Survey of Jurisprudence on Foreclosure, Loans, and Property Lien

ATTY. RENO R. GONZALES, JR.
3/6/18
SURVEY OF JURISPRUDENCE ON FORECLOSURE, LOANS, AND PROPERTY LIEN
Definition of Real Estate Mortgage
Republic vs. Peralta, G.R. No. L-56568, 20 May 1987.
A real estate mortgage is a contract in which the debtor guarantees to the creditor the fulfillment of a
principal obligation, subjecting for the faithful compliance therewith a real property in case of non-
fulfillment of said obligation at the time stipulated. A mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for
whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable
against the whole world. It is a lien on an Identified immovable property, which a preference is not. A
recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on
classification of credits.
Isaguirre v de Lara, 332 SCRA 803.
A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation, and
constituted by recording the document in which it appears with the proper Registry of Property, although,
even if it is not recorded, the mortgage is nevertheless binding between the parties; As a general rule, a
mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the
property does not pass to the mortgagee.
When can you foreclose a mortgage constituted over a property.
Producers Bank v. Court of Appeals, G.R. No. 111584, 17 September 2001.
FACTS: Sometime in April, 1982, respondent Salvador Chua was offered by Mr. Jimmy Rojas, manager of
Producers Bank, to transfer his account from Pacific Banking Corporation to herein Producers Bank. In
view of Rojas' assurances of longer loan terms and lower rates of interest, respondent spouses opened
and maintained substantial savings and current deposits with the Bacolod branch of petitioner bank.
Likewise, respondents obtained various loans from petitioner bank, one of which was a loan for
P2,000,000.00 which was secured by a real estate mortgage and payable within a period of three (3)
years or from 1982 to 1985.
On January 20, 1984, respondents deposited with Producers Bank the total sum of P960,000.00, which
was duly entered in respondents' savings account passbook. However, Producers Bank failed to credit
this deposit in respondents' savings account due to the fact that its Branch Manager, Sixto Castillo,
absconded with the money of the bank's depositors. Also, Producers Bank dishonored the checks drawn
out by respondents in favor of their various creditors on the ground of insufficient funds, despite the fact
that at that time, the balance of respondents' deposit was in the amount of P1,051,051.19. These events
prompted respondents to request for copies of their ledgers covering their savings and current accounts,
but petitioner bank refused.
Due to Producers Bank's refusal to furnish respondents copies of their ledgers, respondents instituted an
action for damages against Producers Bank. On the other hand, Producers Bank filed with the City Sheriff
of Bacolod a petition for extrajudicial foreclosure of the real estate mortgage during the pendency of the
civil case for damages. As a result, respondents filed a complaint for injunction and damages, alleging
that the petition for extrajudicial foreclosure was without basis and was instituted maliciously in order to
harass private respondents.
Producers Bank contends that it has the right to foreclose the real estate mortgage executed by
respondents in its favor as the loan under the real estate mortgage contract had become due and
demandable.
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RULING: Foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness. As a

rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due. As found
by the trial court and the Court of Appeals, and as borne by the evidence on record, respondents were
constantly paying their loan obligations with petitioner bank. In fact, the amount of P960,000.00 was
properly deposited with Producers Bank as evidenced by the corresponding deposit slip and the entry
made in respondents' savings account passbook. It is, therefore, not the fault of respondents that their
payment amounting to P960,000.00 was not credited to their account. Thus, it is certain that the loan
which was secured by a real estate mortgage cannot be considered as unpaid so as to warrant
foreclosure on the mortgage.
DBP v. Licuanan, G.R. No. 150097, 26 February 2007.
FACTS: Respondent spouses Alejandro and Adelaida Licuanan were granted a piggery loan in the amount
of P4,700 by DBP, evidenced by a promissory note dated September 20, 1974 and secured by a real
estate mortgage over a 980-square meter parcel of land with a two-storey building. The loans maturity
date was September 23, 1979.
DBP granted respondents an additional loan of P12,000 evidenced by a promissory note dated May 29,
1975 payable on or before the year 1980. This was secured by a real estate mortgage over four parcels
of land situated in Pangasinan covered by 4 TCTs.
On October 2, 1975, DBP granted respondent spouses another loan of P22,000 evidenced by a
promissory note maturing on October 3, 1985. This was secured by a real estate mortgage executed in
favor of DBP over three (3) parcels of land covered by 3 TCTs, all of the Registry of Deeds of Pangasinan.
On August 6, 1979, DBP and respondents restructured the P12,000.00 loan, extending the maturity date
from June 22, 1979 to June 22, 1982. On the same date, respondents executed a promissory note
for P12,320.73 and another for P6,519.90.
On July 6, 1981, DBP sent a letter by registered mail to respondents informing them that, since the
conditions of the mortgage had been breached, DBP would have the mortgaged properties sold by the
sheriff under Act 3135. The total amount due from the three loans had by then ballooned to P75,298.32.
Subsequently, DBP filed an application for extrajudicial foreclosure. The mortgaged properties were sold
in a public auction on December 16, 1981. DBP, as the highest bidder, acquired them for a total
of P16,340. The certificate of sale was registered on January 25, 1982.
A year after, DBP consolidated its ownership over the properties. On October 16, 1984, DBP wrote
respondents by registered mail, informing them that the properties (now acquired assets of the bank)
would be disposed of by public auction. DBP published an advertisement stating that on November 14,
1984, the properties would be sold by oral bidding. On this date, however, there were no bidders.
On November 16, 1984, petitioner sent respondents a letter informing them that the properties could be
reacquired by negotiated sale for cash or installment. Three days later, however, the properties were sold
through negotiated sale to one Emelita A. Peralta. Respondents were informed of the sale by petitioner
through a letter dated December 6, 1984.
On the same day, petitioner executed a deed of conditional sale in favor of Peralta. On December 11,
1984, respondents offered to repurchase the properties from petitioner but they had already been sold to
Peralta. Respondents then filed a complaint for recovery of real properties and damages against DBP and
Peralta. RTC rendered judgment in favor of respondents. It found that there was no demand for
payment prior to the extrajudicial foreclosure. Thus, the foreclosure proceedings were null and void. It
ordered Peralta to reconvey the properties to respondents subject to Peraltas right to be paid by
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respondents the amount of P104,000 in consideration of such reconveyance. It also held that DBP did not
deal fairly with respondents making it liable for nominal and moral damages to the latter.
The issue of whether demand was made before the foreclosure was effected is essential. If demand was
made and duly received by the respondents and the latter still did not pay, then they were already in
default and foreclosure was proper.
RULING: Unless demand is proven, one cannot be held in default. DBP’s cause of action did not accrue
on the maturity dates stated in the promissory notes. It is only when demand to pay is made and
subsequently refused that respondents can be considered in default and petitioner obtains the right to file
an action to collect the debt or foreclose the mortgage.
The acceleration clause of the promissory notes stated that in case of non-payment of this note or any
portion of it on demand, when due, on account of this note, the entire obligation shall become due and
demandable. Hence, the maturity dates only indicate when payment can be demanded. It is the refusal
to pay after demand that gives the creditor a cause of action against the debtor.
Since demand, which is necessary to make respondents guilty of default, was never made on
respondents, the CA and RTC correctly ruled that the foreclosure was premature and therefore null and
void.
Prohibition against pactum commissorium
Lumayag v. Heirs of Jacinto, G.R. No. 162112, 3 July 2007.
FACTS: During their lifetime, the spouses Jacinto Nemeño and Dalmacia Dayangco-Nemeño,
predecessors-in-interest of the herein respondent heirs, owned two (2) parcels of coconut land located in
Manaca, Ozamiz City. In 1979, Dalmacia died survived by her husband, Jacinto, and their six (6) children,
to wit: Meliton, Eleuteria, Timoteo, Justo, Saturnino and Felipa.
On February 25, 1985, Jacinto, joined by his five (5) children, namely, Meliton, Eleuteria, Timoteo, Justo
and Saturnino, conveyed to his daughter Felipa and the latter’s husband Domingo Lumayag the two (2)
lots. The instrument of conveyance is denominated as Deed of Sale with Pacto De Retro. Thereunder, it
was stipulated that the consideration for the alleged sale of the two (2) aforementioned lots was Twenty
Thousand Pesos (₱20,000.00) and that the vendors a retro have the right to repurchase the same lots
within five (5) years from the date of the execution of the instrument on February 25, 1985. It was
likewise agreed thereunder that in the event no purchase is effected within the said
stipulated period of five (5) years "conveyance shall become absolute and irrevocable
without the necessity of drawing up a new absolute deed of sale, subject to the
requirements of law regarding consolidation of ownership of real property."
On April 4, 1985, Jacinto died. More than a decade later, the spouses Domingo Lumayag and Felipa
Nemeño-Lumayag filed with the RTC a petition for the reconstitution of the owner’s duplicate copy of one
of the two lots subject of the earlier Deed of Sale with Pacto De Retro. In that petition, the Lumayags
alleged that said owner’s duplicate copy was in Domingo’s possession but the same was lost when a
typhoon hit and destroyed the couple’s house. The petition was opposed by the other heirs of Jacinto and
Dalmacia who claimed that the owner’s duplicate copy of the same OCT was actually in the possession
and custody of their brother Meliton Nemeño, the administrator of the property, when it was burned in a
fire. RTC resolved said petition by ordering the issuance of a new owner’s duplicate copy as prayed for
and its delivery to the heirs of Jacinto and Dalmacia.
On December 24, 1996, in the same RTC, the heirs of Jacinto and Dalmacia, namely, their children
Meliton, Eleuteria, Timoteo and Justo and grandchildren Ricky and Daisy who are the heirs of Saturnino,
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(hereinafter collectively referred to as the respondent heirs) filed against the spouses Domingo Lumayag
and Felipa N. Lumayag a complaint for Declaration of Contract as Equitable Mortgage, Accounting and
Redemption with Damages. Essentially, the complaint alleged that the subject Deed of Sale with Pacto De
Retro was executed only for the purpose of securing the payment of a loan of ₱20,000.00 obtained from
the defendant spouses in connection with the medication and hospitalization of the then ailing Jacinto
Nemeño. To support their claim that the contract in question was an equitable mortgage, the plaintiff
heirs materially pointed out the following: (1) the grossly inadequate price of the subject lots considering
that the lot with an area of 5 hectares has a market value of ₱40,760.00 and an assessed value of
₱15,230.00, while the other lot with an area of 4,420 square meters has a market value of ₱4,120.00 and
an assessed value of ₱1,460.00; (2) their continued payment of realty taxes; (3) the land title and tax
declaration remained in the names of Jacinto Nemeño and Dalmacia Dayangco-Nemeño; (4) their
possession, particularly Justo Nemeño’s, of the subject lots with the petitioner spouses only given two-
thirds share of the harvest therefrom; and (5) the pactum commissorium stipulation in the subject
contract.
Thus, the heirs pray for a judgment (a) declaring the subject Deed of Sale with Pacto de Retro as an
equitable mortgage and considering the lots subject thereof as redeemed; (b) ordering the defendant
spouses to render an accounting of the fruits and/or income of the coconut lands from 1985 to 1996 and
to return whatever remains of the amount with interest at the legal rate after deducting the ₱20,000.00
loan; and (c) ordering the same defendants to pay litigation expenses and attorney’s fees.
RULING: The subject Deed of Sale with Pacto De Retro, while purporting to be a sale, is in truth and in
fact an equitable mortgage. An equitable mortgage has been defined "as one which although lacking in
some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, and contains nothing impossible or
contrary to law.
Evidence is extant on record that the respondent heirs, as vendors a retro, remained in possession of the
subject lots after the execution of the deed of sale with right to repurchase. Further, respondents’
continued payment of the real property taxes subsequent to the alleged sale is indicative of the fact that
the parties intended to enter into an equitable mortgage.
Lastly, the stipulation in the subject deed reading: "if we fail to exercise our rights to repurchase as
herein granted within the period stipulated, then this conveyance shall become absolute and irrevocable
without the necessity of drawing a new absolute Deed of Sale, subject to the requirements of law
regarding consolidation of ownership of real property," - is considered a pactum commissorium. This
stipulation is contrary to the nature of a true pacto de retro sale since in such sale, ownership of the
property sold is immediately transferred to the vendee a retro upon execution of the sale, subject only to
the repurchase of a vendor a retro within the stipulated period. Undoubtedly, the aforementioned
stipulation is a pactum commissorium because it enables the mortgagee to acquire ownership of the
mortgaged properties without need of any foreclosure proceedings which is a nullity being contrary to the
provisions of Article 2088 of the Civil Code. Indeed, the inclusion of such stipulation in the deed shows
the intention to mortgage rather than to sell.
Garcia v. Villar, G.R. No. 158891, June 27, 2012
The following are the elements of pactum commissorium: (1) There should be a property mortgaged by
way of security for the payment of the principal obligation; and (2) There should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal
obligation within the stipulated period.
Options of a secured creditor in case of death of the debtor.

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Maglaque v. Planters Development Bank, G.R. No. 109472, 18 May 1999.
FACTS: The spouses Egmidio Maglaque and Sabina Payawal were the owners of a parcel of land, situated
in the municipality of San Miguel Bulacan and a residential house of strong materials erected thereon.
On March 19, 1974, the spouses Maglaque obtained a loan of Php 2,000.00 pesos from the Planters
Development Bank evidenced by a promissory note, payable on or before March 19, 1975, in two
installments, the first payment of P1,000.00, shall be due on September 19, 1974, and the second
payment of P1,000.00, shall be due on March 19, 1975, with interest at 12% per annum. To secure the
loan, the spouses executed a deed of real estate mortgage on the above-described parcel of land,
including its improvements.
On September 15, 1976, Sabina Payawal died. On December 22, 1977, Egmidio Maglaque paid Planters
Development Bank the amount of P2,000.00, which the bank accepted. On April 9, 1979, Egmidio
Maglaque died.
On September 15, 1978, for non-payment in full of the loan, the bank extra-judicially foreclosed on the
real estate mortgage, through the Provincial Sheriff of Bulacan, who conducted a public auction sale of
the mortgaged property pursuant to the authority provided for in the deed of real estate mortgage. The
bank was the highest bidder.
After the lapse of the redemption period, the bank consolidated its title to the property, and became its
registered owner.
On September 4, 1980, David Maglaque, as heir of the deceased spouses Maglaque filed with the court a
complaint for annulment of the sale conducted by the Provincial Sheriff of Bulacan, reconveyance of title,
with damages, and injunction. Subsequently, the bank sold the property to the spouses Angel S. Beltran
and Erlinda C. Beltran.
The Register of Deeds wrote a letter informing the bank about a notice of lis pendens. Thereafter,
Spouses Angel Beltran and Erlinda Beltran registered an adverse claim on the property.
The lower court dismissed the complaint for lack of merit or insufficiency of evidence. Petitioners
appealed the case to the Court of Appeals which also ruled against them. Petitioners aver that the Court
of Appeals erred in not finding that the Bank should have filed its claim in the settlement of estate of the
deceased mortgagors.
RULING: A secured creditor holding a real estate mortgage has three (3) options in case of death of the
debtor. These are:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by
prescription, without right to file a claim for any deficiency.
Obviously, respondent bank was in the right when it availed itself of the third option.
Nature of Judicial and Extra-Judicial Foreclosure.
Biaco v. Philippine Countryside Rural Bank, G.R. No. 161417, 8 February 2007.
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Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves Biaco. While employed in the Philippine
Countryside Rural Bank (PCRB) as branch manager, Ernesto obtained several loans from the respondent
bank.
As security for the payment of the said loans, Ernesto executed a real estate mortgage in favor of the
bank covering the parcel of land described in Original Certificate of Title (OCT) No. P-14423. The real
estate mortgages bore the signatures of the spouses Biaco.
When Ernesto failed to settle the above-mentioned loans on its due date, respondent bank through
counsel sent him a written demand. The amount due as of September 30, 1999 had already reached
P1,080,676.50. The written demand, however, proved futile.
On February 22, 2000, respondent bank filed a complaint for foreclosure of mortgage against the spouses
Ernesto and Teresa Biaco before the RTC of Misamis Oriental. Summons was served to the spouses Biaco
through Ernesto at his office.
Ernesto received the summons but for unknown reasons, he failed to file an answer. Hence, the spouses
Biaco were declared in default upon motion of the respondent bank. The respondent bank was allowed to
present its evidence ex parte before the Branch Clerk of Court who was then appointed by the court as
Commissioner.
Arturo Toring, the branch manager of the respondent bank, testified that the spouses Biaco had been
obtaining loans from the bank since 1996 to 1998. The loans for the years 1996-1997 had already been
paid by the spouses Biaco, leaving behind a balance of P1,260,304.33 representing the 1998 loans. The
amount being claimed is inclusive of interests, penalties and service charges as agreed upon by the
parties.
On July 12, 2000, the sheriff personally served the above-mentioned judgment to Ernesto Biaco at his
office at Export and Industry Bank. The spouses Biaco did not appeal from the adverse decision of the
trial court. On October 13, 2000, the respondent bank filed an ex parte motion for execution to direct the
sheriff to sell the mortgaged lot at public auction. The respondent bank alleged that the order of the
court requiring the spouses Biaco to pay within a period of 90 days had passed, thus making it necessary
to sell the mortgaged lot at public auction, as previously mentioned in the order of the court. The motion
for execution was granted by the trial court. Accordingly, the sheriff served a copy of the writ of
execution to the spouses Biaco at their residence. The writ of execution was personally received by
Ernesto. By virtue of the writ of execution issued by the trial court, the mortgaged property was sold at
public auction in favor of the respondent bank in the amount of P150,000.00.
The amount of the property sold at public auction being insufficient to cover the full amount of the
obligation, the respondent bank filed an ex parte motion for judgment praying for the issuance of a writ
of execution against the other properties of the spouses Biaco for the full settlement of the remaining
obligation. Granting the motion, the court ordered that a writ of execution be issued against the spouses
Biaco to enforce and satisfy the judgment of the court for the balance of P1,369,974.70.
The sheriff executed two (2) notices of levy against properties registered under the name of petitioner
Ma. Teresa Chaves Biaco. However, the notices of levy were denied registration because Ma. Teresa had
already sold the two (2) properties to her daughters on April 11, 2001.
Biaco sought the annulment of the RTC decision contending that extrinsic fraud prevented her from
participating in the judicial foreclosure proceedings. According to her, she came to know about the
judgment in the case only after the lapse of more than six (6) months after its finality. She claimed that
extrinsic fraud was perpetrated against her because the bank failed to verify the authenticity of her
signature on the real estate mortgage and did not inquire into the reason for the absence of her
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signature on the promissory notes. She moreover asserted that the trial court failed to acquire jurisdiction
because summons were served on her through her husband without any explanation as to why personal
service could not be made.
RULING: The Court ruled that there was no fraud perpetrated by respondent bank upon petitioner, noting
that the spouses Biaco were co-defendants in the case and shared the same interest. Whatever fact or
circumstance concealed by the husband from the wife cannot be attributed to respondent bank.
Moreover, petitioner’s allegation that her signature on the promissory notes was forged does not evince
extrinsic fraud. It is well-settled that the use of forged instruments during trial is not extrinsic fraud
because such evidence does not preclude the participation of any party in the proceedings.
The question of whether the trial court has jurisdiction depends on the nature of the action, i.e., whether
the action is in personam, in rem, or quasi in rem. The rules on service of summons under Rule 14 of the
Rules of Court likewise apply according to the nature of the action.
An action in personam is an action against a person on the basis of his personal liability. An action in
rem is an action against the thing itself instead of against the person. An action quasi in rem is one
wherein an individual is named as defendant and the purpose of the proceeding is to subject his interest
therein to the obligation or lien burdening the property. In an action in personam, jurisdiction over the
person of the defendant is necessary for the court to validly try and decide the case. In a proceeding in
rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite to confer
jurisdiction on the court provided that the court acquires jurisdiction over the res. Jurisdiction over
the res is acquired either (1) by the seizure of the property under legal process, whereby it is brought
into actual custody of the law; or (2) as a result of the institution of legal proceedings, in which the
power of the court is recognized and made effective.
Nonetheless, summons must be served upon the defendant not for the purpose of vesting the court with
jurisdiction but merely for satisfying the due process requirements.
A resident defendant who does not voluntarily appear in court, such as petitioner in this case, must be
personally served with summons as provided under Sec. 6, Rule 14 of the Rules of Court. If she cannot
be personally served with summons within a reasonable time, substituted service may be effected (1) by
leaving copies of the summons at the defendants residence with some person of suitable age and
discretion then residing therein, or (2) by leaving the copies at defendants office or regular place of
business with some competent person in charge thereof in accordance with Sec. 7, Rule 14 of the Rules
of Court.
In this case, the judicial foreclosure proceeding instituted by respondent PCRB undoubtedly vested the
trial court with jurisdiction over the res. A judicial foreclosure proceeding is an action quasi in rem. As
such, jurisdiction over the person of petitioner is not required, it being sufficient that the trial court is
vested with jurisdiction over the subject matter.
While the trial court acquired jurisdiction over the res, its jurisdiction is limited to a rendition of judgment
on the res. It cannot extend its jurisdiction beyond the res and issue a judgment enforcing petitioners
personal liability. In doing so without first having acquired jurisdiction over the person of petitioner, as it
did, the trial court violated her constitutional right to due process, warranting the annulment of the
judgment rendered in the case.
Effect if the junior encumbrancer is not impleaded in the complaint for foreclosure.
Limpin vs. IAC, G.R. No. 70987, 30 January 1987.

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FACTS: On February 28, 1973, four lots covered by TCTs Nos. 92836, 92837, 92839 and 92840 of the
Register of Deeds of Quezon City were mortgaged by the spouses Jose and Marcelina Aquino to
Guillermo Ponce and his wife Adela as security for a loan of P2,200,000.00. Two of the lots, those
covered by TCTs Nos. 92836 and 92837, were sold in 1978 by the Aquinos to the Butuan Bay Wood
Export Corporation, which caused an adverse claim to be annotated on the certificates of title on
February 24, 1978.
In 1979, petitioner Gregorio Y. Limpin, Jr. obtained a money judgment against Butuan Bay Wood Export
Corporation. On September 3, 1980, to satisfy the judgment, the lots covered by TCTs Nos. 92836 and
92837 were levied upon and sold at public auction to Limpin as the highest bidder. Upon order of the
court, the covering titles were cancelled and in their stead new TCTS were issued to Limpin. On
November 21, 1981, Limpin sold the two lots to Rogelio M. Sarmiento. TCTs were now cancelled and
replaced by new ones in Sarmiento’s name.
Earlier however or a day before levy was made on the two lots in execution of the judgment against
Butuan Bay Wood Export Corporation. Ponce had initiated judicial proceedings for the foreclosure of the
mortgage over said two (2) lots (together with the two (2) others mortgaged to him Judgment was
rendered in his favor and became final; and at the ensuing foreclosure sale, the lots were acquired by
Ponce himself as highest bidder. Ponce then moved for confirmation of the foreclosure sale, but the Court
confirmed the sale of only two lots, refusing to do so as regards the two which had been subject of the
execution sale in Limpin s favor (i.e., those covered TCTs Nos. 92836 and 92837).
Nine months or so after entry of the judgment, recognizing his equity of redemption as successor-in-
interest of the original mortgagors that Sarmiento stirred himself to attempt to exercise his unforeclosed
equity of redemption. He filed a motion and manifested therein that he would exercise the right and
asked the Court to fix the redemption price. The Court opined that this should be the subject of the
agreement between Ponce and Sarmiento.
Sarmiento then wrote to Ponce offering P 2.6 million as redemption price for the two lots originally
covered by TCTs Nos. 92836 and 92837. Ponce rejected the offer on the ground that the period within
which Sarmiento could have exercised such right had already lapsed. Sarmiento filed a motion, asked the
court to fix the redemption price, and prayed fthat the implementation of the writ of possession be
provisionally deferred. An opposition was promptly filed by Ponce in which he argued that Sarmiento’s
right to exercise his equity of redemption over those lots had long expired, the opportunity to exercise it
having presented itself but not availed of (i) after default in the performance of the conditions of the
mortgage and (ii) before the Sheriff’s sale of the property and the judicial confirmation thereof.
CA set the judgment of the lower court which denied the confirmation of the sale of the lots formerly
covered by TCTs Nos. 92836 and 92837. It also ordered the lower court to confirm the same and issue a
writ of possession to Ponce with respect thereto, subject to Sarmiento's equity of redemption.
RULING: The rights and interests of petitioners Limpin and Sarmiento to the property in question are
subordinate to those of respondent Ponce, who holds a prior and senior lien. Settled is the rule that the
effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the
foreclosure ineffective as against them, with the result that there remains in their favor the "unforeclosed
equity of redemption." But the foreclosure is valid as between the parties to the suit.
Applied to this case, this means that the sale to Ponce, as the highest bidder in the foreclosure sale of
the two lots in question should have been confirmed, subject to Limpin's (and now Sarmiento's) equity to
redemption. As held in Santiago v. Dionisio, the registration of the lands, first in the name of Limpin and
later of Sarmiento, was premature. At most what they were entitled to was the registration of their equity
of redemption.
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Moreover, the superiority of the mortgagee's lien over that of a subsequent judgment creditor is now
expressly provided in Rule 39, Section 16 of the Revised Rules of Court, which states with regard to the
effect of levy on execution that it shall create a lien in favor of a judgment creditor over the right title and
interest of the judgment debtor in such property at the time of the levy, subject to the liens or
encumbrances then existing.
It is well settled that a recorded mortgage is a right in rem, a hen on the property whoever its owner
may be. The recordation of the mortgage in this case put the whole world, petitioners included, on
constructive notice of its existence and warned everyone who thereafter dealt with the property on which
it was constituted that he would have to reckon with that encumbrance. Hence, Limpin's subsequent
purchase of the "interests and participation" of Butuan Bay Wood Export Corporation in the lots covered
by TCTs Nos. 92836 and 92837, as well as the sale of the same to Sarmiento were both subject to said
mortgage. On the other hand, Ponce's purchase of the lots mortgaged to him at the foreclosure sale was
subject to no prior lien or encumbrance, and could in no way be affected or prejudiced by a subsequent
or junior lien, such as that of Limpin. Petitioner Sarmiento having acquired no better right than his
predecessor-in-interest, petitioner Limpin, his title must likewise fail.
Equity of Redemption v. Right of Redemption.
Limpin vs. IAC, G.R. No. 70987, 29 September 1988.
Once again, Limpin and Sarmiento brought another petition before the Supreme Court, this time, for a
determination of whether or not the equity of redemption recognized in favor of petitioner Rogelio M.
Sarmiento in the Court’s judgment promulgated on 30 January 1987, still subsists and may be exercised,
more than a year after that judgment had become final and executory. (Side note: Sarmiento’s counsel
was ACCRA; Ponce’s counsel was Sycip)
The judgment of the Supreme Court in its 30 January 1987 Decision dismissed Sarmiento's and Limpin's
petition and in effect affirmed the Trial Court’s courder "to confirm the sale (of the lots formerly covered
by TCT Nos. 92836 and 92837 and issue a writ of possession to Guillermo Ponce with respect to the
aforesaid lots, subject to the equity of redemption of the respondent Rogelio V. Sarmiento .
Rogelio M. Sarmiento, particularly, was aware that the trial court had the ministerial duty to execute the
Appellate Court's decision, i.e., to confirm the sale and issue a writ of possession as regards the aforesaid
lots, subject to the equity of redemption explicitly recognized in his favor in the decisions mentioned. He
knew that he had the prerogative to exercise his equity of redemption , if not from the moment that the
judgment of this Court became final and executory, at least until the court subsequently confirmed the
sale and issued a writ of possession in favor of Guillermo Ponce.
RULING: The equity of redemption is, to be sure, different from and should not be confused with
the right of redemption. The right of redemption in relation to a mortgage-understood in the sense of a
prerogative to re-acquire mortgaged property after registration of the foreclosure sale- exists only in the
case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure
except only where the mortgagee is the Philippine National Bank or a bank or banking institution.
Where a mortgage is foreclosed extra-judicially, Act 3135 grants to the mortgagor the right of redemption
within one (1) year from the registration of the sheriffs certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The
law declares that a judicial foreclosure sale, "when confirmed by an order of the court shall operate to
divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such
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rights of redemption as may be allowed by law. Such rights exceptionally "allowed by law" (i.e., even
after confirmation by an order of the court) are those granted by the charter of the Philippine National
Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the
mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosure-after confirmation by the court of the foreclosure sale -which right may be
exercised within a period of one (1) year, counted from the date of registration of the certificate of sale in
the Registry of Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the
mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, "when
confirmed by an order of the court shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser." There then exists only what is known as the equity of redemption.
This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of
the property by paying the secured debt within the 90-day period after the judgment becomes final, in
accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.
This is the mortgagor's equity (not right) of redemption which, as above stated, may be exercised by him
even beyond the 90-day period "from the date of service of the order,' and even after the foreclosure
sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no
redemption can be effected any longer.
It is this same equity of redemption that is conferred by law on the mortgagor's successors-in-interest, or
third persons acquiring rights over the mortgaged property subsequent, and therefore subordinate, to the
mortgagee's lien. If these subsequent or junior lienholders be not joined in the foreclosure action, the
judgment in the mortgagor's favor is ineffective as to them, of course. In that case, they retain what is
known as the "unforeclosed equity of redemption," and a separate foreclosure proceeding should be
brought to require them to redeem from the first mortgagee, or the party acquiring title to the
mortgaged property at the foreclosure sale, within 90 days, under penalty of losing that prerogative to
redeem.
In the case at bar, however, there is no occasion to speak of any "unforeclosed equity of redemption' in
Sarmiento's favor since he was properly impleaded in the judicial proceeding where his and Ponce's rights
over the mortgaged property were ventilated and specifically adjudicated. Upon the facts on record,
Sarmiento cannot be heard to complain of denial of due process for alleged lack of notice of any motion
or hearing for confirmation of sale. Court hereby rules that the equity of redemption claimed and invoked
by Rogelio M. Sarmiento over the properties subject of the case lapsed and ceased to exist without
having been properly exercised.
Judicial Foreclosure v. Extra-Judicial Foreclosure; Writ of Possession.
Dayot v. Shell Chemical Co. (PHILS), Inc., G.R. No. 156542, 26 June 2007.
Panay Railways, Inc. (PRI) executed a real estate mortgage contract over six parcels of land located
in Lapuz District, Iloilo City in favor of Traders Royal Bank (TRB) for purposes of securing its loan
obligations to TRB. PRI failed to pay its loan. As a consequence, the mortgaged properties were
foreclosed and sold at public auction to TRB as the highest bidder. PRI failed to redeem the foreclosed
properties. Hence, TRB consolidated its ownership over the subject parcels of land and, thereafter,
certificates of title were issued in its name.
TRB filed a Petition for Writ of Possession with the RTC of Iloilo City (Land Registration Case). In its
Order dated October 22, 1990, the trial court granted the petition and ordered the issuance of a writ of
possession in favor of TRB. However, the writ was not fully implemented.
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TRB sold to spouses Edmundo and Candelaria Dayot (Spouses Dayot), by virtue of a Deed of Absolute
Sale, five parcels of land.
Subsequently, on February 5, 1991, Candelaria Dayot (petitioner) filed a Supplemental Pleading before
the RTC of Iloilo City, praying that she, being the transferee of all the rights and interests of TRB over the
parcels of land subject of the Petition for Writ of Possession filed by the latter, be substituted as the new
petitioner in the Land Registration Case and that an alias writ of possession be issued in her favor. The
trial court granted Dayot’s prayer in its Order. The RTC also issued an Alias Writ of Possession in her
favor.
The spouses Dayot filed another case with the RTC of Iloilo City, a complaint for Recovery of Ownership
and Possession, Annulment of Documents, Cancellation of Titles, Reconveyance and Damages against
TRB, Petron Corporation (Petron) and herein respondent Shell Chemical Company (Phil.), Inc. (Shell),
praying that Shell be directed to vacate the portion of one of the lots which it actually possesses and for
both Petron and Shell to surrender ownership and possession of portions of parcels of lands.
On August 21, 1997, while the above civil case was pending resolution, Dayot filed in the Land
Registration Case an Amended Supplemental Motion for the Issuance of Writ of Possession, praying that
Shell be ejected from the portion of the subject lot which it actually possesses.
RTC denied herein petitioner's Motion for the Issuance of a Writ of Possession, insofar as Shell is
concerned. Despite the issuance of the above-mentioned Order, petitioner Dayot filed two successive
motions praying for the issuance of an alias writ of possession. Shell opposed these motions.
RTC issued an Alias Writ of Possession in favor of petitioner Dayot. On even date, the Sheriff served upon
Shell a Notice to Vacate. Shell then filed a petition for certiorari and prohibition with the CA praying for
the nullification of the RTC order.
RULING: The obligation of a court to issue a writ of possession in favor of the purchaser in an extra-
judicial foreclosure sale of a mortgaged property ceases to be ministerial once it is shown that there is a
third party in possession of the property who is claiming a right adverse to that of the mortgagor and
that such third party is a stranger to the foreclosure proceedings in which the ex-parte writ of possession
was applied for.
It bears emphasis that an ex-parte petition for issuance of a writ of possession is a non-litigious
proceeding authorized in an extra-judicial foreclosure of mortgage pursuant to Act 3135, as amended. It
is brought for the benefit of one party only, and without notice to, or consent by any person adversely
interested.
Furthermore, unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules
of Court where an action for foreclosure is brought before the RTC where the mortgaged
property or any part thereof is situated, any property brought within the ambit of Act 3135 is
foreclosed by the filing of a petition, not with any court of justice, but with the office of the
sheriff of the province where the sale is to be made. As such, a third person in possession of
an extra-judicially foreclosed property, who claims a right superior to that of the original
mortgagor, is thus given no opportunity to be heard in his claim. It stands to reason,
therefore, that such third person may not be dispossessed on the strength of a mere ex-
parte possessory writ, since to do so would be tantamount to his summary ejectment, in
violation of the basic tenets of due process.
In the case at bar, it is not disputed that Shell had been in possession of the subject lots since 1975 and
that it has in its premises bulk plant and fuel storage facilities for the purpose of conducting its
business. In this respect, the Court agrees with the findings of the CA that petitioner Dayot had
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knowledge of Shell's prior possession of the disputed properties. Yet, instead of pursuing the civil action
where Shell will be given a chance to substantiate its claim of ownership, petitioner Dayot still insists
on obtaining a writ of possession pursuant to its alleged right as purchaser of the properties which had
been extra-judicially foreclosed. The Court cannot sanction this procedural shortcut. To enforce the writ
against herein Shell, an unwitting third party possessor who took no part in the foreclosure proceedings,
would be tantamount to the taking of real property without the benefit of proper judicial intervention.
Hence, it was not a ministerial duty of the trial court under Act No. 3135 to issue a writ of possession for
the ouster of respondent from the lot subject of this instant case, particularly in light of the latter's
opposition and claim of ownership and rightful possession of the disputed properties.
Moreover, the trial court was without authority to grant the ex-parte writ, since petitioner's right of
possession under said Act could be rightfully enforced only against PRI as the original mortgagor and its
successors-in-interest, but not against Shell which possesses the property subject of execution under a
claim of ownership, having bought the same from the Development Bank of the Philippines (DBP).
Furthermore, registration of the lots in petitioner Dayot’s name does not automatically entitle the latter to
possession thereof. Petitioner Dayot must resort to the appropriate judicial process for recovery of the
properties and cannot simply invoke its title in an ex-parte proceeding to justify the ouster of Shell,
especially in view of the fact that the latter also has in its possession a Transfer Certificate of Title over
the subject properties. The court cannot just ignore the claim of herein Shell, who is in actual possession
of the subject properties, that it has been the owner thereof since 1975 and, therefore, has the better
right to possess them.
Basic rules on Judicial Foreclosure as stated in Rural Bank of Oroquieta v. Court of Appeals (G.R.
No. 53466, 10 November 1980).
1. Under section 3, Rule 68 of the Rules of Court, it is the confirmation by the court of the auction
sale that would divest the Serrano spouses of their rights to the mortgaged lot and that would
vest such rights in the bank as purchaser at the auction sale.
2. The clause "subject to such rights of redemption as may be allowed by law," found in the last
part of section 3, has no application to a case where the mortgagor did not exercise his right of
redemption under section 78 of the General Banking Law.
3. A foreclosure sale is not complete until it is confirmed, and before said confirmation, the court
retains control of the proceedings by exercising a sound discretion in regard to it, either granting
or withholding confirmation as the rights and interests of the parties and the ends of justice may
require.
4. In order that a foreclosure sale may be validly confirmed by the court, it is necessary that a
hearing be given the interested parties, at which they may have an opportunity to show cause
why the sale should not be confirmed.
5. The acceptance of a bid at the foreclosure sale confers no title on the purchaser. Until the sale
has been validly confirmed by the court, he is nothing more than a preferred bidder. Title vests
only when the sale has been validly confirmed by the court.
6. The confirmation retroacts to the date of the sale. A hearing should be held for the confirmation
of the sale. The mortgagor should be notified of that hearing. Lack of notice vitiates the
confirmation of the sale. The mortgagor may still redeem the mortgaged lot after the rendition
of the order confirming the sale which is void for lack of hearing and notice to the mortgagor.
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7. Notice and hearing of a motion for confirmation of sale are essential to the validity of the order
of confirmation, not only to enable the interested parties to resist the motion but also to inform
them of the time when their right of redemption is cut off.
8. An order of confirmation, void for lack of notice and hearing, may be set aside anytime.
9. After the foreclosure but before its confirmation, the court may grant the judgment debtor or
mortgagor an opportunity to pay the proceeds of the sale and thus refrain from confirming it.
10. If after the foreclosure sale and before the confirmation thereof, the mortgagee, as purchaser at
the auction sale, sold the mortgaged property to another person, that subsequent sale does not
render the foreclosure sale more effective. That subsequent sale does not prevent the trial court
from granting the mortgagor a period within which to redeem the mortgaged lot by paying the
judgment debt and the expenses of the sale and costs.
11. Whatever may have been the old rule by all of the modern authorities, it is the policy of the
courts to assist rather than to defeat the right of redemption.
12. After the confirmation of the sale, made after hearing and with due notice to the mortgagor, the
latter cannot redeem anymore the mortgaged lot.
13. It is after the confirmation of the sale that the mortgagor loses all interest in the mortgaged
property.
SPA in Extra-Judicial Foreclosures.
Casano v. Magat, G.R. No. P-02-1539, 24 January 2002.

FACTS: On 30 October 1998 a Petition for extrajudicial foreclosure of real estate mortgage was filed by
Atty. Reynaldo A. Cardeo, counsel for Teresita Manabat, with the Office of the Provincial Sheriff, RTC-
Biñan, Laguna, alleging that a Deed of Real Estate Mortgage was executed in Manabat's favor by the
spouses Ricardo and Justina Casano over a lot of the Registry of Deeds of Laguna to secure a mortgage
indebtedness in the amount of P300,000.00. The Deed contained a stipulation
constituting Teresita Manabat as the mortgagors' attorney-in-fact for purposes of filing an application for
foreclosure under Act 3135.
The Casano spouses failed to pay the mortgage indebtedness despite formal demand and grace period
given, hence, the application for foreclosure of mortgage. Acting on the application for foreclosure of
mortgage, Sheriff Magat issued on the same day a Notice of Extrajudicial Sale for the auction sale on 1
December 1998 at 10:00 o'clock in the morning.
Petitioner Ramon C. Casano, acting on behalf of the Heirs of mortgagor Ricardo Casano, sent a letter
protesting the sale on the ground that the real estate mortgage contract did not contain any stipulation
giving the mortgagee the right to foreclose the mortgage extra-judicially. The sale nevertheless
proceeded as scheduled with the mortgagee as the highest bidder. Hence, petitioner Ramon C. Casano
charged respondent Arnel G. Magat, Sheriff IV, Office of the Clerk of Court, RTC, Biñan, Laguna, with
Grave Abuse of Authority and/or Gross Ignorance of the Law in proceeding with the extrajudicial
foreclosure sale of a real property in Biñan, Laguna, notwithstanding the fact that the real estate
mortgage contract contained no stipulation authorizing the mortgagee to extra-judicially foreclose
the mortage in case of non-payment of the mortgage debt.
RULING: As provided in Section 1 of Act No. 3135, as amended, extra-judicial foreclosure sale is proper
only when so provided in the real estate mortgage contract. It is the specific duty of the Clerk of Court to
examine applications for foreclosure of mortgages whether the attached real estate mortgage contract
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contained the requisite special power authorizing the mortgagee to extra-judicially foreclose the
mortgage in case of non-payment of the mortgage indebtedness.
Sheriff Magat is administratively liable but only for neglect of duty. For his defense, he contends that he
could not be held administratively liable because it was his ministerial duty to act on the application filed
by the mortgagee Teresita Manabat.
The contention has no merit and cannot excuse respondent from administrative liability. When the
application was filed in the instant case, it was Sheriff Magat’s specific duty to examine whether the
attached real estate mortgage contract contained the requisite special power authorizing the mortgagee
to extra-judicially foreclose the mortgage in case of non-payment of the mortgage indebtedness. Magat
should not have relied blindly, as he did, on the mortgagee-applicant's assurance that there was such a
power in the real estate mortgage contract. Counsel for the mortgagors already told respondent that
there was none, and besides, a copy of the Real Estate Mortgage contract was attached to the
application itself as Annex "A" for respondent's easy perusal. The ministerial duty of a sheriff should have
its limitations, i.e., he ought to know what is inherently right and inherently wrong.
Venue under Act No. 3135, as amended.
Ochoa v. China Banking Corporation, 23 March 2011.
A real estate mortgage over a property in Paranaque City contained a stipulation that the exclusive venue
is in Makati City. The mortgagors filed their action for annulment of the foreclosure sale in Parañaque and
the mortgagee filed its petition for extrajudicial foreclosure also in Parañaque. While the venue of the
annulment action was improperly laid, that is not the case with the petition for extrajudicial foreclosure.
The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No. 3135. Thus, the sale
can be made only in Parañaque where the realty is located pursuant to Section 2 of Act No. 3135. The
exclusive venue of Makati City, as stipulated by the parties and sanctioned by Section 4, Rule 4 of the
Rules of Court, cannot be made to apply to the Petition for Extrajudicial Foreclosure filed by respondent
bank because the provisions of Rule 4 pertain to venue of actions, which an extrajudicial foreclosure is
not.
Posting of notice under Act No. 3135, as amended.
Bank of the Philippine Islands v. Puzon, G.R. No. 160046, 27 November 2009.
It has been held that the failure to post a notice is not a ground for invalidating the sale so long as the
notice is duly published in a newspaper of general circulation. In the absence of contrary evidence, the
presumption prevails that the sheriff performed his official duty of posting the notices of sale in 3 public
places for no less than 2 days before the sale. The party alleging non-compliance with the publication
requirement has the burden of proving the same.
Olizon v. Court of Appeals, G.R. No. 107075, 1 September 1994.
It is now a well-settled rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings
is not necessary. Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages,
as amended by Act No. 4118, requires only the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. Hence, the lack of personal notice to the
mortgagors, herein petitioners, is not a ground to set aside the foreclosure sale.
The publication of the notice of sale in the newspaper of general circulation alone is more than sufficient
compliance with the notice-posting requirement of the law. By such publication, a reasonably wide
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publicity had been effected such that those interested might attend the public sale, and the purpose of
the law had been thereby subserved.
The object of a notice of sale is to inform the public of the nature and condition of the property to be
sold, and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders
and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes
will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which
are calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the
sale made pursuant thereto.
Development Bank of the Philippines v. Court of Appeals , GR No. 125838, 10 June 2003.
A certificate of posting is not required, much less considered indispensable, for the validity of a
foreclosure sale under Act 3135 – it is significant only in the matter of providing compliance with the
required posting of notice.
Development Bank of the Philippines v. Aguirre, G.R. No. 144877, 7 September 2001.
Under Section 3 of Act No. 3135, if the value of the property subject of the foreclosure is more than
P400.00, the notice of sale must be posted and published. The failure to post a notice is not per se a
ground for invalidating the sale provided that the notice thereof is duly published in a newspaper of
general circulation. However, although the notice of foreclosure sale in the instant case was duly
published, the sale did not take place as scheduled on September 25, 1985. Instead, it was held more
than two months after the published date of the sale or on January 7, 1986. This renders the sale void.
It is settled doctrine that failure to publish the notice of auction sale as required by the statute
constitutes a jurisdictional defect which invalidates the sale.
Metrobank v. Nikko Resources International Corporation and Supermax Philippines, Inc. G.R.
No. 178479, 23 October 2009.
FACTS: Respondent Supermax Philippines, Inc. obtained loans in 1999 from Metropolitan Bank and Trust
Company (Metrobank) totaling P24,600,000. To secure the loans, its co-respondent Nikko Sources
International Corporation mortgaged a parcel of land covered by Transfer Certificate of Title No. T-
763001 in its name.
Supermax failed to pay the loans upon maturity, hence, Metrobank filed a petition for extra-judicial
foreclosure of the mortgage before a notary public in Cavite. A Notice of Sale scheduled on August 4,
2000 was rescheduled to November 7, 2000 on petitioner Metrobank’s request, and finally to November
14, 2000 on respondents’ request.
Four days before the finally rescheduled public auction sale or on November 10, 2000, respondents filed
before the Regional Trail Court (RTC) of Bacoor, Cavite a Complaint against Metrobank and the notary
public for declaration of nullity of notice of sale and increase in interest rates and damages, with prayer
for the issuance of TRO and/or writ of preliminary injunction, alleging that their failure to pay the loans
was due to the unilateral imposition of exorbitant interest rate by petitioner from 16.453% to 18.5% in a
matter of months; and that petitioner reset the auction sale to November 14, 2000 without complying
with the posting and publication requirements.
RTC issued a TRO and eventually a writ of preliminary injunction. Metrobank filed a Motion to Dissolve
the writ which the trial court denied, it finding that, among other things, Metrobank did not comply with
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the requirements of the law on notice and publication of the auction sale. Its Motion for Reconsideration,
having been denied, Metrobank filed a petition for Certiorari before the Court of Appeals.
The CA, finding that Metrobank failed to comply with Section 3 of Act No. 3135 (AN ACT TO REGULATE
THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL ESTATE
MORTGAGES), as amended and Circular No. 7-2002 (GUIDELINES FOR THE ENFORCEMENT OF SUPREME
COURT RESOLUTION OF DECEMBER 14, 1999 IN ADMINISTRATIVE MATTER NO. 99-10-05-0
(RE: PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE), AS AMENDED BY THE
RESOLUTIONS DATED JANUARY 30, 2001 AND AUGUST 7, 2001) of this Court, dismissed the petition.
Metrobank argues:
x x x [I]n deciding to uphold the ruling of the trial court, the Honorable Court
of Appeals reasoned that, under Circular No. 7-2002, which took effect on 22 April
2002, republication of a subsequent date of the foreclosure sale
is unnecessary, provided that the said subsequent date be indicated in the original
Notice of Sale. Hence, as the foreclosure sale in this instance was intended to be held
on 14 November 2000, before the said Circular took effect, there was a need for the
Notice of Sale to be re-published and re-posted.
However, prior to the effectivity of Circular No. 7-2002, there was

neither any statute nor judicial pronouncement from the Hon. Supreme
Court requiring republication and reposting of a Notice of Sale in the event
foreclosure did not proceed on the date originally intended.
The Honorable Court of Appeals, however, anchored its Decision [on] the
case of Philippine National Bank vs. Nepomuceno Productions, Inc., 394
SCRA 405, which was, however, promulgated by the Hon. Supreme Court on 27
December 2002 or more than two (2) years after the intended auction sale in the
instant case on 14 November 2000.
RULING: The sale at public auction of the properties covered by the foreclosed mortgage in Philippine
National Bank v. Nepomuceno Productions, Inc. cited by Metrobank took place in 1976, also prior to the
effectivity on April 22, 2002 of this Court’s Circular No. 7-2002. The Court therein held that under Act No.
3135, as amended, republication as well as reposting of the notice of sale is required if the foreclosure
does not proceed on the date originally intended.
The principal object of a notice of sale in a foreclosure of mortgage is not so

much to notify the mortgagor as to inform the public generally of the nature and
condition of the property to be sold, and of the time, place, and terms of the
sale. Notices are given to secure bidders and prevent a sacrifice of the
property. Clearly, the statutory requirements of posting and publication are
mandated, not for the mortgagor’s benefit, but for the public or third persons. In
fact, personal notice to the mortgagor in extrajudicial foreclosure proceedings is not
even necessary, unless stipulated. As such, it is imbued with public policy
considerations and any waiver thereon would be inconsistent with the intent and
letter of Act No. 3135.
Moreover, statutory provisions governing publication of notice of mortgage

foreclosure sales must be strictly complied with and slight deviations therefrom will
invalidate the notice and render the sale at the very least voidable.
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Thus, in the recent case of Development Bank of the Philippines v. Aguirre,
the foreclosure sale held more than two (2) months after the published date of sale
was considered void for lack of republication. Similarly, in the instant case, the lack of
republication of the notice of the December 20, 1976 foreclosure sale renders it void.
The right of a bank to foreclose a mortgage upon the mortgagor’s failure to

pay his obligation must be exercised according to its clear mandate, and every
requirement of the law must be complied with, lest the valid exercise of the right
would end. The exercise of a right ends when the right disappears, and it disappears
when it is abused especially to the prejudice of others.
Metrobank not having republished the notice of the finally rescheduled auction sale, its petition must fail.
Personal notice to the mortgagor is required when stipulated.
Concepcion v. Court of Appeals, GR No. 122079, 27 June 1997.
Thus, while publication of the foreclosure proceedings in the newspaper of general circulation was
complied with, personal notice is still required when the same was mutually agreed upon by the parties
as additional condition of the mortgage contract. Failure to comply with such stipulation is fatal.
Metrobank v. Wong, GR No. 120859, 26 June 2001.
Act 3135 only requires (1) the posting of notices of sale in three public places, and (2) the publication of
the same in a newspaper of general circulation. Personal notice to the mortgagor is not
necessary. Nevertheless, the parties to the mortgage contract are not precluded from
exacting additional requirement.
Equity of Redemption and Right of Redemption distinguished.
Top Rate International Services v. IAC, et. al. G.R. No. L-67496, 7 July 1986.
FACTS: This involves two consolidated petitions seeking to annul the decisions of the IAC.
1st CASE: On August 12, 1981, Rodrigo Tan filed a complaint against Consolidated Mines Inc. (CMI) and
its President, Jose Marino Olondriz (Olondriz), for the payment of the purchase price of certain heavy
equipment, parts and accessories sold to CMI with a total cost of P271,372.20. In said complaint, Tan
asked that a writ of preliminary attachment be issued against defendants CMI and Olondriz on the
ground that they were guilty of fraud in securing said equipment.
On August 17, 1981, respondent Court granted Tan’s motion for the issuance of a writ of preliminary
attachment upon posting of a bond in the amount of P 271,372.20. Pursuant to said order, a writ of
attachment was issued. The sheriff served notices of garnishment on the tenants of the building owned
by defendant CMI garnishing the rentals due from said tenants, but since there were earlier notices of
garnishment served upon said tenants issued in two (2) other cases, the sheriff was not able to garnish
any amount from said tenants. The sheriff levied on the properties of CMI and the notice of levy was duly
annotated.
Annotated as prior encumbrances on the first two properties was a mortgage in favor of twelve (12)
consortium banks and a notice of levy issued in a civil case entitled 'Warmco Trading Company versus
Consolidated Mines, Inc. and Jose Marino Olondriz’.
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2nd CASE: On August 18, 1981, Polaris Motor Supply, Co. brought a case in court against the respondents
CMI and Olondriz for the collection of P71,855.20. The amount represents the price of the heavy
equipment and accessories which CMI had purchased from the petitioner. On November 3, 1981, the
respondent judge ordered the attachment of CMI's properties. A notice of the attachment of real
properties of the CMI was served on the Register of Deeds of Makati who annotated the levy on Transfer
Certificate of Titles Nos. S-68500, S-68501 and 79711.
On May 31, 1981, several banks, constituting the Consortium Banks, filed a third-party claim with the
sheriff, alleging that they were the mortgagees of the real and personal properties of the CMI with a total
book value of P656,613,303.00 and an appraised value of P4,497,443,040.00. They claimed that their
mortgage was evidenced by a deed executed on November 10, 1978. They, therefore, asked that the
properties be released from attachment.
Polaris Motor filed a motion to quash the third-party claim but its motion was denied by the respondent
judge in his order. The court ruled that the Consortium Banks, as mortgagees of the real and personal
properties of the CMI had a superior lien on the properties and that Polaris Mortor could validly levy only
on the mortgagor's (CMI's) equity of redemption after the sale of the mortgaged properties.
The personal properties were foreclosed by the Consortium Banks to which the properties were sold as
the highest bidder and the certificate of sale issued on July 6, 1982. Polaris Motor then asked that it be
allowed to exercise its right of redemption. But the Consortium Banks opposed the motion on the ground
that there was an equity in redemption only in case of foreclosure sale of real properties but not in the
case of chattels.
In the meantime, an insolvency court authorized in a special proceeding case, the sale of the properties
of the CMI. Accordingly, the properties were sold to Top Rate International as assignee of the El Grande
Development Corp. The sale is evidenced by a 'Deed of Confirmation of Sale with Assumption of
Mortgage.' On the basis of the sale, Top Rate filed a third-party claim with the sheriff. It asked that the
properties covered by TCT No. S-68500 and S-68501 be discharged from attachment.
On the basis of the same "Deed of Confirmation of Sale with Assumption of Mortgage," Top Rate also
filed a third-party claim alleging that the properties involved therein had been sold to it for
P40,000,000.00 on December 10, 1981 with the approval of the court in the Special Proceeding case in
the course of the involuntary insolvency proceedings filed against CMI. Top Rate, therefore, asked that
the attachment made on these properties be discharged.
IAC ruled that there is no merit in Top Rate's claim that the attachment should be discharged because
the value of the property levied upon is in excess of the total claim of the petitioners which was only
P71,885.20 plus interest. What was actually attached by Rodrigo Tan and Polaris Motor was the equity of
redemption of CMI, the levy made pursuant to the writ of attachment being upon "all rights, titles,
interests, claims and participation of the defendant Consolidated Mines, Inc." to the properties covered by
TCT No. S-68501, TCT No. S-68500 and TCT No. 79777. However, as regards the validity of the sale of
the properties to Top Rate which was authorized by the insolvency court, the Court ruled that this matter
should be threshed out in an independent action to give Top Rate the opportunity to ventilate its claims
over said properties.
Top Rate states that the respondents’ (Tan and Polaris Motors) claims are only P271,372.20 and
P71,855.20 respectively. It contends that an over-levy is obvious because the properties levied upon are
worth more than P40,000,000.00. It alleges as error IAC’s ruling that since the equity of redemption and
not the properties themselves were attached, its value has no way of exceeding the respondents'
individual claims because the value of the equity of redemption should be that which will effectively
release the properties, that is P40,000,000.00. This is the amount which the respondents must
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necessarily pay, at the very least, to exercise such right and not the amount of their claims. There is,
therefore, no over-levy.
RULING: Equity of redemption is the right of the mortgagor to redeem the mortgaged
property after his default in the performance of the conditions of the mortgage but before
the sale of the property or the confirmation of the sale, whereas the right of redemption
means the right of the mortgagor to repurchase the property even after confirmation of the
sale, in cases of foreclosure by banks, within one year from the registration of the sale.
To levy upon the mortgagor's incorporeal right or equity of redemption, it was not necessary for the
sheriff to have taken physical possession of the of the mortgaged properties. Levying upon the property
itself is distinguishable from levying on the judgment debtor's interest in it. It is, therefore, error on the
part of Top Rate to say that since respondents' lien is only a total of P343,227.40, they cannot be entitled
to the equity of redemption because the exercise of such right would require the payment of an amount
which cannot be less than P40,000,000.00.
When herein respondents Tan and Polaris Motors prayed for the attachment of the properties to secure
their respective claims against CMI, the properties had already been mortgaged to the Consortium of
twelve Banks to secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the
respondents' liens on such properties became inferior to that of the Consortium Banks, which claims in
the event of foreclosure proceedings, must first be satisfied. IAC, therefore, was correct in holding that in
reality, what was attached by the respondents was merely CMI’s right or equity of redemption.
Hence, the appellate court did not commit any error in ruling that there was no over-levy on the disputed
properties. What was actually attached by respondents was Consolidated Mines' right or equity of
redemption, an incorporeal and intangible right, the value of which can neither be quantified nor equated
with the actual value of the properties upon which it may be exercised.
Alpha Insurance v. Reyes, G.R. No. L26274, 31 July 1981.
FACTS: On November 15, 1958, spouses Esperanza C. Reyes and Arturo R. Reyes executed in favor of
Alpha Insurance and Surety Co., Inc. a second mortgage over their two parcels of land and the buildings
thereon in consideration of Alpha Insurance's undertaking to act as surety of the said spouses in certain
loans (not to exceed P10,000.00) to be obtained from banks or financial institutions. The two lots were
previously mortgaged to the Development Bank of the Philippines as security for a loan of P17,000.00.
In 1958, Esperanza C. Reyes borrowed P5,000.00 from the Prudential Bank and Trust Company. In 1959,
she borrowed also P5,000.00f rom the Philippine Banking Corporation. Alpha Insurance was her surety
and co-maker in the two promissory notes covering the said loans. She and her husband executed
indemnity agreements in favor of Alpha Insurance in addition to the second mortgage.
Due to the default of Esperanza C. Reyes, Alpha Insurance, as solidary debtor, was constrained to pay
the two loans total balance of which as of November 21, 1961 was P7,575.00, plus 12% interest per
annum.
As the Reyes spouses did not make any reimbursement to Alpha Insurance, the latter filed in court an
action for foreclosure against the spouses and the DBP. The DBP in its answer alleged that it had a first
mortgage on the two lots which was superior to Alpha Insurance's mortgage. It prayed that, in case of
foreclosure, the proceeds of the sale be first applied to its credit. The Reyes spouses did not file an
answer. They were declared in default.
Judge Jose L. Moya in his decision ordered the Reyes spouses to pay Alpha Insurance the sum of
P7,575.00with 12% interest a year from November 22, 1961. Because the judge had ignored the prayer
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in Alpha Insurance's complaint for the foreclosure of its second mortgage, it filed a motion for
reconsideration, praying that the foreclosure of the second mortgage be ordered and that the Reyes
spouses be required to pay attorney's fees. Judge Moya awarded P757.50 as attorney's fees, but he held
that the second mortgage could not be recognized as an encumbrance because the DBP did not consent
to its execution.
Alpha Insurance filed a motion for reconsideration wherein it alleged that the second mortgage was
approved by DBP Governor Roberto S. Benedicto and that the second mortgage was registered because
of that approval and because the DBP delivered the owner's duplicate of the title to Alpha Insurance in
order to effect the registration.
RULING: Even if the DBP were just an ordinary first mortgagee without any preferential liens under
Republic Act No. 85 or Commonwealth Act 459, it would be unquestionable that nothing may be done to
favor Alpha Insurance, a mere second mortgagee, until after the obligations of the Reyes spouses with
the first mortgagee, DBP, have been fully satisfied and settled. In law, strictly speaking, what was
mortgaged by the Reyeses to Alpha was no more than their equity of redemption.
There is no provision prohibiting the joinder of a first mortgagee in a complaint filed by the second
mortgagee for the same purpose. In such a situation, the second mortgagee has to wait until after the
debtor’s obligation to the first mortgagee has been fully settled and the excess of the proceeds of the
sale, if any, will be given to the second mortgagee.
Ramirez v. Court of Appeals, G.R. No. 171354, 7 March 2007.
A second mortgagee merely takes what is called an equity of redemption and thus a second mortgagee
has to wait until after the debtor’s obligation to the first mortgagee has been fully settled. The rights of a
second mortgagee are strictly subordinate to the superior lien of the first mortgagee.
Right of Redemption
Rosales v. Yboa, G.R. No. L 42282, 28 February 1983.
FACTS: By virtue of the foreclosure of real estate mortgage duly executed by the mortgagor Pedro
Oliverio in favor of the Development Bank of the Philippines, as security for the payment of the amount
of P12,000.00, Deputy Sheriff of Samar Peregrin Yboa, sold at public auction to Rosales, the highest
bidder, for the total amount of P14,500.00. The corresponding Sheriff’s certificate of sale was issued in
favor of Rosales which certificate was registered in the Office of the Register of Deeds for the Province of
Samar on February 3, 1970.
On January 23, 1971, after the mortgagor Pedro Oliverio had served notice in writing of the redemption
and had paid on said date to Yboa and the Deputy Sheriff the principal amount of P14,500.00 plus
interest, the latter executed a Deed of Certificate of Redemption restoring, conveying and assigning unto
the said mortgagor, his heirs and assigns all the estate, right, title and interest on said foreclosed
property.
Rosales filed the instant complaint for cancellation of certificate of redemption alleging there was no valid
redemption was effected because: (1) the mortgagor failed to tender payment of the full interest on the
purchase price, while should be P1,715.84, instead of Pl,691.00 actually paid by the mortgagor, thereby
leaving a deficiency in the sum of P24.84; (2) the sum of P3.00 representing the registration fee of the
certificate of sale, plus interest thereon of P0.04; (3) the delinquent real estate taxes of the subject
property for the years 1960 to 1970 amounting to P745.47; and (4) the Sheriff s commission in the sum
of P99.82.
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The RTC declared that the Certificate of Redemption of the property sold at public auction is valid and
legal without prejudice to the right of Rosales to recover from the redemptioner the deficiencies.
RULING: The requisites for a valid redemption are: 1) the redemption must be made within twelve (12)
months from the time of the registration of the sale in the Office of the Register of Deeds; 2) payment of
the purchase price of the property involved, plus 1% interest per month thereon, if any, paid by the
purchaser after the sale with the same rate of interests; and 3) written notice of the redemption must be
served on the officer who made the sale and a duplicate filed with the Register of Deeds of the province.
There is no dispute, that in the case at bar, the mortgagor Pedro Oliverio tendered payment of the
purchase price well within the redemption period of twelve (12) months after the registration of the sale
on February 3,1970 and that defendants Yboa, Deputy Sheriff of Samar and the Register of Deeds of
Samar were duly notified in writing of the mortgagor’s desire to redeem the subject property. Equally
beyond question is the fact that mortgagor Pedro Oliverio tendered the sum of P14,500.00 corresponding
to the purchase of the property, and the amount of P1,691.00 representing the 1% monthly interest
thereon, although the trial court found a deficiency of P0.67 due and owing to the plaintiff appellant. The
mortgagor, therefor, has substantially complied with the requirements of the law to effect redemption,
for which reason a Certificate of Redemption was issued in his favor by defendant appellee Deputy
Sheriff.
The failure of the mortgagor Pedro Oliverio to tender the amount of P745.47 representing the delinquent
real estate taxes of the subject property, the registration fee of P3.00 and the interest thereon of P0.04,
the Sheriff’s Commission in the sum of P99.82, and the deficiency interest on the purchase price of the
subject property, will not render the redemption in question null and void, it having been established that
he has substantially complied with the requirements of the law to effect a valid redemption, with his
tender of payment of the purchase price and the interest thereon within twelve (12) months from the
date of the
registration of the sale.
Filing of court action to enforce redemption has effect of preserving redemptioner’s rights and “freezing”
expiration of one year period.
Banco Filipino Savings and Mortgage Bank v. CA, G.R. No. 143896, 8 July 2005
FACTS: Santiago Memorial Park, Inc. (SMP Inc.) filed a complaint for redemption and specific
performance against Banco Filipino Savings & Mortgage Bank, alleging, among others, that SMP Inc.
made manifest its interest to exercise its right of redemption through numerous communications and
negotiation with the defendant. Also, SMP Inc. alleges that the delay of Banco Filipino in the finalization
of the terms of redemption did not in any manner alter the right of plaintiff to redeem the property.
Banco Filipino filed a motion to dismiss on the ground that the complaint does not state a cause of
action. It alleges that assuming that the allegations in the complaint are true and correct, still there was
no redemption effected within one year from the date of registration of the sheriff’s certificate of sale
with the Register of Deeds on January 21, 1991, thus SMP, Inc. had lost its right to redeem the subject
land.
Banco Filipino claimed that the SMP Inc.’s letter was a mere offer to redeem the property which was
promptly answered by Banco Filipino, denying SMP’s offer and stated that when it comes to redemption,
the basis of payment is the total claim of the bank at the time the property was foreclosed plus 12%
thereof and all litigation expenses attached thereto or its present appraised value whichever is higher;
that the letter mentioned was about negotiation and special arrangement and not redemption for at that
stage the period of redemption had already expired.
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The RTC ruled in favor of Banco Filipino. The CA however reversed and set aside the order of the RTC,
declaring SMP Inc. entitled to repurchase the property in question within THIRTY (30) days from CA’s
notice.
ISSUE: Whether SMP Inc.’s offer and negotiation with Banco Filipino for the redemption is sufficient to
stall the running of the redemption period.
RULING: Clearly, the right of redemption should be exercised within the specified time limit. The
redemptioner should make an actual tender in good faith of the full amount of the purchase price. In
case of disagreement over the redemption price, the redemptioner may preserve his right of redemption
through judicial action which in every case must be filed within the one year period of redemption. The
filing of the court action to enforce redemption, being equivalent to a formal offer to
redeem, would have the effect of preserving his redemptive rights and freezing the
expiration of the one year period. In this case, the period of redemption expired on January
21, 1992. The complaint was filed on December 20, 1992.
Moreover, while the complaint alleges that SMP Inc.’s made an offer to redeem the subject property on
August 6, 1991, which was within the period of redemption, it is not alleged in the complaint that there
was an actual tender of payment of the redemption price as required by the rules. It was alleged that
SMP Inc.’s merely made an offer of P700,000.00 as redemption price, which however, the redemption
money was the total bank claim of P925,448.17 plus lawful interest and other allowable expenses
incident to the foreclosure proceedings. Thus, the offer was even very much lower than the price paid by
Banco Filipino as the highest bidder in the auction sale.
In BPI Family Savings Bank, Inc. vs. Veloso, the Court held: The general rule in redemption is that it is
not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention
must be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of
the right to repurchase.
Period of redemption not a prescriptive period.
Mallari v. GSIS, G.R. No. 157659, 25 January 2010.
The period of redemption is not a prescriptive period but a condition precedent provided by laws to
restrict the right of the person to exercise redemption. Correspondingly, if a person exercising the right of
redemption has offered to redeem the property within the period fixed, he is considered to have complied
with the condition precedent prescribed by law and may thereafter bring an action to enforce
redemption. If, on the other hand, the period is allowed to lapse before the right of redemption if
exercised, then the action to enforce redemption will not prosper, even if the action is brought within the
ordinary prescriptive period. Moreover, the period within which to redeem the property sold at a sheriff’s
sale is not suspended by the institution of an action to annul the foreclosure sale.
Rule in case of judicial redemption.
Tolentino v. CA, G.R. No. 171354, 7 March 2007.
The action for judicial redemption should be filed on time and in good faith, the redemption price is
finally determined and paid within a reasonable time, and the rights of the parties are respected. Stated
otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or redemption
by expiration date; (2) good faith as always, meaning, the filing of action must have been for the sole
purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and
(3) once the redemption price is determined within a reasonable time, the redemptioner must make
prompt payment in full.
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Redemption where mortgagee is a bank.
Union Bank of the Philippines v. Court of Appeals, G.R. No. 134068. June 25, 2001
FACTS: On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged their residence
in favor of petitioner to secure the payment of a loan to Delco Industries (Phils.), Incorporated in the
amount of P2,000,000.00. For failure of the respondents to pay the loan at its date of maturity, Union
Bank extra-judicially foreclosed the mortgage and scheduled the foreclosure sale on April 10, 1991. Union
Bank submitted the highest bid of P3,290,000 at the foreclosure sale. Accordingly, a certificate of sale
was issued to Union Bank and duly annotated at the back of the Transfer Certificate of Title covering the
property.
Prior to the expiration of the redemption period on May 8, 1992, the respondent spouses filed a
complaint for annulment of mortgage with the lower court. In their complaint, respondents alleged that
the subject property mortgaged to petitioner had in fact been constituted as a family home as early as
October 27, 1989. Among the beneficiaries of the said family home are the sisters of respondent Trinidad
Vincoy, namely Apolonia and Luciana De Jesus Gregorio whose consent to the mortgage was not
obtained. Respondents thus assailed the validity of the mortgage on the ground that Article 158 of the
Family Code prohibits the execution, forced sale, attachment or any other encumbrance of a family home
without the written consent of majority of the beneficiaries thereof of legal age.
On the other hand, Union Bank maintained that the mortgaged property of respondents could not be
legally constituted as a family home because its actual value P300,000.00, the maximum value for a
family home in urban areas as stipulated in Article 157 of the Family Code.
The lower court declared the constitution of the family home void and the mortgage executed in favor of
the petitioner Union Bank valid. It also ordered respondent Gonzalo Vincoy and/or Delco Industries
(Phils.), Inc. to pay Union Bank his and/or its outstanding obligation as of February 15, 1993 in the
amount of P4,816,194.44 including such sums that may accrue by way of interests and penalties.
Aggrieved, respondents appealed to the Court of Appeals contending that the lower court erred in finding
that their family home was not duly constituted, and that the mortgage in favor of petitioner is valid.
Respondents also claimed that the correct amount sufficient for the redemption of their property
P2,773,712.87 and not P4,816,194.44 as found by the lower court.
RULING: A careful scrutiny of the pleadings filed by the respondents before the lower court reveals that
at no time did the respondents pray that they be allowed to redeem the subject foreclosed property. On
the other hand, respondents never wavered from the belief that the mortgage over the said property is,
in the first place, void for having been executed over a duly constituted family home without the consent
of the beneficiaries thereof. After upholding the validity of the mortgage, the lower court ordered
respondent Gonzalo Vincoy and/or Delco Industries, Inc. to pay petitioner the amount of P4,816,194.44
plus interests and penalties representing Vincoys and/or Delcos outstanding obligation to petitioner as of
February 15, 1993. There is no mention whatsoever of respondents right to redeem the property.
Respondents raised the issue of redemption for the first time only on appeal in contesting the amount
ordered by the lower court to be paid by respondents to the petitioner. Thus, the actuation of the Court
of Appeals in allowing the respondents to redeem the subject foreclosed property is not legally
permissible.
In addition, a reason just as glaringly obvious exists for declaring the respondents right of redemption
already non-existent one year after May 8, 1991, the date of the registration of the sale at public auction.
Pursuant to Section 78 of the General Banking Act, a mortgagor whose real property has been sold at a
public auction, judicially or extra-judicially, for the full or partial payment of an obligation to any bank,
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shall have the right, within one year after the sale of the real estate to redeem the property. The one-
year period is actually to be reckoned from the date of the registration of the sale. Clearly therefore,
respondents had only until May 8, 1992 to redeem the subject foreclosed property. Their failure to
exercise that right of redemption by paying the redemption price within the period prescribed by law
effectively divested them of said right. It bears reiterating that during the one year redemption period,
respondents never attempted to redeem the subject property but instead persisted in their theory that
the mortgage is null and void. To allow them now to redeem the same property would, as petitioner aptly
puts it, be letting them have their cake and eat it too.
It cannot also be argued that the action for annulment of the mortgage filed by the respondents tolled
the running of the one year period of redemption. Unlike Section 30 of Rule 39 of the Rules of Court,
which permits the extension of the period of redemption of mortgaged properties, Section 3 of
Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the
redemption of property mortgaged to the Bank does not contain a similar provision. The period of
redemption is not interrupted by the filing of an action assailing the validity of the mortgage, so that at
the expiration thereof, the mortgagee who acquires the property at the foreclosure sale can proceed to
have the title consolidated in his name and a writ of possession issued in his favor.
To rule otherwise, and allow the institution of an action questioning the validity of a mortgage to suspend
the running of the one year period of redemption would constitute a dangerous precedent. A likely
offshoot of such a ruling is the institution of frivolous suits for annulment of mortgage intended merely to
give the mortgagor more time to redeem the mortgaged property.
As a final word, although the issue pertaining to the correct amount for the redemption of the subject
foreclosed property has been rendered moot by the foregoing, a point of clarification should perhaps be
made as to the applicable legal provision. Union Bank’s contention that Section 78 of the General Banking
Act governs the determination of the redemption price of the subject property is meritorious. In Ponce de
Leon v. Rehabilitation Finance Corporation, the Supreme Court had occasion to rule that Section 78 of the
General Banking Act had the effect of amending Section 6 of Act No. 3135 insofar as the redemption
price is concerned when the mortgagee is a bank, as in this case, or a banking or credit institution. The
apparent conflict between the provisions of Act No. 3135 and the General Banking Act was, therefore,
resolved in favor of the latter, being a special and subsequent legislation. This pronouncement was
reiterated in the case of Sy v. Court of Appeals, where the Court held that the amount at which the
foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding
obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General
Banking Act. It was therefore manifest error on the part of the Court of Appeals to apply in the case at
bar the provisions of Section 30 Rule 39 of the Rules of Court in fixing the redemption price of the subject
foreclosed property.
GE Money Bank v. Sps. Dizon, 23 March 2015.
In this case, considering that the creditor-mortgagee is a banking institution, the determination of the
redemption price is governed by Section 78 of Republic Act No. 337 or “The General Banking Act”, as
amended by Presidential Decree No. 1828.
Redemption within the period allowed by law is not a matter of intent but a question of payment or valid
tender of the full redemption price. It is irrelevant whether the mortgagor is diligent in asserting his or
her willingness to pay. What counts is that the full amount of the redemption price must be actually paid;
otherwise, the offer to redeem will be ineffectual and the purchaser may justly refuse acceptance of any
sum that is less than the entire amount.
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests
his/her desire to do so. The statement of intention must be accompanied by an actual and simultaneous
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tender of payment. This constitutes the exercise of the right to  repurchase. Bona fide redemption
necessarily implies a reasonable and valid tender of the entire purchase price, otherwise, the rule on the
redemption period fixed by law can easily be circumvented. There is no cogent reason for requiring the
vendee to accept payment by installments from the redemptioner, as it would ultimately result in an
indefinite extension of the redemption period.
Liens subordinate to the mortgage.
Philippine National Bank v. International Corporate Bank, G.R. No. 86679, 23 July 1991.
FACTS: Spouses Archimedes J. Balingit and Ely Suntay executed in PNB’s favor several real estate
mortgages over several properties in Alaminos, Pangasinan.
Annotated subsequent to the mortgage lien of PNB on the above-mentioned properties is a "Notice of
Levy re Civil Case No. 69035, CFI-Manila, Continental Bank vs. Archimedes J. Balingit and Ely Suntay
Balingit" for a total sum of P96,636.10, at the back of the titles.
For failure of the Balingit spouses to settle their loan obligation with PNB, the latter extra-judicially
foreclosed under Act 3135, as amended, the sixteen (16) parcels of land covered by the real estate
mortgages executed by the said spouses in favor of petitioner. The sheriff’s certificate of sale was
registered with the Register of Deeds, with a memorandum thereof duly annotated at the back of the
aforesaid certificates of title of the foreclosed properties.
Upon the expiration of the one-year legal redemption period, PNB consolidated in its name the ownership
of all the foregoing mortgaged properties for which new transfer certificates of title were issued in its
name. However, the annotation of the notice of levy in favor of International Corporate Bank was carried
over to and now appears as the sole annotated encumbrance in the new titles of PNB.
International Corporate Bank, as successor in interest of the defunct Continental Bank, filed an opposition
to the petition contending that, since it was not informed of the extrajudicial foreclosure proceedings, the
new and consolidated titles over the foreclosed properties issued in favor of herein petitioner are null and
void.
RULING: In the case at bar, the right of PNB to the relief prayed for is clear. The fact before us
sufficiently show that the cancellation of the disputed annotation from the certificates of title of PNB is
justified in law.
It is undisputed that International Corporate Bank is a subsequent lien holder whose rights over the
mortgaged property are inferior to that of PNB as a mortgagee. Being a subsequent lien holder,
International Corporate Bank acquires only the right of redemption vested in the mortgagor, and his
rights are strictly subordinate to the superior lien of the anterior mortgagee. After the foreclosure sale,
the remedy of the second mortgagee is limited to the right to redeem by paying off the debt secured by
the first mortgage.
The rule is that upon a proper foreclosure of a prior mortgage, all liens subordinate to the mortgage are
likewise foreclosed, and the purchaser at public auction held pursuant thereto acquires title free from the
subordinate liens. Ordinarily, thereafter the Register of Deeds is authorized to issue the new titles without
carrying over the annotation of subordinate liens. In a case with similar features, we had earlier held that
the failure of the subsequent attaching creditor to redeem, within the time allowed by Section 6 of Act
3136, the land which was sold extra-judicially to satisfy the first mortgage, gives the purchaser a perfect
right to secure the cancellation of the annotation of said creditor's attachment lien on the certificates of
title of said land.
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It has likewise been declared in Bank of the Philippine Islands, etc., et al. vs. Noblejas, etc., et al., that
"any subsequent lien or encumbrance annotated at the back of the certificates of title cannot in any way
prejudice the mortgage previously registered, and the lots subject thereto pass to the purchaser at the
public auction sale free from any lien or encumbrance. Otherwise, the value of the mortgage could be
easily destroyed by a subsequent record of an adverse claim, for no one would purchase at a foreclosure
sale if bound by the posterior claim. This alone is sufficient justification for the dropping of the adverse
claim from the new certificates of title to be issued to her, as directed by respondent Commissioner in his
opinion subject of this appeal."
The contention of International Corporate Bank in its opposition that the extrajudicial foreclosure is null
and void for failure of petitioner to inform them of the said foreclosure and the pertinent dates of
redemption so that it can exercise its prerogatives under the law is untenable. There being obviously no
contractual stipulation therefor, personal notice is not necessary and what governs is the general rule in
Section 3 of Act 3135, as amended, which directs the posting of notices of the sale in at least three (3)
public places of the municipality where the property is situated, and the publication thereof in a
newspaper of general circulation in said municipality.
Finally, the levy in favor of International Corporate Bank’s predecessor in interest arising from the
judgment of the court, appearing at the back of PNB’s certificates of titles, is already without force and
effect consider that the same has been annotated in the certificates of title for more than ten (10) years
without being duly implemented. Properties levied upon by execution must be sold at public auction
within the period of ten (10) years during which the judgment can be enforced by action.
Writ of Possession
A writ of possession is an order by which the sheriff is commanded to place a person in possession of a
real or personal property. It may be issued under any of the following instances: (a) land registration
proceedings which is a proceeding in rem to place the applicant or oppositors, or whoever is the
successful litigant, in possession of the property; [Factor v. Martel, G.R. No. 161037, 4 February 2008]
(b) in an extra-judicial foreclosure of a realty mortgage; [Section 7, Act No. 3135 as amended] (c) in a
judicial foreclosure of mortgage, a quasi in rem proceeding, provided that the mortgagor is in possession
of the mortgaged realty and no third person, not a party to the foreclosure suit, had intervened; [Ramos
v. Mañalac, G.R. No. L-2610, 16 June 1951] and (d) in execution sales. [Motos v. Real Bank, G.R. No.
171386, 17 July 2009]
De Vera v. Agloro, G.R. No. 155673, 14 January 2005.
Section 6 of Act No. 3135 provides that the mortgagor or his successor-in-interest may redeem the
foreclosed property within one (1) year from the registration of the sale with the Register of Deeds.
Under Section 7 of the law, if the mortgagor fails to redeem the property, the buyer at public auction
may file, with the RTC in the province or place where the property or portion thereof is located, an ex
parte motion for the issuance of a writ of possession within one (1) year from the registration of the
Sheriff’s Certificate of Sale, and the court shall grant the said motion upon the petitioner’s posting a bond
in an amount equivalent to the use of the property for a period of twelve (12) months. On the strength of
the writ of possession, the Sheriff is duty-bound to place the buyer at public auction in actual possession
of the foreclosed property. After the one-year period, the mortgagor loses all interest over it. The
purchaser, who has a right to possession that extends after the expiration of the redemption period,
becomes the absolute owner of the property when no redemption is made. Thus, the bond required
under Section 7 of Act No. 3135 is no longer needed. The possession of land becomes an absolute right
of the purchaser as confirmed owner. The purchaser can demand possession at any time following the
consolidation of ownership in his name and the issuance to him of a new transfer certificate of title. After
the consolidation of title in the buyer’s name for failure of the mortgagor to redeem the property, the writ
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of possession becomes a matter of right. Its issuance to a purchaser in an extrajudicial foreclosure sale is
merely a ministerial function.
DBP v. Doyon, G.R. No. 167238, 25 March 2009.
In the early 1990s, respondent spouses Jesus and Anacorita Doyon obtained several loans amounting
to P10 million from petitioner Development Bank of the Philippines (DBP). As security for the loans,
respondents mortgaged their real estate properties as well as the motor vehicles of JD Bus Lines.
Due to their inability to fully pay their obligations upon maturity, respondents requested DBP to
restructure their past due loans. DBP agreed. Hence, respondents signed three promissory notes on June
29, 1994.
Nonetheless, respondents still failed to pay the quarterly installments on the promissory notes. Thus, DBP
demanded the payment of the total value of their loans from respondents. Respondents, however,
ignored DBP and adamantly refused to pay their loans.
Consequently, DBP filed an application for extrajudicial foreclosure of real estate mortgages in RTC of
Ormoc City in 1995. To forestall the foreclosure proceedings, respondents immediately filed an action for
their nullification in the RTC claiming that they had already paid the principal amount of their loans
(or P10 million) to DBP. For three years, said case was not acted upon by the RTC.
In 1998, DBP withdrew the application for extrajudicial foreclosure and thereafter moved for the dismissal
of the above case. RTC granted the motion. By agreement therefore between the parties, this case is
considered DISMISSED with prejudice.
Weeks later, DBP demanded from respondents the payment of their outstanding obligations which had by
then ballooned to more than P20 million. Again, respondents ignored DBP.
DBP filed an application for extrajudicial foreclosure of respondents real and chattel mortgages with the
DBP special sheriff in Makati and subsequently took constructive possession of the foreclosed
properties. It posted guards at the perimeter of respondents’ property in Ormoc City where the
foreclosed motor vehicles of JD Bus Lines were parked. Subsequently, the DBP special sheriff issued
notices of sale at public auction of the foreclosed properties.
Meanwhile, respondents filed a complaint for damages against DBP and the DBP special sheriff in the
RTC. According to respondents, by withdrawing the application for extrajudicial foreclosure and moving
for the dismissal of the case, DBP led them to believe that it would no longer seek the satisfaction of its
claims. DBP therefore acted contrary to Article 19 of the Civil Code when it foreclosed on the real and
chattel mortgages anew.
Furthermore, respondents claimed that the provision in the mortgage contracts allowing DBP as
mortgagee to take constructive possession of the mortgaged properties upon respondents default was
void. The provision allegedly constituted a pactum commissorium since it permitted petitioner to
appropriate the mortgaged properties.
Lastly, respondents assailed the validity of the public auctions conducted by the DBP special sheriff.
RULING: The June 29, 1994 promissory notes uniformly stated that failure to pay an installment (or
interest) on the due date was an event of default. Respondents were therefore in default when they
failed to pay the quarterly amortizations on the designated due dates.
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When the principal obligation becomes due and the debtor fails to perform his obligation, the creditor
may foreclose on the mortgage for the purpose of alienating the (mortgaged) property to satisfy his
credit.
Further, inasmuch as DBP demanded payment from respondents right after the dismissal of the civil case,
respondents could not have reasonably presumed that the bank had waived its claims against them.
Furthermore, the fact that a demand for payment was made negated bad faith on the part of DBP.
Despite giving respondents the opportunity to pay their long overdue obligations and avoid foreclosure,
respondents still refused to pay.
A stipulation allowing the mortgagee to take actual or constructive possession of a mortgaged property
upon foreclosure is valid. A stipulation authorizing the mortgagee, for the purpose stated therein
specified, to take possession of the mortgaged premises upon the foreclosure of a mortgage is not
repugnant [to either Article 2088 or Article 2137. On the contrary, such a stipulation is in consonance or
analogous to the provisions of Article [2132], et seq. of the Civil Code regarding antichresis and the
provision of the Rules of Court regarding the appointment of a receiver as a convenient and feasible
means of preserving and administering the property in litigation.
The real estate and chattel mortgage contracts uniformly provided that DBP could take possession of the
foreclosed properties upon the failure of respondents to pay even one amortization. Thus, respondents
refusal to pay their obligations gave rise to DBP’s right to take constructive possession of the foreclosed
motor vehicles.
Issuance of writ ex parte ministerial.
Fernandez and United Overseas Bank v. Espinoza, G.R. No. 156421, 14 April 2008.
FACTS: UOB is a banking institution duly organized and existing as such under the Philippine laws;
while Firematic Philippines, Inc. (FPI) is a domestic corporation duly organized and existing under
Philippine laws represented by its President, Gregorio Espinoza.
On 24 March 1996, FPI was granted a revolving credit line by UOB in the amount
of P11,000,000.00. Using the said credit line, FPI obtained on several occasions from UOB loans in
different amounts, reaching the total sum of P4,000,000.00, as evidenced by promissory notes executed
by Gregorio Espinoza. Likewise drawn against the credit line of FPI were trust receipts in the sum
of P6,325,588.71.
As a security for the loan obligations of FPI, the spouses Espinoza executed a Deed of Real Estate
Mortgage over a parcel of land located in Pasig City, with an area of 200 square meters, and covered by
TCT No. PT-84838 in their names, with an area of 200 square meters and registered by the Registry of
Deeds of Pasig City (subject property).
Subsequently, FPI defaulted in the payment of the promissory notes and trust receipts drawn against its
credit line, which prompted UOB to cause the extrajudicial foreclosure of its mortgage on the subject
property, and the public auction sale thereof. The UOB was the highest bidder at the auction sale as
evidenced by the Certificate of Sale dated 29 July 1996.
For failure of FPI and the spouses Espinoza to redeem the subject property within the redemption period,
UOB filed an Affidavit of Consolidation before the Register of Deeds of Pasig. Consequently, a new TCT
covering the subject property was issued in the name of UOB.
In order to retain possession of the subject property, FPI and the spouses Espinoza instituted an action
for nullification of the extrajudicial foreclosure proceedings and certificate of sale, before the RTC (Civil
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Case No. 66256). In their Amended Complaint, FPI and the spouses Espinoza alleged that there was bad
faith on the part of UOB who made them sign the Deed of Real Estate Mortgage in blank. In addition, FPI
and the spouses Espinoza averred that there was already an agreement entered into by the parties to
restructure the loan, but for unknown reasons, the agreement was unilaterally rescinded by UOB. Finally,
FPI and the spouses Espinoza claimed that at the time they filed their complaint, FPI already paid UOB
the sum of P5,275,012.43. Despite their repeated requests, however, UOB still failed to give them proper
accounting of their outstanding loan obligations and the payments they made thereon.
For its part, UOB filed an Ex-Parte Petition for Issuance of a Writ of Possession before the RTC (LRC Case
No. R-5792). The spouses Espinoza opposed LRC Case No. R-5792 in view of the pendency of the
annulment of EJ proceedings case and moved, instead, for the consolidation of the two cases. The court
in the LRC Case No. R-5792, denied the opposition to the Petition and the motion for consolidation
interposed by the spouses Espinoza.
On 13 July 2000, another Order was issued by the RTC in the LRC Case No. R-5792 granting UOBs Ex-
Parte Petition for the Issuance of Writ of Possession over the subject property. The lower court decreed
that UOB became the absolute owner of the subject property being the highest bidder in the public
auction sale, and since the spouses Espinoza failed to redeem the subject property within one year from
the registration of the certificate of sale, UOB is now entitled to possession of the same as the confirmed
owner.
RULING: A writ of possession is an order whereby the sheriff is commanded to place a person in
possession of a real or personal property. It may be issued under the following instances: (1) land
registration proceedings under Sec. 17 of Act No. 496; (2) judicial foreclosure, provided the debtor is in
possession of the mortgaged realty and no third person, not a party to the foreclosure suit, had
intervened; and (3) extrajudicial foreclosure of a real estate mortgage under Sec. 7 of Act No. 3135 as
amended by Act No. 4118. The case at bar falls under the third instance.
The issuance of a writ of possession is explicitly authorized by Act No. 3135, as amended by Act No.
4118, which regulates the manner of effecting an extrajudicial foreclosure of mortgage. In case of default
of the mortgagor in the payment of the loan obligations, the mortgagee may foreclose the mortgaged
property by filing a Petition for Extrajudicial Foreclosure of Mortgage following the procedure laid down
in A.M. No. 99-10-05-0. The mortgagor or his successor-in-interest may redeem the foreclosed property
within one year from the registration of the sale with the Register of Deeds. During the redemption
period, the buyer at public auction may file, with the RTC in the province or place where the property or
portion thereof is located, an ex parte motion for the issuance of a writ of possession within one year
from the registration of the Sheriffs Certificate of Sale, and the court shall grant the said motion upon the
petitioners posting a bond in an amount equivalent to the use of the property for a period of twelve (12)
months.
A writ of possession may be issued during the redemption period in favor of the purchaser of the
mortgaged property in the foreclosure sale. Section 7 of Act No. 3135, as amended by Act No. 4118,
provides:
Section 7. Possession during redemption period. In any sale made under the provisions of this Act, the purchaser may petition the
[Regional Trial Court] where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in
form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of
the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered
Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order
immediately.
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The above-quoted provision explicitly allows the purchaser in a foreclosure sale to apply for a writ of
possession during the redemption period by filing a petition in the form of an ex parte motion under oath
for that purpose. Upon the filing of such motion with the RTC having jurisdiction over the subject
property and the approval of the corresponding bond, the law also in express terms directs the court to
issue the order for a writ of possession.
Upon the expiration of the redemption period, the right of the purchaser to the possession of the
foreclosed property becomes absolute. The basis of this right to possession is the purchasers ownership
of the property. Mere filing of an ex parte motion for the issuance of the writ of possession would suffice,
and the bond required is no longer necessary, since possession becomes an absolute right of the
purchaser as the confirmed owner.
Under the foregoing judicial pronouncement, it is clear that UOB has an absolute right to take possession
of the subject property since it was the highest bidder in the foreclosure sale, and the spouses Espinoza
failed to redeem the said property even after the redemption period. Act No. 3135, as amended by Act
No. 4118, is categorical in stating that the purchaser must first be placed in possession of the mortgaged
property pending proceedings assailing the issuance of the writ of possession.
Consequently, the RTC under which the application for the issuance of a writ of possession over the
subject property is pending cannot defer the issuance of the said writ in view of the pendency of an
action for annulment of mortgage and foreclosure sale. The judge with whom an application for a writ of
possession is filed need not look into the validity of the mortgage or the manner of its foreclosure.
Philippine National Bank v. Sanao Marketing Corporation, G.R. No. 153951. July 29, 2005.
The purchaser in a foreclosure sale may apply for a writ of possession during the redemption period by
filing an ex parte motion under oath for that purpose in the corresponding registration or cadastral
proceeding in the case of property covered by a Torrens title. Upon the filing of such motion and the
approval of the corresponding bond, the law also in express terms directs the court to issue the order for
a writ of possession. A writ of possession may also be issued after consolidation of ownership of the
property in the name of the purchaser. It is settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed during the period of one year after the
registration of sale. As such, he is entitled to the possession of the property and can demand it any time
following the consolidation of ownership in his name and the issuance of a new transfer certificate of
title. In such a case, the bond required in Section 7 of Act No. 3135 is no longer necessary. Possession of
the land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application
and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.
Rural Bank of Davao City, Inc. v. Court of Appeals, G.R. No. 83992, 27 January 1993.
Act No. 3135 allows the purchaser at the foreclosure sale to take possession of the property only upon
the filing of a bond in an amount equivalent to the use of the property for a period of twelve (12)
months, to indemnify the mortgagor in case it be shown that the sale was made without violating the
mortgage or without complying with the requirements of the Act. That bond is not required after the
purchaser has consolidated his title to the property following the mortgagor's failure to exercise his right
of redemption for in such a case, the former has become the absolute owner thereof.
AQA Global Construction v. Planters Development Bank, 12 August 2015.
The general rule is that after the lapse of the redemption period, the purchaser in a foreclosure sale
becomes the absolute owner of the property purchased who is entitled to the possession of the said
property. Upon ex parte petition, it is ministerial upon the trial court to issue the writ of possession in his
favor. The exception, however, is provided under Section 33, Rule 39 of the Rules, which applies
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suppletorily to extrajudicial foreclosures of real estate mortgages. Under the said provision of law, the
possession of the mortgaged property may be awarded to a purchaser in the extrajudicial foreclosure
unless a third party is actually holding the property adversely to the judgment debtor.
Consequently, Je-An and AQA cannot be considered third parties holding the subject properties adversely
to KTC, the defaulting debtor mortgagor. Resultantly, the general rule, and not the exception, applies to
the instant petitions, rendering it the mandatory and ministerial duty of the RTC to issue the writ of
possession in favor of Plantersbank as the confirmed owner, and of the Sheriff to implement the said
writ.
Writ of possession is a non-litigious proceeding; no need for notice to adverse party.
De Vera v. Agloro, supra.
FACTS: The Spouses Salvador F. De Vera and Feliza V. De Vera secured a loan from the BPI Family
Savings Bank, Inc. (“BPI”). To secure the payment thereof, the Spouses executed a Real Estate Mortgage
over their property. When the Spouses failed to pay their loan, the property was extra-judicially
foreclosed, with BPI being the highest bidder in the public auction.
The Bank filed an Ex Parte Petition for Writ of Possession with the RTC impleading the Spouses as
respondents. The trial court ruled that the purchaser of the foreclosed property, upon ex parte
application and the posting of the required bond, has the right to acquire possession of the foreclosed
property during the 12-month redemption period. According to the trial court, this is sanctioned under
Section 7 of Act No. 3135, as amended by Act No. 4118. The trial court also declared that considering
that the redemption period had already expired, the Bank as purchaser, can, and with more reason,
demand for a writ of possession. The trial court emphasized that it is its ministerial duty to issue the writ
of possession in favor of a purchaser at public auction.
The Spouses filed a motion for reconsideration which was however denied. Aggrieved, the Spouses De
Vera filed a petition for certiorari and mandamus with temporary restraining order and writ of preliminary
injunction before the CA, which was again denied. Hence, this petition.
RULING: The bare fact that the petitioners were impleaded in the ex parte petition for a writ of
possession filed by the respondent did not alter the summary nature of the proceedings in Act No. 3135.
Indeed, there was no need for the respondent to implead the petitioners as parties respondents in its
petition with the RTC. Hence, petitioners cannot claim that they were denied due process when the RTC
took cognizance of respondent’s petition without prior service of copies of the petition and of the notice
of hearing thereof on them.
An ex parte petition for the issuance of a possessory writ under Section 7 of Act No. 3135 is not, strictly
speaking, a judicial process as contemplated in Article 433 of the Civil Code. It is a judicial proceeding for
the enforcement of one’s right of possession as purchaser in a foreclosure sale. It is not an ordinary suit
filed in court, by which one party sues another for the enforcement of a wrong or protection of a right, or
the prevention or redress of a wrong. It is a non- litigious proceeding authorized in an extrajudicial
foreclosure of mortgage pursuant to Act No. 3135, as amended. It is brought for the benefit of one party
only, and without notice to, or consent by any person adversely interested. It is a proceeding where the
relief is granted without an opportunity for the person against whom the relief is sought to be heard. No
notice is needed to be served upon persons interested in the subject property. Hence, there is no
necessity of giving notice to the petitioners since they had already lost all their interests in the property
when they failed to redeem the same.
UCPB v. Lumbo, G .R. No. 162757, 11 December 2013. 

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The application for a writ of possession by the purchaser in a foreclosure sale conducted under Act No.
3135 is ex parte and summary in nature, brought for the benefit of one party only and without notice
being sent by the court to any person adverse in interest. The relief is granted even without giving an
opportunity to be heard to the person against whom the relief is sought.
An action to invalidate the mortgage or the foreclosure sale is not a valid ground to oppose issuance of
writ of possession.
Arquiza vs. CA, G.R. No. 160479, 8 June 2005.
Facts: The petitioners, spouses Godofredo V. Arquiza and Remedios D. Arquiza, obtained a loan from
respondent Equitable PCIBank. To secure the payment thereof, petitioners executed a Real Estate
Mortgage over their parcel of land. When the spouses defaulted in the payment of their loan, Equitable
PCIBank filed a petition for extrajudicial foreclosure of the real estate mortgage. A public auction was
held and a Certificate of Sale over the property was issued in favor of the private respondent. This was
registered with the Registry of Deeds of Quezon City.
Following the expiry date of the redemption period without the petitioners having exercised their right to
redeem the property, Equitable PCIBank consolidated its ownership over the subject property. As a
consequence, the Registry of Deeds issued TCT No. N 221650 in the name of Equitable PCIBank,
canceling the petitioners former title.
Petitioners filed a complaint against, Equitable PCIBank and the sheriffs with the RTC of Quezon City for
the declaration of the nullity of the promissory note, real estate mortgage and the foreclosure sale and
damages with a plea for injunctive relief for the suspension redemption period.
Thereafter, Equitable PCIBank filed an Ex PartePetition for Issuance of a Writ of Possession. The RTC
issued a writ of possession in favor of Equitable PCIBank. The CA rendered judgment affirming the
appealed decision. The CA held that the rule requiring the highest bidder to be placed in possession of
the property is founded on the right of ownership, which becomes absolute after title thereto has been
issued in favor of the new owner, and that the court must aid in effecting its delivery.
Hence, this petition for review on certiorari, contending, among others, that the writ of possession should
not have been issued considering the pendency of a complaint for the annulment of the foreclosure sale.
RULING: The petition is denied for lack of merit. As a rule, any question regarding the validity of the
mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession.
Regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure
itself, the purchaser is entitled to a writ of possession, without prejudice of course to the eventual
outcome of said case.
Deficiency Judgment; Extra-Judicial foreclosure.
Philippine Bank of Commerce v. Tomas de Vera, G.R. No. L-18816, 29 December 1962
FACTS: Tomas de Vera executed a contract entitled 'Consolidation of First Real Estate Mortgage and
Deed of Assignment with PBC. Tomas de Vera’s indebtedness to PBV in the total amount of P127,312.24
was guaranteed by a real estate mortgage over his land.
Upon maturity of De Vera’s obligation on March 15, 1956, and despite several demands, he failed to pay
the outstanding balance of his obligation in the amount of P99,033.20 as of January 31, 1958, under the
contract for which reason, PBC filed a petition with the Sheriff of Pasay City to sell the properties subject
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to the Real Estate Mortgage executed and duly recorded in the Registry of Deeds for the sum of
P150,000.00. Another document, Assignment of Real Estate Mortgage, was executed on the same day,
which two documents, were later on consolidated.
The Sheriff acting accordingly, sold at public auction the two parcels of land to the highest bidder, which
was PBC, for the amount of P86,700.00 and the corresponding certificate of sale was issued by the
Sheriff of Pasay City.
PBC, thru the present action, seeks to recover from De Vera the balance of his obligation after deducting
the price of the land sold at public auction, of which, together with the interest up to January 31, 1958,
there remained an outstanding balance of P99,033.20.
The lower court ordered De Vera to pay PBC his outstanding obligation of P99,033.20, with 6% interest
from April 16, 1956 until fully paid, and P5,000.00 as attorney's fees, plus costs.
RULING: A reading of the provisions of Act No. 3135, as amended (re extra-judicial
foreclosure) discloses nothing, it is true, as to the mortgagee's right to recover such
deficiency. But neither do we find any provision thereunder which expressly or impliedly
prohibits such recovery.
Article 2131 of the new Civil Code, on the contrary, expressly provides that: "The form, extent and
consequence of a mortgage, both as to its constitution, modification and extinguishment, and as to other
matters not include in this Chapter, shall be governed by the provisions of the Mortgage Law and of the
Land Registration Law.”
Under the Mortgage Law, which is still in force, the mortgagee has the right to claim for the deficiency
resulting from the price obtained in the sale of the real property at public auction and the outstanding
obligation at the time of the foreclosure proceedings.
Under the Rules of Court, "Upon the sale of any real property, under an order for following sale to satisfy
a mortgage or other encumbrance thereon, if there be a balance due to the plaintiff after applying the
proceeds of the sale, the court, upon motion, should render a judgment against the defendant for any
such balance for which, by the record of the case, he may be personally liable to the plaintiff. " It is true
that this refers to a judicial foreclosure, but the underlying principle is the same, that the mortgage is but
a security and not a satisfaction of indebtedness.
The real estate mortgage does not, in any way, limit nor minimize the amount of the obligation. Its only
purpose is to guarantee the fulfillment of said obligation and, in case of default on the part of the debtor
mortgagor, the credit mortgagee may execute the obligation on the real property give as a mortgage by
way of judicial or extra-judicial foreclosure, according to our statutes and procedure. Therefore, by
analogy and applying the same principle of equity, if after the sale the mortgaged property at public
auction, there is a resulting deficiency in the application for the payment of the obligate of the debtor
mortgagor to the creditor mortgagee, the latter may proceed in a proper action against the debtor
mortgagor for the deficiency of the former's obligation. It is of no importance whether the buyer of the
highest bidder in the public auction is the creditor itself.
By following De Vera’s theory, there may occur ridiculous situation in which, when the amount of the loan
is very much bigger than the value of the mortgaged property, by abandonment or default of the debtor
mortgagor his obligation may automatically be reduced in quantity, against the will and consent of the
creditor mortgagee, and in prejudice of the latter, which situation is absurd and not contemplated by Act
No. 3135, as amended.
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It is then clear that in the absence of a similar provision in Act No. 3135, as amended, it ca not be
concluded that the creditor loses his right given him under the Mortgage Law and recognized in the Rules
of Court, to take action for the recovery of any unpaid balance on the principal obligation, simply because
he has chosen to foreclose his mortgage extra-judicially pursuant to a special power of attorney given
him by the mortgagor in the mortgage contract. As stated by this Court in Medina v. Philippine National
Bank (56 Phil. 651), a case analogous to the one at bar, the step taken by the mortgagee-bank in
resorting to extra-judicial foreclosure under Act No. 3135, was "merely to find a proceeding for the sale,
and its action cannot be taken to mean a waiver of its right to demand the payment of the whole debt."
Suico Rattan & Buri Interiors, Inc. v. CA, G.R. No. 138145, 15 June 2006.
FACTS: Suico Rattan & Buri Interiors, Inc. (SRBII) is a domestic corporation engaged in the business of
export of rattan and buri products. Spouses Esmeraldo and Elizabeth Suico (Suico spouses) are officers of
SRBII. On the other hand, Metropolitan Bank and Trust Co., Inc. (Metrobank) is a commercial banking
corporation duly organized and existing under the laws of the Philippines.
In the course of its business, SRBII applied for a credit line with Metrobank. On September 5, 1991,
SRBII and Metrobank, Mandaue branch, entered into a Credit Line Agreement (Agreement) wherein the
latter granted the former a discounting line amounting to P7,000,000.00 and an export bills purchase or
draft against payment line (EBP/DP line) P10,000,000.00 for a maximum aggregate principal amount
of P17,000,000.00. As provided for under the Agreement, drawings on the credit line are secured by a
Continuing Surety Agreement for the sum of P17,500,000.00 executed by the Suico spouses, a Real
Estate Mortgage executed by SRBII and the Suico spouses over properties located at Brgy. Tabok,
Mandaue City and Fire Insurance policies over the properties duly endorsed in favor of Metrobank. The
Agreement expressly provides that the EBP/DP line is clean.
Previous to the execution of the Agreement, the Suico spouses had already incurred loan obligations from
Metrobank which are secured by separate Real Estate Mortgages over the same properties which are the
subject of the Real Estate Mortgage executed on September 5, 1991.
Between June 13, 1991 and July 11, 1991, SRBII also incurred obligations with Metrobank by entering
into twelve negotiations for the purchase of export bills by the former from the latter. These obligations
are evidenced by drafts drawn by SRBII in favor of Metrobank for a sum amounting to US$441,279.25
which has a peso equivalent of P12,218,866.23. As a consequence of these negotiations, Metrobank
issued various checks in favor of petitioners totaling P12,194,443.23, the last one of which was
dated July 24, 1991.
Subsequently, SRBII and the Suico spouses were unable to pay their obligations prompting Metrobank to
extra-judicially foreclose the four mortgages constituted over the subject properties. Metrobank, being
the lone and highest bidder, acquired the said properties during the auction sale. A Certificate of Sale
dated November 18, 1992 was then issued in its favor.
On November 5, 1992, Metrobank filed an action for the recovery of a sum of money arising from the
obligations of SRBII and the Suico spouses on their export bills purchases incurred between June and
July, 1991. SRBII and the Suico spouses filed their Answer contending that their indebtedness is secured
by a real estate mortgage and that the value of the mortgaged properties is more than enough to answer
for all their obligations to Metrobank.
RTC dismissed the case on the ground that alll obligations of the Suico Spouses to Metrobank incurred by
the former either as principal, surety or guarantor, which matured and had become due and demandable
on the date of the foreclosure of the Real Estate Mortgage are hereby declared already fully paid by the
mortgage security. Metrobank filed an appeal with the CA. CA reversed RTC ruling.
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ISSUE: Whether the foreclosure of the mortgaged properties precludes Metrobank from claiming the sum
of P16,585,286.27 representing the amount covered by the export bills purchased by herein petitioners
between June and July 1991? Simply put, may the complaint for a sum of money filed by respondent
bank be considered as a suit for the recovery of deficiency in petitioners obligation?
RULING: NO. It is undisputed that the suit filed by Metrobank with the trial court was a personal action
for the collection of a sum of money. The complaint was premised on the refusal of petitioner spouses’
buyers to pay and accept the value of the drafts or bills of exchange and the subsequent failure of
petitioner spouses to answer for the value of the said drafts plus interest upon notice and demand sent
by Metrobank. There was no mention, either in the body of the complaint or in the prayer, for the
recovery of the balance of petitioner spouses’ obligations which were not covered by the foreclosure
sale. In fact, the foreclosure sale was not even mentioned. In other words, in filing the complaint with
the RTC, Metroank was not suing for any deficiency. Understandably, Metrobank could not have claimed
such deficiency because, as correctly observed by petitioners, at the time of the filing of the complaint
on November 5, 1992, the foreclosure sale is yet to be conducted. Hence, the complaint cannot, in any
way, be construed as an action for the recovery of deficiency in petitioners obligation. It is actually an
ordinary action for collection which is barred by reason of Metrobank’s prior election of the remedy of
foreclosure. Thus, the Court is left with no recourse but to sustain the dismissal of the complaint by the
RTC subject to the right of Metrobank to recover the alleged deficiency.
Given the fact that the proceeds of the auction sale were not sufficient to answer for the entire obligation
of petitioners to respondent bank, the latter still has the right to recover the balance due it after applying
the proceeds of the sale. ehere the mortgage creditor chooses the remedy of foreclosure and
the proceeds of the foreclosure sale are insufficient to cover the debt, the mortgagee is
entitled to claim the deficiency from the debtor. The law gives the mortgagee the right to claim for
the deficiency resulting from the price obtained in the sale of the property at public auction and the
outstanding obligation at the time of the foreclosure proceedings. This rule is based on the principle that
the mortgage is only a security and not a satisfaction of the mortgagors entire obligation. Moreover,
unlike in pledge and chattel mortgage on a thing sold on installment, where the Civil Code expressly
forecloses the right of creditors to sue for any deficiency resulting from the sale of the property given as
a security for the obligation, there is nothing in Act. No. 3135, the law governing extrajudicial
foreclosures, which expressly or impliedly prohibits the recovery of such deficiency. If the legislature had
intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a
security given to guarantee an obligation, the law would expressly so provide. Absent such a provision in
Act. No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid
balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate
mortgage. Hence, in the present case, the Courts dismissal of the complaint should be without prejudice
to the filing of another action for the recovery of the balance left in petitioners obligation after the
foreclosure sale of the mortgaged properties.
Chattel Mortgage
Northern Motors, Inc. v. Hon. Judge Coquia, G.R. No. L-40018, 15 December 1975.
Chattel mortgage is a security for the performance of obligation effected by the recording of the personal
property mortgaged in the chattel mortgage register.
Tumalad v. Vicencio. G.R. No. L-301, 30 September 1971.
FACTS: On 1 September 1955, Vicencio and Simeon executed a chattel mortgage in favor of the
Tumalads over their house of strong materials locate Quiapo, Manila, over Lot Nos. 6-B and 7-B, Block
No. 2554, which were being rented from Madrigal & Company, Inc. The mortgage was registered in the
Registry of Deeds of Manila on 2 September 1955. The herein mortgage was executed to guarantee a
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loan of P4,800.00 received from the Tumalads, payable within one year at 12% per annum. The mode of
payment was P150.00 monthly, starting September, 1955, up to July 1956, and the lump sum of P3,150
was payable on or before August, 1956. It was also agreed that default in the payment of any of the
amortizations, would cause the remaining unpaid balance to become immediately due and payable.
When Vicencio defaulted in paying, the mortgage was extra-judicially foreclosed, and on 27 March 1956,
the house was sold at public auction pursuant to the said contract. As highest bidder, the Tumalads were
issued the corresponding certificate of sale. Thereafter, the Tumalads instituted a civil case praying,
among other things, that the house be vacated and its possession surrendered to them, and for Vicencio
to pay rent of P200.00 monthly from 27 March 1956 up to the time the possession is surrendered.
Among other things, Vicencio claims that the chattel mortgage was still null and void ab initio because
only personal properties can be subject of a chattel mortgage.
RULING: The house on rented land is not only expressly designated as Chattel Mortgage; it specifically
provides that "the mortgagor ... voluntarily CEDES, SELLS and TRANSFERS by way of Chattel Mortgage,
the property together with its leasehold rights over the lot on which it is constructed and participation
...”
Although there is no specific statement referring to the subject house as personal property, yet by
ceding, selling or transferring a property by way of chattel mortgage, Vicencio 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 Vicencio merely had a temporary right as lessee, and although this cannot 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 personalty.
Finally unlike in the Iya cases, Lopez vs. Orosa, Jr. and Plaza Theatre, Inc. and Leung Yee vs. F. L.
Strong Machinery and Williamson, wherein third persons assailed the validity of the chattel mortgage, it is
Vicencio himself, as debtor-mortgagor, who is 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 personalty.
Chattel mortgages are covered and regulated by the Chattel Mortgage Law, Act No. 1508. Section 14 of
this Act allows the mortgagee to have the property mortgaged sold at public auction through a public
officer in almost the same manner as that allowed by Act No. 3135, as amended by Act No. 4118,
provided that the requirements of the law relative to notice and registration are complied with. In the
instant case, the parties specifically stipulated that "the chattel mortgage will be enforceable in
accordance with the provisions of Special Act No. 3135.”
Section 6 of the Act referred to provides that the debtor-mortgagor may, at any time within one year
from and after the date of the auction sale, redeem the property sold at the extra judicial foreclosure
sale. Section 7 of the same Act allows the purchaser of the property to obtain from the court the
possession during the period of redemption: but the same provision expressly requires the filing of a
petition with the proper Court of First Instance and the furnishing of a bond. It is only upon filing of the
proper motion and the approval of the corresponding bond that the order for a writ of possession issues
as a matter of course. No discretion is left to the court. In the absence of such a compliance, as in the
instant case, the purchaser cannot claim possession during the period of redemption as a matter of right.
In such a case, the governing provision is Section 34, Rule 39, of the Revised Rules of Court, which also
applies to properties purchased in extrajudicial foreclosure proceedings.
Since Vicencio was occupying the house at the time of the auction sale, they are entitled to remain in
possession during the period of redemption or within one year from and after 27 March 1956, the date of
the auction sale, and to collect the rents or profits during the said period.
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It will be noted further that in the case at bar the period of redemption had not yet expired when action
was instituted in the court of origin, and the Tumalads did not choose to take possession under Section
7, Act No. 3135, as amended, which is the law selected by the parties to govern the extrajudicial
foreclosure of the chattel mortgage. Neither was there an allegation to that effect. Since the Tumalads’
right to possess was not yet born at the filing of the complaint, there could be no violation or breach
thereof. Wherefore, the original complaint stated no cause of action and was prematurely filed.
Chattel Mortgage Law; Parties may agree that personal properties covered by chattel mortgage be sold at
a private sale.
PNB v. Manila Investment, 29 April 1971, 38 SCRA 462.
It is true that the decision rendered in Civil Case 33074 of the Court of First Instance of Manila provided
for the sale at public auction of the personal properties covered by the chattel mortgage executed in
favor of the Bank, but it is likewise true that said personal properties were sold at a private sale by
agreement between the parties. There is nothing illegal, immoral or against public order in such
agreement entered into freely and voluntarily. As held in Philippine National Bank vs. De Poli, under
Article 1255 of the Civil Code (Art. 1306, New Civil Code), the contracting parties may stipulate that in
case of violation of the conditions of the mortgage contract, the creditor may sell, at public sale and
without previous advertisement or notice, the whole or part of the good mortgaged for the purpose of
applying the proceeds thereof on the payment of the debt. Said stipulation is not contrary to law or public
order, and therefore it is valid.
As the disposition of the mortgaged personalities in a private sale was by agreement between the parties,
it is clear that appellants are now in estoppel to question it except on the ground of fraud or duress—
pleas that they do not invoke. They do not even claim that private sale agreed upon had caused them
substantial prejudice.
Affidavit of Good Faith.
Philippine Refining Co. v. Jarque, G.R. No. L-41506, 25 March 1935.
FACTS: On varying dates, the Philippine Refining Co., Inc., and Francisco Jarque executed three (3)
mortgages on the motor vessels Pandan and Zaragoza. These documents were recorded in the record of
transfers and encumbrances of vessels for the port of Cebu and each was therein denominated a "chattel
mortgage". Neither of the first two mortgages had appended an affidavit of good faith. The third
mortgage contained such an affidavit, but this mortgage was not registered in the customs house within
the period of thirty days prior to the commencement of insolvency proceedings against Francisco Jarque;
also, while the last-mentioned mortgage was subscribed by Francisco Jarque and M. N. Brink, there was
nothing to disclose in what capacity the said M. N. Brink signed.
A fourth mortgage was executed by Francisco Jarque and Ramon Aboitiz on the motorship Zaragoza and
was entered in the chattel mortgage registry of the register of deeds within the thirty-day period before
the institution of insolvency proceedings. These proceedings were begun on June 2, 1932, when a
petition was filed with the court of Cebu in which it was prayed that Francisco Jarque be declared an
insolvent debtor, which soon thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas. Judge Jose M. Hontiveros declined
to order the foreclosure of the mortgages, but on the contrary sustained the special defenses of fatal
defectiveness of the mortgages.
RULING: Vessels are considered personal property under the civil law. Similarly under the common law,
vessels are personal property although occasionally referred to as a peculiar kind of personal property.
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Since the term "personal property" includes vessels, they are subject to mortgage agreeably to the
provisions of the Chattel Mortgage Law. (Act No. 1508, section 2.)
Indeed, it has heretofore been accepted without discussion that a mortgage on a vessel is in nature a
chattel mortgage. The only difference between a chattel mortgage of a vessel and a chattel mortgage of
other personalty is that it is not now necessary for a chattel mortgage of a vessel to be noted in the
registry of the register of deeds, but it is essential that a record of documents affecting the title to a
vessel be entered in the record of the Collector of Customs at the port of entry. Otherwise a mortgage on
a vessel is generally like other chattel mortgages as to its requisites and validity.
The Chattel Mortgage Law in its section 5, in describing what shall be deemed sufficient to constitute a
good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage
and recorded therewith. The absence of the affidavit vitiates a mortgage as against creditors and
subsequent encumbrancers. As a consequence a chattel mortgage of a vessel wherein the affidavit of
good faith required by the Chattel Mortgage Law is lacking, is unenforceable against third persons.
Deficiency in Chattel Mortgage.
Bicol Savings & Loan Assn. v. Guinhawa, 188 SCRA 642, 1990.
If in an extrajudicial foreclosure of a chattel mortgage a deficiency exists, an independent civil action may
be instituted for the recovery of said deficiency. If the mortgagee has foreclosed the mortgage judicially,
he may ask for the execution of the judgment against any other property of the mortgagor for the
payment of the balance. To deny to the mortgagee the right to maintain an action to recover the
deficiency after foreclosure of the chattel mortgage would be to overlook the fact that the chattel
mortgage is only given as a security and not as payment for the debt in case of failure of payment.
Superlines v. ICC, G.R. No. 150673, 28 February 2003.
FACTS: In 1995, Superlines Transportation Co., Inc. (Superlines) decided to acquire five new buses from
the Diamond Motors Corporation for the price of P10,873,582.00. However, Superlines lacked financial
resources for the purpose. By virtue of a board resolution, Superlines authorized its President and
General Manager, Manolet Lavides, to look for and negotiate with a financing corporation for a loan for
the purchase of said buses.
Lavides negotiated with ICC Leasing & Financing Corporation (ICC) for a financial scheme for the planned
purchase. ICC agreed to finance the purchase of the new buses via a loan and proposed a three-year
term for the payment thereof at a fixed interest rate of 22% per annum. The new buses to be
purchased were to be used by Superlines as security for the loan. ICC required Superlines to submit
certificates of registration of the said buses under the name of Superlines before the appropriate
document was executed by the parties and their transactions consummated. On October 19, 1995,
Diamond Motors Corporation sold to Superlines five new buses.
On November 22, 1995, the vehicle invoices were filed with the Land Transportation Office which then
issued certificates of registration covering the five buses under the name of Superlines. With the buses
now registered under its name, Superlines, through Lavides, executed two documents, namely: a deed of
chattel mortgage over the said buses as security for the purchase price of the buses in the amount
of P13,114,287.00 loaned by ICC to Superlines, which deed was annotated on the face of said certificates
of registration, and a promissory note in favor of ICC binding and obliging itself to pay to the latter the
amount of P10,873,582.00 in monthly installments of P415,290.00.
Superlines and Lavides executed a Continuing Guaranty to pay jointly and severally in favor of ICC the
amount of P13,114,285.00. ICC drew and delivered to Superlines Metrobank Check No. 0661909113
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payable to the account of Superlines in the amount of P10,873,582.00, representing the net proceeds of
the loan. Superlines remitted the said check to Diamond Motors Corporation in full payment of the
purchase price of the new buses.
After paying only seven monthly amortizations, Superlines defaulted in the payment of its obligation to
ICC. On April 2, 1997, ICC wrote Superlines demanding full payment of its outstanding obligation, which
as of March 31, 1997 amounted to P12,606,020.55. However, Superlines failed to heed said demand.
ICC filed a complaint for collection of sum of money with prayer for a writ of replevin on April 21, 1997
with Branch 142 of the Regional Trial Court of Makati City against Superlines and Lavides. The trial court
found that ICC and Superlines forged a consumer loan agreement and not an amortized commercial
loan. It further declared that there was a special arrangement for the purchase by ICC of said buses. The
trial court finally stated that Superlines purchased the buses from ICC, the purchase price therefor
payable in monthly installments. ICC appealed the trial court’s decision to the Court of Appeals. CA
rendered a decision reversing the decision of the RTC and ordering Superlines and Lavides to pay the
deficiency claim of ICC.
Superlines argues that CA erred in ruling that ICC is entitled to deficiency judgment as it is deemed to
have chosen the remedy of exacting fulfillment of the obligation under paragraph (1) of Article 1484 of
the Civil Code, the same being patently contrary to incontestable fact that what ICC availed of in the
instant case is foreclosure of the chattel mortgage and not the alternative prayer contained in the relief
portion of its complaint.
RULING: The Court found that under the Promissory Note, Chattel Mortgage and Continuing Guaranty,
ICC was the creditor-mortgagee of petitioner Superlines and not the vendor of the new buses. Hence,
petitioners cannot find refuge in Article 1484 (3) of the New Civil Code. What should apply here is the
Chattel Mortgage executed by Superlines and ICC in relation to the Chattel Mortgage Law.
The Supreme Court had consistently ruled that if in an extra-judicial foreclosure of a chattel mortgage a
deficiency exists, an independent civil action may be instituted for the recovery of said deficiency. To
deny the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the
chattel mortgage would be to overlook the fact that the chattel mortgage is only given as security and
not as payment for the debt in case of failure of payment. Both the Chattel Mortgage Law and Act 3135
governing extra-judicial foreclosure of real estate mortgage, do not contain any provision, expressly or
impliedly, precluding the mortgagee from recovering deficiency of the principal obligation.
In a case of recent vintage, this Court held that if the proceeds of the sale are insufficient to cover the
debt in an extra-judicial foreclosure of the mortgage, the mortgagee is still entitled to claim the deficiency
from the debtor:
“To begin with, it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee
is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from
foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages,
while silent as to the mortgagees right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a
deficiency claim arising from the extrajudicial foreclosure is allowed”.
In the case of PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals, this Court declared that under
Section 14 of the Chattel Mortgage Law, the mortgagor is entitled to recover the balance of the proceeds,
upon satisfaction of the principal obligation and costs, thus there is a corollary obligation on the part of
the debtor-mortgagor to pay the deficiency in case of a reduction in the price at public auction. Hence,
ICC is entitled to a deficiency judgment against Superlines.
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Simple Loan/Mutuum
PNB v. Tajonera, G.R. No. 195889, 24 September 2014.
FACTS: Respondent Eduarosa Realty Development, Inc. (ERDI) was engaged in realty construction and
sale of condominium buildings. Respondent Ma. Rosario Tajonera (Rosario), as the Vice President of
ERDI, also performed the duties of president and marketing director dealing with banks, suppliers and
contractors. ERDI, through Rosario, obtained loans from petitioner Philippine National Bank (PNB)and
entered into several credit agreements to finance the completion of the construction of their 20-storey
Eduarosa Tower Condominium located in Roxas Boulevard, Paranaque City.
Pursuant to the Credit Agreement, the principal amount of loan extended by PNB to ERDI was Php
60,000,000.00. As security for the initial loan, ERDI executed the Real Estate Mortgage (REM) consisting
of three (3) parcels of land covered by 3 TCTs situated in Roxas Boulevard, Tambo, Paranaque, Metro
Manila, registered in the name of ERDI (Paranaque properties). In addition, the loan was secured by the
assignment of proceeds of contract receivables arising from the sale of condominium units to be
constructed on the mortgaged Paranaque properties.
On January 31, 1992, ERDI executed an amendment to the Credit Agreement (First Amendment) and
obtained an additional loan of Ph40,000,000.00). As additional security to the increased amounts of loan,
the respondent spouses’ 958-square meter lot and the improvements thereon, situated in Greenhills, San
Juan, Metro Manila (Greenhills property) was mortgaged in favor of PNB as evidenced by the Supplement
to REM. On October 28, 1992, a Second Amendment to Credit Agreement (Second Amendment) was
executed by the parties to extend the repayment dates of the loan and the additional loan subject to the
terms set forth in the said agreement.
The following year, a Third Amendment to the Credit Agreement (Third Agreement) was entered into by
the parties wherein PNB granted an additional loan of Php 55,000,000.00 to ERDI, subject to several
conditions stated in the said agreement.
As of September 30, 1994, ERDI’s outstanding loan obligation with PNB amounted to Php
211,935,067.40. ERDI failed to settle its obligation. As a consequence, PNB filed an application for
foreclosure of the Greenhills property. As the highest bidder, PNB was issued the Certificate of Sale. Upon
ERDI’s failure to redeem the property, PNB consolidated its title and caused the cancellation of the
spouses’ TCT.
Respondent spouses filed aa complaint against PNB for annulment of sale, cancellation of title,
cancellation of mortgage, and damages before the RTC. They alleged that the title to the mortgaged
property that was transferred to PNB as a consequence of the foreclosure proceedings was null and void
as their mortgage obligation had been novated and no new loans were released to them, in violation of
the provisions of the Supplement to REM; the foreclosure proceedings were defective due to PNB’s failure
to send personal notice to the respondent spouses; PNB’s delay in the release of loan proceeds under the
credit agreements caused the non-completion of the condominium project; and the properties mortgaged
under the original mortgage contract covering the respondents’ condominium titles should now be
discharged, as the property of the respondent spouses had already been foreclosed.
RULING: The agreement between PNB and the spouses Tajonera was one of a loan. Under the law, a
loan requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other the
debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the
other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should
release the full loan amount and the debtor repays it when it becomes due and demandable.
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PNB, not having released the balance of the last loan proceeds in accordance with the Third Amendment
had no right to demand from Spouses Tajonera’s compliance with their own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party
cannot be obliged to perform what is expected of them while the other's obligation remains unfulfilled.
A loan requires the delivery of money or any other consumable object by one party to another who
acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other the
debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the
other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should
release the full loan amount and the debtor repays it when it becomes due and demandable.
PNB v. Santos, G.R. No. 208293/G.R. No. 208295, 10 December 2014.
The contractual relationship between banks and their depositors is governed by the Civil Code provisions
on simple loan. Once a person makes a deposit of his or her money to the bank, he or she is considered
to have lent the bank that money. The bank becomes his or her debtor, and he or she becomes the
creditor of the bank, which is obligated to pay him or her on demand.
Land Bank of the Philippines v. Emmanuel Oñate, G.R. No. 192371, 15 January 2014.
FACTS: Land Bank is a government financial institution created under Republic Act No. 3844. From 1978
to 1980, Oñate opened and maintained seven trust accounts with Land Bank. Each trust account was
covered by an Investment Management Account (IMA) with Full Discretion and has a corresponding
passbook where deposits and withdrawals were recorded.
In a letter dated October 8, 1981, however, Land Bank demanded from Oñate the return of ₱4 million it
claimed to have been inadvertently deposited to Trust Account No. 01-125 as his additional funds but
actually represents the total amount of the checks issued to Land Bank by its corporate borrowers as
payment for their pre-terminated loans. Oñate refused. To settle the matter, a meeting was held, but the
parties failed to reach an agreement. Since then, the issue of "miscrediting" remained unsettled. Then on
June 21, 1991, Land Bank unilaterally applied the outstanding balance in all of Oñate’s trust accounts
against his resulting indebtedness by reason of the "miscrediting" of funds. Although it exhausted the
funds in all of Oñate’s trust accounts, Land Bank was able to debit the amount of ₱1,528,583.48 only.
To recoup the remaining balance of Oñate’s indebtedness, Land Bank filed a Complaint Sum of Money
seeking to recover the amount of ₱8,222,687.89 plus interest at the legal rate of 12% per annum
computed from May 15, 1992 until fully paid.
On the other hand, Oñate asserted that the setoff was without legal and factual bases. He specifically
denied any knowledge or involvement in the transaction between Land Bank and its clients Philippine
Virginia Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB). He also denied
that he made fraudulent misrepresentation to induce the bank to deposit to his Trust Account No. 01-125
as his additional capital the payments allegedly tendered by the bank’s corporate borrowers. He
maintained that all the funds in his accounts came from legitimate sources and that he was totally
unaware of and had nothing to do with the alleged "miscrediting." While Oñate admitted having received
the October 8, 1981 demand letter, he argued that he did not acquiesce thereto and, in fact, disputed the
same during a meeting with an officer of Land Bank. He also refuted Land Bank’s claim that it formally
demanded for the return of the disputed amount as the September 3, 1991 letter it alluded to is not a
demand letter. It was sent in response to his counsel’s letter requesting for an accounting of his trust
accounts.
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By way of compulsory counterclaim, Oñate pointed out that per Balance Sheets, the funds in his trust
accounts already totaled ₱35,555,464.78. And as of January 1993, the accumulated balance of his
accounts reached ₱229,222,160.25 and $3,472,683.94. Oñate’s dollar deposits to Trust Account No. 01-
014 from the period July-September, 1980 alone, already amounted to $1,690,943.78. With interest at
the rate of six percent (6%) compounded every ninety (90) days from the first quarter of 1981, the said
dollar deposits have earned interest of $1,781,740.16 up to January, 1993. Thus, Oñate’s dollar deposits
in Trust Account No. 01-014 have an aggregate balance of $3,472,683.94.
Hence, even if the amount of ₱8,222,687.89 as of May 15, 1992 is deducted from the outstanding
balance of his trust accounts as of January 1993, the bank still owes him ₱220,999,472.36 on top of his
dollar deposits amounting to $3,472,683.94. Oñate prayed that a judgment be issued dismissing the
Complaint and ordering Land Bank to pay him.
RTC dismissed Land Bank’s Complaint for its failure to establish that the amount of ₱4,086,888.89
allegedly "miscredited" to Oñate’s Trust Account No. 01-125 actually came from the investments of PVTA
and PVTB. Hence, the RTC ordered Land Bank to restore the total amount of ₱1,471,416.52 which the
bank unilaterally debited from Oñate’s five trust accounts with legal rate of interest of 12% per annum,
compounded yearly, effective on 21 June 1991 until fully paid. CA denied Land Bank’s appeal and granted
that of Oñate’s.
Land Bank questions the ruling of the lower court/CA imposing 12% per annum rate of interest. It
contends that trust accounts are in the nature of "Express Trust" and not in the nature of a regular
deposit account where a debtor-creditor relationship exists between the bank and its depositor. It was
not indebted to Oñate but merely held and managed his funds. There being no loan or forbearance of
money involved, in the absence of stipulation, the applicable rate of interest is only 6% per annum. Land
Bank claims that the CA further erred when it compounded the 12% interest even in the absence of any
such stipulation.
RULING: Land Bank’s unilateral offsetting of funds without legal justification and the undocumented
withdrawals are tantamount to forbearance of money. In the analogous case of Estores v. Supangan, the
Court held that "the unwarranted withholding of the money which rightfully pertains to another amounts
to forbearance of money which can be considered as an involuntary loan."
Following Eastern Shipping Lines, Inc. v. Court of Appeals, therefore, the applicable rate of interest in this
case is 12% per annum. Besides, Land Bank is estopped from assailing the award of 12% per annum
rate of interest. In its Complaint, Land Bank arrived at ₱8,222,687.89 as the outstanding indebtedness of
Oñate by using the same 12% per annum rate of interest. It was only after the lower courts rendered
unfavorable decisions that Land Bank started to insist that the applicable rate of interest is 6% per
annum.
Aguilar and Calimbas v. Lightbringers Credit Cooperative, G.R. No. 209605, 12 January 2015.
The Court holds that there was indeed a contract of loan between the petitioners and respondent. The
signatures of the petitioners were present on both the PNB checks and the cash disbursement vouchers.
The Court pointed out that a check functions more than a promissory note since it not only contains an
undertaking to pay an amount of money but is an "order addressed to a bank and partakes of a
representation that the drawer has funds on de posit against which the check is drawn, sufficient to
ensure payment upon its presentation to the bank."
Saura Import and Export Co., Inc. v. DBP, G.R. No. L-24968, 27 April 1972.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the
parties when the application of Saura, Inc. for a loan was approved by resolution of the defendant, and
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the corresponding mortgage was executed and registered and that the defendant was guilty of breach
thereof.
An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of
the contract.
Herrera v. Petrophil Corporation, G.R. No. L-48349, 29 December 1986.
FACTS: Herrera and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation) entered
into a "Lease Agreement" whereby Herrera leased to the latter a portion of his property for a period of
twenty (20) years from said date, subject inter alia to the following conditions:
3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on
400 sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40
per sqm. per month on 1,693 sqm. or P2,370.21 per month or a total of
P2,930.20 per month 2,093 sqm. more or less, payable yearly in advance within
the 1st twenty days of each year; provided, a financial aid in the sum of P15,000
to clear the leased premises of existing improvements thereon is paid in this
manner; P10,000 upon execution of this lease and P5,000 upon delivery of
leased premises free and clear of improvements thereon within 30 days from the
date of execution of this agreement. The portion on the side of the leased
premises with an area of 365 sqrm. more or less, will be occupied by LESSEE
without rental during the lifetime of this lease. PROVIDED FINALLY, that the
Lessor is paid 8 years advance rental based on P2,930.70 per month discounted
at 12% interest per annum or a total net amount of P130,288.47 before
registration of lease. Leased premises shall be delivered within 30 days after 1st
partial payment of financial aid.
On December 31, 1969, pursuant to the said contract, Petrophil paid to Herrera advance rentals for the
first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as
constituting the interest or discount for the first eight years, in the total sum P180,288.47.
On August 20, 1970, Petrophil, explaining that there had been a mistake in computation, paid to Herrera
the additional sum of P2,182.70, thereby reducing the deducted amount to only P98,828.03.
On October 14, 1974, Herrera sued Petrophil for the sum of P98,828.03, with interest, claiming this had
been illegally deducted from him in violation of the Usury Law. He also prayed for moral damages and
attorney's fees. In its answer, Petrophil admitted the factual allegations of the complaint but argued that
the amount deducted was not usurious interest but a given to it for paying the rentals in advance for
eight years. Judgment on the pleadings was rendered for Petrophil.
Herrera now prays for a reversal of that judgment, insisting that the lower court erred in the computation
of the interest collected out of the rentals paid for the first eight years; that such interest was excessive
and violative of the Usury Law; and that he had neither agreed to nor accepted Petrophil’s computation
of the total amount to be deducted for the eight years advance rentals.
RULING: There is no usury in this case because no money was given by Petrophil to Herrera, nor did it
allow him to use its money already in his possession. There was neither loan nor forbearance but a mere
discount which Herrera allowed Petrophil to deduct from the total payments because they were being
made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor
had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury
Law.
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The difference between a discount and a loan or forbearance is that the former does not have to be
repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury.
To constitute usury, "there must be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all events; and something must be exacted
for the use of the money in excess of and in addition to interest allowed by law."
It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding
between the parties that the money lent shall or may be returned; that for such loan a greater rate or
interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt
intent to take more than the legal rate for the use of money loaned. Unless these four things concur in
every transaction, it is safe to affirm that no case of usury can be declared.
Briones vs. Cammayo, G.R. No. L-23559, 4 October 1971.
Even if the contract of loan is declared usurious the creditor is entitled to collect the money actually
loaned and the legal interest due thereon. In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court
likewise declared that, in any event, the debtor in a usurious contract of loan should pay the creditor the
amount which he justly owes him citing in support of this ruling its previous decisions in Go Chioco Supra,
Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
The Court has recognized and held that under Act 2655 a usurious contract is void; that the creditor had
no right of action to recover the interest in excess of the lawful rate; but that this did not mean that the
debtor may keep the principal received by him as loan — thus unjustly enriching himself to the damage
of the creditor. The Usury Law, by its letter and spirit, did not deprive the lender of his right to recover
from the borrower the money actually loaned to and enjoyed by the latter.
Overseas Bank of Manila v. Court of Appeals, G.R. No. L-60907, 28 June 1989.
FACTS: Raul L. Santos made a time deposit with OBM in the amount of P 500,000.00. and was issued a
Certificate of Time Deposit. On 6 February 1967, Raul L. Santos also made a time deposit with OBM in
the amount of P 200,000.00.
IRC thru its President-defendant Raul L. Santos, applied for a loan and/or credit line in the amount of P
700,000.00 with PNB. To secure the said loan, Raul L. Santos executed on August 11, 1967 a Deed of
Assignment of the two (2) time deposits in favor of OBM. OBM gave its conformity to the assignment thru
letter. On the same date, defendant IRC thru its President Raul L. Santos, also executed a Deed of
Conformity to Loan Conditions.
OBM after the due dates of the time deposit certificates, did not pay PNB. PNB demanded payment from
defendants IRC and Raul L. Santos and from OBM. IRC and Raul L. Santos replied that the obligation of
was deemed paid with the irrevocable assignment of the time deposit certificates.
PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest as well as
attomey's fees. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos' time
deposit certificates with interest, plus exemplary and corrective damages, attorney's fees, and cost.
In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them
because their obligation to PNB was fully paid or extinguished upon the' irrevocable' assignment of the
time deposit certificates, and that they are not answerable for the insolvency of OBM. They filed a
counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted
fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit against
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them by PNB, and that, therefore, OBM should pay them whatever amount they may be ordered by the
court to pay PNB with interest. They also asked that OBM be ordered to pay them compensatory, moral,
exemplary and corrective damages.
OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does
not appear in its books of account.
IRC and Santos filed a third-party complaint against Emerito B. Ramos, Jr., president of OBM and Rodolfo
R. Sunico, treasurer of said bank, who allegedly received the time deposits of Santos and issued the
certificates therefor.
Ramos and Sunico alleged that IRC and Santos have no cause of action against them because they
received and signed the time deposit certificates as officers of OBM that the time deposits are recorded in
the subsidiary ledgers of the bank and are 'civil liabilities of the defendant OBM.
OBM filed an amended or supplemental answer to the complaint, acknowledging the certificates of time
deposit that it issued to Santos, and admitting its failure to pay the same due to its distressed financial
situation. However, OBM contends that it had agreed to pay interest only up to the dates of maturity of
the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity
dates had expired, unless the contracts are renewed.
RULING: When PNB demanded from OBM payment of the amounts due on the two (2) time deposits
which matured, there was as yet no obstacle to the faithful compliance by OBM of its liabilities
thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should
be held liable for damages. When respondent Santos invested his money in time deposits with OBM they
entered into a contract of simple loan or mutuum, not a contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been
expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend
interest paid as damages. OBM contends that it had agreed to pay interest only up to the dates of
maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the
maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated
interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the
Civil Code, he has the right to recover damages resulting from the default of OBM and the measure of
such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid
at the expiration of the periods respectively provided in the contracts.
In fine, OBM is required to pay such interest, not as interest income stipulated in the certificates of time
deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled
IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages
for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or
extra-judicial demand is made.
Escalation Clauses.
PNB vs. CA, G.R. No. 75223, 14 March 1990.
An escalation clause is a valid provision in the loan agreement provided that — (1) the increased rate
imposed or charged does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is
made effective not earlier than the effectivity of the law or regulation authorizing such an increase; and
(3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or
regulation authorizing such an increase.
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Equitable v Ng Sheung Ngor, G.R. No. 171545, 19 December 2007.
Escalation clauses are not void per se. However, one “which grants the creditor an unbridled right to
adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to
an important modification in the agreement” is void. Clauses of that nature violate the principle of
mutuality of contracts. Article 1308 of the Civil Code holds that a contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them. For this reason, we have
consistently held that a valid escalation clause provides: 1. that the rate of interest will only be increased
if the applicable maximum rate of interest is increased by law or by the Monetary Board; and 2. that the
stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or
by the Monetary Board (de-escalation clause).
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank, 435
SCRA 565 (2004), the Court held that, because the escalation clause was annulled, the principal amount
of the loan was subject to the original or stipulated rate of interest. Upon maturity, the amount due was
subject to legal interest at the rate of 12% per annum.
Bank Deposits.
Metrobank v. Rosales et. al., G.R. No. 183204, 13 January 2014.
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by the
depositor.
PNB v. Tajonera, supra.
The agreement between PNB and the respondents was one of a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid. Loan is a reciprocal obligation, as
it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should release the full loan
amount and the debtor repays it when it becomes due and demandable.
PNB, not having released the balance of the last loan proceeds in accordance with the Third Amendment
had no right to demand from the respondents compliance with their own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party
cannot be obliged to perform what is expected of them while the other's obligation remains unfulfilled.
Being a banking institution, PNB owes it to the respondents to observe the high standards of integrity
and performance in all its transactions because its business is imbued with public interest. The high
standards are also necessary to ensure public confidence in the banking system, for, according to
Philippine National Bank v. Pike, "the stability of banks largely depends on the confidence of the people in
the honesty and efficiency of banks." Thus, PNB was duty bound to comply with the terms and
stipulations under its credit agreements with the respondents, specifically the release of the amount of
the additional loan in its entirety, lest it erodes public confidence. Yet, PNB failed in this regard.
Interest.
Spouses Albos v. Spouses Ebisan, G.R. No. 210831, November 26, 2014.
The compounding of interest should be in writing. Article 1956 of the New Civil Code, which refers to
monetary interest provides that, No interest shall be due unless it has been expressly stipulated in
writing. As mandated by the foregoing provision, payment of monetary interest shall be due only if: (1)
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there was an express stipulation for the payment of interest; and (2) the agreement for such payment
was reduced in writing. The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. 
In the case at bar, it is undisputed that the parties have agreed for the loan to earn 5% monthly interest,
the stipulation to that effect put in writing. When the petitioners defaulted, the period for payment was
extended, carrying over the terms of the original loan agreement, including the 5% simple interest.
However, by the third extension of the loan, respondent spouses decided to alter the agreement by
changing the manner of earning interest rate, compounding it beginning June 1986. This is apparent
from the Statement of Account prepared by the spouses Embisan themselves. Thus, Spouses Embisan,
having imposed, unilaterally at that, the compounded interest rate, had the correlative duty of clarifying
and reducing in writing how the said interest shall be earned. Having failed to do so, the silence of the
agreement on the manner of earning interest is a valid argument for prohibiting them from charging
interest at a compounded rate.
MCMP Construction Corp., v. Monark Equipment Corp., G.R. No. 201001, November 10, 2014.
The interest rate of 24% per annum, penalty and collection charge of 3% or 36& per annum on rental
fees imposed upon MCMP must also be considered as iniquitous, unconscionable and, therefore, void. As
such, the rates may validly be reduced. Thus, the interest rate of 24% per annum is hereby reduced to
12% per annum. Moreover, the interest shall start to accrue thirty (30) days after receipt of the second
set of invoices on January 21, 2001, or March 1, 2001 in accordance with the provisions in the invoices
themselves. Although C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed
the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the
said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to
levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. Therefore,
the rates may be validly reduced by the court.
Republic of the Philippines v. Grijaldo, G.R. NO. L-20240, 31 December 1965.
The appellant maintains that because the loans were secured by a chattel mortgage on the standing
crops on a land owned by him and these crops were lost or destroyed through enemy action his
obligation to pay the loans was thereby extinguished.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the
fulfillment of appellant's obligation, which is the payment of the loan. The loss of the crops did not
extinguish his obligation to pay, because his obligation, as a simple loan or mutuum, was to pay a generic
thing, the amount of money with interest.
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Adverse Claim.
Sajonas v. Court of Appeals, G.R. No. 102377, 5 July 1996.
FACTS: On September 22, 1983, the spouses Ernesto Uychocde and Lucita Jarin agreed to sell a parcel of
residential land located in Antipolo, Rizal to the spouses Alfredo Sajonas and Conchita R. Sajonas on
installment basis as evidenced by a Contract to Sell. The property was registered in the names of the
Uychocde spouses under TCT No. N-79073 of the Register of Deeds of Marikina, Rizal.
On August 27, 1984, the Sajonas couple caused the annotation of an adverse claim based on the said
Contract to Sell on the title of the subject property, which was inscribed as Entry No. 116017. Upon full
payment of the purchase price, the Uychocdes executed a Deed of Sale involving the property in question
in favor of the Sajonas couple on September 4, 1984. The deed of absolute sale was registered almost a
year after, or on August 28, 1985.
Meanwhile, it appears that Domingo Pilares filed Civil Case No. Q-28850 for collection of sum of money
against Ernesto Uychocde. On June 25, 1980, a Compromise Agreement was entered into by the parties
in the said case under which Ernesto Uychocde acknowledged his monetary obligation to Domingo Pilares
amounting to P27,800 and agreed to pay the same in two years from June 25, 1980. When Uychocde
failed to comply with his undertaking in the compromise agreement, Pilares moved for the issuance of a
writ of execution to enforce the decision based on the compromise agreement, which the court granted
in its order dated August 3, 1982.
Accordingly, a writ of execution was issued on August 12, 1982 by the CFI of Quezon City where the civil
case was pending. Pursuant to the order of execution dated August 3, 1982, a notice of levy on execution
was issued on February 12, 1985. On February 12, 1985, defendant sheriff Roberto Garcia of Quezon City
presented said notice of levy on execution before the RD of Marikina and the same was annotated at the
back of the subject property as Entry No. 123283.
When the deed of absolute sale dated 4 September 1984, was registered on August 28, 1985, TCT No.
N-79073 was cancelled and in lieu thereof, TCT No. N-109417 was issued in the name of the Sajonas
couple. The notice of levy on execution annotated by defendant sheriff was carried over to the new
title. On October 21, 1985, the Sajonas couple filed a Third-Party Claim with the sheriff of Quezon City,
hence the auction sale of the subject property did not push through as scheduled.
On January 10, 1986, the Sajonas spouses demanded the cancellation of the notice of levy on execution
upon Pilares, through a letter to their lawyer, Atty. Melchor Flores. Despite said demand, Pilares refused
to cause the cancellation of said annotation. In view thereof, the Sajonas spouses filed a complaint in the
RTC against Pilares, the judgment creditor of Uychocdes.
ISSUE: Was the adverse claim inscribed in the Transfer Certificate of Title No. N-109417 still in force
when Pilares caused the notice of levy on execution to be registered and annotated in the said title,
considering that more than thirty days had already lapsed since it was annotated?
RULING: An annotation of an adverse claim is a measure designed to protect the interest of a person
over a piece of real property where the registration of such interest or right is not otherwise provided for
by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves
a warning to third parties dealing with said property that someone is claiming an interest on the same or
a better right than that of the registered owner thereof. Such notice is registered by filing a sworn
statement with the Register of Deeds of the province where the property is located, setting forth the
basis of the claimed right together with other dates pertinent thereto.
The registration of an adverse claim is expressly recognized under Section 70 of P.D. No. 1529.
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Section 110 of Act 496 or the Land Registration Act reads:
Sec. 110. Whoever claims any part or interest in registered lands adverse to the
registered owner, arising subsequent to the date of the original registration, may, if no
other provision is made in this Act for registering the same, make a statement in writing
setting forth fully his alleged right or interest, and how or under whom acquired, and a
reference to the volume and page of the certificate of title of the registered owner, and
a description of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimant’s
residence, and designate a place at which all notices may be served upon him. The
statement shall be entitled to registration as an adverse claim, and the court, upon a
petition of any party in interest, shall grant a speedy hearing upon the question of the
validity of such adverse claim and shall enter such decree therein as justice and equity
may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If
in any case, the court after notice and hearing shall find that a claim thus registered
was frivolous or vexatious, it may tax the adverse claimant double or treble the costs in
its discretion.
The validity of the above-mentioned rules on adverse claims has to be reexamined in the light of the
changes introduced by P.D. 1529, which provides:
Sec. 70 Adverse Claim- Whoever claims any part or interest in registered land adverse to
the registered owner, arising subsequent to the date of the original registration, may, if no
other provision is made in this decree for registering the same, make a statement in writing
setting forth fully his alleged right or interest, and how or under whom acquired, a
reference to the number of certificate of title of the registered owner, the name of the
registered owner, and a description of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimant’s
residence, and a place at which all notices may be served upon him. This statement shall
be entitled to registration as an adverse claim on the certificate of title. The adverse claim
shall be effective for a period of thirty days from the date of registration. After the lapse of
said period, the annotation of adverse claim may be cancelled upon filing of a
verified petition therefor by the party in interest : Provided, however, that after cancellation,
no second adverse claim based on the same ground shall be registered by the same
claimant.
Before the lapse of thirty days aforesaid, any party in interest may file a petition in the
Court of First Instance where the land is situated for the cancellation of the adverse claim,
and the court shall grant a speedy hearing upon the question of the validity of such
adverse claim, and shall render judgment as may be just and equitable. If the adverse
claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in
any case, the court, after notice and hearing shall find that the adverse claim thus
registered was frivolous, it may fine the claimant in an amount not less than one thousand
pesos, nor more than five thousand pesos, in its discretion. Before the lapse of thirty days,
the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn
petition to that effect.
In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law in its
entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:
The adverse claim shall be effective for a period of thirty days from the date of registration.
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At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty
days. But the above provision cannot and should not be treated separately, but should be read in relation
to the sentence following, which reads:
After the lapse of said period, the annotation of adverse claim may be cancelled upon filing
of a verified petition therefor by the party in interest.
If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of
thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete
the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere
lapse of time, the law would not have required the party in interest to do a useless act.
It should be noted that the law employs the phrase may be cancelled, which obviously indicates, as
inherent in its decision-making power, that the court may or may not order the cancellation of an adverse
claim, notwithstanding such provision limiting the effectivity of an adverse claim for thirty days from the
date of registration. The court cannot be bound by such period as it would be inconsistent with the very
authority vested in it. A fortiori, the limitation on the period of effectivity is immaterial in determining the
validity or invalidity of an adverse claim which is the principal issue to be decided in the court hearing. It
will therefore depend upon the evidence at a proper hearing for the court to determine whether it will
order the cancellation of the adverse claim or not.
To interpret the effectivity period of the adverse claim as absolute and without qualification limited to
thirty days defeats the very purpose for which the statute provides for the remedy of an inscription of
adverse claim, as the annotation of an adverse claim is a measure designed to protect the interest of a
person over a piece of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration
Decree), and serves as a warning to third parties dealing with said property that someone is claiming an
interest or the same or a better right than the registered owner thereof.
The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed
out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety
of his claimed interest can be established or revoked, all for the purpose of determining at last the
existence of any encumbrance on the title arising from such adverse claim. This is in line with the
provision immediately following:
Provided, however, that after cancellation, no second adverse claim shall be registered
by the same claimant.
Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will be
precluded from registering a second adverse claim based on the same ground.
It was held that validity or efficaciousness of the claim may only be determined by the Court upon
petition by an interested party, in which event, the Court shall order the immediate hearing thereof and
make the proper adjudication as justice and equity may warrant. And it is only when such claim is found
unmeritorious that the registration of the adverse claim may be cancelled, thereby protecting the interest
of the adverse claimant and giving notice and warning to third parties.
In sum, the disputed inscription of adverse claim on the Transfer Certificate of Title No. N-79073 was still
in effect on February 12, 1985 when Quezon City Sheriff Roberto Garcia annotated the notice of levy on
execution thereto. Consequently, he is charged with knowledge that the property sought to be levied
upon on execution was encumbered by an interest the same as or better than that of the registered
owner thereof. Such notice of levy cannot prevail over the existing adverse claim inscribed on the
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certificate of title in favor of the petitioners. This can be deduced from the pertinent provision of the
Rules of Court, to wit:
Section 16. Effect of levy on execution as to third persons- The levy on execution shall
create a lien in favor of the judgment creditor over the right, title and interest of the
judgment debtor in such property at the time of the levy, subject to liens or encumbrances
then existing.
To hold otherwise would be to deprive the Sajonas spouses of their property, who waited a long time to
complete payments on their property, convinced that their interest was amply protected by the inscribed
adverse claim.
Notice of lis pendens.
Heirs of Maria Marasigan v. IAC, G.R. No. L-69303, 23 July 1987.
FACTS: On April 24, 1975, a civil case entitled "Maria Marron v. Felicisimo Bazar and Fe S. Bazaar" was
filed before the CFI of Manila. The action sought to compel defendants Bazar to execute a registrable
Deed of Absolute Sale of their lot covered by TCT No. 100612 in favor of Maria Marron.
On January 27, 1976, while the above case was still pending, respondent Maria Marron caused the
annotation of a notice of lis pendens at the back of TCT No. 100612.
CFI of Manila rendered judgment ordereing defendants Fe Springael Bazar and Felicisimo Bazar as
vendors (1) to execute in favor of respondent Maria Marron as vendee a Deed of Absolute Sale in a public
instrument over the residential lot covered by TCT No. 100612; and (2) to deliver to Maria Marron
sufficient copies of such deed of sale, together with the Owner's copy of said Transfer Certificate of Title
No. 100612, in order that the she can register the Deed of Absolute Sale with the Registry of Deeds of
the City of Manila and secure a transfer certificate of title for the land in her name.
The above judgment became final and executory so respondent Maria Marron filed a motion for execution
which was granted. A writ of execution was issued by the court on July 12, 1976.
The spouses Bazar, however, refused to surrender their title to the property in question and to execute
the required deed of sale in Marron's favor. On November 29, 1978, the lower court finally ordered the
Clerk of Court to execute the deed of sale in behalf of the erring spouses. When the said deed was
presented to the Register of Deeds of Manila for registration, the Deputy Clerk of Court was advised to
secure a court order in order that the new title issued in the name of herein petitioner Maria Marasigan
could be cancelled.
It appears that on December 18, 1974, a deed of absolute sale of Lot 2-A covered by TCT No. 100612
was executed by Fe S. Bazar in favor of Maria Marasigan for and in consideration of P15,000.00.
However, it was only on July 5, 1977 that said deed was registered with the Registry of Deeds of Manila.
Consequently, TCT No. 100612 was cancelled and a new title was issued in Maria Marasigan's name.
When the Register of Deeds of Manila issued a new TCT naming Maria Marasigan as the new owner of
Lot 2-A, the notice of lis pendens caused to be annotated by Marron on the Bazar's title was carried over
on the said new title.
ISSUE: Who has a better right to the property in question, the party who bought it with a notice of lis
pendens annotated at the back of her title or the party in whose favor the notice of lis pendens was
made? The latter!
RULING: There is a clear showing that although the late Maria Marasigan acquired the property in
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question from the Bazaars pursuant to a deed of absolute sale on December 18, 1974 or a little over four
(4) months before the filing of the civil case, the transaction became effective as against third persons
only on July 5, 1977 when it was registered with the Registry of Deeds of Manila. It is the act of
registration which creates constructive notice to the whole world. Section 51 of Act 496, as amended by
Section 52 of the Property Registration Decree (P.D. 1529) provides:
Sec. 52. Constructive notice upon registration. — Every conveyance ... affecting
registered land shall, if registered, filed or entered in the office of the Register of Deeds
for the province or city where the land to which it relates lies, be constructive notice to
all persons from the time of such registering, filing or entering.
Moreover, there is no question that when the late Maria Marasigan was issued her transfer certificate of
title to the subject property, the Registrar of Deeds of Manila then carried over to the new title the notice
of lis pendens which respondent Maria Marron had caused to be annotated at the back of the Bazar's
title. In case of subsequent sales or transfers, the Registrar of Deeds is duty bound to carry over the
notice of lis pendens on all titles to be issued. Otherwise, if he cancels any notice of lis pendens in
violation of his duty, he may be held civilly and even criminally liable for any prejudice caused to innocent
third persons.
A notice of lis pendens means that a certain property is involved in a litigation and serves as notice to the
whole world that one who buys the same does it at his own risk. It was also a clear notice to Maria
Marasigan that there was a court case affecting her rights to the property she had purchased.
As earlier stated it was only on July 5, 1977 that the sale between Maria Marasigan and the Bazaars
became effective as against third persons. The registration of the deed of sale over the subject property
was definitely subsequent to the annotation made on January 27, 1976. Consequently, Marasigan was
bound by the outcome of the litigation against her vendors or transferors.
The filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred
to therein and, therefore, any right they may thereafter acquire on the property is subject to the
eventuality of the suit. The doctrine of lis pendens is founded upon reason of public policy and necessity,
the purpose of which is to keep the subject matter of the litigation within the power of the Court until the
judgment or decree shall have been entered; otherwise, by successive alienations pending the litigation,
its judgment or decree shall be rendered abortive and impossible of execution.

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ATTY. RENO R. GONZALES, JR.

Definition of Real Estate Mortgage

Republic vs. Peralta, G.R. No. L-56568, 20 May 1987.

Isaguirre v de Lara, 332 SCRA 803.

When can you foreclose a mortgage constituted over a property.

Producers Bank v. Court of Appeals, G.R. No. 111584, 17 September 2001.

RULING: Foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness. As a

DBP v. Licuanan, G.R. No. 150097, 26 February 2007.

Prohibition against pactum commissorium

Lumayag v. Heirs of Jacinto, G.R. No. 162112, 3 July 2007.

Garcia v. Villar, G.R. No. 158891, June 27, 2012

Options of a secured creditor in case of death of the debtor.

Nature of Judicial and Extra-Judicial Foreclosure.

Limpin vs. IAC, G.R. No. 70987, 30 January 1987.

Equity of Redemption v. Right of Redemption.

Limpin vs. IAC, G.R. No. 70987, 29 September 1988.

Judicial Foreclosure v. Extra-Judicial Foreclosure; Writ of Possession.

SPA in Extra-Judicial Foreclosures.

Casano v. Magat, G.R. No. P-02-1539, 24 January 2002.

Venue under Act No. 3135, as amended.

Ochoa v. China Banking Corporation, 23 March 2011.

Posting of notice under Act No. 3135, as amended.

Olizon v. Court of Appeals, G.R. No. 107075, 1 September 1994.

However, prior to the effectivity of Circular No. 7-2002, there was

The principal object of a notice of sale in a foreclosure of mortgage is not so

Moreover, statutory provisions governing publication of notice of mortgage

The right of a bank to foreclose a mortgage upon the mortgagor’s failure to

Personal notice to the mortgagor is required when stipulated.

Concepcion v. Court of Appeals, GR No. 122079, 27 June 1997.

Metrobank v. Wong, GR No. 120859, 26 June 2001.

Equity of Redemption and Right of Redemption distinguished.

Alpha Insurance v. Reyes, G.R. No. L26274, 31 July 1981.

Ramirez v. Court of Appeals, G.R. No. 171354, 7 March 2007.

Rosales v. Yboa, G.R. No. L 42282, 28 February 1983.

Period of redemption not a prescriptive period.

Mallari v. GSIS, G.R. No. 157659, 25 January 2010.

Rule in case of judicial redemption.

Tolentino v. CA, G.R. No. 171354, 7 March 2007.

Redemption where mortgagee is a bank.

GE Money Bank v. Sps. Dizon, 23 March 2015.

Liens subordinate to the mortgage.

De Vera v. Agloro, G.R. No. 155673, 14 January 2005.

DBP v. Doyon, G.R. No. 167238, 25 March 2009.

Issuance of writ ex parte ministerial.

AQA Global Construction v. Planters Development Bank, 12 August 2015.

Writ of possession is a non-litigious proceeding; no need for notice to adverse party.

De Vera v. Agloro, supra.

UCPB v. Lumbo, G .R. No. 162757, 11 December 2013.

Arquiza vs. CA, G.R. No. 160479, 8 June 2005.

Deficiency Judgment; Extra-Judicial foreclosure.

Tumalad v. Vicencio. G.R. No. L-301, 30 September 1971.

PNB v. Manila Investment, 29 April 1971, 38 SCRA 462.

Affidavit of Good Faith.

Philippine Refining Co. v. Jarque, G.R. No. L-41506, 25 March 1935.

Deficiency in Chattel Mortgage.

Superlines v. ICC, G.R. No. 150673, 28 February 2003.

PNB v. Tajonera, G.R. No. 195889, 24 September 2014.

PNB v. Santos, G.R. No. 208293/G.R. No. 208295, 10 December 2014.

Herrera v. Petrophil Corporation, G.R. No. L-48349, 29 December 1986.

Briones vs. Cammayo, G.R. No. L-23559, 4 October 1971.

PNB vs. CA, G.R. No. 75223, 14 March 1990.

Metrobank v. Rosales et. al., G.R. No. 183204, 13 January 2014.

PNB v. Tajonera, supra.

UCPB v. Lumbo, G .R. No. 162757, 11 December 2013. 