DBP vs. CA 1.

There should be a property mortgaged by way of security for the payment of the principal obligation
GR No. 118342 2. There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case on non-payment of the
principal obligation within the stipulated period
PLAINTIFF: DBP
DEFENDANT: CA, Agripina Caperal
DATE: January 5, 1998 We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition
PONENTE: J. Davide reads:
TOPIC:

Facts:
 This is a case wherein 2 consolidated cases stemmed form a complaint filed against the DBP and Agripina Caperal filed by
Lydia Cuba
o Declaration of Nullity of DBPs appropriation of CUbas’s rights over the 44hectare fishpond, for being violative of
Article 2088 (pactum commissorium)
o Annulment of Deed of Conditional Sale executed in her favor
o Annulment of DBPs sale to Caperal
o Restoration of her rights, title and interests over the fishpond
o Recovery of Attys fees, etc.
 That Lydia Cuba was a grantee from the government of a Fishpond Lease Agreement for a 44hectare fishpond in Bolinao,
Pangasinan
 She obtained loans from DBP and as a security for the loans, she executed 2 Deeds of Assignment of her Leasehold Rights
 Cuba failed to pay her loans on time so DBP, without foreclosure proceedings, appropriated the Leasehold Rights over the
fishpond
o After the said appropriation, DBP executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba
o DBP accepted Cuba’s offer to repurchase
 After the Deed of Conditional Sale was executed in favor of Cuba, a new Fishpond Lease Agreement was issued by the
Ministry of Agriculture and Food, excluding her husband
 Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale so she entered with the DBP a Temporary
Agreement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, Cuba promised
to make certain payments
 DBP sent notice of rescission through Notarial Act and took possession of the Fishpond Leasehold Rights
o After the Notice of Rescission, DBP took possession of the Leasehold Rights of the fishpond in question
 DBP then conducted a public bidding to dispose of the property, which Agripina Caperal won
o DBP executed the Deed of Conditional Sale in favor of Caperal
o Caperal was awarded the Fishpond Lease
 Cuba filed a complaint against DBP before the RTC of Pangasinan
 RTC: favored Cuba,
o Declared DBPs taking possession and ownership of the property without foreclosure was plainly violative of Article
2088 of the NCC
o The Assignment of Leasehold Rights for being a clear case of Pactum Commissorium expressly prohibited and
declared null and void by Article 2088 of the Civil Code.
o DBP never acquired lawful ownership of Cuba’s leasehold rights, all acts of ownership and possession by the said
bank were void.
o Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed
by Caperal in favor f DBP, were also void and ineffective.
 CA, reversed RTC, declared the following valid:
o DBP in appropriating Cuba’s leasehold rights and interest under the Fishpond Lease
o Deeds of Assignment executed by Cuba
o Deed of Conditional Sale Between Cuba and DBP
o Deed of Conditional Sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal
o DBP to turn over the possession of the property to Caperal as lawful holder of the leasehold rights
Condition 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-
in-fact with full power and authority to take actual possession of the property above-described, together with all improvements thereon,
subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals,
to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might
have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its
interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest
aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property
may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and
obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal
or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself
to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be
revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are
hereby ratified.
 Such condition did not provide that ownership over the leasehold rights would automatically pass to DBP upon Cuba’s failure
to pay the loan on time
o Merely provided for the appointment of DBP as attorney-in fact to sell or otherwise dispose of the said real rights in
case of default by Cuba – and to apply the proceeds to the payment of the loan
o This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code,
which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of
the principal obligation.
 DBP exceeded in the authority vested by Condition No. 12
o DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the
leasehold rights. As stated earlier, condition no. 12 did not provide that CUBAs default would operate to vest
in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case,
is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee.
 The fact that Cuba offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBPs
act of appropriation, as such estoppel is unavailing in this case
What the DBP should have done:
 DBP should have foreclosed the mortgage, as stipulated in Condition no. 12 of the Deed of Assignment
In view of the false representation that DBP has already foreclosed the mortgage, the following acts are declared null
 The cancellation of the fish pond permit
 Conditional sale to Caperal
 Appropriation of the leasehold rights

Issue: W/N the act of DBP to take possession and do acts of ownership over the subject parcel of land is contrary to Article 2088 of the
CC, YES

Ruling:

SC agrees that the Assignment of Leasehold Rights was a Mortgage Contract. It is undisputed that Cuba obtained 3 separate loans from
DBP.

As for the violation of Article 2088,

DBPs acts of appropriating Cuba’s leasehold right was violative of Article 2088, which forbids a creditor from appropriating, or disposing of
the thing given as security for the payment of a debt.

The elements of Pactum Commissorium are as follows:

BUSTAMANTE V ROSEL o (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
G. R. No. 126800 payment of the principal obligation within the stipulated period.

In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged
FACTS: to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan.
 Rosel entered into a contract of loan with petitioner Natalia Bustamante and her late husband Ismael  In effect, the creditor acquires the collateral in the event of non payment of the loan.
 SUCH IS VOID
Terms and conditions:
 The loan was for 100K payable in 2 years with 18% interest per annum and to guaranty payment they are putting as collateral a
portion of a parcel of land in Congressional Ave. inclusive of the apartment therein
 In the event that they failed to pay Bustamante has the option to purchase the collateral for 200K inclusive of the borrowed
amount

When the loan was about to mature on March 1, 1989 Rosel proposed to buy at the pre-set price of 200K

 Bustamante refused and asked for an extension of time to pay the loan and offered to sell to respondents another residential lot
o With the principal loan plus interest to be used as down payment.

 Rosel refused to extend the payment of the loan and to accept the lot as it was occupied by squatters and Bustamante was not
the owner but a mere land developers

March 1, 1989, petitioner tendered payment of the loan to respondents which the latter refused to accept, insisting on petitioners signing a
prepared deed of absolute sale of the collateral.

Rosel filed a complaint for specific performance with consignation against petitioner and her spouse.
 Nevertheless, respondents still send a demand letter to have them sell the collateral.

When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned the amount of P47,500.00 with the
trial court.

RTC, denied the execution of deed of sale and ordered Bustamante to pay the amount of the loan.

CA, reversed the decision of the lower court

 Ordering the petitioners to accept the amount of P 47,000.00
 Execute the necessary deed of sale

ISSUE: WON failed to pay the loan & WON the stipulations in the contract are valid

HELD:

Petitioner did not fail to pay the loan.

 The loan was due for payment on March 1, 1989
 On said date, petitioner tendered payment to settle the loan which respondents refused to accept, insisting that petitioner sell to
them the collateral of the loan.
 When respondents refused to accept payment, petitioner consigned the amount with the trial court

The sale of the collateral is an obligation with a suspensive condition

 Since the event did not occur, respondents do not have the right to demand fulfillment of petitioners obligation, especially where
the same would not only be disadvantageous to petitioner but would also unjustly enrich respondents considering the inadequate
consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.

Respondents argue that contracts have the force of law between the contracting parties and must be complied with in good faith.

Certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public policy.

The stipulations in the contract of the parties embraced in the concept of pactum commissorium, which is proscribed by law
 The elements of pactum commissorium are as follows:
o (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and
Sps. Ong vs Roban Lending Corp.
Facts:
 Petitioner obtained loans from the respondent. The total amount of the loan is P4 million. As a security Petitioner executed a
real estate mortgage in favor of Respondent.
 Petitioner and Respondent executed an amendment to amend the real estate mortgage which consolidate their loan. The total
amount of the loan is P5.9million. The parties, petitioner and respondent, executed a Dacion in Payment agreement and
Memorandum of Agreement.
 Petitioner filed a case against Respondent to declare the two agreement to be void because it is pactum commissorium. The
former also alleged that the monthly interest of 3.5%, 5% as a penalty, and 25% attorney’s fee to be unconscionable.
 Respondent’s defense is that Dacion in Payment agreement is valid and lawful because it is recognized by art. 1245 of the
Civil Code.

RTC – dismissed the case and considered the two agreements to be valid, and there is no pactum commissorium. On appeal, CA affirmed
the RTC’s decision.
Issue:
W/N the two agreements is valid.
Held: NO. Void for being pactum commissorium

This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium, which is prohibited under
Article 2088 of the Civil Code which provides:

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null
and void."

The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of
any foreclosure proceedings, are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation,
and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.

In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor
redemption. Under the Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership of the properties upon petitioners’ failure to pay their debt within the stipulated
period.
Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the
creditor in satisfaction of a monetary obligation. This does not persuade. In a true dacion en pago, the assignment of the property
extinguishes the monetary debt. In the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the
debt. The Dacion in Payment did not extinguish petitioners’ obligation to respondent. On the contrary, under the Memorandum of
Agreement executed on the same day as the Dacion in Payment, petitioners had to execute a promissory note for ₱5,916,117.50 which
they were to pay within one year.
As for the interest, the Court said that it is unconscionable. The Court lowered the interest stated in the agreement.
The 3.5% monthly interest or 42% per annum reduced it to 12% per annum. The monthly penalty interest of 5% was reduced to 12% per
annum of the amount due, to be computed from the time of demand. The 25% attorney’s fee of the principal amount, interest and interest
therein was reduced to 25% of the principal amount only.
Prudential Bank vs Alviar
Facts of the case:
Sps. Alviar are the registered owners of a parcel of land in San Juan, Metro Manila. On 10 July 1975, they executed a deed of real estate
mortgage in favor of Prudential Bank to secure the payment of a loan worth 250k. On 4 August 1975, subsequently, they issued a Promissory
Note covering the same load which provides that the loan matures on 4 August 1976 with an interest rate of 12% per annum with 2 %
service charge, and that said note is secured by a Real estate mortgage. (1st PN)
“That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the
Mortgagee by the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that may hereafter be obtained, the principal or all of which is
hereby fixed at Two Hundred Fifty Thousand (₱250,000.00) Pesos, Philippine Currency, as well as those that the
Mortgagee may extend to the Mortgagor and/or DEBTOR, including interest and expenses or any other
obligation owing to the Mortgagee, whether direct or indirect, principal or secondary as appears in the
accounts, books and records of the Mortgagee, the Mortgagor does hereby transfer and convey by way of mortgage
unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the
back of this document, and/or appended hereto, together with all the buildings and improvements now existing or
which may hereafter be erected or constructed thereon, of which the Mortgagor declares that he/it is the absolute
owner free from all liens and incumbrances. . . .”
On 22 October 1976, Don Alviar executed another Promissory Note stating that the loan was secured by a “hold-out” on the mortgagor’s
foreign currency savings account and that the mortgagor’s passbook is to be surrendered to the bank until the amount secured by the hold
out is settled. (2nd PN)
December 1976, Sps. Alviar executed for Donalco Trading, Inc., which the sps were president and chairman of the corporation, another
Promissory Note covering 545k. The Promissory note was secured by “Clean Phase out TOD CA 3923”, which means that the temporary
overdraft incurred by Donalo Trading with petitioner is to be converted into an ordinary loan in compliance with the Central Bank circular
directing the discontinuance of overdrafts. (3rd PN)
March 1977, Prudential Bank informed Donalco of its approval of a straight loan of 545k, the proceeds of which will liquidate its outstanding
loan. The letter likewise mentioned that the securities for the loan were the deed of assignment on the two promissory notes executed by
Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and
transportation equipment
Supreme Court:
No. A blank mortgage clause is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully
scrutinized and strictly construed. Thus contrary to the findings of the Court of Appeals, petitioner and respondents intended the REM to
secure not only the 250k loan but also future credit facilities and advancement that may be obtained by the respondents.
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by
Don Alviar was secured by a "hold-out" on his foreign currency savings account, while PN BD#76/C-430, executed by respondents for
Donalco Trading, Inc., was secured by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on two promissory notes
executed by Bancom Realty Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various
heavy and transportation equipment. The matter of PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the
"blanket mortgage" clause applies even to subsequent advancements for which other securities were intended, or particularly, to PN
BD#76/C-345. Thus, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because (1)
the second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such
chattel mortgage; (2) there was no reference in the second note or chattel mortgage indicating a connection between the real estate
mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel
mortgage were signed by the mortgagor doing business under an assumed name; and (4) there was no allegation by the bank, and
apparently no proof, that it relied on the security of the real estate mortgage in making the advance.
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three
promissory notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the
other security given for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the ₱250,000.00 loan covered by
PN BD#75/C-252, and for any amount not covered by the security for the second promissory note. As held in one case, where deeds
absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note,
after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within
the protection of the mortgage, notwithstanding the giving of the special security.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid the
₱250,000.00, and gave no credence to their claim that they paid the said amount when they paid petitioner ₱2,000,000.00. Thus, the
mortgaged property could still be properly subjected to foreclosure proceedings for the unpaid ₱250,000.00 loan, and as mentioned earlier,
for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are available
to respondents.

On 06 March 1979, respondents paid petitioner ₱2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and Development, Inc.
and for the release of the real estate mortgage for the ₱450,000.00 loan covering the two (2) lots located at Vam Buren and Madison Streets,
North Greenhills, San Juan, Metro Manila. The payment was acknowledged by petitioner who accordingly released the mortgage over the
two properties.

On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage on the property covered by TCT No. 438157. Per
petitioner’s computation, respondents had the total obligation of ₱1,608,256.68, covering the three (3) promissory notes, to wit: PN BD#75/C-
252 for ₱250,000.00, PN BD#76/C-345 for ₱382,680.83, and PN BD#76/C-340 for ₱545,000.00, plus assessed past due interests and
penalty charges. The public auction sale of the mortgaged property was set on 15 January 1980.

Trial Court based on MR found:

that only the ₱250,000.00 loan is secured by the mortgage on the land covered by TCT No. 438157. On the
other hand, the ₱382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while
the ₱545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary overdraft of
Donalco Trading, Inc. in compliance with a Central Bank circular. According to the trial court, the "blanket
mortgage clause" relied upon by petitioner applies only to future loans obtained by the mortgagors, and not
by parties other than the said mortgagors, such as Donalco Trading, Inc., for which respondents merely
signed as officers thereof.

On appeal to the Court of Appeal

The Court of Appeals affirmed the Order of the trial court but deleted the award of attorney’s fees. It ruled that
while a continuing loan or credit accommodation based on only one security or mortgage is a common practice
in financial and commercial institutions, such agreement must be clear and unequivocal. In the instant case,
the parties executed different promissory notes agreeing to a particular security for each loan. Thus, the
appellate court ruled that the extrajudicial foreclosure sale of the property for the three loans is improper.The
Court of Appeals, however, found that respondents have not yet paid the ₱250,000.00 covered by PN
BD#75/C-252 since the payment of ₱2,000,000.00 adverted to by respondents was issued for the obligations
of G.B. Alviar Realty and Development, Inc

Issue: Whether or not the blank mortgage clause covers all other PNs by the SPS. Alviar
 PEOPLE’S BANK v. DAHICAN LUMBER The defendant's claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory note
G.R. NO. L-17500 May 16, 1967 sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the plaintiffs had no
cause of action.
The SC ruled that Dahican Lumber was insolvent as of the date of the filing of the complaint, therefore, it follows that they lose the benefit
FACTS: of the period. (Article 1198 of NCC).

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the Philippines —
hereinafter referred to as ATLANTIC — sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company —
hereinafter referred to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to
develop the concession, DALCO obtained various loans from the People's Bank & Trust Company — hereinafter referred to as the BANK
— amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the Export-
Import Bank of Washington D.C., evidenced by five promissory notes of $50,000.00 each, maturing on different dates, executed by both
DALCO and the Dahican America Lumber Corporation, a foreign corporation and a stockholder of DALCO, — hereinafter referred to as
DAMCO, all payable to the BANK or its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO 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 mortgage covering five parcels of land. On the same date,
DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale
price of the lumber concession amounting to the sum of $450,000.00.

Both deeds contained a provision saying:

All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools equipment and
other property which the Mortgagor may hereafter acquire, construct, install, 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 manner and to the same extent as if now included therein,
and the Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an accurate inventory of such
substituted and subsequently acquired property.

Both mortgages were registered in the registry of deeds. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of
stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various machineries, equipment,
spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid. Pursuant to
the provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK requested DALCO to submit
complete lists of said properties but the latter failed to do so.

The petitioners contend that the proceeds obtained from the sale of the "after acquired properties" as well as those obtained from the sale
of the "undebated properties" in the total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the mortgage
lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of them being guilty of an attempt to
defraud the former when they sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien

Note: Dahican Lumber subsequently became insolvent and placed under receivership.

ISSUE:

WON the so-called "after acquired properties" are covered by and subject to the deeds of mortgage subject of foreclosure.

HELD:

YES and the proceeds should be awarded to the petitioners. It is not disputed in the case at bar that the "after acquired properties" were
purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition
to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be deemed to have been
immobilized, with the result that the real estate mortgages involved herein — which were registered as such — did not have to be registered
a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties.
As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of our
opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in
payment of the money obligations secured by the mortgages under foreclosure.
On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code) provides
that creditors are protected in cases of contracts intended to defraud them; and that any third person who induces another to violate his
contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 — which may be
given retroactive effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.
The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon its
maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by attempting
to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus
jeopardized. Defendants' liability for damages is therefore clear.
ON THE ISSUE OF PREMATURE FORECLOSURE OF MORTGAGE
STAR TWO (SPV-AMC), INC.,1 Petitioner,
vs. The CA affirmed the Order.
PAPER CITY CORPORATION OF THE PHILIPPINES, Respondent.
ISSUE WON the subject machineries and equipments forms part of the Real Estate Mortgage.

FACTS HELD:
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now substituted by Star Two (SPV-AMC),
Inc. Yes. By contracts, all uncontested in this case, machineries and equipments are included in the mortgage in favor of RCBC, in the
foreclosure of the mortgage and in the consequent sale on foreclosure also in favor of petitioner.
Paper City is a domestic corporation engaged in the manufacture of paper products. Paper City applied for and was granted loans and
credit accommodations in peso and dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel Mortgages on its Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of land including the buildings
machineries and equipments found inside its paper plants. and existing improvements thereon as well as the machineries and equipments, which as stated in the granting clause of the original
However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade was executed by mortgage, are "more particularly described and listed that is to say, the real and personal properties listed in Annexes ‘A’ and ‘B’.”
RCBC over the merchandise and stocks-in-trade covered by the continuing chattel mortgages.
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks and Paper City intended from
RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank) entered into a Mortgage Trust Indenture
the very first execution of the indentures that the machineries and equipments enumerated in Annexes "A" and "B" are included. Obviously,
(MTI) with Paper City. In the said MTI, Paper City acquired an additional P170, 000,000.00 from the creditor banks in addition to the
with the continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable properties
previous loan from RCBC amounting to P110, 000,000.00.
acceptable to the creditor banks.
The old loan of P110,000,000.00 was partly secured by various parcels of land situated in Valenzuela City. The new loan obligation
of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate Mortgage and additional real and personal properties The MTIs did not describe the equipments and machineries as personal property. Notably, while "personal" appeared in the granting clause
described in an annex to MTI, Annex "B" which covered the machineries and equipments of Paper City. of the original MTI, the subsequent Deed of Amendment specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the parcels
Annex "A" of land subject of the Mortgage Trust Indenture and the Real Estate Mortgage.
A. Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers’ Quarter/Restroom
2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received
B. Pollution Tank Nos. 1 and 2. when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property
Reserve Water Tank and Swimming Pool mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the
Waste Water Treatment Tank estate remains in the possession of the mortgagor, or it passes into the hands of a third person. (Underlining ours)…even if the machinery
Elevated Concrete Water Tank in question was not included in the mortgage expressly, Article 111 of the old Mortgage Law provides that chattels permanently located in
And other Improvements listed in Annex "A" a building, either useful or ornamental, or for the service of some industry even though they were placed there after the creation of the
mortgage shall be considered as mortgaged with the estate, provided they belong to the owner of said estate.
C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps Bischoff v. Pomar and Cia. General de Tabacos...Article 1877 provides that a mortgage includes the natural accessions, improvements,
Transformers growing fruits, and rents not collected when the obligation is due, and the amount of the indemnities granted or due the owner by the
Annex "B" underwriters of the property mortgaged or by virtue of the exercise of eminent domain by reason of public utility, with the declarations,
D. D. Material Handling Equipment amplifications, and limitations established by law, in case the estate continues in the possession of the person who mortgaged it, as well
Paper Plant No. 3 as when it passes into the hands of a third person
The MTI was later amended to increase the contributions of the RCBC and Union Bank…still included as part of the mortgaged properties
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co…the machineries were integral parts of said sugar central hence included
by way of a first mortgage the various machineries and equipments located in and bolted to and/or forming part of buildings.
following the principle of law that the accessory follows the principal.
A Second Supplemental Indenture to the MTI was executed to increase the amount of the loan secured against the existing properties
composed of land, building, machineries and equipments and inventories described in Annexes "A" and "B."
Finally, a Third Supplemental Indenture to the MTI was executed to increase the existing loan obligation with an additional security 3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and equipments of respondent.
composed of a newly constructed two-storey building and other improvements, machineries and equipments located in the existing plant While captioned as a "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended," the averments
site. state that the petition is based on "x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust Indenture, the
Second Supplemental Indenture to the Mortgage Trust Indenture, and the Third Supplemental Indenture to the Mortgage Trust Indenture
Paper City was able to comply with its loan obligations but economic crisis ensued which made it difficult for Paper City to meet the terms (hereinafter collectively referred to as the Indenture) duly notarized and entered as x x x."60 Noting that herein respondent has an
of its obligations leading to payment defaults. Consequently, RCBC filed a Petition for Extrajudicial Foreclosure. outstanding obligation in the total amount of Nine Hundred One Million Eight Hundred One Thousand Four Hundred Eighty Four and
The petition was for the extra-judicial foreclosure of eight parcels of land including all improvements thereon which were sold in favor of 10/100 Pesos (₱901,801,484.10), the petition for foreclosure prayed that a foreclosure proceedings "x x x on the aforesaid real properties,
the creditor banks RCBC, Union Bank and Metrobank as the highest bidders. including all improvements thereon covered by the real estate mortgage be undertaken and the appropriate auction sale be conducted x x
This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging that the extra-judicial sale of the x."61
properties and plants was null and void due to lack of prior notice and attendance of gross and evident bad faith on the part of the creditor
banks. Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states through the Deed of Amendment
that the machineries and equipments listed in Annexes "A" and "B" form part of the improvements listed and located on the parcels of land
Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the machineries and equipments were included subject of the mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate properties, including all
in the annexes and form part of the MTI. improvements
thereon" as prayed for in the petition.
Paper City filed its Motion for Reconsideration - granted by RTC with justification that the machineries and equipments are chattels by
agreement of the parties through their inclusion in the four Deeds of Chattel Mortgage and the deed of cancellation executed by RCBC was The real estate mortgage over the machineries and equipments is even in full accord with the classification of such properties by the Civil
not valid because it was done unilaterally and without the consent of Paper City. Code of the Philippines as immovable property. Thus:

Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works.
PETITION GRANTED REINSTATING THE ORIGINAL DECISION OF TRIAL COURT DENYING MOTION TO REMOVE/DISPOSE
MACHINERIES
G.R. No. 158891 June 27, 2012
PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.
Facts:
 Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property), which she mortgaged to Yolanda
Valdez Villar (Villar) as security for a loan.
 Galas subsequently mortgaged the same subject property to Pablo P. Garcia (Garcia) to secure another loan. Both mortgages
were annotated on the subject property’s TCT.
 Galas thereafter sold the subject property to Villar. The Deed of Sale was registered and, consequently, a new
TCT was issued in the name of Villar. Both Villar’s and Garcia’s mortgages were carried over and annotated on
Villar’s new TCT.
 Garcia filed a Petition for Mandamus with Damages against Villar before the RTC. Garcia subsequently amended his petition to
a Complaint for Foreclosure of Real Estate Mortgage with Damages and alleged that when Villar purchased the subject property,
she acted in bad faith as she knowingly and willfully disregarded the laws on judicial and extrajudicial foreclosure of mortgaged
property. Garcia further claimed that when Villar purchased the subject property, Galas was relieved of her contractual obligation
and the characters of creditor and debtor were merged in the person of Villar. Therefore, Garcia argued, he, as the second
mortgagee, was subrogated to Villars original status as first mortgagee, which is the creditor with the right to foreclose.
 Villar claimed that the complaint stated no cause of action and that the second mortgage was done in bad faith as it was without
her consent and knowledge. Villar alleged that she only discovered the second mortgage when she had the Deed of Sale
registered. Villar blamed Garcia for the controversy as he accepted the second mortgage without prior consent from her. She
averred that there could be no subrogation as the assignment of credit was done with neither her knowledge nor prior consent.
Villar added that Garcia should seek recourse against Galas and Pingol, with whom he had privity insofar as the second mortgage
of property is concerned.
 The RTC ruled in favor of Garcia. The RTC declared that the direct sale of the subject property to Villar, the first mortgagee,
could not operate to deprive Garcia of his right as a second mortgagee. The RTC further explained that upon Galas’s failure to
pay her obligation, Villar should have foreclosed the subject property to provide junior mortgagees like Garcia the opportunity to
satisfy their claims from the residue, if any, of the foreclosure sale proceeds.
 Villar appealed and contended that the second mortgage is a void and inexistent contract. The Court of Appeals reversed the
RTC’s decision and declared that Galas was free to mortgage the subject property even without Villar’s consent as the restriction
that the mortgagees consent was necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate
Mortgage. However, the Court of Appeals held that the sale of the subject property to Villar was valid as it found nothing
in the records that would show that Galas violated the Deed of Real Estate Mortgage prior to the sale.
 Garcia appealed to the Supreme Court, with the same arguments he posited before the lower courts, but added that the Deed
of Real Estate Mortgage contained a stipulation, which is violative of the prohibition on pactum commissorium.
Issues
1. WON second mortgage to Garcia was valid
2. Whether or not the sale of the subject property to Villar was valid
3. Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum commissorium
4. Whether or not Garcia’s action for foreclosure of mortgage on the subject property can prosper.
Ratio:
Validity of second mortgage to Garcia and sale of subject property to Villar:
 The SC agrees with the Court of Appeals that both are valid under the terms and conditions of the Deed of Real Estate Mortgage
executed by Galas and Villar.
 While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a restriction on further encumbrances
without the mortgagees prior consent, this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this
Deed became the basis for the annotation on Galass title, its terms and conditions take precedence over the standard, stamped
annotation placed on her title. If it were the intention of the parties to impose such restriction, they would have and should have
stipulated such in the Deed of Real Estate Mortgage itself.
 Neither did this Deed proscribe the sale or alienation of the subject property during the life of the mortgages. Garcias insistence
that Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy Galass debt is misplaced. The Deed of Real
Estate Mortgage merely provided for the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere
was it stated in the Deed that Galas could not opt to sell the subject property to Villar, or to any other person. Such stipulation
would have been void anyway, as it is not allowed under Article 2130 of the Civil Code
Prohibition on pactum commissorium
 The following are the elements of pactum commissorium:
o There should be a property mortgaged by way of security for the payment of the principal obligation; and
o There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period.
  Villars purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision
above did not provide that the ownership over the subject property would automatically pass to Villar upon Galass failure to pay
the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose
of the subject property, and to apply the proceeds to the payment of the loan.
 Galas’ decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of her
rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate
contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon
Galass failure to discharge her debt, or that the sale was simulated to cover up such automatic transfer.
Propriety of Garcias action for foreclosure of mortgage
 A mortgage is a real right, which follows the property, even after subsequent transfers by the mortgagor. A registered mortgage
lien is considered inseparable from the property inasmuch as it is a right in rem. The sale or transfer of the mortgaged property
cannot affect or release the mortgage; thus the purchaser or transferee is necessarily bound to acknowledge and respect the
encumbrance.
 While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been discharged, we find
that said mortgage subsists and is still enforceable. However, Villar, in buying the subject property with notice that it was
mortgaged, only undertook to pay such mortgage or allow the subject property to be sold upon failure of the mortgage creditor
to obtain payment from the principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the
principal obligation, and could not do so in law without the creditors consent as provided in Art. 1293 of the CC
 Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol.
 Garcia has no cause of action against Villar in the absence of evidence to show that the second mortgage executed in favor of
Garcia has been violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a demand on said debtors for
the payment of the obligation secured by the second mortgage and they have failed to pay.
Korea Exchange Bank vs. Filkor
GR No. 138292
PLAINTIFF: Korea Exchange Bank
DEFENDANT: Filkor Business Integrated, Kim Eung Joe, Lee Han Sang
DATE: April 10, 2002
PONENTE: J. Quisumbing
TOPIC:
Facts:
 That Respondent Filkor
o Borrowed USD 140k payable on July 9, 1997 – but only 40k was paid
o Executed 9 trust receipts in favor of Korea Exchange Bank – failed to turnover the proceeds from the sale of the
goods, or the goods themselves as required by the trust receipts
o Also negotiated to petitioner the proceeds of 17 letters of credit issued by the Republic Bank of New York and the
Banque Leumi France, S. A. to pay for goods which Filkor sold to Segerman International Inc and Davyco S. A. –
petitioner tried to collect the proceeds of the letters of credit by presenting the bills of exchange drawn to collect the
proceeds, they were dishonored because of the discrepancies
 In order to secure payment, Filkor executed a REM on February 9, 1996.
o Mortgages the improvements belonging to ot constructed on the lost it was leasing at the Cavite Export Processing
Zone Authority
o Private Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves
jointly and severally with respondent Filkor to pay for the latters obligations to petitioner
 Respondents still failed to pay
 Petitioners prayed the ff:
o It be paid by respondents under the 27 causes of action
o Property mortgaged be foreclosed and sold at public auction in case of failure to pay
o Other reliefs equitable
 RTC favored the petitioner; granting the summary judgment but failed to order the foreclosure and public auction of the
mortgaged property in the event that Filkor fails to pay its obligation
 Basis for the TCs decision
o The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and
Supply Co. vs. Co Kim, et al., 71 Phil. 448, where the Supreme Court ruled that:
o The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary
action to recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor
including the subject matter of the mortgage, subject to the qualification that if he fails in the remedy by him
elected, he cannot pursue further the remedy he has waived.
 Petitioner filed a Motion for Partial Reconsideration seeking that the relief of foreclosure be granted but such motion was
denied ssaying that the petitioner in opting to fie a civil action for the collection of the defendant’s obligation, has abandoned its
mortgages lien on the property subject of the real estate mortgage
Issue: W/N the petitioner had abandoned the REM in its favor, because it filed a simple collection case, NO
Ruling:
The only reason defendants deny all the material allegations in the complaint is because the documents attached thereto are mere
photocopies and not the originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of documents to be attached to the
pleading as an exhibit. Defendants are, therefore, deemed to have admitted the genuineness and due execution of all actionable
documents attached to the complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of
Court.
The SC, finds no indication whatsoever that petitioner had waived its rights under the REM executed in its favor. Thus, the trial court erred
in concluding that petitioner had abandoned its mortgage lien on Filkors property, when it filed a collection for sum of money.
In petitioners complaint before the trial court, Paragraph 183 thereof alleges:
Paragraph 183. To secure payment of the obligations of defendant Corporation under the First to the Twenty-Seventh Cause of Action, on
February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements
standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax
Declaration No. 5906-1 and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing
area building and the packing area building. (A copy of the Real Estate Mortgage is attached hereto as Annex SS and made an integral
part hereof.)
The allegations in Paragraph 183, the date and due and execution f the REM are alleged and satisfies the requirement of foreclosure as
provided for in Section 1, Rule 68 ROC
SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the
complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor
and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the
obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or
claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the
action.
It was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at the public auction in the event that the
Respondent Filkor fails to pay, in pursuant to:
This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such action the court shall find the facts set forth in the complaint
to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as
approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to
the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from entry of
judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment.
HUERTA ALBA V CA
G.R. No. 128567
FACTS:
 In a complaint for judicial foreclosure of mortgage private respondent Syndicated Management Group (SMGI) sought the
foreclosure of four (4) parcels of land mortgaged by petitioner to Intercon
 Private respondent instituted an action as as mortgagee-assignee of a loan amounting to P8.5M obtained by petitioner from
Intercon in which petitioner mortgaged the mentioned property as security
Petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on the ground that the same was
ultra vires.
RTC, granted SMGI's complaint for judicial foreclosure of mortgage"
CA, dismissed; failure to pay docket fees
 As judgment became final and executory, execution thereof was a matter of right and the issuance of the corresponding writ of
execution became its ministerial duty.
 Auction sale proceeded and private respondent SMGI was declared the highest bidder
Petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the twelve (12) month period of
redemption for ordinary execution applied in the case.
 RTC ruled that the period of redemption of subject property should be governed by the rule on the sale of judicially foreclosed
property under Rule 68
 CA, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed
from the date petitioner was notified of the Entry of Judgment
o 150-day period within which petitioner may exercise its equity of redemption expired on September 11, 1994
Motion for Reconsideration: Petitioner theorized that the period of one hundred fifty (150) days should not be reckoned with from Entry of
Judgment but from receipt on or before July 29, 1994
 petitioner maintained that it may not be considered in default, even after the expiration of 150 days from July 29, 1994, because
prior demand to pay was never made on it by the private respondent.
On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification" of the date of commencement
of the one (1) year period for the redemption of the properties in question.
ISSUE: WON HUERTA has the right of redemption
HELD:
From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only the
equity of redemption over subject properties
"The equity of redemption is, to be sure, different from and should not be confused with the right of redemption.
The right of redemption in relation to a mortgage – understood in the sense of a prerogative to re-acquire mortgaged property
after registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. No such right
is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking
institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year
from the registration of the sheriff's certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial
foreclosure sale 'when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and
to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally
'allowed by law'
R.A. 337 laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property
sold on foreclosure — after confirmation by the court of the foreclosure sale — which right may be exercised within a period of one (1) year,
counted from the date of registration of the certificate of sale in the Registry of Property.
 Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337
Did petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject properties? – NO
 September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and prove that
private respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable
o Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.
 Nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of
private respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale
of subject properties in favor of private respondent
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the date
of commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right under Section
78 of R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest was a credit institution.
 If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged
right under Section 78 of R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have alleged that
it was entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any
right thereunder.
It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of whether or not private
respondent's predecessor in interest was a credit institution
The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage
case.
It is decisively clear that the trial court erred in still allowing petitioner to introduce evidence that private respondent's predecessor-in-interest
was a credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337.
 Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent
is a credit institution.
 There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly invoke its right under Section 78
of R.A. No. 337 will disturb the "law of the case."
Grand Farms Inc. vs CA
Facts:
 Petitioner filed a complaint against the private respondent, Banco Filipino Savings ang Mortgage Bank, to declare the
extrajudicial foreclosure of mortgage of the property of the former. Petitioner alleging that there is no formal notice was made
by the private respondent.
 Private respondent’s that there is notice that was made by the latter. They gave notice by posting and publication. They
published the notice in the Metropolitan Newsweek, a newspaper of general circulation in the province of Valenzuela. It also
admitted that there is no formal notice was made by the Bank, private respondent, to the petitioner.
 Petitioner filed a motion for summary judgment saying that the extrajudicial foreclosure is void because the private respondent
violate their agreement:
o k) All correspondence relative to this Mortgage, including demand letters, summons, subpoena or notifications of
any judicial or extrajudical actions shall be sent to the Mortgagor at the address given above or at the
address that may hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the
Mortgagor for all legal purposes, and the fact that any communication is not actually received by the Mortgagor, or
that it has been returned unclaimed to 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 Mortgagor from the effects of such notice;
 Private respondent opposed the motion because as under their agreement that the latter becomes the attorney-in-fact of the
petitioner.
RTC denied the motion of the petitioner. Saying that there is a genuine issued in the case at bar. The issues are: (a) whether or not the
loan has matured; (b) whether or not private respondent notified petitioners of the foreclosure of their mortgage; (c) whether or not the
notice by publication of the foreclosure constitutes sufficient notice to petitioners under the mortgage contract; (d) whether or not the
applicant for foreclosure of the mortgage was a duly authorized representative of private respondent; and (e) whether or not the
foreclosure was enjoined by a resolution of this Court.
CA affirmed it. The CA said paragraph (k) of the mortgage contract merely specified the address where correspondence should be sent
and did not impose an additional condition on the part of private respondent to notify petitioners personally of the foreclosure.
Issue: W/N formal notice is needed before private respondent extrajudicial foreclose petitioner’s property.
Held: YES
The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and admissions on file, together with the
affidavits, show that, except as to the amount of damages, there is no issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law.10 Although an issue may be raised formally by the pleadings but there is no genuine issue of fact, and all
the facts are within the judicial knowledge of the court, summary judgment may be granted.11
The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in support of the motion are
sufficient to overcome the opposing papers and to justify a finding as a matter of law that there is no defense to the action or that the claim
is clearly meritorious.12
Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or declaration of nullity of the
foreclosure proceedings and damages ripe for summary judgment. Private respondent tacitly admitted in its answer to petitioners' request
for admission that it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and as is evident from the records, there
has been no denial by private respondent that no personal notice of the extrajudicial foreclosure was ever sent to petitioners prior thereto.
This omission, by itself, rendered the foreclosure defective and irregular for being contrary to the express provisions of the mortgage
contract. There is thus no further necessity to inquire into the other issues cited by the trial court, for the foreclosure may be annulled
solely on the basis of such defect.
The Court said that even private respondent becomes the attorney-in-fact of the petitioner, formal notice is indispensable as stated in
paragraph k of their agreement.
while publication of the foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still required,
as in the case at bar, when the same was mutually agreed upon by the parties as additional condition of the mortgage contract.
The Court also said that there is no need to interpret the agreement of the parties because paragraph K ,and A and D are not conflicting to
each other. As in fact a reconciliation should be made of, the provisions of paragraphs (b) and (d) which appear first in the mortgage
contract and those in paragraph (k) which follow thereafter and necessarily took into account the provisions of the preceding two
paragraphs.14 The notices respectively mentioned in paragraphs (d) and (k) are addressed to the particular purposes contemplated
therein. Those mentioned in paragraph (k) are specific and additional requirements intended for the mortgagors so that, thus apprised,
they may take the necessary legal steps for the protection of their interests such as the payment of the loan to prevent foreclosure or to
subsequently arrange for redemption of the property foreclosed.
MADIDA vs CA
Facts of the case:
On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City Cadastre and embraced
under TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the previous mortgage in favor of
Cebu City Development Bank, went to Teotimo Abellana, president of defendant Association, to obtain a loan of P30,000.00. Prior thereto
or on October 3, 1974, their son Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00) Pesos with lot No.
4731 offered as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they executed a
promissory note in favor of defendant association. Both documents indicated that the principal obligation is for Thirty Thousand (P30,000.00)
Pesos payable in one year with interest at twelve (12%) percent per annum.
When the loan became due and demandable without plaintiff paying the same, defendant association caused the extrajudicial foreclosure
of the mortgage on March 16, 1976. After the posting and publication requirements were complied with, the land was sold at public auction
on April 19, 1976 to defendant association being the highest bidder. The certificate of sale was issued on April 20, 1976 and registered on
May 10, 1976 with the Register of Deeds of Cebu.
On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled and in lieu thereof TCT No.
68041 was issued in the name of defendant association.
The trial court upheld the validity of the loan and the REM but annulling the extra judicial foreclosure sale inasmuch as the same failed to
comply with the notice requirement.
Private Respondents interposed a partial appeal to the court with respect to the cancellation of TCT and the order of paying Cebu City
savings loan association. The Court of Appeals declared the REM void. The decision of the Lower court was affirmed with modification.
Issue: WON a mortgage, whose property has been extrajudicially foreclosed and sold at a corresponding foreclosure sale, may vlidly execute
a mortgage contract over the same property in favor of a third party during the redemption.
Ruling: Yes. it is undisputed that the real estate mortgage in favor of petitioner bank was executed by respondent spouses during the period
of redemption. During the said period, it cannot be said the mortgagor is no longer the owner of the foreclosed property since the rule up to
now iss the right of a purchaser of a foreclosure sale is merely inchoate until after the period of redemption has expired without the right
being exercised. The title to the land sold udner mortgage foreclosure remains in the mortgagor or hi grantee until the expiration of the
redemption period and the conveyance of the master deed.
The mortgagor remains as the absolute owner as the absolute owner of the property during the redemption period and h as the free disposal
of his property, there would be compliance with Article 2085 of the Civil Code for the constitution of another mortgage on the property. To
hold otherwise would create an inquetibale situation wherein the mortgagor would be deprived of the opportunity, which may be his last
recourse, to raise funds to timely redeem his property through another mortgage.
SPS. DY v. SPS. YAP
G.R. NO. 171868 July 27, 2011
FACTS:
Spouses Tirambulo own several parcels of land which they used as a security for a REM in the amount of Php 105,000 from the Rural Bank
of Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI). A second loan for Php 28,000 was obtained by said spouses.
Subsequently, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and Natividad Chiu (the Dys) and the spouses
Marcelino C. Maxino and Remedios Lasola (the Maxinos) without the consent and knowledge of DRBI.
The Tirambulos defaulted on their loan and it was foreclosed – DRBI being the highest bidder. The certification of sale, however, was not
registered until almost a year later.
Twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6 to the spouses Francisco D. Yap and Whelma D. Yap (the Yaps)
under a Deed of Sale with Agreement to Mortgage. It is important to note, however, that Lot 3 was not among the five properties
foreclosed and bought by DRBI at public auction.
Roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos attempted to redeem Lots 1, 3 and 6.
They tendered the amount of P40,000.00 to DRBI and the Yaps, but both refused, contending that the redemption should be for the full
amount of the winning bid of P216,040.93 plus interest for all the foreclosed properties.
Thus, on May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of Negros Oriental and paid P50,625.29 (P40,000.00 for
the principal plus P10,625.29 for interests and Sheriffs Commission) to effect the redemption. Noticing that Lot 3 was not included in the
foreclosure proceedings, Benjamin V. Diputado, Clerk of Court and Provincial Sheriff, issued a Certificate of Redemption in favor of the Dys
and the Maxinos only for Lots 1 and 6, and stated in said certificate that Lot 3 is not included in the foreclosure proceedings. By letter of
even date, Atty. Diputado also duly notified the Yaps of the redemption of Lots 1 and 6 by the Dys and the Maxinos, as well as the non-
inclusion of Lot 3 among the foreclosed properties. He advised the Yaps to personally claim the redemption money or send a representative
to do so.
In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused to take delivery of the redemption price arguing that one of the
characteristics of a mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the parcels were
sold for a single price at the auction sale.
ISSUE:
WON the doctrine of indivisibility as it relates to mortgage (Article 2089 of NCC) is applicable.
HELD:
No, it does not apply. Nothing in the law prohibits the piecemeal redemption of properties sold at one foreclosure proceeding. In fact, in
several early cases decided by this Court, the right of the mortgagor or redemptioner to redeem one or some of the foreclosed properties
was recognized.
The situation obtaining in the case at bar is not within the purview of the aforesaid rule on indivisibility is obvious since the aggregate number
of the lots which comprise the collaterals for the mortgage had already been foreclosed and sold at public auction. There is no partial
payment nor partial extinguishment of the obligation to speak of. The aforesaid doctrine, which is actually intended for the protection of the
mortgagee, specifically refers to the release of the mortgage which secures the satisfaction of the indebtedness and naturally presupposes
that the mortgage is existing. Once the mortgage is extinguished by a complete foreclosure thereof, said doctrine of indivisibility
ceases to apply since, with the full payment of the debt, there is nothing more to secure.
In the 1962 case of Castillo v. Nagtalon, ten parcels of land were sold at public auction. Nagtalon, who owned three of the ten parcels of
land sold, wanted to redeem her properties. Though the amount she tendered was found as insufficient to effectively release her
properties, the Court held that the tender of payment was made timely and in good faith and thus, in the interest of justice, Nagtalon was
given the opportunity to complete the redemption purchase of three of the ten parcels of land foreclosed.
RELEVANT PROVISIONS (BUT NOT APPLICABLE IN THE PRESENT CASE ACCDG TO SC):
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the
creditor.
Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as
long as the debt is not completely satisfied.
Neither can the creditors heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs
who have not been paid.
From these provisions is excepted the case in which, there being several things given in mortgage or pledge, each one of these guarantees
only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing
is specially answerable is satisfied.

SPS. ESMERALDO AND ELIZABETH SUICO vs. PHILIPPINE NATIONAL BANK AND HON. COURT OF APPEALS
FACTS:
Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties in the nameof the former. They failed to
pay the obligation prompting PNB to extrajudicially foreclose the mortgage over thesubject properties.
Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure conducted and the Certificate of Sale and the Certificate
of Finality sale are null and void;
a.During the foreclosure sale, PNB was the lone bidder.
b.The amount of bid is P8,511,000.00.
c.Petitioners alleged that the outstanding obligation is only P1,991,770.38.
d.Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding obligation as stated in the extrajudicial foreclosure
of mortgage, it was the legal duty of the winning bidder,PNB, to deliver to the Mandaue City Sheriff the bid price or what was left thereof
after deducting the amount of petitioners’ outstanding obligation.
e.PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least, the
amount of such bid in excess of petitioners’ outstanding obligation.
4. PNB moved to dismiss citing the pendency of another action between the same properties where PNB
was seeking payment of the balance of petitioner’s obligation not covered by the proceeds of the auction
sale.
RTC denied the Motion to Dismiss.
PNB asserted, in its answer, that petitioners had other loans which had likewise become due. PNBmaintained that the outstanding
obligation of the petitioners under their regular and export- relatedloans was already more than the bid price of P8,511,000.00,
contradicting the claim of surplus proceedsdue the petitioners. Petitioners were well aware that their total principal outstanding obligation
on thedate of the auction sale was P5,503,293.21
RTC – declared the extrajudicial foreclosure null and void because petitioners had other loan obligations which had not yet matured on 10
March 1992 but became due by the date of the auction sale on 30 October 1992, it does not justify the shortcut taken by PNB and will not
excuse it from paying to the Sheriff whoconducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so
wouldconstitute fraud, for not only is the filing fee in the said foreclosure inadequate but, worse, thesame constitutes a misrepresentation
regarding the amount of the indebtedness to be paid inthe foreclosure sale as posted and published in the notice of sale.
Such misrepresentation isfatal because in an extrajudicial foreclosure of mortgage, notice of sale is jurisdictional. Anyerror in the notice of
sale is fatal and invalidates the notice.8.
CA –reversed. Petitioners offered to redeem the properties several times from 6.5M to 7.5M.b.
All those offers made by the Sps. not only contradicted their very assertion that their obligation is merely that amount appearing on the
petition for foreclosure but are also indicativeof the fact that they have admitted the validity of the extra judicial foreclosure proceedings
andin effect have cured the impugned defect.
Even assuming that indeed there was a surplus and PNB is retaining more than the proceeds of the sale than it is entitled, this fact alone
will not affect the validity of the sale but simply gives the Sps a cause of action to recover such surplus.
Such failure of PNB does not constitute jurisdictional defect.
ISSUE:
Whether or not the extrajudicial foreclosure is valid.--YES
Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the petitioners’ obligation ofP1,991,770.38 in the
Notice of Sale, is the PNB obliged to deliver the excess? -YES
HELD:
1.
It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even
slight deviations therefrom will invalidate the notice and render the sale at least voidable. But the purpose of the publication of the Notice of
Sheriffs Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the real property subject
thereof. Logically, this not only requires that the correct date, time and place of the foreclosure sale appear in the notice, but also that any
and all interested parties be able to determine that what is about to be sold at the foreclosure sale is the real property in which they have an
interest.
Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the finding of the RTC that the discrepancy between the
amount of petitioners obligation as reflected in the Notice of Sale and the amount actually due and collected from the petitioners at the time
of the auction sale constitute fraud which renders the extrajudicial foreclosure sale null and void.
Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial
errors and mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated
to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will
be fatal to the validity of the notice, and also to the sale made pursuant thereto.
the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the difference between the amount stated in
the Notice of Sale and the amount of PNBs bid resulted in discouraging or misleading bidders, depreciated the value of the
property or prevented it from commanding a fair price.
The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals[22] refers to a Notice of Sheriffs Sale which
did not state the correct number of the transfer certificates of title of the property to be sold. This Court considered the oversight as a
substantial and fatal error which resulted in invalidating the entire notice. The case of Community Savings and Loan Association, Inc. v.
Court of Appeals[23] is also inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed by therein
petitioners, which denied therein respondents the right to redeem the property. It actually has no reference to a Notice of Sale.
2.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged property shall, after
deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying
off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if
there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent,
or to the person entitled to it.
Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:
1. first, pay the costs
2. secondly, pay off the mortgage debt
3. thirdly, pay the junior encumbrancers, if any in the order of priority
4. fourthly, give the balance to the mortgagor, his agent or the person entitled to it.
Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the claim of
the second mortgagee/junior mortgagee may be satisfied from the surplus proceeds.
The application of the proceeds from the sale of the mortgaged property to the mortgagor’s obligation is an act of payment, not payment
by dacion; hence, it is the mortgagee’s duty to return any surplus in the selling price to the mortgagor.
A mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fundand, being bound to apply it
properly, is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a
purely equitable sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of
the equity of redemption.
Effect: Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not
affect the validity of the sale but simply give the mortgagor a cause of action to recover such surplus.
Cua Lai Chi vs. Laqui
Facts:
 In November 1994, petitioners obtained a loan in the amount of P3,200,000 from private respondent Philippine Bank of
Communication. To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage over
the property of petitioner spouses covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an
Amendment to the Deed of Real Estate Mortgage increasing the amount of the loan by P1,800,000, bringing the total loan
amount to P5,000,000.
 For failure of petitioners to pay the full amount of the outstanding loan upon demand, private respondent applied for the
extrajudicial foreclosure of the real estate mortgage. Upon receipt of a notice of the extrajudicial foreclosure sale, petitioners
filed a petition to annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO). The petition for
annulment was filed in the Regional Trial Court of Quezon City.
 The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners
prayer for TRO. The trial court subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May 2002. At the
foreclosure sale, private respondent emerged as the highest bidder.
  After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds of Quezon City an affidavit
of consolidation to consolidate its ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the Register of
Deeds cancelled the old TCT and issued in its stead a new one in the name of private respondent.
 On 18 August 2004, private respondent applied for the issuance of a writ of possession of the foreclosed property.
 RTC: granted private respondents motion for a declaration of general default and allowed private respondent to present
evidence ex parte.
 CA: The Court of Appeals dismissed on both procedural and substantive grounds the petition for certiorari filed by petitioners.
The appellate court held that a proceeding for the issuance of a writ of possession is ex parte in nature. As such, petitioners
right to due process was not violated even if they were not given a chance to file their opposition. The appellate court also
ruled that there was no violation of the rule against forum shopping since the application for the issuance of a writ of
possession is not affected by a pending case questioning the validity of the extrajudicial foreclosure sale.
Issue:
Whether the writ of possession was properly issued despite the pendency of a case questioning the validity of the extrajudicial foreclosure
sale and despite the fact that petitioners were declared in default in the proceeding for the issuance of a writ of possession
Ruling:
 Yes. Petition was without merit.
 Petitioners contend they were denied due process of law when they were declared in default despite the fact that they had filed
their opposition to private respondents application for the issuance of a writ of possession. Further, petitioners point out that
the issuance of a writ of possession will deprive them not only of the use and possession of their property, but also of its
ownership. Petitioners cite Bustos v. Court of Appeals and Vda. De Legaspi v. Avendao in asserting that physical possession
of the property should not be disturbed pending the final determination of the more substantial issue of ownership.
 Private respondent, on the other hand, maintains that the application for the issuance of a writ of possession in a foreclosure
proceeding is ex parte in nature. Hence, petitioners right to due process was not violated even if they were not given a chance
to file their opposition. Private respondent argues that the issuance of a writ of possession may not be stayed by a pending
case questioning the validity of the extrajudicial foreclosure sale.
 The authorities relied upon by petitioners are not in point and have no application here. In Bustos v. Court of Appeals, the
Court simply ruled that the issue of possession was intertwined with the issue of ownership in the consolidated cases of
unlawful detainer and accion reinvindicatoria. In Vda. De Legaspi v. Avendao, the Court merely stated that in a case of
unlawful detainer, physical possession should not be disturbed pending the resolution of the issue of ownership. Neither case
involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.
 Banco Filipino Savings and Mortgage Bank v. Pardo squarely ruled on the right to possession of a purchaser at an
extrajudicial foreclosure of a mortgage. This case involved a real estate mortgage as security for a loan obtained from a bank.
Upon the mortgagors default, the bank extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest
bidder. A certificate of sale was duly issued and registered. The bank then applied for the issuance of a writ of possession,
which the lower court dismissed. The Court reversed the lower court and held that the purchaser at the auction sale was
entitled to a writ of possession pending the lapse of the redemption period upon a simple motion and upon the posting of a
bond.
 In Navarra v. Court of Appeals, the purchaser at an extrajudicial foreclosure sale applied for a writ of possession after the
lapse of the one-year redemption period. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to
the possession of the property even during the one-year redemption period provided the purchaser files an indemnity bond.
After the lapse of the said period with no redemption having been made, that right becomes absolute and may be demanded
by the purchaser even without the posting of a bond. Possession may then be obtained under a writ which may be applied for
ex parte pursuant to Section 7 of Act No. 3135 as amended by Act No. 4118
 In the present case, the certificate of sale of the foreclosed property was 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 private respondent applied for
the issuance of a writ of possession on 18 August 2004, the redemption period had long lapsed. Since the foreclosed property
was not redeemed within one year from the registration of the extrajudicial foreclosure sale, private respondent had acquired
an absolute right, as purchaser, to the writ of possession. It had become the ministerial duty of the lower court to issue the writ
of possession upon mere motion. Moreover, once ownership has been consolidated, the issuance of the writ of possession
becomes a ministerial duty of the court, upon proper application and proof of title.
 In the present case, when private respondent applied for the issuance of a writ of possession, it presented a new transfer
certificate of title issued in its name dated 8 July 2003. The right of private respondent to the possession of the property was
thus founded on its right of ownership. As the purchaser of the property at the foreclosure sale, in whose name title over the
property was already issued, the right of private respondent over the property had become absolute, vesting in it the corollary
right of possession.
 Petitioners are wrong in insisting that they were denied due process of law when they were declared in default despite the fact
that they had filed their opposition to the issuance of a writ of possession. The application for the issuance of a writ of
possession is in the form of an ex parte motion. It issues as a matter of course once the requirements are fulfilled. No
discretion is left to the court.
 Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by a pending case
questioning the validity of the foreclosure proceeding. The latter is not a bar to the former. Even pending such latter
proceeding, the purchaser at a foreclosure sale is entitled to the possession of the foreclosed property.
Spouses Tolosa vs. UCPB
GR No. 183058
PLAINTIFF: Spouses Montano Tolosa, Merlinda Tolosa
DEFENDANT: UCPB
DATE: April 3, 2013
PONENTE: J. Perez
TOPIC:
Facts:
 This is a case wherein the Petitioner Spouses entered into a Credit Agreement with UCPB for the purpose of availing of the
latter’s credit facilities
 To secure the credit availments, Spouses Tolosa executed Deed of REM over 4 properties located in Aklan
 That for their failure to pay their principal obligation of 13M, UCPB foreclosed the mortgage on the REM and filed for the extra
judicial sale thereof with the Office of the Clerk of Court
 After due notice and publication, the mortgaged properties were sold on January 4, 2000 at a public auction where UCPB is
the highest bidder (17M)
o Proceeds of the sale were credited to the partial fulfillment of the mortgage obligation
o UCPB caused the same to be registered under their name
o Spouses Tolosa failed to exercise their right of redemption within the prescribed 1year period – UCPB then
consolidated its ownership over the subject realties
 UCPB, filed an x-parte petition for issuance of a writ of possession before the RTC
o Upon notification, Spouses Tolosa filed their opposition, calling RTCs attention to the pendency of the complaint for
declaration of nullity of the PNs, foreclosure mortgage and certificate of sale against UCPB
 That they have been misled by UCPB into signing the Credit Agreement, PNs and REM
 Not releasing the full amount of the loan
 RTC ruled in favor of Spouses Tolosa, that the pendency of their complaint necessitated the suspension of UCPBs petition –
since there was a possibility that the foreclosure of the mortgage may be adjudged as violative to the rights of Spouses Tolosa
as mortgagors.
 CA nullified RTCs decision, favored UCPB
o That the Credit Agreemtn, PNs and REM had yet to be declared invalid
o That the pendency of the case of Spouses Tolosa cannot defeat the right to writ of possession that law grants to
UCPB as the absolute and registered owners of the subject realties.
o That questions regarding the validity of of the foreclosure may be raised in pursuant to Section 8 of Act 3135.
Issue: W/N the CA is correct in granting UCPBs petition for Write of Possession, YES
Ruling:
The record shows that UCPB caused the extrajudicial foreclosure of the mortgage on the subject realties as a consequence of the
Spouses Tolosa’s default on their mortgage. As the highest bidder at foreclosure sale, UCPB consolidated its ownership on January 22,
2001 or upon failure of the Spouses to exercise their Right of Redemption within 1year period prescribed.
Subsequent to the issuance of the certificates of title and tax declarations over the same properties in its name, UCPB complied with the
requirements under Act 3135 by filing ex-parte petition for the issuance of a writ of possession before the RTC on September 2, 2004.
Since UCPB has already become the absolute and registered owner of said properties, the CA correctly ruled that it was the ministerial
duty of the RTC to issue the writ of possession in favor of the former.
A writ of possession is simply an order by which the sheriff is commanded by the court to place a person in possession of a real or
personal property.
Under Section 7 of Act No. 3135, as amended, a writ of possession may be issued in favor of a purchaser in a foreclosure sale either
(1) within the one-year redemption period, upon the filing of a bond; or
(2) after the lapse of the redemption period, without need of a bond. Within the one-year redemption period, the purchaser may apply for a
writ of possession by filing a petition in the form of an ex parte motion under oath, in the registration or cadastral proceedings of the
registered property.
The law requires only that the proper motion be filed, the bond approved and no third person is involved. After the consolidation of title in
the buyer's name for failure of the mortgagor to redeem the property, entitlement to the writ of possession becomes a matter of right. In
the latter case, the right of possession becomes absolute because the basis thereof is the purchaser's ownership of the property.
The rule is likewise settled that the proceeding in a petition for a writ of possession is ex-parte and summary in nature. As one brought for
the benefit of one party only and without notice by the court to any person adverse of interest, it is a judicial proceeding wherein relief is
granted without giving the person against whom the relief is sought an opportunity to be heard. The issuance of the writ of possession is,
in turn, a ministerial function in the exercise of which trial courts are not granted any discretion. Since the judge to whom the application BPI FAMILY V GOLDEN POWER DIESEL
for writ of possession is filed need not look into the validity of the mortgage or the manner of its foreclosure, it has been ruled that the GR NO . 176019
ministerial duty of the trial court does not become discretionary upon the filing of a complaint questioning the mortgage. Corollarily, any
question regarding the validity of the extrajudicial foreclosure sale and the resulting cancellation of the writ may, likewise, be determined in
a subsequent proceeding as outlined in Section 8 of Act No. 3135. FACTS:
 CEDEC mortgaged two parcels of land including all improvements therein in favor of BPI Family to secure a loan of ₱6,570,000
o On the same day, the mortgage was duly annotated on the titles
 CEDEC obtained from BPI Family additional loans of ₱2,160,000 and ₱1,140,000, respectively, and again mortgaged the same
properties.

Despite demand, CEDEC defaulted in its mortgage obligations.

 BPI Family filed with the ex-officio sheriff of RTC Pasay a verified petition for extrajudicial foreclosure of real estate mortgage
over the properties under Act No. 3135, as amended.
 After due notice and publication, the sheriff sold the properties at public auction. BPI Family, as the highest bidder, acquired the
properties for ₱13,793,705.31.

On 15 May 1999, the one-year redemption period expired without CEDEC redeeming the properties
 However, despite several demand letters, CEDEC refused to vacate the properties and to surrender possession to BPI Family.
 BPI Family filed an Ex-Parte Petition for Writ of Possession over the properties – GRANTED issued writ of Possession

On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc. and Renato C. Tan filed a Motion to Hold Implementation of the Writ
of Possession.
 Respondents alleged that they are in possession of the properties which they acquired from CEDEC on 10 September 1998
pursuant to the Deed of Absolute Sale with Assumption of Mortgage (Deed of Sale)

RTC, denied respondent’s motion

 Issued an alias writ of possession which was served upon CEDEC and all other persons claiming rights under them.

The writ of possession expired without being implemented.

 BPI Family filed an Urgent Ex-Parte Motion to Order the Honorable Branch Clerk of Court to Issue Alias Writ of Possession.
 Before the alias writ could be implemented, respondent Renato C. Tan filed with the trial court an Affidavit of Third Party Claim

BPI Family filed an Urgent Motion to Compel Honorable Sheriff and/or his Deputy to Enforce Writ of Possession and to Break Open the
properties
 The trial court denied BPI Familyʼs motion and ordered the sheriff to suspend the implementation of the alias writ of possession
o According to the trial court, "the order granting the alias writ of possession should not affect third persons holding
adverse rights to the judgment obligor."
o also noted that respondents were in actual possession of the properties and had been updating the payment of
CEDECʼs loan balances with BPI Family.

BPI Family then filed a petition for mandamus and certiorari with application for a temporary restraining order or preliminary injunction before
the Court of Appeals.
 It was the ministerial duty of the trial court to grant the writ of possession in its favor considering that it was now the owner of the
properties and that once issued, the writ should be implemented without delay.

CA, trial court did not commit grave abuse of discretion in suspending the implementation of the alias writ of possession because
respondents were in actual possession of the properties and are claiming rights adverse to CEDEC, the judgment obligor.
 The principle that the implementation of the writ of possession is a mere ministerial function of the trial court is not without
exception.
 Obligation of the court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases
to be ministerial once it appears that there is a third party in possession of the property who is claiming a right adverse to that of
the debtor or mortgagor

ISSUE: WON Golden Power "a third party who is claiming a right adverse to that of the debtor or mortgagor"

HELD:

NO

In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as
amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance (Regional Trial Court)
of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown
that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with
any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven
of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred
and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province
in which the property is situated, who shall execute said order immediately.

This procedure may also be availed of by the purchaser seeking possession of the foreclosed property bought at the public auction sale
after the redemption period has expired without redemption having been made.

GENERAL RULE: A purchaser in a public auction sale of a foreclosed property is entitled to a writ of possession and, upon an ex parte
petition of the purchaser, it is ministerial upon the trial court to issue the writ of possession in favor of the purchaser.

EXCEPTION: Section 33, Rule 39 of the Rules of Court provides:

Section 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. - x x x

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all the rights, title, interest
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 redemptioner by the same officer unless a third party is actually holding the property adversely to the judgment obligor.

In an extrajudicial foreclosure of real property, when the foreclosed property is in the possession of a third party holding the same adversely
to the judgment obligor, the issuance by the trial court of a writ of possession in favor of the purchaser of said real property ceases to be
ministerial and may no longer be done ex parte.

 Respondentsʼ possession of the properties was premised on the sale to them by CEDEC for the amount of P15,000,000.
Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right they have over the
properties is derived from CEDEC.

 As transferees of CEDEC, respondents merely stepped into CEDEC’s shoes and are necessarily bound to acknowledge and
respect the mortgage CEDEC had earlier executed in favor of BPI Family.25 Respondents are the successors-in-interest of
CEDEC and thus, respondentsʼ occupancy over the properties cannot be considered adverse to CEDEC.

Section 33 of Rule 39 of the Revised Rules of Court contemplates a situation in which a third party holds the property by adverse title or
right, such as that of a co-owner, tenant or usufructuary.
 The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and they are not merely the
successor or transferee of the right of possession of another co-owner or the owner of the property

In this case, respondents cannot claim that their right to possession over the properties is analogous to any of these.
 They have no independent right of possession other than what they acquired from CEDEC.
 Since respondents are not holding the properties adversely to CEDEC, being the latterʼs successors-in-interest, there was no
reason for the trial court to order the suspension of the implementation of the writ of possession.

Pending action for annulment of mortgage or foreclosure sale does not stay the issuance of the writ of possession

The trial court erred in issuing its 7 March 2003 Order suspending the implementation of the alias writ of possession