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G.R.No.171201

SECONDDIVISION

SPOUSESBENEDICTandG.R.No.171201
MARICELDYTECKLO,
Petitioners,Present:

CARPIO,J.,Chairperson,
NACHURA,
versusPERALTA,
ABAD,and
PEREZ,*JJ.

RURALBANKOFPAMPLONA,INC.
representedbyitsPresident/Manager,Promulgated:
JUANLAS,
Respondent.June18,2010

xx

DECISION

CARPIO,J.:

TheCase

[1]
[2]
This is a petition for review of the 17 May 2005 Decision and the 14
[3]
December2005Resolution oftheCourtofAppealsinCAG.R.CVNo.59769.Inits
17May2005Decision,theCourtofAppealsaffirmedwithmodificationthe22May1998
[4]
Decision oftheRegionalTrialCourt(Branch61)ofNagaCityinCivilCaseNo.RTC
963521. In its 14 December 2005 Resolution, the Court of Appeals denied petitioners
motionforreconsideration.
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TheAntecedentFacts

On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from

[5]
dueinthreemonthsoron

respondentRuralBankofPamplona,Inc.aP100,000.00loan

20April1994.Theloanwassecuredbyarealestatemortgage

[6]
ona262squaremeter

residential lot owned by spouses Co located in San Felipe, Naga City and covered by
TransferCertificateofTitle(TCT)No.24196.

ThemortgagewasregisteredintheRegisterofDeedsofNagaCityon21January
1994anddulyannotatedontheTCTofthemortgagedpropertyasEntryNo.58182.

[7]

Oneofthestipulationsinthemortgagecontractwasthatthemortgagedproperty
would also answer for the future loans of the mortgagor. Pursuant to this provision,
[8]
spouses Co obtained on 4 March 1994 a second loan from respondent bank in the
amountofP150,000.00dueinthreemonthsoron2June1994.

Petitioners,spousesBenedictandMaricelDyTecklo,meanwhileinstitutedanaction
forcollectionofsumofmoneyagainstspousesCo.Thecase,docketedasCivilCaseNo.
943161,wasassignedtotheRegionalTrialCourt(Branch25)ofNagaCity.Inthesaid
case,petitionersobtainedawritofattachmentonthemortgagedpropertyofspousesCo.
ThenoticeofattachmentwasannotatedontheTCTofthemortgagedpropertyasEntry
[9]
No.58941.

When the two loans remained unpaid after becoming due and demandable,
respondentbankinstitutedextrajudicialforeclosureproceedings.Inits5September1994
petitionforextrajudicialforeclosure,respondentbanksoughtthesatisfactionsolelyofthe
[10]
At the public auction

first loan although the second loan had also become due.

scheduled on 19 December 1994, respondent bank offered the winning bid of

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[11]
P142,000.00, which did not include the second loan.
The provisional certificate of
saletorespondentbankwasannotatedontheTCTofthemortgagedpropertyasEntryNo.
[12]
60794.

Petitionersthenexercisedtherightofredemptionassuccessorsininterestofthe
judgmentdebtor.SteppingintotheshoesofspousesCo,petitionerstenderedon9August
1995 the amount of P155,769.50, based on the computation made by the Office of the
ProvincialSheriff,asfollows:

Bidprice.....................................................P142,000.00
Interestonthebidpricefrom
December19,1994toAugust9,1995
at1%permonth........................................10,934.00
Expensesincurredinconnectionwith
theregistrationoftheProvisional
CertificateofSale....................................2,647.00
Interestontheexpenses...........................188.50
P155,769.50

Respondentbankobjectedtothenoninclusionofthesecondloan.Italsoclaimed
thattheapplicableinterestrateshouldbetheratefixedinthemortgage,whichwas24%
perannumplus3%servicechargeperannumand18%penaltyperannum.However,the
Provincial Sheriff insisted that the interest rate should only be 12% per annum.
Respondent bank then sought annulment of the redemption, injunction, and damages in
theRegionalTrialCourt(Branch61)ofNagaCitydocketedasCivilCaseNo.RTC96
3521.

TheRulingoftheTrialCourt

Thetrialcourtruled,amongothers,thatthesecondloan,nothavingbeenannotated
ontheTCTofthemortgagedproperty,couldnotbindthirdpersonssuchaspetitioners.
Applyingthe24%perannuminterestratefixedinthemortgage,thetrialcourtcomputed
theredemptionpriceasfollows:

Bidprice...............................................................P142,000.00
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Interestrateonthebidpricefor233days..........22,057.33
ExpensesofregistrationoftheProv.Sale...........2,647.00
Interestontheexpensesfor211days.....................372.24
[13]
P167,076.57

Inits22May1998Decision,thetrialcourtdismissedrespondentbankscomplaint
for annulment of redemption and ordered petitioners to pay respondent bank the
deficiencyofP11,307.07ontheredemptionamount,towit:

WHEREFORE,premisesconsidered,thisCivilCaseNo.RTC963521ishereby
dismissed and defendants Dy Tecklos are hereby ordered to pay herein plaintiff the
insufficiencyoftheredemptionpriceintheamountofP11,307.07, and thereafter, upon
receiptofsaidamount,theRuralBankofPamplonaisalsoorderedtosurrendertosaid
[14]
defendantsDyTecklosTCTNo.24196.Nopronouncementastocosts.

Respondent bank elevated the case to the Court of Appeals insisting that the
foreclosedmortgagealsosecuredthesecondloanofP150,000.00.

TheRulingoftheCourtofAppeals

The appellate court ruled that the redemption amount should have included the
secondloaneventhoughitwasnotannotatedontheTCTofthemortgagedproperty.In
its17May2005Decision,theCourtofAppealsaffirmedthetrialcourtsdecisionwith
the modification that petitioners pay respondent bank the deficiency amounting
P204,407.18, with interest at the rate of 24% per annum from 22 May 1998 until fully
paid,thus:

WHEREFORE, premises considered, in continued exercise of liberality in

redemption,thedismissalofCivilCaseNo.RTC963521isAFFIRMEDanddefendants
DyTeckloareherebyorderedtopayplaintiffthedeficiencyoftheredemptionpriceinthe
amountofP204,407.18 with interest at the rate of 24% per annum from May 22, 1998
until fully paid. Upon receipt of the full amount inclusive of interest the Rural Bank of
Pamplona, Inc. is ordered to surrender to defendantsspouses Dy Tecklo the owners
[15]
duplicateofTCTNo.24196.
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Aggrieved, petitioners filed a motion for reconsideration, which the Court of

Appealsdenied.Hence,thepresentpetitionforreview.

TheIssue

Thesoleissueiswhethertheredemptionamountincludesthesecondloaninthe
amountofP150,000.00 even if it was not included in respondent banks application for
extrajudicialforeclosure.

TheCourtsRuling

TheCourtfindsthepetitionmeritorious.

Petitionerspointedoutthatthesecondloanwasnotannotatedasanadditionalloan
ontheTCTofthemortgagedproperty.Petitionersarguedthatthesecondloanwasjusta
private contract between respondent bank and spouses Co, which could not bind third
parties unless duly registered. Petitioners stressed that respondent banks application for
extrajudicialforeclosurereferredsolelytothefirstloan.

Respondentbankinsistedthatthemortgagesecurednotonlythefirstloanbutalso
future loans spouses Co might obtain from respondent bank. According to respondent
bank,thiswasspecificallyprovidedinthemortgagecontract.Respondentbankcontended
that petitioners, as redemptioner by virtue of the preliminary attachment they obtained
againstspousesCo,shouldassumeallthedebtssecuredbythemortgagedproperty.

Themortgagecontractinthiscasecontainsthefollowingblanketmortgageclause:

1.Thatassecurityforthepaymentoftheloanoradvanceintheprincipalsumof
ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) PESOS, Philippine
Currency,andsuchotherloansoradvancesalreadyobtainedand/orstilltobeobtained
by the MORTGAGOR/S, either as MAKER/S, COMAKER/S, SURETY/IES OR
GUARANTOR/S from the MORTGAGEE payable on the date/s stated in the
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corresponding promissory note/s and subject to the payment of interest, other bank
[16]
charges,andtootherconditionsmentionedthereon,xxx.
(Emphasissupplied)

A blanket mortgage clause, which makes available future loans without need of
executing another set of security documents, has long been recognized in our
jurisprudence. It is meant to save time, loan closing charges, additional legal services,
recordingfees,andothercosts.Ablanketmortgageclauseisdesignedtolowerthecostof
loans to borrowers, at the same time making the business of lending more profitable to
banks. Settled is the rule that mortgages securing future loans are valid and legal
[17]

contracts.

PresidentialDecreeNo.1529,otherwiseknownasthePropertyRegistrationDecree,
mandates:

SEC.51.Conveyanceandotherdealingsbyregisteredowner.xxxx

Theactofregistrationshallbetheoperativeacttoconveyoraffectthelandinsofar
asthirdpersonsareconcerned,andinallcasesunderthisDecree,theregistrationshallbe
madeintheofficeoftheRegisterofDeedsfortheprovinceorcitywherethelandlies.

SEC.52.Constructivenoticeuponregistration.Everyconveyance,mortgage,
lease, lien, attachment, order, judgment, instrument, or entry affecting registered land
shall,ifregistered,filed,orenteredintheofficeoftheRegisterofDeedsfortheprovince
orcitywherethelandtowhichitrelateslies,beconstructivenoticetoallpersonsfromthe
timeofsuchregistering,filing,orentering.

Itistheactofregistrationwhichcreatesaconstructivenoticetothewholeworldand
binds third persons. By definition, registration is the ministerial act by which a deed,
contract, or instrument is inscribed in the records of the office of the Register of Deeds
andannotatedonthebackoftheTCTcoveringthelandsubjectofthedeed,contract,or
[18]
instrument.

A person dealing with registered land is not required to go beyond the TCT to
determinetheliabilitiesattachingtotheproperty.Heisonlychargedwithnoticeofsuch
burdensonthepropertyasaredulyannotatedontheTCT.Torequirehimtodomoreis
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todefeatoneoftheprimaryobjectsoftheTorrenssystem.

[19]

As to whether the second loan should have been annotated on the TCT of the
mortgagedpropertyinordertobindthirdparties,thecaseofTadYv.PhilippineNational
Bank

[20]
is in point. The case involved a mortgage contract containing a provision that

future loans would also be secured by the mortgage. This Court ruled that since the
mortgage contract containing the blanket mortgage clause was already annotated on the
TCTofthemortgagedproperty,subsequentloansneednotbeseparatelyannotatedonthe
said TCT in order to bind third parties. We quote the pertinent portion of this Courts
[21]
discussioninTadYv.PhilippineNationalBank:

Petitionerappellantadvancestheargumentthatthelatterloansshouldhavealso
been noted on TCT 2417. But We believe there was no necessity for such a notation
because it already appears in the said title that aside from the amount of P840 first
borrowedbythemortgagors,otherobligationswouldalsobesecuredbythemortgage.As
alreadystated,itwasincumbentuponanysubsequentmortgageeorencumbrancerofthe
property in question to have examined the books or records of the PNB, as first
[22]
mortgagee,thecreditstandingofthedebtors.

Records of the present case show that the mortgage contract, containing the
provisionthatfutureloanswouldalsobesecuredbythemortgage,isdulyannotatedon
theTCTofthemortgagedproperty.Thisconstitutessufficientnoticetotheworldthatthe
mortgage secures not only the first loan but also future loans the mortgagor may obtain
fromrespondentbank.ApplyingthedoctrinelaiddowninTadYv.PhilippineNational
Bank,

[23]
thesecondloanneednotbeseparatelyannotatedonthesaidTCTinorderto

bindthirdpartiessuchaspetitioners.

However,wenotethecuriousfactthatrespondentbankspetitionforextrajudicial
foreclosurewassolelyforthesatisfactionofthefirstloanalthoughthesecondloanhad
also become due and demandable.

[24]
In its Appellants Brief filed in the Court of

Appeals,respondentbankevenadmittedthatthesecondloanwasnotincludedinitsbid
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at the public auction sale. To quote from page 5 of the Appellants Brief filed by
respondentbank:

For failure to pay the first loan, the mortgage was foreclosed and the property
covered by TCT No. 24196 was sold at public auction on December 19, 1994, for
P142,000,whichwasthebidofthemortgageebank.Thebankdidnotincludeinitsbid

[25]
(Emphasissupplied)

thesecondloanofP150,000.

For its failure to include the second loan in its application for extrajudicial
foreclosureaswellasinitsbidatthepublicauctionsale,respondentbankisdeemedto
havewaiveditslienonthemortgagedpropertywithrespecttothesecondloan.Ofcourse,
respondentbankmaystillcollecttheunpaidsecondloan,andtheinterestthereon,inan
ordinarycollectionsuitbeforetherighttocollectprescribes.

Aftertheforeclosureofthemortgagedproperty,themortgageisextinguishedand
[26]
the purchaser at auction sale acquires the property free from such mortgage.
Any
deficiencyamountafterforeclosurecannotconstituteacontinuinglienontheforeclosed
property, but must be collected by the mortgageecreditor in an ordinary action for
collection.Inthiscase,thesecondloanfromthesamemortgagedeedisinthenatureofa
deficiencyamountafterforeclosure.

Inordertoeffectredemption,thejudgmentdebtororhissuccessorininterestneed
onlypaythepurchaseratthepublicauctionsaletheredemptionamountcomposedof(1)
thepricewhichthepurchaseratthepublicauctionsalepaidforthepropertyand(2)the
amount of any assessment or taxes which the purchaser may have paid on the property
after the purchase, plus the applicable interest.

[27]

Respondent banks demand that the

secondloanbeaddedtotheactualamountpaidforthepropertyatthepublicauctionsale
findsnobasisinlaworjurisprudence.

Comingnowtothecomputationoftheredemptionamount,Section78ofRepublic
Act No. 337, otherwise known as the General Banking Act, governs in cases where the

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[28]
Itprovides:

mortgageeisabank.

Sec. 78. x x x In the event of foreclosure, whether judicially or extrajudicially, of any

mortgageonrealestatewhichissecurityforanyloangrantedbeforethepassageofthisAct
orundertheprovisionsofthisAct,themortgagorordebtorwhoserealpropertyhasbeensold
atpublicauction,judiciallyorextrajudicially,forthefullorpartialpaymentofanobligation
toanybank,bankingorcreditinstitution,withinthepurviewofthisActshallhavetheright,
withinoneyearafterthesaleoftherealestateasaresultoftheforeclosureoftherespective
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
expensesincurredbythebankorinstitutionconcernedbyreasonoftheexecutionandsale
andasaresultofthecustodyofsaidpropertylesstheincomereceivedfromtheproperty.xx
xx(Emphasissupplied)

ApplyingSection78oftheGeneralBankingAct,the24%perannuminterestrate
specifiedinthemortgageshouldapply.Thus,theredemptionamountshouldbecomputed
asfollows:

P142,000.00=winningbidatauctionsale
P2,647.00=registrationexpensesfor
provisionalcertificateofsale
19Dec.19949Aug.1995=233daysfromdateofauctionto
dateoftender
12Jan.19959Aug.1995=211daysfromdateof
registrationofprovisional
saletodateoftender

P142,000.00x24%x233/360=P22,057.33
2,647.00x24%x211/360=372.35
P22,429.68
Pluswinningbid142,000.00
Plusregistrationexpenses2,647.00
TotalP167,076.68

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After deducting petitioners tender of P155,769.50, there is a deficiency of

P11,307.18 on the redemption amount, as computed above. Petitioners should thus pay
respondentbankthedeficiencyamountingtoP11,307.18,withinterestattherateof
24%perannumfrom22May1998untilfullypaid.

WHEREFORE,weGRANTthepetition.WeSETASIDEthe17May2005
Decisionandthe14December2005ResolutionoftheCourtofAppealsinCAG.R.CV
No. 59769. Petitioners Benedict and Maricel Dy Tecklo are ordered to pay respondent
Rural Bank of Pamplona, Inc. the deficiency of P11,307.18 on the redemption amount,
with interest at the rate of 24% per annum from 22 May 1998 until fully paid. Upon
receiptofthefullamountinclusiveofinterest,respondentRuralBankofPamplona,Inc.
is ordered to surrender to petitioners Benedict and Maricel Dy Tecklo the owners
duplicateofTCTNo.24196.

Nopronouncementastocosts.

SOORDERED.

ANTONIOT.CARPIO
AssociateJustice
WECONCUR:

ANTONIOEDUARDOB.NACHURA
AssociateJustice

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DIOSDADOM.PERALTAROBERTOA.ABAD
AssociateJusticeAssociateJustice

JOSEPORTUGALPEREZ
AssociateJustice

ATTESTATION
IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultation
beforethecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

ANTONIOT.CARPIO
AssociateJustice
Chairperson

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CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
CourtsDivision.

RENATOC.CORONA
ChiefJustice

*DesignatedadditionalmemberperSpecialOrderNo.842.
[1]
UnderRule45oftheRulesofCourt.
[2]
Rollo,pp.2229.PennedbyAssociateJusticeArcangelitaM.RomillaLontok,withAssociateJustices
RodrigoV.CosicoandDaniloB.Pineconcurring.
[3]
Id.at3132.
[4]
Id.at4953.
[5]
Id.at40.
[6]
Id.at41.
[7]
Records,pp.143144.
[8]
Rollo,p.42.
[9]
Records,pp.143144.
[10]
Id.at168.
[11]
CArollo,p.20
[12]
Records,pp.143144.
[13]
Rollo,p.52.
[14]
Id.at5253.
[15]
Id.at28.
[16]
Id.at41.
[17]
LimJulianv.Lutero,49Phil.703(1926)TadYv.PhilippineNationalBank,120Phil.806(1964).
[18]
AgriculturalCreditCooperativeAssociationofHinigaranv.Yusay,107Phil.791(1960).
[19]
Cagasv.TanChuanLeong,110Phil.168(1960).
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[20]
120Phil.806(1964).
[21]
Id.
[22]
Id.at811.
[23]
Id.
[24]
Records,p.168.
[25]
CArollo,p.20.
[26]
NewSampaguitaBuildersConstruction,Inc.v.PhilippineNationalBank,G.R.No.148753,30July
2004,435SCRA565.
[27]
MetropolitanBankandTrustCompanyv.SpousesTan,G.R.No.178449,17October2008,569SCRA814.
[28]
HeirsofQuisumbingv.PNB,G.R.No.178242,20January2009,576SCRA762.

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