GR 118342, January 5, 1998 dispose the property.

DBP then thereafter, executed a Deed of

DBP VS. CA Conditional Sale in favor of Agripina Caperal.
RTC ruled in favor of Cuba declaring that DBP’s taking
FACTS: possession and ownership of property without foreclosure was
plainly violative of Article 2088 of the Civil Code or the
Cuba is a grantee of a Fishpond Lease Agreement from the provision on pactum commissorium. RTC also ruled that
Government. She obtained loans from DBP in the amounts of condition no. 12 of the Assignment of Leasehold Rights was a
P109, 000 and P98, 700 under the terms stated in the clear case of pactum commissorium expressly prohibited and
promissory notes and as security for said loans; she executed declared null and void by Article 2088, Civil Code and
two deeds of assignment of her leasehold right. Cuba concluded that since DBP never acquired lawful ownership of
however, failed to pay her loan on scheduled dates and Cuba’s leasehold rights, all acts of ownership and possession
without foreclosure proceedings, DBP appropriated the by bank is void and that the deed of Conditional Sale in favor
Leasehold Rights of Cuba over the fishpond. After DBP’s of Caperal was as well void and ineffective.
appropriation over the fishpond, DBP in turn executed a deed Cuba and DBP interposed appeals to CA. CA ruled that RTC
of Conditional Sale of the Leasehold Rights in favor of Cuba erred in declaring the deed of assignment as null and void and
over the same fishpond in question. In the negotiation for that Caperal can validly acquire the leasehold rights and that
repurchase, Cuba addressed 2 letters to the Manager of DBP condition no. 12 of deed of assignment was an express
which was accepted. authority from Cuba for DBP to sell whatever right she had
over the fishpond.
After the Deed of Conditional Sale was executed in favor of
Cuba, a new fishpond lease agreement was issued by the Hence, this petition.
Ministry of Agriculture and Food in favor of Cuba only
excluding her husband. Cuba again failed to pay the ISSUE/S:
amortization as stated in Deed of Conditional Sale and 1. WoN the assignment of leasehold rights was a mortgage
because of this she entered with DBP a temporary contract (as contended by Cuba)
arrangement whereby in consideration for deferment of
Notarial Rescission of Deed of Conditional Sale, Cuba YES. In all of the promissory notes, there is a provision that “in
promised to make certain payments. the event of foreclosure of the mortgage securing this note,
I/We further bind myself/ourselves, jointly and severally, to pay
DBP thereafter sent a Notice of Rescission thru Notarial Act the deficiency, if any.” Moreover, in Condition No. 22 of the
and was received by Cuba. After the Notice of Rescission, deed, it was provided that “failure to comply with the terms and
DBP took possession of the Leasehold Rights of fishpond and condition of any of the loans shall cause all other loans to
after, advertised in SUNDAY PUNCH the public bidding to become due and demandable and all mortgages shall be
foreclosed.” In the facts stipulated, it states that “As security
for loans, plaintiff Lydia P. Cuba executed two Deeds of proceeds to the payment of the loan. This provision is a
Assignment of her leasehold rights.” standard condition in mortgage contracts and is in conformity
with Article 2087 of the Civil Code, which authorizes the
We find no merit in DBP’s contention that the assignment mortgagee to foreclose the mortgage and alienate the
novated the promissory notes in that the obligation to pay a mortgaged property for the payment of the principal obligation.
sum of money the loans (under the promissory notes) was
substituted by the assignment of the rights over the fishpond
(under the deed of assignment). The said assignment merely G.R. No. 126800. November 29, 1999.
complemented or supplemented the notes; both could stand Bustamante vs. Rosel
together. Significantly, both the deeds of assignment and the
promissory notes were executed on the same dates the loans Facts:
were granted. Also, the last paragraph of the assignment
stated: “The assignor further reiterates and states all terms, Petitioner borrowed money from respondents for a period of
covenants, and conditions stipulated in the promissory note or two years and with interest. The former set up as collateral a
notes covering the proceeds of this loan, making said parcel of land with apartment thereon to guaranty payment.
promissory note or notes, to all intent and purposes, an They also agreed that in the event that she fails to pay,
integral part hereof.” respondents can buy the collateral for a cheap consideration,
inclusive of the principal and interest. When the loan was
2. WoN condition no. 12 of the deed of assignment constituted about to mature, respondents proposed to buy the collateral.
pactum commissorium
Petitioner, however, refused to sell and requested for
NO. The elements of pactum commissorium are as follows: (1) extension of time to pay the loan. She, instead, offered to sell
there should be a property mortgaged by way of security for another residential lot. Respondents refused to extend the
the payment of the principal obligation, and (2) there should be payment of the loan and to accept the second lot offered. On
a stipulation for automatic appropriation by the creditor of the maturity date, petitioner tendered payment of the loan to
thing mortgaged in case of non-payment of the principal respondents which the latter refused to accept. They insisted
obligation within the stipulated period. that a deed of absolute sale of the collateral be executed.
Respondents then instituted an action for specific performance
Condition no. 12 did not provide that the ownership over the and consignation against petitioner. After demand, petitioner
leasehold rights would automatically pass to DBP upon consigned the amount of the loan plus interest.
CUBA’s failure to pay the loan on time. It merely provided for
the appointment of DBP as attorney-in-fact with authority, The trial court ruled in favor of the petitioner. On the other
among other things, to sell or otherwise dispose of the said hand, the Court of Appeals reversed this decision, which the
real rights, in case of default by CUBA, and to apply the Supreme Court affirmed. However, petitioner filed a motion for
reconsideration. She alleged that she did not fail to pay the thing mortgaged in case of non-payment of the principal
loan so there is no reason for respondent to buy the collateral; obligation within the stipulated period. These elements are
that the real intention of the parties in putting up the collateral present in this case. Therefore, the stipulation is void. All
is to guarantee the payment of the loan. Respondent, on one persons in need of money are liable to enter into contractual
hand, contends that petitioner failed to pay the loan; that it is relationships whatever the condition if only to alleviate their
their right to purchase the collateral based on the contact financial burden albeit temporarily. Hence, courts are duty
which is not contrary to law, morals, good customs, public bound to exercise caution in the interpretation and resolution
order and public policy. of contracts lest the lenders devour the borrowers like vultures
do with their prey.
Issues:
(1) Whether or not petitioner failed to pay the loan at its
maturity date. GR 171592
(2) Whether or not the stipulation in the loan contract was ONG. V. ROBAN LENDING CORPORATION, (2008)
valid and enforceable.
Pactum Commissorium, Art. 2087, Art. 2088: Effects on
Held: Pledge or Mortgage

Petitioner did not fail to pay the loan. On the maturity date, she “The SECOND PARTY hereby signed another promissory
tendered the payment which respondents refused. After note with a promise to pay the FIRST PARTY in full within one
refusal, she consigned the payment. The sale of the collateral year from the date of the consolidation and restructuring,
is an obligation with a suspensive condition. Since the event otherwise the SECOND PARTY agree to have their “DACION
did not occur, respondents do not have the right to demand IN PAYMENT” agreement, which they have executed and
fulfillment of petitioner’s obligation, especially where the same signed today in favor of the FIRST PARTY be enforced”
would be disadvantageous to petitioner.
Issue: Whether the contract constitutes pactum
The stipulation in the loan contract was not valid and commissorium or dacion en pago.
unenforceable. A scrutiny of the stipulation of the parties
reveals a subtle intention of the creditor to acquire the property Held: Pactum Commissorium.
given as security for the loan. This is embraced in the concept
of pactum commissorium, which the law prohibits. The In the case at bar, the MOA and the Dacion in Payment
elements of pactum commissorium are as follows: (1) there contain no provisions for foreclosure proceedings nor
should be a property mortgaged by way of security for the redemption. Under the MOA, the failure by the petitioners to
payment of the principal obligation, and (2) there should be a pay their debt within the one-year period gives respondent the
stipulation for automatic appropriation by the creditor of the right to enforce the Dacion in Payment transferring to it
ownership of the properties covered by the TCT. Respondent,
in effect, automatically acquires ownership of the properties It was established from the facts that in the deed of real estate
upon petitioners’ failure to pay their debt within the stipulated $mortgage executed between Galas and Villar, the former
period. appoints the latter to sell the subject &property in case Galas
fails to &ay the loan, and with such, &proceeds shall be
Ø Respondent argues that the law recognizes dacion en a&&lied to her outstanding loan.
pago as a special form of payment whereby the debtor
alienates property to the creditor in satisfaction of a monetary A year later, the same subject &property was subsequently
obligation. mortgaged in favor of Pablo Garcia to secure a loan
amounting to P 1, 800,000.00. afterwards, Galas decided to
This does not persuade. In a true dacion en pago, the sell the subject &property to Villar. deed of sale was executed
assignment of the property extinguishes the monetary debt. between them, and a T-T was issued in favor of Villar.
Aggrieved, Garcia filed a Petition for mandamus with
In the case at bar, the alienation of the properties was by way damages, arguing his main &point that the authority given to
of security, and not by way of satisfying the debt. The Dacion Villaras stipulated in the deed of the real estate $mortgage is
in Payment did not extinguish petitioners’ obligation to violative of the prohibition of Pactum -ommissorium.
respondent. On the contrary, under the MOA executed on the
same day as the Dacion in Payment, petitioners had to It ruled in favor of Garcia. CA appeal, reversed the decision
execute a promissory note which they were to pay within one and ruled in favor of Villar.
year.
issue
That the questioned contracts were freely and voluntarily 1 whether the authority given to Villar in the deed of real estate
executed by petitioners and respondent is of no mortgage is violative of the prohibition on pactum
moment, pactum commissorium being void for being commissorium
prohibited by law.
Held:
Villar’s purchase of the subject property did not violate the
GR158891, June 27, 2012 prohibition on pactum commissorium. The following are the
Garcia vs Villar elements of pactum commissorium.
1. there should be a property mortgaged by way of security for
The case stemmed from a mortgage transaction involving a lo the payment of the principal obligation
t owned by Lourdes Galas in favor of Yolanda Villar. The lot 2. there should be a stipulation for automatic appropriation by
was mortgaged to secure a loan obtained by Galas from Villar the creditor of the
in the amount of P2,200,000.00.
thing mortgaged in case of nonpayment of the principal While we agree with Garcia that since the second mortgage, of
obligation within the stipulated period. which he is the mortgagee, has not yet been discharged, we
find that said mortgage subsists and is still
in the case at bar, the owner of attorney provision above did enforceable. However, Villar, in buying the subject property
not provide that ownership over the subject property would with notice that it was mortgaged, only undertook to pay such
automatically pass to Villar upon Galas failure to pay the loan mortgage or allow the subject property to be sold upon failure
on time. hat it granted was the mere appointment of of the mortgage creditor to obtain payment from the principal
Villaras Attorney in fact with authority to sell, or otherwise debtor once the debt matures. Villar did not obligate herself to
disposed of the subject property, and to apply the proceeds to replace the debtor in the principal obligation, and could not do
the payment of the loan. so in law without the creditor’s consent. Therefore, the
obligation to pay the mortgage indebtedness remains with the
Real nature of a mortgage: original debtors Galas and Pingol.
( Article 2126 of the Civil Code)
Art. 2126. The mortgage directly and immediately subjects Effects of a transfer of a mortgaged property to a third person
the property upon which it is imposed, whoever the possessor According to Art. 1879 of this Code, the creditor may demand
may be, to the fulfillment of the obligation for whose security it of the third person in possession of the property mortgaged
was constituted. payment of such part of the debt, as is secured by the property
in his possession, in the manner and form established by the
A mortgage is a real right, which follows the property, even law. The Mortgage Law provided that the debtor should not
after subsequent transfers by the mortgagor. “A registered pay the debt upon its maturity after judicial or notarial demand,
mortgage lien is considered inseparable from the property for payment has been made by the creditor upon him. (Art.
inasmuch as it is a right in rem.” The sale or transfer of the 135 of the Mortgage Law of the Philippines of
mortgaged property cannot affect or release the mortgage; 1889.) According to this, the obligation of the new possessor
thus the purchaser or transferee is necessarily bound to to pay the debt originated only from the right of the creditor to
acknowledge and respect the encumbrance. In fact, under Art. demand payment of him, it being necessary that a demand for
2129 of the Civil Code, the mortgage on the property may still payment should have previously been made upon the debtor
be foreclosed despite the transfer, viz: and the latter should have failed to pay. And even if these
Art. 2129. The creditor may claim from a third person in requirements were complied with, still the third possessor
possession of the mortgaged property, the payment of the part might abandon the property mortgaged, and in that case it is
of the credit secured by the property which said third person considered to be in the possession of the debtor. (Art. 136 of
possesses, in terms and with the formalities which the law the same law.) This clearly shows that the spirit of the Civil
establishes. Code is to let the obligation of the debtor to pay the debt stand
although the property mortgaged to secure the payment of
said debt may have been transferred to a third person. While
the Mortgage Law of 1893 eliminated these provisions, it THE MANILA BANKING CORPORATION vs. ANASTACIO
contained nothing indicating any change in the spirit of the law
TEODORO, JR. and GRACE ANNA TEODORO
in this respect. Article 129 of this law, which provides the
substitution of the debtor by the third person in possession of G.R. No. L-53955 January 13, 1989
the property, for the purposes of the giving of notice, does not
Bidin, J.
show this change and has reference to a case where the
action is directed only against the property burdened with the
mortgage. (Art. 168 of the Regulation.)
1. April 1966, Spouses Teodoro together with Teodoro Sr
executed a PN in favour of Manila Banking Corp (MBC);
The mere fact that the purchaser of an immovable has notice
- Payable within 120 days (until Aug), with 12% interest
that the acquired realty is encumbered with a mortgage does
not render him liable for the payment of the debt guaranteed per annum;
by the mortgage, in the absence of stipulation or condition that - They failed to pay and left balance of 15k as of
he is to assume payment of the mortgage debt. September 1969;
2. May and June 1966, executed two PNs;
Reason: the mortgage is merely an encumbrance on the - 8k and 1k respectively payable within 120 days and
property, entitling the mortgagee to have the property 12% per annum;
foreclosed, i.e., sold, in case the principal obligor does not pay - They made partial payment but still left 8.9k balance as
the mortgage debt, and apply the proceeds of the sale to the of September 1969;
satisfaction of his credit. Mortgage is merely an accessory 3. It appears than in 1964, Teodoro Jr executed a Deed of
undertaking for the convenience and security of the mortgage Assignment of Receivables in favour of MBC from
creditor, and exists independently of the obligation to pay the Emergency Employment Administration;
debt secured by it. The mortgagee, if he is so minded, can - Amounted to 44k;
waive the mortgage security and proceed to collect the - The deed provided it was for consideration of certain
principal debt by personal action against the original credits, loans, overdrafts and other credit
mortgagor accommodations extended to the spouses and
Teodoro Sr as security for the payment of said sum
and interest thereon; and that they release and
quitclaim all its rights, title and interest in the
receivables;
4. In the stipulations of fact, it was admitted by the parties:
- That MBC extended loans to the spouses and Teodoro
Jr because of certain contracts entered into by latter
with EEA for fabrication of fishing boats and that the
 Philippine Fisheries Commission succeeded EEA after in and to the accounts receivable assigned. It was further
its abolition; stipulated that the assignment will also stand as a continuing
- That non-payment of the PNs was due to failure of the guaranty for future loans of appellants to appellee bank and
Commission to pay spouses; correspondingly the assignment shall also extend to all the
- That the Bank took steps to collect from the accounts receivable; appellants shall also obtain in the future,
Commission but no collection was effected; until the consideration on the loans secured by appellants from
5. For failure of the spouses and Teodor Sr to pay, MBC appellee bank shall have been fully paid by them.
instituted against them;
- Teodoro Sr subsequently died so suit only against the The position of appellants, however, is that the deed of
spouses; assignment is a quitclaim in consideration of their
6. TC favoured MBC; MFR denied; indebtedness to appellee bank, not mere guaranty, in view of
- Spouses appealed to CA but since issue pure question the following provisions of the deed of assignment:
of law, CA forwarded to SC; ... the Assignor do hereby remise, release and quit-
claim unto said assignee all its rights, title and interest in the
Issues: accounts receivable described hereunder. (Emphasis supplied
W/N the assignment of receivables has the effect of payment by appellants, first par., Deed of Assignment).
of all the loans contracted by the spouses; NO.
W/N MBC must exhaust all legal remedies against PFC before ... that the title and right of possession to said account
it can proceed against the spouses. NO. receivable is to remain in said assignee and it shall have
the right to collect directly from the debtor, and whatever the
Ratio: Assignor does in connection with the collection of said
accounts, it agrees to do so as agent and representative of the
The assignment of receivables executed by appellants did not Assignee and it trust for said Assignee.
transfer the ownership of the receivables to appellee bank and
release appellants from their loans with the bank incurred The character of the transactions between the parties
under promissory notes. is not, however, determined by the language used in the
document but by their intention. Definitely, the assignment of
The Deed of Assignment provided that it was for and in the receivables did not result from a sale transaction. It cannot
consideration of certain credits, loans, overdrafts, and their be said to have been constituted by virtue of a dation in
credit accommodations extended to appellants by appellee payment for appellants' loans with the bank evidenced by
bank, and as security for the payment of said sum and the promissory note which are the subject of the suit for collection
interest thereon; that appellants as assignors, remise, release, in a Civil Case. At the time the deed of assignment was
and quitclaim to assignee bank all their rights, title and interest executed, said loans were non-existent yet. Obviously, the
deed of assignment was intended as collateral security for
the bank loans of appellants, as a continuing guaranty for as she claims to have substantial deposits and money market
whatever sums would be owing by defendants to plaintiff, as placements with the petitioners and other investment
stated in stipulation No. 9 of the deed. companies, the proceeds of which were supposedly deposited
automatically and directly to her account with Citibank.
Assignment of credit is an agreement by virtue of Sabeniano alleged that Citibank et al refused to return her
which the owner of a credit, known as the assignor, by a legal deposits and the proceeds of her money market placements
cause, such as sale, dation in payment, exchange or donation, despite her repeated demands, thus, the civil case for
and without the need of the consent of the debtor, transfers his "Accounting, Sum of Money and Damages.”
credit and its accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same In their reply, Citibank et al admitted that Sabeniano had
extent as the assignor could have enforced it against the deposits and money market placements with them, including
debtor. dollar accounts in other Citibank branches. However, they also
alleged that respondent later obtained several loans from
Citibank, executed through Promissory Notes and secured by
a pledge on her dollar accounts, and a deed of assignment
against her MMPS with FNCB Finance. When Sabeniano
CITIBANK, N.A. & INVESTOR FINANCE CORPORATION V. defaulted, Citibank exercised its right to off-set or compensate
SABENIANO respondent's outstanding loans with her deposits and money
market placements, pursuant to securities she executed.
Facts: Citibank supposedly informed Sabeniano of the foregoing
compensation through letters, thus, Citibank et al were
This is a case involving Citibank, N.A., a banking corporation surprised when six years later, Sabeniano and her counsel
duly registered under US Laws and is licensed to do made repeated requests for the withdrawal of respondent's
commercial banking and trust functions in the Philippines and deposits and MMPs with Citibank, including her dollar
Investor's Finance Corporation (aka FNCB Finance), and accounts with Citibank-Geneva and her money market
affiliate company of Citibank, mainly handling money market placements with petitioner FNCB Finance. Thus, petitioners
placements(MMPs are short term debt instruments that give prayed for the dismissal of the Complaint and for the award of
the owner an unconditional right to receive a stated, fixed sum actual, moral, and exemplary damages, and attorney's fees.
of money on a specified date). The case was eventually decided after 10 years with the
Judge declaring the offsetting done as illegal and the return of
Modesta R. Sabeniano was a client of both petitioners Citibank the amount with legal interest, while Sabeniano was ordered to
and FNCB Finance.Unfortunately, the business relations pay her loans to Citibank. The ruling was then appealed. The
among the parties subsequently went awry. Subsequently, CA modified the decision but only to the extent of Sabeniano’s
Sabeniano filed a complaint with the RTC against petitioners loans
which it ruled that Citibank failed to establish the indebtedness
and is also without legal and factual basis. The case was thus By June 1979, all of respondent's PNs in the second
appealed to the SC. set had matured and became demandable, while respondent's
savings account was demandable anytime. Neither was there
Issue: any retention or controversy over the PNs and the deposit
Whether or not there was a valid off setting/compensation of account commenced by a third person and communicated in
loan vis a vis the a.)Deposits and b.) MMPs. due time to the debtor concerned. Compensation takes place
by operation of law.
Held:
2. Yes, but technically speaking Citibank did not effect a legal
General Requirement of Compensation: compensation or off-set under Article 1278 of the Civil Code,
Art. 1278. Compensation shall take place when two persons, but rather, it partly extinguished respondent's obligations
in their own right, are creditors and debtors of each other. through the application of the security given by the respondent
Art. 1279. In order that compensation may be proper, it is for her loans. Respondent's money market placements were
necessary; with petitioner FNCB Finance, and after several roll-overs, they
(1) That each one of the obligors be bound principally, were ultimately covered by PNs No. 20138 and 20139, which,
and that he be at the same time a principal creditor of the by 3 September 1979, the date the check for the proceeds of
other; the said PNs were issued, amounted to P1,022,916.66,
(2) That both debts consist in a sum of money, or if the inclusive of the principal amounts and interests.
things due are consumable, they be of the same kind, and As to these money market placements, respondent
also of the same quality if the latter has been stated; was the creditor and petitioner FNCB Finance the debtor
(3) That the two debts be due; (thereby implying that money market placement is a simple
(4) That they be liquidated and demandable; loan or mutuum); while, as to the outstanding loans, petitioner
(5) That over neither of them there be any retention or Citibank was the creditor and respondent the debtor.
controversy, commenced by third persons and communicated Consequently, legal compensation, under Article 1278
in due time to the debtor. of the Civil Code, would not apply since the first requirement
for a valid compensation, that each one of the obligors be
1. Yes. As already found by this Court, petitioner Citibank was bound principally, and that he be at the same time a principal
the creditor of respondent for her outstanding loans. At the creditor of the other, was not met. What petitioner Citibank
same time, respondent was the creditor of petitioner Citibank, actually did was to exercise its rights to the proceeds of
as far as her deposit account was concerned, since bank respondent's money market placements with petitioner FNCB
deposits, whether fixed, savings, or current, should be Finance by virtue of the Deeds of Assignment executed by
considered as simple loan or mutuum by the depositor to the respondent in its favor. Petitioner Citibank was only acting
banking institution. Both debts consist in sums of money. upon the authority granted to it under the foregoing Deeds
when it finally used the proceeds of PNs No. 20138 and They executed a deed of real estate mortgage of the said
20139, paid by petitioner FNCB Finance, to partly pay for property in favor of petitioner Prudential Bank to secure the
respondent's outstanding loans. Strictly speaking, it did not payment of a loan worth P250,000.00. (PN BD#75/C-252) was
effect a legal compensation or off-set under Article 1278 of the then issued covering the said loan, which provides that the
Civil Code, but rather, it partly extinguished respondent's loan matured on 4 August 1976 at an interest rate of 12% per
obligations through the application of the security given by the annum with a 2% service charge, and that the note is secured
respondent for her loans. Although the pertinent documents by a real estate mortgage as aforementioned with a “blanket
were entitled Deeds of Assignment, they were, in reality, more mortgage clause” or the “dragnet clause”.
of a pledge by respondent to petitioner Citibank of her credit
due from petitioner FNCB Finance by virtue of her money The spouses thereafter issued other promissory notes (PN):
market placements with the latter. According to Article 2118 of PN BD#76/C-345 for P2,640,000.00, secured by D/A
the Civil Code SFDX #129, signifying that the loan was secured by a “hold-
– out” on the mortgagor’s foreign currency savings account with
ART. 2118. If a credit has been pledged becomes due before the bank under Account No. 129 in the name of Donalco
it is redeemed, the pledgee may collect and receive the Trading, Inc., PN BD#76/C-430 covering P545,000.000 to be
amount due. He shall apply the same to the payment of his secured by “Clean-Phase out TOD CA 3923. Bank also
claim, and deliver the surplus, should there be any, to the mentioned in their approval letter that additional securities for
pledgor. the loan were the deed of assignment on two PNs executed
by Bancom Realty and the chattel mortgage on various
heavy and transportation equipment.

GR150197, July 28, 2005 Spoused Alviar paid petitioner P2,000,000.00, to be applied to
PRUDENTIAL BANK VS ALVIAR the obligations of G.B. Alviar Realty and Development, Inc.
and for the release of the real estate mortgage for
Doctrine: the P450,000.00 loan covering the two (2) lots in San Juan,
The “dragnet clause” in the first security instrument constituted Metro Manila. The payment was acknowledged by petitioner
a continuing offer by the borrower to secure further loans who accordingly released the mortgage over the two
under the security of the first security instrument, and that properties Prudential Bank moved for the extrajudicial
when the lender accepted a different security he did not accept foreclosure of the mortgage on the property since respondents
the first offer. had the total obligation of P1,608,256.68, covering the three
(3) promissory notes.
Facts:
Spouses Alviar are the registered owners of a parcel of land in Respondents then filed a complaint for damages with a prayer
San Juan, Metro Manila for the issuance of a writ of preliminary injunction with
the RTC of Pasig,[11] claiming that they have paid their mortgage contract. This ambiguity shall be interpreted strictly
principal loan secured by the mortgaged property, and thus the against petitioner for having drafted the same.
mortgage should not be foreclosed
RTC, on its final decision, favored respondents saying that the Petitioner, however, is not without recourse. Both the lower
extrajudicial foreclosure was improper for the mortgage only courts found that respondents have not yet paid
covers the first loan of P250,000 the P250,000.00. Thus, the mortgaged property could still be
CA affirmed the decision of the RTC properly subjected to foreclosure proceedings for the
unpaid P250,000.00 loan, and as mentioned earlier, for any
Issue: WON real estate mortgage secures only the first loan of deficiency after D/A SFDX#129, security for PN BD#76/C-345,
P250,000. has been exhausted, subject of course to defenses which are
available to respondents.
Held: Yes. While the existence and validity of the “dragnet
clause” cannot be denied, there is a need to respect the Petition is DENIED. CA affirmed.
existence of the other securities given for the two other
promissory notes. The foreclosure of the mortgaged property
should only then be for theP250,000.00 loan covered by PN
BD#75/C-252, and for any amount not covered by the security G.R. No. L-17500
for the second promissory note. People's Bank and Trust Co. v. Dahican Lumber Co.,

Petitioner and respondents intended the real estate mortgage

to secure not only the P250,000.00 loan from the petitioner, Facts:
but also future credit facilities and advancements that may be Dahican Lumber Co. (DALCO) obtained a loan from People's
obtained by the respondents. However, the subsequent loans Bank and Trust Co. (Bank) secured by a deed of mortgage
obtained by respondents were secured by other securities. covering 5 parcels of land together with all the buildings and
other improvements existing thereon and all the personal
When the mortgagor takes another loan for which another properties of DALCO located in its place of business.
security was given it could not be inferred that such loan was
made in reliance solely on the original security with the After the day of the execution of the mortgage, DALCO
“dragnet clause,” but rather, on the new security given. This is purchased various machinery, equipment, spare parts and
the “reliance on the security test.” supplies.

If the parties intended that the “blanket mortgage clause” shall Pursuant to the provision of the mortgage deeds regarding
cover subsequent advancement secured by separate "after acquired properties", the Bank requested DALCO to
securities, then the same should have been indicated in the submit complete list of the said properties but DALCO refused
to do so. against respondents clerk of court, deputy sheriff and herein
private respondent Banco Filipino Savings and Mortgage Bank.
Issue:
Whether or not the "after acquired properties" were subject to After the bank filed its answer, petitioners requested an
the deed of mortgage. admission by the bank that no formal notice of intention to
foreclose the real estate mortgage was sent by the bank to petitioners.-
Held: The bank responded and said that petitioners were notified of
Yes, they are subject to the deeds of mortgage. the auction sale by the posting of notices and the publication
of notice in the Metropolitan Newsweek, a newspaper of
Article 415 of the Civil Code does not define real property but general circulation in the province where the subject properties
enumerates what are considered as such, among them being are located and in the Philippines.
machinery, receptacles, instruments or replacements intended
by owner of the tenement for an industry or works which may On the basis of implied admission that no formal
be carried on in a building or on a piece of land, and shall tend notice was served personally, petitioners filed a
directly to meet the needs of the said industry or works. motion for summary judgment contending that the
foreclosure was violative of the provisions of the mortgage
The chattels or the "after acquired properties" were placed in contract, specifically paragraph (k) thereof which provides:
the real properties mortgaged to the Bank. They came within "k) All correspondence relative to this Mortgage, including
the operation of Article 145. demand letters, summons, subpoena or notifications of any
judicial or extrajudical actions shall be sent to the Mortgagor at
Hence, the "after acquired properties" were subject to the deed the address given above or at the address that may hereafter be given
of mortgage. 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
GRAND FARMS, INC. and PHILIPPINE SHARES communication is not actually received by the Mortgagor, or
CORPORATION, petitioners, vs COURT OF APPEALS that it has been returned unclaimed to the Mortgagee, or that
G.R. No. 91779 February 7, 1991 no person was found at the address given, or that the address
is fictitious, or cannot be located, shall not excuse or relieve the
Facts: Mortgagor from the effects of such notice;"
Petitioners filed Civil Case No. 2816-V-88 in the Regional Trial
Court of Valenzuela, Metro Manila for annulment and/or The bank opposed the motion saying that based on
declaration of nullity of the extrajudicial foreclosure other paragraphs (b and d) in the contract, the mortgagor
proceedings over their mortgaged properties, with damages, authorized extra-judicial sale upon breach of contract and that
the mortgagee was appointed atty-in-fact with full powers upon matter of law that there is no defense to the action or that the claim is
any breach of the obligations in the contract.- The RTC issued an clearly meritorious.
order denying petitioners' motion for summary judgment. MFR
was also denied on the ground that genuine and substantial issues Reasoning
exist which require the presentation of evidence during the trial.- Private respondent tacitly admitted in its answer to petitioners'
Petitioners filed a petition for certiorari to CA attacking said request for admission that it did not send any formal notice of
orders of denial as having been issued with grave abuse of foreclosure to petitioners. Stated otherwise, and as is evident from the
discretion. CA dismissed the petition, holding that no personal records, there has been no denial by private respondent that no
notice was required to foreclose since private respondent was personal notice of the extrajudicial foreclosure was ever sent
constituted by petitioners as their attorney-in-fact to sell the mortgaged to petitioners prior thereto. This omission, by itself, rendered the
property. It further held that paragraph (k) of the mortgage foreclosure defective and irregular for being contrary to the express
contract merely specified the address where correspondence provisions of the mortgage contract. There is thus no further
should be sent and did not impose an additional condition on the part of necessity to inquire into the other issues cited by the trial court, for
private respondent to notify petitioners personally of the foreclosure. CA the foreclosure may be annulled solely on the basis of such defect.- In
also denied petitioners MFR. Community Savings & Loan Association, Inc., et al. vs. Court of Appeals,
at al., the SC held that the stipulation is the law between [the parties]
Issue: and as it not contrary to law, morals, good customs and public
policy, the same should be complied with faithfully (Art. 1306
Whether or not summary judgment was proper CC). Thus, while publication of the foreclosure proceedings in
the newspaper of general circulation was complied with,
HELD: personal notice is still required, when the same was mutually
agreed upon by the parties as additional condition of
YES. The Rules of Court authorize the rendition the mortgage contract. Failure to comply with this additional
of a summary judgment if the stipulation would render illusory Art. 1306. And as the
pleadings, depositions and admissions on file, together with the record is bereft of any evidence which even impliedly
affidavits, show that, except as to the amount of damages, there is no indicate that the
issue as to any material fact and that the moving party required notice of the extrajudicial foreclosure was ev
is entitled to a judgment as a matter of law. Although an issue er sent to the debtor mortgagor, the extrajudicial
maybe raised formally by the pleadings but there is no genuine foreclosure proceedings on the property in question are fatally
issue of fact, and all the facts are within the judicial knowledge of defective and are not binding on the debtor-mortgagor.- To still
the court, summary judgment may be granted. The real test, require a trial notwithstanding private respondent's admission of the lack of
therefore, of a motion for summary judgment is whether the such requisite notice would be a superfluity and would work
pleadings, affidavits and exhibits in support of the motion are injustice to petitioners whose obtention of the relief to which
sufficient to overcome the opposing papers and to justify a finding as a they are plainly and patently entitled would be further delayed.
That undesirable contingency is obviously one of the reasons CSB. Sps. Dolino then filed a case to annul the sale at public
why our procedural rules have provided for summary judgments. auction and for the cancellation of certificate of sale issued
pursuant thereto, alleging that the extrajudicial foreclosure sale
Disposition was in violation of Act 3135, as amended. The trial court
The decision appealed from is hereby REVERSED and SET sustained the validity of the loan and the real estate mortgage,
ASIDE and this case is REMANDED to the court of origin for but annulled the extrajudicial foreclosure on the ground that it
further proceedings in conformity with this decision. failed to comply with the notice requirement of Act 3135. 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,
MANUEL D. MEDIDA, Deputy Sheriff of the Province of among others. The CA ruled in favor of private respondents
Cebu, CITY SAVINGS BANK (formerly Cebu City Savings declaring the said mortgage as void.
and Loan Association, Inc.) and TEOTIMO
ABELLANA, petitioners, vs. COURT OF APPEALS and SPS. Issue:
ANDRES DOLINO and PASCUALA DOLINO, respondents. Whether or not a mortgage, whose property has been
extrajudicially foreclosed and sold at a corresponding
Facts: foreclosure sale, may validly execute a mortgage contract over
Private respondents, Spouses Dolino, alarmed of losing their the same property in favor of a third party during the period of
right of redemption over thesubject parcel of land from Juan redemption.
Gandiocho, purchaser of the aforesaid lot at a foreclosure sale
of the previous mortgage in favor of Cebu City Development Held:
Bank, went to Teotimo Abellana, President of the City Savings It is undisputed that the real estate mortgage in favor of
Bank (formerly known as Cebu City Savings and Loan petitioner bank was executed by respondent spouses during
Association, Inc.), to obtain a loan of P30, 000. Prior thereto, the period of redemption. During the said period it cannot be
their son Teofredo filed a similar loan application and the said that the mortgagor is no longer the owner of the
subject lot was offered as security. Subsequently they foreclosed property since the rule up to now is the right of a
executed a promissory note in favor of CSB. The loan became purchaser of a foreclosure sale is merely inchoate until after
due and demandable without the spouses Dolino paying the the period of redemption has expired without the right being
same, petitioner association caused the extrajudicial exercised. The title to the land sold under mortgage
foreclosure of the mortgage. The land was sold at a public foreclosure remains in the mortgagor or his grantee until the
auction to CSB being the highest bidder. A certificate of sale expiration of the redemption period and the conveyance of the
was subsequently issued which was also registered. No master deed. The mortgagor remains as the absolute owner of
redemption was being effected by Sps. Dolino, their title to the the property during the redemption period and has the free
property was cancelled and a new title was issued in favor of disposal of his property, there would be compliance with
Article. 2085 of the Civil Code for the constitution of another of all the subject properties to its name. The petitioners
mortgage on the property. To hold otherwise would create an thereafter filed a Complaint against the PNB before the RTC of
inequitable situation wherein the mortgagor would be deprived Mandaue City for Declaration of Nullity of Extrajudicial
of the opportunity, which may be his last recourse, to raise Foreclosure of Mortgage.
funds to timely redeem his property through another mortgage. RTC rendered its Decision for declaration of nullity of the
extrajudicial foreclosure of mortgage, the certificate of sale and
certificate of finality of sale owing to the failure of PNB as the
GR 170215 winning bidder to deliver to the petitioners the amount of its bid
SUICO v. PNB or even just the amount in excess of petitioners’ obligation.
When the PNB appealed its case to CA, it reversed and set
FACTS: aside the questioned decision of the RTC declaring that the
Spouses Suico, obtained loan from PNB secured by a real extra judicial foreclosure of mortgage, including the certificate
estate mortgage on five of their properties. The petitioners of sale and final deed of sale executed appurtenant thereto are
were unable to pay their obligation. hereby declared to be valid and binding.
PNB filed a petition for extrajudicial foreclosure of mortgage Petitioners filed a Motion for Reconsideration but the Court of
constituted on the petitioners’ properties. PNB, as lone bidder, Appeals maintained the validity of the foreclosure sale and, in
offered a bid in the amount of P8, 511,000.00. A Certificate of its Amended Decision, merely directing PNB to pay the
Sale of the subject properties was issued in favor of PNB. deficiency in the filing fees
However, PNB did not pay to the Sheriff who conducted the
auction sale the amount of its bid which was P8,511,000.00 or ISSUES:
give an accounting of how said amount was applied against
petitioners’ outstanding loan, which according to the 1. WoN the discrepancy between the amount of petitioners’
petitioners, as of 10 March 1992, amounted only to obligation as reflected in the Notice of Sale and the amount
P1,991,770.38. Since the amount of the bid grossly exceeded actually due and collected from the petitioners at the time of
the amount of petitioners’ outstanding obligation as stated in the auction sale constitute fraud which renders the
the extrajudicial foreclosure of mortgage, it was the legal duty extrajudicial foreclosure sale null and void.
of the winning bidder, PNB, to deliver to the Sheriff the bid 2. WoN the failure of PNB to pay and tender the price of its bid
price or what was left thereof after deducting the amount of or the surplus thereof to the sheriff nullifies the extrajudicial
petitioners’ outstanding obligation. foreclosure.
PNB failed to deliver the amount of their bid to the Sheriff or, at
the very least, the amount of such bid in excess of petitioners’ HELD:
outstanding obligation. One year after issuance of the 1. No.
Certificate of Sale, PNB secured a Certificate of Final Sale
from the Sheriff and, as a result, PNB transferred registration
Notices are given for the purpose of securing bidders and to such encumbrancers or there be a balance or residue after
prevent a sacrifice of the property. If these objects are payment to them, then to the mortgagor or his duly authorized
attained, immaterial errors and mistakes will not affect the agent, or to the person entitled to it.
sufficiency of the notice; but if mistakes or omissions occur in
the notices of sale, which are calculated to deter or mislead Under the above rule, the disposition of the proceeds of the
bidders, to depreciate the value of the property, or to prevent it sale in foreclosure shall be as follows:
from bringing a fair price, such mistakes or omissions will be (a) first, pay the costs (b) secondly, pay off the mortgage debt
fatal to the validity of the notice, and also to the sale made (c) thirdly, pay the junior encumbrancers, if any in the order of
pursuant thereto. priority (d) fourthly, give the balance to the mortgagor, his
The purpose of the publication of the Notice of Sheriff’s Sale is agent or the person entitled to it.
to inform all interested parties of the date, time and place of
the foreclosure sale of the real property subject thereof. The application of the proceeds from the sale of the
Logically, this not only requires that the correct date, time and mortgaged property to the mortgagor's obligation is an act of
place of the foreclosure sale appear in the notice, but also that payment, not payment by dacion; hence, it is the mortgagee's
any and all interested parties be able to determine that what is duty to return any surplus in the selling price to the mortgagor.
about to be sold at the foreclosure sale is the real property in Perforce, a mortgagee who exercises the power of sale
which they have an interest. contained in a mortgage is considered a custodian of the fund
All these considered, the Court held that the Notice of Sale in and, being bound to apply it properly, is liable to the persons
this case is valid. There is no showing that the difference entitled thereto if he fails to do so. Even though the mortgagee
between the amount stated in the Notice of Sale and the is not strictly considered a trustee in a purely equitable sense,
amount of PNB’s bid resulted in discouraging or misleading but as far as concerns the unconsumed balance, the
bidders, depreciated the value of the property or prevented it mortgagee is deemed a trustee for the mortgagor or owner of
from commanding a fair price. the equity of redemption.
Thus it has been held that if the mortgagee is retaining more of
2. No. the proceeds of the sale than he is entitled to, this fact alone
will not affect the validity of the sale but simply give the
Rule 68, Section 4 of the Rules of Court provides: mortgagor a cause of action to recover such surplus.
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 GR 176019
foreclosing the mortgage, and when there shall be any BPI FAMILY SAVINGS BANK v. GOLDEN POWER DIESEL
balance or residue, after paying off the mortgage debt due, the SALES
same shall be paid to junior encumbrancers in the order of
their priority, to be ascertained by the court, or if there be no FACTS:
CEDEC Transport, Inc. mortgaged 2 parcels of land situated in implementation saying that it should not affect 3rd persons
Malibay, Pasay City, including all the improvements thereon, in holding adverse rights to the judgment that the first writ failed
favor of BPI Family to secure a loan of P6, 570, 000. On the to consider respondent’s claim of ownership in another court
same day, mortgage was duly annotated on titles. CEDEC and that respondents are in actual possession.
obtained from BPI Family additional loans of P2, 160, 000 and BPI moved to reconsider but was denied which was then
P1, 140, 000, respectively, and again mortgaged same affirmed by CA. Hence, present petition.
properties. These latter mortgages were duly annotated on the ISSUE:
titles respectively, on the same day the loans were obtained. 1. Whether or not GPD is a 3rd party in possession who
Despite demand, CEDEC defaulted in its mortgage has adverse interest against debtor or mortgagor
obligations. BPI Family filed a verified petition for extrajudicial
foreclosure of real estate mortgage over the properties. After HELD:
due notice and publication, Sheriff sold the properties at public No.
auction. BPI Family, as highest bidder, acquired properties for In extrajudicial foreclosures of real estate mortgages, the
P13, 793, 705.31. Certificate of Sheriff’s sale was then duly issuance of a writ of possession is governed by Section 7 of
annotated on titles covering properties. Act No. 3135. This procedure may also be availed of by the
Despite several demand letters, CEDEC refused to vacate purchaser seeking possession of the foreclosed property
properties and to surrender possession to BPI Family. BPI bought at the public auction sale after the redemption period
Family filed an ex-parte petition for writ of possession over the has expired without redemption having been made.
properties which were granted by the trial court. Then, Golden
Power Diesel (GPD) and Renato Tan motioned to hold the The general rule is that a purchaser in a public auction sale of
implementation of writ alleging that they are in possession of a foreclosed property is entitled to a writ of possession and,
the properties as allegedly acquired from CEDEC pursuant to upon an ex parte petition of the purchaser, it is ministerial
a deed of absolute sale. upon the trial court to issue the writ of possession in favor of
GPD argued that they are 3rd persons claiming rights adverse the purchaser. There is, however, an exception. In an
to CEDEC and cannot be deprived of possession over extrajudicial foreclosure of real property, when the foreclosed
properties. Also, they filed a complaint in RTC for cancellation property is in the possession of a third party holding the
of Sheriff’s certificate sale and an order to direct BPI to honor same adversely to the judgment obligor, the issuance by the
and accept the deed of sale between CEDEC and trial court of a writ of possession in favor of the purchaser of
respondents. RTC however, denied the motion. An alias writ said real property ceases to be ministerial and may no longer
was then issued which expired without being implemented and be done ex parte. The procedure is for the trial court to order
another one was later issued but before it could be a hearing to determine the nature of the adverse possession.
implemented, Renato Tan filed an affidavit of 3rd party claim on For the exception to apply, however, the property need not
properties. Instead of implementing the writ, Sheriff transferred only be possessed by a third party, but also held by the third
the matter to RTC for resolution. RTC suspended the party adversely to judgment obligor. Unfortunately, for the
respondents, they do not fall under the exception—they are Bank of Sta. Barbara (Iloilo), Inc. as security for a P1,753.65
not the third parties referred to by the law! They acquired loan. Sps. Centeno, however, defaulted on the loan, prompting
possession pursuant to the Deed of Sale. petitioner to cause the extrajudicial foreclosure of the said
mortgage. Consequently, the subject lots were sold to
For P15,000,000 CEDEC will “sell, transfer and convey” to petitioner being the highest bidder at the auction sale. On
respondents the properties “free f rom all liens and October 10, 1969, it obtained a Certificate of Sale at Public
encumbrances excepting the mortgage as may be subsisting Auction[4]which was later registered with the Register of Deeds
in favor of the BPI FAMILY.” of Iloilo City on December 13, 1971.[5]
Respondents bind themselves to assume “the payment of
the unpaid balance of the mortgage indebtedness of the Sps. Centeno failed to redeem the subject lots within the one
VENDOR (CEDEC) in favor of BPI Family by the mortgage (1) year redemption period pursuant to Section 6[6] of Act No.
instruments and does hereby further agree to be bound by the 3135.[7]Nonetheless, they still continued with the possession
precise terms and conditions therein contained.” and cultivation of the aforesaid properties. Sometime in 1983,
respondent Gerry Centeno, son of Sps. Centeno, took over the
Therefore, respondents hold title to and possess the properties cultivation of the same. On March 14, 1988, he purchased the
as CEDECʼs transferees and any right they have overthe said lots from his parents. Accordingly, Rosario Centeno paid
properties is derived from CEDEC. As transferees of CEDEC, the capital gains taxes on the sale transaction and tax
they merely stepped into CEDEC’s shoes and are bound to declarations were eventually issued in the name of
acknowledge and respect the mortgage CEDEC had executed respondent.[8] While the latter was in possession of the subject
in favor of BPI Family. Respondents are thesuccessors-in- lots, petitioner secured on November 25, 1997 a Final Deed of
interest and thus, their occupancy over the properties cannot Sale thereof and in 1998, was able to obtain the corresponding
be considered adverse to CEDEC. tax declarations in its name.[9]

On March 19, 1998, petitioner filed a petition for the issuance

of a writ of possession before the RTC, claiming entitlement to
the said writ by virtue of the Final Deed of Sale covering the
G.R. No. 200667 subject lots.[10] Respondent opposed the petition, asserting
Rural Bank of Sta. Barbara v. Centeno that he purchased and has, in fact, been in actual, open and
exclusive possession of the same properties for at least fifteen
Facts: (15) years.[11] He further averred that the foreclosure sale was
null and void owing to the forged signatures in the real estate
Spouses Gregorio and Rosario Centeno (Sps. Centeno) were mortgage. Moreover, he claims that petitioner's rights over the
the previous owners of the subject lots. During that time, they subject lots had already prescribed.[12]
mortgaged the foregoing properties in favor of petitioner Rural
 title, to a purchaser in an extrajudicial foreclosure sale
becomes merely a ministerial function,[17] unless it appears
Ruling of the RTC that the property is in possession of a third party claiming a
On October 8, 2002, the RTC rendered its Decision[13] in right adverse to that of the mortgagor.[18] The foregoing rule is
Cadastral Case No. 98-069, finding petitioner to be the lawful contained in Section 33, Rule 39 of the Rules of Court which
owner of the subject lots whose rights became absolute due to partly provides:
respondent's failure to redeem the same. Consequently, it
found the issuance of a writ of possession ministerial on its
part.[14] Dissatisfied, respondent appealed to the CA. Sec. 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given.

Ruling of the CA xxxx

The CA, through its January 31, 2012 Decision,[15] reversed
the RTC and ruled against the issuance of a writ of Upon the expiration of the right of redemption, the purchaser
possession. It considered respondent as a third party who is or redemptioner shall be substituted to and acquire all the
actually holding the property adverse to the judgment obligor rights, title, interest and claim of the judgment obligor to the
and as such, has the right to ventilate his claims in a proper property as of the time of the levy. The possession of the
judicial proceeding i.e., an ejectment suit or reinvindicatory property shall be given to the purchaser or last
action.[16] Aggrieved, petitioner filed the instant petition. redemptioner by the same officer unless a third party is
actually holding the property adversely to the judgment
obligor. (Emphasis and underscoring supplied)
Issue Before The Court
The sole issue in this case is whether or not petitioner is In China Banking Corporation v. Lozada,[19] the Court held that
entitled to a writ of possession over the subject lots. the phrase "a third party who is actually holding the property
adversely to the judgment obligor" contemplates a situation in
which a third party holds the property by adverse title or right,
The Court's Ruling such as that of a co-owner, tenant or usufructuary. The co-
owner, agricultural tenant, and usufructuary possess the
The petition is meritorious. property in their own right, and they are not merely the
It is well-established that after consolidation of title in the successor or transferee of the right of possession of
purchaser's name for failure of the mortgagor to redeem the another co-owner or the owner of the property.[20] Notably, the
property, the purchaser's right to possession ripens into the property should not only be possessed by a third party, but
absolute right of a confirmed owner. At that point, the issuance also held by the third party adversely to the judgment
of a writ of possession, upon proper application and proof of obligor.[21]
 Barotac Viejo, Iloilo City, Branch 66 in Cadastral Case No. 98-
In this case, respondent acquired the subject lots from his 069 is hereby REINSTATED. SO ORDERED.
parents, Sps. Centeno, on March 14, 1988 after they were
purchased by petitioner and its Certificate of Sale at Public March 13, 2013
Auction was registered with the Register of Deeds of Iloilo City GOLDENWAY MERCHANDISING CORPORATION VS
in 1971. It cannot therefore be disputed that respondent is a EQUITABLE PCI BANK
mere successor-in-interest of Sps. Centeno. Consequently, he
cannot be deemed as a "third party who is actually holding the DOCTRINE: Section 47 did not divest juridical persons of
property adversely to the judgment obligor" under legal the right to redeem their foreclosed properties but only
contemplation. Hence, the RTC had the ministerial duty to modified the time for the exercise of such right by
issue as it did issue the said writ in petitioner's favor. reducing the one-year period srcinally provided in Act No.
3135. The new redemption period commences from the
On the issue regarding the identity of the lots as raised by date of foreclosure sale, and expires upon registration of
respondent in his Comment,[22] records show that the RTC had the certificate of sale or three months after foreclosure,
already passed upon petitioner's title over the subject lots whichever is earlier. There is likewise no retroactive
during the course of the proceedings. Accordingly, the identity application of the new redemption period because Section
of the said lots had already been established for the purpose 47 exempts from its operation those properties foreclosed
of issuing a writ of possession. It is hornbook principle that prior to its effectivity and whose owners shall retain their
absent any clear showing of abuse, arbitrariness or redemption rights under Act No. 3135.
capriciousness committed by the lower court, its findings of
facts are binding and conclusive upon the Court,[23] as in this FACTS:
case. On November 29, 1985, petitioner Goldenway Merchandising
Corporation executed a Real Estate Mortgage in favour of
Finally, anent the issue of laches, it must be maintained that Equitable PCI Bank over three parcels of land as security for a
the instant case only revolves around the issuance of a writ of Php2,000,000 loan granted to the petitioner. Petitioner
possession which is merely ministerial on the RTC's part as eventually failed to settles its loan obligation, leading
above-explained. As such, all defenses which respondent may respondent to extrajudicially foreclose the mortgage on
raise including that of laches should be ventilated through a December 13, 2000. Subsequently, a Certificate of Sale was
proper proceeding. issued to respondent on January 26, 2001. In a letter dated
March 7, 2001, petitioner offered to redeem the foreclosed
WHEREFORE, the petition is GRANTED. The January 31, properties by tendering a check. Petitioner and respondent
2012 Decision of the Cebu City Court of Appeals in CA-G.R. met on March 12, 2001. However, petitioner was told that
CV No. 78398 is REVERSED and SET ASIDE. Accordingly, redemption was no longer
the October 8, 2002 Decision of the Regional Trial Court of
possible since the certificate of sale had already been But under Sec 47 of RA 8791, an exception is thus made in
registered; the title to the foreclosed properties were the case of juridical persons which are allowed to exercise the
consolidated in favor of the respondent on March 9, 2001. right of redemption only "until, but not after, the registration of
Petitioner filed a complaint for specific performance and the certificate of foreclosure sale" and in no case more than
damages contending that the 1-year period of redemption three (3) months after foreclosure, whichever comes first.
under Act 3135 should apply, and not the shorter redemption
period under RA 8791 as applying RA 8791 would result in the Section 47 did not divest juridical persons of the right to
impairment of obligations of contracts and would violate the redeem their foreclosed properties but only modified the time
equal protection clause under the for the exercise of such right by reducing the one-year period
constitution. The RTC dismissed the action of the petitioner srcinally provided in Act No. 3135. The new redemption period
ruling that redemption was made belatedly and that there was commences from the date of foreclosure sale, and expires
no redemption made at all. upon registration of the certificate of sale or three months after
The Court of Appeals affirmed the RTC. foreclosure, whichever is earlier. There is likewise no
retroactive application of the new redemption period because
Section 47 exempts from its operation those properties
ISSUE: foreclosed prior to its effectivity and whose owners shall retain
their redemption rights under Act No. 3135.
Whether or not the redemption period should be the 1-year
period provided under Act 3135, and not the shorter period We agree with the CA that the legislature clearly intended to
under RA 8791 as the parties expressly agreed that shorten the period of redemption for juridical persons whose
foreclosure would be in accordance with Act 3135 properties were foreclosed and sold in accordance with the
provisions of Act No. 3135.
RULING:
The difference in the treatment of juridical persons and natural
The shorter period under RA 8791 should apply. persons was based on the nature of the properties foreclosed
The one-year period of redemption is counted from the date of – whether these are used as residence, for which the more
the registration of the certificate of sale. In this case, the liberal one-year redemption period is retained, or used for
parties provided in their real estate mortgage contract that industrial or commercial purposes, in which case a shorter
upon petitioner’s default and the latter’s entire loan obligation term is deemed necessary to reduce the period of uncertainty
becoming due, respondent may immediately foreclose the in the ownership of property and enable mortgagee-banks to
mortgage judicially in accordance with the Rules of Court, or dispose sooner of these acquired assets. It must be
extrajudicially in accordance with Act No. 3135, as amended. 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 Court has time and again emphasized, is undeniably imbued
banking system. In this context, the amendment introduced by with public interest.
Section 47 embodied one of such safe and sound practices
aimed at ensuring the solvency and liquidity of our banks. It Having ruled that the assailed Section 47 of R.A. No. 8791 is
cannot therefore be disputed that the said provision amending constitutional, we find no reversible error committed by the CA
the redemption period in Act 3135 was based on a reasonable in holding that petitioner can no longer exercise the right of
classification and germane to the purpose of the law. redemption over its foreclosed properties after the certificate of
sale in favor of respondent had been registered.
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 i t effective. Furthermore, as with
other individual rights to contract has to give way to police
power exercised for public welfare and to property, if the
concept of police power is well-established in this jurisdiction. G.R. No. L-15128
It has been defined as the "state authority to enact legislation Diego v Fernando
that may interfere with personal liberty or property in order to
promote the general welfare." Its scope, ever-expanding to DOCTRINE:
meet the exigencies of the times, even to anticipate the future If a contract of loan with security does not stipulate the
where it could be done, provides enough room for an efficient payment of interest but provides for the delivery to the creditor
and flexible response to conditions and circumstances thus by the debtor of the property given as security, in order that
assuming the greatest benefits. the latter may gather its fruits, without stating that said fruits
are to be applied to the payment of interest, if any, and
The freedom to contract is not absolute; all contracts and all afterwards that of the principal, the contract is a mortgage and
rights are subject to the police power of the State and not only not antichresis.
may regulations which affect them be established by the State,
but all such regulations must be subject to change from time to FACTS:
time, as the general well-being of the community may require, The defendant Segundo Fernando executed a deed of
or as the circumstances may change, or as experience may mortgage in favor of plaintiff Cecilio Diego over 2 parcels of
demonstrate the necessity. Settled is the rule that the non- land registered in his name, to secure a loan P2,000, without
impairment clause of the Constitution must yield to the loftier interest, payable within 4 years. After the execution,
purposes targeted by the Government. The right granted by possession of the mortgaged properties were turned over to
this provision must submit to the demands and necessities of the mortagagee.
the State’s power of regulation. Such authority to regulate
businesses extends to the banking industry which, as this
Fernando failed to pay after four years, with Diego having Diego is a mortgagee in possession, one who has lawfully
made several demands. Hence this action for foreclosure of acquired possession of the premises mortgaged to him,
mortgage. standing upon his rights as mortgagee and not claiming under
another title, for the purpose of enforcing his security upon
Fernando claims that the transaction was one of antichresis such property or making its income help to pay his debt.
and not of mortgage. Also Diego had allegedly received a total A mortgagee in possession and a creditor in an antichresis
of 120 cavans of palay from the properties given as security, have the following similar or identical rights and obligations:
which, at the rate of P10 a cavan, represented a value of if the mortgagee acquires possession in any lawful manner, he
P5,200. Hence his debt had already been paid, with Diego still is entitled to retain such possession until the indebtedness is
owing him a refund of some P2,720. satisfied and the property redeemed;
the non-payment of the debt within the term agreed does not
The CFI found that it was really a mortgage and that the fact vest the ownership of the property in the creditor;
that possession of the mortgaged properties were turned over the general duty of the mortgagee in possession towards the
to the mortgagee did not alter the transaction. The parties premises is that of the ordinary prudent owner;
must have intended that the mortgagee would collect the fruits the mortgagee must account for the rents and profits of the
of the mortgaged properties as interest on his loan, which land, or its value for purposes of use and occupation, any
agreement is not uncommon. Also Diego has already received amount thus realized going towards the discharge on the
55 cavans of palay during his possession. Hence the CFI mortgage debt;
ordered Fernando to pay Diego 2K with interest and upon if the mortgage remains in possession after the mortgage debt
default, for the foreclosure. Hence this appeal. has been satisfied, he becomes a trustee for the mortgagor as
to the excess of the rents and profits over such debt;
ISSUE: W/ the contract between Diego and Fernando is the mortgagor can only enforce his rights to the land by an
mortgage or antichresis considering that the loan was without equitable action for an account and to redeem.
interest, coupled with the transfer of the possession of the
properties mortgaged to the mortgagee. Since Fernando did not expressly waive his right to the fruits of
the properties mortgaged during the time they were in Diego’s
HELD: considered as a mortgage contract between the possession, the latter, like an antichretic creditor, must
parties. account for the value of the fruits received by him, and deduct
To be antichresis, it must be expressly agreed between it from the loan obtained by appellant.
creditor and debtor that the former, having been given
possession of the properties given as security, is to apply their In this case, Diego had received a net share of 55 cavans of
fruits to the payment of the interest, if owing, and thereafter to palay; at the rate of P9.00 per cavan, the total value of the
the principal of his credit. [READ DOCTRINE]. fruits received by Diego is P495. Deducting this amount from
the loan of P2,000.00 received by Fernando from Diego, the sum of P430, which I have received from him in current coin,
former has only P1,505.00 left to pay the latter. and as the same was not received in our presence, we waive
the exception of money not paid in cash; therefore, henceforth
WHEREFORE, the CFI judgement is MODIFIED in that and during the period above stipulated, I grant and convey my
Fernando is ordered to pay P1,505 and that Diego has the ownership and possession in the said two parcels of land to
obligation to render an accounting of all the fruits received by the said D. Tomas Ballilos in order that he may manage and
him from the properties in question from the time of the filing of enjoy the same in consideration of the sum for which they are
this action until full payment, or in case of appellant's failure to mortgaged.
pay, until foreclosure of the mortgage thereon, the value of There being present D. Tomas Ballilos . . . ., he stated that he
which fruits shall be deducted from the total amount of his had received in mortgage, to his entire satisfaction, the two
recovery. parcels of tillable land above mentioned, under the conditions
and for the time stipulated, for the sum of P430, which he has
already delivered to the said D. Fidel de a Vega, who in turn
states that the said lands are free of all charges and
encumbrances and binds himself to warrant this mortgage in
G.R. No. L-9957 August 8, 1916 case of legal proceedings.” (These provisions will be material
PERFECTO DE LA VEGA, ET AL., plaintiffs-appellees, in the rendition of judgment)
vs. TOMAS BALLILOS (or BALIELOS), defendant- In essence, it alleges that the agreement was one of
appellant. antichresis constituted until the borrowed sum is paid in full.
In the following year, 1905, the plaintiffs (save for Policarpio
dele Vega) borrowed in succession P40, P18, and P60 from
Facts: the respondent under the same contract of antichresis. They
Petitioners are co-owners (pro-indiviso share) of eight parcels gave three more properties as security from which he is to
of land in Batangas. One of them, Fidel dela Vega, mortgaged collect the interest.
three of the properties to defendant Ballilos for P430. The The plaintiffs then attempted to pay off their loans (in the total
relevant provisions of their contract as follows: amount of P548) in order to reacquire the said parcels of land.
“. . . . and whereas on this day I have mortgaged the two The defendant refused to receive the sums and appropriated
parcels of land above-mentioned to the said D. Tomas Ballilos to himself the parcels of land.
for the sum of P430 and for the term of eight years, counting During the trial in the lower court, defendant alleged, among
from this day, at the expiration of which I may redeem them; other things, that:
that should I not then do so, the said lands shall continue to be The parcels of land in question as these were validly sold to
mortgaged until I have the money available wherewith the him by the co-owners dela Vega;
redeem them; therefore, I hereby mortgage the two parcels of There was no period specified for the right of repurchase
land hereinabove mentioned to D. Tomas Ballilos for the said agreed upon;
When the co-owners failed to repurchase within the legal lands in order that he might manage and enjoy them in
period, ownership of the properties was consolidated in him by consideration of the sum for which they were mortgaged.
operation of law; Second Topic: Instrument is a Contract of Antichresis
(Main Point of the Case)
ISSUE: As it is not shown that the said document is a contract of
Whether or not there was a contract of Antichresis. (Yes) mortgage executed as security for a loan, still less does it
appear to be a contract of pacto de retro, in view of the terms
HELD: of the agreement Exhibit O, as stipulated between the
First topic: Instrument neither a Real Mortgage nor a Sale contracting parties, of the allegations of both parties, and of
Pacto de Retro (Academic) the findings of the court in regard to the allegations, made and
The said contract apparently records a loan of P430, secured proven at the trial by the contending parties, we find the
by a mortgage of the aforementioned two parcels of land and classification of the said contract as one of antichresis to be
payable within the period of eight years, or within such time as correct and proper, taking into account the intention of the
the debtor Fidel de la Vega might be able to pay his debt and contracting parties as revealed by the words and terms
redeem the said land. However, notwithstanding the terms of employed by them and recorded in the said document.
the document, legally there is no mortgage inasmuch as the Several articles of the Civil Code relating to the contract of
said instrument is not of the nature of a public instrument. And antichresis. (The court cited Old Civil Code provisions, A1881,
even though it were, it was not recorded in the property -83, -84, and -85 – Now NCC A2132, -36, -37, and -38; These
registry as it ought to have been. Furthermore, the instrument are the elements of a contract of Antichresis)
recites that the debtor thenceforth ceded and conveyed his
ownership and possession in the said two parcels of land to 1. By antichresis a creditor acquires a right to receive the
the creditor Ballilos in order that Ballilos might manage and fruits of real property of his debtor, with the obligation
enjoy the same in consideration of the sum for which the to apply them to the payment of interest, if due, and
lands, free of all burden and encumbrance according to the afterwards to the principal of his credit.
debtor, were mortgaged. 2. The debtor cannot recover the enjoyment of the real
If the instrument above mentioned cannot be construed as a property without previously paying in full what he owes
mortgage of the said two parcels of land in security for P430, to his creditor. But the latter, in order to free himself
the amount loaned, and for the payment of the debt within from the obligations imposed on him by the preceding
eight years or some other period, neither can it be held to be a article, may always compel the debtor to reenter upon
sale under pacto de retro inasmuch as the said document the enjoyment of the estate, unless there be an
contains no mention whatever of any sale with right of agreement to the contrary.
redemption, although it does say that the debtor ceded and 3. The creditor does not acquire the ownership of the real
conveyed to the creditor the ownership and possession of the property by nonpayment of the debt within the term
agreed upon. Any stipulation to the contrary shall be
 void. But in this case the creditor may demand, in the recovery of the enjoyment of immovables given in antichresis,
manner prescribed in the law of civil procedure, the provided that the debtor previously pay what he owes to this
payment of the debtor or the sale of the reality. creditor, the plaintiffs have an unquestionable right to recover
4. The contracting parties may stipulate that the interest parcels Nos. 1, 5, and 7 of the land designated in the map or
of the debt be set off against the fruits of the estate plan admitted by agreement of the parties, after first paying the
given in antichresis. debt of P430 to the defendant-creditor.

This contract is somewhat similar to those of pledge and

mortgage and for this reason article 1886 (now 2139)
prescribed that certain articles relative to these latter contracts
are applicable to contracts of antichresis, for both the former
and the latter contracts are comprised in title 15, book 4, of the
Civil Code. (Still applicable. Specific article numbers just
changed)

The contract entered into by the contracting parties which has

produced between them rights and obligations is in fact one of
antichresis, for article 1281 of the Civil Code prescribes among
other things that if the words should appear to conflict with the
evident intent of the contracting parties, the intent shall prevail.
Article 1283 provides that however general the terms of the
contract may be, they should not be understood to include
things and cases different from those with regard to which the
interested parties intended to contract; and, further, article
1284 of the same code says that if any stipulation of a contract
should admit of several different meanings, that most suitable
to give it effect should be applied.

In this case, it was stipulated that even after eight years the
debtor, the owner of the property, might redeem it whenever
he should have the means to pay his debt and recover the
lands given in antichresis to his creditor who might told them in
usufruct in consideration for the money he had loaned; and as
the foregoing articles of the Civil Code fixes no term for the