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CREDIT March 15 Session
TOPIC: 4.3 Pledge and mortgage-Act No. 3135, as amended (Atty Migallos warned us about this law)Cases: 1. Development Bank of the Philippines v. CA, 284 SCRA 14 (1998) -Study this case well.2. Bustamante v. Rosel, 319 SCRA 413 (1999)3. Ong v. Roban Lending, 557 SCRA 516 (2008)4. Paray et al. v. Rodriguez et al., 479 SCRA 571 (2006)5. Medida v. Court of Appeals, 208 SCRA 887 (1992)6. Huerta Alba Resort v. Court of Appeals, 339 SCRA 534 (2000)
PROVISIONS
4.3 Pledge and mortgage– Articles 2085 to 2131, Civil Code
a) Provisions common to pledge and mortgage – Articles 2085 to 2092See De Leon, Credit Transactions, pages 329 to 358
CHAPTER 1PROVISIONS COMMON TO PLEDGE AND MORTGAGE
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)
Art. 2086. The provisions of Article 2052 are applicable to a pledge or mortgage. (n)
(See Art 2052: Art. 2052. A guaranty cannot exist without a valid obligation.Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. (1824a)Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. (1858)
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. (1859a)
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 expected the case in which, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied. (1860)
Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. (n)
Art. 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure or subject to a suspensive or resolutory condition. (1861)
Art. 2092. A promise to constitute a pledge or mortgage gives rise only to a personal action between the contracting parties, without prejudice to the criminal responsibility incurred by him who defrauds another, by offering in pledge or mortgage as unencumbered, things which he knew were subject to some burden, or by misrepresenting himself to be the owner of the same. (1862)
b) Provisions applicable to pledge only – Articles 2093 to 2123See De Leon, Credit Transactions, pages 359 to 382
CHAPTER 2PLEDGE
Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (1863)
Art. 2094. All movables which are within commerce may be pledged, provided they are susceptible of possession. (1864)
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of stock, bonds, warehouse receipts and similar documents may also be pledged. The instrument proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. (n)
Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged and the date of the pledge do not appear in a public instrument. (1865a)
Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor or owner, subject to the pledge. The ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledgee consents to the alienation, but the latter shall continue in possession. (n)
Art. 2098. The contract of pledge gives a right to the creditor to retain the thing in his possession or in that of a third person to whom it has been delivered, until the debt is paid. (1866a)
Art. 2099. The creditor shall take care of the thing pledged with the diligence of a good father of a family; he has a right to the reimbursement of the expenses made for its preservation, and is liable for its loss or deterioration, in conformity with the provisions of this Code. (1867)
Art. 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a stipulation authorizing him to do so.
The pledgee is responsible for the acts of his agents or employees with respect to the thing pledged. (n)
Art. 2101. The pledgor has the same responsibility as a bailor in commodatum in the case under Article 1951. (n)
Art. 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor shall compensate what he receives with those which are owing him; but if none are owing him, or insofar as the amount may exceed that which is due, he shall apply it to the principal. Unless there is a stipulation to the contrary, the pledge shall extend to the interest and earnings of the right pledged.
In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals pledged, but shall be subject to the pledge, if there is no stipulation to the contrary. (1868a)
Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to recover it from, or defend it against a third person. (1869)
Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if he should do so, or should misuse the thing in any other way, the owner may ask that it be judicially or extrajudicially deposited. When the preservation of the thing pledged requires its use, it must be used by the creditor but only for that purpose. (1870a)
Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest, with expenses in a proper case. (1871)
Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of being lost or impaired, the pledgor may require that it be deposited with a third person. (n)
Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing pledged, without the fault of the pledgee, the pledgor may demand the return of the thing, upon offering another thing in pledge, provided the latter is of the same kind as the former and not of inferior quality, and without prejudice to the right of the pledgee under the provisions of the following article.
The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged. (n)
Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or diminution in value of the thing pledged, he may cause the same to be sold at a public sale. The proceeds of the auction shall be a security for the principal obligation in the same manner as the thing originally pledged. (n)
Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may either claim another thing in its stead, or demand immediate payment of the principal obligation. (n)
Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is extinguished. Any stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner, there is a prima facie presumption that the same has been returned by the pledgee. This same presumption exists if the thing pledged is in the possession of a third person who has received it from the pledgor or owner after the constitution of the pledge. (n)
Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or owner, nor the return of the thing pledged is necessary, the pledgee becoming a depositary. (n)
Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim. (1872a)
Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a better right if he should offer the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)
Art. 2114. All bids at the public auction shall offer to pay the purchase price at once. If any other bid is accepted, the pledgee is deemed to have been received the purchase price, as far as the pledgor or owner is concerned. (n)
Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. (n)
Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the result thereof. (n)
Art. 2117. Any third person who has any right in or to the thing pledged may satisfy the principal obligation as soon as the latter becomes due and demandable.(n)
Art. 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee may collect and receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor. (n)
Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be sold, unless there is a stipulation to the contrary. He may demand the sale of only as many of the things as are necessary for the payment of the debt. (n)
Art. 2120. If a third party secures an obligation by pledging his own movable property under the provisions of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to 2070, and Articles 2077 to 2081. He is not prejudiced by any waiver of defense by the principal obligor. (n)
Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731, and 1994, are governed by the foregoing articles on the possession, care and sale of the thing as well as on the termination of the pledge. However, after payment of the debt and expenses, the remainder of the price of the sale shall be delivered to the obligor. (n)
(See: 1. Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof.
2. Art. 1731. He who has executed work upon a movable has a right to retain it by way of pledge until he is paid.
Art. 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit.)
Art. 2122. A thing under a pledge by operation of law may be sold only after demand of the amount for which the thing is retained. The public auction shall take place within one month after such demand. If, without just grounds, the creditor does not cause the public sale to be held within such period, the debtor may require the return of the thing. (n)
Art. 2123. With regard to pawnshops and other establishments, which are engaged in making loans secured by pledges, the special laws and regulations
concerning them shall be observed, and subsidiarily, the provisions of this Title. (1873a)
c) Mortgage (real mortgage) - Articles 2124 to 2131, Civil Code; Rule 68, Rules of Court; Act No. 3135, as amended; RA 4882See De Leon, pages 383 to 413
CHAPTER 3MORTGAGE
Art. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;(2) Alienable real rights in accordance with the laws, imposed upon immovables.Nevertheless, movables may be the object of a chattel mortgage. (1874a)
Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to demand the execution and the recording of the document in which the mortgage is formalized. (1875a)
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. (1876)
Art. 2127. 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. (1877)
Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in part, with the formalities required by law. (1878)
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 the terms and with the formalities which the law establishes. (1879)
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. (n)
Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution, modification and extinguishment, and as to other matters not included in this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land Registration Law. (1880a)
Two modes of foreclosure of real estate mortgage.
1. Foreclosure of real estate mortgage is either done extra-judicially or judicially. The provisions of Rule 68 of the 1997 Rules of Civil Procedure govern judicial foreclosure.
2. The extra-judicial foreclosure of real estate mortgage, on the other hand, is carried out in the procedure governed by the provisions of Act 3135, as amended, otherwise known as “An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real Estate Mortgages.”
RULE 68FORECLOSURE OF REAL ESTATE MORTGAGE
Section 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the 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 unpaid thereon; and the names and residences of all persons having or claiming an interest in the property subordinate
in right to that of the holder of the mortgage, all of whom shall be made defendants in the action.
Sec. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by 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 ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment.
Sec. 3. Sale of mortgaged property; effect. When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law, the purchaser at the auction sale or last redemptioner, if any, shall be entitled to the possession of the property unless a third party is actually holding the same adversely to the judgment obligor. The said purchaser or last redemptioner may secure a writ of possession, upon motion, from the court which ordered the foreclosure.
Sec. 4. Disposition of proceeds of sale. The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it.
Sec. 5. How sale to proceed in case the debt is not all due. If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment, as soon as a sufficient portion of the property has been sold to pay the total amount and the costs due, the sale shall terminate; and afterwards, as often as more becomes due for principal or interest and other valid charges, the court may, on motion, order more to be sold. But if the property cannot be sold in portions without prejudice to the parties, the whole shall be ordered to be sold in the first instance, and the entire debt and costs shall be paid, if the proceeds of the sale be sufficient therefor, there being a rebate of interest where such rebate is proper.
Sec. 6. Deficiency judgment. If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment; otherwise, the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract, which time shall be stated in the judgment.
Sec. 7. Registration. A certified copy of the final order of the court confirming the sale shall be registered in the registry of deeds. If no right of redemption exists, the certificate of title in the name of the mortgagor shall be cancelled, and a new one issued in the name of the purchaser.Where a right of redemption exists, the certificate of title in the name of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming the sale shall be registered and a brief memorandum thereof made by the registrar of deeds upon the certificate of title. In the event the property is redeemed, the deed of redemption shall be registered with the registry of deeds, and a brief memorandum thereof shall be made by the registrar of deeds on said certificate of title.If the property is not redeemed, the final deed of sale executed by the sheriff in favor of the purchaser at the foreclosure sale shall be registered with the registry of deeds; whereupon the certificate of title in the name of the mortgagor shall be cancelled and a new one issued in the name of the purchaser.
Sec. 8. Applicability of other provisions. The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate mortgages under this Rule insofar as the former are not inconsistent with or may serve to supplement the provisions of the latter.
Essential requirements under Act 3135 Under Act 3135, as amended and settled jurisprudence, the following essential requirements must be met: 1. There must be a special power of attorney inserted in or attached to the real estate mortgage authorizing the sale pursuant to the provisions of Act, 3135, as amended (Section 1; Paguyo v. Gatbunton, 523 SCRA 156 [2007]). 2. The sale must be made within the province where the property or any part thereof is located, unless otherwise stipulated (Section 2; Supena v. de la Rosa, 267 SCRA 1). 3. There must be a notice of sale to be posted in three public places of the municipality or city where the property is situated. If the property is worth more than P400.00, the notice shall also be published once a week for three consecutive weeks in a newspaper of general circulation in the city or municipality (Section 3). 4. The sale shall be made at public auction between the hours of nine in the morning and four in the afternoon, and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace (now municipal judge) of the municipality in which such sale shall be made, or a notary public of said municipality (Section 4)
Under Act No. 3135, as amended, a mortgagee-creditor is allowed to participate in the bidding and purchase under the same conditions as any other bidder, as in the case at bar, thus:
Section 5. At any sale, the creditor, trustee, or other person authorized to act for the creditor, may participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made.
In other words, Section 5 of Act No. 3135, as amended, creates and is designed to create an exception to the general rule that a mortgagee or trustee in a mortgage
or deed of trust which contains a power of sale on default may not become the purchaser, either directly or through the agency of a third person, at a sale which he himself makes under the power. Under such an exception, the title of the mortgagee-creditor over the property cannot be impeached or defeated on the ground that the mortgagee cannot be a purchaser at his own sale.
Needless to state, the power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. It is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential and inseparable part of that bilateral agreement. 9 Even in the absence of statutory provision, there is authority to hold that a mortgagee may purchase at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third person at a price below the mortgage debt. 10 The express mandate of Section 5 of Act No. 3135, as amended, amply protects the interest of the mortgagee in this jurisdiction.
CREDIT CASES MARCH15
**056 DBP vs. CAGR. No. 118342; January 5, 1998
Topic: Provisions common to pledge and mortgagePonente: Davide, JR. Author: Revy
Notes: The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
FACTS:
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes;
5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;
6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question;
7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979.
8. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982;
9. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband;
10. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale;
11. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982;Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba;
12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question;
13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property;
14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984;
15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food.
16. Lydia Cuba filed an action with the Regional Trial Court of Pangasinan for the declaration of nullity of DBP’s appropriation of her leaseholds over the subject fishpond, for the annulment of the Deed of Conditional Sale executed in her favor by DBP, the annulment of DBP’s sale of the fishpond to Caperal, and the restoration of her rights over the said fishpond and for damages.
17. The RTC ruled in favor of Cuba, declaring that DBP’s taking possession and ownership of the subject property without foreclosure was violative of Art. 2088 of the Civil Code, and that condition No.12 of the Assignment of the Leasehold Rights was void for being a clear case of pactum commissorium.
18. Both Cuba and DBP elevated the case to the CA, with Cuba seeking an increase in the amount of damages, while DBP questioned the findings of fact and law of the RTC. The CA reversed the ruling of the RTC with regards to the validity of the acts of DBP.
ISSUE:
1. Whether or not the two Deed of Assignment executed by Cuba in favor of DBP would operate as a mortgage or some other contract.
2. Whether or not condition No. 12 of the Assignment of the Leasehold Rights would operate as case of pactum commissorium.
3. Whether the act of DBP in appropriating to itself Cuba’s leasehold rights over the fishpond in question without foreclosure proceeding was contrary to Article 2088 of the Civil Code, and therefore, invalid.
HELD:
1. Lydia executed the 2 Deeds of Assignment as a security for the loans that she obtained from DBP, according the case of People’s Bank and Trust Co. vs. Odom an assignment to guaranty an obligation is in effect a mortgage. And it was also indicated in the provisions of the promissory note executed by Cuba, that the assigned leasehold rights were referred to as mortgaged properties and the instrument itself a mortgage contract.
2&3. The act of DBP under condition No. 12 of the Assignment of Leasehold Rights did not constitute as a case of pactum commissorium, when appropriated for itself Cuba’s leasehold rights over the subject fishpond, because condition No. 12 only gave DBP the authority to sell the said property and use the proceeds of the sale to satisfy Cuba’s obligation, it did not operate as an automatic transfer of ownership of the said property to DBP.
However, DBP exceeded its authority granted under condition No. 12, when it appropriated for itself such rights without judicial or extrajudicial foreclosure, thereby making his acts violative of Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of a debt.
RATIO:
The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA’s failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation.
DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had “[w]ithout foreclosure proceedings, whether judicial or extrajudicial, … appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question.” Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA.
Other notes:
The case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party’s financial obligation to one another.
**058 BUSTAMANTE VS ROSELG.R. No. 126800 Date NOV 29 1999
TOPIC: Pledge and MortgagePONENTE: PARDO, J. Author: Jelena
Notes: B & R enter into a loan agreement with stipulation of option to buy if B was unable to pay. R wanted to buy, even before maturity, B did not want to sell. B tendered and consigned, was not late in paying the loan.
SC: The stipulation is void. All persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their prey.
FACTS:
1. [Loan Agreement] entered into by Norma Rosel with Natalia Bustamante and her late husband Ismael C. Bustamante.
a. [Terms and Conditions]
i. “That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667, containing an area of
FOUR HUNDRED TWENTY THREE (423) SQUARE Meters, more or less, situated along Congressional Avenue.
ii. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a collateral SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the aforestated parcel of land, however, in the event the borrowers fail to pay, the lender has the option to buy or purchase the collateral for a total consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed amount and interest therein;
iii. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while the borrowers do hereby confess receipt of the borrowed amount.”
2. [Loan was about to mature] Rosel proposed to buy the seventy (70) square meters parcel of land given as collateral to guarantee payment of the loan. 3. [Bustamante refused] requesting for extension to pay and offered to sell another lot with the principal loan plus interest to be used as down payment.4. [Rosel refused to extend and to accept] the lot situated in Road 20 was being occupied by squatters and the Bustamtes were only care takers, not owners of the lot.5. [March 1989] [Tender of Payment by Busamante] Rosel refused to accept, insisting to buy the collateral lot. 6. [February 1990] Rosel filed a complaint for specific performance with consignation against petitioner and her spouse.a. [Demand Letter] The Rosels even sent a demand letter asking the Bustamantes to sell the collateral pursuant to the option to buy in the loan agreement. 7. [March 1990] [Petition for Consignation] Busamante filed in the Regional Trial Court, Quezon City a petition for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon City on August 10, 1990.
8. [Still refused to sell] and barangay conciliation failed, Rosels consigned the amount of P47,500.00 with the trial court.
9. In arriving at the amount deposited, respondents considered the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00.10. The principal loan and the interest taken together amounted toP152,500.00, leaving a balance of P 47,500.00.11. [Computation] a. P100,000.00 (principal loan) + P52,500.00 (18%/annum interest)P152,500.00 – P200,000 (Agreed price for option to buy) = P 47,500.0012. [RTC] dismissed complaint. No specific performance. a. [Order] Bustamante pay the rest of the loan!13. [CA] reversed. a. [Order] Bustamante Accept the money (47k) and sign the deed of sale!ISSUE:
1. Did the Bustamantes fail to pay the loan on maturity date? Nope.2. Is the stipulation in the contract valid and enforceable? Nope. HELD:
1. NO. There was tender of payment and then consignment. 2. NO. It is within the concept of pactum commissorium. void stipulation. RATIO:
1. The sale of the collateral is an obligation with a suspensive condition. It is dependent upon the happening of an event, without which the obligation to sell does not arise. Since the event did not occur, respondents do not have the right to demand fulfillment of petitioner's obligation, especially where the same would not only be disadvantageous to petitioner but would also unjustly enrich respondents considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.
2. Respondents argue that contracts have the force of law between the contracting parties and must be complied with in good faith. There are, however, certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:
a. “Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.”
3. A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the property given as security for the loan. This is embraced in the concept of pactum commissorium, which is proscribed by law.
4. In Nakpil vs. Intermediate Appellate Court:
a. “The arrangement entered into between the parties, whereby Pulong Maulap was to be “considered sold to him (respondent) xxx in case petitioner fails to reimburse Valdes, must then be construed as tantamount to pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondent’s manifestation, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.”
5. A significant task in contract interpretation is the ascertainment of the intention of the parties and looking into the words used by the parties to project that intention. In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in the event of non payment of the loan. This is within the concept of pactum commissorium. Such stipulation is void.
DOCTRINE
“The elements of pactum commissorium are as follows:
(1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.”
-- Such stipulation is void.
**Ong v. Roban LendingG.R. No. 172592, July 9, 2008
Topic: Pledge and MortgagePonente: Carpio Morales, J. Author: Den
Notes:
FACTS:
1. From July 14, 1999 to March 20, 2000, Spouses Ong (Wilfredo and Edna) obtained 4M loan in total, from Roban Lending Corp (ROBAN). The loan was secured by a real estate mortgage on parcels of land owned by the spouses in Binauganan, Tarlac (TCT 297840).
2. Feb. 12, 2001 – Ong spouses and ROBAN executed an Amendment to Amended Real Estate Mortgage, which consolidated their loans, inclusive of charges, for a total of P5,916,117.50.
3. Spouses Ong also executed a Dacion in Payment Agreement, assigning the above mentioned Tarlac property to ROBAN, in settlement of their total obligation.
4. Pertinent provisions of the MOA stated that: (1) ROBAN and Spouses Ong agree to consolidate and restructure their loans, which were due and delinquent since April 19, 2000, with a total amount of P5,916,117.50; (2) Ong spouses executed another promissory covering the 5M amount, with a promise to pay ROBAN within a year from date of consolidation/restructuring; (3) failure to pay = execution of Dacion inPayment, in favour of ROBAN.
5. April 2002: Ong Spouses filed in RTC of Tarlac, for abandonment of the mortgage contract, annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages, on the ground that: (1) that the executed MOA and Dacion in Payment Agreement (DPA) are void for being pactum commissorium; (2) additional charges/interest rate placed on their loans were “illegal, iniquitous, unconscionable;” (3) Previous payments were made by them, but due to the “illegal” charges, the total balance appeared unchanged.
6. ROBAN answered with a counterclaim, maintaining legality of its transactions with Spouses ong, and stating that: (1) allegation of pactum commissorium cannot stand, because the voluntary execution of the MOA and DPA novated the Real Estate Mortgage; (2) DPA is lawful and valid under Art. 1245 of the Civil Code as a special form of payment, wherein a debtor alienates property to the creditor to satisfy their monetary obligation; (3) largeness of accumulated interest for more
than 2 years were reasonable and valid, considering the principal loan is 4M; accumulation of interest amount = fault of Spouses Ong.
7. April 21, 2004: RTC – Tarlac dismissed the complaint, finding no pactum commissorium,
8. CA: upheld RTC decision that there was no pactum commissorium; found the error in nomenclature "to be mere semantics with no bearing on the merits of the case."
ISSUE: Whether or not the MOA and DPA are null and void for being a pactum commissorium (Whether both contracts constitute pactum commissorium or dacion en pago)
HELD: YES; CA decision REVERSED and SET ASIDE. MOA and DPA between Spouses Ong and ROBAN are NULL and VOID for being pactum commissorium.
RATIO:
1. SC finds the MOA and DPA constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which provides: “The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."
2. Elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
3. MOA and DPA contains no provisions for foreclosure proceedings or redemption. Under MOA, failure of Spouses Ong to pay their debt in 1 year, gives right to ROBAN to enforce the DPA, which in effect, automatically transfers ownership of the Bulacan property to the latter (ILLEGAL!)
4. Though law law recognizes dacion en pago as a special form of payment whereby the debtor alienates property to the creditor in satisfaction of a monetary obligation, this is not applicable in this case because: (1)In true dacion en pago, the
assignment of the property extinguishes the monetary debt; (2) in this case, alienation by Spouses Ong of the properties was by way of security, and not by way of satisfying the debt.
5. The Dacion in Payment did not extinguish petitioners’ obligation to respondent. On the contrary, under the MOA executed on the same day as the DPA, Spouses Ong had to execute a promissory note for the 5M, payable in a year.
6. Re: charges on loans = unconscionable; Court reduces interest rates: (1) interest rate of 42% to 12% per annum; penalty fee from 60% to 12%; Attorney’s fees to 25% of principal amount only. 7. Case remanded for further evidence re: claims of partial payments made on the loans.
DOCTRINE:
1. An agreement without provision for foreclosure proceedings or redemption, which provides for the automatic transfer of ownership to creditor of property pledged or mortgaged by debtor is void for being pactum commissorium.
2. Pactum commissorium is prohibited under Art. 2088, which provides: “The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."
**PARAY et. al., petitioner vs. RODRIGUEZ, respondentG.R. No. 13228, January 24, 2006
Topic: PledgePonente: Tinga, J. Author: Charles
FACTS:1. Respondents were owners of shares of stocks from Quirino-Leonor-Rodriguez Realty Inc.2. Respondents secured a loan from petitioners. They secured the payment of their loan by pledging their shares of stock with the Quirino-Leonor-Rodriguez Realty Inc.3. Respondents failed to pay their obligations with the petitioners. Petitoners attempted to foreclose the the shares of stock. respondent, however, filed a case seeking to nullify the pledge executed against their shares of stock.
4. The cases were consolidated and the RTC of Cebu eventually ruled to dismiss the case and give due course to the foreclosure and proceed with the auction sale of the shares of stock. The judgment of the RTC attained finality.5. Respondents received notice on the auction sale of their shares of stock. They, however, decided not to participate in the auction. Instead respondents consigned payment with the Court on the principal debt.6. They appealed the decision of the RTC with the CA and it reversed the RTC. Hence, this petition by the Paray et al.7. Respondents argued that their tender of payment and subsequent consignations served to extinguish their loan obligations and discharged the pledge contracts.8. Petitioners countered that the auction sale was conducted pursuant to a final and executory judgment and that the tender of payment and consignations were made long after their obligations had fallen due.9. They pointed out that the amounts consigned could not extinguish the principal loan obligations of respondents since they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural requisites for the auction sale had been satisfied.
ISSUE:
1. Whether there is a right of redemption with personal properties sold in an auction sale?2. Whether the consignation by the respondents extinguished their obligation with the Paray’s?3. Whether the items pledged should have been sold individually?
HELD:1. NO, there exist no such right.2. NO, there was no proper consignation in this case.3. NO.
RATIO:
1. Jurisprudence establishes or affirms such right. Indeed, no such right exists.The right of redemption over mortgaged real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same
benefit to personal property. In fact, there is no law in our statute books which vests the right of redemption over personal property. Act No. 1508, or the Chattel Mortgage Law,ostensibly could have served as the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales,more precisely execution sales of real property.
It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged.In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The final and executory judgment in those cases affirmed the pledge contracts and disposed them. Said judgment did not direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale at their own volition.
2. There is no doubt that if the principal obligation is satisfied, the pledges should be terminated as well. Article2098 of the Civil Code provides that the right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the credit has not beens atisfied in due time, the creditor may proceed with the sale by public auction under the procedure provided under Article 2112 of the Code.In order that the consignation could have the effect of extinguishing the pledge contracts, such amounts should cover not just the principal loans, but also the monthly interests thereon.In the case at bar, while the amounts consigned by respondents could answer for their respective principal loan obligations, they were not sufficient to cover the interests due on these loans, which were pegged at the rate of 5%per month or 60% per annum.
3. This concern is obviously rendered a non-issue by the fact that there can be no right to redemption in the first place. Rule 39 of the Rules of Court does provide for instances when properties foreclosed at the same time must be sold separately, such as in the case of lot sales for real property under Section 19. However, these instances again pertain to execution sales and not extrajudicial sales. No provision in the Rules of Court or in any law requires that pledged properties sold at auction be sold separately.On the other hand, under the Civil Code, it is the pledgee, and not the pledgor, who is given the right to choose which of the items should be sold if two or more things are pledged. No similar option is given to pledgors under the Civil Code. Moreover, there is nothing in the Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledgee of several different pledge contracts from auctioning all of the pledged properties on a single occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single purchase price. The relative insignificance of ascertaining the definite apportionments of the sale price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the pledgee nor the pledgor can recover whatever deficiency or excess there may be between the purchase price and the amount of the principal obligation.
**MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA,
petitioners,G.R. No. 98334 May 8, 1992
Topic: Mortgage Ponente:Regalado
FACTS:
1. Spouses Dolino obtained a loan from CITY SAVINGS BANK (formerly Cebu City Savings and Loan Association, Inc.) through TEOTIMO ABELLANA the Banks president. The spouses executed a real estate mortgage to secure the loan from the Bank.
2. The loan became due and demandable without the spouses Dolino paying the same, petitioner association caused the extrajudicial foreclosure of the mortgage. The land was sold at a public auction to CITY SAVINGS BANK being the highest bidder. A certificate of sale was subsequently issued which was also registered. No redemption was being effected by Sps. Dolino, their title to the property was cancelled and a new title was issued in favor of CSB.
3. Sps. Dolino then filed a case to annul the sale at public auction and for the cancellation of certificate of sale issued pursuant thereto, alleging that the extrajudicial foreclosure sale was in violation of Act 3135, as amended. The trial court sustained the validity of the loan and the real estate mortgage, but annulled the extrajudicial foreclosure on the ground that it failed to comply with the notice requirement of Act 3135.
4. Not satisfied with the ruling of the trial court, Sps. Dolino interposed a partial appeal to the CA, assailing the validity of the mortgage executed between them and City Savings Bank, among others. The CA ruled in favor of private respondents declaring the said mortgage as void.
ISSUE:
Whether a mortgagor, whose property has been extrajudicially foreclosed and sold at the corresponding foreclosure sale, may validly execute a mortgage contract over the same property in favor of a third party during the period of redemption?
HELD:
YES because the mortgagor remains as the absolute owner of the property during the redemption period and has the free disposal of his property. Hence, he has the right to execute any act of ownership which includes mortgaging the property.
RATIO:
The Court decided this case based on the decision in the case of Dizon vs Gaborro, which held that:
xxx xxx xxx
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27, Revised Rules of Court). After the termination of the period of redemption and no redemption having been made, the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at public auction under a writ of execution has only an inchoate right to the property, subject to be defeated and terminated within the period of 12 months from the date of sale, by a redemption on the part of the
owner. Therefore, the judgment debtor in possession of the property is entitled to remain therein during the period for redemption.
xxx xxx xxx
It is undisputed that the real estate mortgage in favor of petitioner bank was executed by respondent spouses during the period of redemption. During the said period it cannot be said that the mortgagor is no longer the owner of the foreclosed property since the rule up to now is the right of a purchaser of a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. The title to the land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration of the redemption period and the conveyance of the master deed.
The 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 Article. 2085 of the Civil Code for the constitution of another mortgage on the property. To hold otherwise would create an inequitable situation wherein the mortgagor would be deprived of the opportunity, which maybe his last recourse, to raise funds to timely redeem his property through another mortgage.
**Huerta Alba Resort Inc, v. CA and Syndicated Management Grp, Inc.G.R. No. 128567. September 1, 2000
Topic: Difference between equity of redemption and right of redemptionPonente: Purisima
FACTS:1. SMGI (“Respondents”) filed a complaint for judicial foreclosure of mortgage on Oct 19, 1989
o They sought to foreclose 4 parcels of land mortgaged by Huerta (“petitioner”) to Intercon Fund Resource Inc (Intercon)o Respondent instituted this as mortgagee-assignee (Intercon assigned their rights at some point.)o The loan was P8.5M, secured by the subject parcels of land.2. In its answer, petitioner questionedo Assignment of Intercon of the mortgage right (they said it was ultra vires)o The correctness of charges.
3. Petitioner lost and was ordered to pay the loan, plus interest and charges, within 150 days from receipt of the order, else the properties would be sold to satisfy the debt.4. Petitioner appealed to the CA, which dismissed the case (late payment of docket fees).5. Petitioner then went to the SC, which also dismissed their complaint.6. After these rulings, respondent filed with the original RTC a motion of execution, which was granted.
o Thus, a notice of levy and execution was issued by the Sheriffo He issued a notice of Sheriff’s sale for the auction of subject properties.
7. Petitioner then filed a motion to quash and set aside the writ of execution, saying that the trial court acted with GAD.8. It argued that the record of the case was still with the CA, and thus the writ was premature
o The 150 days period had not yet lapsedo There was no default because respondent had not yet demanded for payment.
9. RTC denied this, saying that the judgment had become final and executoro Execution thereof was a matter of righto Writ of execution thus was its ministerial duty
10. Petitioner appealed to the CA.While the appeal was pending, the auction sale proceeded and Respondent won the bidding. o The certificate of sale was issued to it, and registered with the RoD.11. After this, petitioner presented a “motion for clarification,” asking the trial court if the 12 month period for redemption would apply
o RTC ruled that the period of redemption would have to follow the rule on judicially foreclosed property (see Rule 68)
o [The sale] shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law.12. Thus, petitioner filed a motion to set aside this order, saying that it altered the earlier decision
o First decision declared that satisfaction of judgment would be governed by the sale of real estate under execution (not Rule 68).13. They held that the 150 day period of redemption should be computed from the date of notification of entry of judgment – thus, it had expired on Sept. 11, 1994.
o The appeal was dismissed because the subject was already moot and academic.14. They also dismissed the MR
o Even if it is true that Sec 78 of RA 337 (mentioned above) prescribes a period of one year from the auction sale to redeem the property, petitioner never averred in its pleadings that it was entitled to this provision▪ Issue of whether SMGI was a credit institution was never brought squarely before the court.15. SMGI then filed a petition for writ of possession – it was here that Huerta first claimed the right to redeem under the General Banking Act
o Original mortgagee, they said, was a credit institution, and the assignment to SMGI did not remove the transaction from the coverage of Sec 78 of RA 337.o Thus, they should have one year to redeem from registration of the auction sale.o Thus, they said, the issuance of titles to SMGI was premature.
16. RTC denied the petition for writ of possession – they agreed (for the first time EVER) with Huerta, saying that they had until Oct 21, 1995 to redeem said parcels of land.o SMGI challenged the order, and the CA overturned it17. Hence, this petition.
ISSUE: Whether Huerta has the one year right of redemption under Sec 78 of RA 337?
HELD: NO.
RATIO:Various decisions show that Huerta has been adjudged to have only the Equity of Redemption, not the Right of Redemption (Court cited Limpin v. IAC)o Right of Redemption – exists only in extrajudicial mortgage.
▪ No right recognized in judicial foreclosure unless mortgagee is PNB or a banking institution▪ Mortgagor has one year from registration of sheriff’s certificate of sale to redeem the property.o This does not exist in judicial foreclosure of the mortgagee is not a banking institution▪ The case here is mentioned above (Rule 68).
▪ What exists only now is the Equity of Redemption – right of the mortgagor to extinguish the mortgage and retain ownership by paying the debt within the 90 day period after judgment becomes final.
• Rule 68, Sec 2 – [court] shall render judgment for the sum so found due and order the same to be paid into court within a period of not less than ninety (90) days from the date of the service of such order, and that in default of such payment the property be sold to realize the mortgage debt and costs.'▪ This is the equity of redemption – it may even be exercised beyond the 90 day period from date of service of the order, as long as its before the order of confirmation of the sale. (After such order of confirmation, there is no more redemption possible)
Petitioner did not seasonably invoke its purported right under Sec 78 of RA 337o Earliest opportunity – when it submitted its answer to the complaint for foreclosure (essentially, they should have filed a counterclaim).What is a Counterclaim? (in case he asks)
o A cause of action existing in favor of the defendant against the plaintiff.o It will, if established, defeat/qualify the judgment or relief to which the plaintiff is entitled.o Distinct/independent cause of actiono Defendant, in respect to the counterclaim, becomes an actor
▪ There exist 2 simultaneous actions, each party is at the same time a plaintiff and a defendant▪ Represents the right of the defendant to have the claims of the parties counterbalanced▪ Counterclaim is essentially an independent action, and should be treated as such. (tested by the same rules, etc.)Huerta should have asserted their right under Sec 78 of RA 337 as a counterclaim in its answer.
o Counterclaims allow the whole controversy between parties to be disposed of in one actiono The applicability of Sec 78 hinged on a factual question
▪ Was Intercon a credit institution? – this was never squarely brought before the court.▪ The claim of benefits under Sec 78 is in the nature of a compulsory counterclaim that should have been in the answer to the complaint.Failure of Huerta to assert this alleged right precludes it from doing so at the late stage of litigation
o Estoppel may successfully be invoked.o A party who failed to invoke his claim in the main case, while having opportunity to do so, will be precluded from invoking this claim subsequently.o Huerta should have alleged at the very start that Intercon was a credit institution, in order for Sec 78 to apply.