SPOUSES BONIFACIO and G.R. No. 132287 No.

021, 053, 022 & 097;

FAUSTINA PARAY, and Julia Generoso .. 1,100 shares covered by Stock Certificates
VIDAL ESPELETA, Present: No. 085, 051, 086 & 084;
Petitioners, Teresita Natividad.. 440 shares covered by Stock Certificates
QUISUMBING, J., Nos. 054 & 055[2]
Chairman,
CARPIO, When the Parays attempted to foreclose the pledges on account of respondents
- versus - CARPIO-MORALES, and failure to pay their loans, respondents filed complaints with the Regional Trial Court
TINGA, JJ. (RTC) of Cebu City. The actions, which were consolidated and tried before RTC
Branch 14, Cebu City, sought the declaration of nullity of the pledge agreements,
DRA. ABDULIA C. RODRIGUEZ, Promulgated: among others. However the RTC, in its decision [3] dated 14 October 1988,
MIGUELA R. JARIOL assisted by her dismissed the complaint and gave due course to the foreclosure and sale at public
husband ANTOLIN JARIOL, SR., January 24, 2006 auction of the various pledges subject of these two cases. [4] This decision attained
LEONORA NOLASCO assisted by her finality after it was affirmed by the Court of Appeals and the Supreme Court. The
husband FELICIANO NOLASCO, Entry of Judgment was issued on 14 August 1991.
DOLORES SOBERANO assisted by her
husband JOSE SOBERANO, JR., JULIA Respondents then received Notices of Sale which indicated that the pledged
R. GENEROSO, TERESITA R. NATIVIDAD shares were to be sold at public auction on 4 November 1991. However, before
and GENOVEVA R. SORONIO assisted by the scheduled date of auction, all of respondents caused the consignation with the
her husband ALFONSO SORONIO, RTC Clerk of Court of various amounts. It was claimed that respondents had
Respondents. attempted to tender these payments to the Parays, but had been rebuffed. The
deposited amounts were as follows:
x---------------------------------------------------------------------------------x
Abdulia C. Rodriguez.. P 120,066.66 .. 14 Oct. 1991
DECISION Leonora R. Nolasco . 277,381.82 .. 14 Oct. 1991
Genoveva R. Soronio 425,353.50 .. 14 Oct. 1991
TINGA, J.: 38,385.44 .. 14 Oct. 1991
Julia R. Generoso .. 638,385.00 .. 25 Oct. 1991
The assailed decision of the Court of Appeals took off on the premise that pledged Teresita R. Natividad . 264,375.00 .. 11 Nov. 1991
shares of stock auctioned off in a notarial sale could still be redeemed by their Dolores R. Soberano .. 12,031.61.. 25 Oct. 1991
owners. This notion is wrong, and we thus reverse. 520,216.39 ..11 Nov. 1991
Miguela Jariol . 490,000.00.. 18 Oct. 1991
The facts, as culled from the record, follow. 88,000.00 ..18 Oct. 1991[5]
Notwithstanding the consignations, the public auction took place as scheduled,
Respondents were the owners, in their respective personal capacities, of shares with petitioner Vidal Espeleta successfully bidding the amount of P6,200,000.00
of stock in a corporation known as the Quirino-Leonor-Rodriguez Realty for all of the pledged shares. None of respondents participated or appeared at the
Inc.[1] Sometime during the years 1979 to 1980, respondents secured by way of auction of 4 November 1991.
pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray
(Parays) the payment of certain loan obligations. The shares pledged are listed Respondents instead filed on 13 November 1991 a complaint seeking the
below: declaration of nullity of the concluded public auction. The complaint, docketed as
Civil Case No. CEB-10926, was assigned to Branch 16 of the Cebu City RTC.
Miguel Rodriguez Jariol .1,000 shares covered by Stock Certifi- Respondents argued that their tender of payment and subsequent consignations
cates No. 011, 060, 061 & 062; served to extinguish their loan obligations and discharged the pledge contracts.
Abdulia C. Rodriguez . 300 shares covered by Stock Certificates Petitioners countered that the auction sale was conducted pursuant to the final and
No. 023 & 093; executory judgment in Civil Cases Nos. R-20120 and 20131, and that the tender
Leonora R. Nolasco .. 407 shares covered by Stock Certificates of payment and consignations were made long after their obligations had fallen
No. 091 & 092; due.
Genoveva Soronio. 699 shares covered by Stock Certificates
No. 025, 059 & 099; The Cebu City RTC dismissed the complaint, expressing agreement with the
Dolores R. Soberano. 699 shares covered by Stock Certificates position of the Parays.[6] It held, among others that respondents had failed to
tender or consign payments within a reasonable period after default and that the
proper remedy of respondents was to have participated in the auction sale. [7] The
Court of Appeals Eighth Division however reversed the RTC on appeal, ruling that
the consignations extinguished the loan obligations and the subject pledge
contracts; and the auction sale of 4 November 1991 as null and void. [8] Most
crucially, the appellate court chose to uphold the sufficiency of the consignations
owing to an imputed policy of the law that favored redemption and mandated a
liberal construction to redemption laws. The attempts at payment by respondents
were characterized as made in the exercise of the right of redemption.
The Court of Appeals likewise found fault with the auction sale, holding
that there was a need to individually sell the various shares of stock as they had
belonged to different pledgors. Thus, it was observed that the minutes of the
auction sale should have specified in detail the bids submitted for each of the
shares of the pledgors for the purpose of knowing the price to be paid by the
different pledgors upon redemption of the auctioned sales of stock.
Petitioners now argue before this Court that they were authorized to
refuse as they did the tender of payment since they were undertaking the auction
sale pursuant to the final and executory decision in Civil Cases Nos. R-20120 and
20131, which did not authorize the payment of the principal obligation by
respondents. They point out that the amounts consigned could not extinguish the
principal loan obligations of respondents since they were not sufficient to cover the
interests due on the debt. They likewise argue that the essential procedural
requisites for the auction sale had been satisfied.
We rule in favor of petitioners.
The fundamental premise from which the appellate court proceeded was
that the consignations made by respondents should be construed in light of the
rules of redemption, as if respondents were exercising such right. In that
perspective, the Court of Appeals made three crucial conclusions favorable to
respondents: that their act of consigning the payments with the RTC should be
deemed done in the exercise of their right of redemption; that the buyer at public
auction does not ipso facto become the owner of the pledged shares pending the
lapse of the one-year redemptive period; and that the collective sale of the shares
of stock belonging to several individual owners without specification of the
apportionment in the applications of payment deprives the individual owners of the
opportunity to know of the price they would have to pay for the purpose of
exercising the right of redemption.
The appellate courts dwelling on the right of redemption is utterly off-
tangent. The right of redemption involves payments made by debtors after the
foreclosure of their properties, and not those made or attempted to be made, as in
this case, before the foreclosure sale. The proper focus of the Court of Appeals
should have been whether the consignations made by respondents sufficiently
acquitted them of their principal obligations. A pledge contract is an accessory
contract, and is necessarily discharged if the principal obligation is extinguished.
Nonetheless, the Court is now confronted with this rather new fangled
theory, as propounded by the Court of Appeals, involving the right of redemption
over pledged properties. We have no hesitation in pronouncing such theory as
discreditable.
Preliminarily, it must be clarified that the subject sale of pledged shares
was an extrajudicial sale, specifically a notarial sale, as distinguished from a
judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure
of a pledge occurs extrajudicially, without intervention by the courts. All the creditor
needs to do, if the credit has not been satisfied in due time, is to proceed before a
Notary Public to the sale of the thing pledged.[9]
In this case, petitioners attempted as early as 1980 to proceed
extrajudicially 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 in
those cases affirmed the pledge contracts and disposed them in the following
fashion:
WHEREFORE, premises considered, judgment is hereby
rendered dismissing the complaints at bar, and
(1) Declaring the various pledges covered in Civil Cases Nos.
R-20120 and R-20131 valid and effective; and
(2) Giving due course to the foreclosure and sale at public
auction of the various pledges subject of these two cases.
Costs against the plaintiffs.
SO ORDERED.[10]
The phrase giving due course to the foreclosure and sale at public auction
of the various pledges subject of these two cases may give rise to the impression
that such sale is judicial in character. While the decision did authorize the sale by
public auction, such declaration could not detract from the fact that the sale so
authorized is actually extrajudicial in character. Note that the final judgment in said
cases expressly did not direct the sale by public auction of the pledged shares, but
instead upheld the right of the Parays to conduct such sale at their own volition.
Indeed, as affirmed by the Civil Code,[11] the decision to proceed with the
sale by public auction remains in the sole discretion of the Parays, who could very
well choose not to hold the sale without violating the final judgments in the
aforementioned civil cases. If the sale were truly in compliance with a final
judgment or order, the Parays would have no choice but to stage the sale for then
the order directing the sale arises from judicial compulsion. But nothing in the
dispositive portion directed the sale at public auction as a mandatory recourse,
and properly so since the sale of pledged property in public auction is, by virtue of
the Civil Code, extrajudicial in character.

The right of redemption as affirmed under Rule 39 of the Rules of Court
applies only to execution sales, more precisely execution sales of real property.
The Court of Appeals expressly asserted the notion that pledged
property, necessarily personal in character, may be redeemed by the creditor after
being sold at public auction. Yet, as a fundamental matter, does the right of
redemption exist over personal property? No law or jurisprudence establishes or
affirms such right. Indeed, no such right exists.
The right to redeem property sold as security for the satisfaction of an
unpaid obligation does not exist preternaturally. Neither is it predicated on
proprietary right, which, after the sale of property on execution, leaves the
judgment debtor and vests in the purchaser. Instead, it is a bare statutory privilege
to be exercised only by the persons named in the statute. [12]
The right of redemption over mortgaged real property sold extrajudicially
is established by Act No. 3135, as amended. The said law does not extend the
same benefit to personal property. In fact, there is no law in our statute books
which vests the right of redemption over personal property. Act No. 1508, or the
Chattel Mortgage Law, ostensibly could have served as the vehicle for any
legislative intent to bestow a right of redemption over personal property, since that
law governs the extrajudicial sale of mortgaged personal property, but the statute
is definitely silent on the point. And Section 39 of the 1997 Rules of Civil Procedure,
extensively relied upon by the Court of Appeals, starkly utters that the right of
redemption applies to real properties, not personal properties, sold on execution.
Tellingly, this Court, as early as 1927, rejected the proposition that
personal property may be covered by the right of redemption. In Sibal
1. v. Valdez,[13] the Court ruled that sugar cane crops are personal property, and
thus, not subject to the right of redemption.[14] No countervailing statute has been
enacted since then that would accord the right of redemption over personal
property, hence the Court can affirm this decades-old ruling as effective to date.
Since the pledged shares in this case are not subject to redemption, the
Court of Appeals had no business invoking and applying the inexistent right of
redemption. We cannot thus agree that the consigned payments should be treated
with 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 auction is not ipso facto rendered the owner of the auctioned
shares, since the debtor enjoys the one-year redemptive period to redeem the
property. Obviously, since there is no right to redeem personal property, the rights
of ownership vested unto the purchaser at the foreclosure sale are not entangled
in any suspensive condition that is implicit in a redemptive period.
The Court of Appeals also found fault with the apparent sale in bulk of the
pledged shares, notwithstanding the fact that these shares were owned by several
people, on the premise the pledgors would be denied the opportunity to know
exactly how much they would need to shoulder to exercise the right to redemption.
This concern is obviously rendered a non-issue by the fact that there can be no
right to redemption in the first place. Rule 39 of the Rules of Court does provide
for instances when properties foreclosed at the same time must be sold separately,
such as in the case of lot sales for real property under Section 19. However, these
instances again pertain to execution sales and not extrajudicial sales. No provision
in the Rules of Court or in any law requires that pledged properties sold at auction
be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the
pledgor, who is given the right to choose which of the items should be sold if two
or more things are pledged.[15] No similar option is given to pledgors under the Civil
Code. Moreover, there is nothing in the Civil Code provisions governing the
extrajudicial sale of pledged properties that prohibits the pledgee of several
different pledge contracts from auctioning all of the pledged properties on a single
occasion, or from the buyer at the auction sale in purchasing all the pledged
properties with a single purchase price. The relative insignificance of ascertaining
the definite apportionments of the sale price to the individual shares lies in the fact
that once a pledged item is sold at auction, neither the pledgee nor the pledgor
can recover whatever deficiency or excess there may be between the purchase
price and the amount of the principal obligation. [16]
A different ruling though would obtain if at the auction, a bidder expressed
the desire to bid on a determinate number or portion of the pledged shares. In such
a case, there may lie the need to ascertain with particularity which of the shares
are covered by the bid price, since not all of the shares may be sold at the auction
and correspondingly not all of the pledge contracts extinguished. The same
situation also would lie if one or some of the owners of the pledged shares
participated in the auction, bidding only on their respective pledged shares.
However, in this case, none of the pledgors participated in the auction, and the
sole bidder cast his bid for all of the shares. There obviously is no longer any
practical reason to apportion the bid price to the respective shares, since no matter
how slight or significant the value of the purchase price for the individual share is,
the sale is completed, with the pledgor and the pledgee not entitled to recover the
excess or the deficiency, as the case may be. To invalidate the subject auction
solely on this point serves no cause other than to celebrate formality for formalitys
sake.
Clearly, the theory adopted by the Court of Appeals is in shambles, and
cannot be resurrected. The question though yet remains whether the
consignations made by respondents extinguished their respective pledge
contracts in favor of the Parays so as to enjoin the latter from auctioning the
pledged shares.
There is no doubt that if the principal obligation is satisfied, the pledges
should be terminated as well. Article 2098 of the Civil Code provides that the right
of the creditor to retain possession of the pledged item exists only until the debt is
paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask for
the return of the thing pledged against the will of the creditor, unless and until he
has paid the debt and its interest. At the same time, the right of the pledgee to
foreclose the pledge is also established under the Civil Code. When the credit has
not been satisfied in due time, the creditor may proceed with the sale by public
auction under the procedure provided under Article 2112 of the Code.
Respondents argue that their various consignations made prior to the
auction sale discharged them from the loan and the pledge agreements. They are
mistaken.
Petitioners point out that while the amounts consigned by respondents
could answer for their respective principal loan obligations, they were not sufficient
to cover the interests due on these loans, which were pegged at the rate of 5% per
month or 60% per annum. Before this Court, respondents, save for Dolores
Soberano, do not contest this interest rate as alleged by petitioners. Soberano, on
the other hand, challenges this interest rate as usurious. [17]
The particular pledge contracts did not form part of the records elevated
to this Court. However, the 5% monthly interest rate was noted in the statement of
facts in the 14 October 1988 RTC Decision which had since become final.
Moreover, the said decision pronounced that even assuming that the interest rates
of the various loans were 5% per month, it is doubtful whether the interests so
charged were exorbitantly or excessively usurious. This is because for sometime
now, usury has become legally inexistent.[18] The finality of this 1988 Decision is a
settled fact, and thus the time to challenge the validity of the 5% monthly interest
rate had long passed. With that in mind, there is no reason for the Court to disagree
with petitioners that in order that the consignation could have the effect of
extinguishing the pledge contracts, such amounts should cover not just the
principal loans, but also the 5% monthly interests thereon.
It bears noting that the Court of Appeals also ruled that respondents had
satisfied the requirements under Section 18, Rule 39, which provides that the
judgment obligor may prevent the sale by paying the amount required by the
execution and the costs that have been incurred therein.[19] However, the provision
applies only to execution sales, and not extra-judicial sales, as evidenced by the
use of the phrases sale of property on execution and judgment obligor. The
reference is inapropos, and even if it were applicable, the failure of the payment to
cover the interests due renders it insufficient to stay the sale.
The effect of the finality of the judgments in Civil Cases Nos. R-20120
and R-20131 should also not be discounted. Petitioners right to proceed with the
auction sale was affirmed not only by law, but also by a final court judgment. Any
subsequent court ruling that would enjoin the petitioners from exercising such right
would have the effect of superseding a final and executory judgment.
Finally, we cannot help but observe that respondents may have saved
themselves much trouble if they simply participated in the auction sale, as they are
permitted to bid themselves on their pledged properties. [20] Moreover, they would
have had a better right had they matched the terms of the highest bidder.[21] Under
the circumstances, with the high interest payments that accrued after several
years, respondents were even placed in a favorable position by the pledge
agreements, since the creditor would be unable to recover any deficiency from the
debtors should the sale price be insufficient to cover the principal amounts with
interests. Certainly, had respondents participated in the auction, there would have
been a chance for them to recover the shares at a price lower than the amount
that was actually due from them to the Parays. That respondents failed to avail of
this beneficial resort wholly accorded them by law is their loss. Now, all
respondents can recover is the amounts they had consigned.
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of
Appeals is SET ASIDE and the decision of the Cebu City RTC, Branch 16,
dated 18 November 1992 is REINSTATED. Costs against respondents. SO
ORDERED.
G.R. No. L-19227 February 17, 1968
DIOSDADO YULIONGSIU, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK (Cebu Branch), defendant-appellee.
Vicente Jaime, Regino Hermosisima & E. Lumontad, Sr. for plaintiff-appellant.
Tomas Besa, R. B. de los Reyes and C. E. Medina for defendant-appellee.
BENGZON, J.P., J.:
Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels,
namely: The M/S Surigao, valued at P109,925.78 and the M/S Don Dino, valued
at P63,000.00, and operated the FS-203, valued at P210,672.24, which was
purchased by him from the Philippine Shipping Commission, by installment or on
account. As of January or February, 1943, plaintiff had paid to the Philippine
Shipping Commission only the sum of P76,500 and the balance of the purchase
price was payable at P50,000 a year, due on or before the end of the current year.
2
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant
Philippine National Bank, Cebu Branch. To guarantee its payment, plaintiff pledged
the M/S Surigao, M/S Don Dino and its equity in the FS-203 to the defendant bank,
as evidenced by the pledge contract, Exhibit "A" & "1-Bank", executed on the same
day and duly registered with the office of the Collector of Customs for the Port of
Cebu. 3
Subsequently, plaintiff effected partial payment of the loan in the sum of
P20,000. The remaining balance was renewed by the execution of two (2)
promissory notes in the bank's favor. The first note, dated December 18, 1947, for
P20,000, was due on April 16, 1948 while the second, dated February 26, 1948,
for P10,000, was due on June 25, 1948. These two notes were never paid at all
by plaintiff on their respective due dates. 4
On April 6, 1948, the bank filed criminal charges against plaintiff and two
other accused for estafa thru falsification of commercial documents, because
plaintiff had, as last indorsee, deposited with defendant bank, from March 11 to
March 31, 1948, seven Bank of the Philippine Islands checks totalling P184,000.
The drawer thereof one of the co-accused had no funds in the drawee bank.
However, in connivance with one employee of defendant bank, plaintiff was able
to withdraw the amount credited to him before the discovery of the defraudation on
April 2, 1948. Plaintiff and his co-accused were convicted by the trial court and
sentenced to indemnify the defendant bank in the sum of P184,000. On appeal,
the conviction was affirmed by the Court of Appeals on October 31, 1950. The
corresponding writ of execution issued to implement the order for indemnification
was returned unsatisfied as plaintiff was totally insolvent. 5
Meanwhile, together with the institution of the criminal action, defendant
bank took physical possession of three pledged vessels while they were at the Port
of Cebu, and on April 29, 1948, after the first note fell due and was not paid, the
Cebu Branch Manager of defendant bank, acting as attorney-in-fact of plaintiff
pursuant to the terms of the pledge contract, executed a document of sale, Exhibit
"4", transferring the two pledged vessels and plaintiff's equity in FS-203, to
defendant bank for P30,042.72. 6
The FS-203 was subsequently surrendered by the defendant bank to the
Philippine Shipping Commission which rescinded the sale to plaintiff on September
8, 1948, for failure to pay the remaining installments on the purchase price thereof.
7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by
defendant bank to third parties on March 15, 1951.
On July 19, 1948, plaintiff commenced action in the Court of First Instance
of Cebu to recover the three vessels or their value and damages from defendant
bank. The latter filed its answer, with a counterclaim for P202,000 plus P5,000
damages. After issues were joined, a pretrial was held resulting in a partial
stipulation of facts dated October 2, 1958, reciting most of the facts above-
narrated. During the course of the trial, defendant amended its answer reducing
its claim from P202,000 to P8,846.01, 8 but increasing its alleged damages to
P35,000.
The lower court rendered its decision on February 13, 1960 ruling: (a) that
the bank's taking of physical possession of the vessels on April 6, 1948 was
justified by the pledge contract, Exhibit "A" & "1-Bank" and the law; (b) that the
private sale of the pledged vessels by defendant bank to itself without notice to the
plaintiff-pledgor as stipulated in the pledge contract was likewise valid; and (c) that
the defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as
his remaining account balance, or set-off these sums against the indemnity which
plaintiff was ordered to pay to it in the criminal cases.
When his motion for reconsideration and new trial was denied, plaintiff
brought the appeal to Us, the amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant would have this
Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the
creditor defendant could not take possession of the chattels object thereof until
after there has been default. The submission is without merit. The parties
stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract
3. That a credit line of P50,000.00 was extended to the plaintiff by the
defendant Bank, and the plaintiff obtained and received from the said Bank the
sum of P50,000.00, and in order to guarantee the payment of this loan, the pledge
contract, Exhibit "A" & Exhibit "1-Bank", was executed and duly registered with the
Office of the Collector of Customs for the Port of Cebu on the date appearing
therein; (Emphasis supplied)1wph1.t
Necessarily, this judicial admission binds the plaintiff. Without any showing
that this was made thru palpable mistake, no amount of rationalization can offset
it. 9
The defendant bank as pledgee was therefore entitled to the actual
possession of the vessels. While it is true that plaintiff continued operating the
vessels after the pledge contract was entered into, his possession was expressly
made "subject to the order of the pledgee." 10 The provision of Art. 2110 of the
present Civil Code 11 being new cannot apply to the pledge contract here which
was entered into on June 30, 1947. On the other hand, there is an authority
supporting the proposition that the pledgee can temporarily entrust the physical
possession of the chattels pledged to the pledgor without invalidating the pledge.
In such a case, the pledgor is regarded as holding the pledged property merely as
trustee for the pledgee. 12
Plaintiff-appellant would also urge Us to rule that constructive delivery is
insufficient to make pledge effective. He points to Betita v. Ganzon, 49 Phil. 87
which ruled that there has to be actual delivery of the chattels pledged. But then
there is also Banco Espaol-Filipino v. Peterson, 7 Phil. 409 ruling that symbolic
delivery would suffice. An examination of the peculiar nature of the things pledged
in the two cases will readily dispel the apparent contradiction between the two
rulings. In Betita v. Ganzon, the objects pledged carabaos were easily
capable of actual, manual delivery unto the pledgee. In Banco Espaol-Filipino v.
Peterson, the objects pledged goods contained in a warehouse were hardly
capable of actual, manual delivery in the sense that it was impractical as a whole
for the particular transaction and would have been an unreasonable requirement.
Thus, for purposes of showing the transfer of control to the pledgee, delivery to
him of the keys to the warehouse sufficed. In other words, the type of delivery will
depend upon the nature and the peculiar circumstances of each case. The parties
here agreed that the vessels be delivered by the "pledgor to the pledgor who shall
hold said property subject to the order of the pledgee." Considering the
circumstances of this case and the nature of the objects pledged, i.e., vessels used
in maritime business, such delivery is sufficient.
Since the defendant bank was, pursuant to the terms of pledge contract, in
full control of the vessels thru the plaintiff, the former could take actual possession
at any time during the life of the pledge to make more effective its security. Its
taking of the vessels therefore on April 6, 1948, was not unlawful. Nor was it
unjustified considering that plaintiff had just defrauded the defendant bank in the
huge sum of P184,000.
The stand We have taken is not without precedent. The Supreme Court of
Spain, in a similar case involving Art. 1863 of the old Civil Code, 13 has ruled: 14
 WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs
Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas against plaintiff-appellant. So ordered.
a poder del acreedor o de un tercero y no quedar en la del deudor, como ha
sucedido en el caso de autos, es lo cierto que todas las partes interesadas, o sean
acreedor, deudor y Sociedad, convinieron que continuaran los coches en poder
del deudor para no suspender el trafico, y el derecho de no uso de la prenda
pertenence al deudor, y el de dejar la cosa bajo su responsabilidad al acreedor, y
ambos convinieron por creerlo util para las partes contratantes, y estas no
reclaman perjuicios no se infringio, entre otros este articulo.

In the second assignment of error imputed to the lower court plaintiff-

appellant attacks the validity of the private sale of the pledged vessels in favor of
the defendant bank itself. It is contended first, that the cases holding that the
statutory requirements as to public sales with prior notice in connection with
foreclosure proceedings are waivable, are no longer authoritative in view of the
passage of Act 3135, as amended; second, that the charter of defendant bank
does not allow it to buy the property object of foreclosure in case of private sales;
and third, that the price obtained at the sale is unconscionable.

There is no merit in the claims. The rulings in Philippine National Bank v. De

Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes, 45 Phil. 178 are still
authoritative despite the passage of Act 3135. This law refers only, and is limited,
to foreclosure of real estate mortgages. 15 So, whatever formalities there are in
Act 3135 do not apply to pledge. Regarding the bank's authority to be the
purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747
and 2938 only states that if the sale is public, the bank could purchase the whole
or part of the property sold " free from any right of redemption on the part of the
mortgagor or pledgor." This even argues against plaintiff's case since the import
thereof is this if the sale were private and the bank became the purchaser, the
mortgagor or pledgor could redeem the property. Hence, plaintiff could have
recovered the vessels by exercising this right of redemption. He is the only one to
blame for not doing so.

Regarding the third contention, on the assumption that the purchase price
was unconscionable, plaintiff's remedy was to have set aside the sale. He did not
avail of this. Moreover, as pointed out by the lower court, plaintiff had at the time
an obligation to return the P184,000 fraudulently taken by him from defendant
bank.

The last assignment of error has to do with the damages allegedly suffered
by plaintiff-appellant by virtue of the taking of the vessels. But in view of the results
reached above, there is no more need to discuss the same.

On the whole, We cannot say the lower court erred in disposing of the case
as it did. Plaintiff-appellant was not all-too-innocent as he would have Us believe.
He did defraud the defendant bank first. If the latter countered with the seizure and
sale of the pledged vessels pursuant to the pledge contract, it was only to protect
its interests after plaintiff had defaulted in the payment of the first promissory note.
Plaintiff-appellant did not come to court with clean hands.
PRUDENTIAL BANK, G.R. No. 150197
Petitioner,
Present:
PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
DON A. ALVIAR and GEORGIA
B. ALVIAR,
Respondents. Promulgated:
July 28, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court.
Petitioner Prudential Bank seeks the reversal of the Decision[1] of the Court of
Appeals dated 27 September 2001 in CA-G.R. CV No. 59543 affirming the
Decision of the Regional Trial Court (RTC) of Pasig City, Branch 160, in favor of
respondents.
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered
owners of a parcel of land in San Juan, Metro Manila, covered by Transfer
Certificate of Title (TCT) No. 438157 of the Register of Deeds of Rizal. On 10 July
1975, they executed a deed of real estate mortgage in favor of petitioner Prudential
Bank to secure the payment of a loan worth P250,000.00.[2] This mortgage was
annotated at the back of TCT No. 438157. On 4 August 1975, respondents
executed the corresponding promissory note, PN BD#75/C-252, covering the said
loan, which provides that the loan matured on 4 August 1976 at an interest rate of
12% per annum with a 2% service charge, and that the note is secured by a real
estate mortgage as aforementioned.[3] Significantly, the real estate mortgage
contained the following clause:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that may hereafter be obtained,
the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee
may extend to the Mortgagor and/or DEBTOR, including interest and expenses or
any other obligation owing to the Mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which are described in
the list inserted on the back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares that he/it is the
absolute owner free from all liens and incumbrances. . . .[4]
On 22 October 1976, Don Alviar executed another promissory note, PN BD#76/C-
345 for P2,640,000.00, 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 under Account No. 129, and that the mortgagors passbook is to be
surrendered to the bank until the amount secured by the hold-out is settled.[5]
On 27 December 1976, respondent spouses executed for Donalco Trading, Inc.,
of which the husband and wife were President and Chairman of the Board and
Vice President,[6] respectively, PN BD#76/C-430 covering P545,000.000. As
provided in the note, the loan is secured by Clean-Phase out TOD CA 3923, which
means that the temporary overdraft incurred by Donalco Trading, Inc. with
petitioner is to be converted into an ordinary loan in compliance with a Central
Bank circular directing the discontinuance of overdrafts.[7]
On 16 March 1977, petitioner wrote Donalco Trading, Inc., informing the latter of
its approval of a straight loan of P545,000.00, the proceeds of which shall be used
to liquidate the outstanding loan of P545,000.00 TOD. The letter likewise
mentioned that the securities for the loan were the deed of assignment on two
promissory notes executed by Bancom Realty Corporation with Deed of Guarantee
in favor of A.U. Valencia and Co. and the chattel mortgage on various heavy and
transportation equipment.[8]
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to
the obligations of G.B. Alviar Realty and Development, Inc. and for the release of
the real estate mortgage for the P450,000.00 loan covering the two (2) lots located
at Vam Buren and Madison Streets, North Greenhills, San Juan, Metro Manila.
The payment was acknowledged by petitioner who accordingly released the
mortgage over the two properties.[9]
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the
mortgage on the property covered by TCT No. 438157. Per petitioners
computation, respondents had the total obligation of P1,608,256.68, covering the
three (3) promissory notes, to wit: PN BD#75/C-252 for P250,000.00, PN
BD#76/C-345 for P382,680.83, and PN BD#76/C-340 for P545,000.00, plus
assessed past due interests and penalty charges. The public auction sale of the
mortgaged property was set on 15 January 1980.[10]
Respondents filed a complaint for damages with a prayer for the issuance of a writ
of preliminary injunction with the RTC of Pasig,[11] claiming that they have paid
their principal loan secured by the mortgaged property, and thus the mortgage
should not be foreclosed. For its part, petitioner averred that the payment of
P2,000,000.00 made on 6 March 1979 was not a payment made by respondents,
but by G.B. Alviar Realty and Development Inc., which has a separate loan with
the bank secured by a separate mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and ordered the Sheriff
to proceed with the extra-judicial foreclosure.[13] Respondents sought
reconsideration of the decision.[14] On 24 August 1994, the trial court issued an
Order setting aside its earlier decision and awarded attorneys fees to
respondents.[15] It found that only the P250,000.00 loan is secured by the
mortgage on the land covered by TCT No. 438157. On the other hand, the
P382,680.83 loan is secured by the foreign currency deposit account of Don A.
Alviar, while the P545,000.00 obligation was an unsecured loan, being a mere
conversion of the temporary overdraft of Donalco Trading, Inc. in compliance with
a Central Bank circular. According to the trial court, the blanket mortgage clause
relied upon by petitioner applies only to future loans obtained by the mortgagors,
and not by parties other than the said mortgagors, such as Donalco Trading, Inc.,
for which respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following assignment of
errors:
I. The trial court erred in holding that the real estate mortgage covers
only the promissory note BD#75/C-252 for the sum of P250,000.00.
II. The trial court erred in holding that the promissory note BD#76/C-345
for P2,640,000.00 (P382,680.83 outstanding principal balance) is not covered by
the real estate mortgage by expressed agreement.
III. The trial court erred in holding that Promissory Note BD#76/C-430 for
P545,000.00 is not covered by the real estate mortgage.
IV. The trial court erred in holding that the real estate mortgage is a contract
of adhesion.
V. The trial court erred in holding defendant-appellant liable to pay
plaintiffs-appellees attorneys fees for P20,000.00.[16]
The Court of Appeals affirmed the Order of the trial court but deleted the award of
attorneys fees.[17] It ruled that while a continuing loan or credit accommodation
based on only one security or mortgage is a common practice in financial and
commercial institutions, such agreement must be clear and unequivocal. In the
instant case, the parties executed different promissory notes agreeing to a
particular security for each loan. Thus, the appellate court ruled that the
extrajudicial foreclosure sale of the property for the three loans is improper.[18]
The Court of Appeals, however, found that respondents have not yet paid the
P250,000.00 covered by PN BD#75/C-252 since the payment of P2,000,000.00
adverted to by respondents was issued for the obligations of G.B. Alviar Realty
and Development, Inc.[19]
Aggrieved, petitioner filed the instant petition, reiterating the assignment of errors
raised in the Court of Appeals as grounds herein.
Petitioner maintains that the blanket mortgage clause or the dragnet clause in the
real estate mortgage expressly covers not only the P250,000.00 under PN
BD#75/C-252, but also the two other promissory notes included in the application
for extrajudicial foreclosure of real estate mortgage.[20] Thus, it claims that it acted
within the terms of the mortgage contract when it filed its petition for extrajudicial
foreclosure of real estate mortgage. Petitioner relies on the cases of Lim Julian v.
Lutero,[21] Tad-Y v. Philippine National Bank,[22] Quimson v. Philippine National
Bank,[23] C & C Commercial v. Philippine National Bank,[24] Mojica v. Court of
Appeals,[25] and China Banking Corporation v. Court of Appeals,[26] all of which
upheld the validity of mortgage contracts securing future advancements.
Anent the Court of Appeals conclusion that the parties did not intend to include PN
BD#76/C-345 in the real estate mortgage because the same was specifically
secured by a foreign currency deposit account, petitioner states that there is no
law or rule which prohibits an obligation from being covered by more than one
security.[27] Besides, respondents even continued to withdraw from the same
foreign currency account even while the promissory note was still outstanding,
strengthening the belief that it was the real estate mortgage that principally secured
all of respondents promissory notes.[28] As for PN BD#76/C-345, which the Court
of Appeals found to be exclusively secured by the Clean-Phase out TOD 3923,
petitioner posits that such security is not exclusive, as the dragnet clause of the
real estate mortgage covers all the obligations of the respondents.[29]
Moreover, petitioner insists that respondents attempt to evade foreclosure by the
expediency of stating that the promissory notes were executed by them not in their
personal capacity but as corporate officers. It claims that PN BD#76/C-430 was in
fact for home construction and personal consumption of respondents. Thus, it
states that there is a need to pierce the veil of corporate fiction.[30]
Finally, petitioner alleges that the mortgage contract was executed by respondents
with knowledge and understanding of the dragnet clause, being highly educated
individuals, seasoned businesspersons, and political personalities.[31] There was
no oppressive use of superior bargaining power in the execution of the promissory
notes and the real estate mortgage.[32]
For their part, respondents claim that the dragnet clause cannot be applied to the
subsequent loans extended to Don Alviar and Donalco Trading, Inc. since these
loans are covered by separate promissory notes that expressly provide for a
different form of security.[33] They reiterate the holding of the trial court that the
blanket mortgage clause would apply only to loans obtained jointly by respondents,
and not to loans obtained by other parties.[34] Respondents also place a premium
on the finding of the lower courts that the real estate mortgage clause is a contract
of adhesion and must be strictly construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity of the
blanket mortgage clause or the dragnet clause; (ii) the coverage of the blanket
mortgage clause; and consequently, (iii) the propriety of seeking foreclosure of the
mortgaged property for the non-payment of the three loans.
At this point, it is important to note that one of the loans sought to be included in
the blanket mortgage clause was obtained by respondents for Donalco Trading,
Inc. Indeed, PN BD#76/C-430 was executed by respondents on behalf of Donalco
Trading, Inc. and not in their personal capacity. Petitioner asks the Court to pierce
the veil of corporate fiction and hold respondents liable even for obligations they
incurred for the corporation. The mortgage contract states that the mortgage
covers as well as those that the Mortgagee may extend to the Mortgagor and/or
DEBTOR, including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary. 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.[36] 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.[37] PN BD#76/C-430, being an obligation of Donalco Trading, Inc., and not
of the respondents, is not within the contemplation of the blanket mortgage clause.
Moreover, petitioner is unable to show that respondents are hiding behind the
corporate structure to evade payment of their obligations. Save for the notation in
the promissory note that the loan was for house construction and personal
consumption, there is no proof showing that the loan was indeed for respondents
personal consumption. Besides, petitioner agreed to the terms of the promissory
note. If respondents were indeed the real parties to the loan, petitioner, a big, well-
established institution of long standing that it is, should have insisted that the note
be made in the name of respondents themselves, and not to Donalco Trading Inc.,
and that they sign the note in their personal capacity and not as officers of the
corporation.
Now on the main issues.
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.[38]
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.[39] 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, et cetera.[40] Indeed, it has
been settled in a long line of decisions that mortgages given to secure future
advancements are valid and legal contracts,[41] 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.[42]
The blanket mortgage clause in the instant case states:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as DEBTOR,
and to secure the payment of the same and those that may hereafter be obtained,
the principal or all of which is hereby fixed at Two Hundred Fifty Thousand
(P250,000.00) Pesos, Philippine Currency, as well as those that the Mortgagee
may extend to the Mortgagor and/or DEBTOR, including interest and expenses or
any other obligation owing to the Mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records of the Mortgagee, the
Mortgagor does hereby transfer and convey by way of mortgage unto the
Mortgagee, its successors or assigns, the parcels of land which are described in
the list inserted on the back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or which may hereafter be
erected or constructed thereon, of which the Mortgagor declares that he/it is the
absolute owner free from all liens and incumbrances. . . .[43] (Emphasis supplied.)
Thus, contrary to the finding of the Court of Appeals, petitioner and respondents
intended the real estate mortgage to secure not only the P250,000.00 loan from
the petitioner, but also future credit facilities and advancements that may be
obtained by the respondents. The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe it otherwise.
The cases cited by petitioner, while affirming the validity of dragnet clauses or
blanket mortgage clauses, are of a different factual milieu from the instant case.
There, the subsequent loans were not covered by any security other than that for
the mortgage deeds which uniformly contained the dragnet clause.
In the case at bar, the subsequent loans obtained by respondents were secured
by other securities, thus: PN BD#76/C-345, executed by Don Alviar was secured
by a hold-out on his foreign currency savings account, while PN BD#76/C-430,
executed by respondents for Donalco Trading, Inc., was secured by Clean-Phase
out TOD CA 3923 and eventually by a deed of assignment on two promissory
notes executed by Bancom Realty Corporation with Deed of Guarantee in favor of
A.U. Valencia and Co., and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C-430 has already been
discussed. Thus, the critical issue is whether the blanket mortgage clause applies
even to subsequent advancements for which other securities were intended, or
particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a dragnet clause so 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.[44] The contrary thinking maintains 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,[45] such deficiency being an indebtedness within the meaning
of the mortgage, in the absence of a special contract excluding it from the
arrangement.[46]
The latter school represents the better position. The parties having conformed to
the blanket mortgage clause or dragnet 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. In other words, the sufficiency of the first security is a corollary
component of the dragnet clause. But of course, there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other securities for the
subsequent loans. Thus, when the mortgagor takes another loan for which another
security was given it could not be inferred that such loan was made in reliance
solely on the original security with the dragnet clause, but rather, on the new
security given. This is the reliance on the security test.
Hence, based on the reliance on the security test, the California court in the cited
case made an inquiry whether the second loan was made in reliance on the original
security containing a dragnet clause. Accordingly, finding a different security was
taken for the second loan no intent that the parties relied on the security of the first that is, construed against the party who caused the ambiguity which could have
loan could be inferred, so it was held. The rationale involved, the court said, was avoided it by the exercise of a little more care.[54] To be more emphatic, any
that the dragnet clause in the first security instrument constituted a continuing offer ambiguity in a contract whose terms are susceptible of different interpretations
by the borrower to secure further loans under the security of the first security must be read against the party who drafted it,[55] which is the petitioner in this
instrument, and that when the lender accepted a different security he did not case.
accept the offer.[47]
In another case, it was held that a mortgage with a dragnet clause is an offer by Even the promissory notes in issue were made on standard forms prepared by
the mortgagor to the bank to provide the security of the mortgage for advances of petitioner, and as such are likewise contracts of adhesion. Being of such nature,
and when they were made. Thus, it was concluded that the offer was not accepted the same should be interpreted strictly against petitioner and with even more
by the bank when a subsequent advance was made because (1) the second note reason since having been accomplished by respondents in the presence of
was secured by a chattel mortgage on certain vehicles, and the clause therein petitioners personnel and approved by its manager, they could not have been
stated that the note was secured by such chattel mortgage; (2) there was no unaware of the import and extent of such contracts.
reference in the second note or chattel mortgage indicating a connection between Petitioner, however, is not without recourse. Both the Court of Appeals and the trial
the real estate mortgage and the advance; (3) the mortgagor signed the real estate court found that respondents have not yet paid the P250,000.00, and gave no
mortgage by her name alone, whereas the second note and chattel mortgage were credence to their claim that they paid the said amount when they paid petitioner
signed by the mortgagor doing business under an assumed name; and (4) there P2,000,000.00. Thus, the mortgaged property could still be properly subjected to
was no allegation by the bank, and apparently no proof, that it relied on the security foreclosure proceedings for the unpaid P250,000.00 loan, and as mentioned
of the real estate mortgage in making the advance.[48] earlier, for any deficiency after D/A SFDX#129, security for PN BD#76/C-345, has
been exhausted, subject of course to defenses which are available to respondents.
Indeed, in some instances, it has been held that in the absence of clear, supportive
evidence of a contrary intention, a mortgage containing a dragnet clause will not WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
be extended to cover future advances unless the document evidencing the CA-G.R. CV No. 59543 is AFFIRMED.
subsequent advance refers to the mortgage as providing security therefor.[49] Costs against petitioner.
SO ORDERED.
It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory notes.
While the existence and validity of the dragnet clause cannot be denied, there is a
need to respect the existence of the other security given for PN BD#76/C-345. The
foreclosure of the mortgaged property should only be for the P250,000.00 loan
covered by PN BD#75/C-252, and for any amount not covered by the security for
the second promissory note. As held in one case, where deeds absolute in form
were executed to secure any and all kinds of 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.[50] 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.
One other crucial point. The mortgage contract, as well as the promissory notes
subject of this case, is a contract of adhesion, to which respondents only
participation was the affixing of their signatures or adhesion thereto.[51] A contract
of adhesion is one in which a party imposes a ready-made form of contract which
the other party may accept or reject, but which the latter cannot modify.[52]

The real estate mortgage in issue appears in a standard form, drafted and
prepared solely by petitioner, and which, according to jurisprudence must be
strictly construed against the party responsible for its preparation.[53] If the parties
intended that the blanket mortgage clause shall cover subsequent advancement
secured by separate securities, then the same should have been indicated in the
mortgage contract. Consequently, any ambiguity is to be taken contra proferentum,
G.R. No. L-17500 May 16, 1967
PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO.
OF MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER
CORPORATION and CONNELL BROS. CO. (PHIL.), defendants-appellants.
Angel S. Gamboa for defendants-appellants.
Laurel Law Offices for plaintiffs-appellants.
DIZON, J.:
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West
Virginia corporation licensed to do business in the Philippines hereinafter
referred to as ATLANTIC sold and assigned all its rights in the Dahican
Lumber concession to Dahican Lumber Company hereinafter referred to as
DALCO for the total sum of $500,000.00, of which only the amount of
$50,000.00 was paid. Thereafter, to develop the concession, DALCO obtained
various loans from the People's Bank & Trust Company hereinafter referred to
as the BANK amounting, as of July 13, 1950, to P200,000.00. In addition,
DALCO obtained, through the BANK, a loan of $250,000.00 from the Export-
Import Bank of Washington D.C., evidenced by five promissory notes of
$50,000.00 each, maturing on different dates, executed by both DALCO and the
Dahican America Lumber Corporation, a foreign corporation and a stockholder of
DALCO, hereinafter referred to as DAMCO, all payable to the BANK or its
order.
As security for the payment of the abovementioned loans, on July 13, 1950
DALCO executed in favor of the BANK the latter acting for itself and as trustee
for the Export-Import Bank of Washington D.C. a deed of mortgage covering
five parcels of land situated in the province of Camarines Norte together with all
the buildings and other improvements existing thereon and all the personal
properties of the mortgagor located in its place of business in the municipalities
of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date,
DALCO executed a second mortgage on the same properties in favor of
ATLANTIC to secure payment of the unpaid balance of the sale price of the
lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both deeds
contained the following provision extending the mortgage lien to properties to be
subsequently acquired referred to hereafter as "after acquired properties"
by the mortgagor:
All property of every nature and description taken in exchange or
replacement, and all buildings, machinery, fixtures, tools equipment and
other property which the Mortgagor may hereafter acquire, construct,
install, attach, or use in, to, upon, or in connection with the premises,
shall immediately be and become subject to the lien of this mortgage in
the same manner and to the same extent as if now included therein,
and the Mortgagor shall from time to time during the existence of this
mortgage furnish the Mortgagee with an accurate inventory of such
substituted and subsequently acquired property.
Both mortgages were registered in the Office of the Register of Deeds of
Camarines Norte. In addition thereto DALCO and DAMCO pledged to the BANK
7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the
same obligations.
Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its
maturity, the BANK paid the same to the Export-Import Bank of Washington D.C.,
and the latter assigned to the former its credit and the first mortgage securing it.
Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay
the overdue promissory note.
After July 13, 1950 the date of execution of the mortgages mentioned above
DALCO purchased various machineries, equipment, spare parts and supplies
in addition to, or in replacement of some of those already owned and used by it
on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted
theretofore regarding "after acquired properties," the BANK requested DALCO to
submit complete lists of said properties but the latter failed to do so. In
connection with these purchases, there appeared in the books of DALCO as due
to Connell Bros. Company (Philippines) a domestic corporation who was
acting as the general purchasing agent of DALCO thereinafter called
CONNELL the sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.
On December 16, 1952, the Board of Directors of DALCO, in a special meeting
called for the purpose, passed a resolution agreeing to rescind the alleged sales
of equipment, spare parts and supplies by CONNELL and DAMCO to it.
Thereafter, the corresponding agreements of rescission of sale were executed
between DALCO and DAMCO, on the one hand and between DALCO and
CONNELL, on the other.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC,
demanded that said agreements be cancelled but CONNELL and DAMCO
refused to do so. As a result, on February 12, 1953; ATLANTIC and the BANK,
commenced foreclosure proceedings in the Court of First Instance of Camarines
Norte against DALCO and DAMCO. On the same date they 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 and appointed George H. Evans as Receiver. Upon
defendants' motion, however, the court, in its order of February 21, 1953,
discharged the Receiver.
On March 2, 1953, defendants filed their answer denying the material allegations
of the complaint and alleging several affirmative defenses and a counterclaim.
On March 4 of the same year, CONNELL, filed a motion for intervention alleging
that it was the owner and possessor of some of the equipments, spare parts and
supplies which DALCO had acquired subsequent to the execution of the
mortgages sought to be foreclosed and which plaintiffs claimed were covered by
the lien. In its order of March 18,1953 the Court granted the motion, as well as
plaintiffs' motion to set aside the order discharging the Receiver. Consequently,
Evans was reinstated.
On April 1, 1953, CONNELL filed its answer denying the material averment of the
complaint, and asserting affirmative defenses and a counterclaim.
Upon motion of the parties the Court, on September 30, 1953, issued an order
transferring the venue of the action to the Court of First Instance of Manila where
it was docketed as Civil Case No. 20987.
On August 30, 1958, upon motion of all the parties, the Court ordered the sale of
all the machineries, equipment and supplies of DALCO, and the same were
subsequently sold for a total consideration of P175,000.00 which was deposited
in court pending final determination of the action. By a similar agreement one-half
(P87,500.00) of this amount was considered as representing the proceeds
obtained from the 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".
After due trial, the Court, on July 15, 1960, rendered judgment as follows:
IN VIEW WHEREFORE, the Court:
1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum
of P200,000,00 with 7% interest per annum from July 13, 1950, Plus
another sum of P100,000.00 with 5% interest per annum from July 13,
1950; plus 10% on both principal sums as attorney's fees;
2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of
P900,000.00 with 4% interest per annum from July 3, 1950, plus 10%
on both principal as attorney's fees;
3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of
P425,860.55, and to pay unto Dahican American Lumber Co. the sum
of P2,151,678.24 both with legal interest from the date of the filing of the
respective answers of those parties, 10% of the principals as attorney's
fees;
4. Orders that of the sum realized from the sale of the properties of
P175,000.00, after deducting the recognized expenses, one-half thereof
be adjudicated unto plaintiffs, the court no longer specifying the share of
each because of that announced intention under the stipulation of facts
to "pool their resources"; as to the other one-half, the same should be
adjudicated unto both plaintiffs, and defendant Dahican American and
Connell Bros. in the proportion already set forth on page 9, lines 21, 22
and 23 of the body of this decision; but with the understanding that
whatever plaintiffs and Dahican American and Connell Bros. should
receive from the P175,000.00 deposited in the Court shall be applied to
the judgments particularly rendered in favor of each;
5. No other pronouncement as to costs; but the costs of the receivership
as to the debated properties shall be borne by People's Bank, Atlantic
Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.
On the following day, the Court issued the following supplementary decision:
IN VIEW WHEREOF, the dispositive part of the decision is hereby
amended in order to add the following paragraph 6:
6. If the sums mentioned in paragraphs 1 and 2 are not paid within
ninety (90) days, the Court orders the sale at public auction of the lands
object of the mortgages to satisfy the said mortgages and costs of
foreclosure.
From the above-quoted decision, all the parties appealed.
Main contentions of plaintiffs as appellants are the following: that the "after
acquired properties" were subject to the deeds of mortgage mentioned
heretofore; that said properties were acquired from suppliers other than DAMCO
and CONNELL; that even granting that DAMCO and CONNELL were the real
suppliers, the rescission of the sales to DALCO could not prejudice the mortgage
lien in favor of plaintiffs; that considering the foregoing, the proceeds obtained
from the sale of the "after acquired properties" as well as those obtained from the
sale of the "undebated properties" in the total sum of P175,000.00 should have
been awarded exclusively to plaintiffs by reason of the mortgage lien they had
thereon; that damages should have been awarded to plaintiffs against
defendants, all of them being guilty of an attempt to defraud the former when
they sought to rescind the sales already mentioned for the purpose of defeating
their mortgage lien, and finally, that defendants should have been made to bear
all the expenses of the receivership, costs and attorney's fees.
On the other hand, defendants-appellants contend that the trial court erred:
firstly, in not holding that plaintiffs had no cause of action against them because
the promissory note sued upon was not yet due when the action to foreclose the
mortgages was commenced; secondly, in not holding that the mortgages
aforesaid were null and void as regards the "after acquired properties" of DALCO
because they were not registered in accordance with the Chattel Mortgage Law,
the court erring, as a consequence, in holding that said properties were subject
to the mortgage lien in favor of plaintiffs; thirdly, in not holding that 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; fourthly, in not ruling that said stipulation was void as against DAMCO
and CONNELL and in not awarding the proceeds obtained from the sale of the
"after acquired properties" to the latter exclusively; fifthly, in appointing a
Receiver and in holding that the damages suffered by DAMCO and CONNELL by
reason of the depreciation or loss in value of the "after acquired properties"
placed under receivership was damnum absque injuria and, consequently, in not
awarding, to said parties the corresponding damages claimed in their
counterclaim; lastly, in sentencing DALCO and DAMCO to pay attorney's fees
and in requiring DAMCO and CONNELL to pay the costs of the Receivership,
instead of sentencing plaintiffs to pay attorney's fees.
Plaintiffs' brief as appellants submit six assignments of error, while that of
defendants also as appellants submit a total of seventeen. However, the
multifarious issues thus before Us may be resolved, directly or indirectly, by
deciding the following issues:
Firstly, are the so-called "after acquired properties" covered by and subject to the
deeds of mortgage subject of foreclosure?; secondly, 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?; thirdly, 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 entered into, on the one hand, between DAMCO
and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was
the action to foreclose the mortgages premature?
A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that
all property of every nature and description taken in exchange or replacement, as
well as all buildings, machineries, fixtures, tools, equipments, and other property
that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in
connection with the premises that is, its lumber concession "shall
immediately be and become subject to the lien" of both mortgages in the same
manner and to the same extent as if already included therein at the time of their
execution. As the language thus used leaves no room for doubt as to the
intention of the parties, We see no useful purpose in discussing the matter
extensively. Suffice it to say that the stipulation referred to is common, and We
might say logical, in all cases where the properties given as collateral are
perishable or subject to inevitable wear and tear or were intended to be sold, or
to be used thus becoming subject to the inevitable wear and tear but with
the understanding express or implied that they shall be replaced with
others to be thereafter acquired by the mortgagor. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by circumstances, the original value of the properties given as security.
Indeed, if such properties were of the nature already referred to, it would be poor
judgment on the part of the creditor who does not see to it that a similar provision
is included in the contract.
B. But defendants contend that, granting without admitting, that the deeds of
mortgage in question cover the "after acquired properties" of DALCO, the same
are void and ineffectual because they were not registered in accordance with the
Chattel Mortgage Law. In support of this and of the proposition that, even if said
mortgages were valid, they should not prejudice them, the defendants argue (1)
that the deeds do not describe the mortgaged chattels specifically, nor were they
registered in accordance with the Chattel Mortgage Law; (2) that the stipulation
contained in the fourth paragraph thereof constitutes "mere executory
agreements to give a lien" over the "after acquired properties" upon their
acquisition; and (3) that any mortgage stipulation concerning "after acquired
properties" should not prejudice creditors and other third persons such as
DAMCO and CONNELL.
The stipulation under consideration strongly belies defendants contention. As
adverted to hereinbefore, it states that all property of every nature, building,
machinery etc. taken in exchange or replacement by the mortgagor "shall
immediately be and become subject to the lien of this mortgage in the same
manner and to the same extent as if now included therein". No clearer language
could have been chosen.
Conceding, on the other hand, that it is the law in this jurisdiction 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, We say that such law does not apply to this
case.
As the mortgages in question were executed on July 13, 1950 with the old Civil
Code still in force, there can be no doubt that the provisions of said code must
govern their interpretation and the question of their validity. It happens however,
that Articles 334 and 1877 of the old Civil Code are substantially reproduced in
Articles 415 and 2127, respectively, of the new Civil Code. It is, therefore,
immaterial in this case whether we take the former or the latter as guide in
deciding the point under consideration.
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.
On the strength of the above-quoted legal provisions, the lower court held that
inasmuch as "the chattels were placed in the real properties mortgaged to
plaintiffs, they came within the operation of Art. 415, paragraph 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, 61 Phil. 663, We held that 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., 58 Phil. 439, We held that 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 .
It is not disputed in the case at bar that the "after acquired properties" were
purchased by DALCO in connection with, and for use in the development of its
lumber concession and that they were purchased in addition to, or in
replacement of those already existing in the premises on July 13, 1950. In Law,
therefore, they must be deemed to have been immobilized, with the result that
the real estate mortgages involved herein which were registered as such
did not have to be registered a second time as chattel mortgages in order to bind
the "after acquired properties" and affect third parties.
But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61
Phil. 709, claim 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 with the ones
obtaining in the present. In the former, the Davao Sawmill Company, Inc., had
repeatedly treated the machinery therein involved as personal property by
executing chattel mortgages thereon in favor of third parties, while in the present
case 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. In the Davao
Sawmill decision it was, in fact, stated that "the characterization of the property
as chattels by the appellant is indicative of intention and impresses upon the
property the character determined by the parties" (61 Phil. 112, emphasis
supplied). In the present case, the characterization of the "after acquired
properties" as real property was made not only by one but by both interested
parties. There is, therefore, more reason to hold that such consensus impresses
upon the properties the character determined by the parties who must now be
held in estoppel to question it.
Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central
Altagracia, Inc. (225 U.S. 58) where 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 the case at bar it is not disputed that DALCO purchased the "after acquired
properties" to be placed on, and be used in the development of its lumber
concession, and agreed further that the same shall become immediately subject
to the lien constituted by the questioned mortgages. There is also abundant
evidence in the record that DAMCO and CONNELL had full notice of such
stipulation and had never thought of disputed validity until the present case was
filed. Consequently all of them must be deemed barred from denying that the
properties in question had become immobilized.
What We have said heretofore sufficiently disposes all the arguments adduced
by defendants in support their contention that the mortgages under foreclosure
are void, and, that, even if valid, are ineffectual as against DAMCO and
CONNELL.
Now to the question of whether or not DAMCO CONNELL have rights over the
"after acquired properties" superior to the mortgage lien constituted thereon in
favor of plaintiffs. It is defendants' contention that in relation to said properties
they are "unpaid sellers"; that as such they had not only a superior lien on the
"after acquired properties" but also the right to rescind the sales thereof to
DALCO.
This contention it is obvious would have validity only if it were true that
DAMCO and CONNELL were the suppliers or vendors of the "after acquired
properties". According to the record, plaintiffs 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 theretofore to submit a
complete list thereof. In the course of the proceedings, however, when
defendants moved to dissolve the order of receivership and the writ of
preliminary injunction issued by the lower court, they attached to their motion the
lists marked as Exhibits 1, 2 and 3 describing the properties aforesaid. 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 and its
annexes (Exhibits V, V-1 V4) 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 that, in fact, CONNELL collected a 5% service
charge on the net value of all items it claims to have sold to DALCO and which,
in truth, it had purchased for DALCO as the latter's general agent; that CONNELL
had to issue its own invoices in addition to those o f the real suppliers in order to
collect and justify such service charge.
Taking into account the above circumstances together with the fact that DAMCO
was a stockholder and CONNELL was not only a stockholder but the general
agent of DALCO, their claim to be the suppliers of the "after acquired required
properties" would seem to be preposterous. The most that can be claimed on the
basis of the evidence is that DAMCO and CONNELL probably financed some of
the purchases. But if DALCO still owes them any amount in this connection, it is
clear that, as financiers, they can not claim any right over the "after acquired
properties" superior to the lien constituted thereon by virtue of the deeds of
mortgage under foreclosure. Indeed, the execution of the rescission of sales
mentioned heretofore appears to be but a desperate attempt to better or improve
DAMCO and CONNELL's position by enabling them to assume the role of
"unpaid suppliers" and thus claim a vendor's lien over the "after acquired
properties". The attempt, of course, is utterly ineffectual, not only because they
are not the "unpaid sellers" they claim to be but also because there is abundant
evidence in the record showing that both DAMCO and CONNELL had known and
admitted from the beginning that the "after acquired properties" of DALCO were
meant to be included in the first and second mortgages under foreclosure.
The claim that Belden, of ATLANTIC, had given his consent to the rescission,
expressly or otherwise, is of no consequence and does not make the rescission
valid and legally effective. It must be stated clearly, however, in justice to Belden,
that, as a member of the Board of Directors of DALCO, he opposed the
resolution of December 15, 1952 passed by said Board and the subsequent
rescission of the sales.
Finally, defendants 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, concluding from this that, when the
action was commenced, the plaintiffs had no cause of action. Upon this question
the lower court says the following in the appealed judgment;
The other is the defense of prematurity of the causes of action in that
plaintiffs, as a matter of grace, conceded an extension of time to pay up
to 1 April, 1953 while the action was filed on 12 February, 1953, but, as
to this, the Court taking it that there is absolutely no debate that Dahican
Lumber Co., 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.
x x x unless he gives a guaranty or security for the debt . . . (Art. 1198,
New Civil Code);
and as the guaranty was plainly inadequate since the claim of plaintiffs
reached in the aggregate, P1,200,000 excluding interest while the
aggregate price of the "after-acquired" chattels claimed by Connell
under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V,
report of auditors, and as a matter of fact, almost all the properties were
sold afterwards for only P175,000.00, page 47, Vol. IV, and the Court
understanding that 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.
Very little need be added to the above. Defendants, however, contend that the
lower court had no basis for finding that, when the action was commenced,
DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the
Civil Code. We find, however, that the finding of the trial court is sufficiently
supported by the evidence particularly the resolution marked as Exhibit K, which
shows that on December 16, 1952 in the words of the Chairman of the Board
DALCO was "without funds, neither does it expect to have any funds in the
foreseeable future." (p. 64, record on appeal).
The remaining issues, namely, whether or not the proceeds obtained from the
sale of the "after acquired properties" should have been awarded exclusively to
the plaintiffs or to DAMCO and CONNELL, and if in law they should be
distributed among said parties, whether or not the distribution should be pro-rata
or otherwise; whether or not plaintiffs are entitled to damages; and, lastly,
whether or not the expenses incidental to the Receivership should be borne by
all the parties on a pro-rata basis or exclusively by one or some of them are of a
secondary nature as they are already impliedly resolved by what has been said
heretofore.
As regard the proceeds obtained from the sale of the of after acquired properties"
and the "undebated properties", it is clear, in view of our opinion sustaining the
validity of the mortgages in relation thereto, that said proceeds should be
awarded exclusively to the plaintiffs in payment of the money obligations secured
by the mortgages under foreclosure.
On the question of plaintiffs' right to recover damages from the defendants, the
law (Articles 1313 and 1314 of the New Civil Code) provides that creditors are
protected in cases of contracts intended to defraud them; and that any third
person who induces another to violate his contract shall be liable for damages to
the other contracting party. Similar liability is demandable under Arts. 20 and 21
which may be given retroactive effect (Arts. 225253) or under Arts. 1902
and 2176 of the Old Civil Code.
The facts of this case, as stated heretofore, clearly show that DALCO and
DAMCO, after failing to pay the fifth promissory note upon its maturity, conspired
jointly with CONNELL to violate the provisions of the fourth paragraph of the
mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on
the "after acquired properties". As a result, the plaintiffs had to go to court to
protect their rights thus jeopardized. Defendants' liability for damages is therefore
clear.
However, the measure of the damages suffered by the plaintiffs is not what the
latter claim, namely, the difference between the alleged total obligation secured
by the mortgages amounting to around P1,200,000.00, plus the stipulated
interest and attorney's fees, on the one hand, and the proceeds obtained from
the sale of "after acquired properties", and of those that were not claimed neither
by DAMCO nor CONNELL, on the other. Considering that the sale of the real
properties subject to the mortgages under foreclosure has not been effected, and
considering further the lack of evidence showing that the true value of all the
properties already sold was not realized because their sale was under stress, We
feel that We do not have before Us the true elements or factors that should
determine the amount of damages that plaintiffs are entitled recover from
defendants. It is, however, our considered opinion that, upon the facts
established, all the expenses of the Receivership, which was deemed necessary
to safeguard the rights of the plaintiffs, should be borne by the defendants, jointly
and severally, in the same manner that all of them should pay to the plaintiffs,
jointly a severally, attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the
plaintiffs are entitled to recover from the defendants, the record of this case shall
be remanded below for the corresponding proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other

respects. With costs.
KOREA EXCHANGE BANK, petitioner, vs. FILKOR BUSINESS INTEGRATED,
INC., KIM EUNG JOE, and LEE HAN SANG, respondents.
DECISION
QUISUMBING, J.:
This petition assails the order[1] dated April 16, 1999 of the Regional Trial
Court of Cavite City, Branch 88, in Civil Case No. N-6689. Said order denied
petitioners partial motion for reconsideration of the trial courts order[2] dated March
12, 1999 whereby respondents were ordered to pay petitioner various sums of
U.S. dollars as payment of the formers various loans with interest but omitted to
state that the property mortgaged as security for said loans be foreclosed and sold
at public auction in case respondents fail to pay their obligations to petitioner ninety
days from entry of judgment.
The facts are summarized from the findings of the trial court.
On January 9, 1997, respondent Filkor Business Integrated, Inc. (Filkor),
borrowed US$140,000 from petitioner Korea Exchange Bank, payable on July 9,
1997. Of this amount, only US$40,000 was paid by Filkor.[3]
In addition, Filkor executed nine trust receipts in favor of petitioner, from June
26, 1997 to September 11, 1997. However, Filkor failed to turn over to petitioner
the proceeds from the sale of the goods, or the goods themselves as required by
the trust receipts in case Filkor could not sell them.[4]
In the period from June 9, 1997 to October 1, 1997, Filkor also negotiated to
petitioner the proceeds of seventeen letters of credit issued by the Republic Bank
of New York and the Banque Leumi France, S.A. to pay for goods which Filkor
sold to Segerman International, Inc. and Davyco, S.A. When petitioner tried to
collect the proceeds of the letters of credit by presenting the bills of exchange
drawn to collect the proceeds, they were dishonored because of discrepancies. [5]
Prior to all the foregoing, in order to secure payment of all its obligations,
Filkor executed a Real Estate Mortgage on February 9, 1996. It mortgaged to
petitioner the improvements belonging to it constructed on the lot it was leasing at
the Cavite Export Processing Zone Authority.[6] Respondents Kim Eung Joe and
Lee Han Sang also executed Continuing Suretyships binding themselves jointly
and severally with respondent Filkor to pay for the latters obligations to petitioner. [7]
As respondents failed to make good on their obligations, petitioner filed Civil
Case No. N-6689 in the Regional Trial Court of Cavite City, docketed as Korea
Exchange Bank vs. Filkor Business Integrated, Inc. In its complaint, petitioner
prayed that (a) it be paid by respondents under its twenty-seven causes of action;
(b) the property mortgaged be foreclosed and sold at public auction in case
respondents failed to pay petitioner within ninety days from entry of judgment; and
(c) other reliefs just and equitable be granted.[8]
Petitioner moved for summary judgment pursuant to Section 1, Rule 35 of
the 1997 Rules of Civil Procedure. On March 12, 1999, the trial court rendered its
order granting petitioners motion, reasoning as follows:
xxx
It appears that the only reason defendants deny all the material allegations in the
complaint is because the documents attached thereto are mere photocopies and
not the originals thereof. Section 7, Rule 8 of the Rules of Court allows copies of
documents to be attached to the pleading as an exhibit. Defendants are,
therefore, deemed to have admitted the genuineness and due execution of all
actionable documents attached to the complaint inasmuch as they were not
specifically denied, pursuant to Section 8 of the Rule 8 of the Rules of Court.
In the case at bar, there is clearly no substantial triable issue, hence, the motion
for summary judgment filed by plaintiff is proper.
A summary of judgment is one granted by the court upon motion by a party for an
expeditious settlement of the case, there appearing from the pleadings,
depositions, admissions and affidavits that there are no important questions or
issues of fact involved (except as to the amount of damages) and that, therefore,
the moving party is entitled to a judgment as a matter of law (Sections 1, 2, 3,
Rule 35, 1997 Rules of Civil Procedure).
The court having taken into account the pleadings of the parties as well as the
affidavits attached to the motion for summary judgment and having found that
there is indeed no genuine issue as to any material fact and that plaintiff is
entitled to a summary of judgment as a matter of law, hereby renders judgment
for the plaintiff and against the defendants, ordering said defendants jointly and
severally to pay plaintiff, as follows[9]
The trial court then rendered judgment in favor of petitioner, granting its
prayers under all its twenty-seven causes of action. It, however, failed to order that
the property mortgaged by respondent Filkor be foreclosed and sold at public
auction in the event that Filkor fails to pay its obligations to petitioner.
Petitioner filed a motion for partial reconsideration of the trial courts order,
praying that the aforesaid relief of foreclosure and sale at public auction be
granted. In an order dated April 16, 1999, the trial court denied petitioners motion,
ruling as follows:
Plaintiff, in opting to file a civil action for the collection of defendants obligations,
has abandoned its mortgage lien on the property subject of the real estate
mortgage.
The issue has already been resolved in Danao vs. Court of Appeals, 154 SCRA
446, citing Manila Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448, where
the Supreme Court ruled that:
The rule is now settled that a mortgage creditor may elect to waive his security
and bring, instead, an ordinary action to recover the indebtedness with the right
to execute a judgment thereon on all the properties of the debtor including the
subject matter of the mortgage, subject to the qualification that if he fails in the
remedy by him elected, he cannot pursue further the remedy he has waived.
WHEREFORE, the Partial Motion for Reconsideration filed by the plaintiff of the
Courts Order dated March 12, 1999 is hereby denied for lack of merit.
SO ORDERED.[10]
Hence, the present petition, where petitioner ascribes the following error to
the trial court.
THE REGIONAL TRIAL COURT OF CAVITE CITY ERRED IN RULING THAT
PETITIONER HAD ABANDONED THE REAL ESTATE MORTGAGE IN ITS
FAVOR, BECAUSE IT FILED A SIMPLE COLLECTION CASE.[11]
The resultant issue is whether or not petitioners 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. In addition, we must also determine if the present
appeal was correctly lodged before us rather than with the Court of Appeals.
In petitioners complaint before the trial court, Paragraph 183 thereof alleges:
183. 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 one-story 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 hereto as
Annex SS and made an integral part hereof.)[12]
This allegation satisfies in part the requirements of Section 1, Rule 68 of the
1997 Rules of Civil Procedure on foreclosure of real estate mortgage, which
provides:
SECTION 1. Complaint in action for foreclosure. In an action for the foreclosure
of a mortgage or other encumbrance upon real estate, the complaint shall set
forth the date and due execution of the mortgage; its assignments, if any; the
names and residences of the mortgagor and the mortgagee; a description of the
mortgaged property; a statement of the date of the note or other documentary
evidence of the obligation secured by the mortgage, the amount claimed to be
unpaid thereon; and the names and residences of all persons having or claiming
an interest in the property subordinate in right to that of the holder of the
mortgage, all of whom shall be made defendants in the action.
In Paragraph 183 above, the date and due execution of the real estate
mortgage are alleged. The properties mortgaged are stated and described therein
as well. In addition, the names and residences of respondent Filkor, as mortgagor,
and of petitioner, as mortgagee, are alleged in paragraphs 1 and 2 of the
complaint.[13] The dates of the obligations secured by the mortgage and the
amounts unpaid thereon are alleged in petitioners first to twenty-seventh causes
of action.[14] Moreover, the very prayer of the complaint before the trial court reads
as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
xxx
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.
x x x[15]
Petitioners allegations in its complaint, and its prayer that the mortgaged
property be foreclosed and sold at public auction, indicate that petitioners action
was one for foreclosure of real estate mortgage. We have 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.[16] In addition, we find no indication whatsoever that petitioner had
waived its rights under the real estate mortgage executed in its favor. Thus, the
trial court erred in concluding that petitioner had abandoned its mortgage lien on
Filkors property, and that what it had filed was an action for collection of a sum of
money.
Petitioners action being 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 in the event that respondent Filkor fails to pay its
outstanding obligations. This is pursuant to Section 2 of Rule 68 of the 1997 Rules
of Civil Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the trial in such
action the court shall find the facts set forth in the complaint to be true, it shall
ascertain the amount due to the plaintiff upon the mortgage debt or obligation,
including interest and other charges as approved by the court, and costs,
and shall render judgment for the sum so found due and order that the same be
paid to the court or to the judgment obligee within a period of not less than ninety
(90) days nor more than one hundred twenty (120) days from entry of judgment,
and that in default of such payment the property shall be sold at public auction to
satisfy the judgment. (Italics supplied.)
Accordingly, the dispositive portion of the decision of the trial court dated
March 12, 1999, must be modified to comply with the provisions of Section 2 of
Rule 68 of the 1997 Rules of Civil Procedure. This modification is subject to any
appeal filed by respondents of said decision.
On the propriety of the present appeal, we note that what petitioner impugns
is the determination by the trial court of the nature of action filed by petitioner,
based on the allegations in the complaint. Such a determination as to the
correctness of the conclusions drawn from the pleadings undoubtedly involves a
question of law.[17] As the present appeal involves a question of law, petitioner
appropriately filed it with this Court, pursuant to Section 1 of Rule 45 of the 1997
Rules of Civil Procedure, which provides:

SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by

certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Courtor other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly
set forth. (Italics supplied).

There is no dispute with respect to the fact that when an appeal raises only
pure questions of law, this Court has jurisdiction to entertain the same. [18]
WHEREFORE, the petition is GRANTED. The Order dated March 12, 1999,
of the Regional Trial Court of Cavite City, Branch 88, in Civil Case No. N-6689 is
hereby MODIFIED, to state that the mortgaged property of respondent Filkor be
ordered foreclosed and sold at public auction in the event said respondent fails to
pay its obligations to petitioner within ninety (90) days from entry of judgment.
No pronouncement as to costs.
SO ORDERED.
HUERTA ALBA RESORT, INC., petitioner, vs. COURT OF APPEALS and
SYNDICATED MANAGEMENT GROUP, INC., respondents.
DECISION
PURISIMA, J.:
Litigation must at some time be terminated, even at the risk of occasional
errors. Public policy dictates that once a judgment becomes final, executory and
unappealable, the prevailing party should not be denied the fruits of his victory by
some subterfuge devised by the losing party. Unjustified delay in the enforcement
of a judgment sets at naught the role of courts in disposing justiciable controversies
with finality.
TheCase
At bar is a petition assailing the Decision, dated November 14, 1996, and
Resolution, dated March 11, 1997, of the Court of Appeals in CA-G.R. No. 38747,
which set aside the Order, dated July 21, 1995, and Order, dated September 4,
1997, of the Regional Trial Court of Makati City, in Civil Case No. 89-5424. The
aforesaid orders of the trial court held that petitioner had the right to redeem subject
pieces of property within the one-year period prescribed by Section 78 of Republic
Act No. 337 otherwise known as the General Banking Act.
Section 78 of R.A. No. 337 provides that in case of a foreclosure of a
mortgage in favor of a bank, banking or credit institution, whether judicially or
extrajudicially, the mortgagor shall have the right, within one year after the sale of
the real estate as a result of the foreclosure of the respective mortgage, to redeem
the property.
TheFacts
The facts that matter are undisputed:
In a complaint for judicial foreclosure of mortgage with preliminary injunction
filed on October 19, 1989, docketed as Civil Case No. 89-5424 before the Regional
Trial Court of Makati City, the herein private respondent sought the foreclosure of
four (4) parcels of land mortgaged by petitioner to Intercon Fund Resource, Inc.
(Intercon).
Private respondent instituted Civil Case No. 89-5424 as mortgagee-assignee
of a loan amounting to P8.5 million obtained by petitioner from Intercon, in whose
favor petitioner mortgaged the aforesaid parcels of land as security for the said
loan.
In its answer below, petitioner questioned the assignment by Intercon of its
mortgage right thereover to the private respondent, on the ground that the same
was ultra vires. Petitioner also questioned during the trial the correctness of the
charges and interest on the mortgage debt in question.
On April 30, 1992, the trial court, through the then Judge now Court of
Appeals Justice Buenaventura J. Guerrero, came out with its decision granting
herein private respondent SMGIs complaint for judicial foreclosure of mortgage,
disposing as follows:
WHEREFORE, judgment is hereby rendered ordering defendant to pay
plaintiff the following:
(1) P8,500,000.00 representing the principal of the amount due;
(2) P850,000.00 as penalty charges with interest at 6% per annum, until fully
paid;
(3) 22% per annum interest on the above principal from September 6, 1998, until
fully paid;
(4) 5% of the sum total of the above amounts, as reasonable attorneys fees; and,
(5) Costs.
All the above must be paid within a period of not less than 150 days from receipt
hereof by the defendant. In default of such payment, the four parcels of land
subject matter of the suit including its improvements shall be sold to realize the
mortgage debt and costs, in the manner and under the regulations that govern
sales of real estate under execution.[1]
Petitioner appealed the decision of the trial court to the Court of Appeals, the
appeal docketed as CA-G.R. CV No. 39243 before the Sixth Division of the
appellate court, which dismissed the case on June 29, 1993 on the ground of late
payment of docket fees.
Dissatisfied with the dismissal of CA-G.R. No. 39243, petitioner came to this
Court via a petition for certiorari, docketed as G.R. No. 112044, which this court
resolved to dismiss on December 13, 1993, on the finding that the Court of Appeals
erred not in dismissing the appeal of petitioner.
Petitioners motion for reconsideration of the dismissal of its petition in G.R.
No. 112044 was denied with finality in this Courts Resolution promulgated on
February 16, 1994. On March 10, 1994, leave to present a second motion for
reconsideration in G.R. No. 112044 or to submit the case for hearing by the Court
en banc was filed, but to no avail. The Court resolved to deny the same on May
11, 1994.
 On March 14, 1994, the Resolution dated December 13, 1993, in G.R. No.
112044 became final and executory and was entered in the Book of Entries of
Judgment.
On July 4, 1994, private respondent filed with the trial court of origin a motion
for execution of the Decision promulgated on April 30, 1992 in Civil Case No. 89-
5424. The said motion was granted on July 13, 1994.
Accordingly, on July 15, 1994 a writ of execution issued and, on July 20,
1994, a Notice of Levy and Execution was issued by the Sheriff concerned, who
issued on August 1, 1994 a Notice of Sheriffs Sale for the auction of subject
properties on September 6, 1994.
On August 23, 1994, petitioner filed with the same trial court an Urgent Motion
to Quash and Set Aside Writ of Execution ascribing to it grave abuse of discretion
in issuing the questioned Writ of Execution. To support its motion, petitioner invited
attention and argued that the records of the case were still with the Court of
Appeals and therefore, issuance of the writ of execution was premature since the
150-day period for petitioner to pay the judgment obligation had not yet lapsed and
petitioner had not yet defaulted in the payment thereof since no demand for its
payment was made by the private respondent. In petitioners own words, the
dispute between the parties was principally on the issue as to when the 150-day
period within which Huerta Alba may exercise its equity of redemption should be
counted.
In its Order of September 2, 1994, the lower court denied petitioners urgent
motion to quash the writ of execution in Civil Case No. 89-5424, opining that
subject judgment had become final and executory and consequently, execution
thereof was a matter of right and the issuance of the corresponding writ of
execution became its ministerial duty.
Challenging the said order granting execution, petitioner filed once more with
the Court of Appeals another petition for certiorari and prohibition with preliminary
injunction, docketed as C.A.-G.R. SP No. 35086, predicated on the same grounds
invoked for its Motion to Quash Writ of Execution.
On September 6, 1994, the scheduled auction sale of subject pieces of
properties proceeded and the private respondent was declared the highest
bidder. Thus, private respondent was awarded subject bidded pieces of
property. The covering Certificate of Sale issued in its favor was registered with
the Registry of Deeds on October 21, 1994.
On September 7, 1994, petitioner presented an Ex-Parte Motion for
Clarification asking the trial court to clarify whether or not the twelve (12) month
period of redemption for ordinary execution applied in the case.
On September 26, 1994, the trial court ruled that the period of redemption of
subject property should be governed by the rule on the sale of judicially foreclosed
property under Rule 68 of the Rules of Court.
Thereafter, petitioner then filed an Exception to the Order dated September
26, 1994 and Motion to Set Aside Said Order, contending that the said Order
materially altered the Decision dated April 30, 1992 which declared that the
satisfaction of the judgment shall be in the manner and under the regulation that
govern sale of real estate under execution.
Meanwhile, in its Decision of September 30, 1994, the Court of Appeals
resolved the issues raised by the petitioner in C.A.-G.R. SP No. 35086, holding
that the one hundred-fifty day period within which petitioner may redeem subject
properties should be computed from the date petitioner was notified of the Entry of
Judgment in G.R. No. 112044; and that the 150-day period within which petitioner
may exercise its equity of redemption expired on September 11, 1994. Thus:
Petitioner must have received the resolution of the Supreme Court dated
February 16, 1994 denying with finality its motion for reconsideration in G.R. No.
112044 before March 14, 1994, otherwise the Supreme Court would not have
made an entry of judgment on March 14, 1994. While, computing the 150-day
period, petitioner may have until September 11, 1994, within which to pay the
amounts covered by the judgment, such period has already expired by this
time, and therefore, this Court has no more reason to pass upon the parties
opposing contentions, the same having become moot and
academic.[2](Underscoring supplied).
Petitioner moved for reconsideration of the Decision of the Court of Appeals
in C.A.-G.R. SP No. 35086. In its Motion for Reconsideration dated October 18,
1994, petitioner theorized that the period of one hundred fifty (150) days should
not be reckoned with from Entry of Judgment but from receipt on or before July 29,
1994 by the trial court of the records of Civil Case No. 89-5424 from the Court of
Appeals. So also, petitioner maintained that it may not be considered in default,
even after the expiration of 150 days from July 29, 1994, because prior demand to
pay was never made on it by the private respondent. According to petitioner, it was
therefore, premature for the trial court to issue a writ of execution to enforce the
judgment.
The trial court deferred action on the Motion for Confirmation of the Certificate
of Sale in view of the pendency of petitioners Motion for Reconsideration in CA-
G.R. SP No. 35086.
On December 23, 1994, the Court of Appeals denied petitioners motion for
reconsideration in CA-G.R. SP No. 35086. Absent any further action with respect
to the denial of the subject motion for reconsideration, private respondent
presented a Second Motion for Confirmation of Certificate of Sale before the trial
court.
As regards the Decision rendered on September 30, 1994 by the Court of
Appeals in CA G.R. SP No. 35086 it became final and executory on January 25,
1995.
On February 10, 1995, the lower court confirmed the sale of subject
properties to the private respondent. The pertinent Order declared that all pending
incidents relating to the Order dated September 26, 1994 had become moot and
academic. Conformably, the Transfer Certificates of Title to subject pieces of
property were then issued to the private respondent.
 On February 27, 1995, petitioner filed with the Court of Appeals a Motion for
Clarification seeking clarification of the date of commencement of the one (1) year
period for the redemption of the properties in question.
In its Resolution dated March 20, 1995, the Court of Appeals merely noted
such Motion for Clarification since its Decision promulgated on September 30,
1994 had already become final and executory; ratiocinating thus:
We view the motion for clarification filed by petitioner, purportedly signed by its
proprietor, but which we believe was prepared by a lawyer who wishes to hide
under the cloak of anonymity, as a veiled attempt to buy time and to delay further
the disposition of this case.
Our decision of September 30, 1994 never dealt on the right and period of
redemption of petitioner, but was merely circumscribed to the question of
whether respondent judge could issue a writ of execution in its Civil Case No. 89-
5424 xxx.
We further ruled that the one-hundred fifty day period within which petitioner may
exercise its equity of redemption should be counted, not from the receipt of
respondent court of the records of Civil Case No. 89-5424 but from the date
petitioner was notified of the entry of judgment made by the appellate court.
But we never made any pronouncement on the one- year right of redemption of
petitioner because, in the first place, the foreclosure in this case is judicial, and
as such, the mortgagor has only the equity, not the right of redemption xxx. While
it may be true that under Section 78 of R.A. 337 as amended, otherwise known
as the General Banking Act, a mortgagor of a bank, banking or credit institution,
whether the foreclosure was done judicially or extrajudicially, has a period of one
year from the auction sale within which to redeem the foreclosed property, the
question of whether the Syndicated Management Group, Inc., is a bank or credit
institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its
motion for clarification.[3](Underscoring supplied).
Indeed, if petitioner did really act in good faith, it would have ventilated before
the Court of Appeals in CA-G.R. No. 35086 its pretended right under Section 78 of
R.A. No. 337 but it never did so.
At the earliest opportunity, when it filed its answer to the complaint for judicial
foreclosure, petitioner should have averred in its pleading that it was entitled to the
beneficial provisions of Section 78 of R.A. No. 337; but again, petitioner did not
make any such allegation in its answer.
From the said Resolution, petitioner took no further step such that on March
31, 1995, the private respondent filed a Motion for Issuance of Writ of Possession
with the trial court.
During the hearing called on April 21, 1995, the counsel of record of petitioner
entered appearance and asked for time to interpose opposition to the Motion for
Issuance of /Writ of Possession.
On May 2, 1995, in opposition to private respondents Motion for Issuance of
/writ of Possession, petitioner filed a Motion to Compel Private Respondent to
Accept Redemption. It was the first time petitioner ever asserted the right to
redeem subject properties under Section 78 of R.A. No. 337, the General Banking
Act; theorizing that the original mortgagee, being a credit institution, its assignment
of the mortgage credit to petitioner did not remove petitioner from the coverage of
Section 78 of R.A. No. 337. Therefore, it should have the right to redeem subject
properties within one year from registration of the auction sale, theorized the
petitioner which concluded that in view of its right of redemption, the issuance of
the titles over subject parcels of land to the private respondent was irregular and
premature.
In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon
Inoturan, denied private respondents motion for a writ of possession, opining that
Section 78 of the General Banking Act was applicable and therefore, the petitioner
had until October 21, 1995 to redeem the said parcels of land, said Order ruled as
follows:
It is undisputed that Intercon is a credit institution from which defendant obtained
a loan secured with a real estate mortgage over four (4) parcels of
land. Assuming that the mortgage debt had not been assigned to plaintiff, there is
then no question that defendant would have a right of redemption in case of
foreclosure, judicially or extrajudicially, pursuant to the above quoted Section 78
of RA 337, as amended.
However, the pivotal issue here is whether or not the defendant lost its right of
redemption by virtue of the assignment of its mortgage debt by Intercon to
plaintiff, which is not a bank or credit institution. The issue is resolved in the
negative. The right of redemption in this case is vested by law and is therefore an
absolute privilege which defendant may not lose even though plaintiff-assignee is
not a bank or credit institution (Tolentino versus Court of Appeals, 106 SCRA
513). Indeed, a contrary ruling will lead to a possible circumvention of Section 78
because all that may be needed to deprive a defaulting mortgagor of his right of
redemption is to assign his mortgage debt from a bank or credit institution to one
which is not. Protection of defaulting mortgagors, which is the avowed policy
behind the provision, would not be achieved if the ruling were
otherwise. Consequently, defendant still possesses its right of redemption which
it may exercise up to October 21, 1995 only, which is one year from the date of
registration of the certificate of sale of subject properties (GSIS versus Iloilo, 175
SCRA 19, citing Limpin versus IAC, 166 SCRA 87).
Since the period to exercise defendants right of redemption has not yet expired,
the cancellation of defendants transfer certificates of title and the issuance of
new ones in lieu thereof in favor of plaintiff are therefore illegal for being
premature, thereby necessitating reconveyance (see Sec. 63 (a) PD 1529, as
amended).
WHEREFORE, the Court hereby rules as follows:
(1) The Motion for Issuance of Writ of Possession is hereby denied;
(2) Plaintiff is directed to accept the redemption on or before October 21, 1995 in
an amount computed according to the terms stated in the Writ of Execution dated
July 15, 1994 plus all other related costs and expenses mentioned under Section
78, RA 337, as amended; and
(3) The Register of Deeds of Valenzuela, Bulacan is directed (a) to reconvey to
the defendant the following titles of the four (4) parcels of land, namely TCT Nos.
V-38878, V-38879, V-38880, and V-38881, now in the name of plaintiff, and (b)
to register the certificate of sale dated October 7, 1994 and the Order confirming
the sale dated February 10, 1995 by a brief memorandum thereof upon the
transfer certificates of title to be issued in the name of defendant, pursuant to
Sec. 63 (a) PD 1529, as amended.
The Omnibus Motion dated June 5, 1995, together with the Opposition thereto, is
now deemed resolved.
SO ORDERED.[4]
Private respondent interposed a Motion for Reconsideration seeking the
reversal of the Order but to no avail. In its Order dated September 4, 1995, the trial
court denied the same.
To attack and challenge the aforesaid order of July 21, 1995 and subsequent
Order of September 4, 1995 of the trial court, the private respondent filed with this
court a Petition for Certiorari, Prohibition and Mandamus, docketed as G.R. No.
121893, but absent any special and cogent reason shown for entertaining the
same, the Court referred the petition to the Court of Appeals, for proper
determination.
Docketed as G.R. No. 387457 on November 14, 1996, the Court of Appeals
gave due course to the petition and set aside the trial courts Order dated July 21,
1995 and Order dated September 4, 1995.
In its Resolution of March 11, 1997, the Court of Appeals denied petitioners
Motion for Reconsideration of the Decision promulgated on November 14, 1996 in
CA-G.R. No. 38747.
Undaunted, petitioner has come to this Court via the present petition, placing
reliance on the assignment of errors, that:
I THE COURT OF APPEALS IN CA G.R. SP NO. 35086 COULD NOT HAVE
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT THE COURT OF APPEALS (TWELFTH DIVISION) IN CA
G.R. SP NO. 35086 HAD RESOLVED WITH FINALITY THAT
PETITIONER HUERTA ALBA HAD NO RIGHT OF REDEMPTION BUT
ONLY THE EQUITY OF REDEMPTION.
II
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN
IGNORING THAT PETITIONER HUERTA ALBA POSSESSES THE ONE-
YEAR RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337
(THE GENERAL BANKING ACT).
III
THE RESPONDENT COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT PRIVATE RESPONDENT SYNDICATED MANAGEMENT
GROUP, INC. IS ENTITLED TO THE ISSUANCE OF A WRIT OF
POSSESSION OVER THE SUBJECT PROPERTY.[5]
In its comment on the petition, private respondent countered that:
A. THE HONORABLE COURT OF APPEALS CORRECTLY HELD THAT IT
RESOLVED WITH FINALITY IN C.A.-G.R. SP NO. 35086 THAT
PETITIONER ONLY HAD THE RIGHT OF REDEMPTION IN RESPECT
OF THE SUBJECT PROPERTIES.
B. THE PETITION IS AN INSIDIOUS AND UNDERHANDED ATTEMPT TO
EVADE THE FINALITY OF VARIOUS DECISIONS, RESOLUTIONS AND
ORDERS WHICH HELD THAT PETITIONER ONLY POSSESSES THE
EQUITY OF REDEMPTION IN RESPECT OF THE SUBJECT
PROPERTIES.
C. PETITIONER IS BARRED BY ESTOPPEL FROM BELATEDLY
RAISING THE ISSUE OF ITS ALLEGED RIGHT OF REDEMPTION.
D. IN HOLDING THAT THE PETITIONER HAD THE RIGHT OF
REDEMPTION OVER THE SUBJECT PROPERTIES, THE TRIAL COURT
MADE A MOCKERY OF THE LAW OF THE CASE.[6]
And by way of Reply, petitioner argued, that:
I.
POSSIBLY RESOLVED THEREIN - WHETHER WITH FINALITY OR
 OTHERWISE - THE ISSUE OF PETITIONER HUERTA ALBAS RIGHT OF
REDEMPTION UNDER SECTION 78, R.A. NO. 337.
II.
THERE IS NO ESTOPPEL HERE. PETITIONER HUERTA ALBA INVOKED
ITS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IN
TIMELY FASHION, i.e., AFTER CONFIRMATION BY THE COURT OF
THE FORECLOSURE SALE, AND WITHIN ONE (1) YEAR FROM THE
DATE OF REGISTRATION OF THE CERTIFICATE OF SALE.
III.
THE PRINCIPLE OF THE LAW OF THE CASE HAS ABSOLUTELY NO
BEARING HERE:
(1)
THE RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 IS IN
FACT PREDICATED UPON THE FINALITY AND CORRECTNESS OF
THE DECISION IN CIVIL CASE NO. 89-5424.
(2)
THUS, THE RTCS ORDER RECOGNIZING PETITIONER HUERTA
ALBAS RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 37
DOES NOT IN ANY WAY HAVE THE EFFECT OF AMENDING,
MODIFYING, OR SETTING ASIDE THE DECISION IN CIVIL CASE NO.
89-5424.
The above arguments and counter-arguments advanced relate to the pivotal
issue of whether or not the petitioner has the one-year right of redemption of
subject properties under Section 78 of Republic Act No. 337 otherwise known as
the General Banking Act.
The petition is not visited by merit.
Petitioners assertion of right of redemption under Section 78 of Republic Act
No. 337 is premised on the submission that the Court of Appeals did not resolve
such issue in CA-G.R. SP No. 35086; contending thus:
(1)
BY NO STRETCH OF LOGIC CAN THE 20 MARCH 1995 RESOLUTION
IN CA G.R. SP NO. 35086 BE INTERPRETED TO MEAN THE COURT OF
APPEALS HAD RESOLVED WITH FINALITY THE ISSUE OF WHETHER
PETITIONER HUERTA ALBA HAD THE RIGHT OF REDEMPTION WHEN
ALL THAT THE RESOLUTION DID WAS TO MERELY NOTE THE
MOTION FOR CLARIFICATION.
(2)
THE 20 MARCH 1995 RESOLUTION IN CA G.R. SP NO. 35086 IS NOT A
FINAL JUDGMENT, ORDER OR DECREE. IT IS NOT EVEN A
JUDGMENT OR ORDER TO BEGIN WITH. IT ORDERS NOTHING; IT
ADJUDICATES NOTHING.
(3)
PETITIONER HUERTA ALBAS RIGHT OF REDEMPTION UNDER
SECTION 78, R.A. NO. 37 WAS NOT AN ISSUE AND WAS NOT IN
ISSUE, AND COULD NOT HAVE POSSIBLY BEEN AN ISSUE NOR IN
ISSUE, IN CA G.R. SP NO. 35086.
(4)
THE 30 SEPTEMBER 1994 DECISION IN CA G.R. SP NO. 35086 HAVING
ALREADY BECOME FINAL EVEN BEFORE THE FILING OF THE
MOTION FOR CLARIFICATION, THE COURT OF APPEALS NO LONGER
HAD ANY JURISDICTION TO ACT OF THE MOTION OR ANY OTHER
MATTER IN CA G.R. SP NO. 35086, EXCEPT TO MERELY NOTE THE
MOTION.
II.
IN STARK CONTRAST, THE ISSUE OF PETITIONER HUERTA ALBAS
RIGHT OF REDEMPTION UNDER SECTION 78, R.A. NO. 337 WAS
DIRECTLY RAISED AND JOINED BY THE PARTIES, AND THE SAME
DULY RESOLVED BY THE TRIAL COURT.
III.
THE RIGHT OF REDEMPTION UNDER SECTION 78 OF R.A. NO. 337 IS
MANDATORY AND AUTOMATICALLY EXISTS BY LAW. THE COURTS
ARE DUTY-BOUND TO RECOGNIZE SUCH RIGHT.
IV.
EQUITABLE CONSIDERATIONS WEIGH HEAVILY IN FAVOR OF
PETITIONER HUERTA ALBA, NOT THE LEAST OF WHICH IS THE
WELL-SETTLED POLICY OF THE LAW TO AID RATHER THAN DEFEAT
THE RIGHT OF REDEMPTION.
 V.
THEREFORE THE 21 JULY 1995 AND 04 SEPTEMBER 1995 ORDERS
OF THE TRIAL COURT ARE VALID AND PROPER IN ACCORDANCE
WITH THE MANDATE OF THE LAW.
From the various decisions, resolutions and orders a quo it can be gleaned
that what petitioner has been adjudged to have was only the equity of redemption
over subject properties.On the distinction between the equity of redemption and
right of redemption, the case of Gregorio Y. Limpin vs. Intermediate Appellate
Court,[7] comes to the fore. Held the Court in the said case:
The equity of redemption is, to be sure, different from and should not be
confused with the right of redemption.
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 banking institution.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor
the right of redemption within one (1) year from the registration of the sheriffs
certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale, when
confirmed by an order of the court, x x shall operate to divest the rights 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. Such rights exceptionally allowed
by law (i.e., even after confirmation by an order of the court) are those granted by
the charter of the Philippine National Bank (Acts No. 2747 and 2938), and the
General Banking Act (R.A. 337). These laws confer on the mortgagor, his
successors in interest or any judgment creditor of the mortgagor, the right to
redeem the property sold on foreclosure - after confirmation by the court of the
foreclosure sale - which right may be exercised within a period of one (1) year,
counted from the date of registration of the certificate of sale in the Registry of
Property.
But, to repeat, no such right of redemption exists in case of judicial foreclosure of
a mortgage if the mortgagee is not the PNB or a bank or banking institution. In
such a case, the foreclosure sale, when confirmed by an order of the court. x x
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.
Section 2, Rule 68 provides that -
x x If upon the trial x x 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 costs, and shall render judgment for the sum so
found due and order the same to be paid into court within a period of not less
than ninety (90) days from the date of the service of such order, and that in
default of such payment the property be sold to realize the mortgage debt and
costs.
This is the 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.[8] (Underscoring supplied)
Petitioner failed to seasonably invoke its purported right under Section 78 of
R.A. No. 337.
Petitioner avers in its petition that the Intercom, predecessor in interest of the
private respondent, is a credit institution, such that Section 78 of Republic Act No.
337 should apply in this case. Stated differently, it is the submission of petitioner
that it should be allowed to redeem subject properties within one year from the
date of sale as a result of the foreclosure of the mortgage constituted thereon.
The pivot of inquiry here therefore, is whether the petitioner seasonably
invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject
properties.
Petitioner theorizes that it invoked its "right" in "timely fashion", that is, after
confirmation by the court of the foreclosure sale, and within one (1) year from the
date of registration of the certificate of sale. Indeed, the facts show that it was only
on May 2, 1995 when, in opposition to the Motion for Issuance of Writ of
Possession, did petitioner file a Motion to Compel Private Respondent to Accept
Redemption, invoking for the very first time its alleged right to redeem subject
properties under to Section 78 of R.A. No. 337.
In light of the aforestated facts, it was too late in the day for petitioner to
invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to
assert a right to redeem in several crucial stages of the Proceedings.
For instance, on September 7, 1994, when it filed with the trial court an Ex-
part Motion for Clarification, petitioner failed to allege and prove that private
respondent's predecessor in interest was a credit institution and therefore, Section
78 of R.A. No. 337 was applicable. Petitioner merely asked the trial court to clarify
whether the sale of subject properties was execution sale or judicial foreclosure
sale.
 So also, when it presented before the trial court an Exception to the Order
and Motion to Set Aside Said Order dated October 13, 1994, petitioner again was
silent on its alleged right under Section 78 of R.A. No. 337, even as it failed to
show that private respondent's predecessor in interest is a credit
institution. Petitioner just argued that the aforementioned Order materially altered
the trial court's Decision of April 30, 1992.
Then, too, nothing was heard from petitioner on its alleged right under
Section 78 of R.A. No. 337 and of the predecessor in interest of private respondent
as a credit institution, when the trial court came out with an order on February 10,
1995, confirming the sale of subject properties in favor of private respondent and
declaring that all pending incidents with respect to the Order dated September 26,
1994 had become moot and academic.
Similarly, when petitioner filed on February 27, 1995 a Motion for Clarification
with the Court of Appeals, seeking "clarification" of the date of commencement of
the one (1) year redemption period for the subject properties, petitioner never
intimated any alleged right under Section 78 of R.A. No. 337 nor did it invite
attention to its present stance that private respondent's predecessor-in-interest
was a credit institution. Consequently, in its Resolution dated March 20, 1995, the
Court of Appeals ruled on the said motion thus:
But we never made any pronouncement on the one-year right of redemption of
petitioner because, in the first place, the foreclosure in this case is judicial, and
as such, the mortgagor has only the equity, not the right of redemption xxx. While
it may be true that under Section 78 of R.A. 337 as amended, otherwise known
as the General Banking Act, a mortgagor of a bank, banking or credit institution,
whether the foreclosure was done judicially or extrajudicially, has a period of one
year from the auction sale within which to redeem the foreclosed property, the
question of whether the Syndicated Management Group, Inc., is bank or credit
institution was never brought before us squarely, and it is indeed odd and
strange that petitioner would now sarcastically ask a rhetorical question in its
motion for clarification.[9](Underscoring supplied).
If petitioner were really acting in good faith, it would have ventilated before
the Court of Appeals in CA-G.R. No. 35086 its alleged right under Section 78 of
R.A. No. 337; but petitioner never did do so.
Indeed, at the earliest opportunity, when it submitted its answer to the
complaint for judicial foreclosure, petitioner should have alleged that it was entitled
to the beneficial provisions of Section 78 of R.A. No. 337 but again, it did not make
any allegation in its answer regarding any right thereunder. It bears stressing that
the applicability of Section 78 of R.A. No. 337 hinges on the factual question of
whether or not private respondents predecessor in interest was a credit
institution. As was held in Limpin, a judicial foreclosure sale, when confirmed by
an order of the court, xx shall operate to divest the rights 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,[10]which confer on the mortgagor, his successors in
interest or any judgment creditor of the mortgagor, the right to redeem the property
sold on foreclosure after confirmation by the court of the judicial foreclosure
sale. Thus, the claim that petitioner is entitled to the beneficial provisions of Section
78 of R.A. No. 337 - since private respondents predecessor-in-interest is a credit
institution - is in the nature of a compulsory counterclaim which should have been
averred in petitioners answer to the compliant for judicial foreclosure.
xxx A counterclaim is, most broadly, a cause of action existing in favor of the
defendant against the plaintiff. More narrowly, it is a claim which, if established,
will defeat or in some way qualify a judgment or relief to which plaintiff is
otherwise entitled. It is sometimes defined as any cause of action arising in
contract available against any action also arising in contract and existing at the
time of the commencement of such an action. It is frequently defined by the
codes as a cause of action arising out of the contract or transaction set forth in
the complaint as the foundation of the plaintiffs claim, or connected with the
subject of the action.[11] (underscoring supplied)
The counterclaim is in itself a distinct and independent cause of action, so that
when properly stated as such, the defendant becomes, in respect to the matters
stated by him, an actor, and there are two simultaneous actions pending between
the same parties, wherein each is at the same time both a plaintiff and a
defendant. Counterclaim is an offensive as well as a defensive plea and is not
necessarily confined to the justice of the plaintiffs claim. It represents the right of
the defendant to have the claims of the parties counterbalanced in whole or in
part, and judgment to be entered in excess, if any. A counterclaim stands on the
same footing, and is to be tested by the same rules, as if it were an independent
action.[12] (underscoring supplied)
The very purpose of a counterclaim would have been served had petitioner
alleged in its answer its purported right under Section 78 of R.A. No. 337:
xxx The rules of counterclaim are designed to enable the disposition of
a whole controversy of interested parties conflicting claims, at one time and in
one action, provided all parties be brought before the court and the matter
decided without prejudicing the rights of any party.[13]
The failure of petitioner to seasonably assert its alleged right under Section
78 of R.A. No. 337 precludes it from so doing at this late stage of the
case. Estoppel may be successfully invoked if the party fails to raise the question
in the early stages of the proceedings.[14] Thus, a party to a case who failed to
invoked his claim in the main case, while having the opportunity to do so, will be
precluded, subsequently, from invoking his claim, even if it were true, after the
decision has become final, otherwise the judgment may be reduced to a mockery
and the administration of justice may be placed in disrepute. [15]
All things viewed in proper perspective, it is decisively clear that the trial court
erred in still allowing petitioner to introduce evidence that private respondents
predecessor-in-interest was a credit institution, and to thereafter rule that the
petitioner was entitled to avail of the provisions of Section 78 of R.A. No. 337. In
effect, the trial court permitted the petitioner to accomplish what the latter failed to
do before the Court of Appeals, that is, to invoke its alleged right under Section 78 WHEREFORE, the petition is DENIED, and the assailed decision of the Court
of R.A. No. 337 although the Court of Appeals in CA-G.R. no. 35086 already found of Appeals, declaring null and void the Order dated 21 July 1995 and Order dated
that the question of whether the Syndicated Management Council Group, Inc. is a 4 September 1997 of the Regional Trial Court of Makati City in Civil Case No. 89-
bank or credit institution was never brought before (the Court of Appeals) squarely. 5424, AFFIRMED. No pronouncement as to costs.
The said pronouncement by the Court of Appeals unerringly signified that petitioner
did not make a timely assertion of any right under Section 78 of R.A. No. 337 in all SO ORDERED.
the stages of the proceedings below.
Verily, the petitioner has only itself to blame for not alleging at the outset that
the predecessor-in-interest of the private respondent is a credit institution. Thus,
when the trial court, and the Court of Appeals repeatedly passed upon the issue
of whether or not petitioner had the right of redemption or equity of redemption
over subject properties in the decisions, resolutions and orders, particularly in Civil
Case no. 89-5424, CA-G.R. CV No. 39243, CA-G.R. SP No. 35086, and CA-G.R.
SP No. 38747, it was unmistakable that the petitioner was adjudged to just have
the equity of redemption without any qualification whatsoever, that is, without any
right of redemption allowed by law.

The law of case holds that petitioner has the equity of redemption without any
qualification.

There is, therefore, merit in private respondents contention that to allow

petitioner to belatedly invoke its right under Section 78 of R.A. No. 337 will disturb
the law of the case. However, private respondents statement of what constitutes
the law of the case is not entirely accurate. The law of the case is not simply that
the defendant possesses an equity of redemption. As the Court has stated, the law
of the case holds that petitioner has the equity of the redemption without any
qualification whatsoever, that is, without the right of redemption afforded by
Section 78 of R.A. No. 337. Whether or not the law of the case is erroneous is
immaterial, it still remains the law of the case. A contrary rule will contradict both
the letter and spirit of the rulings of the Court of Appeals in CA-G.R. SP No. 35086,
CA-G.R. CV No. 39243, and CA-G.R. 38747, which clearly saw through the
repeated attempts of petitioner to forestall so simple a matter as making the
security given for a just debt to answer for its payment.
Hence, in conformity with the ruling in Limpin, the sale of the subject
properties, as confirmed by the Order dated February 10, 1995 of the trial court in
Civil Case No. 89-5424 operated to divest the rights of all the parties to the action
and to vest their rights in private respondent. There then existed only what is
known as the equity of redemption, which is simply the right of the petitioner to
extinguish the mortgage and retain ownership of the property by paying the
secured debt within the 90-day period after the judgment became final. There
being an explicit finding on the part of the Court of Appeals in its Decision of
September 30, 1994 in CA-G.R. No. 35086 - that the herein petitioner failed to
exercise its equity of redemption within the prescribed period, redemption can no
longer be effected. The confirmation of the sale and the issuance of the transfer
certificates of title covering the subject properties to private respondent was then,
in order. The trial court therefore, has the ministerial duty to place private
respondent in the possession of subject properties.
SPOUSES RICARDO ROSALES and ERLINDA
SIBUG, petitioners, vs. SPOUSES ALFONSO and LOURDES SUBA,
THE CITY SHERIFF OF MANILA, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Challenged in the instant petition for review on certiorari are the
Resolutions[1] dated November 25, 1998 and February 26, 1999 of the Court of
Appeals dismissing the petition for certiorari in CA G.R. SP No. 49634, Spouses
Ricardo Rosales and Erlinda Sibug vs. Alfonso and Lourdes Suba.
On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a
Decision[2] 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 of Exhibit D, G and I, affecting the property in
question, as 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.
SO ORDERED.[3]
The decision became final and executory. Spouses Ricardo and Erlinda
Rosales, judgment debtors and herein petitioners, failed to comply with paragraph
2 quoted above, i.e., to deposit with the Clerk of Court, within 90 days from finality
of the Decision, P65,000.00, etc., to be paid to Felicisimo Macaspac and Elena
Jiao. This prompted Macaspac, as judgment creditor, to file with the trial court a
motion for execution.
Petitioners opposed the motion for being premature, asserting that the
decision has not yet attained finality. On March 5, 1998, they filed a manifestation
and motion informing the court of their difficulty in paying Macaspac as there is no
correct computation of the judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion for execution
stating that the amount due him is P243,864.08.
Petitioners failed to pay the amount. On March 25, 1998, the trial court issued
a writ of execution ordering the sale of the property subject of litigation for the
satisfaction of the judgment.
On May 15, 1998, an auction sale of the property 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 July 15, 1998, the trial court issued an order confirming the sale of the
property and directing the sheriff to issue a final deed of sale in their favor.
On July 28, 1998, Macaspac filed a motion praying for the release to him of
the amount of P176,176.06 from the proceeds of the auction sale, prompting
petitioners to file a motionpraying that an independent certified public accountant
be appointed to settle the exact amount due to movant Macaspac.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a new
Transfer Certificate of Title over the subject property in the names of respondents.
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. Petitioners on the other hand, filed a motion for
reconsideration of the order dated July 15, 1998 confirming the sale of the property
to respondents.
On October 19, 1998, the trial court, acting upon both motions, issued an
order (1) granting respondents prayer for a writ of possession and (2) denying
petitioners motion for reconsideration. 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.
Forthwith, petitioners filed with the Court of Appeals a petition for certiorari,
docketed as CA-G.R. SP No. 49634, alleging that the trial court committed grave
abuse of discretion amounting to lack or excess of jurisdiction in issuing a writ of
possession to respondents and in denying their motion for reconsideration of the
order dated July 15, 1998 confirming the sale of the property to said respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of
merit, holding that there is no right of redemption in case of judicial
foreclosure of mortgage. Petitioners motion for reconsideration was also denied.
 Hence this petition.
In the main, petitioners fault the Appellate Court in applying the rules on
judicial foreclosure of mortgage. They contend that their loan with Macaspac is
unsecured, hence, its payment entails an execution of judgment for money under
Section 9 in relation to Section 25, Rule 39 of the 1997 Rules of Civil Procedure,
as amended,[4] allowing the judgment debtor one (1) year from the date of
registration of the certificate of sale within which to redeem the foreclosed
property.
Respondents, upon the other hand, insist that petitioners are actually
questioning the decision of the trial court dated June 13, 1997 which has long
become final and executory; and that the latter have no right to redeem a
mortgaged property which has been judicially foreclosed.
Petitioners contention lacks merit. The decision of the trial court, which is final
and executory, declared the transaction between petitioners and Macaspac an
equitable mortgage. In Matanguihan vs. Court of Appeals,[5] this Court defined an
equitable mortgage as one which although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, and contains
nothing impossible or contrary to law. An equitable mortgage is not different from
a real estate mortgage, and the lien created thereby ought not to be defeated by
requiring compliance with the formalities necessary to the validity of a voluntary
real estate mortgage.[6]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.
x x x.
In Huerta Alba Resort, Inc. vs. Court of Appeals,[7] we held that the right of
redemption is not recognized in a judicial foreclosure, thus:
The right of redemption in relation to a mortgageunderstood in the sense of
a prerogative to re-acquire mortgaged property after registration of the
foreclosure saleexists 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.
Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor
the right of redemption within one (1) year from the registration of the sheriffs
certificate of foreclosure sale.
Where the foreclosure is judicially effected, however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale, when
confirmed by an order of the court, x x x shall operate to divest the rights
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. Such rights
exceptionally allowed by law (i.e., even after the confirmation by an order of the
court) are those granted by the charter of the Philippine National Bank (Act Nos.
2747 and 2938), and the General Banking Act (R.A.337). These laws confer on
the mortgagor, his successors in interest or any judgment creditor of the
mortgagor, the right to redeem the property sold on foreclosureafter confirmation
by the court of the foreclosure salewhich right may be exercised within a period
of one (1) year, counted from the date of registration of the certificate of sale in
the Registry of Property.
But, to repeat, no such right of redemption exists in case of judicial
foreclosure of a mortgage if the mortgagee is not the PNB or a bank or
banking institution. In such a case, the foreclosure sale, when confirmed
by an order of the court, x x x 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.
xxx
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. (Italics supplied)

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.
WHEREFORE, the petition is DENIED. The Resolutions of the Court of
Appeals dated November 25, 1998 and February 26, 1999 in CA G.R. SP No.
49634 are AFFIRMED.
SO ORDERED.
G.R. No. 91779 February 7, 1991
GRAND FARMS, INC. and PHILIPPINE SHARES CORPORATION, petitioners,
vs.
COURT OF APPEALS, JUDGE ADRIAN R. OSORIO, as Presiding Judge of
the Regional Trial Court, Branch 171, Valenzuela, Metro Manila;
ESPERANZA ECHIVERRI, as Clerk of Court & Ex-Officio Sheriff of the
Regional Trial Court of Valenzuela, Metro Manila; SERGIO CABRERA, as
Deputy Sheriff-in-Charge; and BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, respondents.
Balgos & Perez for petitioners.
Sycip, Salazar, Hernandez & Gatmaitan for private respondent.
REGALADO, J.:
The propriety of a summary judgment is raised in issue in the instant petition,
with herein petitioners appealing the decision 1 of respondent court in CA-G.R.
SP No. 17535, dated November 29, 1989, which found no grave abuse of
discretion on the part of respondent judge in denying petitioners' motion for
summary judgment. 2
The antecedents of this case are clear and undisputed. Sometime on April 15,
1988, petitioners filed Civil Case No. 2816-V88 in the Regional Trial Court of
Valenzuela, Metro Manila for annulment and/or declaration of nullity of the
extrajudicial foreclosure proceedings over their mortgaged properties, with
damages, against respondents clerk of court, deputy sheriff and herein private
respondent Banco Filipino Savings and Mortgage Bank. 3
Soon after private respondent had filed its answer to the complaint, petitioners
filed a request for admission by private respondent of the allegation, inter alia,
that no formal notice of intention to foreclose the real estate mortgage was sent
by private respondent to petitioners. 4
Private respondent, through its deputy liquidator, responded under oath to the
request and countered that petitioners were "notified of the auction sale by the
posting of notices and the publication of notice in the Metropolitan Newsweek, a
newspaper of general circulation in the province where the subject properties are
located and in the Philippines on February 13, 20 and 28, 1988." 5
On the basis of the alleged implied admission by private respondent that no
formal notice of foreclosure was sent to petitioners, the latter filed a motion for
summary judgment contending that the foreclosure was violative of the
provisions of the mortgage contract, specifically paragraph (k) thereof which
provides:
k) All correspondence relative to this Mortgage, including demand
letters, summons, subpoena or notifications of any judicial or
extrajudical actions shall be sent to the Mortgagor at the address given
above or at the address that may hereafter be given in writing by the
Mortgagor to the Mortgagee, and the mere act of sending any
correspondence by mail or by personal delivery to the said address
shall be valid and effective notice to the Mortgagor for all legal
purposes, and the fact that any communication is not actually received
by the Mortgagor, or that it has been returned unclaimed to the
Mortgagee, or that no person was found at the address given, or that
the address is fictitious, or cannot be located, shall not excuse or relieve
the Mortgagor from the effects of such notice; 6
The motion was opposed by private respondent which argued that petitioners'
reliance on said paragraph (k) of the mortgage contract fails to consider
paragraphs (b) and (d) of the same contract, which respectively provide as
follows:
b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor
(plaintiff) hereby appoints the Mortgagee (BF) his attorney-in-fact to sell
the property mortgaged, to sign all documents and perform any act
requisite and necessary to accomplish said purpose and to appoint its
substitutes as such attorney-in-fact, with the same powers as above-
specified. The Mortgagor hereby expressly waives the term of thirty (30)
days or any other term granted or which may hereafter be granted him
by law as the period which must elapse before the Mortgagee shall be
entitled to foreclose this mortgage, it being specifically understood and
agreed that the said Mortgagee may foreclose this mortgage at any time
after the breach of any conditions hereof. . . .
xxx xxx xxx
d) Effective upon the breach of any conditions of the mortgage and in
addition to the remedies herein stipulated, the Mortgagee is hereby
likewise appointed attorney-in-fact of the Mortgagor with full powers and
authority, with the use of force, if necessary, to take actual possession
of the mortgaged property, without the necessity for any judicial order or
any permission of power to collect rents, to eject tenants, to lease or sell
the mortgaged property, or any part thereof, at public or private sale
without previous notice or adverstisement of any kind and execute the
corresponding bills of sale, lease or other agreement that may be
deemed convenient, to make repairs or improvement to the mortgaged
property and pay for the same and perform any other act which the
Mortgagor may deem convenient . . . 7
On February 27, 1989, the trial court issued an order, denying petitioners' motion
for summary judgment. 8Petitioners' motion for reconsideration was likewise
denied by respondent-judge on the ground that genuine and substantial issues
exist which require the presentation of evidence during the trial, to wit: (a)
whether or not the loan has matured; (b) whether or not private respondent
notified petitioners of the foreclosure of their mortgage; (c) whether or not the
notice by publication of the foreclosure constitutes sufficient notice to petitioners
under the mortgage contract; (d) whether or not the applicant for foreclosure of
the mortgage was a duly authorized representative of private respondent; and (e)
whether or not the foreclosure was enjoined by a resolution of this Court. 9
Petitioners thereafter went on a petition for certiorari to respondent court
attacking said orders of denial as having been issued with grave abuse of
discretion. As earlier adverted to, respondent court dismissed the petition,
holding that no personal notice was required to foreclose since private
respondent was constituted by petitioners as their attorney-in-fact to sell the
mortgaged property. It further held that paragraph (k) of the mortgage contract
merely specified the address where correspondence should be sent and did not
impose an additional condition on the part of private respondent to notify
petitioners personally of the foreclosure. Respondent court also denied
petitioners motion for reconsideration, hence the instant petition.
We rule for petitioners.
The Rules of Court authorize the rendition of a summary judgment if the
pleadings, depositions and admissions on file, together with the affidavits, show
that, except as to the amount of damages, there is no issue as to any material
fact and that the moving party is entitled to a judgment as a matter of
law. 10 Although an issue may be raised formally by the pleadings but there is no
genuine issue of fact, and all the facts are within the judicial knowledge of the
court, summary judgment may be granted. 11
The real test, therefore, of a motion for summary judgment is whether the
pleadings, affidavits and exhibits in support of the motion are sufficient to
overcome the opposing papers and to justify a finding as a matter of law that
there is no defense to the action or that the claim is clearly meritorious. 12
Applying said criteria to the case at bar, we find petitioners' action in the court
below for annulment and/or declaration of nullity of the foreclosure proceedings
and damages ripe for summary judgment. Private respondent tacitly admitted in
its answer to petitioners' request for admission that it did not send any formal
notice of foreclosure to petitioners. Stated otherwise, and as is evident from the
records, there has been no denial by private respondent that no personal notice
of the extrajudicial foreclosure was ever sent to petitioners prior thereto. This
omission, by itself, rendered the foreclosure defective and irregular for being
contrary to the express provisions of the mortgage contract. There is thus no
further necessity to inquire into the other issues cited by the trial court, for the
foreclosure may be annulled solely on the basis of such defect.
While private respondent was constituted as their attorney-in-fact by petitioners,
the inclusion of the aforequoted paragraph (k) in the mortgage contract
nonetheless rendered personal notice to the latter indispensable. As we stated
in Community Savings & Loan Association, Inc., et al. vs. Court of Appeals, et
al., 13 where we had the occasion to construe an identical provision:
On the other important point that militates against the petitioners' first
ground for this petition is the fact that no notice of the foreclosure
proceedings was ever sent by CSLA to the deceased mortgagor
Antonio Esguerra or his heirs in spite of an express stipulation in the
mortgage agreement to that effect. Said Real Estate Mortgage provides,
in Sec. 10 thereof that:
(10) All correspondence relative to this mortgage, including
demand letters, summons, subpoenas, or notifications of any
judicial or extrajudicial actions shall be sent to the Mortgagor at
the address given above or at the address that may hereafter
be given in writing by the Mortgagor to the Mortgagee, and the
mere act of sending any correspondence by mail or by
personal delivery to the said address shall be valid and
effective notice to the Mortgagor for all legal purposes, . . .
(Emphasis in the original text.)
The Court of Appeals, in appreciating the foregoing provision ruled that
it is an additional stipulation between the parties.1wphi1 As such, it is
the law between them and as it not contrary to law, morals, good
customs and public policy, the same should be complied with faithfully
(Article 1306, New Civil Code of the Philippines). Thus, while publication
of the foreclosure proceedings in the newspaper of general circulation
was complied with, personal notice is still required, as in the case at bar,
when the same was mutually agreed upon by the parties as additional
condition of the mortgage contract. Failure to comply with this additional
stipulation would render illusory Article 1306 of the New Civil Code of
the Philippines (p. 37, Rollo).
On the issue of whether or not CSLA notified the private respondents of
the extrajudicial foreclosure sale in compliance with Sec. 10 of the
mortgage agreement the Court of Appeals found as follows:
As the record is bereft of any evidence which even impliedly
indicate that the required notice of the extrajudicial foreclosure
was ever sent to the deceased debtor-mortgagor Antonio
Esguerra or to his heirs, the extrajudicial foreclosure
proceedings on the property in question are fatally defective
and are not binding on the deceased debtor-mortgagor or to
his heirs (p. 37, Rollo)
 Hence, even on the premise that there was no attendant fraud in the
proceedings, the failure of the petitioner bank to comply with the
stipulation in the mortgage document is fatal to the petitioners' cause.

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

Nor may private respondent validly claim that we are supposedly interpreting
paragraph (k) in isolation and without taking into account paragraphs (b) and (d)
of the same contract. There is no irreconcillable conflict between, as in fact a
reconciliation should be made of, the provisions of paragraphs (b) and (d) which
appear first in the mortgage contract and those in paragraph (k) which follow
thereafter and necessarily took into account the provisions of the preceding two
paragraphs. 14 The notices respectively mentioned in paragraphs (d) and (k) are
addressed to the particular purposes contemplated therein. Those mentioned in
paragraph (k) are specific and additional requirements intended for the
mortgagors so that, thus apprised, they may take the necessary legal steps for
the protection of their interests such as the payment of the loan to prevent
foreclosure or to subsequently arrange for redemption of the property foreclosed.

What private respondent would want is to have paragraph (k) considered as non-
existent and consequently disregarded, a proposition which palpably does not
merit consideration. Furthermore, it bears mention that private respondent having
caused the formulation and preparation of the printed mortgage contract in
question, any obscurity that it imputes thereto or which supposedly appears
therein should not favor it as a contracting party. 15

Now, as earlier discussed, to still require a trial notwithstanding private

respondent's admission of the lack of such requisite notice would be a superfluity
and would work injustice to petitioners whose obtention of the relief to which they
are plainly and patently entitled would be further delayed. That undesirable
contingency is obviously one of the reasons why our procedural rules have
provided for summary judgments.

WHEREFORE, the decision appealed from is hereby REVERSED and SET

ASIDE and this case is REMANDED to the court of origin for further proceedings
in conformity with this decision. This judgment is immediately executory.

SO ORDERED.
G.R. No. 98334 May 8, 1992
MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY
SAVINGS BANK (formerly Cebu City Savings and Loan Association, Inc.)
and TEOTIMO ABELLANA, petitioners,
vs.
COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA
DOLINO, respondents.
Gines N. Abellana for petitioners.
Dionisio U. Flores for private respondents.
REGALADO, J.:
The core issue in this case is whether or not a mortgagor, whose property has
been extrajudicially foreclosed and sold at the corresponding foreclosure sale,
may validly execute a mortgage contract over the same property in favor of a
third party during the period of redemption.
The present appeal by certiorari assails the decision 1 of respondent Court of
Appeals in CA-G.R. CV No. 12678 where it answered the question posed by the
foregoing issue in the negative and modified the decision 2 of the then Court of
First Instance of Cebu in Civil Case No. R-18616 wherein the validity of said
subsequent mortgage was assumed and the case was otherwise disposed of on
other grounds.
The facts which gave rise to the institution of the aforesaid civil case in the trial
court, as found by respondent Court of Appeals, are as follows:
On October 10, 1974 plaintiff spouses, alarmed of losing their
right of redemption over lot 4731 of the Cebu City Cadastre
and embraced under TCT No. 14272 from Mr. Juan
Gandioncho, purchaser of the aforesaid lot at the foreclosure
sale of the previous mortgage in favor of Cebu City
Development Bank, went to Teotimo Abellana, president of
defendant Association, to obtain a loan of P30,000.00. Prior
thereto or on October 3, 1974, their son Teofredo Dolino filed a
similar loan application for Twenty-Five Thousand
(P25,000.00) Pesos with lot No. 4731 offered as security for
the Thirty Thousand (P30,000.00) Pesos loan from defendant
association. Subsequently, they executed a promissory note in
favor of defendant association. Both documents indicated that
the principal obligation is for Thirty Thousand (P30,000.00)
Pesos payable in one year with interest at twelve (12%)
percent per annum.
When the loan became due and demandable without plaintiff
paying the same, defendant association caused the
extrajudicial foreclosure of the mortgage on March 16, 1976.
After the posting and publication requirements were complied
with, the land was sold at public auction on April 19, 1976 to
defendant association being the highest bidder. The certificate
of sale was issued on April 20, 1976 and registered on May 10,
1976 with the Register of Deeds of Cebu.
On May 24, 1971 (sic, 1977), no redemption having been
effected by plaintiff, TCT No. 14272 was cancelled and in lieu
thereof TCT No. 68041 was issued in the name of defendant
association. 3
xxx xxx xxx
On October 18, 1979, private respondents filed the aforestated Civil Case No. R-
18616 in the court a quo for the annulment of the sale at public auction
conducted on April 19, 1976, as well as the corresponding certificate of sale
issued pursuant thereto.
In their complaint, private respondents, as plaintiffs therein, assailed the validity
of the extrajudicial foreclosure sale of their property, claiming that the same was
held in violation of Act No. 3135, as amended, and prayed, inter alia, for the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of therein
defendant City Savings and Loan Association, Inc., now known as City Savings
Bank and one of the petitioners herein.
In its answer, the defendant association therein denied the material allegations of
the complaint and averred, among others, that the present private respondent
spouses may still avail of their right of redemption over the land in question.
On January 12, 1983, after trial on the merits, the court below rendered judgment
upholding the validity of the loan and the real estate mortgage, but annulling the
extrajudicial foreclosure sale inasmuch as the same failed to comply with the
notice requirements in Act No. 3135, as amended, under the following dispositive
part:
WHEREFORE, the foregoing premises considered and upon
the view taken by the Court of this case, judgment is hereby
rendered, as follows:
1. Declaring ineffective the extrajudicial foreclosure of the
mortgage over Lot No. 4731 of the Cadastral Survey of Cebu;
 2. Ordering the cancellation of Transfer Certificate of Title No.
68041 of the Registry of Deeds of the City of Cebu in the name
of defendant Cebu City Savings and Loan Association, Inc. the
corresponding issuance of a new transfer certificate to contain
all the annotations made in TCT No. 14272 of the plaintiffs
Pascuala Sabellano, married to Andres Dolino;
3. Ordering the plaintiffs aforenamed to pay the defendant
Cebu City Savings and Loan Association, Inc. the unpaid
balance of the loan, plus interest; and reimbursing said
defendant the value of any necessary and useful expenditures
on the property after deducting any income derived by said
defendant from the property.
For this purpose, defendant Association is given 15 days from
receipt hereof within which to submit its statement of the
amount due it from the plaintiffs Dolino, with notice to them.
The payment to be made by the plaintiffs shall be within ninety
(90) days from their receipt of the order approving the amount
due the defendant Cebu City Savings and Loan Association,
Inc.
No award of damages or costs to either party.
SO ORDERED. 4
Not satisfied therewith, herein private respondents interposed a partial appeal to
respondent court with respect to the second and third paragraphs of the
aforequoted decretal portion, contending that the lower court erred in (1)
declaring that the mortgage executed by the therein plaintiff spouses Dolino is
valid; (2) permitting therein Cebu City Savings and Loan Association, Inc. to
collect interest after the same foreclosure proceedings and auction sale which
are null and void from the beginning; (3) not ordering the forfeiture of the capital
or balance of the loan with usurious interest; and (4) not sentencing therein
defendant to pay damages and attorney's fees to plaintiffs. 5
On September 28, 1990, respondent Court of Appeals promulgated its decision
modifying the decision of the lower court, with this adjudication:
WHEREFORE, PREMISES CONSIDERED, the decision
appealed from is hereby MODIFIED declaring as void and
ineffective the real estate mortgage executed by plaintiffs in
favor of defendant association. With this modification, the
decision is AFFIRMED in other respects. 6
Herein petitioners then filed a motion for reconsideration which was denied by
respondent court in its resolution dated March 5, 1991, hence the present petition
which, in synthesis, postulates that respondent court erred in declaring the real
estate mortgage void, and also impugns the judgment of the trial court declaring
ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of the
predecessor of petitioner bank. 7
The first submission assailing the judgment of respondent Court of Appeals is
meritorious.
Said respondent court declared the real estate mortgage in question null and
void for the reason that the mortgagor spouses, at the time when the said
mortgage was executed, were no longer the owners of the lot, having supposedly
lost the same when the lot was sold to a purchaser in the foreclosure sale under
the prior mortgage. This holding cannot be sustained.
Preliminarily, the issue of ownership of the mortgaged property was never
alleged in the complaint nor was the same raised during the trial, hence that
issue should not have been taken cognizance of by the Court of Appeals. An
issue which was neither averred in the complaint nor ventilated during the trial in
the court below cannot be raised for the first time on appeal as it would be
offensive to the basic rule of fair play, justice and due process. 8
Nonetheless, since respondent Court took cognizance thereof and, in fact,
anchored its modificatory judgment on its ratiocination of that issue, we are
inclined to liberalize the rule so that we can in turn pass upon the correctness of
its conclusion. We may consider such procedure as analogous to the rule that an
unassigned error closely related to an error properly assigned, or upon which the
determination of the question properly assigned is dependent, may be
considered by an appellate court. 9 We adopt this approach since, after all, both
lower courts agreed upon the invalidity of the extrajudicial foreclosure but differed
only on the matter of the validity of the real estate mortgage upon which the
extrajudicial foreclosure was based.
In arriving at its conclusion, respondent court placed full reliance on what
obviously is an obiter dictum laid down in the course of the disquisition in Dizon
vs. Gaborro, et al. which we shall analyze. 10 For, as explicitly stated therein by
the Court, "(t)he basic issue to be resolved in this case is whether the 'Deed of
Sale with Assumption of Mortgage' and the 'Option to Purchase Real Estate,' two
instruments executed by and between petitioner Jose P. Dizon and Alfredo G.
Gaborro (defendant below) on the same day, October 6, 1959, constitute in truth
and in fact an absolute sale of the three parcels of land therein described or
merely an equitable mortgage or conveyance thereof by way of security for
reimbursement or repayment by petitioner Jose P. Dizon of any and all sums
which may have been paid to the Development Bank of the Philippines and the
Philippine National Bank by Alfredo G. Gaborro . . . ." Said documents were
executed by the parties and the payments were made by Gaborro for the debt of
Dizon to said banks after the Development Bank of the Philippines had
foreclosed the mortgage executed by Dizon and during the period of redemption
after the foreclosure sale of the mortgaged property to said creditor bank.
The trial court held that the true agreement between the parties therein was that
Gaborro would assume and pay the indebtedness of Dizon to the banks and, in
consideration thereof, Gaborro was given the possession and enjoyment of the
properties in question until Dizon shall have reimbursed him for the amount paid
to the creditor banks. Accordingly, the trial court ordered the reformation of the
documents to the extent indicated and such particular relief was affirmed by the
Court of Appeals. This Court held that the agreement between the parties is one
of those innominate contracts under Article 1307 of the Civil Code whereby the
parties agreed "to give and to do" certain rights and obligations, but partaking of
the nature of antichresis.
Hence, on appeal to this Court, the judgment of the Court of Appeals in that case
was affirmed but with the following pronouncements:
The two instruments sought to be reformed in this case appear
to stipulate rights and obligations between the parties thereto
pertaining to and involving parcels of land that had already
been foreclosed and sold extrajudicially, and purchased by the
mortgage creditor, a third party. It becomes, therefore,
necessary, to determine the legality of said rights and
obligations arising from the foreclosure and sale proceedings
not only between the two contracting parties to the instruments
executed between them but also in so far as the agreement
affects the rights of the third party, the purchaser Bank.
xxx xxx xxx
Under the Revised Rules of Court, Rule 39, Section 33, the
judgment debtor remains in possession of the property
foreclosed and sold, during the period of redemption. If the
judgment debtor is in possession of the property sold, he is
entitled to retain it, and receive the fruits, the purchaser not
being entitled to such possession. (Riosa vs. Verzosa, 26 Phil.
86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs.
Pauco, 43 Phil. 572; Power vs. PNB, 54 Phil. 54; Gorospe vs.
Gochangco, L-12735, Oct. 30, 1959).
xxx xxx xxx
Upon foreclosure and sale, the purchaser is entitled to a
certificate of sale executed by the sheriff. (Section 27, Revised
Rules of Court). After the termination of the period of
redemption and no redemption having been made, the
purchaser is entitled to a deed of conveyance and to the
possession of the properties. (Section 35, Revised Rules of
Court). The weight of authority is to the effect that the
purchaser of land sold at public auction under a writ of
execution has only an inchoate right to the property, subject to
be defeated and terminated within the period of 12 months
from the date of sale, by a redemption on the part of the
owner. Therefore, the judgment debtor in possession of the
property is entitled to remain therein during the period for
redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89; Gonzales vs.
Calimbas, 51 Phil. 355).
In the case before Us, after the extrajudicial foreclosure and
sale of his properties, petitioner Dizon retained the right to
redeem the lands, the possession, use and enjoyment of the
same during the period of redemption. And these are the only
rights that Dizon could legally transfer, cede and convey unto
respondent Gaborro under the instrument captioned Deed of
Sale with Assumption of Mortgage (Exh. A-Stipulation),
likewise the same rights that said respondent could acquire in
consideration of the latter's promise to pay and assume the
loan of petitioner Dizon with DBP and PNB.
Such an instrument cannot be legally considered a real and
unconditional sale of the parcels of land, firstly, because there
was absolutely no money consideration therefor, as admittedly
stipulated, the sum of P131,831.91 mentioned in the document
as the consideration "receipt of which was acknowledged" was
not actually paid; and, secondly, because the properties had
already been previously sold by the sheriff at the foreclosure
sale, thereby divesting the petitioner of his full right as owner
thereof to dispose and sell the lands. (Emphasis ours.)
It was apparently the second reason stated by the Court in said case which was
relied upon by respondent court in the present case on which to premise its
conclusion. Yet, as demonstrated by the relevant excerpts above quoted, not
only was that obiter therein unnecessary since evidently no sale was concluded,
but even inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale
merely acquired an inchoate right to the property which could ripen into
ownership only upon the lapse of the redemption period without his credit having
been discharged, it is illogical to hold that during that same period of twelve
months the mortgagor was "divested" of his ownership, since the absurd result
would be that the land will consequently be without an owner although it remains
registered in the name of the mortgagor.
That is why the discussion in said case carefully and felicitously states that what
is divested from the mortgagor is only his "full right as owner thereof to dispose
(of) and sell the lands," in effect, merely clarifying that the mortgagor does not
have the unconditional power to absolutely sell the land since the same is
encumbered by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the period
of redemption. Even on that score, it may plausibly be argued that what is
delimited is not the mortgagor's jus dispodendi, as an attribute of ownership, but
merely the rights conferred by such act of disposal which may correspondingly
be restricted.
At any rate, even the foregoing considerations and arguments would have no
application in the case at bar and need not here be resolved since what is
presently involved is a mortgage, not a sale, to petitioner bank. Such mortgage
does not involve a transfer, cession or conveyance of the property but only
constitutes a lien thereon. There is no obstacle to the legal creation of such a lien
even after the auction sale of the property but during the redemption period,
since no distinction is made between a mortgage constituted over the property
before or after the auction sale thereof.
Thus, a redemptioner is defined as a creditor having a lien by attachment,
judgment or mortgage on the property sold, or on some part
thereof, subsequent to the judgment under which the property was sold. 11 Of
course, while in extrajudicial foreclosure the sale contemplated is not under a
judgment but the proceeding pursuant to which the mortgaged property was sold,
a subsequent mortgage could nevertheless be legally constituted thereafter with
the subsequent mortgagee becoming and acquiring the rights of a redemptioner,
aside from his right against the mortgagor.
In either case, what bears attention is that since the mortgagor remains as the
absolute owner of the property during the redemption period and has the free
disposal of his property, there would be compliance with the requisites of Article
2085 of the Civil Code for the constitution of another mortgage on the property.
To hold otherwise would create the inequitable situation wherein the mortgagor
would be deprived of the opportunity, which may be his last recourse, to raise
funds wherewith to timely redeem his property through another mortgage
thereon.
Coming back to the present controversy, it is undisputed that the real estate
mortgage in favor of petitioner bank was executed by respondent spouses during
the period of redemption. We reiterate that during said period it cannot be said
that the mortgagor is no longer the owner of the foreclosed property since the
rule up to now is that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without the right being
exercised. 12 The title to land sold under mortgage foreclosure remains in the
mortgagor or his grantee until the expiration of the redemption period and
conveyance by the master's deed. 13 To repeat, the rule has always been that it
is only upon the expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, that the ownership of the land sold
becomes consolidated in the purchaser. 14
Parenthetically, therefore, what actually is effected where redemption is
seasonably exercised by the judgment or mortgage debtor is not the recovery of
ownership of his land, which ownership he never lost, but the elimination from his
title thereto of the lien created by the levy on attachment or judgment or the
registration of a mortgage thereon. The American rule is similarly to the effect
that the redemption of property sold under a foreclosure sale defeats the
inchoate right of the purchaser and restores the property to the same condition
as if no sale had been attempted. Further, it does not give to the mortgagor a
new title, but merely restores to him the title freed of the encumbrance of the lien
foreclosed. 15
We cannot rule on the plaint of petitioners that the trial court erred in declaring
ineffective the extrajudicial foreclosure and the sale of the property to petitioner
bank. The court below spelled out at length in its decision the facts which it
considered as violative of the provisions of Act No. 3135, as amended, by reason
of which it nullified the extrajudicial foreclosure proceeding and its effects. Such
findings and ruling of the trial court are already final and binding on petitioners
and can no longer be modified, petitioners having failed to appeal therefrom.
An appellee who has not himself appealed cannot obtain from the appellate court
any affirmative relief other than the ones granted in the decision of the court
below. 16 He cannot impugn the correctness of a judgment not appealed from by
him. He cannot assign such errors as are designed to have the judgment
modified. All that said appellee can do is to make a counter-assignment of errors
or to argue on issues raised at the trial only for the purpose of sustaining the
judgment in his favor, even on grounds not included in the decision of the court a
quo nor raised in the appellant's assignment of errors or arguments. 17
WHEREFORE, the decision of respondent Court of Appeals, insofar as it
modifies the judgment of the trial court, is REVERSED and SET ASIDE. The
judgment of said trial court in Civil Case No. R-18616, dated January 12, 1983, is
hereby REINSTATED.
SO ORDERED.
 SPS. ESMERALDO and G.R. No. 170215
ELIZABETH SUICO, A parcel of land situated at Tabok, Mandaue City, Cad. Lot No.
Petitioners, Present: 700-C-1; bounded on the North by Lot No. 701 & 700-B; on the
South by Lot No. 700-C-3; on the East by lot no. 700-C-3 and
on the West by Lot no. 688, containing an area of 200 square
YNARES-SANTIAGO, J., meters, more or less.
- versus - Chairperson,
AUSTRIA-MARTINEZ, TAX DECL. NO. 00721
CHICO-NAZARIO, NACHURA,
and Two (2) parcels of land situated at Tabok, Mandaue City, Cad.
PHILIPPINE NATIONAL BANK REYES, JJ. lot nos. 700-C-3 and 700-C-2; bounded on the North by Lot Nos.
and HON. COURT OF APPEALS, 700-C-1 and 700-B; on the South by Lot No. 700-D; on the East
Promulgated: by Lot Nos. 695 and 694; and on the West by Lot Nos. 688 and
Respondents. 700-C-1, containing an aggregate area of 1,683 sq. m. more or
August 28, 2007 less.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
TAX DECL. NO. 0237

A parcel of land situated at Tabok, Mandaue City, Cad. Lot no.

DECISION 700-B. Bounded on the NE. by (Lot 699) 109, (Lot No. 69) 110,
on the SE (Lot 700-C) 115, on the NW. (Lot 700-A) 112 and on
the SW. (Lot 701) 113; containing an area of .1785 HA more or
CHICO-NAZARIO, J.: less.

Herein petitioners, Spouses Esmeraldo and Elizabeth Suico, obtained a loan from
the Philippine National Bank (PNB) secured by a real estate mortgage [1] on real
properties in the name of the former. The petitioners were unable to pay their
obligation prompting the PNB to extrajudicially foreclose the mortgage over the
subject properties before the City Sheriff of Mandaue City under EJF Case No. 92-
5-15.
The petitioners thereafter filed a Complaint against the PNB before the Regional
Trial Court (RTC) of Mandaue City, Branch 55, docketed as Civil Case No. MAN-
2793 for Declaration of Nullity of Extrajudicial Foreclosure of Mortgage. [2]
TAX DECL. NO. 9267
A parcel of land situated at Tabok, Mandaue City, Cad. Lot no.
700-A. Bounded on the NE. by (Lot 699) 109, on the South West
by (Lot 701) 113, on the SE. by (Lot 700-B) 111, and on the
NW. by (lot 714) 040039; containing an area of .1785 HA more
or less.[3]

The Complaint alleged that on 6 May 1992, PNB filed with the Office of
the Mandaue City Sheriff a petition for the extrajudicial foreclosure of mortgage
constituted on the petitioners properties (subject properties) for an outstanding
loan obligation amounting to P1,991,770.38 as of 10 March 1992. The foreclosure
case before the Office of the Mandaue City Sheriff, which was docketed as EJF
Case No. 92-5-15, covered the following properties:
TCT NO. 13196
A parcel of land (Lot 701, plan 11-5121 Amd-2) situated
at Mandaue City, bounded on the NE., and SE., by lot no. 700;
on the SW. by lots nos. 688 and 702; on the NW. by lot no. 714,
containing an area of 2,078 sq. m. more or less.
TAX DECL. NO. 00553
Petitioners claimed that during the foreclosure sale of the subject properties held
on 30 October 1992, PNB, as the lone bidder, offered a bid in the amount
of P8,511,000.00. By virtue of the said bid, a Certificate of Sale of the subject
properties was issued by the Mandaue City Sheriff in favor of PNB. PNB did not
pay to the Sheriff who conducted the auction sale the amount of its bid which
was P8,511,000.00 or give an accounting of how said amount was applied against
petitioners outstanding loan, which, as of 10 March 1992, amounted only
to P1,991,770.38. Since the amount of the bid grossly exceeded the amount of
petitioners outstanding obligation as stated in the extrajudicial foreclosure of
mortgage, it was the legal duty of the winning bidder, PNB, to deliver to
the Mandaue City Sheriff the bid price or what was left thereof after deducting the
amount of petitioners outstanding obligation. PNB failed to deliver the amount of
their bid to the Mandaue City Sheriff or, at the very least, the amount of such bid
in excess of petitioners outstanding obligation.
One year after the issuance of the Certificate of Sale, PNB secured a Certificate
of Final Sale from the Mandaue City Sheriff and, as a result, PNB transferred
registration of all the subject properties to its name.
Owing to the failure of PNB as the winning bidder to deliver to the petitioners the
amount of its bid or even just the amount in excess of petitioners obligation, the
latter averred that the extrajudicial foreclosure conducted over the subject
properties by the Mandaue City Sheriff, as well as the Certificate of Sale and the
Certificate of Finality of Sale of the subject properties issued by the Mandaue City
Sheriff, in favor of PNB, were all null and void.
Petitioners, in their Complaint in Civil Case No. MAN-2793, prayed for:
a) Declaring the Nullity of Extra-judicial Foreclosure of Mortgage
under EJF Case No. 92-5-15 including the certificate of
sale and the final deed of sale of the properties
affected;
b) Order[ing] the cancellation of the certificates of titles and tax
declaration already in the name of [herein respondent]
PNB and revert the same back to herein [petitioners]
name;
c) Ordering the [PNB] to pay [petitioners] moral damages
amounting to more than P1,000,000,00; Exemplary
damages of P500,000.00; Litigation expenses
of P100,000.00 and attorneys fees of P300,000.00.[4]
PNB filed a Motion to Dismiss[5] Civil Case No. MAN-2793 citing the pendency of
another action between the same parties, specifically Civil Case No. CEB-15236
before the RTC of Cebu City entitled, PNB v. Sps. Esmeraldo and
Elizabeth Suico where PNB was seeking the payment of the balance of petitioners
obligation not covered by the proceeds of the auction sale held on 30 October
1992. PNB argued that these two cases involve the same parties. Petitioners
opposed the Motion to Dismiss filed by PNB.[6] Subsequently, the Motion to
Dismiss Civil Case No. MAN-2793 was denied in the Order of the RTC dated 15
July 1997;[7] thus, PNB was constrained to file its Answer.[8]
PNB disputed petitioners factual narration. PNB asserted that petitioners had other
loans which had likewise become due. Petitioners outstanding obligation
of P1,991,770.38 as of 10 March 1992 was exclusive of attorneys fees, and other
export related obligations which it did not consider due and demandable as of said
date. PNB maintained that the outstanding obligation of the petitioners under their
regular and export- related loans was already more than the bid price
of P8,511,000.00, contradicting the claim of surplus proceeds due the
petitioners. Petitioners were well aware that their total principal outstanding
obligation on the date of the auction sale was P5,503,293.21.
PNB admitted the non-delivery of the bid price to the sheriff and the execution of
the final deed of sale, but claimed that it had not transferred in its name all the
foreclosed properties because the petition to register in its name Transfer
Certificates of Title (TCT) No. 37029 and No. 13196 were still pending.
On 2 February 1999, the RTC rendered its Decision[9] in Civil Case No. MAN-2793
for the declaration of nullity of the extrajudicial foreclosure of mortgage,
the dispositiveportion of which states:
WHEREFORE, based on the foregoing, judgment is rendered in
favor of [herein petitioners] Sps. Esmeraldo &
Elizabeth Suico and against [herein respondent], Philippine
National Bank (PNB), declaring the nullity of Extrajudicial
Foreclosure of Mortgage under EJF Case No. 92-5-15, including
the certificate of sale and the final deed of sale of the subject
properties; ordering the cancellation of the certificates of titles
and tax declaration already in the name of [respondent] PNB, if
any, and revert the same back to the [petitioners] name; ordering
[respondent] PNB to cause a new foreclosure proceeding, either
judicially or extra-judicially.
Furnish parties thru counsels copy of this order.[10]
In granting the nullification of the extrajudicial foreclosure of mortgage, the RTC
reasoned that given that petitioners had other loan obligations which had not yet
matured on 10 March 1992 but became due by the date of the auction sale on 30
October 1992, it does not justify the shortcut taken by PNB and will not excuse it
from paying to the Sheriff who conducted the auction sale the excess bid in the
foreclosure sale. To allow PNB to do so would constitute fraud, for not only is the
filing fee in the said foreclosure inadequate but, worse, the same constitutes a
misrepresentation regarding the amount of the indebtedness to be paid in the
foreclosure sale as posted and published in the notice of sale. [11] Such
misrepresentation is fatal because in an extrajudicial foreclosure of mortgage,
notice of sale is jurisdictional. Any error in the notice of sale is fatal and invalidates
the notice.[12]
When the PNB appealed its case to the Court of Appeals, [13] the appellate court
rendered a Decision[14] dated 12 April 2005, the fallo of which provides:
WHEREFORE, premises considered, the instant appeal is
GRANTED. The questioned decision of
the Regional Trial Court of Mandaue City, Branch 55
dated February 2, 1999 is hereby REVERSED and SET
ASIDE. Accordingly, the extra judicial foreclosure of mortgage
under EJF 92-5-15 including the certificate of sale and final deed
of sale executed appurtenant thereto are hereby declared to be
valid and binding.[15]
In justifying reversal, the Court of Appeals held:

A careful scrutiny of the evidence extant on record would show
that in a letter dated January 12, 1994, [petitioners] expressly
admitted that their outstanding principal obligation amounted
to P5.4 Million and in fact offered to redeem the properties
at P6.5 Million. They eventually increased their offer at P7.5
Million as evidenced by that letter dated February 4, 1994. And
finally on May 16, 1994, they offered to redeem the foreclosed
properties by paying the whole amount of the obligation by
installment in a period of six years. All those offers made by the
[petitioners] not only contradicted their very assertion that their
obligation is merely that amount appearing on the petition for
foreclosure but are also indicative of the fact that they have
admitted the validity of the extra judicial foreclosure proceedings
and in effect have cured the impugned defect. Thus, for the
[petitioners] to insist that their obligation is only over a million is
unworthy of belief. Oddly enough, it is evident from their acts
that they themselves likewise believe otherwise.
Even assuming that indeed there was a surplus and the [PNB]
is retaining more than the proceeds of the sale than it is entitled,
this fact alone will not affect the validity of the sale but simply
gives the [petitioners] a cause of action to recover such
surplus. In fine, the failure of the [PNB] to remit the surplus, if
any, is not tantamount to a non-compliance of statutory
requisites that could constitute a jurisdictional defect invalidating
the sale. This situation only gives rise to a cause of action on the
part of the [petitioners] to recover the alleged surplus from the
[PNB]. This ruling is in harmony with the decisional rule that in
suing for the return of the surplus proceeds, the mortgagor is
deemed to have affirmed the validity of the sale since nothing is
due if no valid sale has been made.[16]
Petitioners filed a Motion for Reconsideration[17] of the foregoing Decision, but the
Court of Appeals was not persuaded. It maintained the validity of the foreclosure
sale and, in its Amended Decision dated 28 September 2005, it merely directed
PNB to pay the deficiency in the filing fees, holding thus:
WHEREFORE, Our decision dated April 12, 2005 is hereby
AMENDED. [Herein respondent PNB] is hereby required to pay
the deficiency in the filing fees due on the petition for extra
judicial foreclosure sale to be based on the actual amount of
mortgage debts at the time of filing thereof. In all other respects,
Our decision subject of herein petitioners] motion for
reconsideration is hereby AFFIRMED.[18]
Unflinching, petitioners elevated the case before this Court via the present Petition
for Review essentially seeking the nullification of the extrajudicial foreclosure of
the mortgage constituted on the subject properties. Petitioners forward two
reasons for declaring null and void the said extrajudicial foreclosure: (1) the alleged
defect or misrepresentation in the notice of sheriffs sale; and/or (2) failure of PNB
to pay and tender the price of its bid or the surplus thereof to the sheriff.
Petitioners argue that since the Notice of Sheriffs Sale stated that their obligation
was only P1,991,770.38 and PNB bidded P8,511,000.00, the said Notice as well
as the consequent sale of the subject properties were null and void.
It is true that statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with, and that even slight
deviations therefrom will invalidate the notice and render the sale at
least voidable.[19] Nonetheless, we must not also lose sight of the fact that the
purpose of the publication of the Notice of Sheriffs Saleis to inform all interested
parties of the date, time and place of the foreclosure sale of the real property
subject thereof. Logically, this not only requires that the correct date, time and
place of the foreclosure sale appear in the notice, but also that any and all
interested parties be able to determine that what is about to be sold at the
foreclosure sale is the real property in which they have an interest.[20]
Considering the purpose behind the Notice of Sheriffs Sale, we disagree with the
finding of the RTC that the discrepancy between the amount of petitioners
obligation as reflected in the Notice of Sale and the amount actually due and
collected from the petitioners at the time of the auction sale constitute fraud which
renders the extrajudicial foreclosure sale null and void.
Notices are given for the purpose of securing bidders and to prevent a sacrifice of
the property. If these objects are attained, immaterial errors and mistakes will not
affect the sufficiency of the notice; but if mistakes or omissions occur in the notices
of sale, which are calculated to deter or mislead bidders, to depreciate the value
of the property, or to prevent it from bringing a fair price, such mistakes or
omissions will be fatal to the validity of the notice, and also to the sale made
pursuant thereto.[21]
All these considered, we are of the view that the Notice of Sale in this case is
valid. Petitioners failed to convince this Court that the difference between the
amount stated in the Notice of Sale and the amount of PNBs bid resulted in
discouraging or misleading bidders, depreciated the value of the property or
prevented it from commanding a fair price.
The cases cited by the RTC in its Decision do not apply herein. San Jose v. Court
of Appeals[22] refers to a Notice of Sheriffs Sale which did not state the correct
number of the transfer certificates of title of the property to be sold. This Court
considered the oversight as a substantial and fatal error which resulted in
invalidating the entire notice. The case of Community Savings and Loan
Association, Inc. v. Court of Appeals[23] is also inapplicable, because the said case
refers to an extrajudicial foreclosure tainted with fraud committed by therein
petitioners, which denied therein respondents the right to redeem the property. It
actually has no reference to a Notice of Sale.
We now proceed to the effect of the non-delivery by PNB of the bid price or the
surplus to the petitioners.
The following antecedents are not disputed:
For failure to pay their loan obligation secured by a real estate mortgage on the
subject properties, PNB foreclosed the said mortgage. In its petition for foreclosure
sale under ACT No. 3135 filed before the Mandaue City Sheriff, PNB stated therein
that petitioners total outstanding obligation amounted
to P1,991,770.38.[24] PNB bidded the amount of P8,511,000.00. Admittedly, PNB
did not pay its bid in cash or deliver the excess either to the City Sheriff who
conducted the bid or to the petitioners after deducting the difference between the
amount of its bid and the amount of petitioners obligation in the Notice of Sale. The
petitioners then sought to declare the nullity of the foreclosure, alleging that their
loan obligation amounted only to P1,991,770.38 in the Notice of Sale, and that
PNB did not pay its bid in cash or deliver to petitioner the surplus, which is required
under the law.[25]
On the other hand, PNB claims that petitioners loan obligation reflected in the
Notice of Sale dated 10 March 1992 did not include their other obligations, which
became due at the date of the auction sale on 10 October 1992; as well as
interests, penalties, other charges, and attorneys fees due on the said
obligation.[26]
Pertinent provisions under Rule 39 of the Rules of Court on extrajudicial
foreclosure sale provide:
SEC. 21. Judgment obligee as purchaser. When the purchaser
is the judgment obligee, and no third-party claim has been
filed, he need not pay the amount of the bid if it does not
exceed the amount of his judgment. If it does, he shall pay
only the excess. (Emphasis supplied.)
SEC. 39. Obligor may pay execution against obligee. After a writ
of execution against property has been issued, a person
indebted to the judgment obligor may pay to the sheriff holding
the writ of execution the amount of his debt or so much thereof
as may be necessary to satisfy the judgment, in the manner
prescribed in section 9 of this Rule, and the sheriffs receipt shall
be a sufficient discharge for the amount so paid or directed to
be credited by the judgment obligee on the execution.
Conspicously emphasized under Section 21 of Rule 39 is that if the amount of the
loan is equal to the amount of the bid, there is no need to pay the amount in
cash. Same provision mandates that in the absence of a third-party claim, the
purchaser in an execution sale need not pay his bid if it does not exceed the
amount of the judgment; otherwise, he shall pay only the excess.[27]
The raison de etre is that it would obviously be senseless for the Sheriff or the
Notary Public conducting the foreclosure sale to go through the idle ceremony of
receiving the money and paying it back to the creditor, under the truism that the
lawmaking body did not contemplate such a pointless application of the law in
requiring that the creditor must bid under the same conditions as any other
bidder. It bears stressing that the rule holds true only where the amount of the bid
represents the total amount of the mortgage debt. [28]
The question that needs to be addressed in this case is: considering the amount
of PNBs bid of P8,511,000.00 as against the amount of the petitioners obligation
of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess?
Petitioners insist that the PNB should deliver the excess. On the other hand PNB
counters that on the date of the auction sale on 30 October 1992, petitioners other
loan obligation already exceeded the amount of P1,991,770.38 in the Notice of
Sale.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount realized
from the foreclosure sale of the mortgaged property shall, after
deducting the costs of the sale, be paid to the person foreclosing
the mortgage, and when there shall be any balance or residue,
after paying off the mortgage debt due, the same shall be paid
to junior encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly authorized
agent, or to the person entitled to it.
Under the above rule, the disposition of the proceeds of the sale in foreclosure
shall be as follows:
(a) first, pay the costs
(b) secondly, pay off the mortgage debt
(c) thirdly, pay the junior encumbrancers, if any in the order of
priority
(d) fourthly, give the balance to the mortgagor, his agent or the
person entitled to it.[29]
Based on the foregoing, after payment of the costs of suit and satisfaction of the
claim of the first mortgagee/senior mortgagee, the claim of the second
mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The
application of the proceeds from the sale of the mortgaged property to the
mortgagors obligation is an act of payment, not payment by dacion; hence, it is the
mortgagees duty to return any surplus in the selling price to the
mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a
mortgage is considered a custodian of the fund and, being bound to apply it
properly, is liable to the persons entitled thereto if he fails to do so. And even
though the mortgagee is not strictly considered a trustee in a purely equitable
sense, but as far as concerns the unconsumed balance, the mortgagee is deemed
a trustee for the mortgagor or owner of the equity of redemption. [30]
Thus it has been held that if the mortgagee is retaining more of 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 mortgagor a cause of action to recover such surplus. [31]
In the case before us, PNB claims that petitioners loan obligations on the date of
the auction sale were already more than the amount of P1,991,770.38 in the Notice
of Sale. In fact, PNB claims that on the date of the auction sale, petitioners principal
obligation, plus penalties, interests, attorneys fees and other charges were already
beyond the amount of its bid of P8,511,000.00.
After a careful review of the evidence on record, we find that the same is insufficient
to support PNBs claim. Instead, what is available on record is petitioners
Statement of Account as prepared by PNB and attached as Annex A[32] to its
Answer with counterclaim.[33] In this Statement of Account, petitioners principal
obligation with interest/penalty and attorneys fees as of 30 October 1992 already
amounted to P6,409,814.92.
Although petitioners denied the amounts reflected in the Statement of Account
from PNB, they did not interpose any defense to refute the computations
therein. Petitioners mere denials, far from being compelling, had nothing to offer
by way of evidence. This then enfeebles the foundation of petitioners protestation
and will not suffice to overcome the computation of their loan obligations as
presented in the Statement of Account submitted by PNB.[34]
Noticeably, this Statement of Account is the only piece of evidence available before
us from which we can determine the outstanding obligations of petitioners to PNB
as of the date of the auction sale on 10 October 1992.
It did not escape the attention of this Court that petitioners wrote a number of letters
to PNB almost two years after the auction sale,[35] in which they offered to redeem
the property. In their last letter, petitioners offered to redeem their foreclosed
properties for P9,500,000.00. However, these letters by themselves cannot be
used as bases to support PNBs claim that petitioners obligation is more than its
bid of P8,500,000.00, without any other evidence. There was no computation
presented to show how petitioners obligation already
reached P9,500,000.00. Petitioners could very well have offered such an amount
on the basis of the value of the foreclosed properties rather than their total
obligation to PNB. We cannot take petitioners offer to redeem their properties in
the amount of P9,500,000.00 on its face as an admission of the amount of their
obligation to PNB without any supporting evidence.
Given that the Statement of Account from PNB, being the only existing
documentary evidence to support its claim, shows that petitioners loan obligations
to PNB as of 30 October 1992 amounted to P6,409,814.92, and considering that
the amount of PNBs bid is P8,511,000.00, there is clearly an excess in the bid
price which PNB must return, together with the interest computed in accordance
with the guidelines laid down by the court in Eastern Shipping Lines v. Court of
Appeals,[36] regarding the manner of computing legal interest, viz:
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as
well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
In Philippine National Bank v. Court of Appeals,[37] it was held that:
The rate of 12% interest referred to in Cir. 416 applies only to:
Loan or forbearance of money, or to cases where money is
transferred from one person to another and the obligation to
 return the same or a portion thereof is adjudged. Any other
monetary judgment which does not involve or which has nothing
to do with loans or forbearance of any, money, goods or credit
does not fall within its coverage for such imposition is not within
the ambit of the authority granted to the Central Bank. When an
obligation not constituting a loan or forbearance of money is
breached then an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6%
per annum in accordance with Art. 2209 of the Civil
Code. Indeed, the monetary judgment in favor of private
respondent does not involve a loan or forbearance of money,
hence the proper imposable rate of interest is six (6%) per cent.
Using the above rule as yardstick, since the responsibility of PNB arises not from
a loan or forbearance of money which bears an interest rate of 12%, the proper
rate of interest for the amount which PNB must return to the petitioners is only
6%. This interest according to Eastern Shipping shall be computed from the time
of the filing of the complaint.However, once the judgment becomes final
and executory, the "interim period from the finality of judgment awarding a
monetary claim and until payment thereof, is deemed to be equivalent to a
forbearance of credit. Thus, in accordance with the pronouncement in Eastern
Shipping, the rate of 12% per annum should be imposed, to be computed from the
time the judgment becomes final and executory until fully satisfied.

It must be emphasized, however, that our holding in this case does not preclude
PNB from proving and recovering in a proper proceeding any deficiency in the
amount of petitioners loan obligation that may have accrued after the date of the
auction sale.
WHEREFORE, premises considered, the Decision of the Court of Appeals
dated 12 April 2005 is MODIFIED in that the PNB is directed to return to the
petitioners the amount of P2,101,185.08 with interest computed at 6% per
annum from the time of the filing of the complaint until its full payment before finality
of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate
shall be 12% per annum computed from the time the judgment became final
and executory until fully satisfied. Costs against private respondent
SO ORDERED.
 BPI FAMILY G.R. No. 176019 Pasay City (RTC) a verified petition for extrajudicial foreclosure of real estate
SAVINGS BANK, mortgage over the properties under Act No. 3135, as amended.4
INC., Present:
Petitioner, On 10 December 1998, after due notice and publication, the sheriff sold the
CARPIO, J., Chairperson, properties at public auction. BPI Family, as the highest bidder, acquired the
NACHURA, properties for P13,793,705.31. On 14 May 1999, the Certificate of Sheriffs Sale,
PERALTA, dated 24 February 1999, was duly annotated on the titles covering the properties.
- versus - ABAD, and
MENDOZA, JJ. On 15 May 1999, the one-year redemption period expired without CEDEC
redeeming the properties. Thus, the titles to the properties were consolidated in
the name of BPI Family. On 13 September 2000, the Registry of Deeds of Pasay
Promulgated: City issued new titles, TCT Nos. 142935 and 142936, in the name of BPI Family.
GOLDEN POWER However, despite several demand letters, CEDEC refused to vacate the
DIESEL SALES January 12, 2011 properties and to surrender possession to BPI Family. On 31 January 2002, BPI
CENTER, INC. and Family filed an Ex-Parte Petition for Writ of Possession over the properties with
RENATO C. TAN, Branch 114 of the Regional Trial Court of Pasay City (trial court). In its 27 June
Respondents. 2002 Decision, the trial court granted BPI Familyspetition.5 On 12 July 2002, the
trial court issued the Writ of Possession.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
On 29 July 2002, respondents Golden Power Diesel Sales Center, Inc.
DECISION
and Renato C. Tan6 (respondents) filed a Motion to Hold Implementation of the
Writ of Possession.7 Respondents alleged that they are in possession of the
properties which they acquired from CEDEC on 10 September 1998 pursuant to
CARPIO, J.:
the Deed of Absolute Sale with Assumption of Mortgage (Deed of
Sale).8 Respondents argued that they are third persons claiming rights adverse
The Case
to CEDEC, the judgment obligor and they cannot be deprived of possession over
the properties. Respondents also disclosed that they filed a complaint before
This is a petition for review1 of the 13 March 2006 Decision2 and 19 December Branch 111 of the Regional Trial Court of Pasay City, docketed as Civil Case No.
2006 Resolution3 of the Court of Appeals in CA-G.R. SP No. 78626. In its 13 99-0360, for the cancellation of the Sheriffs Certificate of Sale and an order to
March 2006 Decision, the Court of Appeals denied petitioner BPI Family Savings direct BPI Family to honor and accept the Deed of Absolute Sale between
Bank, Inc.s (BPI Family) petition for mandamus and certiorari. In its 19 CEDEC and respondents.9
December 2006 Resolution, the Court of Appeals denied BPI Familys motion for
reconsideration. On 12 September 2002, the trial court denied respondents motion. 10 Thereafter,
the trial court issued an alias writ of possession which was served upon CEDEC
The Facts
and all other persons claiming rights under them.
On 26 October 1994, CEDEC Transport, Inc. (CEDEC) mortgaged two parcels of However, the writ of possession expired without being implemented. On 22
land covered by Transfer Certificate of Title (TCT) Nos. 134327 and 134328 January 2003, BPI Family filed an Urgent Ex-Parte Motion to Order the
situated in Malibay, Pasay City, including all the improvements thereon Honorable Branch Clerk of Court to Issue Alias Writ of Possession. In an Order
(properties), in favor of BPI Family to secure a loan of P6,570,000. On the same dated 27 January 2003, the trial court granted BPI Familys motion.
day, the mortgage was duly annotated on the titles under Entry No. 94-2878. On
5 April and 27 November 1995, CEDEC obtained from BPI Family additional Before the alias writ could be implemented, respondent Renato C. Tan filed with
loans of P2,160,000 and P1,140,000, respectively, and again mortgaged the the trial court an Affidavit of Third Party Claim11 on the properties. Instead of
same properties. These latter mortgages were duly annotated on the titles under implementing the writ, the sheriff referred the matter to the trial court for
Entry Nos. 95-6861 and 95-11041, respectively, on the same day the loans were resolution.
obtained.
On 11 February 2003, BPI Family filed an Urgent Motion to Compel Honorable
Despite demand, CEDEC defaulted in its mortgage obligations. On 12 October Sheriff and/or his Deputy to Enforce Writ of Possession and to Break Open the
1998, BPI Family filed with the ex-officio sheriff of the Regional Trial Court of properties. In its 7 March 2003 Resolution, the trial court denied
BPI Familys motion and ordered the sheriff to suspend the implementation of the
alias writ of possession.12 According to the trial court, the order granting the alias
writ of possession should not affect third persons holding adverse rights to the
judgment obligor. The trial court admitted that in issuing the first writ of
possession it failed to take into consideration respondents complaint before
Branch 111 claiming ownership of the property. The trial court also noted that
respondents were in actual possession of the properties and had been updating
the payment of CEDECs loan balances with BPI Family. Thus, the trial court
found it necessary to amend its 12 September 2002 Order and suspend the
implementation of the writ of possession until Civil Case No. 99-0360 is resolved.
BPI Family filed a motion for reconsideration. In its 20 June 2003 Resolution, the
trial court denied the motion.13
BPI Family then filed a petition for mandamus and certiorari with application for a
temporary restraining order or preliminary injunction before the Court of Appeals.
BPI Family argued that the trial court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it ordered the suspension of the
implementation of the alias writ of possession. According to BPI Family, it was
the ministerial duty of the trial court to grant the writ of possession in its favor
considering that it was now the owner of the properties and that once issued, the
writ should be implemented without delay.
The Court of Appeals dismissed BPI Familys petition. The dispositive portion of
the 13 March 2006 Decision reads:
WHEREFORE, the instant Petition for Writ of Mandamus and Writ of
Certiorari with Application for a TRO and/or Preliminary Injunction is
hereby DENIED. The twin Resolutions dated March 7, 2003 and June
20, 2003, both issued by the public respondent in LRC Case No. 02-
0003, ordering the sheriff to suspend the implementation of the Alias
Writ of Possession issued in favor of the petitioner, and denying
its Urgent Omnibus Motion thereof, respectively, are
hereby AFFIRMED.
SO ORDERED.14
BPI Family filed a motion for reconsideration. In its 19 December 2006
Resolution, the Court of Appeals denied the motion.
The Ruling of the Court of Appeals
The Court of Appeals ruled that the trial court did not commit grave abuse of
discretion in suspending the implementation of the alias writ of possession
because respondents were in actual possession of the properties and are
claiming rights adverse to CEDEC, the judgment obligor. According to the Court
of Appeals, the principle that the implementation of the writ of possession is a
mere ministerial function of the trial court is not without exception. The Court of
Appeals held that the obligation of the court to issue an ex parte writ of
possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to
be ministerial once it appears that there is a third party in possession of the
property who is claiming a right adverse to that of the debtor or mortgagor.
The Issues
BPI Family raises the following issues:
A.
The Honorable Court of Appeals seriously erred in upholding the finding
of the Honorable Regional Trial Court that despite the fact that private
respondents merely stepped into the shoes of mortgagor CEDEC, being
the vendee of the properties in question, they are categorized as third
persons in possession thereof who are claiming a right adverse to that
of the debtor/mortgagor CEDEC.
B.
The Honorable Court of Appeals gravely erred in sustaining the
aforementioned twin orders suspending the implementation of the writ of
possession on the ground that the annulment case filed by private
respondents is still pending despite the established ruling that pendency
of a case questioning the legality of a mortgage or auction sale cannot
be a ground for the non-issuance and/or non-implementation of a writ of
possession.15
The Ruling of the Court
The petition is meritorious.
BPI Family argues that respondents cannot be considered a third party who is
claiming a right adverse to that of the debtor or mortgagor because respondents,
as vendee, merely stepped into the shoes of CEDEC, the vendor and judgment
obligor. According to BPI Family, respondents are mere extensions or
successors-in-interest of CEDEC. BPI Family also argues that the pendency of
an action questioning the validity of a mortgage or auction sale cannot be a
ground to oppose the implementation of a writ of possession.
On the other hand, respondents insist that they are third persons who claim
rights over the properties adverse to CEDEC. Respondents argue that the
obligation of the court to issue an ex parte writ of possession in favor of the
purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it
appears that there is a third party in possession of the property who is claiming a
right adverse to that of the judgment obligor.
In extrajudicial foreclosures of real estate mortgages, the issuance of a writ of
possession is governed by Section 7 of Act No. 3135, as amended, which
provides:
SECTION 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance (Regional Trial Court)
 of the province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be shown
that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion in the registration or
cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law
or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly
registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the court shall, upon the filing
of such petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and ninety-
six, as amended by Act Numbered Twenty-eight hundred and sixty-six,
and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the
property is situated, who shall execute said order immediately.
This procedure may also be availed of by the purchaser seeking possession of
the foreclosed property bought at the public auction sale after the redemption
period has expired without redemption having been made. 16
In China Banking Corporation v. Lozada,17 we ruled:
It is thus settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed during
the period of one year after the registration of the sale. As such, he is
entitled to the possession of the said property and can demand it at any
time following the consolidation of ownership in his name and the
issuance to him of a new transfer certificate of title. The buyer can in
fact demand possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 7 of Act
No. 3135, as amended. No such bond is required after the redemption
period if the property is not redeemed. Possession of the land then
becomes an absolute right of the purchaser as confirmed owner.
Upon proper application and proof of title, the issuance of the writ
of possession becomes a ministerial duty of the court.18 (Emphasis
supplied)
Thus, the general rule is that a purchaser in a public auction sale of a foreclosed
property is entitled to a writ of possession and, upon an ex parte petition of
the purchaser, it is ministerial upon the trial court to issue the writ of possession
in favor of the purchaser.
There is, however, an exception. Section 33, Rule 39 of the Rules of Court
provides:
Section 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given. - x x x
\
Upon the expiration of the right of redemption, the purchaser
or redemptioner shall be substituted to and acquire all the rights, title,
interest and claim of the judgment obligor to the property as of the time
of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third party
is actually holding the property adversely to the judgment obligor.
(Emphasis supplied)
Therefore, in an extrajudicial foreclosure of real property, when the foreclosed
property is in the possession of a third party holding the same adversely to the
judgment obligor, the issuance by the trial court of a writ of possession in favor of
the purchaser of said real property ceases to be ministerial and may no longer be
done ex parte.19 The procedure is for the trial court to order a hearing to
determine the nature of the adverse possession.20 For the exception to apply,
however, the property need not only be possessed by a third party, but also held
by the third party adversely to the judgment obligor.
In this case, BPI Family invokes the general rule that they are entitled to a writ of
possession because respondents are mere successors-in-interest of CEDEC and
do not possess the properties adversely to CEDEC. Respondents, on the other
hand, assert the exception and insist that they hold the properties adversely to
CEDEC and that their possession is a sufficient obstacle to the ex parte issuance
of a writ of possession in favor of BPI Family.
Respondents argument fails to persuade the Court. It is clear that respondents
acquired possession over the properties pursuant to the Deed of Sale which
provides that for P15,000,000CEDEC will sell, transfer and convey to
respondents the properties free from all liens and encumbrances excepting the
mortgage as may be subsisting in favor of the BPI FAMILY SAVINGS
BANK.21 Moreover, the Deed of Sale provides that respondents bind themselves
to assume the payment of the unpaid balance of the mortgage indebtedness of
the VENDOR (CEDEC) amounting to P7,889,472.48, as of July 31, 1998, in
favor of the aforementioned mortgagee (BPI Family) by the mortgage
instruments and does hereby further agree to be bound by the precise terms and
conditions therein contained.22
In Roxas v. Buan,23 we ruled:
It will be recalled that Roxas possession of the property was premised
on its alleged sale to him by Valentin for the amount of P100,000.00.
Assuming this to be true, it is readily apparent that Roxasholds title to
and possesses the property as Valentins transferee. Any right he has to
the property is necessarily derived from that of Valentin. As transferee,
he steps into the latters shoes. Thus, in the instant case, considering
that the property had already been sold at public auction pursuant to an
extrajudicial foreclosure, the only interest that may be transferred
by Valentin to Roxas is the right to redeem it within the period
prescribed by law. Roxas is therefore the successor-in-interest
 of Valentin, to whom the latter had conveyed his interest in the property G.R. SP No. 78626. We SET ASIDE the 7 March and 20 June 2003 Resolutions
for the purpose of redemption. Consequently, Roxas occupancy of the of the Regional Trial Court, Branch 114, Pasay City. We ORDER the sheriff to
property cannot be considered adverse to Valentin.24 proceed with the implementation of the writ of possession without prejudice to the
outcome of Civil Case No. 99-0360.
In this case, respondents possession of the properties was premised on the sale
to them by CEDEC for the amount of P15,000,000. Therefore, respondents hold SO ORDERED.
title to and possess the properties as CEDECs transferees and any right they
have over the properties is derived from CEDEC. As transferees of CEDEC,
respondents merely stepped into CEDECs shoes and are necessarily bound to
acknowledge and respect the mortgage CEDEC had earlier executed in favor of
BPI Family.25 Respondents are the successors-in-interest of CEDEC and
thus, respondents occupancy over the properties cannot be considered adverse
to CEDEC.

Moreover, in China Bank v. Lozada,26 we discussed the meaning of a third party

who is actually holding the property adversely to the judgment obligor. We stated:

The exception provided under Section 33 of Rule 39 of the Revised

Rules of Court contemplates a situation in which a third party holds the
property by adverse title or right, such as that of a co-owner, tenant
or usufructuary. The co-owner, agricultural tenant,
and usufructuary possess the property in their own right, and they are
not merely the successor or transferee of the right of possession of
another co-owner or the owner of the property.27

In this case, respondents cannot claim that their right to possession over the
properties is analogous to any of these. Respondents cannot assert that their
right of possession is adverse to that of CEDEC when they have no independent
right of possession other than what they acquired from CEDEC. Since
respondents are not holding the properties adversely to CEDEC, being
the latters successors-in-interest, there was no reason for the trial court to order
the suspension of the implementation of the writ of possession.

Furthermore, it is settled that a pending action for annulment of mortgage or

foreclosure sale does not stay the issuance of the writ of possession. 28 The trial
court, where the application for a writ of possession is filed, does not need to look
into the validity of the mortgage or the manner of its foreclosure. 29 The purchaser
is entitled to a writ of possession without prejudice to the outcome of the pending
annulment case.30

In this case, the trial court erred in issuing its 7 March 2003 Order suspending
the implementation of the alias writ of possession. Despite the pendency of Civil
Case No. 99-0360, the trial court should not have ordered the sheriff to suspend
the implementation of the writ of possession. BPI Family, as purchaser in the
foreclosure sale, is entitled to a writ of possession without prejudice to the
outcome of Civil Case No. 99-0360.

WHEREFORE, we GRANT the petition. We SET ASIDE the 13 March 2006

Decision and the 19 December 2006 Resolution of the Court of Appeals in CA-
HEIRS OF NORBERTO J. QUISUMBING, G.R. No. 178242
Petitioners,
Present:
CARPIO MORALES,* Acting
Chairperson,
- versus - TINGA,
CHICO-NAZARIO,**
VELASCO, JR., and
BRION, JJ.
PHILIPPINE NATIONAL BANK and SANTIAGO
LAND DEVELOPMENT CORPORATION,
Respondents.
Promulgated:
January 20, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
From the Court of Appeals Decision[1] of February 14, 2007 denying
petitioners appeal from the Decision[2] of the Regional Trial Court, Branch
62, Makati City in Civil Case No. 10513, they come to this Court on petition for
review on certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses
Silverio) and Ricardo C. Silverio as Chairman of the Board of the following
companies, namely Delta Motors Corporation (Delta Motors), Komatsu Industries
(Komatsu), R.C. Silverio Management Corporation (RCSMC), through Deeds of
Assignment[3] dated April 11 and 12, 1985, assigned to Atty. Norberto J.
Quisumbing (Quisumbing) their rights of redemption with respect to various real
properties which herein respondent Philippine National Bank (PNB) had foreclosed
and acquired as the highest bidder. The properties included lots in Quezon City,
Manila, Pampanga and Bulacan in the name of Ricardo C. Silverio, married to
Beatriz Sison; a lot in Tagaytay in the name 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 the name of RCSMC; and a lot in Rizal (actually
Pasong Tamo, Makati) including improvements in the name of Komatsu (hereafter
referred to as Pasong Tamo property).
By letter[4] dated April 8, 1985, 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 well as the registers of deeds in the various localities where the properties
are situated, with a copy of said tender letter.
Acting on Quisumbings tender of redemption, the PNB, by letter of April
15, 1985, requested copies of the Deeds of Assignment so that it may have a basis
to reply to his request.[5] Quisumbing furnished PNB with copies of the Deeds,
requesting a reply to his 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. Before PNB could reply, however, or on April 23, 1985, Quisumbing executed
an Affidavit of Redemption,[6] furnishing PNB, the sheriffs and the registers of
deeds a copy thereof.
Before the one-year redemption period expired, PNB, by letter dated May
3, 1985,[7] denied Quisumbings offer of redemption on the ground that the 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[8] before the Regional Trial Court
(RTC) of Makati[9] against PNB to compel it to allow him to exercise his right of
redemption over the foreclosed properties and to inform him of the total amount of
redemption price. At the same time, he caused the annotation of a notice of lis
pendens on the certificates of title of the properties.
In its Answer,[10] PNB contended that Quisumbing had no cause of action
as his tender offer was pro-forma, as the same was unaccompanied by cash
payment; that the offer was not in accordance with Section 25 of P.D. No. 694, as
amended; that the assignment of rights made in Quisumbings favor was ineffectual
because the same was not registered and annotated on the certificates of title of
the properties; that the Deeds of Assignment executed by RSCMC, Komatsu and
Delta Motors were defectively acknowledged as public instruments; and that the
assignments were barred by Article 1491 (5) of the Civil Code. [11] During the
pendency of the case, Quisumbing died, hence, he was substituted by his heirs-
herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati
RTC, the herein other respondent Santiago Land Development Corporation
(SLDC) intervened, it having purchased pendente lite from PNB the Pasong Tamo
property, and adopted in its Answer-in-Intervention PNBs defenses as set forth in
its Answer, and raised additional defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari,
docketed as CA-G.R. SP No. 25826, questioning, inter alia, the trial courts grant
of SLDCs move to intervene, arguing that SLDC should have joined as an
additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition
of petitioners and nullified the trial courts Order granting SLDCs
intervention. SLDC appealed to this Court via certiorari, docketed as G.R. No.
106194.
By Decision[12] of January 28, 1997, the Court dismissed SLDCs petition
and affirmed the appellate courts decision, ruling that SLDC is a
transferee pendente lite and, as such, could no longer intervene as the law already
considers it joined or substituted in the pending action, hence, bound by all prior
proceedings and barred from presenting a new or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No.
10513, which was granted on April 14, 1998.
By Decision[13] of October 24, 2000, the trial court dismissed petitioners
Amended Complaint as against PNB, as well as that against SLDC, ruling that
Quisumbing did not make a valid tender of redemption as it was not accompanied
by cash payment; that Sec. 25 of P.D. No. 694 is not unconstitutional and was
applicable not only to direct debtors/mortgagors but constructively also to
accommodation mortgagors following Nepomuceno v. RFC.[14] Aggrieved,
petitioners appealed to the Court of Appeals.
By the assailed Decision of February 14, 2007, the appellate court
affirmed the trial courts decision, holding that there was no valid offer to redeem
the properties owing to Quisumbings failure to validly tender payment; and that
even if his filing of the complaint was considered as judicial redemption, it was still
ineffectual due to non-tender of the redemption price. On account of such ruling,
the appellate court no longer ruled on the issue of the constitutionality of Sec. 25
of P.D. 694 and on the validity of the Deeds of Assignment. Petitioners motion for
reconsideration having been denied by Resolution dated June 5, 2007, this
present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption
because he did not have to tender the redemption prices due to, so they claim,
PNBs outright refusal to accept or allow any redemption, and that he perfected a
judicial redemption following Tioseco v. CA.[15] They assail the ruling of the trial
court that spouses Silverio were accommodation mortgagors or direct
debtors/mortgagors and that Sec. 25 of P.D. No. 694 applies to accommodation
mortgagors, as well as the trial and appellate courts ruling that Sec. 25 is not
unconstitutional despite its being violative, so petitioners contend, of the due
process and equal protection clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors,
hence, the case at bar should have been governed by the general law on
redemption Sec. 6 of Republic Act No. 3135 vis a vis Rule 39, Sec. 30. In
support of their position, they draw attention to the fact that all the certificates of
sale state that the proceedings/sale were pursuant to an extra-judicial foreclosure
of real estate mortgage under RA 3135 as amended, without any mention
whatsoever of P.D. No. 694. Petitioners thus conclude that Sec. 25 of P.D. No.
694 should be struck down for being void for vagueness; and that it is arbitrary and
unreasonable because it grants a preferred position to PNB which may abuse to
unjustly enrich itself at the expense of mortgagors, hence, violative of the right to
due process.
At all events, they argue that assuming that Sec. 25 applies to
accommodation mortgagors such as the spouses Silverio still, the redemption
price would be based on the value of the properties foreclosed, not on the
obligations of the debtor, as what PNB insists on doing.
In its Comment,[16] PNB, averring that what petitioners are raising are
questions of fact, maintains that the Deeds of Assignment are void for being
against public policy because at the time they were executed, Quisumbing was
already the lawyer not only of the spouses Silverio but also of Komatsu and the
other companies, the properties of which were being foreclosed.
In its separate Comment,[17] SLDC argues that the present petition,
insofar as the Pasong Tamo property is concerned, is barred by res judicata, the
Court in Komatsu Industries (Phils.) Inc. v. Philippine National Bank and Santiago
Land Development Corporation and Maximo Contreras, (Komatsu case)[18] having
declared PNBs extrajudicial foreclosure of the said property and eventual sale to
SLDC valid. It adds that, since in G.R. No. 106194 or the Intervention Case, it was
held that a purchaser pendente lite SLDC is bound by the outcome of the case
instituted by the transferor PNB, then Quisumbing, as transferee pendente lite of
Komatsus right to redeem the Pasong Tamo property, must also necessarily be
bound by the outcome of the Komatsu case and that, perforce, if he cannot
intervene, then neither can he be allowed to file or maintain a separate case.
Maintaining that Quisumbings judicial redemption should not be allowed,
SLDC contends that since redemption is inconsistent with the claim of invalidity of
a foreclosure sale, then Komatsus act of assigning its right of redemption to
Quisumbing was incompatible with its earlier remedy of contesting the validity
of PNBs foreclosure and is, therefore, prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due
process clause, its provision requiring the mortgagors to pay the redemption price
being in line with the purpose of the law, viz to protect the investment of the
government in the institution.
Aside from reiterating their previous arguments, petitioners, in their
Consolidated Reply,[19] refute SLDCs and PNBs arguments. They contend that the
action is not barred by res judicata because in the Komatsu case, the Court
contemplated that the issue of validity of the exercise of redemption would not be
resolved in that case but in Civil Case No. 10513, and the reason why Quisumbing
was not required to intervene in Komatsu was because he was not a party thereto,
and the case involved annulment of the foreclosure sale, not the exercise of the
right of redemption.
Petitioners further maintain that the issue of whether the assignment of
rights made in Quisumbings favor was barred for being against public policy (under
Art. 1491[5] of the Civil Code) can no longer be raised as an issue, respondents
having failed to raise it in the proceedings below; and assuming arguendo that it
had been raised, said provision would not apply, as what were assigned were
merely the rights of redemption, not the properties themselves, and Quisumbing
did not represent Komatsu or the other companies in the annulment of foreclosure
proceedings.
In a Supplemental Petition[20] filed on August 28, 2007, petitioners submit
that the sale of the Philippine Governments remaining minority shares (12.28%) in
the PNB on August 1, 2007 reinforces their argument that if Sec. 25 of P.D. No.
694 is made applicable to accommodation mortgagors, the same should be struck
down for being unconstitutional, as it would then be violative of the equal protection
clause. And they assert that if, indeed, the purpose of said provision is to protect
the governments investment in PNB, then it has ceased to exist due to the
privatization of said institution and, as such, Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff,
Atty. Norberto J. Quisumbing, made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the
Philippine National Bank enacted on May 8, 1975 provides:
Section 25. Right of redemption of
foreclosed property Right of possession
during redemption period. Within one year
from the registration of the foreclosure sale of
real estate, the mortgagor shall have the
right to redeem the property by paying all
claims of the Bank against him on the date
of the sale including all the costs and
other expenses incurred by reason of the
foreclosure sale and custody of the
property, as well as charges and accrued
interests.
The Bank may take possession of
the foreclosed property during the redemption
period. When the Bank takes possession
during such period, it shall be entitled to the
fruits of the property with no obligation to
account for them, the same being considered
compensation for the interest that would
otherwise accrue on the account. Neither
shall the Bank be obliged to post a bond for
the purpose of such possession. (Emphasis
supplied)
On the other hand, under Act No. 3135, AN ACT TO REGULATE THE
SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED
TO REAL ESTATE MORTGAGES (which took effect on March 6, 1924), as
amended by Act. No. 4118, redemption of extra-judicially foreclosed properties is
undertaken as follows:
SECTION 6. In all cases in which an
extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his
successors in interest or any judicial creditor
or judgment creditor of said debtor, or any
person having a lien on the property
subsequent to the mortgage or deed of trust
under which the property is sold, may
redeem the same at any time within the
term of one year from and after the date of
the sale; and such redemption shall be
governed by the provisions of sections
four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these
are not inconsistent with the provisions of this
Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section
28 of Rule 39 of the Revised Rules of Civil Procedure, reads:
SEC. 28. Time and manner of, and
amounts payable on, successive redemptions;
notice to be given and filed. The judgment
obligor, or redemptioner, may redeem the
property from the purchaser, at any time within
one (1) year from the date of the registration of
the certificate of sale, by paying the purchaser
the amount of his purchase, with one per
centum per month interest thereon in
addition, up to the time of redemption,
together with the amount of any
assessments or taxes which the purchaser
may have paid thereon after purchase, and
interest on such last named amount of the
same rate; and if the purchaser be also a
creditor having a prior lien to that of the
redemptioner, other than the judgment
under which such purchase was made, the
amount of such other lien, with
interest. (Emphasis supplied)
 As to the requisites for a valid tender of redemption in case of extra-
judicially foreclosed properties by banks, Banco Filipino Savings and Mortgage
Bank, Inc., v. Court of Appeals,[21] instructs:
Section 6 of Act 3135 provides for
the requisites for a valid redemption, thus:
SEC. 6. In all cases in which an
extrajudicial sale is made under the
special power hereinbefore referred
to, the debtor, his successors in
interest or any judicial creditor or
judgment creditor of said debtor, or
any person having a lien on the
property subsequent to the
mortgage or deed of trust under
which the property is sold, may
redeem the same at any time within
the term of one year from and after
the date of sale; and
such redemption shall be governed
by the provisions of sections four
hundred and sixty-four to four
hundred and sixty-six, inclusive, of
the Code of Civil Procedure, insofar
as these are not inconsistent with
the provisions of this Act.
However, considering that petitioner
is a banking institution, the determination of
the redemption price is governed by Section
78 of the General Banking Act which
provides:
In the event of foreclosure,
whether judicially or extrajudicially,
of any mortgage on real estate which
is security for any loan granted
before the passage of this Act or
under the provisions of this Act, the
mortgagor or debtor whose real
property has been sold at public
auction, judicially or extrajudicially,
for the full or partial payment of an
obligation to any bank, banking or
credit institution, within the purview
of this Act shall have the right, within
one year after the sale of the real
estate as a result of the foreclosure
of the respective mortgage, to
redeem the property by paying the
amount fixed by the court in the
order of execution, or the amount
due under the mortgage deed, as
the case may be, with interest
thereon at the rate specified in the
mortgage, and all the costs, and
judicial and other expenses incurred
by the bank or institution concerned
by reason of the execution and sale
and as a result of the custody of said
property less the income received
from the property.
Clearly, the right of redemption should be
exercised within the specified time limit, which
is one year from the date of registration of the
certificate of sale. The redemptioner should
make an actual tender in good faith of the
full amount of the purchase price as
provided above, i.e., the amount fixed by
the court in the order of execution or the
amount due under the mortgage deed, as
the case may be, with interest thereon at
the rate specified in the mortgage, and all
the costs, and judicial and other expenses
incurred by the bank or institution
concerned by reason of the execution and
sale and as a result of the custody of said
property less the income received from
the property.
xxxx
In BPI Family Savings Bank, Inc. vs.
Veloso, we held:
The general rule in redemption is that
it is not sufficient that a person offering to
redeem manifests his desire to do so. The
statement of intention must be
accompanied by an actual and
simultaneous tender of payment. This
constitutes the exercise of the right to
repurchase.
xxxx
Whether or not respondents were diligent
in asserting their willingness to pay is
irrelevant. Redemption within the period
allowed by law is not a matter of intent but
a question of payment or valid tender of
the full redemption price within said
period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or
the General Banking Act, as amended by Presidential Decree No. 1828, or under
P.D. No. redemption price and not to stretch the
694, themortgagor or his assignee is required to tender payment to make said re redemptive period indefinitely; and (3)
demption valid something which petitioners predecessor failed to do. The only once the redemption price is determined
instance when this rule may be construed liberally, i.e., allow the non-simultaneous within a reasonable time, the redemptioner
tender of payment, is if a judicial action is instituted by the redemptioner. [22] must make prompt payment in
full. (Emphasis supplied)

Petitioner however claims, While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before
citing Banco Filipino Savings and Mortgage the expiration of the one-year redemption period reckoned from the dates of
Bank v. Court of Appeals and Lee Chuy registration of the different certificates of sale, it cannot be said that he was
Realty Corporation v. Court of Appeals that in motivated by good faith when he filed the Complaint, as contemplated in the above
case of disagreement over the redemption ruling. For the Complaint was filed not for the sole purpose of determining the
price, the redemptioner may preserve his right redemption price, but, as Quisumbing himself admitted on direct examination, it
of redemption through judicial action which was to seek the annulment of Sec. 25 of P.D. No. 694, thus:
must be filed within the one-year period of
redemption. The filing of a court action to
enforce redemption, being equivalent to a Q: And what is the purpose of your
formal offer to redeem, would have the effect present suit?
of preserving his redemptive rights and
freezing the expiration of the one-year A: To compel the redemption, because the
period. Bona fide tender of the redemption redemption were (sic) disallowed
price, within the prescribed period is only unless the entire obligation rather
essential to preserve the right of redemption than just leaving the purchase price
for future enforcement beyond such period of of the foreclosure sale is paid. The
redemption and within the period prescribed purpose of suit therefore, is to
for the action by the statute of seek the annulment of that
limitations. Where the right to redeem is provision of Section 25 of the
exercised through judicial action within Revised Chapter (sic) of the
the reglementary period, the offer to Philippine National Bank, which
redeem, accompanied by a bona provides that redemption can be
fide tender of the redemption price, while effected only by paying the entire
proper, may be unessential. (Emphasis claim of the Philippine National
supplied) Bank, against in this case, Delta
Motors Corporation. As the
Complaint alleges the sale . . .
For this exception to apply, however, certain conditions must be met, viz: contrary to law, moral, customs,
public security, since the law favors
It should, however, be noted that in Hi-Yield in the long line of decisions of the
Realty, Inc. v. Court of Appeals, we held that right of redemption. Second, with
the action for judicial redemption should such a provision no one can get a
be filed on time and in good faith, the fair price at a foreclosure sale of an
redemption price is finally determined and individual property.[23] (Emphasis
paid within a reasonable time, and the rights and underscoring supplied)
of the parties are respected. Stated
otherwise, the foregoing interpretation And on cross-examination, when questioned why he wrote to PNB on April 8,
has three critical dimensions: (1) timely 1985 offering to redeem the property when the Deeds of Assignment in his favor
redemption or redemption by expiration were not yet executed, Quisumbing replied:
date; (2) good faith as always, meaning,
the filing of the action must have been for xxxx
the sole purpose of determining the
 Q: The Deeds of Assignment were executed The foregoing discussions render it unnecessary to address the other points
either on April 12 or 11 in the case of pleaded by petitioners, such as the validity of the Deeds of Assignment, whether
Komatsu, 1985. Why did you write PNB the Silverio spouses are accommodation mortgagors or direct debtors/mortgagors,
a tender of letter as early as April 8 when or whether the suit is barred by the principle of res judicata.
the Deeds of Assignment were not yet
executed have not yet been executed? WHEREFORE, the petition is DENIED. The February 14,
2007 Decision of the Court of Appeals and the June 5, 2007 Resolution in CA-G.R.
A: Well, there might have been a delay in the CV No. 69337 are AFFIRMED.
execution of the Deeds of Costs against petitioner.
Assignment; but since I was certain
that PNB will reject a redemption, not SO ORDERED
in accordance with Sec. 25 of its
charter. In other words, just offering the
purchase price derive from we began the
process of redemption early. Besides,
the Philippine National Bank, in some
cases, in other creditors of . . . [24]

x x x x (Emphasis and underscoring supplied)

Clearly, from the admissions reflected in the testimony, Quisumbings filing of the
Complaint was not solely due to a mere disagreement in the redemption price;
rather, it was because he was not willing to pay whatever amount PNB would
compute on the basis of Sec. 25 of P.D. No. 694. By questioning the
constitutionality of said provision, Quisumbing, wittingly delayed the redemption,
since he must have known that raising the issue of constitutionality of a statute in
any suit would result in a litigious process which could stretch for an indefinite
period as, in fact, the history of the present case shows. More importantly, his act
of executing his Affidavit of Redemption on April 23, 1985 and alleging therein his
oft-repeated excuse of PNBs refusal to allow him to redeem the subject properties
even before PNB could provide him the computations by April 30, 1985, as he
himself requested in his April 23, 1985 letter, and before PNBs actual refusal as
stated in its May 3, 1985 letter, reflected that from the very beginning, his mindset
was that if any redemption would be had, the same should be made according to
his terms and conditions and under Act No. 3135, not P.D. No. 694. Indubitably,
such actuations belie good faith and, therefore, the exception as enunciated
in Tolentino case would not apply.

Had Quisumbing believed in good faith that Act No. 3135 was applicable,
he could have tendered the amount as computed thereunder, if only to show that
he was able and willing to redeem the properties.

Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is
unconstitutional, the same has been rendered moot and academic by the full
privatization of PNB pursuant to E.O. 80[25] which repealed said P.D., as well as
the subsequent sale of the remaining shares of the government on August, 2007
which converted it from a government financial institution to a private banking
institution.