CAYTON VS ZEONNIX

WHO MAY REDEEM A FORECLOSED PROPERTY

Section 27, Rule 39 of the Rules of Court provides:
Sec. 27. Who may redeem real property so sold.
Real property sold as provided in the last preceding section, or any part
thereof sold separately, may be redeemed in the manner hereinafter provided, by
the following persons:
(a) The judgment obligor, or his successor in interest in the whole or any
part of the property;
(b) A creditor having a lien by virtue of an attachment, judgment or
mortgage on the property sold, or on some part thereof, subsequent to the lien
under which the property was sold.(JUNIOR MORTGAGEE) Such
redeeming creditor is termed a redemptioner.
IS ZEONNIX ENTITLED TO REDEEM? IN WHAT CAPACITY?
YES. AS REDEMPTIONER
ARE THE CAYTONS SUCCESSOR IN INTEREST OF ORIGINAL DEBTOR?
NO. BECAUSE THE COURT DID NOT RECOGNIZED THAT THEY ARE A SUCCESSOR
IN INTEREST FOR THE REASON THAT THE CONTRACT THEY EXECUTED IS NOT
REGISTERED.
The successor-in-interest is someone to whom the debtor has transferred his statutory right of
redemption; one to whom the debtor has conveyed his interest in the property for the purpose of
redemption; one who succeeds to the interest of the debtor by operation of law; one or more joint
debtors who were joint owners of the property sold; or his spouse or heirs.
In the instant case, the Caytons aver that as successor-in-interest of the Maoscas by virtue of
the deed of absolute sale with assumption of mortgage, they have a better right than Zeonnix to
redeem the property. This stance deserves scant consideration.
WHO IS A REDEMPTIONER?
A redemptioner, on the other hand, is a creditor with *a lien subsequent to the judgment
which was the basis of the execution sale. If the lien of the creditor is prior to the judgment under
which the property was sold, he is not a redemptioner and, therefore, cannot redeem because his
interests in his lien are fully protected, since any purchase at public auction of said property takes
the same subject to such prior lien which he has to satisfy. Unlike the judgment debtor, a

redemptioner must prove his right to redeem by producing the documents called for by Section
30, Rule 39[29] of the Rules of Court.
IS ZEONNIX A REDEMPTIONER? WHAT CREATED THE LIEN?
YES.
Zeonnix has acquired by operation of law the right of redemption over the foreclosed properties.
By virtue of the RTC decision in Civil Case No. 2173, it had the right to redeem the property.
This is pursuant to Section 6 of Act No. 3135, as amended by Act No. 4118, which provides:
SECTION 6. In all cases in which an extrajudicial sale is made under the
special power hereinbefore referred to, the debtor, his successors in interest or any
judicial creditor or judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year
from and after the date of the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent
with the provisions of this Act.
The writ of attachment entitled the attaching creditor to exercise the right to redeem the
foreclosed properties. A writ of attachment that has been levied on real property or any interest
therein belonging to the judgment debtor creates a lien which nothing can destroy but its
dissolution.
WHAT ARE THE MANNER OF REDEMPTION?
Section 28, Rule 39 of the Rules of Court provides for the manner of payment in redemption:
Section 28. Time and manner of, and amounts payable on, successive redemptions;
notice to be given and filed.
The judgment obligor, or redemptioner, may redeem the property from the purchaser, at
any time within one (1) year from the date of the registration of the certificate of sale, by
paying the purchaser the amount of his purchase, with one per centum per month interest
thereon in addition, up to the time of redemption, together with the amount of any assessments or
taxes which the purchaser may have paid thereon after purchase, and interest on such last
named amount at the same rate; and if the purchaser be also a creditor having a prior lien to
that of the redemptioner, other than the judgment under which such purchase was made, the
amount of such lien, with interest.

Property so redeemed may again be redeemed within sixty (60) days after the last
redemption upon payment of the sum paid on the last redemption, with two per centum thereon
in addition, and the amount of any assessments or taxes which the last redemptioner may have
paid thereon after redemption by him, with interest on such last-named amount, and in addition,
the amount of any liens held by said last redemptioner prior to his own, with interest. The
property may be again, and as often as a redemptioner is so disposed, redeemed from any
previous redemptioner within sixty (60) days after the last redemption, on paying the sum paid
on the last previous redemption, with two per centum thereon in addition, and the amounts of
any assessments or taxes which the last previous redemptioner paid after the redemption
thereon, with interest thereon, and the amount of any liens held by the last redemptioner prior to
his own, with interest.
Written notice of any redemption must be given to the officer who made the sale and a
duplicate filed with the registry of deeds of the place, and if any assessments or taxes are paid by
the redemptioner or if he has or acquires any lien other than that upon which the redemption
was made, notice thereof must in like manner be given to the officer and filed with the registry of
deeds; if such notice be not filed, the property may be redeemed without paying such
assessments, taxes, or liens.
Accordingly, to constitute valid redemption, the amount tendered must comply with the
following requirements: (1) it should constitute the full amount paid by the purchaser; (2) with
one percent per month interest on the purchase price in addition, up to the time of redemption;
(3) together with the amount of any assessments or taxes which the purchaser may have paid
thereon after purchase; (4) interest on the taxes paid by the purchaser at the rate of one percent
per month, up to the time of the redemption; and (5) if the purchaser be also a creditor having a
prior lien to that of the redemptioner, other than the judgment under which such purchase was
made, the amount of such other lien, with interest.
In exercising the right of redemption, the tender of payment must be for the full amount of
the purchase price. Otherwise, to allow payment by installments would be to allow the indefinite
extension of the redemption period.[37]
The amount tendered by Zeonnix may be considered sufficient for purposes of
redemption, although it failed to include the amount of taxes paid by the Caytons. The payment
of the full amount of the purchase price and interest thereon should be deemed as substantial
compliance, considering that Zeonnix immediately paid the amount of taxes when apprised of
the deficiency.
NOTE
1. redeem the property from the purchaser, at any time within one (1) year from the date
of the registration of the certificate of sale

2. Pay the purchase price, with one per centum per month interest thereon in addition,
up to the time of redemption, together with the amount of any assessments or taxes
which the purchaser may have paid thereon after purchase, and interest on such last
named amount at the same rate; and if the purchaser be also a creditor having a prior
lien to that of the redemptioner, other than the judgment under which such purchase
was made, the amount of such lien, with interest.
if the purchaser be also a creditor having a prior lien to that of the redemptioner, other than the
judgment under which such purchase was made, the amount of such lien, with interest. WHAT
DOES THIS MEAN?
WHAT IS THE AMOUNT TO BE PAID TO BE MOUNT AS A PRIOR LIEN?
NOTE:
IN FORECLOSURE SALE THERE ARE TWO SITUATION: DEFIENCY AND SURPLUS
A.IF THERE IS DEFICIENCY, THE MORTGAGEE CAN RECOVER
EXCEPTION: IF THE THE MORTGAGEE HAS SETTLEMENT ON ESTATE WHERE
THE ADMINISTRATOR CAN COLLECT THRU A CIVIL ACTION OR COLLECT THRU
JUDICIAL FORECLOSURE OR EXTRAJUDICIAL SETTLEMENT. IF THE
FORECLOSURE IS THRU EXTRAJUDICIAL SETTLEMENT, THE RIGHT TO CLAIM IS
BARRED OR WAIVED.
B. IF THERE IS A SURPLUS, THE MORTGAGEE HAS THE OBLIGATION TO
APPLY THE SURPLUS TO THE SUBSEQUENT MORTGAGESS.

PERIOD TO REDEEM: 12 MOS FROM THE REGISTRATION OF CERTIFICATE OF SALE

EXCEPTION: RA NO. 8791 PROVIDES THAT WHEN A REAL ESTATE
MORTGAGE IS FORECLOSED EXTRAJUDICIALLY BY A BANK, QUASI-BANK OR
TRUST ENTITY, JURIDICAL MORTGAGORS ARE GRANTED THE RIGHT TO REDEEM
UNTIL, BUT NOT LATER THAN, THE REGISTRATION OF THE CERTIFICATE OF
FORECLOSURE SALE, WHICH IN NO CASE SHALL BE MORE THAN 3 MOS
AFTER FORECLOSURE.

DEVELOPMENT BANK OF THE PHILIPPINES VS ENVIRONMENTAL AQUATICS

THE COURTS RULING
We find Metrobanks petition meritorious.
Procedural Issue
Section 1, Rule 65 of the Rules, clearly provides that a petition for certiorari is available
only when there is no appeal, or any plain, speedy and adequate remedy in the ordinary course
of law. A petition for certiorari cannot coexist with an appeal or any other adequate
remedy. The existence and the availability of the right to appeal are antithetical to the availment
of the special civil action for certiorari. As we have long held, these two remedies are mutually
exclusive.[7]
Admittedly, Metrobanks petition for certiorari before the CA assails the dismissal order
of the RTC and, under normal circumstances, Metrobank should have filed an appeal.
However, where the exigencies of the case are such that the ordinary methods of appeal
may not prove adequate -- either in point of promptness or completeness, so that a partial if not a
total failure of justice could result - a writ of certiorari may still be issued.[8] Other exceptions,
Justice Florenz D. Regalado listed are as follows:
(1) where the appeal does not constitute a speedy and adequate
remedy (Salvadades vs. Pajarillo, et al., 78 Phil. 77), as where 33 appeals were
involved from orders issued in a single proceeding which will inevitably result in
a proliferation of more appeals (PCIB vs. Escolin, et al., L-27860 and 27896, Mar.
29, 1974); (2) where the orders were also issued either in excess of or without
jurisdiction (Aguilar vs. Tan, L-23600, Jun 30, 1970, Cf. Bautista, et al. vs.
Sarmiento, et al., L-45137, Sept. 231985); (3) for certain special consideration, as
public welfare or public policy (See Jose vs. Zulueta, et al. -16598, May 31,
1961 and the cases cited therein); (4) where in criminal actions, the court rejects
rebuttal evidence for the prosecution as, in case of acquittal, there could be no
remedy (People vs. Abalos, L029039, Nov. 28, 1968); (5) where the order is a
patent nullity (Marcelo vs. De Guzman, et al., L-29077, June 29, 1982); and (6)
where the decision in the certiorari case will avoid future litigations (St. Peter
Memorial Park, Inc. vs. Campos, et al., L-38280, Mar. 21, 1975). [9] [Emphasis
supplied.]

Grave abuse of discretion may arise when a lower court or tribunal violates or contravenes
the Constitution, the law or existing jurisprudence.[10] As will be discussed in greater detail below,
the RTC decision dismissing Metrobanks petition was patently erroneous and clearly
contravened existing jurisprudence. For this reason, we cannot fault Metrobank for resorting to
the filing of a petition for certiorari with the CA to remedy a patent legal error in the hope of
obtaining a speedy and adequate remedy.
Nature of a petition for a writ of possession
A writ of possession is defined as "a writ of execution employed to enforce a judgment to
recover the possession of land. It commands the sheriff to enter the land and give its
possession to the person entitled under the judgment."[11]
There are three instances when a writ of possession may be issued: (a) in land registration
proceedings under Section 17 of Act No. 496; (b) in judicial foreclosure, provided the debtor is
in possession of the mortgaged realty and no third person, not a party to the foreclosure suit, had
intervened; and (c) in extrajudicial foreclosure of a real estate mortgage under Section 7 of Act
No. 3135, as amended by Act No. 4118.[12] The present case falls under the third instance.
The procedure for obtaining a writ of possession in extrajudicial foreclosure cases is found
in Section 7 of Act No. 3135, as amended by Act No. 4118, which states:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance 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.

Based on this provision, a writ of possession may issue 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.[13] In order to obtain a writ of possession, the purchaser in a
foreclosure sale must file a petition, in the form of an ex parte motion, in the registration or
cadastral proceedings of the registered property. The reason why this pleading, although
denominated as a petition, is actually considered a motion is best explained in Sps. Arquiza v.
CA,[14] where we said:
The certification against forum shopping is required only in a
complaint or other initiatory pleading. The ex parte petition for the issuance
of a writ of possession filed by the respondent is not an initiatory pleading.
Although the private respondent denominated its pleading as a petition, it is,
nonetheless, a motion. What distinguishes a motion from a petition or other
pleading is not its form or the title given by the party executing it, but rather its
purpose. The office of a motion is not to initiate new litigation, but to bring a
material but incidental matter arising in the progress of the case in which the
motion is filed. A motion is not an independent right or remedy, but is
confined to incidental matters in the progress of a cause. It relates to some
question that is collateral to the main object of the action and is connected
with and dependent upon the principal remedy. An application for a writ of
possession is a mere incident in the registration proceeding. Hence, although it
was denominated as a petition, it was in substance merely a motion. Thus, the
CA correctly made the following observations:
Such petition for the issuance of a writ of possession is
filed in the form of an ex parte motion, inter alia, in the
registration or cadastral proceedings if the property is
registered. Apropos, as an incident or consequence of the original
registration or cadastral proceedings, the motion or petition for the
issuance of a writ of possession, not being an initiatory pleading,
dispels the requirement of a forum-shopping certification.
Axiomatic is that the petitioner need not file a certification of nonforum shopping since his claims are not initiatory in character
(Ponciano vs. Parentela, Jr., 331 SCRA 605 [2000]) [Emphasis
supplied.]

The right to possess a property merely follows the right of ownership. Thus, after the
consolidation of title in the buyers name for failure of the mortgagor to redeem, the writ of

possession becomes a matter of right and its issuance to a purchaser in an extrajudicial

foreclosure is merely a ministerial function.[15] Sps. Arquiza v. CA further tells us:[16]
Indeed, it is well-settled that an ordinary action to acquire possession in
favor of the purchaser at an extrajudicial foreclosure of real property is not
necessary. There is no law in this jurisdiction whereby the purchaser at a sheriffs
sale of real property is obliged to bring a separate and independent suit for
possession after the one-year period for redemption has expired and after he has
obtained the sheriffs final certificate of sale. The basis of this right to
possession is the purchasers ownership of the property. The mere filing of
an ex parte motion for the issuance of the writ of possession would suffice, and no
bond is required. [Emphasis supplied.]

Since a petition for a writ of possession under Section 7 of Act No. 3135, as amended, is
neither a complaint nor an initiatory pleading, a certificate against non-forum shopping is not
required. The certificate that Metrobank attached to its petition is thus a superfluity that the
lower court should have disregarded.
No intervention allowed in ex parte proceedings
We also find merit in Metrobanks contention that the lower court should not have
allowed De Koning to intervene in the proceedings.
A judicial proceeding, order, injunction, etc., is ex parte when it is taken or granted at
the instance and for the benefit of one party only, and without notice to, or contestation by, any
person adversely interested.[17]
Given that the proceeding for a writ of possession, by the terms of Section 7 of Act No.
3135, is undoubtedly ex parte in nature, the lower court clearly erred not only when it notified
De Koning of Metrobanks ex parte petition for the writ of possession, but also when it allowed
De Koning to participate in the proceedings and when it took cognizance and upheld De
Konings motion to dismiss.
WHAT CONSTITUTES THE REDEMPTION PRICE?
REDEMPTION PRICE is equivalent to the remaining balance of the loan. Section 16 states that,
Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall

x x x have the right to redeem the real property by paying to the Bank all of the latter's claims
against him, as determined by the Bank.
METROBANK & TRUST CO. VS. SANTOS
WHAT IS THE NATURE OF THE PROCEEDING IN ORDER FOR A MORTGAGEE TO
RETAIN THE POSSESSION? EX PARTE MOTION (ONLY ONE PARTY IS PRESENT)
NATURE OF DUTY OF THE COURT: MINISTERIAL (NO DISCRETION IS LEFT TO THE
COURT)
REMEDY OF THE PERSON WHO WANTS TO OPPOSE THE ISSUANCE OF WRIT OF
POSSESSION: IN CASE OF EXTRA JUDICIAL FORECLOSURE, AN AGGRIEVED PARTY
MAY FILE A PETITION TO SET ASIDE THE FORECLOSURE SALE AND TO CANCEL
THE WRIT OF POSSESSION WAS REQUESTED FOR NOT LATER THAN 30 DAYS
AFTER? . THE AGGRIEVED PARTY MAY THEREAFTER APPEAL FROM THE
DISPOSITION BY THE COURT OF THE MATTER. HOWEVER, EVEN IF AN APPEAL IS
INTERPOSED FROM AN ORDER GRANTING A PETITION FOR A WRIT OF
POSSESSION, SUCH ORDER SHALL CONTINUE TO BE IN EFFECT DURING THE
PENDENCY OF AN APPEAL.
CONDITIONS UPON THE ISSUANCE OF WRIT OF POSSESSION
WHY BOND IS NOT NECESSARY AFTER THE LAPSE OF THE REDEMPTION PERIOD?
PROCESS OF EXTRAJUDICIAL FORECLOSURE
1. FILE AN APPLICATION FOR EXTRAJUDICIAL FORECLOSURE TO THE CLERK
OF COURT OF THE RTC WHERE THE PROPERTY IS LOCATED (NOT IN
BRANCH CLERK OF COURT)
2. WHAT SHALL BE INDICATED IN THE NOTICE OF SALE? DESCRIPTION OF THE
PROPERTY, DATE, TIME AND PLACE OF THE SALE
3. WHERE SHALL BE THE NOTICE OF SALE BE POSTED? IN THREE PUBLIC
PLACES WITHIN 20 DAYS
4. HOW MANY DAYS SHALL THE NOTICE OF SALE BE PUBLISHED? WITHIN 3
CONSECUTIVE WEEKS.
5. IN WHAT KIND OF NEWSPAPER? GENERAL CIRCULATION
6. WHAT IS THE EFFECT IF THE POSTING WAS NOT COMPLIED WITH? AS LONG
AS THERE WAS PUBLICATION IN THE NEWSPAPER OF GENERAL
CIRCULATION THE SALE IS VALID.
7. WHEN SHALL THE AUCTION BE CONDUCTED? 9:00 AM TO 4:00 PM
8. WHO SHALL CONDUCT THE AUCTION? UNDER THE DIRECTION OF THE
SHERIFF OR A NOTARY PUBLIC, OR THE JUSTICE OR AUXILIARY JUSTICE OF
PEACE OF THE MUNICIPALITY IN WHICH SUCH SALE HAS MADE
9. WHO SHALL BE THE BIDDERS?

IN CASE OF FORECLOSURE BY BANK, THE BANK IS ENTITLED TO AUTOMATIC

POSSESSION.
RIGHTS OF JUNIOR MORTGAGEE:
1. RIGHT TO SURPLUS

PLEDGE

DEFINITION
HOW CONSTITUTED? THRU DELIVERY

PACTUM COMMISORIUM
DEFINITION; NULL AND VOID;

EXCEPTION: the creditor can collect and apply what was collected on the
principal obligation.

INDIVISIBILITY OF THE PLEDGE WHICH MEANS THAT THE PROPERTY

MORTGAGED CANNOT BE PARTIALLY RELEASED.
o EXCEPTION: IF THERE ARE VARIOUS THING PLEDGED. AND ONE OF
THOSE IS EQUIVALENT TO THE OTHER, SUCH EQUIVALENT THING
PLEDGED CAN BE RELEASED IF A CERTAIN AMOUNT IS PAID. (DLN)
TYPES OF OBLIGATION
EFFECT OF PROMISE TO CONSTITUTE A PLEDGE (A2092)
o PERSONAL RIGHT MEANS ONLY A RIGHT OF ACTION TO COMPEL
THE FULFILLMENT OF THE PROMISE BUT THERE IS NO PLEDGE OR
MORTGAGE YET
OBJECTS
o INCORPOREAL RIGHT- EX: WAREHOUSE RECEIPT
o MOVABLE OBJECTS
PURPOSE OF THE FORM: TO BIND THIRD PARTIES. (2096)
WHO IS A PLEDGEE? SOMEONE WHO RECEIVES THE THING PLEDGED
WHILE THE CREDITOR IS SOMEONE WHO LENDS MONEY.
PLEDGEE MUST EXERCISE DUE DILIGENCE OF A GOOD FATHER OF THE
FAMILY
GEN RULE: THE PLEDGEE CANNOT DEPOSIT THE THING PLEDGED TO THE
THIRD PERSON UNLESS THERE IS CONTRARY STIPULATION

SONDAYON VS. PJ LHUILLER INC

FACTS: NAWALA UNG WATCH THRU ROBBERY OF SECURITY GUARD.
ISSUE:
WON PJ LHUILLER FAILED TO INSURE THE ARTICLE PLEDGED AGAINST
BURGLARY
RULING:
As to the causal connection between respondent companys violation of the legal obligation to
insure the articles pledged and the heist-homicide committed by the security guard, the answer is
simple: had respondent company insured the articles pledged against burglary, petitioner would
have been compensated for the loss from the burglary. Respondent companys failure to insure
the article is, therefore, a contributory cause to petitioners loss.
Considering, however, that petitioner agreed to a valuation of P15,000 for the article
pledged in case of a loss, the replacement value for failure to insure is likewise limited to
P15,000.

Nevertheless, this Court, taking into account all the circumstances of this case, deems it
fair and just to award exemplary damages against respondent company for its failure to comply
with the rule and regulation requiring it to insure the articles pledged against fire and burglary, in
the amount of Twenty Five Thousand (P25,000) Pesos.
WHAT THE LAWYER COULD HAVE FILED? FILE FOR DAMAGES.

WHO WOULD BE RESPONSIBLE IF THE THING PLEDGED HAS HIDDEN

DEFECTS? PLEDGOR. EXCEPTION: IF THE DEFECT IS KNOWN TO THE
PLEDGEE. (1951)
IF THE THING PLEDGED IS AN ANIMAL, THEREAFTER, IT PRODUCES AN
OFFSPRING. WHO IS THE OWNER (A2102)
EFFECT OF PLEDGE ON THE OWNERSHIP OF THE THING: THE OWNERSHIP IS
NOT TRANSFERRED TO THE PLEDGEE
o EXCEPTION: EXPROPRIATION OF THE COLLATERAL
o SALE BY PUBLIC AUCTION:
o VOLUNTARY SALE
GEN RULE: THE PLEDGEE CANNOT USE THE THING PLEDGED. EXCEPT:
WHEN THE NATURE OF THE THING REQUIRES SUCH USE.
WHEN CAN PLEDGOR DEMAND THE RETURN OF THE THING? ONLY UPON
THE PERFORMANCE OF THE PRINCIPAL OBLIGATION.
IF THE THING GIVEN BY WAY OF PLEDGE IS IN DANGER OF LOSS OR
IMPAIRMENT
o FAULT OF PLEDGEE: THE REMEDY OF THE PLEDGOR IS TO REQUIRE
THE THING PLEDGED TO BE DEPOSITED WITH THIRD PERSON
o W/O FAULT OF PLEDGEE A2107-A2108
IN CASE OF A2108, CAN THE PLEDGEE QUESTION THE CONDUCT OF PUBLIC
AUCTION? A2115

FORT BONIFACIO vs YLAS

Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the Lease Period without the
rentals, charges and/or damages, if any, being fully paid or settled, the LESSOR shall have the
right to retain possession of the properties of the LESSEE used or situated in the Leased
Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof
as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the
LESSOR does not want to use said properties, it may instead sell the same to third parties and
apply the proceeds thereof against any unpaid rentals, charges and/or damages.
Respondents, as well as the trial court, contend that Section 22 constitutes a pactum
commissorium, a void stipulation in a pledge contract. FBDC, on the other hand, states that
Section 22 is merely a dacion en pago.
Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of
pledge: (1) the pledge is constituted to secure the fulfillment of a principal obligation; (2) the

pledgor is the absolute owner of the thing pledged; (3) the persons constituting the pledge have
the free disposal of their property or have legal authorization for the purpose; and (4) the thing
pledged is placed in the possession of the creditor, or of a third person by common agreement.
Article 2088 of the Civil Code prohibits the creditor from appropriating or disposing the things
pledged, and any contrary stipulation is void.
On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in
payment, as the alienation of property to the creditor in satisfaction of a debt in money. Dacion
en pago is governed by the law on sales. Philippine National Bank v. Pineda[13] held that dation
in payment requires delivery and transmission of ownership of a thing owned by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. There is no dation in
payment when there is no transfer of ownership in the creditors favor, as when the possession of
the thing is merely given to the creditor by way of security.
Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of
termination of the lease contract or the expiration of the lease period and there are unpaid rentals,
charges, or damages. The existence of a contract of pledge, however, does not arise just because
FBDC has means of collecting past due rent from Tirreno other than direct payment. The trial
court concluded that Section 22 constitutes a pledge because of the presence of the first three
requisites of a pledge: Tirrenos properties in the leased premises secure Tirrenos lease
payments; Tirreno is the absolute owner of the said properties; and the persons representing
Tirreno have legal authority to constitute the pledge. However, the fourth requisite, that the thing
pledged is placed in the possession of the creditor, is absent. There is non-compliance with the
fourth requisite even if Tirrenos personal properties are found in FBDCs real property.
Tirrenos personal properties are in FBDCs real property because of the Contract of Lease,
which gives Tirreno possession of the personal properties. Since Section 22 is not a contract of
pledge, there is no pactum commissorium.
FBDC admits that it took Tirrenos properties from the leased premises without judicial
intervention after terminating the Contract of Lease in accordance with Section 20.2. FBDC
further justifies its action by stating that Section 22 is a forfeiture clause in the Contract of Lease
and that Section 22 gives FBDC a remedy against Tirrenos failure to comply with its
obligations. FBDC claims that Section 22 authorizes FBDC to take whatever properties that
Tirreno left to pay off Tirrenos obligations.
We agree with FBDC.
A lease contract may be terminated without judicial intervention. Consing v. Jamandre
upheld the validity of a contractually-stipulated termination clause:
This stipulation is in the nature of a resolutory condition, for upon the exercise by the
[lessor] of his right to take possession of the leased property, the contract is deemed terminated.
This kind of contractual stipulation is not illegal, there being nothing in the law proscribing such
kind of agreement.
xxx
Judicial permission to cancel the agreement was not, therefore necessary because of the
express stipulation in the contract of [lease] that the [lessor], in case of failure of the [lessee] to

comply with the terms and conditions thereof, can take-over the possession of the leased
premises, thereby cancelling the contract of sub-lease. Resort to judicial action is necessary only
in the absence of a special provision granting the power of cancellation.[14]
A lease contract may contain a forfeiture clause. Country Bankers Insurance Corp. v. Court
of Appeals upheld the validity of a forfeiture clause as follows:
A provision which calls for the forfeiture of the remaining deposit still in the possession of the
lessor, without prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessees violation of any of the terms and
conditions of the agreement is a penal clause that may be validly entered into. A penal clause is
an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special prestation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled.[15]
In Country Bankers, we allowed the forfeiture of the lessees advance deposit of lease
payment. Such a deposit may also be construed as a guarantee of payment, and thus answerable
for any unpaid rent or charges still outstanding at any termination of the lease.
In the same manner, we allow FBDCs forfeiture of Tirrenos properties in the leased
premises. By agreement between FBDC and Tirreno, the properties are answerable for any
unpaid rent or charges at any termination of the lease. Such agreement is not contrary to law,
morals, good customs, or public policy. Forfeiture of the properties is the only security that
FBDC may apply in case of Tirrenos default in its obligations.
FORT BONIFACIO SAID THAT THE CONTRACT IS DACION EN PAGO
WHILE YLAS SAID THAT IT IS A PLEDGE. HENCE, NO PACTUM
COMMISSORIUM; ELEMENTS OF PLEDGE.