ESTANISLAUA ARENAS V.

FAUSTO RAYMUNDO
G.R. No. L-5741
March 13, 1911
Art 2085: Requisites of Contract of Pledge and Mortgage
Doctrine: Pledger must be owner of the thing to be pledged
FACTS:
Between end-April or early May 1908, Estanislaua Arenas delivered
jewelry (gold ring, gold bracelet, gold earring, ladys comb and 2
rosaries, valued at Php 8,600) to her agent Elena de Vega, to be sold
on commission. De Vega delivered it to Concepcion Perello. Instead of
selling the jewelry, Perello pledged the same in the Tondo pawnshop
of respondent Fausto Raymundo, as security for a loan, without the
knowledge or consent of Arenas. Raymundo received the jewelry in
good faith.
Raymundo retained possession of the jewelry and refused to deliver
the same unless payment of loan amount was made. He argues the
pledge was made with the knowledge of Arenas son, Gabriel La O.
Perello was convicted of estafa in a separate case and was unable to
redeem the jewelry by paying the loan amount of Php 1,524.
On 1908 August 31, Arenas filed an action for replevin (recovery of
personal property) of the jewelry. The court ordered Raymundo to
restore the jewelry to Arenas. Raymundo filed an answer praying the
amount of the loan, or jewelry be returned.
ISSUE: WON Raymundo may collect value of loan out of value of
pledged jewelry
HELD: NO
1. There was no contract of pledge. Raymundo has no right over
the jewelry
Ratio: Art 2085 prescribes, as an essential requisite, that the thing
pledged or mortgaged must belong to the person who
pledges/mortgages the same.
Perello was not the owner of the jewelry pledged and legitimate owner
Arenas had no knowledge/consent of the pledging of the jewelry at
Raymundos pawnshop. Even if Raymundo acted in good faith, he was
not entitled to retain the same
Lacking an essential requisite, the pledge is void and cannot confer
upon Raymundo any right over the pledged jewelry. The jewelry cannot
serve as security for Perellos loan. Similarly, no obligation is imposed
on Arenas to reimburse Raymundo for the loan value since no
contractual obligation was created and was even deprived possession
of such jewelry via a criminal act.
Other discussion:
Nature of Pawnshop Business Court will not prefer pawnshop owner
over rightful owners

Pawnshop owners are exposed to the risk of receiving

stolen/embezzled goods as security for loans.

Pawnshop owner, in receiving such goods, cant expect

preferential
treatment
of
law
over
owners
of
stolen/embezzled goods who were wrongfully deprived of the
same thru crime

Raymundo may bring action to collect amounts against the property

party

Old Civil Code: Perello, who was convicted of estafa, can

also be held civilly liable by reason of her conviction in a
criminal case
UNION MOTOR CORP v. CA
GR No. 117187
July 20, 2001

FACTS:
Spouses Bernal purchased from Union Motor one Cimarron jeepney.
The spouses issued a promissory note and a deed of chattel
mortgage in favor of Union Motor. Union Motor then assigned the
promissory note and deed of chattel mortgage to Jardine-Manila
Finance, Inc. Through Unions agent Sosmea, spouses Bernal and
Union agreed that the spouses would pay Jardine, the assignee.
Spouses Bernal paid the obligation in installments and discontinued
their payment on the account of the non-delivery of the vehicle.
According to the spouses, Sosmea allegedly took the jeepney in his
personal capacity.
Jardine-Manila filed a complaint for sum of money. RTC rendered
decision in favor of the spouses Bernal. CA affirmed RTC decision.
ISSUE:
Whether or not the Chattel Mortgage Contract signed by the Bernal
Spouses proves that the ownership of the subject motor vehicle has
already been transferred to them for the reason that under Art 2085 of
the New Civil Code, the mortgagor must be the owner of the property.
HELD:
Union Motor reliance on the Chattel Mortgage Contract executed by
the respondent spouses does not helps its assertion that ownership
has been transferred to the latter since there was neither delivery nor
transfer of possession of the subject motor vehicle to respondent
spouses. Consequently, the said accessory contract of chattel
mortgage has no legal effect whatsoever inasmuch as the respondent
spouses are not the absolute owners thereof, ownership of the
mortgagor being an essential requirement of a valid mortgage contract.
The respondent spouses never acquired possession of the subject
motor vehicle. The manifestations of ownership are control and
enjoyment over the thing owned. The respondent spouses never
became the actual owners of the subject motor vehicle inasmuch as
they never had dominion over the same.
DBP v. Prudential Bank
G.R. No. 143772
November 22, 2005
FACTS:

Lirag Textile Mills, Inc. (Litex) opened a commercial letter of

credit with respondent Prudential Bank for US$498,000 in
connection with its importation of 5,000 spindles for spinning
machinery. These were machineries were released to Litex
under covering "trust receipts" it executed in favor of
Prudential Bank. Litex, then, installed the items in its textile
mill located in Montalban, Rizal.

DBP granted a foreign currency loan in the amount of

US$4,807,551 to Litex. As security for the loan, Litex
executed real estate and chattel mortgages on its textile mill
in favour of DBP. The mortgages include the buildings and
other improvements, machineries and equipments and
among them were the articles covered by the "trust receipts."
Litex failed to pay its obligation so DBP extra-judicially
foreclosed on the real estate and chattel mortgages,
including the articles claimed by Prudential Bank. During the
foreclosure sale, DBP acquired the foreclosed properties as
the highest bidder.
When Prudential Bank learned of the invitation to bid in a
public auction, it wrote to DBP reasserting its claim over the
items covered by "trust receipts" and advising DBP not to
include them in the auction. It also demanded the turn-over
of the articles or alternatively, the payment of their value.
In reply to Prudential Banks letter, DBP requested
documents to enable it to evaluate Prudential Banks claim to
which Prudential Bank complied. However, there was no
action on the part of DBP and without the knowledge of
Prudential Bank, it sold the Litex textile mill, as well as the
machineries and equipments, to Lyon Textile Mills, Inc.
(Lyon).

ISSUE: Can Litex validly mortgage the machineries covered by trust

receipts executed in favour of Prudential Bank? NO.
HELD:

Under the trust receipt agreement, the machineries were owned

by Prudential Bank and they were only held by Litex in trust. While
it was allowed to sell the items, Litex had no authority to dispose
of them or any part or their proceeds through conditional sale,
pledge or any other means.

Article 2085 requires that, in a contract of pledge or mortgage, it is

essential that the pledgor or mortgagor should be the absolute
owner of the thing pledged or mortgaged and that the person
constituting the pledge or mortgage must have the free disposal of
his property, and in the absence thereof, that he be legally
authorized for the purpose.

Litex had neither absolute ownership, free disposal nor the

authority to freely dispose of the articles. Their inclusion in the
mortgage was void and had no legal effect. There being no valid
mortgage, there could also be no valid foreclosure or valid auction
sale. Thus, DBP could not be considered either as a mortgagee
or as a purchaser in good faith.

No one can transfer a right to another greater than what he

himself has. Nemo dat quod non habet. Hence, Litex could not
transfer a right that it did not have over the disputed items.
Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. DBP merely stepped into the shoes
of Litex as trustee of the imported articles with an obligation to pay
their value or to return them on Prudential Banks demand. By its
failure to pay or return them despite Prudential Banks repeated
demands and by selling them to Lyon without Prudential Banks
knowledge and conformity, DBP became a trustee ex maleficio
(a person treated as a trustee because guilty of wrongdoing;
trustee of a trust arising by operation of law from a wrongful
acquisition)

CAVITE DEVELOPMENT vs. SPOUSES LIM

G. R. No. 131679
February 1, 2000
FACTS:
One Rodolfo Guansing obtained a loan in the amount of
P90,000.00 from Cavite Development Bank (CDB). As a security, he
mortgaged a parcel of land situated La Loma, Quezon City and
covered by TCT No. 300809 registered in his name. Guansing
defaulted on the payment of the loan, which led CDB to foreclose the
mortgage and later on emerged as the highest bidder and
subsequently, the owner of the lot after Guansing failed to redeem the
same.
The Spouses Lim, through a broker, offered to purchase the
property from CDB. The formal written offer stated a payment of
P30,000 (10% of P300,000) as option money, provided that the land
be cleared of illegal occupants. For payment of the option money, CDB
issued an official receipt. However, after following up on the sale, Lim
discovered that the original owner of the land is PERFECTO
GUANSING, the father of Rodolfo. In a civil case instituted by Perfecto
for the cancellation of Rodolfos title, the Supreme Court adjudged
Perfecto as the real owner after proving that Rodolfo fraudulently
obtained it. Thus, Rodolfos title was cancelled and a new one was
issued to Perfecto.
Aggrieved, the Spouses Lim instituted an action for specific
performance and damages questioning the ability of CDB, and its
mother company Far East Bank and Trust Company (FEBTC), to sell
the subject property.
The Regional Trial Court rendered a decision in favor of the
Spouses Lim, which was affirmed by the Court of Appeals.
ISSUES:
(1) What is the legal relation between the parties?
(2) Whether or not Rodolfo Guansing/CDB was the absolute owner of
the subject property as required under Art. 2085 to effect a valid
mortgage/sale?
(3) Whether or not CDB is a mortgagee in good faith?
HELD:
(1) The parties entered into a CONTRACT OF SALE.

The formal written offer of the Spouses Lim was

accepted by CDB.

The Spouses Lim paid the option money, which left only
the balance of the purchase price to be paid.

In the Law on Sales, one does not need to be the owner

at the perfection of the contract.

HOWEVER, NEMO DAT QUOD NON HABET [One

cannot give what he does not have].
At the
consummation stage, it was impossible for CDB to
comply with its legal obligation.
(2) NO. The sale by CDB to Lim of the property mortgaged in
1983 by Rodolfo Guansing must, therefore, be deemed a
nullity for CDB did not have a valid title to the said property.

CDB never acquired a valid title to the property because

the foreclosure sale, by virtue of which the property had
been awarded to CDB as highest bidder, is likewise void
since the mortgagor was not the owner of the property
foreclosed

(3)

A forced sale is still a sale within the contemplation of

the law. Thus, the principle that the seller must be the
owner of the thing sold also applies.

NO. CDB cannot be considered as a mortgagee in good faith.

CDB was remiss in its duty as bank and failed to

exercise the due diligence required of it. In short, CDB
was negligent.

Citing jurisprudence, it is standard practice for banks,

before approving a loan, to send representatives to
the premises of the land offered as collateral and to
investigate who are the real owners thereof, noting
that banks are expected to exercise more care and
prudence than private individuals in their dealings, even
those involving registered lands, for their business is
affected with public interest

No evidence to the contrary.

o
Extrajudicial Settlement of the Estate With
Waiver, a self-executed deed by Rodolfo,
should have placed CDB on guard.
o
Report of the purported ocular inspection by
its representatives was never admitted into
evidence.

DE LEON V CALALO
FACTS:
This case was brought below by respondent Eduardo Calalo for the
annulment of the mortgage executed by his brother, Augorio Calalo, in
favor of petitioner Roberto de Leon covering a piece of land and the
improvements thereon, consisting of a residential house and a
commercial building located at 45/4th Street, East Tapinac, Olongapo
City. Respondent Eduardo alleged that he was the owner of the
property mortgaged, having bought it for P306,000.00 from the
spouses Federico and Marietta Malit on September 13, 1984. He
claimed that, as he was then a member of the merchant marines and
stayed abroad, the Deed of Absolute Sale covering the land was made
in favor of his brother, Augorio Calalo; that on April 8, 1985, Augorio
executed a Deed of Donation in favor of the minor Julsunthie Calalo,
herein respondents son, who, from the time the property was
purchased until the filing of the complaint, had been receiving the fruits
of the property; that on September 14, 1988, Augorio mortgaged the
said property to petitioner Roberto de Leon without his [respondents]
knowledge and consent; that the mortgage was amended on
September 30, 1988; that Augorio did not have any right to mortgage
the property because he was not the owner thereof; and that he
(respondent Eduardo) learned only in June 1992 that the property was
the subject of an extrajudicial foreclosure. Named defendants in the
action were petitioner Roberto de Leon, Augorio Calalo and Benjamin
Gonzales, the sheriff conducting the foreclosure proceeding.
In due time, petitioner De Leon filed an answer in which he claimed to
be a mortgagee in good faith, having previously ascertained the
ownership of Augorio who occupied and possessed the land in
question and in whose name the land was registered in the Register of
Deeds and in various other documents. He pointed out that even the
deed of sale attached to respondents complaint showed that the land
was in Augorios name, clearly proving that the latter owned the

property. Petitioner De Leon averred that the mortgage in his favor was
registered with the Register of Deeds and that it had been amended
four times.
ISSUE: W/N the mortgage executed by Augorio Calalo in favor of
petitioner De Leon is valid.
HELD:
There is no dispute that the land subject of the mortgage is titled in the
name of Augorio Calalo. Nor is there any question that petitioner De
Leon did not know of the claim of ownership of respondent Eduardo
Calalo until after the present action was instituted. As the trial court
found, petitioner De Leon examined the relevant documents pertaining
to the land, consisting of the transfer certificate of title, the tax
declarations in the City Assessors Office and information on the
records in the barangay, and found that the land was registered in the
name of Augorio Calalo. Upon due inspection of the property, he also
found it to be occupied by Augorio Calalo. Petitioner had no reason to
believe that the land did not belong to Augorio. Persons dealing with
property covered by a torrens certificate of title, as buyers or
mortgagees, are not required to go beyond what appears on the face of
the title. The public interest in upholding the indefeasibility of torrens
titles, as evidence of the lawful ownership of the land or of any
encumbrance thereon, protects buyers or mortgagees who, in good
faith, rely upon what appears on the face of the certificate of
title.4 Petitioner De Leon is a mortgagee in good faith.
Whether the money used in acquiring the property from the original
owners came from respondent Eduardo Calalo and the title to the
property was placed in the name of his brother Augurio Calalo only
because respondent thought he was not qualified to acquire lands in
the Philippines because he had become an American citizen, and that
the land was subsequently donated to respondent Eduardos son,
Julsunthie, are matters not known to petitioner. Hence, whether
Augorio Calalo committed a breach of trust and whether the property
was validly donated to petitioners son Julsunthie are questions which
must be resolved in a separate proceeding.
CEBU INTERNATIONAL v CA

Ang Tay, Dy => Ong -> Cebu International

Asiatic
FACTS:
Jacinto Dy executed a Special Power of Attorney in favor
of private respondent Ang Tay, authorizing the latter to sell the
cargo vessel owned by Dy and christened LCT "Asiatic."
Through a Deed of Absolute Sale, Ang Tay sold the subject vessel
to Robert Ong (Ong). Ong paid the purchase price by issuing
three (3) checks However, since the payment was not made in
cash, it was specifically stipulated in the deed of sale that the
"LCT Asiatic shall not be registered or transferred to Robert Ong
until complete payment." Thereafter, Ong obtained possession of
the subject vessel so he could begin deriving economic benefits
therefrom. He, likewise, obtained copies of the unnotarized deed
of sale allegedly to be shown to the banks to enable him to
acquire a loan to replenish his (Ong's) capital. The aforequoted
condition, however, which was handwritten on the original deed of
sale does not appear on Ong's copies.

Contrary to the aforementioned agreements and without the

knowledge of Ang Tay, Ong had his copies of the deed of sale (on
which the aforementioned prohibition does not appear) notarized
Ong presented the notarized deed to the Philippine Coast Guard
which subsequently issued him a Certificate of Ownership and a
Certificate of Philippine Register over the subject vessel. Ong also
succeeded in having the name of the vessel changed to LCT
"Orient Hope."
Ong acquired a loan from Cebu International Finance Corporation
to be paid in installments as evidenced by a promissory note of
even date.-As security for the loan, Ong executed a chattel
mortgage over the subject vessel, which mortgage was registered
with the Philippine Coast Guard and annotated on the Certificate
of Ownership
Ong defaulted in the payment of the monthly installments.
Consequently, Cebu International Finance Corporation sent him a
letter demanding delivery of the mortgaged vessel for foreclosure
or in the alternative to pay the balance pursuant to paragraph 11
of the deed of chattel mortgage.-Meanwhile, the two checks paid
by Ong to Ang Tay for the Purchase of the subject vessel
bounced. Ang Tay's search for the elusive Ong and all attempts to
confer with him proved to be futile. A subsequent investigation
and inquiry with the Office of the Coast Guard revealed that the
subject vessel was already in the name of Ong, in violation of the
express undertaking contained in the original deed of sale.-As a
result thereof, Ang Tay and Jacinto Dy filed a civil case for
rescission and replevin with damages against Ong and his wife.The trial court issued a writ of replevin and the subject vessel was
seized and subsequently delivered to Ang Tay.- Cebu International
filed a motion for intervention but withdrew the same. Instead,
Cebu International filed a separate case for replevin and damages
against Ong and "John Doe" (Ang Tay).
The trial court granted petitioner's prayer for replevin. The vessel
was seized and placed in the custody of the trial court. However,
Ang Tay posted a counterbond and the vessel was returned to his
possession.

TC: In favor of Ang Tay and Jacinto Dy. The sale of the subject vessel
was rescinded, the registration of the vessel withthe Office of the Coast
Guard and other government agencies in Ong's name nullified and the
vessel's registration inDy's name revived. Ong was, likewise, ordered to
pay Jacinto Dy and Ang Tay actual damages for lost income,moral
damages, attorney's fees and litigation expenses.
CA: Affirmed in toto TCs decision.
ISSUE: Whether or not Cebu International Finance Corporation is a
mortgagee in good faith whose lien over the mortgaged vessel should
be respected.
HELD:
The chattel mortgage constituted on a vessel by the buyer who
was able to register the vessel in his name despite the agreement
with the seller that the vessel would not be so registered until after
full payment of the price which do not appear in the buyers copy
of the deed of sale is VALID, for the mortgagee has the right to
rely in good faith on the certificate of registration.-The prevailing
jurisprudence is that a mortgagee has a right to rely in good faith
on the certificate of title of the mortgagor to the property given as
security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation.

Hence, even if the mortgagor is not the rightful owner of or does

not have a valid title to the mortgaged property, the mortgagee or
transferee in good faith is nonetheless entitled to protection.
Although this rule generally pertains to real property, particularly
registered land, it may also be applied by analogy to personal
property, in this case specifically, since ship owners are, likewise,
required by law to register their vessels with the Philippine Coast
Guard.

Erea v. Querrer-Kauffman
GR No. 165853
June 22, 2006
Facts:
Dana Querrer-Kauffman is the owner of a residential lot with a house in
BF Resort Village in Las Pias City. The property is covered by TCT
No. T-48521. The owner's duplicate copy and the tax declarations
covering the property were kept in a safety deposit box in the house.
Sometime in 1997, Kauffman entrusted her minor daughter, Vida Rose,
and the key to the house to her live in partner, Eduardo Victor, as she
will go to the United States. After a while, both Vida Rose and Victor
also left for the US. Victor then entrusted the key to his sister, Mira
Bernal.
Kauffman then asked her sister Evelyn Pares to get the house from
Bernal so that she can sell it. She sent the key to the safety deposit
box. Pares wasn't able to receive it and thus they hired a professional
locksmith to open it. Upon opening, Pares discovered that the owner's
duplicate title, tax declarations and pieces of jewelry were missing.
Learning this incident, Kauffman immediately returned to the
Philippines. She and Pares went to the Register of Deeds of Las Pias
and they found out that the lot has been mortgaged to a certian
Rosana Erea. It appeared that Kauffman signed a real estate
mortgage as owner-mortgagor and Jennifer Ramirez as atty-in-fact.
Kauffman and Pares were able to locate Bernal. Bernal confirmed that
Ramirez, daughter of Victor, had taken the contents of the safety
deposit box. Using the key entrusted to them by Victor, they were able
to open the house and they forced open the deposit box and stole the
said items. Having in their possession the title, they forged the
signature of Kauffman through an impostor and made a Real Estate
Mortgage in favor of Erea. When Kauffman told Bernal that she would
file suit, Bernal cried and asked for forgiveness. She admitted that
Ramirez had been in a tight financial fix and pleaded for time to return
the title and the jewelry.
Kauffman however still filed a complaint against Erea, Bernal and
Ramirez for the nullification of Real Estate Mortgage and Damages.
Erea countered that she was a mortgagee in good faith.
Issue: Whether or not the Real Estate Mortgage is valid
Held: No. According to Article 2085 (2), a pledgor or mortgagor has to
be absolute owner of the thing pledged or mortgaged for a contract of
pledge and mortgage to be valid. Both the trial court and the appellate
courts found that Kauffman is the true owner of the property and that
the signatures on the Special Power of Attorney and Real Estate
Mortgage are not her genuine signatures. The evidence on record
shows that Ramirez and her husband used an impostor who claimed
she was the owner of the property. This impostor was the one who

signed the Real Estate Mortgage and showed to Erea the owner's
duplicate copy of the title.
When the instrument presented for registration is forged, even if
accompanied by the owner's duplicate title, the registered owner does
not lose his title and neither does the mortgagee acquire any right to
the property. In such case, the mortgagee based on a forged
instrument is not even a purchaser or a mortgagee for value protected
by law. Erea is not a mortgagee in good faith. The doctrine of
mortgagee in good faith does not apply to a situation where the title is
still in the name of the rightful owner and the mortgagor is a different
person pretending to be the owner. In such case, the mortgagee is not
an innocent mortgagee for value and the registered owner will
generally not lose his title.

PNB v AGUDELO
FACTS:

On Nov. 9, 1920, Paz Agudelo executed a special power of attorney(Exhibit

K) in favor of her nephew, Mauro Garrucho

In the said SPA, Garrucho is able to sell alienate and mortgage in

whatever manner or form he might deem convenient,
all Agudelos properties in Murcia and Bacolod, Negros
Occidental

On Dec. 22, 1920, Amparo Garrucho executed a special power of

attorney (Exhibit H) wherein she enabled her brother, Mauro, to
sell, alienate, mortgage or otherwise encumber all her properties
in Murcia and Bago, Negros Occidental

However, nothing in the said SPAs expressly authorized Mauro A.

Garrucho to contract any loan nor to constitute a mortgage on the
properties belonging to the respective principals, to secure his
obligations

On Dec. 23, 1920, a document (Exhibit G) was executed by

Mauro in favor of Philippine National Bank (PNB) whereby he
constituted a mortgage on Lot No. 878 under Amparo A.
Garrucho, to secure the payment of credits, loans, commercial
overdrafts, etc., not exceeding P6,000, together with interest
thereon, which he might obtain from PNB, issuing the
corresponding promissory note to that effect

For the years 1921 and 1922, Mauro maintained a personal credit account with
PNB

On Aug. 24, 1921, Mauro executed another document (Exhibit J) in

PNBs favor whereby he constituted a mortgage on Agudelos 2
lots, including the buildings and improvements to secure the
payment of credits, loans and commercial overdrafts which the
said bank might furnish him to the amount of P16,000, payable on
August 24, 1922, executing the corresponding promissory note to
that effect.

Said mortgage contracts and promissory notes were executed by

Mauro in his own name and signed by him in his personal
capacity, authorizing PNB to take possession of the mortgaged
properties, by means of force if necessary, incase he failed
to comply with any of the conditions stipulated therein

Thereafter, PNB notified Mauro of his promissory note within

which to make a payment

Eventually, Mauros commercial credit was closed starting May 22, 1922

PNB manager requested Mauro to liquidate his account

amounting to P15,148.15, at the same time notifying him thathis
promissory note for P16,000 giving as security for the commercial overdraft in
question, had fallen due

As a result, another mortgage contract (Exhibit C) was executed

by Mauro in PNBs favor over Agudelos lot in Bacolod and Murcia
Mauro incurred credits and loans for a total of P21,000. A new
promissory note was executed for P21,000, thereby novating the first
2 notes
Sometime 1925, Amparo sold Lot 878 (which was under exhibit G) to
Paz Agudelo (Exhibit M).
An affidavit (Exhibit N) was likewise signed by Paz Agudelo which
states: xxx do hereby agree and consent to thetransfer in my
favor of lot No. 878 of the Cadastre of Murcia, Occidental Negros,
P. I., by Miss Amparo A. Garrucho, asevidenced by the public
instrument dated November 25, 1925, executed before the notary
public Mr. Genaro B.Benedicto, and do hereby further agree to the
amount of the lien thereon stated in the mortgage deed executed
by Miss Amparo A. Garrucho in favor of the Philippine National
Bank.
Pursuant to the said sale, the property and title was transferred in Pazs name
CFI Ruling: Absolved Mauro from the complaint; Paz Agudelo is
ordered to pay PNB

ISSUE: W/N the powers of attorney issued in Mauro Garruchos favor to

mortgage their respective real estate, authorized him to obtain loans
secured by mortgage in the properties in question?
RULING: NO

Art. 1709 of the Civil Code states that by the contract of agency,
one person binds himself to render some service, or to do
something for the account or at the request of another

On the other hand, Art. 1717 states that when an agent acts in his
own name, the principal shall have no right of action against the
persons with whom the agent has contracted, or such persons
against the principal. In such case, the agent is directly liable to
the person with whom he has contracted, as if the transaction
were his own. Cases involving things belonging to the principal
are excepted xxx

There is nothing in the mortgage deeds to show that Mauro A.

Garrucho is attorney in fact of Amparo and Paz, and that he
obtained the loans mentioned in the aforesaid mortgage deeds
and constituted said mortgages as security for the payment of
said loans, for the account and at the request of said Amparo A.
Garrucho and Paz Agudelo

Mauros transactions with PNB appears to have been acted in his

personal capacity

In the mortgage deeds, Mauro appears to have acted in his

personal capacity. In his capacity as mortgage debtor,
heappointed the mortgage creditor PNB as his attorney in fact so
that it might take actual and full possession of themortgaged
properties by means of force in case of violation of any of the
conditions stipulated in the respectivemortgage contracts

As held in National Bank vs. Palma Gil, a mortgage on real

property of the principal not made and signed in the name ofthe
principal is not valid as to the principal.

If Mauro A. Garrucho acted in his capacity as mere attorney in fact

of Amparo A. Garrucho and of Paz Agudelo, he couldnot delegate
his power, in view of the legal principle of "delegata potestas
delegare non potest" (a delegated powercannot be delegated),
inasmuch as there is nothing in the records to show that he has
been expressly authorized to do so

Also, he executed the promissory notes evidencing the aforesaid

loans, under his own signature, without authority fromhis principal

and, therefore, were not binding upon the latter. There was no
showing that the loan obtained was for hisprincipal
What really happened was Mauro obtained such credit for himself
in his personal capacity and secured the paymentthereof by
mortgage constituted by him in his personal capacity, although on
properties belonging to his principal
Thus, Mauro exceeded his scope of his authority and the principal
is not liable for his acts
In conclusion, when an agent negotiates a loan in his personal
capacity and executes a promissory note under his ownsignature,
without express authority from his principal, giving as security
therefor real estate belonging to the letter, alsoin his own name
and not in the name and representation of the said principal, the
obligation do constructed by him ispersonal and does not bind his
aforesaid principal.

Vda. DE JAYME v CA
FACTS:
Spouses Jayme (P) are the registered owners of a parcel of
land. They entered into a contract of lease with Asian Cars
(R) covering half of the lot for 20 years
The contract allows R to mortgage the property as long as
the proceeds will be for the construction of a building on the
land.
R mortgaged the property for P6M to MetroBank, covering
the whole lot, and in which P signed the documents. R also
executed an undertaking wherein the officers of R are liable
personally to the mortgage
R defaulted and MetroBank foreclosed the property.
P filed for annulment of mortgage as it was acquired through
fraud
RTC and CA declared the mortgage and undertaking valid
ISSUE: WON Mortgage allowing R to mortgage the property was valid
SC: YES
It has long been settled that it is valid so long as valid
consent was given. In consenting thereto even granting that
petitioner may not be assuming personal liability for the debt,
her property shall nevertheless secure and respond for the
performance of the principal obligation
The law recognizes instances when persons not directly
parties to a loan agreement may give as security their own
properties for the principal transaction.
In this case, the spouses should not be allowed to disclaim
the validity of a transaction they voluntarily and knowingly
entered into for the simple reason that such transaction
turned out prejudicial to them later on.
Records show that P voluntarily agreed to use their property
as collateral for Rs loan, hence, no fraud
The undertaking made by R and its officers are valid, hence
they are liable to reimburse P for the damages they suffered
by reason of the mortgage
Belo vs Philippine National Bank
G.R. No. 134330
March 1, 2001
Art. 2085: Third persons who are not parties to the principal obligation
may secure the latter by pledging or mortgaging their own property.
FACTS:

Eduarda Belo owned an agricultural land (661,288) square

meters located in Timpas, Panitan, Capiz. She leased a portion of the
said tract of land to spouses Marcos and Arsenia Eslabon for their
sugar plantation business, effective for 7 years at a rate of 7,000 pesos
per year. To finance their business venture, spouses Eslabon obtained
a loan from Philippine National Bank (PNB) secured by a real estate
mortgage on their own 4 residential houses in Roxas City, as well as on
the agricultural land owned by Eduarda Belo. The assent of Eduarda
Belo to the mortgage was acquired through a special power of attorney
which she executed in favor of respondent Marcos Eslabon on June
15, 1982.
Spouses Eslabon failed to pay their loan resulting to the
extrajudicial foreclosure proceedings against the mortgaged properties
instituted by respondent PNB. PNB was the highest bidder of the
foreclosed properties at P447,632.00.
PNB through a letter informed Eduarda Belo of the sale at public
auction of her agricultural land on June 10, 1991 as well as the
registration of the Certificate of Sheriffs Sale in its favor on July 1,
1991, and the one-year period to redeem the land
Meanwhile, Eduarda Belo sold her right of redemption to
petitioners spouses Enrique and Florencia Belo (petitioners) under a
deed of absolute sale of proprietary and redemption rights. Before the
expiration of the redemption period, petitioners spouses Belo
tendered payment for the redemption of the agricultural land in the
amount of P484,482.96, including the bid price of PNB, plus interest
and expenses as provided under Act No. 3135, which subsequently
was rejected by PNB contending that the redemption price should be
the total claim of the bank on the date of the auction sale and custody
of property plus charges accrued and interests amounting to
P2,779,978.72. Petitioners spouses disagreed and refused to pay the
said total claim of respondent PNB.

ISSUES:
1) Whether or not the SPA, the real estate mortgage
contract, the foreclosure proceedings and the
subsequent auction sale involving Eduarda Belos
property are valid.
2) Whether or not the Sps Belo should pay all the claims of
PNB (P2,779,978.72) instead of only the amount of the bid
price plus interests (P484,482.96) on Eduarda Belos
property.
HELD:
1) YES.
(discussion of the validity of the real estate mortgage only as relevant
to the topic)
It is stipulated in paragraph three (3) of the SPA that Eduarda
Belo consented to have her land mortgaged for the benefit of the
respondents spouses Eslabon. The SPA was not meant to make her a
co-obligor to the principal contract of loan between respondent PNB, as
lender, and the spouses Eslabon, as borrowers. The accommodation
real estate mortgage over her property, which was executed in favor of
PNB by the spouses Eslabon, in their capacity as her attorneys-in-fact
by virtue of her SPA, is merely an accessory contract.

The SPA form of the PNB was utilized to authorize the spouses
Eslabon to mortgage Eduarda Belos land as additional collateral of the
Eslabon spouses loan from respondent PNB. Besides, Eduarda Belo
benefited, in signing the SPA, in the sense that she was able to collect
the rentals on her leased property from the Eslabons.
An accommodation mortgage is not necessarily void simply
because the accommodation mortgagor did not benefit from the
same. The validity of an accommodation mortgage is allowed
under Article 2085 of the New Civil Code which provides that third
persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property. An
accommodation mortgagor, ordinarily, is not himself a recipient of
the loan, otherwise that would be contrary to his designation as
such. It is not always necessary that the accommodation mortgagor be
appraised beforehand of the entire amount of the loan nor should it first
be determined before the execution of the SPA.

PNB further contends that to allow petitioners to redeem only the

property belonging to their assignor, Eduarda Belo, would violate the
principle of indivisibility of mortgage contracts. We disagree.
With reference to Article 2089 of the Civil Code of the
Philippines, there is no dispute that the mortgage on the four (4)
parcels of land by the Eslabon spouses and the other mortgage on the
property of Eduarda Belo both secure the loan obligation of
respondents spouses Eslabon to respondent PNB. However, the Court
is not persuaded by the contention of the PNB that the indivisibility
concept applies to the right of redemption of an accommodation
mortgagor and her assignees.

Bustamante vs. Spouses Rosel

GR 126800, November 29, 1999
FACTS

Fourth, the courts a quo correctly held that the letter of Eduarda
Belo addressed to respondent PNB manifesting her intent to redeem
the property is a waiver of her right to question the validity of the SPA
and the mortgage contract as well as the foreclosure and the sale of
her subject property.

2)

NO.

Section 78 of the Genral Banking Act, as amended, and Sec.

25 PD No. 694 (providing that right to redeem of mortgagors are
subject only to paying all claims of the Bank against them) are
inapplicable to accommodation mortgagors in the redemption of their
mortgaged properties.
PNB has no claim against accommodation mortgagor
Eduarda Belo inasmuch as she only mortgaged her property to
accommodate the Eslabon spouses who are the loan borrowers of the
PNB. The principal contract is the contract of loan between the
Eslabon spouses, as borrowers/debtors, and the PNB as lender. The
accommodation real estate mortgage (which secures the loan) is only
an accessory contract. The Court holds that the term mortgagor in
Section 25 of P.D. No. 694 pertains only to a debtor-mortgagor and not
to an accommodation mortgagor.
Moreover, the mortgage contract explicitly provides that
mortgagee may immediately foreclose this mortgage judicially in
accordance with the Rules of Court or extrajudicially in accordance
with Act No. 3135, as amended and Presidential Decree No. 385
While the petitioners, as assignees of Eduarda Belo, are not
required to pay the entire claim of respondent PNB against the
principal debtors, spouses Eslabon, they can only exercise their right of
redemption with respect to the parcel of land belonging to Eduarda
Belo, the accommodation mortgagor. Thus, they have to pay the bid
price less the corresponding loan value of the foreclosed four (4)
residential lots of the spouses Eslabon.

On March 9, 1987, Norma Rosel entered into a loan

agreement with petitioner Natalia Bustamante wherein Norma Rosel
borrowed the sum of P100, 000 from the lender for a period of 2 years
with 18% interest per annum. As a guaranty to the payment thereof,
Rosel put as collateral 70 square meters of her lot situated along
Congressional Avenue. The agreement states that in the event the
borrower fails to pay, the lender has the option to buy or purchase the
collateral for P200, 000 inclusive of the amount borrowed and the
interest therein.
On March 1, 1989, petitioner tendered payment of the loan
which the respondents refused to accept. Respondents insisted on
petitioners signing a prepared deed of absolute sale of the collateral.
Respondents also filed with the RTC a complaint for specific
performance with consignation against the petitioner pursuant to the
option to buy embodied in the agreement. On the other hand, petitioner
also filed with the RTC a petition for consignation and deposited the
amount of P153, 000 with the City Treasurer. RTC ruled in favor of
petitioner. Court of Appeals reversed. Supreme Court affirmed the
decision of the CA so petitioner filed a motion for reconsideration
contending that the real intention of the parties to the loan was to put
up the collateral as guaranty similar to an equitable mortgage.
ISSUE
1. W/N petitioner failed to pay the load on maturity
2. W/N the stipulation in the loan contract was valid and enforceable
HELD
1. No
2. No
RATIONALE
1. The loan was due for payment on March 1, 1989. Petitioner tendered
payment to settle the loan which the respondents refused to accept.
After the refusal, petitioner consigned the amount with the trial court.
2. Upon scrutiny of the stipulation of the parties, it can be seen that it is
a subtle intention of the creditor to acquire the property given as
security for loan. This is in the nature of PACTUM COMMISORIUM and
is therefore VOID.

Elements of pactum commissorium

a. there should be a property mortgaged as security for a loan
b. there is 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.
Alcantara v. Alinea
FACTS

Alinea and Belarmino entered into a contract with Alcantara

where the defendants borrowed from the plaintiff the sum of
480 pesos, payable in January of said year 1905 under the
agreement that if, at the expiration of the said period, said
amount should not be paid it would be understood that the
house and lot owned by the said defendants be considered
as absolutely sold to the plaintiff for the said sum.

After the time for the payment of said sum has expired and
no payment has been made and the defendants refuse to
deliver to plaintiff the said property.

Therefore Alcantara filed a complaint in the Court of First

Instance of La Laguna, praying that judgment be rendered in
his behalf ordering the defendants to de liver to him the
house and lot claimed, and to pay him in addition thereto as
rent the sum of 8 pesos per month from February of that
year, and to pay the costs of the action.
ISSUE
1.
2.

Whether the contract is a pledge, mortgage, or antichresis.

NO to all
Whether the contract is valid?

RULING
1.

The contract is not a pledge, mortgage, or antichresis

The property does not appear mortgaged in favor of the creditor,

because in order to constitute a valid mortgage it is indispensable that
the instrument be registered in the Register of Property, in accordance
with article 1875 of the Civil Code, and the document of contract,
Exhibit A, does not constitute a mortgage, nor could it possibly be a
mortgage, for the reason of said document is not vested with the
character and conditions of a public instrument.
By the aforesaid document, Exhibit A, said property could not be
pledged, not being personal property, and notwithstanding the said
double contract the debtor continued in possession thereof and the
said property has never been occupied by the creditor.
Neither was there ever any contract of antichresis by reason of the
said contract of loan, as is provided in articles 1881 and those following
of the Civil Code, inasmuch as the creditor-plaintiff has never been in
possession thereof, nor has he enjoyed the said property, nor for one
moment ever received its rents.

charge in the nature and legal conditions of either contract, or any

essential defect which would tend to nullify the same.
No article of the Civil Code, under the rules or regulations of which
such double contract was executed, prohibits expressly, or by inference
from any of its provisions, that an agreement could not be made in the
form in which the same has been executed; on the contrary, article
1278 of the aforesaid code provides that "contracts shall be binding,
whatever may be the form in which they may have been executed,
provided the essential conditions required for their validity exist." This
legal prescription appears firmly sustained by the settled practice of the
courts.
The document of contract has been recognized by the defendant
Alinea and by the witnesses who signed same with him, being
therefore an authentic and efficacious document, in accordance with
article 1225 of the Civil Code; and as the amount loaned has not
been paid and continues in possession of the debtor, it is only
just that the promise of sale be carried into effect, and the
necessary instrument be executed by the vendees.
Mahoney v. Tuason
G.R. No. 14129
July 30, 1919

FACTS:
Counsel for D.J. Mahoney, receiver of the insolvency of P.
Blanc, prayed the Court of First Instance of Manila to cite Mariano
Tuason to appear and explain before the court the reason why he had
in his custody the jewels mentioned in the said petition, and after the
hearing, to order him, if proper, to deliver the said jewels to the
receiver, in order that they form part of the estate of the insolvent P.
Blanc.
Mariano Tuason guaranteed in favor of the insolvent P. Blanc,
the credit which the Chartered Bank of India, Australia and China had
granted to said P. Blanc. In order to guarantee the said security, P.
Blanc gave as pledge the jewels to Mariano Tuason. P. Blanc did not
pay the debt due to the bank, wherefore Tuason had to pay and did in
fact pay to the said bank the entire debt owed by P. Blanc.
In the private document containing the contract of pledge
appears the express agreement that if Blanc should fail to comply with
the obligations stipulated, among other things, that of paying one
thousand pesos (P1,000) monthly in advance beginning from June,
1913, till his debt shall have been paid together with the stipulated
interests and the interests paid to the bank, the creditor would be
entitled to retain the jewels and other thing given in pledge to the said
creditor in an amount which results after deducting the fifty per cent
(50%).

ISSUE:
2.

The contract is valid

The fact that the parties have agreed at the same time, in such a
manner that the fulfillment of the promise of sale would depend upon
the nonpayment or return of the amount loaned, has not produced any

Whether a contract of pledge or of chattel mortgage duly

entered into is rendered null and void by an additional stipulation
among the contracting parties that in case of the debtors failure to
comply with the conditions agreed upon, the creditor would be

authorized to retain the jewels and merchandise pledged in half of their

value and absolutely appropriating them to himself.

Lanuza v De Leon

Thereafter, Lanuza mortgaged the property to Respondent De leon,

which the latter recorded in the Register of Deeds. Lanuza defaulted
payment, so De leon moved for an extrajudicial foreclosure. De leon
then won as the sole bidder.
For failure of Lanuza to redeem the property within the
stipulated period of redemption, Reyes and Navarro filed a case for
consolidation of ownership. Consequently, De Leon argued that the
pacto de retro sale should not affect his right as a third person.
Lower court ruled in favor of Navarro and Reyes.
ISSUE
Who has a better right?
HELD
DE LEON.
Between an unrecorded sale of a prior date and a recorded
mortgage of a later date the former is preferred to the latter for the
reason that if the original owner had parted with his ownership of the
thing sold then he no longer had the ownership and free disposal of
that thing so as to be able to mortgage it again. Registration of the
mortgage under Act No. 3344 would, in such case, be of no moment
since it is understood to be without prejudice to the better right of third
parties.2 Nor would it avail the mortgagee any to assert that he is in
actual possession of the property for the execution of the conveyance
in a public instrument earlier was equivalent to the delivery of the thing
sold to the vendee
The court declared that the "Deed of Sale with Right to Repurchase"
is in reality an equitable mortgage. Why? First the supposed vendors
remained in possession of the thing sold and, second, when the threemonth period of redemption expired the parties extended it. Also, the
emphasis is on the vendors payment of the amount rather than on the
redemption of the things supposedly sold. Thus, the deed recites that

If I (Lanuza) fail to pay said amount of P3,000.00 within the

stipulated period of three months, my right to repurchase the
said properties shall be forfeited and the ownership thereto
automatically pass to Mrs. Maria Bautista Vda. de Reyes . . .
without any Court intervention and they can take possession
of the same.
This stipulation is contrary to the nature of a true pacto de retro sale
under which a vendee acquires ownership of the thing sold
immediately upon execution of the sale, subject only to the vendor's
right of redemption.5 Indeed, what the parties established by this
stipulation is an odious pactum commissorium. Which is is a nullity,
being contrary to the provisions of article 2088 of the Civil
Code.6 These are circumstances which indeed indicate an equitable
mortgage.
Since both are mortgages, action for consolidation of ownership is
improper. Hence, between the unrecorded deed of Reyes and
Navarro which we hold to be an equitable mortgage, and the
registered mortgage of De Leon, the latter must be preferred.
Preference of mortgage credits is determined by the priority of
registration of the mortgages,8 following the maxim "Prior tempore
potior jure" (He who is first in time is preferred in right.) 9 Under article
2125 of the Civil Code, the equitable mortgage, while valid between
Reyes and Navarro, on the one hand, and the Lanuzas, on the other,
as the immediate parties thereto, cannot prevail over the registered
mortgage of De Leon.

FACTS

DAYRIT v CA

HELD:
YES. Tuason has no right to appropriate to himself the
merchandise pledged, nor can he make payment by himself and to
himself with half or the total value of the same (Art. 1859, Civil Code),
inasmuch as he is only permitted to recover his credit, which Blanc
owes, from the proceeds of the sale of the jewels and merchandise
delivered to him in pledge, and said sale at public auction should be
effected, according to Article 1872, before a notary, and according to
Section 14 of Act No. 1508, in a public place in the municipality after
previous notices and notifications to the debtor through the sheriff of
the province.
If the last part of the contract concerning the fact that the
creditor Tuason is entitled to retain and appropriate to himself the
merchandise received in pledge is null and indefensible, because he
can only recover his credit, according to law, from the proceeds of the
sale of the same, there is no sound reason nor any legal provision
which determines the nullity of the principal contract by virtue of which
Tuason paid Blancs debt to the bank, and according to the stipulation,
Tuason took possession of the jewels and merchandise pledged as
security for the big sum of money which he had paid and which the
debtor Blanc had not refunded.
If the creditor Tuason could not appropriate to himself the
jewels and merchandise which he had in his custody, by way of pledge
an act expressly prohibited by law it does not follow that the
contract of pledge or mortgage of the jewels and the other
merchandise which was duly executed between the said Tuason and
Blanc was also null, because if the latter could not pay his debt by
refunding to Tuason the amount paid to the Chartered Bank, there is no
just nor legal reason which prevents the creditor from recovering his
credit and other amounts which Blanc was obliged to pay from the
proceeds of the sale of the jewels and merchandise pledged.
The contract of pledge or chattel mortgage entered into
between P. Blanc and Mariano Tuason on June 20, 1913, and stated in
the documents on pp. 14 to 21 of the bill of exceptions, is valid and
subsisting; that the creditor, Mariano Tuason, has the right to recover
his credit of eighteen thousand eight hundred seventy pesos (P18,870)
from the proceeds of the public sale of the merchandise pledged,
which sale should be effected by the sheriff of the city of Manila in the
manner and with the formalities established by Section 14 of Act No.
1508; and that the stipulation contained in the last part of the document
(page 21 of the bill of exceptions) whereby the debtor authorized the
creditor Tuason to retain the jewels in his possession is null and void.
However, the creditor Tuason is obliged to deliver to the receiver, D.J.
Mahoney, the balance of the proceeds of the sale of the jewels and
merchandise pledged, after deducting his credit, the interests thereon
and the other amounts to which he is entitled to recover, according to
the stipulation contained in the said contract.

Lanuza and his wife executed a DEED OF ABSOLUTE SALE

WITH A RIGHT TO REPURCHASE whereby they sold their house,
leasehood rights, tv set and ref to Reyes and Navarro for 3k.

FACTS: Dayrit, Sumbillo and Angeles entered into a contract with

Mobil Oil Phil, entitled LOAN & MORTGAGE AGREEMENT.

Defendants violated the LOAN & MORTGAGE AGREEMENT because

they only paid one installment. They also failed to buy the quantities
required in the Sales Agreement.
The plaintiff made a demand, Dayrit answered acknowledging his
liability. Trial Court ruled in favor of plaintiff and also ruled that each of
the three defendants shall pay 1/3 of the cost. No appeal had been
taken so the decision became final and executor.
Mobil filed for the execution of the judgment. Dayrit opposed alleging
that they had an agreement with Mobil, that he would not appeal
anymore but Mobil would release the mortgage upon payment of his
1/3 share.
Mobil claimed that the agreement was that it would only release the
mortgage if the whole principal mortgaged debt plus the whole accrued
interest were fully paid.
ISSUE: Whether or not the CFI erred in ordering the sale at public
auction of the mortgaged properties to answer for the entire principal
obligation of Dayrit, Sumbillo and Angeles.
RULING:
While it is true that the obligation is merely joint and each of the
defendant is obliged to pay his 1/3 share of the joint obligation, the
undisputed fact remains that the intent and purpose of the LOAN &
MORTGAGE AGREEMENT was to secure the entire loan.
The court ruled that a mortgage directly and immediately subjects
the property upon which it is imposed, the same being indivisible
even though the debt may be divided, and such indivisibility
likewise unaffected by the fact that the debtors are not solidarily
liable.
YU v PCIB
FACTS:

P mortgaged their title, interest, and participation over

several parcels of land located in Dagupan City and Quezon
City in favour of PCIB (R) as security for the payment of a
loan in the amount of P9mill

P failed to pay the loan; R filed a Petition for Extrajudicial

Foreclosure of Real Estate Mortgage on the Dagupan City
properties. A Certificate of Sale was issued in favour of R.
Subsequently, R filed an Ex-Parte Petition for Writ of
Possession before RTC Dagupan

P filed a Motion to Dismiss. They argued that the Certificate

of Sale is void because the real estate mortgage is
indivisible, the mortgaged properties in Dagupan City and
Quezon City cannot be separately foreclosed.

R the filing of two separate foreclosure proceedings did not

violate Article 2089 of the Civil Code on the indivisibility of a
real estate mortgage since Section 2 of Act No. 3135
expressly provides that extra-judicial foreclosure may only be
made in the province or municipality where the property is
situated. R further submits that the filing of separate
applications for extra-judicial foreclosure of mortgage
involving several properties in different locations is allowed
by A.M. No. 99-10-05-0, the Procedure on Extra-Judicial
Foreclosure of Mortgage, as further amended on August 7,
2001.

TC denied Motion

ISSUE: WON a real estate mortgage over several properties located in

different localities can be separately foreclosed in different places?
HELD: YES

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 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. In
essence, indivisibility means that the mortgage obligation
cannot be divided among the different lots, that is, each and
every parcel under mortgage answers for the totality of the
debt

A.M. No. 99-10-05-0,the Procedure on Extra-Judicial

Foreclosure of Mortgage, lays down the guidelines for extrajudicial foreclosure proceedings on mortgaged properties
located in different provinces. It provides that the venue of
the extra-judicial foreclosure proceedings is the place where
each of the mortgaged property is located. Relevant portion
provides:
Where the application concerns the extrajudicial foreclosure of
mortgages of real estates and/or chattels in different locations covering
one indebtedness, only one filing fee corresponding to such
indebtedness shall be collected. The collecting Clerk of Court shall,
apart from the official receipt of the fees, issue a certificate of payment
indicating the amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates and/or chattels
mortgaged and their respective locations, which certificate shall
serve the purpose of having the application docketed with the
Clerks of Court of the places where the other properties are
located and of allowing the extrajudicial foreclosures to proceed
thereat. (Emphasis supplied)

The indivisibility of the real estate mortgage is not violated by

conducting two separate foreclosure proceedings on
mortgaged properties located in different provinces as long
as each parcel of land is answerable for the entire debt
Metrobank vs. SLGT Holdings
September 14, 2007
Facts:
-

ASB Development Corporation is the defaulting developer of

BSA Twin Towers Condo in Ortigas. Respondent Dylanco
and SLGT Holdings are unit buyers of the said project and
Petitioners Metrobank and UCPB are the lending-mortgagee

banks.
Dylanco and SLGT each entered into a contract to sell with
ASB for the purchase of a unit (Unit 1106 for Dylanco and
Unit 1211 for SLGT) at BSA Towers then being developed by
the latter.

As stipulated, ASB will deliver the units thus sold upon

option, pay his installment for the lot or unit directly

completion of the construction or before December 1999.

to the mortgagee who shall apply the payments to

Relying on this and other undertakings, Dylanco and SLGT

the

each paid in full the contract price of their respective units.

The promised completion date came and went, but ASB

secured by the particular lot or unit being paid for

2.)

time. To make matters worse, they learned that the lots on

indebtedness

A mortgage contract is, by nature, indivisible.

which the BSA Towers were to be erected had been

Consequent to this feature, a debtor cannot ask for the

mortgaged to Metrobank and UCPB without the prior written

release of any portion of the mortgaged property or of

approval of the HLURB.

SLGT and Dylanco filed with the HLURB a complaint for

one or some of the several properties mortgaged

delivery of property and title and for the declaration of nullity

paid, notwithstanding the fact that there has been

of mortgage. At this time ASB had already filed with SEC a

partial fulfillment of the obligation. Hence, it is provided

petition for rehabilitation and a rehabilitation receiver had in

that the debtor who has paid a part of the debt cannot

fact been appointed. According to ASB it encountered

ask for the proportionate extinguishments of the

liquidity problems after Metrobank and UCPB simultaneously

mortgage as long as the debt is not completely

demanded payments of their loans.

On the other hand, Metrobank claims that complainants

satisfied.
o
The situation obtaining in the case at bench is

[Dylanco and SLGT] have no personality to ask for the

within the purview of the aforesaid rule on the

nullification of the mortgage because they are not parties to

indivisibility of mortgage. It may be that Section 18

the mortgage transaction. UCPB questioned the personality

of PD 957 allows partial redemption of the

of SLGT to challenge the validity of the mortgage reasoning

mortgage in the sense that the buyer is entitled to

that the latter is not party to the mortgage contract [and]

pay his installment for the lot or unit directly to the

maintains that the mortgage transaction was done in good

mortgagee so as to enable him - the said buyer -

faith.
HLURB ruled in favor of SLGT stating that the mortgage

to obtain title over the lot or unit after full payment

constituted over the lots is invalid for lack of mortgage

unit/lot buyer does not, however, render the

unless and until the loan thus secured has been fully

thereof. Such accommodation statutorily given to a

clearance from the HLURB. The Office of the President and

mortgage contract also divisible. Generally, the

the Court of Appeals affirmed the decision.

divisibility of the principal obligation is not

affected by the indivisibility of the mortgage.

Issue:
1.) WON the declaration of nullity of the entire mortgage

The

real

estate

mortgage

voluntarily

constituted by the debtor (ASB) on the lots or

constituted on the project land site and the improvements

2.)

mortgage

failed to deliver, as the Project remained unfinished at that

corresponding

units is one and indivisible. In this case, the

thereon is valid. YES

WON this nullity extends to the entire mortgage contract

mortgage contract executed between ASB and

the petitioner banks is considered indivisible,

YES (related to Art. 2089)

that is, it cannot be divided among the different

buildings or units of the Project. Necessarily,

Held:
1.)

partial extinguishment of the mortgage cannot

The project lot/s and the improvements introduced

be allowed. In the same token, the annulment

thereon were mortgaged in clear violation of of Sec. 18

of

of PD 957. And to be sure, Dylanco and SLGT, as

Project unit buyers, were not notified of the mortgage

used

for

the

or

nothing

18 of PD 957 should result to the mortgage being

nullified wholly.

be granted unless it is shown that the proceeds of

be

all

Ergo, a declaration of nullity for violation of Section

approval of the [HLURB]. Such approval shall not

shall

an

there is doubtless only one mortgage to speak of.

the owner or developer without prior written

loan

is

entirety or not valid at all. In the present case,

banks. Sec. 18 reads:

o
No mortgage of any unit or lot shall be made by

mortgage

mortgage

invalid parts. The mortgage is either valid in its

before the release of the loan proceeds by petitioner

the

the

proposition. It cannot be divided into valid or

Central Bank v. CA

development of the condominium or subdivision

project . The loan value of each lot or unit
covered by the mortgage shall be determined and
the buyer thereof, if any, shall be notified before
the release of the loan. The buyer may, at his

FACTS:
1. Suplico M. Tolentino loaned 80,000 pesos from Island Savings Bank,
secured by a real estate mortgage over Tolentino's 100-hectare land in

Agusan. The loan was repayable in semi-annual installments for a

period of 3 years, with 12% annual interest.
3. After a month, only a mere 17,000 pesos was released by the bank.
Thus, Tolentino signed a promissory note for 17,000 pesos at 12%
annual interest, payable within 3 years in semi-annual installments.
4. The bank repeatedly promised the release of the 63,000 peso
balance. But after 3 years, the Monetary Board, through a resolution,
prohibited the bank from doing business as it failed to put up the
required capital to restore its solvency.
5. Tolentino failed to pay the 17,000 pesos. Thus, Island Savings Bank
moved to foreclose the mortgage on Tolentino's 100-hectare property,
and the sheriff scheduled the auction.
6. Tolentino filed for injunction, specific performance or rescission with
damages, alleging that the bank failed to deliver the 63,000 peso
balance. The trial court found this unmeritorious. CA affirmed this
decision, but ruled that the bank can neither foreclose or collect the
17k.
ISSUE:
Can Tolentino's real estate mortgage be entirely foreclosed to satisfy
the 17,000 debt?
HELD:
WE hold that the real estate mortgage of Sulpicio M. Tolentino cannot
be entirely foreclosed to satisfy his 17,000.00 debt.

The fact that when Sulpicio M. Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no
debt yet because Island Savings Bank had not made any release on
the loan, does not make the real estate mortgage void for lack of
consideration.
It is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage. lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured by
it is created as a binding contract to pay. And, when there is partial
failure of consideration, the mortgage becomes unenforceable to the
extent of such failure. Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the mortgage,
the mortgage cannot be enforced for more than the actual sum due.
Since Island Savings Bank failed to furnish the P63,000.00 balance of
the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by
Article 2089 of the Civil Code is inapplicable to the facts of this
case. The rule of indivisibility of the mortgage presupposes
several heirs of the debtor or creditor which does not obtain in
this case. Hence, the rule of indivisibility of a mortgage cannot
apply