MORTGAGE, FORECLOSURE AND REDEMPTION

Larry P. Ignacio
REAL ESTATE MORTGAGE 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 ( Manresa). It
is a lien on specific or identified immovable property. It 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. It creates a real right enforceable against the whole world
(DBP v. NLRC, 183 SCRA 328 [1990]). Foreclosure of mortgage
Foreclosure of mortgage is the process by which a property covered
may be subjected to sale to pay demand for which mortgages stand as
security (Pacific Commercial Co. v. Alvarez, 38 OG 758). Foreclosure is the
necessary consequence of non-payment of mortgage indebtedness. The
mortgage can be foreclosed only when the debt remains unpaid at the time
it is due (Producers Bank v. CA, GR No. 111584, 17 Sept. 2001; Gov’t of the PI v.
Espejo, 57 Phil 496) or in case of default in the payment of obligation ( PNB v.
CA, GR No. 126908, 16 Jan. 2003; Chinabank v. CA, 265 SCRA 327 [1996] )
Demand is essential for default. Demand, however, is necessary for default
to exist and which gives the right to collect debt and foreclose the mortgage.
The maturity dates in the promissory notes or the acceleration clause (“[i]n
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. . .”) therein stated 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 (DBP v. Licuanan, GR No. 150097, 26
February 2007). Default commences upon judicial or extrajudicial demand
(UCPB vs. Beluso, G.R. No. 159912, August 17, 2007). Demand, however, is
not necessary where the law or the obligations expressly declare it
unnecessary (Premiere Dev’t. Bank v. Central Surety & Insurance Company, Inc.,
579 SCRA 359, 13 February 2009).

Mora solvendi or debtor’s default is defined as a delay in the fulfillment

of an obligation, by reason of a cause imputable to the debtor. There are
three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; third,
the creditor judicially or extrajudicially requires the debtor’s performance
(Selegna Management & Dev’t. Corp. v. UCPB, GR No. 165662, 03 May 2006 ).
Prohibition against Pactum Commissorium.

A stipulation in a deed of mortgage which states that upon failure of

the mortgagor to pay the debt within the agreed period, the land covered by
the mortgage shall become property of the mortgagee or the transaction
shall become a sale and the consideration shall be considered as payment of
the price of the land is pactum commissorium and is null and void (Reyes v.
Nebreja, 98 Phil 639 [1956]). Such stipulation is void since it enables the

mortgagee to acquire ownership of the mortgaged property without need of

foreclosure (Olea v. CA, 247 SCRA 274 [1995] ); it is a nullity being contrary to
the provisions of Article 2088 of the Civil Code ( Lumayag v. Heirs of Jacinto
Nemeno, 526 SCRA 315 [2007]).
Two modes of foreclosure of real estate mortgage.
Foreclosure of real estate mortgage is either done extra-judicially or
judicially. The provisions of Rule 68 of the 1997 Rules of Civil Procedure
govern judicial foreclosure. The extra-judicial foreclosure of real estate
mortgage, on the other hand, is carried out in the procedure governed by
the provisions of Act 3135, as amended, otherwise known as “An Act to
Regulate the Sale of Property Under Special Powers Inserted in or Annexed
to Real Estate Mortgages.”

EXTRA-JUDICIAL FORECLOSURE OF REAL ESTATE

MORTGAGE UNDER ACT 3135, AS AMENDED &
REDEMPTION
Essential requirements under Act 3135
Under Act 3135, as amended and settled jurisprudence, the following
essential requirements must be met:
1. There must be a special power of attorney inserted in or attached to
the real estate mortgage authorizing the sale pursuant to the provisions of
Act, 3135, as amended (Section 1; Paguyo v. Gatbunton, 523 SCRA 156
[2007]). 2. The sale must be made within the province where the
property or any part thereof is located, unless otherwise stipulated (Section
2; Supena v. de la Rosa, 267 SCRA 1). 3. There must be a notice of sale
to be posted in three public places of the municipality or city where the
property is situated. If the property is worth more than P400.00, the notice
shall also be published once a week for three consecutive weeks in a
newspaper of general circulation in the city or municipality (Section
3). 4. The sale shall be made at public auction between the hours of
nine in the morning and four in the afternoon, and shall be under the
direction of the sheriff of the province, the justice or auxiliary justice of the
peace (now municipal judge) of the municipality in which such sale shall be
made, or a notary public of said municipality (Section 4). Procedure of
extrajudicial foreclosure under Act 3135
In Administrative Matter No. 99-10-05-0 (as further amended on 07
August 2001), the Supreme Court prescribed the following procedures in the
extra-judicial foreclosure of mortgage:
1. All applications for extra-judicial foreclosure of mortgage whether under
the direction of the sheriff or a notary public, pursuant to Act 3135, as
amended, shall be filed with the Executive Judge, through the Clerk of Court
who is also the Ex-Officio Sheriff. 2. Upon receipt of an application for extra-
judicial foreclosure of mortgage, it shall be the duty of the Clerk of Court
to: a) receive and docket said application and to stamp thereon the
corresponding file number, date and time of filing; b) collect the filing fees
therefore pursuant to Rule 141, Section 7(c) as amended by A.M. No. 00-2-
01-SC, and issue the corresponding official receipt; c) examine, in case of
real estate mortgage foreclosure, whether the applicant has complied with
all the requirements before the public auction is conducted under the
direction of the sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as
amended; d) sign and issue the certificate of sale, subject to the approval of
the Executive Judge, or in his absence, the Vice-Executive Judge. No
certificate of sale shall be issued in favor of the highest bidder until all fees
provided in the aforementioned sections and in Rule 141, Section 9(1) as
amended by A.M. 00-2-01-SC, shall have been paid; Provided, that in no
case shall the amount payable under Rule 141, Section 9(1), as amended,
exceed P100,000.00; e) after the certificate of sale has been issued to the
highest bidder, keep the complete records, while awaiting any redemption
within a period of one (1) year from date of registration of the certificate of
sale with the Register of Deed concerned, after which, the records shall be
archived. Notwithstanding the foregoing provision, juridical persons whose
property is sold pursuant to an extrajudicial foreclosure, shall have the right
to redeem the property until, but not after, the registration of the certificate
of foreclosure sale which in no case shall be more than three (3) months
after foreclosure, whichever is earlier, as provided in Section 47 of Republic
Act No. 8791 (as amended, Res. of August 7, 2001) Where the application
concerns the extrajudicial foreclosure of mortgages of real estates and/or
chattels in different locations covering one indebtedness, only one filing fee
corresponding to such indebtedness shall be collected. The collecting Clerk
of Court shall, apart from the official receipt of the fees, issue a certificate of
payment indicating the amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates and/or chattels
mortgaged and their respective locations, which certificate shall serve the
purpose of having the application docketed with the Clerks of Court of the
places where the other properties are located and of allowing the
extrajudicial foreclosures to proceed thereat. 3. The notices of auction sale
in extrajudicial foreclosure for publication by the sheriff or by a notary public
shall be published in a newspaper of general circulation pursuant to Section
1, Presidential Decree No. 1079, dated January 2, 1977, and non-compliance
therewith shall constitute a violation of Section 6 thereof. 4. The Executive
Judge shall, with the assistance of the Clerk of Court, raffle applications for
extrajudicial foreclosure of mortgage under the direction of the sheriff
among all sheriffs, including those assigned to the Office of the Clerk of
Court and Sheriffs IV assigned in the branches. 5. The name/s of the
bidder/s shall be reported by the sheriff or notary public who conducted the
sale to the Clerk of Court before the issuance of the certificate of sale. Time
when to conduct auction sale. Issue: Whether a sale a public auction,
to be valid, must be conducted the whole day from 9:00 a.m. until 4:00
p.m. of the scheduled auction day. Section 4 of Act 3135 provides that the
sale must take place between the hours of nine in the morning and
four in the afternoon. The word “between” ordinarily means “in time
interval that separates.” Thus, “between the hours of nine in the morning
and four in the afternoon” merely provides a time frame within which an
auction sale may be conducted. Therefore, a sale at public auction held
within the intervening period provided by law (i.e., at any time from 9:00
a.m. until 4:00 p.m.) is valid, without regard to the duration or length of
time it took the auctioneer to conduct the proceedings ( PNB v. Cabatingan,
557 SCRA 426 [2008]). Act 3135 regulates the extrajudicial sale of mortgaged
real properties by prescribing a procedure which effectively safeguards the
rights of both debtor and creditor (ibid.). Notice and publication
requirements.
1. Notice and publication under PD 1079 and Act 3135, as amended.

Section 1 of PD 1079, as amended provides:

“All notices of auction sales in extra-judicial foreclosure of real estate
mortgage under Act 3135, as amended x x x required by law to be published in a
newspaper of general circulation in particular provinces and/or cities shall be
published in newspapers or publications published, edited and circulated in the
same city and/or province where the requirement of general circulation
applies: Provided, That the province or city where the publication’s principal office
is located shall be considered the place where it is edited and published x x x.”

Section 3 of Act 3135, as amended, reads:

“Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice
shall also be published once a week for three consecutive weeks in a newspaper of
general circulation in the municipality or city.”

A reading of the above provisions gives us the impression that the

publication of extra-judicial sales under Act, 3135, if the property is worth
more than four hundred pesos, shall be in a newspaper of general circulation
in the city or municipality where the property lies. Hence, if the property in
question is located in Quezon City, it logically follows that the auction sale of
said property should be published in a newspaper of general circulation that
is edited and published in Quezon City.
However, such application and/or interpretation are too narrow and
very limited that it virtually defeats the purpose and intention of the law. If
this is the case, the leading dailies, like the Philippine Daily Inquirer (PDI)
(with head office in Makati City) and Manila Bulletin (with head office in
Manila), which enjoys a wide circulation nationwide, cannot publish notice of
extra-judicial sales of properties located in Quezon City simply because it is
outside their place of publication. What is important is that the
newspaper is of general circulation in the place where the property/ies to be
foreclosed is/are located. In a line of cases, the Highest Court declared
that publication of the extra-judicial sale in a newspaper of general
circulation is more than sufficient compliance with the notice-posting
requirement of the law (Fortune Motors v. Metrobank, 265 SCRA 72; Cristobal v.
CA, 328 SCRA 256; Concepcion v. CA, 274 SCRA 614; Bohanan v. CA, 256 SCRA
355; Olizon v. CA, 236 SCRA 148; Gravina v. CA 220 SCRA 178 ). PD 1079 and
Act 3135 do not require that the newspaper which publishes judicial notices
should be a daily newspaper (Fortune Motors, 265 SCRA 72).
In Olizon at 156, it was ruled that:
“x x x 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 publicity had been
effected such that those interested might attend the public sale, and the purpose of
the law had 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 inform 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;
x x x” (emphases supplied)

An extra-judicial foreclosure sale is an action in rem and thus requires

only notice by publication and posting to bind the parties in the foreclosed
property. No personal notice is necessary ( Langkaan Realty Dev’t., supra;
Bohanan v. CA, supra; Fortune Motors, 265 SCRA 72 ).

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 (Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 256 SCRA 355;
Cristobal v. CA, 328 SCRA 256 [2000]; DBP v. CA, GR No. 125838, 10 June
2003). 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 (DBP v. Aguirre, GR No. 144877, 07 September 2001 ).

However, the failure to publish the notice of auction sale as required

by the statute constitutes a jurisdictional defect which invalidates the sale
(DBP v. Aguirre, GR No. 144877, 07 Sept. 2001).

The affidavit of publication executed by the publisher,

business/advertising manager that a newspaper is a newspaper of general
circulation constitutes prima facie evidence of compliance with the requisite
publication (Bonnevie v. CA, 125 SCRA 122 [1983]; Sadang v. GSIS, 18 SCRA
491).

A single act of posting the notice of auction sale satisfies the

requirements of law. The burden of proving that the posting requirement
was not complied with is shifted to the one who alleges non-compliance
(Bonnevie v. CA, 125 SCRA 122 [1983]).

2. The purpose of notice and publication.

The object of a notice of sale is to inform the public of the nature and
condition of the property to be sold, and inform 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 ( Olizon v. CA, 236 SCRA 148). Publication,
therefore, is required to give the foreclosure sale a reasonably wide publicity
such that those interested might attend the public sale ( Ouano v. CA, 129279,
04 March 2003).

3. The notice and publication requirement are mandatory and failure to

comply is a jurisdictional defect that vitiates the foreclosure auction sale.
Non-compliance with the notice and publication requirement in Act 3135, as
amended is a jurisdictional defect that vitiates the auction sale ( Tambunting
v. CA, 167 SCRA 16).

“The rule is that statutory provisions governing publication of notice of

mortgage foreclosure sales must be strictly complied with, and that even slight
deviation therefrom will invalidate the notice and render the sale at least voidable.
x x x It has been held that failure to advertise a mortgage foreclosure sale in
compliance with statutory requirements constitute a jurisdictional defect
invalidating the sale and that a substantial error or omission in a notice of sale will
render the notice insufficient and vitiate the sale. ” (Tambunting v. CA, 167 SCRA
16).

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 (PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27 December
2002; Ouano v. CA, GR No. 129279, 04 March 2003; Lucena v. CA, 313 SCRA47,
[1999]).

The failure to publish the notice of auction sale as required by the

statute constitutes a jurisdictional defect which invalidates the sale ( DBP v.
Aguirre, GR No. 144877, 07 September 2001 ).

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 end. The valid exercise of the right ends when the right
disappears, and it disappears when it is abused especially to the prejudice of
others (PNB v. Nepomuceno, supra.).

4. The parties have no right to waive the notice and publication

requirements. There is no estoppel in case of an agreement to dispense with
the notice and publication requirements.

The parties have absolutely no right to waive the posting and

publication requirements (PNB v. Nepomuceno Productions, Inc., GR No. 139479,
27 December 2002; Ouano v. CA, GR No. 129279, 04 March 2003 ). Foreclosure
auction sale is imbued with public policy considerations and any waiver on
the notice and publication requirements would be inconsistent with the
intent and letter of Act 3135, as amended (PNB v. Nepomuceno, supra.).

To request postponement of the sale is one thing; to request it without

need of compliance with the statutory requirements is another. Therefore, a
party is not estopped from questioning the validity of the foreclosure sale for
non-compliance with Act 3135 (PNB v. Nepomuceno, supra.).

Publication, therefore, is required to give the foreclosure sale a

reasonably wide publicity such that those interested might attend the public
sale. To allow the parties to waive this jurisdictional requirement would
result in converting into a private sale what ought to be a public auction
(Ouano v. CA, GR No. 129279, 04 March 2003).
 In the case of DPB v. CA, GR No. 125838, 10 June 2003, the Supreme
Court clarified that:
“The form of the notice of extrajudicial sale is now prescribed in Circular No.
7-2002 issued by the Office of the Court Administrator on 22 January
2002. Section 4(a) of Circular No. 7-2002 provides that: x x x The last paragraph
of the prescribed notice of sale allows the holding of a rescheduled auction sale
without reposting or republication of the notice. However, the rescheduled auction
sale will only be valid if the rescheduled date of auction is clearly specified in the
prior notice of sale. The absence of this information in the prior notice of sale will
render the rescheduled auction sale void for lack of reposting or republication. If
the notice of auction sale contains this particular information, whether or not the
parties agreed to such rescheduled date, there is no more need for the reposting or
republication of the notice of the rescheduled auction sale.”

5. Personal notice to the mortgagor is REQUIRED if it is stipulated.

There being no contractual stipulation therefore, 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 therefore in a newspaper of general circulation in said
municipality (PNB v. International Corporate Bank, 199 SCRA 508).

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 (Metrobank v. Wong, GR No.
120859, 26 June 2001; Concepcion v. CA, 274 SCRA 614 ). 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
(Community Savings & Loan Association, Inc. v. CA, 153 SCRA 564; Grand Farms
Inc. v. CA, 193 SCRA 748; Concepcion v. CA, GR No. 122079, 27 June 1997 ).

The rule is that statutory provisions governing publication of

mortgage foreclosure sales must be strictly complied with, and
that even slight deviation therefrom will invalidate the notice and
render the sale at least voidable. x x x Where required by the statute or
by the terms of the foreclosure decree, public notice of the place and time of
the mortgage foreclosure sale must be given, a statute requiring it being
held applicable to subsequent sales as well as to the first advertised
sale of the property. It has been held that failure to advertise a mortgage
foreclosure sale in compliance with statutory requirements constitutes a
jurisdictional defect invalidating the sale and that a substantial error or
omission in a notice of sale will render the notice insufficient and vitiates the
sale (Tambunting v. CA, 167 SCRA 16, 23 [1988] citing Jalandoni v. Ledesma, 64
Phil 1058 & 59 CJS 1314, emphases supplied).

The failure to publish the notice of auction sale as required by the

statute constitutes a jurisdictional defect which invalidates the sale ( DBP v.
Aguirre, GR No. 144877, 07 September 2001 ).

“The Act 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 requirements. In this case, petitioner and respondent in entering
into a contract of real estate mortgage, agree inter alia:
“all correspondence relative to this mortgage, including demand letters, summonses,
subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St., Iloilo City, or at the address that may hereafter be
given in writing by the MORTGAGOR to the MORTGAGEE.”

Precisely, the purpose of the foregoing stipulation is to apprise

respondent of any action which petitioner might take on the subject
property, thus according him the opportunity to safeguard his rights. When
petitioner failed to send the notice of foreclosure sale to respondent, he
committed a contractual breach sufficient to render the foreclosure sale on
November 23, 1981 null and void.” (Metrobank v. Wong, 359 SCRA 608 [2001])

The OLIZON CASE is an exception:

“Obviously, as correctly pointed out by respondent, what prompted the Court to
dispense with the posting requirement is the “unusual nature of the attendant facts
and the peculiarity of the confluent circumstances” involved in Olizon. It bears
stressing that in the said case, the extrajudicial-judicial foreclosure sale sought to
be annulled was conducted more than 15 years ago, thus, even on the equitable
ground of laches, the Olizons’ action for annulment of foreclosure proceedings and
certificate of sale was bound to fail. An extrajudicial foreclosure sale is an action
in remand thus requires only notice of publication and posting to bind the parties in
the foreclosed property. (Langkaan Realty Dev’t. v. UCPB, GR No. 139437, 08
December 2000; Olizon v. CA, 2236 SCRA 148; Bohanan v. CA, 256 SCRA 355). No
personal notice is necessary to the mortgagor (Bonnevie v. CA, 125 SCRA 122;
Fortune Motors v. Metrobank, 265 SCRA 72) unless stipulated upon by the parties
(PNB v. International Corporate Bank, 199 SCRA 508; Community and Savings
Loan Association, Inc. v. CA, 153 SCRA 564; Grand Farms Inc. v. CA, 193 SCRA
748). Publication of the extrajudicial sale in a newspaper of general circulation is
more than sufficient compliance with the notice-posting requirement of the law
(Cristobal v. CA, 328 SCRA 256; Gravina v. CA, 220 SCRA 178; Concepcion v. CA,
274 SCRA 614; Olizon v. CA, 236 SCRA 148). The notice and publication
requirement are mandatory and failure to comply is a jurisdictional defect that
vitiates the foreclosure auction sale (Tambunting v. CA, 167 SCRA 16). The parties
have absolutely no right to waive the posting and publication
requirements. Foreclosure auction sale is imbued with public policy considerations
and any waiver on the notice and publication requirements would be inconsistent
with the intent and letter of Act 3135, as amended (PNB v. Nepomuceno, GR No.
1139479, 27 December 2002). Publication is therefore required to give the
foreclosure sale a reasonably wide publicity such that those interested might attend
the public sale. To allow the parties to waive this jurisdictional requirement would
result in converting into a private sale what ought to be public auction (Ouano v.
CA, GR No. 129279, 04 March 2003). Notices are given for the purpose of securing
bidders and to prevent a sacrifice of the property (Olizon v. CA, 236 SCRA
148). REDEMPTIONRedemption period After the issuance of the certificate of
sale to the highest bidder, this shall be registered with the Register of Deeds
where the property is located. At this point, the remaining right of the
mortgagor/debtor is to redeem the property. The period to redeem property
sold extrajudicially following the foreclosure of mortgage is one (1) year
from the registration of the sheriff’s certificate of foreclosure sale (Bernardez
v. Reyes, 201 SCRA 648; Section 6, Act 3135, as amended ). In case the
mortgagor is a juridical person Section 47, RA 8791, the General Banking
Law of 2000 provides: “Notwithstanding Act 3135, juridical persons x x x
shall have the right to redeem the property in accordance with this
provision until, but not after, the registration of the certificate of foreclosure
sale with the applicable Register of Deeds which in no case shall be more
than three (3) months after the foreclosure, whichever is
earlier.” Redemption period not suspended by TRO or a separate civil
case. The period to redeem was not suspended by the institution of a
separate civil case for annulment of mortgage, foreclosure, etc. (Sumerariz v.
DBP, 21 SCRA 1374; Unionbank v. CA, GR No. 134068, 25 June 2001) and
NEITHER is it suspended by the issuance of a TRO by the courts ( Peoples
Financing Corp. v. CA, 192 SCRA 34). Redemption price

In case of redemption, a written notice of redemption must be served

on the officer who made the sale and a duplicate filed with the applicable
Register of Deeds (Rosales v. Yboa, 120 SCRA 869; Section 28[par. 3], Rule 39,
Rules of Court). The redemption price shall be: the purchase price with one
percent (1%) per month interest; assessment or taxes paid with 1% per
month interest (Section 28, Rule 39). When the mortgagee is a bank or a
banking or credit institution, the redemption price is that which is stipulated
in the mortgage document or the outstanding obligation of the mortgage
plus interest and expenses (Unionbank v. CA, GR No. 134068, 25 June 2001;
Ponce de Leon v. RFC, 36 SCRA 289; Sy v. CA, 172 SCRA 125 ). The redemption
amount includes the assessment of taxes paid by the purchaser and the
interest on the auction price that should be computed from the date of the
registration of the certificate of sale (Sps. Estanislao, Jr. v. CA, GR No. 143687,
31 July 2001).
Effect of failure to redeem.
If no redemption is made within the prescribed period, the buyer at
foreclosure sale becomes the absolute owner of the property purchased
(Joven v. CA, 212 SCRA 700; PNB v. Adil, 118 SCRA 110 ). The purchaser then
has the absolute right to a writ of possession that is the final process to
carry out or consummate the extrajudicial foreclosure. Henceforth, the
mortgagor/debtor loses his right over the property (Bernardez v. Reyes, 201
SCRA 648; Section 6, Act 3135, as amended). Consolidation of title likewise
becomes a matter of right on the part of the auction buyer, and the issuance
of a certificate of title in favor of the purchaser becomes ministerial upon the
Register of Deeds (Unionbank v. CA, GR No. 133366, 05 August 1999 ).
Redemption vs. repurchase The right to redeem (a foreclosed property)
becomes functus oficio on the date of its expiry, and its exercise after the
period is not really one of redemption but of repurchase. Distinction must be
made because redemption is by force of law; the purchaser at public auction
is bound to accept redemption. Repurchase however of a foreclosed
property, after redemption period, imposes no such obligation. After expiry,
the purchaser may or may not resell the property but no law will compel him
to do so. And, he is not bound by the bid price; it is entirely within his
discretion to set a higher price, for after all, the property already belongs to
him as owner (Prudencio v. CA, 431 SCRA 566).

JUDICIAL FORECLOSURE OF REAL ESTATE

MORTGAGE UNDER RULE 68, RULES OF COURT

Judicial foreclosure of real estate mortgage is governed by the

provisions of Rule 68 of the Rules of Court. It is like any ordinary civil action
filed in court that shall be proven by preponderance of evidence.
Procedure
1. Preparation and filing of complaint which shall set forth the following
allegations (Sec. 1, Rule 68):

a) Date and due execution of the mortgage and its assignments, if

any;

b) Names and residences of the mortgagor and mortgagee;

c) Description of the mortgaged property/ies;

d) Documentary evidence/s of the obligation/s secured by the

mortgage and the unpaid obligation;

e) Names and residences of all persons having or claiming an interest

in the mortgaged property/ies.

1. The trial court shall render a judgment based on the facts proven and
shall ascertain the amount due based on the mortgage debt or obligation,
including interests, charges and costs. The court shall then direct the
defendant to pay said amount within a period of not less than ninety (90)
days nor more than one-hundred twenty (120) days (Sec. 2, Rule 68).
1. In the event of failure to pay as directed within 90 to 120 days, the
mortgage realty/ies shall be sold at an auction sale, the proceeds of which
shall be applied to the mortgage debt, pursuant to Rule 39 of the Rules of
Court (Sec. 3, Rule 68).

3.1. Before the sale of the real property/ies, notice must be given:

a) By posting for 20-days in three (3) public places. If the assessed

value is more than P50,000.00, by publishing a copy of the notice
once a week for two (2) consecutive weeks in one newspaper
selected by raffle (Sec. 15c, Rule 39).
b) Written notice to the judgment obligor at least three (3) days
before the sale (Sec. 15d, Rule 39).

3.2. The highest bidder shall be issued a certificate of sale (Sec. 25,
Rule 39).

1. Upon motion and after notice and hearing, the trial court will issue an
order of confirmation of the sale (Rural Bank of Oroquieta v. CA, 101
SCRA 5 [1980]).

4.1. The final order of confirmation shall be registered with the

Registry of Deeds (Sec. 7, Rule 68).

a) If no right of redemption exists, the certificate of title in the

name of the mortgagor shall be cancelled and a new one issued in
the name of the purchaser.

b) Where a right of redemption exists, the certificate of title of the

mortgagor shall not be cancelled. Instead, the certificate of sale
and order of confirmation shall be registered with a memorandum
of the right redemption. If the property is not redeemed a final
deed of sale shall be executed by the sheriff in favor of the
purchaser which shall be registered in the Register of Deeds,
whereupon the title of the mortgagor shall be cancelled and a new
one issued in the name of the purchaser.
1. If the proceeds of the auction sale of the property are not sufficient,
the trial court, upon motion, shall render a deficiency judgment against
the defendant (Sec. 6, Rule 68).
Equity of Redemption

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 after judicial foreclosure thereof ( International Services, Inc. v. IAC, 142
SCRA 467 [1986]). This is the right of the defendant mortgagor to extinguish

the mortgage and retain ownership of the property by paying the secured
debt within a 90-day period after the judgment becomes final or after the
foreclosure sale but prior to its confirmation ( GSIS v. CFI, 175 SCRA 19
[1989]).
No right of redemption in judicial foreclosure.

There is no right of redemption from a judicial foreclosure of mortgage,

except foreclosure of mortgage by banks or banking institutions ( GSIS v. CFI,
175 SCRA 19 [1989]; Huerta Alba Resort, Inc. v. CA, 339 SCRA 534 [2000] ).
Equity of redemption vs. right of redemption.

The Supreme Court already ruled on the distinction between the equity
of redemption and the right of redemption as follows:
“The equity of redemption is, to be sure, different from and should not be confused
with the right of redemption. Theright of redemption in relation to a mortgage –
understood in the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale – exists only in the case of
the extrajudicial foreclosure of the mortgage. No such right is recognized in
a judicial foreclosure except only where the mortgagee is the Philippine National
Bank or a bank or banking institution. Where a mortgage is foreclosed
extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one
(1) year from the registration of the sheriff’s certificate of foreclosure sale. Where
the foreclosure is judicially effected, however, no equivalent right of redemption
exists. The law declares that a judicial foreclosure sale, ‘when confirmed by an
order of the court, x x shall operate to divest the rights of all the parties to the
action and to vest their rights in the purchaser, subject to such rights of
redemption a 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 may be exercised within a period of one (1) year, counted from the
date of registration of the certificate of sale in the Registry Property. But, to repeat,
no such right of redemption exists in case of judicial foreclosure of a mortgage if
the mortgagee is not the PNB or a bank or banking institution. In such a case, the
foreclosure sale, ‘when confirmed by an order of the court. x x shall operate to
divest the rights of all the parties to the action and to vest their rights in the
purchaser.’ There then exists only what is known as the equity of redemption. This
is simply the right of the defendant mortgagor to extinguish the mortgage and
retain ownership of the property by paying the secured debt within the 90-day
period after the judgment becomes final, in accordance with Rule 68, or even after
judgment becomes final, in accordance with Rule 68, or even after the foreclosure
sale but prior to its confirmation. Section 2, Rule 68 provides that – ‘xx If upon the
trial xx the court shall find the facts set forth in the complaint to be true, it shall
ascertain the amount due to the plaintiff upon the mortgage debt or obligation,
including interest and costs, and shall render judgment for the sum so found due
and order the same to be paid into court within a period of not less than ninety
(90) days from the date of the service of such order, and that in default of such
payment the property be sold to realize the mortgage debt and costs.’ This is the
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.” (Italics supplied, Huerta Alba Resort, Inc. v. CA, 339 SCRA
534 [2000] citing Limpin v. IAC, 166 SCRA 87) Deficiency judgment It
refers to judgment for any unpaid balance of the obligation, which remains
after foreclosure of mortgage, judicial or extrajudicial, which a creditor may
secure from the court (Phil. Bank of Commerce v. de Vera, 6 SCRA 1026 [1962]).
In extrajudicial foreclosure of mortgage, where the proceeds of the sale are
insufficient to pay the debt, the mortgagee has the right to recover the
deficiency from the debtor (Prudential Bank v. Martinez, 189 SCRA 612
[1990]. In a foreclosure, the deficiency is determined by simple arithmetical
computation immediately after foreclosure (United Planters Sugar Milling Co.,
Inc. (UPSUMCO) v. CA, 527 SCRA 336 [2007] ). Extrajudicial foreclosure (EJF)
vs. judicial foreclosure (JF)
1. On the governing law. EJF is governed by the provisions of Act 3135,
as amended, while JF is by the provisions of Rule 68 of the Rules of Court.

1. On the publication requirement. In EJF, the auction sale shall be

published once a week for three (3) consecutive weeks in a newspaper of
general circulation. In JF, the publication shall only be for two (2)
consecutive weeks.

1. On the notice requirement. Personal notice to the mortgagor is not

required in EJF as a rule, UNLESS stipulated upon. In JF, written notice to
the judgment obligor at least three (3) days before the auction sale is
required.

1. On redemption. There is a right of redemption in EJF, which is one

year from registration of the certificate of sale. If the mortgagor is a
juridical person the redemption period is until, but not after, the
registration of the certificate of foreclosure sale with the applicable
Register of Deed which in no case shall be more than three (3) months
after the foreclosure, whichever is earlier. In JF, there is no right of
redemption but only equity of redemption, unless the mortgagee is a
bank or banking institution. In the latter instance, the redemption period
shall be one (1) year from the date of registration of the certificate of
sale.
CHATTEL MORTGAGE

Chattel mortgage is a security for the performance of obligation

effected by the recording of the personal property mortgaged in the chattel
mortgage register (Art. 2140, Civil Code; Northern Motors, Inc. v. Coquia, 66
SCRA 415 [1975]). Only personal property may be the object of a chattel

mortgage (Sec. 2, Act No. 1508). While the subject of a chattel mortgage is
personal property, the parties thereto may by agreement treat as personal
property that which by nature would be real property, such as a building, as
the subject of a chattel mortgage, and the owner thereof may be estopped
from subsequently claiming otherwise ( Tumalad v. Vicencio, 41 SCRA 143
[1971]). Such agreement, however, is valid only as between the contracting

parties (Evangelista v. Alto Surety, 103 Phil 401).

Affidavit of good faith.

Section 5 of Act No. 1508 requires the following form of an affidavit of

good faith to be appended to the chattel mortgage:
“We severally swear that the foregoing mortgage is made for the purpose of
securing the obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one not
entered into for the purpose of fraud”

The absence of such affidavit vitiates a mortgage as against creditors

and subsequent encumbrances ( Phil. Refining Co. v. Jarque, 61 Phil 229;
Giberson v. Jureideni Bros., 44 Phil 216; Benedicto de Tarrosa v. Yap Tico & Co., 46
Phil 753) but may, however, be valid as between the parties ( Lilius & Lilius v.

Manila Railroad Co., 62 Phil 56).

Foreclosure of chattel mortgage.

It appears that a chattel mortgage may only be foreclosed

extrajudicially pursuant to Section 14 of Act No. 1508 with the deletion of
Section 8, Rule 68 of the former rule on judicial foreclosure of chattel
mortgage.

In Section 14 of Act No. 1508, it is a condition precedent before

foreclosure that the conditions of the chattel mortgage be broken and at
least 30-days already elapsed.
Procedure
 Section 14 of Act No. 1508, provides the following procedure in the
extrajudicial foreclosure of chattel mortgage –
1. Posting of the notice of auction sale at least 10 days before auction,
indicating time, place and purpose of sale, at two or more public places in
the municipality where the mortgagor resides, or where the property is
situated.

1. Notification of the mortgagor or his assigns, of the time and place of

sale, at least 10-days previous to the sale, either in writing if a resident of
the municipality, or by registered mail if a resident outside of the
municipality.

1. Auction sale of the mortgaged property by a public officer at a public

place in the municipality where the mortgagor resides, or where the
property is situated.

1. The officer making the sale shall, within 30-days thereafter, make in
writing a return of his doings and file the same in the office of the register
of deeds where the mortgage is recorded, and the register of deeds shall
record the same. The return shall particularly describe the articles sold,
and state the amount received for each article, and shall operate as a
discharge of the lien thereon created by the mortgage.

1. The proceeds of the sale shall be applied in the following order:

a) Costs and expenses of keeping the sale;

b) Payment of the demand or obligation secured by such mortgage;
c) Residue shall be paid to persons holding subsequent mortgages
in their order;
d) Balance, if any, shall be paid to the mortgagor or persons
holding him on demand.
Deficiency judgment in chattel mortgage.

If in an extrajudicial foreclosure of chattel mortgage a deficiency exists,

an independent civil action may be instituted for recovery of said deficiency,
the chattel mortgage being given only as security and not as payment for
debt in case of failure of payment ( Bicol Savings & Loan Assn. v. Guinhawa, 188
SCRA 642 [1990]; Superlines v. ICC, GR No. 150673, 28 Feb. 2003 ).

Note however, that in a contract of sale of personal property where the

price is payable in installments and in the event of foreclosure of the chattel
mortgage should the vendee fail to pay two or more installments, the vendor
shall have no further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void ( Art. 1484,
Civil Code; Recto Law). Please note that this is applicable in cases of sale of

personal property on installment.

Distinction: real estate mortgage (REM) vs. chattel mortgage (CM)
1. Properties covered: REM is constituted on immovables/real properties.
Only movables/personal properties may be the object of a chattel
mortgage

1. Modes of foreclosure: There are two modes of foreclosure in a REM –

extrajudicial under Act No. 3135, as amended or judicial under Rule 68 of
the Rules of Court. In a CM, only extrajudicial foreclosure under Sec. 14
of Act No. 1508 is now available.

1. On redemption: There is NO right of redemption in CM. In REM, there

is right of redemption in case of extrajudicial foreclosure, and when the
mortgagee is a bank or banking institution in case of judicial foreclosure.
In CM, the purchaser at an auction sale becomes the owner of the
property.

G.R. No. 158755 June 18, 2012

SPOUSES FRANCISCO and MERCED RABAT, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

BERSAMIN, J.:
The inadequacy of the bid price in an extrajudicial foreclosure sale of mortgaged properties will not per se
invalidate the sale. Additionally, the foreclosing mortgagee is not precluded from recovering the deficiency
should the proceeds of the sale be insufficient to cover the entire debt.

Antecedents

The parties are before the Court a second time to thresh out an issue relating to the foreclosure sale of the
petitioners’ mortgaged properties. The first time was in G.R. No. 134406 entitled Philippine National Bank v.
Spouses Francisco and Merced Rabat, decided on November 15, 2000. In G.R. No. 134406, the Court
1

observed that –

The RABATs did not appeal from the decision of the trial court. As a matter of fact, in their Appellee’s Brief filed
with the Court of Appeals they prayed that said decision be affirmed in toto. As against the RABATs the trial
court’s findings of fact and conclusion are already settled and final. More specifically, they are deemed to have
unqualifiedly agreed with the trial court that the foreclosure proceedings were valid in all respects, except as to
the bid price.
2

Accordingly, we extract the antecedent facts from the narrative of the decision in G.R. No. 134406, as follows:

On 25 August 1979, respondent spouses Francisco and Merced Rabat (hereafter RABATs) applied for a loan
with PNB. Subsequently, the RABATs were granted on 14 January 1980 a medium-term loan of ₱4.0 Million to
mature three years from the date of implementation.

On 28 January 1980, the RABATs signed a Credit Agreement and executed a Real Estate Mortgage over
twelve (12) parcels of land which stipulated that the loan would be subject to interest at the rate of 17% per
annum, plus the appropriate service charge and penalty charge of 3% per annum on any amount remaining
unpaid or not renewed when due.

On 25 September 1980, the RABATs executed another document denominated as "Amendment to the Credit
Agreement" purposely to increase the interest rate from 17% to 21% per annum, inclusive of service charge
and a penalty charge of 3% per annum to be imposed on any amount remaining unpaid or not renewed when
due. They also executed another Real Estate Mortgage over nine (9) parcels of land as additional security for
their medium-term loan of Four Million (₱4.0 M). These parcels of land are agricultural, commercial and
residential lots situated in Mati, Davao Oriental.

The several availments of the loan accommodation on various dates by the RABATs reached the aggregate
amount of THREE MILLION FIVE HUNDRED SEVENTEEN THOUSAND THREE HUNDRED EIGHTY
(₱3,517,380), as evidenced by the several promissory notes, all of which were due on 14 March 1983.

The RABATs failed to pay their outstanding balance on due date.

In its letter of 24 July 1986, in response to the letter of the RABATs of 16 June 1986 requesting for more time
within which to arrive at a viable proposal for the settlement of their account, PNB informed the RABATs that
their request has been denied and gave the RABATs until 30 August 1986 to settle their account. The PNB sent
the letter to 197 Wilson Street, San Juan, Metro Manila.

For failure of the RABATs to pay their obligation, the PNB filed a petition for the extrajudicial foreclosure of the
real estate mortgage executed by the RABATs. After due notice and publication, the mortgaged parcels of land
were sold at a public auction held on 20 February 1987 and 14 April 1987. The PNB was the lone and highest
bidder with a bid of ₱3,874,800.00.

As the proceeds of the public auction were not enough to satisfy the entire obligation of the RABATs, the PNB
sent anew demand letters. The letter dated 15 November 1990 was sent to the RABATs at 197 Wilson Street,
San Juan, Metro Manila; while another dated 30 August 1991 was sent to the RABATs at 197 Wilson Street,
Greenhills, San Juan, Metro Manila, and also in Mati, Davao Oriental.
Upon failure of the RABATs to comply with the demand to settle their remaining outstanding obligation which
then stood at ₱14,745,398.25, including interest, penalties and other charges, PNB eventually filed on 5 May
1992 a complaint for a sum of money before the Regional Trial Court of Manila. The case was docketed as Civil
Case No. 92-61122, which was assigned to Branch 14 thereof.

The RABATs filed their answer with counterclaim on 28 July 1992 to which PNB filed its Reply and Answer to
Counterclaim. On 2 January 1993, the RABATs filed an amended answer. The RABATs admitted their loan
availments from PNB and their default in the payment thereof. However, they assailed the validity of the auction
sales for want of notice to them before and after the foreclosure sales.

They further added that as residents of Mati, Davao Oriental since 1970 up to the present, they never received
any notice nor heard about the foreclosure proceeding in spite of the claim of PNB that the foreclosure
proceeding had been duly published in the San Pedro Times, which is not a newspaper of general circulation.

The RABATs likewise averred that the bid price was grossly inadequate and unconscionable.

Lastly, the RABATs attacked the validity of the accumulated interest and penalty charges because since their
properties were sold in 1987, and yet PNB waited until 1992 before filing the case. Consequently, the RABATs
contended that they should not be made to suffer for the interest and penalty charges from May 1987 up to the
present. Otherwise, PNB would be allowed to profit from its questionable scheme.

The PNB filed on 5 February 1993 its Reply to the Amended Answer and Answer to Counterclaim. 3

On June 14, 1994, the Regional Trial Court, Branch 14, in Manila (RTC) rendered its decision in Civil Case No.
92-61122, disposing thus:
4

WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered dismissing the
complaint.

On the counterclaim, the two (2) auction sales of the mortgaged properties are hereby set aside and ordering
the plaintiff to reconvey to the defendants the remaining properties after the sale [of] sufficient properties for the
satisfaction of the obligation of the defendants.

The parties will bear their respective cost.

So ordered.

Only PNB appealed to the CA (CA-G.R. CV No. 49800), assigning the following two errors to the RTC, to wit: 5

WHETHER OR NOT THE TRIAL COURT ERRED IN NULLIFYING THE SHERIFF'S AUCTION SALE
ON THE GROUND THAT THE PNB’S WINNING BID IS VERY LOW.

II

WHETHER OR NOT THE TRIAL COURT ERRED IN RULING THAT THE DEFENDANTS-
APPELLEES ARE NOT LIABLE TO PAY INTEREST AND PENALTY CHARGES AFTER THE
AUCTION SALES UP TO THE FILING OF THIS CASE.

On their part, the Spouses Rabat simply urged in their appellee’s brief that the decision of the RTC be entirely
affirmed.6
On June 29, 1998, the CA upheld the RTC’s decision to nullify the foreclosure sales but rested its ruling upon a
different ground, in that the Spouses Rabat could not have known of the foreclosure sales because they had
7

not actually received personal notices about the foreclosure proceedings. The CA concluded:

An examination of the exhibits show that the defendant-appellees given address is Mati, Davao Oriental and
not 197 Wilson Street, Greenhills, San Juan, Metro Manila as alleged by the plaintiff-appellant (Exhibit C to J,
pp. 208, 217, 220, 229, 236-239, Records). Records further show that all subsequent communications by
plaintiff-appellant was sent to defendant-appellees address at Wilson Street, Greenhills, San Juan. This was
the very reason why defendant-appellees were not aware of the foreclosure proceedings.

As correctly found out by the trial court, there is a need for the setting aside of the two (2) auction sales hence,
there is yet no deficiency judgment to speak of.

WHEREFORE, the decision of the trial court dated 14 June 1994, is hereby affirmed in toto.

SO ORDERED.

PNB appealed in due course (G.R. No. 134406), positing:

8

WHETHER OR NOT THE COURT OF APPEALS MAY REVIEW AND PASS UPON THE TRIAL COURT’S
FINDING AND CONCLUSION ON AN ISSUE WHICH WAS NEVER RAISED ON APPEAL, AND,
THEREFORE, HAD ATTAINED FINALITY.

1. THE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS WHEN IT DECIDED AND RESOLVED A QUESTION OR
ISSUE NOT RAISED IN PETITIONER PNB’S APPEAL;

2. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT REVERSED

THE FINDING AND CONCLUSION OF THE TRIAL COURT ON AN ISSUE WHICH HAD ALREADY
ATTAINED FINALITY.

PNB argued that it had not raised the issue of lack of notice about the foreclosure sales because the fact that
the Spouses Rabat had not appealed the RTC’s ruling as regards the lack of notice but had in fact prayed for
the affirmance of the RTC’s judgment had rendered final the RTC’s rejection of their allegation of lack of
personal notice; and that, consequently, the CA had committed grave abuse of discretion in still resolving the
issue of lack of notice despite its not having been raised during the appeal. 9

On November 15, 2000, the Court promulgated its decision in G.R. No. 134406, decreeing:

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals of 29 July 1998 in CA-G.R. CV
No. 49800 is hereby SET ASIDE. The Court of Appeals is directed to DECIDE, with reasonable dispatch, CA-
G.R. CV No. 49800 on the basis of the errors raised by petitioner Philippine National Bank in its Appellant’s
Brief.

No pronouncement as to costs.

SO ORDERED. 10

To conform to the decision in G.R. No. 134406, the CA amended its decision on January 24, 2003 by resolving
the errors specifically assigned by PNB in its appellant’s brief. The CA nonetheless affirmed the RTC’s
11

decision, declaring that the bid price had been very low and observing that the mortgaged properties might
have been sold for a higher value had PNB first conducted a reappraisal of the properties.

Upon PNB’s motion for reconsideration, however, the CA promulgated its questioned second amended
decision on March 26, 2003, holding and ruling as follows:
12
After a thorough and conscientious review of the records and relevant laws and jurisprudence, We find the
motion for reconsideration to be meritorious.

While indeed no evidence was presented by appellant as to whether a reappraisal of the mortgaged properties
was conducted by it before submitting the bid price of ₱ 3,874,800.00 at the auction sale, said amount
approximates the loan value under its original appraisal in 1980, which was ₱ 4 million.

There is no dispute that mere inadequacy of price per se will not set aside a judicial sale of real property.
Nevertheless, where the inadequacy of the price is purely shocking to the conscience such that the mind
revolts at it and such that a reasonable man would neither directly nor indirectly be likely to consent to it, the
sale shall be declared null and void. Said rule, however, does not strictly apply in the case of extrajudicial
foreclosure sales so that when a supposed "unconscionably low price" paid by the bank-mortgagee for the
mortgaged properties at the public auction sale is assailed, the sale is not thereby readily set aside on account
of such low purchase price. It is well-settled that alleged gross inadequacy of price is not material "when the
law gives the owner the right to redeem as when a sale is made at a public auction, upon the theory that the
lesser the price the easier it is for the owner to effect the redemption." In fact, the property may be sold for less
than its fair market value.

Here, it may be that after the lapse of seven (7) years, the mortgaged properties may have indeed appreciated
in value but under the general rule cited above which had been consistently applied to extrajudicial foreclosure
sales. We are not inclined to invalidate the auction sale of appellees’ mortgaged properties solely on the
alleged gross inadequacy of purchase price of ₱ 3,874,800.00 which is actually almost the equivalent of the
loan value of appellees’ twenty-one (21) parcels of land under the "Real Estate Mortgage" executed in favor of
appellant PNB in 1980. It has been held that no such disadvantage is suffered by the mortgagor as he stands
to gain with a reduced price because he possesses the right of redemption. Thus, the re-appraisal of the
mortgaged properties resulting in the appellant PNB’s bid price of approximately the original loan value of their
mortgaged properties is beneficial rather than harmful considering the right of redemption granted to appellees
under the law. The claim of financial hardship or losses in their business is not an excuse for appellees-
mortgagors to evade their clear obligation to the bank-mortgagee.

Further, the fact that the mortgaged property is sold at an amount less than its actual market value should not
militate against the right of appellant PNB to the recovery of the deficiency in the loan obligation of appellees.
Our Supreme Court had ruled in several cases that in extrajudicial foreclosure of mortgage, where the
proceeds of the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from
the debtor. A claim of deficiency arising from the extrajudicial foreclosure sale is allowed. As to appellees’ claim
of allegedly excessive penalty interest charges, the same is without merit. We note that the promissory notes
expressly provide for a penalty charge of 3% per annum to be imposed on any unpaid amount on due date.

WHEREFORE, premises considered, the present motion for reconsideration is hereby GRANTED.
Consequently, Our Amended Decision of January 24, 2003 is hereby SET ASIDE and a new one is hereby
entered GRANTING the appeal of plaintiff PNB. The decision appealed from in Civil Case No. 92-61122 is
hereby REVERSED and SET ASIDE. Judgment is hereby rendered ordering the appellees to pay, jointly and
severally, to appellant PNB: (1) the amount of ₱ 14,745,398.25 plus accrued interest, service charge and
penalty charge of 3% per annum from February 29, 1992 until the same shall have been fully paid; (2) Ten
Percent (10%) of the total amount due as attorney’s fees; and (3) the costs of suit.

No pronouncement as to costs.

SO ORDERED. 13

The Spouses Rabat thereafter moved for the reconsideration of the second amended decision, but the CA
denied their motion. 14

Hence, this appeal by the Spouses Rabat.

Issues
The Spouses Rabat frame the following issues for this appeal, thuswise:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE
SUBJECT AUCTION SALES AND ADJUDGING PAYMENT OF DEFICIENCY SUM, INTERESTS,
PENALTY AND SERVICE CHARGES AND ATTORNEY’S FEES, IN COMPLETE AND ABSOLUTE
DISREGARD OF ITS EARLIER PRONOUNCEMENTS, THE ARGUMENTS OF HEREIN
PETITIONERS AND EVIDENCE BORNE IN THE RECORDS OF THE INSTANT CASE.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DEPARTING FROM ITS FINDING OF
FACTS AND CONCLUSIONS OF LAW AS STATED IN THE EARLIER RENDERED FIRST AMENDED
DECISION DATED 24 JANUARY 2003. 15

The Spouses Rabat insist that the CA’s reversal of the amended decision was unjustified. They pray that the
amended decision of the CA (which affirmed the RTC’s judgment) be reinstated. They contend that PNB was
not entitled to recover any deficiency due to the invalidity of the forced sales. 16

In its comment, PNB counters that the petition for review does not raise a valid question of law; and that the
17

CA’s second amended decision was regularly promulgated because the CA thereby acted well within its right to
correct itself considering that the amended decision did not yet attain finality under the pertinent rules and
jurisprudence.

Accordingly, the Court must pass upon and resolve three distinct issues. The first is whether the inadequacy of
the bid price of PNB invalidated the forced sale of the properties. The second is whether PNB was entitled to
recover any deficiency from the Spouses Rabat. The third is whether the CA validly rendered its second
amended decision.

Ruling

The appeal has no merit.

Anent the first issue, we rule against the Spouses Rabat. We have consistently held that the inadequacy of the
bid price at a forced sale, unlike that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a
forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of
the property easier. 18

In Bank of the Philippine Islands, etc. v. Reyes, the Court discoursed on the effect of the inadequacy of the
19

price in a forced sale, stating:

Throughout a long line of jurisprudence, we have declared that unlike in an ordinary sale, inadequacy of the
price at a forced sale is immaterial and does not nullify a sale since, in a forced sale, a low price is more
beneficial to the mortgage debtor for it makes redemption of the property easier.

In the early case of The National Loan and Investment Board v. Meneses, we also had the occasion to state
that:

As to the inadequacy of the price of the sale, this court has repeatedly held that the fact that a property is
sold at public auction for a price lower than its alleged value, is not of itself sufficient to annul said sale,
where there has been strict compliance with all the requisites marked out by law to obtain the highest
possible price, and where there is no showing that a better price is obtainable. (Government of the
Philippines vs. De Asis, G. R. No. 45483, April 12, 1939; Guerrero vs. Guerrero, 57 Phil., 442; La Urbana vs.
Belando, 54 Phil., 930; Bank of the Philippine Islands v . Green, 52 Phil., 491.) (Emphases supplied.)

In Hulst v. PR Builders, Inc., we further elaborated on this principle:

[G]ross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a
transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s
conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to
redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for
the owner to effect redemption. When there is a right to redeem, inadequacy of price should not be
material because the judgment debtor may re-acquire the property or else sell his right to redeem and
thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.
Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties
because it possesses the right of redemption. x x x (Emphasis supplied.)

It bears also to stress that the mode of forced sale utilized by petitioner was an extrajudicial foreclosure of real
estate mortgage which is governed by Act No. 3135, as amended. An examination of the said law reveals
nothing to the effect that there should be a minimum bid price or that the winning bid should be equal to the
appraised value of the foreclosed property or to the amount owed by the mortgage debtor. What is clearly
provided, however, is that a mortgage debtor is given the opportunity to redeem the foreclosed property "within
the term of one year from and after the date of sale." In the case at bar, other than the mere inadequacy of the
bid price at the foreclosure sale, respondent did not allege any irregularity in the foreclosure proceedings nor
did she prove that a better price could be had for her property under the circumstances.

At any rate, we consider it notable enough that PNB’s bid price of ₱ 3,874,800.00 might not even be said to be
outrageously low as to be shocking to the conscience. As the CA cogently noted in the second amended
decision, that bid price was almost equal to both the ₱ 4,000,000.00 applied for by the Spouses Rabat as loan,
20

and to the total sum of ₱ 3,517,380.00 of their actual availment from PNB.

Resolving the second issue, we rule that PNB had the legal right to recover the deficiency amount. In Philippine
National Bank v. Court of Appeals, we held that:
21

xxx it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of
the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends
to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee
an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of
a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial
foreclosure of mortgages, while silent as to the mortgagee’s right to recover, does not, on the other hand,
prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial
foreclosure is allowed. 22

Indeed, as we indicated in Prudential Bank v. Martinez, the fact that the mortgaged property was sold at an
23

amount less than its actual market value should not militate against the right to such recovery. 24

There should be no question that PNB was legally entitled to recover the penalty charge of 3% per annum and
attorney’s fees equivalent to 10% of the total amount due. The documents relating to the loan and the real
estate mortgage showed that the Spouses Rabat had expressly conformed to such additional liabilities; hence,
they could not now insist otherwise. To be sure, the law authorizes the contracting parties to make any
stipulations in their covenants provided the stipulations are not contrary to law, morals, good customs, public
order or public policy. Equally axiomatic are that a contract is the law between the contracting parties, and that
25

they have the autonomy to include therein such stipulations, clauses, terms and conditions as they may want to
include. Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy of the additional
26

liabilities being charged by PNB, they could not now bar PNB from recovering the deficiency representing the
additional pecuniary liabilities that the proceeds of the forced sales did not cover.

Lastly, we uphold the CA’s promulgation of the second amended decision. Verily, all courts of law have the
1âwphi1

unquestioned power to alter, modify, or set aside their decisions before they become final and unalterable. A 27

judgment that has attained finality becomes immutable and unalterable, and may thereafter no longer be
modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and
whether it will be made by the court that rendered it or by the highest court of the land. The reason for the rule
28

of immutability is that if, on the application of one party, the court could change its judgment to the prejudice of
the other, the court could thereafter, on application of the latter, again change the judgment and continue this
practice indefinitely. The equity of a particular case must yield to the overmastering need of certainty and
29

unalterability of judicial pronouncements. The doctrine of immutability and inalterability of a final judgment has
30

a two-fold purpose, namely: (a) to avoid delay in the administration of justice and, thus, procedurally, to make
orderly the discharge of judicial business; and (b) to put an end to judicial controversies, at the risk of
occasional errors, which is precisely why courts exist. Indeed, controversies cannot drag on indefinitely; the
rights and obligations of every litigant must not hang in suspense for an indefinite period of time. As such, the
31

doctrine of immutability is not a mere technicality to be easily brushed aside, but a matter of public policy as
well as a time-honored principle of procedural law.

It is no different herein. The amended decision that favored the Spouses Rabat would have attained finality
only after the lapse of 15 days from notice thereof to the parties without a motion for reconsideration being
timely filed or an appeal being seasonably taken. Had that happened, the amended decision might have
32

become final and immutable. However, considering that PNB timely filed its motion for reconsideration vis-à-vis
the amended decision, the CA’s reversal of the amended decision and its promulgation of the second amended
decision were valid and proper.

WHEREFORE, we AFFIRM the SECOND AMENDED DECISION promulgated on March 26, 2003 in CA-G.R.
CV No. 49800 entitled Philippine National Bank v. Spouses Francisco and Merced Rabat.

The petitioners shall pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

G.R. No. L-51768 September 14, 1990

PRUDENTIAL BANK, plaintiff-appellee,

vs.
RENATO M. MARTINEZ and VIRGINIA J. MARTINEZ, defendants-appellants.

Magno & Associates for plaintiff-appellee.

Beltran, Beltran & Beltran for defendants-appellants.

MEDIALDEA, J.:

This case is certified to Us by the Court of Appeals in its Resolution dated August 30, 1979, for the reason that
only pure questions of law are involved.

The Court of Appeals adopted the findings of fact of the trial court as follows:

This is a case for sum of money filed by plaintiff Prudential Bank against defendants Renato M. Martinez and
Virginia J. Martinez, seeking to recover a deficiency of P25,775.10 with daily interest thereon of P15.35.

The plaintiff in its complaint alleged that on January 27 and February 2, 1970 defendants obtained a loan from
the plaintiff in the total sum of P48,000.00 and in consideration thereof, the said defendants executed on said
dates promissory notes in favor of the plaintiff, promising to pay jointly and severally, the sum of P48,000.00 on
or before January 27, 1971 with interest thereon at 12% per annum, partially secured by a real estate mortgage
on the property covered by Transfer Certificate of Title No. 97467 of the Register of Deeds of Manila; that the
loan became due and defendant defaulted despite plaintiffs demand letters; that as a consequence, the
mortgage was extra-judicially foreclosed; that the plaintiff was the highest and lone bidder at the auction sale,
for the sum of P52,760.00; that after deducting therefrom the attorney's fees, registration fees, sheriffs fees,
and publication expense, there still remained a balance of P25,775.10 due to plaintiff, which plaintiff now seeks
to recover plus interest and attorney's fees.

The defendants admit the allegations in the complaint, except paragraphs 8 and 9 thereof and alleged that
plaintiff has no cause of action and therefor not entitled to recover and pray for P3,000.00 attorney's fees plus
costs of litigation in the amount of P1,000.00.

When the issues were joined a pre-trial was conducted and the Court issued the following pre-trial order, to wit:

With the admission in the answer of paragraphs 1 to 5 of the complaint, the parties believed that there are no
controversies as to the facts. From the point of view of the defendants, they will submit the case on the
following issues: (1) Whether plaintiff can still collect the deficiencies after the extra-judicial foreclosure of
mortgage; (2) What should be the basis of the computation of the attorney's fees? Should it be the principal or
should the 10% be based on the principal plus interest; and (3) Whether the plaintiff can still collect attorney's
fees in its effort to recover the deficiencies. However, plaintiff, counsel believes there is only one issue and that
is whether any deficiency amount can be collected after extra-judicial foreclosure of mortgage.

WHEREFORE, it is hereby ordered that the parties be given a period of thirty (30) days from today within which
to file their respective memoranda simultaneously.

SO ORDERED. (Rollo, pp. 30-32)

On July 8, 1977 the lower Court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the
latter to pay the former, jointly and severally, the amounts of P25,775.10 with daily interest thereon of P15.85
from September 10, 1976 until fully paid and P2,500.00 for and as attorney's fees, plus costs of suit. (Records,
p. 18)

Thereupon, defendants appealed to the Court of Appeals with these two assignments of errors, namely —

THE LOWER COURT ERRED IN HOLDING THAT THE PLAINTIFF-APPELLEE 19 ENTITLED TO RECOVER
THE DEFICIENCY IN THE SUM OF P 25,775.1 0 AFTER THE EXTRA-JUDICIAL FORECLOSURE OF
MORTGAGE TO SATISFY THE INDEBTEDNESS, AND AFTER THE MORTGAGED PROPERTY HAD BEEN
CONVEYED TO THE PLAINTIFF- APPELLEE IN SATISFACTION OF THE LOANS.

II

THE LOWER COURT ERRED IN AWARDING THE SUM OF P2,500.00 AS ATTORNEYS FEES TO
PLAINTIFF-APPELLEE. (Appellants' Brief, p. 9, Rollo)

Appellants argue that the Legislature never intended to grant to a mortgagee the right to recover the deficiency
arising from an extrajudicial foreclosure of mortgage inasmuch as such recovery is not a natural right of the
mortgagee, hence, the need to expressly grant the same in a judicial foreclosure proceedings; that
consequently, an express prohibition against such claim would be quite superfluous and that besides, there is
no need to enumerate negative remedies or solutions in the law. Further, they aver that if mortgagees were
allowed such right, the debtors would be at the mercy of their creditors considering the summary nature of
extrajudicial foreclosure proceedings. They, likewise, point to the limited readership of auction sale notices
which lead to the sale of mortgaged properties for much less than their actual value notwithstanding that the
mortgage value of the said properties is higher than its fair market value. Finally, appellants assail the award of
attorney's fees in the sum of P2,500.00 as unconscionable. They claim that the computation of the attorney's
fees should have been based on the terms of promissory note which provided for a ten percent (10%) award of
the principal obligation; and that since the attorney's fees were already collected by the appellee when it
foreclosed the mortgage, such fees should no longer be awarded in this case. (Appellants Brief, pp. 4-11, Rollo,
p. 9)

We affirm.

We have already ruled in several cases that in extrajudicial foreclosure of mortgage, where the proceeds of the
sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor
(Philippine Bank of Commerce v. De Vera, L-18816, December 29, 1962, 6 SCRA 1026; Development Bank of
the Philippines v. Vda. de Moll L25802, January 31, 1972, 43 SCRA 82; Development Bank of the Philippines v.
Murang, L-29130, August 8,1975, 66 SCRA 141; Development Bank of the Philippines v. Zaragoza, L-23493,
August 23, 1978, 84 SCRA 668; and DBP v. Tomeldan, G.R. No. 51269, November 17,1980, 101 SCRA 171). A
careful scrutiny of the arguments presented in the case at bar yields no substantial and convincing reasons for
Us to depart from Our previous ruling. Appellants' arguments merely rehashed the objections already
considered and overruled in the aforementioned cases. Thus, in Philippine Bank of Commerce v. De
Vera (supra), We declared that:

A reading of the provisions of Act No. 3135, as amended (re extrajudicial 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
consequences of a mortgage, both as to its constitution, modification and extinguishment, and as to other
matters not included 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. (See Soriano v. Enriquez, 24 Phil. 584; Banco de Islas
Filipinos v. Concepcion e Hijos, 53 Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101). Under the Rules of Court
(Sec. 6, Rule 70),"Upon the sale of any real property, under an order for a sale to satisfy a mortgage or other
incumbrance 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. ...

Let it be noted that when the legislature intends to foreclose the right of a creditor to sue for any deficiency
resulting from the foreclosure of the security given to guarantee the obligation, it so expressly provides. Thus,
in respect to pledges, Article 2115 of the new Civil Code expressly states: ... If the price of the sale is less (than
the amount of the principal obligation) neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary. "Likewise in the event of the foreclosure of a chattel mortgage
on the thing sold in installments 'he (the vendor) shall have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the contrary shall be void" (Article 1484, paragraph 3, Ibid).
It is then clear that in the absence of a similar provision in Act No. 3135, as amended, it can 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, (pp. 1029-1030)

Moreover, the fact that the mortgaged property is sold at an amount less than its actual market value should not
militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the
contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When
there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may
reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by
the reason of the price obtained at the auction sale (De Leon v. Salvador, L-30871, December 28, 1970 and
Bernabe v. Cruz, et al., L-31603, December 28, 1970; 36 SCRA 567). Generally, in forced sales, low prices are
usually offered and the mere inadequacy of the price obtained at the sheriffs sale unless shocking to the
conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a
better price can be obtained (Ponce de Leon v. Rehabilitation Finance Corporation, L-24571, December 18,
1970, 36 SCRA 289).

Lastly, We find that the award of attorney's fees is proper. It can not be disputed that the proceedings in the
extrajudicial foreclosure and the deficiency suit are altogether different. The first is extrajudicial and summary in
nature while the second is a court action. Hence, the efforts exerted by the lawyer in these two separate
courses of action should be recognized. Besides, the basis of the extrajudicial foreclosure proceeding was the
Deed of Real Estate Mortgage, particularly condition No. 7 thereof, where the parties stipulated for a ten
percent (10%) attorney's fees to be collected in the event that the mortgage is foreclosed or a legal action is
taken to foreclose the mortgage (Appellee's Brief, Rollo, p. 9, italics supplied). However, the proceeds in that
sale were insufficient to pay the debt contained in the appellant's promissory note. The appellee was, therefore,
constrained to file a deficiency suit, an eventuality not covered by the Deed of Real Estate Mortgage.
Necessarily, the basis of this case is the promissory note executed by the appellants. We find that the note
itself shows that appellants obligated themselves to pay the sum of ten percent as attorney's fees whether
incurred or not, exclusive of cost and other expenses of collection (Records, p. 7). Clearly, the trial court's
award of attorney's fees was not without basis. The amount of P2,500.00 awarded as attorney's fees being less
than ten percent (10%) of the deficiency sued for is just and proper in the premises.

ACCORDINGLY, the decision appealed from is hereby AFFIRMED. Costs against the appellants.

SO ORDERED.

Narvasa (Chairman), Cruz, Gancayco and Griño-Aquino, JJ., concur.

Sec. 6. Deficiency judgment.

If upon the sale of any real property as provided in the next preceding section there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall
render judgment against the defendant for any such balance for which, by the record of the
case, he may be personally liable to the plaintiff, upon which execution may issue immediately if
the balance is all due at the time of the rendition of the judgment; otherwise, the plaintiff shall be
entitled to execution at such time as the balance remaining becomes due under the terms of the
original contract, which time shall be stated in the judgment.

What is ALIAS EXECUTION?

the second attempt to carry out an execution, a legal performance, after the original one has
failed to accomplish the purpose of it.

Alias execution is a second writ of execution issued in the same cause, to enforce a judgment
not fully satisfied by the original writ. An alias execution may be necessary because the first writ
of the same kind has been issued without effect or without complete effect in satisfying the
judgment upon which the writ was issued. Such executions are issued where the original
execution has been returned, lost, or extinguished.