1 d2015member Prudential Bank v. Don Alviar and Georgia Alviar (2005) Tinga, J.

Spouses Alviar are registered owners of a land in San Juan. On July 10, 1975, They executed a deed of real estate mortgage with Prudential Bank for a loan of P250,000. o Mortgage was annotated on the back of the TCT #1. passbook is to be surrendered to until the amount secured by the "hold-out" is settled. Third PN: Dec 27, 1976: Spouses executed for Donalco Trading (of which the H and W were Pres and Chair) a PN #3 covering P545,000. As provided in the note, the loan is secured by "CleanPhase out TOD CA 3923," which means that the temporary overdraft incurred by Donalco Trading with Prudential is to be converted into an ordinary loan in compliance with a Central Bank circular directing the discontinuance of overdrafts. March 16, 1977: The bank wrote Donalco Trading to inform it of approval of a straight loan of P545,000, the proceeds of which shall be used to liquidate the outstanding loan of P545,000 TOD. The letter also mentioned that the securities for the loan were the deed of assignment on 2 PNs executed by Bancom Realty with Deed of Guarantee in favor of AU Valencia. and the chattel mortgage on various heavy and transportation equipment. Payment: March 6, 1979: The spouses paid the bank P2mil to be applied to the obligations of GB Alviar Realty for the release of the real estate mortgage for the P450,000 loan covering 2 lots in San Juan. Payment was acknowledged and mortgage was released. Banks extra jud foreclosure: Jan 15, 1980: The bank moved for the extrajudicial foreclosure of the mortgage on the property that the spouses mortgaged for the loan of P250,000 covered by TCT #1 (at start of facts). By the banks computation, the spouses had a total obligation of P1.6mil covering the 3 PNs: #1 (P250k), #2 (P380k), and #3 (P545k) plus due interests and penalty charges. A public auction sale of the mortgaged property was set. The spouses filed a complaint for damages with a prayer for the issuance of a writ of preliminary injunction with the RTC. Spouses argument: That they have paid their principal loan secured by the mortgaged property so the mortgage should not be foreclosed.

Banks argument: Payment of P2,000,000.00 made on March 6, 1979 was not a payment made by the spouses, but by G.B. Alviar Realty, which has a separate loan with the bank secured by a separate mortgage. TC: Dismissed the Spouses complaint and ordered the Sheriff to proceed with the extra-jud foreclosure. Upon the Spouses MR, the TC reversed its earlier decision finding that: o Only the P250k loan was secured by the mortgage on the land covered by TCT #1. o The P380k loan is secured by the foreign currency deposit account of Don Alviar o The P545k obligation was an unsecured loan, being a mere conversion of the temporary overdraft of Donalco Trading o The blanket mortgage clause relied upon by the bank applies only to future loans obtained by the mortgagors and not by parties other than them, such as Donalco Trading bec they only signed as officers

First PN: Aug 4, 1975: The spouses executed a promissory note #1 which covered the loan and provides that the loan matured a year later (on Aug 4, 1976), interest at 12% per annum and that the note is secured by a real estate mortgage. The real estate mortgage contained: o That for and in consideration of certain loans, overdraft, and other credit accommodations and to secure the payment of the same AND those that may hereafter be obtained, the principal or all of which is hereby fixed at P250,000, as well as those that the Mortgagee may extend, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document, and/or appended hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed Second PN: Oct 22, 1976: Don Alviar (the husband) executed another promissory note (#2) for P2.6mil secured by D/A SFDX #129, signifying that the loan was secured by a "hold-out" on the mortgagors foreign currency savings account with the bank, and that the mortgagors

CA: affirmed TC and ruled that the extra jud sale of the property for the 3 loans is improper. However, the spouses have not yet paid the P250k covered by PN #1. While a continuing loan or credit accommodation based on only one security or mortgage is a common practice in financial and commercial institutions, such agreement must be clear and unequivocal. In this case, the parties executed different PNs agreeing to a particular security for each loan. However, the spouses have not yet paid the P250k covered by PN #1 since the payment of P2mil was issued for the obligations of GB Alviar Realty ISSUE/HELD:

2 d2015member W/N the blanket mortgage clause in the real estate mortgage expressly covers not only the P250k under PN #1 but also the 2 other PNs included in the application for extra jud foreclosure of real estate mortgage --- NO, bank is wrong, it does not include the other 2 PNs The validity of the "blanket mortgage clause" or the "dragnet clause" --- VALID The coverage of the "blanket mortgage clause"; --- The "dragnet clause" in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the offer. The propriety of seeking foreclosure of the mortgaged property for the non-payment of the 3 loans --- foreclosure of the mortgaged property should only be for the P250,000 loan covered by PN #1, and for any amount not covered by the security for PN #2 That the "dragnet clause" cannot be applied to the subsequent loans extended to Don Alviar and Donalco Trading, since these loans are covered by separate PNs that expressly provide for a different form of security. They reiterate the holding of the TC that the "blanket mortgage clause" would apply only to loans obtained jointly by the spouses, and not to loans obtained by other parties. They also agree with TC that the real estate mortgage clause is a contract of adhesion and must be strictly construed against the bank. loan was indeed for the spouses personal consumption. Besides, the bank agreed to the terms of the PN. If the spouses were indeed the real parties to the loan, the bank, a big, well-established institution, should have insisted that it be made in the name of the spouses themselves, and not to Donalco Trading, and that they sign the note in their personal capacity and not as officers.

SC NOTES: On piercing the corporate veil and PN #2: One of the loans sought to be included in the "blanket mortgage clause" was obtained by the Spouses for Donalco Trading and not in their personal capacity. The mortgage contract states that the mortgage covers "as well as those that the Mortgagee may extend to the Mortgagor, including interest and expenses or any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary." Well-settled is the rule that a corporation has a personality separate and distinct from that of its officers and stockholders. Officers of a corporation are not personally liable for their acts as such officers unless it is shown that they have exceeded their authority. However, the legal fiction that a corporation has a personality separate and distinct from stockholders and members may be disregarded if it is used as a means to perpetuate fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. o PN #2, being an obligation of Donalco Trading, and not of the respondents, is not within the contemplation of the "blanket mortgage clause." Moreover, the bank is unable to show that the spouses are hiding behind the corporate structure to evade payment of their obligations. Save for the notation in the PN that the loan was for house construction and personal consumption, there is no proof showing that the

RATIO: Bank argues: That there is no law which prohibits an obligation from being covered by more than one security. Spouses even continued to withdraw from the same foreign currency account even while the PN was still outstanding, strengthening the belief that it was the real estate mortgage that principally secured all of the Spouses PNs. As for PN #2, the bank said that such security is not exclusive, as the "dragnet clause" of the real estate mortgage covers all the obligations of the Spouses. PN #3 was for home construction and personal consumption of the Spouses. Thus, there is a need to pirce the veil of corporate fiction That the mortgage contract was executed by the Spouses with knowledge and understanding of the "dragnet clause," being highly educated individuals, seasoned businesspersons, and political personalities. There was no oppressive use of superior bargaining power in the execution of the PNs and the real estate mortgage Spouses argue:

On the blanket mortgage clause A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction. A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, etc. Mortgages given to secure future advancements are valid and legal contracts,and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. Application to this case: PN#1 says that the real estate mortgage was to secure payment of the same (current loan) and those that may hereinafter be obtained as well as those that the Mortgagee (creditor) may extend to mortgagor (debtor) Contrary to the CA, both parties intended the real estate mortgage to secure not only the P250,000 loan from the bank, but also future credit facilities and advancements that may

3 d2015member be obtained by the spouses. The terms of the provisions being clear and unambiguous, there is neither need to construe it otherwise W/N the "blanket mortgage" clause applies even to subsequent advancements for which other securities were intended, or particularly, to PN #2 --- NO The subsequent loans were secured by other securities: o For PN #2: secured by a "hold-out" on his foreign currency savings account o PN #3: secured by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on 2 PNs executed by Bancom Realty with Deed of Guarantee in favor of AU Valencia, and by a chattel mortgage Under American jurisprudence, 2 schools of thought: 1. That a "dragnet clause" worded as to be broad enough to cover all other debts in addition to the one specifically secured WILL BE construed to cover a DIFFERENT debt, although such other debt is secured by another mortgage. 2. That a mortgage with such a clause will NOT secure a note that EXPRESSES on its face that it is otherwise secured as to its entirety, at least to anything other than a deficiency after exhausting the security specified therein, such deficiency being an indebtedness within the meaning of the mortgage, in the absence of a special contract excluding it from the arrangement. School #2 represents the better position. o The parties having conformed to the "blanket mortgage clause", it is reasonable to conclude that they also agreed to an implied understanding that subsequent loans need not be secured by other securities, as the subsequent loans will be secured by the first mortgage. o The sufficiency of the first security is a corollary component of the "dragnet clause." But of course, there is no prohibition, as in the mortgage contract in issue, against contractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loan for which another security was given it could not be inferred that such loan was made in reliance solely on the original security with the "dragnet clause," but rather, on the new security given. This is the "reliance on the security test." The "dragnet clause" in the first security instrument constituted a continuing offer by the borrower to secure further loans under the security of the first security instrument, and that when the lender accepted a different security he did not accept the offer. In one case, it was concluded that the "offer" was not accepted by the bank when a subsequent advance was made because 1. The second note was secured by a chattel mortgage on certain vehicles, and the clause therein stated that the note was secured by such chattel mortgage; 2. There was no reference in the second note or chattel mortgage indicating a connection between the real estate mortgage and the advance; 3. The mortgagor signed the real estate mortgage by her name alone, whereas the second note and chattel mortgage were signed by the mortgagor doing business under an assumed name; and 4. There was no allegation by the bank, and apparently no proof, that it relied on the security of the real estate mortgage in making the advance In the absence of clear, supportive evidence of a contrary intention, a mortgage containing a "dragnet clause" will not be extended to cover future advances UNLESS the document evidencing the subsequent advance refers to the mortgage as providing security therefor It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged property because of non-payment of all the three PNs. While the validity of the "dragnet clause" cannot be denied, there is a need to respect the existence of the other security given for PN #2. The foreclosure of the mortgaged property should only be for the P250,000 loan covered by PN #1, and for any amount not covered by the security for PN #2 As held in one case, where deeds absolute in form were executed to secure any indebtedness that might subsequently become due, a balance due on a note, AFTER EXHAUSTING the special security given for the payment of such note, was in the ABSENCE of a special agreement to the contrary, WITHIN the protection of the mortgage, NOTWITHSTANDING the giving of the special security. This is recognition that while the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. Contracts of adhesion, as in this case as the mortgage contract and PNs were made by the bank, must be construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care. The mortgaged property could still be subjected to foreclosure proceedings for the unpaid P250,000 loan, and for any deficiency after security for PN #2, has been exhausted Petition denied. Peoples Bank and Trust Co. and Atlantic Gulf and Pacific Co. of Manila v. Dahican Lumber Company, Dahican American Lumber Corp., and Connell Bros. Co. (1967) Dizon, J. Atlantic sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company (DALCO) for $500k. DALCO only paid $50k.

4 d2015member Then, to develop the concession, Dalco obtained loans from Peoples Bank (the bank) amounting to P200k. And then through the bank, Dalco obtained another loan this time from the Export-Import Bank of Washington DC evidenced by 5 PNs of $50k. o Such PNs were executed by both Dalco and the Dahican America Lumber Corp (DAMCO, a stockholder of Dalco) o Such PNs were payable to the bank July 13, 1950: As security for such loans, Dalco in favor of the bank (acting for itself and as trustee of Washington Bank) executed a deed of mortgage covering 5 parcels of land in Cam Norte (w/ bldgs and improvements + personal properties of mortgagor) o Dalco also executed a 2nd mortgage on same properties in favor of Atlantic to secure payment of the unpaid balance. BOTH deeds contained the provision extending the mortgage lien to properties to be subsequently acquired (after acquired props) by mortgagor (debtor) BOTH mortgages were registered in the Office of the Register of Deeds of Cam Norte. In addition, Dalco and Damco pledged to the bank 7,200 shares of stock of Dalco and 9,000 shares of Damco to secure the same obligations. Dalco and Damco failed to pay the 5th PN upon its maturity so the bank paid the same to the Washington Bank and the Washington bank assigned to the bank its credit and the first mortgage securing it. The bank gave Dalco and Damco up until April 1, 1953 to pay the PN. In connection with these purchases, there appeared in the books of Dalco as payments due to Connell Bros. Company (a corporation who was acting as the general purchasing agent of Dalco) the sum of P450k and P2.1mil to Damco. That the properties were acquired from suppliers other than Damco and Connell That even granting that Damco and Connell were the real suppliers, the rescission could not prejudice the mortgage lien in favor of the bank That considering the foregoing, the proceeds obtained from the "after acquired properties" and "undebated properties" should have been awarded exclusively to the bank by reason of the mortgage lien they had That damages should have been awarded being guilty of an attempt to defraud the bank when they sought to rescind the sales for the purpose of defeating their mortgage lien

BUT ON DEC 16, 1952 The Board of Directors of Dalco, in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment by Connell and Damco to it. The corresponding agreements of rescission of sale were executed between Dalco and Damco and Dalco and Connell Jan 13, 1953: The bank, in its own behalf and Atlantic, demanded that said agreements to rescind be cancelled but Connell and Damco refused. Feb 12, 1953: Atlantic and the bank commenced foreclosure proceedings against Dalco and Damco and filed an ex-parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain Dalco from removing its properties. The court granted both remedies. Upon Dalcos and Damcos motion, however, the court, discharged the Receiver. March 4: Connell filed a motion for intervention alleging that it was the owner of some of the equipment which Dalco acquired subsequent to the execution of the mortgages sought to be foreclosed and that these were covered by the lien. Court granted the motion. Upon motion of all the parties, court ordered the sale of all the machineries of DALCO, and were sold for a total of P175,000. By one half of this was considered as the proceeds obtained from sale of the "undebated properties" (those not claimed by Damco and Connell), and the other half as representing those obtained from the sale of the "after acquired properties"

Dalco argument: That the mortgages were null and void as regards the "after acquired properties" because they were not registered in accordance with the Chattel Mortgage Law, Properties were not subject to the mortgage lien The provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was WILLING to constitute a lien over such properties ISSUES/HELD: Are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure? YES Assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the Chattel Mortgage Law? --- YES Assuming again that the mortgages are valid and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales? Was the action to foreclose the mortgages premature? RATIO: Under the 4th paragraph of both deeds of mortgage, it is crystal clear that all property of every nature "shall immediately be and become subject to the lien" of both

After July 13, 1950 (the date of execution of the mortgage over 5 parcels of land Dalco bought various machineries & equipment in addition to/in replacement of some of those already owned by it on the date of the execution. Pursuant to the provision of the mortgage deeds regarding "after acquired properties," the bank requested Dalco to submit complete lists of said properties but the Dalco failed to do so.

Bank argument: That the "after acquired properties" were subject to the deeds of mortgage

5 d2015member mortgages in the same manner and to the same extent as if already included therein at the time of their execution. Language used leaves no room for doubt as to the intention of the parties.. The stipulation referred to is common, and logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear but with the understanding express or implied that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain the original value of the properties given as security. It is the law that to affect third persons, a chattel mortgage must be registered and must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify them. BUT such law does not apply to this case. As the mortgages were executed on July 13, 1950 with the OLD Civil Code still in force, provisions of said code must govern. Arts 334 and 1877 of the old Civil Code are substantially reproduced in Articles 415 and 2127 of the NEW Civil Code. It is, therefore, immaterial whether we take the former or the latter as guide. Article 415 does not define real property but enumerates what are considered as such: among them being machinery, receptacles, instruments or replacements INTENDED by owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend DIRECTLY TO MEET THE NEEDS of the said industry or works. LC held that inasmuch as "the chattels were placed in the real properties mortgaged, they came within the operation of Art. 415, par 5 and Art. 2127 of the New Civil Code". We find the above ruling in agreement with our decisions on the subject: (1) In Berkenkotter vs. Cu Unjieng: Article 334, paragraph 5 of the Civil Code (old) gives the character of real property to machinery, liquid containers, instruments or replacements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry. (2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co: a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof . Therefore, the "after acquired properties" (purchased by DALCO for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing ) must be deemed to have been immobilized, with the result that the real estate mortgages did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties. Dalco invokes Davao Sawmill Company vs. Castillo: that the "after acquired properties" did not become immobilized because Dalco did not own the whole area of its lumber concession all over which said properties were scattered. The facts in the Davao Sawmill case, however, are not on all fours because in Davao, it had repeatedly treated the machinery as personal property by executing chattel mortgages thereon in favor of third parties, while in here, the parties had treated the "after acquired properties" as real properties by expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by them. Quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia. It was held that while under the general law of Puerto Rico, machinery placed on property by a tenant does NOT become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against his assignees and creditors who had sufficient notice of such stipulation. In this case, Dalco purchased the "after acquired properties" to be placed on its lumber concession, and agreed further that the same shall become immediately subject to the lien constituted by the questioned mortgages. DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed validity until the present case was filed. All of them must be deemed barred from denying that the properties in question had become immobilized.

Such then sufficiently disposes all the arguments in support their contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL. Damco and Connell say: In relation to said properties they are "unpaid sellers" so not only had a superior lien on the "after acquired properties" but also the right to rescind the sales . This contention would have validity only if it were true that DAMCO and CONNELL were the suppliers of the "after acquired properties". According to the record, the bank did not know their exact identity and description prior to the filing of the case bar because DALCO, in violation of its obligation under the mortgages, had failed and refused to submit a complete list. In the course of the proceedings, however, when Dalco moved to dissolve the order of receivership, they attached to their motion the lists marked describing the properties. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire properties," and engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of the auditors show that neither DAMCO nor CONNELL had supplied any of the goods of which they respective claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to be DAMCO or CONNELL. The most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some of the purchases Dalco claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory note sued upon did not fall due until April 1 of the same year so the plaintiffs had no cause of action.

6 d2015member Dalco was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby lost the benefit to the period. As the guaranty was plainly inadequate since the claim of the bank reached in the P1mil while the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts was P1.6 and almost all the properties were sold for only P175,000.00, w when the law permits the debtor to enjoy the benefits of the period notwithstanding that he is insolvent by his giving a guaranty for the debt, that must mean a new and efficient guaranty, must concede that the causes of action for collection of the notes were not premature. To secure payment of the obligations of defendant Corporation under the First to the Twenty-Seventh Cause of Action, on February 9, 1996, defendant Corporation executed a Real Estate Mortgage by virtue of which it mortgaged to plaintiff the improvements standing on Block 13, Lot 1, Cavite Export Processing Zone, Rosario, Cavite, belonging to defendant Corporation covered by Tax Declaration No. 5906-1 and consisting of a onestory building called warehouse and spooling area, the guardhouse, the cutting/sewing area building and the packing area building.. (A copy of the Real Estate Mortgage is attached as Annex "SS" and made an integral part) This allegation satisfies the requirements of Rule 68.1 1997 Rules of Civil Procedure on foreclosure of real estate mortgage, which provides: SEC 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. The date and due execution of the real estate mortgage are alleged. The properties mortgaged are stated and described. The names and residences of Filkor, as mortgagor, and of the bank, as mortgagee, are alleged in paragraphs 1 and 2 of the complaint. The dates of the obligations secured by the mortgage and the amounts unpaid are alleged in the banks first to twenty-seventh causes of action. Also, the prayer of the complaint reads:

Filkor could not sell them)

June 9, 1997 to Oct 1, 1997: Filkor also negotiated to the bank the proceeds of 17 letters of credit issued by the Republic Bank of New York and the Banque Leumi France to pay for goods which Filkor sold to Segerman International and Davyco

When the bank tried to collect the proceeds of the letters of credit by presenting the bills of exchange, they were dishonored because of discrepancies

Proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under foreclosure. Korea Exchange Bank v. Filkor Business Integrated, Kim Eung Joe, and Lee Han Sang (2002) Quisumbing, J. Filkor borrowed $140,000 from Korea Exhange Bank payable on July 9, 1997. Only $40,000 was paid back by Filkor. Later on, Filkor entered into more transactions but before those, Filkor executed a Real Estate Mortgage on Feb 9, 1996. It mortgaged to the bank the improvements belonging to it constructed on the lot it was leasing at the Cavite Export Processing Zone Authority. Respondents Kim Eung Joe and Lee Han Sang also executed Continuing Suretyships binding themselves jointly and severally with Filkor to pay for the obligations to the bank. Problem arising from the obligation

Since Filkor breached on its obligations, the bank filed a case in the RTC-Cavite with 27 causes of action, praying to get paid and to foreclose the mortgage. RTC granted the banks petition with respect ot the 27 causes of action but failed to order the foreclosure and public auction in case Filkor fails to pay. The bank filed a Motion for Partial Reconsideration praying for foreclosure & public auction. RTC denied saying that in opting to file a civil action for the collection of obligations, it has abandoned its mortgage lien on the property subject of the real estate mortgage.

Issue/Held: Did the bank abandon the real estate mortgage in its favor because it filed a simple collection case? NO Note: The resultant issue is whether or not the banks complaint before the trial court was an action for foreclosure of a real estate mortgage, or an action for collection of a sum of money (answer: it was an action for foreclosure of a real estate mortgage). Court must also determine if the present appeal was correctly lodged before the SC rather than with the CA (answer: correctly lodged with the SC bec it involves a question of law).

Filkors other obligations

Filkor executed 9 trust receipts in favor of the bank from June 26, 1997 to Sept 11, 1997

Filkor failed to turn over the Ratio: proceeds from the sale of the goods, or the goods In the banks complaint before the trial court, Par 183 themselves as required by alleges: the trust receipts (in case

7 d2015member WHEREFORE, it is respectfully prayed that judgment be rendered: 2. Ordering that the property mortgaged be foreclosed and sold at public auction in case defendants fail to pay plaintiff within ninety (90) days from entry of judgment. The banks allegations in its complaint, and its prayer that the mortgaged property be foreclosed and sold at public auction, indicate that the action was one for foreclosure of real estate mortgage. SC has consistently ruled that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint and the character of the relief sought.SC finds no indication that the bank waived its rights under the real estate mortgage executed in its favor. The trial court erred in concluding that the bank abandoned its mortgage lien on Filkor's property, and that what it had filed was an action for collection of a sum of money. Since the action was one for foreclosure of real estate mortgage, it was incumbent upon the trial court to order that the mortgaged property be foreclosed and sold at public auction if Filkor fails to pay its outstanding obligations pursuant to Rule 68.2 1997 Rules of Civ Pro: Judgment on foreclosure for payment or sale.If upon the trial in such action the court shall find the facts set forth in 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 120 days from entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. Thus, the dispositive portion of the decision must be modified to comply with the provisions of Rule 68.2. This modification is subject to any appeal. On jurisdiction: When an appeal raises only pure questions of law, SC has jurisdiction to entertain it Petition granted.