G.R. No.

98334 May 8, 1992

MANUEL D. MEDIDA, Deputy Sheriff of the Province of Cebu, CITY SAVINGS BANK (formerly
Cebu City Savings and Loan Association, Inc.) and TEOTIMO ABELLANA, petitioners,
vs.
COURT OF APPEALS and SPS. ANDRES DOLINO and PASCUALA DOLINO, respondents.

Gines N. Abellana for petitioners.

Dionisio U. Flores for private respondents.

REGALADO, J.:

The core issue in this case is whether or not a mortgagor, whose property has been extrajudicially
foreclosed and sold at the corresponding foreclosure sale, may validly execute a mortgage contract
over the same property in favor of a third party during the period of redemption.

The present appeal by certiorari assails the decision   of respondent Court of Appeals in CA-G.R. CV
1

No. 12678 where it answered the question posed by the foregoing issue in the negative and
modified the decision   of the then Court of First Instance of Cebu in Civil Case No. R-18616 wherein
2

the validity of said subsequent mortgage was assumed and the case was otherwise disposed of on
other grounds.

The facts which gave rise to the institution of the aforesaid civil case in the trial court, as found by
respondent Court of Appeals, are as follows:

On October 10, 1974 plaintiff spouses, alarmed of losing their right of redemption
over lot 4731 of the Cebu City Cadastre and embraced under TCT No. 14272 from
Mr. Juan Gandioncho, purchaser of the aforesaid lot at the foreclosure sale of the
previous mortgage in favor of Cebu City Development Bank, went to Teotimo
Abellana, president of defendant Association, to obtain a loan of P30,000.00. Prior
thereto or on October 3, 1974, their son Teofredo Dolino filed a similar loan
application for Twenty-Five Thousand (P25,000.00) Pesos with lot No. 4731 offered
as security for the Thirty Thousand (P30,000.00) Pesos loan from defendant
association. Subsequently, they executed a promissory note in favor of defendant
association. Both documents indicated that the principal obligation is for Thirty
Thousand (P30,000.00) Pesos payable in one year with interest at twelve (12%)
percent per annum.

When the loan became due and demandable without plaintiff paying the same,
defendant association caused the extrajudicial foreclosure of the mortgage on March
16, 1976. After the posting and publication requirements were complied with, the
land was sold at public auction on April 19, 1976 to defendant association being the
highest bidder. The certificate of sale was issued on April 20, 1976 and registered on
May 10, 1976 with the Register of Deeds of Cebu.

On May 24, 1971 (sic, 1977), no redemption having been effected by plaintiff, TCT
No. 14272 was cancelled and in lieu thereof TCT No. 68041 was issued in the name
of defendant association. 3
 x x x           x x x          x x x

On October 18, 1979, private respondents filed the aforestated Civil Case No. R-18616 in the
court a quo for the annulment of the sale at public auction conducted on April 19, 1976, as well as
the corresponding certificate of sale issued pursuant thereto.

In their complaint, private respondents, as plaintiffs therein, assailed the validity of the extrajudicial
foreclosure sale of their property, claiming that the same was held in violation of Act No. 3135, as
amended, and prayed, inter alia, for the cancellation of Transfer Certificate of Title No. 68041 issued
in favor of therein defendant City Savings and Loan Association, Inc., now known as City Savings
Bank and one of the petitioners herein.

In its answer, the defendant association therein denied the material allegations of the complaint and
averred, among others, that the present private respondent spouses may still avail of their right of
redemption over the land in question.

On January 12, 1983, after trial on the merits, the court below rendered judgment upholding the
validity of the loan and the real estate mortgage, but annulling the extrajudicial foreclosure sale
inasmuch as the same failed to comply with the notice requirements in Act No. 3135, as amended,
under the following dispositive part:

WHEREFORE, the foregoing premises considered and upon the view taken by the
Court of this case, judgment is hereby rendered, as follows:

1. Declaring ineffective the extrajudicial foreclosure of the mortgage over Lot No.
4731 of the Cadastral Survey of Cebu;

2. Ordering the cancellation of Transfer Certificate of Title No. 68041 of the Registry
of Deeds of the City of Cebu in the name of defendant Cebu City Savings and Loan
Association, Inc. the corresponding issuance of a new transfer certificate to contain
all the annotations made in TCT No. 14272 of the plaintiffs Pascuala Sabellano,
married to Andres Dolino;

3. Ordering the plaintiffs aforenamed to pay the defendant Cebu City Savings and
Loan Association, Inc. the unpaid balance of the loan, plus interest; and reimbursing
said defendant the value of any necessary and useful expenditures on the property
after deducting any income derived by said defendant from the property.

For this purpose, defendant Association is given 15 days from receipt hereof within
which to submit its statement of the amount due it from the plaintiffs Dolino, with
notice to them. The payment to be made by the plaintiffs shall be within ninety (90)
days from their receipt of the order approving the amount due the defendant Cebu
City Savings and Loan Association, Inc.

No award of damages or costs to either party.

SO ORDERED.  4

Not satisfied therewith, herein private respondents interposed a partial appeal to respondent court
with respect to the second and third paragraphs of the aforequoted decretal portion, contending that
the lower court erred in (1) declaring that the mortgage executed by the therein plaintiff spouses
Dolino is valid; (2) permitting therein Cebu City Savings and Loan Association, Inc. to collect interest
after the same foreclosure proceedings and auction sale which are null and void from the beginning;
(3) not ordering the forfeiture of the capital or balance of the loan with usurious interest; and (4) not
sentencing therein defendant to pay damages and attorney's fees to plaintiffs.  5

On September 28, 1990, respondent Court of Appeals promulgated its decision modifying the
decision of the lower court, with this adjudication:

WHEREFORE, PREMISES CONSIDERED, the decision appealed from is hereby

Herein petitioners then filed a motion for reconsideration which was denied by respondent court in its
resolution dated March 5, 1991, hence the present petition which, in synthesis, postulates that
respondent court erred in declaring the real estate mortgage void, and also impugns the judgment of
the trial court declaring ineffective the extrajudicial foreclosure of said mortgage and ordering the
cancellation of Transfer Certificate of Title No. 68041 issued in favor of the predecessor of petitioner
bank.  7

The first submission assailing the judgment of respondent Court of Appeals is meritorious.

Said respondent court declared the real estate mortgage in question null and void for the reason that
the mortgagor spouses, at the time when the said mortgage was executed, were no longer the
owners of the lot, having supposedly lost the same when the lot was sold to a purchaser in the
foreclosure sale under the prior mortgage. This holding cannot be sustained.

Preliminarily, the issue of ownership of the mortgaged property was never alleged in the complaint
nor was the same raised during the trial, hence that issue should not have been taken cognizance of
by the Court of Appeals. An issue which was neither averred in the complaint nor ventilated during
the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the
basic rule of fair play, justice and due process. 8

Nonetheless, since respondent Court took cognizance thereof and, in fact, anchored its modificatory judgment on its ratiocination of that
issue, we are inclined to liberalize the rule so that we can in turn pass upon the correctness of its conclusion. We may consider such
procedure as analogous to the rule that an unassigned error closely related to an error properly assigned, or upon which the determination of
the question properly assigned is dependent, may be considered by an appellate court. 9 We adopt this approach since, after all, both lower
courts agreed upon the invalidity of the extrajudicial foreclosure but differed only on the matter of the validity of the real estate mortgage
upon which the extrajudicial foreclosure was based.

In arriving at its conclusion, respondent court placed full reliance on what obviously is an obiter
dictum laid down in the course of the disquisition in Dizon vs. Gaborro, et al. which we shall
analyze.   For, as explicitly stated therein by the Court, "(t)he basic issue to be resolved in this case
10

is whether the 'Deed of Sale with Assumption of Mortgage' and the 'Option to Purchase Real Estate,'
two instruments executed by and between petitioner Jose P. Dizon and Alfredo G. Gaborro
(defendant below) on the same day, October 6, 1959, constitute in truth and in fact an absolute sale
of the three parcels of land therein described or merely an equitable mortgage or conveyance
thereof by way of security for reimbursement or repayment by petitioner Jose P. Dizon of any and all
sums which may have been paid to the Development Bank of the Philippines and the Philippine
National Bank by Alfredo G. Gaborro . . . ." Said documents were executed by the parties and the
payments were made by Gaborro for the debt of Dizon to said banks after the Development Bank of
the Philippines had foreclosed the mortgage executed by Dizon and during the period of redemption
after the foreclosure sale of the mortgaged property to said creditor bank.
The trial court held that the true agreement between the parties therein was that Gaborro would
assume and pay the indebtedness of Dizon to the banks and, in consideration thereof, Gaborro was
given the possession and enjoyment of the properties in question until Dizon shall have reimbursed
him for the amount paid to the creditor banks. Accordingly, the trial court ordered the reformation of
the documents to the extent indicated and such particular relief was affirmed by the Court of
Appeals. This Court held that the agreement between the parties is one of those innominate
contracts under Article 1307 of the Civil Code whereby the parties agreed "to give and to do" certain
rights and obligations, but partaking of the nature of antichresis.

Hence, on appeal to this Court, the judgment of the Court of Appeals in that case was affirmed but
with the following pronouncements:

The two instruments sought to be reformed in this case appear to stipulate rights and
obligations between the parties thereto pertaining to and involving parcels of land
that had already been foreclosed and sold extrajudicially, and purchased by the
mortgage creditor, a third party. It becomes, therefore, necessary, to determine the
legality of said rights and obligations arising from the foreclosure and sale
proceedings not only between the two contracting parties to the instruments
executed between them but also in so far as the agreement affects the rights of the
third party, the purchaser Bank.

xxx xxx xxx

Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains
in possession of the property foreclosed and sold, during the period of redemption. If
the judgment debtor is in possession of the property sold, he is entitled to retain it,
and receive the fruits, the purchaser not being entitled to such possession. (Riosa vs.
Verzosa, 26 Phil. 86; Velasco vs. Rosenberg's, Inc., 32 Phil. 72; Pabico vs. Pauco,
43 Phil. 572; Power vs. PNB, 54 Phil. 54; Gorospe vs. Gochangco, L-12735, Oct. 30,
1959).

xxx xxx xxx

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed
by the sheriff. (Section 27, Revised Rules of Court). After the termination of the
period of redemption and no redemption having been made, the purchaser is entitled
to a deed of conveyance and to the possession of the properties. (Section 35,
Revised Rules of Court). The weight of authority is to the effect that the purchaser of
land sold at public auction under a writ of execution has only an inchoate right to the
property, subject to be defeated and terminated within the period of 12 months from
the date of sale, by a redemption on the part of the owner. Therefore, the judgment
debtor in possession of the property is entitled to remain therein during the period for
redemption. (Riosa vs. Verzosa, 26 Phil. 86, 89; Gonzales vs. Calimbas, 51 Phil.
355).

In the case before Us, after the extrajudicial foreclosure and sale of his properties,
petitioner Dizon retained the right to redeem the lands, the possession, use and
enjoyment of the same during the period of redemption. And these are the only rights
that Dizon could legally transfer, cede and convey unto respondent Gaborro under
the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-
Stipulation), likewise the same rights that said respondent could acquire in
 consideration of the latter's promise to pay and assume the loan of petitioner Dizon
with DBP and PNB.

Such an instrument cannot be legally considered a real and unconditional sale of the
parcels of land, firstly, because there was absolutely no money consideration
therefor, as admittedly stipulated, the sum of P131,831.91 mentioned in the
document as the consideration "receipt of which was acknowledged" was not actually
paid; and, secondly, because the properties had already been previously sold by the
sheriff at the foreclosure sale, thereby divesting the petitioner of his full right as
owner thereof to dispose and sell the lands. (Emphasis ours.)

It was apparently the second reason stated by the Court in said case which was relied upon by
respondent court in the present case on which to premise its conclusion. Yet, as demonstrated by
the relevant excerpts above quoted, not only was that obiter therein unnecessary since evidently no
sale was concluded, but even inaccurate, if not inconsistent, when considered in the context of the
discussion in its entirety. If, as admitted, the purchaser at the foreclosure sale merely acquired an
inchoate right to the property which could ripen into ownership only upon the lapse of the redemption
period without his credit having been discharged, it is illogical to hold that during that same period of
twelve months the mortgagor was "divested" of his ownership, since the absurd result would be that
the land will consequently be without an owner although it remains registered in the name of the
mortgagor.

That is why the discussion in said case carefully and felicitously states that what is divested from the
mortgagor is only his "full right as owner thereof to dispose (of) and sell the lands," in effect, merely
clarifying that the mortgagor does not have the unconditional power to absolutely sell the land since
the same is encumbered by a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the lapse of the period of redemption.
Even on that score, it may plausibly be argued that what is delimited is not the mortgagor's jus
dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal
which may correspondingly be restricted.

At any rate, even the foregoing considerations and arguments would have no application in the case
at bar and need not here be resolved since what is presently involved is a mortgage, not a sale, to
petitioner bank. Such mortgage does not involve a transfer, cession or conveyance of the property
but only constitutes a lien thereon. There is no obstacle to the legal creation of such a lien even after
the auction sale of the property but during the redemption period, since no distinction is made
between a mortgage constituted over the property before or after the auction sale thereof.

Thus, a redemptioner is defined as a creditor having a lien by attachment, judgment or mortgage on

judgment but the proceeding pursuant to which the mortgaged property was sold, a subsequent
mortgage could nevertheless be legally constituted thereafter with the subsequent mortgagee
becoming and acquiring the rights of a redemptioner, aside from his right against the mortgagor.

In either case, what bears attention is that since the mortgagor remains as the absolute owner of the
property during the redemption period and has the free disposal of his property, there would be
compliance with the requisites of Article 2085 of the Civil Code for the constitution of another
mortgage on the property. To hold otherwise would create the inequitable situation wherein the
mortgagor would be deprived of the opportunity, which may be his last recourse, to raise funds
wherewith to timely redeem his property through another mortgage thereon.
Coming back to the present controversy, it is undisputed that the real estate mortgage in favor of
petitioner bank was executed by respondent spouses during the period of redemption. We reiterate
that during said period it cannot be said that the mortgagor is no longer the owner of the foreclosed
property since the rule up to now is that the right of a purchaser at a foreclosure sale is merely
inchoate until after the period of redemption has expired without the right being exercised.   The title
12

to land sold under mortgage foreclosure remains in the mortgagor or his grantee until the expiration
of the redemption period and conveyance by the master's deed.   To repeat, the rule has always
13

been that it is only upon the expiration of the redemption period, without the judgment debtor having
made use of his right of redemption, that the ownership of the land sold becomes consolidated in the
purchaser. 14

Parenthetically, therefore, what actually is effected where redemption is seasonably exercised by the
judgment or mortgage debtor is not the recovery of ownership of his land, which ownership he never
lost, but the elimination from his title thereto of the lien created by the levy on attachment or
judgment or the registration of a mortgage thereon. The American rule is similarly to the effect that
the redemption of property sold under a foreclosure sale defeats the inchoate right of the purchaser
and restores the property to the same condition as if no sale had been attempted. Further, it does
not give to the mortgagor a new title, but merely restores to him the title freed of the encumbrance of
the lien foreclosed. 
15

We cannot rule on the plaint of petitioners that the trial court erred in declaring ineffective the
extrajudicial foreclosure and the sale of the property to petitioner bank. The court below spelled out
at length in its decision the facts which it considered as violative of the provisions of Act No. 3135, as
amended, by reason of which it nullified the extrajudicial foreclosure proceeding and its effects. Such
findings and ruling of the trial court are already final and binding on petitioners and can no longer be
modified, petitioners having failed to appeal therefrom.

An appellee who has not himself appealed cannot obtain from the appellate court any affirmative
relief other than the ones granted in the decision of the court below.   He cannot impugn the
16

correctness of a judgment not appealed from by him. He cannot assign such errors as are designed
to have the judgment modified. All that said appellee can do is to make a counter-assignment of
errors or to argue on issues raised at the trial only for the purpose of sustaining the judgment in his
favor, even on grounds not included in the decision of the court a quo nor raised in the appellant's
assignment of errors or arguments. 17

WHEREFORE, the decision of respondent Court of Appeals, insofar as it modifies the judgment of
the trial court, is REVERSED and SET ASIDE. The judgment of said trial court in Civil Case No. R-
18616, dated January 12, 1983, is hereby REINSTATED.

SO ORDERED.