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ECE Laws, Contracts, and Ethics (Xavier University-Ateneo de Cagayan)

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GR 118342, January 5, 1998 DBP VS. CA
FACTS:
Cuba is a grantee of a Fishpond Lease Agreement from the
Government.SheobtainedloansfromDBPintheamountsof P109,
000 and P98, 700 under the terms stated in the
promissorynotesandassecurityforsaidloans;sheexecuted two
deeds of assignment of her leasehold right. Cuba
however, failed to pay her loan on scheduled dates
and without foreclosure proceedings, DBP
appropriated the Leasehold Rights of Cuba over the fishpond.
After DBP’sappropriation over the fishpond, DBP in turn
executed a deed of Conditional Sale of the Leasehold Rights
in favor of Cuba over the same fishpond in question. In the
negotiation for
repurchase,Cubaaddressed2letterstotheManagerofDBP which
wasaccepted.
After the Deed of Conditional Sale was executed in favor of
Cuba, a new fishpond lease agreement was issued by the
Ministry of Agriculture and Food in favor of Cuba only
excluding her husband. Cuba again failed to pay the
amortization as stated in Deed of Conditional Sale and
because of this she entered with DBP a temporary
arrangement whereby in consideration for deferment of
Notarial Rescission of Deed of Conditional Sale, Cuba
promised to make certain payments.
DBP thereafter sent a Notice of Rescission thru Notarial Act
and was received by Cuba. After the Notice of Rescission,
DBPtookpossessionoftheLeaseholdRightsoffishpondand
after,advertisedinSUNDAYPUNCHthepublicbiddingto
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dispose the property. DBP then thereafter, executed a Deed of
Conditional Sale in favor of Agripina Caperal.
RTC ruled in favor of Cuba declaring that DBP’s
takingpossessionandownershipofpropertywithoutforeclosurewas
plainly violative of Article 2088 of the Civil Code or the provision on
pactum commissorium. RTC also ruled that
conditionno.12oftheAssignmentofLeaseholdRightswasa clear case
of pactum commissorium expressly prohibited and declared null and
void by Article 2088, Civil Code and concluded that since DBP never
acquired lawful ownership ofCuba’s leasehold rights, all acts of
ownership and possession by bank is void and that the deed
of Conditional Sale in favor
ofCaperalwasaswellvoidandineffective.
Cuba and DBP interposed appeals to CA. CA ruled that RTC
erred in declaring the deed of assignment as null and void and
that Caperal can validly acquire the leasehold rights and that
condition no. 12 of deed of assignment was an express
authority from Cuba for DBP to sell whatever right she had
over the fishpond.
Hence, this petition. ISSUE/
S:
1.WoN the assignment of leasehold rights was a mortgage
contract (as contended byCuba)
YES. In all of the promissory notes, there is a provision that
“inthe event of foreclosure of the mortgage securing this
note, I/Wefurtherbindmyself/ourselves,jointlyandseverally,topaythedeficiency,if
any.” Moreover, in Condition No. 22 of the deed, it was provided
that “failure to comply with the terms andcondition of any of the
loans shall cause all other loans to become due and
demandable and all mortgages shall
beforeclosed.”Inthef acts stip u la te d, itsta te st ha t“A s secu rit y
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for loans, plaintiff Lydia P. Cuba executed two Deeds of
Assignment of her leasehold rights.”
We find no merit in DBP’s contention that the assignmentnovated
the promissory notes in that the obligation to pay a sum of
money the loans (under the promissory notes) was
substituted by the assignment of the rights over the fishpond
(under the deed of assignment). The said assignment merely
complemented or supplemented the notes; both could stand
together. Significantly, both the deeds of assignment and the
promissorynoteswereexecutedonthesamedatestheloans were
granted. Also, the last paragraph of the
assignment stated: “The assignor further reiterates and states all
terms,covenants,andconditionsstipulatedinthepromissorynoteor
notes covering the proceeds of this loan, making said promissory note
or notes, to all intent and purposes, anintegral parthereof.”
2.WoN condition no. 12 of the deed of assignment constituted
pactumcommissorium
NO.Theelementsofpactumcommissoriumareasfollows:(1) there should
be a property mortgaged by way of security for
thepaymentoftheprincipalobligation,and(2)thereshouldbe a stipulation
for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the
stipulatedperiod.
Condition no. 12 did not provide that the ownership over the
leasehold rights would automatically pass to DBP
uponCUBA’s failure to pay the loan on time. It merely provided
forthe appointment of DBP as attorney-in-fact with authority,
among other things, to sell or otherwise dispose of the said
realrights,incaseofdefaultbyCUBA,andtoapplythe
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proceeds to the payment of the loan. This provision is a
standard condition in mortgage contracts and is in conformity
with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the
mortgaged property for the payment of the principal obligation.
G.R. No. 126800. November 29, 1999. Bustamante vs. Rosel
Facts:
Petitioner borrowed money from respondents for a period of
two years and with interest. The former set up as collateral a
parcel of land with apartment thereon to guaranty payment.
They also agreed that in the event that she fails to pay,
respondents can buy the collateral for a cheap consideration,
inclusive of the principal and interest. When the loan was
about to mature, respondents proposed to buy the collateral.
Petitioner, however, refused to sell and requested for
extension of time to pay the loan. She, instead, offered to sell
another residential lot. Respondents refused to extend the
payment of the loan and to accept the second lot offered. On
maturity date, petitioner tendered payment of the loan to
respondents which the latter refused to accept. They insisted
that a deed of absolute sale of the collateral be executed.
Respondents then instituted an action for specific performance
and consignation against petitioner. After demand, petitioner
consigned the amount of the loan plus interest.
The trial court ruled in favor of the petitioner. On the other
hand, the Court of Appeals reversed this decision, which the
Supreme Court affirmed. However, petitioner filed a motion for
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reconsideration. She alleged that she did not fail to pay the
loansothereisnoreasonforrespondenttobuythecollateral; that the
real intention of the parties in putting up the collateral is to guarantee
the payment of the loan. Respondent, on one hand, contends that
petitioner failed to pay the loan; that it is their right to purchase the
collateral based on the contact which is not contrary to law, morals,
good customs, public order and publicpolicy.
Issues:
(1)Whetherornotpetitionerfailedtopaytheloanatits
maturitydate.
(2)Whether or not the stipulation in the loan contract was
valid andenforceable.
Held:
Petitionerdidnotfailtopaytheloan.Onthematuritydate,she
tendered the payment which respondents refused. After
refusal, she consigned the payment. The sale of the collateral
is an obligation with a suspensive condition. Since the event
did not occur, respondents do not have the right to
demandfulfillment of petitioner’s obligation, especially where the
samewould be disadvantageous to petitioner.
The stipulation in the loan contract was not valid and
unenforceable. A scrutiny of the stipulation of the parties
revealsasubtleintentionofthecreditortoacquiretheproperty given as
security for the loan. This is embraced in the concept of pactum
commissorium, which the law prohibits. The elements of pactum
commissorium are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal obligation, and (2)
there should be a
stipulationforautomaticappropriationbythecreditorofthe
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thing mortgaged in case of non-payment of the principal
obligation within the stipulated period. These elements are
present in this case. Therefore, the stipulation is void. All
persons in need of money are liable to enter into contractual
relationships whatever the condition if only to alleviate their
financial burden albeit temporarily. Hence, courts are duty
bound to exercise caution in the interpretation and resolution
of contracts lest the lenders devour the borrowers like vultures
do with their prey.
GR 171592
ONG. V. ROBAN LENDING CORPORATION, (2008)
Pactum Commissorium, Art. 2087, Art. 2088: Effects
onPledge or Mortgage
“
T he SECOND PARTY hereby signed another promissory
note with a promise to pay the FIRST PARTY in full within
oneyear from the date of the consolidation and restructuring,
otherwise the SECOND PARTY agree to have their “DACION
IN PAYMENT” agreement, which they have executed and
signed today in favor of the FIRST PARTY be enforced”
Issue:Whether the contract
constitutes pactumcommissorium ordacion en
pago.
Held:Pactum Commissorium.
In the case at bar, the MOA and the Dacion in Payment
contain no provisions for foreclosure proceedings nor
redemption. Under the MOA, the failure by the petitioners to
pay their debt within the one-year period gives respondent the
right to enforce the Dacion in Payment transferring to it
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ownership of the properties covered by the TCT. Respondent,
in effect, automatically acquires ownership of the properties
upon petitioners’ failure to pay their debt within the
stipulatedperiod.
Ø Respondent argues that the law recognizes dacion en
pago as a special form of payment whereby the debtor
alienates property to the creditor in satisfaction of a monetary
obligation.
This does not persuade. In a truedacion en pago, the
assignment of the property extinguishes the monetary debt.
In the case at bar, the alienation of the properties was by way
of security, and not by way of satisfying the debt. The Dacion
in Payment did not extinguish petitioners’ obligation
torespondent. On the contrary, under the MOA executed on
the same day as the Dacion in Payment, petitioners had to
execute a promissory note which they were to pay within one
year.
That the questioned contracts were freely and
voluntarilyexecuted by petitioners and respondent is of
no moment, pactum commissorium being void for being
prohibited by law.
GR158891, June 27, 2012
Garcia vs Villar
Thecasestemmedfromamortgagetransactioninvolvingalo t owned
by Lourdes Galas in favor of Yolanda Villar. The lot
was mortgaged to secure a loan obtained by Galas
from Villar in the amount ofP2,200,000.00.
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It was established from the facts that in the deed of real estate
$mortgage executed between Galas and Villar, the former
appoints the latter to sell the subject &property in case Galas
fails to &ay the loan, and with such, &proceeds shall be
a&&lied to her outstanding loan.
A year later, the same subject &property was subsequently
mortgaged in favor of Pablo Garcia to secure a loan
amounting to P 1, 800,000.00. afterwards, Galas decided to
sell the subject &property to Villar. deed of sale was executed
between them, and a T-T was issued in favor of Villar.
Aggrieved, Garcia filed a Petition for mandamus with
damages, arguing his main &point that the authority given to
Villaras stipulated in the deed of the real estate $mortgage is
violative of the prohibition of Pactum -ommissorium.
It ruled in favor of Garcia. CA appeal, reversed the decision
and ruled in favor of Villar.
issue
1 whether the authority given to Villar in the deed of real estate
mortgage is violative of the prohibition on pactum
commissorium
Held:
Villar’s purchase of the subject property did not violate the
prohibition on pactum commissorium. The following are the
elements of pactum commissorium.
1.thereshouldbeapropertymortgagedbywayofsecurityfor
thepaymentoftheprincipalobligation
2.there should be a stipulation for automatic appropriation by
the creditor ofthe
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thing mortgaged in case of nonpayment of the principal
obligation within the stipulated period.
in the case at bar, the owner of attorney provision above did
not provide that ownership over the subject property would
automatically pass to Villar upon Galas failure to pay the loan
on time. hat it granted was the mere appointment of
Villaras Attorney in fact with authority to sell, or otherwise
disposed of the subject property, and to apply the proceeds to
the payment of the loan.
Real nature of a mortgage:
( Article 2126 of the Civil Code)
Art. 2126.The mortgage directlyandimmediately subjects
thepropertyuponwhichitisimposed,whoeverthepossessor
maybe,tothefulfillmentoftheobligationforwhosesecurityit
wasconstituted.
A mortgage is a real right, which follows the property, even
after subsequent transfers by the mortgagor.“A
registeredmortgage lien is considered inseparable from the
property inasmuch as it is a right inrem.” The sale or transfer of
themortgaged property cannot affect or release the mortgage;
thus the purchaser or transferee is necessarily bound to
acknowledge and respect the encumbrance. In fact, under Art.
2129 of the Civil Code, the mortgage on the property may still
be foreclosed despite the transfer,viz:
Art. 2129.The creditormayclaim from a third person in
possessionofthemortgagedproperty,thepaymentofthepart of the
credit secured by the property which said third person
possesses, in terms and with the formalities which the
law establishes.
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While we agree with Garcia that since the second mortgage, of
which he is the mortgagee, has not yet been discharged, we
find that said mortgage subsists and is still
enforceable. However,Villar,in buying the subject property
with notice that it was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon failure
of the mortgage creditor to obtain payment from the principal
debtor once the debt matures. Villar did not obligateherselfto
replace the debtor in the principal obligation, and could not
doso in law without the creditor’s consent. Therefore,
theobligation to pay the mortgage indebtedness remains with
the original debtors Galas andPingol.
Effects of a transfer of a mortgaged property to a third person
According toArt.1879 ofthis Code, the creditor may demand of
the third person in possession of the property mortgaged
paymentofsuchpartofthedebt,asissecuredbytheproperty in his
possession, in the manner and form established by the
law. The Mortgage Lawprovidedthat the debtor should not
paythedebtuponitsmaturityafterjudicialornotarialdemand, for payment
has been made by thecreditorupon him.(Art.
135 of the Mortgage Law of the Philippines of
1889.) According to this, the obligation of the newpossessorto
pay the debt originated only from the right of the creditor to
demandpaymentofhim,itbeingnecessarythatademandfor payment
should have previously been made upon the debtor and the latter
should have failed topay.And even if these requirements were
complied with, still the third possessor might abandon the
property mortgaged, and in that case it is considered to be in
thepossessionof the debtor. (Art. 136 of the same law.) This
clearly shows that the spirit of the Civil
Codeistolettheobligationofthedebtortopaythedebtstand although the
property mortgaged to secure the payment of said debt may have
beentransferredto a third person. While
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the Mortgage Law of 1893 eliminated these provisions, it THE MANILA BANKING CORPORATION vs. ANASTACIO TEODORO, JR. and GRACE ANNA TEODO
containednothingindicatinganychangeinthespiritofthelaw in this G.R. No. L-53955 January 13, 1989
respect. Article 129 of this law, which provides the substitution of the
debtor by the third person in possession of the property, for the
purposes of the giving of notice, does not show this change and has
reference to a case where the action is directed only against the Bidin, J.
property burdened with the mortgage. (Art. 168 oftheRegulation.)

The mere fact that the purchaser of an immovable has notice 1.April 1966, SpousesTeodorotogether with
that the acquired realty is encumbered with a mortgage does TeodoroSrexecutedaPNinfavourofManilaBankingCorp(MBC);
not render him liable for the payment of the debt guaranteed - Payablewithin120 days(untilAug), with
bythemortgage,intheabsenceofstipulationorconditionthat 12%interestperannum;
heistoassumepaymentofthemortgagedebt. - They failed to pay and left balance of 15k as of
September1969;
Reason:the mortgage is merely an encumbrance on the 2.May and June 1966, executedtwoPNs;
property, entitling the mortgagee to have the property - 8k and1krespectivelypayablewithin120daysand 12%
foreclosed,i.e.,sold,incasetheprincipalobligordoesnotpay the perannum;
mortgage debt, and apply the proceeds of the sale to the satisfaction of - Theymadepartial payment butstillleft 8.9kbalanceas of
his credit.Mortgage is merely an accessory undertaking for the September1969;
convenience and security of the mortgage creditor, and exists 3.Ita p p e a r s t h a n i n 1964,T e o d o r o J r executeda D e e d o f
independently of the obligation to pay the debt secured by it. Assignment of Receivables in favour of MBC from
The mortgagee, if he is so minded, can waive the mortgage Emergency Employment Administration;
security and proceed to collect the principal debt by personal - Amounted to44k;
action against the original mortgagor - The deed provided it was forconsiderationof certain
credits, loans, overdrafts and other credit
accommodations extended to the spouses and
Teodoro Sr as security for the payment of said sum
and interest thereon; and that they release and
quitclaim all its rights, title and interest in the
receivables;
4.Inthestipulationsoffact,itwasadmittedbytheparties:
- ThatMBCextended loans to thespousesand Teodoro Jr
because of certain contracts entered into by latter
withE E A f o r f a b r i c a t i o n o f f i s h i n g b o a t s a n d t h a t t
he

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llee bank and correspondingly Philippine Fisheries

the assignment Commission
shall succeeded
also extend to EEA after
all the accounts receivable; appellants shall also obtain in the future, until the consideration on the loans secured by
its abolition;
- Thatnon-paymentof
w of the following provisions the PNs was due to failure of the
of the deed of assignment:
Commission
pplied by appellants, first par., to payspouses;
Deed of Assignment).
- That the Bank tookstepsto collect
hatever the fromtheCommissionbutnocollectionwaseffected;
5.For failure of thespousesand Teodor Sr topay,MBC instituted
againstthem;
- Teodoro Sr subsequently died so suit only
againstthespouses;
gnment of the receivables did not result from a sale transaction. It cannot be said to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidence
6.TCfavouredMBC;MFRdenied;
- Spouses appealedto CAbut since issue pure question
oflaw,CAforwardedtoSC;

Issues:
W/N the assignment of receivables has the effect of payment
of all the loans contracted by the spouses; NO.
W/N MBC must exhaust all legal remedies against PFC before
it can proceed against the spouses. NO.

Ratio:

The assignment of receivables executed by appellants did not transfer the ownership of the receivables to appellee bank and release appellants from their loans w

The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts, and their credit accommodations extended to appellant

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as she
nts, as a continuing guaranty for whatever sums would be owing by defendants to plaintiff, as stated claims to have
in stipulation No. 9 substantial
of the deed. deposits and money market
placements with the petitioners and other investment
companies, the proceeds of which were supposedly deposited
automatically and directly to her account with Citibank.
Sabeniano alleged that Citibank et al refused to return her
deposits
ithout the need of the consent of the debtor, transfers his credit and its accessory rights to another, known and
as the
the proceeds of her
assignee, who money
acquires themarket
powerplacements
to enforce it to the same extent as
despite her repeated demands, thus, the civil case
for"Accounting, Sum of Money and Damages.”

In their reply, Citibank et al admitted that Sabeniano had

CITIBANK, N.A. & INVESTOR FINANCE CORPORATION V.
SABENIANO
Facts:
This is a case involving Citibank, N.A., a banking corporation
duly registered under US Laws and is licensed to do
commercial banking and trust functions in the Philippines and
Investor's Finance Corporation (aka FNCB Finance), and
affiliate company of Citibank, mainly handling money market
placements(MMPs are short term debt instruments that give
the owner an unconditional right to receive a stated, fixed sum
of money on a specified date).
ModestaR.SabenianowasaclientofbothpetitionersCitibank and FNCB
Finance.Unfortunately, the business relations among the parties
subsequently went awry. Subsequently,
SabenianofiledacomplaintwiththeRTCagainstpetitioners
deposits and money market placements with them, including
dollar accounts in other Citibank branches. However, they also
alleged that respondent later obtained several loans from
Citibank, executed through Promissory Notes and secured by
a pledge on her dollar accounts, and a deed of assignment
against her MMPS with FNCB Finance. When Sabeniano
defaulted, Citibank exercised its right to off-set or compensate
respondent's outstanding loans with her deposits and money
market placements, pursuant to securities she executed.
Citibank supposedly informed Sabeniano of the foregoing
compensation through letters, thus, Citibank et al were
surprised when six years later, Sabeniano and her counsel
made repeated requests for the withdrawal of respondent's
deposits and MMPs with Citibank, including her dollar
accounts with Citibank-Geneva and her money market
placements with petitioner FNCB Finance. Thus, petitioners
prayed for the dismissal of the Complaint and for the award of
actual, moral, and exemplary damages, and attorney's fees.
The case was eventually decided after 10 years with the
Judge declaring the offsetting done as illegal and the return of
theamountwithlegalinterest,whileSabenianowasorderedto pay her
loans to Citibank. The ruling was then appealed. TheCA modified the
decision but only to the extent of Sabeniano’s loans

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whichitruledthatCitibankfailedtoestablishtheindebtedness and is
also without legal and factual basis. The case was thus appealed to
theSC.
Issue:
Whether or not there was a valid off setting/compensation of
loan vis a vis the a.)Deposits and b.) MMPs.
Held:
General Requirement of Compensation:
Art. 1278. Compensation shall take place when two persons,
in their own right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is
necessary;
(1)That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of the
other;
(2)Thatbothdebtsconsistinasumofmoney,orifthe things
due areconsumable,they be of the same kind, and
alsoofthesamequalityifthelatterhasbeenstated;
(3)That the two debts bedue;
(4)That they be liquidated anddemandable;
(5)That over neither of them there be any retention or
controversy,commencedby third persons andcommunicatedin
due time to thedebtor.
1.Yes.AsalreadyfoundbythisCourt,petitionerCitibankwas the creditor
of respondent for her outstanding loans. At the
sametime,respondentwasthecreditorofpetitionerCitibank, as far as her
deposit account was concerned, since bank deposits, whether fixed,
savings, or current, should be considered as simple loan or mutuum
by the depositor to the
bankinginstitution.Bothdebtsconsistinsumsofmoney.
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By June 1979, all of respondent's PNs in the second
set had matured and became demandable, while respondent's
savings account was demandable anytime. Neither was there
any retention or controversy over the PNs and the deposit
account commenced by a third person and communicated in
due time to the debtor concerned. Compensation takes place
by operation of law.
2.Yes, but technically speaking Citibank did not effect a legal
compensation or off-set under Article 1278 of the Civil Code,
but rather, it partly extinguished respondent's obligations
throughtheapplicationofthesecuritygivenbytherespondent for her
loans. Respondent's money market placements were
withpetitionerFNCBFinance,andafterseveralroll-overs,they were
ultimately covered by PNs No. 20138 and 20139, which, by 3
September 1979, the date the check for the proceeds of the said PNs
were issued, amounted to P1,022,916.66, inclusive of the principal
amountsandinterests.
As to thesemoneymarketplacements, respondentwas
the creditor and petitioner FNCB Finance the debtor (thereby
implying that money market placement is a simple
loanormutuum);while,astotheoutstandingloans,petitioner
Citibankwasthecreditorandrespondentthedebtor.
Consequently, legal compensation, under Article 1278
of the Civil Code, would not apply since the first requirement
for a valid compensation, that each one of the obligors be
bound principally, and that he be at the same time a principal
creditor of the other, was not met. What petitioner Citibank
actually did was to exercise its rights to the proceeds of
respondent's money market placements with petitioner FNCB
Finance by virtue of the Deeds of Assignment executed by
respondent in its favor. Petitioner Citibank was only acting
upon the authority granted to it under the foregoing Deeds
 lOMoARcPSD|5911403
when it finally used the proceeds of PNs No. 20138 and
20139, paid by petitioner FNCB Finance, to partly pay for
respondent's outstanding loans. Strictly speaking, it did not
effect a legal compensation or off-set under Article 1278 of the
Civil Code, but rather, it partly extinguished respondent's
obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents
were entitled Deeds of Assignment, they were, in reality, more
of a pledge by respondent to petitioner Citibank of her credit
due from petitioner FNCB Finance by virtue of her money
market placements with the latter. According to Article 2118 of
the Civil Code
–
ART. 2118. If a credit has been pledged becomes due before
it is redeemed, the pledgee may collect and receive the
amount due. He shall apply the same to the payment of his
claim, and deliver the surplus, should there be any, to the
pledgor.
GR150197, July 28, 2005 PRUDENTIAL BANK VS ALVIAR
Doctrine:
The “dragnet clause” in the first security instrument constituted a
continuing offer by the borrower to secure further loans under
the security of the first security instrument, and that
whenthelenderacceptedadifferentsecurityhedidnotaccept the
firstoffer.
Facts:
Spouses Alviar are the registered owners of a parcel of land in
San Juan, Metro Manila
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They executed a deed of real estate mortgage of the said
property in favor of petitioner Prudential Bank to secure the
payment of a loan worth P250,000.00. (PN BD#75/C-252) was
then issued covering the said loan, which provides that the
loan matured on 4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note is secured
by a real estate mortgage as aforementioned with a“blanket
mortgage clause” or the “dragnet clause”.
The spouses thereafter issued other promissory notes (PN):
PN BD#76/C-345 for P2,640,000.00, secured by D/A
SFDX#129, signifying that the loan was secured by a “hold -out”
on the mortgagor’s foreign currency savings account with the
bank under Account No. 129 in the name of Donalco
Trading, Inc., PN BD#76/C-430 covering P545,000.000 to
besecured by “Clean-Phase out TOD CA 3923. Bank also
mentioned in their approval letter that additional securities for
the loan were the deed of assignment on two PNs executed
by Bancom Realty and the chattel mortgage on various
heavy andtransportationequipment.
Spoused Alviar paid petitioner P2,000,000.00, to be applied to
the obligations of G.B. Alviar Realty and Development, Inc.
and for the release of the real estate mortgage for
the P450,000.00 loan covering the two (2) lots in San Juan,
Metro Manila. The payment was acknowledged by petitioner
who accordingly released the mortgage over the two
properties Prudential Bank moved for the extrajudicial
foreclosureofthemortgageonthepropertysincerespondents had the
total obligation of P1,608,256.68, covering the three (3) promissorynotes.
Respondents then filed a complaint for damages with a prayer
for the issuance of a writ of preliminary injunction with
 lOMoARcPSD|5911403
the RTC of Pasig,[11] claiming that they have paid their
principalloansecuredbythemortgagedproperty,andthusthe mortgage
should not beforeclosed
RTC, on its final decision, favored respondents saying that the
extrajudicial foreclosure was improper for the mortgage only
covers the first loan of P250,000
CA affirmed the decision of the RTC
Issue: WON real estate mortgage secures only the first loan of
P250,000.
Held: Yes. While the existence and validity of the “dragnet
clause” cannot bedenied, there is a need to respect the
existence of the other securities given for the two other
promissorynotes.The foreclosure of themortgagedproperty
should only then be for theP250,000.00 loan covered by PN
BD#75/C-252,andforanyamountnotcoveredbythesecurity for the
second promissorynote.
Petitioner and respondents intended the real estate mortgage
to secure not only the P250,000.00 loan from the petitioner,
but also future credit facilities and advancements that may be
obtained by the respondents. However, the subsequent loans
obtained by respondents were secured by other securities.
When the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was
made in reliance solely on the original security with
the“dragnet clause,” but rather, on the new security given.This
isthe “reliance on the securityt e s t . ”
If the parties intended that the “blanket mortgage clause”
shallcover subsequent advancement secured by separate
securities, then the same should have been indicated in the
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mortgage contract. This ambiguity shall be interpreted strictly
against petitioner for having drafted the same.
Petitioner, however, is not without recourse. Both the lower
courts found that respondents have not yet paid
the P250,000.00. Thus, the mortgaged property could still be
properly subjected to foreclosure proceedings for the
unpaid P250,000.00 loan, and as mentioned earlier, for any
deficiency after D/A SFDX#129, security for PN BD#76/C-345,
has been exhausted, subject of course to defenses which are
available to respondents.
Petition is DENIED. CA affirmed.
G.R. No. L-17500
People's Bank and Trust Co. v. Dahican Lumber Co.,
Facts:
Dahican Lumber Co. (DALCO) obtained a loan from People's
Bank and Trust Co. (Bank) secured by a deed of mortgage
covering 5 parcels of land together with all the buildings and
other improvements existing thereon and all the personal
properties of DALCO located in its place of business.
After the day of the execution of the mortgage, DALCO
purchased various machinery, equipment, spare parts and
supplies.
Pursuant to the provision of the mortgage deeds regarding
"after acquired properties", the Bank requested DALCO to
submit complete list of the said properties but DALCO refused
 lOMoARcPSD|5911403

to do so.

Issue:
nk to petitioners.- The bank responded and said that petitioners were notified of the auction sale by the posting of notices and the publication of notice in the Metropolitan Newsweek, a n
Whether or not the "after acquired properties" were subject to
hat the foreclosure was the violative
deed of mortgage.
of the provisions of the mortgage contract, specifically paragraph (k) thereof which provides:
Held:
ct of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and the fact that any communication is not a
Yes, they are subject to the deeds of mortgage.
act and that
Article 415 of the Civil Code does not define real property but
enumerates what are considered as such, among them being
machinery, receptacles, instruments or replacements intended
by owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land, and shall tend
directly to meet the needs of the said industry or works.

The chattels or the "after acquired properties" were placed in

the real properties mortgaged to the Bank. They came within
the operation of Article 145.

Hence, the "after acquired properties" were subject to the deed

of mortgage.

ebruary 7, 1991

Court of Valenzuela, Metro Manila for annulment and/or declaration of nullity of the extrajudicial foreclosure proceedings over their mortgaged properties, with damages,

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the mortgagee was appointed atty-in-fact with full powers upon any breach of the obligations in the contract.- The RTC issued an order denying petitioners' motion for summ

Issue:

Whether or not summary judgment was proper

HELD:

YES. The Rules of Court authorize the renditi on of a summary judgmenti f the pleadings, depositions and admissions on file, together with the affidavit

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 lOMoARcPSD|5911403

matter of law that there is no defense to the action or that the claim is clearly meritorious.

Reasoning
Private respondent tacitly admitted in its answer to petitioners' request for admission that it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and a
illusory Art. 1306. And as the record is bereft of any evidence which even impliedly indicatethat the
required notice of the extrajudicial foreclosure was ev
er sent to the debtor mortgag or, the extrajudicial foreclosure proceedings on the property in question are fatally defective and are not binding on the debtor-mo

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 lOMoARcPSD|5911403

MANUEL D. MEDIDA, Deputy Sheriff of the Province of

Cebu, CITY SAVINGS BANK (formerly Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA, petitioners, vs. COURT OF APPEALS and SPS. ANDRES DOLINO and

Facts:
Private respondents, Spouses Dolino, alarmed of losing their right of redemption over thesubject parcel of land from Juan Gandiocho, purchaser of the aforesaid l
Association, Inc.), to obtain a loan of P30, 000. Prior thereto, their son Teofredo filed a similar loan application and the subject lot was offered as security. Subseq

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 lOMoARcPSD|5911403

CSB. Sps. Dolino then filed a case to annul the sale at public auction and for the cancel

Issue:
Whether or not a mortgage, whose property has been extrajudicially foreclosed and s

Held:
It is undisputed that the real estate mortgage in favor of petitioner bank was executed

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Article. 2085 of the Civil Code for the constitution of another
mortgage on the property. To hold otherwise would create an inequitable situation
FACTS:
SpousesSuico,obtainedloanfromPNBsecuredbyareal
estatemortgageonfiveoftheirproperties.Thepetitioners were
unable to pay theirobligation.
PNB filed a petition for extrajudicial foreclosure of
mortgageconstituted on the petitioners’ properties.
PNB,as lonebidder, offered a bid in the amount of P8,
511,000.00. A Certificate of Sale of the subject properties
was issued in favor of PNB. However, PNB did not pay to the
Sheriff who conducted the
auctionsaletheamountofitsbidwhichwasP8,511,000.00or give an
accounting of how said amount was applied againstpetitioners’
outstanding loan, which according to thepetitioners, as of 10
March 1992, amounted only to
P1,991,770.38.Sincetheamountofthebidgrosslyexceededthe
amount of petitioners’ outstanding obligation as stated in the
extrajudicial foreclosure of mortgage, it was the legal duty of
the winning bidder, PNB, to deliver to the Sheriff the bid price
or what was left thereof after deducting the amount
ofpetitioners’ outstandingobligation.
PNBfailedtodelivertheamountoftheirbidtotheSheriffor,atthe very
least, the amount of such bid in excess of petitioners’ outstanding
obligation. One year after issuanceofthe Certificate of Sale,
PNB secured a Certificate of Final Sale
fromtheSheriffand,asaresult,PNBtransferredregistration
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lOMoARcPSD|5911403
of all the subject properties to its name. The petitioners
thereafterwherein
filed a the
Complaint
mortgagor against
wouldthe PNB before
be deprived theopportunity,
of the RTC of which may be h
Mandaue City for Declaration of Nullity of Extrajudicial
Foreclosure of Mortgage.
RTC rendered its Decision for declaration of nullity of the
extrajudicial foreclosure of mortgage, the certificate of sale and
certificate of finality of sale owing to the failure of PNB as the
winning bidder to GR deliver to the petitioners the amount of its
170215
bidor even just the amount
SUICO v. in excess of petitioners’ obligation.
PNB
When the PNB appealed its case to CA, it reversed and set
aside the questioned decision of the RTC declaring that the
extra judicial foreclosure of mortgage, including the certificate
of sale and final deed of sale executed appurtenant thereto are
hereby declared to be valid and binding.
Petitioners filed a Motion for Reconsideration but the Court of
Appeals maintained the validity of the foreclosure sale and, in
its Amended Decision, merely directing PNB to pay the
deficiency in the filing fees
ISSUES:
1. WoN the discrepancy between the amount of
petitioners’obligationasreflectedintheNoticeofSaleandtheamoun
t actuallydueandcollectedfromthepetitionersatthetimeof the
auction sale constitute fraud which renders the
extrajudicialforeclosuresalenullandvoid.
2. WoNthefailureofPNBtopayandtenderthepriceofitsbid or the
surplus thereof to the sheriff nullifies the extrajudicial foreclosure.
HELD:
1.No.
 lOMoARcPSD|5911403
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.
The purpose of the publication of the Notice of Sheriff’s Sale is to
inform all interested parties of the date, time and place of
theforeclosuresaleoftherealpropertysubjectthereof.
Logically, this not only requires that the correct date, time and
place of the foreclosure sale appear in the notice, but also that
any and all interested parties be able to determine that what is
about to be sold at the foreclosure sale is the real property in
which they have an interest.
All these considered, the Court held that the Notice of Sale in
this case is valid. There is no showing that the difference
between the amount stated in the Notice of Sale and
theamount of PNB’s bid resulted in discouraging or
misleadingbidders, depreciated the value of the property or
prevented it from commanding a fair price.
2.No.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized
fromtheforeclosuresaleofthemortgagedpropertyshall,after deducting
the costs of the sale, be paid to the person foreclosing the mortgage,
and when there shall be any
balanceorresidue,afterpayingoffthemortgagedebtdue,the same shall
be paid to junior encumbrancers in the order of
theirpriority,tobeascertainedbythecourt,oriftherebeno
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such encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly authorized
agent, or to the person entitled to it.
Under the above rule, the disposition of the proceeds of the
sale in foreclosure shall be as follows:
(a)first,paythecosts(b)secondly,payoffthemortgagedebt
(c)thirdly,paythejuniorencumbrancers,ifanyintheorderof priority (d)
fourthly, give the balance to the mortgagor, his agent or the person
entitled toit.
The application of the proceeds from the sale of the
mortgaged property to the mortgagor's obligation is an act of
payment, not payment by dacion; hence, it is the mortgagee's
dutytoreturnanysurplusinthesellingpricetothemortgagor. Perforce, a
mortgagee who exercises the power of sale contained in a mortgage
is considered a custodian of the fund and, being bound to apply it
properly, is liable to the persons
entitledtheretoifhefailstodoso.Eventhoughthemortgagee is not
strictly considered a trustee in a purely equitable sense, but as far as
concerns the unconsumed balance, the mortgagee is deemed a
trustee for the mortgagor or owner of the equity ofredemption.
Thus it has been held that if the mortgagee is retaining more of
the proceeds of the sale than he is entitled to, this fact alone
will not affect the validity of the sale but simply give the
mortgagor a cause of action to recover such surplus.
GR 176019
BPI FAMILY SAVINGS BANK v. GOLDEN POWER DIESEL SALES
FACTS:
 lOMoARcPSD|5911403
CEDECTransport,Inc.mortgaged2parcelsoflandsituatedin
Malibay,PasayCity,includingalltheimprovementsthereon,in favor of BPI
Family to secure a loan of P6, 570, 000. On the same day, mortgage
was duly annotated on titles. CEDEC obtained from BPI Family
additional loans of P2, 160, 000 and P1, 140, 000, respectively, and
again mortgaged same
properties.Theselattermortgagesweredulyannotatedonthe
titlesrespectively,onthesamedaytheloanswereobtained.
Despite demand, CEDEC defaulted in its mortgage
obligations. BPI Family filed a verified petition for extrajudicial
foreclosure of real estate mortgage over the properties. After
due notice and publication, Sheriff sold the properties at public
auction. BPI Family, as highest bidder, acquired properties
forP13, 793, 705.31. Certificate of Sheriff’s sale was then
dulyannotated on titles covering properties.
Despite several demand letters, CEDEC refused to vacate
properties and to surrender possession to BPI Family. BPI
Family filed an ex-parte petition for writ of possession over the
properties which were granted by the trial court. Then, Golden
Power Diesel (GPD) and Renato Tan motioned to hold the
implementation of writ alleging that they are in possession of
the properties as allegedly acquired from CEDEC pursuant to
a deed of absolute sale.
GPD argued that they are 3rd persons claiming rights adverse
to CEDEC and cannot be deprived of possession over
properties. Also, they filed a complaint in RTC for
cancellationof Sheriff’s certificate sale and an order to direct BPI
to honor and accept the deed of sale between CEDEC and
respondents. RTC however, denied the motion. An alias writ
wasthenissuedwhichexpiredwithoutbeingimplementedand another
one was later issued but before it could be
implemented,RenatoTanfiledanaffidavitof3rd partyclaimon
properties.Insteadofimplementingthewrit,Sherifftransferred
themattertoRTCforresolution.RTCsuspendedthe
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implementation saying that it should not affect 3rd persons
holdingadverserightstothejudgmentthatthefirstwritfailedto
consider respondent’s claim of ownership in another
courtandthatrespondentsareinactualpossession.
BPI moved to reconsider but was denied which was then
affirmed by CA. Hence, present petition.
ISSUE:
1.Whetherornot GPD is a3rd partyin possession who
hasadverseinterestagainstdebtorormortgagor
HELD:
No.
In extrajudicial foreclosures of real estate mortgages, the
issuance of a writ of possession is governed by Section 7 of
Act No. 3135. This procedure may also be availed of by the
purchaser seeking possession of the foreclosed property
bought at the public auction sale after the redemption period
has expired without redemption having been made.
The general rule is that a purchaser in a public auction sale of
a foreclosed property is entitled to a writ of possession and,
upon an ex parte petition of the purchaser, it is ministerial
upon the trial court to issue the writ of possession in favor of
the purchaser. There is, however, an exception. In an
extrajudicial foreclosure of real property, when the foreclosed
property is in the possession of a third party holding the
same adversely to the judgment obligor, the issuance by the
trial court of a writ of possession in favor of the purchaser of
saidrealpropertyceasestobeministerialandmaynolonger
bedoneexparte.Theprocedureisforthetrialcourttoorder
ahearingtodeterminethenatureoftheadversepossession. For the
exception to apply, however, the property need not only be possessed
by a third party, but also held by the third
partyadverselytojudgmentobligor.Unfortunately,forthe

favor of the BPI FAMILY.”
instruments and does hereby further agree to be bound by the precise terms and conditions therein contained.”
CEDEC, they merely stepped into CEDEC’s shoes and are bound to acknowledge and respect the mortgage
G.R. No. 200667
Rural Bank of Sta. Barbara v. Centeno
Facts:
SpousesGregorioandRosarioCenteno(Sps.Centeno)were
previous owners of the subject lots. During that time, they
mortgagedtheforegoingpropertiesinfavorofpetitionerRural
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lOMoARcPSD|5911403
Bank of Sta. Barbara (Iloilo), Inc. as security for a P1,753.65
loan. Sps. Centeno, however, defaulted on the loan, prompting
petitioner to cause the extrajudicial foreclosure of the said
mortgage. Consequently, the subject lots were sold to
petitioner being the highest bidder at the auction sale. On
October 10, 1969, it obtained a Certificate of Sale at Public
Auction[4]which was later registered with the Register of Deeds
CEDEC
of Iloilo City on had executed
December in 1971.
13, favor of
[5] BPI Family. Respondents are thesuccessors-in-
Sps. Centeno failed to redeem the subject lots within the one
(1) year redemption period pursuant to Section 6[6] of Act No.
3135.[7]Nonetheless, they still continued with the possession
and cultivation of the aforesaid properties. Sometime in 1983,
respondent Gerry Centeno, son of Sps. Centeno, took over the
cultivation of the same. On March 14, 1988, he purchased the
said lots from his parents. Accordingly, Rosario Centeno paid
the capital gains taxes on the sale transaction and tax
declarations were eventually issued in the name of
respondent.[8] While the latter was in possession of the subject
lots, petitioner secured on November 25, 1997 a Final Deed of
Sale thereof and in 1998, was able to obtain the corresponding
tax declarations in its name.[9]
On March 19, 1998, petitioner filed a petition for the issuance
of a writ of possession before the RTC, claiming entitlement to
the said writ by virtue of the Final Deed of Sale covering the
subject lots.[10] Respondent opposed the petition, asserting
that he purchased and has, in fact, been in actual, open and
exclusive possession of the same properties for at least fifteen
(15) years.[11] He further averred that the foreclosure sale was
null and void owing to the forged signatures in the real estate
the mortgage. Moreover, he claims that petitioner's rights over the
subject lots had already prescribed.[12]
 lOMoARcPSD|5911403
Ruling of the RTC
On October 8, 2002, the RTC rendered its Decision[13] in
Cadastral Case No. 98-069, finding petitioner to be the lawful
ownerofthesubjectlotswhoserightsbecameabsolutedueto
respondent's failure to redeem the same. Consequently, it found the
issuance of a writ of possession ministerial on its part.
[14]
Dissatisfied,respondentappealedtotheCA.
Ruling of the CA
The CA, through its January 31, 2012 Decision,[15] reversed
the RTC and ruled against the issuance of a writ of
possession. It considered respondent as a third party who is
actually holding the property adverse to the judgment obligor
and as such, has the right to ventilate his claims in a proper
judicial proceeding i.e., an ejectment suit or reinvindicatory
action.[16]Aggrieved, petitioner filed the instant petition.
Issue Before The Court
The sole issue in this case is whether or not petitioner is
entitled to a writ of possession over the subject lots.
The Court's Ruling
The petition is meritorious.
It is well-established that after consolidation of title in the
purchaser's name for failure of the mortgagor to redeem the
property, the purchaser's right to possession ripens into the
absoluterightofaconfirmedowner.Atthatpoint,theissuance
ofawritofpossession,uponproperapplicationandproofof
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title, to a purchaser in an extrajudicial foreclosure sale
becomes merely a ministerial function,[17] unless it appears
that the property is in possession of a third party claiming a
right adverse to that of the mortgagor. [18] The foregoing rule is
contained in Section 33, Rule 39 of the Rules of Court which
partly provides:
Sec.33.Deedandpossessiontobegivenatexpirationofredemption
period; by whom executed orgiven.
xxxx
Upontheexpirationoftherightofredemption,thepurchaserorredemptionershallb
esubstitutedtoandacquirealltherights,title,interestandclaimofthejudgmento
bligortothepropertyasofthetimeofthelevy.Thepossessionofthe
property shall be given to the purchaser or last redemptioner by
the same officer unless a third party is actually holding the
property adversely to the judgment
obligor. (Emphasisandunderscoringsupplied)
InChina Banking Corporation v. Lozada,[19] the Court held that
thephrase"athirdpartywhoisactuallyholdingtheproperty
adverselytothejudgmentobligor"contemplatesasituationin
whichathirdpartyholdsthepropertybyadversetitleorright, such as that of a co-
owner, tenant or usufructuary. The co- owner, agricultural tenant, and
usufructuary possess the property in their own right, and they arenot
merely the successor or transferee of the right of
possession of anotherco-ownerortheowneroftheproperty.
[20]
Notably,thepropertyshouldnotonlybepossessedbyathirdparty,butalsoheld
bythethirdpartyadversely to the judgmentobligor.[21]
 lOMoARcPSD|5911403
In this case, respondent acquired the subject lots from his
parents,Sps.Centeno,onMarch14,1988aftertheywere
purchasedbypetitioneranditsCertificateofSaleatPublic
Auction was registered with the Register of Deeds of Iloilo City
in 1971. It cannot therefore be disputed that respondent is a
mere successor-in-interest of Sps. Centeno. Consequently, he
cannot be deemed as a "third party who is actually holding the
property adversely to the judgment obligor" under legal
contemplation. Hence, the RTC had the ministerial duty to
issue as it did issue the said writ in petitioner's favor.
On the issue regarding the identity of the lots as raised by
respondentinhisComment,[22] recordsshowthattheRTChad already
passed upon petitioner's title over the subject lots during the course of
the proceedings. Accordingly, the identity of the said lots had already
been established for the purpose of issuing a writ of possession. It is
hornbook principle that absent any clear showing of abuse,
arbitrariness or capriciousnesscommittedby the lower court, its
findings of facts are binding and conclusive upon theCourt,
[23]
asin thiscase.
Finally, anent the issue of laches, it must be maintained that
the instant case only revolves around the issuance of a writ of
possession which is merely ministerial on the RTC's part as
above-explained. As such, all defenses which respondent may
raise including that of laches should be ventilated through a
proper proceeding.
WHEREFORE, the petition isGRANTED. The January 31,
2012DecisionoftheCebuCityCourtofAppealsinCA-G.R.
CVNo.78398isREVERSED andSETASIDE. Accordingly,
theOctober8,2002DecisionoftheRegionalTrialCourtof
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Barotac Viejo, Iloilo City, Branch 66 in Cadastral Case No. 98-
069 is herebyREINSTATED. SO ORDERED.
March 13, 2013
GOLDENWAY MERCHANDISING CORPORATION VS EQUITABLE PCI BANK
DOCTRINE: Section 47 did not divest juridical persons of
the right to redeem their foreclosed properties but only
modified the time for the exercise of such right by
reducing the one-year period srcinally provided in Act No.
3135. The new redemption period commences from the
date of foreclosure sale, and expires upon registration of
the certificate of sale or three months after foreclosure,
whichever is earlier. There is likewise no retroactive
applicationofthenewredemptionperiodbecauseSection
47exemptsfromitsoperationthosepropertiesforeclosed prior to its
effectivity and whose owners shall retain their redemption rights
under Act No.3135.
FACTS:
On November 29, 1985, petitioner Goldenway Merchandising
Corporation executed a Real Estate Mortgage in favour of
Equitable PCI Bank over three parcels of land as security for a
Php2,000,000 loan granted to the petitioner. Petitioner
eventually failed to settles its loan obligation, leading
respondent to extrajudicially foreclose the mortgage on
December 13, 2000. Subsequently, a Certificate of Sale was
issued to respondent on January 26, 2001. In a letter dated
March 7, 2001, petitioner offered to redeem the foreclosed
properties by tendering a check. Petitioner and respondent
met on March 12, 2001. However, petitioner was told that
redemption was no longer
 lOMoARcPSD|5911403
possible since the certificate of sale had already been
registered; the title to the foreclosed properties were
consolidated in favor of the respondent on March 9, 2001.
Petitioner filed a complaint for specific performance and
damages contending that the 1-year period of redemption
under Act 3135 should apply, and not the shorter redemption
periodunderRA8791asapplyingRA8791wouldresultinthe
impairment of obligations of contracts and would violate the equal
protection clause underthe
constitution. The RTC dismissed the action of the petitioner
ruling that redemption was made belatedly and that there was
no redemption made at all.
The Court of Appeals affirmed the RTC.
ISSUE:
Whether or not the redemption period should be the 1-year
period provided under Act 3135, and not the shorter period
under RA 8791 as the parties expressly agreed that
foreclosure would be in accordance with Act 3135
RULING:
The shorter period under RA 8791 should apply.
The one-year period of redemption is counted from the date of
the registration of the certificate of sale. In this case, the
parties provided in their real estate mortgage contract
thatupon petitioner’s default and the latter’s entire loan
obligationbecoming due, respondent may immediately
foreclose the mortgage judicially in accordance with the Rules
of Court, or extrajudicially in accordance with Act No. 3135, as
amended.
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But under Sec 47 of RA 8791, an exception is thus made in
the case of juridical persons which are allowed to exercise the
right of redemption only "until, but not after, the registration of
the certificate of foreclosure sale" and in no case more than
three (3) months after foreclosure, whichever comes first.
Section 47 did not divest juridical persons of the right to
redeem their foreclosed properties but only modified the time
for the exercise of such right by reducing the one-year period
srcinally provided in Act No. 3135. The new redemption period
commences from the date of foreclosure sale, and expires
upon registration of the certificate of sale or three months after
foreclosure, whichever is earlier. There is likewise no
retroactive application of the new redemption period because
Section 47 exempts from its operation those properties
foreclosed prior to its effectivity and whose owners shall retain
their redemption rights under Act No. 3135.
We agree with the CA that the legislature clearly intended to
shorten the period of redemption for juridical persons whose
properties were foreclosed and sold in accordance with the
provisions of Act No. 3135.
The difference in the treatment of juridical persons and natural
persons was based on the nature of the properties foreclosed
– whether these are used as residence, for which the more
liberal one-year redemption period is retained, or used for
industrial or commercial purposes, in which case a shorter
term is deemed necessary to reduce the period of uncertainty
in the ownership of property and enable mortgagee-banks to
dispose sooner of these acquired assets. It must be
underscored that the General Banking Law of 2000, crafted in
the aftermath of the 1997 Southeast Asian financial crisis,
sought to reform the General Banking Act of 1949 by
 lOMoARcPSD|5911403
fashioning a legal framework for maintaining a safe and sound
banking system. In this context, the amendment introduced by
Section 47 embodied one of such safe and sound practices
aimed at ensuring the solvency and liquidity of our banks. It
cannot therefore be disputed that the said provision amending
the redemption period in Act 3135 was based on a reasonable
classification and germane to the purpose of the law.
Therightofredemptionbeingstatutory,itmustbeexercisedin the
manner prescribed by the statute, and within the
prescribedtimelimit,tomakeiteffective.Furthermore,aswith other
individual rights to contract has to give way to police power exercised
for public welfare and to property, if the concept of police power is
well-established in this jurisdiction. It has been defined as the "state
authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare." Its scope, ever-
expanding to meet the exigencies of the times, even to anticipate the
future where it could be done, provides enough room for an efficient
and flexible response to conditions andcircumstancesthus
assuming the greatestbenefits.
The freedom to contract is not absolute; all contracts and all
rights are subject to the police power of the State and not only
mayregulationswhichaffectthembeestablishedbytheState,
butallsuchregulationsmustbesubjecttochangefromtimeto time, as
the general well-being of the community may require, or as the
circumstances may change, or as experience may demonstrate the
necessity. Settled is the rule that the non- impairment clause of the
Constitution must yield to the loftier purposes targeted by the
Government. The right granted by this provision must submit to the
demands and necessities ofthe State’s power of regulation. Such
authority to regulate
businessesextendstothebankingindustrywhich,asthis
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Court has time and again emphasized, is undeniably imbued
with public interest.
Having ruled that the assailed Section 47 of R.A. No. 8791 is
constitutional, we find no reversible error committed by the CA
in holding that petitioner can no longer exercise the right of
redemption over its foreclosed properties after the certificate of
sale in favor of respondent had been registered.
G.R. No. L-15128
Diego v Fernando
DOCTRINE:
If a contract of loan with security does not stipulate the
payment of interest but provides for the delivery to the creditor
by the debtor of the property given as security, in order that
the latter may gather its fruits, without stating that said fruits
are to be applied to the payment of interest, if any, and
afterwards that of the principal, the contract is a mortgage and
not antichresis.
FACTS:
The defendant Segundo Fernando executed a deed of
mortgage in favor of plaintiff Cecilio Diego over 2 parcels of
land registered in his name, to secure a loan P2,000, without
interest, payable within 4 years. After the execution,
possession of the mortgaged properties were turned over to
the mortagagee.
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Fernando failed to pay after four years, with Diego having
made several demands. Hence this action for foreclosure of
mortgage.
Fernando claims that the transaction was one of antichresis
andnotofmortgage.AlsoDiegohadallegedlyreceivedatotal of 120
cavans of palay from the properties given as security, which, at the
rate of P10 a cavan, represented a value of
P5,200.Hencehisdebthadalreadybeenpaid,withDiegostill owing him
a refund of someP2,720.
The CFI found that it was really a mortgage and that the fact
that possession of the mortgaged properties were turned over
to the mortgagee did not alter the transaction. The parties
musthaveintendedthatthemortgageewouldcollectthefruits of the
mortgaged properties as interest on his loan, which
agreementisnotuncommon.AlsoDiegohasalreadyreceived 55
cavans of palay during his possession. Hence the CFI ordered
Fernando to pay Diego 2K with interest and upon
default,fortheforeclosure.Hencethisappeal.
ISSUE: W/ the contract between Diego and Fernando is
mortgage or antichresis considering that the loan was without
interest, coupled with the transfer of the possession of the
properties mortgaged to the mortgagee.
HELD: considered as a mortgage contract between the
parties.
To be antichresis, it must be expressly agreed between
creditor and debtor that the former, having been given
possession of the properties given as security, is to apply their
fruits to the payment of the interest, if owing, and thereafter to
the principal of his credit.[READ DOCTRINE].
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Diego is a mortgagee in possession, one who has lawfully
acquired possession of the premises mortgaged to him,
standing upon his rights as mortgagee and not claiming under
another title, for the purpose of enforcing his security upon
such property or making its income help to pay his debt.
A mortgagee in possession and a creditor in an antichresis
have the following similar or identical rights and obligations:
if the mortgagee acquires possession in any lawful manner, he
is entitled to retain such possession until the indebtedness is
satisfied and the property redeemed;
the non-payment of the debt within the term agreed does not
vest the ownership of the property in the creditor;
the general duty of the mortgagee in possession towards the
premises is that of the ordinary prudent owner;
the mortgagee must account for the rents and profits of the
land, or its value for purposes of use and occupation, any
amount thus realized going towards the discharge on the
mortgage debt;
ifthemortgageremainsinpossessionafterthemortgagedebt
hasbeensatisfied,hebecomesatrusteeforthemortgagoras
totheexcessoftherentsandprofitsoversuchdebt;
the mortgagor can only enforce his rights to the land by an
equitable action for an account and to redeem.
SinceFernandodidnotexpresslywaivehisrighttothefruitsofthe
properties mortgaged during the time they were in
Diego’spossession, the latter, like an antichretic creditor, must
account for the value of the fruits received by him, and deduct
itfromtheloanobtainedbyappellant.
In this case, Diego had received a net share of 55 cavans of
palay; at the rate of P9.00 per cavan, the total value of the
fruits received by Diego is P495. Deducting this amount from
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the loan of P2,000.00 received by Fernando from Diego, the
former has only P1,505.00 left to pay the latter.
WHEREFORE, the CFI judgement is MODIFIED in that
Fernando is ordered to pay P1,505 and that Diego has the
obligation to render an accounting of all the fruits received by
him from the properties in question from the time of the filing of
this action until full payment, or in case of appellant's failure to
pay, until foreclosure of the mortgage thereon, the value of
which fruits shall be deducted from the total amount of his
recovery.
G.R. No. L-9957 August 8, 1916
PERFECTO DE LA VEGA, ET AL., plaintiffs-appellees,
vs. TOMAS BALLILOS (or BALIELOS), defendant- appellant.
Facts:
Petitioners are co-owners (pro-indiviso share) of eight parcels
of land in Batangas. One of them, Fidel dela Vega, mortgaged
three of the properties to defendant Ballilos for P430. The
relevant provisions of their contract as follows:
“ and whereas on this day I have mortgaged the two
parcels of land above-mentioned to the said D. Tomas Ballilos
for the sum of P430 and for the term of eight years, counting
from this day, at the expiration of which I may redeem them;
thatshouldInotthendoso,thesaidlandsshallcontinuetobe
mortgaged until I have the money available wherewith
the redeem them; therefore, I hereby mortgage the two
parcels of land hereinabove mentioned to D. Tomas
Ballilos for thes a i d
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sum of P430, which I have received from him in current coin,
and as the same was not received in our presence, we waive
the exception of money not paid in cash; therefore, henceforth
and during the period above stipulated, I grant and convey my
ownership and possession in the said two parcels of land to
the said D. Tomas Ballilos in order that he may manage and
enjoy the same in consideration of the sum for which they are
mortgaged.
There being present D.TomasBallilos..........., he stated thathe
had received in mortgage, to his entire satisfaction, the two
parcels of tillable land above mentioned, under the conditions
and for the time stipulated, for the sum of P430, which he has
already delivered to the said D. Fidel de a Vega, who in turn
states that the said lands are free of all charges and
encumbrances and binds himself to warrant this mortgage
incase of legal proceedings.” (These provisions will be material
in the rendition ofjudgment)
In essence, it alleges that the agreement was one of
antichresis constituted until the borrowed sum is paid in full.
In the following year, 1905, the plaintiffs (save for Policarpio
dele Vega) borrowed in succession P40, P18, and P60 from
the respondent under the same contract of antichresis. They
gave three more properties as security from which he is to
collect the interest.
The plaintiffs then attempted to pay off their loans (in the total
amount of P548) in order to reacquire the said parcels of land.
The defendant refused to receive the sums and appropriated
to himself the parcels of land.
During the trial in the lower court, defendant alleged, among
other things, that:
The parcels of land in question as these were validly sold to
him by the co-owners dela Vega;
There was no period specified for the right of repurchase
agreed upon;
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When the co-owners failed to repurchase within the legal
period,ownershipofthepropertieswasconsolidatedinhimby
operation oflaw;
ISSUE:
Whether or not there was a contract of Antichresis. (Yes)
HELD:
First topic: Instrument neither a Real Mortgage nor a Sale
Pacto de Retro(Academic)
The said contract apparently records a loan of P430, secured
by a mortgage of the aforementioned two parcels of land and
payable within the period of eight years, or within such time as
the debtor Fidel de la Vega might be able to pay his debt and
redeem the said land. However, notwithstanding the terms of
the document, legally there is no mortgage inasmuch as the
said instrument is not of the nature of a public instrument. And
even though it were, it was not recorded in the property
registry as it ought to have been. Furthermore, the instrument
recites that the debtor thenceforth ceded and conveyed his
ownership and possession in the said two parcels of land to
the creditor Ballilos in order that Ballilos might manage and
enjoy the same in consideration of the sum for which the
lands, free of all burden and encumbrance according to the
debtor, were mortgaged.
If the instrument above mentioned cannot be construed as a
mortgage of the said two parcels of land in security for P430,
the amount loaned, and for the payment of the debt within
eight years or some other period, neither can it be held to be a
sale under pacto de retro inasmuch as the said document
contains no mention whatever of any sale with right of
redemption, although it does say that the debtor ceded and
conveyed to the creditor the ownership and possession of the
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lands in order that he might manage and enjoy them in
consideration of the sum for which they were mortgaged.
Second Topic: Instrument is a Contract of Antichresis
(Main Point of the Case)
As it is not shown that the said document is a contract of
mortgage executed as security for a loan, still less does it
appear to be a contract of pacto de retro, in view of the terms
of the agreement Exhibit O, as stipulated between the
contracting parties, of the allegations of both parties, and of
the findings of the court in regard to the allegations, made and
proven at the trial by the contending parties, we find the
classification of the said contract as one of antichresis to be
correct and proper, taking into account the intention of the
contracting parties as revealed by the words and terms
employed by them and recorded in the said document.
Several articles of the Civil Code relating to the contract of
antichresis. (The court cited Old Civil Code provisions, A1881,
-83, -84, and -85 – Now NCC A2132, -36, -37, and -38; These
are the elements of a contract of Antichresis)
1.By antichresis a creditoracquiresa right to receive the
fruits of real property of his debtor, with the obligation
to apply them to the payment of interest, if due, and
afterwards to the principal ofhiscredit.
2.The debtor cannotrecovertheenjoymentof the real
property without previously paying in full what he owes
to his creditor. But the latter, in order to free himself
from the obligations imposed on him by the preceding
article, may always compel the debtor to reenter upon
the enjoyment of the estate, unless there be an
agreement to thecontrary.
3.The creditordoesnot acquire the ownership of the real
property by nonpayment of the debt within the term
agreedu p o n . A n y s t i p u l a t i o n t o t h e c o n t r a r y s h a l l
be
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void. But in this case the creditor may demand, in the recovery of the enjoyment of immovables given in antichresis,
manner prescribed in the law of civil procedure, the provided that the debtor previously pay what he owes to this
payment of the debtor or the sale of the reality. creditor, the plaintiffs have an unquestionable right to recover
4.The contractingpartiesmay stipulate that the interest of parcels Nos. 1, 5, and 7 of the land designated in the map or
the debt be set off against the fruits of the estate given planadmittedbyagreementoftheparties,afterfirstpayingthe debt of
inantichresis. P430 to thedefendant-creditor.
This contract is somewhat similar to those of pledge and
mortgage and for this reason article 1886 (now 2139)
prescribed that certain articles relative to these latter contracts
are applicable to contracts of antichresis, for both the former
andthelattercontractsarecomprisedintitle15,book4,ofthe Civil Code.
(Still applicable. Specific article numbers just changed)

The contract entered into by the contracting parties which has

produced between them rights and obligations is in fact one of
antichresis,forarticle1281oftheCivilCodeprescribesamong other
things that if the words should appear to conflict with the
evidentintentofthecontractingparties,theintentshallprevail.
Article 1283 provides that however general the terms of the
contract may be, they should not be understood to include
things and cases different from those with regard to which the
interested parties intended to contract; and, further, article
1284ofthesamecodesaysthatifanystipulationofacontract should
admit of several different meanings, that most suitable to give it effect
should beapplied.

In this case, it was stipulated that even after eight years the
debtor, the owner of the property, might redeem it whenever
he should have the means to pay his debt and recover the
landsgiveninantichresistohiscreditorwhomighttoldthemin usufruct in
consideration for the money he had loaned; and as
thef o r e g o i n g a r t i c l e s o f t h e C i v i l C o d e f i x e s n o t e r m f o r t
he

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