ANTICHRESIS

1. Dizon vs. Gaborro

Facts: Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat, Pampanga.
He constituted a first mortgage to DBP to secure a loan of P38,000.00 and a second mortgage
to PNB amounting P93,831.91.
Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the Philippines foreclosed
the mortgage extrajudicially. Gaborro became interested in the lands of Dizon. But since the property was
already foreclosed by the DPB. They then entered into a contract captioned as “Deed of sale with assumption of
mortgage” and the second contract executed the same day, is called “Option to Purchase Real Estate” After the
execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land.
After the execution of the contract and its conditions to him, Gaborro made several payments to the DBP and
PNB. He improved, cultivated the kinds raised sugarcane and other crops produce.
Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is formally offering reimburse
Gaborro of what he paid to the banks. Gaborro did not agreed to the demands of the petitioner, hence, Jose P.
Dizon instituted a complaint in the Court of First Instance of Pampanga, alleging that the documents Deed of
Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not express the true intention
and agreement between the parties. Petitioner, contended that the two deeds constitute in fact a single
transaction that their real agreement was not an absolute sale of the land but merely an equitable mortgage or
conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any and all sums which
the latter may have paid on account of the mortgage debts in favor of the DBP and the PNB.

Issue: What is the Nature of the contract entered into between Dizon and Gaboro?

Held: ANTICHRESIS. In the light of the foreclosure proceedings and sale of the properties, a legal point of
primary importance here, as well as other relevant facts and circumstances. We agree with the findings of the
trial and apellate court that the true intention of the parties is that Gaborro would assume and pay the
indebtedness of Dizon to DBP and PNB, and in consideration therefor, Gaborro was given the possession, the
enjoyment and use of the lands until Dizon can reimburse fully Gaborro the amounts paid by the latter to DBP
and PNB, to accomplish the ff. ends:
a. Payment of the bank obligations b. make the lands productive for the benefit of the possessor and C.
assure the return of the lnd to the original owner, Dizon.
In view of all these considerations, the law and juris, facts established. We find that the agreement between
Dizon and Gaborro is one of those inanimate contracts under art. 1307 of new cc whereby both of them agreed
“to give and to do” certain rights and obligations respecting the lands and the mortgage debts of the petitioner
which would be acceptable to the bank but partaking of the nature of antichresis insofar as the principal parties,
Dizon and Gaborro are concerned.

2. ADRID VS. MORGA 1960

FACTS: Sps. Perfecto and Carmen Adrid, then owners of a lot situated in Cavite, executed a Sale
with a right to Repurchase, purporting to sell the lot to Eugenio Morga for the sum of P2000 plus
12% interest per annum. The vendors never repurchased the lot. Later, Perfecto Adrid and his son, brought the
present action against the administratix of the deceased Eugenio Morga to recover the lot, offering to pay P2,000.00 and
asking for accounting all the produce of the lot, this on the theory that the said contract, converted into one antichresis.
The plaintiff and defendant instead of presenting evidence, submitted a stipulation of facts with a
prayer that decision be rendered on the basis of such facts.
The CFI of Cavite rendered its judgment against the spouses, with costs. It held that the contract entered into by the
parties, is a contract of sale with a right to repurchase. The spouses having failed to repurchase the land within the
stipulated period, the title of the deceased vendea retro, Morga and Vasquez became consolidated by operation of law.

ISSUE: Whether the agreement had been converted into an antichresis.

RULING: No. The SC concluded that the intention of the parties was merely for the Sps. Adrid to borrow the sum
of P2,000 from Eugenio Morga, the lot being given as security. In other words, it is a clear case of equitable mortgage.
Otherwise, there would be no reason for the agreement made for the payment of 12% interest per annum. This
interest must refer to the use of P2,000 by the alleged vendors until the same shall have been paid to
Eugenio. The parties to the contract must have contemplated the lot remaining in the possession of the
vendors in as much as it was considered a mere security. This did not convert, as contended by
plaintiffs, the contract from a sale with pacto de retro to that of antichresis.
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The contention of plaintiffs that although the original contract was one of sale with right
to repurchase,” it was converted into one of antichresis just because the vendee took
possession of the land, is clearly untenable. There is nothing in the document, “Sale with a Right
to Repurchase” nor in the acts of the parties subsequent to its execution to show that the parties had entered into
a contract of antichresis. In a case decided by the SC : Alojado vs. LimSiongco:
The SC said that what characterizes a contract of antichresis is that the creditor ac quires the
right to receive the fruits of the property of his debtor with the obligation to apply them to
the payment of interest, if any is due, and then to the principal of his credit, and when such a covenant is not made in the
contract which speaks unequivocally of a sale with right of repurchase, the contract is a sale with the right to
repurchase and not an antichresis.
BOOK: Application of the fruits to interest and then to principal.
It is not an essential requisite to a mortgage that possession of mortgaged premises be retained by the
mortgagor. To be antichresis, it must be expressly agreed between creditor and debtor that the former,
having been given possession of the properties given as security, is to apply their fruits to the payment of
interest, if owing, and thereafter to the principal of his credit (Art. 2132.); so that if a contract of loan with
security does not stipulate the payment of interest but provides for the delivery to the creditor by the
debtor of the real property constituted as security for the payment therefor, in order that the creditor may
administer the same and avail himself of its fruits, without stating that said fruits are to be applied to the
payment of the interest, if any, and afterwards to that of the principal of the credit, the contract shall be
considered to be one of mortgage and not of antichresis

3. Pando vs. Gimenez

Facts: Gimenez was indebted to Pando in the amount of P 8,000.00. To secure payment of such loan, he
executed and delivered a real estate mortgage over a building located in Sta. Mesa; and the leasehold rights on
the lot upon which the building was erected, Hacienda Tuason being the lessor.
When Gimenez was about to leave Manila to attend to his business in Cagayan, he gave Pando full control, and
complete and absolute administration over the property he mortgaged, on the condition that Pando would:
(1) attend to the administration, care and preservation of the building and property;
(2) pay the premium on the insurance of the building;
(3) pay the taxes that might become due on the building;
(4) pay the rents of the leased property; and
(5) collect the rents from the tenants of the building;
 to be applied to the payment of all expenses necessary for the preservation and maintenance of
the building and the rents of the leased property.
In the course of Pando’s administration over the property, he failed and neglected to pay the taxes due for
several years. He also failed and neglected to pay lessor Hacienda Tuason the rents due for several years on the
land leased. Because of this, the building was sold at a public auction to satisfy the taxes due. Moreover, lessor
Hacienda Tuason cancelled the contract of lease of Gimenez and brought a suit against him for desahucio in the
municipal court of Manila.
Gimenez is now claiming that Pando, being in charge of the administration of the premises, had the obligation
to attend to the payment of taxes and rents. Pando denies that he had such obligation, alleging that his duties
were confined to the collection of rents on the house in order to apply them to the payment of the interest on the
mortgage.

Issue: Whether Pando, having full control and administration over the property of Gimenez, was obliged to pay
the taxes, charges, and other necessary expenses?

Ruling: Yes, Pando had such obligation. The administration of the property assumed by Pando was antichretic
in character. Article 2135 of the Civil Code expressly states that the antichretic creditor is obliged to pay the
taxes and charges which burden the estate, in the absence of an agreement to the contrary. Such obligation
arises from the very nature of the covenant, and is correlated with the antichretic creditor’s acquired right to
take charge of the property and collect the fruits for himself.
Pando, having failed in his obligation to pay tax on the house and rent of the lot, is now required to pay
indemnity for damages.
Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes and charges
upon the estate. He is also bound to bear the expenses necessary for its preservation and repair. The sums spent
for the purposes stated in this article shall be deducted from the fruits.

4. TRILLANA vs. FAUSTINO MANANSALA, MARIA LOPEZ, MAXIMA MANANSALA and THE
COURT OF APPEALS, G.R. No. L-6752 April 29, 1955
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Facts: Marcos Bernardo owns a parcel of land in Hagonoy, Bulacan. And this mentioned property, He mortgage
it to Mr. Faustino Manansala and Maria Lopez husband and wife in the amount of P1,070 beginning July 20,
1934 until April 1944 and if he cannot pay said amount come April 1944 the property he mortgaged is hereby
paid to Mr. Faustino Manansala and Maria Lopez husband and wife. The judge found Exhibit 1 to be a forgery,
and rendered judgment for plaintiff, saying as to prescription, that even if defendants had possessed the land
since 1934, they could not acquire by prescription because they had no just title, inasmuch as they knew Exhibit
1 was false.
On appeal, the Court of Appeals saw differently. It was not convinced of the document's (Exhibit 1) falsity, and
held that since defendants admittedly took possession of the realty in July 1934 pursuant to such document and
retained it thereafter, the action filed in 1950 was late, inasmuch as more than 15 years of adverse possession
forfeited the plaintiff's right to recover, if any. Doubting the legal feasibility of acquiring, the thru prescription,
land obtained under Exhibit 1, they gave due course to the petition review on certiorari , being impressed with
counsel's contention that said written document represented a contract of antichresis, which may not give rise to
acquisitive prescription. And several decisions of this court consistently hold that the antichretic creditor cannot
ordinarily acquire by prescription the land surrendered to him by the debtor. Hence, the Court of Appeals
reversed the judgment.

Issue: Whether or not the said land can be redeemed by the surviving heirs of Marcos Bernardo.

Held: Affirmative. The contract Exhibit 1 did not divest Marcos Bernardo of ownership of the property, his heir
Vicenta Bernardo could, and she did, validly convey such ownership to NazarioTrillana in 1948, by Exhibit A.
Subject of course to the rights of the antichretic creditors, the defendants Manansala et al.
In this connection the SC noticed that the Court of Appeals did not regard the contract as a pacto de retro sale.
The Court of Appeals declared the agreement was a "kaliwaan" or exchange, which according to defendants
meant, "after the execution of the document we delivered the money, and plaintiff delivers possession of the
land". The arrangement however contemplated a subsequent "re-exchange" when the owner redeems (matubos)
on or before April 1944. Such exchange and re-exchange agreed in exhibit 1, dovetail with an antichretic
relationship, which we think was the true agreement of the parties.
It has not escaped our notice that the document says "if I cannot redeem come April 1944, the property I
mortgage is hereby paid to Mr. Faustino Manansala". But that in our opinion merely authorized Manansala to
get the property for payment, thru the proceedings prescribed for mortgages. Otherwise the stipulation would be
open to attack, either as pactumcommissorium or as against the law. (Arts. 1859 and 1884 Civil Code.)
Wherefore, the judgment of the Court of Appeals is reversed, and one will be promulgated requiring defendants
to deliver the lot to the plaintiff (substituted by Candida Cruz, Juana Trillana and Francisco Trillana) upon
payment by the latter of the amount of P1,070.2 No interest is to be satisfied, because the fruits gathered by the
Manansalas are considered as interest; no especial damages too. Costs against defendants. So ordered.

5. Ramirez vs. CA

Facts: On September 15,1959, petitioners-spouses Hilario Ramirez and Valentina Bonifacio filed an application
for registration of a parcel of riceland in Pamplona, Las Pinas Rizal. After notice and publication nobody
appeared to oppose the application.Thereafter, the petitioners presented parol evidence that they acquired the
land in question by purchase from Gregorio Pascual during the early part of the American regime but the
corresponding contract of sale was lost and no copy or record of the same was available.The private respondents
Francisca Medina, Basilio Martin, Matilde Martin, Delfin Guinto, Teofilo Guinto, Prudencio Guinto and
Margarita Guinto, petitioners' nephews and nieces, filed a petition to review the decree of registration on the
ground of fraud. The private respondents based their claim to the land on the following allegations: that they are
the legal heirs of the deceased AgapitaBonifacio who died intestate on March 11, 1936; that Valentina
Bonifacio is a sister of the deceased AgapitaBonifacio, they being the children of one GregoriaPascual; that
GregoriaPascual previously owned the land in question as evidenced by Tax Declaration No. 6611 of Las Pinas
Rizal issued on December 8, 1920; that AgapitaBonifacio acquired the property in question by purchase from
GregoriaPascual for which reason Tax Declaration No. 8777 was issued in her name on May 21, 1928; that
GregoriaPascual during her lifetime, from 1916, possessed the said property in the concept of owner, publicly
and uninterruptedly, which possession was continued by AgapitaBonifacio in 1928;After trial, the court found
that deeds of sale spurious. It further found that the respondents took possession of the land as owners after the
death of AgapitaBonifacio and in 1938, mortgaged it to the spouses Ramirez to secure the payment of a loan in
the amount of P400.00. It was agreed that the respondents could not redeem the property within a period of five
years and that the petitioners would take possession of the land, enjoy its fruits, and pay the land taxes thereon.
The written agreement was kept by the petitioners as creditors.

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Issue:WHETHER THE COURT OF FIRST INSTANCE, ACTING AS A LAND REGISTRATION COURT,
HAS THE POWER AND AUTHORITY TO VEST TITLE ON THE LAND INVOLVED TO HEREIN
PRIVATE RESPONDENTS AND ORDER EVEN ITS PARTITION AMONGST THEM IN THE FACE OF
THE ADMITTED FACT THAT THE LAND IS IN ACTUAL POSSESSION OF PETITIONERS WHILE
PRIVATE RESPONDENTS HAD NOT POSSESSED THE SAME AT ALL

Ruling: We find the petition without merit. While there was an admission that the petitioners have been in
actual possession of the disputed land since 1938, it was made to show and prove the fact that the petitioners are
only antichretic creditors. The respondents never admitted that they have not possessed the land at all. On the
contrary, they alleged that they and their predecessors-in-interest namely GregoriaPascual and
AgapitaBonifacio have been in possession of the land since time immemorial and that the petitioners were
placed in possession of the land pursuant to a contract of antichresis.
This court has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription
the land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 42 Phil.
177; Barreto v. Barreto, 3 Phil. 234). The petitioners are not possessors in the concept of owner but mere
holders placed in possession of the land by its owners. Thus, their possession cannot serve as a title for
acquiring dominion (See Art. 540, Civil Code).

CHATTEL MORTGAGE

1. PNB vs. Manila Investment and Construction Inc. 38 SCRA 462

FACTS: The CFI Manila rendered a judgment condemning defendants, jointly and severally, to pay plaintiff:
(1) Under the first cause of action the sum of P88,939.48 with daily interest of P12,77385 plus 1/4%
commission or P194.6689 for every 30 days or a fraction thereof, plus 10% on the principal as attorney's fees
and the cost;
(2) On the second cause of action the sum of P356,913.01, plus P48,464 03 and 1/4% or P629.31 for every 30
days or fraction thereof that the amount remain outstanding and unpaid plus 10% of the principal as attorney's
fees, and the cost.
In case of non-payment of the amounts adjudged, the decision also provided for the sale at public auction of the
personal properties covered by the chattel mortgage executed by the defendants in favor of the plaintiff Bank,
and for the disposition of the proceeds in accordance with law.After the decision had become executory, instead
of having the mortgaged personal properties sold at public auction, the parties agreed to have them sold, and
were in fact sold, at a private sale. The net proceeds obtained therefrom amounting to P256,941.70 were applied
to the partial satisfaction of the above judgment.
More than 5 years but less than 10 years from the date when the decision became executory, PNB filed in the
same CFI of Manila an action to revive it. Defendants interposed that (1) when the decision became final and
executory, PNB sold to various parties in a private sale the mortgaged properties to be foreclosed and sold at
public auction hence the proceeds must be accounted by plaintiff to the defendants in order that the same be
properly applied to the judgment; and that (2) PNB has no cause of action in reviving the judgment not until it
has rendered proper accounting to the defendants of the proceeds of the sale.
The appealed decision of the Court renders judgment ordering the defendants to pay the plaintiff, jointly and
severally, the amount of P382,338.47, with interest at the legal rate.

ISSUE: Whether the private sale of the mortgaged personal properties was null and void

RULING: Negative. The private sale is VALID, both parties agreed on the process. it is true that the decision
rendered in the CFI of Manila provided for the sale at public auction of the personal properties covered by the
chattel mortgage executed in favor of the Bank, but it is likewise true that said personal properties were sold at
a private sale by agreement between the parties. Besides, We see nothing illegal, immoral or against public
order in such agreement entered into freely and voluntarily. In line with the provisions of the substantive law
giving the contracting parties full freedom to contract provided their agreement is not contrary to
LaMoCPoPp.We held in Philippine National Bank vs. De Poli thus:Under article 1255 of the Civil Code (Art.
1306 New Civil Code), the contracting parties may stipulate that in case of violation of the conditions of the
mortgage contract, the creditor may sell, at private sale and without previous advertisement or notice, the whole
or part of the good mortgaged for the purpose of applying the proceeds thereof on the payment of the debt. Said
stipulation is not contrary to law or public order, and therefore it is valid.Private sale was
by agreement between the parties, it is clear that appellants are now in estoppel to question it except on the
ground of fraud or duress — pleas that they do not invoke. They do not even claim that the private sale agreed
upon had caused them substantial prejudice.

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2. Servicewide Specialists, Inc. vs. Intermediate Appellate Court, GalicanoSiton and Judge Justiniano de
Dumo

Facts:
 Siton purchased from Car Traders Philippines, Inc. a vehicle which is a two-door Mitsubishi Celeste,
and paid P25,000 as downpayment of the price. The remaining balance of P68,400 includes not only the
remaining principal obligation but also advanced interests and premiums for motor vehicle insurance
policies.
 He executed a promissory note expressly stipulating the remaining obligation shall be payable without
the need of notice of demand, and in installment basis for 36 months (P1,900/month) due and payable on
the 14th day of each month starting September 14, 1979, through and inclusive of August 14, 1982. As
further security, Siton executed a chattel mortgage over the subject motor vehicle in favor of Car
Traders.
 The credit covered by the promissory note and chattel mortgage executed by Siton was first assigned by
Car Traders Philippines, Inc. in favor of Filinvest Credit Corporation which the latter reassigned to
Servicewide Specialists, Inc.
 Alleging the Siton failed to pay the part of the installment which fell due, the petitioner filed this action
against GalicanoSiton and “John Doe.”
 After the service of summons, Judge Justiniano de Dumo, identifying himself as the “John Doe” in the
complaint, inasmuch as he is in the possession of the subject vehicle, alleged the fact that he has bought
the motor vehicle from Siton; that as such successor, he stepped into the rights and obligations of the
seller; that he has religiously paid the installments as stipulated upon in the promissory note.
 Manner of the proceedings (just in case Atty. Timmy would ask about the specifics):
o The RTC ordered defendants to pay jointly and severally the plaintiff and the remaining balance
on the motor vehicle.
o The IAC rendered judgment affirming in toto the decision of the RTC.

Issue: Whether or not the sale between Siton and De Dumo was void, as the sale is prohibited under the
provisions of the Deed of Chattel Mortgage, the Chattel Mortgage Act (Act 1508) and the Revised Penal Code.

Ruling: The sale is valid. There is no dispute that the Deed of Chattel Mortgage executed between Siton and the
petitioner requires the written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle.
We cannot ignore the findings, however, that before the sale, prompt inquiries were made by private
respondents with Filinvest Credit Corporation regarding any possible future sale of the mortgaged property and
that it was upon the advice of the company’s credit lawyer that such a verbal notice is sufficient and that it
would be convenient if the amount would remain in the name of Siton.
Even the personal checks of De Dumo were accepted by petitioner as payment of some of the installments
under the promissory note. If it is true that petitioner has not acquiesced in the sale, then it should have inquired
as to why De Dumo’s checks were being used to pay Siton’s obligations. Further, it is worthy to note that
despite the arguments of petitioner that it is not bound by the sale of the vehicle to De Dumo, and that the latter
is a stranger to the transaction between Filinvest and Siton, nevertheless, it admitted De Dumo’s obligation as
purchaser of the property when it named the latter as one of the defendants in the lower court.
In view of the foregoing, the Court finds it correct to hold both the respondent Siton and De Dumo liable for
their obligations to petitioner herein. In the case at bar, the purchase of the car by De Dumo from Siton does not
necessarily imply the extinguishment of the liability of the latter. Since it was neither established nor shown that
Siton was released from responsibility under the promissory note, the same does not constitute novation by
substitution of debtors. Likewise, the fact that petitioner company accepts payments from a third person like De
Dumo, who has assumed the obligation, will result merely to the addition of debtors and not novation. Hence,
the creditor may therefore enforce the obligation against both debtors.

3. Perfecto Dy, Jr vs. CA

FACTS: Wilfredo Dy bought a truck and tractor from Libra Finance Corporation. Both truck and tractor were
also mortgage to Libra as security for a loan and as such, they took possession of it. Brother of Wilfredo,
Perfecto Dy and sister Carol Dy-Seno requested Libra that they be allowed to buy the property and assume the
mortgage debt. Libra agreed to the request.
Meanwhile, a collection suit was filed against Wilfredo Dy by Gelac Trading Inc. On the strength of a writ of
execution, the sheriff was able to obtain the tractor on the premises of Libra. It was sold in a public auction in
which Gelac Trading was the lone bidder. Gelac subsequently sold it to one of their stockholders.It was only
when the check was cleared that the petitioner learned about GELAC having already taken custody of the

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subject tractor. Consequently, the petitioner filed an action to recover the subject tractor against GELAC
Trading.
The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected
since the consummation of the sale depended upon the clearance and encashment of the check which was issued
in payment of the subject tractor.

ISSUE: Whether the act of William Dy of selling the subject tractor is valid and binding.

HELD: Yes. The mortgagor who gave the property as security under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it although he was under the obligation to secure the written
consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par.
2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale
would still not be affected.
There is no reason why Wilfredo Dy, as the chattel mortgagor cannot sell the subject tractor. There is no dispute
that the consent of Libra Finance was obtained in the instant case. In a letter, Libra allowed the petitioner to
purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was therefore
valid and binding as between them and to the mortgagee, as well.
Moreover, the payment of the check was actually intended to extinguish the mortgage obligation so that the
tractor could be released to the petitioner. It was never intended nor could it be considered as payment of the
purchase price because the relationship between Libra and the petitioner is not one of sale but still a mortgage.
The clearing or encashment of the check which produced the effect of payment determined the full payment of
the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of
the sale. The transaction between the brothers is distinct and apart from the transaction between Libra and the
petitioner. The contention, therefore, that the consummation of the sale depended upon the encashment of the
check is untenable.

4. Tsai vs. CA 366 SCRA 324 (2001)

Facts: Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications (PBCom),
secured by a deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located
therein as enumerated in a schedule attached to the mortgage contract. PBCom again granted a second loan to
EVERTEX which was secured by a Chattel Mortgage over personal properties enumerated in a list attached
thereto. These listed properties were similar to those listed in the first mortgage deed. After the date of the
execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments.
Upon EVERTEX's failure to meet obligation to PBCom, the latter commenced extrajudicial foreclosure
proceedings against EVERTEX under Act 3135 and Act 1506 or "The Chattel Mortgage Law". PBCom then
consolidated its ownership over the lot and all the properties in it. It leased the entire factory premises to Ruby
Tsai and sold to the same the factory, lock, stock and barrel including the contested machineries.
EVERTEX filed a complaint for annulment of sale, reconveyance, and damages against PBCom, alleging inter
alia that the extrajudicial foreclosure of subject mortgage was not valid, and that PBCom, without any legal or
factual basis, appropriated the contested properties which were not included in the Real and Chattel Mortgage
of the first mortgage contract nor in the second contract which is a Chattel Mortgage, and neither were those
properties included in the Notice of Sheriff's Sale.

Issues:
1. Whether the contested properties are personal or movable properties
2. Whether the sale of these properties to a third person (Tsai) by the bank through an irregular foreclosure
sale is valid.

Ruling: 1. Personal. In the instant case, the parties herein: (1) executed a contract styled as “Real Estate
Mortgage and Chattel Mortgage,” instead of just “Real Estate Mortgage” if indeed their intention is to treat all
properties included therein as immovable, and (2) attached to the said contract a separate “LIST OF
MACHINERIES & EQUIPMENT.” These facts, taken together, evince the conclusion that the parties’ intention
is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of
the same description as the units enumerated under the title “LIST OF MACHINERIES & EQUIPMENT,”
must also be treated as chattels.

2. The sale of the subject properties to PBCom is void.
parties to involve chattels, insofar as equipment and
applies. Section 7 provides thereof that: "a chattel
described therein and not like or substituted property
Inasmuch as the subject mortgages were intended by the
machinery were concerned, the Chattel Mortgage Law
mortgage shall be deemed to cover only the property
thereafter acquired by the mortgagor and placed in the
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same depository as the property originally mortgaged, anything in the mortgage to the contrary
notwithstanding." Since the disputed machineries were acquired later after the two mortgage contracts were
executed, it was consequently an error on the part of the Sheriff to include subject machineries with the
properties enumerated in said chattel mortgages.

5. ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON.
COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY, respondents

FACTS: In June 27, 1978, Chua Pac, the president and general manager of Acme Shoe, Rubber & Plastic
Corporation, executed for and in behalf of the company, a chattel mortgage in favor of Producers Bank of the
Philippines as a way of security for petitioner's corporate loan of P3,000,000.00. A provision in the chattel
mortgage agreement was to this effect -
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full
obligation or obligations above-stated according to the terms thereof, then this mortgage shall be null
and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on
Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever
kind and nature, whether such obligations have been contracted before, during or after the constitution
of this mortgage."
In due time, the loan was paid by ACME. Subsequently, it obtained from respondent bank additional financial
accommodations totaling P2,700,000.00. These borrowings were on due date also fully paid. On 10 and 11
January 1984, the PRODUCERS BANK yet again extended to ACME a loan of P1,000,000.00 covered by four
promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity.
Respondent bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage which prompted
ACME to forthwith file an action for injunction, with damages and a prayer for a writ of preliminary injunction,
before the RTC of Caloocan City. It was dismissed by the court and it ordered the foreclosure of the chattel
mortgage. It held ACME bound by the stipulations of the chattel mortgage. ACME appealed to the CA which
affirmed "in all respects" the decision of the RTC. The motion for reconsideration was denied.

ISSUES: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend
its coverage to obligations yet to be contracted or incurred?

RULING: NO. Contracts of security are either personal or real. In contracts of personal security, such as a
guaranty or a suretyship, the faithful performance of the obligation by the principal debtor is secured by
the personal commitment of another (the guarantor or surety). In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by an encumbrance of property - in pledge, the placing of
movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding
deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public
instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting
to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to
the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential condition that
if the principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated
for the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically
extinguished proceeding from the accessory character of the agreement. As the law so puts it, once the
obligation is complied with, then the contract of security becomes, ipso facto, null and void.
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so
long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations
existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by
amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on
the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute
an act of default on the part of the borrower of the financing agreement whereon the promise is written but,
7
 of course, the remedy of foreclosure can only cover the debts extant at the time of constitution and during
the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the
Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good
faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage
would still be valid between the parties (not against third persons acting in good faith), the fact, however,
that the statute has provided that the parties to the contract must execute an oath that -
"x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof,
and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the
purpose of fraud."
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely
contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage
contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of
the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void
or terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., the Court said -"x x
x A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from
the date the same are made and not from the date of the mortgage."
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had
ceased to exist coincidentally with the full payment of the P3,000,000.00 loan, there no longer was any
chattel mortgage that could cover the new loans that were concluded thereafter.

6. Filipinas Marble Corp vs. IAC 142 SCRA 180 (1996)

FACTS: In its desire to develop the full potentials of its mining claims and deposits, Filipinas Marbles
Corporation (FMC) applied and was granted a loan in the amount of $5,000,000 by respondent Development
Bank of the Philippines (DBP) on the conditions that the management contract will be handled by Bancom
System Control and the DBP and the loan shall be secured by a final mortgage on the assets of petitioner with a
total approved vale of PhP 48,630,756. The chattel mortgage was not registered pursuant to Article 2125 of the
Civil Code.

ISSUE: Whether the non-registration of the mortgage will nullify the contract between the parties

RULING: NO. Its validity would depend on the validity of the loan secured by it. We, however, reject the
petitioner’s argument that since the chattel mortgage involved was not registered, the same is null and void.
Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the
immediate parties. It states: “Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between the
parties.”

7. JACA vs. DAVAO LUMBER CO. (113 SCRA 107, 1982)

FACTS: Petitioners filed with the Court of First Instance a Complaint for Accounting, Return of Price
Differentials and Damages against respondent Davao Lumber Company. In its answer and counterclaim,
respondent company alleged, among others, that petitioners Urbano Jaca and Bonifacio Jaca were the ones
indebted to it in the sum of P756,236.52 and P91,651.97, respectively; that on January 24, 1961, Urbano Jaca
executed a chattel mortgage in favor of respondent company to secure the payment of any and all obligations
contracted by them in favor of said company covering several chattels valued at P532,000.00; that said
obligation of Urbano Jaca totalling P756,236.52 is overdue and unpaid despite repeated formal demands for
settlement thereof; and that the action brought by petitioners is purely baseless and malicious for which they
should be required to pay respondent company damages and attorney's fees amounting to at least P20,000.00.
The trial court dismissed the complaint and ordered petitioners to pay the amounts claimed by respondent
company. Later, upon motion of respondent company, respondent judge, in an order, granted execution pending
appeal for the following reasons: (a) First, the consistent refusal of petitioner to deliver the mortgaged chattels
to the receiver; (b) Second, the fact that Urbano Jaca violated Article 319 of the Revised Penal Code by selling
some of the mortgaged properties; and (c) Third, the fact that petitioners have no properties and assets to satisfy
the judgment. Reconsideration having been denied, petitioners brought this petition. In its answer, respondent
lumber company contends that petitioners, having availed of the remedy of appeal, are barred from filing a
petition for certiorari.

ISSUE: Whether the order of execution pending appeal is valid

8
RULING: NO. The Supreme Court held: (1) that the reasons stated in the order of execution pending appeal
are not well-founded because (a) the chattel mortgage is void because it provides that the security stated
therein is for the payment of any and all obligations herein before contracted and which may hereafter be
contracted by the mortgagor in favor of the mortgagee;(b) the deed of mortgage being void, petitioner
Urbano Jaca could not have violated Article 319 of the Revised Penal Code; and (c) the basis of respondent
judge's conclusion that petitioners do not have sufficient assets is an unsubstantiated allegation in the motion for
execution pending appeal;(2) that since the decision in the trial court requires petitioners topay an enormous
amount of money, it is clear that premature execution of saiddecision will result in irreparable damage to
petitioners as the collection of saidamount may be enforced through the seizure of the money and/or sale of
propertiesused in the logging business of petitioners; (3) that if the judgment is executednow, and on appeal the
same is reversed, although there are provisions forrestitution, damages incurred by petitioners cannot be fully
compensated; (4) thatthe appeal of petitioners appears to be meritorious, hence the fear of respondentcompany
that the judgment of the trial court might not be satisfied if not executedat once is not well-founded; and (5) that
the availability of the ordinary course of appeal does not constitute sufficient ground to prevent a party from
making use of the extra-ordinary remedy of certiorari where the appeal is not an adequate remedyor equally
beneficial, speedy and sufficient. Petition granted. Assailed orders of the lower court, nullified and set aside.

8. Agustin vs. CA

FACTS:
- The dispute stemmed from an unpaid promissory note by Petitioner in favor of ERM commercial
- The note was payable in monthly installments secured by Chattel Mortgage over an Isuzu diesel truck
subsequently assigned to Private Respondent Filinvest Corporation
- Petitioner defaulted in paying. Private Respondent demanded payment of the entire balance or in lieu
thereof the possession of mortgaged vehicle. Neither of the two was made.
- Private Respondent filed a complaint against petitioner praying for the issuance of Writ of Replevin for
the payment plus interest at the rate of 14% per annum
- By virtue thereof, Private Respondent acquired possession of the vehicle. Private Respondent discovered
that the vehicle was no longer in running condition and that several parts were missing which Private
Respondent replaced. The vehicle was then foreclosed and sold at public auction.
- Private Respondent filed a supplemental complaint claiming additional reimbursement for replacement
of parts and expenses incurred in transporting the mortgaged vehicle from Cagayan to Manila.
- Petitioner moved to dismiss the supplemental complaint arguing that RTC had already lost jurisdiction
over the case because of the extra-judicial foreclosure of the mortgage.
- The court dismissed the case. Private Respondent elevated it to CA and ruled that repossession expenses
incurred by private respondent should be reimbursed. This decision became final and executor, hence
the case was remanded to RTC to determine the amount due from petitioner.
- Petitioner moved for reconsideration; RTC lowered the monetary amount
- Private Respondent appealed with respect the reduction of the amount awarded
- Petitioner likewise appealed impugning trial court’s order for him to pay Private Respondent an amount
over and above the value received from the foreclosure sale – both appeals were consolidated.
- Petitioner contends that the award of repossession expenses to private respondent as mortgagee is
contrary to the letter, intent and spirit of Article 1484. He asserts that that private respondent’s expenses
have been amply covered by the foreclosure of the chattel mortgage, hence he could no longer be held
liable.

ISSUE: W/N the petitioner’s contention is meritorious?

RULING: The arguments are devoid of merit. Petitioner’s contentions were rejected by respondent court. It is
clear that CA had already settled the propriety of awarding repossession expenses in favor private respondent.
The remand of the case to RTC was for the sole purpose of threshing out the correct amount of expenses and
not for relitigating the accuracy of the reward.
Thus, the findings of RTC Branch 40, as affirmed by the appellate court, was confined to the appreciation of
evidence relative to the repossession expenses for the query or issue passed upon by the respondent court
(propriety of the award for repossession expenses) has become the law of the case. This principle is defined as
a term applied to an established rule that when an appellate court passes on a question and remands the
cause to the lower court for further proceedings, the question there settled becomes the law of the case
upon subsequent appeal.[16] Having exactly the same parties and issues, the decision in the former appeal is
now the established and controlling rule. Petitioner may not therefore be allowed in a subsequent appeal
and in this petition to resuscitate and revive formerly settled issues. Judgment of courts should attain
finality at some point in time, as in this case, otherwise, there will be no end to litigation.
9
At any rate, even if we were to brush aside the law of the case doctrine we find the award for repossession
expenses still proper.
ACCORDINGLY, the petition is DENIED for lack of merit, and the decision of the Court of Appeals is
hereby AFFIRMED in toto.

9. Esguerra vs. Court of Appeals

A stipulation in a contract of sale regarding automatic appropriation amounts to pactum commissorium, and
is therefore null and void. More than that, even if such automatic appropriation of the cargo truck in
question can be inferred from or be contemplated under the aforesaid mortgage contract, such stipulation
would be pactum commissorium which is expressly prohibited by Article 2088 of the Civil Code and
therefore, null and void.

FACTS: Esguerra bought a truck from GAMI on installments. To secure the payment, a chattel mortgage was
executed by Esguerra. Later, Esguerra failed to pay 2 installements. Consequently GAMI filed an action for
foreclosure of the chattel mortgage. Agents of GAMI, impersonated sheriffs and took the said truck while it
was in the possession of Esguerra’s driver, Carlito Padua; and the same had remained in the possession of
GAMI, notwithstanding demands for its return by Esguerra.
Esguerra filed a complaint with the then Court of First Instance of Cavite, Branch IV, TagaytayCity to recover
said truck and for damages. Esguerra alleged, among others, that due to his failure to pay the installments due,
the agents of GAMI, Jose Tino and Samuel Dore, representing themselves as deputy sheriffs and with use of
force, threats and intimidation, seized the cargo truck in question from his driver, Carlito Padua, while
unloading gravel and sand in Pasay City; and that despite repeated demands, GAMI refused and failed to return
the same. GAMI, et al. filed their answer with a counterclaim, alleging as affirmative defense that the plaintiff
gave his consent to the taking of the truck by the agents of the corporation on condition that he be allowed to
recover its possession upon payment of his back accounts.

ISSUE: Whether or not GAMI is liable for damages in taking the truck

RULING: The taking of Esguerra’s truck without proceeding to sell the same at public auction appropriating
the same in payment of Esguerra’s indebtedness is not lawful. However, the respondent appellate court did not
err in holding that while the mortgagee can take possession of the chattel, such taking did not amount to the
foreclosure of the mortgage. Otherwise stated, the taking of Esguerra’s truck without proceeding to the sale of
the same at public auction, but instead, appropriating the same in payment of Esguerra’s indebtedness, is not
lawful. As clearly stated in the chattel mortgage contract, the express purpose of the taking of the mortgaged
property is to sell the same and/ or foreclose the mortgage constituted thereon either judicially or extrajudicially
and thereby, liquidate the indebtedness in accordance with law.
A stipulation in a contract of sale regarding automatic appropriation amounts to pactum commissorium, and is
therefore null and void. More than that, even if such automatic appropriation of the cargo truck in question can
be inferred from or be contemplated under the aforesaid mortgage contract, such stipulation would be pactum
commissorium which is expressly prohibited by Article 2088 of the Civil Code and therefore, null and void.
The three remedies of the vendor in case the vendee defaults under Art. 1484 are alternative and cannot be
exercised simultaneously or cumulatively by the vendor creditor. Having opted to foreclose the chattel
mortgage, respondent GAMI can no longer cancel the sale. The three remedies of the vendor in case the vendee
defaults, in a contract of sale of personal property the price of which is payable in installment under Article
1484 of the Civil Code, are alternative and cannot be exercised simultaneously or cumulatively by the vendor-
creditor. In Cruz vs. Filipinas Investment and Finance Corporation (23 SCRA 791, [1968]), the Supreme Court
construing Article 1484 of the Civil Code, held: “Should the vendee or purchaser of a personal property default
in the payment of two or more of the agreed installments, the vendor or seller has the option to avail of any one
of these three.

10. Cerna vs. CA

A chattel mortgage may be “an accessory contract” to a contract of loan, but that fact alone does not
make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal
obligation that is, to pay the loan. The signatory to the principal contract loan remains to be primarily
bound. It is only upon the default of the latter that the creditor may have been recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of
the loan. And the liability of the third-party mortgagors extends only to the property mortgaged.

Facts: Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was
10
evidenced by a promissory note. On the same date, Delgado executed a chattel mortgage over a Willy’s jeep
owned by him. And acting as the attorney-in-fact, Manolo P. Cerna, he also mortgage a “Taunus’ car owned by
the latter. The period lapsed without Delgado paying the loan. This prompted Leviste to a file a collection suit
against Delgado and Cerna as solidary debtors. Cerna filed a Motion to Dismiss on the ground of lack of cause
of action against Cerna and the death of Delgado. Anent the latter, Cerna claimed that the claim should be filed
in the proceedings for the settlement of Delgado’s estate as the action did not survive Delgado’s death.
Moreover, he also stated that since Leviste already opted to collect on the note, he could no longer foreclose the
mortgage.

Issues: (1) Whether or not a third party, who is not a debtor under the note but mortgaged his property to secure
the payment of the loan of another is solidarily liable with the principal debtor and (2) whether or not a
mortgagee who opted to collect may still foreclose the mortgage.

Held: (1) A chattel mortgage may be “an accessory contract” to a contract of loan, but that fact alone does not
make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that
is, to pay the loan. The signatory to the principal contract loan remains to be primarily bound. It is only upon the
default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the mortgaged
properties in lieu of an action for the recovery of the amount of the loan. And the liability of the third-party
mortgagors extends only to the property mortgaged.

(2) Should there be any deficiency, the creditors has recourse on the principal debtor. The Special Power of
Attorney did not make petitioner a mortgagor. All it did was to authorized Delgado to mortgage certain
properties belonging to petitioner. Hence, Leviste, having chosen to file the collection suit, could not now run
after petitioner for the satisfaction of the debt. This is even more true in this case because of the death of the
principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person. There is also no legal
provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of
another’s obligation by mortgaging his own property to be solidarily bound with the principal obligor.

REAL ESTATE MORTGAGE

1. PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS G.R. No. 126908. January 16, 2003

Facts: Spouses Mateo and Carlita Cruz owned a parcel of land. They obtained a loan from the Philippine
National Bank (PNB) in the amount of Php70,000 and constituted a real estate mortgage using their parcel of
land to secure said loan. Subsequently, Mateo Cruz obtained an agricultural crop loan from PNB in the amount
of Php156,000 which was also secured by a real estate mortgage. After Land Bank remitted to PNB Php359,
500 in bonds, Php174.43 in cash and transferred Php25,500 in bonds, PNB issued a Deed of Release of Real
Estate Mortgage in favor of the Spouses Cruz. Consequently, PNB released all titles to them. Later Spouses
Cruz loaned again from PNB and secured it with another real estate mortgage. Spouses Antonio and Soledad So
Hu paid for the release of the mortgaged property since they were interested in it. Thus a Deed of Absolute Sale
was entered into by Spouses So Hu and Spouses Cruz, conveying the property to the former. PNB conducted a
public auction sale covering the property in question under the contention that Spouses Cruz failed to pay their
loan. Since it was the sole and highest bidder, it now claimed the property. When PNB found Spouses So Hu In
possession of the property, they were asked to vacate the property.

Issue: Is the extra judicial foreclosure of the third mortgage valid?

Held: It is manifested in records that Spouses So Hu had already paid the principal obligation secured by the
third mortgage. A contract of mortgage is an accessory contract which derives its existence from the principal
contract. Thus, if the principal ceases to be it also ceases. In this case, with the extinguishment of the loan, the
mortgage is also extinguished.
Note that the loan secured by the mortgage was already paid prior to the foreclosure. Thus, the property can no
longer be validly foreclosed since it would be a foreclosure that satisfies an extinguished obligation.

2. DBP vs. Licuanan

Facts: Spouses Alejandro and Adelaida Licuanan were granted a piggery loan and subsequent loans by DBP,
evidenced by a promissory note and secured by a real estate mortgage over a 980 square-meter parcel of land
with a two-storey building and several parcels of land.

11
On July 6, 1981, petitioner sent a letter by registered mail to respondents informing them that, since the
conditions of the mortgage had been breached, petitioner would have the mortgaged properties sold by the
sheriff under Act 3135. The total amount due from the three loans had by then ballooned to P75,298.32.
Petitioner filed an application for extrajudicial foreclosure. The mortgaged properties were sold in a public
auction and petitioner, as the highest bidder, acquired them for a total of P16,340.00. Petitioner consolidated its
ownership over the properties. After more than a year, petitioner wrote respondents by registered mail,
informing them that the properties would be disposed of by public auction. On November 11, 1984, petitioner
published an advertisement stating that on November 14, 1984, the properties would be sold by oral bidding.
On November 16, 1984, petitioner sent respondents a letter informing them that the properties could be
reacquired by negotiated sale for cash or installment. Three days later, however, the properties were sold
through negotiated sale to one Emelita Peralta.
Respondents were informed of the sale by petitioner through a letter dated December 6, 1984. On December 11,
1984, respondents offered to repurchase the properties from petitioner but they had already been sold to Peralta.
Hence they filed a complaint for recovery of real properties and damages in the Regional Trial Court against
petitioner and Peralta. The RTC rendered judgment in favor of respondents. The court found that there was no
demand for payment prior to the extrajudicial foreclosure. Thus, the foreclosure proceedings were null and void.
The CA affirmed the RTC. Hence this petition.

Issue: (1) Whether demand is necessary to make respondents guilty of default despite the fact that the maturity
dates had already been stipulated on the contracts and (2) whether respondents are liable for the deficiency
claim of petitioner?

Ruling: (1) Demand made before the foreclosure is effected is essential. If demand was made and duly received
by the respondents and the latter still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and demandable. This meant that
respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is
valid only when the debtor is in default in the payment of his obligation.
Whether or not demand was made is a question of fact. In petitions for review on certiorari under Rule 45, only
questions of law may be raised by the parties and passed upon by this Court. Factual findings of the trial court,
when adopted and confirmed by the CA, are binding and conclusive on this Court and will generally not be
reviewed on appeal. Both the CA and RTC found that demand was never made.
The petitioners assert that demand was unnecessary because the maturity dates of all loans were specified.
However, the SC disagreed and ruled that unless demand is proven, one cannot be held in default. Petitioner’s
cause of action did not accrue on the maturity dates stated in the promissory notes. It is only when demand to
pay is made and subsequently refused that respondents can be considered in default and petitioner obtains the
right to file an action to collect the debt or foreclose the mortgage.
The petitioners aver that respondents are estopped from questioning the validity of the foreclosure sale since
they offered to repurchase the foreclosed properties. The SC is not persuaded. The reason why respondents
offered to repurchase the properties was clearly stated in their letter to petitioner:
“I am very much interested in repurchasing back these properties because they are the only properties
which my family have and because our house is located inside this property and for this matter I am
willing to pay [for] these properties in cash which I already told the bank when I went there.”
The SC already ruled that an offer to repurchase should not be construed as a waiver of the right to question the
sale. Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of an offer to
compromise. By offering to redeem the properties, respondents can attain their ultimate objective: to pay off
their debt and regain ownership of their lands.

(2) Petitioners contend that the CA failed to rule on its deficiency claim. It alleged that the price the mortgaged
property was sold for (P104,000.00) was less than the amount of respondents’ indebtedness (P131,642.33), thus
it is entitled to claim the difference (P27,642.33) with interest. The SC however ruled that the respondents
cannot be held liable for the deficiency claim. While it is true that in extrajudicial foreclosure of mortgage, the
mortgagee has the right to recover the deficiency from the debtor, this presupposes that the foreclosure must
first be valid.
Overview: Deficiency rule – while it is true that in extrajudicial foreclosure of mortgage, the mortgagee has the
right to recover the deficiency from the debtor, this presupposes that the foreclosure must first be valid.

3. UCPB vs. Spouses Beluso, GR No. 159912, August 17, 2007

FACTS: A Petition for Review on Certiorari declaring void the interest rate provided in the promissory notes
executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United
Coconut Planters Bank (UCPB). UCPB granted the spouses Beluso a Promissory Notes Line under a Credit
12
Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million
pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a
real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539
and T-27828, as additional security for the obligation. The Credit Agreement was subsequently amended to
increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term
thereof to 28 February 1998. On 30 April 1997, the payment of the principal and interest of the latter two
promissory notes were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan for P1.3
Million was again released to the spouses Beluso under one promissory note with a due date of 28 February
1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses
Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses Beluso alleged
that the amounts covered by these last two promissory notes were never released or credited to their account
and, thus, claimed that the principal indebtedness was only P2 Million. The spouses Beluso, however, failed to
make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus
25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB
foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time,
already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso filed a Petition for Annulment,
Accounting and Damages against UCPB with the RTC of Makati City. Trial court declared in its judgment
that:
a. the interest rate used by [UCPB] void
b. the foreclosure and Sheriff’s Certificate of Sale void
c. UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosure
d. UCPB to pay [the spouses Beluso] the amount of P50,000.00 by way of attorney’s fees
e. UCPB to pay the costs of suit.
f. Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.
Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant UCPB is
not liable for attorney’s fees or the costs of suit.

ISSUES: (1) Whether or not interest rate stipulated was void, (2) whether or not Spouses Beluso are subject to
12% interest and compounding interest stipulations even if declared amount by UCPB was excessive, and (3)
whether or not foreclosure was void?

RULING: (1) Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of
contracts and it violates the Truth in lending Act.
The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the
Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner
UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate
as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank
can easily choose such an option, thus making the entire interest rate provision violative of the principle of
mutuality of contracts.
In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are
not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory
notes which is required in TRuth in Lending Act

(2) Yes. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a demand
does not nullify the demand itself, which is valid with respect to the proper amount. There being a valid
demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the
proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of
12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed,
thus: “There being no valid stipulation as to interest, the legal rate of interest shall be charged.”[27] It seems that
the RTC inadvertently overlooked its non-inclusion in its computation. It must likewise uphold the contract
stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the
promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of
Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal.

(3) No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the
spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to the
proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such
13
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the
extent of the amounts to which UCPB is rightfully entitled.

4. PREMIERE DEVELOPMENT BANK, Petitioner, vs. CENTRAL SURETY & INSURANCE

COMPANY, INC., Respondent

Facts: On August 20, 1999, respondent Central Surety & Insurance Company (Central Surety) obtained an
industrial loan of ₱6,000,000.00 from petitioner Premiere Development Bank (Premiere Bank) with a maturity
date of August 14, 2000. This ₱6,000,000.00 loan, evidenced by Promissory Note (PN) No. 714-Y,3 To secure
payment of the ₱6,000,000.00 loan, Central Surety executed in favor of Premiere Bank a Deed of Assignment
with Pledge4 covering Central Surety’s Membership Fee Certificate No. 217 representing its proprietary share
in WackWack Golf and Country Club Incorporated (WackWack Membership). In both PN No. 714-Y and Deed
of Assignment, Constancio T. Castañeda, Jr. and Engracio T. Castañeda, president and vice-president of Central
Surety, respectively, represented Central Surety and solidarily bound themselves to the payment of the
obligation.
Parenthetically, Central Surety had another commercial loan with Premiere Bank in the amount of
₱40,898,000.00 maturing on October 10, 2001. This loan was, likewise, evidenced by a PN numbered 376-
X5 and secured by a real estate mortgage over Condominium Certificate of Title No. 8804, Makati City. PN No.
376-X was availed of through a renewal of Central Surety’s prior loan, then covered by PN No. 367-Z.6 As with
the ₱6,000,000.00 loan and the constituted pledge over the WackWack Membership, the ₱40,898,000.00 loan
with real estate mortgage was transacted by Constancio and EngracioCastañeda on behalf of Central Surety.by
September 20, 2000, Central Surety issued Bank of Commerce (BC) Check No. 08114 9 dated September 22,
2000 in the amount of ₱6,000,000.00 and payable to Premiere Bank. The check was received by Premiere
Bank’s Senior Account Manager, Evangeline Veloira, with the notation "full payment of loan-WackWack," as
reflected in Central Surety’s Disbursement Voucher.10 However, for undisclosed reasons, Premiere Bank
returned BC Check No. 08114 to Central Surety, and in its letter dated September 28, 2000, demanded from the
latter, not just payment of the ₱6,000,000.00 loan, but also the ₱40,898,000.00 loan which was originally
covered by PN No. 367-Z.11 In the same letter, Premiere Bank threatened foreclosure of the loans’ respective
securities, the pledge and real estate mortgage, should Central Surety fail to pay these within ten days from date

Issue: Whether the "blanket mortgage" clause applies even to subsequent advancements for which other
securities were intended,

Ruling: A "blanket mortgage clause," also known as a "dragnet clause" in American jurisprudence, is one which
is specifically phrased to subsume all debts of past or future origins. Such clauses are "carefully scrutinized and
strictly construed." Mortgages of this character enable the parties to provide continuous dealings, the nature or
extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction. A "dragnet clause" operates as a convenience and
accommodation to the borrowers as it makes available additional funds without their having to execute
additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera. Indeed, it has been settled in a long line of decisions that mortgages given to secure
future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do
not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered.
We then declared that the special security for subsequent loans must first be exhausted in a situation where the
creditor desires to foreclose on the "subsequent" loans that are due. However, the "dragnet clause" allows the
creditor to hold on to the first security in case of deficiency after foreclosure on the special security for the
subsequent loans.
In Prudential, we disallowed the petitioner’s attempt at multiple foreclosures, as it foreclosed on all of the
mortgaged properties serving as individual securities for each of the three loans. This Court then laid down the
rule, thus:
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. 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.

5. Spouses Estanislao, Jr. v CA, G.R. No.143687, 31 July 2001

14
FACTS: Spouses Ramon Estanislao, Jr. and Dina Teotico Estanislao, petitioners herein, mortgaged to
respondent Hi-Yield Realty, Inc. a parcel of land. The mortgage was constituted to secure a loan
of P200,000.00. For petitioners’ failure to comply with some of its conditions, the mortgage was extra-judicially
foreclosed and the property was sold P445,000.00 to Hi-Yield Realty, Inc. as the highest bidder. Petitioner
offered to redeem the property by tendering to Atty. Humberto Basco, the notary public who conducted the sale,
a PCIB manager’s check in the amount of P445,000.00. The amount covered the auction price alone as
petitioner allegedly did not know the amount of interest and other charges/assessments. Atty. Basco returned the
PCIB check to petitioner Estanislao on the ground that its amount did not include the interests, charges, and
penalties stating that no certificate of redemption could be issued unless the amount was fully paid. Petitioner
again tendered the PCIB check for P445,000.00 and another PCIB manager’s for P81,521.27 to cover the
interest. The checks were, however, rejected by private respondents for being inadequate.
Petitioner found from the records of the Registry of Deeds of Caloocan City that their property had been
transferred in the name of private respondent Hi-Yield Realty, Inc. as notarized by Atty. Basco and filed with
the Registry of Deeds. Petitioner brought suit against private respondents in the RTC of Caloocan City, seeking
the annulment of the Affidavit of Consolidation of Ownership. RTC dismissed petitioner’s suit and ordered
them to pay damages to private respondents. CA affirmed in toto.

ISSUES: Whether the CA erred (1) When it had evidently and utterly disregarded the doctrines laid down by
this Honorable Court in the cases of Rosario vs. Tayug Rural Bank, and Castillo vs. Nagtalon, as regards liberal
interpretation of redemption rules; (2) When it also absolutely disregarded the doctrine laid down by this
Honorable Court in the case of Rosales vs. Yboa, that interests of 1% monthly on the redemption price shall
commence to run only from the date of registration of the certificate of sale; and (3) When it misapplied the
case of Conejero, et al. vs. Court of Appeals, et al., apropos the necessity of consigning the redemption price, in
the case at bar.

RULING: (1) No. 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. Rule 39,
28 of the 1997 Rules of Court, effective July 1, 1997, which changed the period from twelve (12) months to one
(1) year.Although the prevailing law at the time of the auction sale in this case was the 1964 Rules of Court, the
question is actually merely of academic interest in this case, because even if the period of redemption is 365
days, the tender of the full redemption price made by petitioners on June 21, 1993 was 12 days late counted
from the expiration of the redemption period on June 9, 1993.
The right of redemption should be exercised within the period prescribed by law. As explained by this Court in
Basbas v. Entena: Thee right of legal redemption must be exercised within specified time limits; and the
statutory periods would be rendered meaningless and of easy evasion unless the redemptioner is required to
make an actual tender in good faith of what he believed to be the reasonable price of the land sought to be
redeemed. Moreover, the tender of payment must be for the full amount of the purchase price. Otherwise, to
allow payment by installments would be to allow the indefinite extension of the redemption period.
Consequently, the payment tendered by petitioners on June 4, 1993, while made within the period of
redemption (365 days), was ineffective since the amount offered did not include the interest but was limited to
the purchase price.

(2) No. In Bodiongan v. Court of Appeals, it was held:In order to effect a redemption, the judgment debtor must
pay the purchaser the redemption price composed of the following: (1) the price which the purchaser paid for
the property; (2) interest of 1% per month on the purchase price; (3) the amount of any assessments or taxes
which the purchaser may have paid on the property after the purchase; and (4) interest of 1% per month on such
assessments and taxes.The appellate court erred in ruling that the interest due from the mortgage was
P240,300.00, at 1% monthly interest of the auction price of P445,000.00, computed from the date of sale on.
The interest on the auction price should be computed not from the date of the sale, as the appeals court appears
to have done, but from the registration thereof. Nevertheless, as the tender of payment of the interest and the
purchase price of P445,000.00 was late, such tender did not effect a valid redemption.

(3) Yes. There are additional amounts to be made in order to effect a valid redemption required by law, but, as
respondent Hi-Yield Realty, Inc. failed to comply with certain requirements, petitioners failure to pay these
additional amounts may be considered excused. As provided in Rule 39, 30 of the 1964 Rules of Court, the
redemptioner must also pay the assessment or taxes paid by the purchaser. However, the latter must give notice
to the officer who conducted the sale of the assessments or taxes paid by him and file the same with the
Registry of Deeds. If no such notice is given, the property may be redeemed without paying such assessments or
taxes.
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6. Domingo Lumayag and Felipe Lumayag vs. Heirs of Jacinto Nemeo and DalmaciaDayangco-Nemeo, as
represented by MelitonNemeo G.R. No. 162112, July 3, 2007

Facts:
 During their lifetime, the spouses Jacinto Nemeo and DalacioDayangco-Nemeo, owned two (2) parcles
of coconut land licated in Manaca, Ozamiz City. When Dalmacia died, Jacinto, joined by his five (5)
children, namely, Meliton, Eleuteria, Timoteo, Justo and Saturnino, conveyed to his daughter Felipa and
latter’s husband Domingo Lumayag the two lots.
 The instrument of conveyance is denominated as Deed of Sale with Pacto de Retro. Thereunder, it was
stipulated that the consideration for the alleged sale of the two aforementioned lots was P20,000 and that
the vendors a retro have the right to repurchase the same lots. It was likewise agreed thereunder that in
the event no purchase is effected within the said stipulated period of five (5) years, conveyance shall
become absolute and irrevocable without the necessity of drawing up a new absolute deed of sale,
subject to the requirements of law regarding consolidation of ownership of real property.
 A decade after Jacinto’s death, a new owner’s duplicate copy of one of the lots was issued and delivered
to the heirs of Jacinto and Dalmacia. On December 24, 1996, the heirs of Jacinto and Dalmacia, namely,
filed against the spouses Lumayag a complaint for Declaration of Contract as Equitable Mortgage,
Accounting, and Redemption with Damage.
 The complaint alleged that the subject Deed of Sale with Pacto De Retro was executed only for the
purpose of securing the payment of a loan of P20,000 obtained from the defendant spouses in
connection with the medication and hospitalization of the then ailing Jacinto Nemeo.
 The spouses Lumayag denied that the contract in question was an equitable mortgage and claimed that
the amount of P20,000 received by the plaintiff heirs was the consideration for the sale of the two lots
and not a loan.
 The RTC and the CA found it as an equitable mortgage.

Issue: Whether or not the sale in the case was an equitable mortgage?

Ruling: Yes. Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its
nomenclature, may be presumed to be an equitable mortgage, to wit:
 When the price of a sale with right to repurchase is unusually inadequate;
 When the vendor remains in possession as lessee or otherwise;
 When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
 When the purchaser retains for himself a part of the purchase price;
 When the vendor binds himself to pay the taxes on the thing sold;
 In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.
Here, the CA correctly found the presence of not merely one but four (4) circumstances indicative of the true
nature of the subject transaction as an equitable mortgage, to wit: (a) gross inadequacy of the contract price
of P20,000.00 for two (2) parcels of land, the total area of which is almost 5.5 hectares; (b) respondent heirs
remained in possession of the subject property even after the execution of the supposedly Deed of Sale with
Pacto de Retro; (c) said respondents payment of realty taxes; and (d) the provision on pactumcommissorium.
Evidence is extant on record that the respondent heirs, as vendors a retro, remained in possession of the subject
lots after the execution of the deed of sale with right to repurchase. In stark contrast, evidence is wanting that
petitioners ever enjoyed possession thereof. If the transaction was really a sale with right to repurchase, as
claimed by the petitioners, then the latter should have asserted their rights for the immediate delivery of the lots
to them instead of allowing some of the respondents to freely stay in the premises. Well-settled to the point of
being elementary is the doctrine that where the vendor remains in physical possession of the land as lessee or
otherwise, the contract should be treated as an equitable mortgage.[16]
As well, that the parties intended to enter into an equitable mortgage is further accentuated by respondents
continued payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual
burden attached to ownership and when, as here, such payment is coupled with continuous possession of the
property, it constitutes evidence of great weight that a person under whose name the realty taxes were declared
has a valid and rightful claim over the land.[17]

7. Paguyo vs. Gatbunton

KEY DOCTRINE: There must be a special power of attorney inserted in or attached to the real estate
mortgage authorizing the sale for an extrajudicial foreclosure to be proper.

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Facts: The Paguyo spouses, by way of security for a loan of P20,000.00 which they obtained from Jeanlyn's
Lending Investor, executed in favor of the latter a Deed of Real Estate Mortgage over their residential property
in Bataan. Months later, an application for the extrajudicial foreclosure of the aforesaid mortgage pursuant to
Act 3135, as amended, was filed by the Garcia spouses, owners and operators of Jeanlyn's Lending Investor,
because the Paguyo spouses allegedly defaulted in their loan payment and its interests.
Thereafter, a Notice of Sheriff's Sale was issued by Gatbunton, the Sheriff of the RTC, setting the public
auction sale of the mortgaged realty. The notice was posted and subsequently published in Sierra Pacific News.
However, the auction sale was actually conducted by the respondent with Garcia emerging as the highest
bidder.
Claiming that the conduct by the respondent sheriff of the extrajudicial foreclosure proceedings against their
property was highly irregular and patently illegal, Paguyo filed with the Office of the Court Administrator
(OCA) a complaint, charging respondent with grave abuse of authority and/or gross ignorance of the law.
Paguyo alleged, inter alia, that the respondent sheriff has no authority to extrajudicially foreclose the mortgage
because no special power of attorney is attached to or incorporated in the Deed of Real Estate Mortgage
authorizing the extrajudicial foreclosure of the mortgage pursuant to Act 3135, as amended. In his Comment,
the respondent sheriff denied the charges against him, claiming that it is his ministerial duty to proceed with the
auction sale of the mortgaged property because it has already been approved by the Ex-Officio Provincial
Sheriff and Acting Clerk of Court.
The OCA finds no basis to hold the respondent liable for his failure to check if the deed of real estate mortgage
in question incorporates a Special Power of Attorney authorizing the mortgagee to extrajudicially foreclose the
mortgage in case the debtor fails to pay the obligation upon its maturity.

ISSUE: Does Gatbunton have the authority to extrajudicially foreclose the mortgage?

RULING: YES. Under Section 1 of Act 3135, as amended, extrajudicial foreclosure sales are proper only when
so provided under a special power inserted in or attached to the mortgage contract. While the Deed of Real
Estate Mortgage in this case contains no special power authorizing the Garcia spouses as mortgagees to
extrajudicially foreclose the mortgage in case the Paguyos defaulted in their loan obligation, nonetheless, the
respondent sheriff cannot be held administratively liable for proceeding with the extrajudicial foreclosure of the
mortgage in question.
It is provided for in Administrative Order No. 3 series of 1984 (re: Procedure in Extrajudicial Foreclosure of
Mortgage) that it is the sheriff's duty to examine if the application for extrajudicial foreclosure of real estate
mortgage has complied with the requirements under Section 4 of Act 3135, as amended. However, Circular No.
7-2002 has made it the specific duty of the Clerk of Court to examine applications for extrajudicial foreclosure
of mortgages.
Nota bene:Gatbunto was held liable for inefficiency and incompetence in the performance of his duties under
Section 52(A)(16) of the Revised Uniform Rules on Administrative Cases in the Civil Service for his failure to
cause the republication of the Notice of Sheriff's Sale of a postponed (or rescheduled) extrajudicial sale.

8. PNB vs. Cabatingan 557 SCRA 426 (2008)

Facts: Respondent spouses Cabatingan obtained two loans, secured by a real estate mortgage from petitioner
PNB. However, they were unableto fully pay their obligation despite having been granted more than enough
time to do so. Thus,on September 25, 1991, petitioner extrajudicially foreclosed on the mortgage pursuant to
Act3135. Thereafter, a notice of extrajudicial sale was issued stating that the foreclosed propertieswould be sold
at public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m. at themain entrance of the office of the
Clerk of Court in Ormoc City. The auction began at9:00 a.m. and was concluded after 20 minutes with
petitioner as the highest bidder.On March 16, 1993, respondent spouses filed a complaint with the RTC of
Ormocfor annulmentof extrajudicial foreclosure of real estate mortgage and the November 5, 1991 auction sale.
Theyinvoked Section 4 of Act 3135 which provides:
Section 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the
afternoon, and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of peace
of the municipality in which such sale has to be made, or of a notary public of said municipality, who shall be
entitled to collect a fee of Five pesos for each day of actual work performed, in addition to his expenses.
Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the public auction
of the foreclosed properties was held for only 20 minutes (instead of seven hoursas required by law), the
consequent sale was void. The RTC ruled in favor of Sps. Cabatinganand annulled the sale of public auction.
Petitioner moved for reconsideration but it was denied. Hence, this petition.\
Issue: Whether a sale at public auction, to be valid, must be conducted the whole day from 9:00a.m. until 4:00
p.m. of the scheduled auction day?

17
Ruling: Statutes should be sensibly construed to give effect to the legislative intention. Act 3135regulates the
extrajudicial sale of mortgaged real properties by prescribing a procedure whicheffectively safeguards the rights
of both debtor and creditor. Thus, its construction must beequally and mutually beneficial to both parties.
The word “between” ordinarily means “in the time interval that separates.” Thus, “between the hours of nine in
the morning and four in the afternoon” merely provides a time frame within which an auction sale may be
conducted. Therefore, a sale at public auction held within theintervening period provided by law (i.e., at any
time from 9:00 a.m. until 4:00 p.m.) is valid,without regard to the duration or length of time it took the
auctioneer to conduct the proceedings.In this case, the November 5, 1991 sale at public auction took place from
9:00 a.m. to 9:20 a.m.Since it was conducted within the time frame provided by law, the sale was valid.

9. (REM) HUERTA ALBA RESORT, INC., petitioner, vs. COURT OF APPEALS and SYNDICATED
MANAGEMENT GROUP, INC., respondents.

FACTS: SYNDICATED MANAGEMENT GROUP, INC sought the foreclosure of 4 parcels of land mortgaged
by HUERTA ALBA RESORT, INC to Intercon Fund Resource, Inc. (Intercon). Private respondent instituted 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.Judge Buenaventura J. Guerrero
granted herein SMGIs complaint for judicial foreclosure of mortgage and ordered the defendant to pay within a
period of not less than 150 days from receipt.
Huerta Alba Resort appealed the decision of the RTC to CA which was dismissed the on the ground of late
payment of docket fees. Dissatisfied, petitioner came SC via a petition for certiorari which this court resolved
to dismiss on the finding that the Court of Appeals erred not in dismissing the appeal of petitioner. Petitioner’s
motion for reconsideration of the dismissal was denied with finality.
SMGI filed with the trial court of origin (RTC) a motion for execution of the Decision and it was granted. A
writ of execution was issued and a Notice of Levy and Execution was issued by the Sheriff concerned. Huerta
Alba Resort filed with the same trial court (RTC) an Urgent Motion to Quash and Set Aside Writ of Execution
ascribing grave abuse of discretion in issuing the Writ as it was premature since the 150-day period had not yet
lapsed and it had not yet defaulted in the payment since no demand for its payment was made by the private
respondent. The court denied it opining that 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. Huerta Alba Resort filed once more with the CA another petition for certiorari and prohibition
with preliminary injunction, predicated on the same grounds invoked for its Motion to Quash Writ of Execution.
Subsequently, the scheduled auction sale of subject pieces of properties proceeded and the SMGI was declared
the highest bidder. It was awarded subject bidded pieces of property.
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. The trial court ruled that the
period of redemption 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 and Motion to Set Aside Said
Order, contending that the said Order materially altered the Decision 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, the Court of Appeals resolved the issues raised by the petitioner in 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; and that the 150-day period within which petitioner may
exercise its equity of redemption expired on September 11, 1994. The Court stated that 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 CA theorizing that the period of 150 days should not
be reckoned with from Entry of Judgment but from receipt of the records from the Court of Appeals and
maintained that it may not be considered in default 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. Court of Appeals denied petitioners motion for reconsideration.
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 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.
During the hearing, 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
18
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.

ISSUES: (1) Whether or not the mortgagor has the right of redemption or equity redemption, (2) whether the
petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem subject properties,
and (3) 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?

RULING: (1) The foreclosure in this case is judicial, and as such, the mortgagor has only the equity, not 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.

(2) 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. 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.

(3): NO. 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. 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.

19
10. United Planters Sugar Milling Co. vs. CA 527 SCRA 336 (2007)

FACTS: In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right to
collect on an outstanding indebtedness from petitioner, by virtue of a so-called friendly foreclosure agreement‖
that ultimately was friendly only to petitioner. Petitioner United Planters Sugar Milling Co. (UPSUMCO) was
engaged in the business of milling sugar. In 1974, as UPSUMCO commenced operations, it obtained a set of
loans from respondent Philippine National Bank (PNB). The loans were secured over two parcels of land where
the milling plant stood and chattel mortgages over the machineries and equipment. On 27 February 1987,
through a Deed of Transfer, PNB assigned to the Government its rights, titles and interests over UPSUMCO,
among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken in
compliance with Presidential Proclamation No. 50. The Government subsequently transferred these rights, titles
and interests‖ over UPSUMCO to the respondent Asset and Privatization Trust (APT).

ISSUE: Whether or not there is an obligation to give compensation in the present case

RULING: YES. The right of PNB to set-off payments from UPSUMCO arose out of conventional
compensation rather than legal compensation, even though all of the requisites for legal compensation were
present as between those two parties. The determinative factor is the mutual agreement between PNB and
UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and
UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under
Article 1279 were present. As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation
between PNB and UPSUMCO ceased to exist. However, PNB and UPSUMCO had agreed to a conventional
compensation, a relationship which does not require the presence of all the requisites under Article 1279. And
PNB too had assigned all its rights as creditor to APT, including its rights under conventional compensation.
The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot
negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-
off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
In a foreclosure, the deficiency is determined by simple arithmetical computation immediately after the
foreclosure. The deficiency is the amount not covered by the winning bid price—in this case the deficiency
amount is P1,687,076,433.00—which is entirely condoned under the Deed of Assignment. To hold otherwise
negates the meaning of “any deficiency amount” expressly stated in the Deed of Assignment.

PLEDGE

1. Northern Motors vs. Coquia

Facts: Manila Yellow Taxicab executed a chattel mortgage over several taxicabs in favor of Northern Motors.
Tropical is a judgment creditor of Yellow Taxicab who assigned the judgment to Ong. On December 12, 1974,
the sheriff then levied upon 20 taxicabs, 8 of which are security for the chattel mortgage. Northern Motors filed
an intervention on December 18, 1974; however, the levied taxicabs were sold the same day at 2:00 pm
although agreement shows that it should have happened at 4:00 pm. Indemnity bond was posted by Tropical,
but the bond was cancelled after the sale without notice to Northern Motors.
The petitioner now seeks reconsideration also on the reinstatement of the bond. A second levy was made upon
35 taxicabs, 7 of which are mortgaged to Northern Motors. This is a motion for reconsideration of the SC
decision pronouncing that the mortgagee has a better right than the judgment debtor over the taxicabs. The
taxies were levied and sold at an auction sale. Ong argues and admits that the mortgagee has a better right that
the judgment creditor, but argues that the purchaser from the auction sale must have a right superior to that of
the mortgagee. The auction sale proceeded and the purchasers were of unknown addresses, hence the 8 taxicabs
cannot be recovered. The proceeds of the auction were in contest and the sheriff is deducting the expenses of the
execution sale from the proceeds.

Issues: (1) Whether the expenses for the execution sale should be deducted from the proceeds thereof and (2)
whether the purchaser has a better right than the creditor?

Ruling: (1) No, it was already established that the levy on the property was illegal, it is therefore improper to
deduct the expenses of an illegal auction from the proceeds thereof. Only the mortgagee can collect the
proceeds from the auction sale because the purchasers are of unknown addresses. The full proceeds of the sale
are due to the mortgagee without any unreasonable and illegal deductions.

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(2) No, the purchaser in an auction sale merely steps in the shoes of the judgment creditor as they have been
aware of the claim of the mortgagee. The mortgagee has a better right to the possession of the taxicabs;
however, since the addresses of the purchasers are unknown, the proceeds of the sale must be delivered to the
mortgagee.

Regarding pledge: Article 2140 of the Civil Code, in defining a chattel mortgage as the recording of personal
property in the Chattel Mortgage Register as security for the performance of an obligation, has adhered to the
equitable conception of that contract. At the same time, article 2140 has preserved the distinction between
pledge and chattel mortgage which was blurred by section 4 of the Chattel Mortgage Law when it provided that
in a chattel mortgage "the possession of the property is delivered to and retained by the mortgagee" or, if no
such possession is delivered, the mortgage should be recorded in the proper registry of deeds.
Historically, it is not proper that the contract of pledge (pignus), as one of the four real contracts of the jus civile
(the others being mutuum, commodatum, and depositum should be absorbed by the chattel mortgage contract.

2. Belo vs. Philippine National Bank G.R. No. 134330 March 1, 2001

Art. 2085: Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.

FACTS: Eduarda Belo owned an agricultural land (661,288) square meters located in Timpas, Panitan, Capiz.
She leased a portion of the said tract of land to spouses Marcos and ArseniaEslabon for their sugar plantation
business, effective for 7 years at a rate of 7,000 pesos per year. To finance their business venture, spouses
Eslabon obtained a loan from Philippine National Bank (PNB) secured by a real estate mortgage on their own 4
residential houses in Roxas City, as well as on the agricultural land owned by Eduarda Belo. The assent of
Eduarda Belo to the mortgage was acquired through a special power of attorney which she executed in favor of
respondent Marcos Eslabon on June 15, 1982. Spouses Eslabon failed to pay their loan resulting to the
extrajudicial foreclosure proceedings against the mortgaged properties instituted by respondent PNB. PNB was
the highest bidder of the foreclosed properties at P447,632.00. PNB through a letter informed Eduarda Belo of
the sale at public auction of her agricultural land on June 10, 1991 as well as the registration of the Certificate of
Sheriffs Sale in its favor on July 1, 1991, and the one-year period to redeem the land Meanwhile, Eduarda Belo
sold her right of redemption to petitioners spouses Enrique and Florencia Belo (petitioners) under a deed of
absolute sale of proprietary and redemption rights. Before the expiration of the redemption period, petitioners
spouses Belo tendered payment for the redemption of the agricultural land in the amount of P484,482.96,
including the bid price of PNB, plus interest and expenses as provided under Act No. 3135, which subsequently
was rejected by PNB contending that the redemption price should be the total claim of the bank on the date of
the auction sale and custody of property plus charges accrued and interests amounting to P2,779,978.72.
Petitioners spouses disagreed and refused to pay the said total claim of respondent PNB.

ISSUES: (1) Whether or not the SPA, the real estate mortgage contract, the foreclosure proceedings and the
subsequent auction sale involving EduardaBelos property are valid and (2) whether or not the Sps Belo should
pay all the claims of PNB (P2,779,978.72) instead of only the amount of the bid price plus interests
(P484,482.96) on Eduarda Belo’s property.

HELD: (1) YES. (discussion of the validity of the real estate mortgage only as relevant to the topic) It is
stipulated in paragraph three (3) of the SPA that Eduarda Belo consented to have her land mortgaged for the
benefit of the respondents spouses Eslabon. The SPA was not meant to make her a co-obligor to the principal
contract of loan between respondent PNB, as lender, and the spouses Eslabon, as borrowers. The
accommodation real estate mortgage over her property, which was executed in favor of PNB by the spouses
Eslabon, in their capacity as her attorneys-in-fact by virtue of her SPA, is merely an accessory contract. The
SPA form of the PNB was utilized to authorize the spouses Eslabon to mortgage EduardaBelos land as
additional collateral of the Eslabonspouses loan from respondent PNB. Besides, Eduarda Belo benefited, in
signing the SPA, in the sense that she was able to collect the rentals on her leased property from the Eslabons.
An accommodation mortgage is not necessarily void simply because the accommodation mortgagor did not
benefit from the same. The validity of an accommodation mortgage is allowed under Article 2085 of the New
Civil Code which provides that third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property. An accommodation mortgagor, ordinarily, is not himself a
recipient of the loan, otherwise that would be contrary to his designation as such. It is not always necessary that
the accommodation mortgagor be appraised beforehand of the entire amount of the loan nor should it first be
determined before the execution of the SPA. Fourth, the courts a quo correctly held that the letter of Eduarda
Belo addressed to respondent PNB manifesting her intent to redeem the property is a waiver of her right to

21
question the validity of the SPA and the mortgage contract as well as the foreclosure and the sale of her subject
property.

(2) NO. Section 78 of the Genral Banking Act, as amended, and Sec. 25 PD No. 694 (providing that right to
redeem of mortgagors are subject only to paying all claims of the Bank against them) are inapplicable to
accommodation mortgagors in the redemption of their mortgaged properties. PNB has no claim against
accommodation mortgagor Eduarda Belo inasmuch as she only mortgaged her property to accommodate the
Eslabon spouses who are the loan borrowers of the PNB. The principal contract is the contract of loan between
the Eslabon spouses, as borrowers/debtors, and the PNB as lender. The accommodation real estate mortgage
(which secures the loan) is only an accessory contract. The Court holds that the term mortgagor in Section 25 of
P.D. No. 694 pertains only to a debtor-mortgagor and not to an accommodation mortgagor. Moreover, the
mortgage contract explicitly provides that mortgagee may immediately foreclose this mortgage judicially in
accordance with the Rules of Court or extrajudicially in accordance with Act No. 3135, as amended and
Presidential Decree No. 385 While the petitioners, as assignees of Eduarda Belo, are not required to pay the
entire claim of respondent PNB against the principal debtors, spouses Eslabon, they can only exercise their right
of redemption with respect to the parcel of land belonging to Eduarda Belo, the accommodation mortgagor.
Thus, they have to pay the bid price less the corresponding loan value of the foreclosed four (4) residential lots
of the spouses Eslabon. PNB further contends that to allow petitioners to redeem only the property belonging to
their assignor, Eduarda Belo, would violate the principle of indivisibility of mortgage contracts. We disagree.
With reference to Article 2089 of the Civil Code of the Philippines, there is no dispute that the mortgage on the
four (4) parcels of land by the Eslabon spouses and the other mortgage on the property of Eduarda Belo both
secure the loan obligation of respondents spouses Eslabon to respondent PNB. However, the Court is not
persuaded by the contention of the PNB that the indivisibility concept applies to the right of redemption of an
accommodation mortgagor and her assignees.

3. YAP VS. PCIB

Facts: Spouses Vicente Yu and Demetria Lee-Yu (petitioners) and spouses Ramon T. Yu and Virginia A. Tiu,
or Yu Tian Hock aka Victorino/Vicente Yu, mortgaged their title, interest, and participation over several parcels
of land located in Dagupan City and Quezon City, in favor of the Philippine Commercial International Bank
(respondent) as security for the payment of a loan in the amount of P9,000,000.00.As the petitioners failed to
pay the loan, the interest, and the penalties due thereon, respondent filed on July 21, 1998 with the Office of the
Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Dagupan City a Petition for Extra-Judicial
Foreclosure of Real Estate Mortgage on the Dagupan City properties. On August 3, 1998, the City Sheriff
issued a Notice of Extra-Judicial Sale scheduling the auction sale on September 10,1998 at 10:00 o’clock in the
morning or soon thereafter in front of the Justice Hall, Bonuan, Tondaligan, DagupanCity.At the auction sale on
September 10, 1998, respondent emerged as the highest bidder.On September 14, 1998, a Certificate of Sale
was issued in favor of respondent.At the auction sale on September 10, 1998, respondent emerged as the highest
bidder.8 On September 14, 1998, a Certificate of Sale was issued in favor of respondent.9 On October 1, 1998,
the sale was registered with the Registry of Deeds of Dagupan City.
About two months before the expiration of the redemption period, or on August 20, 1999, respondent filed an
Ex-Parte Petition for Writ of Possession before the Regional Trial Court of Dagupan City, Hearing was
conducted on September 14, 1999 and respondent presented its evidence ex-parte. The testimony of Rodante
Manuel was admitted ex-parte and thereafter the petition was deemed submitted for resolution.
On September 30, 1999, petitioners filed a Motion to Dismiss and to Strike Out Testimony of Rodante Manuel
stating that the Certificate of Sale dated September 14, 1998 is void because respondent violated Article 2089 of
the Civil Code on the indivisibility of the mortgaged by conducting two separate foreclosure proceedings on the
mortgage properties in Dagupan City and Quezon City

Issue: Whether or not a real estate mortgage over several properties located in different locality can be
separately foreclosed in different places.

Ruling: The Court finds that petitioners have a mistaken notion that the indivisibility of a real estate mortgage
relates to the venue of extra-judicial foreclosure proceedings.
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in
interest of the debtor or of the creditor.
Therefore, the debtor’s heir who has paid a part of the debt cannot ask for the proportionate extinguishment of
the pledge or mortgage as the debt is not completely satisfied.
Neither can the creditor’s heir who received his share of the debt return the pledge or cancel the mortgage, to
the prejudice of the other heirs who have not been paid.

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This rule presupposes several heirs of the debtor or creditor25 and therefore not applicable to the present case.
Furthermore, what the law proscribes is the foreclosure of only a portion of the property or a number of the
several properties mortgaged corresponding to the unpaid portion of the debt where, before foreclosure
proceedings, partial payment was made by the debtor on his total outstanding loan or obligation. This also
means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or some of
the several lots mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact
that there has been partial fulfillment of the obligation.Hence, it is provided that the debtor who has paid a part
of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not
completely satisfied.26 In essence, indivisibility means that the mortgage obligation cannot be divided among
the different lots,27 that is, each and every parcel under mortgage answers for the totality of the debt.

4. Yuliongsui vs. PNB, 22 SCRA 585 [1968]

FACTS: Plaintiff Yuliongsui was the owner of 2 vessels, purchased by installment or on account. Plaintiff,
however, failed to pay for the vessels. Thereafter, plaintiff obtained a loan of P50,000 from the defendant PNB.
To guaranty its payment, plaintiff pledged his vessels. Subsequently, plaintiff effected partial payment of the
loan in the sum of P20,000. The remaining balance was renewed by the execution of 2 promissory notes in the
bank’s favor. These two notes were never paid at all by the plaintiff on their respective due dates.
Meanwhile defendant bank took physical possession of 3 pledged vessels after the first note fell due and was
not paid. The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping
Commission which rescinded the sale to plaintiff for failure to pay the remaining installments on the purchase
price thereof. The other two boats, the M/S Surigao and M/S Don Dino were sold by defendant bank to third
parties.
Plaintiff commenced action in the CFI of Cebu to recover the 3 vessels or their value and damages from
defendant bank. The lower court rendered its decision in favor of the defendant bank. Plaintiff’s motion for
reconsideration and new trial was denied.

ISSUES: (1) Whether the taking of physical possession of the vessels by the bank was justified by the contract
of pledge and (2) whether the private sale of the pledged vessels by the defendant to itself without notice to the
plaintiff was valid?

RULING: (1) No. Plaintiff would have this Court hold it is a chattel mortgage contract so that the creditor-
defendant could not take possession of the chattels object thereof until there has been default. Necessarily, this
judicial admission binds the plaintiff. The defendant bank as pledgee was therefore entitled to the actual
possession of the vessels.

(2) Yes. The rulings in Philippine National Bank v. De Poli, 44 Phil. 763 and El Hogar Filipino v. Paredes are
still authoritative despite the passage of Act 3135. This law refers only, and is limited, to foreclosure of real
estate mortgages. 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.

5. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust Company G.R. No. 97753,
August 10, 1992

Facts:
 On various dates, Security Bank and Trust Company issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited therein an aggregate amount of P1,120,000.
 Angel dela Cruz delivered the said CTDs to Caltex in connection with his purchase of fuel.
 Sometime in March 1982, Angel informed Mr. TimoteoTiangco, the branch manager of Security Bank,
that he lost all the certificates of the time deposit in dispute. Mr. Tiangco advised said depositor to
execute and submit a notarized Affidavit of Loss if he desired replacement of said CTDs. Angel
complied, and he was issued replacement of 280 CTDs.
 On March 25, 1982, Angel negotiated and obtained a loan from Security Bank in the amount of
P875,000. On the same date, Angel executed a notarized Deed of Assignment of Time Deposit which
surrenders to the bank full control of the time deposits from and after the date of the assignment. The

23
 said deed also authorized the bank to pre-terminate, set-off and apply the said time deposits to the
payment of whatever amount or amounts may be due on the loan upon its maturity.
 Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz
alleging that the same were delivered to herein plaintiff "as security for purchases made with Caltex
Philippines, Inc." by said depositor (TSN, February 9, 1987, pp. 54-68).
 Security Bank rejected Caltex’s demand and claim for payment of the value of the CTDs. In April 1983,
the loan of Angel with Security Bank became due. The latter applied the time deposits in question to the
payment of the matured loan.
 The trial court dismissed the instant complaint. On appeal, the Court of Appeals affirmed the trial
court’s decision. hence this petition wherein petitioner faults respondent court in ruling (1) that the
subject certificates of deposit are non-negotiable despite being clearly negotiable instruments; (2) that
petitioner did not become a holder in due course of the said certificates of deposit; and (3) in
disregarding the pertinent provisions of the Code of Commerce relating to lost instruments payable to
bearer.
 The Court of Appeals held that “. . . While it may be true that the word "bearer" appears rather boldly in
the CTDs issued, it is important to note that after the word "BEARER" stamped on the space provided
supposedly for the name of the depositor, the words "has deposited" a certain amount follows. The
document further provides that the amount deposited shall be "repayable to said depositor" on the period
indicated. Therefore, the text of the instrument(s) themselves manifest with clarity that they are payable,
not to whoever purports to be the "bearer" but only to the specified person indicated therein, the
depositor. In effect, the appellee bank acknowledges its depositor Angel dela Cruz as the person who
made the deposit and further engages itself to pay said depositor the amount indicated thereon at the
stipulated date. 6”

Issue: Can petitioner rightfully recover on the CTDs?

Ruling: No. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof
for the true purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery
and indorsement. For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a
security for De la Cruz' purchases of its fuel products. Any doubt as to whether the CTDs were delivered as
payment for the fuel products or as a security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments
Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to
constitute the transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who
is in possession of it, or the bearer thereof. 22 In the present case, however, there was no negotiation in the
sense of a transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons,
mere delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the
purchases of Angel de la Cruz (and we even disregard the fact that the amount involved was not disclosed)
could at the most constitute petitioner only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of the instrument since, necessarily, the terms
thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation,
must be contractually provided for.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court
quoted at the start of this opinion show that petitioner failed to produce any document evidencing any contract
of pledge or guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the
CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the date of a pledge contract, but a rule of substantive law prescribing a
condition without which the execution of a pledge contract cannot affect third persons adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was
embodied in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically
declares: “Art. 1625. An assignment of credit, right or action shall produce no effect as against third persons,
unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the
assignment involves real property.”
Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the
execution of any public instrument which could affect or bind private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the latter has definitely the better right over the CTDs in question.

24
6. PARAY vs. RODRIGUEZ

FACTS: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty Inc. In 1979 to
1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and
FaustinaParay (“Parays”) the payment of certain loan obligations. When the Parays attempted to foreclose the
pledges on account of respondents’ failure to pay their loans, respondents filed complaint. The actions sought
the declaration of nullity of the pledge agreements, among others. Howeverit was dismissed. This decision
attained finality after it was affirmed by the Court of Appeals and the Supreme Court.
Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public
auction. However, before the scheduled date of auction, all of respondents caused the consignation with the
RTC Clerk of Court of various amounts. It was claimed that respondents had attempted to tender payments to
the Parays, but had been rejected.
Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta
successfully bidding for all of the pledged shares. None of respondents participated or appeared at the
auction.Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded
public auction.
Respondents’ argument:Respondents argued that their tender of payment and subsequent consignations served
to extinguish their loan obligations and discharged the pledge contracts.
Petitioners’ argument:Petitioners countered that the auction sale was conducted pursuant to a final and
executory judgment and that the tender of payment and consignations were made long after their obligations
had fallen due. They pointed out that the amounts consigned could not extinguish the principal loan obligations
of respondents since they were not sufficient to cover the interests due on the debt. They likewise argued that
the essential procedural requisites for the auction sale had been satisfied.
Ruling of RTC: .The RTC dismissed the complaint, expressing agreement with the position of the Parays. It
held that respondents had failed to tender or consign payments within a reasonable period after default and that
the proper remedy of respondents was to participate in the auction sale.
Ruling of CA: The Court of Appeals however reversed the RTC on appeal, ruling that the consignations
extinguished the loan obligations and the subject pledge contracts; and the auction sale as null and void. It (CA)
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.CA 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.

Issues: (1) Whether the right of redemption exists over personal properties (such as the pledged shares) and (2)
whether a buyer at a public auction ipso facto becomes the owner of the pledged shares pending the lapse of the
one-year redemptive period?

Ruling: (1) No law or jurisprudence establishes or affirms such right. The right of redemption over mortgaged
real property sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the
same benefit to personal property. In fact, there is no law in our statute books which vests the right of
redemption over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as
the vehicle for any legislative intent to bestow a right of redemption over personal property, since that law
governs the extrajudicial sale of mortgaged personal property, but the statute is definitely silent on the point.
The right of redemption as affirmed under Rule 39 of the Rules of Court applies only to execution sales, more
precisely execution sales of real property.
It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale,
as distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a
pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has
not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged.
In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public
auction. However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge
contracts. The final and executory judgment in many cases affirmed the pledge contracts and disposed them.
Said judgment did not direct the sale by public auction of the pledged shares, but instead upheld the right of the
Parays to conduct such sale at their own volition.

(2) Yes. 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.

7. Caltex Phils. Inc. vs. CA 212 SCRA 448 (1992)

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Facts: Private respondent, issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who
deposited with herein private respondent the aggregate amount ofP1,120,000.00. Dela Cruz delivered the said
CTDs to herein petitioner Caltex Phils.in connection with his purchase of fuel products from the latter.
Thereafter Dela Cruz informed the Branch Manager of private respondent, that he lost all the certificates of time
deposit in dispute and on the basis of an affidavit of loss, 280 replacement CTDs were issued in favor of said
depositor.
Dela Cruz then negotiated and obtained a loan from respondent bank in the amount of P875,000.00 and
executed a notarized Deed of Assignment of Time Deposit which stated, that the latter surrenders to private
respondent full control of the time deposits and further authorizes said bank to pre-terminate, set-off and apply
the said time deposits to the payment of whatever amount or amounts may be due' on the loan upon its maturity.
Private respondent then received a letter from petitioner formally informing it of its decision to preterminate the
CTDs in its possession alleging that they were delivered by Dela Cruz as security for purchases made with
Petitioner. Private respondent rejected the petitioners demand and claim for payment of the value of the CTDs.
When the loan of Dela Cruz matured and fell due, the private respondent set-off and applied the time deposits in
question to the payment of the matured loan. Petitioner filed the instant complaint.

Issue: Can the CTDs be considered as a contract of pledge and may the petitioner rightfully recover the same?

Ruling: Petitioner cannot rightfully recover on the CTDs for lack of negotiation as theCTDs were in reality
delivered to it as a security for De la Cruz' purchases of its fuel products. Under the Negotiable Instruments
Law, an instrument is negotiated when it is transferred from one person to another in such a manner as to
constitute the transferee the holder thereof, a holder may be the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. In the present case, however, there was no negotiation in the sense of a
transfer of the legal title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere
delivery of the bearer CTDs would have sufficed. Here, the delivery thereof only as security for the purchases
of Angel de la Cruz could at the most constitute petitioner only as a holder for value by reason of his lien.
Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since,
necessarily, the terms thereof and the subsequent disposition of such security,in the event of non-payment of
theprincipal obligation, must be contractually provided for.
Aside from the fact that the CTDs were only delivered but not indorsed, petitioner failed to produce any
document evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz.
Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right effective against and
binding upon respondent bank. On the other hand, the assignment of the CTDs made by Angel de la Cruz in
favor of respondent bank was embodied in a public instrument. Necessarily, therefore, as between petitioner and
respondent bank, the latter has definitely the better right over the CTDs in question.

FRIA

1. MANUEL D. YNGSON, JR. (in his capacity as the Liquidator of ARCAM & COMPANY,
INC.), Petitioner, vs. PHILIPPINE NATIONAL BANK, Respondent

FACTS: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga. It
applied for and was granted a loan by PNB and it executed a REM over a 350,004-square meter parcel of land
and a Chattel Mortgage consisting of machinery, generators, field transportation and heavy equipment.
ARCAM, however, defaulted on its obligations to PNB. Thus, PNB initiated extrajudicial foreclosure
proceedings in the RTC of Guagua, Pampanga. The public auction was scheduled on December 29, 1993 for the
mortgaged real properties and December 8, 1993 for the mortgaged personal properties.
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance
of a TRO and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ of preliminary
injunction. SEC ruled that ARCAM can no longer be rehabilitated and noted that six years hadalready passed
but the potential white knight" investor had not infused the much needed capital to bail out ARCAM from its
financial difficulties.9 Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation.
Contending that foreclosure during liquidation was improper, petitioner filed with the SEC a Motion for the
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin the foreclosure sale
of ARCAM’s assets. The SEC en banc issued a TRO effective for seventy-two (72) hours, but said TRO lapsed
without any writ of preliminary injunction being issued by the SEC.
Consequently, PNB resumed the proceedings for the extrajudicial foreclosure sale of the mortgaged properties.
PNB emerged as the highest winning bidder in the auction sale, and certificates of sale were issued in its favor.
Petitioner filed with the SEC a motion to nullify the auction sale. Petitioner posited that all actions against
companies which are under liquidation, like ARCAM, are suspended because liquidation is a continuation of
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the petition for suspension proceedings. Petitioner argued that the prohibition against foreclosure subsisted
during liquidation because payment of all of ARCAM’s obligations was proscribed except those authorized by
the Commission. Moreover, petitioner asserted that the mortgaged assets should be included in the liquidation
and the proceeds shared with the unsecured creditors.
In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits
secured creditors from foreclosing on their mortgages to satisfy the mortgagor’s debt after the termination of the
rehabilitation proceedings and during liquidation proceedings.14
On January 4, 2005, the SEC issued a Resolution15 denying petitioner’s motion to nullify the auction sale. It
held that PNB was not legally barred from foreclosing on the mortgages. Aggrieved, petitioner filed, a petition
for review in the CA questioning the January 4, 2005 Resolution of the SEC. By Resolution dated April 14,
2005, the CA dismissed the petition on the ground that petitioner failed to attach material portions of the record
and other documents relevant to the petition as required in Rule 46, Section 3 of the 1997 Rules of Civil
Procedure, as amended. The CA likewise denied ARCAM’s motion for reconsideration in its Resolution dated
January 24, 2006.

ISSUES: (1) Whether the CA correctly dismissed the petition for failure to attach material documents referred
to in the petition, (2) whether the right of a secured creditor to enforce his lien during liquidation process is
retained, and (3) whether the right of first preference as regards unpaid wages may be invoked?

RULING: (1) NO. A perusal of the petition for review filed with the CA, and as admitted by PNB, 22 reveals that
certified true copies of the assailed January 4, 2005 SEC Resolution and the February 9, 2000 SEC Order
appointing petitioner Atty. Manuel D. Yngson, Jr. as liquidator were annexed therein.We find the foregoing
attached documents sufficient for the appellate court to decide the case at bar considering that the SEC
resolution contains statements of the factual antecedents material to the case. The Resolution also contains the
SEC’s findings on the legality of PNB’s foreclosure of the mortgages. The SEC held that when the
rehabilitation proceeding was terminated and the suspensive effect of the order staying the enforcement of
claims was lifted, PNB could already assert its preference over unsecured creditors, and the secured asset and
the proceeds need not be included in the liquidation and shared with the unsecured creditors.23 Before the CA,
petitioner raised only the same legal questions as there was no controversy involving factual matters. Petitioner
claimed that the SEC erred in not applying the rules on concurrence and preference of credits, and in denying its
motion to nullify the auction sale of the secured properties.24 Therefore, the assailed SEC Resolution is the only
material portion of the record that should be annexed with the petition for the CA to decide on the correctness of
the SEC’s interpretation of the law and jurisprudence on the matter before it.

(2) Yes. It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his lien during
liquidation proceedings is retained. Section 114 of said law thus provides:
SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured creditor
to enforce his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and share in
the distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
When the value of the property is less than the claim it secures, the liquidator may convey the property
to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the
balance; if its value exceeds the claim secured, the liquidator may convey the property to the creditor
and waive the debtor’s right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds
of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
(Emphasis supplied)
In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the
mortgaged properties should be respected

(3) As to petitioner's argument on the right of first preference as regards unpaid wages, the Court has elucidated
in the case of Development Bank of the Philippines v. NLRC28 that a distinction should be made between a
preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A
lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized
by Article 110 of the Labor Code, does not constitute a lien on the property of the insolvent debtor in favor of
workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to
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determine and specify the order in which credits should be paid in the final distribution of the proceeds of the
insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.
Consequently, the right of first preference for unpaid wages may not be invoked in this case to nullify the
foreclosure sales conducted pursuant to PNB 's right as a secured creditor to enforce its lien on specific
properties of its debtor, ARCAM.

2. BIR vs. Lepanto Ceramics GR No. 224764 (April 24, 2017)

FACTS: Respondent Lepanto Ceramics, Inc. (LCI) - a corporation duly organized and existing under
Philippine Laws - filed a petition for corporate rehabilitation pursuant to Republic Act No. (RA) 10142,
otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed before the
RTC of Calamba City, Branch 34, the designated Special Commercial Court in Laguna (Rehabilitation Court).
LCI alleged that due to the financial difficulties it has been experiencing dating back to the Asian financial
crisis, it had entered into a state of insolvency considering its inability to pay its obligations as they become due
and that its total liabilities amounting to ₱4,213 ,682, 715. 00 far exceed its total assets worth
₱1,112,723,941.00 and admitted to its tax liabilities in the amount of at least ₱6,355,368.00.
The Rehabilitation Court issued a Commencement Order that declared LCI to be under corporate rehabilitation;
suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI;
prohibited LCI from making any payment of its liabilities outstanding as of even date, except as may be
provided under RA 10142; and directed the BIR to file and serve on LCI its comment or opposition to the
petition, or its claims against LCI. Accordingly, the Commencement Order was published in a newspaper of
general circulation and the same, together with the petition for corporate rehabilitation, were personally served
upon LCI's creditors, including the BIR.
Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner,
respectively, of the BIR's Large Taxpayers Service, sent LCI a notice, informing the latter of its deficiency
internal tax liabilities for the Fiscal Year. Undaunted, the BIR sent LCI a Formal Letter of Demand, requiring
LCI to pay deficiency taxes in the amount of P567,519,348.39. This prompted LCI to file a petition for indirect
contempt against petitioners before RTC Br. 35. In said petition, LCI asserted that petitioners' act of pursuing
the BIR's claims for deficiency taxes against LCI outside of the pending rehabilitation proceedings in spite of
the Commencement Order issued by the Rehabilitation Court is a clear defiance of the aforesaid Order. RTC Br.
35 found Misajon, et al. guilty of indirect contempt.
Petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt as it is only the
Rehabilitation Court, being the one that issued the Commencement Order, which has the authority to determine
whether or not such Order was defied; (b) the instant petition had already been mooted by the Rehabilitation
Court's Order which declared LCI to have been successfully rehabilitated resulting in the termination of the
corporate rehabilitation proceedings; (c) their acts do not amount to a defiance of the Commencement Order as
it was done merely to toll the prescriptive period in collecting deficiency taxes, and thus, sanctioned by the
Rules of Procedure of the FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of
Demand do not amount to a "legal action or other recourse" against LCI outside of the rehabilitation
proceedings; and (e) the indirect contempt proceedings interferes with the exercise of their functions to collect
taxes due to the govemment.

ISSUE: Whether the RTC Br. 35 correctly found Misajon, et al. to have defied the Commencement Order and,
accordingly, cited them for indirect contempt

RULING: YES. Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation
and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated. It contemplates the continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and liquidity. Verily,
the inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed
corporation during the rehabilitation period by providing the best possible framework for the corporation to
gradually regain or achieve a sustainable operating form.
Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order - which includes
a Stay or Suspension Order - all actions or proceedings, in court or otherwise, for the enforcement of "claims"
against the distressed company shall be suspended.26 Under the same law, claim "shall refer to all claims or
demands of whatever nature or character against the debtor or its property, whether for money or otherwise,
liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but
not limited to; (1) all claims of the government, whether national or local, including taxes, tariffs and
customs duties; and (2) claims against directors and officers of the debtor arising from acts done in the
discharge of their functions falling within the scope of their authority: Provided, That, this inclusion does not
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prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal
capacities.

3. MARILYN VICTORIO AQUINO vs. PACIFIC PLANS INC. (GR 193108, 2014)

FACTS: Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the business of selling pre-need plans and
educational plans, including traditional open-ended educational plans (PEPTrads). PEPTrads are educational
plans where respondent guarantees to pay the planholder, without regard to the actual cost at the time of
enrolment, the full amount of tuition and other school fees of a designated beneficiary.
Petitioner is a holder of two (2) units of respondent’s PEPTrads. On April 7, 2005, foreseeing the impossibility
of meeting its obligations to the availing planholders as they fall due, respondent filed a Petition for Corporate
Rehabilitation with the Regional Trial Court, praying that it be placed under rehabilitation and suspension of
payments. At the time of filing of the Petition for Corporate Rehabilitation, respondent had more or less 34,000
outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing the suspension of payments of the
obligations of respondent and ordering all creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation. The same Order also appointed respondent Marcelo as
the rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation, respondent submitted to the Rehabilitation Court its
proposed rehabilitation plan. Under the terms thereof, respondent proposed the implementation of a “Swap,”
which will essentially give the planholder a means to exit from the PEPTrads at terms and conditions relative to
a termination value that is more advantageous than those provided under the educational plan in case of
voluntary termination.
The rehabilitation receiver submitted an Alternative Rehabilitation Plan and was approved by the Court.
However due to the fact that the value of the Philippine Peso strengthened and appreciated, the rehabilitation
receiver submitted a Modified Rehabilitation Plan.

ISSUE: Whether the Rehabilitation Court has the authority to sanction a rehabilitation plan, or the modification
thereof, even when the essential feature of the plan involves forcing creditors to reduce their claims against
respondent.

HELD: YES. The Court upheld the “cram-down” power of the Rehabilitation Court pursuant to Sec. 23
of FRIA which states that the court may approve a rehabilitation plan over the opposition of creditors, holding a
majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the
opposition of the creditors is manifestly unreasonable.
Moreover, notwithstanding the rejection of the Rehabilitation Plan by the creditors, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
1.The Rehabilitation Plan complies with the requirements specified in this Act;
2.The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
3.The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a
result of the Rehabilitation Plan; and
4.The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has
a net present value greater than that which they would have received if the debtor were under liquidation.

4. Jose Marcel Panlilio et. al vs. SSS

FACTS:
- Panlilio, et. al as corporate officers of SIHI, filed with the RTC a petition for Suspension of payments
and rehabilitation
- RTC issued an order staying all claims against SIHI finding the petition sufficient in form and substance
pursuant to sec 6, rule 4 of the Interim Rules on Corporate Rehabilitation.
- At the time of the filing of the petition for rehabilitation there were a number of criminal charges
pending against petitioners. These criminal charges were initiated by SSS and involved violations of
SSS law, in relation to Estafa.
- Consequently petitioners filed a motion to suspend proceedings. Petitioners argued that the stay order
issued should also apply to the criminal charges. They prayed that criminal charges will be suspended
until the petition for rehabilitation was finally resolved.
- The court shares the view of the private complainants and the SSS that the stay order does not include
the prosecution of criminal offenses. The law criminalizes the non-remittance of SSS contributions by
employer to protect the employees from unscrupulous employers.
- Petition is hereby DENIED and is accordingly DISMISSED.
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ISSUE: W/N the stay order issued by RTC covers also violation of SSS law for non-remittance of premiums
and violation of Estafa of the RPC

RULING: The court rules in the negative. The prosecution of the officers of the corporation has no bearing on
the pending rehabilitation of the corporation, especially since they are charged in their individual capacities.
Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the
appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that
the rehabilitation receiver is not charged to defend the officers of the corporation. If there is anything that the
rehabilitation receiver might be remotely interested in is whether the court also rules that petitioners are civilly
liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly
discussed in Rosario, should the court prosecuting the officers of the corporation find that an award or
indemnification is warranted, such award would fall under the category of claims, the execution of which would
be subject to the stay order issued by the rehabilitation court. The penal sanctions as a consequence of
violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners
are found guilty after trial. However, any civil indemnity awarded as a result of their conviction would be
subject to the stay order issued by the rehabilitation court. Only to this extent can the order of suspension be
considered obligatory upon any court, tribunal, branch or body where there are pending actions for claims
against the distressed corporation.
On a final note, this Court would like to point out that Congress has recently enacted Republic Act No.
10142, or the Financial Rehabilitation and Insolvency Act of 2010.

5. SAMUEL U. LEE, ET. AL. VS. BANGKOK BANK PUBLIC COMPANY, LIMITED

FACTS: The petitioner and some members of his family owned, controlled and managed Midas Diversified
Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI). The corporations are engaged in the
manufacturing and export of garments, ladies’ bags and apparel. The said corporations secured two credit line
agreements with the respondent bank and they also secured several loans with AsiaTrust. The Lee family made
guarantees that they shall be principally liable to the indebtedness of MDEC and MHI with the respondent. The
Bangkok Bank, however, did not set aside any of the Lee’s properties as collateral to the loans they granted the
said corporations. The Lee family had, however, mortgaged several properties that Samuel and his wife owned
in Antipolo, Rizal with AsiaTrust to secure their loans with AsiaTrust. In connection therewith, Samuel and his
wife executed a new deed of mortgage covering the properties in Antipolo. Thereafter, the said corporations
defaulted on their loans not only with the said banks but as well as with their other creditors. This prompted the
corporations to file a consolidated petition for the Declaration of a State of Suspension of Payments and for
Appointment of a Management Committee/Rehabilitation Receiver before the Securities and Exchange
Commission (SEC). The petition for suspension of payment further stated that the Lee family and their
corporations had more than sufficient properties to cover all liabilities to their creditors; and presented a list of
all their properties including the subject properties located in Antipolo, Rizal. Notably, the list of properties
attached to the petition indicated that the subject Antipolo properties of the spouses Lee had already been
earmarked, or that they had already served as security, for MDEC’s unpaid obligation with Asiatrust.
Subsequently, SEC issued a Suspension Order which enjoined the Lee corporations from disposing of their
property in any manner except in the ordinary course of business, and from making any payments outside the
legitimate expenses of their business during the pendency of the petition. A month after the Suspension Order,
the respondent bank filed a civil case against the petitioner’s corporations to recover the loans it granted under
the guarantees the Lee family had made. The lower court partially ruled in favour of the respondent Bank but
the bank’s execution over several of Lee’s properties was not sufficient to cover their loans. The said court
likewise granted the respondent bank a writ of preliminary attachment against the Lee’s properties in Baguio,
Cavite, Quezon City and those including in Antipolo which were mortgaged to AsiaTrust. Meanwhile,
AsiaTrust foreclosed the mortgage of the Lee family’s properties in Antipolo for failure to pay the loans granted
to the family. AsiaTrust subsequently won as the highest bidder in the auction sale to own the said properties in
Antipolo. The respondent bank did not redeem the said properties believing that the real estate mortgage and the
foreclosure sale to be fraudulent. Based on this belief, the respondent bank filed an action to rescind the Real
Estate Mortgage over the properties in Antipolo, nullify the foreclosure sale and cancel the TCTs issued in
favour of AsiaTrust. The lower court dismissed the case on the ground that there was no proof of fraud in the
transactions involved in the real estate mortgage and the foreclosure sale. Furthermore, the respondent bank
failed to exercise its right of redemption over the subject properties. The lower court further stated that the SEC
Suspension Order does not cover the subject properties which therefore did not preclude the Lee family to
mortgage the said properties to Asia Trust. Upon appeal, the Court of Appeals reversed the lower court’s
decision and granted the respondent bank’s petition. The Court of Appeals ruled on the ground that the subject
Antipolo properties, though personal assets of the Lee family, are covered by the Suspension Order of the SEC,
since they are included in the list submitted to SEC by the Lee family; and that Samuel is a guarantor of the
30
loans incurred by MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and
severally liable to Bangkok Bank for the corporate debts of MDEC and MHI, as he divested himself from the
protection of the limited liability doctrine, which was shown (1) through the inclusion of the said subject
Antipolo properties in the list submitted to the SEC; and (2) by Samuel, through the guarantees that he
executed, thus voluntarily binding himself to the payment of the loans incurred from Bangkok Bank. Hence, the
petition for review on certiorari was filed before the Supreme Court assailing the Court of Appeal’s decision.

ISSUE: Whether the subject Antipolo properties are covered under SEC Suspension Order?

RULING: The subject properties are not under the purview of the SEC Suspension Order. The Court of
Appeal’s decision shall be reversed and set aside. The lower court’s decision shall be reinstated. It can be
clearly gleaned from the Secs. 3 and 5 of PD 902-A provisions that in cases of petitions for the suspension of
payments, the SEC has jurisdiction over corporations, partnerships and associations, which are grantees of
primary franchise or license or permit issued by the government to operate in the Philippines, and their
properties. And it is indubitably clear from the aforequoted Sec. 5(d) that only corporations, partnerships and
associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of suspension
of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions for
suspension of payments filed by parties other than corporations, partnerships or associations. Indeed, settled is
the rule that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which is conferred by
law and not by the policy of any court or agency.
Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a
petition for suspension of payments
It is undisputed that the petition for suspension of payments was collectively filed by the five corporations
owned by the Lee family. It is likewise undisputed that together with the consolidated petition is a list of
properties, which included the subject Antipolo properties owned by Samuel and Pauline Lee. The fact,
however, that the subject properties were included in the list submitted to the SEC does not confer jurisdiction
on the SEC over such properties. It is apparent that even if the members of the Lee family are joined as co-
petitioners with the five corporations, still, this could not confer jurisdiction on the SEC over the Lee family
members—as private individuals—nor could this affect their privately owned properties.
Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the
guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the
SEC through the consolidated petition for suspension of payments.
Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could not have included the
subject properties.

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