46 (Emphasis and underlining ours)
A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June 1994 to increase the amount of loan
from P280,000,000.00 to P408,900,000.00 also contains a similar provision in this regard:
WHEREAS, the Paper City desires to increase its borrowings to be secured by the INDENTURE from PESOS: TWO HUNDRED
EIGHTY MILLION (P280,000,000.00) to PESOS: FOUR HUNDRED EIGHT MILLION NINE HUNDRED THOUSAND
(P408,900,000.00) or an increase of PESOS: ONE HUNDRED TWENTY EIGHT MILLION NINE HUNDRED THOUSAND
(P128,900,000.00) x x x which represents additional loan/s granted to the Paper City to be secured against the existing properties
composed of land, building, machineries and equipment and inventories more particularly described in Annexes "A" and "B" of the
INDENTURE x x x.47
(Emphasis and underlining ours)
Finally, a Third Supplemental Indenture to the 26 August 1992 MTI executed on 24 January 1995 contains a similar provision:
WHEREAS, in order to secure NEW/ADDITIONAL LOAN OBLIGATION under the Indenture, there shall be added to the collateral pool
subject of the Indenture properties of the Paper City composed of newly constructed two (2)-storey building, other land improvements
and machinery and equipment all of which are located at the existing Plant Site in Valenzuela, Metro Manila and more particularly
described in Annex "A" hereof x x x.48 (Emphasis and underlining ours)
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,49 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.
It has been explained by the Supreme Court in Norton Resources and Development Corporation v. All Asia Bank Corporation50 in
reiteration of the ruling in Benguet Corporation v. Cabildo51 that:
x x x A court's purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them.
The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous.
A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the
contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. x x x

Then till now the pronouncement has been that if the language used is as clear as day and readily understandable by any ordinary
reader, there is no need for construction.52
The case at bar is covered by the rule.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks and Paper City intended
from the very first execution of the indentures that the machineries and equipments enumerated in Annexes "A" and "B" are included.
Obviously, with the continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had to offer all
valuable properties acceptable to the creditor banks.
The plain and obvious inclusion in the mortgage of the machineries and equipments of Paper City escaped the attention of the CA
which, instead, turned to another "plain language of the MTI" that "described the same as personal properties." It was error for the CA
to deduce from the "description" exclusion from the mortgage.
1. The MTIs did not describe the equipments and machineries as personal property. Had the CA looked into Annexes "A" and "B" which
were referred to by the phrase "real and personal properties," it could have easily noted that the captions describing the listed
properties were "Buildings," "Machineries and Equipments," "Yard and Outside," and "Additional Machinery and Equipment." No
mention in any manner was made in the annexes about "personal property." Notably, while "personal" appeared in the granting clause
of the original MTI, the subsequent Deed of Amendment specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the
parcels of land subject of the Mortgage Trust Indenture and the Real Estate Mortgage.
The word "personal" was deleted in the corresponding granting clauses in the Deed of Amendment and in the First, Second and Third
Supplemental Indentures.
2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by
law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person. (Underlining ours)
In the early case of Bischoff v. Pomar and Cia. General de Tabacos,53 the Court ruled that even if the machinery in question was not
included in the mortgage expressly, Article 111 of the old Mortgage Law provides that chattels permanently located in a building, either
useful or ornamental, or for the service of some industry even though they were placed there after the creation of the mortgage shall be
considered as mortgaged with the estate, provided they belong to the owner of said estate. The provision of the old Civil Code was
cited. Thus:
Article 1877 provides that a mortgage includes the natural accessions, improvements, growing fruits, and rents not collected when the
obligation is due, and the amount of the indemnities granted or due the owner by the underwriters of the property mortgaged or by
virtue of the exercise of eminent domain by reason of public utility, with the declarations, amplifications, and limitations established by
law, in case the estate continues in the possession of the person who mortgaged it, as well as when it passes into the hands of a third
person.54
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co.55 relied on this provision. The issue was whether the machineries and
accessories were included in the mortgage and the subsequent sale during public auction. This was answered in the affirmative by the
Court when it ruled that the machineries were integral parts of said sugar central hence included following the principle of law that the
accessory follows the principal.
Further, in the case of Manahan v. Hon. Cruz,56 this Court denied the prayer of Manahan to nullify the order of the trial court including
the building in question in the writ of possession following the public auction of the parcels of land mortgaged to the bank. It upheld the
inclusion by relying on the principles laid upon in Bischoff v. Pomar and Cia. General de Tabacos57 and Cu Unjieng e Hijos v. Mabalacat
Sugar Co.58
In Spouses Paderes v. Court of Appeals,59 we reiterated once more the Cu Unjieng e Hijos ruling and approved the inclusion of
machineries and accessories installed at the time the mortgage, as well as all the buildings, machinery and accessories belonging to
the mortgagor, installed after the constitution thereof.
3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and equipments of
respondent. While captioned as a "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended,"
the averments state that the petition is based on "x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust

Indenture, the Second Supplemental Indenture to the Mortgage Trust Indenture, and the Third Supplemental Indenture to the Mortgage
Trust Indenture (hereinafter collectively referred to as the Indenture) duly notarized and entered as x x x."60 Noting that herein
respondent has an outstanding obligation in the total amount of Nine Hundred One Million Eight Hundred One Thousand Four Hundred
Eighty Four and 10/100 Pesos (P901,801,484.10), the petition for foreclosure prayed that a foreclosure proceedings "x x x on the
aforesaid real properties, including all improvements thereon covered by the real estate mortgage be undertaken and the appropriate
auction sale be conducted x x x."61
Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states through the Deed of
Amendment that the machineries and equipments listed in Annexes "A" and "B" form part of the improvements listed and located on the
parcels of land subject of the mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in the petition.
Indeed, the lower courts ought to have noticed the fact that the chattel mortgages adverted to were dated 8 January 1990, 19 July
1990, 28 June 1991 and 28 November 1991. The real estate mortgages which specifically included the machineries and equipments
were subsequent to the chattel mortgages dated 26 August 1992, 20 November 1992, 7 June 1994 and 24 January 1995. Without
doubt, the real estate mortgages superseded the earlier chattel mortgages.1wphi1
The real estate mortgage over the machineries and equipments is even in full accord with the classification of such properties by the
Civil Code of the Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
WHEREFORE, the petition is GRANTED. Accordingly, the Decision and Resolution of the Court of Appeals dated 8 March 2005 and 8
August 2005 upholding the 15 August 2003 and 1 December 2003 Orders of the Valenzuela Regional Trial Court are hereby
REVERSED and SET ASIDE and the original Order of the trial court dated 28 February 2003 denying the motion of respondent to
remove or dispose of machinery is hereby REINSTATED.
SO ORDERED.

PABLO P. GARCIA,

G.R. No. 158891

Petitioner,
Present:

LEONARDO-DE CASTRO,*
Acting Chairperson,
BERSAMIN,
- versus -

DEL CASTILLO,
VILLARAMA, JR., and
PERLAS-BERNABE,** JJ.

Promulgated:

YOLANDA VALDEZ VILLAR,

Respondent.

June 27, 2012

x---------------------------------------------------- x

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari[1] of the February 27, 2003 Decision [2] and July 2, 2003 Resolution[3] of the Court of
Appeals in CA-G.R. SP No. 72714, which reversed the May 27, 2002 Decision[4] of the Regional Trial Court (RTC), Branch 92 of
Quezon City in Civil Case No. Q-99-39139.

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property) located at Malindang St., Quezon
City, covered by Transfer Certificate of Title (TCT) No. RT-67970(253279).[5]

On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the subject property to Yolanda
Valdez Villar (Villar) as security for a loan in the amount of Two Million Two Hundred Thousand Pesos (P2,200,000.00).[6]

On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject property to Pablo P. Garcia
(Garcia) to secure her loan of One Million Eight Hundred Thousand Pesos (P1,800,000.00).[7]

Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:

REAL ESTATE MORTGAGE

Entry No. 6537/T-RT-67970(253279) MORTGAGE In favor of Yolanda Valdez Villar m/to Jaime Villar to
guarantee a principal obligation in the sum of P2,200,000- mortgagees consent necessary in case of subsequent
encumbrance or alienation of the property; Other conditions set forth in Doc. No. 97, Book No. VI, Page No. 20 of the
Not. Pub. of Diana P. Magpantay

Date of Instrument: 7-6-93

Date of Inscription: 7-7-93

SECOND REAL ESTATE MORTGAGE

Entry No. 821/T-RT-67970(253279) MORTGAGE In favor of Pablo Garcia m/to Isabela Garcia to guarantee
a principal obligation in the sum of P1,800,000.00 mortgagees consent necessary in case of subsequent
encumbrance or alienation of the property; Other conditions set forth in Doc. No. 08, Book No. VII, Page No. 03 of the
Not. Pub. of Azucena Espejo Lozada

Date of Instrument: 10/10/94

Date of Inscription: 10/11/94
LRC Consulta No. 169[8]

On November 21, 1996, Galas sold the subject property to Villar for One Million Five Hundred Thousand Pesos
(P1,500,000.00), and declared in the Deed of Sale [9] that such property was free and clear of all liens and encumbrances of any kind
whatsoever.[10]

On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No. RT-67970(253279) was cancelled and
TCT No. N-168361[11] was issued in the name of Villar. Both Villars and Garcias mortgages were carried over and annotated at the
back of Villars new TCT.[12]

On October 27, 1999, Garcia filed a Petition for Mandamus with Damages[13] against Villar before the RTC, Branch 92 of
Quezon City. Garcia subsequently amended his petition to a Complaint for Foreclosure of Real Estate Mortgage with Damages.
[14]
Garcia alleged that when Villar purchased the subject property, she acted in bad faith and with malice as she knowingly and willfully
disregarded the provisions on laws on judicial and extrajudicial foreclosure of mortgaged property. Garcia further claimed that when
Villar purchased the subject property, Galas was relieved of her contractual obligation and the characters of creditor and debtor were
merged in the person of Villar. Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villars original status as
first mortgagee, which is the creditor with the right to foreclose. Garcia further asserted that he had demanded payment from Villar,
[15]
whose refusal compelled him to incur expenses in filing an action in court.[16]

Villar, in her Answer,[17] claimed that the complaint stated no cause of action and that the second mortgage was done in bad
faith as it was without her consent and knowledge. Villar alleged that she only discovered the second mortgage when she had the
Deed of Sale registered. Villar blamed Garcia for the controversy as he accepted the second mortgage without prior consent from

her. She averred that there could be no subrogation as the assignment of credit was done with neither her knowledge nor prior
consent. Villar added that Garcia should seek recourse against Galas and Pingol, with whom he had privity insofar as the second
mortgage of property is concerned.

On May 23, 2000, the RTC issued a Pre-Trial Order[18] wherein the parties agreed on the following facts and issue:

STIPULATIONS OF FACTS/ADMISSIONS
The following are admitted:

1.

the defendant admits the second mortgage annotated at the back of TCT No. RT-67970 of Lourdes V. Galas
with the qualification that the existence of said mortgage was discovered only in 1996 after the sale;

2.

the defendant admits the existence of the annotation of the second mortgage at the back of the title despite the
transfer of the title in the name of the defendant;

3.

the plaintiff admits that defendant Yolanda Valdez Villar is the first mortgagee;

4.

the plaintiff admits that the first mortgage was annotated at the back of the title of the mortgagor Lourdes V.
Galas; and

5.

the plaintiff admits that by virtue of the deed of sale the title of the property was transferred from the previous
owner in favor of defendant Yolanda Valdez Villar.

xxxx

ISSUE

Whether or not the plaintiff, at this point in time, could judicially foreclose the property in question.

On June 8, 2000, upon Garcias manifestation, in open court, of his intention to file a Motion for Summary Judgment, [19] the
RTC issued an Order[20] directing the parties to simultaneously file their respective memoranda within 20 days.

On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of Merit [21] on the grounds that there was no
genuine issue as to any of the material facts of the case and that he was entitled to a judgment as a matter of law.

On June 28, 2000, Garcia filed his Memorandum [22] in support of his Motion for Summary Judgment and in compliance with the
RTCs June 8, 2000 Order. Garcia alleged that his equity of redemption had not yet been claimed since Villar did not foreclose the
mortgaged property to satisfy her claim.

On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File Her Memorandum. [23] This, however,
was denied[24] by the RTC in view of Garcias Opposition.[25]

On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of the plaintiff Pablo
P. Garcia and against the defendant Yolanda V. Villar, who is ordered to pay to the former within a period of not less
than ninety (90) days nor more than one hundred twenty (120) days from entry of judgment, the sum
of P1,800,000.00 plus legal interest from October 27, 1999 and upon failure of the defendant to pay the said amount
within the prescribed period, the property subject matter of the 2nd Real Estate Mortgage dated October 10, 1994
shall, upon motion of the plaintiff, be sold at public auction in the manner and under the provisions of Rules 39 and 68
of the 1997 Revised Rules of Civil Procedure and other regulations governing sale of real estate under execution in
order to satisfy the judgment in this case. The defendant is further ordered to pay costs.[26]

The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not operate to deprive Garcia
of his right as a second mortgagee. The RTC said that upon Galass 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. This, the RTC added, would have resulted in the extinguishment of the
mortgages.[27]

The RTC held that the second mortgage constituted in Garcias 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.[28]

Villar appealed[29] this Decision to the Court of Appeals based on the arguments that Garcia had no valid cause of action
against her; that he was in bad faith when he entered into a contract of mortgage with Galas, in light of the restriction imposed by the
first mortgage; and that Garcia, as the one who gave the occasion for the commission of fraud, should suffer. Villar further asseverated
that the second mortgage is a void and inexistent contract considering that its cause or object is contrary to law, moral, good customs,
and public order or public policy, insofar as she was concerned.[30]

Garcia, in his Memorandum,[31] reiterated his position that his equity of redemption remained unforeclosed since Villar did not
institute foreclosure proceedings. Garcia added that the mortgage, until discharged, follows the property to whomever it may be
transferred no matter how many times over it changes hands as long as the annotation is carried over.[32]

The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit:

WHEREFORE, the decision appealed from is REVERSED and another one entered DISMISSING the
complaint for judicial foreclosure of real estate mortgage with damages.[33]

The Court of Appeals declared that Galas was free to mortgage the subject property even without Villars consent as the
restriction that the mortgagees consent was necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate
Mortgage. In the same vein, the Court of Appeals said that the sale of the subject property to Villar was valid as it found nothing in the
records that would show that Galas violated the Deed of Real Estate Mortgage prior to the sale.[34]

In dismissing the complaint for judicial foreclosure of real estate mortgage with damages, the Court of Appeals held that Garcia
had no cause of action against Villar in the absence of evidence showing that the second mortgage executed in his favor by Lourdes V.
Galas [had] been violated and that he [had] made a demand on the latter for the payment of the obligation secured by said mortgage
prior to the institution of his complaint against Villar.[35]

On March 20, 2003, Garcia filed a Motion for Reconsideration [36] on the ground that the Court of Appeals failed to resolve the
main issue of the case, which was whether or not Garcia, as the second mortgagee, could still foreclose the mortgage after the subject
property had been sold by Galas, the mortgage debtor, to Villar, the mortgage creditor.

This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003 Resolution.

Garcia is now before this Court, with the same arguments he posited before the lower courts. In his Memorandum,[37] he
added that the Deed of Real Estate Mortgage contained a stipulation, which is violative of the prohibition on pactum commissorium.

Issues

The crux of the controversy before us boils down to the propriety of Garcias demand upon Villar to either pay Galass debt
ofP1,800,000.00, or to judicially foreclose the subject property to satisfy the aforesaid debt. This Court will, however, address the
following issues in seriatim:

1.

Whether or not the second mortgage to Garcia was valid;

2.

Whether or not the sale of the subject property to Villar was valid;

3.

Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum commissorium;

4.

Whether or not Garcias action for foreclosure of mortgage on the subject property can prosper.

Discussion

Validity of second mortgage to Garcia

and sale of subject property to Villar

At the onset, this Court would like to address the validity of the second mortgage to Garcia and the sale of the subject property
to Villar. We agree with the Court of Appeals that both are valid under the terms and conditions of the Deed of Real Estate Mortgage
executed by Galas and Villar.

While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a restriction on further
encumbrances without the mortgagees prior consent, this restriction was nowhere to be found in the Deed of Real Estate
Mortgage. As this Deed became the basis for the annotation on Galass title, its terms and conditions take precedence over the
standard, stamped annotation placed on her title. If it were the intention of the parties to impose such restriction, they would have and
should have stipulated such in the Deed of Real Estate Mortgage itself.

Neither did this Deed proscribe the sale or alienation of the subject property during the life of the mortgages. Garcias
insistence that Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy Galass debt is misplaced. The Deed of
Real Estate Mortgage merely provided for the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was
it stated in the Deed that Galas could not opt to sell the subject property to Villar, or to any other person. Such stipulation would have
been void anyway, as it is not allowed under Article 2130 of the Civil Code, to wit:

Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

Prohibition on pactum commissorium

Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagors attorney-in-fact, to sell the property in case of
default in the payment of the loan, is in violation of the prohibition on pactum commissorium, as stated under Article 2088 of the Civil
Code, viz:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.

The power of attorney provision in the Deed of Real Estate Mortgage reads:

5. Power of Attorney of MORTGAGEE. Effective upon the breach of any condition of this Mortgage, and in
addition to the remedies herein stipulated, the MORTGAGEE is likewise appointed attorney-in-fact of the
MORTGAGOR with full power and authority to take actual possession of the mortgaged properties, to sell, lease any
of the mortgaged properties, to collect rents, to execute deeds of sale, lease, or agreement that may be deemed
convenient, to make repairs or improvements on the mortgaged properties and to pay the same, and perform any
other act which the MORTGAGEE may deem convenient for the proper administration of the mortgaged
properties. The payment of any expenses advanced by the MORTGAGEE in connection with the purpose indicated
herein is also secured by this Mortgage. Any amount received from the sale, disposal or administration
abovementioned maybe applied by assessments and other incidental expenses and obligations and to the payment
of original indebtedness including interest and penalties thereon. The power herein granted shall not be revoked
during the life of this Mortgage and all acts which may be executed by the MORTGAGEE by virtue of said power are
hereby ratified.[38]
The following are the 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.[39]

Villars purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney
provision above did not provide that the ownership over the subject property would automatically pass to Villar upon Galass failure to
pay the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose
of the subject property, and to apply the proceeds to the payment of the loan. [40] 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.
Galass decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of
her rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate
contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galass
failure to discharge her debt, or that the sale was simulated to cover up such automatic transfer.

Propriety of Garcias action

for foreclosure of mortgage

The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:
Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for whose security it was constituted.

Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by the mortgagor. A
registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem.[41]

The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the purchaser or transferee is
necessarily bound to acknowledge and respect the encumbrance. [42] In fact, under Article 2129 of the Civil Code, the mortgage on the
property may still be foreclosed despite the transfer, viz:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment
of the part of the credit secured by the property which said third person possesses, in terms and with the formalities
which the law establishes.

While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been discharged, we
find that said mortgage subsists and is still enforceable. However, Villar, in buying the subject property with notice that it was
mortgaged, only undertook to pay such mortgage or allow the subject property to be sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the principal obligation,
and could not do so in law without the creditors consent.[43] Article 1293 of the Civil Code provides:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be
made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment
by the new debtor gives him the rights mentioned in articles 1236 and 1237.

Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol. [44] The case
ofE.C. McCullough & Co. v. Veloso and Serna[45] is square on this point:

The effects of a transfer of a mortgaged property to a third person are well determined by the Civil Code. According
to article 1879[46] of this Code, the creditor may demand of the third person in possession of the property mortgaged
payment of such part of the debt, as is secured by the property in his possession, in the manner and form established
by the law. The Mortgage Law in force at the promulgation of the Civil Code and referred to in the latter, provided,
among other things, that the debtor should not pay the debt upon its maturity after judicial or notarial demand, for
payment has been made by the creditor upon him. (Art. 135 of the Mortgage Law of the Philippines of
1889.) According to this, the obligation of the new possessor to pay the debt originated only from the right of the
creditor to demand payment of him, it being necessary that a demand for payment should have previously been
made upon the debtor and the latter should have failed to pay. And even if these requirements were complied with,
still the third possessor might abandon the property mortgaged, and in that case it is considered to be in the
possession of the debtor. (Art. 136 of the same law.) This clearly shows that the spirit of the Civil Code is to let the
obligation of the debtor to pay the debt stand although the property mortgaged to secure the payment of said debt
may have been transferred to a third person. While the Mortgage Law of 1893 eliminated these provisions, it
contained nothing indicating any change in the spirit of the law in this respect. Article 129 of this law, which provides
the substitution of the debtor by the third person in possession of the property, for the purposes of the giving of notice,
does not show this change and has reference to a case where the action is directed only against the property
burdened with the mortgage. (Art. 168 of the Regulation.)[47]

This pronouncement was reiterated in Rodriguez v. Reyes[48] wherein this Court, even before quoting the same above portion
inE.C. McCullough & Co. v. Veloso and Serna, held:

We find the stand of petitioners-appellants to be unmeritorious and untenable. The maxim caveat emptor
applies only to execution sales, and this was not one such. The mere fact that the purchaser of an immovable has
notice that the acquired realty is encumbered with a mortgage does not render him liable for the payment of the debt
guaranteed by the mortgage, in the absence of stipulation or condition that he is to assume payment of the mortgage
debt. The reason is plain: the mortgage is merely an encumbrance on the property, entitling the mortgagee to have
the property foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the
proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory undertaking for the
convenience and security of the mortgage creditor, and exists independently of the obligation to pay the debt secured
by it. The mortgagee, if he is so minded, can waive the mortgage security and proceed to collect the principal debt by
personal action against the original mortgagor.[49]
In view of the foregoing, 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.
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003 Resolution of the Court of
Appeals in CA-G.R. SP No. 72714.
SO ORDERED.

[G.R. No. 138292. April 10, 2002]

KOREA EXCHANGE BANK, petitioner, vs. FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN
SANG, respondents.
DECISION
QUISUMBING, J.:
This petition assails the order[1] dated April 16, 1999 of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N6689. Said order denied petitioners partial motion for reconsideration of the trial courts order [2] dated March 12, 1999 whereby
respondents were ordered to pay petitioner various sums of U.S. dollars as payment of the formers various loans with interest but
omitted to state that the property mortgaged as security for said loans be foreclosed and sold at public auction in case respondents fail
to pay their obligations to petitioner ninety days from entry of judgment.
The facts are summarized from the findings of the trial court.
On January 9, 1997, respondent Filkor Business Integrated, Inc. (Filkor), borrowed US$140,000 from petitioner Korea Exchange
Bank, payable on July 9, 1997. Of this amount, only US$40,000 was paid by Filkor.[3]
In addition, Filkor executed nine trust receipts in favor of petitioner, from June 26, 1997 to September 11, 1997. However, Filkor
failed to turn over to petitioner the proceeds from the sale of the goods, or the goods themselves as required by the trust receipts in
case Filkor could not sell them.[4]
In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to petitioner the proceeds of seventeen letters of credit
issued by the Republic Bank of New York and the Banque Leumi France, S.A. to pay for goods which Filkor sold to Segerman
International, Inc. and Davyco, S.A. When petitioner tried to collect the proceeds of the letters of credit by presenting the bills of
exchange drawn to collect the proceeds, they were dishonored because of discrepancies.[5]
Prior to all the foregoing, in order to secure payment of all its obligations, Filkor executed a Real Estate Mortgage on February 9,
1996. It mortgaged to petitioner the improvements belonging to it constructed on the lot it was leasing at the Cavite Export Processing
Zone Authority.[6] Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly and
severally with respondent Filkor to pay for the latters obligations to petitioner.[7]
As respondents failed to make good on their obligations, petitioner filed Civil Case No. N-6689 in the Regional Trial Court of
Cavite City, docketed asKorea Exchange Bank vs. Filkor Business Integrated, Inc. In its complaint, petitioner prayed that (a) it be paid
by respondents under its twenty-seven causes of action; (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.[8]

Petitioner moved for summary judgment pursuant to Section 1, Rule 35 of the 1997 Rules of Civil Procedure. On March 12, 1999,
the trial court rendered its order granting petitioners motion, reasoning as follows:
xxx
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. Section 7, Rule 8 of the Rules of Court allows copies of documents to be attached
to the pleading as an exhibit. Defendants are, therefore, deemed to have admitted the genuineness and due execution of all actionable
documents attached to the complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of
Court.
In the case at bar, there is clearly no substantial triable issue, hence, the motion for summary judgment filed by plaintiff is proper.
A summary of judgment is one granted by the court upon motion by a party for an expeditious settlement of the case, there appearing
from the pleadings, depositions, admissions and affidavits that there are no important questions or issues of fact involved (except as to
the amount of damages) and that, therefore, the moving party is entitled to a judgment as a matter of law (Sections 1, 2, 3, Rule 35,
1997 Rules of Civil Procedure).
The court having taken into account the pleadings of the parties as well as the affidavits attached to the motion for summary judgment
and having found that there is indeed no genuine issue as to any material fact and that plaintiff is entitled to a summary of judgment as
a matter of law, hereby renders judgment for the plaintiff and against the defendants, ordering said defendants jointly and severally to
pay plaintiff, as follows[9]
The trial court then rendered judgment in favor of petitioner, granting its prayers under all its twenty-seven causes of action. It,
however, failed to order that the property mortgaged by respondent Filkor be foreclosed and sold at public auction in the event that
Filkor fails to pay its obligations to petitioner.
Petitioner filed a motion for partial reconsideration of the trial courts order, praying that the aforesaid relief of foreclosure and sale
at public auction be granted. In an order dated April 16, 1999, the trial court denied petitioners motion, ruling as follows:
Plaintiff, in opting to file a civil action for the collection of defendants obligations, has abandoned its mortgage lien on the property
subject of the real estate mortgage.
The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply Co. vs. Co Kim,
et al., 71 Phil. 448, where the Supreme Court ruled that:
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.
WHEREFORE, the Partial Motion for Reconsideration filed by the plaintiff of the Courts Order dated March 12, 1999 is hereby denied
for lack of merit.
SO ORDERED.[10]
Hence, the present petition, where petitioner ascribes the following error to the trial court.
THE REGIONAL TRIAL COURT OF CAVITE CITY ERRED IN RULING THAT PETITIONER HAD ABANDONED THE REAL ESTATE
MORTGAGE IN ITS FAVOR, BECAUSE IT FILED A SIMPLE COLLECTION CASE. [11]
The resultant issue is whether or not petitioners complaint before the trial court was an action for foreclosure of a real estate
mortgage, or an action for collection of a sum of money. In addition, we must also determine if the present appeal was correctly lodged
before us rather than with the Court of Appeals.
In petitioners complaint before the trial court, Paragraph 183 thereof alleges:
183. To secure payment of the obligations of defendant Corporation under the First to the Twenty-Seventh Cause of Action, on
February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements
standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax
Declaration No. 5906-1 and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing
area building and the packing area building. (A copy of the Real Estate Mortgage is attached hereto as Annex SS and made an
integral part hereof.)[12]
This allegation satisfies in part the requirements of Section 1, Rule 68 of the 1997 Rules of Civil Procedure on foreclosure of real
estate mortgage, which provides:

SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real
estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of
the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary
evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all
persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be
made defendants in the action.
In Paragraph 183 above, the date and due execution of the real estate mortgage are alleged. The properties mortgaged are
stated and described therein as well. In addition, the names and residences of respondent Filkor, as mortgagor, and of petitioner, as
mortgagee, are alleged in paragraphs 1 and 2 of the complaint. [13] The dates of the obligations secured by the mortgage and the
amounts unpaid thereon are alleged in petitioners first to twenty-seventh causes of action.[14] Moreover, the very prayer of the complaint
before the trial court reads as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
xxx
2. Ordering that the property mortgaged be foreclosed and sold at public auction in case defendants fail to pay plaintiff within ninety
(90) days from entry of judgment.
x x x[15]
Petitioners allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction,
indicate that petitioners 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.[16] 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 Filkors property, and
that what it had filed was an action for collection of a sum of money.
Petitioners 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.
This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such action the court shall find the facts set forth in the
complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other
charges as approved by the court, and costs, andshall render judgment for the sum so found due and order that the same be paid to
the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from
entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. (Italics
supplied.)
Accordingly, the dispositive portion of the decision of the trial court dated March 12, 1999, must be modified to comply with the
provisions of Section 2 of Rule 68 of the 1997 Rules of Civil Procedure. This modification is subject to any appeal filed by respondents
of said decision.
On the propriety of the present appeal, we note that what petitioner impugns is the determination by the trial court of the nature of
action filed by petitioner, based on the allegations in the complaint. Such a determination as to the correctness of the conclusions
drawn from the pleadings undoubtedly involves a question of law.[17] As the present appeal involves a question of law, petitioner
appropriately filed it with this Court, pursuant to Section 1 of Rule 45 of the 1997 Rules of Civil Procedure, which provides:
SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or resolution
of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth. (Italics supplied).
There is no dispute with respect to the fact that when an appeal raises only pure questions of law, this Court has jurisdiction to
entertain the same.[18]
WHEREFORE, the petition is GRANTED. The Order dated March 12, 1999, of the Regional Trial Court of Cavite City, Branch 88,
in Civil Case No. N-6689 is hereby MODIFIED, to state that the mortgaged property of respondent Filkor be ordered foreclosed and
sold at public auction in the event said respondent fails to pay its obligations to petitioner within ninety (90) days from entry of judgment.
No pronouncement as to costs.
SO ORDERED.

[G.R. No. 128567. September 1, 2000]

HUERTA ALBA RESORT,

INC., respondents.

INC., petitioner,

vs. COURT

OF

APPEALS

and

SYNDICATED

MANAGEMENT

GROUP,

DECISION
PURISIMA, J.:
Litigation must at some time be terminated, even at the risk of occasional errors. Public policy dictates that once a judgment
becomes final, executory and unappealable, the prevailing party should not be denied the fruits of his victory by some subterfuge
devised by the losing party.Unjustified delay in the enforcement of a judgment sets at naught the role of courts in disposing justiciable
controversies with finality.

TheCase

At bar is a petition assailing the Decision, dated November 14, 1996, and Resolution, dated March 11, 1997, of the Court of
Appeals in CA-G.R. No. 38747, which set aside the Order, dated July 21, 1995, and Order, dated September 4, 1997, of the Regional
Trial Court of Makati City, in Civil Case No. 89-5424. The aforesaid orders of the trial court held that petitioner had the right to redeem
subject pieces of property within the one-year period prescribed by Section 78 of Republic Act No. 337 otherwise known as the General
Banking Act.
Section 78 of R.A. No. 337 provides that in case of a foreclosure of a mortgage in favor of a bank, banking or credit institution,
whether judicially or extrajudicially, the mortgagor shall have the right, within one year after the sale of the real estate as a result of the
foreclosure of the respective mortgage, to redeem the property.

TheFacts

The facts that matter are undisputed:

In a complaint for judicial foreclosure of mortgage with preliminary injunction filed on October 19, 1989, docketed as Civil Case
No. 89-5424 before the Regional Trial Court of Makati City, the herein private respondent sought the foreclosure of four (4) parcels of
land mortgaged by petitioner to Intercon Fund Resource, Inc. (Intercon).
Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee of a loan amounting to P8.5 million obtained by
petitioner from Intercon, in whose favor petitioner mortgaged the aforesaid parcels of land as security for the said loan.
In its answer below, petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on
the ground that the same was ultra vires. Petitioner also questioned during the trial the correctness of the charges and interest on the
mortgage debt in question.
On April 30, 1992, the trial court, through the then Judge now Court of Appeals Justice Buenaventura J. Guerrero, came out with
its decision granting herein private respondent SMGIs complaint for judicial foreclosure of mortgage, disposing as follows:
WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff the following:
(1) P8,500,000.00 representing the principal of the amount due;
(2) P850,000.00 as penalty charges with interest at 6% per annum, until fully paid;
(3) 22% per annum interest on the above principal from September 6, 1998, until fully paid;
(4) 5% of the sum total of the above amounts, as reasonable attorneys fees; and,
(5) Costs.

All the above must be paid within a period of not less than 150 days from receipt hereof by the defendant. In default of such payment,
the four parcels of land subject matter of the suit including its improvements shall be sold to realize the mortgage debt and costs, in the
manner and under the regulations that govern sales of real estate under execution.[1]
Petitioner appealed the decision of the trial court to the Court of Appeals, the appeal docketed as CA-G.R. CV No. 39243 before
the Sixth Division of the appellate court, which dismissed the case on June 29, 1993 on the ground of late payment of docket fees.
Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this Court via a petition for certiorari, docketed as G.R.
No. 112044, which this court resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals erred not in dismissing
the appeal of petitioner.
Petitioners motion for reconsideration of the dismissal of its petition in G.R. No. 112044 was denied with finality in this Courts
Resolution promulgated on February 16, 1994. On March 10, 1994, leave to present a second motion for reconsideration in G.R. No.
112044 or to submit the case for hearing by the Court en banc was filed, but to no avail. The Court resolved to deny the same on May
11, 1994.
On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No. 112044 became final and executory and was entered
in the Book of Entries of Judgment.
On July 4, 1994, private respondent filed with the trial court of origin a motion for execution of the Decision promulgated on April
30, 1992 in Civil Case No. 89-5424. The said motion was granted on July 13, 1994.
Accordingly, on July 15, 1994 a writ of execution issued and, on July 20, 1994, a Notice of Levy and Execution was issued by the
Sheriff concerned, who issued on August 1, 1994 a Notice of Sheriffs Sale for the auction of subject properties on September 6, 1994.
On August 23, 1994, petitioner filed with the same trial court an Urgent Motion to Quash and Set Aside Writ of Execution ascribing
to it grave abuse of discretion in issuing the questioned Writ of Execution. To support its motion, petitioner invited attention and argued
that the records of the case were still with the Court of Appeals 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. In petitioners own words, the dispute between the
parties was principally on the issue as to when the 150-day period within which Huerta Alba may exercise its equity of redemption
should be counted.
In its Order of September 2, 1994, the lower court denied petitioners urgent motion to quash the writ of execution in Civil Case
No. 89-5424, opining that subject judgment had become final and executory and consequently, execution thereof was a matter of right
and the issuance of the corresponding writ of execution became its ministerial duty.
Challenging the said order granting execution, petitioner filed once more with the Court of Appeals another petition
for certiorari and prohibition with preliminary injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds invoked
for its Motion to Quash Writ of Execution.
On September 6, 1994, the scheduled auction sale of subject pieces of properties proceeded and the private respondent was
declared the highest bidder. Thus, private respondent was awarded subject bidded pieces of property. The covering Certificate of Sale
issued in its favor was registered with the Registry of Deeds on October 21, 1994.
On September 7, 1994, petitioner presented an Ex-Parte Motion for Clarification asking the trial court to clarify whether or not the
twelve (12) month period of redemption for ordinary execution applied in the case.
On September 26, 1994, 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 Rules of Court.
Thereafter, petitioner then filed an Exception to the Order dated September 26, 1994 and Motion to Set Aside Said Order,
contending that the said Order materially altered the Decision dated April 30, 1992 which declared that the satisfaction of the judgment
shall be in the manner and under the regulation that govern sale of real estate under execution.
Meanwhile, in its Decision of September 30, 1994, the Court of Appeals resolved the issues raised by the petitioner in C.A.-G.R.
SP No. 35086, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed
from the date petitioner was notified of the Entry of Judgment in G.R. No. 112044; and that the 150-day period within which petitioner
may exercise its equity of redemption expired on September 11, 1994. Thus:
Petitioner must have received the resolution of the Supreme Court dated February 16, 1994 denying with finality its motion for
reconsideration in G.R. No. 112044 before March 14, 1994, otherwise the Supreme Court would not have made an entry of judgment
on March 14, 1994. While, computing the 150-day period, petitioner may have until September 11, 1994, within which to pay the
amounts covered by the judgment, such period has already expired by this time,and therefore, this Court has no more reason to pass
upon the parties opposing contentions, the same having become moot and academic.[2](Underscoring supplied).
Petitioner moved for reconsideration of the Decision of the Court of Appeals in C.A.-G.R. SP No. 35086. In its Motion for
Reconsideration dated October 18, 1994, petitioner theorized that the period of one hundred fifty (150) days should not be reckoned
with from Entry of Judgment but from receipt on or before July 29, 1994 by the trial court of the records of Civil Case No. 89-5424 from
the Court of Appeals. So also, petitioner maintained that it may not be considered in default, even after the expiration of 150 days from
July 29, 1994, because prior demand to pay was never made on it by the private respondent. According to petitioner, it was therefore,
premature for the trial court to issue a writ of execution to enforce the judgment.

The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of petitioners
Motion for Reconsideration in CA-G.R. SP No. 35086.
On December 23, 1994, the Court of Appeals denied petitioners motion for reconsideration in CA-G.R. SP No. 35086. Absent any
further action with respect to the denial of the subject motion for reconsideration, private respondent presented a Second Motion for
Confirmation of Certificate of Sale before the trial court.
As regards the Decision rendered on September 30, 1994 by the Court of Appeals in CA G.R. SP No. 35086 it became final and
executory on January 25, 1995.
On February 10, 1995, the lower court confirmed the sale of subject properties to the private respondent. The pertinent Order
declared that all pending incidents relating to the Order dated September 26, 1994 had become moot and academic. Conformably, the
Transfer Certificates of Title to subject pieces of property were then issued to the private respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking clarification of the date of
commencement of the one (1) year period for the redemption of the properties in question.
In its Resolution dated March 20, 1995, the Court of Appeals merely noted such Motion for Clarification since its Decision
promulgated on September 30, 1994 had already become final and executory; ratiocinating thus:
We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe was prepared by a
lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to delay further the disposition of this case.
Our decision of September 30, 1994 never dealt on the right and period of redemption of petitioner, but was merely circumscribed to the
question of whether respondent judge could issue a writ of execution in its Civil Case No. 89-5424 xxx.
We further ruled that the one-hundred fifty day period within which petitioner may exercise its equity of redemption should be counted,
not from the receipt of respondent court of the records of Civil Case No. 89-5424 but from the date petitioner was notified of the entry of
judgment made by the appellate court.
But we never made any pronouncement on the one- year right of redemption of petitioner because, in the first place, the foreclosure in
this case is judicial, and as such, the mortgagor has only the equity, not the right of redemption xxx. While it may be true that under
Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit institution,
whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which to redeem the
foreclosed property, the question of whether the Syndicated Management Group, Inc., is a bank or credit institution was never brought
before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for
clarification.[3] (Underscoring supplied).
Indeed, if petitioner did really act in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its
pretended right under Section 78 of R.A. No. 337 but it never did so.
At the earliest opportunity, when it filed its answer to the complaint for judicial foreclosure, petitioner should have averred in its
pleading that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not make any such
allegation in its answer.
From the said Resolution, petitioner took no further step such that on March 31, 1995, the private respondent filed a Motion for
Issuance of Writ of Possession with the trial court.
During the hearing called on April 21, 1995, the counsel of record of petitioner entered appearance and asked for time to interpose
opposition to the Motion for Issuance of /Writ of Possession.
On May 2, 1995, in opposition to private respondents Motion for Issuance of /writ of Possession, petitioner filed a Motion to
Compel Private Respondent to Accept Redemption. It was the first time petitioner ever asserted the right to redeem subject properties
under Section 78 of R.A. No. 337, the General Banking Act; theorizing that the original mortgagee, being a credit institution, its
assignment of the mortgage credit to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337. Therefore, it
should have the right to redeem subject properties within one year from registration of the auction sale, theorized the petitioner which
concluded that in view of its right of redemption, the issuance of the titles over subject parcels of land to the private respondent was
irregular and premature.
In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondents motion for a
writ of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the petitioner had until October 21,
1995 to redeem the said parcels of land, said Order ruled as follows:
It is undisputed that Intercon is a credit institution from which defendant obtained a loan secured with a real estate mortgage over four
(4) parcels of land.Assuming that the mortgage debt had not been assigned to plaintiff, there is then no question that defendant would
have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to the above quoted Section 78 of RA 337, as
amended.
However, the pivotal issue here is whether or not the defendant lost its right of redemption by virtue of the assignment of its mortgage
debt by Intercon to plaintiff, which is not a bank or credit institution. The issue is resolved in the negative. The right of redemption in this

case is vested by law and is therefore an absolute privilege which defendant may not lose even though plaintiff-assignee is not a bank
or credit institution (Tolentino versus Court of Appeals, 106 SCRA 513). Indeed, a contrary ruling will lead to a possible circumvention of
Section 78 because all that may be needed to deprive a defaulting mortgagor of his right of redemption is to assign his mortgage debt
from a bank or credit institution to one which is not. Protection of defaulting mortgagors, which is the avowed policy behind the
provision, would not be achieved if the ruling were otherwise. Consequently, defendant still possesses its right of redemption which it
may exercise up to October 21, 1995 only, which is one year from the date of registration of the certificate of sale of subject properties
(GSIS versus Iloilo, 175 SCRA 19, citing Limpin versus IAC, 166 SCRA 87).
Since the period to exercise defendants right of redemption has not yet expired, the cancellation of defendants transfer certificates of
title and the issuance of new ones in lieu thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating
reconveyance (see Sec. 63 (a) PD 1529, as amended).
WHEREFORE, the Court hereby rules as follows:
(1) The Motion for Issuance of Writ of Possession is hereby denied;
(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in an amount computed according to the terms stated in
the Writ of Execution dated July 15, 1994 plus all other related costs and expenses mentioned under Section 78, RA 337, as amended;
and
(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to the defendant the following titles of the four (4) parcels
of land, namely TCT Nos. V-38878, V-38879, V-38880, and V-38881, now in the name of plaintiff, and (b) to register the certificate of
sale dated October 7, 1994 and the Order confirming the sale dated February 10, 1995 by a brief memorandum thereof upon the
transfer certificates of title to be issued in the name of defendant, pursuant to Sec. 63 (a) PD 1529, as amended.
The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is now deemed resolved.
SO ORDERED.[4]
Private respondent interposed a Motion for Reconsideration seeking the reversal of the Order but to no avail. In its Order dated
September 4, 1995, the trial court denied the same.
To attack and challenge the aforesaid order of July 21, 1995 and subsequent Order of September 4, 1995 of the trial court, the
private respondent filed with this court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No. 121893, but absent
any special and cogent reason shown for entertaining the same, the Court referred the petition to the Court of Appeals, for proper
determination.
Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals gave due course to the petition and set aside the trial
courts Order dated July 21, 1995 and Order dated September 4, 1995.
In its Resolution of March 11, 1997, the Court of Appeals denied petitioners Motion for Reconsideration of the Decision
promulgated on November 14, 1996 in CA-G.R. No. 38747.
Undaunted, petitioner has come to this Court via the present petition, placing reliance on the assignment of errors, that:
I
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT THE COURT OF APPEALS (TWELFTH
DIVISION) IN CA G.R. SP NO. 35086 HAD RESOLVED WITH FINALITY THAT PETITIONER HUERTA ALBA HAD NO RIGHT
OF REDEMPTION BUT ONLY THE EQUITY OF REDEMPTION.
II
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN IGNORING THAT PETITIONER HUERTA ALBA POSSESSES
THE ONE-YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 (THE GENERAL BANKING ACT).
III
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT PRIVATE RESPONDENT SYNDICATED
MANAGEMENT GROUP, INC. IS ENTITLED TO THE ISSUANCE OF A WRIT OF POSSESSION OVER THE SUBJECT
PROPERTY.[5]
In its comment on the petition, private respondent countered that:

A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT RESOLVED WITH FINALITY IN C.A.-G.R. SP NO.
35086 THAT PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT OF THE SUBJECT PROPERTIES.
B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO EVADE THE FINALITY OF VARIOUS DECISIONS,
RESOLUTIONS AND ORDERS WHICH HELD THAT PETITIONER ONLY POSSESSES THE EQUITY OF REDEMPTION IN
RESPECT OF THE SUBJECT PROPERTIES.
C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY RAISING THE ISSUE OF ITS ALLEGED RIGHT OF
REDEMPTION.
D. IN HOLDING THAT THE PETITIONER HAD THE RIGHT OF REDEMPTION OVER THE SUBJECT PROPERTIES, THE
TRIAL COURT MADE A MOCKERY OF THE LAW OF THE CASE.[6]
And by way of Reply, petitioner argued, that:
I.
THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE POSSIBLY RESOLVED THEREIN - WHETHER WITH
FINALITY OR OTHERWISE - THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78,
R.A. NO. 337.
II.
THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED ITS RIGHT OF REDEMPTION UNDER SECTION 78,
R.A. NO. 337 IN TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF THE FORECLOSURE SALE, AND
WITHIN ONE (1) YEAR FROM THE DATE OF REGISTRATION OF THE CERTIFICATE OF SALE.
III.
THE PRINCIPLE OF THE LAW OF THE CASE HAS ABSOLUTELY NO BEARING HERE:
(1)
THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN FACT PREDICATED UPON THE FINALITY AND
CORRECTNESS OF THE DECISION IN CIVIL CASE NO. 89-5424.
(2)
THUS, THE RTCS ORDER RECOGNIZING PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78,
R.A. NO. 37 DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING, MODIFYING, OR SETTING ASIDE THE DECISION
IN CIVIL CASE NO. 89-5424.
The above arguments and counter-arguments advanced relate to the pivotal issue of whether or not the petitioner has the oneyear right of redemption of subject properties under Section 78 of Republic Act No. 337 otherwise known as the General Banking Act.
The petition is not visited by merit.
Petitioners assertion of right of redemption under Section 78 of Republic Act No. 337 is premised on the submission that the
Court of Appeals did not resolve such issue in CA-G.R. SP No. 35086; contending thus:
(1)
BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 BE INTERPRETED TO
MEAN THE COURT OF APPEALS HAD RESOLVED WITH FINALITY THE ISSUE OF WHETHER PETITIONER HUERTA ALBA
HAD THE RIGHT OF REDEMPTION WHEN ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE MOTION FOR
CLARIFICATION.
(2)
THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A FINAL JUDGMENT, ORDER OR DECREE. IT IS NOT
EVEN A JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT ADJUDICATES NOTHING.
(3)

PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE AND WAS
NOT IN ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN ISSUE, IN CA G.R. SP NO. 35086.
(4)
THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING ALREADY BECOME FINAL EVEN BEFORE THE
FILING OF THE MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER HAD ANY JURISDICTION TO ACT
OF THE MOTION OR ANY OTHER MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE MOTION.
II.
IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A.
NO. 337 WAS DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME DULY RESOLVED BY THE TRIAL COURT.
III.
THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS MANDATORY AND AUTOMATICALLY EXISTS BY
LAW. THE COURTS ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT.
IV.
EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF PETITIONER HUERTA ALBA, NOT THE LEAST OF WHICH IS
THE WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT THE RIGHT OF REDEMPTION.
V.
THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS OF THE TRIAL COURT ARE VALID AND PROPER IN
ACCORDANCE WITH THE MANDATE OF THE LAW.
From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was
only theequity of redemption over subject properties. On the distinction between the equity of redemption and right of redemption, the
case of Gregorio Y. Limpin vs. Intermediate Appellate Court,[7] comes to the fore. Held the Court in the said case:
The equity of redemption is, to be sure, different from and should not be confused with the right of redemption.
The right of redemption in relation to a mortgage - understood in the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale - exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized
in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the
registration of the sheriffs 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.
But, to repeat, 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 mortgagors equity (not right) of redemption which, as above stated, 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.[8] (Underscoring supplied)
Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the private respondent, is a credit institution, such that
Section 78 of Republic Act No. 337 should apply in this case. Stated differently, it is the submission of petitioner that it should be
allowed to redeem subject properties within one year from the date of sale as a result of the foreclosure of the mortgage constituted
thereon.
The pivot of inquiry here therefore, is whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No.
337 to redeem subject properties.
Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after confirmation by the court of the foreclosure sale, and
within one (1) year from the date of registration of the certificate of sale. Indeed, the facts show that it was only on May 2, 1995 when, in
opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept
Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337.
In light of the aforestated facts, 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.
For instance, on September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege
and prove that private respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was
applicable. Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.
So also, when it presented before the trial court an Exception to the Order and Motion to Set Aside Said Order dated October 13,
1994, petitioner again was silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to show that private
respondent's predecessor in interest is a credit institution. Petitioner just argued that the aforementioned Order materially altered the
trial court's Decision of April 30, 1992.
Then, too, nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in
interest of private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the
sale of subject properties in favor of private respondent and declaring that all pending incidents with respect to the Order dated
September 26, 1994 had become moot and academic.
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of
the date of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right
under Section 78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest was a
credit institution.Consequently, in its Resolution dated March 20, 1995, the Court of Appeals ruled on the said motion thus:
But we never made any pronouncement on the one-year right of redemption of petitioner because, in the first place, the foreclosure in
this case is judicial, and as such, the mortgagor has only the equity, not the right of redemption xxx. While it may be true that under
Section 78 of R.A. 337 as amended, otherwise known as the General Banking Act, a mortgagor of a bank, banking or credit institution,
whether the foreclosure was done judicially or extrajudicially, has a period of one year from the auction sale within which to redeem the
foreclosed property, the question of whether the Syndicated Management Group, Inc., is bank or credit institution was never brought
before us squarely, and it is indeed odd and strange that petitioner would now sarcastically ask a rhetorical question in its motion for
clarification.[9] (Underscoring supplied).
If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged
right under Section 78 of R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have
alleged that it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its
answer regarding any right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual
question of whether or not private respondents predecessor in interest was a credit institution. As was held in Limpin, a judicial
foreclosure sale, when confirmed by an order of the court, xx 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,[10] which 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 judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions of Section 78 of R.A.
No. 337 - since private respondents predecessor-in-interest is a credit institution - is in the nature of a compulsory counterclaim which
should have been averred in petitioners answer to the compliant for judicial foreclosure.
xxx A counterclaim is, most broadly, a cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a claim
which, if established, will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled. It is sometimes
defined as any cause of actionarising in contract available against any action also arising in contract and existing at the time of the

commencement of such an action. It is frequently defined by the codes as a cause of action arising out of the contract or transaction set
forth in the complaint as the foundation of the plaintiffs claim, or connected with the subject of the action. [11] (underscoring supplied)
The counterclaim is in itself a distinct and independent cause of action, so that when properly stated as such, the defendant becomes,
in respect to the matters stated by him, an actor, and there are two simultaneous actions pending between the same parties, wherein
each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a defensive plea and is not
necessarily confined to the justice of the plaintiffs claim. It represents the right of the defendant to have the claims of the parties
counterbalanced in whole or in part, and judgment to be entered in excess, if any. A counterclaim stands on the same footing, and is to
be tested by the same rules, as if it were an independent action.[12] (underscoring supplied)
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:
xxx The rules of counterclaim are designed to enable the disposition of a whole controversy of interested parties conflicting claims, at
one time and in one action, provided all parties be brought before the court and the matter decided without prejudicing the rights of any
party.[13]
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.[14] Thus, a party to a case who failed to invoked his claim in the main case, while having the opportunity to do so, will be
precluded, subsequently, from invoking his claim, even if it were true, after the decision has become final, otherwise the judgment may
be reduced to a mockery and the administration of justice may be placed in disrepute.[15]
All things viewed in proper perspective, it is decisively clear that the trial court erred in still allowing petitioner to introduce
evidence that private respondents predecessor-in-interest was a credit institution, and to thereafter rule that the petitioner was entitled
to avail of the provisions of Section 78 of R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter
failed to do before the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. No. 337 although the Court of
Appeals in CA-G.R. no. 35086 already found that the question of whether the Syndicated Management Council Group, Inc. is a bank or
credit institution was never brought before (the Court of Appeals) squarely. The said pronouncement by the Court of Appeals unerringly
signified that petitioner did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all the stages of the
proceedings below.
Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent
is a credit institution. Thus, when the trial court, and the Court of Appeals repeatedly passed upon the issue of whether or not petitioner
had the right of redemption or equity of redemption over subject properties in the decisions, resolutions and orders, particularly in Civil
Case no. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R. SP No. 38747, it was unmistakable that the petitioner
was adjudged to just have the equity of redemption without any qualification whatsoever, that is, without any right of redemption allowed
by law.
The law of case holds that petitioner has the equity of redemption without any qualification.
There is, therefore, merit in private respondents contention that to allow petitioner to belatedly invoke its right under Section 78 of
R.A. No. 337 will disturb the law of the case. However, private respondents statement of what constitutes the law of the case is not
entirely accurate.The law of the case is not simply that the defendant possesses an equity of redemption. As the Court has stated, the
law of the case holds that petitioner has the equity of the redemption without any qualification whatsoever, that is, without the right of
redemption afforded by Section 78 of R.A. No. 337. Whether or not the law of the case is erroneous is immaterial, it still remains the
law of the case. A contrary rule will contradict both the letter and spirit of the rulings of the Court of Appeals in CA-G.R. SP No. 35086,
CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the repeated attempts of petitioner to forestall so simple a
matter as making the security given for a just debt to answer for its payment.
Hence, in conformity with the ruling in Limpin, the sale of the subject properties, as confirmed by the Order dated February 10,
1995 of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action and to vest their rights in
private respondent.There then existed only what is known as the equity of redemption, which is simply the right of the petitioner to
extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment
became final. There being an explicit finding on the part of the Court of Appeals in its Decision of September 30, 1994 in CA-G.R. No.
35086 - that the herein 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 transfer certificates of title covering the subject properties to private
respondent was then, in order. The trial court therefore, has the ministerial duty to place private respondent in the possession of subject
properties.
WHEREFORE, the petition is DENIED, and the assailed decision of the Court of Appeals, declaring null and void the Order dated
21 July 1995 and Order dated 4 September 1997 of the Regional Trial Court of Makati City in Civil Case No. 89-5424, AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

G.R. No. 91779 February 7, 1991

GRAND FARMS, INC. and PHILIPPINE SHARES CORPORATION, petitioners,
vs.
COURT OF APPEALS, JUDGE ADRIAN R. OSORIO, as Presiding Judge of the Regional Trial Court, Branch 171, Valenzuela,
Metro Manila; ESPERANZA ECHIVERRI, as Clerk of Court & Ex-Officio Sheriff of the Regional Trial Court of Valenzuela, Metro
Manila; SERGIO CABRERA, as Deputy Sheriff-in-Charge; and BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, respondents.
Balgos & Perez for petitioners.
Sycip, Salazar, Hernandez & Gatmaitan for private respondent.

REGALADO, J.:p
The propriety of a summary judgment is raised in issue in the instant petition, with herein petitioners appealing the decision 1 of
respondent court in CA-G.R. SP No. 17535, dated November 29, 1989, which found no grave abuse of discretion on the part of
respondent judge in denying petitioners' motion for summary judgment. 2
The antecedents of this case are clear and undisputed. Sometime on April 15, 1988, petitioners filed Civil Case No. 2816-V88 in the
Regional Trial Court of Valenzuela, Metro Manila for 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. 3
Soon after private respondent had filed its answer to the complaint, petitioners 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. 4
Private respondent, through its deputy liquidator, responded under oath to the request and countered 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 and in the Philippines on February 13, 20 and 28, 1988." 5
On the basis of the alleged implied admission by private respondent that no formal notice of foreclosure was sent to petitioners, the
latter filed a motion for summary judgment contending that the foreclosure was violative of the provisions of the mortgage contract,
specifically paragraph (k) thereof which provides:
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; 6
The motion was opposed by private respondent which argued that petitioners' reliance on said 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 abovespecified. 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. . . .
xxx xxx xxx
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, to lease or sell the mortgaged property, or any part
thereof, at public or private sale without previous notice or adverstisement of any kind and execute the corresponding
bills of sale, lease or other agreement that may be deemed convenient, to make repairs or improvement to the
mortgaged property and pay for the same and perform any other act which the Mortgagor may deem convenient . . . 7
On February 27, 1989, the trial court issued an order, denying petitioners' motion for summary judgment. 8Petitioners' motion for
reconsideration was likewise denied by respondent-judge on the ground that genuine and substantial issues exist which require the
presentation of evidence during the trial, to wit: (a) whether or not the loan has matured; (b) whether or not private respondent notified
petitioners of the foreclosure of their mortgage; (c) whether or not the notice by publication of the foreclosure constitutes sufficient
notice to petitioners under the mortgage contract; (d) whether or not the applicant for foreclosure of the mortgage was a duly authorized
representative of private respondent; and (e) whether or not the foreclosure was enjoined by a resolution of this Court. 9
Petitioners thereafter went on a petition for certiorari to respondent court attacking said orders of denial as having been issued with
grave abuse of discretion. As earlier adverted to, respondent court dismissed the petition, holding that no personal notice was required
to foreclose since private respondent was constituted by petitioners as their attorney-in-fact to sell the mortgaged property. It further
held that paragraph (k) of the mortgage contract merely specified the address where correspondence should be sent and did not
impose an additional condition on the part of private respondent to notify petitioners personally of the foreclosure. Respondent court
also denied petitioners motion for reconsideration, hence the instant petition.
We rule for petitioners.
The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and admissions on file, together with
the affidavits, show that, except as to the amount of damages, there is no issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law. 10 Although an issue may be raised formally by the pleadings but there is no genuine issue of
fact, and all the facts are within the judicial knowledge of the court, summary judgment may be granted. 11
The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in support of the motion are
sufficient to overcome the opposing papers and to justify a finding as a matter of law that there is no defense to the action or that the
claim is clearly meritorious. 12
Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or declaration of nullity of the
foreclosure proceedings and damages ripe for summary judgment. Private respondent tacitly admitted in its answer to petitioners'
request for admission that it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and as is evident from the
records, there has been no denial by private respondent that no personal notice of the extrajudicial foreclosure was ever sent to
petitioners prior thereto. This omission, by itself, rendered the foreclosure defective and irregular for being contrary to the express
provisions of the mortgage contract. There is thus no further necessity to inquire into the other issues cited by the trial court, for the
foreclosure may be annulled solely on the basis of such defect.
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. As we stated in Community Savings & Loan
Association, Inc., et al. vs. Court of Appeals, et al., 13 where we had the occasion to construe an identical provision:
On the other important point that militates against the petitioners' first ground for this petition is the fact that no notice
of the foreclosure proceedings was ever sent by CSLA to the deceased mortgagor Antonio Esguerra or his heirs in
spite of an express stipulation in the mortgage agreement to that effect. Said Real Estate Mortgage provides, in Sec.
10 thereof that:
(10) All correspondence relative to this mortgage, including demand letters, summons, subpoenas,
or notifications of any judicial or extrajudicial 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, . . .
(Emphasis in the original text.)
The Court of Appeals, in appreciating the foregoing provision ruled that it is an additional stipulation between the
parties. As such, it is the law between them and as it not contrary to law, morals, good customs and public policy, the
same should be complied with faithfully (Article 1306, New Civil Code of the Philippines). Thus, while publication of
the foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still
required, as in the case at bar, when the same was mutually agreed upon by the parties as additional condition of the
mortgage contract. Failure to comply with this additional stipulation would render illusory Article 1306 of the New Civil
Code of the Philippines (p. 37, Rollo).
On the issue of whether or not CSLA notified the private respondents of the extrajudicial foreclosure sale in
compliance with Sec. 10 of the mortgage agreement the Court of Appeals found as follows:

As the record is bereft of any evidence which even impliedly indicate that the required notice of the
extrajudicial foreclosure was ever sent to the deceased debtor-mortgagor Antonio Esguerra or to
his heirs, the extrajudicial foreclosure proceedings on the property in question are fatally defective
and are not binding on the deceased debtor-mortgagor or to his heirs (p. 37, Rollo)
Hence, even on the premise that there was no attendant fraud in the proceedings, the failure of the petitioner bank to
comply with the stipulation in the mortgage document is fatal to the petitioners' cause.
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. We do not see any conceivable reason why the interpretation placed on an identically worded provision in the
mortgage contract involved in Community Savings & Loan Association, Inc. should not be adopted with respect to the same provision
involved in the case at bar.
Nor may private respondent validly claim that we are supposedly interpreting paragraph (k) in isolation and without taking into account
paragraphs (b) and (d) of the same contract. There is no irreconcillable conflict between, as in fact a reconciliation should be made of,
the provisions of paragraphs (b) and (d) which appear first in the mortgage contract and those in paragraph (k) which follow thereafter
and necessarily took into account the provisions of the preceding two paragraphs. 14 The notices respectively mentioned in paragraphs
(d) and (k) are addressed to the particular purposes contemplated therein. Those mentioned in paragraph (k) are specific and additional
requirements intended for the mortgagors so that, thus apprised, they may take the necessary legal steps for the protection of their
interests such as the payment of the loan to prevent foreclosure or to subsequently arrange for redemption of the property foreclosed.
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. 15
Now, as earlier discussed, to still require a trial notwithstanding private respondent's admission of the lack of such requisite notice
would be a superfluity and would work injustice to petitioners whose obtention of the relief to which they are plainly and patently entitled
would be further delayed. That undesirable contingency is obviously one of the reasons why our procedural rules have provided for
summary judgments.
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and this case is REMANDED to the court of origin
for further proceedings in conformity with this decision. This judgment is immediately executory.
SO ORDERED.

SPOUSES FRANCISCO and MERCED

RABAT,
Petitioners,

- versus -

PHILIPPINE NATIONAL BANK,

Respondent.

G.R. No. 158755

Present:
LEONARDO-DE CASTRO,
Acting Chairperson,
*PERALTA,
BERSAMIN,
DEL CASTILLO, and
PERLAS-BERNABE, JJ.
Promulgated:

June 18, 2012

x-----------------------------------------------------------------------------------------x
DECISION
BERSAMIN, J.:
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.
Antecedents
The parties are before the Court a second time to thresh out an issue relating to the foreclosure sale of the petitioners
mortgaged properties. The first time was in G.R. No. 134406 entitled Philippine National Bank v. Spouses Francisco and Merced
Rabat, decided on November 15, 2000.[1] In G.R. No. 134406, the Court observed that
The RABATs did not appeal from the decision of the trial court. As a matter of fact, in their Appellees Brief
filed with the Court of Appeals they prayed that said decision be affirmed in toto. As against the RABATs the trial
courts findings of fact and conclusion are already settled and final. More specifically, they are deemed to have
unqualifiedly agreed with the trial court that the foreclosure proceedings were valid in all respects, except as to the
bid price.[2]
Accordingly, we extract the antecedent facts from the narrative of the decision in G.R. No. 134406, as follows:
On 25 August 1979, respondent spouses Francisco and Merced Rabat (hereafter RABATs) applied for a loan
with PNB. Subsequently, the RABATs were granted on 14 January 1980 a medium-term loan of P4.0 Million to
mature three years from the date of implementation.
On 28 January 1980, the RABATs signed a Credit Agreement and executed a Real Estate Mortgage over
twelve (12) parcels of land which stipulated that the loan would be subject to interest at the rate of 17% per annum,
plus the appropriate service charge and penalty charge of 3% per annum on any amount remaining unpaid or not
renewed when due.
On 25 September 1980, the RABATs executed another document denominated as "Amendment to the Credit
Agreement" purposely to increase the interest rate from 17% to 21% per annum, inclusive of service charge and a
penalty charge of 3% per annum to be imposed on any amount remaining unpaid or not renewed when due. They
also executed another Real Estate Mortgage over nine (9) parcels of land as additional security for their medium-term
loan of Four Million (P4.0 M). These parcels of land are agricultural, commercial and residential lots situated in Mati,
Davao Oriental.
The several availments of the loan accommodation on various dates by the RABATs reached the aggregate
amount of THREE MILLION FIVE HUNDRED SEVENTEEN THOUSAND THREE HUNDRED EIGHTY (P3,517,380),
as evidenced by the several promissory notes, all of which were due on 14 March 1983.
The RABATs failed to pay their outstanding balance on due date.
In its letter of 24 July 1986, in response to the letter of the RABATs of 16 June 1986 requesting for more time
within which to arrive at a viable proposal for the settlement of their account, PNB informed the RABATs that their
request has been denied and gave the RABATs until 30 August 1986 to settle their account. The PNB sent the letter
to 197 Wilson Street, San Juan, Metro Manila.
For failure of the RABATs to pay their obligation, the PNB filed a petition for the extrajudicial foreclosure of the
real estate mortgage executed by the RABATs. After due notice and publication, the mortgaged parcels of land were

sold at a public auction held on 20 February 1987 and 14 April 1987. The PNB was the lone and highest bidder with a
bid of P3,874,800.00.
As the proceeds of the public auction were not enough to satisfy the entire obligation of the RABATs, the PNB
sent anew demand letters. The letter dated 15 November 1990 was sent to the RABATs at 197 Wilson Street, San
Juan, Metro Manila; while another dated 30 August 1991 was sent to the RABATs at 197 Wilson Street, Greenhills,
San Juan, Metro Manila, and also in Mati, Davao Oriental.
Upon failure of the RABATs to comply with the demand to settle their remaining outstanding obligation which
then stood atP14,745,398.25, including interest, penalties and other charges, PNB eventually filed on 5 May 1992 a
complaint for a sum of money before the Regional Trial Court of Manila. The case was docketed as Civil Case No.
92-61122, which was assigned to Branch 14 thereof.
The RABATs filed their answer with counterclaim on 28 July 1992 to which PNB filed its Reply and Answer to
Counterclaim. On 2 January 1993, the RABATs filed an amended answer. The RABATs admitted their loan availments
from PNB and their default in the payment thereof. However, they assailed the validity of the auction sales for want of
notice to them before and after the foreclosure sales.
They further added that as residents of Mati, Davao Oriental since 1970 up to the present, they never received
any notice nor heard about the foreclosure proceeding in spite of the claim of PNB that the foreclosure proceeding
had been duly published in the San Pedro Times, which is not a newspaper of general circulation.
The RABATs likewise averred that the bid price was grossly inadequate and unconscionable.
Lastly, the RABATs attacked the validity of the accumulated interest and penalty charges because since their
properties were sold in 1987, and yet PNB waited until 1992 before filing the case. Consequently, the RABATs
contended that they should not be made to suffer for the interest and penalty charges from May 1987 up to the
present. Otherwise, PNB would be allowed to profit from its questionable scheme.
The PNB filed on 5 February 1993 its Reply to the Amended Answer and Answer to Counterclaim.[3]
On June 14, 1994, the Regional Trial Court, Branch 14, in Manila (RTC) rendered its decision in Civil Case No. 92-61122,
disposing thus:

[4]

WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered dismissing the
complaint.
On the counterclaim, the two (2) auction sales of the mortgaged properties are hereby set aside and ordering
the plaintiff to reconvey to the defendants the remaining properties after the sale [of] sufficient properties for the
satisfaction of the obligation of the defendants.
The parties will bear their respective cost.
So ordered.

Only PNB appealed to the CA (CA-G.R. CV No. 49800), assigning the following two errors to the RTC,[5] to wit:
I
WHETHER OR NOT THE TRIAL COURT ERRED IN NULLIFYING THE SHERIFF'S AUCTION SALE ON THE
GROUND THAT THE PNBS WINNING BID IS VERY LOW.
II
WHETHER OR NOT THE TRIAL COURT ERRED IN RULING THAT THE DEFENDANTS-APPELLEES ARE NOT
LIABLE TO PAY INTEREST AND PENALTY CHARGES AFTER THE AUCTION SALES UP TO THE FILING OF THIS
CASE.
On their part, the Spouses Rabat simply urged in their appellees brief that the decision of the RTC be entirely affirmed.[6]
On June 29, 1998, the CA upheld the RTCs decision to nullify the foreclosure sales but rested its ruling upon a different
ground,[7] in that the Spouses Rabat could not have known of the foreclosure sales because they had not actually received personal
notices about the foreclosure proceedings. The CA concluded:
An examination of the exhibits show that the defendant-appellees given address is Mati, Davao Oriental and
not 197 Wilson Street, Greenhills, San Juan, Metro Manila as alleged by the plaintiff-appellant (Exhibit C to J, pp.
208, 217, 220, 229, 236-239, Records). Records further show that all subsequent communications by plaintiff-

appellant was sent to defendant-appellees address at Wilson Street, Greenhills, San Juan. This was the very reason
why defendant-appellees were not aware of the foreclosure proceedings.
As correctly found out by the trial court, there is a need for the setting aside of the two (2) auction sales hence,
there is yet no deficiency judgment to speak of.
WHEREFORE, the decision of the trial court dated 14 June 1994, is hereby affirmed in toto.
SO ORDERED.
PNB appealed in due course (G.R. No. 134406),[8] positing:
WHETHER OR NOT THE COURT OF APPEALS MAY REVIEW AND PASS UPON THE TRIAL COURTS FINDING
AND CONCLUSION ON AN ISSUE WHICH WAS NEVER RAISED ON APPEAL, AND, THEREFORE, HAD
ATTAINED FINALITY.
1. THE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS WHEN IT DECIDED AND RESOLVED A QUESTION OR ISSUE NOT RAISED IN
PETITIONER PNBS APPEAL;
2. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT REVERSED THE
FINDING AND CONCLUSION OF THE TRIAL COURT ON AN ISSUE WHICH HAD ALREADY ATTAINED
FINALITY.
PNB argued that it had not raised the issue of lack of notice about the foreclosure sales because the fact that the Spouses
Rabat had not appealed the RTCs ruling as regards the lack of notice but had in fact prayed for the affirmance of the RTCs judgment
had rendered final the RTCs rejection of their allegation of lack of personal notice; and that, consequently, the CA had committed grave
abuse of discretion in still resolving the issue of lack of notice despite its not having been raised during the appeal.[9]
On November 15, 2000, the Court promulgated its decision in G.R. No. 134406, decreeing:

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals of 29 July 1998 in CA-G.R. CV
No. 49800 is hereby SET ASIDE. The Court of Appeals is directed to DECIDE, with reasonable dispatch, CA-G.R. CV
No. 49800 on the basis of the errors raised by petitioner Philippine National Bank in its Appellants Brief.
No pronouncement as to costs.
SO ORDERED.[10]
To conform to the decision in G.R. No. 134406, the CA amended its decision on January 24, 2003 by resolving the errors
specifically assigned by PNB in its appellants brief.[11] The CA nonetheless affirmed the RTCs decision, declaring that the bid price had
been very low and observing that the mortgaged properties might have been sold for a higher value had PNB first conducted a
reappraisal of the properties.
Upon PNBs motion for reconsideration, however, the CA promulgated its questioned second amended decision on March 26,
2003,[12] holding and ruling as follows:
After a thorough and conscientious review of the records and relevant laws and jurisprudence, We find the
motion for reconsideration to be meritorious.
While indeed no evidence was presented by appellant as to whether a reappraisal of the mortgaged properties
was conducted by it before submitting the bid price of 3,874,800.00 at the auction sale, said amount approximates
the loan value under its original appraisal in 1980, which was 4 million.
There is no dispute that mere inadequacy of price per se will not set aside a judicial sale of real property.
Nevertheless, where the inadequacy of the price is purely shocking to the conscience such that the mind revolts at it
and such that a reasonable man would neither directly nor indirectly be likely to consent to it, the sale shall be
declared null and void. Said rule, however, does not strictly apply in the case of extrajudicial foreclosure sales so that
when a supposed unconscionably low price paid by the bank-mortgagee for the mortgaged properties at the public
auction sale is assailed, the sale is not thereby readily set aside on account of such low purchase price. It is wellsettled that alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as
when a sale is made at a public auction, upon the theory that the lesser the price the easier it is for the owner to
effect the redemption. In fact, the property may be sold forless than its fair market value.
Here, it may be that after the lapse of seven (7) years, the mortgaged properties may have indeed appreciated
in value but under the general rule cited above which had been consistently applied to extrajudicial foreclosure sales.
We are not inclined to invalidate the auction sale of appellees mortgaged properties solely on the alleged gross

inadequacy of purchase price of 3,874,800.00 which is actually almost the equivalent of the loan value of appellees
twenty-one (21) parcels of land under the Real Estate Mortgage executed in favor of appellant PNB in 1980. It has
been held that no such disadvantage is suffered by the mortgagor as he stands to gain with a reduced price because
he possesses the right of redemption. Thus, the re-appraisal of the mortgaged properties resulting in the appellant
PNBs bid price of approximately the original loan value of their mortgaged properties is beneficial rather than harmful
considering the right of redemption granted to appellees under the law. The claim of financial hardship or losses in
their business is not an excuse for appellees-mortgagors to evade their clear obligation to the bank-mortgagee.
Further, the fact that the mortgaged property is sold at an amount less than its actual market value should not
militate against the right of appellant PNB to the recovery of the deficiency in the loan obligation of appellees. Our
Supreme Court had ruled in several cases that in extrajudicial foreclosure of mortgage, where the proceeds of the
sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor. A claim of
deficiency arising from the extrajudicial foreclosure sale is allowed. As to appellees claim of allegedly excessive
penalty interest charges, the same is without merit. We note that the promissory notes expressly provide for a penalty
charge of 3% per annum to be imposed on any unpaid amount on due date.
WHEREFORE, premises considered, the present motion for reconsideration is hereby GRANTED.
Consequently, Our Amended Decision of January 24, 2003 is hereby SET ASIDE and a new one is hereby entered
GRANTING the appeal of plaintiff PNB. The decision appealed from in Civil Case No. 92-61122 is hereby
REVERSED and SET ASIDE. Judgment is hereby rendered ordering the appellees to pay, jointly and severally, to
appellant PNB: (1) the amount of 14,745,398.25 plus accrued interest, service charge and penalty charge of 3% per
annum from February 29, 1992 until the same shall have been fully paid; (2) Ten Percent (10%) of the total amount
due as attorneys fees; and (3) the costs of suit.
No pronouncement as to costs.
SO ORDERED.[13]
The Spouses Rabat thereafter moved for the reconsideration of the second amended decision, but the CA denied their motion.
[14]

Hence, this appeal by the Spouses Rabat.

Issues
The Spouses Rabat frame the following issues for this appeal, thuswise:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE SUBJECT
AUCTION SALES AND ADJUDGING PAYMENT OF DEFICIENCY SUM, INTERESTS, PENALTY AND SERVICE
CHARGES AND ATTORNEYS FEES, IN COMPLETE AND ABSOLUTE DISREGARD OF ITS EARLIER
PRONOUNCEMENTS, THE ARGUMENTS OF HEREIN PETITIONERS AND EVIDENCE BORNE IN THE
RECORDS OF THE INSTANT CASE.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN DEPARTING FROM ITS FINDING OF FACTS AND
CONCLUSIONS OF LAW AS STATED IN THE EARLIER RENDERED FIRST AMENDED DECISION DATED 24
JANUARY 2003.[15]
The Spouses Rabat insist that the CAs reversal of the amended decision was unjustified. They pray that the amended
decision of the CA (which affirmed the RTCs judgment) be reinstated. They contend that PNB was not entitled to recover any
deficiency due to the invalidity of the forced sales.[16]
In its comment,[17] PNB counters that the petition for review does not raise a valid question of law; and that the CAs second
amended decision was regularly promulgated because the CA thereby acted well within its right to correct itself considering that the
amended decision did not yet attain finality under the pertinent rules and jurisprudence.
Accordingly, the Court must pass upon and resolve three distinct issues. The first is whether the inadequacy of the bid price of
PNB invalidated the forced sale of the properties. The second is whether PNB was entitled to recover any deficiency from the Spouses
Rabat. The third is whether the CA validly rendered its second amended decision.
Ruling
The appeal has no merit.
Anent the first issue, we rule against the Spouses Rabat. We have consistently held that the 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.[18]
In Bank of the Philippine Islands, etc. v. Reyes, [19] the Court discoursed on the effect of the inadequacy of the price in a forced
sale, stating:

Throughout a long line of jurisprudence, we have declared that 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.
In the early case of The National Loan and Investment Board v. Meneses, we also had the occasion to state
that:
As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a
property is sold at public auction for a price lower than its alleged value, is not of itself sufficient to
annul said sale, where there has been strict compliance with all the requisites marked out by law
to obtain the highest possible price, and where there is no showing that a better price is
obtainable. (Government of the Philippines vs. De Asis, G. R. No. 45483, April 12, 1939; Guerrero vs.
Guerrero, 57 Phil., 442; La Urbana vs. Belando, 54 Phil., 930; Bank of the Philippine Islands v . Green, 52
Phil., 491.) (Emphases supplied.)
In Hulst v. PR Builders, Inc., we further elaborated on this principle:
[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 ones 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
(Emphasis supplied.)
It bears also to stress that 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. An examination of the said 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, however, 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.
At any rate, we consider it notable enough that PNBs bid price of 3,874,800.00 might not even be said to be outrageously
low as to be shocking to the conscience. As the CA cogently noted in the second amended decision, [20] that bid price was almost equal
to both the 4,000,000.00 applied for by the Spouses Rabat as loan, and to the total sum of 3,517,380.00 of their actual availment
from PNB.
Resolving the second issue, we rule that PNB had the legal right to recover the deficiency amount. In Philippine National Bank
v. Court of Appeals,[21] we held that:
xxx it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to
deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an
obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing
sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of
mortgages, while silent as to the mortgagees right to recover, does not, on the other hand, prohibit recovery of
deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.[22]
Indeed, as we indicated in Prudential Bank v. Martinez,[23] the 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.[24]
There should be no question that PNB was legally entitled to recover the penalty charge of 3% per annum and attorneys 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.[25] 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. [26] 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.
Lastly, we uphold the CAs promulgation of the second amended decision. Verily, all courts of law have the unquestioned
power to alter, modify, or set aside their decisions before they become final and unalterable. [27] A judgment that has attained finality
becomes immutable and unalterable, and may thereafter no longer be modified in any respect even if the modification is meant to

correct erroneous conclusions of fact or law and whether it will be made by the court that rendered it or by the highest court of the land.
[28]
The reason for the rule of immutability is that if, on the application of one party, the court could change its judgment to the prejudice of
the other, the court could thereafter, on application of the latter, again change the judgment and continue this practice
indefinitely. [29] The equity of a particular case must yield to the overmastering need of certainty and unalterability of judicial
pronouncements.[30] The doctrine of immutability and inalterability of a final judgment has a two-fold purpose, namely: (a) to avoid delay
in the administration of justice and, thus, procedurally, to make orderly the discharge of judicial business; and (b) to put an end to
judicial controversies, at the risk of occasional errors, which is precisely why courts exist. Indeed, controversies cannot drag on
indefinitely; the rights and obligations of every litigant must not hang in suspense for an indefinite period of time. [31] As such, the doctrine
of immutability is not a mere technicality to be easily brushed aside, but a matter of public policy as well as a time-honored principle of
procedural law.
It is no different herein. The amended decision that favored the Spouses Rabat would have attained finality only after the lapse
of 15 days from notice thereof to the parties without a motion for reconsideration being timely filed or an appeal being seasonably
taken.[32] Had that happened, the amended decision might have become final and immutable. However, considering that PNB timely
filed its motion for reconsideration vis--vis the amended decision, the CAs reversal of the amended decision and its promulgation
of the second amended decision were valid and proper.
WHEREFORE, we AFFIRM the SECOND AMENDED DECISION promulgated on March 26, 2003 in CA-G.R. CV No. 49800
entitled Philippine National Bank v. Spouses Francisco and Merced Rabat.
The petitioners shall pay the costs of suit.
SO ORDERED.

G.R. No. 195540

March 13, 2013

GOLDENWAY MERCHANDISING CORPORATION, Petitioner,

vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari which seeks to reverse and set aside the Decision1 dated November 19, 2010 and
Resolution2 dated January 31, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91120. The CA affirmed the Decision 3 dated
January 8, 2007 of the Regional Trial Court (RTC) of- Valenzuela City, Branch 171 dismissing the complaint in Civil Case No. 295-V
-01.
The facts are undisputed.
On November 29, 1985, Goldenway Merchandising Corporation (petitioner) executed a Real Estate Mortgage in favor of Equitable PCI
Bank (respondent) over its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered by Transfer Certificate of
Title (TCT) Nos. T-152630, T-151655 and T-214528 of the Registry of Deeds for the Province of Bulacan. The mortgage secured the
Two Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and was duly registered.4
As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed the mortgage on December 13, 2000. During the
public auction, the mortgaged properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of Sale was issued to
respondent on January 26, 2001. On February 16, 2001, the Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T151655 and T-214528.5
In a letter dated March 8, 2001, petitioners counsel offered to redeem the foreclosed properties by tendering a check in the amount
of P3,500,000.00. On March 12, 2001, petitioners counsel met with respondents counsel reiterating petitioners intention to exercise
the right of redemption.6 However, petitioner was told that such redemption is no longer possible because the certificate of sale had
already been registered. Petitioner also verified with the Registry of Deeds that title to the foreclosed properties had already been
consolidated in favor of respondent and that new certificates of title were issued in the name of respondent on March 9, 2001.
On December 7, 2001, petitioner filed a complaint7 for specific performance and damages against the respondent, asserting that it is
the one-year period of redemption under Act No. 3135 which should apply and not the shorter redemption period provided in Republic
Act (R.A.) No. 8791. Petitioner argued that applying Section 47 of R.A. 8791 to the real estate mortgage executed in 1985 would result
in the impairment of obligation of contracts and violation of the equal protection clause under the Constitution. Additionally, petitioner
faulted the respondent for allegedly failing to furnish it and the Office of the Clerk of Court, RTC of Valenzuela City with a Statement of
Account as directed in the Certificate of Sale, due to which petitioner was not apprised of the assessment and fees incurred by
respondent, thus depriving petitioner of the opportunity to exercise its right of redemption prior to the registration of the certificate of
sale.
In its Answer with Counterclaim,8 respondent pointed out that petitioner cannot claim that it was unaware of the redemption price which
is clearly provided in Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to redeem the foreclosed properties
from the time it received the letter of demand and the notice of sale before the registration of the certificate of sale. As to the check
payment tendered by petitioner, respondent said that even assuming arguendo such redemption was timely made, it was not for the
amount as required by law.
On January 8, 2007, the trial court rendered its decision dismissing the complaint as well as the counterclaim. It noted that the issue of
constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner during the pre-trial and the trial. Aside from the fact that
petitioners attempt to redeem was already late, there was no valid redemption made because Atty. Judy Ann Abat-Vera who talked to
Atty. Joseph E. Mabilog of the Legal Division of respondent bank, was not properly authorized by petitioners Board of Directors to
transact for and in its behalf; it was only a certain Chan Guan Pue, the alleged President of petitioner corporation, who gave instruction
to Atty. Abat-Vera to redeem the foreclosed properties.9
Aggrieved, petitioner appealed to the CA which affirmed the trial courts decision. According to the CA, petitioner failed to justify why
Section 47 of R.A. No. 8791 should be declared unconstitutional. Furthermore, the appellate court concluded that a reading of Section
47 plainly reveals the intention to shorten the period of redemption for juridical persons and that the foreclosure of the mortgaged
properties in this case when R.A. No. 8791 was already in effect clearly falls within the purview of the said provision.10
Petitioners motion for reconsideration was likewise denied by the CA.

In the present petition, it is contended that Section 47 of R.A. No. 8791 is inapplicable considering that the contracting parties expressly
and categorically agreed that the foreclosure of the real estate mortgage shall be in accordance with Act No. 3135. Citing Co v.
Philippine National Bank11 petitioner contended that the right of redemption is part and parcel of the Deed of Real Estate Mortgage itself
and attaches thereto upon its execution, a vested right flowing out of and made dependent upon the law governing the contract of
mortgage and not on the mortgagees act of extrajudicially foreclosing the mortgaged properties. This Court thus held in said case that
"Under the terms of the mortgage contract, the terms and conditions under which redemption may be exercised are deemed part and
parcel thereof whether the same be merely conventional or imposed by law."
Petitioner then argues that applying Section 47 of R.A. No. 8791 to the present case would be a substantial impairment of its vested
right of redemption under the real estate mortgage contract. Such impairment would be violative of the constitutional proscription
against impairment of obligations of contract, a patent derogation of petitioners vested right and clearly changes the intention of the
contracting parties. Moreover, citing this Courts ruling in Rural Bank of Davao City, Inc. v. Court of Appeals 12 where it was held that
"Section 119 prevails over statutes which provide for a shorter period of redemption in extrajudicial foreclosure sales", and in Sulit
v. Court of Appeals,13 petitioner stresses that it has always been the policy of this Court to aid rather than defeat the mortgagors right to
redeem his property.
Petitioner further argues that since R.A. No. 8791 does not provide for its retroactive application, courts therefore cannot retroactively
apply its provisions to contracts executed and consummated before its effectivity. Also, since R.A. 8791 is a general law pertaining to
the banking industry while Act No. 3135 is a special law specifically governing real estate mortgage and foreclosure, under the rules of
statutory construction that in case of conflict a special law prevails over a general law regardless of the dates of enactment of both laws,
Act No. 3135 clearly should prevail on the redemption period to be applied in this case.
The constitutional issue having been squarely raised in the pleadings filed in the trial and appellate courts, we shall proceed to resolve
the same.
The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135,14 as amended by Act No. 4118. Section 6 thereof
provides:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successorsin-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the
mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale;
and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of
Civil Procedure,15 in so far as these are not inconsistent with the provisions of this Act.
The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties provided
in their real estate mortgage contract that upon petitioners default and the latters entire loan obligation becoming due, respondent may
immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135,
as amended.
However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law of 2000" which took effect on June 13, 2000,
amended Act No. 3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage
on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has
been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem
the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the
costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom.
However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon
and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he
will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to
redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their
expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right of redemption only
"until, but not after, the registration of the certificate of foreclosure sale" and in no case more than three (3) months after foreclosure,
whichever comes first.16
May the foregoing amendment be validly applied in this case when the real estate mortgage contract was executed in 1985 and the
mortgage foreclosed when R.A. No. 8791 was already in effect?
We answer in the affirmative.
When confronted with a constitutional question, it is elementary that every court must approach it with grave care and considerable
caution bearing in mind that every statute is presumed valid and every reasonable doubt should be resolved in favor of its
constitutionality.17 For a law to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution. The ground
for nullity must be clear and beyond reasonable doubt.18Indeed, those who petition this Court to declare a law, or parts thereof,
unconstitutional must clearly establish the basis therefor. Otherwise, the petition must fail.19
Petitioners contention that Section 47 of R.A. 8791 violates the constitutional proscription against impairment of the obligation of
contract has no basis.
The purpose of the non-impairment clause of the Constitution20 is to safeguard the integrity of contracts against unwarranted
interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights
and obligations of the parties.21 Impairment is anything that diminishes the efficacy of the contract. There is an impairment if a
subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or
withdraws remedies for the enforcement of the rights of the parties.22
Section 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 originally provided in Act No. 3135. The new redemption period commences from the date of
foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier. There is
likewise no retroactive application of the new redemption period because Section 47 exempts from its operation those properties
foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135.
Petitioners claim that Section 47 infringes the equal protection clause as it discriminates mortgagors/property owners who are juridical
persons is equally bereft of merit.
The equal protection clause is directed principally against undue favor and individual or class privilege.1wphi1 It is not intended to
prohibit legislation which is limited to the object to which it is directed or by the territory in which it is to operate. It does not require
absolute equality, but merely that all persons be treated alike under like conditions both as to privileges conferred and liabilities
imposed.23 Equal protection permits of reasonable classification.24We have ruled that one class may be treated differently from another
where the groupings are based on reasonable and real distinctions.25 If classification is germane to the purpose of the law, concerns all
members of the class, and applies equally to present and future conditions, the classification does not violate the equal protection
guarantee.26
We agree with the CA that the legislature clearly intended to shorten the period of redemption for juridical persons whose properties
were foreclosed and sold in accordance with the provisions of Act No. 3135.27
The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed whether
these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial
purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and
enable mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of 2000,
crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a
legal framework for maintaining a safe and sound banking system.28 In this context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks.1wphi1 It cannot therefore be disputed
that the said provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the
purpose of the law.
This legitimate public interest pursued by the legislature further enfeebles petitioners impairment of contract theory.
The right of redemption being statutory, it must be exercised in the manner prescribed by the statute,29 and within the prescribed time
limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power
exercised for public welfare.30 The concept of police power is well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." Its scope, everexpanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an
efficient and flexible response to conditions and circumstances thus assuming the greatest benefits.31

The freedom to contract is not absolute; all contracts and all rights are subject to the police power of the State and not only may
regulations which affect them be established by the State, but all such regulations must be subject to change from time to time, as the
general well-being of the community may require, or as the circumstances may change, or as experience may demonstrate the
necessity.32 Settled is the rule that the 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 States power of regulation.33 Such
authority to regulate businesses extends to the banking industry which, as this Court has time and again emphasized, is undeniably
imbued with public interest.34
Having ruled that the assailed Section 47 of R.A. No. 8791 is constitutional, we find no reversible error committed by the CA in holding
that petitioner can no longer exercise the right of redemption over its foreclosed properties after the certificate of sale in favor of
respondent had been registered.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The Decision dated November 19, 2010 and Resolution
dated January 31, 2011 of the Court of Appeals in CA-G.R. CV No. 91120 are hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.

G.R. No. 98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly Cebu City Savings and Loan
Association, Inc.) and TEOTIMO ABELLANA, petitioners,
vs.
COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA DOLINO, respondents.
Gines N. Abellana for petitioners.
Dionisio U. Flores for private respondents.

REGALADO, J.:
The core issue in this case is whether or not a mortgagor, whose property has been extrajudicially foreclosed and sold at the
corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party during the
period of redemption.
The present appeal by certiorari assails the decision 1 of respondent Court of Appeals in CA-G.R. CV No. 12678 where it answered the
question posed by the foregoing issue in the negative and modified the decision 2 of the then Court of First Instance of Cebu in Civil
Case No. R-18616 wherein the validity of said subsequent mortgage was assumed and the case was otherwise disposed of on other
grounds.
The facts which gave rise to the institution of the aforesaid civil case in the trial court, as found by respondent Court of Appeals, are as
follows:
On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City
Cadastre and embraced under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at the
foreclosure sale of the previous mortgage in favor of Cebu City Development Bank, went to Teotimo Abellana,
president of defendant Association, to obtain a loan of P30,000.00. Prior thereto or on October 3, 1974, their son
Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731
offered as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they
executed a promissory note in favor of defendant association. Both documents indicated that the principal obligation
is for Thirty Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%) percent per annum.
When the loan became due and demandable without plaintiff paying the same, defendant association caused the
extrajudicial foreclosure of the mortgage on March 16, 1976. After the posting and publication requirements were
complied with, the land was sold at public auction on April 19, 1976 to defendant association being the highest bidder.
The certificate of sale was issued on April 20, 1976 and registered on May 10, 1976 with the Register of Deeds of
Cebu.
On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled and in
lieu thereof TCT No. 68041 was issued in the name of defendant association. 3
xxx xxx xxx
On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 in the court a quo for the annulment of the sale
at public auction conducted on April 19, 1976, as well as the corresponding certificate of sale issued pursuant thereto.
In their complaint, private respondents, as plaintiffs therein, assailed the validity of the extrajudicial foreclosure sale of their property,
claiming that the same was held in violation of Act No. 3135, as amended, and prayed, inter alia, for the cancellation of Transfer
Certificate of Title No. 68041 issued in favor of therein defendant City Savings and Loan Association, Inc., now known as City Savings
Bank and one of the petitioners herein.
In its answer, the defendant association therein denied the material allegations of the complaint and averred, among others, that the
present private respondent spouses may still avail of their right of redemption over the land in question.
On January 12, 1983, after trial on the merits, the court below rendered judgment upholding the validity of the loan and the real estate
mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same failed to comply with the notice requirements in Act No.
3135, as amended, under the following dispositive part:

WHEREFORE, the foregoing premises considered and upon the view taken by the Court of this case, judgment is
hereby rendered, as follows:
1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No. 4731 of the Cadastral Survey of
Cebu;
2. Ordering the cancellation of Transfer Certificate of Title No. 68041 of the Registry of Deeds of the City of Cebu in
the name of defendant Cebu City Savings and Loan Association, Inc. the corresponding issuance of a new transfer
certificate to contain all the annotations made in TCT No. 14272 of the plaintiffs Pascuala Sabellano, married to
Andres Dolino;
3. Ordering the plaintiffs aforenamed to pay the defendant Cebu City Savings and Loan Association, Inc. the unpaid
balance of the loan, plus interest; and reimbursing said defendant the value of any necessary and useful
expenditures on the property after deducting any income derived by said defendant from the property.
For this purpose, defendant Association is given 15 days from receipt hereof within which to submit its statement of
the amount due it from the plaintiffs Dolino, with notice to them. The payment to be made by the plaintiffs shall be
within ninety (90) days from their receipt of the order approving the amount due the defendant Cebu City Savings and
Loan Association, Inc.
No award of damages or costs to either party.
SO ORDERED. 4
Not satisfied therewith, herein private respondents interposed a partial appeal to respondent court with respect to the second and third
paragraphs of the aforequoted decretal portion, contending that the lower court erred in (1) declaring that the mortgage executed by the
therein plaintiff spouses Dolino is valid; (2) permitting therein Cebu City Savings and Loan Association, Inc. to collect interest after the
same foreclosure proceedings and auction sale which are null and void from the beginning; (3) not ordering the forfeiture of the capital
or balance of the loan with usurious interest; and (4) not sentencing therein defendant to pay damages and attorney's fees to plaintiffs. 5
On September 28, 1990, respondent Court of Appeals promulgated its decision modifying the decision of the lower court, with this
adjudication:
WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby MODIFIED declaring as void and
ineffective the real estate mortgage executed by plaintiffs in favor of defendant association. With this modification, the
decision is AFFIRMED in other respects. 6
Herein petitioners then filed a motion for reconsideration which was denied by respondent court in its resolution dated March 5, 1991,
hence the present petition which, in synthesis, postulates that respondent court erred in declaring the real estate mortgage void, and
also impugns the judgment of the trial court declaring ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of the predecessor of petitioner bank. 7
The first submission assailing the judgment of respondent Court of Appeals is meritorious.
Said respondent court declared the real estate mortgage in question null and 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.
Preliminarily, the issue of ownership of the mortgaged property was never alleged in the complaint nor was the same raised during the
trial, hence that issue should not have been taken cognizance of by the Court of Appeals. An issue which was neither averred in the
complaint nor ventilated during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the
basic rule of fair play, justice and due process. 8
Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its modificatory judgment on its ratiocination of
that issue, we are inclined to liberalize the rule so that we can in turn pass upon the correctness of its conclusion. We may consider
such procedure as analogous to the rule that an unassigned error closely related to an error properly assigned, or upon which the
determination of the question properly assigned is dependent, may be considered by an appellate court. 9 We adopt this approach
since, after all, both lower courts agreed upon the invalidity of the extrajudicial foreclosure but differed only on the matter of the validity
of the real estate mortgage upon which the extrajudicial foreclosure was based.
In arriving at its conclusion, respondent court placed full reliance on what obviously is an obiter dictum laid down in the course of the
disquisition in Dizon vs. Gaborro, et al. which we shall analyze. 10 For, as explicitly stated therein by the Court, "(t)he basic issue to be
resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to Purchase Real Estate,' two
instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro (defendant below) on the same day, October 6,

1959, constitute in truth and in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or
conveyance thereof by way of security for reimbursement or repayment by petitioner Jose P. Dizon of any and all sums which may have
been paid to the Development Bank of the Philippines and the Philippine National Bank by Alfredo G. Gaborro . . . ." Said documents
were executed by the parties and the payments were made by Gaborro for the debt of Dizon to said banks after the Development Bank
of the Philippines had foreclosed the mortgage executed by Dizon and during the period of redemption after the foreclosure sale of the
mortgaged property to said creditor bank.
The trial court held that the true agreement between the parties therein was that Gaborro would assume and pay the indebtedness of
Dizon to the banks and, in consideration thereof, Gaborro was given the possession and enjoyment of the properties in question until
Dizon shall have reimbursed him for the amount paid to the creditor banks. Accordingly, the trial court ordered the reformation of the
documents to the extent indicated and such particular relief was affirmed by the Court of Appeals. This Court held that the agreement
between the parties is one of those innominate contracts under Article 1307 of the Civil Code whereby the parties agreed "to give and
to do" certain rights and obligations, but partaking of the nature of antichresis.
Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was affirmed but with the following pronouncements:
The two instruments sought to be reformed in this case appear to stipulate rights and obligations between the parties
thereto pertaining to and involving parcels of land that had already been foreclosed and sold extrajudicially, and
purchased by the mortgage creditor, a third party. It becomes, therefore, necessary, to determine the legality of said
rights and obligations arising from the foreclosure and sale proceedings not only between the two contracting parties
to the instruments executed between them but also in so far as the agreement affects the rights of the third party, the
purchaser Bank.
xxx xxx xxx
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property
foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the property sold, he
is entitled to retain it, and receive the fruits, the purchaser not being entitled to such possession. (Riosa vs. Verzosa,
26 Phil. 86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs. Pauco, 43 Phil. 572; Power vs. PNB, 54 Phil. 54;
Gorospe vs. Gochangco, L-12735, Oct. 30, 1959).
xxx xxx xxx
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27,
Revised Rules of Court). After the termination of the period of redemption and no redemption having been made, the
purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules of
Court). The weight of authority is to the effect that the purchaser of land sold at public auction under a writ of
execution has only an inchoate right to the property, subject to be defeated and terminated within the period of 12
months from the date of sale, by a redemption on the part of the owner. Therefore, the judgment debtor in possession
of the property is entitled to remain therein during the period for redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89;
Gonzales vs. Calimbas, 51 Phil. 355).
In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right
to redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are
the only rights that Dizon could legally transfer, cede and conveyunto respondent Gaborro under the instrument
captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation), likewise the same rights that said
respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner Dizon with
DBP and PNB.
Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because
there was absolutely no money consideration therefor, as admittedly stipulated, the sum of P131,831.91 mentioned in
the document as the consideration "receipt of which was acknowledged" was not actually paid; and, secondly,
because the properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the
petitioner of his full right as owner thereof to dispose and sell the lands. (Emphasis ours.)
It was apparently the second reason stated by the Court in said case which was relied upon by respondent court in the present case on
which to premise its conclusion. Yet, as demonstrated by the relevant excerpts above quoted, not only was that obiter therein
unnecessary since evidently no sale was concluded, but even inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely acquired an inchoate right to the property which
could ripen into ownership only upon the lapse of the redemption period without his credit having been discharged, it is illogical to hold
that during that same period of twelve months the mortgagor was "divested" of his ownership, since the absurd result would be that the
land will consequently be without an owner although it remains registered in the name of the mortgagor.
That is why the discussion in said case carefully and felicitously states that what is divested from the mortgagor is only his "full right as
owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the unconditional power to

absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied, could result in a consolidation of
ownership in the lienholder but only after the lapse of the period of redemption. Even on that score, it may plausibly be argued that what
is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal
which may correspondingly be restricted.
At any rate, even the foregoing considerations and arguments would have no application in the case at bar and need not here be
resolved since what is presently involved is a mortgage, not a sale, to petitioner bank. Such mortgage does not involve a transfer,
cession or conveyance of the property but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even
after the auction sale of the property but during the redemption period, since no distinction is made between a mortgage constituted
over the property before or after the auction sale thereof.
Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on the property sold, or on some part
thereof, subsequent to the judgment under which the property was sold. 11 Of course, while in extrajudicial foreclosure the sale
contemplated is not under a judgment but the proceeding pursuant to which the mortgaged property was sold, a subsequent mortgage
could nevertheless be legally constituted thereafter with the subsequent mortgagee becoming and acquiring the rights of a
redemptioner, aside from his right against the mortgagor.
In either case, what bears attention is that since 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 the requisites of Article 2085 of the Civil Code for the
constitution of another mortgage on the property. To hold otherwise would create the inequitable situation wherein the mortgagor would
be deprived of the opportunity, which may be his last recourse, to raise funds wherewith to timely redeem his property through another
mortgage thereon.
Coming back to the present controversy, 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. 12 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. 13 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. 14
Parenthetically, therefore, what actually is effected where redemption is seasonably exercised by the judgment or mortgage debtor is
not the recovery of ownership of his land, which ownership he never lost, but the elimination from his title thereto of the lien created by
the levy on attachment or judgment or the registration of a mortgage thereon. 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. 15
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.
An appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in
the decision of the court below. 16 He cannot impugn the correctness of a judgment not appealed from by him. He cannot assign such
errors as are designed to have the judgment modified. All that said appellee can do is to make a counter-assignment of errors or to
argue on issues raised at the trial only for the purpose of sustaining the judgment in his favor, even on grounds not included in the
decision of the court a quo nor raised in the appellant's assignment of errors or arguments. 17
WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of the trial court, is REVERSED and
SET ASIDE. The judgment of said trial court in Civil Case No. R-18616, dated January 12, 1983, is hereby REINSTATED.
SO ORDERED.

G.R. No. 171868

SPOUSES FRANCISCO D. YAP and WHELMA S. YAP, vs. SPOUSES ZOSIMO DY, SR. and NATIVIDAD CHIU DY, SPOUSES MARCELINO
MAXINO and REMEDIOS L. MAXINO, PROVINCIAL SHERIFF OF NEGROSORIENTAL and DUMAGUETE RURAL BANK,
INC.,
Respondents.
DECISION
VILLARAMA, JR., J.:
May persons to whom several mortgaged lands were transferred without the knowledge and consent of the creditor redeem
only several parcels if all the lands were sold together for a single price at the foreclosure sale? This is the principal issue presented to
us for resolution in these two petitions for review on certiorari assailing the May 17, 2005 Decision [1] and March 15, 2006 Resolution[2] of
the Court of Appeals (CA) in CA-G.R. C.V. No. 57205.
The antecedents are as follows:
The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are the registered owners of several parcels of land
located in Ayungon, Negros Oriental, registered under Transfer Certificate of Title (TCT) Nos. T-14794, T-14777, T-14780, T-14781, T14783 and T-20301 of the Registry of Deeds of Negros Oriental, and more particularly designated as follows:
(1) TCT No. T-14777

Lot 1 of Plan Pcs-11728

61,371 sq.m.

(2) TCT No. T-20301

Lot 3 of Plan Psu-124376

17,373 sq.m.

(3) TCT No. T-14780

Lot 4 of Plan Pcs-11728

27,875 sq.m.

(4) TCT No. T-14794

Lot 5 of Plan Psu-124376

(5) TCT No. T-14781

Lot 6 of Plan Pcs-11728

16,087 sq.m.

(6) TCT No. T-14783

Lot 8 of Plan Pcs-11728

39,888 sq.m

2,900 sq.m.

The Tirambulos likewise own a parcel of land denominated as Lot 846, covered by Tax Declaration No. 08109.
On December 3, 1976, the Tirambulos executed a Real Estate Mortgage [3] over Lots 1, 4, 5, 6 and 8 in favor of the Rural Bank
of Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI), to secure a P105,000 loan extended by the latter to
them. Later, the Tirambulos obtained a second loan for P28,000 and also executed a Real Estate Mortgage [4] over Lots 3 and 846
in favor of the same bank on August 3, 1978.
Subsequently, on October 27, 1979, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and Natividad
Chiu (the Dys) and the spouses Marcelino C. Maxino and Remedios Lasola (the Maxinos) without the consent and knowledge of
DRBI. This sale, which was embodied in a Deed of Absolute Sale, [5] was followed by a default on the part of the Tirambulos to pay their
loans to DRBI. Thus, DRBI extrajudicially foreclosed the December 3, 1976 mortgage and had Lots 1, 4, 5, 6 and 8 sold at public
auction on March 31, 1982.
At the auction sale, DRBI was proclaimed the highest bidder and bought said lots for P216,040.93. The Sheriffs Certificate of
Sale[6] stated that the sale is subject to the rights of redemption of the mortgagor (s) or any other persons authorized by law so to do,
within a period of one (1) year from registration hereof.[7] The certificate of sale, however, was not registered until almost a year later, or
on June 24, 1983.
On July 6, 1983, or twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6 to the spouses Francisco D. Yap
and Whelma D. Yap (the Yaps) under a Deed of Sale with Agreement to Mortgage. [8] It is important to note, however, that Lot 3 was
not among the five properties foreclosed and bought by DRBI at public auction.
On August 8, 1983, or well within the redemption period, the Yaps filed a Motion for Writ of Possession [9] alleging that they
have acquired all the rights and interests of DRBI over the foreclosed properties and are entitled to immediate possession of the same
because the one-year redemption period has lapsed without any redemption being made. Said motion, however, was ordered
withdrawn on August 22, 1983[10] upon motion of the Yaps, who gave no reason therefor.[11] Three days later, or on August 25, 1983,
the Yaps again filed a Motion for Writ of Possession. [12] This time the motion was granted, and a Writ of Possession [13] over Lots 1, 3
and 6 was issued in favor of the Yaps on September 5, 1983. They were placed in possession of Lots 1, 3 and 6 seven days later.

On May 22, 1984, roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos
attempted to redeem Lots 1, 3 and 6. They tendered the amount of P40,000.00 to DRBI and the Yaps,[14] but both refused, contending
that the redemption should be for the full amount of the winning bid of P216,040.93 plus interest for all the foreclosed properties.
Thus, on May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of Negros Oriental and paid P50,625.29
(P40,000.00 for the principal plus P10,625.29 for interests and Sheriffs Commission) to effect the redemption.[15] Noticing that Lot 3 was
not included in the foreclosure proceedings, Benjamin V. Diputado, Clerk of Court and Provincial Sheriff, issued a Certificate of
Redemption[16] in favor of the Dys and the Maxinos only for Lots 1 and 6, and stated in said certificate that Lot 3 is not included in the
foreclosure proceedings. By letter[17] of even date, Atty. Diputado also duly notified the Yaps of the redemption of Lots 1 and 6 by the
Dys and the Maxinos, as well as the non-inclusion of Lot 3 among the foreclosed properties. He advised the Yaps to personally claim
the redemption money or send a representative to do so.
In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused to take delivery of the redemption price arguing that one
of the characteristics of a mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the
parcels were sold for a single price at the auction sale.[18]
On June 1, 1984, the Provincial Sheriff wrote the Dys and the Maxinos informing them of the Yaps refusal to take delivery of
the redemption money and that in view of said development, the tender of the redemption money was being considered as a
consignation.[19]
On June 15, 1984, the Dys and the Maxinos filed Civil Case No. 8426 with the Regional Trial Court of Negros Oriental for
accounting, injunction, declaration of nullity (with regard to Lot 3) of the Deed of Sale with Agreement to Mortgage, and damages
against the Yaps and DRBI. In their complaint,[20] they prayed
a)

That the Deed of Sale With Agreement to Mortgage be declared null and void ab initio;

b)
That defendant Yap[s] possession of Lot No. 3, TCT No. T20301 based as it was on a void sale, be
declared illegal from the very beginning;
c)
That defendants be ordered to render to plaintiffs a fair accounting of the harvests and income which
defendants made from said Lot No. 3 and, in addition, be ordered to pay to plaintiffs damages for wrongfully depriving
plaintiffs of the use and enjoyment of said property;
d) That the redemption which plaintiffs made of Lot No. 1, TCT No. 14777, and Lot No. 6, TCT No. 14781,
through the Provincial Sheriff of Negros Oriental, be declared valid and binding on the defendants, thereby releasing
and freeing said parcels of land from whatever liens or claims that said defendants might have on them;
e)
That defendants be likewise ordered to render to plaintiffs full and fair accounting of all the harvests,
fruits, and income that they or either of them might have derived from said two parcels of land starting from the time
defendant Yap first took possession thereof and harvested the coconuts in September, 1983;
f)
That, after the accounting herein prayed for, defendants be required to deliver to plaintiffs the net
proceeds of the income from the three parcels of land subject of this case, together with interest at the legal rate;
g)
That for his acts of misrepresentation and deceit in obtaining a writ of possession over the three
parcels of land subject of this case, and for the highly irregular and anomalous procedures and maneuvers employed
by defendant Yap in securing said writ, as well as for harvesting the coconuts even after knowing that plaintiffs had
already fully redeemed the properties in question and, with respect to Lot No. 3, after knowing that the same was not
in fact included in the foreclosure and, therefore, could not have been validly sold by the bank to him, said defendant
Yap be condemned to pay plaintiffs moral damages in the amount of P200,000.00, plus punitive and exemplary
damages in the amount of P100,000.00;
h)
That for falsifying the Sheriffs Certificate of Sale and selling unlawfully Lot No. 3, TCT No. T-20301, to
its co-defendant Yap, defendant DRBI be condemned to pay to plaintiffs actual damages in the amount
of P50,000.00; moral damages in the amount of P200,000.00; and punitive and exemplary damages in the amount
of P100,000.00;
i)
That defendants be condemned to pay solidarily to plaintiffs attorneys fees in the amount
of P50,000.00; other legitimate expenses of litigation in the amount of P30,000.00; and the costs of suit;
j)
That pending hearing of this case, a writ of preliminary injunction be issued enjoining and restraining
the defendants, particularly defendant Yap, from disturbing and interfering the plaintiffs possession and other rights of
ownership over the land in question;

k)
That pending hearing of the petition for preliminary injunction, a temporary restraining order be issued
against the defendants, particularly against defendant Yap, to serve the same purpose for which the writ of
preliminary injunction is herein prayed for; and
l)

That, after hearing of the main case, said preliminary injunction be made permanent.

Furthermore, plaintiffs pray for all other reliefs which may be just and equitable in the premises.[21]

Thereafter, on June 19, 1984, the Dys and the Maxinos consigned to the trial court an additional sum of P83,850.50 plus
sheriffs commission fee of P419.25 representing the remaining balance of the purchase price that the Yaps still owed DRBI by virtue of
the sale to them by the DRBI of Lots 1, 3 and 6.[22]
Meanwhile, by letter[23] dated June 27, 1984, the Yaps told DRBI that no redemption has been made by the Tirambulos or their
successors-in-interest and requested DRBI to consolidate its title over the foreclosed properties by requesting the Provincial Sheriff to
execute the final deed of sale in favor of the bank so that the latter can transfer the titles of the two foreclosed properties to them.
On the same date, the Yaps also wrote the Maxinos informing the latter that during the last harvest of the lots bought from
DRBI, they excluded from the harvest Lot 3 to show their good faith. Also, they told the Maxinos that they were formally turning over
the possession of Lot 3 to the Maxinos, without prejudice to the final determination of the legal implications concerning Lot 3. As to Lots
1 and 6, however, the Yaps stated that they intended to consolidate ownership over them since there has been no redemption as
contemplated by law. Included in the letter was a liquidation of the copra proceeds harvested from September 7, 1983 to April 30,
1984for Lots 1, 3 and 6.[24]
Later, on July 5, 1984, the Yaps filed Civil Case No. 8439 for consolidation of ownership, annulment of certificate of redemption,
and damages against the Dys, the Maxinos, the Provincial Sheriff of Negros Oriental and DRBI. In their complaint,[25] the Yaps prayed
1.
That [they] be declared the exclusive owners of Lot No. 1 covered by TCT No. T-14777 and Lot No. 6
covered by TCT No. T-14781 for failure on the part of defendants Zosimo Dy, Sr., and Marcelino Maxino to redeem
the properties in question within one (1) year from the auction sale.
2.
That defendants be [declared] solidarily liable to pay moral damages in the amount of ONE HUNDRED
THOUSAND PESOS (P100,000.00), THIRTY[-]FIVE THOUSAND PESOS (P35,000.00) as attorneys fees and
FIFTEEN THOUSAND PESOS (P15,000.00) as exemplary damages;
3.
That the Provincial Sheriff be required to execute the final Deed of Sale in favor of the bank and the
bank be in turn required to transfer the property to the plaintiffs in accordance with the Deed of Sale with Mortgage.
4.

That the court grant such other relief as may be deemed just and equitable under the premises.[26]

Civil Case Nos. 8426 and 8439 were tried jointly.

On October 24, 1985, the Yaps, by counsel, filed a motion to withdraw from the provincial sheriff the redemption money
amounting to P50,373.42.[27] Said motion was granted on October 28, 1985 after a Special Power of Attorney executed by Francisco
Yap in favor of his brother Valiente Yap authorizing the latter to receive the P50,373.42 redemption money was presented in court.[28]
On February 12, 1997, the trial court rendered decision[29] in favor of the Yaps. The fallo reads:
WHEREFORE, judgment is hereby rendered as follows:
1.
Dismissing the complaint of Dy and Maxino spouses in Civil Case No. 8426 as well as the bank and
the Yap spouses counterclaim for lack of factual and legal basis;
2.

In Civil Case No. 8439:

a)

Declaring the Yap spouses, plaintiffs therein, the exclusive owners of Lot No. 1 covered by TCT
No. T-14777 and Lot No. 6 covered by TCT No. T-14781 for failure on the part of the Dy and
Maxino spouses, defendants therein, to redeem the properties in question within one (1) year from
the auction sale.

b)

Directing the Provincial Sheriff of Negros Oriental to execute the Final Deed of Sale in favor of the
bank and the latter to transfer the subject properties to the Yap spouses in accordance with the
Deed of Sale With Mortgage.

SO ORDERED.[30]

On March 7, 1997, the trial court amended the above dispositive portion upon motion of DRBI, as follows:
Wherefore, judgment is hereby rendered as follows:
1.

The Certificate of Redemption issued by the Provincial Sheriff (Exh. M) is hereby declared null and void;

2.
The Provincial Sheriff of Negros Oriental is hereby ordered to execute a Final Deed of Sale of the foreclosed
properties in favor of the defendant Dumaguete Rural Bank, Inc., subject to the rights of the Yap spouses acquired in
accordance with the Deed of Sale with Mortgage;
3.
The Deed of Sale dated [October] 27, 1979, made by Tirambulo and Estorco in favor of the Dys and Maxinos
covering all the seven (7) parcels of land in question, is hereby declared null and void;
4.
In Civil Case No. 8439, declaring the Yap Spouses, the exclusive owners of Lot No. 1, covered by TCT No. T14777, and Lot No. 6, covered by TCT No. T-14781, for failure on the part of the Dy and Maxino Spouses, to redeem
said properties within one (1) year from the date of the registration of the auction sale;
5.

All other claims and counterclaims are hereby dismissed for lack of merit.

SO ORDERED.[31]

The trial court held that the Dys and the Maxinos failed to formally offer their evidence; hence, the court could not consider the
same. It also upheld the Deed of Sale with Agreement to Mortgage between the Yaps and DRBI, ruling that its genuineness and due
execution has been admitted by the Dys and the Maxinos and that it is not contrary to law, morals, good customs, public policy or public
order. Thus, ownership of Lots 1, 3 and 6 was transferred to the Yaps.
The trial court further held that the Dys and the Maxinos failed to exercise their rights of redemption properly and timely. They
merely deposited the amount of P50,625.29 with the Sheriff, whereas the amount due on the mortgage deed is P216,040.93.
Aggrieved by the above ruling, the Dys and the Maxinos elevated the case to the CA. They argued that the trial court erred in:
1)

... failing to consider plaintiffs evidence [testimonial, including the testimony of the Provincial Sheriff of Negros
Oriental (Attorney Benjamin V. Diputado) and plaintiff Attorney Marcelino C. Maxino] and documentary [Exhibits A
through TT (admitted under Order of 3 March 1995)];

2)

failing to declare void or annul the purported contract of sale by Dumaguete Rural Bank, Inc. to Francisco D.
Yap and Whelma S. Yap of Lots 1, 3, and 6, during the redemption period [the purported seller (bank) not being
the owner thereof, and Lot 3 not being included in the foreclosure/auction sale and could not have been acquired
by the Bank thereat];

3)

not holding that the parcels of land had been properly and validly redeemed in good faith, defendant Yap, the
Provincial Sheriff, the Clerk of Court, and Mr. Mario Dy, having accepted redemption/consignation (or, in not
fixing the redemption price and allowing redemption);

4)

not holding that by withdrawing the redemption money consigned/deposited by plaintiffs to the Court, and
turning over possession of the parcels of land to plaintiffs, defendants Yap accepted, ratified, and confirmed
redemption by plaintiffs of the parcels of land acquired at foreclosure/auction sale by the Bank and purportedly
sold by it to and purchased by Yap;

5)

not finding and holding that all the parcels of land covered by the foreclosed mortgage held by Dumaguete
Rural Bank had been acquired by and are in the possession of plaintiffs as owners and that defendants bank and
Yap had disposed of and/or lost their rights and interests and/or any cause of action and their claims had been
extinguished and mooted or otherwise settled, waived and/or merged in plaintiffs-appellants;

6)

not holding that defendants Yap have no cause of action to quiet title as they had no title or possession of the
parcels of land in question and in declaring defendants Yap spouses the exclusive owners of Lot No. 1 covered

by TCT No. T-14777 and Lot No. 6 covered by TCT No. T-14781 and in directing the Provincial Sheriff to execute
the final deed of sale in favor of the bank and the latter to transfer the subject properties to the Yap spouses in
accordance with the Deed of Sale with Mortgage which included Lot No. 3 which was not foreclosed by the
Sheriff and was not included in the certificate of sale issued by him and despite their acceptance, ratification, and
confirmation of the redemption as well as acknowledgment of possession of the parcels of land by plaintiffs;
7)

issuing an amended decision after perfection of plaintiffs appeal and without waiting for their comment
(declaring the Certificate of Redemption issued by the Provincial Sheriff (Exh. M) null and void; ordering the
Provincial Sheriff of Negros Oriental to execute a Final Deed of Sale of the foreclosed properties in favor of the
defendant Dumaguete Rural Bank, Inc., subject to the rights of the Yap spouses acquired in accordance with the
Deed of Sale with Mortgage (Exh. B-Maxino and Dy; Exh. 1 Yap); declaring null and void the Deed of Sale
dated Oct[ober] 27, 1979, made by Tirambulo and Estorco in favor of the Dys and Maxinos covering all the seven
(7) parcels of land in question; in Civil Case No. 8439, declaring the Yap spouses, the exclusive owners of Lot
No. 1, covered by TCT No. T-14777, and Lot No. 6, covered by TCT No. T-14781, for failure on the part of the Dy
and Maxino spouses, to redeem said properties within (1) year from the date of registration of the auction sale)
after plaintiffs had perfected appeal of the 12 February 1997 decision, without hearing or awaiting plaintiffs
comment, and in the face of the records showing that the issues were never raised, much less litigated, insofar
as Tirambulo, as well in the face of the foregoing circumstances, especially dismissal of defendants claims and
counterclaims and acquisition of ownership and possession of the parcels of land by plaintiffs as well as
disposition and/or loss of defendants rights and interests and cause of action in respect thereof and/or
settlement, waiver, and/or extinguishment of their claims, and merger in plaintiffs-appellants, and without stating
clearly the facts and the law upon which it is based[; and]

8)

not finding, holding and ruling that defendants acted in bad faith and in an abusive and oppressive manner, if
not contrary to law; and in not awarding plaintiffs damages.[32]

On May 17, 2005, the CA rendered a decision reversing the March 7, 1997 amended decision of the trial court. The dispositive
portion of the assailed CA decision reads:
IN LIGHT OF THE FOREGOING, this appeal is GRANTED. The decision as well as the amended decision
of the Regional Trial Court is REVERSED AND SET ASIDE. In lieu thereof[,] judgment is hereby rendered as follows:
1.
Declaring the sale made by Dumaguete Rural Bank Inc. to Sps. Francisco and Whelma Yap with
respect to Lot No. 3 under TCT No. T-20301 as null and void;
2.
Declaring the redemption made by Spouses Dy and Spouses Maxino with regards to Lot No. 6 under
TCT No. T-14781 and Lot No. 1 under TCT No. [T-]14777 as valid;
3.
Ordering defendants, Sps. Yap, to deliver the possession and ownership thereof to Sps. Dy and Sps.
Maxino; to give a fair accounting of the proceeds of these three parcels of land and to tender and deliver the
corresponding amount of income from October 24, 1985 until the finality of this judgment[; and]
4.
Condemning the defendant bank to pay damages to Spouses Dy and Spouses Maxino the amount
of P20,000.00 as moral damages and P200,000.00 as exemplary damages and attorneys fees in the amount
of P50,000.00.
All other claims are dismissed.
Costs against the appellees.
SO ORDERED.[33]

The CA held that the trial court erred in ruling that it could not consider the evidence for the Dys and the Maxinos allegedly
because they failed to formally offer the same. The CA noted that although the testimonies of Attys. Marcelino C. Maxino and Benjamin
V. Diputado were not formally offered, the procedural lapse was cured when the opposing counsel cross-examined said witnesses.
Also, while the original TSNs of the witnesses for the plaintiffs in Civil Case No. 8426 were burned, the latters counsel who had copies
thereof, furnished the Yaps copies for their scrutiny and comment. The CA further noted that the trial court also admitted all the
documentary exhibits of the Dys and the Maxinos on March 3, 1995. Unfortunately, however, the trial court simply failed to locate the
pertinent documents in the voluminous records of the cases.
On the merits, the CA ruled that the Dys and the Maxinos had proven their cause of action sufficiently. The CA noted that their
claim that Lot 3 was not among the properties foreclosed was duly corroborated by Atty. Diputado, the Provincial Sheriff who conducted
the foreclosure sale. The Yaps also failed to rebut their contention regarding the formers acceptance of the redemption money and
their delivery of the possession of the three parcels of land to the Dys and the Maxinos. The CA also noted that not only did the Yaps

deliver possession of Lot 3 to the Dys and the Maxinos, they also filed a Motion to Withdraw the Redemption Money from the Provincial
Sheriff and withdrew the redemption money.
As to the question whether the redemption was valid or not, the CA found no need to discuss the issue. It found that the bank
was in bad faith and therefore cannot insist on the protection of the law regarding the need for compliance with all the requirements for
a valid redemption while estoppel and unjust enrichment operate against the Yaps who had already withdrawn the redemption money.
Upon motion for reconsideration of the Yaps, however, the CA amended its decision on March 15, 2006 as follows:
IN LIGHT OF THE FOREGOING, this appeal is GRANTED. The decision as well as the amended decision
of the Regional Trial Court is REVERSED AND SET ASIDE. In lieu thereof[,] judgment is hereby rendered as follows:
1.Declaring the sale made by Dumaguete Rural Bank Inc. to Sps. Francisco and Whelma Yap with respect
to Lot No. 3 under TCT No. T-20301 null and void;
2.Declaring the redemption made by Spouses Dy and Spouses Maxino with regards to Lot No. 6 under TCT
No. T-14781 and Lot No. 1 under TCT No. [T-]14777 as valid;
3. Condemning the defendant bank to pay damages to Spouses Dy and Spouses Maxino the amount
of P20,000.00 as moral damages and P200,000.00 as exemplary damages and attorneys fees in the amount
of P50,000.00.

All other claims are dismissed.

Costs against the appellees.
SO ORDERED.[34]
Hence, the consolidated petitions assailing the appellate courts decision.
The Yaps argue in the main that there is no valid redemption of the properties extrajudicially foreclosed. They contend that
theP40,000.00 cannot be considered a valid tender of redemption since the amount of the auction sale is P216,040.93. They also argue
that a valid tender of payment for redemption can only be made to DRBI since at that time, their rights were subordinate to the final
consolidation of ownership by the bank.
DRBI, aside from insisting that all seven mortgaged properties (which thus includes Lot 3) were validly foreclosed, argues, for its
part, that the appellate court erred in sustaining the redemption made by the Dys and Maxinos. It anchors its argument on the fact that
the sale of the Tirambulos to the Dys and Maxinos was without the banks consent. The Dys and Maxinos therefore could not have
assumed the character of debtors because a novation of the contract of mortgage between the Tirambulos and DRBI did not take place
as such a novation is proscribed by Article 1293 of the Civil Code. And there being no valid redemption within the contemplation of law
and DRBI being the highest bidder during the auction sale, DRBI has become the absolute owner of the properties mortgaged when the
redemption period expired.
DRBI further argues that it was unfair and unjust for them to be held liable for damages for supposedly wrongfully foreclosing
on Lot 3, depriving the Dys and the Maxinos of the use of the land, and registering the Certificate of Sale which included Lot 3 when it
should have excluded the same. DRBI argues that as a juridical person, it only authorized and consented, through its Board of
Directors, to lawful processes. The unlawful acts of the Sheriff, who is considered as an agent of the bank in the foreclosure
proceedings, cannot bind DRBI. Moreover, DRBI cannot be liable for damages on the basis of an affidavit that was submitted only
before the CA as the bank had no chance to cross-examine the affiant and determine the veracity and propriety of the statements
narrated in said affidavit.
Thus, the issues to be resolved in the instant case are essentially as follows: (1) Is Lot 3 among the foreclosed properties? (2) To
whom should the payment of redemption money be made? (3) Did the Dys and Maxinos validly redeem Lots 1 and 6? and (4) Is DRBI
liable for damages?
As to the first issue, we find that the CA correctly ruled that the Dys and Maxinos were able to prove their claim that Lot 3 was not
among the properties foreclosed and that it was merely inserted by the bank in the Sheriffs Certificate of Sale. As Atty. Diputado, the
Provincial Sheriff, testified, the application for foreclosure was only for five parcels of land, namely, Lots 1, 4, 5, 6 and 8. Accordingly,
only said five parcels of land were included in the publication and sold at the foreclosure sale. When he was shown a copy of the
Sheriffs Certificate of Sale consisting of three pages, he testified that it was altered because Lot 3 and Lot 846 were included beyond
the xxx that marked the end of the enumeration of the lots foreclosed. [35] Also, a perusal of DRBIs application for foreclosure of real

estate mortgage[36] shows that it explicitly refers to only one deed of mortgage to settle the Tirambulos indebtedness amounting
to P216,040.93. This is consistent with the Notice of Extrajudicial Sale of Mortgaged Property, published in the Dumaguete Star
Informer on February 18, 25 and March 4, 1982,[37] announcing the sale of Lots 1, 4, 5, 6 and 8 for the satisfaction of the indebtedness
amounting to P216,040.93. It is also consistent with the fact that Lots 1, 4, 5, 6 and 8 are covered by only one real estate mortgage, the
Real Estate Mortgage[38] dated December 3, 1976. Indeed, that the foreclosure sale refers only to Lots 1, 4, 5, 6 and 8 is clear from the
fact that Lots 1, 4, 5, 6 and 8 and Lot 3 are covered by two separate real estate mortgages. DRBI failed to refute these pieces of evidence
against it.
As to the second issue regarding the question as to whom payment of the redemption money should be made, Section 31, [39]Rule
39 of the Rules of Court then applicable provides:
SEC. 31. Effect of redemption by judgment debtor, and a certificate to be delivered and recorded thereupon.
To whom payments on redemption made.If the judgment debtor redeem, he must make the same payments as are
required to effect a redemption by a redemptioner, whereupon the effect of the sale is terminated and he is restored
to his estate, and the person to whom the payment is made must execute and deliver to him a certificate of
redemption acknowledged or approved before a notary public or other officer authorized to take acknowledgments of
conveyances of real property. Such certificate must be filed and recorded in the office of the registrar of deeds of the
province in which the property is situated, and the registrar of deeds must note the record thereof on the margin of
the record of the certificate of sale. The payments mentioned in this and the last preceding sections may be
made to the purchaser or redemptioner, or for him to the officer who made the sale. (Emphasis supplied.)

Here, the Dys and the Maxinos complied with the above-quoted provision. 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 Natino v. Intermediate Appellate Court,[40] 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.
But were the Dys and Maxinos entitled to redeem Lots 1 and 6 in the first place? We rule in the affirmative.
The Dys and the Maxinos have legal personality to redeem the
subject properties.
Contrary to petitioners contention, the Dys and Maxinos have legal personality to redeem the subject properties despite the fact
that the sale to the Dys and Maxinos was without DRBIs consent. In Litonjua v. L & R Corporation,[41] this Court declared valid the sale
by the mortgagor of mortgaged property to a third person notwithstanding the lack of written consent by the mortgagee, and likewise
recognized the third persons right to redeem the foreclosed property, to wit:
Coming now to the issue of whether the redemption offered by PWHAS on account of the spouses Litonjua
is valid, we rule in the affirmative. The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid.
Therefore, PWHAS stepped into the shoes of the spouses Litonjua on account of such sale and was in effect, their
successor-in-interest. As such, it had the right to redeem the property foreclosed by L & R Corporation.
Again, Tambunting, supra, clarifies that
x x x. The acquisition by the Hernandezes of the Escuetas rights over the property carried with it the
assumption of the obligations burdening the property, as recorded in the Registry of Property, i.e., the
mortgage debts in favor of the RFC (DBP) and the Tambuntings. The Hernandezes, by stepping into the
Escuetas shoes as assignees, had the obligation to pay the mortgage debts, otherwise, these debts would
and could be enforced against the property subject of the assignment. Stated otherwise, the Hernandezes,
by the assignment, obtained the right to remove the burdens on the property subject thereof by paying the
obligations thereby secured; that is to say, they had the right of redemption as regards the first mortgage, to
be exercised within the time and in the manner prescribed by law and the mortgage deed; and as regards
the second mortgage, sought to be judicially foreclosed but yet unforeclosed, they had the so-called equity
of redemption.
The right of PWHAS to redeem the subject properties finds support in Section 6 of Act 3135 itself which
gives not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of the subject
properties, PWHAS qualifies as such a successor-in-interest of the spouses Litonjua.[42]

Likewise, we rule that the Dys and the Maxinos validly redeemed Lots 1 and 6.

The requisites of a valid redemption are present

The requisites for a valid redemption are: (1) the redemption must be made within twelve (12) months from the time of
registration of the sale in the Office of the Register of Deeds; (2) payment of the purchase price of the property involved, plus
interest per month thereon in addition, up to the time of redemption, together with the amount of any assessments or taxes which
purchaser may have paid thereon after the purchase, also with 1% interest on such last named amount; and (3) written notice of
redemption must be served on the officer who made the sale and a duplicate filed with the Register of Deeds of the province.[43]

the
1%
the
the

There is no issue as to the first and third requisites. 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, when they
depositedP50,373.42 with the Provincial Sheriff, and on June 19, 1984, when they deposited an additional P83,850.50. 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.
The second requisite, the proper redemption price, is the main subject of contention of the opposing parties.
The Yaps argue that P40,000.00 cannot be a valid tender of redemption since the amount of the auction sale was P216,040.93.
They further contend that the mortgage is indivisible so in order for the tender to be valid and effectual, it must be for the entire auction
price plus legal interest.
We cannot subscribe to the Yaps argument on the indivisibility of the mortgage. As held in the case of Philippine National Bank v.
De los Reyes,[44] the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure
thereof as in the instant case. The Court held:
The parties were accordingly embroiled in a hermeneutic disparity on their aforesaid contending positions.
Yet, the rule on the indivisibility of mortgage finds no application to the case at bar. The particular provision of the Civil
Code referred to provides:
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided
among the successors in interest of the debtor or of the creditor.
Therefore, the debtors heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not completely
satisfied.
Neither can the creditors heir who received his share of the debt return the pledge or
cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things given in
mortgage or pledge, each one of these guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage
as the portion of the debt for which each thing is specially answerable is satisfied.
From the foregoing, it is apparent that what the law proscribes is the foreclosure of only a portion of the
property or a number of the several properties mortgaged corresponding to the unpaid portion of the debt where
before foreclosure proceedings partial payment was made by the debtor on his total outstanding loan or obligation.
This also means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or
some of the several lots mortgaged unless and until the loan thus, secured has been fully paid, notwithstanding the
fact that there has been a partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part
of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not completely
satisfied.
That the situation obtaining in the case at bar is not within the purview of the aforesaid rule on indivisibility is
obvious since the aggregate number of the lots which comprise the collaterals for the mortgage had already been
foreclosed and sold at public auction. There is no partial payment nor partial extinguishment of the obligation to speak
of. The aforesaid doctrine, which is actually intended for the protection of the mortgagee, specifically refers to the
release of the mortgage which secures the satisfaction of the indebtedness and naturally presupposes that the
mortgage is existing. Once the mortgage is extinguished by a complete foreclosure thereof, said doctrine of
indivisibility ceases to apply since, with the full payment of the debt, there is nothing more to secure.
[45]
(Emphasis supplied.)

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.
In the 1962 case of Castillo v. Nagtalon,[46] ten parcels of land were sold at public auction. Nagtalon, who owned three of the ten
parcels of land sold, wanted to redeem her properties. Though the amount she tendered was found as insufficient to effectively release
her properties, the Court held that the tender of payment was made timely and in good faith and thus, in the interest of justice,
Nagtalon was given the opportunity to complete the redemption purchase of three of the ten parcels of land foreclosed.
Also, in the later case of Dulay v. Carriaga,[47] wherein Dulay redeemed eight of the seventeen parcels of land sold at public
auction, the trial court declared the piecemeal redemption of Dulay as void. Said order, however, was annulled and set aside by the
Court on certiorari and the Court upheld the redemption of the eight parcels of land sold at public auction.
Clearly, the 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.
So what amount should the Dys and Maxinos pay in order for their redemption of the two properties be deemed valid
considering that when the five properties were auctioned, they were not separately valued?
Contrary to the Yaps contention, the amount paid by the Dys and Maxinos within the redemption period for the redemption
ofjust two parcels of land was not only P40,000.00 but totaled to P134,223.92 (P50,373.42 paid on May 28, 1984 plus P83,850.50
paid on June 19, 1984). That is more than 60% of the purchase price for the five foreclosed properties, to think the Dys and
Maxinos were only redeeming two properties. We find that it can be considered a sufficient amount if we were to base the proper
purchase price on the proportion of the size of Lots 1 and 6 with the total size of the five foreclosed properties, which had the following
respective sizes:
Lot 1

61,371 square meters

Lot 6

16,087 square meters

Lot 5

2,900 square meters

Lot 4

27,875 square meters

Lot 8

39,888 square meters

TOTAL

148,121 square meters

The two subject properties to be redeemed, Lots 1 and 6, have a total area of 77,458 square meters or roughly 52% of the total area of
the foreclosed properties. Even with this rough approximation, we rule that there is no reason to invalidate the redemption of the Dys
and Maxinos since they tendered 60% of the total purchase price for properties constituting only 52% of the total area. However, there
is a need to remand the case for computation of the pro-rata value of Lots 1 and 6 based on their true values at that time of redemption
for the purposes of determining if there is any deficiency or overpayment on the part of the Dys and Maxinos.
As to the award of damages in favor of the Dys and Maxinos, we agree with the appellate court for granting the same.
The CA correctly observed that the act of DRBI in falsifying the Sheriffs Certificate of Sale to include Lots 3 and 846, even if said
additional lots were not among the properties foreclosed, was the proximate cause of the pecuniary loss suffered by the Dys and
Maxinos in the form of lost income from Lot 3.
Likewise, the CA also correctly awarded moral damages. Paragraph 10, Article 2219 of the Civil Code provides that moral
damages may be recovered in case of acts and actions referred to in Article 21 of the same Code. Article 21 reads:
ART. 21 Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

As previously discussed, DRBIs act of maliciously including two additional properties in the Sheriffs Certificate of Sale even if
they were not included in the foreclosed properties caused the Dys and Maxinos pecuniary loss. Hence, DRBI is liable to pay moral
damages.

The award of exemplary damages is similarly proper. Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. [48] We cannot agree more with
the following ratio of the appellate court in granting the same:
Additionally, what is alarming to the sensibilities of the Court is the deception employed by the bank in adding
other properties in the certificate of sale under public auction without them being included in the public auction
conducted. It cannot be overemphasized that being a lending institution, prudence dictates that it should employ good
faith and due diligence with the properties entrusted to it. It was the bank which submitted the properties ought to be
foreclosed to the sheriff. It only submitted five (5) properties for foreclosure. Yet, it caused the registration of the
Certificate of Sale under public auction which listed more properties than what was foreclosed. On this aspect,
exemplary damages in the amount of P200,000.00 are in order.[49]
There being an award of exemplary damages, the award of attorneys fees is likewise proper as provided in paragraph 1, Article
2208 of the Civil Code.
WHEREFORE, the petitions for review on certiorari are DENIED for lack of merit. The Decision dated May 17, 2005 and
Resolution dated March 15, 2006 of the Court of Appeals in CA-G.R. C.V. No. 57205 are hereby AFFIRMED with the
MODIFICATION that the case is REMANDED to the Regional Trial Court of Negros Oriental, Branch 44, Dumaguete City, for the
computation of the pro-rata value of properties covered by TCT No. T-14777 (Lot 1) and TCT No. T-14781 (Lot 6) of the Registry of
Deeds of Negros Oriental at the time of redemption to determine if there is a deficiency to be settled by or overpayment to be refunded
to respondent Spouses Zosimo Dy, Sr. and Natividad Chiu and Spouses Marcelino C. Maxino and Remedios Lasola with regard to the
redemption money they paid.
With costs against the petitioners.
SO ORDERED.

G.R. No. 171206

September 23, 2013

HEIRS OF THE LATE SPOUSES FLA VIANO 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-NAMEDDECEASED PARENTS, Petitioners,
vs.
MANILA BANKING CORPORATION, now substituted by FIRST SOVEREIGN ASSET MANAGEMENT SPV-AMC, INC.
FSAMI, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated July 20, 2005 and Resolution3 dated January 4, 2006 of the
Court of Appeals (CA) in CA-G.R. CV No. 50410 which dismissed petitioners appeal and affirmed the Decision4 dated April 6, 1987 of
the Regional Trial Court of Ormoc City, Branch 12 (RTC) directing petitioners to jointly and severally pay respondent Manila Banking
Corporation the amount of P434,742.36, with applicable interests, representing the deficiency of the formers total loan obligation to the
latter after the extra-judicial foreclosure of the real estate mortgage subject of this case, including attorneys fees and costs of suit.
The Facts
On June 16, 1975, spouses Flaviano and Salud Maglasang (Sps.Maglasang) obtained a credit line from respondent5 in the amount
of P350,000.00 which was secured by a real estate mortgage6 executed over seven of their properties7 located in Ormoc City and the
Municipality of Kananga, Province of Leyte.8 They availed of their credit line by securing loans in the amounts of P209,790.50
and P139,805.83 on October 24, 1975and March 15, 1976, respectively,9 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 (p.a.) and an additional 4% penalty
would be charged upon default.10
After Flaviano Maglasang (Flaviano) died intestate on February 14,1977, his widow Salud Maglasang (Salud) and their surviving
children, herein petitioners Oscar (Oscar), Concepcion Chona, Lerma, Felma, FeDoris, Leolino, Margie Leila, Ma. Milalie, Salud and
Ma. Flasalie, all surnamed Maglasang, and Glenda Maglasang-Arnaiz, appointed11 their brother petitioner Edgar Maglasang (Edgar) as
their attorney-in-fact.12 Thus, on March 30, 1977, 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 (probate court), docketed as Sp. Proc. No. 1604-0.13 On
August 9, 1977, the probate court issued an Order14 granting the petition, thereby appointing Edgar as the administrator15 of Flavianos
estate.
In view of the issuance of letters of administration, the probate court, on August 30, 1977, issued a Notice to Creditors16 for the filing of
money claims against Flavianos estate. Accordingly, as one of the creditors of Flaviano, respondent notified17 the probate court of its
claim in the amount of P382,753.19 as of October 11, 1978, exclusive of interests and charges.
During the pendency of the intestate proceedings, Edgar and Oscar were able to obtain several loans from respondent, secured by
promissory notes18 which they signed.
In an Order19 dated December 14, 1978 (December 14, 1978 Order),the probate court terminated the proceedings with the surviving
heirs executing an extra-judicial partition of the properties of Flavianos estate. The loan obligations owed by the estate to respondent,
however, remained unsatisfied due to respondents certification that Flavianos 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."20
In this light, respondent proceeded to extra-judicially foreclose the mortgage covering the Sps. Maglasangs properties and emerged as
the highest bidder at the public auction for the amount of P350,000.00.21 There, however, remained a deficiency on Sps. Maglasangs
obligation to respondent. Thus, on June 24, 1981, respondent filed a suit to recover the deficiency amount of P250,601.05 as of May
31, 1981 against the estate of Flaviano, his widow Salud and petitioners, docketed as Civil Case No. 1998-0.22
The RTC Ruling and Subsequent Proceedings
After trial on the merits, the RTC (formerly, the probate court)23 rendered a Decision24 on April 6, 1987 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 5,1984 until fully paid.25 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 attorneys fees
equivalent to 10% of the outstanding obligation.26
Dissatisfied, petitioners elevated the case to the CA on appeal, contending,27 inter alia, 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.
During the pendency of the appeal, Flavianos widow, Salud, passed away on July 25, 1997.28
The CA Ruling
In a Decision29 dated July 20, 2005, the CA denied the petitioners appeal and affirmed the RTCs Decision. At the outset, it pointed out
that the probate court erred when it, through the December 14, 1978 Order, closed and terminated the proceedings in Sp. Proc. No.
1604-0 without first satisfying the claims of the creditors of the estate in particular, respondent in violation of Section 1, Rule 90 of
the Rules.30 As a consequence, respondent was not able to collect from the petitioners and thereby was left with the option of
foreclosing the real estate mortgage.31Further, 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.32According
to the CA, what should apply is Act No. 313533 which entitles respondent to claim the deficiency amount after the extra-judicial
foreclosure of the real estate mortgage of Sps. Maglasangs properties.34
Petitioners motion for reconsideration was subsequently denied in a Resolution35 dated January 4, 2006. Hence, the present recourse.
The Issue Before the Court
The essential issue in this case is whether or not the CA erred in affirming the RTCs award of the deficiency amount in favor of
respondent.
Petitioners assert36 that it is not Act No. 3135 but Section 7, Rule 86of the Rules which applies in this case. The latter provision provides
alternative and exclusive remedies for the satisfaction of respondents claim against the estate of Flaviano.37 Corollarily, having filed its
claim against the estate during the intestate proceedings, petitioners argue that respondent had effectively waived the remedy of
foreclosure and, even assuming that it still had the right to do so, it was precluded from filing a suit for the recovery of the deficiency
obligation.38
Likewise, petitioners maintain that the extra-judicial foreclosure of the subject properties was null and void, not having been conducted
in the capital of the Province of Leyte in violation of the stipulations in the real estate mortgage contract.39 They likewise deny any
personal liability for the loans taken by their deceased parents.40
The Courts Ruling
The petition is partly meritorious.
Claims against deceased persons should be filed during the settlement proceedings of their estate.41 Such proceedings are primarily
governed by special rules found under Rules 73 to 90 of the Rules, although rules governing ordinary actions may, as far as
practicable, apply suppletorily.42 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. (Emphasis and underscoring supplied)
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. On the contrary,
nowhere from its language can it be fairly deducible that the said section would as the CA interpreted narrowly apply only to
mortgages made by the administrator over any property belonging to the estate of the decedent. To note, mortgages of estate property

executed by the administrator, are also governed by Rule 89 of the Rules, captioned as "Sales, Mortgages, and Other Encumbrances
of Property of Decedent."
In this accord, it bears to stress that the CAs reliance on Philippine National Bank v. CA43 (PNB) 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.44 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 86which remains applicable
in dealing with a creditors 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.
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.45 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. With respect to real properties,
the Court in Bank of America v. American Realty Corporation46 pronounced:
In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not cumulative. Notably, an election of
one remedy operates as a waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of the suit for collection or
upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the 1997 Rules of Civil
Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with
any court of justice but with the Office of the Sheriff of the province where the sale is to be made, in accordance with the provisions of
Act No. 3135, as amended by Act No.4118.47 (Emphasis supplied)
Anent the third remedy, it must be mentioned that the same includes the option of extra-judicially foreclosing the mortgage under Act
No. 3135,as availed of by respondent in this case. However, the plain result of adopting the last mode of foreclosure is that the creditor
waives his right to recover any deficiency from the estate.48 These precepts were discussed in the PNB case, citing Perez v. Philippine
National Bank49 which overturned the earlier Pasno v. Ravina ruling:50
Case law now holds that this rule grants to the mortgagee three distinct, independent and mutually exclusive remedies that can be
alternatively pursued by the mortgage creditor for the satisfaction of his credit in case the mortgagor dies, among them:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by prescription without right to file a
claim for any deficiency
In Perez v. Philippine National Bank, reversing Pasno vs. Ravina, we held:
The ruling in Pasno v. Ravina not having been reiterated in any other case, we have carefully reexamined the same, and after mature
deliberation have reached the conclusion that the dissenting opinion is more in conformity with reason and law. Of the three alternative
courses that section 7, Rule 87 (now Rule 86), offers the mortgage creditor, to wit, (1) to waive the mortgage and claim the entire debt
from the estate of the mortgagor as an ordinary claim; (2) foreclose the mortgage judicially and prove any deficiency as an ordinary
claim; and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription, without right to
file a claim for any deficiency, the majority opinion in Pasno v. Ravina, in requiring a judicial foreclosure, virtually wipes out the third
alternative conceded by the Rules to the mortgage creditor, and which would precisely include extra-judicial foreclosures by contrast
with the second alternative.
The plain result of adopting the last mode of foreclosure is that the creditor waives his right to recover any deficiency from the estate.
Following the Perez ruling that the third mode includes
extrajudicial foreclosure sales, the result of extrajudicial foreclosure is that the creditor waives any further deficiency claim. x x
x.51 (Emphases and underscoring supplied; italics in the original)
To obviate 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. On the one hand, Section
7, Rule 86 lays down the options for the secured creditor to claim against the estate and, according to jurisprudence, the availment of
the third option bars him from claiming any deficiency amount. On the other hand, after the third option is chosen, the procedure
governing the manner in which the extra-judicial foreclosure should proceed would still be governed by the provisions of Act No.
3135.Simply put, Section 7, Rule 86 governs the parameters and the extent to which a claim may be advanced against the estate,
whereas Act No. 3135sets out the specific procedure to be followed when the creditor subsequently chooses the third option

specifically, that of extra-judicially foreclosing real property belonging to the estate. The application of the procedure under Act No. 3135
must be concordant with Section 7, Rule 86 as the latter is a special rule applicable to claims against the estate, and at the same time,
since Section 7, Rule 86 does not detail the procedure for extra-judicial foreclosures, the formalities governing the manner of availing of
the third option such as the place where the application for extra-judicial foreclosure is filed, the requirements of publication and
posting and the place of sale must be governed by Act No. 3135.
In this case, respondent sought to extra-judicially foreclose the mortgage of the properties previously belonging to Sps. Maglasang (and
now, their estates) and, therefore, availed of the third option. Lest it be misunderstood, it did not exercise the first option of directly filing
a claim against the estate, as petitioners assert, since it merely notified52 the probate court of the outstanding amount of its claim
against the estate of Flaviano and that it was currently restructuring the account.53 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.
As a final point, petitioners maintain that 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.
The Court disagrees.
As may be gleaned from the records, the stipulation under the real estate mortgage54 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.55
Case law states that absent such qualifying or restrictive words to indicate the exclusivity of the agreed forum, the stipulated place
should only be as an additional, not a limiting venue.56 As a consequence, the stipulated venue and that provided under Act No. 3135
can be applied alternatively.
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. (Italics supplied) ..
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 extrajudicial foreclosure as jurisprudence instructs.
WHEREFORE, the petition is PARTLY GRANTED. The complaint for the recovery of the deficiency amount after extra-judicial
foreclosure filed by respondent Manila Banking Corporation is hereby DISMISSED. The extra-judicial foreclosure of the mortgaged
properties, however, stands.
SO ORDERED.

G.R. NO. 170215 August 28, 2007

SPS. ESMERALDO and ELIZABETH SUICO, petitioners, vs. PHIL.NATIONAL BANK and COURT OF
APPEALS, resp.
DECISION
CHICO-NAZARIO, J.:

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by
a real estate mortgage[1] on real properties in the name of the former. The petitioners were unable to pay their obligation prompting the
PNB to extrajudicially foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No.
92-5-15.

The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City, Branch 55,
docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage.[2]

The Complaint alleged that on 6 May 1992, PNB filed with the Office of the Mandaue City Sheriff a petition for the extrajudicial
foreclosure of mortgage constituted on the petitioners properties (subject properties) for an outstanding loan obligation amounting
toP1,991,770.38 as of 10 March 1992. The foreclosure case before the Office of the Mandaue City Sheriff, which was docketed as EJF
Case No. 92-5-15, covered the following properties:

TCT NO. 13196

A parcel of land (Lot 701, plan 11-5121 Amd-2) situated at Mandaue City, bounded on the NE., and SE., by lot no.
700; on the SW. by lots nos. 688 and 702; on the NW. by lot no. 714, containing an area of 2,078 sq. m. more or
less.
TAX DECL. NO. 00553
A parcel of land situated at Tabok, Mandaue City, Cad. Lot No. 700-C-1; bounded on the North by Lot No. 701 &
700-B; on the South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and on the West by Lot no. 688, containing
an area of 200 square meters, more or less.
TAX DECL. NO. 00721
Two (2) parcels of land situated at Tabok, Mandaue City, Cad. lot nos. 700-C-3 and 700-C-2; bounded on the North
by Lot Nos. 700-C-1 and 700-B; on the South by Lot No. 700-D; on the East by Lot Nos. 695 and 694; and on the
West by Lot Nos. 688 and 700-C-1, containing an aggregate area of 1,683 sq. m. more or less.
TAX DECL. NO. 0237
A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-B. Bounded on the NE. by (Lot 699) 109, (Lot
No. 69) 110, on the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on the SW. (Lot 701) 113; containing an
area of .1785 HA more or less.
TAX DECL. NO. 9267
A parcel of land situated at Tabok, Mandaue City, Cad. Lot no. 700-A. Bounded on the NE. by (Lot 699) 109, on the
South West by (Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the NW. by (lot 714) 040039; containing an area
of .1785 HA more or less.[3]

Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the lone bidder,
offered a bid in the amount of P8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject properties was issued by
theMandaue City Sheriff in favor of PNB. PNB did not pay to the Sheriff who conducted the auction sale the amount of its bid which
wasP8,511,000.00 or give an accounting of how said amount was applied against petitioners outstanding loan, which, as of 10 March
1992, amounted only to P1,991,770.38. Since the amount of the bid grossly exceeded the amount of petitioners outstanding obligation
as stated in the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder, PNB, to deliver to the Mandaue City
Sheriff the bid price or what was left thereof after deducting the amount of petitioners outstanding obligation. PNB failed to deliver the

amount of their bid to the Mandaue City Sheriff or, at the very least, the amount of such bid in excess of petitioners outstanding
obligation.

One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City Sheriff and,
as a result, PNB transferred registration of all the subject properties to its name.

Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just the amount in
excess of petitioners obligation, the latter averred that the extrajudicial foreclosure conducted over the subject properties by
theMandaue City Sheriff, as well as the Certificate of Sale and the Certificate of Finality of Sale of the subject properties issued by
theMandaue City Sheriff, in favor of PNB, were all null and void.

Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:

a)

Declaring the Nullity of Extra-judicial Foreclosure of Mortgage under EJF Case No. 92-5-15 including the
certificate of sale and the final deed of sale of the properties affected;

b)

Order[ing] the cancellation of the certificates of titles and tax declaration already in the name of [herein
respondent] PNB and revert the same back to herein [petitioners] name;

c)

Ordering the [PNB] to pay [petitioners] moral damages amounting to more than P1,000,000,00; Exemplary
damages of P500,000.00; Litigation expenses of P100,000.00 and attorneys fees of P300,000.00.[4]

PNB filed a Motion to Dismiss [5] Civil Case No. MAN-2793 citing the pendency of another action between the same parties,
specifically Civil Case No. CEB-15236 before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and Elizabeth Suico where PNB
was seeking the payment of the balance of petitioners obligation not covered by the proceeds of the auction sale held on 30 October
1992. PNB argued that these two cases involve the same parties. Petitioners opposed the Motion to Dismiss filed by PNB.
[6]
Subsequently, the Motion to Dismiss Civil Case No. MAN-2793 was denied in the Order of the RTC dated 15 July 1997;[7] thus, PNB
was constrained to file its Answer.[8]
PNB disputed petitioners factual narration. PNB asserted that petitioners had other loans which had likewise become
due. Petitioners outstanding obligation of P1,991,770.38 as of 10 March 1992 was exclusive of attorneys fees, and other export
related obligations which it did not consider due and demandable as of said date. PNB maintained that the outstanding obligation of
the petitioners under their regular and export- related loans was already more than the bid price of P8,511,000.00, contradicting the
claim of surplus proceeds due the petitioners. Petitioners were well aware that their total principal outstanding obligation on the date of
the auction sale was P5,503,293.21.
PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but claimed that it had
not transferred in its name all the foreclosed properties because the petition to register in its name Transfer Certificates of Title (TCT)
No. 37029 and No. 13196 were still pending.
On 2 February 1999, the RTC rendered its Decision[9] in Civil Case No. MAN-2793 for the declaration of nullity of the extrajudicial
foreclosure of mortgage, the dispositive portion of which states:

WHEREFORE, based on the foregoing, judgment is rendered in favor of [herein

petitioners] Sps. Esmeraldo & Elizabeth Suico and against [herein respondent], Philippine National Bank (PNB),
declaring the nullity of Extrajudicial Foreclosure of Mortgage under EJF Case No. 92-5-15, including the certificate of
sale and the final deed of sale of the subject properties; ordering the cancellation of the certificates of titles and tax
declaration already in the name of [respondent] PNB, if any, and revert the same back to the [petitioners] name;
ordering [respondent] PNB to cause a new foreclosure proceeding, either judicially or extra-judicially.
Furnish parties thru counsels copy of this order.[10]

In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that petitioners had other
loan obligations which had not yet matured on 10 March 1992 but became due by the date of the auction sale on 30 October 1992, it
does not justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff who conducted the auction sale the excess
bid in the foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the filing fee in the said foreclosure inadequate
but, worse, the same constitutes a misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as
posted and published in the notice of sale.[11] Such misrepresentation is fatal because in an extrajudicial foreclosure of mortgage, notice
of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates the notice.[12]

When the PNB appealed its case to the Court of Appeals, [13] the appellate court rendered a Decision[14] dated 12 April 2005,
the fallo of which provides:
WHEREFORE,
premises
considered,
the
instant
appeal
is
GRANTED. The
questioned
decision
of
the Regional Trial Court ofMandaue City, Branch 55 dated February 2, 1999 is hereby REVERSED and SET ASIDE. Accordingly, the
extra judicial foreclosure of mortgage under EJF 92-5-15 including the certificate of sale and final deed of sale executed appurtenant
thereto are hereby declared to be valid and binding.[15]

In justifying reversal, the Court of Appeals held:

A careful scrutiny of the evidence extant on record would show that in a letter dated January 12, 1994, [petitioners] expressly
admitted that their outstanding principal obligation amounted to P5.4 Million and in fact offered to redeem the properties at P6.5
Million. They eventually increased their offer at P7.5 Million as evidenced by that letter dated February 4, 1994. And finally on May 16,
1994, they offered to redeem the foreclosed properties by paying the whole amount of the obligation by installment in a period of six
years. 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. Thus, for the [petitioners] to insist that their obligation is only
over a million is unworthy of belief. Oddly enough, it is evident from their acts that they themselves likewise believe otherwise.

Even assuming that indeed there was a surplus and the [PNB] is retaining more than the proceeds of the sale
than it is entitled, this fact alone will not affect the validity of the sale but simply gives the [petitioners] a cause of
action to recover such surplus. In fine, the failure of the [PNB] to remit the surplus, if any, is not tantamount to a noncompliance of statutory requisites that could constitute a jurisdictional defect invalidating the sale. This situation only
gives rise to a cause of action on the part of the [petitioners] to recover the alleged surplus from the [PNB]. This
ruling is in harmony with the decisional rule that in suing for the return of the surplus proceeds, the mortgagor is
deemed to have affirmed the validity of the sale since nothing is due if no valid sale has been made.[16]

Petitioners filed a Motion for Reconsideration [17] of the foregoing Decision, but the Court of Appeals was not persuaded. It
maintained the validity of the foreclosure sale and, in its Amended Decision dated 28 September 2005, it merely directed PNB to pay
the deficiency in the filing fees, holding thus:

WHEREFORE, Our decision dated April 12, 2005 is hereby AMENDED. [Herein respondent PNB] is hereby
required to pay the deficiency in the filing fees due on the petition for extra judicial foreclosure sale to be based on the
actual amount of mortgage debts at the time of filing thereof. In all other respects, Our decision subject of herein
petitioners] motion for reconsideration is hereby AFFIRMED.[18]

Unflinching, petitioners elevated the case before this Court via the present Petition for Review essentially seeking the nullification
of the extrajudicial foreclosure of the mortgage constituted on the subject properties. Petitioners forward two reasons for declaring null
and void the said extrajudicial foreclosure: (1) the alleged defect or misrepresentation in the notice of sheriffs sale; and/or (2) failure of
PNB to pay and tender the price of its bid or the surplus thereof to the sheriff.

Petitioners argue that since the Notice of Sheriffs Sale stated that their obligation was only P1,991,770.38 and
PNB biddedP8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void.

It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and
that even slight deviations therefrom will invalidate the notice and render the sale at least voidable.[19] Nonetheless, we must not also
lose sight of the fact that the purpose of the publication of the Notice of Sheriffs Sale is to inform all interested parties of
the date,time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires that the correct
date, time and place of the foreclosure sale appear in the notice, but also that any and all interested parties be able to determine that
what is about to be sold at the foreclosure sale is the real property in which they have an interest.[20]

Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the finding of the RTC that the discrepancy
between the amount of petitioners obligation as reflected in the Notice of Sale and the amount actually due and collected from the
petitioners at the time of the auction sale constitute fraud which renders the extrajudicial foreclosure sale null and void.

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained,
immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale,
which are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such
mistakes or omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto.[21]

All these considered, we are of the view that the Notice of Sale in this case is valid. Petitioners failed to convince this Court that
the difference between the amount stated in the Notice of Sale and the amount of PNBs bid resulted in discouraging or misleading
bidders, depreciated the value of the property or prevented it from commanding a fair price.

The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals [22] refers to a Notice of
SheriffsSale which did not state the correct number of the transfer certificates of title of the property to be sold. This Court considered
the oversight as a substantial and fatal error which resulted in invalidating the entire notice. The case of Community Savings and Loan
Association, Inc. v. Court of Appeals[23] is also inapplicable, because the said case refers to an extrajudicial foreclosure tainted with
fraud committed by therein petitioners, which denied therein respondents the right to redeem the property. It actually has no reference
to a Notice of Sale.

We now proceed to the effect of the non-delivery by PNB of the bid price or the surplus to the petitioners.

The following antecedents are not disputed:

For failure to pay their loan obligation secured by a real estate mortgage on the subject properties, PNB foreclosed the said
mortgage. In its petition for foreclosure sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB stated therein that
petitioners total outstanding obligation amounted to P1,991,770.38.[24] PNB bidded the amount of P8,511,000.00. Admittedly, PNB did
not pay its bid in cash or deliver the excess either to the City Sheriff who conducted the bid or to the petitioners after deducting the
difference between the amount of its bid and the amount of petitioners obligation in the Notice of Sale. The petitioners then sought to
declare the nullity of the foreclosure, alleging that their loan obligation amounted only to P1,991,770.38 in the Notice of Sale, and that
PNB did not pay its bid in cash or deliver to petitioner the surplus, which is required under the law.[25]

On the other hand, PNB claims that petitioners loan obligation reflected in the Notice of Sale dated 10 March 1992 did not
include their other obligations, which became due at the date of the auction sale on 10 October 1992; as well as interests, penalties,
other charges, and attorneys fees due on the said obligation.[26]

Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial foreclosure sale provide:

SEC. 21. Judgment obligee as purchaser. When the purchaser is the judgment obligee, and no third-party
claim has been filed, he need not pay the amount of the bid if it does not exceed the amount of his
judgment. If it does, he shall pay only the excess. (Emphasis supplied.)

SEC. 39. Obligor may pay execution against obligee. After a writ of execution against property has been
issued, a person indebted to the judgment obligor may pay to the sheriff holding the writ of execution the amount of
his debt or so much thereof as may be necessary to satisfy the judgment, in the manner prescribed in section 9 of
this Rule, and the sheriffs receipt shall be a sufficient discharge for the amount so paid or directed to be credited by
the judgment obligee on the execution.

Conspicously emphasized under Section 21 of Rule 39 is that if the amount of the loan is equal to the amount of the bid, there is
no need to pay the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser in an execution
sale need not pay his bid if it does not exceed the amount of the judgment; otherwise, he shall pay only the excess. [27]

The raison de etre is that it would obviously be senseless for the Sheriff or the Notary Public conducting the foreclosure sale to
go through the idle ceremony of receiving the money and paying it back to the creditor, under the truism that the lawmaking body did
not contemplate such a pointless application of the law in requiring that the creditor must bid under the same conditions as any other
bidder. It bears stressing that the rule holds true only where the amount of the bid represents the total amount of the mortgage debt.[28]

The question that needs to be addressed in this case is: considering the amount of PNBs bid of P8,511,000.00 as against the
amount of the petitioners obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess?

Petitioners insist that the PNB should deliver the excess. On the other hand PNB counters that on the date of the auction sale
on30 October 1992, petitioners other loan obligation already exceeded the amount of P1,991,770.38 in the Notice of Sale.

Rule 68, Section 4 of the Rules of Court provides:

SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged
property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to
junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.

Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:
(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.[29]

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 mortgagors obligation is an act of payment, not payment by dacion; hence, it is the
mortgagees 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.[30]

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.[31]
In the case before us, PNB claims that petitioners loan obligations on the date of the auction sale were already more than the
amount of P1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners principal obligation,
plus penalties, interests, attorneys fees and other charges were already beyond the amount of its bid of P8,511,000.00.
After a careful review of the evidence on record, we find that the same is insufficient to support PNBs claim. Instead, what is
available on record is petitioners Statement of Account as prepared by PNB and attached as Annex A[32] to its Answer with
counterclaim.[33] In this Statement of Account, petitioners principal obligation with interest/penalty and attorneys fees as of 30 October
1992 already amounted to P6,409,814.92.
Although petitioners denied the amounts reflected in the Statement of Account from PNB, they did not interpose any defense to
refute the computations therein. Petitioners mere denials, far from being compelling, had nothing to offer by way of evidence. This
then enfeebles the foundation of petitioners protestation and will not suffice to overcome the computation of their loan obligations as
presented in the Statement of Account submitted by PNB.[34]
Noticeably, this Statement of Account is the only piece of evidence available before us from which we can determine the
outstanding obligations of petitioners to PNB as of the date of the auction sale on 10 October 1992.
It did not escape the attention of this Court that petitioners wrote a number of letters to PNB almost two years after the auction
sale,[35] in which they offered to redeem the property. In their last letter, petitioners offered to redeem their foreclosed properties
forP9,500,000.00. However, these letters by themselves cannot be used as bases to support PNBs claim that petitioners obligation is
more than its bid of P8,500,000.00, without any other evidence. There was no computation presented to show how petitioners
obligation already reached P9,500,000.00. Petitioners could very well have offered such an amount on the basis of the value of the
foreclosed properties rather than their total obligation to PNB. We cannot take petitioners offer to redeem their properties in the
amount of P9,500,000.00 on its face as an admission of the amount of their obligation to PNB without any supporting evidence.
Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim, shows that
petitioners loan obligations to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that the amount of PNBs bid
is P8,511,000.00, there is clearly an excess in the bid price which PNB must return, together with the interest computed in accordance
with the guidelines laid down by the court in Eastern Shipping Lines v. Court of Appeals,[36] regarding the manner of computing legal
interest, viz:

II.
With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1.
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidatedclaims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

In Philippine National Bank v. Court of Appeals,[37] it was held that:

The rate of 12% interest referred to in Cir. 416 applies only to:
Loan or forbearance of money, or to cases where money is transferred from one person to another and the
obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not involve
or which has nothing to do with loans or forbearance of any, money, goods or credit does not fall within its coverage
for such imposition is not within the ambit of the authority granted to the Central Bank. When an obligation not
constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil
Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of
money, hence the proper imposable rate of interest is six (6%) per cent.
Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of money which bears an
interest rate of 12%, the proper rate of interest for the amount which PNB must return to the petitioners is only 6%. This interest
according to Eastern Shipping shall be computed from the time of the filing of the complaint. However, once the judgment becomes
final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to
be equivalent to a forbearance of credit. Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 12% per
annum should be imposed, to be computed from the time the judgment becomes final and executory until fully satisfied.
It must be emphasized, however, that our holding in this case does not preclude PNB from proving and recovering in a proper
proceeding any deficiency in the amount of petitioners loan obligation that may have accrued after the date of the auction sale.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 12 April 2005 is MODIFIED in that the PNB is
directed to return to the petitioners the amount of P2,101,185.08 with interest computed at 6% per annum from the time of the filing of
the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall
be 12% per annum computed from the time the judgment became final and executory until fully satisfied. Costs against private
respondent. SO ORDERED.

CUA LAI CHU, CLARO G. CASTRO,

and JUANITA CASTRO,
Petitioners,
- versus -

G.R. No. 169190

Present:
CARPIO, J., Chairperson,
BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.

HON. HILARIO L. LAQUI, Presiding

Judge, Regional Trial Court, Branch 218,
Quezon City and PHILIPPINE BANK
Promulgated:
OF COMMUNICATION,
Respondents.
February 11, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the 29 April 2005 and 4 August 2005 Resolutions[2] of the Court of Appeals in CA-G.R. SP No.
88963. In its 29 April 2005 Resolution, the Court of Appeals dismissed the petition for certiorari [3] of petitioner spouses Claro G. Castro
and Juanita Castro and petitioner Cua Lai Chu (petitioners). In its 4 August 2005 Resolution, the Court of Appeals denied
petitioners motion for reconsideration.
The Facts
In November 1994, petitioners obtained a loan in the amount of P3,200,000 from private respondent Philippine Bank of
Communication. To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage [4] over the
property of petitioner spouses covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an Amendment
to the Deed of Real Estate Mortgage[5] increasing the amount of the loan by P1,800,000, bringing the total loan amount to P5,000,000.
For failure of petitioners to pay the full amount of the outstanding loan upon demand,[6] private respondent applied for the
extrajudicial foreclosure of the real estate mortgage.[7] Upon receipt of a notice[8] of the extrajudicial foreclosure sale, petitioners filed a
petition to annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO). The petition for annulment was
filed in the Regional Trial Court of Quezon City and docketed as Q-02-46184.[9]
The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners prayer
for TRO. The trial court subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May 2002. At the foreclosure sale,
private respondent emerged as the highest bidder. A certificate of sale[10] was executed on 4 June 2002 in favor of private
respondent. On 7 June 2002, the certificate of sale was annotated as Entry No. 1855[11] on TCT No. 22990 covering the foreclosed
property.
After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds of Quezon City an affidavit of
consolidation to consolidate its ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the Register of Deeds
cancelled TCT No. 22990 and issued in its stead TCT No. 251835[12] in the name of private respondent.
On 18 August 2004, private respondent applied for the issuance of a writ of possession of the foreclosed property.[13] Petitioners
filed an opposition.[14] The trial court granted private respondents 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.
The Orders of the Trial Court
The 8 October 2004 Order[15] granted private respondents motion for a declaration of general default and allowed private
respondent to present evidence ex parte. The 6 January 2005 Order[16] denied petitioners motion for reconsideration of the prior order.
The 24 February 2005 Order[17] denied petitioners notice of appeal.

The Ruling of the Court of Appeals

The Court of Appeals dismissed on both procedural and substantive grounds the petition for certiorari filed by petitioners. The
appellate court noted that the counsel for petitioners failed to indicate in the petition the updated PTR Number, a ground for outright

dismissal of the petition under Bar Matter No. 1132. Ruling on the merits, the appellate court held that a proceeding for the issuance of
a writ of possession is ex parte in nature. As such, petitioners right to due process was not violated even if they were not given a
chance to file their opposition. The appellate court also ruled that there was no violation of the rule against forum shopping since the
application for the issuance of a writ of possession is not affected by a pending case questioning the validity of the extrajudicial
foreclosure sale.
The Issue
Petitioners raise the question of 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.
The Courts Ruling
The petition has no merit.
Petitioners contend they were denied due process of law when they were declared in default despite the fact that they had filed
their opposition to private respondents application for the issuance of a writ of possession. Further, petitioners point out that the
issuance of a writ of possession will deprive them not only of the use and possession of their property, but also of its
ownership. Petitioners cite Bustos v. Court of Appeals[18] and Vda. De Legaspi v. Avendao[19] in asserting that physical possession of
the property should not be disturbed pending the final determination of the more substantial issue of ownership. Petitioners also allege
forum shopping on the ground that the application for the issuance of a writ of possession was filed during the pendency of a case
questioning the validity of the extrajudicial foreclosure sale.
Private respondent, on the other hand, maintains that the application for the issuance of a writ of possession in a foreclosure
proceeding is ex parte in nature. Hence, petitioners right to due process was not violated even if they were not given a chance to file
their opposition. Private respondent argues that the issuance of a writ of possession may not be stayed by a pending case questioning
the validity of the extrajudicial foreclosure sale. It contends that the former has no bearing on the latter; hence, there is no violation of
the rule against forum shopping. Private respondent asserts that there is no judicial determination involved in the issuance of a writ of
possession; thus, the same cannot be the subject of an appeal.
At the outset, we must point out that the authorities relied upon by petitioners are not in point and have no application here.
InBustos v. Court of Appeals,[20] the Court simply ruled that the issue of possession was intertwined with the issue of ownership in the
consolidated cases of unlawful detainer and accion reinvindicatoria. In Vda. De Legaspi v. Avendao,[21] the Court merely stated that in
a case of unlawful detainer, physical possession should not be disturbed pending the resolution of the issue of ownership. Neither case
involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.
Banco Filipino Savings and Mortgage Bank v. Pardo[22] squarely ruled on the right to possession of a purchaser at an extrajudicial
foreclosure of a mortgage. This case involved a real estate mortgage as security for a loan obtained from a bank. Upon the mortgagors
default, the bank extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A certificate of sale was
duly issued and registered. The bank then applied for the issuance of a writ of possession, which the lower court dismissed. The Court
reversed the lower court and held that the purchaser at the auction sale was entitled to a writ of possession pending the lapse of the
redemption period upon a simple motion and upon the posting of a bond.
In Navarra v. Court of Appeals,[23] the purchaser at an extrajudicial foreclosure sale applied for a writ of possession after the lapse
of the one-year redemption period. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to the possession
of the property even during the one-year redemption period provided the purchaser files an indemnity bond. After the lapse of the said
period with no redemption having been made, that right becomes absolute and may be demanded by the purchaser even without the
posting of a bond. Possession may then be obtained under a writ which may be applied for ex parte pursuant to Section 7 of Act No.
3135,[24] as amended by Act No. 4118,[25] thus:
SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance
of the province or place where the property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months,
to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex
parte motion x x x andthe court shall, upon approval of the bond, order that a writ of possession issue,
addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.
(Emphasis supplied)

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. [26] 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.[27] In the present case, when private respondent applied for the issuance of a writ of
possession, it presented a new transfer certificate of title issued in its name dated 8 July 2003. The right of private respondent to the
possession of the property was thus founded on its right of ownership. As the purchaser of the property at the foreclosure sale, in
whose name title over the property was already issued, the right of private respondent over the property had become absolute, vesting
in it the corollary right of possession.
Petitioners are wrong in insisting that they were denied due process of law when they were declared in default despite the fact
that they had filed their opposition to the issuance of a writ of possession. The application for the issuance of a writ of possession is in
the form of an ex parte motion. It issues as a matter of course once the requirements are fulfilled. No discretion is left to the court.[28]
Petitioners cannot oppose or appeal the courts 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.[29]
Lastly, we rule that petitioners claim of forum shopping has no basis. Under Act No. 3135, as amended, a writ of possession is
issued ex parte as a matter of course upon compliance with the requirements. It is not a judgment on the merits that can amount to res
judicata, one of the essential elements in forum shopping.[30]
The Court of Appeals correctly dismissed the petition for certiorari filed by petitioners for lack of merit.
WHEREFORE, we DENY the petition for review. We AFFIRM the 29 April 2005 and 4 August 2005 Resolutions of the Court of
Appeals in CA-G.R. SP No. 88963.
SO ORDERED.

G.R. NO. 176019 January 12, 2011

BPI FAMILY SAVINGS BANK INC., petitioners, vs. GOLDEN POWER DIESEL SALES CENTER INC. AND RENATO TAN,
respondents.
DECISION
CARPIO, J.:
The Case

This is a petition for review1 of the 13 March 2006 Decision2 and 19 December 2006 Resolution3 of the Court of Appeals in CA-G.R. SP
No. 78626. In its 13 March 2006 Decision, the Court of Appeals denied petitioner BPI Family Savings Bank, Inc.s (BPI Family) petition
for mandamus and certiorari. In its 19 December 2006 Resolution, the Court of Appeals denied BPI Familys motion for
reconsideration.
The Facts
On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land covered by Transfer Certificate of Title (TCT)
Nos. 134327 and 134328 situated in Malibay, Pasay City, including all the improvements thereon (properties), in favor of BPI Family to
secure a loan of P6,570,000. On the same day, the mortgage was duly annotated on the titles under Entry No. 94-2878. On 5 April and
27 November 1995, CEDEC obtained from BPI Family additional loans of P2,160,000 and P1,140,000, respectively, and again
mortgaged the same properties. These latter mortgages were duly annotated on the titles under Entry Nos. 95-6861 and 95-11041,
respectively, on the same day the loans were obtained.
Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October 1998, BPI Family filed with the ex-officio sheriff of the
Regional Trial Court of Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate mortgage over the properties
under Act No. 3135, as amended.4
On 10 December 1998, 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. On 14 May 1999, the Certificate of Sheriffs Sale, dated 24 February 1999, was
duly annotated on the titles covering the properties.
On 15 May 1999, 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. On 13 September 2000, the Registry of Deeds of Pasay City issued new titles, TCT Nos.
142935 and 142936, in the name of BPI Family.
However, despite several demand letters, CEDEC refused to vacate the properties and to surrender possession to BPI Family. On 31
January 2002, BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties with Branch 114 of the Regional Trial
Court of Pasay City (trial court). In its 27 June 2002 Decision, the trial court granted BPI Familys petition.5 On 12 July 2002, the trial
court issued the Writ of Possession.
On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan6 (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). 8 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. Respondents also disclosed that they filed a complaint before Branch 111 of the Regional Trial Court of Pasay City,
docketed as Civil Case No. 99-0360, for the cancellation of the Sheriffs Certificate of Sale and an order to direct BPI Family to honor
and accept the Deed of Absolute Sale between CEDEC and respondents.9
On 12 September 2002, the trial court denied respondents motion.10 Thereafter, the trial court issued an alias writ of possession which
was served upon CEDEC and all other persons claiming rights under them.
However, the writ of possession expired without being implemented. On 22 January 2003, 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 BPIFamilys motion.
Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an Affidavit of Third Party Claim11 on the
properties. Instead of implementing the writ, the sheriff referred the matter to the trial court for resolution.

On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of Possession
and to Break Open the properties. In its 7 March 2003 Resolution, the trial court denied BPI Familys motion and ordered the sheriff to
suspend the implementation of the alias writ of possession.12 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 before Branch 111 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 CEDECs loan
balances with BPI Family. Thus, the trial court found it necessary to amend its 12 September 2002 Order and suspend the
implementation of the writ of possession until Civil Case No. 99-0360 is resolved.
BPI Family filed a motion for reconsideration. In its 20 June 2003 Resolution, the trial court denied the motion. 13
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. BPI Family argued that the trial court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it ordered the suspension of the implementation of the alias writ of possession. According to BPI Family, it was the
ministerial duty of the trial court to grant the writ of possession in its favor considering that it was now the owner of the properties and
that once issued, the writ should be implemented without delay.
The Court of Appeals dismissed BPI Familys petition. The dispositive portion of the 13 March 2006 Decision reads:
WHEREFORE, the instant Petition for Writ of Mandamus and Writ of Certiorari with Application for a TRO and/or Preliminary
Injunction is herebyDENIED. The twin Resolutions dated March 7, 2003 and June 20, 2003, both issued by the public
respondent in LRC Case No. 02-0003, ordering the sheriff to suspend the implementation of the Alias Writ of
Possession issued in favor of the petitioner, and denying its Urgent Omnibus Motion thereof, respectively, are
hereby AFFIRMED.
SO ORDERED.14

BPI Family filed a motion for reconsideration. In its 19 December 2006 Resolution, the Court of Appeals denied the motion.

The Ruling of the Court of Appeals

The Court of Appeals ruled that the trial court did not commit grave abuse of discretion in suspending the implementation of the alias
writ of possession because respondents were in actual possession of the properties and are claiming rights adverse to CEDEC, the
judgment obligor. According to the Court of Appeals, the principle that the implementation of the writ of possession is a mere ministerial
function of the trial court is not without exception. The Court of Appeals held that the obligation of the court to issue an ex parte writ of
possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it appears that there is a third
party in possession of the property who is claiming a right adverse to that of the debtor or mortgagor.

The Issues
BPI Family raises the following issues:
A.
The Honorable Court of Appeals seriously erred in upholding the finding of the Honorable Regional Trial Court that despite the
fact that private respondents merely stepped into the shoes of mortgagor CEDEC, being the vendee of the properties in
question, they are categorized as third persons in possession thereof who are claiming a right adverse to that of the
debtor/mortgagor CEDEC.
B.
The Honorable Court of Appeals gravely erred in sustaining the aforementioned twin orders suspending the implementation of
the writ of possession on the ground that the annulment case filed by private respondents is still pending despite the
established ruling that pendency of a case questioning the legality of a mortgage or auction sale cannot be a ground for the
non-issuance and/or non-implementation of a writ of possession.15

The Ruling of the Court

The petition is meritorious.
BPI Family argues that respondents cannot be considered a third party who is claiming a right adverse to that of the debtor or
mortgagor because respondents, as vendee, merely stepped into the shoes of CEDEC, the vendor and judgment obligor. According to
BPI Family, respondents are mere extensions or successors-in-interest of CEDEC. BPI Family also argues that the pendency of an
action questioning the validity of a mortgage or auction sale cannot be a ground to oppose the implementation of a writ of possession.
On the other hand, respondents insist that they are third persons who claim rights over the properties adverse to CEDEC. Respondents
argue that the obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale
ceases to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of
the judgment obligor.
In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as
amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance
(Regional Trial Court) of the province or place where the property or any part thereof is situated, to give him possession
thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in
the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other
real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in
paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act
Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.
This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought at the public auction sale
after the redemption period has expired without redemption having been made.16
In China Banking Corporation v. Lozada,17 we ruled:
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.18(Emphasis supplied)
Thus, 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.
There is, however, an exception. Section 33, Rule 39 of the Rules of Court provides:
Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. - x x x
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 redemptionerby the same officer unless a third party is actually holding the property
adversely to the judgment obligor. (Emphasis supplied)
Therefore, in an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding the
same adversely to the judgment obligor, the issuance by the trial court of a writ of possession in favor of the purchaser of said real
property ceases to be ministerial and may no longer be done ex parte.19 The procedure is for the trial court to order a hearing to
determine the nature of the adverse possession.20 For the exception to apply, however, the property need not only be possessed by a
third party, but also held by the third party adversely to the judgment obligor.

In this case, BPI Family invokes the general rule that they are entitled to a writ of possession because respondents are mere
successors-in-interest of CEDEC and do not possess the properties adversely to CEDEC. Respondents, on the other hand, assert the
exception and insist that they hold the properties adversely to CEDEC and that their possession is a sufficient obstacle to the ex
parte issuance of a writ of possession in favor of BPI Family.
Respondents argument fails to persuade 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.21 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.22
In Roxas v. Buan,23 we ruled:
It will be recalled that Roxas possession of the property was premised on its alleged sale to him by Valentin for the amount
of P100,000.00. Assuming this to be true, it is readily apparent that Roxas holds title to and possesses the property
as Valentins transferee. Any right he has to the property is necessarily derived from that of Valentin. As transferee, he steps
into the latters shoes. Thus, in the instant case, considering that the property had already been sold at public auction
pursuant to an extrajudicial foreclosure, the only interest that may be transferred by Valentin to Roxasis the right to redeem it
within the period prescribed by law. Roxas is therefore the successor-in-interest of Valentin, to whom the latter had conveyed
his interest in the property for the purpose of redemption. Consequently, Roxas occupancy of the property cannot be
considered adverse to Valentin.24
In this case, respondents possession of the properties was premised on the sale to them by CEDEC for the amount of P15,000,000.
Therefore, respondents hold title to and possess the properties as CEDECs transferees and any right they have over the properties is
derived from CEDEC. As transferees of CEDEC, respondents merely stepped into CEDECs shoes and are necessarily bound to
acknowledge and respect the mortgage CEDEC had earlier executed in favor of BPI Family.25 Respondents are the successors-ininterest of CEDEC and thus,respondents occupancy over the properties cannot be considered adverse to CEDEC.
Moreover, in China Bank v. Lozada,26 we discussed the meaning of a third party who is actually holding the property adversely to the
judgment obligor. We stated:
The exception provided under Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third
party holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary. The co-owner, agricultural
tenant, and usufructuary possess the property in their own right, and they are not merely the successor or transferee of the
right of possession of another co-owner or the owner of the property.27
In this case, respondents cannot claim that their right to possession over the properties is analogous to any of these. 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 latters successors-in-interest, there was no reason for the trial court to order the suspension of the implementation of the writ of
possession.
Furthermore, it is settled that a pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of
possession.28 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.29 The purchaser is entitled to a writ of possession without prejudice to the outcome of the
pending annulment case.30
In this case, the trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of possession.
Despite the pendency of Civil Case No. 99-0360, the trial court should not have ordered the sheriff to suspend the implementation of
the writ of possession. BPI Family, as purchaser in the foreclosure sale, is entitled to a writ of possession without prejudice to the
outcome of Civil Case No. 99-0360.
WHEREFORE, we GRANT the petition. We SET ASIDE the 13 March 2006 Decision and the 19 December 2006 Resolution of the
Court of Appeals in CA-G.R. SP No. 78626. We SET ASIDE the 7 March and 20 June 2003 Resolutions of the Regional Trial Court,
Branch 114, Pasay City. We ORDER the sheriff to proceed with the implementation of the writ of possession without prejudice to the
outcome of Civil Case No. 99-0360.
SO ORDERED.

G.R. No. 172504

July 31, 2013

DONNA C. NAGTALON, Petitioner,

vs.
UNITED COCONUT PLANTERS BANK, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari,1 filed by Donna C. Nagtalon (petitioner), assailing the decision2 dated September
23, 2005 and the resolution3 dated April 21;2006 of the Court of Appeals (CA) in CA-G.R. SP No. 82631. The CA reversed and set
aside the orders4 dated November 3, 2003 and December 19, 2003 of the Regional Trial Court (RTC), Kalibo, Aklan, Branch 5, in CAD
Case No. 2895.
The Factual Antecedents
Roman Nagtalon and the petitioner (Spouses Nagtalon) entered into a credit accommodation agreement (credit agreement) with
respondent United Coconut Planters Bank. In order to secure the credit agreement, Spouses Nagtalon, together with the Spouses
Vicente and Rosita Lao, executed deeds of real estate mortgage over several properties in Kalibo, Aklan. After the Spouses Nagtalon
failed to abide and comply with the terms and conditions Officio Provincial Sheriff a verified petition5 for extrajudicial foreclosure of the
mortgage, pursuant to Act 3135, as amended.6
The mortgaged properties were consequently foreclosed and sold at public auction for the sum of P3,215,880.30 to the respondent
which emerged as the sole and highest bidder. After the issuance of the sheriffs certificate of sale, the respondent 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 (TCTs) on January
6, 1999.7 With the lapse of the one year redemption period and the petitioners failure to exercise her right to redeem the foreclosed
properties, the respondent 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 the respondent, to wit: (a) TCT No. T-29470; (b) TCT No. T-29472; (c) TCT No. T29471; (d) TCT No. T-29469; (e) TCT No. T-29474; (f) TCT No. T-29475; and (g) TCT No. T-29473.8 The new TCTs were registered with
the Register of Deeds of Kalibo, Aklan on April 28, 2000.9
On April 30, 2003, the respondent filed an ex parte petition for the issuance of a writ of possession with the RTC, docketed as CAD
Case No. 2895. In the petition, the respondent alleged that it had been issued the corresponding TCTs to the properties it purchased,
and has the right to acquire the possession of the subject properties as the current registered owner of these properties.
The petitioner opposed the petition, citing mainly the pendency of Civil Case No. 660210 (for declaration of nullity of foreclosure, fixing of
true indebtedness, redemption, damages and injunction with temporary restraining order) still pending with the RTC. In this civil case,
the petitioner challenged the alleged nullity of the provisions in the credit agreement, particularly the rate of interest in the promissory
notes. She also sought the nullification of the foreclosure and the sale that followed. To the petitioner, the issuance of a writ of
possession was no longer a ministerial duty on the part of the court in view of the pendency of the case.
The RTC Ruling
On November 3, 2003, the RTC issued an order,11 holding in abeyance the issuance of the writ of possession of the properties covered
by TCT Nos. T-29470, T-29472, T-29471, T-29469 and T-29474 on the ground of prematurity. The RTC ruled that due to the pendency
of Civil Case No. 6602 where the issue on nullity of the credit agreement and foreclosure have yet to be resolved the obligation of
the court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage property ceases to be ministerial.
The respondent filed a motion for reconsideration, but the RTC denied the motion, citing equitable grounds and substantial justice as
reasons.12
The respondent then filed a petition for certiorari13 with the CA.
The CA Ruling
In its September 23, 2005 decision,14 the CA reversed and set aside the RTC orders, noting that while it is the ministerial duty of the
court to issue a writ of possession after the lapse of the one-year period of redemption, the rule admits of exceptions and the present
case at bar was not one of them.
The CA held that equitable and peculiar circumstances must first be shown to exist before the issuance of a writ of possession may be
deferred. The CA then ruled that the petitioner failed to prove that these equitable circumstances are present in this case, citing for this

purpose the ruling in Vaca v. Court of Appeals.15 Based on the Vaca ruling, the CA ordered the RTC to issue the corresponding writ of
possession.
The Petition
The petitioner submits that the CA erred in its findings; the equitable circumstances present in the case fully justified the RTCs
order16 to hold in abeyance the issuance of the writ of possession. The petitioner contends that the RTC found prima facie merit in the
allegations in Civil Case No. 6602 that the foreclosure and the mortgage were void. The petitioner adds that the CAs reliance on the
Vaca case, in support of its decision, is misplaced because no peculiar circumstances were present in this cited case which are
applicable to the present case.
The petitioner lastly maintains that the CA decision violated her constitutional right to due process of law, as it deprived her of the
possession of her properties without the opportunity of hearing.
The Case for the Respondent
The respondent essentially echoes the pronouncement of this Court in the Vaca case that the CA adopted and maintains that: (1) the
pendency of a civil case challenging the validity of the mortgage cannot bar the issuance of the writ of possession because such
issuance is a ministerial act; (2) the peculiar and equitable circumstances, which would justify an exception to the rule, are not present
in the present case; and (3) contrary to the allegation of the petitioner, it is the respondent who was deprived of possession of the
properties due to the petitioners persistent efforts to frustrate the respondents claim.
The Issue
The case presents to us the issue of whether 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 one-year redemption period.
Our Ruling
We see no merit in the petition, and rule that the CA did not commit any reversible error in the assailed decision.
The issuance of a writ of possession is a ministerial function of the court
The issue this Court is mainly called upon to resolve is far from novel; jurisprudence is replete with cases holding that 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.
We have long recognized the rule that once title to the property has been consolidated in the buyers 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 owner17 and the issuance of the writ becomes a ministerial function that does not admit of the exercise of
the courts discretion.18The court, acting on an application for its issuance, should issue the writ as a matter of course and without any
delay.
The right to the issuance of a writ of possession is outlined in Sections 6 and 7 of Act 3135, as amended by Act 4118, to wit:
Sec. 6. In all cases in which an extrajudicial sale is made x x x, the debtor, his successors in interest or any judicial creditor or judgment
creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act.
Sec 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place
where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath
and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession issue,
addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. [emphasis and
underscore ours]
In Spouses Ruben and Violeta Sagun v. Philippine Bank of Communications and Court of Appeals,19 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.
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.
On the other hand, 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.20 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. This second scenario is governed by Section 6 of Act 3135, in relation to Section 35, Rule 39 of the Revised
Rules of Court.21
The correctness of the issuance of the writ in the second scenario is strengthened by the fact that after the consolidation of ownership
and issuance of titles to the purchaser, the latters right to possession not only finds support in Section 7 of Act 3135, but also on its
right to possession as an incident of ownership.22 The Court, in Espinoza v. United Overseas Bank Philippines,23 noted that the basis of
the right to possession is the purchasers ownership of the property.
Moreover, if the court has the ministerial power to issue a writ of possession even during the redemption period, upon proper motion
and posting of the required bond, as clearly provided by Section 7 of Act 3135, then with more reason should the court issue the writ of
possession after the expiration of the redemption period, as the purchaser has already acquired an absolute right to possession on the
basis of his ownership of the property.24The right to possess a property follows ownership.25
Based on these rulings, we find it clear that the law directs in express terms that the court issue a writ of possession without delay to
the purchaser after the latter has consolidated ownership and has been issued a new TCT over the property. The law then does not
provide any room for discretion as the issuance has become a mere ministerial function of the court.
The petitioner resists the above views with the argument that the nullity of the loan documents due to the unilateral fixing of the interest
and her failure to receive the proceeds of the loan, among others, are peculiar circumstances that would necessitate the deferment of
the issuance of the writ of possession. These are the same arguments the petitioner propounded in the civil case she filed to question
the nullity of the foreclosure.
We do not find the argument convincing.
Pendency of a civil case questioning the
mortgage and foreclosure not a bar to
the issuance of a writ of execution
The petitioners submitted arguments on the presence of peculiar and equitable circumstances are of no moment. These peculiar
circumstances are nothing but mere allegations raised by the petitioner in support of her complaint for annulment of mortgage and
foreclosure. 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.26
In the case of Spouses Montano T. Tolosa and Merlinda Tolosa v. United Coconut Planters Bank,27 a case closely similar to the present
petition, the Court explained that a pending action for annulment of mortgage or foreclosure (where the nullity of the loan documents
and mortgage had been alleged) does not stay the issuance of a writ of possession. It reiterated the well-established rule that as a
ministerial function of the court, the judge need not look into the validity of the mortgage or the manner of its foreclosure, as these are
the questions that should be properly decided by a court of competent jurisdiction in the pending case filed before it. It added that
questions on the regularity and the validity of the mortgage and foreclosure cannot be invoked as justification for opposing the issuance
of a writ of possession in favor of the new owner.
In the cited case, the petitioner, in opposition to the respondents ex parte application for a writ of possession, likewise pointed to the
prima facie merit of the allegations in her complaint for annulment of mortgage, foreclosure and sale. She alleged that the apparent
nullity of the mortgage obligation and the sale of the properties justify, at the very least, the deferment of the issuance of the writ of
possession.
We pointedly ruled in this cited case that no reason existed to depart from our previous pronouncements. That the issuance of a writ of
possession remains a ministerial duty of the court until the issues raised in the civil case for annulment of mortgage and/or foreclosure
are decided by a court of competent jurisdiction28 has long been settled. While conceding that the general rule on the ministerial duty of
the courts to issue a writ of possession is not without exceptions, the Court was quick to add that the Tolosa case29 does not fall under
the exceptions.

Exceptions to the rule that issuance of a writ

of possession is a ministerial function
A review of the Courts ruling in the Tolosa case would reveal a discussion of the few jurisprudential exceptions worth reiterating.
(1)Gross inadequacy of purchase price
In Cometa v. Intermediate Appellate Court30 which involved an execution sale, the court took exception to the general rule in view of the
unusually lower price (P57,396.85 in contrast to its true value of P500,000.00) for which the subject property was sold at public auction.
The Court perceived that injustice could result in issuing a writ of possession under the given factual scenario and upheld the deferment
of the issuance of the writ.
(2)Third party claiming right adverse to debtor/mortgagor
In Barican v. Intermediate Appellate Court,31 consistent with Section 35, Rule 39 of the Rules of Court, the Court held that the obligation
of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage case ceases to be ministerial when a thirdparty in possession of the property claims a right adverse to that of the debtor-mortgagor. In this case, there was a pending civil suit
involving the rights of third parties who claimed ownership over the disputed property. The Court found the circumstances to be
peculiar, necessitating an exception to the general rule. It thus ruled that where such third party claim and possession exist, the trial
court should conduct a hearing to determine the nature of the adverse possession.
(3) Failure to pay the surplus proceeds of the sale to mortgagor
We also deemed it proper to defer the issuance of a writ in Sulit v. Court of Appeals32 in light of the given facts, particularly the
mortgagees failure to return to the mortgagor the surplus from the proceeds of the sale (equivalent to an excess of approximately 40%
of the total mortgage debt). We ruled that equitable considerations demanded the deferment of the issuance of the writ as it would be
highly unfair and iniquitous for the mortgagor, who as a redemptioner might choose to redeem the foreclosed property, to pay the
equivalent amount of the bid clearly in excess of the total mortgage debt.
We stress that the petitioners present case is not analogous to any of the above-mentioned exceptions. The facts are not only different
from those cited above; the alleged peculiar circumstances pertain to the validity of the mortgage, a matter that may be determined by a
competent court after the issuance of the writ of possession.33
In these lights, we hold that the CA correctly ruled that the present case does not present peculiar circumstances that would merit an
exception from the well-entrenched rule on the issuance of the writ.
Petitioner was accorded due process
The petitioner lastly argues that the issuance of a writ of possession, despite its "prima-facie meritorious claim of nullity of loan and
mortgage,"34 constitutes a violation of her constitutional right to due process of law.
The petitioners contention is unmeritorious. We note that the ex parte petition for the issuance of a writ of possession under Sections 6
and 7 of Act 3135 is not, strictly speaking, a "judicial process." As discussed in Idolor v. Court of appeals,35 it is not an ordinary suit by
which one party "sues another for the enforcement of a wrong or protection of a right, or the prevention or redress of a wrong." 36 Being
ex parte, it is a non-litigious proceeding where the relief is granted without requiring an opportunity for the person against whom the
relief is sought to be heard.
That the petitioner would or could be denied due process if the writ of possession would be issued before she is given the opportunity to
be heard on her prima facie defense of nullity of the loan and mortgage is clearly out of the question. 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.
At any rate, the petitioner is not left without a remedy as the same law provides the mortgagor the right to petition for the nullification of
the sale and the cancellation of the writ of possession under Section 8 of Act. No. 3135, which remedy the petitioner was aware of. In
her petition for review, she averred that "the said Act 3135 x x x does not however prohibit or negate the filing of a separate civil case
for the nullification of loan indebtedness x x x or x x x mortgage contract."37 Thus, she cannot claim that she has been denied of due
process merely on the basis of the ex parte nature of the respondent's petition.
WHEREFORE, all premises considered, the instant petition is DENIED for lack of merit. Accordingly, the decision dated September 23,
2005 and the resolution dated April 21, 2006 of the Court of Appeals in CA-G.R. SP No. 82631 are AFIRMED in toto. SO ORDERED.

G.R. No. L-15128

August 25, 1960

CECILIO DIEGO, plaintiff-appellee,

vs.
SEGUNDO FERNANDO, defendant-appellant.
Espinosa Law Offices for appellant.
N.L. Dasig and C.L. Francisco for appellee.
REYES, J.B.L., J.:
Appeal by defendant Segundo Fernando from the judgment of the Court of First Instance of Nueva Ecija in its Civil Case No. 1694 for
foreclosure of mortgage. The appeal was originally brought to the Court of Appeals, but was certified to us by that tribunal because it
raises only questions of law.
The facts are not disputed. On May 26, 1950, the defendant Segundo Fernando executed a deed of mortgage in favor of plaintiff Cecilio
Diego over two parcels of land registered in his name, to secure a loan P2,000, without interest, payable within four years from the date
of the mortgage (Exhibit "A"). After the execution of the deed, possession of the mortgaged properties were turned over to the
mortagagee.
The debtor having failed to pay the loan after four years, the mortagagee Diego made several demands upon him for payment; and as
the demands were unheeded, Diego filed this action for foreclosure of mortgage.
Defendant Fernando's defense was that the true transaction between him and plaintiff was one of 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.
The Court below, however, found that there was nothing in the deed of mortgage Exhibit "A" to show that it was not a true contract of
mortgage, and that 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, which agreement is not uncommon; and that the evidence showed that plaintiff had already received 55 cavans of palay from
the properties during the period of his possession. Whereupon, judgment was rendered for plaintiff in the amount of P2,000, the loan he
gave the defendant, with legal interest from the filing of the action until full payment, plus P500 as attorney's fees and the costs; and in
case of default in payment, for the foreclosure of the mortgage. From this judgment, defendant took the present appeal.
The main issue raised is whether the contract between the parties is one of mortgage or of antichresis. Appellant, while admitting that
the contract Exhibit "A" shows a deed of mortgage, contends that the admitted fact that the loan was without interest, coupled with the
transfer of the possession of the properties mortgaged to the mortgagee, reveals that the true transaction between him and appellee
was one of antichresis. As correctly pointed out by appellee and the lower court, however, it is not an essential requisite of a mortgage
that possession of the mortgaged premises be retained by the mortagagor (Legaspi and Salcedo vs. Celestial, 66 Phil., 372). 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 (Art. 2132,
Civil Code, Barretto vs. Barretto, 37 Phil., 234; Diaz vs. De Mendezona, 48 Phil., 666); 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 (Legaspi vs. Celestial, supra). 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 fruis of the properties mortgaged, will be allowed to
approprite them for himself and not be required to account for them to the appellant. For the contract of mortgage Exhibit "A" clearly
provides that the loan of P2,000 was "without interest within four (4) years from date of this instrument"; and there being no evidence to
show that the parties had intended to supersede such stipulation when the possession of the mortgaged properties were turned over to
the appellee by another allowing the latter to collect, the fruits thereof as interest on the loan, the trial court is not authorized to infer
from this transfer of possession alone that the loan was to be without interest for four years, and substituted another giving appellee the
right to receive the fruits of the mortgaged properties as interests.
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" (Diaz vs. De Mendezona, citing 27 Cyc. 1237, 48 Phil., 666). As such mortgagee in
possession, his rights and obligations are, as pointed out by this Court in Macapinlac vs. Gutierrez Repide (43 Phil., 770), similar to
those of an antichretic creditor:
The respective rights and obligations of the parties to a contract of antichresis, under the Civil Code, appear to be similar and
in many respects identical with those recognized in the equity jurisprudence of England and America as incident to the position

of a mortgagee in possession, in reference to which the following propositions may be taken to be established, namely, that if
the mortgagee acquires possession in any lawful manner, he is entitled to retain such possession until the indebtedness is
satisfied and the property redeemed; that the non-payment of the debt within the term agreed does not vest the ownership of
the property in the creditor; that the general duty of the mortgagee in possession towards the premises is that of the ordinary
prudent owner; that the mortgagee must account for the rents and profits of the land, or its value for purposes of use and
occupation, any amount thus realized going towards the discharge on the mortgage debt; that if the mortgage remains in
possession after the mortgage debt has been satisfied, he becomes a trustee for the mortgagor as to the excess of the rents
and profits over such debt; and lastly, that the mortgagor can only enforce his rights to the land by an equitable action for an
account and to redeem. (3 Pom. Eq. Jur. secs. 1215-1218)
Similarly, in Enriquez vs. National Bank, 55 Phil., 414, we ruled that a creditor with a lien on real property who took possession thereof
with the consent of the debtor, held it as an "antichretic creditor with the right to collect the credit with interest from the fruits, returning
to the antichretic creditor the balance, if any, after deducting the expenses," because the fact that the debtor consented and asked the
creditor to take charge of managing his property "does not entitle the latter to appropriate to itself the fruits thereof unless the former
has expressly waived his right thereto."
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. According to the
findings of the trial court, appellee had received a net share of 55 cavans of palay out of the mortgaged properties up to the time he
filed the present action; at the rate of P9.00 per cavan (a rate admitted by the parties), the total value of the fruits received by appellee
is P495.00. Deducting this amount from the loan of P2,000.00 received by appellant from appellee, the former has only P1,505.00 left
to pay the latter.
Appellant also claims that the lower court erred in ordering him to pay legal interest on his indebtedness to plaintiff from the filing of the
action, since the latter is, up to the present, still in the possession of the properties mortgaged and still enjoying the fruits. The court did
not err in so holding, since at the time the action was filed and up to the present, appellant has not discharged his indebtedness to
appellee, and the law allows the latter, in the absence of stipulation as to payment of interest, legal interest from the time of the debtor's
default (Art. 2209, New Civil Code, Art. 1108, old). However, appellee should be made to account for the fruits he received from the
properties mortgaged from the time of the filing of this action until full payment by appellant, which fruits should be deducted from the
total amount due him from appellant under this judgment.
Wherefore, the judgment of the court below is modified in the sense that the amount of appellee's principal recovery is reduced to
P1,505.00, with an obligation on the part of appellee to render an accounting of all the fruits received by him from the properties in
question from the time of the filing of this action until full payment, or in case of appellant's failure to pay, until foreclosure of the
mortgage thereon, the value of which fruits shall be deducted from the total amount of his recovery. No costs in this instance.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Barrera and Gutierrez David, JJ., concur.

G.R. No. L-14938

January 28, 1961

MAGDALENA C. DE BARRETO, ET AL., plaintiffs-appellants,

vs.
JOSE G. VILLANUEVA, ET AL., defendants-appellees.
Bausa, Ampil & Suarez for plaintiffs-appellants.
Esteban Ocampo for defendants-appellees.
GUTIERREZ DAVID, J.:
On May 10, 1948, Rosario Cruzado, for herself and as administratix of the intestate estate of her deceased husband Pedro Cruzado in
Special Proceedings No. 4959 of the Court of First Instance of Manila, obtained from the defunct Rehabilitation Finance Corporation
(hereinafter referred to as the RFC a loan in the amount of P11,000.00. To secure payment thereof, she mortgaged the land then
covered by Transfer Certificate of Title No. 61358 issued in her name and that of her deceased. husband. As she failed to pay certain
installments on the loan, the mortgage was foreclosed and the RFC acquired the property for P11,000.00, subject to her rights as
mortgagor to re-purchase the same. On July 26, 1951, upon her application, the land was sold back to her conditionally for the amount
of P14,269.03, payable in seven years.
About two years thereafter, or on February 13, 1953 Rosario Cruzado, as guardian of her minor children in Special Proceedings No.
14198 of the Court of First Instance of Manila, was authorized by the court, to sell with the previous consent of the RFC the land in
question together with the improvements thereon for a sum not less than P19,000. Pursuant to such authority and with the consent of
the RFC, she sold to Pura L. Villanueva for P19,000.00 "all their rights, interest,' title and dominion and over the herein described parcel
of land together with the existing improvements thereon, including one use and an annex thereon; free from all charges and
encumbrances, , with the exception of the sum of P11,009.52, is stipulated interest thereon, which the vendor, is still presently obligated
to the RFC and which the vendee herein now assumes to pay to the RFC under the same terms and conditions specified in that deed
of sale dated July 26, 1951." Having paid in advance the sum of P500.00, Pura L. Villanueva, the vendee, in consideration of the
aforesaid sale, executed in favor of the vendor Rosario Cruzado a promissory note dated March 9, 1953, undertaking to pay the
balance of P17,500.00 in monthly installments. On April 22, 1953, she made an additional payment of P5,500.00 on the promissory
note. She was, subsequently, able to secure in her name Transfer Certificate of Title No. 32526 covering the house and lot above
referred to, and on July 10, 1953, she mortgaged the said property to Magdalena C. Barretto as security for a loan the amount of
P30,000.00.
As said Pura L. Villanueva had failed to pay the remaining installments on the unpaid balance of P12,000.00 her promissory note for
the sale of the property in question, a complaint for the recovery of the same from her and her husband was filed on September 21,
1963 by Rosario Cruzado in her own right and in her capacity as judicial guardian of her minor children. Pending trial of the case, a lien
was constituted upon the property in the nature of a levy in attachment in favor of the Cruzados said lien being annotated at the back of
Transfer Certificate of Title No. 32526. After trial, decision was rendered ordering Pura Villanueva and her husband, jointly and
severally, to pay Rosario Cruzado the sum of P12,000.00, with legal interest thereon from the date of the filing of the complaint until
fully paid plus the sum of P1,500.00 as attorney's fees.
Pura Villanueva having, likewise, failed to pay her indebtedness of P30,000.00 to Magdalena C. Barretto, the latter, jointly with her
husband, instituted against the Villanueva spouses an action for foreclosure of mortgage, impleading Rosario Cruzado and her children
as parties defendants. On November 11, 1956, decision was rendered in the case absolving the Cruzados from the complaint and
sentencing the Villanuevas to pay the Barrettos, jointly and severally, the sum of P30,000.00, with interest thereon at the rate of 12%
per annum from January 11, 1954 plus the sum of P4,000.00 as attorney's fees. Upon the finality of this decision, the Barrettos filed a
motion for the issuance of a writ of execution which was granted by the lower court on July 31, 1958. On August 14, 1958, the
Cruzados filed their "Vendor's Lien" in the amount of P12,000.00, plus legal interest, over the real property subject of the foreclosure
suit, the said amount representing the unpaid balance of the purchase price of the said property. Giving due course to the line, the court
on August 18, 1958 ordered the same annotated in Transfer Certificate of Title No. 32526 of the Registry of Deeds of Manila, decreeing
that should the realty in question be sold at public auction in the foreclosure proceedings, the Cruzados shall be credited with their prorata share in the proceeds thereof, "pursuant to the provision of articles 2248 and 2249 of the new Civil Code in relation to Article 2242,
paragraph 2 of the same Code." The Barrettos filed a motion for reconsideration on September 12, 1958, but on that same date, the
sheriff of Manila, acting in pursuance of the order of the court granting the writ of execution, sold at public auction the property in
question. As highest bidder, the Barrettos themselves acquired the properties for the sum of P49,000.00.
On October 4, 1958, 'the Court of First Instance issued an order confirming the aforesaid sale and directing the Register of Deeds of
the City of Manila to issue to the Barrettos the corresponding certificate of title, subject, however, to the order of August 18, 1958
concerning,. the vendor's lien. On the same date, the motion of the Barettos seeking reconsideration of the order of the court giving due
course to the said vendor's lien was denied. From this last order, the Barretto spouses interposed the present appeal.
The appeal is devoid of merit.

In claiming that the decision of the Court, of First Instance of Manila in Civil Case No. 20075 . awarding the amount of P12,000.00 in
favor of Rosario Cruzado and her minor children . cannot constitute a basis for the vendor's lien filed by the appellee Rosario Cruzado,
appellants allege that the action in said civil case was merely to recover the balance of a promissory note. But while, apparently, the
action was to recover the remaining obligation of promissor Pura Villanueva on the note, the fact remains that Rosario P. Cruzado as
guardian of her minor children, was an unpaid vendor., of the realty in question, and the promissory note, was, precisely, for the unpaid
balance of the price of the property bought by, said Pura Villanueva.
Article 2242 of the new Civil, Code enumerates the claims, mortgage and liens that constitute an encumbrance on specific immovable
property, and among them are: .
(2) For the unpaid price of real property sold, upon the immovable sold; and
(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or real
rights, they shall be satisfied pro-rata after the payment of the taxes and assessment upon the immovable property or real rights.
Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an unpaid
vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure sale.
The appellants, however, argue that inasmuch as the unpaid vendor's lien in this case was not registered, it should not prejudice the
said appellants' registered rights over the property. There is nothing to this argument. Note must be taken of the fact that article 2242 of
the new Civil Code enumerating the preferred claims, mortgages and liens on immovables, specifically requires that . unlike the unpaid
price of real property sold . mortgage credits, in order to be given preference, should be recorded in the Registry of Property. If the
legislative intent was to impose the same requirement in the case of the vendor's lien, or the unpaid price of real property sold, the
lawmakers could have easily inserted the same qualification which now modifies the mortgage credits. The law, however, does not
make any distinction between registered and unregistered vendor's lien, which only goes to show that any lien of that kind enjoys the
preferred credit status.
Appellants also argue that to give the unrecorded vendor's lien the same standing as the registered mortgage credit would be to nullify
the principle in land registration system that prior unrecorded interests cannot prejudice persons who subsequently acquire interests
over the same property. The Land Registration Act itself, however, respects without reserve or qualification the paramount rights of lien
holders on real property. Thus, section 70 of that Act provides that .
Registered land, and ownership therein shall in all respects be subject to the same burdens and incidents attached by law to
unregistered land. Nothing contained in this Act shall in any way be construed to relieve registered land or the owners thereof
from any rights incident to the relation of husband and wife, or from liability to attachment on mesne process or levy, on
execution, or from liability to any lien of any description established by law on land and the buildings thereon, or the interest of
the owners of such land or buildings, or to change the laws of descent, or the rights of partition between co-owners, joint
tenants and other co-tenants or the right to take the same by eminent domain, or to relieve such land from liability to be
appropriated in any lawful manner for the payment of debts, or to change or affect in any other way any other rights or
liabilities created by law and applicable to unregistered land, except as otherwise expressly provided in this Act or in the
amendments thereof, (Emphasis supplied)
As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the insolvent
debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code as intended only
for insolvency cases, then other creditor-debtor relationships where there are concurrence of credits would be left without any rules to
govern them, and it would render purposeless the special laws an insolvency.
Premises considered, the order appealed from is hereby affirmed. Costs against the appellants.
Bengzon, Padilla, Bautista Angelo, Labrador, Paredes and Dizon, JJ., concur.
Concepcion, Reyes, J.B.L. and Barrera, JJ., concur in the result.

RESOLUTION ON MOTION TO RECONSIDER

December 29, 1962

REYES, J.B.L., J.:

Appellants, spouses Barretto, have filed a motion vigorously urging, for reason to be discussed in the course of this resolution, that our
decision of 28 January 1961 be reconsidered and set aside, and a new one entered declaring that their right as mortgagees remain
superior to the unrecorded claim of herein appellee for the balance of the purchase price of her rights, title, and interests in the
mortgaged property.
It will be recalled that, with Court authority, Rosario Cruzado sold all her right, title, and interest and that of her children in the house and
lot herein involved to Pura I. Villanueva for P19,000.00. The purchaser paid Pl,500 in advance, and executed a promissory note for the
balance of P17,506.00. However, the buyer could only pay P5,500 On account of the note, for which reason the vendor obtained
judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No. 32626), and
mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Barretto, to secure a loan of P30,000.03, said mortgage
having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained judgment,
and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for recognition for her
"vendor's lien" in the amount of Pl2,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of the new Civil Code. After
hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526, with the proviso that in case of sale
under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barretto should be paid pro rata from the proceeds.
Our original decision affirmed this order of the Court of First Instance of Manila.
Appellants insist that:
(1) The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only become effective in the event of
insolvency of the vendee, which has not been proved to exist in the instant case; and .
(2) That the appellee Cruzado is not a true vendor of the foreclosed property. We have given protracted and mature consideration to the
facts and law of this case, and have reached the conclusion that our original decision must be reconsidered and set aside, for the
following reasons:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines into the
system of priorities among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923 were to be
resolved according to an order of priorities established by Article 1927, whereby one class of creditors could exclude the creditors of
lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real property subject of the
preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines however, only taxes enjoy a similar absolute preference. All the remaining thirteen
classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro-rata i.e., in proportion to the
amount of the respective credits. Thus, Article 2249 provides:
If there are two or more credits with respect to the same specific real property or real rights, they, shall be satisfied prorata after the payment of the taxes and assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of their, as
have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus apparent that the full,
application (of Articles 2249 and 2242 demands that there must be first some proceedings where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency, the settlement of decedents estate under Rule 87 of the Rules of Court, or
other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that
The claims or credits enumerated in the two preceding articles" shall be considered as mortgages or pledges of real or
personal property, or liens within the purview of legal provisions governing insolvency . . . (Emphasis supplied),
And the rule is further clarified in he Report of the Code Commission, as follows:
The question as to whether the Civil Code and the insolvency Law can be harmonized is settled by this Article (2243). The
preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law." (Emphasis supplied) .
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before
us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the claimant were
enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two creditors will not enable
the Court to ascertain the pro-rata dividend corresponding to each, because the rights of the other creditors likewise" enjoying

preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First Instance of Manila now appealed from,
decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee, is incorrect, and must be
reversed.
In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate), the conflict between the parties
now before us must be decided pursuant to the well established principle concerning registered lands; that a purchaser in good faith
and for value (as the appellant concededly is) takes registered property free from liens and encumbrances other than statutory liens
and those recorded in the certificate of title. There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did
not require the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and must remain subordinate
to the latter.
We are understandably loathed (absent a clear precept of law so commanding) to adopt a rule that would undermine the faith and credit
to be accorded to registered Torrens titles and nullify the beneficient objectives sought to be obtained by the Land Registration Act. No
argument is needed to stress that if a person dealing with registered land were to be held to take it in every instance subject to all the
fourteen preferred claims enumerate in Article 2242 of the new Civil Code, even if the existence and import thereof can not be
ascertained from the records, all confidence in Torrens titles would be destroyed, and credit transactions on the faith of such titles would
be hampered, if not prevented, with incalculable results. Loans on real estate security would become aleatory and risky transactions,
for no, prospective lender could accurately estimate the hidden liens on the property offered as security, unless he indulged in
complicated, tedious investigations, . The logical result might well be a contraction of credit unforeseeable proportions that could lead to
economic disaster.
Upon the other hand, it does not appear excessively burdensome to require the privileged creditors to cause their claims to be recorded
in the books of the Register of deeds should they desire to protect their rights even outside of insolvency or liquidation proceedings.
B. The close study of the facts disclosed by the records lasts strong doubt on the proposition that appellees Cruzados should be
regarded as unpaid vendors of the property( land, buildings, and improvements ) involved in the case at bar so as to be entitled to
preference under Article 2242. The record on appeal, specially the final decision of the Court of First Instance of Manila in the suit of the
,Cruzados against Villanueva, clearly establishes that after her husband's death, and with due court authority, Rosario Cruzado, for
herself and as administratrix of her husband's state, mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure
payment of a loan of P11,000, installments, but that the debtor failed to pay some of the installments; wherefore the RFC, on 24 August
1949, foreclosed the mortgage, and acquired the property, subject to the debtor's right to redeem or repurchase the said property; and
that on 25 September 1950, the RFC consolidated its ownership, and the certificate of title of the Cruzados was cancelled and a new
certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property to the erstwhile mortgagors and former owners Cruzados
in installments, subject to the condition (among others) that the title to the property and its improvements "shall remain in the name of
Corporation (RFC) until after said purchase price, advances and interests shall have been fully paid", as of 27 September 1952,
Cruzado had only paid a total of P1,360, and had defaulted on six monthly amortizations; for which reason the RFC rescinded the sale,
and forfeited the payments made, in accordance with the terms of the contract of 26 July 1951.
It was only on 10 March 1953 that the Cruzados sold to Pura L. Villanueva all "their rights, title, interest and dominion on and over" the
property, lot, house, and improvements for P19,000.00, the buyer undertaking to assume payment of the obligation to the RFC, and by
resolution of 30 April 1953, the RFC approved "the transfer of the rights and interest of Rosario P. Cruzado and her children in their
property herein above-described in favor of Pura L. Villanueva"; and on 7 May 1953 the RFC executed a deed of absolute sale of the
property to said party, who had fully paid the price of P14,269.03. Thereupon, the spouses Villanueva obtained a new Transfer
Certificate of Title No. 32526 in their name.
On 10 July 1953, the Villanuevas mortgaged the property to the spouses Barretto, appellants herein.
It is clear from the facts above-stated that ownership of the property had passed to the Rehabilitation Finance Corporation since 1950,
when it consolidated its purchase at the foreclosure sale and obtained a certificate of title in its corporate name. The subsequent
contract of resale in favor of the Cruzados did not revest ownership in them, since they failed to comply with its terms and conditions,
and the contract itself provided that the title should remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale contract with the RFC the appellants Cruzados sold to
Villanueva "their rights, title, interest and dominion" to the property, they merely assigned whatever rights or claims they might still have
thereto; the ownership of the property rested with the RFC. The sale from Cruzado to Villanueva, therefore, was not so much a sale of
the land and its improvements as it was a quit-claim deed in favor of Villanueva. In law, the operative sale was that from the RFC to the
latter, and it was the RFC that should be regarded as the true vendor of the property. At the most, the Cruzados transferred to
Villanueva an option to acquire the property, but not the property itself, and their credit, therefore, can not legally constitute a vendor's
lien on the corpus of that property that should stand on an equal footing with the mortgaged credit held by appellant Barretto.
In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is hereby reconsidered and set aside,
and a new one entered reversing the judgment appealed from and declaring the appellants Barretto entitled to full satisfaction of their
mortgaged credit out of the proceeds of the foreclosure sale in the hands of the Sheriff of the City of Manila. No costs.

Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur.
Bengzon, Labrador and Dizon, JJ., took no part.
G.R. No. 126200

August 16, 2001

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
HONORABLE COURT OF APPEALS and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
KAPUNAN, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking a review of the Decision of the Court
of Appeals dated October 6, 1995 and the Resolution of the same court dated August 29, 1996.
The facts are as follows:
Marinduque Mining-Industrial Corporation (Marinduque Mining), a corporation engaged in the manufacture of pure and refined nickel,
nickel and cobalt in mixed sulfides; copper ore/concentrates, cement and pyrite conc., obtained from the Philippine National Bank
(PNB) various loan accommodations. To secure the loans, Marinduque Mining executed on October 9, 1978 a Deed of Real Estate
Mortgage and Chattel Mortgage in favor of PNB. The mortgage covered all of Marinduque Mining's real properties, located at Surigao
del Norte, Sipalay, Negros Occidental, and at Antipolo, Rizal, including the improvements thereon. As of November 20, 1980, the loans
extended by PNB amounted to P4 Billion, exclusive of interest and charges.1
On July 13, 1981, Marinduque Mining executed in favor of PNB and the Development Bank of the Philippines (DBP) a second
Mortgage Trust Agreement. In said agreement, Marinduque Mining mortgaged to PNB and DBP all its real properties located at Surigao
del Norte, Sipalay, Negros Occidental, and Antipolo, Rizal, including the improvements thereon. The mortgage also covered all of
Marinduque Mining's chattels, as well as assets of whatever kind, nature and description which Marinduque Mining may subsequently
acquire in substitution or replenishment or in addition to the properties covered by the previous Deed of Real and Chattel Mortgage
dated October 7, 1978. Apparently, Marinduque Mining had also obtained loans totaling P2 Billion from DBP, exclusive of interest and
charges.2
On April 27, 1984, Marinduque Mining executed in favor of PNB and DBP an Amendment to Mortgage Trust Agreement by virtue of
which Marinduque Mining mortgaged in favor of PNB and DBP all other real and personal properties and other real rights subsequently
acquired by Marinduque Mining.3
For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial
foreclosure proceedings over the mortgaged properties.
The events following the foreclosure are narrated by DBP in its petition, as follows:
In the ensuing public auction sale conducted on August 31, 1984, PNB and DBP emerged and were declared the highest
bidders over the foreclosed real properties, buildings, mining claims, leasehold rights together with the improvements thereon
as well as machineries [sic] and equipments [sic] of MMIC located at Nonoc Nickel Refinery Plant at Surigao del Norte for a
bid price of P14,238,048,150.00 [and] [o]ver the foreclosed chattels of MMIC located at Nonoc Refinery Plant at Surigao del
Norte, PNB and DBP as highest bidders, bidded for P170,577,610.00 (Exhs. "5" to "5-A", "6", "7" to "7-AA-" PNB/DBP). For the
foreclosed real properties together with all the buildings, major machineries & equipment and other improvements of MMIC
located at Antipolo, Rizal, likewise held on August 31, 1984, were sold to PNB and DBP as highest bidders in the sum of
P1,107,167,950.00 (Exhs. "10" to "10-X"-PNB/ DBP).
At the auction sale conducted on September 7, 1984[,] over the foreclosed real properties, buildings, & machineries/equipment
of MMIC located at Sipalay, Negros Occidental were sold to PNB and DBP, as highest bidders, in the amount of
P2,383,534,000.00 and P543,040.000.00 respectively (Exhs. "8" to "8-BB", "9" to "90-GGGGGG"-PNB/DBP).
Finally, at the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same
were sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00 (Exhs. "11" and "12-QQQQQ"-PNB).
PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation
of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining
and Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc
Island, Surigao del Norte for an initial consideration of P14,361,000,000.00 (Exh. "13"-PNB).
Likewise, thru [sic] a Deed of Transfer dated June 6, 1984, PNB and DBP assigned and transferred in favor of Maricalum
Mining Corp. all its rights, interest and participation over the foreclosed properties of MMIC at Sipalay, Negros Occidental for
an initial consideration of P325,800,000.00 (Exh. "14"-PNB/DBP).

On February 27, 1987, PNB and DBP, pursuant to Proclamation No. 50 as amended, again assigned, transferred and
conveyed to the National Government thru [sic] the Asset Privatization Trust (APT) all its existing rights and interest over the
assets of MMIC, earlier assigned to Nonoc Mining and Industrial Corporation, Maricalum Mining Corporation and Island
Cement Corporation (Exh. "15" & "15-A" PNB/DBP).4
In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction
materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921,755.95. The purchases
remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining
for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest,
attorney's fees and the costs of suit.
On September 7, 1984, Remington's original complaint was amended to include PNB and DBP as co-defendants in view of the
foreclosure by the latter of the real and chattel mortgages on the real and personal properties, chattels, mining claims, machinery,
equipment and other assets of Marinduque Mining.5
On September 13, 1984, Remington filed a second amended complaint to include as additional defendant, the Nonoc Mining and
Industrial Corporation (Nonoc Mining). Nonoc Mining is the assignee of all real and personal properties, chattels, machinery, equipment
and all other assets of Marinduque Mining at its Nonoc Nickel Factory in Surigao del Norte.6
On March 26, 1986, Remington filed a third amended complaint including the Maricalum Mining Corporation (Maricalum Mining) and
Island Cement Corporation (Island Cement) as co-defendants. Remington asserted that Marinduque Mining, PNB, DBP, Nonoc Mining,
Maricalum Mining and Island Cement must be treated in law as one and the same entity by disregarding the veil of corporate fiction
since:
1. Co-defendants NMIC, Maricalum and Island Cement which are newly created entities are practically owned wholly by
defendants PNB and DBP, and managed by their officers, aside from the fact that the aforesaid co-defendants NMIC,
Maricalum and Island Cement were organized in such a hurry and in such suspicious circumstances by co-defendants PNB
and DBP after the supposed extrajudicial foreclosure of MMIC's assets as to make their supposed projects assets,
machineries and equipment which were originally owned by co-defendant MMIC beyond the reach of creditors of the latter.
2. The personnel, key officers and rank-and-file workers and employees of co-defendants NMIC, Maricalum and Island
Cement creations of co-defendants PNB and DBP were the personnel of co-defendant MMIC such that . . . practically there
has only been a change of name for all legal purpose and intents
3. The places of business not to mention the mining claims and project premises of co-defendants NMIC, Maricalum and
Island Cement likewise used to be the places of business, mining claims and project premises of co-defendant MMIC as to
make the aforesaid co-defendants NMIC, Maricalum and Island Cement mere adjuncts and subsidiaries of co-defendants PNB
and DBP, and subject to their control and management.
On top of everything, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by the
government in the pursuit of business ventures should not be allowed to ignore, x x x or obliterate with impunity nay illegally,
the financial obligations of x x x MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged
extrajudicial foreclosure of defendant MMIC's assets, machineries and equipment to the extent that major policies of codefendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its
board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a
complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum
and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC used
in its nickel mining project in Surigao del Norte, copper mining operation in Sipalay, Negros Occidental and cement factory in
Antipolo, Rizal to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation
whose stockholders, officers and rank-and-file workers in the legitimate pursuit of its business activities, invested considerable
time, sweat and private money to supply, among others, co-defendant MMIC with some of its vital needs for its operation,
which co-defendant MMIC during the time of the transactions material to this case became x x x co-defendants PNB and
DBP's instrumentality, business conduit, alter ego, agency (sic), subsidiary or auxiliary corporation, by virtue of which it
becomes doubly necessary to disregard the corporation fiction that co-defendants PNB, DBP, MMIC, NMIC, Maricalum and
Island Cement, six (6) distinct and separate entities, when in fact and in law, they should be treated as one and the same at
least as far as plaintiff's transactions with co-defendant MMIC are concerned, so as not to defeat public convenience, justify
wrong, subvert justice, protect fraud or confuse legitimate issues involving creditors such as plaintiff, a fact which all
defendants were as (sic) still are aware of during all the time material to the transactions subject of this case.7
On April 3, 1989, Remington filed a motion for leave to file a fourth amended complaint impleading the Asset Privatization Trust (APT)
as co-defendant. Said fourth amended complaint was admitted by the lower court in its Order dated April 29, 1989.
On April 10, 1990, the Regional Trial Court (RTC) rendered a decision in favor of Remington, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendants Marinduque Mining & Industrial
Corporation, Philippine National Bank, Development Bank of the Philippines, Nonoc Mining and Industrial Corporation,
Maricalum Mining Corporation, Island Cement Corporation and Asset Privatization Trust to pay, jointly and severally, the sum
of P920,755.95, representing the principal obligation, including the stipulated interest as of June 22, 1984, plus ten percent
(10%) surcharge per annum by way of penalty, until the amount is fully paid; the sum equivalent to 10% of the amount due as
and for attorney's fees; and to pay the costs.8
Upon appeal by PNB, DBP, Nonoc Mining, Maricalum Mining, Island Cement and APT, the Court of Appeals, in its Decision dated
October 6, 1995, affirmed the decision of the RTC. Petitioner filed a Motion for Reconsideration, which was denied in the Resolution
dated August 29, 1996.
Hence, this petition, DBP maintaining that Remington has no cause of action against it or PNB, nor against their transferees, Nonoc
Mining, Island Cement, Maricalum Mining, and the APT.
On the other hand, private respondent Remington submits that the transfer of the properties was made in fraud of creditors. The
presence of fraud, according to Remington, warrants the piercing of the corporate veil such that Marinduque Mining and its transferees
could be considered as one and the same corporation. The transferees, therefore, are also liable for the value of Marinduque Mining's
purchases.
In Yutivo Sons Hardware vs. Court of Tax Appeals,9 cited by the Court of Appeals in its decision,10 this Court declared:
It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of
persons or in case of two corporations, merge them into one". (Koppel [Phils.], Inc., vs. Yatco, 71 Phil. 496, citing 1 Fletcher
Encyclopedia of Corporation, Permanent Ed., pp. 135-136; U.S. vs. Milwaukee Refrigeration Transit Co., 142 Fed., 247, 255
per Sanborn, J.). x x x.
In accordance with the foregoing rule, this Court has disregarded the separate personality of the corporation where the corporate entity
was used to escape liability to third parties.11 In this case, however, we do not find any fraud on the part of Marinduque Mining and its
transferees to warrant the piercing of the corporate veil.
It bears stressing that PNB and DBP are mandated to foreclose on the mortgage when the past due account had incurred arrearages of
more than 20% of the total outstanding obligation. Section 1 of Presidential Decree No. 385 (The Law on Mandatory Foreclosure)
provides:
It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this decree, to
foreclose the collateral and/or securities for any loan, credit accommodation, and/or guarantees granted by them whenever the
arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total
outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of
the financial institution concerned. This shall be without prejudice to the exercise by the government financial institution of
such rights and/or remedies available to them under their respective contracts with their debtors, including the right to
foreclose on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty (20%) percent.
Thus, PNB and DBP did not only have a right, but the duty under said law, to foreclose upon the subject properties. The banks had no
choice but to obey the statutory command.
The import of this mandate was lost on the Court of Appeals, which reasoned that under Article 19 of the Civil Code, "Every person
must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith." The appellate court, however, did not point to any fact evidencing bad faith on the part of the Marinduque Mining and its
transferees. Indeed, it skirted the issue entirely by holding that the question of actual fraudulent intent on the part of the interlocking
directors of DBP and Marinduque Mining was irrelevant because:
As aptly stated by the appellee in its brief, "x x x where the corporations have directors and officers in common, there may be
circumstances under which their interest as officers in one company may disqualify them in equity from representing both
corporations in transactions between the two. Thus, where one corporation was 'insolvent and indebted to another, it has been
held that the directors of the creditor corporation were disqualified, by reason of self-interest, from acting as directors of the
debtor corporation in the authorization of a mortgage or deed of trust to the former to secure such indebtedness x x x" (page
105 of the Appellee's Brief). In the same manner that "x x x when the corporation is insolvent, its directors who are its creditors
can not secure to themselves any advantage or preference over other creditors. They can not thus take advantage of their
fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will set aside the
transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any actual
fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the
violation of the fiduciary relation to the directors." x x x (page 106 of the Appellee's Brief)

We also concede that "x x x directors of insolvent corporation, who are creditors of the company, can not secure to themselves
any preference or advantage over other creditors in the payment of their claims. It is not good morals or good law. The
governing body of officers thereof are charged with the duty of conducting its affairs strictly in the interest of its existing
creditors, and it would be a breach of such trust for them to undertake to give any one of its members any advantage over any
other creditors in securing the payment of his debts in preference to all others. When validity of these mortgages, to secure
debts upon which the directors were indorsers, was questioned by other creditors of the corporation, they should have been
classed as instruments rendered void by the legal principle which prevents directors of an insolvent corporation from giving
themselves a preference over outside creditors. x x x" (page 106-107 of the Appellee's Brief.)12
The Court of Appeals made reference to two principles in corporation law. The first pertains to transactions between corporations with
interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the
corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining
and DBP).
The second principle invoked by respondent court involves "directors x x x who are creditors" which is also inapplicable herein. Here,
the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining.
Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement. As Remington
itself concedes, DBP is not authorized by its charter to engage in the mining business.13The creation of the three corporations was
necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value. In
the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime?
Sound business practice required that they be utilized for the purposes for which they were intended.
Remington also asserted in its third amended complaint that the use of Nonoc Mining, Maricalum and Island Cement of the premises of
Marinduque Mining and the hiring of the latter's officers and personnel also constitute badges of bad faith.
Assuming that the premises of Marinduque Mining were not among those acquired by DBP in the foreclosure sale, convenience and
practicality dictated that the corporations so created occupy the premises where these assets were found instead of relocating them. No
doubt, many of these assets are heavy equipment and it may have been impossible to move them. The same reasons of convenience
and practicality, not to mention efficiency, justified the hiring by Nonoc Mining, Maricalum and Island Cement of Marinduque Mining's
personnel to manage and operate the properties and to maintain the continuity of the mining operations.
To reiterate, the doctrine of piercing the veil of corporate fiction applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.14 To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be presumed.15 In this case, the Court finds that Remington failed to
discharge its burden of proving bad faith on the part of Marinduque Mining and its transferees in the mortgage and foreclosure of the
subject properties to justify the piercing of the corporate veil.
The Court of Appeals also held that there exists in Remington's favor a "lien" on the unpaid purchases of Marinduque Mining, and as
transferee of these purchases, DBP should be held liable for the value thereof.
In the absence of liquidation proceedings, however, the claim of Remington cannot be enforced against DBP. Article 2241 of the Civil
Code provides:
ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
xxx

xxx

xxx

(3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to
the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced
on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance
and identity, neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof
can be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a
chattel mortgage, upon the things pledged or mortgaged, up to the value thereof;
xxx

xxx

xxx

In Barretto vs. Villanueva,16 the Court had occasion to construe Article 2242, governing claims or liens over specific immovable property.
The facts that gave rise to the case were summarized by this Court in its resolution as follows:
x x x Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein involved to Pura
L. Villanueva for P19,000.00. The purchaser paid P1,500 in advance, and executed a promissory note for the balance of

P17,500.00. However, the buyer could only pay P5,500 on account of the note, for which reason the vendor obtained
judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean certificate of title (No.
32626), and mortgaged the property to appellant Magdalena C. Barretto, married to Jose C. Baretto, to secure a loan of
P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter foreclosed the mortgage in her favor, obtained
judgment, and upon its becoming final asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for
recognition for her "vendor's lien" in the amount of P12,000.00, plus legal interest, invoking Articles 2242, 2243, and 2249 of
the new Civil Code. After hearing, the court below ordered the "lien" annotated on the back of Certificate of Title No. 32526,
with the proviso that in case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant
Barretto should be paidpro rata from the proceeds. Our original decision affirmed this order of the Court of First Instance of
Manila.
In its decision upholding the order of the lower court, the Court ratiocinated thus:
Article 2242 of the new Civil Code enumerates the claims, mortgages and liens that constitute an encumbrance on specific
immovable property, and among them are:
"(2) For the unpaid price of real property sold, upon the immovable sold"; and
"(5) Mortgage credits recorded in the Registry of Property."
Article 2249 of the same Code provides that "if there are two or more credits with respect to the same specific real property or
real rights, they shall be satisfied pro-rata, after the payment of the taxes and assessments upon the immovable property or
real rights."
Application of the above-quoted provisions to the case at bar would mean that the herein appellee Rosario Cruzado as an
unpaid vendor of the property in question has the right to share pro-rata with the appellants the proceeds of the foreclosure
sale.
xxx

xxx

xxx

As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable only to the
insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to interpret this portion of the Code
as intended only for insolvency cases, then other creditor-debtor relationships where there are concurrence of credits would be
left without any rules to govern them, and it would render purposeless the special laws on insolvency.17
Upon motion by appellants, however, the Court reconsidered its decision. Justice J.B.L. Reyes, speaking for the Court, explained the
reasons for the reversal:
A. The previous decision failed to take fully into account the radical changes introduced by the Civil Code of the Philippines
into the system of priorities among creditors ordained by the Civil Code of 1889.
Pursuant to the former Code, conflicts among creditors entitled to preference as to specific real property under Article 1923
were to be resolved according to an order of priorities established by Article 1927, whereby one class of creditors could
exclude the creditors of lower order until the claims of the former were fully satisfied out of the proceeds of the sale of the real
property subject of the preference, and could even exhaust proceeds if necessary.
Under the system of the Civil Code of the Philippines, however, only taxes enjoy a similar absolute preference. All the
remaining thirteen classes of preferred creditors under Article 2242 enjoy no priority among themselves, but must be paid pro
rata, i.e., in proportion to the amount of the respective credits. Thus, Article 2249 provides:
"If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata,
after the payment of the taxes and assessments upon the immovable property or real rights."
But in order to make this prorating fully effective, the preferred creditors enumerated in Nos. 2 to 14 of Article 2242 (or such of
them as have credits outstanding) must necessarily be convened, and the import of their claims ascertained. It is thus
apparent that the full application of Articles 2249 and 2242 demands that there must be first some proceeding where the
claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of decedent's estate
under Rule 87 of the Rules of Court, or other liquidation proceedings of similar import.
This explains the rule of Article 2243 of the new Civil Code that

"The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or
personal property, or liens within the purview of legal provisions governing insolvency x x x (Italics supplied).
And the rule is further clarified in the Report of the Code Commission, as follows
"The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by this Article (2243). The
preferences named in Articles 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with the Insolvency
Law." (Italics supplied)
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case
now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242, unless the
claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the claims is for taxes, a dispute between two
creditors will not enable the Court to ascertain the pro rata dividend corresponding to each, because the rights of the other
creditors likewise enjoying preference under Article 2242 can not be ascertained. Wherefore, the order of the Court of First
Instance of Manila now appealed from, decreeing that the proceeds of the foreclosure sale be apportioned only between
appellant and appellee, is incorrect, and must be reversed. [Emphasis supplied]
The ruling in Barretto was reiterated in Phil. Savings Bank vs. Hon. Lantin, Jr., etc., et al.,18 and in two cases both entitled Development
Bank of the Philippines vs. NLRC.19
Although Barretto involved specific immovable property, the ruling therein should apply equally in this case where specific movable
property is involved. As the extrajudicial foreclosure instituted by PNB and DBP is not the liquidation proceeding contemplated by the
Civil Code, Remington cannot claim its pro rata share from DBP.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 6, 1995 and its Resolution promulgated
on August 29, 1996 is REVERSED and SET ASIDE. The original complaint filed in the Regional Trial Court in CV Case No. 84-25858 is
hereby DISMISSED.
SO ORDERED.

[G.R. No. 105827. January 31, 2000]

J.L. BERNARDO CONSTRUCTION, represented by attorneys-in-fact Santiago R. Sugay, Edwin A. Sugay and Fernando S.A.
Erana, SANTIAGO R. SUGAY, EDWIN A. SUGAY and FERNANDO S. A. ERANA, petitioners, vs. COURT OF APPEALS and
MAYOR JOSE L. SALONGA, respondents.
DECISION
GONZAGA-REYES, J.:
This petition for certiorari under Rule 65 seeks to annul and set aside the following:
1. Decision dated February 6, 1992 issued by the Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 which nullified the
order of the Regional Trial Court of Cabanatuan City in Civil Case No. 1016-AF granting plaintiffs (petitioners herein) a writ of
attachment and a contractors lien upon the San Antonio Public Market; and
2. Resolution dated June 10, 1992 issued by the former Eleventh Division of the Court of Appeals in CA-G.R. No. 26336 denying the
motions for reconsideration filed by both parties.
The factual antecedents of this case, as culled from the pleadings, are as follows:
Sometime in 1990, the municipal government of San Antonio, Nueva Ecija approved the construction of the San Antonio Public Market.
The construction of the market was to be funded by the Economic Support Fund Secretariat (ESFS), a government agency working
with the USAID. Under ESFS "grant-loan-equity" financing program, the funding for the market would be composed of a (a) grant from
ESFS, (b) loan extended by ESFS to the Municipality of San Antonio, and (c) equity or counterpart funds from the Municipality.
It is claimed by petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo Construction, a single
proprietorship owned by Juanito L. Bernardo, that they entered into a business venture for the purpose of participating in the bidding for
the public market. It was agreed by petitioners that Santiago Sugay would take the lead role and be responsible for the preparation and
submission of the bid documents, financing the entire project, providing and utilizing his own equipment, providing the necessary labor,
supplies and materials and making the necessary representations and doing the liaison work with the concerned government agencies.
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted its bid together with other qualified bidders.
After evaluating the bids, the municipal pre-qualification bids and awards committee, headed by respondent Jose L. Salonga (then
incumbent municipal mayor of San Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, a Construction
Agreement was entered into by the Municipality of San Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction.
It is claimed by petitioners that under this Construction Agreement, the Municipality agreed to assume the expenses for the demolition,
clearing and site filling of the construction site in the amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be
remitted directly to petitioners.
Petitioners allege that, although the whole amount of the cash equity became due, the Municipality refused to pay the same, despite
repeated demands and notwithstanding that the public market was more than ninety-eight percent (98%) complete as of July 20, 1991.
Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the demolition, clearing and site filling work
by making representations that the Municipality had the financial capability to reimburse them later on. However, petitioners claim that
they have not been reimbursed for their expenses.[1]
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and Fernando Erana, with the latter three bringing the
case in their own personal capacities and also in representation of J.L. Bernardo Construction, filed a complaint for breach of contract,
specific performance, and collection of a sum of money, with prayer for preliminary attachment and enforcement of contractors lien
against the Municipality of San Antonio, Nueva Ecija and Salonga, in his personal and official capacity as municipal mayor. After
defendants filed their answer, the Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs.[2]
On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment prayed for by plaintiffs. It also granted J.L.
Bernardo Construction the right to maintain possession of the public market and to operate the same. The dispositive portion of the
decision provides:
IN VIEW OF THE FOREGOING DISQUISITION, the Court finds the auxiliary reliefs of attachment prayed for by the
plaintiffs to be well-taken and the same is hereby GRANTED. Conformably thereto, let a writ of preliminary
attachment be issued upon the filing by the plaintiffs of a bond in the amount of P2,653,576.84 to answer for costs
and damages which the defendants may suffer should the Court finally adjudged (sic) that the plaintiffs are not
entitled to the said attachment, and thereafter, the Deputy Sheriff of this court is hereby ordered to attach the

properties of the defendants JOSE LAPUZ SALONGA and the MUNICIPALITY OF SAN ANTONIO, NUEVA ECIJA
which are not exempt from execution.
CORROLARILY, the Court grants the plaintiffs J.L. BERNARDO CONSTRUCTION, represented by SANTIAGO R.
SUGAY, EDWIN A. SUGAY and FERNANDO S.A. ERANA, the authority to hold on to the possession of the public
market in question and to open and operate the same based on fair and reasonable guidelines and other mechanics
of operation to be submitted by plaintiffs within fifteen (15) days from their receipt of this Order which shall be subject
to Courts approval and to deposit the income they may derive therefrom to the Provincial Treasurer of Nueva Ecija
after deducting the necessary expenses for the operation and management of said market, subject to further orders
from this Court.
SO ORDERED.
The trial court gave credence to plaintiffs claims that defendants were guilty of fraud in incurring their contractual obligations as
evidenced by the complaint and the affidavits of plaintiffs Santiago Sugay and Erana. The court ruled that defendants acts of "
obtaining property, credit or services by false representations as to material facts made by the defendant to the plaintiff with intent to
deceive constitutes fraud warranting attachment" and that " a debt is considered fradulently contracted if at the time of contracting it,
the debtor entertained an intention not to pay."
With regards to the contractors lien, the trial court held that since plaintiffs have not been reimbursed for the cash equity and for the
demolition, clearing and site filling expenses, they stand in the position of an unpaid contractor and as such are entitled, pursuant to
articles 2242 and 2243 of the Civil Code, to a lien in the amount of P2,653,576.84 (as of August 1, 1991), excluding the other claimed
damages, attorneys fees and litigation expenses, upon the public market which they constructed. It was explained that, although the
usual way of enforcing a lien is by a decree for the sale of the property and the application of the proceeds to the payment of the debt
secured by it, it is more practical and reasonable to permit plaintiffs to operate the public market and to apply to their claims the income
derived therefrom, in the form of rentals and goodwill from the prospective stallholders of the market, as prayed for by plaintiffs.
The trial court made short shrift of defendants argument that the case was not instituted in the name of the real parties-in-interest. It
explained that the plaintiff in the cause of action for money claims for unpaid cash equity and demolition and site filling expenses is J.L.
Bernardo Construction, while the plaintiffs in the claim for damages for violation of their rights under the Civil Code provisions on human
relations are plaintiffs Santiago Sugay, Edwin Sugay and Erana.[3]
The defendants moved for reconsideration of the trial courts order, to which the plaintiffs filed an opposition. On October 10, 1991 the
motion was denied. The following day, the trial court approved the guidelines for the operation of the San Antonio Public Market filed by
plaintiffs.
Respondent Salonga filed a motion for the approval of his counterbond which was treated by the trial court in its October 29, 1991 order
as a motion to fix counterbond and for which it scheduled a hearing on November 19, 1991.
On October 21, 1991, during the pendency of his motion, respondent Salonga filed with the Court of Appeals a petition
for certiorari under Rule 65 with prayer for a writ of preliminary injunction and temporary restraining order which case was docketed as
CA-G.R. SP No. 26336.[4] Petitioners opposed the petition, claming that respondent had in fact a plain, speedy and adequate remedy as
evidenced by the filing of a motion to approve counter-bond with the trial court.[5]
On February 6, 1992, the Court of Appeals reversed the trial courts decision and ruled in favor of Salonga. The dispositive portion of its
decision states
FOR ALL THE FOREGOING, the petition is hereby granted as follows:
1. The respondent judges ORDER dated September 5, 1991 for the issuance of a writ of
attachment and for the enforcement of a contractors lien, is hereby NULLIFIED and SET ASIDE;
the writ of attachment issued pursuant thereto and the proceedings conducted by the Sheriffs
assigned to implement the same are, as a consequence, also hereby NULLIFIED and SET ASIDE;
2. The respondent judges ORDER dated October 11, 1991 further enforcing the contractors lien
and approving the guidelines for the operation of the San Antonio Public Market is also NULLIFIED
and SET ASIDE.
Petitioners prayers for the dismissal of Civil Case No. 1016 (now pending before respondent
judge) and for his deletion from said case as defendant in his private capacity are, however,
DENIED.
The respondent judge may now proceed to hearing of Civil Case No. 1016 on the merits.

SO ORDERED.
The appellate court reasoned that since the Construction Agreement was only between Juanito Bernardo and the Municipality of San
Antonio, and since there is no sworn statement by Juanito Bernardo alleging that he had been deceived or misled by Mayor Salonga or
the Municipality of San Antonio, it is apparent that the applicant has not proven that the defendants are guilty of inceptive fraud in
contracting the debt or incurring the obligation, pursuant to Rule 57 of the Rules of Court, and therefore, the writ of attachment should
be struck down for having been improvidently and irregularly issued.
The filing of a motion for the approval of counter-bond by defendants did not, according to the Court of Appeals, render the petition
for certiorari premature. The appellate court held that such motion could not cure the defect in the issuance of the writ of attachment
and that, moreover, the defendants motion was filed by them "without prejudice to the petition for certiorari."
As to the contractors lien, the appellate court ruled that Articles 2242 of the Civil Code finds application only in the context of insolvency
proceedings, as expressly stated in Article 2243. Even if it is conceded that plaintiffs are entitled to retain possession of the market
under its contractors lien, the appellate court held that the same right cannot be expanded to include the right to use the building.
Therefore, the trial courts grant of authority to plaintiffs to operate the San Antonio Public Market amounts to a grave abuse of
discretion.
With regard to the allegations of defendants that plaintiffs are not the proper parties, the Court of Appeals ruled that such issue should
be assigned as an error by defendants later on should the outcome of the case be adverse to the latter.[6]
Petitioners are now before this Court assailing the appellate courts decision. In their petition, they make the following assignment of
errors:
1. THE DECISION IS CONTRARY TO LAW IN THAT THE COURT OF APPEALS OVERLOOKED AND/OR DISREGARDED THE
FUNDAMENTAL REQUIREMENT AND ESTABLISHED SUPREME COURT DECISIONS IN ACTIONS FOR CERTIORARI
CONSIDERING THAT THE FILING OF THE PETITION BY RESPONDENT SALONGA WITH THE COURT OF APPEALS IS
OBVIOUSLY PREMATURE AND IMPROPER SINCE THERE ADMITTEDLY EXISTS A PLAIN, SPEEDY AND ADEQUATE REMEDY
AVAILABLE TO RESPONDENT SALONGA WHICH IS HIS UNRESOLVED "MOTION TO APPROVE COUNTERBOND" PENDING
WITH THE TRIAL COURT.
2. IN COMPLETE DISREGARD OF ESTABLISHED JURISPRUDENCE, THE COURT OF APPEALS HAS SKIRTED AND/OR FAILED
TO CONSIDER/DISREGARDED THE EQUALLY CRUCIAL ISSUE THAT THE QUESTIONED ORDERS ARE CLEARLY AND
ADMITTEDLY INTERLOCUTORY IN NATURE AND THEREFORE THEY CANNOT BE THE PROPER SUBJECT OF AN ACTION FOR
CERTIORARI; PROOF THAT THE ORDERS ASSAILED BY RESPONDENT SALONGA ARE INTERLOCUTORY IN CHARACTER IS
THE DISPOSITIVE PORTION OF THE DECISION WHEN THE COURT OF APPEALS SAID "THE RESPONDENT JUDGE MAY NOW
PROCEED TO HEARING OF SAID CIVIL CASE NO. 1016 ON THE MERITS"; PETITION FILED BY RESPONDENT SALONGA WITH
THE COURT OF APPEALS SHOULD HAVE BEEN DISMISSED OUTRIGHTLY AS SOUGHT BY HEREIN PETITIONERS IN THEIR
VARIOUS UNACTED PLEADINGS.
3. THE DECISION IS BASED ON FINDINGS OF FACTS AND CONCLUSIONS WHICH ARE NOT ONLY GROSSLY ERRONEOUS
BUT ARE SQUARELY CONTRADICTED BY THE EVIDENCE ON RECORD.
4. THE COURT OF APPEALS HAS CLEARLY MISAPPRECIATED, MISREAD AND DISREGARDED HEREIN PETITIONERS
CAUSES OF ACTION AGAINST RESPONDENT SALONGA AND HIS CO-RESPONDENT MUNICIPALITY OF SAN ANTONIO, NUEVA
ECIJA.
5. THE COURT OF APPEALS HAS MADE ERRONEOUS AND CONTRADICTORY CONCLUSIONS AND FINDINGS ON THE ISSUE
OF "REAL PARTY IN INTEREST" IN COMPLETE DISREGARD OF THE POWERS AND AUTHORITY GRANTED BY JUANITO L.
BERNARDO CONSTRUCTION TO HEREIN PETITIONERS.
6. THE COURT OF APPEALS HAS SKIRTED THE IMPORTANT ISSUE OF "AGENCY COUPLED WITH AN INTEREST."
7. THE COURT OF APPEALS WENT BEYOND THE ISSUES OF THE CERTIORARI CASE AND ITS FINDINGS AND CONCLUSIONS
ON ISSUES NOT RELATED TO THE CASE FOR CERTIORARI ARE CONTRARY TO THE PLEADINGS AND DO NOT CONFORM TO
THE EVIDENCE ON RECORD.
8. THE COURT OF APPEALS HAS LIKEWISE DISREGARDED THE PRECEPT THAT CONCLUSIONS AND FINDINGS OF FACT OF
THE TRIAL COURT ARE ENTITLED TO GREAT WEIGHT ON APPEAL AND SHOULD NOT BE DISTURBED SINCE THERE IS NO
STRONG AND COGENT REASON WHATSOVER TO OVERCOME THE WELL-WRITTEN AND DETAILED AND ESTABLISHED
FACTUAL FINDINGS OF THE TRIAL COURT.
9. PETITIONERS HAVE STRONG REASONS TO BELIEVE THAT THE DECISION OF THE COURT OF APPEALS WAS ISSUED
WITH SERIOUS INJUSTICE AND AGAINST THE TENETS OF FAIR PLAY SINCE THE DECISION HAD BEEN KNOWN TO AS IT

WAS OPENLY AND PUBLICLY ANNOUNCED BY RESPONDENT SALONGA LONG BEFORE IT WAS "PROMULGATED" BY THE
COURT OF APPEALS.
The various issues raised by petitioners may be restated in a more summary manner as 1. Whether or not the Court of Appeals correctly assumed jurisdiction over the petition for certiorari filed by respondents herein assailing
the trial courts interlocutory orders granting the writ of attachment and the contractors lien?
2. Whether or not the Court of Appeals committed reversible errors of law in its decision?
A petition for certiorari may be filed in case a tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or
in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any
plain, speedy, and adequate remedy in the ordinary course of law.[7]
The office of a writ of certiorari is restricted to truly extraordinary cases wherein the act of the lower court or quasi-judicial body is wholly
void.[8] We held in a recent case that certiorari may be issued "only where it is clearly shown that there is a patent and gross abuse of
discretion as to amount to an evasion of positive duty or to virtual refusal to perform a duty enjoined by law, or to act at all in
contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of passion or personal hostility."[9]
As a general rule, an interlocutory order is not appealable until after the rendition of the judgment on the merits for a contrary rule would
delay the administration of justice and unduly burden the courts.[10] However, we have held that certiorari is an appropriate remedy to
assail an interlocutory order (1) when the tribunal issued such order without or in excess of jurisdiction or with grave abuse of discretion
and (2) when the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief.[11]
We hold that the petition for certiorari filed by Salonga and the Municipality with the Court of Appeals questioning the writ of attachment
issued by the trial court should not have been given due course for they still had recourse to a plain, speedy and adequate remedy - the
filing of a motion to fix the counter-bond, which they in fact filed with the trial court, the grant of which would effectively prevent the
issuance of the writ of attachment. Moreover, they could also have filed a motion to discharge the attachment for having been
improperly or irregularly issued or enforced, or that the bond is insufficient, or that the attachment is excessive. [12] With such remedies
still available to the Municipality and Salonga, the filing of a petition for certiorari with the Court of Appeals insofar as it questions the
order of attachment was clearly premature.
However, with regards to the contractors lien, we uphold the appellate courts ruling reversing the trial courts grant of a contractors lien
in favor of petitioners.
Articles 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real
property of the debtor. Specifically, the contractors lien claimed by petitioners is granted under the third paragraph of Article 2242 which
provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings or other works shall be
preferred with respect to the specific building or other immovable property constructed.[13]
However, Article 2242 only finds application when there is a concurrence of credits, i.e. when the same specific property of the debtor is
subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In
such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead
of the others.[14] Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of
some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency
proceedings.[15]
This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as
mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency.[16]
The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. It is basically for specific
performance and damages.[17] Thus, even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid
contractors and are entitled to invoke the contractors lien granted under Article 2242, such lien cannot be enforced in the present
action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio Public
Market. The records do not contain any allegation that petitioners are the only creditors with respect to such property. The fact that no
third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and claiming that they
also have preferred liens against the property involved.[18]
Our decision herein is consistent with our ruling in Philippine Savings Bank v. Lantin,[19] wherein we also disallowed the contractor from
enforcing his lien pursuant to Article 2242 of the Civil Code in an action filed by him for the collection of unpaid construction costs.
It not having been alleged in their pleadings that they have any rights as a mortgagee under the contracts, petitioners may only obtain
possession and use of the public market by means of a preliminary attachment upon such property, in the event that they obtain a

favorable judgment in the trial court. Under our rules of procedure, a writ of attachment over registered real property is enforced by the
sheriff by filing with the registry of deeds a copy of the order of attachment, together with a description of the property attached, and a
notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any.[20] If
judgment be recovered by the attaching party and execution issue thereon, the sheriff may cause the judgment to be satisfied by selling
so much of the property as may be necessary to satisfy the judgment.[21] Only in the event that petitioners are able to purchase the
property will they then acquire possession and use of the same.
Clearly, the trial courts order of September 5, 1991 granting possession and use of the public market to petitioners does not adhere to
the procedure for attachment laid out in the Rules of Court. In issuing such an order, the trial court gravely abused its discretion and the
appellate courts nullification of the same should be sustained.
At this stage of the case, there is no need to pass upon the question of whether or not petitioners herein are the real parties-in-interest.
In the event that judgment is rendered against Salonga and the Municipality, this issue may be assigned as an error in their appeal from
such judgment.
WHEREFORE, we UPHOLD the Court of Appeals Decision dated February 6, 1992 in CA-G.R. SP No. 26336 insofar as it nullifies the
contractors lien granted by the trial court in favor of petitioners in its September 5, 1991 Order. Consequently, we also UPHOLD the
appellate courts nullification of the trial courts October 11, 1991 Order approving the guidelines for the operation of the San Antonio
Public Market. However, we REVERSE the appellate courts order nullifying the writ of attachment granted by the trial court.
No pronouncement as to costs.
SO ORDERED.

G.R. NO. 146555 July 3, 2007

JOSE CORDOVA, VS. REYES DAWAY LIM BERNARDO LINDO ROSALES LAW OFFICES,
ATTY. WENDELL CORONEL and the SECURITIES AND EXCHANGE COMMISSION
DECISION
CORONA, J.:

This is a petition for review on certiorari[1] of a decision[2] and resolution[3] of the Court of Appeals (CA) dated July 31, 2000 and
December 27, 2000, respectively, in CA-G.R. SP No. 55311.

Sometime in 1977 and 1978, petitioner Jose C. Cordova bought from Philippine Underwriters Finance Corporation
(Philfinance) certificates of stock of Celebrity Sports Plaza Incorporated (CSPI) and shares of stock of various other corporations. He
was issued a confirmation of sale.[4] The CSPI shares were physically delivered by Philfinance to the former Filmanbank [5] and Philtrust
Bank, as custodian banks, to hold these shares in behalf of and for the benefit of petitioner.[6]

On June 18, 1981, Philfinance was placed under receivership by public respondent Securities and Exchange Commission
(SEC). Thereafter, private respondents Reyes Daway Lim Bernardo Lindo Rosales Law Offices and Atty. Wendell Coronel (private
respondents) were appointed as liquidators.[7] Sometime in 1991, without the knowledge and consent of petitioner and without authority
from the SEC, private respondents withdrew the CSPI shares from the custodian banks. [8] On May 27, 1996, they sold the shares to
Northeast Corporation and included the proceeds thereof in the funds of Philfinance. Petitioner learned about the unauthorized sale of
his shares only on September 10, 1996. [9] He lodged a complaint with private respondents but the latter ignored it [10] prompting him to
file, on May 6, 1997,[11] a formal complaint against private respondents in the receivership proceedings with the SEC, for the return of
the shares.

Meanwhile, on April 18, 1997, the SEC approved a 15% rate of recovery for Philfinances creditors and investors. [12] On May
13, 1997, the liquidators began the process of settling the claims against Philfinance, from its assets.[13]

On April 14, 1998, the SEC rendered judgment dismissing the petition. However, it reconsidered this decision in a resolution
dated September 24, 1999 and granted the claims of petitioner. It held that petitioner was the owner of the CSPI shares by virtue of a
confirmation of sale (which was considered as a deed of assignment) issued to him by Philfinance. But since the shares had already
been sold and the proceeds commingled with the other assets of Philfinance, petitioners status was converted into that of an ordinary
creditor for the value of such shares. Thus, it ordered private respondents to pay petitioner the amount of P5,062,500 representing 15%
of the monetary value of his CSPI shares plus interest at the legal rate from the time of their unauthorized sale.

On October 27, 1999, the SEC issued an order clarifying its September 24, 1999 resolution. While it reiterated its earlier order
to pay petitioner the amount of P5,062,500, it deleted the award of legal interest. It clarified that it never meant to award interest since
this would be unfair to the other claimants.

On appeal, the CA affirmed the SEC. It agreed that petitioner was indeed the owner of the CSPI shares but the recovery
of such shares had become impossible. It also declared that the clarificatory order merely harmonized the dispositive portion with
the body of the resolution. Petitioners motion for reconsideration was denied.
1)
2)
3)

Hence this petition raising the following issues:

whether petitioner should be considered as a preferred (and secured) creditor of Philfinance;
whether petitioner can recover the full value of his CSPI shares or merely 15% thereof like all other ordinary
creditors of Philfinance and
whether petitioner is entitled to legal interest.[14]
To resolve these issues, we first have to determine if petitioner was indeed a creditor of Philfinance.

There is no dispute that petitioner was the owner of the CSPI shares. However, private respondents, as liquidators of
Philfinance, illegally withdrew said certificates of stock without the knowledge and consent of petitioner and authority of the SEC.
[15]
After selling the CSPI shares, private respondents added the proceeds of the sale to the assets of Philfinance. [16] Under these
circumstances, did the petitioner become a creditor of Philfinance? We rule in the affirmative.
The SEC, after holding that petitioner was the owner of the shares, stated:
Petitioner is seeking the return of his CSPI shares which, for the present, is no longer possible, considering
that the same had already been sold by the respondents, the proceeds of which are ADMITTEDLY commingled with
the assets of PHILFINANCE.
This being the case, [petitioner] is now but a claimant for the value of those shares. As a claimant, he shall be
treated as an ordinary creditor in so far as the value of those certificates is concerned.[17]
The CA agreed with this and elaborated:
Much as we find both detestable and reprehensible the grossly abusive and illicit contrivance employed by
private respondents against petitioner, we, nevertheless, concur with public respondent that the return of petitioners
CSPI shares is well-nigh impossible, if not already an utter impossibility, inasmuch as the certificates of stocks have
already been alienated or transferred in favor of Northeast Corporation, as early as May 27, 1996, in consequence
whereof the proceeds of the sale have been transmuted into corporate assets of Philfinance, under custodia legis,
ready for distribution to its creditors and/or investors. Case law holds that the assets of an institution under
receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator, and shall from
the moment of such receivership or liquidation, be exempt from any order, garnishment, levy, attachment, or
execution.
Concomitantly, petitioners filing of his claim over the subject CSPI shares before the SEC in the liquidation
proceedings bound him to the terms and conditions thereof. He cannot demand any special treatment [from] the
liquidator, for this flies in the face of, and will contravene, the Supreme Court dictum that when a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors shall stand on equal footing. Not one of them
should be given preference by paying one or some [of] them ahead of the others. This is precisely the philosophy
underlying the suspension of all pending claims against the corporation under receivership. The rule of thumb is
equality in equity.[18]
We agree with both the SEC and the CA that petitioner had become an ordinary creditor of Philfinance.
Certainly, petitioner had the right to demand the return of his CSPI shares. [19] He in fact filed a complaint in the liquidation
proceedings in the SEC to get them back but was confronted by an impossible situation as they had already been
sold. Consequently, he sought instead to recover their monetary value.
Petitioners CSPI shares were specific or determinate movable properties. [20] But after they were sold, the money raised
from the sale became generic[21] and were commingled with the cash and other assets of Philfinance. Unlike shares of stock,
money is a generic thing. It is designated merely by its class or genus without any particular designation or physical segregation
from all others of the same class.[22] This means that once a certain amount is added to the cash balance, one can no longer
pinpoint the specific amount included which then becomes part of a whole mass of money.
It thus became impossible to identify the exact proceeds of the sale of the CSPI shares since they could no longer be
particularly designated nor distinctly segregated from the assets of Philfinance. Petitioners only remedy was to file a claim on the
whole mass of these assets, to which unfortunately all of the other creditors and investors of Philfinance also had a claim.
Petitioners right of action against Philfinance was a claim properly to be litigated in the liquidation proceedings.
InFinasia Investments and Finance Corporation v. CA,[24] we discussed the definition of claims in the context of liquidation
proceedings:
[23]

We agree with the public respondent that the word claim as used in Sec. 6(c) of P.D. 902-A, [25] as amended,
refers to debts or demands of a pecuniary nature. It means "the assertion of a right to have money paid. It is used in
special proceedings like those before [the administrative court] on insolvency."

The word "claim" is also defined as:

Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an
equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, unsecured.[26]

Undoubtedly, petitioner had a right to the payment of the value of his shares. His demand was of a pecuniary nature
since he was claiming the monetary value of his shares. It was in this sense (i.e. as a claimant) that he was a creditor of
Philfinance.
The Civil Code provisions on concurrence and preference of credits are applicable to the liquidation proceedings. [27] The
next question is, was petitioner a preferred or ordinary creditor under these provisions?
Petitioner argues that he was a preferred creditor because private respondents illegally withdrew his CSPI shares from
the custodian banks and sold them without his knowledge and consent and without authority from the SEC. He quotes Article 2241
(2) of the Civil Code:
With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
xxx

xxx

xxx

(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the
performance of their duties, on the movables, money or securities obtained by them;
xxx
xxx
xxx
(Emphasis supplied)
He asserts that, as a preferred creditor, he was entitled to the entire monetary value of his shares.
Petitioners argument is incorrect. Article 2241 refers only to specific movable property. His claim was for the payment of
money, which, as already discussed, is generic property and not specific or determinate.
Considering that petitioner did not fall under any of the provisions applicable to preferred creditors, he was deemed an
ordinary creditor under Article 2245:
Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy
no preference.
This being so, Article 2251 (2) states that:
Common credits referred to in Article 2245 shall be paid pro rata regardless of dates.
Like all the other ordinary creditors or claimants against Philfinance, he was entitled to a rate of recovery of only 15% of his money
claim.
One final issue: was petitioner entitled to interest?
The SEC argues that awarding interest to petitioner would have given petitioner an unfair advantage or preference over
the other creditors.[28] Petitioner counters that he was entitled to 12% legal interest per annum under Article 2209 of the Civil Code
from the time he was deprived of the shares until fully paid.

The guidelines for awarding interest were laid down in Eastern Shipping Lines, Inc. v. CA:[29]

I.
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable damages.

II.
With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:

1.
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the

rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the
court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged.

3.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
[30]
(Emphasis supplied)

Under this ruling, petitioner was not entitled to legal interest of 12% per annum (from demand) because the amount owing to
him was not a loan[31] or forbearance of money.[32]

Neither was he entitled to legal interest of 6% per annum under Article 2209 of the Civil Code [33] since this provision applies
only when there is a delay in the payment of a sum of money. [34] This was not the case here. In fact, petitioner himself manifested
before the CA that the SEC (as liquidator) had already paid him P5,062,500 representing 15% of P33,750,000.[35]

Accordingly, petitioner was not entitled to interest under the law and current jurisprudence.

Considering that petitioner had already received the amount of P5,062,500, the obligation of the SEC as liquidator of
Philfinance was totally extinguished.[36]

We note that there is an undisputed finding by the SEC and CA that private respondents sold the subject shares without authority
from the SEC. Petitioner evidently has a cause of action against private respondents for their bad faith and unauthorized acts, and the
resulting damage caused to him.[37]
WHEREFORE, the petition is hereby DENIED.

SO ORDERED.