REAL MORTGAGE - LAWS

 Land registration act (Act 496)

 Sec 194 Revised Admin Code
o No instrument or deed establishing, transmitting, acknowledging, modifying or extinguishing
rights with respect to real estate not registered under the provisions of Act Numbered Four
hundred and ninety-six, entitled "The Land Registration Act," and its amendments, or under
the Spanish Mortgage Law, shall be valid, except as between the parties thereto, until such
instrument or deed has been registered, in the manner hereinafter prescribed, in the Office
of the Register of Deeds for the province or city where the real estate lies.
o Any registration made under this section shall be understood to be without prejudice to a
third party with a better right
 PD 1529
 RA 4882

REPUBLIC ACT NO. 4882 - AN ACT TO AMEND SECTION ONE OF REPUBLIC ACT NUMBERED
ONE HUNDRED THIRTY-THREE, ENTITLED "AN ACT TO AUTHORIZE THE MORTGAGE OF
PRIVATE REAL PROPERTY IN FAVOR OF ANY INDIVIDUAL, CORPORATION, OR
ASSOCIATION SUBJECT TO CERTAIN CONDITIONS", AS AMENDED BY REPUBLIC ACT
NUMBERED FORTY-THREE HUNDRED EIGHTY-ONE

Section 1. Section one Republic Act Numbered One hundred thirty-three as heretofore
amended by Republic Act Numbered Forty-three hundred eighty-one, is hereby further
amended to read as follows:

"Section 1. Any provision of law to the contrary notwithstanding, private real property
may be mortgaged in favor of any individual, corporation, or association, but the mortgage
or his successor in interest, if disqualified to acquire or hold lands of the public domain in
the Philippines, shall not take possession of the mortgaged property during the existence of
the mortgage and shall not take possession of mortgaged property except after default and
for the sole purpose of foreclosure, receivership, enforcement or other proceedings and in
no case for a period of more than five years from actual possession and shall not bid or take
part in any sale of such real property in case of foreclosure: provided, that said mortgagee
or successor in interest may take possession of said property after default in accordance
with the prescribed judicial procedures for foreclosure and receivership and in no case
exceeding five years from actual possession.”

Sec. 2. This Act shall take effect upon its approval.

 Act 3135

ACT NO. 3135 - AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS
INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES

Section 1. When a sale is made under a special power inserted in or attached to any real-
estate mortgage hereafter made as security for the payment of money or the fulfillment
of any other obligation, the provisions of the following election shall govern as to the
manner in which the sale and redemption shall be effected, whether or not provision for
the same is made in the power.
Sec. 2. Said sale cannot be made legally outside of the province in which the property sold
is situated; and in case the place within said province in which the sale is to be made is
subject to stipulation, such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated.

Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in
at least three public places of the municipality or city where the property is situated, and
if such property is worth more than four hundred pesos, such notice shall also be
published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city.

Sec. 4. The sale shall be made at public auction, between the hours or nine in the morning
and four in the afternoon; and shall be under the direction of the sheriff of the province,
the justice or auxiliary justice of the peace of the municipality in which such sale has to be
made, or a notary public of said municipality, who shall be entitled to collect a fee of five
pesos each day of actual work performed, in addition to his expenses.

Sec. 5. At any sale, the creditor, trustee, or other persons authorized to act for the
creditor, may participate in the bidding and purchase under the same conditions as any
other bidder, unless the contrary has been expressly provided in the mortgage or trust
deed under which the sale is made.

Sec. 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.

Sec. 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.

Sec. 8. The debtor may, in the proceedings in which possession was requested, but not
later than thirty days after the purchaser was given possession, petition that the sale be
set aside and the writ of possession cancelled, specifying the damages suffered by him,
because the mortgage was not violated or the sale was not made in accordance with the
provisions hereof, and the court shall take cognizance of this petition in accordance with
the summary procedure provided for in section one hundred and twelve of Act Numbered
Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall
dispose in his favor of all or part of the bond furnished by the person who obtained
possession. Either of the parties may appeal from the order of the judge in accordance
with section fourteen of Act Numbered Four hundred and ninety-six; but the order of
possession shall continue in effect during the pendency of the appeal.

Sec. 9. When the property is redeemed after the purchaser has been given possession, the
redeemer shall be entitled to deduct from the price of redemption any rentals that said
purchaser may have collected in case the property or any part thereof was rented; if the
purchaser occupied the property as his own dwelling, it being town property, or used it
gainfully, it being rural property, the redeemer may deduct from the price the interest of
one per centum per month provided for in section four hundred and sixty-five of the Code
of Civil Procedure.

Sec. 10. This Act shall take effect on its approval.

 Rule 68 revised rules of court

RULE 68
FORECLOSURE OF REAL ESTATE MORTGAGE
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.
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 the entry of judgment, and that in default
of such payment the property shall be sold at public auction to satisfy the judgment.
Sec. 3. Sale of mortgaged property; effect.
When the defendant, after being directed to do so as provided in the next preceding
section, fails to pay the amount of the judgment within the period specified therein, the
court, upon motion, shall order the property to be sold in the manner and under the
provisions of Rule 39 and other regulations governing sales of real estate under execution.
Such sale shall not affect the rights of persons holding prior encumbrances upon the
property or a part thereof, and when confirmed by an order of the court, also upon
motion, it shall operate to divest the rights in the property 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.
Upon the finality of the order of confirmation or upon the expiration of the period of
redemption when allowed by law, the purchaser at the auction sale or last redemptioner,
if any, shall be entitled to the possession of the property unless a third party is actually
holding the same adversely to the judgment obligor. The said purchaser or last
redemptioner may secure a writ of possession, upon motion, from the court which
ordered the foreclosure.
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.
Sec. 5. How sale to proceed in case the debt is not all due.
If the debt for which the mortgage or encumbrance was held is not all due as provided in
the judgment, as soon as a sufficient portion of the property has been sold to pay the total
amount and the costs due, the sale shall terminate; and afterwards, as often as more
becomes due for principal or interest and other valid charges, the court may, on motion,
order more to be sold. But if the property cannot be sold in portions without prejudice to
the parties, the whole shall be ordered to be sold in the first instance, and the entire debt
and costs shall be paid, if the proceeds of the sale be sufficient therefor, there being a
rebate of interest where such rebate is proper.
Sec. 6. Deficiency judgment.
If upon the sale of any real property as provided in the next preceding section there be a
balance due to the plaintiff after applying the proceeds of the sale, the court, upon
motion, shall render judgment against the defendant for any such balance for which, by
the record of the case, he may be personally liable to the plaintiff, upon which execution
may issue immediately if the balance is all due at the time of the rendition of the
judgment; otherwise, the plaintiff shall be entitled to execution at such time as the
balance remaining becomes due under the terms of the original contract, which time shall
be stated in the judgment.
Sec. 7. Registration.
A certified copy of the final order of the court confirming the sale shall be registered in the
registry of deeds. If no right of redemption exists, the certificate of title in the name of the
mortgagor shall be cancelled, and a new one issued in the name of the purchaser.
Where a right of redemption exists, the certificate of title in the name of the mortgagor
shall not be cancelled, but the certificate of sale and the order confirming the sale shall be
 registered and a brief memorandum thereof made by the registrar of deeds upon the
certificate of title. In the event the property is redeemed, the deed of redemption shall be
registered with the registry of deeds, and a brief memorandum thereof shall be made by
the registrar of deeds on said certificate of title.
If the property is not redeemed, the final deed of sale executed by the sheriff in favor of
the purchaser at the foreclosure sale shall be registered with the registry of deeds;
whereupon the certificate of title in the name of the mortgagor shall be cancelled and a
new one issued in the name of the purchaser.
Sec. 8. Applicability of other provisions.
The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the judicial
foreclosure of real estate mortgages under this Rule insofar as the former are not
inconsistent with or may serve to supplement the provisions of the latter.

 AM 99-10-05-0 as amended February 20, 2007

(AS FURTHER AMENDED, AUGUST 7, 2001)

PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF MORTGAGE
In line with the responsibility of an Executive Judge under Administrative Order No. 6, dated
June 30, 1975, for the management of courts within his administrative area, included in
which is the task of supervising directly the work of the Clerk of Court, who is also the Ex-
Office Sheriff, and his staff, and the issuance of commissions to notaries public and
enforcement of their duties under the law, the following procedures are hereby prescribed
in extrajudicial foreclosure of mortgages:
1. All applications for extra-judicial foreclosure of mortgage whether under the direction of
the sheriff or a notary public, pursuant to Act 3135, as amended by Act 4118, and Act 1508,
as amended, shall be filed with the Executive Judge, through the Clerk of court who is also
the Ex-Officio Sheriff.
2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the
duty of the Clerk of Court to:
a) receive and docket said application and to stamp thereon the corresponding file number,
date and time of filing;
b) collect the filing fees therefore pursuant to rule 141, Section 7(c), as amended by A.M.
No. 00-2-01-SC, and issue the corresponding official receipt;
c) examine, in case of real estate mortgage foreclosure, whether the applicant has complied
with all the requirements before the public auction is conducted under the direction of the
sheriff or a notary public, pursuant to Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the approval of the Executive Judge, or in
his absence, the Vice-Executive Judge. No certificate of sale shall be issued in favor of the
highest bidder until all fees provided for in the aforementioned sections and in Rule 141,
Section 9(1), as amended by A.M. No. 00-2-01-SC, shall have been paid; Provided, that in no
case shall the amount payable under Rule 141, Section 9(1), as amended, exceed
P100,000.00;
e) after the certificate of sale has been issued to the highest bidder, keep the complete
records, while awaiting any redemption within a period of one (1) year from date of
registration of the certificate of sale with the Register of Deeds concerned, after which, the
records shall be archived. Notwithstanding the foregoing provision, juridical persons whose
property is sold pursuant to an extra-judicial foreclosure, shall have the right to redeem the
 property until, but not after, the registration of the certificate of foreclosure sale which in
no case shall be more than three (3) months after foreclosure, whichever is earlier, as
provided in Section 47 of Republic Act No. 8791 (as amended, Res. Of August 7, 2001).
Where the application concerns the extrajudicial foreclosure of mortgages of real estates
and/or chattels in different locations covering one indebtedness, only one filing fee
corresponding to such indebtedness shall be collected. The collecting Clerk of Court shall,
apart from the official receipt of the fees, issue a certificate of payment indicating the
amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed,
the real estates and/or chattels mortgaged and their respective locations, which certificate
shall serve the purpose of having the application docketed with the Clerks of Court of the
places where the other properties are located and of allowing the extrajudicial foreclosures
to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by
a notary public shall be published in a newspaper of general circulation pursuant to Section
1, Presidential Decree No. 1079, dated January 2, 1977, and non-compliance therewith shall
constitute a violation of Section 6 thereof.
4. The Executive Judge shall, with the assistance of the Clerk of Court, raffle applications for
extrajudicial foreclosure of mortgage under the direction of the sheriff among all sheriffs,
including those assigned to the Office of the Clerk of Court and Sheriffs IV assigned in the
branches.
5. The name/s of the bidder/s shall be reported by the sheriff or the notary public who
conducted the sale to the Clerk of Court before the issuance of the certificate of sale.
This Resolution amends or modifies accordingly Administrative Order No. 3 issued by then
Chief Justice Enrique M. Fernando on 19 October 1984 and Administrative Circular No. 3-98
issued by the Chief Justice Andres R. Narvasa on 5 February 1998.
The Court Administrator may issue the necessary guidelines for the effective enforcement of
this Resolution.
The Clerk of Court shall cause the publication of this Resolution in a newspaper of general
circulation not later than August 14, 2001 and furnish copies thereof to the Integrated Bar of
the Philippines.
This Resolution shall take effect on the 1st day of September of the year 2001.
Promulgated this 7th day of August 2001 in the City of Manila

REAL MORTGAGE - SUBJECT MATTER

 Dilag v. Heirs of resurrection

FACTS: Laureano Marquez was indebted to Fortunato Resurreccion in the sum of P5,000 as
the balance of the purchase price of a parcel of land. Fortunato Resurreccion in turn was
indebted to the Luzon Surety Company in the same amount, which was secured by a
mortgage on three parcels of land, one of which was that bought by Laureano Marquez from
him. The formal deed of sale from Resurreccion to Marquez was to have been executed after
Marquez shall have fully paid the purchase price and after Ressurreccion shall have secured
the cancellation of the mortgage by the Luzon Surety Company.

Laureano Marquez had agreed to pay Fortunato Resurreccion's indebtedness of P5,000

to the Luzon Surety Company by way of satisfaction of his own indebtedness to Fortunato
Resurreccion in the same amount.
He bound himself as follows: "In the event an action is presented by the Luzon Surety
Company against Fortunato Resurreccion for the recovery of the said indebtedness and the
interests thereon, I, Laureano Marquez, obligate myself to indemnify Fortunato
Resurreccion for all the damages he may suffer in case the parcels of land mortgaged
to the Luzon Surety Company are sold at public auction, including the fees of the
attorneys of Fortunato Resurreccion in the suit brought by the Luzon Surety Company as well
as in the action that Fortunato Resurreccion may bring against me in relation to this
agreement." .

Laureano Marquez failed to pay the indebtedness of Fortunato Resurreccion to the Luzon
Surety Company, and the latter foreclosed judicially the mortgage executed in its favor by
Fortunato Resurreccion.

Pending the foreclosure sale of the lands mortgaged by Resurreccion to the Luzon Surety
Company, Laureano Marquez executed and delivered to Fortunato Resurreccion another
document. Since Laureano Marquez did not fulfill his promise contained in the first clause of
the instrument, with the result that the mortgaged properties were sold at public auction and
were totally lost by Fortunato Resurreccion, the latter commenced the present action against
Laureano Marquez upon the instrument (1) to recover the value of the lost properties
amounting to P16,500, with legal interest thereon from the date of the filing of the complaint,
plus P2,000 as indemnity for the rents of the lands sold and P1,000 as attorney's fees, and
(2) to foreclose the mortgage embodied in said instrument.

ISSUE: Petitioner contends that Fortunato Resurreccion had no right to enforce and foreclose
Exhibit A as regards the damages caused by the loss of two of the three parcels of land
mortgaged to the Luzon Surety Company because they did not belong to Fortunato
Resurreccion but to Emiliana Resurreccion and the children of Vicente Platon. He
contends that it was only the said owners of those lands who could have brought the present
action.

HELD: This contention runs counter to the provision of section 3 of Rule 3 of the Rules of
Court, which says that "a party with whom or in whose name a contract has been made for
the benefit of another . . . . may sue or be sued without joining the party for whose benefit the
action is presented or defended."

Petitioner says that it should not be applied because Exhibit A is a unilateral promise by
Laureano Marquez to indemnify Fortunato Resurreccion or those who might become the
owners of the lands in question; and that Fortunato Resurreccion was not a party to the
contract Exhibit A, for as a matter of fact it was signed by Laureano Marquez only.

We do not think that the word "contract" used in section 3 of Rule 3 refers exclusively to a
bilateral contract. It obviously refers to any contract — bilateral or unilateral — enforcible in
court. The rule in question refers to a suit by or against "a party with whom or in whose name
a contract has been made for the benefit of another." It does not mean that the signer is the
only party to that contract and the only one entitled to sue thereon. The obligee is as much a
part to the contract as the obligor, for there can be no obligor without an obligee; and as a
matter of course it is the obligee who has the right to sue on and enforce the obligation.

Petitioner expresses the fear that the decision of the Court of Appeals may not preclude
Emiliana Resurreccion and the children of Vicente Platon from enforcing the pour autrui
stipulation in Exhibit A. We think such fear is unfounded.

In authorizing a suit by a trustee or a party in a representative capacity, said rule necessarily

precludes the necessity and authority for the beneficiary to bring a separate suit on his own
account upon the same cause of action; for the law does not countenance a multiplicity of
suits, and much less an injustice.
 ISSUE: The CA judgment authorizes the sale at public auction of five parcels of land
mentioned in plaintiff's complaint but not specifically described in the mortgage deed
Exhibit A. Those five parcels are said to have been acquired by Laureano Marquez
subsequent to the execution of Exhibit A. In the fifth clause of said document Laureano
Marquez stipulated that inasmuch as the five parcels of land described in the fourth clause
were not sufficient to cover all his obligations in favor of Fortunato Resurreccion, he also
constituted a mortgage in favor of the latter and his assignees on any other property
he then might have and on those he might acquire in the future.

HELD: Laureano Marquez could not legally mortgage any property he did not yet own.
In the second place, in order that a mortgage may be validly constituted the instrument by
which it is created must be recorded in the registry of deeds, and so far as the additional as
parcels of land are concerned, the registration of Exhibit A did not affect and could not
have affected them because they were not specifically described therein.

The contention of the respondents that after the institution of the present action notice of lis
pendens was filed in the registry of deeds affecting the said five additional parcels of land,
merely serves to emphasize the fact that there was no mortgage thereon; otherwise there
would have been no necessity for any notice of lis pendens.

The fifth assignment of error is well taken and is therefore sustained.

We observe that the Court of Appeals awarded to the plaintiff not only the value of the land,
amounting to P16,500, which the plaintiff or his co-heirs lost as a result of the foreclosure
sale made at the instance of the Luzon Surety Company, plus legal interest thereon from the
date of the filing of the complaint but also the sum of P1,246 as rent or income of said land
which the plaintiff failed to receive. We do not think the last-mentioned amount was included
in Laureano Marquez' undertaking. In the third clause of Exhibit A he obligated himself, in the
event said parcels of land were auctioned off, to pay their real value to Fortunato
Resurreccion. If the plaintiff is entitled to indemnity for the land he lost, he is not entitled to
the subsequent rent or income of that land. He is entitled only to the interest on the amount of
the indemnity from the time he sues therefor to the time it is paid. We do not find in the
decision of the CA any basis for awarding the said rent or income of P1,246. To what period
of time that rent or income was supposed to correspond, has not even been shown.

 People's Bank and Trust Co. v. Dahican Lumber Co.

FACTS: Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation, sold and
assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company 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 amounting 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 (DAMCO), a foreign corporation and a
stockholder of DALCO.

As security for the payment of the loans, DALCO executed in favor of the BANK (also as
trustee of Export-Import Bank) a deed of mortgage covering five parcels of land situated in
the province of Camarines Norte and all the personal properties of the mortgagor located in
its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte.
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 the following provision extending the mortgage lien to properties to be
subsequently acquired — referred to hereafter as "after acquired properties" — by the
mortgagor: 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 Office of the Register of Deeds of Camarines Norte. 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.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the
BANK paid the same to the Export-Import Bank of Washington D.C., and the latter assigned
to the former its credit and the first mortgage securing it.

After July 13, 1950 — the date of execution of the mortgages— 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. In
connection with these purchases, there appeared in the books of DALCO as due to Connell
Bros. Company, a domestic corporation who was acting as the general purchasing agent of
DALCO, the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.

The Board of Directors of DALCO passed a resolution agreeing to rescind the alleged sales
of equipment, spare parts and supplies by CONNELL and DAMCO to it. Thereafter, the
corresponding agreements of rescission of sale were executed.

The BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so. As a result, on ATLANTIC and the
BANK, commenced foreclosure proceedings in the CFI against DALCO and DAMCO. On the
same date they filed an ex-parte application for the appointment of a Receiver and/or for the
issuance of a writ of preliminary injunction to restrain DALCO from removing its properties.
The court granted both remedies.

ISSUE: Plaintiffs: the "after acquired properties" were subject to the deeds of mortgage; that
said properties were acquired from suppliers other than DAMCO and CONNELL; that even
granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to
DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering the
foregoing, 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.

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of
mortgage subject of foreclosure?; secondly, assuming that they are subject thereto, are the
mortgages valid and binding on the properties aforesaid inspite of the fact that they were not
registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming
again that the mortgages are valid and binding upon the "after acquired properties", what is
the effect thereon, if any, of the rescission of sales entered into, on the one hand, between
DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was
the action to foreclose the mortgages premature?
HELD: A. It is crystal clear that all property of every nature and description taken in exchange
or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other
property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in
connection with the premises — that is, its lumber concession — "shall immediately be and
become subject to the lien" of both mortgages in the same manner and to the same extent as
if already included therein at the time of their execution.

In all cases where the properties given as collateral are perishable or subject to inevitable
wear and tear or were intended to be sold, or to be used — thus becoming subject to the
inevitable wear and tear — but with the understanding — express or implied — that they shall
be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by
circumstances, the original value of the properties given as security. Indeed, if such
properties were of the nature already referred to, it would be poor judgment on the part of the
creditor who does not see to it that a similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in
question cover the "after acquired properties" of DALCO, the same are void and ineffectual
because they were not registered in accordance with the Chattel Mortgage Law.

The stipulation under consideration strongly belies defendants contention. As adverted to, it
states that all property of every nature, building, machinery etc. taken in exchange or
replacement by the mortgagor "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".

Article 415 does not define real property but enumerates what are considered as such,
among them being machinery, receptacles, instruments or replacements intended by owner
of the tenement for an industry or works which may be carried on in a building or on a piece
of land, and shall tend directly to meet the needs of the said industry or works.

The lower court held that inasmuch as "the chattels were placed in the real properties
mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127
of the New Civil Code".

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.

Now to the question of whether or not DAMCO CONNELL have rights over the "after
acquired properties" superior to the mortgage lien constituted thereon in favor of plaintiffs. It
is defendants' contention that in relation to said properties they are "unpaid sellers"; that as
such they had not only a superior lien on the "after acquired properties" but also the right to
rescind the sales thereof to DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and
CONNELL were the suppliers or vendors of the "after acquired properties". According to the
record, plaintiffs did not know their exact identity and description prior to the filing of the case
bar because DALCO, in violation of its obligation under the mortgages, had failed and
refused theretofore to submit a complete list thereof.
 Neither DAMCO nor CONNELL had supplied any of the goods of which they respective
claimed to be the unpaid seller. The most that can be claimed on the basis of the evidence is
that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still
owes them any amount in this connection, it is clear that, as financiers, they cannot claim any
right over the "after acquired properties" superior to the lien constituted thereon by virtue of
the deeds of mortgage under foreclosure

 Luzon Lumber and Hardware Co v. Quiambao

Manuel Quiambao and his wife Virginia Santiago, owners of three lots mortgaged the said
lots in favor of the Rehabilitation Finance Corporation (RFC) to secure the payment of a loan
in the amount of P37,000
The sum was to be spent for the construction of two buildings, one for a hotel and the other
for residence. The mortgage was later on registered.
The two buildings were subsequently constructed.
Upon violation of the terms of the mortgage, the RFC foreclosed the same. In the auction
sale, said RFC, as highest bidder, was awarded the mortgaged properties for the total sum of
P31,000 followed by the issuance of the corresponding Transfer Certificates of Title.
The hotel and residence buildings were valued at P18,000 and P4,000, respectively.
In the edification(improvement) of the two buildings, the spouses bought on credit
construction materials valued at about P7,000 from the plaintiff Luzon Lumber & Hardware
Co. Said building materials were furnished by the lumber company between October 1948
and March 1949. Only P3,500 of this amount was paid, leaving an unpaid balance of
P3,456.50.

To recover this balance including interests and attorney's fees the lumber company filed this
suit against the spouses, the complaint being later amended so as to include the RFC as
party defendant. According to the RFC said amendment was made about a week after the
auction sale of the foreclosed properties.

After hearing, the Court of First Instance of Tarlac rendered judgment ordering the defendant
spouses Manuel and Virginia to pay to the plaintiff lumber company the sum of P3,456.49
with legal interests and in default of such payment by them, the RFC was ordered to pay to
plaintiff out of the proceeds of the sale of the hotel and the house, the said sum of P3,456.49
together with the corresponding legal interests thereon. The RFC is appealing from that
decision.

ISSUE:
Whether a registered mortgage is preferred over a refectionary credit on construction
materials.

HELD: YES. REVERSED.

Art. 2242 (claims, mortgages & liens that constitute encumbrance over specific immovable
property) and 2253 (effectivity of law & non-impairment of vested rights clause) of the New
Civil Code may not be applied in the instant case for the reason that the credit of the plaintiff
is not a new right or one declared for the first time, a condition required by Article 2253 of the
new Civil Code for its enforcement and application, because said right was already provided
for by article 1923 of the old Civil Code particularly paragraphs 3 and 5. The question now to
be decided is whether the furnishing of lumber and building materials by the plaintiff for the
construction of the two buildings of the spouses falls under refection credit mentioned in
paragraphs 3 and 5.

Refectionary credit is primarily an indebtedness incurred in the repair or reconstruction of

something and does not ordinarily include an entirely new work, but that Spanish
jurisprudence appears to have sanctioned in certain cases this broader view to include a new
work or construction. The word "refaccionario" from which come the English translation of
"refectionary" is derived from the Latin verb "refacio", "refacere", meaning "rehacer" which
implies the idea of reconstruction or repair for reason of destruction or deterioration. As
already said, that was the original idea of the word "refectionary". The liberal interpretation of
the refectionary credit to include new construction is upheld in the ENCICLOPEDIA
JURIDICA ESPAÑOLA.

And this view is shared by our Code Commission which prepared the new Civil Code. In its
Report on the proposed Civil Code of the Philippines (now our new Civil Code) which went
into effect in 1950, referring to article 2242 of the new Code, it said that the new
encumbrances in said article are Nos. 2, 3, 6, 7 and 9, meaning to say that paragraph 4
referring to claims of furnishers of materials used in the construction, reconstruction or repair
of building which as invoked by the plaintiff and applied by the trial court is not a new
provision, clearly implying that it was already provided for in article 1923, paragraphs 3 and 5
under refectionary credits. This liberal view and interpretation of refectionary credit is in
consonance with principles of justice and fairness, for there seems to be no valid reason why
one furnishing material for purposes of repair or reconstruction should be given preference
while another furnishing material on new construction is not given the same consideration.

With respect to the holding of the trial court that in point of time the credit of the plaintiff
enjoys priority over that of the RFC for the reason that according to said court the lien of the
plaintiff vested when the materials were furnished while the mortgage credit of the RFC
vested only when the buildings were constructed, we must not forget that according to the
facts of the case the loan of P37,000 was given to the spouses to construct the two buildings,
and that under the terms of the deed of mortgage, not only the lots but also all the
improvements now existing or which may hereafter be constructed on the mortgaged
property are included. In other words, the mortgage in favor of the defendant RFC not only
enjoyed the presumption provided by law that a mortgage includes all improvements on the
land mortgaged when the obligation falls due, but there was an express stipulation to include
all buildings and improvements thereafter to be constructed on the mortgaged premises.

This lien on all improvements vested on the day and hour the mortgage was registered -
about one month before plaintiff began furnishing materials for construction. One of the
purposes of the creation of the RFC was to finance the construction and reconstruction of
buildings for purposes of rehabilitation. We may even take judicial notice of the fact that the
security of the loans from the RFC is based mainly on the buildings and constructions
themselves, and that to assure that the loans are spent for the said construction, the money
is sometimes given on the installment basis, that is, so much money is released by the RFC
as the construction progresses. This is to show the intimate relation between an RFC loan
and the construction financed by it, for purposes of security.

In the discussion of this case among the members of this Tribunal, there was a suggestion,
even a contention that the credit of the plaintiff herein might be made to fall under article 1922
of the old Civil Code (preferred encumbrances over personal property). But we believe that
the two buildings in question constructed partly with building materials furnished by the
plaintiff may not be considered as personal property under article 1922. Once said building
materials were used in the construction and had become part of the building, they lost their
classification as personal property and become real property.

It is true that in the case of Unson vs. Orquije, et al., 50 Phil., 160, this Tribunal applied the
provision of article 1922, paragraph 1, referring to the purchase price of personal property in
the possession of the debtor (machinery and grinder sold to the Capiz Central and installed in
its building), the reason being that said machinery and grinder did not lose their form and
substance and they preserved their identity. Besides, they could easily be removed from the
building of the Central.
 May the same thing be said in the present case as regards the building materials which went
into the construction of the hotel and the house? The answer can be given only in the
negative. Said materials had already become part of the two buildings either as posts,
frames, floor, partition, roof, etc. They have lost their form and identity and had become part
of the buildings which are real property.

There is another circumstance in this case which greatly weakens plaintiff's claim. While as
already stated, appellant RFC's mortgage which included the two buildings in question was
recorded in September 1948, thus serving as notice to third parties including the plaintiff, the
latter began furnishing building materials for the construction of the two buildings only in
October 1948, that is the month following, and what is more, the evidence fails to show that it
was ever recorded in the Registry of Deeds, so that said refection credit comes not under
paragraph 3 of article 1923 of the old Civil Code, as does the RFC mortgage, but under
paragraph 5 of the same article under unregistered and unrecorded refection credits.

 Ajax Marketing and Dev Corp v. CA

FACTS:
Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and
Antonio Tan, obtained a loan in the amount of P250,000.00 from the Metropolitan Bank and
Trust Company, and to secure payment of the same, spouses Marcial See and Lilian Tan
constituted a real estate mortgage in favor of said bank over their property in the District of
Paco, Manila. The mortgage was annotated at the back of the title.

Subsequently, after the partnership had changed its name to Ajax Marketing Company albeit
without changing its composition, it obtained a loan in the sum of P150,000. 00 from
Metropolitan Bank and Trust Company. Again to secure the loan, spouses Marcial See and
Lilian Tan executed in favor of said bank a second real estate mortgage over the same
property.

On February 19, 1979, the partnership (Ajax Marketing Company) was converted into a
corporation denominated as Ajax Marketing and Development Corporation, with the original
partners (Angelita Rodriguez and Antonio Tan) as incorporators and three (3) additional
incorporators, namely, Elisa Tan, the wife of Antonio Tan, and Jose San Diego and Tessie
San Diego.

Ajax Marketing and Development Corporation obtained from Metropolitan Bank and Trust
Company a loan of P600,000.00, the payment of which was secured by another real estate
mortgage executed by spouses Marcial See and Lilian Tan in favor of said bank over the
same realty.

In December 1980, the three (3) loans with an aggregate amount of P1,000,000.00 were re-
structured and consolidated into one (1) loan and Ajax Marketing and Development
Corporation, represented by Antonio Tan as Board Chairman/President and in his personal
capacity as solidary co-obligor, and Elisa Tan as Vice-President/Treasurer and in her
personal capacity as solidary co-obligor, executed a Promissory Note.

Due to non-payment, the bank extrajudicially foreclosed the mortgaged property. A case was
filed with the trial court whereby the debtors contended that a novation occurred when their
three (3) loans which are all secured by the same real estate property were consolidated into
a single loan of P1 million under a Promissory Note, thereby extinguishing their monetary
obligations and releasing the mortgaged property from liability.

The trial court upheld the foreclosure.

The CA affirmed.

ISSUE:
Whether a real estate mortgage can cover future debts.

HELD: YES. HELD.

Basic principles on novation need to be stressed at the outset. Novation is the
extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the object or
principal conditions, or, by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor. Novation, unlike other modes of extinction of
obligations, is a juridical act with a dual function, namely, it extinguishes an obligation and
creates a new one in lieu of the old. It can be objective, subjective, or mixed.

Objective novation occurs when there is a change of the object or principal conditions of an
existing obligation while subjective novation occurs when there is a change of either the
person of the debtor, or of the creditor in an existing obligation. When the change of the
object or principal conditions of an obligation occurs at the same time with the change of
either in the person of the debtor or creditor a mixed novation occurs.

The well settled rule is that novation is never presumed. Novation will not be allowed unless it
is clearly shown by express agreement, or by acts of equal import. Thus, to effect an
objective novation it is imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on every point incompatible
with the new one.

In the same vein, to effect a subjective novation by a change in the person of the debtor it is
necessary that the old debtor be released expressly from the obligation, and the third person
or new debtor assumes his place in the relation. There is no novation without such release as
the third person who has assumed the debtor's obligation becomes merely a co-debtor or
surety.

The attendant facts herein do not make a case of novation. There is nothing in the records to
show the unequivocal intent of the parties to novate the three loan agreements through the
execution of a promissory note. The provisions of the promissory note yield no indication of
the extinguishment of, or an incompatibility with, the three loan agreements secured by the
real estate mortgages.

The provisions of the real estate mortgage show that petitioners agreed to apply the real
estate property to secure obligations that they may thereafter obtain including their renewals
or extensions with the principals fixed at P600,000.00, P150,000.00, and P250,000.00.

The promissory note merely restructured and renewed the three previous loans to
expediently make the loans current. There was no change in the object of the prior
obligations. The consolidation of the three loans, contrary to petitioners' contention, did not
release the mortgaged real estate property from any liability because the mortgage
annotations all remained uncancelled, thus indicating the continuing subsistence of the real
estate-mortgages.

Neither can it be validly contended that there was a change or substitution in the persons of
either the creditor (Metrobank) or more specifically the debtors (petitioners) upon the
consolidation of the loans. The bare fact of petitioner's conversion from a partnership to a
corporation, without sufficient evidence, either testimonial or documentary, that they were
expressly released from their obligations, did not make petitioner AJAX, with its new
 corporate personality, a third person or new debtor within the context of a subjective
novation. If at all, petitioner AJAX only became a co-debtor or surety.

Without express release of the debtor from the obligation, any third party who may thereafter
assume the obligation shall be considered merely as co- debtor or surety. Novation arising
from a purported change in the person of the debtor must be clear and express because, to
repeat, it is never presumed. Clearly then, from the afore discussed points, neither objective
nor subjective novation occurred here.

An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage,
but where on the four corners of the mortgage contracts, as in this case, the intent of the
contracting parties is manifest that the mortgaged property shall also answer for future loans
or advancements then the same is not improper as it is valid and binding between the parties.

FORMALITIES AND REGISTRATION - REAL MORTGAGE

 Samanilla v. Sajucom

The Cajucoms had executed in Samanilla’s favor, on December 20, 1955, a real estate
mortgage over their rights and participation on the parcel of land covered by Original
Certificate of Title No. O-966 to secure a loan of P10,000. Sometime in February, 1956, the
Cajucoms borrowed the title from her on the excuse that they needed it to segregate from the
land the portion claimed by other persons.

Thereafter, Samanilla asked for the return of the title so that she could register her mortgage,
but the Cajucoms refused.

Samanilla filed a petition against the Cajucoms. They opposed the petition, claiming that the
mortgage in question was void ab initio for want of consideration, and that the issues should
be litigated in an ordinary civil action.

The court found the petition well-taken and ordered the Cajucoms to surrender their title
either to the Register of Deeds or to the Court. From this order, the Cajucoms appealed.

ISSUE:
Whether a mortgage which has not been registered is valid.

HELD: YES. AFFIRMED.

The appeal has no merit. Appellants' sole objection to the registration of the deed of
mortgage is that the same was executed without any consideration. But there is a legal
presumption of sufficient cause or consideration supporting a contract, even if such cause is
not stated therein. This presumption appellants cannot overcome by a simple assertion of
lack of consideration. Especially may not the presumption be so lightly set aside when the
contract itself states that consideration was given, and the same has been reduced into a
public instrument with all due formalities and solemnities as in this case.

Appellants assert that they cannot be compelled to surrender their title for registration of the
mortgage in question until they are given an opportunity to show its invalidity in an ordinary
civil action, because registration is an essential element of a real estate mortgage and the
surrender of their title would complete this requirement of registration. The argument is
fallacious, for a mortgage, whether registered or not, is binding between the parties,
registration being necessary only to make the same valid against third persons (Art. 2125,
New Civil Code).
 In other words, registration only operates as a notice of the mortgage to others, but neither
adds to its validity nor convert an invalid mortgage into a valid one between the parties.
Appellants still have the right to show that the mortgage in question is invalid for lack of
consideration in an ordinary action and there ask for the avoidance of the deed and the
cancellation of its registration. But until such action is filed and decided, it would be too
dangerous to the rights of the mortgagee to deny registration of her mortgage, because her
rights can so easily be defeated by a transfer or conveyance of the mortgaged property to an
innocent third person.

If the purpose of registration is merely to give notice, the questions regarding the effect or
invalidity of instruments are expected to be decided after, not before, registration. It must
follow as a necessary consequence that registration must first be allowed and validity or
effect litigated afterwards.

 Gonzales v. Basa
FACTS:
In the matter of the estate of the deceased Amalia Arcega y Alfonso Vda. de Basa, Pilar
Lopez de Basa, as administratrix; Feliciano Basa, Jr., as sole and universal heir, and Antonio
Gonzalez, as creditor and attorney of the estate, presented to the court a project of partition
jointly signed by them and asked that it be approved. The said document consists of several
clauses. Clause 2 contains an inventory of the properties left by the deceased, and clause 3
contains a list of all the obligations of the estate. The adjudication is contained in clause 4.
Said project of partition was approved by the court.

Thereafter Feliciano Basa, Jr., thru his present attorney Mr. Benedicto M. Javier, procured
from the clerk of court a certified copy of said project of partition in a modified or mutilated
form in that page 22 thereof was omitted at the express request of Attorney Javier. That
certified copy, together with the owner's duplicates of the certificates of title covering the real
properties adjudicated to Feliciano Basa, Jr., was presented to the register of deeds of Manila
for registration with a view to the issuance of the corresponding transfer certificates of title in
the name of Feliciano Basa, Jr., free from the mortgage lien in favor of Antonio Gonzalez.
The latter, upon learning thereof, objected to the registration of the project of partition as thus
mutilated and requested the register of deeds, in lieu thereof, to register the certified
complete copy of said document which he then and there presented with a view to the
annotation of the mortgage in his favor on the certificates of title to be issued in the name of
Feliciano Basa, Jr.

The register of deeds refused to accede to said request of Attorney Gonzalez claiming
Attorneys Javier & Javier, representing Feliciano Basa Jr., refused to grant him authority to
annotate said mortgage on the certificates of title to be issued in the name of Basa, and that
since a mortgage is presumed to be a voluntary transaction between the parties he had no
authority to make such annotation without the consent of both parties. The matter was
brought to the CFI which ruled to instruct the register of deeds of Manila to register a certain
project of partition in its entirety and not in a mutilated form as requested by the appellants.

ISSUE:
Whether the mortgagee is entitled to register the mortgage as a matter of right.

HELD: YES. AFFIRMED.

In deciding to comply with the request of the appellants for the registration of the project of
partition as mutilated, over the objection of the appellee, who tendered a complete, certified
true copy of the same document, the register of deeds of Manila impliedly conceded to them
 the right to repudiate and annul an obligation evidenced by said document against the will of
the obligee and without judicial intervention.

That is obviously wrong. It is precisely his duty to see to it that a document presented for
registration is regular and in due form. The mutilated certified copy was irregular on its face
and should have been rejected by him.

In fact his authority in the premises goes no farther than this. He has no authority to inquire
into the intrinsic validity of a document based upon proofs aliunde. If he had no authority to
inquire into the truth of appellants' allegation as to lack of consideration for the mortgage in
question, much less was he authorized to assume the truth of such allegation without any
investigation.

The project of partition in question, having been signed by the parties and approved by the
court, is presumed to be valid and is acceptable for registration in its entirety. Neither of the
parties may alter it without the consent of the other and the approval of the court.

The reasoning of the register of deeds that, inasmuch as a mortgage is a voluntary

transaction, he had no authority to register it without the consent of both parties, is fallacious.
He confuses the execution of a mortgage with its registration. It is the execution of the
mortgage that is voluntary. Once a mortgage has been signed in due form, the mortgagee is
entitled to its registration as a matter of right. By executing the mortgage, the mortgagor is
understood to have given his consent to its registration, and he cannot be permitted to revoke
it unilaterally.

The validity and fulfillment of contracts cannot be left to the will of one of the contracting
parties (article 1256 of the Civil Code). In the last analysis, the case is as if Feliciano Basa,
Jr., had presented to the register of deeds a certified complete copy of the project of partition
with the request that the register of deeds take into consideration only the rights, and ignore
the obligations, evidenced by said document.

It is the same as if a buyer of real property who mortgaged the property bought to secure the
payment of the purchase price, had presented the combined deed of sale and mortgage to
the register of deeds with the request to transfer the title to him without annotating the
mortgage thereon.

Is the register of deeds authorized to comply with such request? No reasonable person would
so contend; and yet that is what the register of deeds of Manila proposes to do in the present
case.

 Agri Credit Coop Assoc. of Hinigaran v. Yusay

FACTS:
Rafaela Yulo executed in favor of the cooperative a mortgage for P33,626.29, due from her,
her mother, sisters, brothers, and others, which amount she assumed to pay to the
cooperative. A motion was presented to the court by the cooperative demanding the
surrender of the owner's duplicate certificate of title that it may annotate said mortgage at the
back of the certificate. Estanislao Yusay, a part owner of the lot, opposed the petition on the
ground that he is owner of a part of the property in question; that the granting of the motion
would operate to his prejudice, as he has not participated in the mortgage cited in the motion;
that Rafaela Yulo is dead; that the motion is not verified and movant's rights have lapsed by
prescription. Finally it is argued that his opposition raises a controversial matter which the
court has no jurisdiction to pass upon.
 The existence of the mortgage is not disrupted, and neither is the fact that the mortgagor
Rafaela Yulo is part owner of the lot. The oppositors do not dispute that she is such a part
owner, and their main objection to the petition is that as part owners of the property, the
annotation of the mortgage on the common title will affect their rights.

The matter was brought to the CFI, and it ordered the Register of Deeds to register the
mortgage.

ISSUE:
Whether the validity or effectivity of a mortgage may be determined during its registration

HELD: NO. AFFIRMED.

In his Brief before this Court, counsel for appellants argue that the mortgage sought to be
registered was not recorded before the closing of the intestate proceedings of the deceased
mortgagor, but was so recorded only four months after the termination of said proceedings,
so that the claim of movant has been reduced to the character of a mere money claim, not a
mortgage, hence the mortgage may not be registered.

In the first place, the proceeding to register the mortgage does not purport to determine the
supposed invalidity of the mortgage or its effect. Registration is a mere ministerial act by
which a deed, contract or instrument is sought to be inscribed in the records of the Office of
the Register of Deeds and annotated at the back of the certificate of title covering the land
subject of the deed.

The registration of a lease or mortgage, or the entry of a memorial of a lease or mortgage on

the register, is not a declaration by the state that such an instrument is a valid and subsisting
interest in land; it is merely a declaration that the record of the title appears to be burdened
with the lease or mortgage described, according to the priority set forth in the certificate. The
mere fact that a lease or mortgage was registered does not stop any party to it from setting
up that it now has no force or effect.

The court below, in ordering the registration and annotation of the mortgage, did not pass on
its invalidity or effect. As the mortgage is admittedly an act of the registered owner, all that
the judge below did and could do, as a registration court, is to order its registration and
annotation on the certificate of title covering the land mortgaged. By said order the court did
not pass upon the effect or validity of the mortgage - these can only be determined in an
ordinary case before the courts, not before a court acting merely as a registration court,
which did not have the jurisdiction to pass upon the alleged effect or invalidity.

 Ursal v. CA
FACTS:
Jesus and Cristita Moneset (Monesets) are the registered owners of a 333- square meter
land together with a house thereon situated at Sitio Laguna, Basak, Cebu City. On January 9,
1985, they executed a "Contract to Sell Lot & House" in favor of petitioner Winifreda Ursal.

Ursal paid the down payment and took possession of the property. She immediately built a
concrete perimeter fence and an artesian well, and planted fruit bearing trees and flowering
plants thereon which all amounted to P50,000.00. After paying six monthly installments,
petitioner stopped paying due to the Monesets' failure to deliver to her the transfer certificate
of title of the property as per their agreement; and because of the failure of the Monesets to
turn over said title, petitioner failed to have the contract of sale annotated thereon.

Unknown to Ursal, the Monesets executed on November 5, 1985 an absolute deed of sale in
favor of Dr. Rafael Canora, Jr. over the said property for P14,000.00. On September 15,
1986, the Monesets executed another sale, this time with pacto de retro with Restituto
Bundalo. On the same day, Bundalo, as attorney- in-fact of the Monesets, executed a real
estate mortgage over said property with Rural Bank of Larena located in Siquijor for the
amount of P100,000. 00. The special power of attorney made by the Monesets in favor of
Bundalo as well as the real estate mortgage was then annotated on the title on September
16, 1986. For the failure of the Monesets to pay the loan, the Bank served a notice of
extrajudicial foreclosure dated January 27, 1988 on Bundalo.

Ursal filed an action for declaration of non-effectivity of mortgage and damages against the
Monesets, Bundalo and the Bank. She claimed that the defendants committed fraud and/or
bad faith in mortgaging the property she earlier bought from the Monesets with a bank
located in another island, Siquijor; and the Bank acted in bad faith since it granted the real
estate mortgage in spite of its knowledge that the property was in the possession of
petitioner.

The trial court ruled that Ursal was more credible than the Monesets and that the Monesets
are liable for damages, fraud, and breach of contract. As to the real estate mortgage, the trial
court held that the same was valid and that the bank was under no obligation to look beyond
the title.

CA affirmed.

ISSUE:
Whether the bank, as mortgagee, can rely solely on the certificate of title and had no
obligation to look beyond the title.

HELD: NO. AFFIRMED WITH MODIFICATIONS.

We agree. Banks cannot merely rely on certificates of title in ascertaining the status of
mortgaged properties; as their business is impressed with public interest, they are expected
to exercise more care and prudence in their dealings than private individuals. Indeed, the rule
that persons dealing with registered lands can rely solely on the certificate of title does not
apply to banks.

Respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private

individuals, it is expected to exercise greater care and prudence in its dealings, including
those involving registered lands. A banking institution is expected to exercise due diligence
before entering into a mortgage contract. The ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and indispensable part of its
operations.

Our agreement with petitioner on this point of law, notwithstanding, we are constrained to
refrain from granting the prayers of her petition. The reason is that, the contract between
petitioner and the Monesets being one of "Contract to Sell Lot and House," petitioner, under
the circumstances, never acquired ownership over the property and her rights were limited to
demand for specific performance from the Monesets, which at this juncture however is no
longer feasible as the property had already been sold to other persons.

A contract to sell is a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price. In such
contract, the prospective seller expressly reserves the transfer of title to the prospective
buyer, until the happening of an event, which in this case is the full payment of the purchase
price. What the seller agrees or obligates himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase price is delivered to him. Stated
differently, the full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer. It is
different from contracts of sale, since ownership in contracts to sell is reserved by the vendor
and is not to pass to the vendee until full payment of the purchase price, while in contracts of
sale, title to the property passess to the vendee upon the delivery of the thing sold. In
contracts of sale the vendor loses ownership over the property and cannot recover it unless
and until the contract is resolved or rescinded, while in contracts to sell, title is retained by the
vendor until full payment of the price. In contracts to sell, full payment is a positive
suspensive condition while in contracts of sale, non-payment is a negative resolutory
condition.

Since the contract in this case is a contract to sell, the ownership of the property remained
with the Monesets even after petitioner has paid the down payment and took possession of
the property. In Flancia vs. CA, where the vendee in the contract to sell also took possession
of the property, this Court held that the subsequent mortgage constituted by the owner over
said property in favor of another person was valid since the vendee retained absolute
ownership over the property. At most, the vendee in the contract to sell was entitled only to
damages.

Petitioner attributes her decision to stop paying installments to the failure of the Monesets to
comply with their agreement to deliver the transfer certificate of title after the down payment
of P50,000.00. On this point, the trial court was correct in holding that for such failure, the
Monesets are liable to pay damages pursuant to Art. 1169 of the Civil Code on reciprocal
obligations. The vendors' breach of the contract, notwithstanding, ownership still remained
with the Monesets and petitioner cannot justify her failure to complete the payment.

In Pangilinan vs CA, the vendees contended that their failure to pay the balance of the total
contract price was because the vendor reneged on its obligation to improve the subdivision
and its facilities. In said case, the Court held that the vendees were barred by laches from
asking for specific performance eight years from the date of last installment.

The legal adage finds application in the case at bar. Tempus enim modus tollendi obligations
et actiones, quia tempus currit contra desides et sui juris contemptores-For time is a means
of dissipating obligations and actions, because time runs against the slothful and careless of
their own rights.

In this case, petitioner instituted an action for "Declaration of Non-Effectivity of Mortgage with
Damages" four years from the date of her last installment and only as a reaction to the
foreclosure proceedings instituted by respondent Bank. After the Monesets failed to deliver
the TCT, petitioner merely stopped paying installments and did not institute an action for
specific performance, neither did she consign payment of the remaining balance as proof of
her willingness and readiness to comply with her part of the obligation.

As held in San Lorenzo Development Corp vs. CA, the perfected contract to sell imposed on
the vendee the obligation to pay the balance of the purchase price. There being an obligation
to pay the price, the vendee should have made the proper tender of payment and
consignation of the price in court as required by law. Consignation of the amounts due in
court is essential in order to extinguish the vendee's obligation to pay the balance of the
purchase price. Since there is no indication in the records that petitioner even attempted to
make the proper consignation of the amounts due, the obligation on the part of the Monesets
to transfer ownership never acquired obligatory force.

In other words, petitioner did not acquire ownership over the subject property as she did not
pay in full the equal price of the contract to sell. Further, the Monesets' breach did not entitle
 petitioner to any preferential treatment over the property especially when such property has
been sold to other persons.

Petitioner's rights were limited to asking for specific performance and damages from the
Monesets. Specific performance, however, is no longer feasible at this point as explained
above. This being the case, it follows that petitioner never had any cause of action against
respondent Bank. Having no cause of action against the bank and not being an owner of the
subject property, petitioner is not entitled to redeem the subject property.

Indeed, it is the Monesets who first breached their obligation towards petitioner and are guilty
of fraud against her. It cannot be denied however that petitioner is also not without fault. She
sat on her rights and never consigned the full amount of the property. She therefore cannot
ask to be declared the owner of the property, this late, especially since the same has already
passed hands several times, neither can she question the mortgage constituted on the
property years after title has already passed to another person by virtue of a deed of absolute
sale.

 Rivera v. Pena
FACTS:
Timoteo Peña was the registered owner of 2 lots of the barrios of Pacalcal and Anupul,
respectively, municipality of Bamban, province of Tarlac, and covered by TCTs. Timoteo
Peña executed in favor of petitioner Rivera a contract of lease over said two (2) parcels of
land, for the period from September 14, 1956 to September 15,1960, as evidenced by a
public document in the Pampango dialect. This contract was merely a renewal of a previous
contract of lease over the same parcels of land, between the same parties.

The owner's duplicates of the aforementioned transfer certificates of title are in the
possession of the Rehabilitation Finance Corporation, to whom said lands were mortgaged
by Timoteo Peña on October 26, 1955, to guarantee the payment of a P25,000.00 loan,
which mortgage is duly annotated on the aforementioned transfer certificates of title; and that,
in order to protect his rights over the parcels of land aforementioned, petitioner Rivera desires
to have said rights registered in the office of the register of deeds of Tarlac and annotated in
the certificates of title above referred to, for which reason he prayed that the Rehabilitation
Finance Corporation be ordered to surrender to said register of deeds the owner's duplicates
of the aforementioned transfer certificates of title and that said register of deeds be directed
to register the original of the contract of lease, and to make the corresponding annotations in
said transfer certificates of title, upon presentation of said original of the contract of lease and
payment of the corresponding fees.

The Rehabilitation Finance Corporation objected to said petition upon the ground that,
pursuant to the deed of mortgage executed in its favor by Timoteo Peña, the lands above
referred to shall not be encumbered in any manner without the written consent of the
mortgagee; that the consent of the corporation to the contract of lease had never been
sought. The corporation had granted the loan guaranteed by said mortgage for the
development of the property in question, to be undertaken by the mortgagor; and, as a matter
of policy, the corporation does not allow, therefore, the leasing of mortgaged property.

The lower court denied the petition because the deed of lease sought to be registered is in
the Pampango dialect and that it does not bear the correct number of the title covering the
leased property.

ISSUE:
 Whether a subsequent encumbrance may be registered when a previous encumbrance
disallows it.

HELD: NO. AFFIRMED.

One of the conditions of the contract executed by Timoteo Peña in favor of the Rehabilitation
Finance Corporation is that the property thus mortgaged thereto shall not be encumbered in
any manner whatsoever without the written consent of the mortgagee. Such consent has
never been sought. Had it been requested, the consent would have been denied or refused,
as a matter of policy, by the mortgagee, the loan guaranteed by said mortgage having been
granted for the development of the mortgaged property, which should, therefore, be cultivated
by the mortgagor himself.

Inasmuch as appellant's rights were derived from Timoteo Peña and is bound, therefore, by
his commitments in favor of said corporation, it is clear that appellant has no valid adverse
claim which may be ordered registered and that, accordingly, the lower court has not erred in
denying his petition, regardless of the language or dialect in which the deed of lease in
question is written and of the inaccuracy of the number therein given of one of the transfer
certificates of title involved in this incident.

 PNB v. CA
FACTS:
Chu Kim Kit, a Chinese national and son of defendant Boyano, is the absolute owner of a
commercial lot and building on Rizal Avenue, Tacloban City, registered in his name. Chu Kim
Kit went to mainland China, and he was prevented from returning to the Philippines when the
Communists took over mainland China. Through letters, he requested Chu Tong U to take
care of his aforementioned property. Although Boyano was aware that her son was still alive,
she executed an affidavit on May 21, 1963, alleging that he had died and adjudicating to
herself, as his sole heir, the above-described property. By means of said affidavit of
adjudication, she was able to obtain a Transfer Certificate of Title over the land in her name.
She thereafter mortgaged the property to the Philippine National Bank, Tacloban Branch, to
secure a loan of P25,000. She was also about to dispose of the property.

Chu Kim Kit, represented by his uncle, Chu Tong U, filed a case against Felisa Boyano for
cancellation of the latter's Certificate of Title. Boyano admitted that Chu Kim Kit was still alive
but she alleged that she signed the affidavit of adjudication without having read its contents,
the same being written in English which she does not understand.

The trial court ruled that the TCT of Boyano were null and void.

CA affirmed.

ISSUE:
Whether a mortgagee may rely on the correctness of the certificate of title.

HELD: YES. REVERSED.

The records show that Chu Kim Kit entrusted his Transfer Certificate of Title No. T-1412 to
his mother, Felisa Boyano, before he left for mainland China and allowed his mother to
administer the property, and to enjoy its fruits in his absence. Those acts of his enabled
Felisa Boyano to cause the cancellation of TCT No. T -1412 and to obtain TCT No. T-1439 in
her name. That Felisa Boyano was administering his property may also have created the
impression in the mind of third persons that she was the owner of the property and could
dispose of it. It is plain to see that by his own acts of confidence in Felisa Boyano, the private
respondent was partly to blame for the commission of the fraud against himself by his
mother. As between him and the petitioner which was totally innocent and free from
negligence or wrongdoing in the transaction, the latter is entitled to the protection of the law.
 There is no question that the petitioner PNB is a mortgagee in good faith and for value. At the
time the mortgage was constituted on the property on October 30, 1963, it was covered by
TCT No. T -1439 in the name of Felisa Boyano. The title carried no annotation, defect or flaw
that would have aroused suspicion as to its authenticity. "The certificate of title was in the
name of the mortgagor when the land was mortgaged to the PNB. Such being the case,
petitioner PNB had the right to rely on what appeared on the certificate of title, and in the
absence of anything to excite suspicion, it was under no obligation to look beyond the
certificate and investigate the title of the mortgagor appearing on the face of the certificate."

Where there was nothing in the certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore farther than what the Torrens Title upon its face indicates in quest for any hidden
defect or inchoate right that may subsequently defeat his right thereto. If the rule were
otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens System
seeks to insure would entirely be futile and nugatory.

Where innocent third persons relying on the correctness of the certificate of title issued,
acquire rights over the property, the court cannot disregard such rights and order the total
cancellation of the certificate for that would impair public confidence in the certificate of title;
otherwise everyone dealing with property registered under the torrens system would have to
inquire in every instance as to whether the title had been regularly or irregularly issued by the
court. Indeed, this is contrary to the evident purpose of the law. Every person dealing with
registered land may safely rely on the correctness of the certificate of title issued therefor and
the law will in no way oblige him to go behind the certificate to determine the condition of the
property. Stated differently, an innocent purchaser for value relying on a torrens title issued is
protected. A mortgagee has the right to rely on what appears in the certificate of title and, in
the absence of anything to excite suspicion, he is under no obligation to look beyond the
certificate and investigate the title of the mortgagor appearing on the face of said certificate.

The right or lien of an innocent mortgagee for value upon the land mortgaged must be
respected and protected, even if the mortgagor obtained his title through fraud. The remedy
of the persons prejudiced is to bring an action for damages against those who caused the
fraud, and if the latter are insolvent, an action against the Treasurer of the Philippines may be
filed for recovery of damages against the Assurance Fund.

 Baysa v. Plantilla
FACTS:
The case involves a real estate mortgage (REM) entered into by the petitioners involving their
parcel of land in Cubao, Quezon City covered by their Transfer Certificate of Title No. 260376
of the Register of Deeds of Quezon City to secure the payment of their obligation amounting
to P2.3 Million in favor of the respondent spouses. Based on the terms of the REM, the
petitioners agreed to pay interest on the principal amount at the rate of 2.5%/month, or P
57,500.00/month. Upon the default of the petitioners, the respondent spouses commenced
the extrajudicial foreclosure of the REM to recover from the petitioners the total liability of P
3,579, 100.00 (inclusive of the principal and the unpaid interest).

The petitioners sued the respondent spouses in the Regional Trial Court (RTC) in Quezon
City to annul the extrajudicial foreclosure of the REM and the public auction conducted
pursuant to the extrajudicial foreclosure. They alleged that all the proceedings relevant to the
extrajudicial foreclosure were null and void, pointing out that there had been no power or
authority to sell inserted in the REM or attached thereto as required by Section 1 Act No.
3135; and that the interest rate of 8% was unconscionable and violative of the Anti-Usury
Law. The petitioners seek the reversal and setting aside of the decision of the Court of
Appeals (CA) declaring the extrajudicial foreclosure of their mortgaged property valid.
 ISSUE #1: Whether or not the Court of Appeals erred when it declared that the extrajudicial
foreclosure was valid despite the lack of provision in the mortgage deed granting special
power to sell to the mortgagee.
HELD #1: YES. In the extrajudicial foreclosure of property subject of a real estate mortgage,
Section 1 of Act No. 3135[1] (An Act to Regulate the Sale of Property Under Special Powers
Inserted in or Annexed to Real Estate Mortgages) is quite explicit and definite about the
special power to sell the property being required to be either inserted in or attached to the
deed of mortgage. Accordingly, to enable the extra judicial foreclosure of the REM of the
petitioners, the special power to sell should have been either inserted in the REM itself or
embodied in a separate instrument attached to the REM. But it is not disputed that no special
power to sell was either inserted in the REM or attached to the REM. Hence, the respondent
spouses as the foreclosing mortgagees could not initiate the extrajudicial foreclosure, but
must resort to judicial foreclosure pursuant to the procedure set forth in Rule 68 of the Rules
of Court. The omission of the special power to sell the property subject of the mortgage was
fatal to the validity and efficacy of the extrajudicial foreclosure, and warranted the invalidation
of the entire proceedings conducted by the sheriff.

ISSUE #2: Whether or not the Court of Appeals erred when it concluded that consenting to
the extrajudicial foreclosure of the property, by necessary implication, carries with it the grant
of power to sell the property at public action.
HELD #2: YES. What was necessary was the special power or authority to sell - whether
inserted in the REM itself, or annexed thereto - that authorized the respondent spouses to
sell in the public auction their mortgaged property. The requirement for the special power or
authority to sell finds support in the civil law. To begin with, because the sale of the property
by virtue of the extrajudicial foreclosure would be made through the sheriff by the respondent
spouses as the mortgagees acting as the agents of the petitioners as the mortgagors-owners,
there must be a written authority from the latter in favor of the former as their agents;
otherwise, the sale would be void. And, secondly, considering that, pursuant to Article 1878,
(5), of the Civil Code, a special power of attorney was necessary for entering "into any
contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration," the written authority must be a special power of
attorney to sell.

ISSUE #3: Whether or not the Court of Appeals erred in not declaring the 2.5% monthly
interest illegal and usurious, considering that the 8% interest was already declared as invalid
and unwarranted.
HELD #3: NO. To start with, the petitioners are now estopped from assailing the validity of
the monthly interest payments made. They expressly consented to be liable to pay
2.5%/month on the principal loan of P2.3 Million, and actually made several payments of
interest at that rate. Secondly, they did not assail the rate of 2.5%/month as interest in the
lower courts, doing so only in this appeal. Hence, they cannot be permitted to bring the issue
for the first time in this Court, for that would be unfair not only to the adverse parties but also
to the lower courts by depriving the latter of the opportunity to pass upon the issue. And,
thirdly, the invalidation by the CA of the 8% compounded interest does not justify deleting the
stipulation on the 2.5%/month interest that was really separate and distinct from the former.

[1] Section 1. When a sale is made under a special power inserted in or attached to any real
estate mortgage hereafter made as security for the payment of money or the fulfillment of any
other obligation, the provisions of the following section shall govern as to the manner in which
the sale and redemption shall be effected, whether or not provision for the same is made in
the power

 United Overseas Bank v. BOC-HLURB

 Facts:
EDUPLAN bought a condominium unit from J.O.S. Managing Builders, Inc. under a contract
to sell. The condominium unit was fully paid in August 1998 and executed their deed of
absolute sale in December 1998. However, J.O.S. Managing Builders did not deliver the
condominium certificate title to EDUPLAN, which, in time, discovered that J.O.S. Managing
Builders that the unit was the subject of mortgage by J.O.S. Managing Builders in favour of
United Overseas Bank. Now EDUPLAN filed a petition to declare the mortgage between
J.O.S. Managing Builders and United Overseas Bank null and void. On August 15, 2001,
HLURB (Housing and Land Use Regulatory Board) Arbiter declared the mortgage null and
void. Such decision led to the petition of United Overseas Bank.

Issues:
W/N the HLURB erred in declaring null and void the mortgage.

Ruling:
Yes, the HLURB erred in declaring null and void the mortgage. This is because EDUPLAN, a
unit buyer, has no legal standing in order for it to seek complete nullification of the mortgage
when it only has interest to the single unit that it purchased.

EFFECT - REAL MORTGAGE

 DBP v. CA
FACTS:
A land, covered by a tax declaration, was originally owned by one Presentacion Cordovez,
who, on February 9, 1937, donated it to Luciano Sarmiento.

On June 8, 1964 Luciano Sarmiento sold the land to Pacifico Chica.

On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of P6,000.00.
However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial
foreclosure of the mortgage.

In the auction sale held on September 9, 1970, DBP acquired the property as the highest
bidder and was issued a certificate of sale on September 17, 1970 by the sheriff.

On October 14, 1980, spouses Celebrada and Abner Mangubat offered to buy the property
for P18,599.99. DBP made a counter-offer of P25,500.00 which was accepted by respondent
spouses. The parties further agreed that payment was to be made within six months
thereafter for it to be considered as cash payment.

On July 20, 1981, a deed of absolute sale was executed. Said document contained a waiver
of the seller's warranty against eviction.

Thereafter, the spouses Mangubat applied for an industrial tree planting loan with DBP. The
latter required the former to submit a certification from the Bureau of Forest Development that
the land is alienable and disposable. However, on October 29, 1981, said office issued a
certificate attesting to the fact that the said property was classified as timberland, hence not
subject to disposition.

The loan application of respondent spouses was, nevertheless, eventually approved by DBP
in the sum of P140,000.00, despite the aforesaid certification of the bureau, on the
understanding of the parties that DBP would work for the release of the land by the former
Ministry of Natural Resources.
To secure payment of the loan, respondent spouses executed a real estate mortgage over
the land on March 17, 1982, which document was registered in the Registry of` Deeds
pursuant to Act No. 3344. The loan was then released to the spouses Mangubat on a
staggered basis. After a substantial sum of P118,540.00 had been received by private
respondent, they asked for the release of the remaining amount of the loan. It does not
appear that their request was acted upon by DBP, ostensibly because the release of the land
from the then Ministry of Natural Resources had not been obtained.

The spouses Mangubat then filed a complaint against DBP seeking the annulment of the
subject deed of absolute sale on the ground that the object thereof was verified to be
timberland and, therefore, is in law an inalienable part of the public domain. They also alleged
that DBP acted fraudulently and in bad faith by misrepresenting itself as the absolute owner
of the land and in incorporating the waiver of warranty against eviction in the deed of sale

In its answer, DBP contended that it was actually the absolute owner of the land, having
purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage;
that there was neither malice nor fraud in the sale of the land under the terms mutually
agreed upon by the parties; that assuming arguendo that there was a flaw in its title, DBP
cannot be held liable for anything inasmuch as respondent spouses had full knowledge of the
extent and nature of DBP's rights, title and interest over the land.

The trial court rendered judgment annulling the subject deed of absolute sale and ordering
DBP to return the P25,500.00 purchase price, plus interest; to reimburse to respondent
spouses the taxes paid by them, the cost of the relocation survey, incidental expenses and
other damages in the amount of P50,000.00; and to further pay them attorney's fees and
litigation expenses in the amount of P10,000.00, and the costs of suit.

Upon appeal, the CA rendered judgment modifying the disposition of the lower court by
deleting the award for damages, attorney's fees, litigation expenses and the costs, but
affirming the same in all its other aspects.

ISSUE:
Whether a loan contract which is secured by a void mortgage is still valid.

HELD: YES. Affirmed with Modifications.

In its legal context, the contract of loan executed between the parties is entirely different and
discrete from the deed of sale they entered. The annulment of the sale will not influence the
existence and demandability of the loan. One who has received money as a loan is bound to
pay to the creditor an equal amount of the same kind and quality.

The fact that the annulment of the sale will also result in the invalidity of the mortgage does
not have an effect on the validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor may also be enforced by means
of an ordinary action. Where a mortgage is not valid, as where it is executed by one who is
not the owner of the property, or the consideration of the contract is simulated or false, the
principal obligation which it guarantees is not thereby rendered null and void. That obligation
matures and becomes demandable in accordance with the stipulations pertaining to it.

Under the foregoing circumstances, what is lost is only the right to foreclose the mortgage as
a special remedy for satisfying or settling the indebtedness which is the principal obligation.
In case of nullity, the mortgage deed remains as evidence or proof of a personal obligation of
the debtor, and the amount due to the creditor may be enforced in an ordinary personal
action.
 Considering that neither party questioned the legality and correctness of the judgment of the
court a quo, as affirmed by respondent court, ordering the annulment of the deed of absolute
sale, such decreed nullification of the document has already achieved finality. We only need,
therefore, to dwell on the effects of that declaration of nullity.

With respect to the right of a party to recover the amount given as consideration, this has
been passed upon in the case of Leather Manufacturers National Bank vs. Merchants
National Bank where it was held that: "What money is paid upon the representation of the
receiver that he has either a certain title in property transferred in consideration of the
payment or a certain authority to receive the money paid, when in fact he has no such title or
authority, then, although there be no fraud or intentional misrepresentation on his part, yet
there is no consideration for the payment, the money remains, in equity and good
conscience, the property of the payer and may be recovered back by him."

Therefore, the purchaser is entitled to recover the money paid by him where the contract is
set aside by reason of the mutual material mistake of the parties as to the identity or quantity
of the land sold. And where a purchaser recovers the purchase money from a vendor who
fails or refuses to deliver the title" he is entitled as a general rule to interest on the money
paid from the time of Payment. A contract which the law denounces as void is necessarily no
contract whatever, and the acts of the parties in an effort to create one can in no wise bring
about a change of their legal status. The parties and the subject matter of the contract remain
in all particulars just as they did before any act was performed in relation thereto.

 Carpo v. Chua
FACTS:
The spouses Carpo borrowed from Chua and Ng the amount of P175,000 payable within 6
months with an interest of 6% per month. To secure the loan, they mortgaged their residential
house and lot in Camarines Sur. They failed to pay the loan. Consequently, the property was
extrajudicially foreclosed and sold at an auction sale to Chua and Ng. Upon failure to
exercise their right of redemption, a certificate of sale was issued and TCTs were issued in
the name of the winning bidders. Despite such developments, the spouses Carpo continued
to occupy the house and lot prompting Chua and Ng to file a petition for writ of possession.
Such writ was issued.

The spouses Carpo then filed a complaint for the annulment of real estate mortgage and the
consequent foreclosure proceedings. They consigned the amount of P257, 197.26 with the
court. A TRO was issued. The RTC suspended the enforcement of the writ of possession
pending the final disposition of the complaint.

Chua and Ng questioned this suspension order before the CA. During the pendency of the
case before the CA, the court handling the complaint for annulment dismissed the case on
the ground that it was filed out of time and was barred by laches. A petition was filed assailing
the dismissal of the complaint.

The CA eventually reversed the suspension order on the ground that it was the ministerial
duty of the lower court to issue the writ of possession when title over the mortgaged property
had been consolidated in the mortgagee.

ISSUE:
Whether a mortgage can be nullified on the ground that the interest of the loan which is
secured by the mortgage is usurious.

HELD: NO. Affirmed.

There is no need to unsettle the principle affirmed in Medel and like cases. From that
perspective, it is apparent that the stipulated interest in the subject loan is excessive,
 iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle
embodied in Article 1306 of the Civil Code, 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. In the ordinary
course, the codal provision may be invoked to annul the excessive stipulated interest.

In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the
standards set in the above - cited cases, this stipulation is similarly invalid. However, the RTC
refused to apply the principle cited and employed in Medel on the ground that Medel did not
pertain to the annulment of a real estate mortgage, as it was a case for annulment of the loan
contract itself. The question thus sensibly arises whether the invalidity of the stipulation on
interest carries with it the invalidity of the principal obligation. The question is crucial to the
present petition even if the subject thereof is not the annulment of the loan contract but that of
the mortgage contract.

The consideration of the mortgage contract is the same as that of the principal contract from
which it receives life, and without which it cannot exist as an independent contract. Being a
mere accessory contract, the validity of the mortgage contract would depend on the validity of
the loan secured by it. Notably in Medel, the Court did not invalidate the entire loan obligation
despite the inequitability of the stipulated interest, but instead reduced the rate of interest to
the more reasonable rate of 12% per annum. The same remedial approach to the wrongful
interest rates involved was employed or affirmed by the Court in Solangon, Imperial, Ruiz,
Cuaton, and Arrofo. The Court’s ultimate affirmation in the cases cited of the validity of the
principal loan obligation side by side with the invalidation of the interest rates thereupon is
congruent with the rule that a usurious loan transaction is not a complete nullity but defective
only with respect to the agreed interest.

The Court’s wholehearted affirmation of the rule that the principal obligation subsists despite
the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of
which the main obligation was upheld and the offending interest rate merely corrected.
Hence, it is clear and settled that the principal loan obligation still stands and remains valid.
By the same token, since the mortgage contract derives its vitality from the validity of the
principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void
the ancillary mortgage contract.

The petition for certiorari and mandamus questioning the suspension order was proper since
the said order was interlocutory in nature and since the case involved the performance of a
ministerial duty.
o
 Tuason v. Orozco
FACTS:
On November 19, 1888, Juan de Vargas y Amaya, the defendant's husband, executed a
power of attorney to Enrique Grupe, authorizing him to dispose of all his property, and
particularly of a certain house and lot known as No. 24 Calle Nueva, Malate, in the city of
Manila, for the price at which it was actually sold. He was also authorized to mortgage the
house for the purpose of securing the payment of any amount advanced to his wife, Dolores
Orozco de Rivero.

On the 21st of January, 1890, Enrique Grupe and Dolores Orozco de Rivero obtained a loan
from the plaintiff secured by a mortgage on the property referred to in the power of attorney.
In the caption of the instrument evidencing the debt it is stated the Grupe and Dolores Orozco
appeared as the parties of the first part and Gonzalo Tuason, the plaintiff, as the party of the
second part; that Grupe acted for himself and also in behalf of Juan Vargas by virtue of the
power granted him by latter, and that Dolores Orozco appeared merely for the purpose of
complying with the requirements contained in the power of attorney. This instrument was duly
 recorded in the Registry of Property, and it appears therefrom that Enrique Grupe, as
attorney in fact for Vargas, received from the plaintiff a loan of 2,200 pesos and delivered the
same to the defendant. To secure its payment, he mortgaged the property of his principal
with defendant's consent as required in the power of attorney.

The loan was not paid. The creditor filed suit and won in the lower court.

ISSUE:
Whether validity of the mortgage can be affected by the circumstances on how the money
from the loan was received by the mortgagor.

HELD: NO. AFFIRMED.

The fact that the defendant received the money from her husband's agent and not from the
creditor does not affect the validity of the mortgage in view of the conditions contained in the
power of attorney under which the mortgage was created. Nowhere does it appear in this
power that the money was to be delivered to her by the creditor himself and not through the
agent or any other person. The important thing was that she should have received the
money. This we think is fully established by the record.

A debt thus incurred by the agent is binding directly upon the principal, provided the former
acted, as in the present case, within the scope of his authority. (Art. 1727 of the Civil Code.)
The fact that the agent has also bound himself to pay the debt does not relieve from liability
the principal for whose benefit the debt was incurred.

The individual liability of the agent constitutes in the present case a further security in favor of
the creditor and does not affect or preclude the liability of the principal. In the present case
the latter's liability was further guaranteed by a mortgage upon his property. The law does not
provide that the agent can not bind himself personally to the fulfillment of an obligation
incurred by him in the name and on behalf of his principal. On the contrary, it provides that
such act on the part of an agent would be valid. (Art. 1725 of the Civil Code.)

The appellant's final contention is that in order to render judgment against the mortgaged
property it would be necessary that the minor children of Juan de Vargas be made parties
defendant in this action, they having an interest in the property. Under article 154 of the Civil
Code, which was in force at the time of the death of Vargas, the defendant had the parental
authority over her children and consequently the legal representation of their persons and
property. (Arts. 155 and 159 of the Civil Code.) It can not be said, therefore, that they were
not properly represented at the trial. Furthermore this action was brought against the
defendant in her capacity as administratrix of the estate of the deceased Vargas. She did not
deny in her answer that she was such administratrix.

Vargas having incurred this debt during his marriage, the same should not be paid out of
property belonging to the defendant exclusively but from that pertaining to the conjugal
partnership. This fact should be borne in mind in case the proceeds of the mortgaged
property be not sufficient to pay the debt and interest thereon. The judgment of the court
below should be modified in so far as it holds the defendant personally liable for the payment
of the debt.

 Lagrosa v. CA
FACTS:
Involved in this case is the possession of sixty-five (65) square meters of residential lot
located in Paco, Manila, originally owned by the City of Manila which, in due course, following
its land and housing program for the under-privileged, awarded it to one Julio Arizapa who
constructed a house and upholstery shop thereon. The award was in the nature of a
"Contract to Sell" payable monthly for a period of twenty (20) years. Before Julio Arizapa
could pay for the lot, he died, leaving behind his wife and children. His wife died the following
year. The surviving children, including Evelyn Arizapa Banua, executed a Deed of
Extrajudicial Partition adjudicating unto themselves the lot and a Renunciation in favor of
Evelyn. Cesar Orolfo is the caretaker of the same subject property as authorized and
appointed by Evelyn Banua, in whose name TCT No. 197603 covering the said property is
registered. The title of Evelyn Banua to the subject property is evidenced by a Deed of Sale
executed by the City of Manila in her favor and by a TCT.

Ruben Lagrosa claims to be the lawful possessor of the subject property by virtue of the
"Deed of Assignment of Real Estate Mortgage" executed in his favor by Presentacion
Quimbo on the basis of a "Contract of Real Estate Mortgage" executed by Julio Arizapa in
favor of the latter. Lagrosa posits that he cannot be evicted from the subject property
because he had prior possession as assignee of the said "Assignment of Real Estate
Mortgage" executed by Presentacion Quimbo in his favor, and with the consent of Mauricia
Albaytar, the sister of the deceased Josefa Albaytar Arizapa, after the demise of the spouses
Julio Arizapa and Josefa Albaytar.

Evelyn Banua and her husband filed a case against Lagrosa. Lagrosa, in turn, filed a case
against Cesar Orolfo.

The case filed by Evelyn Banua was ruled in her favor.

The case filed by Lagrosa was ruled in his favor.

The case was consolidated in the CA, and the court affirmed the ruling in favor of Evelyn
Banua and reversed the ruling in favor of Cesar Orolfo.

ISSUE:
Whether a mortgage executed by a person who is not the owner of the property is valid.

HELD: NO. Affirmed.

The Deed of Real Estate Mortgage" executed by Julio Arizapa is null and void, the property
mortgaged by Julio Arizapa being owned by the City of Manila under Transfer Certificate of
Title No. 91120. For a person to validly constitute a valid mortgage on real estate, he must be
the absolute owner thereof as required by Article 2085 of the Civil Code of the Philippines.

Since the mortgage to Presentacion Quimbo of the lot is null and void, the assignment by
Presentacon Quimbo of her rights as mortgage to Lagrosa is likewise void. Even if the
mortgage is valid as insisted by herein petitioner, it is well- settled that a mere mortgagee has
no right to eject the occupants of the property mortgaged. This is so, because a mortgage
passes no title to the mortgagee. Indeed, by mortgaging a piece of property, a debtor merely
subjects it to a lien but ownership thereof is not parted with.

Thus, a mortgage is regarded as nothing more than a mere lien, encumbrance, or security for
a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the
possession of the property.
Petitioner Lagrosa now contends that what was mortgaged by Julio Arizapa in favor of
Presentacion Quimbo was "his right as an awardee over the homelot in question, and not the
homelot itself." Petitioner would have this Court uphold the validity and legality of the
mortgage over the "right as an awardee" rather than the homelot itself. The agreement
between the City of Manila and Julio Arizapa was in the nature of a "contract to sell," the price
for the lot being payable on installment for a period of twenty (20) years which could yet
prevent, such as by the non-fulfillment of the condition, the obligation to convey title from
 acquiring any obligatory force. Hence, there is no "right" as awardee to speak of, and there is
no alienable interest in the property to deal with.

As to Lagrosa's prior possession of the subject property, their stay in the property as correctly
found by the respondent Court of Appeals was by mere tolerance or permission. It is well-
settled that "a person who occupies the land of another at the latter's tolerance or permission,
without any contract between them is necessarily bound by an implied promise that he will
vacate upon demand, failing which, a summary action for ejectment is the proper remedy
against him. By Lagrosa's own admission, he is merely an assignee of the rights of the
mortgage of the lot and that, consequently, the respondent Court of Appeals correctly ruled
that the only right of action of Lagrosa as such assignee of the mortgagee, where the
mortgagor is already dead, is that provided for in Section 7 of Rule 86 and Section 5 of Rule
87 of the Rules of Court. Thus, the mortgagee does not acquire title to the mortgaged real
estate unless and until he purchases the same at public auction and the property is not
redeemed within the period provided for by the Rules of Court.

 Castro v. CA
FACTS:
On 15 August 1974, Cabanatuan City Colleges obtained a loan from the Bancom
Development Corporation. In order to secure the indebtedness, the college mortgaged to
Bancom two parcels of land covered by TCT No. T -45816 and No. T- 45817 located in
Cabanatuan City. The parcels were both within the school site. While the mortgage was
subsisting, the college board of directors agreed to lease to petitioners a 1,000-square-meter
portion of the encumbered property on which the latter, eventually, built a residential house.
Bancom, the mortgagee, was duly advised of the matter.

The school defaulted in the due payment of the loan. In time, Bancom extrajudicially
foreclosed on the mortgage, and the mortgaged property was sold at public auction on 22
August 1979 with Bancom coming out to be the only bidder. A certificate of sale was
accordingly executed by the provincial sheriff in favor of Bancom. Subsequently, the latter
assigned its credit to herein private respondent Union Bank of the Philippines. On 10 October
1984, following the expiration of the redemption period without the college having exercised
its right of redemption, private respondent consolidated title to the property. On 08 May 1985,
private respondent filed with the Regional Trial Court of Nueva Ecija, Branch XXVIII in
Cabanatuan City, an ex-parte motion for the issuance of a writ of possession not only over
the land and school buildings but also the residential house constructed by petitioners. On 10
May 1985, the lower court granted the motion and direct issuance of the corresponding writ.
The ex- officio provincial sheriff, in implementing the writ, thereby also sought the vacation of
the premises by petitioners. When the latter refused, private respondent filed an ex-parte
motion for a special order directing the physical ouster of the occupants.

On 23 May 1986, petitioners formally entered their appearance in the proceedings to oppose
the ex-parte motion. Petitioners averred that, being the owners of the residential house which
they themselves had built on the foreclosed property with the prior knowledge of the
mortgagee, they could not be ousted simply on the basis of a petition for a writ of possession
under Act No. 3135.

The court, nevertheless, issued an order granting private respondent's motion, and it directed
Atty. Luis T. Castro representation of petitioners, to deliver "all the keys to all the room
premises" found on the property foreclosed and authorized, in the event petitioners would
refuse to surrender the keys, private respondent "to the premises in question and do what is
best for the preservation properties belonging to the Cabanatuan City Colleges."

Upon appeal, the CA affirmed.

 ISSUE:
Whether a house subsequently built by a lessee on mortgaged land with the knowledge of
the mortgagee can be included in the foreclosure proceedings.

HELD: NO. REVERSED.

Art. 2127 NCC provides that the mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate remains in
the possession of the mortgagor, or passes into the hands of a third person.

This article extends the effects of the real estate mortgage to accessions and accessories
found on the hypothecated property when the secured obligation becomes due. The law is
predicated on an assumption that the ownership of such accessions and accessories also
belongs to the mortgagor as the owner of the principal. The provision has thus been seen by
the Court, in a long line of cases beginning in 1909 with Bischoff vs. Pomar, to mean that all
improvements subsequently introduced or owned by the mortgagor on the encumbered
property are deemed to form part of the mortgage. That the improvements are to be
considered so incorporated only if so owned by the mortgagor is a rule that can hardly be
debated since a contract of security, whether real or personal, needs as an indispensable
element thereof the ownership by the pledgor or mortgagor of the property pledged or
mortgaged. The rationale should be clear enough — in the event of default on the secured
obligation, the foreclosure sale of the property would naturally be the next step that can
expectedly follow. A sale would result in the transmission of title to the buyer which is feasible
only if the seller can be in a position to convey ownership of the thing sold (Article 1458, Civil
Code). It is to say, in the instant case, that a foreclosure would be ineffective unless the
mortgagor has title to the property to be foreclosed.

It may not be amiss to state, in passing, that in respect of the lease on the foreclosed
property, the buyer at the foreclosure sale merely succeeds to the rights and obligations of
the pledgor-mortgagor subject, however, to the provisions of Article 1676 of the Civil Code,
on its possible termination.

 Litonjua v. L&R Corp.

FACTS:
The spouses Litonjua obtained loans from the L & R Corp. in the aggregate sum of P400,000.
The loans were secured by a mortgage constituted by the spouses upon their 2 parcels of
land and the improvements thereon located in Cubao, Quezon City. The mortgage provided
that the mortgagor cannot sell the mortgaged property without getting the consent of the
mortgagee and that the mortgagee shall have the right of first refusal.

The spouses Litonjua then sold the property to Phil. White House Auto Supply, Inc. The sale
was annotated at the back of the certificate of title.

The spouses Litonjua defaulted on their loan, so L & R Corp. started extrajudicial foreclosure
of the property. During the public auction, L & R Corp., as the sole bidder, bought the land.
When L & R Corp attempted to have their Certificate of Sale recorded, it discovered the prior
sale of the land to PWHAS for the first time. L & R Corp. wrote a letter to the Register of
Deeds requesting the cancellation of the annotation of the sale on the ground that the
contract of mortgage prohibited such sale. 7 months after the foreclosure sale, PWHAS, for
the account of the spouses Litonjua, tendered payment of the full redemption price to L & R
Corp in the form of a Chinabank manager’s check.
L & R Corp refused to accept the payment. Hence, PWHAS was compelled to redeem the
mortgaged properties through the ex-officio sheriff who, in turn, issued a Certificate of
Redemption. Due to the refusal of L & R Corp to return their owner’s duplicate certificate of
title, the spouses Litonjua asked the Register of Deeds to annotate their Certificate of
Redemption as an adverse claim on the titles. The Register of Deeds refused to do so, hence
the spouses Litonjua filed a petition against L & R Corp for the surrender of the title.

While the case was pending, L & R Corp. executed an Affidavit of Consolidation of
Ownership. The Register of Deeds then issued it a TCT, free of any lien and encumbrance. L
& R Corp then informed all tenants of the property to pay the rentals to it. Upon learning of
this, the spouses Litonjua filed an adverse claim and a notice of lis pendens with the Register
of Deeds. In the process, they learned that the prior sale of the properties to PWHAS was not
annotated on the titles. A complaint for quieting of title, annulment of title & damages was
filed.

The lower court dismissed the complaint.

CA reversed at first, but set aside its decision in an amended decision.

ISSUE:
1. Whether a mortgage contract may provide that the mortgagor cannot sell the mortgaged
property without first obtaining the consent of the mortgagee.

2. Whether a mortgage contract may provide for a right of first refusal in favor of the
mortgagee.

HELD:
In the case of Philippine Industrial Co. v. El Hogar Filipino and Vallejo, a stipulation
prohibiting the mortgagor from entering into second or subsequent mortgages was held valid.
This is clearly not the same as that contained in paragraph 8 of the subject Deed of Real
Estate Mortgage which also forbids any subsequent sale without the written consent of the
mortgagee.

Yet, in Arancillo v. Rehabilitation Finance Corporation, the case of Philippine Industrial Co.,
supra, was erroneously cited to have held a mortgage contract against the encumbrance,
sale or disposal of the property mortgaged without the consent of the mortgagee is valid. No
similar prohibition forbidding the owner of mortgaged property from (subsequently)
mortgaging the immovable mortgaged is found in our laws, making the ruling in Philippine
Industrial Co., supra, perfectly valid. On the other hand, to extend such a ruling to include
subsequent sales or alienation runs counter not only to Philippine Industrial Co., itself, but
also to Article 2130 of the New Civil Code.

Meanwhile in De la Paz v. Macondray &; Co., Inc., it was held that while an agreement of
such nature does not nullify the subsequent sale made by the mortgagor, the mortgagee is
authorized to bring the foreclosure suit against the mortgagor without the necessity of either
notifying the purchaser or including him as a defendant. At the same time, the purchaser of
the mortgaged property was deemed not to have lost his equitable right of redemption.

In Bonnevie v. Court of Appeals, where a similar provision appeared in the subject contract of
mortgage, the petitioners therein, to whom the mortgaged property were sold without the
written consent of the mortgagee, were held as without the right to redeem the said property.
No consent having been secured from the mortgagee to the sale with assumption of
mortgage by petitioners therein, the latter were not validly substituted as debtors. It was
further held that since their rights were never recorded, the mortgagee was charged with the
obligation to recognize the right of redemption only of the original mortgagors-vendors.
Without discussing the validity of the stipulation in question, the same was, in effect, upheld.

On the other hand, in Tambunting v. RehabilitationFinanceCorporation, the validity of a

similar provision was specifically raised and discussed and found as invalid. It was there
ratiocinated that the provision can only be construed as directed against subsequent
mortgages or encumbrance, not to an alienation of the immovable itself. For while covenants
prohibiting the owner from constituting a later mortgage over property registered under the
Torrens Act have been held to be legally permissible (Phil. Industrial Co. v. El Hogar Filipino,
et al., 45 Phil. 336, 341-342; Bank of the Philippines v. Ty Camco Sobrino, 57 Phil. 801),
stipulations "forbidding the owner from alienating the immovable mortgaged" are expressly
declared void by law (Art. 2130, Civil Code).

Earlier, in PNB v. Mallorca, it was reiterated that a real mortgage is merely an encumbrance;
it does not extinguish the title of the debtor, whose right to dispose – a principal attribute of
ownership – is not thereby lost. Thus, a mortgagor had every right to sell his mortgaged
property, which right the mortgagee cannot oppose.

Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling his
mortgaged property without the consent of the mortgagee is concerned, therefore, the ruling
in the Tambunting case is still the controlling law. Indeed, we are fully in accord with the
pronouncement therein that such a stipulation violates Article 2130 of the New Civil Code.
Both the lower court and the Court of Appeals in its Amended Decision rationalize that since
paragraph 8 of the subject Deed of Real Estate Mortgage contains no absolute prohibition
against the sale of the property mortgaged but only requires the mortgagor to obtain the prior
written consent of the mortgagee before any such sale, Article 2130 is not violated thereby.

This observation takes a narrow and technical view of the stipulation in question without
taking into consideration the end result of requiring such prior written consent. True, the
provision does not absolutely prohibit the mortgagor from selling his mortgaged property; but
what it does not outrightly prohibit, it nevertheless achieves. For all intents and purposes, the
stipulation practically gives the mortgagee the sole prerogative to prevent any sale of the
mortgaged property to a third party. The mortgagee can simply withhold its consent and
thereby, prevent the mortgagor from selling the property. This creates an unconscionable
advantage for the mortgagee and amounts to a virtual prohibition on the owner to sell his
mortgaged property.

In other words, stipulations like those covered by paragraph 8 of the subject Deed of Real
Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code. Being
contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon
the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS, notwithstanding
the lack of prior written consent of L & R Corporation, is valid.

While petitioners question the validity of paragraph 8 of their mortgage contract, they appear
to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L & R
Corporation the right of first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision.

The right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan-mortgage includes the consideration for the right of first refusal. L &
R Corporation is, in effect, stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it, then L & R Corporation
shall be given the right to match the offered purchase price and to buy the property at that
price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to
PWHAS without securing the prior written consent of L & R Corporation, they had the
 obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of their
intention to sell the property and give it priority over other buyers. It is only upon failure of L &
R Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the
subject properties to others, under the same terms and conditions offered to L & R
Corporation.

What then is the status of the sale made to PWHAS in violation of L & R Corporation's
contractual right of first refusal? The Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded by the Bonnevies for they had substantial interest that
were prejudiced by the sale of the subject property to the Contract of Lease. In the case at
bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation
over the subject properties since the Deed of Real Estate Mortgage containing such a
provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to
have been notified thereof by registration, which equates to notice to the whole world.

We note that L & R Corporation had always expressed its willingness to buy the mortgaged
properties on equal terms as PWHAS. Indeed, in its Answer to the Complaint filed, L & R
Corporation expressed that it was ready, willing and able to purchase the subject properties
at the same purchase price of P430,000.00, and was agreeable to pay the difference
between such purchase price and the redemption price of P249,918.77, computed as of
August 13, 1981, the expiration of the one-year period to redeem. That it did not duly
exercise its right of first refusal at the opportune time cannot be taken against it, precisely
because it was not notified by the spouses Litonjua of their intention to sell the subject
property and thereby, to give it priority over other buyers.

All things considered, what then are the relative rights and obligations of the parties? To
recapitulate:, the sale between the spouses Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to
PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-in-
interest of the spouses Litonjua, within the one-year period should have been accepted as
valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is
rescissible because it ignored L & R Corporation's right of first refusal.

EQUITABLE MORTGAGE - REAL MORTGAGE

 Lanuza v. De Leon
FACTS:
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the
Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated
Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with
Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R.
Navarro the house, together with the leasehold rights to the lot, a television set and a
refrigerator in consideration of the sum of P3,000. When the original period of redemption
expired, the parties extended it to July 12, 1961 by an annotation to this effect on the left
margin of the instrument. Lanuza's wife, who did not sign the deed, this time signed her name
below the annotation.

It appears that after the execution of this instrument, Lanuza and his wife mortgaged the
same house in favor of Martin de Leon to secure the payment of P2,720 within one year. This
mortgage was executed on October 4, 1961 and recorded in the Office of the Register of
Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed a petition for the extrajudicial
foreclosure of the mortgage. On the other hand, Reyes and Navarro followed suit by filing in
the Court of First Instance of Manila a petition for the consolidation of ownership of the house
on the ground that the period of redemption expired on July 12, 1961 without the vendees
exercising their right of repurchase. The petition for consolidation of ownership was filed on
October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriff's
sale. De Leon immediately took possession of the house, secured a discharge of the
mortgage on the house in favor of a rural bank by paying P2,000 and, on October 29,
intervened in court and asked for the dismissal of the petition filed by Reyes and Navarro on
the ground that the unrecorded pacto de retro sale could not affect his rights as a third party.

The court ruled for Reyes and Navarro.

ISSUE:
Whether an unrecorded prior sale of a property is preferred over a recorded subsequent
mortgage. (YES)

Whether a recorded subsequent mortgage is preferred over a prior equitable mortgage.

(YES)

HELD:
We are in accord with the trial court's ruling that a conveyance of real property of the conjugal
partnership made by the husband without the consent of his wife is merely voidable. This is
clear from article 173 of the Civil Code which gives the wife ten years within which to bring an
action for annulment. As such it can be ratified as Lanuza's wife in effect did in this case
when she gave her conformity to the extension of the period of redemption by signing the
annotation on the margin of the deed. We may add that actions for the annulment of voidable
contracts can be brought only by those who are bound under it, either principally or
subsidiarily (Art. 1397), so that if there was anyone who could have questioned the sale on
this ground it was Lanuza's wife alone.

We also agree with the lower court that between an unrecorded sale of a prior date and a
recorded mortgage of a later date the former is preferred to the latter for the reason that if the
original owner had parted with his ownership of the thing sold then he no longer had the
ownership and free disposal of that thing so as to be able to mortgage it again. Registration
of the mortgage under Act No. 3344 would, in such case, be of no moment since it is
understood to be without prejudice to the better right of third parties. Nor would it avail the
mortgagee any to assert that he is in actual possession of the property for the execution of
the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold
to the vendee.

But there is one aspect of this case which leads us to a different conclusion. It is a point
which neither the parties nor the trial court appear to have sufficiently considered. We refer to
the nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in
reality an equitable mortgage. Circumstances are clearly present that indicate the existence
of the equitable mortgage. The price is grossly inadequate. There was no transmission of
ownership to the vendees. There was a delay in the filing of a petition for consolidation.
Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequences because it means not only that
this action for consolidation of ownership is improper as De Leon claims, but, what is more,
that between the unrecorded deed of Reyes and Navarro which we hold to be an equitable
mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference
of mortgage credits is determined by the priority of registration of the mortgages, following the
maxim "Prior tempore potior jure" (Hewhoisfirstintimeispreferredinright."). Under Article 2125
of the Civil Code the equitable mortgage, while valid between Reyes and Navarro, on the one
 hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot prevail over
the registered mortgage of De Leon.

 Guanzon v. Argel

FACTS:
Ines Flores executed a document entitled pacto de retro over a parcel of rice land situated in
Inabasan, San Jose, Antique in favor of Maria Guanzon. When Ines Flores was unable to
pay, Maria Guanzon consolidated her title over the property. The children of Ines Flores, the
Dumaraogs, filed an action for the redemption of the land claiming that the purported pacto
de retro sale was actually an equitable mortgage.

After trial, the court declared the document involved to be one of equitable mortgage and
ordered Guanzon to execute an instrument of reconveyance in favor of the Dumaraogs upon
the payment of P1,500. Guanzon then filed this petition.

ISSUE:
Whether an equitable mortgagee’s title over the mortgaged property will be consolidated if
the debtor fails to pay the loan.

HELD: NO. Affirmed.

If the Dumaraogs fail to pay the P1,500 within the specified 20 days, Guanzon would be
entitled to have execution issue to collect the said amount from the properties of the
Dumaraogs whereupon the deed of reconveyance would be executed by Guanzon.

In no way can the judgment be construed to mean that should the Dumaraogs fail to pay the
money within the specified period then the property would be conveyed by the sheriff to
Guanzon. Any interpretation in that sense would contradict the declaration made in the same
judgment that the contract between the parties was in fact a mortgage and not a pacto de
retro sale.

The only right of a mortgagee in case of non-payment of a debt secured by mortgage would
be to foreclose the mortgage and have the encumbered property sold to satisfy the
outstanding indebtedness. The mortgagor’s default does not operate to vest in the mortgagee
the ownership of the encumbered property, for any such effect is against public policy.

 Ramirez v. CA

FACTS:
On Dec. 29, 1965, spouses Loreto Claravall and Victoria Claravall executed a deed of sale in
favor of the spouses Francisco Ramirez, Jr. and Carolina Ramirez covering a parcel of land,
including improvements thereon, situated in Ilagan, Isabela. On even date, another
instrument was executed granting the spouses Claravall an option to repurchase the property
within a period of two years from December 29, 1965 but not earlier nor later than the month
of December, 1967. At the expiration of the two-year period, the Claravalls failed to redeem
the property, prompting them to file a complaint against the spouses Francisco Ramirez, Jr.
and Carolina Ramirez to compel the latter to sell the property back to them. After trial,
judgment was rendered in favor of the spouses Ramirez which was, on appeal, affirmed by
the Court of Appeals. On review, however, this Court, finding that the Deed of Absolute Sale
with option to repurchase executed by private respondents in favor of the spouses Ramirez
was one of equitable mortgage, reversed the decision of the appellate court by Decision of
October 15, 1990. The decision of this Court having become final and executory, possession
of the property was turned over to private respondents after they settled their obligation to the
spouses Ramirez.
 Following the death of Francisco Ramirez, Jr., the spouses Claravall filed a complaint for
accounting and damages against the intestate estate of Francisco Ramirez, his widow and
children. A motion to dismiss was filed alleging, among other things, that the Ramirezes, as
registered owners of the lot prior to its redemption, were entitled to collect rentals for the lot.
The resolution of the motion to dismiss was deferred. The Ramirezes filed a petition for
certiorari which was denied.

ISSUE:
Whether the mortgagees of an equitable mortgage who have been registered as the owners
of the mortgaged property can collect rent and other fruits from the said property.

HELD: NO. Affirmed.

The flaw in petitioners’ argument stems from their submission that the spouses Ramirez, as
“vendees,” were the owners of the property after it was registered in their names following the
execution of the deed of sale in their favor.

The declaration, however, by this Court in the first case that the deed of sale with option to
repurchase entered into by the spouses Ramirez and private respondents was an equitable
mortgage necessarily takes the deed out of the ambit of the law on sales and puts into
operation the law on mortgage.

It is a well-established doctrine that the mortgagor’s default does not operate to vest the
mortgagee the ownership of the encumbered property and the act of the mortgagee in
registering the mortgaged property in his own name upon the mortgagor’s failure to redeem
the property amounts to pactum commissorium, a forfeiture clause declared by this Court as
contrary to good morals and public policy and, therefore, void.

Before perfect title over a mortgaged property may thus be secured by the mortgagee, he
must, in case of non-payment of the debt, foreclose the mortgage first and thereafter
purchase the mortgaged property at the foreclosure sale.

In fine, the ownership of the property was not vested to the spouses Ramirez upon private
respondents’ failure to pay their indebtedness, the registration of the property in the former’s
names notwithstanding, absent any showing that they foreclosed the mortgage and
purchased the property at a foreclosure sale.

FORECLOSURE V. PACTUM COMMISSORIUM

 Perez v. Cortes
FACTS:
VICENTE PEREZ, brother of INOCENTA PEREZ owed PEDRO OLANG 100 pesos
VICENTE PEREZ declared to have mortgaged to PEDRO OLANG for the sum of 100 pesos
a parcel of land owned by him on the condition that VICENTE PEREZ would continue to work
it and obtain the benefits therefrom, but if it were not redeemed within a period of three years
the land would then become the property of PEDRO OLANG. The document is a private one.

LUCIA, EDUVIGIS, and INOCENTA PEREZ filed a complaint in CFI Negros Oriental alleging
that:

1. LUCIA and EDUVIGIS were the owners of a parcel of land about 30 hectares in area;

2. that their predecessor, LIBERATO PEREZ, had recorded the possessory information of the
land in the registry of property of
Oriental Negros;
 3. LUCIA and EDUVIGIS transferred 15 hectares to DOMINGA BOLADO which was
subsequently transferred to INOCENTA PEREZ;

4. DOMINGO CORTES and his wife DOMINGA UBALDO, usurped and unlawfully retained
the 15 hectares belonging to INOCENTA PEREZ.

DOMINGO CORTES and DOMINGA UBALDO in their answer admitted that they were and
still are in possession as owners of the 15 hectares in question and denied all other
allegations.

They argued that:

1. the 15 hectares in question was included in a false possessory information in the name of
Liberato Perez and was fraudulently recorded in the registry of property;

2. the person who was in possession was VICENTE PEREZ, the real owner;

3. that VICENTE PEREZ transferred his rights to PEDRO OLANG;

4. that upon the death of PEDRO OLANG, his widow, DOMINGA UBALDO, inherited the 15
hectares in question.
CFI Negros Oriental ordered that INOCENTA PEREZ be restored in the possession of the 15
hectares in question and ordered DOMINGO CORTES and DOMINGA UBALDO to vacate
the property.

ISSUE:
Whether or not the contract entered into by VICENTE PEREZ with PEDRO OLANG was one
of a sale with a right of redemption, thus the ownership of the 15 hectares should be with
DOMINGO CORTES and DOMINGA UBALDO

RULING:
NO. The contract entered into by VICENTE PEREZ with PEDRO OLANG was a mortgage.

(DOCTRINE)
When an obligation secured by the mortgage of real estate becomes due, the creditor is
entitled to apply to the courts for the foreclosure of the mortgage, but he is not authorized to
appropriate or dispose of the property in order to recover the amount due.

(NOT RELEVANT TO FORECLOSURE. FYI ONLY) Additionally, DOMINGA BOLADO,

mother of INOCENTA PEREZ and of VICENTE PEREZ, only received the 15 hectares in
question in 1902 which was the same year when VICENTE PEREZ died. It is logically
deduced that VICENTE PEREZ was never in possession of the estate in 1895, because
LIBERATO PEREZ, who possessed the whole 30 hectares as the real owner, was still living.
Consequently VICENTE PEREZ could not transmit any right to PEDRO OLANG nor the right
of possession to the 15 hectares in question.

 Dalay v. Aquiatin and Maximo

FACTS:
1. Ciriaco Villarin, being the owner of six parcels of land described in the complaint,
executed in favor of Eugenio Gomez, acknowledging a debt, one of whose clauses is: “…
and if I cannot pay the aforesaid amount, when the date agreed upon comes, the same shall
be paid with the lands given as security, - the lot and house and lands described in the
aforesaid seven documents.”
2. As the period so stipulated elapsed without Ciriaco Villarin having paid the debt,
Eugenio Gomez, believing himself entitled to do so, executed a document to transfer and sell
the lands paid by Ciriaco Villarin in favor of Juan Dalay, since Gomez owed Dalay ₱2,300
during that time.

3. Ciriaco Villarin, in an affidavit, acknowledged that the title to, and possession of the
aforesaid lands had been transferred in a real and absolute sale to Eugenio Gomez.

4. Fifteen days later, Ciriaco Villarin contracted a debt in favor of Bernardino Aquiatin
for which he gave the note set forth in the latter's complaint, filed in a civil case at CFI-
Laguna.

5. After the judgment rendered in that case in favor of Bernardino Aquiatin became
final, execution was issued and levied upon the six parcels aforementioned, among other
properties.

6. Juan Dalay brought this action against Bernardino Aquiatin and the deputy sheriff,
Proceso Maximo, to have himself declared owner of said lands, to forever prohibit the
defendants, their agents and other persons acting in the defendants, their agents and other
persons acting in their behalf, from performing any act tending to carry out the attachment
and execution sale of said realties, and to recover the costs.

CFI’s Decision: Dismissed the complaint with cost against Dalay (plaintiff). Plaintiff appealed.

ISSUE:
Whether or not by virtue of the transfer, Juan Dalay became the owner of the parcels of land
in dispute. (YES)

RULING: Judgment in favor of Dalay, reversed CFI’s decision.

The stipulation between Villarin and Gomez does not authorize either one or the other. Of
course it is clear that it does not authorize the creditor to dispose of the properties
mortgaged. There was no authorization to appropriate the same. What it says is merely a
promise to pay the debt with such properties, if at its maturity it is not satisfied. It is merely a
promise made by the debtor to assign the property given as security in payment of the debt,
which promise is accepted by the creditor.
There is no doubt that a debtor may make an assignment of his properties in payment of a
debt (Art. 1175, Civil Code). And the assignment is not made unlawful by the fact that said
properties are mortgaged, because the title thereto remains in the debtor; nor is a promise to
make such an assignment in violation of the law. Article 1859 of the Civil Code is not
applicable to the stipulation in question.

Upon the expiration of the period for the payment of the debt without the same having been
paid, Eugenio Gomez did not wait nor require Ciriaco Villarin to make a formal assignment of
the mortgaged property in payment of the debt, and transferred the same to Juan Dalay. And
in doing so, Eugenio Gomez did not dispose of property merely mortgaged, but of property
promised to be assigned in payment of the debt which had not been paid at the expiration of
the period fixed for its payment.

Gomez had not, by virtue alone of the promise of assignment of said property, any real right
thereon, but he did have a personal action against Villarin to compel him to execute the
proper deed of assignment. For this reason the conveyance made by Gomez in favor of
Dalay was defective, it having been made in advance of the actual assignment of said
property in his favor. This transfer, however, is not void per se inasmuch as Villarin
consented to the said property passing to Gomez in payment of the debt after the expiration
of the period for payment if the debt was not paid. There is no question as to the occurrence
 of the other elements of this contract made in favor of Dalay, the defect consisting in Villarin
not having previously executed the deed of assignment he had promised.

This defect, which would have been a ground for annulling this transfer made by Gomez in
favor of Dalay, had Villarin brought the proper action, was cured by the act of Villarin wherein
he acknowledged that the title to, and possession of, said lands were transferred to Gomez
as in a real and absolute sale. This confirmation, valid and effective under the provisions of
article 1311 of the Civil Code, gave full effect to the transfer of these properties made by
Gomez in favor of Dalay. The allegation of the defendant Aquiatin that this sale in favor of
Dalay is simulated and fraudulent cannot be held proven. It does not appear that when he
executed the first document, Ciriaco Villarin was indebted to anybody with the exception of
Gomez, nor that he owed anything to anybody when he executed the second document,
which cured the defect of the transfer in favor of Dalay.

There is insufficient ground for holding fraudulent the transfer of the lands in question in favor
of the herein plaintiff Juan Dalay, who by virtue of said sale became the absolute owner of
these lands before Villarin contracted his debt in favor of Aquiatin and of course before the
filing of the complaint for the recovery of such debt and therefore before the rendition of the
judgment in that case; so that when the execution involved in this action was levied, Ciriaco
Villarin, the judgment debtor, was no longer the owner of said parcels of land.

Dissenting Opinion of J. Street:

In an instrument intended to operate as mortgage of seven parcels of land executed by the
debtor, Ciriaco Villarin, in favor of his creditor, Eugenio Gomez, a stipulation was inserted to
the effect that in case the specified date should arrive and Villarin should be unable to pay
the amount due, it should be paid with the land given as a guaranty. By virtue of this
stipulation the debtor was bound, so the court in effect holds, to transfer the property to the
creditor in satisfaction of the mortgaged debt, the mortgagor being unable at that time to pay
the same. Said stipulation in the opinion of the undersigned should be declared invalid, as
being contrary to the spirit, if not the letter, of article 1859 of the Civil Code, as well as directly
contrary to the general principles of jurisprudence applicable to the relation of mortgagor and
mortgagee. If a stipulation of this kind is valid, every mortgage in which such stipulation is
inserted will become self-executing, and the debtor, upon making default in the payment of
the debt, will be bound to transfer the property in satisfaction of the mortgage, with the result
that the right of redemption is lost from the mere fact that the debtor is unable to pay at the
date stipulated.

There is a maxim long recognized by the equity courts of England and America to the effect
that "Once a mortgage, always a mortgage." This means that if an instrument is in its origin a
mortgage, it will be treated as such by the courts until it is satisfied or foreclosed by some
legal process; and the courts will not recognize a stipulation inserted in the instrument
creating the mortgage which is intended to vest the property in the creditor upon failure of the
debtor to pay the mortgage debt. Nor will they recognize any waiver of the equity of
redemption inserted in the contract. This doctrine is based upon a recognition of the
inequality of the position of the debtor and creditor necessarily has a power over his debtor
which may be exercise inequitably, and that the debtor is liable to yield to the exertions of
such power.
It is not to be denied that a mortgagor of property may transfer the mortgaged property to the
creditor in satisfaction of the mortgage debt after the mortgage has fallen due. But such a
transfer implies the independent exercise of the power vested in the mortgagor, as owner,
and the affidavit in question is nothing more than the recognition of a situation which was
supposed by the debtor to be an accomplished fact, namely, that the property in question had
passed to the creditor upon the debtor's failure to pay the debt when due.

 Tambunting v. CA
Facts:
1. Sps. Damaso R. Cruz and Monica Andres obtained a loan of P 3,600 from Sps.
Antonio and Aurora Tambunting in the lending-pawnshop business of the former with Jose P.
Tambunting as Manager.
2. The loan was evidenced by a promissory note executed by the Cruzes, payable within
4 months from Dec. 16, 1959 at 12% per annum. The promissory note has a security of REM
over a parcel of land owned by Cruzes.
3. Upon failure to pay at maturity, a petition for extra judicial foreclosure of Mortgage was
filed.
4. The Cruzes instituted an action against the Tambuntings for annulment of mortgage
and damages with prayer for a writ of preliminary injunction.
5. A Temporary Restraining Order was issued by the court. When the TRO lapsed, the
mortgage properties were sold at a public auction to the Sps. Tambunting for P9,400.00.
6. Thereafter, mortgagee vendee Antonio Tambunting sold and transferred his 1/2 share
in the property to his wife Aurora Tambunting.
7. January 31, 1969, Aurora Tambunting executed an Affidavit of Consolidation of Title,
for the issuance of a new title in her name. A TCT was issued in her name.
8. The court eventually upheld the loan and the mortgage, but voided the foreclosure
sale. CA affirmed.

Issue:
1. WoN a deviation from the publication requirement will make the foreclosure sale
voidable. (YES)
2. WoN the mortgagor is entitled to an accounting of the fruits of the mortgaged property
which was improperly foreclosed. (YES)

Ruling:
1. Sec.3 of Act No.3135 provides that Notice shall be given by posting notices of the sale
for not less than 20 days in at least three public places of the municipality or City where the
property is situated, and if such property is worth more than P 400.00, such notice shall also
be published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city. The rule is 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.
Where required by the statute or by the terms of the foreclosure decree, public notice of the
place and time of the mortgage foreclosure sale must be given, a statute requiring it being
held applicable to subsequent sales as well as to the first advertised sale of the property. It
has been held that failure to advertise a mortgage foreclosure sale in compliance with
statutory requirements constitutes a jurisdictional defect invalidating the sale and that a
substantial error or omission in a notice of sale will render the notice insufficient and vitiate
the sale. One issue of a newspaper of general circulation is not substantial compliance with
the required publication of once (1) a week for at least three (3) consecutive weeks.
Petitioners claim the publisher's affidavit of publication is merely a customary proof, hence, it
should not be considered as the sole evidence of publication. This may be so in the presence
of equally convincing evidence.
In the case at bar, however, there is no such other proof of publication. To show compliance,
the published notices and certificate of posting by the sheriff of the notice of sale of 26
January 1968 should have been presented. They do not appear in the record. Neither can the
sale be considered as an adjournment of an earlier sale under Sec.24 of Rule 39 of the Rules
of Court. As correctly posed by the Court of Appeals, why was there one (1) publication of the
notice of sale scheduled on 26January1968. The presumption of compliance with official duty
has been rebutted by the failure to present proof of posting and publication of the notice of
sale of 26January 1968. At this juncture, it should be carefully stressed that, while the
foreclosure or auction sale of 26 January 1968 is null and void, the real estate mortgage as
well as the Cruzes' loan obligation to the Tambuntings remain valid and effective as ruled in
the decisions of the trial court and the Court of Appeals.
 2. As for the petition for accounting of fruits and rentals, the Cruzes were entitled to such
accounting and the Court of Appeals was the proper forum for such petition. The petition for
accounting did not really seek a modification of the judgments of the trial court and the Court
of Appeals. The remedy sought (accounting and offsetting of accounts) was a direct clear-cut
consequence of an equally clear-cut decision which, in effect, held that the Cruzes were
never divested of their ownership over the property in question. In other words, the
accounting sought and granted is merely an incident of the declared respondents' right of
ownership under the Civil Code. The petition for accounting is based on the rationale
underlying a related rule in the Rules of Court – Sec.34, Rule39. What clearly appears from
this provision is the right of the debtor to demand for an accounting of the rents and profits
received by a Creditor during the period of redemption. Thus, while the Rules of Court allow
the purchaser in an execution sale to receive the rentals if the purchased property is
occupied by tenants, he is, however, accountable to the judgment debtor or mortgagor, as
the case may be, for the amounts so received and the same will be duly credited against the
redemption price when said debtor or mortgagor effects the redemption.

 Langkaan Realty v. UCPB

Facts:
1. Langkaan Realty, the registered owner of 631,693 square meter parcel of land located at
Langkaan, Dasmariñas, Cavite executed a real estate mortgage over the property in favor of
UCPB for a loan obtained by Guimaras Agricultural Development, Inc. in the amount of
P3,000,000.
2. Langkaan and Guimaras agreed to share in the total loan proceeds obtained from UCPB
and another P2,000,000 loan was secured by Guimaras from UCPB which was secured by
the real estate mortgage.
3. Guimaras defaulted on its loan, hence, UCPB foreclosed the mortgage and bought the
property during the auction sale as the highest bidder. UCPB consolidated its title because
Langkaan failed to redeem the said property.
4. Langkaan wrote UCPB to buy back the foreclosed property for P4,000,000, but UCPB
refused claiming the market price of the property is now P6,500,000.
5. Langkaan then filed a complaint for annulment of extrajudicial foreclosure and sale with
RTC Imus, Cavite. The complaint was dismissed. CA affirmed.

Issues:
1. Whether or not the extra-judicial foreclosure sale is valid and legal on account of the
alleged non-compliance with the provisions of Act No. 3135 on venue, posting and
publication of the Notice of Sale, and of the alleged defects in such Notice. (NO)
2. Whether or not the venue of the extra-judicial foreclosure sale that was improperly laid
without opposition will invalidate the foreclosure of sale. (NO)

Ruling:
NO

1. At any rate, even if it were true that the Notice of Sale was not posted in three public
places as required, this would not invalidate the foreclosure conducted.

2. Furthermore, unlike the situation in previous cases where the foreclosure sales were
annulled by reason of failure to comply with the notice requirement under Section 3 of Act
3135, as amended, what is allegedly lacking here is the posting of the notice in three public
places, and not the publication thereof in a newspaper of general circulation.

3. The object of a notice of sale is to inform the public of the nature and condition of the
property to be sold, and of the time, place and terms of the sale. Notices are given for the
purpose of securing bidders and to prevent a sacrifice of the property. If these objects are
attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if
 mistakes or omissions occur in the notices of sale which are calculated to deter or mislead
bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such
mistakes or omissions will be fatal to the validity of the notice, and also to the sale made
pursuant thereto.

4. In the case at bench, this objective was attained considering that there was sufficient
publicity of the sale through the Record News weekly.

NO

1. The extra-judicial foreclosure sale cannot be held outside the province where the property
is situated. Should a place within the province be a subject of stipulation, the sale shall be
held at the stipulated place or in the municipal building of the municipality where the property
or part thereof is situated.

2. Under the terms of the contract, the extra-judicial foreclosure sale could be held at Trece
Martires, the capital of the province which has territorial jurisdiction over the foreclosed
property. The stipulation of the parties in the real estate mortgage contract is clear, and
therefore, should be respected absent any showing that such stipulation is contrary to law,
morals, good customs, public policy or public order. A contract is the law between the parties.
However, since the stipulation of the parties lack qualifying or restrictive words to indicate the
exclusivity of the agreed forum, the stipulated place is considered only as an additional, not a
limiting venue.
Therefore, the stipulated venue and that provided under Act 3135 can be applied
alternatively. Now, applying Act 3135, the venue of the sale should be at the municipal
building of Dasmarinas since the foreclosed property is located in the municipality of
Dasmarinas.

3. Well-known is the basic legal principle that venue is waivable. Failure of any party to object
to the impropriety of venue is deemed a waiver of his right to do so. In the case at bar, we
find that such waiver was exercised by the petitioner.

4. An extra-judicial foreclosure sale is an action in rem, and thus requires only notice by
publication and posting to bind the parties interested in the foreclosed property. No personal
notice is necessary. As such, the due publication and posting of the extra-judicial foreclosure
sale of the Dasmarinas property binds the petitioner, and failure of the latter to object to the
venue of the sale constitutes waiver

 Agbada v. Inter-Urban Developers

FACTS:
 petitioner-spouses Guillermo Agbada and Maxima Agbada borrowed P1,500,000.00
from respondent Inter-Urban Developers, Inc. through its president, Simeon L. Ong
Tiam.
 To secure the loan, the parties concurrently executed a Deed of Real Estate Mortgage
over a parcel of land and the improvements thereon by the spouses.
 The loan was payable within six (6) months from 21 February 1991 at three percent
(3%) interest per month, otherwise, failure to discharge the loan within the stipulated
period would entitle Inter- Urban Developers, Inc. to foreclose the mortgage judicially or
extra-judicially.
 The spouses failed to pay the loan within the six-month period despite several out-of-
court demands made by respondent Inter-Urban Developers, Inc.
 Later on, Inter-Urban Developers, Inc. filed with the Regional Trial Court of Quezon
City, Branch 105, a complaint for foreclosure of real estate mortgage.
 without assistance of counsel, the spouses filed their unverified answer admitting that
they had borrowed the amount of P1,500,000.00 from respondent and had executed
 the real estate mortgage to secure the loan but alleging that it was payable within five
(5) years and at twelve percent (12%) interest per annum.
 Pre-trial was set, but reset several times on account of the spouses Agbada.
 Guillermo Agbada submitted a 1-page handwritten letter admitting his liability to pay
Inter-Urban Developers, Inc.
 A motion for summary judgment was filed supported by an affidavit of the treasurer who
witnessed the transaction.
 The spouses Agbada, this time represented by a lawyer, attempted to submit an
amended answer that denied any obligation to the interest. The judge disallowed the
amended answer and promulgated a summary judgment against the spouses Agbada.
 The spouses Agbada did not appeal the summary judgment nor did they pay the
judgment debt.
 A decree of foreclosure was issued and a foreclosure sale was held with Inter- Urban
Developers, Inc. winning the bidding.
 The court confirmed the sale over the opposition of the spouses Agbada that the
purchase price of the property was below the appraised value as stated in an appraisal
report.
 After the sale became final, Inter-Urban Developers, Inc. prayed for a writ of
possession. The spouses Agbada filed other dilatory motions which were denied. They
then filed a petition for annulment of the summary judgment on the ground that violated
their right to due process. The petition was dismissed.
ISSUE:
WoN a foreclosure sale can be reversed because the purchase price of the property is below
its appraised value?

HELD: NO.
There is no merit in the spouses claim that the purchase price of the mortgaged real property
was way below its appraised value. To begin with, they deliberately withheld the presentation
of their own evidence which might have proved this matter and thus unfortunately deprived
respondent Inter-Urban Developers, Inc. the opportunity to cross-examine whatever such
evidence would tend to establish. Equally significant, the low purchase price could have
worked in the petitioner-spouses' favor if they promptly exercised their equity of redemption.
As held in Tarnate v. Court of Appeals, "[a]nent the contention that the property has been
sold at an extremely low price, suffice it to say that, if correct, it would have, in fact, favored
an easy redemption of the property. That remedy could have well been availed of but
petitioners did not."
The instant case is not unprecedented. In Tarnate v. Court of Appeals involving a case of
foreclosure of real estate mortgage that was resolved by means of summary judgment where
neither the existence of the loans and the mortgage deeds nor the fact of default on the due
repayments was disputed, we rejected as genuine issue the contention of petitioners therein
that they were misled by respondent bank to believe that the loans were long-term
accommodations since the loan documents admittedly executed by the parties clearly
contradicted petitioners’ asseverations and the parties must have realized that when the
terms of the agreement were unequivocally reduced in writing, they could hardly be
controverted by oral evidence to the contrary. Similarly, in Heirs of Amparo del Rosario v.
Santos, where we rejected the alteration of the conditions imposed in the deed of sale, this
Court ruled that appellants therein could not be allowed to introduce evidence of conditions
allegedly agreed upon by them other than those stipulated in the deed of sale because when
they reduced their agreement in writing, it is presumed that they have made the writing the
only repository and memorial of truth, and whatever is not found in the writing must be
understood to have been waived and abandoned.

 PNB v. Gonzales
FACTS:
1. DEFAULT IN PAYMENT: For want of any payment, PNB (plaintiff) moved for an
execution and an execution was issued for the sale of the real property described in the
mortgages. The amount of the bank's judgment was P17,313.59.
2. FORECLOSURE SALE: Pursuant to the execution, the mortgaged property of Gonzales
(defendant) was duly advertised for sale and was sold to Lopez (appellant) for P15,000.
3. ORDER CONFIRMING THE SALE: The Sheriff filed a motion to confirm the sale to
Lopez. At the hearing, the court made an order confirming the sale.
4. MORTGAGOR MOVED TO SET ASIDE THE ORDER CONFIRMING THE SALE: The
motion is based on the ground that the said order is not in accordance with law.
5. TRIAL COURT SET ASIDE THE CONFIRMATION OF SALE AND ORDERED A
RESALE: The court found that the value of the land, which was sold to the appellant, was
P45,940, for which he did only 15,000, and on account of this difference in value for taxation
purposes and the value for which the land was sold, the court set aside the confirmation, and
ordered a resale "thereby giving the aforesaid defendant a greater opportunity in order that
he may obtain a better price, if possible, from the sale of the aforesaid lands."
ISSUE:
Whether the trial court can set aside the order confirming the sale upon the sole ground
of inadequacy of consideration (No)
HELD:
1. The trial court has a large discretion in setting aside and confirming the sale of real
property, and that, where a proper motion is filed, and the evidence tends to support the
motion, the decision of the trial court should be final. HOWEVER, the motion to set aside the
confirmation should point out and specify why it should be set aside, and there should
be reasonable evidence in the record tending to support the motion.
a. In the instant case, the motion upon which the court based it as action does not
specify or point out a single reason why the confirmation should be set aside.
The only ground specified in the motion of April 5, 1923, is "that said order is not in
accordance with law."
b. Neither is there any evidence to sustain the motion.
i. Not a witness was called to testify as to the value of the land. In other
words, the only evidence before the court as to value was the certificate of the
deputy municipal treasurer, and that was to the effect that the four pieces of land
therein described had an assessed valuation of P45,940.
ii. Neither was there any showing made nor any evidence presented, that, in
the event the property in question was resold, that it would sell for more than
P15,000.
iii. That as to the land in question, it appears of record that on August 28, 1922,
the amount of the bank's judgment was P17,313.59. It also appears that the bank
was personally represented at the sale, and that it refused to bid more than
P15,000.
iv. For such reason, the property was sold to Lopez, as the highest bidder. In
other words, it appears of record that the bank itself consented and agreed to the
sale of the property in question for more than P3,000 less than the amount of its
claim.
2. A judicial sale of real estate will not be set aside for inadequacy of price, UNLESS
the inadequacy be so great as to shock the conscience, or unless there be additional
circumstances against its fairness.
3. It is by no means a matter of discretion with the court to rescind a sale which it has once
confirmed, nor is the sale to be rescinded for mere inadequacy or price, or for an increase of
price alone, irregularity, and the like. Some special ground must be laid such as fraud
and collusion accident, mutual mistake, breach of trust, or misconduct upon the part
of the purchaser, or other party connected with the sale, which has worked injustice to
the party complaining and was unknown to him at the time the sale was confirmed.
In the instant case, there is no claim or pretense that there was any fraud or
collusion, or that in any way Gonzales was misled or deceived. The bank was
 personally represented at the sale, and there is no showing whatever that, if the
property was resold, it would sell for a centavo more than the P15,000.

 DBP v. Zaragoza

FACTS:
The Zaragozas obtained a P30,000 loan from DBP which was secured by a real estate
mortgage. It was stipulated that upon failure of the Zaragozas to pay the amortization
due, according to the terms and conditions thereof, DBP shall have the authority to
foreclose extrajudicially the mortgaged property, pursuant to Republic Act No. 3135, as
amended.
Conformably to this stipulation, upon breach of the conditions of the mortgage, DBP
foreclosed extrajudicially the mortgage on December 10, 1952, and the Provincial
Sheriff of Pangasinan posted the requisite notice of the sale at public auction of the
mortgaged property.
The property was sold at public auction on June 10, 1957 to DBP, being the highest
bidder. Because the proceeds of the sale were not sufficient to satisfy the balance of
appellant's indebtedness, appellee sued the appellants for the deficiency.
The trial court found for appellee and ordered the appellants to pay the deficiency, with
interest thereon at the legal rate until fully paid plus the sum equivalent to 10% of the
amount due as attorney's fees and cost of suit.

ISSUE:
WoN the mortgagee who purchased the foreclosed property can still hold the
mortgagor liable for any deficiency from the foreclosure sale. (YES)
Whether the mortgagor can be held liable for the payment of interest until the
completion of the foreclosure. (YES)

HELD:
In Philippine Bank of Commerce v. Tomas de Vera, this Court ruled that in extrajudicial
foreclosure of mortgage where the proceeds of the sale is insufficient to cover the debt,
the mortgagee is entitled to claim the deficiency from the debtor. A reading of the
provisions of Act No. 3135, as amended (re extrajudicial foreclosure) discuss nothing, it
is true, as to the mortgagee's right to recover such deficiency.

But neither do we find, provision thereunder which expressly or impliedly prohibits such
recovery. Article 2131 of the new Civil Code, on the contrary, expressly provides that

'The form, extent and consequences of a mortgage, both as to its constitution, modification
and extinguishment, and as to other matters not included in this Chapter, shall be governed
by the provisions of the Mortgage Law and of the Land Registration Law.'

Under the Mortgage Law, which is still in force, the mortgagee has the right to claim for
the deficiency resulting from the price obtained in the sale of the real property at public
auction and standing obligation at the time of the foreclosure proceedings. (See
Soriano v. Enriquez, 24 Phil. 584; Banco de Islas Filipinas v. Concepcion e Hijos, 53
Phil. 86; Banco Nacional v. Barreto, 53 Phil. 101).

Under the Rules of Court (Sec. 6, Rule 70),

'Upon the sale of any real property, under an order for a sale to satisfy a mortgage or other
incumbrance thereon, if there be a balance due to the plaintiff after applying the proceeds of
the sale, the court, upon motion, should render a judgment against the defendant for any
such balance for which by the record of the case, he may be personally liable to the plaintiff.'
 It is true that this refers to a judicial foreclosure, but the underlying principle is the same, that
the mortgage is but a security and not a satisfaction of indebtedness.

Let it be noted that when the legislature intends to foreclose the right of a creditor to sue for
any deficiency resulting from the foreclosure of the security given to guarantee the obligation,
it so expressly provides.

Thus, in respect to pledges, Article 2115 of the Civil Code expressly states:
'If the price of the sale is less (than the amount of the principal obligation) neither shall
creditor be entitled to recover the deficiency, notwithstanding stipulation to the contrary.'

Likewise, in the event of a foreclosure of a chattel mortgage on the thing sold in installments
'he (the vendor shall have no further action against the purchaser to recover an paid balance
of the price. Any agreement to the contrary shall be void.' (Article 1484, paragraph 3, ibid.).

It is then clear that absence of a similar provision in Act No. 3135, as amended, it can not be
concluded that the creditor loses his right given him under the Mortgage Law and recognized
in the Rules of Court, to take action for the recovery of any unpaid balance on the principal
obligation, simply because he has chosen to foreclose his mortgage extrajudicially pursuant
to a special power of attorney given him by the mortgagor in the mortgage contract.

As stated by this Court in Medina vs. Philippine National Bank (56 Phil. 651), a case
analogous to the one at bar, the step taken by the mortgagee-bank in resorting to extra-
judicial foreclosure under Act 3135, was merely to find a proceeding for the sale, and its
action can not be taken to mean a waiver of its right to demand the payment of the whole
debt.'

The Zaragozas argue that since the appellee held in abeyance the sale of the property for a
period of four (4) years, they alone should suffer the consequences of such delay. It was
further contended that the debtor's liability in judicial foreclosures is limited to the amount due
at the time of the foreclosure and, therefore, such should also apply to extrajudicial
foreclosures. By way of refutation, DBP explained that the seemingly long interval between
the date of issuance of the Sheriff's Notice of Sale and the date of sale was due to the
numerous transfers made of the date of the sale upon requests of the Zaragozas themselves.
Under such circumstances, the Zaragozas cannot take advantage of the delay which was
their own making, to the prejudice of the other party.

Apart from this consideration, it must be noted that a foreclosure of mortgage means the
termination of all rights of the mortgagor in the property covered by the mortgage. It denotes
the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the
property and includes the sale itself.

DOCTRINE:
In judicial foreclosures, the "foreclosure" is not complete until the Sheriff's Certificate
executed, acknowledges and recorded. In the absence of a Certificate of Sale, no title
passes by the foreclosure proceedings to the vendee. It is only when the foreclosure
proceedings completed and the mortgaged property sold to the purchaser that all
interests of the mortgagor are cut off from the property. This principle is applicable to
extrajudicial foreclosures. Consequently, in the case at bar, prior to the completion of
foreclosure, the mortgagor is, therefore, liable for the interest on the mortgage.

 Ponce de Leon v. Rehabilitation Finance Corp

FACTS:
 Jose Ponce De Leon & Francisco Soriano (father of the Sorianos) obtained a P10,000
loan from PNB, mortgaging a parcel of land situated in Parañaque, Rizal in the name of
Francisco Soriano as security for the loan. Ponce de Leon gave P2,000 to Soriano from
the proceeds of the loan. The loan was subsequently increased to P17,500, and an
amendment to the real estate mortgage was executed.

Ponce de Leon filed with the RFC a loan application for putting up a sawmill in the
amount of P800,000 offering as security certain parcels of land, among which, was the
parcel which Ponce de Leon and Soriano mortgaged to the PNB. The application
stated that the properties offered for security for the RFC loan are encumbered to the
PNB. The application was approved for P495,000.

The loan was not paid. RFC foreclosed the mortgage properties and was able to
purchase most of them, including the Soriano land, during the auction sale at very
deflated prices. Francisco Soriano, through Teofila Soriano del Rosario, offered to
repurchase the Soriano lot for P14,000. The offer was rejected, and they were told to
participate in the public sale of the land to be conducted by the RFC. Ponce de Leon
did not offer to redeem the foreclosed properties.

The RFC scheduled a public sale of the Soriano land on February 20, 1956. On
February 18, 1956, Ponce de Leon instituted this action.

A preliminary injunction was issued due to the failure of RFC to attend the hearing. A
notice of lis pendens was caused to be recorded by Ponce de Leon.

Francisco Soriano then wrote a letter to the President of RFC asking that he be allowed
to redeem the property. RFC allowed him to redeem the property for not less than its
appraised value of P59,647.05, payable 20% down and the balance in 10 years with
6% interest.

Soriano did not redeem the lot. He then filed a 3rd party complaint. Due to his death, he
was substituted by his children. The children claimed that the mortgaged property was
conjugal property which was half-owned by them, and they did not consent to the
mortgage.

The lower court sustained the RFC, but ruled that the mortgage over ½ of Soriano lot
was void.

ISSUE:
WoN a mortgagor of a bank loan can redeem the foreclosed property by paying the
amount the property was purchased at public auction and not the amount fixed by the
court in its order.

HELD: NO.
Section 78 of RA 337 provides that in the event of foreclosure, the mortgagor or debtor
whose real property has been sold at public auction for payment of an obligation to any
bank, banking or credit institution, shall have the right to redeem the property by paying
the amount fixed by the court in the order of execution, not the amount for which it had
been purchased by the buyer at public auction. RA 337 applies, not Act 3135.

Act 3135 was promulgated to regulate the sale of property under special powers
inserted in or annexed to real estate mortgages. RA 337, otherwise known as the
General Banking Act, regulates mortgages where banks are involved. RA 337 has the
 effect of amending Sec. 6 of Act No. 3135, insofar as the redemption price is
concerned, when the mortgagee is a bank or a banking or credit institution.

The whole of the Soriano property should be foreclosed since the Sorianos failed to
prove the conjugal nature of the property.

RIGHT AND EQUITY OF REDEMPTION - REAL MORTGAGE

 Sec. 47 RA 8791

o SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether
judicially or extrajudicially, of any mortgage on real estate which is security for any loan or
other credit accommodation granted, the mortgagor or debtor whose real property has
been sold for the full or partial payment of his obligation shall have the right within one year
after the sale of the real estate, to redeem the property by paying the amount due under
the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the
costs and expenses incurred by the bank or institution from the sale and custody of said
property less the income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the confirmation
of the auction sale and administer the same in accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the damages which the bank may
suffer by the enjoining or the restraint of the foreclosure proceeding. Notwithstanding Act
3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not
after, the registration of the certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months after foreclosure, whichever is
earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of
this Act shall retain their redemption rights until their expiration

 Sta. Ignacia Rural Bank Inc. v. CA

Facts:
1. The defendants Sta. Ignacia Rural Bank, Inc. extended to the plaintiff-spouses Conrado
Pablo and Juanita Gonzales a loan totalling P12,109.75. As a security, the plaintiff-
spouses executed in favor of the defendant bank a Real Estate Mortgage over their
residential house and two (2) lots covered by Free Patent Title located at Poblacion
Norte, Mayantoc, Tarlac.
2. The plaintiff-spouses defaulted in the payment of their obligation, as a result of which,
the defendant bank filed with the Provincial Sheriff of Tarlac a petition for extra-judicial
foreclosure of their real estate mortgage. The aforecited house and lots of the plaintiff-
spouses were sold at public auction with the defendant bank as the highest bidder.
3. The ownership of the subject house and lots was consolidated in favor of the defendant
bank virtue of the final deed of sale. The defendant bank sold the aforementioned real
estates to defendant-spouses Alberto Lucas and Nelia Rico. Hence, the complaint for
the repurchase of the subject house and lots, annulment of title and damages filed on
March 20, 1986 by the plaintiff-spouses.
Trial Court: No redemption. Period of redemption has expired. Upheld the 2-year redemption
period under RA 720 on mortgage loans with rural banks over the 5-year period provided CA
141 involving homestead and free patent lands.
 CA: Section 119 of CA 141 is the applicable law not RA 720 because RA 720 applies only to
"not covered by a Torrens Title, a homestead or free patent", or to owners of lands "without
torrens title", who can "show five years or more of peaceful, continuous and uninterrupted
possession thereof in the concept of an owner, or of homesteads or free patent lands
pending the issuance of titles but already approved", or "of lands pending homestead or free
patent titles". Furthermore, period of redemption has not yet expired because it should be
reckoned from the date of the expiration period provided in Act 3135. Private respondents
filed the case on time.
Issue: Whether or not the defendants can redeem the subject property
Ruling: YES. Since private respondents' foreclosed property was acquired under the
homestead laws, they had two (2) years from the date the certificate of sale was registered
within which to redeem the land. And, pursuant to Section 119 of C.A. No. 141, they had five
(5) years from the date of registration of certificate of sale, within which to repurchase it.
Since the private respondents offer to repurchase was made well within the said 5-year
period, the two (2) courts below correctly ruled in their favor.
When the certificate of sale in favor of petitioner was registered with the Register of Deeds on
November 5, 1981, private respondents had two years, reckoned from said date, within which
to redeem the property from petitioner, and another five years, under Commonwealth Act No.
141, counted from the expiration of the redemption period, to effect repurchase which private
respondents precisely did when the suit below was initiated on March 20, 1986.
Doctrine:
Section 5 of R.A. No. 720, as amended, does not show any legislative intent to modify or
repeal Section 199 of the Public Land Act. Each speaks of and deals with a different right.
Specifically, the former merely liberalized the duration of an existing right of redemption in
extrajudicial foreclosure sales by extending the period of one (1) year fixed in Act No. 3135,
as amended by Act No. 4118, to two (2) years insofar as lands acquired under free patent
and homestead statutes are concerned. The second speaks of the right to repurchase and
prescribes the period within which it may be exercised. These two (2) rights are by no means
synonymous.
Under Act No. 3135, the purchaser in a foreclosure sale has, during the redemption period,
only an inchoate right and not the absolute right to the property with all the accompanying
incidents. He only becomes an absolute owner of the property if it is not redeemed during the
redemption period. Upon the other hand, the right to repurchase is based on the assumption
that the person under obligation to reconvey the property has the full title to the property
because it was voluntarily conveyed to him or that he had consolidated his title thereto by
reason of redemptioner's failure to reason of a redemptioner's failure to exercise his right of
redemption
Law:
If the land is mortgaged to a rural bank under R.A. No. 720, as amended, the mortgagor may
redeem the property within two (2) years from the date of foreclosure or from the registration
of the sheriff's certificate of sale at such foreclosure if the property is not covered or is
covered, respectively, by a Torrens title. If the mortgagor fails to exercise such right, he or his
heirs may still repurchase the property within five (5) years from the expiration of the two (2)
year redemption period pursuant to Section 119 of the Public Land Act (C.A. No. 141). If the
land is mortgaged to parties other than rural banks, the mortgagor may redeem the property
within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. If
he fails to do so, he or his heirs may repurchase the property within five (5) years from the
expiration of the redemption period also pursuant to Section 119 of the Public Land Act.

 Pahang v. Vestil
DOCTRINE:
· The filing of an action by the redemptioner to enforce his right to redeem does not
suspend the running of the statutory period to redeem the property, nor bar the purchaser at
public auction from procuring a writ of possession after the statutory period of redemption had
lapsed, without prejudice to the final outcome of such complaint to enforce the right of
redemption.
 FACTS:
1. Spouses Pahang received a P1.5 Million short term loan from respondent Metropolitan
Bank & Trust Company secured by a real estate mortgage on a parcel of land.
2. Petitioners failed to pay the loan, the interest and the penalties, thus respondent
extrajudicially foreclosed the real estate mortgage. The property was sold at public auction to
the respondent bank as the highest bidder.
3. MBTC wrote the petitioners that the one-year redemption period of the property would
expire but instead of redeeming the property, the petitioners filed, a complaint for annulment
of extrajudicial sale in the RTC of Cebu.
4. After the expiration of the redemption period, the respondent consolidated its ownership
over property and filed a Petition for Writ of Possession before the RTC of Mandaue City.
5. The spouses opposed the petition, arguing that the core issue in their earlier complaint
constituted a prejudicial question, which warranted a suspension of the proceedings
before the court and that the filing of their complaint within the period to redeem the
foreclosed property was equivalent to an offer to redeem the same, and had the effect
of preserving such right.
6. The RTC ruled in favor of MBTC saying since the petitioners failed to redeem the property
within one year from the foreclosure, the respondent was entitled to a writ of possession.
7. Petitioners appealed but the CA dismissed the petition. CA explained that the pendency of
a separate proceeding questioning the validity of the mortgage and the extrajudicial
foreclosure thereof cannot bar the issuance of a writ of possession in favor of the purchaser
at public auction.

ISSUE:
A. WON the petitioners complaint for annulment of extrajudicial sale is a prejudicial question
to the petition of the respondent bank for the issuance of a writ of possession. (NO)
B. WON The filing of an action by the redemptioner to enforce his right to redeem suspends
the running of the statutory period to redeem the property. (NO)

RULING:
A. No. The complaint is not a prejudicial question to the issuance of a writ of possession.
· A prejudicial question generally comes into play in a situation where a civil action and a
criminal action are both pending and there exists in the former an issue that must be
preemptively resolved before the criminal action may proceed, because howsoever the issue
raised in the civil action is resolved would be determinative juris et de jure of the guilt or
innocence of the accused in the criminal case.
· In the present case, the complaint of the petitioners for Annulment of Extrajudicial Sale
is a civil action and the respondents petition for the issuance of a writ of possession is but an
incident in the land registration case and, therefore, no prejudicial question can arise from the
existence of the two actions.
· The focal issue in Civil Case No. MAN-3454 was whether the extrajudicial foreclosure of
the real estate mortgage executed by the petitioners in favor of the respondent bank and the
sale of their property at public auction for P2,403,770.73 are null and void, whereas, the issue
in LRC Case No. 3 was whether the respondent bank was entitled to the possession of the
property after the statutory period for redemption had lapsed and title was issued.

B. No. The filing of an action does not suspend the running of the statutory period to redeem.
· The filing of an action by the redemptioner to enforce his right to redeem does not
suspend the running of the statutory period to redeem the property, nor bar the purchaser at
public auction from procuring a writ of possession after the statutory period of redemption had
lapsed, without prejudice to the final outcome of such complaint to enforce the right of
redemption

 Medida v. CA
FACTS:
 On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over
a parcel of land to the 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.

When the loan became due and demandable without plaintiff paying the same,
defendant association caused the extrajudicial foreclosure of the mortgage. After the
posting and publication requirements were complied with, the land was sold at public
auction. No redemption having been effected, a new TCT was issued in favor of the
association.

The spouses Dolino filed a case for the annulment of the sale at public auction, as well
as the corresponding certificate of sale issued pursuant thereto by assailing the validity
of the extrajudicial foreclosure sale of their property, claiming that the same was held in
violation of Act No. 3135.

The lower court rendered judgment upholding the validity of the loan and the real estate
mortgage, but annulling the extrajudicial foreclosure sale inasmuch as the same failed
to comply with the notice requirements in Act No. 3135. Not satisfied, the spouses
Dolino interposed a partial appeal with respect to the portions in the decision declaring
that the mortgage executed is valid. CA modified the decision of the lower court and
declared the mortgage null and void.

ISSUE:
WoN a mortgagor, whose property has been extrajudicially foreclosed and sold at the
corresponding foreclosure sale, may validly execute a mortgage contract over the
same property in favor of a third party during the period of redemption.

HELD: YES.
The CA declared the real estate mortgage in question null and void for the reason that
the mortgagor spouses, at the time when the said mortgage was executed, were no
longer the owners of the lot, having supposedly lost the same when the lot was sold to
a purchaser in the foreclosure sale under the prior mortgage. This holding cannot be
sustained. Preliminarily, the issue of ownership of the mortgaged property was never
alleged in the complaint nor was the same raised during the trial, hence that issue
should not have been taken cognizance of by the Court of Appeals. An issue which
was neither averred in the complaint nor ventilated during the trial in the court below
cannot be raised for the first time on appeal as it would be offensive to the basic rule of
fair play, justice and due process.

If, as admitted, the purchaser at the foreclosure sale merely acquired an inchoate right
to the property which could ripen into ownership only upon the lapse of the redemption
period without his credit having been discharged, it is illogical to hold that during that
same period of twelve months the mortgagor was "divested" of his ownership, since the
absurd result would be that the land will consequently be without an owner although it
remains registered in the name of the mortgagor. That is why the discussion in said
case carefully and felicitously states that what is divested from the mortgagor is only his
"full right as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying
that the mortgagor does not have the unconditional power to absolutely sell the land
since the same is encumbered by a lien of a third person which, if unsatisfied, could
result in a consolidation of ownership in the lienholder but only after the lapse of the
period of redemption. Even on that score, it may plausibly be argued that what is
 delimited is not the mortgagor's jus disponendi, as an attribute of ownership, but merely
the rights conferred by such act of disposal which may correspondingly be restricted.

At any rate, even the foregoing considerations and arguments would have no
application in the case at bar and need not here be resolved since what is presently
involved is a mortgage, not a sale, to petitioner bank. Such mortgage does not involve
a transfer, cession or conveyance of the property but only constitutes a lien thereon.
There is no obstacle to the legal creation of such a lien even after the auction sale of
the property but during the redemption period, since no distinction is made between a
mortgage constituted over the property before or after the auction sale thereof.

Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or

mortgage on the property sold, or on some part thereof, subsequent to the judgment
under which the property was sold. Of course, while in extrajudicial foreclosure the sale
contemplated is not under a judgment but the proceeding pursuant to which the
mortgaged property was sold, a subsequent mortgage could nevertheless be legally
constituted thereafter with the subsequent mortgagee becoming and acquiring the
rights of a redemptioner, aside from his right against the mortgagor. In either case,
what bears attention is that since the mortgagor remains as the absolute owner of the
property during the redemption period and has the free disposal of his property, there
would be compliance with the requisites of Article 2085 of the Civil Code for the
constitution of another mortgage on the property. To hold otherwise would create the
inequitable situation wherein the mortgagor would be deprived of the opportunity, which
may be his last recourse, to raise funds wherewith to timely redeem his property
through another mortgage thereon.

Coming back to the present controversy, it is undisputed that the real estate mortgage
in favor of petitioner bank was executed by respondent spouses during the period of
redemption. We reiterate that during said period it cannot be said that the mortgagor is
no longer the owner of the foreclosed property since the rule up to now is that the right
of a purchaser at a foreclosure sale is merely inchoate until after the period of
redemption has expired without the right being exercised. The title to land sold under
mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the
redemption period and conveyance by the master's deed. To repeat, the rule has
always been that it is only upon the expiration of the redemption period, without the
judgment debtor having made use of his right of redemption, that the ownership of the
land sold becomes consolidated in the purchaser.

Parenthetically, therefore, what actually is effected where redemption is seasonably

exercised by the judgment or mortgage debtor is not the recovery of ownership of his
land, which ownership he never lost, but the elimination from his title thereto of the lien
created by the levy on attachment or judgment or the registration of a mortgage
thereon. The American rule is similarly to the effect that the redemption of property sold
under a foreclosure sale defeats the inchoate right of the purchaser and restores the
property to the same condition as if no sale had been attempted.

Further, it does not give to the mortgagor a new title, but merely restores to him the title freed
of the encumbrance of the lien foreclosed.

 Bodiongan v. CA
FACTS:

Respondent Lea Simeon obtained from petitioner Estanislao Bodiongan and his wife a loan
of P219,117·39 secured by a mortgage on three (3) parcels of land with a four-storey hotel
building and personal properties located at Gango, Ozamiz City.
 Private respondent failed to pay the loan. Petitioner thus instituted against her an action for
the collection of sum of money or foreclosure of mortgage.

RTC ordered private respondent to pay petitioner, P220,459.71, at the legal rate of interest
and P5,000.00 as attorney's fees, and in case of non-payment, to foreclose the mortgage on
the properties, which was affirmed by the CA.

Respondent failed to pay the judgment debt hence the mortgaged properties were
foreclosed.

At the auction sale, petitioner submitted to the sheriff a written bid of P309,000.00 and at the
same time reserved in said bid a deficiency claim of P439,710.57 and then won as sole
bidder.

Respondent offered to redeem her properties and tendered to the Provincial Sheriff a check
in the amount of P337,580.00, the amount which was based on the sheriff’s tentative
computation.

Petitioner claimed additional 38% per annum and moved to correct the computation of the
redemption price and to suspend the issuance of a writ of possession pending computation.
Such was denied by the trial court. Later on petitioner instituted against private respondent an
action for annulment of redemption and confirmation of the foreclosure sale on the ground of
insufficiency of the redemption price.

RTC: dismissed the complaint but reduced the 12% interest rate on the purchase price to 6%
CA: affirmed the trial court's decision except for the refund of the 6% interest

Issue: WON the redemption was ineffectual due to inadequacy of price.

Held: No. In order to effect a redemption, the judgment debtor must pay the purchaser the
redemption price composed of the following: (1) the price which the purchaser paid for the
property; (2) interest of 1% per month on the purchase price; (3) the amount of any
assessments or taxes which the purchaser may have paid on the property after the purchase;
and (4) interest of 1% per month on such assessments and taxes. The redemption price must
be for the full amount, otherwise the offer to redeem will be ineffectual.

In the instant case, the redemption price covers the purchase price of P309,000.00 plus 1%
interest thereon per month for twelve months at P37,080.00. Petitioner does not claim any
taxes or assessments he may have paid on the property after his purchase. He, however,
adds P5,000.00 to the price to cover the attorney's fees awarded him by the trial court. In the
redemption of property sold at an extrajudicial foreclosure sale, the amount payable is no
longer the judgment debt but the purchase price at the auction sale.

“The rule on redemption is liberally interpreted in favor of the original owner of the property.
The fact alone that he is allowed the right to redeem clearly demonstrates the tenderness of
the law toward him in giving him another opportunity, should his fortunes improve, to recover
his lost property. This benign motivation would be frustrated by a too-literal reading that
would subordinate the warm spirit of the rule to its cold language.”

 DBP v. West Negros College Inc.

FACTS:
On 12 December 1967 BMC obtained a loan for building and operating a hospital from
petitioner Development Bank of the Philippines (DBP) worth P2,400,000.00. The loan was
secured by a mortgage on the two (2) parcels of land which was owned by BMC, the hospital
building to be constructed thereon, and the medical equipment to be used for the intended
hospital. The mortgage was expressly constituted subject to the provisions of RA 85 (1946)
creating the Rehabilitation Finance Corporation, a predecessor agency of petitioner DBP.
From the loan P1,935,200.00 was immediately applied to pay for the old accounts of BMC
and only P464,800.00 was actually released in cash.
On 30 January 1989, for failure of BMC to pay the loan, DBP instituted an extrajudicial
foreclosure of the mortgage under Act 3135 (1924).[1] On 24 August 1989 the mortgaged
properties were sold at public auction where DBP emerged as the highest and only bidder for
the sum of P4,090,117.36. As of the date of the public auction, the outstanding loan balance
of BMC was P32,526,133.62. On 25 August 1989 the ex-officio Provincial Sheriff of Bacolod
City executed the certificate of sale in favor of DBP; on 11 July 1990 the sale was registered
in the Registry of Deeds as Entry No. 166752 annotated on the transfer certificates of title of
the mortgaged properties.
Prior to the expiration of the redemption period on 11 July 1991, BMC and the Bacolod
branch office of DBP agreed to peg the redemption price at P21,500,000.00 representing the
compromise settlement of the outstanding account, and BMC further resolved to pay an
installment of twenty percent (20%) of the compromise amount, on or before 31 August 1991.
The agreement was however made subject to the approval of the head office of DBP. After
several extensions of the deadline to pay the installment, BMC finally settled the amount in
three (3) separate payments.
On 10 July 1991, during the process of paying for the twenty percent (20%) installment, BMC
and respondent West Negros College executed a "Deed of Assignment" which assigned to
the latter the interests of BMC in the properties foreclosed by petitioner DBP and vested upon
the assignee the right to redeem them.
West Negros College demanded the reduction of the redemption price from
P21,500,000.00 to P12,768,432.90 allegedly because of excessive interest charges.
On 8 November 1991 respondent West Negros College requested the Ex-Officio Provincial
Sheriff to issue the certificate of redemption in view of the payment to petitioner DBP of the
amount of P4,300,000.00 comprising the amount of purchase with one per cent (1%) monthly
interest thereon including other expenses defrayed by DBP at the extrajudicial sale.
On 10 December 1991 West Negros College filed a petition for the surrender of the transfer
certificates of title covering the foreclosed properties or in the alternative the cancellation of
the existing certificates of title and the issuance of new ones.
On 7 February 1992 the trial court found merit in the petition and ordered the DBP through
the Ex-Officio Provincial Sheriff to surrender the transfer certificates of title covering the
foreclosed parcels of land and, in case of failure to turn them over, instructed the Register of
Deeds to issue new transfer certificates of title for the foreclosed properties.[4] Because DBP
manifested that it was not relinquishing the documents, new transfer certificates of title over
the foreclosed parcels of land were issued in the name of West Negros College. On 14
February 1992, upon an ex-parte motion of West Negros College, the trial court also
canceled the adverse claim and notice lis pendens in favor of DBP.[5] On 28 April 1992 the
trial court denied DBP's separate motions for reconsideration of the two (2) orders.

ISSUE:
How much should a mortgagor pay to redeem a real property mortgaged to and foreclosed
extrajudicially?

HELD:
It has long been settled that where the real property is mortgaged to and foreclosed
judicially or extrajudicially by the Development Bank of the Philippines, the right of
redemption may be exercised only by paying to "the Bank all the amount he owed the
latter on the date of the sale, with interest on the total indebtedness at the rate agreed
upon in the obligation from said date, unless the bidder has taken material possession
of the property or unless this had been delivered to him, in which case the proceeds of
the property shall compensate the interest."[12] This rule applies whether the foreclosed
 property is sold to the DBP or another person at the public auction, provided of course
that the property was mortgaged to DBP.[13] Where the property is sold to persons other
than the mortgagee, the procedure is for the DBP "in case of redemption, [to] return to
the bidder the amount it received from him as a result of the auction sale with the
corresponding interest paid by the debtor.
The foregoing rule is embodied consistently in the charters of petitioner DBP and its
predecessor agencies. Section 31 of CA 459 creating the Agricultural and Industrial
Bank explicitly set the redemption price at the total indebtedness plus contractual
interest as of the date of the auction sale.[15] Under RA 85 the powers vested in and the
duties conferred upon the Agricultural and Industrial Bank by CA 459 as well as its
capital, assets, accounts, contracts, and choses in action were transferred to the
Rehabilitation Finance Corporation.[16] It has been held that among the salutary
provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA 85 was
Sec. 31 defining the manner of redeeming properties mortgaged with the
corporation.[17] Subsequently, by virtue of RA 2081 (1958), the powers, assets,
liabilities and personnel of the Rehabilitation Finance Corporation under RA 85 and CA
459, particularly Sec. 31 thereof, were transferred to petitioner DBP. [18] Significantly,
Sec. 31 of CA 459 has been reenacted substantially in Sec. 16 of the present charter of
the DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998).
The Court held that the redemption price for properties mortgaged to and foreclosed by
DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate.
The unavoidable conclusion is that in redeeming the foreclosed property respondent
West Negros College as assignee of Bacolod Medical Center should pay the balance
of the amount owed by the latter to petitioner DBP with interest thereon at the rate
agreed upon as of the date of the public auction on 24 August 1989.

 Top-Rate International Services Inc. v. IAC

FACTS:
Rodrigo Tan filed a complaint against Consolidated Mines Inc. and Jose Marino
Olondriz, the president of said corporation, for the payment of the purchase price of
certain heavy equipment, parts and accessories sold to Consolidated Mines, Inc. with a
total cost of P271,372.20. In said complaint, plaintiff asked that a writ of preliminary
attachment be issued against defendants on the ground that said defendants were
guilty of fraud in securing said equipment. A writ of preliminary attachment was issued,
and the sheriff levied on the properties of the defendant, although there were already
prior encumbrances on these properties.

Polaris Motor Supply, Co. also brought suit against Consolidated Mines, Inc. for the
collection of P71,855.20. The amount represents the price of the heavy equipment and
accessories which the respondent CMI had purchased 3, 1981, the respondent judge
ordered the attachment of CMI's properties. On November 26, 1981, notice of the
attachment of real properties of the CMI was served on the Register of Deeds of
Makati.

On May 31, 1981, several banks, constituting the Consortium Banks, filed a third party
claim with the sheriff, alleging that they were the mortgagees of the real and personal
properties of the CMI. They, therefore, asked that the properties be released from
attachment. The petitioner filed a motion to quash the third party claim which was
denied. The court ruled that the Consortium Banks, as mortgagees of the real and
personal properties of the CMI had a superior lien on the properties and that the
petitioner could validly levy only on the mortgagor's (CMI's) equity of redemption after
the sale of the mortgaged properties.

The personal properties were foreclosed by the Consortium Banks to which the
properties were sold as the highest bidder and the certificate of sale issued. The
 petitioner then asked that it be allowed to exercise its right of redemption. But the
Consortium Banks opposed the motion on the ground that there was an equity in
redemption only in case of foreclosure sale of real properties but not in the case of
chattels.

In the meantime, an insolvency court authorized the sale of CMI properties to Top Rate
International as assignee of the El Grande Development Corp. On the basis of the sale
to it, Top Rate International filed a third party claim with the sheriff. It asked that the
properties be discharged from attachment.

After hearing on the matter, one trial court ordered the lifting and setting aside of the
levy on attachment on the properties while the other trial court issued the same order
maintaining, however, the levy on attachment on the properties. An appeal was made.
The IAC ordered the levy on the 2 properties maintained.

ISSUE:
WoN the sheriff should levy only on the right or equity of redemption and not on the
property itself.

HELD: YES.
Equity of redemption is the right of the mortgagor to redeem the mortgaged property
after his default in the performance of the conditions of the mortgage but before the
sale of the property or the confirmation of the sale, whereas the right of redemption
means the right of the mortgagor to repurchase the property even after confirmation of
the sale, in cases of foreclosure by banks, within one year from the registration of the
sale.

When herein private respondents prayed for the attachment of the properties to secure
their respective claims against Consolidated Mines, Inc., the properties had already
been mortgaged to the consortium of twelve banks to secure an obligation of US
$62,062,720.66. Thus, like subsequent mortgagees, the respondents' liens on such
properties became inferior to that of the banks, which claims in the event of foreclosure
proceedings, must first be satisfied. The appellate court, therefore, was correct in
holding that in reality, what was attached by the respondents was merely Consolidated
Mines' right or equity of redemption.

We, therefore, hold that the appellate court did not commit any error in ruling that there
was no over- levy on the disputed properties. What was actually attached by
respondents was Consolidated Mines' right or equity of redemption, an incorporeal and
intangible right, the value of which can neither be quantified nor equated with the actual
value of the properties upon which it may be exercised.

 Rosales v. Suba
Facts:
The spouses Ricardo Rosales and Erlinda Sibug were indebted to a certain Felicisimo
Macaspac. Later, Macaspac sued the spouses for their failure to pay. During trial, it was
found out that there existed an equitable mortgage between the spouses and Macaspac. The
court ordered the spouses to pay Macaspac and if they fail to do so, their property shall be
foreclosed.
The spouses failed to pay Macaspac hence the court ordered the sale at a public auction of
their land May 1998. The highest bidder was the spouses Alfonso and Lourders Suba. In
June 1998, the trial court issued an order confirming the sale made to spouses Suba. The
spouses Rosales then filed a motion for reconsideration. The trial court ruled against their
motion as it ruled that there is no right of redemption in judicial foreclosures. The Court of
Appeals affirmed the decision of the trial court.
 Issue:
Whether or not the debtor-mortgagor can exercise the right of redemption in judicial
foreclosure.

Held:
No. There is no right of redemption in judicial foreclosure. What can be exercised is equity of
redemption.
Equity of redemption is simply the right of the mortgagor to extinguish the mortgage and
retain ownership of the property by paying the secured debt within the 90-day period after the
judgment becomes final, in accordance with Rules 68 of the Rules of Court, r even after the
foreclosure sale but prior to its confirmation by the court.
In this case, unfortunately, the spouses Rosales never exercised their equity of redemption.
After the court’s order confirming the sale, no redemption can be effected any longer. Clearly,
as a general rule, there is no right of redemption in a judicial foreclosure of mortgage. The
only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking
institution. Since the mortgagee in this case is not one of those mentioned, no right of
redemption exists in favor of the petitioners. They merely have equity of redemption but have
chosen to delay the proceedings by filling several manifestations with the trial court.

 Limpin v. IAC
FACTS:
1. On February 28, 1973, spouses Jose and Marcelina Aquino mortgaged four lots to
Guillermo Ponce, as security for the loan amounting to P2,200,000.00. The mortgages
were registered on March 1, 1973.
2. On February 24, 1978, spouses Aquino sold two of the mortgaged lots to Butuan Bay
Wood Export Corporation, causing an adverse claim to be annotated on the
certificates of title.
3. In 1979, petitioner Gregorio Y. Limpin, Jr. obtained a money Judgement against Butuan
Bay Wood Export Corporation. To satisfy the judgment, the two lots sold by the
Aquinos to Butuan Bay were levied upon on September 3, 1980 and sold at public
auction to Limpin as the highest bidder on October 6, 1980. Limpin subsequently sold
the two lots to Rogelio M. Sarmiento on November 21, 1981.
4. However, on September 2, 1980, the day before Limpin’s levy on the two lots, Ponce
filed a suit for judicial foreclosure of the mortgage over spouses Aquino’s four lots.
5. On June 8, 1982, judgment was rendered in favor of Ponce. After the judgment
became final, the Trial Court directed the sale at public auction of the four (4)
mortgaged lots to satisfy the judgment. All four lots were sold to Ponce himself. On the
same day, the sheriff's certificate of sale was registered.
6. Ponce then moved for the confirmation of the sale and the issuance of a writ of
possession in his favor covering an the four lots. But the Trial Court confirmed only the
sale of two lots, refusing to confirm the sale or issue a writ of possession in regard to
the remaining lots on the ground that those titles had already been cancelled and new
ones issued to Gregorio F. Limpin. Ponce then filed a motion for reconsideration.
IAC - set aside the judgment of the Trial Court which denied the confirmation of the sale of
the two subject and ordered said Court to confirm the same and issue a writ of possession to
Ponce with respect thereto, subject to Sarmiento's equity of redemption.
ISSUE: WON the mortgage right of Ponce is superior over the levy and sale of petitioner
Limpin and the subsequent sale of the property to Sarmiento.
RULING: YES.
The appellate court ruled that the the sale to Ponce, as the highest bidder in the foreclosure
sale of the two lots in question should have been confirmed, subject to Limpin's (and now
Sarmiento's) equity to redemption. The registration of the lands, first in the name of
Limpin and later of Sarmiento, was premature. At most what they were entitled to was
the registration of their equity of redemption.
 It is well settled that a recorded mortgage is a right in rem. The recordation of the
mortgage in this case put the whole world, petitioners included, on constructive notice
of its existence and warned everyone who thereafter dealt with the property on which it
was constituted that he would have to reckon with that encumbrance. Hence, Limpin's
subsequent purchase of the "interests and participation" of Butuan Bay Wood Export
Corporation in the subject lots, as well as the sale of the same to Sarmiento were both
subject to said mortgage. On the other hand, Ponce's purchase of the lots mortgaged
to him at the foreclosure sale on October 12, 1983, was subject to no prior lien or
encumbrance, and could in no way be affected or prejudiced by a subsequent or junior
lien, such as that of Limpin. Petitioner Sarmiento having acquired no better right than
his predecessor-in-interest, petitioner Limpin, his title must likewise fail.
The fact that at the time Ponce foreclosed the mortgage on October 21, 1983, the lots had
already been bought by Limpin and subsequently sold to Sarmiento is of no consequence,
since the settled doctrine is that the effects of the foreclosure sale retroact to the date of
registration of the mortgage.

 Herrera v. Arellano
Facts:
1. Ramon Herrera, in his capacity as judicial guardian of his minor l children Ricardo,
Arturo, Dulcelina, and Cristeto Herrera, borrowed money from Siuliong & Co., payable
with 12 percent annual interest.
2. While these acts of the guardian appeared to be unauthorized by the Court, the wards,
upon attaining majority, by public document, confirmed the previous arrangements and
manifested their entire agreement to the liquidation of their accounts, and compromised
the case by promising to pay Siuliong & Co.,
Inc.
3. Ramon Herrera and Rosa Gallo compromised the pending civil case filed against them
by Siuliong & Co., Inc., by acknowledging an indebtedness in favor of the latter,
promising to pay said sum, jointly and in solidum, and
guaranteeing payment by mortgage of a house and lot.
4. The mortgage credits were assigned by the Siuliong & Co., Inc. to Francisco Cu
Unjieng. Later the mortgaged properties were leased by the mortgagors to Ricardo
Herrera and Lope Ilustre without the consent of the
creditor.
5. Siuliong & Co., Inc. gave notice of its intention to foreclose on the properties but the
sale was not carried out.
6. The lawyers of the mortgagee wrote the debtors complaining that the land taxes of the
mortgaged property had not been paid and the
mortgagee had been forced to disburse the same.
7. The mortgagors filed a case for an accounting
and to set aside an extrajudicial foreclosure. An answer was filed with a counterclaim
for nonpayment and breach of the obligations and prayed for judgment thereon with
interest and attorneys' fees, and for a decree of judicial
foreclosure.
8. The case was dismissed, but no decision was
made on the defendants’ claims. Upon motion by the parties, the court granted a
reopening of the case, but no decision was rendered.
9. The lower court, on petition, later decided in favor of the defendants and gave the
mortgagors 90 days to pay, otherwise the mortgaged properties will be sold at a public
auction. The mortgagors appealed, from
this decision, to the Court of Appeals. CA affirmed the indebtedness, but reversed the
order decreeing the sale of mortgaged properties. The CA ruled that no action lies to
enforce the indebtedness until the moratiorium law expires or is lifted.
10. Supreme Court rendered a decision in Rutter v Esteban that Moratorium Law was
oppressive and should not be prolonged any longer.
 11. The mortgagee then filed a motion for execution which was granted. Provincial Sheriff
of Negros Occidental sold, at public
auction, the mortgaged properties to the mortgagee, Cu Unjieng o& Sons, Inc.
12. The mortgagors filed 2 motions for reconsideration which were denied. Hence, this
case.

Issue:
1. Whether an order executing a judgment which neither contains an order requiring the
mortgagors to pay their obligation to the mortgagees nor grants said mortgagors the
90-day period within which to pay the mortgaged debt is valid. (No.)
2. Whether the 90 day period for payment should
be counted from the date of service of the order directing the mortgagors to pay their
obligation. (Yes.)

Ruling:
Invoking our decision in Rutter vs. Esteban it must be noted that the 90-day period
granted the mortgage debtor within which to pay the amount of the mortgage is in Section 2
of Rule 70 of the Rules of Court, and it is to be counted 'from the date of the service of the
order,' not from the date thereof. The order referred to in the rule is the order requiring the
debtor to pay the judgment within 90 days. This 90-day period given in the rule is not a
procedural requirement merely; it is a substantive right granted to the mortgage debtor as the
last opportunity to pay the debt and save his
mortgaged property from final disposition at the
foreclosure sale. It is one of the two steps necessary to
destroy what in law is known as the mortgagor's 'equity of redemption, the other being the
sale. It may not be omitted. As the writ of execution or the order allowing the sale of the
mortgaged property was issued without granting the mortgage debtor said 90-day period, the
order for the sale of the property would be a denial of a substantial right and void. It is true
that the original judgment of this Court required payment within 90 days, but this same
judgement was expressly held in abeyance; therefor, the 90-day period never began to run.
Neither was it effective while the moratorium law was in force. The order of execution that
was held in abeyance did not ipso facto become effective upon the lifting of the moratorium.
A new order of the court become necessary to revive the order of payment, and this new
order may not suppress or deny the 90-day
period originally fixed and required by the rules. The order complained of does not grant this
90-day period, and, therefore, invalid.
In this case, the provision for payment of the debt
within 90 days found in the original decision of the court
of first instance was reversed by the Court of Appeals. In other words, in the case at bar,
respondent Judge directed the execution of a judgment which neither contained an order
requiring the mortgagors to pay their obligation to the mortgagees nor granted said
mortgagors any period within which to effect said payment. At any rate, the 90-day period,
prescribed in Section 2 of Rule 70 of the Rules of Court, should be counted "from the date of
service of the order" directing the mortgagors to pay their obligation to the mortgagees and
no such order having, as yet, been issued, it follows that the orders complained of, directing
the sale of the mortgaged property and denying the reconsideration prayed for by petitioners
herein, are "null and void," as held in the aforementioned DeLeon case.

WRIT OF POSSESSION - REAL MORTGAGE

 Samson v. Rivera
FACTS:
Sps. Rempson and Samson incurred from FEBTC a loan for P55M which was secured
by a real estate mortgage over 5 parcels of property. The spouses failed to settle their
obligation. FEBTC extrajudicially foreclosed the properties. An auction sale was held
 which was won by Lenjul Realty Corp. The sale was confirmed, and a certificate of sale
was issued.

Lenjul Realty filed a petition for the issuance of a writ of possession. While the Petition
was pending, Spouses Samson and Rempson Corporation filed with the Antipolo City
RTC, an action for Annulment of Extra -Judicial Foreclosure and/or Nullification of Sale
and the Certificates of Title. The judge then granted the prayer for the issuance of a writ
of possession. CA affirmed.

ISSUE:
WoN a writ of possession may be issued even before the expiration of the redemption
period. Whether the issuance of a writ of possession may be stayed by the filing of an
action for the annulment of the foreclosure.

HELD: YES.
The purchaser in a foreclosure sale may apply for a writ of possession during the
redemption period by filing for that purpose an ex parte motion under oath, in the
corresponding registration or cadastral proceeding in the case of a property with
torrens title. Upon the filing of such motion and the approval of the corresponding bond,
the court is expressly directed to issue the writ. This Court has consistently held that
the duty of the trial court to grant a writ of possession is ministerial. Such writ issues as
a matter of course upon the filing of the proper motion and the approval of the
corresponding bond.

No discretion is left to the trial court. Any question regarding the regularity and validity
of the sale, as well as the consequent cancellation of the writ, is to be determined in a
subsequent proceeding as outlined in Section 8 of Act 3135. Such question cannot be
raised to oppose the issuance of the writ, since the proceeding is ex parte.

The recourse is available even before the expiration of the redemption period provided
by law and the Rules of Court. The purchaser, who has a right to possession that
extends after the expiration of the redemption period, becomes the absolute owner of
the property when no redemption is made. Hence, at any time following the
consolidation of ownership and the issuance of a new transfer certificate of title in the
name of the purchaser, he or she is even more entitled to possession of the property.
In such a case, the bond required under Section 7 of Act 3135 is no longer necessary,
since possession becomes an absolute right of the purchaser as the confirmed owner.

This Court has long settled that a pending action for annulment of mortgage or
foreclosure does not stay the issuance of a writ of possession. Therefore, the
contention of petitioners that the RTC should have consolidated Civil Case No. 01-6219
with LR Case No. 01-2698 and resolved the annulment case prior to the issuance of
the Writ of Possession is unavailing. Their reliance on Active Wood Products Co., Inc.
v. Court of Appeals is misplaced.

In that case, the sole issue was the consolidation of a civil case regarding the validity of
the mortgage and a land registration case for the issuance of a writ of possession. It did
not declare that the writ of possession must be stayed until the questions on the
mortgage or the foreclosure sale were resolved. Moreover, the issue of consolidation in
the present case has become moot, considering that the trial court has already granted
it.

The Court of Appeals correctly declared that petitioners pursued the wrong remedy. A
special civil action for certiorari could be availed of only if the lower tribunal has acted
without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack
 or excess of jurisdiction; and if there is no appeal or any other plain, speedy, and
adequate remedy in the ordinary course of law. A party may petition for the setting
aside of a foreclosure sale and for the cancellation of a writ of possession in the same
proceedings where the writ of possession was requested. In petitioners’ case, the filing
of the Petition is no longer necessary because the pendency of Civil Case No. 01- 6219
(which was consolidated with the present case) already challenged the foreclosure
sale.

 DBP v. Gatal
Facts:
1. CASE ABOUT: FORECLOSED REAL ESTATE MORTGAGE SOLD AT PUBLIC
AUCTION and LITIS PENDENTIA
2. Spouses Gatal obtained a P1.5M loan from the DBP which was secured by a real estate
mortgage over a commercial lot. Gatal failed to pay loan --> DBP foreclosed mortgage -->
sale at public auction --> no one was able to meet the bid price ceiling.
3. DBP offered the property for negotiated sale. The Sps Gatal submitted a bid, but
another bidder, Torrefranca, submitted a higher bid. The spouses Gatal offered to match the
higher bid, but this was denied because Torrefranca was already considered a preferred
bidder. Thus, Sps Gatal filed a case for injunction and Writ of Prelim. Injuction was issued
4. DBP filed a petition for the issuance of a writ of possession --> granted
5. Sps Gatal filed a motion to dismiss the petition of DBP and to quash the writ of
possession on the ground that there is another case pending with the same subject matter
and issues --> Motion to dismiss granted and Writ of Possession granted to DBP was
recalled.
6. DBP filed a petition for certiorari with the CA → petition dismissed

Issue: WON a separate action should be filed for a writ of possession to be issued -- NO

Ruling:
1. For litis pendentia to lie as a ground for a motion to dismiss, the following requisites
must be present:
a. That the parties to the action are the same;
b. that there is substantial identity in the causes of action and reliefs sought; and
c. that the result of the first action is determinative of the second in any event and
regardless of which party is successful.
2. It is undisputed that both cases involve the same parties and the same property.
3. But 3rd element is not satisfied. Action for injunction filed by respondents Sps Gatal
against petitioner DBP seeks to declare the sale of the property to Torrefranca void and to
order petitioner DBP “to respect respondents’ right of preemption” and maintain the status
quo between the parties. The other civil case is a petition for the issuance of a writ of
possession filed by petitioner DBP, being the purchaser of the lot at the public auction.
Clearly, the rights asserted and the reliefs sought by the parties in both cases are not
identical. Thus, respondents’ claim of litis pendentia has no merit.
4. In Tan Soo Huat vs. Ongwico, we ruled that “once a mortgaged estate is extrajudicially
sold, and is not redeemed within the reglementary period, no separate and independent
action is necessary to obtain possession of the property. The purchaser at the public
auction has only to file a petition for issuance of a writ of possession pursuant to Section 33
of Rule 39 of the Rules of Court.” To give effect to the right of possession, the purchaser
must invoke the aid of the court and ask for a writ or possession without need of bringing a
separate independent suit for this purpose.
5. Records show that title to the property has been consolidated to petitioner DBP. Thus,
its petition for a writ of possession is in order.
6. Obviously, the RTC erred when it granted respondents’ motion to dismiss and recalled
the writ of possession it earlier issued. Where, as here, the title is consolidated in the name of
the mortgagee, the writ of possession becomes a matter of right on the part of the
mortgagee, and it is a ministerial duty on the part of the trial court to issue the same.
 7. The pendency of a separate civil suit questioning the validity of the sale of the
mortgaged property cannot bar the issuance of the writ of possession. The rule equally
applies to separate civil suits questioning the validity of the mortgage or its foreclosure and
the validity of the public auction sale.

ANTICHRESIS
 DIZON V. GABORRO
Facts:
1. Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat,
Pampanga. He constituted a first mortgage to DBP to secure a loan of P38,000.00 and a
second mortgage to PNB amounting P93,831.91.
2. Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the
Philippines foreclosed the mortgage extrajudicially.
3. Dizon met Gaborro who became interested in the lands of Dizon before the expiration of
the redemption period. But since the property was already foreclosed by the DPB, Dizon
executed a “Deed of sale with assumption of mortgage” in favor of Gaborro, who in turn
executed the same day an“Option to Purchase Real Estate”
4. After the execution of said contracts, Alfredo G. Gaborro took possession of the three
parcels of land and made several payments to the DBP and PNB. He improved, cultivated
the kinds raised sugarcane and other crops produce.
5. Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is
formally offering reimburse Gaborro of what he paid to the banks, without, however, tendering
any cash, and demanded an accounting. Gaborro did not agree to the demands of the
petitioner, hence, Jose P. Dizon instituted a complaint in the Court of First Instance of
Pampanga, alleging that the documents Deed of Sale With Assumption of Mortgage and the
Option to Purchase Real Estate did not express the true intention and agreement between
the parties. Petitioner, contended that the two deeds constitute in fact a single transaction
that their real agreement was not an absolute sale of the land but merely an equitable
mortgage or conveyance by way of security for the reimbursement or refund by Dizon to
Gaborro of any and all sums which the latter may have paid on account of the mortgage
debts in favor of the DBP and the PNB.
6. The trial court order the instruments reformed in the sense that the true agreement is one
whereby private respondent, in consideration of the use of petitioner’s properties until
reimbursement, would assume the latter’s debts.
7. CA affirmed the decision, with modification that petitioner has the right to reimburse
respondent at 8% per annum, which right shall be exercised within one year from the finality
of the decision.

Issue:
Whether the contract is a contract of sale or actually a contract for the use of land in the
nature of an antichresis.

Ruling: Contract of antichresis

The true intention of the parties is that respondent Gaborro would assume and pay the
indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefore, respondent
Gaborro was given the possession, the enjoyment and use of the lands until petitioner can
reimburse fully the respondent the amounts paid by the latter to DBP and PNB, to accomplish
the following ends: (a) payment of the bank obligations; (b) make the lands productive for the
benefit of the possessor, respondent Gaborro; (c) assure the return of the land to the original
owner, petitioner Dizon, thus rendering equity and fairness to all parties concerned.
The agreement between petitioner Dizon and respondent Gaborro is one of those innominate
contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent agreed
"to give and to do" certain rights and obligations respecting the lands and the mortgage debts
of petitioner which would be acceptable to the bank, but partaking of the nature of the
 antichresis insofar as the principal parties, petitioner Dizon and respondent Gaborro, are
concerned.

 Adrid v. Morga
FACTS:
On August 8, 1938, Perfecto Adrid and his wife Carmen Silangcruz, then owners of a
lot in San Francisco Malabon Estate Subdivision, situated in General Trias, Cavite,
executed a document entitled "Sale with Right to Repurchase", purporting to sell the lot
to Eugenio Morga for the sum of P2,000 with the right to repurchase the same within
two years for the same sum of P2,000, plus 12% interest per annum.

The vendors never repurchased the lot. But in 1956, Perfecto Adrid and his son, brought the
present action against the administratrix of the deceased Eugenio Morga to recover the same
lot and asking for accounting of all the produce of the lot since 1938, this on the theory that
the original contract of sale with pacto de retro was by acts of the parties to the said contract,
converted into one of antichresis. The lower court upheld the pacto de retro sale.

ISSUE:
WoN a pacto de retro sale or an equitable mortgage is converted into an antichresis
because the vendee or mortgagee took possession of the land.
HELD: NO.
The intention of the parties was merely for Perfecto and his wife Carmen to borrow the
sum of P2,000 from Eugenio Morga, Lot No. 550 being given as security. In other
words, we have here a clear case of equitable mortgage. Otherwise, there would be no
reason for the agreement made for the payment of 12% interest per annum. This
interest must refer to the use of P2,000 by the alleged vendors until the same shall
have been paid to Eugenio. The parties to the contract must have contemplated the lot
remaining in the possession of the vendors inasmuch as it was considered a mere
security.

However, after the execution of the contract, the creditor, Morga according to the contention
of the plaintiff, decided to take possession of the land, pending payment of the loan, finding it
financially advantageous to receive the products thereof, valued at P300.00 a year, in lieu of
the payment of interest at 12% a year, which would only be P240.00. But this did not convert,
as contended by plaintiffs, the contract from a sale with pacto de retro to that of antichresis.

The contention of plaintiffs that although the original contract was one of sale with right
to repurchase, it was converted into one of antichresis just because the vendee took
possession of the land, is clearly untenable. There is nothing in the document, Exhibit
A, nor in the acts of the parties subsequent to its execution to show that the parties had
entered into a contract of antichresis.

In the case of Alojado vs. Lim Siongco, 51 Phil., 339, what characterizes a contract of
antichresis is that the creditor acquires the right to receive the fruits of the property of his
debtor with the obligation to apply them to the payment of interest, if any is due, and then to
the principal of his credit, and when such a covenant is not made in the contract, which
speaks unequivocally of a sale with right of repurchase, the contract is a sale with the right to
repurchase and not an antichresis.

 Tavera v. El Hogar Filipino Inc.

Facts: On January 17, 1931, defendant corporation, Tavera-Luna, Inc., obtained a loan of
P1,000,000 from El Hogar Filipino, Inc., for the purpose of constructing the Crystal Arcade
building on its premises at Escolta, Manila. To secure this loan, the corporation executed a
first mortgage on said premises and on the building proposed to be erected thereon. On
February 11, 1932, Tavera-Luna, Inc., secured from El Hogar Filipino an additional loan of
P300,000 with the same security executed for the original loan. The Tavera-Luna, Inc.,
thereafter, defaulted in the payment of the monthly amortizations on the loan; whereupon, El
Hogar Filipino foreclosed the mortgage and proceeded with the of extra-judicial sale of the
Crystal Arcade building. One day before the expiration of the period of redemption, Carlos Y.
Pardo de Tavera and Carmen Pardo de Tavera Manzano, in their capacity as stockholders of
the Tavera-Luna, Inc., instituted the present action against Tavera-Luna, Inc., and El Hogar
Filipino, Inc., to annul the two secured loans as well as the extra-judicial sale. The complaint
was dismissed.

Issue: Whether stipulations in a contract of anthichresis for the extrajudicial foreclosure of the
security may be allowed.

Held: Yes. A loan given on a property which may be considered as a public building, is not, in
itself, null and void. It is unlawful to make loans on that kind of security, but the law does not
declare the loans, once made, to be null and void. The unlawful taking of the security may
constitute a misuser of the powers conferred upon the corporation by its charter, for which it
may be made to answer in an action for ouster or dissolution; but certainly the stockholders
and depositors of the corporation should not be punished with a loss of the money loaned nor
the borrower be rewarded with it.

It is contended that the contracts in question are not of mortgage, but of antichresis. The
distinction, however, is immaterial, for even if the contracts are of antichresis, the extra-
judicial foreclosure of the security is valid. Stipulations in a contract of antichresis for the
extra-judicial foreclosure of the security may be allowed in the same manner as they are
allowed in contracts of mortgage and of pledge.