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1.Dizon vs Gaborro
Facts: Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in Mabalacat, Pampanga. He
constituted a first mortgage to DBP to secure a loan of P38,000.00 and a second mortgage to PNB amounting
P93,831.00 Petitioner defaulted in the payment of his debt, therefore, the DBP foreclosed the mortgage
extrajudicially. Gaborro became interested in the lands of Dizon. But since the property was already foreclosed by the
DPB. They then entered into a contract captioned as “Deed of sale with assumption of mortgage” and the second
contract “Option to Purchase Real Estate”. Alfredo G. Gaborro took possession of the three parcels of land.
After the execution of the contract Gaborro then made several payments to the DBP and PNB. He improved, cultivated
the kinds raised sugarcane and other crops produce.
Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is formally offering reimburse
Gaborro of what he paid to the banks. Gaborro did not agreed to the demands of the petitioner, hence, Jose P. Dizon
instituted a complaint in the Court of First Instance of Pampanga, alleging that the documents Deed of Sale with
Assumption of Mortgage and the Option to Purchase Real Estate did not express the true intention and agreement
between the parties. Petitioner, contended that the two deeds constitute in fact a single transaction that their real
agreement was not an absolute sale of the land but merely an equitable mortgage or conveyance by way of security
for the reimbursement or refund by Dizon to Gaborro of any and all sums which the latter may have paid on account
of the mortgage debts in favor of the DBP and the PNB.

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

Held: Court held that the it is an Antichresis. We agree with the findings of the trial and apellate court that the true
intention of the parties is that Gaborro would assume and pay the indebtedness of Dizon to DBP and PNB, and in
consideration therefor, Gaborro was given the possession, the enjoyment and use of the lands until Dizon can
reimburse fully Gaborro the amounts paid by the latter to DBP and PNB.

We find that the agreement between Dizon and Gaborro is one of those inanimate contracts under art. 1307 of new cc
whereby both of them agreed “to give and to do” certain rights and obligations respecting the lands and the mortgage
debts of the petitioner which would be acceptable to the bank but partaking of the nature of antichresis insofar as the
principal parties, Dizon and Gaborro are concerned.


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

Issue: Whether the agreement had been converted into an antichresis?

Ruling: No. The SC concluded that the intention of the parties was merely for the Sps. Adrid to borrow the sum of P2,000
from Eugenio Morga, the lot being given as security. In other words, it is a clear case of equitable mortgage. Otherwise, there
would be no reason for the agreement made for the payment of 12% interest per annum. The parties to the contract
must have contemplated the lot remaining in the possession of the vendors in as much as it was considered a
mere security. This did not convert, as contended by plaintiffs, the contract from a sale with pacto de retro to
that of antichresis.

No acts of the parties subsequent to its execution to show that the parties had entered into a contract of antichresis. In a
case decided by the SC : Alojado vs. LimSiongco: ”The SC said that what characterizes a contract of antichresis is
that the creditor ac quires the right to receive the fruits of the property of his debtor with the obligation
to apply them to the payment of interest, if any is due, and then to the principal of his credit, and when such a covenant is not made
in the contract which speaks unequivocally of a sale with right of repurchase, the contract is a sale with the right to repurchase
and not an antichresis.”

3. Pando vs. Gimenez

Facts: Gimenez was indebted to Pando in the amount of P 8,000.00. To secure payment of such loan, he executed and
delivered a real estate mortgage over a building located in Sta. Mesa; and the leasehold rights on the lot upon which
the building was erected, Hacienda Tuason being the lessor. Gimenez gave Pando full control, and complete and
absolute administration over the property he mortgaged, on the condition that Pando would:
(1) attend to the administration, care and preservation of the building and property;
(2) pay the premium on the insurance of the building;
(3) pay the taxes that might become due on the building;
(4) pay the rents of the leased property; and
(5) collect the rents from the tenants of the building;
 to be applied to the payment of all expenses necessary for the preservation and maintenance of the
building and the rents of the leased property.

In the course of Pando’s administration over the property, he failed and neglected to pay the taxes due for several
years and neglected to pay lessor Hacienda Tuason the rents due for several years on the land leased. Because of this,
the building was sold at a public auction to satisfy the taxes due. Moreover, lessor Hacienda Tuason cancelled the
contract of lease of Gimenez and brought a suit against him for desahucio in the municipal court of Manila.

Gimenez is now claiming that Pando, being in charge of the administration of the premises, had the obligation to
attend to the payment of taxes and rents. Pando denies that he had such obligation, alleging that his duties were
confined to the collection of rents on the house in order to apply them to the payment of the interest on the mortgage.

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

Ruling: Yes, Pando had such obligation. The administration of the property assumed by Pando was antichretic in
character. Article 2135 of the Civil Code expressly states that the antichretic creditor is obliged to pay the taxes and
charges which burden the estate, in the absence of an agreement to the contrary. Such obligation arises from the very
nature of the covenant, and is correlated with the antichretic creditor’s acquired right to take charge of the property
and collect the fruits for himself.


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

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

Held: Yes. The contract Exhibit 1 did not divest Marcos Bernardo of ownership of the property, his heir Vicenta
Bernardo could, and she did, validly convey such ownership to Nazario Trillana in 1948, by Exhibit A. Subject of
course to the rights of the antichretic creditors, the defendants Manansala et al.

The SC noticed that the Court of Appeals did not regard the contract as a pacto de retro sale. The Court of Appeals
declared the agreement was a "kaliwaan" or exchange, which according to defendants meant, "after the execution of
the document we delivered the money, and plaintiff delivers possession of the land". It has not escaped our notice that
the document says "if I cannot redeem come April 1944, the property I mortgage is hereby paid to Mr. Faustino
Manansala". But that in our opinion merely authorized Manansala to get the property for payment, thru the
proceedings prescribed for mortgages. Otherwise the stipulation would be open to attack, either
as pactumcommissorium or as against the law. (Arts. 1859 and 1884 Civil Code.)

5. Ramirez VS CA
Facts: Petitioners-spouses Hilario Ramirez and Valentina Bonifacio filed an application for registration of a parcel of
riceland in Pamplona, Las Pinas Rizal. After notice and publication nobody appeared to oppose the application.
Thereafter, the petitioners presented parol evidence that they acquired the land in question by purchase from Gregorio
Pascual during the early part of the American regime but the corresponding contract of sale was lost and no copy or
record of the same was available. The private respondents Francisca Medina, Basilio Martin, Matilde Martin, Delfin
Guinto, Teofilo Guinto, Prudencio Guinto and Margarita Guinto, petitioners' nephews and nieces, filed a petition to
review the decree of registration on the ground of fraud. The private respondents based their claim to the land on the
following allegations: that they are the legal heirs of the deceased 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;After trial, the court found that deeds
of sale spurious. It further found that the respondents took possession of the land as owners after the death of
AgapitaBonifacio and in 1938, mortgaged it to the spouses Ramirez to secure the payment of a loan in the amount of

P400.00. It was agreed that the respondents could not redeem the property within a period of five years and that the
petitioners would take possession of the land, enjoy its fruits, and pay the land taxes thereon. The written agreement
was kept by the petitioners as creditors.

Issue: Whether the Court of first of instances, erred in vesting the title on the land involved herein to Private
respondent and order even its Partition of the land while in Actual possession of Petitioner while Private respondent
have not possess at all?

Ruling: No. We find the petition without merit. While there was an admission that the petitioners have been in
actual possession of the disputed land since 1938, it was made to show and prove the fact that the petitioners are
only antichretic creditors. The respondents never admitted that they have not possessed the land at all. On the
contrary, they alleged that they and their predecessors-in-interest namely 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.

This court has on several occasions held that the antichretic creditor cannot ordinarily acquire by prescription the
land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 42 Phil. 177;
Barreto v. Barreto, 3 Phil. 234). The petitioners are not possessors in the concept of owner but mere holders placed
in possession of the land by its owners. Thus, their possession cannot serve as a title for acquiring dominion (See
Art. 540, Civil Code).

1. PNB v Manila Investment and Construction Inc. 38 SCRA 462
Facts: The CFI Manila rendered a judgment condemning defendants, jointly and severally, to pay plaintiff:
(1) Under the first cause of action the sum of P88,939.48 with daily interest of P12,77385 plus 1/4% commission or
P194.6689 for every 30 days or a fraction thereof, plus 10% on the principal as attorney's fees and the cost;
(2) On the second cause of action the sum of P356,913.01, plus P48,464 03 and 1/4% or P629.31 for every 30 days or
fraction thereof that the amount remain outstanding and unpaid plus 10% of the principal as attorney's fees, and the

In case of non-payment of the amounts adjudged, the decision also provided for the sale at public auction of the
personal properties covered by the chattel mortgage executed by the defendants in favor of the plaintiff Bank, and for
the disposition of the proceeds in accordance with law. After the decision had become executory, instead of having the
mortgaged personal properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at
a private sale. The net proceeds obtained therefrom amounting to P256,941.70 were applied to the partial satisfaction
of the above judgment.

More than 5 years but less than 10 years from the date when the decision became executory, PNB filed in the same
CFI of Manila an action to revive it. Defendants interposed that (1) when the decision became final and executory,
PNB sold to various parties in a private sale the mortgaged properties to be foreclosed and sold at public auction hence
the proceeds must be accounted by plaintiff to the defendants in order that the same be properly applied to the
judgment; and that (2) PNB has no cause of action in reviving the judgment not until it has rendered proper accounting
to the defendants of the proceeds of the sale.
The appealed decision of the Court renders judgment ordering the defendants to pay the plaintiff, jointly and severally,
the amount of P382,338.47, with interest at the legal rate.

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

RULING: No. The private sale is Valid, both parties agreed on the process. it is true that the decision rendered in the
CFI of Manila provided for the sale at public auction of the personal properties covered by the chattel mortgage
executed in favor of the Bank, but it is likewise true that said personal properties were sold at a private sale
by agreement between the parties. Besides, We see nothing illegal, immoral or against public order in such agreement
entered into freely and voluntarily. In line with the provisions of the substantive law giving the contracting parties
full freedom to contract provided their agreement is not contrary to Law.

Private sale was by agreement between the parties, it is clear that appellants are now in estoppel to question it except
on the ground of fraud or duress — pleas that they do not invoke. They do not even claim that the private sale agreed
upon had caused them substantial prejudice.

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

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

Held: The sale is valid. There is no dispute that the Deed of Chattel Mortgage executed between Siton and the
petitioner requires the written consent of the latter as mortgagee in the sale or transfer of the mortgaged vehicle. We
cannot ignore the findings, however, that before the sale, prompt inquiries were made by private respondents with
Filinvest Credit Corporation regarding any possible future sale of the mortgaged property and that it was upon the
advice of the company’s credit lawyer that such a verbal notice is sufficient and that it would be convenient if the
amount would remain in the name of Siton.

In view of the foregoing, the Court finds it correct to hold both the respondent Siton and De Dumo liable for their
obligations to petitioner herein. In the case at bar, the purchase of the car by De Dumo from Siton does not necessarily
imply the extinguishment of the liability of the latter. Since it was neither established nor shown that Siton was
released from responsibility under the promissory note, the same does not constitute novation by substitution of
debtors. Likewise, the fact that petitioner company accepts payments from a third person like De Dumo, who has
assumed the obligation, will result merely to the addition of debtors and not novation. Hence, the creditor may
therefore enforce the obligation against both debtors.

3.Perfecto Dy, Jr V. CA

Facts: Wilfredo Dy bought a truck and tractor from Libra Finance Corporation. Both truck and tractor were also
mortgage to Libra as security for a loan and as such, they took possession of it. Brother of Wilfredo, Perfecto Dy and
sister Carol Dy-Seno requested Libra that they be allowed to buy the property and assume the mortgage debt. Libra
agreed to the request.

Meanwhile, a collection suit was filed against Wilfredo Dy by Gelac Trading Inc. On the strength of a writ of execution,
the sheriff was able to obtain the tractor on the premises of Libra. It was sold in a public auction in which Gelac
Trading was the lone bidder. Gelac subsequently sold it to one of their stockholders. It was only when the check was
cleared that the petitioner learned about GELAC having already taken custody of the subject tractor. Consequently,
the petitioner filed an action to recover the subject tractor against GELAC Trading.

The respondents claim that at the time of the execution of the deed of sale, no constructive delivery was effected since
the consummation of the sale depended upon the clearance and encashment of the check which was issued in payment
of the subject tractor.

Issue: Whether William Dy sale of tractor is valid and binding?

Held: Yes. The mortgagor who gave the property as security under a chattel mortgage did not part with the ownership
over the same. He had the right to sell it although he was under the obligation to secure the written consent of the
mortgagee or he lays himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised
Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not be affected.

Moreover, the payment of the check was actually intended to extinguish the mortgage obligation so that the tractor
could be released to the petitioner. It was never intended nor could it be considered as payment of the purchase price
because the relationship between Libra and the petitioner is not one of sale but still a mortgage. The clearing or
encashment of the check which produced the effect of payment determined the full payment of the money obligation
and the release of the chattel mortgage. It was not determinative of the consummation of the sale. The transaction
between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention,
therefore, that the consummation of the sale depended upon the encashment of the check is untenable.

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

Facts: Ever Textile Mills, Inc. (EVERTEX) obtained loan from Philippine Bank of Communications (PBCom), secured
by a deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located therein as
enumerated in a schedule attached to the mortgage contract. PBCom again granted a second loan to EVERTEX which
was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed
properties were similar to those listed in the first mortgage deed. After the date of the execution of the second
mortgage mentioned above, EVERTEX purchased various machines and equipments. Upon EVERTEX's failure to
meet obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act
3135 and Act 1506 or "The Chattel Mortgage Law". PBCom then consolidated its ownership over the lot and all the

properties in it. It leased the entire factory premises to Ruby Tsai and sold to the same the factory, lock, stock and
barrel including the contested machineries.

EVERTEX filed a complaint for annulment of sale, reconveyance, and damages against PBCom, alleging inter alia
that the extrajudicial foreclosure of subject mortgage was not valid, and that PBCom, without any legal or factual
basis, appropriated the contested properties which were not included in the Real and Chattel Mortgage of the first
mortgage contract nor in the second contract which is a Chattel Mortgage, and neither were those properties included
in the Notice of Sheriff's Sale.

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

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

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

CITY, respondents. (This is quite long but I highlighted na the digest ng digest) 

FACTS: In June 27, 1978, Chua Pac, the president and general manager of Acme Shoe, Rubber & Plastic Corporation,
executed for and in behalf of the company, a chattel mortgage in favor of Producers Bank of the Philippines as a way
of security for petitioner's corporate loan of P3,000,000.00. A provision in the chattel mortgage agreement was to this
effect -
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full obligation
or obligations above-stated according to the terms thereof, then this mortgage shall be null and void. x x x.
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former
note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts,
letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of the said promissory note or notes and/or
accommodations without the necessity of executing a new contract and this mortgage shall have the same
force and effect as if the said promissory note or notes and/or accommodations were existing on the date
thereof. This mortgage shall also stand as security for said obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been
contracted before, during or after the constitution of this mortgage."

In due time, the loan was paid by ACME. Subsequently, it obtained from respondent bank additional financial
accommodations totaling P2,700,000.00. These borrowings were on due date also fully paid. On 10 and 11 January
1984, the PRODUCERS BANK yet again extended to ACME a loan of P1,000,000.00 covered by four promissory notes
for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity. Respondent bank thereupon
applied for an extrajudicial foreclosure of the chattel mortgage which prompted ACME to forthwith file an action for
injunction, with damages and a prayer for a writ of preliminary injunction, before the RTC of Caloocan City. It was
dismissed by the court and it ordered the foreclosure of the chattel mortgage. It held ACME bound by the stipulations
of the chattel mortgage. ACME appealed to the CA which affirmed "in all respects" the decision of the RTC. The motion
for reconsideration was denied.


1. Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage
to obligations yet to be contracted or incurred? NO. Contracts of security are either personal or real. In contracts
of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal
debtor is secured by the personal commitment of another (the guarantor or surety). In contracts of real security,
such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property -
in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution
of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of
a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument

granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such
fruits to the payment of interest, if owing, and thereafter to the principal of his credit - upon the essential condition
that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, but that should the obligation be duly paid, then the contract is
automatically extinguished proceeding from the accessory
character - _edn8 of the agreement. As the law
so puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null and void.

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as
these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at
the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include debts that
are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however,
does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt
is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the agreement so as
to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing
agreement whereon the promise is written but, of course, the remedy of foreclosure can only cover the debts extant
at the time of constitution and during the life of the chattel mortgage sought to be foreclosed.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the
Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it
is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid
between the parties (not against third persons acting in good faith), the fact, however, that the statute has
provided that the parties to the contract must execute an oath that -

"x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and
for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of

makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely
contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract
was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel
Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes Press, Inc., et al., the Court said -"x x x A
mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date
the same are made and not from the date of the mortgage."
The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to
exist coincidentally with the full payment of the P3,000,000.00 loan, there no longer was any chattel mortgage
that could cover the new loans that were concluded thereafter.
6. Filipinas Marble Corp v IAC 142 SCRA 180 (1996)
FACTS: In its desire to develop the full potentials of its mining claims and deposits, Filipinas Marbles Corporation
(FMC) applied and was granted a loan in the amount of $5,000,000 by respondent Development Bank of the
Philippines (DBP) on the conditions that the management contract will be handled by Bancom System Control and
the DBP and the loan shall be secured by a final mortgage on the assets of petitioner with a total approved vale of
PhP 48,630,756. The chattel mortgage was not registered pursuant to Article 2125 of the Civil Code.

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

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

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

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

ISSUE:Whether the order of execution pending appeal is valid

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

Petition granted. Assailed orders of the lower court, nullified and set aside.
8. Agustin v CA
Facts: The dispute stemmed from an unpaid promissory note by Petitioner in favor of ERM commercial

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

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

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

9. Esguerra vs. Court of Appeals

A stipulation in a contract of sale regarding automatic appropriation amounts to pactum commissorium,
and is therefore null and void. More than that, even if such automatic appropriation of the cargo truck in
question can be inferred from or be contemplated under the aforesaid mortgage contract, such stipulation
would be pactum commissorium which is expressly prohibited by Article 2088 of the Civil Code and
therefore, null and void.
FACTS: Esguerra bought a truck from GAMI on installments. To secure the payment, a chattel mortgage was
executed by Esguerra. Later, Esguerra failed to pay 2 installements. Consequently GAMI filed an action for
foreclosure of the chattel mortgage. Agents of GAMI, impersonated sheriffs and took the said truck while it was in
the possession of Esguerra’s driver, Carlito Padua; and the same had remained in the possession of GAMI,
notwithstanding demands for its return by Esguerra.
Esguerra filed a complaint with the then Court of First Instance of Cavite, Branch IV, TagaytayCity to recover said
truck and for damages. Esguerra alleged, among others, that due to his failure to pay the installments due, the agents
of GAMI, Jose Tino and Samuel Dore, representing themselves as deputy sheriffs and with use of force, threats and
intimidation, seized the cargo truck in question from his driver, Carlito Padua, while unloading gravel and sand in
Pasay City; and that despite repeated demands, GAMI refused and failed to return the same. GAMI, et al. filed their
answer with a counterclaim, alleging as affirmative defense that the plaintiff gave his consent to the taking of the
truck by the agents of the corporation on condition that he be allowed to recover its possession upon payment of his
back accounts.

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

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

10.Cerna vs CA

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

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

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

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

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



G.R. No. 126908. January 16, 2003

Facts: Spouses Mateo and Carlita Cruz owned a parcel of land. They obtained a loan from the Philippine National
Bank (PNB) in the amount of Php70,000 and constituted a real estate mortgage using their parcel of land to secure
said loan. Subsequently, Mateo Cruz obtained an agricultural crop loan from PNB in the amount of Php156,000 which
was also secured by a real estate mortgage. After Land Bank remitted to PNB Php359, 500 in bonds, Php174.43 in
cash and transferred Php25,500 in bonds, PNB issued a Deed of Release of Real Estate Mortgage in favor of the
Spouses Cruz. Consequently, PNB released all titles to them. Later Spouses Cruz loaned again from PNB and secured
it with another real estate mortgage. Spouses Antonio and Soledad So Hu paid for the release of the mortgaged
property since they were interested in it. Thus a Deed of Absolute Sale was entered into by Spouses So Hu and Spouses
Cruz, conveying the property to the former. PNB conducted a public auction sale covering the property in question
under the contention that Spouses Cruz failed to pay their loan. Since it was the sole and highest bidder, it now
claimed the property. When PNB found Spouses So Hu In possession of the property, they were asked to vacate the
Issue: Is the extra judicial foreclosure of the third mortgage valid?
Held: It is manifested in records that Spouses So Hu had already paid the principal obligation secured by the third
mortgage. A contract of mortgage is an accessory contract which derives its existence from the principal contract.
Thus, if the principal ceases to be it also ceases. In this case, with the extinguishment of the loan, the mortgage is also
Note that the loan secured by the mortgage was already paid prior to the foreclosure. Thus, the property can no longer
be validly foreclosed since it would be a foreclosure that satisfies an extinguished obligation.

2. DBP vs. Licuanan

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

On July 6, 1981, petitioner sent a letter by registered mail to respondents informing them that, since the conditions
of the mortgage had been breached, petitioner would have the mortgaged properties sold by the sheriff under Act 3135.
The total amount due from the three loans had by then ballooned to P75,298.32.

Petitioner filed an application for extrajudicial foreclosure. The mortgaged properties were sold in a public auction
and petitioner, as the highest bidder, acquired them for a total of P16,340.00. Petitioner consolidated its ownership
over the properties. After more than a year, petitioner wrote respondents by registered mail, informing them that the
properties would be disposed of by public auction. On November 11, 1984, petitioner published an advertisement
stating that on November 14, 1984, the properties would be sold by oral bidding.

On November 16, 1984, petitioner sent respondents a letter informing them that the properties could be reacquired
by negotiated sale for cash or installment. Three days later, however, the properties were sold through negotiated sale
to one Emelita Peralta.

Respondents were informed of the sale by petitioner through a letter dated December 6, 1984. On December 11, 1984,
respondents offered to repurchase the properties from petitioner but they had already been sold to Peralta. Hence
they filed a complaint for recovery of real properties and damages in the Regional Trial Court against petitioner and
Peralta. The RTC rendered judgment in favor of respondents. The court found that there was no demand for payment
prior to the extrajudicial foreclosure. Thus, the foreclosure proceedings were null and void. The CA affirmed the RTC.
Hence this petition.

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

Ruling: (1) Demand made before the foreclosure is effected is essential. If demand was made and duly received by the
respondents and the latter still did not pay, then they were already in default and foreclosure was proper. However,
if demand was not made, then the loans had not yet become due and demandable. This meant that respondents had
not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation.
Whether or not demand was made is a question of fact. In petitions for review on certiorari under Rule 45, only
questions of law may be raised by the parties and passed upon by this Court. Factual findings of the trial court, when
adopted and confirmed by the CA, are binding and conclusive on this Court and will generally not be reviewed on
appeal. Both the CA and RTC found that demand was never made.
The petitioners assert that demand was unnecessary because the maturity dates of all loans were specified. However,
the SC disagreed and ruled that unless demand is proven, one cannot be held in default. Petitioner’s cause of action
did not accrue on the maturity dates stated in the promissory notes. It is only when demand to pay is made and
subsequently refused that respondents can be considered in default and petitioner obtains the right to file an action
to collect the debt or foreclose the mortgage.

The petitioners aver that respondents are estopped from questioning the validity of the foreclosure sale since they
offered to repurchase the foreclosed properties. The SC is not persuaded. The reason why respondents offered to
repurchase the properties was clearly stated in their letter to petitioner:

“I am very much interested in repurchasing back these properties because they are the only properties which
my family have and because our house is located inside this property and for this matter I am willing to pay
[for] these properties in cash which I already told the bank when I went there.”

The SC already ruled that an offer to repurchase should not be construed as a waiver of the right to question the
sale. Instead, it must be taken as an intention to avoid further litigation and thus is in the nature of an offer to
compromise. By offering to redeem the properties, respondents can attain their ultimate objective: to pay off their debt
and regain ownership of their lands.

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

Overview: Deficiency rule – while it is true that in extrajudicial foreclosure of mortgage, the mortgagee has the right to
recover the deficiency from the debtor, this presupposes that the foreclosure must first be valid.

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

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

1. Whether or not interest rate stipulated was void
Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and it violates
the Truth in lending Act.

The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by the
Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has

two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined
by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If
either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such
an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently
indicate with particularity the interest rate to be applied to the loan covered by said promissory notes which is required
in TRuth in Lending Act

2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations even
if declared amount by UCPB was excessive.

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

3. Whether or not foreclosure was void

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

INC., Respondent.( Very long and complicated case)
Facts:On August 20, 1999, respondent Central Surety & Insurance Company (Central Surety) obtained an industrial
loan of ₱6,000,000.00 from petitioner Premiere Development Bank (Premiere Bank) with a maturity date of August
14, 2000. This ₱6,000,000.00 loan, evidenced by Promissory Note (PN) No. 714-Y,3 To secure payment of the
₱6,000,000.00 loan, Central Surety executed in favor of Premiere Bank a Deed of Assignment with Pledge 4 covering
Central Surety’s Membership Fee Certificate No. 217 representing its proprietary share in WackWack Golf and
Country Club Incorporated (WackWack Membership). In both PN No. 714-Y and Deed of Assignment, Constancio T.
Castañeda, Jr. and Engracio T. Castañeda, president and vice-president of Central Surety, respectively, represented
Central Surety and solidarily bound themselves to the payment of the obligation.
Parenthetically, Central Surety had another commercial loan with Premiere Bank in the amount of ₱40,898,000.00
maturing on October 10, 2001. This loan was, likewise, evidenced by a PN numbered 376-X5 and secured by a real
estate mortgage over Condominium Certificate of Title No. 8804, Makati City. PN No. 376-X was availed of through
a renewal of Central Surety’s prior loan, then covered by PN No. 367-Z.6 As with the ₱6,000,000.00 loan and the
constituted pledge over the WackWack Membership, the ₱40,898,000.00 loan with real estate mortgage was
transacted by Constancio and EngracioCastañeda on behalf of Central September 20, 2000, Central Surety
issued Bank of Commerce (BC) Check No. 081149 dated September 22, 2000 in the amount of ₱6,000,000.00 and
payable to Premiere Bank. The check was received by Premiere Bank’s Senior Account Manager, Evangeline Veloira,
with the notation "full payment of loan-WackWack," as reflected in Central Surety’s Disbursement
Voucher.10 However, for undisclosed reasons, Premiere Bank returned BC Check No. 08114 to Central Surety, and in
its letter dated September 28, 2000, demanded from the latter, not just payment of the ₱6,000,000.00 loan, but also
the ₱40,898,000.00 loan which was originally covered by PN No. 367-Z.11 In the same letter, Premiere Bank threatened
foreclosure of the loans’ respective securities, the pledge and real estate mortgage, should Central Surety fail to pay
these within ten days from date

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

We then declared that the special security for subsequent loans must first be exhausted in a situation where the
creditor desires to foreclose on the "subsequent" loans that are due. However, the "dragnet clause" allows the creditor
to hold on to the first security in case of deficiency after foreclosure on the special security for the subsequent loans.

In Prudential, we disallowed the petitioner’s attempt at multiple foreclosures, as it foreclosed on all of the mortgaged
properties serving as individual securities for each of the three loans. This Court then laid down the rule, thus:
where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently
become due, a balance due on a note, after exhausting the special security given for the payment of such note, was, in
the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving
of the special security. This is recognition that while the "dragnet clause" subsists, the security specifically executed
for subsequent loans must first be exhausted before the mortgaged property can be resorted to.

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

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

ISSUES: Whether the CA erred:

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

RULING: 1. No.In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to,
the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having
a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the
same at any time within the term of one year from and after the date of the sale. Rule 39, 28 of the 1997 Rules of
Court, effective July 1, 1997, which changed the period from twelve (12) months to one (1) year.Although the prevailing
law at the time of the auction sale in this case was the 1964 Rules of Court, the question is actually merely of academic
interest in this case, because even if the period of redemption is 365 days, the tender of the full redemption price made
by petitioners on June 21, 1993 was 12 days late counted from the expiration of the redemption period on June 9,
The right of redemption should be exercised within the period prescribed by law. As explained by this Court
in Basbas v. Entena: Thee right of legal redemption must be exercised within specified time limits; and the statutory
periods would be rendered meaningless and of easy evasion unless the redemptioner is required to make an actual
tender in good faith of what he believed to be the reasonable price of the land sought to be redeemed. Moreover, the
tender of payment must be for the full amount of the purchase price. Otherwise, to allow payment by installments
would be to allow the indefinite extension of the redemption period. Consequently, the payment tendered by
petitioners on June 4, 1993, while made within the period of redemption (365 days), was ineffective since the amount
offered did not include the interest but was limited to the purchase price.

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

3. Yes. There are additional amounts to be made in order to effect a valid redemption required by law, but, as
respondent Hi-Yield Realty, Inc. failed to comply with certain requirements, petitioners failure to pay these additional
amounts may be considered excused. As provided in Rule 39, 30 of the 1964 Rules of Court, the redemptioner must

also pay the assessment or taxes paid by the purchaser. However, the latter must give notice to the officer who
conducted the sale of the assessments or taxes paid by him and file the same with the Registry of Deeds. If no such
notice is given, the property may be redeemed without paying such assessments or taxes.

6. Domingo Lumayag and Felipe Lumayag vs. Heirs of Jacinto Nemeo and DalmaciaDayangco-Nemeo,
as represented by MelitonNemeo G.R. No. 162112, July 3, 2007
 During their lifetime, the spouses Jacinto Nemeo and DalacioDayangco-Nemeo, owned two (2) parcles of
coconut land licated in Manaca, Ozamiz City. When Dalmacia died, Jacinto, joined by his five (5) children,
namely, Meliton, Eleuteria, Timoteo, Justo and Saturnino, conveyed to his daughter Felipa and latter’s
husband Domingo Lumayag the two lots.
 The instrument of conveyance is denominated as Deed of Sale with Pacto de Retro. Thereunder, it was
stipulated that the consideration for the alleged sale of the two aforementioned lots was P20,000 and that the
vendors a retro have the right to repurchase the same lots. It was likewise agreed thereunder that in the event
no purchase is effected within the said stipulated period of five (5) years, conveyance shall become absolute
and irrevocable without the necessity of drawing up a new absolute deed of sale, subject to the requirements
of law regarding consolidation of ownership of real property.
 A decade after Jacinto’s death, a new owner’s duplicate copy of one of the lots was issued and delivered to the
heirs of Jacinto and Dalmacia. On December 24, 1996, the heirs of Jacinto and Dalmacia, namely, filed against
the spouses Lumayag a complaint for Declaration of Contract as Equitable Mortgage, Accounting, and
Redemption with Damage.
 The complaint alleged that the subject Deed of Sale with Pacto De Retro was executed only for the purpose of
securing the payment of a loan of P20,000 obtained from the defendant spouses in connection with the
medication and hospitalization of the then ailing Jacinto Nemeo.
 The spouses Lumayag denied that the contract in question was an equitable mortgage and claimed that the
amount of P20,000 received by the plaintiff heirs was the consideration for the sale of the two lots and not a
 The RTC and the CA found it as an equitable mortgage.

1. Whether or not the sale in the case was an equitable mortgage.

Yes. Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be
presumed to be an equitable mortgage, to wit:
 When the price of a sale with right to repurchase is unusually inadequate;
 When the vendor remains in possession as lessee or otherwise;
 When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
 When the purchaser retains for himself a part of the purchase price;
 When the vendor binds himself to pay the taxes on the thing sold;
 In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.

Here, the CA correctly found the presence of not merely one but four (4) circumstances indicative of the true nature of
the subject transaction as an equitable mortgage, to wit: (a) gross inadequacy of the contract price of P20,000.00 for
two (2) parcels of land, the total area of which is almost 5.5 hectares; (b) respondent heirs remained in possession of
the subject property even after the execution of the supposedly Deed of Sale with Pacto de Retro; (c) said respondents
payment of realty taxes; and (d) the provision on pactumcommissorium.

Evidence is extant on record that the respondent heirs, as vendors a retro, remained in possession of the subject lots
after the execution of the deed of sale with right to repurchase. In stark contrast, evidence is wanting that petitioners
ever enjoyed possession thereof. If the transaction was really a sale with right to repurchase, as claimed by the
petitioners, then the latter should have asserted their rights for the immediate delivery of the lots to them instead of
allowing some of the respondents to freely stay in the premises. Well-settled to the point of being elementary is the
doctrine that where the vendor remains in physical possession of the land as lessee or otherwise, the contract should
be treated as an equitable mortgage.

As well, that the parties intended to enter into an equitable mortgage is further accentuated by respondents continued
payment of the real property taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached
to ownership and when, as here, such payment is coupled with continuous possession of the property, it constitutes
evidence of great weight that a person under whose name the realty taxes were declared has a valid and rightful claim
over the land.

7. Paguyo v Gatbunton
KEY DOCTRINE:There must be a special power of attorney inserted in or attached to the real estate mortgage
authorizing the sale for an extrajudicial foreclosure to be proper.
Facts:The Paguyo spouses, by way of security for a loan of P20,000.00 which they obtained from Jeanlyn's Lending
Investor, executed in favor of the latter a Deed of Real Estate Mortgage over their residential property in Bataan.
Months later, an application for the extrajudicial foreclosure of the aforesaid mortgage pursuant to Act 3135, as

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

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

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

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

Facts: Respondent spouses Cabatingan obtained two loans, secured by a real estate mortgage from petitioner PNB.
However, they were unableto fully pay their obligation despite having been granted more than enough time to do so.
Thus,on September 25, 1991, petitioner extrajudicially foreclosed on the mortgage pursuant to Act3135. Thereafter, a
notice of extrajudicial sale was issued stating that the foreclosed propertieswould be sold at public auction on
November 5, 1991 between 9:00 a.m. and 4:00 p.m. at themain entrance of the office of the Clerk of Court in Ormoc
City. The auction began at9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder.On
March 16, 1993, respondent spouses filed a complaint with the RTC of Ormocfor annulmentof extrajudicial foreclosure
of real estate mortgage and the November 5, 1991 auction sale. Theyinvoked Section 4 of Act 3135 which provides:

Section 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon,
and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of peace of the municipality
in which such sale has to be made, or of a notary public of said municipality, who shall be entitled to collect a fee of
Five pesos for each day of actual work performed, in addition to his expenses.

Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the public auction of the
foreclosed properties was held for only 20 minutes (instead of seven hoursas required by law), the consequent sale was
void. The RTC ruled in favor of Sps. Cabatinganand annulled the sale of public auction. Petitioner moved for
reconsideration but it was denied. Hence, this petition.\

Issue: Whether a sale at public auction, to be valid, must be conducted the whole day from 9:00a.m. until 4:00 p.m. of
the scheduled auction day

Ruling: Statutes should be sensibly construed to give effect to the legislative intention. Act 3135regulates the
extrajudicial sale of mortgaged real properties by prescribing a procedure whicheffectively safeguards the rights of
both debtor and creditor. Thus, its construction must beequally and mutually beneficial to both parties.

The word “between” ordinarily means “in the time interval that separates.” Thus, “between the hours of nine in the
morning and four in the afternoon” merely provides a time frame within which an auction sale may be conducted.
Therefore, a sale at public auction held within theintervening period provided by law (i.e., at any time from 9:00 a.m.
until 4:00 p.m.) is valid,without regard to the duration or length of time it took the auctioneer to conduct the
proceedings.In this case, the November 5, 1991 sale at public auction took place from 9:00 a.m. to 9:20 a.m.Since it
was conducted within the time frame provided by law, the sale was valid.

GROUP, INC., respondents. (looooong digest ahead)

FACTS: SYNDICATED MANAGEMENT GROUP, INC sought the foreclosure of 4 parcels of land mortgaged by
HUERTA ALBA RESORT, INC to Intercon Fund Resource, Inc. (Intercon). Private respondent instituted as
mortgagee-assignee of a loan amounting to P8.5 million obtained by petitioner from Intercon, in whose favor petitioner
mortgaged the aforesaid parcels of land as security for the said loan.Judge Buenaventura J. Guerrero granted herein
SMGIs complaint for judicial foreclosure of mortgage and ordered the defendant to pay within a period of not less than
150 days from receipt.

Huerta Alba Resort appealed the decision of the RTC to CA which was dismissed the on the ground of late payment
of docket fees. Dissatisfied, petitioner came SC via a petition for certiorari which this court resolved to dismiss on the
finding that the Court of Appeals erred not in dismissing the appeal of petitioner. Petitioner’s motion for
reconsideration of the dismissal was denied with finality.

SMGI filed with the trial court of origin (RTC) a motion for execution of the Decision and it was granted. A writ of
execution was issued and a Notice of Levy and Execution was issued by the Sheriff concerned. Huerta Alba Resort
filed with the same trial court (RTC) an Urgent Motion to Quash and Set Aside Writ of Execution ascribing grave
abuse of discretion in issuing the Writ as it was premature since the 150-day period had not yet lapsed and it had not
yet defaulted in the payment since no demand for its payment was made by the private respondent. The court denied
it opining that judgment had become final and executory and consequently, execution thereof was a matter of right
and the issuance of the corresponding writ of execution became its ministerial duty. Huerta Alba Resort filed once
more with the CA another petition for certiorari and prohibition with preliminary injunction, predicated on the same
grounds invoked for its Motion to Quash Writ of Execution.

Subsequently, the scheduled auction sale of subject pieces of properties proceeded and the SMGI was declared the
highest bidder. It was awarded subject bidded pieces of property.

Petitioner presented an Ex-Parte Motion for Clarification asking the trial court to clarify whether or not the twelve
(12) month period of redemption for ordinary execution applied in the case. The trial court ruled that the period of
redemption should be governed by the rule on the sale of judicially foreclosed property under Rule 68 of the Rules of
Court. Thereafter, petitioner then filed an Exception to the Order and Motion to Set Aside Said Order, contending
that the said Order materially altered the Decision which declared that the satisfaction of the judgment shall be in
the manner and under the regulation that govern sale of real estate under execution.

Meanwhile, the Court of Appeals resolved the issues raised by the petitioner in holding that the one hundred-fifty day
period within which petitioner may redeem subject properties should be computed from the date petitioner was
notified of the Entry of Judgment; and that the 150-day period within which petitioner may exercise its equity of
redemption expired on September 11, 1994. The Court stated that while, computing the 150-day period, petitioner
may have until September 11, 1994, within which to pay the amounts covered by the judgment, such period has
already expired by this time, and therefore, this Court has no more reason to pass upon the parties opposing
contentions, the same having become moot and academic.[2](Underscoring supplied).

Petitioner moved for reconsideration of the Decision of the CA theorizing that the period of 150 days should not be
reckoned with from Entry of Judgment but from receipt of the records from the Court of Appeals and maintained that
it may not be considered in default because prior demand to pay was never made on it by the private
respondent. According to petitioner, it was therefore, premature for the trial court to issue a writ of execution to
enforce the judgment.

The trial court deferred action on the Motion for Confirmation of the Certificate of Sale in view of the pendency of
petitioners Motion for Reconsideration. Court of Appeals denied petitioners motion for reconsideration.

Petitioner filed with the Court of Appeals a Motion for Clarification seeking clarification of the date of commencement
of the one (1) year period for the redemption of the properties had already become final and executory; ratiocinating
thus:We view the motion for clarification filed by petitioner, purportedly signed by its proprietor, but which we believe
was prepared by a lawyer who wishes to hide under the cloak of anonymity, as a veiled attempt to buy time and to
delay further the disposition of this case.

During the hearing, petitioner filed a Motion to Compel Private Respondent to Accept Redemption. It was the first
time petitioner ever asserted the right to redeem subject properties under Section 78 of R.A. No. 337, the General
Banking Act; theorizing that the original mortgagee, being a credit institution, its assignment of the mortgage credit
to petitioner did not remove petitioner from the coverage of Section 78 of R.A. No. 337. Therefore, it should have the
right to redeem subject properties within one year from registration of the auction sale, theorized the petitioner which
concluded that in view of its right of redemption, the issuance of the titles over subject parcels of land to the private
respondent was irregular and premature.

In its Order of July 21, 1995, the trial court, presided over by Judge Napoleon Inoturan, denied private respondents
motion for a writ of possession, opining that Section 78 of the General Banking Act was applicable and therefore, the
petitioner had until October 21, 1995 to redeem the said parcels of land, said Order ruled as follows:It is undisputed
that Intercon is a credit institution from which defendant obtained a loan secured with a real estate mortgage over
four (4) parcels of land.Assuming that the mortgage debt had not been assigned to plaintiff, there is then no question
that defendant would have a right of redemption in case of foreclosure, judicially or extrajudicially, pursuant to the
above quoted Section 78 of RA 337, as amended.

ISSUE 1: Whether or not the mortgagor has the right of redemption or equity redemption.
RULING 1: The foreclosure in this case is judicial, and as such, the mortgagor has only the equity, not the right of
redemption (The doctrine in the case)
The right of redemption in relation to a mortgage - understood in the sense of a prerogative to re-acquire mortgaged
property after registration of the foreclosure sale - exists only in the case of the extrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is the Philippine
National Bank or a bank or banking institution.

Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within one
(1) year from the registration of the sheriffs certificate of foreclosure sale. Where the foreclosure is judicially
effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale, when
confirmed by an order of the court, x x shall operate to divest the rights of all the parties to the action and to vest their
rights in the purchaser, subject to such rights of redemption as may be allowed by law. Such rights exceptionally
allowed by law (i.e., even after confirmation by an order of the court) are those granted by the charter of the Philippine
National Bank (Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the
mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold
on foreclosure - after confirmation by the court of the foreclosure sale - which right may be exercised within a period of
one (1) year, counted from the date of registration of the certificate of sale in the Registry of Property.But, to repeat, no
such right of redemption exists in case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank
or banking institution. In such a case, the foreclosure sale, when confirmed by an order of the court. x x shall operate
to divest the rights of all the parties to the action and to vest their rights in the purchaser. There then exists only
what is known as the equity of redemption. This is simply the right of the defendant mortgagor to extinguish the
mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment
becomes final, in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation.

ISSUE 2: whether the petitioner seasonably invoked its asserted right under Section 78 of R.A. No. 337 to redeem
subject properties.
RULING 2: Petitioner failed to seasonably invoke its purported right under Section 78 of R.A. No. 337.Petitioner avers
in its petition that the Intercom, predecessor in interest of the private respondent, is a credit institution, such that
Section 78 of Republic Act No. 337 should apply in this case. Stated differently, it is the submission of petitioner that
it should be allowed to redeem subject properties within one year from the date of sale as a result of the foreclosure of
the mortgage constituted thereon. In light of the aforestated facts, it was too late in the day for petitioner to invoke a
right to redeem under Section 78 of R.A. No. 337.Petitioner failed to assert a right to redeem in several crucial stages
of the Proceedings.

ISSUE 3: Whether or not the defendant lost its right of redemption by virtue of the assignment of its mortgage debt
by Intercon to plaintiff, which is not a bank or credit institution
RULING 3: NO. The right of redemption in this case is vested by law and is therefore an absolute privilege which
defendant may not lose even though plaintiff-assignee is not a bank or credit institution. Indeed, a contrary ruling
will lead to a possible circumvention of Section 78 because all that may be needed to deprive a defaulting mortgagor
of his right of redemption is to assign his mortgage debt from a bank or credit institution to one which is not. Protection
of defaulting mortgagors, which is the avowed policy behind the provision, would not be achieved if the ruling were
otherwise. Consequently, defendant still possesses its right of redemption which it may exercise up to October 21,
1995 only, which is one year from the date of registration of the certificate of sale of subject properties (GSIS versus
Iloilo, 175 SCRA 19, citing Limpin versus IAC, 166 SCRA 87). Since the period to exercise defendants right of
redemption has not yet expired, the cancellation of defendants transfer certificates of title and the issuance of new
ones in lieu thereof in favor of plaintiff are therefore illegal for being premature, thereby necessitating reconveyance.

10. United Planters Sugar Milling Co. v CA 527 SCRA 336 (2007)
FACTS: In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it had waived its right to collect
on an outstanding indebtedness from petitioner, by virtue of a so-called friendly foreclosure agreement‖ that ultimately
was friendly only to petitioner. Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business
of milling sugar. In 1974, as UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine
National Bank (PNB). The loans were secured over two parcels of land where the milling plant stood and chattel
mortgages over the machineries and equipment. On 27 February 1987, through a Deed of Transfer, PNB assigned to
the Government its rights, titles and interests over UPSUMCO, among several other assets. The Deed of Transfer
acknowledged that said assignment was being undertaken in compliance with Presidential Proclamation No. 50. The
Government subsequently transferred these rights, titles and interests‖ over UPSUMCO to the respondent Asset and
Privatization Trust (APT).

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

RULING: YES. The right of PNB to set-off payments from UPSUMCO arose out of conventional compensation rather
than legal compensation, even though all of the requisites for legal compensation were present as between those two
parties. The determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even
without an express agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of
payments, as the legal requisites for compensation under Article 1279 were present. As soon as PNB assigned its
credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However, PNB and

UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the
requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under
conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and
UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the
right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
In a foreclosure, the deficiency is determined by simple arithmetical computation immediately after the
foreclosure. The deficiency is the amount not covered by the winning bid price—in this case the deficiency amount is
P1,687,076,433.00—which is entirely condoned under the Deed of Assignment. To hold otherwise negates the meaning
of “any deficiency amount” expressly stated in the Deed of Assignment.

1. Northern Motors vs. Coquia
Facts: Manila Yellow Taxicab executed a chattel mortgage over several taxicabs in favor of Northern Motors. Tropical
is a judgment creditor of Yellow Taxicab who assigned the judgment to Ong. On December 12, 1974, the sheriff then
levied upon 20 taxicabs, 8 of which are security for the chattel mortgage. Northern Motors filed an intervention on
December 18, 1974; however, the levied taxicabs were sold the same day at 2:00 pm although agreement shows that
it should have happened at 4:00 pm. Indemnity bond was posted by Tropical, but the bond was cancelled after the sale
without notice to Northern Motors.

The petitioner now seeks reconsideration also on the reinstatement of the bond. A second levy was made upon 35
taxicabs, 7 of which are mortgaged to Northern Motors. This is a motion for reconsideration of the SC decision
pronouncing that the mortgagee has a better right than the judgment debtor over the taxicabs. The taxies were levied
and sold at an auction sale. Ong argues and admits that the mortgagee has a better right that the judgment creditor,
but argues that the purchaser from the auction sale must have a right superior to that of the mortgagee. The auction
sale proceeded and the purchasers were of unknown addresses, hence the 8 taxicabs cannot be recovered. The proceeds
of the auction were in contest and the sheriff is deducting the expenses of the execution sale from the proceeds.

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

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

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

Regarding pledge: Article 2140 of the Civil Code, in defining a chattel mortgage as the recording of personal property
in the Chattel Mortgage Register as security for the performance of an obligation, has adhered to the equitable
conception of that contract. At the same time, article 2140 has preserved the distinction between pledge and chattel
mortgage which was blurred by section 4 of the Chattel Mortgage Law when it provided that in a chattel mortgage
"the possession of the property is delivered to and retained by the mortgagee" or, if no such possession is delivered,
the mortgage should be recorded in the proper registry of deeds.

Historically, it is not proper that the contract of pledge (pignus), as one of the four real contracts of the jus civile (the
others being mutuum, commodatum, and depositum should be absorbed by the chattel mortgage contract.

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

Art. 2085: Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property.
FACTS: Eduarda Belo owned an agricultural land (661,288) square meters located in Timpas, Panitan, Capiz. She
leased a portion of the said tract of land to spouses Marcos and ArseniaEslabon for their sugar plantation business,
effective for 7 years at a rate of 7,000 pesos per year. To finance their business venture, spouses Eslabon obtained a
loan from Philippine National Bank (PNB) secured by a real estate mortgage on their own 4 residential houses in
Roxas City, as well as on the agricultural land owned by Eduarda Belo. The assent of Eduarda Belo to the mortgage
was acquired through a special power of attorney which she executed in favor of respondent Marcos Eslabon on June
15, 1982. Spouses Eslabon failed to pay their loan resulting to the extrajudicial foreclosure proceedings against the
mortgaged properties instituted by respondent PNB. PNB was the highest bidder of the foreclosed properties at
P447,632.00. PNB through a letter informed Eduarda Belo of the sale at public auction of her agricultural land on
June 10, 1991 as well as the registration of the Certificate of Sheriffs Sale in its favor on July 1, 1991, and the one-
year period to redeem the land Meanwhile, Eduarda Belo sold her right of redemption to petitioners spouses Enrique
and Florencia Belo (petitioners) under a deed of absolute sale of proprietary and redemption rights. Before the
expiration of the redemption period, petitioners spouses Belo tendered payment for the redemption of the agricultural
land in the amount of P484,482.96, including the bid price of PNB, plus interest and expenses as provided under Act
No. 3135, which subsequently was rejected by PNB contending that the redemption price should be the total claim of
the bank on the date of the auction sale and custody of property plus charges accrued and interests amounting to
P2,779,978.72. Petitioners spouses disagreed and refused to pay the said total claim of respondent PNB.


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


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

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

3.YAP VS PCIB(Page 436)

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

On September 30, 1999, petitioners filed a Motion to Dismiss and to Strike Out Testimony of Rodante Manuel stating
that the Certificate of Sale dated September 14, 1998 is void because respondent violated Article 2089 of the Civil
Code on the indivisibility of the mortgaged by conducting two separate foreclosure proceedings on the mortgage
properties in Dagupan City and Quezon City

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

Ruling:The Court finds that petitioners have a mistaken notion that the indivisibility of a real estate mortgage relates
to the venue of extra-judicial foreclosure proceedings.
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest
of the debtor or of the creditor.
Therefore, the debtor’s heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the
pledge or mortgage as the debt is not completely satisfied.
Neither can the creditor’s heir who received his share of the debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid.
This rule presupposes several heirs of the debtor or creditor25 and therefore not applicable to the present case.
Furthermore, what the law proscribes is the foreclosure of only a portion of the property or a number of the several
properties mortgaged corresponding to the unpaid portion of the debt where, before foreclosure proceedings, partial
payment was made by the debtor on his total outstanding loan or obligation. This also means that the debtor cannot
ask for the release of any portion of the mortgaged property or of one or some of the several lots mortgaged unless and
until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the
obligation.Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate
extinguishment of the mortgage as long as the debt is not completely satisfied.26 In essence, indivisibility means that
the mortgage obligation cannot be divided among the different lots,27 that is, each and every parcel under mortgage
answers for the totality of the debt.

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

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

ISSUES: Whether the taking of physical possession of the vessels by the bank was justified by the contract of pledge
Whether the private sale of the pledged vessels by the defendant to itself without notice to the plaintiff was valid

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

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

5. Caltex (Philippines), Inc. vs. Court of Appeals and Security Bank and Trust Company
G.R. No. 97753, August 10, 1992
 On various dates, Security Bank and Trust Company issued 280 certificates of time deposit (CTDs) in favor of
one Angel dela Cruz who deposited therein an aggregate amount of P1,120,000.
 Angel dela Cruz delivered the said CTDs to Caltex in connection with his purchase of fuel.
 Sometime in March 1982, Angel informed Mr. TimoteoTiangco, the branch manager of Security Bank, that he
lost all the certificates of the time deposit in dispute. Mr. Tiangco advised said depositor to execute and submit
a notarized Affidavit of Loss if he desired replacement of said CTDs. Angel complied, and he was issued
replacement of 280 CTDs.
 On March 25, 1982, Angel negotiated and obtained a loan from Security Bank in the amount of P875,000. On
the same date, Angel executed a notarized Deed of Assignment of Time Deposit which surrenders to the bank
full control of the time deposits from and after the date of the assignment. The said deed also authorized the
bank to pre-terminate, set-off and apply the said time deposits to the payment of whatever amount or amounts
may be due on the loan upon its maturity.
 Sometime in November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex (Phils.) Inc., went to the
defendant bank's Sucat branch and presented for verification the CTDs declared lost by Angel dela Cruz

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

1. Can petitioner rightfully recover on the CTDs?

No. Unfortunately for petitioner, although the CTDs are bearer instruments, a valid negotiation thereof for the true
purpose and agreement between it and De la Cruz, as ultimately ascertained, requires both delivery and indorsement.
For, although petitioner seeks to deflect this fact, the CTDs were in reality delivered to it as a security for De la Cruz'
purchases of its fuel products. Any doubt as to whether the CTDs were delivered as payment for the fuel products or
as a security has been dissipated and resolved in favor of the latter by petitioner's own authorized and responsible
representative himself.

Petitioner's insistence that the CTDs were negotiated to it begs the question. Under the Negotiable Instruments Law,
an instrument is negotiated when it is transferred from one person to another in such a manner as to constitute the
transferee the holder thereof, 21 and a holder may be the payee or indorsee of a bill or note, who is in possession of it,
or the bearer thereof. 22 In the present case, however, there was no negotiation in the sense of a transfer of the legal
title to the CTDs in favor of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would
have sufficed. Here, the delivery thereof only as security for the purchases of Angel de la Cruz (and we even disregard
the fact that the amount involved was not disclosed) could at the most constitute petitioner only as a holder for value
by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument
since, necessarily, the terms thereof and the subsequent disposition of such security, in the event of non-payment of
the principal obligation, must be contractually provided for.

Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent court quoted
at the start of this opinion show that petitioner failed to produce any document evidencing any contract of pledge or
guarantee agreement between it and Angel de la Cruz. 25 Consequently, the mere delivery of the CTDs did not legally
vest in petitioner any right effective against and binding upon respondent bank. The requirement under Article 2096
aforementioned is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date of a
pledge contract, but a rule of substantive law prescribing a condition without which the execution of a pledge contract
cannot affect third persons adversely. 26

On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied
in a public instrument. 27 With regard to this other mode of transfer, the Civil Code specifically declares: “Art. 1625.
An assignment of credit, right or action shall produce no effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property.”

Respondent bank duly complied with this statutory requirement. Contrarily, petitioner, whether as purchaser,
assignee or lien holder of the CTDs, neither proved the amount of its credit or the extent of its lien nor the execution
of any public instrument which could affect or bind private respondent. Necessarily, therefore, as between petitioner
and respondent bank, the latter has definitely the better right over the CTDs in question.

FACTS: Respondents were the owners of shares of stock in Quirino-Leonor-Rodriguez Realty
Inc. - _ftn1 In 1979 to 1980, respondents secured by
way of pledge of some of their shares of stock to petitioners Bonifacio and FaustinaParay (“Parays”) the payment of
certain loan obligations. When the Parays attempted to foreclose the pledges on account of respondents’ failure to pay
their loans, respondents filed complaint. The actions sought the declaration of nullity of the pledge agreements, among
others. Howeverit was dismissed. This decision attained finality after it was affirmed by the Court of Appeals and the
Supreme Court.

Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction.
However, before the scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court
of various amounts. It was claimed that respondents had attempted to tender payments to the Parays, but had been

Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta
successfully bidding for all of the pledged shares. None of respondents participated or appeared at the
auction.Respondents instead filed a complaint with the RTC seeking the declaration of nullity of the concluded public

Respondents’ argument:Respondents argued that their tender of payment and subsequent consignations served to
extinguish their loan obligations and discharged the pledge contracts.

Petitioners’ argument:Petitioners countered that the auction sale was conducted pursuant to a final and executory
judgment and that the tender of payment and consignations were made long after their obligations had fallen due.
They pointed out that the amounts consigned could not extinguish the principal loan obligations of respondents since
they were not sufficient to cover the interests due on the debt. They likewise argued that the essential procedural
requisites for the auction sale had been satisfied.

Ruling of RTC: .The RTC dismissed the complaint, expressing agreement with the position of the Parays. It held
that respondents had failed to tender or consign payments within a reasonable period after default and that the proper
remedy of respondents was to participate in the auction sale.

Ruling of CA: - _ftn7The Court of Appeals however

reversed the RTC on appeal, ruling that the consignations extinguished the loan obligations and the subject pledge
contracts; and the auction sale as null and void. It (CA) chose to uphold the sufficiency of the consignations owing to
an imputed policy of the law that favored redemption and mandated a liberal construction to redemption laws. The
attempts at payment by respondents were characterized as made in the exercise of the right of redemption.CA likewise
found fault with the auction sale, holding that there was a need to individually sell the various shares of stock as
they had belonged to different pledgors.

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

1. No law or jurisprudence establishes or affirms such right. The right of redemption over mortgaged real property
sold extrajudicially is established by Act No. 3135, as amended. The said law does not extend the same benefit to
personal property. In fact, there is no law in our statute books which vests the right of redemption over personal
property. Act No. 1508, or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative
intent to bestow a right of redemption over personal property, since that law governs the extrajudicial sale of
mortgaged personal property, but the statute is definitely silent on the point. The right of redemption as affirmed
under Rule 39 of the Rules of Court applies only to execution sales, more precisely execution sales of real property.

It must be clarified that the subject sale of pledged shares was an extrajudicial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the foreclosure of a pledge
occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been
satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged.

In this case, petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction.
However, extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. The
final and executory judgment in many cases affirmed the pledge contracts and disposed them. Said judgment did not
direct the sale by public auction of the pledged shares, but instead upheld the right of the Parays to conduct such sale
at their own volition.

2. Yes.Since there is no right to redeem personal property, the rights of ownership vested unto the purchaser at the
foreclosure sale are not entangled in any suspensive condition that is implicit in a redemptive period.

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

Facts: Private respondent, issued 280 certificates of time deposit (CTDs) in favor of one Angel dela Cruz who deposited
with herein private respondent the aggregate amount ofP1,120,000.00. Dela Cruz delivered the said CTDs to herein
petitioner Caltex connection with his purchase of fuel products from the latter. Thereafter Dela Cruz informed
the Branch Manager of private respondent, that he lost all the certificates of time deposit in dispute and on the basis
of an affidavit of loss, 280 replacement CTDs were issued in favor of said depositor.

Dela Cruz then negotiated and obtained a loan from respondent bank in the amount of P875,000.00 and executed a
notarized Deed of Assignment of Time Deposit which stated, that the latter surrenders to private respondent full
control of the time deposits and further authorizes said bank to pre-terminate, set-off and apply the said time deposits
to the payment of whatever amount or amounts may be due' on the loan upon its maturity.

Private respondent then received a letter from petitioner formally informing it of its decision to preterminate the CTDs
in its possession alleging that they were delivered by Dela Cruz as security for purchases made with Petitioner. Private
respondent rejected the petitioners demand and claim for payment of the value of the CTDs. When the loan of Dela
Cruz matured and fell due, the private respondent set-off and applied the time deposits in question to the payment of
the matured loan. Petitioner filed the instant complaint.

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

Ruling:Petitioner cannot rightfully recover on the CTDs for lack of negotiation as theCTDs were in reality delivered
to it as a security for De la Cruz' purchases of its fuel products. Under the Negotiable Instruments Law, an instrument
is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the
holder thereof, a holder may be the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.
In the present case, however, there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor
of petitioner in which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute petitioner only as
a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery
of the instrument since, necessarily, the terms thereof and the subsequent disposition of such security,in the event of
non-payment of theprincipal obligation, must be contractually provided for.

Aside from the fact that the CTDs were only delivered but not indorsed, petitioner failed to produce any document
evidencing any contract of pledge or guarantee agreement between it and Angel de la Cruz. Consequently, the mere
delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon respondent bank.
On the other hand, the assignment of the CTDs made by Angel de la Cruz in favor of respondent bank was embodied
in a public instrument. Necessarily, therefore, as between petitioner and respondent bank, the latter has definitely
the better right over the CTDs in question.


1. MANUEL D. YNGSON, JR. (in his capacity as the Liquidator of ARCAM & COMPANY, INC.), Petitioner, vs.
FACTS: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga. It applied for
and was granted a loan by PNB and it executed a REM over a 350,004-square meter parcel of land and a Chattel
Mortgage consisting of machinery, generators, field transportation and heavy equipment. ARCAM, however, defaulted
on its obligations to PNB. Thus, PNB initiated extrajudicial foreclosure proceedings in the RTC of Guagua,
Pampanga. The public auction was scheduled on December 29, 1993 for the mortgaged real properties and December
8, 1993 for the mortgaged personal properties.

On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments, Appointment of a
Management or Rehabilitation Committee, and Approval of Rehabilitation Plan, with application for issuance of a
TRO and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction.
SEC ruled that ARCAM can no longer be rehabilitated and noted that six years hadalready passed but the potential
white knight" investor had not infused the much needed capital to bail out ARCAM from its financial
difficulties.9 Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation. Contending that
foreclosure during liquidation was improper, petitioner filed with the SEC a Motion for the Issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction to enjoin the foreclosure sale of ARCAM’s assets. The SEC
en banc issued a TRO effective for seventy-two (72) hours, but said TRO lapsed without any writ of preliminary
injunction being issued by the SEC.

Consequently, PNB resumed the proceedings for the extrajudicial foreclosure sale of the mortgaged properties. PNB
emerged as the highest winning bidder in the auction sale, and certificates of sale were issued in its favor.

Petitioner filed with the SEC a motion to nullify the auction sale. Petitioner posited that all actions against companies
which are under liquidation, like ARCAM, are suspended because liquidation is a continuation of the petition for
suspension proceedings. Petitioner argued that the prohibition against foreclosure subsisted during liquidation
because payment of all of ARCAM’s obligations was proscribed except those authorized by the Commission. Moreover,
petitioner asserted that the mortgaged assets should be included in the liquidation and the proceeds shared with the
unsecured creditors.

In its Opposition, PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits secured
creditors from foreclosing on their mortgages to satisfy the mortgagor’s debt after the termination of the rehabilitation
proceedings and during liquidation proceedings.14

On January 4, 2005, the SEC issued a Resolution15 denying petitioner’s motion to nullify the auction sale. It held that
PNB was not legally barred from foreclosing on the mortgages. Aggrieved, petitioner filed, a petition for review in the
CA questioning the January 4, 2005 Resolution of the SEC. By Resolution dated April 14, 2005, the CA dismissed the
petition on the ground that petitioner failed to attach material portions of the record and other documents relevant to
the petition as required in Rule 46, Section 3 of the 1997 Rules of Civil Procedure, as amended. The CA likewise denied
ARCAM’s motion for reconsideration in its Resolution dated January 24, 2006.

ISSUE 1: Whether the CA correctly dismissed the petition for failure to attach material documents referred to in the

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

ISSUE 2: Whether the right of a secured creditor to enforce his lien during liquidation process is retained.
RULING 2: Yes. It is worth mentioning that under Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his lien during liquidation
proceedings is retained. Section 114 of said law thus provides:

SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured creditor to
enforce his lien in accordance with the applicable contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and share in the
distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. When
the value of the property is less than the claim it secures, the liquidator may convey the property to the secured
creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance; if its value
exceeds the claim secured, the liquidator may convey the property to the creditor and waive the debtor’s right
of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the
sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
(Emphasis supplied)
In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the mortgaged
properties should be respected

ISSUE:Whether the right of first preference as regards unpaid wages may be invoked.
RULING: As to petitioner's argument on the right of first preference as regards unpaid wages, the Court has
elucidated in the case of Development Bank of the Philippines v. NLRC 28 that a distinction should be made between a
preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien
creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article
110 of the Labor Code, does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but
a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the
order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to
a first preference in the discharge of the funds of the judgment debtor. Consequently, the right of first preference for
unpaid wages may not be invoked in this case to nullify the foreclosure sales conducted pursuant to PNB 's right as a
secured creditor to enforce its lien on specific properties of its debtor, ARCAM.

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

FACTS: Respondent Lepanto Ceramics, Inc. (LCI) - a corporation duly organized and existing under Philippine Laws
- filed a petition for corporate rehabilitation pursuant to Republic Act No. (RA) 10142, otherwise known as the
"Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed before the RTC of Calamba City, Branch 34,
the designated Special Commercial Court in Laguna (Rehabilitation Court). LCI alleged that due to the financial
difficulties it has been experiencing dating back to the Asian financial crisis, it had entered into a state of insolvency
considering its inability to pay its obligations as they become due and that its total liabilities amounting to ₱4,213
,682, 715. 00 far exceed its total assets worth ₱1,112,723,941.00 and admitted to its tax liabilities in the amount of at
least ₱6,355,368.00.
The Rehabilitation Court issued a Commencement Order that declared LCI to be under corporate
rehabilitation; suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI;
prohibited LCI from making any payment of its liabilities outstanding as of even date, except as may be provided
under RA 10142; and directed the BIR to file and serve on LCI its comment or opposition to the petition, or its claims
against LCI. Accordingly, the Commencement Order was published in a newspaper of general circulation and the
same, together with the petition for corporate rehabilitation, were personally served upon LCI's creditors, including
the BIR.
Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner,
respectively, of the BIR's Large Taxpayers Service, sent LCI a notice, informing the latter of its deficiency internal
tax liabilities for the Fiscal Year. Undaunted, the BIR sent LCI a Formal Letter of Demand, requiring LCI to pay
deficiency taxes in the amount of P567,519,348.39. This prompted LCI to file a petition for indirect contempt against

petitioners before RTC Br. 35. In said petition, LCI asserted that petitioners' act of pursuing the BIR's claims for
deficiency taxes against LCI outside of the pending rehabilitation proceedings in spite of the Commencement Order
issued by the Rehabilitation Court is a clear defiance of the aforesaid Order. RTC Br. 35 found Misajon, et al. guilty
of indirect contempt.
Petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt as it is only the
Rehabilitation Court, being the one that issued the Commencement Order, which has the authority to determine
whether or not such Order was defied; (b) the instant petition had already been mooted by the Rehabilitation Court's
Order which declared LCI to have been successfully rehabilitated resulting in the termination of the corporate
rehabilitation proceedings; (c) their acts do not amount to a defiance of the Commencement Order as it was done
merely to toll the prescriptive period in collecting deficiency taxes, and thus, sanctioned by the Rules of Procedure of
the FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of Demand do not amount to a
"legal action or other recourse" against LCI outside of the rehabilitation proceedings; and (e) the indirect contempt
proceedings interferes with the exercise of their functions to collect taxes due to the govemment.

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

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


FACTS:Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the business of selling pre-need plans and
educational plans, including traditional open-ended educational plans (PEPTrads). PEPTrads are educational plans
where respondent guarantees to pay the planholder, without regard to the actual cost at the time of enrolment, the
full amount of tuition and other school fees of a designated beneficiary.

Petitioner is a holder of two (2) units of respondent’s PEPTrads. On April 7, 2005, foreseeing the impossibility
of meeting its obligations to the availing planholders as they fall due, respondent filed a Petition for Corporate
Rehabilitation with the Regional Trial Court, praying that it be placed under rehabilitation and suspension of
payments. At the time of filing of the Petition for Corporate Rehabilitation, respondent had more or less 34,000
outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing the suspension of payments of
the obligations of respondent and ordering all creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation. The same Order also appointed respondent Marcelo as the
rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation, respondent submitted to the Rehabilitation Court
its proposed rehabilitation plan. Under the terms thereof, respondent proposed the implementation of a “Swap,” which
will essentially give the planholder a means to exit from the PEPTrads at terms and conditions relative to a
termination value that is more advantageous than those provided under the educational plan in case of voluntary
The rehabilitation receiver submitted an Alternative Rehabilitation Plan and was approved by the Court.
However due to the fact that the value of the Philippine Peso strengthened and appreciated, the rehabilitation receiver
submitted a Modified Rehabilitation Plan.

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

HELD:YES. The Court upheld the “cram-down” power of the Rehabilitation Court pursuant to Sec. 23 of FRIA which
states that the court may approve a rehabilitation plan over the opposition of creditors, holding a majority of the
total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of
the creditors is manifestly unreasonable.
Moreover, notwithstanding the rejection of the Rehabilitation Plan by the creditors, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:

1. The Rehabilitation Plan complies with the requirements specified in this Act;
2. The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
3. The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the
Rehabilitation Plan; and
4. The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net
present value greater than that which they would have received if the debtor were under liquidation.

4. Jose Marcel Panlilioet. Al v SSS

FACTS: Panlilio, et. al as corporate officers of SIHI, filed with the RTC a petition for Suspension of payments and

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

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

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

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

RULING: The subject properties are not under the purview of the SEC Suspension Order. The Court of Appeal’s
decision shall be reversed and set aside. The lower court’s decision shall be reinstated. It can be clearly gleaned from
the Secs. 3 and 5 of PD 902-A provisions that in cases of petitions for the suspension of payments, the SEC has
jurisdiction over corporations, partnerships and associations, which are grantees of primary franchise or license or
permit issued by the government to operate in the Philippines, and their properties. And it is indubitably clear from
the aforequoted Sec. 5(d) that only corporations, partnerships and associations—NOT private individuals—can file
with the SEC, petitions for declaration in a state of suspension of payments. Thus, it logically follows that the SEC
does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations,
partnerships or associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to hear
and determine a cause, which is conferred by law and not by the policy of any court or agency.

Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a
petition for suspension of payments

It is undisputed that the petition for suspension of payments was collectively filed by the five corporations owned by
the Lee family. It is likewise undisputed that together with the consolidated petition is a list of properties, which
included the subject Antipolo properties owned by Samuel and Pauline Lee. The fact, however, that the subject
properties were included in the list submitted to the SEC does not confer jurisdiction on the SEC over such properties.
It is apparent that even if the members of the Lee family are joined as co-petitioners with the five corporations, still,
this could not confer jurisdiction on the SEC over the Lee family members—as private individuals—nor could this
affect their privately owned properties.
Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the
guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the SEC
through the consolidated petition for suspension of payments.

Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could not have included the subject