DBP vs.

CA
GR No. 118342
We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition
PLAINTIFF: DBP reads:
DEFENDANT: CA, Agripina Caperal
DATE: January 5, 1998
PONENTE: J. Davide Condition 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact
TOPIC: with full power and authority to take actual possession of the property above-described, together with all improvements thereon, subject to the
approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or
Facts: improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property
 This is a case wherein 2 consolidated cases stemmed form a complaint filed against the DBP and Agripina Caperal filed by Lydia and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by
the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this
Cuba
Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment
o Declaration of Nullity of DBPs appropriation of CUbas’s rights over the 44hectare fishpond, for being violative of Article
of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest
2088 (pactum commissorium)
o Annulment of Deed of Conditional Sale executed in her favor and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts
o Annulment of DBPs sale to Caperal received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all
o Restoration of her rights, title and interests over the fishpond interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts
that may be executed by the Assignee by virtue of said power are hereby ratified.
o Recovery of Attys fees, etc.
 That Lydia Cuba was a grantee from the government of a Fishpond Lease Agreement for a 44hectare fishpond in Bolinao,
Pangasinan  Such condition did not provide that ownership over the leasehold rights would automatically pass to DBP upon Cuba’s failure to pay
 She obtained loans from DBP and as a security for the loans, she executed 2 Deeds of Assignment of her Leasehold Rights the loan on time
 Cuba failed to pay her loans on time so DBP, without foreclosure proceedings, appropriated the Leasehold Rights over the fishpond o Merely provided for the appointment of DBP as attorney-in fact to sell or otherwise dispose of the said real rights in case
o After the said appropriation, DBP executed a Deed of Conditional Sale of the Leasehold Rights in favor of Cuba of default by Cuba – and to apply the proceeds to the payment of the loan
o DBP accepted Cuba’s offer to repurchase
 After the Deed of Conditional Sale was executed in favor of Cuba, a new Fishpond Lease Agreement was issued by the Ministry of o This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which
Agriculture and Food, excluding her husband authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal
 Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale so she entered with the DBP a Temporary Agreement obligation.
whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, Cuba promised to make certain
payments  DBP exceeded in the authority vested by Condition No. 12
 DBP sent notice of rescission through Notarial Act and took possession of the Fishpond Leasehold Rights o DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold
o After the Notice of Rescission, DBP took possession of the Leasehold Rights of the fishpond in question rights. As stated earlier, condition no. 12 did not provide that CUBAs default would operate to vest in DBP
 DBP then conducted a public bidding to dispose of the property, which Agripina Caperal won ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a
o DBP executed the Deed of Conditional Sale in favor of Caperal mortgage and not an absolute conveyance of title which confers ownership on the assignee.
o Caperal was awarded the Fishpond Lease  The fact that Cuba offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBPs act of
 Cuba filed a complaint against DBP before the RTC of Pangasinan appropriation, as such estoppel is unavailing in this case
 RTC: favored Cuba,
o Declared DBPs taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 What the DBP should have done:
of the NCC
o The Assignment of Leasehold Rights for being a clear case of Pactum Commissorium expressly prohibited and declared  DBP should have foreclosed the mortgage, as stipulated in Condition no. 12 of the Deed of Assignment
null and void by Article 2088 of the Civil Code.
o DBP never acquired lawful ownership of Cuba’s leasehold rights, all acts of ownership and possession by the said bank In view of the false representation that DBP has already foreclosed the mortgage, the following acts are declared null
were void.  The cancellation of the fish pond permit
o Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by  Conditional sale to Caperal
Caperal in favor f DBP, were also void and ineffective.  Appropriation of the leasehold rights
 CA, reversed RTC, declared the following valid:
o DBP in appropriating Cuba’s leasehold rights and interest under the Fishpond Lease
o Deeds of Assignment executed by Cuba
o Deed of Conditional Sale Between Cuba and DBP
o Deed of Conditional Sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal
o DBP to turn over the possession of the property to Caperal as lawful holder of the leasehold rights

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

Ruling:

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

As for the violation of Article 2088,

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

The elements of Pactum Commissorium are as follows:

1. There should be a property mortgaged by way of security for the payment of the principal obligation
2. There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case on non-payment of the
principal obligation within the stipulated period
BUSTAMANTE V ROSEL
G. R. No. 126800 In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to
dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan.
 In effect, the creditor acquires the collateral in the event of non payment of the loan.
FACTS:  SUCH IS VOID
 Rosel entered into a contract of loan with petitioner Natalia Bustamante and her late husband Ismael

Terms and conditions:

 The loan was for 100K payable in 2 years with 18% interest per annum and to guaranty payment they are putting as collateral a portion
of a parcel of land in Congressional Ave. inclusive of the apartment therein
 In the event that they failed to pay Bustamante has the option to purchase the collateral for 200K inclusive of the borrowed amount

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

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

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

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

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

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

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

CA, reversed the decision of the lower court

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

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

HELD:

Petitioner did not fail to pay the loan.

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

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

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

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

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

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

The stipulations in the contract of the parties embraced in the concept of pactum commissorium, which is proscribed by law
 The elements of pactum commissorium are as follows:
o (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and
o (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment
of the principal obligation within the stipulated period.
Sps. Ong vs Roban Lending Corp.
Facts:
 Petitioner obtained loans from the respondent. The total amount of the loan is P4 million. As a security Petitioner executed a real
estate mortgage in favor of Respondent.
 Petitioner and Respondent executed an amendment to amend the real estate mortgage which consolidate their loan. The total
amount of the loan is P5.9million. The parties, petitioner and respondent, executed a Dacion in Payment agreement and
Memorandum of Agreement.
 Petitioner filed a case against Respondent to declare the two agreement to be void because it is pactum commissorium. The former
also alleged that the monthly interest of 3.5%, 5% as a penalty, and 25% attorney’s fee to be unconscionable.
 Respondent’s defense is that Dacion in Payment agreement is valid and lawful because it is recognized by art. 1245 of the Civil
Code.

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

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

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

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

In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption.
Under the Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives respondent the right to
enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect, automatically
acquires ownership of the properties upon petitioners’ failure to pay their debt within the stipulated period.
Respondent argues that the law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the creditor in
satisfaction of a monetary obligation. This does not persuade. In a true dacion en pago, the assignment of the property extinguishes the monetary
debt. In the case at bar, the alienation of the properties was by way of security, and not by way of satisfying the debt. The Dacion in Payment did
not extinguish petitioners’ obligation to respondent. On the contrary, under the Memorandum of Agreement executed on the same day as the
Dacion in Payment, petitioners had to execute a promissory note for ₱5,916,117.50 which they were to pay within one year.
As for the interest, the Court said that it is unconscionable. The Court lowered the interest stated in the agreement.
The 3.5% monthly interest or 42% per annum reduced it to 12% per annum. The monthly penalty interest of 5% was reduced to 12% per annum
of the amount due, to be computed from the time of demand. The 25% attorney’s fee of the principal amount, interest and interest therein was
reduced to 25% of the principal amount only.
Prudential Bank vs Alviar No. A blank mortgage clause is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are carefully scrutinized
and strictly construed. Thus contrary to the findings of the Court of Appeals, petitioner and respondents intended the REM to secure not only the
Facts of the case: 250k loan but also future credit facilities and advancement that may be obtained by the respondents.

Sps. Alviar are the registered owners of a parcel of land in San Juan, Metro Manila. On 10 July 1975, they executed a deed of real estate mortgage
in favor of Prudential Bank to secure the payment of a loan worth 250k. On 4 August 1975, subsequently, they issued a Promissory Note covering
the same load which provides that the loan matures on 4 August 1976 with an interest rate of 12% per annum with 2 % service charge, and that
said note is secured by a Real estate mortgage. (1st PN)
“That for and in consideration of certain loans, overdraft and other credit accommodations obtained from the Mortgagee by
the Mortgagor and/or ________________ hereinafter referred to, irrespective of number, as DEBTOR, and to secure the
payment of the same and those that may hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (₱250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee may extend to
the Mortgagor and/or DEBTOR, including interest and expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary as appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels
of land which are described in the list inserted on the back of this document, and/or appended hereto, together with all the
buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the Mortgagor
declares that he/it is the absolute owner free from all liens and incumbrances. . . .”
On 22 October 1976, Don Alviar executed another Promissory Note stating that the loan was secured by a “hold-out” on the mortgagor’s foreign
currency savings account and that the mortgagor’s passbook is to be surrendered to the bank until the amount secured by the hold out is settled.
(2nd PN)
In the case at bar, the subsequent loans obtained by respondents were secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar
was secured by a "hold-out" on his foreign currency savings account, while PN BD#76/C-430, executed by respondents for Donalco Trading, Inc.,
was secured by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on two promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and transportation equipment.
The matter of PN BD#76/C-430 has already been discussed. Thus, the critical issue is whether the "blanket mortgage" clause applies even to
subsequent advancements for which other securities were intended, or particularly, to PN BD#76/C-345. Thus, it was concluded that the "offer"
was not accepted by the bank when a subsequent advance was made because (1) the second note was secured by a chattel mortgage on certain
vehicles, and the clause therein stated that the note was secured by such chattel mortgage; (2) there was no reference in the second note or chattel
mortgage indicating a connection between the real estate mortgage and the advance; (3) the mortgagor signed the real estate mortgage by her
name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and (4) there
was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance.
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three promissory
notes. While the existence and validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the other security given
for PN BD#76/C-345. The foreclosure of the mortgaged property should only be for the ₱250,000.00 loan covered by PN BD#75/C-252, and for
any amount not covered by the security for the second promissory note. As held in one case, where deeds absolute in form were executed to
secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given
for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the
giving of the special security.

December 1976, Sps. Alviar executed for Donalco Trading, Inc., which the sps were president and chairman of the corporation, another Promissory Petitioner, however, is not without recourse. Both the Court of Appeals and the trial court found that respondents have not yet paid the ₱250,000.00,
Note covering 545k. The Promissory note was secured by “Clean Phase out TOD CA 3923”, which means that the temporary overdraft incurred by and gave no credence to their claim that they paid the said amount when they paid petitioner ₱2,000,000.00. Thus, the mortgaged property could
Donalo Trading with petitioner is to be converted into an ordinary loan in compliance with the Central Bank circular directing the discontinuance of still be properly subjected to foreclosure proceedings for the unpaid ₱250,000.00 loan, and as mentioned earlier, for any deficiency after D/A
overdrafts. (3rd PN) SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are available to respondents.

March 1977, Prudential Bank informed Donalco of its approval of a straight loan of 545k, the proceeds of which will liquidate its outstanding loan.
The letter likewise mentioned that the securities for the loan were the deed of assignment on the two promissory notes executed by Bancom Realty
Corporation with Deed of Guarantee in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and transportation equipment

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

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

Trial Court based on MR found:

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

On appeal to the Court of Appeal

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

Issue: Whether or not the blank mortgage clause covers all other PNs by the SPS. Alviar

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

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

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK — the latter acting for itself and
as trustee for the Export-Import Bank of Washington D.C. — a deed of mortgage covering five parcels of land. On the same date, DALCO executed
a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession
amounting to the sum of $450,000.00.

Both deeds contained a provision saying:

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

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

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

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

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

ISSUE:

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

HELD:

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

FACTS
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking Corporation now substituted by Star Two (SPV-AMC), Inc.
Paper City is a domestic corporation engaged in the manufacture of paper products. Paper City applied for and was granted loans and credit
accommodations in peso and dollar denominations by RCBC secured by 4 Deeds of Continuing Chattel Mortgages on its machineries and
equipments found inside its paper plants.
However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade was executed by RCBC
over the merchandise and stocks-in-trade covered by the continuing chattel mortgages.
RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as the trustee bank) entered into a Mortgage Trust Indenture (MTI) with
Paper City. In the said MTI, Paper City acquired an additional P170, 000,000.00 from the creditor banks in addition to the previous loan from
RCBC amounting to P110, 000,000.00.
The old loan of P110,000,000.00 was partly secured by various parcels of land situated in Valenzuela City. The new loan obligation
of P170,000,000.00 would be secured by the same five (5) Deeds of Real Estate Mortgage and additional real and personal properties described
in an annex to MTI, Annex "B" which covered the machineries and equipments of Paper City.
Yes. By contracts, all uncontested in this case, machineries and equipments are included in the mortgage in favor of RCBC, in the foreclosure of
the mortgage and in the consequent sale on foreclosure also in favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to RCBC are various parcels of land including the buildings and
existing improvements thereon as well as the machineries and equipments, which as stated in the granting clause of the original mortgage, are
"more particularly described and listed that is to say, the real and personal properties listed in Annexes ‘A’ and ‘B’.”
The plain language and literal interpretation of the MTIs must be applied. The petitioner, other creditor banks and Paper City intended from the very
first execution of the indentures that the machineries and equipments enumerated in Annexes "A" and "B" are included. Obviously, with the
continued increase in the amount of the loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable properties acceptable to
the creditor banks.
The MTIs did not describe the equipments and machineries as personal property. Notably, while "personal" appeared in the granting clause of the
original MTI, the subsequent Deed of Amendment specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the improvements listed above and located on the parcels of land
subject of the Mortgage Trust Indenture and the Real Estate Mortgage.

Annex "A"
A. Office Building
Building 1, 2, 3, 4, and 5
2. Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.
Boiler House
Workers’ Quarter/Restroom
Canteen Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when
Guardhouse, Parking Shed, Elevated Guard the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or
Post and other amenities in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the
B. Pollution Tank Nos. 1 and 2. possession of the mortgagor, or it passes into the hands of a third person. (Underlining ours)…even if the machinery in question was not included
Reserve Water Tank and Swimming Pool in the mortgage expressly, Article 111 of the old Mortgage Law provides that chattels permanently located in a building, either useful or
Waste Water Treatment Tank ornamental, or for the service of some industry even though they were placed there after the creation of the mortgage shall be considered as
Elevated Concrete Water Tank mortgaged with the estate, provided they belong to the owner of said estate.
And other Improvements listed in Annex "A"
C. Power Plants Nos. 1 and 2 Bischoff v. Pomar and Cia. General de Tabacos...Article 1877 provides that a mortgage includes the natural accessions, improvements, growing
Fabrication Building fruits, and rents not collected when the obligation is due, and the amount of the indemnities granted or due the owner by the underwriters of the
Various Fuel, Water Tanks and Pumps property mortgaged or by virtue of the exercise of eminent domain by reason of public utility, with the declarations, amplifications, and limitations
Transformers established by law, in case the estate continues in the possession of the person who mortgaged it, as well as when it passes into the hands of a
Annex "B" third person
D. D. Material Handling Equipment
Paper Plant No. 3 The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co…the machineries were integral parts of said sugar central hence included following the
principle of law that the accessory follows the principal.
The MTI was later amended to increase the contributions of the RCBC and Union Bank…still included as part of the mortgaged properties by way
of a first mortgage the various machineries and equipments located in and bolted to and/or forming part of buildings.
A Second Supplemental Indenture to the MTI was executed to increase the amount of the loan secured against the existing properties composed 3. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and equipments of respondent. While
of land, building, machineries and equipments and inventories described in Annexes "A" and "B." captioned as a "Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended," the averments state that the
Finally, a Third Supplemental Indenture to the MTI was executed to increase the existing loan obligation with an additional security composed of petition is based on "x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust Indenture, the Second Supplemental
a newly constructed two-storey building and other improvements, machineries and equipments located in the existing plant site. Indenture to the Mortgage Trust Indenture, and the Third Supplemental Indenture to the Mortgage Trust Indenture (hereinafter collectively
referred to as the Indenture) duly notarized and entered as x x x."60 Noting that herein respondent has an outstanding obligation in the total
Paper City was able to comply with its loan obligations but economic crisis ensued which made it difficult for Paper City to meet the terms of its amount of Nine Hundred One Million Eight Hundred One Thousand Four Hundred Eighty Four and 10/100 Pesos (₱901,801,484.10), the petition
obligations leading to payment defaults. Consequently, RCBC filed a Petition for Extrajudicial Foreclosure. for foreclosure prayed that a foreclosure proceedings "x x x on the aforesaid real properties, including all improvements thereon covered by the
The petition was for the extra-judicial foreclosure of eight parcels of land including all improvements thereon which were sold in favor of the real estate mortgage be undertaken and the appropriate auction sale be conducted x x x."61
creditor banks RCBC, Union Bank and Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor banks alleging that the extra-judicial sale of the properties and Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states through the Deed of Amendment that the
plants was null and void due to lack of prior notice and attendance of gross and evident bad faith on the part of the creditor banks. machineries and equipments listed in Annexes "A" and "B" form part of the improvements listed and located on the parcels of land subject of the
mortgage, such machineries and equipments are surely part of the foreclosure of the "real estate properties, including all improvements
Acting on the said motion, the trial court issued an Order denying the prayer and ruled that the machineries and equipments were included in the thereon" as prayed for in the petition.
annexes and form part of the MTI.
The real estate mortgage over the machineries and equipments is even in full accord with the classification of such properties by the Civil Code of
Paper City filed its Motion for Reconsideration - granted by RTC with justification that the machineries and equipments are chattels by agreement the Philippines as immovable property. Thus:
of the parties through their inclusion in the four Deeds of Chattel Mortgage and the deed of cancellation executed by RCBC was not valid because
it was done unilaterally and without the consent of Paper City. Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
The CA affirmed the Order. xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in G.R. No. 158891 June 27, 2012
a building or on a piece of land, and which tend directly to meet the needs of the said industry or works.

PETITION GRANTED REINSTATING THE ORIGINAL DECISION OF TRIAL COURT DENYING MOTION TO REMOVE/DISPOSE MACHINERIES PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.

Facts:

 Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property), which she mortgaged to Yolanda Valdez
Villar (Villar) as security for a loan.
 Galas subsequently mortgaged the same subject property to Pablo P. Garcia (Garcia) to secure another loan. Both mortgages were
annotated on the subject property’s TCT.
 Galas thereafter sold the subject property to Villar. The Deed of Sale was registered and, consequently, a new TCT was
issued in the name of Villar. Both Villar’s and Garcia’s mortgages were carried over and annotated on Villar’s new TCT.
 Garcia filed a Petition for Mandamus with Damages against Villar before the RTC. Garcia subsequently amended his petition to a
Complaint for Foreclosure of Real Estate Mortgage with Damages and alleged that when Villar purchased the subject property, she
acted in bad faith as she knowingly and willfully disregarded the laws on judicial and extrajudicial foreclosure of mortgaged property.
Garcia further claimed that when Villar purchased the subject property, Galas was relieved of her contractual obligation and the
characters of creditor and debtor were merged in the person of Villar. Therefore, Garcia argued, he, as the second mortgagee, was
subrogated to Villars original status as first mortgagee, which is the creditor with the right to foreclose.
 Villar claimed that the complaint stated no cause of action and that the second mortgage was done in bad faith as it was without her
consent and knowledge. Villar alleged that she only discovered the second mortgage when she had the Deed of Sale registered. Villar
blamed Garcia for the controversy as he accepted the second mortgage without prior consent from her. She averred that there could
be no subrogation as the assignment of credit was done with neither her knowledge nor prior consent. Villar added that Garcia should
seek recourse against Galas and Pingol, with whom he had privity insofar as the second mortgage of property is concerned.
 The RTC ruled in favor of Garcia. The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not
operate to deprive Garcia of his right as a second mortgagee. The RTC further explained that upon Galas’s failure to pay her obligation,
Villar should have foreclosed the subject property to provide junior mortgagees like Garcia the opportunity to satisfy their claims from
the residue, if any, of the foreclosure sale proceeds.
 Villar appealed and contended that the second mortgage is a void and inexistent contract. The Court of Appeals reversed the RTC’s
decision and declared that Galas was free to mortgage the subject property even without Villar’s consent as the restriction that the
mortgagees consent was necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate Mortgage. However,
the Court of Appeals held that the sale of the subject property to Villar was valid as it found nothing in the records that would
show that Galas violated the Deed of Real Estate Mortgage prior to the sale.
 Garcia appealed to the Supreme Court, with the same arguments he posited before the lower courts, but added that the Deed of Real
Estate Mortgage contained a stipulation, which is violative of the prohibition on pactum commissorium.

Issues
1. WON second mortgage to Garcia was valid
2. Whether or not the sale of the subject property to Villar was valid
3. Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum commissorium
4. Whether or not Garcia’s action for foreclosure of mortgage on the subject property can prosper.

Ratio:

Validity of second mortgage to Garcia and sale of subject property to Villar:

 The SC agrees with the Court of Appeals that both are valid under the terms and conditions of the Deed of Real Estate Mortgage
executed by Galas and Villar.
 While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a restriction on further encumbrances without
the mortgagees prior consent, this restriction was nowhere to be found in the Deed of Real Estate Mortgage. As this Deed became the
basis for the annotation on Galass title, its terms and conditions take precedence over the standard, stamped annotation placed on her
title. If it were the intention of the parties to impose such restriction, they would have and should have stipulated such in the Deed of
Real Estate Mortgage itself.
 Neither did this Deed proscribe the sale or alienation of the subject property during the life of the mortgages. Garcias insistence that
Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy Galass debt is misplaced. The Deed of Real Estate
Mortgage merely provided for the options Villar may undertake in case Galas or Pingol fail to pay their loan. Nowhere was it stated in
the Deed that Galas could not opt to sell the subject property to Villar, or to any other person. Such stipulation would have been void
anyway, as it is not allowed under Article 2130 of the Civil Code

Prohibition on pactum commissorium

 The following are the elements of pactum commissorium:
o There should be a property mortgaged by way of security for the payment of the principal obligation; and
o There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of
the principal obligation within the stipulated period.
 Villars purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision above
did not provide that the ownership over the subject property would automatically pass to Villar upon Galass failure to pay the loan on
 time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject Korea Exchange Bank vs. Filkor
property, and to apply the proceeds to the payment of the loan. GR No. 138292
 Galas’ decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of her rights
as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate contract, which is PLAINTIFF: Korea Exchange Bank
the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galass failure to discharge DEFENDANT: Filkor Business Integrated, Kim Eung Joe, Lee Han Sang
her debt, or that the sale was simulated to cover up such automatic transfer. DATE: April 10, 2002
PONENTE: J. Quisumbing
Propriety of Garcias action for foreclosure of mortgage TOPIC:
 A mortgage is a real right, which follows the property, even after subsequent transfers by the mortgagor. A registered mortgage lien is
considered inseparable from the property inasmuch as it is a right in rem. The sale or transfer of the mortgaged property cannot affect Facts:
or release the mortgage; thus the purchaser or transferee is necessarily bound to acknowledge and respect the encumbrance.
 While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been discharged, we find that  That Respondent Filkor
said mortgage subsists and is still enforceable. However, Villar, in buying the subject property with notice that it was mortgaged, only o Borrowed USD 140k payable on July 9, 1997 – but only 40k was paid
undertook to pay such mortgage or allow the subject property to be sold upon failure of the mortgage creditor to obtain payment from o Executed 9 trust receipts in favor of Korea Exchange Bank – failed to turnover the proceeds from the sale of the goods, or
the principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the principal obligation, and could not the goods themselves as required by the trust receipts
do so in law without the creditors consent as provided in Art. 1293 of the CC o Also negotiated to petitioner the proceeds of 17 letters of credit issued by the Republic Bank of New York and the Banque
 Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol. Leumi France, S. A. to pay for goods which Filkor sold to Segerman International Inc and Davyco S. A. – petitioner tried to
 Garcia has no cause of action against Villar in the absence of evidence to show that the second mortgage executed in favor of Garcia collect the proceeds of the letters of credit by presenting the bills of exchange drawn to collect the proceeds, they were
has been violated by his debtors, Galas and Pingol, i.e., specifically that Garcia has made a demand on said debtors for the payment dishonored because of the discrepancies
of the obligation secured by the second mortgage and they have failed to pay.  In order to secure payment, Filkor executed a REM on February 9, 1996.
o Mortgages the improvements belonging to ot constructed on the lost it was leasing at the Cavite Export Processing Zone
Authority
o Private Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly
and severally with respondent Filkor to pay for the latters obligations to petitioner
 Respondents still failed to pay
 Petitioners prayed the ff:
o It be paid by respondents under the 27 causes of action
o Property mortgaged be foreclosed and sold at public auction in case of failure to pay
o Other reliefs equitable
 RTC favored the petitioner; granting the summary judgment but failed to order the foreclosure and public auction of the mortgaged
property in the event that Filkor fails to pay its obligation
 Basis for the TCs decision
o The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA 446, citing Manila Trading and Supply Co.
vs. Co Kim, et al., 71 Phil. 448, where the Supreme Court ruled that:
o The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead, an ordinary action to
recover the indebtedness with the right to execute a judgment thereon on all the properties of the debtor including the
subject matter of the mortgage, subject to the qualification that if he fails in the remedy by him elected, he cannot pursue
further the remedy he has waived.

 Petitioner filed a Motion for Partial Reconsideration seeking that the relief of foreclosure be granted but such motion was denied
ssaying that the petitioner in opting to fie a civil action for the collection of the defendant’s obligation, has abandoned its mortgages
lien on the property subject of the real estate mortgage

Issue: W/N the petitioner had abandoned the REM in its favor, because it filed a simple collection case, NO

Ruling:

The only reason defendants deny all the material allegations in the complaint is because the documents attached thereto are mere photocopies
and not the originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of documents to be attached to the pleading as an
exhibit. Defendants are, therefore, deemed to have admitted the genuineness and due execution of all actionable documents attached to the
complaint inasmuch as they were not specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of Court.

The SC, finds no indication whatsoever that petitioner had waived its rights under the REM executed in its favor. Thus, the trial court erred in
concluding that petitioner had abandoned its mortgage lien on Filkors property, when it filed a collection for sum of money.

In petitioners complaint before the trial court, Paragraph 183 thereof alleges:

Paragraph 183. To secure payment of the obligations of defendant Corporation under the First to the Twenty-Seventh Cause of Action, on
February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements standing
on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax Declaration No. 5906-1
and consisting of a one-story building called warehouse and spooling area, the guardhouse, the cutting/sewing area building and the packing
area building. (A copy of the Real Estate Mortgage is attached hereto as Annex SS and made an integral part hereof.)
The allegations in Paragraph 183, the date and due and execution f the REM are alleged and satisfies the requirement of foreclosure as provided HUERTA ALBA V CA
for in Section 1, Rule 68 ROC G.R. No. 128567

SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the FACTS:
complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the  In a complaint for judicial foreclosure of mortgage private respondent Syndicated Management Group (SMGI) sought the foreclosure
mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured of four (4) parcels of land mortgaged by petitioner to Intercon
by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or claiming an interest in the
property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action.  Private respondent instituted an action as as mortgagee-assignee of a loan amounting to P8.5M obtained by petitioner from Intercon in
which petitioner mortgaged the mentioned property as security
It was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at the public auction in the event that the
Respondent Filkor fails to pay, in pursuant to: Petitioner questioned the assignment by Intercon of its mortgage right thereover to the private respondent, on the ground that the same was ultra
vires.

This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil Procedure, which provides: RTC, granted SMGI's complaint for judicial foreclosure of mortgage"

CA, dismissed; failure to pay docket fees

SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such action the court shall find the facts set forth in the complaint to be
true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by  As judgment became final and executory, execution thereof was a matter of right and the issuance of the corresponding writ of execution
the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee became its ministerial duty.
within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from entry of judgment, and that in default of such  Auction sale proceeded and private respondent SMGI was declared the highest bidder
payment the property shall be sold at public auction to satisfy the judgment.
Petitioner presented an Ex-Parte Motion for Clarification asking the trial court to "clarify" whether or not the twelve (12) month period of redemption
for ordinary execution applied in the case.
 RTC ruled that the period of redemption of subject property should be governed by the rule on the sale of judicially foreclosed property
under Rule 68
 CA, holding that the one hundred-fifty day period within which petitioner may redeem subject properties should be computed from the
date petitioner was notified of the Entry of Judgment
o 150-day period within which petitioner may exercise its equity of redemption expired on September 11, 1994

Motion for Reconsideration: Petitioner theorized that the period of one hundred fifty (150) days should not be reckoned with from Entry of Judgment
but from receipt on or before July 29, 1994
 petitioner maintained that it may not be considered in default, even after the expiration of 150 days from July 29, 1994, because prior
demand to pay was never made on it by the private respondent.

On February 27, 1995, petitioner filed with the Court of Appeals a Motion for Clarification seeking "clarification" of the date of commencement of
the one (1) year period for the redemption of the properties in question.

ISSUE: WON HUERTA has the right of redemption

HELD:

From the various decisions, resolutions and orders a quo it can be gleaned that what petitioner has been adjudged to have was only the equity of
redemption over subject properties

"The equity of redemption is, to be sure, different from and should not be confused with the right of redemption.

The right of redemption in relation to a mortgage – understood in the sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale – exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized
in a judicial foreclosure except only where the mortgagee is the Philippine National Bank or a bank or banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one (1) year from the
registration of the sheriff's certificate of foreclosure sale.

Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial
foreclosure sale 'when confirmed be an order of the court. . . . shall operate to divest the rights of all the parties to the action and to vest
their rights in the purchaser, subject to such rights of redemption as may be allowed by law.' Such rights exceptionally 'allowed by law'

R.A. 337 laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold
on foreclosure — after confirmation by the court of the foreclosure sale — which right may be exercised within a period of one (1) year, counted
from the date of registration of the certificate of sale in the Registry of Property.
  Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337
Did petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject properties? – NO
 September 7, 1994, when it filed with the trial court an Ex-part Motion for Clarification, petitioner failed to allege and prove that private
respondent's predecessor in interest was a credit institution and therefore, Section 78 of R.A. No. 337 was applicable
o Petitioner merely asked the trial court to clarify whether the sale of subject properties was execution sale or judicial
foreclosure sale.
 Nothing was heard from petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of private
respondent as a credit institution, when the trial court came out with an order on February 10, 1995, confirming the sale of subject
properties in favor of private respondent
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification with the Court of Appeals, seeking "clarification" of the date of
commencement of the one (1) year redemption period for the subject properties, petitioner never intimated any alleged right under Section 78 of
R.A. No. 337 nor did it invite attention to its present stance that private respondent's predecessor-in-interest was a credit institution.
 If petitioner were really acting in good faith, it would have ventilated before the Court of Appeals in CA-G.R. No. 35086 its alleged right
under Section 78 of R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the complaint for judicial foreclosure, petitioner should have alleged that it was
entitled to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any right
thereunder.
It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual question of whether or not private respondent's
predecessor in interest was a credit institution
The failure of petitioner to seasonably assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage case.
It is decisively clear that the trial court erred in still allowing petitioner to introduce evidence that private respondent's predecessor-in-interest was
a credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337.
 Verily, the petitioner has only itself to blame for not alleging at the outset that the predecessor-in-interest of the private respondent is a
credit institution.
 There is, therefore, merit in private respondent's contention that to allow petitioner to belatedly invoke its right under Section 78 of R.A.
No. 337 will disturb the "law of the case."
Grand Farms Inc. vs CA
Facts:
 Petitioner filed a complaint against the private respondent, Banco Filipino Savings ang Mortgage Bank, to declare the extrajudicial
foreclosure of mortgage of the property of the former. Petitioner alleging that there is no formal notice was made by the private
respondent.
 Private respondent’s that there is notice that was made by the latter. They gave notice by posting and publication. They published the
notice in the Metropolitan Newsweek, a newspaper of general circulation in the province of Valenzuela. It also admitted that there is
no formal notice was made by the Bank, private respondent, to the petitioner.
 Petitioner filed a motion for summary judgment saying that the extrajudicial foreclosure is void because the private respondent violate
their agreement:
o k) All correspondence relative to this Mortgage, including demand letters, summons, subpoena or notifications of any
judicial or extrajudical actions shall be sent to the Mortgagor at the address given above or at the address that may
hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by mail
or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes, and
the fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the
Mortgagee, or that no person was found at the address given, or that the address is fictitious, or cannot be located, shall
not excuse or relieve the Mortgagor from the effects of such notice;
 Private respondent opposed the motion because as under their agreement that the latter becomes the attorney-in-fact of the
petitioner.
RTC denied the motion of the petitioner. Saying that there is a genuine issued in the case at bar. The issues are: (a) whether or not the loan has
matured; (b) whether or not private respondent notified petitioners of the foreclosure of their mortgage; (c) whether or not the notice by publication
of the foreclosure constitutes sufficient notice to petitioners under the mortgage contract; (d) whether or not the applicant for foreclosure of the
mortgage was a duly authorized representative of private respondent; and (e) whether or not the foreclosure was enjoined by a resolution of this
Court.
CA affirmed it. The CA said paragraph (k) of the mortgage contract merely specified the address where correspondence should be sent and did
not impose an additional condition on the part of private respondent to notify petitioners personally of the foreclosure.
Issue: W/N formal notice is needed before private respondent extrajudicial foreclose petitioner’s property.
Held: YES
The Rules of Court authorize the rendition of a summary judgment if the pleadings, depositions and admissions on file, together with the
affidavits, show that, except as to the amount of damages, there is no issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.10 Although an issue may be raised formally by the pleadings but there is no genuine issue of fact, and all the facts
are within the judicial knowledge of the court, summary judgment may be granted.11
The real test, therefore, of a motion for summary judgment is whether the pleadings, affidavits and exhibits in support of the motion are sufficient
to overcome the opposing papers and to justify a finding as a matter of law that there is no defense to the action or that the claim is clearly
meritorious.12
Applying said criteria to the case at bar, we find petitioners' action in the court below for annulment and/or declaration of nullity of the foreclosure
proceedings and damages ripe for summary judgment. Private respondent tacitly admitted in its answer to petitioners' request for admission that
it did not send any formal notice of foreclosure to petitioners. Stated otherwise, and as is evident from the records, there has been no denial by
private respondent that no personal notice of the extrajudicial foreclosure was ever sent to petitioners prior thereto. This omission, by itself,
rendered the foreclosure defective and irregular for being contrary to the express provisions of the mortgage contract. There is thus no further
necessity to inquire into the other issues cited by the trial court, for the foreclosure may be annulled solely on the basis of such defect.
The Court said that even private respondent becomes the attorney-in-fact of the petitioner, formal notice is indispensable as stated in paragraph k
of their agreement.
while publication of the foreclosure proceedings in the newspaper of general circulation was complied with, personal notice is still required, as in
the case at bar, when the same was mutually agreed upon by the parties as additional condition of the mortgage contract.
The Court also said that there is no need to interpret the agreement of the parties because paragraph K ,and A and D are not conflicting to each
other. As in fact a reconciliation should be made of, the provisions of paragraphs (b) and (d) which appear first in the mortgage contract and
those in paragraph (k) which follow thereafter and necessarily took into account the provisions of the preceding two paragraphs.14 The notices
respectively mentioned in paragraphs (d) and (k) are addressed to the particular purposes contemplated therein. Those mentioned in paragraph
(k) are specific and additional requirements intended for the mortgagors so that, thus apprised, they may take the necessary legal steps for the
protection of their interests such as the payment of the loan to prevent foreclosure or to subsequently arrange for redemption of the property
foreclosed.

MADIDA vs CA
Facts of the case:
On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption over lot 4731 of the Cebu City Cadastre and embraced under
TCT No. 14272 from Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the previous mortgage in favor of Cebu City
Development Bank, went to Teotimo Abellana, president of defendant Association, to obtain a loan of P30,000.00. Prior thereto or on October 3,
1974, their son Teofredo Dolino filed a similar loan application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731 offered as security
for the Thirty Thousand (P30,000.00) Pesos loan from defendant association. Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for Thirty Thousand (P30,000.00) Pesos payable in one year with interest at
twelve (12%) percent per annum.
When the loan became due and demandable without plaintiff paying the same, defendant association caused the extrajudicial foreclosure of the
mortgage on March 16, 1976. After the posting and publication requirements were complied with, the land was sold at public auction on April 19,
1976 to defendant association being the highest bidder. The certificate of sale was issued on April 20, 1976 and registered on May 10, 1976 with
the Register of Deeds of Cebu.
On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT No. 14272 was cancelled and in lieu thereof TCT No. 68041
was issued in the name of defendant association.
The trial court upheld the validity of the loan and the REM but annulling the extra judicial foreclosure sale inasmuch as the same failed to comply
with the notice requirement.
Private Respondents interposed a partial appeal to the court with respect to the cancellation of TCT and the order of paying Cebu City savings loan
association. The Court of Appeals declared the REM void. The decision of the Lower court was affirmed with modification.
Issue: WON a mortgage, whose property has been extrajudicially foreclosed and sold at a corresponding foreclosure sale, may vlidly execute a
mortgage contract over the same property in favor of a third party during the redemption.
Ruling: Yes. it is undisputed that the real estate mortgage in favor of petitioner bank was executed by respondent spouses during the period of
redemption. During the said period, it cannot be said the mortgagor is no longer the owner of the foreclosed property since the rule up to now iss
the right of a purchaser of a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised.
The title to the land sold udner mortgage foreclosure remains in the mortgagor or hi grantee until the expiration of the redemption period and the
conveyance of the master deed.
The mortgagor remains as the absolute owner as the absolute owner of the property during the redemption period and h as the free disposal of his
property, there would be compliance with Article 2085 of the Civil Code for the constitution of another mortgage on the property. To hold otherwise
would create an inquetibale situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds
to timely redeem his property through another mortgage.
SPS. DY v. SPS. YAP
G.R. NO. 171868 July 27, 2011
FACTS:
Spouses Tirambulo own several parcels of land which they used as a security for a REM in the amount of Php 105,000 from the Rural Bank of
Dumaguete, Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI). A second loan for Php 28,000 was obtained by said spouses.
Subsequently, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and Natividad Chiu (the Dys) and the spouses Marcelino
C. Maxino and Remedios Lasola (the Maxinos) without the consent and knowledge of DRBI.
The Tirambulos defaulted on their loan and it was foreclosed – DRBI being the highest bidder. The certification of sale, however, was not registered
until almost a year later.
Twelve (12) days after the sale was registered, DRBI sold Lots 1, 3 and 6 to the spouses Francisco D. Yap and Whelma D. Yap (the Yaps) under
a Deed of Sale with Agreement to Mortgage. It is important to note, however, that Lot 3 was not among the five properties foreclosed and
bought by DRBI at public auction.
Roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos attempted to redeem Lots 1, 3 and 6. They
tendered the amount of P40,000.00 to DRBI and the Yaps, but both refused, contending that the redemption should be for the full amount of the
winning bid of P216,040.93 plus interest for all the foreclosed properties.
Thus, on May 28, 1984, the Dys and the Maxinos went to the Office of the Sheriff of Negros Oriental and paid P50,625.29 (P40,000.00 for the
principal plus P10,625.29 for interests and Sheriffs Commission) to effect the redemption. Noticing that Lot 3 was not included in the foreclosure
proceedings, Benjamin V. Diputado, Clerk of Court and Provincial Sheriff, issued a Certificate of Redemption in favor of the Dys and the Maxinos
only for Lots 1 and 6, and stated in said certificate that Lot 3 is not included in the foreclosure proceedings. By letter of even date, Atty. Diputado
also duly notified the Yaps of the redemption of Lots 1 and 6 by the Dys and the Maxinos, as well as the non-inclusion of Lot 3 among the foreclosed
properties. He advised the Yaps to personally claim the redemption money or send a representative to do so.
In a letter to the Provincial Sheriff on May 31, 1984, the Yaps refused to take delivery of the redemption price arguing that one of the characteristics
of a mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the parcels were sold for a single price at
the auction sale.
ISSUE:
WON the doctrine of indivisibility as it relates to mortgage (Article 2089 of NCC) is applicable.
HELD:
No, it does not apply. Nothing in the law prohibits the piecemeal redemption of properties sold at one foreclosure proceeding. In fact, in several
early cases decided by this Court, the right of the mortgagor or redemptioner to redeem one or some of the foreclosed properties was recognized.
The situation obtaining in the case at bar is not within the purview of the aforesaid rule on indivisibility is obvious since the aggregate number of
the lots which comprise the collaterals for the mortgage had already been foreclosed and sold at public auction. There is no partial payment nor
partial extinguishment of the obligation to speak of. The aforesaid doctrine, which is actually intended for the protection of the mortgagee, specifically
refers to the release of the mortgage which secures the satisfaction of the indebtedness and naturally presupposes that the mortgage is existing.
Once the mortgage is extinguished by a complete foreclosure thereof, said doctrine of indivisibility ceases to apply since, with the full
payment of the debt, there is nothing more to secure.
In the 1962 case of Castillo v. Nagtalon, ten parcels of land were sold at public auction. Nagtalon, who owned three of the ten parcels of land
sold, wanted to redeem her properties. Though the amount she tendered was found as insufficient to effectively release her properties, the Court
held that the tender of payment was made timely and in good faith and thus, in the interest of justice, Nagtalon was given the opportunity to
complete the redemption purchase of three of the ten parcels of land foreclosed.
RELEVANT PROVISIONS (BUT NOT APPLICABLE IN THE PRESENT CASE ACCDG TO SC):
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor.
Therefore, the debtors heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as
the debt is not completely satisfied.
Neither can the creditors heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who
have not been paid.
From these provisions is excepted the case in which, there being several things given in mortgage or pledge, each one of these guarantees only a
determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially
answerable is satisfied.
SPS. ESMERALDO AND ELIZABETH SUICO vs. PHILIPPINE NATIONAL BANK AND HON. COURT OF APPEALS
FACTS:
Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties in the nameof the former. They failed to pay the
obligation prompting PNB to extrajudicially foreclose the mortgage over thesubject properties.
Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure conducted and the Certificate of Sale and the Certificate of
Finality sale are null and void;
a.During the foreclosure sale, PNB was the lone bidder.
b.The amount of bid is P8,511,000.00.
c.Petitioners alleged that the outstanding obligation is only P1,991,770.38.
d.Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding obligation as stated in the extrajudicial foreclosure of
mortgage, it was the legal duty of the winning bidder,PNB, to deliver to the Mandaue City Sheriff the bid price or what was left thereof after
deducting the amount of petitioners’ outstanding obligation.
e.PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least, the
amount of such bid in excess of petitioners’ outstanding obligation.
4. PNB moved to dismiss citing the pendency of another action between the same properties where PNB
was seeking payment of the balance of petitioner’s obligation not covered by the proceeds of the auction
sale.
RTC denied the Motion to Dismiss.
PNB asserted, in its answer, that petitioners had other loans which had likewise become due. PNBmaintained that the outstanding obligation of
the petitioners under their regular and export- relatedloans was already more than the bid price of P8,511,000.00, contradicting the claim of
surplus proceedsdue the petitioners. Petitioners were well aware that their total principal outstanding obligation on thedate of the auction sale
was P5,503,293.21
RTC – declared the extrajudicial foreclosure null and void because petitioners had other loan obligations which had not yet matured on 10 March
1992 but became due by the date of the auction sale on 30 October 1992, it does not justify the shortcut taken by PNB and will not excuse it from
paying to the Sheriff whoconducted the auction sale the excess bid in the foreclosure sale. To allow PNB to do so wouldconstitute fraud, for not
only is the filing fee in the said foreclosure inadequate but, worse, thesame constitutes a misrepresentation regarding the amount of the
indebtedness to be paid inthe foreclosure sale as posted and published in the notice of sale.
Such misrepresentation isfatal because in an extrajudicial foreclosure of mortgage, notice of sale is jurisdictional. Anyerror in the notice of sale
is fatal and invalidates the notice.8.
CA –reversed. Petitioners offered to redeem the properties several times from 6.5M to 7.5M.b.
All those offers made by the Sps. not only contradicted their very assertion that their obligation is merely that amount appearing on the petition
for foreclosure but are also indicativeof the fact that they have admitted the validity of the extra judicial foreclosure proceedings andin effect have
cured the impugned defect.
Even assuming that indeed there was a surplus and PNB is retaining more than the proceeds of the sale than it is entitled, this fact alone will not
affect the validity of the sale but simply gives the Sps a cause of action to recover such surplus.
Such failure of PNB does not constitute jurisdictional defect.
ISSUE:
Whether or not the extrajudicial foreclosure is valid.--YES
Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the petitioners’ obligation ofP1,991,770.38 in the Notice
of Sale, is the PNB obliged to deliver the excess? -YES
HELD:
1.
It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be strictly complied with, and that even slight
deviations therefrom will invalidate the notice and render the sale at least voidable. But the purpose of the publication of the Notice of Sheriffs Sale is
to inform all interested parties of the date, time and place of the foreclosure sale of the real property subject thereof. Logically, this not only requires
that the correct date, time and place of the foreclosure sale appear in the notice, but also that any and all interested parties be able to determine that
what is about to be sold at the foreclosure sale is the real property in which they have an interest.
Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the finding of the RTC that the discrepancy between the amount of
petitioners obligation as reflected in the Notice of Sale and the amount actually due and collected from the petitioners at the time of the auction sale
constitute fraud which renders the extrajudicial foreclosure sale null and void.
Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objects are attained, immaterial errors and
mistakes will not affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead
bidders, to depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the validity of
the notice, and also to the sale made pursuant thereto.
the Notice of Sale in this case is valid. Petitioners failed to convince this Court that the difference between the amount stated in the
Notice of Sale and the amount of PNBs bid resulted in discouraging or misleading bidders, depreciated the value of the property or
prevented it from commanding a fair price.
The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court of Appeals[22] refers to a Notice of Sheriffs Sale which did not
state the correct number of the transfer certificates of title of the property to be sold. This Court considered the oversight as a substantial and fatal
error which resulted in invalidating the entire notice. The case of Community Savings and Loan Association, Inc. v. Court of Appeals[23] is also
inapplicable, because the said case refers to an extrajudicial foreclosure tainted with fraud committed by therein petitioners, which denied therein
respondents the right to redeem the property. It actually has no reference to a Notice of Sale.
2.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized from the foreclosure sale of the mortgaged property shall, after deducting
the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage
debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person
entitled to it.
Under the above rule, the disposition of the proceeds of the sale in foreclosure shall be as follows:
1. first, pay the costs
2. secondly, pay off the mortgage debt
3. thirdly, pay the junior encumbrancers, if any in the order of priority
4. fourthly, give the balance to the mortgagor, his agent or the person entitled to it.
Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the claim of the
second mortgagee/junior mortgagee may be satisfied from the surplus proceeds.
The application of the proceeds from the sale of the mortgaged property to the mortgagor’s obligation is an act of payment, not payment by dacion;
hence, it is the mortgagee’s duty to return any surplus in the selling price to the mortgagor.
A mortgagee who exercises the power of sale contained in a mortgage is considered a custodian of the fundand, being bound to apply it properly,
is liable to the persons entitled thereto if he fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable
sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of the equity of redemption.
Effect: Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact alone will not affect
the validity of the sale but simply give the mortgagor a cause of action to recover such surplus.
Cua Lai Chi vs. Laqui
Facts:
 In November 1994, petitioners obtained a loan in the amount of P3,200,000 from private respondent Philippine Bank of
Communication. To secure the loan, petitioners executed in favor of private respondent a Deed of Real Estate Mortgage over the
property of petitioner spouses covered by Transfer Certificate of Title No. 22990. In August 1997, petitioners executed an Amendment
to the Deed of Real Estate Mortgage increasing the amount of the loan by P1,800,000, bringing the total loan amount to P5,000,000.
 For failure of petitioners to pay the full amount of the outstanding loan upon demand, private respondent applied for the extrajudicial
foreclosure of the real estate mortgage. Upon receipt of a notice of the extrajudicial foreclosure sale, petitioners filed a petition to
annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO). The petition for annulment was filed in the
Regional Trial Court of Quezon City.
 The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners prayer for
TRO. The trial court subsequently lifted the TRO and reset the extrajudicial foreclosure sale on 29 May 2002. At the foreclosure sale,
private respondent emerged as the highest bidder.
 After the lapse of the one-year redemption period, private respondent filed in the Registry of Deeds of Quezon City an affidavit of
consolidation to consolidate its ownership and title to the foreclosed property. Forthwith, on 8 July 2003, the Register of Deeds
cancelled the old TCT and issued in its stead a new one in the name of private respondent.
 On 18 August 2004, private respondent applied for the issuance of a writ of possession of the foreclosed property.
  RTC: granted private respondents motion for a declaration of general default and allowed private respondent to present evidence ex
parte.
 CA: The Court of Appeals dismissed on both procedural and substantive grounds the petition for certiorari filed by petitioners. The
appellate court held that a proceeding for the issuance of a writ of possession is ex parte in nature. As such, petitioners right to due
process was not violated even if they were not given a chance to file their opposition. The appellate court also ruled that there was no
violation of the rule against forum shopping since the application for the issuance of a writ of possession is not affected by a pending
case questioning the validity of the extrajudicial foreclosure sale.
Issue:
Whether the writ of possession was properly issued despite the pendency of a case questioning the validity of the extrajudicial foreclosure sale
and despite the fact that petitioners were declared in default in the proceeding for the issuance of a writ of possession
Ruling:
 Yes. Petition was without merit.
 Petitioners contend they were denied due process of law when they were declared in default despite the fact that they had filed their
opposition to private respondents application for the issuance of a writ of possession. Further, petitioners point out that the issuance
of a writ of possession will deprive them not only of the use and possession of their property, but also of its ownership. Petitioners cite
Bustos v. Court of Appeals and Vda. De Legaspi v. Avendao in asserting that physical possession of the property should not be
disturbed pending the final determination of the more substantial issue of ownership.
 Private respondent, on the other hand, maintains that the application for the issuance of a writ of possession in a foreclosure
proceeding is ex parte in nature. Hence, petitioners right to due process was not violated even if they were not given a chance to file
their opposition. Private respondent argues that the issuance of a writ of possession may not be stayed by a pending case
questioning the validity of the extrajudicial foreclosure sale.
 The authorities relied upon by petitioners are not in point and have no application here. In Bustos v. Court of Appeals, the Court
simply ruled that the issue of possession was intertwined with the issue of ownership in the consolidated cases of unlawful detainer
and accion reinvindicatoria. In Vda. De Legaspi v. Avendao, the Court merely stated that in a case of unlawful detainer, physical
possession should not be disturbed pending the resolution of the issue of ownership. Neither case involved the right to possession of
a purchaser at an extrajudicial foreclosure of a mortgage.
 Banco Filipino Savings and Mortgage Bank v. Pardo squarely ruled on the right to possession of a purchaser at an extrajudicial
foreclosure of a mortgage. This case involved a real estate mortgage as security for a loan obtained from a bank. Upon the
mortgagors default, the bank extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A
certificate of sale was duly issued and registered. The bank then applied for the issuance of a writ of possession, which the lower
court dismissed. The Court reversed the lower court and held that the purchaser at the auction sale was entitled to a writ of
possession pending the lapse of the redemption period upon a simple motion and upon the posting of a bond.
 In Navarra v. Court of Appeals, the purchaser at an extrajudicial foreclosure sale applied for a writ of possession after the lapse of the
one-year redemption period. The Court ruled that the purchaser at an extrajudicial foreclosure sale has a right to the possession of
the property even during the one-year redemption period provided the purchaser files an indemnity bond. After the lapse of the said
period with no redemption having been made, that right becomes absolute and may be demanded by the purchaser even without the
posting of a bond. Possession may then be obtained under a writ which may be applied for ex parte pursuant to Section 7 of Act No.
3135 as amended by Act No. 4118
 In the present case, the certificate of sale of the foreclosed property was annotated on TCT No. 22990 on 7 June 2002. The
redemption period thus lapsed on 7 June 2003, one year from the registration of the sale. When private respondent applied for the
issuance of a writ of possession on 18 August 2004, the redemption period had long lapsed. Since the foreclosed property was not
redeemed within one year from the registration of the extrajudicial foreclosure sale, private respondent had acquired an absolute
right, as purchaser, to the writ of possession. It had become the ministerial duty of the lower court to issue the writ of possession upon
mere motion. Moreover, once ownership has been consolidated, the issuance of the writ of possession becomes a ministerial duty of
the court, upon proper application and proof of title.
 In the present case, when private respondent applied for the issuance of a writ of possession, it presented a new transfer certificate of
title issued in its name dated 8 July 2003. The right of private respondent to the possession of the property was thus founded on its
right of ownership. As the purchaser of the property at the foreclosure sale, in whose name title over the property was already issued,
the right of private respondent over the property had become absolute, vesting in it the corollary right of possession.
 Petitioners are wrong in insisting that they were denied due process of law when they were declared in default despite the fact that
they had filed their opposition to the issuance of a writ of possession. The application for the issuance of a writ of possession is in the
form of an ex parte motion. It issues as a matter of course once the requirements are fulfilled. No discretion is left to the court.
 Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by a pending case questioning the
validity of the foreclosure proceeding. The latter is not a bar to the former. Even pending such latter proceeding, the purchaser at a
foreclosure sale is entitled to the possession of the foreclosed property.
Spouses Tolosa vs. UCPB
GR No. 183058
PLAINTIFF: Spouses Montano Tolosa, Merlinda Tolosa
DEFENDANT: UCPB
DATE: April 3, 2013
PONENTE: J. Perez
TOPIC:
Facts:
 This is a case wherein the Petitioner Spouses entered into a Credit Agreement with UCPB for the purpose of availing of the latter’s
credit facilities
 To secure the credit availments, Spouses Tolosa executed Deed of REM over 4 properties located in Aklan
 That for their failure to pay their principal obligation of 13M, UCPB foreclosed the mortgage on the REM and filed for the extra judicial
sale thereof with the Office of the Clerk of Court
 After due notice and publication, the mortgaged properties were sold on January 4, 2000 at a public auction where UCPB is the
highest bidder (17M)
o Proceeds of the sale were credited to the partial fulfillment of the mortgage obligation
o UCPB caused the same to be registered under their name
o Spouses Tolosa failed to exercise their right of redemption within the prescribed 1year period – UCPB then consolidated
its ownership over the subject realties
 UCPB, filed an x-parte petition for issuance of a writ of possession before the RTC
o Upon notification, Spouses Tolosa filed their opposition, calling RTCs attention to the pendency of the complaint for
declaration of nullity of the PNs, foreclosure mortgage and certificate of sale against UCPB
 That they have been misled by UCPB into signing the Credit Agreement, PNs and REM
 Not releasing the full amount of the loan
 RTC ruled in favor of Spouses Tolosa, that the pendency of their complaint necessitated the suspension of UCPBs petition – since
there was a possibility that the foreclosure of the mortgage may be adjudged as violative to the rights of Spouses Tolosa as
mortgagors.
 CA nullified RTCs decision, favored UCPB
o That the Credit Agreemtn, PNs and REM had yet to be declared invalid
o That the pendency of the case of Spouses Tolosa cannot defeat the right to writ of possession that law grants to UCPB as
the absolute and registered owners of the subject realties.
o That questions regarding the validity of of the foreclosure may be raised in pursuant to Section 8 of Act 3135.
Issue: W/N the CA is correct in granting UCPBs petition for Write of Possession, YES
Ruling:
The record shows that UCPB caused the extrajudicial foreclosure of the mortgage on the subject realties as a consequence of the Spouses
Tolosa’s default on their mortgage. As the highest bidder at foreclosure sale, UCPB consolidated its ownership on January 22, 2001 or upon
failure of the Spouses to exercise their Right of Redemption within 1year period prescribed.
Subsequent to the issuance of the certificates of title and tax declarations over the same properties in its name, UCPB complied with the
requirements under Act 3135 by filing ex-parte petition for the issuance of a writ of possession before the RTC on September 2, 2004. Since
UCPB has already become the absolute and registered owner of said properties, the CA correctly ruled that it was the ministerial duty of the RTC
to issue the writ of possession in favor of the former.
A writ of possession is simply an order by which the sheriff is commanded by the court to place a person in possession of a real or personal
property.
Under Section 7 of Act No. 3135, as amended, a writ of possession may be issued in favor of a purchaser in a foreclosure sale either
(1) within the one-year redemption period, upon the filing of a bond; or
(2) after the lapse of the redemption period, without need of a bond. Within the one-year redemption period, the purchaser may apply for a writ of
possession by filing a petition in the form of an ex parte motion under oath, in the registration or cadastral proceedings of the registered property.
The law requires only that the proper motion be filed, the bond approved and no third person is involved. After the consolidation of title in the
buyer's name for failure of the mortgagor to redeem the property, entitlement to the writ of possession becomes a matter of right. In the latter
case, the right of possession becomes absolute because the basis thereof is the purchaser's ownership of the property.
The rule is likewise settled that the proceeding in a petition for a writ of possession is ex-parte and summary in nature. As one brought for the
benefit of one party only and without notice by the court to any person adverse of interest, it is a judicial proceeding wherein relief is granted
without giving the person against whom the relief is sought an opportunity to be heard. The issuance of the writ of possession is, in turn, a
ministerial function in the exercise of which trial courts are not granted any discretion. Since the judge to whom the application for writ of
possession is filed need not look into the validity of the mortgage or the manner of its foreclosure, it has been ruled that the ministerial duty of the BPI FAMILY V GOLDEN POWER DIESEL
trial court does not become discretionary upon the filing of a complaint questioning the mortgage. Corollarily, any question regarding the validity GR NO . 176019
of the extrajudicial foreclosure sale and the resulting cancellation of the writ may, likewise, be determined in a subsequent proceeding as outlined
in Section 8 of Act No. 3135.
FACTS:
 CEDEC mortgaged two parcels of land including all improvements therein in favor of BPI Family to secure a loan of ₱6,570,000
o On the same day, the mortgage was duly annotated on the titles
 CEDEC obtained from BPI Family additional loans of ₱2,160,000 and ₱1,140,000, respectively, and again mortgaged the same
properties.

Despite demand, CEDEC defaulted in its mortgage obligations.

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

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

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

RTC, denied respondent’s motion

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

The writ of possession expired without being implemented.

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

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

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

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

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

HELD:

NO

In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of possession is governed by Section 7 of Act No. 3135, as amended,
which provides:

SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance (Regional Trial Court) of the
province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond
in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of
an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk
of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered
Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order
immediately.

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

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

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

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

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

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

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

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

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

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

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

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