051 PAMECA Wood Treatment Plant, Inc. V. CA the case. Section 14 of Act No.

1508, as amended, or the Chattel

G.R. No. 106435 July 14, 1999 Mortgage Law, states:
TOPIC: Foreclosure of Chattel Mortgage; Right to Surplus or Deficiency, Act.
No 1508, Sec. 14 The officer making the sale shall, within thirty days thereafter, make in writing a
PONENTE: Gonzaga-Reyes, J. return of his doings and file the same in the office of the Registry of Deeds
where the mortgage is recorded, and the Register of Deeds shall record the
FACTS: same.... The return shall particularly describe the articles sold, and state the
1. April 17, 1980: Petitioner PAMECA obtained a loan equivalent to P2M amount received for each article, and shall operate as a discharge of the lien
from respondent DBP Bank. So, PAMECA, through its President thereon created by the mortgage. The proceeds of such sale shall be applied
executed a promissory note and as security for said loan, a chattel to the payment, first, of the costs and expenses of keeping and sale, and then
mortgage was executed over PAMECA’s furniture and equipment to to the payment of the demand or obligation secured by such mortgage, and
cover the whole value of the loan. the residue shall be paid to persons holding subsequent mortgages in their
2. PAMECA Failed to pay and respondent bank extrajudicially order, and the balance, after paying the mortgage, shall be paid to the
foreclosed the chattel mortgage, and as sole bidder in the public mortgagor or persons holding under him on demand.” (Emphasis supplied)
auction, purchased the foreclosed properties for a sum of
P322,350.00 It is clear from the above provision that the effects of foreclosure under the
3. Respondent bank filed a complaint for the collection of the balance Chattel Mortgage Law run inconsistent with those of pledge under Article
of P4,366,332 against PAMECA and private petitioners, as solidary 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire
debtors with PAMECA under the promissory note. principal obligation, such that the pledgor may no longer recover proceeds of
the sale in excess of the amount of the principal obligation, Section 14 of the
4. RTC: ordered the defendants to pay jointly and severally to the
Chattel Mortgage Law expressly entitles the mortgagor to the balance of the
plaintiff the sum of P4,366,332
proceeds, upon satisfaction of the principal obligation and costs.
5. CA: affirmed the RTC decision.
6. Petitioner’s contention: 3. Since the Chattel Mortgage Law bars the creditor-mortgagee from
 that P322,350.00 at which respondent bank bid for and purchased the retaining the excess of the sale proceeds there is a corollary obligation
mortgaged properties was unconscionable and inequitable considering on the part of the debtor-mortgagee to pay the deficiency in case of a
that, at the time of the public sale, the mortgaged properties had a total reduction in the price at public auction.
value of more than P2,000,000.00 and this is evident from an inventory 4. Having nonetheless examined the inventory and chattel mortgage
dated March 31, 1980. document as part of the records, We are not convinced that they
 to hold private petitioners, officers and stockholders of PAMECA, liable effectively prove that the mortgaged properties had a market value of
with PAMECA for the obligation under the loan obtained from at least P2,000,000.00 on January 18, 1984, the date of the foreclosure
respondent bank, is contrary to the doctrine of separate and distinct sale. At best, the chattel mortgage contract only indicates the
corporate personality obligation of the mortgagor to maintain the inventory at a value of at
invoking the equity jurisdiction of the SC, petitioners submit that Articles 1484 least P2,000,000.00, but does not evidence compliance therewith.
and 2115 of the Civil Code be applied in analogy to the instant case to 5. The mere fact that respondent bank was the sole bidder for the
preclude the recovery of a deficiency claim mortgaged properties in the public sale does not warrant the conclusion
ISSUE: that the transaction was attended with fraud. Fraud is a serious
WON the public auction sale of petitioner PAMECA’s chattels were tainted allegation that requires full and convincing evidence, and may not be
with fraud, as the chattels of the said petitioner were bought by private inferred from the lone circumstance that it was only respondent bank
respondent as sole bidder in only 1/6 of the market value of the property, that bid in the sale of the foreclosed properties
hence unconscionable and inequitable, and therefore null and void –No. We likewise affirm private petitioners’ joint and several liability with petitioner
corporation in the loan. As found by the trial court and the Court of Appeals,
RATIO: the terms of the promissory note unmistakably set forth the solidary nature of
1. This Court reversed the ruling of the lower court and held that the private petitioners’ commitment
provisions of the Chattel Mortgage Law regarding the effects of
foreclosure of chattel mortgage, being contrary to the provisions of CASE LAW/ DOCTRINE:
Article 2115, Article 2115 in relation to Article 2141, may not be applied to The effects of foreclosure under the Chattel Mortgage Law run inconsistent
with those of pledge under Article 2115. Whereas, in pledge, the sale of the
thing pledged extinguishes the entire principal obligation, such that the  “blanket mortgage clause” (meaning can be found at the doctrine
pledgor may no longer recover proceeds of the sale in excess of the amount part) relied upon by the Bank applies only to future loans obtained
of the principal obligation, Section 14 of the Chattel Mortgage Law expressly by the mortgagors and not by the parties other than the mortgagors.
entitles the mortgagor to the balance of the proceeds, upon satisfaction of 10. CA:affirmed the order of the RTC
the principal obligation and costs. Parties executed different promissory notes agreeing to a particular security
for each loan
052 Prudential Bank v. Alviar & Alviar
G.R. No. 150197 July 28, 2005 ISSUE:
TOPIC: Real Estate Mortgage; Obligation Secured Whether or not the “blanket mortgage clause” covers not only the promissory
PONENTE: Tinga, J note covering the P250,000 loan but also the other 2 promissory notes –No.

FACTS: RATIO:
1. Spouses Don Alviar and Georgia Alviar executed a deed of REM in favour of 1. The parties having conformed to the “blanket mortgage clause” or “dragnet
Prudential Bank to secure the payment of a loan worth P250,000. The clause,” it is reasonable to conclude that they also agreed to an implied
mortgage was annotated at the back of TCT No. 438157 which covers their understanding that subsequent loans need not be secured by other
land in San Juan securities, as the subsequent loans will be secured by the first mortgage. But
2. Aug. 4, 1975: spouses executed a promissory note,PN BD#75/C-252 covering of course, there is no prohibition, as in the mortgage contract in issue, against
the said loan and that the note is secured by a REM. contractually requiring other securities for the subsequent loans. Thus, when
3. Don Alviar executed another promissory note, PN BD#76/C-345, for the mortgagor takes another loan for which another security was given it
P2,640,000 secured by a “hold-out” on Alviar’s foreign currency saving could not be inferred that such loan was made in reliance solely on the
account with the bank original security with the “dragnet clause,” but rather, on the new security
4. spouses executed for Donalco Trading, which they are officers, a promissory given.
note, PN BD#76/C-430, covering P545,000. It is secured by “Clean-Phase out
TOD CA 3923” which means that the temporary overdraft incurred by It was therefore improper for petitioner in this case to seek foreclosure of the
Donalco with the bank is to be converted into an ordinary loan in mortgaged property because of non-payment of all the three promissory
compliance with a Central Bank circular directing the discontinuance of notes. While the existence and validity of the “dragnet clause” cannot be
overdrafts. denied, there is a need to respect the existence of the other security given for
5. March 1979 : spouses paid the bank P2,000,000 to be applied to the PN BD#76/C-345. The foreclosure of the mortgaged property should only be
obligations of G.B Alviar Realty and for the release of the REM for the for theP250,000.00 loan covered by PN BD#75/C-252, and for any amount not
P450,000 loan covering the lots in San Juan. covered by the security for the second promissory note.
6. January 15, 1980: the bank moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157. the spouses had the CASE LAW/ DOCTRINE:
total obligation of P1,608,256.68, covering the 3 promissory notes
7. the spouses filed a complaint for damages and praying for issuance of writ of A “blanket mortgage clause,” also known as a “dragnet clause” in American
preliminary injunction with RTC jurisprudence, is one which is specifically phrased to subsume all debts of past
 Claiming that they have paid their principal loan secured by the or future origins. Mortgages of this character enable the parties to provide
mortgaged property, and thus the mortgage should not be continuous dealings, the nature or extent of which may not be known or
foreclosed anticipated at the time, and they avoid the expense and inconvenience of
8. RTC: dismissed the complaint. Ordered the Sheriff to proceed with the executing a new security on each new transaction. A “dragnet clause”
extrajudicial foreclosure operates as a convenience and accommodation to the borrowers as it
9. RTC: set aside its earlier decision upon a motion for reconsideration. makes available additional funds without their having to execute additional
 It found that only the P250,000 loan is secured by the mortgage on security documents, thereby saving time, travel, loan closing costs, costs of
the land covered by No. 43815. extra legal services, recording fees, et cetera.
 P382,680.83 loan is secured by the foreign currency deposit account
Under American jurisprudence, two schools of thought have emerged on this
of Don Alviar
question. One school advocates that a “dragnet clause” so worded as to be
 P545,000 was an unsecured loan, being a mere conversion of broad enough to cover all other debts in addition to the one specifically
temporary overdraft secured will be construed to cover a different debt, although such other debt
is secured by another mortgage.] The contrary thinking maintains that a the Mortgagee with an accurate inventory of such substituted and
mortgage with such a clause will not secure a note that expresses on its face subsequently acquired property.”
that it is otherwise secured as to its entirety, at least to anything other than a 5. Upon DALCO's and DAMCO's failure to pay the fifth promissory note
deficiency after exhausting the security specified therein, such deficiency upon its maturity, the BANK paid the same to the Export-Import Bank
being an indebtedness within the meaning of the mortgage, in the absence of Washington D.C., and the latter assigned to the former its credit
of a special contract excluding it from the arrangement. The latter school and the first mortgage securing it. Subsequently, the BANK gave
represents the better position. DALCO and DAMCO up to April 1, 1953 to pay the overdue
promissory note.
053 People’s Bank and Trust Company and Atlantic Gulf and Pacific Co. of 6. After the date of execution of the mortgages mentioned above —
Manila vs. Dahican Lumber Company et.al. DALCO purchased various machineries, equipment, spare parts and
GR No. L-17500 Date May 16, 1967 supplies in addition to, or in replacement of some of those already
TOPIC: Object of Real Estate Mortgage- After Acquired Properties owned and used by it on the date aforesaid. Pursuant to the
PONENTE: Dizon, J. provision of the mortgage deeds quoted theretofore regarding
"after acquired properties," the BANK requested DALCO to submit
FACTS: complete lists of said properties but the latter failed to do so.
1. ATLANTIC, a duly licensed corporation, sold and assigned all its rights 7. The Board of Directors of DALCO passed a resolution agreeing to
in the Dahican Lumber concession to Dahican Lumber Company rescind the alleged sales of equipment, spare parts and supplies by
(DALCO) for the total sum of $500,000.00, of which only the amount CONNELL and DAMCO to it. Thereafter, the corresponding
of $50,000.00 was paid. agreements of rescission of sale were executed between DALCO
2. To develop the concession, DALCO obtained various loans from the and DAMCO, on the one hand and between DALCO and CONNELL,
BANK amounting to P200,000.00. In addition, DALCO obtained, on the other.
through the BANK, a loan of $250,000.00 from the Export-Import Bank 8. The BANK, in its own behalf and that of ATLANTIC, demanded that
of Washington D.C., evidenced by five promissory notes of said agreements be cancelled but CONNELL and DAMCO refused
$50,000.00 each, maturing on different dates, executed by both to do so. As a result, ATLANTIC and the BANK, commenced
DALCO and the Dahican America Lumber Corporation (DAMCO), a foreclosure proceedings in the Court of First Instance of Camarines
foreign corporation and a stockholder of DALCO, all payable to the Norte against DALCO and DAMCO.
BANK or its order. TRIAL COURT’S RULING: Condemns Dahican to pay People’s Bank, Atlantic
3. As security for the payment of the abovementioned loans, DALCO Gulf, and Connel Bros.
executed in favor of the BANK — the latter acting for itself and as
trustee for the Export-Import Bank of Washington D.C. — a deed of ISSUE:
mortgage covering five parcels of land situated in the province of Whether or not DAMCO and CONNELL have rights over the "after acquired
Camarines Norte together with all the buildings and other properties" superior to the mortgage lien constituted thereon in favor of
improvements existing thereon and all the personal properties of the plaintiffs (DALCO)
mortgagor. Other Issues (not-so-important):
4. On the same date, DALCO executed a second mortgage on the 1. Whether or not the proceeds obtained from the sale of the "after
same properties in favor of ATLANTIC to secure payment of the acquired properties" should have been awarded exclusively to the
unpaid balance of the sale price of the lumber concession plaintiffs or to DAMCO and CONNELL, and if in law they should be
amounting to the sum of $450,000.00. Both deeds contained the distributed among said parties, whether or not the distribution should
following provision extending the mortgage lien to properties to be be pro-rata or otherwise;
subsequently acquired — referred to hereafter as "after acquired 2. Whether or not plaintiffs are entitled to damages; and
properties" — by the mortgagor: 3. Lastly, whether or not the expenses incidental to the Receivership
“All property of every nature and description taken in exchange or should be borne by all the parties on a pro- rata basis or exclusively by
replacement, and all buildings, machinery, fixtures, tools equipment and other one or some of them are of a secondary nature as they are already
property which the Mortgagor may hereafter acquire, construct, install, impliedly resolved by what has been said.
attach, or use in, to, upon, or in connection with the premises, shall
immediately be and become subject to the lien of this mortgage in the same RATIO: MAIN ISSUE
manner and to the same extent as if now included therein, and the No, DAMCO and CONNELL do not have rights over the “after acquired
Mortgagor shall from time to time during the existence of this mortgage furnish properties”. The report of the auditors and its annexes show that neither
DAMCO nor CONNELL had supplied any of the goods of which they 054 CASE TITLE : Star Two (SPV-AMC), Inc., v. Paper City Corporation of the
respective claimed to be the unpaid seller; that all items were supplied by Philippines
different parties, neither of whom appeared to be DAMCO or CONNELL that, G.R. No. 169211 March 6, 2013
in fact, CONNELL collected a 5% service charge on the net value of all items it TOPIC: Object of Real estate Mortgage: Effect and Extent
claims to have sold to DALCO and which, in truth, it had purchased for PONENTE: PEREZ, J
DALCO as the latter's general agent; that CONNELL had to issue its own
invoices in addition to those o f the real suppliers in order to collect and justify FACTS:
such service charge. 1. From 1990-1991, Paper City applied for and was granted four (4) loans and
Taking into account the above circumstances together with the fact that credit accommodations by Rizal Commercial Banking Corporation (RCBC),
DAMCO was a stockholder and CONNELL was not only a stockholder but the now substituted by Star Two (SPV-AMC), Inc by virtue of Republic Act No.
general agent of DALCO, their claim to be the suppliers of the "after acquired 9182. The loans were secured by four (4) Deeds of Continuing Chattel
required properties" would seem to be preposterous. The most that can be Mortgages on its machineries and equipments found inside its paper plants.
claimed on the basis of the evidence is that DAMCO and CONNELL probably However, RCBC eventually executed a unilateral Cancellation of Deed of
financed some of the purchases. But if DALCO still owes them any amount in Continuing Chattel Mortgage.
this connection, it is clear that, as financiers, they can not claim any right over 2. In 1992, RCBC, as the trustee bank, together with Metrobank and Union Bank,
the "after acquired properties" superior to the lien constituted thereon by entered into a Mortgage Trust Indenture (MTI), with Paper City. In the said
virtue of the deeds of mortgage under foreclosure. Indeed, the execution of MTI, Paper City acquired additional loans secured by five (5) Deed of Real
the rescission of sales mentioned heretofore appears to be but a desperate Estate Mortgage, plus real and personal properties in an annex to the MTI,
attempt to better or improve DAMCO and CONNELL's position by enabling which covered the machineries and equipment of Paper City. The MTI was
them to assume the role of "unpaid suppliers" and thus claim a vendor's lien later on amended and supplemented three (3) times, wherein the loan was
over the "after acquired properties". The attempt, of course, is utterly increased and included the same mortgages with an additional building
ineffectual, not only because they are not the "unpaid sellers" they claim to be and other improvements in the plant site. Paper City was able to comply with
but also because there is abundant evidence in the record showing that both the loans but only until 1997 due to an economic crisis. RCBC filed a petition
DAMCO and CONNELL had known and admitted from the beginning that the for extra- judicial foreclosure against the real estate executed by Paper City
"after acquired properties" of DALCO were meant to be included in the first including all the improvements because of payment default. The property
and second mortgages under foreclosure. was foreclosed and subjected to public auction.
OTHER ISSUES: 3. The three banks and the highest bidder were issued a Certificate of Sale.
1. As regard the proceeds obtained from the sale of the of after Paper City filed a complaint alleging that the sale was null and void due to
acquired properties" and the "undebated properties", it is clear that lack of prior notice. During the pendency of the complaint, Paper City filed a
said proceeds should be awarded exclusively to the plaintiffs in motion to remove machinery out of the foreclosed land and building, that
payment of the money obligations secured by the mortgages under the same were not included in the foreclosure of the real estate mortgage.
foreclosure. The trial court denied the motion, ruling that the machineries and equipment
2. On the question of plaintiffs' right to recover damages from the were included. Thereafter, Paper City's Motion for Reconsideration, the trial
defendants, the law (Articles 1313 and 1314 of the New Civil Code) court granted the same and justified the reversal by finding that the
provides that creditors are protected in cases of contracts intended machineries and equipment are chattels by agreement thru the four Deeds
to defraud them; and that any third person who induces another to of Continuing Chattel Mortgages; and that the deed of cancellation
violate his contract shall be liable for damages to the other executed by RCBC of said mortgage was not valid because it was one
contracting party. Similar liability is demandable under Arts. 20 and unilaterally. RCBC's Motion for Reconsideration was denied.
21 — which may be given retroactive effect (Arts. 225253) — or CA Petion:
under Arts. 1902 and 2176 of the Old Civil Code. 1. That Paper City gave its consent to consider the disputedmachineries and
3. It is, however, our considered opinion that, upon the facts equipment as real properties when they signed the MTI's and all its
established, all the expenses of the Receivership, which was amendments; 2. That the machineries and equipment are the same as inthe
deemed necessary to safeguard the rights of the plaintiffs, should be MTI's, hence treated by agreement of the parties as real properties.
borne by the defendants, jointly and severally, in the same manner The CA affirmed the orders of the trial court because it relied on the plain
that all of them should pay to the plaintiffs, jointly a severally, language of the MTI's stating that nowhere from any of the MTIs executed by
attorney's fees awarded in the appealed judgment. the parties can we find the alleged "express" agreement adverted to by
*Case was remanded for further proceedings. petitioner. There is no provision in any of the parties’ MTI, which expressly states
to the effect that the parties shall treat the equipments and machineries as
 real property. On the contrary, the plain and unambiguous language of the (5) Machinery, receptacles, instruments or implements intended by the owner
aforecited MTIs, which described the same as personal properties, contradicts of the tenement for an industry or works which may be carried on in a building
petitioner’s claims. Hence the case. or on a piece of land, and which tend directly to meet the needs of the said
industry or works;
ISSUE:
1. Whether the subsequent contracts of the parties such as Mortgage 055 GARCIA V VILLAR
Trust Indenture as well as the subsequent supplementary amendments G.R. No. 158891 Date June 27, 2012
included in its coverage of mortgaged properties the subject TOPIC: REAL ESTATE MORTGAGE – Right to alienate collateral PONENTE:
machineries and equipment; and Leonardo-De Castro, J.
2. Whether or not the subject machineries and equipment were
considered real properties and should therefore be included in the FACTS:
extra-judicial foreclosure which in turn were sold to the banks. 1. Galas was the original owner of the subject property located
Quezon City.
RATIO: 2. July 6, 1993: Galas, with her daughter Pingol (as co-maker)
1. Repeatedly, the parties stipulated that the properties mortgaged by Paper mortgaged the property to Villar as security for a loan in the
City to RCBC are various parcels of land including the buildings and existing amount of P2.2M.
improvements thereon as well as the machineries and equipments, which as 3. October 10, 1994: Galas, again with Pingol as her co-maker,
stated in the granting clause of the original mortgage, are "more particularly mortgaged the same property to Garcia to secure her loan of
described and listed that is to say, the real and personal properties listed in P1.8M. Both mortgages were annotated at the back of the TCT
Annexes ‘A’ and ‘B’ x x x of which the Paper City is the lawful and registered with a restriction that “mortgagee’s consent is necessary in case
owner." Significantly, Annexes "A" and "B" are itemized listings of the buildings, of subsequent encumbrance or alienation of the property”.
machineries and equipments typed single spaced in twenty-seven pages of
4. November 21, 1996: Galas sold the subject property to Villar for
the document made part of the records. As held in Gateway Electronics
P1.5M and declared in the Deed of Sale that the property was
Corp. v. Land Bank of the Philippines, the rule in this jurisdiction is that the
free from all liens and encumbrances. The Deed of Sale was
contracting parties may establish any agreement, term, and condition they
registered and subsequently, a new TCT was issued in the name
may deem advisable, provided they are not contrary to law, morals or public
of Villar. Both Villar’s and Garcia’s mortgages were annotated at
policy. The right to enter into lawful contracts constitutes one of the liberties
the back of Villar’s new TCT.
guaranteed by the Constitution.
5. October 27, 1999: Garcia filed a Petition for Mandamus with
Damages against Villar with the RTC QC. But later on amended
2. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage his petition to a Complaint for Foreclosure of Real Estate
includes the machineries and equipments of respondent. Considering that
Mortgage with Damages alleging that Villar acted in bad faith
the Indenture which is the instrument of the mortgage that was foreclosed
when she purchased the property because she knowingly and
exactly states through the Deed of Amendment that the machineries and
willfully disregarded the provisions on laws on judicial and
equipments listed in Annexes "A" and "B" form part of the improvements listed
extrajudicial foreclosure of mortgaged property. Also, when Villar
and located on the parcels of land subject of the mortgage, such
purchased the subject property, Galas was relieved of her
machineries and equipments are surely part of the foreclosure of the "real
contractual obligation and the characters of creditor and debtor
estate properties, including all improvements thereon" as prayed for in the
were merged in the person of Villar. Therefore, Garcia, as the
petition. The real estate mortgages which specifically included the
second mortgagee, was subrogated to Villar’s original status as
machineries and equipments were subsequent to the chattel mortgages.
first mortgagee, which is the creditor with the right to foreclose.
Without doubt, the real estate mortgages superseded the earlier chattel
*Villar’s Answer: the complaint stated no cause of action and that the second
mortgages.
mortgage was done in bad faith as it was without her consent and
knowledge. There’s no subrogation as the assignment of credit was done with
3. The real estate mortgage over the machineries and equipments is even in full neither her knowledge nor prior consent.
accord with the classification of such properties by the Civil Code of the RTC: in favour of Garcia - the direct sale of the subject property to Villar, the
Philippines as immovable property. Thus: first mortgagee, could not operate to deprive Garcia of his right as a second
Article 415. The following are immovable property: mortgagee. Upon Galas’s failure to pay her obligation, Villar should have
(1) Land, buildings, roads and constructions of all kinds adhered to the soil; xxx foreclosed the subject property pursuant to Act No. 3135 as amended, to
provide junior mortgagees like Garcia, the opportunity to satisfy their claims
from the residue, if any, of the foreclosure sale proceeds The second appointment of Villar as attorney-in- fact, with authority to sell or otherwise
mortgage constituted in Garcia’s favor had not been discharged, and that dispose of the subject property, and to apply the proceeds to the payment of
Villar, as the new registered owner of the subject property with a subsisting the loan. This provision is customary in mortgage contracts, and is in
mortgage, was liable for it conformity with Article 2087 of the Civil Code, which reads:
CA: reversed TC’s decision - Galas was free to mortgage the subject property
even without Villar’s consent as the restriction that the mortgagee’s consent Art. 2087. It is also of the essence of these contracts that when the principal
was necessary in case of a subsequent encumbrance was absent in the obligation becomes due, the things in which the pledge or mortgage consists
Deed of Real Estate Mortgage. may be alienated for the payment to the creditor.
Galas’s decision to eventually sell the subject property to Villar for an
ISSUE: additional P1,500,000.00 was well within the scope of her rights as the owner of
1. Whether or not the second mortgage to Garcia was valid? YES the subject property. The subject property was transferred to Villar by virtue of
2. Whether or not the sale of the subject property to Villar was valid? YES another and separate contract, which is the Deed of Sale. Garcia never
3. Whether or not the sale of the subject property to Villar was in alleged that the transfer of the subject property to Villar was automatic upon
violation of the prohibition on pactum commissorium; NO. Galas’s failure to discharge her debt, or that the sale was simulated to cover
4. Whether or not Garcia’s action for foreclosure of mortgage on the up such automatic transfer.
subject property can prosper? NO. Issue No. 4
While we agree with Garcia that since the second mortgage, of which he is
RATIO: the mortgagee, has not yet been discharged, we find that said mortgage
ISSUE Nos. 1 and 2 subsists and is still enforceable. However, Villar, in buying the subject property
a. Both the sale of the subject property and the second mortgage are valid. with notice that it was mortgaged, only undertook to pay such mortgage or
While it is true that the annotation of the first mortgage to Villar on Galas’s TCT allow the subject property to be sold upon failure of the mortgage creditor to
contained a restriction on further encumbrances without the mortgagee’s obtain payment from the principal debtor once the debt matures. Villar did
prior consent, this restriction was nowhere to be found in the Deed of Real not obligate herself to replace the debtor in the principal obligation, and
Estate Mortgage. As this Deed became the basis for the annotation on could not do so in law without the creditor’s consent. Thus, the obligation to
Galas’s title, its terms and conditions take precedence over the standard, pay the mortgage indebtedness remains with the original debtors Galas and
stamped annotation placed on her title. If it were the intention of the parties Pingol. Garcia has no cause of action against Villar in the absence of
to impose such restriction, they would have and should have stipulated such evidence to show that the second mortgage executed in favor of Garcia has
in the Deed of Real Estate Mortgage itself. Neither did this Deed proscribe the been violated by his debtors, Galas and Pingol, i.e., specifically that Garcia
sale or alienation of the subject property during the life of the mortgages. has made a demand on said debtors for the payment of the obligation
Garcia’s insistence that Villar should have judicially or extrajudicially secured by the second mortgage and they have failed to pay.
foreclosed the mortgage to satisfy Galas’s debt is misplaced. The Deed of
Real Estate Mortgage merely provided for the options Villar may undertake in 056 Korea Exchange Bank v. Filkor Business Integrated, Inc.
case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed 380 SCRA 381 (2002)
that Galas could not opt to sell the subject property to Villar, or to any other TOPIC: Judgment on Foreclosure
person. Such stipulation would have been void anyway, as it is not allowed PONENTE: QUISUMBING, J.:
under Article 2130 of the Civil Code, to wit:
Art. 2130. A stipulation forbidding the owner from alienating the immovable FACTS:
mortgaged shall be void. 1. Filkor Business Integrated, Inc. (Filkor), borrowed US$140,000 from
Issue No. 3 petitioner Korea Exchange Bank in order to secure payment of all its
Elements of pactum commissorium: (1) There should be a property mortgaged obligations, Filkor executed a Real Estate Mortgage.
by way of security for the payment of the principal obligation; and (2) There 2. It mortgaged to petitioner the improvements belonging to it constructed
should be a stipulation for automatic appropriation by the creditor of the on the lot it was leasing at the Cavite Export Processing Zone Authority.
thing mortgaged in case of non-payment of the principal obligation within the Only US$40,000 was paid by Filkor.
stipulated period. 3. Petitioner in the Regional Trial Court of Cavite In its complaint, petitioner
Villar’s purchase of the subject property did not violate the prohibition on prayed that (a) it be paid by respondents;
pactum commissorium. The power of attorney provision above did not provide (b) the property mortgaged be foreclosed and sold at public auction in case
that the ownership over the subject property would automatically pass to Villar respondents failed to pay petitioner within ninety days from entry of judgment;
upon Galas’s failure to pay the loan on time. What it granted was the mere and (c) other reliefs just and equitable be granted.
 4. It appears that the only reason defendants deny all the material 057 Huerta Alba Resort, Inc. v. Court of Appeals
allegations in the complaint is because the documents attached thereto G.R. No. 128567 September 1, 2000 TOPIC: Right of Redemption PONENTE:
are mere photocopies and not the originals thereof. Purisima, J.
5. The trial court then rendered judgment in favor of petitioner, however,
failed to order that the property mortgaged by respondent Filkor be FACTS:
foreclosed and sold at public auction. 1. Syndicated Management Group, Inc., filed a complaint for judicial
6. Petitioner filed a motion for partial reconsideration of the trial court’s foreclosure of mortgage with preliminary injunction filed with the RTC of
order, praying that the foreclosure and sale at public auction be Makati City. It sought the foreclosure of 4 parcels of land mortgaged by
granted. petitioner to Intercon Fund Resource, Inc.
Trial court denied petitioner’s motion: The rule is now settled that a mortgage 2. Syndicated Management filed the case as mortgagee-assignee of a loan
creditor may elect to waive his security and bring, instead, an ordinary action amounting to P8.5M obtained by petitioner from Intercon, in whose favor
to recover the indebtedness with the right to execute a judgment thereon on petitioner mortgaged the aforesaid parcels of land as security for the said
all the properties of the debtor including the subject matter of the mortgage, loan.
subject to the qualification that if he fails in the remedy by him elected, he 3. Petitioner questioned the assignment by Intercon of its mortgage right, on
cannot pursue further the remedy he has waived. the ground that the same was ultra vires.
4. RTC granted the judicial foreclosure. CA dismissed petitioner’s appeal due to
ISSUE: Whether or not the petitioner had abandoned the Real Estate late payment of docket fees. Petitioner then filed with the SC a pet. for
Mortgage in its favor, because it filed a smiple collection case? certiorari which was also dismissed.
HELD: No. The Court finds no indication whatsoever that petitioner had waived 5. The order became final and executory and was entered in the Book of
its rights under the real estate mortgage executed in its favor. Thus, the trial Entried of Judgement.
court erred in concluding that petitioner had abandoned its mortgage lien on 6. Syndicated Mgmt. then filed with the RTC a motion for execution of
Filkor’s property, and that what it had filed was an action for collection of a judgment which was granted.
sum of money.
7. Pet. then filed an urgent motion to quash and set aside the writ of execution
alleging grave abuse of discretion. Pet. argued that the records of the case
RATIO:
were still with the CA and therefore, issuance of the writ of execution was
Petitioner’s allegations in its complaint, and its prayer that the mortgaged
premature since the 150-day period for petitioner to pay the judgment
property be foreclosed and sold at public auction, indicate that petitioner’s
obligation had not yet lapsed and petitioner had not yet defaulted in the
action was one for foreclosure of real estate mortgage. We have consistently
payment thereof since no demand for its payment was made by the private
ruled that what determines the nature of an action, as well as which court or
respondent. (RTC denied.)
body has jurisdiction over it, are the allegations of the complaint and the
character of the relief sought. In addition, we find no indication whatsoever
8. Pet. filed once more with the CA another petition for certiorari and
prohibition with preliminary injunction.
that petitioner had waived its rights under the real estate mortgage executed
in its favor. Thus, the trial court erred in concluding that petitioner had 9. Consequently, the scheduled auction sale of subject pieces of properties
abandoned its mortgage lien on Filkor’s property, and that what it had filed proceeded and the private respondent was declared the highest bidder.
was an action for collection of a sum of money. Thus, it was awarded subject properties. Certificate of Sale issued in its favor
Petitioner’s action being one for foreclosure of real estate mortgage, it was was registered with the Registry of Deeds.
incumbent upon the trial court to order that the mortgaged property be 10. Pet. filed an Ex-Parte Motion for Clarification asking the trial court to
foreclosed and sold at public auction in the event that respondent Filkor fails “clarify” whether or not the 12 month period of redemption for ordinary
to pay its outstanding obligations. execution applied in the case. The trial court ruled that the period of
redemption of subject property should be governed by the rule on the sale
CASE LAW/ DOCTRINE: If upon the trial in such action the court shall find the of judicially foreclosed property under Rule 68 of the ROC.
facts set forth in the complaint to be true, it shall ascertain the amount due to 11. Meanwhile, the CA ls resolved the issues raised by the petitioner and
the plaintiff upon the mortgage debt or obligation, including interest and held that the 150-day period within which petitioner may redeem subject
other charges as approved by the court, and costs, and shall render properties should be computed from the date petitioner was notified of the
judgment for the sum so found due and order that the same be paid to the Entry of Judgment; and that the 150-day period within which petitioner may
court or to the judgment obligee within a period of not less than (90) days nor exercise its equity of redemption expired on September 11, 1994. (MR
more than (120) days, and that in default of such payment the property shall denied.)
be sold at public auction to satisfy the judgment.
Then, the lower court confirmed the sale of subject properties to the private Section 2, Rule 68 provides that: “ x x If upon the trial x x the court shall find the
respondent. The Order declared that all pending incidents relating to the facts set forth in the complaint to be true, it shall ascertain the amount due to
Order had become moot and academic. The Transfer Certificates of Title to the plaintiff upon the mortgage debt or obligation, including interest and costs,
subject pieces of property were then issued to the private respondent. and shall render judgment for the sum so found due and order the same to be
paid into court within a period of not less than ninety (90) days from the date of
ISSUE: Whether or not the petitioner has the 1-year right of redemption of the service of such order, and that in default of such payment the property be
subject properties under Section 78 of Republic Act No. 337 otherwise known sold to realize the mortgage debt and costs.” – This is the mortgagor’s equity
as the General Banking Act. (not right) of redemption which may be exercised by him even beyond the 90-
HELD: No, petitioner failed to exercise its equity of redemption within the day period ‘from the date of service of the order,’ and even after the
prescribed period, redemption can no longer be effected. The confirmation foreclosure sale itself, provided it be before the order of confirmation of the
of the sale and the issuance of the TCTs covering the subject properties was in sale. After such order of confirmation, no redemption can be effected any
order. longer.”

RATIO: It was too late in the day for petitioner to invoke a right to redeem under
It can be gleaned that what petitioner has been adjudged to have was only Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several
the equity of redemption over subject properties. On the distinction between crucial stages of the proceedings. (Pet. failed to allege and prove that private
the equity of redemption and right of redemption, the case of Limpin vs. IAC respondent's predecessor in interest was a credit institution.)
held: The right of redemption in relation to a mortgage - understood in the
sense of a prerogative to re-acquire mortgaged property after registration of Moreover, the claim that pet. is entitled to the beneficial provisions of Sec 78 of
the foreclosure sale - exists only in the case of the extrajudicial foreclosure of R.A. No. 337 - since private respondent’s predecessor-in-interest is a credit
the mortgage. No such right is recognized in a judicial foreclosure except only institution - is in the nature of a compulsory counterclaim which should have
where the mortgagee is the Philippine National Bank or a bank or banking been averred in petitioner’s answer to the compliant for judicial foreclosure. (A
institution. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to counterclaim is a cause of action existing in favor of the defendant against the
the mortgagor the right of redemption within one (1) year from the registration plaintiff. It is a claim which, if established, will defeat or in some way qualify a
of the sheriff’s certificate of foreclosure sale. judgment or relief to which plaintiff is otherwise entitled.) The very purpose of a
counterclaim would have been served had petitioner alleged in its answer its
Where the foreclosure is judicially effected, however, no equivalent right of purported right under Section 78 of R.A. No. 337.
redemption exists. The law declares that a judicial foreclosure sale, ‘when The failure of petitioner to seasonably assert its alleged right under Section 78
confirmed by an order of the court, x x shall operate to divest the rights of all of R.A. No. 337 precludes it from so doing at this late stage of the case.
the parties to the action and to vest their rights in the purchaser, subject to Estoppel may be successfully invoked if the party fails to raise the question in
such rights of redemption as may be allowed by law.’ Such rights the early stages of the proceedings.
exceptionally ‘allowed by law’ (i.e., even after confirmation by an order of
the court) are those granted by the charter of the Philippine National Bank CASE LAW/ DOCTRINE:
(Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws The right of redemption in relation to a mortgage - understood in the sense of
confer on the mortgagor, his successors in interest or any judgment creditor of a prerogative to re-acquire mortgaged property after registration of the
the mortgagor, the right to redeem the property sold on foreclosure - after foreclosure sale - exists only in the case of the extrajudicial foreclosure of the
confirmation by the court of the foreclosure sale - which right may be mortgage. No such right is recognized in a judicial foreclosure except only
exercised within a period of one (1) year, counted from the date of where the mortgagee is the Philippine National Bank or a bank or banking
registration of the certificate of sale in the Registry of Property. Thus, no such institution.
right of redemption exists in case of judicial foreclosure of a mortgage if the
mortgagee is not the PNB or a bank or banking institution. In such a case, the 058 Grand Farms and Philippine Shares Corporation vs Court of Appeals
foreclosure sale, ‘when confirmed by an order of the court. x x shall operate to G.R. No. 91779 Date Feb 7 1991
divest the rights of all the parties to the action and to vest their rights in the TOPIC: JUDICIAL FORECLOSURE (b. Judgment on Foreclosure)
purchaser.’ There then exists only what is known as the equity of redemption. PONENTE: Regalado, J.
This is simply the right of the defendant mortgagor to extinguish the mortgage
and retain ownership of the property by paying the secured debt within the FACTS:
90-day period after the judgment becomes final, in accordance with Rule 68, 1. Grand Farms filed an annulment and/or declaration of nullity of the
or even after the foreclosure sale but prior to its confirmation. extrajudicial foreclosure proceedings over their mortgaged properties with
 damages against respondents clerk of court, deputy sheriff and herein paragraph (k) merely specified where the notice should be sent (address),
private respondent Banco Filipino Savings and Mortgage Bank in RTC- therefore, complaint dismissed. Hence this appeal.
Valenzuela.
2. After Banco Filipino and Mortgage Bank filed their answer, Grand Farms filed ISSUE: WON personal notice is required before foreclosure?
a request for admission by private respondent of the allegation, inter alia, HELD: YES. As expressly provided in the mortgage contract.
that no formal notice of intention to foreclose the real estate mortgage was SC: implied admission that there was no PERSONAL NOTICE, other issues are
sent by private respondent to petitioners. unnecessary to discuss. REMANDED to TC.
3. Banco Filipino averred that that petitioners were "notified of the auction sale
by the posting of notices and the publication of notice in the Metropolitan RATIO:
Newsweek, a newspaper of general circulation in the province where the 1. Applying said criteria to the case at bar, we find petitioners' action in the
subject properties are located. court below for annulment and/or declaration of nullity of the foreclosure
4. With this, Grand Farms filed a motion for summary judgment contending that proceedings and damages ripe for summary judgment. Private respondent
the foreclosure was violative of the mortgage contract, specifically: tacitly admitted in its answer to petitioners' request for admission that it did not
"k) All correspondence relative to this Mortgage, including demand letters, send any formal notice of foreclosure to petitioners. Stated otherwise, and as
summons, subpoena or notifications of any judicial or extrajudical actions is evident from the records, there has been no denial by private respondent
shall be sent to the Mortgagor at the address given above or at the address that no personal notice of the extrajudicial foreclosure was ever sent to
that may hereafter be given in writing by the Mortgagor to the Mortgagee, petitioners prior thereto. This omission, by itself, rendered the foreclosure
and the mere act of sending any correspondence by mail or by personal defective and irregular for being contrary to the express provisions of the
delivery to the said address shall be valid and effective notice to the mortgage contract. There is thus no further necessity to inquire into the other
Mortgagor for all legal purposes, and the fact that any communication is not issues cited by the trial court, for the foreclosure may be annulled solely on the
actually received by the Mortgagor, or that it has been returned unclaimed to basis of such defect.
the Mortgagee, or that no person was found at the address given, or that the
address is fictitious, or cannot be located, shall not excuse or relieve the While private respondent was constituted as their attorney-in-fact by
Mortgagor from the effects of such notice;" petitioners, the inclusion of the aforequoted paragraph (k) in the mortgage
contract nonetheless rendered personal notice to the latter indispensable.
5. Banco Filipino maintains that paragraph (k) of the mortgage contract fails to
We do not agree with respondent court that paragraph (k) of the mortgage
consider paragraphs (b) and (d) of the same contract, which respectively
contract in question was intended merely to indicate the address to which the
provide as follows:
communications stated therein should be sent. This interpretation is rejected
"b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor (plaintiff)
by the very text of said paragraph as above construed.
hereby appoints the Mortgagee (BF) his attorney-in-fact to sell the property
mortgaged, to sign all documents and perform any act requisite and
What private respondent would want is to have paragraph (k) considered as
necessary to accomplish said purpose and to appoint its substitutes as such
non-existent and consequently disregarded, a proposition which palpably
attorney-in-fact, with the same powers as above- specified. The Mortgagor
does not merit consideration. Furthermore, it bears mention that private
hereby expressly waives the term of thirty (30) days or any other term granted
respondent having caused the formulation and preparation of the printed
or which may hereafter be granted him by law as the period which must
mortgage contract in question, any obscurity that it imputes thereto or which
elapse before the Mortgagee shall be entitled to foreclose this mortgage, it
supposedly appears therein should not favor it as a contracting party.
being specifically understood and agreed that the said Mortgagee may
foreclose this mortgage at any time after the breach of any conditions hereof
059 SPOUSES FRANCISCO and MERCED RABAT v. PNB
. . ."
G.R. No. 158755 June 18, 2012
"d) Effective upon the breach of any conditions of the mortgage and in
TOPIC: Extrajudicial Foreclosure – Conduct of Sale
addition to the remedies herein stipulated, the Mortgagee is hereby likewise
PONENTE: BERSAMIN, J.
appointed attorney-in-fact of the Mortgagor with full powers and authority,
with the use of force, if necessary, to take actual possession of the mortgaged
FACTS:
property, without the necessity for any judicial order or any permission of
power to collect rents, to eject tenants,… and perform any other act which the 1. Parties are before the court a second time. First case: PNB v. Rabat, decided
Mortgagor may deem convenient . . ." in Nov. 15, 2000, G.R. Np. 134406. Facts are based on above mentioned
RTC denied Grand Farms’ motion for summary judgment. Motion for case.
Reconsideration also denied. CA ruled that no notice was required, 2. Aug. 25, 1979: Spouses Rabat (RABATS) applied, and were granted a loan by
PNB on 01/14/80, a medium term loan of Php4M, to mature in 3 years.
3. January 28, 1980: (1) RABATS signed a credit agreement; (2) executed a real
estate mortgage over 12 parcels of land. ISSUE:
4. Loan stipulation states interest = 17% per year, plus service charge, and W/N the inadequacy of PNB’s bid price renders the forced sale of the
penalty of 3% on amount unpaid or not renewed when due. properties invalid; (2) W/N PNB was entitled to recover any deficiency from
5. September 25, 1980: RABATS executed an “Amendment of the Credit the RABATS.
Agreement” to increase interest rate from 17 to 21%. Also executed another HELD: (NO; SC ruled against spouses Rabat. Auction bid was valid. (2) YES; PNB
real estate mortgage on 9 parcels of land located in Davao Oriental is entitled to recover from the RABATS.
(agricultura, commercial, and residential) as additiona security for their
Php4M loan. RATIO:
The mode of forced sale utilized by petitioner was an extrajudicial foreclosure
6. Loans of RABATS reached total amount of Php3,517,380, due 3/14/83,
of real estate mortgage which is governed by Act No. 3135, as amended. Law
evidenced by several PN’s.
reveals nothing to the effect that there should be a minimum bid price or that
7. RABATS failed to pay their outstanding balance when it became due. the winning bid should be equal to the appraised value of the foreclosed
8. July 24, 1986: PNB responded with a denial to request of RABAT for extension property or to the amount owed by the mortgage debtor. What is clearly
of time for settlement. PNB have a deadline of until 4/30/86 for settlement, provided is that a mortgage debtor is given the opportunity to redeem the
which they sent to address at Wilson St, San Juan, MM. foreclosed property "within the term of one year from and after the date of
9. PNB filed for extrajudicial foreclosure of mortgage executed by RABATS. sale." In the case at bar, other than the mere inadequacy of the bid price at
10. Parcels of land were sold at Public auction, with PNB as highest bidder the foreclosure sale, respondent did not allege any irregularity in the
at Php3,874,800. foreclosure proceedings nor did she prove that a better price could be had
11. Proceeds were inadequate to satisfy entire obligation, so PNB sent for her property under the circumstances.
additional demand letters to RABAT (2 at Wilson, San Juan on 11/15/90, and 2. PNB’s bid price of P 3,874,800.00 not outrageously low as to be shocking to
8/30/91, and another at Davao Oriental) the conscience. Bid price was almost equal to both the P 4M applied for by
12. PNB filed with RTC of Manila a complaint for a sum of money, due to RABATS, to the total sum of P 3,517,380.00 of their actual availment from PNB.
failure by RABATS to settle obligation which had already amounted to 3. In Bank of the Philippine Islands, etc. v. Reyes: unlike in an ordinary sale,
Php14,745,398.25 (with interest, penalties, and other charges). inadequacy of the price at a forced sale is immaterial and does not nullify a
13. RABATS: (1) admitted loan availments and default in payment, but (2) sale since, in a forced sale, a low price is more beneficial to the mortgage
assailed validity of the auction sales, for want of notice to them before and debtor for it makes redemption of the property easier.
after the foreclosure sales. 4. Hulst v. PR Builders: “[G]ross inadequacy of price does not nullify an
14. RABATS also claim: (1) They have been residents of Mati, Davao execution sale. In an ordinary sale, for reason of equity, a transaction may be
Oriental since 1970-present; (2) received nor heard about the foreclosure invalidated on the ground of inadequacy of price, or when such
proceedings, in spite of PNB’s claim of publication in San Pedro Times; (3) inadequacy shocks one’s conscience as to justify the courts to interfere; such
Latter is not a newspaper of general circulation; (4) bid price was grossly does not follow when the law gives the owner the right to redeem as when a
inadequate and unconscionable; (5) accumulated interest and penalty sale is made at public auction, upon the theory that the lesser the price, the
charges were invalid because properties were sold in ’87, but PNB waited till easier it is for the owner to effect redemption. When there is a right to
’92 to file the case. Therefore, they should not be made to suffer payment of redeem, inadequacy of price should not be material because the judgment
interest and penalty charges from May ’87 to present, because such would debtor may re-acquire the property or else sell his right to redeem and thus
allow PNB to profit from its “questionable scheme” recover any loss he claims to have suffered by reason of the price obtained
15. RTC dismissed the complaint; Auction sales of the properties were set at the execution sale. Thus, respondent stood to gain rather than be harmed
aside, and PNB was ordered to reconvey to RABATS the remaining properties by the low sale value of the auctioned properties because it possesses the
after sufficient sale of properties to satisfy the obligation. right of redemption. x x x”
16. PNB appealed to CA, which upheld RTC’s decision for nullification of
SECOND ISSUE:
foreclosure sales.
PNB was legally entitled to recover the penalty charge of 3% per annum and
17. PNB appealed to SC (G.R. No. 134406). SC granted petition. Case was attorney’s fees equivalent to 10% of the total amount due. The documents
remanded to CA to DECIDE on the basis of the errors raised by petitioner PNB relating to the loan and the real estate mortgage showed that the Spouses
in its brief. CA amended its decision, resolving errors assigned by PNB, but still Rabat had expressly conformed to such additional liabilities; hence, they could
affirmed RTC decision. On MR, however, CA found for PNB. not now insist otherwise. To be sure, the law authorizes the contracting parties
RABATS moved for reconsideration, but was denied, hence appeal by them to make any stipulations in their covenants provided the stipulations are not
to SC.
contrary to law, morals, good customs, public order or public policy. Equally 7. Respondent Bank’s contention: Petitioner cannot claim that it was unaware
axiomatic are that a contract is the law between the contracting parties, and of the redemption price which is clearly provided in Sec. 47, RA 8791, and
that they have the autonomy to include therein such stipulations, clauses, that they had all the opportune time to redeem the foreclosed properties.
terms and conditions as they may want to include. 7. TC: dismissed complaint AND counter-claim. Petitioner never raised the issue
of constitutionality of RA No. 8791. Petitioner’s counsel was not duly
Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy authorized by their Board of Directors to transact for and in their behalf.
of the additional liabilities being charged by PNB, they could not now bar PNB CA affirmed TC for failure of petitioner to justify unconstitutionality. The
from recovering the deficiency representing the additional pecuniary liabilities redemption period for juridical persons have been shortened when RA No.
that the proceeds of the forced sales did not cover. Prudential Bank v. 8791 took effect. MR likewise denied.
Martinez, fact that the mortgaged property was sold at an amount less than its
actual market value should not militate against the right to such recovery. ISSUE:
Whether RA No. 8791 is unconstitutional.
CASE LAW/ DOCTRINE: Inadequacy of the bid price at a forced sale, unlike HELD:
that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a NO. It is constitutional and does not impair the obligation of contract. RA No.
forced sale, a low price is considered more beneficial to the mortgage debtor 8791 is validly applied in the case of a real estate mortgage contract which
because it makes redemption of the property easier. was executed in 1985 and the mortgage foreclosed.

The inadequacy of the bid price in an extrajudicial foreclosure sale of RATIO:

mortgaged properties will not per se invalidate the sale. Additionally, the 1. Purpose of the non-impairment clause: safeguard the integrity of contracts
foreclosing mortgagee is not precluded from recovering the deficiency should against unwarranted interference by the State. Sec. 47 did not divest juridical
the proceeds of the sale be insufficient to cover the entire debt. 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
060 Goldenway Merchandising Corporation v. Equitable PCI Bank Under Sec. 6 of Act No. 3135 (of 1924) as amended by Act 4118, the one-year
GR No. 195540 March 13, 2013 redemption is be counted from the date of the registration of the certificate of
Extrajudicial Foreclosure, Right of Redemption Villarama, Jr., J sale. However, Sec. 47 of RA No. 8791 (The General Banking Law of 2000)
provides an exception in the case of juridical persons in exercising the right of
FACTS: redemption: only “until, but not after, the registration of the certificate of
1. Nov. 29, 1985 – A Real Estate Mortgage was executed by Goldenway foreclosure sale” and in no case more than 3 months after foreclosure,
Merchandising Corp. In favour of Equitable PCI Bank over its real properties whichever comes first.
situated in Valenzuela, Bulacan (Now Valenzuela). It was security for a P2 2. There is no retroactive application of the new redemption period because
Million loan grant by the Bank to Goldenway Sec 47 exempts from its operation those properties foreclosed prior to its
2. Petitioner failed to settle its loan obligation so the Bank extrajudicially effectivity and whose owners shall retain their redemption rights under Act
foreclosed the mortgage. No. 3135.
3. During public auction, the mortgaged properties were sold for P3.5 Million to 3. Section 47 embodied one of such safe and sound practices aimed at
the Bank. ensuring the solvency and liquidity of our banks. It cannot therefore be
4. March 12, 2001 – Petitioner’s counsel met with Bank’s counsel with intention disputed that the said provision amending the redemption period in Act 3135
to exercise the right of redemption. However, they were told that such was based on reasonable classification and germane to the purpose of the
redemption is no longer possible because the certificate of sale had already law.
been registered. The titles had already been consolidated and new 4. Right of redemption, being statutory, must be exercised in the manner
certificates were issued in the name of Bank. prescribed by the statute, and within the prescribed time limit. It has to give
5. Dec. 7, 2001 – Petitioner filed a complaint for specific performance and way to police power exercised for public welfare.
damages. 5. The Bank is imbued with public interest and must submit to the State’s power
6. Petitioner’s contention: that the one-year period of redemption under Act of regulation. Regulations must be subject to change from time to time.
No. 3135 should be applied to the real estate mortgage, not RA 8791 which
would impair the obligation of contracts and violation of the equal CASE LAW/ DOCTRINE:
protection clause under the Constitution 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 of the State’s power of regulation.
061 Medida et al v. CA redemption period and has the free disposal of his property, there would
G.R. No. 98334 May 8, 1992 be compliance with Article. 2085 of the Civil Code for the constitution of
TOPIC: Right of Redemption, Act No 3135, Sec. 6 A.M. No. 99-10-05-0; Who another mortgage on the property. To hold otherwise would create an
may redeem Act No. 3135, Sec. 6, Rules of Court, Rule 9, Sec. 27 inequitable situation wherein the mortgagor would be deprived of the
PONENTE: Regalado, J. opportunity, which may be his last recourse, to raise funds to timely
redeem his property through another mortgage.
FACTS: 2. CA declared the real estate mortgage in question void for the reason
1. Plaintiff spouses, alarmed of losing their right of redemption over Lot that the mortgagor spouses, at the time when the said mortgage was
4731 of Cebu City from Mr. Juan who purchased it at a foreclosure executed, were no longer the owners of the lot, having supposedly lost
sale, obtained a loan of P30,000 from Abellana who is the president the same when the lot was sold to a purchaser in the foreclosure sale
of defendant corporation. Also, the spouses’ son also obtained a under the prior mortgage. This holding cannot be sustained.
loan for P25,000 with Lot No. 4731 as security  The CA, in making its decision, relied only on an obiter dictum of a case
2. When the loan became due and demandable without plaintiff Dizon v. Gaborro.
paying, defendant association caused the extrajudicial foreclosure 3. The American rule is similarly to the effect that the redemption of
of the mortgage. After the posting and publication requirements property sold under a foreclosure sale defeats the inchoate right of the
were complied with, the land was sold at public auction on April 19, purchaser and restores the property to the same condition as if no sale
1976 to defendant association being the highest bidder had been attempted. Further, it does not give to the mortgagor a new
3. May 24, 1971: no redemption having been effected by plaintiff, TCT title, but merely restores to him the title freed of the encumbrance of the
was cancelled and a new one was issued in the name of defendant lien foreclosed.
association We cannot rule on the plaint of petitioners that the trial court erred in
4. Private respondents filed for the annulment of the sale at public declaring ineffective the extrajudicial foreclosure and the sale of the property
auction and issuance of certificate of sale. They claim that the to petitioner bank. The court below spelled out at length in its decision the
foreclosure sale violated Act No. 3135, as amended. But the facts which it considered as violative of the provisions of Act No. 3135, as
defendant association denied the material allegations of the amended, by reason of which it nullified the extrajudicial foreclosure
complaint and averred that the present private respondent spouses proceeding and its effects. Such findings and ruling of the trial court are
may still avail of their right of redemption over the land in question. already final and binding on petitioners and can no longer be modified,
5. TC: upheld the validity of the loan and the real estate mortgage, but petitioners having failed to appeal therefrom.
annulling the extrajudicial foreclosure inasmuch as the same failed
to comply with the notice requirements in Act. No. 3135, as CASE LAW/ DOCTRINE:
amended. it is undisputed that the real estate mortgage in favor of petitioner bank was
CA: modified the decision of the TC, and modified declaring as void and executed by respondent spouses during the period of redemption. We
ineffective the real estate mortgage executed by plaintiffs in favour of reiterate that during said period it cannot be said that the mortgagor is no
defendant association. longer the owner of the foreclosed property since the rule up to now is that
the right of a purchaser at a foreclosure sale is merely inchoate until after the
ISSUE: Whether or not a mortgagor, whose property has been extrajudicially period of redemption has expired without the right being exercised. The title to
foreclosed and sold at a corresponding foreclosure sale, may validly execute land sold under mortgage foreclosure remains in the mortgagor or his grantee
a mortgage contract over the same property in favor of a third party during until the expiration of the redemption period and conveyance by the master's
the period of redemption –Yes. deed. To repeat, the rule has always been that it is only upon the expiration of
the redemption period, without the judgment debtor having made use of his
RATIO: right of redemption, that the ownership of the land sold becomes
1. During the said period of redemption, it cannot be said that the consolidated in the purchaser.
mortgagor is no longer the owner of the foreclosed property since the
rule up to now is the right of a purchaser of a foreclosure sale is merely 062 Spouses Yap v. Spouses Dy, et al.
inchoate until after the period of redemption has expired without the G.R.No. 171991 and 171868, July 27, 2011
right being exercised. The title to the land sold under mortgage TOPIC: How to redeem
foreclosure remains in the mortgagor or his grantee until the expiration of PONENTE: Villarama, Jr.,J.
the redemption period and the conveyance of the master deed. The
mortgagor remains as the absolute owner of the property during the FACTS:
1. Tirambulos owned 6 parcels of land(Lot 1 and Lots 3-6 and Lot 8). HELD: 1 & 2: YES.
2. Dec. 3,1976: Tirambulos executed a Real Estate Mortgage over Lots 1,4,5,6 3. NO. Dys and Maxinos can effect the redemption of even only two of the
and 8 in favour of Rural Bank of Dumaguete, predecessor of Dumaguete five properties foreclosed. And since they can effect a partial redemption,
Rural Bank (DRBI), to secure P105,000 loan extended by the bank to them. they are not required to pay the P216,040.93 considering that it is the
3. Tirambulos obtained a second loan of P28,000 secured with REM over Lot 3 in purchase price for all the five properties foreclosed.
favour of DRBI
RATIO:
4. Tirambulos sold all lots to the Dy spouses and to the Maximo spouses without
1. Dys and the Maxinos complied with Section 31, Rule 39 of the Rules of Court.
the consent and knowledge of DRBI.
Well within the redemption period, they initially attempted to pay the
5. After the sale, Tirambulos failed to pay their loans to DRBI redemption money not only to the purchaser, DRBI, but also to the Yaps. Both
6. DRBI extrajudicially foreclosed the Dec.3 mortgage and had Lots 1,4,5,6 and DRBI and the Yaps however refused, insisting that the Dys and Maxinos should
8 sold at public auction. DRBI was proclaimed the highest bidder and bought pay the whole purchase price at which all the foreclosed properties were sold
the lots for P216, 040.93 during the foreclosure sale. Because of said refusal, the Dys and Maxinos
7. After the sale was registered, DRBI sold Lots 1,3 and 6 to Yap spouses under a correctly availed of the alternative remedy by going to the sheriff who made
Deed of Sale with Agreement to Mortgage (**Lot 3 was not among the 5 lots the sale. As held in a case, the tender of the redemption money may be
foreclosed and bought by DRBI at the auction) made to the purchaser of the land or to the sheriff. If made to the sheriff, it is
8. A month before the 1 year redemption period was set to expire, the Dys and his duty to accept the tender and execute the certificate of redemption.
Maxinos attempted to redeem Lots 1, 3 and 6. They tendered the amount to
DRBI and the Yaps, but both refused, contending that the redemption should 2. Dys and Maxinos have legal personality to redeem the subject properties
be for the full amount of P216,040.93. despite the fact that the sale to the Dys and Maxinos was without DRBI’s
9. Dys and Maxinos paid P50,625.29 to the Office of the Sheriff to effect the consent. In a case, the Court held that the sale by the mortgagor of the
redemption. mortgaged property to a third person notwithstanding the lack of written
10. The Yaps refused to take the delivery of the redemption price consent by the mortgagee is valid, and likewise recognized the third person’s
contesting that the mortgage is indivisible and one cannot redeem only right to redeem the foreclosed property, the buyer steps into the shoes of the
some of the lots foreclosed because all the parcels were sold for a single mortgagor on account of such sale and was in effect, their successor-in-
price at the auction sale. interest.
11. Dys and Maxinos filed a civil case for accounting, injunction,
declaration of nullity of Deed of Sale with Agreement to Mortgage (with 3. It is undisputed that the Dys and the Maxinos made the redemption within
regard to Lot 3), and damages. They also consigned an additional the 12-month period from the registration of the sale. The Dys and Maxinos
P83,850.50 representing the remaining balance of the purchase price that effected the redemption on May 24, 1984, with the Provincial Sheriff, and on
Yaps still owed DBRI June 19, 1984, when they deposited an additional. Both dates were well
12. Yaps filed a civil case for consolidation of ownership, annulment of within the one-year redemption period reckoned from the June 24, 1983
certificate of redemption, and damages. The 2 civil cases were tried jointly date of registration of the foreclosure sale. Likewise, the Provincial Sheriff who
13. RTC: rendered decision in favor of the Yaps made the sale was properly notified of the redemption since the Dys and
Maxinos deposited with him the redemption money after both DRBI and the
 Dys and Maxinos failed to offer evidence
Yaps refused to accept it.
 Deed of Sale with Agreement to Mortgage is not contrary to law,
morals, good customs, public policy or order Debtor cannot ask for the release of any portion of the mortgaged property or
 Dys and Maxinos failed to exercise their rights of redemption properly of one or some of the several lots mortgaged unless and until the loan thus,
and timely. They deposited only P50,625.29 where the amount due is secured has been fully paid, notwithstanding the fact that there has been a
P216,040.93. partial fulfillment of the obligation. <-This does not apply to the case. It is
14. CA: reversed the decision of RTC. actually intended for the protection of the mortgagee, specifically refers to
Yaps argue that there is no valid redemption of the properties extrajudicially the release of the mortgage which secures the satisfaction of the
foreclosed indebtedness and naturally presupposes that the mortgage is existing. Once
the mortgage is extinguished by a complete foreclosure thereof, said doctrine
ISSUE: 1. Was there a valid redemption by the Dys and Maxinos of indivisibility ceases to apply since, with the full payment of the debt, there is
2. Whether or not the Dys and Maxinos are entitled to redeem nothing more to secure. Nothing in the law prohibits the piecemeal
3. Whether or not the mortgage is indivisible redemption of properties sold at one foreclosure proceeding. In fact, in
 several early cases decided by this Court, the right of the mortgagor or Ormoc City, Branch 5. Thereafter, the probate court issued an Order
redemptioner to redeem one or some of the foreclosed properties was granting the petition, thereby appointing Edgar as the administrator
recognized. of Flaviano’s estate.
3. In view of the issuance of letters of administration, the probate court,
CASE LAW/ DOCTRINE: issued a Notice to Creditors for the filing of money claims against
The requisites for a valid redemption are: Flaviano’s estate. Accordingly, as one of the creditors of Flaviano,
(1) the redemption must be made within twelve (12) months from the time of the respondent notified the probate court of its claim in the amount of
registration of the sale in the Office of the Register of Deeds; P382,753.19 exclusive of interests and charges.
(2) payment of the purchase price of the property involved, plus 1% interest per 4. During the pendency of the intestate proceedings, Edgar and Oscar
month thereon in addition, up to the time of redemption, together with the were able to obtain several loans from respondent, secured by
amount of any assessments or taxes which the purchaser may have paid promissory notes which they signed.
thereon after the purchase, also with 1% interest on such last named amount; 5. In an Order, the probate court terminated the proceedings with the
and surviving heirs executing an extra-judicial partition of the properties
(3) written notice of the redemption must be served on the officer who made of Flaviano’s estate. The loan obligations owed by the estate to
the sale and a duplicate filed with the Register of Deeds of the province. respondent, however, remained unsatisfied due to respondent’s
Once the mortgage is extinguished by a complete foreclosure thereof, said certification that Flaviano’s account was undergoing a restructuring.
doctrine of indivisibility ceases to apply since, with the full payment of the Nonetheless, the probate court expressly recognized the rights of
debt, there is nothing more to secure respondent under the mortgage and promissory notes executed by
the Sps. Maglasang, specifically, its "right to foreclose the same
063 Heirs of the late spouses FLAVIANO MAGLASANG and SALUD ADAZA- within the statutory period."
MAGLASANG, namely, OSCAR A. MAGLASANG, EDGAR A. MAGLASANG, 6. In this light, respondent proceeded to extra-judicially foreclose the
CONCEPCION CHONA A. MAGLASANG, GLENDA A. MAGLASANG-ARNAIZ, mortgage covering the Sps. Maglasang’s properties and emerged
LERMA A. MAGLASANG, FELMA A. · MAGLASANG, FE DORIS A. MAGLASANG, as the highest bidder at the public auction for the amount of
LEOLINO A. MAGLASANG, MARGIE LEILA P350,000.00. There, however, remained a deficiency on Sps.
A. MAGLASANG,MA. MILALIE A. MAGLASANG, SALUD A. MAGLASANG, and Maglasang’s obligation to respondent. Thus, on June 24, 1981,
MA. FLASALIE A. MAGLASANG, REPRESENTING THE ESTATES OF THEIR respondent filed a suit to recover the deficiency amount.
AFORE-NAMED DECEASED PARENTS, Petitioners vs. RTC RULING: After trial on the merits, the RTC rendered a Decision directing the
Manila Banking Corporation, now substituted by FIRST SOVEREIGN ASSET petitioners to pay respondent, jointly and severally, the amount of P434,742.36
MANAGEMENT SPV-AMC, INC. FSAMI, Respondent. with interest at the rate of 12% p.a., plus a 4% penalty charge, reckoned from
GR No. 171206 Date September 23, 2013 September 1984 until fully paid. The RTC found that it was shown, by a
TOPIC: Right to Deficiency, Rules of Court, Rule 86, Section 7 preponderance of evidence, that petitioners, after the extra-judicial
PONENTE: Perlas-Bernabe, J. foreclosure of all the properties mortgaged, still have an outstanding
obligation in the amount and as of the date as above-stated. The RTC also
FACTS: found in order the payment of interests and penalty charges as above-
1. Spouses Flaviano and Salud Maglasang obtained a credit line from mentioned as well as attorney’s fees equivalent to 10% of the outstanding
respondent in the amount of P350,000.00 which was secured by a obligation.
real estate mortgage executed over 7 of their properties located in CA RULING: Petitioners elevated the case to the CA on appeal that the
Ormoc City, Leyte. They availed of their credit line by securing loans remedies available to respondent under Section 7, Rule 86 of the Rules of
in the amounts of P209,790.50 and P139,805.83 both of which Court (Rules) are alternative and exclusive, such that the election of one
becoming due and demandable within a period of one year. operates as a waiver or abandonment of the others. Thus, when respondent
Further, the parties agreed that the said loans would earn interest at filed its claim against the estate of Flaviano in the proceedings before the
12% per annum and an additional 4% penalty would be charged probate court, it effectively abandoned its right to foreclose on the mortgage.
upon default. Moreover, even on the assumption that it has not so waived its right to
2. After Flaviano Maglasang died intestate, his widow Salud and their foreclose, it is nonetheless barred from filing any claim for any deficiency
surviving children, herein petitioners, appointed their brother amount.
petitioner Edgar Maglasang as their attorney-in-fact. Thus, Edgar The CA denied the petitioners’ appeal and affirmed the RTC’s Decision.
filed a verified petition for letters of administration of the intestate Further, the CA held that Section 7, Rule 86 of the Rules does not apply to the
estate of Flaviano before the then Court of First Instance of Leyte, present case since the same does not involve a mortgage made by the
 administrator over any property belonging to the estate of the decedent. adjudged it to be for the best interest of the estate that such redemption shall
According to the CA, what should apply is Act No. 3135 which entitles be made.
respondent to claim the deficiency amount after the extra-judicial foreclosure As the foregoing generally speaks of "a creditor holding a claim against the
of the real estate mortgage of Sps. Maglasang’s properties. deceased secured by a mortgage or other collateral security" as above-
Petitioners’ motion for reconsideration was subsequently denied in a highlighted, it may be reasonably concluded that the aforementioned
Resolution. Hence, the present recourse. section covers all secured claims, whether by mortgage or any other form of
collateral, which a creditor may enforce against the estate of the deceased
ISSUE: debtor.
1. Whether or not the CA erred in affirming the RTC’s award of the deficiency ***Jurisprudence breaks down the rule under Section 7, Rule 86 and explains
amount in favor of respondent. that the secured creditor has three remedies/options that he may
2. Whether or not the extra-judicial foreclosure of the subject properties was null alternatively adopt for the satisfaction of his indebtedness. In particular, he
and void since the same was conducted in violation of the stipulation in the may choose to:
real estate mortgage contract stating that the auction sale should be held in ***(a) waive the mortgage and claim the entire debt from the estate of the
the capital of the province where the properties are located, i.e., the mortgagor as an ordinary claim;
Province of Leyte. (b) foreclose the mortgage judicially and prove the deficiency as an ordinary
claim; and
RATIO: (c) rely on the mortgage exclusively, or other security and foreclose the same
1. Yes, the CA erred. It bears to stress that the CA’s reliance on Philippine before it is barred by prescription, without the right to file a claim for any
National Bank v. CA was misplaced as the said case did not, in any manner, deficiency.
limit the scope of Section 7, Rule 86. It only stated that the aforesaid section ***It must, however, be emphasized that these remedies are distinct,
equally applies to cases where the administrator mortgages the property of independent and mutually exclusive from each other; Thus, the election of
the estate to secure the loan he obtained. Clearly, the pronouncement was a one effectively bars the exercise of the others.
ruling of inclusion and not one which created a distinction. It cannot, To eliminate any confusion, the Court observes that the operation of Act No.
therefore, be doubted that it is Section 7, Rule 86 which remains applicable in 3135 does not entirely discount the application of Section 7, Rule 86, or vice-
dealing with a creditor’s claim against the mortgaged property of the versa. Rather, the two complement each other within their respective spheres
deceased debtor, as in this case, as well as mortgages made by the of operation. Thus, having unequivocally opted to exercise the third option of
administrator, as that in the PNB case. extra-judicial foreclosure under Section 7, Rule 86, respondent is now
Claims against deceased persons should be filed during the settlement precluded from filing a suit to recover any deficiency amount as earlier
proceedings of their estate. Such proceedings are primarily governed by discussed. (See ***)
special rules found under Rules 73 to 90 of the Rules. Among these special 2. No, the extra-judicial foreclosure is not null and void. As may be gleaned
rules, Section 7, Rule 86 of the Rules (Section 7, Rule86) provides the rule in from the records, the stipulation under the real estate mortgage executed by
dealing with secured claims against the estate: Sps. Maglasang which fixed the place of the foreclosure sale at Tacloban City
SEC. 7. Mortgage debt due from estate. – A creditor holding a claim against lacks words of exclusivity which would bar any other acceptable for a wherein
the deceased secured by a mortgage or other collateral security, may the said sale may be conducted, to wit:
abandon the security and prosecute his claim in the manner provided in this “It is hereby agreed that in case of foreclosure of this mortgage under Act
rule, and share in the general distribution of the assets of the estate; or he may 3135, the auction sale shall be held at the capital of the province if the
foreclose his mortgage or realize upon his security, by action in court, making property is within the territorial jurisdiction of the province concerned, or shall
the executor or administrator a party defendant, and if there is a judgment for be held in the city if the property is within the territorial jurisdiction of the city
a deficiency, after the sale of the mortgaged premises, or the property concerned; x x x.”
pledged, in the foreclosure or other proceeding to realize upon the security, In particular, Section 2 of Act No. 3135 allows the foreclosure sale to be done
he may claim his deficiency judgment in the manner provided in the within the province where the property to be sold is situated, viz.:
preceding section; or he may rely upon his mortgage or other security alone, “SEC. 2. Said sale cannot be made legally outside of the province which the
and foreclose the same at any time within the period of the statute of property sold is situated; and in case the place within said province in which
limitations, and in that event he shall not be admitted as a creditor, and shall the sale is to be made is subject to stipulation, such sale shall be made in said
receive no share in the distribution of the other assets of the estate; but place or in the municipal building of the municipality in which the property or
nothing herein contained shall prohibit the executor or administrator from part thereof is situated.”
redeeming the property mortgaged or pledged, by paying the debt for which
it is held as security, under the direction of the court, if the court shall
In this regard, since the auction sale was conducted in Ormoc City, which is Reversed and set aside the ruling of the RTC. It argued that spouses expressly
within the territorial jurisdiction of the Province of Leyte, then the Court finds admitted their outstanding obligations by offering to redeem the properties
sufficient compliance with the above-cited requirement. through letters. All those offers made by the [petitioners] not only contradicted
All told, finding that the extra-judicial foreclosure subject of this case was their very assertion that their obligation is merely that amount appearing on
properly conducted in accordance with the formalities of Act No. 3135, the the petition for foreclosure but are also indicative of the fact that they have
Court upholds the same as a valid exercise of respondent's third option under admitted the validity of the extra judicial foreclosure proceedings and in
Section 7, Rule 86. To reiterate, respondent cannot, however, file any suit to effect have cured the impugned defect. Hence the case.
recover any deficiency amount since it effectively waived its right thereto
when it chose to avail of extra-judicial foreclosure as jurisprudence instructs. ISSUE: WON the Spouses Suico has a right to the surplus of the auction
payment.
064 Suico v. PNB HELD: The Supreme Court ruled that PNB should return the surplus of the
G.R. No. 170215, August 28, 2007 auction sale to the spouses
TOPIC: Extra-judicial foreclosure: Right to surplus
PONENTE: Chico –Nazario RATIO:
Rule 68, Section 4 of the Rules of Court provides:
FACTS: SEC. 4. Disposition of proceeds of sale.- The amount realized from the
1. The spouses Suico obtained a loan from PNB secured by a real foreclosure sale of the mortgaged property shall, after deducting the costs of
estate mortgage on real properties in the name of the spouses. The the sale, be paid to the person foreclosing the mortgage, and when there
problem arose when the spouses were unable to pay their obligation shall be any balance or residue, after paying off the mortgage debt due, the
prompting PNB to extrajudicially foreclose the mortgage over the same shall be paid to junior encumbrancers in the order of their priority, to be
subject properties before the City Sherriff of Mandaue City. ascertained by the court, or if there be no suchencumbrancers or there be a
2. The spouses thereafter filed a complaint against the PNB declaring balance or residue after payment to them, then to the mortgagor or his duly
nullity of extrajudicial foreclosure of mortgage. PNB filed with the authorized agent, or to the person entitled to it.
Office of the Sheriff for the extrajudicial foreclosure of properties for Under the above rule, the disposition of the proceeds of the sale in foreclosure
the outstanding loan amounting to P1,001.770.38. shall be as follows:
Spouses Petitioner contends: (a) first, pay the costs
 During the auction, PNB, as the lone bidder, offered a bid in the amount (b) secondly, pay off the mortgage debt
of P8,5,11.00. However PNB did not pay the sheriff the said amount. (c) thirdly, pay the junior encumbrancers, if any in the order of
 Since the amount of the bid grossly exceeded the amount of the priority
obligation. PNB has the legal duty to deliver the excess amount of the (d) fourthly, give the balance to the mortgagor, his agent or the
bid after deducting the amount of the outstanding obligation. person entitled to it
Based on the foregoing, after payment of the costs of suit and satisfaction of
Hence the auction should be deemed null and void Respondent PNB the claim of the first mortgagee/senior mortgagee, the claim of the second
contends in the Motion to dismiss: mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The
 Other obligations of the spouses have already accrued hence the application of the proceeds from the sale of the mortgaged property to the
amount of the auction covered such obligations. mortgagor’s obligation is an act of payment, not payment by dacion; hence,
it is the mortgagee’s duty to return any surplus in the selling price to the
 The rest of the amount was paid for expenses incurred in the case such mortgagor. Perforce, a mortgagee who exercises the power of sale
as attorney’s fees.
contained in a mortgage is considered a custodian of the fund and, being
 PNB admitted the non-deliver of the bid price to the sheriff. RTC Ruling: bound to apply it properly, is liable to the persons entitled thereto if he fails to
RTC ruled in favor of the spouses declaring nullity to the auction and ordering do so. And even though the mortgagee is not strictly considered a trustee in a
restitution to the spouses. It argued that petitioners had other loan obligation purely equitable sense, but as far as concerns the unconsumed balance, the
which had not yet matured on March 19, 1992 but became due by the date mortgagee is deemed a trustee for the mortgagor or owner of the equity of
of the auction sale. It does not justify the shortcut taken by PNB and will not redemption.
excuse it from paying to the Sheriff who conducted the auction sale the
excess bid in the foreclosure sale. PNB appealed in the CA Thus it has been held that if the mortgagee is retaining more of the proceeds
CA Ruling: 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 1. In the present case, the certificate of sale of the foreclosed property was
surplus. annotated on TCT No. 22990 on 7 June 2002. The redemption period thus
lapsed on 7 June 2003, one year from the registration of the sale. When
065 CHU, ET.AL V. LACQUI & PBComm private respondent applied for the issuance of a writ of possession on 18
G.R. No. 169190 Date February 11, 2010 August 2004, the redemption period had long lapsed. Since the foreclosed
TOPIC: REAL ESTATE MORTGAGE – Extrajudicial foreclosure: right to possession property was not redeemed within one year from the registration of the
after consolidation of ownership PONENTE: Carpio, J. extrajudicial foreclosure sale, private respondent had acquired an absolute
right, as purchaser, to the writ of possession. It had become the ministerial
FACTS: duty of the lower court to issue the writ of possession upon mere motion
1. Petitioners (Spouses Castro and Chu) obtained a P3.2M loan from pursuant to Section 7 of Act No. 3135, as amended.
private respondent Phil. Bank of Communication. To secure the loan, Moreover, once ownership has been consolidated, the issuance of the writ of
petitioners executed a deed of real estate mortgage over the possession becomes a ministerial duty of the court, upon proper application
property of petitioner spouses. Petitioners executed an Amendment and proof of title. In the present case, when private respondent applied for
to the Deed of Real Estate Mortgage increasing the amount of the the issuance of a writ of possession, it presented a new transfer certificate of
loan to P5M. title issued in its name dated 8 July 2003. The right of private respondent to the
2. Since petitioners failed to pay the full amount of the outstanding possession of the property was thus founded on its right of ownership. As the
loan upon demand, private respondent applied for the extrajudicial purchaser of the property at the foreclosure sale, in whose name title over the
foreclosure of the real estate mortgage. At the foreclosure sale, property was already issued, the right of private respondent over the property
private respondent emerged as the highest bidder. After the lapse had become absolute, vesting in it the corollary right of possession.
of the one-year redemption period, it filed an affidavit of 2. Petitioners are wrong in insisting that they were denied due process of law
consolidation to consolidate its ownership and title to the foreclosed when they were declared in default despite the fact that they had filed their
property. A new TCT was issued in the name of private respondent. opposition to the issuance of a writ of possession. The application for the
3. The private respondent applied for the issuance of a writ of issuance of a writ of possession is in the form of an ex parte motion. It issues
possession of the foreclosed property. Petitioners filed an opposition. as a matter of course once the requirements are fulfilled. No discretion is left
The trial court granted private respondent’s motion for a declaration to the court. Petitioners cannot oppose or appeal the court’s order granting
of general default and allowed private respondent to present the writ of possession in an ex parte proceeding. The remedy of petitioners is
evidence ex parte. The trial court denied petitioners’ notice of to have the sale set aside and the writ of possession cancelled in
appeal. Undeterred, petitioners filed in the Court of Appeals a accordance with Section 8 of Act No. 3135, as amended, to wit:
petition for certiorari. The appellate court dismissed the petition. It SEC. 8. The debtor may, in the proceedings in which possession was
also denied petitioners’ motion for reconsideration requested, but not later than thirty days after the purchaser was given
TC: 8 October 2004 Order granted private respondent’s motion for a possession, petition that the sale be set aside and the writ of possession
declaration of general default and allowed private respondent to present cancelled, specifying the damages suffered by him, because the mortgage
evidence ex parte. 6 January 2005 Order denied petitioners’ motion for was not violated or the sale was not made in accordance with the provisions
reconsideration of the prior order. 24 February 2005 Order denied petitioners’ hereof. x x x
notice of appeal. Any question regarding the validity of the extrajudicial foreclosure sale and
CA: dismissed the petition for certiorari of petitioners since counsel for the resulting cancellation of the writ may be determined in a subsequent
petitioners failed to indicate in the petition the updated PTR Number and proceeding as outlined in Section 8 of Act No. 3135, as amended. Such
petitioners’ right to due process was not violated even if they were not given question should not be raised as a justification for opposing the issuance of a
a chance to file their opposition (a proceeding for the issuance of a writ of writ of possession since under Act No. 3135, as amended, the proceeding for
possession is ex parte in nature) this is ex parte.
Further, the right to possession of a purchaser at an extrajudicial foreclosure
ISSUE: Whether the writ of possession was properly issued despite the sale is not affected by a pending case questioning the validity of the
pendency of a case questioning the validity of the extrajudicial foreclosure foreclosure proceeding. The latter is not a bar to the former. Even pending
sale and despite the fact that petitioners were declared in default in the such latter proceeding, the purchaser at a foreclosure sale is entitled to the
proceeding for the issuance of a writ of possession –Yes. possession of the foreclosed property.

RATIO: 066 BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc.
639 SCRA 405 (2011)
TOPIC: Right to Possession – When Held by a Third Party complaint claiming ownership of the property. The trial court also
PONENTE: Carpio, J; noted that respondents were in actual possession of the properties
and had been updating the payment of CEDECʼs loan balances with
FACTS: BPI Family.
1. CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of land in BPI Family then filed a petition for mandamus and certiorari with application
favor of BPI Family to secure a loan of P6,570,000. CEDEC obtained for a temporary restraining order or preliminary injunction before the Court of
from BPI Family additional loans of P2,160,000 and P1,140,000, Appeals. The Court of Appeals dismissed BPI Familyʼs petition.
respectively, and again mortgaged the same properties.
2. Despite demand, CEDEC defaulted in its mortgage obligations. ISSUE: Whether or not private respondents being the vendee of the properties
3. BPI Family filed with Regional Trial Court of Pasay City a petition for in question, they are categorized as third persons in possession who are
extrajudicial foreclosure of real estate mortgage over the properties. claiming a right adverse to that of the debtor/mortgagor CEDEC.
After due notice and publication, the sheriff sold the properties at HELD: No. Respondents are CEDEC’s successors-in-interest. Therefore,
public auction. BPI Family, as the highest bidder, acquired the respondents hold title to and possess the properties as CEDECʼs transferees
properties for P13,793,705.31. and any right they have overthe properties is derived from CEDEC. As
transferees of CEDEC, they merely stepped into CEDEC’s shoes and are
4. The one-year redemption period expired without CEDEC redeeming
bound to acknowledge and respect the mortgage CEDEC had executed in
the properties. Thus, the titles to the properties were consolidated in
favor of BPI Family.
the name of BPI Family. However, despite several demand letters,
CEDEC refused to vacate the properties and to surrender possession
RATIO:
to BPI Family.
It is thus settled that the buyer in a foreclosure sale becomes the absolute
5. BPI Family filed an Ex-Parte Petition for Writ of Possession, the trial
owner of the property purchased if it is not redeemed during the period of
court granted BPI Familyʼs petition
one year after the registration of the sale. As such, he is entitled to the
6. On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. possession of the said property and can demand it at any time following the
and Renato C. Tan (respondents) filed a Motion to Hold consolidation of ownership in his name and the issuance to him of a new
Implementation of the Writ of Possession. transfer certificate of title. The buyer can in fact demand possession of the
7. Respondents alleged that they are in possession of the properties land even during the redemption period except that he has to post a bond in
which they acquired from CEDEC on 10 September 1998 pursuant to accordance with Section 7 of Act No. 3135, as amended. No such bond is
the Deed of Absolute Sale with Assumption of Mortgage (Deed of required after the redemption period if the property is not redeemed.
Sale). Respondents argued that they are third persons claiming rights Possession of the land then becomes an absolute right of the purchaser as
adverse to CEDEC, the judgment obligor and they cannot be confirmed owner. Upon proper application and proof of title, the issuance of
deprived of possession over the properties. the writ of possession becomes a ministerial duty of the court.
8. The trial court denied respondents’ motion. Thereafter, the trial court
issued an alias writ of possession which was served upon CEDEC and It is clear that respondents acquired possession over the properties pursuant to
all other persons claiming rights under them. the Deed of Sale which provides that for P15,000,000 CEDEC will “sell, transfer
9. However, the writ of possession expired without being implemented. and convey” to respondents the properties “free from all liens and
BPI Family filed an Urgent Ex-Parte Motion to Order the Honorable encumbrances excepting the mortgage as may be subsisting in favor of the
Branch Clerk of Court to Issue Alias Writ of Possession. In an Order BPI FAMILY SAVINGS BANK.” Moreover, the Deed of Sale provides that
dated 27 January 2003, the trial court granted BPI Familyʼs motion. respondents bind themselves to assume “the payment of the unpaid balance
10. Before the alias writ could be implemented, respondent Renato C. of the mortgage indebtedness of the VENDOR (CEDEC) amounting to
Tan filed with the trial court an Affidavit of Third Party Claim on the P7,889,472.48, as of July 31, 1998, in favor of the aforementioned mortgagee
properties. Instead of implementing the writ, the sheriff referred the (BPI Family) by the mortgage instruments and does hereby further agree to be
matter to the trial court for resolution. bound by the precise terms and conditions therein contained.”
11. The trial court denied BPI Familyʼs motion and ordered the sheriff to
suspend the implementation of the alias writ of possession. Respondents cannot assert that their right of possession is adverse to that of
According to the trial court, “the order granting the alias writ of CEDEC when they have no independent right of possession other than what
possession should not affect third persons holding adverse rights to they acquired from CEDEC. Since respondents are not holding the properties
the judgment obligor.” The trial court admitted that in issuing the first adversely to CEDEC, being the latterʼs successors-in-interest, there was no
writ of possession it failed to take into consideration respondents’
 reason for the trial court to order the suspension of the implementation of the 7. UCPB filed an ex parte petition for the issuance of a writ of possession with
writ of possession. the RTC, to which pet. opposed alleging the pendency of a Civil Case for
declaration of nullity of the foreclosure and the sale.
It is settled that a pending action for annulment of mortgage or foreclosure 8. RTC: Ordered the holding in abeyance of the issuance of the writ of
sale does not stay the issuance of the writ of possession. The trial court, where possession.
the application for a writ of possession is filed, does not need to look into the CA: Reversed RTC ruling. It ruled that equitable and peculiar circumstances
validity of the mortgage or the manner of its foreclosure. The purchaser is must first be shown to exist before the issuance of a writ of possession may be
entitled to a writ of possession without prejudice to the outcome of the deferred.
pending annulment case. (see case law/doctrine)
ISSUE: Whether or not the pendency of a civil case challenging the validity of
CASE LAW/ DOCTRINE: the credit agreement, the promissory notes and the mortgage can bar the
The general rule is that a purchaser in a public auction sale of a foreclosed issuance of a writ of possession after the foreclosure and sale of the
property is entitled to a writ of possession and, upon an ex parte petition of mortgaged properties; and the lapse of the 1 year redemption period.
the purchaser; it is ministerial upon the trial court to issue the writ of possession HELD: No, the issuance of a writ of possession to a purchaser in a public
in favor of the purchaser. auction is a ministerial function of the court, which cannot be enjoined or
Exception: Upon the expiration of the right of redemption, the purchaser or restrained, even by the filing of a civil case for the declaration of nullity of the
redemptioner shall be substituted to and acquire all the rights, title, interest foreclosure and consequent auction sale.
and claim of the judgment obligor to the property as of the time of the levy.
The possession of the property shall be given to the purchaser or last RATIO:
redemptioner by the same officer unless a third party is actually holding the 1. Once title to the property has been consolidated in the buyer’s name upon
property adversely to the judgment obligor. failure of the mortgagor to redeem the property within the one-year
redemption period, the writ of possession becomes a matter of right
067 Nagtalon v. United Coconut Planter’s Bank belonging to the buyer. Consequently, the buyer can demand possession of
G.R. No. 172504 July 31, 2013 the property at anytime. Its right to possession has then ripened into the right
TOPIC: Right to Possession of a confirmed absolute owner and the issuance of the writ becomes a
PONENTE: Brion, J. ministerial function that does not admit of the exercise of the court’s
discretion. The court, acting on an application for its issuance, should issue
FACTS: the writ as a matter of course and without any delay.
1. Roman Nagtalon and the petitioner (Spouses Nagtalon) entered into a 2. In Spouses Sagun v. PBC and CA, the Court laid down the established rule on
credit accommodation agreement (credit agreement) with UCPB. In order the issuance of a writ of possession, pursuant to Act 3135, as amended. The
to secure the credit agreement, Spouses Nagtalon, together with the Court said that a writ of possession may be issued either (1) within the one-
Spouses Lao, executed deeds of real estate mortgage over several year redemption period, upon the filing of a bond, or (2) after the lapse of
properties in Kalibo, Aklan. the redemption period, without need of a bond.
2. Thereafter, the Spouses Nagtalon failed to abide and comply with the terms 3. During the one-year redemption period, as contemplated by Section 7 of
and conditions of the credit agreement and the mortgage. the above-mentioned law, a purchaser may apply for a writ of possession by
3. UCPB then filed with the Ex-Officio Provincial Sheriff a verified petition for filing an ex parte motion under oath in the registration or cadastral
extrajudicial foreclosure of the mortgage. proceedings if the property is registered, or in special proceedings in case
4. The mortgaged properties were consequently foreclosed and sold at public the property is registered under the Mortgage Law. In this case, a bond is
auction for the sum of P3,215,880.30. UCPB emerged as the sole and highest required before the court may issue a writ of possession.
bidder. Upon the lapse of the redemption period, a writ of possession may be issued in
5. After the issuance of the sheriff’s certificate of sale, UCPB caused the entry of favor of the purchaser in a foreclosure sale, also upon a proper ex parte
the sale in the records of the Registry of Deeds of Kalibo, Aklan and its motion. This time, no bond is necessary for its issuance; the mortgagor is now
annotation on the transfer certificates of titles. considered to have lost any interest over the foreclosed property. The
6. With the lapse of the 1 year redemption period and the petitioner’s failure to purchaser then becomes the owner of the foreclosed property, and he can
exercise her right to redeem the foreclosed properties, UCPB consolidated demand possession at any time following the consolidation of ownership of
the ownership over the properties, resulting in the cancellation of the titles in the property and the issuance of the corresponding TCT in his/her name. It is at
the name of the petitioner and the issuance of TCTs in the name of UCPB. this point that the right of possession of the purchaser can be considered to
have ripened into the absolute right of a confirmed owner. The issuance of
 the writ, upon proper application, is a ministerial function that effectively Certified to the SC, because the issue is question of law.
forbids the exercise by the court of any discretion.
5. We have ruled in the past that any question regarding the validity of the ISSUE: WON the transaction is an antichresis or a mortgage.
mortgage or its foreclosure is not a legal ground for refusing the issuance of a HELD: A mortgage. it is not an essential requisite of a mortgage that possession
writ of execution/writ of possession. of the mortgaged premises be retained by the mortgagor
6. Exceptions to the rule that issuance of a writ of possession is a ministerial SC: modified TC. that the amount of appellee's principal recovery is reduced
function: (a) gross inadequacy of pruchase price, (b) 3 rd party claiming right to P1,505, with an obligation on the part of appellee to render an accounting
adverse to debtor/mortgagor, and (c) failure to pay the surplus proceeds of of all the fruits received by him.
the sale to mortgagor. The petitioner’s case is not analogous to any of the
exceptions. RATIO:
Petitioner was also accorded due process. The law does not require that the 1. To be antichresis, it must be expressly agreed between creditor and debtor
writ of possession be granted only after the issues raised in a civil case on that the former, having been given possession of the properties given as
nullity of the loan and mortgage are resolved and decided with finality. To do security, is to apply their fruits to the payment of the interest, if owing, and
so would completely defeat the purpose of an ex parte petition under thereafter to the principal of his credit so that if a contract of loan with security
Sections 6 and 7 of Act 3135 that, by its nature, should be summary; we stress does not stipulate the payment of interest but provides for the delivery to the
that it would render nugatory the right given to a purchaser to acquire creditor by the debtor of the property given as security, in order that the latter
possession of the property after the expiration of the redemption period. 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
CASE LAW/ DOCTRINE: a mortgage and not antichresis. The court below, therefore, did not err in
Upon the lapse of the redemption period, a writ of possession may be issued in holding that the contract Exhibit "A" is a true mortgage and not an antichresis.
favor of the purchaser in a foreclosure sale, also upon a proper ex parte
motion. The issuance of the writ, upon proper application, is a ministerial The above conclusion does not mean, however, that appellee, having
function that effectively forbids the exercise by the court of any discretion. received the fruits of the properties mortgaged, will be allowed to appropriate
them for himself and not be required to account for them to the appellant.
068 DIEGO VS FERNANDO The true position of appellee herein under his contract with appellant is a
G.R. No. L-15128 Date Aug 25 1960 "mortgage in possession" as that term is understood in American equity
TOPIC: ANTICHRESIS (D. Foreclosure of antichresis) jurisprudence; that is, "one who has lawfully acquired actual or constructive
PONENTE: Reyes, J. possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing
FACTS: his security upon such property or making its income help to pay his debt". As
1. Segundo Fernando executed a deed of mortgage in favor of Cecilio Diego such mortgagee in possession, his rights and obligations are, as pointed out by
over two parcels of land registered in his name, to secure a P2,000 loan, this Court in Macapinlac vs. Gutierrez Repide, similar to those of an antichretic
without interest, payable in four years from the date of the mortgage. creditor.
Possession of the mortgaged properties were turned over to the mortgagee.
In the present case, the parties having agreed that the loan was to be without
2. Fernando failed to pay the loan after four years, the mortgagee Diego made
interest, and the appellant not having expressly waived his right to the fruits of
several demands but to no avail. Hence this action for foreclosure of
the properties mortgaged during the time they were in appellee's possession,
mortgage.
the latter, like an antichretic creditor, must account for the value of the fruits
3. Fernando contends that the true transaction was an antichresis and not of
received by him, and deduct it from the loan obtained by appellant.
mortgage; and that as plaintiff had allegedly received a total of 120 cavans
of palay from the properties given as security, which, at the rate of P10 a
CASE LAW/ DOCTRINE:
cavan, represented a value of P5,200, his debt had already been paid, with
Antichresis: possession of property as security, its fruits as interest
plaintiff still owing him a refund of some P2,720.00.
Mortgage: possession not necessary, fruits remains to the owner of the
4. RTC ruled that it was a mortgage. The fact that possession of the mortgaged properties, not used as interest.
properties were turned over to the mortgagee did not alter the transaction;
that the parties must have intended that the mortgagee would collect the
fruits of the mortgaged properties as interest on his loan, and that the
evidence showed that Diego had already received 55 cavans from the
properties during the period of his possession.