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THE MANILA BANKING CORPORATION v. SPS.

TEODORO 3
MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES v. MALARAYAT
RURAL BANK, INC. 4
DEVELOPMENT BANK OF THE PHILIPPINES v. GUARIÑA AGRICULTURAL AND REALTY
DEVELOPMENT CORPORATION 5
PHILIPPINES BANK OF COMMUNICATIONS v. MARY ANN O. YEUNG 6
HEIRS OF THE LATE SPOUSES FLA VIANO MAGLASANG and SALUD ADAZA-MAGLASANG v. MANILA
BANKING CORPORATION 7
JOSE T. RAMIREZ v. THE MANILA BANKING CORPORATION 9
PNB v. SPS. MARANON 10
SYCAMORE VENTURES CORPORATION and SPOUSES SIMON D. PAZ AND LENG LENG PAZ, v.
METROPOLITAN BANK AND TRUST COMPANY 11
SPOUSES RUBIN AND PORTIA HOJAS v. PHILIPPINE AMANAH BANK AND RAMON KUE 12
RURAL BANK OF STA. BARBARA (ILOILO), INC. v. GERRY CENTENO 13
RURAL BANK OF TOBOSO, INC. (NOW UCPB SAVINGS BANK) v. JEAN VENIEGAS AGTOTO 14
PHILIPPINE TRUST COMPANY (also known as Philtrust Bank) v. HON. COURT OF APPEALS and
FORFOM DEVELOPMENT CORPORATION 16
PREMIERE DEVELOPMENT BANK v. CENTRAL SURETY & INSURANCE COMPANY, INC. 17
SPS. NESTOR AND MA. NONA BORROMEO v. HONORABLE COURT OF APPEALS and EQUITABLE
SAVINGS BANK 18
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI v. CA AND SAN DIEGO 19
ROSANA EREÑA v. VIDA DANA QUERRER-KAUFFMAN 20
PRUDENTIAL BANK v. DON A. ALVIAR and GEORGIA B. ALVIAR 21
LILIAN M. TOUNDJIS v. COURT OF APPEALS, LIBERATO G.YAMBAO, et al., and JOSELITO
GARAYGAY, ET AL. 23
LUZON DEVELOPMENT BANK v. BENEDICTO C. CONQUILLA, et al. 24
SPOUSES SANTIAGO and RUFINA TANCHAN v. ALLIED BANKING CORPORATION 25
STATE INVESTMENT HOUSE INC. v. COURT OF APPEALS, ET AL 30
CASTRO, JR., ET AL v. COURT OF APPEALS and UNION BANK OF THE PHILIPPINES 31
PRUDENTIAL BANK vs. PANIS AND MAGCALE 33
ANICETO RECEBIDO vs. PEOPLE OF THE PHILIPPINES 35
HECHANOVA, accompanied by her husband and MASA, accompanied by her husband vs. ADIL
AND SERVANDO 36
RURAL BANK OF SAN MATEO, INCORPORATED v. IAC AND MERCADO ET AL 37
HILARIO RAMIREZ and VALENTINA BONIFACIO v. CA AND MEDINA ET AL 39
SEVERINA ROSALES AND PUREZA CONGZON v. LOECADIO S. TANSECO, ET AL. 40
JOSE C. MACAPINLAC v. FRANCISCO GUTIERREZ REPIDE, ET AL. 42
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G.R. No. L-53955 January 13, 1989


THE MANILA BANKING CORPORATION v. SPS. TEODORO

Facts:
Spouses Grace and Anastacio Teodoro, Jr., together with Anastacio Teodoro, Sr., jointly
and severally, executed in favor of MBC three Promissory Note for the sum of 24,000
with the same conditions that the notes must be payable in 120 days, at 12% interest
per annum. Also, it was stipulated that any interest due if not paid at the end of every
month shall be added to the total amount then due, the whole amount to bear interest at
the rate of 12% per annum until fully paid; and in case of collection through an attorney-
at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as
attorney's fees, which in no case shall be less than P200.00.

Consequently, Teodoro, Jr. partially paid but there was still a balance of 8900 and with
that he executed in favor of MBC a Deed of Assignment of Receivables from the
Emergency Employment Administration that serves as a security for the payment of the
loan with the stipulation that defendants remise, release and quitclaim all its rights, title,
and interest in and to the accounts receivables.

It was admitted by both parties that MBC extended loans to the defendants because of
certain contracts entered into by the latter with EEA for the fabrication of fishing boats
and that the Philippine Fisheries Commission succeeded the EEA after its abolition.
Later on, the non-payment of the defendants was due to failure of the commission to
pay the defendants and the Bank took steps to collect from the commission but no
collection was elected. With that, a collection of sum of money based on promissory
notes was filed by MBC. The trial court ruled in favor of MBC. On appeal, the CA
forwarded the case to SC because the issue raised involves pure question of law.

Issue:
Whether the assignment of receivables has the effect of payment of all the loans.

Held:
No. Assignment of credit is an agreement by virtue of which the assignor, by a legal
cause, such as sale, dation in payment, exchange or donation, and without the need of
the consent of the debtor, transfers his credit and its accessory rights to assignee, who
acquires the power to enforce it to the same extent as the assignor could have enforced
it against the debtor. In here, the assignment of receivables executed by spouses did
not transfer the ownership of the receivables to MBC.

The character of the transaction between the parties is to be determined by their


intention, regardless of what language was used or what the form of the transfer was. If
it was intended to secure the payment of money, it must be construed as a pledge. It
has been held that a transfer of property by the debtor to a creditor, even if sufficient on
its form to make an absolute conveyance, should be treated as a pledge if the debt
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continues in existence and is not discharged by the transfer, and that accordingly, the
use of the terms ordinarily exporting conveyance, of absolute ownership will not be
given that effect in such a transaction if they are also commonly used in pledges and
mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership,
in the absence of clear and ambiguous language or other circumstances excluding an
intent to pledge. In here, the deed of assignment was intended as collateral security for
the loans. In case of doubt as to whether a transaction is a pledge or a dation in
payment, the presumption is in favor of pledge, the latter being the lesser transmission
of rights and interests.

G.R. No. 200468 March 19, 2014


MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO
ARGUELLES v. MALARAYAT RURAL BANK, INC.

Facts:
The late Fermina M. Guia was the registered owner of a parcel of agricultural land in
Batangas. Fermina sold the south portion of the land to spouses Petronio and Macaria
Arguelles. Although the spouses Arguelles immediately acquired possession of the land,
the Deed of Sale was neither registered with the Register of Deeds nor annotated on
OCT. Later on, with the instructions of Fermina M. Guia, the heirs of Guia succeeded in
cancelling OCT and registered and divided the property into three. Sps Arguelles was
not one of the registered owners of the three subdivided land and it was only after 7
years that they discovered the registration made by the Sps Guia. With that, the
spouses Arguelles then registered their adverse claim based on the unregistered sale.
Also the Sps Arguelles belatedly discovered that spouses Guia obtained a loan in the
amount of ₱240,000 from the respondent Malarayat Rural Bank and secured the loan
with a Deed of Real Estate Mortgage as to the land occupied by the former.

Spouses Arguelles then filed a complaint for Annulment of Mortgage and Cancellation of
Mortgage Lien with Damages against the respondent Malarayat Rural Bank with the
RTC. The trial court in its decision annulled the real estate mortgage, the subsequent
foreclosure sale, and the corresponding issuance of the certificate of title. Moreover, the
RTC declared that the respondent Malarayat Rural Bank was not a mortgagee in good
faith as it failed to exercise the exacting degree of diligence required from banking
institutions. On appeal, the CA reversed and set aside the decision of the trial court.
Hence, this petition.

Issue:
Whether the respondent Malarayat Rural Bank is a mortgagee in good faith who is
entitled to protection on its mortgage lien.

Held:

No. A mortgagee in good faith" refers to the principle that all persons dealing with the
property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not
required to go beyond what appears on the face of the title. The public interest in
upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of
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the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good
faith, relied upon what appears on the face of the certificate of title. However, in cases
where the mortgagee does not directly deal with the registered owner of real property,
the law requires that a higher degree of prudence be exercised by the mortgagee. Thus,
where the mortgagee acted with haste in granting the mortgage loan and did not
ascertain the ownership of the land being mortgaged, as well as the authority of the
supposed agent executing the mortgage, it cannot be considered an innocent
mortgagee.
In this case, Rural Bank fell short of the required degree of diligence, prudence, and
care in approving the loan application of the spouses Guia. The sps Guia merely
derived the authority to mortgage the lot from the Special Power of Attorney allegedly
executed by the late Fermina M. Guia. Hence, it was incumbent upon the respondent
Malarayat Rural Bank to be more cautious in dealing with the spouses Guia, and inquire
further regarding the identity and possible adverse claim of those in actual possession
of the property. Since the subject land was not mortgaged by the owner thereof and
since the respondent Malarayat Rural Bank is not a mortgagee in good faith, said bank
is not entitled to protection under the law. The unregistered sale in favor of the spouses
Arguelles must prevail over the mortgage lien of respondent Malarayat Rural Bank.

G.R. No. 160758 January 15, 2014


DEVELOPMENT BANK OF THE PHILIPPINES v. GUARIÑA AGRICULTURAL AND
REALTY DEVELOPMENT CORPORATION

Facts:
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex. The loan was approved and with that Guariña
Corporation executed a promissory note and a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. Also, Guariña
Corporation executed a chattel mortgage over the personal properties existing at the
resort complex and those yet to be acquired out of the proceeds of the loan, also to
secure the performance of the obligation. Prior to the release of the loan, DBP required
Guariña Corporation to put up a cash equity for the construction of the buildings and
other improvements on the resort complex.
The loan was released in several installments, and Guariña Corporation used the
proceeds to defray the cost of additional improvements in the resort complex. In all, the
amount released totaled P3,003,617.49, from which DBP withheld P148,102.98 as
interest. Guariña Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the
latter’s objection. DBP found upon inspection of the resort project, its developments and
improvements that Guariña Corporation had not completed the construction works. DBP
thus demanded that Guariña Corporation expedite the completion of the project, and
warned that it would initiate foreclosure proceedings should Guariña Corporation not do
so. Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings.
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Guariña Corporation sued DBP in the RTC to demand specific performance of the
latter's obligations under the loan agreement, and to stop the foreclosure of the
mortgages. RTC decided in favor of Guariña Corporation. On appeal, the CA sustained
the RTC's judgment. Hence, this petition.

Issue:
Whether the foreclosure done by DBP is correct.

Held:
No. The foreclosure of a mortgage prior to the mortgagor's default on the principal
obligation is premature, and should be undone for being void and ineffectual. The
mortgagee who has been meanwhile given possession of the mortgaged property by
virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may
be required to restore the possession of the property to the mortgagor and to pay
reasonable rent for the use of the property during the intervening period. Moreover, for
an obligation to become due, there must generally be a demand and default generally
begins from the moment the creditor demands the performance of the obligation.
Without such demand, judicial or extrajudicial, the effects of default will not arise. Thus,
if the properties which stood as security for the loan were foreclosed without any
demand having been made on the principal obligation, the said foreclosure is premature
and improper.
In here, the basis of the foreclosure was not a default on the loan but the corporation’s
failure to complete the project in accordance with DBP’s standards. Also, DBP did not
release the total amount of the approved loan, therefore, it could not have made a
demand for payment of the loan since it had yet to fulfill its own obligation. Moreover,
the fact that Guariña Corporation was not yet in default rendered the foreclosure
proceedings premature and improper. Thus, Guarifia Corporation is legally entitled to
the restoration of the possession of the resort complex and payment of reasonable
rentals by DBP.

G.R. No. 179691 December 4, 2013


PHILIPPINES BANK OF COMMUNICATIONS v. MARY ANN O. YEUNG

Facts:
In order to secure a loan, respondent, represented by her attorney-in-fact, Mrs. Le Tio
Yeung, executed a Real Estate Mortgage over a property located in Davao City in favor
of the petitioner. The mortgaged property was covered by a TCT.Later on, the parties
agreed to increase the amount of the loan to wherein they executed an Amended Real
Estate Mortgage. After the respondent defaulted in her obligation, the petitioner initiated
a petition for extrajudicial foreclosure of the mortgage, pursuant to Act No. 3135, as
amended.

The mortgaged property was consequently foreclosed and sold at public auction which
the petitioner emerged as the highest bidder. A provisional certificate of sale was issued
by the sheriff and the sale was registered with the Register of Deeds. When the
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respondent failed to redeem the mortgage within the one year redemption period, the
petitioner consolidated its ownership over the property, resulting to the cancellation of
former TCT and the issuance of a new TCT in its name. With that, petitioner filed with
the RTC an ex parte petition for the issuance of a writ of possession which the RTC
granted. The respondent thereafter filed a motion for recall and/or revocation alleging
that the writ of possession should not have been issued by the RTC because the
petitioner failed to remit the surplus from the proceeds of the sale. When the motion was
denied, the respondent filed a motion for reconsideration which the RTC likewise
denied. Hence, the respondent brought the matter to the CA on certiorari. The CA
granted the petition and ruled that the RTC gravely abused its discretion when it
ordered the issuance of a writ of possession. Hence, this petition.

Issue:
Whether the issuance of writ of possession is proper.

Held:
Yes. The purchaser can demand possession of the property even during the redemption
period for as long as he files an ex parte motion under oath and post a bond in
accordance with Section 7 of Act No. 3135, as amended. Consequently, the purchaser,
who has a right to possession after the expiration of the redemption period, becomes
the absolute owner of the property when no redemption is made. The purchaser can
demand possession at any time following the consolidation of ownership in his name
and the issuance to him of a new TCT. After consolidation of title in the purchaser’s
name for failure of the mortgagor to redeem the property, the purchaser’s right to
possession ripens into the absolute right of a confirmed owner. At that point, the
issuance of a writ of possession, upon proper application and proof of title becomes
merely a ministerial function. Effectively, the court cannot exercise its discretion.

It is not disputed that the respondent failed to exercise her right of redemption within
one year from the time of the registration of the sale. There is also no question that the
property’s title had already been transferred to the petitioner. As the actual owner of the
property, it is not only necessary, but also just, to allow the petitioner to take possession
of the property it owns. It is illogical if the person already owning the property will be
barred from possessing it, in the absence of compelling and legitimate reasons to deny
him possession.

G.R. No. 171206 September 23, 2013


HEIRS OF THE LATE SPOUSES FLA VIANO MAGLASANG and SALUD ADAZA-
MAGLASANG v. MANILA BANKING CORPORATION

Facts:
Spouses Maglasang obtained a credit line from MBC and such was secured by a Real
Estate Mortgage. When Flaviano Maglasang died, his son Edgar was appointed as
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attorney-in-facts by Flaviano’s heirs. He filed a petition for letters of administration of


Flaviano’s estate which the probate court granted. The court then issued a Notice to
Creditor’s for filing money claims against the estate. With that, MBC notified the court of
its claim. When the court terminated the proceedings and executed an extra-judicial
partition over the properties, the loan obligations owed to MBC remained unsatisfied
though the court recognized the rights of MBC to foreclose the mortgage. Later on,
MBC extra-judicially foreclosed the mortgaged; however, after auction sale, a deficiency
remained on Maglasang’s obligation. Thus, it filed a suit to recover the deficiency.

RTC ruled in favor of MBC. Subsequently, Maglasangs appealed to CA contending that


the remedies available to MBC under Section 7, Rule 86 of the Rules of Court are
exclusive and alternative, such that the election of one operates as a waiver of the
others and since MBC filed a claim in the probate court, it has abandoned its right to
foreclose the property and is barred from recovering any deficiency. CA denied the said
appeal and contended that Act 3135 applies which allows MBC to extra-judicially
foreclose and recover the deficiency. Hence, this petition.

Issue:
Whether by availing Section 7 of Rule 86 of the Rules of Court MBC waived its right to
foreclose.

Held:
Yes. Both Sec. 7, Rule 86 of ROC and Act. 3135 apply complementarily in the case at
bar. Foreclosure under the 3rd remedy in Sec. 7, Rule 86 of ROC includes extrajudicial
foreclosure under Act. 3135. However, upon choosing said remedy, creditor waives his
right to recover the deficiency.

Under the Rules of Court, it was stated that “A creditor holding a claim against the
deceased secured by a mortgage or other collateral security”, thus it covers all secured
claims, whether by mortgage or any other form of collateral, which a creditor may
enforce against the estate of the deceased debtor. It does not narrowly apply only to
mortgages made by the administrator over any property belonging to the estate of the
decedent. Moreover, the 3 Remedies/Options by Secured Creditor under Sec. 7, Rule
86 are: (a) waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim; (b) foreclose the mortgage judicially and prove the
deficiency as an ordinary claim; and (c) rely on the mortgage exclusively, or other
security and foreclose the same before it is barred by prescription, without the right to
file a claim for any deficiency. The third remedy includes the option of extra-judicially
foreclosing the mortgage under Act No. 3135, as availed of by Manila Banking Corp. in
this case. Thus, these may be ALTERNATIVELY adopted for the satisfaction of his
indebtedness. However, these remedies are distinct, independent and mutually
EXCLUSIVE from each other; the election of one effectively BARS the exercise of the
others.
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G.R. No. 198800 December 11, 2013


JOSE T. RAMIREZ v. THE MANILA BANKING CORPORATION

Facts:
Petitioner Jose T. Ramirez mortgaged two parcels of land located at Bayanbayanan,
Marikina City in favor of respondent The Manila Banking Corporation to secure his
₱265,000 loan. The real estate mortgage provides that all correspondence relative to
the mortgage including notifications of extrajudicial actions shall be sent to petitioner
Ramirez at his given address. Upon default to pay the obligation, respondent filed a
request for extrajudicial foreclosure of real estate mortgage before Atty. Hipolito Sañez.
During the auction sale, respondent was the only bidder for the mortgaged
properties. Thereafter, a certificate of sale was issued in its favor as the highest bidder.

In 2000, respondent demanded that Ramirez vacate the properties. However, Ramirez
sued respondent for annulment of sale and prayed that the certificate of sale be
annulled on the ground, among others, that paragraph N of the real estate mortgage
was violated for he was not notified of the foreclosure and auction sale. The trial court
ruled that the extrajudicial foreclosure proceedings were null and void and the certificate
of sale is invalid. On appeal, CA reversed the trial court’s decision and ruled that
absence of personal notice of foreclosure to Ramirez as required by paragraph N of the
real estate mortgage is not a ground to set aside the foreclosure sale. Hence, this
petition.

Issue:
Whether the absence of notice of extrajudicial foreclosure sale to Ramirez as required
by paragraph N of the real estate mortgage will not invalidate the extrajudicial
foreclosure sale.

Held:
No. As decided in several cases, unless the parties stipulate, personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary because Section 3
of Act No. 3135 only requires the posting of the notice of sale in three public places and
the publication of that notice in a newspaper of general circulation. In this case, the
parties stipulated in paragraph N of the real estate mortgage that all correspondence
relative to the mortgage including notifications of extrajudicial actions shall be sent to
mortgagor Ramirez at his given address. Respondent had no choice but to comply with
this contractual provision it has entered into with Ramirez. The contract is the law
between them. Hence, we cannot agree with the bank that paragraph N of the real
estate mortgage does not impose an additional obligation upon it to provide personal
notice of the extrajudicial foreclosure sale to the mortgagor Ramirez.
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G.R. No. 189316, July 01, 2013


PNB v. SPS. MARANON

Facts:
The Spouses Maranon, owner of a piece of real property, erected with a building
occupied by various tenants. Said subject property was among the properties
mortgaged by spouses Montealegre to PNB as a security for a loan. Spouses
Montealegre, through a falsified Deed of Sale, acquired title to the property and used
the property’s title which was purportedly registered in the name of Emelie Montealegre.
However, due to failure to pay the loan, said property was foreclosed by PNB, and upon
auction, was thereafter acquired by the same bank, PNB.

Before the expiration of the redemption period, Spouses Maranon filed before the RTC
a complaint for Annulment of Title, Reconveyance and Damages against spouses
Montealegre. They alleged that they are the true registered owners of the subject lot.
However, PNB averred that it is a mortgagee in good faith and for value and that its
mortgage lien on the property was registered thus valid and binding against the whole
world. Judgment of RTC was rendered in favor of spouses Maranon but maintained that
PNB is a mortgagee in good faith. On appeal, CA denied the petition and affirmed the
RTC’s judgment and modified the same stating that PNB is not a mortgagee in good
faith. Hence, this petition.

Issue:
Whether PNB is a mortgagee in good gaith.

Held:
Yes. It is readily apparent from the facts at hand that the status of PNB’s lien on the
subject lot has already been settled by the RTC in its Decision dated June 2, 2006
where it was adjudged as a mortgagee in good faith whose lien shall subsist and be
respected. The decision lapsed into finality when neither of the parties moved for its
reconsideration or appealed.
The protection afforded to PNB as a mortgagee in good faith refers to the right to have
its mortgage lien carried over and annotated on the new certificate of title issued to
Spouses Marañon as so adjudged by the RTC. Thereafter, to enforce such lien thru
foreclosure proceedings in case of non-payment of the secured debt, as PNB did so
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pursue. The principle, however, is not the singular rule that governs real estate
mortgages and foreclosures attended by fraudulent transfers to the mortgagor.
Rent, as an accessory follow the principal. In fact, when the principal property is
mortgaged, the mortgage shall include all natural or civil fruits and improvements found
thereon when the secured obligation becomes due as provided in Article 2127 of the
Civil Code. Consequently, in case of non-payment of the secured debt, foreclosure
proceedings shall cover not only the hypothecated property but all its accessions and
accessories as well. All improvements subsequently introduced or owned by the
mortgagor on the encumbered property are deemed to form part of the mortgage. That
the improvements are to be considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a contract of security, whether, real
or personal, needs as an indispensable element thereof the ownership by the pledgor or
mortgagor of the property pledged or mortgaged.

G.R. No. 173183 November 18, 2013


SYCAMORE VENTURES CORPORATION and SPOUSES SIMON D. PAZ AND LENG
LENG PAZ, v. METROPOLITAN BANK AND TRUST COMPANY

Facts:
1997, Sycamore and the spouses Paz obtained from respondent Metrobank a credit line
of ₱180,000,000.00, secured by 10 real estate mortgages. Because the petitioners
failed to pay their loan obligations and for violations of the terms and conditions of their
13 promissory notes, Metrobank instituted extrajudicial foreclosure proceedings over the
six real estate mortgages, pursuant to Act No. 3135, as amended. The public auction
sale did not take place because Sycamore and the spouses Paz asked for
postponements. Metrobank subsequently restructured Sycamore and the spouses
Paz’s loan, resulting in the issuance of one promissory note in lieu of the 13 promissory
notes previously issued, and the execution of a single real estate mortgage covering the
12 parcels of land. Despite reminders, Sycamore and the spouses Paz still failed to
settle their loan obligations, compelling Metrobank to file a second petition for auction
sale. Sycamore and the spouses Paz filed before the RTC a complaint for the
annulment of the contract and of the real estate mortgage. They likewise asked for the
issuance of a temporary restraining order (TRO). RTC decided in favor of Sycamore
and spouses Paz, also granting the TRO. Aggrieved, Metrobank file a petition to the CA
which dismissed Metrobank’s petition for lack of merit and upheld the RTC’s issued
injunction. Hence, this petition.
Issue:
Whether the appraisal value of the mortgaged properties material in the mortgage
foreclosure’s validity.
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Held:
No. In the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to
foreclose the mortgage. In other words, he may pursue either of the two remedies, but
not both. By such election, his cause of action can by no means be impaired, for each of
the two remedies is complete in itself. Thus, an election to bring a personal action will
leave open to him all the properties of the debtor for attachment and execution, even
including the mortgaged property itself. And, if he waives such personal action and
pursues his remedy against the mortgaged property, an unsatisfied judgment thereon
would still give him the right to sue for a deficiency judgment, in which case, all the
properties of the defendant, other than the mortgaged property, are again open to him
for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of
action undiminished, and any advantages attendant to the pursuit of one or the other
remedy are purely accidental and are all under his right of election. Certain requisites
must be established before a creditor can proceed to an extrajudicial foreclosure,
namely: first, there must have been the failure to pay the loan obtained from the
mortgagee-creditor; second, the loan obligation must be secured by a real estate
mortgage; and third, the mortgagee-creditor has the right to foreclose the real estate
mortgage either judicially or extra-judicially.

Act No. 3135 has no requirement for the determination of the mortgaged properties’
appraisal value. Nothing in the law likewise indicates that the mortgagee-creditor’s
appraisal value shall be the basis for the bid price. Neither is there any rule nor any
guideline prescribing the minimum amount of bid, nor that the bid should be at least
equal to the properties’ current appraised value. Moreover, mere inadequacy of price
per se will not invalidate a judicial sale of real property. It is only when the inadequacy of
the price is grossly shocking to the conscience or revolting to the mind, such that a
reasonable man would neither directly nor indirectly be likely to consent to it, that the
sale shall be declared null and void. This rule, however, does not strictly apply in the
case of extrajudicial foreclosure sales where the right of redemption is available.

G.R. No. 193453 June 5, 2013


SPOUSES RUBIN AND PORTIA HOJAS v. PHILIPPINE AMANAH BANK AND
RAMON KUE

Facts:
The petitioners apply for a loan from respondent Philippine Amanah Bank (PAB) in the
amount of P450,000.00 and such was secured by a mortgage, covering both personal
and real properties. For failure to pay the loan PAB applied for the extrajudicial
foreclosure of the mortgaged real properties of petitioners and that consequently a
Notice of Extrajudicial Foreclosure was issued and the date for the foreclosure sale was
set. Later on, the public auction was conducted and PAB emerged as the highest
bidder.
However, through the proceedings there was an intervention of the then Senator
Aquilino Pimentel, Farouk A. Carpizo (Carpizo), the OIC President of PAB, which wrote
Roberto Hojas (Roberto), petitioners’ son, informing him that although the one-year
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redemption period would expire on April 21, 1988, by virtue of the bank’s incentive
scheme, the redemption period was extended until December 31, 1988. They asserted
that the March 9, 1988 Letter of Carpizo to Roberto Hojas extended the redemption
period from April 21 to December 31, 1988. Considering that they had relied on
Carpizo’s representation, PAB violated the principle of estoppel when it conducted the
public sale on November 4, 1988. Petitioners filed an action for "Determination of True
Balance of Mortgage Debt, Annulment/Setting Aside of Extrajudicial Foreclosure of
Mortgage and Damages, with Prayer for Preliminary Injunction" against PAB. The RTC
dismissed petitioners’ complaint. On appeal, CA affirmed the RTC. Hence, this petition.
Issue:
Whether PAB violated the Principle of Estoppel when it conducted the public sale.

Held:
No. Through estoppel, an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying on it.
This doctrine is based on the grounds of public policy, fair dealing, good faith, and
justice and its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who reasonably relied
on it. Thus, in order for this doctrine to operate, a representation must have been made
to the detriment of another who relied on it. In other words, estoppel would not lie
against one who, in the first place, did not make any representation. In this case, a
perusal of the letter, on which petitioners based their position that the redemption period
had been extended, shows otherwise.

The general rule in redemption is that it is not sufficient that a person offering to redeem
manifests his desire to do so. The statement of intention must be accompanied by an
actual and simultaneous tender of payment. This constitutes the exercise of the right to
repurchase. Otherwise, the offer to redeem is ineffectual.

G.R. NO. 200667 : March 11, 2013


RURAL BANK OF STA. BARBARA (ILOILO), INC. v. GERRY CENTENO

Facts:
Sps. Centeno was the previous owners of the subject lots. During that time, they
mortgaged the foregoing properties in favor of petitioner Rural Bank of Sta. Barbara
(Iloilo), Inc. as security for a loan. Sps. Centeno, however, defaulted on the loan,
prompting petitioner to cause the extrajudicial foreclosure of the said mortgage.
Consequently, the subject lots were sold to petitioner being the highest bidder at the
auction sale. Later on, it obtained a Certificate of Sale at Public Auction which was later
registered with the Register of Deeds of Iloilo City.

Sps. Centeno failed to redeem the subject lots within the one (1) year redemption period
pursuant to Section 66 of Act No. 3135. Nonetheless, they still continued with the
possession and cultivation of the aforesaid properties. Sometime in 1983, respondent
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Gerry Centeno, son of Sps. Centeno, took over the cultivation of the same. Later on, he
purchased the said lots from his parents. Accordingly, Rosario Centeno paid the capital
gains taxes on the sale transaction and tax declarations were eventually issued in the
name of respondent. While the latter was in possession of the subject lots, petitioner
secured on a Final Deed of Sale thereof and in 1998, was able to obtain the
corresponding tax declarations in its name.

Subsequently, petitioner filed a petition for the issuance of a writ of possession before
the RTC, claiming entitlement to the said writ by virtue of the Final Deed of Sale
covering the subject lots. RTC rendered a decision in favor of the petitioner. On appeal,
CA reversed the RTC. Hence, this petition.

Issue:
Whether petitioner is entitled to a writ of possession over the subject lots.

Held:
Yes. It is well-established that after consolidation of title in the purchaser's name for
failure of the mortgagor to redeem the property, the purchaser's right to possession
ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ
of possession, upon proper application and proof of title, to a purchaser in an
extrajudicial foreclosure sale becomes merely a ministerial function, unless it appears
that the property is in possession of a third party claiming a right adverse to that of the
mortgagor. The foregoing rule is contained in Section 33, Rule 39 of the Rules of Court.

The phrase "a third party who is actually holding the property adversely to the judgment
obligor" contemplates a situation in which a third party holds the property by adverse
title or right, such as that of a co-owner, tenant or usufructuary. The co-owner,
agricultural tenant, and usufructuary possess the property in their own right, and they
are not merely the successor or transferee of the right of possession of another co-
owner or the owner of the property. Notably, the property should not only be possessed
by a third party, but also held by the third party adversely to the judgment obligor.

In this case, respondent acquired the subject lots from his parents, Sps. Centeno, on
March 14, 1988 after they were purchased by petitioner and its Certificate of Sale at
Public Auction was registered with the Register of Deeds of Iloilo City in 1971. It cannot
therefore be disputed that respondent is a mere successor-in-interest of Sps. Centeno.
Consequently, he cannot be deemed as a "third party who is actually holding the
property adversely to the judgment obligor" under legal contemplation. Hence, the RTC
had the ministerial duty to issue as it did issue the said writ in petitioner's favor.

G.R. No. 175697, March 23, 2011

RURAL BANK OF TOBOSO, INC. (NOW UCPB SAVINGS BANK) v. JEAN


VENIEGAS AGTOTO

Facts:
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Jean Veniegas Agtoto (Agtoto) executed a special power of attorney (SPA) authorizing
her husband, Rodney, to secure a loan on her behalf and mortgage a registered land
that she owned. Using the SPA, Rodney got a loan of P130,500.00 from the Rural Bank
of Toboso, Inc. (the Bank), with the P61,068.00 portion secured by a real estate
mortgage on his wife's land. On the following day, he secured the remaining
P69,432.00 of the loan with a chattel mortgage over two service boats and one Yanmar
Marine engine. After paying only P14,500.00, Agtoto failed to pay her loan with the
Bank. After several unheeded demands to pay, the Bank extra-judicially foreclosed the
mortgage. After notice and publication, the sheriff foreclosed the mortgage on the land
and sold it at public auction to the Bank, which made the highest bid. The sheriff
subsequently issued a certificate of sale in the Bank's favor.

Later, Agtoto filed a complaint with the Regional Trial Court (RTC) of Bacolod City
against the Bank for the annulment of the sale of her land, damages, and injunction with
prayer for the issuance of a temporary restraining order (TRO). The RTC rendered a
decision in favor of Agtoto, ordering the Bank to pay the former the amount of its bid for
her land. Agtoto appealed to the Court of Appeals (CA) from the decision, asserting that
the RTC erred in not declaring the foreclosure sale null and void. The CA affirmed the
trial court's decision with modification. Hence, this petition.

Issue:
Whether the Bank validly foreclosed on Agtoto's mortgaged land.
Held:
Yes. Agtoto contends that the foreclosure sale was void since she did not authorize her
husband, Rodney, to act as her attorney-in-fact for purposes of the foreclosure
proceedings. As the appellate court correctly ruled, however, the powers she vested in
Rodney as her attorney-in-fact in connection with the mortgage of her land included the
power to constitute the mortgagee bank as Rodney's attorney-in-fact for foreclosure
purposes for, otherwise, the grant to him of the power to enter into a mortgage contract
would have been incomplete in the usual course.
Here, moreover, the SPA authorized Rodney to make, sign, execute, and deliver
contracts, documents, agreements and other writings of whatever nature or kind, with
any person or persons, upon such terms and conditions as were acceptable to him as
attorney-in-fact. The constitution of the Bank as attorney-in-fact for purposes of
extrajudicial foreclosure was a condition that Rodney accepted and it bound Agtoto as
principal, the same being a legitimate exercise of his powers under the SPA. What is
more, even assuming that Rodney exceeded his powers under the SPA, Agtoto should
be deemed to have ratified the same when she herself signed the mortgage document.
The foreclosure sale covering the land was likewise valid, notwithstanding the chattel
mortgage that covered the P69,432.00 portion of the loan of P130,500.00. The chattel
mortgage was a contract distinct from the real estate mortgage, which latter mortgage
covered the separate amount of P61,068.00. Thus, the Bank had no right to include in
the foreclosure of the land the portion of the loan separately secured by the chattel
mortgage.
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G.R. No. 150318; November 22, 2010


PHILIPPINE TRUST COMPANY (also known as Philtrust Bank) v. HON. COURT OF
APPEALS and FORFOM DEVELOPMENT CORPORATION

Facts:
Plaintiff Forfom Development Corporation is engaged in agricultural business and real
estate development and owns several parcels of land in Pampanga. Sometime in 1989,
plaintiff received a letter from the Department of Agrarian Reform. Plaintiff discovered
that the subject properties had already been transferred in the names of said Ma.
Teresa Limcauco and Ellenora Limcauco who were never known to plaintiff or its
employees. Plaintiffs Board of Directors decided to seek the assistance of the National
Bureau of Investigation (NBI) to conduct an investigation on the matter. On November
23, 1989, plaintiff caused the annotation of its adverse claim on the title.

The results of the NBI Investigation and plaintiffs own inquiry revealed the following acts
through which the subject parcels of land were transferred:
(1) A Deed of Absolute Sale dated March 6, 1987 was executed over the lot in favor
of Ellenora Vda. De Limcauco for the price of P500,000.00.
(2) On July 7, 1987, a petition for issuance of owners duplicate copy was filed with
the Regional Trial Court by Ellenora Limcauco who allegedly lost said owners
duplicate copy.
(3) As a consequence of the court’s order TCT was cancelled and another was
issued in the name of Ma. Teresa Limcauco who had the property covered
thereby subdivided into different lots.

On December 26, 1989, plaintiff instituted the present action against the defendants Ma.
Teresa Limcauco, Ellenora D. Limcauco, spouses Raul P. Claveria and Elea R.
Claveria, Philippine Trust Company and the Register of Deeds of Angeles City. RTC
rendered its Decision in favor of private respondent Forfom Development Corporation.
On appeal, the Court of Appeals rendered the assailed Decision affirming the Decision
of the RTC. Hence, this decision.

Issue:
Whether Philtrust is a mortgagee in good faith.

Held:
No. Philtrust claims that the loans secured by the mortgage on the subject property
were granted to the spouses Claveria after Philtrust was satisfied regarding the spouses
credit worthiness and capacity to pay. In fact, according to Philtrust, the spouses
Claveria were able to maintain a satisfactory record of payment during the early period
of their transactions with the bank. Philtrust insists that prior to the constitution of the
mortgage, it followed the standard operating procedures in accepting property as
security, including having investigators visit the subject property and appraise its value.
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It is settled that banks, their business being impressed with public interest, are expected
to exercise more care and prudence than private individuals in their dealings, even
those involving registered lands. The rule that persons dealing with registered lands can
rely solely on the certificate of title does not apply to banks. Consequently, Philtrust
should prove that it exercised extraordinary diligence required of it in approving the
mortgage contract in favor of the spouses Claveria.

G.R. No. 176246 February 13, 2009


PREMIERE DEVELOPMENT BANK v. CENTRAL SURETY & INSURANCE
COMPANY, INC.

Facts:

Respondent Central Surety & Insurance Company (Central Surety) acquired an


industrial loan worth six million pesos from petitioner Premiere Development Bank,
evidenced by Promissory Note. Should Central Surety fail to pay, it would be liable to
Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid penalties up to
maturity date; and (3) unpaid balance of the principal. To Secure Payment for the loan
Central Surety executed a Deed of Assignment with Pledge in favor of Premier Bank its
proprietary share in Wack Wack and golf and country Club. Central Surety had another
commercial loan with Premiere Bank worth 40,898,000.00 pesos, again by Promissory
Note. To secure payment of the loan they were secured a real estate mortgage over a
Condominium Certificate. This was availed through a renewal of Central Surety’s prior
loan. It was stipulated in the contract that Premiere Bank as creditor would have the
right to decide to which the payment would be applied, and that there is no need for an
express demand from the creditor to make the obligations due and demandable. Central
Surety issued a check worth 6,000,000.00 pesos and payable to Premiere Bank.
However, the latter returned such check and sent a letter, as part of a normal bank
procedure, demanding payment and threatening foreclosure of Central Surety’s
securities, the pledge and real estate mortgage, should it fail to pay within ten days from
date of receipt. This was alleged by the latter to be an act of waiving Premiere Bank’s
right to apply payments. Central Surety moves for the release of the Wack Wack
Membership pledge for their supposed paid loan.

The lower court ruled in favor of Premiere Bank, while the Court of Appeals reversed the
prior decision of the lower court. Hence, this petition.

Issue:
Whether the release of the Wack Wack Membership pledge is in order.
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Held:
No. Considering that the parties are bound by a contract of adhesion, where Central
Surety imposed a readymade contract on Premiere Bank, the latter had freedom to
reject or adhere to the contract. Central Surety, being a well-established personality,
would also not be considered as a disadvantaged party. The contract between the
parties falls on the dragnet clause, which is one “specifically phrased to subsume all
debts of past and future origins.” The security clause in the instant case is that of a
continuing pledge, wherein the Wack Wack Membership served as security for the
standing obligation, also for future advancements. Such security worth 15,000,000.00
pesos was clearly worth more than the industrial loan worth 6,000,000.00 pesos, which
was understood to secure the ballooning debt of the Central Surety. As all demandable
obligations are yet to be fulfilled, the release of the Wack Wack membership as security
cannot yet to be done as prayed for by Central Surety.

G.R. No. 169846; March 28, 2008


SPS. NESTOR AND MA. NONA BORROMEO v. HONORABLE COURT OF APPEALS
and EQUITABLE SAVINGS BANK

Facts:
Respondent is a domestic savings bank corporation and at the time the dispute began,
it was a subsidiary of Equitable PCI Bank (EPCIB), a domestic universal banking
corporation. After the merger of EPCIB and Banco De Oro (BDO), they have adopted
the corporate name Banco De Oro. While petitioners were client-depositors of EPCIB
for more than 12 years. Petitioners alleged that sometime in mid-1999, the branch
manager of EPCIB, J.P. Rizal Branch, offered a loan to the petitioners under its Own-a-
Home Loan Program. Petitioners applied for a loan of P4,000,000.00 and were informed
of the approval of their loan application sometime in October 1999. It was in the early
part of 2000 that petitioners signed blank loan documents consisting of the Loan
Agreement, Promissory Notes, a Real Estate Mortgage (REM) and Disclosure
Statements. To secure the payment of the loan, petitioners executed an REM over their
land. Petitioners asserted that even if the loan documents were signed in blank, it was
understood that they executed the REM in favor of EPCIB.
Petitioners made repeated verbal requests to EPCIB to furnish them their copies of the
loan documents. On the other hand, respondent, through counsel, sent a letter to the
petitioners demanding payment for their obligation. Respondent informed petitioners
that failure to pay their obligation would result in its pursuing legal action against
petitioners, including foreclosure proceedings on their REM. When the petitioners failed
to pay for the loan in full by 30 September 2003, respondent sought to extra-judicially
foreclose the REM. The Extrajudicial Sale was set to take place and petitioners received
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Notice of Extrajudicial Sale of their property. petitioners filed with the RTC a Complaint
for Injunction, Annulment of Mortgage with Damages and with Prayer for Temporary
Restraining Order and Preliminary and Mandatory Injunction against EPCIB. RTC,
decided in favor of the petitioner. On appeal, CA reversed the RTC. Hence, this petition.
Issue:
Whether a writ of preliminary injunction should be issued to enjoin the foreclosure and
public auction of petitioners property during the proceedings and pending determination
of the main cause of action for annulment of the REM on said property.

Held:
Yes. A writ of preliminary injunction may be issued only upon clear showing of an actual
existing right to be protected during the pendency of the principal action. The twin
requirements of a valid injunction are the existence of a right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected
and the violation against that right must be shown. In this case, petitioners rights to their
property are restricted by the REM they executed over it. Upon their default on the
mortgage debt, the right to foreclose the property would be vested upon the creditor-
mortgagee. Nevertheless, the right of foreclosure cannot be exercised against the
petitioners by any person other than the creditor-mortgagee or its assigns.

G.R. No. 133079. August 9, 2005


SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI v. CA AND SAN DIEGO

Facts:
In July 1990, petitioners obtained a loan of P350,000.00 from respondent Carmencita
San Diego. To secure payment thereof, petitioners executed in favor of the same
respondent a deed of real estate mortgage over their parcel of land located at Bayanan,
Muntinlupa, Rizal and registered in their names under a TCT. After making substantial
payments, petitioners again obtained and were granted by Carmencita San Diego an
additional loan. To secure this additional loan, they executed Amendment of Real Estate
Mortgage, wherein they stipulated that the loan shall be paid within six (6) months and if
not paid within said period, the mortgagee shall have the right to declare the mortgage
due and may immediately foreclose the same judicially or extra-judicially, in accordance
with law. Petitioners defaulted in paying their loan and continuously refused to comply
with their obligation despite repeated demands which prompted respondent Carmencita
San Diego to send them a final notice of demand requiring them to settle their financial
obligation. Respondent Carmencita San Diego filed with the Office of the Clerk of Court
and Ex-Officio Sheriff of RTC-Makati, a petition for the extrajudicial foreclosure of the
mortgage. The public auction sale was held and the mortgaged property sold to
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respondent Carmencita San Diego as the highest bidder. Respondent San Diego
caused the registration of the same sheriff’s certificate of sale with the Office of the
Register of Deeds. The petitioners having failed to redeem their property within the 1-
year redemption period from the date of inscription of the sheriffs certificate of sale.
Petitioners filed their complaint for annulment of the extrajudicial foreclosure and
auction sale, with damages.

RTC decided in favor of the respondents. On appeal, CA affirmed in toto the trial court’s
decision. Hence, this petition.

Issue:
Whether the extra-judicial foreclosure and public auction sale of the subject parcel of
land are valid and lawful when the amount stated in letter-request or the petition for
extra-judicial foreclosure and in the notice of sheriff sale doubled the amount stipulated
in the Amendment of Real Estate Mortgage.

Held:
Yes. The records indubitably show that at the time of the foreclosure sale, petitioners
were already in default in their loan obligation to respondent Carmencita San Diego.
Much earlier, or on 27 April 1993, a final notice of demand for payment had been sent to
them, despite which they still failed to pay. Hence, respondent Carmencita San Diegos
resort to extrajudicial foreclosure, provided no less in the parties Amendment of Real
Estate Mortgage.

The rule has been, and still is, that in real estate mortgage, when the principal obligation
is not paid when due, the mortgagee has the right to foreclose on the mortgage and to
have the mortgaged property seized and sold with the view of applying the proceeds
thereof to the payment of the obligation. Here, the validity of the extrajudicial foreclosure
on 11 August 1993 was virtually confirmed by the trial court when it dismissed
petitioners complaint, and rightly so, what with the fact that petitioners failed to exercise
their right of redemption within the 1-year period therefor counted from the registration
of the sheriffs certificate of sale.

G.R. No. 165853 June 22, 2006


ROSANA EREÑA v. VIDA DANA QUERRER-KAUFFMAN

Facts:
Vida Dana Querrer-Kauffman is the owner of a residential lot with a house constructed
thereon located at Las Piñas City. The property is covered by a TCT and owner’s
duplicate copy of the title as well as the tax declaration covering the property, were kept
in a safety deposit box in the house. Sometime in February 1997, Kauffman entrusted
her minor daughter, Vida Rose, to her live-in partner, Eduardo Victor. She also entrusted
the key to her house to Victor. She went back to the Philippines to get her daughter on
May 13, 1997, and again left for the U.S. on the same day. Later on, Victor also left for
the U.S. and entrusted the house and the key thereto to his sister, Mira Bernal. Later on,
Kauffman asked her sister, Evelyn Pares, to get the house from Bernal so that the
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property could be sold. Pares did as she was told. Kauffman then sent the key to the
safety deposit box to Pares, but Pares did not receive it. Kauffman then asked Pares to
hire a professional locksmith who could open the safe. When the safe was broken open,
however, Pares discovered that the owner’s duplicate title and the tax declarations,
including pieces of jewelry were missing. Kauffman learned that the lot had been
mortgaged to Rosana Ereña. It appeared that a "Vida Dana F. Querrer" had signed the
Real Estate Mortgage as owner-mortgagor, together with Jennifer V. Ramirez, Victor’s
daughter, as attorney-in-fact. Kauffman filed a complaint against Ereña, Bernal and
Jennifer Ramirez for Nullification of Deed of Real Estate Mortgage and Damages with
prayer for a Temporary Restraining Order and Preliminary Mandatory Injunction in the
RTC. RTC rendered judgment in favor of the Bernal and Ramirez. On appeal, CA
rendered judgment in favor of Kauffman. Hence, this petition.

Issue:
Whether the mortgage is valid and Ereña is a mortgagee in good faith.

Held:
No. In all cases of registration procured by fraud, the owner may pursue all his legal and
equitable remedies against the parties to such fraud without prejudice, however, to the
rights of any innocent holder of the decree of registration on the original petition or
application; any subsequent registration procured by the presentation of a forged
duplicate certificate of title, or a forged deed or other instrument, shall be null and void.
One of the essential requisites of a mortgage contract is that the mortgagor must be the
absolute owner of the thing mortgaged. A mortgage is, thus, invalid if the mortgagor is
not the property owner.

There is, however, a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract and
any foreclosure sale arising therefrom are given effect by reason of public policy. This is
the doctrine of "mortgagee in good faith" based on the rule that all persons dealing with
the property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not
required to go beyond what appears on the face of the title. The public interest in
upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of
the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good
faith, relied upon what appears on the face of the certificate of title. In a forged
mortgage, as in this case, the doctrine of "mortgagee in good faith" cannot be applied
and will not benefit a mortgagee no matter how large is his or her reservoir of good faith
and diligence. Such mortgage is void and cannot prejudice the registered owner whose
signature to the deed is falsified. When the instrument presented is forged, even if
accompanied by the owner’s duplicate certificate of title, the registered owner does not
lose his title, and neither does the assignee in the forged deed acquire any right or title
to the property.

G.R. No. 150197; July 28, 2005


PRUDENTIAL BANK v. DON A. ALVIAR and GEORGIA B. ALVIAR
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! of !48

Facts:
Spouses Alviar are the registered owners of a parcel of land in San Juan, Metro Manila.
They executed a deed of real estate mortgage of the said property in favor of petitioner
Prudential Bank to secure the payment of a loan worth P250,000.00. Their contract of
loan and REM contains a “blanket mortgage clause” or the “dragnet clause”. The
spouses thereafter issued another promissory notes signifying that the loan was
secured by a “hold-out” on the mortgagor’s foreign currency savings account with the
bank. Bank mentioned in their approval letter that additional securities for the loan were
the deed of assignment on two PNs executed by Bancom Realty and the chattel
mortgage on various heavy and transportation equipment. Spoused Alviar paid
petitioner P2,000,000.00, to be applied to the obligations of G.B. Alviar Realty and
Development, Inc. and for the release of the real estate mortgage for the P450,000.00
loan covering the two (2) lots in San Juan, Metro Manila. The payment was
acknowledged by petitioner who accordingly released the mortgage over the two
properties. After default, Prudential Bank moved for the extrajudicial foreclosure of the
mortgage on the property since respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes. Respondents then filed a complaint for
damages with a prayer for the issuance of a writ of preliminary injunction with the RTC
claiming that they have paid their principal loan secured by the mortgaged property, and
thus the mortgage should not be foreclosed. RTC, on its final decision, favored
respondents saying that the extrajudicial foreclosure was improper for the mortgage
only covers the first loan of P250,000. On appeal, CA affirmed the decision of the RTC.
Hence, this petition.

Issue:
Whether the real estate mortgage secures only the first loan of P250,000.

Held:
Yes. A blanket mortgage clause, also known as a dragnet clause in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or future
origins. Such clauses are carefully scrutinized and strictly construed. Mortgages of this
character enable the parties to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new transaction. A dragnet clause
operates as a convenience and accommodation to the borrowers as it makes available
additional funds without their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal services, recording fees, et
cetera. Indeed, it has been settled in a long line of decisions that mortgages given to
secure future advancements are valid and legal contracts, and the amounts named as
consideration in said contracts do not limit the amount for which the mortgage may
stand as security if from the four corners of the instrument the intent to secure future
and other indebtedness can be gathered.

While the existence and validity of the “dragnet clause” cannot be denied, there is a
need to respect the existence of the other securities given for the two other promissory
notes. The foreclosure of the mortgaged property should only then be for
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theP250,000.00 loan and for any amount not covered by the security for the second
promissory note. Petitioner and respondents intended the real estate mortgage to
secure not only the P250,000.00 loan from the petitioner, but also future credit facilities
and advancements that may be obtained by the respondents. However, the subsequent
loans obtained by respondents were secured by other securities.

G.R. No. 128184. March 18, 2005


LILIAN M. TOUNDJIS v. COURT OF APPEALS, LIBERATO G.YAMBAO, et al., and
JOSELITO GARAYGAY, ET AL.

Facts:
2 different persons with exactly the same name, i.e., Vicente T. Garaygay, each claimed
exclusive ownership of Lot 23 by virtue of an owner’s duplicate certificate each had
possession of during the period material covering said lot. The technical description of
the land appearing in one TCT corresponds exactly with that in the other. The date
“June 14, 1944” appears on the face of both copies as a common date of entry. One,
however, contained certain features, markings, and/or entries not found in the other and
vice versa. Later on, Garaygay of Cebu executed a deed of sale concerning subject lot
in favor of his nephew Joselito. The sale notwithstanding, the owner’s duplicate
certificate remained for some time in the seller’s possession. In another transaction,
Garaygay of Rizal sold to Yambao and Rodriguez the same property. Buyers Yambao
and Rodriquez would later sell a portion of their undivided interests on the land to
Morales.

The deed of sale executed by Garaygay of Cebu in favor of his nephew Joselito was
registered, paving the issuance in the latter’s name. Thereafter, thru the efforts of Engr.
Cortez, Lot 23 was subdivided into three (3) lots. Joselito posthaste sold the first lot to
Toundjis who, pursuant to a Contract to Sell undertook to pay Joselito the P.5 Million
balance of the P2.5 Million purchase price once she is placed in possession of a
fenced-off property. And, for shares of stock, Joselito assigned the other two (2) lots to
Century Realty which, after securing TCTs therefor, mortgaged the same to Premiere
Bank to secure a loan. Clashing claims of ownership first came to a head when,
sometime in May 1990, Yambao and his agents forcibly prevented Joselito’s hired
hands from concrete-fencing the subject property. The police and eventually the
National Bureau of Investigation (NBI) entered into the picture.

In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers of the subject
lot, caused the of their respective adverse claims on Joselito’s TCT they then filed with
the Regional Trial Court at Quezon City suit against Joselito, Century Realty and
Premiere Bank for quieting of title and annulment of said defendants’ fake titles with
prayer for damages. Eventually, the trial court rendered judgment finding for the
plaintiffs and against the defendants. On appeal, CA affirmed in toto the appealed
decision of the trial court. Hence, this petition.

Issue:
Whether Toundjis and Premiere bank are buyers in good faith.
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Held:
No. The rule that a subsequent declaration of a title as null and void is not a ground for
nullifying the contractual right of a purchaser, mortgagee or other transferees in good
faith, with the exceptions thereto, is well-settled. Where the certificate of title is in the
name of the seller or mortgagor, the innocent purchaser or mortgagee for value has the
right to rely on what appears on the certificate without inquiring further. In the absence
of anything to excite or arouse suspicion, or except when the party concerned had
actual knowledge of facts or circumstances that should impel a reasonably cautious
person to make such further inquiry, said purchaser or mortgagee is without obligation
to look beyond the certificate and investigate the title of the seller or mortgagor. Thus,
where innocent third persons, relying on the correctness of the certificate, acquire rights
over the property as buyer or mortgagee, the subsequent declaration of nullity of title is
not a ground for nullifying the right of such buyer or mortgagee.

G.R. No. 163338; September 21, 2005


LUZON DEVELOPMENT BANK v. BENEDICTO C. CONQUILLA, et al.

Facts:

Feliciano Conquilla was the president of an educational institution located at Noveleta


Cavite and known as Columbia College. He was joined by his children Benedicto,
Cornelio and Dorotea in mortgaging the three properties on which the school sat to
secure a loan from the Luzon Development Bank. The transaction underwent a series of
amendments. After some months, Feliciano Conquilla applied for a restructuring of the
loan. He wrote the bank that they had sought extra funding to finish the school building,
and with the increased enrollment that would follow on the heels of their expansion
program, assured that their loan obligations would be met. The request was granted.
Failure to make good in their obligation, the subject property were foreclosed. With the
cases out of the way, the properties were auctioned off to Luzon Development Bank. In
June, it advised Columbia College through Feliciano of its right to buy back the lots
within the redemption period.

A case was filed before the RTC but the said case was dismissed. On appeal, CA
remanded the case for further proceedings. Hence, this petition.

Issue:
Whether the mortgagor is entitled to the excess of the proceeds of the foreclosure sale.

Held:
If it is proven that the mortgaged property was foreclosed and sold for an amount
exceeding the loan contracted, respondent must be allowed to recover the excess. By
the accessory nature of mortgage, the mortgagee has the right to foreclose the
mortgaged property only to the extent of the loan secured by it. Any decision to the
contrary abets unjust enrichment. To stress, the recovery of the excess proceeds of the
sale is the only cause of action that should be remanded to the lower court.
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! of !48

Preliminarily, the trial court should first determine the amount of loan actually contracted
by the parties, because the true amount is disputed. According to petitioner and the CA,
the contracted loan was P12 million, but respondents maintain that the amount was only
P7.42 million. Afterwards, the court a quo should limit itself to a determination of
whether the property was sold for an amount exceeding the contracted loan, while
taking into consideration the interests and costs of the sale. If the sale price of the
mortgaged property is greater than the amount of indebtedness to the bank, the bank
must be ordered to turn over the excess to respondents. The lower court should no
longer inquire into the validity of the mortgage loan and the right to foreclose. The
resolution of these two matters have reached finality which decided that petitioner had
the right to foreclose on the presumption that the mortgage was also valid

[G.R. No. 164510 : November 25, 2008]


SPOUSES SANTIAGO and RUFINA TANCHAN v. ALLIED BANKING
CORPORATION
For value received, Cebu Foremost Construction, Inc. (Foremost), through its Chairman
and President Henry Tanchan (Henry) and his spouse, Vice-President and Treasurer
Ma. Julie Ann Tanchan (Ma. Julie Ann) executed and delivered to Allied Banking
Corporation (respondent) seven US$ promissory notes,5including Promissory Note No.
0051-97-036966 for US$379,000.00, at 9.50% interest rate per annum, due on February
9, 1998 as well as Several peso promissory notes for P28,900,000 at an interest rate of
14.5% per annum, due on February 9, 1998.
All the foregoing promissory notes are secured by two Continuing Guaranty/
Comprehensive Surety Agreements (CG/CSA) executed in the personal capacities of
spouses Henry and Ma. Julie Ann (Spouses Tanchan) and Henry's brother, herein
petitioner Santiago Tanchan (Santiago),9 for himself and as attorney-in-fact of his wife
and co-petitioner Rufina Tanchan (Rufina) under a Special Power of Attorney, dated
April 30, 1993, which grants Santiago authority to borrow and contract debts and
obligations.
the two CG/CSAs but also by a Real Estate Mortgage executed on February 14, 1997
by Henry, for himself and as the legal guardian of the minors Henry Paul L. Tanchan and
Don Henry L. Tanchan; his wife Ma. Julie Ann; and Spouses Pablo and Milagros Lim,
over real properties registered in their names, all located in Cebu City.12
In separate final demand letters, both dated May 14, 1998, respondent sought from
Foremost payment of US$1,054,000.00, as the outstanding principal balance, exclusive
of interest and charges, of its obligations under the seven US$ promissory notes,and
PhP28,900,000.00 under its Philippine peso promissory notes.13 Separate demands for
payment were also made upon Spouses Tanchan14 and the petitioners15 as sureties.
In a letter dated April 6, 1998, Foremost offered to cede to respondent, by way of dacion
en pago, the mortgaged real properties in full payment of its loan obligations.16
On August 3, 1998, respondent instituted the extra-judicial foreclosure of the real estate
mortgage to satisfy its claim against Foremost in the aggregate "amount of
Php55,578,826.77, inclusive of interest, other charges and attorney's fees, equivalent to
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10% of the total amount due as of May 3, 1998, plus the costs and expenses of
foreclosure."17 At the public auction sale, respondent's bid of only Php37,745,283.67 for
all the mortgaged properties, including the buildings and improvements thereon,18 was
adjudged the sole and highest bid.
On October 13, 1998, respondent filed with the RTC a Complaint for Collection of Sum
of Money with Petition for Issuance of Writ of Preliminary Injunction against Foremost,
Spouses Tanchan and herein petitioners (collectively referred to as Foremost, et al.),
praying that they be ordered to pay, jointly and severally the amounts prayed for.
The writ of preliminary attachment was granted
Thus, armed with a writ of attachment,22 the sheriff levied several parcels of land
registered in the name of Foremost, et al.23
In their Amended Answer with Counterclaim,24 Foremost, et al. acknowledged the
authenticity and due execution of the promissory notes but denied liability for the
amounts alleged in the Complaint, the computation of which they dispute due to the
arbitrariness of the imposition of new interest rates. They impugned the cause of action
of respondent to collect the amount due under Exhibit "G" and Exhibit "H" in view of the
bank's prior extra-judicial foreclosure of the securities thereon, which recourse bars
collection of the amounts due on the same promissory notes.25
Foremost, et al. questioned the inclusion of Rufina as a party-defendant even when she
was not bound by the CG/CSAs which her husband Santiago signed in excess of his
authority under the special power of attorney to contract loans for the family but not to
guarantee loans obtained by third persons.26
Issues:
Whether the writ was properly issued
Whether deficiency from the foreclosure sale can be recovered
Ruling:
1. No. the court ruled that fraud is never presumed. A writ of preliminary attachment
is too harsh a provisional remedy to be issued based on mere abstractions of
fraud.58 Rather, the rules require that for the writ to issue, there must be a
recitation of clear and concrete factual circumstances manifesting that the debtor
practiced fraud upon the creditor at the time of the execution of their agreement
in that said debtor had a pre-conceived plan or intention not to pay the creditor.
59 Being a state of mind, fraud cannot be merely inferred from a bare allegation of

non-payment of debt or non-performance of obligation.60


the requirement becomes all the more stringent when the application for preliminary
attachment is directed against a defendant officer of a defendant corporation, for it will
not be inferred from the affiliation of one to the other that the officer participated in or
facilitated in any fraudulent practice attributed to the corporation. There must be
evidence clear and convincing that the officer committed a fraud or connived with the
corporation to commit a fraud; only then may the properties of said officer, along with
those of the corporation, be held under a writ of preliminary attachment.
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! of !48

There is every reason to extend the foregoing rule, by analogy, to a mere surety of the
defendant. A surety's involvement is marginal to the principal agreement between the
defendant and the plaintiff; hence, in order for the surety to be subject to a proceeding
for issuance of a writ of preliminary attachment, it must be shown that said surety
participated in or facilitated the fraudulent practice of the defendant, such as by offering
a security solely to induce the plaintiff to enter into the agreement with the defendant.
There is neither allegation nor innuendo in the Complaint of respondent or the Affidavit
of Elumbaring that petitioners as sureties or officers of Foremost participated in or
facilitated the commission of fraud by Foremost, et al. against respondent. In fact, there
is no mention of petitioners, much less a recital of their role or influence in the execution
of the loan agreements. The RTC cited an allegation that petitioners are disposing/
concealing their properties with intent to defraud respondent, but there is no hint of such
scheme in the five paragraphs of the Complaint61 or in the four corners of the Affidavit of
Elumbaring.62 All that is alleged is that Foremost obtained loans from respondent but
failed to pay the same, but as the Court has repeatedly held, no fraud can be inferred
from a mere failure to pay a loan.63
In so ruling, however, the Court does not go so far as to grant petitioners' claim for
moral damages. A wrongful attachment may give rise to liability for moral damages but
evidence must be adduced not only of the torment and humiliation brought upon the
defendant by the attaching party but also of the latter's bad faith or malice in causing the
wrongful attachment,64 such as evidence that the latter deliberately made false
statements in its application for attachment.65Absent such evidence of malice, the
attaching party cannot be held liable for moral damages.66
In the present case, petitioners cite the allegations made by respondent in its
application for attachment as evidence of bad faith. However, the allegations in question
contain nothing but the stark truth that Foremost obtained loans and that it failed to pay.
The Court fails to see any malice in such bare allegations as would make respondent
liable to petitioners for moral damages.
2. Yes.
Petitioners argue that respondent is barred from claiming any amount under the
Promissory Notes, Exhibits "G" and "H", because it had already elected to foreclose on
the mortgage security, and it failed to allege in its pleadings that a deficiency remained
after the public auction sale of the securities and that what it is seeking is the payment
of such deficiency.67
There is no question that a mortgage creditor has a single cause of action against a
mortgagor debtor, which is to recover the debt; but it has the option of either filing a
personal action for collection of sum of money or instituting a real action to foreclose on
the mortgage security.68 An election of the first bars recourse to the second; otherwise,
there would be multiplicity of suits in which the debtor would be tossed from one venue
to another, depending on the location of the mortgaged properties and the residence of
the parties.69 On the other hand, a creditor who elects to foreclose on the mortgage may
yet file an independent civil action for recovery of whatever deficiency may remain in the
outstanding obligation of the debtor, after deducting the price obtained in the sale of the
mortgaged properties at public auction.70 The complaint, though, must specifically allege
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that what is being sought is the recovery of the deficiency,71 or that in the pre-trial, such
claim be raised as an issue.72
Contrary to petitioners' argument, it is clear from the allegations in the Complaint that
what respondent sought was the payment of the deficiency amount under the subject
promissory notes. In particular, while the Promissory Note, Exhibit "H", is for the amount
of Php16,500,000.00, what respondent sought to recover was only Php7,582,945.85,
consistent with the fact that part of said promissory note has been satisfied from the
proceeds of the extra-judicial foreclosure.
[G.R. No. L-31384. June 29, 1979.]


COMMODITY FINANCING CO., INC., v. JOSE B. JIMENEZ 


Facts:


On June 1, 1967, the Board of Directors of the COFICO passed a resolution, 5
authorizing its President, Alfredo R. de la Merced to obtain a loan from BANCO
FILIPINO in an amount not exceeding ONE MILLION FIVE HUNDRED THOUSAND
PESOS (P1,500,000.00) for the account of the corporation. 


Pursuant to and in accordance with the said resolution, Mr. Alfredo R. de la Merced, as
President of COFICO, obtained from BANCO FILIPINO on June 21, 1967, a loan in the
amount of ONE MILLION TWO HUNDRED THOUSAND PESOS (P1,200,000.00),
payable on or before June 21, 1969. 6 The loan is secured by a real estate mortgage 7
over a parcel of land registered in accordance with the land Registration Act in the name
of COFICO and covered by TCT No. 80260. 8 


As COFICO failed to pay the loan upon its maturity, BANCO FILIPINO foreclosed the
mortgage extrajudicially under Act No. 3135, as amended, and the Sheriff of Manila
scheduled the public auction sale of the land covered by the real estate mortgage
executed by COFICO in favor of BANCO FILIPINO on February 28, 1969. 9 


On February 7, 1969, Atty. Feliciano C. Tumale, counsel of Mr. Emerito M. Ramos and
his family, who are the majority stockholders of COFICO, sent a letter to BANCO
FILIPINO, 10 informing the latter that the property mortgaged to it by COFICO has also
been conveyed to the CENTRAL BANK as consideration for a voting trust agreement 11
for the rehabilitation of the Overseas Bank of Manila (OBM. Accordingly, the said
counsel requested a postponement of the extrajudicial auction sale scheduled by the
Sheriff of Manila on February 28, 1969, for at least 120 days, as by that time, the OBM
case would have been decided by the Supreme Court.


On February 26, 1969, or two days before the scheduled public auction sale, COFICO
and Emerito M. Ramos, Susana B. Ramos, Emerito B. Ramos, Jr., Josefa Ramos de la
Rama, Horacio de la Rama, Antonio B. Ramos, Filomena Ramos Ledesma, Rodolfo
Page 29
! of !48

Ledesma, Victoria Ramos Tanjuatco, and Teofilo T. Tanjuatco, III (hereinafter referred to
simply as RAMOS FAMILY), as majority stockholders of COFICO, filed with the Court of
First Instance of Manila, presided by respondent judge, a complaint with preliminary
injunction 18 against BANCO FILIPINO, CENTRAL BANK, and the Sheriff of Manila, for
the annulment of the real estate mortgage contract executed by COFICO in favor of
BANCO FILIPINO, alleging inter alia, that the said contract is a nullity and void ab initio
as it contains covenants and stipulations which are illegal, immoral and are otherwise
contrary to customs and public policy, and to enjoin the extrajudicial foreclosure sale of
the mortgaged property on February 28, 1969 by the Sheriff of Manila, docketed therein
as Civil Case No. 75831.

Pending hearing of the application for the issuance of writ of preliminary injunction, the
trial court issued a temporary restraining order on February 26, 1969, and set the
hearing for the issuance of the writ on March 29, 1969. Subsequently, the plaintiffs were
required to post a bond.


Issue:

library

The principal issue to be resolved in this case is whether or not the respondent Judge
acted with grave abuse of discretion amounting to lack of jurisdiction in requiring the
petitioners to post a bond in the amount of P1,200,000.00 in order that a writ of
preliminary injunction be issued.

Ruling:
1. Under Section 4, Rule 59 of the Rules of Court, 30 the posting of a bond is a
condition sine qua non in order that the writ of preliminary injunction may issue, 31 the
purpose of the bond being to secure the defendant against whatever damages he may
suffer as a result or by reason of the injunction if the same should be declared as
wrongfully issued. However, the amount of the bond to be posted is addressed to the
sound discretion of the trial court which should not be interfered with except in case of
grave abuse.



The petitioners herein do not claim — and they cannot claim — that in issuing the
questioned orders the respondent Judge was motivated by passion and personal
hostility, or that he acted in a despotic or arbitrary manner. On the contrary, the amount
of the bond required by the respondent Judge is reasonable and is justified by the facts
and circumstances obtaining in the case at bar. As pointed out by respondent BANCO
FILIPINO, under the promissory note 37 the petitioner COFICO obligated itself to pay a
12% interest per annum or P144,000.00 per year. As of the end of the year 1969, the
petitioners already owe the respondent BANCO FILIPINO the amount of P210,536.88 in
the form of interests alone, and the case below has not even reached the trial stage.
Considering the time involved and the amount in the form of interests that has to be
paid by the petitioner before instant case is finally terminated, the trial court was justified
in requiring the petitioners to post an injunction bond in the amount of P1,200,000.00 38
At any rate, if there is any error committed by the respondent Judge, it is at most, an
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error of judgment, and errors of judgment are not correctible by certiorari. 39 




We, therefore, hold that respondent Judge did not act with grave abuse of discretion in
issuing his order of November 17, 1969, requiring the petitioners to file an injunction
bond in the amount of P1,200,000.00 as well as in issuing his orders of December 13
and 20, 1969, denying the petitioners’ motion for reconsideration.


STATE INVESTMENT HOUSE INC. v. COURT OF APPEALS, ET AL


Records show that, on October 15, 1969, Contract to Sell No. 36 was executed by the
Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc. (SOLID), involving
a parcel of land identified as Block No. 8, Lot No. 1, Phase I of the Capitol Park Homes
Subdivision, Quezon City, containing 511 square meters for a consideration of
P39,347.00. Upon signing of the contract, the spouses Oreta made payment amounting
to P7,869.40, with the agreement that the balance shall be payable in monthly
installments of P45 1.70, at 12% interest per annum.
On November 4, 1976, SOLID executed several real estate mortgage contracts in favor
of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of land, one
of which is the subject lot covered by Transfer Certificate of Title No. 209642.
For Failure of SOLID to comply with its mortgage obligations contract, STATE extra-
judicially foreclosed the mortgaged properties including the subject lot on April 6, 1983,
with the corresponding certificate of sale issued therefor to STATE annotated at the
back of the titles covering the said properties on October 13, 1983.
On August 15, 1988, the spouses filed a complaint before the Housing and Land Use
Regulatory Board, HLRB, against the developer SOLID and STATE for failure on the
part of SOLID to execute the necessary absolute deed of sale as well as to deliver title
to said property x x x in violation of the contract to sell x x x, despite full payment of the
purchase price as of January 7, 1981.
Issues
(1) whether private respondent spouses Oretas unregistered rights over the
subject property are superior to the registered mortgage rights of petitioner
State Investment House, Inc. (STATE);
(2) whether the mirror doctrine is applicable
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! of !48

Ruling:
STATEs registered mortgage right over the property is inferior to that of
respondents-spouses unregistered right. The unrecorded sale between respondents-
spouses and SOLID is preferred for the reason that if the original owner (SOLID, in this
case) had parted with his ownership of the thing sold then he no longer had ownership
and free disposal of that thing so as to be able to mortgage it again.[4] Registration of the
mortgage is of no moment since it is understood to be without prejudice to the better
right of third parties.[5]
Anent the second issue, petitioner asserts that a purchaser or mortgagee of land/s
covered under the Torrens System is not required to do more than rely upon the
certificate of title [for] it is enough that the [purchaser or mortgagee] examines the
pertinent certificate of title [without] need [of] look[ing] beyond such title.[6]
As a general rule, where there is nothing in the certificate of title to indicate any
cloud or vice in the ownership of the property, or any encumbrance thereon, the
purchaser is not required to explore further than what the Torrens Title upon its face
indicates in quest for any hidden defect or inchoate right that may subsequently defeat
his right thereto. This rule, however, admits of an exception as where the purchaser
or mortgagee, has knowledge of a defect or lack of title in his vendor, or that he was
aware of sufficient facts to induce a reasonably prudent man to inquire into the status of
the title of the property in litigation.[7] In this case, petitioner was well aware that it was
dealing with SOLID, a business entity engaged in the business of selling subdivision
lots. In fact, the OAALA found that at the time the lot was mortgaged, respondent State
Investment House, Inc., [now petitioner] had been aware of the lots location and that
said lot formed part of Capital Park/Homes Subdivision.[8]
We take judicial notice of the uniform practice of financing institutions to investigate,
examine and assess the real property offered as security for any loan application
especially where, as in this case, the subject property is a subdivision lot located
at QuezonCity, M.M. It is a settled rule that a purchaser or mortgagee cannot close its
eyes to facts which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of the vendor or
mortgagor.[12] Petitioners constructive knowledge of the defect in the title of the subject
property, or lack of such knowledge due to its negligence, takes the place of registration
of the rights of respondents-spouses. Respondent court thus correctly ruled that
petitioner was not a purchaser or mortgagee in good faith; hence petitioner can not
solely rely on what merely appears on the face of the Torrens Title.
G.R. No. 97401 December 6, 1995
CASTRO, JR., ET AL v. COURT OF APPEALS and UNION BANK OF THE
PHILIPPINES
On 15 August 1974, Cabanatuan City Colleges obtained a loan from the Bancom
Development Corporation. In order to secure the indebtedness, the college mortgaged
to Bancom two parcels of land covered by TCT No. T-45816 and No. T-45817 located in
Cabanatuan City. The parcels were both within the school site. While the mortgage was
subsisting, the college board of directors agreed to lease to petitioners a 1,000-square-
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meter portion of the encumbered property on which the latter, eventually, built a
residential house. Bancom, the mortgagee, was duly advised of the matter.
The school defaulted in the due payment of the loan. In time, Bancom extrajudicially
foreclosed on the mortgage, and the mortgaged property was sold at public auction on
22 August 1979 with Bancom coming out to be the only bidder. A certificate of sale was
accordingly executed by the provincial sheriff in favor of Bancom. Subsequently, the
latter assigned its credit to herein private respondent Union Bank of the Philippines.
On 10 October 1984, following the expiration of the redemption period without the
college having exercised its right of redemption, private respondent consolidated title to
the property.
On 08 May 1985, private respondent filed with the Regional Trial Court of Nueva
Ecija, Branch XXVIII in Cabanatuan City, an ex-parte motion for the issuance of a
writ of possession not only over the land and school buildings but also the
residential house constructed by petitioners.2 On 10 May 1985, the lower court
granted the motion and directed the issuance of the corresponding writ.
The ex-officio provincial sheriff, in implementing the writ, thereby also sought the
vacation of the premises by petitioners. When the latter refused, private respondent filed
an ex-parte motion for a special order directing the physical ouster of the occupants.
On 23 May 1986, petitioners formally entered their appearance in the proceedings to
oppose the ex-parte motion. Petitioners averred that, being the owners of the residential
house which they themselves had built on the foreclosed property with the prior
knowledge of the mortgagee, they could not be ousted simply on the basis of a petition
for a writ of possession under Act No. 3135.
On 27 May 1986, the lower court,3 nevertheless, issued an order granting private
respondent's motion, and it directed Atty. Luis T. Castro, in representation of petitioners,
to deliver "all the keys to all the rooms and premises" found on the property foreclosed
and authorized, in the event petitioners would refuse to surrender the keys, private
respondent "to enter the premises in question and do what is best for the preservation
of the properties belonging to the Cabanatuan City Colleges."4
Issue:
Shorn of unrelated matters,9 the basic question raised in the petition relates to the
proper application of Article 2127 of the Civil Code.
Ruling:
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or passes into the
hands of a third person.
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! of !48

This article extends the effects of the real estate mortgage to accessions and
accessories found on the hypothecated property when the secured obligation
becomes due. The law is predicated on an assumption that the ownership of
such accessions and accessories also belongs to the mortgagor as the owner of
the principal. 10 The provision 11 has thus been seen by the Court, in a long line of
cases beginning in 1909 with Bischoff vs. Pomar, 12 to mean that all
improvements subsequently introduced or owned by the mortgagor on the
encumbered property are deemed to form part of the mortgage. That the
improvements are to be considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a contract of security,
whether, real or personal, needs as an indispensable element thereof the
ownership by the pledgor or mortgagor of the property pledged or
mortgaged. 13 The rationale should be clear enough — in the event of default on
the secured obligation, the foreclosure sale of the property would naturally be the
next step that can expectedly follow. A sale would result in the transmission of
title to the buyer which is feasible only if the seller can be in a position to convey
ownership of the thing sold (Article 1458, Civil Code). It is to say, in the instant
case, that a foreclosure would be ineffective unless the mortgagor has title to the
property to be foreclosed. 14
It may not be amiss to state, in passing, that in respect of the lease on the foreclosed
property, the buyer at the foreclosure sale merely succeeds to the rights and obligations
of the pledgor-mortgagor subject, however, to the provisions of Article 1676 of the Civil
Code on its possible termination. 15

G.R. No. L-50008 August 31, 1987


PRUDENTIAL BANK vs. PANIS AND MAGCALE

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and


Teodula Baluyut Magcale secured a loan in the sum of P70,000.00 from
the defendant Prudential Bank. To secure payment of this loan, plaintiffs
executed in favor of defendant on the aforesaid date a deed of Real
Estate Mortgage over their properties specifically the land and the building
Apart from the stipulations in the printed portion of the aforestated deed of mortgage,
there appears a rider typed at the bottom of the reverse side of the document under the
lists of the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent
on the lot applied for by the Mortgagors as herein stated is released
or issued by the Bureau of Lands, the Mortgagors hereby authorize
the Register of Deeds to hold the Registration of same until this
Mortgage is cancelled, or to annotate this encumbrance on the Title
upon authority from the Secretary of Agriculture and Natural
Resources, which title with annotation, shall be released in favor of
the herein Mortgage.
Page 34
! of !48

On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in
the sum of P20,000.00. To secure payment of this additional loan, plaintiffs executed in
favor of the said defendant another deed of Real Estate Mortgage over the same
properties previously mortgaged. This second deed of Real Estate Mortgage was
likewise registered with the Registry of Deeds, this time in Olongapo City, on May
2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No.
4776 over the parcel of land, possessory rights over which were mortgaged to
defendant Prudential Bank, in favor of plaintiffs.
For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and
upon application of said defendant, the deeds of Real Estate Mortgage were
extrajudicially foreclosed. Consequent to the foreclosure was the sale of the properties
therein mortgaged to defendant as the highest bidder in a public auction sale conducted
by the defendant City Sheriff on April 12, 1978 The auction sale aforesaid was held
despite written request from plaintiffs through counsel dated March 29, 1978, for the
defendant City Sheriff to desist from going with the scheduled public auction sale.
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real
Estate Mortgage as null and void.
Issue:
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
Ruling:
The answer is in the affirmative.
Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be
still a real estate mortgage for the building would still be considered immovable property
even if dealt with separately and apart from the land. In the same manner, this Court
has also established that possessory rights over said properties before title is vested on
the grantee, may be validly transferred or conveyed as in a deed of mortgage
Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse and
on the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register of
Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on
the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued
in the name of private respondent Fernando Magcale on May 15, 1972. It is therefore
without question that the original mortgage was executed before the issuance of the
final patent and before the government was divested of its title to the land, an event
which takes effect only on the issuance of the sales patent and its subsequent
registration in the Office of the Register of Deeds. Under the foregoing considerations, it
is evident that the mortgage executed by private respondent on his own building which
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was erected on the land belonging to the government is to all intents and purposes a
valid mortgage.
But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered
with the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is
evident that such mortgage executed after the issuance of the sales patent and of the
Original Certificate of Title, falls squarely under the prohibitions stated in Sections 121,
122 and 124 of the Public Land Act and Section 2 of Republic Act 730, and is therefore
null and void.
Petitioner points out that private respondents, after physically possessing the title for
five years, voluntarily surrendered the same to the bank in 1977 in order that the
mortgaged may be annotated, without requiring the bank to get the prior approval of the
Ministry of Natural Resources beforehand, thereby implicitly authorizing Prudential Bank
to cause the annotation of said mortgage on their title.

ANICETO RECEBIDO vs. PEOPLE OF THE PHILIPPINES


On September 9, 1990, private complainant Caridad Dorol went to the house of her
cousin, petitioner Aniceto Recebido, at San Isidro, Bacon, Sorsogon to redeem her
property, an agricultural land with an area of 3,520 square meters located at San Isidro,
Bacon, Sorsogon, which Caridad Dorol mortgaged to petitioner sometime in April of
1985. Petitioner and Caridad Dorol did not execute a document on the mortgage but
Caridad Dorol instead gave petitioner a copy of the Deed of Sale dated June 16, 1973
(Exhibit A) executed in her favor by her father, Juan Dorol.
In said confrontation, petitioner refused to allow Caridad Dorol to redeem her property
on his claim that she had sold her property to him in 1979. Caridad Dorol maintained
and insisted that the transaction between them involving her property was a mortgage.
Caridad Dorol verified from the Office of the Assessor in Sorsogon that there exists on
its file a Deed of Sale dated August 13, 1979 (Exhibit J), allegedly executed by Caridad
Dorol in favor of petitioner and that the property was registered in the latters name. After
comparison of the specimen signatures of Caridad Dorol in other documents (Exhibits K
to K-10) with that of the signature of Caridad Dorol on the questioned Deed of Sale, NBI
Document Examiner Antonio Magbojas, found that the latter signature was falsified. A
case for falsification of public document was filed.
Issue:
Whether or not the Court of Appeals committed grievous error in affirming the
decision of the trial court for the petitioner to vacate the land in question owned by
the offended party?

Ruling:
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Petitioner submits that the trial court is without jurisdiction to order petitioner to
vacate the land in question considering that the crime for which he is charged is
falsification.[16] The petitioner insists that the civil aspect involved in the criminal case at
bar refer to the civil damages recoverable ex delito or arising from the causative act or
omission.[17]In addition, petitioner argues that he is entitled to possession as mortgagee
since the private complainant has not properly redeemed the property in question.
These are specious arguments. The petitioner based his claim of possession
alternatively by virtue of two alternative titles: one, based on the forged deed of sale
and, two, as mortgagee of the land. As already discussed, the deed of sale was forged
and, hence, could not be a valid basis of possession. Neither could his status as
mortgagee be the basis of possession since it is the mortgagor in a contract of
mortgage who is entitled to the possession of the property. We have taken note of the
practice in the provinces that in giving a realty for a collateral, possession usually goes
with it.[18] Besides, even assuming that petitioner had a right to possess the subject
land, his possession became unlawful when the private complainant offered to redeem
the property and petitioner unjustly refused. Petitioner cannot profit from the effects of
his crime. The trial court, therefore, did not commit any error in ordering petitioner to
vacate the subject property.

G.R. No. L-49940 September 25, 1986


HECHANOVA, accompanied by her husband and MASA, accompanied by her
husband vs. ADIL AND SERVANDO
Facts:

The case under review is for the annulment of a deed of sale dated March 11, 1978,
executed by defendant Jose Y. Servando in favor of his co-defendants, the petitioners
herein, covering three parcels of land situated in Iloilo City. Claiming that the said
parcels of land were mortgaged to him in 1970 by the vendor, who is his cousin, to
secure a loan of P20,000.00, the plaintiff Pio Servando impugned the validity of the sale
as being fraudulent, and prayed that it be declared null and void and the transfer
certificates of title issued to the vendees be cancelled, or alternatively, if the sale is not
annulled, to order the defendant Jose Servando to pay the amount of P20,000.00, plus
interests, and to order defendants to pay damages
The defendants moved to dismiss the complaint on the grounds that it did not state a
cause of action, the alleged mortgage being invalid and unenforceable since it was a
mere private document and was not recorded in the Registry of Deeds; and that the
plaintiff was not the real party in interest and, as a mere mortgagee, had no standing to
question the validity of the sale
On August 25, 1978, a judgment by default was rendered against the defendants,
annulling the deed of sale in question and ordering the Register of Deeds of Iloilo to
cancel the titles issued to Priscilla Masa and Gemma Hechanova, and to revive the title
issued in the name of Jose Y. Servando and to deliver the same to the plaintiff.
Issue:
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Whether the plaintiff has legal standing to ask for the annulment of the sale
Ruling:
No. It is clear from the records of this case that the plaintiff has no cause of action.
Plaintiff has no standing to question the validity of the deed of sale executed by the
deceased defendant Jose Servando in favor of his co-defendants Hechanova and
Masa. No valid mortgage has been constituted plaintiff's favor, the alleged deed of
mortgage being a mere private document and not registered; moreover, it contains a
stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code.
Even assuming that the property was validly mortgaged to the plaintiff, his recourse was
to foreclose the mortgage, not to seek annulment of the sale.

G.R. No. L-66936 December 12, 1986


RURAL BANK OF SAN MATEO, INCORPORATED v. IAC AND MERCADO ET AL
In December 1975, the plaintiff-appellee, the Rural Bank of San Mateo (Isabela), Inc.,
filed a petition for the Extra-Judicial Foreclosure and Sale of a parcel of land situated at
Sta. Clara, Diffun, Quirino, containing an area of 12.1801 hectares, covered by and
embraced in TCT No. T-19927, homestead patent, of the land records of Quirino, which
title was issued in the name of Mariano Manuel.
The aforementioned parcel of land was mortgaged with plaintiff-appellee by Mariano
Manuel using as collateral his T.C.T. No. 19927. The mortgage was foreclosed and the
obligation of the mortgagor Mariano Manuel, including principal and interests as of
December 8, 1975, amounted to P18,597.27 (Exhibit "C", plaintiff-appellee), Likewise,
the said mortgagor Mariano Manuel executed a Chattel Mortgage in favor of the
plaintiff-appellee for a hand tractor and his obligation, including principal and interests
as of December 9, 1975, amounted to P22,997.29. The total obligation of the mortgagor
Mariano Manuel with the plaintiff-appellee, both in the Real Estate Mortgage and the
Chattel Mortgage, principal including interests as of December 9, 1975, amounted to
P41,594.56.
The defendants-appellants Renato Mercado, Ex-Officio Provincial Sheriff, through his
Deputy Provincial Sheriff Benjamin V. Sanidad, acting favorably on the said petition
caused the publication of the Notice of Extra- Judicial Foreclosure and Sale in the
Vizcaya Advocate. The auction sale was set on March 8, 1976, at 8:30 A.M. in the Court
of First Instance Building, at Cabarroguis, Quirino. The plaintiff-appellee, through its
representative submitted its bid in the amount of P41,594.56 for the lot and machinery,
and which amount was the total obligation of the mortgagor Mariano Manuel, principal
including interests as of December 9, 1975, with the plaintiff-appellee. Likewise, the
defendant-appellant Santos L. Pilotin submitted his bid in the amount of P10,000,00.
The defendant-appellant Benjamin V. Sanidad awarded the bid to the defendant-
appellant Santos L. Pilotin for P10,000.00 and considered the bid of plaintiff-appellee in
the amount of P41,594.56 as "lost and unprevailing."
On August 16, 1976, after receiving a copy of the proceedings of the auction sale, the
plaintiff-appellee sent a letter) to the defendant-appellant Benjamin V. Sanidad,
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protesting the results of the auction sale or bidding and requesting consideration of the
award of the bid for P10,000.00 to the defendant-appellant Santos L. Pilotin
On November 22, 1976, the defendant-appellant Santos L. Pilotin caused the
registration of the Sheriff's Certificate of Sale, in his favor, of the Original Copy of TCT
No. T-19927, which is on file in the office of the Register of Deeds of Quirino, as Entry
No. 4878, without presenting the Owner's Duplicate Copy of TCT No. T-19927, which he
knows was in the possession of the plaintiff-appellee.
On July 18, 1918, the defendant-appellant filed a petition for the surrender of the
Owner's Duplicate Copy of TCT No. T-19927, docketed as LRC Proceedings Case No.
59, in the Court of First Instance of Quirino. However, the hearing of the said petition
was held in abeyance, due to a prejudicial question raised by the plaintiff-appellee, and
as a consequence, the trial court issued an order dated July 31, 1979.
The Lower court ruled that what was being foreclosed only was the real estate
mortgage and not the chattel mortgage.
Issue:
The Hon. Intermediate Appellate Court erred in concluding that petitioner is under
obligation to foreclose not only the real estate mortgage but also the chattel mortgage.
Ruling:
No. The records show that the auction sale was a result of the petition filed by the Rural
Bank of San Mateo, Inc. for the Extra-Judicial Foreclosure and Sale of a parcel of land
covered by TCT No. T-19927 issued in the name of Mariano Manuel. No mention was
made that the foreclosure of a chattel mortgage was also sought. The authority of the
Sheriff was only to sell the land, not any machinery and the notice of sale as published
explicitly said so. The findings of the appellate court on the regularity of the extra-judicial
foreclosure sale are not disputed by the petitioner. Moreover, there is no law which
requires the auctioning Sheriff to inform petitioner of all bids offered before the actual
sale.
We cannot sustain petitioner's assigned error which states that the appellate court erred
in concluding that petitioner is under obligation to foreclose not only the real estate
mortgage but also the chattel mortgage. No such conclusion was made. The pertinent
portion of the appellate court's decision reads:
However, plaintiff sought to foreclose only the Real Estate Mortgage. It did
not foreclose the Chattel Mortgage. Despite this fact its bid of P41,594.56
was for the sum total of the two obligations, i.e. the one secured with the
Real Estate Mortgage and the other secured with the Chattel Mortgage.
For the Sheriff to accept the bid of P41,594.56 which was explicitly for the
"lot and machinery" win open him to the charge of foreclosing the chattel
mortgage and a demand for the delivery of the machinery, which the
Sheriff of course will not be able to fulfill as only the Real Estate Mortgage
was being foreclosed.
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ANTICHRESIS
G.R. No. L-38185 September 24, 1986
HILARIO RAMIREZ and VALENTINA BONIFACIO v. CA AND MEDINA ET AL

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.
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
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the land, enjoy its fruits, and pay the land taxes thereon. The written agreement was
kept by the petitioners as creditors.
Issue:
Whether extrinsic fraud was attendant in the case
Whether the petitioners were antichretic creditors only
Ruling:
Yes.
In their application for titling the land, 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 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
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 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.
G.R. No. L-4135 November 29, 1951
SEVERINA ROSALES AND PUREZA CONGZON v. LOECADIO S. TANSECO, ET AL.
The first cause of action stated that Plaintiffs are the widow and daughter, respectively,
of Eustaquio Congzon, who owned with his wife a piece of land with improvements in
Catbalogan, Samar. On August 15, 1927, defendant Loecadio S. Tanseco prepared
fictitious mortgage of the land in favor of Tan Tay San, which he made Eustaquio
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Congson sign without consideration. That document was subsequently cancelled to be


substituted in May 30, 1930 by another "mortgage"1 for P26,000 in favor of defendant
Tan Sun, which Eustaquio Congzon again signed thru fraud and without consideration.
On March 30, 1932 Tan Sun transferred all his rights to defendant Tan Tay San, who in
turn assigned his interests to defendant Leocadio Tanseco in April, 1936.
The second cause of action stated that The buildings on the lot were totally burned in
June 1942; that said buildings have always been occupied by the mortgagees, and
never by Eustaquio Congzon; but that the plaintiffs, who never enjoyed the possession
and fruits of their land, did satisfy taxes thereon amounting to P39,480.75.
The third cause of actionThe plaintiffs also stated that from and after the destruction of
the buildings on June 8, 1942, they were in actual and quiet possession of the lot until
June 1, 1946, when defendant Leocadio Tanseco, thru force, intimidation and strategy,
and without their consent, occupied the property and constructed thereon a house, all to
their damage prejudice.
Plaintiffs prayed that they be declared owners of the lot, that the "mortgage" documents
and assignments be annulled, and that Leocadio Tanseco be ordered to vacate and pay
damages and costs.
Issue:
Whether the contract was for antichresis
Ruling:
Yes. In a contract of antichresis the creditor is obliged to pay the taxes on the property,
unless the contract says otherwise (Art. 1882 Civil Code). The contract between
Eustaquio Congzon and Tan Sun said nothing about taxes. Hence it was the obligation
of the creditor or creditors to pay the taxes on the property at issue herein.
Now, the second cause of action states that the debtor has paid for taxes on the
property the amount of P39,480.75.
Bearing in mind that the credit was only P26,000 it is plain to see that under the second
cause of action the plaintiffs affirmed in effect that they had already discharged their
debt (by advancing the taxes which the creditor should have paid) and are entitled to
the return of their property free from all encumbrance. At least there was good ground
for accounting. Consequently, it was error to dismiss upon a mere motion filed before
the answer.
Furthermore the third cause of action, posed the question: Where the antichretic debtor
peacefully in possession of the premises given as guaranty is ejected thru force or
strategy by the antichretic creditor does he have a right of action?
Under the Civil Code every possessor is entitled to be respected in his possession: and
should he be disturbed therein he shall be protected, or possession shall be restored to
him, by the means established by the laws of procedure (Art. 446). And a possessor,
however he may have acquired thereof without legal proceedings.3

G.R. No. 18574 September 20, 1922


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JOSE C. MACAPINLAC v. FRANCISCO GUTIERREZ REPIDE, ET AL.



FRANCISCO GUTIERREZ REPIDE, defendant-appellee. 

J. F. BOOMER, defendant-appellant.
On and prior to August 22, 1916, the plaintiff was the owner of the Hacienda Dolores, a
property located in the municipality of Porac, Pampanga, and assessed upon the tax
books at P288,000, but having an actual value of no less than P800,00, encumbered,
however, with certain debts and charges which need not be here enumerated. This
property had been registered under Act No. 496, as amended, and upon May 13, 1916,
a Torrens certificate of title covering the same had been issued to the plaintiff.
On the date above stated, or August 22, 1916, the said plaintiff was indebted to the
Bachrach Garage & Taxicab Company, of Manila, later organized under the name of
Bacharch Motor Company, for the price of an automobile, previously purchased upon
credit, and certain automobile accessories; and as evidence of this indebtedness the
plaintiff executed on said dated a series of fourteen promissory notes payable to the
Bachrach Garage & Taxicab Company, and amounting in all to the sum of P12,960,
falling due respectively upon the second of each month beginning on September 2,
1916, and ending on October 2, 1917. Each of these notes was drawn in the amount of
P1,000, except the last two which together amounted to P960. On September 1, 1916,
eleven of these notes were discounted by the Bachrach Garage & Taxicab Company,
through its manager E. M. Bachrach, at the Philippine National Bank. The other three
votes, amounting to P2,277.70, remained in the hands of the payee corporation and
were subsequently paid in full by the plaintiff.
Contemporaneously with the delivery of said notes, or on August 16, 1916, and as a
security or guaranty for the payment of said notes, the plaintiff executed what on its face
purports to be a deed of sale, with privilege of repurchase, to be exercised on or before
October 2, 1917. This transfer comprises all the property covered by Torrens certificate
No. 427 (which includes the Hacienda Dolores), subjects to the encumbrances noted
thereon; and the conveyance to which reference is now made was itself extended on
the back of said certificate. In this conveyance E. M. Bachrach is named as transferee,
instead of the alleged real creditor, the Bachrach Garage & Taxicab Company. Upon the
circumstance of the nonconformity of the promissory notes and the deed of sale as
regards creditor and beneficiary, the complaint alleges that the deed of sale is void for
lack of consideration as between the plaintiff and E. M. Bachrach, the nominal
beneficiary; but to this suggestion, for obvious reasons, we attach little importance.
On November 8, 1917, Francisco Gutierrez Repide acquired, for the sum of P5,000, all
the rights of E. M. Bachrach in the property which had been thus conveyed to the later;
and at this time Francisco Gutierrez Repide, so that complaint alleges, was well aware
that the transfer to Bachrach had been made by the plaintiff for the purpose of securing
a debt owing to the Bachrach Company, and he was furthermore aware that part of said
debt has been paid and that the balance really due from the plaintiff to said company
was less than one-half of the sum of P12,960, expressed in the fourteen promissory
notes.
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After Francisco Gutierrez Repide had acquired the interest above described in
the hacienda in question, he addressed himself to the problem of procuring the
certificate of title to be transferred to this own name. To accomplish this is was
necessary to make it appear that the contract of sale with pacto de retro noted in the
original Torrens certificate was really and truly what it appeared to be, that is, a contract
of sale, not a mere mortgage, and that the ownership had consolidated in the purchaser
by reason of the failure of the seller to repurchase the property before the expiration of
the time allowed for redemption. When this question was raised, it was referred for
decision to the judge of the Court of First Instance of Pampanga, who was of the
opinion that the conveyance to Bachrach was a straight contract of sale with pacto de
retro; and inasmuch as it appeared that the ownership had then consolidated in the
purchaser, he directed the register of deeds of Pampanga to register the property in the
name of Francisco Gutierrez Repide and to issue to him a new certificate of transfer,
which was accordingly done. The order here referred to was in fact entered in case No.
104 of the Court of First Instance of Pampanga, this being the same land registration
proceedings in which the title had been registered in the name of the plaintiff, and in
which judicial proceedings had already been terminated.
Though not plainly so stated in the complaint, it is to be inferred that one of the decisive
considerations that operated upon the mind of the judge of the Court of First Instance in
making the order above alluded to was the fact that the plaintiff himself had made an
affidavit which directly sustained the contention of Repide, and this affidavit was
submitted to the court in support of Repide's contention. Certain it is that the inscription
of the property in the name of Francisco Gutierrez Repide was accomplished with the
external approval of the plaintiff and by means of his assistance or collusion.
In the complaint now before us the plaintiff alleges that his apparent acquiescence in
the transfer of title to Francisco Gutierrez Repide, under the circumstances above set
forth, was due to fraudulent practices on the part of said Repide and to the undue
influence exerted over the plaintiff by that person. In this respect the complaint contains
a very full and complete narrative of facts, which, if true — as they must here be taken
to be — would undoubtedly justify any court in relieving a party from the effects of
fraudulent practices, duress, or undue influence; and it seems unnecessary for us here
to recount these charges in detail, more especially for the reason that the sufficiency of
these allegations, considered as stating a case of fraud, has not bee questioned, the
defense at this point being rested on the ground that the Torrens certificate is
unimpeachable in the hands of Repide and that the plaintiff's remedy to obtain relief,
supposing the transfer of title to have been procured by fraud, has prescribed.
It appears from the complaint that, at the time of the filing of this complaint, the
defendant Repide was in actual possession of the property in question, and that he had
in effect been enjoying possession since august 24, 1917, to the alleged prejudice of
the plaintiff in the sum of no less than P200,000 per annum.
Issue:

Whether the contract was a mortgage contract; if so, what are the effects of such
Ruling:
The contract was considered as a mortgage contract.
Page 44
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The sketch above given contains, we believe, the substance of the essential allegations
of the lengthy complaint in this cause, and it will at least serve as the necessary basis
for a discussion of the legal problems here requiring solution. In taking up these
problems we begin with the situation created by the execution of the contract of sale
with pacto de retro between the plaintiff, Jose C. Macapinlac, and E. M. Bachrach
Company, assuming, as we do, that the personality of the second party to that contract
is a matter of indifference. In this connection the first and most obvious proposition to be
laid down is that inasmuch as said conveyance is alleged to have been executed as
security for a debt owing by the plaintiff to the Bachrach Company, it follows that in
equity said conveyance must be treated as a mere security or substantially as a
mortgage, that is, as creating a mere equitable charge in favor of the creditor or person
named as the purchaser therein.
Jurisprudence states that:
Any conveyance of land absolute on its face, without anything in its terms to
indicate that it is otherwise than an absolute conveyance, and without any
accompanying written defeasance, contract of repurchase, or other agreement,
may, in equity, by means of extrinsic and parol evidence, be shown to be in a
reality a mortgage as between the original parties, and as against all those
deriving title from or under the grantee, who are not bona fide purchasers for
value and without notice. The principle which underlies this doctrine is the fruitful
source of any other equitable rules; that it would be a virtual fraud for the grantee
to insist upon the deed as an absolute conveyance of the title, which had been
intentionally given to him, and which he had knowingly accepted, merely as a
security, and therefore in reality as a mortgage. The general doctrine is fully
established, and certainly prevails in a great majority of the states, that the
granter and his representatives are always allowed in equity to show, by parol
evidence, that a deed absolute on its face was only intended to be a security for
the payment of a debt, and thus to be a mortgage, although the parties
deliberately and knowingly executed the instrument in its existing form, and
without any allegations of fraud, mistake, or accident in its mode of execution. As
in the last preceding case, the sure test and the essential requisite are the
continued existence of a debt. (3 Pom. Eq. Jur., sec. 1196.)
Whether any particular transaction does thus amount to a mortgage or to a sale
with a contract of repurchase must, to a large extent, depend upon its own
special circumstances; for the question finally turns, in all cases, upon the real
intention of the parties as shown upon the face of the writings, or as disclosed by
extrinsic evidence. A general criterion, however, has been established by an
overwhelming consensus of authorities, which furnishes a sufficient test in the
great majority of cases; and whenever the application of this test still leaves
a doubt, the American courts, from obvious motives of policy, have generally
leaned in favor of the mortgage. This criterion is the continued existence of a
debt or liability between the parties, so that the conveyance is in reality intended
as a security for the debt or indemnity against the liability. If there is an
indebtedness or liability between the parties, either a debt existing prior to the
conveyance, or a debt arising from a loan made at the time of the conveyance, or
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from any other cause, and this debt is still left subsisting, not being discharged or
satisfied by the conveyance, but the granter is regarded as still owing and bound
to pay it at some future time, so that the payment stipulated for in the agreement
to reconvey is in reality the payment of this existing debt, then the whole
transaction amount to a mortgage, whatever language the parties may have
used, and whatever stipulations they may have inserted in the instruments. (3
Pom. Eq. Jur., sec. 1195.)
. . . Whenever a deed absolute on its face is thus treated as a mortgage, the
parties are clothed with all the rights, are subject to all the liabilities, and are
entitled to all the remedies of ordinary mortgagors and mortgagees. The grantee
may maintain an action for the foreclosure of the grantor's equity of redemption;
the grantor may maintain an action to redeem and to compel a reconveyance
upon his payment of the debt secured. If the grantee goes into possession, he is
in reality a mortgagee in possession, and as such is liable to account for the
rents and profits. (3 Pom. Eq. Jur., sec. 1196.)
In Cuyugan vs. Santos, supra, the action to enforce the right of redemption was brought
was brought directly against the immediate grantee in the conveyance there held to be
a mortgage, and no account had to be there taken of the situation resulting from a
transfer of the property to a stranger. In the present case the rights of the immediate
grantee (E. M. Bachrach) passed by transfer for a valuable consideration to Francisco
Gutierrez Repide and this transfer had been effected before the action in this case was
began. But is obvious that this circumstance cannot be any obstacle to the enforcement
of any rights that the plaintiff may have had as against Bachrach (or the Bachrach
Company) since it is alleged that at the time Repide acquired the interest of Bachrach,
he was fully aware of the nature of the transaction between Bachrach and the plaintiff
and knew that part of the debt secured by the conveyance of August 22, 1916, had
been paid.
In this connection the cardinal rule is that a party who acquires any interest in property
with notice of an existing equity takes subject to that equity. "The full meaning of this
most just rule," says Mr. Pomeroy, "is, that the purchaser of an estate or interest, legal
or equitable, even for a valuable consideration, wit notice of any existing equitable
estate, interest, claim, or right, in or to the same subject-mater, held by a third person, is
liable in equity to the same extend and in the same manner as the person from whom
he made the purchase; his conscience is equally bound with that of his vendor, and he
acquires only what his vendor can honestly transfer." (2 Pom. Eq. Jur., sec. 688.)
In other words, having acquired the interest of Bachrach in the Hacienda Dolores, with
knowledge that the contract of August 22, 1916, has been executed as security for a
debt, Francisco Gutierrez Repide — or his estate, now that Repide is a dead — must be
understood to stand towards the present plaintiff in exactly the same position that would
have been occupied by Bachrach, if the transfer to Repide had never been effected.
The preceding discussion conducts us to the conclusion that, so far as this case is
concerned, the estate of Francisco Gutierrez Repide occupies substantially the position
of a mortgagee in possession. The question then arises as to what are the legal rights
of the plaintiff as against the Repide estate, judged by the facts alleged and relief
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sought in the complaint as at present framed, and in this connection the circumstances
is not to be ignored that the complaint contains in usual form the prayer for general.
The solution of this problem is to be found in the application of the doctrine formulated
by this court in Barretto vs. Barretto (37 Phil., 234). In that case the heirs of a
mortgagee of an estate were found in possession of mortgaged property more than
thirty years after the mortgage had been executed; and it was shown that the mortgage
had never been foreclosed. Upon this state of facts it was in effect held that the rights of
the parties, heirs respectively of the mortgagor and mortgagee, were essentially the
same as under the contract of antichresis.
By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the
chapter dealing with antichresis, it will be at once seen that while non-payment of the
debt does not vest the ownership of the property in the creditor, nevertheless the debtor
cannot recover the enjoyment of the property without first paying in full what he owes to
his creditor. At the same time, however, the creditor is under obligation to apply the fruits
derived from the estate in satisfaction, first, of the interest on the debt, if any, and,
secondly, to the payment of the principal. From this is necessarily deduced the
obligation of the creditor to account to the debtor for said fruits and the corresponding
right of the debtor to have the same applied in satisfaction of the mortgage debt, as
recognized in Barretto vs. Barretto, supra.
The respective rights and obligations of the parties to a contract of antichresis, under
the Civil Code, appear to be similar and in many respects identical with those
recognized in the equity jurisprudence of England and American as incident to the
position of a mortgagee in possession, in reference to which the following propositions
may be taken to be established, namely, that if the mortgagee acquires possession in
any lawful manner, he is entitled to retain such possession until the indebtedness is
satisfied and the property redeemed; that the non-payment of the debt within the term
agreed does not vest the ownership of the property in the creditor; that the general duty
of the mortgagee in possession towards the premises is that of the ordinary prudent
owner' that the mortgagee must account for the rents and profits of the land, or its value
for purposes of use and occupation, any amount thus realized going towards the
discharge of the mortgage debt; that if the mortgagee remains in possession after the
mortgage debt has been satisfied, he becomes a trustee for the mortgagor as to the
excess of the rents and profits over such debt; and, lastly, that the mortgagor can only
enforce his rights to the land by an equitable action for an account and to redeem. (3
Pom. Eq. Jur., sex. 1215-1218.)
From the complaint it appears that, even before acquiring the interest of Bachrach in
the Hacienda Dolores, the defendant Francisco Gutierrez Repide had taken over from
the Archbishop of Manila a mortgage on the property in favor of said Archbishop, paying
therefor the sum of P35,000; and we infer from the complaint that Repide had probably
discharged other liens on the property either before or after he acquired the interest of
Bachrach. If so, his executrix will be entitled to charge the plaintiff with the amount paid
to free the property from such liens, and to retain possession until all valid claims
against the estate are satisfied, in obedience to the maxim that he who seeks equity
must do equity.
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