Bank of America, NT vs. American Realty Corporation G.R. No. 133876, Dec.

29, 1999

as security for the debt of the principal debtors. By doing so, private respondent subjected itself to the liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of anothers obligation by mortgaging his own property, to be solidarily bound with the principal obligor. The signatory to the principal contract loanremains to be primarily bound. It is only upon default of the latter that the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. In the instant case, petitioners contention that the requisites of filing the action for collection and rendition of final judgment therein should concur, is untenable. PHILIPPINE LAW, NOT ENGLISH LAW, SHALL APPLY: In the case at bench, Philippine law shall apply notwithstanding the evidence presented by petitioner to prove the English law on the matter. In a long line of decisions, this Court adopted the well-imbedded principle in our jurisdiction that there is judicial notice of any foreign law. A foreign law must be properly pleaded and proved as a fact. Thus, if the foreign law involved is not properly pleaded and proved, our courts will presume that the foreign law is the same as our local or domestic or internal law. This is what we refer to as the doctrine of processual presumption. In the instant case, assuming arguendo that the English Law on the matter were properly pleaded and proved xxx, said foreign law would still not find applicability. Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy of the forum, the said foreign law, judgment or order shall not be applied. Additionally, prohibitive laws concerning persons, their acts or property, and those which have for their object public order, public policy and good customs shall not be rendered ineffective by laws or judgments promulgated, or by determinations or conventions agreed upon in a foreign country. The public policy sought to be protected in the instant case is the principle imbedded in our jurisdiction proscribing the splitting of a single cause of action.

FACTS:

When foreign laws, despite having been duly presented and proven, may not be given application

Petitioner Bank of America (BANTSA) is an international banking and financing institution duly licensed to do business in the Philippines, organized and existing under and by virtue of the laws of the State of California, USA while private respondent American Realty (ARC) is a domestic corporation. On numerous occasions, BANTSA and Bank of America International Limited (BAIL), organized under the laws of England, granted US Dollar loans to certain foreign corporate borrowers. These loans were later restructured, the restructuredloans secured by two real estate mortgages with private respondent ARC as third-party mortgagor. When the corporate borrowers defaulted, BANTSA sued them for collection before foreign courts, without impleading ARC as party-defendant. While these civil suits are still pending before the foreign courts, BANTSA filed an extra-judicial foreclosure of real estate mortgage before the Office of the Provincial Sheriff of Bulacan, Philippines. The properties were sold at public auction, prompting ARC to file this action for damages against BANTSA. The trial court ruled in favour of ARC and this was affirmed by the CA. Hence, this appeal. ISSUES:

Whether or not the petitioners act of filing a collection suit against the principal debtors for the recovery of the loan before foreign courts constituted waiver of the remedy of foreclosure Whether or not the award by the lower court of actual and exemplary damages in favour of private respondent ARC, as third-party mortgagor, is proper

HELD: Available THEORIES 1. OF Remedies PETITIONER: Moreover, foreign law should not be applied when its application would work undeniable injustice to the citizens or residents of the forum. To give justice is the most important function of law; hence, a law, or judgment or contract that is obviously unjust negates the fundamental principles of Conflict of Laws. Clearly Award then, English of Law is not applicable. Damages

2.

A waiver of the remedy of foreclosure requires the concurrence of 2 requisites: an ordinary civil action for collection should be filed and subsequently a final judgment be correspondingly rendered therein. Under English law, which according to petitioner is the governing law with regard to the principal agreements, the mortgagee does not lose its security interest by simply filing civil actions for sums of money.

1. REMEDIES ARE ALTERNATIVE, NOT CUMULATIVE: A mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the 1997 Rules of Civil Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with any court of justice but with the Office of the Sheriff of the province where the sale is to be made. In the case at bench, private respondent ARC constituted real estate mortgages over its properties

As to the second pivotal issue, we hold that the private respondent is entitled to the award of actual or compensatory damages inasmuch as the act of petitioner BANTSA in extrajudicially foreclosing the real estate mortgages constituted a clear violation of the rights of herein private respondent ARC, as third-party mortgagor.

G.R. No. 158997, October 6, 2008 FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner vs. YLLAS LENDINGCORPORATION and JOSE S. LAURAYA, in his official capacity as President, Respondents.Facts:FBDC executed a lease contract in favor of Tirreno, Inc.Section 22, of the lease contract, reads:Section 22. Lien on the Properties of the LesseeUpon the termination of this Contract or the expiration of the Lease Period without the rentals, charges and/or damages, if any, being fully paid or settled, the LESSOR shall have the right toretain possession of the properties of the LESSEE used or situatedin the Leased Premises and the LESSEE hereby authorizes theLESSOR to offset the prevailing value thereof as appraised by theLESSOR against any unpaid rentals, charges and/or damages. If the LESSOR does not want to use said properties, it may insteadsell the same to third parties and apply the proceeds thereof against any unpaid rentals, charges and/or damages.Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno wasalready in arrears by P5,027,337.91.FBDC entered and occupied the leased premises. FBDC also appropriated theequipment and properties left by Tirreno pursuant to Section 22 of their Contract of Lease as partial payment for Tirrenos outstanding obligations.Issue: WON the stipulation of the contract of lease partakes of a pledgewhich is void under Article 2088 of the Civil Code forbeing pactum commissorium.Held: No. Section 22, as worded, gives FBDC a means to collect paymentfrom Tirreno in case of termination of the lease contract or the expiration of thelease period and there are unpaid rentals, charges, or damages. The existence of acontract of pledge, however, does not arise just because FBDC has means of collecting past due rent from Tirreno other than direct payment. The trial courtconcluded that Section 22 constitutes a pledge because of the presence of the firstthree requisites of a pledge: Tirrenos properties in the leased premisessecure Tirrenos lease payments; Tirreno is the absolute owner of the saidproperties; and the persons representing Tirreno have legal authority to constitutethe pledge. However, the fourth requisite, that the thing pledged is placed in thepossession of the creditor, is absent. There is non-compliance with the fourthrequisite even if Tirrenos personal properties are found in FBDCs realproperty. Tirrenos personal properties are in FBDCs real property because of theContract of Lease, which gives Tirreno possession of the personal properties. SinceSection 22 is not a contract of pledge, there is no pactumcommissorium . WHEREFORE ,

we GRANT the petition. We SET ASIDE the Orders dated 7March 2003 and 3 July 2003 of Branch 59 of the Regional Trial Court of Makati Cityin Civil Case No. 01-1452 dismissing Fort Bonifacio Development Corporations Third Party Claim and denying Fort Bonifacio Development Corporations Motion to Intervene and Admit Complaint inIntervention. We REINSTATE Fort Bonifacio Development Corporati ons Third Party Claim and GRANT its Motion to Intervene and Admit Complaint inIntervention. Fort Bonifacio Development Corporation may hold the Sheriff liablefor the seizure and delivery of the properties subject of this case because of the lackof an indemnity bond. [G.R. No. 144882. February 04, 2005]LUISA BRIONES-VASQUEZ, petitioner, vs . COURT OF APPEALS and HEIRS OF MARIAMENDOZA VDA. DE OCAMPO, respondents. Facts:Under an agreement denominated as a pacto de retro sale, Maria Mendoza Vda. DeOcampo acquired a parcel of land from Luisa Briones. The latter thereunderreserved the right to repurchase the parcel of land up to December 31, 1970.On June 14, 1990, Hipolita Ocampo Paulite and Eusebio Mendoza Ocampo, theheirs of Maria Mendoza Vda. De Ocampo, filed a petition for consolidation of ownership, alleging that the seller was not able to exercise her privilege to redeemthe property on or before December 31, 1970.CA ruled that the contract entered was of equitable mortgage.Issue:WON the agreement was pacto de retro or equitable mortgage.Held:Equitable mortgage. The Court of Appeals pronounced in its Decision that thecontract between the parties is an equitable mortgage. Since the contract ischaracterized as a mortgage, the provisions of the Civil Code governing mortgagesapply. Article 2088 of the Civil Code states:The creditor cannot appropriate the things given by way of pledge ormortgage, or dispose of them. Any stipulation to the contrary is null and void.The private respondents do not appear to have caused the foreclosure of themortgage much less have they purchased the property at a foreclosure sale.Petitioner, therefore, retains ownership of the subject property. The right of ownership necessarily includes the right to possess, particularly where, as in thiscase, there appears to have been no availment of the remedy of foreclosure of themortgage on the ground of default or non-payment of the obligation in question.

WHEREFORE , the petition for certiorari is DISMISSED. The parties are directedto proceed upon the basis of the final Decision of the Court of Appeals, dated June29, 1995, in CA-G.R. CV No. 39025, that the contract in question was an equitablemortgage and not a sale

G.R. No. 103576 August 22, 1996ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,vs. HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OFCALOOCAN CITY, respondents. PAKS: `Petitioner Chua Pac executed a chattel mortgage in favor of respondent Bank by wayof security of petitioners loan of Php 3M..Under the contract, it was stated the following:This mortgage shall also stand as security for the payment of the said promissory note ornotes and/or accommodations without the necessity of executing a new contract and thismortgage shall have the same force and effect as if the said promissory note or notes and/oraccommodations were existing on the date thereof.In due time , petitioner paid the loan of Php3M and then subsequently obtained another loanof Php2.7 M using the same contract and it was also paid. A 3 rd loan of Php 1M was executedagain by virtue of 4 promissory notes but petitioner this time failed to pay, thereby respondent bank applied for extra judicial foreclosure of the chattel mortgage with the sheriff thats whythe petitioner filed an injunction before he RTC but the complaint was dismissed. Petitionerfiled the case before the CA and likewise got the same decision. ISYU: WON the security in CM comes into existence or applicable in an after incurredobligations ? RULING: No, while pledge , real estate mortgage , or under antichresis may exceptionallysecure after incurred obligations as long as future debts are accurately described therein,however, a chattel mortgage can only cover obligations existing at the time the mortgage isconstituted. Although a promise expressed in a chattel mortgage to include debts that are yetto be contracted can be a binding commitment that can be compelled upon, the security itself,however, does not come into existence or arise until after a chattel mortgage agreementcovering the newly contracted debt is executed either by concluding a fresh chattel mortgageor by amending the old contract conformably with the form prescribed by the ChattelMortgage LawThe remedy of foreclosure can only cover the debts extant at the time of constitution andduring the life of the chattel mortgage sought to be foreclosed.

G.R. No. 132287, January 24, 2006SPOUSES BONIFACIO and FAUSTINA PARAY, and VIDAL ESPELETA, Petitioners, vs. DRA. ABDULIA C. RODRIGUEZ, MIGUELA R. JARIOL assisted by her husbandANTOLIN JARIOL, SR., LEONORA NOLASCO assisted by her husband FELICIANONOLASCO, DOLORES SOBERANO assisted by her husband JOSE SOBERANO, JR.,JULIA R. GENEROSO, TERESITA R. NATIVIDAD and GENOVEVA R. SORONIO assistedby her husband ALFONSO SORONIO, Respondents. Facts:Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known as the Quirino-Leonor-Rodriguez RealtyInc.Respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray (Parays) the payment of certain loan obligations. When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints which sought the declaration of nullity of the pledge agreements.Respondents consign to RTC which they interpreted as redemption.Notwithstanding the consignations, the public auction took place asscheduled, with petitioner Vidal Espeleta successfully bidding the amountof P6,200,000.00 for all of the pledged shares.Issue:WON Petitioners were authorized to refuse as they did the tender of payment since they were undertaking the auction sale pursuant to the final andexecutory decision in Civil Cases.Held:Yes. it must be clarified that the subject sale of pledged shares was anextrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale astypified by an execution sale. Under the Civil Code, the foreclosure of a pledgeoccurs extrajudicially, without intervention by the courts. All the creditor needs todo, if the credit has not been satisfied in due time, is to proceed before a NotaryPublic to the sale of the thing pledged. [9] In this case, petitioners attempted as early as 1980 to proceedextrajudicially with the sale of the pledged shares by public auction. However,extrajudicial sale was stayed with the filing of Civil Cases No. R-20120 and 20131,which sought to annul the pledge contracts. The final and executory judgment inthose cases affirmed the pledge contracts and disposed.Since the pledged shares in this case are not subject to redemption, theCourt of Appeals had no business invoking and applying the inexistent right of redemption. We cannot thus agree that the consigned payments should be treatedwith liberality, or somehow construed as having been made in the exercise of the right of redemption. We also must reject the appellate courts declaration that the buyer of at the public auc tion is not ipso facto rendered the owner of the auctioned shares, since the debtor enjoys the one-year redemptive period toredeem the property. Obviously, since there is no right to redeem personalproperty, the rights of ownership vested unto the purchaser at the foreclosure saleare not entangled in any suspensive condition that is implicit in a redemptiveperiod.WHEREFORE, the petition is GRANTED. The assailed decision of the Courtof Appeals is SET ASIDE and the decision of the Cebu City RTC, Branch 16, dated 18November 1992 is REINSTATED. Costs against respondents

Prudential Bank v. Don Alviar and Georgia Alviar (2005) Tinga, J. Spouses Alviar are registered owners of a landin San Juan. On July 10, 1975, They executeda deed of real estate mortgage with PrudentialBank for a loan of P250,000. o Mortgage was annotated on the backof the TCT #1. First PN: Aug 4, 1975: The spouses executed apromissory note #1 which covered the loan andprovides that the loan matured a year later (on Aug 4, 1976), interest at 12% per annum andthat the note is secured by a real estatemortgage. The real estate mortgage contained: o That for and in consideration of certain loans, overdraft, and other credit accommodations and tosecure the payment of the sameAND those that may hereafter beobtained , the principal or all of which is hereby fixed at P250,000,as well as those that theMortgagee may extend, includinginterest and expenses or any other obligation owing to the Mortgagee,whether direct or indirect,principal or secondary theMortgagor does hereby transfer andconvey by way of mortgage unto theMortgagee, its successors or assigns, the parcels of land which aredescribed in the list inserted on theback of this document, and/or appended hereto, together with allthe buildings and improvements nowexisting or which may hereafter beerected 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, signifyingthat the loan was secured by a "hold-out" on the mortgagors foreign currency savingsaccount with the bank, and that the mortgagors passbook is to be surrendered to until theamount secured by the "hold-out" is settled. Third PN: Dec 27, 1976: Spouses executed for DonalcoTrading (of which the H and W were Pres andChair) a PN #3 covering P545,000. As providedin the note, the loan is secured by "Clean-Phase out TOD CA 3923," which means thatthe temporary overdraft incurred by DonalcoTrading with Prudential is to be converted intoan ordinary loan in compliance with a CentralBank circular directing the discontinuance of overdrafts. March 16, 1977: The bank wrote DonalcoTrading to inform it of approval of a straightloan of P545,000, the proceeds of which shallbe used to liquidate the outstanding loan of P545,000 TOD. The letter also mentioned thatthe securities for the loan were the deed of assignment on 2 PNs executed by BancomRealty with Deed of Guarantee in favor of AUValencia. and the chattel mortgage on variousheavy and transportation equipment. Payment: March 6, 1979: The spouses paid the bankP2mil to be applied to the obligations of GB Alviar Realty for the release of the real estatemortgage for the P450,000 loan covering 2 lotsin San Juan. Payment was acknowledged andmortgage was released.

Banks extra jud foreclosure:

Jan 15, 1980: The bank moved for theextrajudicial foreclosure of the mortgage on theproperty that the spouses mortgaged for theloan of P250,000 covered by TCT #1 (at start of facts). By the banks com putation, the spouseshad a total obligation of P1.6mil covering the 3PNs: #1 (P250k), #2 (P380k), and #3 (P545k)plus due interests and penalty charges. Apublic auction sale of the mortgaged propertywas set. The spouses filed a complaint for damages witha prayer for the issuance of a writ of preliminaryinjunction with the RTC. Spouses argument:

That they have paid their principal loan securedby the mortgaged property so the mortgageshould 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 separateloan with the bank secured by a separatemortgage. TC: Dismissed the Spouses complaint and ordered the Sheriff to proceed with the extra-judforeclosure. Upon the Spouses MR, the TC reversed its earlier decision finding that: o Only the P250k loan was securedby the mortgage on the landcovered by TCT #1. o The P380k loan is secured by theforeign currency deposit account of Don Alviar o The P545k obligation was anunsecured loan, being a mereconversion of the temporary overdraftof Donalco Trading o The blanket mortgage clause relied upon by the bank applies onlyto future loans obtained by themortgagors and not by parties other than them, such as Donalco Tradingbec they only signed as officers CA: affirmed TC and ruled that the extra jud sale of theproperty for the 3 loans is improper. However, thespouses have not yet paid the P250k covered by PN #1. While a continuing loan or creditaccommodation based on only one security or mortgage is a common practice in financialand commercial institutions, such agreement must be clear and unequivocal . In this case, the parties executed different PNsagreeing to a particular security for each loan.

However, the spouses have not yet paid theP250k covered by PN #1 since the payment of P2mil was issued for the obligations of GB Alviar Realty ISSUE/HELD: W/N the blanket mortgage clause in the real estatemortgage 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, bankis 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 securityinstrument constituted a continuing offer bythe borrower to secure further loans under thesecurity of the first security instrument, and that when the lender accepted a differentsecurity he did not accept the offer . The propriety of seeking foreclosure of themortgaged property for the non-payment of the3 loans --- foreclosure of the mortgagedproperty should only be for the P250,000 loancovered by PN #1, and for any amount notcovered by the security for PN #2 RATIO:Bank argues: That there is no law which prohibits anobligation from being covered by more than onesecurity.

Well-settled is the rule that a corporation has apersonality separate and distinct from that of itsofficers and stockholders. Officers of acorporation are not personally liable for their acts as such officers unless it is shown thatthey have exceeded their authority. However, the legal fiction that a corporation hasa personality separate and distinct fromstockholders and members may be disregardedif 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 therespondents, is not within thecontemplation of the "blanketmortgage clause." Moreover, the bank is unable to show that thespouses are hiding behind the corporatestructure to evade payment of their obligations.Save for the notation in the PN that the loanwas for house construction and personalconsumption, there is no proof showing that theloan was indeed for the spouses personal consumption. Besides, the bank agreed to theterms of the PN. If the spouses were indeed the real parties tothe loan, the bank, a big, well-establishedinstitution, should have insisted that it be madein the name of the spouses themselves, andnot to Donalco Trading, and that they sign thenote in their personal capacity and not asofficers. On the blanket mortgage clause

A "blanket mortgage clause," also known as a"dragnet clause" in American jurisprudence, isone which is specifically phrased to subsumeall debts of past or future origins. Such clauses are "carefully scrutinized andstrictly construed."

Spouses even continued to withdraw from thesame foreign currency account even while thePN was still outstanding, strengthening thebelief that it was the real estate mortgage that principally secured all of the Spouses PNs.

Mortgages of this character enable the partiesto provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid theexpense and inconvenience of executing a newsecurity on each new transaction. A "dragnet clause" operates as a convenienceand accommodation to the borrowers as itmakes available additional funds without their having to execute additional securitydocuments, thereby saving time, travel, loanclosing costs, costs of extra legal services,recording fees, etc. Mortgages given to secure futureadvancements are valid and legal contracts,andthe amounts named as consideration in saidcontracts do not limit the amount for whichthe mortgage may stand as security if fromthe four corners of the instrument the intentto secure future and other indebtedness canbe 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 obtainedas well as those that the Mortgagee(creditor) may extend to mortgagor (debtor)

As for PN #2, the bank said that such securityis not exclusive, as the "dragnet clause" of thereal estate mortgage covers all the obligationsof the Spouses. PN #3 was for home construction and personalconsumption of the Spouses. Thus, there is aneed to pirce the veil of corporate fiction That the mortgage contract was executed bythe Spouses with knowledge andunderstanding of the "dragnet clause," beinghighly educated individuals, seasonedbusinesspersons, and political personalities.There was no oppressive use of superior bargaining power in the execution of the PNsand the real estate mortgage Spouses argue: That the "dragnet clause" cannot be applied tothe subsequent loans extended to Don Alviar and Donalco Trading, since these loans arecovered by separate PNs that expresslyprovide for a different form of security. They reiterate the holding of the TC that the"blanket mortgage clause" would apply only toloans obtained jointly by the spouses, and notto loans obtained by other parties. They also agree with TC that the real estatemortgage clause is a contract of adhesion andmust be strictly construed against the bank. 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 theSpouses for Donalco Trading and not in their personal capacity. The mortgage contract states that the mortgagecovers "as well as those that the Mortgageemay extend to the Mortgagor, including interestand expenses or any other obligation owing tothe Mortgagee, whether direct or indirect,principal or secondary."

Contrary to the CA, both parties intended thereal estate mortgage to secure not only theP250,000 loan from the bank, but also futurecredit facilities and advancements that ma be obtained by the spouses. The terms of theprovisions being clear and unambiguous, thereis neither need to construe it otherwiseW/N the "blanket mortgage" clause applies even to subsequent advancements for which other securitieswere intended , or particularly, to PN #2 --- NO The

subsequent loans were secured byother securities : o For PN #2: secured by a "hold-out"on his foreign currency savingsaccount o PN #3: secured by "Clean-Phase outTOD CA 3923" and eventually by adeed of assignment on 2 PNsexecuted by Bancom Realty withDeed of Guarantee in favor of AUValencia, and by a chattel mortgage Under American jurisprudence, 2 schools of thought:1. That a "dragnet clause" worded as tobe broad enough to cover all other debts in addition to the onespecifically secured WILL BEconstrued to cover a DIFFERENTdebt, although such other debt issecured by another mortgage.2. That a mortgage with such a clausewill NOT secure a note thatEXPRESSES on its face that it isotherwise secured as to its entirety,at least to anything other than adeficiency after exhausting thesecurity specified therein, suchdeficiency being an indebtednesswithin the meaning of the mortgage,in the absence of a special contractexcluding it from the arrangement. School #2 represents the better position. o The parties having conformed to the"blanket mortgage clause", it isreasonable to conclude that they alsoagreed to an implied understandingthat subsequent loans need not besecured by other securities , as thesubsequent loans will be secured bythe first mortgage. o The sufficiency of the first security is a corollary component of the"dragnet clause." But of course, thereis no prohibition, as in the mortgagecontract in issue, againstcontractually requiring other securities for the subsequent loans. Thus, when the mortgagor takes another loanfor which another security was given it couldnot be inferred that such loan was made inreliance solely on the original security with the"dragnet clause," but rather, on the newsecurity given. This is the " reliance on thesecurity test. " The "dragnet clause" in the first securityinstrument constituted a continuing offer bythe borrower to secure further loans under thesecurity of the first security instrument, and that when the lender accepted a differentsecurity he did not accept the offer . In one case, it was concluded that the "offer"was not accepted by the bank when asubsequent advance was made because1. The second note was secured by achattel mortgage on certain vehicles,and the clause therein stated that thenote was secured by such chattelmortgage;2. There was no reference in thesecond note or chattel mortgageindicating a connection between thereal estate mortgage and theadvance;3. The mortgagor signed the real estatemortgage by her name alone,whereas the second note and chattelmortgage were signed by themortgagor doing business under anassumed name; and4. There was no allegation by the bank,and apparently no proof, that it reliedon the security of the real estatemortgage in making the advance In the absence of clear, supportive evidenceof a contrary intention, a mortgagecontaining a "dragnet clause" will not beextended to cover future advances UNLESSthe document evidencing the subsequentadvance refers to the mortgage as providingsecurity therefor

It was therefore improper for petitioner in this case toseek foreclosure of the mortgaged property because of non-payment of all the three PNs. While the validity of the "dragnet clause" cannotbe denied, there is a need to respect theexistence of the other security given for PN #2. The foreclosure of the mortgaged propertyshould only be for the P250,000 loancovered by PN #1, and for any amount notcovered by the security for PN #2 As held in one case, where deeds absolute inform were executed to secure anyindebtedness that might subsequently becomedue, a balance due on a note, AFTEREXHAUSTING the special security given for the payment of such note, was in theABSENCE of a special agreement to thecontrary, WITHIN the protection of themortgage, NOTWITHSTANDING the givingof the special security . This is recognition that while the "dragnetclause" subsists, the security specificallyexecuted for subsequent loans must first beexhausted before the mortgaged property canbe resorted to.Contracts of adhesion, as in this case as the mortgagecontract and PNs were made by the bank, must beconstrued against the party who caused the ambiguitywhich could have avoided it by the exercise of a littlemore care. The mortgaged property could still be subjected toforeclosure proceedings for the unpaid P250,000loan, and for any deficiency after security for PN #2,has been exhausted Petition denied.

Spouses Rosales vs. Spouses Suba Case Digest Spouses Rosales vs. Spouses Suba Facts: On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a Decision2 in Civil Cases Nos. 94-72303 and 94-72379, the dispositive portion of which reads: WHEREFORE, judgment is rendered: (1) Declaring the Deed of Sale an equitable mortgage; (2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from finality of this Decision, to deposit with the Clerk of Court, for payment to the parties Felicisimo Macaspac and Elena Jiao, the sum of P65,000.00, with interest at nine (9) percent per annum from September 30, 1982 until payment is made, plus the sum of P219.76 as reimbursement for real estate taxes; (3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on their behalf of the amounts specified in the foregoing paragraph, to execute a deed of reconveyance of the property in question to Erlinda Sibug, married to Ricardo Rosales, and the Register of Deeds of Manila shall cancel Transfer Certificate of Title No. 150540 in the name of the Macaspacs (Exh. E) and issue new title in the name of Sibug; (4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this dispositive portion, let the property be sold in accordance with the Rules of Court for the release of the mortgage debt and the issuance of title to the purchaser. Petitioner spouses failed to comply with paragraph 2 quoted above which prompted Macaspac to file with the trial court a motion for execution. Thereafter, petitioners filed a manifestation informing the court of their difficulty in paying Macaspac as there is no correct computation of the judgment debt. Thus, Macaspac filed a supplemental motion for execution stating that the amount due him is P243,864.08. Petitioners failed to pay the amount. The trial court issued a writ of execution ordering the sale of the property subject of litigation for the satisfaction of the judgment. An auction sale was held wherein petitioners participated. However, the property was sold for P285,000.00 to spouses Alfonso and Lourdes Suba, herein respondents, being the highest bidders. On August 18, 1998, respondents filed with the trial court a motion for a writ of possession, contending that the confirmation of the sale effectively cut off petitioners equity of redemption. On the other hand, petitioners filed a motion for reconsideration. The trial court granted respondents prayer for a writ of possession and denied petitioners MFR. The trial court ruled that petitioners have no right to redeem the property since the case is for judicial foreclosure of mortgage under Rule 68 of the 1997 Rules of Civil Procedure, as amended. Hence, respondents, as purchasers of the property, are entitled to its possession as a matter of right. Petitioners filed with the Court of Appeals a petition for certiorari. CA dismissed outright the petition for lack of merit, holding that there is no right of redemption in case of judicial foreclosure of mortgage. Issue: Whether or not petitioners have the right to redeem a mortgaged property which has been judicially foreclosed. Ruling: The decision of the trial court, which is final and executory, declared the transaction between petitioners and Macaspac an equitable mortgage. Since the parties transaction is an equitable mortgage and that the trial court ordered its foreclosure, execution of judgment is governed by Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as amended, quoted as follows: SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less that ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. SEC. 3. Sale of mortgaged

property, effect. When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. Such sale shall not effect the rights of persons holding prior encumbrances upon the property or a part thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. The right of redemption in relation to a mortgage understood in the sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine National bank or a bank or a banking institution. In such a case, the foreclosure sale, when confirmed by an order of the court, shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser. There then exists only what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation. This is the mortgagors equity (not right) of redemption which, as above stated, may be exercised by him even beyond the 90-day period from the date of service of the order, and even after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After such order of confirmation, no redemption can be effected any longer. Clearly, as a general rule, there is no right of redemption in a judicial foreclosure of mortgage. The only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking institution. Since the mortgagee in this case is not one of those mentioned, no right of redemption exists in favor of petitioners. They merely have an equity of redemption, which, to reiterate, is simply their right, as mortgagor, to extinguish the mortgage and retain ownership of the property by paying the secured debt prior to the confirmation of the foreclosure sale. However, instead of exercising this equity of redemption, petitioners chose to delay the proceedings by filing several manifestations with the trial court. Thus, they only have themselves to blame for the consequent loss of their property.

Spouses yap vs spouses dy[G.R. No. 171868, July 27, 2011] SPOUSES FRANCISCO D. YAP AND WHELMA S. YAP, PETITIONERS, VS.SPOUSES ZOSIMO DY, SR. AND NATIVIDAD CHIU DY, SPOUSES MARCELINOMAXINO AND REMEDIOS L. MAXINO, PROVINCIAL SHERIFF OF NEGROSORIENTAL AND DUMAGUETE RURAL BANK, INC., RESPONDENTS. FACTS:The subject parcels of land designated as lot 1, 3, 4, 5, 6, 8 as well as lot 846 areoriginally owned by spouses Tirambulos. They executed a REM over Lots 1,4, 5,6, and 8 infavour of the Rural Bank of Dumaguete, predecessor of Dumaguete Rural Bank Inc. (DRBI).Later, Lots 3 and 8446 were also mortaged in favour of the same bank.Subsequently, the Tirambulos sold all & mortgaged lots to spouse Dy without consentand knowledge of DRBI. Tirambulos failed to pay their loans so DRBI foreclosed lots 1, 4, 5, 6,and 8 and sold at public auction. DRBI was the highest bidder.Later, DRBI sold lots 1, 3, and 6 to spouses Yap.ISSUE:Is Lot 3 among the foreclosed properties?May persons to whom several mortgaged lands were transferred without the knowledgeand consent of the creditor redeem only several parcels if all the lands were sold together for asingle price at the foreclosure sale?RULING:We cannot subscribe to the Yaps' argument on the indivisibility of the mortgage. As heldin the case of Philippine National Bank v. De los Reyes , [44] the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure thereof asin the instant case. The Court held:The parties were accordingly embroiled in a hermeneutic disparity on their aforesaid contendingpositions. Yet, the rule on the indivisibility of mortgage finds no application to the case at bar.The particular provision of the Civil Code referred to provides:Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among thesuccessors in interest of the debtor or of the creditor.Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionateextinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who received his share of the debt return the pledge or cancel themortgage, to the prejudice of the other heirs who have not been paid.From these provisions is excepted the case in which, there being several things given inmortgage or pledge, each one of these guarantees only a determinate portion of the credit.The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as theportion of the debt for which each thing is specially answerable is satisfied.From the foregoing, it is apparent that what the law proscribes is the foreclosure of only a portionof the property or a number of the several properties mortgaged corresponding to the unpaidportion of the debt where before foreclosure proceedings partial payment was made by the debtoron his total outstanding loan or obligation. This also means that the debtor cannot ask for therelease of any portion of the mortgaged property or of one or some of the several lots mortgagedunless and until the loan thus, secured has been fully paid, notwithstanding the fact that there hasbeen a partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid apart of the debt cannot ask for the proportionate extinguishment of the mortgage as long as thedebt is not completely satisfied.That the situation obtaining in the case at bar is not within the purview of the aforesaid rule onindivisibility is obvious since the aggregate number of the lots which comprise the collaterals forthe mortgage had already been foreclosed and sold at public auction. There is no partial paymentnor partial extinguishment of the obligation to speak of. The aforesaid doctrine, which is actuallyintended for the protection of the mortgagee, specifically refers to the release of the mortgagewhich secures the satisfaction of the indebtedness and naturally presupposes that the mortgage isexisting . Once the mortgage is extinguished by a complete foreclosure thereof, said doctrineof indivisibility ceases to apply since, with the full payment of the debt, there is nothingmore to secure . [45] (Emphasis supplied.)

Heirs of Quisumbing vs. Philipine National Bank Facts:In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C. Silverio as Chairman of the Board of the followingcompanies, namely Delta Motors Corporation (Delta Motors), Komatsu Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC),th rou gh Deed s of As si gn m ent, a ssi gn ed t o At t y. Norb ert o J. Qu isu mbin g (Qui su mbin g) th eir ri ght s of red empti on with resp ect t o va ri ou s rea l properties which herein respondent Philippine National Bank (PNB) had foreclosed and acquired as the highest bidder. The properties included lotsin Qu ezon Cit y, Mani la, Pa mpan ga and Bu lacan in th e na m e of Rica rd o C. Si lveri o, m a rri ed t o B eat ri z Si s on; a lot in Ta ga yta y in th e na m e of Ricardo C. Silverio; lots in Nueva Ecija in the name of RCSMC; lots in Baguio and Benguet in the name of Delta Motors; a lot in Zambales in thena m e of RC SMC; and a lot in Ri za l (actua lly Pa s on g Ta m o, Maka ti ) inc ludin g i mp rovem ent s in th e nam e of Kom at su (h erea ft er referred t o a s Pasong Tamo property)Quisumbing made a formal tender of redemption to PNB for the abovementioned properties, with the request that he be informed within 10 days of the total amount of the redemption prices so "he would know how much to pay." Quisumbing furnished the sheriffs who conducted the sales, as wellas the registers of deeds in the various localities where the properties are situated, with a copy of said tender letter. The PNB, requested copies of theDeeds of Assignment so that it may "have a basis to reply to" his request. Quisumbing furnished PNB with copies of the Deeds, requesting a reply tohis tender letter and requested for the computation of the total amount of redemption price for which he gave PNB until April 30, 1985 to do so.B efore PNB c ou ld rep ly, h owever, or on Ap ri l 23, 1985, Qui sumbin g execu t ed an Affi da vit of R ed empt i on fu rnis hin g PNB, th e sh eri ffs and theregisters of deeds a copy thereof. Before the one-year redemption period expired, PNB denied Quisumbings offer of redemption on the ground thatthe Deeds of Assignment were invalid for not having been registered and for being against Art. 1491 (5) of the Civil Code; that the tender was not proper because it was not accompanied by actual money payment; and that the amount Quisumbing offered was way below that required under Sec.25 of P.D. No. 694. Quisumbing thus filed a Complaint before the Regional Trial Court (RTC) of Makati against PNB to compel it to allow him toexerc is e hi s ri ght of red empti on over th e forec los ed p rop erti es an d t o in form him of th e t ot a l a m ount of red empti on p ric e. At th e sa m e tim e, h e caused the annotation of a notice of lis pendens on the certificates of title of the properties.Issue:Whether or not there was a valid redemption?Ruling:Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as amended by Presidential Decree No. 1828, or und er P. D. No. 694, th e m ort ga gor or hi s a s si gn ee is requi red t o t end er p a ym ent t o mak e said red em pti on va lid s om ethin g wh ich p etit i on ers predecessor failed to do. The only instance when this rule may be construed liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is instituted by the redemptioner.Petitioner however claims, citing Banco Filipi no Saving s and Mo rtgage Bank v. Court of Appeal s and Le e Chuy Rea lty Co rpo ration v . Cou rt of Appeals that in case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action whichmus t be fi led wi thin th e on e-yea r p eri od of red empti on. Th e fi lin g of a c ou rt acti on t o en forc e red empti on, b ein g equi va lent t o a forma l offer t ored eem, wou ld ha ve the effect of p res ervin g hi s red em pti ve ri ghts and "freezin g" th e expi ra ti on of th e on e -yea r p eri od . Bona fid e t end er of th e redemption price, within the prescribed period is only essential to preserve the right of redemption for future enforcement beyond such period of redemption and within the period prescribed for the action by the statute of limitations. Where the right to redeem is exercised through judicial actionwithin the reglementary period, the offer to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential.It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals , we held that the action for judicial redemption should be filed on timeand in good faith, the redemption price is finally determined and paid within a reasonable time, and the rights of the parties are respected. Statedoth erwi s e, th e foregoin g int erpretati on ha s th ree c rit ical dim ensi on s : (1 ) tim ely red empti on or red empti on b y expi ra ti on da t e; (2 ) good faith a s always, meaning, the filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full

Makati Leasing vs. Wearever Textile Makati Leasing and Financial Corporation vs. Wearever Textile Mills, Inc. G.R. No. L-58469. May 16, 1983. De Castro, J. Doctrine: Where a chattel mortgage is constituted on a machinery permanently attached to the ground, the machinery is to be considered as personal property. Facts: Wearever Textile Mills, Inc. discounted and assigned several receivables with Makati Leasing and Financial Corp. under a Receivable Purchase Agreement so that the latter would lend money to the former. In order to secure the collection of the receivables assigned, Wearever executed a Chattel Mortgage over certain raw materials inventory as well as a machinery (Artos Aero Dryer Stentering Range). Upon default of Wearever in paying what is due, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgaged to it. The Sheriff assigned to execute such foreclosure, however, failed to enter the premises of Wearever to effect the seizure of the machinery. Afterwhich, petitioner filed a complaint for a judicial foreclosure with the RTC of Rizal which was granted even after the motion for reconsideration filed by the private respondent. Enforcing then the writ of seizure issued by the lower court, the Sheriff removed the main drive motor of the machinery. Upon appeal, CA reversed the ruling of the RTC and ordered the return of the motor to Wearever since the said machinery cannot be the subject of a replevin and chattel mortgage for it is a real property pursuant to Art. 415 (3) of the NCC. CA argued that the machinery is attached to the ground by means of bolts and the only way to remove it from the respondents plant would be to drill out or destroy the concrete floor which is why all that the sheriff could do to enforce the writ was to take the main drive motor of the machinery. Hence, this petition for certiorari. Issue: Whether the machinery is a personal property. Held: Yes. By destination, it is a real property but by virtue of the intention of the parties stipulated in their chattel mortgage contract, the machinery was intended to be a personal property. The Court made reference to its ruling in Tumalad v. Vicencio and Standard Oil Co. of New York v. Jaramillo where it held that a real property may be considered as a personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby, and once the parties so agreed, they are already stopped from claiming otherwise. Private respondent contended that its characterization of the subject machinery as chattel in their agreement should not be appreciated against it because it had never represented nor agreed in such as it was merely required and dictated on by the petitioner to sign a chattel mortgage in blank form. The Court was not persuaded by its contention as the said issue was not duly raised in the lower and appellate courts nor will the said signing in blank by the respondent make the contract void but merely voidable by a proper action in court. Furthermore as it was undeniable that it benefited from the chattel mortgage, it cannot be allowed to impugn its efficacy for equity reasons.