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PLEDGE, MORTGAGE AND ANTICHRESIS
CASE DIGEST COMPILATION
YULIONGUI v. PNB
Facts: Diosdado Yuliongsiu was the owner of two (2) vessels,
namely The M/S Surigao (valued at 109K) and the M/S Don
Dino (63K) and operated the FS-203, (210K) which he
purchased from the Philippine Shipping Commission, by
installment or on account. As of January or February, 1948, he
had paid to the Philippine Shipping Commission only the sum
of P76,500 and the balance of the purchase price was payable
at P50,000 a year, due on or before the end of the current year.
He obtained a loan of 50K from the PNB Cebu. To guarantee
its payment, he pledged the M/S Surigao, M/S Don Dino and
its equity in the FS-203 to PNB, evidenced by the pledge
contract, Exhibit "A" & "1-Bank", executed on the same day
and duly registered with the office of the Collector of Customs
for the Port of Cebu. Subsequently, he effected partial payment
of the loan in the amount of 20K. The remaining balance was
renewed by the execution of two (2) promissory notes in the
bank’s favor due on April 16 and June 25, 1948 respectively.
These two notes were never paid on their respective due dates.
PNB filed criminal charges against Yuliongsiu and two other
accused for estafa thru falsification of commercial documents,
because Yuliungsiu had, as last indorsee, deposited with PNB,
from March 11 to March 31, 1948, seven BPI checks totalling
184K. They were convicted by the trial court and sentenced to
indemnify the PNB in the sum of 184K. CA affirmed. The
corresponding writ of execution issued to implement the order
for indemnification was returned unsatisfied as Yuliongsiu was
totally insolvent. Meanwhile, together with the institution of
the criminal action, PNB took physical possession of the three
pledged vessels while they were at the Port of Cebu, and after
the first note fell due and was not paid, the PNB Cebu Branch
Manager, acting as attorney-in-fact of Yuliongsiu pursuant to
the terms of the pledge contract, executed a document of sale,
Exhibit "4", transferring the two pledged vessels and plaintiff’s
equity in FS-203, to PNB for 30K. The FS-203 was
subsequently surrendered by the PNB to the Philippine
Shipping Commission which rescinded the sale to Yuliongsiu
for failure to pay the remaining installments. The other two
boats, the M/S Surigao and the M/S Don Dino were sold by
PNB to third parties. Yuliongsiu commenced action in the
Court of First Instance of Cebu to recover the three vessels or
their value and damages from PNB. The lower court ruled that
the bank’s taking of physical possession of the vessels was
justified by the pledge contract, Exhibit "A" & "1-Bank" and
the law; (b) that the private sale of the pledged vessels by
defendant bank to itself without notice to the plaintiff-pledgor
as stipulated in the pledge contract was likewise valid; and (c)
that the defendant bank should pay to plaintiff the sums of 1K
and 8K, as his remaining account balance, or set-off these sums
against the indemnity which he was ordered to pay to it in the

criminal cases. Yuliongsiu contended that the contract was a
chatte mortgage and constructive delivery is insufficient ti
make the pledge effective.
Issue: Whether or not the contract was pledge
Ruling: Yes. The parties stipulated as a fact that Exhibit "A" &
"1-Bank" is a pledge contract — "3. That a credit line of 50K
was extended to the him by PNB, and he obtained and received
from the said Bank the sum of 50K, and in order to guarantee
the payment of this loan, the pledge contract, Exhibit "A" &
Exhibit "1-Bank" ; was executed and duly registered with the
Office of the Collector of Customs for the Port of Cebu on the
date appearing therein;" This judicial admission binds the
plaintiff. Without any showing that this was made thru palpable
mistake, no amount of rationalization can offset it. PNB as a
pledgee was therefore entitled to the actual possession of the
vessels. While it is true that Yuliongsiu continued operating the
vessels after the pledge contract was entered into, his
possession was expressly made "subject to the order of the
pledgee." There is authority supporting the proposition that the
pledgee can temporarily entrust the physical possession of the
chattels pledged to the pledgor without invalidating the pledge.
In such a case, the pledgor is regarded as holding the pledged
property merely as trustee for the pledgee. Yuliongsu
contended that constructive delivery is insufficient to make
pledge effective. The parties here agreed that the vessels be
delivered by the "pledgor to the pledgor who shall hold said
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property subject to the order of the pledgee." Considering the
circumstances of this case and the nature of the objects
pledged, i.e., vessels used in maritime business, such delivery
is sufficient. Since PNB was, pursuant to the terms of the
pledge contract, in full control of the vessels thru the plaintiff,
the former could take actual possession at any time during the
life of the pledge to make more effective its security.
In a contract of pledge, constructive delivery suffices.
Hence, PNB's taking of the vessels therefore was not unlawful.
Llanto v. Alzona
Facts:
Bernardo Sales and Maria Sales were husband and
wife. They have twelve children, eleven of whom are the
present petitioners while the remaining child, Estela Sales
Pelongco, is one of herein respondents. Maria was the
registered owner of a certain parcel of land which she acquired
under a free patent. Until they died, Maria and Bernardo,
together with some of their children, lived on said land.
On January 29, 1990, a real estate mortgage contract was
purportedly executed by Maria, who was already deceased at
that time, and Bernardo in favor of herein respondent
Dominador Alzona. Respondent Estela Sales Pelongco signed
as an instrumental witness to the mortgage contract.
Respondent Ernesto Alzona admitted that while he was a co-

mortgagee of his brother, Dominador, his name does not
appear in the mortgage contract. The mortgage was
subsequently foreclosed for alleged failure of Bernardo and
Maria to settle their obligation secured by the said mortgage.
The property was thereafter sold in a mortgage sale conducted
on December 20, 1990 wherein Ernesto Alzona was the highest
bidder. Consequently, a certificate of sale was awarded to
Ernesto and he executed a Consolidation of Ownership over
the property. Accordingly, Transfer Certificate of Title was
issued in his name while the OCT in the name of Maria Sales
was cancelled.
On December 17, 1992, herein petitioners caused the
inscription of an adverse claim on the title to the property.
On October 15, 1993, herein petitioners filed before the
RTC a complaint for Annulment of Mortgage and of Auction
Sale, with Reconveyance of Title and Damages. Respondents
Ernesto and Dominador Alzona and the Register of Deeds filed
their answers, respectively. However, respondent Estela Sales
Pelongco failed to file her answer; as a consequence of which,
she was declared in default.
RTC rendered judgment in favor of defendants Dominador
Alzona and Ernesto Alzona and against Estela Sales dismissing
plaintiffs’ complaint with costs against plaintiffs, and ordering
plaintiffs to pay defendants Dominador Alzona and Ernesto
Alzona. Aggrieved by the trial court’s decision, petitioners
filed an appeal with the CA.
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CA rendered a decision affirming the judgment of the RTC
but deleting the attorney’s fees awarded to petitioners.
Issue:
Whether or not Ernesto and Dominador are mortgagees in good
faith
Held:
Yes. Petitioners contend that the principle regarding
innocent purchasers for value enunciated by the CA in its
decision is not applicable to the present case because in the
cases cited by the CA there was no question that the
mortgagors were the real owners of the property that was
mortgaged, while in the instant case, the mortgagors were
impostors who pretended as the real owners of the property.
We do not agree. The principle of “innocent purchasers
for value” is applicable to the present case.
Under Article 2085 of the Civil Code, one of the essential
requisites of the contract of mortgage is that the mortgagor
should be the absolute owner of the property to be mortgaged;
otherwise, the mortgage is considered null and void. However,
an exception to this rule is the doctrine of “mortgagee in good
faith.” Under this doctrine, even if the mortgagor is not the
owner of the mortgaged property, the mortgage contract and
any foreclosure sale arising therefrom are given effect by
reason of public policy. This principle is based on the rule that
all persons dealing with property covered by a Torrens
Certificate of Title, as buyers or mortgagees, are not required to

go beyond what appears on the face of the title. This is the
same rule that underlies the principle of innocent purchasers
for value cited by the CA in its decision. The prevailing
jurisprudence is that a mortgagee has a right to rely in good
faith on the certificate of title of the mortgagor to the property
given as security and in the absence of any sign that might
arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful
owner of, or does not have a valid title to, the mortgaged
property, the mortgagee in good faith is, nonetheless, entitled
to protection.
For persons, more particularly those who are engaged in
real estate or financing business like herein respondents
Ernesto and Dominador Alzona, to be considered as
mortgagees in good faith, jurisprudence requires that they
should take the necessary precaution expected of a prudent
man to ascertain the status and condition of the properties
offered as collateral and to verify the identity of the persons
they transact business with, particularly those who claim to be
the registered property owners.
The CA affirmed the findings of the trial court that
petitioners never disputed Ernestos claim that when he
inspected the subject property on January 26, 1990, he met
petitioners Yolanda, Gloria and Conrado together with Estela
and the persons whom he knew as Bernardo and Maria Sales at
the house built inside the premises of the said property. A
further reading of the transcript of stenographic notes reveals
that Ernesto even went inside the house and, in the presence of
the aforementioned persons, discussed with Estela the matter
regarding the loan they were seeking and the mortgage of the
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subject property. It was only in their motion for reconsideration
filed with the CA did petitioners dispute the foregoing claims
of Ernesto. However, their disputation merely consisted in
denying that Ernesto met Gloria Sales inside the house of
Bernardo and Maria. They did not contradict Ernestos claim
that he also met Conrado and Yolanda inside the said house.
On the contrary, the truth of the abovementioned claims of
Ernesto is bolstered by the testimonies of Francisco and Gloria
Sales to the effect that during the period between 1989 and
1990, Estela, Yolanda, Gloria and Conrado were all living in
the house built on the subject property. The trial court also
gave credence to Ernestos testimony that prior to the execution
of the contract of mortgage, he was even shown a copy of the
OCT and the tax declaration in the name of Maria Sales.
From the foregoing, we find no error in the ruling of the
CA that Ernesto sufficiently established that he acted in good
faith by exercising due diligence in ascertaining the status of
the property mortgaged and the identity of the owners and
occupants of the said property; that it was Estela and the
persons who represented themselves as Bernardo and Maria
who perpetrated the fraud. 
While it was also established that petitioners Yolanda,
Gloria and Conrado were present at the time Ernesto conducted
his credit investigation on January 26, 1990, no direct and
conclusive evidence was presented to show that they had
sufficient knowledge of the fraud that was perpetrated by their
sister Estela and the persons posing as Bernardo and Maria as
to hold them equally guilty of such fraud.

In fine, we hold that respondents Ernesto and Dominador
Alzona are mortgagees in good faith and, as such, they are
entitled to the protection of the law.
EREÑA v. QUERRER-KAUFFMAN
FACTS:
Vida Dana Querrer-Kauffman is the owner of a
residential lot with a house constructed thereon located at Las
Piñas City. The owner’s duplicate copy of the title as well as
the tax declaration covering the property, were kept in a safety
deposit box in the house.
Sometime in February 1997, as she was going to the
United States, Kauffman entrusted her minor daughter, Vida
Rose, to her live-in partner, Eduardo Victor. She went back to
the Philippines to get her daughter and again left for the U.S.
on the same day. Later on, Victor also left for the U.S. and
entrusted the house and the key thereto to his sister, Mira
Bernal.
On October 25, 1997, Kauffman asked her sister,
Evelyn Pares, to get the house from Bernal so that the property
could be sold. Pares did as she was told. Kauffman then sent
the key to the safety deposit box to Pares, but Pares did not
receive it. Kauffman then asked Pares to hire a professional
locksmith who could open the safe. When the safe was broken
open, however, Pares discovered that the owner’s duplicate
title and the tax declarations, including pieces of jewelry were
missing.
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Kauffman learned about this on October 29, 1997 and
returned to the Philippines. She and Pares went to the Register
of Deeds of Las Piñas City and found out that the lot had been
mortgaged to Rosana Ereña. It appeared that a "Vida Dana F.
Querrer" had signed the Real Estate Mortgage as owner-
mortgagor, together with Jennifer V. Ramirez, Victor’s
daughter, as attorney-in-fact.
Kauffman and Pares were able to locate Bernal who,
when asked, confirmed that Ramirez had taken the contents of
the safety deposit box. When Kauffman told Bernal that she
would file a case against them, Bernal cried and asked for
forgiveness. Bernal admitted that Jennifer Ramirez had been in
a tight financial fix and pleaded for time to return the title and
the jewelry.
Kauffman however still filed a complaint against Ereña,
Bernal and Ramirez for the nullification of Real Estate
Mortgage and Damages. Ereña countered that she was a
mortgagee in good faith.
ISSUE:
Whether or not the Real Estate Mortgage is valid
HELD:
No. According to Article 2085 (2), a pledgor or
mortgagor has to be absolute owner of the thing pledged or
mortgaged for a contract of pledge and mortgage to be valid.
Both the trial court and the appellate courts found that
Kauffman is the true owner of the property and that the
signatures on the Special Power of Attorney and Real Estate
Mortgage are not her genuine signatures. The evidence on
record shows that Ramirez and her husband used an impostor

who claimed she was the owner of the property. This impostor
was the one who signed the Real Estate Mortgage and showed
to Ereña the owner's duplicate copy of the title. When the
instrument presented for registration is forged, even if
accompanied by the owner's duplicate title, the registered
owner does not lose his title and neither does the mortgagee
acquire any right to the property. In such case, the mortgagee
based on a forged instrument is not even a purchaser or a
mortgagee for value protected by law. Ereña is not a mortgagee
in good faith. The doctrine of mortgagee in good faith does not
apply to a situation where the title is still in the name of the
rightful owner and the mortgagor is a different person
pretending to be the owner. In such case, the mortgagee is not
an innocent mortgagee for value and the registered owner will
generally not lose his title.
The petition is DENIED
NOTE:
Doctrine of "mortgagee in good faith" is based on the rule
that all persons dealing with the property covered by a Torrens
Certificate of Title, as buyers or mortgagees, are not required to
go beyond what appears on the face of the title. The public
interest in upholding the indefeasibility of a certificate of title,
as evidence of lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of the
certificate of title
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[G.R. No. 146997.  April 26, 2005]
SPOUSES GODOFREDO & DOMINICA
FLANCIA, petitioners, vs. COURT OF APPEALS &
WILLIAM ONG GENATO, respondents.
Facts:
This is an action to declare null and void the mortgage
executed by defendant Oakland Development Resources Corp.
in favor of defendant William Ong Genato over the house and
lot which plaintiff spouses Godofredo and Dominica Flancia
purchased from defendant corporation.
Sps. Flancia entered into a CONTRACT TO SELL involving a
parcel of land with Oakland Corp. While the contract is
existing, Oakland mortgaged the land to Sps. Genato in
consideration of a 2M peso loan. Oakland failed to pay the
mortgage which prompted Sps. Genato to foreclose the
mortgage.
Sps. Flancia filed the case to protect their rights stemming from
the Contract to Sell previously executed with Oakland.
Issues:
(1)   whether or not the registered mortgage constituted
over the property was valid;
(2)   whether or not the registered mortgage was superior
to the contract to sell
Held:
1. Yes. Under the Art. 2085 of the Civil Code, the essential
requisites of a contract of mortgage are: (a) that it be
constituted to secure the fulfillment of a principal obligation;
(b) that the mortgagor be the absolute owner of the thing

mortgaged; and (c) that the persons constituting the mortgage
have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose.
All these requirements are present in this case.
As to the first essential requisite of a mortgage, it is
undisputed that the mortgage was executed on May 15, 1989 as
security for a loan obtained by Oakland from Genato.
2. In the contract between petitioners and Oakland, aside
from the fact that it was denominated as a contract to sell, the
intention of Oakland not to transfer ownership to petitioners
until full payment of the purchase price was very clear. Acts of
ownership over the property were expressly withheld by
Oakland from petitioner. All that was granted to them by the
“occupancy permit” was the right to possess it.
In sum, we rule that Genato’s registered mortgage was
superior to petitioner’s contract to sell, subject to any liabilities
Oakland may have incurred in favor of petitioners by
irresponsibly mortgaging the property to Genato despite its
commitments to petitioners under their contract to sell.
WHEREFORE, the petition for review is hereby
DENIED. The decision of the Court of Appeals reinstating the
August 16, 1996 decision of the trial court is hereby
AFFIRMED.
G.R. No. 162333             December 23, 2008
BIENVENIDO C. TEOCO and JUAN C. TEOCO,
JR., petitioners,  by law. The brothers Teoco thus prayed for the dismissal of
vs.
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METROPOLITAN BANK AND TRUST
COMPANY, respondent.
FACTS:
Lydia T. Co, married to Ramon Co, was the registered owner
of two parcels of land situated in Poblacion, Municipality of
Catbalogan, Province of Samar under Transfer Certificate of
Title (TCT) Nos. T-6220 and T-6910. Ramon Co mortgaged
the said parcels of land to Metrobank for a sum
of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank
in an extrajudicial foreclosure sale under Act No. 3135. One
year after the registration of the Certificates of Sale, the titles to
the properties were consolidated in the name of Metrobank for
failure of Ramon Co to redeem the same within the one year
period provided for by law. TCT Nos. T-6220 and T-6910 were
cancelled and TCT Nos. T-8482 and T-8493 were issued in the
name of Metrobank.
On November 29, 1993, Metrobank filed a petition for the
issuance of a writ of possession against Ramon Co and Lydia
Co (the spouses Co). However, since the spouses Co were no
longer residing in the Philippines at the time the petition was
filed.
On May 17, 1994, the brothers Teoco filed an answer-in-
intervention alleging that they are the successors-in-interest of
the spouses Co, and that they had duly and validly redeemed
the subject properties within the reglementary period provided
Metrobank’s petition for a writ of possession, and for the
nullification of the TCTs issued in the name of Metrobank. The

brothers Teoco further prayed for the issuance in their name of
new certificates of title.
ISSUE: W/N Brothers Teoco can redeem the properties of
Spouses Co.
RULING:
YES. The Court holds that the fairest resolution is to allow the
brothers Teoco to redeem the foreclosed properties based on
the amount for which it was foreclosed (P255,441.14 plus
interest). This is subject, however, to the right of Metrobank to
foreclose the same property anew in order to satisfy the
succeeding loans entered into by the spouses Co, if they were,
indeed, covered by the mortgage contract. The right of
Metrobank to foreclose the mortgage would not be hampered
by the transfer of the properties to the brothers Teoco as a
result of this decision, since Article 2127 of the Civil Code
provides:
Art. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and
the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by
law, whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
Further, Article 2129 of the Civil Code provides:
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Art. 2129. The creditor may claim from a third person
in possession of the mortgaged property, the payment
of the part of the credit secured by the property which
said third person possesses, in the terms and with the
formalities which the law establishes.
The mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be to the
fulfillment of the obligation for whose security it was
constituted. Otherwise stated, a mortgage creates a real right
which is enforceable against the whole world. Hence, even if
the mortgage property is sold or its possession transferred to
another, the property remains subject to the fulfillment of the
obligation for whose security it was constituted.
Thus, the redemption by the brothers Teoco shall be without
prejudice to the subsequent foreclosure of same properties by
Metrobank in order to satisfy other obligations covered by the
Real Estate Mortgage.
G.R. No. 168736. April 19, 2006
SPOUSES ADELINA S. CUYCO and FELICIANO U.
CUYCO, petitioners, vs. SPOUSES RENATO CUYCO and
FILIPINA CUYCO, respondents.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
Petitioner obtained a loan in the amount of
P1,500,000.00 from respondents, payable within one year at
18% interest per annum, and secured by

a Real Estate Mortgage over a parcel of land with
improvements thereon situated in Cubao, Quezon City.
Subsequently, petitioners obtained additional loans
from the respondents in the aggregate amount of
P1,250,000.00, broken down as follows: (1) P150,000.00, (2)
P150,000.00, (3) P500,000.00, (4) P200,000.00, and (5)
P250,000.00.
Petitioners made payments amounting to P291,700.00,
but failed to settle their outstanding loan obligations. Thus,
respondents filed a complaint for foreclosure of mortgage
with the RTC. They alleged that petitioners’ loans were
secured by the real estate mortgage; that their indebtedness
amounted to P6,967,241.14, inclusive of the 18% interest
compounded monthly; and that petitioners’ refusal to settle the
same entitles the respondents to foreclose the real estate
mortgage.
Petitioners admitted their loan obligations but argued
that only the original loan of P1,500,000.00 was secured by the
real estate mortgage at 18% per annum and that there was no
agreement that the same will be compounded monthly.
RTC ruled in favor of the respondents. Petitioner
appealed, CA partially granted the petition modified the RTC
decision insofar as the amount of the loan obligations secured
by the real estate mortgage. It held that by express intention of
the parties, the real estate mortgage secured the original
P1,500,000.00 loan and the subsequent loans of P150,000.00
and P500,000.00.
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ISSUE:
WoN the real estate mortgage executed by petitioner
with respect to the first loan secured future loans and
advancements, as of in this case, the additional loans obtained
by the petitioner.
RULING:
The Court ruled in negative.
As a general rule, a mortgage liability is usually
limited to the amount mentioned in the contract. However,
the amounts named as consideration in a contract of
mortgage do not limit the amount for which the mortgage
may stand
as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be
gathered. This stipulation is valid and binding between the
parties and is known in American Jurisprudence as the
“blanket mortgage clause,” also known as a “dragnet clause.”
A “dragnet clause” operates as a convenience and
accommodation to the borrowers as it makes available
additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et cetera.
While a real estate mortgage may exceptionally secure
future loans or advancements, these future debts must be
sufficiently described in the mortgage contract. An obligation

is not secured by a mortgage unless it comes fairly within the
terms of the mortgage contract.
It is clear from the perusal of the real estate
mortgage of the parties that there is no stipulation that the
mortgaged realty shall also secure future loans and
advancements. Thus, what applies is the general rule above
stated.
Even if the parties intended the additional loans of
P150,000.00 and P500,00.00 obtained to be secured by the
same real estate
mortgage, as shown in the acknowledgement receipts, it is
not sufficient in law to bind the realty for it was not made
substantially in the form prescribed by law.
In order to constitute a legal mortgage, it must be
executed in a public document, besides being recorded. A
provision in a private document, although denominating the
agreement as one of mortgage, cannot be considered as it is not
susceptible of inscription in the property registry. A mortgage
in legal form is not constituted by a private document, even if
such mortgage be accompanied with delivery of possession of
the mortgaged property.35 Besides, by express provisions of
Section 127 of Act No. 496, a mortgage affecting land, whether
registered under said Act or not registered at all, is not deemed
to be sufficient in law nor may it be effective to encumber or
bind the land unless made substantially in the form therein
prescribed. It is required, among other things, that the
document be signed by the mortgagor executing the same, in
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the presence of two witnesses, and acknowledged as his free
act and deed before a notary public. A mortgage constituted by
means of a private document obviously does not comply with
such legal requirements.
What the parties could have done in order to bind the
realty for the additional loans was to execute a new real estate
mortgage or to amend the old mortgage conformably with the
form prescribed by the law. Failing to do so, the
realty cannot be bound by such additional loans, which may be
recovered by the respondents in an ordinary action for
collection of sums of money.
FORT BONIFACIO DEVELOPMENT
CORPORATION petitioner, 
vs.
YLLAS LENDING CORPORATION and JOSE S.
LAURAYA, in his official capacity as President.
G.R. No. 158997
October 6, 2008
FACTS:
On 24 April 1998, FBDC executed a lease contract in favor of
Tirreno, Inc. (Tirreno) over a unit at the Entertainment Center -
Phase 1 of the Bonifacio Global City in Taguig. The parties
had the lease contract notarized on the day of its execution.
Tirreno used the leased premises for Savoia Ristorante and La
Strega Bar.

Two provisions in the lease contract are pertinent to the present
case: Section 20, which is about the consequences in case of
default of the lessee, and Section 22, which is about the lien on
the properties of the lease. The pertinent portion of Section 20
reads:
Section 20. Default of the Lessee
20.1 The LESSEE shall be deemed to be in default
within the meaning of this Contract in case:
(i) The LESSEE fails to fully pay on time any rental,
utility and service charge or other financial obligation
of the LESSEE under this Contract;
20.2 Without prejudice to any of the rights of the
LESSOR under this Contract, in case of default of the
LESSEE, the lessor shall have the right to:
(i) Terminate this Contract immediately upon written
notice to the LESSEE, without need of any judicial
action or declaration;
Section 22, on the other hand, reads:
Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the
expiration of the Lease Period without the rentals,
charges and/or damages, if any, being fully paid or
settled, the LESSOR shall have the right to retain
possession of the properties of the LESSEE used or
situated in the Leased Premises and the LESSEE
hereby authorizes the LESSOR to offset the prevailing
value thereof as appraised by the LESSOR against
any unpaid rentals, charges and/or damages. If the
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LESSOR does not want to use said properties, it may
instead sell the same to third parties and apply the
proceeds thereof against any unpaid rentals, charges
and/or damages.
Tirreno began to default in its lease payments in 1999.
By July 2000, Tirreno was already in arrears
by P5,027,337.91. FBDC and Tirreno entered into a
settlement agreement on 8 August 2000. Despite the
execution of the settlement agreement, FBDC found
need to send Tirreno a written notice of termination
dated 19 September 2000 due to Tirreno's alleged
failure to settle its outstanding obligations. On 29
September 2000, FBDC entered and occupied the
leased premises. FBDC also appropriated the
equipment and properties left by Tirreno pursuant to
Section 22 of their Contract of Lease as partial payment
for Tirreno's outstanding obligations.
On 4 March 2002, Yllas Lending Corporation and Jose
S. Lauraya, in his official capacity as President,
(respondents) caused the sheriff of Branch 59 of the
trial court to serve an alias writ of seizure against
FBDC. On the same day, FBDC served on the sheriff
an affidavit of title and third-party claim. FBDC found
out that on 27 September 2001, respondents filed a
complaint for Foreclosure of Chattel Mortgage with
Replevin against Tirreno, Eloisa Poblete Todaro
(Eloisa), and Antonio D. Todaro, in their personal and
individual capacities, and in Eloisa's official capacity as
President. In their complaint, respondents alleged that
they lent a total of P1.5 million to Tirreno, Eloisa, and
Antonio and on 9 November 2000, Tirreno, Eloisa and

Antonio executed a Deed of Chattel Mortgage over the
things inside the Bar which currently under Lien of
FBDC, as security for the loan.
The respondents contended that Sec.22 of the Contract
of Lease is void being a pactum commissorium under
Art. 2088 of the Civil Code.
The RTC ruled in favor of the respondents.
ISSUE:
Whether or not, Sec. 22 of the Contract of Lease is a
Pactum Commissorium.
RULING:
No. It is not a matter prohibited under Article 2088.
Articles 2085 and 2093 of the Civil Code enumerate the
requisites essential to a contract of pledge: (1) the
pledge is constituted to secure the fulfillment of a
principal obligation; (2) the pledgor is the absolute
owner of the thing pledged; (3) the persons constituting
the pledge have the free disposal of their property or
have legal authorization for the purpose; and (4) the
thing pledged is placed in the possession of the creditor,
or of a third person by common agreement. Article
2088 of the Civil Code prohibits the creditor from
appropriating or disposing the things pledged, and any
contrary stipulation is void.
Section 22, as worded, gives FBDC a means to collect
payment from Tirreno in case of termination of the
lease contract or the expiration of the lease period and
there are unpaid rentals, charges, or damages. The
CREDIT TRANSACTION DE
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existence of a contract of pledge, however, does not
arise just because FBDC has means of collecting past
due rent from Tirreno other than direct payment. The
trial court concluded that Section 22 constitutes a
pledge because of the presence of the first three
requisites of a pledge: Tirreno's properties in the leased
premises secure Tirreno's lease payments; Tirreno is the
absolute owner of the said properties; and the persons
representing Tirreno have legal authority to constitute
the pledge. However, the fourth requisite, that the
thing pledged is placed in the possession of the
creditor, is absent. There is non-compliance with the
fourth requisite even if Tirreno's personal properties are
found in FBDC's real property. Tirreno's personal
properties are in FBDC's real property because of the
Contract of Lease, which gives Tirreno possession of
the personal properties. Since Section 22 is not a
contract of pledge, there is no pactum commissorium.
Hence, FBDC can validly retain the things inside the
Bar for the satisfaction of the unpaid rent of Tirreno.
LUISA BRIONES-VASQUEZ vs. COURT OF APPEALS
and HEIRS OF MARIA MENDOZA VDA DE OCAMPO
G.R. No. 144882, February 4, 2005
FACTS:
Maria Mendoza Vda De Ocampo entered into an
agreement denominated as a pacto de retro sale with Luisa

Briones for a parcel of land. Briones reserved the right to
repurchase the property up to December 31, 1970.
On June 14, 1990, heirs of Maria, Hipolita and Eusebio
(private respondents), filed a consolidation of ownership,
alleging that Briones failed to exercise her right to repurchase
on December 31, 1970. RTC ruled that the pacto de retro
submitted is true, while declaring that Briones can still claim
the property within 30 days from finality of the judgment.
Private respondents appealed with CA, CA set aside the
RTC decision and declaring the 1970 sale with right to
repurchase as one of an equitable mortgage. Said decision had
become final and executor. Subsequently, an entry of final
judgment had already been issued. Writ of Execution and Alias
Writ of Execution were both issued, however, was not able to
take effect.
Petitioner, Briones, then filed with the RTC an omnibus
motion declaring the equitable mortgage discharged and
directing the issuance of a Writ of Possession against private
respondents for the delivery of possession of the land in
question to the petitioner.
RTC denied the omnibus motion as well as the Motion
for Reconsideration filed by Petitioner, Briones.
Petitioner, Briones, then filed a clarificatory judgment
with the CA, but it was likewise denied.
CREDIT TRANSACTION DE
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ISSUE: WON the 1970 Sale with Right of Repurchase was
actually an equitable mortgage.
HELD:
YES, the CA correctly held that the Contract between
the parties is indeed an equitable mortgage which has already
been declared as final and executor. Since the contract is
characterized as a mortgage, the provisions of the Civil Code
governing mortgages apply. Article 2088 of the Civil Code
states: The creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.  – The essence of pacto
commissorio, which is prohibited by Article 2088 of the Civil
Code, is that ownership of the security will pass to the creditor
by the mere default of the debtor.
The only right of a mortgagee in case of non-payment of a
debt secured by mortgage would be to foreclose the mortgage
and have the encumbered property sold to satisfy the
outstanding indebtedness. The mortgagors default does not
operate to vest in the mortgagee the ownership of the
encumbered property, for any such effect is against public
policy, as enunciated by the Civil Code.
Applying the principle of pactum
commissorium specifically to equitable mortgages, the
consolidation of ownership in the person of the mortgagee in
equity, merely upon failure of the mortgagor in equity to pay
the obligation, would amount to a pactum commissorium. The
Court further articulated that an action for consolidation of

ownership is an inappropriate remedy on the part of the
mortgagee in equity. The only proper remedy is to cause the
foreclosure of the mortgage in equity. And if the mortgagee in
equity desires to obtain title to the mortgaged property, the
mortgagee in equity may buy it at the foreclosure sale.
The private respondents do not appear to have caused the
foreclosure of the mortgage much less have they purchased the
property at a foreclosure sale. Petitioner, therefore, retains
ownership of the subject property. The right of ownership
necessarily includes the right to possess, particularly where, as
in this case, there appears to have been no availment of the
remedy of foreclosure of the mortgage on the ground of default
or non-payment of the obligation in question.
WHEREFORE, the petition for certiorari is
DISMISSED. The parties are directed to proceed upon the
basis of the final Decision of the Court of Appeals, dated June
29, 1995, in CA-G.R. CV No. 39025, that the contract in
question was an equitable mortgage and not a sale.
G.R. No. 125838            June 10, 2003
DEVELOPMENT BANK OF THE
PHILIPPINES,petitioner,  Real Estate and Chattel Mortgages.Deputy Provincial Sheriffs
vs.
COURT OF APPEALS and EMERALD RESORT HOTEL
CORPORATION, respondents.
CARPIO, J.:
Facts:
CREDIT TRANSACTION DE
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Emerald Resort Hotel Corporation ("ERHC") obtained a
loan from petitioner Development Bank of the Philippines
("DBP"). DBP released the loan of P3,500,000.00 in three
installments: P2,000,000.00 on 27 September 1975,
P1,000,000.00 on 14 June 1976 and P500,000.00 on 14
September 1976. To secure the loan, ERHC mortgaged its
personal and real properties to DBP.On 18 March 1981, DBP
approved a restructuring of ERHC’s loan subject to certain
conditions.4 On 25 August 1981, DBP allegedly cancelled the
restructuring agreement for ERHC’s failure to comply with
some of the material conditions5 of the agreement.
Subsequently, ERHC delivered to DBP three stock certificates
of ERHC aggregating 3,477,052 shares with a par value of
P1.00 per share. ERHC first delivered to DBP on 20 October
1981 Stock Certificate No. 30 covering 1,862,148 shares. Then
ERHC delivered on 3 November 1981 Stock Certificate No. 31
covering 691,052 shares, and on 27 November 1981 Stock
Certificate No. 32 covering 923,852 shares.
On 5 June 1986, alleging that ERHC failed to pay its loan,
DBP filed with the Office of the Sheriff, Regional Trial Court
of Iriga City, an Application for Extra-judicial Foreclosure of
Abel Ramos and Ruperto Galeon issued the required notices of
public auction sale of the personal and real properties.
However, Sheriffs Ramos and Galeon failed to execute the
corresponding certificates of posting of the notices. On 10 July
1986, the auction sale of the personal properties proceeded.The
Office of the Sheriff scheduled on 12 August 1986 the public

auction sale of the real properties. The Bicol Tribune published
on 18 July 1986, 25 July 1986 and 1 August 1986 the notice of
auction sale of the real properties. However, the Office of the
Sheriff postponed the auction sale on 12 August 1986 to 11
September 1986 at the request of ERHC. DBP did not
republish the notice of the rescheduled auction sale because
DBP and ERHC signed an agreement to postpone the 12
August 1986 auction sale.
On 22 December 1986, ERHC filed with the Regional Trial
Court of Iriga City a complaint for annulment of the
foreclosure sale of the personal and real properties alleging that
the foreclosure was void mainly because (1) DBP failed to
comply with the procedural requirements prescribed by law;
and (2) the foreclosure was premature. ERHC maintained that
the loan was not yet due and demandable because the DBP had
restructured the loan.
The trial court rendered a Decision8 dated 28 January 1992,
the declaring as null and void the foreclosure and auction sale
of the personal properties of plaintiff corporation held on July
10, 1992 declaring as null and void the foreclosure and auction
sale of the real properties of plaintiff corporation in the auction
sale thereof held on September 11, 1986, and all the
improvements therein.The Court of Appeals, which
consolidated the appeals, affirmed the decision of the trial
court.9DBP filed a Motion for Reconsideration which the Court
of Appeals denied.
ISSUE:
Whether DBP complied with the posting and publication
requirements under applicable laws for a valid foreclosure?
CREDIT TRANSACTION DE
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RULING:
YES, DBP complied on the publication requirements for
personal properties but it failed to comply for the real
properties.
The Court held recently in Ouano v. Court of Appeals22 that
republication in the manner prescribed by Act No. 3135 is
necessary for the validity of a postponed extrajudicial
foreclosure sale. Another publication is required in case the
auction sale is rescheduled, and the absence of such
republication invalidates the foreclosure sale.
The Court also ruled in Ouano that the parties have no right to
waive the publication requirement in Act No. 3135. The Court
declared thus:
Petitioner and respondents have absolutely no right to waive
the posting and publication requirements of Act No. 3135.
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.
DBP further asserts that Section 24, Rule 39 of the Rules of
Court, which allows adjournment of execution sales by
agreement of the parties, applies to the present case. Section 24
of Rule 39 provides:
Sec. 24. Adjournment of Sale – By written consent of
debtor and creditor, the officer may adjourn any sale
upon execution to any date agreed upon in writing by
the parties. Without such agreement, he may adjourn

the sale from day to day, if it becomes necessary to do
so for lack of time to complete the sale on the day fixed
in the notice.
The Court ruled in Ouano that Section 24 of Rule 39
does not apply to extrajudicial foreclosure sales,
DBP also maintains that ERHC’s act of requesting
postponement of the 12 August 1986 auction sale estops ERHC
from challenging the absence of publication of the notice of the
rescheduled auction sale.
We do not agree.
ERHC indeed requested postponement of the auction sale
scheduled on 12 August 1986.24However, the records are bereft
of any evidence that ERHC requested the
postponement without need of republication of the notice of
sale. In  Philippine National Bank v. Nepomuceno
Productions Inc.,25 the Court held that:
x x x To request postponement of the sale is one thing;
to request it without need of compliance with the
statutory requirements is another. Respondents,
therefore, did not commit any act that would have
estopped them from questioning the validity of the
foreclosure sale for non-compliance with Act No. 3135.
xxx
The form of the notice of extrajudicial sale is now prescribed in
Circular No. 7-200226 issued by the Office of the Court
Administrator on 22 January 2002.
In the instant case, there is no information in the notice of
auction sale of any date of a rescheduled auction sale. Even if
such information were stated in the notice of sale, the reposting
CREDIT TRANSACTION DE
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and republication of the notice of sale would still be necessary
because Circular No. 7-2002 took effect only on 22 April 2002.
There were no such guidelines in effect during the questioned
foreclosure.
Clearly, DBP failed to comply with the publication
requirement under Act No. 3135. There was no publication of
the notice of the rescheduled auction sale of the real properties.
Therefore, the extrajudicial foreclosure of the real estate
mortgage is void.
DBP, however, complied with the mandatory posting of the
notices of the auction sale of the personal properties. Under the
Chattel Mortgage Law,27 the only requirement is posting of the
notice of auction sale. There was no postponement of the
auction sale of the personal properties and the foreclosure took
place as scheduled. Thus, the extrajudicial foreclosure of the
chattel mortgage in the instant case suffers from no procedural
infirmity.
K-PHIL., INC., SOO MYUNG PARK and  NETWORK
DEVELOPMENT HOLDING CORP., Petitioners, vs.
METROPOLITAN   BANK   & TRUST COMPANY,
REGALADO E.  EUSEBIO, in  his capacity
as   Clerk   of   Court   VI  and Ex-Officio     Sheriff,   and
REYNALDO R. CAMERINO, in his capacity as Sheriff IV,
Regional Trial Court of Imus, Cavite, Respondents.
Facts:

Metropolitan Bank & Trust Company (Metrobank) extended to
petitioner K-Phil., Inc. (K-Phil) various loans and credit
accommodations.  These loans were secured by a
mortgage[3] over two lots owned by petitioner Network
Development Holding Corporation (Network) and occupied by
K-Phil.
Because of petitioners’ alleged violation of the terms and
conditions of the loans, Metrobank filed a petition for
extrajudicial foreclosure of real estate and chattel mortgage.
Petitioner claimed that the foreclosure of mortgages was
premature and in contravention of a restructuring agreement of
the loans and obligations of K-Phil. In addition, the petition for
extrajudicial foreclosure was defective because it indicated the
wrong amount and failed to implead and notify Network, an
indispensable party as owner-mortgagor of the subject lots.
Issues:
(1) whether the petition for extrajudicial foreclosure was null
and void for its failure to implead Network and to state the
correct amount of indebtedness;[18] (2) whether it was proper to
order the issuance of a new notice with the necessary
corrections
Held:
1. No. Network’s name was indeed omitted from the
caption of the application/petition for extrajudicial
foreclosure.  However, this omission was not fatal to
Metrobank’s application as it was not in violation of Act 3135.
[19]
  Moreover, the application included Network in its body.  It
is the allegations in the body of the petition that control and not
CREDIT TRANSACTION DE
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the heading or caption.[20]  The notice clearly identified
Network as the mortgagor.  Such identification in the notice of
extrajudicial sale was what counted under the rules of
procedure in extrajudicial foreclosure of mortgage.[21]
2. Yes. 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.[25]
 
 
          The validity of a notice of sale is not affected by
immaterial errors;[26] only substantial errors will invalidate it.
[27]
   Unless it was calculated to deter or mislead bidders, to
depreciate the value of the property or to prevent it from
bringing a fair price, the discrepancy between the amount of
the obligation as reflected in the notice of sale and the amount
actually due and collected during the bidding does not
constitute a substantial error that should invalidate the notice.
[28]

 
Therefore, the CA’s order for the sheriff to issue,
publish and serve a new notice of extrajudicial sale correcting
the inaccuracies and inadequacies of the prior notice was
sufficient to remedy the discrepancies.
Magna Financial Services Group Inc., vs. Elias Colarina
GR No. 158635
Facts:
Colarina bought a Suzuki multicab from the petitioner on June
11, 1997 with P229,284 as down payment and the balance
payable in 36 equal monthly installments. To secure payment,
he executed a promissory note and chattel mortgage in favor of
the petitioner. Beginning 1999, Calorina failed to pay the
monthly amortization accumulating to P131K. thereafter,
petitioner file for a foreclosure of chattel mortgage with
replevin. RTC ruled in favor of the petitioner and ordered
Colarina to pay the balance, and upon default, the multicab will
be sold at public auction to satisfy the judgement. Colarina
appealed to the CA which ruled in his favor stating that RTC
erred in ordering Colarina to pay the unpaid balance while the
complaint was for the foreclosure of the mortgage. Petitioner
appealed but was denied. Hence, the case was elevated to the
SC.
Issue:
CREDIT TRANSACTION DE
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Whether the nature of a foreclosure of a chattel mortgage is an
exercise of the 3rd option under article 1484 paragraph 3 of the
civil code.
Ruling:
Yes. Article 1484, paragraph 3, provides that if the vendor has
availed himself of the right to foreclose the chattel mortgage,
he shall have no further action against the purchaser to recover
any unpaid balance of the purchase price. Any agreement to the
contrary is void. In other words, in all proceedings for the
foreclosure of chattel mortgages executed on chattels which
have been sold on the installment plan, the mortgagee is
limited to the property included in the mortgage. Since the,
petitioner has undeniably elected a remedy of foreclosure under
Art. 1484(3), it is bound by its election and thus may not be
allowed to change what it has opted for nor to ask for more.
GREEN ASIA CONSTRUCTION AND DEVELOPMENT
CORPORATION AND SPS. RENATO AND DELIA
LEGASPI, Petitioners, v. THE HONORABLE COURT OF
APPEALS AND PCI LEASING AND FINANCE,
INC.,Respondents.
Facts:
On June 8, 1995, petitioner Green Asia Construction and
Development Corporation (GACDC), represented by its
president, petitioner Renato Legaspi, obtained a loan
of P2,600,0004 from private respondent PCI Leasing and

Finance, Inc. (PCILFI). As security, GACDC, executed a real
estate mortgage5 for P450,000 in favor of PCILFI. The
mortgage covered three parcels of land located in Barrio
Balibago, Angeles City. When GACDC failed to pay the loan
on maturity, the mortgage was foreclosed extrajudicially. A
certificate of sale7dated February 3, 1998 was accordingly
issued to PCILFI and duly registered with the Registry of
Deeds of Angeles City.
On April 12, 2000, PCILFI filed a petition for the issuance of a
writ of possession8 with the Regional Trial Court.  Trial court
granted PCILFI's petition.
GACDC filed an urgent omnibus motion and a supplement to
the urgent omnibus motion, respectively, praying for the setting
aside of the certificate of sale, cancellation of the writ of
possession, and the suspension of the implementation of the
said writ of possession. GACDC's motion for reconsideration
was denied.
GACDC elevated the case to the Court of Appeals, which
affirmed the assailed orders of the trial court.
Issue: Whether or not the CA err in affirming the ruling of the
RTC.
Ruling:
CREDIT TRANSACTION DE
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The nullity of the mortgage is not covered by the remedy
outlined under Section 8 of Act No. 3135. The said provision
specifically lists the following exclusive grounds for a petition
to set aside the sale and cancel the writ of possession: (1) that
the mortgage was not violated; and (2) that the sale was not
made in accordance with the provisions of Act No. 3135.
SEC. 8. The debtor may, in the proceedings in which
possession was requested, but not later than thirty days after
the purchaser was given possession,  petition that the sale be
set aside and the writ of possession cancelled, specifying the
damages suffered by him, because the mortgage was not
violated or the sale was not made in accordance with the
provisions hereof, and the court shall take cognizance of this
petition in accordance with the summary procedure provided
for in section one hundred and twelve of Act Numbered Four
hundred and ninety-six; and if it finds the complaint of the
debtor justified, it shall dispose in his favor of all or part of the
bond furnished by the person who obtained possession. Either
of the parties may appeal from the order of the judge in
accordance with section fourteen of Act Numbered Four
hundred and ninety-six; but the order of possession shall
continue in effect during the pendency of the appeal.
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. Indeed, 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.17Petitioners should have filed a separate and
independent action for annulment of the mortgage or the
foreclosure.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
The remedy under Section 8 of Act No. 3135 is inapplicable in
this case.The Court of Appeals did not err, nor did it commit
grave abuse of discretion amounting to lack or excess of
jurisdiction, in affirming the assailed Orders of the trial court.
G.R. No. 147820.  March 18, 2005]
SPOUSES RUBEN SANTIAGO and INOCENCIA
SANTIAGO, petitioners, vs. MERCHANTS RURAL BANK
OF TALAVERA, INC., respondent.
Facts:
Respondent Merchants Rural Bank of Talavera, Inc. filed
an Ex Parte Petition with the Regional Trial Court (RTC) of
Cabanatuan City, for the issuance of a writ of possession over
the two parcels of land covered by Transfer Certificate of Title
(TCT) Nos. NT-196197 and NT-187791 located in San
Mariano, Sta. Rosa, Nueva Ecija.  G.R. No.  132287, January 24, 2006
Issue:
Whether testimonial or documentary are needed to support
petition for writ of execution.
Held:
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No. The proceeding in a petition for a writ of possession is ex
parte and summary in nature.  It is a judicial proceeding
brought for the benefit of one party only and without notice by
the court to any person adverse of interest.
The petitioners have not cited any law or rule requiring
that documentary and testimonial evidence be first adduced in
support of a petition for a writ of possession before the trial
court may act upon and grant the same.
Section 7 of Act No. 3135 merely requires that a petition
for the issuance of a writ of possession shall be in the form of
an ex parte motion. Upon the filing of the said petition, the
payment of the requisite fees therefor, and the approval of the
trial court if such petition is filed during the period for the
redemption of the property, the court shall order that a writ of
possession be issued.
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit.  Costs against the petitioners.
SO ORDERED.
SPOUSES BONIFACIO and FAUSTINA PARAY, and
VIDAL ESPELETA, Petitioners, vs. DRA. ABDULIA C.
RODRIGUEZ, MIGUELA R. JARIOL assisted by her
husband ANTOLIN JARIOL, SR., LEONORA NOLASCO
assisted by her husband FELICIANO NOLASCO,
DOLORES SOBERANO assisted by her husband JOSE
SOBERANO, JR., JULIA R. GENEROSO, TERESITA R.

NATIVIDAD and GENOVEVA R. SORONIO assisted by
her husband ALFONSO SORONIO, Respondents.
                                  
Facts:
          Respondents were the owners, in their respective
personal capacities, of shares of stock in a corporation known
as the Quirino-Leonor-Rodriguez Realty Inc.Respondents
secured by way of pledge of some of their shares of stock to
petitioners Bonifacio and Faustina Paray (“Parays”) the
payment of certain loan obligations.
When the Parays attempted to foreclose the pledges on
account of respondents’ failure to pay their loans, respondents
filed complaints which sought the declaration of nullity of the
pledge agreements.
Respondents consign to RTC which they interpreted as
redemption.
Notwithstanding the consignations, the public auction
took place as scheduled, with petitioner Vidal Espeleta
successfully bidding the amount of P6,200,000.00 for all of the
pledged shares.
Issue:
WON Petitioners were authorized to refuse as they did
the tender of payment since they were undertaking the auction
sale pursuant to the final and executory decision in Civil Cases.
Held:
CREDIT TRANSACTION DE
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Yes. it must be clarified that the subject sale of pledged
shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution
sale. Under the Civil Code, the foreclosure of a pledge occurs
extrajudicially, without intervention by the courts. All the
creditor needs to do, if the credit has not been satisfied in due
time, is to proceed before a Notary Public to the sale of the
thing pledged.[9]
In this case, petitioners attempted as early as 1980 to
proceed extrajudicially with the sale of the pledged shares by
public auction. However, extrajudicial sale was stayed with the
filing of Civil Cases No. R-20120 and 20131, which sought to
annul the pledge contracts. The final and executory judgment
in those cases affirmed the pledge contracts and disposed.
Since the pledged shares in this case are not subject to
redemption, the Court of Appeals had no business invoking and
applying the inexistent right of redemption. We cannot thus
agree that the consigned payments should be treated with
liberality, or somehow construed as having been made in the
exercise of the right of redemption. We also must reject the
appellate court’s declaration that the buyer of at the public
auction is not “ipso facto” rendered the owner of the auctioned
shares, since the debtor enjoys the one-year redemptive period
to redeem the property. Obviously, since there is no right to
redeem personal property, the rights of ownership vested unto
the purchaser at the foreclosure sale are not entangled in any
suspensive condition that is implicit in a redemptive period.
 CREDIT TRANSACTION DE
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WHEREFORE, the petition is GRANTED. The
assailed decision of the Court of Appeals is SET ASIDE and
the decision of the Cebu City RTC, Branch 16, dated 18
November 1992 is REINSTATED. Costs against respondents