PEOPLES BANK V. DAHICANPONENTE: DIZON,JDATE: May 16, 1967SUBJECT MATTER: Chattel mortgage-subject matter: machinery

I. FACTSA. Dahican lumber company (DAMCO) obtained several loans amounting to 250,000pesos from Peoples bank (BANK) and ,together with DALCO, another loan amounting to$250,000 from Export-Import bank secured by five promissory notes through peoples bank. Inboth loans, DAMCO executed and registered respective mortgages with inclusion of after acquired properties. DAMCO and DALCO failed to satisfy the fifth promissory note in favor ofExport bank so Peoples bank paid it and subsequently filed an action for the foreclosure ofthe mortgaged properties of DAMCO including the after acquired machinery, equipmentand spare parts upon the latter's failure to fulfill its obligation.

B. Contention of the PetitionerPeoples bank asserted that the after acquired machinery and equipment of DAMCO are subject to the deed of mortgage executed by DAMCO. Hence, these can be included in the foreclosure proceedings.

C. Contentions of the RespondentDALCO argued that the mortgages were void as regards the after acquired properties because they were not registered in accordance with the chattel mortgage law. Moreover, provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was willing to constitute a lien over such properties.

II. ISSUES TO BE RESOLVEDWhether the after acquired machinery and equipment of DAMCO are included as subject of the Real Estate mortgage, thus can be foreclosed.

III. RULING OF THE SUPREME COURT

Judgment rendered in favor of Plaintiff Peoples bank. The after acquired machinery and equipment are included in the executed mortgages. 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. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the premises that is, its lumber concession "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, andWe might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used thus becoming subject to the inevitable wear and tear but with the understanding express or implied that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a similar provision is included in the contract.

ISAGUIRRE V. DE LARADoctrine:As a general rule, the mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the property does not pass to the mortgagee. However, even though a mortgagee does not have possession of the property, there is no impairment of his security since the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. If the debtor is unable to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage, whether judicially or extra judicially, whereby the mortgaged property will then be sold at a public auction and the proceeds there from given to the creditor to the extent necessary to discharge the mortgage loan.

Facts:Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Application over a parcel of land identified as portion of Lot 502, Guianga Cadastre, filed with the Bureau of Lands with an area of 2,342 square meters. Upon his death, his wife respondent Felicitas de Lara, as claimant, succeeded Alejandro de Lara. The Undersecretary of Agriculture and Natural Resources amended the sales application to cover only 1,600 square meters. By virtue of a decision rendered by the Secretary of Agriculture and Natural Resources, a subdivision survey was made and the area was further reduced to 1,000 square meters. On this lot stands a two-story residential-commercial apartment declared for taxation purposes in the name of respondents sons Apolonio and Rodolfo, both surnamed de Lara.Respondent obtained several loans from the Philippine National Bank. When she encountered financial difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her niece, for assistance. A document denominated as Deed of Sale and Special Cession of Rights and Interests was executed by respondent and petitioner, whereby the former sold a 250 square meter portion of Lot No. 502, together with the two-story commercial and residential structure standing thereon, in favor of petitioner, for and in consideration of the sum of P5,000.Apolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership and possession of the two-story building. However, the case was dismissed for lack of jurisdiction. Petitioner filed a sales application over the subject property on the basis of the deed of sale. His application was approved, resulting in the issuance of Original Certificate of Title, in the name of petitioner. Meanwhile, the sales application of respondent over the entire 1,000 square meters of subject property (including the 250 square meter portion claimed by petitioner) was also given due course, resulting in the issuance of Original Certificate of Title, in the name of respondent.Due to the overlapping of titles, petitioner filed an action for quieting of title and damages with the RTC of Davao City against respondent. After trial on the merits, the trial court rendered judgment, in favor of petitioner, declaring him to be the lawful owner of the disputed property. However, the Court of Appeals reversed the trial courts decision, holding that the transaction entered into by the parties, as evidenced by their contract, was an equitable mortgage, not a sale. The appellate courts decision was based on the inadequacy of the consideration agreed upon by the parties, on its finding that the payment of a large portion of the purchase price was made after the execution of the deed of sale in several installments of minimal amounts; and finally, on the fact that petitioner did not take steps to confirm his rights or to obtain title over the property for several years after the execution of the deed of sale. As a consequence of its decision, the appellate court also declared Original Certificate issued in favor of petitioner to be null and void. This Court affirmed the decision of the Court of Appeals, we denied petitioners motion for reconsideration.Respondent filed a motion for execution with the trial court, praying for the immediate delivery of possession of the subject property, which motion was granted. Respondent moved for a writ of possession. Petitioner opposed the motion, asserting that he had the right of retention over the property until payment of the loan and the value of the improvements he had introduced on the property. The trial court granted respondents motion for writ of possession. The trial court denied petitioners motion for reconsideration. Consequently, a writ of possession, together with the Sheriffs Notice to Vacate, was served upon petitioner.

Issue:Whether or not the mortgagee in an equitable mortgage has the right to retain possession of the property pending actual payment to him of the amount of indebtedness by the mortgagor.

Held:A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation. Recording the document, in which it appears with the proper Registry of Property, although, even if it is not recorded, the mortgage is nevertheless binding between the parties, constitutes it. Thus, the only right granted by law in favor of the mortgagee is to demand the execution and the recording of the document in which the mortgage is formalized. As a general rule, the mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the property does not pass to the mortgagee. However, even though a mortgagee does not have possession of the property, there is no impairment of his security since the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. If the debtor is unable to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage, whether judicially or extrajudicially, whereby the mortgaged property will then be sold at a public auction and the proceeds there from given to the creditor to the extent necessary to discharge the mortgage loan. Apparently, petitioners contention that to require him to deliver possession of the Property to respondent prior to the full payment of the latters mortgage loan would be equivalent to the cancellation of the mortgage is without basis. Regardless of its possessor, the mortgaged property may still be sold, with the prescribed formalities, in the event of the debtors default in the payment of his loan obligation. A simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage should contain some special provision to that effect. Regrettably for petitioner, he has not presented any evidence, other than his own gratuitous statements, to prove that the real intention of the parties was to allow him to enjoy possession of the mortgaged property until full payment of the loan. The trial court correctly issued the writ of possession in favor of respondent. Such writ was but a necessary consequence of affirming the validity of the original certificate of title in the name of respondent Felicitas de Lara, while at the same time nullifying the original certificate of title in the name of petitioner Cornelio Isaguirre. Possession is an essential attribute of ownership; thus, it would be redundant for respondent to go back to court simply to establish her right to possess subject property.

LITONJUA V. L & R CORPFACTS:Thisstemsfromloansobtainedbythe spousesLitonjuafromL&RCorporationintheaggregatesumofP400,000.00;P200,000.00ofwhich was obtained on August 6, 1974 and the remaining P200,000.00obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon their two parcels of land and theimprovementsthereon.Themortgagewas dulyregisteredwiththe Register of Deeds.SpousesLitonjuasoldtoPhilippineWhiteHouseAutoSupply,Inc.(PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00. Meanwhile, with the spousesLitonjuahavingdefaultedinthepaymentoftheirloans,L&R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City.The mortgaged properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58.On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of themortgagedpropertiestoPWHASwaswithoutitsconsent,incontraventionofparagraphs8and9oftheirDeedofRealEstateMortgage; and (2) that it was not the spouses Litonjua, but PWHAS,whowasseekingtoredeemtheforeclosedproperties,whenunderArticles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to redeem the same. On the other hand, the spouses Litonjua asked theRegister of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R Corporation to surrender the owners duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for the surrender ofthe owners duplicate of Transfer Certificates of Title No. 197232 and197233 before the then CFI.

ISSUE: WON there was a Valid and enforceable stipulation granting the mortgagee the right of firstrefusal.

HELD: While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is concerned.Said paragraph 9 grants upon L & RCorporation the right

Limpin v. IACFacts: Four lots were mortgaged by the spouses Jose and Marcelina Aquino to Guillermo Ponce and his wife Adela(since deceased) as security for a loan of P2,200,000.00. The mortgages were registered. Two of the lots, those covered by TCTs Nos. 92836 and 92837, were afterwards sold by the Aquinos to the Butuan Bay Wood ExportCorporation, which caused an adverse claim to beannotated on the certificates of title. Gregorio Y. Limpin, Jr. obtained a money judgment against Butuan Bay Wood Export Corporation in Courtof First Instance of Davao. To satisfythe judgment, the lots covered by TCTs Nos. 92836 and 92837 were levied upon on and sold at public auction to Limpin as the highest bidder for the sum of P517,485.41.On order of the trial court,the covering titles were cancelled and issued to Limpin. Limpin sold the two lots toRogelio M. Sarmiento. By virtue of said sale, TCTs Nos. 285450 and285451 were cancelled on November 4, 1983, and TCTS were replaced in Sarmiento's name. Ponce filed suit against the Aquino spouses forjudicial foreclosure of the mortgage over the Aquinos' four lots. Judgment was rendered in favor of Ponce. After the judgment became final, the Trial Court, directed the sale at public auction of the 4 mortgaged lots tosatisfy the judgment. The 4 lots, including those formerly covered byTCTs Nos.92836 and 92837, were sold to Ponce himself whose bid was the highest and exactly correspond to thejudgment debt. On the same day, the sheriff's certificate of sale was registered. Ponce then moved for the confirmation ofthe sale and the issuance of a writ of possession in his favor covering the four lots. But the Trial Court confirmed only the sale of the lots covered by TCTs Nos. 02839 and 92840, refusing to confirm the sale or issue a writ ofpossession in regard to the lots covered by TCTs Nos. 92836 and 92837 on the ground that those titles had already been cancelled and new ones issued to Gregorio F. Limpin. Limpin refused to participate in the hearings contending that the Court had no jurisdiction over his person; but he did comment that the mortgage over the lots covered byTCTs Nos. 92836 and 92837 had been released by Ponce by virtue of a "Partial Release of Real Estate Mortgage". The Trial Court denied Ponce's motion for reconsideration, whereupon he sought corrective relief by filing a special civil action for certiorari and mandamus in the Intermediate Appellate Court, impleading Limpin and Sarmiento, as private respondents. IAC set aside the judgment of the Trial Court and issue a writ of possession to Ponce with respect thereto, subject to Sarmiento's equity of redemption.

Issue: Whether or not IAC erred in according superiority to the mortgage rights of Ponce over the levy and sale in favor ofLimpin and the subsequent sale to Sarmiento.

Held: NO. The superiority of the mortgagee's lien over thatof a subsequent judgment creditor is now expressly provided in Rule 39, Section 16 of the Revised Rules of Court, which states with regard to the effect of levyon execution that it shall create a lien in favor of a judgment creditor over the right title and interest of the judgment debtor in such property at the time of the levy,subject to the liens or encumbrances then existing. Using jurisprudence in Santiago v Dionisio, the Court inthat case held that:... [T]he effect of the failure toimplead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the "un foreclosed equity ofredemption." But the foreclosure is valid as between the parties to the suit. Applied to this case, this means that thesale to Ponce, as the highest bidder in the foreclosure sale of the two lotsin question should have been confirmed, subject to Limpin's (and now Sarmiento's equity to redemption. The registration of the lands, first in the name of Limpin and later ofSarmiento, was premature. At most what they were entitled to was the registration of their equity ofredemption. It is well settled that a recorded mortgage is aright in rem, alien on the property whoever its owner may be. The recordation of the mortgage in this case puts thewhole world on constructive notice of its existence and warned everyone who thereafter dealt with the property on which itwas constituted that he would have to reckon with that encumbrance. Hence, Limpin's subsequent purchase of the "interests and participation" of Butuan Bay Wood Export Corporation in the lots covered by TCTs Nos. 92836 and92837, as well as the sale of the same to Sarmiento were both subject to said mortgage.--Additional rulings not related to topic:* The fact that at the time Ponce foreclosed the mortgage on October 21, 1983, the lots had already been bought by Limpin and subsequently sold to Sarmiento is of noconsequence, since the settled doctrine is that the effects ofthe foreclosure sale retroact to the date ofregistration of the mortgage, i.e., March 1, 1973 in the present case.* As regards the claim that Ponceexecuted a deed of partial release of his mortgage on July 20, 1977, the evidence discloses that Ponce and Jose Aquino, the mortgagor, thereafter executed separate affidavits dated December 1,1983, stating that the said partial release was void, not only for want of consideration but also for lack of the signatures ofPonce's two sons who at the time ofthe execution of the document, were co-mortgagees as successors and heirs ofMrs. Adela Ponce. Moreover, the Deed of PartialRelease was not registered but had simply been attached.