CHATTEL MORTGAGE

Northern Motors vs Coquia

FACTS: Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration
of this Court's resolution of August 29, 1975. In that resolution, it was held that the lien of
Northern Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made
on the said cabs by RESPONDENT: Honesto Ong, the assignee of the unsecured judgment
creditor of the chattel mortgagor, Manila Yellow Taxicab Co., Inc.
On the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same
August 29 resolution, further prayed that the sheriff should be required to deliver to it the
proceeds of the execution sale of the mortgaged taxicabs without deducting the expenses of
execution.
Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the
mortgaged taxicabs. He contends that his only recourse was to levy upon the taxicabs which
were in the possession of the judgment debtor, Manila Yellow Taxicab Co. Inc., whereas, Northern
Motors, Inc., as unpaid seller and mortgagee, "has still an independent legal remedy" against the
mortgagor for the recovery of the unpaid balance of the price.
That contention is not a justification for setting aside the holding that Ong had no right to levy
upon the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of
redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer
for the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor.
The mortgagee is not obligated to file an "independent action" for the enforcement of his credit.
To require him to do so would be a nullification of his lien and would defeat the purpose of the
chattel mortgage which is to give him preference over the mortgaged chattels for the
satisfaction of his credit. (See art. 2087, Civil Code).
It is relevant to note that intervenor Filinvest Credit Corporation, the assignee of a portion of the
chattel mortgage credit, realized that to vindicate its claim by independent action would be
illusory. For that pragmatic reason, it was constrained to enter into a compromise with Honesto
Ong by agreeing to pay him P145,000. That amount was characterized by Northern Motors, Inc.
as the "ransom" for the taxicabs levied upon by the sheriff at the behest of Honesto Ong.
Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not
affect him because he is not privy of such contract is untenable. The registration of the chattel
mortgage is an effective and binding notice to him of its existence (Ong Liong Tiak vs. Luneta
Motor Company, 66 Phil 459). The mortgage creates a real right (derecho real, jus in re or jus ad
rem, XI Enciclopedia Juridica Espaola 294) or a lien which, being recorded, follows the chattel
wherever it goes.
Honesto Ong's contention that Northern Motors, Inc., was negligent because it did not sue the
sheriff within the 120-day period provided for in section 17, Rule 39 of the Rules of Court is not
correct. Such action was filed on April 14, 1975 in the Court of First Instance of Rizal, Pasig
Branch XIII, in Civil Case No. 21065 entitled "Northern Motors, Inc. vs. Filwriters Guaranty
Assurance Corporation, et al.". However, instead of Honesto Ong, his assignor, Tropical
Commercial Corporation, was impleaded as a defendant therein. That might explain his
unawareness of the pendency of such action.
The other arguments of Honesto Ong in his motion may be boiled down to the proposition that
the levy made by mortgagor's judgment creditor against the chattel mortgagor should prevail
over the chattel mortgage credit. That proposition is devoid of any legal sanction and is glaringly
contrary to the nature of a chattel mortgage. To uphold that contention is to destroy the essence
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of chattel mortgage as a paramount encumbrance on the mortgaged chattel. Respondent Ong
admits "that the mortgagee's right to the mortgaged property is superior to that of the judgment
creditor". But he contends that the rights of the purchasers of the cars at the execution sale
should be respected. He reasons out they were not parties to the mortgage and that they
acquired the cars prior to the mortgagee's assertion of its rights thereto.
Issue: WON mortgagee shall have preferential rights over the judgement creditor. YES
Held: We already held that the execution was not justified and that Northern Motors, Inc., as
mortgagee, was entitled to the possession of the eight taxicabs. Those cabs should not have
been levied upon and sold at public auction to satisfy the judgment credit which was inferior to
the chattel mortgage. Since the cabs could no longer be recovered because apparently they had
been transferred to persons whose addresses are unknown (see par. 12, page 4, Annex B of
motion), the proceeds of the execution sale may be regarded as a partial substitute for the
unrecoverable cabs.
PNB vs RBL Enterprises
Facts : [respondents] opened a prawn hatchery in San Enrique, Negros Occidental, and for this
purpose, leased from Nelly Bedrejo a parcel of land where the operations were conducted; In
order to increase productions and improve the hatchery facilities, [respondents] applied for and
was approved a loan of P2,000,000.00, by [Petitioner] PNB. To secure its payment, [respondents]
executed in favor of PNB, a real estate mortgage over two (2) parcels of land, located at BagoCity
, in the names of [respondents], and another real [estate] and chattel mortgage over the
buildings, culture tanks and other hatchery facilities located in the leased property of Nelly
Bedrejo; PNB partially released to [respondents] on several dates, the total sum of P1,000,000.00
less the advance interests, During the mid-part of the construction of the improvements, PNB
refused to release the balance of P1,000,000.00 allegedly because [respondents] failed to
comply with the banks requirement that Nelly Bedrejo should execute an undertaking or a lessors
conformity provided in Real Estate and Chattel Mortgage contract dated August 3, 1989, It is a
condition of this mortgage that while the obligations remained unpaid, the acquisition by the
lessor of the permanent improvements covered by this Real Estate Mortgage as provided for in
the covering Lease Contract, shall be subject to this mortgage. For this purpose, the mortgagor
hereby undertakes to secure the lessors conformity hereto. For said alleged failure of
[respondents] to comply with the additional requirement and the demand of PNB to pay the
released amount of P1,000,000.00, PNB foreclosed the mortgaged properties, to the detriment of
[respondents]. Due to the non-release of the remaining balance of the loan applied for and
approved, the productions-operations of the business were disrupted causing losses to
[respondents], and thereafter, to the closure of the business.
PNB filed its Answer with Counterclaim alleging that the lessors conformity was not an additional
requirement but was already part of the terms and conditions contained in the Real Estate and
Chattel Mortgage dated August 3, 1989, executed between [respondents] and [petitioner]; and
that the release of the balance of the loan was conditioned on the compliance and submission by
the [respondents] of the required lessors conformity. On November 8, 1993, a writ of preliminary
injunction was issued by the court a quo prohibiting PNB and the Provincial Sheriff of Negros
Occidental from implementing the foreclosure proceedings
Issue: whether the non-release of the balance of the loan by PNB is justified;
Held: Held: Petitioner maintains that the lessors signature in the conforme portion of the Real
Estate and Chattel Mortgage Contract was a condition precedent to the release of the balance of

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the loan to respondents. Petitioner invokes paragraph 9.07 of the Contract as legal basis for
insisting upon respondents fulfillment of the aforesaid clause.
We are not persuaded. If the parties truly intended to suspend the release of the P1,000,000
balance of the loan until the lessors conformity to the Mortgage Contract would have been
obtained, such condition should have been plainly stipulated either in that Contract or in the
Credit Agreement.The tenor of the language used in paragraph. 9.07, as well as its position
relative to the whole Contract, negated the supposed intention to make the release of the loan
subject to the fulfillment of the clause. From a mere reading thereof, respondents could not
reasonably be expected to know that it was petitioners unilateral intention to suspend the
release of the P1,000,000 balance until the lessors conformity to the Mortgage Contract would
have been obtained.
Respondents had complied with all the requirements set forth in the recommendation and
approval sheet forwarded by petitioners main office to the Bacolod branch for implementation;
and the Credit Agreement had been executed thereafter. Naturally, respondents were led to
believe and to expect the full release of their approved loan accommodation. This belief was
bolstered by the initial release of the first P1,000,000 portion of the loan.
In the instant case, there is a clear and categorical showing that when the parties have finally
executed the contract of loan and the Real Estate and Chattel Mortgage Contract, the applicant
complied with the terms and conditions imposed by defendant bank on the recommendation and
approval sheet, hence, defendant bank waived its right to further require the plaintiffs other
conditions not specified in the previous agreement. Should there [appear] any obscurity after
such execution, the same should not favor the party who caused such obscurity.
The records show that all the real estate and chattel mortgages were registered with the Register
of Deeds of Bago City, Negros Occidental, and annotated at the back of the mortgaged titles.
Thus, petitioner had ample security to protect its interest. As correctly held by the appellate
court, the lessors nonconformity to the Mortgage Contract would not cause petitioner any undue
prejudice or disadvantage, because the registration and the annotation were considered
sufficient notice to third parties that the property was subject to an encumbrance.

PAMECA Wood Treatment Plant vs CA

FACTS: petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of
P2,000,000.00 from respondent Bank. 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 , , 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
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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.
ISSUE(S) 1. WON 1484 and 2115 of the civil code shall be applied. NO
2. WON the auction sale is void. NO
Held: 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.
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: Xx 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.xx
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.
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.
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

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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.

Makati Leasing and FInancial Corp vs Wearever Textile Mills

Facts: 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
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 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 ess 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.
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.
Issue : WON the chattel mortgage is null and void
Held: no, 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

5
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 defendants-appellants 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 in Standard 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 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.
Monserrat vs Ceron
Facts: Petitioner, Monserrat, was president and manager of the Manila Yellow Taxicab Company
Inc., and the owner of P1,200 common shares of stock of the company. He assigned the usufruct
(right in a property owned by another for a limited time or until death) of half of his common
shares of stock to Carlos Ceron (defendant).
The assignment included the right to enjoy the profits from the shares, prohibiting Ceron from
selling, mortgaging, encumbering, or exercising any act implying absolute ownership.
Ceron mortgaged some of the shares of stock of Manila Yellow Taxicab,including the 600 common
shares assigned to him by Monserrat to Eduardo Matute, President to Erma, Inc as payment of his

6
debt. Matute was not informed of the document that contained Cerons rights and prohibitions
with regard to the 600 common shares of stock from Monserrat.
The CFI Manila rendered judgment in favor of the plaintiff declaring the plaintiff the owner of the
600 shares of stock; and declaring the mortgage constituted on the ownership of the shares of
stock null and void and without force and effect, although the mortgage on the usufruct enjoyed
by the mortgage debtor Ceron in the said 600 shares of stock is hereby declared valid; with costs
against the defendants. Irma Inc. and the Sheriff of Manila, the defendants therein, appealed
from the decision.
Issue: Whether it is necessary to enter a mortgage constituted on common shares of
stock upon the books of the corporation in order that the mortgage may be valid and
may have force and effect against third persons.
Held: As provided for under section 35 of the Corporation Code, the capital stock of stock
corporations are personal property and may be transferred by delivery of the certificate indorsed
by the owner or other person legally authorized to make the transfer. No transfer, however, shall
be valid except as between the parties until the said transfer is entered and noted upon the
books of the corporation.
By this provision, the Supreme Court held that since a chattel mortgage is a conditional sale of
personal property as security for the payment of a debt, or the performance of some other
obligation specified therein, although a chattel mortgage accompanied by delivery of the
mortgaged thing, transfers the title and ownership thereof to the mortgage creditor, such
transfer is not absolute but constitutes a mere security for the payment of the mortgage debt. As
such, the chattel mortgage is not the transfer referred to in Sec 35 of the Corporation Code as
the same pertains to a permanent transfer or absolute conveyance. This being the case, the
registration or entry upon the books of the corporation is not necessary for the validity of the
mortgage.
Davao Sawmill Co Inc vs Castillo
Facts: Petitioner, as a holder of a lumber concession from the Philippine Government, was
leasing its place of operations that actually belonged to another person. Petitioner constructed a
building to house the machinery and materials necessary for its business operations. Some of the
machines stored were mounted on foundations of cement. According to its contract of lease, the
Petitioner had agreed to turn over all improvements and buildings erected by it on the premises
with the exception of machineries which shall remain under its ownership. In an action brought
by the Davao Light and Power Co., judgment was rendered against herein petitioner and the
machineries in the sawmill were levied upon by the sheriff. Davao Light and Power Co. proceeded
to purchase the machinery and other properties auctioned by the sheriff. Davao Sawmill Co Inc
contends that on a number of occasions they treated the machinery as personal property by
executing chattel mortgages in favor of third persons.
Issue: Whether or not the machineries and equipments were personal in nature
Held: Yes, the SC ruled that Machinery which is movable in nature only becomes immobilized
when placed in a plant by the owner of the property or plant, but not when so placed by a
tenant, a usufructuary or any person having only a temporary right, unless such person acted as
the agent of the owner.
In the given case, since the Petitioner is merely leasing the land from a third person, it merely
enjoys a temporary right to make use of the property by virtue of its lease contract and therefore
the movables placed in the said plant, retained their movable nature.
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Torres vs Limjap
Facts: Two actions were commenced in Manila for the purpose of securing from the defendant
Limjap the possession of two drug stores in the City covered by two chattel mortgages executed
by the deceased Jose B. Henson in favor of the plaintiffs. In both cases, the plaintiffs alleged that
they were the heirs of the late Don Florentino Torres the party in favor of whom Jose B. Henson
executed the chattel mortgages. The plaintiffs further alleged that Henson violated the terms of
the mortgages and as such they are entitled to take possession of the subject properties. The
Defendant alleged that 1.) the chattel mortgages were null and void for lack of sufficient
particularity in the description of the property mortgaged, and 2.) That the chattels were not the
same property described in the mortgage. Plaintiffs allege that the scope of the mortgage was
extended to after-acquired property.
Issue: Whether or not the stipulation in the mortgage extending the scope thereof to
after-acquired property is valid and binding?
Held: The Supreme Court held that such a stipulation is valid and binding "Where the after
acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale of such goods, etc." The SC further
quoted Cobbey, an authority on chattel mortgages, in saying "A mortgage may by express
stipulation, be drawn to cover goods put in stock in place of others sold out from time to time. A
mortgage may be made to include future acquisitions of goods to be added to the original stock
mortgage, but the mortgage must expressly provide such inclusion.
ANTICHRESIS

Dizon vs Gaborro

Facts: After his properties were extrajudicially foreclosed but before the expiration of the
redemption period, petitioner executed a "Deed of Sale with Assumption of Mortgage" in favor of
private respondent, who in turn executed on the same day an "Option to Purchase Real Estate" in
favor of petitioner. Thereafter, private respondent made several payments to the mortgagee,
took possession of, cultivated, and paid taxes, on the land. Two years later, petitioner offered to
reimburse what private respondent had paid to the mortgagee, and demanded an accounting.
When private respondent dishonored the request, petitioner sued the former for accounting,
alleging that the two deeds did not express their true intent, the transaction being one of an
equitable mortgage and not an absolute sale.
The trial court ordered the instruments reformed in the sense that the true agreement is one
whereby private respondent, in consideration of the use of petitioner's properties, would assume
the latter's debts. The Court of Appeals affirmed the decision, with the modification that
petitioner "has the right to reimburse" respondent at 8% per annum, which right shall be
exercised within one year from the finality of decision.
Issue: WON the petitioner has the right to reimburse
Held: The Supreme Court affirmed the decision of the Court of Appeals, holding that after
foreclosure, the only right that the mortgagee may transfer is that of redemption; that the
disputed agreement is one of innominate contracts, under Article 1307 of the Civil Code,
partaking of antichresis; and that the agreement may be reformed pursuant to Articles 1359 and
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1361 of the Civil Code, because a mutual mistake of the parties caused the failure of the
instrument to disclose their true agreement.
Where the "Deed of Sale with Assumption of Mortgage" and "Option to Purchase Real Estate"
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, it becomes 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 insofar as the agreement affects the rights of third
parties.
Under Section 6 of Act 3135, as amended by Act 4118, the judgment debtor may redeem the
property extrajudicially sold within one year from and after the date of the foreclosure sale.
Under Section 33, Rule 39, Revised Rules of Court, the judgment debtor in possession of the
property foreclosed and sold is entitled to remain therein during the period of redemption, shall
receive its fruits and may transfer his right of redemption to any one whom he may desire. This is
so because the purchaser who has an inchoate right over the property during the redemption
period is not entitled to such possession. The right to redeem land sold under execution within 12
months is a property right and may sold voluntarily by its owner and may also be attached and
sold under execution.