1

VI. PLEDGE, MORTGAGE AND ANTICHRESIS

A. Common Provisions (Art. 2085-2092)
SECOND DIVISION

Petitioner claims that private respondents failed to pay the interest and, as a
consequence, it registered the sale of the land in its favor on February 21, 1992. As
a result, TCT No. 58748 was cancelled and in lieu thereof TCT No. PT-85569 was
[4]
issued in the name of petitioner A. Francisco Realty.
Private respondents subsequently obtained an additional loan of P2.5 Million
from petitioner on March 13, 1992 for which they signed a promissory note which
reads:

[G.R. No. 125055. October 30, 1998]

PROMISSORY NOTE
A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION, petitioner, vs. COURT
OF APPEALS and SPOUSES ROMULO S.A. JAVILLONAR and ERLINDA P.
JAVILLONAR, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision rendered on February
[1]
29, 1996 by the Court of Appeals reversing, in toto, the decision of the Regional
Trial Court of Pasig City in Civil Case No. 62290, as well as the appellate courts
resolution of May 7, 1996 denying reconsideration.
Petitioner A. Francisco Realty and Development Corporation granted a loan
of P7.5 Million to private respondents, the spouses Romulo and Erlinda Javillonar, in
consideration of which the latter executed the following documents: (a) a
promissory note, dated November 27, 1991, stating an interest charge of 4% per
month for six months; (b) a deed of mortgage over realty covered by TCT No.
58748, together with the improvements thereon; and (c) an undated deed of sale of
[2]
the mortgaged property in favor of the mortgagee, petitioner A. Francisco Realty.
The interest on the said loan was to be paid in four installments: half of the
total amount agreed upon (P900,000.00) to be paid in advance through a deduction
from the proceeds of the loan, while the balance to be paid monthly by means of
checks post-dated March 27, April 27, and May 27, 1992. The promissory note
expressly provided that upon failure of the MORTGAGOR *private respondents+ to
pay the interest without prior arrangement with the MORTGAGEE [petitioner], full
possession of the property will be transferred and the deed of sale will be
[3]
registered. For this purpose, the owners duplicate of TCT No. 58748 was
delivered to petitioner A. Francisco Realty.

For value received, I promise to pay A. FRANCISCO REALTY AND DEVELOPMENT

CORPORATION, the additional sum of Two Million Five Hundred Thousand Pesos
(P2,500,000.00) on or before April 27, 1992, with interest at the rate of four percent
(4%) a month until fully paid and if after the said date this note and/or the other
promissory note of P7.5 Million remains unpaid and/or unsettled, without any need
for prior demand or notification, I promise to vacate voluntarily and willfully and/or
allow A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION to appropriate and
occupy for their exclusive use the real property located at 56 Dragonfly, Valle Verde
[5]
VI, Pasig, Metro Manila.
Petitioner demanded possession of the mortgaged realty and the payment of
4% monthly interest from May 1992, plus surcharges. As respondent spouses
refused to vacate, petitioner filed the present action for possession before the
[6]
Regional Trial Court in Pasig City.
In their answer, respondents admitted liability on the loan but alleged that it
was not their intent to sell the realty as the undated deed of sale was executed by
them merely as an additional security for the payment of their loan. Furthermore,
they claimed that they were not notified of the registration of the sale in favor of
petitioner A. Francisco Realty and that there was no interest then unpaid as they
had in fact been paying interest even subsequent to the registration of the sale. As
an alternative defense, respondents contended that the complaint was actually
for ejectment and, therefore, the Regional Trial Court had no jurisdiction to try the
case. As counterclaim, respondents sought the cancellation of TCT No. PT-85569 as
secured by petitioner and the issuance of a new title evidencing their ownership of
[7]
the property.
On December 19, 1992, the Regional Trial Court rendered a decision, the
dispositive portion of which reads as follows:

2
WHEREFORE, prescinding from the foregoing considerations, judgment is hereby
rendered declaring as legal and valid, the right of ownership of A. Francisco Realty
And Development Corporation, over the property subject of this case and now
registered in its name as owner thereof, under TCT No. 85569 of the Register of
Deeds of Rizal, situated at No. 56 Dragonfly Street, Valle Verde VI, Pasig, Metro
Manila.
Consequently, defendants are hereby ordered to cease and desist from further
committing acts of dispossession or from withholding possession from plaintiff, of
the said property as herein described and specified.
Claim for damages in all its forms, however, including attorneys fees, are hereby
[8]
denied, no competent proofs having been adduced on record, in support thereof.
Respondent spouses appealed to the Court of Appeals which reversed the
decision of the trial court and dismissed the complaint against them. The appellate
court ruled that the Regional Trial Court had no jurisdiction over the case because it
was actually an action for unlawful detainer which is exclusively cognizable by
municipal trial courts. Furthermore, it ruled that, even presuming jurisdiction of the
trial court, the deed of sale was void for being in fact a pactum
commissorium which is prohibited by Art. 2088 of the Civil Code.
Petitioner A. Francisco Realty filed a motion for reconsideration, but the Court
of Appeals denied the motion in its resolution, dated May 7, 1996. Hence, this
petition for review on certiorari raising the following issues:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE REGIONAL
TRIAL COURT HAD NO JURISDICTION OVER THE COMPLAINT FILED BY THE
PETITIONER.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE
CONTRACTUAL DOCUMENTS SUBJECT OF THE INSTANT CASE ARE CONSTITUTIVE
OF PACTUM COMMISSORIUM AS DEFINED UNDER ARTICLE 2088 OF THE CIVIL CODE
OF THE PHILIPPINES.
On the first issue, the appellate court stated:
Ostensibly, the cause of action in the complaint indicates a case for unlawful
detainer, as contra-distinguished from accion publiciana. As contemplated by Rule
70 of the Rules of Court, an action for unlawful detainer which falls under the
exclusive jurisdiction of the Metropolitan or Municipal Trial Courts, is defined as

withholding from by a person from another for not more than one year, the
possession of the land or building to which the latter is entitled after the expiration
or termination of the supposed rights to hold possession by virtue of a contract,
express or implied. (Tenorio vs. Gamboa, 81 Phil. 54; Dikit vs. Dicaciano, 89 Phil.
44). If no action is initiated for forcible entry or unlawful detainer within the
expiration of the 1 year period, the case may still be filed under the plenary action
to recover possession byaccion publiciana before the Court of First Instance (now
the Regional Trial Court) (Medina vs. Valdellon, 63 SCRA 278). In plain language, the
case at bar is a legitimate ejectment case filed within the 1 year period from the
jurisdictional demand to vacate. Thus, the Regional Trial Court has no jurisdiction
over the case. Accordingly, under Section 33 of B.P. Blg. 129 Municipal Trial Courts
are vested with the exclusive original jurisdiction over forcible entry and unlawful
[9]
detainer case. (Sen Po Ek Marketing Corp. vs. CA, 212 SCRA 154 [1990])
We think the appellate court is in error. What really distinguishes an action
for unlawful detainer from a possessory action (accion publiciana) and from a
reivindicatory action (accion reivindicatoria)is that the first is limited to the question
of possession de facto.
An unlawful detainer suit (accion interdictal) together with forcible entry are the
two forms of an ejectment suit that may be filed to recover possession of real
property. Aside from the summary action of ejectment, accion publiciana or the
plenary action to recover the right of possession and accion reivindicatoria or the
action to recover ownership which includes recovery of possession, make up the
three kinds of actions to judicially recover possession.
Illegal detainer consists in withholding by a person from another of the possession
of a land or building to which the latter is entitled after the expiration or
termination of the formers right to hold possession by virtue of a contract, express
or implied. An ejectment suit is brought before the proper inferior court to recover
physical possession only or possession de facto and not possession de jure, where
dispossession has lasted for not more than one year. Forcible entry and unlawful
detainer are quieting processes and the one-year time bar to the suit is in
pursuance of the summary nature of the action. The use of summary procedure in
ejectment cases is intended to provide an expeditious means of protecting actual
possession or right to possession of the property. They are not processes to
determine the actual title to an estate. If at all, inferior courts are empowered to
rule on the question of ownership raised by the defendant in such suits, only to
resolve the issue of possession. Its determination on the ownership issue is,
[10]
however, not conclusive.

3
The allegations in both the original and the amended complaints of
petitioner before the trial court clearly raise issues involving more than the
question of possession, to wit: (a) the validity of the transfer of ownership to
petitioner; (b) the alleged new liability of private respondents for P400,000.00 a
month from the time petitioner made its demand on them to vacate; and (c) the
alleged continuing liability of private respondents under both loans to pay interest
and surcharges on such. As petitioner A. Francisco Realty alleged in its amended
complaint:
5. To secure the payment of the sum of P7.5 Million together with the
monthly interest, the defendant spouses agreed to execute a Deed of
Mortgage over the property with the express condition that if and when
they fail to pay monthly interest or any infringement thereof they agreed
to convert the mortgage into a Deed of Absolute Sale in favor of the
plaintiff by executing Deed of Sale thereto, copy of which is hereto
attached and incorporated herein as Annex A;
6. That in order to authorize the Register of Deeds into registering the
Absolute Sale and transfer to the plaintiff, defendant delivered unto the
plaintiff the said Deed of Sale together with the original owners copy of
Transfer Certificate of Title No. 58748 of the Registry of Rizal, copy of
which is hereto attached and made an integral part herein as Annex B;
7. That defendant spouses later secured from the plaintiff an additional
loan of P2.5 Million with the same condition as aforementioned with 4%
monthly interest;
8. That defendants spouses failed to pay the stipulated monthly interest
and as per agreement of the parties, plaintiff recorded and registered
the Absolute Deed of Sale in its favor on and was issued Transfer
Certificate of Title No. PT-85569, copy of which is hereto attached
and incorporated herein as Annex C;
9. That upon registration and transfer of the Transfer Certificate of Title
in the name of the plaintiff, copy of which is hereto attached and
incorporated herein as Annex C, plaintiff demanded the surrender of
the possession of the above-described parcel of land together with the
improvements thereon, but defendants failed and refused to surrender
the same to the plaintiff without justifiable reasons thereto; Neither did
the defendants pay the interest of 4% a month from May, 1992 plus
surcharges up to the present;
10. That it was the understanding of the parties that if and when the
defendants shall fail to pay the interest due and that the Deed of Sale be

registered in favor of plaintiff, the defendants shall pay a monthly rental

of P400,000.00 a month until they vacate the premises, and that if they
still fail to pay as they are still failing to pay the amount of P400,000.00 a
month as rentals and/or interest, the plaintiff shall take physical
[11]
possession of the said property;
It is therefore clear from the foregoing that petitioner A. Francisco Realty
raised issues which involved more than a simple claim for the immediate possession
of the subject property. Such issues range across the full scope of rights of the
respective parties under their contractual arrangements. As held in an analogous
case:
The disagreement of the parties in Civil Case No. 96 of the Justice of the Peace of
Hagonoy, Bulacan extended far beyond the issues generally involved in unlawful
detainer suits. The litigants therein did not raise merely the question of who among
them was entitled to the possession of the fishpond of Federico Suntay. For all
judicial purposes, they likewise prayed of the court to rule on their respective rights
under the various contractual documents their respective deeds of lease, the
deed of assignment and the promissory note upon which they predicate their
claims to the possession of the said fishpond. In other words, they gave the court
no alternative but to rule on the validity or nullity of the above documents. Clearly,
the case was converted into the determination of the nature of the proceedings
from a mere detainer suit to one that is incapable of pecuniary estimation and
[12]
thus beyond the legitimate authority of the Justice of the Peace Court to rule on.
Nor can it be said that the compulsory counterclaim filed by respondent
spouses challenging the title of petitioner A. Francisco Realty was merely a
collateral attack which would bar a ruling here on the validity of the said title.
A counterclaim is considered a complaint, only this time, it is the original defendant
who becomes the plaintiff (Valisno v. Plan, 143 SCRA 502 (1986). It stands on the
same footing and is to be tested by the same rules as if it were an independent
action. Hence, the same rules on jurisdiction in an independent action apply to a
counterclaim (Vivar v. Vivar, 8 SCRA 847 (1963); Calo v. Ajax International, Inc. v. 22
SCRA 996 (1968); Javier v. Intermediate Appellate Court, 171 SCRA 605 (1989);
[13]
Quiason, Philippine Courts and Their Jurisdictions, 1993 ed., p. 203).
On the second issue, the Court of Appeals held that, even on the assumption
that the trial court has jurisdiction over the instant case, petitioners action could
not succeed because the deed of sale on which it was based was void, being in the

4
nature of a pactum commissorium prohibited by Art. 2088 of the Civil Code which
provides:
ART. 2088. The creditor cannot appropriate the things given by way to pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
With respect to this question, the ruling of the appellate court should be
affirmed. Petitioner denies, however, that the promissory notes contain a pactum
commissorium. It contends that
What is envisioned by Article 2088 of the Civil Code of the Philippines is a provision
in the deed of mortgage providing for the automatic conveyance of the mortgaged
property in case of the failure of the debtor to pay the loan (Tan v. West Coast Life
Assurance Co., 54 Phil. 361). A pactum commissorium is a forfeiture clause in a
deed of mortgage (Hechanova v. Adil, 144 SCRA 450; Montevergen v. Court of
Appeals, 112 SCRA 641; Report of the Code Commission, 156).
Thus, before Article 2088 can find application herein, the subject deed of mortgage
must be scrutinized to determine if it contains such a provision giving the creditor
the right to appropriate the things given by way of mortgage without following the
procedure prescribed by law for the foreclosure of the mortgage (Ranjo v. Salmon,
15 Phil. 436). IN SHORT, THE PROSCRIBED STIPULATION SHOULD BE FOUND IN
[14]
THE MORTGAGE DEED ITSELF.
The contention is patently without merit. To sustain the theory of petitioner
would be to allow a subversion of the prohibition in Art. 2088.
[15]

In Nakpil v. Intermediate Appellate Court, which involved the violation of a

constructive trust, no deed of mortgage was expressly executed between the
parties in that case. Nevertheless, this Court ruled that an agreement whereby
property held in trust was ceded to the trustee upon failure of the beneficiary to
pay his debt to the former as secured by the said property was void for being
a pactum commissorium. It was there held:
The arrangement entered into between the parties, whereby Pulong Maulap was to
be considered sold to him (respondent) x x x in case petitioner fails to reimburse
Valdes, must then be construed as tantamount to a pactum commissorium which is
expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic
appropriation of the property by Valdez in the event of failure of petitioner to pay
the value of the advances. Thus, contrary to respondents manifestations, all the
elements of a pactum commissorium were present: there was a creditor-debtor

relationship between the parties; the property was used as security for the loan;
and, there was automatic appropriation by respondent of Pulong Maulap in case of
[16]
default of petitioner.
Similarly, the Court has struck down such stipulations as contained in deeds of
sale purporting to be pacto de retro sales but found actually to be equitable
mortgages.
It has been consistently held that the presence of even one of the circumstances
enumerated in Art. 1602 of the New Civil Code is sufficient to declare a contract of
sale with right to repurchase an equitable mortgage. This is so because pacto de
retro sales with the stringent and onerous effects that accompany them are not
favored. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
Petitioner, to prove her claim, cannot rely on the stipulation in the contract
providing that complete and absolute title shall be vested on the vendee should the
vendors fail to redeem the property on the specified date. Such stipulation that the
ownership of the property would automatically pass to the vendee in case no
redemption was effected within the stipulated period is void for being a pactum
commissorium which enables the mortgagee to acquire ownership of the
mortgaged property without need of foreclosure. Its insertion in the contract is an
[17]
avowal of the intention to mortgage rather that to sell the property.
[18]

Indeed, in Reyes v. Sierra this Court categorically ruled that a mortgagees

mere act of registering the mortgaged property in his own name upon the
mortgagors failure to redeem the property amounted to the exercise of the
privilege of a mortgagee in a pactum commissorium.
Obviously, from the nature of the transaction, applicants predecessor-in-interest is
a mere mortgagee, and ownership of the thing mortgaged is retained by Basilia
Beltran, the mortgagor. The mortgagee, however, may recover the loan, although
the mortgage document evidencing the loan was nonregistrable being a purely
private instrument. Failure of mortgagor to redeem the property does not
automatically vest ownership of the property to the mortgagee, which would grant
the latter the right to appropriate the thing mortgaged or dispose of it. This
violates the provision of Article 2088 of the New Civil Code, which reads:
The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose by them. Any stipulation to the contrary is null and void.

5
The act of applicant in registering the property in his own name upon mortgagors
failure to redeem the property would amount to a pactum commissorium which is
[19]
against good morals and public policy.
Thus, in the case at bar, the stipulations in the promissory notes providing
that, upon failure of respondent spouses to pay interest, ownership of the property
would be automatically transferred to petitioner A. Francisco Realty and the deed
of sale in its favor would be registered, are in substance a pactum
commissorium. They embody the two elements of pactum commissorium as laid
[20]
down in Uy Tong v. Court of Appeals, to wit:
The prohibition on pactum commissorium stipulations is provided for by Article
2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgagee, or dispose of the same. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to
exist: (1) that there should be a pledge or mortgage wherein a property is pledged
or mortgaged by way of security for the payment of the principal obligation; and (2)
that there should be a stipulation for an automatic appropriation by the creditor of
the thing pledged or mortgaged in the event of non-payment of the principal
[21]
obligation within the stipulated period.
The subject transaction being void, the registration of the deed of sale, by
virtue of which petitioner A. Francisco Realty was able to obtain TCT No. PT-85569
covering the subject lot, must also be declared void, as prayed for by respondents in
their counterclaim.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED, insofar as it
dismissed petitioners complaint against respondent spouses on the ground that
the stipulations in the promissory notes are void for being a pactum
commissorium, but REVERSED insofar as it ruled that the trial court had no
jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED
to CANCEL TCT No. PT-85569 issued to petitioner and ISSUE a new one in the name
of respondent spouses.
SO ORDERED.

FIRST DIVISION
G.R. No. L-28658 October 18, 1979
VICENTE C. REYES, applicant-appellee,
vs.
FRANCISCO SIERRA, EMILIO SIERRA, ALEJANDRA SIERRA, FELIMON SIERRA,
AURELIO SIERRA, CONSTANCIO SIERRA, CIRILO SIERRA and ANTONIA
SANTOS, oppositors-appellants.

DE CASTRO, J.:
Appeal from the decision dated December 29, 1966 of the Court of First Instance of
Rizal Branch 1, Pasig, which declared applicant Vicente Reyes the true and rightful
owner of the land covered by Plan Psu-189753 and ordered the registration of his
title thereto.
On January 3, 1961, Vicente Reyes filed an application for registration of his title to
a parcel of land situated in Antipolo, Rizal and covered by Plan Psu-189753 of the
Bureau of Lands. In his application, he declared that he acquired the land by
inheritance from his father who died sometime in 1944. Applicant is one of the
heirs of the deceased Vicente Reyes Sr. but the other heirs executed a deed of quit
claim in favor of the applicant.
The notice of initial hearing was published in the Official Gazette, and a copy
thereof was posted in a conspicuous place in the land in question and in the
municipal building of Antipolo, Rizal. An opposition was filed by the Director of
Lands, Francisco Sierra and Emilio Sierra. An Order of General Default was issued on
June 28, 1962. A motion to set aside an interlocutory default order was filed by
Alejandra, Felimon, Aurelio, Apolonio, Constancio, Cirilo, all surnamed Sierra and
Antonia Santos, thru counsel, and the trial court issued an Order on February 4,
1966 amending the general order of default so as to include the aforementioned
movants as oppositors.
The case was set for hearing, and after trial the court rendered a decision, the
dispositive portion of which reads as follows:

Republic of the Philippines

SUPREME COURT
Manila

6
IN VIEW OF THE ABOVE CONSIDERATIONS this Court declares
Vicente Reyes the true and rightful owner of the land covered by
Plan, Psu-189753 and orders the registration of his title thereto,
provided that the title to be issued shall be subject to a public
easement of right of-way over a 2.00 meter-wide strip of the land
along Lucay Street for the latter's widening and improvement.
As soon as this decision is final let, the corresponding degree be
issued in favor of VICENTE REYES, widower, Pilipino, of legal age
and resident of 1851 P. Guevarra Street, Santa Cruz, Manila. (P.
25, Record on Appeal).
Oppositors appealed from the aforesaid decision, with the following assignment of
errors:
I
THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT
ARTICLES 1134 AND 1137 OF THE NEW CIVIL CODE ARE
APPLICABLE TO THIS INSTANT CASE ALTHOUGH THERE WAS NO
FORECLOSURE OR SALE OF THE PROPERTY TO THE HIGHEST
BIDDER.
II
THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT
APPLICANT-APPELLEE AND HIS PREDECESSOR-IN-INTEREST HAD
BEEN IN CONSTRUCTIVE POSSESSION OF THE LAND FROM APRIL
19, 1926 UP TO THE PRESENT AS SHOWING BY THE FACT THAT
THEY HAD PAID THE REALTY TAXES.

CORROBORATING EVIDENCE OF APPLICANT'S ADVERSE

POSSESSION.
IV
THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT
DOCUMENT EXH. "D" EXECUTED BY BASILIA BELTRAN IN 1926
WAS ALREADY A CONVEYANCE OF THE LAND I N QUESTION TO
VICENTE REYES AND THE FAILURE OF BASILIA BELTRAN AND HER
CHILDREN TO REDEEM THE SAME, COULD BE CONSIDERED AS IF
THE LAND HAD ALREADY BEEN SOLD TO HIM. (p. 2 1, Rollo.)
The land applied for was originally owned by Basilia Beltran's parents, and upon
their death in 1894, Basilia inherited the property. On April 19, 1926, Basilia Beltran,
a widow, borrowed from applicant's father, Vicente Reyes, Sr. the amount of
P100.00 and secured the loan with the piece of land in question, AS evidenced by
exhibit "D" quoted hereunder:
SA KAALAMAN NANG LAHAT NA BUMASA AT
NAKAKITA NITONG KASULATAN:
Kaming mag-kakapatid may sapat na gulang na nakalagda Sa
kasulatan ito, bilang katibayan nang pag papahintulot sa aming
Ina na si Bacilia Beltran na ipananagutan kay G. Vicente Reyes sa
inutang ha halagang isang daan piso (P100.00) na walang
anopamang pakinabang; ang isang lagay na lupa sa kallehon
Sukay, Antipolo, Rizal, naliligiran nang mga lupang may titulo
Torrents, expendientes Nos. 770, 1831, lote 1, 645 at 1839 lote 2,
may kabu-uan humigit kumulang sa apat na raan metro; ito'y
aring naiwan ng ama naming namatay na si Melecio Sierra.

III
THE LOWER COURT ERRED IN BELIEVING AND HOLDING THAT
BECAUSE OPPOSITORS-APPELLANTS AND THEIR PREDECESSORSIN-INTEREST HAD NOT TAKEN ANY ACTIVE INTEREST TO PAY
REALTY TAXES SINCE 1926 AND IT WAS APPLICANT- APPELLEE
AND HIS PREDECESSOR-IN-INTEREST THAT PAID THE REALTY
'TAXES FROM THE SAME PERIOD, THIS CONSTITUTES STRONG

Ang katotohanan kahit isangla o ipag-bile man ng tuluyan ang

nasabing pag-aaral' o lupa wala kaming kinalaman, sapagkat
ipinauubaya nang lubusan sa arming Ina ang kapamahalaan.
Sa katunayan nagsilagda kaming mga anak, at apo kay Esteban, sa
harap nang saksing magpapatotoo.
Ngayon ika 19 nang Abril nang 1926. Antipolo, Rizal. K.P.

7
Applicant, in seeking the registration
L
of the land, relied on his belief that the
property belongs to his father who
a bought the same from Basilia Beltran, as borne
out by his testimony during thegtrial on direct examination.
d
a Q. Mr. Reyes, do you claim to be the owner of
this property included or described in your
n application?
i
A Yes, sir.
B
a
c
i
l
i
a
B
e
l
t
r
a
G
r
e
g
o
r
i

Q How did you acquire this property'?

A. Since 1926 we were the ones paying the land
taxes.
Q. From whom did you acquire this property?
A. Basilia Beltran.
Q. Do you mean to say that you yourself bought
this property.
A. My father was the one who bought the
property.
Q. What is the name of your father?
A. Vicente C. Reyes.
Q. Where is he now?

Saksi:

A. He is already dead.

-------------------------

Q. Can you inform this Honorable Court, if you

know, how your father acquired this property?

-------------------------

A. Since 1926 my father bought that land.

Since the execution of this document, Vicente Reyes, Sr. began paying the realty
taxes up to the time of his death in 1944, after which, his children continued paying
the taxes. Basilia Beltran died in 1938 before Reyes could recover from the loan.

8
Q. Was that transaction evidenced by a
document?
A. Yes, there is a document.
Q. From whom did your father allegedly
purchase the property?
A. Basilia Beltran.
From the above-quoted testimony of applicant, it is evident that he considered the
document marked Exhibit "D as contract of Sale and not as a mortgage. Oppositors
contended that the words "isinangla," "na ipananagutan sa inutang na halagang
isang daang piso," "Kahit isangla o ipagbili," etc., manifest that the document
should be treated as a mortgage, antichresis, or pactum commission and not as an
absolute sale or pacto de retro sale. (p. 28, Brief, Oppositors-Appellants).
The Court is of the opinion that Exhibit "D" is a mortgage contract. The intention of
the parties at the time of the execution of the contract must prevail, that is, the
borrowing and lending of money with security. The use of the word Debt (utang) in
an agreement helps to point out that the transaction was intended to be a loan
with mortgage, because the term "utang" implies the existence of a creditor-debtor
relationship. The ' Court has invariably upheld the validity of an agreement or
understanding whereby the lender of money has taken a deed to the land as
security for repayment of the loan. Thus:
The fact that the real transaction between the parties was a
borrowing and lending, will, whenever, or however, it may
appear, show that a deed, absolute on its face was intended as a
security for money; and whenever it can be ascertained to be a
security for money, it is only a mortgage, however artfully it may
be disguised. (Villa vs. Santiago, 38 Phil. 163).
The whole case really turns on the question of whether the
written instrument in controversy was a mortgage or a
conditional sale. ... The real intention of the parties at the time
the written instrument was made must concern in the
interpretation given to it by the courts. ... The correct test, where
it can be applied, is the continued existence of a debt or liability
between the parties. If such exists, the conveyance may be held to

be merely a security for the debt or an indemnity against the

liability. (Cuyugan vs. Santos, 34 Phil. 112).
The Cuyugan Case quoted some provisions in Jones' Commentaries on Evidence,
vol. 3, paragraphs 446-447 which are likewise applicable to the facts of the case at
bar:
446. To show that instruments apparently absolute are only
securities. ... It is an established doctrine that a court of equity will
treat a deed, absolute in form, as a mortgage, when it is executed
as security for loan of money, The court looks beyond the terms
of the instrument to the real transaction; and when that is shown
to be one of security and not of sale, it will give effect to the
actual contract of the parties.
447. Same-Real intention of the parties to be ascertained ... As we
have shown in the preceding section, the intention of the
parties must govern and it matters not what peculiar form the
transaction may have taken. The inquiry always is, Was a security
for the loan of money or other property intended? ... A debt
owing to the mortgagee, or a liability incurred for the grantor,
either pre-existing or created at the time the deed is made, is
essential to give the deed the character of a mortgage. The
relation of debtor and creditor must appear. The existence of the
debt is one on the tests. ... In construing the deed to be a
mortgage, its character as such must have existed from its very
inception, - created at the time the conveyance was made.
The same principle was laid down in a later case, that of Macapinlac vs. Gutierrez
Rapide, 43 Phil. 781, quoting 3 Pomeroy's Equity Jurisdiction, Section .1195,
wherein it was stated:
... The doctrine has been firmly established from an early day that
when the character of a mortgage has attached at the
commencement of the transaction, so that the instrument,
whatever be its form, is regarded in equity as a mortgage, that
character of mortgage must and will always continue. If the
instrument is in its essence a mortgage, the parties cannot by any
stipulations, however express and positive, render it anything but
a mortgage or deprive it of the essential attributes belonging to a
mortgage in equity.

9
Concerning the legal effects of such contract, Pomeroy observes:
... Whenever a deed absolute on its face is thus treated as a
mortgage, the parties are clothed with all the rights, are subject to
all liabilities, and are entitled to all the remedies of ordinary
mortgagors and mortgagees. The grantee may maintain an action
for the foreclosure of the grantor equity of redemption; the
grantor may maintain an action to redeem and to compel a
reconvayance upon his payment of the debt secured. If the
grantee goes into possession, and as such is liable to account for
the rents and profits.
Obviously, from the nature of the transaction, applicant's predecessor-in-interest is
a mere mortgagee, and ownership of the thing mortgaged is retained by Basilia
Beltran, the mortgagor. The mortgagee, however, may recover the loan, although
the mortgage document evidencing the loan was non-registrable being a purely
private instrument. Failure of mortgagor to redeem the property does not
automatically vest ownership of the property to the mortgagee, which would grant
the latter the right to appropriate the thing mortgaged or dispose of it. This violates
the provision of Article 2088 of the New Civil Code, which reads:
The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose by them. Any stipulation to the contrary
is null and void.
The act of applicant in registering the property in his own name upon mortgagor's
failure to redeem the property would amount to a pactum commissorium which is
against good morals and public policy.
In declaring applicant as the "true and rightful owner of the land in question," the
trial court held that applicant and his predecessor-in- interest acquired ownership
over the property by means of prescription having been in constructive possession
of the land applied for since 1926, applying Arts, 1134 and 1137 of the New Civil
Code:
Art. 1134. - Ownership and other real rights over immovable
property are acquired by ordinary prescription through possession
of ten years.

Art. 1137. - Ownership and other real rights over immovables also
prescribe through uninterrupted adverse possession thereof for
thirty years, without need of title or good faith.
Applicant in his testimony on cross-examination, admitted that he and his father did
not take possession of the property but only made use of the same for the purpose
of spending vacation there, which practice they discontinued for the last 23 years.
Possession of the property must. be in the concept of an owner. This is a
fundamental principle of the law of prescription in this jurisdiction. In the case at
bar, the possession of applicant was not adverse, nor continuous.
An applicant for registration of title must prove his title and should not rely on the
absence or weakness of the evidence of the oppositors. For purposes of
prescription, there is just title when adverse claimant came into possession of the
property through one of the modes recognized by law for the acquisition of
ownership (Art. 1129, New Civil Code). Just title must be proved and is never
presumed (Art. 1131, New Civil Code). Mortgage does not constitute just title on
the part of the mortgagee. since ownership is retained by the mortgagor. When
possession is asserted to convert itself into ownership, a new right is sought to be
created, and the law becomes more exacting and requires positive proof of title.
Applicant failed to present sufficient evidence to prove that he is entitled to register
the property. The trial court's finding that since applicant and his father had been
continuously paying the realty taxes, that fact "constitutes strong corroborating
evidence of applicant's adverse possession," does not carry much weight. Mere
failure of the owner to pay the taxes does not warrant a conclusion that there was
abandonment of a right to the property. The payment of taxes on property does not
alone constitute sufficient evidence of title. (Elumbaring vs. Elumbaring, 12 Phil.
389)
The belief of applicant that he owns the property in question which he inherited
from his father cannot overthrow the fact that the transaction is a mortgage. The
doctrine "once a mortgage always a mortgage" has been firmly established
whatever be its form. (Macapinlac vs. Gutierrez Rapide, supra) The parties cannot
by any stipulation, however express and positive, render it anything but a
mortgage. No right passes to applicant except that of a mortgage since one cannot
acquire a right from another who was not in possession thereof A derivative right
cannot rise higher than its source.
Applicant having failed to show by sufficient evidence a registrable title to the land
in question, the application for registration should be dismissed.

10
WHEREFORE, the decision appealed from is hereby set aside, and let another one
be entered ordering the registration of the title of the land in question in the name
of the oppositors- appellants. The said oppositors-appellants are hereby directed to
pay the applicant- appellee within ninety (90) days from the finality of this decision,
the debt in the amount of P100.00 plus interest at the rate of six per cent (6%) per
annum from April 19, 1926 until paid. No pronouncement as to costs.

leasehold right for ninety- nine (99) years over the land on which the building
stands. The land is registered in the name of Ligaya Investments, Inc. as evidenced
by Transfer Certificate of Title No. 79420 of the Registry of Deeds of the City of
Manila. It appears that Ligaya Investments, Inc. owned the building which houses
the apartment units but sold Apartment No. 307 and leased a portion of the land in
which the building stands to the SPOUSES.

SO ORDERED.

In February, 1969, the SPOUSES purchased from private respondent Bayanihan

Automotive, Inc. (BAYANIHAN) seven (7) units of motor vehicles for a total amount
of P47,700.00 payable in three (3) installments. The transaction was evidenced by a
written "Agreement" wherein the terms of payment had been specified as follows:

Republic of the Philippines

SUPREME COURT
Manila
THIRD DivISION
G.R. No. 77465 May 21, 1988
SPOUSES UY TONG & KHO PO GIOK, petitioners,
vs.
HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO, Judge of
the Court of First Instance of Manila, Branch XXXVII and BAYANIHAN
AUTOMOTIVE CORPORATION, respondents.
Platon A. Baysa for petitioner.
Manuel T. Ybarra for respondents.

CORTES, J.:
In the present petition, petitioners assail the validity of a deed of assignment over
an apartment unit and the leasehold rights over the land on which the building
housing the said apartment stands for allegedly being in the nature of a pactum
commissorium.

That immediately upon signing of this Agreement, the VENDEE

shall pay unto the VENDOR the amount of Seven Thousand Seven
Hundred (P7,000.00) Pesos, Philippine Currency, and the amount
of Fifteen Thousand (P15,000.00) Pesos shah be paid on or before
March 30, 1969 and the balance of Twenty Five Thousand
(P25,000.00) Pesos shall be paid on or before April 30, 1969, the
said amount again to be secured by another postdated check with
maturity on April 30, 1969 to be drawn by the VENDEE;
That it is fully understood that should the two (2) aforementioned
checks be not honored on their respective maturity dates, herein
VENDOR will give VENDEE another sixty (60) days from maturity
dates, within which to pay or redeem the value of the said checks;
That if for any reason the VENDEE should fail to pay her
aforementioned obligation to the VENDOR,the latter shall become
automatically the owner of the former's apartment which is
located at No. 307, Ligaya Building, Alvarado St., Binondo, Manila,
with the only obligation on its part to pay unto the VENDEE the
amount of Three Thousand Five Hundred Thirty Five (P3,535.00)
Pesos, Philippine Currency; and in such event the VENDEE shall
execute the corresponding Deed of absolute Sale in favor of the
VENDOR and or the Assignment of Leasehold Rights. [emphasis
supplied]. (Quoted in Decision in Civil Case No. 80420, Exhibit "A"
of Civil Case No. 1315321].

The facts are not disputed.

Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to
be the owners of Apartment No. 307 of the Ligaya Building, together with the

After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance
of P40,000.00. Due to these unpaid balances, BAYANIHAN filed an action for specific

11
performance against the SPOUSES docketed as Civil Case No. 80420 with the Court
of First Instance of Manila.
On October 28, 1978, after hearing, judgment was rendered in favor of BAYANIHAN
in a decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the
defendants, jointly and severally, to pay the plaintiffs, the sum of
P40,000.00, with interest at the legal rate from July 1, 1970 until
full payment.In the event of their failure to do so within thirty (30)
days from notice of this judgment, they are hereby ordered to
execute the corresponding deed of absolute sale in favor of the
plaintiff and/or the assignment of leasehold rights over the
defendant's apartment located at 307 Ligaya Building, Alvarado
Street, Binondo, Manila, upon the payment by the plaintiff to the
defendants of the sum of P3,535.00. [emphasis supplied].
Pursuant to said judgment, an order for execution pending appeal was issued by the
trial court and a deed of assignment dated May 27, 1972, was executed by the
SPOUSES [Exhibit "B", CFI Records, p. 127] over Apartment No. 307 of the Ligaya
Building together with the leasehold right over the land on which the building
stands. The SPOUSES acknowledged receipt of the sum of P3,000.00 more or less,
paid by BAYANIHAN pursuant to the said judgment.
Notwithstanding the execution of the deed of assignment the SPOUSES remained in
possession of the premises. Subsequently, they were allowed to remain in the
premises as lessees for a stipulated monthly rental until November 30,1972.
Despite the expiration of the said period, the SPOUSES failed to surrender
possession of the premises in favor of BAYANIHAN. This prompted BAYANIHAN to
file an ejectment case against them in the City Court of Manila docketed as Civil
Case No. 240019. This action was however dismissed on the ground that
BAYANIHAN was not the real party in interest, not being the owner of the building.
On February 7, 1979, after demands to vacate the subject apartment made by
BAYANIHAN's counsel was again ignored by the SPOUSES, an action for recovery of
possession with damages was filed with the Court of First Instance of Manila,
docketed as Civil Case No. 121532 against the SPOUSES and impleading Ligaya
Investments, Inc. as party defendant. On March 17, 1981, decision in said case was
rendered in favor of BAYANIHAN ordering the following:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

and against the defendants spouses UY TONG and KHO GIOK and
defendant Ligaya Investment, Inc., dismissing defendants'
counterclaim and ordering:
1. The defendants spouses UY TONG and KHO PO GIOK and any
andlor persons claiming right under them, to vacate, surrender
and deliver possession of Apartment 307, Ligaya Building, located
at 64 Alvarado Street, Binondo, Manila to the plaintiff;
2. Ordering defendant Ligaya Investment, Inc. to recognize the
right of ownership and possession of the plaintiff over Apartment
No. 307, Ligaya Building;
3. Ordering Ligaya Investment, Inc. to acknowledge plaintiff as
assignee-lessee in liue of defendants spouses Uy Tong and Kho Po
Giok over the lot on which the building was constructed;
4. Ordering the defendants spouses Uy Tong and Kho Po Giok to
pay to the plaintiff the sum of P200.00 commencing from June,
1971 to November 30, 1972, or a total amount of P3,400.00 as
rental for the apartment, and the sum of P200.00 from December
1, 1972 until the premises are finally vacated and surrendered to
the plaintiff, as reasonable compensation for the use of the
apartment; and
5. Ordering the defendants spouses Uy Tong and Kho Po Giok to
pay P3,000.00 as and for attorney's fees to the plaintiff, and the
costs of this suit.
Not satisfied with this decision, the SPOUSES appealed to the Court of Appeals. On
October 2,1984, the respondent Court of Appeals affirmed in toto the decision
appealed from [Petition, Annex "A", Rollo, pp. 15-20]. A motion for reconsideration
of the said decision was denied by the respondent Court in a resolution dated
February 11, 1987 [Petition, Annex "C", Rollo, pp. 31- 34].
Petitioners-SPOUSES in seeking a reversal of the decision of the Court of Appeals
rely on the following reasons:

12
I. The deed of assignment is null and void because it is in the
nature of a pactum commissoriumand/or was borne out of the
same.
II. The genuineness and due Prosecution of the deed of
assignment was not deemed admitted by petitioner.
III. The deed of assignment is unenforceable because the
condition for its execution was not complied with.
IV. The refusal of petitioners to vacate and surrender the premises
in question to private respondent is justified and warranted by
the circumstances obtaining in the instant case.
I. In support of the first argument, petitioners bring to the fore the contract entered
into by the parties whereby petitioner Kho Po Giok agreed that the apartment in
question will automatically become the property of private respondent BAYANIHAN
upon her mere failure to pay her obligation. This agreement, according to the
petitioners is in the nature of a pactum commissorium which is null and void, hence,
the deed of assignment which was borne out of the same agreement suffers the
same fate.
The prohibition on pactum commissorium stipulations is provided for by Article
2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of the same. Any
stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to
exist: (1) that there should be a pledge or mortgage wherein a property is pledged
or mortgaged by way of security for the payment of the principal obligation; and (2)
that there should be a stipulation for an automatic appropriation by the creditor of
the thing pledged or mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
A perusal of the terms of the questioned agreement evinces no basis for the
application of the pactum commissorium provision. First, there is no indication of
'any contract of mortgage entered into by the parties. It is a fact that the parties
agreed on the sale and purchase of trucks.

Second, there is no case of automatic appropriation of the property by BAYANIHAN.

When the SPOUSES defaulted in their payments of the second and third
installments of the trucks they purchased, BAYANIHAN filed an action in court for
specific performance. The trial court rendered favorable judgment for BAYANIHAN
and ordered the SPOUSES to pay the balance of their obligation and in case of
failure to do so, to execute a deed of assignment over the property involved in this
case. The SPOUSES elected to execute the deed of assignment pursuant to said
judgment.
Clearly, there was no automatic vesting of title on BAYANIHAN because it took the
intervention of the trial court to exact fulfillment of the obligation, which, by its
very nature is ". . anathema to the concept of pacto commissorio" [Northern
Motors, Inc. v. Herrera, G.R. No. L-32674, February 22, 1973, 49 SCRA 392]. And
even granting that the original agreement between the parties had the badges
of pactum commissorium, the deed of assignment does not suffer the same fate as
this was executed pursuant to a valid judgment in Civil Case No. 80420 as can be
gleaned from its very terms and conditions:
DEED OF ASSIGNMENT
KNOW ALL MEN BY THESE PRESENTS:
This deed made and entered into by Uy Tiong also known as
Henry Uy and Kho Po Giok, both of legal age, husband and wife,
respectively, and presently residing at 307 Ligaya Bldg., Alvarado
St., Binondo, Manila, and hereinafter to be known and called as
the ASSIGNORS, in favor of Bayanihan Automotive Corporation,
an entity duly organized and existing under the laws of the
Philippines, with principal business address at 1690 Otis St., Paco,
Manila and hereinafter to be known and called the ASSIGNEE;
-witnessethWHEREAS, the ASSIGNEE has filed a civil complaint for "Specific
Performance with Damages" against the ASSIGNORS in the Court
of First Instance of Manila, Branch V, said case having been
docketed as Civil Case No. 80420;
WHEREAS, the ASSIGNEE was able to obtain a judgment against
the ASSIGNOR wherein the latter was ordered by the court as
follows, to wit:

13
WHEREFORE, judgment is hereby rendered
ordering the defendants, jointly and severally to
pay the plaintiff the sum of P40,000.00, with
interest at the legal rate from July 31, 1970 until
full payment. In the event of their failure to do
so within thirty (30) days from notice of this
judgment, they are hereby ordered to execute
the corresponding deed of absolute sale in favor
of the plaintiff and/or the assignment of
leasehold, rights over the defendants'
apartment located at No. 307 Ligaya Building,
Alvarado Street, Binondo, Manila, upon the
payment by the plaintiff to the defendants the
sum of P 3,535.00. The defendants shall pay the
costs.
WHEREAS, the court, upon petition by herein ASSIGNEE and its
deposit of sufficient bond, has ordered for the immediate
execution of the said decision even pending appeal of the
aforesaid decision;
WHEREAS, the ASSIGNORS have elected to just execute the
necessary deed of sale and/or assignment of leasehold rights over
the apartment mentioned in the decision in favor of the herein
ASSIGNEE;
NOW, THEREFORE, for and in consideration of the foregoing
premises, the ASSIGNORS have transferred assigned and ceded,
and by these presents do hereby transfer, assign and cede all their
rights and interests over that place known as Apartment No. 307
at the Ligaya Building which is located at No. 864 Alvarado St.,
Binondo, Manila, together with the corresponding leasehold
rights over the lot on which the said building is constructed, in
favor of the hererein ASSIGNEE, its heirs or assigns.
IN WITNESS WHEREOF, We have hereunto signed our names this
27th day of May, 1971 at Manila, Philippines.
UY TONG/HENRY UY KHO PO GIOK
Assignor Assignor

ACR-2151166 Manila 1/13/51 ACR-C-001620

Manila March 3, 1965
This being the case, there is no reason to impugn the validity of the said deed of
assignment.
II. The SPOUSES take exception to the ruling of the Court of Appeals that their
failure to deny the genuineness and due execution of the deed of assignment was
deemed an admission thereof. The basis for this exception is the SPOUSES'
insistence that the deed of assignment having been borne out of pactum
commissorio is not subject to ratification and its invalidity cannot be waived.
There is no compelling reason to reverse the abovementioned ruling of the
appellate court. Considering this Court's above conclusion that the deed of
assignment is not invalid, it follows that when an action founded on this written
instrument is filed, the rule on contesting its genuineness and due execution must
be followed.
That facts reveal that the action in Civil Case No. 121532 was founded on the deed
of assignment. However, the SPOUSES, in their answer to the complaint, failed to
deny under oath and specifically the genuineness and due execution of the said
deed. Perforce, under Section 8, Rule 8 of the Revised Rules of Court, the SPOUSES
are deemed to have admitted the deed's genuineness and due execution. Besides,
they themselves admit that ". . . the contract was duly executed and that the same
is genuine" [Sur-Rejoinder, Rollo, p. 67]. They cannot now claim otherwise.
III. The SPOUSES also question the enforceability of the deed of assignment. They
contend that the deed is unenforceable because the condition for its execution was
not complied with. What petitioners SPOUSES refer to is that portion of the
disposition in Civil Case No. 80420 requiring BAYANIHAN to pay the former the sum
of P 3,535.00. To buttress their claim of non- compliance, they invoke the following
receipt issued by the SPOUSES to show that BAYANIHAN was P535.00 short of the
complete payment.
RECEIPT
This is to acknowledge the fact that the amount of THREE
THOUSAND (P3,000.00) PESOS, more or less as indicated in the
judgment of the Hon. Conrado Vasquez, Presiding Judge of the

14
Court of First Instance of Manila, Branch V, in Civil Case entitled
"Bayanihan Automotive Corp. v. Pho (sic) Po Giok, etc." and
docketed as Civil Case No. 80420 has been applied for the
payment of the previous rentals of the property which is the
subject matter of the aforesaid judgment. [emphasis supplied.]
August 21, 1971
The issue presented involves a question of fact which is not within this Court's
competence to look into. Suffice it to say that this Court is of the view that findings
and conclusion of the trial court and the Court of Appeals on the question of
whether there was compliance by BAYANIHAN of its obligation under the decision
in Civil Case No. 80420 to pay the SPOUSES the sum of P3,535.00 is borne by the
evidence on record. The Court finds merit in the following findings of the trial court:
... Defendants 'contention that the P 3,535.00 required in the
decision in Civil Case No. 80420 as a condition for the execution of
the deed of assignment was not paid by the plaintiff to the
defendants is belied by the fact that the
defendants acknowledged payment of P3,000.00, more or less, in
a receipt dated August 21, 1971. This amount was expressly
mentioned in this receipt as indicated in the judgment of the
Honorable Conrado Vasquez, presiding Judge of the CFI of Manila,
Branch V, in Civil Case entitled Bayanihan Automotive Corp.
versus Kho Po Giok, docketed as Civil Case No. 80420, and also
expressly mentioned as having been applied for the payment of
the previous rentals of the property subject matter of the said
judgment. Nothing could be more explicit. The contention that
there is still a difference of P535.00 is had to believe because the
spouses Kho Po Giok and Uy Tong executed the deed of
assignment without first demanding from the plaintiff the
payment of P535.00. Indeed, as contended by the plaintiff, for it
to refuse to pay this small amount and thus gave defendants a
reason not to execute the Deed of Assignment. is hard to
believe Defendants further confirm by the joint manifestation of
plaintiff and defendants, duly assisted by counsel, Puerto and
Associates, dated September, 1971, Exhibit "O", wherein it was
stated that plaintiff has fully complied with its obligation to the
defendants caused upon it (sic) by the pronouncement of the
judgment as a condition for the execution of their (sic) leasehold
rights of defendants, as evidenced by the receipt duly executed by

the defendants, and which was already submitted in open court

for the consideration of the sum of P3,535.00. [Emphasis
supplied]. [Decision, Civil Case No. 121532, pp. 3-4].
This Court agrees with private respondent BAYANIHAN's reasoning that inasmuch as
the decision in Civil Case No. 80420 imposed upon the parties correlative
obligations which were simultaneously demandable so much so that if private
respondent refused to comply with its obligation under the judgment to pay the
sum of P 3,535.00 then it could not compel petitioners to comply with their own
obligation to execute the deed of assignment over the subject premises. The fact
that petitioners executed the deed of assignment with the assistance of their
counsel leads to no other conclusion that private respondent itself had paid the full
amount.
IV. Petitioners attempt to justify their continued refusal to vacate the premises
subject of this litigation on the following grounds:
(a) The deed of assingnment is in the nature of a pactum
commissorium and, therefore, null and void.
(b) There was no full compliance by private respondent of the
condition imposed in the deed of assignment.
(c) Proof that petitioners have been allowed to stay in the
premises, is the very admission of private respondent who
declared that petitioners were allowed to stay in the premises
until November 20, 1972. This admission is very significant.
Private respondent merely stated that there was a term-until
November 30, 1972-in order to give a semblance of validity to its
attempt to dispossess herein petitioners of the subject premises.
In short, this is one way of rendering seemingly illegal petitioners
'possession of the premises after November 30, 1972.
The first two classifications are mere reiterations of the arguments presented by
the petitioners and which had been passed upon already in this decision. As regards
the third ground, it is enough to state that the deed of assignment has vested in the
private respondent the rights and interests of the SPOUSES over the apartment unit
in question including the leasehold rights over the land on which the building
stands. BAYANIHAN is therefore entitled to the possession thereof. These are the
clear terms of the deed of assignment which cannot be superseded by bare
allegations of fact that find no support in the record.

15
WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the
Court of Appeals is AFFIRMED in toto.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

. . . if we, the said spouses, Filoteo Pacardo and Severa de

Pacardo, our heirs, assigns, successors-in-interest, executors and
administrators shall and will truly repurchase the above-described
parcel of land from the said Maura Palabrica, her heirs, assigns,
successors-in-interest after THREE YEARS counting from the date
of the execution of this instrument, to wit, on January 27, 1950 in
cash payment in the sum of Five Hundred Pesos, Philippine
currency, plus Four Hundred and Fifty Pesos (P450), also lawful
currency, in cash or eighteen (18) cavans of palay (Provincial
Measurement) at our option, then this sale shall become null and
void and of no force and effect whatsoever. On the contrary, the
same will become irrevocable, definite and final and will vest
1
complete and absolute title on the vendee upon the premises.
The contract of sale with right to repurchase was acknowledged by the vendors
before Notary Public Victorio Tagamolila on the same day the contract was
executed in the Municipality of Passi, Province of Iloilo. The vendors also delivered
to the vendee their owner's copy of the title.

G.R. No. 109696 August 14, 1995

THELMA P. OLEA, petitioner,
vs.
COURT OF APPEALS, ELENA VDA. DE PACARDO, JESUS PALENCIA, ELIZABETH
PALENCIA AND MONSERRAT PACIENTE, respondents.

BELLOSILLO, J.:
This is a petition for review of the decision of the Court of Appeals affirming that of
the court a quo which dismissed the complaint of petitioner for recovery of
possession on the ground that the action had already prescribed and that the deed
of sale with right to repurchase on which petitioner based her claim was an
equitable mortgage.
On 27 January 1947 spouses Filoteo Pacardo and Severa de Pacardo executed a
deed of Sale Con Pacto de Retro over Lot No. 767 of the Passi Cadastre covered by
Transfer Certificate of Title No. 26424 in their name for a consideration of P950.00
in favor of Maura Palabrica, predecessor in interest of petitioner, subject to the
condition that

After the execution of the sale, the Pacardo spouses as vendors remained in
possession of the land and continued the cultivation thereof. Since the sale on 27
January 1947 up to August 1987, or for a period of about 40 years, the spouses
delivered annually one-third (1/3) of the produce of the land to Maura Palabrica
and kept for themselves the remaining two-thirds (2/3).
On 27 January 1950, despite the lapse of three (3) years, the Pacardo spouses did
not repurchase the land but faithfully continued to give 1/3 of the produce to
Maura Palabrica. When the spouses died, their son Filoteo Jr., took over the
possession and assumed the cultivation of the land and, like his parents, gave 1/3 of
the produce to Maura Palabrica and later to her daughter, petitioner herein, who
would eventually buy from her the lot subject of the litigation.
On 22 September 1966 Maura Palabrica caused the registration of the Sale Con
Pacto de Retro with the Register of Deeds of Iloilo and its annotation on Transfer
Certificate of Title No. 26424 covering the subject lot.
On 10 May 1978 Maura Palabrica sold Lot No. 767 for P40,000.00 to one of her
daughters, petitioner Thelma Olea. From then on it was petitioner who received the
one-third (1/3) share of the annual produce of the land from Filoteo Pacardo, Jr.,
until he died in August 1987. His widow Elena Vda. de Pacardo however refused to
give to petitioner the one-third (1/3) share of the produce. After Elena transferred

16
residence to another barangay the spouses Jesus and Elizabeth Palencia took over
the possession and cultivation of the property. Elizabeth Palencia is a sister of
Filoteo Jr., and is one of the children of spouses Filoteo and Severina Pacardo. The
Palencias delivered the share of the produce not to petitioner but to respondent
Elena Pacardo.
Hence, on 25 January 1989, petitioner filed a complaint against Elena Pacardo and
the spouses Jesus and Elizabeth Palencia for recovery of possession with damages.
She alleged that she was the owner of Lot No. 767 having acquired the same from
her mother Maura Palabrica through a deed of sale, who in turn acquired the lot
from the spouses Filoteo and Severa Pacardo through a pacto de retro sale, and
that due to the failure of the spouses to redeem the property three (3) years
thereafter ownership thereof passed on to Maura Palabrica who later caused the
registration of the Sale Con Pacto de Retro with the Registry of Deeds of Iloilo and
its annotation on TCT No. 26424.
Private respondents Elena Vda. de Pacardo and Jesus and Elizabeth Palencia filed
their answer alleging that their parents intended the disputed transaction to be an
equitable mortgage and not a sale with right to repurchase. Respondent Monserrat
Paciente, another daughter of the vendor-spouses Filoteo and Severa Pacardo, filed
an answer in intervention raising likewise as defense that the Sale Con Pacto de
Retro was indeed an equitable mortgage.
On 19 February 1991 the trial court rendered judgment dismissing the complaint.
Petitioner appealed to the Court of Appeals which on 16 December 1992 affirmed
the judgment of the trial court.
In the instant recourse, petitioner assails the Court of Appeals for its conclusions
and findings allegedly grounded entirely on speculations, surmises, conjectures and
2
misapprehension of facts. Petitioner submits that the terms and conditions of
the Sale Con Pacto de Retro between her mother Maura Palabrica and the Pacardos
on 27 January 1947 are clear and leave no room for interpretation; that the parties
to the transaction have specified that the consideration of the sale was P950.00 and
the repurchase price was P500.00 in cash plus P450.00 cash or eighteen (18) cavans
of palay at the option of the vendor-spouses in case they repurchased the property
three (3) years afterwards; and that the Court of Appeals erred in holding that the
repurchase price was only P450.00 or eighteen cavans of palay.
Petitioner also asserts that the failure of her mother, the vendee Maura Palabrica,
to consolidate ownership under Art. 1607 of the New Civil Code should not be a
ground for considering the sale to be an equitable mortgage because both parties

have stipulated in the contract that when the spouses should fail to repurchase Lot
No. 767 on 27 January 1950 complete and absolute title would forthwith be vested
in Maura Palabrica; and that even granting that Art. 1607 of the New Civil Code,
which took effect 30 August 1950, be granted retroactive effect Maura Palabrica
had already acquired a vested right of ownership over the land as of 27 January
1950 which Art. 1607 can no longer invalidate under Art. 2252 of the New Civil
Code. Moreover, petitioner submits that the Pacardo spouses remained in
possession of the land they sold to Palabrica because of their good relations with
each other and the latter consented that the spouses would be the ones to till the
land.
We cannot sustain petitioner. Art. 1602 of the New Civil Code provides that the
contract of sale with right to repurchase shall be presumed to be an equitable
mortgage in any of the following cases: (a) when the price of the sale is unusually
inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c)
when upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed; (d) when
the purchaser retains for himself a part of the purchase price; (e) when the vendor
binds himself to pay the taxes on the thing sold; and, (f) in any other case where it
may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
Being remedial in nature, Art. 1602 may be applied retroactively to cases prior to
3
the effectivity of the New Civil Code Hence it may apply to the instant case where
the deed of sale with right to repurchase was executed on 27 January 1947.
It has been held that a contract should be construed as a mortgage or a loan instead
of a pacto de retro sale when its terms are ambiguous or the circumstances
surrounding its execution or its performance are incompatible or inconsistent with
4
the theory that it is a sale. Even when a document appears on its face to be a sale
with pacto de retro the owner of the property may prove that the contract is really
a loan with mortgage by raising as an issue the fact that the document does not
express the true intent and agreement of the parties. In this case, parol evidence
then becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the repayment of a loan. And upon proof
of the truth of such allegations, the court will enforce the agreement or
understanding in consonance with the true intent of the parties at the time of
5
execution of the contract. This principle is applicable even if the purported Sale
Con Pacto de Retro was registered in the name of the transferee and a new
6
certificate of title was issued in the name of the latter.

17
There is no dispute that when Maura Palabrica "bought" the land on 27 January
1947 the vendors, the Pacardo spouses, remained in possession of the property and
cultivated the same. Their son continued the cultivation when the spouses died,
which cultivation was continued later by his widow Elena Vda. de Pacardo and then
by his sister Elizabeth Palencia. During the direct examination, petitioner admitted

Q. And who later on cultivated this lot 767 if you

know?
A. When the Pacardos sold to my mother, it was
the spouses who cultivated the land. When
Filoteo Pacardo Sr. could no longer till, it was
7
Filoteo Pacardo Jr. who took over.
Defendant-intervenor Monserrat Paciente also testified
Q. Do you know whether any transaction was
had between your mother Severa Pacardo and
Maura Palabrica involving this Lot No. 767?
A. There was a transaction. Every year, dues was
(sic) paid to this land when the land was
mortgaged. It was a 1/3 transaction, 1/3 was
given to them and 2/3 were taken by us.
Q. When did you come to know that alleged
transaction between your parents and the late
Maura Palabrica?
A. When I came to the age of reason, it was told
8
to me by my parents.
The rule is settled that where in a contract of sale with pacto de retro the vendor
remains in physical possession of the land sold as lessee or otherwise, the contract
9
should be considered an equitable mortgage. The same presumption applies when
the vendee was given the right to appropriate the fruits thereof in lieu of receiving
10
interest on the loan.

Moreover, the terms of the document itself can aid in arriving at the true nature of
the transaction. Where the contract contains a stipulation, as in this case, that upon
payment by the vendor of the purchase price within a certain period the document
shall become null and void and have no legal force or effect, the purported sale
should be considered a mortgage contract. In pacto de retro sale the payment of
the repurchase price does not merely render the document null and void but there
11
is the obligation on the part of the vendee to sell back the property.
It has been consistently held that the presence of even one of the circumstances
enumerated in Art. 1602 of the New Civil Code is sufficient to declare a contract of
12
sale with right to repurchase an equitable mortgage. This is so because pacto de
retro sales with the stringent and onerous effects that accompany them are not
favored. In case of doubt, a contract purporting to be a sale with right to
13
repurchase shall be construed as an equitable mortgage.
Petitioner, to prove her claim, cannot rely on the stipulation in the contract
providing that complete and absolute title shall be vested on the vendee should the
vendors fail to redeem the property on the specified date. Such stipulation that the
ownership of the property would automatically pass to the vendee in case no
redemption was effected within the stipulated period is void for being a pactum
commissorium which enables the mortgagee to acquire ownership of the
mortgaged property without need of foreclosure. Its insertion in the contract is an
14
avowal of the intention to mortgage rather than to sell the property.
Consequently, there was no valid sale to Maura Palabrica. Ownership over the
property was not transferred to her for she was merely a mortgagee. There being
no title to the land that Palabrica acquired from the spouses Filoteo and Severa
Pacardo, it follows that Palabrica had no title to the same land which could be
15
conveyed to petitioner. Hence there is no legal basis for petitioner to recover
possession of the property.
It is clear from the contract that the amount loaned to the Pacardo spouses was
P950.00 and Lot No. 767 was mortgaged as security. The spouses were allowed
under the contract to pay the amount of the loan on 27 January 1950 by tendering
the amount of the P500.00 in cash and P450.00 cash or 18 cavans of palay at their
option. The trial court made its factual finding that from 1947 when the purported
sale was executed to 1972 alone, the spouses and their successors in interest
delivered a total of 1,166 cavans of palay to Maura Palabrica. The delivery of 1/3 of
the annual produce to Palabrica and later to petitioner continued until 1987. Under
the last paragraph of Art. 1602, this produce received by the alleged vendee as rent
or otherwise should be considered as interest.

18
There is no dispute that the Pacardo spouses or their successors in interest failed to
pay the amount of the loan on 27 January 1950 as stipulated in the contract
although they continued to deliver the produce to Palabrica and petitioner until
1987 by way of interest on the loan. Even if we treat petitioner's action to recover
possession of Lot No. 767 as one for the enforcement of her right as mortgagee, the
same has already prescribed. Art. 1142 of the New Civil Code provides that a
mortgage action prescribes after ten (10) years. Since 27 January 1950 when the
Pacardo spouses failed to pay the loan up to 1989 when the action for recovery of
possession was filed, thirty-nine (39) years had already elapsed. As a result,
petitioner is not only barred by prescription from instituting her action; she is also
guilty of estoppel by laches.

first and second motions for reconsideration, respectively, in the same case.

WHEREFORE, the petition is DENIED and the assailed decision of the Court of
Appeals dated 16 December 1992 sustaining that of the Regional Trial Court of Iloilo
City is AFFIRMED. Costs against petitioner.

"(c) To secure the prompt repayment of such loan by defendants-borrowers to

Mobil and the faithful performance by Borrowers of that Sales Agreement,
Defendants-Borrowers hereby transfer in favor of Mobil by way of first mortgage
lands covered by TCT No. 45169 and TCT No. 45170, together with the
improvements existing in said two (2) parcels of land.

SO ORDERED.

On July 21, 1965, the defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo
Angeles entered into a contract with the Mobil Oil Philippines, Inc., entitled "LOAN
& MORTGAGE AGREEMENT," providing, among others, that:jgc:chanrobles.com.ph
"(a) For and in consideration of Sales Agreement dated July 21, 1965 among, the
parties herein, Mobil grants a loan of P150,000 to borrowers.
"(b) Defendants-Borrowers shall repay Mobil the whole amount of P150,000 plus
10% interest per annum on the diminishing balance for 48 months.

"(d) In case of default of Defendants-Borrowers in payment of any of the

installments and/or their failure to purchase the quantity of products stated therein
Mobil shall have the right to foreclose this mortgage.

EN BANC
[G.R. No. L-29388. December 28, 1970.]
VINCENT P. DAYRIT, Petitioner, v. THE COURT OF APPEALS, HON. FRANCISCO
ARCA, Judge of the Court of First Instance of Manila, Branch I, MOBIL OIL
PHILIPPINES, INC., and ELADIO YLAGAN, Special Sheriff, Respondents.
Ramon Quisumbing, Jr., for Petitioner.
Faylona, Cruz, Berroya, Norte & Nentanilla for respondent Mobil Oil Philippines,
Inc.

DECISION

CASTRO, J.:

Petition for certiorari by way of appeal from the Court of Appeals minute
resolution of June 14, 1968 dismissing the petition for certiorari in CA-G.R. No.
41359-R, as well as its resolutions of July 9, 1968 and August 5, 1968 denying the

"(e) Mobil, in case of default and foreclosure, shall be entitled to attorneys fees
and cost of collection equivalent to not less than 25% of total indebtedness
remaining unpaid.
"(f) All expenses in connection with the preparation and registration of this
mortgage as well as cancellation of same shall be for the account of DefendantsBorrowers.
"(g) If Defendants-Borrowers shall perform the full obligation above stated
according to the terms thereof, then this obligation shall be null and void,
otherwise, it shall remain in full force and effect."cralaw virtua1aw library
The defendants violated the Loan & Mortgage Agreement, they having paid but one
installment in the amount of P3,816, of which P1,250 was applied to interest, and
the remaining P2,566 to the principal obligation. The defendants likewise failed to
buy the quantities of products as required in the Sales Agreement (exh. D). The
plaintiff made due demand (exh. I), which the defendant Dayrit answered,
acknowledging his liability in his letter exh. I-1.
On November 17, 1967, after trial and after the parties had submitted their

19
memoranda, 1 the trial court rendered its decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering
them to pay to the plaintiff one-third each of the sum of P147,434.00 with interest
of 10% per annum from the time it fell due according to agreement, and in default
of such payment, the properties put up in collateral shall be sold in foreclosure sale
in accordance with law, the proceeds to be applied in payment of the amount due
to the plaintiff from the defendants as claimed in the complaint provided that, as to
Dayrit, his liability shall in no case exceed 1/3 of the total obligation.
"The defendants are likewise ordered to pay to the plaintiff, in the same proportion
of 1/3 each, 25% of the obligation as attorneys fees as provided in the contract;
and P300.60 for the registration of the contract.
x

"Each of the three said defendants shall also pay 1/3 of the costs."cralaw virtua1aw
library
No appeal having been interposed by the defendants, the above decision became
final and executory.
An undated Mobils motion for execution of the decision and for the appointment
of Eladio Ylagan as special sheriff (annex D) was received by the herein petitioner
Dayrit on February 8, 1968. Whereupon, he filed his opposition and motion to stay
execution, alleging that before the finality of the aforesaid judgment, he and the
plaintiff had agreed not to appeal and/or file any motion for reconsideration, the
petitioner offering to pay his one-third share with a reasonable discount, if possible,
in so far as the interests and the award for attorneys fees were concerned, with the
corresponding release of the mortgage on all his properties, and praying, in view
thereof, for a 30-day grace period within which to pay the plaintiff. The 30-day
grace period was granted by the court in its order of February 24, 1968.
On March 25, 1968 the petitioner filed another motion for 20 days extension
within which to pay his one-third share of the judgment obligation and to submit
the corresponding compromise agreement for the satisfaction of the judgment. The
said motion was granted on April 1, 1968.
Thereafter, the respondent Mobil filed an "Urgent Reply to Opposition and Motion

to Stay Execution dated Feb. 21, 1968 and Motion dated March 25, 1968," alleging
therein that the respondent agreed to release the mortgage or collateral for the
entire judgment obligation only if "the whole principal mortgaged debt plus the
whole accrued interest" were fully paid. Mobil further prayed for a writ of
execution to be issued against the petitioner after the lapse of 20 days from March
25, 1968, if by then the parties shall not have submitted to compromise agreement
for the satisfaction of the judgment; Mobil also reiterated its prayer for the
appointment of respondent Eladio Ylagan as special sheriff.
On April 3, 1968 the petitioner filed a manifestation and motion, praying that he be
allowed to deposit with the Clerk of Court the amount corresponding to his onethird share of the obligation under the decision of November 17, 1967, and that
thereupon the collateral or mortgage over petitioners properties or lands be
ordered released or cancelled.
On April 10, 1968 the court a quo ordered all pending incidents set for hearing on
April 19, 1968, "so that the Court may have the opportunity to confer with the
parties to thresh out the settlement of this case." At this hearing Mobil did not
appear; the court reset the hearing for May 23, 1968.
Under date of May 8, 1968, Mobil filed an addendum to its reply dated April 1, 1968
and opposition to petitioners motion dated April 3, 1968, praying that the motion
of petitioner Dayrit that the entire mortgaged collateral be released upon his
payment of mere 1/3 of the loan obligation, be denied and instead a writ of
execution against him in accordance with the dispositive portion of the decision and
sections 2 and 3 of Rule 68 of the Revised Rules of Court be issued.
On May 18, 1968 the petitioner filed his rejoinder to respondent Mobils aforesaid
addendum and opposition.
On May 23, 1968, after hearing oral argument, the court denied the manifestation
and motion of Dayrit filed thru counsel and dated April 3, 1968; the court further
ruled that "There is no further need to issue an order for the issuance of a writ of
execution and appointment of special sheriff . . . considering that the Court, in its
order of February 24, 1968, has already ordered the issuance of a writ of execution
for the satisfaction of the judgment."cralaw virtua1aw library
The petitioner then filed his petition for certiorari with the Court of Appeals, dated
May 30, 1968, alleging that "respondent Judge Arca acted without or in excess of
his jurisdiction and/or with grave abuse of discretion, in denying petitioners motion
to allow him to pay or deposit his one-third share of the judgment obligation" as
well as the consequent release or cancellation of the mortgage on his properties.

20

The Court of Appeals, however, in its minute resolution of June 14, 1968, dismissed
the petition forcertiorari, in the following words:jgc:chanrobles.com.ph
"Upon consideration of the petition for certiorari filed in this case, the Court
RESOLVED TO DISMISS the petition, there being no abuse of discretion in ordering
the execution of a final judgment. Details of execution for satisfaction of Vincent
Dayrits liability will be worked out in connection with the sale of the collateral for
mortgaged debt, and the judgment in Civil Case No. 64138 of the CFI-Manila will
control the disposition and application of the collateral."cralaw virtua1aw library
The petitioner filed a motion for reconsideration dated June 9, 1968 which the
Court of Appeals denied in its resolution of July 9, 1968, as
follows:jgc:chanrobles.com.ph
"Both the petition and the motion for reconsideration are based on a
misapprehension of the terms of the judgment. The mortgage obligation is one and
indivisible. it was executed to assure payment of the total indebtedness of the
three defendants in Civil Case No. 64138, and not merely one-third (1/3) thereof
corresponding to petitioner Vincent P. Dayrits liability."cralaw virtua1aw library
The petitioners second motion for reconsideration of July 25, 1968 was summarily
dismissed on August 5, 1968, for lack of merit.
The petitioner, in his present petition, tenders the following issues for
resolution:jgc:chanrobles.com.ph
"1) Whether or not respondent Judge [CFI-Manila] acted without or in excess of his
jurisdiction, and/or with grave abuse of discretion in denying petitioners motion to
allow him to exercise his clearly legal right to pay or deposit his one-third share of
the judgment obligation;
"2) The next issue was that brought about by the Court of Appeals resolution
dismissing the petition for certiorari, and which was raised in petitioners motion
dated June 19, 1968 for reconsideration of said resolution, contending that the
ground for dismissal did not jibe with the issue raised in the petition for certiorari
"3) And lastly the Court of Appeals resolution of July 9, 1968 denying said motion
for reconsideration injected the issue of alleged misapprehension on the part of
petitioner of the terms of the judgment of respondent judge."cralaw virtua1aw
library

1. The question raised by the respondent Mobil that the present petition
for certiorari was filed way beyond the reglementary period of 15 days from
appellants receipt of notice of judgment or of the denial of his motion for
reconsideration pursuant to section 1, Rule 45 of the Revised Rules of Court, 2
needs to be resolved before consideration of this case on the merits. Admittedly,
the ex parte first motion for reconsideration filed by the herein petitioner was
denied, and copy of such denial was received by the petitioner on July 15, 1968. Still
not satisfied, petitioner filed another ex parte motion for reconsideration on July
26, 1968, notice of the denial of which, under CA resolution dated August 5, 1968,
was received by said petitioner on August 9, 1968.
Respondent Mobil contends that the second motion for reconsideration filed by the
petitioner was a mere scrap of paper and pro-forma since it was filed ex parte and
without express leave of court, contrary to the mandate of section 1, Rule 52 of the
Rules of Court. 3
The rule appears to be inflexible in the sense that no more than one motion for
reconsideration shall be filed without express leave of court. The requirement that
the second motion for reconsideration must be presented, with leave of court,
within fifteen days from notice of the order or judgment, deducting the time during
which the first motion was pending, is to afford the court sufficient time to evaluate
whether there is prima facie merit therein, so that, "if the court finds merit prima
facie in the motion for re-hearing or reconsideration, the adverse party shall be
given time to answer, after which the court, in its discretion, may set the case for
oral argument." 4 And only upon compliance with the above stated requirements
may the second motion for reconsideration stay the final order or judgment sought
to be re-examined. 5
The Court of Appeals gave due course to the second motion for reconsideration of
the herein petitioner, but nevertheless, dismissed the same summarily for lack of
merit.
However, even assuming, that the ex parte second motion for reconsideration was
properly filed so as to toll the reglementary period within which to appeal, it
appears that the petition for certiorari filed with this Court on August 20, 1968 was
time-barred. From the date of denial of the petitioners ex parte first motion for
reconsideration received by him on July 15, 1968 assuming that the period was
interrupted by the ex parte second motion for reconsideration from July 26, 1968 to
August 9, 1968 (15 days) to the elevation of the said case to this Court on August
20, 1968, 36 days had elapsed. Deducting the 15 days during which the ex parte
second motion for reconsideration was pending from the total period of 36 days
leaves 21 days. This means that the present petition was filed with this Court six

21
days late, contrary to and in violation of section 1, Rule 45, which specifically
provides that a petition for certiorari under such Rule should be filed within 15 days
from notice of judgment or denial of motion for reconsideration. Hence, the
present petition may be dismissed on the aforestated ground.
But we opt, nevertheless, to consider the merits of this case, if only to demonstrate
to the petitioner his error.
2. The decision of the lower court, let it not be forgotten, has admittedly become
final and executory. The controverted judgment ordered the defendants (Dayrit,
Sumbillo and Angeles) "to pay to the plaintiff one-third each of the sum of
P147,434.00 with interest of 10% per annum from the time it fell due according to
agreement, and in default of such payment, the properties put up in collateral shall
be sold in foreclosure sale in accordance with law, the proceeds to be applied in
payment of the amount due to the plaintiff from the defendants as claimed in the
complaint, provided that, as to Dayrit, his liability shall in no case exceed 1/3 of the
total obligation."cralaw virtua1aw library
In sum, the issue that must be resolved in the instant case is, whether or not the
Court of First Instance of Manila erred in ordering the sale at public auction of the
mortgaged properties to answer for the entire P147,434 principal obligation after
the defendants (Dayrit, Sumbillo and Angeles) had failed to pay their respective
one-third shares of the obligation to the respondent Mobil; otherwise stated,
whether or not the respondents Court of First Instance and the Court of Appeals
erred in refusing to allow the alleged proposed deposit of a sum equivalent to 1/3
of the loan agreed upon and in refusing to release forever the collaterals owned by
Dayrit, although the other 2/3 portion of the loan obligation had not been satisfied
due to insolvency of the other two co-defendants.
To begin with, the prayer of the complaint filed with the respondent Court of First
Instance recites as follows:jgc:chanrobles.com.ph

Vincent Dayrit. Although the Loan and Mortgage Agreement was signed by the
three defendants as mortgagors, the properties being foreclosed belong solely to,
and are registered solely in the name of, the petitioner Vincent Dayrit.
The pertinent dispositive portion of the decision rendered by the lower court
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering
them to pay to the plaintiff one-third each of the sum of P147,434 with interest of
10% per annum from the time it fell due according to agreement, and in default of
such payment, the properties put up in collateral shall be sold in foreclosure sale in
accordance with law, the proceeds to be applied in payment of the amount due to
the plaintiff from the defendants as claimed in the complaint, provided that, as to
Dayrit, his liability shall in no case exceed 1/3 of the total obligation."cralaw
virtua1aw library
The petitioner contends that the said judgment is a simple money judgment and
not a foreclosure judgment, and that because the respondent Mobil resorted to the
remedy of enforcing his right by a complaint against the defendant-petitioner for
collection of a sum of money, with the consequent simple money judgment, the
satisfaction of his 1/3 share of the joint obligation would release all the mortgaged
properties put up as collateral to secure the payment of the whole obligation. The
reason advanced by the petitioner is that the decision rendered being a simple
money judgment and not a mortgage-foreclosure judgment, the distinction in its
execution is decisive, that is, whereas in mortgage foreclosure the judgment should
conform to the requirement, embodied in section 2, Rule 68 of the Rules of Court,
that the order of payment be made into the court "within a period not less than
ninety (90) days . . . and in default of such payment, the property mortgaged be
sold to realize" the indebtedness, in a simple money judgment, upon satisfaction of
part in the instant case his 1/3 share) of the joint obligation, the mortgaged
properties should be released from such mortgage contract.

"WHEREFORE, it is respectfully prayed that judgment be rendered

This contention of the petitioner is clearly devoid of merit.
"a) Ordering the defendants to pay the sum of P147,434 with 10% interest per
annum from the time it fell due as agreed upon and that in default of such
payment, the above described properties be sold and the proceeds of sale be
applied to the payment of the amount due to the plaintiff from the defendant
under this complaint."cralaw virtua1aw library
The complaint, in effect, is a collection suit with damages and foreclosure of
mortgage against the three defendants, Leonila Sumbillo, Reynaldo Angeles and

The decision which the petitioner describes as a simple money judgment orders the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles to pay the
plaintiff the sum of P147,434, and in default of such payment, the properties put up
in collateral shall be sold in foreclosure sale in accordance with law, the proceeds to
be applied in payment of the amount due to the plaintiff from the defendants as
claimed in the complaint. While it is true that the obligation is merely joint and each
of the defendants is obliged to pay only his/her 1/3 share of the joint obligation, the

22
undisputed fact remains that the intent and purpose of the Loan and Mortgage
Agreement was to secure, inter alia, the entire loan of P150,000 that the
respondent Mobil extended to the defendants. The court below found that the
defendants had violated the Loan and Mortgage Agreement, they having paid but
one installment. The undisputed fact also remains that the petitioner alone
benefited from the proceeds of the loan of P150,000, the said amount having been
paid directly to the Bank of the Philippines to bail out the same properties from a
mortgage that was about to be foreclosed. In effect, Mobil merely stepped into the
shoes of the Bank of the Philippines.
The petitioner insists that the dispositive portion of the judgment declaring the
obligation merely joint with the proviso that "as to Dayrit, his liability shall in no
case exceed 1/3 of the total obligation," should be construed in the light of the
opinion of the lower court that "said collateral must answer in full but only to the
extent of Dayrits liability which as above determined" is 1/3 of the obligation,"
thereby entitling him to pay or deposit in court his corresponding share of the joint
obligation in satisfaction thereof, with the automatic release of all the mortgaged
properties.
A judgment must be distinguished from an opinion. The latter is the informal
expression of the views of the court and cannot prevail against its final order or
decision. "While the two may be combined in one instrument, the opinion forms no
part of the judgment. There is a distinction between the findings and conclusion of
a court and its judgment. While they may constitute its decision and amount to a
rendition of a judgment they are not the judgment itself. They amount to nothing
more than an order for judgment which must be distinguished from the judgment
Only the dispositive portion may be executed." 6
Besides, well-entrenched in law is the rule that a mortgage directly and immediately
subjects the property upon which it is imposed, 7 the same being indivisible even
though the debt may be divided, 8 and such indivisibility likewise being unaffected
by the fact that the debtors are not solidarily liable. 9 As Tolentino, in his
Commentaries and Jurisprudence on the Civil Code of the Philippines, 10 puts it
"When several things are pledged or mortgaged, each thing for a determinate
portion of the debt, the pledges or mortgages are considered separate from each
other. But when the several things are given to secure the same debt in its entirety,
all of them are liable for the debt, and the creditor does not have to divide his
action by distributing the debt among the various things pledged or mortgaged.
Even when only a part of the debt remains unpaid, all the things are still liable for
such balance. Hence, a mortgage voluntarily constituted by the debtor on two or
more parcels of land is one and indivisible, and the mortgagee has the right to have

either or both parcels, jointly or singly, sold to satisfy his claim. In case the
mortgaged properties are a house and lot, it can not be claimed that the lot and the
house should be sold separately and not together."cralaw virtua1aw library
But then there is this other seeming posture of the petitioner: that the judgment
which has become final and executory either modified or superseded the Loan and
Mortgage Agreement between the parties, and since the obligation is merely joint,
upon payment thereof, as in attachment, the properties mortgaged are released
from liability. The decision under consideration, however, did nothing of the sort.
The petitioner conveniently refuses to recognize the true import of the dispositive
portion of the judgment. The said portion unequivocally states that "in default of
such payment, the properties put up in collateral shall be sold in foreclosure sale in
accordance with law, the proceeds to be applied in payment of the amount due to
the plaintiff as claimed in the complaint." And the claim in the complaint was the
full satisfaction of the total indebtedness of P147,434; therefore, the release of all
the mortgaged properties may be authorized only upon the full payment of the
above-stated amount secured by the said mortgage.
With respect to the provisions of section 2 of Rule 68 of the Rules of Court giving
the petitioner a period of 90 days within which he might voluntarily pay the debt
before the sale of the collateral at public auction was ordered, we agree that the
trial court failed to provide such period. However, this failure can be regarded as
having resulted in mere damnum absque injuria. From November 17, 1967 when
the decision was rendered to May 23, 1968 when the final order to sell the
mortgaged properties was issued, a period of more than six months had passed,
which is considerably much more than the 90-day period of grace allowed the
petitioner to validly tender the proper payment.
ACCORDINGLY, the petition is denied, at petitioners cost.
SECOND DIVISION

[G.R. No. 134330. March 1, 2001]

SPOUSES ENRIQUE M. BELO and FLORENCIA G. BELO, petitioners, vs. PHILIPPINE

NATIONAL
BANK
and
SPOUSES
MARCOS
and
ARSENIA
ESLABON, respondents.

23
DECISION

Centavos (P484,482.96), which includes the bid price of respondent PNB, plus
interest and expenses as provided under Act No. 3135.

DE LEON, JR., J.:

[1]

Before us is a petition for review on certiorari of the Decision and

[2]
[3]
Resolution in CA-G.R. No. 53865 of the Court of Appeals dated May 21, 1998
[4]
and June 29, 1998, respectively, which modified the Decision dated April 30, 1996
[5]
of the Regional Trial Court of Roxas City, Branch 19 in a suit for Declaration of
Nullity of the Contract of Mortgage.
The facts are as follows:
Eduarda Belo owned an agricultural land with an area of six hundred sixty one
thousand two hundred eighty eight (661,288) square meters located in Timpas,
Panitan, Capiz, covered and described in Transfer Certificate of Title (TCT for
brevity) No. T-7493. She leased a portion of the said tract of land to respondents
spouses Marcos and Arsenia Eslabon in connection with the said spouses sugar
plantation business. The lease contract was effective for a period of seven (7) years
at the rental rate of Seven Thousand Pesos (P7,000.00) per year.
To finance their business venture, respondents spouses Eslabon obtained a
loan from respondent Philippine National Bank (PNB for brevity) secured by a real
estate mortgage on their own four (4) residential houses located in Roxas City, as
well as on the agricultural land owned by Eduarda Belo. The assent of Eduarda Belo
to the mortgage was acquired through a special power of attorney which she
executed in favor of respondent Marcos Eslabon on June 15, 1982.

However, respondent PNB rejected the tender of payment of petitioners

spouses Belo. It contended that the redemption price should be the total claim of
the bank on the date of the auction sale and custody of property plus charges
accrued and interests amounting to Two Million Seven Hundred Seventy Nine
Thousand Nine Hundred Seventy Eight and Seventy Two Centavos
[6]
(P2,779,978.72). Petitioners spouses disagreed and refused to pay the said total
claim of respondent PNB.
On June 18, 1992, petitioners spouses Belo initiated in the Regional Trial Court
of Roxas City, Civil Case No. V-6182 which is an action for declaration of nullity of
mortgage, with an alternative cause of action, in the event that the accommodation
mortgage be held to be valid, to compel respondent PNB to accept the redemption
price tendered by petitioners spouses Belo which is based on the winning bid price
of respondent PNB in the extrajudicial foreclosure in the amount of Four Hundred
Forty Seven Thousand Six Hundred Thirty Two Pesos (P447,632.00) plus interest and
expenses.
In its Answer, respondent PNB raised, among others, the following defenses,
to wit:
xxx
77.

In all loan contracts granted and mortgage contracts executed

under the 1975 Revised Charter (PD 694, as amended), the proper
rate of interest to be charged during the redemption period is the
[7]
rate specified in the mortgage contract based on Sec. 25 of PD
694 and the mortgage contract which incorporates by reference the
provisions of the PNB Charters. Additionally, under Sec. 78 of the
General Banking Act (RA No. 337, as amended) made applicable to
PNB pursuant to Sec. 38 of PD No. 694, the rate of interest collectible
during the redemption period is the rate specified in the mortgage
contract.

78.

Since plaintiffs failed to tender and pay the required amount

for redemption of the property under the provisions of the General
[8]
Banking Act, no redemption was validly effected;

Inasmuch as the respondents spouses Eslabon failed to pay their loan

obligation, extrajudicial foreclosure proceedings against the mortgaged properties
were instituted by respondent PNB. At the auction sale on June 10, 1991,
respondent PNB was the highest bidder of the foreclosed properties at Four
Hundred Forty Seven Thousand Six Hundred Thirty Two Pesos (P447,632.00).
In a letter dated August 28, 1991, respondent PNB appraised Eduarda Belo of
the sale at public auction of her agricultural land on June 10, 1991 as well as the
registration of the Certificate of Sheriffs Sale in its favor on July 1, 1991, and the
one-year period to redeem the land.
Meanwhile, Eduarda Belo sold her right of redemption to petitioners spouses
Enrique and Florencia Belo under a deed of absolute sale of proprietary and
redemption rights.
Before the expiration of the redemption period, petitioners spouses Belo
tendered payment for the redemption of the agricultural land in the amount of
Four Hundred Eighty Four Thousand Four Hundred Eighty Two Pesos and Ninety Six

xxx
After trial on the merits, the trial court rendered its Decision dated April 30,
1996 granting the alternative cause of action of spouses Belo, the decretal portion
of which reads:

24
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of
plaintiffs Spouses Enrique M. Belo and Florencia G. Belo and against defendants
Philippine National Bank and Spouses Marcos and Arsenia Eslabon:
1. Making the injunction issued by the court permanent, insofar as the
property of Eduarda Belo covered by Transfer Certificate of Title No.
T-7493 is concerned;
2. Ordering defendant Philippine National Bank to allow plaintiff Enrique
M. Belo to redeem only Eduarda Belos property situated in Brgy.
Timpas, Panitan, Capiz, and covered by Transfer Certificate of Title
No. T-7493 by paying only its bid price of P447,632.00, plus interest
and other charges provided for in Section 30, Rule 39 of the Rules of
Court, less the loan value, as originally appraised by said defendant
Bank, of the foreclosed four (4) residential lots of defendants Spouses
Marcos and Arsenia Eslabon; and
3. Dismissing for lack of merit the respective counterclaims of
defendants Philippine National Bank and spouses Marcos and Arsenia
Eslabon.
With costs against defendants.
SO ORDERED.

[9]

Dissatisfied with the foregoing judgment of the trial court, respondent PNB
appealed to the Court of Appeals. In its Decision rendered on May 21, 1998, the
appellate court, while upholding the decision of the trial court on the validity of the
real estate mortgage on Eduarda Belos property, the extrajudicial foreclosure and
the public auction sale, modified the trial courts finding on the appropriate
redemption price by ruling that the petitioners spouses Belo should pay the entire
amount due to PNB under the mortgage deed at the time of the foreclosure sale
[10]
plus interest, costs and expenses.
[11]

Petitioners spouses Belo sought reconsideration of the said Decision but

the same was denied by the appellate court in its Resolution promulgated on June
29, 1998, ratiocinating, thus:
Once more, the Court shies away from declaring the nullity of the mortgage
contract obligating Eduarda Belo as co-mortgagor, considering that it has not been
sufficiently established that Eduarda Belos assent to the special power of attorney
and to the mortgage contract was tainted by any vitiating cause. Moreover, in

tendering an offer to redeem the property (Exhibit 20, p. 602 Record) after its
extrajudicial foreclosure, she has thereby admitted the validity of the mortgage, as
well as the transactions leading to its inception. Eduarda Belo, and the appellees as
mere assignees of Eduardas right to redeem the property, are therefore estopped
[12]
from questioning the efficacy of the mortgage and its subsequent foreclosure.
The appellate court further declared that petitioners spouses Belo are
obligated to pay the total banks claim representing the redemption price for the
foreclosed properties, as provided by Section 25 of P.D. No. 694, holding that:
On the other hand, the courts ruling that the appellees, being the assignee of the
right of repurchase of Eduarda Belo, were bound by the redemption price as
provided by Section 25 of P.D. 694, stands. The attack on the constitutionality of
Section 25 of P.D. 694 cannot be allowed, as the High Court, in previous instances,
(Dulay v. Carriaga, 123 SCRA 794 [1983]; Philippine National Bank v. Remigio, 231
SCRA 362 [1994]) has regarded the said provision of law with respect, using the
same in determining the proper redemption price in foreclosure of mortgages
involving the PNB as mortgagee.
The terms of the said provision are quite clear and leave no room for qualification,
as the appellees would have us rule. The said rule, as amended, makes no specific
distinction as to assignees or transferees of the mortgagor of his redemptive
right. In the absence of such distinction by the law, the Court cannot make a
distinction. As admitted assignees of Eduarda Belos right of redemption, the
appellees succeed to the precise right of Eduarda including all conditions attendant
to such right.
Moreover, the indivisible character of a contract of mortgage (Article 2089, Civil
Code) will extend to apply in the redemption stage of the mortgage.
As we have previously remarked, Section 25 of P.D. 694 is a sanctioned deviation
from the rule embodied in Rule 39, Section 30 of the Rules of Court, and is a special
protection given to government lending institutions, particularly, the Philippine
[13]
National Bank. (Dulay v. Carriaga, supra)
Hence, the instant petition.
During the oral argument, petitioners, through counsel, Atty. Enrique M.
Belo, agreed to limit the assignment of errors to the following:
xxx

xxx

xxx

25
II. THE COURT OF APPEALS ERRED IN NOT REVERSING THE TRIAL COURT
ON THE BASIS OF THE ASSIGNMENT OF ERRORS ALLEGED BY
PETITIONERS IN THEIR BRIEF:
(1)

(2)

III.

IV.

THAT THE SPECIAL POWER OF ATTORNEY EXECUTED BY EDUARDA

BELO IN FAVOR OF RESPONDENT ESLABON WAS NULL AND VOID;
THAT THE REAL ESTATE MORTGAGE EXECUTED BY RESPONDENT
MARCOS ESLABON UNDER SAID INVALID SPECIAL POWER OF
ATTORNEY IS ALSO NULL AND VOID;

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT

RESPONDENT PNB ACTED IN BAD FAITH AND CONNIVED WITH
RESPONDENTS-DEBTORS ESLABONS TO OBTAIN THE CONSENT OF
EDUARDA BELO, PETITIONERS PREDECESSOR, THROUGH FRAUD.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT PNB WAS NEGLIGENT IN THE PERFORMANCE OF ITS
DUTY AS COMMERCIAL MONEY LENDER.

V. THE COURT OF APPEALS ERRED IN HOLDING THAT EDUARDA BELO,

PETITIONERS PREDECESSOR, HAD WAIVED THE RIGHT TO QUESTION
THE LEGALITY OF THE ACCOMMODATION MORTGAGE.
VI.

THE COURT OF APPEALS ERRED IN REVERSING THE TRIAL

COURT BY HOLDING THAT ON REDEMPTION, PETITIONERS SHOULD
PAY THE ENTIRE CLAIM OF PNB AGAINST RESPONDENTS-DEBTORS
ESLABONS.

VII. THE COURT OF APPEALS ERRED IN NOT ORDERING THAT SHOULD

PETITIONERS DECIDE TO PAY THE ENTIRE CLAIM OF RESPONDENT
PNB AGAINST THE RESPONDENTS-DEBTORS ESLABONS, PETITIONERS
SHALL SUCCEED TO ALL THE RIGHTS OF RESPONDENT PNB WITH THE
RIGHT TO REIMBURSEMENT BY RESPONDENTS-DEBTORS, ESLABONS.

1. That respondent PNB in its Answer admitted that Eduarda Belo was
merely an accommodation mortgagor and that she has no personal
liability to respondent PNB.
xxx
2. That the PNB Special Power of Attorney (SPA) Form No. 74 (Exh. D)
used to bind Eduarda Belo as accommodation mortgagor authorized
the agent Eslabons to borrow and mortgage her agricultural land for
her (Eduarda Belo) use and benefit. Instead, said PNB SPA Form No.
74 was used by debtors Eslabons and PNB to bind Eduarda Belo as
accommodation mortgagor for the crop loan extended by PNB to the
Eslabons.
3. That the said PNB SPA Form No. 74 was signed by Eduarda Belo in
blank, without specifying the amount of the loan to be granted by
respondent PNB to the respondents-debtors Eslabons upon
assurance by the PNB manager that the SPA was merely a formality
and that the bank will not lend beyond the value of the four (4)
[Roxas City] residential lots located in Roxas City mortgaged by
respondents-debtors Eslabons (see Exhibit D; Eduarda Belos
deposition, Exhibit V, pp. 7 to 24).
4. That PNB did not advise Eduarda Belo of the amount of the loan
granted to the Eslabons, did not make demands upon her for
payment, did not advise her of Eslabons default. The pre-auction
sale notice intended for Eduarda Belo was addressed and delivered to
the address of the debtors Eslabons residence at Baybay, Roxas City,
not to the Belo Family House which is the residence of Eduarda Belo
located in the heart of Roxas City. The trial court stated in its
Decision that the PNB witness Miss Ignacio admitted that through
oversight, no demand letters were sent to Eduarda Belo, the
accommodation mortgagor (see p. 7, RTC Decision).
xxx

VIII. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT SHOULD

PETITIONERS DECIDE NOT TO EXERCISE THEIR RIGHT OF
REDEMPTION, PETITIONERS SHALL BE ENTITLED TO THE VALUE OF
THEIR IMPROVEMENTS MADE IN GOOD FAITH AND FOR THE REAL
[14]
ESTATE TAX DUE PRIOR TO THE FORECLOSURE SALE.

5. As an agreed fact stated in the Pre-Trial Order of the Regional Trial

Court, the loan which was unpaid at the time of the extrajudicial
foreclosure sale was only P789,897.00.

Petitioners challenge the appreciation of the facts of the appellate court,

pointing out the following facts which the appellate court allegedly failed to fully
interpret and appreciate:

6. That herein petitioners Spouses Belo in making the tender to redeem

Eduarda Belos agricultural land expressly reserved the right to

xxx

26
question the legality of the accommodation mortgage in the event
[15]
that said tender to redeem was rejected by PNB (Exh. I).
Petitioners present basically two (2) issues before this Court. First, whether or
not the Special Power of Attorney (SPA for brevity), the real estate mortgage
contract, the foreclosure proceedings and the subsequent auction sale involving
Eduarda Belos property are valid. Second, assuming they are valid, whether or not
the petitioners are required to pay, as redemption price, the entire claim of
respondent PNB in the amount of P2,779,978.72 as of the date of the public auction
sale on June 10, 1991.
On the first issue, the petitioners contend that the SPA is void for the reason
that the amount for which the spouses Eslabon are authorized to borrow from
respondent bank was unlimited; and that, while the SPA states that the amount
loaned is for the benefit of Eduarda Belo, it was in fact used for the benefit of the
respondents spouses Eslabon. For the said reasons petitioners contend that the
mortgage contract lacks valid consent, object and consideration; that it violates a
concept in the law of agency which provides that the contract entered into by the
agent must always be for the benefit of the principal; and, that it does not express
the true intent of the parties.
The subject SPA, the real estate mortgage contract, the foreclosure
proceedings and the subsequent auction sale of Eduarda Belos property are valid
and legal.
First, the validity of the SPA and the mortgage contract cannot anymore be
assailed due to petitioners failure to appeal the same after the trial court rendered
its decision affirming their validity. After the trial court rendered its decision
granting petitioners their alternative cause of action, i.e., that they can redeem the
subject property on the basis of the winning bid price of respondent PNB,
petitioners did not anymore bother to appeal that decision on their first cause of
action. If they felt aggrieved by the trial courts decision upholding the validity of
the said two (2) documents, then they should have also partially appealed
therefrom but they did not. It is an abuse of legal remedies for petitioners to
belatedly pursue a claim that was settled with finality due to their own
[16]
shortcoming. As held in Caliguia v. National Labor Relations Commission, where a
party did not appeal from the Labor Arbiters decision denying claims for actual,
moral and exemplary damages and instead moved for immediate execution, the
decision then became final as to him and by asking for its execution, he was
estopped from relitigating his claims for damages.
Second, well-entrenched is the rule that the findings of trial courts which are
factual in nature, especially when affirmed by the Court of Appeals, deserve to be
respected and affirmed by the Supreme Court, provided it is supported by

[17]

substantial evidence. The finding of facts of the trial court to the effect that
Eduarda Belo was not induced by the manager of respondent PNB but instead
that she freely consented to the execution of the SPA is given the highest respect
as it was affirmed by the appellate court. In the case at bar, the burden of
proof was on the petitioners to prove or show that there was alleged inducement
and misrepresentation by the manager of respondent PNB and the spouses
Eslabon. Their allegation that Eduarda Belo only agreed to sign the SPA after she
was assured that the spouses Eslabon would not borrow more than the value of
their own four (4) residential lots in Roxas City was properly objected to by
[18]
respondent PNB. Also their contention that Eduarda Belo signed the SPA in blank
was properly objected to by respondent PNB on the ground that the best evidence
was the SPA. There is also no proof to sustain petitioners allegation that
respondent PNB acted in bad faith and connived with the debtors, respondents
spouses Eslabon, to obtain Eduarda Belos consent to the mortgage through
fraud. Eduarda Belo very well knew that the respondents spouses Eslabon would
use her property as additional mortgage collateral for loans inasmuch as the
mortgage contract states that the consideration of this mortgage is
[19]
hereby initially fixed at P229,000.00. The mortgage contract sufficiently apprises
Eduarda Belo that the respondents spouses Eslabon can apply for more loans with
her property as continuing additional security. If she found the said provision
questionable, she should have complained immediately. Instead, almost ten (10)
years had passed before she and the petitioners sought the annulment of the said
contracts.
Third, after having gone through the records, this Court finds that the courts a
quo did not err in holding that the SPA executed by Eduarda Belo in favor of the
respondents spouses Eslabon and the Real Estate Mortgage executed by the
respondents spouses in favor of respondent PNB are valid. It is stipulated in
paragraph three (3) of the SPA that Eduarda Belo appointed the Eslabon spouses
to make, sign, execute and deliver any contract of mortgage or any other
documents of whatever nature or kind .... which may be necessary or proper in
connection with the loan herein mentioned, or with any loan which my attorney-in[20]
fact may contract personally in his own name ... This portion of the SPA is
quite relevant to the case at bar. This was the main reason why the SPA was
executed in the first place inasmuch as Eduarda Belo consented to have her land
mortgaged for the benefit of the respondents spouses Eslabon. The SPA was not
meant to make her a co-obligor to the principal contract of loan between
respondent PNB, as lender, and the spouses Eslabon, as borrowers. The
accommodation real estate mortgage over her property, which was executed in
favor of respondent PNB by the respondents spouses Eslabon, in their capacity as
her attorneys-in-fact by virtue of her SPA, is merely an accessory contract.

27
Eduarda Belo consented to be an accommodation mortgagor in the sense that
she signed the SPA to authorize respondents spouses Eslabons to execute a
mortgage on her land. Petitioners themselves even acknowledged that the relation
created by the SPA and the mortgage contract was merely that of mortgagormortgagee relationship. The SPA form of the PNB was utilized to authorize the
spouses Eslabon to mortgage Eduarda Belos land as additional collateral of the
Eslabon spouses loan from respondent PNB. Thus, the petitioners contention that
the SPA is void is untenable. Besides, Eduarda Belo benefited, in signing the SPA, in
the sense that she was able to collect the rentals on her leased property from the
[21]
Eslabons.
An accommodation mortgage is not necessarily void simply because the
accommodation mortgagor did not benefit from the same. The validity of an
accommodation mortgage is allowed under Article 2085 of the New Civil Code
which provides that (t)hird persons who are not parties to the principal obligation
may secure the latter by pledging or mortgaging their own property. An
accommodation mortgagor, ordinarily, is not himself a recipient of the loan,
otherwise that would be contrary to his designation as such. It is not always
necessary that the accommodation mortgagor be appraised beforehand of the
entire amount of the loan nor should it first be determined before the execution of
the SPA for it has been held that:
(real) mortgages given to secure future advancements are valid and legal
contracts; that the amounts named as consideration in said contract do not
limit the amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and other
indebtedness can be gathered. A mortgage given to secure advancements is a
continuing security and is not discharged by repayment of the amount named
[22]
in the mortgage, until the full amount of the advancements are paid.
Fourth, the courts a quo correctly held that the letter of Eduarda Belo
addressed to respondent PNB manifesting her intent to redeem the property is a
waiver of her right to question the validity of the SPA and the mortgage contract as
well as the foreclosure and the sale of her subject property. Petitioners claim that
her letter was not an offer to redeem as it was merely a declaration of her intention
to redeem. Respondent PNBs answer to her letter would have carried certain legal
effects. Had respondent PNB accepted her letter-offer, it would have surely bound
the bank into accepting the redemption price offered by Eduarda Belo. If it was her
opinion that her SPA and the mortgage contract were null and void, she would not
have manifested her intent to redeem but instead questioned their validity before a
court of justice. Her offer was a recognition on her part that the said contracts are
valid and produced legal effects. Inasmuch as Eduarda Belo is estopped from

questioning the validity of the contracts, her assignees who are the petitioners in
the instant case, are likewise estopped from disputing the validity of her SPA, the
accommodation real estate mortgage contract, the foreclosure proceedings, the
auction sale and the Sheriffs Certificate of Sale.
The second issue pertains to the applicable law on redemption to the case at
bar. Respondent PNB maintains that Section 25 of Presidential Decree No. 694
should apply, thus:
SEC. 25. Right of redemption of foreclosed property Right of possession during
redemption period. - Within one year from the registration of the foreclosure sale
of real estate, the mortgagor shall have the right to redeem the property by paying
all claims of the Bank against him on the date of the sale including all the costs and
other expenses incurred by reason of the foreclosure sale and custody of the
[23]
property, as well as charges and accrued interests.
Additionally, respondent bank seeks the application to the case at bar of
Section 78 of the General Banking Act, as amended by P.D. No. 1828, which states
that In the event of foreclosure, whether judicially or extrajudicially, of any mortgage
on real estate which is security for any loan granted before the passage of this Act
or under the provisions of this Act, the mortgagor or debtor whose real property
has been sold at public auction, judicially or extrajudicially, for the full or partial
payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real
estate as a result of the foreclosure of the respective mortgage, to redeem the
property by paying the amount fixed by the court in the order of execution, or the
amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other expenses
incurred by the bank or institution concerned by reason of the execution and sale
and as a result of the custody of said property less the income received from the
[24]
property.
On the other hand, petitioners assert that only the amount of the winning
bidders purchase together with the interest thereon and on all other related
expenses should be paid as redemption price in accordance with Section 6 of Act
No. 3135 which provides that:
Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor in interest or any judicial

28
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
[25]
Code of Civil Procedure , in so far as these are not inconsistent with the provisions
of this Act.
Section 28 of Rule 39 of the 1997 Revised Rules of Civil Procedure states that:
SEC. 28. Time and manner of, and amounts payable on, successive redemptions;
notice to be given and filed. - The judgment obligor, or redemptioner, may redeem
the property from the purchaser, at any time within one (1) year from the date of
the registration of the certificate of sale, by paying the purchaser the amount of his
purchase, within one per centum per month interest thereon in addition, up to the
time of redemption, together with the amount of any assessments or taxes which
the purchaser may have paid thereon after purchase, and interest on such last
named amount at the same rate; and if the purchaser be also a creditor having a
prior lien to that of the redemptioner, other than the judgment under which such
purchase was made, the amount of such other lien, with interest. (Italics
supplied)
xxx xxx

xxx

This Court finds the petitioners position on that issue to be meritorious.

There is no doubt that Eduarda Belo, assignor of the petitioners, is an
accommodation mortgagor. The Pre-trial Order and respondent PNBs brief contain
a declaration of this fact. The dispute between the parties is whether Section 25 of
P.D. No. 694 applies to an accommodation mortgagor, or her assignees. The said
legal provision does not make a distinction between a debtor-mortgagor and an
accommodation mortgagor as it uses the broad term mortgagor. The appellate
court thus ruled that the provision applies even to an accommodation mortgagor
inasmuch as the law does not make any distinction. We disagree. Where a word
used in a statute has both a restricted and a general meaning, the general must
prevail over the restricted unless the nature of the subject matter or the context in
[26]
which it is employed clearly indicates that the limited sense is intended. It is
presumed that the legislature intended exceptions to its language which would
[27]
avoid absurd consequences of this character. In the case at bar, the qualification
to the general rule applies. The same provision of Section 25 of P.D. No. 694
provides that the mortgagor shall have the right to redeem the property by
paying all claims of the Bank against him. From said provision can be deduced that

the mortgagor referred to by that law is one from whom the bank has a claim in the
form of outstanding or unpaid loan; he is also called a borrower or debtormortgagor. On the other hand, respondent PNB has no claim against
accommodation mortgagor Eduarda Belo inasmuch as she only mortgaged her
property to accommodate the Eslabon spouses who are the loan borrowers of the
PNB. The principal contract is the contract of loan between the Eslabon spouses, as
borrowers/debtors, and the PNB as lender. The accommodation real estate
mortgage (which secures the loan) is only an accessory contract. It is our view and
we hold that the term mortgagor in Section 25 of P.D. No. 694 pertains only to a
debtor-mortgagor and not to an accommodation mortgagor.
It is well settled that courts are not to give a statute a meaning that would
lead to absurdities. If the words of a statute are susceptible of more than one
meaning, the absurdity of the result of one construction is a strong argument
[28]
against its adoption, and in favor of such sensible interpretation. We test a law
by its result. A law should not be interpreted so as not to cause an injustice. There
are laws which are generally valid but may seem arbitrary when applied in a
particular case because of its peculiar circumstances. We are not bound to apply
[29]
them in slavish obedience to their language.
The interpretation accorded by respondent PNB to Section 25 of P.D. No. 694
is unfair and unjust to accommodation mortgagors and their assignees. Forcing an
accommodation mortgagor like Eduarda Belo to pay for what the principal debtors
(Eslabon spouses) owe to respondent bank is to punish her for the accommodation
and generosity she accorded to the Eslabon spouses who were then hard pressed
for additional collaterals needed to secure their bank loan. Respondents PNB and
spouses Eslabons very well knew that she merely consented to be a mere
accommodation mortgagor.
The circumstances of the case at bar also provide for ample reason why
petitioners cannot be made to pay the entire liability of the principal debtors,
Eslabon spouses, to respondent PNB.
The trial court found that respondent PNBs application for extrajudicial
[30]
foreclosure and public auction sale of Eduarda Belos mortgaged property was
filed under Act No. 3135, as amended by P.D. No. 385. The notice of extrajudicial
sale, the Certificate of Sheriffs Sale, and the letter it sent to Eduarda Belo did not
mention P. D. No. 694 as the basis for redemption. As aptly ruled by the trial
court In fairness to these mortgagors, their successors-in-interest, or innocent purchasers
for value of their redemption rights, PNB should have at least advised them that
redemption would be governed by its Revised Charter or PD 69, and not by Act

29
3135 and the Rules of Court, as commonly practiced This practice of defendant
Bank is manifestly unfair and unjust to these redemptioners who are caught by
surprise and usually taken aback by the enormous claims of the Bank not shown in
[31]
the Notice of Extrajudicial Sale or the Certificate of Sheriffs Sale, as in this case.
Moreover, the mortgage contract explicitly provides that . the mortgagee
may immediately foreclose this mortgage judicially in accordance with the Rules of
Court or extrajudicially in accordance with Act No. 3135, as amended and
[32]
Presidential Decree No. 385... Since the mortgage contract in this case is in the
nature of a contract of adhesion as it was prepared solely by respondent, it has to
be interpreted in favor of petitioners. The respondent bank however tries to
renege on this contractual commitment by seeking refuge in the 1989 case of Sy v.
[33]
Court of Appeals wherein this Court ruled that the redemption price is equal to
the total amount of indebtedness to the banks claim inasmuch as Section 78 of the
General Banking Act is an amendment to Section 6 of Act No. 3135, despite the fact
that the extrajudicial foreclosure procedure followed by the PNB was explicitly
under or in accordance with Act No. 3135.
[34]

In the 1996 case of China Banking Corporation v. Court of Appeals, where

the parties also stipulated that Act No. 3135 is the controlling law in case of
foreclosure, this Court ruled that;
By invoking the said Act, there is no doubt that it must govern the manner in which
the sale and redemption shall be effected. Clearly, the fundamental principle that
contracts are respected as the law between the contracting parties finds application
in the present case, specially where they are not contrary to law, morals, good
[35]
customs and public policy.
More importantly, the ruling pronounced in Sy v. Court of Appeals and
[36]
other cases, that the General Banking Act and P.D. No. 694 shall prevail over Act
No. 3135 with respect to the redemption price, does not apply here inasmuch as in
the said cases the redemptioners were the debtors themselves or their assignees,
and not an accommodation mortgagor or the latters assignees such as in the case
at bar. In the said cases, the debtor-mortgagors were required to pay as
redemption price their entire liability to the bank inasmuch as they were obligated
to pay their loan which is a principal obligation in the first place. On the other hand,
accommodation mortgagors as such are not in anyway liable for the payment of the
loan or principal obligation of the debtor/borrower. The liability of the
accommodation mortgagors extends only up to the loan value of their mortgaged
property and not to the entire loan itself. Hence, it is only just that they be allowed
to redeem their mortgaged property by paying only the winning bid price thereof
(plus interest thereon) at the public auction sale.

One wonders why respondent PNB invokes Act No. 3135 in its contracts
without qualification and yet in the end appears to disregard the same when it finds
its provisions unfavorable to it. This is unfair to the other contracting party who in
good faith believes that respondent PNB would comply with the contractual
agreement.
It is therefore our view and we hold that Section 78 of the General Banking
Act, as amended by P.D. No. 1828, is inapplicable to accommodation mortgagors in
the redemption of their mortgaged properties.
While the petitioners, as assignees of Eduarda Belo, are not required to pay
the entire claim of respondent PNB against the principal debtors, spouses Eslabon,
they can only exercise their right of redemption with respect to the parcel of land
belonging to Eduarda Belo, the accommodation mortgagor. Thus, they have to pay
the bid price less the corresponding loan value of the foreclosed four (4) residential
lots of the spouses Eslabon.
The respondent PNB contends that to allow petitioners to redeem only the
property belonging to their assignor, Eduarda Belo, would violate the principle of
indivisibility of mortgage contracts. We disagree.
Article 2089 of the Civil Code of the Philippines, provides that:
A pledge or mortgage is indivisible, even though the debt may be divided among
the successors in interest of the debtor or of the creditor.
Therefore, the debtors heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as the debt is not
completely satisfied.
Neither can the creditors heir who received his share of the debt return the pledge
or cancel the mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which, there being several things
given in mortgage or pledge, each one of them guarantees only a determinate
portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is
satisfied.

30
There is no dispute that the mortgage on the four (4) parcels of land by the
Eslabon spouses and the other mortgage on the property of Eduarda Belo both
secure the loan obligation of respondents spouses Eslabon to respondent
PNB. However, we are not persuaded by the contention of the respondent PNB
that the indivisibility concept applies to the right of redemption of an
accommodation mortgagor and her assignees. The jurisprudence in Philippine
[37]
National Bank v. Agudelo is enlightening to the case at bar, to wit:
xxx

xxx

xxx

However, Paz Agudelo y Gonzaga (the principal) x x x gave her consent to the lien
on lot No. 878 x x x. This acknowledgment, however, does not extend to lots Nos.
207 and 61 inasmuch as, although it is true that a mortgage is indivisible as to the
contracting parties and as to their successors in interest (Article 1860, Civil code), it
is not so with respect to a third person who did not take part in the constitution
thereof either personally or through an agent x x x. Therefore, the only liability of
the defendant-appellant Paz Agudelo y Gonzaga is that which arises from the
aforesaid acknowledgment but only with respect to the lien and not to the principal
obligation secured by the mortgage acknowledged by her to have been constituted
[38]
on said lot No. 878 x x x. Such liability is not direct but a subsidiary one.
xxx

xxx

xxx

auction ..... It further states that You (Belo) have, therefore, one year from July 1,
1991 within which to redeem your mortgaged property/ies, should you desire to
redeem it. Respondent PNB never mentioned that she was bound to redeem the
entire mortgaged properties including the four (4) residential properties of the
spouses Eslabon. The letter was explicit in mentioning Eduarda Belos property
only. From the said statement, there is then an admission on the part of
respondent PNB that redemption only extends to the subject property of Eduarda
Belo for the reason that the notice of the sale limited the redemption to said
property.
WHEREFORE, the petition is partially granted in that the petitioners are
hereby allowed to redeem only the property, covered and described in Transfer
Certificate of Title No. T-7493-Capiz registered in the name of Eduarda Belo, by
paying only the bid price less the corresponding loan value of the foreclosed four
(4) residential lots of the respondents spouses Marcos and Arsenia Eslabon,
consistent with the Decision of the Regional Trial Court of Roxas City in Civil Case
No. V-6182.
SO ORDERED.

B. Pledge (Arts. 2093-2123)

Wherefore, it is hereby held that the liability contracted by the aforesaid

defendant-appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro
A. Garrucho (the agent), limited to lot No. 87.
xxx

xxx

Republic of the Philippines

SUPREME COURT
Manila

xxx

From the wordings of the law, indivisibility arises only when there is a debt,
that is, there is a debtor-creditor relationship. But, this relationship is wanting in
the case at bar in the sense that petitioners are assignees of an accommodation
mortgagor and not of a debtor-mortgagor. Hence, it is fair and logical to allow the
petitioners to redeem only the property belonging to their assignor, Eduarda Belo.
With respect to the four (4) parcels of residential land belonging to the
Eslabon spouses, petitioners - being total strangers to said lots - lack legal
personality to redeem the same. Fair play and justice demand that the respondent
PNBs interest of recovering its entire bank claim should not be at the expense
of petitioners, as assignees of Eduarda Belo, who is not indebted to it. Besides, the
[39]
letter sent by respondent PNB to Eduarda Belo states that your (Belo)
mortgaged property/ies with PNB covered by TCT # T-7493 was/were sold at public

EN BANC
G.R. No. L-19227

February 17, 1968

DIOSDADO YULIONGSIU, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.
Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant.
Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-appellee.
BENGZON, J.P., J.:

31
1

Plaintiff-appellant Diosdado Yuliongsiu was the owner of two (2) vessels,

namely: The M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued at
P63,000.00, and operated the FS-203, valued at P210,672.24, which was purchased
by him from the Philippine Shipping Commission, by installment or on account. As
of January or February, 1943, plaintiff had paid to the Philippine Shipping
Commission only the sum of P76,500 and the balance of the purchase price was
2
payable at P50,000 a year, due on or before the end of the current year.
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged
the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for the Port of
3
Cebu.
Subsequently, plaintiff effected partial payment of the loan in the sum of
P20,000. The remaining balance was renewed by the execution of two (2)
promissory notes in the bank's favor. The first note, dated December 18, 1947, for
P20,000, was due on April 16, 1948 while the second, dated February 26, 1948, for
P10,000, was due on June 25, 1948. These two notes were never paid at all by
4
plaintiff on their respective due dates.
On April 6, 1948, the bank filed criminal charges against plaintiff and two
other accused for estafa thru falsification of commercial documents, because
plaintiff had, as last indorsee, deposited with defendant bank, from March 11 to
March 31, 1948, seven Bank of the Philippine Islands checks totalling P184,000. The
drawer thereof one of the co-accused had no funds in the drawee bank.
However, in connivance with one employee of defendant bank, plaintiff was able to
withdraw the amount credited to him before the discovery of the defraudation on
April 2, 1948. Plaintiff and his co-accused were convicted by the trial court
and sentenced to indemnify the defendant bank in the sum of P184,000. On appeal,
the conviction was affirmed by the Court of Appeals on October 31, 1950. The
corresponding writ of execution issued to implement the order for indemnification
5
was returned unsatisfied as plaintiff was totally insolvent.
Meanwhile, together with the institution of the criminal action, defendant
bank took physical possession of three pledged vessels while they were at the Port
of Cebu, and on April 29, 1948, after the first note fell due and was not paid, the
Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff
pursuant to the terms of the pledge contract, executed a document of sale, Exhibit

"4", transferring the two pledged vessels and plaintiff's equity in FS-203, to
6
defendant bank for P30,042.72.
The FS-203 was subsequently surrendered by the defendant bank to the
Philippine Shipping Commission which rescinded the sale to plaintiff on September
8, 1948, for failure to pay the remaining installments on the purchase price
7
thereof. The other two boats, the M/S Surigao and the M/S Don Dino were sold by
defendant bank to third parties on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of First Instance of
Cebu to recover the three vessels or their value and damages from defendant bank.
The latter filed its answer, with a counterclaim for P202,000 plus P5,000 damages.
After issues were joined, a pretrial was held resulting in a partial stipulation of facts
dated October 2, 1958, reciting most of the facts above-narrated. During the course
of the trial, defendant amended its answer reducing its claim from P202,000 to
8
P8,846.01, but increasing its alleged damages to P35,000.
The lower court rendered its decision on February 13, 1960 ruling: (a) that the
bank's taking of physical possession of the vessels on April 6, 1948 was justified by
the pledge contract, Exhibit "A" & "1-Bank" and the law; (b) that the private sale of
the pledged vessels by defendant bank to itself without notice to the plaintiffpledgor as stipulated in the pledge contract was likewise valid; and (c) that the
defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as his
remaining account balance, or set-off these sums against the indemnity which
plaintiff was ordered to pay to it in the criminal cases.
When his motion for reconsideration and new trial was denied, plaintiff
brought the appeal to Us, the amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant would have this
Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the
creditor defendant could not take possession of the chattels object thereof until
after there has been default. The submission is without merit. The parties stipulated
as a fact that Exhibit "A" & "1-Bank" is a pledge contract
3. That a credit line of P50,000.00 was extended to the plaintiff by
the defendant Bank, and the plaintiff obtained and received from the said
Bank the sum of P50,000.00, and in order to guarantee the payment of this
loan, the pledge contract, Exhibit "A" & Exhibit "1-Bank", was executed and
duly registered with the Office of the Collector of Customs for the Port of
Cebu on the date appearing therein; (Emphasis supplied)1wph1.t

32
Necessarily, this judicial admission binds the plaintiff. Without any showing
that this was made thru palpable mistake, no amount of rationalization can offset
9
it.
The defendant bank as pledgee was therefore entitled to the actual
possession of the vessels. While it is true that plaintiff continued operating the
vessels after the pledge contract was entered into, his possession was expressly
10
made "subject to the order of the pledgee." The provision of Art. 2110 of the
11
present Civil Code being new cannot apply to the pledge contract here which
was entered into on June 30, 1947. On the other hand, there is an authority
supporting the proposition that the pledgee can temporarily entrust the physical
possession of the chattels pledged to the pledgor without invalidating the pledge. In
such a case, the pledgor is regarded as holding the pledged property merely as
12
trustee for the pledgee.
Plaintiff-appellant would also urge Us to rule that constructive delivery is
insufficient to make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87
which ruled that there has to be actual delivery of the chattels pledged. But then
there is also Banco Espaol-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic
delivery would suffice. An examination of the peculiar nature of the things pledged
in the two cases will readily dispel the apparent contradiction between the two
rulings. In Betita v. Ganzon, the objects pledged carabaos were easily capable
of actual, manual delivery unto the pledgee. In Banco Espaol-Filipino v. Peterson,
the objects pledged goods contained in a warehouse were hardly capable of
actual, manual delivery in the sense that it was impractical as a whole for the
particular transaction and would have been an unreasonable requirement. Thus, for
purposes of showing the transfer of control to the pledgee, delivery to him of the
keys to the warehouse sufficed. In other words, the type of delivery will depend
upon the nature and the peculiar circumstances of each case. The parties here
agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold
said property subject to the order of the pledgee." Considering the circumstances of
this case and the nature of the objects pledged, i.e., vessels used in maritime
business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge contract, in
full control of the vessels thru the plaintiff, the former could take actual possession
at any time during the life of the pledge to make more effective its security. Its
taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it
unjustified considering that plaintiff had just defrauded the defendant bank in the
huge sum of P184,000.

The stand We have taken is not without precedent. The Supreme Court of
13
14
Spain, in a similar case involving Art. 1863 of the old Civil Code, has ruled:
Que si bien la naturaleza del contrato de prenda consiste en pasar las
cosas a poder del acreedor o de un tercero y no quedar en la del deudor,
como ha sucedido en el caso de autos, es lo cierto que todas las partes
interesadas, o sean acreedor, deudor y Sociedad, convinieron que
continuaran los coches en poder del deudor para no suspender el trafico, y
el derecho de no uso de la prenda pertenence al deudor, y el de dejar la
cosa bajo su responsabilidad al acreedor, y ambos convinieron por creerlo
util para las partes contratantes, y estas no reclaman perjuicios no se
infringio, entre otros este articulo.
In the second assignment of error imputed to the lower court plaintiffappellant attacks the validity of the private sale of the pledged vessels in favor of
the defendant bank itself. It is contended first, that the cases holding that the
statutory requirements as to public sales with prior notice in connection with
foreclosure proceedings are waivable, are no longer authoritative in view of the
passage of Act 3135, as amended; second, that the charter of defendant bank does
not allow it to buy the property object of foreclosure in case of private sales;
and third, that the price obtained at the sale is unconscionable.
There is no merit in the claims. The rulings in Philippine National Bank v. De
Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative
despite the passage of Act 3135. This law refers only, and is limited, to foreclosure
15
of real estate mortgages. So, whatever formalities there are in Act 3135 do not
apply to pledge. Regarding the bank's authority to be the purchaser in the
foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only states
that if the sale is public, the bank could purchase the whole or part of the property
sold " free from any right of redemption on the part of the mortgagor or pledgor."
This even argues against plaintiff's case since the import thereof is this if the sale
were private and the bank became the purchaser, the mortgagor or pledgor could
redeem the property. Hence, plaintiff could have recovered the vessels by
exercising this right of redemption. He is the only one to blame for not doing so.
Regarding the third contention, on the assumption that the purchase price
was unconscionable, plaintiff's remedy was to have set aside the sale. He did not
avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time
an obligation to return the P184,000 fraudulently taken by him from defendant
bank.

33
The last assignment of error has to do with the damages allegedly suffered by
plaintiff-appellant by virtue of the taking of the vessels. But in view of the results
reached above, there is no more need to discuss the same.
On the whole, We cannot say the lower court erred in disposing of the case as
it did. Plaintiff-appellant was not all-too-innocent as he would have Us believe. He
did defraud the defendant bank first. If the latter countered with the seizure and
sale of the pledged vessels pursuant to the pledge contract, it was only to protect
its interests after plaintiff had defaulted in the payment of the first promissory
note. Plaintiff-appellant did not come to court with clean hands.
WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against
plaintiff-appellant. So ordered.
epublic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Nepomuceno, Hofilea & Guingona for private.

REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.
1
23615 affirming with modifications, the earlier decision of the Regional Trial Court

of Manila, Branch XLII, which dismissed the complaint filed therein by herein
petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and adopted
by respondent court, appears of record:
1. On various dates, defendant, a commercial banking institution,
through its Sucat Branch issued 280 certificates of time deposit
(CTDs) in favor of one Angel dela Cruz who deposited with herein
defendant the aggregate amount of P1,120,000.00, as follows:
(Joint Partial Stipulation of Facts and Statement of Issues, Original
Records, p. 207; Defendant's Exhibits 1 to 280);
CTD CTD
Dates Serial Nos. Quantity Amount
22 Feb. 82 90101 to 90120 20 P80,000
26 Feb. 82 74602 to 74691 90 360,000
2 Mar. 82 74701 to 74740 40 160,000
4 Mar. 82 90127 to 90146 20 80,000
5 Mar. 82 74797 to 94800 4 16,000
5 Mar. 82 89965 to 89986 22 88,000
5 Mar. 82 70147 to 90150 4 16,000
8 Mar. 82 90001 to 90020 20 80,000
9 Mar. 82 90023 to 90050 28 112,000
9 Mar. 82 89991 to 90000 10 40,000
9 Mar. 82 90251 to 90272 22 88,000

Total 280 P1,120,000
===== ========
2. Angel dela Cruz delivered the said certificates of time (CTDs) to
herein plaintiff in connection with his purchased of fuel products
from the latter (Original Record, p. 208).
3. Sometime in March 1982, Angel dela Cruz informed Mr.
Timoteo Tiangco, the Sucat Branch Manger, that he lost all the
certificates of time deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized Affidavit of Loss, as
required by defendant bank's procedure, if he desired
replacement of said lost CTDs (TSN, February 9, 1987, pp. 48-50).

34
4. On March 18, 1982, Angel dela Cruz executed and delivered to
defendant bank the required Affidavit of Loss (Defendant's Exhibit
281). On the basis of said affidavit of loss, 280 replacement CTDs
were issued in favor of said depositor (Defendant's Exhibits 282561).
5. On March 25, 1982, Angel dela Cruz negotiated and obtained a
loan from defendant bank in the amount of Eight Hundred
Seventy Five Thousand Pesos (P875,000.00). On the same date,
said depositor executed a notarized Deed of Assignment of Time
Deposit (Exhibit 562) which stated, among others, that he (de la
Cruz) surrenders to defendant bank "full control of the indicated
time deposits from and after date" of the assignment and further
authorizes said bank to pre-terminate, set-off and "apply the said
time deposits to the payment of whatever amount or amounts
may be due" on the loan upon its maturity (TSN, February 9, 1987,
pp. 60-62).
6. Sometime in November, 1982, Mr. Aranas, Credit Manager of
plaintiff Caltex (Phils.) Inc., went to the defendant bank's Sucat
branch and presented for verification the CTDs declared lost by
Angel dela Cruz alleging that the same were delivered to herein
plaintiff "as security for purchases made with Caltex Philippines,
Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
7. On November 26, 1982, defendant received a letter
(Defendant's Exhibit 563) from herein plaintiff formally informing
it of its possession of the CTDs in question and of its decision to
pre-terminate the same.
8. On December 8, 1982, plaintiff was requested by herein
defendant to furnish the former "a copy of the document
evidencing the guarantee agreement with Mr. Angel dela Cruz" as
well as "the details of Mr. Angel dela Cruz" obligation against
which plaintiff proposed to apply the time deposits (Defendant's
Exhibit 564).
9. No copy of the requested documents was furnished herein
defendant.

10. Accordingly, defendant bank rejected the plaintiff's demand

and claim for payment of the value of the CTDs in a letter dated
February 7, 1983 (Defendant's Exhibit 566).
11. In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter setoff and applied the time deposits in question to the payment of
the matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the
3
instant complaint.
On appeal, as earlier stated, respondent court affirmed the lower court's dismissal
of the complaint, hence this petition wherein petitioner faults respondent court in
ruling (1) that the subject certificates of deposit are non-negotiable despite being
clearly negotiable instruments; (2) that petitioner did not become a holder in due
course of the said certificates of deposit; and (3) in disregarding the pertinent
provisions of the Code of Commerce relating to lost instruments payable to
4
bearer.
The instant petition is bereft of merit.
A sample text of the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this recourse.
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
Date of Maturity FEB. 23, 1984 FEB 22, 1982, 19____

35
This is to Certify that B E A R E R has deposited
in this Bank the sum of PESOS: FOUR
THOUSAND ONLY, SECURITY BANK SUCAT
OFFICE P4,000 & 00 CTS Pesos, Philippine
Currency, repayable to said depositor 731
days. after date, upon presentation and
surrender of this certificate, with interest at the
rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)

AUTHORIZED SIGNATURES

Respondent court ruled that the CTDs in question are non-negotiable instruments,
nationalizing as follows:

(b) Must contain an unconditional promise or order to pay a sum

certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d) set forth
above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch Manager way
back in 1982, testified in open court that the depositor reffered to in the CTDs is no
other than Mr. Angel de la Cruz.
xxx xxx xxx

. . . While it may be true that the word "bearer" appears rather

boldly in the CTDs issued, it is important to note that after the
word "BEARER" stamped on the space provided supposedly for
the name of the depositor, the words "has deposited" a certain
amount follows. The document further provides that the amount
deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves
manifest with clarity that they are payable, not to whoever
purports to be the "bearer" but only to the specified person
indicated therein, the depositor. In effect, the appellee bank
acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor
6
the amount indicated thereon at the stipulated date.
We disagree with these findings and conclusions, and hereby hold that the CTDs in
question are negotiable instruments. Section 1 Act No. 2031, otherwise known as
the Negotiable Instruments Law, enumerates the requisites for an instrument to
become negotiable, viz:
(a) It must be in writing and signed by the maker or drawer;

Atty. Calida:
q In other words Mr. Witness, you are saying
that per books of the bank, the depositor
referred (sic) in these certificates states that it
was Angel dela Cruz?
witness:
a Yes, your Honor, and we have the record to
show that Angel dela Cruz was the one who
cause (sic) the amount.
Atty. Calida:
q And no other person or entity or company,
Mr. Witness?
witness:
a None, your Honor.

36
xxx xxx xxx
Atty. Calida:
q Mr. Witness, who is the depositor identified in
all of these certificates of time deposit insofar as
the bank is concerned?
witness:
a Angel dela Cruz is the depositor. 8
xxx xxx xxx
On this score, the accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the instrument
9
itself. In the construction of a bill or note, the intention of the parties is to control,
10
if it can be legally ascertained. While the writing may be read in the light of
surrounding circumstances in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are to be added to
it or substituted in its stead. The duty of the court in such case is to ascertain, not
what the parties may have secretly intended as contradistinguished from what their
words express, but what is the meaning of the words they have used. What the
11
parties meant must be determined by what they said.
Contrary to what respondent court held, the CTDs are negotiable instruments. The
documents provide that the amounts deposited shall be repayable to the depositor.
And who, according to the document, is the depositor? It is the "bearer." The
documents do not say that the depositor is Angel de la Cruz and that the amounts
deposited are repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter, whosoever may be
the bearer at the time of presentment.
If it was really the intention of respondent bank to pay the amount to Angel de la
Cruz only, it could have with facility so expressed that fact in clear and categorical
terms in the documents, instead of having the word "BEARER" stamped on the
space provided for the name of the depositor in each CTD. On the wordings of the
documents, therefore, the amounts deposited are repayable to whoever may be
the bearer thereof. Thus, petitioner's aforesaid witness merely declared that Angel

de la Cruz is the depositor "insofar as the bank is concerned," but obviously other
parties not privy to the transaction between them would not be in a position to
know that the depositor is not the bearer stated in the CTDs. Hence, the situation
would require any party dealing with the CTDs to go behind the plain import of
what is written thereon to unravel the agreement of the parties thereto through
facts aliunde. This need for resort to extrinsic evidence is what is sought to be
avoided by the Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or stipulations in a
12
contract shall not favor the party who caused the obscurity.
The next query is whether petitioner can rightfully recover on the CTDs. This time,
the answer is in the negative. The records reveal that Angel de la Cruz, whom
petitioner chose not to implead in this suit for reasons of its own, delivered the
CTDs amounting to P1,120,000.00 to petitioner without informing respondent bank
thereof at any time. Unfortunately for petitioner, although the CTDs are bearer
instruments, a valid negotiation thereof for the true purpose and agreement
between it and De la Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in
reality delivered to it as a security for De la Cruz' purchases of its fuel products. Any
doubt as to whether the CTDs were delivered as payment for the fuel products or as
a security has been dissipated and resolved in favor of the latter by petitioner's own
authorized and responsible representative himself.
In a letter dated November 26, 1982 addressed to respondent Security Bank, J.Q.
Aranas, Jr., Caltex Credit Manager, wrote: ". . . These certificates of deposit were
negotiated to us by Mr. Angel dela Cruz to guarantee his purchases of fuel products"
13
(Emphasis ours.) This admission is conclusive upon petitioner, its protestations
notwithstanding. Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved
14
as against the person relying thereon. A party may not go back on his own acts
15
and representations to the prejudice of the other party who relied upon them. In
the law of evidence, whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to
act upon such belief, he cannot, in any litigation arising out of such declaration, act,
16
or omission, be permitted to falsify it.
If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the words "to
guarantee" in the letter aforequoted. Besides, when respondent bank, as defendant
17
in the court below, moved for a bill of particularity therein praying, among
others, that petitioner, as plaintiff, be required to aver with sufficient definiteness

37
or particularity (a) the due date or dates of payment of the alleged indebtedness of
Angel de la Cruz to plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz as payment of the latter's alleged
18
indebtedness to it, plaintiff corporation opposed the motion. Had it produced the
receipt prayed for, it could have proved, if such truly was the fact, that the CTDs
were delivered as payment and not as security. Having opposed the motion,
petitioner now labors under the presumption that evidence willfully suppressed
19
would be adverse if produced.
Under the foregoing circumstances, this disquisition in Intergrated Realty
20
Corporation, et al. vs. Philippine National Bank, et al. is apropos:
. . . Adverting again to the Court's pronouncements in Lopez,
supra, we quote therefrom:
The character of the transaction between the
parties is to be determined by their intention,
regardless of what language was used or what
the form of the transfer was. If it was intended
to secure the payment of money, it must be
construed as a pledge; but if there was some
other intention, it is not a pledge. However,
even though a transfer, if regarded by itself,
appears to have been absolute, its object and
character might still be qualified and explained
by contemporaneous writing declaring it to have
been a deposit of the property as collateral
security. It has been said that a transfer of
property by the debtor to a creditor, even if
sufficient on its face to make an absolute
conveyance, should be treated as a pledge if the
debt continues in inexistence and is not
discharged by the transfer, and that accordingly
the use of the terms ordinarily importing
conveyance of absolute ownership will not be
given that effect in such a transaction if they are
also commonly used in pledges and mortgages
and therefore do not unqualifiedly indicate a
transfer of absolute ownership, in the absence
of clear and unambiguous language or other
circumstances excluding an intent to pledge.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under
the Negotiable Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the transferee the
21
holder thereof, and a holder may be the payee or indorsee of a bill or note, who
22
is in possession of it, or the bearer thereof. In the present case, however, there
was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of
petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs
would have sufficed. Here, the delivery thereof only as security for the purchases of
Angel de la Cruz (and we even disregard the fact that the amount involved was not
disclosed) could at the most constitute petitioner only as a holder for value by
reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by
mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the
principal obligation, must be contractually provided for.
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the extent of
23
his lien. As such holder of collateral security, he would be a pledgee but the
requirements therefor and the effects thereof, not being provided for by the
Negotiable Instruments Law, shall be governed by the Civil Code provisions on
24
pledge of incorporeal rights, which inceptively provide:
Art. 2095. Incorporeal rights, evidenced by negotiable
instruments, . . . may also be pledged. The instrument proving the
right pledged shall be delivered to the creditor, and if negotiable,
must be indorsed.
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual
findings of respondent court quoted at the start of this opinion show that petitioner
failed to produce any document evidencing any contract of pledge or guarantee
25
agreement between it and Angel de la Cruz. Consequently, the mere delivery of
the CTDs did not legally vest in petitioner any right effective against and binding
upon respondent bank. The requirement under Article 2096 aforementioned is not
a mere rule of adjective law prescribing the mode whereby proof may be made of
the date of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
26
adversely.

38
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of
27
respondent bank was embodied in a public instrument. With regard to this other
mode of transfer, the Civil Code specifically declares:
Art. 1625. An assignment of credit, right or action shall produce
no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Respondent bank duly complied with this statutory requirement. Contrarily,
petitioner, whether as purchaser, assignee or lien holder of the CTDs, neither
proved the amount of its credit or the extent of its lien nor the execution of any
public instrument which could affect or bind private respondent. Necessarily,
therefore, as between petitioner and respondent bank, the latter has definitely the
better right over the CTDs in question.
Finally, petitioner faults respondent court for refusing to delve into the question of
whether or not private respondent observed the requirements of the law in the
case of lost negotiable instruments and the issuance of replacement certificates
therefor, on the ground that petitioner failed to raised that issue in the lower
28
court.
On this matter, we uphold respondent court's finding that the aspect of alleged
negligence of private respondent was not included in the stipulation of the parties
29
and in the statement of issues submitted by them to the trial court. The issues
agreed upon by them for resolution in this case are:
1. Whether or not the CTDs as worded are negotiable
instruments.
2. Whether or not defendant could legally apply the amount
covered by the CTDs against the depositor's loan by virtue of the
assignment (Annex "C").
3. Whether or not there was legal compensation or set off
involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.
4. Whether or not plaintiff could compel defendant to
preterminate the CTDs before the maturity date provided therein.

5. Whether or not plaintiff is entitled to the proceeds of the CTDs.

6. Whether or not the parties can recover damages, attorney's
fees and litigation expenses from each other.
As respondent court correctly observed, with appropriate citation of some doctrinal
authorities, the foregoing enumeration does not include the issue of negligence on
the part of respondent bank. An issue raised for the first time on appeal and not
raised timely in the proceedings in the lower court is barred by
30
estoppel. Questions raised on appeal must be within the issues framed by the
parties and, consequently, issues not raised in the trial court cannot be raised for
31
the first time on appeal.
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of surprise,
parties are expected to disclose at a pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged or
impeaching matters. The determination of issues at a pre-trial conference bars the
32
consideration of other questions on appeal.
To accept petitioner's suggestion that respondent bank's supposed negligence may
be considered encompassed by the issues on its right to preterminate and receive
the proceeds of the CTDs would be tantamount to saying that petitioner could raise
on appeal any issue. We agree with private respondent that the broad ultimate
issue of petitioner's entitlement to the proceeds of the questioned certificates can
be premised on a multitude of other legal reasons and causes of action, of which
respondent bank's supposed negligence is only one. Hence, petitioner's submission,
33
if accepted, would render a pre-trial delimitation of issues a useless exercise.
Still, even assuming arguendo that said issue of negligence was raised in the court
below, petitioner still cannot have the odds in its favor. A close scrutiny of the
provisions of the Code of Commerce laying down the rules to be followed in case of
lost instruments payable to bearer, which it invokes, will reveal that said provisions,
even assuming their applicability to the CTDs in the case at bar, are merely
permissive and not mandatory. The very first article cited by petitioner speaks for
itself.
Art 548. The dispossessed owner, no matter for what cause it may
be, may apply to the judge or court of competent jurisdiction,
asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to

39
prevent the ownership of the instrument that a duplicate be
issued him. (Emphasis ours.)

Francisco A. Lara, Jr. for petitioner.

D. T. Ramos and Associates for respondent Family Savings Bank.

xxx xxx xxx

Romulo T. Santos for respondent CAMS Trading.
The use of the word "may" in said provision shows that it is not mandatory but
discretionary on the part of the "dispossessed owner" to apply to the judge or court
of competent jurisdiction for the issuance of a duplicate of the lost instrument.
Where the provision reads "may," this word shows that it is not mandatory but
34
35
discretional. The word "may" is usually permissive, not mandatory. It is an
36
auxiliary verb indicating liberty, opportunity, permission and possibility.
37

Moreover, as correctly analyzed by private respondent, Articles 548 to 558 of the

Code of Commerce, on which petitioner seeks to anchor respondent bank's
supposed negligence, merely established, on the one hand, a right of recourse in
favor of a dispossessed owner or holder of a bearer instrument so that he may
obtain a duplicate of the same, and, on the other, an option in favor of the party
liable thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the provisions cited by
petitioner categorically restricts or prohibits the issuance a duplicate or
replacement instrument sans compliance with the procedure outlined therein, and
none establishes a mandatory precedent requirement therefor.
WHEREFORE, on the modified premises above set forth, the petition is DENIED and
the appealed decision is hereby AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-78519 September 26, 1989
VICTORIA YAU CHU, assisted by her husband MICHAEL CHU, petitioners,
vs.
HON. COURT OF APPEALS, FAMILY SAVINGS BANK and/or CAMS TRADING
ENTERPRISES, INC.,respondents.

GRINO-AQUINO, J.:
This is a petition for review on certiorari to annul and set aside the Court of
Appeals' decision dated October 28, 1986 in CA-G.R. CV No. 03269 which affirmed
the decision of the trial court in favor of the private respondents in an action to
recover the petitioners' time deposits in the respondent Family Savings Bank.
Since 1980, the petitioner, Victoria Yau Chu, had been purchasing cement on credit
from CAMS Trading Enterprises, Inc. (hereafter "CAMS Trading" for brevity). To
guaranty payment for her cement withdrawals, she executed in favor of Cams
Trading deeds of assignment of her time deposits in the total sum of P320,000 in
the Family Savings Bank (hereafter the Bank). Except for the serial numbers and the
dates of the time deposit certificates, the deeds of assignment, which were
prepared by her own lawyer, uniformly provided
... That the assignment serves as a collateral or guarantee for the
payment of my obligation with the said CAMS TRADING
ENTERPRISES, INC. on account of my cement withdrawal from said
company, per separate contract executed between us.
On July 24,1980, Cams Trading notified the Bank that Mrs. Chu had an unpaid
account with it in the sum of P314,639.75. It asked that it be allowed to encash the
time deposit certificates which had been assigned to it by Mrs. Chu. It submitted to
the Bank a letter dated July 18, 1980 of Mrs. Chu admitting that her outstanding
account with Cams Trading was P404,500. After verbally advising Mrs. Chu of the
assignee's request to encash her time deposit certificates and obtaining her verbal
conformity thereto, the Bank agreed to encash the certificates.It delivered to Cams
Trading the sum of P283,737.75 only, as one time deposit certificate (No.
0048120954) lacked the proper signatures. Upon being informed of the
encashment, Mrs. Chu demanded from the Bank and Cams Trading that her time
deposit be restored. When neither complied, she filed a complaint to recover the
sum of P283,737.75 from them. The case was docketed in the Regional Trial Court

40
of Makati, Metro Manila (then CFI of Rizal, Pasig Branch XIX), as Civil Case No.
38861.
In a decision dated December 12, 1983, the trial court dismissed the complaint for
lack of merit.
Chu appealed to the Court of Appeals (CA-G.R. CV No. 03269) which affirmed the
dismissal of her complaint.

evidence which the debtor sought to present on appeal, were receipts for payments
made prior to July 18, 1980. Since the petitioner signed on July 18, 1980 a letter
admitting her indebtedness to be in the sum of P404,500, and there is no proof of
payment made by her thereafter to reduce or extinguish her debt, the application
of her time deposits, which she had assigned to the creditor to secure the payment
of her debt, was proper. The Court of Appeals did not commit a reversible error in
holding that it was so.
WHEREFORE, the petition for review is denied. Costs against the appellant.

In this petition for review, she alleges that the Court of Appeals erred:
SO ORDERED.
1. In not annulling the encashment of her time deposit certificates
as a pactum commissorium; and

Republic of the Philippines

SUPREME COURT
Manila

2. In not finding that the obligations secured by her time deposits

had already been paid.

THIRD DIVISION
We find no merit in the petition for review.
G.R. No. 132287
The Court of Appeals found that the deeds of assignment were contracts of pledge,
but, as the collateral was also money or an exchange of "peso for peso," the
provision in Article 2112 of the Civil Code for the sale of the thing pledged at public
auction to convert it into money to satisfy the pledgor's obligation, did not have to
be followed. All that had to be done to convert the pledgor's time deposit
certificates into cash was to present them to the bank for encashment after due
notice to the debtor.
The encashment of the deposit certificates was not a pacto commissorio which is
prohibited under Art. 2088 of the Civil Code. A pacto commissorio is a provision for
the automatic appropriation of the pledged or mortgaged property by the creditor
in payment of the loan upon its maturity. The prohibition against a pacto
commissorio is intended to protect the obligor, pledgor, or mortgagor against being
overreached by his creditor who holds a pledge or mortgage over property whose
value is much more than the debt. Where, as in this case, the security for the debt
is also money deposited in a bank, the amount of which is even less than the debt,
it was not illegal for the creditor to encash the time deposit certificates to pay the
debtors' overdue obligation, with the latter's consent.
Whether the debt had already been paid as now alleged by the debtor, is a factual
question which the Court of Appeals found not to have been proven for the

January 24, 2006

SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners,

vs.
DRA. ABDULIA C. RODRIGUEZ, MIGUELA R. JARIOL assisted by her husband
ANTOLIN JARIOL, SR., LEONORA NOLASCO assisted by her husband FELICIANO
NOLASCO, DOLORES SOBERANO assisted by her husband JOSE SOBERANO, JR.,
JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assisted
by her husband ALFONSO SORONIO, Respondents.
DECISION
TINGA, J.:
The assailed decision of the Court of Appeals took off on the premise that pledged
shares of stock auctioned off in a notarial sale could still be redeemed by their
owners. This notion is wrong, and we thus reverse.
The facts, as culled from the record, follow.
Respondents were the owners, in their respective personal capacities, of shares of
stock in a corporation known as the Quirino-Leonor-Rodriguez Realty

41
1

Inc. Sometime during the years 1979 to 1980, respondents secured by way of
pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray
("Parays") the payment of certain loan obligations. The shares pledged are listed
below:

the various pledges subject of these two cases." This decision attained finality after
it was affirmed by the Court of Appeals and the Supreme Court. The Entry of
Judgment was issued on 14 August 1991.

Abdulia C. Rodriguez . 300 shares covered by Stock Certificates

Respondents then received Notices of Sale which indicated that the pledged shares
were to be sold at public auction on 4 November 1991. However, before the
scheduled date of auction, all of respondents caused the consignation with the RTC
Clerk of Court of various amounts. It was claimed that respondents had attempted
to tender these payments to the Parays, but had been rebuffed. The deposited
amounts were as follows:

No. 023 & 093;

Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991

Leonora R. Nolasco .. 407 shares covered by Stock Certificates

Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991

No. 091 & 092;

Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991

Genoveva Soronio. 699 shares covered by Stock Certificates

38,385.44 .. 14 Oct. 1991

No. 025, 059 & 099;

Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991

Dolores R. Soberano. 699 shares covered by Stock Certificates

Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991

No. 021, 053, 022 & 097;

Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991

Julia Generoso .. 1,100 shares covered by Stock Certificates

520,216.39 ..11 Nov. 1991

No. 085, 051, 086 & 084;

Miguela Jariol . 490,000.00.. 18 Oct. 1991

Teresita Natividad.. 440 shares covered by Stock Certificates

88,000.00 ..18 Oct. 1991

Miguel Rodriguez Jariol .1,000 shares covered by Stock Certificates No. 011, 060, 061 & 062;

Nos. 054 & 055

When the Parays attempted to foreclose the pledges on account of respondents

failure to pay their loans, respondents filed complaints with the Regional Trial Court
(RTC) of Cebu City. The actions, which were consolidated and tried before RTC
Branch 14, Cebu City, sought the declaration of nullity of the pledge agreements,
3
among others. However the RTC, in its decision dated 14 October 1988, dismissed
the complaint and gave "due course to the foreclosure and sale at public auction of

Notwithstanding the consignations, the public auction took place as scheduled, with
petitioner Vidal Espeleta successfully bidding the amount of P6,200,000.00 for all of
the pledged shares. None of respondents participated or appeared at the auction of
4 November 1991.
Respondents instead filed on 13 November 1991 a complaint seeking the
declaration of nullity of the concluded public auction. The complaint, docketed as
Civil Case No. CEB-10926, was assigned to Branch 16 of the Cebu City RTC.
Respondents argued that their tender of payment and subsequent consignations

42
served to extinguish their loan obligations and discharged the pledge contracts.
Petitioners countered that the auction sale was conducted pursuant to the final and
executory judgment in Civil Cases Nos. R-20120 and 20131, and that the tender of
payment and consignations were made long after their obligations had fallen due.
The Cebu City RTC dismissed the complaint, expressing agreement with the position
6
of the Parays. It held, among others that respondents had failed to tender or
consign payments within a reasonable period after default and that the proper
7
remedy of respondents was to have participated in the auction sale. The Court of
Appeals Eighth Division however reversed the RTC on appeal, ruling that the
consignations extinguished the loan obligations and the subject pledge contracts;
8
and the auction sale of 4 November 1991 as null and void. Most crucially, the
appellate court chose to uphold the sufficiency of the consignations owing to an
imputed policy of the law that favored redemption and mandated a liberal
construction to redemption laws. The attempts at payment by respondents were
characterized as made in the exercise of the right of redemption.
The Court of Appeals likewise found fault with the auction sale, holding that there
was a need to individually sell the various shares of stock as they had belonged to
different pledgors. Thus, it was observed that the minutes of the auction sale
should have specified in detail the bids submitted for each of the shares of the
pledgors for the purpose of knowing the price to be paid by the different pledgors
upon redemption of the auctioned sales of stock.
Petitioners now argue before this Court that they were authorized to refuse as they
did the tender of payment since they were undertaking the auction sale pursuant to
the final and executory decision in Civil Cases Nos. R-20120 and 20131, which did
not authorize the payment of the principal obligation by respondents. They point
out that the amounts consigned could not extinguish the principal loan obligations
of respondents since they were not sufficient to cover the interests due on the
debt. They likewise argue that the essential procedural requisites for the auction
sale had been satisfied.
We rule in favor of petitioners.
The fundamental premise from which the appellate court proceeded was that the
consignations made by respondents should be construed in light of the rules of
redemption, as if respondents were exercising such right. In that perspective, the
Court of Appeals made three crucial conclusions favorable to respondents: that
their act of consigning the payments with the RTC should be deemed done in the
exercise of their right of redemption; that the buyer at public auction does not ipso

facto become the owner of the pledged shares pending the lapse of the one-year
redemptive period; and that the collective sale of the shares of stock belonging to
several individual owners without specification of the apportionment in the
applications of payment deprives the individual owners of the opportunity to know
of the price they would have to pay for the purpose of exercising the right of
redemption.
The appellate courts dwelling on the right of redemption is utterly off-tangent. The
right of redemption involves payments made by debtors after the foreclosure of
their properties, and not those made or attempted to be made, as in this case,
before the foreclosure sale. The proper focus of the Court of Appeals should have
been whether the consignations made by respondents sufficiently acquitted them
of their principal obligations. A pledge contract is an accessory contract, and is
necessarily discharged if the principal obligation is extinguished.
Nonetheless, the Court is now confronted with this rather new fangled theory, as
propounded by the Court of Appeals, involving the right of redemption over
pledged properties. We have no hesitation in pronouncing such theory as
discreditable.
Preliminarily, it must be clarified that the subject sale of pledged shares was an
extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as
typified by an execution sale. Under the Civil Code, the foreclosure of a pledge
occurs extrajudicially, without intervention by the courts. All the creditor needs to
do, if the credit has not been satisfied in due time, is to proceed before a Notary
9
Public to the sale of the thing pledged.
In this case, petitioners attempted as early as 1980 to proceed extrajudicially with
the sale of the pledged shares by public auction. However, extrajudicial sale was
stayed with the filing of Civil Cases No. R-20120 and 20131, which sought to annul
the pledge contracts. The final and executory judgment in those cases affirmed the
pledge contracts and disposed them in the following fashion:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the
complaints at bar, and
(1) Declaring the various pledges covered in Civil Cases Nos. R-20120 and
R-20131 valid and effective; and
(2) Giving due course to the foreclosure and sale at public auction of the
various pledges subject of these two cases.

43
Costs against the plaintiffs.
SO ORDERED.

10

The phrase "giving due course to the foreclosure and sale at public auction of the
various pledges subject of these two cases" may give rise to the impression that
such sale is judicial in character. While the decision did authorize the sale by public
auction, such declaration could not detract from the fact that the sale so authorized
is actually extrajudicial in character. Note that the final judgment in said cases
expressly did not direct the sale by public auction of the pledged shares, but instead
upheld the right of the Parays to conduct such sale at their own volition.
11

Indeed, as affirmed by the Civil Code, the decision to proceed with the sale by
public auction remains in the sole discretion of the Parays, who could very well
choose not to hold the sale without violating the final judgments in the
aforementioned civil cases. If the sale were truly in compliance with a final
judgment or order, the Parays would have no choice but to stage the sale for then
the order directing the sale arises from judicial compulsion. But nothing in the
dispositive portion directed the sale at public auction as a mandatory recourse, and
properly so since the sale of pledged property in public auction is, by virtue of the
Civil Code, extrajudicial in character.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only
to execution sales, more precisely execution sales of real property.
The Court of Appeals expressly asserted the notion that pledged property,
necessarily personal in character, may be redeemed by the creditor after being sold
at public auction. Yet, as a fundamental matter, does the right of redemption exist
over personal property? No law or jurisprudence establishes or affirms such right.
Indeed, no such right exists.
The right to redeem property sold as security for the satisfaction of an unpaid
obligation does not exist preternaturally. Neither is it predicated on proprietary
right, which, after the sale of property on execution, leaves the judgment debtor
and vests in the purchaser. Instead, it is a bare statutory privilege to be exercised
12
only by the persons named in the statute.
The right of redemption over mortgaged real property sold extrajudicially is
established by Act No. 3135, as amended. The said law does not extend the same
benefit to personal property. In fact, there is no law in our statute books which
vests the right of redemption over personal property. Act No. 1508, or the Chattel

Mortgage Law, ostensibly could have served as the vehicle for any legislative intent
to bestow a right of redemption over personal property, since that law governs the
extrajudicial sale of mortgaged personal property, but the statute is definitely silent
on the point. And Section 39 of the 1997 Rules of Civil Procedure, extensively relied
upon by the Court of Appeals, starkly utters that the right of redemption applies to
real properties, not personal properties, sold on execution.
Tellingly, this Court, as early as 1927, rejected the proposition that personal
13
property may be covered by the right of redemption. In Sibal 1. v. Valdez, the
Court ruled that sugar cane crops are personal property, and thus, not subject to
14
the right of redemption. No countervailing statute has been enacted since then
that would accord the right of redemption over personal property, hence the Court
can affirm this decades-old ruling as effective to date.
Since the pledged shares in this case are not subject to redemption, the Court of
Appeals had no business invoking and applying the inexistent right of redemption.
We cannot thus agree that the consigned payments should be treated with
liberality, or somehow construed as having been made in the exercise of the right of
redemption. We also must reject the appellate courts declaration that the buyer of
at the public auction is not "ipso facto" rendered the owner of the auctioned
shares, since the debtor enjoys the one-year redemptive period to redeem the
property. Obviously, since there is no right to redeem personal property, the rights
of ownership vested unto the purchaser at the foreclosure sale are not entangled in
any suspensive condition that is implicit in a redemptive period.
The Court of Appeals also found fault with the apparent sale in bulk of the pledged
shares, notwithstanding the fact that these shares were owned by several people,
on the premise the pledgors would be denied the opportunity to know exactly how
much they would need to shoulder to exercise the right to redemption. This
concern is obviously rendered a non-issue by the fact that there can be no right to
redemption in the first place. Rule 39 of the Rules of Court does provide for
instances when properties foreclosed at the same time must be sold separately,
such as in the case of lot sales for real property under Section 19. However, these
instances again pertain to execution sales and not extrajudicial sales. No provision
in the Rules of Court or in any law requires that pledged properties sold at auction
be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who
is given the right to choose which of the items should be sold if two or more things
15
are pledged. No similar option is given to pledgors under the Civil Code.
Moreover, there is nothing in the Civil Code provisions governing the extrajudicial

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sale of pledged properties that prohibits the pledgee of several different pledge
contracts from auctioning all of the pledged properties on a single occasion, or from
the buyer at the auction sale in purchasing all the pledged properties with a single
purchase price. The relative insignificance of ascertaining the definite
apportionments of the sale price to the individual shares lies in the fact that once a
pledged item is sold at auction, neither the pledgee nor the pledgor can recover
whatever deficiency or excess there may be between the purchase price and the
16
amount of the principal obligation.
A different ruling though would obtain if at the auction, a bidder expressed the
desire to bid on a determinate number or portion of the pledged shares. In such a
case, there may lie the need to ascertain with particularity which of the shares are
covered by the bid price, since not all of the shares may be sold at the auction and
correspondingly not all of the pledge contracts extinguished. The same situation
also would lie if one or some of the owners of the pledged shares participated in
the auction, bidding only on their respective pledged shares. However, in this case,
none of the pledgors participated in the auction, and the sole bidder cast his bid for
all of the shares. There obviously is no longer any practical reason to apportion the
bid price to the respective shares, since no matter how slight or significant the value
of the purchase price for the individual share is, the sale is completed, with the
pledgor and the pledgee not entitled to recover the excess or the deficiency, as the
case may be. To invalidate the subject auction solely on this point serves no cause
other than to celebrate formality for formalitys sake.
Clearly, the theory adopted by the Court of Appeals is in shambles, and cannot be
resurrected. The question though yet remains whether the consignations made by
respondents extinguished their respective pledge contracts in favor of the Parays so
as to enjoin the latter from auctioning the pledged shares.
There is no doubt that if the principal obligation is satisfied, the pledges should be
terminated as well. Article 2098 of the Civil Code provides that the right of the
creditor to retain possession of the pledged item exists only until the debt is paid.
Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the
return of the thing pledged against the will of the creditor, unless and until he has
paid the debt and its interest. At the same time, the right of the pledgee to
foreclose the pledge is also established under the Civil Code. When the credit has
not been satisfied in due time, the creditor may proceed with the sale by public
auction under the procedure provided under Article 2112 of the Code.
Respondents argue that their various consignations made prior to the auction sale
discharged them from the loan and the pledge agreements. They are mistaken.

Petitioners point out that while the amounts consigned by respondents could
answer for their respective principal loan obligations, they were not sufficient to
cover the interests due on these loans, which were pegged at the rate of 5% per
month or 60% per annum. Before this Court, respondents, save for Dolores
Soberano, do not contest this interest rate as alleged by petitioners. Soberano, on
17
the other hand, challenges this interest rate as "usurious."
The particular pledge contracts did not form part of the records elevated to this
Court. However, the 5% monthly interest rate was noted in the statement of facts
in the 14 October 1988 RTC Decision which had since become final. Moreover, the
said decision pronounced that even assuming that the interest rates of the various
loans were 5% per month, "it is doubtful whether the interests so charged were
exorbitantly or excessively usurious. This is because for sometime now, usury has
18
become legally inexistent." The finality of this 1988 Decision is a settled fact, and
thus the time to challenge the validity of the 5% monthly interest rate had long
passed. With that in mind, there is no reason for the Court to disagree with
petitioners that in order that the consignation could have the effect of extinguishing
the pledge contracts, such amounts should cover not just the principal loans, but
also the 5% monthly interests thereon.
It bears noting that the Court of Appeals also ruled that respondents had satisfied
the requirements under Section 18, Rule 39, which provides that the judgment
obligor may prevent the sale by paying the amount required by the execution and
19
the costs that have been incurred therein. However, the provision applies only to
execution sales, and not extra-judicial sales, as evidenced by the use of the phrases
"sale of property on execution" and "judgment obligor." The reference is inapropos,
and even if it were applicable, the failure of the payment to cover the interests due
renders it insufficient to stay the sale.
The effect of the finality of the judgments in Civil Cases Nos. R-20120 and R-20131
should also not be discounted. Petitioners right to proceed with the auction sale
was affirmed not only by law, but also by a final court judgment. Any subsequent
court ruling that would enjoin the petitioners from exercising such right would have
the effect of superseding a final and executory judgment.
Finally, we cannot help but observe that respondents may have saved themselves
much trouble if they simply participated in the auction sale, as they are permitted
20
to bid themselves on their pledged properties. Moreover, they would have had a
better right had they

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21

matched the terms of the highest bidder. Under the circumstances, with the high
interest payments that accrued after several years, respondents were even placed
in a favorable position by the pledge agreements, since the creditor would be
unable to recover any deficiency from the debtors should the sale price be
insufficient to cover the principal amounts with interests. Certainly, had
respondents participated in the auction, there would have been a chance for them
to recover the shares at a price lower than the amount that was actually due from
them to the Parays. That respondents failed to avail of this beneficial resort wholly
accorded them by law is their loss. Now, all respondents can recover is the amounts
they had consigned.
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals
is SET ASIDE and the decision of the Cebu City RTC, Branch 16, dated 18 November
1992 is REINSTATED. Costs against respondents.
SO ORDERED.