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BPI FAMILY SAVINGS BANK v. GOLDEN POWER DIESEL SALES CENTER, INC.

and RENATO TAN

Facts: Within a year, on separate dates, CEDEC Transport [CEDEC] obtained three LOANS from BPI Family
(P6.57M; P2.16M and P1.14M), and as security for the three loans, it MORTGAGED two parcels of land.
Despite demands, CEDEC DEFAULTED, leading BPI Family to file a VERIFIED PETITION FOR
EXTRAJUDICIAL FORECLOSURE OFREM.

BPI was the highest bidder in the PUBLIC AUCTION, so it acquired the properties for P13.7M. The
CERTIFICATE OF Sheriffs SALE was annotated on the titles.

The one-year redemption period expired without CEDEC redeeming the properties, so the TITLES
WERECONSOLIDATED in the name of BPI Family, and NEW TITLES were issued in the bank’s name.
Despite this, CEDEC refused to vacate the properties and to surrender possession.

BPI Family’s EX-PARTE PETITION FORWRIT OF POSSESSION was granted.Golden Power Diesel Sales
Center and Renato Tan filed a MOTION TO HOLD IMPLEMENTATION OF THE WRITOF POSSESSION.

They are in possession of the properties, having acquired the same for P15M from CEDEC through a
DEEDOF ABSOLUTE SALE WITH ASSUMPTION OF MORTGAGE.

1. They are third persons claiming rights adverse to CEDEC (judgment obligor).
2. They disclose having filed a complaint [CIVIL CASE] for the cancellation of the Sheriffʼs Certificate
of Saleand an order to direct BPI Family to honor and accept said Deed of Absolute Sale.

RTC denied their motion. An ALIAS WRIT OF POSSESSION was served upon CEDEC and all other persons
claiming rights under them. When the writ of possession expired without being implemented, BPI Family
filed an URGENT EX-PARTE MOTIONTO ORDER THE HONORABLE BRANCH CLERK OF COURT TO ISSUE
ALIAS WRIT OF POSSESSION, and it was granted. However, before the alias writ could be implemented,
Tan filed an AFFIDAVIT OF THIRD PARTYCLAIM on the properties. Instead of implementing the writ, the
sheriff referred the matter to the trial court.

BPI Family filed an URGENT MOTION TO COMPEL HONORABLE SHERIFF AND/OR HIS DEPUTY TO
ENFORCEWRIT OF POSSESSION AND TO BREAK OPEN THE PROPERTIES.

This was DENIED (MfR also denied). Sheriff was ordered to suspend the implementation of the alias writ.

The order granting the alias writ of possession should not affect third persons holding adverse rights to
the judgment obligor.

The trial court admitted that it failed to take into consideration respondents’ complaint claiming
ownership of the property. The trial court also noted that respondents were in actual possession of the
properties and hadbeen updating the payment of CEDECʼs loan balances with BPI Family. BPI Family
then goes to CA: MANDAMUS, CERTIORARI W/ TRO APPLICATION / PRELIMINARY INJUNCTION.BPI
Family alleges that the trial court acted with GAD when it ordered the suspension of the writ’s
implementation. It was the ministerial duty of the trial court to grant the writ, considering that it was
now the owner of the properties.
ISSUES

WON Golden Power and Tan are third parties who hold the property adversely to the judgment obligor.

-NO ,they are actually CEDEC’s successors-in-interest!

WON BPI Family, as purchaser in the foreclosure sale, is entitled to a writ of possession without
prejudice to the outcome of the civil case.

-YES.

Since respondents are not holding the properties adversely to CEDEC, there was no reason to order the
suspension of the implementation of the writ of possession. judgment obligor .Unfortunately, for the
respondents, they do not fall under the exception—they are not the third parties referred to by the law!
They acquired possession pursuant to the Deed of Sale.

For P

15,000,000 CEDEC will “sell, transfer and convey” to respondents the properties “free from all liens and
encumbrances excepting the mortgage as may be subsisting in favor of the BPI FAMILY.”

Respondents bind themselves to assume “the payment of the unpaid balance of the mortgage
indebtedness of the VENDOR (CEDEC) in favor of BPI Family by the mortgage instruments and does
hereby further agree to be bound by the precise terms and conditions therein contained.”

Therefore, respondents hold title to and possess the properties as CEDECʼs transferees and any right
they have over the properties is derived from CEDEC. As transferees of CEDEC, they merely stepped into
CEDEC’s shoes and are bound to acknowledge and respect the mortgage CEDEC had executed in favor of
BPI Family. Respondents are the successors-in-interest and thus, their occupancy over the properties
cannot be considered adverse to CEDEC.

The exception provided under Section 33 of Rule 39 contemplates a situation in which a third party
holds the property by adverse title or right, such as that of a co-owner, tenant or usufructuary.

The co-owner, agricultural tenant, and usufructuary possess the property in their own right, and they
are not merely the successor or transferee of the right of possession of another co-owner or the owner
of the property.

[China Bank v. Lozada] Respondents cannot assert that their right of possession is adverse to that of
CEDEC when they have no independent right of possession other than what they acquired from CEDEC.
Since respondents are not holding the properties adversely to CEDEC, being the latterʼs successors-in-
interest, there was no reason to order the suspension of the implementation of the writ of possession.
CHINA BANKING CORPORATION VS ORDINARIO

GR No. 121243 March 24, 2003

FACTS: On various dates, petitioner China Banking Corporation granted three (3) loans in the total sum
of P27,353,000.00 to TransAmerican Sales and Exposition, Inc. (TransAmerican) owned and controlled by
spouses Jesus and Lorelie Garcia. The loans were secured by real estate mortgages constituted by Jesus
Garcia (with the consent of his wife) on his forty-five (45) parcels of land all of the Registry of Deeds of
Quezon City. The contracts of mortgage were all registered in the same Registry.

For failure of TransAmerican to pay its loans, petitioner bank foreclosed extrajudicially the three real
estate mortgages. On August 27, 1990, the mortgaged properties were sold at public auction for
P38,004,205.01 to petitioner bank, being the highest bidder. On September 3, 1990, the Certificate of
Sale was registered in the Registry of Deeds of Quezon City.

On October 4, 1990, petitioner bank filed with the Regional Trial Court (RTC) of Quezon City, Branch 90,
an ex parte verified petition for issuance of a writ of possession. On April 10, 1991, the trial court issued
an order granting the petition and placing petitioner bank in possession of the 45 parcels of land.

On July 19, 1991, petitioner posted the required surety bond which was approved by the RTC.

On August 16, 1991, spouses Oscar and Lolita Ordinario, herein respondents, filed a motion for
reconsideration praying that the parcel of land with its improvement covered by TCT No. 7637 be
excluded from the above order. They alleged, among others, that they are indispensable parties in the
case, claiming that in November 1989, they purchased the land covered by TCT No. 7637 on which was
constructed their townhouse; that the petition for a writ of possession does not bind them for lack of
notice; that petitioner bank should have filed an action for recovery of possession, not an ex-parte
petition for a writ of possession since there are parties in actual possession of the lots involved; that
they filed with the Housing and Land Use Regulatory Board (HLURB) a complaint for the delivery of title
and damages against petitioner bank, Jesus Garcia and TransAmerican; and that the mortgage
foreclosure cannot prevail over their superior right as legitimate buyers of the area covered by TCT No.
7637 petitioner bank filed its opposition to respondents’s motion for reconsideration. It alleged that the
trial court, acting as a land registration court with limited jurisdiction, cannot pass upon the merits of
respondents’s motion; that respondents should have filed a separate action; that the assailed order
dated April 10, 1991 directing the issuance of a writ of possession had become final; and that the
proceedings, being in rem, bind herein respondents.

On September 21, 1992, the trial court issued an order denying respondents’ motion for
reconsideration.CA set aside the order, and a new judgment is issued by the Court granting movants-
appellants motion for reconsideration to the effect of excluding from the lower courts orders dated April
10, 1991 and September 21, 1992, movants-appellants property covered by Transfer Certificate of Title
No. 7637 as the same property should not have been covered by the writ of possession issued in the
said orders of the lower court. Petitioner bank moved for a reconsideration but it was denied by the
Appellate Court in a Resolution
ISSUES

1. WON Respondent Court gravely erred in setting aside the order dated September 21, 1992 in LRC
Case No. Q-4534 which granted the petition ex-parte for a writ of possession of the forty-five parcels of
land to include the property covered by Transfer Certificate of Title No. 7637.

2. WON Respondent Court committed a grave error when it failed to consider that the third party
referred to in the case of PNB vs. Adil, 118 SCRA 110, is a third party actually holding the property
adversely to the owner.

HELD

1. Under Section 7 of Act No. 3135, the purchaser in a foreclosure sale is entitled to possession of the
property.2 Thus the writ prayed for by petitioner granting it possession has to be issued as a matter of
course.3 This Court has consistently ruled that it is a ministerial duty of the trial court to grant such writ
of possession.4 No discretion is left for the trial court. Any question regarding the cancellation of the
writ or in respect of the validity and regularity of the public sale should be determined in a subsequent
proceeding as outlined in Section 8 of Act No. 3135.5 Consequently, respondents? motion for
reconsideration of the trial court?s order dated April 10, 1991 granting the writ of possession must be
denied being bereft of merit.

Section 7 of Act No. 3135, as amended, provides: "Sec. 7. In any sale made under the provisions of this
Act, the purchaser may petition the Court of First Instance (now RTC) of the province or place where the
property or any part thereof is situated, to give him possession thereof during the redemption period,
furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to
indemnify the debtor in case it be shown that the sale was made without violating the mortgage or
without complying with the requirements of this Act. Such petition shall be made under oath and filed in
the form of an ex parte motion in the registration or cadastral proceedings if the property is registered,
or in special proceedings in the case of property registered under the Mortgage Law xxx, and in each
case the clerk of the court shall, upon the filing of such petition, collect the fees specified xxx, and the
court shall upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of
the province in which the property is situated, who shall execute said order immediately." (underscoring
supplied).

2. The above provision is not without exception. Under Section 33, Rule 39 of the 1997 Rules of Civil
Procedure, as amended, the possession of the foreclosed property may be awarded to the purchaser or
highest bidder "unless a third party is actually holding the property adversely to the judgment debtor."7
Assuming arguendo that respondent spouses are adverse third parties, as they so averred, Section 16 of
the same Rule reserves to them the remedies of

(1) terceria to determine whether the sheriff has rightly or wrongly taken hold of the property not
belonging to the judgment debtor or obligor and
(2) an independent "separate action" to vindicate their claim of ownership and/or possession over the
foreclosed property.8 Section 16 of Rule 39 provides: Sec. 16. Proceedings where property claimed by
third person. ? If property levied on is claimed by any person other than the judgment obligor or his
agent, and such person makes an affidavit of his title thereto or right to the possession thereof, stating
the grounds of such right or title, and serves the same upon the officer making the levy, and copy
thereof upon the judgment obligee, the officer shall not be bound to keep the property, unless such
judgment obligee, on demand of the officer, files a bond approved by the court to indemnify the third-
party claimant in a sum not less than the value of the property levied on. In case of disagreement as to
such value, the same shall be determined by the court issuing the writ of execution. No claim for
damages for the taking or keeping of the property may be enforced against the bond unless the action
therefor is filed within one hundred twenty (120) days from the date of the filing of the bond. "The
officer shall not be liable for damages for the taking or keeping of the property, to any third party
claimant if such bond is filed. Nothing herein contained shall prevent such claimant or any third person
from vindicating his claim to the property in a separate action, or prevent the judgment obligee from
claiming damages in the same or a separate action against a third-party claimant who filed a frivolous or
plainly spurious claim. xxx."

Under the above Rule, a third-party claimant or a stranger to the foreclosure suit, like respondents
herein, can opt to file a remedy known as terceria against the sheriff or officer effecting the writ by
serving on him an affidavit of his title and a copy thereof upon the judgment creditor. By the terceria,
the officer shall not be bound to keep the property and could be answerable for damages. A third-party
claimant may also resort to an independent "separate action," the object of which is the recovery of
ownership or possession of the property seized by the sheriff, as well as damages arising from wrongful
seizure and detention of the property despite the third-party claim. If a "separate action" is the
recourse, the third-party claimant must institute in a forum of competent jurisdiction an action, distinct
and separate from the action in which the judgment is being enforced, even before or without need of
filing a claim in the court that issued the writ. Both remedies are cumulative and may be availed of
independently of or separately from the other. Availment of the terceria is not a condition sine qua non
to the institution of a "separate action."
Heirs of the Late Spouses Maglasang v. Manila Banking Corp

September 23, 2013

NOTE: (not my digest but this is better and well explained)

SUMMARY: Sps. Maglasang obtained a credit line fromMBC secured by REM. When Flaviano Maglasang
died, his son Edgar was appointed as atty-in-fact by Flaviano’s heirs. He filed a petition for letters of
administration of Flaviano’s intestate estate w/c the probate court granted. Court issued a Notice to
Creditors for filing of money claims against the estate. MBC notified the court of its claim. When Court
terminated the proceedings and executed an extra-judicial partition over the properties, the loan
obligations owed to MBC remained unsatisfied though the court recognized the rights of MBC to
foreclose the mortgage. MBC extrajudicially foreclosed the mortgage; however, after auction sale, a
deficiency remained on Maglasangs’ obligation. Thus, it filed a suit to recover the deficiency. RTC ruled
in their favor so Maglasangs appealed to CA contending that under Remedies available to Manila
Banking Corp. under Sec. 7, Rule 86 of ROC are alternative and exclusive, such that the election of one
operates as a waiver of the others and since MBC filed a claim in the probate court, it has abandoned its
right to foreclose the property and is barred from recovering any deficiency. CA denied the appeal and
contended that Act. 3135 applies w/c allows MBC to extrajudicially foreclose and recover the deficiency.
HELD: MBC had a right to extrajudicially foreclose the property but it cannot recover the deficiency.
Both Sec. 7, Rule 86 of ROC and Act. 3135 apply complementarily in the case at bar. Foreclosure under
the 3rd remedy in Sec. 7, Rule 86 of ROC includes extrajudicial foreclosure under Act. 3135. However,
upon choosing said remedy, creditor waives his right to recover the deficiency. When MBC sought to
extra-judicially foreclose the mortgage of the properties previously belonging to Sps. Maglasang and it
therefore, availed of the third option waiving its right to recover the deficiency.

DOCTRINE:

• There are 3 remedies/options by secured creditor under Sec. 7, Rule 86:

(a) waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(b) foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and

(c) rely on the mortgage exclusively, or other security and foreclose the same before it is barred by
prescription, without the right to file a claim for any deficiency.

These may be ALTERNATIVELY adopted for the satisfaction of his indebtedness. However, these
remedies are distinct, independent and mutually EXCLUSIVE from each other; the election of one
effectively BARS the exercise of the others.

• Sec. 7, Rule 86 of ROC lays down the options for the secured creditor to claim against the estate
and, according to jurisprudence, the availment of the 3rd option BARS HIM FROM CLAIMING ANY
DEFICIENCY amount. After 3rd option is chosen (under Sec. 7, Rule 86), the procedure governing the
manner in which the extra-judicial foreclosure should proceed would still be governed by the provisions
of Act No. 3135.

FACTS:

• June 16, ’75: Sps. Flaviano and Salud Maglasang obtained a credit line from Manila Banking
Corp. for P350,000 which was secured by a real estate mortgage executed over 7 of their properties in
Ormoc City and Kananga, Leyte.

• They availed of their credit line by securing loans of P209,790.50 (Oct. 24, ‘75) & P139,805.83
(Mar. 15, 1976)

o Both due and demandable w/n 1 year with interest @ 12% per annum & additional 4% penalty
charged upon default

• Feb. 14, 1977: Flaviano Maglasang died intestate

• Thus, his widow Salud Maglasang and their surviving children, herein petitioners, appointed
their brother petitioner Edgar Maglasang as their attorney-in-fact.

o Other petitioners: Oscar, Concepcion Chona, Lerma, Felma, Fe Doris, Leolino, Margie Leila, Ma.
Milalie, Salud and Ma. Flasalie, all surnamed Maglasang, and Glenda Maglasang-Arnaiz.

• Mar. 30, 1977: Edgar filed a verified petition for letters of administration of the intestate estate
of Flaviano before CFI of Leyte, Ormoc City (probate court).

• CFI-probate court (Aug. 9, 1977): Granted petition appointing Edgar as the administrator of
Flaviano’s estate.

• CFI-probate court (Aug. 30, 1977): In view of the issuance of letters of administration, probate
court issued a Notice to Creditors for the filing of money claims against Flaviano’s estate.

• As one of the creditors of Flaviano, Manila Banking Corp. notified the probate court of its claim
for P382,753.19 (as of Oct. 11, 1978, exclusive of interests and charges).

• During the pendency of the intestate proceedings, Edgar and Oscar were able to obtain several
loans from Manila Banking Corp, secured by promissory notes which they signed.

• CFI-probate court (Dec. 14, 1978): Terminated the proceedings with the surviving heirs,
executing an extra-judicial partition of the properties of Flaviano’s estate.

o Loan obligations owed by the estate to Manila Banking Corp., however, remained unsatisfied
due to Manila Banking Corp.’s certification that Flaviano’s account was undergoing a restructuring.

o Nonetheless, probate court expressly recognized the rights of Manila Banking Corp. under the
mortgage and promissory notes executed by the Sps. Maglasang, specifically, its “right to foreclose the
same within the statutory period.”

• Manila Banking Corp. proceeded to extra-judicially foreclose the mortgage covering the Sps.
Maglasang’s properties and emerged as the highest bidder at the public auction for P350k done at
Ormoc City.
• There, however, remained a deficiency on Sps. Maglasang’s obligation to Manila Banking Corp.

• June 24, 1981: Manila Banking Corp. filed a suit to recover the deficiency of P250,601.05 as of
May 31, ‘81 against the estate of Flaviano, his widow Salud and their children.

• RTC-former probate court (Apr. 6, 1987): Directed the Maglasangs to pay Manila Banking Corp.
jointly and severally, P434,742.36 representing the deficiency of the former’s total loan obligation to the
latter after the extra-judicial foreclosure of the REM with interest at the rate of 12% p.a., plus a 4%
penalty charge, reckoned from Sept. 5, 1984 until fully paid + attys. fees (10% of the outstanding
obligation)

• Maglasangs elevated the case to CA on appeal, contending that:

o Remedies available to Manila Banking Corp. under Sec. 7, Rule 86 of ROC are alternative and
exclusive, such that the election of one operates as a waiver or abandonment of the others.

o When Manila Banking Corp. filed its claim against the estate of Flaviano in the proceedings
before the probate court, it effectively abandoned its right to foreclose on the mortgage.

o Even on the assumption that it has not so waived its right to foreclose, it is nonetheless barred
from filing any claim for any deficiency amount.

• July 25, ‘97: During the pendency of the appeal, Flaviano’s widow, Salud, passed away.

• CA (July 20, 2005): Denied Maglasangs’ appeal and affirmed RTC’s Decision.

o Probate court erred when it closed and terminated the intestate proceedings (as seen in its Dec.
14, ‘78 Order) without first satisfying the claims of the creditors of the estate (ie. Manila Banking Corp.)
in violation of Sec. 1, Rule 90 of ROC

o As a consequence, Manila Banking Corp. was not able to collect from the Maglasangs and
thereby was left with the option of foreclosing the real estate mortgage

o Sec. 7, Rule 86 of ROC does not apply since the case does not involve a mortgage made by the
administrator over any property belonging to the estate of the decedent pursuant to PNB v CA.

o Act No. 3135 (“An Act to Regulate the Sale of Property under Special Powers inserted or
annexed to Real-Estate Mortgages”) is applicable which entitles Manila Banking Corp. to claim the
deficiency amount after the extra-judicial foreclosure of the real estate mortgage of Sps. Maglasang’s
properties.

• Maglasang’s MR was subsequently denied; hence, this petition for review on certiorari by Heirs
of Sps. Maglasang

o It is not Act No. 3135 but Sec. 7, Rule 86 of ROC which applies in this case. (same claims as that
raised in CA)

o The extra-judicial foreclosure of the subject properties was null and void, not having been
conducted in the capital of the Province of Leyte in violation of the stipulations in the real estate
mortgage contract.
ISSUES:

1) Whether or not the CA erred in affirming the RTC’s award of the deficiency amount in favor of Manila
Banking Corporation? (YES) [corollarily, Whether Sec. 7, Rule 86 of ROC and not Act. 3135 applies in this
case? (Both apply concordantly)]

2) Whether extrajudicial foreclosure of the subject properties was null and void? (NO)

HELD: The petition is partly meritorious.

RATIO:

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

• Claims against deceased persons should be filed during the settlement proceedings of their
estate. Such proceedings are primarily governed by special rules found under Rules 73 to 90 of the
Rules, although rules governing ordinary actions may, as far as practicable, apply suppletorily

• Among these special rules, Sec. 7, Rule 86 of ROC provides the rule in dealing with secured
claims against the estate.

• Sec. 7, Rule 86 of ROC: Mortgage debt due from estate. – A creditor holding a claim against the
deceased secured by a mortgage or other collateral security, may abandon the security and PROSECUTE
his claim in the manner provided in this rule, and share in the general distribution of the assets of the
estate; OR he may FORECLOSE his mortgage or realize upon his security, by ACTION in court, making the
executor or administrator a party defendant, and if there is a judgment for a deficiency, after the sale of
the mortgaged premises, or the property pledged, in the foreclosure or other proceeding to realize upon
the security, he may CLAIM HIS DEFICIENCY judgment in the manner provided in the preceding section;
OR he may rely upon his mortgage or other security alone, and FORECLOSE the same at any time within
the period of the statute of limitations, and in that event he shall not be admitted as a creditor, and shall
receive no share in the distribution of the other assets of the estate; but nothing herein contained shall
prohibit the executor or administrator from redeeming the property mortgaged or pledged, by paying
the debt for which it is held as security, under the direction of the court, if the court shall adjudged it to
be for the best interest of the estate that such redemption shall be made.

• COVERAGE OF THE RULE: The rule speaks of “A creditor holding a claim against the deceased
secured by a mortgage or other collateral security”, thus it covers all secured claims, whether by
mortgage or any other form of collateral, which a creditor may enforce against the estate of the
deceased debtor.

o It does not narrowly apply only to mortgages made by the administrator over any property
belonging to the estate of the decedent (as claimed by CA). Note though that mortgages of estate
property executed by the administrator are also governed by Rule 89, captioned as “Sales, Mortgages,
and Other Encumbrances of Property of Decedent.”
• PNB v. CA relied by CA did not limit the scope of the rule as it only stated that Sec. 7, Rule 86
equally applies to cases where the administrator mortgages the property of the estate to secure the
loan he obtained. It was a ruling of inclusion and not one which created a distinction.

• Thus, Sec. 7, Rule 86 applies to: A creditor’s claim against the mortgaged property of the
deceased debtor, as in this case AND mortgages made by the administrator, as that in the PNB case.

3 Remedies/Options by Secured Creditor under Sec. 7, Rule 86

• (a) waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim;

• (b) foreclose the mortgage judicially and prove the deficiency as an ordinary claim; and

• (c) rely on the mortgage exclusively, or other security and foreclose the same before it is barred
by prescription, without the right to file a claim for any deficiency

• RULE: These may be ALTERNATIVELY adopted for the satisfaction of his indebtedness. However,
these remedies are distinct, independent and mutually EXCLUSIVE from each other; the election of one
effectively BARS the exercise of the others.

• Bank of America v. American Realty Corporation (w/ respect to real properties): In our
jurisdiction, the remedies available to the mortgage creditor are deemed ALTERNATIVE and not
cumulative. Notably, an election of one remedy operates as a WAIVER of the other.

When Remedy Deemed Elected by Mortgage Creditor

o JUDICIAL FORECLOSURE: Upon the filing of the suit for collection OR upon the filing of the
complaint in an action for foreclosure of mortgage, pursuant to Rule 68 of the 1997 Rules of Civil
Procedure.

o EXTRAJUDICIAL FORECLOSURE: Upon filing of the petition not with any court of justice but with
the Office of the Sheriff of the province where the sale is to be made, in accordance with the provisions
of Act No. 3135, as amended by Act No. 4118.

Third Option includes Extrajudicial Foreclosure

• Third remedy includes the option of extra-judicially foreclosing the mortgage under Act No.
3135, as availed of by Manila Banking Corp. in this case.

Under Extrajudicial Foreclosure by Creditor: No right to Deficiency

• However, the plain result of adopting the last mode of foreclosure is that the creditor waives his
right to recover any deficiency from the estate.

• PNB v CA case, citing Perez v. PNB which overturned earlier Pasno v. Ravina ruling:

o Perez v. PNB reversing Pasno vs. Ravina: After examination, we observe that the dissenting
opinion in our ruling in Pasno v. Ravina is more in conformity with reason and law.

3rd remedy to wit: (3) to rely on the mortgage exclusively, foreclosing the same at any time
before it is barred by prescription, without right to file a claim for any deficiency,
Majority opinion in Pasno v. Ravina, in requiring a judicial foreclosure, virtually wipes out the 3rd
alternative conceded by the Rules to the mortgage creditor, and which would precisely include extra-
judicial foreclosures by contrast with the 2nd alternative.

o The plain result of adopting the last mode of foreclosure is that the creditor waives his right to
recover any deficiency from the estate.

o Following the Perez ruling that the 3rd mode includes extrajudicial foreclosure sales, the result
of extrajudicial foreclosure is that the creditor waives any further deficiency claim.

Act. 3135 vs. Sec. 7, Rule 86: In Tandem (hehe)

• Operation of Act No. 3135 does not entirely discount the application of Sec. 7, Rule 86, or vice-
versa. Rather, the 2 complement each other within their respective spheres of operation.

Sec. 7, Rule 86, ROC Act. No. 3135

Lays down the options for the secured creditor to claim against the estate and, according to
jurisprudence, the availment of the 3rd option bars him from claiming any deficiency amount After
3rd option is chosen (under Sec. 7, Rule 86), the procedure governing the manner in which the extra-
judicial foreclosure should proceed would still be governed by the provisions of Act No. 3135.

Governs the parameters and the extent to which a claim may be advanced against the estate Sets
out the specific procedure to be followed when the creditor subsequently chooses the 3rd option –
specifically, that of extra-judicially foreclosing real property belonging to the estate.

• The application of the procedure under Act No. 3135 must be concordant with Sec. 7, Rule 86 as
the latter is a special rule applicable to claims against the estate.

• At the same time, since Sec. 7, Rule 86 does not detail the procedure for extra-judicial
foreclosures, the formalities governing the manner of availing of the 3rd option – such as the place
where the application for extra-judicial foreclosure is filed, the requirements of publication and posting
and the place of sale – must be governed by Act No. 3135.

Case at Bar

• Manila Banking Corp. sought to extra-judicially foreclose the mortgage of the properties
previously belonging to Sps. Maglasang and, therefore, availed of the third option. Thus, it is now
precluded from filing a suit to recover any deficiency amount as earlier discussed.

• It did not exercise the first option of directly filing a claim against the estate, as Heirs of
Maglasang assert, since it merely notified the probate court of the outstanding amount of its claim
against the estate of Flaviano and that it was currently restructuring the account. (sinama ko lang yung
footnote pero di relevant; ‘yung nakabold ata yung dapat ginawa ng Manila Banking Corp. para sabihing
1st option)

o FOOTNOTE: Manila Banking Corp. did not file a claim against the estate since its notice deviates
from the proper characterization under Sec. 9, Rule 86 of ROC which sets forth the manner through
which a claim against the estate may be filed:
o A claim may be filed by delivering the same with the necessary vouchers to the clerk of court
and by serving a copy thereof on the executor or administrator.

o If the claim be founded on a bond, bill, note, or any other instrument, the original need not be
filed, but a copy thereof with all indorsements shall be attached to the claim and filed therewith.

On demand, however, of the executor or administrator, or by order of the court or judge, the
original shall be exhibited, unless it be lost or destroyed, in which case the claimant must accompany his
claim with affidavit or affidavits containing a copy or particular description of the instrument and stating
its loss or destruction.

o When the claim is due, it must be supported by affidavit stating the amount justly due, that no
payments have been made thereon which are not credited, and that there are no offsets to the same, to
the knowledge of the affiant.

o If the claim is not due, or is contingent, when filed, it must also be supported by affidavit stating
the particulars thereof.

o When the affidavit is made by a person other than the claimant, he must set forth therein the
reason why it is not made by the claimant.

o The claim once filed shall be attached to the record of the case in which the letters testamentary
or of administration were issued, although the court, in its discretion, and as a matter of convenience,
may order all the claims to be collected in a separate folder.

(2) Extra-judicial foreclosure is valid. (di masyado related sa topic but read na din)

• Heirs of Maglasang: Extra-judicial foreclosure of the subject properties was null and void since
the same was conducted in violation of the stipulation in the REM contract stating that the auction sale
should be held in the capital of the province where the properties are located, i.e., Province of Leyte
(Tacloban City sabi sa baba-capital ba ‘to ng Leyte?).

o STIPULATION: It is hereby agreed that in case of foreclosure of this mortgage under Act 3135,
the auction sale shall be held at the capital of the province if the property is within the territorial
jurisdiction of the province concerned, OR shall be held in the city if the property is within the territorial
jurisdiction of the city concerned.

• SC: Disagrees. The stipulation under the REM contract lacks words of exclusivity which would
bar any other acceptable fora wherein the said sale may be conducted. Absent such qualifying or
restrictive words to indicate the exclusivity of the agreed forum, the stipulated place should only be as
an additional, not a limiting venue.

• The venue then would be alternative between that stated in the law or rule governing the action
or the one agreed in the contract. Thus, the stipulated venue and that provided under Act No. 3135 can
be applied alternatively.

• Sec. 2 of Act No. 3135 allows the foreclosure sale to be done within the province where the
property to be sold is situated.
• SEC. 2 of Act No. 3135: Said sale cannot be made legally outside of the province which the
property sold is situated; and in case the place within said province in which the sale is to be made is
subject to stipulation, such sale shall be made in said place or in the municipal building of the
municipality in which the property or part thereof is situated.

• Case at Bar: Auction sale was conducted in Ormoc City, which is within the territorial jurisdiction
of the Province of Leyte, thus there is sufficient compliance with the above-cited requirement.

SUMMARY

• Extra-judicial foreclosure subject of this case was properly conducted in accordance with the
formalities of Act No. 3135. The same was a valid exercise of Manila Banking's third option under
Section 7, Rule 86.

• Manila Banking cannot, however, file any suit to recover any deficiency amount since it
effectively waived its right thereto when it chose to avail of extra-judicial foreclosure as jurisprudence
instructs.
HOME BANKERS SAVINGS & TRUST CO., petitioner, vs. THE HONORABLE COURT OF APPEALS, PABLO
N. AREVALO, FRANCISCO A. UY, SPOUSES LEANDRO A. SORIANO, JR. and LILIAN SORIANO, ALFREDO
LIM and FELISA CHI LIM/ALFREDO LIM, respondents.

Facts: Each of private respondents entered into separate contracts to sell with TransAmerican Sales and
Exposition (TransAmerican) through the latters Owner/General Manager, Engr. Jesus Garcia, involving
certain portions of land covered by Transfer Certificate of Title (TCT) No. 19155, located at Quezon City,
together with one unit three-storey townhouse to be built on each portion.

It is stipulated in their respective contracts that their individual townhouses will be fully completed and
constructed as per plans and specifications and the respective titles thereto shall be delivered and
transferred to private respondents free from all liens and encumbrances upon their full payment of the
purchase price. However, despite repeated demands, Garcia/TransAmerican failed to comply with their
undertakings.

On May 30, 1989, Engr. Garcia and his wife Lorelie Garcia obtained from petitioner Home Bankers
Savings and Trust Company (formerly Home Savings Bank and Trust Company) a loan in the amount of
P4,000,000.00 and without the prior approval of the Housing and Land Use Regulatory Board (HLURB),
the spouses mortgaged eight lots covered by TCT Nos. 3349 to 3356 as collateral.

Petitioner registered its mortgage on these titles without any other encumbrance or lien annotated
therein. The proceeds of the loan were intended for the development of the lots into an eight-unit
townhouse project. Five out of these eight titles turned out to be private respondents townhouses
subject of the contracts to sell with Garcia/TransAmerican.

When the loan became due, Garcia failed to pay his obligation to petitioner. Consequently, petitioner
instituted an extrajudicial foreclosure on the subject lots and being the highest bidder in the public
auction, a certificate of sale in its favor was issued by the sheriff on February 26, 1990. Subsequently,
the sheriffs certificate of sale was registered and annotated on the titles of the subject lots in the
Register of Deeds of Quezon City.

On November 8, 1990, private respondents filed a complaint with the Office of Appeals, Adjudication
and Legal Affairs (OAALA), HLURB, against Garcia/TransAmerican as seller/developer of the property and
petitioner, as indispensable party, for non-delivery of titles and non-completion of the subdivision
project. They prayed for the completion of the units, annulment of the mortgage in favor of petitioner,
release of the mortgage on the lots with fully paid owners and delivery of their titles, and for petitioner
to compute individual loan values of amortizing respondents and to accept payments from them and
damages.

Petitioner filed its Answer contending that private respondents have no cause of action against it; that
at the time of the loan application and execution of the promissory note and real estate mortgage by
Garcia, there were no known individual buyers of the subject land nor annotation of any contracts, liens
or encumbrances of third persons on the titles of the subject lots; that the loan was granted and
released without notifying HLURB as it was not necessary.

Private respondents filed their Reply and a motion for the judgment on the pleadings. Petitioner did not
file a rejoinder. Private respondents filed a manifestation reiterating for a judgment on their pleadings
and asked that the reliefs prayed for be rendered as far as petitioner was concerned. Upon motion of
private respondents, the case against Garcia/TransAmerican was archived for failure to serve summons
on him/it despite efforts to locate his whereabouts or its office. The case was then considered
submitted for decision.

Petitioner filed an appeal with the Board of Commissioners of the HLURB which dismissed the same in a
decision dated June 15, 1992. Petitioner then elevated the case to the Office of the President which
dimissed the appeal and affirming the decision of the HLURB. Petitioners motion for reconsideration was
also denied in a Resolution dated May 7, 1996.

Petitioner filed a petition for review with the CA which, denied the petition and affirmed the decision of
the Office of the President. The CA applied the case of Union Bank of the Philippines vs. HLURB, et al.,
where it was held that the act of a subdivision developer of mortgaging the subdivision without the
knowledge and consent of a unit buyer and without the approval of the National Housing Authority
(NHA, now HLURB) is violative of Section 18 of P.D. No. 957 thus, falling under the exclusive jurisdiction
of HLURB.

The CA upheld the findings of the OAALA, HLURB that private respondents had already entered into
separate contracts to sell with TransAmerican as early as 1988 while it was only in 1989 that spouses
Garcia applied for a loan with petitioner and executed a mortgage contract over the subject lots; that
the proceeds of the loan were purposely intended for the development of a property which was the
same property subject of the contracts to sell; that despite the contracts to sell, Garcia/TransAmerican
did not apprise petitioner of the existence of these contracts nor did petitioner exhaust any effort to
inquire into their existence since petitioner merely relied on the purported clean reconstituted titles in
the name of Garcia; that the mortgage of the subject lots without the consent of the buyers and the
authorization of the HLURB is a clear violation of P.D. No. 957; that the mortgage contract is void and
unenforceable against private respondents.

Issues: WON HLURB has jurisdiction

WON the contract entered into by the parties valid

Held: Yes

Under Section 18 of P.D. No. 957, it is provided that no mortgage on any unit or lot shall be made by the
owner or developer without prior written approval of the authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used for the development of the
condominium or subdivision project and effective measures have been provided to ensure such
utilization. As in the Union Bank, the mortgage was constituted on the subject lots in favor of petitioner
without the prior written approval from the HLURB, thus HLURB has jurisdiction to rule on the validity of
the mortgage

While the cases cited by petitioner held that the mortgagee is not under obligation to look beyond the
certificate of title when on its face, it was free from lien or encumbrances, the mortgagees therein were
considered in good faith as they were totally innocent and free from negligence or wrongdoing in the
transaction. In this case, petitioner knew that the loan it was extending to Garcia/TransAmerican was for
the purpose of the development of the eight-unit townhouses. Petitioner’s insistence that prior to the
approval of the loan, it undertook a thorough check on the property and found the titles free from liens
and encumbrances would not suffice. It was incumbent upon petitioner to inquire into the status of the
lots which includes verification on whether Garcia had secured the authority from the HLURB to
mortgage the subject lots. Petitioner failed to do so. We likewise find petitioner negligent in failing to
even ascertain from Garcia if there are buyers of the lots who turned out to be private respondents.
Petitioner’s want of knowledge due to its negligence takes the place of registration, thus it is presumed
to know the rights of respondents over the lot. The conversion of the status of petitioner from
mortgagee to buyer-owner will not lessen the importance of such knowledge. Neither will the
conversion set aside the consequence of its negligence as a mortgagee.

Section 17 of P.D. No. 957 provides that the seller shall register the contracts to sell with the Register of
Deeds of Quezon City. Thus, it is Garcia’s responsibility as seller to register the contracts and petitioner
should not blame private respondents for not doing so. As we have said earlier, considering petitioner’s
negligence in ascertaining the existence or absence of authority from HLURB for Garcia/TransAmerican
to mortgage the subject lots, petitioner cannot claim to be an innocent purchaser for value and in good
faith. Petitioner is bound by private respondents’ contracts to sell executed with Garcia/TransAmerican.
PHILIPPINE NATIONAL BANK vs. SPOUSES CABATINGAN

G.R. No. 167058

Facts:

Respondent spouses Cabatingan obtained two loans, secured by a real estate mortgage, in the total
amount of P421, 200 from petitioner Philippine National Bank. However, they were unable to 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 properties would 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 on San Pedro St., Ormoc City. Pursuant to the notice, the properties were sold at public auction on
November 5, 1991. 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 Ormoc
for annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991 auction
sale. They invoked 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 hours as required by
law), the consequent sale was void. The RTC ruled in favor of Sps. Cabatingan and annulled the sale of
public auction. Petitioner moved for reconsideration but it was denied. Hence, this petition. Petitioner
contendsthat the RTC erred in interpreting Section 4 of Act 3135. The law only prohibits the conduct of
asale at any time before nine in the morning and after four in the afternoon. Thus, a sale held within the
intervening period (i.e., at any time between 9:00 a.m. and 4:00 p.m.), regardless of duration, is valid.

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.

Held:

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 which effectively safeguards
the rights of both debtor and creditor. Thus, its construction must be equally 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 the intervening 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.
LICERIO LEGASPI and JULIAN SALCEDO vs. DAMASO CELESTIAL

G.R. Nos. L-43673 and 43674 October 24, 1938

Facts:

The plaintiffs brought an action against the defendant in the justice of peace court praying that the
judgment be rendered, ordering that the defendant pay the sum of P556.160. The defendant answered
the complaint admitting that he was disposed to pay the said debt but assailed that the contract
entered between him and the plaintiffs was one of antichresis and that the latter were bound to
account of the products of the salt beds (mortgaged properties). The justice of peace ordered the
defendant to pay the said debt with legal interest from the date when the action was filed.

Plaintiffs then filed another complaint in the Court of First Instance praying that the same defendant
Damaso Celestial be ordered to pay them the sum of P7,637, with the legal interest thereon from the
date of the filing of the complaint, until fully paid, and the costs of the suit, and that, upon his failure to
do so, the mortgage constituted by said defendant in their favor to secure the payment of the loan in
question be ordered foreclosed. The defendant answered the complaint stating that he never refused to
pay the debt but the plaintiffs should have rendered to the defendant an account of the said product of
the mortgaged properties so that they may be applied to the payment of the loan.

Plaintiffs contended that the salt gathered from the 60 salt beds was for the exclusive use, benefit and
enjoyment of the plaintiffs who were not obliged to submit to the defendant a liquidation of the salt
produced and gathered, in order that the same may be deducted from the principal.

Issue: Whether the contract between the parties is that of mortgage or antichresis

Held:

There were two contracts that were entered into by the parties. One was entitled “Contract of
Antichresis” and the other as “Contract of Mortgage”. However, the Court noted that in both contracts,
the defendant Damaso Calestial, as debtor, agrees to turn over to the plaintiffs, as creditors, the
possession of the salt beds so that the latter, after paying the expenses for the production,
administration and harvest of the salt with one-half of the produce, may keep the other half of the use,
benefit and enjoyment. It is not stipulated that the net produce of the salt beds shall first be applied to
the payment of the interest, if any, and afterwards to that of the principal of their credit. Both contracts
merely provide that the creditors shall keep one-half of the products. Therefore, they are not contracts
of antichresis, as defined by article 1881 of the Civil Code.

In a contract of mortgage, the mortgagor, as a general rule, retains the possession of the property
mortgaged as security for the payment of the sum of money borrowed from the mortgagee, and pays
the latter a certain per cent thereof as interest on his principal by way of compensation for his sacrifice
in depriving himself of the use of said money and the enjoyment of its fruits, in order to give them to the
mortgagor. Inasmuch as it is not an essential requisite of the contract of mortgage that the property
mortgaged remain in the possession of the mortgagor (article 1857 of the Civil Code), the latter may
deliver said property to the mortgagee, without thereby altering the nature of the contract. It not being
an essential requisite of said contract of mortgage that the principal of the mortgage credit bear
interest, or that the interest, as compensation for the use of the principal and enjoyment of its fruits, be
in the form of a certain per cent thereof, such interest may be in the form of fruits of the property
mortgage, without the contract's longing thereby its character of a mortgage contract. It is stipulated in
the contracts under consideration that, during the term thereof and while the total amount of the loan
remains unpaid by the debtor, the salt beds constituted as security for the payment of said loan, shall be
administered by the creditors who shall destine one-half of the products thereof for the maintenance
and support of the croppers and the improvements of the property, keeping the other half for
themselves. It appears, therefore, that the debtor, instead of paying a certain per cent of the principal of
the loan as compensation for the sacrifice made by the creditors in depriving themselves of the use of
their principal and the enjoyment of its fruits, so as to give them to the debtor, has delivered to them
the property constituted as a security for the payment of the loan, so that they may administer and use
it, enjoying its fruits, by way of compensation for their said sacrifice in lending said debtor their money.
Therefore, the contracts, which are the subject matter of this action, have all the essential requisites of a
mortgage, enumerated in article 1857 of the Civil Code and, consequently, are mortgage contracts.

From the foregoing considerations, this court is of the opinion and so holds, that when a contract of loan
with security does not stipulate the payment of interest but provides for the delivery to the creditor by
the debtor of the real property constituted as security for the payment thereof, in order that the
creditor may administer the same and avail himself of its fruits, without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards to that of the principal of the credit, the
contract shall be considered to be one of mortgage and not of antichresis.
SPS. ESMERALDO AND ELIZABETH SUICO vs. PHILIPPINE NATIONAL BANK AND CA

G.R. NO. 170215

FACTS:

1. Spouses Suico obtained a loan from PNB secured by a real estate mortgage on real properties in
the name of the former.

2. Sps. Suico failed to pay the obligation prompting PNB to extrajudicially foreclose the mortgage
over the subject properties.

3. Petitioners, thereafter filed a complaint alleging that the extrajudicial foreclosure conducted
and the Certificate of Sale and the Certificate of Finality sale are null and void;

a. During the foreclosure sale, PNB was the lone bidder.

b. The amount of bid is P8,511,000.00.

c. Petitioners alleged that the outstanding obligation is only P1,991,770.38.

d. Since the amount of the bid grossly exceeded the amount of petitioners’ outstanding obligation
as stated in the extrajudicial foreclosure of mortgage, it was the legal duty of the winning bidder, PNB,
to deliver to the Mandaue City Sheriff the bid price or what was left thereof after deducting the amount
of petitioners’ outstanding obligation.

e. PNB failed to deliver the amount of their bid to the Mandaue City Sheriff or, at the very least,
the amount of such bid in excess of petitioners’ outstanding obligation.

4. PNB moved to dismiss citing the pendency of another action between the same properties
where PNB was seeking payment of the balance of petitioner’s obligation not covered by the proceeds
of the auction sale.

5. RTC denied the Motion to Dismiss.

6. PNB asserted, in its answer, that petitioners had other loans which had likewise become due.
PNB maintained that the outstanding obligation of the petitioners under their regular and export-
related loans was already more than the bid price of P8,511,000.00, contradicting the claim of surplus
proceeds due the petitioners. Petitioners were well aware that their total principal outstanding
obligation on the date of the auction sale was P5,503,293.21.

7. RTC – declared the extrajudicial foreclosure null and void.

a. RTC reasoned that given that petitioners had other loan obligations which had not yet matured
on 10 March 1992 but became due by the date of the auction sale on 30 October 1992, it does not
justify the shortcut taken by PNB and will not excuse it from paying to the Sheriff who conducted the
auction sale the excess bid in the foreclosure sale. To allow PNB to do so would constitute fraud, for not
only is the filing fee in the said foreclosure inadequate but, worse, the same constitutes a
misrepresentation regarding the amount of the indebtedness to be paid in the foreclosure sale as
posted and published in the notice of sale. Such misrepresentation is fatal because in an extrajudicial
foreclosure of mortgage, notice of sale is jurisdictional. Any error in the notice of sale is fatal and
invalidates the notice.

8. CA – reversed.

a. Petitioners offered to redeem the properties several times from 6.5M to 7.5M.

b. All those offers made by the [petitioners] not only contradicted their very assertion that their
obligation is merely that amount appearing on the petition for foreclosure but are also indicative of the
fact that they have admitted the validity of the extra judicial foreclosure proceedings and in effect have
cured the impugned defect.

c. Even assuming that indeed there was a surplus and the [PNB] is retaining more than the
proceeds of the sale than it is entitled, this fact alone will not affect the validity of the sale but simply
gives the [petitioners] a cause of action to recover such surplus.

d. Such failure of PNB does not constitute jurisdictional defect.

ISSUE: Whether or not the extrajudicial foreclosure is valid.

HELD: YES

Petitioners argue that since the Notice of Sheriff’s Sale stated that their obligation was only
P1,991,770.38 and PNB biddedP8,511,000.00, the said Notice as well as the consequent sale of the
subject properties were null and void.

It is true that statutory provisions governing publication of notice of mortgage foreclosure sales must be
strictly complied with, and that even slight deviations therefrom will invalidate the notice and render
the sale at least voidable.
Nonetheless, we must not also lose sight of the fact that the purpose of the publication of the Notice of
Sheriff’s Sale is to inform all interested parties of the date, time and place of the foreclosure sale of the
real property subject thereof.

Logically, this not only requires that the correct date, time and place of the foreclosure sale appear in
the notice, but also that any and all interested parties be able to determine that what is about to be sold
at the foreclosure sale is the real property in which they have an interest.

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these
objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if
mistakes or omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to
depreciate the value of the property, or to prevent it from bringing a fair price, such mistakes or
omissions will be fatal to the validity of the notice, and also to the sale made pursuant thereto.

Petitioners failed to convince this Court that the difference between the amount stated in the Notice of
Sale and the amount of PNB’s bid resulted in discouraging or misleading bidders, depreciated the value
of the property or prevented it from commanding a fair price.

Considering the amount of PNB’s bid of P8,511,000.00 as against the amount of the petitioners’
obligation of P1,991,770.38 in the Notice of Sale, is the PNB obliged to deliver the excess? YES.

Section 21 of Rule 39 emphasized that if the amount of loan is equal to the bid, there is no need to pay
the amount in cash. Same provision mandates that in the absence of a third-party claim, the purchaser
in an execution sale need not pay his bid if it does not exceed the amount of the judgment; otherwise,
he shall pay only the excess.

The ratio is that it would be senseless for the Sheriff conducting the foreclosure sale to go through the
ceremony of receiving money and giving it back to the creditor.

Under Rule 68, Section 4, the disposition of the proceeds of the sale in foreclosure shall be as follows:

(a) first, pay the costs

(b) secondly, pay off the mortgage debt


(c) thirdly, pay the junior encumbrancers, if any in the order of priority

(d) fourthly, give the balance to the mortgagor, his agent or the person entitled to it.

Based on the foregoing, after payment of the costs of suit and satisfaction of the claim of the first
mortgagee/senior mortgagee, the claim of the second mortgagee/junior mortgagee may be satisfied
from the surplus proceeds. The application of the proceeds from the sale of the mortgaged property to
the mortgagor’s obligation is an act of payment, not payment by dacion; hence, it is the mortgagee’s
duty to return any surplus in the selling price to the mortgagor.

Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a
custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto if he
fails to do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable
sense, but as far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the
mortgagor or owner of the equity of redemption.

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is
entitled to, this fact alone will not affect the validity of the sale but simply give the mortgagor a cause of
action to recover such surplus.

Given that the Statement of Account from PNB, being the only existing documentary evidence to
support its claim, shows that petitioners’ loan obligations to PNB as of 30 October 1992 amounted to
P6,409,814.92, and considering that the amount of PNB’sbid is P8,511,000.00, there is clearly an excess
in the bid price which PNB must return, together with the interest computed in accordance with the
guidelines laid down by the court in Eastern Shipping Lines v. Court of Appeals.

6% interest – from the time of filing the complaint

12% interest – once the judgment becomes final and executory.

It must be emphasized, however, that our holding in this case does not preclude PNB from proving and
recovering in a proper proceeding any deficiency in the amount of petitioners’ loan obligation that may
have accrued after the date of the auction sale.
ANGELES v. SECRETARY OF JUSTICE

FACTS:

• Angeles spouses filed a criminal complaint for estafa against Mercado, their brother-in-law

o Claimed that Mercado convinced them to enter into a contract of antichresis, to last for 5 years,
covering 8 parcels of land planted with fruit-bearing lanzones trees in Nagcarlan, Laguna and owned by
Juan Sanzo

o The parties agreed that Mercado would administer the ands and complete the necessary
paperwork

o After 3 years, the Angeles spouses asked for an accounting from Mercado, and they claim that
only after this demand for an accounting did thy discover that Mercado had put the contract of
antichresis over the subject land under Mercado and his spouse’s names

• Mercado denied the Angeles spouses’ allegations

o Claimed that there exists an industrial partnership, colloquially known as sosyo industrial,
between him and his spouse as industrial partners and the Angeles spouses as financiers, and that this
had existed since 1991, before the contract of antichresis over the subject land

o Mercado used his and his spouse’s earnings as part of the capital in the business transactions
which he entered into in behalf of the Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because the Angeles spouses did not want
to be identified as the financiers

o Attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his
name for the Angeles spouses

• During the barangay conciliation proceedings, Oscar Angeles stated that there was a written
sosyo industrial agreement: capital would come from the Angeles spouses while the profit would be
divided evenly between Mercado and the Angeles spouses

• Provincial Prosecution Office: first recommended the filing of a criminal information for estafa,
but after Mercado filed his counter-affidavit and moved for reconsideration, issued an amended
resolution dismissing the complaint
• Angeles spouses appealed to Sec. of Justice, saying that the document evidencing the contract
of antichresis executed in the name of the Mercado spouses, instead of the Angeles spouses, and that
such document alone proves Mercado’s misappropriation of their P210, 000

• Sec. of Justice: dismissed the appeal

ISSUE:

W/N a partnership existed between Mercado and the Angeles spouses - Yes

HELD

1. Angeles spouses fail to convince that the Secretary of Justice committed grave abuse of discretion
when he dismissed their appeal. Moreover, they committed a procedural error when they failed to file a
motion for reconsideration of the Sec. of Justice’s resolution, which is already enough reason to dismiss
the case.

2. Angeles spouses allege that they had no partnership with Mercado, relying on Arts. 1771 to 1773 of
the Civil Code.

• The Angeles spouses’ position that there is no partnership because of the lack of a public
instrument indicating the same and a lack of registration with the SEC holds no water

o The Angeles spouses contributed money to the partnership and not immovable property

o Mere failure to register the contract of partnership with the SEC does not invalidate a contract
that has the essential requisites of a partnership. The purpose of registration is to give notice to third
parties.

• Failure to register does not affect the liability of the partnership and of the partners to third
persons, nor does it affect the partnership’s juridical personality

• The Angeles spouses admit to facts that prove the existence of a partnership

o A contract showing a sosyo industrial or industrial partnership

o Contribution of money & industry to a common fund


o Division of profits between the Angeles spouses and Mercado

3. Mercado satisfactorily explained that the Angeles spouses do not want to be revealed as the
financiers, thus the document which was in the name of Mercado and his spouse fail to convince that
there was deceit or false representation that induced the Angeles spouses to part with their money

• Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by the Angeles spouses
against Mercado and Leo Cerayban stated that it was the practice to have the contracts secured in
Mercado’s name as the Angeles spouses fear being kidnapped by the NPA or being questioned by the
BIR as Oscar Angeles was working with the government.

• Accounting of the proceeds is not a proper subject for the present case.