Credit Digest

CASE 1: Prudential Bank v. Alviar & AlviarFacts:

1. the Alviars obtained several loans from Prudential Bank and these include:

a. loan for the amount of P250,000.00 as seen in a Promissory note. it was secured by a REAL ESTATE MORTGAGE over a parcel of land and this was duly annotated.

b. a loan in the amount of P545K for DOnalco Trading wherein they are the officers.

2. The Real estate mortgage contained the following clause:“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 (P250,000.00) 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”

3. The Spouses Alviar then paid P2M tp be applied to the obligations of GB Alviar Realty Development and for the release of the Real Estate Mortgage.

4. Extrajudicial Foreclosure: the petitioner then moved for the extrajudicial foreclosure of the mortgage on the property saying that there still obligations remaining to be paid. The Public auction was scheduled.

5. The complaint: the spouses Alviar then filed a complaint for damages and injunction claiming that they have already paid their principa loan secured by the mortgaged property, and thus, the mortgage cannot be foreclosed.

a. Answer of the defendant Bank, the P2M payment was made by GB Alviar, which was a separate loan.

6. The trial court Ruled in favour of the plaintiff: and did not allow the foreclosure of the mortgage because according to the court, the mortgage only covered the P250k loan.

a. That the other loan referred to by the defendant was secured by a foreign currency deposit

b. That the P545k loan was unsecuredc. That the Blanket clause alleged by the bank only

covered future loans of the spouses Alviar and not to Donalco who were merely officers thereof

7. CA decision: the CA affirmed the decision of the RTC and ruled that:

a. 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.

ABBS Digest Group | Credit Transactions | Real Mortgage | Atty. Lotilla | 1

b. However, the court found that respondents have not yet paid the P250,000.00 covered by PN BD#75/C-252 since the payment ofP2,000,000.00 adverted to by respondents was issued for the obligations of G.B. Alviar Realty and Development, Inc.

8. Hence, the present action by the petitioner arguing that:a. blanket mortgage clause” or the “dragnet

clause” in the real estate mortgage expressly covers not only the P250,000.00 under PN BD#75/C-252, but also the two other promissory notes included in the application for extrajudicial foreclosure of real estate mortgage

b. it further argues that there is no law which prohibits an obligation from being covered by 2 or more securities

There are three main issues in this case:1. WON there dragnet clause is valid2. What does the dragnet clause cove, may it involve

obligations which are already covered by other securities?

3. May foreclosure be done?

Issue 1: WON the dragnet clause is validRuling: the dragnet clause is valid

1. The Provision in this case: “…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…”

2. Nature of a Dragnet clause is one which is specifically phrased to subsume all

debts of past or future origins. Such clauses are “carefully scrutinized and strictly construed.”

Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction.

3. Purpose operates as a convenience and accommodation to

the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera

4. hence, in this case, it is clear that the petitioner and the respondent intended the real estate mortgage to secure not only the P250,000.00 loan from the petitioner, but also future credit facilities and advancements that may be obtained by the respondents. The terms of the above provision being clear and unambiguous, there is neither need nor excuse to construe it otherwise.

Issue 2: What does the dragnet clause cove, may it involve obligations which are already covered by other securities?Ruling: Yes. However, following the reliance on security test, the mortgage will not secure a note that expresses on its face that is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein.

1. In other words, the sufficiency of the first security is a corollary component of the “dragnet clause.” But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the “dragnet clause,” but rather, on the


new security given. This is the “reliance on the security test.”

Issue 3: Should the foreclosure be granted?Ruling: No. the security to the debt due must be exhausted first before the REM with the dragnet clause be used.

1. 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.

2. 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.

a. The foreclosure of the mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any amount not covered by the security for the second promissory note.

CASE 2: People’s Bank & Trust Company & Atlantic Gulf and Pacific Co. of Manila v. Dahican Lumber Company, et al., FACTS: ATLANTIC sold and assigned all its right in the DALCO for the total sum of P500,000.00 of which only the amount of $50,000.00 was paid. DALCO obtained various loans from the People's Bank & Trust Company amounting to P200,000.00. DALCO also 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, payable to the BANK or its order.As security for the payment of the loans, DALCO executed in favor of the BANK a deed of mortgage covering live parcels of land situated in the province of Camarines Norte, together with all the buildings and other improvements existing thereon and all the personal properties of themortgagor located in its place of business in the municipalities of Mambulao and Capalonga,Camarines Norte. DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00. Both deeds contained a provision which stated that it

included essential after-acquired properties such as machineries, fixtures, tools and equiptments. Both mortgages wereregistered in the Office of the Register of Deeds of Camarines Norte.Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-Import Bank of Washington D.C. and the latter assigned to the former its creditand the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1,1953 to pay the overdue promissory note. 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 heretofore regarding "after acquired properties", the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. On December 16, 1952, the Board of Directors of DALCO in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it. On January 23, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12,1953, ATLANTIC and the BANK, commenced foreclosure proceedings in the CFI of Camarines Norte against DALCO and DAMCO.

ISSUE: (1) WON “after acquired” machinery and equipment of DAMCO are included as subject of the Real Estate mortgage, thus can be foreclosed. (2) WON the deed should be registered in the Chattel Mortgage registry

HELD: Yes, it can be foreclosed.(2) No more.

RATIO: (1) The after acquired machinery andequipment 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 acquiredproperties" 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.

(2) Since under Articles 415 the new Civil Code, the properties in question being machinery,receptacles, instruments or replacements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend directly to meet theneeds of the said industry or works, are classified as immovable properties, therefore not covered bythe Chattel Mortgage Law

Suffice it to say that the stipulation referred to is common, and we 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 assecurity. 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 inthe contract.

CASE 3 : STAR TWO (SPV-AMC), INC. vs. PAPER CITY CORPORATION OF THE PHILIPPINESFACTS:

1. Rizal Commercial Banking Corporation (RCBC), Metropolitan Bank and Trust Co. (Metrobank) and Union Bank of the Philippines (Union Bank) are banking corporations duly organized and existing under the laws of the Philippines. On the other hand, respondent Paper City is a domestic corporation engaged in the manufacture of paper products particularly cartons, newsprint and clay-coated paper.

2. From 1990-1991, Paper City applied for and was granted four (4) loans and credit accommodations by RCBC, now substituted by Star Two (SPV-AMC), Inc by virtue of Republic Act No. 9182.

-The loans were secured by four (4) Deeds of Continuing Chattel Mortgages on its machineries and equipments found inside its paper plants.

3. However, RCBC eventually executed a unilateral Cancellation of Deed of Continuing Chattel Mortgage.

4. In 1992, RCBC, as the trustee bank, together with Metrobank and Union Bank, entered into a Mortgage Trust Indenture (MTI), with Paper City.

-In the said MTI, Paper City acquired additional loans secured by five (5) Deed of Real Estate Mortgage, plus real and personal properties in an annex to the MTI, which covered the machineries and equipment of Paper City.

5. The MTI was later on amended and supplemented three (3) times, wherein the loan was increased and included the same mortgages with an additional building and other improvements in the plant site.

6. Paper City was able to comply with the loans but only until 1997 due to an economic crisis.

7. RCBC filed a petition for extra-judicial foreclosure against the real estate executed by Paper City including all the improvements because of payment default.

8. The property was foreclosed and subjected to public auction.


-The three banks as the highest bidders were issued a Certificate of Sale.

9. Paper City filed a complaint alleging that the sale was null and void due to lack of prior notice. During the pendency of the complaint, Paper City filed a motion to remove machinery out of the foreclosed land and building, that the same were not included in the foreclosure of the real estate mortgage.

10. RTC: The trial court denied the motion, ruling that the machineries and equipment were included. Thereafter, Paper City's Motion for Reconsideration, the trial court granted the same and justified the reversal by finding that the machineries and equipment are chattels by agreement thru the four Deeds of Continuing Chattel Mortgages; and that the deed of cancellation executed by RCBC of said mortgage was not valid because it was one unilaterally. RCBC's Motion for Reconsideration was denied.

11. CA: The case was petitioned at CA:

1. That Paper City gave its consent to consider the disputed machineries and equipment as real properties when they signed the MTI's and all its amendments;

2. That the machineries and equipment are the same as in the MTI's, hence treated by agreement of the parties as real properties. The CA affirmed the orders of the trial court because it relied on the plain language of the MTI's stating that nowhere from any of the MTIs executed by the parties can we find the alleged "express" agreement adverted to by petitioner. There is no provision in any of the parties’ MTI, which expressly states to the effect that the parties shall treat the equipments and machineries as real property.

ISSUE/S: WON the subsequent contracts of the parties such as Mortgage Trust Indenture as well as the subsequent supplementary amendments included in its coverage of mortgaged properties the subject machineries and equipment;

WON the subject machineries and equipment were considered real properties and should therefore be included in the extra-judicial foreclosure which in turn were sold to the banks.

HELD: Yes. Yes.

RATIO: 1. 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’ x x x of which the [Paper City] is the lawful and registered owner.” Significantly, Annexes “A” and “B” are itemized listings of the buildings, machineries and equipments typed single spaced in twenty-seven pages of the document made part of the records.

As held in Gateway Electronics Corp. v. Land Bank of the Philippines, the rule in this jurisdiction is that the contracting parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy. The right to enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.

Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements. Article 2127 of the Civil Code provides: The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

2. Contrary to the finding of the CA, the Extra-Judicial Foreclosure of Mortgage includes the machineries and equipments of respondent. While captioned as a “Petition for Extra-Judicial Foreclosure of Real Estate Mortgage Under Act No. 3135 As Amended,” the averments state that the petition is based on “x x x the Mortgage Trust Indenture, the Deed of Amendment to the Mortgage Trust Indenture, the Second Supplemental 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.” Noting that herein respondent has an outstanding obligation in the total amount of Nine Hundred One


Million Eight Hundred One Thousand Four Hundred Eighty Four and 10/100 Pesos (P901,801,484.10), the petition for foreclosure prayed that a foreclosure proceedings “x x x on the aforesaid real properties, including all improvements thereon covered by the real estate mortgage be undertaken and the appropriate auction sale be conducted x x x.”Considering that the Indenture which is the instrument of the mortgage that was foreclosed exactly states through the Deed of Amendment that the 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 thereon” as prayed for in the petition. Indeed, the lower courts ought to have noticed the fact that the chattel mortgages adverted to were dated 8 January 1990, 19 July 1990, 28 June 1991 and 28 November 1991. The real estate mortgages which specifically included the machineries and equipments were subsequent to the chattel mortgages dated 26 August 1992, 20 November 1992, 7 June 1994 and 24 January 1995. Without doubt, the real estate mortgages superseded the earlier chattel mortgages. 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 the Philippines as immovable property.

CASE 4: GARCIA v. VILLARFACTS: 1. Lourdes V. Galas was the original owner of a piece of property located at Malindang St., Quezon City

2. On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the subject property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of P2,200,000.00

3. On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject property to Pablo P. Garcia to secure her loan of P1,800,000.00.

4. Both mortgages were annotated at the back of TCT No. RT-67970 (253279)

5. On November 21, 1996, Galas sold the subject property to Villar for P1, 500,000.00, and declared in the Deed of Sale that such property was “free and clear of all liens and encumbrances of any kind whatsoever.”

6. On October 27, 1999, Garcia filed a Petition for Mandamus with Damages against Villar. Garcia alleged that when Villar bought the said property, she acted in bad faith as she knowingly and willfully disregarded the provisions on laws on judicial and extrajudicial foreclosure of mortgaged property.

7. 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 Villar’s original status as first mortgagee, which is the creditor with the right to foreclose.

8. Villar, in her Answer, 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.

9. RTC ruled in favor Garcia, declaring 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.

10. Upon Villar’s appeal to the CA, the said court rendered a decision reversing that of the RTC. CA declared that Galas was free to mortgage the subject property even without Villar’s consent as the restriction that the mortgagee’s consent was necessary in case of a subsequent encumbrance was absent in the Deed of Real Estate Mortgage. Court of Appeals held that Garcia had no cause of action against Villar “in the absence of evidence showing that the second mortgage executed in his favor by Lourdes V. Galas [had] been violated and that he [had] made a demand on the latter for the


payment of the obligation secured by said mortgage prior to the institution of his complaint against Villar.”

ISSUE/S: 1. WON the second mortgage to Garcis is valid.2. WON the sale of the subject property to VIllar was valid.3. WON Garcia’s action for foreclosure of mortgage on the subject property will prosper.

HELD: 1. Yes. The second mortgage to Garcia is valid.2. Yes. The sale of the subject property to VIllar was valid.3. No. Garcia’s action for foreclosure of mortgage on the subject property will NOT prosper.

RATIO: 1. The SC agrees with the CA that the second mortgage is valid. While it is true that the annotation of the first mortgage to Villar on Galas’s TCT contained a restriction on further encumbrances without the mortgagee’s 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 Galas’s 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.

2. The SC agrees with the CA that the sale of the subject property to VIllar was valid. The Deed of Real Estate Mortgage does NOT proscribe the sale or alienation of the subject property during the life of the mortgages. Garcia’s insistence that Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy Galas’s 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, to wit: Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void.

3. Art. 2126. 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.Simply put, 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 or release the mortgage; thus the purchaser or transferee is necessarily bound to acknowledge and respect the encumbrance.In fact, under Article 2129 of the Civil Code, the mortgage on the property may still be foreclosed despite the transfer, viz:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the property which said third person possesses, in terms and with the formalities which the law establishes.

While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been discharged, we find that said mortgage subsists and is still enforceable. However, Villar, in buying the subject property with notice that it was mortgaged, only undertook to pay such mortgage or allow the subject property to be sold upon failure of the mortgage creditor to obtain payment from the principal debtor once the debt matures. Villar did not obligate herself to replace the debtor in the principal obligation, and could not do so in law without the creditor’s consent.

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237.

Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and Pingol.


CASE 5: Korea Exchange Bank v. Filkor Business Integrated, Inc., et al.FACTS: 1. Filkor borrowed $140,000 from Korea Exhange Bank payable on July 9, 1997. Only $40,000 was paid back by Filkor. Later on, Filkor entered into more transactions but before those, Filkor executed a Real Estate Mortgage on Feb 9, 1996. It mortgaged to the bank the improvements belonging to it constructed on the lot it was leasing at the Cavite Export Processing Zone Authority. 2. Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly and severally with Filkor to pay for the obligations to the bank. 3. Another of Filkor’s obligation is it executed 9 trust receipts in favor of the bank from June 26 to Sept 11, 1997. However, it failed to turn over the proceeds from the sale of the goods or the goods themselves as required by the trust receipts (in case Filkor could not sell them). 4. Another obligation was when Filkor negotiated to the bank proceeds of 17 letters of credit issued by the Republic Bank of New York and the Banque Leumi France to pay for goods which Filkor sold to Segerman International and Davyco. The problem in the obligation is that when the brank tried to collect the proceeds of the letters of credit by presenting the bills of exchange, they were dishonored because of discrepancies. 5. Since Filkor breached on its obligations, the bank filed a case in the RTC-Cavite with 27 causes of action, praying to get paid and to foreclose the mortgage. RTC granted the bank’s petition with respect ot the 27 causes of action but failed to order the foreclosure and public auction in case Filkor fails to pay.6. The bank filed a Motion for Partial Reconsideration praying for foreclosure & public auction. RTC denied saying that in opting to file a civil action for the collection of obligations, it has abandoned its mortgage lien on the property subject of the real estate mortgage.

ISSUE: (1) WON the bank abandoned the real estate mortgage in its favor because it filed a simple collection case

(2) WON the bank’s complaint before the trial court was an action for foreclosure of a real estate mortgage, or an action for collection of a sum of money

HELD: (1) No, it did not.(2) it was an action for foreclosure of a real estate mortgage

RATIO: In the bank’s complaint before the TC, Par 183 alleges:To secure payment of the obligations of Filkor, it executed a Real Estate Mortgage by virtue of which it mortgaged to thebank the improvements standing on Rosario, Cavite, belonging to Filkor consisting of a one-story building calledwarehouse and spooling area, the guardhouse, the cutting/sewing area building and the packing area building.

This allegation satisfies the requirements of Rule 68.1 1997 Rules of Civil Procedure on foreclosure of real estate mortgage, whichprovides:SEC 1. Complaint in action for foreclosure. – In an action for the foreclosure of a mortgage or other encumbrance uponreal estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the namesand residences of the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage, the amount claimed to be unpaidthereon; and the names and residences of all persons having or claiming an interest in the property subordinate in right tothat of the holder of the mortgage, all of whom shall be made defendants in the action.

The bank’s allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate that the action was one for foreclosure of real estate mortgage. SC has consistently ruled that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief sought.

SC finds no indication that the bank waived its rights under the real estate mortgage executed in its favor. TC erred in concluding that the bank abandoned its mortgage lien on Filkor's property, and that what it had filed was an action for


collection of a sum of money. Since the action was one for foreclosure of real estate mortgage, it was incumbent upon the TC to order that the mortgaged property be foreclosed and sold at public auction if Filkor fails to pay its outstanding obligations pursuant to Rule 68.2 1997 Rules of Civ Pro: Judgment on foreclosure for payment or sale .- If upon the trial in such action the court shall find the facts set forth in thecomplaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, includinginterest and other charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than 90 days nor more than 120 days from entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment.

CASE 6: Huerta Alba Resort, Inc. v. Court of Appeals and Syndicated Management Group (SMG) G.R. No. 128567, September 1, 2000, 339 SCRA 534

Facts:1. the Judicial Foreclosure: the private respondent SMG filed

a complaint for judicial foreclosure before the RTC of Makati City for the 4 parcels of land mortgaged by Huerta Alba Resort to Intercon. SMG is an assignee of Intercon.

2. The Trial Court decision: granted the SMG’s complaint for foreclosure proceedings. The Court disposed of the said case by ruling that the loan with charges shall be paid within 150 days from receipt of decision and in default of such payment, the 4 parcels of lands including the improvemets shall be sold to realize the mortgage debt.

3. The order became final and executory. 4. The Foreclosure Sale: On September 6, 1994, the

scheduled auction sale of subject pieces of properties proceeded and the private respondent was declared the highest bidder. Thus, private respondent was awarded

subject bidded pieces of property. The covering Certificate of Sale issued in its favor was registered with the Registry of Deeds on October 21, 1994.

5. Motion to clarify by petitioner regarding period of redemption: 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.

a. The CA resolved the issues 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 in G.R. No. 112044; and that the 150-day period within which petitioner may exercise its equity of redemption expired on September 11, 1994.

Issue: May the petitioner still exercise its right of redemption?Ruling: No. the petitioner in this case has no right of redemption because the foreclosure was judicial. Only equitable redemption is available.

Difference between a judicial and extrajudicial foreclosure:Judicial Foreclosure Extrajudicial Foreclosureequity of redemption: This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation. Redemption similar to that granted by Act. 3135 only applies when mortgagee is the

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.


Philippine National Bank or a bank or banking institution.Under Section 78 of R.A. No. 337, it May be exercised by him even beyond the 90-day period ‘from the date of service of the order,’ and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer.”

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.

In relation to these rules, did the petitioner invoke his right to redeem timely?Ruling: No. it was too late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to assert a right to redeem in several crucial stages of the Proceedings.

1. facts show that it was only on May 2, 1995 when, in opposition to the Motion for Issuance of Writ of Possession, did petitioner file a Motion to Compel Private Respondent to Accept Redemption, invoking for the very first time its alleged right to redeem subject properties under to Section 78 of R.A. No. 337.

CASE 7: GRAND FARMS, INC. and PHILIPPINE SHARES CORPORATION v. CAFACTS:1. Sometime on April 15, 1988, petitioners filed Civil Case in the RTC for annulment and/or declaration of nullity of the extrajudicial foreclosure proceedings over their mortgaged properties, with

damages, against respondents clerk of court, deputy sheriff and herein private respondent Banco Filipino Savings and Mortgage Bank.

2. Soon after private respondent had filed its answer to the complaint, petitioners filed a request for admission by private respondent of the allegation, inter alia, that no formal notice of intention to foreclose the real estate mortgage was sent by private respondent to petitioners.

3. Private respondent, through its deputy liquidator, responded under oath to the request and countered that petitioners were "notified of the auction sale by the posting of notices and the publication of notice in the Metropolitan Newsweek, a newspaper of general circulation in the province where the subject properties are located and in the Philippines on February 13, 20 and 28, 1988."

4. On the basis of the alleged implied admission by private respondent that no formal notice of foreclosure was sent to petitioners, the latter filed a motion for summary judgment contending that the foreclosure was violative of the provisions of the mortgage contract, specifically paragraph (k) thereof which provides:

- 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;

5. RTC: issued an order, denying petitioners' motion for summary judgment.

6. Petitioners thereafter went on a petition for certiorari to respondent court attacking said orders of denial as having been issued with grave abuse of discretion.


7. CA: dismissed the petition, holding that no personal notice was required to foreclose since private respondent was constituted by petitioners as their attorney-in-fact to sell the mortgaged property. It further held that 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. Respondent court also denied petitioners motion for reconsideration, hence the instant petition.

ISSUE: WON personal notice was required to foreclose.

HELD: Yes.

RATIO: While private respondent was constituted as their attorney-in-fact by petitioners, the inclusion of the aforequoted paragraph (k) in the mortgage contract nonetheless rendered personal notice to the latter indispensable. As we stated in Community Savings & Loan Association, Inc., et al. vs. Court of Appeals, et al., where we had the occasion to construe an identical provision:

On the other important point that militates against the petitioners' first ground for this petition is the fact that no notice of the foreclosure proceedings was ever sent by CSLA to the deceased mortgagor Antonio Esguerra or his heirs in spite of an express stipulation in the mortgage agreement to that effect. Said Real Estate Mortgage provides, in Sec. 10 thereof that:

(10) All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or notifications of any judicial or extrajudicial 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, . . . (Emphasis in the original text.)

The Court of Appeals, in appreciating the foregoing provision ruled that it is an additional stipulation between the parties. As such, it is the law between them and as it not contrary to law, morals, good customs and public policy, the same should be complied with faithfully (Article 1306, New Civil Code of the Philippines). Thus, 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. Failure to comply with this additional stipulation would render illusory Article 1306 of the New Civil Code of the Philippines

As the record is bereft of any evidence which even impliedly indicate that the required notice of the extrajudicial foreclosure was ever sent to the deceased debtor-mortgagor Antonio Esguerra or to his heirs, the extrajudicial foreclosure proceedings on the property in question are fatally defective and are not binding on the deceased debtor-mortgagor or to his heirs (p. 37, Rollo)

Hence, even on the premise that there was no attendant fraud in the proceedings, the failure of the petitioner bank to comply with the stipulation in the mortgage document is fatal to the petitioners' cause.

We do not agree with respondent court that paragraph (k) of the mortgage contract in question was intended merely to indicate the address to which the communications stated therein should be sent. This interpretation is rejected by the very text of said paragraph as above construed. We do not see any conceivable reason why the interpretation placed on an identically worded provision in the mortgage contract involved in Community Savings &


Loan Association, Inc. should not be adopted with respect to the same provision involved in the case at bar.

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.What private respondent would want is to have paragraph (k) considered as non-existent and consequently disregarded, a proposition which palpably does not merit consideration. Furthermore, it bears mention that private respondent having caused the formulation and preparation of the printed mortgage contract in question, any obscurity that it imputes thereto or which supposedly appears therein should not favor it as a contracting party.

CASE 8: Spouses Rabat v. Philippine National Bank, G.R. No. 158755, June 18, 2012.FACTS: 1. In 1979, respondent spouses Francisco and Merced Rabat applied for a loan with PNB. Subsequently, the RABATs were granted on 14 January 1980 a medium-term loan of P4.0 Million to mature three years from the date of implementation. The RABATs signed a Credit Agreement and executed a Real Estate Mortgage over 12 parcels of land which stipulated that the loan would be subject to interest at the rate of 17% per annum, plus the appropriate service charge and penalty charge of 3% per annum on any amount remaining unpaid or not renewed when due.

2. On 25 September 1980, the RABATs executed another document "Amendment to the Credit Agreement" purposely to increase the interest rate from 17% to 21% per annum, inclusive of service charge and a penalty charge of 3% per annum to be imposed on any amount remaining unpaid or not renewed when due. They also executed another Real Estate Mortgage over 9 parcels of land as additional security for their medium-term loan of P4.0 M. These parcels of land are agricultural, commercial and residential lots situated in Mati, Davao Oriental.

3. The several availments of the loan accommodation on various dates by the RABATs reached the aggregate amount of P3,517,380, as evidenced by the several promissory notes, all of which were due on 14 March 1983. The RABATs failed to pay their outstanding balance on due date.

4. In its letter of 24 July 1986, in response to the letter of the RABATs requesting for more time within which to arrive at a viable proposal for the settlement of their account, PNB informed the RABATs that their request has been denied and gave the RABATs until 30 August 1986 to settle their account. The PNB sent the letter to 197 Wilson Street, San Juan, Metro Manila. For failure of the RABATs to pay their obligation, the PNB filed a petition for the extrajudicial foreclosure of the real estate mortgage executed by the RABATs. The mortgaged parcels of land were sold at a public auction held on 20 February 1987 and 14 April 1987. The PNB was the lone and highest bidder with a bid of P3,874,800.00.

5. As the proceeds of the public auction were not enough to satisfy the entire obligation of the RABATs, the PNB sent anew demand letters. The letter dated 15 November 1990 was sent to the RABATs at 197 Wilson Street, San Juan, Metro Manila; while another dated 30 August 1991 was sent to the RABATs at 197 Wilson Street, Greenhills, San Juan, Metro Manila, and also in Mati, Davao Oriental. Upon failure of the RABATs to comply with the demand to settle their remaining outstanding obligation which then stood at P14,745,398.25, including interest, penalties and other charges, PNB eventually filed on 5 May 1992 a complaint for a sum of money before the RTC of Manila.

6. The RABATs admitted their loan availments from PNB and their default in the payment. However, they assailed the validity of the auction sales for want of notice to them before and after the foreclosure sales. They further added that as residents of Mati, Davao Oriental since 1970 up to the present, they never received any notice nor heard about the foreclosure proceeding in spite of the claim of PNB that the foreclosure proceeding had been duly published in the San Pedro Times, which is not a newspaper of general circulation.


7. The RABATs likewise averred that the bid price was grossly inadequate and unconscionable. Lastly, the RABATs attacked the validity of the accumulated interest and penalty charges because since their properties were sold in 1987, and yet PNB waited until 1992 before filing the case. Consequently, the RABATs contended that they should not be made to suffer for the interest and penalty charges from May 1987 up to the present. Otherwise, PNB would be allowed to profit from its questionable scheme. RTC ruled in favor of the Rabats. CA upheld the RTC’s decision to nullify the foreclosure sales but rested its ruling upon a different ground, in that the Spouses Rabat could not have known of the foreclosure sales because they had not actually received personal notices about the foreclosure proceedings. CA, upon MR, set aside its decision on the basis raised by PNB. CA also declared that the bid price had been very low and observing that the mortgaged properties might have been sold for a higher value had PNB conducted a reappraisal of the properties. Upon PNB’s MR, it reversed its decision regarding the low price of properties. Hence, this appeal.

ISSUE: (1) WON CA erred in upholding the validity of the subject auction sales and adjudging payment of deficiency sum, interests, penalty and service charges and attorney’s fees in complete and absolute disregard of its earlier pronouncements, the arguments of petitioners and evidence borne in the records of the case(2) WON PNB has the legal right to recover the deficiency amount

HELD: (1) No, CA did not err. (2) Yes, it has.

RATIO: SC have consistently held that the inadequacy of the bid price at a forced sale, unlike that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of the property easier. PNB’s bid price of ₱3,874,800.00 might not even be said to be outrageously low as to be shocking to the conscience.

PNB had the legal right to recover the deficiency amount. In the case of PNB vs. CA, it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the mortgagee’s right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.

There should be no question that PNB was legally entitled to recover the penalty charge of 3% per annum and attorney’s fees equivalent to 10% of the total amount due. The documents relating to the loan and the real estate mortgage showed that the Spouses Rabat had expressly conformed to such additional liabilities; hence, they could not now insist otherwise. To be sure, the law authorizes the contracting parties to make any stipulations in their covenants provided the stipulations are not contrary to law, morals, good customs, public order or public policy. Equally axiomatic are that a contract is the law between the contracting parties, and that they have the autonomy to include therein such stipulations, clauses, terms and conditions as they may want to include. Inasmuch as the Spouses Rabat did not challenge the legitimacy and efficacy of the additional liabilities being charged by PNB, they could not now bar PNB from recovering the deficiency representing the additional pecuniary liabilities that the proceeds of the forced sales did not cover.

CASE 9: GOLDENWAY MERCHANDISING CORP. v. CA

FACTS: 1. On November 29, 1985, Goldenway Merchandising Corporation (petitioner) executed a Real Estate Mortgage in favor of Equitable PCI Bank (respondent) over its real properties situated in Valenzuela, Bulacan (now Valenzuela City) and covered by Transfer


Certificate of Title (TCT) Nos. T-152630, T-151655 and T-214528 of the Registry of Deeds for the Province of Bulacan. The mortgage secured the Two Million Pesos (P2,000,000.00) loan granted by respondent to petitioner and was duly registered.

2. As petitioner failed to settle its loan obligation, respondent extrajudicially foreclosed the mortgage on December 13, 2000. During the public auction, the mortgaged properties were sold for P3,500,000.00 to respondent. Accordingly, a Certificate of Sale was issued to respondent on January 26, 2001. On February 16, 2001, the Certificate of Sale was registered and inscribed on TCT Nos. T-152630, T-151655 and T-214528.

3. In a letter dated March 8, 2001, petitioner’s counsel offered to redeem the foreclosed properties by tendering a check in the amount of P3,500,000.00. However, petitioner was told that such redemption is no longer possible because the certificate of sale had already been registered. Petitioner also verified with the Registry of Deeds that title to the foreclosed properties had already been consolidated in favor of respondent and that new certificates of title were issued in the name of respondent on March 9, 2001.

4. On December 7, 2001, petitioner filed a complaint for specific performance and damages against the respondent, asserting that it is the one-year period of redemption under Act No. 3135 which should apply and not the shorter redemption period provided in Republic Act (R.A.) No. 8791.

5. In its Answer with Counterclaim, respondent pointed out that petitioner cannot claim that it was unaware of the redemption price which is clearly provided in Section 47 of R.A. No. 8791, and that petitioner had all the opportune time to redeem the foreclosed properties from the time it received the letter of demand and the notice of sale before the registration of the certificate of sale.

6. RTC dismissed the complaint as well as the counterclaim. It noted that the issue of constitutionality of Sec. 47 of R.A. No. 8791 was never raised by the petitioner during the pre-trial and the trial.7. Goldenway appealed to the CA, but the said court affirmed the ruling of the RTC. According to the CA, petitioner failed to justify why Section 47 of R.A. No. 8791 should be declared unconstitutional. Furthermore, the appellate court concluded that a reading of Section 47 plainly reveals the intention to shorten the period of redemption for juridical persons and that the foreclosure of the mortgaged properties in this case when R.A. No. 8791 was already in effect clearly falls within the purview of the said provision.

ISSUE/S: WON RA No. 8791, which gives juridical person shorter time for redemption, be applied in the case at bar despite the fact that the Real Estate Mortgage was executed in 1985 (before the enactment of RA 8791).

HELD: YES. RA No. 8791 may be applied.

RATIO: SECTION 47. Foreclosure of Real Estate Mortgage. — (amended portion with regard to Juridical persons)

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)

Petitioner’s contention that Section 47 of R.A. 8791 violates the constitutional proscription against impairment of the obligation of contract has no basis. The purpose of the non-impairment clause of the Constitution is to safeguard the integrity of contracts against unwarranted interference by the State. As a rule, contracts should


not be tampered with by subsequent laws that would change or modify the rights and obligations of the parties. Impairment is anything that diminishes the efficacy of the contract. There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties.

We agree with the CA that the legislature clearly intended to shorten the period of redemption for juridical persons whose properties were foreclosed and sold in accordance with the provisions of Act No. 3135.

The difference in the treatment of juridical persons and natural persons was based on the nature of the properties foreclosed – whether these are used as residence, for which the more liberal one-year redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the period of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound banking system. In this context, the amendment introduced by Section 47 embodied one of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks. It cannot therefore be disputed that the said provision amending the redemption period in Act 3135 was based on a reasonable classification and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles petitioner’s impairment of contract theory.

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power exercised for public welfare. The concept of police power is well-

established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits.

CASE 10: Medida, City Savings Bank v. Court of Appeals and the Dolinos et al., G.R. No. 98334, May 8, 1992, 208 SCRA 887 2)Facts:

1. the spouses Dolino approached the City Savings Bank to obtain a loan in the amount of P30k and issued a promissory note for such. They also executed a REM for a parcel of land in Cebu City

a. the loan was because the Dolinos were alarmed of losing their right of redemption over the same lot to a certain Mr. Gandiocho, who was the purchaser of the land in a foreclosure sale on the mortgage executed in favour of the Cebu City Development Bank

2. default of the Dolinos and the foreclosure: City Savings Bank caused the extrajudicial foreclosure of the mortgage after the posting the publication requirements.

a. 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.

3. No Redemption was made by the Dolino Spouses,hence, the title was issued in favour of the City Savings Bank.

4. The Complaint by the Dolinos: the Dolinos then filed a complaint for the annulment of sale at the public auction assailing validity of the foreclosure alleging that the same was not made in accordance with RA 3135.


5. Decision of the trial court: the trial court rendered a decision upholding the validity of the mortgage but annulling the extrajudicial foreclosure sale as it did not comply with the notice requirements of Act. No. 3135.

6. The CA upheld the ruling that the foreclosure was void and ineffective because:

a. The Mortgage contract itself is void because The mortgagor spouses at the time when the said mortgage was executed, were no longer the owners of the lot, having supposedly lost the same when the lot was sold to a purchaser, Mr. Gandiocho, in the foreclosure sale under the prior mortgage.

Issue 1: Was the mortgage contract valid?Ruling: the mortgage is valid.

1. Right to the Disposition of a mortgaged property is not completely divested upon the foreclosure until the expiration of the period of redemption. what is divested from the mortgagor is only his "full right as owner thereof to dispose (of) and sell the lands," in effect, merely clarifying that the mortgagor does not have the unconditional power to absolutely sell the land since the same is encumbered by a lien of a third person which, if unsatisfied, could result in a consolidation of ownership in the lienholder but only after the lapse of the period of redemption. Even on that score, it may plausibly be argued that what is delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal which may correspondingly be restricted.

2. Nevertheless, in this case, Such mortgage does not involve a transfer, cession or conveyance of the property but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even after the auction sale of the property but during the redemption period, since no

distinction is made between a mortgage constituted over the property before or after the auction sale thereof.

3. mortgagor remains as the absolute owner of the property during the redemption period and has the free disposal of his property, there would be compliance with the requisites of Article 2085 of the Civil Code for the constitution of another mortgage on the property. To hold otherwise would create the inequitable situation wherein the mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds wherewith to timely redeem his property through another mortgage thereon.

4. The effect of redemption is not to recover ownership of the debtor but to eliminate but the elimination from his title thereto of the lien created by the levy on attachment or judgment or the registration of a mortgage thereon.

Issue 2: Nevertheless, the Foreclosure Sale is void as found by the lower Courts. Not being questioned as of present, it is binding to the parties. (no explanation in the decision regarding the ruling except statement that the notice requirements were not complied with.

CASE 11: Spouses Yap v. Spouses Dy, et al., G.R. No. 171991 and 171868, July 27, 2011FACTS: 1. The subject parcels of land designated as lot 1, 3, 4, 5, 6, 8 as well as lot 846 are originally owned by spouses Tirambulos. They executed a REM over Lots 1,4, 5,6, and 8 in favor of the Rural Bank of Dumaguete, predecessor of Dumaguete Rural Bank Inc. (DRBI). Later, Lots 3 and 846 were also mortgaged in favor of the same bank.

2. Subsequently, the Tirambulos sold all and mortgaged lots to spouses Dy and spouses Maxinos without consent and knowledge of DRBI. Tirambulos failed to pay their loans so DRBI foreclosed lots 1, 4, 5, 6, and 8 and sold at public auction. DRBI was the highest bidder.

3. Later, DRBI sold lots 1, 3, and 6 to spouses Yap. On May 22, 1984, 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 ofP216,040.93 plus interest for all the foreclosed properties

ISSUE: (1) Is Lot 3 among the foreclosed properties? (2) To whom should the payment of redemption money be made? (3) WON the Dys and Maxinos validly redeem Lots 1 and 6?

HELD: (1) Dys and Maxinos were able to prove their claim that Lot 3 was not among the properties foreclosed and that it was merely inserted by the bank in the Sheriff’s Certificate of Sale. (2) DRBI or the Yaps. If not accepted, to the sheriff who made the sale. (3) Yes, they did.

RATIO: (1) The Provincial Sheriff testified that the foreclosure was only for five parcels of land, namely, Lots 1, 4, 5, 6 and 8. Accordingly, only said five parcels of land were included in the publication and sold at the foreclosure sale. When he was shown a copy of the Sheriff’s Certificate of Sale consisting of three pages, he testified that it was altered because Lot 3 and Lot 846 were included beyond the “xxx” that marked the end of the enumeration of the lots foreclosed. Also, a perusal of DRBI’s application for foreclosure of real estate mortgage shows that it explicitly refers to only one deed of mortgage to settle the Tirambulos’ indebtedness amounting to P216,040.93. This is consistent with the Notice of Extrajudicial Sale of Mortgaged Property, published in the Dumaguete Star Informer on February 18, 25 and March 4, 1982, announcing the sale of Lots 1, 4, 5, 6 and 8 for the satisfaction of the indebtedness amounting to P216,040.93. It is also consistent with the fact that Lots 1, 4, 5, 6 and 8 are covered by only one real estate mortgage, the Real Estate Mortgage dated December 3, 1976. Indeed, that the foreclosure sale refers only to Lots 1, 4, 5, 6 and 8 is clear from the fact that Lots 1, 4, 5, 6 and 8 and Lot 3 are covered by 2 separate real estate mortgages. DRBI failed to refute these pieces of evidence against it.

(2) Well within the redemption period, they initially attempted to pay the redemption money not only to the purchaser, DRBI, but also to the Yaps. Both DRBI and the Yaps however refused, insisting that the Dys and Maxinos should pay the whole purchase price at which all the foreclosed properties were sold during the foreclosure sale. Because of said refusal, the Dys and Maxinos correctly availed of the alternative remedy by going to the sheriff who made the sale. As held in Natino v. Intermediate Appellate Court, the tender of the redemption money may be made to the purchaser of the land or to the sheriff. If made to the sheriff, it is his duty to accept the tender and execute the certificate of redemption.The Dys and the Maxinos have legal personality to redeem the subject properties despite the fact that the sale to the Dys and Maxinos was without DRBI’s consent. In Litonjua v. L & R Corporation, this Court declared valid the sale by the mortgagor of mortgaged property to a third person notwithstanding the lack of written consent by the mortgagee, and likewise recognized the third person’s right to redeem the foreclosed property

(3) The requisites for a valid redemption are: (1) the redemption must be made within twelve (12) months from the time of the registration of the sale in the Office of the Register of Deeds; (2) payment of the purchase price of the property involved, plus 1% interest per month thereon in addition, up to the time of redemption, together with the amount of any assessments or taxes which the purchaser may have paid thereon after the purchase, also with 1% interest on such last named amount; and (3) written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the Register of Deeds of the province

The Yaps argue that P40,000.00 cannot be a valid tender of redemption since the amount of the auction sale was P216,040.93. They further contend that the mortgage is indivisible so in order for the tender to be valid and effectual, it must be for the entire auction price plus legal interest. The court cannot subscribe to the Yaps' argument on the indivisibility of the mortgage. As held in the case of PNB v. De los Reyes, the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure thereof as in the instant case. The rule on the indivisibility of mortgage finds no


application to the case at bar. The particular provision of the Civil Code referred to provides: 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 debtor's 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 creditor's 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.It is apparent that what the law proscribes is the foreclosure of only a portion of the property or a number of the several properties mortgaged corresponding to the unpaid portion of the debt where before foreclosure proceedings partial payment was made by the debtor on his total outstanding loan or obligation. This also means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus, secured has been fully paid, notwithstanding the fact that there has been a partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not completely satisfied.

That 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.

CASE 12: HEIRS OF SPS. MAGLASANG v. MANILA BANKING CORP.FACTS: 1. On June 16, 1975, spouses Flaviano and Salud Maglasang (Sps.Maglasang) obtained a credit line from respondent in the amount of P350,000.00 which was secured by a real estate mortgage executed over seven of their properties located in Ormoc City and the Municipality of Kananga, Province of Leyte.

- They availed of their credit line by securing loans in the amounts of P209,790.50 and P139,805.83 on October 24, 1975and March 15, 1976, respectively, both of which becoming due and demandable within a period of one year.

- Further, the parties agreed that the said loans would earn interest at 12% per annum (p.a.) and an additional 4% penalty would be charged upon default.10

2. After Flaviano Maglasang (Flaviano) died intestate, his widow Salud and their surviving children, herein petitioners appointed their brother petitioner Edgar as their attorney-in-fact.

3. Edgar filed a verified petition for letters of administration of the intestate estate of Flaviano before the then Court of First Instance of Leyte, Ormoc City, Branch 5 (probate court).

4. On August 9, 1977, the probate court issued an Order granting the petition, thereby appointing Edgar as the administrator of Flaviano’s estate.

5. In view of the issuance of letters of administration, the probate court, on August 30, 1977, issued a Notice to Creditors for the filing of money claims against Flaviano’s estate.


6. Accordingly, as one of the creditors of Flaviano, respondent notified the probate court of its claim in the amount of P382,753.19 as of October 11, 1978, exclusive of interests and charges.

7. During the pendency of the intestate proceedings, Edgar and Oscar were able to obtain several loans from respondent, secured by promissory notes which they signed.

8. December 14, 1978 Order: the probate court terminated the proceedings with the surviving heirs executing an extra-judicial partition of the properties of Flaviano’s estate. The loan obligations owed by the estate to respondent, however, remained unsatisfied due to respondent’s certification that Flaviano’s account was undergoing a restructuring. Nonetheless, the probate court expressly recognized the rights of respondent under the mortgage and promissory notes executed by the Sps. Maglasang, specifically, its "right to foreclose the same within the statutory period."

9. Respondent proceeded to extra-judicially foreclose the mortgage covering the Sps. Maglasang’s properties and emerged as the highest bidder at the public auction for the amount of P350,000.00. There, however, remained a deficiency on Sps. Maglasang’s obligation to respondent.

10. Thus, respondent filed a suit to recover the deficiency amount of P250,601.05 as of May 31, 1981 against the estate of Flaviano, his widow Salud and petitioners.

11. RTC: directing the petitioners to pay respondent, jointly and severally, the amount of P434,742.36 with interest at the rate of 12% p.a., plus a 4% penalty charge, reckoned from September 5,1984 until fully paid. The RTC found that it was shown, by a preponderance of evidence, that petitioners, after the extra-judicial foreclosure of all the properties mortgaged, still have an outstanding obligation in the amount and as of the date as above-stated.

12. During the pendency of the appeal, Flaviano’s widow, Salud, passed away.

13. CA: denied the petitioners’ appeal and affirmed the RTC’s Decision. Section 7, Rule 86 of the Rules does not apply to the present case since the same does not involve a mortgage made by the administrator over any property belonging to the estate of the decedent. According to the CA, what should apply is Act No. 3135 which entitles respondent to claim the deficiency amount after the extra-judicial foreclosure of the real estate mortgage of Sps. Maglasang’s properties.

ISSUE/S: 1) WON CA erred in affirming the RTC’s award of the deficiency amount in favor of respondent.

2) WON extra-judicial foreclosure of the subject properties was null and void, not having been conducted in the capital of the Province of Leyte in violation of the stipulations in the real estate mortgage contract.

HELD: 1) Yes 2) No

RATIO: 1) Claims against deceased persons should be filed during the settlement proceedings of their estate. Such proceedings are primarily governed by special rules found under Rules 73 to 90 of the Rules, although rules governing ordinary actions may, as far as practicable, apply suppletorily. Among these special rules, Section 7, Rule 86 of the Rules (Section 7, Rule86) provides the rule in dealing with secured claims against the estate:

SEC. 7. Mortgage debt due from estate. – A creditor holding a claim against the deceased secured by a mortgage or other collateral security, may abandon the security and prosecute his claim in the manner provided in this rule, and share in the general distribution of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by action in court, making the executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon the security, he may claim his deficiency judgment in the manner provided in the preceding section; or he may rely upon his mortgage or other security alone, and foreclose the same at any time within the


period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall receive no share in the distribution of the other assets of the estate; but nothing herein contained shall prohibit the executor or administrator from redeeming the property mortgaged or pledged, by paying the debt for which it is held as security, under the direction of the court, if the court shall adjudged it to be for the best interest of the estate that such redemption shall be made. (Emphasis and underscoring supplied)

As the foregoing generally speaks of "a creditor holding a claim against the deceased secured by a mortgage or other collateral security" as above-highlighted, it may be reasonably concluded that the aforementioned section covers all secured claims, whether by mortgage or any other form of collateral, which a creditor may enforce against the estate of the deceased debtor. On the contrary, nowhere from its language can it be fairly deducible that the said section would – as the CA interpreted – narrowly apply only to mortgages made by the administrator over any property belonging to the estate of the decedent. To note, mortgages of estate property executed by the administrator, are also governed by Rule 89 of the Rules, captioned as "Sales, Mortgages, and Other Encumbrances of Property of Decedent."

In this accord, it bears to stress that the CA’s reliance on Philippine National Bank v. CA (PNB) was misplaced as the said case did not, in any manner, limit the scope of Section 7, Rule 86. It only stated that the aforesaid section equally applies to cases where the administrator mortgages the property of the estate to secure the loan he obtained. Clearly, the pronouncement was a ruling of inclusion and not one which created a distinction. It cannot, therefore, be doubted that it is Section 7, Rule 86which remains applicable in dealing with a creditor’s claim against the mortgaged property of the deceased debtor, as in this case, as well as mortgages made by the administrator, as that in the PNB case.

Jurisprudence breaks down the rule under Section 7, Rule 86 and explains that the secured creditor has three remedies/options that he may alternatively adopt for the satisfaction of his indebtedness. In particular, he may choose to: (a) waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim; (b)

foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and (c) rely on the mortgage exclusively, or other security and foreclose the same before it is barred by prescription, without the right to file a claim for any deficiency. It must, however, be emphasized that these remedies are distinct, independent and mutually exclusive from each other; thus, the election of one effectively bars the exercise of the others.

To obviate any confusion, the Court observes that the operation of Act No. 3135 does not entirely discount the application of Section 7, Rule 86, or vice-versa. Rather, the two complement each other within their respective spheres of operation. On the one hand, Section 7, Rule 86 lays down the options for the secured creditor to claim against the estate and, according to jurisprudence, the availment of the third option bars him from claiming any deficiency amount. On the other hand, after the third option is chosen, the procedure governing the manner in which the extra-judicial foreclosure should proceed would still be governed by the provisions of Act No. 3135.Simply put, Section 7, Rule 86 governs the parameters and the extent to which a claim may be advanced against the estate, whereas Act No. 3135sets out the specific procedure to be followed when the creditor subsequently chooses the third option – specifically, that of extra-judicially foreclosing real property belonging to the estate. The application of the procedure under Act No. 3135 must be concordant with Section 7, Rule 86 as the latter is a special rule applicable to claims against the estate, and at the same time, since Section 7, Rule 86 does not detail the procedure for extra-judicial foreclosures, the formalities governing the manner of availing of the third option – such as the place where the application for extra-judicial foreclosure is filed, the requirements of publication and posting and the place of sale – must be governed by Act No. 3135.

In this case, respondent sought to extra-judicially foreclose the mortgage of the properties previously belonging to Sps. Maglasang (and now, their estates) and, therefore, availed of the third option. Lest it be misunderstood, it did not exercise the first option of directly filing a claim against the estate, as petitioners assert, since it merely notified the probate court of the outstanding amount of its claim against the estate of Flaviano and that it was currently restructuring


the account. Thus, having unequivocally opted to exercise the third option of extra-judicial foreclosure under Section 7, Rule 86, respondent is now precluded from filing a suit to recover any deficiency amount as earlier discussed.

2) As may be gleaned from the records, the stipulation under the real estate mortgage executed by Sps. Maglasang which fixed the place of the foreclosure sale at Tacloban City lacks words of exclusivity which would bar any other acceptable for a wherein the said sale may be conducted, to wit:

It is hereby agreed that in case of foreclosure of this mortgage under Act 3135, the auction sale shall be held at the capital of the province if the property is within the territorial jurisdiction of the province concerned, or shall be held in the city if the property is within the territorial jurisdiction of the city concerned; x x x.

Case law states that absent such qualifying or restrictive words to indicate the exclusivity of the agreed forum, the stipulated place should only be as an additional, not a limiting venue. As a consequence, the stipulated venue and that provided under Act No. 3135 can be applied alternatively.

In particular, Section 2 of Act No. 3135 allows the foreclosure sale to be done within the province where the property to be sold is situated, viz.:

SEC. 2. Said sale cannot be made legally outside of the province which the property sold is situated; and in case the place within said province in which the sale is to be made is subject to stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated. (Italics supplied) ..

In this regard, since the auction sale was conducted in Ormoc City, which is within the territorial jurisdiction of the Province of Leyte, then the Court finds sufficient compliance with the above-cited requirement. All told, finding that the extra-judicial foreclosure subject of this case was properly conducted in accordance with the

formalities of Act No. 3135, the Court upholds the same as a valid exercise of respondent's third option under Section 7, Rule 86. To reiterate, respondent cannot, however, file any suit to recover any deficiency amount since it effectively waived its right thereto when it chose to avail of extra-judicial foreclosure as jurisprudence instructs.

CASE 13: SUICO v. PNB

FACTS: 1. Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from the Philippine National Bank (PNB) secured by a real estate mortgage on real properties in the name of the former.

2. The petitioners were unable to pay their obligation prompting the PNB to extrajudicially foreclose the mortgage over the subject properties before the City Sheriff of Mandaue City under EJF Case No. 92-5-15.

3. The petitioners thereafter filed a Complaint against the PNB before the Regional Trial Court (RTC) of Mandaue City, Branch 55, docketed as Civil Case No. MAN-2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage.

4. Petitioners claimed that during the foreclosure sale of the subject properties held on 30 October 1992, PNB, as the lone bidder, offered a bid in the amount ofP8,511,000.00.

5. PNB did not pay to the Sheriff who conducted the auction sale the amount of its bid which was P8,511,000.00 or give an accounting of how said amount was applied against petitioners’ outstanding loan, which, as of 10 March 1992, amounted only to P1,991,770.38. 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. 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.


6. One year after the issuance of the Certificate of Sale, PNB secured a Certificate of Final Sale from the Mandaue City Sheriff and, as a result, PNB transferred registration of all the subject properties to its name.

7. Owing to the failure of PNB as the winning bidder to deliver to the petitioners the amount of its bid or even just the amount in excess of petitioners’ obligation, the latter averred that the extrajudicial foreclosure conducted over the subject properties by the Mandaue City Sheriff, as well as the Certificate of Sale and the Certificate of Finality of Sale of the subject properties issued by the Mandaue City Sheriff, in favor of PNB, were all null and void.

8. PNB asserted that Suico had other loans which fell due, and the aggregate sum of the said loans was already more than the bid price of P8,511,000.00.

9. PNB admitted the non-delivery of the bid price to the sheriff and the execution of the final deed of sale, but claimed that it had not transferred in its name all the foreclosed properties because the petition to register in its name Transfer Certificates of Title (TCT) No. 37029 and No. 13196 were still pending.

10. RTC decided in favor of Suico. In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC reasoned that given that 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 who conducted the auction sale the excess bid in the foreclosure sale.

11. The case was appealed to the CA, wherein the said court reversed the decision of the RTC. Hence, the present petition ensued by Suico before the SC.

ISSUE/S: 1. WON the extrajudicial foreclosure of sale is null and void.

2. WON PNB is required to give to Suico the excess amount.

HELD: 1. The extrajudicial foreclosure is VALID.

2. Yes. PNB is required to give back to the petitioners the amount of P2,101,185.08 with interest computed at 6% per annum from the time of the filing of the complaint until its full payment before finality of judgment.

RATIO: Petitioners argue that since the Notice of Sheriff’s Sale stated that their obligation was only P1,991,770.38 and PNB bidded P8,511,000.00, the said Notice as well as the consequent sale of the subject properties were null and void.

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. Nonetheless, we must not also lose sight of the fact that the purpose of the publication of the Notice of Sheriff’s 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 Sheriff’s 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.

2. Under Rule 68, Section 4 the disposition of the proceeds of the sale in foreclosure shall be as follows: first, pay the costs; secondly, pay off the mortgage debt; thirdly, pay the junior encumbrancers, if any in the order of priority; 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. In the case before us, PNB claims that petitioners’ loan obligations on the date of the auction sale were already more than the amount of P1,991,770.38 in the Notice of Sale. In fact, PNB claims that on the date of the auction sale, petitioners’ principal obligation, plus penalties, interests, attorneys fees and other charges were already beyond the amount of its bid of P8,511,000.00. After a careful review of the evidence on record, we find that the same is insufficient to support PNB’s claim. Instead, what is available on record is petitioner’s Statement of Account as prepared by PNB and attached as Annex A to its Answer with counterclaim. In this Statement of Account, petitioners’ principal obligation with interest/penalty and attorney’s fees as of 30 October 1992 already amounted to P6,409,814.92.

Given that the Statement of Account from PNB, being the only existing documentary evidence to support its claim, shows that petitioners’ loan obligations to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that the amount of PNB’s bid is P8,511,000.00, there is clearly an excess in the bid price which PNB must return, together with the interest computed.

Case 14: Chu, et al. v. Lacqui & Philippine Bank of Communications

FACTS: In 1994, Petitioners obtained a loan in the amount of P3,200,000 from private respondent Philippine Bank of Communication. To secure the loan, petitioners mortgaged their property covered by TCT No. 22990. In August 1997, petitioners amended the Deed of Real Estate Mortgage increasing the loan by P1,800,000, bringing the total loan amount to P5,000,000.

For failure of petitioners to pay 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 TRO. The extrajudicial foreclosure sale did not push through as originally scheduled because the trial court granted petitioners’ prayer for TRO. TC 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. A certificate of sale was executed in favor of private respondent. On 7 June 2002, the certificate of sale was annotated as Entry No. 1855 on TCT No. 22990 covering the foreclosed property.

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, the Register of Deeds cancelled TCT No. 22990 and issued in its stead TCT No. 251835, 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. Petitioners filed an opposition. TC granted private respondent’s motion for a declaration of general default and allowed private respondent to present evidence ex parte. TC denied petitioners’ notice of appeal. Undeterred, petitioners filed in the CA a petition for certiorari. The appellate court dismissed the petition. It also denied petitioners’ motion for reconsideration.

ISSUE: WON 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)


HELD: Yes, it was proper.

RATIO: In the present case, the certificate of sale of the foreclosed property was annotated 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 pursuant to Section 7 of Act No. 3135, as amended. 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.

CASE 15: BPI Family Savings Bank, Inc. v. Golden Power Diesel Sales Center, Inc., G.R. No. 176019, January 12, 2011, 639 SCRA 405.

Facts:1. the loan and the mortgage: CEDEC (predecessor-in-

interest of Golden Power Diesel Sales Center) executed a real estate mortgage in favour of BPI Family Savings to secure a loan of P6.5M. subsequently, CEDEC obtained other several loans

a. the mortgage was duly annotated.2. Default and Extrajudicial Foreclosure: CEDEC failed to

pay its obligations, hence, BPI Family Savings filed with the ex-officio sheriff of the RTC a petition for extrajudicial foreclosure of real estate mortgage over the properties under Act No. 3135.

a. After the notice reqs had been complied with, the sale was done in the public auction and was sold to BPI family as the highest bidder.

3. the 1 year redemption lapsed from the date of sale without the CEDEC exercising redemption.

4. Issue of Possession: Despite repeated demands by the Bank to vacate the land, CEDEC refused to surrender the possession to BPI Family

a. Because of this, the trial court granted and issued the writ of possession in favour of BPI.

5. the Assignee: Golden power then filed a motion To Hold implementation of the Writ of Possession alleging that they are in possession of the properties acquired g form CEDEC pursuant to a Deed of Sale with Assumption of Mortgage.

a. They argue that they are claiming possession adverse to CEDEC, hence, seeking exception to the rule that the purchaser has the right to possess


under Sec. 33 of Rule 39 of the Rules of Court which states that:

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

6. because of this, the trial court suspended the implementation of the writ of possession to take into consideration the claim of Golden Power.

7. The APPEAL: the Court of Appeals upheld the said decision of the RTC and ruled that the suspension was proper because Golden power was in actual possession of the properties and are claiming rights adverse to CEDEC and The ministerial implementation of the writ of possession has an exception—when in it in possession of third persons claiming adverse title.

8. Hence, the present action by the petitioner BPI Family Savings bank arguing that the exception under Sec. 33 of Rule 39 will not apply because Power Diesel Sale was not possessing the property adversely to CEDEC and is merely stepping into the shoes of CEDEC because it acquired its rights by buying the property of CEDEC.

Issue: Does the BPI Family Savings Bank, being the purchaser in the public sale, have the right to possess the property or to the remedy of writ of execution?

Controlling issue: is Golden Power under adverse title to CEDEC

Ruling: BPI has the right to possess because Golden Power is not a third person claiming adversely to the debtor.

1. Rights of the purchaser:a. Under Sec. 7 of RA 3135, the purchaser has the

following rights:

i. to petition made under oath to give him the possession of the property during the redemption period, after furnishing bond in an amount equivalent to the use of the property for the period of 12 months.

ii. To possess the foreclosed property bought at the public auction after the redemption period has expired without the redemption having been made.

2. The RULE: it is settled under jurisprudence that once the expiration of the period of redemption had already lapsed without the exercise of redemption, the purchaser become the absolute owner. hence, he has the absolute right possession of the property at any time. The issuance of writ of possession is merely ministerial.The Exception: under Sec. 33 of Rule 39 of Rules of Court, 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

3. Applying the said rules in this case: In this case, respondentsʼ possession of the properties was premised on the sale to them by CEDEC. Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right they have over the properties is derived from CEDEC.

a. 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. Respondents are the successors-in-interest of CEDEC and thus, respondentsʼ occupancy over the properties cannot be considered adverse to CEDEC.

4. Furthermore, it is settled that a pending action for annulment of mortgage or foreclosure sale does not stay the


issuance of the writ of possession. The trial court, where the application for a writ of possession is filed, does not need to look into the validity of the mortgage or the manner of its foreclosure. The purchaser is entitled to a writ of possession without prejudice to the outcome of the pending annulment case.

CASE 16: NAGTALON v. UNITED COCONUT PLANTERS BANK (2013)

FACTS: 1. Roman Nagtalon and petitioner, Donna Nagtalon, mortgaged some properties in order to secure a credit agreement they made with respondent United Coconut Planters Bank.

2. The spouses failed to comply with the terms of conditions thereof so the properties were foreclosed and sold at public auction.

3. The UCPB was the sole and highest bidder. It was issued a certificate of sale and caused the entry of the sale in the records of the Registry of Deeds.

4. After the one-year redemption period had expired with Nagtalon having failed to redeem the properties, the UCPB consolidated the ownership over the properties, cancelling the Nagtalon titles while issuing new TCTs in UCPB’s name.

5. UCPB then filed an ex parte petition for the issuance of a writ of possession from the RTC. In the petition, the respondent alleged that it had been issued the corresponding TCTs to the properties it purchased, and has the right to acquire the possession of the subject properties as the current registered owner of these properties.

6. Nagtalon opposed this petition by reason of a pending civil case concerning the credit agreement.

7. The RTC agreed with Nagtalon, but the UCPB brought this to the CA after its motion for reconsideration was denied and the CA reversed the RTC decision.

ISSUE: WON the pendency of a civil case challenging the validity of the credit agreement, the promissory notes and the mortgage can bar the issuance of a writ of possession after the foreclosure and sale of the mortgaged properties and the lapse of the one- year redemption period.

HELD: No, it cannot be a bar.

RATIO: The issuance of a writ of possession is a ministerial function of the courtWe have long recognized the rule that once title to the property has been consolidated in the buyer’s name upon failure of the mortgagor to redeem the property within the one-year redemption period, the writ of possession becomes a matter of right belonging to the buyer. Consequently, the buyer can demand possession of the property at anytime. Its right to possession has then ripened into the right of a confirmed absolute owner17 and the issuance of the writ becomes a ministerial function that does not admit of the exercise of the court ’s discretion.18 The court, acting on an application for its issuance, should issue the writ as a matter of course and without any delay.Pendency of a civil case questioning the mortgage and foreclosure not a bar to the issuance of a writ of execution

In the case of Spouses Montano T. Tolosa and Merlinda Tolosa v. United Coconut Planters Bank,27 a case closely similar to the present petition, the Court explained that a pending action for annulment of mortgage or foreclosure (where the nullity of the loan documents and mortgage had been alleged) does not stay the issuance of a writ of possession. It reiterated the well-established rule that as a ministerial function of the court, the judge need not look into the validity of the mortgage or the manner of its foreclosure, as these are the questions that should be properly decided by a court of competent jurisdiction in the pending case filed before it. It added that questions on the regularity and the validity of the mortgage and foreclosure cannot be invoked as justification for opposing the issuance of a writ of possession in favor of the new owner.

Exceptions to the rule that issuance of a writ of possession is a ministerial function: (1) Gross inadequacy of purchase price; (2)


Third party claiming right adverse to debtor/mortgagor; (3) Failure to pay the surplus proceeds of the sale to mortgagor

PETITIONER WAS ACCORDED DUE PROCESS. Issuance of a writ of possession is an ex parte petition, a non litigious proceeding where the relief is granted without requiring an opportunity to be heard for the person from whom relief is sought.


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Credit Digest