CASES:

1. Rural Bank of Caloocan, Inc.. vs. CA, 104 SCRA 151

2. Vda De Bautista v. Marcos, 3 SCRA 434
3. Dayrit v. CA 36 SCRA 549
4. Yoliongsiu v. PNB, 22 SCRA 585
5. Piansay v. David, 12 SCRA 227
6. Makati Leasing and Finance Corp v. Wearever Textile, 122 SCRA 286
7. Northern Motors, Inc. v. Coquia, 68 SCRA 374
Chattel mortgage is a security for the performance of obligation effected by the
recording of the personal property mortgaged in the chattel mortgage register (Art.
2140, Civil Code; Northern Motors, Inc. v. Coquia, 66 SCRA 415 [1975]). Only
personal property may be the object of a chattel mortgage (Sec. 2, Act No. 1508
8. Lanuza v. de Leon, 20 SCRA 369
9. Bundalian v. CA, 129 SCRA 645
10. Rosales v. Yboa, 120 SCRA 869
11. Tioseco v. CA, 129 SCRA 705
12. Dulay v. Cariaga, 123 SCRA 794
Thus, in DBP v. Mirang [66 SCRA 141 (1975)], the Court held that appellant could redeem the
subject property by paying the entire amount he owed to the Bank on the date of the foreclosure
sale, with interest thereon at the rate agreed upon, pursuant to Section 31 of CA 459. The ruling
herein was reiterated by the Court in the more recent case of Dulay v. Cariaga [123 SCRA 794
(1983)]
13. PNB v. CA, 140 SCRA 350
14. DBP v. Mirang, 66 SCRA 842
15. Co. v. PNB, 114 SCRA 842
16. Alpha Insurance and Surety v. Reyes, 106 SCRA 274
17. Marcelo Steel Corp. v. CA, 54 SCRA 89
18. PNB v. Adil, 118 SCRA 110
19. Ocampo v. Domalanta 20 SCRA 1136
20. Samonte v. CA, 142 SCRA 189
21. Ramirez v. CA, 144 SCRA 292
G.R. No. L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,

vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:

This is a petition for review by way of certiorari of the decision   of the Court of Appeals in CA-G.R.
1

No. 39760-R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al.,
defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-
appellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor of
plaintiff- appellee, the herein private respondent Maxima Castro.

On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the
Rural Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who arranged
everything about the loan with the bank and who supplied to the latter the personal data required for
Castro's loan application. On December 11, 1959, after the bank approved the loan for the amount
of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note
corresponding to her loan in favor of the bank.

On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal
amount of loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their
loan in favor of the bank and had Castro affixed thereon her signature as co-maker.

The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150
square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register of
Deeds of Manila.

On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol,
sent a notice of sheriff's sale addressed to Castro, announcing that her property covered by T.C.T.
No. 7419 would be sold at public auction on March 10, 1961 to satisfy the obligation covering the
two promissory notes plus interest and attorney's fees.

Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was
scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was
subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T.
No. 7419 at a public auction sale that was held on April 11, 1961, which was the next succeeding
business day following the special holiday.

Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on
February 13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6") which
was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was
made to sign as co-maker of the promissory note (Exhibit "2") without her being informed of this.

On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and
Desiderio, the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in Civil Case
No. 46698 before the Court of First Instance of Manila upon the charge, amongst others, that thru
mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker of a
promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to secure the
questioned note. At the time of filing her complaint, respondent Castro deposited the amount of
P3,383.00 with the court a quo in full payment of her personal loan plus interest.

In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is
concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds
P3,000.00; for the discharge of her personal obligation with the bank by reason of a deposit of
P3,383.00 with the court a quo upon the filing of her complaint; for the annulment of the foreclosure
sale of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the award in her
favor of attorney's fees, damages and cost.

In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint,
with damages, attorney's fees and costs.  2

The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by
respondent Court of Appeals are as follows:

Spawning the present litigation are the facts contained in the following stipulation of
facts submitted by the parties themselves:

1. That the capacity and addresses of all the parties in this case are admitted .

2. That the plaintiff was the registered owner of a residential house and lot located at
Nos. 1268-1270 Carola Street, Sampaloc, Manila, containing an area of one hundred
fifty (150) square meters, more or less, covered by T.C.T. No. 7419 of the Office of
the Register of Deeds of Manila;

3. That the signatures of the plaintiff appearing on the following documents are
genuine:

a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December
7, 1959 in the amount of P3,000.00 attached as Annex A of this partial stipulation of
facts;

b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the
Rural Bank of Caloocan for the amount of P3,000.00 as per Annex B of this partial
stipulation of facts;

c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December
11, 1959, signed only by the defendants, Severino Valencia and Catalina Valencia,
attached as Annex C, of this partial stipulation of facts;

d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959
for the amount of P3000.00, signed by the spouses Severino Valencia and Catalina
Valencia as borrowers, and plaintiff Maxima Castro, as a co-maker, attached as
Annex D of this partial stipulation of facts;

e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima
Castro, in favor of the Rural Bank of Caloocan, to secure the obligation of P6,000.00
attached herein as Annex E of this partial stipulation of facts;
All the parties herein expressly reserved their right to present any evidence they may
desire on the circumstances regarding the execution of the above-mentioned
documents.

4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol,
sent a notice of sheriff's sale, address to the plaintiff, dated February 13, 1961,
announcing that plaintiff's property covered by TCT No. 7419 of the Register of
Deeds of the City of Manila, would be sold at public auction on March 10, 1961 to
satisfy the total obligation of P5,728.50, plus interest, attorney's fees, etc., as
evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of
the Mortgaged property, attached herewith as Annexes F and F-1, respectively, of
this stipulation of facts;

5. That upon the request of the plaintiff and defendants-spouses Severino Valencia
and Catalina Valencia, and with the conformity of the Rural Bank of Caloocan, the
Sheriff of Manila postponed the auction sale scheduled for March 10, 1961 for thirty
(30) days and the sheriff re-set the auction sale for April 10, 1961;

6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted
upon agreement of the parties.)

8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's
property covered by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest
bidder and the corresponding certificate of sale was issued to him as per Annex G of
this partial stipulation of facts;

9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of
Consolidation of Ownership, a copy of which is hereto attached as Annex H of this
partial stipulation of facts;

10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final
deed of sale in favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a
copy of which is attached as Annex I of this partial stipulation of facts;

11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of
Title No. 67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer
Certificate of Title No. 7419 which was in the name of plaintiff, Maxima Castro, which
was cancelled;

12. That after defendant, Arsenio Reyes, had consolidated his title to the property as
per T.C.T. No. 67299, plaintiff filed a notice of lis pendens with the Register of Deeds
of Manila and the same was annotated in the back of T.C.T. No. 67299 as per Annex
J of this partial stipulation of facts; and

13. That the parties hereby reserved their rights to present additional evidence on
matters not covered by this partial stipulation of facts.

WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts

be approved and admitted by this Honorable Court.
As for the evidence presented during the trial, We quote from the decision of the Court of Appeals
the statement thereof, as follows:

In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old
widow who cannot read and write the English language; that she can speak the
Pampango dialect only; that she has only finished second grade (t.s.n., p. 4,
December 11, 1964); that in December 1959, she needed money in the amount of
P3,000.00 to invest in the business of the defendant spouses Valencia, who
accompanied her to the defendant bank for the purpose of securing a loan of
P3,000.00; that while at the defendant bank, an employee handed to her several
forms already prepared which she was asked to sign on the places indicated, with no
one explaining to her the nature and contents of the documents; that she did not
even receive a copy thereof; that she was given a check in the amount of P2,882.85
which she delivered to defendant spouses; that sometime in February 1961, she
received a letter from the Acting Deputy Sheriff of Manila, regarding the extrajudicial
foreclosure sale of her property; that it was then when she learned for the first time
that the mortgage indebtedness secured by the mortgage on her property was
P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that
the papers she was made to sign were:

(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh.
1);

(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh-
B-2);

(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants
Valencia spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh. 2).

The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the
request of defendant spouses Valencia who needed more time within which to pay
their loan of P3,000.00 with the defendant bank; plaintiff claims that when she filed
the complaint she deposited with the Clerk of Court the sum of P3,383.00 in full
payment of her loan of P3,000.00 with the defendant bank, plus interest at the rate of
12% per annum up to April 3, 1961 (Exh. D).

As additional evidence for the defendant bank, its manager declared that sometime
in December, 1959, plaintiff was brought to the Office of the Bank by an employee-
(t.s.n., p 4, January 27, 1966). She wept, there to inquire if she could get a loan from
the bank. The claims he asked the amount and the purpose of the loan and the
security to he given and plaintiff said she would need P3.000.00 to be invested in a
drugstore in which she was a partner (t.s.n., p. 811. She offered as security for the
loan her lot and house at Carola St., Sampaloc, Manila, which was promptly
investigated by the defendant bank's inspector. Then a few days later, plaintiff came
back to the bank with the wife of defendant Valencia A date was allegedly set for
plaintiff and the defendant spouses for the processing of their application, but on the
day fixed, plaintiff came without the defendant spouses. She signed the application
and the other papers pertinent to the loan after she was interviewed by the manager
of the defendant. After the application of plaintiff was made, defendant spouses had
their application for a loan also prepared and signed (see Exh. 13). In his interview of
plaintiff and defendant spouses, the manager of the bank was able to gather that
plaintiff was in joint venture with the defendant spouses wherein she agreed to invest
 P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n., pp.
16-17) 3

The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of
First Instance of Manila, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:

(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;

(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the
amount thereof exceeds the sum of P3,000.00 representing the principal obligation of
plaintiff, plus the interest thereon at 12% per annum;

(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged
property held on April 11, 1961, as well as all the process and actuations made in
pursuance of or in implementation thereto;

(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of
Caloocan, Inc., is only the amount of P3,000.00, plus the interest thereon at 12% per
annum, as of April 3, 1961, and orders that plaintiff's deposit of P3,383.00 in the
Office of the Clerk of Court be applied to the payment thereof;

(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio
Reyes the purchase price the latter paid for the mortgaged property at the public
auction, as well as reimburse him of all the expenses he has incurred relative to the
sale thereof;

(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay
defendant Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the
corresponding 12% interest thereon per annum from December 11, 1960 until fully
paid; and

Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses
Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the
sum of P600.00 by way of attorney's fees, as well as costs.

In view of the conclusion that the court has thus reached, the counterclaims of
defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are
hereby dismissed, as a corollary

The Court further denies the motion of defendant Arsenio Reyes for an Order
requiring Maxima Castro to deposit rentals filed on November 16, 1963, resolution of
which was held in abeyance pending final determination of the case on the merits,
also as a consequence of the conclusion aforesaid.  4

Petitioners Bank and Jose Desiderio moved for the reconsideration   of respondent court's decision.
5

The motion having been denied,   they now come before this Court in the instant petition, with the
6

following Assignment of Errors, to wit:

I
 THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT
OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6,
INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS
PETITIONER BANK DESPITE THE TOTAL ABSENCE OF EITHER ALLEGATION
IN THE COMPLAINT OR COMPETENT PROOF IN THE EVIDENCE OF ANY
FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN
BY PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS
FROM RESPONDENT CASTRO.

II

THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING

PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL
ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF FRAUD
PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO
IN UTTER VIOLATION OF THE RES INTER ALIOS ACTA RULE.

III

THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS
FOUND BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE
REGULARITY AND VALIDITY OF HER QUESTIONED TRANSACTION WITH
PETITIONER BANK.

IV

THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN

PETITIONERS AND RESPONDENT CASTRO, THE LATTER SHOULD SUFFER
THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE VALENCIA
SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S
NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE
PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE

DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH THE COURT BELOW
AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO
DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH PETITIONER
BANK.

VI

THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING

UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON
FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY
SCHEDULED DATE THEREFOR WHICH WAS DECLARED A HOLIDAY WITHOUT
NECESSITY OF FURTHER NOTICE THEREOF.

The issue raised in the first three (3) assignment of errors is whether or not respondent court
correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they
affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to
the amount of P3,000.00 only.

Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she
signed as co-maker with the Valencias as principal borrowers and her acquiescence to the mortgage
contract (Exhibit 6) where she encumbered her property to secure the amount of P6,000.00 was
obtained by fraud perpetrated on her by the Valencias who had abused her confidence, taking
advantage of her old age and ignorance of her financial need. Respondent court added that "the
mandate of fair play decrees that she should be relieved of her obligation under the contract"
pursuant to Articles 24   and 1332   of the Civil Code.
7 8

The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the
mortgage contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was
equivalent to her personal loan to the bank.

Petitioners argued that since the Valencias were solely declared in the decision to be responsible for
the fraud against Castro, in the light of the res inter alios acta rule, a finding of fraud perpetrated by
the spouses against Castro cannot be taken to operate prejudicially against the bank. Petitioners
concluded that respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar
as they affect Castro and the bank and in declaring that the mortgage contract (Exhibit 6) was valid
only to the extent of Castro's personal loan of P3,000.00.

The records of the case reveal that respondent court's findings of fraud against the Valencias is well
supported by evidence. Moreover, the findings of fact by respondent court in the matter is deemed
final.   The decision declared the Valencias solely responsible for the defraudation of Castro.
9

Petitioners' contention that the decision was silent regarding the participation of the bank in the fraud
is, therefore, correct.

We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias.
For one, no claim was made on this in the lower court. For another, petitioners did not submit proof
to support its contention.

At any rate, We observe that while the Valencias defrauded Castro by making her sign the
promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to the
bank Castro's personal qualifications in order to secure its consent to the loan. This must be the
reason which prompted the bank to contend that it was defrauded by the Valencias. But to reiterate,
We cannot agree with the contention for reasons above-mentioned. However, if the contention
deserves any consideration at all, it is in indicating the admission of petitioners that the bank
committed mistake in giving its consent to the contracts.

Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed mistake in giving their consents to the contracts. In
other words, substantial mistake vitiated their consents given. For if Castro had been aware of what
she signed and the bank of the true qualifications of the loan applicants, it is evident that they would
not have given their consents to the contracts.

Pursuant to Article 1342 of the Civil Code which provides:

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.
We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the
mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud
because the bank was not a participant thereto, such may however be invalidated on the ground of
substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs. Veloso,   this Court
10

declared that a contract may be annulled on the ground of vitiated consent if deceit by a third
person, even without connivance or complicity with one of the contracting parties, resulted in mutual
error on the part of the parties to the contract.

Petitioners argued that the amended complaint fails to contain even a general averment of fraud or
mistake, and its mention in the prayer is definitely not a substantial compliance with the requirement
of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will show that the
amended complaint contained a particular averment of fraud against the Valencias in full compliance
with the provision of the Rules of Court. Although, the amended complaint made no mention of
mistake being incurred in by the bank and Castro, such mention is not essential in order that the
promissory note (Exhibit 2) may be declared of no binding effect between them and the mortgage
(Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually
suffered was a mere consequence of the fraud perpetrated by the Valencias against them. Thus, the
fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the
declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank,
and the mortgage contract (Exhibit 6) valid only up to the amount of P3,000.00.

The second issue raised in the fourth assignment of errors is who between Castro and the bank
should suffer the consequences of the fraud perpetrated by the Valencias.

In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or
acquiescence if not her actual connivance that made the fraud possible.

Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein
petitioners' negligence in the contracts has been aptly demonstrated, to wit:

A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the
plaintiff-appellee to several interviews. If this were true why is it that her age was
placed at 61 instead of 70; why was she described in the application (Exh. B-1-9) as
drug manufacturer when in fact she was not; why was it placed in the application that
she has income of P20,000.00 when according to plaintiff-appellee, she his not even
given such kind of information -the true fact being that she was being paid P1.20 per
picul of the sugarcane production in her hacienda and 500 cavans on the palay
production.  11

From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in
giving its consent to the contracts. It apparently relied on representations made by the Valencia
spouses when it should have directly obtained the needed data from Castro who was the
acknowledged owner of the property offered as collateral. Moreover, considering Castro's personal
circumstances – her lack of education, ignorance and old age – she cannot be considered utterly
neglectful for having been defrauded. On the contrary, it is demanded of petitioners to exercise the
highest order of care and prudence in its business dealings with the Valencias considering that it is
engaged in a banking business –a business affected with public interest. It should have ascertained
Castro's awareness of what she was signing or made her understand what obligations she was
assuming, considering that she was giving accommodation to, without any consideration from the
Valencia spouses.
Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to
believe that they were authorized to speak and bind her. She cannot now be permitted to deny the
authority of the Valencias to act as her agent for one who clothes another with apparent authority as
her agent is not permitted to deny such authority.

The authority of the Valencias was only to follow-up Castro's loan application with the bank. They
were not authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to
sign the promissory note for her loan of P3,000.00. If her act had been understood by the Bank to be
a grant of an authority to the Valencia to borrow in her behalf, it should have required a special
power of attorney executed by Castro in their favor. Since the bank did not, We can rightly assume
that it did not entertain the notion, that the Valencia spouses were in any manner acting as an agent
of Castro.

When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a
promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the
Valencias acted for their own behalf. Considering however that for the loan in which the Valencias
appeared as principal borrowers, it was the property of Castro that was being mortgaged to secure
said loan, the Bank should have exercised due care and prudence by making proper inquiry if
Castro's consent to the mortgage was without any taint or defect. The possibility of her not knowing
that she signed the promissory note (Exhibit 2) as co-maker with the Valencias and that her property
was mortgaged to secure the two loans instead of her own personal loan only, in view of her
personal circumstances – ignorance, lack of education and old age – should have placed the Bank
on prudent inquiry to protect its interest and that of the public it serves. With the recent occurrence of
events that have supposedly affected adversely our banking system, attributable to laxity in the
conduct of bank business by its officials, the need of extreme caution and prudence by said officials
and employees in the discharge of their functions cannot be over-emphasized.

Question is, likewise, raised as to the propriety of respondent court's decision which declared that
Castro's consignation in court of the amount of P3,383.00 was validly made. It is contended that the
consignation was made without prior offer or tender of payment to the Bank, and it therefore, not
valid. In holding that there is a substantial compliance with the provision of Article 1256 of the Civil
Code, respondent court considered the fact that the Bank was holding Castro liable for the sum of
P6,000.00 plus 12% interest per annum, while the amount consigned was only P3,000.00 plus 12%
interest; that at the time of consignation, the Bank had long foreclosed the mortgage extrajudicially
and the sale of the mortgage property had already been scheduled for April 10, 1961 for non-
payment of the obligation, and that despite the fact that the Bank already knew of the deposit made
by Castro because the receipt of the deposit was attached to the record of the case, said Bank had
not made any claim of such deposit, and that therefore, Castro was right in thinking that it was futile
and useless for her to make previous offer and tender of payment directly to the Bank only in the
aforesaid amount of P3,000.00 plus 12% interest. Under the foregoing circumstances, the
consignation made by Castro was valid. if not under the strict provision of the law, under the more
liberal considerations of equity.

The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction
of the mortgaged property that was held on April 11, 1961.

Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next
business day after the scheduled date of the sale on April 10, 1961, a special public holiday, was
permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code
which ordains:
 Pretermission of holiday. – Where the day, or the last day, for doing any act required
or permitted by law falls on a holiday, the act may be done on the next succeeding
business day.

Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in
accordance with Section 9 of Act No. 3135, which provides:

Section 9. – Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks
in a newspaper of general circulation in the municipality or city.

We agree with respondent court. The pretermission of a holiday applies only "where the day, or the
last day for doing any act required or permitted by law falls on a holiday," or when the last day of a
given period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer
of the government for an act to be done, as distinguished from a period of time within which an act
should be done, which may be on any day within that specified period. For example, if a party is
required by law to file his answer to a complaint within fifteen (15) days from receipt of the summons
and the last day falls on a holiday, the last day is deemed moved to the next succeeding business
day. But, if the court fixes the trial of a case on a certain day but the said date is subsequently
declared a public holiday, the trial thereof is not automatically transferred to the next succeeding
business day. Since April 10, 1961 was not the day or the last day set by law for the extrajudicial
foreclosure sale, nor the last day of a given period but a date fixed by the deputy sheriff, the
aforesaid sale cannot legally be made on the next succeeding business day without the notices of
the sale on that day being posted as prescribed in Section 9, Act No. 3135.

WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto.
No pronouncement as to cost.

SO ORDERED.
G.R. No. L-17072            October 31, 1961

CRISTINA MARCELO VDA. DE BAUTISTA, plaintiff-appellee,

vs.
BRIGIDA MARCOS, ET AL., defendants-appellants.

Aladin B. Bermudez for defendants-appellants.

Cube and Fajardo for plaintiff-appellee.

REYES, J.B.L., J.:

The main question in this appeal is whether or not a mortgagee may foreclose a mortgage on a
piece of land covered by a free patent where the mortgage was executed before the patent was
issued and is sought to be foreclosed within five years from its issuance.

The facts of the case appear to be as follows:

On May 17, 1954, defendant Brigida Marcos obtained a loan in the amount of P2,000 from plaintiff
Cristina Marcel Vda. de Bautista and to secure payment thereof conveyed to the latter by way of
mortgage a two (2)-hectare portion of an unregistered parcel of land situated in Sta. Ignacia, Tarlac.
The deed of mortgage, Exhibit "A", provided that it was to last for three years, that possession of the
land mortgaged was to be turned over to the mortgagee by way of usufruct, but with no obligation on
her part to apply the harvests to the principal obligation; that said mortgage would be released only
upon payment of the principal loan of P2,000 without any interest; and that the mortgagor promised
to defend and warrant the mortgagee's rights over the land mortgaged.

Subsequently, or in July, 1956, mortgagor Brigida Marcos filed in behalf of the heirs of her deceased
mother Victoriana Cainglet (who are Brigida herself and her three sisters), an application for the
issuance of a free patent over the land in question, on the strength of the cultivation and occupation
of said land by them and their predecessor since July, 1915. As a result, Free Patent No. V-64358
was issued to the applicants on January 25, 1957, and on February 22, 1957, it was registered in
their names under Original Certificate of Title No. P-888 of the office of Register of Deeds for the
province of Tarlac.

Defendant Brigida Marcos' indebtedness of P2,000 to plaintiff having remained unpaid up to 1959,
the latter, on March 4, 1959, filed the present action against Brigida and her husband (Civil Case No.
3382) in the court below for the payment thereof, or in default of the debtors to pay, for the
foreclosure of her mortgage on the land give as security. Defendants moved to dismiss the action,
pointing out that the land in question is covered by a free patent and could not, therefore, under the
Public Land Law, be taken within five years from the issuance of the patent for the payment of any
debts of the patentees contracted prior to the expiration of said five-year period; but the lower court
denied the motion to dismiss on the ground that the law cited does not apply because the mortgage
sought to be foreclosed was executed before the patent was issued. Defendants then filed their
answer, reiterating the defense invoked in their motion to dismiss, and alleging as well that the real
contract between the parties was an antichresis and not a mortgage. Pre-trial of the case followed,
after which the lower court rendered judgment finding the mortgage valid to the extent of the
mortgagor's pro-indiviso share of 15,333 square meters in the land in question, on the theory that the
Public Land Law does not apply in this case because the mortgage in question was executed before
a patent was issued over the land in question; that the agreement of the parties could not be
antichresis because the deed Exhibit "A" clearly shows a mortgage with usufruct in favor of the
mortgagee; and ordered the payment of the mortgage loan of P2,000 to plaintiff or, upon defendant's
failure to do so, the foreclosure of plaintiff's mortgage on defendant Brigida Marcos' undivided share
in the land in question. From this judgment, defendants Brigida Marcos and her husband Osmondo
Apolocio appealed to this Court.

There is merit in the appeal.

The right of plaintiff-appellee to foreclose her mortgage on the land in question depends not so much
on whether she could take said land within the prohibitive period of five years from the issuance of
defendants' patent for the satisfaction of the indebtedness in question, but on whether the deed of
mortgage Exhibit "A" is at all valid and enforceable, since the land mortgaged was apparently still
part of the public domain when the deed of mortgage was constituted. As it is an essential requisite
for the validity of a mortgage that the mortgagor be the absolute owner of the thing mortgaged (Art.
2085), the mortgage here in question is void and ineffective because at the time it was constituted,
the mortgagor was not yet the owner of the land mortgaged and could not, for that reason, encumber
the same to the plaintiff-appellee. Nor could the subsequent acquisition by the mortgagor of title over
said land through the issuance of a free patent validate and legalize the deed of mortgage under the
doctrine of estoppel (cf. Art. 1434, New Civil Code, 1 since upon the issuance of said patient, the land
in question was thereby brought under the operation of the Public Land Law that prohibits the taking
of said land for the satisfaction of debts contracted prior to the expiration of five years from the date
of the issuance of the patent (sec. 118, C.A. No. 141). This prohibition should include not only debts
contracted during the five-year period immediately preceding the issuance of the patent but also
those contracted before such issuance, if the purpose and policy of the law, which is "to preserve
and keep in the family of the homesteader that portion of public land which the State has gratuitously
given to him" (Pascua v. Talens, 45 O.G. No. 9 [Supp.] 413; De los Santos v. Roman Catholic
Church of Midsayap, G.R. L-6088, Feb. 24, 1954), is to be upheld.

The invalidity of the mortgage Exhibit "A" does not, however, imply the concomitant invalidity of the
collate agreement in the same deed of mortgage whereby possession of the land mortgaged was
transferred to plaintiff-appellee in usufruct, without any obligation on her part to account for its
harvests or deduct them from defendants' indebtedness of P2,000. Defendant Brigida Marcos, who,
together with her sisters, was in possession of said land by herself and through her deceased
mother before her since 1915, had possessory rights over the same even before title vested in her
as co-owner by the issuance of the free patent to her and her sisters, and these possessory right
she could validly transfer and convey to plaintiff-appellee, as she did in the deed of mortgage Exhibit
"A". The latter, upon the other hand, believing her mortgagor to be the owner of the land mortgaged
and not being aware of any flaw which invalidated her mode of acquisition, was a possessor in good
faith (Art. 526, N.C.C.), and as such had the right to all the fruits received during the entire period of
her possession in good faith (Art. 544, N.C.C.). She is, therefore, entitled to the full payment of her
credit of P2,000 from defendants, without any obligation to account for the fruits or benefits obtained
by her from the land in question.

WHEREFORE, the judgment appealed from is reversed insofar as it orders the foreclosure of the
mortgage in question, but affirmed in all other respects. Costs again defendants-appellants.
[G.R. No. L-29388. December 28, 1970.]

VINCENT P. DAYRIT, Petitioner, v. THE COURT OF APPEALS, HON. FRANCISCO

ARCA, Judge of the Court of First Instance of Manila, Branch I, MOBIL OIL
PHILIPPINES, INC., and ELADIO YLAGAN, Special Sheriff, Respondents.

Ramon Quisumbing, Jr., for Petitioner.

Faylona, Cruz, Berroya, Norte & Nentanilla for respondent Mobil Oil
Philippines, Inc.

DECISION

CASTRO, J.:

Petition for certiorari by way of appeal from the Court of Appeals’ minute resolution of
June 14, 1968 dismissing the petition for certiorari in CA-G.R. No. 41359-R, as well as
its resolutions of July 9, 1968 and August 5, 1968 denying the first and second motions
for reconsideration, respectively, in the same case.

On July 21, 1965, the defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo
Angeles entered into a contract with the Mobil Oil Philippines, Inc., entitled "LOAN &
MORTGAGE AGREEMENT," providing, among others, that: jgc:chanrobles.com.ph

"(a) For and in consideration of Sales Agreement dated July 21, 1965 among, the
parties herein, Mobil grants a loan of P150,000 to borrowers.

"(b) Defendants-Borrowers shall repay Mobil the whole amount of P150,000 plus 10%
interest per annum on the diminishing balance for 48 months.

"(c) To secure the prompt repayment of such loan by defendants-borrowers to Mobil

and the faithful performance by Borrowers of that Sales Agreement, Defendants-
Borrowers hereby transfer in favor of Mobil by way of first mortgage lands covered by
TCT No. 45169 and TCT No. 45170, together with the improvements existing in said
two (2) parcels of land.

"(d) In case of default of Defendants-Borrowers in payment of any of the installments

and/or their failure to purchase the quantity of products stated therein Mobil shall have
the right to foreclose this mortgage.

"(e) Mobil, in case of default and foreclosure, shall be entitled to attorney’s fees and
cost of collection equivalent to not less than 25% of total indebtedness remaining
unpaid.

"(f) All expenses in connection with the preparation and registration of this mortgage as
well as cancellation of same shall be for the account of Defendants-Borrowers.

"(g) If Defendants-Borrowers shall perform the full obligation above stated according to
the terms thereof, then this obligation shall be null and void, otherwise, it shall remain
in full force and effect." cralaw virtua1aw library

The defendants violated the Loan & Mortgage Agreement, they having paid but one
installment in the amount of P3,816, of which P1,250 was applied to interest, and the
remaining P2,566 to the principal obligation. The defendants likewise failed to buy the
quantities of products as required in the Sales Agreement (exh. D). The plaintiff made
due demand (exh. I), which the defendant Dayrit answered, acknowledging his liability
in his letter exh. I-1.

On November 17, 1967, after trial and after the parties had submitted their
memoranda, 1 the trial court rendered its decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering them to
pay to the plaintiff one-third each of the sum of P147,434.00 with interest of 10% per
annum from the time it fell due according to agreement, and in default of such
payment, the properties put up in collateral shall be sold in foreclosure sale in
accordance with law, the proceeds to be applied in payment of the amount due to the
plaintiff from the defendants as claimed in the complaint provided that, as to Dayrit, his
liability shall in no case exceed 1/3 of the total obligation.

"The defendants are likewise ordered to pay to the plaintiff, in the same proportion of
1/3 each, 25% of the obligation as attorney’s fees as provided in the contract; and
P300.60 for the registration of the contract.

x          x           x

"Each of the three said defendants shall also pay 1/3 of the costs." cralaw virtua1aw library

No appeal having been interposed by the defendants, the above decision became final
and executory.

An undated Mobil’s motion for execution of the decision and for the appointment of
Eladio Ylagan as special sheriff (annex D) was received by the herein petitioner Dayrit
on February 8, 1968. Whereupon, he filed his opposition and motion to stay execution,
alleging that before the finality of the aforesaid judgment, he and the plaintiff had
agreed not to appeal and/or file any motion for reconsideration, the petitioner offering
to pay his one-third share with a reasonable discount, if possible, in so far as the
interests and the award for attorney’s fees were concerned, with the corresponding
release of the mortgage on all his properties, and praying, in view thereof, for a 30-day
grace period within which to pay the plaintiff. The 30-day grace period was granted by
the court in its order of February 24, 1968.

On March 25, 1968 the petitioner filed another motion for 20 days’ extension within
which to pay his one-third share of the judgment obligation and to submit the
corresponding compromise agreement for the satisfaction of the judgment. The said
motion was granted on April 1, 1968.

Thereafter, the respondent Mobil filed an "Urgent Reply to Opposition and Motion to
Stay Execution dated Feb. 21, 1968 and Motion dated March 25, 1968," alleging therein
that the respondent agreed to release the mortgage or collateral for the entire
judgment obligation only if "the whole principal mortgaged debt plus the whole accrued
interest" were fully paid. Mobil further prayed for a writ of execution to be issued
against the petitioner after the lapse of 20 days from March 25, 1968, if by then the
parties shall not have submitted to compromise agreement for the satisfaction of the
judgment; Mobil also reiterated its prayer for the appointment of respondent Eladio
Ylagan as special sheriff.

On April 3, 1968 the petitioner filed a manifestation and motion, praying that he be
allowed to deposit with the Clerk of Court the amount corresponding to his one-third
share of the obligation under the decision of November 17, 1967, and that thereupon
the collateral or mortgage over petitioner’s properties or lands be ordered released or
cancelled.

On April 10, 1968 the court a quo ordered all pending incidents set for hearing on April
19, 1968, "so that the Court may have the opportunity to confer with the parties to
thresh out the settlement of this case." At this hearing Mobil did not appear; the court
reset the hearing for May 23, 1968.

Under date of May 8, 1968, Mobil filed an addendum to its reply dated April 1, 1968
and opposition to petitioner’s motion dated April 3, 1968, praying that the motion of
petitioner Dayrit that the entire mortgaged collateral be released upon his payment of
mere 1/3 of the loan obligation, be denied and instead a writ of execution against him
in accordance with the dispositive portion of the decision and sections 2 and 3 of Rule
68 of the Revised Rules of Court be issued.

On May 18, 1968 the petitioner filed his rejoinder to respondent Mobil’s aforesaid
addendum and opposition.

On May 23, 1968, after hearing oral argument, the court denied the manifestation and
motion of Dayrit filed thru counsel and dated April 3, 1968; the court further ruled that
"There is no further need to issue an order for the issuance of a writ of execution and
appointment of special sheriff . . . considering that the Court, in its order of February
24, 1968, has already ordered the issuance of a writ of execution for the satisfaction of
the judgment." cralaw virtua1aw library

The petitioner then filed his petition for certiorari with the Court of Appeals, dated May
30, 1968, alleging that "respondent Judge Arca acted without or in excess of his
jurisdiction and/or with grave abuse of discretion, in denying petitioner’s motion to
allow him to pay or deposit his one-third share of the judgment obligation" as well as
the consequent release or cancellation of the mortgage on his properties.

The Court of Appeals, however, in its minute resolution of June 14, 1968, dismissed the
petition for certiorari, in the following words: jgc:chanrobles.com.ph

"Upon consideration of the petition for certiorari filed in this case, the Court RESOLVED
TO DISMISS the petition, there being no abuse of discretion in ordering the execution
of a final judgment. Details of execution for satisfaction of Vincent Dayrit’s liability will
be worked out in connection with the sale of the collateral for mortgaged debt, and the
judgment in Civil Case No. 64138 of the CFI-Manila will control the disposition and
application of the collateral." cralaw virtua1aw library

The petitioner filed a motion for reconsideration dated June 9, 1968 which the Court of
Appeals denied in its resolution of July 9, 1968, as follows: jgc:chanrobles.com.ph

"Both the petition and the motion for reconsideration are based on a misapprehension
of the terms of the judgment. The mortgage obligation is one and indivisible. it was
executed to assure payment of the total indebtedness of the three defendants in Civil
Case No. 64138, and not merely one-third (1/3) thereof corresponding to petitioner
Vincent P. Dayrit’s liability."
cralaw virtua1aw library

The petitioner’s second motion for reconsideration of July 25, 1968 was summarily
dismissed on August 5, 1968, for lack of merit.

The petitioner, in his present petition, tenders the following issues for resolution: jgc:chanrobles.com.ph

"1) Whether or not respondent Judge [CFI-Manila] acted without or in excess of his
jurisdiction, and/or with grave abuse of discretion in denying petitioner’s motion to
allow him to exercise his clearly legal right to pay or deposit his one-third share of the
judgment obligation;

"2) The next issue was that brought about by the Court of Appeals’ resolution
dismissing the petition for certiorari, and which was raised in petitioner’s motion dated
June 19, 1968 for reconsideration of said resolution, contending that the ground for
dismissal did not jibe with the issue raised in the petition for certiorari

"3) And lastly the Court of Appeals’ resolution of July 9, 1968 denying said motion for
reconsideration injected the issue of alleged misapprehension on the part of petitioner
of the terms of the judgment of respondent judge." cralaw virtua1aw library

1. The question raised by the respondent Mobil that the present petition
for certiorari was filed way beyond the reglementary period of 15 days from appellant’s
receipt of notice of judgment or of the denial of his motion for reconsideration pursuant
to section 1, Rule 45 of the Revised Rules of Court, 2 needs to be resolved before
consideration of this case on the merits. Admittedly, the ex parte first motion for
reconsideration filed by the herein petitioner was denied, and copy of such denial was
received by the petitioner on July 15, 1968. Still not satisfied, petitioner filed another
ex parte motion for reconsideration on July 26, 1968, notice of the denial of which,
under CA resolution dated August 5, 1968, was received by said petitioner on August 9,
1968.

Respondent Mobil contends that the second motion for reconsideration filed by the
petitioner was a mere scrap of paper and pro-forma since it was filed ex parte and
without express leave of court, contrary to the mandate of section 1, Rule 52 of the
Rules of Court. 3

The rule appears to be inflexible in the sense that no more than one motion for
reconsideration shall be filed without express leave of court. The requirement that the
second motion for reconsideration must be presented, with leave of court, within fifteen
days from notice of the order or judgment, deducting the time during which the first
motion was pending, is to afford the court sufficient time to evaluate whether there is
prima facie merit therein, so that, "if the court finds merit prima facie in the motion for
re-hearing or reconsideration, the adverse party shall be given time to answer, after
which the court, in its discretion, may set the case for oral argument." 4 And only upon
compliance with the above stated requirements may the second motion for
reconsideration stay the final order or judgment sought to be re-examined. 5

The Court of Appeals gave due course to the second motion for reconsideration of the
herein petitioner, but nevertheless, dismissed the same summarily for lack of merit.

However, even assuming, that the ex parte second motion for reconsideration was
properly filed so as to toll the reglementary period within which to appeal, it appears
that the petition for certiorari filed with this Court on August 20, 1968 was time-barred.
From the date of denial of the petitioner’s ex parte first motion for reconsideration
received by him on July 15, 1968 — assuming that the period was interrupted by the ex
parte second motion for reconsideration from July 26, 1968 to August 9, 1968 (15
days) — to the elevation of the said case to this Court on August 20, 1968, 36 days had
elapsed. Deducting the 15 days during which the ex parte second motion for
reconsideration was pending from the total period of 36 days leaves 21 days. This
means that the present petition was filed with this Court six days late, contrary to and
in violation of section 1, Rule 45, which specifically provides that a petition
for certiorari under such Rule should be filed within 15 days from notice of judgment or
denial of motion for reconsideration. Hence, the present petition may be dismissed on
the aforestated ground.

But we opt, nevertheless, to consider the merits of this case, if only to demonstrate to
the petitioner his error.

2. The decision of the lower court, let it not be forgotten, has admittedly become final
and executory. The controverted judgment ordered the defendants (Dayrit, Sumbillo
and Angeles) "to pay to the plaintiff one-third each of the sum of P147,434.00 with
interest of 10% per annum from the time it fell due according to agreement, and in
default of such payment, the properties put up in collateral shall be sold in foreclosure
sale in accordance with law, the proceeds to be applied in payment of the amount due
to the plaintiff from the defendants as claimed in the complaint, provided that, as to
Dayrit, his liability shall in no case exceed 1/3 of the total obligation."
cralaw virtua1aw library
In sum, the issue that must be resolved in the instant case is, whether or not the Court
of First Instance of Manila erred in ordering the sale at public auction of the mortgaged
properties to answer for the entire P147,434 principal obligation after the defendants
(Dayrit, Sumbillo and Angeles) had failed to pay their respective one-third shares of the
obligation to the respondent Mobil; otherwise stated, whether or not the respondents
Court of First Instance and the Court of Appeals erred in refusing to allow the alleged
proposed deposit of a sum equivalent to 1/3 of the loan agreed upon and in refusing to
release forever the collaterals owned by Dayrit, although the other 2/3 portion of the
loan obligation had not been satisfied due to insolvency of the other two co-defendants.

To begin with, the prayer of the complaint filed with the respondent Court of First
Instance recites as follows:jgc:chanrobles.com.ph

"WHEREFORE, it is respectfully prayed that judgment be rendered —

"a) Ordering the defendants to pay the sum of P147,434 with 10% interest per annum
from the time it fell due as agreed upon and that in default of such payment, the above
described properties be sold and the proceeds of sale be applied to the payment of the
amount due to the plaintiff from the defendant under this complaint." cralaw virtua1aw library

The complaint, in effect, is a collection suit with damages and foreclosure of mortgage
against the three defendants, Leonila Sumbillo, Reynaldo Angeles and Vincent Dayrit.
Although the Loan and Mortgage Agreement was signed by the three defendants as
mortgagors, the properties being foreclosed belong solely to, and are registered solely
in the name of, the petitioner Vincent Dayrit.

The pertinent dispositive portion of the decision rendered by the lower court reads: jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles, ordering them to
pay to the plaintiff one-third each of the sum of P147,434 with interest of 10% per
annum from the time it fell due according to agreement, and in default of such
payment, the properties put up in collateral shall be sold in foreclosure sale in
accordance with law, the proceeds to be applied in payment of the amount due to the
plaintiff from the defendants as claimed in the complaint, provided that, as to Dayrit,
his liability shall in no case exceed 1/3 of the total obligation."
cralaw virtua1aw library

The petitioner contends that the said judgment is a simple money judgment and not a
foreclosure judgment, and that because the respondent Mobil resorted to the remedy of
enforcing his right by a complaint against the defendant-petitioner for collection of a
sum of money, with the consequent simple money judgment, the satisfaction of his 1/3
share of the joint obligation would release all the mortgaged properties put up as
collateral to secure the payment of the whole obligation. The reason advanced by the
petitioner is that the decision rendered being a simple money judgment and not a
mortgage-foreclosure judgment, the distinction in its execution is decisive, that is,
whereas in mortgage foreclosure the judgment should conform to the requirement,
embodied in section 2, Rule 68 of the Rules of Court, that the order of payment be
made into the court "within a period not less than ninety (90) days . . . and in default of
such payment, the property mortgaged be sold to realize" the indebtedness, in a simple
money judgment, upon satisfaction of part in the instant case his 1/3 share) of the joint
obligation, the mortgaged properties should be released from such mortgage contract.

This contention of the petitioner is clearly devoid of merit.

The decision which the petitioner describes as a simple money judgment orders the
defendants Vincent Dayrit, Leonila T. Sumbillo and Reynaldo Angeles to pay the plaintiff
the sum of P147,434, and in default of such payment, the properties put up in collateral
shall be sold in foreclosure sale in accordance with law, the proceeds to be applied in
payment of the amount due to the plaintiff from the defendants as claimed in the
complaint. While it is true that the obligation is merely joint and each of the defendants
is obliged to pay only his/her 1/3 share of the joint obligation, the undisputed fact
remains that the intent and purpose of the Loan and Mortgage Agreement was to
secure, inter alia, the entire loan of P150,000 that the respondent Mobil extended to
the defendants. The court below found that the defendants had violated the Loan and
Mortgage Agreement, they having paid but one installment. The undisputed fact also
remains that the petitioner alone benefited from the proceeds of the loan of P150,000,
the said amount having been paid directly to the Bank of the Philippines to bail out the
same properties from a mortgage that was about to be foreclosed. In effect, Mobil
merely stepped into the shoes of the Bank of the Philippines.

The petitioner insists that the dispositive portion of the judgment declaring the
obligation merely joint with the proviso that "as to Dayrit, his liability shall in no case
exceed 1/3 of the total obligation," should be construed in the light of the opinion of the
lower court that "said collateral must answer in full but only to the extent of Dayrit’s
liability which as above determined" is 1/3 of the obligation," thereby entitling him to
pay or deposit in court his corresponding share of the joint obligation in satisfaction
thereof, with the automatic release of all the mortgaged properties.

A judgment must be distinguished from an opinion. The latter is the informal expression
of the views of the court and cannot prevail against its final order or decision. "While
the two may be combined in one instrument, the opinion forms no part of the
judgment. There is a distinction between the findings and conclusion of a court and its
judgment. While they may constitute its decision and amount to a rendition of a
judgment they are not the judgment itself. They amount to nothing more than an order
for judgment which must be distinguished from the judgment Only the dispositive
portion may be executed." 6

Besides, well-entrenched in law is the rule that a mortgage directly and immediately
subjects the property upon which it is imposed, 7 the same being indivisible even
though the debt may be divided, 8 and such indivisibility likewise being unaffected by
the fact that the debtors are not solidarily liable. 9 As Tolentino, in his Commentaries
and Jurisprudence on the Civil Code of the Philippines, 10 puts it —

"When several things are pledged or mortgaged, each thing for a determinate portion of
the debt, the pledges or mortgages are considered separate from each other. But when
the several things are given to secure the same debt in its entirety, all of them are
liable for the debt, and the creditor does not have to divide his action by distributing
the debt among the various things pledged or mortgaged. Even when only a part of the
debt remains unpaid, all the things are still liable for such balance. Hence, a mortgage
voluntarily constituted by the debtor on two or more parcels of land is one and
indivisible, and the mortgagee has the right to have either or both parcels, jointly or
singly, sold to satisfy his claim. In case the mortgaged properties are a house and lot, it
can not be claimed that the lot and the house should be sold separately and not
together."cralaw virtua1aw library

But then there is this other seeming posture of the petitioner: that the judgment which
has become final and executory either modified or superseded the Loan and Mortgage
Agreement between the parties, and since the obligation is merely joint, upon payment
thereof, as in attachment, the properties mortgaged are released from liability. The
decision under consideration, however, did nothing of the sort. The petitioner
conveniently refuses to recognize the true import of the dispositive portion of the
judgment. The said portion unequivocally states that "in default of such payment, the
properties put up in collateral shall be sold in foreclosure sale in accordance with law,
the proceeds to be applied in payment of the amount due to the plaintiff as claimed in
the complaint." And the claim in the complaint was the full satisfaction of the total
indebtedness of P147,434; therefore, the release of all the mortgaged properties may
be authorized only upon the full payment of the above-stated amount secured by the
said mortgage.

With respect to the provisions of section 2 of Rule 68 of the Rules of Court giving the
petitioner a period of 90 days within which he might voluntarily pay the debt before the
sale of the collateral at public auction was ordered, we agree that the trial court failed
to provide such period. However, this failure can be regarded as having resulted in
mere damnum absque injuria. From November 17, 1967 when the decision was
rendered to May 23, 1968 when the final order to sell the mortgaged properties was
issued, a period of more than six months had passed, which is considerably much more
than the 90-day period of grace allowed the petitioner to validly tender the proper
payment.

ACCORDINGLY, the petition is denied, at petitioner’s cost.

G.R. No. L-19227             February 17, 1968
DIOSDADO YULIONGSIU, plaintiff-appellant, vs.PHILIPPINE NATIONAL BANK (Cebu
Branch), defendant-appellee.

          Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels, namely: The M/S
Surigao, valued at P109,925.78 and the M/S Don Dino, valued at P63,000.00, and operated the FS-
203, valued at P210,672.24, which was purchased by him from the Philippine Shipping Commission,
by installment or on account. As of January or February, 1943, plaintiff had paid to the Philippine
Shipping Commission only the sum of P76,500 and the balance of the purchase price was payable
at P50,000 a year, due on or before the end of the current year.  2

          On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine National
Bank, Cebu Branch. To guarantee its payment, plaintiff pledged the M/S Surigao, M/S Don Dino and
its equity in the FS-203 to the defendant bank, as evidenced by the pledge contract, Exhibit "A" & "1-
Bank", executed on the same day and duly registered with the office of the Collector of Customs for
the Port of Cebu. 3

          Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The
remaining balance was renewed by the execution of two (2) promissory notes in the bank's favor.
The first note, dated December 18, 1947, for P20,000, was due on April 16, 1948 while the second,
dated February 26, 1948, for P10,000, was due on June 25, 1948. These two notes were never paid
at all by plaintiff on their respective due dates. 4

          On April 6, 1948, the bank filed criminal charges against plaintiff and two other accused for
estafa thru falsification of commercial documents, because plaintiff had, as last indorsee, deposited
with defendant bank, from March 11 to March 31, 1948, seven Bank of the Philippine Islands checks
totalling P184,000. The drawer thereof — one of the co-accused — had no funds in the drawee
bank. However, in connivance with one employee of defendant bank, plaintiff was able to withdraw
the amount credited to him before the discovery of the defraudation on April 2, 1948. Plaintiff and his
co-accused were convicted by the trial court and sentenced to indemnify the defendant bank in the
sum of P184,000. On appeal, the conviction was affirmed by the Court of Appeals on October 31,
1950. The corresponding writ of execution issued to implement the order for indemnification was
returned unsatisfied as plaintiff was totally insolvent. 5

          Meanwhile, together with the institution of the criminal action, defendant bank took physical
possession of three pledged vessels while they were at the Port of Cebu, and on April 29, 1948,
after the first note fell due and was not paid, the Cebu Branch Manager of defendant bank, acting as
attorney-in-fact of plaintiff pursuant to the terms of the pledge contract, executed a document of sale,
Exhibit "4", transferring the two pledged vessels and plaintiff's equity in FS-203, to defendant bank
for P30,042.72. 6

          The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping
Commission which rescinded the sale to plaintiff on September 8, 1948, for failure to pay the
remaining installments on the purchase price thereof.  7 The other two boats, the M/S Surigao and the
M/S Don Dino were sold by defendant bank to third parties on March 15, 1951.

          On July 19, 1948, plaintiff commenced action in the Court of First Instance of Cebu to recover
the three vessels or their value and damages from defendant bank. The latter filed its answer, with a
counterclaim for P202,000 plus P5,000 damages. After issues were joined, a pretrial was held
resulting in a partial stipulation of facts dated October 2, 1958, reciting most of the facts above-
narrated. During the course of the trial, defendant amended its answer reducing its claim from
P202,000 to P8,846.01, 8 but increasing its alleged damages to P35,000.

          The lower court rendered its decision on February 13, 1960 ruling: (a) that the bank's taking of
physical possession of the vessels on April 6, 1948 was justified by the pledge contract, Exhibit "A"
& "1-Bank" and the law; (b) that the private sale of the pledged vessels by defendant bank to itself
without notice to the plaintiff-pledgor as stipulated in the pledge contract was likewise valid; and (c)
that the defendant bank should pay to plaintiff the sums of P1,153.99 and P8,000, as his remaining
account balance, or set-off these sums against the indemnity which plaintiff was ordered to pay to it
in the criminal cases.

          When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to
Us, the amount involved being more than P200,000.00.

          In support of the first assignment of error, plaintiff-appellant would have this Court hold that
Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the creditor defendant could not take
possession of the chattels object thereof until after there has been default. The submission is without
merit. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract —

          3. That a credit line of P50,000.00 was extended to the plaintiff by the defendant Bank,
and the plaintiff obtained and received from the said Bank the sum of P50,000.00, and in
order to guarantee the payment of this loan, the pledge contract, Exhibit "A" & Exhibit "1-
Bank", was executed and duly registered with the Office of the Collector of Customs for the
Port of Cebu on the date appearing therein; (Emphasis supplied) 1äwphï1.ñët

          Necessarily, this judicial admission binds the plaintiff. Without any showing that this was made
thru palpable mistake, no amount of rationalization can offset it.  9

          The defendant bank as pledgee was therefore entitled to the actual possession of the vessels.
While it is true that plaintiff continued operating the vessels after the pledge contract was entered
into, his possession was expressly made "subject to the order of the pledgee." 10 The provision of Art.
2110 of the present Civil Code 11 being new — cannot apply to the pledge contract here which was
entered into on June 30, 1947. On the other hand, there is an authority supporting the proposition
that the pledgee can temporarily entrust the physical possession of the chattels pledged to the
pledgor without invalidating the pledge. In such a case, the pledgor is regarded as holding the
pledged property merely as trustee for the pledgee. 12

          Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make
pledge effective. He points to Betita v. Ganzon, 49 Phil. 87 which ruled that there has to be actual
delivery of the chattels pledged. But then there is also Banco Español-Filipino v. Peterson, 7 Phil.
409 ruling that symbolic delivery would suffice. An examination of the peculiar nature of the things
pledged in the two cases will readily dispel the apparent contradiction between the two rulings.
In Betita v. Ganzon, the objects pledged — carabaos — were easily capable of actual, manual
delivery unto the pledgee. In Banco Español-Filipino v. Peterson, the objects pledged — goods
contained in a warehouse — were hardly capable of actual, manual delivery in the sense that it was
impractical as a whole for the particular transaction and would have been an unreasonable
requirement. Thus, for purposes of showing the transfer of control to the pledgee, delivery to him of
the keys to the warehouse sufficed. In other words, the type of delivery will depend upon the nature
and the peculiar circumstances of each case. The parties here agreed that the vessels be delivered
by the "pledgor to the pledgor who shall hold said property subject to the order of the pledgee."
Considering the circumstances of this case and the nature of the objects pledged, i.e., vessels used
in maritime business, such delivery is sufficient.

          Since the defendant bank was, pursuant to the terms of pledge contract, in full control of the
vessels thru the plaintiff, the former could take actual possession at any time during the life of the
pledge to make more effective its security. Its taking of the vessels therefore on April 6, 1948, was
not unlawful. Nor was it unjustified considering that plaintiff had just defrauded the defendant bank in
the huge sum of P184,000.

          The stand We have taken is not without precedent. The Supreme Court of Spain, in a similar
case involving Art. 1863 of the old Civil Code, 13 has ruled: 14

          Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder
del acreedor o de un tercero y no quedar en la del deudor, como ha sucedido en el caso de
autos, es lo cierto que todas las partes interesadas, o sean acreedor, deudor y Sociedad,
convinieron que continuaran los coches en poder del deudor para no suspender el trafico, y
el derecho de no uso de la prenda pertenence al deudor, y el de dejar la cosa bajo su
responsabilidad al acreedor, y ambos convinieron por creerlo util para las partes
contratantes, y estas no reclaman perjuicios no se infringio, entre otros este articulo.

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

          There is no merit in the claims. The rulings in Philippine National Bank v. De Poli, 44 Phil. 763
and El Hogar Filipino v. Paredes, 45 Phil. 178 are still authoritative despite the passage of Act 3135.
This law refers only, and is limited, to foreclosure of real estate mortgages. 15 So, whatever
formalities there are in Act 3135 do not apply to pledge. Regarding the bank's authority to be the
purchaser in the foreclosure sale, Sec. 33 of Act 2612, as amended by Acts 2747 and 2938 only
states that if the sale is public, the bank could purchase the whole or part of the property sold " free
from any right of redemption on the part of the mortgagor or pledgor." This even argues against
plaintiff's case since the import thereof is this if the sale were private and the bank became the
purchaser, the mortgagor or pledgor could redeem the property. Hence, plaintiff could have
recovered the vessels by exercising this right of redemption. He is the only one to blame for not
doing so.

          Regarding the third contention, on the assumption that the purchase price was
unconscionable, plaintiff's remedy was to have set aside the sale. He did not avail of this. Moreover,
as pointed out by the lower court, plaintiff had at the time an obligation to return the P184,000
fraudulently taken by him from defendant bank.
          The last assignment of error has to do with the damages allegedly suffered by plaintiff-
appellant by virtue of the taking of the vessels. But in view of the results reached above, there is no
more need to discuss the same.

          On the whole, We cannot say the lower court erred in disposing of the case as it did. Plaintiff-
appellant was not all-too-innocent as he would have Us believe. He did defraud the defendant bank
first. If the latter countered with the seizure and sale of the pledged vessels pursuant to the pledge
contract, it was only to protect its interests after plaintiff had defaulted in the payment of the first
promissory note. Plaintiff-appellant did not come to court with clean hands.

          WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiff-
appellant. So ordered.

G.R. No. L-19468            October 30, 1964

SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-appellants,

vs.
CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees.

Santiago F. Alidio for plaintiffs-appellants.

Marcos Mangubat in his own behalf and for co-defendant-appellee Conrado S. David.

CONCEPCION, J.:

This is an appeal from an order of the Court of First Instance of Manila in Civil Case No. 47664
thereof. The pertinent facts are set forth in said order from which we quote:

It appears from the complaint that on December 11, 1948, defendant herein Conrado S.
David received a loan of P3,000 with interest at 12% per annum from Claudia B. Vda. de Uy
Kim, one of the plaintiffs, and to secure the payment of the same, Conrado S. David
executed a chattel mortgage on a house situated at 1259 Sande Street, Tondo, Manila; that
the chattel mortgage was registered with the Register of Deeds of Manila on December 19,
1948; that on February 10, 1953, the mortgaged house was sold at public auction to satisfy
the indebtedness to Claudia B. Vda. de Uy Kim, and the house was sold to Claudia B. Vda.
de Uy Kim in the said foreclosure proceedings; that on March 22, 1954, Claudia B. Vda. de
Uy Kim sold the said house to Marcos Mangubat, and on March 1, 1956. Marcos Mangubat
filed a complaint against Conrado S. David, Civil Case No. 29078, in the Court of First
Instance of Manila, for the collection of the loan of P2,000; that on March 24, 1956, the
complaint was amended to include the plaintiffs herein Salvador Piansay and Claudia B.
Vda. de Uy Kim as party defendants and praying that auction sale executed by the Sheriff on
February 10, 1953, and the deed of absolute sale executed by Claudia B. Vda. de Uy Kim in
favor of Salvador Piansay be annulled; that decision was rendered in Civil Case No. 29078
ordering Conrado S. David to pay the plaintiff the sum of P2,000, damages and attorney's
fees, and dismissing the complaint with respect to Claudia B. Vda. de Uy Kim,
Leonardo Uy Kim and Salvador Piansay; that upon appeal, the Court of Appeals affirmed the
decision but setting aside the award of damages in favor of Claudia B. Vda. de Uy Kim; that
in the execution of Civil Case No. 29078, which was affirmed by the Court of Appeals in CA-
G.R. No. 21797-R, the house, which had been bought by Uy Kim at the foreclosure
proceedings and sold by her to Salvador Piansay, was levied upon at the instance of the
defendant Marcos Mangubat; that to prevent the sale at public auction of the house here in
question, the plaintiffs herein filed a petition for certiorari and mandamus with preliminary
injunction in the Court of Appeals, CA-G.R. No. 28974-R, entitled Claudia B. Vda. de Uy Kim
 and Salvador Piansay versus Hon. Judge Jesus Y. Perez, et al.; that acting upon the said
petition, the Court of Appeals in its order of April 28, 1961, denied the petition to lift or
discharge the writ of execution.

Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter referred to as the plaintiffs,
instituted the present action which was docketed as Civil Case No. 47664 of the Court of First
Instance of Manila, against David and Mangubat, hereinafter referred to as the defendants. In their
complaint, plaintiffs, after averring the foregoing facts, allege that, in the proceedings for the
execution of the decision in Civil Case No. 29078. David demanded from Piansay the *** payment of
rentals for the use and occupation of the house aforementioned, which, Piansay claims, is his
property, and that the defendants are threatening to cause said house to be levied upon and sold at
public auction in violation of the alleged rights of the plaintiffs. Accordingly plaintiffs prayed that a writ
of preliminary injunction to restrain said levy and sale at public auction be issued and that, after
appropriate proceedings, judgment be rendered declaring that Piansay is the true and lawful owner
of said house sentencing the defendants to pay damages and making the preliminary injunction
permanent.

Mangubat moved to dismiss said complaint, upon the theory that the same is barred by the principle
of res adjudicata and that plaintiffs have no personality to bring this action or to question the levy
upon the house in question, because they have no interest therein. After due hearing the lower court
issued the order appealed from, granting said motion and dismissing the complaint, with costs
against the plaintiffs. A reconsideration of said order having been denied, plaintiffs interposed the
present appeal directly to this Court only questions of law being raised in the appeal, namely: (1)
applicability of the principle of res adjudicata; and (2) validity of the chattel mortgage constituted in
favor of Mrs. Uy Kim.

With reference to the first question, it should be noted that in case CA-G.R. No. 21797-R, the Court
of Appeals affirmed the decision in Case No. 29078 of the Court of First Instance of Manila stating:

In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R, promulgated Sept. 23,
1952) this Court, thru Justice J. B. L. Reyes, said, among others:

Since it is a rule in our law that buildings and constructions are regarded as mere
accesories to the land (following the Roman maxim omne quod solo inaedificatur
solo credit) it is logical that said accessories should partaked of the nature of the
principal thing, which is the land forming, as they do, but a single object (res) with it
in contemplation of law.

... While it is true that said document was correspondingly registered in the Chattel
Mortgage Register of Rizal, this Act produced no effect whatsoever for where the
interest conveyed is in the nature of real property, the registration of the document in
the registry of chattels is merely a futile act. Thus the registration of the chattel
mortgage of a building of strong materials produced no effect as far as the building is
concerned (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). Nor can we give any
consideration to that contention of the surety that it has acquired ownership over the
property in question by reason of the sale conducted by the Provincial Sheriff of Rizal
for as this court has aptly pronounced:

A mortgage creditor who purchases real properties at an extra-judicial

foreclosure sale thereof by virtue of a chattel mortgage constituted in his
favor, which mortgage has been declared null and void with respect to said
 real properties acquires no right thereto by virtue of said sale. (De la Riva vs.
Ah Kee, 60 Phil. 899).

Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel mortgage constituted in her
favor, because it was in reality a mere contract of an unsecured loan. It follows that the
Sheriff was not authorized to sell the house as a result of the foreclosure of such chattel
mortgage. And as Mrs. Uy Kim could not have acquired the house when the Sheriff sold it at
public auction, she could not, in the same token, it validly to Salvador Piansay. Conceding
that the contract of sale between Mrs. Uy Kim and Salvador Piansay was of no effect, we
cannot nevertheless set it aside upon instance of Mangubat because, as the court below
opined, he is not a party thereto nor has he any interest in the subject matter therein, as it
was never sold or mortgaged to him (Emphasis supplied);

that, thereafter, the records of the case were remanded to the Court of First Instance of Manila,
which caused the corresponding writ of execution to be issued; that upon the request of Mangubat,
the house in question was levied upon; that Piansay filed with the trial court, presided over by Hon.
Jesus Y. Perez, Judge, a motion to set aside said levy; that this motion was denied by said court, in
an order dated February 4, 1961, upon the following ground:

Considering that the decision rendered by the Court of Appeals in this case when the same
was elevated to said Court recognizes that defendant Claudia B. de Uy Kim did not acquire
the house of defendant Conrado S. David and can therefore be executed by the plaintiff to
satisfy the judgment rendered against said defendant David in favor of the plaintiff. The mere
fact that the dispositive part of the decision states that the complaint is dismissed with
respect to defendants Claudia B. de Uy Kim, Leonardo Uy Kim and Salvador Piansay is of
no moment because the chattel mortgage executed by David in favor of Claudia B. de Uy
Kim might not be annulled but it did not transmit any right from defendant David to Claudia
B. de Uy Kim. The house in question can therefore be levied upon because it had remained
the property of defendant David (Emphasis supplied);

that a reconsideration of this order of February 4, 1961 having been denied by Judge Perez, on
February 25, 1961, plaintiffs instituted case CA-G.R. No. 28974-R of the Court of Appeals, for a writ
of certiorari and mandamus to annul said orders of Judge Perez and to compel him to release said
house from the aforementioned levy; and that on March 3, 1961, the Court of Appeals denied said
petition for certiorari and mandamus "insofar as it prays that the order of respondent Judge denying
the lifting and discharge of the writ of execution be set aside and revoked."

In other words, in Civil Case No. 29078 of the Court of First Instance of Manila, Piansay assailed the
right of Mangubat to levy execution upon the house in question alleging that the same belongs to
him, he having bought it from Mrs. Uy Kim, who had acquired it at the auction sale held in
connection with the extrajudicial foreclosure of the chattel mortgage constituted in her favor by
David. This pretense was, however, overruled by Judge Perez, who presided at said court, in its
order of February 4, 1961, upon the theory that the chattel mortgage and sale in favor of Mrs. Uy
Kim had been annulled in the original decision in said case, as affirmed by the Court of Appeals in
CA-G.R. No. 21797-R. Regardless of whether this theory is accurate or not, the fact is that said
order became final and executory upon the denial of the petition for certiorari and mandamus, to
annul the same in CA-G.R. No. 28974-R of the Court of Appeals. Hence, plaintiffs are now barred
from asserting that the aforementioned chattel mortgage and sale are valid.

At any rate, regardless of the validity of a contract constituting a chattel mortgage on a house, as
between the parties to said contract (Standard Oil Co. of N. Y. vs. Jaramillo, 44 Phil. 632-633), the
same cannot and does not bind third persons, who are not parties to the aforementioned contract or
their privies (Leung Yee vs. Strong Machinery Co., 37 Phil. 644; Evangelista vs. Alto Surety, G.R.
No. L-11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L-18456, November 30, 1963). As a
consequence, the sale of the house in question in the proceedings for the extrajudicial foreclosure of
said chattel mortgage, is null and void insofar as defendant Mangubat is concerned, and did not
confer upon Mrs. Uy Kim, as buyer in said sale, any dominical right in and to said house (De la Riva
vs. Ah Yee, 60 Phil. 800), so that she could not have transmitted to her assignee, plaintiff Piansay
any such right as against defendant Mangubat. In short plaintiffs have no cause of action against the
defendants herein.

WHEREFORE, the others appealed from are hereby affirmed, with costs against plaintiffs Salvador
Piansay and Claudia B. Vda. de Uy Kim. It is so ordered.
G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of
Rizal Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981
of the said appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing
and Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and
assigned several receivables with the former under a Receivable Purchase Agreement. To secure
the collection of the receivables assigned, private respondent executed a Chattel Mortgage over
certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering
Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the
properties mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed
to gain entry into private respondent's premises and was not able to effect the seizure of the
aforedescribed machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the
Court of First Instance of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the
lower court.
Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the
enforcement of which was however subsequently restrained upon private respondent's filing of a
motion for reconsideration. After several incidents, the lower court finally issued on February 11,
1981, an order lifting the restraining order for the enforcement of the writ of seizure and an order to
break open the premises of private respondent to enforce said writ. The lower court reaffirmed its
stand upon private respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private
respondent and removed the main drive motor of the subject machinery.

The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized
by the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of
replevin, much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the
new Civil Code, the same being attached to the ground by means of bolts and the only way to
remove it from respondent's plant would be to drill out or destroy the concrete floor, the reason why
all that the sheriff could do to enfore the writ was to take the main drive motor of said machinery. The
appellate court rejected petitioner's argument that private respondent is estopped from claiming that
the machine is real property by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner
has brought the case to this Court for review by writ of certiorari. It is contended by private
respondent, however, that the instant petition was rendered moot and academic by petitioner's act of
returning the subject motor drive of respondent's machinery after the Court of Appeals' decision was
promulgated.

The contention of private respondent is without merit. When petitioner returned the subject motor
drive, it made itself unequivocably clear that said action was without prejudice to a motion for
reconsideration of the Court of Appeals decision, as shown by the receipt duly signed by
respondent's representative.   Considering that petitioner has reserved its right to question the
1

propriety of the Court of Appeals' decision, the contention of private respondent that this petition has
been mooted by such return may not be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in
suit is real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court,
which accordingly held that the chattel mortgage constituted thereon is null and void, as contended
by said respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court,
speaking through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendants-appellants merely had a temporary right as
lessee, and although this can not in itself alone determine the status of the property,
it does so when combined with other factors to sustain the interpretation that the
parties, particularly the mortgagors, intended to treat the house as personality.
Finally, unlike in the Iya cases, Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung
 Yee vs. F.L. Strong Machinery & Williamson, wherein third persons assailed the
validity of the chattel mortgage, it is the defendants-appellants themselves, as
debtors-mortgagors, who are attacking the validity of the chattel mortgage in this
case. The doctrine of estoppel therefore applies to the herein defendants-appellants,
having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as
the appellate court did, the present case from the application of the abovequoted pronouncement. If
a house of strong materials, like what was involved in the above Tumalad case, may be considered
as personal property for purposes of executing a chattel mortgage thereon as long as the parties to
the contract so agree and no innocent third party will be prejudiced thereby, there is absolutely no
reason why a machinery, which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.

In rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals
lays stress on the fact that the house involved therein was built on a land that did not belong to the
owner of such house. But the law makes no distinction with respect to the ownership of the land on
which the house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by
the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that
the parties to a contract may by agreement treat as personal property that which by nature would be
real property, as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as personal property but was merely required
and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank
form at the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner
and not denied by the respondent, the status of the subject machinery as movable or immovable
was never placed in issue before the lower court and the Court of Appeals except in a supplemental
memorandum in support of the petition filed in the appellate court. Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. On the other hand, as pointed out by
petitioner and again not refuted by respondent, the latter has indubitably benefited from said
contract. Equity dictates that one should not benefit at the expense of another. Private respondent
could not now therefore, be allowed to impugn the efficacy of the chattel mortgage after it has
benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned
machinery is real, not personal property, becomes very apparent. Moreover, the case of Machinery
and Engineering Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable
to the case at bar, the nature of the machinery and equipment involved therein as real properties
never having been disputed nor in issue, and they were not the subject of a Chattel Mortgage.
Undoubtedly, the Tumalad case bears more nearly perfect parity with the instant case to be the
more controlling jurisprudential authority.
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed
and set aside, and the Orders of the lower court are hereby reinstated, with costs against the private
respondent.

SO ORDERED.

CASE DIGEST

 Facts: Makati Leasing and Finance Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables with the former under a Receivable
Purchase Agreement. To secure the collection of the receivables assigned, private
respondent executed a Chattel Mortgage over certain raw materials inventory as well as a
machinery described as an ArtosAeroDryerStenteringRange. Upon private respondent’s
default, petitioner filed a petition for extrajudicial foreclosure of the properties mortgage to it.
However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry into
private respondent’s premises and was not able to effect the seizure of the aforedescribed
machinery.

 Acting on Makati Leasing’s application for replevin, the lower court issued a writ of seizure,
the enforcement of which was however subsequently restrained upon Wearever’s filing of a
motion for reconsideration. After several incidents, the lower court finally issued an order
lifting the restraining order for the enforcement of the writ of seizure and an order to break
open the premises of Wearever’s to enforce said writ. Wearever Textile Mills contends that
estoppel cannot apply against it because it had never represented nor agreed that the
machinery in suit be considered as personal property but was merely required and dictated
on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form
at the time of signing. This contention lacks persuasiveness

 Issue: Whether or not the subject machinery is a real property or a personal property to
subject it to chattel mortgage.

Held: Where a chattel mortgage is constituted on machinery attached to the ground the machinery is
to be considered as a personal property and the chattel mortgage constituted thereon   is not null and
void regardless of who owns the land.
However, such fact alone does not render a contract void ab initio, but can only be a ground
for rendering said contract voidable, or annullable pursuant to Article 1390 of the new Civil
Code, by a proper action in court.

It must be pointed out that the characterization of the subject machinery as chattel by the
private respondent is indicative of intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil.
630, it is undeniable that the parties to a contract may by agreement treat as personal
property that which by nature would be real property, as long as no interest of third parties
would be prejudiced thereby. This is really because one who has so agreed is estopped
from denying the existence of the chattel mortgage.
As aptly pointed out by petitioner and not denied by the respondent, the status of the subject
machinery as movable or immovable was never placed in issue before the lower court and the Court
of Appeals except in a supplemental memorandum in support of the petition filed in the appellate
court. Moreover, even granting that the charge is true, such fact alone does not render a contract
void ab initio, but can only be a ground for rendering said contract voidable, or annullable pursuant
to Article 1390 of the new Civil Code, by a proper action in court. There is nothing on record to
show that the mortgage has been annulled. Neither is it disclosed that steps were taken to nullify the
same. On the other hand, as pointed out by petitioner and again not refuted by respondent, the latter
has indubitably benefited from said contract. Equity dictates that one should not benefit at the
expense of another. Private respondent could not now therefore, be allowed to impugn the efficacy of
the chattel mortgage after it has benefited therefrom,

G.R. No. L-40018 December 15, 1975

NORTHERN MOTORS, INC., petitioner,

vs.
HON. JORGE R. COQUIA, etc., et al., respondents, FILINVEST CREDIT
CORPORATION, intervenor.

RESOLUTION

AQUINO, J.:

Respondent Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration of this
Court's resolution of August 29, 1975. In that resolution, it was held that the lien of Northern Motors,
Inc., as chattel mortgagee, over certain taxicabs is superior to the levy made on the said cabs by
Honesto Ong, the assignee of the unsecured judgment creditor of the chattel mortgagor, Manila
Yellow Taxicab Co., Inc.

On the other hand, Northern Motors, Inc. in its motion for the partial reconsideration of the same
August 29 resolution, prayed for the reversal of the lower court's orders cancelling the bond filed by
Filwriters Guaranty Assurance Corporation. Northern Motors, Inc. further prayed that the sheriff
should be required to deliver to it the proceeds of the execution sale of the mortgaged taxicabs
without deducting the expenses of execution.

1. Respondents' motion for reconsideration. — Honesto Ong in his motion invokes his supposed
"legal and equity status" vis-a-vis the mortgaged taxicabs. He contends that his only recourse was to
levy upon the taxicabs which were in the possession of the judgment debtor, Manila Yellow Taxicab
Co. Inc., whereas, Northern Motors, Inc., as unpaid seller and mortgagee, "has still an independent
legal remedy" against the mortgagor for the recovery of the unpaid balance of the price.

That contention is not a justification for setting aside the holding that Ong had no right to levy upon
the mortgaged taxicabs and that he could have levied only upon the mortgagor's equity of
redemption. The essence of the chattel mortgage is that the mortgaged chattels should answer for
the mortgage credit and not for the judgment credit of the mortgagor's unsecured creditor. The
mortgagee is not obligated to file an "independent action" for the enforcement of his credit. To
require him to do so would be a nullification of his lien and would defeat the purpose of the chattel
mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his
credit. (See art. 2087, Civil Code).

It is relevant to note that intervenor Filinvest Credit Corporation, the assignee of a portion of the
chattel mortgage credit, realized that to vindicate its claim by independent action would be illusory.
For that pragmatic reason, it was constrained to enter into a compromise with Honesto Ong by
agreeing to pay him P145,000. That amount was characterized by Northern Motors, Inc. as the
"ransom" for the taxicabs levied upon by the sheriff at the behest of Honesto Ong.

Honesto Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage should not affect
him because he is not privy of such contract is untenable. The registration of the chattel mortgage is
an effective and binding notice to him of its existence (Ong Liong Tiak vs. Luneta Motor Company,
66 Phil 459). The mortgage creates a real right (derecho real, jus in re or jus ad rem, XI Enciclopedia
Juridica Española 294) or a lien which, being recorded, follows the chattel wherever it goes.

Honesto Ong's contention that Northern Motors, Inc., was negligent because it did not sue the sheriff
within the 120-day period provided for in section 17, Rule 39 of the Rules of Court is not correct.
Such action was filed on April 14, 1975 in the Court of First Instance of Rizal, Pasig Branch XIII, in
Civil Case No. 21065 entitled "Northern Motors, Inc. vs. Filwriters Guaranty Assurance Corporation,
et al.". However, instead of Honesto Ong, his assignor, Tropical Commercial Corporation, was
impleaded as a defendant therein. That might explain his unawareness of the pendency of such
action.

The other arguments of Honesto Ong in his motion may be boiled down to the proposition that the
levy made by mortgagor's judgment creditor against the chattel mortgagor should prevail over the
chattel mortgage credit. That proposition is devoid of any legal sanction and is glaringly contrary to
the nature of a chattel mortgage. To uphold that contention is to destroy the essence of chattel
mortgage as a paramount encumbrance on the mortgaged chattel.

Respondent Ong admits "that the mortgagee's right to the mortgaged property is superior to that of
the judgment creditor". But he contends that the rights of the purchasers of the cars at the execution
sale should be respected. He reasons out they were not parties to the mortgage and that they
acquired the cars prior to the mortgagee's assertion of its rights thereto.

That contention is not well-taken. The third-party claim filed by Northern Motors, Inc. should have
alerted the purchasers to the risk which they were taking when they took part in the auction sale.
Moreover, at an execution sale the buyers acquire only the right of the judgment debtor which in this
case was a mere right or equity of redemption. The sale did not extinguish the pre-existing mortgage
lien (See sec. 25, Rule 39, Rules of Court; Potenciano vs. Dineros and Provincial Sheriff of Rizal, 97
Phil, 196; Lara vs. Bayona, 97 Phil. 951; Hacbang vs. Leyte Autobus Co., Inc., L-7907, May 30,
1963, 8 SCRA 103).

Some arguments adduced by Honesto Ong in his motion were intended to protect the interests of
the mortgagor, Manila Yellow Taxicab Co., Inc., which he erroneously characterized as a
"respondent" (it is not a respondent in this case). Ong argues that the proceeds of the execution
sale, which was held on December 18, 1974, should be delivered to Northern Motors, Inc. "only to
such extent as has exceeded the amount paid by respondent Manila Yellow Taxicab to" Northern
Motors, Inc. That argument is not clear. Ong probably means that the installments already paid by
Manila Yellow Taxicab Co., Inc. to Northern Motors, Inc. should be deducted from the proceeds of
the execution sale. If that is the point which Ong is trying to put across, and it is something which
does not directly affect him, then, that matter should be raised by Manila Yellow Taxicab Co., Inc. in
the replevin case, Civil Case No. 20536 of the Court of First Instance of Rizal, Pasig Branch VI,
entitled "Northern Motors, Inc. versus Manila Yellow Taxicab Co., Inc. et al."

Ong's contention, that the writ of execution, which was enforced against the seven taxicabs (whose
sale at public auction was stopped) should have precedence over the mortgage lien, cannot be
sustained. Those cabs cannot be sold at an execution sale because, as explained in the resolution
under reconsideration, the levy thereon was wrongful.

The motion for reconsideration of Ong and the sheriff should be denied.

2. Petitioners motion for partial reconsideration. — The lower court in its order of January 3, 1975
cancelled the indemnity bonds for P480,000 filed on December 18, 1975 by Filwriters Guaranty
Assurance Corporation for Tropical Commercial Co., Inc. The bonds were cancelled without notice
to Northern Motors, Inc. as third-party claimant.

We already held that the cancellation of the bonds constituted a grave abuse of discretion but we
previously denied petitioner's prayer for the reinstatement of the bonds because Northern Motors
Inc. had given the impression that it had not filed any action for damages against the sheriff within
the one hundred twenty-day period contemplated in Section 17, Rule 39 of the Rules of Court.

As already noted above, the truth is that such an action for damages was filed on April 14, 1975
against the surety, the sheriff and the judgment creditor in Civil Case No. 21065 of the Court of First
Instance of Rizal, Pasig Branch XIII. The action involves the indemnity bond for P240,000 (No. 0032
posted on December 18, 1974).

It may also be noted that in a prior case, Civil Case No. 20536 of the Court of First Instance of Rizal
at Pasig, entitled "Northern Motors, Inc. vs. Manila Yellow Taxicab Co., Inc., et al.", a replevin case
(where an amended complaint dated January 15, 1975 was filed), the surety, Filwriters Guaranty
Assurance Corporation, was impleaded as a defendant by reason of its bond for P240,000. Northern
Motors, Inc. in that case prayed that the surety be ordered to pay to it damages in the event that the
eight taxicabs could not be surrendered to the mortgagee.

Northern Motors, Inc., in its instant motion for partial reconsideration, reiterates its petition for the
reinstatement of the bond filed by Filwriters Guaranty Assurance Corporation. If the said bond is not
reinstated or if the lower court's orders cancelling it are allowed to stand, the aforementioned Civil
Cases Nos. 20536 and 21065 would be baseless or futile actions against the surety. That injustice
should be corrected. Hence, our resolution of August 29, 1975, insofar as it did not disturb the lower
court's orders cancelling the indemnity bonds, should be reconsidered.

Northern Motors. Inc. further prays for the reconsideration of that portion of our resolution allowing
the sheriff to deduct expenses from the proceeds of the execution sale for the eight taxicabs which
sale was held on December 18, 1974. It argues that Honesto Ong or Manila Yellow Taxicab Co., Inc.
should shoulder such expenses of execution.

We already held that the execution was not justified and that Northern Motors, Inc., as mortgagee,
was entitled to the possession of the eight taxicabs. Those cabs should not have been levied upon
and sold at public auction to satisfy the judgment credit which was inferior to the chattel mortgage.
Since the cabs could no longer be recovered because apparently they had been transferred to
persons whose addresses are unknown (see par. 12, page 4, Annex B of motion), the proceeds of
the execution sale may be regarded as a partial substitute for the unrecovarable cabs (See arts.
1189[2] and 1269, Civil Code; Urrutia & Co. vs. Baco River Plantation Co., 26 Phil. 632). Northern
Motors, Inc. is entitled to the entire proceeds without deduction of the expenses of execution.
WHEREFORE, private respondents' motion for reconsideration is denied and petitioner's motion for
partial reconsideration is granted. The resolution of August 29, 1975 is modified in the sense that the
lower court's orders of January 3 and 6, 1975, cancelling the indemnity bond for P240,000 (as
reaffirmed in its order of January 17, 1975), are set aside. The said indemnity bond for P240,000 is
regarded as in full force and Respondent Sheriff of Manila is further directed to deliver to Northern
Motors, Inc. the entire proceeds of the execution sale held on December 18, 1974 for the eight
taxicabs which were mortgaged to that firm.

SO ORDERED.
G.R. No. L-22331             June 6, 1967

IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A HOUSE AND THE
RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.
RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.

Erasmo R. Cruz and C. R. Pascual for intervenor-appellant.

Augusto J. Salas for vendees-petitioners-appellees.

REGALA, J.:

Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria
Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated Asiatic Co.
On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right to
Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the
house, together with the leasehold rights to the lot, a television set and a refrigerator in consideration
of the sum of P3,000. The deed reads:

DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE

PRESENTS:

That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and
residing at 783-D Interior 14 Maria Guizon, Gagalangin, Tondo, Manila, hereby
declare that I am the true and absolute owner of a new two storey house of strong
materials, constructed on a rented lot — Lot No. 12 of the Maria Guizon Subdivision,
owned by the Consolidated Asiatic Co. — as evidenced by the attached Receipt No.
292, and the plan of the subdivision, owned by said company.

That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00)
which I have received this day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of
legal age, widow; and Aurelia Reyes, married to Jose S. Navarro, Filipinos, of legal
ages, and residing at 1112 Antipolo St., Tondo, Manila, I hereby SELL, CEDE,
TRANSFER, AND CONVEY unto said Maria Bautista Vda. de Reyes, her heirs,
succesors, administrators and assigns said house, including my right to the lot on
 which it was constructed, and also my television, and frigidaire "Kelvinator" of nine
cubic feet in size, under the following conditions:

I hereby reserve for myself, my heirs, successors, administrators, and assigns the
right to repurchase the above mentioned properties for the same amount of
P3,000.00, without interest, within the stipulated period of three (3) months from the
date hereof. If I fail to pay said amount of P3,000.00, within the stipulated period of
three months, my right to repurchase the said properties shall be forfeited and the
ownership thereto shall automatically pass to Mrs. Maria Bautista Vda. de Reyes, her
heirs, successors, administrators, and assigns, without any Court intervention, and
they can take possession of the same. 1äwphï1.ñët

IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this
12th day of January, 1961.

s/t RODOLFO LANUZA s/t MARIA BAUTISTA VDA. DE REYES

Vendor Vendee

s/t AURELIA REYES WITH MY MARITAL CONSENT:

Vendee s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by an
annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the
deed, this time signed her name below the annotation.

It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same
house in favor of Martin de Leon to secure the payment of P2,720 within one year. This mortgage
was executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila on
November 8, 1961 under the provisions of Act No. 3344.

As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a
petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro
followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of
ownership of the house on the ground that the period of redemption expired on July 12, 1961 without
the vendees exercising their right of repurchase. The petition for consolidation of ownership was filed
on October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriffs
sale. De Leon immediately took possession of the house, secured a discharge of the mortgage on
the house in favor of a rural bank by paying P2,000 and, on October 29, intervened in court and
asked for the dismissal of the petition filed by Reyes and Navarro on the ground that the
unrecorded pacto de retro sale could not affect his rights as a third party.

The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and
submitted the case for decision. In confirming the ownership of Reyes and Navarro in the house and
the leasehold right to the lot, the court said:

It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not
signed by Belen Geronimo-Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at the time of
its execution. It appears, however, that on the occasion of the extension of the period for
repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her approval and
conformity. This act, in effect, constitutes ratification or confirmation of the contract (Annex
"A" Stipulation) by Belen Geronimo-Lanuza, which ratification validated the act of Rodolfo
Lanuza from the moment of the execution of the said contract. In short, such ratification had
the effect of purging the contract (Annex "A" Stipulation) of any defect which it might have
had from the moment of its execution. (Article 1396, New Civil Code of the Philippines; Tang
Ah Chan and Kwong Koon vs. Gonzales, 52 Phil. 180)

Again, it is to be noted that while it is true that the original contract of sale with right to
repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by Belen
Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the contract merely
voidable, if at all, and, therefore, susceptible of ratification. Hence, the subsequent
ratification of the said contract by Belen Geronimo-Lanuza validated the said contract even
before the property in question was mortgaged in favor of the intervenor.

It is also contended by the intervenor that the contract of sale with right to repurchase should
be interpreted as a mere equitable mortgage. Consequently, it is argued that the same
cannot form the basis for a judicial petition for consolidation of title over the property in
litigation. This argument is based on the fact that the vendors a retro continued in
possession of the property after the execution of the deed of sale with pacto de retro. The
mere fact, however, that the vendors a retro continued in the possession of the property in
question cannot justify an outright declaration that the sale should be construed as an
equitable mortgage and not a sale with right to repurchase. The terms of the deed of sale
with right to repurchase (Annex "A" Stipulation) relied upon by the petitioners must be
considered as merely an equitable mortgage for the reason that after the expiration of the
period of repurchase of three months from January 12, 1961.

Article 1602 of the New Civil Code provides:

"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of

the following cases;

xxx     xxx     xxx

"(3) 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.

xxx     xxx     xxx

In the present case, it appears, however, that no other instrument was executed between the
parties extending the period of redemption. What was done was simply to annotate on the
deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to repurchase,
extended as requested until July 12, 1961." Needless to say, the purchasers a retro, in the
exercise of their freedom to make contracts, have the power to extend the period of
repurchase. Such extension is valid and effective as it is not contrary to any provision of law.
(Umale vs. Fernandez, 28 Phil. 89, 93)

The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public
document. Consequently, the same is sufficient for the purpose of transferring the rights of
the vendors a retro over the property in question in favor of the petitioners. It is to be noted
that the deed of sale with right to repurchase (Annex "A" Stipulation) was executed on
January 12, 1961, which was very much ahead in point of time to the execution of the real
estate mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation). It is
 obvious, therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza,
executed the real estate mortgage in favor of the intervenor, they were no longer the
absolute owners of the property since the same had already been sold a retro to the
petitioners. The spouses Lanuza, therefore, could no longer constitute a valid mortgage over
the property inasmuch as they did not have any free disposition of the property mortgaged.
(Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of the property
mortgaged is an essential requisite. A mortgage executed by one who is not the owner of the
property mortgaged is without legal existence and the registration cannot validate.
(Philippine National Bank vs. Rocha, 55 Phil. 497).

The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason
that while the real estate mortgage in his favor (Annex "B" Stipulation) has been registered
with the Register of Deeds of Manila under the provisions of Act No. 3344 on November 3,
1961, the deed of sale with right to repurchase (Annex "A" Stipulation) however, has not
been duly registered. Article 1544 of the New Civil Code, however, refers to the sale of the
same property to two or more vendees. This provision of law, therefore, is not applicable to
the present case which does not involve sale of the same property to two or more vendees.
Furthermore, the mere registration of the property mortgaged in favor of the intervenor under
Act No. 3344 does not prejudice the interests of the petitioners who have a better right over
the property in question under the old principle of first in time, better in right. (Gallardo vs.
Gallardo, C.B., 46 O.G. 5568)

De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable
but void ab initio for having been made by Lanuza without the consent of his wife; (2) that the
pacto de retro sale is in reality an equitable mortgage and therefore can not be the basis of a petition
for consolidation of ownership; and (3) that at any rate the sale, being unrecorded, cannot affect third
parties.

We are in accord with the trial court's ruling that a conveyance of real property of the conjugal
partnership made by the husband without the consent of his wife is merely voidable. This is clear
from article 173 of the Civil Code which gives the wife ten years within which to bring an action for
annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave her
conformity to the extension of the period of redemption by signing the annotation on the margin of
the deed. We may add that actions for the annulment of voidable contracts can be brought only by
those who are bound under it, either principally or subsidiarily (art. 1397), so that if there was anyone
who could have questioned the sale on this ground it was Lanuza's wife alone.

We also agree with the lower court that between an unrecorded sale of a prior date and a recorded
mortgage of a later date the former is preferred to the latter for the reason that if the original owner
had parted with his ownership of the thing sold then he no longer had the ownership and free
disposal of that thing so as to be able to mortgage it again. Registration of the mortgage under Act
No. 3344 would, in such case, be of no moment since it is understood to be without prejudice to the
better right of third parties.2 Nor would it avail the mortgagee any to assert that he is in actual
possession of the property for the execution of the conveyance in a public instrument earlier was
equivalent to the delivery of the thing sold to the vendee. 3

But there is one aspect of this case which leads us to a different conclusion. It is a point which
neither the parties nor the trial court appear to have sufficiently considered. We refer to the nature of
the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality an equitable
mortgage. While De Leon raised the question below and again in this Court in his second
assignment of error, he has not demonstrated his point; neither has he pursued the logical
implication of his argument beyond stating that a petition for consolidation of ownership is an
inappropriate remedy to enforce a mortgage.

De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact
that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold and,
second, when the three-month period of redemption expired the parties extended it. These are
circumstances which indeed indicate an equitable mortgage. 4 But their relevance emerges only
when they are seen in the perspective of other circumstances which indubitably show that what was
intended was a mortgage and not a sale.These circumstances are:

1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the
decision of the trial court, the fact has not been mentioned that for the price of P3,000, the supposed
vendors "sold" not only their house, which they described as new and as being made of strong
materials and which alone had an assessed value of P4,000, but also their leasehold right television
set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for consolidation of
ownership is limited to the house and the leasehold right, while the stipulation of facts of the parties
merely referred to the object of the sale as "the property in question." The failure to highlight this
point, that is, the gross inadequacy of the price paid, accounts for the error in determining the true
agreement of the parties to the deed.

2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not
really transfer their ownership of the properties in question to Reyes and Navarro. What was agreed
was that ownership of the things supposedly sold would vest in the vendees only if the vendors
failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount rather than on
the redemption of the things supposedly sold. Thus, the deed recites that —

If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three
months, my right to repurchase the said properties shall be forfeited and the ownership
thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court
intervention and they can take possession of the same.

This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires
ownership of the thing sold immediately upon execution of the sale, subject only to the vendor's right
of redemption.5 Indeed, what the parties established by this stipulation is an odious pactum
commissorium which enables the mortgages to acquire ownership of the mortgaged properties
without need of foreclosure proceedings. Needless to say, such a stipulation is a nullity, being
contrary to the provisions of article 2088 of the Civil Code. 6 Its insertion in the contract of the parties
is an avowal of an intention to mortgage rather than to sell. 7

3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in
the consideration of this case is the fact that the period of redemption expired on July 12, 1961 and
yet this action was not brought until October 19, 1962 and only after De Leon had asked on October
5, 1962 for the extra-judicial for closure of his mortgage. All the while, the Lanuzas remained in
possession of the properties they were supposed to have sold and they remained in possession
even long after they had lost their right of redemption.

Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that this action
for consolidation of ownership is improper, as De Leon claims, but, what is more that between the
unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the
registered mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is
determined by the priority of registration of the mortgages, 8 following the maxim "Prior tempore
potior jure" (He who is first in time is preferred in right.) 9 Under article 2125 of the Civil Code, the
equitable mortgage, while valid between Reyes and Navarro, on the one hand, and the Lanuzas, on
the other, as the immediate parties thereto, cannot prevail over the registered mortgage of De Leon.

Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.
G.R. No. L-55739 June 22, 1984

CARLO LEZAMA BUNDALIAN and JOSE R. BUNDALIAN, petitioners,

vs.
THE HON. COURT OF APPEALS, JUANITO LITTAWA and EDNA CAMCAM, respondents.

Francisco A. Lava, Jr. for petitioners.

Benjamin B. Bernardino for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Court of Appeals, now Intermediate Appellate
Court, affirming a judgment of the then Court of First Instance of Rizal dismissing the petition for
declaratory relief and/or reformation of instrument filed by the petitioners against the respondents
and ordering the petitioners to pay jointly and severally the amounts of P200,000.00 for respondent
Edna Camcam and P50,000.00 for respondent Littawa, as moral damages; the amount of
P50,000.00 for both respondents as exemplary damages; the amount of P30,000.00 for and as
attorney's fees, and to pay the costs of the suit.

On July 1, 1975, the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. de
Virata three (3) contiguous parcels of land located at San Juan, Rizal, containing an aggregate area
of 3,328 square meters, more or less, for and in consideration of the amount of P499,200.00.

The following day, July 2, 1975, the petitioners, in a contract denominated as Deed of Sale with
Right to Repurchase, sold to the private respondents the same three contiguous parcels of land for
the same amount of P499,200.00 under specified terms and conditions. One of the terms and
conditions was that the repurchase price would escalate month after month, depending on when
repurchase would be effected. The price would be P532,480.66 computed at P160.00 per square
meter after the first month; P565,760.00 computed at P170.00 per square meter after the second
month; P599,040.00 computed at P180.00 per square meter after the third month; and P632,320.00
computed at P190.00 per square meter after the fourth month, from and after the date of the
instrument. It was also stipulated in the same contract that the vendor shall have the right to
possess, use, and build on, the property during the period pending redemption.
On August 26, 1976, the petitioners filed a petition for declaratory relief and/or reformation of
instrument before the Court of First Instance of Rizal at Pasig, Metro Manila to declare the Deed of
Sale with Right to Repurchase an equitable mortgage and the entire portion of the same deed
referring to the accelerating repurchase price null and void for being usurious, and to reduce the loan
obligation to P474,200.00, contending that the amount actually loaned was only P474,200.00 and
the petitioners put up P25,000.00 of the wife's money when the purchase from the estate of Mrs.
Virata was consummated.

On August 27, 1976, the private respondents, in turn, filed a petition for the consolidation of
ownership on the ground that "more than a year has elapsed since the execution of the Deed of Sale
with Right to Repurchase by the vendor on July 2, 1975." The private respondents contended that
"notwithstanding which the vendor has failed to avail of its rights under the provisions of Article 1607
in relation to Article 1616 of the New Civil Code, the vendor has lost all his rights to avail himself of
the right to consolidate ownership of the property subject of the Deed of Sale." To this petition for
consolidation of ownership, the petitioners filed their opposition upon the following grounds: (a) there
is a pending suit between the same parties involving the same cause and subject matter; (b)
consolidation will be improper considering that the basic document upon which it is being sought is
in fact and in law only an equitable mortgage; and (c) consolidation cannot be effected thru the
instant petition. Accordingly, the Court of First Instance of Rizal ordered the transfer of the petition
for consolidation of ownership to Branch XXIV of the same Court where the petition for declaratory
relief and/or reformation of instrument was pending in order that the two cases may be considered
together.

A supplemental petition was subsequently filed by the petitioners alleging that the private
respondents' petition for consolidation of ownership was made in order to frustrate and render
nugatory whatever orders or judgment may be issued by the trial court in the petition for declaration
relief/or reformation of instrument.

After the trial and presentation of the parties' respective memoranda the trial court rendered the
decision in favor of the private respondents.

The petitioners appealed to the Court of Appeals. The appellate court affirmed in toto the decision of
the trial court. Two motions for reconsideration having been denied, the petitioners filed the present
petition based on the following grounds:

A.

RESPONDENT COURT OF APPEALS ERRED GRAVELY, TO THE EXTENT OF

GRAVE ABUSE OF DISCRETION, AND IN VIOLATION OF PETITIONERS' RIGHT
TO DUE PROCESS OF LAW AT APPELLATE LEVEL, WHEN IT AFFIRMED THE
APPEALED DECISION WITHOUT ANY DISCUSSION OF THE QUESTIONS
RAISED IN THE APPEAL AND BY SIMPLY ADOPTING THE POSITION OF THE
TRIAL WHICH IS PRECISELY QUESTIONED IN THE APPEAL.

B.

RESPONDENT COURT OF APPEAL ERRED GRAVELY TO THE EXTENT OF

GRAVE ABUSE OF DISCRETION IN ADOPTING TOTALLY AND UNCRITICALLY
THE GROSSLY ERRONEOUS REASON AND POSITION OF THE TRIAL COURT.

C.
 RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF
GRAVE ABUSE OF DISCRETION, IN UNCERMONIOUSLY, DENYING
PETITIONERS' FIRST MOTION FOR RECONSIDERATION, MOTION FOR ORAL
ARGUMENT, MOTION TO INVITE AMICUS CURIAE, AND SECOND MOTION FOR
RECONSIDERATION.

E.

RESPONDENT COURT OF APPEALS ERRED GRAVELY TO THE EXTENT OF

GRVE ABUSE OF DISCREATION, IN NOT REVERSING THE APPEALED
JUDGMENT AND GRANTING THE PRAYERS OF PETITIONERS-APPELLANTS,
FOREMOST OF WHICH IS TO DECLARE THE DEED OF SALE WITH RIGHT TO
REPURCHASE TO BE AN EQUITABLE MORTGAGE.

Tell issue is this case is whether or not the deed of sale with right to repurchase should be declared
as an equitable mortgage.

We find meritorious the petitioners' contention that under Article 1602 of the Civil Code the deed of
sale with right to repurchase should be presumed to be an equitable mortgage due to the following
reasons.

(1) The contracts involving the subject properties came one after another in the
space of two (2) days. The Deed of Absolute Sale between petitioner Jose R.
Bundalian as vendee and Romeo S. Geluz, in his capacity as Administratorf of the
Estate of the deceased Agapita Sarao Vda. de Virata, as vendor, was executed on
July 1, 1975 (pp. 19-26, Annex "A"). The purported Deed of Sale with Right to
Repurchase between petitioner, Jose R. Bundalian as vendor and respondents
Juanito Littawa and Edna Camcam as vendees was executed on July 2, 1975 (pp.
26- 32, Annex "A"). This already indicates, at a very early stage, that the two
lwphl@itç 

transactions must be intimately related.

(2) Such intimate relation between the aforementioned Deed of Absolute Sale and
Deed of Sale with Right to Repurchase is already clear in the statement in the latter
instrument that the subject property had just been purchased by Jose R. Bundalian
from the estate of the deceased Agapita Sarao Vda. de Virata, 'with funds loaned to
him by the herein VENDEES' the latter being no other than respondents Littawa and
Camcam (p. 28, Annex "A"). Patently, petitioner Jose R. Bundalian was funded by
private respondents to enable him to purchase the property from the said estate.

(3) Having just purchased the property from the estate by way of Deed of Absolute
Sale on July 1, 1975, for which he had just paid P499,200.00 as purchase price, it
would have been utterly senseless for petitioner Jose R. Bundalian to sell the same
property to private respondents the very next day, July 2, 1975, with or without the
right of repurchase. No other conclusion is possible except that the Deed of Sale with
Right to Repurchase is precisely the security the equitable mortgage — to petitioner
Jose R. Bundalian to enable the latter to purchase the property from the
aforementioned estate.

(4) It would have been more senseless for petitioner Jose R. Bundalian to sell the
property to private respondents at the same price of P499,200.00 he had paid the
estate of the deceased Agapita Sarao Vda. de Virata, without profit and at a sure
loss. By the terms of the Deed of Sale with Right to Repurchase he would have to
repurchase the property at a continually increasing price, from Pl 50.00 per square
meter to P190.00 per square meter, that is, up to P133,120.00 over and above the
original price of P499,200.00, in only four (4) months. Again, no other conclusion is
possible but that the contract is an equitable mortgage, not a sale.

(5) It is provided in the Deed of Sale with Right to Repurchase that 'It is agreed that
the vendor (Jose R. Bundalian) shall have the right to possess, use, and build on, the
property during the period of redemption' (p. 30, Annex "A"). It has been held that
there is a 'loan with security' rather than a pacto de retro sale where by agreement
the vendor was to remain in possession of the lands (Escoto vs. Arcilla, 89 Phil. 199,
204). Where there was an acknowledgment of the vendor's right to retain possession
of the property, as in the case at bar, the contract was one of "loan guaranteed by a
mortgage" rather than a conditional sale (Macoy vs. Trinidad, 95 Phil. 192, 202).
Indeed, there can be no question that petitioner Jose R. Bundalian remained legally
in possession of the subject property. Again, the conclusion is ineluctable that the
Deed of Sale with Right to Repurchase was executed as security for the loan
extended by private respondents to petitioner Jose R. Bundalian, i.e., as equitable
mortgage.

(6) The increase per month in the alleged redemption price is very compatible with
the Idea that the transaction was really intended by the parties to be a mortgage. It
bears emphasis, at this juncture, that the supposed repurchase price is in the same
amount as the original "price" of P499,200.00 should "repurchase" be effected during
the first month from and after the date of the instrument; P532,480.00 computed at
P160.00 per square meter should "repurchase" be effected after the first month;
P565,760.00 computed at P170.00 per square meter should "repurchase" be after
the second month; P599,040.00 computed at P180.00 per square meter should
"repurchase" be after the third month; or P632,320.00 computed at P190.00 per
square meter should "repurchase" be effected even "after the fourth month" (pp. 29-
30, Annex "A"). The monthly increases in the alleged "redemption price"clearly
represent nothing but interest. It is well-settled that provision for interest payments is
a clear indication that the supposed sale is actually an equitable mortgage (Macoy
vs. Trinidad, 95 Phil. 192, 202; Escoto vs. Arcilla, 89 Phil. 199, 204). This would fall
under the legal situation "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" (No. 6), Art. 1062, Civil Code). To make matters worse, the
monthly increase in the supposed "redemption price", meaning the interest of course,
are clearly usurious, precisely one of the evils sought to be negated by the provisions
of Articles 1602, 1603 and 1604 of the Civil Code, as noted previously herein.

(7) While the Deed of Sale with Right to Repurchase supposedly provided for a
"redemption" period of "four (4) months from and after the date of this instrument" (p.
29, Annex "A"), it later necessarily provided for a built-in extension of the period of
'redemption' by providing for payment of the amount of P632,320.00 computed at
P190.00 per square meter should "repurchase" be effected "after the fourth
month" (p. 30, Annex "A"). In other words, it was implicitly agreed that the period of
'repurchase' was not limited to 4 months from and after the date of execution of the
instrument, in as much as said "repurchase" could be effected even "after the fourth
month". It is well — settled that extension of the period of "redemption" is indicative
of equitable mortgage (Nos.(3) and (6), Art. 1602, Civil Code; Reyes vs. De Leon, 20
SCRA 369, 370). lwphl@itç
 (8) It may be argued, as private respondents have argued, that normally a loan does
not exceed 60% of the price of the land given as security, so that private respondents
could not have loaned P499,200.00 on the land the value of which was claimed to be
also P499,200.00. However, such reasoning is clearly unsound. It loses sight of the
fact that private respondents precisely funded or financed petitioner Jose R.
Bundalian's acquisition of the property from the estate of the deceased Agapita
Sarao Vda. de Virata. In other words, petitioner Jose R. Bundalian could not have
acquired the land to serve as security for the repayment of the loan unless private
respondents had extended the loan in the first place. Surely, private respondents
stood to benefit enormously from such financing transaction in view of the patently
usurious monthly interests transparently disguised as the accelerating or increasing
monthly 'repurchase' price. At any rate, in the event that petitioner Jose R. Bundalian
ultimately failed to pay the loan, the rapid increase in the price of the land, which was
estimated to be worth at least P632,320.00 after 4 months (from the initial
P499,200.00), practically guaranteed a very good return on the money investment of
private respondents as money- lenders.

(9) It cannot be questioned that petitioner Jose R. Bundalian paid taxes on the land,
even after the supposed 4 month period of "redemption". Payment of taxes after
expiration of the supposed "redemption" period has been considered as indicative of
equitable mortgage (Escoto vs. Arcilla, supra).

(10) It is an admitted fact that private respondents took some time before filing their
petition for consolidation of ownership. Private respondents admitted in said petition
that "more than a year has elapsed since the execution of the Deed of Sale with
Right to Repurchase" (p. 34, par. 3, Annex "A"). Reckoning 4 months from July 2,
1975, it would appear that the "repurchase" period expired supposedly on November
2, 1975. As private respondents filed their petition for consolidation on August 27,
1976, it is clear that they delayed filing said petition by more than 9 months. A similar
delay in the filing of the supposed "vendee's" petition for consolidation was
considered as indicative of equitable mortgage (Reyes vs. de Leon, 20 SCRA 369,
378).

(11) If the Deed of Sale with Right to Repurchase would not be considered as an
equitable mortgage, it would result that there was actually no security for the loan of
P499,200.00 extended by private respondents to petitioners Jose R.
Bundalian, which would make no sense at all considering the enormity of the loan.
There was, to be sure, a security for said loan, none other than the equitable
mortgage tainted with usury and disguised as the Deed of Sale with Right to
Repurchase.

The private respondents argued that the petitioners' contention is true only in cases where the
contract or instrument is not reflective of the true intentions of the contracting parties as would
warrant reformation of the same. They stated that if the intention of the parties is to execute a deed
of sale with pacto de retro, the contract should be held as such. The petitioners were allegedly fully
aware that the deed of sale with pacto de retro is what it purports to be and nothing else.
Furthermore, the petitioners waited for the period of redemption to expire before availing of the relief
granted by the Civil Code of reformation of contracts.

We find the stand of the private respondents without merit. The intent of the parties to circumvent the
provision discouraging pacto de retro transactions is very apparent from the records. Article 1602 of
the Civil Code states:
 Article 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) 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;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other eases 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 performance of
any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by
the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws.

Significantly, a portion of the document in question reads:

(The vendor) having just purchased the same from the Intestate estate of the
deceased Agapita Sarao Vda. de Virata (Special Proceedings No. B-710 of the Court
of First Instance of Cavite), with funds loaned to him by the herein VENDEES.
(Emphasis supplied).

This statement appearing in the supposed pacto de retro sale confirms the real intention of the
parties to secure the payment of the loan acquired by the petitioners from the private respondents.
The sale with the right to repurchase of the three parcels of land was for P499,200.00, which was
exactly the same amount paid to the estate of the deceased Agapita Sarao Vda. de Virata- After
having purchased the three lots for P499,200.00, the vendors should at least have earned a little
profit or interest if they really intended to resell the lots the following day. Instead, they suffered a
loss of P25,000.00 because the amount borrowed, and we find grounds to believe their statement of
having advanced P25,000.00 of their own funds as earnest money, was actually only P474,000.00.
The petitioners also bound themselves to pay exceedingly stiff prices for the privilege of repurchase.
The intent of the parties is further shown by the fact that the Bundalians P500,000.00 collectibles
due from the government for completed construction contracts could not be collected on time to pay
for the lots advertised for sale in Bulletin Today. The petitioners had to run to the private
respondents who had money to lend. The Bundalians received the accounts due from the
government only in 1977 after the proceedings in the trial court were well underway.

The stipulation in the contract sharply escalating the repurchase price every month enhances the
presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the
money invested with substantial profit or interest, a common characteristic of loans.

The private respondents try to capitalize on an admission by Mrs. Bundalian that she "accepted" the
transaction knowing it to be a contract of sale with right of repurchase. The reliance is grounded on
shaky foundations. The Bundalians were in the construction business and knew quite well what they
were signing. But vendors covered by Article 1602 of the Civil Code are usually in no position to
bargain with the vendees and will sign onerous contracts to get the money they need. It is precisely
this evil which the Civil Code guards against. It is not the knowledge of the vendors that they are
executing a contract of sale pacto de retro which is the issue but whether or not the real contract
was one of sale or a loan disguised as a pacto de retro sale.

The contract also provides that "it is agreed that the vendor shall have the right to possess, use, and
build on, the property during the period of redemption." When the vendee acknowledged the right of
the vendor to retain possession of the property the contract is one of loan guaranteed by mortgage,
not a conditional sale or an option to repurchase. (Macoy vs. Trinidad, et al., 95 Phil. 192).

The respondents' contention that the right to possess, use, or build on the lots embodied in the
contract was a mere "right" and not actual possession appears to be sophistry. The records show
that the Bundalians construction equipment such as tractors, payloaders, and bulldozers were on the
lots. A shop was built on the premises. Mr. Bundalian testified that from the time he purchased the
property from the estate of Mrs. Virata up to the "minute" he testified, he never lost possession. The
Bundalians paid the real estate taxes on the lots. As against the express provision of the contract
and the actual possession by the petitioners, the private respondents come up with a far fetched
argument that since the titles to the lots were in their hands, they were the ones in legal possession.
Parenthetically, the titles in their hands were still in the name of the estate of Agapita Sarao Vda. de
Virata, the original vendor-owner.

IN VIEW OF THE FOREGOING, the decisions of' the respondent Court of Appeals and the trial court
are hereby REVERSED; and SET ASIDE. The deed of sale with right to repurchase is declared as
an equitable mortgage. The petitioners are ordered to pay their debt to the private respondents with
legal rate of interest from the time they acquired the loan until it is fully paid.

SO ORDERED.
Bundalian v. Court of Appeals
G.R. No. L-55739, 22 June 1984, 129 SCRA 645

FACTS:

On July 1, 1975, the petitioners purchased from the Estate of the Deceased Agapita Sarao Vda. de
Virata three (3) contiguous parcels of land located at San Juan, Rizal, containing an aggregate area
of 3,328 square meters, more or less, for and in consideration of the amount of P499,200.00.

The following day, July 2, 1975, the petitioners, in a contract denominated as Deed of Sale with
Right to Repurchase, sold to the private respondents the same three contiguous parcels of land for
the same amount of P499,200.00 under specified terms and conditions.

One of the terms and conditions was that the repurchase price would escalate month after month,
depending on when repurchase would be effected. The price would be P532,480.66 computed at
P160.00 per square meter after the first month; P565,760.00 computed at P170.00 per square meter
after the second month; P599,040.00 computed at P180.00 per square meter after the third month;
and P632,320.00 computed at P190.00 per square meter after the fourth month, from and after the
date of the instrument. It was also stipulated in the same contract that the vendor shall have the right
to possess, use, and build on, the property during the period pending redemption.

On August 26, 1976, the petitioners filed a petition for declaratory relief and/or reformation of
instrument before the Court of First Instance of Rizal at Pasig, Metro Manila to declare the Deed of
Sale with Right to Repurchase an equitable mortgage and the entire portion of the same deed
referring to the accelerating repurchase price null and void for being usurious, and to reduce the loan
obligation to P474,200.00, contending that the amount actually loaned was only P474,200.00 and
the petitioners put up P25,000.00 of the wife’s money when the purchase from the estate of Mrs.
Virata was consummated.

ISSUE:

Whether or not the deed of sale with right to repurchase should be declared as an equitable
mortgage?

RULING:
Yes, it should be declared as an equitable mortgage.

The private respondents argued that the petitioners’ contention is true only in cases where the
contract or instrument is not reflective of the true intentions of the contracting parties as would
warrant reformation of the same. They stated that if the intention of the parties is to execute a deed
of sale with pacto de retro, the contract should be held as such. The petitioners were allegedly fully
aware that the deed of sale with pacto de retro is what it purports to be and nothing else.
Furthermore, the petitioners waited for the period of redemption to expire before availing of the relief
granted by the Civil Code of reformation of contracts.

We find the stand of the private respondents without merit. The intent of the parties to circumvent the
provision discouraging pacto de retro transactions is very apparent from the records. Article 1602 of
the Civil Code states:

Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) 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;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other eases 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 performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Significantly, a portion of the document in question reads:

(The vendor) having just purchased the same from the Intestate estate of the deceased Agapita
Sarao Vda. de Virata (Special Proceedings No. B-710 of the Court of First Instance of Cavite), with
funds loaned to him by the herein VENDEES. (Emphasis supplied).

This statement appearing in the supposed pacto de retro sale confirms the real intention of the
parties to secure the payment of the loan acquired by the petitioners from the private respondents.
The sale with the right to repurchase of the three parcels of land was for P499,200.00, which was
exactly the same amount paid to the estate of the deceased Agapita Sarao Vda. de Virata- After
having purchased the three lots for P499,200.00, the vendors should at least have earned a little
profit or interest if they really intended to resell the lots the following day.

Instead, they suffered a loss of P25,000.00 because the amount borrowed, and we find grounds to
believe their statement of having advanced P25,000.00 of their own funds as earnest money, was
actually only P474,000.00. The petitioners also bound themselves to pay exceedingly stiff prices for
the privilege of repurchase. The intent of the parties is further shown by the fact that the Bundalians
P500,000.00 collectibles due from the government for completed construction contracts could not be
collected on time to pay for the lots advertised for sale in Bulletin Today. The petitioners had to run
to the private respondents who had money to lend. The Bundalians received the accounts due from
the government only in 1977 after the proceedings in the trial court were well underway.
The stipulation in the contract sharply escalating the repurchase price every month enhances the
presumption that the transaction is an equitable mortgage. Its purpose is to secure the return of the
money invested with substantial profit or interest, a common characteristic of loans.

G.R. No. L-42282 February 28, 1983

HERMENEGILDO R. ROSALES, plaintiff-appellant,
vs.
PEREGRIN YBOA, Provincial Deputy Sheriff of Samar and the REGISTER OF DEEDS for the
Province of Samar, defendants-appellees.

DE CASTRO, J.:

This case was certified to this Court by the former Court of Appeals per its Resolution of November
13, 1975 the appeal thereto made having raised purely legal question, which is whether or not the
Court of First Instance of Samar, in Civil Case No. 5325 entitled "Hermenegildo Rosales vs.
Peregrin Yboa, et al., " erred in declaring the legality and validity of the redemption made by the
mortgagor Pedro Oliverio of his titled property.

It appears that by virtue of the foreclosure of real estate mortgage duly executed by the mortgagor
Pedro Oliverio in favor of the Development Bank of the Philippines, as security for the payment of
the amount of P12,000.00, and after giving notice of the date, time and place of sale as required by
law, defendant-appellee Deputy Sheriff of Samar Peregrin Yboa, sold at public auction on January
28, 1970 to plaintiff-appellant Rosales, the highest bidder, for the total amount of fourteen thousand
five hundred pesos (P14,500.00), the parcel of land covered by T.C.T. No. T-646 of the Register of
Deeds for the Province of Samar. The corresponding Sheriff's certificate of sale was issued in favor
of plaintiff-appellant, which certificate was registered in the Office of the Register of Deeds for the
Province of Samar on February 3, 1970.

On January 23, 1971, after the mortgagor Pedro Oliverio had served notice in writing of the
redemption and had paid on said date to defendant-appellee Deputy Sheriff the principal amount of
P14,500.00 plus P1,691.00 representing the one (1 %) per centum interest per month, the latter
executed a Deed of Certificate of Redemption restoring, conveying and assigning unto the said
mortgagor, his heirs and assigns all the estate, right, title and interest on said foreclosed property.

On March 10, 1971, plaintiff-appellant filed the instant complaint for cancellation of certificate of
redemption alleging that no valid redemption was effected because while the mortgagor had paid
within the period of redemption the purchase price in the sum of P14,500.00 plus P1,691.00
representing 1 % interest per month, he, however, failed to tender payment of 1) the full interest on
the purchase price, while should be P1,715.84, instead of Pl,691.00 actually paid by the mortgagor,
thereby leaving a deficiency in the sum of P24.84; 2) the sum of P3.00 representing the registration
fee of the certificate of sale, plus interest thereon of P0.04; 3) the delinquent real estate taxes of the
subject property for the years 1960 to 1970 amounting to P745.47; and 4) the Sheriff's commission
in the sum of P99.82.

On March 22, 1971, defendants-appellees filed an answer alleging that while it is true that mortgagor
Pedro Oliverio has tendered to defendant- appellee Deputy Sheriff the amount of P14,500.00 plus
Pl,691.00 for redemption purpose, the sum tendered being the amount of the auction purchase price
plus 1% interest per month thereon up to the time of redemption and the tender being timely made
and in good faith, the same is a valid one according to Section 30, Rule 39 of the Rules of Court;
that granting in arguendo, that the property subject of redemption is delinquent in the payment of
real estate taxes for the years 1960 to 1970 in the total amount of P745,47, it will not in anyway
affect the regularity and validity of the redemption for no written notice that any such assessments or
taxes are paid by the plaintiff-appellant as purchaser, was given to defendant appellee Deputy
Sheriff who made the sale thereof and such not have filed, the property may be redeemed even
without paying such assessments or taxes.

On August 16, 1971, the trial court conducted a pre-trial of the case. After such pre-trial and upon
motion of -plaintiff-appellant, the trial court rendered a summary judgment, pursuant to Rule 34 of
the Rules of Court, since the answer of defendants-appellees raises no genuine issue of material
facts, as well as their admission of the genuineness and due execution of the Certificate of Sale
executed by defendant-appellee Deputy Sheriff in favor of plaintiff-appellant; the payment of entry
fee and annotation on TCT No. T-640 of the Certificate of Sale in the sum of P3.00; the Certificate of
Redemption executed by defendant-appellee Deputy Sheriff in favor of mortgagor Pedro Oliverio;
the Certificate of Delinquency of real estate taxes of the subject property in the amount of P745.47;
and the non-payment of sheriff's commission in the sum of P99.82. In the summary judgment the
trial court dismissed the plaintiff-appellant's complaint and declared that the Certificate of
Redemption of the property sold at public auction is valid and legal "without prejudice to the right of
the plaintiff-appellant to recover from the redemptioner the sum of P0.67 representing the
deficiencies in the 1 % monthly interest   and the sum of P3.00 representing the entry and annotation
1

fees of the Register of Deed of Samar for the registration of the Certificate of Sale together with the
sum of P0.04 representing interest on the last stated amount from February 3, 1970 to January 23,
1971."

On December 13, 1971, plaintiff-appellant, after receipt of the Summary Judgment, filed his Record
on Appeal, Notice of Appeal and Appeal Bond. On May 12,1972, the trial court approved the Record
on Appeal and ordered the transmittal of the records of the case to the Court of Appeals. As
aforementioned, the Court of Appeals certified the case to this Court on the ground that it involves
the purely legal question of whether or not a valid and legal redemption was made by the mortgagor
Pedro Oliverio of his titled property.

There is no question that Pedro Oliverio has the right to redeem the subject property, in view of the
provisions of section 6 of Act 3135, as amended by Act No. 4148.   The procedure for effecting such
2

redemption is contained in section 30, Rule 39 of the Rules of Court, the pertinent portion of which
provides:

Sec. 30. Time and manner of, and amounts payable on successive redemptions.
Notice to be given and filed .The judgment debtor, or redemptioner, may redeem the
property from the purchaser, at anytime within twelve (12) months after the sale, on
paying the purchaser the amount of his purchase, with one per centum per month
 interest thereon in addition, up to the time of redemption, together with the amount of
any assessments or taxes which the purchaser may have paid thereon after
purchase, and interest on such last roamed amount at the same rate; ...

xxx xxx xxx

Written notice of any redemption must be given to the Officer who made the sale and
a duplicate filed with the register of deeds in the province; ...

Pursuant to the above-cited provision, the requisites for a valid redemption are: 1) the redemption
must be made within twelve (12) months from the time of the registration of the sale in the Office of
the Register of Deeds (Gorospe vs. Santos, 69 SCRA 191; Agbulos vs. Alberto, 5 SCRA 790;
Santos vs. Rehabilitation Finance Corporation, et al., 101 Phil. 980; 2) payment of the purchase
price of the property involved, plus 1% interest per month thereon, if any, paid by the purchaser after
the sale with the same rate of interests (Rosario vs. Tayug Rural Bank, 22 SCRA 1220 cited in
Tolentino vs. Court of Appeals, 106 SCRA 513); and 3) written notice of the redemption must be
served on the officer who made the sale and a duplicate filed with the Register of Deeds of the
province.

There is no dispute, that in the case at bar, the mortgagor Pedro Oliverio tendered payment of the
purchase price on January 23, 1971, well within the redemption period of twelve (12) months after
the registration of the sale on February 3,1970 and that defendants-appellees Deputy Sheriff of
Samar and the Register of Deeds of Samar were duly notified in writing of the mortgagor's desire to
redeem the subject property. Equally beyond question is the fact that mortgagor Pedro Oliverio
tendered the sum of P14,500.00 corresponding to the purchase of the property, and the amount of
P1,691.00 representing the 1% monthly interest thereon, although the trial court found a deficiency
of P0.67 due and owing to the plaintiff-appellant. The mortgagor, therefor, has substantially complied
with the requirements of the law to effect redemption, for which reason a Certificate of Redemption
was issued in his favor by defendant-appellee Deputy Sheriff.

But plaintiff-appellant would insist that although mortgagor Pedro Oliverio had tendered payment of
the purchase price of P14,500.00 and the interest of P1,691.00, nevertheless, no valid redemption
was effected by the latter, since there are still four deficiencies which the mortgagor failed to pay.
Firstly, plaintiff-appellant would contend that there is still a deficiency interest of P24.84 on the
purchase price since the interest thereon should be computed from the date of the auction sale, that
is, January 28, 1970, and not from the date of the registration thereof on February 3, 1970. The
contention is without merit. Plaintiff-appellant has not cited any authority to support his theory that
the interest on the purchase price should be computed from the date of the sale and not from the
registration thereof. We rule that since the period of redemption begins only from the date of the
registration of the certificate of sale in the Office of the Register of Deeds, it being only then that the
certificate takes effect as a conveyance,  the computation of the interest on the purchase price
3

should also be made to commence from that date.

Secondly, although the amount of P3.00 representing the registration fee incurred by plaintiff-
appellant may be considered as any assessments or taxes which the purchaser may have paid
thereon after purchase," still the non-payment of this amount by the mortgagor Pedro Oliverio will not
render invalid his redemption, since, as discussed above, he has substantially complied with the
legal requirements for a valid redemption.

Thirdly, as to the non-payment of real estate taxes of the subject property for the years 1960 to 1970
amounting to P745.47, the same should not affect the regularity and validity of the redemption made
by the mortgagor Pedro Oliverio. The latter is not legally bound to pay such amount to plaintiff-
appellant as purchaser, for Section 30, Rule 39 clearly provides that "the judgment debtor, or
redemptioner, may redeem the property... on paying the purchaser ... the amount of any
assessments or taxes which the purchaser may have paid thereon after purchase; and interest on
such last-named amount at the same rate." Nowhere in the Records is it shown that plaintiff-
appellant had paid such amount. On the contrary, defendants-appellees in their Answer   to plaintiff-
4

appellant's complaint, have averred that no written notice that any assessments or taxes are paid by
the latter as purchaser, was given to defendant-appellee Deputy Sheriff of Samar who made the sale
thereof. In fact, the Solicitor-General, in his Brief filed in behalf of the defendants-appellees, has
made the following observation.  5

We are indeed surprised how appellant was able to secure the registration of his
certificate of sale without first paying the delinquent taxes as required by Section 1,
Republic Act No. 456.

An extra judicial foreclosure sale being in the nature of a voluntary transaction,

appellant should have been required by the Register of Deeds of Samar to pay the
delinquent land taxes on the subject property before registering his certificate of sale.
Payment of delinquent land taxes being a condition precedent to the registration of
appellant's Certificate of Sale, but which, somehow, he was able to evade, he cannot
now avail of the issue of such delinquent land taxes to defeat the mortgagor's right of
redemption.

Finally, the non-payment of the Sheriff's Commission in the sum of P99.82 will not, likewise, affect
the validity of redemption since such amount is not included in the payments required of a
redemptioner as set forth in said Section 30 of Rule 39.

In fine, We hold that the failure of the mortgagor Pedro Oliverio to tender the amount of P745.47
representing the delinquent real estate taxes of the subject property, the registration fee of P3.00
and the interest thereon of P0.04, the Sheriff's Commission in the sum of P99.82, and the deficiency
interest on the purchase price of the subject property, will not render the redemption in question null
and void, it having been established that he has substantially complied with the requirements of the
law to effect a valid redemption, with his tender of payment of the purchase price and the interest
thereon within twelve (12) months from the date of the registration of the sale. This ruling is in
obedience of the policy of the law to aid rather than to defeat the right of redemption. 
6

WHEREFORE, the decision of the court a quo is hereby affirmed, without costs.

SO ORDERED.
LEONARDO TIOSECO, petitioner,
vs.
HONORABLE COURT OF APPEALS JOSE P. VILLANUEVA and TIMOTEA P.
VILLANUEVA, respondents.

Jose T. Sumat for petitioner.

Amado F. Nera for respondents.

PARAS, J.:

A petition for review by certiorari of the decision of the respondent Intermediate Appellate Court in
AC-G.R. CV No. 68888 promulgated on December 27, 1983, as well as of the Resolution of said
appellate court promulgated on February 13, 1984 denying the Motion for Reconsideration of the
aforesaid decision.

The facts of this case are as follows: The respondent spouses Jose P. Villanueva and Timotea P.
Villanueva mortgaged to the Tarlac Branch of the Philippine National Bank three lots described in
OCT No. C-542 issued by the Register of Deeds of Tarlac to secure payment of a loan of EIGHT
THOUSAND SIX HUNDRED (P8,600.00) PESOS. When they failed to comply with the mortgage
contract, the Philippine National Bank petitioned the Provincial Sheriff of Tarlac to foreclose upon the
properties extrajudicially. The Provincial Sheriff in the public auction he conducted on March 7, 1977
sold the lots to Leonardo Tioseco, herein petitioner, as the highest bidder for the amount of
EIGHTEEN THOUSAND NINE HUNDRED AND SEVENTY FIVE (P18,975.00) PESOS.

The certificate of sale dated March 7, 1977 issued by the Provincial Sheriff to Tioseco was
registered in the Office of the Register of Deeds of Tarlac on March 8, 1977. Tioseco's ownership
over the properties was consolidated, the title of the spouses Villanueva was cancelled and TCT No.
141194 was issued to Tioseco by the Register of Deeds on March 7, 1978.
It is claimed by Tioseco that sometime before March 9, 1978 respondents Villanueva visited him in
his house and offered to pay the amount he had paid for the three lots auctioned off on March 7,
1977. Tioseco told them that they could redeem the three lots by paying to him the amount he paid
at the auction sale plus interest. The respondents promised to return, but never did.

Upon the other hand, it is claimed by the respondents that they offered to redeem the three lots
within the period of redemption but Tioseco allegedly demanded TWENTY TWO THOUSAND SIX
HUNDRED FORTY ONE PESOS AND EIGHT CENTAVOS (P22,641.08) as redemption price.
Finding the amount demanded excessive, the respondents Villanueva filed a suit on March 7, 1978
to annul the sale in favor of Tioseco on the ground that it was irregular and to require both the
Philippine National Bank and Tioseco to determine the amount they should pay to be able to redeem
the three lots.

The Philippine National Bank stated in its answer that at the time of the auction sale of the three lots
on March 7, 1977 the amount of EIGHTEEN THOUSAND NINE HUNDRED SEVENTY FIVE
(P18,975.00) PESOS was due from the respondents. The amount included the principal of the loan,
accrued interest, service charges, expenses of foreclosure, and attorney's fees. The answer also
stated that the auction sale conducted by the Provincial Sheriff was in accordance with the
formalities and other requirements prescribed by law.

In his answer, Tioseco denied having demanded the sum of TWENTY TWO THOUSAND SIX
HUNDRED FORTY ONE PESOS AND EIGHT CENTAVOS (P22,641-08) from the respondents.

After trial the lower court rendered its decision, the dispositive portion of which reads-

WHEREFORE, the plaintiffs are allowed to redeem the properties covered by TCT
No. 141194 of the Register of Deeds of Tarlac by the payment to the defendant
Tioseco of the amount of EIGHTEEN THOUSAND NINE HUNDRED SEVENTY FIVE
(P 18,975.00) PESOS plus 1% per month interest thereon in addition from the time of
the sale on March 7, 1977 to the time of redemption, plus any assessment for
taxation which defendant Tioseco may have paid thereon and the interest on such
amount at the same rate and all other expenses specified in Sec. 30, Rule 39 of the
Rules of Court within 30 days from the finality of this judgment, without
pronouncement as to costs,

On appeal by petitioner, the Intermediate Appellate Court affirmed in toto the decision of the lower
court. With the denial of his motion for reconsideration, the petitioner filed this petition for review of
the decision of the appellate court.

Petitioner made the following assignment of errors:

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT LEONARDO

TIOSECO PUT UP AN AMOUNT BIGGER THAN WHAT WAS PROPER TO
PREVENT THE PLAINTIFFS FROM EXERCISING THEIR RIGHTS OF
REDEMPTION.

II
 THE TRIAL COURT ERRED IN HOLDING THAT THE FAILURE OF THE
PLAINTIFFS TO MAKE A VALID TENDER AND TO CONSIGN THE AMOUNT IN
COURT ASSUMES SUBORDINATE IMPORTANCE AND THE PLAINTIFFS
DESPITE SUCH FAILURE TO COMPLY BY THE STATUTORY REQUIREMENTS
FOR LEGAL REDEMPTION, ARE STILL ENTITLED TO MAKE THE REDEMPTION.

III

THE TRIAL COURT ERRED IN ALLOWING THE PLAINTIFFS TO REDEEM THE

PROPERTIES COVERED BY TCT NO. 141194 OF THE REGISTER OF DEEDS OF
TARLAC AFTER TIOSECO'S OWNERSHIP TO THE PROPERTIES WAS
CONSOLIDATED. (pp. 9-10, Rollo).

We prescind from the assignment of errors raised and proceed directly to the question presented
before this Court: Have the respondents exercised their right of redemption effectively? We answer
in the affirmative.

There is no question that the respondents have the right to redeem the subject property in view of
the provision of Section 25, P.D. No. 694 (Revised Charter of PNB):

SEC. 25. Right of redemption of property-Right of possession during redemption

period.—Within one year from the registration of the foreclosure sale of real estate,
the mortgagor shall have the right to redeem the property by paying all claims of the
Bank against him on the date of the sale including all the costs and other expenses
incurred by reason of the foreclosure sale and custody of the property, as well as
charges and accrued interests.

xxx xxx xxx

When the respondents chose to enforce their right of redemption thru a court action on March 7,
1978 they were well within their right as the action was filed within one year from the registration of
the foreclosure sale of the real estate on March 9, 1977. P.D. No. 694 is silent as to any formal
tender of repurchase price as a pre-condition to a valid exercise of the right of redemption. It does
not even require any previous notice to the vendee, nor a meeting between him and the
redemptioner, much less a previous formal tender before any action is begun in court to enforce the
right of redemption. In any case, the lack of funds which may render the right inefficacious cannot
affect the existence of the right. In fact, the filing of the action itself, within the period of redemption,
is equivalent to a formal offer to redeem (see Reoveros v. Abel and Sandoval, 48 O.G. 5318). And in
this connection, a formal offer to redeem, accompanied by a bona fide tender of the redemption
price, altho proper, is not even essential where, as in the instant case, the right to redeem is
exercised thru the filing of judicial action.

In the instant case, the ends of justice would be better served by affording the respondents the
opportunity to redeem the subject property. This ruling is in obedience to the policy of the law to aid
rather than to defeat the right of redemption. (Javellana v. Mirasol and Nunez, 40 Phil. 761).

WHEREFORE, the petition for certiorari is DENIED and the judgment appealed from is AFFIRMED.
Costs against the petitioner.

SO ORDERED.
G.R. No. L-52831 July 29, 1983

MANUEL R. DULAY, petitioner,

vs.
HON. JUDGE GLICERIO V. CARRIAGA, Judge of the Court of First Instance of Cotabato, and
EUSEBIO C. TANGHAL, respondents.

Fructuoso S, Villarin for petitioner.

Miguel B. Albar for private respondent.

CONCEPCION JR., J.:

Petition for certiorari, with preliminary injunction, to annul and set aside the order of the
respondent judge which annulled the redemption of several parcels of land levied upon and
sold at an execution sale.

In Civil Case No. 2152 of the Court of First Instance of Cotabato, an action for the recovery of
a sum of money, the trial court rendered a decision ordering the defendant, Manuel R. Dulay,
the petitioner herein, to pay the plaintiff, Eusebio C. Tanghal, the herein private respondent,
the sum of P143,980.00. Seventeen (17) parcels of land belonging to the defendant were,
consequently, levied upon then sold at a public auction sale to the plaintiff, as the highest
bidder thereof, at prices profferred and fixed for each parcel, for the sum of
P82,598.00.   Within the reglementary period for redemption, the defendant
1

redeemed eight (8) of the levied properties by paying the prices at which they
were actually sold in the auction sale, for the sum of P17,017.00, and was
issued a Certificate of Redemption.   Upon motion of the plaintiff, however, the
2

trial court citing the case of Development Bank of the Philippines vs. Dionisio
Mirang,   declared the redemption as null and void on the ground that piece-
3

meal redemption is not allowed by law and that for redemption to be valid, the
judgment debtor should pay the entire judgment debt and not the purchase
price.   Hence, this petition for certiorari with preliminary injunction, to annul
4

and set aside the order of the respondent judge. As prayed for, the Court
issued a temporary restraining order, restraining the respondents from
enforcing the questioned order.  5

There is merit in the petition. In the redemption of properties sold at an execution sale, the amount
payable is no longer the judgment debt, but the purchase price. In the case of Castillo vs.
Nagtalon,   the Court said:
6

The procedure for the redemption of properties sold at execution sale is prescribed in
Sec. 26, Rule 39 of the Rules of Court. Thereunder, the judgment debtor or
redemptioner may redeem the property from the purchaser within 12 months after
the sale, by paying the purchaser the amount of his purchase, with I % per month
interest thereon up to the time of redemption, together with the taxes paid by the
purchaser after the purchase, if any. In other words, in the redemption of properties
sold at an execution sale, the amount payable is no longer the judgment debt but the
purchase price. Considering that appellee tendered payment only of the sum of
P317.44, whereas the 3 parcels of land she was seeking to redeem were sold for the
sums of P1,240.00, P24.00 and P30.00, respectively, the aforementioned amount of
P317.44 is insufficient to effectively release the properties. However, as the tender of
payment was timely made and in good faith, in the interest of justice We incline to
give the appellee opportunity to complete the redemption purchase of the 3 parcels
as provided in Sec. 26, Rule 39 of the Rules of Court, within 15 days from the time
this decision becomes final and executory.

Should appellee fail to complete the redemption price, the sheriff may either release
to appellee the 2 smaller lots and return the entire deposit without releasing any of
the 3 lots, as the appellee may elect.

The case of DBP vs. Mirang, relied upon by the respondent judge, wherein the Court ruled that the
mortgagor whose property has been sold at public auction, either judicially or extrajudicially, shall
have the right to redeem the property by paying an the amounts owed to the mortgage on the date of
the sale, with interest thereon at the rate specified in the contract and not the amount for which the
property was acquired at the foreclosure sale is not controlling because of different factual settings.
The Mirang case involves the redemption of mortgaged property sold at a foreclosure sale and the
mortgagor was ordered to pay his entire indebtedness to the mortgagee, plus the agreed interests
thereon, before redemption can be effected, because the charter of the mortgagee (DBP) required
the payment of such amount. The Court said:

The third issue has likewise been resolved by this Court in a similar case. The issue
posed there involved the price at which the mortgagor should redeem his property
after the same had been sold at public auction — whether the amount for which the
property was sold, as contended by the mortgagor, or the balance of the loan
obtained from the banking institution, as contended by the mortgagee RFC. Cited in
that case was Section 31 of Com. Act No. 459, which was the special law applicable
exclusively to properties mortgaged with the RFC, as follows:
 The mortgagor or debtor to the Agricultural and Industrial Bank whose real property
has been sold at public auction, judicially or extra-judicially, for the full or partial
payment of an obligation to said Bank, shall, within one year from the date of the
auction sale, have the right to redeem the real property by paying to the Bank an the
amount he owed the latter on the date of the sale, with interest on the total
indebtedness at the rate agreed upon in the obligation from said date, unless the
bidder has taken material possession of the property or unless this has been
delivered to him, in which case the proceeds of the property shall compensate the
interest. ...

The same provision applies in the instant case. The unavoidable conclusion is that
the appellant, in redeeming the foreclosed property, should pay the entire amount he
owed to the Bank on the date of the sale, with interest thereon at the rate agreed
upon.

The instant case, on the other hand, involves the redemption of property levied upon and sold at
public auction to satisfy a judgment and, unlike the Mirang case, there is no charter that requires the
payment of sums of money other than those provided for in Section 30 of Rule 39, Revised Rules of
Court.

Redemption of properties mortgaged with the Philippine National Bank and the Development Bank
of the Philippines and foreclosed either judicially or extrajudicially are governed by special laws
which provide for the payment of all the amounts owed by the debtor. This special protection given
to government lending institutions is not accorded to judgment creditors in ordinary civil actions,

WHEREFORE, the writ prayed for is GRANTED and the order issued on January 11, 1978 should
be, as it is hereby, ANNULLED and SET ASIDE. The temporary restraining order heretofore issued
is hereby. made permanent. With costs against the private respondent Eusebio C. Tanghal.

SOORDERED.
G.R. No. L-60208 December 5, 1985

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE HONORABLE COURT OF APPEALS AND DIVINA ALIM, respondents.

ALAMPAY J.:

Civil Case No. 7927 which is an action for Annulment of Extrajudicial Foreclosure and Sale of Real
Properties and for Damages with Prayer for Preliminary Injunction was filed on April 26, 1975 by the
private respondent herein against the Philippine National Bank (PNB) in the Court of First Instance
of Quezon Province. On November 27. 1979 a decision was rendered by said court enjoining
defendant Philippine National Bank from consolidating its title over the mortgaged properties and
directing said bank to allow the private respondent, Divina B. Alim, to redeem the mortgaged
properties by accepting payment from the latter; and dismissing all the claims and counterclaims that
the parties may have against each other in connection with the case.

This decision which was appealed by the defendant PNB was affirmed on March 25, 1982 by the
First Division of the Court of Appeals in CA-G.R. No. 67131-R.

As succinctly stated in the decision of the Court of Appeals, the following material facts are not
disputed. These appear to be as follows:

... On February 2, 1968 plaintiff Divina Alim obtained a loan in the total amount of
P40,000 from defendant Philippine National Bank secured by three (3) parcels of
land registered in the name of herein plaintiff and covered by the following title-

(a) Transfer Certificate of Title No.8384 of the Register of Deeds of Lucena City
comprising a house of strong materials located along the National Highway, Iyam
District, Lucena City, and a lot with an area of 540 square meters, more or less;
 (b) Transfer Certificate of Title Nos. T-79631 and T-79632 of the Registry of Deeds
for the Province of Quezon, containing an area of 58 hectares each of a total of 116
hectares, planted with coconut trees.

For failure of the plaintiff to pay her total obligation upon maturity date, defendant
Philippine National Bank extrajudicially foreclosed the mortgage properties and the
Provincial Sheriff of Quezon sold the properties at public auction on February 12,
1973. The defendant Philippine National Bank being the only bidder in said auction
sale, all the aforementioned mortgaged properties were sold to the bank for the
amount of P59,320.00 which was the total obligation of the plaintiff as of the date of
the sale. The said amount already included the principal obligation, attorney's fees
and other charges, interests on said amounts plus costs of publication of the Sheriff's
notice of auction sale. "On April 26, 1975, plaintiff instituted the present case for the
annulment of the aforesaid extrajudicial foreclosure and sale and for damages with
prayer for preliminary injunction."

From the decision rendered by the Court of First Instance of Quezon Province, it can be noted that
during the pendency of the case in the said court the parties attempted to confer with the end in view
of settling this case amicably and in the course thereof the plaintiff deposited with defendant bank a
sufficient amount to cover the loan and interest thereon as of February 12, 1973 including
reimbursement for costs of publication. Thus at the pre-trial, the parties agreed to submit the case
for decision only upon the issue as to whether or not the plaintiff should still pay interest specified in
the mortgage after the auction sale on February 12, 1973.

The defendant Philippine National Bank contends that the plaintiff is still obligated to pay the said
interest citing the provisions of Presidential Decree No. 694, as amended by Presidential Decree No.
1478, particularly Section 25, paragraph 2 thereof.

On the other hand, plaintiff Divina Alim, the private respondent herein cites the case of the
Development Bank of the Philippines versus Jovencio A. Zaragosa, et al., 84 SCRA 668, where it
was therein ruled that when the foreclosure proceedings are completed all interests of the mortgagor
are cut off from the property and that this principle is applicable to an extrajudicial foreclosure.

In rendering the decision in favor of plaintiff Divina Alim, The trial court reasoned out—

... In the case at bar, the foreclosure and subsequent sale of the properties were
valid, but because of the timely filing of this case and in view of the Order of June 9,
1975, the consolidated sale could not be made. In the light, therefore, of the above
cited ruling of the Supreme Court, (DBP vs. Zaragosa, et al., supra) after the public
auction sale on February 12, 1973, the defendant Philippine National Bank can no
longer demand payment of interest on the property should the mortgagor exercise
her right of redemption." (Annex "B" of Petition, Record on Appeal, p. 101:
parenthesis supplied)

This ruling which was sustained by the then Court of Appeals is now the subject of the Petition for
Review on certiorari presented to this Court by the Philippine National Bank.

In its petition, the PNB assails the decision of the defunct appellate court and contends that the
interests specified in the mortgage should still be added to the bid or purchase price computed from
the time of the auction sale up to the date the mortgaged properties are redeemed as clearly
authorized by law. Petitioner invokes Republic Act No. 1300, the original Charter of the PNB,
Presidential Decree No. 694 (1975), Republic Act No. 337 known as the General Banking Law and
Rule 39 of the Rules of Court, all of which petitioner PNB claims authorize the imposition of the
interest specified in the mortgage.

What appears from the case records is that the extrajudicial foreclosure proceedings instituted by
the PNB was commenced on May 25, 1972, pursuant to a petition for sale under Act No. 3135 filed
by its counsel with the Provincial Sheriff for Quezon Province. But this PNB sought the f reclosure
and sale of the properties of the herein private respondent and directed said Sheriff to publish the
Notice of Sale in the Quezon Times, Lucena City. In consequence of said petition the Provincial
Sheriff sold at public auction the properties of herein private respondent to the Philippine National
Bank, upon the latter's bid of P59,320.00. The corresponding Certificate of Sale was executed by the
Sheriff in favor of the Philippine National Bank on February 16, 1973.

Considering that the very step initiated by the Petitioner was a petition for Sale under Act No.
3135 (Annex F. Complaint, Record on Appeal, Rollo, p. 26), the applicable law then would be no
other than the said statute. Act No. 3135 being a special law that governs particularly extrajudicial
foreclosures, it necessarily excludes the application in this instance of the General Banking Act and
the provisions on redemption under the Revised Charter of PNB, Presidential Decree No. 694, which
was enacted only in 1975. In the case at bar the mortgage contract was entered into in 1968. In
1968, the governing law on PNB operations was Republic Act No. 1300 but it has been held that
"Republic Act 1300 does not contemplate extrajudicial foreclosure" (Co vs. PNB, L-51767, June 29,
1982, 114 SCRA 842, 855).

Since the applicable law is Act 3135, the provisions of Section 30, Rule 39, Rules of Court shall be
determinative of the sole issue presented in this case. Section 6 of Act 3135, as amended by Act
4018, provides:

Sec. 6. — In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtro, his successors in interest or any judicial creditor
or judgment creditor of said debtor, or any person ahving a lein on the proeprty
subsequent to the mortgage or deed of trust under which the property is old, may
redeem the same at any time within the term of one year from and after the date of
the sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four, inclusive, of the Code of Civil Procedure, in so far as these
are not incosistent with the provision of this Act. (emphasis supplied.)

Section hundred sixty-four to four hundred sixty-six inclusive, of the Code of Civil Procedure,
became Sections 29, 30, and 34 of Rule 39 of our Rules of Court. The same secitons were
reiterated in the Revised Rules of Court in July 1964 (Co vs. PNB, supra).

Pursuant to Section 30 of Rule 39, the redemptioner, who is the private respondent herein, "may
redeeem the property from the purchaser at any time within twelve (12) months after the sale, on
paying the prchaser the amount of his purchase, with one per centum per month interest thereon in
addition, up to the time of redemption, togethere with the amount of any assessments or taxes which
the purchaser may have paid therein after purchase and interest on such last named amount at the
same interest rate; ..."

This would rightfully be so because, as stated in the case of DBP vs. Zaragosa, supra, when the
foreclosure proceedings are completed and the mortgaged property is sold to the purchaser then all
interest of the mortgagor are cut off from the property Prior to the completion of the foreclosure, the
mortgagor is liable for the interests on the mortgage. However, after the foreclosure proceedings and
the execution of the corresponding certificate of sale of the property sold at public auction in favor of
the successful bidder, the redemptioner mortgagor would be bound to pay only for the amount of the
purchase price with interests thereon at the rate of one per centum per month in addition up to the
time of redemption, together with the amount of any assessments or taxes which the purchaser may
have paid thereon after the purchase and interest on such last named amount at the same rate.

WHEREFORE, the petition in this case is hereby granted. The decision appealed from is affirmed
with modification, so as to read as follows:

(a) Making the writ of preliminary injunction issued by this Court in its Order of June
9, 1985, permanent and irrevocable;

(b) Allowing the plaintiff to redeem the mortgaged properties by paying the amount of
the purchase with interests thereon at the rate of one per centum per month up to
the date of her deposit of the redemption price and ordering the defendant to accept
payment from the plaintiff;

(c) Dismissing all the claims and counterclaims that the parties may have against
each other in connection with this case.

No costs.

SO ORDERED.

G.R. No. L-29130 August 8, 1975

DEVELOPMENT BANK OF THE PHILIPPINES, plaintiff-appellee,

vs.
DIONISIO MIRANG, defendant-appellant.

Jesus A. Avanceña and Lualhati Estrella-Hilario for plaintiff-appellee.

Roque V. Desquitado for defendant-appellant.

MAKALINTAL, C.J.:

This appeal was originally taken to the Court of Appeals, which certified it here because it involves
purely legal questions. The appealed decision was rendered by the Court of First Instance of Davao
on May 14, 1963 in its Civil Case No. 3762, and modified by its Order of July 1, 1963. It directed the
defendant, now appellant, to pay the plaintiff Development Bank of the Philippines, now appellee,
the sum of P16,013.13 plus 6% interest per annum from July 30, 1957  up to the date of payment,
1

but deducting therefrom the sum of P360.00 representing the value of an engine, referred to in
paragraph 11 of the stipulation of facts. The defendant was likewise ordered to pay P500.00 as
attorney's fees, plus the costs of the suit.

From the stipulation submitted to the trial court it appears that on September 7, 1950 the appellant
obtained approval of a loan of P14,000.00 from the Rehabilitation Finance Corporation,  secured by
2

a first mortgage on defendant's homestead, for the following purposes:

 P1,000 for purchase of work animals and farm implements;
P1,500 for construction of farmhouse and laborers' quarters; and
P11,500 for development and maintenance of 18.5 hectares of abaca land.

The loan was released gradually to the appellant up to a total of P13,000.00. Thereafter the appellee
refused to make any further releases because the plantation which was being financed was attacked
by mosaic disease, which destroyed the abaca plants. The appellant, on his part, failed to pay the
yearly amortizations; so in accordance with the terms of the promissory notes he had signed and the
mortgage contract itself, the provincial sheriff of Davao, upon request of the appellee, foreclosed the
mortgage extrajudicially under the provisions of Act 3135, as amended, and sold the mortgaged
property at public auction on July 30, 1957. By that time the appellant's indebtedness, including
interest, had reached P19,714.35, besides the expenses of the auction sale and registration fees,
which amounted to P101.00. The appellee, as the highest bidder for P2,010.00, acquired ownership
of the mortgaged property. The appellant was duly advised of the sale, with the information that the
same was subject to his right of redemption within one year from July 30, 1957. This right he had not
exercised when the complaint was filed by the appellee on May 29, 1962.

In his brief the appellant assigns five (5) errors, which may be condensed into the following issues:

(1) Whether or not the creditor Development Bank of the Philippines has a right to
recover the balance of the indebtedness after the mortgaged property was sold for
less than the amount thereof under extrajudicial foreclosure pursuant to Act 3135, as
amended:

(2) Whether or not the debtor, appellant Mirang, may be exempted from paying the
loan on the ground that it had been granted to him for the purpose of developing his
homestead by planting it to abaca, and that said abaca was destroyed by mosaic
disease; or, failing that, whether or not his obligation may be reduced by this Court;
and

(3) Whether or not the mortgage debtor who wishes to repurchase his homestead
should pay therefor only the price paid by the purchaser at the auction sale, or the
total obligation incurred by him and still outstanding.

On the first issue, the appellant contends that because the mortgage was extrajudicially foreclosed
and sold at less than the mortgage debt under Act 3135 the appellee is not entitled to recover the
deficiency because neither this Act, as amended, nor the mortgage contract itself, contains any
provision giving such right to the mortgagee.

The same question has been settled by this Court in the case of Philippine Bank of Commerce vs.
Tomas de Vera,  where We held:
3

The sole issue to be resolved in this case is whether the trial Court acted correctly in
holding appellee Bank entitled to recover from appellant the sum of P99,033.20 as
deficiency arising after the extrajudicial foreclosure, under Act No. 3135, as
amended, of the mortgaged properties in question. It is urged, on appellant's part,
that since Act No. 3135, as amended, is silent as to the mortgagee's right to recover
deficiency arising after an extrajudicial foreclosure sale of mortgage, he (Mortgagee)
may not recover the same.

A reading of the provisions of Act No. 3135, as amended, (re extrajudicial

foreclosure) discloses nothing, it is true, as to mortgagee's right to recover such
 deficiency. But neither do we find any provision thereunder which expressly or
impliedly prohibits such recovery.

Article 2131 of the new Civil Code, on the contrary, expressly provides that 'The
form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Registration Law.' Under the Mortgage Law, which is still in force, the mortgagee has
the right to claim for the deficiency resulting from the price obtained in the sale of the
real property at public auction and the outstanding obligation at the time of the
foreclosure proceedings. (See Soriano vs. Enriquez, 24 Phil. 584; Banco de las Islas
Filipinas vs. Concepcion e Hijos, 53 Phil. 806; Banco Nacional vs. Barreto, 53 Phil.
955.) Under the Rules of Court (Section 6, Rule 70 * ), 'Upon the sale of property, under an order
for a sale to satisfy a mortgage or other incumbrance thereon, if there be a balance due to the plaintiff after applying
the proceeds of the sale, the Court, upon motion, should render a judgment against the defendant for any such balance
for which, by the record of the case, he may be personally liable to the plaintiff, ....' It is true that this refers to a judicial
foreclosure, but the underlying principle is the same, that the mortgage is but a security and not a satisfaction of
indebtedness.

Appellant invites the attention of this Court to the new provisions of the Civil Code on pledge,
particularly Article 2115, which provides:

The sale of the thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal obligation, interest
and expenses in a proper case. ... If the price of the sale is less, neither shall the
creditor be entitled to the deficiency, notwithstanding any stipulation to the contrary.

as well as to the fact that in chattel mortgage under Art. 1484, paragraph 3, the creditor shall have
no further action to recover any unpaid balance if he has chosen to foreclose the chattel mortgage.
These provisions, far from supporting the appellant's stand, militate against it, because they show
that when the Legislature intends to bar or occlude a creditor from suing for any deficiency after
foreclosing and selling the security given for the obligation, it makes express provision to that effect.
In the same case of Philippine Bank of Commerce vs. De Vera, supra, this Court said apropos:

It is then clear that in the absence of a similar provision in Act 3135, as amended, it
cannot be concluded that the creditor loses his right given him under the Mortgage
Law and recognized in the Rules of Court, to take action for the recovery of any
unpaid balance on the principal obligation, simply because he has chosen to
foreclose his mortgage extra-judicially, pursuant to a special power of attorney given
him by the mortgagor in the mortgage contract. As stated by this Court in Medina vs.
Philippine National Bank (56 Phil. 651), a case analogous to the one at bar, the step
taken by the mortgagee-bank in resorting to extra-judicial foreclosure under Act No.
3135, was 'merely to find a proceeding for the sale, and its action cannot be taken to
mean a waiver of its right to demand the payment of the whole debt.'

On the second issue the appellant asks that if he cannot be completely absolved he should at least
be given a reduction of his indebtedness because of his inability to realize any income from the
abaca he planted. His predicament may evoke sympathy, but it does not justify a disregard of the
terms of the contract he entered into. His obligation thereunder is neither conditional nor aleatory its
terms are clear and subject to no exception.

The third issue has likewise been resolved by this Court in a similar case.  The issue posed there 4

involved the price at which the mortgagor should redeem his property after the same had been sold
at public auction whether the amount for which the property was sold, as contended by the
mortgagor, or the balance of the loan obtained from the banking institution, as contended by the
mortgagee RFC. Cited in that case was Section 31 of Com. Act No. 459, which was the special law
applicable exclusively to properties mortgaged with the RFC, as follows:

The mortgagor or debtor to the Agricultural and Industrial Bank  * , whose real property has
been sold at public auction, judicially or extra-judicially, for the full or partial payment of an obligation to said Bank,
shall, within one year from the date of the auction sale, have the right to redeem the real property by paying to the Bank
all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon
in the obligation from said date, unless the bidder has taken material possession of the property or unless this has
been delivered to him, in which case the proceeds of the property shall compensate the interest. ...

The same provision applies in the instant case. The unavoidable conclusion is that the appellant, in
redeeming the foreclosed property, should pay the entire amount he owed to the Bank on the date of
the sale, with interest thereon at the rate agreed upon.

WHEREFORE, the decision appealed from is affirmed, with costs.

 G.R. No. L-51767 June 29, 1982

LETICIA CO, assisted by her husband MUI YUK KONG, in substitution of CITADEL
INSURANCE & SURETY CO., INC., plaintiff-appellee,
vs.
PHILIPPINE NATIONAL BANK, defendant-appellant.

BARREDO, J:

Direct appeal to this Supreme Court pursuant to Republic Act 5440 from the decision of the Court of
First Instance of Rizal, Branch XXI in its Civil Case No. 23101 entitled "Citadel Insurance & Surety
Co., Inc. vs. Philippine National Bank", the dispositive portion of which reads:

WHEREFORE, this Court finds that plaintiff has validly exercised the right of
redemption herein-before discussed and orders the defendant to:

(a) Accept the amount consigned and deposited pursuant to the

Order of this Court on March 11, 1976;

(b) Execute and specifically comply to the effects of the exercise of

the right of redemption so that whatever title is due to the plaintiff
after redemption may properly accrue to plaintiff;

(c) Deliver and surrender to plaintiff possession over the property in

question.
 Considering that this case has been submitted for decision based upon four (4)
limited questions of law and there being no evidence presented and submitted to
support any claim for damages, there is no pronouncement and award of damages
as well as costs.

SO ORDERED. (Pp. 180-181, Record on Appeal.)

It goes without saying that under the Act aforementioned by virtue of which this appeal is before Us,
the issues We are called upon to resolve are only questions of law.

Briefly stated, the undisputed material facts of this case, as may be culled from the decision of the
trial court and elsewhere in the record, are as follows:

On November 10, 1961, the Standard Parts Manufacturing Corporation, hereinafter to be referred to
simply as STANDARD, executed a real estate mortgage in favor of herein defendant-appellant
Philippine National Bank, hereinafter to be referred to simply as PNB, over properties covered by
Transfer Certificates of Title Nos. T-5108 and T-5320, both situated in Baguio City, as collateral for a
loan consideration of P500,000.00. On February 20, 1963, the same debtor corporation executed an
amended real estate mortgage to include as collateral for the increase of the above loan to
P1,000,000.00 a property located at Pasong Tamo Extension within the Municipality of Makati (then
part of Rizal Province and now of Metro Manila) covered by Transfer Certificate of Title No. 54474.
Additionally, on February 20, 1963, the same corporation executed in favor of PNB a chattel
mortgage of its personal properties listed on pages 96 to 108 of the Record on Appeal. On pages 6-
7 of appellant's brief it is stated that as of July 19, 1974, the "borrowed loan" of STANDARD totalled
P4,296,803.56, and that the said obligation was secured, as aforementioned, by the mortgages on
the Baguio and Makati real estates of STANDARD and the chattel mortgage on its personal
properties above referred to.

When STANDARD failed to pay its obligation, PNB extrajudicially foreclosed the mortgage on the
Baguio properties as well as the chattel mortgage on July 19, 1974, with PNB as the highest bidder
for P1,514,305.00. Subsequently, on August 8, 1974, PNB also foreclosed the mortgage on the
Makati property and purchased the same, as highest bidder, for P1,363,000.00.

We quote further from appellant's brief:

When Standard Parts failed to pay its obligation, PNB foreclosed the Baguio
properties and chattels on July 19, 1974 with it as the highest bidder for
P1,514,305.00 and the Pasong Tamo property on August 8, 1974 also with it as the
highest bidder for P1,363,000.00. Hence, after foreclosure of the above-mentioned
mortgage, the deficiency claim of the Bank against Standard Parts as of August 8,
1974 amounted to P1,434,521.07. Subsequently, a Certificate of Sale dated July 19,
1974 was issued by the Sheriff of Baguio City covering TCT Nos. T-5708 and T-5320
(Annex "C", P.S.F.). A Certificate of Sale dated August 8, 1974 covering TCT No.
54474 was also issued by the Sheriff of Rizal (Annex "D", P.S.F.) and registered on
March 14, 1976 in the Registry of Deeds. Upon failure of Standard Parts to redeem
the foreclosed properties within the reglementary period, the PNB consolidated titles
to the Baguio properties and TCT Nos. 26080 and 26081 (Annexes "E" and "E-1",
respectively, P.S.F.) were issued by the Register of Deeds of Baguio City on May 5,
1976 in the name of the Bank. On May 14, 1976, TCT No. 54474 was cancelled and
TCT No. S-28133 issued in the name of the PNB.
 Meantime, on March 5, 1976, Citadel wrote PNB a letter (Annex "H", P.S.F.) stating
therein its desire to redeem the property covered by TCT No. 54474, it being the
alleged assignee of the right of redemption of Standard Parts with respect only to
said property. Citadel, however, offered to redeem the property for only
P1,621,970.00. In its reply to said letter, PNB, in a letter dated March 5, 1976 (Annex
"I", P.S.F.), justifiably refused to accept the tender of payment of Citadel considering
that the amount of P1,621,970.00 was very much lower than the Bank's total amount
of P3,366,546.42 as of March 5, 1976 per the Statement of Account of Standard
Parts (Annex "G", P.S.F.). (Pp. 7-9, Brief of PNB)

To Our mind then, the facts that are decisive herein are the following:

1. The mortgages here in question were constituted way back in 1961 to 1963.

2. The foreclosure sale of the Baguio properties and the chattels took place on July 19, 1974 and
that of the Makati estate on August 8, 1974.

3. Citadel Insurance & Surety Co., Inc. (CITADEL, for short) to whom STANDARD had in the
meanwhile (or on February 20, 1976) transferred its rights in the mortgages here in issue, wrote
PNB on March 5, 1976 stating that it was redeeming the Makati property, offering to pay therefor as
redemption price P1,621,970.00. The letter of CITADEL in this regard reads thus:

CITADEL INSURANCE & SURETY CO., INC.

Suite 202 Sikatuna Bldg., Ayala Ave.
Makati, Rizal
Tel. No. 87-33-07 & 87-34-44

March 5, 1976

PHILIPPINE NATIONAL BANK

Escolta, Manila

Re: Legal Redemption of Extra-Judicial

Foreclosed Property of Standard
Parts Manufacturing Corporation
Under Act No. 3135, As amended

Gentlemen:

In connection with the above-mentioned property which is covered by

TCT No. 54474 of the Register of Deeds For the Province of Rizal we
wish to inform you that the CITADEL INSURANCE & SURETY CO.,
INC., is the Assignee of the right of redemption, which will expire on
March 11, 1976, by virtue of a "Deed of Assignment and Waiver of
Redemption Rights" dated February 29, 1976, photostat copy of
which is attached to this letter as Annex "A".

As assignee of the aforementioned Right of Redemption, our

Company is now exercising the same by tendering to you the
redemption price computed as follows:
 P1,363,000.00 — total bid of the PNB per its letter to the Sheriff
dated August 8, 1974;

P 258,970.00 — interest at the rate of 1% a month from the date of

auction, August 8, 1974, up to the time of redemption;

P1,621,970.00 — TOTAL

as evidenced by RCBC Manager's Check No. MC 194188 dated March 4, 1976,

which is attached to this letter as Annex "B".

In view of the foregoing, kindly acknowledge the receipt of the redemption amount
and cause the issuance of the corresponding Certificate of Redemption in favor of
our Company.

Thank you.

Very
truly
yours,

(Sgd.)
FRAN
CISCO
S.
CORP
US

Preside
nt

Atty.: a/s (Pages 131-133, Record on Appeal)

4. Immediately or on even date PNB rejected the above tender, contending that the offered price
was much lower than P3,366,546.42, 1 as of said date March 5, 1976, which PNB maintained was the
correct redemption price. The following was the reply of PNB:

PHILIPPINE NATIONAL BANK

LEGAL DEPARTMENT

March 5, 1976

Mr. Francisco S. Corpus

President
Citadel Insurance & Surety Co., Inc.
202 Sikatuna Bldg., Ayala Ave.
Makati, Rizal

Dear Mr. Corpus:

 This refers to your letter of March 5, 1976 wherein you expressed
your desire to redeem the property covered by TCT No. 54474 of the
Register of Deeds of Rizal which we acquired from Standard Parts
Manufacturing Corp. in the amount of P1,621,970.00 in the form of
RCBC Manager's Check No. MC 194188 dated March 4, 1976.

We feel that the Legal Department is in no position to decide the

acceptance of your offer because it appears that the amount offered
is less than our total claim. We suggest, therefore, that you see either
Vice President Andres L. Africa or Asst. Vice Pres. Raul Leveriza on
Monday March 8,1976.

Very
truly
yours,
(Sgd.)
ARTE
MIO S.
TIPON
Senior
Supervi
sing
Atty.

(Pp. 133-134, Record on Appeal.)

5. The Certificate of Sale dated August 8, 1974 covering TCT No. 54474 was issued by the Sheriff of
Rizal and registered on March 14, 1976 in the Registry of Deeds. (Page 8, PNB's brief) Notably,
however, according to the decision of the trial court, the certificate of sale was registered on March
11, 1976. (Page 176, Record on Appeal.)

6. On March 11, 1976, CITADEL filed the instant action in the court below with the following prayer:

PRAYER

WHEREFORE, it is respectfully prayed that upon the filing of this complaint this
Honorable Court forthwith issue an order authorizing its Branch Clerk to accept a
Manager's Check in the amount of P1,621,970.00 and deposit the same with the
Rizal Commercial Banking Corporation under a Savings Account in order that the
same shall not remain Idle, and in the name, of defendant PNB, subject to the control
and disposition of this Honorable Court; and after hearing, judgment be rendered;

(a) Ordering defendant to accept the amount so deposited, and/or such amount as
may be found by this Honorable Court to be the lawful redemption price for the
particular property in question;

(b) Ordering defendant to turn over the title and possession of the property in
question to plaintiff together with its fruits from March 11, 1976 up to the time
possession is actually surrendered to the plaintiff, plus the interests thereon counted
from the date of filing of this complaint;
 (c) Ordering defendant to execute such documents and papers that may be
necessary for the transfer of the title and possession of the property in question to
plaintiff;

(d) Ordering defendant to pay plaintiff damages in the form of attorney's fees and
expenses of litigation, the amount of which is left to the sound discretion of this
Honorable Court;

(e) Ordering the defendant to pay the costs of suit.

PLAINTIFF FURTHER PRAYS for such other relief as may be found just and
equitable in the premises. (Pp. 6-8, Record on Appeal.)

7. There is no dispute that a manager's check of the Rizal Commercial Banking Corporation No. MC
194188 dated March 4, 1976 and in the amount of P1,621,970.00 (Pp. 14-15, Record on Appeal)
accompanied the complaint and was actually deposited under a savings account with the same bank
by order of the trial court of the same date "in the name of the PNB subject to the control and
disposition of the Court." (p. 20, Record on Appeal.)

In the light of the foregoing facts, the parties stipulated in the partial stipulation facts they submitted
to the trial court that:

B. Limitation of issues

The parties agreed that the issues raised by the pleadings are one of
law, to wit:

1. Whether the redemption period has expired.

2. What is the correct redemption amount required

under the law?

3. Whether there was a valid and effective tender of

payment.

4. Whether the Deed of Assignment is binding and

enforceable against

5. defendant PNB. (P. 151, Record on Appeal)

Timeliness of the redemption

To be sure, We find the opposing postures of the parties on the timeliness of the redemption here in
question a little blurred and confusing. So, rather than to try to extricate Ourselves out of such maze,
We feel it is sufficient to point out that according to the brief of appellant, the foreclosure sale of the
subject property was made on August 8, 1974 (pp. 7-8) and the corresponding certificate of sale was
issued by sheriff on the same day and "registered on March 14, 1976 in the Register of Deeds." (p.
8, Record on Appeal.) "On May 14, 1976 TCT 54474 was cancelled and TCT No. S-28133 issued in
the name of
PNB". (id.) 2
In such ambiguous premises, We have no alternative than to use March 11, 1975 3 as point of
reference regarding the date of the registration of the certificate of sale. Appellant assumes that on this
basis the period of redemption was up to March 10, 1976. Well, the truth of the matter is that this detail is
tied up inextricably to the main question of law that pervades the whole of this controversy.

What is the law applicable to this case as to the period of redemption?

Let us not forget that the mortgage at issue was executed in 1963. True it is that as underscored by
counsel for PNB, STANDARD, the predecessor-in-interest of CITADEL, who signed the deed of
mortgage agreed, and CITADEL is bound by such agreement, "to abide and to be bound by the
provisions of the Charter of the PNB ". Specifically paragraph (g) of said real estate mortgage
provides:

(g) The mortgagor hereby waives the right granted him under Section 119 of
Commonwealth Act No. 141, known as the Public Land Act, as amended and agrees
to abide to be bound by the provisions of Act No. 3135 or Act No. 2933, which
amended Act No. 1612, or Republic Act No. 1300, as amended, known as the New
Charter." (Page 15, PNB's Brief.)

Going by the literal terms of this quoted provision, STANDARD/CITADEL stand bound by the same.
In other words, paragraph (g) of the mortgage contract made the provisions of Act No. 3135 or Act
2933, which amended Act No. 1612, or Republic Act 1300, as amended, known as the new Charter
part and parcel of the mortgage contract. Now, what is the legal import or consequence of such
express incorporation of and submission to Act 3135 and Republic Act 1300 by
STANDARD/CITADEL?

Republic Act 1300 entitled "An Act Revising the Charter of the Philippine National Bank" was
approved and made effective on June 16, 1955. It was therefore the law when in 1963 the mortgage
here in dispute was executed. It was the very law that the
above-quoted paragraph (g) of the mortgage contract made reference to. In this connection,
evidently overlooked by counsel for PNB is that Republic Act 1300 does not contemplate
extrajudicial procedure. Clearly indicative of this is Section 20 thereof which provides:

Sec. 20. Right of redemption of property foreclosed. — The mortgagor shall have the
right, within the year after the sale of real estate as a result of the foreclosure of a
mortgage, to redeem the property by paying the amount fixed by the court in the
order of execution, with interest thereon at the rate specified in the mortgage, and all
the costs and other judicial expenses incurred by the Bank by reason of the
execution and sale and for the custody of said property.

Indeed, conventional legal and banking business sense dictates that it must have been because of
such omission that paragraph (g) above had to expressly incorporate Act 3135 which provides for
extrajudicial foreclosure. We cannot, therefore, escape the conclusion that what STANDARD agreed
to in respect to the possible foreclosure of its mortgage was to subject the same to the provisions of
Act 3135 should the PNB opt to utilize said law instead of Republic Act 1300.

On the other hand, Act 3135, as amended by Act 4018, is of 1924 vintage. Its Section 6 very clearly
governs the right of redemption in extrajudicial foreclosures thus:

Sec. 6. In an cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor
or judgment creditor of said debtor, or any person having a lien on the property
 subsequent to the mortgage or deed of trust under which the property is sold, may
redeem the same at any time within the term of one year from and after the date of
the sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act.

Sections four hundred sixty-four to four hundred sixty-six, inclusive, of the Code of Civil Procedure,
since the promulgation of the Rules of Court of 1940, became Sections 29, 30 and 34 of Rule 39.
The same sections were reiterated in the Revised Rules of Court in July 1964.

From all the foregoing, We are of the considered opinion and so hold that STANDARD'S/CITADEL'S
period of redemption was up to March 10, 1976. 4 That CITADEL filed its complaint to compel PNB to
accept its redemption only on March 11, 1976 is of no moment. The unequivocal tender of redemption
was made in the letter of Francisco S. Corpus, its President, of March 5, 1976 accompanied by a
manager's check of the Rizal Commercial Banking Corporation a well known, big and reputable banking
institution, for the amount it believed it should pay as redemption price. PNB rejected it on the sole and
only ground that it considered the amount insufficient. The Court, therefore, holds that the redemption
was made on time, that is, within one year (or even twelve months) from the date appearing as the date of
the registration of the certificate of sale.

How about the amount needed for such redemption?

On this score, PNB insists on p. 9 et. seq. of its brief on the applicability to this case of "Section 25 of
Presidential Decree No. 694, otherwise known as the new PNB Charter" which provides:

Section 25. Right of Redemption of Foreclosed Property — Right of Possession

During Redemption Period — Within one year from the registration of the foreclosure
sale of real estate, the mortgagor shall have the right to redeem the property by
paying all claims of the Bank against him on the date of the sale including all the
costs and other expenses incurred by reason of the foreclosure sale and custody of
the property, as well as charges and accrued interests.

But P.D. 694 took effect only on May 8, 1975. PNB's counsel himself has, as already mentioned
above, taken the position that it was the old PNB Charter, Republic Act 1300, that was expressly
made part of the contract. In other words, it was by virtue of such contractual stipulation and not ex
propio vigore that the provisions of the bank's then current charter bound the mortgagor
STANDARD. But prescinding from possible legal flaw in such pose and that all provisions of the
charter are enforceable and must be read into all mortgages with the PNB as integral parts thereof,
in this instant case, the Court finds its hands inert and shackled in the face of the constitutional
proscription against the impairment of contracts. (Sec. 11, Art. IV, New Constitution) Stated
otherwise, since the contract of mortgage herein was entered into under a specific law, Republic Act
1300, even the principle that no law is unamendable nor unrepealable cannot hold, when the
subsequent legislative enactment, P.D. 694, would alter and modify to the prejudice of any of the
parties the terms of the contract under the aegis of the prior law. Indisputably, the application of P.D.
694 to the mortgage herein involved would violate the Constitution. Hence, it simply cannot apply.

Stated otherwise, by virtue of the provision of the mortgage contract precisely cited by PNB, namely,
its paragraph (g), quoted earlier, PNB had the contractually acquired option to resort either to its
Charter, Republic Act 1300 or to Act 3135. When it foreclosed the mortgage at issue, it chose Act
3135. That was an option it freely exercised without the least intervention of appellee. And it was
exercised before P.D. 694 came into being. In fact, the foreclosure sales took place in 1974 yet. And
so, to make the redemption subject to a subsequent law would be obviously prejudicial to the party
exercising the right to redeem. Without considering the date the loan was secured and the date of
the mortgage contract, and taking into account only the dates of the foreclosures and auction sales,
it is quite obvious that any change in the law governing redemption that would make it more difficult
than under the law at the time of the sale cannot be given retroactive effect. Under the terms of the
mortgage contract, the terms and conditions under which redemption may be exercised are deemed
part and parcel thereof whether the same be merely conventional or imposed by law. To alter those
terms in a manner prejudicial to the mortgagor or the person redeeming the property as his
successor-in-interest after the foreclosures and sales would definitely come within the constitutional
proscription against impairment of the obligations of contracts.

Having thus come to the ineludible conclusion that Act 3135 and Sections 29 to 32 of Rule 39 of the
Rules of Court rather than P.D. 694 are the laws applicable to the right of redemption invoked by
appellee in this case, 5 it would appear that all that remains for Us to do is to apply the said legal
precepts. Pursuant to Section 30 of Rule 39, "the judgment debtor — (or his successor-in-interest per
Section 29, here Leticia Co,) may redeem the property from the purchaser, (here PNB) at any time within
twelve months after the sale, on paying the purchaser the amount of his purchase, with one per centum
per month interest thereon in addition, up to the time of redemption, together with the amount of any
assessments or taxes which the purchaser may have paid thereon after the purchase, and interest on
such last named amount at the same rate; ..."

In this connection, lest it be argued that CITADEL did not include in its tender the amount of
assessments or taxes PNB might have paid before the redemption, His Honor, We note that the trial
judge, has pointed out that in spite of the requirement in the certificate of sale issued by the sheriff
that the purchaser or highest bidder submits within 30 days immediately preceding the expiration of
the period of redemption, an appropriate statement of the amount of such assessments or taxes,
PNB failed to comply with such requirement, hence it would be unfair to fault CITADEL for the non-
inclusion thereof in its tender. PNB argues, however, that it did furnish CITADEL on March 5, 1976
the required data. We note, however, that the statement of P3,366,546.42 specified by PNB in its
reply of March 5, 1976 is not clear enough to show the details on taxes and assessments under
discussion. In any event, considering that as earlier pointed out by Us, there could be a possibility
that March 5, 1976 should be considered as the last day of redemption, the explanation of PNB is, at
least in equity, unavailing. There was no more time for CITADEL to have a breakdown of the
P3,366,546.42 to find out what items were included therein. Anyway, this discussion is practically
academic because in the manner We are resolving this case, this point would be of no moment.

Before passing to another aspect of this case, it may not be amiss to mention here that in Moran's
Comments on the Rules of Court (p. 326-327, 1979 ed.), it is stated that where the judgment debtor,
which necessarily includes his successor-in-interest (Section 29, a, Rule 39) validly tenders the
necessary payment for the redemption and the tender is refused, it is not necessary that it be
followed by the deposit of the money in court or elsewhere (Enage vs. Vda. de Escano, 38 Phil. 687)
and no interest after such tender is demandable on the redemption money. (Martinez vs. Campbell,
10 Phil. 626; Fabros vs. Agustin, 18 Phil. 336).

The jurisprudence cited by PNB are not applicable

Even as We have so far focused Our discussion and resolution of the issues herein on the pertinent
statutory provisions, We have not really closed Our eyes to the jurisprudence cited by PNB in its
brief, four of which are worthy of mention, namely Medina vs. PNB, 56 Phil. 655. Nepomuceno vs.
RFC, G.R. No. L-14877, Nov. 23,1960; Perez vs. PNB, 17 SCRA 833 and DBP vs. Mirang 66 SCRA
141.
The case of Perez, supra, did not involve a redemption in the sense that it is in issue in this case. In
fact, the point involved in the instant case is not even touched in the syllabus thereof in SCRA. This
is because what was fundamentally the problem therein was whether or not it was obligatory on the
part of the bank-mortgagee to foreclose judicially the mortgage inasmuch as the mortgagor died. As
the Court said, "the main issue in this appeal is the application of Section 7, Rule 87 of the Rules of
1940 (now Section 7 of Rule 68), a reproduction of Section 708 of the Code of Civil Procedure".
Hence, anything said therein at issue may be deemed as obiter. If anything in that opinion is relevant
hereto, it is that portion thereof that justly and equitably holds that from whatever amount should be
payable to the mortgagee Bank, should be deducted "the value of any rents and profits derived by
the (said) bank from the property in question". (at p. 840)

In the Nepomuceno case, supra, what confronted the Court was a question relative to a mortgage
with the Rehabilitation Finance Corporation (RFC for short, now the Development Bank of the
Philippines). The Court found no difficulty in not applying Section 6 of Act 3135 because it found that
there is in Section 31 of the Charter of the RFC a provision basically similar to Section 25 of
Presidential Decree 694, now being invoked here by PNB. Naturally, the Court upheld the RFC's
contention that the whole amount of the mortgagor's indebtedness should be paid. But in the instant
case, as already discussed earlier, P.D. 694 came too late.

DBP vs. Mirang supra, follows in principle the Nepomuceno ruling that the special provisions in the
charter of DBP govern in matters of redemption of property acquired by it in a foreclosure sale. So,
We need not elucidate any further on its inapplicability hereto.

It is the earlier case of Medina vs. PNB, supra, that nearly approximates the position PNB is
pressing on Us now, because in a portion of the opinion thereof, Chief Justice Avenceña as correctly
underlined by PNB in its brief, stated:

As we have indicated above, there is no question with regard to the plaintiffs' right,
as successors of the Manila Commercial Company, to repurchase the parcels
covered by the transfer certificates of title Nos. 137 and 139. The question is
whether, as the bank contends and the trial court has held, the redemption should be
made by paying to the bank the entire amount owned to it by the Manila Commercial
Company. The appellants contend that this redemption may be made by only
reimbursing the bank what it has paid for the sale made to it. In this respect we are
also of the opinion that the judgment appealed from is correct. (Page 655)

But this statement needs clarification. Towards the concluding portion of the opinion, he explained
that:

It will be remembered that the mortgage contract between the bank and the Manila
Commercial Company was executed on October 30, 1920, before the approval of Act
No. 3135 in March, 1924. If, before Act No. 3135 took effect, the Manila Commercial
Company had violated the contract, beyond all doubt the bank would have been able
to sell the mortgaged property, without the necessity of a judicial action, and the sale
thus made would carry the right of repurchase on the part of the debtor through the
payment of the entire amount of the debt.

When the bank's right to foreclose the mortgage of the Manila Commercial Company
accrued, Act No. 3135 was already in force. Of course, this law, being general, did
not affect the charter of the bank, which was a special law. Thus, when the bank, in
order to sell the mortgaged property extrajudicially, resorted to Act No. 3135, it did so
merely to find a proceeding for the sale; but that action cannot be taken to mean a
 waiver of its right to demand the payment of the whole debt before the property can
be redeemed. The record contains nothing to show that the bank made this waiver of
said right. (Pp 656-657)

There is here an implication that in undertaking the foreclosure therein involved, the PNB relied on
Act 3135. This is not quite accurate, for in the opening paragraph of the same opinion, it is stated
that:

On October 30, 1920 the Manila Commercial Co. and La Yebana Co. mortgaged four
parcels of land with Torrens titles, described in the complaint, to the Philippine
National Bank, the first and fourth parcels being in the name of the La Yebana Co.
and the second and third in the name of the Manila Commercial Co. The mortgage
was given to secure the payment of P680,000 or for whatever amount the Manila
Commercial Co. might be indebted to the Philippine National Bank. One of the
clauses of the mortgage provides that in case of a violation by the Manila
Commercial Co. of any of the conditions of the contract the Philippine National Bank
may take possession of the mortgaged property and sell or dispose of it by public or
private sale, without first having to file a complaint or to give any notice, and at such
sale, if public, it may acquire for itself all or any of the parcels of land. (Page 651)
(Emphasis supplied)

Thus, it is to Our mind closer to the truth that it was by virtue of such contractual clause, rather than
Act 3135, even if the request to the sheriff did mention said Act that PNB foreclosed. In any event,
the Court did take into account that the mortgage at issue in that case was executed before the
approval of Act 3135 and observed that without such Act, the right of the bank to full payment would
have been indisputable. This is the same principle of non-impairment of the contracts by subsequent
legislative action We have made reference to above in precluding the applicability hereto of P.D.
694.

On the minor issues

We are not impressed that PNB is really serious in its pose that the tender by manager's check by
CITADEL was inefficacious. For one thing, that obligation was waived when in its letter of rejection,
the bank did not invoke it. (Gregorio Araneta, Inc. vs. De Paterno and Vidal, 91 Phil. 786) More
importantly, this Court has already sanctioned redemption by check. (Javellana vs. Mirasol, 40 Phil.
761)

Neither do We find any substantial weight in PNB's pose that the transfer or conveyance of
STANDARD'S right of redemption to CITADEL and the latter to Leticia Co is not binding on it. In
Lichauco vs. Olegario, et al., 43 Phil. 540, this Court held that "whether or not ... an execution debtor
was legally authorized to sell his right of redemption, is a question already decided by this Court in
the affirmative in numerous decisions on the precepts of Sections 463 and 464 and other sections
related thereto, of the Code of Civil Procedure. " (The mentioned provisions are carried over in Rule
39 of the Revised Rules of Court.) That the transfers or con. conveyances in question were not
registered is of miniscule significance, there being no showing that PNB was damaged or could be
damaged by such omission, When CITADEL made its tender on May 5, 1976, PNB did not question
the personality of CITADEL at all. It is now too late and purely technical to raise such an innocuous
failure to comply with Article 1625 of the Civil Code.

The foregoing discussion inexorably points to the conclusion that the price of redemption of
P1,621,970.00 tendered by CITADEL on March 5, 1976 was the correct amount. Since PNB refused
to allow the redemption thus legally tendered, applying the law strictly, it would stand to lose
P1,744,576.42 of what it claims was the total indebtedness or outstanding obligation of CITADEL as
of March 11, 1976.

To avoid this loss, PNB invokes, as already stated above, P.D. No. 694, but We have also pointed
out earlier that to apply said decree would result in the impairment of the contractual obligation of
CITADEL, which cannot be allowed under the Constitution.

However, We are persuaded that all such considerations would render the result of this case short of
what appears to be substantial justice in the light of the situation on hand. It strikes Us as rather
unconscionable that by a literal application of the law and perhaps due to a mistake in the amount of
the bid made by PNB, 6 the bank would not get full satisfaction of its credit. Indeed, there would be unjust
enrichment on the part of the debtor- mortgagor in such an eventuality. Our sense of justice cannot permit
such inequitous advantage.

With this point in mind, We deem it fairer and so hold that considering the unique factual milieu of
this case, Articles 22 and 2142 of the Civil Code should be the guideposts of Our decision here. Said
articles provide:

ART. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.

xxx xxx xxx

ART. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another.

Although the report of the Code Commission states that:

Another rule is expressed in article 22 which compels the return of a thing acquired
"without just or legal ground." This provision embodies the doctrine that no person
should unjustly enrich himself at the expense of another, which has been one of the
mainstays of every legal system for centuries. It is most needful that this ancient
principle be clearly and specifically consecrated in the proposed Civil Code to the
end that in cases not foreseen by the lawmaker, no one may unjustly benefit himself
to the prejudice of another. The German Civil Code has a similar provision (art. 812).

it may be said that whatever of the principle of unjust enrichment may not be covered by Article 22,
Article 2142 makes its enhancement in this jurisdiction most comprehensive

Consequently, it is but just and proper that PNB should be paid the full amount of P3,366,546.42
without any interest as of March 11, 1976, when it refused a redemption legally and validly tendered.
On the other hand, the amount of P1,621,970.00 tendered by CITADEL on March 5, 1976 and which
was deposited in a savings account, drawing interest apparently less than 12% p.a., in the name of
PNB by order of the trial court should be computed to have earned legal interest or 12% p.a.,
compounded annually, since March 11, 1976, provided however that should such amount including
the compounded interest at 12% p.a. so earned be less than P3,366,546.42, petitioner herein should
pay PNB such difference, and provided, on the other hand, that with this arrangement, PNB does not
have to account to CITADEL/LETICIA CO for any of the rentals it had earned from the time it took
possession of the property. In the final analysis, instead of PNB losing P1,744,576.42, under strict
technical legal reasoning, as explained above, applying hereto the principle of unjust enrichment,
which We deem in the peculiar circumstances at this instant case to be the fairest way of resolving
this controversy, it would still be paid by petitioner a certain amount, not to mention what must be
quite substantial and considerable, the rentals the said bank it has earned, which it does not have to
account for.

In closing, We may add that in Escano, supra, this Court laid down as a policy that "redemptions are
looked upon with favor, and when an injury is to follow, a liberal construction will be given to our
redemption laws to the end that the property of the debtor may pay as many of the debtor's
liabilities", PNB having foreclosed on the Baguio properties and the chattels of STANDARD for what
appears could have been a fairer price, it is but in consonance with the Escano policy that the
redemption herein involved be allowed on the basis of the injunction against unjust enrichment. 7 We
may add here the observation, taught by common business experience, that when a bank grants a loan,
secured by any collateral, what is of uppermost consideration to such lender is the borrower's capacity to
pay according to the terms stipulated, and not really the acquisition of the collateral, if only to maintain the
bank's liquidity position as conveniently as possible. Acquired assets generally add to liquidity problems
of banks. The foreclosure of the security is a measure of last resort, hence when by the exercise of the
right of redemption, the bank can recover the money it has loaned, nothing could be more proper than to
allow the borrower to retain his property. Of course, peculiar instances are naturally excepted. That is why
this decision cannot be invoked as a precedent for other parties not exactly similarly situated as the
appellee in this case. Should there be any thought that Our resolution of this case is not strictly according
to legal principles, let everyone be reminded that this Court has inherent equity jurisdiction it can always
exercise in settings attended by unusual circumstances to prevent manifest injustice that could result from
bare technical adherence to the letter of the law and unprecise jurisprudence under it.

WHEREFORE, the judgment of the trial court against the Philippine National Bank herein on appeal
is hereby modified and another one is hereby rendered in favor of the said defendant-appellant bank
in accordance with the formula herein above stated, and, accordingly, upon payment by LETICIA CO
of the amount due it pursuant to the above computation, PNB is hereby ordered to transfer the title
to the property in question to LETICIA CO. This payment must be made within ten (10) days from
the finality of this judgment.

No costs.
 SECOND DIVISION
[G.R. No. L-26274 : July 31, 1981.]
ALPHA INSURANCE AND SURETY CO., INC., Plaintiff-Appellant, vs. ESPERANZA C.
REYES, ARTURO R. REYES and DEVELOPMENT BANK OF THE
PHILIPPINES, Defendants-Appellees.
 
DECISION
 
BARREDO, J.:
 
An appeal from the decision of the Court of First Instance of Manila in Civil Case No. 49980,
Alpha Insurance and Surety Co., Inc. vs. Esperanza C. Reyes, et al., certified by the Court
of Appeals to this Court for the reason that the sole assignment of error of appellant raises
purely a legal question.
The following facts are undisputed:
The spouses Esperanza C. Reyes and Arturo R. Reyes executed on November 15, 1958 in
favor of Alpha Insurance and Surety Co., Inc. a second mortgage over their two parcels of
land  (with a total area of 540 square meters) and the buildings thereon, located at Makati,
cranad

Rizal, in consideration of Alpha Insurance’s undertaking to act as surety of the said spouses
in certain loans  (not to exceed P10,000.00) to be obtained from banks or financial
cranad

institutions. The two lots were previously mortgaged to the Development Bank of the
Philippines as security for a loan of P17,000.00.
In 1958, Esperanza C. Reyes borrowed P5,000.00 from the Prudential Bank and Trust
Company. In 1959, she borrowed also P5,000.00 from the Philippine Banking Corporation.
Alpha Insurance was her surety and co-maker in two promissory notes covering the said
loans. She and her husband executed indemnity agreements in favor of Alpha Insurance in
addition to the second mortgage.
Due to the default of Esperanza C. Reyes, Alpha Insurance, as solidary debtor, was
constrained to pay the two loans total balance of which as of November 21, 1961 was
P7,575.00, plus 12% interest per annum.
As the Reyes spouses did not make any reimbursement to Alpha Insurance, the latter filed
on March 27, 1962 in the Court of First Instance of Manila the foreclosure action above-
mentioned against the spouses and the DBP.
The DBP in its answer alleged that it had a first mortgage on the two lots which was
superior to Alpha Insurance’s mortgage. It prayed that, in case of foreclosure, the proceeds
of the sale be first applied to its credit. The Reyes spouses did not file an answer. They were
declared in default.
Judge Jose L. Moya in his decision dated February 1, 1963, simply ordered the Reyes
spouses to pay Alpha Insurance the sum of P7,575.00 with 12% interest a year from
November 22, 1961.
Because the judge had ignored the prayer in Alpha Insurance’s complaint for the foreclosure
of its second mortgage, it filed a motion for reconsideration, praying that the foreclosure of
the second mortgage be ordered and that the Reyes spouses be required to pay attorney’s
fees.
Judge Moya in his order of February 19, 1963 awarded P757.50 as attorney’s fees, but he
held that the second mortgage could not be recognized as an encumbrance because the
DBP did not consent to its execution.
Judge Moya relied on the ruling in Associated Insurance & Surety Co., Inc. vs. Register of
Deeds of Pampanga, 105 Phil. 123, which construed the following provisions of
Commonwealth Act No. 459, the law creating the Agricultural and Industrial Bank:
“SEC. 26. Securities on loans granted by the Agricultural and Industrial Bank shall
not be subject to attachment nor can they be included in the property of insolvent
persons or institutions, unless all debts and obligations of the debtor to the
Agricultural and Industrial Bank have been previously paid, including accrued
interest, collection expenses, and other charges.”1
This Court held therein that this section embraces “levy on execution or any other
encumbrance, unless the same is created with the consent” of the bank and that “(A)
different interpretation would defeat the very purpose of the law which is to maintain
unhampered the value of the property until the encumbrance shall have been released.”
Alpha Insurance filed a motion for reconsideration wherein it alleged that the second
mortgage was approved by DBP Governor Roberto S. Benedicto  (Exh. A-2) and that the
cranad

second mortgage was registered because of that approval and because the DBP delivered
the owner’s duplicate of the title to Alpha Insurance in order to effect the registration.
Nevertheless, Judge Moya denied the motion. Alpha Insurance appealed to this Court.
Controversies of this nature should not even be litigated, much less reach this Supreme
Court, adding to its already almost unmanageable docket. The issue between the parties is
so insubstantial that a little more effort on the part of respective counsels of the parties and
the trial court to get together as to what should be done would have cleared up matters in a
manner We are certain would have been satisfactory to all concerned. To think that a
litigation like this should last since March 27, 1962 or more than almost two decades ago
when plaintiff-appellant filed its action of foreclosure is a black spot in the administration of
justice in this country. This situation is intolerable and the members of the Bar and the trial
judges ought to change their attitudes and direct their efforts towards more important and
substantial legal matters, thereby serving public interest to the utmost within their expected
capabilities.
Deciding the legal question before Us, even if the DBP were just an ordinary first mortgagee
without any preferential liens under Republic Act No. 85 or Commonwealth Act 459, the
statutes mentioned in the Associated Insurance case relied upon by the trial court, it would
be unquestionable that nothing may be done to favor plaintiff-appellant, a mere second
mortgagee, until after the obligations of the debtors-appellees with the first mortgagee have
been fully satisfied and settled. In law, strictly speaking, what was mortgaged by the
Reyeses to Alpha was no more than their equity of redemption.
Thus, what We perceive to be most appropriate to do at this late stage is to see to it that
the obligations in question are paid soonest. However, to insist now, after so many wasted
years, on following in this case the ordinary foreclosure procedure provided by law would
only cause further unnecessary delay in the termination of the insubstantial controversy
among the parties herein.
In De la Riva vs. Reynoso, 61 Phil. 734, Antonio de la Riva, the second mortgagee, filed an
action against the mortgagor Marceliano Reynoso to foreclose the second realty mortgage.
La Urbana Mutual Building and Loan Association, the first mortgagee, was joined as a co-
defendant.
This Court held that La Urbana was properly joined as a co-defendant and affirmed the
lower court’s judgment ordering Reynoso to pay within ninety days the amounts due to La
Urbana and De la Riva, and, in case of failure to do so, ordering the sale at public auction of
the mortgaged property and the application of the proceeds of the sale to the two mortgage
debts.
Within this precedent, the Court is of the considered opinion and so holds that to avoid
further delay in writing finis to the instant case which started way back in 1962, without any
more ado, all that has to be done here is to have the property herein involved ordered by
the trial court sold at public auction immediately, the proceeds thereof to be used to pay the
outstanding obligation, if still there be any, of the defendants-appellees Esperanza Reyes
and Arturo Reyes to the Development Bank of the Philippines; if there be any excess
thereafter, the same be used to pay their obligation to the plaintiff-appellant, and should
there still be any further excess, the same should be given to the said Defendants-
Appellees.
ACCORDINGLY, judgment is hereby rendered modifying the decision of the trial court to
conform with the procedure herein outlined. No costs.
Aquino, Concepcion Jr., Abad Santos and De Castro, JJ., concur.
G.R. Nos. L-34317 and L-34335 November 28, 1973

MARCELO STEEL CORPORATION, HON. WALFRIDO DE LOS ANGELES, in his capacity as

Judge, Court of First Instance of Rizal, Branch IV, Quezon City, and THE SHERIFF OF
QUEZON CITY, petitioners,
vs.
COURT OF APPEALS, PETRA R. FARIN and BENJAMIN FARIN, respondents.

Florentino I. Capco for petitioners.

Ramon M. de Claro for respondents.

BARREDO, J.:

Petitions for review of the decision of the Court of Appeals in CA-G. R. No. 47519-R, entitled Petra
Farin, et al., vs. Hon. Walfrido de los Angeles, etc. et al., granting a petition for certiorari of herein
private respondents, the spouses Benjamin and Petra Farin, and annulling and setting aside the
orders separately issued by the Court of First Instance of Quezon City in its Civil Case No. Q-9384
and in L. R. C. Record No. 7681, the first being an order dated December 9, 1970 denying private
respondents' motion to stop the Sheriff of Quezon City from proceeding with the extrajudicial
foreclosure sale of the properties herein involved which said private respondents had mortgaged to
herein petitioner Marcelo Steel Corporation, after the said court had already rendered judgment
dismissing the complaint for prohibition to enjoin said foreclosure, but pending the appeal thereof,
and the second being the order dated February 4, 1971 granting the same petitioner's motion for a
writ of possession of the said properties which it had acquired in the foreclosure sale which the court
had refused to restrain in the other case.

The background facts are stated in the decision of the Court of Appeals thus:

This is a petition for certiorari to annul the order dated December 9, 1970, issued in
Civil Case No. Q-9384 of the Court of First Instance of Quezon City, Branch IV, and
the writ of possession issued in L.R.C. Rec. No. 7681 of said court.

It appears that on October 30, 1964, the petitioner spouses executed a deed of real
estate mortgage, in favor of respondent Marcelo Steel Corporation, hereinafter
referred to as respondent corporation over a parcel of land covered by T.C.T. No.
42689 of the Register of Deeds of Quezon City, as security for the payment of a
promissory note in the sum of P600,000.00.

On July 24, 1965, the respondent corporation filed with the Sheriff of Quezon City a
verified letter-petition for the extra-judicial foreclosure of the afore-mentioned real
estate mortgage. Accordingly, the respondent Sheriff of Quezon City advertised and
scheduled the extra-judicial foreclosure sale of the mortgaged property for August
26, 1965.

On August 21, 1965, the petitioners filed against the respondent corporation and the
respondent Sheriff of Quezon City a petition captioned "Prohibition with Injunction
and Damages" docketed as Civil Case No. Q-9384 of the Court of First Instance of
Rizal, wherein they prayed that the respondent sheriff be permanently enjoined from
proceeding with the scheduled sale at public auction of the mortgaged property, and
that the respondent corporation be condemned to pay the petitioners P200,000.00 as
actual and moral damages and P50,000.00 as penal and compensatory damage and
P30,000.00 as attorney's fees, on the ground that they have not been in default in
the payment of their obligation.

On August 21, 1965, the respondent judge issued an order commanding the
respondent Sheriff and the respondent corporation to desist from proceeding with the
public auction sale of the mortgage property scheduled on August 26, 1965.

After trial, the respondent judge rendered a decision on October 3, 1970, the
dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered as follows:

1. The above-entitled case is hereby ordered DISMISSED, for lack of sufficient basis;

2. Ordering the petitioners, jointly and severally, to pay the sum equivalent to 15% of
the total obligation due, as reasonable attorney's fees;

3. Ordering petitioners to pay respondent Marcelo Steel Corporation, jointly and

severally, the sum of P50,000.00 as actual exemplary damages;

4. Ordering the petitioners, jointly and severally, to pay the costs of the suit.
 The order of status quo issued by the Court under date of August 21, 1965 is hereby
LIFTED and SET ASIDE, and the Sheriff of Quezon City may now proceed with the
extrajudicial foreclosure of the mortgage."

Petitioners received a copy of the decision on October 15, 1970.

On October 19, 1970, respondent corporation filed with respondent Sheriff another
verified letter-petition informing the latter of the decision rendered in Civil Case No.
Q-9384 and praying for the extra-judicial foreclosure of the real estate mortgage.
Acting on said letter-petition, the respondent Sheriff issued the necessary notices
setting the public auction sale of the mortgaged property on December 9, 1970.

On October 30, 1970, petitioners filed their notice of appeal, appeal bond and record
on appeal.

On December 4, 1970, petitioners riled an "Urgent Motion to Require Respondents to

Desist From Proceeding With The Public Auction Sale of Petitioners' Properties."

After respondent corporation filed its opposition to said motion, the respondent judge
issued on December 9, 1970, an order denying petitioners' aforementioned motion to
stop respondent Sheriff from proceeding with the scheduled auction sale of
petitioners' mortgaged property. On the same date, the respondent Sheriff
proceeded with the auction sale of the mortgaged property, respondent corporation
being the successful bidder, and issued the correspondent certificate of sale dated
December 9, 1970.

On the same date, December 9, 1970, the respondent Judge issued an order
approving petitioners record on appeal.

On January 12, 1971, the respondent corporation filed in L.R.C. Rec. No. 7681 an
independent petition for the issuance of a writ of possession entitled "In the Matter of
the Petition For Issuance of Writ of Possession Over a Parcel of Land Covered By
Transfer Certificate of Title No. 42589 of The Office of The Register Of Deeds of
Quezon City In The Name Of Mortgagor Petra R. Farin Married To Benjamin Farin;
Marcelo Steel Corporation (Mortgage) Petitioner". This petition was also assigned to
the respondent Judge. Petitioners did not file an opposition to said petition.

On January 18, 1971, the respondent Judge issued an order directing the
presentation and submission of evidence before the Branch Clerk of Court. After the
respondent corporation had submitted its evidence in support of its petition, the
respondent Judge issued an order on February 4, 1971, granting the petition for the
issuance of a writ of possession.

Thereupon, the petitioners filed the present petition.

Upon these facts, the Court of Appeals held the trial court exceeded its jurisdiction when it denied
the motion of the Farins seeking to enjoin the foreclosure sale of their mortgaged properties
inasmuch as they had already perfected their appeal from the decision dismissing their petition for
prohibition against said sale. According to the appellate court, since the remedy pursued by the
Farins was not an ordinary action of injunction within the contemplation of Section 4 of Rule 39 nor
one for the annulment of mortgage, but a special civil action of prohibition, the decision therein is not
immediately executory as a matter of right but only of sound judicial discretion under Section 2 of the
same rule, and considering that the prevailing party had not even moved for immediate execution,
the trial court could not have availed of its powers under this last mentioned provision.

It is quite obvious that the Court of Appeals has missed the point. As a matter of fact, it is plain that
the trial court did not issue any order of execution. The sheriff's act of proceeding with the
foreclosure sale was not done by virtue of any such order of execution, but pursuant to his authority
and duty under Act 3135 as amended by Act 4118 governing the extrajudicial foreclosure of
mortgages, which is simply to sell the mortgaged properties at public auction to the highest bidder,
upon verified petition of the mortgagee and without the need of any judicial order. In other words, the
sheriff went ahead not because he was so ordered by the court, but precisely because the court
refused to restrain him by dismissing respondents' petition for prohibition and lifting the status
quo order it had preliminarily issued upon the filing of the complaint. Under these circumstances, the
perfection of respondents' appeal could not by itself have had the effect of restoring the status
quo order, without an express order in that sense, which, of course, the court had the power to
issue. The Court has so held as early as November 13, 1902 in Watson & Co. vs. Enriquez, found in
Volume I of the Philippine Reports at pages 480 to 484. The ruling therein made which is very
illuminating applies four-square to the case at bar.

The plaintiff, at the commencement of this action obtained a preliminary injunction as

prayed for in its complaint. The case was afterwards tried, and in September, 1902, a
final judgment therein was entered in favor of the defendants and the temporary
injunction was dissolved.

On the 20th of September a bill of exceptions was perfected and signed by the judge,
and a certified copy thereof was then transmitted to this court. In this court the
plaintiff has presented a motion asking that the preliminary injunction be continued.

Before discussing the power of this court to grant a preliminary injunction, under
these circumstances, it seems necessary to determine whether or not the preliminary
injunction granted below was continued in force by the filing of the bill of exceptions.
Article 144 of the Law of Civil Procedure, now in force, says: "But the filing of a bill of
exceptions shall of itself stay execution until the final determination of the action,
unless," etc. Article 1007 of the Revised Statutes of the United States states the
manner of obtaining a supersedeas in cases pending in the Federal courts. The
meaning of the word "supersedeas" as used in that section has been defined as
follows: "A supersedeas, properly so called, is a suspension of the power of the court
below to issue an execution on the judgment or decree appealed from; or, if a writ of
execution has issued, it is a prohibition emanating from the court of appeals against
the execution of the writ. (Hovey vs. McDonald, 109 U.S. 150.)

As so construed, article 1007 of the Revised Statutes of the United States is

substantially the equivalent of our article 144. This question as to whether a
supersedeas has, in the Federal courts, the effect of continuing in force an injunction
dissolved by the lower court has frequently been passed upon by the Supreme
Court. That court has said: "The general ruling is well settled that an appeal from a
decree granting, refusing, or dissolving an injunction does not disturb its operative
effect. (Hovey vs. McDonald, 109 U.S. 150-161; Slaughterhouse Cases, 10 Wall.,
273-297; Leonard vs. Ozark Land Company, 115 U.S., 465-468.) When an injunction
has been dissolved it can not be revived except by a new exercise of judicial power,
and no appeal by a dissatisfied party can of itself revive it. (Knox Co. vs. Harshman,
132 U.S., 14.)
The truth is that the case is not governed by the ordinary rules that relate to a
supersedeas of execution, but by those principles and rules which relate to chancery
proceedings exclusively. ... In this country the matter is usually regulated by statutes
or rules of court, and, generally speaking, an appeal, upon giving the security
required law, when security is required, suspends further proceedings and operates
as a supersedeas of execution. ... But the decree itself may have an intrinsic effect
which can only be suspended by an affirmative order either of the court which makes
the decree or of the appellate tribunal. This court, in the Slaughterhouse Cases, 10
Wall., 273, decided that an appeal from a decree granting, refusing, or dissolving an
injunction does not disturb its operative effect. Mr. Justice Clifford, delivering the
opinion of the court, says: "It is quite certain that neither an injunction nor a decree
dissolving an injunction passed in circuit court is reversed or nullified by an appeal or
writ of error before the cause is heard in this court." It was decided that neither a
decree for an injunction nor a decree dissolving an injunction was suspended in its
effect by the writ of error, though all the requisites for supersedeas were complied
with. It was not decided that the court below had no power, if the purpose of justice
required it, to order a continuance of the status quo until a decision should be made
by the appellate court, or until that court should order the contrary. This power
undoubtedly exists, and should always be exercised when any irremediable injury
may result from the decree as rendered. ( Hovey vs. McDonald, 109, U.S., 159.)

In Minnesota the supersedeas statute provided that the appeal from the order of
judgment should "stay all proceedings thereon and save all rights affected thereby."
The court of this State, relying upon the last of the two clauses quoted, held that an
appeal from an order dissolving an injunction continued the injunction in force. The
evils which would result from such a holding are forcibly pointed out by Judge
Mitchell in a dissenting opinion. He said: "Although a plaintiffs papers are so
insufficient on their face or so false in their allegations that if he should apply on
notice for an injunction, any court would, on a hearing, promptly refuse to grant one,
yet, if he can find anywhere in the State a judge or court commissioner who will
improvidently grant one ex parte, which the court on the first and only hearing ever
had dissolves, he can, by appealing and filing bond, make the ex parte injunction
impervious to all judicial interference until the appeal is determined in this court. ...
Such result is so unjust and so utterly inconsistent with all known rules equity
practice that no court should adopt such a construction unless absolutely shut up to it
by the clear and unequivocal language of the statute. (State vs. Duluth St. Ry. Co.,
47 Minn., 369.)

The supreme court of that State afterwards, although adhering to that decision on the
ground of stare decisis, stated that in their opinion it was unsound. (State ex rel.
Leary vs. District Court, 78 Minn., 464.)

We have in these Islands no appeal from orders granting or dissolving preliminary

injunctions, yet what was said by Justice Mitchell applies to a case where, upon a full
trial in a court below, the judge has decided that neither upon the facts nor the law is
the plaintiff entitled to any relief. To allow a plaintiff in such a case, by taking an
appeal and giving a supersedeas bond, to continue an injunction in force would be
manifestly unjust.

We adopt the rule announced by the Supreme Court of the United States and hold
that the filing of the bill of exceptions in the case at bar did not operate to revive the
preliminary injunction which was dissolved in and by the final judgment.
 We also adopt the other conclusion of that court to the effect that the judge below
has the power, if the purposes of justice require it, to order a continuance of
the status quo until a decision should be made by the appellate court or until that
court should order to the contrary. We have already in effect declared that principle in
the case of Maximo Cortes vs. Palanca Yutivo, decided August 6, 1902.

This doctrine was reiterated a few days later in Sitia Teco vs. Ventura, 1 Phil. 497 thus:

During the pendency of the suit the plaintiff applied for a preliminary injunction on the
ground, as stated in the oral argument of counsel, that the house placed by the
plaintiff upon the lot having been destroyed by order of the municipality the
defendants repossessed themselves of the premises and were preparing to build a
house thereon.

Upon a trial of the case judgment was rendered against the plaintiff on the merits of
the suit, and the injunction was dissolved. The plaintiff has appealed the case by a
bill of exceptions and has made application to this court to restore the injunction on
the ground that the operative effect of the judgment by which the injunction was
dissolved has, by virtue of the appeal taken and the giving of a supersedeas bond,
been lost, and that the judgment in the case should not have the effect of disturbing
the interlocutory injunction. In the case of Watson & Co. vs. Enriquez, decided by this
court October 26, 1902, it is held that an appeal from an order dissolving an
injunction does not suspend the operation of the decision so as to revive the
interlocutory injunction.

We had occasion to reaffirm the same ruling in Aguilar vs. Tan, G. R. No. L-23600, rendered in
January 30, 1970 31 SCRA 205-214.

Now, in connection with the issuance by the trial court, upon motion of petitioner and without
objection of the Farins, of the writ of possession in the L.R.C. case, the appellate court ruled that the
same amounted to an execution of the decision in the civil case, and such being the case, the trial
court should have desisted from doing it in view of the respondents' appeal. We do not agree. It is
Our considered opinion that the writ of possession was properly issued, since, as already discussed
above, the foreclosure proceeding conducted by the sheriff was not predicated on any judicial order.
Again, the erroneous pose of the Court of Appeals runs counter to standing jurisprudence on the
matter. In De Gracia vs. San Jose, 94 Phil. 623, which is likewise on all fours with the situation
presently before Us, the Court held:

Petitioner is the registered owner of the real property described in Transfer

Certificate of Title No. 3731 of the Land Records of the city of Manila, which, by way
of extrajudicial foreclosure of a mortgage constituted upon the same in favor of the
Rehabilitation Finance Corporation, was on November 14, 1952, sold to the Republic
Surety & insurance Co., Inc., as the highest bidder at a public auction conducted by
the sheriff of said city under a special power of attorney attached to the mortgage
deed and pursuant Act. No. 3135, as amended by Act No. 4118. Three days after the
sale, the purchaser filed an ex parte motion, duly verified, in the four branch of the
Court of First Instance of Manila as authorized section 7 of the same Act, as
amended, praying that it be given possession of the property during the redemption
period and offering to furnish the corresponding bond. But before the motion could
acted upon, herein petitioner filed an opposition thereto and followed it with a
complaint for the annulment of the sale and a motion dismiss the petition for a writ of
possession or to postpone consideration thereof until the complaint for annulment
could be decided. Being specifically empowered by the Act to grant such writ on
an ex parte motion by the purchaser, the court refused to be side tracked and
authorized the issuance of the writ upon the filing of a bond without prejudice to the
right of the oppositor to question the validity of the sale in the manner provided by
law.

Contending that the lower court acted without jurisdiction and with grave abuse of
discretion in authorizing the issuance of the writ, petitioner has come to this Court for
a writ of certiorari and prohibition.

The petition is without merit.

Sections 7 and 8 of Act No. 3L35, as amended, provide:

SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition
the Court of First Instance of the province or place where the property or any part
thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of
twelve months, to indemnify the debtor in case it be shown that the sale was made
without violating the mortgage or without complying with the requirements of this Act.
Such petition shall be made under oath and filed in form or an ex parte motion in the
registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under
section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of court shall,
upon the filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and ninety six, as
amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall,
upon approval of the bond, order that a writ of possession issue addressed to the
sheriff of the province in which the property is situated, who shall execute said order
immediately.

SEC. 8. The debtor may, in the proceedings in which possession was requested but
not later than thirty days after the purchaser was given possession, petition that the
sale be set aside and the writ of possession cancelled, specifying the damages
suffered by him, because the mortgage was not violated or the sale was not made in
accordance with the provisions hereof, and the court shall take cognizance of this
petition in accordance with the summary procedure provided for in section one
hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the
complaint of the debtor justified, it shall dispose in his favor of all or part of the bond
furnished by the person who obtained possession. Either of the parties may appeal
from the order of the judge in accordance with section fourteen of Act Numbered
Four hundred and ninety-six; but the order of possession shall continue in effect
during the pendency of the appeal.

As may be seen, the law expressly authorizes the purchaser to petition for a writ of
possession during the redemption period by filing an ex parte motion under oath for
that purpose in the corresponding registration or cadastral proceeding in the case of
property with Torrens title; and upon the filing of such motion and the approval of the
corresponding bond, the law also in express terms directs the court to issue the order
for a writ of possession. Under the legal provisions above copied, the order for a writ
 of possession issues as a matter of course upon the filing of the proper motion and
the approval of the corresponding bond. No discretion is left to the court. And any
question regarding the regularity and validity of the sale (and the consequent
cancellation of the writ) is left to be determined in a subsequent proceeding as
outlined in section 8. Such question is not to be raised as a justification for opposing
the issuance of the writ of possession, since, under the Act, the proceeding for this
is ex parte.

It thus appear that the respondent Judge, in ordering the issuance of a writ of
possession in this case, merely obeyed an express mandate of the law in the manner
and upon the terms therein provided, and petitioner may not complain that he has
been deprived of a substantial right without due process, because the order states
that it is to be "without prejudice to the rights of the oppositor to question the validity
of the above mentioned sale in the manner provided by law.

Having merely followed an express provision of the law, whose validity is not
questioned, the Judge cannot be charged with having acted without jurisdiction or
with grave abuse of discretion. The rule that the purchaser at a judicial public auction
is not entitled to possession during the period of redemption is not applicable to a
sale under Act No. 3135 where the granting of said possession expressly authorized.
...

As may be gleaned from the foregoing dissertation of Justice Alex Reyes for the Court, even the
main remedy of prohibition sought by the Farins was uncalled for. The plain, speedy and adequate
and even more expeditious remedy available to them was that specifically provided for in Section 8
of Act 3135, as amended, quoted in the opinion, which is by the summary petition under Section 112
of Act 496, the Land Registration Act. We surmise that the issue of alleged usury raised by
respondents must have been considered by the trial judge who also decided the civil case in which
said defense was raised as not substantial enough to warrant its being taken up in an ordinary action
outside of the land court.

PREMISES CONSIDERED, the decision of the Court of Appeals under review is reversed and the
petition for certiorari filed by the respondent Farins therein is dismissed, with costs against said
respondents.
G.R. No. L-52823 November 2, 1982
PHILIPPINE NATIONAL BANK, petitioner,
vs.
Hon. MIDPANTAO ADIL, in his capacity as Presiding Judge of the CFI Iloilo, Branch II, and the
HEIRS OF THE LATE TEODORO MELLIZA Composed of ANGELINA LOBATON VDA. DE
MELLIZA, etc., ROSEMARIE CHANG, RAYMUNDO TEODORO MELLIZA, JR., MARILYN
MELLIZA, JOSE TEODORO MELLIZA, et al., respondents.

Juan L. Diaz, Ramon F. Aviado and Isidro F. Real, Jr., for petitioner.

Eugenio O. Original for respondents.

DE CASTRO, J:

This is a special civil action for certiorari which seeks to annul the several injunctive orders issued by
respondent judge, and praying that, instead, the writ of possession issued in favor of petitioner, as
purchaser in the foreclosure sale, dated April 20, 1979, be immediately enforced.
It appears that on 'August 2, 1974, respondent Angelina Lobaton Melliza, for herself and as judicial
administratrix of the estate of Teodoro Uy Melliza, obtained a loan from petitioner in the amount of
P80,000.00 which was secured by a mortgage over two parcels of land covered by TCT Nos. 8266
and T-8267, For failure of said respondent to pay the loan on maturity, the mortgage was foreclosed
extrajudicially on February 16, 1976 at which foreclosure sale, petitioner purchased the properties
for P97,923.73. The properties were not redeemed within the period, hence the title over the same
were consolidated in the name of petitioner, and consequently TCT .Nos. T-50422 and T-50423
were issued in its name on June 26, 1978.

On April 19, 1979, petitioner filed an ex-parte petition for issuance of a writ of possession before the
Court of First Instance of Iloilo, Branch II, which was granted by an order dated April 20, 1979. Upon
issuance of the writ, the Deputy Sheriff served the same upon private respondents, but the latter
requested for a grace period of seven (7) days to vacate the premises in question to which the
Sheriff agreed. On May 8, 1979, the Sheriff returned to the premises in question and finding that
private respondents are still staying in the premises and had not complied with the writ of
possession, immediately ordered their ejectment. At around one o'clock in the afternoon, before the
ejectment was completed, the Sheriff received an order dated May 8, 1979, issued motu proprio by
respondent judge, suspending the implementation of the writ of possession for "humanitarian
reasons" for a period of fifteen (15) days. Before the expiration of the fifteen (15) day period, private
respondents filed a complaint dated May 14, 1979 for the annulment of the extrajudicial foreclosure,
writ of possession and consolidation of ownership on ground that the properties were foreclosed
without personal notice to any of the private respondents. The complaint was docketed as Civil Case
No. 12894 and was assigned to the Court of First Instance of Iloilo, Branch V. Upon motion of private
respondents "to consolidate the trial of the two cases," the Presiding Judge of said Branch, in an
order dated May 24, 1979, transferred the case of Branch II, presided by respondent judge.

In the proceeding for the writ of possession, private respondents filed a motion for reconsideration of
the order granting the writ of possession, while petitioner filed a motion to declare private
respondents in contempt for refusal to vacate the premises, which motions were ordered by
respondent judge held in abeyance pending the resolution of the prejudicial question raised by
private respondents in Civil Case No. 12894.

On June 1, 1979, respondent judge, acting on private respondents' prayer for injunction, issued an
order restraining petitioner from disturbing the status quo, and on July 5, 1979, respondent judge
issued an order granting the writ of preliminary injunction.

Subsequently, petitioner filed the following: 1) Motion to Require Plaintiff to Deposit Income/Fruits of
the Disputed Property dated July 6, 1979; 2) Motion for Reconsideration of the order of July 5, 1979
dated July 17, 1979; and 3) Motion to Dismiss, the Complaint dated August 2, 1979. The first two
motions were denied by, respondent judge on August 13, 1979, and the last motion, on November
22, 1979.

As could readily be seen, the main question is whether or not respondent judge grave abused his
discretion, amounting to lack of jurisdiction. in issuing the orders dated May 8, 1979, June 1, 1979,
July 5, 1979 and August 13, 1979 all of which, in effect, enjoined the enforcement of the writ of
possession. The petitioner sustains the affirmative, contending that since pursuant to De los
Angeles vs. Court of Appeals, et al. 1 citing De Gracia vs. San Jose, 94 Phil. 675, it is ministerial upon
the court to issue a writ of possession in favor of the purchaser in a foreclosure sale of a mortgaged
property, it follows that the execution of the writ of possession cannot be suspended, much less,
restrained by respondent judge. It also contends that, as purchaser, it becomes the owner of the property
entitled to jus possidendi  as provided in Article 428 of the Civil Code.
It is, however, claimed by private respondents that respondent judge, contrary to petitioner's
submission, acted within his authority, alleging that pursuant to Section 5 of Rule 135 of the Rules of
Court, the court has inherent power to "amend and control (the court's) processes and order so as to
make them conformable to law and justice." They further claimed that the case cited by petitioner is
not applicable because in the instant case the writ has already been issued. Petition should be
granted.

Section 4 of P.D. No. 385 "requiring governmental financial institutions to foreclosure mandatorily all
loans with arrearages, including interest and charges amounting to at least 20 % of the total
outstanding obligations," provides:

Section 4. As a result of foreclosure or any other legal proceedings wherein the

properties of the debtor which are foreclosed, attached, or levied upon in satisfaction
of a judgment are sold to a government financial institution, the said properties shall
be placed in the possession and control of the financial institution concerned, with
the assistance of the Armed Forces of the Philippines whenever necessary. The
Petition for Writ of Possession shall be acted upon by the court within fifteen (15)
days from the date of filing.

Pursuant to the above provision, it is mandatory for the court to place the government financial
institution, which petitioner is, in the possession and control of the property. As stated, the said
decree was enacted "in order to effect the early collection of delinquent loans from government
financial institutions and enable them to continue effectively financing the development needs of the
country" without being hampered by actions brought to the courts by borrowers.

Also, Section 6 of Act No. 3135, as amended by Act 4118, the law that regulates the methods
affecting extrajudicial foreclosure of mortgage provides that in cases in which an extrajudicial sale is
made, "redemption shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil Procedure insofar as these are not
inconsistent with the provisions of this Act." (Sections 464-466 of the Code of Civil Procedure were
superseded by Sections 25-27 and Section 31 of Rule 39 of the Rules of Court which in turn were
replaced by Sections 29 to 31 and Section 35 of Rule 39 of the Revised Rules of Court. 2 Section 35
which is one of the specific provisions applicable to the case at bar provides that "if no redemption be
made within twelve (12) months after the sale, the purchaser, or his assignee, is entitled to a conveyance
and possession of property. ... . The possession of the property shall be given to the purchaser or last
redemptioner by the officer unless a third party is actually holding the property adversely to the judgment
debtor."

The rule, therefore, is that after the redemption period has expired, the purchaser of the property has
the right to be placed in possession thereof. Accordingly, it is the inescapable duty of the Sheriff to
enforce the writ of possession, especially, as in this case, a new title has already been issued in the
name of the purchaser, In fact, under Section 7 of the said Act 3135, upon which the de los Angeles
and de Gracia cases were based, even before the redemption period, it is ministerial upon the court
to issue a writ of possession in favor of a purchaser, provided that a proper motion has been filed, a
bond approved, and no third person is involved.

The right of the purchaser to be placed in the possession of the property is bolstered by Section 8 of
the aforecited Act which provides that if the judge finds the complaint assailing the legality of the
foreclosure sale justified, it shall not transfer the possession of the property, even on appeal, but will
only proceed against the bond posted by the purchaser. Section 8 reads:
 The debtor may, in the proceedings in which possession was requested; but not later
than thirty days after the purchaser was given possession, petition that the sale be
set aside and the writ of possession cancelled, specifying the damages suffered by
him, because the mortgage was not violated or the sale was not made in accordance
with the provisions thereof, and the court shall take cognizance of this petition in
accordance with the summary procedure provided for in section one hundred and
twelve of Act Numbered Four Hundred and Ninety-Six, and if it finds the complaint of
the debtor justified, it shall dispose in his favor of all or part of the bond furnished by
the person who obtained possession. Either of the parties may appeal from the order
of the judge in accordance with sections fourteen of act numbered Four Hundred and
Ninety-Six.

In the case at bar, the writ of possession was issued but its enforcement was suspended by the
grace period given by the Sheriff who has no authority to do so, and later by the order of the judge
on a very dubious ground as "humanitarian reason." If the applicable laws clearly allow the
purchaser to have possession of the property foreclosed and mandate the court to give effect to
such right, it would be a gross error for the judge to suspend the implementation of the writ of
possession, which, as shown, should issue as a matter of course. We are of the opinion that once
the writ of possession has been issued, the Court has no alternative but to enforce the writ without
delay, especially as in this case, no motion for the suspension of the enforcement was filed.

The right of the petitioner to the possession of the property is clearly unassailable. It is founded on
its right of ownership. As the purchaser of the properties in the foreclosure sale, and to which the
respective titles thereto have already been issued, petitioner's right o-,,er the property has become
absolute, vesting upon him the right of possession over an enjoyment of the property which the
Court must aid in effecting its delivery. After such delivery, the purchaser becomes the absolute
owner of the property. As We said , in Tan Soo Huat vs. Ongwico, 3 the deed of conveyance entitled
the purchaser to have and to hold the purchased property, this means, that the purchaser is entitled to go
immediately upon the real property, and that it is the Sheriff's inescapable duty to place him in such
possession.

Respondents cannot claim that the writ of possession was suspended under the authority set forth in
Rule 1135 of the Rules of Court. To invoke the power granted therein, the court must act within the
law and with justice. When the reason given by the judge in issuing the order of suspension was not
specified in the order, but stated only in general term, as "humanitarian reasons," the Court did not
act within the bounds of the law. The order was, furthermore, issued motu proprio and without the
petitioner being afforded the right to present its side. We cannot give Our approval to the actuation of
respondent judge, for an order suspending the implementation of an earlier order is like an injunction
which must be issued always with circumspection, and upon proper motion of the party concerned.

As it is, the suspension order has a far-reaching effect. It enabled private respondents to withhold
the possession from petitioner and file the complaint where an injunction was sought. Had not
respondent judge issued such order, petitioner could have already taken possession of the property,
thereby acquiring an absolute ownership over the property, and injunction could no longer have
been issued. A prohibitory injunction cannot be issued when the act sought to be enjoined has
already been committed. 4 Neither can a mandatory injunction issue, for it is a well-settled rule that
injunction will not lie to take the property out of control of the party in possession. 5

The orders of the judge enjoining the enforcement of the writ of possession are vulnerable to attack.
Firstly, the right of private respondents to injunctive order is, at least, doubtful, and it is a settled rule
that to be entitled to the injunction, the applicant's right or title must be clear and unquestioned.
In the instant case, the ground relied upon by private respondents is not indubitable, while the
foreclosure proceeding has in its favor the presumption of regularity. And secondly, P.D. No. 385, as
aforestated, makes it mandatory for the court to place a government financial institution in
possession of the property. To enjoin PTB from taking possession of the property would be to render
nugatory the provisions of said decree, particularly Section 2 thereof:

Section 2. No restraining order, temporary or permanent in. junction shall be issued

by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof,
whether such restraining order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due hearing in which it is
established by the borrower and admitted by the government financial institution
concerned that twenty percent (20%) of the outstanding arrearages has been paid
after the firing of foreclosure proceedings.

In case a restraining order or injunction is issued the borrower shall nevertheless be

legally obligated to liquidate the remaining balance of the arrearages, paying ten
percent (10%) of the arrearages outstanding as of the time of foreclosure, plus
interest and other charges, on every succeeding thirtieth (30th) day after the
issuance of such restraining order or injunction until the entire arrearages have been
liquidated. These shall be in addition to the payment of amortizations currently
maturing. The restraining order or injunction shall automatically be dissolved should
the borrower fail to make any of the above-mentioned payments on due dates, and
no restraining order or injunction shall be issued thereafter. This shall be without
prejudice to the exercise by the government financial institutions of such rights and/or
remedies available to them under their respective charters and their respective
contracts with their debtors, nor should this provision be construed as restricting the
government financial institutions concerned from approving, solely at its own
discretion, any restructuring, recapitalization, or any other arrangement that would
place the entire account on a current basis, provided, however, that at least twenty
percent (20%) of the arrearages outstanding at the time of the foreclosure is paid.

All restraining orders and injunctions existing as of the date of this Decree on
foreclosure proceedings filed by said government financial institutions shall be
considered lifted unless finally resolved by the court within sixty (60) days from date
hereof.

WHEREFORE, judgment is hereby rendered annulling and setting aside all the injunctive orders
issued by respondent judge dated May 8, 1979, June 1, 1979, July 5, 1979 and August 13, 1979;
and ordering respondent judge to place petitioner in possession of the purchased property without
delay. Without cost.

SO ORDERED.
 [G.R. No. L-21011. August 30, 1967.]

ISABEL OCAMPO, Plaintiff-Appellant, v. IGNACIO DOMALANTA and PONCIANO

MARTINEZ, in his capacity as Provincial Sheriff of Cavite, Defendants-
Appellees.

Arturo M. Topacio, Jr. for plaintiff and Appellant.

Teodoro O. Domalanta for defendant and appellee.

3. ID.; ID.; PRESUMPTION OF NOTICE OF FORECLOSURE SALE. — Where a party fails

to prove lack of notice of sale of real estate in foreclosure proceedings, the presumption
is that such notice has been given, for official duty is presumed to have been regularly
performed.

4. ID.; ID.; PERSONAL NOTICE UNNECESSARY. — Section 18, Rule 39, Rules of Court,
does not require that notice be given personally to the person upon whose property
execution is levied.

5. ID.; ID.; ANNULMENT OF FORECLOSURE SALE FOR INADEQUACY OF PRICE;

EVIDENCE REQUIRED. — To rescind a foreclosure sale of real estate regularly made and
confirmed by a competent court, on the ground of inadequacy of price, it is essential to
prove that if a resale should take place, the realty would bring a higher price.

6. ID.; ID.; SUIT TO ANNUL FORECLOSURE SALE BARRED BY PRIOR JUDGMENT;

CONFIRMATION ORDER CONCLUSIVE BETWEEN PARTIES AND THEIR PRIVIES. — A suit
for judicial foreclosure of mortgage wherein the court already confirmed the sale of real
estate by final order bars a subsequent suit between the same parties for annulment of
such foreclosure sale upon grounds of lack of notice of sale and inadequacy of price,
because the confirmation order is, "with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation thereto, conclusive between
the parties" and their privies (Section 49 [b], Rule 39, Rules of Court).

DECISION

SANCHEZ, J.:

Sole question raised on appeal is this: Is a court order confirming a sheriff’s sale upon a
judgment in a real estate foreclosure case a bar to a subsequent action by the
judgment debtor to annul the sale upon grounds which were raised in said foreclosure
proceedings?

First, to the background facts. A contested case to foreclose a real estate and chattel
mortgage [Civil Case 45778, Court of First Instance of Manila, "Ignacio Domalanta,
plaintiff v. Isabel O. Vda. de Chi Chioco, Et Al., defendants" ], resulted in judgment
ordering appellant Isabel O. Vda. de Chi Chioco (now known as Isabel Ocampo) to pay
appellee Ignacio Domalanta P2,000.00, with 1% interest per month from December 5,
1958 until full payment, and P500.00 as attorney’s fees, and directing that after failure
to pay the above amounts in ninety days, the properties mortgaged be sold at public
auction, subject to a first mortgage in favor of the Philippine National Bank in reference
to appellant’s land (located in Tanza, Cavite) mortgaged. 1

The judgment debt remained unpaid. The court, on Domalanta’s motion, issued a writ
of execution. Pursuant thereto, on May 8, 1962, appellee sheriff sold at public auction
the mortgaged land of 32,558 square meters to the highest bidder, appellee Ignacio
Domalanta, for P3,537.00. Domalanta moved to confirm the sale. Over appellant’s
objection, the court, on June 2, 1962, confirmed.

After the June 2, 1962 order had become final, appellant started the present suit (Civil
Case N-496 of the Court of First Instance of Cavite, entitled "Isabel Ocampo, plaintiff v.
Ignacio Domalanta and Ponciano Martinez, in his capacity as Provincial Sheriff of Cavite,
defendants") to annul the sheriff’s sale. Grounds: Appellant mortgagor was not properly
notified of the foreclosure sale; and the price for which the property was sold was "very
much lower than the actual market value" and shocking to the conscience, and thus
invalid. Appellee Domalanta moved to dismiss the complaint below. His reason, inter
alia: res judicata. The court, on November 9, 1962, dismissed the case "with prejudice
and with costs against the plaintiff." A move to reconsider was thwarted below in the
order of November 21, 1962. Hence, this appeal.

1. Adverted to earlier is that the June 2, 1962 order of confirmation of the sheriff’s sale
in the first case — Case 45778 — was issued over appellant’s opposition. That objection
projected before the court the very same grounds relied upon in the complaint herein —
the second case — to wit, lack of notice by the Provincial Sheriff to appellant of the
foreclosure sale, and irregularities in the auction sale and non-conformity thereof to the
rules of Court. According to the order of confirmation, the thrust of appellant’s said
objection is that she "was not notified of the sheriff’s sale and that the price for which
the property was sold is unconscionable." But these factual allegations, so the same
order of June 2, 1962 stresses, "have not been established by any evidence," nor was
appellant’s opposition verified. Nothing in the record suggests that after the order of
June 2, 1962 in the first case (Civil Case 45778), attempt was ever made by appellant
to cure the defects so pointedly expressed by the court in that order.

2. Law and jurisprudence have formulated the rule that confirmation of sale of real
estate in judicial foreclosure proceedings cuts off all interests of the mortgagor in the
real estate sold and vests them in the purchaser. Confirmation retroacts to the date of
the sale. 2 An order of confirmation in court foreclosure proceedings is a final order, not
merely interlocutory. The right to appeal therefrom has long been recognized. 3 In fact,
it is the final order from which appeal may be taken in judicial foreclosure proceedings.
4

3. Not that the disputed order of confirmation may be labelled null and void, as
appellant would want it to be. The presumption that the notice of sale of real estate in
foreclosure proceedings has been given, holds true here. For, indeed, a legal tenet of
long standing is that official duty presumptively has been regularly performed. 5
Appellant pleaded such lack of notice. Her duty it was to prove it in court. She did not.

And if the notice that appellant here complains of is personal notice to her, she is
wrong. Because, personal notice is not required by Section 16 of Rule 39 of the 1940
Rules of Court, now Section 18, Rule 39 of the new Rules. This legal provision was
given judicial nod as early as 1930 in La Urbana v. Belando, 54 Phil. 930, 932 — a case
of foreclosure of real estate mortgage — where we pronounced that" [t]he law does not
require that such notification be given personally to the party upon whose property
execution is levied."
cralaw virtua1aw library

Nor was there an averment in the complaint now before us that if a resale should take
place, "the realty would bring a higher price" thereat, a circumstance "essential to
rescind a sale regularly made and confirmed by a competent court, on the ground of
inadequacy of price." 6 The mere averment that the price is unconscionable is nothing
more than a conclusion of law. The value of such allegation is further downgraded by
the lack of proof. This is one case which epitomizes the fatal distance between
allegation and proof.

4. Properly to be pointed out here is that the dismissal order of November 9, 1962 now
on appeal, states that the legality of the foreclosure sale questioned in this action "was
an issue that could have been, and was in fact, raised and litigated in the anterior suit"
(Civil Case 45778). Except for the Provincial Sheriff who is a nominal defendant here,
the parties in the two suits below are the same: Isabel Ocampo and Ignacio Domalanta.
Subject matter is the same land. The judgment and order of confirmation of that
sheriff’s sale in the first suit have both become final.

The first suit is a judicial foreclosure of mortgage; the second, annulment of the
foreclosure sale conducted in the first suit. A proceeding for judicial foreclosure of
mortgage is an action quasi in rem. It is based on a personal claim sought to be
enforced against a specific property of a person named party defendant. And, its
purpose is to have the property seized and sold by court order to the end that the
proceeds thereof be applied to the payment of plaintiff’s claim. 7

To be read as controlling here are Sections 44 and 45, Rule 39 of the old Rules of Court
— which is now substantially embodied in Section 49, Rule 39 of the new Rules of
Court, viz:jgc:chanrobles.com.ph

"SEC. 49. Effect of judgments. — The effect of a judgment or final order rendered by a
court or judge of the Philippines, having jurisdiction to pronounce the judgment or
order, may be as follows: chanrob1es virtual 1aw library

(a) In case of a judgment or order against a specific thing, or in respect to the probate
of a will, or the administration of the estate of a deceased person, or in respect to the
personal, political, or legal condition or status of a particular person or his relationship
to another, the judgment or order is conclusive upon the title to the thing, the will or
administration, or the condition, status or relationship of the person; however, the
probate of a will or granting of letters of administration shall only be prima facie
evidence of the death of the testator or intestate;

(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors in interest by title subsequent to
the commencement of the action or special proceeding, litigating for the same thing
and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their successors in interest, that
only is deemed to have been adjudged in a former judgment which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein
or necessary thereto." cralaw virtua1aw library

Paragraph (a) of the foregoing rule is commonly known to speak of judgments in rem;
paragraph (b) is said to refer to judgments in personam; and paragraph (c) is the
concept understood in law as "conclusiveness of judgment." 8 Here, the first suit was
an action quasi in rem. A judgment therein "is conclusive only between the parties." 9
Directly applicable is paragraph (b) above-quoted. By that provision, the confirmation
order in the foreclosure case is, "with respect to the matter directly adjudged or as to
any other matter that could have been raised in relation thereto, conclusive between
the parties" and their privies.
As we view this case from another standpoint, we reach the same result. It is true that
the cause of action in the first suit is not exactly identical to the cause of action in the
second. For, the latter merely challenges the legality of the sheriffs sale in the first
proceeding. We do say, however, that such legality of sale is an issue which could have
been, and was in fact raised and rejected in the first case. Thus, coming into play also
is paragraph (c) above- quoted. Therefore, the question raised by appellant in the
present suit should be "deemed to have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or which was actually and necessarily
included therein or necessary thereto." cralaw virtua1aw library

It is thus beyond doubt that the present action is barred by the conclusiveness of
judgment in the anterior suit. 10 This case must be dismissed.

Conformably to the foregoing, the lower court’s order of November 9, 1962 dismissing
this case, and the order of November 21, 1962 denying reconsideration thereof, are
hereby affirmed.

Costs against plaintiff-appellant. So ordered.

G.R. No. L-44841 January 27, 1986

CIPRIANO E. SAMONTE, FROILAN E. SAMONTE, LORENZO E. SAMONTE, TEODULA E.

SAMONTE, CONSTANCIA E. SAMONTE, and the late MIGUEL SAMONTE as represented by
his heirs REMEDIOS B. SAMONTE, NENITA E. SAMONTE, DIONICIO B. SAMONTE, and
ANTONIO SAMONTE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, BENILDA C. ACOSTA, and SALVADOR C.
ACOSTA, respondents. (MELENCIO-HERRERA, J.:)

This Petition for Review on certiorari seeks the reversal of the Decision of respondent Appellate
Court in CA-G.R. No. 55914-R affirming that of the Trial Court and declaring private respondents the
owners of the lands in suit.

The antecedents of the case follow:

1. In 1930, PLACIDA Espiritu was the owner of five (5) parcels of rice land situated in Dingras, Ilocos
Norte.
2. Sometime during the last days of 1930, according to petitioners (Folio-8), or on September 7,
1931, according to private respondents (Exhibit "7"), those five parcels were transferred from
PLACIDA to VICTORIA Mendoza (Folio142).

3. Two of the five parcels were subsequently washed away by a river (Folio-10, Exhibit "l-B"). The
remaining three parcels constitute the property subject of this case (the DISPUTED PROPERTY).

4. PLACIDA passed away in December, 1941 (Folio-9), the petitioners herein being her heirs.

5. VICTORIA died on April 19, 1937 (Exhibit "7"), succeeded by her mother Salvadora Feri who died
in 1947 (Folio 9), succeeded by her daughter BENILDA Mendoza (sister of VICTORIA) who died on
11 November 1962 (Respondents I Brief, p. 3), and was succeeded by her adopted children, the
private respondents herein (Folio-9).

6. There is documentary evidence that BENILDA had claimed ownership of the DISPUTED
PROPERTY on May 23, 1947 (Exhibit "7"), reiterated on December 2, 1952 (Exhibit " 6 ").

7. On April 3, 1970, petitioners instituted Case No. 456911 of the then Court of First Instance of
Ilocos Norte, which started the present proceedings, their claim being for the return to them of the
DISPUTED PROPERTY for the reason that possession thereof was transferred to VICTORIA by
their mother PLACIDA only by way of antichresis. Private respondents defended, stating that
VICTORIA had purchased the DISPUTED PROPERTY on September 7, 1931.

Previous to that case, Civil Case No. 3630-III was filed before the Court of First Instance of Ilocos
Norte by petitioners for the recovery of the DISPUTED PROPERTY but the same was dismissed
without prejudice.

8. On December 28, 1973, the Trial Court dismissed petitioners' complaint on the ground that
BENILDA having claimed ownership of the DISPUTED PROPERTY since 1952, and petitioners'
complaint having been filed only on April 3, 1970, or more than 10 years after December 3, 1952
(date of registration of Exhibit "6"), private respondents should be deemed to have acquired title to
the DISPUTED PROPERTY through ordinary acquisitive prescription under the provisions of the
present Civil Code.

9. On appeal to respondent Appellate Court, the Trial Court's judgment was affirmed on June 21,
1976. Respondent Court further held that private respondents being in possession of the DISPUTED
PROPERTY in the concept of owner, the legal presumption should be that they have ownership
under a just title, which they need not show, pursuant to Article 541 of the Civil Code; and that
petitioners had failed "to show through convincing evidence that it was they who were the true
owners; but their evidence is purely oral. " Respondent Court also upheld the argument that,
assuming the antichresis, petitioners' right to recover the DISPUTED PROPERTY accrued in 1941
(when "the alleged loan with its interest at 6% had been fully paid"), and they incurred in laches in
not having asserted such right within a reasonable time, instead of waiting until 1962 (or 1970), or 17
or 29 years thereafter.

10. The Petition for Review on certiorari was filed before this Court on October 4, 1976. It was
dismissed for lack of merit on November 26, 1976. The dismissal was reiterated in several
subsequent Resolutions, but the Petition was eventually given due course in the Resolution of
October 19, 1977 (Folio-220).

We have decided to uphold the questioned judgment of respondent Appellate Court.

(a) The Appellate Tribunal correctly affirmed the Decision of the Trial Court based on ordinary
acquisitive prescription, except that the required period should have been stated as starting from
May 23, 1947 when BENILDA executed the Affidavit, Exhibit "7", before Judge Simeon Ramos of the
then Court of First Instance of Ilocos Norte. In that Affidavit, BENILDA claimed ownership over the
DISPUTED PROPERTY. No judicial summons, which could interrupt possession for purposes of
prescription (Article 1123, Civil Code) had been served on BENILDA. Neither have private
respondents been served with judicial summons prior to the institution, on April 3, 1970, of Case No.
4569-11 of the then Court of First Instance of Ilocos Norte.

(b) It is also our opinion that respondent Court correctly invoked Article 541 of the Civil Code  in
1

concluding that private respondents should now be deemed the owners of the DISPUTED
PROPERTY. Petitioners' claim that an instrument of antichresis had been executed by PLACIDA
and VICTORIA in the later part of 1930, based on testimonial evidence, cannot be considered legally
sufficient. An unregistered lease for 50 years, enforceable against the successors-in-interest of the
lessee, could have been as easily alleged. A comment which we might make is that on or about
1930, an express contract of antichresis would have been unusual.  2

(c) As to respondent Court's indirect finding of laches, we repeat hereunder the following statement
in Pangadil vs. Court of First Instance of Cotabato, 116 SCRA, p. 353:

It is equally unbelievable that in the span of time from December 1941 up to the date
that Civil Case No. 2187 was filed on January 7, 1969, a period of more than twenty-
seven years, the petitioners would not have taken any step to verify the status of the
land of their father which had been in the possession of the private respondents
during all the time, particularly as to the possibility of redeeming the supposed
mortgage their father had constituted thereon. Their inaction for such a considerable
period of time reflects on the credibility of their pretense that they merely intended to
confirm an oral mortgage, instead of a sale of the land in question.

WHEREFORE, the Decision appealed from is affirmed, with costs against petitioners. SO
ORDERED.

G.R. No. L-38185 September 24, 1986

HILARIO RAMIREZ and VALENTINA BONIFACIO, petitioners,

vs.
HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, MATILDE MARTIN, EMILIO
MARTIN, DELFIN GUINTO, TEOFILO GUINTO, PRUDENCIO GUINTO and MARGARITA
GUINTO, respondents.

Castro, Makalintal, Mendoza & Associates for petitioner.

Flores, Ocampo, Dizon & Domingo Law Office for respondents.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of Appeals which affirmed in toto the decision of the
then Court of First instance of Rizal rendered in the petition for review of the decree of registration
issued in Land Registration Case No. N-2597, L.R.C. Record No. N-17939.
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. An order of general default was issued and
the court allowed the petitioners to present evidence in support of their claim. 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.

On January 30, 1960, the court ordered the issuance of the decree of registration and consequently:
Original Certificate of Title No. 2273 of the Registry of Deeds of Rizal was issued in the petitioners
names.

On March 30, 1960, 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 Agapita Bonifacio who died intestate on March 11, 1936; that Valentina Bonifacio is a
sister of the deceased Agapita Bonifacio, they being the children of one Gregoria Pascual; that
Gregoria Pascual previously owned the land in question as evidenced by Tax Declaration No. 6611
of Las Pinas Rizal issued on December 8, 1920; that Agapita Bonifacio acquired the property in
question by purchase from Gregoria Pascual for which reason Tax Declaration No. 8777 was issued
in her name on May 21, 1928; that Gregoria Pascual during her lifetime, from 1916, possessed the
said property in the concept of owner, publicly and uninterruptedly, which possession was continued
by Agapita Bonifacio in 1928; that in 1938 respondents obtained a loan of P400.00 from the
petitioners which they secured with a mortgage on the land in question by way of antichresis; that for
this reason, Tax Declaration No. 8777 was cancelled and substituted by Tax Declaration Nos. 9522
and 2385 issued in the names of the petitioners; that, thereafter, the petitioners began paying taxes
on the land; that after several attempts to redeem the land were refused by the petitioners, the
respondents filed a complaint in the Court of First Instance of Pasay City docketed as Civil Case No.
272-R for the recovery of the possession and ownership of the said property; that when they learned
of the issuance of the certificate of title to the land in the petitioners' names, they also filed the
instant petition for review. The previous complaint, Civil Case No. 272-R, was subsequently
dismissed on a joint petition filed by the parties after they agreed to have the determination of the
question of ownership resolved in the registration proceedings.

In their answer, the spouses Ramirez denied the material allegations of the petition, they based their
claim to the land on two deeds of sale allegedly executed on April 15, 1937 and April 23, 1937 which
they allegedly found accidentally in March 1960.

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 Agapita Bonifacio 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. The trial court appreciated the fact of the
petitioners' failure, despite formal request, to produce the document in court in favor of the
respondents. Finding the claims of the herein respondents sustained by the evidence, it ordered the
reconveyance of the property in the following manner:

WHEREFORE, judgment is hereby rendered in favor of petitioners and against

applicants as follows:
 1) Setting aside its decision dated December 28, 1959 insofar as it found and
declared applicants to be the owners of the parcel of land described in Exhibits A, B
and C and insofar as it ordered the registration thereof in their names;

2) Declaring the petitioners, all Filipinos, all of legal age, and all residents of Ligas
Bacoor, Cavite, to be the true and absolute owners pro indiviso of the said parcel of
land described in Exhibits A, B and C in the following proportions:

a. Francisca Medina, married to Tomas de Leon, one-third (1/3) thereof;

b. Emilio Martin, married to Dolores Antonio, and Matilde Martin, married to Federico
Torres, one-third (1/3) thereof-,

c. Teofilo Guinto, married to Rocila de la Cruz, Delfin Guinto, married to Gregoria

Pamaran, Prudencio Guinto, married to Ana Guinto, and Margarita Guinto, married to
Felix Calacala one- third (1/3) thereof;

3) Ordering the registration of the said parcel of land described in Exhibits A, B and C
in the names of petitioners;

4) Setting aside its order for the issuance of the decree of registration in favor of
applicants dated January 30, 1959, and ordering the issuance of the decree of
registration in the names of petitioners;

5) Cancelling Original Certificate of Title No. 2273 of the Register of Deeds of Rizal in
the names of applicants and the issuance in lieu thereof of another original certificate
of title in the names of petitioners in the proportion of their ownership of the property
as stated in paragraph 2 above;

6) Ordering applicants to pay P3,000.00 to petitioners as and for attorney's fees;

7) Ordering applicants to pay the costs of this suit.

The decision was affirmed by the Court of Appeals. On a motion for reconsideration filed by the
petitioners, the same appellate court, but with a new member, promulgated a resolution setting aside
the original decision. On a motion for reconsideration filed by the private respondents, this resolution
was set aside and the original decision was reinstated.

The petitioners went to this Court in a petition for review on certiorari with the following questions:

ONE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND

REGISTRATION COURT, THE JURISDICTION TO GIVE DUE COURSE TO A
PETITION FOR REVIEW OF DECREE UNDER SEC. 38 OF ACT 496 AND TO RE-
OPEN THE ORIGINAL PROCEEDINGS WHEN THE PETITION IS ACTUALLY ONE
OF RECONVEYANCE AND NOT BASED ON ACTUAL OR EXTRINSIC FRAUD?

TWO-DOES SEC. 38 OF ACT NO. 496 APPLY ON ALL FORES (SIC) TO

ORIGINAL LAND REGISTRATION PROCEEDINGS HAD UNDER PARAGRAPH B,
SECTION 48 OF COM. ACT NO. 141 AS AMENDED BY REP. ACT NO. 1942
WHEREIN THE LAND INVOLVED IS PUBLIC AGRICULTURAL LAND?
 THREE-HAS THE COURT OF FIRST INSTANCE, ACTING AS A LAND
REGISTRATION COURT, 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?

FOUR-DO THE PRIVATE RESPONDENTS HAVE THE LEGAL CAPACITY AND

QUALIFICATION TO ACQUIRE AND BE VESTED BY THE COURT WITH TITLE TO
THE LAND IN QUESTION?

We find the petition without merit.

The first question does not warrant favorable consideration. The issue was submitted to the
appellate court and in our opinion, correctly resolved therein. The Court of Appeals stated:

... The petition alleged that 'the applicants Hilario Ramirez and Valentina Bonifacio
willfully and fraudulently suppressed the facts that the petitioners are the legal and
rightful owners of the ricefield in question and that they possess the said ricefield
merely as antichretic creditors as security for the loan of P400.00; that the applicants
are guilty of fraudulent misrepresentation and concealment when they declared in
their application, in the case at bar, that no other person had any claim or interest in
the said land.' These we believe are sufficient allegations of extrinsic fraud.

In the applicant's application for registration, which followed the form required by the
Land Registration Act, the applicants alleged that 'to the best of our knowledge and
belief, there is no mortgage or incumbrance of any kind whatsoever affecting said
land, nor any other person having any estate or interest therein, legal or equitable, in
possession, remainder, reversion or expectancy.' This allegation is false and made in
bad faith, for, as We have found, the applicants are not the owners of the land sought
to be registered and they are in possession thereof only as antichretic creditors.

The averments in the petition for review of the decree of registration constitute specific and not mere
general allegations of actual and extrinsic fraud. Competent proof to support these allegations was
adduced. We find no compelling reason to disturb the findings of the two courts below.

The petitioners in this case did not merely omit a statement of the respondents' interest in the land.
They positively attested to the absence of any adverse claim therein. This is clear misrepresentation.
The omission and concealment, knowingly and intentionally made, of an act or of a fact which the
law requires to be performed or recorded is fraud, when such omission or concealment secures a
benefit to the prejudice of a third person (Estiva v. Alvero, 37 Phil. 497).

In the case of Libundan v. Palma Gil (45 SCRA 17), this Court held:

The purpose of the law in giving aggrieved parties, deprived of land or any interest
therein, through fraud in the registration proceedings, the opportunity to review the
decree is to insure fair and honest dealing in the registration of land. But the action to
annul a judgment, upon the ground of fraud, would be unavailing unless the fraud
be extrinsic or collateral and the facts upon which it is based have not been
controverted or resolved in the case where the judgment sought to be annulled was
rendered. Extrinsic or collateral fraud, as distinguished from intrinsic fraud, connotes
any fraudulent scheme executed by a prevailing litigant 'outside the trial of a case
 against the defeated party, or his agents, attorneys or witnesses, whereby said
defeated party is prevented from presenting fully and fairly his side of the case.'
But intrinsic fraud takes the form of 'acts of a party in a litigation during the trial, such
as the use of forged instruments or perjured testimony, which did not affect the
presentation of the case, but did prevent a fair and just determination of the case.

Thus, relief is granted to a party deprived of his interest in land where the fraud
consists in a deliberate misrepresentation that the lots are not contested when in fact
they are, or in applying for and obtaining adjudication and registration in the name of
a co-owner of land which he knows had not been alloted to him in the partition, or in
intentionally concealing facts, and conniving with the land inspector to include in the
survey plan the bed of a navigable stream, or in willfully misrepresenting that there
are no other claims, or in deliberately failing to notify the party entitled to notice, or in
inducing him not to oppose an application, or in misrepresenting about the indentity
of the lot to the true owner by the applicant causing the former to withdraw his
opposition. In all these examples the overriding consideration is that the fraudulent
scheme of the prevailing litigant prevented a party from having his day in court or
from presenting his case, The fraud, therefore, is one that affects and goes into the
jurisdiction of the court.

The second question assigned as an error must also be resolved against the petitioners.

Section 122 of Act No. 496 otherwise known as the Land Registration Act provides:

SEC. 122. Whenever public lands in the Philippine Islands belonging to the
Government of the United States or to the Government of the Philippine Islands are
alienated, granted, or conveyed to persons or the public or private corporations, the
same shall be brought forthwith under the operation of this Act and shall become
registered lands. It shall be the duty of the official issuing the instrument of alienation,
grant, or conveyance in behalf of the Government to cause such instrument before
its delivery to the grantee, to be filed with the register of deeds for the province where
the land lies and to be there registered like other deeds and conveyances,
whereupon a certificate shall be entered as in other cases of registered land, and an
owner's duplicate certificate issued to the grantee. The deed, grant, or instrument of
conveyance from the Government to the grantee shall not take effect as a
conveyance or bind the land, but shall operate only as contract between the
Government and the grantee and as evidence of authority to the clerk or register of
deeds to make registration. The act of registration shall be the operative act to
convey and affect the land, and in all cases under this Act, registration shall be made
in the office of the register of deeds for the province where the land lies. The fees for
registration shall be paid by the grantee. After due registration and issue of the
certificate and owner's duplicate, such land shall be registered land for all purposes
under this Act.

The law is clear. We can apply it to the facts without need for judicial interpretation. Once the deed,
grant, or instrument of conveyance of public land is registered with the Register of Deeds and the
corresponding certificate and owner's duplicate title is issued, such land is deemed registered land. It
is brought within the scope and operation of the Land Registration Law. This is the doctrine laid
down by this Court in a long line of cases. (See Heirs of Deogracias Ramos v. Court of Appeals, 139
SCRA 293; Lahora v. Dayanghirang 37 SCRA 346; Ramirez v. Court of Appeals, 30 SCRA 297;
Director of Lands v. Jugado 2 SCRA 32; Nelayan v. Nelayan, 109 Phil. 183; Republic v. Heirs of
Carle 105 Phil. 1227; El Hogar Filipino v. Olviga, 60 Phil. 17; Manolo v. Lukban, 48 Phil. 973). The
land in this case having been registered and covered by an original certificate of title issued by the
Register of Deeds of Rizal, it is within the provisions of the Land Registration Act. Thus, the decree
of registration granted by the lower court in favor of the petitioners may be reviewed on the ground of
actual and extrinsic fraud pursuant to Section 38 of the same Act.

There is likewise no merit in the third assigned error. 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 Gregoria Pascual and Agapita Bonifacio 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.

The court below found that the petitioners are merely antichretic creditors. This finding and its factual
bases were affirmed by the Court of Appeals. On the basis of the evidence supporting this
conclusion, this finding is binding on us as it is not our duty to weigh evidence on this point all over
again. 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).

The fourth issue raised by the petitioners is answered by a referral to the detailed factual findings
and conclusions of the trial court. Ten pages of the record on appeal (Record on Appeal, CA-G.R.
No. 40425-R, pp. 56-66) state in convincing detail the portion of the trial court's decision which
support its conclusion that Hilario Ramirez and Valentina Bonifacio are not the owners of the
disputed land and have no registrable right over it and that the respondents herein have established
their ownership by a strong preponderance of evidence. The respondents were declared the true
and real owners and entitled to registration in their names. The final resolution of the Court of
Appeals affirmed the trial court's decision in toto. We see no reversible error in this finding.

The argument of laches is explained and countered by the close relationship of the parties and the
nature of a contract of antichresis. The private respondents are nephews and nieces, with their
spouses, of the petitioners. Moreover, there is evidence to show that long before the filing of the
cases, there had been attempts to recover the property.

In view of the foregoing, we are constrained to affirm the appellate court's decision. We note,
however, that in spite of the finding of an existing contract of antichresis between the parties, the two
courts below did not order the payment of the principal amount of mortgage. Under Article 2136 of
the Civil Code, the debtor cannot reacquire the enjoyment of the immovable without first having
totally paid what he owes the creditor.

WHEREFORE, the decision appealed from is hereby AFFIRMED with a modification that the
respondents are ordered to pay the petitioners the amount of P 400.00 as principal for the contract
of antichresis, the fruits obtained from the possession of the land having been applied to the
interests on the loan.

SO ORDERED.
JURISPRUDENCE (FROM CREDIT TEXTBOOK BY DE LEON)

1. Rural Bank of Caloocan, Inc.. vs. CA, 104 SCRA 151

For example, if a party is required by law to fi le his answer
to a complaint within fi fteen (15) days from receipt of summons
and the last day falls on a holiday, the last day is deemed moved
to the next succeeding business day. But if the court fi xes the
trial of a case on a certain day but the said date is subsequently
declared a public holiday, the trial thereof is not automatically
transferred to the next succeeding business day.
Since April 10, 1961 was not the day or the last day set
by law for the extrajudicial foreclosure sale, nor the last day
of a given period, but a date fi xed by the deputy sheriff, the
aforesaid sale cannot legally be made on the next succeeding
business day without the notice of the sale on that day being
posted as prescribed in Section 9, Act No. 3135.” (Rural Bank of
Caloocan, Inc. vs. Court of Appeals, 104 SCRA 151 [1981].)

Duty of mortgagee to make proper inquiry. — The creditor,

however, is required to exercise due care and prudence by making
proper inquiry where the debtor borrows money and mortgages
another person’s property to secure the loan without the consent
of the latter and he is guilty of negligence if he relied solely
on the representations made by the debtor, particularly where
the creditor is engaged in the banking business — a business
affected with public interest. (Rural Bank of Caloocan, Inc. vs.
Court of Appeals, 104 SCRA 151 [1981].)

2. Vda De Bautista v. Marcos, 3 SCRA 434

Note: Usury is now legally non-existent. The interest legally
chargeable depends upon the agreement between the lender
and the borrower. (Liam Law vs. Olympic Sawmill Co., 129
SCRA 439 [1984]; Joven vs. De Guzman, 193 SCRA 434 [1990];

(1) Common requisites. — Articles 2085 and 2087 enumerate

the essential requisites common to pledge and mortgage. Thus,
a mortgage executed before the mortgagor became the owner
of the property, such as before the issuance of a patent to the
mortgagor, is void and ineffective (Vda. de Bautista vs. Marcos,
3 SCRA 434 [1961].) In all these contracts, ownership of the thing
given as security is retained by the debtor.

Property pledged or mortgaged.

(1) Future property. — Future property cannot be pledged or
mortgaged. (Dilag vs. Heirs of Resurreccion, 76 Phil. 650 [1946];
see Gen. Insurance & Surety Co. vs. Masakayan, 54 SCRA 120
[1973]; Vda. de Bautista vs. Marcos, 3 SCRA 434 [1961].)

3. Dayrit v. CA 36 SCRA 549

Pledge or mortgage indivisible.
A pledge or mortgage is one and indivisible as to the contracting
parties (National Bank vs. Agudelo, 58 Phil. 655 [1933].) and
the rule applies even if the obligation is joint and not solidary.
(Arts. 2090, 1207, 1208.) Generally, the divisibility of the principal
obligation is not affected by the indivisibility of the pledge or
mortgage. (Gonzales vs. GSIS, 107 SCRA 492 [1981].) As a consequence
of this indivisibility:
(1) Single thing. — Every portion of the property pledged
or mortgaged is answerable for the whole obligation as soon as
it falls due. (see Phil. National Bank vs. Amores, 155 SCRA 445
[1987].)
(2) Several things. — When several things are pledged or
mortgaged to secure the same debt in its entirety, all of them are
liable for the totality of the debt and the creditor does not have
to divide his action by distributing the debt, among the various
things pledged or mortgaged. Even when only a part of the debt
remains unpaid, all the things are liable for such balance. The
debtor cannot ask for the release of one or some of the several
properties pledged or mortgaged (or any portion thereof) or
the proportionate extinguishment of the pledge or mortgage
unless and until the debt secured has been fully paid. (Dayrit
vs. Court of Appeals, 36 SCRA 548 [1970]; Vda. De Jayme vs.
Court of Appeals, 390 SCRA 380 [2002]; see Yap vs. Philippine
Commercial International Bank, 485 SCRA 56 [2006].)

4. Yoliongsiu v. PNB, 22 SCRA 585

“In Betita vs. Ganzon, the objects pledged —
carabaos — were easily capable of actual, manual delivery unto
the pledgee. In Banco Español vs. Peterson, the objects pledged
— goods contained in a warehouse — were hardly capable of
actual, manual delivery in the sense that it was impractical as
a whole for the particular transaction and would have been an
unreasonable requirement. Thus, for purposes of showing the
transfer of control to the pledgee, delivery to him of the keys
to the warehouse suffi ced. In other words, the type of delivery
will depend upon the nature and the peculiar circumstances of
each case.
The parties here agreed that the vessels be delivered by the
‘pledgor to the pledgee who shall hold said property subject to
the order of the pledgee.’ Considering the circumstances of the
case and the nature of the objects pledged, i.e., vessels used in
maritime business, such delivery is suffi cient.” (Yuliongsui vs.
Phil. National Bank, 22 SCRA 585 [1968].)

Presumption of extinguishment
of pledge.
The possession by the debtor or owner of the thing pledged
subsequent to the perfection of the pledge gives rise to a prima
facie presumption that the thing has been returned and, therefore,
that the pledge has been extinguished.
The presumption may be rebutted by evidence to the contrary,
as for example, that the return was merely for the substitution of
the thing pledged (Art. 2105.), or that the thing was stolen and
given by the thief to the pledgor or owner. There is authority
supporting the proposition that the pledgee can temporarily
entrust the physical possession of the chattel pledged (e.g.,
vessels) to the pledgor without invalidating the pledge. In such
a case, the pledgor is regarded as holding the pledged property
merely as trustee for the pledgee. (Yuliongsui vs. Phil. National
Bank, 22 SCRA 585 [1968].)
Be it noted that when the thing pledged is later found in the
hands of the pledgor or the owner, only the accessory obligation
of pledge is presumed remitted, not the principal obligation
itself. (Art. 1274.)
 5. Piansay v. David, 12 SCRA 227
Subject matter of chattel mortgage.
The subject matter of chattel mortgage must always be
personal or movable property. (Art. 2140; Sec. 2, Act No. 1508.)
Certain deviations, however, have been allowed for various
reasons. The following have been held mortgageable under the
Chattel Mortgage Law:

(8) House built on rented land, where not only because the
deed of mortgage considered it as such, but also because it did
not form part of the land, for it is settled that an object placed on
land by one who had only a temporary right to the same, such
as the lessee or usufructuary, does not become immobilized by
attachment. The view that parties to a deed of chattel mortgage
may agree to consider a house as personal property for the
purpose of said contract is, however, good only insofar as the
contracting parties are concerned. It is based, partly, upon the
principle of estoppel. (Evangelista vs. Abad, [CA] 36 O.G. 2913;
Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630 [1923];
Tumalad vs. Vicencio, 41 SCRA 143 [1971]; Navarro vs. Pineda, 9
SCRA 631 [1963]; Piansay vs. David, 12 SCRA 227 [1964].)
But the mere fact that a house, whether it is erected by the
owner of the land or by the usufructuary or lessee, was the subject
of a chattel mortgage and was considered as personal property
by the parties does not make said house personal for purposes
of the notice to be given for its sale at public auction. This ruling
is demanded by the need for a defi nite, orderly and well-defi ned
regulation for offi cial and public guidance and which would
prevent confusion and misunderstanding. Sales on execution
affect the public and third persons. (Evangelista vs. Alto Surety
& Insurance Co., Inc., 103 Phil. 401 [1958]; Navarro vs. Pineda, 9
SCRA 63 [1963]; see Sec. 16, Rule 39, Rules of Court.)

6. Makati Leasing and Finance Corp v. Wearever Textile,

122 SCRA 286
Subject matter of chattel mortgage.
The subject matter of chattel mortgage must always be
personal or movable property. (Art. 2140; Sec. 2, Act No. 1508.)
Certain deviations, however, have been allowed for various
reasons. The following have been held mortgageable under the
Chattel Mortgage Law:
(9) If a house of strong materials may be considered as personal
property for purposes of executing a chattel mortgage as long
as the parties to the contract so agree and no innocent third
party will be prejudiced thereby, there is absolutely no reason
why a machinery which is movable in its nature and becomes
immobilized only by destination or purpose may not be likewise
treated as such. (Makati Leasing and Finance Corp. vs. Weaver
Textiles Mills, Inc., 122 SCRA 296 [1983].)
But the registration of a building of strong materials produces
no effect as far as the building is concerned. (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644 [1918].) As a building is an immovable
property, it cannot be divested of its character of a realty by the
fact that it belongs to another. If the status of the building were to
depend on the ownership of the land, a situation would be created
where a permanent fi xture changes its nature or character as the
ownership of the land changes hands. As personal properties
could only be the subject of a chattel mortgage, the execution of
a chattel mortgage on a building is invalid and a nullity, and the
registration of the document in the chattel mortgage register is
merely a futile act and cannot affect the rights of a subsequent
real estate mortgagee of the same property. (Associated Insurance
& Surety Co., Inc. vs. Iya, 103 Phil. 971 [1958].)

7. Northern Motors, Inc. v. Coquia, 68 SCRA 374

Effect of registration.
(1) Creates real right. — The registration of the chattel mortgage
is an effective and binding notice to other creditors of its
existence and creates a real right or a lien which, being recorded,
follows the chattel whenever it goes. The registration gives the
mortgagee symbolical possession. (Northern Motors, Inc. vs.
Coquia, 68 SCRA 374 [1975].) To protect him from the debtor’s
possible disposal of the property, the chattel mortgage is made
effective against third persons by the process of registration.
(Phil. National Bank vs. RBL Enterprises, Inc., 430 SCRA 299
[2004].)
(a) That the chattel mortgagee has the symbolical
possession and that he has preferential right to have physical
possession is inferable from Article 319 of the Revised Penal
Code (supra.) which penalizes wrongful removal, sale, or
pledge of the mortgaged chattel without the written consent
of the mortgagee. (In re Du Tec Chuan, 34 Phil. 488 [1915],
cited in Northern Motors, Inc. vs. Coquia, supra; Allied
Banking Corporation vs. Salas, 168 SCRA 414 [1988].)
(b) Therefore, the lien of a chattel mortgagee over the
mortgaged property is superior to the levy made on the
same by the assignee of the unsecured judgment creditor
of the chattel mortgagor. The theory that the breach by
the mortgagor of the chattel mortgage should not affect
Art. 2141
495
the assignee because he is not a privy to such contract is
untenable. A judgment-creditor can only attach the equity or
right of redemption of the mortgagor. (Northern Motors, Inc.
vs. Coquia, 66 SCRA 415 [1975].)
(c) Although the rule that “a mortgagee has the right to
rely in good faith on the certifi cate of title of the mortgagor
to the property given as a security and in the absence of
any sign that might arouse suspicion, has no obligation to
undertake further investigation,’’ generally pertains to real
property, particularly registered land, it may also be applied
by analogy to personal property, specifi cally vessels or ships,
since shipowners are likewise required by law to register their
vessels with the Philippine Coast Guard. (Cebu International
Finance Corp. vs. Court of Appeals, 268 SCRA 178 [1997]; see
Appendix 6.)

Civil action to recover credit.

(1) Independent action for enforcement of credit not required. —
The mortgagee is not obligated to fi le an independent action
for the enforcement of his credit. To require him to do so would
be nullifi cation of his lien and would defeat the purpose of
the chattel mortgage which is to give him preference over the
mortgage chattels for the satisfaction of his credit. (Northern
Motors, Inc. vs. Coquia, 68 SCRA 374 [1975]; see Art. 2087.) As
signatory to a valid and subsisting promissory note secured by a
chattel mortgage, the mortgagor is the one primarily and directly
liable to the mortgagee for the amount of the loan. It is not a
defense that he has transferred the possession or ownership of
the mortgaged property (motor vehicle) to the seller (car dealer)
thereof. (Friend vs. Development Bank of the Phils., 476 SCRA
453 [2005].)

Creditor not required to sue

to enforce his credit.
The pledgee or mortgagee is not obligated to fi le an
independent action for the enforcement of his credit. To do so
would be a nullifi cation of his lien and would defeat the purpose
of the pledge or mortgage which is to give him preference over
the property given as security for the satisfaction of his credit.
(see Northern Motors, Inc. vs. Coquia, 68 SCRA 374 [1975].)

8. Lanuza v. de Leon, 20 SCRA 369

Prohibition against pactum commissorium.
(1) Stipulation null and void. — A stipulation whereby the
thing pledged or mortgaged or under antichresis (Art. 2137.)
shall automatically become the property of the creditor in the
event of nonpayment of the debt within the term fi xed is known
as pactum commissorium or pacto commisorio which is forbidden
by law and declared null and void. (Art. 2088; see Vda. de Reyes
vs. De Leon, 20 SCRA 369 [1967]; Hechanova vs. Adil, 144 SCRA
450 [1986].) By such a stipulation, the creditor would be able to
acquire ownership of the property given as security without
need of public sale or foreclosure required by law.
“This forfeiture clause has traditionally been outlawed
because it is contrary to good morals and public policy.” (Report
of the Code Commission, p. 156.) The reason for the prohibition
is that the amount of the loan is ordinarily much less than the
real value of the thing pledged or mortgaged.

Prohibition refers to stipulation authorizing

automatic appropriation

What is prohibited by Article 2088 in connection with pacto

commissorio is the automatic appropriation by the creditor of the
thing pledged or mortgaged upon failure of the debtor to pay
his debt within the period agreed upon by virtue of authority or
right previously given the creditor. Thus:
(1) A stipulation providing that the mortgaged property
“shall be considered in full payment without further action in
court” in case of nonpayment is null and void being in the form
of pacto commissorio. (Reyes vs. Nebrija, 48 Phil. 639 [1926]; see
Northern Motors, Inc. vs. Herrera and Taguba, 49 SCRA 392
[1973].)
(2) A stipulation in a purported pacto de retro sale (see VII,
note 2.) that the ownership over the property sold would automatically
pass to the vendee in case no redemption was effected
within the stipulated period, is contrary to the nature of a true
pacto de retro sale, under which the vendee acquires ownership of
the thing sold immediately upon the execution of the sale, subject
only to the vendor’s right of redemption. The said stipulation is
a pactum commissorium which enables the mortgagee to acquire
ownership of the mortgaged property without need of foreclosure.
It is void. Its insertion in the contract is an avowal of the
intention to mortgage, rather than to sell, the property. (Lanuza
vs. De Leon, 20 SCRA 369 [1969].)

Essential requisites of mortgage.

(3) Where mortgage registered under Act No. 3344. — The
registration of a mortgage over real property under Act No.
3344 (see Appendix 7-B.) is without prejudice to the better right
of third parties. Thus, an unregistered pacto de retro sale over a
house is superior to a recorded mortgage over the same house of
a later date. (Lanuza vs. De Leon, 20 SCRA 369 [1967].)

Recorded mortgage credits.

(2) Effect of registration under Act No. 3344. — Section 194
of the Revised Administrative Code, as amended by Act No.
2837 and later by Act No. 33 (see Appendix 7-B.), governs the
recording of instruments or deeds relating to real estate not
registered under the Land Registration Act. (Act No. 496, as
amended.) It continues to remain in force as provided by the
Property Registration Decree (Sec. 3, Pres. Decree No. 1529.)
which superseded the Land Registration Act.
Between an unrecorded sale (or pacto de retro sale) of a house
(or land) of a prior date and a recorded mortgage of the same
property of a later date, the former is preferred to the latter for the
reason that, if the original owner had parted with his ownership
of the thing sold, then he no longer had the ownership and free
disposal of the thing so as to be able to mortgage it. Registration
of a mortgage under Act No. 3344 is without prejudice to the
better right of third parties — nor would it avail the mortgagee
any to assert that he is in actual possession of the property, for
the execution of the conveyance in a public instrument earlier
was equivalent to the delivery of the thing sold to the vendee. 3
(Lanuza vs. De Leon, 20 SCRA 369 [1967].)

9. Bundalian v. CA, 129 SCRA 645

10. Rosales v. Yboa, 120 SCRA 869

Requisites for valid redemption.

Pursuant to Section 28, Rule 39 of the Rules of Court (see Sec.
6, Act No. 3135, Appendix 2.), and subject to the provisions of
special laws (see Canque vs. Court of Appeals, 275 SCRA 741
[1997].), the requisites for valid redemption are:
(1) The redemption must be made within one (1) year from
the date of the registration of the certifi cate of sale, 24 not from
the date of the foreclosure sale. The existence of the right of
redemption operates to depress the market value of the property
until the period expires, and to render the period indefi nite would
render nugatory the period fi xed by statute. (Estanislao, Jr. vs.
Court of Appeals, 362 SCRA 229 [2001]; Basbas vs. Entena, 28
SCRA 665 [1965].) The period of redemption is not a prescriptive
period but a condition precedent provided by law to restrict the
right of the person exercising redemption. (Landrito, Jr. vs. Court
of Appeals, 466 SCRA 107 [2005].)
(2) Payment of the purchase price of the property plus 1%
interest per month together with the taxes thereon, if any, paid
by the purchaser and the amount of his prior lien, if any, with the
same rate of interest computed from the date of registration of
the sale, up to the time of redemption; and
(3) Written notice of the redemption must be served on the
offi cer who made the sale and a duplicate fi led with the proper
Register of Deeds. (Rosales vs. Yboa, 120 SCRA 869 [1983].)
(4) In judicial foreclosure, the general rule is that the mortgagor
of real estate can no longer exercise his right of redemption
after the sale is confi rmed by the court.
Allowing a redemption after the lapse of the statutory period,
when the buyer at the foreclosure sale does not object but even
consents to the redemption, will uphold the policy of the law
which is to aid rather than defeat the right of redemption. There
is nothing in the law which prevents a waiver of the statutory
period for redemption. (Ramirez vs. Court of Appeals, 219 SCRA
598 [1993].)
(5) The mortgagor or his assignee is required to tender
payment within the prescribed period to make said redemption
valid, or to preserve the right of redemption for future
enforcement beyond such period of redemption.

11. Tioseco v. CA, 129 SCRA 705

Persons entitled to exercise right
of redemption.
The redemption may be made by one acting in behalf of
the judgment debtor as long as the latter does not oppose the
former’s capacity to act as such. The policy of the law is to aid
rather than to defeat the right of redemption. (Tioseco vs. Court
of Appeals, 143 SCRA 705 [1986].)

Nature of mortgagor’s right

of redemption.

After foreclosure and sale of the mortgaged property, the

mortgage indebtedness is extinguished except to the extent
that there is a defi ciency. What remains is the right vested by
law in favor of the mortgagor to redeem the property within the
prescribed period.
(1) An absolute privilege. — This right of redemption is an
absolute privilege, the exercise of which is entirely dependent
upon the will and discretion of the redemptioner.
(a) There is, thus, no legal obligation to exercise the right
of redemption. Should the mortgagor choose not to exercise
it, nobody can compel him to do so nor will such choice give
rise to a cause in favor of the purchaser at the auction sale.
In fact, the relationship between the said purchaser and the
redemptioner is not even that of creditor and debtor.

(b) Redemption being optional and not compulsory, a

formal offer to redeem, accompanied by a bona fi de tender of
the redemption price within the prescribed period of redemption
is only essential to preserve the right of redemption for
future enforcement even beyond such period. But where the
right to redeem is exercised thru the fi ling of judicial action,
within the period of redemption, such fi ling is equivalent to
a formal offer to redeem and have the effect of preserving
the right of redemption. (Tolentino vs. Court of Appeals, 106
SCRA 513 [1981]; Tioseco vs. Court of Appeals, 143 SCRA 705
[1986]; Belisareo vs. Intermediate Appellate Court, 165 SCRA
101 [1988].)

(2) A mere statutory privilege. — The right of redemption is a

mere statutory privilege; hence, it must be exercised in the mode
and within the period prescribed by the statute. (Mateo vs. Court
of Appeals, 99 Phil. 1042 [1956].)

(a) The general rule in redemption is that in making

a repurchase, it is not suffi cient that a person offering to
redeem makes a manifestation of his desire to repurchase;
his intention must be accompanied by an actual and
simultaneous tender of payment of the full amount of the
repurchase price, which constitutes the legal use of exercise
of the right to repurchase. The exception is where the right
to redeem is exercised through the fi ling of a judicial action.
(See State Investment House, Inc. vs. Court of Appeals, 215
SCRA 734 [1992].)
The fi ling of an action to enforce redemption within the
period of redemption is equivalent to a formal offer to redeem
and should the court allow the redemption, the redemptioner
should then pay the amount already determined. (Pahang
vs. Vestil, 434 SCRA 139 [2004].)
(b) The right on redemption is liberally construed in favor
of the original owner of the property. The policy of the
law is 1) to aid rather than to defeat him in the exercise of his
right of redemption (Tioseco vs. Court of Appeals, supra; Tibajia
vs. Court of Appeals, 193 SCRA 581 [1991].), regardless
of whether the redemptioner is a co-owner (see Art. 1623.) or
mortgagor although perhaps with unequal force and effect
since each is given a fi xed but different period (Lee Chuy, Realty
Corp. vs. Court of Appeals, supra.), and 2) to look upon
redemption with favor and interpret liberally the rule on redemption.
(De los Reyes vs. Intermediate Appellate Court,
176 SCRA 394 [1989]; Serrano vs. Court of Appeals, 417 SCRA
415 [2003]; Iligan Bay Manufacturing Corp. vs. Dy, 524 SCRA
55 [2007].)

12. Dulay v. Cariaga, 123 SCRA 794

Amount payable.
(1) Purchase price. — In the redemption of mortgaged property,
the rule is that the amount payable is no longer the judgment
debt but the purchase price at the auction sale. Thus, where 17
parcels of land were sold at public auction for P82,598, the eight
(8) parcels sold for P17,017 may be released by paying the latter
amount. (Dulay vs. Cariaga, 123 SCRA 794 [1983].) Similarly, attorney’s
fees awarded by the trial court shall not be added to the
redemption price because the amount payable is no longer the
judgment debt but that which is stated in Section 30, Rule 39 of
the Rules of Court. (Bodiongan vs. Court of Appeals, 248 SCRA
496 [1995].)
13. PNB v. CA, 140 SCRA 350
14. DBP v. Mirang, 66 SCRA 842
Right of mortgagee to recover
defi ciency.
(1) Mortgage merely a security, not a satisfaction of an obligation.
— If there be a balance due to the mortgagee after applying the
proceeds of the sale, the mortgagee is entitled to recover the
defi ciency. (Development Bank of the Phils. vs. Mirang, 66 SCRA
141 [1975].) In judicial foreclosure, the Rules of Court specifi cally
gives the mortgagee the right to claim for defi ciency in case
defi ciency exists (Sec. 6, Rule 68.) while Act No. 3135 governing
extrajudicial foreclosures of mortgage does not give a mortgagee
the right to recover defi ciency after the public auction sale,
neither does it expressly or impliedly prohibit such recovery. 13

In both judicial and extrajudicial foreclosures, the principle is

the same, that the mortgage is but a security and not a satisfaction
of the indebtedness. It is of no importance whether the buyer or
the highest bidder in the public auction is the creditor himself.
(Phil. Bank of Commerce vs. De Vera, 6 SCRA 1026 [1962];
Development Bank of the Phils. vs. Mirang, supra; Development
Bank of the Phils. vs. Zaragoza, 84 SCRA 668 [1978]; see Prudential
Bank vs. Martinez, 189 SCRA 612 [1990].)

Nature of judicial foreclosure

Proceeding
(2) Result or incident of failure to pay indebtedness. — An action
for the foreclosure of mortgage seeks to reach the property and
subject it to the payment of a principal obligation. The principal
obligation is the money indebtedness, and the subjection of
the property is only resorted to upon failure to pay the debt.
Hence, the money indebtedness is the principal thing, not the
foreclosure of the property which is only the result or an incident
of the failure to pay the indebtedness. (Salvador vs. Locsin, 93
Phil. 225 [1953].)
Therefore, the fact that the property mortgaged is destroyed is
not a ground to reduce the indebtedness secured. (Development
Bank of the Phils. vs. Mirang, supra.)

The ruling in DBP vs. Mirang (66 SCRA 141 [1975]), wherein
the mortgagor was ordered to pay his entire indebtedness before
the redemption was allowed is not controlling because of the
different factual settings. The charter of the mortgagee (DBP)
requires the payment of such amount. In the redemption of the
mortgaged property, no charter requires the payment of sums of
money other than those provided for under Section 30 of Rule
39. Redemption of properties mortgaged with the Philippine
National Bank and the Development Bank of the Philippines and
foreclosed either judicially or extrajudicially are governed by
special laws which provide for the payment of all the amounts
owed by the debtor. This special protection given to government
lending institutions is not accorded to judgment creditors in
ordinary civil actions.27 (see Dulay vs. Cariaga, supra.)

15. Co. v. PNB, 114 SCRA 842

Payment of redemption money
The Supreme Court has already sanctioned redemption by
check. (Co vs. Philippine National Bank, 114 SCRA 842 [1982].)

16. Alpha Insurance and Surety v. Reyes, 106 SCRA 274

Rights of persons with subordinate
interest.
(1) Mortgagor’s equity of redemption before foreclosure. — A
second or junior mortgagee acquires only the equity of redemption
vested in the mortgagor, and his rights are strictly subordinate to
the superior lien of the fi rst mortgagee. (Sun Life Assurance Co.
of Canada vs. Gonzales Diaz, 52 Phil. 271 [1928].) Thus, a second
mortgagee has to wait until after the debtor’s obligation to the
fi rst mortgagee has been fully settled. (Alpha Insurance & Surety
Co., Inc. vs. Reyes , 106 SCRA 274 [1981]; Top-Rate International
Services, Inc. vs. Intermediate Appellate Court, 142 SCRA 467
[1986].)

17. Marcelo Steel Corp. v. CA, 54 SCRA 89

Right after lapse of redemption period.
If a writ of possession may be issued even before the
redemption period has expired on the ex parte application of the
purchaser, with greater reason could such writ be issued after
the time for redemption has expired, without redemption having
been made (Rivera vs. Court of First Instance of Nueva Ecija,
61 Phil. 201 [1935]; Ramos vs. Mañalac, 89 Phil. 270 [1951]; Del
Rosario vs. Yatco, [CA] No. 20055-R [1957]; see also Marcelo Steel
Corp. vs. Court of Appeals, 54 SCRA 89 [1973] and Banco Filipino
Savings and Mortgage Bank vs. Intermediate Appellate Court, 142
SCRA 44 [1986].), especially where a new title has already been
issued in the name of the purchaser. (GSIS vs. Court of Appeals,
145 SCRA 341 [1986].) The purchaser at public auction has only
to fi le a petition for issuance of the writ pursuant to Section 33
(see Note 31.), Rule 39 of the Rules of Court. (Development Bank
of the Phils. vs. Gatal, 452 SCRA 697 [2005].)

18. PNB v. Adil, 118 SCRA 110

Where the reason given by a judge in issuing the order of
suspension of the writ of possession was not specifi ed in the order,
but stated only in general terms, as “humanitarian reasons,” the
court did not act within the bounds of law, especially if such
order was issued motu proprio and without the purchaser being
afforded the right to present his side. (Phil. National Bank vs.
Adil, 118 SCRA 110 [1982].)

19. Ocampo v. Domalanta 20 SCRA 1136

Nature of judicial foreclosure
proceeding.
(1) An action quasi in rem. — A proceeding for judicial
foreclosure of mortgage16 is an action quasi in rem. It is based on
a personal claim against a specifi c property of the defendant. Its
purpose is to have the property seized and sold by court order
to the end that the proceeds thereof be applied to the payment of
plaintiff’s claim. (Ocampo vs. Domalanta, 20 SCRA 1136 [1967].)

Confi rmation of the sale of mortgaged real property cuts off

all the rights or interests of the mortgagor and of the mortgagee
and persons holding under him, and with them the equity of
redemption in the property and vests them in the purchaser.
Confi rmation retroacts to the date of the sale. It is fi nal order,
not interlocutory. (Ocampo vs. Domalanta, 20 SCRA 1136 [1967];

20. Samonte v. CA, 142 SCRA 189

21. Ramirez v. CA, 144 SCRA 292

Acquisition by creditor of property
by prescription.
The creditor in antichresis and his successors-in-interest
cannot ordinarily acquire by prescription the land given to him,
any agreement to the contrary being void. (Valencia vs. Alcala, 42
Phil. 177 [1921]; Bernardo vs. Barretto, 37 Phil. 234 [1917]; Trillana
vs. Manansala, 96 Phil. 865 [1955].)
Possession, for the purpose of acquisitive prescription, must
be in the concept of an owner. (Art. 1118.) The possession of
an antichretic creditor is not in the concept of an owner. (Art.
2132.) He is a mere holder placed in possession of the land by the
debtor, the owner. (Ramirez vs. Court of Appeals, 144 SCRA 292
[1986]; see Art. 540.) He cannot acquire the ownership of the real
estate subject of the antichresis unless he repudiates his status as
an antichretic creditor.